98-004073 Mathews Consulting, Inc. vs. South Florida Water Management District Status: Closed Recommended Order on Thursday, February 25, 1999.

Summary: Minority Business Enterprise applicant tried to change corporate authority after application was denied. South Florida Water Management District interpreted own rules as not allowing for amendment.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MATHEWS CONSULTING, INC., )

)

Petitioner, )

)

vs. ) Case No. 98-4073

)

SOUTH FLORIDA WATER )

MANAGEMENT DISTRICT, )

)

Respondent. )

__________________________________)

RECOMMENDED ORDER

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

on January 7 and 8, 1998, at West Palm Beach, Florida, before

Susan B. Kirkland, a duly designated Administrative Law Judge of

the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Carla L. Brown, Esquire

Law Offices of Carla L. Brown, P.A.

301 Clematis Street, Suite 203

West Palm Beach, Florida 33401

For Respondent: Ronald M. Gunzburger, Esquire

Eckert, Seamans, Cherin & Mellott, L.C.

450 East Las Olas Boulevard, Suite 800

Fort Lauderdale, Florida 33301

Glenn M. Miller, Esquire

South Florida Water Management District

3301 Gun Club Road

West Palm Beach, Florida 33416

STATEMENT OF THE ISSUES

Whether Petitioner is eligible for certification as a

Minority/Woman Business Enterprise pursuant to Chapter 40E-7,

Part VI, Florida Administrative Code.

PRELIMINARY STATEMENT

On June 4, 1998, Petitioner, Mathews Consulting, Inc. (MCI),

applied to Respondent, South Florida Water Management District

(District), for certification as a Minority/Woman Business

Enterprise (M/WBE). By letter dated June 10, 1998, the District

denied MCI's application on the grounds that MCI did not qualify

as a M/WBE pursuant to Rules 40E-7.653(2), 40E-7.653(4)(a), and

40E-7.653(4)(b), Florida Administrative Code. 1 MCI requested an

administrative hearing. The case was forwarded to the Division

of Administrative Hearings for assignment to an administrative

law judge.

At the final hearing, Petitioner testified on her own behalf

and presented the testimony of Michael Gordon, Paula Campbell,

Carolyn Williams, and David Mathews. Petitioner's Exhibits 1-7

and 9-14 were admitted in evidence. Petitioner's Exhibit 8 was

not admitted in evidence. Joint Exhibit 1 was admitted in

evidence. The parties stipulated to the facts contained in

paragraphs E1-E16 of the Joint Prehearing Stipulation.

Respondent called Candice Boyer as its witness. Respondent

presented no exhibits.

The parties agreed to file their proposed recommended orders

within ten days of the filing of the transcript, which was filed

on January 21, 1999. The parties' P roposed R ecommended O rders

were filed on February 1, 1999, and have been considered by the

undersigned A dministrative L aw J udge in rendering this

R ecommended O rder.

FINDINGS OF FACT

1. Petitioner, Mathews Consulting, Inc. (MCI), is a Florida

corporation, incorporated on January 28, 1998, by Rene L.

Mathews, a female, and David L. Mathews, a white male. Rene and

David Mathews are and were married at the time MCI was

incorporated.

2. Ms. Mathews owns 55 percent of the stock of MCI, and

Mr. Mathews owns the remaining 45 percent of the stock.

3. Ms. Mathews is the President and Treasurer of MCI, and

Mr. Mathews is the Vice President and Secretary.

4. Ms. Mathews has a bachelor of science degree in civil

engineering and has been a professional engineer licensed with

the State of Florida since 1995. Her primary engineering

practice areas are water and waste water treatment, industrial

pretreatment, civil engineering, regulatory compliance, odor

control/air quality assurance, and construction management.

Prior to becoming employed full time with MCI, Ms. Mathews was

employed for 8 years as a civil engineer with Hazen and Sawyer.

5. Mr. Mathews is a professional engineer employed full

time by Hazen and Sawyer. He specializes mainly in underground

pipeline work and landfills.

6. MCI has a board of directors consisting of two people:

Rene and David Mathews.

7. The ByLaws of MCI provide at Article Three, Section 3:

Except as provided in the Articles of

Incorporation and by law, all corporate

powers shall be exercised by or under the

authority of, and the business and affairs of

the Corporation shall be managed under the

direction of, its Board of Directors.

8. MCI is in the business of providing engineering

consulting services in the areas of water and waste water

treatment, industrial pretreatment, civil engineering, regulatory

compliance, odor control/air quality assurance, and construction

management.

