STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

TERRELL OIL COMPANY, )

)

Petitioner, )

)

vs. ) CASE NO. 88-1330

) DEPARTMENT OF TRANSPORTATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the above matter was heard before the Division of Administrative Hearings by its duly designated Hearing Officer, Diane A. Grubbs, on August 22 and 30, 1988, in Tampa and Tallahassee, Florida.

APPEARANCES

For Petitioner: Ben H. Ervin, Esquire

Post Office Box 41 Monticello, Florida 32344

For Respondent: Thomas J. Cassidy, III, Esquire

J. Marlene Ahearn, Esquire

Haydon Burns Building, Mail Station 58 Tallahassee, Florida 32399-0458

BACKGROUND

This proceeding began on January 20, 1988, when respondent, Department of Transportation (DOT), issued proposed agency action in the form of a letter advising petitioner, Terrell Oil Company, that its application for certification as a disadvantaged business enterprise had been denied on the ground the "firm (did) not appear to be performing a commercially useful function nor (was) it an independent business entity as required by DOT Rule 14-78.05, Florida Administrative Code."

By letter dated January 25, 1988, petitioner disputed the above action and requested a formal hearing pursuant to Subsection 120.57(1), Florida Statutes (1987). The matter was referred by respondent to the Division of Administrative Hearings on March 18, 1988, with a request that a hearing officer be assigned to conduct a formal hearing. By notice of hearing dated May 5, 1988, the final hearing was scheduled on June 21, 1988, in Tallahassee, Florida. At petitioner's request, the matter was rescheduled to July 25, 1988. Thereafter, respondent's motion to continue and to change venue was granted, and the matter was rescheduled to August 22, 1988, in Tampa, Florida. A continued hearing was held on August 30, 1988, in Tallahassee, Florida. On October 24, 1988, the case was transferred to the undersigned pursuant to Subsection 120.57(1)(b)11., Florida Statutes (1987), due to the unavailability of the Hearing Officer who conducted the hearing.

At final hearing, petitioner presented the testimony of Richard W. Gilliam, its executive vice-president. Respondent presented the testimony of Mary Ellen Hopp, payroll clerk for a St. Petersburg automobile dealership; Josh W. Consadine, a DOT operation and management consultant; Clinton E. Brown, Jr., a petroleum distributor; James E. Smith, a petroleum wholesaler; Renauld Anderson, a City of Tampa personnel analyst; James R. Donovan, a Hillsborough County special investigator; Robert Flowers, a City of Orlando MBE certification officer; Kim Burton Smith, a DOT internal auditor; and Teresa Stewart, DOT director of administration. Respondent also offered respondent's exhibits 1-9, 11-17, 19-26 and 30-54. All were received except exhibits 24, 25, 36 and 50.

Exhibits 20 and 21 are the depositions of J. Anthony Belcher and Grady F. Terrell, Jr., respectively.

The transcript of hearing (five volumes) was filed on September 21, 1988. Proposed findings of fact and conclusions of law were filed by respondent and petitioner on October 19 and 20, 1988, respectively. 1/ A ruling on each proposed finding has been made in the Appendix attached to this Recommended Order.

The issue is whether petitioner's application for certification as a disadvantaged business enterprise should be granted.

Based upon all of the evidence, the following findings of fact are determined:

FINDINGS OF FACT

1. On September 21, 1987, petitioner, Terrell Oil Company (TOC), filed an application for renewal of its certification as a disadvantaged business enterprise (DBE) with respondent, Department of Transportation (DOT). TOC had been previously certified as a DBE for a two-year period commencing in January 1986. After reviewing the application, DOT advised TOC by letter dated January 20, 1988, that its application had been denied on the grounds the firm "(did) not appear to be performing a commercially useful function nor (was) it an independent business entity as required by D. O. T. Rule 14-78.05, Florida Administrative Code." 2/ The letter of denial precipitated this proceeding. Later correspondence from DOT on February 8, 1988, advised TOC that its existing certification would remain in effect until this proceeding was concluded.

