D.L. King & Associates, Inc., No. 189 (February 6, 2003) Docket No. BDPE-2002-03-29-08 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. ) IN THE MATTER OF: ) Docket No. BDPE-2002-03- 29-08 ) D.L. King & Associates, Inc. ) Decided: February 6, 2003 ) 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 If a female business owner were denied financial assistance by a bank and its male agent received the same financial assistance from the same bank, one might reasonably infer that gender discrimination prompted the denial; however, such an inference might be bolstered or rebutted by other evidence. Under the "arbitrary, capricious, or contrary to law" standard of review, the judge cannot substitute his judgment for that of the SBA, so long as the SBA's rationale is reasonable. FINAL DECISION [1] 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.2 The SBA found King ineligible for the 8(a) program because King's President, Donna L. King, is not socially disadvantaged. The case was remanded to the SBA for further consideration of King's eligibility. The SBA again found King ineligible for the 8(a) program. King claims the SBA's determination is arbitrary, capricious, and contrary to law. I disagree and conclude the SBA determination is reasonable. Jurisdiction There is jurisdiction to decide this appeal. 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). Issue Whether the SBA's determination denying King admission into the 8(a) program is arbitrary, capricious, or contrary to law. See 15 U.S.C. Section 637(a)(9)(C); 13 C.F.R. Section 134.406(b). 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, 9. King claimed it is owned, controlled, and managed by Donna L. King, a socially and economically disadvantaged individual. Id. at 7. On November 19, 2001, the SBA declined the application on its initial consideration. AR, Ex. E. On December 31, 2001, King requested the SBA reconsider its application. AR, Ex. D. On February 14, 2002, the SBA reconsidered and again declined King's application. AR, Ex. A (SBA Determination). The SBA concluded that King did not establish that Ms. King was socially disadvantaged. On March 29, 2002, King appealed the SBA Determination. Appeal Petition. On September 9, 2002, the case was remanded to the SBA. Matter of D.L. King & Associates, Inc., SBA No. BDP- 177, at 3 (2002) (Decision and Remand Order). The Decision and Remand Order addressed two problematic issues. First, the SBA's determination did not address all of King's evidence presented to establish that the Bank of New Hampshire (BNH) denied King's application for an increased line of credit because King's owner was a woman. King claimed that, after the line-of-credit denial, King's male accountant was able to secure an increase; and that established that the original denial was due to gender discrimination. The remand ordered the SBA to reevaluate the allegation and explain the rationale for its determination. Decision and Remand Order at 6-7. Second, the SBA was ordered to decide, if King did establish the BNH allegation of gender discrimination, whether it, along with another incident of gender discrimination and evidence of the effect of industry-wide gender discrimination, met the regulatory requirement that Ms. King's social disadvantage be chronic and substantial. Id. at 5, 7 (citing 13 C.F.R. Section 124.103(c)(2)(ii)). On October 7, 2002, the SBA filed and served a new determination. SBA Determination on Remand. SBA Determination on Remand The SBA Determination on Remand stated the SBA considered all of the evidence submitted with King's original application, as well as all of King's evidence submitted with its request for reconsideration. Id. at 1. The SBA chose not to consider evidence that was outside the original administrative record. In accordance with the remand order, accepting additional evidence was discretionary. Decision and Remand Order at 7. The SBA explained that, although its determination did not state it, the SBA had, in fact, considered on reconsideration King's allegation and evidence that its male accountant resubmitted the request and obtained an increase in King's line of credit from BNH. The Determination on Remand states the SBA's analysis of the accountant's statement, the supporting evidence in the administrative record, and the reasons it disagreed with the accountant's conclusions. Thus, the SBA complied with the remand order. This decision will address whether that determination is arbitrary, capricious, or contrary to law. The SBA Determination on Remand reasoned that the mere assertion by King's accountant that he believed King was denied additional credit by BNH because of Ms. King's gender does not establish gender discrimination. The SBA reaffirmed its conclusion that the reasons given in the bank's denial letter (King's financial condition when BNH denied King's application) are reasonable, based on the SBA's own analysis of King's financial statements. Further, the SBA reasoned that despite the increase in King's financial position asserted on reconsideration by King's accountant, King's financial position still did not justify an increase in its line of credit. That King's male accountant later secured an increase in its line of credit did not "convert a legitimate business decision as independently reviewed by SBA into a discriminatory act." SBA Determination on Remand at 2. The SBA noted that King did not indicate whether the accountant and Ms. King submitted the very same application to the bank. Further, King did not submit, although they apparently were readily available, a copy of King's original or resubmitted application for an increased line of credit. Nor did King show how much time passed between the original application and the resubmitted application; thus, it was possible that the loan was approved the second time because of a change in the climate in the banking industry. Id. Accordingly, the SBA found, BNH's increase of King's line of credit after the male accountant resubmitted the application to another loan officer did not establish that the denial was due to gender discrimination. Id. Finally, the SBA determined that, because it continued to find that King did not establish its allegation that BNH discriminated against King, it need not consider whether the allegation, along with another incident and evidence of industry- wide gender discrimination, established King's claim of chronic and substantial social disadvantage. See 13 C.F.R. Section 124.103(c)(2)(ii). Accordingly, the SBA determined Ms. King did not establish her social disadvantage and, therefore, King was not eligible for admission into the 8(a) program. Id. Petitioner's Position King claims the Determination on Remand is arbitrary, capricious, and contrary to law. In support of its