Petition for Writ of Certiorari — Marty Hierholzer, et al., Petitioners v. Kelly Loeffler, Administrator, Small Business Administration, et al.

i

TABLE OF CONTENTS

Opinion of the U.S. Court of Appeals for the Fourth

Circuit, dated Jan. 3, 2025 ................................1a

Order Granting Defendants’ Motion to Dismiss,

U.S. District Court for the Eastern District of

Virginia, dated Feb. 15, 2024 ..........................27a

Order Denying Petition for Rehearing,

U.S. Court of Appeals for the Fourth Circuit,

dated Mar. 4, 2025 ...........................................48a

13 C.F.R. 124.103 ...............................................49a

Petitioner’s Complaint, U.S. District Court for the

Eastern District of Virginia,

dated Jan. 18, 2023..........................................57a

Declaration of Marty Hierholzer,

dated Mar. 19, 2023 .........................................81a

Appendix 1a

USCA4 Appeal: 24-1187 Doc: 34 Filed: 01/03/2025

PUBLISHED

_______________________

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

_______________________

No. 24-1187

_______________________

MARTY HIERHOLZER; MJL ENTERPRISES, LLC,

a Virginia corporation,

Plaintiffs - Appellants,

v.

ISABEL GUZMAN, in her official capacity as

Administrator of the Small Business Administration;

SMALL BUSINESS ADMINISTRATION,

Defendants - Appellees.

_______________________

Appeal from the United States District Court for the

Eastern District of Virginia, at Norfolk.

Raymond A. Jackson, Senior District Judge.

(2:23-cv-00024-RAJ-DEM)

_______________________

Argued: October 29, 2024 Decided: January 3, 2025

_______________________

Before DIAZ, Chief Judge, WYNN and THACKER,

Circuit Judges.

_______________________

Reversed in part, affirmed in part, and remanded by

published opinion. Judge Thacker wrote the opinion,

in which Chief Judge Diaz and Judge Wynn joined.

_______________________

ARGUED: Glenn Evans Roper, PACIFIC LEGAL

FOUNDATION, Highlands Ranch, Colorado, for

Appendix 2a

Appellants. Ellen L. Noble, UNITED STATES

DEPARTMENT OF JUSTICE, Washington, D.C., for

Appellee.

ON BRIEF: Joshua P. Thompson,

PACIFIC LEGAL FOUNDATION, Sacramento,

California, for Appellants. Kristen Clarke, Assistant

Attorney General, Bonnie I. Robin-Vergeer, Teresa

Kwong, Appellate Section, Civil Rights Division,

UNITED STATES DEPARTMENT OF JUSTICE,

Washington, D.C.; Eric S. Benderson, Associate

General Counsel for Litigation, David A. Fishman,

Deputy Associate General Counsel for Litigation,

Office of the General Counsel, UNITED STATES

SMALL

BUSINESS

ADMINISTRATION,

Washington, D.C., for Appellee.

_______________________

THACKER, Circuit Judge:

Marty Hierholzer (“ Hierholzer”) is the sole owner,

president, and chief executive of MJL Enterprises,

LLC (“MJL”) (collectively “Appellants”). Appellants

allege that the Small Business Administration’s

(“SBA”) Section 8(a) Business Development Program

(“8(a) Program”) discriminated against Hierholzer

based on his race. The 8(a) Program employs a race

conscious, rebuttable presumption allowing members

of certain racial and ethnic groups to establish that

they are “socially disadvantaged.”

13 C.F.R.

§ 124.103(a).

Appellants appeal the district court’s dismissal of

their case based on mootness and lack of standing. As

explained below, we reverse the district court’s

dismissal of the case as moot. However, we affirm the

district court’s dismissal based on Appellants’

inability to establish the elements of Article III

standing.

Appendix 3a

I.

A.

In 1953, Congress enacted the Small Business Act

(“the Act”) to “aid, counsel, assist, and protect” small

businesses, to ensure a “fair proportion” of

government contracts go to small businesses, 15

U.S.C. §§ 631(a)-(b), and to “preserv[e] the competitive

free enterprise system.” Id. § 631a. The Act

established the SBA to manage several programs to

assist the business development and competitive

viability of small businesses by providing contract,

financial, technical, and management assistance,

including programs requiring federal agencies to

reserve certain contracts exclusively for small

businesses. See id. §§ 633, 644(j)(1). The Act includes

several programs that create contracting preferences

for small businesses in general and for those that

satisfy certain criteria, including small businesses

owned and controlled by women, see id. § 637(m);

small businesses owned and controlled by servicedisabled veterans, id. § 657f-1; and the program at

issue here, small businesses owned and controlled by

“socially

and

economically

disadvantaged”

individuals. Id. § 637(a).

Through the 8(a) Program, the SBA provides

assistance to small businesses owned and controlled

by “socially and economically disadvantaged”

individuals. 15 U.S.C. § 637(a). The 8(a) Program

authorizes the SBA to enter into agreements for goods

and services with other federal agencies and to

subcontract those agreements to socially and

economically disadvantaged small businesses. Id.

§ 631(f )(2). The Act aims to award at least five

Appendix 4a

percent of the total value of federal contracts to small

businesses owned by socially and economically

disadvantaged individuals each year, with an overall

goal of awarding at least 23 percent of the total value

of all contracts in a fiscal year to small businesses. Id.

§§ 644(g)(1)(A)(i), (iv).

Eligibility for the 8(a) Program is limited to small

businesses that are at least 51 percent unconditionally owned and controlled by one or more “socially

and economically disadvantaged” individuals who are

of good character, are citizens of the United States,

and who demonstrate a potential for success in

competing in the private sector. Id. §§ 637(a)(4)(A),

(7)(A); 13 C.F.R. § 124.101.

“Socially disadvantaged individuals are those who

have been subjected to racial or ethnic prejudice or

cultural bias because of their identity as a member of

a group without regard to their individual qualities.”

15 U.S.C. § 637(a)(5). SBA regulations require that

the social disadvantage must have resulted from

“circumstances beyond [the individual’s] control.” 13

C.F.R. § 124.103(a). The SBA regulations further

provide that members of certain designated groups,

including “Black Americans, Hispanic Americans,

Native Americans . . . , Asian Pacific Americans . . . ,

Subcontinent Asian Americans . . . , and members of

other groups designated from time to time by [the]

SBA,” are entitled to a rebuttable presumption of

social disadvantage. Id. § 124.103(b)(1). This presumption may be rebutted with “credible evidence to

the contrary.” Id. § 124.103(b)(3). 8(a) Program applicants owned and controlled by individuals who are not

members of one of these groups may show social

Appendix 5a

disadvantage

by

submitting

evidence

that

demonstrates, by a preponderance of the evidence:

(i) At least one objective distinguishing feature

that has contributed to social disadvantage,

such as race, ethnic origin, gender, identifiable

disability,

long-term

residence

in

an

environment isolated from the mainstream of

American society, or other similar causes not

common to individuals who are not socially

disadvantaged;

(ii) The individual’s social disadvantage must be

rooted in treatment which he or she has

experienced in American society, not in other

countries;

(iii) The individual’s social disadvantage must

be chronic and substantial, not fleeting or

insignificant; and

(iv) The individual’s social disadvantage must

have negatively impacted on his or her entry

into or advancement in the business world. SBA

will consider any relevant evidence in assessing

this element, including experiences relating to

education,

employment

and

business

history . . . .

(A) Education. SBA considers such factors as

denial of equal access to institutions of higher

education,

exclusion

from

social

and

professional association with students or

teachers, denial of educational honors rightfully

earned, and social patterns or pressures which

discouraged the individual from pursuing a

professional or business education.

Appendix 6a

(B) Employment. SBA considers such factors as

unequal treatment in hiring, promotions and

other aspects of professional advancement, pay

and fringe benefits, and other terms and

conditions of employment; retaliatory or

discriminatory behavior by an employer; and

social patterns or pressures which have

channeled the individual into nonprofessional or

non-business fields.

(C) Business history.

SBA considers such

factors as unequal access to credit or capital,

acquisition of credit or capital under

commercially

unfavorable

circumstances,

unequal treatment in opportunities for

government contracts or other work, unequal

treatment by potential customers and business

associates, and exclusion from business or

professional organizations.

Id. §§ 124.103(c)(1)-(2). Additionally, the applicant

must provide evidence establishing that the purported

social disadvantage has “negatively impacted his or

her entry into or advancement in the business world.”

Id. § 124.103(c)(3).

Regardless of how social disadvantage is

established, all applicants for the 8(a) Program must

be a small business owned by an individual who is

both “socially and economically disadvantaged.” 15

U.S.C. § 637(a)(4)(A)(i)(I) (emphasis supplied). An

economically disadvantaged individual is one whose

“ability to compete in the free enterprise system has

been impaired due to diminished capital and credit

opportunities as compared to others in the same

business area who are not socially disadvantaged.”

Id. § 637(a)(6)(A); 13 C.F.R. § 124.104(a). In evalua-

Appendix 7a

ting economic disadvantage, the SBA “shall consider,

but not be limited to [considering], the [individual’s]

assets and net worth.” 15 U.S.C. § 637(a)(6)(A). SBA

regulations provide that the SBA will consider “the

personal financial condition of any individual

claiming disadvantaged status, including income for

the past three years . . . , personal net worth, and the

fair market value of all assets . . . .” 13 C.F.R.

§ 124.104(c). Importantly, the rebuttable presumption that applies regarding social disadvantage does

not apply regarding economic disadvantage.

B.

Hierholzer is a service-disabled veteran who served

twenty two years in the Navy as a diver before retiring

in 2002. As a result of his military career, Hierholzer

lives with knee, lower back, and shoulder pain;

hearing loss and tinnitus; decreased mobility; and

clinically recognized depression and anxiety

disorders.

MJL is a small business owned by Hierholzer. MJL

provides equipment and office supplies to military

bases and Veterans Affairs hospitals, provides hightech safety and security equipment to first

responders, and provides logistical labor and

personnel services for Veterans Affairs hospitals.

Hierholzer is of Scottish and German descent and

is not a member of a group with a presumption of

social disadvantage pursuant to 13 C.F.R.

§ 124.103(b)(1). Therefore, when MJL applied to the

8(a) Program in 2009 and 2016, it was required to

present evidence to support that Hierholzer was

socially disadvantaged pursuant

to

Section

124.103(c). He was not. Therefore, in both 2009 and

Appendix 8a

2016, the SBA notified Appellants of MJL’s

ineligibility, “despite [the SBA’s] recognition of

[Hierholzer’s] disabilities and veteran status.” J.A.

16. 1 See generally In re: MJL Enters., LLC, SBA No.

BDPE-566, 2017 WL 8231365, at *1, *7 (Dec. 18, 2017)

(detailing MJL’s applications and affirming MJL’s

2016 denial).

The SBA denied both applications, which included

incidents of Hierholzer’s claimed social disadvantage,

along with supporting evidence. Hierholzer believes

that he “would have been accepted into the 8(a)

Program without having to prove his social

disadvantage if he belonged to one of the favored races

listed” in the Act and regulations (i.e., if Hierholzer

received a presumption of social disadvantage). J.A.

17. Thus, Appellants allege injury based on an

inability to “stand[] on equal footing for 8(a) [P]rogram

eligibility”; to “compet[e] for exclusive 8(a) contracting

opportunities based on race”; or to “access other

benefits provided to 8(a) Program companies,”

including “access to business development assistance,

free training opportunities through the SBA, and

federal surplus property access.” Id. at 18. As a

result, Appellants allege that MJL “is at a competitive

disadvantage when competing for . . . contracts” and

“in accessing the 8(a) Program itself ” as compared to

“members of minority groups.” Id. at 18-19.

C.

Appellants sued Isabel Guzman, in her official

capacity as Administrator of the SBA, and the SBA

1 Citations to the “J.A.” refer to the Joint Appendix filed by

the parties in this appeal.

Appendix 9a

(collectively, “the Government”) in the Eastern

District of Virginia alleging violations of: (i) the Equal

Protection Clause of the Fifth Amendment based on

SBA’s regulations and the Act; and (ii) the

Administrative Procedure Act based on the SBA

exceeding its statutory authority, acting in an

arbitrary and capricious manner, and exercising an

unconstitutional

delegation

of authority

by

promulgating the regulations setting forth the race

conscious presumption of social disadvantage.

Appellants seek a declaration that “Section 8(a)’s

racial classifications found in 15 U.S.C. §§ 637(a)(5),

(8), and 631(f )(1)(b) and 13 C.F.R. § 124.103(a), (b)(1)

are facially unconstitutional”; permanent injunctions

against the enforcement of the Section 8(a) Program’s

rebuttable presumption of social disadvantage; and

costs, attorneys’ fees, and expenses. J.A. 26.

The Government moved to dismiss, arguing that

the district court lacked subject matter jurisdiction

because Appellants lacked standing. Specifically, the

Government argued that Appellants could not

establish an injury in fact because they were not “able

and ready to bid” on 8(a) Program contracts. J.A. 98

(quoting Ne. Fla. Chapter of the Associated Gen.

Contractors of Am. v. City of Jacksonville, 508 U.S.

656, 666 (1993)). Additionally, the Government

argued that Appellants had not established an injury

in fact because they did not adequately allege social or

economic disadvantage. The Government argued that

Appellants failed to plausibly allege social

disadvantage in the absence of the race conscious

presumption, highlighting that Appellants were

already twice denied entry to the 8(a) Program based

on their failure to establish social disadvantage and

Appendix 10a

that the complaint failed to include any allegations

that would yield a different result. The Government

also argued that, even if Appellants had alleged

economic disadvantage, Appellants would still fail to

demonstrate Hierholzer’s economic disadvantage as

required by the 8(a) Program because Appellants

“participated in thousands of contract actions with

federal government agencies totaling close to $130

million dollars.” J.A. 47. The Government further

argued that Appellants did not plausibly allege

causation, particularly considering the lack of

pleading regarding economic disadvantage—meaning

that Appellants had not plausibly alleged that they

could participate in the 8(a) Program without

satisfying the race conscious presumption. Finally,

the Government argued that Appellants did not

plausibly allege redressability because a favorable

decision enjoining the use of the race conscious

presumption would not alter Appellants’ position,

given their inability to establish either social or

economic disadvantage as illustrated by their two

previous denials.

