STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

K. T. TRANSPORT, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 87-4419

) DEPARTMENT OF TRANSPORTATION, )

)

Respondent. )

)

RECOMMENDED ORDER

A public hearing was held in the above-styled case by K. N. Ayers, duly designated Hearing Officer, Division of Administrative Hearings, on December 17, 1987, at Lakeland, Florida.

APPEARANCES

For Petitioner: M. Craig Massey, Esquire

Post Office Box 2787

1701 South Florida Avenue Lakeland, Florida 33807-2787

For Respondent: Judy Rice, Esquire

Department of Transportation Haydon Burns Building

605 Suwannee Street, Mail Station 58

Tallahassee, Florida 32399-0458

By letter dated May 29, 1987, the Department of Transportation (DOT), Respondent, denied the application of K. T. Transport (KTT), Petitioner, for certification as a minority business enterprise. As grounds therefor, it is alleged Petitioner does not meet the requirements of Rule 14-78.05(3)(c), Florida Administrative Code, in that KTT does not have sufficient business independence to meet those requirements. A petition to contest this determination was timely filed, and this hearing followed.

At the trial, Petitioner called two witnesses, Respondent called one witness, and eleven 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.

FINDINGS OF FACT

1. KTT was incorporated in January, 1987, with F. Kay McDougald owning 90 percent of the issued stock and her daughter, Tracy McDougald, owning 10 percent of the issued stock. F. Kay McDougald is president, treasurer, and one director of the Corporation, and Tracy McDougald is secretary and the second of two directors. Paid in capital was $500.

2. At the time KTT was incorporated, F. Kay McDougald held one-third of the outstanding stock in Florida Transport Services (FTS) with the balance of the shares held by her husband.

   
   

3. The land upon which FTS has its office and keeps its equipment is owned by the McDougalds jointly. FTS pays monthly rent to the McDougalds. Upon the incorporation of KTT, the latter shared the space with FTS and paid monthly rent to the McDougalds.

   
   

4. Since the incorporation of FTS, circa 1974, F. Kay McDougald has worked in the company with her husband. She has generally functioned as office manager, bookkeeper and in charge of all clerical-type functions. In addition, she performed operational functions by dispatching vehicles and making any and all operational decisions during the absence of her husband. By experience, she is fully qualified to operate KTT as an independent business.

   
   

5. Since becoming incorporated, KTT has purchased one tractor-trailer, and has obtained lease operator agreements with the owner-drivers of eight vehicles, of which three are miniwheelers, four are tractor trailers, and one a tandem truck. All of these vehicles are capable of, and are used primarily for, hauling road aggregates. In continuing operations during 1987 to date of hearing, the net worth of KTT has increased to approximately $20,000. As a subchapter S corporation, the income of KTT is taxable to the owners.

   
   

6. FTS also operates vehicles used in hauling road aggregates; however, most of FTS equipment is tractor trailers. Since KTT began operations, FTS has leased equipment to and from KTT.

   
   

7. Due to many years working closely with competitors Mac Asphalt Company and Trans Phos, FTS and Kay McDougald developed a cooperative relationship with those companies, and KTT has been able to lease equipment from those companies when needed.

   
   

8. No evidence was presented that Mr. McDougald exercises any control over, or has any interest in, the operation of KTT other than a spousal interest in his wife succeeding in the business.

   
   

9. Some three years ago two or more contractors approached Mrs. McDougald to suggest that she form a corporation, obtain minority business certification, and bid to subcontract on DOT road building contracts for the hauling of road aggregates. After considering the concept for about two years, Mrs. McDougald formed KTT and initiated the application for certification here being considered.

   
   

   CONCLUSIONS OF LAW

   
   

10. The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.

    
    

11. In denying certification, DOT relies on Rule 14- 78.005(c), Florida Administrative Code, which provides:

    
    

    (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 individuals

    shall be real, substantial, and continuing, and shall go beyond mere pro forma ownership of the firm, as reflected in its ownership documents. .

    . . In assessing business 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.

    
    

12. DOT contends that Mrs. McDougald's position with FTS is such that KTT may be unduly influenced by FTS and, thereby, not have the independence required.

    
    

13. As a corporation, KTT is a business entity legally separate from FTS, and no evidence was presented that anyone other than Mrs. McDougald exercised control over the operations of KTT.

