89-005486F Pro Grading, Inc. vs. Department Of Transportation Status: Closed DOAH Final Order on Thursday, February 22, 1990.

Summary: No fee awarded where denial of licensure was substantially justified upon applicant info and agency policy at time of denial, credibility factor.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

PRO GRADING, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 89-5486F

)

DEPARTMENT OF TRANSPORTATION, )

)

Respondent. )

_________________________________)

FINAL ORDER

This cause was brought before Ella Jane P. Davis, a duly assigned Hearing

Officer of the Division of Administrative Hearings, pursuant to Section 57.111

F.S. and Rule 221-6.035 F.A.C. which address the conditions under which a small

business party may be awarded attorney's fees and costs.

APPEARANCES

For Petitioner: Joseph W. Standley, Esquire

Pattillo & McKeever, P.A.

Suite 300

2100 Southeast 17th Street

P.O. Box 1450

Ocala, Florida 32678

For Respondent: Ruth B. Dillard, Esquire

Department of Transportation

605 Suwannee Street, MS-58

Tallahassee, Florida 32399-0458

STATEMENT OF THE ISSUES

Whether or not Petitioner is entitled to attorney's fees and costs pursuant

to Section 57.111 F.S. and Rule 22I-6.035 F.A.C.

PRELIMINARY STATEMENT

Pursuant to a telephonic conference call held January 9, 1990, the parties

stipulated that the record was complete, agreed that all submittals of both

parties [Affidavit of Attorney for Petitioner in Support of Attorney's Fees,

Petition for Attorney's Fees and Costs, Opposition to Petition for Attorney's

Fees and Costs, Notice of Filing of Time Analysis, Reply to Respondent's

Opposition to Petition for Attorney's Fees and Costs and all attachments

respective to each pleading, including the transcript of the formal hearing in

the underlying case] might be considered by the undersigned Hearing Officer,

waived evidentiary hearing, and waived the submittal of proposed orders.

The undersigned also has taken official recognition of all of the Division

of Administrative Hearings Case File, Pro Grading, Inc. v. Department of

Transportation, DOAH Case No. 89-1495.

FINDINGS OF FACT

1. Petitioner meets all of the threshold criteria of Section 57.111 F.S.

and Rule 22I-6.035 F.A.C. as to being a "small business party."

2. By Final Order of August 31, 1989 the State of Florida, Department of

Transportation (DOT), entered a Final Order incorporating the Recommended Order

of August 4, 1989 in Pro Grading, Inc. v. Department of Transportation, DOAH

Case No. 89-1495. In its Final Order, DOT held, "The Hearing Officer's

Recommended Order, copy attached, is considered to be correct in both fact and

law . . . ." This Final Order was not appealed within the 30 days provided by

law. Therefore, Petitioner is a "prevailing small business party" within the

meaning of Section 57.111(3)(c) F.S. and the Petition herein, filed with the

Division of Administrative Hearings on October 4, 1989, is timely.

3. The amounts of claimed costs of $167.44 and attorney's fees of

$4,383.50 are supported by time sheet summaries and an attorney's affidavit.

Although minimal amounts of both costs and fees were expended/earned after entry

of the Final Order, they were incurred within the 30 days for appeal or relate

to this instant fees and costs proceeding, and they will not be disturbed in

light of DOT's failure to challenge the amounts.

4. Respondent DOT was not a nominal party to the underlying DOAH Case No.

89-1495.

5. The ultimate issue upon which the parties disagree is whether or not

DOT's action in its denial of Disadvantaged Business Enterprise (DBE)

certification to Petitioner in the underlying case was "substantially

justified," as contemplated by Section 57.111(3)(e) F.S. Respondent has alleged

no "special circumstances".

6. Rules 14-78.005(7)(c) and (e) were the basis of the agency's February

22, 1989 letter of denial. They provide, in pertinent 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 incidence of ownership and

shall share in the risks and profit's

commensurate with their ownership interests,

as demonstrated by an examination of the

substance rather than form of financial and

managerial arrangements.

(e) The DBE shall be one in which the

socially and economically disadvantaged owner

shall also possess the power to direct or

cause the direction 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.

7. By stipulation for the underlying cases the parties agreed that the

basis for DOT's denial specified by letter was sufficiently broad so as to

include evaluation of the contribution of capital by minority principal Bonnie

Stephens to Pro Grading, Inc. at the time of the application and investigation.

In addition, the Recommended Order considered her capital contributions through

the date of formal hearing.