9. MCI obtained a $30,000 loan and a $20,000 line of credit

from Barnett Bank (collectively referred to hereafter as the

Loan) to be used as start-up capital for MCI. The Loan was

evidenced by a promissory note and guaranteed by a security

agreement. The bank required both Rene Mathews and David Mathews

to individually guarantee the Loan jointly and severally because

they were the owners and officers of the corporation.

10. David Mathews is an authorized signatory on MCI's bank

account. Mr. Mathews is not authorized on the company credit

card or ATM card and has not signed any checks for the company.

11. MCI submitted an application dated June 4, 1998, to

Respondent, South Florida Water Management District (District),

for certification as a M inority/ W oman B usiness E nterprise

(M/WBE).

12. By letter dated June 10, 1998, the District denied

MCI's application, stating the following reasons:

a. Documents do not support real and

substantial ownership by the minority or

woman applicant(s). Rule 40E-7.653(2)

b. Documents do not support that the day-to-

day operations are controlled by the

minority/woman, nor is there evidence that

the minority possess (sic) the authority to

direct the management and policy of the

business. Rule 40E-7.653.4(4)(a)

c. The composition of the Board of

Directors, regardless of percentage of

ownership , is not made-up of a majority of

minority/woman directors.

If the applicant business is a

corporation and the business and affairs of

the corporation are managed under the

direction of a board of directors as provided

in the Articles of Incorporation or ByLaws of

the corporation or Section 607.0824, Florida

Statute, a majority of the directors must be

minority/woman, not withstanding whether the

directors are required to be elected by a

majority vote of the outstanding shares of

the corporation. Rule 40E-7.653.4(4)(b)

13. The June 10, 1998, letter provided that if an applicant

believes that it has been wrongly denied certification that the

applicant may request an administrative hearing or do the

following:

Submit any information or documentation

which clarifies the documentation submitted

with the original application and/or request

the opportunity to meet with the Office of

Supplier Diversity & Outreach within fifteen

(15) calendar days of receipt of this notice.

The District will only consider information

that clarifies the documentation in your

original application. Changes occurring

after the submission of your original

application (i.e., any changes in corporate

structure) will not be accepted as clarifying

documentation. This office, after its review

of any clarifying information will notify the

applicant business by certified mail of its

final decision to either uphold or overturn

its decision to deny the application for

certification. If the denial decision is

upheld, you may petition for an

administrative hearing in accordance with

Rule 40E-1.521, Florida Administrative Code.

The Petition must be received by the

District's Office of Counsel within fifteen

(15) days of actual receipt of notice of

decision to uphold the denial of

certification.

14. On June 15, 1998, after the District had denied MCI's

application, Rene Mathews had a telephone conversation with

Candice Boyer, a business operations analyst with the District.

Ms. Boyer explained to Ms. Mathews the decision for denial was

based on the composition of the board and David Mathews'

guarantee of the Loan from Barnett Bank.

15. After the telephone conversation with Ms. Boyer, Rene

Mathews contacted her lawyer, who is also her sister. Her

attorney drew up a S hareholders A greement which reflected an

effective date of January 28, 1998, and a Guarantee and

Indemnification Agreement which reflected an effective date of

March 6, 1998. The two documents were not in existence either at

the time MCI submitted its application to the District or at the

time the District initially denied MCI's application for

certification.

16. The minutes of the meeting to incorporate MCI on

January 28, 1998, neither reflect nor reference the S hareholders

A greement or the G uarantee and I ndemnification A greement.

17. The S hareholders A greement stated:

Rene and David desire to set forth in a

written agreement the understanding and

agreement they made at the time of

incorporation of the Corporation as to the

authority of Rene to exercise all corporate

powers and direct the management of the

business and affairs of the Corporations....

18. The agreement further provided:

Rene, as one of the Directors of the

Corporation, shall have the sole authority to

exercise all corporate powers and direct the

management of the business, policy and

affairs of the Corporation. This authority

includes, without limitation, the control of

the day-to-day operations of the Corporation.

Any authority given to David as one of

the Directors of the Corporation to exercise

corporate powers and direct the management of

the business and affairs of the Corporation,

including without limitation, his voting

power as a Director of the Corporation, has

been transferred to Rene.

It is the intention of Rene and David

that the Corporation be for all intents and

purposes a Minority/Woman Business

Enterprise, notwithstanding any authority,

rights, or powers that may be given to David

by virtue of the provisions of the ByLaws of

the Corporation or the provisions of the

Florida Business Organization Act F.S.

Chapter 607.

