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LITTLE v. UNITED STATES

May 29, 1980

DR. HAROLD L. LITTLE, PLAINTIFF,
v.
UNITED STATES OF AMERICA ET AL., DEFENDANTS.



The opinion of the court was delivered by: Robert D. Morgan, Chief Judge.

  DECISION AND ORDER

This action involves the allegedly improper denial of plaintiff's applications for certification in the minority business program of the Small Business Administration (SBA). Before the court at this time is defendants' motion for summary judgment pursuant to Rule 56, F.R.Civ.P. Plaintiff has withdrawn his motion for summary judgment and now asserts that there are substantial and material questions of fact which preclude summary judgment for defendants. Plaintiff and defendants have thoroughly briefed the issues, and extensive materials in support of their respective positions are before the court.

In his complaint, as amended, plaintiff essentially asserts two separate, although related, claims for relief. The first claim seeks judicial review, pursuant to the Administrative Procedure Act (APA), 5 U.S.C. § 701 et seq., of the allegedly improper administrative decision of the SBA. The second claim, based upon the Civil Rights Act of 1870, 42 U.S.C. § 1981, alleges that defendants racially discriminated against plaintiff in denying his applications.

The issue directly before the court, as on any motion for summary judgment, is whether the materials before the court present a genuine issue as to any material fact and whether the moving party is entitled to a judgment as a matter of law. Rule 56, F.R.Civ.P. The moving party has the burden of clearly establishing both of these conditions. All inferences to be drawn from the facts contained in the affidavits, exhibits, and depositions must be drawn in favor of the party opposing the motion. Cedillo v. Int'l. Ass'n. of Bridge & Iron Workers, 603 F.2d 7 (7th Cir. 1979). Applying the foregoing principles, the court finds that there are no genuine issues of fact which require a trial and that as a matter of law defendants are entitled to judgment.

FACTS

Plaintiff is a black American and the sole owner of h. Lorenzo Industries, Inc., a small business concern located in Rock Island, Illinois. Defendants are the United States of America; the SBA; A. Vernon Weaver, National Director of the SBA; and Donna Harrigan, Chicago Regional Director of the SBA. Pursuant to § 8(a) of the Small Business Act, 15 U.S.C. § 637(a), the SBA has established a program (hereinafter cited as the 8(a) program) to aid disadvantaged small business concerns in contracting with the federal government. Eligible businesses are certified by the SBA and receive significant advantages in obtaining federal contracts. The criteria for eligibility are detailed in regulations developed by the SBA, which appear at 13 C.F.R. § 124.1-1(c).

On or about August 23, 1977, plaintiff formally applied to the SBA Chicago office for 8(a) certification. Plaintiff desired this certification in order to do contractual work for the Arsenal at Rock Island, Illinois. At this time in the Rock Island area there were two existing 8(a) certified businesses (Pace Development and Peco), both of which had contracts with the Arsenal for the type of work that plaintiff was interested in performing.

In a letter to plaintiff dated August 26, 1977,*fn1 plaintiff's application was denied, based on six stated considerations. In his deposition testimony, District Director Krueger stated that he did not personally review plaintiff's application, but accepted the recommended disposition appearing in the letter. The letter also advised plaintiff that his application could be reconsidered through a written request which demonstrated that the stated deficiencies had been overcome.

Over the following twenty months, plaintiff continued to express his desire to receive 8(a) certification, took steps to provide a more extensive application to the SBA, and took actions that would allegedly aid his eligibility for 8(a) certification. The latter included resigning from his position as a professor at a local college. Plaintiff states that he was told by David Wilson, an SBA Assistant Director for Procurement Assistance in Chicago, that this resignation was necessary for plaintiff to meet the economically disadvantaged requirement of 8(a) certification. Wilson supervised and was generally responsible for the processing of plaintiff's applications until November 1978, at which time Wilson ceased to work for the SBA. Leonard Harbin, an SBA Minority Small Business Specialist, supervised plaintiff's application subsequent to November 1978. Plaintiff states that during this twenty-month period he received indications from Wilson and John Smith, District Director of the Chicago SBA office, that his application would be approved.

