D.L. King & Associates, Inc., No. BDP-177 (September 9, 2002) Docket No. BDPE-2002-03-29-08 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. ) Docket No. BDPE-2002-03-29-08 IN THE MATTER OF: ) ) D.L. King & Associates, Inc. ) Decided: September 9, 2002 ) Petitioner ) ) APPEARANCES Donna L. King, President, pro se, for Petitioner D.L. King & Associates, Inc. Megan O. Jorns, Esq., David A. Javdan, Esq., General Counsel, for Respondent Small Business Administration. DIGEST Even though admissible and proper for SBA's consideration, statistical and anecdotal evidence of gender discrimination in one or more industries cannot by itself establish social disadvantage. Rather, such evidence can be considered only to the extent that it provides context for, lends credence to, or supports evidence of personal gender discrimination. The SBA's failure to consider all of the relevant evidence on the issue of social disadvantage was a clear error of judgment. When the SBA found an 8(a) applicant established one claim of social disadvantage, found none of the other claims established, and therefore concluded that the applicant did not meet the requirement that applicant's social disadvantage be chronic, the case must be remanded if the SBA erroneously failed to consider all of the evidence relevant to a second claim of social disadvantage. On remand, the SBA must determine (a) whether the applicant established the second claim; and, if so, (b) whether the first and second claims, considered together with the evidence of industry-wide discrimination against women, met the requirement for chronic social disadvantage. DECISION AND REMAND ORDER ARKOW, Administrative Law Judge: Petitioner D.L. King & Associates, Inc. (King), appeals a decision by the Respondent Small Business Administration (SBA) denying it entry into the 8(a) program. [1] The SBA found King ineligible for the 8(a) program because King's President, Donna L. King, is not socially and economically disadvantaged. The SBA failed to consider and address evidence relevant to its claim that the Bank of New Hampshire (BNH) discriminated against Ms. King because of her gender. This failure requires remand to permit the SBA to evaluate this evidence and reconsider its decline of King's application. Jurisdiction Jurisdiction to decide this appeal is proper. See 15 U.S.C. Section 637(a)(9); 13 C.F.R. Section 134.102(j)(1). The appeal is timely. See 13 C.F.R. Section 134.202(a). Issues Whether the SBA failed to consider and address significant evidence relevant to King's application for admission into the 8(a) program. Whether the case should be remanded to permit the SBA the opportunity to evaluate the evidence and reconsider its determination denying King entry into the 8(a) program. Procedural Background King, a remediation services contractor, applied for admission into the 8(a) program on June 30, 2001. Administrative Record (AR), Ex. P at 1, [2] 4. King claimed it is owned, controlled, and managed by Donna L. King, a socially and economically disadvantaged individual. Id. at 2. On its initial consideration, the SBA denied the application on November 19, 2001. AR, Ex. E. On December 31, 2001, King requested the SBA reconsider its application. AR, Ex. D. On reconsideration, the SBA again denied King's request on February 14, 2002; and King appealed that determination on March 29, 2002. AR, Ex. A; Appeal Petition (App. Pet.). Facts In its November 19, 2001, initial denial of King's application for participation in the 8(a) program, the SBA concluded that Ms. King was not socially and economically disadvantaged. AR, Ex. E at 1. The SBA noted that Ms. King based her claim of social disadvantage on her gender. Although acknowledging Ms. King had shown that women, as a group, suffered social disadvantage in the construction and remediation industries, the SBA advised Ms. King that she had to demonstrate that she personally had suffered chronic and substantial social disadvantage by providing specific examples of her social disadvantage. Id. at 2-3. Thus, the SBA concluded that Ms. King's social disadvantage was not established by a preponderance of the evidence. Id. at 3. The SBA provided King another opportunity to establish social disadvantage by presenting evidence of specific incidents of "discrimination" that Ms. King had personally suffered because of her gender. Id. at 4. See 13 C.F.R. Section 124.205. King submitted additional evidence to the SBA, AR, Ex. D; and, on February 14, 2002, the SBA determined that King still had not established Ms. King's social disadvantage. AR, Ex. A at 1. The SBA determined that King did not provide sufficient evidence to show Ms. King is socially disadvantaged due to