STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

TELE-NET COMMUNICATION, INC., )

)

Petitioner, )

)

vs. ) Case No. 00-2488

) DEPARTMENT OF MANAGEMENT SERVICES, ) OFFICE OF SUPPLIER DIVERSITY, )

)

Respondent. )

)

RECOMMENDED ORDER

On August 25, 2000, a formal administrative hearing was held in this case in Jacksonville, Florida, before William R. Pfeiffer, Administrative Law Judge, Division of Administrative Hearings.

APPEARANCES

For Petitioner: Cynthia Martin, pro se

Tele-Net Communication, Inc. Post Office Box 11784 Jacksonville, Florida 32239

For Respondent: O. Earl Black, Jr., Esquire

Department of Management Services 4050 Esplanade Way, Suite 260

Tallahassee, Florida 32399-0950 STATEMENT OF THE ISSUES

The issue for determination at final hearing was whether Petitioner should be certified as a minority business enterprise pursuant to Section 287.09451, Florida Statutes, and Chapter 38A- 20, Florida Administrative Code, by the Office of the Supplier Diversity of the Department of Management Services.

PRELIMINARY STATEMENT

On March 17, 2000, Petitioner applied to the Minority Business Advocacy and Assistance Office of the Florida Department of Labor and Employment Security for certification as a minority business enterprise. That office was transferred to the Department of Management Services (DMS) and renamed as the Office of Supplier Diversity as of July 1, 2000.

By letter dated May 16, 2000, DMS notified Petitioner of the denial of Petitioner's application. The reasons for the denial as set forth in the letter were the failure to meet the requirements of Section 288.703(1), Florida Statutes, as well as the requirements of Rules 38A-20.005(2)(b), (3)(a),(3)(b), (3)(c), and (3)(d)3., Florida Administrative Code.

Petitioner filed a petition for formal hearing with DMS on July 11, 2000, and the Initial order was issued by the Division of Administrative Hearings on June 21, 2000. A formal hearing was held as scheduled on August 25, 2000, in Jacksonville, Florida.

At the hearing, Petitioner presented the testimony of Cynthia Martin and Keith Martin, but offered no exhibits. DMS presented the testimony of David E. Rackard. DMS Exhibits 1-11 were accepted into evidence without objection. A Transcript of the proceeding was filed October 2, 2000.

Each party provided a Proposed Recommended Order, which was duly considered.

FINDINGS OF FACT

1. Petitioner is a Florida corporation seeking certification in the field of "Sales and Installation of Network and Telephone Cabling" under the minority status of female-owned company. Fifty-one percent of Petitioner's stock is owned by Cynthia Martin, a white female, and 49 percent is owned by her husband, a white male.

2. Until shortly before submitting its application, Petitioner corporation had previously operated as a sole proprietorship under the ownership of Keith Martin. The majority of the assets of Petitioner came from the previous sole proprietorship when Petitioner was formed.

3. According to Mrs. Martin's testimony and payroll information submitted by Petitioner, Keith Martin received twice the salary of Cynthia Martin.

4. Cynthia Martin is a full-time employee of the State of Florida. There is no evidence of employment for Keith Martin other than with Petitioner.

5. The corporate documents in evidence reflect that since incorporation Cynthia Martin has been vice-president and secretary of the corporation, while Keith Martin has been president and treasurer. Petitioner's checks may be signed by either Keith Martin or Cynthia Martin and only one signature is required on each corporate check.

6. Petitioner's Articles of Incorporation provide that the number of directors shall be determined in the By-Laws. The initial directors were Keith Martin and Cynthia Martin. The By- Laws provide that the corporation shall be managed by two directors, and that the number of directors may be increased only by amendment of the By-Laws. Also, a majority of the directors shall constitute a quorum for the transaction of business. This provision of the By-Laws has not been changed. At the organizational meeting of Petitioner, Keith Martin was elected president and treasurer, and Cynthia Martin was elected vice- president and secretary. No other documents were introduced into evidence reflecting any changes to the articles of incorporation or the By-Laws.

7. The documentation submitted by Petitioner, and prepared by Cynthia Martin, consistently reflect Keith Martin as the president of the company and Cynthia Martin as vice-president.

