Judges: WILLIAM R. DORSEY, JR.
Agency: Department of Transportation
Latest Update: Jun. 30, 1988
Summary: The issue is whether J. P. Electrical Contractors Corp. qualifies as a socially and economically disadvantaged business enterprise under Rule 14- 78.005(c), (e), and (f), Florida Administrative Code.Minority Business Enterprise (MBE) status granted. Long term black employee who served as Chief Financial Officer became owner to keep him from leaving and to give corporation the advantage of MBE status.
88-0590.PDFSTATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
P. ELECTRICAL CONTRACTORS ) CORP., )
)
Petitioner, )
)
vs. ) CASE NO. 88-0590
)
FLORIDA DEPARTMENT OF )
TRANSPORTATION, )
)
Respondent. )
)
RECOMMENDED ORDER
Mario Avin, as Qualified Representative for J. P. Electrical Contractors Corp. James W. Anderson, Esquire for Florida Department of Transportation.
The hearing was held in this matter in Tallahassee, Florida, on April 18, 1988, by William R. Dorsey, Jr., the Hearing Officer designated by the Division of Administrative Hearings. No transcript of the proceedings was filed and the parties did not submit proposed findings of fact and conclusions of law.
ISSUE
The issue is whether J. P. Electrical Contractors Corp. qualifies as a socially and economically disadvantaged business enterprise under Rule 14- 78.005(c), (e), and (f), Florida Administrative Code.
FINDINGS OF FACT
J. P. Electrical Contractors is a Florida corporation which has been in business for approximately 17 years. It was founded and owned by Jacques Paul- Hus. The firm currently employees approximately 58 people. Its strengths are in contracting for highway lightning systems, traffic signals, and navigation lighting systems for airport runways. The firm has done a substantial amount of business. Its gross receipts for recent years are as follows:
1984 - $8,961,845
1985 - $7,881,440
1986 - $7,900,000
Mr. Mario Avin has been employed at J. P. Electrical since 1975, and has been a project manager for cost control. He has functioned as the controller or chief financial officer for the company. He is well experienced in the management of electrical contracting firms. Mr. Avin is black.
About 1985, J. P. Electrical Contractors found itself in financial difficulty because of a contract it had with the Dade County Airport Authority. It had installed a shipment of runway lighting from Westinghouse Corporation which turned out to be defective. Due to the problems with those lights, a
substantial portion of the contract price was retained by Dade County pending resolution of the lighting problem. This adversely affected the business' cash flow and required it to enter Chapter 11 bankruptcy proceedings. The company filed suit against Westinghouse Corporation and has received a favorable judgment at trial, which is on appeal.
The business received an infusion of 200,000 invested by David E. Graham, a lawyer not experienced in contracting. To secure the loan, a transaction was structured by which Graham obtained indirect ownership of 1/2 of the stock of J. P. Electrical Contractors, a lien on the remaining stock of the company and became the lessor of the building occupied by J. P. Electrical Contractors.
At about this time, Mario Avin began thinking of opening his own contracting company, based on his substantial experience in the contracting business, and on the assistance he could receive from the disadvantaged business enterprise programs of various governments due to his minority status. Jacques Paul-Hus suggested to Mr. Avin that he become an owner as well as manager of J.
P. Electrical Contractors Corp. Mr. Paul-Hus understood that if J. P. Electrical Contractors obtained minority status, it could enhance sales. As the result, the stock in J. P. Electrical Contractors Corp. was divided as follows:
Mario Avin 25,500 shares Jacques Paul-Hus 24,400 shares Louise Paul-Hus 100 shares
David E. Graham ceased to own any stock in the company. Graham was most interested in recovering his investment and a profit, but was not interested in running a contracting company, which was outside his expertise. He also wished to be released from the guarantees which he, as a shareholder, had to provided to the surety company which underwrote the various construction bonds which J.
P. Electrical Contractors had. Graham maintained, however, a lien in the form of a pledge and hypothecation agreement on the shares of J. P. Electrical Contractors Corp.