Appellants opposed the motion to dismiss.

Appellants argued that they plausibly pled the

elements of standing. To rebut the Government’s

arguments regarding lack of standing, Appellants

attached a declaration by Hierholzer in which he

averred that he believed himself to be economically

disadvantaged. The declaration noted that Hierholzer

had a net worth of $850,000 and that his adjusted

gross income averaged over the prior three years did

not exceed $400,000. Therefore, Appellants asserted

they had alleged standing.

Appendix 11a

In the midst of the litigation of this lawsuit, the

District Court for the Eastern District of Tennessee

enjoined the SBA from using the rebuttable

presumption of social disadvantage in 13 C.F.R.

§ 124.103(b) in administering the 8(a) Program. See

Ultima Servs. Corp. v. U.S. Dep’t of Agric., 683 F.

Supp. 3d 745, 752 (E.D. Tenn. 2023). The district

court in the Ultima case held that the rebuttable

presumption violated Ultima’s Fifth Amendment

right to equal protection of the law. Thereafter, the

Government moved to stay proceedings in the present

case pending a final order in Ultima. In the motion to

stay, the Government included two declarations of

John W. Klein, the deputy general counsel and

associate general counsel for procurement law at the

SBA. Klein’s declarations explained changes to the

8(a) Program subsequent to the Ultima injunction:

• “Since the Court’s July 19, 2023 Order, SBA

is

making

all

social

disadvantage

determinations pursuant to the standard for

nonpresumptive applicants as directed in 13

C.F.R. § 124.103(c).

This includes social

disadvantage determinations for new and

pending applications from individual business

owners and for 8(a) participants that previously

relied on the rebuttable presumption.”

• “ The social disadvantage determination

involves reviewing a business owner’s narrative

of social disadvantage and ensuring that the

information provided satisfies each of the

elements in 13 C.F.R. § 124.103(c) by a preponderance of the evidence.”

• SBA reevaluated both previously admitted

applicants who had been admitted using the

Appendix 12a

rebuttable presumption and applicants with

pending awards based on the nonpresumptive

social disadvantage standard in 13 C.F.R.

§ 124.103(c). SBA required previously admitted

and pending participants to submit evidence of

social disadvantage for reevaluation.

• SBA created a portal for previously admitted

applicants to submit evidence of social

disadvantage and set a submission deadline of

September 30, 2023.

• SBA began making social disadvantage

determinations “for any contract action

[requiring] an SBA eligibility determination.”

• SBA had suspended pending applications

after the Ultima July 19, 2023, order, but it

reopened its online portal for new submissions

on September 29, 2023.

• All 8(a) Program applicants are required to

submit evidence of social disadvantage.

J.A. 129-35.

The district court held a hearing regarding the

Government’s motion to dismiss and motion to stay.

At the hearing, the Government argued that “the

claims for relief that [Appellants] sought in their

complaint simply don’t exist anymore” because “the

presumption at issue in th[e] case has been purged

from the process” following the Ultima injunction.

J.A. 138, 140. Additionally, the Government argued

that the changes it made to the program following the

injunction to remove the race conscious presumption

emphasize the Government’s point that Appellants

are unable to establish injury, causation, or

redressability, and, therefore, do not have standing.

Appendix 13a

For their part, Appellants argued that that no final

judgment had been issued in the Ultima case, so the

question remained “whether SBA [was] continuing to

provide a discriminatory approach to those who would

have fallen under the presumption.”

J.A. 145.

Appellants also noted that the Government had not

indicated whether it would appeal the Ultima decision

and highlighted that the SBA’s changes to the 8(a)

Program should not be considered because standing is

determined at the time that a complaint is filed.

The district court granted the Government’s

motion to dismiss, holding that Appellants “no longer

have a personal stake in the outcome of th[e]

litigation. Therefore, [Appellants’] claim is moot . . . .”

J.A. 175. The district court also held that Appellants

failed to establish the elements of standing because

they did not allege eligibility and did not sufficiently

plead economic disadvantage in the first instance or

social disadvantage in the absence of the

presumption. And the district court explained that

Appellants’ position would not change if their

requested relief were granted because Appellants

would still have to establish social and economic

disadvantage. The district court denied as moot the

motion to stay.

Appellants timely appealed.

II.

We review de novo the district court’s

determination that a case is moot. See S.C. Coastal

Conservation League v. U.S. Army Corps of Eng’rs,

789 F.3d 475, 482 (4th Cir. 2015) (citing Simmons v.

United Mortg. & Loan Inv., LLC, 634 F.3d 754, 762

(4th Cir. 2011)). We also review de novo the legal

Appendix 14a

question of whether a plaintiff has standing to bring a

claim. Buscemi v. Bell, 964 F.3d 252, 258 (4th Cir.

2020) (citing South Carolina v. United States, 912

F.3d 720, 726 (4th Cir. 2019)).

III.

A.

Appellants first argue that the district court erred

in holding that the case is moot.

Pursuant to Article III of the Constitution, the

jurisdiction of the federal courts is limited to “Cases”

and “Controversies.” See U.S. Const. art. III, § 2.

“When a case or controversy ceases to exist, the

litigation is moot, and the court’s subject matter

jurisdiction ceases to exist also.”

S.C. Coastal

Conservation League v. U.S. Army Corps of Engineers,

789 F.3d 475, 482 (4th Cir. 2015) (citation omitted).

“A case can become moot due either to a change in the

facts or a change in the law.” Id. (citing Ross v. Reed,

719 F.2d 689, 693-94 (4th Cir. 1983)); see also Deal v.

Mercer Cnty. Bd. of Educ., 911 F.3d 183, 191 (4th Cir.

2018) (“A case becomes moot when the issues

presented are no longer live or the parties lack a

legally cognizable interest in the outcome.” (internal

quotation marks omitted) (quoting Simmons v. United

Mortg. & Loan Inv., LLC, 634 F.3d 754, 763 (4th Cir.

2011))).

“If an intervening circumstance deprives the

plaintiff of a personal stake in the outcome . . . at any

point during litigation, the action . . . must be

dismissed as moot.” Campbell-Ewald Co. v. Gomez,

577 U.S. 153, 160-61 (2016) (internal quotation marks

omitted) (citation omitted). “A case becomes moot,

however, only when it is impossible for a court to grant

Appendix 15a

any effectual relief whatever to the prevailing party.”

Id. at 161 (internal quotation marks omitted) (citation

omitted).

The district court held that because the “SBA

changed the 8(a) Program application and removed

the race conscious presumption from all stages of the

process[,] [Appellants] no longer have a personal

stake in the outcome of this litigation. Therefore,

[Appellants’] claim is moot . . . .” J.A. 175.

On appeal, Appellants argue that the SBA has not

conceded that the race conscious “presumption is

unconstitutional or made any permanent changes in

response to the Ultima case; it has only paused use of

the presumption so as to not violate the . . .

injunction.” Appellants’ Opening Br. at 35 (citing

Ultima Servs. Corp. v. U.S. Dep’t of Agric., 683 F.

Supp. 3d 745, 774 (E.D. Tenn. 2023)). Appellants

further argue in their reply brief that the district

court’s order in Ultima is not final because it may still

be appealed. To its credit, the Government concedes

that the case is not moot: “in the absence of a final

judgment in Ultima, [Appellants’] claim is technically

not moot.” Gov’t’s Resp. Br. at 39 n.9.

Here, the subsequent events, namely the

injunction in Ultima and the changes to the 8(a)

Program as a result of the injunction, have not

rendered Appellants’ claims moot.

Despite the

changes made to the 8(a) Program by the SBA

pursuant to the injunction, the controversy has not

ceased to exist. See S.C. Coastal Conservation League,

789 F.3d at 482. The controversy is still live because

the Ultima decision has not resulted in a final

judgment. See Deal, 911 F.3d at 191.

Appendix 16a

Therefore, the district court erred in holding that

Appellants’ case is moot. We reverse.

B.

Appellants next argue that the district court erred

in holding that Appellants lacked standing to

challenge the 8(a) Program.

The Government

responds that Appellants have experienced no injury

traceable to the 8(a) Program because they are simply

ineligible, so a favorable decision in Appellants’ favor

would not redress their claimed injury. This is so,

according to the Government, because, even without

the race conscious presumption, Appellants cannot

compete for 8(a) Program contracts given that

Hierholzer is not socially or economically

disadvantaged.

The Supreme Court has long understood the cases

and controversies limitation imposed by Article III of

the Constitution “to require that a case embody a

genuine, live dispute between adverse parties,

thereby preventing the federal courts from issuing

advisory opinions.” Laufer v. Naranda Hotels, LLC,

60 F.4th 156, 161 (4th Cir. 2023) (internal quotation

marks omitted) (quoting Carney v. Adams, 592 U.S.

53, 58 (2020)). The Court “ has identified the doctrine

of standing as a means to implement that

requirement.” Id.

In order to possess Article III standing to sue,

plaintiffs must plausibly allege: “(1) [they] suffered an

injury in fact, (2) that is fairly traceable to the

challenged conduct of the defendant, and (3) that is

likely to be redressed by a favorable judicial decision.”

Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016)

(citation omitted). These requirements for standing

Appendix 17a

ensure that the plaintiff has “a personal stake in the

outcome.” Gill v. Whitford, 585 U.S. 48, 54 (2018)

(quoting Baker v. Carr, 369 U.S. 186, 204 (1962)).

Appellants, as “the parties invoking federal

jurisdiction, bear the burden of establishing these

elements.” Disability Rts. S.C. v. McMaster, 24 F.4th

893, 899 (4th Cir. 2022) (cleaned up) (quoting Spokeo,

Inc., 578 U.S. at 338).

1.

Injury in Fact

An injury in fact is “an invasion of a legally

protected interest which is (a) concrete and

particularized, and (b) actual or imminent, not

conjectural or hypothetical.” Laufer, 60 F.4th at 161

(internal quotation marks omitted) (quoting Lujan v.

Defs. of Wildlife, 504 U.S. 555, 560 (1992)). “ The

‘threatened injury must be certainly impending,’ and

‘[a]llegations of possible future injury’ are

insufficient.” Buscemi v. Bell, 964 F.3d 252, 259 (4th

Cir. 2020) (quoting Whitmore v. Arkansas, 495 U.S.

149, 158 (1990)). “An injury reliant on a highly

attenuated chain of possibilities does not qualify as

being certainly impending.” Id. (cleaned up). “ The

‘injury in fact’ in an equal protection case . . . is the

denial of equal treatment resulting from the

imposition of the barrier, not the ultimate inability to

obtain the benefit.” Ne. Fla. Chapter of the Associated

Gen. Contractors of Am. v. City of Jacksonville, 508

U.S. 656, 666 (1993) (citation omitted). “And in the

context of a challenge to a set-aside program, the

injury in fact is the inability to compete on an equal

footing in the bidding process, not the loss of a

contract.” Id. (citation omitted). Therefore, “a party

Appendix 18a

challenging a set-aside program . . . need only

demonstrate that it is able and ready to bid on

contracts and that a discriminatory policy prevents it

from doing so on an equal basis.” Id.

The district court held that Appellants’ injury was

not “ ‘concrete’ or ‘actual or imminent’ ” because they

failed to allege that they lost contract bids as a result

of the race conscious presumption.

J.A. 168.

Moreover, the district court held that Appellants

failed to allege that Hierholzer was economically

disadvantaged pursuant to 13 C.F.R. § 124.104, so

Appellants could not demonstrate that they were

“able and ready” to bid on 8(a) Program contracts due

to “[Appellants’] own failure to meet the 8(a) Program

eligibility

requirements—social

and

economic

disadvantage.” J.A. 169.

On appeal, Appellants argue that it is unnecessary

to show economic disadvantage, that the race

conscious presumption caused their injury because it

is a “barrier that denies them equal treatment,” and

that “admission is more difficult for [Appellants] than

for an applicant who qualifies” for the presumption.

Appellants’ Opening Br. at 22-23, 26-28.

The Government counters that Appellants’

complaint fails to allege necessary facts to support

finding that Appellants suffered an injury in fact

because it fails to allege (1) that Appellants are able

and ready to bid on contracts, or (2) that they could

meet the race neutral requirements of the 8(a)

Program. In support of its argument, the Government

highlights Appellants’ receipt of $130 million in

government contracts since 2006, their previous two

denials of admission based on Hierholzer’s lack of

social disadvantage, and the fact that Appellants pled

Appendix 19a

no facts indicating a change in circumstances since

the denials.

Appellants contest the district court’s holding that

they failed to make a showing of “lost contracts.”

Appellants’ Opening Br. at 23-25. However, the

Government responds that “without any allegations

that plaintiffs have lost business in the past or that

they are ready and able to bid on future business set

aside in the 8(a) Program, their alleged injury is not

at all concrete, particularized, imminent, or certainly

impending.” Gov’t’s Resp. Br. at 30-31 (emphasis

supplied) (citing Food & Drug Admin. v. All. for

Hippocratic Med., 602 U.S. 367, 368 (2024)

(“[R]equiring the plaintiff to show an injury in fact . . .

screens out plaintiffs who might have only a general

legal, moral, ideological, or policy objection to a

particular government action.”)).

We hold that, although Appellants were not

required to allege the loss of contract bids in order to

establish an injury in fact as a result of the race

conscious presumption, they were still required to

demonstrate that they were “able and ready” to bid on

contracts. City of Jacksonville, 508 U.S. at 666. And,

as the district court held, Appellants failed to

demonstrate that they were “able and ready” to bid on

8(a) Program contracts. Id.

