STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MARITIME TUG & BARGE, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 90-0881

) DEPARTMENT OF TRANSPORTATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was conducted in this case on May 31, 1990, in West Palm Beach, Florida, before J. Stephen Menton, a duly designated Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Brenda Bryant, Esquire

Fields, Wilkinson, Bryant & Aiken, P.A.

55 East Osceola, Suite 100 Stuart, Florida 34994

For Respondent: William Peter Martin, Esquire

Department of Transportation 605 Suwannee Street, MS #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

On September 25, 1989, Petitioner, Maritime Tug & Barge, Inc. ("Maritime Tug"), applied to the Respondent, Florida Department of Transportation ("DOT"), for certification as a Disadvantaged Business Enterprise ("DBE"). By letter dated January 16, 1990, DOT informed Maritime Tug that its application for DBE status had been denied. By letter dated January 29, 1990, Maritime Tug timely requested a formal hearing on the application. The case was referred to the Division of Administrative Hearings which noticed and conducted the hearing. At the hearing, Petitioner presented the testimony of three (3) witnesses: Stanley

L. Kraly, (President and fifty-five percent (55%) majority owner of Maritime Tug); Stanley R. Kraly, (Vice President and forty-five (45%) percent owner of Maritime Tug); and Alton Russell, (employed as a tug captain by Maritime Tug). Petitioner offered two (2) exhibits into evidence, both of which were accepted. Petitioner's Exhibit 1 is a letter verifying Stanley L. Kraly's membership in

the Penobscot Indian Tribe of Maine, and Petitioner's Exhibit 2 is a Transfer of Stock Agreement dated October 10, 1989. Respondent presented the testimony of Ms. Ruth Dillard, Coordinator of DBE Certification in the Minority Programs Office of DOT. Respondent offered four (4) exhibits into evidence, all of which were accepted. Respondent's Exhibit 1 is a copy of Maritime Tug's application to DOT for certification as a DBE. Respondent's Exhibit 2 is a copy of the Bylaws of Maritime Tug. Respondent's Exhibit 3 is a copy of the lease agreement between Maritime Tug and Maritime Fuel, Inc. Respondent's Exhibit 4 is a copy of notes made by DOT's consultant during her on-site interview of the Kralys in Stuart, Florida on December 20, 1989. Prior to the commencement of the hearing, the parties stipulated that Stanley L. Kraly is 37.5 percent Penobscot Indian.

The parties also stipulated that Stanley L. Kraly is the son of Stanley R. Kraly.

A transcript of the proceeding was filed with the Division of Administrative Hearings on July 2, 1990. At the conclusion of the hearing, the parties agreed that proposed findings of fact and conclusions of law were to be filed within 15 days of the filing of the transcript. The Respondent has timely filed a proposed recommended order. However, no post- hearing submittals have been received from the Petitioner. A ruling on each of the Respondent's proposed findings of fact is included in the Appendix attached hereto.

FINDINGS OF FACT

1. Maritime Tug is a tug and barge company which purchases and sells barges in southeast Louisiana and transports them to Florida for repair, lease or sale. The company also engages in the lease of crew boats and tug boats.

   
   

2. Stanley L. Kraly ("Stan L.") owns fifty-five percent (55%) of the stock of Maritime Tug and is the President of the company. Stan L. is twenty-four

   (24) years of age. He graduated from high school in 1984 and served four years in the United States Marines Corps in an infantry and reconnaissance battalion. His duties in the Marines included surface swimming, (the equivalent of a civilian lifeguard) and amphibious assault for hydrographic underwater beach surveys.

   
   

3. Upon leaving the Marines, Stan L. began working for Maritime Fuel, Inc. ("Maritime Fuel") in Stuart, Florida. Maritime Fuel is owned by Stan L.'s father, Stanley R. Kraly ("Stan R."). Maritime Fuel is engaged in the dockside delivery of diesel fuel and marine-grade gas to privately owned boats and marinas. At Maritime Fuel, Stan L. was as an "assistant team leader." His duties included pulling the hose from the truck to fuel boats and assisting the "team leader" with other jobs.

   
   

4. Maritime Tug was incorporated by Stan R. and Ken Hayes in March, 1989. In approximately July of 1989, Stan R. bought out Ken Hayes and became the sole owner of the company.

