Stellacom, Inc. v. United States

783 F. Supp. 647, 1992 WL 24325
CourtDistrict Court, District of Columbia
DecidedFebruary 21, 1992
DocketCiv. A. 91-1569
StatusPublished
Cited by1 cases

This text of 783 F. Supp. 647 (Stellacom, Inc. v. United States) is published on Counsel Stack Legal Research, covering District Court, District of Columbia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Stellacom, Inc. v. United States, 783 F. Supp. 647, 1992 WL 24325 (D.D.C. 1992).

Opinion

MEMORANDUM OPINION

FLANNERY, District Judge.

This matter comes before the Court on Plaintiffs Motion for Summary Judgment and Defendants’ Motion to Dismiss or, in the Alternative, for Summary Judgment. Plaintiff Stellacom, Inc. (“Stellacom”) challenges a 1989 amendment to a Small Business Administration (“SBA”) regulation defining annual receipts, 13 C.F.R. § 121.-402(b)(2), as being arbitrary, capricious, contrary to law, and in violation of the notice and comment requirements of the Administrative Procedure Act (“APA”). Stellacom seeks a judgment invalidating 13 C.F.R. § 121.402(b)(2) and enjoining SBA from attempting to enforce the regulation against Stellacom, as well as a judgment directing the SBA to return to its prior rule. In addition, Stellacom seeks a judgment declaring Stellacom to be an eligible offeror under a NASA television support services small business set-aside contract for which Stellacom had submitted a bid. For the following reasons, plaintiffs motion will be granted in part and denied in part, and defendants’ cross-motion will be granted in part and denied in part.

I.

A.

The SBA is empowered by Congress to administer a government procurement set-aside program. Under this program, government agencies contract with firms determined to be “small” within the meaning of applicable SBA rules and regulations. 15 U.S.C. § 631(a). The administrator of the SBA has the authority to promulgate regulations necessary to implement the Small.Business Act, 15 U.S.C. § 631, et seq., and the SBA is responsible for the promulgation of regulations that govern whether a business is to be considered “small” for purposes of receiving awards of those contracts that have been set aside for small businesses. 15 U.S.C. § 637(b)(6).

Under SBA regulations, the size of a business concern depends upon its average annual receipts. 13 C.F.R. § 121.401, et seq. In particular, a business will qualify as “small” for purposes of SBA programs if it has less than a specified level of average annual receipts. Id. § 121.402(a). The SBA defines receipts as follows:

Receipts is defined to include all revenue in whatever form received or accrued from whatever source, including from the sales of products or services, interests, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. However, the term “receipts” excludes proceeds from sales of capital assets and investments, proceeds from transactions between a concern and its domestic and foreign officials, proceeds from payments of notes receivable and accounts receivable, amounts collected for another by a travel agent or real estate agent, and taxes collected for remittance to a taxing authority.

13 C.F.R. § 121.402(b)(2) (1991).

Before 1989, the SBA did not count the client billings of an advertising agency— the monies the agency receives from its advertising clients and pays immediately to media vendors, the ultimate providers of advertising services — in its calculation of the agency’s annual receipts. Rather, the SBA only counted the agency’s gross income. Size Appeal of Allmayer, Fox & Reshkin Agency, SBA No. 8 (1961); see also Size Appeal of Morris Travel Corp., SBA No. 2228 (1985) (permitting exclusion of certain client billings of travel agents on ground that travel agent was like an advertising agent). The SBA did so because the gross income of an advertising agency does not include the full amount of these client billings; instead, it only includes the commission made on the client billing. The SBA followed this policy for nearly thirty years. In 1987, the SBA published a proposed amendment to its definition of annual receipts which would have codified its existing policy of excluding client billings of agents from the calculation of annual receipts. In pertinent part, the proposed amendment stated that “the term ‘receipts’ excludes ... amounts collected as an *650 agent for another, such as gross bookings on which a commission is earned (in which case only the commission earned would constitute revenue)_” 52 Fed.Reg. 32870, 32884 (1987) (emphasis added). The SBA explained the amendment thusly:

The definition of revenue would be clarified to exclude receipts collected as an agent for another, such as gross bookings on which a commission is earned (e.g., only the commission earned by a travel agent would constitute revenue and not the value of gross bookings).

Id. at 32871-72.

The final rule adopted, however, limited the exclusion for amounts collected for another to the client billings of travel agents and real estate agents. As set forth above, the final rule defined annual receipts as follows:

Receipts is defined to include all revenue in whatever form received or accrued from whatever source, including from the sales of products or services, interests, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. However, the term “receipts” excludes proceeds from sales of capital assets and investments, proceeds from transactions between a concern and its domestic and foreign officials, proceeds from payments of notes receivable and accounts receivable, amounts collected for another by a travel agent or real estate agent, and taxes collected for remittance to a taxing authority.

13 C.F.R. § 121.402(b)(2) (emphasis added). The rule thus excluded advertising agents from the benefits of the prior policy.

B.

Stellacom, a Texas corporation, is engaged in the business of video film production and television support services. Stella-com has two affiliates: Walter Bennett Communications (“WBC”), an advertising agency, which owns 72% of Stellacom’s stock; and CC & 0, Inc., a wholly-owned subsidiary of WBC. Under the applicable regulation, the SBA uses the revenue of each of these affiliates to calculate Stella-com’s average annual receipts for purposes of determining whether Stellacom is a “small” business. 13 C.F.R. § 121.402(a). As an advertising agency, WBC has a substantial flow of client billings. Under 13 C.F.R. § 121.402(b)(2), these client billings are counted to determine a business’ average annual receipts.

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783 F. Supp. 647, 1992 WL 24325, Counsel Stack Legal Research, https://law.counselstack.com/opinion/stellacom-inc-v-united-states-dcd-1992.