Here, the 8(a) Program’s basic requirements are

that each applicant must be: (1) a small business;

(2) unconditionally owned and controlled by; (3) a

socially disadvantaged individual; (4) who is also

economically disadvantaged. 15 U.S.C. § 637(a)(4)(A);

13 C.F.R. § 124.101.

Appellants’ complaint acknowledges that the 8(a)

Program benefits socially and economically

Appendix 20a

disadvantaged businesses and explains that

Appellants unsuccessfully applied for the 8(a)

Program in 2009 and 2016. Despite Appellants’ belief

that MJL “would qualify for 8(a) participation” based

on “ ‘cultural bias’ [experienced by Hierholzer] due to

his status as a service-disabled veteran,” the SBA

rejected Hierholzer as not socially disadvantaged

twice. J.A. 11-12, 17. Appellants’ complaint includes

three pages dedicated to explaining their claimed

bases for social disadvantage (physical and

psychological disabilities) but does not contain any

pleading with regard to Hierholzer’s economic

disadvantage, as required by the Act and

implementing regulations. 15 U.S.C. § 637(a)(6)(A)

(defining individuals as economically disadvantaged

when their “ability to compete in the free enterprise

system has been impaired due to diminished capital

and credit opportunities as compared to others in the

same business area who are not socially

disadvantaged”); 13 C.F.R. § 124.104(c) (requiring

submission of information relevant to the applicant’s

personal financial condition, including income for the

prior three years, personal net worth, and the fair

market value of all assets).

As a result, Appellants failed to allege in their

complaint economic disadvantage sufficient to

“demonstrate” that they are “able and ready” to bid or

that the alleged discriminatory policy is their only

barrier to participation in the 8(a) Program on an

equal basis. City of Jacksonville, 508 U.S. at 666. Nor

can Appellants’ later filed declaration, in which

Hierholzer attempts to allege economic disadvantage,

cure Appellants’ pleading deficiency. We have held

that parties may not “amend their complaints through

Appendix 21a

briefing.” S. Walk at Broadlands Homeowner’s Ass’n,

Inc. v. OpenBand at Broadlands, LLC, 713 F.3d 175,

184 (4th Cir. 2013); see also U.S. ex rel. Nathan v.

Takeda Pharms. N. Am., Inc., 707 F.3d 451, 459 n.8

(4th Cir. 2013) (“[A plaintiff ] cannot cure pleading

deficiencies in the complaint with later-filed

supporting documentation [on a motion to dismiss].”).

Even if Hierholzer’s declaration was sufficient to

allege economic disadvantage, Appellants still failed

to plead that they could satisfy the 8(a) Program’s race

neutral social disadvantage requirements.

Appellants contest that they were required to plead

facts to illustrate their basic eligibility to the 8(a)

Program. Oral Argument at 04:59-5:25, Hierholzer v.

Guzman, No. 24-1187 (4th Cir. Oct. 29, 2024),

https://www.ca4.uscourts.gov/OAarchive/mp3

/24-1187-20241029.mp3 (“Oral Argument”) (“It simply

makes no sense to say that you have to prove social

disadvantage in order to challenge the presumption of

social disadvantage . . . . [I]f a plaintiff can already

prove social disadvantage to SBA’s satisfaction, that’s

when they arguably would have a standing

problem.”). But, it is elemental that “the party

invoking federal jurisdiction, bears the burden of

establishing” standing. McMaster, 24 F.4th at 899.

Therefore, contrary to Appellants’ assertion, they

were required to plead facts to support that they

would be eligible for the program—i.e., that

Hierholzer

is

socially

and

economically

disadvantaged. Because Appellants failed to do so,

Appellants have not demonstrated that they suffered

an injury in fact.

As the Government aptly stated, “without any

allegations that . . . [Appellants] are ready and able to

Appendix 22a

bid on future business” through the 8(a) Program,

Appellants’ “alleged injury is not at all concrete,

particularized, imminent, or certainly impending.”

Gov’t’s Resp. Br. at 30. Appellants’ alleged injury is,

therefore, entirely conjectural or hypothetical rather

than actual or imminent. See Laufer, 60 F.4th at 161.

And Appellants do not have a “personal stake in the

outcome” of the controversy because, as the district

court noted, Appellants’ failure to allege an injury is

based on “their own failure to [demonstrate] the 8(a)

Program eligibility requirements [of] social and

economic disadvantage.”

J.A. 169.

Appellants’

alleged injury is a “generally available grievance

about government” insufficient to confer standing.

Gill, 585 U.S. at 54.

Therefore, we affirm the determination of the

district court that Appellants failed to allege an injury

in fact.

2.

Traceability

“ To be ‘fairly traceable,’ there must be ‘a causal

connection between the injury and the conduct

complained of.’ ” Laufer, 60 F.4th at 161 (quoting

Lujan, 504 U.S. at 560).

The district court held that Appellants could not

establish that the race conscious presumption caused

their harm because Appellants failed to meet the

required criteria—social and economic disadvantage—for the 8(a) Program even without the

presumption. Again, the district court held that the

pleading deficiency could not be cured with

Appellants’ later filed declaration in which Hierholzer

attempted to establish his economic disadvantage

Appendix 23a

because the declaration was “inadequate to cure [the]

deficiencies in the complaint.” J.A. 171. The district

court also focused on Appellants’ history of being

denied by the 8(a) Program for failure to establish

social disadvantage.

On appeal, Appellants argue that they need not

illustrate

social

disadvantage

because

the

presumption makes it harder to get into the 8(a)

Program and that their injury can be traced to the

SBA’s enforcement of the 8(a) Program.

The

Government counters that Appellants are unable to

meet the program requirements, and, therefore,

Appellants fail to adequately allege causation.

Here, again, the Government is correct. There is

no causal connection between Appellants’ claimed

injury (i.e., that it is more difficult to get into the 8(a)

Program) and the conduct complained of (i.e., the

existence of the presumption). Appellants cannot

meet the requirements of the 8(a) Program regardless

of the presumption. In arguing otherwise, Appellants

wish to convert the 8(a) Program into a double dipping

opportunity. See J.A. 15-17 (discussing the “social

disadvantages stemming from his service-disabled

veteran status”). 15 U.S.C. § 657f-1 exists to assist

small, service-disabled veteran owned businesses.

And Appellants have benefitted from that program

immensely. See J.A. 58-61 (discussing the fact that

Appellants have been awarded 3,630 contracts

totaling nearly $130 million since 2006—$76,059,043

of which was awarded through the Service-Disabled

Veteran Owned Small Business Program).

In contrast, the 8(a) Program was not created to

assist small, service-disabled veteran owned

businesses. It was created to assist eligible, socially

Appendix 24a

and economically disadvantaged small business

owners. Yet, as the district court held, Appellants are

simply ineligible for the program because of their

failure to allege economic disadvantage and their

inability to prove social disadvantage—the core

requirements that must be met for admission into the

program.

Therefore, we affirm the determination of the

district court that Appellants failed to allege

causation.

3.

Redressability

For Appellants to establish redressability, “ ‘it must

be likely, as opposed to merely speculative, that the

injury will be redressed by a favorable decision.’ ”

Laufer, 60 F.4th at 161 (quoting Lujan, 504 U.S. at

561). “Additionally, where injunctive relief is sought,

the plaintiff must show a ‘real or immediate threat

that [they] will be wronged again.’ ” Id. (quoting City

of L.A. v. Lyons, 461 U.S. 95, 111 (1983)).

The district court held that Appellants failed to

plausibly allege that striking down the race conscious

presumption would redress Appellants’ alleged injury.

Nor did the district court accept Appellants’ argument

that the presumption made it less likely that

Appellants would be granted 8(a) Program eligibility,

which the district court called “pure speculation.” J.A.

173.

Appellants argue that the elimination of the

presumption of social disadvantage would redress the

difficulty that they experienced in getting into the 8(a)

Program. The Government counters that even if

Appellants are granted the relief sought—an

Appendix 25a

injunction against the presumption—Appellants’

position would not change because, as the district

court pointed out, the presumption is severable from

the rest of the regulation, which would simply

continue to operate without the presumption and

would continue to bar Appellants from the program

based on Hierholzer’s previous and continued lack of

social and economic disadvantage. See Oral Argument at 14:56-15:36 (“[The] relief [Appellants] seek

. . . happened over a year ago . . . . [And Appellants]

have already twice failed to make [a showing of social

disadvantage]. They are in no different a position

today than they were when they previously applied to

the program . . . . Tellingly, in the year since the

presumption has been eliminated, [Appellants] have

not reapplied to the program. Because they failed to

allege that they can satisfy those race neutral

eligibility requirements for the 8(a) Program, their

injury cannot be redressed.”).

Appellants counter that their prior “rejections for

failure to satisfy the social disadvantage criterion

underscore the inherent inequality of SBA’s process.”

Appellants’ Reply Br. at 13.

But it is clear that a favorable decision would not

redress Appellants’ claimed injury. Despite

Appellants’ attempts to argue otherwise, their prior

rejections underscore their ineligibility for the 8(a)

Program.

Even if Appellants were granted an

injunction, the race neutral criteria that Appellants

would face upon application to the 8(a) Program would

remain the same. See 15 U.S.C. § 637(a)(4)(A)(i)(I)

(requiring all applicants for the 8(a) Program to be

both “socially and economically disadvantaged”

(emphasis supplied)). Therefore, Appellants would

Appendix 26a

still be required to demonstrate social and economic

disadvantage, among other requirements, to be

admitted to the program—which they cannot do.

On multiple occasions, Appellants have been

unable to meet the program requirements—hurdles

that would continue to bar Appellants from the 8(a)

Program even if their requested relief were granted.

For that reason, Appellants have not and cannot show

a “real or immediate threat that [they] will be

wronged again” because they were not wronged in the

first place—they were simply ineligible. Laufer, 60

F.4th at 161 (internal quotation marks omitted)

(citation omitted). Because Appellants’ claimed injury

cannot be redressed by a favorable decision,

Appellants have failed to establish the redressability

requirement of standing.

Therefore, there is no “genuine, live dispute

between adverse parties.” Laufer, 60 F.4th at 161.

Consequently, we affirm the district court’s

determination that Appellants have failed to establish

injury in fact, causation, or redressability, and they

lacked Article III standing to sue. We affirm the

district court’s dismissal based on a lack of subject

matter jurisdiction.

IV.

For these reasons, the district court’s order is

reversed in part and affirmed in part. We remand for

further proceedings consistent with this opinion.

REVERSED IN PART, AFFIRMED

IN PART, AND REMANDED

Appendix 27a

Case 2:23-cv-00024-RAJ-DEM Document 49

Filed 02/15/24

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Norfolk Division

MARTY HIERHOLZER,

an individual

and

MJL Enterprises, LLC, a

Virginia corporation

Plaintiffs,

V.

Civil Action No.

2:23-cv-00024

ISABEL GUZMAN, in her

official capacity as

Administrator of the Small

Business Administration

and

SMALL BUSINESS

ADMINISTRATION,

Defendants.

MEMORANDUM OPINION AND ORDER

Before the Court is a Motion to Dismiss the

Complaint pursuant to the Federal Rules of Civil

Procedure (“FRCP”) Rule 12(b)(1) and 12(b)(6) filed by

Isabel Guzman, Administrator of the Small Business

Administration,

and

the

Small

Business

Administration (“SBA”) (collectively, “Defendants”).

ECF Nos. 19, 20 (“Defs.’ Mot.”). Marty Hierholzer

Appendix 28a

(“ Hierholzer”), an individual, and MJL Enterprises.

LLC (“MJL”), a Virginia corporation (collectively

“Plaintiffs”) filed a response to Defendants’ Motion.

ECF No. 26 (“Pls.’ Resp.”). Defendants filed their

reply. ECF No. 27 (“Defs.’ Reply”). Plaintiffs also filed

their Notice of Supplemental Authority. ECF No. 34

(“Pls.’ Supp. Auth.”). On January 31, 2024, the Court

heard oral argument on the Motion. The Court has

considered the parties’ memoranda. For the reasons

stated herein, Defendants’ Motion to Dismiss is

GRANTED.

I. FACTUAL AND PROCEDURAL HISTORY

Relevant to Defendants’ Motion to Dismiss and

stated in the light most favorable to Plaintiffs, the

following alleged facts are drawn from the Complaint

and attachments thereto.

Marty Hierholzer and MJL Enterprises

On January 18, 2023, Hierholzer and MJL filed

their Complaint against Defendants. ECF No. 1 (“Pls.’

Compl.”). In 2006, Hierholzer started his business,

MJL, which provides government contracting services

to the United States military. Id. ¶ 14. Allegedly,

MJL is a small business, and Hierholzer is the

president and chief executive officer. Id. Hierholzer

is a service-disabled veteran who served twenty-two

years in the Navy as a saturation diver. Id. ¶¶ 15-16.

Hierholzer sustained many injuries in the line of duty,

rendering him disabled. Id. ¶¶ 16-19. The Department of Veteran Affairs (“VA”) rates Hierholzer as

60% disabled. Id. After Hierholzer retired in 2002, he

started his own business providing “medical,

maintenance, and repair equipment to military bases

and VA hospitals. MJL also delivers office supplies to

Appendix 29a

VA hospitals and offices and high-tech safety and

security equipment to first responders. Additionally,

MJL provides logistical labor and personnel services

for VA hospitals.” Id. ¶¶ 20-22.

The Small Business Administration 8(a) Program

Congress enacted the Small Business Act of 1953

(“the Act”) to protect small businesses and preserve

the free competitive enterprise system. 15 U.S.C.

§ 637.

The Act established various programs

including the 8(a) Program. Section 8(a) of the Act

authorizes the SBA to enter into agreements for goods

and services with other federal agencies, and to

subcontract those agreements to socially and

economically disadvantaged small business concerns.

Pls.’ Compl. ¶¶ 27-28. The purpose of the 8(a) program includes “promot[ing] the business development

of small business concerns owned and controlled by

socially and economically disadvantaged individuals

so that such concerns can compete on an equal basis

in the American economy.” 15 U.S.C. § 631(f )(2).

Socially disadvantaged individuals are “those who

have been subjected to racial or ethnic prejudice or

cultural bias because of their identity as a member of

a group without regard to their individual qualities.”

