R. PERNINI, INC., )
vs. ) CASE NO. 88-1371
Respondent. )
Pursuant to notice, a formal hearing was conducted in this case on June 27, 1988, at, Gainesville, Florida, before Michael M. Parrish, a duly designated Hearing Officer of the Division of Administrative Hearings. Appearances for the parties at the hearing were as follows:
FOR PETITIONER: Raymond M. Ivey, Esquire
Rakusin and Ivey, P.A.
703 N. Main Street, Suite A Gainesville, Florida 32601
FOR RESPONDENT: Deborah S. Rose, Esquire
The basic issue in this case is whether the Petitioner is entitled to certification as a minority business enterprise. The primary area of dispute relates to whether Katherine A. Pernini, who owns 51 per cent of the stock in the Petitioner corporation, actually controls the management and daily operations of the Petitioner corporation.
At the final hearing the Petitioner presented the testimony of several witnesses and also offered several exhibits which were received in evidence. The Respondent did not call any additional witnesses, but did offer several exhibits which were received in evidence. Subsequent to the hearing a
transcript of the proceedings at hearing was filed with the Hearing Officer, and thereafter both parties filed timely proposed recommended orders containing proposed findings of fact and conclusions of law. The proposed recommended orders have been carefully considered during the preparation of this recommended order and specific rulings on all findings of fact proposed by the parties are contained in the attached Appendix.
Based on the stipulations of the parties and on the evidence received at the final hearing, I make the following findings of fact.
The Petitioner, R. R. Pernini, Inc., is a Florida corporation, having been incorporated under the laws of Florida in 1985. The principal place of business of R. R. Pernini, Inc., is 605 Northwest 53rd Avenue, Gainesville, Florida. The corporation engages in the business of commercial electrical and plumbing contracting. The corporation has fewer than 25 permanent full-time employees.
The only stockholders of the Petitioner corporation are Katherine A. Pernini and Richard R. Pernini, her husband. Katherine A. Pernini is a minority person and is the owner of 51 per cent of the stock of R. R. Pernini, Inc. Richard R. Pernini is a non-minority person and he owns the remaining 49 per cent of the stock of the Petitioner corporation. Richard R. Pernini was the sole incorporator of R. R. Pernini, Inc., when it was initially incorporated.
It was decided he would be the sole incorporator because, as explained by Katherine A. Pernini, ". . . if we wanted to get any work, and we wanted to have any credibility, then a man had-to run the construction business," and, as explained by Richard R. Pernini, ". . . we both felt that it would be to our advantage as a business to maintain the male image. "
Richard R. Pernini is the president of R. R. Pernini, Inc. Katherine
A. Pernini is the vice-president, secretary, and treasurer of R. R. Pernini, Inc. Richard R. Pernini and Katherine A. Pernini were the initial board of Directors of R. R. Pernini, Inc. They are currently the only directors of the Petitioner corporation and are the only directors the Petitioner corporation has ever had.
Prior to the incorporation of R. R. Pernini, Inc., in 1985, the two owners were engaged in the same business, operating as a partnership. The business was started in 1972. Prior to incorporation of the business, Katherine
A. Pernini worked with Richard R. Pernini in various capacities performing duties such as drafting, sales, bookkeeping and accounting. Richard R. Pernini's duties consisted primarily of building contracting and supervision of building. Katherine A. Pernini also performed field work in the electrical and plumbing areas for approximately three and a half years prior to the incorporation of the Petitioner corporation. Since incorporation, all of the electrical and plumbing work has been performed by persons other than Katherine
A. Pernini and Richard R. Pernini. R. R. Pernini, Inc., presently employs five licensed electricians and three licensed plumbers who perform the actual electrical and plumbing work for the corporation.
Richard R. Pernini is licensed by the State of Florida as a general contractor, as an electrical contractor, and as a plumbing contractor. Section 489.119(2), Florida Statutes (1987), requires that a corporation that engages in the business of contracting must apply for a license through a "qualifying agent." Richard P. Pernini is the qualifying agent for R. R. Pernini, Inc. He obtained these licenses at the urging of Katherine A. Pernini.
