OHA Reverses Denial of SDVOSB Application, Finds Protecting Minority Shareholders Doesn’t Hamper Full Control

The appellant asserted the SBA’s decision denying its Service-Disabled Veteran-Owned Small Business (SDVOSB) was based on a misinterpretation. The Director of the Office of Government Contracting (D/GC) believed SBA regulations required majority owners to have unilateral control over extraordinary circumstances. OHA sided with the appellant. The two provisions in the appellant’s operating agreement that the D/GC relied on governed minority shareholders’ interests; they did not impact the management of daily business operations.

VSBC Appeal of Blue Skye Foods, LLC, SBA No. VSBC-442-A

• Background – The D/GC claimed the company didn’t demonstrate that a service-disabled veteran controlled it and denied the appellant’s application for certification. The appellant contended that the service-disabled veteran had full operational control of the company and appealed.
• Control of Operations – The appellant argued that the denial was based on a misunderstanding of their Operating Agreement. The D/GC pointed to provisions that required unanimous consent for major decisions (like selling assets) as indicative of a lack of control. OHA disagreed and eventually reversed the D/GC’s denial of the appellant’s application for SDVOSB certification.
• Extraordinary Circumstances – The D/GC’s argument rested on the notion that the majority owner should have unilateral control over extraordinary circumstances as defined in SBA regulations. However, the appellant maintained that the provisions in the Operating Agreement protecting the minority owner’s interests were consistent with the grant of control to the service-disabled veteran. OHA ruled that such provisions do not indicate a lack of control. It recognized the importance of protecting minority investments while affirming the veteran’s ability to control day-to-day operations.

The appellant is represented by Joseph Patrick McConnell of Blue Skye Foods, LLC. The government is represented by the U.S. Small Business Administration lawyers. OHA attorney Christopher Holleman participated in the decision.

Pub K obtained this decision in this format from Stan Hinton