8. Cynthia Martin's duties include bookkeeping and performing administrative functions. Keith Martin's duties include the installation of cabling for local area networks and phone systems, picking up goods to be used on contracts, preparing daily timesheets and generating the paperwork necessary for billing clients, preparing quotations for clients, consulting with clients to determine needs, installation of phone systems and providing sales, service, and repair for clients. Cynthia

   Martin's duties for Petitioner are performed on her days off from her full-time employment, and on nights and weekends.

9. The fact that Cynthia Martin owns 51 percent of the stock of Petitioner is important at stockholder meetings. At such meetings, she is entitled to one vote for each share owned, thereby allowing her to control stockholder meetings and effectively determine the directors of the company. The company is managed by the directors, while the day-to-day operations are managed by the officers.

   CONCLUSIONS OF LAW

   
   

10. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of this proceeding pursuant to Section 120.57, Florida Statutes.

11. The burden of proof is on the party asserting the affirmative of an issue before an administrative tribunal, Department of Transportation v. J.W.C. Company, Inc., 396 So. 2d 778 (Fla. 1st DCA 1981). To meet this burden, Petitioner must establish facts upon which its allegations of entitlement to certified minority business status are based on a preponderance of evidence. Department of Banking and Finance, Division of Securities and Investor Protection v. Osborne Stern Company, 670 So. 2d 932 (Fla. 1996) and Section 120.57, Florida Statutes.

12. In pertinent part, Section 288. 703(2), Florida Statutes, provides as follows:

    (2) "Minority business enterprise" means any small business concern as defined in

    subsection (1) which is organized to engage in commercial transactions, which is domiciled in Florida, and which is at least 51-percent-owned by minority persons who are members of an insular group that is of a particular racial, ethnic, or gender makeup or national origin, which has been subjected historically to disparate treatment due to identification in and with that group resulting in an underrepresentation of commercial enterprises under the group's control, and whose management and daily operations are controlled by such persons. A minority business enterprise may primarily involve the practice of a profession.

    Ownership by a minority person does not

    include ownership which is the result of a transfer from a nonminority person to a minority person within a related immediate family group if the combined total net asset value of all members of such family group exceeds $1 million. For purposes of this subsection, the term "related immediate family group" means one or more children under 16 years of age and a parent of such children or the spouse of such parent residing in the same house or living unit.

13. Rule 38A-20.005(2)(b), Florida Administrative Code, provides as follows:

    (b) 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.

14. Rule 38A-20.005(3)(a), Florida Administrative Code, provides as follows:

    1. The discretion of the minority owners shall not be subject to any formal or informal restrictions (including, but not limited to, by-law provisions, purchase agreements, employment agreements, partnership agreements, trust agreements or voting rights, whether cumulative or otherwise), which would vary or usurp managerial discretion customary in the industry.

15. Rule 38A-20.005(3)(b), Florida Administrative Code, provides as follows:

    1. If the applicant business is a corporation and the business 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, the articles of incorporation or bylaws must explicitly clarify the number of the board of directors for establishing a quorum, or it will be deemed by this office that a quorum of the board of directors consists of a majority of the number of directors presented by the articles of incorporation or the bylaws.

16. Rule 38A-20.005(3)(c), Florida Administrative Code, provides as follows:

    1. 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.

17. Rule 38A-20.005(3)(d), Florida Administrative Code, provides as follows:

    1. The control exercised by the minority owners shall be real, substantial and continuing. In instances where the applicant

    business is found to be a family-operated business, with duties, responsibilities and decision-making occurring either jointly and mutually among owners and principals, or severally along managerial and operational lines between minority owners 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, but on their execution of delegation of duties the minority owners' demonstration of 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. The minority owners' control of purchasing shall be evidence of their knowledge of products, brands, manufacturers, types of equipment and products and their uses, etc., rather than merely reflective of the minority owners' ministerial execution of the ordering/ acquisition of goods.

    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 capability, knowledge, training, education and experience required to make decisions regarding the operations of the business. In determining the applicant business' 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 timing 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 and the technical responsibilities of the business. When the applicant business provides services which require that the business and/or its professional qualifier be licensed, the minority owner shall hold the requisite license issued by the State of Florida or local licensing entity. The minority license holder need not be the controlling owner of the business, but must hold an ownership interest.

