Court tosses case against SBA for awarding billions in small business contracts to Fortune 500 firms
Court tosses case against SBA for awarding billions in small business contracts to Fortune 500 firms
By Tara Mapes
Northern California Record
November 3, 2016
SANFRANCISCO - The American Small Business League's (ASBL) request for aninjunction against the Small Business Administration (SBA) for giving federalcontracts to Fortune 500 firms was thrown out by the Northern District ofCalifornia Oct. 18, 2016.
OnMay 3, 2016, the ASBL filed for an injunction against the SBA asking the courtto prevent it "from continuing to misrepresent the attainment of small businesscontracting goals to Congress and the American public."
Inits complaintthe ASBL contends the Small Business Act was enacted to promote the publicpolicy of "preserving and promoting a competitive free enterprise economicsystem" by ensuring that a reasonable amount of federal contracts are awardedto small businesses, and small enterprises owned by women, minorities, veteransand disadvantaged entrepreneurs. It claims the SBA is awarding contracts toFortune 500 firms rather than small businesses.
ASBLalleges the SBA used creative accounting in its reports to show it was meetingthe threshold of contracts awarded to small businesses when, according to SBAreports, it awarded $276 billion in federal contracts to large businesses in2015. An amount the ASBL claims is 90 percent of the federal contracts awardedby the SBA for the fiscal year.
"TheSBA has released an annual goaling report, the SBA's assertion that thepercentage of the total value of all prime contract awards awarded to smallbusinesses met or exceeded the congressional mandate of 23 percent is false.Although the language of the statute is crystal clear, every year the SBAredefines 'total value' as meaning total value minus the contracts SBA decidesto exclude from the equation. Using this deceptive practice, the SBA has, foryears, been able to boast that the government has attained or exceeded the 23percent minimum goal based on 'all prime contract awards' when in fact, ithasn't. This creative accounting will continue to thwart the purposes of thestatute," the complaintstates.
ASBLargues that the SBA is using this creative accounting to avoid burdensomerequirements of "identifying, analyzing and developing remedial plans triggeredwhen the government fails to meet its goals."
Thecomplaint includes examples of contracts awarded by the SBA in 2015:
Thecomplaint also argues the SBA characterized a total of 151 Fortune 500companies as small businesses in order to claim that 25.75 percent of the totalvalue of all prime contract awards went to small businesses.
TheASBL contends because of what it deemed as the SBA's "unlawful actions" smallbusinesses may not be receiving the percentage of total government primecontract awards, which they would otherwise receive under the mandates of theSmall Business Act.
ASBLrequested the court issue an injunction barring the SBA from continuing itsalleged deceptive actions and to amend its 2015 goaling reports to conform tothe Small Business Act's requirements.
SBA'sMotion to Dismiss
Inits motion todismiss the SBA argued the court lacked jurisdiction stating, "TheAdministrative Procedure Act does not allow federal courts to review everythingan agency does. It only permits judicial review of final agency action. If theSmall Business Administration is giving Congress bad information, then Congresscan do something about it, either in an oversight or legislative capacity.Having requested the report, Congress, not the judiciary, is in the bestposition to decide whether it's gotten what it wants."
Thecourt agreed and dismissed ASBL's case earlier this month.
Lloyd Chapman, President of ASBL, told the NorthernCalifornia Record, "The purpose of the Small Business Act is to ensuresmall businesses receive 23 percent of federal contracts.When you look at thelast paragraph of the ruling, you'll notice the judge didn't quote the SBA, hesaid congress passed the law, but he wasn't quoting it. The judge dismissed itsaying only congress can do something about it. Well, congress only passeslaws. When you don't pay taxes, congress doesn't come after you, the IRS does.The justice department should be the one deciding on this. Congress passes lawsand the judicial branch enforces them. But he didn't even address that part ofmy complaint." Chapman said explaining that the dismissal was based onallegations he challenged the SBA's reporting, not on the actual claims he madeagainst the government for violating the Small Business Act.
"Here'sa way to describe it; say you hire me to paint your house a specific color andto put down and take away drop cloths. Then, I paint one wall of your house hotpink, but I put down and remove the drop cloths. If you sued me for breach ofcontract it would be like a judge throwing out your case against me because Iremoved the drop cloths," Chapman said.
"Whatthe judge should have done is say the Small Business Act says small businessesshould receive 23 percent of all contracts and the actions of the SBA are indirect conflict with the law because all Fortune 500 companies are not smallbusinesses. It's against the congressional intent of the law and the motionshould not have been granted," Chapman told the Northern California Record.
Chapmansaid the government put a spin on his complaint stating it was about how thegovernment reported the contracts. "So they claimed since I was challenging theway SBA reports, the court had no jurisdiction. The judge agreed that it wasnot the court's position to rule on how it reported. But, my lawsuit was tostop the SBA from giving federal contracts to Fortune 500 firms and to stopthem from claiming they gave 23 percent to small businesses. The judge doesn'teven mention those two things," he said.
Heexplained the Small Business Act states small businesses shouldn't have morethan 500 employees, businesses must report all employees of parent andaffiliate companies, and they shouldn't be dominate in their field. He saidnone of these Fortune 500 companies meets those requirements, yet thegovernment provided them with billions in contracts.
