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Senior Managing Member Dispute Leads to SDVOSB Denial for BlackHays
Introduction
The case of BlackHays Group LLC v. U.S. Small Business Administration highlighted essential regulatory requirements for Service-Disabled Veteran-Owned Small Business (SDVOSB) certification. The Office of Hearings and Appeals (OHA) upheld the SBA’s decision to deny recertification due to governance issues that failed to ensure full control by service-disabled veterans.
Background of the Case
BlackHays Group LLC, registered in Delaware, first achieved SDVOSB certification in 2020. The company applied for recertification in June 2024. The company’s ownership was structured with a 51% majority stake held by Scott E. Hayford, a service-disabled veteran, while Cameron Conger, a veteran without a service-connected disability, owned the remaining 49%. Both individuals were designated as Managing Members in the operating agreement.
The SBA reviewed the company’s operating agreement and subsequent amendments, which appointed both Hayford and Conger as Managing Members. This governance structure raised questions about whether Hayford, as the service-disabled veteran, held sufficient control over the company’s decision-making processes.
SBA’s Decision
On July 22, 2024, the SBA denied BlackHays Group’s recertification application. The SBA determined that the company’s operating agreement allowed shared control between Hayford and Conger, creating ambiguity about whether Hayford alone exercised the authority required under SBA regulations. Specifically:
- The operating agreement permitted multiple Managing Members with equal authority.
- Despite amendments declaring Hayford as “Senior Managing Member” and CEO, the agreement did not delineate distinct powers or responsibilities for these roles.
- SBA regulations require that service-disabled veterans control all significant business decisions, which was not demonstrated in the company’s submission.
The SBA’s findings cited 13 C.F.R. § 128.203(d), which mandates that one or more service-disabled veterans must control all decision-making authority within an SDVOSB.
Appeal to the OHA
BlackHays Group filed an appeal with the OHA, arguing that Hayford’s 51% ownership and amended role as “Senior Managing Member” satisfied the requirements for SDVOSB recertification. The company also submitted a statement from Hayford asserting his sole decision-making authority.
The OHA found the appeal insufficient to overturn the SBA’s determination. It ruled that the amendments to the operating agreement did not adequately clarify governance. The agreement’s provisions continued to allow Conger, as a non-disabled veteran, equal authority as a Managing Member, which conflicted with the SDVOSB program’s requirements for full control by service-disabled veterans.
Court’s Findings and Conclusion
The OHA upheld the SBA’s denial, citing the following reasons:
- The operating agreement did not establish clear authority for Hayford as the sole decision-maker.
- The presence of multiple Managing Members with equal authority contradicted SBA requirements.
- The amendments failed to remedy the structural issues, leaving non-disabled individuals with shared control over the company.
The OHA concluded that BlackHays Group did not demonstrate compliance with SDVOSB eligibility criteria and denied the appeal. This decision marked the final agency action under 15 U.S.C. § 657f(f)(6)(A).
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