STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MILL-IT CORPORATION, )

)

Petitioner, )

)

vs. ) CASE NO. 88-2437

) DEPARTMENT OF TRANSPORTATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, final hearing in the above-styled case was held on June 23, 1988, in Orlando, Florida, before Robert E. Meale, Hearing Officer of the Division of Administrative Hearings.

The representatives of the parties were as follows: For Petitioner: George E. Spofford, IV, Esquire

Cummings, Lawrence & Vezina, P.A. Post Office Box 589

Tallahassee, Florida 32302

For Respondent: James W. Anderson, Esquire

Department of Transportation

Haydon Burns Building, Mail Station 58 605 Suwannee Street

Tallahassee, Florida 32399-0458 BACKGROUND

By letter dated October 19, 1987, Respondent informed Petitioner that its application for certification as a Disadvantaged Business Enterprise was denied. The letter explained that the principal did not control the company and the firm did not appear to be an independent business entity. Respondent relied upon what is now Rule 14-78.005(3)(c) and (e), Florida Administrative Code.

By letter dated October 28, 1987, Petitioner demanded a hearing, expressing its intent to retain its certification.

Subsequent settlement negotiations were unsuccessful. By letter dated April 22, 1988, Respondent informed Petitioner that it was ineligible for certification because Ms. Bortell, who owns 26% of Petitioner, did not share in the control of the company and Ben Guzman, who owns 26% of the company, was unknown to Respondent's field employees who had dealt with the corporation. The letter requested Petitioner to confirm that it still desired a hearing. By letter dated May 12, 1988, Petitioner did so. In the meantime, by letter dated May 12, 1988, Respondent transmitted the file to the Division of Administrative Hearings for a hearing on whether Petitioner was entitled to obtain

certification as a "minority business enterprise" in accordance with what is now Rule 14-78.005(3)(c) and (e).

Petitioner presented four witnesses and offered into evidence 20 exhibits.

Respondent presented two witnesses and offered into evidence three exhibits. All exhibits were admitted into evidence.

Each party filed a proposed recommended order. Treatment accorded the proposed findings of fact is detailed in the Appendix.

At the hearing, the parties stipulated that the case should be treated as a denial of an application for certification as a Disadvantaged Business Enterprise, rather than a revocation of such certification. Although Respondent had originally attempted to revoke Petitioner's certification, it had expired, according to its terms, on the same day that Respondent transmitted the file to the Division of Administrative hearings. The parties stipulated further that the relevant facts were those that existed on May 12, 1988. Petitioner did not concede, however, that Rule 14-7.008(9), Florida Administrative Code, which became effective on May 4, 1988, could be applied to this case. Respondent also stipulated that Petitioner could continue to be used as a DBE on all projects not involving federal aid.

Petitioner filed a supplemental memorandum of law in support of its proposed recommended order. Respondent filed a motion to strike the memorandum on the grounds that the issues briefed were inconsistent with a stipulation entered into by the parties during the hearing. The motion is hereby denied.

FINDINGS OF FACT

1. Petitioner was incorporated on September 22, 1983. The initial directors were Ben E. Guzman and James E. Quinn. The corporation initially issued 40 shares. Mr. Guzman owned 10.2 shares, and Mr. Quinn owned 9.8 shares. Myrna Bortell owned 10.2 shares, and Edward T. Quinn, Jr. owned 9.8 shares.

   When expressed as percentages, the ownership shares have been rounded off so that Mr. Guzman and Ms. Bortell each owns 26%. Each of the shareholders made a real and substantial contribution to the capital of the corporation at its inception. This investment has not been returned in the form of return of capital or dividends, as such.

   
   

2. At the organizational meeting of Petitioner, Mr. Guzman was elected to serve as president, Mr. James Quinn as vice-president, and Ms. Bortell as secretary and treasurer.

   
   

3. Petitioner's bylaws provide that a quorum of shareholder requires the representation in person or by proxy of the majority of shares entitled to vote. Once a quorum is present, the vote of a majority of shares entitled to vote constitutes action taken by the shareholders. The shareholders elect the directors, who are to direct the management of the business and affairs of the company. Shareholders may remove any director at any time by a vote of the majority of the shares. Directors elect and remove the officers. The president is the chief executive officer of the company and has general and active management of the business and affairs of the company, subject to the directors.

