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July 17, 1998


The opinion of the court was delivered by: FRIEDMAN


 Jack Wood Construction Company, Inc. brings this action under the Administrative Procedure Act to challenge the determination of the Department of Transportation affirming the decision of the Arkansas State Highway and Transportation Department ("AHTD") to deny certification to Jack Wood as a Disadvantaged Business Enterprise ("DBE"). Plaintiff claims that the DOT's determination that Jack Wood no longer meets the criteria to continue to participate in the DBE program is arbitrary and capricious, an abuse of discretion or otherwise not in accordance with the law; it therefore requests that the Court set aside the decision and enter a declaratory judgment that the company retain its DBE certification.


 The Department of Transportation's Disadvantaged Business Enterprise program requires state and local recipients of DOT funds to prefer and assist companies owned and run by minorities or women in government contracts. See 49 C.F.R. Part 23. Anticipating that certain individuals might attempt to abuse the program, the DOT promulgated strict eligibility requirements for DBE certification. In particular, the eligibility requirements are meant to prevent businesses which facially appear to be owned and run by minorities or women but in fact are run by non-minority males from unfairly benefiting from the DBE program. See 49 C.F.R. § 23.53(a). State transportation agencies receive applications for the DBE program and grant or deny certification upon consideration of the requirements set forth in the regulations. 49 C.F.R. § 23.53(a). State decisions denying DBE certification may be appealed to DOT. See 49 C.F.R. § 23.55.

 Jack Wood Construction Company is an asphalt paving, highway construction, railroad construction and maintenance and related contracting services firm located in Judsonia, Arkansas. The company was incorporated in 1964 by Jack and Marye Wood, who at the time were the sole shareholders, officers and directors; Mr. Wood was President and his wife was Secretary and Treasurer. In 1980, Mr. Wood transferred some of his shares in the company to his daughter, Martha Wood Tindell, which left Marye Wood as the majority shareholder and the company 72.3% owned by women. Mr. Wood died in 1987, leaving Ms. Wood and Ms. Tindell his 27.7% share in the company. As a result, women have owned 100% of Jack Wood since 1987. Admin. Rec. at 13-14 (Nov. 3, 1995 letter of appeal from Robert A. Mangrum to Antonio J. Califa, DOT).

 Since the company's inception, Marye Wood has been involved in all of the corporate decision-making, including bidding on jobs, marketing, hiring, financing and employee relations. Admin. Rec. at 40 (Nov. 1, 1995 Affidavit of Marye H. Wood). Until his death, Mr. Wood provided the technical expertise for bidding on contracts. Ms. Wood now relies on Mr. T.D. Casey, the company's Vice-President, who has substantial construction and engineering experience, for advice on the technical aspects of the bid preparation process. Id. Ms. Wood, however, has ultimate control over the amount of the final bid. Admin. Rec. at 41. Ms. Wood's daughter, Martha Wood Tindell, has no role in the management of the company. Admin. Rec. at 114, 161.

 Jack Wood Construction first qualified for the Disadvantaged Business Enterprise program in October 1980 when Mr. Wood transferred some of his shares to his daughter. Admin. Rec. at 11. The company was eligible for certification because a majority of its shares were owned by women, even though Mr. Wood, President and chief estimator, foreman and job superintendent, provided the technical expertise. Admin. Rec. at 15. For the next fourteen years, the AHTD continued to certify the firm. Admin. Rec. at 16. In 1994, the Office of the Inspector General for AHTD conducted an on-site inspection of Jack Wood Construction and concluded that Marye Wood, by then President of the company, did not meet the federal certification standards for control and economic disadvantage. Admin. Rec. at 16, 65-68. On April 21, 1995, AHTD held a hearing on the matter so that Jack Wood Construction could rebut the OIG's report. The company presented witnesses and testimony from Ms. Wood, Mr. Casey and others closely involved with the firm. Following the hearing, the AHTD ruled that Jack Wood Construction was ineligible to participate in the DBE program because Marye Wood did not control the company as required by 49 C.F.R. §§ 23.53(a)(3) and (4). Admin. Rec. at 116-17 (May 8, 1995 letter from Jane Wilson, AHTD, to Marye H. Wood). It determined that Mr. Casey, not Ms. Wood, controlled the major decisions of management, policy and operations, particularly in the bidding process. Admin. Rec. at 117. Jack Wood appealed the decision to AHTD on June 1, 1995, and AHTD affirmed its decision to deny certification on June 15, 1995. Admin. Rec. at 120.

 On November 3, 1995, Jack Wood appealed the decision to the U.S. Department of Transportation pursuant to 49 C.F.R. § 23.55. DOT affirmed AHTD's decision, concluding that: (1) T.D. Casey was disproportionately responsible for the firm's operations, citing 49 C.F.R. § 23.53(a)(4), and (2) Marye Wood lacked the background and technical expertise to be able "to independently control the day-to-day operations of [the] business," as required by 49 C.F.R. §§ 23.53(a)(2) and (3).


 A. APA Standard of Review

 This Court may set aside DOT's decision to deny Jack Wood Construction DBE certification only if that decision was arbitrary and capricious, not in accordance with the law or unwarranted by the facts. 5 U.S.C. § 706(2)(A). This standard is highly deferential to the agency:

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.

 Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 28 L. Ed. 2d 136, 91 S. Ct. 814 (1971); see Motor Vehicle Manufacturers Ass'n v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 43, 77 L. Ed. 2d 443, 103 S. Ct. 2856 (1983). "There is a presumption in favor of the validity of administrative action," and courts are particularly deferential when an agency is interpreting its own statute or regulations. Ethicon, Inc. v. FDA, 762 F. Supp. 382, 386 (D.D.C. 1991). The Court's "task is to determine 'whether the agency's decisionmaking was reasoned,' . . . i.e., whether it considered relevant factors and explained the facts and policy concerns on which it relied, and whether those facts have some basis in the record." National Treasury Employees Union v. Horner, 272 U.S. App. D.C. 81, 854 F.2d 490, 498 (D.C.Cir. 1988) (quoting American Horse Protection Ass'n, Inc. v. Lyng, 258 U.S. App. D.C. 397, 812 F.2d 1, 5 (D.C.Cir. 1987)).

 Applying these standards, this Court concludes that the DOT's decision to affirm the denial of DBE certification to Jack Wood Construction Company was arbitrary and capricious and an abuse of discretion. ...

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