92-003644RX Charles E Burkett And Associates, Inc. vs. Department Of Transportation Status: Closed DOAH Final Order on Monday, September 14, 1992.

Summary: DOT's rule upheld requiring the minority owner of disadvantaged or minority business to have tech training or expertise in critical areas of operations.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CHARLES E. BURKETT AND ASSOCIATES, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 92-3644RX

)

DEPARTMENT OF TRANSPORTATION, )

)

Respondent. )

_________________________________________)

FINAL ORDER

The final hearing in the above-styled matter was heard pursuant to notice

by Stephen F. Dean, assigned Hearing Officer of the Division of Administrative

Hearings, on July 15, 1992, in Daytona Beach, Florida.

APPEARANCES

FOR PETITIONER: Theodore E. Mack, Esquire

Cobb, Cole, and Bell

131 North Gadsden Street

Tallahassee, Florida 32301

FOR RESPONDENT: Pamela S. Leslie, Esquire

Pamela A. Arthur, Esquire

Office of the General Counsel

Department of Transportation

605 Suwannee Street, Mail Station 58

Tallahassee, Florida 32399-0458

STATEMENT OF THE ISSUES

Whether the amendments to Rule 14-78-005,(7),(e),2, 8, and 9, Florida

Administrative Code, promulgated by the Department of Transportation exceeded

the authority delegated to the Department by the legislature. Specifically, the

issue is whether the Department's rule requiring the minority owner of a

disadvantaged business enterprise to possess expertise in critical areas of

operation of the business is a reasonable and rationale implementation of the

statute requiring that the business be owned and controlled by a socially and

economically disadvantaged individual.

PRELIMINARY STATEMENT

The Petitioner, Charles E. Burkett and Associates, Inc. (hereafter

Burkett), is an applicant for a Disadvantaged Business Enterprise (DBE)

certificate to provide professional engineering services under contract to the

Florida Department of Transportation (DOT). The DOT denied the Petitioner's

application for DBE certification because it asserted that the disadvantaged

owner did not control the day to day operations of the business because she

lacked the expertise in critical areas of operation of the business. This

determination was based upon amendments to Rule 14-78-005,(7),(e),2, 8, and 9,

Florida Administrative Code, adopted in June of 1991.

At the hearing, the Petitioner called no witnesses, The Respondent

presented the testimony of one witness, Ms. Juanita Moore, Manager of the

Department's Contracts Administration Office and former Manager of the

Department's Minority Programs Office. Petitioner presented two exhibits into

evidence, and Respondent presented three exhibits into evidence.

Following the hearing, both parties submitted proposed findings which were

read and considered. Appendix A states which of the findings were adopted and

which were rejected and why.

FINDINGS OF FACT

1. The Florida Department of Transportation is the state agency charged

with the responsibility to develop and adopt criteria for a DBE program, and

administer the DBE program.

2. Burkett is a Florida corporation whose sole stockholder is a white

female American. She meets the criteria of a socially and economically

disadvantaged individual. Burkett applied for certification as a DBE on July

12, 1991, and on October 1, 1991, the Department denied Burkett certification.

Burkett submitted additional information and made changes in its internal

organization to better conform to the Department's requirements; however, the

Department has denied Burkett the designation based upon the owner's lack of

expertise in the critical areas of the firm's operation, to wit; she does not

possess education or experience in engineering.

3. The parties stipulate that Burkett is substantially effected by the

rules being challenged, and possesses standing to bring this rule challenge.

4. In determining the qualifications of an applicant for DBE status, the

Department utilizes Sections 334.044(2), 337.137, 339.05, and 339.0805, Florida

Statutes; 49 CFR Part 23; the United States Department of Transportation

administrative decisions; guidelines and training manuals from USDOT or the

Federal Highway Administration (FHWA); and its own rules.

5. At the recommendation of a representative from FHWA, the Department

amended the rules being challenged regarding qualifications for DBE

certification to explicate the requirement for ownership control, as required by

Section 339.0805(1),(c), supra, and 49 CFR Part 23.53, to include the concept of

"expertise in critical areas of operation of the business" which is required by

the USDOT.

6. The terms "expertise" and "critical areas of operation" are not defined

in the Florida Statutes or DOT's rules. The DOT interprets "critical areas of

operation" to mean the technical area in which the DBE certification is being

sought. Management limited to the day-to-day normal business operations is not

considered to be a "critical area of operation." The DOT's evaluation of

"expertise" changes from business to business based upon the applicant's type of

work. The department expects to see education and experience on the part of the

disadvantaged owner in the technical area of operations of the business. The

Department denied the Petitioner DBE certification because the disadvantaged

owner did not possess engineering experience or education.

