vs. ) CASE NO. 87-3989
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 November 13, 1987, at Lakeland, Florida.
For Petitioner: Charles L. Carlton, Esquire
Harold E. Barker, Esquire 2120 Lakeland Hills Boulevard Lakeland, Florida 33805
By letters dated August 24 and 25, 1987, Cindy Goldsmith of Joe Goldsmith Construction, Inc., Petitioner, requests an administrative hearing to contest the denial by the Department of Transportation (DOT), Respondent, of Petitioner's application for certification as a Disadvantaged Business Enterprise (DBE). Certification was denied by DOT letter dated August 5, 1987, on grounds that Cindy Goldsmith does not exercise sufficient control of the firm to qualify for certification.
At the hearing, Petitioner called two witnesses, Respondent called two witnesses, and nine exhibits were admitted into evidence. Timely proposed findings have been submitted by Respondent. All of those proposed findings are accepted except No. 8 which, although probably true, was not supported by evidence presented at this hearing. Those other proposed findings not specifically included herein were deemed unnecessary to the conclusions reached.
Joe Goldsmith, president of Petitioner, started as a laborer in construction after graduating from college in 1975. Some three years later he started his own business as a carpenter with one helper doing mainly repair and renovation on buildings. At this time he and Cindy were married and she did the
bookkeeping for the business on a part-time basis. Cindy Goldsmith was employed as an accountant by Bordens for two years beginning in 1976 upon her graduation from college.
In 1978, Cindy Goldsmith worked as a business manager for a consulting firm, Zellars-Williams. From the inception of Goldsmith Contracting in 1978 until early 1982, Cindy did the accounting for the firm on a part-time basis. In 1982, the contracting business had grown to the point she needed to devote full time to running the record keeping and financial end of the business and thereafter has worked full-time with Petitioner.
In 1985, Joe Goldsmith Construction, Inc. was incorporated with Joe Goldsmith owning 50 percent of the shares (500), and his wife owning 50 percent of the shares (500). At the time of the incorporation neither party individually supplied capital for the stock issued. The corporation was capitalized with the assets of Joe Goldsmith Contracting which was garnered through the joint efforts of Joe and Cindy Goldsmith.
The Articles of Incorporation show Joe Goldsmith and Cindy Goldsmith as the directors. Joe Goldsmith is the president of this corporation and Cindy Goldsmith is vice-president. Duties of the president are stated in the By-Laws of the corporation as follows:
The President shall be the chief executive officer of the corporation, shall have general and active management of the business and affairs of the corporation subject to the directions of the Board of Directors, and shall preside at all meetings of the shareholders and Board of Directors.
The duties of the vice-president are to exercise the powers and functions of the president during the absence of the president and such other duties as the president or shareholders may prescribe.
Joe and Cindy Goldsmith have joint ownership of all of their property and other assets such as bank accounts.
In operating the business, Joe Goldsmith holds the general contractor's license under which the corporation acts in pulling building permits. One other employee, a superintendent, also has a statewide general contractor's license and permits can be pulled under his license if necessary.
Cindy Goldsmith runs the office side of the business maintaining personnel, accounting, insurance and legal records of the company. She participates with Mr. Goldsmith in making decisions regarding which contracts to bid on, at what price to bid the job, and many other details of the business. Joe Goldsmith is generally regarded as the outside man overseeing the workers doing the construction while Cindy Goldsmith acts as the inside person overseeing the paper trail to determine the company's financial health. Joe Goldsmith contacts customers and potential customers and is the principal company representative in surveying the job site, calculating the material and labor involved in the project and such other technical information as is needed to submit a competitive bid for construction work for which the company desires to compete. Cindy Goldsmith assists in preparing such bids largely by providing overhead figures to be included in the bid submitted.
Although Cindy Goldsmith testified that she signs most accounts payable and prepares payroll checks for those workers under Joe Goldsmith's supervision for his signature, the records demonstrate that Joe Goldsmith signs many, if not most, of the accounts payable checks.
Generally, Joe Goldsmith hires and fires the outside employees while Cindy Goldsmith exercises that function regarding the inside people. Both testified that each had the power to fire a person normally supervised by the other; however, this power would not be expected to be used without first consulting with the other. An attempt by Cindy Goldsmith to fire a superintendent hired by Joe Goldsmith without first consulting her husband would not succeed.
About the time the application for certification as a DBE was filed,
10 shares of stock was transferred from Joe Goldsmith to Cindy Goldsmith to create a majority ownership of 51 percent of the 1000 shares of issued stock in the name of Cindy Goldsmith. As compensation for this transfer, Cindy Goldsmith signed a promissory note for $4,000 payable to Joe Goldsmith. This promissory note was paid by check No. 156 dated June 30, 1987 (Exhibit 2). This check was drawn on the joint account of Joe C. Goldsmith or Cindy T. Goldsmith in the Peoples Bank of Lakeland, Account No. 01061224. This check was deposited in Account No. 01061224 on July 6, 1987. Thus, the $4,000 to pay for the 10 shares of stock sold by Joe Goldsmith to Cindy Goldsmith was drawn on the joint account of Joe and Cindy Goldsmith and deposited in the same account, resulting in no change to the account balance.
