STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MCNEW MARINE CONSTRUCTION, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 89-1496

) DEPARTMENT OF TRANSPORTATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was conducted in this case on June 6, 1989 in Miami, Florida, before the Division of Administrative Hearings, by its duly designated Hearing Officer, J. Stephen Menton.

APPEARANCES

For Petitioner: David Elder, Esquire

Georgina R. Pozzuoli, Esquire LEIBY AND ELDER

290 Northwest 165th Street, Penthouse 2 Miami, Florida 33169

For Respondent: Ruth B. Dillard, Esquire

Department of Transportation

Haydon Burns Building, Mail Station 58 Tallahassee, Florida 32399-0458

STATEMENT OF THE ISSUES

The issue in this case is whether Petitioner is entitled to certification as a Disadvantaged Business Enterprise pursuant to Rule 14-78, Florida Administrative Code.

PRELIMINARY STATEMENT

Petitioner applied to Respondent for certification as a Disadvantaged Business Enterprise. By letter dated February 22, 1989, Respondent informed Petitioner that its application had been denied because Respondent had determined that the minority owner did not exercise control of the firm nor possess the power to direct or cause the direction of day to day operations as required by Rule 14-78.005, Florida Administrative Code. By letter dated February 28, 1989, Petitioner requested a formal hearing.

At the hearing, Petitioner presented the testimony of Edward Toppino, Jr., (Vice President and Chief Estimator for a construction company which has done business with the Petitioner in this case); Robert J. Larkey (a certified public accountant who has provided accounting services to Petitioner); Michael J. Miles, (Vice President and five percent owner of Petitioner); and Roberta McNew

(Chief Executive Officer and ninety five percent owner of Petitioner.) Petitioner's Exhibit 1, (a composite consisting of business correspondence, contracts, etc., executed by Roberta McNew on behalf of the company) was admitted into evidence without objection.

Respondent called one witness, Pete Davis, (the Disadvantaged Business Enterprise Certification Coordinator for Respondent.) Respondent's Exhibits 1 and 2 were admitted into evidence.

A transcript of the proceedings was filed with the Division of Administrative Hearings on June 14, 1989. Both parties have timely filed proposed findings of fact and conclusions of law. Those proposed findings of fact and conclusions of law have been considered and utilized in the preparation of this Recommended Order except where such proposals were not supported by the weight of the evidence or were immaterial, cumulative, or subordinate. Specific rulings on the parties' proposed findings of fact are contained in the Appendix to this Recommended Order.

FINDINGS OF FACT

Based upon my observation of the witnesses, their demeanor while testifying, the documentary evidence received and the entire record compiled herein, I make the following findings of fact:

1. Petitioner, McNew Marine Construction Company, Inc. (McNew Marine), a Florida corporation engaged in the business of building bridges and grade separation structures, applied to the Respondent, Department of Transportation (DOT) for certification as a Disadvantaged Business Enterprise (DBE).

   
   

2. McNew Marine is a small business concern with gross annual receipts of under two million dollars for the fiscal year ending August 31, 1988. There is no dispute that McNew Marine qualifies as a "small business concern" which is a necessary element of establishing entitlement to DBE status.

   
   

3. Roberta McNew is a socially and economically disadvantaged individual (a woman) as that term is defined in Rule 14-78, Florida Administrative Code.

   
   

4. Roberta McNew owns 95 percent of the stock of McNew Marine and is the Chief Executive Officer of the company. As set forth below, she handles the administrative and financial matters for the company. Her current salary with McNew Marine is $30,000 per year.

   
   

5. Michael Miles owns five percent of McNew Marine. Roberta McNew negotiated with Michael Miles regarding the 5 percent interest in the company that was sold to him. Michael Miles holds the title of Vice President and is a field superintendent for the company. He has a degree in building construction and twelve years of marine construction experience. His salary with McNew Marine is $62,500 per year.

   
   

6. Roberta McNew's husband, James (Rick) McNew is President and Chief Operating Officer of McNew Marine. Rick McNew does not own any of the stock of McNew Marine. Rick McNew provides field supervision on many of the company's projects and oversees many of the technical, construction aspects of the firm's business. Rick McNew has a degree in mechanical engineering and considerable experience in the civil engineering field. His salary with McNew Marine is

   $62,500 per year.