8. The Recommended and Final Orders in the underlying case found, in

pertinent part:

Although Mr. Davis conjectured, on the basis

of a corporate income tax return he had

reviewed, that the $29,000 had been loaned to

the corporation by Bonnie Stephens and may

have been subsequently repaid by corporate

assets prior to the 1987 tax return, the

scenario painted by this testimony also was

not corroborated by the introduction of the

corporate tax return. Contrariwise, Bonnie

Stephens testified that her $29,000

investment in the corporation after her

July 1, 1987 acquisition of all the

stock/business assets was assembled by her

personally from an $8,000 profit-sharing

distribution from her prior job with the

dental profession association; $1,000 from

her personal checking account; and $20,000

from a local bank credit line obtained in the

name of Pro Grading, Inc. by her putting a

$10,000 second mortgage on a home owned

solely by herself in her own name. Mrs.

Stephens candidly acknowledged that her

former accountant may have listed these

foregoing items as loans from her personally

to the corporation on the corporate tax

return and further acknowledged that if he

had, then she had indeed ratified the

corporate return when she signed it.

However, she maintained she had fired the

former accountant over this and other matters

and that these amounts had never been

intended by her as loans but as investments

in the company that was now solely hers.

9. The initial DBE application showed Bonnie Stephens as receiving no

salary for the 1987-1988 year. Submissions for the instant cost and fees case

establish that an on-site review was performed by DOT on February 3, 1989, in

the course of its DBE certification procedure, prior to its February 22, 1989

denial letter. 1/ At the on-site review, Ms. Stephens indicated that her

salary was $3,000 per month and that she hired and fired personnel. Her

resume, submitted earlier with the initial DBE application, had not listed this

as one of her duties, and the resumes of Ronnie Stephens and Edgar Freytes had

listed it as a duty fulfilled by each of them.

10. As part of the DBE certification process, Ms. Stephens submitted a

copy of a 1987 Form 1120 Income Tax Return. Although this return was not

offered in evidence in the underlying case (see Findings of Fact 8 and 11-12),

it was considered by the agency in issuing its denial letter and has been

submitted and considered in this fees and costs case. On page 4, Schedule L,

line 18 of the return, no information was provided which showed loans from

stockholders which would bear on the issue of capital contribution. Line 6,

however, lists $10,428.97 as being loaned to the stockholders. The foregoing

information was submitted by Petitioner as being the correct tax information for

Pro Grading during the application process. However, credible testimony was

presented during the formal hearing that Ms. Stephens was unsure of what this

was, why her bookkeeper had listed this information, that it was incorrect, and

that she had subsequently fired the accountant. (See Finding of Fact 8).

11. It is fact as established by the Recommended and Final Orders in the

underlying case, that:

. . .a factor given significant weight

against certification by the committee was

the members' belief that Pro Grading, Inc.

was listed with the federal Internal Revenue

Service and with the Securities and Exchange

Commission as a "Subsection S" corporation

and that such an organizational framework

would permit all corporate income to pass

through the corporation to its principal,

Bonnie Stephens, and thus to her husband,

Ronnie Stephens (male). However, this

corporate status was categorically denied by

Bonnie Stephens at formal hearing, and no

documentary evidence was admitted which would

tend to establish "Subsection S" status of

the corporation/applicant.

12. DOT candidly admitted that its DBE committee made an incorrect

assumption with regard to Petitioner's corporate structure and that a member of

that committee, Pete Davis, testified at formal hearing that learning the

contrary would not have changed his vote against Petitioner's certification.

Although the committee's mistake is one factor to be weighed in determining

whether DOT's denial of Petitioner's application for certification was

"substantially justified" and although the committee chairman's attitude toward

such a mistake may seem intimidating to Petitioner, these are not the sole

factors to be assessed with regard to "substantial justification."

13. Likewise, it is fact established by the Recommended and Final Orders

in the underlying case that:

Mr. Davis enunciated a Department of

Transportation policy of viewing all "loans"

made by a minority applicant principal as

other than investment and of considering any

"loans" between a minority owner and her

corporate entity as a liability of the

corporation and not as equity that may be

considered as demonstrating "contribution of

capital" by the minority owner/stockholder.

This policy has never been formally

promulgated by the agency as a rule, and is,

therefore, subject to being proved up in each

formal hearing. At formal hearing, DOT

demonstrated no basis in general accounting

practices, by statute, or by rule for this

non-rule policy, and in this situation, where

the creditline is in the name of the

Petitioner corporation, backed by the 100%

minority stockholder's personal residence,

the policy is capricious and unfair in

application. . . . Mr. Davis also expressed

DOT policy that only capitalization as of the

date purchase/acquisition of the corporate

stock should be considered. That policy is

also subject to being proved-up on a case-by-

case basis. In this instance, such a policy

was not demonstrated to be equally applied in

every case. However, it was demonstrated

that the policy is without a clear rule or

statutory basis. . . .[B]ut in Mrs.

