02-000286 Spivey Utility Construction Company, Inc. vs. Department Of Management Services Status: Closed Recommended Order on Monday, March 18, 2002.

Summary: Applicant for certification as minority business enterprise showed that minority owner controls operation of business despite fact that majority of board members are non-minorities and that owner does not hold state license; grant certification.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SPIVEY UTILITY CONSTRUCTION )

COMPANY, INC., )

)

Petitioner, )

)

vs. ) Case No. 02 - 0286

)

DEPARTMENT OF MANAGEMENT )

SERVICES, )

)

Respondent. )

)

R ECOMMENDED ORDER

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

on February 25, 2002, by video teleconference between sites in

Tampa, Florida, and Tallahassee, Florida, before T. Kent

Wetherell, II, the designated Administrative Law Judge of the

Division of Administrative Hearings.

APPEARANCES

For Petitioner: Ronald R. Swartz, Esquire

18045 Jorene Road

Odessa, Florida 33556

For Respondent: Stephen S. Godwin, Esquire

Department of Management Services

4050 Esplanad e Way, Suite 260

Tallahassee, Florida 32399 - 0950

STATEMENT OF THE ISSUE

Whether Petitioner's application for certification as a

minority business enterprise should be granted.

PRELIMINARY STATEMENT

On July 16, 2001, Spivey Utility Construction Company, Inc.

(Petitioner or Spivey Utility) filed an application with the

Department of Management Services (Department) for certification

as a minority business enterprise (MBE). By letter dated

October 2, 2001, the Department informed Petitioner that i ts

application was denied. Petitioner timely filed a petition

requesting a formal administrative hearing, and on January 18,

2002, the petition was referred to the Division of

Administrative Hearings (Division) and assigned to the

undersigned.

At the hea ring, Petitioner offered the testimony of Ed

Blattler, C.P.A., Petitioner's accountant; Sandra Spivey,

Petitioner's president and chief executive officer; and Collette

Lazar, Petitioner's corporate secretary. Mr. Blattler was

accepted as an expert in acco unting. Petitioner's exhibits,

numbered P1 and P2, were admitted into evidence. Petitioner

submitted a copy of Spivey Utility's articles of incorporation

with its post - hearing submittal and requested that it be

included as part of the official record. T he request is denied.

The articles of incorporation were received into evidence at the

hearing as Respondent's Exhibit R7.

At the hearing, the Department offered the testimony of

Robert Crabill, Executive Director of the Construction Industry

Licensing Bo ard (CILB), and Lloyd Ringgold, the Department

employee who reviewed Petitioner's application. The

Department's exhibits, numbered R1 - R7, were admitted into

evidence.

At the conclusion of the hearing, Petitioner requested that

the record in this case be s ealed because it included copies of

the Schedule K - 1 tax returns filed by Spivey Utility's owners.

The undersigned reserved ruling on that request and gave the

parties an opportunity to identify a statute or other legal

authority which would authorize the undersigned to seal any part

of the record despite the application of the Public Records Act.

The parties did not identify any such authority, nor did the

undersigned's research. Accordingly, no part of the record of

this case will be sealed. The under signed did, however, redact

from the exhibits and the parties' pre - hearing filings, the FEI

number of the corporation, the owners' social security numbers,

and the corporation's bank account number. 1 The unredacted

documents previously posted on the Divis ion's website were

replaced with the redacted versions.

No transcript of the hearing was ordered. The parties

agreed to file their proposed recommended orders no later than

ten days after the conclusion of the hearing. The parties'

proposed recommended orders were timely filed and were

considered by the undersigned in preparing this Recommended

Order.

FINDINGS OF FACT

Based upon the testimony and evidence received at the

hearing, the following findings are made:

1. Spivey Utility is an active for - p rofit Florida

corporation headquartered in Odessa, Florida.

2. The company was formed in August 1986. Sandra Spivey

(Mrs. Spivey) provided the initial capital for the company in

the amount of $500. Since 1986, the company has grown

significantly. Its g ross revenues for 2001 were over $11

million.

3. At the time Spivey Utility was formed, Mrs. Spivey was

a full - time school bus driver and her husband worked for another

excavating company. Between 1986 and 1991 (when she retired

from school bus driving), Mrs. Spivey devoted several hours each

weekday to running Spivey Utility, and on the weekends she

worked as "grunt" ( e.g. , carrying conduit) for her husband on

job sites. Since 1991, Mrs. Spivey has devoted all of her time

to running Spivey Utility.

4. The company currently employs 170 people, but it is

still a "family business." All of the outstanding stock of

Spivey Utility is owned by Mrs. Spivey and her five children.

5. Mrs. Spivey is a white female. She owns 51 percent of

the company's outstand ing stock. Her daughter Collette Lazar

(Ms. Lazar) is also a white female, and she owns ten percent of

the company's stock. Thus, white females collectively own 61

percent of the outstanding stock of Spivey Utility. These

ownership percentages have not changed since the stock was first

issued in October, 1986.

6. Mrs. Spivey's sons, all white males, own the remainder

of the stock in the following percentages: Jim Spivey (15

percent); Steve Spivey (ten percent); Daniel Spivey (seven

percent); and Tim Sp ivey (seven percent). Mrs. Spivey's

husband, Verlyn Spivey, does not own any of the corporation's

stock.

