91-005224 S And S Contracting, Inc. vs. Department Of Transportation Status: Closed Recommended Order on Monday, June 1, 1992.

Summary: Petitioner is an independent business entity based upon substance of business transactions rather than form of such transactions.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

S & S CONTRACTING, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 91-5224

)

DEPARTMENT OF TRANSPORTATION, )

)

Respondent. )

__________________________________)

RECOMMENDED ORDER

Pursuant to Notice, a formal hearing was conducted in this case on April 3,

1992, in Tallahassee, Florida, before the Division of Administrative Hearings,

by its duly designated Hearing Officer, Daniel Manry.

APPEARANCES

FOR PETITIONER: John O. Williams, Esquire

Lindsey & Williams, P.A.

Renaissance Square

1343 East Tennessee Street

Tallahassee, Florida 32308

FOR RESPONDENT: William H. Roberts, Esquire

Department of Transportation

605 Suwannee Street

Haydon Burns Building

Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

The issue for determination in this case is whether Petitioner is entitled

to certification as a Disadvantaged Business Enterprise pursuant to Florida

Administrative Code Chapter 14-78.

PRELIMINARY STATEMENT

Petitioner applied for certification as a Disadvantaged Business Enterprise

(" DBE"). By letter dated May 14, 1991, Respondent notified Petitioner that the

application for certification as a DBE had been denied. Respondent determined

that Petitioner ". . . does not appear to be an independent business entity . .

." within the meaning of Florida Administrative Code Rule 14-78.005. Respondent

further found that Petitioner had failed to provide financial statements and

records of gross receipts for the prior three years for the corporate

shareholder of 49 percent of Petitioner's stock. On May 24, 1991, Petitioner

filed a Request For Administrative Hearing.

The matter was referred to the Division of Administrative Hearings for

assignment of a hearing officer on August 20, 1991, and assigned to Hearing

Officer J. Stephen Menton on August 22, 1991. A formal hearing was scheduled

for November 14, 1991, by Notice of Hearing issued on September 11, 1991. The

formal hearing was rescheduled for April 3, 1992, pursuant to the Order Granting

Continuance and Rescheduling Hearing entered on January 23, 1992. The matter

was transferred to the undersigned on or about April 2, 1992.

At the formal hearing, Petitioner presented the testimony of Ms. Andrea

Williams, Petitioner's secretary, and Mr. Jerry Smith, Petitioner's president.

Petitioner submitted one exhibit which was admitted in evidence without

objection.

Respondent presented the testimony of Ms. Juanita Moore, Respondent's

Acting Manager of Contracts Administration. Respondent submitted six exhibits

for admission in evidence. Respondent's Exhibits 1-6 were admitted in evidence

without objection. The exhibits submitted by Petitioner and Respondent are

identified in the transcript of the formal hearing.

A transcript of the formal hearing was filed with the undersigned on April

20, 1992. Proposed findings of fact and conclusions of law were timely filed by

Petitioner on April 30, 1992, and by Respondent on April 29, 1992. The parties'

proposed findings of fact are addressed in the Appendix to this Recommended

Order.

FINDINGS OF FACT

1. Petitioner is a small business concern organized as a closely held

Florida corporation. Fifty-one percent of Petitioner's stock is owned

individually by its president, Mr. Jerry Smith ("Smith"). Smith is a black

American and a minority for purposes of certification as a disadvantaged

business enterprise (" DBE"). All of Petitioner's employees are minorities for

purposes of DBE certification.

2. Petitioner's by laws require 51 percent of the vote for any action for

which voting approval is needed. Petitioner has no other authorized or

outstanding classes of stock, and Smith owns no stock of any kind in any other

corporation.

3. Petitioner's remaining stock is owned by P.J. Constructors, Inc.

(" P.J."). P.J. is wholly owned by Messrs. Mort Myrick and Paul Guptill

(" Myrick" and " Guptill", respectively). Myrick and Guptill served on the board

of directors for Petitioner until they resigned on December 18, 1989. Since

that time, neither Myrick nor Guptill have functioned in fact as officers or

directors for Petitioner; although both are named as officers in various

corporate documents executed for specific purposes.

