Woerner v. US Small Business Admin.

• Decision Date: 15 June 1990
• Docket Number: Civ. A. No. 89-2674.
• Citation: 739 F. Supp. 641
• Parties: Louise WOERNER, et al., Plaintiffs, v. UNITED STATES SMALL BUSINESS ADMINISTRATION, et al., Defendants.
• Court: U.S. District Court — District of Columbia

739 F. Supp. 641

Louise WOERNER, et al., Plaintiffs, v. UNITED STATES SMALL BUSINESS ADMINISTRATION, et al., Defendants.

Civ. A. No. 89-2674.

United States District Court, District of Columbia.

June 15, 1990.

I. Michael Greenberger, Shea & Gardner, Washington, D.C., for plaintiffs.

Jeffrey T. Sprung, Asst. U.S. Atty., Washington, D.C., for defendants.

MEMORANDUM OPINION

JOYCE HENS GREEN, District Judge.

Presently pending before the Court is plaintiffs' motion for preliminary injunction. Oral argument on the motion was heard on June 11, 1990. Having carefully considered the motion, defendants' opposition, plaintiffs' reply, the administrative record, the argument of counsel, and the entire record in this case, plaintiffs' motion shall be granted in part and denied in part.

I. BACKGROUND

Plaintiffs are Louise Woerner, and L. Woerner, Inc. d/b/a HCR (collectively, "HCR"). HCR is a participant in the Small Business Administration's ("SBA") 28(a) program for socially and economically disadvantaged small businesses.¹ HCR brought this action on September 26, 1989 and filed an amended complaint on December 22, 1989, alleging that SBA and certain of its officers and employees acted arbitrarily and capriciously and contrary to law in violation of the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 701, et seq., violated the Business Opportunity Development Reform Act of 1988 and its implementing regulations, and intentionally discriminated against HCR in the administration of SBA's 28(a) program because of the race and sex of Louise Woerner in violation of the Small Business Act, SBA's regulations, certain civil rights statutes, and the Constitution.

More specifically, HCR asserts that beginning in 1988, SBA engaged in a concerted attempt to injure HCR by (1) frustrating HCR's self-marketing efforts to obtain 28(a) contracts from federal procuring agencies, (2) unduly delaying the processing of contract documents and modifications, and (3) refusing for an inordinate length of time to approve for HCR's business plan additional Standard Industrial Classification ("SIC") Codes. Plaintiffs' amended complaint seeks declaratory relief and an injunction granting HCR an additional year of eligibility in the 28(a) program, disqualifying certain SBA officials from participating in decisions relating to HCR, and requiring timely processing of SIC Code requests and other contract approvals.

Plaintiffs' motion for preliminary injunction does not concern the discrimination claims, nor does it seek an order compelling defendants to grant plaintiffs an additional year of eligibility in the 28(a) program or the disqualification of certain SBA officials. Rather, by the instant motion, plaintiffs seek the following specific relief:

(1) an order requiring SBA to decide within 15 working days after receiving an offering letter identifying a requirement² on behalf of HCR whether it will accept or reject that requirement for the 28(a) program with an explanation of the basis for that decision;

(2) an order enjoining SBA from challenging reasonable SIC Codes designated by federal procuring agencies for requirements offered on behalf of HCR unless SBA

(a) makes a written finding that the SIC Code is clearly incorrect and explains the basis for that decision, and

(b) files an appeal to the head of the procuring agency within 15 working days after receiving the offering letter; and

(3) an order directing SBA to immediately accept into the 28(a) program two requirements recently offered to SBA on behalf of HCR (one by NASA and the other by the Department of Labor) because SBA has waived its right to challenge the SIC Codes for those requirements.

II. DISCUSSION

A preliminary injunction may be granted only when the plaintiff demonstrates (1) a substantial likelihood of success on the merits; (2) that irreparable injury will result in the absence of the requested relief; (3) that no other parties will be harmed if temporary relief is granted; and (4) that the public interest favors entry of a temporary restraining order. Washington Metropolitan Area Transit Commission v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C.Cir.1977); accord, Virginia Petroleum Jobbers Ass'n v. Federal Power Commission, 259 F.2d 921, 925 (D.C.Cir.1958). This test is not a wooden one, for as our court of appeals has noted, relief may be granted "with either a high probability of success and some injury, or vice versa." Cuomo v. United States Nuclear Regulatory Commission, 772 F.2d 972, 974 (D.C.Cir.1985) (per curiam) (emphasis in original). See also Holiday Tours, 559 F.2d at 843.