7. The Schedule K - 1 tax returns of Mrs. Spivey, Ms. Lazar,

and Mrs. Spivey's sons demonstrate that their shares of the

company's income is commensura te with their ownership

percentages.

8. Mrs. Spivey is the president and chief executive

officer of Spivey Utility. She is also a member of the board of

directors.

9. Ms. Lazar is secretary of the company. She is also a

member of the board of directors .

10. Spivey Utility's bylaws provide that "[t]he business

affairs of the corporation shall be managed by its board of

directors." Bylaws at Article III, Section 1. Accord Section

607.0802. The bylaws further provide that the president shall

supervise and control all of the business affairs of the

corporation "subject to the control of the directors." Bylaws

at Article IV, Section 5.

11. The board of directors has seven members. In addition

to Mrs. Spivey and Ms. Lazar, the board consists of Mrs.

Spi vey's husband and her sons. Thus, five members of the board

are white males and only two members are white females. Five

(of seven) directors are required for a quorum of the board of

directors.

12. As the holder of more than 51 percent of the company's

outstanding stock, Mrs. Spivey has the authority under the

bylaws to remove any of the directors and replace them with

persons of her choosing. See Bylaws at Article II, Section 9

(stockholders entitled to one vote per share and directors

elected by plur ality vote); id. at Article III, Section 9

(directors may be removed with cause by the board or

stockholders and without cause by the stockholders). However,

Mrs. Spivey testified at hearing that she had no intention of

removing her children as directors because Spivey Utility was a

"family business."

13. Over the years there have been disputes among the

board members regarding company policy but, in the end,

Mrs. Spivey always made the final decision. She testified that

her final decision has never be en overruled by the board and

testified that she could not conceive of it ever happening. She

further testified that, if it ever came down to it, she would

overrule the board's decision overruling her through her

ownership of the majority of the company's stock. Similarly,

Ms. Lazar testified that Mrs. Spivey makes the final decisions,

despite what the board might want to do because she owns the

most stock.

14. Spivey Utility is in the underground excavating

business. Its articles of incorporation descr ibe the nature of

its business as "engag[ing] in all activities relating to the

installation and maintenance of telephone cable and conduit."

Articles of Incorporation, at Article II.a. Similarly,

paragraph 8 of the MBE application described the nature o f the

company's business as "[u]nderground utilities, install

manholes, place conduit, pull cable, fiber optic, directional

boring, trenching & conventional boring."

15. The largest portion of Spivey Utility's business is

installing underground cable and conduit for telecommunications

companies and utility providers such as Verizon and Tampa

Electric Company. The company also has a water and sewer

division which installs water and sewer lines, as well as a site

preparation division which clears land for d evelopment. The

water and sewer and site preparation divisions constitute only

ten percent of the company's business.

16. The company does not install or hook up "hot" wires,

i.e. , wires which are electrically charged. It only installs

empty conduit and "cold" wires.

17. The underground excavating work conducted by Spivey

Utility does not require extensive technical training. At

hearing, it was described as "glorified ditch digging."

18. Mrs. Spivey's sons supervise the field operations of

the variou s divisions within the company, and her husband

oversees the bidding and contract work done by the company.

Ms. Lazar provides administrative support for the corporation.

19. Mrs. Spivey's sons each have more than 20 years of

experience in the undergro und excavation industry. Her husband

has almost 50 years of experience in the industry.

20. Despite the delegation of supervisory authority of the

field work to her sons, Mrs. Spivey remains actively involved in

the day - to - day operations of the company. She is in direct

communication with her sons on a daily basis to ensure that they

have all of the equipment and resources they need to perform

their work. They come to her when they need additional

resources.

21. Mrs. Spivey is 67 years old, but she i s still comes to

the office on a daily basis. She spends most of her time in the

office dealing with financial matters and overseeing work in the

shop where equipment is serviced and repaired. She generally

does not spend time in the field, although she has done so when

necessary.

22. Mrs. Spivey has the authority to hire and fire

employees and she has done so when necessary. She has also

shifted employees, including her sons, from one division of the

company to another to enhance the company's operati on.

23. Mrs. Spivey controls all of the financial aspects of

the corporation. Her signature is required on all contracts to

bind the corporation, including bids prepared by her husband or

sons. Neither her sons nor her husband has the authority to

bind the corporation. No financial decisions are made without

Mrs. Spivey. The company's CPA testified that Mrs. Spivey is

the only person in the company that has expertise in financial

matters.

24. Mrs. Spivey is the sole personal guarantor for Spivey

Uti lity's lines of credit, indemnity agreements, and bonding

line.

25. Mrs. Spivey and Ms. Lazar sign nearly all of the

checks written by the corporation out of the company's primary

account with Sun Trust Bank. The authorized signatories for

that account include, in addition to Mrs. Spivey and Ms. Lazar,

Mrs. Spivey's sons: Steve Spivey, Daniel Spivey, Jim Spivey, and

Tim Spivey. Only one signature is required on that account; no

countersignature is required. The purpose of the sons being

signatories on the account was for convenience in the event

Mrs. Spivey or Ms. Lazar was unavailable.

26. Although there is no formal limitation with the bank

on the authority of Mrs. Spivey's sons to write checks in any

amount, the evidence shows that the sons "know better" than to

write checks for amounts in excess of $1,000 or so.