   
   

5. Stan L. began working for Maritime Tug in June, 1989 as a deckhand apprentice. Stan L.'s duties as a deckhand apprentice included throwing and splicing lines. He split his time between Maritime Tug and Maritime Fuel for approximately three months. On October 10, 1989, Stan L. began working full- time for Maritime Tug. At that time, he also became president and majority stockholder of Maritime Tug as evidenced by a Stock Transfer Agreement dated October 10, 1989.

6. Stan R. remains involved with Maritime Tug in the capacity of Vice- President and Treasurer of the company. His duties include the following: soliciting new business; negotiating financing on behalf of Maritime Tug and signing notes and leases; preparing job estimates; negotiating and signing contracts for major purchases and leases of tugs, barges, and other pieces of equipment. The evidence established that Stan R. is primarily responsible for the financial arrangements for Maritime Tug and only Stan R. signed for the line of credit established at Sun Bank by Maritime Tug.

   
   

7. Stan R. completed five semesters at Maine Maritime College majoring in marine engineering. He has been a sales correspondent and manufacturer's representative for several companies. Stan R. has also owned a Texaco gas station and a welding company. Stan R. currently holds an inactive real estate license in the state of Florida. He is the sole stockholder of Maritime Fuel. He is also a partner in a business entity known as The Hast Corporation and is currently the president of the Marine Industry in Stuart. Because of his other business interests, Stan R. attempts to limit his involvement in the day to day operations of Maritime Tug. However, it is clear that Stan R. still plays an active role in the management of the company, especially with respect to financial matters.

   
   

8. There is some confusion regarding the timing of Stan L.'s acquisition of his ownership interest in Maritime Tug. Maritime Tug's application to DOT for certification as a DBE is dated September 25, 1989. On page 3, paragraph number 10 of the application, the percentage of ownership of the company shows Stan L. and Stan R. owning fifty-one percent (51%) and forty-nine percent (49%), respectively. However, those numbers are crossed out on the application. On the same page, paragraph number 11, the ownership breakdown is shown as fifty- two percent (52%) and forty-eight percent (48%), respectively. Those percentages were initialed on the application form by Stan L. sometime prior to the final hearing. While both Stan L. and Stan R. testified that they had agreed in principal during the summer of 1989 for Stan L.'s purchase of a majority interest in Maritime Tug, there is no evidence of an actual transfer of stock other than the Stock Transfer Agreement which is dated October 10, 1989. On December 20, 1989, Ms. Kathy Garner, a consultant with DOT, conducted an on- site review of Maritime Tug during which she interviewed both Stan L. and Stan

   R. at Maritime Tug's place of business in Stuart, Florida. The notes recorded by Ms. Garner during the December 20, 1989 on-site interview indicate that the percentage of ownership was as it appears on the application, i.e., fifty- two percent (52%) for Stan L. and forty-eight percent (48%) for Stan R. DOT was not made aware of the October 10, 1989 stock transfer agreement between Stan L. and Stan R. (and in fact, was told that no agreement existed) until January 17, 1990, when DOT received an unsigned copy of the October 10, 1989, agreement.

   
   

9. The October 10, 1989 Stock Transfer Agreement sets a purchase price of fifty-five thousand dollars ($55,000) for the fifty five percent (55%) interest purchased by Stan L. The Agreement leaves the amount of the payments to the discretion of the buyer (Stan L.) with a single required minimum annual payment of one thousand dollars. The Agreement states that the loan period is to be ten years. However, there are no acceleration provisions in the Agreement. Arguably, the buyer can take up to fifty-five years to pay off the purchase price. The first payment is due on October 10, 1990. As of the date of the hearing, there have been no payments made to Stan R. pursuant to the Agreement. Stan L. has given no collateral for this indebtedness which is apparently his only capital investment in the company and the only method of financing his purchase of fifty-five percent (55%) majority ownership in Maritime Tug.

10. Stan L.'s fringe benefits are provided by Maritime Fuel, a corporation solely owned by his father, Stan R. Maritime Tug does not employ a secretary, but shares the full-time secretary employed by Maritime Fuel. Maritime Tug leases its office space from Maritime Fuel pursuant to a lease agreement for one hundred dollars per month. It is unclear whether the rental payments have been made.

    
    

11. Since Stan L. became president and majority owner of Maritime Tug, the tug captain for the company (one of the most important positions for the company) was fired and a new captain was hired. Stan R. fired the former captain and hired the current captain, Mr. Alton Russell, in late April 1990. Stan L. was not involved in these decisions.