Stephens' situation, the agency appears to

have applied capitalization as of the date of

purchase/acquisition of the corporate stock

as a false indicator of potential success

. . . . Without something more from the

agency, it is appropriate to consider the

capital risked by the minority principal

subsequent to incorporation but prior to

application for DBE status and/or prior to

formal hearing.

14. The record is unclear as to whether the underlying case was the first

or only one of several in which DOT attempted to prove-up its uncodified

policies with regard to considering loans not to be investments (contribution of

capital) and considering only capitalization as of the date of acquisition.

Although application of unpublished policies and then failure to prove-up their

validity and the validity of their application by the agency is worthy of

consideration in a fees and costs case, this circumstance, by itself, also is

not solely determinative of whether DOT's denial of the application was

substantially justified. Furthermore, since the thrust of DOT's arguments on

each policy went to an issue of proof that may be summarized as whether or not

interim changes in the minority principal's and the corporation's financial

status could be considered in the de novo Section 120.57(1) F.S. proceeding, all

sub-issues as to how a policy is applied or proved become much less significant

for purposes of the instant fees and costs proceeding.

15. Resumes of Ronnie J. Stephens (the minority principal's husband),

Joseph Ronk, Edgar Freytes, and Bonnie Stephens (the principal) were provided to

DOT's Minority Programs Office during the DBE certification process. The

resumes of Ronnie Stephens, Joseph Ronk and Edgar Freytes emphasized their

experience and major job responsibilities within Pro Grading. Bonnie Stephens'

resume focused mainly on her clerical and other job history as a dental

assistant which failed to convince the DBE review committee and eventually the

DOT Director of Administration, that her experience enabled her to run the

applicant sodding company on a day-to-day basis.

16. Pursuant to the Recommended and Final Orders in the underlying case,

it is established as fact that:

DOT's committee analysis also placed great

emphasis on the expertise of the applicant at

the time of the application . . . . No case

law, other reasoning pursuant to Statute or

rule, or persuasive equitable argument was

offered to exclude the expertise evidenced by

Mrs. Stephens as of the date of formal

hearing. . . . Bonnie Stephens' "hands on"

experience in the field increased further

over the full year before the DBE application

was filed. Now, after nearly two years, that

expertise has been further enhanced. . . .

By a practical demonstration measuring

project bluelines for quoting prices and for

estimating the different types of work for

preparation of bids and/or for post-job

billing Bonnie Stephens demonstrated

administrative and field expertise. Through

a comprehensive explanation of specific

contracts won or jobs undertaken and

completed by the company while under her

management and control, she exhibited

comprehensive knowledge and expertise with

regard to the purchase and operation of

specialized machinery, . . . which had been

either utilized or purchased by her for the

corporation. Accordingly, she exhibited

substantial specialized expertise in the

grading, sodding, grassing, and seeding

trades.

17. Clearly, it was the candor, demeanor, expertise and credibility of the

oral testimony by Petitioner's minority principal at formal hearing that was

particularly persuasive in the underlying case. Among other things, the

Petitioner's "expertise" at the June 5, 1989 formal hearing demonstrated

education, training, and experience which she had acquired since the February 3,

1989 agency on-site review and February 22, 1989 denial of the application as

well as before.

18. Also, affidavits admitted without objection in lieu of live testimony

at formal hearing in the underlying case, which affidavits attested, in part, to

events and corporate involvement of Bonnie Stephens after agency denial but

before formal hearing, were considered as evidence by the Hearing Officer but

were not presented to DOT during the material period of time when DOT was

reviewing the application prior to its February 22, 1989 denial.

19. Ronnie Stephens and Joseph Ronk testified credibly at formal hearing,

clarifying beyond the submitted application and resumes, how much day-to-day

involvement the qualifying female minority person, Ms. Stephens, actually had in

the corporation and to what degree that affected their individual autonomy as

male middle management supervisors.