27. It was apparent from her testimony that Mrs. Spivey

has a keen understanding of the business operations of the

company. Although she does not, and has never, performed the

excavatin g work done by the company, she has been in the field

to watch the work. She was able to explain and distinguish

between the various types of excavating done by the company

( e.g. , jack and bore, directional boring, etc.) as well as the

process and purpose of de - watering soil. She was also able to

explain and discuss changes in the industry, including the need

for specialized equipment and increased liability insurance when

laying fiber optic cable.

28. Mrs. Spivey's testimony also demonstrated her

under standing of the company's operations. She is intimately

familiar with the various divisions of the company and the

services they perform and the clients they serve. Similarly,

she demonstrated her familiarity with equipment and inventory of

the company, such as the type, number, and cost of trucks,

backhoes, and boring equipment owned by the company.

29. Mrs. Spivey gained her knowledge of the excavating

business from her husband who has been in the business for

almost 50 years. As noted above, in the early years of the

company, Mrs. Spivey often accompanied her husband on the job -

site and assisted him as a "grunt" on the job.

30. Spivey Utility has a certificate of authority from the

CILB. The certificate is not a license to perform work. It

only a llows the company to do business if it has a qualifier.

31. Spivey Utility has two qualifiers, Robert King in the

areas of underground excavating and pollutant storage and Robert

Burns in electrical. Neither of those individuals is a member

of the Spivey family nor are they owners, officers, or directors

of Spivey Utility.

32. Spivey Utility obtained the certificate of authority

when its water and sewer division was formed three years ago.

Prior to that, Spivey Utility did not hold any state licenses o r

certificates.

33. Neither Mrs. Spivey nor Ms. Lazar is registered or

certified as a contractor by the CILB. Mrs. Spivey does have a

commercial driver's license which authorizes her to drive

vehicles, which weigh up to 26,000 pounds, including some of the

company's dump trucks.

34. The Department did not perform an on - site

investigation of Spivey Utility in connection with its review of

the company's MBE application. The Department's decision to

deny the application was based solely on the information

presented by Spivey Utility with its application and the

supplemental information it provided on August 2, 2001, pursuant

to the Department's request.

35. The résumés included with Spivey Utility's MBE

application and the supplemental job descriptions pr ovided in

the August 2, 2001, letter are not comprehensive and do not

fully reflect Mrs. Spivey's understanding of or control over the

management and daily operations of the company.

CONCLUSIONS OF LAW

36. The Division has jurisdiction over the parties to and

subject matter of this proceeding pursuant to Sections 120.569,

120.57(1), and 120.60, Florida Statutes. (All references to

Sections are to the Florida Statutes. All references to Rules

are to the Florida Administrative Code.)

37. The Department' s initial decision to deny Spivey

Utility's MBE application was based on Rule 38A - 20.005(2)(b),

(3)(a), (3)(b), and (3)(d)4. Petitioner has the burden of proof

in this de novo proceeding 2 to demonstrate by a preponderance of

the evidence that it satisfied each of those requirements. See

Dept. of Banking & Finance v. Osborne Stern & Co. , 670 So. 2d

932, 934 (Fla. 1996); Dept. of Transportation v. J.W.C. Co. , 396

So. 2d 778, 788 - 90 (Fla. 1st DCA 1981).

38. As more fully discussed below, the undersigned

con cludes that Petitioner met its burden of proof.

39. At the outset, it should be noted that an on - site

investigation is not required under current law. The

requirement for an on - site investigation was eliminated in 2000

when the following language was del eted from Section 287.0943:

The certification procedures should include,

at a minimum, an onsite visit to inspect

business operations and verify statements

included in the application, unless

verification can be accomplished by other

methods of adequate verification or

assessment of ownership and control.

See Chapter 2000 - 286, Laws of Florida, at Section 2.

40. Section 288.703(2) defines "minority business

enterprise" for purposes of MBE certification as:

any small business concern . . . which is

organ ized to engage in commercial

transactions, which is domiciled in Florida,

and which is at least 51 - percent - owned by

minority persons who are members of an

insular group that is of a particular

racial, ethnic, or gender makeup or national

origin, which has been subjected

historically to disparate treatment due to

identification in and with that group

resulting in an underrepresentation of

commercial enterprises under the group's

control, and whose management and daily

operations are controlled by such person s.

. . . .

41. There is no dispute in this case that Spivey Utility

is a small business concern, that it is organized to engage in

commercial transactions, and that it is domiciled in Florida.

42. Initially, the Department took the position that

Spive y Utility failed to demonstrate that is at least 51 percent

owned by minority persons pursuant to Rule 38A - 20.005(2)(b).

That rule requires the applicant to demonstrate that the

minority owners' share of the company's income is commensurate

with their own ership interests. The Department stipulated at

the outset of the hearing that, based upon additional

information obtained during discovery, it was now satisfied that

Petitioner met the requirements of Rule 38A - 20.005(2)(b).

Despite the stipulation, Petit ioner presented evidence at the

hearing in the form of the Schedule K - 1 tax returns for Spivey

Utility's owners and the testimony of the company's CPA which

showed that the minority owners' share of the company's income

is commensurate with their percentag es of ownership in the

business. Based upon the stipulation and the evidence presented

at the hearing, it is concluded that Petitioner satisfies the

requirements of Rule 38A - 20.005(2)(b).

