vs. ) CASE NO. 89-4982
Respondent. )
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, K. N. Ayers, held a public hearing in the above- styled case on December 14, 1989, at Tampa, Florida.
For Petitioner: Joe M. Gonzales, Esquire
For Respondent: Charles G. Gardner, Esquire
Whether Petitioner qualifies for certification as a Minority Business Enterprise.
By letter dated August 15, 1989, the Florida Department of Transportation (DOT), Respondent, denied International Contractors Inc. (ICI), Petitioner's, application for certification as a Minority Business Enterprise. As grounds therefor, it is alleged that the disadvantaged owner did not exercise control over the operations of the firm, and no evidence was submitted showing capital was invested in the business by the disadvantaged owner. Petitioner requested a hearing to challenge this determination, and these proceedings followed.
At the hearing, Petitioner called six witnesses, Respondent called two witnesses, who had previously been called by Petitioner, and 52 exhibits were admitted into evidence.
Proposed findings have been submitted by the parties. Treatment accorded those proposed findings is contained in the Appendix attached hereto and made a part hereof.
International Contractors Inc. (ICI), Petitioner, was incorporated in 1983 with Barry Carlson shown on the Articles of Incorporation as sole incorporator with Walter Cenal and Virginia Ann Carlson as additional members of the Board of Directors (Exhibit 1). At this time, Carlson owned 49 of the 100 shares issued, and Cenal owned 51 shares for which each paid $5 per share.
In 1985, Carlson was having marital difficulties, and ICI had not commenced operations. Carlson then sold his 49 shares of stock to Cenal making the latter the owner of 100% of the stock of ICI.
At this time, Carlson was the controlling party in two corporations called Interstate Markings Inc. and Airport Specialists Inc. Interstate Markings Inc. had been owned by Carlson's father who died in 1988 leaving stock in the company to his son. Interstate Markings Inc. was reorganized under Chapter 11 of the Bankruptcy Laws in 1984. Part of its assets consist of real property which is leased to ICI for $1600 per month (Exhibit 39).
The corporate addresses of Interstate Markings Inc. and Airport Specialists Inc. is the same as ICI. However, Airport Specialists Inc. has had no employees and has performed no work in the past few years. No evidence was submitted that Interstate Markings Inc. is actively engaged in business.
After acquiring 100% ownership of ICI, Cenal invested approximately
$25,000 in ICI, and ICI commenced operations. Most of this capital ($20,000) was raised with a loan secured by a mortgage on Cenal's home (Exhibit 24).
Walter Cenal was born in Cuba, and started his first company in the United States when he was 21 years old doing air conditioning installation and maintenance. He had operated this company for almost ten years when he and Carl son started ICI in 1983.
In 1985, Cenal sold his air conditioning company and thereafter devoted full time to ICI. Part of the income received from the air conditioning company was invested in ICI.
ICI is primarily engaged as a subcontractor to prime contractors doing work on airports and highways. A large portion of ICI's work consists of striping runways and cutting grooves in concrete runways and on highway bridges.
Both Cenal and Carlson prepare bids for subcontracting work with the final decision on the offer to submit made by Cenal.
Bonding for ICI was secured by Cenal.
Financial arrangements are made by Cenal, who arranged the company's first line of credit for $20,000 in December 1985 (Exhibit 26) and personally, with his wife, guaranteed repayment of this loan (Exhibit 27). When this line of credit was increased to $75,000 in January 1988, the bank (NCNB), required all Directors to guarantee repayment. These included Cenal, his wife and Carlson (Exhibit 4).
In November 1988, ICI borrowed $40,000 from NCNB to purchase equipment, and Cenal made all financial arrangements for this loan.
Carlson is capable of preparing bids for jobs sought by ICI and is the number two man at ICI. He supervises some jobs, but not as frequently as Cenal. As a result, Carlson spends more time at the office than does Cenal.
Largely because Cenal was not present when the South Carolina DBE investigator came to the office of ICI to check for compliance by ICI as a certified MBE in South Carolina, South Carolina refused to recertify ICI as a DBE (Exhibit 10). Shortly thereafter, Respondent refused to recertify ICI as a DBE (Exhibit 7). However, the North Carolina Department of Transportation (Exhibit 19), Hillsborough County Aviation Authority (Exhibits 20 and 21), and Memphis-Shelby Airport Authority (Exhibit 22) have all certified ICI as a MBE or DBE.
