STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF TRANSPORTATION, )

)

Petitioner, )

)

vs. ) CASE NO. 89-1869

)

HILL MILLING, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

This case came before Larry J. Sartin, a duly designated Hearing Officer of the Division of Administrative Hearings, upon a Joint Stipulation filed in this case on May 1, 1989.

APPEARANCES

For Petitioner: Mary M. Piccard, Esquire

Albert C. Penson, Esquire Cummings, Lawrence & Vezina, P.A. Post Office Box 589

Tallahassee, Florida 32399-0589

For Respondent: Ruth B. Dillard, Attorney

Department of Transportation

Haydon Burns Building, Mail Station 58 605 Suwannee Street

Tallahassee, Florida 32399-0458 STATEMENT OF THE ISSUES

Whether the Respondent, Hill Milling, Inc., no longer qualifies as a disadvantaged business enterprise?

PRELIMINARY STATEMENT

The Petitioner, the Department of Transportation (hereinafter referred to as the Department), informed the Respondent, Hill Milling, Inc. (hereinafter referred to as "Hill Milling"), by letter dated February 22, 1989, that it no longer qualified as a disadvantaged business enterprise. By letter dated March 8, 1989, Hill Milling requested a formal administrative hearing to contest the Department's determination. The request for hearing was forwarded to the Division of Administrative Hearing by letter dated April 5, 1989.

The Department was originally designated as the Respondent in this case by the Department and the clerk's office of the Division of Administrative Hearings. The Department, however, has the burden of proof in this case and should therefore be designated as the Petitioner. The style of this case has been corrected to reflect the proper status of the parties.

A hearing was conducted on May 19, 1989, in Tallahassee, Florida. The parties agreed at the hearing, as agreed to in their Joint Stipulation, that the parties would stipulate to the facts in this case, that they would file proposed recommended orders and that the undersigned would prepare this Recommended Order based upon the stipulated facts of the party.

FINDINGS OF FACT

The following findings of fact were stipulated to be the relevant facts in this case by the parties and are hereby adopted:

1. Mr. Joseph E. Hill owns and controls Hill Milling, Hill Marking, Inc., and J. E. Hill Contractor, Inc. These three companies were certified as disadvantaged business enterprises (hereinafter referred to as "DBE") for the years 1985, 1986 and 1987.

   
   

2. The only issue to be determined in this proceeding is whether the [Department] properly revoked [Hill Milling's] DBE certification based on the determination that [Hill Milling] had graduated from the program.

   
   

3. Hill Milling is classified in the DBE program as a special trade contractor.

   
   

4. J. E. Hill Contractor, Inc., is classified as a heavy construction contractor.

   
   

5. Hill Marking, Inc., is classified as a special trade contractor.

   
   

6. The gross receipts of Hill Milling for the three previous fiscal years are as follows:

   
   

   Fiscal year ending 12/30/85	$ 3,365.268.00
   Fiscal year ending 12/30/86	2,564,577.00
   Fiscal year ending 12/30/87	2,825,340.00

   
   

7. The gross receipts of J. E. Hill Contractor, Inc., for the three previous fiscal years are as follows:

   
   

   Fiscal year ending 12/30/85	$ 5,534,741.00
   Fiscal year ending 12/30/86	6,155,063.00
   Fiscal year ending 12/30/87	5,723,331.00

   
   

8. The gross receipts for Hill Marking, Inc., for the previous three fiscal years are as follows:

   
   

   Fiscal year ending 12/30/85	$ 1,258,381.00
   Fiscal year ending 12/30/86	1,011,951.00
   Fiscal year ending 12/30/87	865,583.00

   
   

   CONCLUSIONS OF LAW

   
   

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

10. Section 339.0805(1)(a), Florida Statutes (1987), requires that the Department spend 10% of amounts expended by the Department from the State Transportation Trust Fund with "disadvantaged business enterprises" or small business concerns owned and controlled by socially and economically disadvantaged individuals. The qualification standards and procedures for disadvantaged business enterprises are provided in Rule 14-78, Florida Administrative Code.

    
    

11. Section 14-78.002(3), Florida Administrative Code, defines the terms "disadvantaged business enterprise" as:

    
    

    1. "Disadvantaged business enterprise" or "DBE" means a *small business concern*:

       1. Which is at least 51 percent owned by one or more socially and economically disadvantaged individuals, or, in the case of a 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. [Emphasis added between *).

          
          

12. A "socially and economically disadvantaged individual" is defined by Rule 14-78.002(1), Florida Administrative Code. The Department has not disputed that Hill Milling, the Respondent in this case, J. E. Hill Contractor, Inc., and Hill Marking, Inc., all of which are owned 100% by Joseph E. Hill, are owned and controlled by a socially and economically disadvantaged individual. The Department does not dispute this conclusion. Nor does the Department dispute the fact that Hill Milling, Hill Marking, Inc., and J. E. Hill Contractor, Inc., were qualified DBE's for their fiscal years ending December 31, 1985, 1986 and 1987. What the Department does dispute is Hill Milling's right to continue participating in the DBE program. In particular, the Department has taken the position that Hill Milling no longer qualifies for the program because it is no longer a "small business concern."