43. Thus, the only remaining dispute in this proceeding is

whethe r the management and daily operation of Spivey Utility is

controlled by minority persons. The criteria for determining

whether the minority owners control the management and daily

operations of the company are set forth in Rule 38A - 20.005(3)

which impleme nts Sections 288.703 and 287.0943. The specific

provisions of the rule still at issue in this proceeding are

paragraphs (3)(a), (3)(b), and (3)(d)4. Each will be discussed

in turn.

Rule 38A - 20.005(3)(a)

44. Rule 38A - 20.005(3)(a) provides:

The discretio n of the minority owners shall

not be subject to any formal or informal

restrictions (including, but not limited to,

by - law provisions , purchase agreements,

employment agreements, partnership

agreements, trust agreements or voting

rights, whether cumulativ e or otherwise),

which would vary or usurp managerial

discretion customary in the industry.

(emphasis supplied).

45. The Department contends that Spivey Utility's bylaws

restrict the minority owners' control of the company because the

bylaws vest manage ment of the company in the board of directors

and five of the seven board members are non - minorities.

46. In light of the bylaw provisions quoted in paragraph

10, the Department's position is not entirely without merit.

Indeed, several of the prior admin istrative decisions attached

to the Department's proposed recommended order support its

position. See Tele - Net Communications, Inc. v. Dept. of

Management Services , DOAH Case No. 00 - 2488 (Oct. 25, 2000);

Buell & Company, Inc. v. Dept. of Labor & Employmen t Security ,

DOAH Case No. 99 - 0645 (Aug. 11, 1999); Locker Service, Inc. v.

Dept. of Labor & Employment Security , Case No. 99 - 3063 (Mar. 27,

2000).

47. Those prior orders are distinguishable because the

bylaw provisions in those cases were not determinativ e, and the

evidence of the minority owners' control in this case is much

more compelling than the circumstances of those cases.

48. For example, in both Buell and Tele Net , the minority

owners' share of the company's income was not commensurate with

the ir ownership percentage. Moreover, in Buell , the bylaws

required written consent of the board of directors before the

corporation could take action; there was no discussion of the

authority of the corporate officers to act on behalf of the

corporation. I n Tele Net , the president of the company was the

non - minority owner and the minority owner performed only the

basic administrative functions for the company. In Locker

Services , there is no discussion regarding the extent of the

minority owner's participa tion in the management of the company

and the non - minority owner was the personal indemnitor for the

corporation's bonding line. By contrast, in this case, the

weight of the evidence establishes that Mrs. Spivey has devoted

all of her time to running Spiv ey Utility since 1991 and, as

president and chief executive officer of the company, she has

full authority to act on behalf of the company.

49. Under the facts of this case, the Department's focus

on the bylaws overlooks two important considerations. F irst,

the corporation's officers, namely its president, run the day -

to - day operations, not the board of directors. Second, the

board of directors can be changed at will by a majority of the

stockholders and, in this case, Mrs. Spivey constitutes a

majorit y of the stockholders. On these two points, the

undersigned finds persuasive the following analysis from Center

Office Products, Inc. v. Dept. of General Services , DOAH Case

No. 88 - 1991 (Rec. Order dated Feb. 21, 1989):

Respondent's salient contention is that by -

law provisions require the Board of

Directors to be made up of three persons,

with the majority vote of that board being

required to effect corporate decisions and

that, given that Mrs. Forbess is only one of

three votes on the Board of Directors, she

cannot really control the operation of the

business. This position overlooks a very

important consideration, which is that the

daily activities of the corporation, (and

any corporation) are run by the president or

chief executive officer, which is Mrs .

Forbess in this case. Secondly, the

Respondent's position overlooks the fact

that the Board of Directors can be changed,

that is, the Directors can be removed by

vote of the majority of shareholders. It is

undisputed that Mrs. Forbess owns the

majority of the corporation's stock, with

full voting power. She can convene a

meeting of the board of directors on her own

motion as president of the company. Even

if, as Respondent points out, sufficient

stock was transferred to Mrs. Forbess in the

recent past in order to give her 51 per cent

majority interest merely for the purpose of

applying for the subject certification, the

fact remains that indeed she actually holds

the majority of outstanding stock and

therefore the majority of voting power on

the board of directors. It is not important

that she has not historically exercised that

power to alter the board. The point is that

she has authority to do so, and that

authority carries with it the most important

element and indicator of control of the

operation and ownership of this business.

By controlling the majority of the

outstanding shares of the corporation, Mrs.

Forbess can remove and replace the members

of the board at will and replace them with

directors who will vote in accordance with

her wishes. T hus, notwithstanding her

position as a chief executive officer and

president of the Petitioner corporation,

with all the attendants authority to control

the operations of the business, she can

independent of that ability, exercise

controlling authority ove r the board of

directors. Recognition of this power of a

majority stockholder has been considered

pivotal in the case of Aguiar Defense v.

Department of General Services , DOAH 87 - 5552

(June 20, 1988); Final Order entered June

29, 1988, a case involving mi nority business

certification very similar to this one.

Id. at Paragraph 29.

50. The Department's position that the bylaws are

dispositive also overlooks the reality that Spivey Utility is a

closely - held family corporation. It only has six stockholders ,

all of whom are members of the board of directors and all of

whom are involved in some aspect of the operation of the

business. Florida law recognizes that such corporations do not

act with as much formality as larger corporations. As the court

explain ed in Etheredge v. Barrow , 102 So. 2d 660 (Fla. 2nd DCA

1958):

The doctrine of permitting closed

corporations to act informally is recognized

as an exception to the general rule that

directors must act as a board at duly

convened meeting. In fact it is we ll known

that corporations which include only a few

stockholders do not often act with as much

formality as larger companies. This is

especially so where the members of the

board, actually and directly, personally

conduct the business.