   
   

4. The ownership and management structure of Petitioner did not change until the annual shareholders' meeting on August 1, 1985. At that time, Ms. Bortell replaced Mr. Quinn as a director. The ownership and management

   structure did not change again until James Quinn's departure two years later, as set forth below.

   
   

5. Petitioner promptly applied for certification as a what is now known as a Disadvantaged Business Enterprise (DBE). By Final Order dated June 20, 1984, Respondent granted certification to Petitioner. Petitioner continuously maintained its one-year certification thereafter, renewing it annually.

   
   

6. During the one-year certification term due to expire on May 12, 1988, Respondent notified Petitioner, by letter dated October 19, 1987, that Petitioner's "application for certification as a [DBE] is hereby denied." The letter informed Petitioner that Respondent had determined that Mr. Guzman did not exercise control of the corporation, which did not appear to be an independent business entity. The letter cited and relied upon what is now Rule 14-78.005(7)(c) and (e), Florida Administrative Code. Petitioner was given 15 days within which to request a hearing.

   
   

7. By letter dated October 28, 1987, Petitioner demanded a hearing.

   
   

8. By letter to Petitioner dated November 19, 1987, the U.S. Department of Transportation announced as its final administrative determination that Petitioner was ineligible for federal DBE certification. The letter cited two bases for the denial. First, Mr. Guzman and Ms. Bortell had failed to demonstrate that they were members of the Hispanic minority group. Membership in such group required a showing that they were in fact part of the Hispanic community. This determination was based on the failure of Mr. Guzman and Ms. Bortell to respond to a request by Lee County, Florida, for evidence of their status as Hispanics. Second, Ms. Bortell lacked technical expertise in the construction industry. Although Mr. Guzman had such expertise, so did the two non-minority owners, Messrs. Quinn, so it was "highly unlikely" that the minority owners could independently control Petitioner.

   
   

9. By letter dated January 11, 1988, the U.S. Department of Transportation informed Respondent of the action taken in the November 19 letter, a copy of which was enclosed. Respondent advised Petitioner by letter dated January 13, 1988, that, pursuant to the November 19 letter, Petitioner was ineligible for use as a DBE to meet federal goals on federal-aid projects. The letter noted that the November 19 letter did not affect Petitioner's eligibility for use as a DBE on projects not involving federal funding.

   
   

10. By letter dated February 24, 1988, the U.S. Department of Transportation clarified a misunderstanding arising out of its November 19 letter. Although a decertified contractor could not be used to meet Respondent's annual federal DBE goal, the contractor's participation could not be prohibited until the administrative hearings were complete. Thus, the decertified contractor could be used to meet project goals "on an individual basis."

    
    

11. Requesting clarification of the clarification, Respondent, by letter dated April 22, 1988, asked U.S. Department of Transportation whether the participation of Petitioner would thereby jeopardize Respondent's ability to meet its annual federal DBE goal.

    
    

12. By letter to Respondent dated April 29, 1988, U. S. Department of Transportation stated that Petitioner should not be allowed to participate as a DBE on any federal-aid project and Petitioner could not be used to meet annual

    federal DBE goals. In addition, Petitioner could not be used to meet federal DBE goals on individual projects either.

    
    

13. In the meantime, Respondent, by letter dated April 22, 1988, informed Petitioner that Ms. Bortell's lack of control and limited involvement with Petitioner, as well as Mr. Guzman's limited involvement, disqualified Petitioner as a DBE. Respondent requested whether Petitioner still wanted a hearing. The letter mentions a meeting with the U.S. Department of Transportation representative with whom the parties had been corresponding.

    
    

14. Undeterred by what must have appeared to be a puzzling display of federalism, Petitioner repeated its desire for a hearing by letter dated May 12, 1988. The letter restated Petitioner's disagreement with Petitioner's allegations that the minority owners lacked control and the corporation was not an independent business entity.

    
    

15. On the same date, Respondent transmitted the file to the Division of Administrative Hearings for a hearing on the issue whether Petitioner was entitled to "obtain" DBE certification in accordance with what is now Rule 14- 78.005(7)(c) and (e). Respondent subsequently notified the Division of Administrative Hearings of the receipt of the May 12 letter from Petitioner.