Katherine A. Pernini is not licensed by the State of Florida as a general contractor, as an electrical contractor, or as a plumbing contractor, nor does she hold journeyman or master certificates as either a plumber or an electrician. She does, however, have practical experience in performing the
work of both a plumber and an electrician under the supervision of Richard R. Pernini prior to the incorporation of the business.
Katherine A. Pernini participates in the interviewing of prospective employees. However, the evidence is insufficient to establish that she controls the hiring and firing of employees or that she has the authority to hire and fire employees.
The Petitioner corporation has two estimators, an electrical estimator and a plumbing estimator, who prepare bids for the Petitioner along with either Richard R. Pernini or Katherine A. Pernini. Richard A. Pernini oversees and supervises the work of the corporation's two estimators.
Katherine A. Pernini and Richard R. Pernini both personally guarantee many, if not all, of the loans made to the Petitioner corporation. Both Katherine A. Pernini and Richard R. Pernini are authorized to sign checks for the Petitioner corporation. Both Katherine A. Pernini and Richard R. Pernini supervise the corporation's purchasing agent.
Katherine A. Pernini is a general manager, primarily responsible for administrative activities of the Petitioner corporation's business activities. She performs and supervises administrative and office duties regarding the Petitioner corporation's business activities. Richard R. Pernini is a general manager of building construction for the Petitioner corporation.
Katherine A. Pernini does not supervise the actual electrical or plumbing work of the Petitioner corporation. She does not independently control the corporation's contracting activities, nor does she independently control the financial affairs of the corporation.
Article IV, Section 3, of the Bylaws of R. R. Pernini, Inc., provides, among other specified duties and powers, that the president shall execute bonds, mortgages, and other contracts on behalf of the corporation. That same provision of the bylaws also provides that the president shall be the chief executive officer of the corporation, shall have the general powers and duties of supervision and management usually vested in the office of president of a corporation, and shall have general supervision, direction, and control of the business of the corporation.
Article IV, Section 4, of the Bylaws of R. R. Pernini, Inc., provides that during the absence or disability of the president, the vice-president, if one be elected, or if there are more than one, the executive vice-president, shall have all the powers and functions of the president. It further provides that each vice-president shall perform such other duties as the board shall prescribe.
Article VI of the Articles of Incorporation of R. R. Pernini, Inc. provides that initially the corporation would have two directors, but further provides that the directors may be increased or decreased from time to time by vote of the stock- holders, but in no case shall the number of directors be less than two.
Article III, Section 1, of the Bylaws of R. R. Pernini, Inc., provides that the business of the corporation shall be managed and its corporate powers exercised by a hoard of two directors. And Article III, Section 6, of those bylaws provides that a majority of the directors shall constitute a quorum for the transaction of business.
CONCLUSIONS OF LAW
Based on the foregoing findings of fact and on the applicable legal principles, 1 make the following conclusions of law.
The Division of Administrative Hearings has jurisdiction over the subject matter of and the parties to this proceeding. Sec. 120.57(1), Fla. Stat.
The Petitioner seeks approval of certification as a minority business enterprise. The burden of proving such entitlement is on the Petitioner. Rule 28-6.008, Florida Administrative Code, and Florida Department of Transportation
v. J.W.C. Company, Inc., 396 So.2d 778 (Fla. 1st DCA 1981).
A "minority business enterprise" is defined by Section 288.703, Florida Statutes, as:
ny 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 and
*whose management and daily operations are controlled by such persons*. (Emphasis
added between *.)
In this case, there is no question that a "minority person" (Katherine
A. Pernini), as defined in Section 288.703(3)(f), Florida Statutes (1987), owns at least 51 percent of the stock of the Petitioner. The issue is whether Katherine A. Pernini controls the management and daily operations of the Petitioner.
