vs. ) CASE NO. 82-791
Respondent. )
This matter came on for hearing in Chipley, Florida, before the Division of Administrative Hearings by its duly designated Hearing Officer, Robert T. Benton II, on July 23, 1982. The Division of Administrative Hearings received the transcript of proceedings on August 11, 1982. The parties were represented by counsel:
For Respondent: Vernon L. Whittier, Jr., Esquire
Ella Jane P. Davis, Esquire Haydon Burns Building Tallahassee, Florida 32301
On February 25, 1982, respondent wrote petitioner that the "firm's application for certification as a Minority Business Enterprise ha[d] been denied . . . pursuant to Chapter 14-78.05, Florida Administrative Code." Although final in tenor, such agency action becomes, by operation of law, tentative only, upon the timely filing of a petition for an administrative hearing. (No issue of timeliness has been raised in the present case.) As grounds for the proposed denial, the letter stated, "The minority owner lacks the contributions of expertise and capital to ensure control of the company." After petitioner requested a hearing pursuant to Section 120.57, Florida Statutes (1981), the matter was referred to the Division of Administrative Hearings.
In the prehearing stipulation, the parties stated the "issue of fact" as "whether Coggin and Deermont is entitled to be certified as a minority business enterprise" and indicated disagreement over "the interpretation of Rule 14-78 in regards to whether the minority holding 51 percent or more of the stock must exercise 51 percent or more of the control or whether all minority owners must be considered in the aggregate to determine minority control."
Petitioner Coggin and Deermont, Inc. (C&D) has forty-odd employees. The company owns a building and, among other equipment, bulldozers, loaders, scrapers, graders, draglines, and dump trucks. Respondent's Exhibit No. 1. C&D clears, grubs, grades, and otherwise prepares roadbeds and constructs roads through the stage called "base work." C&D has qualified as a prime contractor
with respondent Department of Transportation. The firm also builds culverts and storm drainage structures, including head walls, and does other concrete work.
After Mr. Deermont died, at age 94, his partner carried on their road- building business with the help of Ralph C. Carlisle, a 25-year employee, and, until recently, president of C&D. Mr. Coggin died last year at 88, and the Carlisle family decided to acquire the rest of C&D's stock.
Mr. Carlisle's wife Bertha, nee Lopez, had inherited Six Thousand Dollars ($6,000) from her father, who, like her mother, was born in Mexico. Blonde and blue-eyed, Mrs. Carlisle herself was born in the United States, on April 26, 1929. Petitioner's Exhibit No. 1.
FAMILY BUYS COMPANY
On February 10, 1982, the Carlisles bought all of C&D's stock Mr. Carlisle did not already own. They used Bertha's inheritance to make a Six Thousand Dollar ($6,000) cash payment and executed a promissory note in the amount of One Hundred Seventy-three Thousand, Three Hundred Twenty-five Dollars ($173,325), Petitioner's Exhibit No. 3, for the balance of the purchase price. The note was secured by a mortgage encumbering three parcels of real estate owned jointly by Ralph C. and Bertha L. Carlisle. Petitioner's Exhibit No. 2.
The expectation is that income from C&D will make it possible for Mr. and Mrs. Carlisle to make the installment payments promised in Petitioner's Exhibit No. 3. C&D owes some Ninety Thousand Dollars ($90,000) to various banks. Mr. and Mrs. Carlisle are personally liable for some, if not all, of C&D's debt. They are not obligated to begin installment payments on the note they executed to pay for the stock until March 10, 1983.
Mrs. Carlisle paid Two Hundred Twenty-five Dollars ($225) per share for her stock. (T. 58.) Only one hundred (100) shares are outstanding. Respondent's Exhibit No. 1. Mrs. Carlisle holds fifty-one percent (51 percent) of C&D's stock, and her husband holds thirty-four percent (34 percent). Mr. and Mrs. Carlisle have two sons, Ralph C. III and Richard D., to whom they gave ten percent (10 percent) and five percent (5 percent) of C&D's stock, respectively. All the Carlisles are directors of the corporation. Dividends have not been paid since the Carlisles took over.