CONCLUSIONS OF LAW

7. The Division of Administrative Hearings has jurisdiction over the

parties pursuant to Section 120.56, Florida Statutes. Based upon the facts

presented and the stipulation of the parties, the Petitioner has standing to

challenge the amendments to Rule 14-78-005,(7),(e),2, 8, and 9, Florida

Administrative Code, promulgated by the Department of Transportation.

8. Section 339.0805(1),(c), Florida Statutes, provides:

(c) The department shall certify a socially

and economically disadvantaged business

enterprise, which certification shall be

valid for 12 months. The department's

application for certification for a socially

and economically disadvantaged business

enterprise shall require sufficient

information to determine eligibility as a

small business concern owned and controlled

by a socially and economically disadvantaged

individual. A firm which does not fulfill

all the department's criteria for

certification shall not be considered a

disadvantaged business enterprise. An

applicant who is denied certification may not

reapply within 6 months after issuance of the

denial letter or the final order, whichever

is later. The application and financial

information required by this section are

confidential and exempt from s. 119.07(1).

This exemption from s. 119.07(1) is subject

to the Open Government Sunset Review Act in

accordance with s. 119.14. (Emphasis

supplied.)

9. Section 334.044,(2), Florida Statutes, provides that the Department is

authorized to adopted rules for the conduct of its business operations and the

implementation of any provision of law for which the Department is responsible.

Pursuant to that authority the Department enacted Rule 14-78-005,(7),(e),8.,

Florida Administrative Code, which provides:

The minority owners shall have managerial and

technical capability, knowledge, training,

education or experience required to made

decisions in the critical areas of operation.

In determining the applicant's eligibility,

the Department will review the prior

employment and education backgrounds of the

minority owners, the professional skills,

training and/or licenses required for the

given industry, the previous and existing

managerial relationship between and among all

owners, especially those who are familiarly

related, and the timing and purpose of

management changes.

10. The Department also promulgated Rule 14-78.005(7),(e),2., supra, which

provides that the minority owner's knowledge of the particular business,

background, involvement in the business on a day-to-day basis, expertise,

involvement by the non-minority owners, employees or non-minority employees,

other full or part-time employment by the minority applicant and the size of the

applicant's business be considered. Rule 14-78.005, (7),(e),9., supra, provides

that minority owners shall display independence and initiative in seeking, and

negotiating contracts, accepting and rejecting bids and in conducting all major

aspects of the business; and in those instances in which the minority owners do

not directly negotiate contracts, but claim to approve or reject bids and

agreement, the minority owners shall demonstrate that they have the knowledge

and expertise to independently make contractual decisions.

11. The Department cites in its brief Whitworth-Borta, Inc. v Jim Burnley,

No. G87-176CAS, 1988 WL 242625 (W.D. Mich June 28, 1988), in which the court,

faced with facts very similar to those presented and application of a rule very

similar to the Respondent's rule, stated:

The Court's review of the Department's

decision is confined by a limited standard of

review. In the face of the present

challenge, the decision must be sustained

unless it is arbitrary, capricious, an abuse

of discretion or otherwise not in accordance

with law.

* * * * *

At we noted in National Steel Corp. v.

Gorsuch, 700 F.2d 314, 321 (6th Cir. 1983),

it is not necessary that the agency's

construction of the statute be the only

permissible one. Rather, its construction

"must be upheld unless that view is plainly

unreasonable."

* * * * *

While this Court may well have reached a

different conclusion had it reviewed the

Whitworth-Borta application in the first

instance, it cannot be said that the

Department's decision is arbitrary,

capricious or an abuse of discretion.

Nor does the court believe the Department

exceeded its authority by considering Mr.

Whitworth's lack of engineering expertise in

determining the extent of his business

control. The term "control" is of necessity

indefinite and flexible, enabling the

Department to exercise reasonably broad

discretion in assessing the facts and

circumstances of each application.

* * * * *

In sum, it appears the department applied the

MBE certification eligibility standards

reasonably in concluding Whitworth-Borta had

not carried its burden of proof that it is

"controlled" by Mr. Whitworth.