15 U.S.C. § 637(a)(5). Hierholzer believed his business would qualify because he allegedly had been

subjected to “cultural bias” because of his servicedisabled veteran status. Pls.’ Compl. ¶ 32. Economically disadvantaged individuals are those “socially

disadvantaged individuals whose ability to compete in

the free enterprise system has been impaired due to

diminished capital and credit opportunities.” Id. ¶ 33;

15 U.S.C. § 637(a)(6).

Appendix 30a

Section 631(f ) of the Act contains additional racial

classification

for

those

who

are

socially

disadvantaged, including members of certain racial

groups that enjoy a rebuttable presumption such as

“Black Americans, Hispanic Americans, Native

Americans, Indian tribes, Asian Pacific Americans,

Native Hawaiian Organizations, and other minorities.” Pls.’ Compl. ¶ 34; 15 U.S.C. § 631(f )(1). An

individual in those groups must demonstrate that “ he

or she has held himself or herself out, and is currently

identified by others, as a member of a designated

group if SBA requires it.” Pls.’ Compl. ¶ 42; 13 C.F.R.

§ 124.103(b)(2). “ The presumption of social disadvantage may be overcome with credible evidence to the

contrary.” 13 C.F.R. § 124.103(b)(3).

Other groups may petition the SBA to add them as

a presumptively socially disadvantaged group. Pls.’

Compl. ¶¶ 43-44; 13 C.F.R. § 124.103(c). “Such

individual should present corroborating evidence to

support his or her claim(s) of social disadvantage

where readily available.” 13 C.F.R. § 124.103(c). Such

individual must include “at least one objective

distinguishing feature that contributed to social

disadvantage,” must be based on treatment in

American society that’s chronic and substantial, and

negatively impacted their entry or advancement in

the business world. Id. Then SBA would decide

whether that group should be considered

presumptively disadvantaged.

Id. § 124.103(d).

Allegedly, the SBA has received and rejected many

“petitions from Hasidic Jews, women, and Iranians,

while it has accepted petitions from Asian Indians

(the highest income racial group in the United States)

and Sri Lankans.” Pls.’ Compl. ¶ 45. In 1987, the SBA

Appendix 31a

allegedly “rejected a petition from service-disabled

veterans to be considered presumptively disadvantaged.” Id. ¶ 46.

Hierholzer’s experience applying for the 8(a) Program

Hierholzer is of German and Scottish descent and

not a member of one of the groups listed as socially

disadvantaged. Id. ¶ 47. Hierholzer must put forth

evidence to support that he is socially disadvantaged,

including race, ethnicity, gender, and physical

handicap.

Id. ¶¶ 48-50; see also 13 C.F.R.

§ 124.103(c)(2). Additionally, his disadvantage must

be based on treatment in American society that’s

chronic and substantial and has negatively impacted

his entry or advancement in the business world. Pls.’

Compl. ¶¶ 51-53; see also 13 C.F.R. § 124.103(c)(2).

Allegedly, Hierholzer applied in 2009 and 2016 for

8(a) Program eligibilty, and he presented evidence of

his disabilities and the disadvantages he faced in his

career and personal life. Pls.’ Compl. ¶ 54. The SBA

denied both applications, and he sought reconsideration of the 2016 denial, which the SBA’s Office of

Hearings and Appeals affirmed in 2017 because

Hierholzer failed to show that his disability resulted

in social disadvantage. Id. ¶ 55; see also In the Matter

of: MJL Enterprises, LLC, Petitioner, SBA No. BDPE556, 2017 WL 8231365 (Dec. 18, 2017). Hierholzer

allegedly “ became aware that while he was denied

eligibility for the 8(a) Program, others were eligible

based on their race without having to prove specific

social disadvantages.” Pls.’ Compl. ¶ 63. Hierholzer

believes that he would have been accepted into the

8(a) Program “if he belonged to one of the favored

races listed in 15 U.S.C. § 631(f )(1)(B), (C) and 13

C.F.R. § 124.103(b)(1).” Id. ¶ 64. Allegedly, “the

Appendix 32a

statute deprived MJL from standing on equal footing

for 8(a) Program eligibility and competing for

exclusive 8(a) contracting opportunities.” Id. ¶ 65.

Hierholzer believes that the “SBA would accept more

program participants based on individualized

evidence of disadvantage” rather than racial

preference. Id. ¶ 66.

MJL’s Injury

Hierholzer is not a member of one of the classified

racial groups, making MJL “unable to compete for

contracts under the 8(a) Program that it could

successfully procure and perform if allowed to do so.”

Id. ¶ 70. MJL cannot access benefits provided to the

8(a) Program, including “access to business

development assistance, free training opportunities

through the SBA, and federal surplus property

access.” Id. ¶ 71. MJL is allegedly at a competitive

disadvantage when competing for government

contracts and does not enjoy a presumption of disadvantage. Id. ¶ 73.

Plaintiffs accuse Defendants of violating the

Constitution by denying Plaintiffs the ability to

participate in the 8(a) Program based on race. Pls.’

Compl. Additionally, the SBA allegedly arrogated to

itself power beyond what Congress authorized to

establish racial classifications and preferences. Id. If

Congress did give SBA that power, then Plaintiffs

allege that Congress violated the United States

Constitution nondelegation doctrine. Id. Specifically,

Plaintiffs assert five claims against Defendants:

Claim 1. The presumption that designated groups

are socially disadvantaged denies MJL

equal protection in violation of the Fifth

Amendment (Id. ¶¶ 76-90);

Appendix 33a

Claim 2. The racial classifications established by

the 8(a) Program and implementing the

regulations violate the Fifth Amendment’s equal protection guarantee (Id.

¶¶ 91-98);

Claim 3. The SBA’s 8(a) Program rule claiming

authority to decide which racial groups

enjoy a presumption of social disadvantage (13 C.F.R. § 124.103(b)(1))

violates the Administrative Procedure

Act (“APA”) (5 U.S.C. § 706(2)) because it

exceeds the agency’s statutory authority

(Id. ¶¶ 99-106);

Claim 4. The SBA’s 8(a) Program is an

unconstitutional exercise of legislative

power (Violation of the Nondelegation

Doctrine, U.S. Const. art. I, § 1) (Id.

¶¶ 107-112);

Claim 5. The SBA 8(a) regulations are arbitrary

and capricious in violation of the APA (5

U.S.C. § 706(2)(a)) (Id. ¶¶ 113-117).

Plaintiffs sues Isabel Guzman in her official

capacity and the SBA as a cabinet-level agency of the

United States government. Id. ¶¶ 12-13.

II.

LEGAL STANDARD

A. Federal Rule of Civil Procedure 12(b)(1)

Federal Rule of Civil Procedure 12(b)(1) provides

for the dismissal of actions that lack subject matter

jurisdiction. Federal courts are courts of limited subject matter jurisdiction. See Pinkley, Inc. v. City of

Frederick, Md., 191 F.3d 394, 399 (4th Cir. 1999).

Accordingly, ‘‘before a federal court can decide the

merits of a claim, the claim must invoke the

Appendix 34a

jurisdiction of the court.” Miller v. Brown, 462 F.3d

312, 316 (4th Cir. 2006). For a 12(b)(1) motion, a

defendant can challenge subject matter jurisdiction in

two ways. First, a defendant may argue that “a

complaint simply fails to allege facts upon which

subject matter jurisdiction can be based.” Adams v.

Bain, 697 F.2d 1213, 1219 (4th Cir. 1982). “[A]ll the

facts alleged in the complaint are assumed to be true

and the plaintiff, in effect, is afforded the same

procedural protection as he would receive under a

Rule 12(b)(6) consideration.” Id.

Second, a defendant may argue that the

jurisdictional allegations in the complaint are not

true. Id. “A trial court may then go beyond the allegations of the complaint and in an evidentiary hearing

determine if there are facts to support the

jurisdictional allegations.” Id. The burden is on the

plaintiff to prove subject matter jurisdiction and a

trial court may consider evidence “by affidavit,

depositions or live testimony without converting the

proceeding to one for summary judgment.” Id. “As

the Supreme Court has explained with respect to such

situations, a trial court should dismiss under Rule

12(b)(1) only when the jurisdictional allegations are

clearly . . . immaterial, made solely for the purpose of

obtaining jurisdiction or where such a claim is wholly

unsubstantial and frivolous.” See Kerns v. United

States, 585 F.3d 187, 193 (4th Cir. 2009) (internal

citation and quotation omitted).

B. Federal Rule of Civil Procedure 12(b)(6)

Federal Rule of Civil Procedure 12(b)(6) provides

for the dismissal of actions that fail to state a claim

upon which relief can be granted. Considering a Rule

12(b)(6) motion, courts may only rely upon the

Appendix 35a

complaint’s allegations and those documents attached

as exhibits or incorporated by reference. See Simons

v. Montgomery Cnty. Police Officers, 762 F.2d 30, 31

(4th Cir. 1985). Courts will favorably construe the

allegations of the complainant and assume that the

facts alleged in the complaint are true. See Erickson

v. Pardus, 551 U.S. 89, 94 (2007). However, a court

“need not accept the legal conclusions drawn from the

facts,” nor “accept as true unwarranted inferences,

unreasonable conclusions, or arguments.” Eastern

Shore Mkts., Inc., v. J.D. Assocs. Ltd. P’ship, 213 F.3d

175, 180 (4th Cir. 2000).

A complaint need not contain “detailed factual

allegations” to survive a motion to dismiss, but the

complaint must incorporate “enough facts to state a

belief that is plausible on its face.” See Bell Atl. Corp.

v. Twombly, 550 U.S. 544, 570 (2007); Giacomelli v.

Johnson, 521 F.3d 298, 302 (4th Cir. 2008). This

plausibility standard does not equate to a probability

requirement, but it entails more than a mere

possibility that a defendant has acted unlawfully.

Ashcroft v. Iqbal, 556 U.S. 662, 611-19 (2009).

Accordingly, the plausibility standard requires a

plaintiff to articulate facts that, when accepted as

true, demonstrate that the plaintiff has stated a claim

that makes it plausible he is entitled to relief. Francis

v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009)

(quoting Iqbal, 556 U.S. at 611, and Twombly, 550

U.S. at 557). To achieve factual plausibility, plaintiffs

must allege more than “naked assertions . . . without

some further factual enhancement.” Twombly, 550

U.S. at 557. Otherwise, the complaint will “stop[]

short of the line between possibility and plausibility of

entitlement to relief.” Id.

Appendix 36a

III.

DISCUSSION

Under Rule 12(b)(1), Defendants move to dismiss

all five Claims for lack of standing. Defs.’ Mot. at 6.

Under Rule 12(b)(6), Defendants move to dismiss

Claims One, Two, and Four of the Complaint for

failure to state a claim upon which relief can be

granted. Id. The Court will address whether the

Claims lack standing before addressing the

plausibility of each Claim.

A. Standing

As an initial matter, federal district court has

jurisdiction to hear cases and controversies arising

under the Constitution, laws, or treaties of the United

States. U.S. Const. Art. III § 2. “One element of the

case-or-controversy requirement is that plaintiffs

must establish that they have standing to sue.”

Clapper v. Amnesty Int’l USA, 568 U.S. 398, 408

(2013) (internal citations and quotations omitted).

Article III standing is designed to “prevent the judicial

process from being used to usurp the powers of the

political branches.” Id. “The federal judicial power is

not an unconditioned authority to determine the

constitutionality of legislative or executive acts.”

Carpenter v. Barnhart, 894 F.2d 401 (4th Cir, 1990).

To establish standing, a plaintiff must allege:

“(1) an injury in fact, (2) that is fairly traceable to the

challenged conduct of the defendant [“causation”], and

(3) that is likely to be redressed by a favorable judicial

decision.” Buscemi v. Bell, 964 F.3d 252, 258 (4th Cir.

2020) (internal citation and quotation omitted). These

requirements ensure “that the plaintiff has a personal

stake in the outcome of the controversy.” Id. In this

case, Plaintiffs allege that the SBA denied them the

opportunity to participate in the 8(a) Program based

Appendix 37a

on race. Pls.’ Compl. ¶ 4. However, Defendants argue

that Plaintiffs lack standing because “they have not

plausibly alleged any of the three elements that are

required to establish Article III standing.” Defs.’ Mot.

at 8. The Court will address the elements of standing

separately.

1. Injury in Fact

According to the Complaint, Plaintiffs assert that

the SBA has denied them the opportunity to

participate in the 8(a) Program based on race. Pls.’

Compl. ¶ 4. Further, Plaintiffs assert that the

statutes and regulations for the 8(a) Program prevent

MJL from “standing on equal footing for the 8(a)

Program eligibility and then from competing for

exclusive 8(a) contracting opportunities based on

race.” Id. ¶ 67. Plaintiffs also assert that Hierholzer

is not a member of a group that SBA classifies as

socially disadvantaged, which puts MJL at a

“competitive disadvantage when competing for

government contracts.” Id. 70-73.

Defendants argue that “Plaintiffs fail to point to

any specific loss of business and, thus, fail to

sufficiently allege an injury in fact.” Defs.’ Mot. at 17.

Additionally, Defendants argue that Plaintiffs fail to

allege that MJL ever competed against an 8(a)

Program participant for a contract or that they lost

any bids to an 8(a) Program participant. Id. Plaintiffs

respond that their injury is “the denial of equal

treatment on the basis of race.” Pls.’ Resp. at 10.

Additionally, Plaintiffs argue that Defendants are

wrong in asserting that the “race-based presumption

of social disadvantage was not a complete bar to

contracts set aside lor 8(a) business.” Id. Defendants

replied that Plaintiffs fail to allege that they are “able

Appendix 38a

and ready to bid on any Section 8(a) [P]rogram

contracts” and the harms Plaintiffs allegedly are

suffering are “too speculative to constitute an injury

in fact.” Defs.’ Reply at 2.

To prove injury in fact, a plaintiff must show that

the injury is “concrete and particularized” and “actual

or imminent, not conjectural or hypothetical.” Lujan

v. Defs. of Wildlife, 504 U.S. 555, 560 (1992). “ The

threatened injury must be certainly impending, and

allegations of possible future injury are insufficient.”

Buscemi, 964 F.3d at 259 (alterations omitted). “An

injury reliant on a highly attenuated chain of

possibilities does not qualify as being certainly

impending.” Id. (alterations omitted). “When a

plaintiff challenges the constitutionality of a statute,

the plaintiff must show that there is a realistic danger

that the plaintiff will sustain a direct injury as a

result of the terms of the statute.” Id. (alterations

omitted). Furthermore, when a set-aside program is

at issue, “the ‘injury in fact’ is the inability to compete

on an equal footing in the bidding process, not the loss

of a contract.” Ne. Fla. Chapter of Associated Gen.