7. Michael Miles and Rick McNew previously worked together in another marine construction company.

   
   

8. Under the bylaws of McNew Marine, all corporate powers, business and financial affairs are exercised, managed and directed under the authority of the Board of Directors of the corporation. The Board of Directors for McNew Marine is composed of Roberta McNew and Rick McNew. Roberta McNew, as the majority shareholder, can control the number of directors and the composition of the Board of Directors by following the procedural steps outlined in the bylaws of the corporation. In reality, there are no regular Board of Directors' meetings and the company operates informally with Roberta McNew exercising ultimate control over the company.

   
   

9. Roberta McNew graduated from Queens College in New York City with a major in education and a minor in psychology. Subsequent to obtaining her degree, Roberta McNew worked for approximately ten years for a large development company handling a range of business and financial matters including cost accounting for depreciable assets, payroll and general corporate accounting.

   
   

10. While working for the development company, Roberta McNew took additional college level classes in computers and accounting. She is presently five courses short of obtaining a degree in computer science. Roberta McNew's work experience with the development company included extensive work with computers including the computerization of payroll systems, receivables, and other accounting functions.

    
    

11. Roberta McNew first conceived of the idea of starting McNew Marine Construction during conversations with Michael Miles.

    
    

12. Roberta McNew has long had a desire to own and operate her own company. While her husband and Michael Miles have considerable construction experience, they had previously always worked for large construction companies and had not operated a business. Neither Rick McNew nor Michael Miles had the business background to operate their own company. Roberta McNew provides the financial and managerial experience necessary for the company to operate.

    
    

13. McNew Marine Construction was incorporated in the late summer or early fall of 1985. However, the business did not begin functioning until 1986. From the inception of the company, Robert McNew has owned at least ninety five percent of the stock.

    
    

14. All of Rick McNew and Roberta McNew's funds are jointly held. McNew Marine was started with an initial capital investment of $2,000 from funds held jointly by Roberta McNew and Rick McNew.

    
    

15. During the course of operations of the company over the last couple of years, Roberta McNew invested an additional $32,000 into the company through withheld salaries and other capital contributions. This additional $32,000 has been repaid by the company.

    
    

16. Roberta McNew spends at least 40 hours a week at the office of McNew Marine. Her responsibilities include financial and administrative matters. Roberta McNew does not have any direct experience in construction or, more specifically, the building of bridges. Roberta McNew very seldom visits the job sites. All of the field operations are supervised by Rick McNew and/or Michael Miles.

17. Roberta McNew controls the day-to-day office procedures including financial and bookkeeping matters and insurance issues. Roberta McNew selected the computer software program utilized by the company and has implemented the computerization of the payroll, accounts payable and general ledger of McNew Marine. Neither Rick McNew nor Michael Miles is familiar with or has the ability to run the company computers.

    
    

18. Michael Miles and Rick McNew prepare job cost estimates based upon plans and bid proposals received by the company. After reviewing these estimates, Roberta McNew determines the profit margins to be placed on the bids and determines which jobs will actually be bid. Roberta McNew does not attend bid lettings. Michael Miles and Rick McNew handle all bid lettings for the company.

    
    

19. Roberta McNew monitors and reconciles the check book of McNew Marine, but Michael Miles and Rick McNew have unlimited check writing authority.

    
    

20. Roberta McNew determines the cost efficiency of buying or leasing equipment and decides whether the company can absorb the cost of purchasing new equipment. In determining the type and need for equipment, Roberta McNew depends upon Michael Miles and Rick McNew. However, Roberta McNew makes the ultimate decision to purchase or lease equipment. Roberta McNew handles negotiations regarding lease and purchase agreements for heavy equipment, office trailers and office supplies.

    
    

21. Roberta McNew sets the salaries for the company. While Michael Miles and Rick McNew usually handle the actual hiring of laborers, carpenters, and other workers. Roberta McNew has ultimate control over hiring and firing in that she decides when the corporation can afford to hire more employees and when the corporation should hire such employees in order to generate more income.

    
    

22. Roberta McNew coordinates all outside accounting services for the company. She also prepares all requisitions for payment and reviews and coordinates all payments to creditors. She has also coordinated efforts to obtain performance and non-payment bonds for the company.

    
    

23. Roberta McNew is involved in the scheduling of work on the projects to the extent necessary to meet anticipated cash flow requirements.