    
    

14. In order for DOT to obtain federal financing on road projects, 10 percent of those contracts must be awarded to disadvantaged business enterprises (DBE) and minority enterprises (MBE), which includes Women's Business Enterprises (WBE). Clearly, Mrs. McDougald qualifies as a women to head a WBE. Since federal funds are involved, the MBE must meet federal guidelines which are contained in 49 CFR 23 et seg. 49 CFR 23.53 establishes eligibility standards to be met in order to be certified as an MBE. Subparagraph (2) thereof provides in part:

    
    

    An eligible minority business enterprise under this part shall be an independent business. The ownership and control by minorities or women shall be real, substantial, and continuing and shall go beyond the pro forma ownership of the firm as reflected in its ownership documents.

    * * *

    In determining whether a potential MBE is an independent business, DOT recipients shall consider all relevant factors, including the date the business was established, the adequacy of its resources for the work of the contract, and the degree to which financial, equipment leasing, and other relationships with non-minority firms vary from industry practice.

    
    

15. In applying those criteria to the factors here presented, the ownership and control of KTT by Mrs. McDougald is real, substantial, and continuing. While KTT is able to lease equipment on occasion from FTS, it is also able to lease equipment from Mac Asphalt and Trans Phos. Road aggregate carriers frequently need additional equipment and obtain this equipment from other transportation companies in a similar business. No one carrier ever has

    all of the equipment it can possibly need for any job, and one naturally turns to one's friends in the same business when additional equipment is needed. 49 CFR 23.53(6)(b) directs special consideration be given to the following circumstances in determining eligibility under this program.

    
    

    1. Newly formed firms and firms whose ownership and/or control has changed since the date of the advertisement of the contract are closely scrutinized to determine the reasons for the timing of the formation or change in the firm.

    2. A previous and/or continuing employer-employee relationship between or among present owners is carefully reviewed to insure that the employee

       owner has management responsibilities and capabilities discussed in this section.

    3. Any relationship between an MBE and a business which is not an MBE which has an interest in the MBE is carefully reviewed to determine if the interest of the non-MBE conflicts with the ownership and control requirements of this section (emphasis supplied).

       
       

16. Applying these criteria to the facts in this case, KTT was not newly formed to take advantage of a specific contract. While Mrs. McDougald is an employee of FTS, the evidence was uncontradicted that she has management responsibility for KTT and the experience to capably operate that enterprise. Finally, with respect to (3) above, FTS has no financial interest in KTT, and no other interest was shown which would conflict with the ownership and control of KTT by Mrs. McDougald. To assume, as DOT apparently does, that because she is married to the majority shareholder of FTS, KTT under the direction of Mrs. McDougald is not an independent enterprise, is unwarranted and may constitute discrimination based on marital status.

    
    

17. DOT rule 14-78.005(e), Florida Administrative Code, tracts the department's interpretation of the federal guidelines and provides:

    
    

    (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 economically disadvantaged owners shall not be subject 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 disadvantaged 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 individuals 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 enterprise for the purposes of this rule chapter.

    
    

18. Mrs. McDougald clearly meets all of the requirements of that rule.

    
    

19. The anomaly of the department's position that KTT is not an independent business because Mrs. McDougald is part owner and employee of FTS can be shown by an assumption of altered facts. If, for example, Mr. McDougald died or completely retired from FTS and Mrs. McDougald acquired full ownership, under the department's position, she would then be qualified to obtain certification of FTS as an MBE, but would be unable to first qualify KTT for certification. Respondent's position that FTS and KTT are too closely associated for KTT to be independent of control by FTS or the non-minority owner of FTS, is based not only on the facts presented at the hearing, but on the potential for abuse by the non-MBE company. Where the non-MBE owner of FTS has no ownership interest in KTT, is not employed by KTT in any capacity, and his sole relationship with KTT is as the spouse of the majority stockholder of KTT, to hold that this non-MBE owner can or does exercise control over KTT is pure speculation.

    
    

20. While it is possible for any MBE owned and operated company which meets all of the regulatory requirements for certification by the individual

    controlling the operation of the MBE to be under the influence of some non-MBE Svengali-like individual who directs the activities of the MBE owner, evidence that such a situation is here present was neither presented nor intimated.