Contractors of Am. v. City of Jacksonville, Fla., 508

U.S. 656, 666 (1993). Therefore, a plaintiff challenging a set-aside program need only to “demonstrate

that it is able and ready to bid on contracts and that a

discriminatory policy prevents it from doing so on an

equal basis.” Id.

Here, Plaintiffs fail to allege that they lost a

contract bid because of the race-conscious

presumption to join the 8(a) Program. Plaintiffs’ injury is not “concrete” or “actual or imminent” because

Plaintiffs have not alleged in their Complaint any

specific contract bids that they lost. Additionally,

Appendix 39a

Plaintiffs fail to allege that they meet the

requirements of “economically disadvantaged.” 1 See

generally Pls.’ Compl. Plaintiffs’ Complaint lacks any

allegations that they are economically disadvantaged

based on the factors listed in 13 C.F.R. § 124.104.

Defendants provided documentation noting that

Plaintiffs have participated in the service-disabled

veteran-owned small business program and awarded

roughly $130 million in contracts. See Defs.’ Mot. at

Exs. 1, 2. Since Plaintiffs fail to allege that they are

economically disadvantaged, the race conscious

presumption could not have prevented Plaintiffs from

being accepted into the 8(a) Program.

Unlike the City of Jacksonville, the plaintiffs could

not compete for set-aside contracts because a

discriminatory policy prevented them from doing so.

City of Jacksonville, 508 U.S. at 658. The court held

that the plaintiffs suffered an injury because the

program served as a barrier preventing the plaintiffs

from participating. Id. at 667-68. In this case, the

8(a) Program does not pose a barrier to Plaintiffs, like

the plaintiff in the City of Jacksonville, because

anyone can participate in the 8(a) Program, no matter

their race or gender, if they submit evidence

demonstrating social and economic disadvantage.

1 Under 13 C.F.R. § 124.104, each individual claiming economic

disadvantage must submit a narrative and personal financial

information. The SBA will consider the following: (1) the

individual’s average adjusted gross income cannot exceed

$400,000 over three years preceding the submission of an

application; (2) the individual’s net worth must be less than

$850,000; (3) the fair market value of an individual’s assets must

not exceed $6.5 million; and (4) any asset transfers within two

years. Id.

Appendix 40a

The barrier is Plaintiffs’ own failure to meet the 8(a)

Program eligibility requirements—social and economic disadvantage. Additionally, Plaintiffs have not

shown that they are ready and able to bid on the 8(a)

Program contracts. City of Jacksonville, 508 U.S. at

666. Therefore, Plaintiffs fail to allege an injury in

fact.

2. Causation

Plaintiffs’ allegations in the Complaint are the

same as above. See Pls.’ Compl. ¶¶ 67-75. Defendants

argue that Plaintiffs cannot trace their alleged injury

to the race-conscious presumption. Defs.’ Mot. at 9.

Additionally, Defendants argue that Plaintiffs fail to

allege that they can participate in the 8(a) Program

without satisfying the race-conscious presumption.

Id. Plaintiffs respond that the 8(a) Program imposes

hurdles for Hierholzer because of his race. Pls.’ Resp.

at 12. Additionally, Plaintiffs argue that Hierholzer

must make an additional showing since he is not a

member of one of the racial or ethnic groups. Id.

Plaintiffs also argue that Hierholzer meets the

eligibility requirements for economic disadvantage.

Id. Defendants replied that Plaintiffs cannot cure

their failure for not alleging Hierholzer’s economic

status to prove that he is economically disadvantaged.

Defs.’ Reply at 8.

To prove causation, Plaintiffs must demonstrate “a

causal connection between the injury and the conduct

complained of.” Interstate Traffic Control v. Beverage,

101 F. Supp. 2d 445, 451 (S.D.W. Va. 2000). This

means that “it must be likely that the injury was

caused by the conduct complained of and not by the

independent action of some third party not before the

Appendix 41a

court.” Friends of the Earth, Inc. v. Gaston Copper

Recycling Corp., 204 F.3d 149, 154 (4th Cir. 2000).

Here, Plaintiffs fail to allege that Defendants’ use

of the race-conscious presumption caused their

alleged injuries. Plaintiffs have not alleged that they

can compete for the 8(a) Program contracts if the raceconscious presumption was removed because they

have not alleged facts demonstrating social and

economic disadvantage. In SRS Techs., Inc. v. U.S.

Dep’t of Def., the plaintiff argued that the raceconscious presumption of social disadvantage

prohibited the plaintiff from participating in the 8(a)

Program for race-based reasons. 112 F.3d 510, 1997

WL 225979, at *1 (4th Cir. 1997). The court found

that the plaintiff was ineligible to participate because

its owner is a multimillionaire who failed to meet the

economic disadvantage requirement, which is a raceneutral criterion. Id. Thus, the court held the raceconscious presumption did not cause the plaintiff to

not qualify for the 8(a) Program. Id. Like the plaintiff

in SRS, Plaintiffs fail to meet a race-neutral criterion

for participation in the 8(a) Program. The Complaint

does not state whether Plaintiffs meet the eligibility

requirements for economically disadvantaged. See

generally Pls.’ Compl.; see also Iqbal, 556 U.S. at 678

(stating a complaint is not “suffice if it tenders ‘naked

assertions’ devoid of ‘further factual enhancement.’ ”)

(alterations omitted).

Recognizing this, Plaintiffs filed an affidavit from

Hierholzer, which they attached to their response to

Defendants’ Motion to Dismiss. Although the Court

may consider documents presented on the issue of

jurisdiction, which Plaintiff failed to attach to their

Complaint, the Court finds the affidavit insufficient to

Appendix 42a

establish

that

Plaintiffs

are

economically

disadvantaged. See Beck v. McDonald, 848 F.3d 262,

270 (4th Cir. 2017) (stating courts may consider

evidence beyond the complaint’s allegations if there

are facts to support or refute the jurisdictional

allegations). Hierholzer states that he “believe[s]” he

meets the requirements for economically disadvantaged. Hierholzer’s beliefs are not enough to

demonstrate that he is economically disadvantaged.

Even if the Court accepts the affidavit as true, it fails

to discuss asset transfers within two years, a factor

that SBA will consider in determining if an individual

is economically disadvantaged. 2 This leaves open the

possibility that Plaintiffs are not economically

disadvantaged. Nevertheless, the affidavit is inadequate to cure deficiencies in the Complaint. U.S. ex

rel. Nathan v. Takeda Pharms. N. Am., Inc., 707 F.3d

451, 458-59 n.8 (4th Cir. 2013) (stating that a

“plaintiff cannot cure pleading deficiencies in the []

complaint with later-filed supporting documentation

on a motion to dismiss.”).

Furthermore, Plaintiffs have not alleged social

disadvantage status in absence of the race-conscious

presumption. Plaintiffs applied for the 8(a) Program

twice and were denied entry each time. The SBA

denied Plaintiffs because they failed to show that they

2 See 13 C.F.R. § 124.104(c)(1)(i) (stating “SBA will attribute to

an individual claiming disadvantaged status any assets which

that individual has transferred . . . for less than fair market

value, within two years prior to [applying] . . . or within two years

of a Participant’s annual program review, unless the individual

. . . can demonstrate that the transfer is to or on behalf of an

immediate family member for that individual’s education,

medical expenses, or some other form of essential support.”).

Appendix 43a

are socially disadvantaged, not because of their race. 3

Plaintiffs cannot establish causation because they fail

to allege the presumption that certain racial and

ethnic groups enjoy is causally related to their alleged

injury. Therefore, Plaintiffs fail to allege causation.

3. Redressability

A. Motion to Dismiss

Plaintiffs allege they will continue to suffer

irreparable harm if the racial classification remains in

effect. Pls.’ Compl. ¶ 74. Additionally, Plaintiffs

request the Court to declare the racial classifications

unconstitutional and to “permanently enjoin enforcement and administration of 15 U.S.C. §§ 631(f )(1)(B)

and 637(a)(5), (8) to the extent that they employ a

racial preference.” Id. at 20. Defendants argue that

Plaintiffs would be in the same place they are in now

if the Court eliminates the race-conscious presumption because they have not sufficiently alleged

social disadvantage status.

Defs.’ Mot. at 13.

Plaintiffs respond that a judicial decree directing

Defendants to discontinue using the racial

presumption would redress their injury. Pls.’ Resp. at

14. Defendants argue eliminating the race-conscious

presumption would not change the competition

Plaintiffs face for government contracts. Defs.’ Reply

at 11. Additionally, Defendants argue that “Plaintiffs

would still compete on the same footing with the same

3 See In the Matter of: MJL Enterprises. LLC, Petitioner, 2017

WL 823 1365, at *7 (concluding “Petitioner has failed to offer

evidence showing that his uncontested disability resulted in a

social disadvantage impacting his advancement in the business

world.”).

Appendix 44a

number of firms in the 8(a) [P]rogram that they

compete against today.” Id.

To prove redressability, Plaintiffs must show that

the relief sought will provide redress for the alleged

injury. See Interstate Traffic Control, 101 F. Supp. 2d

at 451. The Court must have the power to provide the

requested relief Plaintiffs are seeking. See Buscemi,

964 F.3d at 259. Redressability must be “likely” and

not “speculative.” See Lujan, 504 U.S. at 561.

Here, Plaintiffs fail to show that they would be

eligible for the program without the race-conscious

presumption. Plaintiffs would still have to demonstrate social and economic disadvantage to get into

the 8(a) Program. Plaintiffs have not plausibly

alleged that striking down the presumption would

redress their alleged injury. Additionally, it is pure

speculation that the presumption makes it less likely

MJL will be granted 8(a) eligibility and that MJL

cannot compete for contracts that it could successfully

procure and perform. Removing the presumption

“would not alter the number or identity of socially and

economically disadvantaged individuals eligible to

participate.” See Interstate Traffic Control, 101 F.

Supp. 2d at 453. The race-conscious presumption is

severable from the rest of the 8(a) Program, and the

8(a) Program would remain operative without the

presumption because Plaintiffs would still have to

demonstrate social and economic disadvantage. See

e.g., Cache Valley Elec. Co. v. Utah Dep’t of Transp.,

149 F.3d 1119, 1123 (10th Cir. 1998) (stating the

disputed preferences are severable from the program

because the plaintiff would still have to meet the

requirements to participate in the program).

Therefore, Plaintiffs fails to allege redressability.

Appendix 45a

B. January 31st Oral Argument

On January 31, 2024, the Court held oral argument

on Defendants’ Motion. ECF No. 46. During oral

argument, Defendants stated that since a sister court

enjoined Defendants from using the race-conscious

presumption, 4 Defendants have “purged” the

presumption from the 8(a) Program process. See

Excerpt of Proceedings at 3. According to Defendants,

the SBA used the presumption in three stages: 1) at

the application stage, 2) at the award stage, and 3) at

the annual review stage. Id. However, the presumption is no longer involved in the 8(a) Program. Id.

Defendants assert that “each individual applicant,

regardless of their race or ethnicity, has to go through

the exact same process to establish social and

economic disadvantage. No change regardless of your

racial or ethnic background. Each application is

judged independently of that.” Id. at 4:3-7.

To comply with the Ultima Court’s injunction,

Defendants paused all applications of individuals to

the 8(a) Program. Id. Additionally, the SBA contacted any individuals accepted into the 8(a) Program

through the presumption and required them to

reapply without the use of the presumption,

demonstrating social and economic disadvantage—

the same process new applicants must go through. Id.

at 4-5. Further, approximately 3,900 individuals were

in the program at the time, and if they chose to

remain, they were required to go through the same

process described above. Id. at 5.

4 See Ultima Servs. Corp. v. U.S. Dep’t of Agric., No. 2:20-cv-

00041, 2023 WL 4633481 (E.D. Tenn. July 19, 2023)

Appendix 46a

Given that the SBA removed the race-conscious

presumption, there is nothing for the Court to redress.

Plaintiffs assert that the race-conscious presumption

hinders their ability to get accepted into the 8(a)

Program, and for that same reason, the race-conscious

presumption is causing their injury. See Pls.’ Reply;

see also Excerpt of Proceedings at 13. Further, since

the race-conscious presumption is allegedly injuring

them, then removal of the race-conscious presumption

would redress their injury. See Pls.’ Reply; see also

Excerpt of Proceedings at 13. However, Defendants

stated on record that they are no longer using the

race-conscious presumption. Plaintiff did not rebut or

challenge these representations Defense Counsel

made to the Court. Since the race-conscious presumption is no longer causing Plaintiffs alleged injury, then

there is nothing to redress.

As the Court stated previously, the Constitution

limits federal courts jurisdiction to cases and

controversies. U.S. Const. Art. III § 2. “A corollary to

this case-or-controversy requirement is that an actual

controversy must be extant at all stages of review, not

merely at the time the complaint is filed.” Genesis

Healthcare Corp. v. Symczyk, 569 U.S. 66, 71, (2013)

(internal citations and quotations omitted). “If an

intervening circumstance deprives the plaintiff of a

‘personal stake in the outcome of the lawsuit,’ at any

point during litigation, the action can no longer

proceed and must be dismissed as moot.” Id. at 72

(internal citation omitted). Here, the SBA changed

the 8(a) Program application and removed the raceconscious presumption from all stages of the process.

Plaintiffs no longer have a personal stake in the

Appendix 47a

outcome of this litigation. Therefore, Plaintiffs claim

is moot, and they fail to allege redressability.

Since Plaintiffs fail to meet the standing

requirements, this Court lacks subject matter

jurisdiction to entertain this dispute. See Just. 360 v.

Stirling, 42 F.4th 450, 458 (4th Cir. 2022) (“No matter

how interesting or elegant a party’s argument, the

federal courts have no power to breathe life into

disputes.”). Thus, Plaintiffs’ Complaint is dismissed.

IV.

CONCLUSION

Based on the foregoing reasons, Defendants’

Motion to Dismiss is GRANTED. ECF Nos. 19, 20.

In view of the Court’s ruling on this Motion,

Defendants’ Motion to Stay is DENIED AS MOOT.

ECF No. 36

The Clerk is DIRECTED to send a copy of this

Memorandum Opinion and Order to counsel for the

Parties.

