89-004982 International Contractors, Inc. vs. Department Of Transportation Status: Closed Recommended Order on Thursday, February 1, 1990.

Summary: Hispanic American owning 100 percent of stock and exercising control over the operations of the company entitled to certification as minority business enterprise

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

INTERNATIONAL CONTRACTORS INC., )

)

Petitioner, )

)

vs. ) CASE NO. 89-4982

)

DEPARTMENT OF TRANSPORTATION, )

)

Respondent. )

___________________________________)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly

designated Hearing Officer, K. N. Ayers, held a public hearing in the above-

styled case on December 14, 1989, at Tampa, Florida.

APPEARANCES

For Petitioner: Joe M. Gonzales, Esquire

1519 North Dale Mabry

Suite 100

Lutz, FL 33549

For Respondent: Charles G. Gardner, Esquire

Department of Transportation

605 Suwannee Street, MS 58

Tallahassee, FL 32399-0458

STATEMENT OF THE ISSUES

Whether Petitioner qualifies for certification as a Minority Business

Enterprise.

PRELIMINARY STATEMENT

By letter dated August 15, 1989, the Florida Department of Transportation

(DOT), Respondent, denied International Contractors Inc. (ICI), Petitioner's,

application for certification as a Minority Business Enterprise. As grounds

therefor, it is alleged that the disadvantaged owner did not exercise control

over the operations of the firm, and no evidence was submitted showing capital

was invested in the business by the disadvantaged owner. Petitioner requested a

hearing to challenge this determination, and these proceedings followed.

At the hearing, Petitioner called six witnesses, Respondent called two

witnesses, who had previously been called by Petitioner, and 52 exhibits were

admitted into evidence.

Proposed findings have been submitted by the partieseatment accorded

those proposed findings is contained in the Appendix attached hereto and made a

part hereof.

FINDINGS OF FACT

1. International Contractors Inc. (ICI), Petitioner, was incorporated in

1983 with Barry Carlson shown on the Articles of Incorporation as sole

incorporator with Walter Cenal and Virginia Ann Carlson as additional members of

the Board of Directors (Exhibit 1). At this time, Carlson owned 49 of the 100

shares issued, and Cenal owned 51 shares for which each paid $5 per share.

2. In 1985, Carlson was having marital difficulties, and ICI had not

commenced operations. Carlson then sold his 49 shares of stock to Cenal making

the latter the owner of 100% of the stock of ICI.

3. At this time, Carlson was the controlling party in two corporations

called Interstate Markings Inc. and Airport Specialists Inc. Interstate

Markings Inc. had been owned by Carlson's father who died in 1988 leaving stock

in the company to his son. Interstate Markings Inc. was reorganized under

Chapter 11 of the Bankruptcy Laws in 1984. Part of its assets consist of real

property which is leased to ICI for $1600 per month (Exhibit 39).

4. The corporate addresses of Interstate Markings Inc. and Airport

Specialists Inc. is the same as ICI. However, Airport Specialists Inc. has had

no employees and has performed no work in the past few years. No evidence was

submitted that Interstate Markings Inc. is actively engaged in business.

5. After acquiring 100% ownership of ICI, Cenal invested approximately

$25,000 in ICI, and ICI commenced operations. Most of this capital ($20,000)

was raised with a loan secured by a mortgage on Cenal's home (Exhibit 24).

6. Walter Cenal was born in Cuba, and started his first company in the

United States when he was 21 years old doing air conditioning installation and

maintenance. He had operated this company for almost ten years when he and Carl

son started ICI in 1983.

7. In 1985, Cenal sold his air conditioning company and thereafter devoted

full time to ICI. Part of the income received from the air conditioning company

was invested in ICI.

8. ICI is primarily engaged as a subcontractor to prime contractors doing

work on airports and highways. A large portion of ICI's work consists of

striping runways and cutting grooves in concrete runways and on highway bridges.

9. Both Cenal and Carlson prepare bids for subcontracting work with the

final decision on the offer to submit made by Cenal.

10. Bonding for ICI was secured by Cenal.

11. Financial arrangements are made by Cenal, who arranged the company's

first line of credit for $20,000 in December 1985 (Exhibit 26) and personally,

with his wife, guaranteed repayment of this loan (Exhibit 27). When this line

of credit was increased to $75,000 in January 1988, the bank (NCNB), required

all Directors to guarantee repayment. These included Cenal, his wife and

Carlson (Exhibit 4).

12. In November 1988, ICI borrowed $40,000 from NCNB to purchase

equipment, and Cenal made all financial arrangements for this loan.

13. Carlson is capable of preparing bids for jobs sought by ICI and is the

number two man at ICI. He supervises some jobs, but not as frequently as Cenal.

As a result, Carlson spends more time at the office than does Cenal.

14. Largely because Cenal was not present when the South Carolina DBE

investigator came to the office of ICI to check for compliance by ICI as a

certified MBE in South Carolina, South Carolina refused to recertify ICI as a

DBE (Exhibit 10). Shortly thereafter, Respondent refused to recertify ICI as a

DBE (Exhibit 7). However, the North Carolina Department of Transportation

(Exhibit 19), Hillsborough County Aviation Authority (Exhibits 20 and 21), and

Memphis-Shelby Airport Authority (Exhibit 22) have all certified ICI as a MBE or

DBE.

