STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

BUSINESS TELEPHONE SYSTEMS, )

)

Petitioner, )

)

vs. ) CASE NO. 89-2715F

) STATE OF FLORIDA, DEPARTMENT ) OF GENERAL SERVICES, )

)

Respondent. )

)

FINAL ORDER

Pursuant to notice, a formal hearing was conducted in this case on September 19, 1989, in Tallahassee, 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:

APPEARANCES

For Petitioner: W. Crit Smith, Esquire

Smith & Thompson, P.A. Post Office Box 1695

Tallahassee, Florida 32302

For Respondent: Susan B. Kirkland, Esquire

Joan V. Whelan, Esquire Department of General Services Office of the General Counsel Suite 309, Knight Building Koger Executive Center

2737 Centerview Drive

Tallahassee, Florida 32399-0959 STATEMENT OF THE ISSUES

The basic issue in this case is whether the Petitioner is entitled to an award of costs and attorney fees under Section 57.111, Florida Statutes, the Florida Equal Access to Justice Act. By stipulation and agreement, the parties have resolved most issues in the case. The only remaining disputed issue is whether the Department's action was substantially justified.

PRELIMINARY STATEMENT

On April 18, 1989, Business Telephone Systems of Tallahassee, Inc. (BTST), filed a request for recertification as a minority business enterprise with the Respondent, Department of General Services (DGS). By letter dated July 18, 1989, the Respondent denied recertification. BTST filed a Petition for Formal Hearing challenging the Respondent's denial. At the formal hearing on the merits in DOAH Case No. 88-3885 which was conducted on October 17, 1988, the

issue to be resolved was whether the minority person had control over the management and daily operations of BTST within the contemplation of subsection 288.703(2), Florida Statutes. The Recommended Order of the Hearing Officer recommended that DGS grant recertification to BTST. The Recommended Order of the Hearing Officer was adopted and made a part of the Final Order issued by DGS on May 12, 1989.

On May 22, 1989, BTST filed a Motion for Attorney's Fees and Costs with the Division of Administrative Hearings. Following an agreed extension of time, DGS filed Respondent's Response to Petitioner's Motion for Attorney's Fees and Costs on June 19, 1989.

At the formal hearing of September 19, 1989, the Department presented the testimony of two witnesses and offered numerous exhibits, most of which were received in evidence. BTST presented the testimony of one witness and did not offer any exhibits. Official recognition was taken of Rule 13-8, Florida Administrative Code (1988), and of several DGS final orders in cases dealing with the issue of certification of minority business enterprises.

Subsequent to the hearing, a transcript of the proceedings was filed with the Hearing Officer on September 29, 1989. Thereafter, both parties filed timely proposed orders containing proposed findings of fact and conclusions of law. The parties' proposals have been carefully considered. All proposed findings of fact are specifically addressed in the appendix to this final order.

FINDINGS OF FACT

Based on the stipulations and agreements of the parties, the exhibits received in evidence, and the testimony of the witnesses at the hearing, I make the following findings of fact:

1. The costs and attorney fees sought by BTST in the amount of $2,344, are adequately substantiated and constitute reasonable costs and attorney fees for the representation of BTST in DOAH Case No. 88-3885.

   
   

2. DOAH Case No. 88-3885 resulted in a Final Order granting recertification as a minority business enterprise to BTST. Therefore, BTST was a prevailing party in that case.

   
   

3. The underlying agency action that resulted in DOAH Case No. 88-3885, was a Department letter of July 18, 1988, to BTST which notified BTST that its application for recertification was denied, stated the reasons for denial, and advised BTST of its right to request a hearing if it was dissatisfied with the Department's decision. The Department's letter of July 18, 1988, "initiated" the subsequent formal administrative proceedings.

   
   

4. Business Telephone systems of Tallahassee, Inc., is a "small business party."

   
   

5. The Department of General Services has the responsibility to certify and recertify minority business enterprises. The Department has developed a procedure which is followed by the Minority Business Enterprise Assistance Office in processing applications for certification and recertification. Upon receipt of an application, the entire business file is assigned by the supervisor of certification activities to an eligibility examiner, frequently referred to as a "reviewer." The reviewer conducts a desk audit and review, searches the Division of Corporation records, and by letter requests any items

   omitted from the application. The applicant then has 30 days in which to respond by sending the requested information to the Minority Business Enterprise Assistant Office. After receipt of requested additional information, the reviewer schedules an on-site interview with applicants whose eligibility for MBE status cannot be determined immediately. After the on-site review, the reviewer listens to the tape recording of the interview and completes the on- site review questionnaire form. At this point, all documents and on-site interview responses are reviewed by the eligibility examiner for the purpose of preparing a recommendation to grant or deny certification or recertification.