At some point, the Carlisles "decided [they] were going to apply for minority business enterprise [certification] and use [Mrs. Carlisle's] ethnic origin." (T. 64.)
PRESIDENT'S DUTIES
Mrs. Carlisle did not bring any particular expertise to C&D, even though she had accompanied her husband on some of his travels for C&D (without compensation). After graduation from high school, attendance at "business school," and two years as a clerk in a stock broker's office, she married Mr. Carlisle and began a twenty-five-year career as a housewife, which was
interrupted recently by a two-year stint as an interior designer in a gift shop. (T. 65.) When she became majority stockholder, Mrs. Carlisle voted herself president of C&D. She succeeded her husband in that office. Her salary is One Thousand, One Hundred Twenty-Five Dollars ($1,125) weekly, and his is Eight Hundred Ninety-five Dollars ($895) 1/ weekly. They "combine" their salaries. (T. 90.)
Machinery is not Mrs. Carlisle's strong point; she has some difficulty distinguishing among the different types of heavy equipment C&D uses. Field operations are not her primary concern. As a matter of company policy, she ordinarily visits job sites only in the company of her husband. (T. 63, 66- 67.) Her routine upon returning from site inspections she described as follows:
[W]hen I come back I always check my mail and my phone calls or--something like that. Most of the time when I go out on the job, like I say, it's quite a distance away from home and I go back to the office and check
to see what problems we have had, I have had. He checks his desk and I check my desk. And then we'll go on home and that's when we confer with our sons again. And business starts all over again. (T. 67-68.)
She also buys most of the office supplies and signs weekly payroll checks, which are prepared by an employee and countersigned both by her husband and Patricia Kirkland, who keeps C&D's books. Mrs. Carlisle has only limited knowledge of basic accounting concepts. (T. 85-86.) She acts as C&D's "EEO representative," (T. 53) a task she took over from a secretary, Mrs. Cook.
Mrs. Carlisle has other duties in connection with bid preparation.
She reads some ten newspapers published in Chipley, Florida, and surrounds "to see which jobs are going to be coming up" (T. 50) and orders the plans for jobs C&D might be interested in; she and her husband ["he's the engineer and has all the experience . . ." (T. 51)] inspect the site; she inquires by telephone of "salesmen and people to get the prices" (T. 52) for pipe, concrete, and other materials, but does not negotiate prices. According to Mrs. Carlisle, her "husband is the one that is doing all of the figuring on the job," (T. 52) but Mrs. Carlisle works at figuring, particularly when she travels with her husband to Tallahassee.
MINORITY OWNERS
Both sons work for C&D and had held salaried positions with C&D before the Carlisles bought out the other owners. Their combined experience amounted to less than five years.
The older boy, Ralph C. III, serves as corporate treasurer and as general superintendent "overseeing all the work that the company has under construction" (T. 20) and overseeing maintenance. He has power to hire and fire and has exercised it. As treasurer, he reviews a treasurer's report prepared by Mrs. Kirkland and signs rental agreements. He can operate every piece of equipment C&D owns. He has never supervised a road-building project from start to finish, but he worked on one project as a timekeeper and grade man from start to finish. He worked for C&D for a year after he graduated from high school. Since then he has had two years of college; he took math, engineering, and accounting courses. After college, he worked for Ardaman & Associates in
Tallahassee for eight or nine months taking soil samples, before returning to C&D in February of 1982. He is paid Two Hundred Twenty-Five Dollars ($225) weekly.
Richard D. works as foreman of a six-man crew, at a salary of One Hundred Seventy Dollars ($170) per week, and has full authority in the field in his father's absence, including the power to hire and fire the men he supervises. He began at C&D as a laborer. He has finished 60 hours of drafting technology courses at a junior college and may graduate in December.
