STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

WEST CONSTRUCTION, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 94-4697

) COMMISSION ON MINORITY ECONOMIC ) AND BUSINESS DEVELOPMENT, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Claude B. Arrington, held a formal hearing in the above-styled case on March 27, 1995, via videoconference between West Palm Beach and Tallahassee, Florida.

APPEARANCES

For Petitioner: Marc C. Dobin, Esquire

Boose, Casey, Ciklin, Lubitz, Martens, McBane, and O'Connell

Northbridge Center, 19th Floor

515 North Flagler Drive

West Palm Beach, Florida 33401

For Respondent: Susan P. Stephens, Esquire

Assistant Attorney General Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUES

Whether Petitioner is entitled to be certified as a minority business enterprise.

PRELIMINARY STATEMENT

Petitioner's application for certification as a minority business enterprise (MBE) was denied by Respondent by letter dated June 16, 1994. The grounds cited for the intended denial were stated as being the failure of the applicant to meet the criteria in Section 288.703(2), Florida Statutes, and the failure to meet the criteria in Rules 60A-2.005(2)(b) and (c); 60A-2.005(3)(a), (b), (c) and (d), Florida Administrative Code. Petitioner thereafter timely challenged the Respondent's denial, the matter was referred to the Division of Administrative Hearings, and this proceeding followed.

At the formal hearing, the parties offered one joint exhibit, which was accepted into evidence. In addition, Petitioner presented the testimony of Martha Morgan and Donald West. Ms. Morgan is the President and Treasurer of the Petitioner and the owner of 51 percent of its authorized and outstanding shares of stock. Mr. West is the Vice-President of the Petitioner and the owner of 49 percent of its authorized and outstanding shares of stock. Ms. Morgan and Mr.

West are married to each other. Respondent offered five additional exhibits, each of which was accepted into evidence. Respondent also presented the testimony of Raymond Bryant, a certification administrator employed by the Respondent.

A transcript of the proceedings has been filed. At the request of the parties, the time for filing post-hearing submissions was set for more than ten days following the filing of the transcript. Consequently, the parties waived the requirement that a recommended order be rendered within thirty days after the transcript is filed. Rule 60Q-2.031, Florida Administrative Code. Rulings on the parties' proposed findings of fact may be found in the Appendix to this Recommended Order.

FINDINGS OF FACT

1. West Construction, Inc., is a Florida corporation that is engaged in the construction business. The focus of the business is the renovation and new construction of commercial buildings. Petitioner has been certified as a minority business enterprise by several local governmental entities. Petitioner regularly bids on governmental contracts. Petitioner's application to the Respondent for certification as a minority business enterprise was denied.

   
   

2. Petitioner is a "small business" as that term is defined by Section 288.703(1), Florida Statutes. 1/

   
   

3. At the time of the formal hearing, Martha A. Morgan owned 51 percent of the issued shares of stock in West Construction, Inc., served as one of two members of the Board of Directors, and was the President, Treasurer, and Assistant Secretary of the corporation. Ms. Morgan is an American woman. 2/

   
   

4. At the time of the formal hearing, Donald West owned the remaining 49 percent of the authorized and issued shares of stock, served as the other member of the Board of Directors, and was Vice-President and Secretary of the corporation. Mr. West is not a "minority person".

   
   

5. Ms. Morgan and Donald West have been married to each other since 1985.

   
   

6. West Construction, Inc. was incorporated by Donald West and his father in 1977 after they had operated as a partnership for several years. The corporation is authorized to issue 1,000 shares of common stock. When it was incorporated, a total of 200 shares of stock were issued, with Donald West and his father each being issued 100 shares of stock. When Donald West's father retired in 1984, the corporation repurchased his 100 shares of stock and distributed to him an amount equal to 50 percent of the assets of the business. This distribution adversely impacted the corporation's ability to secure performance bonds for projects. After that repurchase, the only issued shares of stock were the 100 shares that had been issued to Donald West in 1977.

   
   

7. Prior to her marriage to Mr. West in 1985, Ms. Morgan had her own separate assets. She contributed these assets to the marriage. The marital

   assets were thereafter used to obtain performance bonds for the corporation and served as security for other obligations of the company.

   
   

8. Ms. Morgan is a college graduate with a degree in Business Administration. Her experience includes working as a certified legal assistant for a land development company. In 1985, Ms. Morgan started working for West Construction doing accounting, posting, and general record keeping. In 1989, she began to take a more active role in the affairs of West Construction in that she did more of the day to day bookkeeping, including payroll and accounting. Since December 1992, Ms. Morgan has been licensed by the State of Florida as a certified building contractor.