   The supervisor of certification activities reviews the recommendation and all materials related to the business for the purpose of either concurring or questioning the recommendation. The file is then referred to the coordinator of the Minority Business Enterprise Assistance Office for independent review. If the recommendation is for denial of MBE certification or recertification, the file is forwarded to the Office of the General Counsel for review of all documents, information, recommendations and findings by a staff attorney. By memorandum to the Minority Business Enterprise Assistance Office, the staff attorney will either concur in the recommendation or raise legal questions. In the case of concurrence, a letter of denial is prepared. Legal questions about the potential denial are generally resolved by discussion with all involved staff persons.

   
   

6. BTST, a company principally engaged in sales, installation, and service of telephone systems and equipment, filed an application for recertification as a Minority Business Enterprise on April 13, 1988. The application was assigned to Stephen Johnson, an eligibility examiner of the Minority Business Enterprise Assistance Office.

   
   

7. The initial recommendation to deny recertification of Petitioner was made by Stephen Johnson. Stephen Johnson received training by the Department in minority business enterprise certification and recertification review during his tenure at DGS.

   
   

8. As the first step in the review process, Stephen Johnson, the eligibility examiner, performed a desk audit of the application, noting changes in ownership, management, daily operations, and domicile of the company. He also conducted a document search of State of Florida corporate records which revealed different corporate ownership than that which BTST stated in the application and different composition of the Board of Directors of three non- minority members and two minority members.

   
   

9. Upon request of the eligibility examiner, additional documents were submitted by BTST. These documents named Mr. William Nuce as president and treasurer of BTST, listed a Board of Directors composed of one minority person and three non-minority persons, and included a BTST lease agreement signed by William Nuce as President of BTST and attested by Nancy Nuce, Secretary of BTST. An amendment to the lease dated May 4, 1988, was signed in the same manner.

   
   

10. Upon review by the eligibility examiner and his supervisor of the information submitted by BTST, changes in the business raised the question of whether a minority person controlled the management and operations of the business. The application for recertification revealed that two of the three women owners of BTST "no longer performed any duties for the company." The minority owner who left the company possessed significant technical knowledge about the telephone systems business which in previous certifications of BTST had been a dispositive factor in the determination. William Nuce had not been working full-time for the company until January 1988. Until that time, the

    company had been run by three women, one being an out-of-state resident. With the concurrence of his supervisor, the eligibility examiner scheduled an on-site visit to BTST for the purpose of acquiring a new description of how the business operated and to establish whether the applicant owner was eligible for MBE certification. The on-site interview was tape recorded

    
    

11. During the on-site review, Mrs. Nuce, the minority owner of BTST, made statements which were considered significant by DGS minority certification reviewers. Mrs. Nuce explained decision-making by her husband William Nuce and herself at BTST as "It is really a partnership." In response to the question, "Is anyone considered a supervisory person?", Mrs. Nuce stated, "Well, I guess Bill would be." Then she was asked, "Is he the installer supervisor?" and Nancy Nuce replied, "Yeah, I would say so." Continuing the on-site interview, in response to the question, "[W]ho employed Don?" Mrs. Nuce replied, "We both went to Jacksonville to where Don lived and interviewed Don in Jacksonville and we discussed it on the way back and when we got back Bill called him and offered him the job." She also said that William Nuce had invested "almost twice" as much as she had in the business. The occupational license issued by the City of Tallahassee was in the name of William Nuce. Concerning a truck which was the only large piece of equipment of the business, Mrs. Nuce said, "Bill signed the guarantee on it." Mrs. Nuce had never received a salary from BTST. During the on-site review, Mrs. Nuce confirmed the composition of the Board of Directors as having four members, one minority person and three non-minority persons.

    
    

12. After this on-site interview, the eligibility examiner came back to his office, listened to the interview tapes, and reviewed his notes. He came to the conclusion that the minority owner of BTST did not have the capability, knowledge, and experience required to make the critical decisions in that the company heavily relied on Mr. Nuce's 20 years of experience in the installation and servicing of telephone systems, rather than Mrs. Nuce's limited prior experience and training in the bookkeeping area.