EFFECTIVE CONTROL
As vice-president and general manager, answerable only to his wife, Ralph C. Carlisle has charge of C&D and manages day-to-day operations. He is trained as an engineer and does surveying for C&D. He is "the job estimator" (T. 90); he stakes out jobs and prepares cost reports. Richard D. Carlisle testified as follows:
Q: Who do you report to? A: My daddy.
Q: Do you receive instructions from him?
A: Mostly. And I receive instructions from my brother and my mother. She will help us out. (T. 13.)
Ralph C. Carlisle III testified, as follows:
Well, basically I have the control of field supervising. If I make a decision in the field and it doesn't work then I ask [my father] to make a decision. That way he has a little more experience than I do, not a little more, a lot more. I make ninety-
nine per cent of the decisions in the field. (T. 28-29.)
He explained the lines of authority at C&D in these words:
Totally to my mama, I'm totally responsible to her. But in the meantime I'm still re- sponsible to my daddy too. What I'm saying is, basically I do not have to report my day to day activities to anybody. If I have to, if there is something that arises I tell my mama first, being the stockholder, if she is available. If not then I go over it with my
daddy. Basically my daddy and I have a little conference every evening on the field activ- ities, which my mama is also in on. We have a little conference every evening. We do report our activities to each other every evening. When it gets right down to it we don't have to.
When asked whether decisions she makes in the field are joint decisions, Mrs. Carlisle answered:
Yes. Just really because I'm president of the company that still doesn't mean -- that still means that we share it. My husband has a lot of say so just like I do. He has more knowledge in this field than I have.
And this is what he is educated in too. (T. 70.)
Mrs. Carlisle does not make policy for C&D by herself. (T. 76.) Mr. Carlisle is involved with all technical decisions. (T. 91.) The four owners live together as a family and discuss business at home as well as on the job.
CONCLUSIONS OF LAW
When a licensing agency like respondent has timely "set forth in writing the grounds or basis for [proposed] denial of a license," Rule 28- 6.08(2), Florida Administrative Code; see Section 120.60(2), Florida Statutes (1979), "unless otherwise provided by law the applicant shall have the burden of establishing entitlement," Rule 28-6.08(3), Florida Administrative Code, by demonstrating the invalidity of the grounds for denial stated by the licensing agency. See Department of Transportation v. J.W.C. Company, Inc., 396 So.2d 778 (Fla. 1st DCA 1981); Zemour, Inc. v. State Division of Beverage, 347 So.2d 1102 (Fla. 1st DCA 1977)(lack of good moral character found "from evidence submitted by the applicant" at 1103); see generally Balino v. Department of Health and Rehabilitative Services, 348 So.2d 349 (Fla. 1st DCA 1977)
GROUNDS STATED
Respondent has proposed to deny petitioner's application because "[t]he minority owner lacks the contributions of expertise and capital to ensure control of the company," citing Rule 14-78.05, Florida Administrative Code, which provides:
To ensure that this rule benefits only MBEs which are owned and controlled in both form and substance by one or more minor- ities or women, the Department shall certify firms who wish to participate as MBEs under this rule.
(3)(a) Bona fide minority group mem- bership shall be established on the basis of the individual's claim that he or she is a member of a minority group and is so re-
garded by that particular minority community. However, the Department is not required to accept this claim if it determines the claim invalid.
An eligible minority business enterprise under this rule shall be an in- dependent business entity, the real, sub- stantial, and continuing ownership and control of which shall be by minorities or women and go beyond mere pro forma owner- ship of the firm as reflected in its owner-
ship documents. The minority or women owners shall enjoy the customary incidence of ownership and shall share in the risks and profits commensurate with their owner- ship interests, as demonstrated by an exam- ination of the substance rather than form of financial and managerial arrangements.