The first application of J. P. Electrical Contractors to the Florida Department of Transportation for certification as a disadvantaged business enterprise was disapproved on January 5, 1988, due to the pledge and hypothecation agreement. In view of the Department certification review committee, Mr. Avin, who was chairman of the board of the company and held the majority of the stock, still did not have functional control over the company due to the pledge encumbering his stock.
A new application was submitted on February 4, 1988, by J. P. Electrical Contractors Corp. After the first disapproval, the affairs of the corporation were restructured. The pledge held by David E. Graham was cancelled and Mr. Avin owned outright the 25,500 shares of stock which represented 51 percent ownership without any encumbrance. Mr. Avin did not pay cash for his shares. The contribution to the enterprise which justified the transfer of the stock to him was the value of his experience in the financial management of electrical contracting business. As a chief financial officer, Mr. Avin is well experienced in estimating, in accounting systems, and in keeping track of the business' cash flow. This is essential in determining whether the company's position will permit it to bid and handle new work profitably. There is no doubt that, in part, the majority ownership was transferred to Mr. Avin by the former owners because of his minority status.
With his majority ownership of the corporation, Mr. Avin also took on substantial personal liabilities. He became personally liable to Southeastern Causality and Indemnity Insurance Company on the performance bonds which J. P. Electrical Contractors has. He is now also personally liable to the Internal Revenue Service for payroll taxes due on the salary of all the company employees, because he is the corporate officer in charge of payroll.
While Mr. Avin handles the day-to-day financial affairs and planning for the company, Mr. Jacques Paul-Hus still handles supervision of the field work of the company on a day-to-day basis. Given Mr. Avin's experience in financial matters, and Mr. Paul-Hus' experience in field supervision, this division of responsibility is appropriate.
In return for taking on the additional responsibilities of becoming both the chief executive officer and chief financial officer of the company, and assuming the personal liabilities explained above, Mr. Avin now receives a 51 percent portion of the profits of the company. The remaining 49 percent of any profits goes to Jacques Paul-Hus and his wife Louise. Mr. Graham's interest is limited to the ownership of indebtedness of the company.
The second (current) application of J. P. Electrical Contractors for certification as a minority business enterprise was disapproved by the Department of Transportation on March 7, 1988. The certification review committee had been troubled by the restructuring of the affairs of J. P. Electrical Contractors Corp. to meet the departmental objections which had resulted in the first disapproval of minority certification. The Department is wary of changes in corporate control as indications of improper manipulation of disadvantage business enterprise requirements.
Here, Mr. Avin actually owns the majority of the stock of the contracting company and he shares both the risks of ownership as well as profits in proportion to his ownership. He has managerial authority commensurate with his majority ownership and has substantial experience in electrical contracting. He has the power to set the policies of the business, and his authority is not subject to any restriction, whether by a pledge of his stock or otherwise.
While Mr. Paul-Hus is responsible for field supervision, Mr. Avin's experience and authority in planning and financial matters, as well as his ability to set overall policy, places Mr. Avin in charge of the business. Mr. Avin's testimony that he is responsible and empowered to make business decisions without the concurrence of Mr. Paul-Hus is accepted.
While it is appropriate for the Department to be concerned about the restructuring of the corporation to meet the requirements of its program for disadvantaged business enterprises, the structure of J. P. Electrical Contractors is such that Mr. Avin does have ownership and control of the firm.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over this matter. Section 120.57(1), Florida Statutes.
A number of the subsections of Rule 14-78.005, Florida Administrative Code, affect the decision in this matter. Rule 14-78.005(3)(c) provides:
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.
The socially and economically disadvantaged owners shall enjoy the customary incidence of ownership and shall share in the risks and profits commensurate with their ownership interests, as demonstrated by an examination of the substance rather than form of financial and managerial arrangements. 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.