"Theyare trying to suppress the evidence," Chapman said, "A federal judge, accusedthe government of suppressing evidence in another case of mine; Judge WilliamAlsup said about my case against the Pentagon's 27-year old test program, 'Soit would be more like a David and Goliath. You get to come in there and be theunderdog against the big company and against the big government, they aretrying to suppress the evidence,' so I agree with him. The government issuppressing evidence. Alsup said another quote in a case I won against thePentagon, 'The purpose of the Freedom of Information Act is so the public cansee how our government works. Congress passed this law to make the smallbusinesses have access to some of these projects, and here is the United Statescovering it up,' Judge Alsup accused them, not me, but I agree."
Chapmansaid when Eisenhower signed the act in 1958 it wasn't his intention to givesmall business contracts to Verizon. He said according to the U.S. censusbureau over 90 percent of US firms have fewer than 20 employees.
"Picturea pie chart," Chapman said as he drew one while speaking, "Picture a big circleand cut a slice that represents 1 percent. That tiny line represents 1 percentof firms. That 1 percent is businesses with over 500 employees, according tothe census bureau. The other 99 percent have 500 employees or less. So, we havethis gigantic slice and federal says this tiny sliver gets 90 percent of thecontracts. What do you think about the government taking your tax dollars andspending it with Fortune 500 companies that aren't creating new jobs? What doyou know about Fortune 500 not paying taxes? 77 percent of federal spending isgoing to these companies, most who are not paying taxes, and not creating anynet new jobs. In reality that little tiny sliver gets about 95 percent offederal spending. The giant slice gets 5 percent. They are giving the federalcontracts to Fortune 500 firms. Think about it, ninety-five percent of allfederal spending goes to 1 percent of US firms that haven't created a net newjob since 1980 and don't pay the taxes you pay."
"Howdoes this benefit the government? What happens as a result of this? I'll onlyspeak to facts,"Chapman said. "The World Bank came out recently, theydid a study on the ease of starting a new business in different countries; theUSA ranked 49th. We're 20 trillion in debt and America is 49th in the ease ofstarting a new business. The result of 20 years of anti-small business policieshave devastated the middle class. Home ownership is at a 48 year low; povertyis at a 12 year high, 45 million Americans live below poverty. Birth rates aredown six consecutive years because of economic concerns. More people betweenthe ages of 25 and 35 are living at home. Economic recovery is at the slowestrate since 1949. The $276 billion given by SBA (to the large businesses) wouldbe the largest economic stimulus program for middle class in history. But yearafter year they divert it to Fortune 500 companies who don't pay taxes,"Chapman told the Northern California Record.
The SmallBusiness Act provides penalties and prison time for a company thatrepresents itself as small business. The SmallBusiness Jobs Act of 2010 added to the penalties formisrepresentations by firms providing, " The law establishes a legalstanding of "presumption of loss" when a business misrepresents its ownershipstatus or size in winning a government contract. This allows a federal agencyto claim a loss on the purchase, enabling those agencies, including theDepartment of Justice, to vigorously pursue fraudulent firms."
Chapmansaid, "The (law) says for every dollar they get is a dollar indamages. If I go to court and show a Fortune 500 misrepresented one oftheir divisions as a small business, every dollar would be applicable underfalse claims act, there would be treble damages, punitive damages and legalfees," Chapman said. "My lawsuit was largest lawsuit ever filed against theU.S. because of number of people being attacked by it and the volume of money.My lawsuit would redirect trillions back to the middle class economy over thenext 10 years. This is the largest lawsuit filed against the U.S. governmentand it's unreported in the media. Think about it."
Hesaid the government also approved a policy in 2015 that provides a loophole forlarge businesses to escape liability for misrepresenting they were a smallbusiness to obtain contracts called Safe Harbor fromFraud Penalties. It reads, " An individual or business concernwill not be subject to the penalties imposed under 15 U.S.C. 645 (a)where it acted in good faith reliance on a small business status advisoryopinion accepted by SBA under §?121.109."
"Now,to get out of trouble for obtaining federal contracts illegally all you have todo is say you acted in good faith. This goes to show you how far they'll go toprotect what they're doing. The SBA is supposed to represent small businessesand they aren't. But I am."
Chapmancompared his lawsuit to Edward Snowden. "I think I'm more controversialthan Snowden," Chapman said. He said no one was criminally prosecuted inSnowden's case, no one lost their jobs and no one was imprisoned over thegovernment tapping Americans' wireless devices. " Nothing happened, if mylawsuit went forward, for all of these companies and defense contractors whohave misrepresented their firm as a small business, there would be jail timeand fines. We are talking about billions in criminal penalties and people goingto prison."
Chapmansaid he is going to appeal the decision soon. He also said he has additionalplans on fighting the government.
"Theysaid I don't have the legal authority to challenge the way they report onthings, but I do have the ability to challenge final rules. So, I am going tochallenge every final rule the SBA has put out for the last decade."
Chapmansaid when he reviewed the final rules he found each rule reduces the volume ofcontracts that goes to legitimate small businesses and increases the volumethat goes to big businesses and that is what he intends to challenge.
"My lawyers tell me I'vewon over 100 legal battles against federal governments," Chapman told the NorthernCalifornia Record. "I started filing them around 1989. The government willtell you that I am a conspiracy nut and con man and nothing I say is true. But,you can't win that many if you're a conspiracy nut. What else would you expectthem to say, though? Admit that I'm right?"