IT IS SO ORDERED.

s/

Norfolk, Virginia

Raymond A. Jackson

February 15 , 2024

United States District Judge

Appendix 48a

USCA4 Appeal: 24-1187 Doc: 41 Filed: 03/04/2025

_______________________

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

_______________________

No. 24-1187

(2:23-cv-00024-RAJ-DEM)

_______________________

MARTY HIERHOLZER; MJL ENTERPRISES,

LLC, a Virginia corporation,

Plaintiffs - Appellants,

v.

ISABEL GUZMAN, in her official capacity as

Administrator

of

the

Small

Business

Administration;

SMALL

BUSINESS

ADMINISTRATION,

Defendants - Appellees.

_______________________

ORDER

_______________________

The petition for rehearing en banc was circulated

to the full court. No judge requested a poll under Fed.

R. App. P. 40. The court denies the petition for

rehearing en banc.

For the Court

/s/ Nwamaka Anowi, Clerk

Appendix 49a

13 C.F.R. § 124.103

§ 124.103 Who is socially disadvantaged?

(a) General. Socially disadvantaged individuals

are those who have been subjected to racial or

ethnic prejudice or cultural bias within American

society because of their identities as members of

groups and without regard to their individual

qualities. The social disadvantage must stem from

circumstances beyond their control.

(b) Members of designated groups.

(1) There is a rebuttable presumption that the

following individuals are socially disadvantaged:

Black Americans; Hispanic Americans; Native

Americans (Alaska Natives, Native Hawaiians, or

enrolled members of a Federally or State recognized

Indian Tribe); Asian Pacific Americans (persons

with origins from Burma, Thailand, Malaysia,

Indonesia, Singapore, Brunei, Japan, China

(including Hong Kong), Taiwan, Laos, Cambodia

(Kampuchea), Vietnam, Korea, The Philippines,

U.S. Trust Territory of the Pacific Islands (Republic

of Palau), Republic of the Marshall Islands,

Federated

States

of

Micronesia,

the

Commonwealth of the Northern Mariana Islands,

Guam, Samoa, Macao, Fiji, Tonga, Kiribati, Tuvalu,

or Nauru); Subcontinent Asian Americans (persons

with origins from India, Pakistan, Bangladesh, Sri

Lanka, Bhutan, the Maldives Islands or Nepal);

and members of other groups designated from time

to time by SBA according to procedures set forth at

paragraph (d) of this section. Being born in a

country does not, by itself, suffice to make the birth

country an individual’s country of origin for

Appendix 50a

purposes of being included within a designated

group.

(2) An individual must demonstrate that he or

she has held himself or herself out, and is currently

identified by others, as a member of a designated

group if SBA requires it.

(3) The presumption of social disadvantage may

be overcome with credible evidence to the contrary.

Individuals possessing or knowing of such evidence

should submit the information in writing to the

Associate Administrator for Business Development

(AA/BD) for consideration.

(c) Individuals not members of designated

groups.

(1) An individual who is not a member of one of

the groups presumed to be socially disadvantaged

in paragraph (b)(1) of this section must establish

individual social disadvantage by a preponderance

of the evidence. Such individual should present

corroborating evidence to support his or her

claim(s) of social disadvantage where readily

available.

(2) Evidence of individual social disadvantage

must include the following elements:

(i) At least one objective distinguishing feature

that has contributed to social disadvantage, such

as race, ethnic origin, gender, identifiable

disability, long-term residence in an environment

isolated from the mainstream of American

society, or other similar causes not common to

individuals who are not socially disadvantaged;

(ii) The individual’s social disadvantage must

be rooted in treatment which he or she has

Appendix 51a

experienced in American society, not in other

countries;

(iii) The individual’s social disadvantage must

be chronic and substantial, not fleeting or

insignificant; and

(iv) The individual’s social disadvantage must

have negatively impacted on his or her entry into

or advancement in the business world. SBA will

consider any relevant evidence in assessing this

element, including experiences relating to

education, employment and business history

(including experiences relating to both the

applicant firm and any other previous firm

owned and/or controlled by the individual),

where applicable.

(A) Education. SBA considers such factors

as denial of equal access to institutions of

higher education, exclusion from social and

professional association with students or

teachers, denial of educational honors

rightfully earned, and social patterns or

pressures which discouraged the individual

from pursuing a professional or business

education.

(B) Employment.

SBA considers such

factors as unequal treatment in hiring,

promotions and other aspects of professional

advancement, pay and fringe benefits, and

other terms and conditions of employment;

retaliatory or discriminatory behavior by an

employer; and social patterns or pressures

which have channeled the individual into

nonprofessional or non-business fields.

Appendix 52a

(C) Business history. SBA considers such

factors as unequal access to credit or capital,

acquisition of credit or capital under

commercially

unfavorable

circumstances,

unequal treatment in opportunities for

government contracts or other work, unequal

treatment by potential customers and business

associates, and exclusion from business or

professional organizations.

(3) An individual claiming social disadvantage

must present facts and evidence that by

themselves establish that the individual has

suffered social disadvantage that has negatively

impacted his or her entry into or advancement in

the business world.

(i) Each instance of alleged discriminatory

conduct must be accompanied by a negative

impact on the individual’s entry into or

advancement in the business world in order for

it to constitute an instance of social

disadvantage.

(ii) SBA may disregard a claim of social

disadvantage where a legitimate alternative

ground for an adverse employment action or

other perceived adverse action exists and the

individual has not presented evidence that

would render his/her claim any more likely

than the alternative ground.

Example 1 to paragraph (c)(3)(ii). A woman

who is not a member of a designated group

attempts to establish her individual social

disadvantage based on gender. She certifies

that while working for company X, she received

less compensation than her male counterpart.

Appendix 53a

Without additional facts, that claim is

insufficient to establish an incident of gender

bias that could lead to a finding of social

disadvantage. Without additional facts, it is no

more likely that the individual claiming

disadvantage was paid less than her male

counterpart

because

he

had

superior

qualifications or because he had greater

responsibilities in his employment position. She

must identify her qualifications (education,

experience, years of employment, supervisory

functions) as being equal or superior to that of

her male counterpart in order for SBA to

consider that particular incident may be the

result of discriminatory conduct.

Example 2 to paragraph (c)(3)(ii). A woman

who is not a member of a designated group

attempts to establish her individual social

disadvantage based on gender. She certifies

that while working for company Y, she was not

permitted to attend a professional development

conference, even though male employees were

allowed to attend similar conferences in the

past. Without additional facts, that claim is

insufficient to establish an incident of gender

bias that could lead to a finding of social

disadvantage. It is no more likely that she was

not permitted to attend the conference based on

gender bias than based on non-discriminatory

reasons. She must identify that she was in the

same professional position and level as the male

employees who were permitted to attend similar

conferences in the past, and she must identify

that funding for training or professional

Appendix 54a

development was available at the time she

requested to attend the conference.

(iii) SBA may disregard a claim of social

disadvantage where an individual presents

evidence of discriminatory conduct, but fails to

connect the discriminatory conduct to

consequences that negatively impact his or her

entry into or advancement in the business

world.

Example to paragraph (c)(3)(iii). A woman

who is not a member of a designated group

attempts to establish her individual social

disadvantage based on gender. She provides

instances where one or more male business

clients utter derogatory statements about her

because she is a woman. After each instance,

however, she acknowledges that the clients gave

her contracts or otherwise continued to do

business with her. Despite suffering discriminatory conduct, this individual has not

established social disadvantage because the

discriminatory conduct did not have an adverse

effect on her business.

(4) SBA may request an applicant to provide

additional facts to support his or her claim of social

disadvantage to substantiate that a negative

outcome was based on discriminatory conduct

instead of one or more legitimate nondiscriminatory reasons.

(5) SBA will discount or disbelieve statements

made by an individual seeking to establish his or

her individual social disadvantage where such

statements are inconsistent with other evidence

contained in the record.

Appendix 55a

(6) In determining whether an individual

claiming

social

disadvantage

meets

the

requirements set forth in this paragraph (c), SBA

will determine whether:

(i) Each specific claim establishes an

incident of bias or discriminatory conduct;

(ii) Each incident of bias or discriminatory

conduct negatively impacted the individual’s

entry into or advancement in the business

world; and

(iii) In the totality, the incidents of bias or

discriminatory

conduct

that

negatively

impacted the individual’s entry into or

advancement in the business world establish

chronic and substantial social disadvantage.

(d) Socially disadvantaged group inclusion—

(1) General. Representatives of an identifiable

group whose members believe that the group has

suffered chronic racial or ethnic prejudice or

cultural bias may petition SBA to be included as a

presumptively socially disadvantaged group under

paragraph (b)(1) of this section. Upon presentation of substantial evidence that members of the

group have been subjected to racial or ethnic

prejudice or cultural bias because of their identity

as group members and without regard to their

individual qualities, SBA will publish a notice in

the Federal Register that it has received and is

considering such a request, and that it will

consider public comments.

(2) Standards to be applied. In determining

whether a group has made an adequate showing

that it has suffered chronic racial or ethnic

Appendix 56a

prejudice or cultural bias for the purposes of this

section, SBA must determine that:

(i) The group has suffered prejudice, bias, or

discriminatory practices;

(ii) Those conditions have resulted in

economic deprivation for the group of the type

which Congress has found exists for the groups

named in the Small Business Act; and

(iii) Those conditions have produced

impediments in the business world for

members of the group over which they have no

control and which are not common to small

business owners generally.

(3) Procedure. The notice published under

paragraph (d)(1) of this section will authorize a

specified period for the receipt of public comments

supporting or opposing the petition for socially

disadvantaged group status. If appropriate, SBA

may hold hearings. SBA may also conduct its own

research relative to the group’s petition.

(4) Decision. In making a final decision that a

group should be considered presumptively

disadvantaged, SBA must find that a

preponderance of the evidence demonstrates that

the group has met the standards set forth in

paragraph (d)(2) of this section based on SBA’s

consideration of the group petition, the comments

from the public, and any independent research it

performs. SBA will advise the petitioners of its

final decision in writing, and publish its conclusion

as a notice in the Federal Register. If appropriate,

SBA will amend paragraph (b)(1) of this section to

include a new group.

Appendix 57a

Case 2:23-cv-00024 Document 1 Filed 01/18/23

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

NORFOLK DIVISION

Marty Hierholzer, an

individual; MJL

Enterprises, LLC, a

Virginia corporation,

Plaintiffs,

Civil Case No.

2:23-cv-00024

v.

Isabel Guzman, in her

official capacity as

Administrator of the Small

Business Administration;

Small Business

Administration,

Defendants.

COMPLAINT FOR

DECLARATORY AND INJUNCTIVE RELIEF

INTRODUCTION

1. This case is about the right of small business

owner and Navy veteran Marty Hierholzer to equal

treatment under the law.

2. Marty is a service-disabled veteran and owner

of MJL Enterprises, LLC (MJL), which contracts with

the government to provide various services and

supplies. He served his country with distinction as a

Navy deep sea diver. He has persevered through

Appendix 58a

mental and physical injuries suffered in that work

with dignity and a determination to become a

successful government contractor supporting the

military.

3. As a service-disabled veteran, Marty faces welldocumented disadvantages—social, emotional, and

physical.

4. The Small Business Administration (SBA)

Business Development Program—commonly known

as the “8(a) Program”—purports to help small

business owners who have faced social disadvantage

with a host of benefits, including the chance to

compete for contracts set aside for eligible contractors.

Yet the SBA has denied Marty the opportunity to

participate in the program in part based on his race.

5. The racial preferences and classifications in the

8(a) Program and implementing regulations transgress the Constitution’s “simple command that the

Government must treat citizens as individuals, not as

simply components of a racial, religious, sexual or

national class.” Miller v. Johnson, 515 U.S. 900, 911

(1995) (quotation omitted).

6. The SBA, moreover, has arrogated to itself the

power beyond its enabling legislation to craft its own

system of racial preferences. Not only do the agency’s

race-based rules exceed statutory authority, they also

make arbitrary and capricious distinctions among

racial groups divorced from evidence and logic.

7. To the extent Congress did in fact authorize the

SBA to establish racial classifications and preferences, based not on findings of fact but unexamined

policy judgments about race, Congress has abandoned

its legislative prerogative, unconstitutionally delegating fundamental policy decisions and violating the

Appendix 59a

Constitution’s vesting legislative power exclusively in

the legislative branch.

JURISDICTION AND VENUE

8. This Court has jurisdiction over this action

pursuant to 28 U.S.C. § 1331 and 5 U.S.C. § 702.

9. The Court has authority to issue declaratory

and injunctive relief pursuant to 28 U.S.C. §§ 2201

and 2202.

10. Venue is proper under 28 U.S.C. § 1391(b)(2)

because a substantial part of the events or omissions

giving rise to the claims herein occurred in this

District. Venue is also proper under 28 U.S.C.

§ 1391(e)(1)(B) because Defendants are officers,

employees, and agencies of the United States and a

substantial part of the events or omissions giving rise

to these claims occurred in this District. See also 5

U.S.C. § 703 (venue for actions under the Administrative Procedure Act are generally proper in “a

court of competent jurisdiction”).

PARTIES

11. MJL Enterprises is a limited liability company

organized in the State of Virginia, owned and

controlled by Marty Hierholzer. Its principal place of

business is located in Virginia Beach, Virginia.

12. Defendant SBA is a cabinet-level agency of the

United States government.

13. Defendant Isabel Guzman is the Administrator

of the SBA. She is sued in her official capacity.

Appendix 60a

GENERAL ALLEGATIONS

Marty Hierholzer and MJL Enterprises

14. In 2006, Marty Hierholzer started his business,

MJL Enterprises, LLC (MJL), providing government

contracting services primarily to the United States

military. MJL is legally recognized as a small

business under the terms of the 8(a) Program. As its

sole owner, Marty remains its president and chief

executive officer today.

15. After serving twenty-two years in the Navy,

Marty returned to civilian life with permanent

injuries sustained in the line of duty. He is proud of

his service and determined not to be held back by the

injuries that classify him as a service-disabled

veteran.

