97-000362 Agricultural Land Services, Inc. vs. Department Of Transportation Status: Closed Recommended Order on Wednesday, June 4, 1997.

Summary: Minority owner's contributions to company exceed those of non-minority owner establishing entitlement to Disadvantaged Business Enterprise (DBE) certification.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

AGRICULTURAL LAND SERVICES, INC. , )

)

Petitioner , )

)

vs. ) CASE NO. 97-0362

)

DEPARTMENT OF TRANSPORTATION , )

)

Respondent. )

__________________________________)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case

on April 21, 1997, at Tallahassee, Florida, before J.D. Parrish,

a duly designated Administrative Law Judge of the Division of

Administrative Hearings.

APPEARANCES

For Petitioner: Mary Piccard, Esquire

Vezina, Lawrence & Piscitelli, P.A.

318 North Calhoun Street

Tallahassee, Florida 32301

For Respondent: Mary S. Miller

Assistant General Counsel

Department of Transportation

Haydon Burns Bldg, Mail Station 58

605 Suwannee Street

Tallahassee, Florida 32399-0458

STATEMENT OF THE ISSUE

Whether the Petitioner is entitled to certification as a

disadvantaged business enterprise.

PRELIMINARY STATEMENT

This case began on December 13, 1996, when the Department of

Transportation (Department) issued an intent to deny Petitioner’s

application for certification as a disadvantaged business

enterprise (DBE). The denial notice alleged that the sixty

percent ownership claimed by Mrs. Lines, the minority owner, of

Petitioner, Agricultural Land Services, Inc. (ALS), was not the

result of a contribution of capital commensurate to ownership in

that amount. Upon receipt of the notice of intent to deny, the

Petitioner timely filed a request for an administrative hearing.

The case was then forwarded to the Division of Administrative

Hearings for formal proceedings on January 24, 1997.

At the hearing, Petitioner presented testimony from Rachel

J. Lines, the president and sixty percent owner of ALS.

Petitioner’s exhibits numbered 1 through 8 were admitted into

evidence. The Department offered the testimony of Howard

Jemison, the Department’s certification manager. Its exhibits

numbered 1 through 10 were also received.

The transcript of the proceeding was filed on May 5, 1997.

Proposed recommended orders submitted by the parties have been

considered in the preparation of this order. The Department’s

motion filed on May 22, 1997, seeking to strike portions of the

Petitioner’s proposed recommended order is hereby denied.

FINDINGS OF FACT

1. ALS is a Florida corporation which filed an application

for DBE certification on or about August 21, 1996.

2. On December 13, 1996, the Department issued the notice

of intent to deny Petitioner’s application.

3. ALS is owned by Rachel and Bobby Lines. Mr. Lines owns

forty percent of the company, his wife the remaining sixty. Mrs.

Lines serves as president for the corporation.

4. ALS is in the business of providing seeding and grassing

services for construction contracts. Mr. and Mrs. Lines have

been in this business since the 1970s.

5. Mrs. Lines has a bachelor’s degree in business and has

always had an active role in the family business.

6. In 1979 and 1980 Mrs . Lines borrowed $10,000 and

invested the money in ALS. These loans were secured by assets

which did not belong to Mr. Lines. Unlike his wife, Mr. Lines

was not personally liable for the loans.

7. Similarly, in 1981 and 1983 Mrs. Lines obtained loans

for which she was personally responsible and used the funds to

benefit ALS.

8. All loans secured by Mrs. Lines were repaid by

Petitioner.

9. During the years the loans were secured, Mr. Lines did

not borrow monies, for which he was personally responsible, to

fund ALS business activities. In short, Mr. Lines made no

capital contribution to the business commensurate with the

funding Mrs. Lines put into the business.

10. When the Petitioner was incorporated in 1980, one

hundred percent of the corporate stock was placed in Mr. Lines’

name. Although Mrs. Lines agreed to this arrangement, it did not

truly reflect the partnership that she and her husband enjoyed

regarding the business.

11. Moreover, the issuance of the stock in her husband’s

name did not accurately consider and compensate her for the loans

for which she personally would have been liable had the company

not repaid the sums she secured in its behalf.

12. Mrs. Lines has worked full-time for the Petitioner

since 1986. It is undisputed that she is responsible for the

day-to-day operations of the company.

13. In 1991, Mr. Lines conveyed sixty percent of the

Petitioner’s stock to his wife. Mrs. Lines became president of

ALS at the same time.

14. In 1995, ALS was certified by Palm Beach County, the

Palm Beach County Aviation Authority, and the South Florida Water

Management District as a minority business enterprise.

15. While it is apparent both Mr. and Mrs. Lines have

contributed “sweat equity” to their company, only Mrs. Lines has

personally been liable for loans taken out in order to put money

into the company.

CONCLUSIONS OF LAW

16. The Division of Administrative Hearings has

jurisdiction over the parties to, and the subject matter of,

these proceedings.