    
    

21. The situation here is considerably different from most of the applicants for MBE certification. In many of those applications, the husband has recently transferred the majority ownership interest to his wife in order to apply for certification as an MBE. In most of those cases, a real question of who has ultimate control of the operations of the enterprise exists since the husband is still actively engaged in the business he started some years ago. Here Mrs. McDougald started KTT, and her husband has no legal interest in the company and has no legal right to direct any part of the operations of KTT unless authorized to do so by Mrs. McDougald.

    
    

22. From the foregoing, it is concluded that KTT is a corporation owned and operated by a woman and hence qualified for certification as an MBE; that KTT is not controlled by FTS or anyone associated with FTS, except Mrs. McDougald; and the fact that KTT shares office facilities with FTS does not result in control over KTT by FTS or require a finding that KTT is not independent as required by federal and state rules. As an owner of an undivided one-half of the real property occupied by FTS and KTT, Mrs. McDougald would have proprietary rights to allow KTT to occupy these premises. It is

RECOMMENDED that KTT be certified as a Minority Business Enterprise. ENTERED this 9th day of February, 1988, in Tallahassee, Florida.

K. N. AYERS Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 9th day of February, 1988.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-4419

Treatment Accorded Petitioner's Proposed Findings

Petitioner's proposed findings are included in the Recommended Order. Treatment Accorded Respondent's Proposed Findings

1. Included in Hearing Officer's Nos. 1 and 5.

2. Included in Hearing Officer's Nos. 2 and 5. Fact that KTT and FTS do not compete against each other is accepted.

3. Accepted.

4. Rejected as unsupported by the evidence, except that Mrs. McDougald takes orders for both FTS and KTT.

5. The 4th sentence is rejected as a conclusion of law,

   otherwise accepted.

6. Accepted, except for the conclusion that FTS would receive the economic advantage of DBE certification and that KTT is thereby an enlargement of FTS business.

7. Accepted, except for the conclusion that use of the same office space disqualifies the applicant for certification. Also rejected is the conclusion that similar businesses compete with each other.

8. Accepted. However, no evidence was presented regarding the dollar value of federal aid received by DOT.

COPIES FURNISHED:

M. Craig Massey, Esquire Post Office Box 2787

1701 South Florida Avenue Lakeland, Florida 33806-2787

Judy Rice, Esquire Department of Transportation Haydon Burns Building

605 Suwannee Street

Tallahassee, Florida 32399-0450

Thomas H. Bateman, III Department of Transportation General Counsel

562 Haydon Burns Building 605 Suwannee Street

Tallahassee, Florida 32399-0450

Kay N. Henderson Secretary

Department of Transportation Haydon Burns Building

605 Suwannee Street

Tallahassee, Florida 32399-0450 Atten: Eleanor F. Turner, M.S. 58

=================================================================

AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA DEPARTMENT OF TRANSPORTATION

K. T. TRANSPORT, INC., Petitioner,

vs. CASE NO. 87-4419

DEPARTMENT OF TRANSPORTATION,

Respondent.

/

FINAL ORDER

The record in this proceeding and the Recommended Order of the Hearing Officer have been reviewed. Respondent, Florida Department of Transportation (FDOT), has filed exceptions to the Recommended Order and Petitioner, K. T. Transport, Inc. (KTT), has filed a response thereto. FDOT's exceptions are considered and addressed below. 1/

The Findings of Fact and Conclusions of Law set forth in the Recommended Order are considered correct and are incorporated as part of this Final Order with the following exceptions. First, Finding of Fact Number 7, to the extent it states that MacAsphalt is a competitor of KTT, is rejected. As both FDOT and KTT note, MacAsphalt is a customer of KTT and is not a trucking company.

Next, the Hearing Officer's conclusion that FDOT's assumption "that because she is married to the majority shareholder of FTS, KTT under the direction of Mrs. McDougald is not an independent enterprise, is unwarranted and may constitute discrimination based on marital status," (Recommended Order, p. 7), is rejected. There is absolutely no record support for the Hearing Officer's conclusion that FDOT operated under such an assumption. In fact, Juanita Moore repeatedly testified that the area of concern she scrutinized was the interrelationship of the corporations. She advanced no testimony indicating that Mrs. McDougald's marital status was a factor considered in review of KTT's application.