16. Marty served the Navy as a saturation diver,

deploying to countless countries to perform highly

specialized work at depths of a thousand feet or more

below sea level. Deep diving is among the most

hazardous jobs, where the intense pressure is equally

physical and mental.

Alone, the processes of

pressurization and depressurization required to work

at such depths put debilitating strain on divers’

bodies. This is all in addition to the extraordinary

pressures and perils of war.

17. For commercial divers alone, the occupational

fatality rate is forty times the national average for

other professions.

18. It is no surprise then that in the line of duty

Marty sustained physical injuries to his knees, lower

back, and shoulders; he suffers from hearing loss and

tinnitus, along with decreased mobility. The mental

impact from stressful events, including combat,

Appendix 61a

accidents, and losing friends, resulted in clinically

recognized depression and anxiety disorders.

19. These injuries and disorders are recognized and

documented by Veterans Affairs (VA), rendering

Marty a service-disabled veteran in the eyes of the

United States government. He is rated as 60%

disabled by the VA.

20. Marty retired as a Master Diver in 2002, the

highest warfare qualification obtainable by a member

of the U.S. Naval diving community.

21. Since his life’s work was centered on military

service, it was only natural for Marty to start a

business whose motto and mission is “serving those

who serve.” Marty remembers that while he was in

the military, government contracting businesses

would contract to supply goods or services to the

troops, then sometimes fail to deliver, leaving the

soldiers high and dry. Marty was determined that

MJL would deliver dependably where others fell

short.

22. MJL provides medical, maintenance, and

repair equipment to military bases and VA hospitals.

MJL also delivers office supplies to VA hospitals and

offices and high-tech safety and security equipment to

first responders. Additionally, MJL provides logistical labor and personnel services for VA hospitals.

23. MJL qualifies as a small business concern

owned and controlled by a service-disabled veteran

under 15 U.S.C. § 632 and related federal regulations.

24. Marty has sought to use government programs

designed to help service-disabled veteran business

owners succeed, including through the VA.

Appendix 62a

25. Because of Marty’s veteran status, MJL

qualifies for and participates in the VA’s servicedisabled veteran small business contracting program.

The SBA 8(a) Program

26. The SBA’s 8(a) Program offers valuable

opportunities for MJL and Marty as a service-disabled

veteran. He has, therefore, invested time and money

to apply for the program, but without success.

I. The statutory framework

27. The 8(a) Program provides a host of benefits to

socially and economically disadvantaged businesses,

including access to exclusive government contracts set

aside by the SBA and agencies with which it has

partnership agreements.

28. Section 8(a) authorizes the SBA to enter into

agreements for goods and services with other

government departments and agencies, and to

subcontract the performance of those agreements to

“socially and economically disadvantaged small

business concerns.” 15 U.S.C. § 637(a)(1)(A), (B).

These contracts can be “sole source” (reserved to one

Section 8(a) firm) or competitive within the 8(a)

Program, such that only firms qualified for the 8(a)

Program can bid. 13 C.F.R. § 124.501(b). The SBA

has full discretion to administer this program as it

deems “necessary or appropriate.”

29. The SBA has granted some federal agencies the

authority to contract directly with 8(a) firms.

30. The 8(a) Program is administered by the SBA

and other agencies of the federal government

pursuant to Section 8(a) of the Small Business Act (15

U.S.C. § 637(a)).

Appendix 63a

31. The stated purposes of the 8(a) Program include

“promot[ing] the business development of small

business concerns owned and controlled by socially

and economically disadvantaged individuals” and

“clarify[ing] and expand[ing] the program for the

procurement by the United States of articles,

supplies, services, materials, and construction work

from small business concerns owned by socially and

economically disadvantaged individuals.” 15 U.S.C.

§ 631(f )(2) (2010).

II. The statute’s racial preference

32. The statute defines socially disadvantaged

individuals as “those who have been subjected to

racial or ethnic prejudice or cultural bias because of

their identity as a member of a group without regard

to their individual qualities.” Id. § 637(a)(5). Marty

believed MJL would qualify for 8(a) participation

because he has been subjected to “cultural bias” due

to his status as a service-disabled veteran.

33. “Economically disadvantaged individuals are

those socially disadvantaged individuals whose ability

to compete in the free enterprise system has been

impaired due to diminished capital and credit

opportunities” and are thus a subset of the socially

disadvantaged. Id. § 637(a)(6)(A). “Economically

disadvantaged” is defined broadly enough that almost

all small business concerns owned by a socially

disadvantaged individual will be considered

“economically disadvantaged.”

34. The statute also contains an additional racial

classification in a presumption that all individuals

who are members of certain racial groups are socially

disadvantaged: “such groups include, but are not

limited to, Black Americans, Hispanic Americans,

Appendix 64a

Native Americans . . . Asian Pacific Americans . . .

and other minorities.” Id. § 631(f ).

III. The regulation’s racial classifications

35. In addition to the racial groups presumed

socially

disadvantaged under

the

statutory

presumption, the SBA has designated by regulation

that

“Subcontinent

Asian

Americans”

are

presumptively disadvantaged. 13 C.F.R. § 124.103(b).

36. The regulation also adds detail to the racial

groups listed in the statute:

“Native Americans” are “Alaska Natives, Native

Hawaiians, or enrolled members of a Federally

or State recognized Indian Tribe.”

“Asian Pacific Americans” are “persons with

origins from Burma, Thailand, Malaysia,

Indonesia, Singapore, Brunei, Japan, China

(including Hong Kong), Taiwan, Laos,

Cambodia (Kampuchea), Vietnam, Korea, The

Philippines, U.S. Territory of the Pacific Islands

(Republic of Palau), Republic of the Marshall

Islands, Federated States of Micronesia, the

Commonwealth of the Northern Mariana

Islands, Guam, Samoa, Macao, Fiji, Tonga,

Kiribati, Tuvalu, or Nauru.”

37. “Subcontinent Asian Americans,” a group

added exclusively by regulation, are “persons with

origins from India, Pakistan, Bangladesh, Sri Lanka,

Bhutan, the Maldives Islands or Nepal.”

38. The regulation does not specify what subgroups

are included within “Black American” or “ Hispanic

American.”

However, the SBA relies on the

definitions of “ Hispanic,” “ Black,” and “ White” in the

Office of Management and Budget’s Directive No. 15,

Appendix 65a

entitled “ Race and Ethnic Standards for Federal

Statistics and Administrative Reporting.”

39. Under Directive No. 15, “ Hispanic” is someone

“of Mexican, Puerto Rican, Cuban or South American

or other Spanish culture or origin, regardless of race.”

The Directive does not define “culture or origin,”

although the SBA does consider individuals with

family origins in Portugal or Spain to be Hispanic

American.

40. The Directive defines Black Americans as

individuals with “origins in any of the black racial

groups of Africa.”

41. SBA relies on Directive No. 15 despite the

directive’s exclusive purpose as a tool for record

keeping, collection, and presentation of data on race

and ethnicity. The directive states that its classifications “should not be interpreted as being scientific

or anthropological in nature” and should not “be

viewed as determinants of eligibility for participation

in any Federal program.”

42. SBA can require at its discretion that anyone

who claims to be a member of one of these groups

enjoying presumptive disadvantage “demonstrate

that he or she has held himself or herself out, and is

currently identified by others, as a member of a

designated group.” 13 C.F.R. § 124.103.

IV.

SBA’s authority to make additional racial

classifications

43. Under SBA regulation, the SBA may designate

“from time to time” any other “identifiable group” as

presumptively socially disadvantaged. 13 C.F.R.

§ 124.103(b)(1), (d).

Appendix 66a

44. Groups may petition the SBA to be added by

regulation as a presumptively socially disadvantaged

group.

Such groups must present “substantial

evidence that members of the group have been

subjected to racial or ethnic prejudice or cultural

bias.” 13 C.F.R. § 124.103(d)(1). The SBA must then

determine whether the group has “suffered prejudice,

bias, or discriminatory practices” that resulted in

“economic deprivation,” and the disadvantages faced

by the group have “produced impediments in the

business world.” Id. § 124.103(d)(2).

45. The SBA has received a variety of such

petitions, most of which it has rejected. For instance,

the SBA has rejected petitions from Hasidic Jews,

women, and Iranians, while it has accepted petitions

from Asian Indians (the highest income racial group

in the United States) and Sri Lankans.

46. In 1987, the SBA rejected a petition from

service-disabled

veterans

to

be

considered

presumptively disadvantaged.

Marty’s experience applying for the 8(a)

Program

47. Marty is of German and Scottish descent and

therefore is not a member of a group that enjoys a

presumption of social disadvantage under the statute

and regulations.

48. Thus, Marty must prove social disadvantage to

the agency by a preponderance of the evidence.

49. Those like Marty who are not presumed

disadvantaged by virtue of their race or ethnicity

alone must put forward evidence of the following:

50. At least one “objective distinguishing factor

that has contributed to social disadvantage, such as

Appendix 67a

race, ethnic origin, gender, physical handicap,” and so

on;

51. The social disadvantage must be based on

treatment in “American society;”

52. The disadvantage must be “chronic and

substantial;”

53. The disadvantage must have “negatively

impacted on his or her entry into or advancement in

the business world,” such as experiences with

education, employment, and business history. See 13

C.F.R. § 124.103(c).

54. Marty applied in 2009 and 2016 for 8(a)

Program eligibility. He presented evidence regarding

his disabilities and the resulting disadvantages that

he has faced in his career and personal life.

55. SBA denied both applications. Marty sought

reconsideration of the 2016 denial. After reconsideration was denied, Marty appealed to the SBA’s Office

of Hearings and Appeals, which affirmed denial in

2017.

56. Marty’s applications included evidence of

multiple incidents of social disadvantage experienced

in his business life. For example, he presented

evidence that MJL had lost a contract with the New

Jersey Department of Transportation after learning of

Marty’s physical disabilities. Likewise, Marty submitted that he had lost a contract with the United

States Air Force for work at Langley Air Force Base

because the contract officer knew of Marty’s post-war

combat depression.

57. Marty has invested substantial money, time,

and effort filing multiple applications for MJL to join

the 8(a) Program, each time working with 8(a)

Appendix 68a

Program representatives to ensure he provided

appropriate documentation supporting his eligibility,

in vain. The SBA has told him repeatedly that he does

not qualify, despite its recognition of his disabilities

and veteran status.

58. It is broadly accepted by the U.S. Government

and the public that people with disabilities suffer

social disadvantage daily.

59. As a general matter, veterans face social

isolation and separation from mainstream American

society. Sixty-four percent of veterans who served in

combat feel isolated from civilian life. Eighty-five

percent of veterans returning from wartime service

carry home the burden of posttraumatic stress

disorder. This further widens the gulf between mainstream America and the veterans who return home to

a world where they struggle to find belonging and

meaning.

60. Marty has experienced these struggles

personally. Due to the physical disabilities acquired

during his military career, Marty cannot lift more

than 25 pounds. He cannot raise his arms above his

shoulders. He cannot sit for more than 45 minutes at

a time without experiencing excruciating back pain.

He faces serious hearing loss that cannot be fixed with

current hearing aid technology, affecting interactions

with coworkers, customers, family, and friends.

61. Likewise, Marty’s psychological disabilities

have affected all aspects of his life. These disabilities

include depression, anxiety, impaired concentration,

indecisiveness, low self-esteem, stress disorder,

fatigue, hypersomnia, insomnia, anhedonia, restlessness, and significant weight loss or weight gain.

Through grit and determination, Marty has succeeded

Appendix 69a

despite these limitations, but they have imposed

serious handicaps.

62. Marty was denied eligibility for the 8(a)

Program after collecting substantial evidence of these

facts and demonstrating that he suffered from the

well-documented social disadvantages stemming from

his service-disabled veteran status.

63. During this period, Marty became aware that

while he was denied eligibility for the 8(a) Program,

others were eligible based on their race without

having to prove specific social disadvantages.

64. Marty would have been accepted into the 8(a)

Program without having to prove his social

disadvantage if he belonged to one of the favored races

listed in 15 U.S.C. § 631(f )(1)(B), (C) and 13 C.F.R.

§ 124.103(b)(1).

65. The statute enshrining this racial preference,

in consort with the broad authority delegated therein

to the SBA to add new favored races or groups and set

aside contracts as it deems fit, deprived MJL from

standing on equal footing for 8(a) Program eligibility

and competing for exclusive 8(a) contracting

opportunities.

66. While unfair, SBA’s denial of Marty’s

applications is unsurprising. Very few 8(a) Program

participants have achieved eligibility through

demonstrating disadvantage by a preponderance of

the evidence. Most program participants are those

businesses that qualify due to the racial presumptions

in the statute and regulation. In the absence of the

racial preference, SBA would accept more program

participants based on individualized evidence of

disadvantage.

Appendix 70a

Injury to MJL

67. The statute and regulations described above

bar MJL from standing on equal footing for 8(a)

program eligibility and then from competing for

exclusive 8(a) contracting opportunities based on race.

68. Congress’s purported delegation of choosing

favored races for preferential treatment to the SBA

further prevented MJL from competing on an equal

footing for 8(a) Program eligibility and 8(a) contracts.

69. In the absence of the statutory and regulatory

racial presumption, MJL would have been equally

situated for 8(a) Program eligibility with other

businesses regardless of race. The racial presumption

makes it less likely that the SBA will grant 8(a)

eligibility to MJL.

70. Because Marty is not a member of a group

favored as socially disadvantaged by the SBA, MJL is

unable to compete for contracts under the 8(a)

Program that it could successfully procure and

perform if allowed to do so.

71. MJL also cannot access other benefits provided

to 8(a) Program companies. These benefits include

access to business development assistance, free

training opportunities through the SBA, and federal

surplus property access.

72. MJL competes with 8(a) Program firms for

valuable federal contracts and for third-party

suppliers and other services.

73. Because of 8(a) Program benefits, MJL is at a

competitive disadvantage when competing for

government contracts and third-party contracts with

suppliers and other businesses. MJL is also at a

competitive disadvantage in accessing the 8(a)

Appendix 71a

Program itself, as it does not enjoy a presumption of

disadvantage, while firms owned and controlled by

members of minority groups selected by the SBA do

enjoy such a presumption.