12. The case above is cited at length because the facts were virtually

identical to those in the instant case. Although in Whitworth-Borta, above, the

challenge was to the application of the rule and not the rule; the Second

District Court of Appeal recently stated in Dravo Basic Materials company, Inc.

v State of Florida, Department of Transportation, 17 FLW D1673, regarding the

standard for reviewing an agency's rule:

When a rule is challenged before a hearing

officer, it is the role of the officer to

determine whether the rule is arbitrary or

capricious. (Cites deleted.) This is usually

a fact-intensive determination. A proposed

rule is "arbitrary" only if it is "not

supported by fact or logic." (Cite deleted.)

The party challenging the rule must prove its

invalidity by a preponderance of the evidence.

13. Similarly, the First District Court of Appeal stated in Florida League

of Cities, Inc. v. Department of Environmental Regulation, Case No. 90-1733,

Opinion filed July 25, 1991 concerning a rule of the Department of Environmental

Regulation regarding minimum standards for disposal of domestic wastewater

residuals:

The challenger, among other things, is

required to show that the requirements of the

rule are inappropriate to the ends specified

in the legislative act, or that the

requirements proposed are not reasonably

related to the purpose of the enabling

legislation, or that the proposed rule is

arbitrary and capricious. [Court cites Agrico

Chemical Co. v. Department of Environmental

Regulation, 365 So.2d 759, and Marine

Fisheries Comm'n v. Organized Fishermen of

Fla., 503 So.2d 935, 938 (Fla. 1st DCA).]

Significantly, the same factors used to test

the validity of a statute on the ground that

it constitutes a violation of the equal

protection clause, in cases in which the

rational basis standard is applicable, apply

as well to rule challenges at the

administrative trial level. (Agrico cited.)

Accordingly, it is helpful to examine cases

in which the constitutional validity of a

statute has been challenged on the ground

that it is a violation of the equal

protection clause.

* * * * *

Consequently, to sustain the statute all that

was required was a showing that it bore a

reasonable relationship to a legitimate state

interest. The burden was therefore placed on

the challenger to prove that the statute was

not supported on any reasonable basis or that

it was arbitrary and unreasonable.

* * * * *

In McGowan v. Maryland, 366 U.S. 420, 81

S.Ct. 1101, 6 L.Ed.2d 393 (1961), the United

States Supreme Court observed that the equal

protection clause is "offended only if the

classification rests on grounds wholly

irrelevant to the achievement of the State's

objective, "and that a state's discriminatory

actions will not be set aside if any state of

facts reasonably may be conceived to justify

it." (Emphasis added by 1st DCA.) This

standard has been termed the "some reasonable

basis" standard.

* * * * *

. . . the rule is now clear that if no

suspect or quasi-suspect classes are

involved, and social or economic regulations

are at issue, the proper test is the

reasonable basis standard. United States

R.R. Retirement Bod. v. Fritz, 449 U.S. 166,

101 S.Ct. 453, 66 L.Ed.2d 368 (1980).

* * * * *

Consequently, as long as the classificatory

scheme chosen by the legislature rationally

advances a legitimate government objective,

the courts will disregard the methods used in

achieving the objective, and the challenged

enactment will be upheld. (Cite deleted.)

Florida courts have frequently applied this

rule. See Vildibill v. Johnson, 492 So.2d

1047 (Fla. 1986); Markham v. Fogg, 458 So.2d

1122 (Fla. 1984); Loxahatchee River Envtl.

Control Dist. v. School Bd. of Palm Beach

County, 496 So.2d 930 (Fla. 4th DCA 1986),

approved, 515 So.2d 217 (Fla. 1987).

Moreover, it now appears that Florida courts

have generally applied the rational basis

standard to rule challenge proceedings.

(Emphasis supplied and cites deleted.)

* * * * *

Turning to the proposed rule at issue, our

standard of review at the appellate level is

different from that at the hearing level,

requiring us to determine whether the hearing

officer's findings are supported by

competent, substantial evidence. (Cite

deleted.) It is nonetheless essential, in

carrying out our review responsibilities, to

decide whether the correct standard was

applied at the rule challenge proceeding.

We have no difficulty in deciding that the

evidence submitted in support of the rule at

bar was appropriate in form to the nature of

the issues involved, (Cite deleted) and

therefore met the highly deferential

reasonable basis standard.

14. To summarize the instant facts, the Department of Transportation is

designated to administer the DBE program relating to highway construction within

the state. DOT is authorized to promulgate rules regarding all the programs

which it administers. It has adopted the series of rules being challenged which

implement the Florida statute requiring that the disadvantaged owner control the

business seeking DBE certification by explicating "control," as used in the

statute, to mean having the requisite knowledge, experience, and education to

understand and participate in the technical operations of the business.