15. Cenal has delegated authority to his wife and to Carlson to sign some

checks on the ICI checking account. Mrs. Cenal and Walter Cenal are the ones

authorized to sign payroll checks. Carlson signs checks to pay routine bills;

however, if ICI funds limit payment to all creditors, Cenal designates which of

the creditors is to be paid.

16. Cenal frequently rents accommodations for his workers at job sites.

These include hotel/motel rooms, trailers and apartments. All of these leases

are executed by Cenal.

17. Cenal makes final decisions regarding employing workers and renting

equipment. He frequently delegates to his superintendents at job sites the

authority to hire temporary employees and to rent equipment in an emergency. He

issues them credit cards on which these superintendents can charge out-of- town

living expenses and renting of equipment.

18. Although Cenal spends 20-40% of his time overseeing the work at the

job site, he is in daily contact by telephone with his office. He is thereby

able to consult and to make day-to-day decisions affecting ICI.

19. Respondent acknowledges that Cenal is fully qualified to supervise

field operations, but contends, because Carlson is left in charge at the office,

that Cenal does not control ICI.

20. The Department also predicated the denial of recertification upon the

fact that Carlson was paid an annual salary of $40,000, "the same as Cenal."

Corporate income tax returns for 1986, 1987 and 1988 (Exhibit 37) show that in

1986 Cenal was paid $32,000 and Carlson, $26,500; in 1987 Cenal was paid $48,950

and Carlson, $38,750; and in 1988 Cenal was paid $41,950 and Carlson $40,790.

21. The success of a contractor depends on how effectively he performs the

work for which he has contracted. If a job is delayed for almost any reason,

profits are squeezed. If work has to be redone, profits frequently evaporate or

become losses. Accordingly, one of the most important factors in a successful

operation is the supervision of the work being performed. It is on the

construction site that money is made or lost in the contracting business. The

contractor who closely supervises the work he undertakes is the contractor most

likely to succeed. Supervising field work does not require one to give up

control of the company's overall operations. To the contrary, it probably makes

control more effective.

22. A plethora of evidence was submitted to clearly show that Cenal is the

100% owner of ICI; that he hires and fires personnel; that he makes all

financial decisions involving ICI; that he has the final say on what contracts

to bid and at what price; that he makes decisions on buying equipment, of

compensation to his superintendents, to Carlson and to himself; and that, in all

respects, he has de facto in addition to de lure control over ICI.

23. Respondent's denial of Petitioner's application for recertification as

a DBE was based on decisions rendered by the U. S. Department of Transportation

in other cases, copies of which were provided Respondent by U. S. DOT. Two of

these decisions were admitted into evidence as Exhibits 51 and 52. Both of these

cases involved companies where females held the majority ownership in companies

run by their husbands who shared facilities with the husband's company. Those

situations are hardly comparable with the facts here involved. Here there is no

blood or marriage relationship between Cenal and Carlson, and shared facilities

with similar businesses do not exist as none of Carlson's companies are

operational or in the same business as ICI.

24. Walter Cenal is an Hispanic American eligible for certification is a

DBE, and he has both de lure and de facto control over the operations of ICI.

CONCLUSIONS OF LAW

25. The Division of Administrative Hearings has jurisdiction over the

parties to, and the subject matter of, these proceedings.

26. Pursuant to the authority granted in Section 334.044, Florida

Statutes, to adopt rules to implement laws for which the Department is

responsible, DOT adopted Chapter 14-78, Florida Administrative Code. Rule 14-

78.005(7), provides in part:

(c) The ownership and control exercised by

socially and economically disadvantaged

individuals shall be real, substantial, and

continuing, and shall go beyond mere pro

forma ownership of the firm, as reflected in

its ownership documents. The socially and

economically disadvantaged owners shall

enjoy the customary incidents of ownership

commensurate with their ownership interests,

as demonstrated by an examination of the sub-

stance rather than form of financial and

managerial arrangements. In assessing busi-

ness independence, the Department shall con-

sider all relevant factors, including the

date the firm was established, the adequacy

of its resources, and the degree to which

financial relationships, equipment leasing,

and other business relations with non-DBE

firms vary from industry practice.

(e) The DBE shall be one in which the socially

and economically disadvantaged owner shall also

possess the power to direct or cause the direc-

tion of the management, policies, and operations

of the firm and to make day to day as well as

major business decisions concerning the firm's

management, policy, and operation.

(f) The DBE shall be one in which the con-

tributions of capital or expertise invested by

the socially and economically disadvantaged

individual owners are real and substantial.

27. Respondent has stipulated that Walter Cenal is an Hispanic American

and qualifies as a "minority person" as defined in Section 287.012(8), Florida

Statutes. The evidence was unrebutted that Cenal owns 100% of the stock in ICI

and therefore has absolute legal ownership of the company. This leaves only the

question of control.