It is understood and agreed that because

this Agreement limits the discretion and

powers of David as a Director, David is

relieved of all liability for acts or

omissions imposed by law on directors and all

such liability is imposed on Rene.

This Agreement shall not restrict the

ability of David to sign documents on behalf

of the Corporation under the authority and

direction of Rene, as she may so determine

from time to time. . . .

19. The Guaranty and Indemnification Agreement stated that

the agreement was "entered into as of this 6th day of March,

1998, by and between" Rene and David Mathews. The agreement

dealt with their liability for the Loan from Barnett Bank and

provided:

Rene and David agree that Rene shall be

solely liable under the Guaranties for

repayment for the Loan in the event of a

default.

To the extent that any action is taken

by Barnett Bank against David under the

Guaranties, Rene shall indemnify David in any

threatened, pending, or completed action,

suit, or proceeding against any expenses

(including attorney's fees), judgments and

amounts paid in settlement, actually or

reasonably incurred by him in connection with

such action, suit, or proceeding, including

any appeal thereof. . . .

20. On June 19, 1998, Ms. Mathews submitted the

Shareholder's Agreement and the Guaranty and Indemnification

Agreement to the District. On July 31, 1998, Ms. Mathews and

MCI's counsel met with representatives from the District to

discuss the initial denial of MCI's application.

21. By letter dated August 4, 1998, the District advised

MCI that the information submitted after the application did not

support a reversal of the District's decision to deny the

application. Although the District reviewed the additional

information, the District deemed the Shareholders Agreement and

the Guaranty and Indemnification Agreement to be new

documentation rather than clarifying information originally

submitted in the application. The changes which the documents

reflect occurred after the application was submitted and the

notice of intent to deny certification was issued.

22. Carolyn Williams, the Director of the Office of

Supplier Diversity and Outreach at the District, explained the

rationale for not allowing changes after a denial has been issued

and why firms which have been denied remain ineligible to reapply

for certification for one year after denial pursuant to

Rule 40E-7.655, Florida Administrative Code. According to

Ms. Williams, to allow MCI to change its application and

essentially restructure the firm would be inconsistent with the

District's past practices and would violate the integrity of the

program.

CONCLUSIONS OF LAW

23. The Division of Administrative Hearings has

jurisdiction over the parties to and the subject matter of this

proceeding. Section 120.57(1), Florida Statutes.

24. MCI, as the applicant for certification, has the burden

to establish by a preponderance of the evidence that it is

entitled to be certified as a M/WBE. Department of

Transportation v. J.W.C. Company, Inc. , 396 So. 2d 778 (Fla. 1st

DCA 1981) and Balino v. Department of Health and Rehabilitative

Services , 362 So. 2d 21 (Fla. 1st DCA 1978).

25. Rule 40E-7.655(5), Florida Administrative Code,

prohibits an applicant from submitting an application until one

year after the date of the denial of the application either by

notice of denial or final order denying certification. The

District views this prohibition as a limitation on the

applicant's ability to amend its application after it has been

notified of the District's denial. An agency's interpretation of

its own rules is accorded great deference and will not be

overturned unless clearly erroneous. State Contracting v.

Department of Transportation , 709 So. 2d 607 (Fla. 1st DCA 1998).

The District's interpretation of its rule has a rational basis

and cannot be said to be clearly erroneous.

26. One of the bases that the District denied MCI's

application was for failure to meet the requirements of

Rules 40E-7.653(4)(a) and (b), Florida Administrative Code, which

provide:

(4) An applicant must establish that

the minority/woman owner seeking

certification be the license holder,

qualifying agent, and/or the professional

license holder and possess the authority to

control and exercise dominant control over

the management and daily operations of the

business.

(a) The discretion of the

minority/woman 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

cumulative or otherwise), which would vary or

usurp managerial discretion customary in the

industry.

(b) If the applicant business is a

corporation and the business and 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, F.S., a

majority of the directors must be

minority/woman owners, notwithstanding

whether directors are required to be elected

by a majority vote of the outstanding shares

of the corporation

27. At the time that MCI submitted its application, MCI was

managed by its board of directors, which consisted of David and

Rene Mathews. The S hareholders A greement was not in existence at

the time MCI applied for certification and was not in existence

when the District initially denied the application by letter

dated June 10, 1998. Thus, based on its ByLaws, the MCI's Board

of Directors managed the business and affairs of MCI, and the

majority of the Board of Directors was not composed of women or

minorities when the District initially denied the application.