   
   

9. Ms. Morgan became the majority owner of the company on January 1, 1993, when Donald West transferred to her 51 of his 100 shares of stock in the corporation. Donald West remained the only other stockholder with 49 shares of stock. Effective January 1, 1993, Ms. Morgan became the President, Treasurer, and Assistant Secretary of the corporation. Ms. Morgan and Mr. West became the only two members of the board of directors of the corporation. One of the reasons for the transfer of stock was to qualify the corporation for certification as a minority business enterprise. The consideration for the transfer of the stock to Ms. Morgan was the contribution she had made to the marital assets and the work she had done on behalf of the corporation. There was no separate payment of money by Ms. Morgan for this stock.

   
   

10. Donald West has been in the construction business all of his adult life. He has a degree from the University of Florida in building construction and has a general contractor's license and a building contractor's licensed from the State of Florida.

    
    

11. Mr. West's construction licenses were used to qualify the firm for construction work between 1977 and December 1992, when Ms. Morgan obtained her building contractor's license. Ms. Morgan's license has been used to qualify the corporation since she obtained it.

    
    

12. Ms. Morgan is in charge of managing the finances of the company. Ms. Morgan keeps the company books, pays the bills, and invests any profits. She is responsible for payroll, insurance, bonding, accounts receivables, and billings. Both Ms. Morgan and Mr. West have the authority to sign checks, make withdrawals and deposits on company accounts, and execute bank documents. Both have the authority to draw on a line of credit that has been established by the company, but neither has had the need to do so. Mr. West has the authority to sign company checks, but he seldom does so. Ms. Morgan and Mr. West are jointly and severally liable as indemnitors on the company's bond, and their personal assets, including the jointly owned marital assets, act as security for this risk. Both serve as guarantor's on the company's line of credit.

    
    

13. At the time of her application for certification, Mr. West and Ms. Morgan were paid the same salary. Between that time and the formal hearing, Ms. Morgan had increased her salary so that she was being paid $3,000 per month and Mr. West was being paid $2,000 per month. Ms. Morgan testified that she determined her own salary without consulting Mr. West. Ms. Morgan arranged for the financing of the latest vehicle purchased by the company, she determined that the building out of which the company operates should be financed. She made the decision as to how the company's idle capital would be invested. In addition to Mr. West and Ms. Morgan, the company has two other full time employees who were employed by Mr. West before Ms. Morgan became an owner, officer and director of the company. One of these employees is a carpenter and

    the other is a general laborer. Mr. West is the direct supervisor for these two employees. Ms. Morgan reviews submittals from subcontractors and works as the liaison between subcontractors and the project architect. Mr. West supervises the work of subcontractors.

    
    

14. Ms. Morgan is also responsible for finding projects for the company to bid upon. The company subscribes to two services that provide information to potential bidders as to public works projects. Ms. Morgan reviews that information and determines the projects upon which the company will bid. Ms. Morgan obtains and reviews the bid packages, secures any other information she deems necessary by communicating with the contract letting agency or architect, and attends the pre-bid meeting. Both Mr. West and Ms. Morgan work on the company's bid. Mr. West's role is to prepare quantitative takeoffs from the bid plans. Ms. Morgan determines the overhead by factoring in the amount of current business undertaken by the company, the complexity of the project, and the difficulty of the project. Both Mr. West and Ms. Morgan attend pre-construction meetings. Ms. Morgan usually signs the company bids and any resulting contracts as its president and uses her license to qualify the company. Both Ms. Morgan and Mr. West develop the company's work schedule.

    
    

15. Despite being licensed as a certified building contractor, Ms. Morgan has never supervised a construction project from beginning to conclusion. The actual construction projects undertaken by the company are supervised and managed by Mr. West. Both Ms. Morgan and Mr. West order materials and supplies for construction projects. Ms. Morgan would have to hire someone to manage the construction projects if Mr. West were not available.

    
    

16. The management of this family run company is divided between Ms. Morgan and Mr. West. Petitioner established that Ms. Morgan takes a meaningful role in the management of the affairs of the corporation, but it is also clear that Mr. West takes a meaningful role. The managerial functions performed by both stockholders are essential to the operation of the company. One was not established to be more important than the other. It is found that Petitioner failed to establish that Ms. Morgan exercises dominate control of the affairs of the business.

    
    

    CONCLUSIONS OF LAW

    
    

17. The Division of Administrative Hearings has jurisdiction of the parties to and the subject matter of this proceeding. Section 120.57(1), Florida Statutes.