The Respondent has promulgated Rule 13-8.005(3), Florida Administrative Code, which sets out certain factors to be considered in determining the issue in this case:
An applicant must establish that the minority owners possess control over the management and daily operations of the business. The Department will consider the following factors:
Whether the minority owners have control over the purchase of goods, equipment, business inventory and services needed in the day-to-day operation of the business.
Whether the minority owners have the authority to hire and fire employees.
Whether the minority owners have a knowledge of the financial structure of the business and control over all financial affairs.
Whether the minority owners control business accounts - checking, savings, and other financial affairs.
Whether the minority owners have the capability, knowledge, and experience
required to make decisions regarding that particular type of work.
Whether the minority owners have displayed independence and initiative in seeking and negotiating contracts, accepting and rejecting bids and in conducting all major aspects of the business.
As noted in the Recommended Order in Barton S. Amey Company, Inc., v. Department of General Services, DOAH Case No. 86-3954, DGS Final Order, April 21, 1987:
The factors included in Rule 13-8.005(3), Florida Administrative Code, can be grouped into three general categories. First, the minority person must have control over the purchase of goods, equipment, business inventory and services, control over all financial affairs and business accounts and authority to hire and fire. The term "control" has been defined as "to exercise authority over; direct; command."
"Authority" has been defined as "the power or a right to command, act, enforce obedience, or make final decisions; jurisdiction.
Webster's New Twentieth Century Dictionary, Unabridged 1980.
The Petitioner is a Florida corporation. It is therefore governed by the provisions of Chapter 607, Florida Statutes (1987). Chapter 607, Florida Statutes (1987) , provides:
Board of directors, exercise of corporate powers.
(1) All corporate powers shall be exercised by or under the authority of, and the business and affairs of a corporation shall be managed under the direction of, a board of directors, except as may be otherwise provided in this chapter or in the articles of incorporation. If any such provision is made in the articles of incorporation, the powers and duties conferred or imposed upon the board of directors by this chapter shall be exercised or performed to such extent and by such
person or persons as shall be provided in the articles of incorporation.
Section 607.121, Florida Statutes (1987), provides:
Director quorum and voting.--A majority of the number of directors fixed by, or in the manner provided in, the bylaws or, in the absence of a bylaw fixing or providing for the number of directors, then of the number stated in the articles of incorporation shall
constitute a quorum for the transaction of business, unless a greater number is required by the articles of incorporation or the bylaws. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless the act of a greater number is required by the articles of incorporation or the bylaws.
The evidence in this case proves that Katherine A. Pernini and Richard
R. Pernini are the only directors of the Petitioner. The corporate bylaws indicate that the business of the corporation shall be managed and its corporate powers exercised by the board of two directors. Because there are only two directors, they both must agree as to how to exercise the Petitioner's powers. Katherine A. Pernini nor Richard R. Pernini alone has the present power or authority to exercise the corporate powers of the Petitioner. As noted in Barton S. Amey Company, Inc. v. Department of General Services, supra, in discussing a virtually identical situation:
Because there are only two directors, they must both agree how to exercise the Petitioner's powers. Neither Dr. Haas-Amey or Mr. Amey has the power or authority to exercise the corporate powers of the Petitioner. Therefore, even though Dr. Haas- Amey has been making decisions on behalf of the corporation, such decisions have been made as a director with the tacit approval of the other director, Mr. Amey, or such decisions have been made without the approval of both directors of the Petitioner.
Katherine A. Pernini's control over the management of the Petitioner corporation is further eroded by the fact that Richard R. Pernini is, and always has been, the president of the Petitioner. Pursuant to the bylaws of the Petitioner corporation, Richard R. Pernini, in his capacity as president, ". .
. shall be the chief executive officer of the corporation and shall have the general powers and duties of supervision and management usually vested in the office of president of a corporation." Those bylaws also provide that the president shall have general supervision, direction, and control of the business of the corporation." In view of these powers vested in the president, any control of the Petitioner corporation exercised by Katherine A. Pernini has been either with the expressed or tacit approval of Richard R. Pernini or has been exercised invalidly.