Cenal has delegated authority to his wife and to Carlson to sign some checks on the ICI checking account. Mrs. Cenal and Walter Cenal are the ones authorized to sign payroll checks. Carlson signs checks to pay routine bills; however, if ICI funds limit payment to all creditors, Cenal designates which of the creditors is to be paid.
Cenal frequently rents accommodations for his workers at job sites. These include hotel/motel rooms, trailers and apartments. All of these leases are executed by Cenal.
Cenal makes final decisions regarding employing workers and renting equipment. He frequently delegates to his superintendents at job sites the authority to hire temporary employees and to rent equipment in an emergency. He issues them credit cards on which these superintendents can charge out-of- town living expenses and renting of equipment.
Although Cenal spends 20-40% of his time overseeing the work at the job site, he is in daily contact by telephone with his office. He is thereby able to consult and to make day-to-day decisions affecting ICI.
Respondent acknowledges that Cenal is fully qualified to supervise field operations, but contends, because Carlson is left in charge at the office, that Cenal does not control ICI.
The Department also predicated the denial of recertification upon the fact that Carlson was paid an annual salary of $40,000, "the same as Cenal." Corporate income tax returns for 1986, 1987 and 1988 (Exhibit 37) show that in 1986 Cenal was paid $32,000 and Carlson, $26,500; in 1987 Cenal was paid $48,950 and Carlson, $38,750; and in 1988 Cenal was paid $41,950 and Carlson $40,790.
The success of a contractor depends on how effectively he performs the work for which he has contracted. If a job is delayed for almost any reason, profits are squeezed. If work has to be redone, profits frequently evaporate or become losses. Accordingly, one of the most important factors in a successful operation is the supervision of the work being performed. It is on the construction site that money is made or lost in the contracting business. The contractor who closely supervises the work he undertakes is the contractor most likely to succeed. Supervising field work does not require one to give up control of the company's overall operations. To the contrary, it probably makes control more effective.
A plethora of evidence was submitted to clearly show that Cenal is the 100% owner of ICI; that he hires and fires personnel; that he makes all financial decisions involving ICI; that he has the final say on what contracts to bid and at what price; that he makes decisions on buying equipment, of compensation to his superintendents, to Carlson and to himself; and that, in all respects, he has de facto in addition to de lure control over ICI.
Respondent's denial of Petitioner's application for recertification as a DBE was based on decisions rendered by the U. S. Department of Transportation in other cases, copies of which were provided Respondent by U. S. DOT. Two of these decisions were admitted into evidence as Exhibits 51 and 52. Both of these cases involved companies where females held the majority ownership in companies run by their husbands who shared facilities with the husband's company. Those situations are hardly comparable with the facts here involved. Here there is no blood or marriage relationship between Cenal and Carlson, and shared facilities with similar businesses do not exist as none of Carlson's companies are operational or in the same business as ICI.
Walter Cenal is an Hispanic American eligible for certification is a DBE, and he has both de lure and de facto control over the operations of ICI.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.
Pursuant to the authority granted in Section 334.044, Florida Statutes, to adopt rules to implement laws for which the Department is responsible, DOT adopted Chapter 14-78, Florida Administrative Code. Rule 14- 78.005(7), provides in part:
(c) 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, as reflected in its ownership documents. The socially and economically disadvantaged owners shall enjoy the customary incidents of ownership commensurate with their ownership interests,
as demonstrated by an examination of the sub- stance rather than form of financial and managerial arrangements. In assessing busi- ness independence, the Department shall con- sider all relevant factors, including the date the firm was established, the adequacy of its resources, and the degree to which financial relationships, equipment leasing, and other business relations with non-DBE firms vary from industry practice.
The DBE shall be one in which the socially and economically disadvantaged owner shall also possess the power to direct or cause the direc- tion 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.
The DBE shall be one in which the con- tributions of capital or expertise invested by the socially and economically disadvantaged individual owners are real and substantial.
Respondent has stipulated that Walter Cenal is an Hispanic American and qualifies as a "minority person" as defined in Section 287.012(8), Florida Statutes. The evidence was unrebutted that Cenal owns 100% of the stock in ICI and therefore has absolute legal ownership of the company. This leaves only the question of control.