On March 30, 1979, plaintiff's second application was submitted to the Chicago District Review and Evaluation Committee, which unanimously recommended that the application be denied. This recommendation was then forwarded to defendant Harrigan, the SBA Regional Director, who reviewed the Committee's work and concurred in their recommendation. On April 6, 1979, Harrigan forwarded the Committee recommendation and her concurrence to William Clement, Associate Administer for Minority Small Business in Washington, D.C. In a letter of May 10, 1979,*fn2 Clement informed plaintiff that he was ineligible for participation in the 8(a) program. Three specific reasons for plaintiff's ineligibility are stated in this letter. These procedures for evaluation and review of plaintiff's 8(a) application appear to comply with SBA regulations and are not specifically challenged by plaintiff. Plaintiff filed this action on April 20, 1979, prior to his receipt of the letter denying his second application.

I.

A.

With respect to plaintiff's claim for judicial review of the administrative decision of the SBA, the original complaint sought injunctive and declaratory relief, as well as monetary damages. Plaintiff has withdrawn his claim for injunctive relief in light of the express prohibition of such relief in the Small Business Act.*fn3 While this provision precludes injunctive relief, it does waive sovereign immunity with respect to other types of relief. Plaintiff may assert his claims for declaratory relief, 28 U.S.C. § 2201, 2202; Mar v. Kleppe, 520 F.2d 867 (10th Cir. 1975); S.C.L.C. v. Connolly, 331 F. Supp. 940 (E.D.Mich. 1971); Pottharst v. SBA, 329 F. Supp. 1142 (E.D.La. 1971); American Electric v. U.S., 270 F. Supp. 689 (D.Hawaii 1967); and monetary damages, Mar v. Kleppe, supra; Romeo v. U.S., 462 F.2d 1036 (5th Cir. 1972), cert. denied, 410 U.S. 928, 93 S.Ct. 1361, 35 L.Ed.2d 589 (1973); Pottharst v. SBA, supra; Simpkins v. Davidson, 302 F. Supp. 456 (S.D.N.Y. 1969).

Pursuant to 28 U.S.C. § 1331, the federal question necessary for jurisdiction here over this claim arises under the Small Business Act, 15 U.S.C. § 631 et seq. Contrary to arguments made by plaintiff in his memoranda, the APA does not provide an independent grant of jurisdiction for this court to review the SBA's actions. Califano v. Sanders, 430 U.S. 99, 97 S.Ct. 980, 51 L.Ed.2d 192 (1977). As a person adversely affected or suffering legal wrong because of agency action, the APA does provide plaintiff with standing to seek judicial review of the SBA's decision, 5 U.S.C. § 702.

The two express exceptions to judicial review under the APA, 5 U.S.C. § 701(a)(1) and (2),*fn4 do not apply to the agency action in this case. There is no statutory prohibition precluding court review of the SBA's action, except as noted above with respect to injunctive relief; and while the SBA's decision did involve a certain amount of discretion, it was insufficient to bring the action within the narrow scope of the agency discretion exception to judicial review.*fn5

The proper standard of review to be applied is determined by the nature of the agency action which is under review, 5 U.S.C. § 706. Plaintiff asserts that the court should conduct a de novo review of the facts because of the agency's allegedly inadequate factfinding procedures and the adjudicatory nature of the decision, 5 U.S.C. § 706(2)(F). Defendants assert that review by the court is limited to the much narrower test of whether the action was arbitrary or capricious, 5 U.S.C. § 706(2)(A). Both parties agree that the principles established in Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971), determine the proper standard of review to be applied.