Id. at 663 (citati on omitted). And Cf. Section 607.0732

(authorizing closely - held corporation to modify its governance

structure through a shareholders' agreement).

51. It is apparent from the testimony at hearing that the

company's business is not conducted through forma l board

meetings; instead, it is conducted by Mrs. Spivey independently

or after informal consultation and discussion with the other

members of the board. Based on Etheredge , the actual manner in

which Spivey Utility operates should be given more weight t han

the manner in which the bylaws say that it should or could

operate.

52. In this regard, Mrs. Spivey testified that the board

members have never tried to overrule her decision and that she

could never conceive of it happening. Similarly, Ms. Lazar

tes tified that it is well - established and understood that "mom

[Mrs. Spivey] makes the decisions" for the company. Mrs. Spivey

testified that if it ever came down to it, she would "overrule"

the board since she "is the momma and the main owner." There

was n o testimony to the contrary. Thus, even though under the

bylaws Mrs. Spivey is technically entitled to only one (of

seven) votes on the board, it is apparent from the testimony

that in practice her decisions are given considerable, if not

absolute deferen ce as a result of her 51 percent ownership of

the company.

53. Through the evidence at hearing, Petitioner has

demonstrated that the bylaws do not in fact restrict Mrs.

Spivey's control over the operation of the company. Indeed, as

was the case in Center Office Products , supra , other provisions

of the bylaws confirm Mrs. Spivey's authority, as the holder of

51 percent of the company's outstanding stock, to remove

directors with or without cause. See Finding of Fact 12. And

see Section 607.0808. Even th ough Mrs. Spivey testified that

she has no intention of removing any of her children from the

board, the bylaws clearly give her the authority to do so.

54. Accordingly, Petitioner satisfies the requirements of

Rule 38A - 20.005(3)(a).

Rule 38A - 20.005(3)(b)

55. Rule 38A - 20.005(3)(b) provides:

If the applicant business is a corporation

and the business affairs of the corporation

are managed under the direction of a board

of directors as provided by the articles of

incorporation or bylaws of the corporation

or Section 607.0824, Florida Statutes, the

articles of incorporation or bylaws must

explicitly clarify the number of the board

of directors for establishing a quorum, or

it will be deemed by this office that a

quorum of the board of directors consists of

a majority of the number of directors

presented by the articles of incorporation

or the bylaws.

56. Rule 38A - 20.005 (3)(b) does not provide an independent

basis to deny an MBE application. It simply establishes a

presumption to assist the Department in d etermining whether the

minority owner(s) have the votes necessary to control the board

of directors in all circumstances.

57. The presumption is not implicated in this case because

Spivey Utility's bylaws expressly provide the number of board

members ( i.e . , five) that are necessary to establish a quorum.

See Bylaws, at Article III, Section 6. In any event, as

discussed above in connection with Rule 38A - 20.005(3)(a), the

weight of the evidence establishes that Mrs. Spivey controls the

management and daily operation of the company despite a majority

of non - minorities on the board of directors.

Rule 38A - 20.005(3)(d)4.

58. Rule 38A - 20.005(3)(d)4. provides:

The minority owners shall have managerial

capability, knowledge, training, education

and experience re quired to make decisions

regarding the operations of the business.

In determining the applicant business'

eligibility, the Office will review the

prior employment and educational 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

familially related, and the timing and

purpose of management changes. If the

minority owners have delegated management

and technical responsibility to others, the

minority owners must substantiate that they

have caused the direction of the management

and the technical responsibilities of the

business. When the applicant business

provides services which require that the

business and/or its professional qualifier

be licensed, the minority owner shall hold

the requisite license issued by the State of

Florida or local licensing entity. The

minority license holder need not be the

controlling owner of the business, but must

hold an ownership interest. (emphasis

supplied).

59. The Department contends that Spivey Utility fails to

meet the requirements in Rule 38A - 20.005(3)(d)4., and

particularly the underlined language, because the company's

business constitutes und erground utility and excavation

contracting which requires a license from the State and neither

of the company's minority owners ( i.e. , Mrs. Spivey or

Ms. Lazar) is certified or registered as a contractor in that

field. In response, Petitioner argues tha t the bulk of the

business conducted by Spivey Utility does not require a license

from the State.

60. The undersigned agrees with the Department that all of

Spivey Utility's activities require a license from the State.

However, the undersigned agrees wit h Petitioner that control can

be demonstrated by the minority owner though licensure or

expertise, notwithstanding the underlined language in Rule 38A -

20.005(3)(d)4.

Licensure Requirement

61. Petitioner contends that the installation of empty

conduit and "cold" wires, which constitutes approximately 90

percent of its business, does not require a license from the

State. The Department (supported by the testimony of the

Executive Director of the CILB) argues that those services fall

within the definition o f underground utility and excavation

contracting which is regulated by the State.

62. The definition of "underground utility and excavation

contractor" in Section 489.105(3)(n) includes three sentences;

however, only the first two are pertinent here. 3 T he first

sentence limits the scope of services which underground utility

and excavation contractors to:

construction, installation, and repair . . .

of main sanitary sewer collection systems,

main water distribution systems, storm sewer

collection systems, and the continuation of

utility lines from the main systems to

[specified points of termination].