In assessing business independence the Department shall consider all relevant factors, including but not limited to the date the MBE applicant was established, the adequacy of its resources, and the degree to which financial relationships, equipment leasing, and other business relationships with nonminority firms
vary from industry practice.
For purposes of establishing a corporation as a certified MBE under this rule, all securities which constitute own- ership or control by minorities or women shall be held directly by minorities or women. No securities held in trust, or by any guardian for a minor, shall be consid- ered as held by a minority or by women in determining the ownership or control of a corporation. Recognition of the enterprise as a separate entity for tax or corporate purposes is not necessarily sufficient for certification as a minority business enter- prise under this rule.
An eligible minority business enterprise under this rule shall be one in which the minority or women owners shall also possess the power to direct or cause the direction of the management and poli- cies of the MBE and to make day-to-day as well as major business decisions concerning the MBEs management, policy, and operation. The discretion of the minority or women owners shall not be subject to any formal or informal restrictions (including, but not limited to, bylaw provisions, partner- ship agreements, or charter requirements for cumulative voting rights or otherwise) which would vary managerial discretion cus- tomary in the industry.
In determining whether the minority or women owners also possess the power to direct or cause the direction of the man- agement and policies of the MBE and have the requisite decision-making authority, the Department may look to the control lodged in the owners who are not minori- ties or women. If the owners who are not minorities or women are disproportionately
responsible for the operation of the enter- prise or if there exists any requirement
which prevents the minority or women owners from making business decisions without con- currence of any owner or employee who is not a minority or a woman, then the enter- prise is not controlled by minorities or women and shall not be considered an MBE within the meaning of this rule. Where the actual management of the enterprise is con- tracted out to individuals other than the owner(s), those persons who have the ulti- mate power to hire and fire the managers can, for the purposes of this rule be considered as controlling the enterprise.
An eligible minority business enterprise under this rule shall be one in which the contributions of capital or exper- tise invested by the minority or women owners in order to acquire their interest(s) in the enterprise are real and substantial. Exam- ples of insufficient contributions include a promise to contribute capital, a note pay- able to the enterprise or its owners who
are neither socially nor economically dis- advantaged, or the mere participation as an employee, rather than as a decision-maker.
In addition to the above stan- dards, the Department shall give special consideration to the following circumstances in determining eligibility under this sec- tion:
Newly formed firms and firms whose ownership or control has changed since the date of the advertisement of the contract shall be closely scrutinized to determine
the reason is for the timing of the formation of or change in the firm.
A previous or continuing employer- employee relationship between or among pres- ent owners shall be carefully reviewed to ensure that the employee-owner has sufficient management responsibilities and capabilities.
At the final hearing, petitioner's counsel indicated it was proceeding on the theory that petitioner qualifies as a minority business enterprise on account of Mrs. Carlisle's Mexican heritage and that of her sons, rather than on account of Mrs. Carlisle's being a woman.
MULTIPLE OWNERS
Of C&D's four owners, three profess to be members of a minority group. The fact of minority group membership is not an issue in this case. In applying Rule 14-78.05, Florida Administrative Code, it is appropriate to consider their role in the enterprise not only individually, but also collectively. See, e.g., Rule 14-78.01(h), Florida Administrative Code.
CONTROL
The evidence showed that the non-minority owner, Ralph C. Carlisle, exercises effective day-to-day control of C&D's operations. Notwithstanding contributions of other owners, particularly Ralph C. III, who has significant managerial responsibilities, Mr. Carlisle is "disproportionately responsible for the operation of the enterprise." Rule 14-78.05(d), Florida Administrative Code. Testimony to the contrary was unconvincing. As majority stockholder, Mrs. Carlisle has "the ultimate power to hire and fire the managers," Rule 14- 78.05(d), Florida Administrative Code, including her husband. Because "the actual management of" C&D has not been "contracted out to individuals other than the owner(s)," Rule 14-78.05 (d), Florida Administrative Code, however, Mrs. Carlisle's technical, legal right to fire her husband is not dispositive.