There are additional reasons for concluding that Katherine A. Pernini does not possess control over the management and daily operations of the business. In this regard attention is especially directed to the recommended orders in Barton S. Amey Company, Inc. v. Department of General Services, supra, and David Nixon, Inc. v. Department of General Services, DOAH Case No. 87-0248 (Recommended Order issued 6/24/87), both of which involve factual circumstances remarkably similar to those in the instant case. With regards to some of the other factors set forth in Rule 13-8.005(3), the following from the Barton S. Amey Company, case is equally applicable here:
Although she may be making decisions with regard to purchasing, corporate financial affairs and hiring and firing, it has not been proved that she has the requisite authority or power to be in control of those activities. The evidence also failed to prove that Dr. Haas-Amey [the female stockholder] has control over the Petitioner's business accounts. All the evidence proved was that she signs most of the checks drawn on the Petitioner's accounts. Mr. Amey [the male president] also has the authority to sign such checks.
Therefore, Dr. Haas-Amey does not control the Petitioner's business accounts.
The facts in this case are sufficiently similar to compel the same conclusions.
The applicable rules require that the minority person must have displayed independence and initiative in seeking and negotiating contracts, accepting and rejecting bids and in conducting all major aspects of the business. The evidence shows that most of the Petitioner's contracts are entered into as a result of responses to invitations to bid. Bids submitted to contractors by Petitioner are prepared by the company's two estimators with either Richard Pernini or Katherine A. Pernini adding a fixed overhead rate, labor cost, and profit margin. There was no evidence presented which shows that Katherine A. Pernini determines what the overhead costs or other set rates for labor or profit are. At most, all the evidence proves is that Katherine A. Pernini may, at times, be one of the two owners to supply the amounts of overhead costs, labor, and profit to complete a bid. The evidence failed to prove that Katherine A. Pernini has displayed independence and initiative in seeking and negotiating contracts, accepting and rejecting bids, and conducting all major aspects of the business.
Section 489.119(2), Florida Statutes, requires that a corporation engaging in contracting must apply for licensure through a qualifying agent and must show that the qualifying agent is legally qualified to act for the business in all matters connected with its contracting business and that the qualifying agent has the authority to supervise construction undertaken by that business. Further, Section 489.105, Florida Statutes, provides:
`Qualifying agent' means a person who possesses the requisite skills, knowledge, and experience, and has the responsibility, to supervise, direct, manage, and control the contracting activities of the business entity with which he is connected; who has the responsibility to supervise, direct, manage, and control construction activities on a job for which he has obtained the building permit; and whose technical and personal qualifications have been determined by investigation and examination as provided in this act, as attested by the department.
Petitioner failed to prove that Katherine A. Pernini controls the contracting activities and the construction activities of the Petitioner.
In George R. Jones and South Florida Roofing, Inc. v. Department of General Services, DOAH Case No. 87-4943, July 8, 1988, the facts pertaining to the ownership interest and the qualifying agent were essentially the same as in this case. The minority person in South Florida Roofing owned 51 per cent of the shares and the non-minority person owned 49 per cent of the shares. The minority person had worked in the construction industry for eleven years; however, he did not hold a license. The non-minority person was licensed and served as the qualifying agent for the business. The same is true in this case. The hearing officer found that
The qualifying agent of [the business], by law, . . . is the person who has proven himself to have the capability and experience required to make decisions regarding [the business] contracting activities. Further, he is the person who, by law, has the responsibility to supervise and control the contracting activities and the construction activities of [the business]. Although [both owners] testified that [the minority owner] is in charge of those things, by law [the qualifying agent] is.
Based upon all the foregoing, it is concluded that the Petitioner corporation has failed to prove that Katherine A. Pernini controls the management and daily operations of the Petitioner as required by Section 288.703, Florida Statutes, and Rule 13-8.005, Florida Administrative Code.