    
    

13. A "small business concern" is defined by Rule 14-78.002(2), Florida Administrative Code, as follows:

    
    

    (2) "Small business concern" means those concerns as defined under section

    3 of the Small Business Act (15 U.S.C. 623) and Title 13 C.F.R. Part 121, which regulations are hereby incorporated by reference and made a part of these

    rules; *except that such term shall not include any concern or group of concerns controlled by the same socially and economically disadvantaged individual or individuals which have average annual gross receipts over the preceding three fiscal years in excess of $14,000,000.00

    as adjusted by the Secretary of the United States Department of Transportation for inflation*. [Emphasis added between *].

    
    

14. Pursuant to Rule 14-78.002(2), Florida Administrative Code, the definition of a "small business concern" under Section 3 of the Small Business Act and Title 13 C.F.R. Part 121 applies in determining whether a business in Florida is a disadvantaged business enterprise. Under Title 13 C.F.R. Part 121 businesses are classified by size and a limitation is placed on the average annual gross receipts which may be earned during the preceding three fiscal years by a business in order for their business to continue to be treated as a small business concern. If a business exceeds the limitation for its classification, it does not constitute a small business concern.

    
    

15. Hill Milling and Hill Marking, Inc., are classified as "special trade contractors" under 13 C.F.R. 121. A special trade contractor may have average annual gross receipts during the preceding three fiscal years of $7,000,000.00 or less and still qualify as a small business concern. The evidence in this case proved that Hill Milling and Hill Marking, Inc., have not individually had average annual gross receipts during the 1985, 1986 and 1987 fiscal years in excess of $7,000,000.00. Hill Milling had average annual gross receipts of

    $2,918,395.00 and Hill Marking, Inc., had average annual gross receipts of

    $1,045,305.00 during the three years at issue in this case.

    
    

16. J. E. Hill Contractor, Inc., is classified as a "heavy construction contractor" under 13 C.F.R. 121. A heavy construction contractor may have average annual gross receipts during the preceding three fiscal years of

    $17,000,000.00 or less and still qualify as a small business concern. J. E. Hill Contractor, Inc. did not individually have average annual gross receipts during the 1985, 1986 and 1987 fiscal years in excess of $17,000,000.00. It only had average annual gross receipts of $5,804,378.30 during the three years at issue in this case.

    
    

17. In addition to the limitation on the average annual gross receipts which may be earned during the preceding three fiscal years that a single business may earn, Rule 14-78.002(2), Florida Administrative Code, limits the average annual gross receipts which may be earned during the preceding three fiscal years by "affiliates" or a group of concerns controlled by the same socially and economically disadvantaged individual or individuals. The limitation is $14,000,000.00 in average annual gross receipts for the group. Hill Milling, Hill Marking, Inc., and J. E. Hill Contractor, Inc., constitute an affiliated group of concerns. Rule 14-78.002(7)(b), Florida Administrative Code. The average annual gross receipts of Hill Milling, Hill Marking, Inc., and J. E. Hill Contractor, Inc., during the preceding three fiscal years at issue in this case was not in excess of the $14,000000.00; it was only

    $9,768,077.70.

    
    

18. Based upon the foregoing Hill Milling has not exceeded the

    $7,000,000.00 individual average annual gross receipts limitation and the affiliated group of concerns owned by Joseph E. Hill have not exceeded the

    $14,000,000.00 average annual gross receipts limitation placed on affiliated groups. The Department does not dispute this conclusion. Instead, the Department has taken the position that Hill Milling no longer qualifies as a small business concern because the affiliated group of which it is a member has earned average annual gross receipts during the preceding three fiscal years in excess of the $7,000,000.00 individual limitation placed on special trade

    contractors. This position is based upon the following portion of a comment (hereinafter referred to as the "Comment"), to the definition of "small business concern" found in 49 C.F.R. 23:

    
    

    . . . .

    Congress determined, in order to ensure that the DBE program meets its objective of helping small minority businesses become self-sufficient and able to compete in the market with non- disadvantaged firms, that DBE firms should "graduate" from the program once their average annual receipts reached

    $14 million.

    . . . .

    It should also be pointed out the $14 million ceiling, like small business size limits under section 3 of the Small Business Act, includes revenues of "affiliates" of the firm as well as the firm itself. This is the import of the "any concern or group of concerns" language. In addition, firms still are subject to applicable lower limits on business size established by the Small Business Administration in 13 CFR Part

    121. For example, if SBA regulations say that $7.5 million average gross annual revenues is the size limit for a certain type of business, that size limit, rather than the overall $14 million ceiling, determines whether the firm qualifies in terms of its size to be a DBE.