15. Although it appears that the term "control," as used in the Section

337.139 and 339.0805, Florida Statutes, relates to insuring that the applicant

is really owned by a disadvantaged individual and not a non-disadvantaged

individual hiding behind a wife or daughter to whom a majority share of the

business has been transferred, the Department's rule extending "control" to

include more than administrative/managerial functions is reasonable to implement

the mandate to provide economic assistance to DBE's in harmony with the

Department's interest that qualified businesses and individuals are attracted to

engage in the technically oriented businesses related to building its roads,

bridges and similar structures. Because a reasonable basis exists for the rule,

the Petitioner did not carry its burden of proof to show that there was no

rational basis for the rule requiring the disadvantaged owner to have expertise

and technical capability, knowledge, training, education or experience to make

decisions in critical areas of operation.

16. Having considered the foregoing Findings of Fact, Conclusions of Law,

the evidence of record, the candor and demeanor of the witnesses, and the

pleadings and arguments of the parties, it is,

ORDERED that Petitioner's challenge to the amendments to Rule 14-78-

005,(7),(e),2, 8, and 9, Florida Administrative Code, be dismissed.

DONE AND ENTERED this 14th day of September, 1992, in Tallahassee, Leon

County, Florida.

___________________________________

STEPHEN F. DEAN, Hearing Officer

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 14th day of September, 1992.

APPENDIX A

Both parties submitted proposed findings which were read and considered.

The following proposals were adopted as indicated, or rejected for the reason

stated:

Petitioner's Proposed Findings:

Para 1 FO Para 3

Para 2 FO Para 1

Para 3 FO Para 5

Para 4-9 FO Para 4,5

Para 10-12 Irrelevant

Para 13-15 FO Para 4,5

Para 16-19 FO Para 6

Para 20 Irrelevant

Para 21-24 Conclusions of Law

Respondent's Proposed Findings:

Para 1 FO Para 1

Para 2 FO Para 2

Para 3 FO Para 4

Para 4 Rejected as contrary to fact

Para 5,6 Irrelevant

Para 7-11 FO Para 5

Para 12,13 Irrelevant

Para 14 FO Para 4

Para 15 FO Para 5,6

COPIES FURNISHED:

Theodore E. Mack, Esquire

Cobb, Cole, and Bell

131 North Gadsden Street

Tallahassee, FL 32301

Pamela S. Leslie, Esquire

Pamela A. Arthur, Esquire

Office of the General Counsel

Department of Transportation

605 Suwannee Street, MS Number 58

Tallahassee, FL 32399-0458

Carroll Webb, Executive Director

Administrative Procedure Committee

120 Holland Building

Tallahassee, FL 32399-1300

Ben G. Watts, Secretary

Department of Transportation

Haydon Burns Building, MS 58

605 Suwannee Street

Tallahassee, FL 32399-0458

A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL

REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE

GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE

COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF

THE DIVISION OF ADMINISTRATIVE HEARINGS AND A SECOND COPY, ACCOMPANIED BY

FILING FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST

DISTRICT, OR WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE

THE PARTY RESIDES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF

RENDITION OF THE ORDER TO BE REVIEWED.

=================================================================

DISTRICT COURT OPINION

=================================================================

IN THE DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA

FIFTH DISTRICT JANUARY TERM 1994

CHARLES E. BURKETT and NOT FINAL UNTIL THE TIME

ASSOCIATES, INC., TO FILE REHEARING MOTION, AND

IF FILED, DISPOSED OF.

Appellant,

CASE NO. 92-2482

v. 93-686

DOAH CASE NO. 92-3644RX

DEPARTMENT OF TRANSPORTATION,

Appellee.

_______________________________/

Opinion filed May 13, 1994

Administrative Appeal from the Department of Transportation.

Theodore E. Mack, of Cobb Cole & Bell, Tallahassee, for Appellant.

Thornton J. Williams, General Counsel and Thomas F Capshew, Assistant General

Counsel Tallahassee, for Appellee.

HARRIS, C. J.

The issue in this case is the validity of the rules of the Department of

Transportation which have the effect of requiring that before a minority or

woman owner may be certified as a Disadvantaged Business Enterprise in order to

compete for set aside contracts, such minority or woman owner must, in addition

to merely being the owner, also have the technical capability, knowledge,

training, education or experience required to make decisions in the critical

areas of operation.