It can be argued, with considerable logic, that, barring exceptional circumstances or conditions, one who owns all of the stock of a corporation has plenary power to do anything respecting the corporation that the sole owner desires. That includes hiring and firing managers and employees, appointing and discharging directors, delegating functions to others, rescinding those delegated functions, deciding in what business to engage and dissolving the company. Here, no evidence was presented to indicate Walter Cenal does not have those powers associated with 100% ownership. It is the unfettered power to direct the operations of the business that constitutes control. Having this unfettered power, Cenal had control of the operations of ICI.
However, the evidence presented clearly shows that Cenal also was intimately involved with the day-to-day operations of ICI; was the only individual (other than his wife) who had invested capital in ICI; that he was in sole charge of all financial negotiations; that he made all major decisions for ICI, including the purchase of major pieces of equipment; the bid to submit when bidding on contracts; how to determine the compensation paid to superintendents; that when away from the office he remained in daily contact with the office to make decisions for ICI; and that he was by far the dominant force in the company.
By comparing the legal relationship between Cenal and Carlton with the legal relationship between husbands and wives is somewhat like comparing apples and oranges. There is no comparison.
Nor is the fact that Carlson inherited the bankrupt Interstate Markings Inc. from whom ICI leased property of any significance here. Neither Interstate Markings Inc. nor Carlson's other company, Airport Specialists Inc., are actively engaged in operations similar to those performed by ICI. This renders the fact that all three companies show the same address on their corporate papers of no significance.
This case raises an interesting legal issue that, although it need not be resolved in this case, may be of great moment in other cases involving the denial of recertification of DBEs. In many respects, a certification as a DBE is similar to a license as it has many of the attributes of a license. The definition of "license" most appropriate here is as contained in Webster's New Collegiate Dictionary (1977), to wit:
2a: A permission granted by competent authority to engage in a business or occupation or in an activity otherwise unlawful.
Once a license is granted by the appropriate authority, which license requires periodic renewal, the court in Vocelle v. Riddell, 119 So.2d 809, 810 (Fla. 2nd DCA 1960) held that the annual renewal of his license follows as a ministerial duty and a matter of right; and if violations occur, the agency is required to resort to the provisions for revocation.
Vocelle involved a statutory right to successive licenses by a licensee upon written request on the prescribed form and accompanied by the required fee. Rule 14-78.007(2), Florida Administrative Code, establishes procedures for certification of DBEs. These provide, inter alia, that certification is for a maximum period of one year and is conditioned on continued eligibility. That, in order to avoid a break in certification, at least 90 days prior to the expiration of the certification, a DBE shall submit a new Schedule A- Certification Form No. 1, 1987 Revision. It is noted that ICI submitted Schedule A, 4/88 Revision, which presumably is the proper form.
Rule 14-78.008(1)(a), Florida Administrative Code, provides the Department may suspend or revoke a DBE certification if it finds the DBE no longer meets the certification standards set forth in Rule 14-78.005.
In a revocation of license case the agency has to prove, by clear and convincing evidence, the alleged grounds for revocation. Ferris v. Turlington, 510 So.2d 292 (Fla. 1987).
The issue of which party has the burden of proof in an application to renew certification as a DBE is not critical to this case, as even if ICI has this burden, it has met any standard that may be applied.
From the foregoing, it is concluded that Walter Cenal is a "minority person" as defined in Section 287.012(8), Florida Statutes, and that he exercises de lure and de facto control over the operations of ICI. Accordingly, ICI is qualified for certification as a Disadvantaged Business Enterprise.
It is recommended that International Contractors Inc. be certified as a Disadvantaged Business Enterprise by the Florida Department of Transportation.
ENTERED this 1st day of February, 1990, in Tallahassee, Florida.
Filed with the Clerk of the Division of Administrative Hearings this 1st day of February, 1990.
6. Accepted only insofar as it relates to the time ICI commenced operations.
Carlson's original ownership and through the transfer of his shares to Cenal to be a subterfuge.
23. Rejected.
Petitioner's proposed findings are generally accepted. Those not included were deemed unnecessary to the conclusions reached.
Joe M. Gonzales, Esquire 1519 North Dale Mabry Suite 100
Charles G. Gardner, Esquire Department of Transportation 605 Suwannee Street, MS 58
Ben G. Watts Secretary
Thomas H. Bateman, III General Counsel