    
    

19. It is the Department's position that Hill Milling should be treated as having "graduated" from the DBE program if any of the following circumstances apply: (1) Hill Milling individually earned more than $7,000,000.00 of average annual gross receipts during the preceding three fiscal years (which it did not; it only earned $2,918,395.00 in average annual gross receipts); (2) the group of concerns in which Hill Milling is affiliated earned more than $14,000,000.00 of average annual gross receipts during the preceding three fiscal years (which it did not; the group only earned $9,768,077.70 in average annual gross receipts), or; (3) based upon the Comment quoted above, the group of concerns in which Hill Milling is affiliated earned more than $7,000,000.00 of average annual gross receipts during the preceding three fiscal years (which it did; the group earned

    $9,768,077.70 in average annual gross receipts during fiscal years 1985, 1986 and 1987).

    
    

20. In support of its position in this case, the Department has argued that the language of Rule 14-78.002, Florida Administrative Code, 13 C.F.R. 121 and the Comment to 49 C.F.R. 23 clearly requires the conclusion that Hill

    Milling has graduated from the DBE program. The Department has also argued that the intent of the DBE program supports its interpretation of the Comment. In particular, the Department has suggested the following:

    
    

    All affiliate incomes of certified DBE companies, owned and controlled 100% by one disadvantaged owner, should be calculated together to ascertain the average gross income. To rule otherwise would be to allow individuals to set up a number of companies eligible for the program, in order to avoid aggregating the revenues and thereby avoiding graduation. . . .

    
    

    Page 5 of the Department's Proposed Recommended Order.

    
    

21. In evaluating the Department's position it must be remembered that the construction placed on a law by those officials charged with the responsibility for enforcing the law is persuasive and is entitled to great weight. See Szabo Food Services, Inc. v. Dickinson, 286 So.2d 529 (Fla. 1973); and Heftler Construction Co. & Subsidiaries v. Department of Revenue, 334 So.2d 129, (Fla. 3d DCA 1976), cert. den., 341 So.2d 1082. Therefore, unless the Department's interpretation of the Comment is clearly erroneous, unreasonable or in conflict with the plain intent of the law, it must be upheld. See Warnock v. Florida Hotel & Restaurant Commission, 178 So.2d 917 (Fla. 3d DCA 1965). Where an agency's interpretation is consistent with legislative intent and is supported by substantial competent evidence in the administrative record, the agency's interpretation must be upheld. Public Employees Relations Commission v. Dade County Police Benevolent Association, 467 So.2d 987 (Fla. 1985).

    
    

22. When the purpose for which the limitations of 13 C.F.R. 121 and the Department's rules are considered, it cannot be said that the Department's interpretation of the Comment is erroneous, unreasonable or in conflict with the plain intent of the DBE law. A special trade concern such as Hill Milling is limited to $7,000,000.00 in average annual gross receipts during its past three fiscal years. As pointed out by the Department, this limitation could be avoided to a certain extent by forming multiple corporations. Thus, but for the Department's interpretation, the intent of 13 C.F.R. 121 and the Department's rules that the amount of gross receipts that a business or affiliated group of businesses may earn should be limited could be circumvented.

    
    

23. Hill Milling has argued that the Department's interpretation is unreasonable in light of the fact that the members of the affiliated group to which Hill Milling belongs are not all special trade concerns subject to the same individual average annual gross receipts limitation. This argument is rejected. If the Department were attempting to apply the $7,000,000.00 limitation to the member of the affiliated group which is not a special trade concern, J. E. Hill Contractor, Inc., Hill Milling's argument might have some merit. That, however, is not the position being taken by the Department. The Department is only taking the position in this case that Hill Milling, a special trade concern, is subject to a $7,000,000.00 average annual gross receipts based upon its individual receipts or the receipts of the affiliated group. Although there are members of the affiliated group in this case which are not special trade concerns, the fact remains that the special trade concerns which are members of the affiliated group of concerns should not be allowed to circumvent the limitation on their individual average annual gross receipts by forming

multiple corporations or by forming a corporation as a part of the affiliated group which is subject to a different individual limitation. If Hill Milling's argument were accepted, both means of circumventing the limitations of 13 C.F.R.

121 and the Department's rules would be possible. Hill Milling's argument is, therefore, rejected.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered by the Department declaring that

Hill Milling, Inc., has graduated from the DBE program and revoking its DBE certification.

DONE and ENTERED this 26th day of July, 1989, in Tallahassee, Florida.

LARRY J. SARTIN

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 26th day of July, 1989.

COPIES FURNISHED:

Ruth B. Dillard Attorney

Department of Transportation Haydon Burns Building, M.S. 58 605 Suwannee Street

Tallahassee, Florida 32399-0450

Mary M. Piccard, Esquire Albert C. Penson, Esquire

Cummings, Lawrence & Vezina, P.A. Post Office Box 589

Tallahassee, Florida 32302-0589

Kaye N. Henderson, Secretary 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 Tallahassee, Florida 32399-0450

Docket for Case No: 89-001869

Orders for Case No: 89-001869