    
    

16. Mr. Guzman and Ms. Bortell are Hispanic Americans, who are socially and economically disadvantaged individuals. The Quinns are not socially and economically disadvantaged individuals.

    
    

17. Petitioner is engaged in the milling and recycling of asphalt. Mr. Guzman has substantial involvement with the day-to-day affairs of Petitioner's business. He is responsible for the supervision of all projects of Petitioner and supervises the foremen on these projects. He handles the preparation of bids for work based on estimating that he performs. He schedules labor and equipment for jobs. At one time he was one of the only operators of a milling machine, but now the company has 15 employees and he no longer is needed for this purpose. He also has been directly involved in securing of financing for the corporation. When he is not at a project site, he is in the office daily by 6:30 a.m. He also has exclusive authority to hire and fire nonclerical personnel.

    
    

18. Ms. Bortell visits the office perhaps once a week and speaks to someone at the office by telephone a few times a week. She has no experience in milling or construction generally. She works full-time as an account manager for a utility company. Her background includes seven years employment for an insurance company. Her only duties for Petitioner include the handling of insurance matters and supervision, including hiring and firing, of clerical personnel.

    
    

19. In mid-1987, Edward Quinn bought all of the shares of stock owned by his brother, James Quinn. In August 1987, Edward Quinn became a salaried employee of Petitioner. Previously, James Quinn had worked as an operator in the field, although he quit when he sold his interest in the corporation. Edward Quinn handles sales and contract administration for Petitioner, although health problems have prevented him from doing much since joining Petitioner as

    an employee. In fact, Edward Quinn performs limited services for Petitioner and his income from Petitioner resembles in many respects a passive return on investment rather than earned income.

20. Mr. Guzman controls the daily affairs of the business of Petitioner. Major business decisions are handled by the three shareholders. Although no major disputes have arisen among the shareholders, in the event of such a dispute, Ms. Bortell would side with Mr. Gtizman so that the socially and economically disadvantaged shareholders ultimately control the corporation.

    
    

21. There is no evidence whatsoever that Petitioner is less than an independent business entity.

    
    

    CONCLUSIONS OF LAW

    
    

22. The Division of Administrative Hearings has jurisdiction over the parties and subject matter. Section 120.57(1), Florida Statutes.

    
    

23. Rule 14-78.002(1) includes Hispanic Americans within the definition of "socially and economically disadvantaged" individuals. The rule cautions that the inclusion of any individual within such group is only a rebuttable presumption.

    
    

24. Rule 14-78.002(3) defines a DBE as a small business concern meeting two criteria. The DBE must be at least 51% owned by "one or more socially and economically disadvantaged individuals" with a similar requirement in the case of publicly owned businesses. The "management and daily business operations [the DBE must be] controlled by one or more of the socially and economically disadvantaged individuals who own it."

    
    

25. Rule 14-78.007, Florida Administrative Code, provides the procedure for applying for certification as a DBE. Rule 14-78.007(3) provides that certification may be granted for a term not to exceed one year. Rule 14- 78.007(6) requires that Respondent notify the applicant of the "particular facts or basis" for denial of the application, if it is being denied.

    
    

26. Rule 14-78.005(7) establishes the standards for certification of a DBE. Rule 14-78.005(7)(c) requires than DBE be an "independent business entity." The ownership and control exercised by socially and economically disadvantaged individuals must be "real, substantial, and continuing . . . and go beyond mere pro forma ownership. "

    
    

27. Rule 14-78.005(e) requires that the socially and economically disadvantaged owner have the power to "direct or cause the direction of the management, policies, and operations of the firm and to make the day-to-day as well as major business decisions" in these areas. One factor in making this determination is the control lodged in nondisadvantaged persons.

    
    

28. Rule 14-78.005(f) provides that the contributions of "capital or expertise" invested in the DBE by socially and economically disadvantaged individuals must be real and substantial.

    
    

29. Rule 14-78-005(9), which became effective May 4, 1988, provides that any DBE determined ineligible as a DBE on projects funded by the U.S. Department of Transportation "shall not be granted certification by [Respondent] during the period of ineligibility."

