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4 min read

OHA Rejects Amenity Waste Solution, LLC's SDVOSB Certification Appeal

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Amenity Waste Solution, LLC based in Alabama, appealed the denial of its certification as a Service-Disabled Veteran-Owned Small Business (SDVOSB) to the Small Business Administration's Office of Hearings and Appeals. The denial was primarily rooted in concerns regarding the control of the company by its service-disabled veteran, Karis Gilbert, who is the sole member of the LLC. Amenity Waste Solution refuted the denial, asserting that it was erroneous, and sought a reversal of the decision.

Structure and Voting Power in the Operating Agreement

The appellant in this case is a manager-managed single member Limited Liability Company (LLC) that was established in Alabama on April 10, 2023. 

On July 12, 2023, the appellant executed an Operating Agreement. At the time of execution, the sole member of the appellant was Karis Gilbert, a 100% service-disabled veteran (SDV). However, the Operating Agreement establishes that if the company has multiple members simultaneously, each member's voting power is equal to their share of membership interest in the company.

The Operating Agreement outlines the creation of a Board of Managers, which is headed by the Chairman of the Board. The Board is empowered to perform any necessary actions for the company's purposes. For Board meetings, a majority of the Managers constitutes a quorum, and the act of a majority of Managers present at a meeting with a quorum is considered the act of the Board. In the absence of a quorum, the Managers have the authority to adjourn the meeting. Actions of the Board may be taken without a meeting if all Managers provide their consent in writing.

The company's officers include a Chairman, Secretary, and Treasurer. The Chairman, as the chief executive officer, is responsible for managing the business and ensuring the implementation of board resolutions and orders. They also have the authority to execute most contracts on behalf of the company, unless otherwise delegated. In the event that the Chairman is absent or unable to perform their duties, the President assumes their responsibilities and powers as prescribed by the Board.

The Operating Agreement can only be amended through the written consent of both the Board and the Member.

Board of Directors “Meeting Minutes”

The appellant provided copies of minutes from a Board of Directors Meeting dated July 5, 2023. The purpose of the meeting was to appoint a Board of Managers and select a Chairman of the Board. Ms. Gilbert, a Director, was in attendance and ensured that a quorum was established. During the meeting, Micah Gholston was designated as the chairperson. In addition, Ms. Gilbert was elected as a Director for a term of one year. Notably, another copy of the meeting appointed Ms. Gilbert as both the Chairperson and Director. 

Denial of SDVOSB Certification

On July 19, 2023, the SBA's Director of the Veteran Small Business Certification Program (D/VSBCP) expressed concerns regarding Karis Lolita Gilbert's decision-making authority as outlined in the Operating Agreement. The D/VSBCP identified problematic sections in the Agreement and requested the submission of newly dated and signed Meeting Minutes and an amended version of the Operating Agreement to address these concerns. Ms. Gilbert submitted the revised "Corporate Minutes" on July 20, 2023.

On July 21, 2023, the D/VSBCP rejected the Appellant's application for SDVOSB certification. The denial was attributed to the Appellant's failure to demonstrate that service-disabled veterans had control over the company, as mandated by 13 C.F.R. § 128.203(d). This determination was reached because the Operating Agreement showcased that decision-making authority was not solely vested in the qualifying veteran, Ms. Gilbert.

The Appellant, being a manager-managed LLC, is required to establish a Board of Managers. However, the Meeting Minutes submitted by the Appellant did not clearly establish the Board of Managers or identify the managers. Consequently, the D/VSBCP was unable to ascertain if a qualifying veteran genuinely held control over the Appellant's decisions.

According to the Operating Agreement, a quorum is established when a majority of the Managers are present, and the decisions made by the majority are considered the decisions of the Board. This means that if a non-veteran is elected to the Board, the qualifying veteran may lose control over the quorum and decision-making process, as a majority of the Managers would be required.

In addition, the Operating Agreement specifies that the initial Officers, including a Chairman, Secretary, and Treasurer, are to be appointed by the Member and are responsible for the overall management of the company. However, the Meeting Minutes reveal that a non-veteran and another individual were elected as the Chairperson for the Board of Directors. Consequently, it is unclear if a qualifying veteran occupies the highest officer position, as mandated by 13 CFR § 128.203(b).

Furthermore, the Operating Agreement can only be amended through the written consent of the Board and the Members. It is therefore indeterminable if a qualifying veteran possesses the unilateral power to amend the Company Agreement.

Appeal and Analysis

On August 3, 2023, the Appellant filed an appeal with the Office of Hearings and Appeals (OHA). However, the OHA determined that the Appellant failed to provide evidence that the Director made an error in their decision, citing regulations that state the management and daily business operations of the concern must be controlled by one or more service-disabled veterans. In this case, the OHA found that the application was rightfully denied due to inconclusive evidence that Ms. Gilbert had control over the Appellant.

While it is not in dispute that Ms. Gilbert is an SDV and the Appellant is a manager-managed LLC, there was no indication from the record that Ms. Gilbert was identified as a manager or that the Appellant had established a Board. The Meeting Minutes submitted by the Appellant identified Ms. Gilbert and Mr. Gholston as "chairpersons of the meeting" as of July 5, 2023. However, this did not provide clear evidence of Ms. Gilbert's role as a manager, nor did it establish the composition of the Board. Furthermore, the information provided regarding Ms. Gilbert being elected as a director was insufficient to establish the presence of a Board or identify its members. In the Appellant's certification application, it was explicitly stated that Ms. Gilbert, as the owner, did not hold any position as a Board Member or officer within the business.

Based on the available record, the Director of the Veteran Small Business Certification Program concluded that the Appellant did not meet the control requirements outlined in 13 CFR § 128.203(a), and that further clarification and evidence of control within the Appellant's organizational structure are necessary to address this concern.

Furthermore, it remained uncertain whether Ms. Gilbert possessed the authority claimed in the Operating Agreement, which specified that the Chairman was responsible for the general management of the company and executing contracts. However, the agreement only mentioned one Chairperson, even though Appellant had submitted documents identifying two Chairpersons. It appeared that Mr. Gholston, one of the Chairpersons, had equal authority as Ms. Gilbert, leading to negative control of Appellant. The Director was unable to determine that Ms. Gilbert held the highest position in Appellant, as required by 13 C.F.R. § 128.203(b).

Conclusion

After conducting a thorough examination of Amenity Waste Solution's Operating Agreement and the accompanying Meeting Minutes, the OHA determined that the evidence provided did not establish conclusively that Ms. Gilbert had control over the Appellant. Furthermore, the Appellant failed to identify any errors in the Director's decision. Consequently, the OHA rejected the appeal.


Looking to start or get help with your Service Disabled Veteran-Owned Small Business? Visit our dedicated page on SDVOSB SBA Verification for more information or to request your free consultation.

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