her gender. It found King's evidence included substantial statistical information indicating the construction industry, especially asbestos, lead, and remedial contracting, was a male-dominated industry. However, it reasoned, that evidence merely lent credibility to King's claim of social disadvantage based upon gender discrimination, but did not establish that Ms. King personally suffered social disadvantage. The SBA found that to establish that women in the construction industry generally suffer discrimination does not, by itself, establish Ms. King's social disadvantage. Id. In so finding, the SBA determined that King had not met the requirement that Ms. King personally suffered social disadvantage with its claims that: (1) Ms. King was the only female invited to a supplier's golf outing, AR, Ex. D at 3; (2) contracts were set aside for 8(a)-eligible contractors, AR, Ex. D at 3, M at 2- 3; (3) King was the only woman-owned bidder for the last eight projects for which it had competed, AR, Ex. Q at 3, D at 15; and (4) King had lost other contracts because of male partnering alignments, AR, Ex. Q at 3-4. Further, the SBA found King had presented evidence that BNH had denied King an increase in its credit line on three occasions because of inadequate net worth, income, and collateral. After the denial, King's male accountant resubmitted the request and obtained a $100,000 line of credit from another BNH loan officer. AR, Ex. D at 16. The SBA's determination found the one rejection letter "submitted to SBA from [BNH] states that it declined [King] credit due to insufficient net worth and income as well as inadequate collateral." AR, Ex. A at 2. The SBA then concluded that its review of King's financial information indicated that "the reasons may have been legitimate based on the firm's relatively short credit history at that time and its leveraged financial status." Id. The SBA also found King had presented evidence that S&R Contracting, Inc. (S&R) awarded a $353,000 contract to a male- owned contractor after S&R's male representative had reached a final negotiated price with King. AR, Ex. M at 2. The SBA found King had provided sufficient information to corroborate its claim, but concluded that this one incident, in approximately three years of King's operations, did not "demonstrate discrimination that is chronic and substantial having a negative impact on [King's] entry or advancement in the business world," AR, Ex. E at 3, A at 2. Petitioner's Position King contends the SBA's determination that Ms. King is not a socially and economically disadvantaged individual is arbitrary, capricious, and contrary to law. First, King argues that the SBA holds, if one does not meet the ethnic profile in the program regulations, one is by definition not socially and economically disadvantaged. App. Pet. at 1. Second, King argues that the very existence, in both government and potential industry partners, of a preference for 8(a)-certified firms subjects Ms. King to social disadvantage by categorically excluding King from competition because, with King ineligible to compete at all, she could not cite specific instances of discrimination in contract awards. Id. at 2. Third, King argues, in effect, that the SBA unreasonably ignored the evidence King had presented concerning the denial of credit by BNH, which later granted a larger credit line on resubmission by King's male accountant. Id. Respondent's Position The SBA argues that its determination that Ms. King is not socially disadvantaged is reasonable. The SBA argues King failed to meet its evidentiary burden to establish, by a preponderance of the evidence, that Ms. King suffered chronic and substantial instances of social disadvantage. Therefore, the SBA argues, its determination is not arbitrary, capricious, or contrary to law. Answer at 6. Discussion I. The SBA's determination must be sustained unless a review of the written administrative record demonstrates the SBA acted arbitrarily, capriciously, or contrary to law in concluding that Ms. King is not socially and economically disadvantaged. See 13 C.F.R. Section 134.406(a), (b). My review of the administrative record is narrow and does not permit me to substitute my own judgment for that of the SBA. I must examine whether the SBA considered all of the facts presented as well as the laws and regulations that guide the decision-making process. Then, I must determine whether the SBA made a clear error of judgment in its decision before I can find the SBA acted arbitrarily, capriciously, or contrary to law. See Motor Vehicle Mfrs. Ass'n of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). A clear error of judgment can be found if the SBA (1) fails to properly apply the law and regulations to the facts of the case, (2) fails to consider an important aspect of the problem, (3) offers an explanation for its determination that runs contrary to the evidence, or (4) provides an implausible explanation that is more than a difference between my views and those of the SBA. In sum, the SBA must articulate a reasonable explanation for its action, including a rational connection between the facts found and its determination. See id. As long as the SBA's determination is reasonable, it must be upheld on appeal. 