63. The second sentence expands the scope of services

described in the first sentence to also include the installation

of:

empty underground conduits in ri ghts - of - way,

easements, platted rights - of - way in new site

development, and sleeves for parking lot

crossings no smaller than 2 inches in

diameter, provided that each conduit system

installed is designed by a licensed

professional engineer or an authorized

employee of a municipality, county, or

public utility and that the installation of

any such conduit does not include

installation of any conductor wiring or

connection to an energized electrical

system.

64. Thus, there are two distinct types of services which

constitute underground utility and excavation contracting: (1)

installation, etc., of water and sewer lines and (2)

installation of empty underground conduit which does not involve

"hot" wires.

65. Performance of either of these types of services

requires certification from or registration with the CILB. See

Section 489.113(1) (certification is required if the services

will be performed on a statewide basis; registration is required

if the services will be performed on a less than statewide

basis) . A person who is not certified or registered may not

perform contracting work except under the supervision of a

person who is certified or registered. See Section 489.113(2).

66. The business conducted by Spivey Utility was described

on its applicatio n for MBE certification as follows:

"underground utilities, install manholes, place conduit, pull

cable, fiber optic, directional boring, trenching and

conventional boring." These services, as further explained

through the testimony at hearing, clearly f all within the second

sentence of Section 489.105(3)(n). The fact that Spivey Utility

only installs empty conduit and "cold" lines does not exempt it

from the definition in Section 489.105(3)(n). Indeed, the

second sentence of the definition specifically provides that the

installation of "cold" lines is a service which underground

utility and excavation contractors can perform; by contrast, it

appears that only electrical contractors can install "hot"

lines. See Section 489.505(12).

67. Spivey Utility argues that Section 489.503(14)(a) and

(14)(b) exempt its business activities from State regulation.

Those statutory provisions provide exemptions for:

(a) The installation of, repair of,

alteration of, addition to, or design of

electrical wiring, fixt ures, appliances,

thermostats, apparatus, raceways, and

conduit, or any part thereof, when those

items are for the purpose of transmitting

data, voice communications, or commands as

part of a cable television, community

antenna television, or radio distrib ution

system. The scope of this exemption is

limited to electrical circuits and equipment

governed by the applicable provisions of

Articles 725 (Classes 2 and 3 circuits

only), 770, 800, 810, and 820 of the

National Electrical Code, current edition,

or 47 C.F.R. part 68.

(b) The installation of, repair of,

alteration of, addition to, or design of

electrical wiring, fixtures, appliances,

thermostats, apparatus, raceways, and

conduit, or any part thereof, when those

items are for the purpose of transmitt ing

data, voice communications, or commands as

part of a system of telecommunications,

including computers, telephone customer

premises equipment, or premises wiring. The

scope of this exemption is limited to

electrical circuits and equipment governed

by the applicable provisions of Articles 725

(Classes 2 and 3 circuits only), 770, 800,

810, and 820 of the National Electrical

Code, current edition, or 47 C.F.R. part 68.

A company certified under chapter 364 is not

subject to any local ordinance that requ ires

a permit for work performed by its employees

related to low voltage electrical work,

including related technical codes and

regulations. The exemption in this

paragraph shall apply only if such work is

requested by the company's customer, is

required in order to complete phone service,

is incidental to provision of

telecommunication service as required by

chapter 364, and is not the subject of a

competitive bid. The definition of

"employee" established in subsection (1)

applies to this exemption and d oes not

include subcontractors.

68. Section 489.503 is included in Part II of Chapter 489

which relates to electrical and alarm system contractors. The

exemptions in Section 489.503 apply only to Part II of Chapter

489, and not to Part I of the chapter which regulates

construction contracting. See Section 489.503 which begins

" [t]his part does not apply to: . . . " (emphasis supplied).

Accordingly, the fact that Section 489.503(14)(a) and (14)(b)

may 4 exempt Spivey Utility from regulation under Part I I of

Chapter 489, it remains subject to regulation under Part I of

Chapter 489 when engaged in underground utility and excavation

contracting.

69. Accordingly, the services performed by Spivey Utility

constitute underground utility and excavation contrac ting for

which a State license ( i.e. , certification or registration) is

required.

Licensure "or" Demonstrated Expertise

70. Having determined that Spivey Utility's business

constitutes underground utility and excavation contracting for

which a license i s required, the next issue is whether the

company's MBE application must be denied because neither of the

company's minority owners is a certified or registered

underground utility and excavation contractor. The Department

contends that Rule 38A - 20.005(3) (d)4., and more particularly the

language in that rule underlined above, requires it to deny

Spivey Utility's application. In response, Petitioner argues

that the Rule conflicts with its implementing statute, Section

287.0943(1)(e)1., which allows control to be shown by

"demonstrated expertise or licensure."

71. The history note for Rule 38A - 20.005 indicates that

the Rule became effective on September 11, 1996, and that it has

not been amended since that date. Section 287.0943, the law

implemented by Ru le 38A - 20.005, was substantially amended in

2000. See Chapter 2000 - 286, Laws of Florida, at Section 2

(effective July 1, 2000).