    
    

18. Chapter 60A-2, Florida Administrative Code, establishes a "Minority Business Utilization Plan" and a minority business certification program for purposes of complying with Section 287.0947, Florida Statutes, and Section 287.0943, Florida Statutes. As an applicant seeking certification, Petitioner has the burden of proving by a preponderance of the evidence that it is entitled to that certification. Rule 28-6.08(3), Florida Administrative Code. See also, Florida Department of Transportation v. J.W.C., Co., 396 So.2d 778 (Fla. 1st DCA 1981). For the reasons discussed below, it is concluded that Petitioner has failed to meet that burden.

19. Section 288.703(2), Florida Statutes, provides in pertinent part: "Minority business enterprise" means any small

    business concern . . . which is at least 51

    percent owned by minority persons and whose management and daily operations are controlled by such persons.

    
    

20. It was established that West Construction, Inc. is a small business concern, that Ms. Morgan is the record owner of 51 percent of the issued shares, and that Ms. Morgan is an American woman, which meets the definition of a "minority person".

    
    

21. Rule 60A-2.005(2) and (3) Florida Administrative Code, sets forth the following criteria for certification as a minority business enterprise pertinent to this proceeding:

    
    

    1. An applicant business must satisfy paragraphs (a), (b), (c), and (d) below to be considered 51 percent owned by minority persons. The ownership exercised by minority persons shall be real, substantial, and continuing and shall go beyond mere pro forma ownership of the firm, as reflected in its ownership documents. In its analysis, the Office may also consider the transferal of owner- ship percentages with no exchange of capital at fair market.

       1. The applicant business must satisfy either 1., 2., or 3. below:

          1. In a corporate form of organization, the minority shareholders of the corporation must own at least 51 percent of all issued stock. . . .

          * * *

       2. The minority owners must demonstrate that they share income, earnings and any other benefits from the business concern which are accorded to any other owner. The minority owners' share of

          income, earnings and benefits shall be commensurate with the percentage of their ownership in the business concern, including but not limited to, salaries, draws, bonuses, commissions, insurance coverage, proceeds from business investments and properties, and profit-sharing, and other benefits.

       3. The minority owners must demonstrate that they share in all the risks assumed by the business firm. Such sharing of business risks shall be demonstrated through the minority 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 owners' sharing in business risks shall be commensurate with their percentage of ownership, including but not limited to, start-up costs and contributions, acquisition of additional ownership interests, third-party agreements, bonding applications and other liabilities.

          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 owners must be real and substantial. The following are presumed not to be

          real and substantial capital contributions:

          1. promises to contribute capital;

          2. notes payable to the applicant business;

          3. notes payable to the non-minority owners or

             to the non-minority family members of any owner; and

          4. past services rendered by the minority person as an employee, rather than as a decision-maker.

       4. The business firm cannot at any time enter into any agreement, option, scheme, or create any rights of conversion, which, when exercised would result in the loss of the minority owner's control of the business.

    2. An applicant must establish that the minority owners possess the authority to control and exercise dominant control over the management and daily operations of the business.

       1. The discretion of the minority owners shall not be subject to any formal or informal restrictions

          . . . which would vary or usurp managerial discretion customary in the business.

       2. If the applicant 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, Florida Statutes, a majority of the directors must be minority owners, notwithstanding whether the directors are required to be elected by a majority vote of the outstanding shares of the corporation.

       3. The minority owners must exercise sufficient management and technical responsibilities and capabilities to maintain control of the business. If the owners of the business who are not minority persons are disproportionately responsible for the operations of the business, then the business is not controlled by minority owners.

       4. The control exercised by the minority owners shall be real, substantial and continuing, and shall go beyond mere pro forma control. In instances where the applicant business is found to be a family-operated business, with duties, responsibilities and decision-making occurring jointly and mutually among owners and principals, or severally along managerial and operational lines between minority and non-minority owners

          or principals, the minority owners shall not be considered as controlling the business. Where

          the minority owners substantiate that the assumption of duties is not based on their lack of knowledge

          or capability to independently make decisions regarding the business' management and day-to-day operations, the minority owners' control may not be affected. The minority owners shall establish that they have dominant responsibility for the management and daily operations of the business as follows:

          1. The minority owners shall control the purchase of goods, equipment, business inventory and services needed in the day-to-day operation of the business.

             . . .

