Cognitive Professional Services Inc. v. U.S. Small Business Administration
254 F. Supp. 3d 22
| D.D.C. | 2017Background
- CPS applied to SBA in March 2014 for admission to the Section 8(a) Business Development program; SBA denied the application in November 2014 and affirmed denial on reconsideration.
- SBA denied admission for multiple reasons, most relevantly: (1) CPS lacked the "potential for success" under 13 C.F.R. § 124.107 (failed two‑years‑in‑business rule and waiver conditions), and (2) CPS’s owner, Cassandra Coleman, was not economically disadvantaged because her three‑year average AGI exceeded $250,000.
- CPS sought reconsideration, provided additional materials (including a waiver request and financials), and appealed to OHA; OHA dismissed for lack of jurisdiction, making the denial the agency’s final action.
- CPS sued under the APA and the Small Business Act, arguing (a) the § 124.107 regulation and SBA’s application of it conflict with the statute because SBA must determine prospects for success "with" agency support, (b) SBA erred factually in denying the waiver and potential‑for‑success finding, and (c) SBA misapplied its AGI exclusion rule when calculating Coleman’s income.
- The district court reviewed cross‑motions for summary judgment under APA standards, concluding SBA’s regulation and findings were permissible, supported by substantial evidence, and consistent with the regulation’s unambiguous text.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 13 C.F.R. § 124.107 (potential‑for‑success rule) and SBA's denial procedure conflict with the Small Business Act | The Act requires SBA to make an express determination that the applicant has "reasonable prospects for success with contract, financial, technical, and management support from the Agency," but the regulation/denial omitted that evaluation | The Act is silent on the precise form or procedure of the agency's prospects‑for‑success inquiry; SBA may adopt reasonable regulatory criteria and deny based on those criteria | Court: Act is silent; Chevron Step Two deference applies; § 124.107 and SBA's application are permissible and not contrary to the statute |
| Whether SBA must evaluate an applicant's prospects specifically "with" SBA support (business‑development focus) | SBA must assess whether the applicant would succeed with SBA support; focusing on existing capacity improperly shifts burden to applicants | SBA reasonably adopted criteria focused on demonstrated industry performance and capabilities to ensure admitted firms are viable; business‑development does not prohibit assessing readiness | Court: Statute does not mandate a particularized "with‑agency‑support" inquiry; SBA's criteria reasonably implement the statutory requirement |
| Whether SBA's denial re: potential for success (denial of two‑year waiver) was supported by the record | CPS provided evidence (resume, waiver letter, financials) showing performance and ability to meet waiver conditions; SBA should have granted waiver | Record lacked evidence of completed contracts or a track record in CPS’s declared primary NAICS; SBA reasonably found waiver conditions unmet | Court: Substantial evidence supports SBA's refusal to grant the waiver; denial of potential‑for‑success upheld |
| Whether SBA improperly included income from Harvest in Coleman’s AGI (economic disadvantage) | Income Coleman received from Harvest should be excluded under 13 C.F.R. § 124.104(c)(3)(ii) because it was reinvested; excluding it would drop her AGI under the $250,000 threshold | The regulation excludes income only if received from the applicant or Participant S‑corp/LLC/partnership; Harvest was not the applicant/Participant, so exclusion unavailable | Court: Regulation unambiguous; SBA correctly included the Harvest income; economic‑disadvantage finding upheld |
Key Cases Cited
- DynaLantic Corp. v. U.S. Dep't of Def., 885 F. Supp. 2d 237 (D.D.C. 2012) (describing 8(a) program benefits and purpose)
- Rothe Dev., Inc. v. Dep't of Def., 107 F. Supp. 3d 183 (D.D.C. 2015) (context on remedial purpose of 8(a) program)
- Larry Grant Constr. v. Mills, 956 F. Supp. 2d 93 (D.D.C. 2013) (noting desirability of 8(a) admission and sole‑source awards)
- Ardmore Consulting Grp., Inc. v. Contreras‑Sweet, 118 F. Supp. 3d 388 (D.D.C. 2015) (explaining two‑years‑in‑business requirement and tax‑return evidence)
- Motor Vehicle Mfrs. Ass'n v. State Farm, 463 U.S. 29 (U.S. 1983) (arbitrary and capricious review standard)
- Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (U.S. 1984) (agency deference framework)
- Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156 (U.S. 2012) (limits on deference to agency interpretations of its own rules)