    
    

    CONCLUSIONS OF LAW

    
    

12. The Division of Administrative Hearings has jurisdiction over the subject matter of and the parties to this proceeding. Section 120.57(1), Florida Statutes (1989).

    
    

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

    
    

14. 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.

15. Pursuant to Sections 339.0805, 337.125, 337.135 and 337.137, Florida Statutes (1989), DOT administers a certification program which certifies applicants as DBEs. DBEs are accorded competitive advantages and preferential treatment because they are eligible to participate in DOT's set aside program under DBE contract goals.

1. Chapter 339, Florida Statutes, (1989) provides in pertinent part: 339.0805(1)(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....

2. 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 disadvantages 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 (b) 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.

      
      

3. Rule 14-78, Florida Administrative Code, is the rule which implements STURRA at the state level and has followed the federal standards as set forth in

   49 CFR, Part 23 in all parts relevant here.

   
   

4. Rule 14-78.002(3), Florida Administrative Code, defines a DBE as a small business concern meeting two criteria. A DBE must be at least fifty-one percent (51%) owned by "one or more socially and economically disadvantaged individuals" 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."

5. Native Americans, as defined by the Rule, are those persons who are members of "American Indian tribes acknowledged by the Secretary of the Interior, or persons who are certified by such American Indian tribes as being eligible for membership in their tribes. `Acknowledged by the Secretary of the Interior' means those American Indian tribes who tribal existence has been acknowledged by the Department of Interior pursuant to 25 CFR, Part 83." The parties stipulated at the start of the final hearing in this case that Stan L. is 37.5 percent Penobscot Indian and has been certified as eligible for membership by the Penobscot Tribe of Maine. That tribe has been "acknowledged by the Secretary of the Interior." Therefore, Maritime Tug meets the first prong of the definition of a "Disadvantaged Business Enterprise" if Stan L. is determined to be the owner of at least fifty-one percent of the company.

   
   

6. Rule 14-78.005(7) sets 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 of the

   firm, as reflected in its ownership documents. The socially and economically disadvantaged owners shall enjoy the customary incidence of ownership and shall share in the risks and profits commensurate with their ownership interests, as demonstrated by an examination of the substance rather than form of financial and managerial arrangements. In assessing business independence, the Department shall consider all relevant factors, including the date the firm was established, the adequacy of its resources, and the degree to which financial relationships, equipment leasing, and other business relationships with non- DBE firms vary from industry practice.

   
   

7. Rule 14-78.005(7)(f) recognizes that the contributions of a disadvantaged owner may take the form of capital or expertise, but, in either case, the contributions by the socially and economically disadvantaged owner must be real and substantial.

23. Rule 14-78.005(7)(f) provides:

(f) To be Certified under this rule chapter, the DBE shall be one in which the contributions of capital or expertise invested by the socially and economically disadvantaged individual owners are real and substantial. Examples of insufficient contributions include, but are not limited to a promise to contribute capital, a note payable to the DBE enterprise or its owners who are neither socially and economically

disadvantaged individuals, or the mere participation as an employee, rather than as a decision-maker. (Emphasis added).

1. In this case, both the capital and the expertise for Maritime Tug have been supplied by Stan R. who does not qualify as a disadvantaged person under the statutes and rules. While Stan L. is the titular owner of fifty-five percent (55%) of the stock of Maritime Tug, the evidence established that he has not paid anything for his ownership interest. While Petitioner contends that Stan L. is obligated to pay Stan R. $55,000 for the majority ownership interest in the company, such a promise to pay is clearly not sufficient under Rule 14- 78.005(7)(f).

   
   

2. The transfer of shares between Stan L. and Stan R. was not an "arms length transaction." No collateral was pledged to secure the obligation, no interest is being charged on the indebtedness and the required annual payments are miniscule. These factors all indicate that Stan L. should not be considered the true owner of the majority of the corporation for the purpose of determining DBE status. Furthermore, if Maritime Tug were to default on its existing note to Sun Bank, only Stan R. and not Stan L. would be responsible. Because he has not had to pledge any collateral or guarantee any financial obligations as consideration for receiving a fifty-five percent ownership interest in Maritime Tug, and because he has not had to sign any promissory notes or lines of credit for Maritime Tug, Stan L. has not assumed the normal financial risks commensurate with the ownership of a business. These factors all indicate that Stan L. should not be considered the true owner of the majority of the corporation for the purpose of determining DBE status.

