PETITION FOR RECONSIDERATION OF: WOLVERINE WORLD WIDE, INC., PETITIONER
SBA No. SIZ-3, 20162016 WL 1611375April 18, 2016
SBA No. SIZ-3, 2016 (S.B.A.), 2016 WL 1611375
Small Business Administration (S.B.A.)
Office of Hearings and Appeals
*1 PETITION FOR RECONSIDERATION OF: WOLVERINE WORLD WIDE, INC., PETITIONER
*1 SBA No. SS-3
*1 Petition for Reconsideration of SBA No. SS-2
*1 April 18, 2016
*1 Robert K. Tompkins, Esq.
*1 Christine Walz, Esq.
*1 Gordon Griffin, Esq.
*1 Holland & Knight, LLP
*1 Washington, D.C.
*1 For Petitioner
*1 Sam Q. Le, Esq.
*1 Office of General Counsel
*1 U.S. Small Business Administration
*1 Washington, D.C.
ORDER DENYING REQUEST FOR RECONSIDERATION
A. Prior Proceedings
*1 On February 26, 2016, Wolverine World Wide, Inc. (Petitioner) filed a petition for reconsideration of the U.S. Small Business Administration (SBA) Final Rule 3245-AG50, published at 81 Fed. Reg. 4469 (Jan. 26, 2016), in which SBA set the size standard for North American Industry Classification System (NAICS) code 316210, Footwear Manufacturing, at 1,000 employees. Petitioner contended that the size standard should instead be 500 employees. Petitioner acknowledged, however, that it is not a small business under either the 1,000-employee standard or the 500-employee standard. (Petition at 3.)
*1 On March 2, 2016, OHA dismissed the petition without prejudice because “OHA has not yet promulgated the procedural regulations necessary to adjudicate such petitions.” Petition for Reconsideration of Wolverine World Wide, Inc., SBA No. SS-2, at 1 (2016). OHA explained that “Petitioner may refile the matter within 30 days after OHA has published the necessary procedural regulations in 13 C.F.R. Part 134 to administer these petitions.” (Id.)
B. Request for Reconsideration
*1 On March 18, 2016, Petitioner requested reconsideration of OHA's decision. Petitioner maintains that the decision is contrary to law because the 2016 National Defense Authorization Act (NDAA) immediately vested OHA with jurisdiction to hear petitions of size standard changes. According to Petitioner, “[t]he law does not contemplate OHA adopting new regulations and procedures before it begins affording the American public the right to have their cases heard.” (Request at 4.)
*1 Petitioner argues further that OHA's decision lacks a rational basis and is arbitrary and capricious because Congress directed OHA to “use the same process it uses to decide challenges to the size of a small business concern to decide a petition for review [of a size standard.]” (Id. at 1, quoting 15 U.S.C. § 632(a)(9)(C).) In Petitioner's view, “OHA's established procedures for adjudicating size determinations are more than adequate for the adjudication of [size standard petitions].” (Id. at 2.)
C. SBA Response
*2 On April 4, 2016, SBA responded to Petitioner's request. SBA asserts that OHA correctly dismissed the petition because “OHA's existing regulations and processes are insufficient to resolve the petition fairly.” (Response at 4.) In particular, SBA asserts, new regulations are necessary in order to address “issues of standing, public notification, intervention, filing, documentation, finality, and effect on solicitations.” (Id. at 8.)
*2 First, under OHA's existing regulations for size appeals, Petitioner itself would have been precluded from bringing this petition because Petitioner is not a small business under the 1,000- employee standard or the 500-employee size standard Petitioner advocates. Petitioner therefore would lack standing because it is not adversely affected by the change in the size standard. (Id. at 4, citing 13 C.F.R. § 134.302(a).)
*2 Next, OHA's current size appeal regulations contain no mechanism for OHA to notify all interested parties that a size standard petition is pending. OHA's regulations for size appeals require that SBA, the procuring agency, the protester, and the challenged firm be notified of an appeal. 13 C.F.R. § 134.305. In the case of reconsideration of a size standard, though, there is no procuring agency, protester, or challenged firm. There are, however, other potentially interested parties, such as government contractors that may be adversely affected by a change in the applicable size standard. These other parties have received no notice that Petitioner is seeking reconsideration, and have been afforded no opportunity to present argument to OHA. As a result, if size appeal regulations were used, “[v]endors not participating in the proceeding could be ultimately stripped of their small business status without due process.” (Response at 5.)
*2 Third, under OHA's size appeal regulations, many interested parties may lack standing to intervene because, based on OHA precedent, they have no “direct stake” in the outcome. (Id., citing Size Appeal of Magnum Opus Techs., Inc., SBA No. SIZ-5372 (2012).) SBA contends in particular that contractors with fewer than 500 employees should have standing to respond to this petition, but under the size appeal regulations, they could not do so. (Id.)
*2 Fourth, the size appeal regulations have other requirements, which Petitioner cannot satisfy. For example, a valid size appeal must identify the applicable solicitation or contract number, and the name, address, and telephone number of the contracting officer, and it must be filed within 15 calendar days after receipt of a formal size determination. (Id. at 6.) None of these requirements exist in the context of a size standard petition for reconsideration.