   
   

2. According to its original application dated September 21, 1987, TOC was established on February 5, 1986, and engaged in the business of "oil-gas- petroleum products." Its offices were then located at 1908 West Cass Street, Tampa, Florida. The application identified Grady F. Terrell, Jr., a black man, as being the sole stockholder in the firm, its president and chairman of the board. Other directors included Richard W. Gilliam, a white man, and Walter Scott, a black man. The application represented that Terrell served as president and treasurer of TOC while Gilliam held the positions of vice president and secretary. The application reflected also that Terrell and Gilliam shared the power in the areas of policy making, financial decisions, job estimating, bidding and supervising field operations and that Terrell alone had the power to dismiss employees and sign checks. Finally, the application represented that the corporation owned no equipment, it had earned $14,000 in calendar year 1986, Terrell had invested $6,000 of his own money in the firm, and it had two full-time and two cart-time employees.

3. After receiving the original application, two DOT employees made an on- site investigation of the business and conducted an interview with Terrell on October 20, 1987. They found no sign on the building at 1908 West Cass Street indicating that TOC occupied the premises, but they were directed by the landlord to a small 8' x 10' rear corner office. During the interview, Terrell was asked for copies of TOC business contracts but had none. Also, he did not have any cancelled checks, insurance coverage or bonding at that time. Terrell stated he had no employees so no insurance was needed. He represented further that he was "self-employed" by TOC and devoted 100% of his time to that endeavor.

   
   

4. When the parties reviewed the application item by item and found several discrepancies or incorrect responses, Terrell agreed to amend his application in the presence of the DOT representatives. As amended, the application reflected that Terrell, Gilliam and J. Anthony Belcher, a white man, were the current directors, the firm had one full-time (Terrell) and no part- time employees, Terrell, Gilliam and Belcher served as president, vice-president and treasurer, respectively, while William V. Gruman, a white man and attorney, served as secretary, and there were no written, oral or tacit agreements concerning the operation of the firm between any persons associated with the firm. Terrell denied that Belcher worked for Belcher Oil Company (BOC), a large oil concern, and described him as a retired individual serving as an independent consultant for TOC. As to Gilliam, Terrell described him as an independent contractor who worked on a 100% commission basis and solicited business for the firm.

   
   

5. During the same interview, Terrell represented that the $6,000 investment in capital was actually a loan from a local bank and denied that TOC owned or leased any equipment. Terrell could offer no proof that the firm had earned $14,000 in 1986 and indicated the firm had no projects underway. He described his business as being a broker of gasoline, diesel fuel and motor oil and that other persons supplied and delivered the fuel. According to Terrell, business transactions were conducted in the following manner. He first determined the market price of fuel from BOC, his principal supplier, and based upon that price, submitted a bid on a job. If TOC was successful, Terrell made a telephone call to BOC requesting that the fuel be delivered to the buyer. Through BOC, Terrell was able to purchase fuel two percent below the "rack" rate. TOC then added a percentage of profit to its sales price. In actuality, TOC never had physical possession of the fuel and, accordingly, needed no equipment to engage in this activity.

   
   

6. At the same inspection, the DOT personnel confirmed through reading the firm's bylaws that each of three directors had one full vote, regardless of the number of shares held. Thus, the two white directors could outvote Terrell on any TOC decision. Also, a quorum of the directors could convene a meeting and theoretically conduct business without Terrell's knowledge.

   
   

7. On November 23, 1987, or a little over a month after the DOT visit was made, TOC adopted a corporate resolution authorizing any one of the three directors to execute binding contracts on behalf of TOC. Thus, either of the two white directors had the authority to enter into contracts without Terrell's approval. A copy of the resolution has been received in evidence as respondent's exhibit 12.