13 C.F.R. Section 134.406(b). II. To be accepted into the 8(a) program, King must establish that Ms. King, who owns, controls, and manages King, is socially and economically disadvantaged. See 13 C.F.R. Sections 124.101- 124.106. [3] "Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities." 13 C.F.R. Section 124.103(a). Gender is a distinguishing feature that can contribute to social disadvantage. 13 C.F.R. Section 124.103(c)(2)(i). King must establish Ms. King's social disadvantage by showing her claim of discrimination due to gender was based on personal experiences of substantial and chronic social disadvantage in American society. Those personal experiences of social disadvantage must have had a negative impact on her entry into or advancement in the business world. See 13 C.F.R. Section 124.103(c)(2)(ii), (iii). Any relevant evidence, particularly of discrimination in education, employment, or business history, may show the negative impact. 13 C.F.R. Section 124.103(c)(2)(iii). Evidence in any one of these areas may establish social disadvantage. Matter of Bitstreams, Inc., SBA No. BDP-122, at 8 (1999). King's evidence is in the area of business history. King bears the burden of establishing the social disadvantage of Ms. King by a preponderance of the evidence. See 13 C.F.R. Section 124.103(c)(1). This appeal reviews the SBA's determination that King has not met that burden. That determination is reviewed solely on the contents of the administrative record. See 13 C.F.R. Section 134.406(a), (c). III. A. The substance of King's chief argument is that, because of gender discrimination, only one female-owned asbestos remediation business exists in the New England area. Therefore, Ms. King suffers social disadvantage. This argument is without merit. SBA's 8(a) program eligibility regulations for groups, such as women, not presumed socially disadvantaged require an applicant to show that the individual personally suffered social disadvantage. See 13 C.F.R. Section 124.103(c). In other words, an applicant must present evidence of personal experiences of substantial and chronic social disadvantage in American society. 13 C.F.R. Section 124.103(c)(2)(ii). The experience of other persons or even an entire industry is insufficient to establish eligibility for the 8(a) program. King's appeal, in essence, argues that the SBA's regulation wrongly sets the standard for social disadvantage, and that social disadvantage can be established by showing the difficulty women have entering this industry. The SBA's definition of social disadvantage adopts that of the Small Business Act. Small Business Act, Section 637(a)(5) ("Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities."). The regulatory definition of social disadvantage was established after the SBA notified the public of its proposed definition in the Federal Register, requested comments from the public, considered those comments, and then adopted the definition in a final rule published in the Federal Register. That rule is found at 13 C.F.R. Section 124.103(c). See 5 U.S.C. Section 553 (describing informal rule making); 62 Fed. Reg. 43584, 43587 (Aug. 14, 1997) (proposing current standard for establishing social disadvantage). I cannot review whether the SBA has wisely defined social disadvantage to require that it be direct and personal to the applicant, rather than indirect and generalized. King's claims of social disadvantage, for the most part, do not establish that Ms. King personally suffered social disadvantage. For example, her claims that she was the only female invited to a contractor's golf outing, that contracts were set aside for 8(a)-eligible contractors, that King was the only woman-owned bidder for the last eight projects for which it had competed, and that King had lost other contracts because of male partnering alignments do not meet the requirement that Ms. King personally suffer social disadvantage. These examples illustrate only the paucity of women-owned businesses in her industry, not that Ms. King personally suffered social disadvantage. The SBA's conclusion that these examples do not establish social disadvantage by