74. MJL is harmed by the unconstitutional racial

classification scheme of the 8(a) Program and will

suffer additional irreparable harm if the scheme

remains in effect.

75. MJL has no adequate remedy at law.

CLAIM FOR RELIEF I: The presumption that

designated groups are socially disadvantaged

denies MJL equal protection in violation of the

Fifth Amendment.

76. By presuming that certain races are socially

disadvantaged, the statute and regulations that

comprise the 8(a) Program (15 U.S.C. §§ 631, 637, and

13 C.F.R. § 124.103) deny MJL equal treatment for

8(a) Program eligibility, and further deny MJL the

ability to bid on SBA contracts as a member of the 8(a)

Program. The 8(a) Program likewise places MJL at a

competitive disadvantage in the marketplace vis-à-vis

businesses participating in the 8(a) Program.

Because the 8(a) Program grants special preferences

to businesses based on the race of the business owner,

it must satisfy strict scrutiny. It fails that exacting

standard. See 15 U.S.C. § 637(a); 15 U.S.C. § 631(f );

13 C.F.R. § 124.103(b).

77. The SBA does not have a compelling

governmental interest that justifies section 8(a)’s

racial classification or the accompanying classification in 13 C.F.R. § 124.103(b).

Appendix 72a

78. Even if the SBA had a compelling interest, the

statutory racial classification is not narrowly tailored

to meet any such interest.

79. Neither is the regulatory racial classification

narrowly tailored to meet a compelling interest.

80. The SBA cannot produce evidence that shows

“the most exact connection between justification and

classification” required by strict scrutiny. Fullilove v.

Klutznick, 448 U.S. 448, 537 (1980) (Stevens, J.,

dissenting). Defendants cannot show a relevant

causal relationship between their alleged evidence

and the racial classification of the 8(a) Program,

whether in terms of a “compelling interest” to enact

the racial classification or “narrow tailoring” of its

scope. Moreover, there is no causal relationship

between the racial classification and any remedy for

alleged discrimination.

81. There is no “strong basis in evidence”

demonstrating that the racial classification of section

8(a) is supported by a compelling interest, i.e., that it

is supported by probative evidence satisfying strict

scrutiny.

82. The effort to alleviate the unproven effects of

societal discrimination is not a compelling interest for

purposes of strict scrutiny analysis of an alleged equal

protection violation.

83. In determining whether a particular contract in

an industry is appropriate for the 8(a) Program, the

SBA does not examine whether a particular racial

group is underrepresented in that industry.

84. The SBA has no evidence of any particular

racial or ethnic group being underrepresented in the

Appendix 73a

industry and other areas in which MJL competes for

contracts.

85. Even assuming there was evidence of

underrepresentation of particular racial groups here,

Defendants

have

no

evidence

that

such

underrepresentation

was

a

consequence

of

discrimination either by the federal government or in

which the federal government was a participant,

passive or otherwise.

86. In amending Section 8(a) of the Small Business

Act in 1978, Congress did not produce or rely on any

evidence that an underrepresentation of particular

racial groups in federal government contracting was a

consequence of discrimination either by the federal

government or in which the federal government was a

participant, passive or otherwise.

87. Participation goals set for the 8(a) Program are

not related to any evidence of the present effects of

past discrimination in any particular industry or in

the federal government at large.

88. The reservation of industry contracts has not

been necessary to achieve any reasonable goals set by

Defendants or Congress.

89. Because of the racial presumption of social

disadvantage, most 8(a) Program contractors are

owned and controlled by members of the racial or

ethnic groups given special advantage by that

presumption.

90. The SBA’s reserving certain industry contracts

for the 8(a) Program is racially motivated.

Appendix 74a

CLAIM FOR RELIEF II: The racial classifications established by the 8(a) Program and

implementing regulations violate the Fifth

Amendment’s equal protection guarantee.

91. The 8(a) Program establishes by statute that

groups presumed to be socially disadvantaged

“include, but are not limited to, Black Americans,

Hispanic Americans, Native Americans, Indian

tribes, Asian Pacific Americans, Native Hawaiian

Organizations, and other minorities.” 15 U.S.C.

§ 631(f )(1)(C).

92. SBA has made racial classifications in addition

to those established by Congress in the statute. See

13 C.F.R. § 124.103(b)(1).

93. The statutory racial classifications, by

including the catch-all “other minorities,” are not

narrowly tailored as required by the Fifth

Amendment equal protection guarantee. Similarly,

the SBA’s regulatory decisions regarding which

groups enjoy presumptively disadvantaged status and

which do not are both under- and over-inclusive and

thus are not narrowly tailored.

94. The following is a non-exhaustive list of ways

in which the SBA’s racial classifications fail narrow

tailoring:

95. The list of countries of origin that qualify

someone as an “Asian Pacific American” includes

China but arbitrarily excludes Mongolia.

96. The racial classification recognizes individuals

from

Pakistan

as

presumptively

socially

disadvantaged but arbitrarily excludes individuals

from Afghanistan and other Middle Eastern and

North African countries.

Appendix 75a

97. The racial classification recognizes peoples

from various Pacific Island nations such as Samoa

and Fiji as presumptively disadvantaged but

arbitrarily excludes aboriginal peoples from New

Zealand and Papua New Guinea, such as the Maori,

the indigenous Polynesian people of New Zealand.

98. The racial classification recognizes peoples

from Spain and Portugal (included within the

meaning

of

“ Hispanic”)

as

presumptively

disadvantaged but arbitrarily excludes all other

European countries, including the poorest and most

ethnically diverse countries in Europe.

CLAIM FOR RELIEF III: The SBA’s 8(a)

Program rule claiming authority to decide

which racial groups enjoy a presumption of

social disadvantage (13 C.F.R. § 124.103(b)(1))

violates the Administrative Procedure Act (5

U.S.C. § 706(2)) because it exceeds statutory

authority.

99. “It is axiomatic that an administrative agency’s

power to promulgate legislative regulations is limited

to the authority delegated by Congress.” Bowen v.

Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988).

Thus, “an agency literally has no power to act . . .

unless and until Congress confers power upon it.” La.

Publ. Serv. Comm’n v. FCC, 476 U.S. 355, 374 (1986).

The Administrative Procedure Act (APA) directs a

court to “ hold unlawful and set aside agency action”

that is “in excess of statutory jurisdiction [or]

authority.” 5 U.S.C. § 706(2)(C).

100. The Small Business Act does not authorize the

SBA to make racial classifications.

Appendix 76a

101. The SBA nonetheless has made racial

classifications in addition to those established by

Congress in the statute. See 13 C.F.R. § 124.103(b)(1).

102. The regulation makes a racial classification by

determining which countries of origin qualify to make

someone an “Asian Pacific American.” Likewise, SBA

regulation determines which aboriginal peoples are

included as “Native Americans.”

103. The regulation also makes a racial

classification by adding “Subcontinent Asian

American” as a distinct race that enjoys the

presumption of social disadvantage, with an

accompanying description of which countries of origin

qualify someone as a “Subcontinent Asian American.”

104. The regulation arrogates to the SBA the

authority to designate “members of other groups from

time to time” to be included in the list of

presumptively disadvantaged minority groups.

105. These racial classifications, as well as the

power to create additional racial classifications as the

agency sees fit, exceed statutory authority in violation

of the Administrative Procedure Act.

106. The agency also exceeds statutory authority

by sub-delegating to other federal agencies the

authority to choose at whim which, and how many,

contracts will be fulfilled by 8(a) Program firms. The

statute vests these administrative decisions

exclusively in the hands of the SBA.

Appendix 77a

CLAIM FOR RELIEF IV: The SBA’S 8(a)

Program Is an Unconstitutional Exercise of

Legislative Power (Violation of the Nondelegation Doctrine, U.S. Const. Art. I, § 1).

107. The APA directs courts to “ hold unlawful and

set aside” an agency’s rule that is “contrary to

constitutional right.” 5 U.S.C. § 706(2)(B).

108. Article I, § 1, of the Constitution says: “All

legislative Powers herein granted shall be vested in a

Congress of the United States.” Congress may not

“abdicate or [] transfer to others the essential

legislative functions with which it is thus vested.”

A.L.A. Schechter Poultry Corp. v. United States, 295

U.S. 495, 529 (1935).

109. The racial classification of the 8(a) Program is

a facially unconstitutional delegation of legislative

power to the SBA to the extent it delegates the

authority to make or enact racial classifications as the

SBA deems “necessary or appropriate” for “those who

have been subjected to racial or ethnic prejudice or

cultural bias because of their identity as a member of

a group without regard to their individual qualities”

or “other minorities” and delegates the authority to

decide how to determine whether someone belongs to

a particular minority group.

110. As operated by the SBA, the 8(a) Program has

no criteria by which the SBA can determine that

specific racial groups should no longer have members

presumed to be socially disadvantaged.

111. In fact, although racial and ethnic groups have

been added to those given presumptive 8(a) Program

access, no racial or ethnic group has ever been

removed from that list on the ground that the group is

Appendix 78a

no longer adversely affected by the present effects of

past discrimination.

112. The 8(a) Program grants the SBA sweeping

authority to select which contracts to reserve for the

8(a) Program as the SBA deems “necessary or

appropriate.” This language does not provide an

intelligible principle by which to guide agency

discretion and thus violates the nondelegation

doctrine.

CLAIM FOR RELIEF V: The SBA 8(a)

regulations are arbitrary and capricious in

violation of 5 U.S.C. § 706(a).

113. The APA requires a reviewing court to hold

unlawful and set aside agency action that is arbitrary

and capricious.

114. Agency action must have “a rational

connection between the facts found and the choice

made.” Department of Commerce v. New York, 139

S. Ct. 2551, 2569 (2019) (quotation omitted). While

courts cannot substitute their own judgment for that

of the agency’s policy choices, such choices must

remain

“within

the

bounds

of

reasoned

decisionmaking.” Id.

115. The racial classifications made by SBA in 13

C.F.R. § 124.103(b)(1), which add and define terms

such as “Subcontinent Asian American” in a manner

that is both under- and overinclusive, do not fall

“within the bounds of reasoned decisionmaking” and

therefore are arbitrary and capricious.

116. The method by which the agency determines

whether someone is or is not a member of a minority

group is likewise arbitrary and capricious. At its

discretion, the SBA may require an 8(a) Program

Appendix 79a

applicant to “demonstrate that he or she has held

himself or herself out, and is currently identified by

others, as a member of a designated group” that is

presumed to be socially disadvantaged. In determining someone’s racial or ethnic background, the

agency’s reliance on the subjective views of the

applicant and an undefined set of “others” rather than

objective considerations—such as national origin,

cultural and linguistic background, family history,

and so on—is arbitrary and capricious.

117. SBA’s reliance on Directive No. 15, “ Race and

Ethnic Standards for Federal Statistics and

Administrative Reporting,” is likewise arbitrary and

capricious. The directive expressly warns that its

classifications are not “scientific or anthropological in

nature” and directs agencies not to use the

classifications “as determinants of eligibility for

participation in any Federal program.” Yet the SBA

has done just that.

PRAYER FOR RELIEF

Wherefore, Plaintiffs pray for the following relief:

A. Declare that Section 8(a)’s racial classifications

found in 15 U.S.C. §§ 637(a)(5), (8), and 631(f )(1)(b)

and 13 C.F.R. § 124.103(a), (b)(1) are facially

unconstitutional;

B. Permanently

enjoin

enforcement

and

administration of 15 U.S.C. §§ 631(f )(1)(B) and

637(a)(5), (8) to the extent that they employ a racial

preference in presuming that race alone qualifies an

individual as socially disadvantaged and thus eligible

to receive the benefits of the 8(a) Program;

C. Permanently

enjoin

enforcement

and

administration of 15 U.S.C. § 637(a)(1) to the extent

Appendix 80a

that it delegates legislative authority exclusively

reserved to Congress by empowering the SBA to

determine which contracts are awarded exclusively to

8(a) Program participants as the SBA deems

“necessary or appropriate;”

D. Permanently enjoin and set aside 13 C.F.R.

§ 124.103(a), (b) to the extent that it makes racial

classifications and employs a racial preference in

presuming that race alone qualifies an individual as

socially disadvantaged and thus eligible to receive the

benefits of the 8(a) Program;

E. Award Plaintiffs the costs of this action and

attorneys’ fees and expenses; and

F. Grant such other relief as the Court deems just

and proper.

DATED: January 18, 2023.

Respectfully submitted,

PACIFIC LEGAL FOUNDATION

s/ Alison Somin

Alison Somin

*****

Ethan W. Blevins

Wencong Fa

*****

Attorneys for Plaintiffs

Appendix 81a

Case 2:23-cv-00024-RAJ-DEM Document 26-1

Filed 04/07/23

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

NORFOLK DIVISION

Marty Hierholzer, an

individual; MJL

Enterprises, LLC, a

Virginia corporation,

Plaintiffs,

Civil Case No.

2:23-cv-00024-RAJ-DEM

v.

Isabel Guzman, in her

official capacity as

Administrator of the

Small Business

Administration; Small

Business

Administration,

Defendants.

DECLARATION OF MARTY HIERHOLZER IN

SUPPORT OF PLAINTIFFS’ OPPOSITION TO

DEFENDANTS’ MOTION TO DISMISS

I, Marty Hierholzer, declare under penalty of

perjury that the following is true and correct to the

best of my present knowledge, information and belief:

1. I am a citizen of the United States, over 18

years of age, and a Plaintiff in this matter.

Appendix 82a

2. I am the owner of Plaintiff MJL Enterprises, a

limited liability company organized in the State of

Virginia.

3. I have reviewed 13 C.F.R. § 124.104 entitled

“ Who is economically disadvantaged?” I believe I am

an “economically disadvantaged” individual as

defined in that regulation.

4. My net worth as calculated pursuant to 13

C.F.R. § 124.104(c)(2) is less than $850,000.

5. My adjusted gross income averaged over the

three preceding years does not exceed $400,000.

6. The fair market value of all of my assets does

not exceed $6.5 million.

Signed this 29th day of March, 2023, at the City of

Virginia Beach, State of Virginia.

s/Marty Hierholzer

[MJL Enterprises, LLC Corporate

Seal, Commonwealth of Virginia]