4. Myrick and Guptill were authorized on June 14, 1988, as signatories on

Petitioner's bank account at Peoples National Bank of Commerce in Miami, Florida

("Peoples"). Guptill was an authorized signatory as Petitioner's vice

president, and Myrick was an authorized signatory as Petitioner's secretary and

treasurer. After their resignation from the board of directors on December 18,

1989, no change was made to the form identifying authorized signatories for the

bank account at Peoples. Guptill was authorized on July 26, 1990, as a

signatory on Petitioner's bank account at First Union in Miami, Florida ("First

Union") as Petitioner's vice president. Myrick and Guptill resigned their

titles as officers and/or directors for Petitioner on January 8, 1991.

5. Both Guptill and Myrick remain as signatories on the bank account at

Peoples, and Guptill remains as a signatory on the account at First Union.

Neither Guptill nor Myrick, however, have access to or actual control over

Petitioner's checks on either account. Further, it is Smith's clear intent, as

communicated to Guptill and Myrick, that the latter two individuals have no

actual authority to sign on Petitioner's accounts. Neither Guptill nor Myrick

have ever signed checks on behalf of Petitioner or otherwise exercised control

over Petitioner's funds. Smith is the only one of the three individuals who

actually signs checks and exercises actual control over Petitioner's funds.

6. Petitioner is engaged in the road construction business. Petitioner

has its own employees and owns its own construction and office equipment.

Petitioner does approximately two percent of its business with P. J. In

addition, Petitioner and P. J. occasionally lease equipment to each other at a

price that is less than fair rental value. Guptill supervised the so-called

" Overstreet Job" for Petitioner in 1990, but has not performed services for

Petitioner on any other occasion. Guptill was compensated for his supervisory

services. Guptill signed a change order for Petitioner on March 9, 1990, in

connection with the Overstreet Job, but neither Guptill nor Myrick have ever

signed a contract on behalf of Petitioner.

7. Myrick performed estimating services for Petitioner when Petitioner was

without an estimator during 1990. Myrick also performs estimating services for

Petitioner in road projects involving large embankments. Road projects

involving large embankments comprise about one percent of Petitioner's total

business. Myrick is compensated for his estimating services. Petitioner

customarily contracts its estimating jobs to outside firms. The work performed

by those estimating firms is reviewed and approved by Smith.

8. Smith is Petitioner's president and works full time for Petitioner.

Smith has more than eight years experience in the conduct of Petitioner's

business.

9. Decisions concerning Petitioner's policies, operation, and management

are made solely and exclusively by Smith. Smith does not confer with

Petitioner's board of directors before making such decisions. Smith has the

exclusive authority and power to hire and fire Petitioner's employees. Smith

signs all of Petitioner's checks and makes all decisions regarding bid

proposals. Smith shares in Petitioner's profits and losses in accordance with

his stock ownership interest. Petitioner's directors act in the best interest

of the company. No formal or informal agreements limit Smith's authority and

power to conduct the policies, operations, and management of Petitioner.

10. Petitioner's stock is not encumbered. Petitioner does not finance

other companies and is not financed by other companies other than by commercial

lenders. No other company pays the salaries of Petitioner's officers or

employees or the other expenses incurred by Petitioner in the ordinary course of

its trade or business.

11. Petitioner was certified by Respondent as a DBE for approximately

eight, one-year periods prior to this proceeding. Petitioner was selected as

the outstanding DBE for 1986 when Guptill and Myrick were officers and directors

for Petitioner. Petitioner is presently certified as a DBE in Dade and Broward

counties. Petitioner has consistently disclosed its relationship with P. J. to

Respondent during the period of Petitioner's certification as a DBE.

12. On January 3, 1991, Petitioner timely filed a complete application for

the certification period from April 3, 1991, through April 2, 1992, with

Respondent. Respondent requested additional information not specified in the

Florida Department of Transportation's Disadvantaged Business Enterprise's

Certification Application, Schedule "A", including a financial statement and

records of gross receipts for P. J. for 1989 and 1990. Petitioner attempted

unsuccessfully to provide the additional information. The information requested

by Respondent for P. J. was not within Respondent's possession or control and P.