Mr. Avin has the real control and not merely pro forma ownership of the firm, and shares both the risks and profits of the enterprise; subsection (c) of the rule is met.
16. Rule 14-78.005(3)(d) provides:
For purposes of establishing a corporation as a certified DBE under this rule chapter, all securities which constitute ownership or control by socially and economically disadvantaged individuals shall be held directly by socially and economically disadvantaged individuals. No securities held in trust, or by any guardian for a minor, shall be considered as held by socially or economically disadvantaged individuals in determining the ownership or control of a corporation...
Mr. Avin does own, outright, the securities giving him majority control of the corporation. This portion of the rule has been satisfied.
17. Rule 14-78.005(3)(e) provides:
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 provision, 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 or 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...
Mr. Avin has the power to direct the day-to-day operations of the firm and to make major business decisions without any formal or informal limits on his managerial discretion. The opinions of Mr. Paul-Hus, who is the senior manager with the greatest experience in field operations, would doubtlessly be an important consideration in any of Mr. Avin's decisions, but it is Mr. Avin, not Mr. Paul-Hus, who sets corporate policy.
17. Rule 14-78.005(3)(f) provides:
To be certified under this rule chapter, the DBE shall be one in which the contributions of capital or expertise invested by the socially and economically disadvantaged individual owners are real and substantial. Examples of insufficient contributions include, but are not limited to, a
promise to contribute capital, a note payable to the DBE enterprise or its owners who are neither socially and economically disadvantaged individuals, or the mere participation as an employee, rather than as a decision- maker...
Mr. Avin has made contributions of expertise which are real and substantial to
J. P. Electrical Contractors Corp. The rule does not require that he make a monetary contribution as opposed to the contribution of his services. He has taken on substantial personal liabilities in connection with his ownership of the business. He is not a mere employee but is the real decision maker in the company. This portion of the rule has been satisfied.
18. While Rule 14-78.005(3)(g), Florida Administrative Code, specifically requires the Department to closely scrutinize actions involving firms whose ownership or control has recently changed, there is nothing in the restructuring of J. P. Electrical Contractors which undercuts the findings made with respect to the substantial portions of the rule quoted above. It is true that those who have been involved in the ownership of J. P. Electrical Contractors Corp. made an effort to avail themselves of the advantages of the disadvantaged business enterprise program. They have done so in the hope that that program will not only achieve its purpose of permitting a corporation actually owned and managed by Mr. Avin to participate in contracts let by the Department of Transportation, but will also allow them to participate in the profits to be derived from the corporation while under Mr. Avin's majority ownership and control.
RECOMMENDATION
It is RECOMMENDED that the application of J. P. Electrical Contractors Corp. for certification as a disadvantaged business enterprise be GRANTED.
DONE AND ENTERED in Tallahassee, Leon County, Florida, this 30th day of June, 1988.
WILLIAM R. DORSEY, JR.
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 30th day of June, 1988.
COPIES FURNISHED:
Mr. Mario Avin
J. P. Electrical Contractors Corp. 877 Northwest 61st Street
Fort Lauderdale, Florida 33309
James W. Anderson, Esquire Department of Transportation Haydon Burns Building, M.S. 58 605 Suwannee Street
Tallahassee, Florida 32399-0458
Kaye N. Henderson, Secretary Department of Transportation Haydon Burns Building, M.S. 58 605 Suwannee Street
Tallahassee, Florida 32399-0458
Thomas H. Bateman, III General Counsel
Department of Transportation Haydon Burns Building, M.S. 58 605 Suwannee Street
Tallahassee, Florida 32399-0458
Docket for Case No: 88-000590
Orders for Case No: 88-000590
| Issue Date |
Document |
Summary |
|
Jul. 28, 1988 |
Agency Final Order
|
|
|
Jun. 30, 1988 |
Recommended Order
|
Minority Business Enterprise (MBE) status granted. Long term black employee who served as Chief Financial Officer became owner to keep him from leaving and to give corporation the advantage of MBE status.
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