72. Section 287.0943(1)(e)1., Florida Statutes ( 1999 ),

read:

In assessing the status of ownership and

control, certificatio n criteria shall, at a

minimum include:

1. Link ownership by a minority person,

as defined in s. 288.703(3), or as dictated

by the legal obligations of a certifying

organization, to day - to - day control and

financial risk by the qualifying minority

owner , and to licensure of a minority owner

in any trade or profession that the minority

business enterprise will offer to the state

when certified; however, the minority

licenseholder need not be the controlling

owner of the enterprise, but must hold an

owners hip interest. Minority business

enterprises presently certified in the state

will not be subject to the licensure

requirement until 5 years after the

effective date of this act.

73. This language was moved to Section 287.0943(2)(e)1. by

Chapter 2000 - 286 , Laws of Florida, and was amended as follows:

In assessing the status of ownership and

control, certification criteria shall, at a

minimum include:

1. Link ownership by a minority person,

as defined in s. 288.703(3), or as dictated

by the legal obli gations of a certifying

organization, to day - to - day control and

financial risk by the qualifying minority

owner, and to demonstrated expertise or

licensure licensure of a minority owner in

any trade or profession that the minority

business enterprise will offer to the state

when certified ; however, the minority

licenseholder need not be the controlling

owner of the enterprise, but must hold an

ownership interest . Minority business

enterprises presently certified in the state

will not be subject to the lice nsure

requirement until 5 years after the

effective date of this act. Businesses must

comply with all state licensing requirements

prior to becoming certified as a minority

business enterprise.

74. The 2000 amendments call into question the validity of

that portion of Rule 38A - 20.005(3)(d)4. relied on by the

Department which requires the minority owner to be licensed.

Indeed, the language of the 1999 statute, which was changed by

the Legislature, was virtually identical to the language in the

Rule.

75. The staff analysis for the bill which became Chapter

2000 - 286 supports the conclusion that the amendments were

intended to allow the minority owner to demonstrate control by

either licensure or expertise. The staff analysis states:

With regard to the as sessing the status of

ownership and control, this bill changes

licensure of a minority owner in his or her

trade or profession, to demonstrated

expertise in such trade. It requires

businesses to comply with all state

licensing requirements prior to becomi ng a

certified minority business enterprise.

Analysis of House Bill 2127, House Committee on General

Government Appropriations, at 7, 8 (Apr. 26, 2000) (underlining

original)(available at

data/session/2000/House/ bills/analysi s/pdf/HB2127A.GG.pdf>).

76. Similarly the staff analysis of the companion bill

explained:

Under current law, a MBE owner must be

licensed in the trade or profession that the

MBE will offer to the state; however, under

the bill the owner need only comply w ith any

state licensing requirements, and need only

have demonstrated expertise in the trade or

profession to be offered to the state.

Analysis of Senate Bill 2618, Senate Committee on Governmental

Operations, at 6 (Apr. 26, 2000) (available at

w ww.leg.state.fl.us/data/session/2000/ Senate/bills/

analysis/pdf/SB2618.go.pdf>).

77. Thus, after the 2000 amendments, a business is

eligible for MBE certification if it complies with all state

licensing requirements and if its minority owner is either

l icensed in the trade or profession for which the business seeks

certification or has demonstrated expertise in that trade or

profession. Stated another way, under the statute, licensure of

the minority owner is now an alternative, not a requirement.

Unde r the rule, however, licensure of the minority is a

requirement.

78. It is axiomatic that where a statute and rule are in

conflict, the statute controls. See Willette v. Air Products ,

700 So. 2d 397, 401 (Fla. 1st DCA 1997) and cases cited therein.

Thi s principle applies even where the rule has not been

administratively challenged. Id. at 399 (expressly rejecting

the proposition that the rule must be followed despite the

statutory change simply because the rule has not been challenged

or invalidated pu rsuant to Section 120.56). Indeed, the

principle is particularly applicable where, as here, the rule is

based upon a statute which has subsequently been changed by the

Legislature. See , e.g. , Florida Municipal Power Agency v. Dept.

of Revenue , 764 So. 2d 914 (Fla. 1st DCA 2000)(directing agency

to amend a rule that was adopted under prior version of statute,

but which is in conflict with the present version of the

statute), approved 789 So. 2d 320 (Fla. 2001). Accordingly,

notwithstanding the contrary la nguage in Rule 38A -

20.005(3)(d)4., a business may be certified as an MBE even if it

provides services for which a State license is required and its

minority owner(s) do not hold the license, so long as (1) the

minority owner(s) has demonstrated expertise i n the trade or

profession, and (2) the business has complied with all state

licensing requirements. See Section 287.0943(2)(e)1.

79. As to the first requirement, the evidence shows that

Mrs. Spivey has the managerial capability, knowledge, and

experienc e to make decisions regarding the operation of the

company. Although she has no formal training in underground

excavation, none is required; as described at hearing, it is

"glorified ditch digging." Mrs. Spivey has gained the requisite

knowledge and expe rience in the industry during her 15 years of

running Spivey Utility on a day - to - day basis.

80. Rule 38A - 20.005(3)(d) creates a presumption that the

minority owners will not be considered to be controlling the

business where it is a family - operated busi ness with duties

shared between minority and non - minority owners along

operational lines. The presumption is not conclusive. It may

be overcome by evidence showing that the distribution of duties

is based upon delegations made by the minority owner, rath er

than the minority owner's lack of knowledge or capability to

independently make decisions. The evidence in this case is

sufficient to overcome the presumption in the Rule.