   
   

8. Shortly after the above resolution was approved, Gilliam and Belcher were given the opportunity to each purchase 19% of TOC's stock while Gruman was

   allowed to purchase the remaining 2%. This meant the three white officers now owned 40% of the stock while Terrell owned the remaining 60%.

   
   

9. On December 1, 1987, TOC and BOC entered into an agreement whereby TOC agreed to buy fuel and petroleum products from BOC for resale to customers, and in return, BOC extended TOC a $200,000 line of credit. The agreement has been received in evidence as respondent's exhibit 1. Under the agreement, TOC's invoices to customers had to be approved by BOC, and the customers were required to remit moneys due for fuel to a special bank account controlled by BOC. That firm then sent its invoices to the bank and was paid out of the proceeds. The remainder in the account was for the use of TOC. This agreement was negotiated on behalf of TOC by Belcher, whose family once owned BOC, and until 1987 served as a consultant to that oil company.

   
   

10. Because of numerous concerns raised during the October 10 visit, DOT continued its investigation of TOC. Besides learning about the above resolution, stock sale and agreement, DOT obtained various corporate records of T0C, including tax returns, cancelled checks, records of fuel sales and applications for minority certification with other governmental entities. Through its investigation, DOT uncovered the fact that Terrell did not devote 100% of his time to TOC as he had earlier claimed but had been employed as a car salesman by Crown Pontiac in St. Petersburg, Florida, on a full-time basis since July 1987. Indeed, Terrell worked there more than fifty hours per week. Contrary to Terrell's representation, authority to sign TOC checks had been delegated to Gilliam who had done so on numerous occasions prior to and after the application was submitted. As to Terrell's contention that TOC owned no equipment, the firm's corporate income tax return indicated it purchased a small tank truck in 1986 and carried the same on its books. The claim that Terrell alone controlled the business was refuted by the firm's corporate records which reflected that the two white board members could effectively control all management decisions and run the business on a day-to-day basis. DOT learned also that, although TOC had five customer accounts in 1988, of which four came from the private sector, the fifth account was with Hillsborough County, a governmental entity, and comprised more than 99% of its total business.

    
    

11. In addition to the DOT application, TOC has sought minority business status from the City of St. Petersburg, the City of Orlando, Hillsborough County, Broward County and the federal government. A review of these applications revealed a maze of conflicting information submitted to the respective agencies. For example, Terrell represented to Hillsborough County that one Noble Sissel (a black man) was TOC's vice-president, secretary, treasurer and board member when in fact Sissel never held any of those positions. Terrell represented to Hillsborough and Broward Counties that TOC had two full-time employees while the amended DOT application reflected that TOC had only one. Further, Terrell gave conflicting answers to the various agencies as to the equipment owned by TOC and the purported gross receipts of the firm.

    
    

12. In order to perform a commercially useful function, a DBE must manage and perform at least 51% of its work. In other words, the firm cannot subcontract out more than 49% of its business. Also, there is a requirement that a DBE's principal customers be entities other than governmental agencies in order to perform a commercially useful function. Through testimony and admissions of its officers, TOC acknowledged that it was merely acting as a broker. In industry parlance, this means that TOC did all its work by telephone, obtained a seller and buyer and then obtained a common carrier to deliver the product. As such, TOC never took physical possession of the product on its own equipment since it owned none, and it was not responsible for the

    movement of the product from the terminal to the customer. Further, since TOC purchased virtually all of its fuel from BOC, and under an agreement customer checks went directly to that firm, TOC was, in essence, conducting a broker operation for BOC. Therefore, TOC was not performing a commercially useful function.

