STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CAP DISTRIBUTION, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 96-4445

)

DEPARTMENT OF LABOR AND )

EMPLOYMENT SECURITY, ) DIVISION OF MINORITY BUSINESS ) ADVOCACY AND ASSISTANCE, )

)

Respondent. )

)

RECOMMENDED ORDER

An administrative hearing was conducted in this proceeding on January 24, 1997, in Jacksonville, Florida, before Daniel Manry, Administrative Law Judge, Division of Administrative Hearings.

APPEARANCES

For Petitioner: Carol A. Pitts, President

CAP Distribution, Inc.

11290-5 St. Johns Industrial Parkway Jacksonville, Florida 32245-6673

For Respondent: Joseph L. Shields, Senior Attorney

Department of Labor and Employment Security

Division of Minority Business Advocacy and Assistance

Hartman Building, Suite 307 2012 Capital Circle, Southeast

Tallahassee, Florida 32399-2189

STATEMENT OF THE ISSUE

The issue for determination is whether Respondent should certify Petitioner as a minority business enterprise ("MBE").

PRELIMINARY STATEMENT

On June 10, 1996, Petitioner applied for MBE certification.

Respondent denied Petitioner's application by letter dated August 26, 1996. Petitioner timely requested an administrative hearing.

At the administrative hearing, Petitioner presented the testimony of two witnesses and submitted one composite exhibit for admission in evidence. Respondent called one witness and submitted five exhibits for admission in evidence.

The identity of the witnesses and exhibits, and the rulings regarding each, are set forth in the record of the administrative hearing. Neither party requested a transcript.

Respondent timely filed its proposed recommended order ("PRO") on February 3, 1997. Petitioner timely filed her PRO on February 5, 1997.

FINDINGS OF FACT

1. Respondent is the governmental agency responsible for granting or denying applications for MBE certification in accordance with Section 288.703(1), Florida Statutes,1 and Florida Administrative Code Rules 60A-2.001 and 60A-2.005.2 Petitioner is an applicant for MBE certification.

2. Petitioner is engaged in the business of selling and installing commercial audio products. Petitioner is a closely held Florida corporation that was organized in May, 1996, as Commercial Audio Products, Inc. Petitioner does business in the name of CAP Distribution, Inc.

3. Petitioner was initially capitalized with $4,000. Ms. Carol Pitts contributed $3,000, and Mr. Justin Chitmon, her son, contributed $1,000.

4. Ms. Pitts and Mr. Chitmon are Petitioner's sole shareholders, directors, officers, and employees. Ms. Pitts is the president and Mr. Chitmon is the secretary.3

5. Ms. Pitts is a minority person within the meaning of Section 288.703(3). Mr. Chitmon is not a minority person.

1. Minority Ownership

   1. Petitioner's articles of incorporation authorize only one class of stock. All of Petitioner's authorized stock is no- par-value common voting stock. No preferred stock or special class of stock is authorized.

   2. All 300 shares of Petitioner's authorized stock is issued and outstanding. Ms. Pitts and Mr. Chitmon own all 300 shares. Ms. Pitts is a minority shareholder because she is a minority person who owns stock in the corporation (the "minority owner" or "minority shareholder").

   3. Ms. Pitts owns 95 percent of Petitioner's issued and outstanding stock. Thus, the minority shareholder is Petitioner's majority shareholder because she owns at least 51 percent of Petitioner's stock within the meaning of Rule 60A- 2.005(2)1.

2. Financial Control

   1. The minority ownership of Petitioner is real, substantial, and continuing. Ms. Pitts has knowledge and control

      of all financial affairs of the business within the meaning of Rule 60A-2.005(3)(d)3. As president and majority shareholder, the minority owner expressly controls Petitioner's investments, loans, payment of business obligations, financial transactions, and payroll.

   2. Ms. Pitts and Mr. Chitmon are individually authorized to sign checks for Petitioner. However, Mr. Chitmon's authority to sign checks is a matter of convenience to the company and does not obviate the minority owner's real, substantial, and continuing management control as president and majority shareholder.

3. Operating And Management Control

   1. The minority owner has operating control of Petitioner and is technically qualified to manage and operate Petitioner's business.4 Her management and operation of has produced significant business and new customers for Petitioner.

   2. Petitioner does business in at least eight counties in Florida. They include Duval, Orange, Hillsborough, St. Johns, Seminole, Broward, and Marion counties. Operating revenues already are sufficient to maintain a $15,000 inventory and pay overhead, including a salary to Mr. Chitmon.

   3. Ms. Pitts gained the knowledge and experience needed to operate Petitioner successfully during the time she was employed by CAP Design Group, Inc. ("CAP"). CAP is a closely held Florida corporation owned by Ms. Pitts' estranged husband. He is not a minority person and CAP is not certified as an MBE.

   4. When Petitioner was formed in May, 1996, Petitioner shared office space and equipment with CAP. Petitioner's minority owner was an employee of both companies. Petitioner derived its name in part to benefit from the goodwill of CAP. Although both companies were engaged in similar businesses, CAP specialized in a substantially more expensive product line and Petitioner specialized in low-end products.

   5. Neither Petitioner nor its minority owner are now affiliated with CAP. Petitioner no longer shares office space, equipment, or employees with CAP. Ms. Pitts operates Petitioner's business from her mother's garage. Ms. Pitts is relocating Petitioner to Orlando, Florida. A divorce is pending between Ms. Pitts and her husband.