    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. In instances where the minority owners do not directly seek or negotiate contracts, prepare estimates, or coordinate with contracting officials, but claim to approve or reject bids and contractual agreements, the minority owners shall demonstrate that they have the knowledge and expertise to independently make contractual decisions.

    6. The minority owners 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.

    
    

18. Petitioner has failed to meet its burden to show that it is a qualified minority business pursuant to Section 288.703(2), Florida Statutes, in that Petitioner has failed to show that the minority owner of the company actually controls the management and daily operations of the company. The evidence clearly shows Keith Martin, a non-minority, controls the daily management and operation of the company. Keith Martin contacts the customers, determines the customers' needs, prepares any contract for the installation, orders the equipment to be installed at the customer's site, installs the equipment, and then performs post-installation service. Cynthia Martin performs the basic administrative functions for the company.

19. Petitioner has failed to meet the requirements of Rule 38A-20.005(2)(b), Florida Administrative Code, in that Keith Martin receives double the remuneration as does the purportedly minority owner, Cynthia Martin.

20. Petitioner has failed to meet the requirements of Rule 38A-20.005(3)(a) and (b), Florida Administrative Code, in that, as the company is presently established, the company cannot act without Keith Martin's consent. The By-Laws establish that the business of the company is to be managed by the board of two directors, Keith Martin and Cynthia Martin. A quorum for a meeting of the board requires a majority of the directors and since there are only two directors, both must agree before a

    meeting can take place. Also, since any action of the board requires a majority vote, no action can be taken by the board unless Keith Martin agrees.

21. Petitioner has failed to meet the requirements of Rule 38A-20.005(3)(c), Florida Administrative Code, in that there was no evidence presented to establish that Cynthia Martin exercises sufficient management and technical responsibilities to maintain control of the company. As previously discussed, Cynthia Martin primarily handles the administrative duties of the company, while Keith Martin handles virtually all of the work done by the company, makes all customer contact, executes contracts when called for, performs the installations contracted for, and then performs follow-up service and maintenance work as needed. When Mrs. Martin performs company-related work, it is commonly in the evenings or on weekends. Finally, the documentation prepared by Cynthia Martin makes it clear that Keith Martin is the president of the company.

22. Petitioner has failed to meet the requirements of Rule 38A-20.00(3)(d), Florida Administrative Code, in that no evidence was presented to establish that the control exercised by Cynthia Martin was real, substantial, and continuing. It has already been shown that Keith Martin was primarily responsible for the actual business operations of the company. He is also responsible for acquiring the goods and materials required for the customer's needs. The company checking account permits

checks to be signed by either Keith or Cynthia Martin, so Mrs. Martin is not in sole control of the finances of the company. Keith Martin's primary work experience is installing network cable and phone systems. While Cynthia Martin expressed an understanding, Keith Martin actually performs these duties for the company. Finally, it is clear that nearly all customer contact is through Keith Martin, and he is responsible for contract negotiation and all major aspects of the business.

RECOMMENDATION

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

RECOMMENDED that the Department of Management Services, Office of Supplier Diversity enter a final order denying Tele-Net Communications, Inc.'s, application to be a certified minority business enterprise.

DONE AND ENTERED this 25th day of October, 2000, in Tallahassee, Leon County, Florida.

WILLIAM R. PFEIFFER

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 25th day of October, 2000.

COPIES FURNISHED:

O. Earl Black, Jr., Esquire Department of Management Services 4050 Esplanade Way, Suite 260 Tallahassee, Florida 32399-0950

Cynthia Martin

Tele-Net Communications, Inc. Post Office Box 11784 Jacksonville, Florida 32239

Bruce Hoffmann, General Counsel Department of Management Services 4050 Esplanade Way, Suite 260

Tallahassee, Florida 32399-0950

Windell Paige, Director Office of Supplier Diversity

Department of Management Services 4050 Esplanade Way, Suite 260

Tallahassee, Florida 32399-0950

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: 00-002488

Orders for Case No: 00-002488