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Ardmore Consulting Group, Inc. v. Maria Contreras-Sweet

United States District Court, D. Columbia.

August 7, 2015

MARIA CONTRERAS-SWEET, in her official capacity as Administrator, U.S. Small Business Administration, Defendant

For ARDMORE CONSULTING GROUP, INC., Plaintiff: Antonio R. Franco, PILIERO, MAZZA PLLC, LEAD ATTORNEY, Washington, DC; Patrick Trent Rothwell, LEAD ATTORNEY, Washington, DC.

For MARIA CONTRERAS-SWEET, Administrator, U.S. Small Business Administration, Defendant: John Cuong Truong, LEAD ATTORNEY, U.S. ATTORNEY'S OFFICE FOR THE DISTRICT OF COLUMBIA, Washington, DC.

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JOHN D. BATES, United States District Judge.

Ardmore Consulting Group, a firm wholly owned by Vineeta Prabhu, applied for admission into the Small Business Act's 8(a) Program, which provides certain competitive benefits to participants. After considering (and then reconsidering) Ardmore's application, the Small Business Administration concluded that the firm was ineligible for the program. Ardmore then brought this action under the Administrative Procedure Act to challenge the SBA's conclusion, and the parties' cross-motions for summary judgment are now before the Court. For the reasons explained below, the Court will grant summary judgment in favor of the SBA.

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To be eligible for the 8(a) Program, a small business must meet two general requirements. First, the firm must be " unconditionally owned and controlled by one or more socially and economically disadvantaged individuals." 13 C.F.R. § 124.101. And second, it must " demonstrate[] [its] potential for success." Id. Additional SBA regulations give these general requirements more specific content.

A firm has the potential for success if it has been " in business in its primary industry classification for at least two full years immediately prior to the date of its . . . application." Id. § 124.107.[1] To satisfy this two-years-in-business rule, the applicant must provide tax returns for the two previous years " show[ing] operating revenues" in the industry to which it is applying. Id. § 124.107(a). But the SBA's assessment does not end there. The SBA will consider additional factors--such as the applicant's record of performance on previous contracts in the industry where it is applying--when assessing potential for success. See id. § 124.107(c), (d). An applicant that fails to satisfy the two-years-in-business rule may nonetheless be admitted to the program if the SBA, in its discretion, decides to grant the firm a waiver. To be eligible for a waiver, the applicant must be owned by a disadvantaged individual with " substantial business management experience" and have a " record of successful performance" on contracts in the industry where it is applying, among other requirements. See id. § 124.107(b)(1).

Regulations also elaborate on the program's ownership requirements. An individual is prohibited from qualifying her firm for the program if she " has an immediate family member who is using or has used his . . . disadvantaged status to qualify another [firm]." Id. § 124.105(g)(1). The SBA may also waive this prohibition, but only if " the two [firms] have no connections, either in the form of ownership, control[,] or contractual relationships," and if " the individual seeking to qualify the second [firm] has management and technical experience in the industry." Id. And the SBA will apply a presumption against waiver " [w]here the [firm] seeking a waiver is in the same or a similar line of business as the current or former [program participant]." Id.

The program's eligibility and waiver provisions largely depend upon a determination of the applicant firm's primary industry classification. Applicants are classified according to the North American Industry Classification System using the six-digit NAICS " code designation which best describes the [applicant's] primary business activity." [2] Id. § 124.3. The record in this case reflects the SBA's attempt to answer two questions: Which primary industry classification best describes Ardmore's primary business activity? And how does the answer to that question affect Ardmore's eligibility for the program?

Ardmore's initial application offered deeply contradictory evidence about its proper industry classification. Its " Business Profile" supplied the NAICS code

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associated with Data Processing, Hosting, and Related Services.[3] See Joint Appendix Part I [ECF No. 19] (" J.A. I" ) at 72. Its tax returns--or at least some of them--supplied the code for All Other Professional, Scientific, and Technical Services (" All Other Professional Services" ).[4] Joint Appendix Part II [ECF No. 19-1] (" J.A. II" ) at 80-81. Ardmore also submitted a list providing information about its two recent contracts. Each contract was labeled with a new code--one was labelled with the code for Industrial Design Services; the other was labelled with that for Other Computer Related Services. Id. at 8. But in a separate column of the list, Ardmore described the work performed under those contracts as " Engineering Software Development and Implementation" and " Custom Software Development." Id. And the corresponding invoices described Ardmore's work as " IT Consulting Services." See id. at 10-21, 23, 25-29, 31-38. These descriptions match other NAICS codes.

The SBA contacted Ardmore by letter less than two weeks after receiving its initial application. The letter detailed the inconsistencies in the record regarding Ardmore's primary industry classification--also noting that an online database for government contractors listed Ardmore's classification as Janitorial Services--and asked Ardmore to clarify. See J.A. I at 65. The letter also communicated some initial doubt about Ardmore's 8(a) eligibility. Based on the evidence Ardmore had offered to that point, the SBA expressed that Ardmore might operate in a similar line of business as SRM Group, a former 8(a) program participant owned by Ms. Prabhu's husband. See id.

Ms. Prabhu responded in an attempt to clear up the confusion. She claimed that Ardmore's primary classification was Industrial Design Services and attributed the contradictory evidence in the record to errors of various kinds--the inclusion of the code for All Other Professional Services had resulted from an " oversight" made while filling out Ardmore's taxes; inclusion of the code for Janitorial Services arose from technical problems with the government's " obsolete" database. See id. at 70. She also sought to differentiate her husband's firm from Ardmore: " SRM Group primarily works in Janitorial Services and Administrative / ...

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