*3 Fifth, the size appeal regulations require OHA to review the “entire case file.” 13 C.F.R. § 134.306(a). Here, though, a rulemaking is at issue, rather than a specific case, so there is no case file available to review. Alternatively, ordering that SBA submit all documentation supporting its rulemaking would be “shockingly overbroad, unnecessarily expensive, and needlessly time- consuming,” because SBA addresses multiple size standards in any given rulemaking. In this regard, then, attempting to apply § 134.306(a) to size standard petitions “would result either in no submission at all— because SBA does not create a case file for its rulemakings—or an overbroad submission with documentation for hundreds of [size standard] reviews when only one is at issue.” (Response at 6.)
*3 The sixth reason the size appeal regulations are unfitting is that OHA's decision cannot constitute the “final decision of the SBA” that “becomes effective upon issuance,” as 13 C.F.R. § 134.316(d) provides. OHA lacks authority to establish or alter a size standard; only the SBA Administrator may do so. (Id. at 7, citing 15 U.S.C. § 632(a).) SBA predicts that, once a process for size standard petitions for reconsideration is defined and implemented, “OHA will at most be able to direct SBA's Office of Size Standards to reconsider the challenged size standard, given the instructions set forth in OHA's decision and under the SBA's Size Standards Methodology that Office uses for determining the appropriate size standard.” (Id.)
*3 Lastly, SBA contends that there would be uncertainty in the small business contracting community if OHA were to utilize its size appeal regulations to adjudicate size standard petitions. For instance, procuring agencies and prospective offerors need to know which size standard is in effect at any given time, and how SBA will implement an OHA decision that finds a size standard deficient. Absent such guidance, procuring agencies may be unable to count certain procurements as awards to small businesses; prospective offerors may be uncertain whether they are eligible to compete for new work; and firms in SBA's other socioeconomic programs may lose their status. (Id. at 6-7.)
D. Petitioner's Reply
*3 On April 7, 2016, Petitioner moved to reply to SBA's response, contending that “[n]one of SBA's seven arguments has merit.” (Motion at 1.) In OHA practice, a reply to a response is ordinarily not permitted, unless OHA so directs. 13 C.F.R. § 134.206(e). OHA did not request the instant reply. Accordingly, Petitioner's motion is DENIED and the reply is EXCLUDED from the record.
*4 Petitioner's contentions fail for two reasons.
*4 First, contrary to Petitioner's suggestions, OHA does require new procedural regulations in order to begin processing size standard petitions. The relevant portion of the statute, 15 U.S.C. § 632(a)(9), is not detailed, consisting of only five complete sentences. Moreover, while the statute does state that OHA “shall use the same process it uses to decide challenges to the size of a small business concern to decide a petition for review pursuant to this paragraph”, there are, as SBA emphasizes in its response, numerous differences between size standard petitions and size appeals which would make it impossible for OHA to simply adopt the size appeal regulations. In addition, the legislative history of 15 U.S.C. § 632(a)(9) reveals that the statute alone does not completely embody Congress' intent as is relates to the process for adjudicating size standard petitions. For example, the legislative history indicates that a petitioner must be a “small business” and that “OHA judges would not be required to determine the correct size standard, but only to ensure that SBA followed the proper process to derive the size standard.”1 Such issues, though, are not mentioned within the text of the statute itself. Accordingly, it is imperative that OHA promulgate new procedural regulations for size standard petitions so that all interested persons will understand specifically how such matters will be adjudicated at OHA. Read in this context, the statutory directive that OHA “use the same process” for size standard petitions that it uses for size appeals can be understood to mean that OHA must adhere as closely as possible to its existing and proven size appeal regulations, but not that OHA must import its size appeal regulations verbatim to adjudicate size standard petitions.
*4 The instant petition itself illustrates why new procedural regulations are essential. As discussed above, based on the legislative history of 15 U.S.C. § 632(a)(9), Congress apparently contemplated that a size standard petition could only be initiated by a small business and that OHA would not attempt to determine the correct size standard. The petition here, though, contravenes this guidance because Petitioner admits that it is not a small business, and because Petitioner asks OHA to impose a new, 500-employee size standard. Section I.A, supra. Thus, without new regulations to elucidate the process for adjudicating size standard petitions, it is unclear whether Petitioner has standing to bring the instant petition or whether OHA can grant the relief requested.
*4 Second, even if OHA were persuaded that it can, and should, begin to adjudicate size standard petitions immediately, Petitioner is not harmed by OHA's ruling to the contrary. As noted above, OHA's dismissal of this matter was without prejudice, and OHA specifically stated that the petition could be refiled “within 30 days after OHA has published the necessary procedural regulations in 13 C.F.R. Part 134 to administer these petitions.” Section I.A, supra. Furthermore, the statute itself stipulates that a party aggrieved by a change of size standard need not pursue a size standard petition at all before proceeding to federal court. See 15 U.S.C. § 632(a)(9)(D) (“Filing a petition for reconsideration under subparagraph (A) shall not be a condition precedent to judicial review of any such size standard.”). Thus, Petitioner is not harmed by OHA's decision because Petitioner either may refile its petition at OHA at the appropriate time, or may seek judicial review without waiting to exhaust its administrative remedies at OHA.
*5 For the above reasons, I DENY the request for reconsideration of OHA's dismissal and AFFIRM the decision in Petition for Reconsideration of Wolverine World Wide, Inc., SBA No. SS-2 (2016).
U.S. House of Representatives, Committee on Small Business, Subcommittee on Contracting and Workforce, Hearing Memorandum, Sizing Up Small Business: SBA's Failure to Implement Congressional Direction, at 14 (June 4, 2015) available at: http://smbiz.house.gov/uploadedfiles/6-4-2015_hearing_memo.pdf.
SBA No. SIZ-3, 2016 (S.B.A.), 2016 WL 1611375
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