Overton Park, at page 415, 91 S.Ct. at page 823, states that "de novo review is authorized when the action is adjudicatory in nature and the agency factfinding procedures are inadequate." Specific factors, relied upon by plaintiff to demonstrate the inadequacy of the factfinding procedures in this case, are the short evaluation period for his first application and the allegedly inadequate investigation by Harbin with respect to the factors relied upon in the second denial.*fn6

It does not appear to this court that the SBA's factfinding procedures were inadequate. Both denial letters sent to plaintiff state definite relevant factors as the bases for the denials. The full factual record supports the SBA's determinations with respect to these factors. Plaintiff has not demonstrated that there exist any factual errors in the SBA's findings. The fact that the SBA's procedures resulted in correct factual findings strongly supports the view that the procedures were adequate. Additionally, from the deposition testimony of Harbin, it does appear that he conducted a factual investigation on plaintiff's application. The fact that Harbin did not personally participate in all aspects of the investigation, but rather relied on subordinates and other personnel, does not undermine the sufficiency of the procedures. Plaintiff has not shown that the agency factfinding procedures were inadequate and consequently a de novo review of the facts by this court pursuant to § 706(2)(F) is unwarranted.

Rejecting de novo review, the proper standard to be applied is whether the agency action, findings, and conclusions are arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, § 706(2)(A). However, in applying this standard, plaintiff argues that the court needs to take further evidence because of alleged inconsistencies between the administrative file and the materials presented by plaintiff in opposition to summary judgment. Plaintiff is mixing the facts with judgments based on those facts. The alleged inconsistencies arise from disagreements on conclusions drawn from the facts, rather than actual conflicting factual assertions. Based on the extensive materials in the SBA file and the other materials presented by the parties, the court need not take further evidence in order to fully review the SBA's actions under the applicable APA standard.*fn7 Review under this standard is fully outlined in the Overton Park opinion:

    "Section 706(2)(A) requires a finding that the
  actual choice made was not `arbitrary, capricious, an
  abuse of discretion or otherwise not in accordance
  with law.' To make this finding the court must
  consider whether the decision was based on a
  consideration of the relevant factors and whether
  there has been a clear error of judgment. Although
  this inquiry into the facts is to be searching and
  careful, the ultimate standard of review is a narrow
  one. The court is not empowered to substitute its
  judgment for that of the agency." (citations omitted)
  401 U.S. at 416, 91 S.Ct. at 823-824.

B.

i.

In reviewing the administrative decisions of the SBA, the court places primary reliance on the two denial letters as supported by the administrative file. These letters were sent to plaintiff to notify him of the SBA's decisions and the bases thereof. These letters are not simply form rejections, but present specific reasons in support of the decisions. The content of the letters establishes the substantive factors relied on by the SBA in denying plaintiff's applications. In determining whether the SBA's actions were arbitrary or capricious, the court must analyze and give significant weight to the factors expressly relied upon by the SBA. However, review is not necessarily limited to those factors and the court has considered the entire factual contexts of the SBA's decisions.

The statute which authorizes the 8(a) program includes the following provision:

    "No small business concern shall be deemed eligible
  for any assistance pursuant to this subsection unless
  the Administration determines that with contract,
  financial, technical, and management support the
  small business concern will be able to perform
  contracts which may be awarded to such concern under
  paragraph (1)(C) and has reasonable prospects for
  success in competing in the private sector."
  15 U.S.C. § 637(a)(7).

In light of this statutory provision it appears that the SBA considered proper factors in arriving at its decisions. The extent of available government contracts, the existence of work in the private sector, and the operational capabilities of the small business firm, which in general are the considerations appearing in the denial letters, are factors reflected in this statutory mandate to the SBA. Having found that the SBA considered proper factors, the court must determine whether the result reached by the SBA in considering these factors was arbitrary or capricious. To this end the court will go through the factors stated in the letters of denial and discuss the bases for them in relation to the facts.

ii.

The letter denying plaintiff's first application contains six stated considerations. The first is that there was insufficient contract support in the area of technical writing, which was plaintiff's proposed area of expertise. Plaintiff has presented evidence that the current 8(a) firms had substantial amounts of work in the technical writing area and that he was told by Colonel Payne of the Arsenal that more 8(a) certified firms were needed for this work.

The fact that there was substantial work for the current firms does not indicate that there was sufficient work available to adequately support additional firms, especially in light of the relatively poor profitability of the current 8(a) firm.*fn8 The competitive effect of an additional firm in the market could lessen the profitability and viability of the current firms, as well as limiting the prospects of a new firm. The SBA's ...


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