Company records show that Cindy Goldsmith's salary for the past few years has been approximately two thirds of the salary of Joe Goldsmith (Exhibit 5).
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.
Rules pertaining to certification of DBEs are contained in Chapter 14- 78, Florida Administrative Code. Rule 14-78.002(1) defines "socially and economically disadvantaged individuals" to include women, thereby so qualifying Cindy Goldsmith.
Rule 14-78.002(3) defines "disadvantaged business enterprise" as a small business concern which is at least 51 percent owned by one or more socially or economically disadvantaged individuals whose management and daily business operations are controlled by one or more of the socially and economically disadvantaged individuals who own it. As owner of 51 percent of the stock Cindy Goldsmith technically qualifies under the first part of that provision. Rule 14-78.005, Florida Administrative Code, establishes standards for the certification of DBEs. These include:
(c) To be certified under this rule chapter, a DBE shall be an independent business entity. The ownership and control exercised by socially and economically disadvantaged indi- viduals shall be real, substantial, and con- tinuing, and shall go beyond mere pro forma ownership of the firm, as reflected in its ownership documents... In assessing busi-
ness independence, the Department shall consider 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 relationships with non- DBE firms vary from industry practice.
(e) To be certified under this rule chapter, the DBE shall be one in which the socially and economically disadvantaged owner shall also possess the power to direct or cause the direction 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 discretion of the socially and econom- ically disadvantaged owners shall not be sub- ject to any formal or informal restrictions (including, but not limited to, bylaw provisions, partnership agreements, trust agreements or charter requirements for cumulative voting rights or otherwise)
which would vary managerial discretion customary in the industry.
In determining whether the socially and economically disadvantaged owners also possess the power to direct or cause the direction of the management, policies and operations of the firm and have the requisite decision-making authority, the Department may look to the control lodged in the owners who are not socially and economically disadvan- taged individuals. If the owners who are not socially and economically disadvantaged
individuals are disproportionately responsible for the operation of the enterprise of if there exists any requirement which prevents the socially and economically disadvantaged owners from making business decisions without concurrence of any owner or employee who is not a socially and economically disadvantaged individual, then the enterprise, for purposes of this rule chapter, is not controlled by socially and economically disadvantaged indi- viduals and shall not be considered a DBE within the meaning of this rule chapter.
Where the actual management of the enterprise is contracted out to individuals other than the owner(s), those persons who have the ultimate power to hire and fire the managers can be considered as controlling the enter- prise for the purposes of this rule chapter.
When the facts regarding the operation of Joe Goldsmith Construction, Inc. are applied to the rules above quoted, it must be concluded that Cindy Goldsmith does not have the requisite control to qualify the company as a DBE. This conclusion is based upon the following:
Joe Goldsmith started the company and has been the chief operating officer since its inception.
Cindy Goldsmith makes a substantial contribution to the company but at best shares equally with her husband in important management decisions.
The importance of each owner to the corporation is normally reflected in the salary paid for services performed. Here, Joe Goldsmith is clearly the significant owner. In this regard, consideration has been given to the fact that the Goldsmiths maintain joint ownership of all of their possessions, maintain joint bank accounts, share 50-50 in all gains and losses, and, presumably, file joint income tax returns. Accordingly, the net effect on their lifestyle would be the same if Joe Goldsmith was paid two thirds of the salary received by Cindy Goldsmith. However, the fact that Joe Goldsmith is the higher paid indicates that as between the two owners, Joe Goldsmith is regarded as the one exercising dominant control over the enterprise.
Joe Goldsmith is the president and, according to the By-Laws of the company, is the chief executive officer and, as such, has general and active management of the business of the corporation. Joe Goldsmith is the non- economically disadvantaged owner and the requirement of the By-Laws that he has active management of the enterprise precludes the economically deprived individual, Cindy Goldsmith, from qualifying the enterprise for certification.
Although Cindy Goldsmith owns 51 percent, of Petitioner, she still considers that she and her husband are joint owners of the enterprise and share equally in the fortunes of the company.
From the foregoing, it is concluded that Cindy Goldsmith as a socially and economically disadvantaged individual, does not have the control of Joe Goldsmith Construction, Inc. necessary to qualify the company for certification as a disadvantaged business enterprise. It is
RECOMMENDED that the petition of Joe Goldsmith Construction, Inc. for certification as a disadvantaged business enterprise be dismissed.
ENTERED this 4th day of December, 1987, in Tallahassee, Florida.
K. N. AYERS Hearing Officer
Filed with the Clerk of the Division of Administrative Hearings this 4th day of December, 1987.
Charles L. Carlton, Esquire Harold E. Barker, Esquire Carlton & Carlton, P.A.
Kaye N. Henderson, P.E. Secretary