    
    

13. The eligibility examiner further relied, as a basis for denial, on the fact that the Board of Directors at the time of the decision to deny recertification were Nancy' Nuce; William Nuce, a non-minority person; Peggy Ingram, a non-Florida resident (and therefore a non-minority person); and Don Ingram, a non-minority person. The corporate bylaws indicated that a majority of the directors legally controlled the management of the company. Since Mrs. Nuce was the only director who was a minority, the eligibility examiner concluded that, pursuant to the statutes, Mrs. Nuce did not have the legal authority to control the corporate Board of Directors and, therefore, the business of thee corporation.. After consultation and review of the BTST file, Stephen Johnson and Marsha Nims, the Labor Employment and Training Manager of the Minority Business Enterprise Assistance Office, reached the tentative decision to deny the recertification application of BTST.

    
    

14. At the time of the decision to deny recertification of BTST, Ms. Nims was the Labor Employment and Training Manager in the Minority Business Enterprise Assistance Office and the supervisor of Stephen Johnson, the eligibility examiner. She had been with DGS since March of 1986. Her duties included supervision of the professional staff who conducted eligibility reviews of applications, assistance in eligibility determinations, advising the coordinator, supervision of staff involved in retention of records, preparation of documents, and preparation of the monthly MBE Directory.

    
    

15. In evaluating the application for recertification of BTST, Marsha Nims reviewed the application and supporting documentation, the Desk Review and Audit

    by Stephen Johnson, the additional documents obtained by Stephen Johnson from Business Telephone Systems of Tallahassee, Inc., the Bylaws of BTST, the memo from Stephen Johnson to Marsha Nims, the reviewer's case management log, the on- site review questionnaire form and comments completed by Stephen Johnson, the denial recommendation drafted by Stephen Johnson, and the file of BTST on which previous certification had been based. Marsha Nims relied upon the information about BTST complied by the eligibility examiner. She had no reason to doubt the credibility of Stephen Johnson, the eligibility examiner.

    
    

16. At the time of the decision to deny recertification to BTST, Marsha Nims was familiar with the Florida Statutes which governed certification and recertification of minority business enterprises as well as Chapter 13-8, Florida Administrative Code, which the Department promulgated to implement the statutes. Marsha Nims was familiar with the relevant Final Orders of the Department of General Services and the related Recommended Orders of the Division of Administrative Hearings. She concluded that the corporate structure analysis and the determination of lack of control over the management and daily business operations was consistent with the legal conclusions established in prior Department Final Orders denying certification.

    
    

17. Following review by Ms. Nims, the entire BTST file described in Finding of Fact Number 15 was referred to Carolyn Wilson-Newton, the Minority Business Enterprise Assistance Officer Coordinator. Mrs. Wilson-Newton was the person charged with making the final decision to grant or deny certification and recertification to applicants.

    
    

18. At the time of the decision to deny recertification, Mrs. Wilson- Newton was familiar with the Florida Statutes which govern certification and recertification of minority business enterprises, Chapter 13-8, Florida Administrative Code, and the relevant Final Orders of the Department of General Services and Recommended Orders of the Division of Administrative Hearings. Carolyn Wilson-Newton concurred with the recommendations of Stephen Johnson and Marsha Nims to deny recertification as set forth in the denial recommendation prepared by Stephen Johnson, and made the decision to deny minority business enterprise recertification.

    
    

19. The proposed denial was approved by Sandra Allen, an attorney in the General Counsel's Office with previous experience in review of minority business enterprise decisions. The denial letter was mailed to the applicant on July 18, 1988.

    
    

20. Although BTST prevailed in Case No. 88-3885, it is important to note that some of the evidence presented at the formal hearing in that case was substantially different from the information furnished to DGS prior to the July 18, 1988, denial letter. Some of the differences resulted from new developments (such as eleventh-hour stock purchases and changes in the corporate provisions regarding directors). Other differences resulted from more careful and precise descriptions than had been furnished earlier.

    
    

21. Four competent, experienced MBE certification reviewers for DGS concluded that the information in the possession of the Department at the time of the decision to deny recertification of BTST was sufficient to warrant denial of recertification of the Petitioner. The denial of recertification had a reasonable basis in fact at the time of the decision. This is especially true when note is taken of the fact that BTST's corporate provisions regarding

    directors at the time of the decision were essentially the same as corporate provisions which had been the basis for denial of certification in other Department final orders.

    
    

    CONCLUSIONS OF LAW

    
    

    Based on the foregoing findings of fact and on the applicable legal precedents and principles, I make the following conclusions of law.

    
    

22. The Division of Administrative Hearings has jurisdiction over the subject matter of and the parties to this proceeding. Sections 57.111 and 120.57(1), Florida Statutes.

    
    

23. This case arises under the Florida Equal Access to Justice Act, Section 57.111, Florida Statutes. At Section 57.111(4)(a) , the Act states:

    
    

    Unless otherwise provided by law, an award of attorney's fees and costs shall be made to a prevailing small business party in any adjudicatory proceeding or administrative proceeding pursuant to Chapter 120 initiated by a state agency, unless the actions of the agency were substantially justified or special circumstances exist which would make the award unjust.