17. Section 339.0805, Florida Statutes , established the DBE

program. Rule 14-78.005 , Florida Administrative Code ,

implements that statute and provides the standards for

certification of DBEs. That rule provides, in pertinent part:

(1) Pursuant to 49 CFR Subtitle A, Subpart C

Section 23.51(a), and Subpart D, Appendix A,

to ensure that this rule chapter benefits

only small business concerns which are at

least 51 percent owned and controlled in both

form and substance by one or more

disadvantaged individuals, the Department

shall certify firms who wish to participate

as DBEs under this rule chapter.

* * *

(7) Pursuant to 49 CFR Subtitle A, Subpart

D, Section 23.62, a firm seeking

certification and recertification as a DBE

shall meet the following standards. A firm

which does not fulfill all the Department's

criteria for certification shall not be

considered a Disadvantaged Business

Enterprise.

* * *

(f) Pursuant to 49 CFR Subtitle A, Subpart

C, Section 23.53(a)(6), to be certified under

this rule chapter, the DBE shall be one in

which the contributions of capital or

expertise are real and substantial.

1. In order for expertise to be

utilized to substantiate stock ownership, the

applicant must be able to calculate and

verify the dollar value of such expertise and

establish that the dollar value correlates to

the value of the interest acquired; and

establish that such expertise was actually

contributed.

2. Contributions of capital may be

considered in the form of payment for stock,

conversion of liabilities or contributions of

cash or other assets. For the purposes of

the DBE program these sources of capital

contributions are considered investments in

the business and as such cannot be considered

loaned to the company.

3. Contributions of capital and

expertise documentation shall include but are

not limited to transfer titles of equipment

and property, checks, financial statements,

partnership agreements, corporate

organization minutes, educational

documentation, professional licenses or work

experience in the administrative and

technical areas of the business.

4. Pursuant to 49 CFR Subtitle A,

Subpart C, Section 23.53(a)(6), examples of

insufficient contributions include, but are

not limited to, a promise to contribute

capital, a note payable to the firm or its

owners who are not disadvantaged individuals,

or the mere participation as an employee,

rather than as a manager.

* * *

(13) Decision-making rationale as well as

specific U.S. Department of Transportation

denials will be considered by the Department

in its certification and recertification

process.

18. The sole basis for the denial of Petitioner’s

application for DBE certification was an alleged lack of capital

contribution commensurate with Mrs. Lines’ ownership interest of

sixty percent. The Department maintains that in accordance with,

and after consideration of, the decisions of the U.S. Department

of Transportation, under the criteria set forth in 49 CFR Part

23, the Petitioner has failed to establish that the contribution

of capital was real and substantial. Moreover, the Department

argues, in this case, the transfer of stock from Mr. Lines to his

wife was more in the nature of a gift.

19. To the contrary, Mrs. Lines’ contributions to this

company have been real and substantial. Although not a

contribution of capital as defined by the rule, Mrs. Lines has

made contributions to benefit this company which equal or exceed,

and which are commensurate with, her sixty percent stock

ownership. Mrs. Lines’ experience, education, and operation of

the company are not disputed. Her day-to-day involvement with

the overall business objectives of the company matches and

exceeds that of her husband.

20. That she was able to contribute resources to the

company not matched by her husband is also documented. Had Mrs.

Lines not met the financial needs of the company, there is no

indication that it would have survived. Moreover, there is no

indication that absent the funds for which she was personally

liable, the company could have obtained a loan on its own

financial strength. Thus, while technically not a contribution

of capital, the ability to secure funds to meet the operational

needs of the company was a real and substantial contribution to

the Petitioner which was unmatched by any non-minority owner.

21. Finally, the Department’s reliance on the decisions

cited in its exhibit 9 is misplaced. The transfer of stock to

Mrs. Lines was not a gift. Her testimony as to the historical

basis for her husband’s one hundred percent interest has been

deemed persuasive. In short, he was issued stock only as a

convenience and never in proportion to their partnership efforts.

Mrs. Lines has demonstrated her contributions to the company have

equaled and exceeded those of her husband. The current stock

issuance more accurately reflects their proportional interests in

the Petitioner.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that the Department of Transportation

enter a final order granting Petitioner’s application for

certification as a DBE.

DONE AND ENTERED this 4th day of June, 1997, in Tallahassee,

Florida.

___________________________________

J. D. PARRISH

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(904) 488- 9675 SUNCOM 278-9675

Fax Filing [phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 4th day of June, 1997.

COPIES FURNISHED:

Ben G. Watts, Secretary

Department of Transportation

Haydon Burns Building

605 Suwannee Street

Tallahassee, Florida 32399-0450

Attn: Ms. Diedre Grubbs, MS #58

Pamela Leslie, General Counsel

Department of Transportation

562 Haydon Burns Building

Tallahassee, Florida 32399-0450

Mary S. Miller

Assistant General Counsel

Department of Transportation

Haydon-Burns Bldg, Mail Station 58

605 Suwannee Street

Tallahassee, Florida 32399-0458

Mary Piccard, Esquire

Vezina, Lawrence & Piscitelli, P.A.

318 North Calhoun Street

Tallahassee, Florida 32301

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15

days from the date of this recommended order. Any exceptions to

this recommended order should be filed with the agency that will

issue the final order in this case.