a preponderance of the evidence is reasonable. Even though admissible and proper for SBA's consideration, statistical and anecdotal evidence of gender discrimination in the asbestos, lead, and remedial contracting industries can be considered only to the extent that it provides context for, lends credence to, or supports evidence of personal gender discrimination. See Matter of Informed Decision Services, Inc., SBA No. MSB-518, at 8 (1995). It cannot by itself establish social disadvantage. Here, the administrative record demonstrates that the SBA did consider this evidence and gave it the appropriate weight in reaching its decision. Accordingly, the SBA acted reasonably in assessing this evidence. B. Two of King's claims of personal discrimination warrant further discussion. First, King alleges that BNH denied its request for an increased line of credit because of gender discrimination. The SBA correctly found BNH stated the increase was due to insufficient net worth and income as well as inadequate collateral. In the SBA's view, that rejection appeared legitimate based on the firm's relatively short credit history at that time, as well as its leveraged business status. The SBA, however, did not consider all of the evidence submitted by King on this issue. King presented evidence that its male accountant sought reconsideration of the denial from a different BNH lending officer and received an additional credit line of $100,000. The SBA erred by not considering this relevant evidence that suggests unequal access to credit due to gender discrimination. See 13 C.F.R. Section 124.103(c)(2)(iii)(C). The SBA should have weighed this evidence, along with the other evidence, and then determined whether King proved its claim. Accordingly, the SBA failed to consider relevant facts on this claim. This is a clear error of judgment. See State Farm, 463 U.S. at 43. Second, the SBA acknowledged King provided sufficient information to corroborate its S&R claim, but found that that example did not, by itself, "demonstrate discrimination that is chronic and substantial." IV. Although the SBA found King established discrimination in the S&R example, it concluded that, because it was the only claim of discrimination established, King had not met the requirement that the social disadvantage be chronic. However, the SBA's failure to consider all of the evidence concerning the BNH discrimination claim requires the case be remanded for the SBA to determine (a) whether King established the BNH claim; and, if so, (b) whether the BNH and S&R claims, considered together with the evidence of industry-wide discrimination against women, meet the requirement for chronic social disadvantage. See 13 C.F.R. Section 134.406(e). Conclusion Accordingly, the case is REMANDED to the SBA for further consideration of King's eligibility for admission into the 8(a) program that is not inconsistent with this DECISION AND REMAND ORDER. 13 C.F.R. Section 134.406(e). The SBA is ORDERED to decide (a) whether King established the BNH claim; and, if so, (b) whether the BNH and S&R claims, considered together with the evidence of industry-wide discrimination against women, meet the requirement for chronic social disadvantage. In reaching its decision on King's application, the SBA should consider all of the evidence previously submitted; additionally, it may, but need not, consider evidence in the appeal petition or permit King to present additional evidence on these issues. The SBA determination must state what information it considered in reaching its findings. The SBA is FURTHER ORDERED to file and serve its new determination, along with any additional evidence it considered, no later than October 7, 2002. [4] RICHARD S. ARKOW Administrative Law Judge _________________________ 1 Small Business Act of 1958, Section 8(a), as amended, 15 U.S.C. Section 637(a); 13 C.F.R. Part 124. The purpose of section 8(a) is to "promote the business development of small business concerns owned and controlled by socially and economically disadvantaged individuals so that such concerns can compete on an equal basis in the American economy." 15 U.S.C. Section 631(f)(2)(A). 2 See also 13 C.F.R. Section 121.201 (defining North American Industry Classification System code 562910). 3 But see 13 C.F.R. Section 124.103(b) for admission requirements for members of groups presumed to be socially disadvantaged. 4 See 13 C.F.R. Sections 134.406(e) (providing that remand of an 8(a) appeal will be for a period of 10 working days), 134.103(b) (providing that "the Judge may modify any of the applicable time limits, other than those established by statute and those governing when a case may be commenced"). Posted: January, 2003