The rules implemented by the Department are consistent with and patterned

after the rule promulgated pursuant to the Federal Surface Transportation and

Uniform Relocation Act of 1987 (the Federal Act) to address the same problem of

lack of minority and women participation in government construction contracts on

the national level:

(3) The minority or women owners shall also

possess the power to direct or cause the

direction of the management and policies of

the firm and to make the day-to-day as

well as major decisions on matters of

management, policy and operations

49 C.F.R. s 23.53.

Where the empowering provision of a statute permits an agency to make rules

and regulations necessary to carry out the provisions of the act [see section

337.139, Florida Statutes, (1991)], the validity of such rules and regulations

will be sustained so long as they are reasonably related to the purposes of the

legislation and are not arbitrary or capricious. General Telephone Co. of

Florida v. Florida Public Service Commission, 446 So.2d 1063 (Fla. 1984).

We find the rules of the Department to be neither arbitrary nor capricious

and that they are reasonably related to the purpose of the legislation, which is

to encourage minorities and women to actively participate in the construction

services professions.

AFFIRMED.

DIAMANTIS, J. , concurs.

GRIFFIN, J. , concurs specially, with opinion.

GRIFFIN, J., concurring specially. 92-2482

This is the appeal of an order denying minority business enterprise ["MBE"]

certification to the engineering firm, Charles E. Burkett and Associates, Inc.,

by the Department of Transportation. The firm has been owned 100 percent by a

white female, Carol Burkett, since 1986, when her husband, the founder of the

firm, died. While he lived, Carol Burkett's husband handled the "technical

aspect" of the business -- the engineering and the marketing. She did

everything else. After her husband's death, another engineer employed by the

firm signed and sealed all engineering documents until her son became licensed

as an engineer and he took over the technical aspects of the business. The

reason for the denial of MBE certification was the requirement in DOT Rule 14-

78.005(7)(e)-8 that minority owners must have: "Managerial and technical

capability, knowledge, training, education or experience required to make

decisions in the critical areas of operation." It is conceded that Carol Burkett

has no engineering expertise. Appellant challenges the validity of that rule on

the ground that DOT has exceeded its legislatively granted authority by

requiring expertise as an element of "control." See s 337.139 and 339.0805,

Florida Statutes (1993). Appellant further challenges the application of the

rule to the facts ot this case.

It is ironic that these MBE programs, ostensibly designed to remedy the

effects of past discrimination, often are themselves vehicles of bias and

discrimination. A prime example is the question of who is in "control" of a

business where the majority owner is female. If a woman shares any ownership at

all with a male or, if a male -- especially one related by blood or marriage --

is employed in the business in any capacity, there arises in the bosom of those

who make the certification decision an unfair, yet unquenchable, presumption

that she is, in fact, not in "control" of her own business. This same

presumption or intuition (or whatever it is) is not applied -- or at least not

applied with the same instinctual fervor -- to minority males who share

ownership with a non-minority.

I am the cause of the delay in issuing the opinion in this case. Having

exhausted the research and resources available to me for a broader understanding

of this issue, I have finally concluded that there is probably no error in the

appealed order. The requirement of "expertise" has been validated by federal

case law, see, e.g., Car-Mar Const. Corp. v. Shinner, 777 F. Supp. 50 (D.D.C.

1991), and the DOT followed the federal dictate in adopting expertise as an

essential element of "control." If this requirement of "expertise" is applied

fairly and uniformly to both genders and all minorities seeking MBE

certification, it may have the salutary effect of removing some of the latent

bias that can exist in these governmentally run programs.

MANDATE

From

DISTRICT COURT OF APPEAL OF FLORIDA

FIFTH DISTRICT

This cause having been brought to this Court by Appeal, and after due

consideration the Court having issued its opinion;

YOU ARE HEREBY COMMANDED that such further proceedings be had in said cause

in accordance with the Opinion of this Court attached hereto and incorporated as

part of this Order, and with the rules of procedure and laws of the State of

Florida.

Witness the Honorable Charles M. Harris Chief Judge of the District Court

of Appeal of the State of Florida, Fifth District, and the Seal of the said

court at Daytona Beach, Florida on this day.

DATE: June 2, 1994

Fifth DCA Case No. 92-2482, 93-686 (SEAL)

County of Origin: Volusia

Trial Court Case No. DOAH 92-3644RX, DOAH 92-0896RX,

DOT 92-0679 (ADMINISTRATIVE)

____________________________

FRANK J. HABERSHAW, CLERK