20. Ms. Stephens testified at formal hearing that when she took over Pro

Grading from Ronnie Stephens, she gave no compensation because they were

married. DOT had that information, but DOT had no information during the

application process that Bonnie Stephens took over the business because of tax

lien problems of Ronnie Stephens and his subsequent inability to get loans to

maintain the company's cash flow. In fact, a number of loan documents provided

to the agency by Bonnie Stephens showed Ronnie Stephens' signature along with

hers. Bonnie Stephens' explanation at formal hearing that her corporate credit

line had been established partly on the basis of a mortgage on her independently

owned dwelling was a significant factor in her prevailing in the underlying

case, as reflected in the Recommended Order. (See Findings of Fact 8 and 13).

21. Documentation of bid proposals, estimates, and correspondence

submitted to the agency during the DBE certification process and also those

admitted at formal hearing contained the signatures of employees other than

Bonnie Stephens as conducting major areas of business within Pro Grading.

Contradictions arising from the documentation submitted prior to the February

22, 1989 denial letter were resolved by the agency against Petitioner's

application. Contradictions arising from the documentation admitted at formal

hearing, as supplemented and clarified by oral testimony and affidavits received

at formal hearing, were resolved within the Recommended and Final Orders in

favor of the Petitioner.

CONCLUSIONS OF LAW

22. The Division of Administrative Hearings has jurisdiction of the

parties and subject matter of this cause. See, Sections 120.57(1) and 57.111

F.S. and Rule 22I-6.035 F.A.C.

23. DOT's non-rule policies of considering only the date of acquisition

finances and labelling loans as something other than minority investment were

not proved at the underlying formal hearing, but DOT was entitled to rely on

them pending case-by-case proof. This is an entirely different situation than

the utter default of rule situations that occurred in Home Care Associates of

Northwest Florida, Inc. v. HRS, DOAH Case No. 88- 4763F (December 21, 1988); A

Professional Nurse, Inc. v. HRS, DOAH Case No. 88-4043F (January 9, 1989); and

Home Health Care of Bay County, Florida v. HRS, DOAH Case No. 88-1353 (June 29,

1988).

24. DOT's Committee made one glaring error in presuming Subsection S

status, but this is not controlling considering the weight of other factors

justifying DOT's denial.

25. Obviously, much of the financial information that Petitioner submitted

to DOT in the course of the certification procedure was incomplete, superficial,

or simply incorrect. Also, certain financial factors changed between the

agency's denial of certification and formal hearing. Experience was gained by

the minority principal between agency denial and formal hearing. Petitioner

bore her burden of proof at formal hearing with further elaboration or

explication not available to DOT at the time it made its decision.

26. Several questionable areas were resolved only upon an assessment by

the undersigned that Petitioner's witnesses were credible. Such a credibility

assessment supports a determination of substantial justification." See,

Villotti v. DPR, Board of Medicine, DOAH Case No. 88-2056F (November 8, 1988);

Gentele v. DPR, Board of Optometry, 513 So. 2d 672 (Fla. 1st DCA 1987).

27. Under the foregoing circumstances, the agency was substantially

justified in its February 22, 1989 denial of certification. The agency can only

act upon its interactions with Petitioner during the certification process and

on-site inspections. It is the evidence available at the time of the denial

letter which is determinative of the substantial justification for the denial--

not the evidence presented at the formal hearing. See, Section 57.111(3)(e)

F.S.; Romaguera v. DPR, Board of Medical Examiners, DOAH Case No. 87-3604F

(January 4, 1988); Union Trucking, Inc. v. DOT, DOAH Case No. 87-4007F (October

5, 1988); and Gentele v. DPR, Board of Optometry, supra.

FINAL ORDER

Upon the foregoing findings of fact and conclusions of law, it is ordered

that the Petitioner's request far attorney's fees and costs be denied, the

petition dismissed, and that Respondent go hence without day.

ORDERED this 22nd day February, 1990, at Tallahassee, Florida.

___________________________________

ELLA JANE P. DAVIS, 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 22nd

day of February, 1990.

ENDNOTE

1/ A finding in the underlying Recommended and Final Orders that there was an

absence of proof that an on-site review was conducted does not preclude a

finding in this proceeding, upon appropriate proof, that an on-site review

occurred.

COPIES FURNISHED:

Ruth B. Dillard, Esquire

Department of Transportation

605 Suwannee Street, MS-58

Tallahassee, Florida 32399-0458

Joseph W. Standley, Esquire

Pattillo & McKeever, P.A.

2100 Southeast 17th Street

Suite 300

Ocala, Florida 32678

Ben G. Watts, Secretary

ATTN: Eleanor F. Turner

Department of Transportation

Haydon Burns Building, MS-58

Tallahassee, Florida 32399-0458

NOTICE OF RIGHT TO JUDICIAL REVIEW

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.