claim, King contends that the SBA failed to (1) adequately address its BNH allegation, (2) address the other allegation of gender discrimination, or (3) address the evidence of industry-wide gender discrimination.3 Supplemental Petition. Respondent's Position The SBA contends the Determination on Remand is not arbitrary, capricious, or contrary to law. In support of its contention, the SBA argues that it had considered all of King's relevant evidence on its BNH allegation of discrimination, and that evidence was insufficient to establish BNH denied King's application for an increased line of credit because of gender discrimination. It reasoned that King's financial condition warranted BNH's decision denying a line of credit increase. Thus, the SBA did not need to consider whether Ms. King suffered chronic and substantial social disadvantage. Accordingly, the SBA argues, its determination was reasonable and not arbitrary, capricious, or contrary to law. Answer to Supplemental Petition. Discussion I. Standard of Review 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 was not socially 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 that 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. No Error of Judgment A. SBA determinations must address all substantial claims of social disadvantage and either credit or discredit such claims. Also, the SBA's determination letter or the unredacted administrative record must reflect its rationale, to afford the Petitioner adequate notice and opportunity to address whether the SBA's determination is arbitrary, capricious, or contrary to law; and to permit the Administrative Law Judge to perform a meaningful review of the determination without the need to remand the case to the SBA for a complete determination. The Decision and Remand Order concluded the SBA's determinations regarding all of Ms. King's allegations of gender discrimination, except the BNH claim, were reasonable and not arbitrary, capricious, or contrary to law. Accordingly, the SBA did not have to reexamine them. The SBA had to reexamine only King's BNH allegation. I must address only whether the SBA reevaluated King's BNH allegation as directed by the remand order, and whether the SBA Determination on Remand is arbitrary, capricious, or contrary to law. I conclude that the SBA complied with the remand order and reached a reasonable conclusion that King did not establish, by a preponderance of the evidence, that Ms. King is socially disadvantaged. B. King argues that, because its male accountant obtained an increase in King's line of credit with BNH after its female owner failed to do so, BNH must have discriminated against Ms. King because she is a woman. Absent any other evidence, an inference of gender discrimination may be made. See generally Matter of Bitstreams, Inc., SBA No. BDP-122, at 12-16 (1999) (applicant's candid, credible, and uncontradicted statement requires no corroboration and might establish gender discrimination). However, other evidence, or the lack of other evidence, might prove or disprove gender discrimination. This inference might be bolstered by evidence showing that the only possible explanation for the denial was that the credit application was submitted by a female. Conversely, this inference might be rebutted by evidence showing that reasons other than gender discrimination led to the denial. The SBA Determination on Remand concluded that the evidence of King's financial position rebutted any inference of gender discrimination when BNH denied its request for increased line of credit. First, BNH had cited King's weak financial position as its reason for the denial. Second, after an independent analysis of King's financial position, the SBA had reached the same conclusion as BNH. The SBA reasoned that evidence of a sound financial basis for the denial rebutted the inference that gender discrimination caused the denial. That reasoning is logical and reasonably supports a rational determination that King did not establish gender discrimination. Even if I did disagree with the SBA's rationale, I cannot substitute my judgment for the SBA's as long as the SBA's rationale is reasonable. See Matter of Paragon Dynamics, Inc., SBA No. MSB-486, at 16-17 (1994) (citing State Farm, 463 U.S. at 43). Although the SBA relied solely on its rationale that BNH's original denial was justified, it also correctly noted King had not, in either its 8(a) application or its reconsideration request, stated whether its original loan application and its resubmitted loan application were the same. Further, King did not provide a copy of either. Also, the SBA noted that King did not state how much time passed between the denial and the resubmission, and that a change in the banking industry's lending climate might possibly have come with the passage of time. Such evidence, if available and presented, might have bolstered the inference of discrimination. Without such apparently available evidence, from either King's records or BNH's records, the SBA reasonably concluded that the lack of such evidence rebutted any inference of gender discrimination. See Bitstreams, SBA No. BDP-122, at 15-16 (finding that the SBA properly drew an adverse inference from an applicant's unexplained failure to present apparently available evidence to support its 8(a) eligibility). Accordingly, for the reasons found in the Decision and Remand Order as well as this Final Decision, I conclude the SBA, after weighing all of the evidence in the administrative record and the inferences drawn from that evidence, (1) properly applied the law and regulation to that evidence and (2) reached a reasonable determination consistent with the evidence in the administrative record. Therefore, the SBA made no clear error of judgment in reaching the conclusion that King did not establish by a preponderance of the evidence that Ms. King is socially disadvantaged. Conclusion Respondent Small Business Administration's determination denying Petitioner King's entry into the 8(a) program is NOT ARBITRARY, CAPRICIOUS, OR CONTRARY TO LAW. See 15 U.S.C. Section 637(a)(9)(C); 13 C.F.R. Section 134.406(b). Subject to 13 C.F.R. Section 134.408(c), this is the final decision of the Small Business Administration. See 15 U.S.C. Section 637(a)(9)(D); 13 C.F.R. Section 134.408(a). RICHARD S. ARKOW Administrative Law Judge _________________________ 1 This case is decided pursuant to regulations in effect before September 16, 2002. See 67 Fed. Reg. 47244, 47244 (July 18, 2002) ("Applicability Date"). 2 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). 3 King offers additional evidence in support of its contentions; however, this evidence cannot be considered. See 13 C.F.R. Section 134.406(a), (b). See also 13 C.F.R. Section 134.407. Posted: February, 2003