    
    

30. Petitioner must prove by a preponderance of the evidence that it is entitled to certification as a DBE. See, e.g., Florida Department of Transportation v. J.W.C. Company, Inc., 396 So.2d 778 (Fla. 1st DCA 1981). The

    only burden upon Respondent is to rebut the presumption that Mr. Guzman and Ms. Bortell are socially and economically disadvantaged individuals.

    
    

31. As Hispanic Americans, Mr. Guzman and Ms. Bortell are presumed socially and economically disadvantaged individuals. Just as Petitioner may become a "victim of its own success" by growing beyond the limits of a "small business concern," so Petitioner's shareholders may become so financially successful that they are no longer economically disadvantaged. However, Respondent failed to rebut the presumption in favor of their disadvantage. Although Ms. Bortell testified frankly that she did not consider herself to be economically disadvantaged, there was no additional evidence concerning her economic status. The law is concerned with whether a shareholder is in fact economically disadvantaged, not with whether she considers herself economically disadvantaged. Without knowing Ms. Bortell's standard of reference, which may be derived from humble origins, it is impossible to assume that it is the same standard as that required to be imposed by law.

    
    

32. Mr. Guzman runs the business. Ms. Bortell and Mr. Quinn occupy secondary roles in management. Respondent's argument that each disadvantaged owner must share in control is not supported by its own rules. As noted above, Rule 14- 78.005 (7)(f) acknowledges that the contributions of a disadvantaged owner may take the form of capital or expertise. The references elsewhere in the rules imply strongly the possibility that less than all of the minority owners will participate in the management of the business. Except in the case in which a minority of shares are held publicly, it would be a very unusual situation where shareholders owning a majority of the shares of a publicly owned corporation all participated directly in the management of the business.

    
    

33. The most difficult issue is the effect of the decertification by the

    U.S. Department of Transportation upon Petitioner's eligibility for DBE certification from Respondent. Respondent has ample reason to try to ensure that it does not certify firms that are ineligible for federal certification. The use of such federally ineligible firms on state projects could jeopardize federal highway funds. On the other hand, application of the new rule may be unfair and prejudicial when federal decertification may have been based on incomplete information or may be dictated by Respondent's action.

    
    

34. Under the circumstances, it would be unjust to allow the present case to turn on the issue of federal decertification. Although Petitioner obviously knew that it was being decertified by U.S. Department of Transportation, it very well may not have known prior to the hearing that one of the grounds of the state decertification was the federal decertification. The rule in question became effective on May 4, 1988, although it had been proposed for some time before that. At no time, however, did Respondent ever raise this new or proposed rule as a basis for denying or revoking Petitioner's certification. When transmitting the case to the Division of Administrative Hearings, Respondent limited the issues to those of control and independence, as it had throughout the entire process. Raising the federal decertification issue at the final hearing was prejudicial because Petitioner was obviously unprepared to deal with it. The record is unclear and, to some extent, unreliable as to the circumstances surrounding the decertification and the attitude of the U.S. Department of Transportation toward recertification. The failure of Respondent to notify Petitioner of this issue prior to the hearing likely was a factor in the quality of the record on this issue. Due process, as well as Respondent's rules, compel the disclosure of the factual and legal grounds for the denial prior to the hearing. See, e.g., Poirier v. Department of Health and

    Rehabilitative Services, 351 So.2d 50 (Fla. 1st DCA 1977); Hunter v. Department of Professional Regulation, 458 So.2d 842 (Fla. 2d DCA 1984).

    
    

35. The proceeding was "substantially justified," within the meaning of Section 57.111(3)(e), Florida Statutes, even assuming that the proceeding was initiated by Respondent. No pleadings, motions, or other papers were filed in violation of the requirements of Section 120.57(1)(b)5, Florida Statutes.

RECOMMENDATION

Based on the foregoing, it is hereby

RECOMMENDED that a Final Order be entered granting Petitioner DBE certification for a period of three months, at which time Petitioner may reapply for certification, if it desires; provided, however, Petitioner may not participate, as a DBE, in any federal-aid project unless and until recertified as a DBE by the U.S. Department of Transportation.

ENTERED this 21st day of September 1988, in Tallahassee, Florida.

ROBERT E. MEALE

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 21st day of September 1988.