          2. The minority owners shall control the hiring, firing and supervision of all employees, and the setting of employment policies, wages, benefits

             and other employment conditions. In instances where minority owners have delegated the hiring and firing of employees, the minority owners shall demonstrate that their knowledge and capability

             is sufficient to evaluate the employees' performance in the given industry;

          3. The minority owners shall have knowledge and control of all financial affairs of the business.

             The ability of any non-minority owner or employee

             to sign checks and enter into financial transactions on behalf of the business shall be considered in determining financial control. The minority owners shall expressly control the investments, loans to/from stockholders, bonding, payment of general business loans, payroll and establishment of lines of credit.

          4. The minority owners shall have managerial and technical capability, knowledge, training,

             education and experience required to make decisions regarding that particular type of work. In determining the applicant's eligibility, the

             Office will review the prior employment and educational backgrounds of the minority owners, the professional skills, training and/or licenses required for the given industry, the previous and existing managerial relationship between and among all owners, especially those who are familially related, and the time and purpose of management changes. If the minority owners have delegated management and technical responsibility to others, the minority owners must substantiate that they have caused the direction of the management of

             the business through their demonstrable knowledge and capability.

          5. The minority owners shall display independence and initiative in seeking and negotiating contracts, accepting and rejecting bids and in conducting all major aspects of the business in regard to any and all bidding and contracting. . . .

          6. The minority owner shall substantiate personal direction and actual involvement with all major aspects of the applicant business. The major aspects shall be defined as those tasks essential to accomplish all objectives and operations related to those services or commodities for which the applicant business requests certification.

22. West Construction, Inc., is a "family-operated business," as the term is used in Rule 60A-2.005(3)(d), Florida Administrative Code, and the duties, responsibilities and decision-making occur jointly and mutually, or severally along managerial and operational lines, between Ms. Morgan and Mr. West. The rule provides that the minority owner shall not, where such joint control is exercised, be considered as controlling the business unless the minority family member can "substantiate that the assumption of duties is not based on [her] lack of knowledge or capability to independently make decisions regarding the business' management and day-to-day operations." To do this, the minority family member must "establish that [she has] dominant responsibility for the management and daily operations of the business."

    
    

23. Based on the facts of this case, it is concluded that Petitioner did not establish that Ms. Morgan has dominant control over the business. It is concluded that she shares control with her husband and that responsibilities and duties in the operation of the business are divided along the lines of their respective knowledge and capabilities. This conclusion is based on the finding contained herein, including the findings that Mr. West has complete responsibility for the supervision of construction projects, they have joint and several liability for the corporate obligations, they each have access to the company bank accounts and line of credit, and they serve as the sole officers of the company. Further, they equally direct the affairs of the company as the sole directors of the company. Consequently, a majority of the board is not composed of minority members as required by Rule 60A-2.005(3)(b), Florida Administrative Code.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Commission on Minority Economic and Business

Development enter a final order that denies West Construction, Inc.'s application for certification as a minority business enterprise.

DONE AND ENTERED this 16th day of June, 1995, in Tallahassee, Leon County, Florida.

CLAUDE B. ARRINGTON

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 16th day of June, 1995.

ENDNOTES

1/ Section 277.703, Florida Statutes, contains definitions pertinent to this proceeding and provides, in part, as follows:

(1) "Small business" means an independently owned and operated business concern that employs 100 or fewer permanent full-time employees and that, together with its affiliates, has a net worth of not more than $3 million and an average net income after federal income taxes, excluding carryover losses, for the preceding 2 years of not more than $2 million. . . .

2/ An American woman is included in the definition of the term "minority person" by Section 288.703(3)(e), Florida Statutes.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-4697

Petitioner's post-hearing submission consists of summary of testimony intertwined with argument. The testimony cited by Petitioner is subordinate to the findings made to the extent the testimony is not contrary to the findings made or to the conclusions reached.

The proposed findings of fact submitted by the Respondent are adopted in material part by the Recommended Order or are subordinate to the findings made.

COPIES FURNISHED:

Marc C. Dobin, Esquire

Boose, Casey, Ciklin, Lubitz, Martens, McBane, and O'Connell

Northbridge Center, 19th Floor

515 North Flagler Drive

West Palm Beach, Florida 33401

Susan P. Stephens, Esquire Assistant Attorney General Office of the Attorney General The Capitol - PL-01

Tallahassee, Florida 32399-1050

Crandall Jones, Executive Administrator Commission on Minority Economic &

Business Development Knight Building

2727 Centerview Drive

Tallahassee, Florida 32399-0950

General Counsel

Commission on Minority Economic & Business Development

Knight Building

2727 Centerview Drive

Tallahassee, Florida 32399-0950

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this recommended order. All agencies allow each party at least ten days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this recommended order. Any exceptions to this recommended order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 94-004697

Orders for Case No: 94-004697