    
    

24. The party claiming attorney's fees has the initial burden to establish by the preponderance of evidence its entitlement to attorney's fees. Department of Professional Regulation, Division of Real Estate v. Toledo Realty, Inc. and Ramiro Alfert, 14 F.L.W. 2205, 1st District, Opinion filed September 20, 1989. The initial showing is established by showing the Petitioner is the prevailing party, a small business party in an adjudicatory proceeding pursuant to Chapter 120, F.S., initiated by a state agency, and that the requested fees and costs, which cannot exceed $15,000, are reasonable and necessary. Gentele v. Department of Professional Regulation, Board of Optometry, 9 F.A.L.R. 310, 326 (DOAH June 20, 1986), affirmed, Gentele v. Department of Professional Regulation, Board of Optometry, 513 So.2d 672 (Fla. 1st DCA 1987). Once a party has met its initial burden, the burden shifts to the agency to establish that it was "substantially justified" in initiating the action against Petitioner at the time it was initiated or that special circumstances exist which would make the award unjust. Gentele, 9 F.A.L.R. at 327.

    
    

25. The parties have stipulated that BTST is a "small business party" within the meaning of the Act and that BTST was the prevailing party in DOAH Case No. 88-3885. DGS also agrees that the costs and attorney fees of $2,344 are reasonable. By these stipulations and agreements, BTST has met its initial burden of showing its entitlement to costs and fees, absent DOS being able to show that its actions were substantially justified.

    
    

26. Section 57.111(3)(e) of the Act states: "A proceeding is

    `substantially justified' if it had a reasonable basis in law and fact at the time it was initiated by a state agency." In determining whether a particular proceeding is substantially justified, the relevant factors to consider include the duty and authority of the state agency involved, credentials and experience of agency persons who made the initial decision to take action, evidence in the possession of the agency at the time of the initial decision, (See Structured Shelters Financial Management, Inc. et al. v. Department of Banking and Finance,

    10 F.A.L.R. 382 (DOAH 1987)), and applicable law at the time of the decision. Union Trucking, Inc. v. State of Florida, Department of Transportation, 10

    F.A.L.R. 6039 (DOAH 1988). Also, to be considered is the process used by the agency in making the decision. See Anthony Gentele, O.D. v. Department of Professional Regulation, Board of Optometry, 9 F.A.L.R. 310 (DOAH 1986)

    
    

27. At the time the Department issued the denial letter, Rule 13-8.005, F.A.C., had been promulgated. In pertinent part, the rule sets out criteria for determination of ownership as exercised by minority persons as follows:

    
    

    1. The minority owners must demonstrate that they are entitled to receive profits from the business firm and that they are entitled to share in any other benefit which accrues to all owners of the business firm; and,

       
       

    2. The minority owners must substantially share in all the risks assumed by the business firm;....

       
       

28. The Respondent also promulgated Rule 13-8.005(3), F.A.C., which set out certain factors useful in determining the duty and authority of the Department:

    
    

    1. 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:

       
       

       1. 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.

       2. Whether the minority owners have the authority to hire and fire employees.

       3. Whether the minority owners have a knowledge of the financial structure of the business and control over all financial affairs.

       4. Whether the minority owners control business accounts - checking, savings, and other financial affairs.

       5. Whether the minority owners have the capability, knowledge, and experience required to make decisions regarding that particular type of work.

       6. 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.

    
    

    At the time of issuance of the denial of recertification, the Department had information and documents sufficient to support a reasonable belief that Nancy Nuce did not control the management and daily operations of BTST.

29. Statutory mandates give DGS both the affirmative duty to verify that an applicant meets the eligibility criteria for certification and the discretionary authority to determine an applicant's eligibility for certification and recertification as a MBE. The certification program is not viewed as a self-certification process. DGS does not consider recertification to be merely a ministerial action. (See Grau and Company, P.A. v. Department of General Services, Final Order issued 10/8/87.)