   
   

3. Stan L. does not bring any special expertise to the company. It is clear that Stan R. provides most of the financial, business and maritime expertise to the company. Stan L. has very limited business or managerial experience prior to his involvement with Maritime Tug and he admitted during the hearing that to a large degree he was "in training" under his father at Maritime Tug.

   
   

4. 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 firms and to make day-to-day as well as major business decisions concerning the firm's management, policy and operation." This subsection specifically recognizes that one factor to consider in making this determination is the control lodged in nondisadvantaged 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. 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.

   
   

5. While Stan L. participates in the daily operations of Maritime Tug, many of the major decisions are still made by Stan R. Stan R. handles many of the major purchases of equipment, prepares bids and estimates on behalf of the corporation, hires and fires key employees, negotiates contracts, and solicits business on behalf of Maritime Tug. It is also clear that Stan R. is much more familiar than Stan L. with the financial situation of the company. These factors all raise significant concern as to whether Stan L. actually possesses the power to control the corporation to the degree required to obtain DBE certification. However, in view of the other conclusions reached herein, that issue need not be resolved in this proceeding.

   
   

6. Rule 14-78.005(m) requires a DBE to be an independent business entity. The evidence in this case indicates that Maritime Tug is dependent upon Maritime Fuel, which, as noted above, is a corporation owned and operated by Stan R. Maritime Tug leases its office space from Maritime Fuel for one hundred dollars per month and there is conflicting testimony as to whether Maritime Tug has actually paid any rent to Maritime Fuel. Maritime Tug does not employ a secretary, but uses Maritime Fuel's secretary for answering the phone and miscellaneous bookkeeping tasks. Stan L. does not receive any fringe benefits from Maritime Tug, but, instead, receives benefits from Maritime Fuel even though he no longer works for that company. All of these factors confirm that Maritime Tug is not independent of Maritime Fuel and that the company is in fact dependent upon Stan R. and his business interests and expertise.

RECOMMENDATION

Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Respondent Department of Transportation enter a Final Order denying Petitioner Maritime Tug's application for certification as a Disadvantaged Business Enterprise.

DONE AND ORDERED in Tallahassee, Leon County, Florida, this 8th day of August 1990.

J. STEPHEN MENTON 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 day of August 1990.

APPENDIX TO RECOMMENDED ORDER CASE NO. 90-0881

The Petitioner has not filed any post-hearing proposed findings of fact, or conclusions of law. The Respondent has submitted a Proposed Recommended Order. The following constitutes the Hearing Officer's rulings on the proposed findings of fact contained in that submittal.

Proposed Finding Paragraph Number in the Findings of Fact of Fact Number in the Recommended Order where accepted

or the reason for rejection

1. Adopted in substance in Findings of Fact

2. Adopted in substance in Findings of Fact 2.

3. Adopted in substance in Findings of Fact 3.

4. Adopted in part in Findings of Fact 5. However, the last sentence is rejected as an overly broad summary of the testimony.

5. Adopted in substance in Findings of Fact 7.

6. Adopted in substance in Findings of Fact 6.

7. Adopted in substance in Findings of Fact 8.

8. Adopted in substance in Findings of Fact 9.

9. Rejected as irrelevant. The provision in the bylaws appears to relate to the issuance of stock by the corporation and not the transfer of stock by individual holders of the stock.

10. Rejected as unnecessary.

11. Adopted in substance in Findings of Fact 10.

12. Adopted in substance in Findings of Fact 12.

COPIES FURNISHED:

Brenda Bryant, Esquire

Fields, Wilkinson, Bryant & Aiken, P.A.

55 East Osceola, Suite 100 Stuart, Florida 34994

William Peter Martin, Esquire Department of Transportation Haydon Burns Building, M.S. 58 605 Suwannee Street

Tallahassee, Florida 32399-0458

Ben G. Watts, Secretary Department of Transportation Haydon Burns Building, M.S. 58 605 Suwannee Street

Tallahassee, Florida 32399-0458

Robert Scanlan, Esquire Department of Transportation

562 Haydon Burns Building 605 Suwannee Street

Tallahassee, Florida 32399-0458

Docket for Case No: 90-000881

Orders for Case No: 90-000881