81. Mrs. Spivey has run Spivey Utility since its inception

in 1986 and her invo lvement in the company since that time has

been significant. Even though her sons supervise the company's

operations in the field, the evidence demonstrates that Mrs.

Spivey has sufficient knowledge of the industry and an ability

to independently make dec isions regarding the management and

day - to - day operation of the company. See Rule 38A - 20.005(3)(d)

(second and third sentences). Indeed, the evidence shows that

Mrs. Spivey maintains real and substantial control over the

company's operations, despite the delegation of authority to her

sons. For example, she has shifted the duties delegated to her

sons on occasion to enhance the company's operation.

82. The evidence shows that Mrs. Spivey has "dominant

responsibility for the management and daily operatio ns of the

business" in all other respects as well. She is knowledgeable

about the equipment used in the industry and she controls its

purchase. See Rule 38A - 20.005(3)(d)1. She has the capability

to evaluate employees' performance and she controls the hi ring

and firing of employees. See Rule 38A - 20.005(3)(d)2.

83. She controls the financial affairs of the business and

is the sole personal guarantor of the company's various debts.

See Rule 38A - 20.005(3)(d)3. Contrary to the Department's

argument, the ab ility of non - minority owners to sign corporate

checks is not dispositive under Rule 38A - 20.005(3)(d)3. It is

only a factor which is "considered" in evaluating the minority

owner's control of the financial affairs of the company. Even

though Mrs. Spivey's sons are listed as authorized signatories

on the SunTrust bank account for purposes of emergency, the

weight of the evidence in this case demonstrates that

Mrs. Spivey has the requisite control over the financial affairs

of Spivey Utility. Her sig nature is necessary to bind the

company to bids and the company's CPA testified that she is the

only member of the Spivey family with the requisite financial

knowledge to run the company.

84. Although Mrs. Spivey does not directly negotiate

contracts and bids, she is involved in that process because only

she has the authority to bind the company. See Rule 38A -

20.005(3)(d)5. Finally, her testimony at hearing substantiates

her involvement with all major aspects of the business. See

Rule 38A - 20.005(3)(d)6.

85. As to the second requirement, the Department does not

dispute that Spivey Utility has complied with all State

licensing requirements. See generally Section 489.119

(establishing the requirements for engaging in contracting

through a business organiz ation). The company was issued a

certificate of authority by the CILB and it has a qualifying

agent who is a registered or certified underground utility and

excavation contractor. Accordingly, consistent with the

testimony of the Executive Director of th e CILB, the undersigned

concludes that Spivey Utility has met all of the State

requirements necessary for it to engage in underground utility

and excavation contracting.

86. Spivey Utility satisfies the requirements in Rule 38A -

20.005(3)(d)4.

RECOMMENDA TION

Based upon the foregoing Findings of Fact and Conclusions

of Law, it is RECOMMENDED that the Department issue a final

order which grants Spivey Utility's application for

certification as a minority business enterprise.

DONE AND ENTERED this 18th day of March, 2002, in

Tallahassee, Leon County, Florida.

___________________________________

T. KENT WETHERELL, II

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 18th day of March, 2002.

ENDNOTES

1/ There is no legitimate reason for this information to be

publicized and redacting it consistent with public policy. See

Section 119.07(3)(i), (t), (x), (z), (bb), (cc), (dd) (exempting

social security numbers and bank account numbers from disclosure

under the Public Records Act in other contexts); CS/SB 1588

(2002) and HB CS /1673 (2002) (proposed legislation to exempt

from the public records all social security numbers in documents

in the possession of government agencies); SB 1230 (2002) and HB

1675 (2002) (proposed legislation to exempt from the public

records all bank acco unt numbers in documents in the possession

of government agencies). And Cf. CS/CS/SB 668 (2002) and CS/HB

1679 (2002) (proposing a study commission to review public

policies implicated by Internet access to public records which

contain sensitive personal information).

2/ See Section 120.57(1)(k) ("All proceedings conducted

pursuant to this subsection shall be de novo ."); Capeletti

Bros., Inc. v. Dept. of General Servs. , 432 So. 2d 1359, 1363

(Fla. 1st DCA 1983) (noting that the purpose of Section 120.57

hearings is "to give affected parties an opportunity to change

the ageny's mind").

3/ The third sentence precludes underground utility and

excavation contractors from installing piping which is an

integral part of a fire protection system as defined in Section

633.021.

4/ It is unnecessary to determine whether the services

performed by Petitioner would qualify for the exemptions in

Section 489.503(14)(a) and (14)(b). Indeed, the record does not

reflect whether the work performed by Petitioner relates to the

classes of equipment referred to in those paragraphs or whether

Petitioner performs work for customers of a company certified

under Chapter 364.

COPIES FURNISHED :

Stephen S. Godwin, Esquire

Department of Management Services

4050 Esplanade Way, S uite 260

Tallahassee, Florida 32399 - 0950

Ronald R. Schwartz, Esquire

18045 Jorene Road

Odessa, Florida 33556

Mallory Roberts, General Counsel

Department of Management Services

4050 Esplanade Way, Suite 260

Tallahassee, Florida 32399 - 0950

Cynthia Hend erson, Secretary

Department of Management Services

4050 Esplanade Way, Suite 260

Tallahassee, Florida 32399 - 0950

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommen ded Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.