    
    

30. It is also instructive to look to the decisions of federal courts which have construed the meaning of the language of the federal legislation on which the Florida Equal Access to Justice Act is modeled. In discussing the meaning of the term "substantially justified," the court in Ashburn v. U.S., 740 F.2d 843 (11th Cir. 1984], said:

    
    

    The government bears the burden of showing that its position was substantially justified. [citations omitted] The standard is one of reasonableness; the government must show "that its case had a reasonable basis both in law and fact." [citations omitted] The fact that the government lost is case does not raise a presumption that the government's position was not substantially justified. [citation omitted] Nor is the government required to establish that its decision to litigate was based on a substantial probability of

    prevailing. [citation omitted]

    
    

31. The Department followed its usual and ordinary procedure in reviewing BTST's application for recertification. As in Gentele, DOAH 1986, the MBE supervisors and the DGS staff attorney relied on the report of a trained reviewer of the Department. The supervisors and the attorney conducted a meaningful review of the BTST file and did not merely sign-off on the recommendation of the eligibility examiner. The evaluation by the supervisors and the attorney meets the requirements of Gentele, DOAH 1986, in that the decision makers had evidence which, if unchanged at the final hearing, would reasonably indicate that the agency action was justified. Gentele, DOAH 1986 at 328.

    
    

32. On the basis of the information gathered by the Department during the evaluation of BTST's application for recertification, the Department had a reasonable basis for believing that the Petitioner was not eligible to be recertified as an MBE. Accordingly, at the time of denying recertification, the Department had a reasonable basis in both law and fact for the denial; and was, therefore, substantially justified in notifying Petitioner of denial of recertification.

    
    

33. Since the Department has demonstrated that the notice of denial of recertification was "substantially justified" within the meaning of the Florida Equal Access to Justice Act, the Petitioner's application for an award of attorney's fees and costs must be denied.

On the basis of the foregoing, it is hereby ORDERED:

That the Petitioner's application for attorney's fees and costs IS DENIED.

DONE AND ORDERED in Tallahassee, Leon County, Florida, this 27th day of October 1989.

MICHAEL M. PARRISH

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 27th day of October, 1989.

APPENDIX TO RECOMMENDED ORDER IN CASE NO. 89-2715F

The following are my specific rulings in all findings of fact proposed by all parties.

Findings proposed by Petitioner: Paragraphs 1, 2 and 3: Accepted.

Paragraphs 4 and 5: supported by the record, but subordinate and

unnecessary in light of other facts found.

Paragraph 6: Perhaps true, but irrelevant. In light of differences in information provided during the Department's investigation and evidence offered at the final hearing in Case No. 88-3885.

Paragraph 7: Rejected as constituting an over simplification of the Department's information gathering process and as in material part contrary to the greater weight of the evidence.

Paragraph 8: Rejected as irrelevant, subordinate, and unnecessary details.

Paragraph 9: Rejected as irrelevant in view of other information gathered by the Department in the course of its investigations.

Paragraphs 10 and 11: Rejected as contrary to the greater weight of the evidence.

Paragraphs 12 and 13: Rejected as subordinate and unnecessary details.

Paragraphs 14 and 15: Rejected as contrary to the greater weight of the evidence.

Paragraphs 16, 17 and 18: Rejected as subordinate and unnecessary details.

Paragraphs 19 and 20: Rejected as contrary to the greater weight of the evidence.

Paragraph 21: Rejected as subordinate and unnecessary details and as not fully supported by the evidence.

Findings proposed by Respondent:

Paragraphs 1, 2, 3, 4, 5 and 6: Accepted in substance.

Paragraph 7: First two sentences accepted. Remainder rejected as unnecessary.

Paragraphs 8, 9, 10 and 11: Accepted.

Paragraph 12: Rejected as subordinate and unnecessary details.

Paragraphs 13 and 14: Accepted. Paragraph 15: Last two sentences rejected as subordinate and unnecessary details. Remainder accepted. Paragraphs 16, 17, 18, 19, 20, 21 and 22: Accepted in substance.

Paragraphs 23 and 24: Rejected as being repetitious or a restatement of facts already found.

Paragraph 25: Rejected as repetitious and as irrelevant and unnecessary details.

Paragraph 26: First sentence is accepted in substance with some additional clarifying details. The remainder of this paragraph is rejected as constituting subordinate and unnecessary details.

Paragraph 27: First two sentences accepted. The remainder is rejected as repetitious or as statement of conclusions rather than facts.

COPIES FURNISHED:

W. Crit Smith, Esquire Smith & Thompson, P.A. Post Office Box 1695 Tallahassee, Florida 32302

Susan B. Kirkland, Esquire Joan V. Whelan, Esquire Department of General Services Office of the General Counsel Suite 309, Knight Building Koger Executive Center

2737 Centerview Drive

Tallahassee, Florida 32399-0959

Ronald W. Thomas, Executive Director Department of General Services Office of the General Counsel

Suite 309, Knight Building Koger Executive Center 2737 Centerview Drive

Tallahassee, Florida 32399-0959

Docket for Case No: 89-002715F

Orders for Case No: 89-002715F