    
    

24. Roberta McNew coordinates the documentation of and requests for change orders.

    
    

25. Roberta McNew prepares and furnishes all information necessary to comply with D.O.T. regulations and E.E.O. regulations.

    
    

26. Over the objection of Michael Miles and Rick McNew, Roberta McNew established a corporate policy to cease engaging in marina work and confined the operations of the business to bridge and grade separation structures. The decision to quit handling "water work" was made by Roberta McNew following a review of the insurance rates associated with handling that type of work.

    
    

27. While Michael Miles and Rick McNew coordinate most field decisions and activities, the general contractors who have subcontracted work with McNew Marine deal primarily with Roberta McNew regarding financial, administrative and other business matters.

28. Edward Toppino, Jr., is the vice president and chief estimator for Toppino's, Inc., a construction company which has used McNew Marine as a subcontractor on some D.O.T. projects. He has primarily dealt with Roberta McNew regarding all business dealings his firm has had with McNew Marine and states that she has been more involved with the business than the owners of more than 90 percent of the DBE's with whom his company has dealt with over the last few years.

    
    

29. The ownership and control exercised by Roberta McNew over the operations of McNew Marine are real, substantial, and continuing and not merely pro forma.

    
    

    CONCLUSIONS OF LAW

    
    

30. The Division of Administrative Hearings has jurisdiction over the subject matter of and the parties to this proceeding. Section 120.57(1), Florida Statutes (1987).

31. Pursuant to Sections 339.0805, 337.125, 337.135 and 337.137, Florida Statutes, (1987), the Respondent administers a certification program which certifies applicants as DBEs. DBEs are accorded competitive advantages and preferential treatment because they are eligible to participant in the Department of Transportation's Sheltered Program of set-aside contracts under DBE subcontract goals.

1. DBEs are small business concerns that are owned and controlled by socially and economically disadvantaged individuals as defined by the Federal Surface Transportation and Uniform Relocation Assistance Act of 1987, (STURRA),

   23 U.S.C. 101 et seq.

2. Chapter 339, Florida Statutes, (1987) provides in pertinent part: "339.0805(b) ... It is the policy of the

   state to meaningfully assist socially and

   economically disadvantaged business enterprises through a program that will provide for the development of skills through business management training, as well as financial assistance in the form of bond guarantees, to primarily remedy the effects of past economic disparity ...

   
   

3. The United States Department of Transportation has promulgated 49 CFR, Part 23, to implement STURRA and provide guidelines for state "recipients" who receive federal highway funds. Relevant provisions of 49 CFR, Part 23 are:

   
   

   Section 23.61 Purpose.

   1. The purpose of this subpart is to implement section 105(f) of the Surface Transportation Assistance Act of 1982. (Pub.

      L. 97-424) so that except to the extent that the Secretary determines otherwise, not less than ten percent of the funds authorized by the Act for the programs listed in section

      23.63 of this subpart is expended with small

      business concerns owned and controlled by socially and economically disadvantaged individuals.

      
      

      Section 23.62 Definitions.

      The following definitions apply to this subpart. Where these definitions are inconsistent with the definitions of Section

      23.5 of this part, these definitions control for all other purposes under this part.

      
      

      "Act" means the Surface Transportation Assistance Act of 1982 (Pub. L. 97-424). "Disadvantaged business" means a small

      business concern: (a) which is at least 51 percent owned by one or more socially and economically disadvantaged individuals, or, in the case of any publicly owned business, at least 51 percent of the stock of which is owned by one or more socially and economically disadvantaged individuals; and

   2. whose management and daily business operations are controlled by one or more of the socially and economically disadvantaged individuals who own it.

      "Small business concern" means a small business as defined pursuant to section 3 of the Small Business Act and relevant regulations promulgated pursuant thereto.

      
      

4. Chapter 14-78, Florida Administrative Code, is the Rule which implements STURRA at the state level and basically restates the above federal standards in all parts relevant here.

   
   

5. Thus, Rule 14-78.002(3) defines a DBE as a small business concern meeting two criteria. A DBE must be at least 51 percent owned by "one or more socially and economically disadvantaged individuals" (with a similar requirement in the case of a publicly owned business) and the "management and daily business operations [of the DBE] must be controlled by one or more of the socially and economically disadvantaged individuals who own it."