J. refused to provide such information. Respondent's consultant conducted an

on-site review of Petitioner on April 16, 1991.

13. Respondent denied Petitioner's application for recertification on two

grounds. First, Petitioner failed to provide the additional information

requested by Respondent. Respondent, however, would not have requested the

additional information if Respondent had known that Guptill and Myrick were not

on the board of directors for Petitioner at the time of the denial. Second,

Respondent determined that Petitioner is not an independent business entity.

14. Petitioner is an independent business entity based upon the substance

of Petitioner's business rather than the form in which Petitioner's business is

conducted. Guptill and Myrick terminated their positions as directors and

officers for Petitioner in 1989. Any continued involvement in Petitioner's

business by Guptill and Myrick since 1989 as officers or directors has been in

form only. Guptill and Myrick remained as nominal officers for Petitioner on

selected corporate documents executed for specific purposes. Even the nominal

involvement by Guptill and Myrick as officers was terminated on January 8, 1991.

Guptill and Myrick have been compensated for any other services performed by

them. While Petitioner's record keeping has been ambiguous and less than

accurate, the preponderance of competent and substantial evidenced adduced at

the formal hearing shows that Guptill and Myrick have exercised no actual

control over Petitioner and that their involvement in the conduct of

Petitioner's business has been de minimis. The ownership and control of

Petitioner, in substance, has remained continuously and resolutely in the hands

of Smith.

CONCLUSIONS OF LAW

15. The Division of Administrative Hearings has jurisdiction over the

subject matter and the parties to this proceeding. Section 120.57(1), Florida

Statutes. The parties were duly noticed for the formal hearing.

16. Respondent administers a certification program which certifies

applicants as disadvantaged business enterprises (" DBE"s). Sections 339.0805,

337.125, 337.135 and 337.137, Florida Statutes. DBEs are accorded competitive

advantages and preferential treatment because they are eligible to participate

in Respondent's Sheltered Program of set-aside contracts under DBE subcontract

goals.

17. DBEs are small business concerns that are owned and controlled by

socially and economically disadvantaged individuals as defined by the Federal

Surface Transportation and Uniform Relocation Assistance Act of 1987, ( STURRA),

23 U.S.C. 101, et seq.

18. Chapter 339.0805(1)(b), Florida Statutes, provides in pertinent part:

. . . It is the policy of the state to

meaningfully assist socially and economically

disadvantaged business enterprises through a

program that will provide for the development

of skills through construction and business

management training, as well as financial

assistance in the form of bond guarantees, to

primarily remedy the effects of past economic

disparity . . . .

The United States Department of Transportation has promulgated 49 CFR, Part 23,

to implement STURRA and provide guidelines for state "recipients" who receive

federal highway funds.

19. Florida Administrative Code Chapter 14-78 implements STURRA at the

state level and essentially restates the federal standards in all parts relevant

hereto. Rule 14-78.002(3) defines a DBE as a small business concern which

satisfies two criteria. First, a DBE must be at least 51 percent owned by "one

or more socially and economically disadvantaged individuals." Second, the

"management and daily business operations [of the DBE] must be controlled by one

or more of the socially and economically disadvantaged individuals who own it."

20. Petitioner satisfies the minimum requirements for ownership of a DBE.

At least 51 percent of the common voting stock of the corporation is owned by

Mr. Jerry Smith ("Smith"). Smith is a socially and economically disadvantaged

individual within the meaning of applicable state and federal law. Smith has

substantial experience in the operation and management of Petitioner's business

and in fact controls the Petitioner's management, daily business operations,

cash flow, income, and capital.

21. Petitioner is an independent business entity within the meaning of

Florida Administrative Code Rule 14-78.005(7). The ownership and control

exercised by Smith is "real, substantial, and continuing . . . " and goes beyond

mere pro forma ownership within the meaning of Rule 14-78.005(7)(c). Smith

enjoys the customary incidence of ownership and shares in the risks and profits

commensurate with his ownership interest. Smith's ownership and control of

Petitioner is demonstrated by an examination of the substance of Petitioner's

business, as evidenced by all of the surrounding facts and circumstances, rather

than the form of specific financial and managerial arrangements.