A. Likelihood of Success on the Merits

1. Challenges to SIC Codes

Under the Small Business Act, 15 U.S.C. §§ 632(a), 634(b)(6), SBA is authorized to determine which business enterprises are to be designated "small business concerns" within an industry. 13 C.F.R. § 121.102. SIC Codes, four-digit numbers which classify and define activities by industry category,³ are used by SBA to determine whether a participating 28(a) firm can perform specific work under a requirement submitted to the 28(a) program by a procuring agency. Once admitted to the 28(a) program, a firm is only permitted to perform 28(a) contracts which are classified under the firm's approved SIC Codes.⁴ The SIC Codes also identify the maximum number of employees or annual receipts allowed for a firm to be considered "small." If a firm grows too large for the limits of a particular SIC Code, it is deemed a large business for that code and is therefore ineligible for 28(a) contracts containing that specific SIC designation.

A requirement for possible award may be identified by SBA, a 28(a) firm, or the procuring agency. When a procuring agency offers a requirement to SBA for inclusion into the 28(a) program, it designates a SIC Code for the work to be performed. In order to accept a requirement into the 28(a) program, SBA must verify the appropriateness of the SIC Code designation assigned by the procuring agency.

Plaintiffs assert that SBA has repeatedly challenged the SIC Codes assigned to requirements offered on behalf of HCR by various federal procuring agencies. Plaintiffs contend that in so doing, SBA has violated its own regulation, 13 C.F.R. § 124.308(b), which provides:

So long as the SIC code assigned to the requirement by the procuring agency contracting officer is reasonable, the SIC Code will be accepted by SBA.... If SBA and the procuring agency are unable to agree as to the proper SIC code designation for the requirement, SBA may refuse to accept the requirement for the 28(a) program, or appeal the contracting officer's determination to the head of the agency pursuant to § 124.320, or SBA may file a SIC code appeal to SBA's Office of Hearings and Appeals.

Plaintiffs also point to the preamble to section 124.308(b) which states that SBA will only refuse to accept a requirement or appeal to its Office of Hearings and Appeals or the federal procuring agency head when the SIC Code designated is "clearly incorrect." 54 Fed.Reg. at 34703.⁵

Plaintiffs point to a number of past requirements for which they assert SBA has refused to defer to the reasonable SIC Codes designated by contracting officials for requirements obtained through HCR's self-marketing efforts. Among the agencies which have offered such requirements are the Health Care Financing Administration ("HCFA"), the United States Marine Corps, the Federal Emergency Management Agency ("FEMA"), the Department of Labor ("DOL"), the Department of Transportation ("DOT"); and the National Institute for Occupational Safety and Health ("NIOSH").⁶ SBA's actions with respect to these contracts, a detailed discussion of which is not necessary here, form the basis of plaintiffs' instant request for a preliminary injunction enjoining SBA from challenging reasonable SIC Codes designated by federal procuring agencies for requirements offered on behalf of HCR unless SBA (a) makes a written finding that the SIC Code is clearly incorrect and explains the basis for that decision, and (b) files an appeal to the head of the procuring agency within 15 working days after receiving the offering letter.

According to plaintiffs, SBA's actions with respect to these requirements are not consistent with Congress' express intent in enacting the Reform Act that SBA should not spend too much time adjudicating technicalities over SIC Codes.⁷ In addition, plaintiffs contend that SBA has refused to give the procuring agencies' SIC Code designation the deference it is due as reflected in the regulation's requirement that SBA accept a SIC Code that is "reasonable," and the preamble's statement that SBA should accept a SIC Code unless it is "clearly incorrect."⁸

Defendants contend that since 1988 (when plaintiffs allege that SBA's delay tactics began), a pattern has developed in which procuring agencies initially select a SIC Code for a requirement for which HCR was nominated, but later change the SIC designation, apparently to accommodate HCR, after the procuring agency finds out that HCR is not eligible to perform the requirement under the original SIC Code.⁹ Furthermore, defendants contend that this court should pay considerable deference to SBA's interpretation of its own regulations, i.e., whether a SIC code submitted by a procuring agency is "reasonable."

Regardless of whether or not SBA's actions with respect to the above requirements were proper, the difficulty with the relief that plaintiffs request—that SBA be ordered to accept all "reasonable" SIC Codes — is that it merely begs the question. That is, directing SBA to approve all SIC Codes that are "reasonable" merely restates what is already required by regulation while offering no guidance whatsoever as to what is or is not "reasonable." A determination of whether a SIC Code is "reasonable" within the meaning of SBA's regulations can only be made on a case by case basis. The contracts referred to above about which pl...