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August 28, 1974

DUKE CITY LUMBER CO., et al., Plaintiffs

The opinion of the court was delivered by: RICHEY


 These parties are before the Court on Cross-Motions for Summary Judgment. At issue in this suit is the legality of the 1971 small business timber set-aside program as established by the Memorandum of Understanding *fn1" between the Small Business Administration (SBA) and the United States Department of Agriculture (USDA).

 The Plaintiffs, twelve forest product manufacturing companies, who are ineligible for the program because of their size, *fn2" have asked the Court to declare the program illegal and enjoin its further implementation by the U.S. Forest Service. The Plaintiffs attack the program as an example of an agency's arbitrary and capricious rulemaking overriding considerations of statutory authority, rational decisionmaking, administrative due process, as well as the applicability of environmental statutes, national forest administration statutes and other federal laws. *fn3"

 The Defendants in this case are the Secretary of Agriculture, the Chief of the U.S. Forest Service, and the Small Business Administrator. A number of independent small forest products manufacturers and several associations have been permitted to intervene as Defendants having demonstrated that they have a direct interest in the continuation of the 1971 set-aside program.

 Upon careful consideration of the voluminous pleadings and exhibits filed in this action, as well as the able arguments of counsel, and there being no material fact in issue, the Court will grant the Defendants' Motion for Summary Judgment for the reasons set forth below.


 The 1971 set-aside program and its 1958 predecessor have their roots in the Small Business Act. 16 U.S.C. § 631 et seq. Congress considered small businesses to be the backbone of the American system of private enterprise and free competition. Finding that the nation's economic security and well-being depended upon the continued existence of small business, Congress created the Small Business Administration to assist and protect small businesses in so far as possible. In particular, the SBA was directed to work with other agencies to insure that small businesses received a "fair proportion" of the total sales of government property. 15 U.S.C. § 644(4).

 Pursuant to this directive, in 1958 the SBA and USDA established the mechanism for the first timber set-aside program. *fn4" The program was administered, however, on an ad hoc basis. The Forest Service would reserve a timber sale solely for small business competition, only if a "need" could be factually demonstrated. This proof was often difficult to establish, as any evidence submitted could be rebutted by other interested parties who would not necessarily benefit from a set-aside.

 With the decline in the number of timber purchases by small businesses *fn5" and the increase in the number of acquisitions of small concerns by large companies *fn6" (including the Plaintiffs) the SBA re-examined the set-aside program. The SBA found the 1958 set-aside program to be too ineffective to insure small business a "fair proportion" of national forest timber sales. The procedure for instituting a set-aside sale was cumbersome. *fn7" The program had no definite guidelines for determining either when a timber set-aside was necessary or the volume of timber needed to be set aside. *fn8"

 The present set-aside program modified the 1958 program in three aspects. There is an historical approach for determining "fair share", a five-year time period for determining base average shares of timber purchases, and a triggering mechanism for initiating set-asides.

 The SBA has taken the timber sales of 1966-70 and has computed the percentages of the total volume of timber sold to large and small business respectively in each market area. *fn9" This ratio, based upon a history of actual purchases, sets the framework for the SBA definition of "fair proportion" and it is used in subsequent computations. Every five years, *fn10" the base period percentages in each market area are revised to provide flexibility and reflect current sales. The Agreement, Paragraph 4a, provides, however, that the recomputed percentages cannot be reduced to more than 50% of the original base period of 1966-70.

 The 1971 program retains the 1958 restrictions on small business' resale of timber purchased in a set-aside sale to large business. Forest Service Manual § 2431.12. *fn11" The program does permit large concerns to purchase any set-aside timber which small business fails to purchase. 36 C.F.R. § 221.8. Furthermore, under Paragraph 4b of the 1971 agreement, any such set-aside timber large business purchases is counted toward the base share of small business.

 Despite the agreement's precise triggering mechanism, if a proposed set-aside sale would be inappropriate or work an undue hardship, the sale can be eliminated or triggered upon a different percentage deficiency. *fn12" As a final safety catch, Paragraph 6 of the Agreement permits a set-aside to be withdrawn after it has been programmed, if subsequent events indicate a set-aside sale would not be in the public interest.

 Small business purchases a major portion of its national forest timber in unrestricted sales. In fact, only five per cent of the total volume of national forest timber has been sold at set-aside sales. During the 2-1/2 years that the program has been in effect (January 1971-June 1973), the Forest Service has sold approximately 23 billion feet of sawtimber which falls within the set-aside program. Small business has purchased 11.2 billion feet. However, only 1.3 billion of ...

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