22. Smith has "the power to direct or to 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." Rule 14-78.005(7)(e). Smith's power to direct or cause the

direction of the management, policies, and operations of the Petitioner and to

make day-to-day as well as major business decisions concerning the Petitioner's

management, policy, and operation is not subject to any formal or informal

restrictions (including, but not limited to, by law provisions, partnership

agreements, trust agreements or charter requirements for cumulative voting

rights or otherwise) which would vary from customary managerial discretion in

the industry. Nor do any of the business relationships with corporate owners

vary from industry custom.

23. The non-socially and economically disadvantaged shareholders of

Petitioner do not exercise control over Petitioner, directly or indirectly.

Florida Administrative Code Rule 14-78.005(7)(f) recognizes that non-minority

owners may participate in the management of the business. The interest and

activities of Petitioner's non- DBE shareholders does not conflict with the

ownership and control requirements of applicable rules and does not inhibit or

reduce the ownership and actual control held and exercised by Smith.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is

RECOMMENDED that a Final Order be entered certifying Petitioner as a

Disadvantaged Business Enterprise.

DONE and ENTERED this __1__ day of June, 1992, at Tallahassee, Florida.

__________________________________

DANIEL MANRY

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 __1__ day of June, 1992.

APPENDIX

Petitioner submitted proposed findings of fact. It has been noted below

which proposed findings of fact have been generally accepted and the paragraph

numbers in the Recommended Order where they have been accepted, if any. Those

proposed findings of fact which have been rejected and the reason for their

rejection have also been noted.

Petitioner's Proposed Findings of Fact

Proposed Finding Paragraph Number in Recommended Order

of Fact Number of Acceptance or Reason for Rejection

1-3 Accepted in Finding 11

4-5, 8,9, and 11 Accepted in Finding 12

6-7 Rejected as irrelevant

10, 12 Accepted in Finding 13

13 Accepted in Preliminary Statement

14-17 Accepted in Finding 1

18-22, 27-28 Accepted in Findings 8-9

23-26 Accepted in Finding 10

29 Accepted in Finding 5

30-31 Accepted in Finding 9

32-33 Accepted in Finding 1

34-35 Accepted in Findings 3, 14

36 Accepted in Finding 6

Respondent submitted proposed findings of fact. It has been noted below

which proposed findings of fact have been generally accepted and the paragraph

number in the Recommended Order where they have been accepted, if any. Those

proposed findings of fact which have been rejected and the reason for their

rejection have also been noted.

Respondent's Proposed Findings of Fact

Proposed Finding Paragraph Number in Recommended Order

of Fact Number of Acceptance or Reason for Rejection

1 Rejected as immaterial

2 Rejected in Findings 3, 14

3-4 Rejected in Finding 3, 4-5,

14

5-6 Rejected in Finding 12

7, 11 Rejected as irrelevant

8 Rejected in Findings 4-5

9 Rejected in Finding 7

10 Rejected in Findings 8-9

12 Accepted in Finding

COPIES FURNISHED:

Williams H. Roberts, Esquire

Assistant General Counsel

Department of Transportation

Haydon Burns Building, M.S. 58

605 Suwannee Street

Tallahassee, Florida 32399-0458

Ben G. Watts, Secretary

Department of Transportation

Haydon Burns Building, M.S. 58

605 Suwannee Street

Tallahassee, Florida 32399-0458

John O. Williams, Esquire

Lindsey & Beck, P.A.

1343 East Tennessee Street

Tallahassee, Florida 32308

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended

Order. All agencies allow each party at least 10 days in which to submit

written exceptions. Some agencies allow a larger period within which to submit

written exceptions. You should contact the agency that will issue the final

order in this case concerning agency rules on the deadline for filing exceptions

to this Recommended Order. Any exceptions to this Recommended Order should be

filed with the agency that will issue the final order in this case.