    
    

13. At hearing, Gilliam was TOC's only witness, and he attempted to establish TOC's entitlement to certification. Besides pointing out that Terrell was a black man and the majority shareholder in the firm, Gilliam attempted to show that Terrell actually controlled and ran the business. Also, he attempted to demonstrate the commercially useful function of the firm by the fact that 80% (4 out of 5) of TOC's five accounts are nongovernmental customers. Although not reflected on the amended or original applications, Gilliam acknowledged that TOC owns one 1200 gallon truck capable of making fuel deliveries. Gilliam contended further that Terrell had made an initial contribution to the corporation of

    $120,000 of his own funds. However, no proof of this claim was submitted. Given the overwhelming contradictory evidence of record, and the numerous inconsistencies in the testimony of TOC representatives, Gilliam's testimony is not accepted as being credible.

    
    

    CONCLUSIONS OF LAW

    
    

14. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties thereto pursuant to Subsection 120.57(1), Florida Statutes (1987).

    
    

15. As the applicant seeking certification, TOC must prove its entitlement to certification by the preponderance of the evidence. This standard of proof will be used in weighing the evidence.

    
    

16. Chapter 14-78, Florida Administrative Code (1987), governs the issuance of DBE certifications. Once qualified, a DBE may participate in DOT contracts. To be qualified, a veritable maze of state and federal regulations must be satisfied. Only two grounds for denying the application have been advanced by DOT, that being Terrell's alleged lack of control over the business and the firm's alleged failure to perform a commercially useful function. While numerous rules pertain to these two items, only a few need be repeated herein in order to resolve the issues. First, Rule 14-78.002(3)(b) provides the following relevant definition:

    
    

    (3) "Disadvantage business enterprise" or DBE means a small business concern:

    1. Which is at least 51 percent owned by one or more socially and economically disadvantaged individuals, or, in the case

       of a publicly owned business, at least 51 percent of the stock of which is owned by one or more socially and economically disadvantaged individuals; and

    2. Whose management and daily business operations are controlled by one or more of the socially and economically disadvantaged individuals who own it.

    (emphasis added)

    * * *

    
    

17. Also relevant are the following portions of Rule 14-78.005(7):

    
    

    (7) A firm seeking certification as a DBE shall meet the following standards:

    1. The firm must be a small business concern.

    2. The firm must be at least 51 percent owned and controlled by one or more socially and economically disadvantaged individuals, or, in the case of a publicly owned business,

       at least 51 percent of the stock must be owned and controlled by one or more socially and economically disadvantaged individuals.

    3. To be certified under this rule chapter, a DBE shall be an independent business entity. 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, and reflected in its ownership documents. . . .

    * * *

    (e) To be certified under this rule chapter, 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. . . .

    (emphasis added)

    
    

    In addition, Rule 14-78.003(2)(h)6.c. provides in part that:

    
    

    A DBE is considered to perform a commercially useful function when it actually performs and manages at least 51 percent of the work subcontracted to it. To determine whether a DBE is performing a commercially useful function, the Department shall evaluate all relevant factors such as the amount of work subcontracted and industry practices. (empahsis added)

    
    

    Also, Rule 14-78.008(1)(g) provides insight into the issue of whether a DBE is performing a commercially useful function by making the following set of circumstances a ground for revoking or suspending a certification:

    
    

    (g) The DBE subordinates more than 49 percent of the amount of any single subcontract which was used by the prime contractor to meet the contract DBE goals.

    
    

    Lastly, DOT cites Section 287.0943, Florida Statutes (1987) as being relevant to this proceeding. That section sets forth the requirements for being certified as a minority business enterprise by the Department of General Services. In

    addition, the term "useful business function" is defined to be a business "which results in the possession of materials, supplies, equipment, or services to customers other than state government." (Emphasis added) Subsection (b) of the same statute requires that all other state agencies comply with this law.