The Hearing Officer, in support of his conclusions, offers a hypothetical concerning potential future ownership changes in the subject corporations. (Recommended Order, p. 8) This hypothetical is predicated upon non-record matters, constitutes pure speculation, and is therefore rejected. Similarly, the Hearing Officer, at page 9 of the Recommended Order purports to contrast the instant case with "most of the applicants for MBE certification." There is no record evidence concerning the characteristics of most MBE certification applications. Consequently, the Hearing Officer's attempted comparison of the instant case with other cases is rejected.

FDOT's exceptions to the Hearing Officer's Findings of Fact numbered 3 and

5 are rejected because they are immaterial to the disposition of this cause.

FDOT's exception to Finding of Fact Number 7, concerning MacAsphalt's status as a competitor of KTT, is accepted as noted above.

FDOT's exception to Finding of Fact Number 8 is rejected since there is competent substantial record evidence supporting the Hearing Officer's finding. See Heifetz v. Dept. of Business Regulation, 475 So.2d 1277 (Fla. 1st DCA 1985).

FDOT's exceptions to the Hearing Officer's conclusions of law regarding the assumption attributed to FDOT concerning Mrs. McDougald's marital status (Recommended Order, p. 7); the Hearing Officer's hypothetical dealing with ownership changes in the corporations (Recommended Order, p. 8); and the Hearing Officer's attempted comparison of the instant case with other MBE certification cases (Recommended Order, p. 9), are well taken and incorporated into the rejection of those conclusions set forth above. The remainder of FDOT's exceptions to the Hearing Officer's conclusions of law are rejected since those conclusions enjoy the requisite record support.

Accordingly, the Hearing Officer's recommendation is adopted and it is ORDERED that K. T. Transport, Inc., be certified as a disadvantaged

business enterprise (DBE) pursuant to Chapter 14-78, Fla. Admin. Code.

DONE AND ORDERED this 22nd day of March, 1988, at Tallahassee, Florida.

KAYE N. HENDERSON, P. E.

Secretary

Department of Transportation 605 Suwannee Street

Tallahassee, Florida 32399

ENDNOTE

1/ Citations to the transcript of hearing held on December 17, 1987, will be indicated parenthetically as "T" with the appropriate page number(s).

COPIES FURNISHED TO:

K. N. AYERS, HEARING OFFICER DIVISION OF ADMINISTRATIVE HEARINGS THE OAKLAND BUILDING

2009 APALACHEE PARKWAY

TALLAHASSEE, FLORIDA 32399-1550

JUDY RICE, ESQUIRE DEPARTMENT OF TRANSPORTATION 605 SUWANNEE STREET

HAYDON BURNS BUILDING, MS 58 TALLAHASSEE, FLORIDA 32399-0458

M. CRAIG MASSEY, ESQUIRE POST OFFICE BOX 2787

1701 SOUTH FLORIDA AVENUE LAKELAND, FLORIDA 33807-2787

JUDICIAL REVIEW OF AGENCY FINAL ORDER MAY BE PURSUED IN ACCORDANCE WITH SECTION 120.68, FLORIDA STATUTES, AND FLORIDA RULES OF APPELLATE PROCEDURE

9.030(B)(1)(C) AND 9.110. TO INITIATE AN APPEAL, A NOTICE OF APPEAL MUST BE FILED WITH THE DEPARTMENT'S CLERK OF AGENCY PROCEEDINGS, HAYDON BURNS BUILDING, 605 SUWANNEE STREET, MS 58, TALLAHASSEE, FLORIDA 32399-0458, AND WITH THE APPROPRIATE DISTRICT COURT OF APPEAL WITHIN 30 DAYS OF THE FILING OF THIS FINAL ORDER WITH THE DEPARTMENT'S CLERK OF AGENCY PROCEEDINGS. THE NOTICE OF APPEAL FILED WITH THE DISTRICT COURT OF APPEAL SHOULD BE ACCOMPANIED BY THE FILING FEE SPECIFIED IN SECTION 35.22(3), FLORIDA STATUTES.

Docket for Case No: 87-004419

Orders for Case No: 87-004419