APPENDIX

Treatment Accorded Petitioner's Proposed Findings

1. Adopted.

2. Adopted in substance.

3. First sentence adopted. Second sentence rejected as irrelevant, legal conclusion, and without proper predicate to the extent that it can be characterized as a fact. The reasons are set forth in the Conclusions of Law.

4. Adopted.

5 and 7. Rejected as legal conclusion, although included in Conclusions of

Law.

6. Rejected as legal conclusion.

1. Adopted.

2. Rejected as legal conclusion.

   
   

   Treatment Accorded Respondent's Proposed Findings

   
   

   1-8. Adopted.

   1. Rejected as irrelevant.

   2. Adopted.

   3. First sentence rejected as recitation of testimony and legal argument. Remainder adopted in substance.

12-13. Rejected as legal argument.

1. Adopted as to supervision of clerical personnel and handling of insurance. Remainder rejected as unnecessary.

2. Rejected as unsupported by the greater weight of the evidence.

3. Adopted in substance.

4. Rejected as recitation of testimony.

COPIES FURNISHED:

James W. Anderson

Chief Litigation Attorney Department of Transportation Haydon Burns Building

605 Suwannee Street

Tallahassee, Florida 32301-8064

George Spofford, Esquire Cummings, Lawrence & Vezina Post Office Box 589 Tallahassee, Florida 32302-0589

Mill-It Corporation 961 Sunshine Lane

Altamonte Springs, Florida 32714

Kaye N. Henderson Secretary

Department of Transportation Haydon Burns Building

605 Suwannee Street

Tallahassee, Florida 32399-0450

Thomas H. Bateman, III General Counsel

Department of Transportation Haydon Burns Building

562 Suwannee Street Tallahassee, Florida 32399-0450

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

AGENCY FINAL ORDER

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

STATE FLORIDA DEPARTMENT OF TRANSPORTATION

MILL-IT CORPORATION,

Petitioner,

vs. CASE NO. 88-2437

DEPARTMENT OF TRANSPORTATION,

Respondent.

/

FINAL ORDER

THE FLORIDA DEPARTMENT OF TRANSPORTATION denied Petitioner's Application for Certificating as a Disadvantaged Business Enterprise (DBE). Petitioner requested an administrative hearing, so the matter was referred to the Division of Administrative Hearings.

A hearing was held in this matter on June 23, 1988. The Hearing officer entered his Recommended Order September 21, 1988. No exceptions were receive to the Recommended Order. The Recommended Order, copy attached, is considered to be correct in both fact and law with the exception of Paragraph 12 of the Conclusions of Law, and is incorporated as part of this order. The comments of the Hearing Officer concerning the fairness of the rule amendment which requires decertification of DBE status upon decertification by the U.S. Department of Transportation are inappropriate to this proceeding. This is not a rule challenge, so the rule must be applied as it exists. In addition, the next paragraph says the issue was not timely raised. So Paragraph 12 is excluded from this final order in its entirety. It is

ORDERED that the application of MILL-IT CORPORATION for certification as a Disadvantaged Business Enterprise is GRANTED for a period of three months from the date of this order, at which time Petitioner may reapply for certification. However, it is further

ORDERED that Petitioner may participate as a DBE only on projects funded solely with state funds. Petitioner may not participate as a DBE in any federal-aid project while certified by the Department unless and until recertified as a DBE by the U.S. Department of Transportation.

DONE AND ORDERED this 17th day of October, 1988.

KAYE N. HENDERSON, P. E.

Secretary

Department of Transportation Haydon Burns Building Tallahassee, Florida 32399

COPIES FURNISHED:

Robert E. Meale, Hearing Officer Division Or Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

George Spofford, Esquire Cummings, Lawrence & Vezina Post Office Box 589

Tallahassee, Florida 32302-0589

Mill-It Corporation 961 Sunshine Lane

Altamonte Springs, Florida 32714

Clay McGonagill, Esquire James W. Anderson, Esquire Department of Transportation Haydon Burns Building, MS 58 Tallahassee, Florida 32399

Mrs. Juanita Moore, Manager Minority Programs Office Department of Transportation Haydon Burns

Tallahassee, Florida 32299

NOTICE OF RIGHT TO JUDICIAL REVIEW

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, 603 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 Procedures. 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.

Docket for Case No: 88-002437

Orders for Case No: 88-002437