    
    

18. Initially, it is noted that what began as a relatively simple certification case has evolved into a complicated, acrimonious affair fraught with discovery disputes too numerous to mention. With that aside, the first task is to determine if petitioner made a prima facie case of entitlement to licensure. Fla. Department of Transportation v. J.W.C. Company, Inc., 396 So.2d 778 (Fla. 1st DCA 1981). To do this, TOC must demonstrate that it meets the minimum statutory and rule requirements and has countered the agency's objections. In this case, the applicant must show it is a small business concern which is at least 51% owned by an economically disadvantaged individual and whose management and daily business operation are controlled by the economically disadvantaged individual. In addition, the question of whether it performed a commercially useful function has been raised.

    
    

19. Taking up the first matter in controversy, petitioner has failed to prove that it is a firm "whose management and daily business operations are controlled by one or more of the socially and economically disadvantaged individuals who own it" as required by Rule 14-78.002(3), or that Terrell has "real, substantial and continuing" ownership and control as required by Rule 14- 78.005(7). Indeed, the corporate records themselves reveal that any one of the three directors has the unfettered right to contract on behalf of the firm, and the two white directors have the ability to outvote the single minority director on any issue or decision. Thus, the first criterion has not been satisfied.

    
    

20. As to the issue of whether TOC performs a "commercially useful function," DOT Rule 14-78.003(2)(b)6.c. makes clear that the DBE must "actually perform and manage at least 51 percent of the work subcontracted to it" in order to satisfy this requirement. The evidence shows clearly that TOC is performing the role of a broker, subcontracts out virtually all of its business and does business almost exclusively with a governmental entity. This is borne out by the testimony of TOC's own officers. As such, it is concluded the firm is not now nor has it been performing a commercially useful function within the meaning of DOT rules. Therefore, the application should be denied.

    
    

21. In view of the above conclusion, it is unnecessary to address the other points raised by DOT, all of which appear to be meritorious, and which constitute additional reasons for denying the application.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a Final Order be entered denying the application of

Terrell Oil Company for certification as a Disadvantaged Business Enterprise.

ENTERED this 9th day of November, 1988, in Tallahassee, Florida.

DONALD R. ALEXANDER

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 9th day of November 1988.

ENDNOTES

1/ Respondent's proposed recommended order consisted of eighty-six pages. This contravenes Rule 221-6.031(3), Florida Administrative Code (1987), which provides that "no party shall file any proposed recommended order in excess of forty pages, unless the Hearing Officer has granted leave to do so beforehand."

2/ DOT's letter carried the date of January 20, 1987, but this date was obviously a typographical error.

APPENDIX

Petitioner:

1-2. Rejected as being a recitation or paraphrasing of a rule.

1. Rejected as being contrary to the evidence.

2. Partially used in findings of fact 1, 9 and 13. The remainder is unnecessary.

3. Partially used in finding of fact 1. The remainder is rejected as being contrary to the greater weight of evidence.

6-7. Rejected as being contrary to the evidence.

8-9. Rejected as being irrelevant to the resolution of the issues.

1. Partially used in finding of fact 9. The remainder is rejected as being irrelevant to the resolution of the issues.

2. Rejected as irrelevant.

3. Rejected as being contrary to the evidence.

4. Rejected as being a recitation of a rule and contrary to the evidence.

5. Rejected as being a recitation of a rule.

6. Rejected as irrelevant to the issues or contrary to the evidence.

Respondent:

Respondent submitted fifty-nine pages of proposed findings of fact. To the extent they were necessary and relevant, they have been generally used.

Petitioner submitted five pages of unnumbered paragraphs containing proposed findings of fact. They have been ruled upon in sequential order.

COPIES FURNISHED:

Ben H. Ervin, Esquire Post Office Box 41 Monticello, Florida 32344

Thomas J. Cassidy, III, Esquire

J. Marlene Ahearn, Esquire Haydon Burns Building, MS 58 Tallahassee, Florida 32399-0458

Kaye N. Henderson Secretary

Department of Transportation Haydon Burns Building

605 Suwannee Street

Tallahassee, Florida 32399-0450 Attn: Eleanor F. Turner

MS 58

Thomas H. Bateman, III, Esquire General Counsel

Department of Transportation

52 Haydon Burns Building Tallahassee, Florida 32399-0450

=================================================================

AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA DEPARTMENT OF TRANSPORTATION

TERRELL OIL COMPANY,

Petitioner,

vs. CASE NO. 88-1330

DEPARTMENT OF TRANSPORTATION,

Respondent.