4. Share Of Income, Earnings, And Benefits

   1. Petitioner's minority owner has a legal right to share income, earnings, and other benefits in proportion to her stock ownership within the meaning of Rule 60A-2.005(2)(b). None of the shareholders share net income and other benefits because Petitioner is not yet profitable. Therefore, Petitioner has not declared any dividends and has not funded any benefits for directors, officers, or employees.

   2. Petitioner's earnings are sufficient to fund employee salaries. However, Petitioner pays a salary only to Mr. Chitmon.

   3. There is no agreement or other limitation that prevents the minority owner from drawing a salary. Rather, the minority owner exercises her discretion not to receive a salary.

   4. The minority owner's discretion is not subject to any formal or informal restrictions within the meaning of Rule 60A- 2.005(3)(a). There are no provisions in any purchase agreement, employment agreement, voting rights agreement, or the corporate by-laws that vary or usurp the minority owner's discretion.

   5. The minority owner exercises her discretion not to receive a salary for independent economic reasons. The minority owner's exercise of discretion is consistent with economic reality and with her greater equity position and risk in Petitioner's profit and loss. Conversely, the minority owner's choice to pay a salary to Mr. Chitmon is consistent with his status as a valued employee and technical consultant.

5. Directors

1. A majority of Petitioner's corporate directors are not minority owners in violation of Rule 60A-2.005(3)(b). Petitioner's articles of incorporation authorize two directors. Ms. Pitts and Mr. Chitmon are those two directors.

2. The minority owner comprises only half of the directors. Mr. Chitmon is not a minority. A majority of the directors are not comprised of minority owners.

   CONCLUSIONS OF LAW

3. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties. The parties were duly noticed for the formal hearing.

4. The burden of proof is on Petitioner. Petitioner must show by a preponderance of the evidence that it is entitled to

   MBE certification. Florida Department of Transportation v. J.W.C. Company, Inc., 396 So.2d 778 (Fla. 1st DCA 1981); Balino v. Department of Health and Rehabilitative Services, 348 So.2d

   349 (Fla. 1st DCA 1977).

5. Petitioner satisfied its burden of proof for all but one of the requirements for MBE certification. Petitioner's minority shareholder owns at least 51 percent of all issued stock within the meaning of Rule 60A-2.005(2)(a)1. The ownership exercised by the minority owner is real, substantial, and continuing in accordance with Rule 60A-2.005(2).

6. The minority owner has knowledge and control of all financial affairs of the business within the meaning of Rule 60A- 2.005(3)(d)3. She has operating control of Petitioner and is technically qualified to manage and operate the business.

7. The minority owner has a legal right to share income, earnings, and other benefits in proportion to her stock ownership within the meaning of Rule 60A-2.005(2)(b). The minority owner's choice not to draw a salary is not mandated by any formal or informal restrictions within the meaning of Rule 60A-2.005(3)(a).

8. Rule 60A-2.001(20) defines a non-minority business as a business that does not meet any one of the certification requirements in Rule 60A-2.005. Rule 60A-2.005(3)(b) requires a majority of Petitioner's directors to be minority owners.

9. The requirement in Rule 60A-2.005(3)(b) applies even if: the corporate directors are "required to be elected by a majority vote of the outstanding shares of the corporation;" and

the minority owner owns 95 percent of the voting stock. A majority of Petitioner's directors are not minority owners. Only half of the directors are minority owners. Petitioner is a non- minority business within the meaning of Rule 60A-2.001(20).

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is

RECOMMENDED that Respondent enter a Final Order and therein

DENY Petitioner's application for MBE certification.

RECOMMENDED this 18th day of February, 1997, in Tallahassee, Florida.

DANIEL MANRY

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(904) 488-9675 SUNCOM 278-9675

Fax Filing (904) 921-6847

Filed with the Clerk of the Division of Administrative Hearings this 18th day of February, 1997.

ENDNOTES

1/ All chapter and sections references are to Florida Statutes (1997) unless otherwise stated.

2/ All references to rules are to rules promulgated in the Florida Administrative Code as of the date of this Recommended Order.

3/ The identity of the vice president and treasurer were not disclosed in the record.

4/ Ms. Pitts testified that she is the majority shareholder. Her application for MBE certification states that she owns 95 percent of the stock and that her son owns five percent of the stock. Respondent submitted the application in evidence to refute the representation of stock ownership in the application.

5/ The non-minority shareholder is Petitioner’s minority shareholder.

6/ Ms. Pitts admits that her son is more technically qualified than she is. Nevertheless, Ms. Pitts possesses sufficient technical ability to operate and manage the company successfully.

COPIES FURNISHED:

Douglas L. Jamerson, Secretary Department of Labor and

Employment Security Hartman Building, Suite 303

2012 Capital Circle, Southeast Tallahassee, Florida 32399-2152

Edward A. Dion, General Counsel Department of Labor and

Employment Security Hartman Building, Suite 307

2012 Capital Circle, Southeast Tallahassee, Florida 32399-2189

Joseph L. Shields, Senior Attorney Department of Labor and

Employment Security Division of Minority Business

Advocacy and Assistance Hartman Building, Suite 307 2012 Capital Circle, Southeast

Tallahassee, Florida 32399-2189

Carol A. Pitts, President CAP Distribution, Inc.

11290-5 St. Johns Industrial Parkway Jacksonville, Florida 32245-6673

All

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15 days from the date of 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: 96-004445

Orders for Case No: 96-004445