28. It can be argued, with considerable logic, that, barring exceptional

circumstances or conditions, one who owns all of the stock of a corporation has

plenary power to do anything respecting the corporation that the sole owner

desires. That includes hiring and firing managers and employees, appointing and

discharging directors, delegating functions to others, rescinding those

delegated functions, deciding in what business to engage and dissolving the

company. Here, no evidence was presented to indicate Walter Cenal does not have

those powers associated with 100% ownership. It is the unfettered power to

direct the operations of the business that constitutes control. Having this

unfettered power, Cenal had control of the operations of ICI.

29. However, the evidence presented clearly shows that Cenal also was

intimately involved with the day-to-day operations of ICI; was the only

individual (other than his wife) who had invested capital in ICI; that he was in

sole charge of all financial negotiations; that he made all major decisions for

ICI, including the purchase of major pieces of equipment; the bid to submit when

bidding on contracts; how to determine the compensation paid to superintendents;

that when away from the office he remained in daily contact with the office to

make decisions for ICI; and that he was by far the dominant force in the

company.

30. By comparing the legal relationship between Cenal and Carlton with the

legal relationship between husbands and wives is somewhat like comparing apples

and oranges. There is no comparison.

31. Nor is the fact that Carlson inherited the bankrupt Interstate

Markings Inc. from whom ICI leased property of any significance here. Neither

Interstate Markings Inc. nor Carlson's other company, Airport Specialists Inc.,

are actively engaged in operations similar to those performed by ICI. This

renders the fact that all three companies show the same address on their

corporate papers of no significance.

32. This case raises an interesting legal issue that, although it need not

be resolved in this case, may be of great moment in other cases involving the

denial of recertification of DBEs. In many respects, a certification as a DBE

is similar to a license as it has many of the attributes of a license. The

definition of "license" most appropriate here is as contained in Webster's New

Collegiate Dictionary (1977), to wit:

2a: A permission granted by competent

authority to engage in a business or

occupation or in an activity otherwise

unlawful.

33. Once a license is granted by the appropriate authority, which license

requires periodic renewal, the court in Vocelle v. Riddell, 119 So.2d 809, 810

(Fla. 2nd DCA 1960) held that the annual renewal of his license follows as a

ministerial duty and a matter of right; and if violations occur, the agency is

required to resort to the provisions for revocation.

34. Vocelle involved a statutory right to successive licenses by a

licensee upon written request on the prescribed form and accompanied by the

required fee. Rule 14-78.007(2), Florida Administrative Code, establishes

procedures for certification of DBEs. These provide, inter alia, that

certification is for a maximum period of one year and is conditioned on

continued eligibility. That, in order to avoid a break in certification, at

least 90 days prior to the expiration of the certification, a DBE shall submit a

new Schedule A- Certification Form No. 1, 1987 Revision. It is noted that ICI

submitted Schedule A, 4/88 Revision, which presumably is the proper form.

35. Rule 14-78.008(1)(a), Florida Administrative Code, provides the

Department may suspend or revoke a DBE certification if it finds the DBE no

longer meets the certification standards set forth in Rule 14-78.005.

36. In a revocation of license case the agency has to prove, by clear and

convincing evidence, the alleged grounds for revocation. Ferris v. Turlington,

510 So.2d 292 (Fla. 1987).

37. The issue of which party has the burden of proof in an application to

renew certification as a DBE is not critical to this case, as even if ICI has

this burden, it has met any standard that may be applied.

38. From the foregoing, it is concluded that Walter Cenal is a "minority

person" as defined in Section 287.012(8), Florida Statutes, and that he

exercises de lure and de facto control over the operations of ICI. Accordingly,

ICI is qualified for certification as a Disadvantaged Business Enterprise.

RECOMMENDATION

It is recommended that International Contractors Inc. be certified as a

Disadvantaged Business Enterprise by the Florida Department of Transportation.

ENTERED this 1st day of February, 1990, in Tallahassee, Florida.

___________________________________

Hearing Officer

Division of Administrative Hearings

The Desoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 1st day of February, 1990.

APPENDIX

All of Respondent's proposed findings are accepted except,

6. Accepted only insofar as it relates to the time ICI commenced

operations.

9. Rejected. See H.O. Finding No. 20.

11. Rejected. See H.O. Finding No. 13.

13. Rejected. See H.O. Finding No. 18.

14. Rejected. DOT's principal witness testified she was influenced by

Carlson's original ownership and through the transfer of his shares to Cenal to

be a subterfuge.

23. Rejected.

Petitioner's proposed findings are generally accepted. Those not included were

deemed unnecessary to the conclusions reached.

COPIES FURNISHED:

Joe M. Gonzales, Esquire

1519 North Dale Mabry

Suite 100

Lutz, FL 33549

Charles G. Gardner, Esquire

Department of Transportation

605 Suwannee Street, MS 58

Tallahassee, FL 32399-0458

Ben G. Watts

Secretary

Department of Transportation

Haydon Burns Building

605 Suwannee Street

Tallahassee, FL 32399-0450

Thomas H. Bateman, III

General Counsel

Department of Transportation

562 Haydon Burns Building

Tallahassee, FL 32399-0450