/

FINAL ORDER

The FLORIDA DEPARTMENT OF TRANSPORTATION (DEPARTMENT) notified TERRELL

OIL COMPANY that its application for certification as a Disadvantaged Business Enterprise (DBE) with the DEPARTMENT was being denied. TERRELL OIL COMPANY filed a request for an administrative hearing, so the matter was referred to the Division of Administrative Hearings.

A hearing was held in this matter on August 22 and 30, 1988. Hearing Officer Donald R. Alexander entered his Recommended Order November 9, 1982. No exceptions were received to the Recommended Order. The Hearing Officer's Recommended Order, copy attached, is considered to be correct in both fact and law with the exception of Paragraph 6 of the Conclusions of Law. Except as modified herein, the Recommended Order is incorporated as part of this order.

In Paragraph 6 of the Recommended Order, the Hearing Officer has relied on a determination that the applicant is performing the role as a broker, is subcontracting out virtually all of its business, and doing business almost exclusively with a governmental entity to conclude that the applicant is not perf orming a "commercially useful function." Relying on Rule 4-78.D03(2)(b)6., F.A.C., the Hearing Officer has used his determination that the applicant has not been performing a useful function as a grounds to deny certification. The performance of a commercially useful function" is used to determine whether the DBE's subcontract work can be counted toward the contract goals. Performing a "commercially useful function" is not a requirement of certification under Rule 14-78.005, F.A.C. Rule 14-78.005 sets out the standards to be used for certifying a small business concern as a DBE.

Rule 14-78.003(b) concerns the application of DBE goals on a specific construction project and whether the DBE participation can count toward accomplishing the contract DBE subcontracting goals. Performing a "commercially useful function" is a prerequisite for the subcontract contract amount to count toward the Department's contract goals for the project. To the extent the evidence presented shows that the applicant was nothing more than a broker for a nonDBE firm, this evidence is further support for the Hearing Officer's determination that the applicant did not show the requisite independence to be certified as a DBE. Therefore it is

ORDERED that the application of TERRELL OIL COMPANY for certification as a Disadvantaged Business Enterprise is DENIED.

DONE AND ORDERED this 19th day of December, 1988.

KAYE N. HENDERSON, P.E.

Secretary

Department of Transportation Haydon Burns Building

The following information is required by law to be included in all Final Orders:

Judicial review of agency final orders may be pursued in accordance with Section 120.68, Florida Statutes, and Florida Rules of Appellate Procedure 9.030(b)(1)(c) and 9.110. To initiate an appeal, a Notice of Appeal must be filed with the Department's Clerk of Agency Proceedings, Haydon Burns Building, MS 58, 605 Suwannee Street, Tallahassee, Florida 32399-0458, and with the appropriate District Court of Appeal within thirty (30) days of the filing of this Final Order with the Department's Clerk of Agency Proceedings. The Notice of Appeal filed with the District Court of Appeal should be accompanied by the filing fee specified in Section 35.22(3), Florida Statutes.

COPIES FURNISHED:

Diane A. Grubbs, Hearing Officer Donald R. Alexander, Hearing Officer Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

Ben H. Ervin, Attorney

P.O. Box 41

Monticello, Florida 32344

Thomas J. Cassidy, III, Attorney

J. Marlene Ahearn, Attorney Department of Transportation Haydon Burns Building, MS 58 Tallahassee, Florida 32399

Ms. Juanita Moore, Manager Minority Programs Office Department of Transportation Haydon Burns Building Tallahassee, Florida 32399

Docket for Case No: 88-001330

Orders for Case No: 88-001330