On May 16, 2023, Horizon Marketing, Inc. filed an appeal with the Small Business Administration after their application for Service-Disabled Veteran-Owned Small Business (SDVOSB) certification was denied. The denial was based on concerns regarding ownership and control issues raised by the SBA, which the Appellant disputes. Arguing that the denial was made in error, they sought reversal by bringing their case before the Office of Hearings and Appeals. 

Ownership Structure and Certification Application

Robert R. De La Torre (a service-disabled veteran) and Yvonne A. De La Torre (a non-veteran) are the owners of the appellate, Horizon Marketing, Inc. ("Horizon"), a corporation based in California.

Horizon applied for SDVOSB certification with the SBA on April 20, 2023. According to the appellant's stock ledger, 510 shares were issued to service-disabled veteran Mr. Robert R. De La Torre on November 9, 2022. The remaining 490 shares were issued to Mrs. Yvonne A. De La Torre, who is a non-veteran.

In a letter dated May 2, 2023, the appellant informed the SBA that the shares were held by a trust and not directly owned by the De La Torres. Moreover, the board meeting minutes from March 2023 indicate that the appellant has two directors, Mr. and Mrs. De La Torre.

The appellant provided a copy of its Amended and Restated Bylaws, dated April 27, 2023. These Bylaws establish that the number of directors is initially set at two, but it can be changed through an amendment. It states that the directors must be natural persons, although they do not necessarily need to be shareholders. Additionally, the Bylaws include provisions regarding the removal of directors, allowing for removal with or without cause. A quorum for meetings of directors is defined as a majority of the total number of directors.

In addition, the appellant submitted an "Amended and Restated Declaration of Trust" for the De La Torre Family Revocable Trust. This Trust document indicates that Robert R. De La Torre and Yvonne A. De La Torre serve as Co-Trustees. The term "Trustee" in the document refers to both individuals collectively. The Trust document provides a definition of "Trust estate" as the assets held within the De La Torre Family Revocable Trust. Moreover, the Trust document outlines the powers bestowed upon the Trustee, which encompass the ability to sell, convey, exchange, and manage trust property.

Basis for the Denial

The basis for the SBA's initial denial of Horizon's SDVOSB certification lay in the appellant's failure to meet certain regulatory requirements. Specifically, the appellant did not demonstrate that the Board is under the full control of one or more service-disabled veterans, as they could not provide sufficient evidence that one or more service-disabled veterans have a direct ownership stake of at least 51% in the company.

A critical factor in the SBA's determination was the concern that Mrs. De La Torre, a non-veteran, could exert negative control over the appellant. This raised questions about the potential influence of a non-veteran in the decision-making processes and overall management of the business, ultimately leading to the denial of the appellant's certification.

Appeal to the OHA

Horizon Marketing, Inc. filed an appeal with the Office of Hearings and Appeals (OHA) challenging the Small Business Administration's (SBA) decision. The company argues that Robert R. De La Torre, a service-disabled veteran, maintains control of the Board of Directors as the majority shareholder. They also claim that the Trust does not significantly alter Mr. De La Torre's ownership status and that he still directly owns 51% of the company.

However, the OHA found no merit in the appeal and upheld the SBA's decision. The OHA cited two key reasons for denying the certification: negative control by a non-veteran and the lack of direct ownership by a service-disabled veteran. The OHA determined that the Trust fails to meet the requirements of § 128.202(a) because one of the Co-Trustees is not a service-disabled veteran.

Furthermore, the OHA discovered that the Trust document grants equal rights to both Mr. and Mrs. De La Torre, undermining the appellant's claim that Mr. De La Torre retains unilateral control. The OHA also noted that the appellant's Bylaws stipulate the presence of Mrs. De La Torre, a non-veteran, in establishing a Board quorum and making decisions, constituting negative control.

In light of these findings, the OHA denied the appeal, as the appellant failed to demonstrate any errors in fact or law in the SBA's original decision.

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