CAPITAL
Of one hundred (100) shares of C&D stock outstanding, Mrs. Carlisle bought more than fifty-one (51) shares, because she still owned that amount after joining with her husband in making presents of fifteen (15) shares to their sons. She bought less than sixty-six (66) shares, because her husband joined her in making the gifts to their sons aggregating fifteen (15) shares.
Mrs. Carlisle paid Two Hundred Twenty-five Dollars ($225) per share for the C&D stock. The fifty-one (51) shares she kept cost her Eleven Thousand, Four Hundred Seventy-five Dollars (51 X $225 = $11,475), only Six Thousand Dollars ($6,000) of which was not "a promise to contribute capital." Rule 14-
78.05 (3)(e), Florida Administrative Code. In other words, for Six Thousand Dollars cash ($6,000) she gained control of C&D at the same time she and her husband agreed to buy all the C&D stock he did not already own for One Hundred Seventy-nine Thousand, Three Hundred Twenty-five Dollars ($179,325) at a price per share necessarily in excess of One Thousand Seven Hundred Ninety-three and One Quarter Dollars ($1,793.25).
Mrs. Carlisle's Six Thousand Dollars ($6,000) was a real contribution of capital but it cannot be said to have been "substantial," within the meaning of Rule 14-78.05(3)(e), Florida Administrative Code, since it only represented the price of about three shares at the time it was ostensibly used to acquire controlling interest of C&D, with one hundred (100) shares outstanding.
Neither of the sons made any contribution of capital to the enterprise.
EXPERTISE
The Carlisles are hopeful that they will one day be able to turn operation of C&D over to their sons. The evidence did not establish that the sons would be able to run the company on their own at this point, but it was clear that they do bring some experience and expertise to their work for C&D. Nor is Mrs. Carlisle wholly unfamiliar with C&D's operations.
In order for this "minority expertise" to be "real and substantial" for purposes of Rule 14-78.05(3)(e) , Florida Administrative Code, however, it must have been "invested by the minority owners in order to acquire their interest(s)." Rule 14-78.05 (3)(e), Florida Administrative Code. The evidence was clear (and cumulative) to the effect that the Carlisle boys' fifteen (15) shares were gifts from their parents. There was no showing that their expertise was a quid pro quo for their stock in C&D, nor was there any showing that any expertise Mrs. Carlisle may have was "invested" by her to acquire her interest.
In evaluating the claim that Mr. Carlisle gave his wife and sons control of C&D in exchange for their expertise, it should not be forgotten that their combined experience as employees of C&D, at the time the stock was conveyed, was on the order of five years in relatively menial positions, as compared to Mr. Carlisle's twenty-five (25) years with C&D, including several years as president.
That respondent deny petitioner's application for certification as a minority business enterprise.
DONE AND ENTERED this 9th day of September, 1982, in Tallahassee, Florida.
ROBERT T. BENTON, II
Filed with the Clerk of the Division of Administrative Hearings this 9th day of September, 1982.
1/ Mrs. Carlisle originally testified that her annual salary was only Thirteen Thousand Dollars ($13,000) and that his was only Thirty-five Thousand Dollars ($35,000), but changed her testimony after a recess. No explanation was offered as to how she could be off by more than a factor of four on her own salary. She explained that Mr. Carlisle's salary was Thirty-five Thousand Dollars ($35,000) before they raised it to Forty-six Thousand, Five Hundred Forty Dollars ($46,540).
Both parties furnished proposed findings of fact and conclusions of law. Proposed findings have been adopted, in substance, except to the extent that they have been deemed irrelevant, subordinate, or unsupported by the evidence.
Vernon L. Whittier, Jr., Esquire Ella Jane P. Davis, Esquire Haydon Burns Building Tallahassee, Florida 32301
Paul Pappas, Secretary Department of Transportation Haydon Burns Building Tallahassee, Florida 32301