   
   

6. Women are presumed to be socially and economically disadvantaged under the rule. Rule 14-78.002(1)(f), Florida Administrative Code. There is no question that the Petitioner meets the first prong of the definition of "Disadvantaged Business Enterprise," (Rule 14-78.002(3)(a) quoted above) since ninety five percent of the voting common stock is held by a woman. However, ownership of more than 50 percent of the stock of a company by an economically disadvantaged individual does not automatically entitle that company to participate in the DBE program.

   
   

7. The Respondent has raised a concern as to whether Petitioner meets the second prong of the test, i.e., whether the management and daily control of the business operations sufficiently rests with the socially and economically disadvantaged individual owner. Specifically, Respondent contends that because Roberta McNew has no experience or expertise in construction matters, she can not control the business on a day-to-day basis, primarily because she can not question the technical decisions made.

8. Petitioner must prove by a preponderance of the evidence that it is entitled to certification as a DBE. See, Florida Department of Transportation vs, J.W.C. Co., Inc., 396 So.2d 778 (Fla. 1st DCA 1981).

   
   

9. Rule 14-78.005(7) set forth the standards for certification of a DBE. Rule 14-78.005(7)(c) requires that the DBE be an "independent business entity" and the ownership and control exercised by the socially and economically disadvantaged individuals must be "real, substantial, and continuing ... and go beyond mere pro forma ownership...

   
   

   Rule 14-78.005(7)(c) provides:

   
   

   ... 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, and other business relationships with non-DBE firms vary from industry practice.

   
   

10. Rule 14-78.005(7)(e) requires that the socially and economically disadvantaged owner have "the power to direct or to 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" in these areas. This subsection specifically recognizes that one factor to consider in making this determination is the control lodged in non- disadvantaged persons.

    
    

    (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 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...

    
    

11. Rule 14-78.005(7)(f) acknowledges that contributions of a disadvantaged owner may take the form of capital or expertise. The Rule also recognizes the possibility that other than minority owners may participate in the management of the business.

    
    

12. Rule 14-78.005(7)(f) provides that the contributions of "capital or expertise" invested in the DBE stock by the socially and economically disadvantaged must be real and substantial.

44. Rule 14-78.005(7)(g) provides:

1. In addition to the above standards, the Department shall give special

   consideration to the following circumstances:

   1. Newly formed firms and firms whose ownership or control has changed shall be closely scrutinized to determine the reasons for the timing of the formation of or change in the firm.

* * *

3. Any relationship between an

applicant and a non-DBE which has an interest in the enterprise seeking certification shall be carefully reviewed to determine if the interest of the non-DBE conflicts with the ownership and control requirements of this rule chapter...

1. The Rules recognize that a disadvantaged owner may not have sufficient experience to handle all aspects of the business. Without question, the day-to- day field activities of the company are controlled by Michael Miles and Rick McNew. However, it is equally clear that the business could not operate without the financial acumen and business knowledge of Roberta McNew. While the construction expertise of Michael Miles and Rick McNew is clearly essential to the ability of McNew Marine to carry out its business, the contributions and

   ultimate control of Roberta McNew have been clearly established. Roberta McNew makes the ultimate determinations regarding what projects will be bid, the final amount of the bids, and all significant financial decisions. Her authority to make binding decisions concerning all major aspects of the corporation including all financial decisions, coupled with her ownership of 95 percent of the stock from the inception of the company more than three years ago and her resultant ability to control the board of directors establishes that the management and daily business operations of the corporation are within her control. The ownership and control exercised by Roberta McNew is real, substantial and continuing. It is not merely a pro forma or sham management in ownership of the firm. Her active participation in the management of the business and its financial operations reflect the "customary incidence of ownership". Her business decisions have a very real and not a pro forma effect on how the business operates and whether or not it is successful. Thus, it must be concluded that she enjoys and shares in the customary incidence of ownership and the risks and profits of that business.

   
   

2. The relationship between Roberta McNew and her husband, who is president and chief operating officer of the corporation, must be carefully reviewed. The evidence established that the initial capital to start up the corporation came from joint funds owned by Roberta McNew and her husband. Moreover, the testimony reveals that all of their bank accounts are jointly owned. DOT contends that, because of this commingling, Rick McNew shares in the risks associated with the business even though he does not own any of the stock. However, this situation arises whenever a husband and wife commingle their bank accounts. The rules do not specifically address the situation of a husband and wife who are jointly involved in a business.