This corporate structure is contrary to Rule 40E-7.653(4)(b),

Florida Administrative Code. The June 10, 1998, letter clearly

advised MCI that the District would not consider changes to the

application such as changes in corporate structure. The

execution of the Shareholder's Agreement was a change in the

structure of the corporation in that it purported to change the

B y L aws so that the management of the company would be by a single

director; therefore, it was an impermissible attempt to amend the

application after notification of denial.

28. Petitioner cites Young v. Department of Community

Affairs , 625 So. 2d 831 (Fla. 1993) and McDonald v. Department of

Banking and Finance , 346 So. 2d 569 (Fla. 1st DCA 1977) for the

proposition that the administrative law judge should consider

circumstances as they exist at the time of the final hearing and

circumstances external to the application. Petitioner fails to

realize that the key phase is "external to the application." The

court in McDonald at 584 stated:

The hearing officer's decision to permit

evidence of circumstances as they existed at

the time of the hearing was correct. The

agency may appropriately control the number

and frequency of amendments to licensing

applications and may by rule prevent

substantial amendments of the application in

midproceeding. But the hearing officer or

agency head conducting Section 120.57

proceedings should freely consider relevant

evidence of changing economic circumstances

and other current circumstances external to

the application. Section 120.57 proceedings

are intended to formulate final agency

action, not to review action taken earlier or

preliminarily.

29. The District has interpreted Rule 40E-7.655(5) to limit

the time frames within which an applicant may amend its

application; thus while the administrative law judge may consider

circumstances that are external to the application, the

administrative law judge may not allow amendments to the

application.

30. The second reason for denial of the application was the

failure of MCI to meet the criteria of 40E-7.653(2), Florida

Administrative Code, which requires that the applicant must

satisfy the criteria in subsection 3 of the same rule in order

for the applicant to be considered 51 percent owned by minorities

or women. Rule 40E-7.653(3)(c), Florida Administrative Code,

provides:

The minority/woman owners must demonstrate

that they share in all the risks assumed by

the business firm. Such sharing of risks

shall be demonstrated through the

minority/woman owners primary role in

decision-making, and negotiation and

execution of related transaction documents

either as individuals or as officers of the

business. The minority/woman owners' sharing

in business risks shall be commensurate with

their percentage of ownership, including

start-up costs and contributions, acquisition

of additional ownership interests, third-

party agreements, and bonding applications.

Start-up contributions may be space, cash,

equipment, real estate, inventory or services

estimated at fair market value. All

contributions of capital by the

minority/woman owners must be real and

substantial. The following are not presumed

to be real and substantial contributions:

1. promises to contribute capital

2. notes payable to the applicant

business

3. notes payable to the non-

minority/woman owners or the non-

minority/women members family members of any

owner; and

4. past services rendered by the

minority/woman person as an employee, rather

than as a decision-maker.

31. The District contends that because David Mathews agreed

to guarantee the Loan from Barnett Bank that Rene Mathews did not

share risk commensurate with her ownership. Rene also agreed to

individually guarantee the Loan; thus, she has taken a risk that

is substantially commensurate with her 55 percent ownership of

the company. Her guarantee of the loan to MCI is real and

substantial.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that a Final Order be entered denying

Mathews Consulting, Inc.'s application for certification as a

M/WBE.

DONE AND ENTERED this 25th day of February, 1999, in

Tallahassee, Leon County, Florida.

___________________________________

SUSAN B. KIRKLAND

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 25th day of February, 1999.

ENDNOTE

1 / The District's M/WBE Contracting Rule, 40E-7, Part VI,

Florida Administrative Code, became effective on October 1, 1996.

In July 1998, the District amended the M/WBE Contracting Rule.

In the amendment, the provisions cited in the June 10, 1998

denial to MCI were renumbered. Citations herein to the M/WBE

Contracting Rule are pre-amendment.

COPIES FURNISHED:

Samuel E. Poole, Executive Director

South Florida Water Management District

3301 Gun Club Road

West Palm Beach, Florida 33401

Ronald M. Gunzburger, Esquire

Eckert, Seamans, Cherin & Mellott

450 East Las Olas Boulevard, Suite 800

Fort Lauderdale, Florida 33301

Glenn M. Miller, Esquire

South Florida Water Management District

3301 Gun Club Road

West Palm Beach, Florida 33401

Carla L. Brown, Esquire

Law Offices of Carla L. Brown, P.A.

301 Clematis Street, Suite 203

West Palm Beach, Florida 33401

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15

days from the date of this Recommended Order. Any exceptions to

this Recommended Order should be filed with the agency that will

issue the Final Order in this case.