   
   

3. Respondent correctly points out that in all DBE cases, it is necessary to look at a totality of the circumstances in conjunction with the purposes of the program.

   
   

4. Although Roberta McNew acknowledged that it was unlikely that she would fire her husband in view of their marital relationship, she has the corporate authority to do so and could arguably continue the operations of the company by utilizing the expertise of the 5 percent owner, Michael Miles.

   
   

5. Certainly, one of the social disadvantages which the program is intended to address is the inability of members of certain groups to gain meaningful experience and expertise in these areas. The evidence is clear that Roberta McNew initiated the idea of forming the company and plays a real and substantial role in day-to-day operations. While the expertise of her husband will be an important factor in any success that the company experiences, it is equally clear that Roberta McNew's involvement is real and necessary. 1/

RECOMMENDATION

In consideration of the foregoing Findings of Fact and Conclusions of Law, it is

RECOMMENDED that a Final Order be entered certifying McNew Marine Construction, Inc. as a Disadvantaged Business Enterprise.

DONE and ORDERED this 23rd day of August, 1989, in Tallahassee, Florida.

J. STEPHEN MENTON Hearing Officer

Division of Administrative Hearings The Oakland Building

2900 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 23rd day of August, 1989.

ENDNOTE

1/ At the hearing, Pete Davis, (the DBE certification coordinator for Respondent) admitted during his testimony that, based on the information presented at the hearing, he would now vote to approve DBE certification from McNew Marine subject only to Roberta McNew making herself the sole director.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 89-1496

The following constitutes my specific rulings pursuant to Section 120.59(2) Florida Statutes, on the proposed findings of fact submitted by the parties in this case.

PETITIONER's PROPOSED FINDINGS OF FACT

Proposed Paragraph # in finding Recommended Order of

of fact # Acceptance or Reason for Rejection

#1 Accepted in Findings of Fact 1.

#2 Accepted in Findings of Fact 4 and 5.

#3 Accepted (as corrected by the Notice filed on June 27, 1989) in Findings of Fact 4 and 5

#4 Accepted in Findings of Fact 5 and 6. #5 Accepted in Findings of Fact 13.

#6 Adopted in the Preliminary Statement.

#7 Rejected as irrelevant to the issues in this proceeding.

#30 Rejected as constituting merely a summarization of testimony and not a Finding of Fact.

#31 Rejected as constituting a summarization of testimony and not a Finding of Fact.

#32 Rejected as constituting a summarization of testimony and not a Finding of fact.

RESPONDENT'S PROPOSED FINDINGS OF FACT

Proposed Paragraph # in finding Recommended Order of

of fact # Acceptance or Reason for Rejection

#1 Accepted in Findings of Fact 1.

#2 Adopted in the Preliminary Statement.

#3 Rejected as constituting background information which is not a relevant finding of fact in this proceeding.

#4 Rejected as constituting background information which is not a relevant finding of fact in this proceeding.

#21 Subordinate to Findings of Fact 20. #22 Accepted in Findings of Fact 20. #23 Accepted in Findings of Fact 4.

#24 Accepted in Findings of Fact 5. #25 Accepted in Findings of Fact 6. #26 Accepted in Findings of Fact 8. #27 Accepted in Findings of Fact 8. #28 Accepted in Findings of Fact 14.

#29 Rejected as Subordinate of Findings of Fact 15.

The evidence established that the $32,000 invested in the company arose at least in part from salaries that were not paid to Roberta McNew when the company was

experiencing cash shortages. Thus, that money was owed directly to Roberta McNew and was not "jointly owned" except to the extent that she subsequently chose to commingle those funds with other accounts that she jointly owned with her husband.

#30 Rejected as unsupported by competent substantial evidence.

COPIES FURNISHED:

David Elder, Esquire LEIBY AND ELDER

Penthouse 2

290 Northwest 165th Street Miami, Florida 33169

Ruth B. Dillard, Esquire Department of Transportation Haydon Burns Building, M.S. 58 Tallahassee, Florida 32399-0458

Docket for Case No: 89-001496

Orders for Case No: 89-001496