STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

TONY MEEHAN'S AUTO REPAIR, INC., ) d/b/a BURNIE'S AUTO SERVICE, )

)

Petitioner, )

)

vs. ) CASE NO. 92-7090

) DEPARTMENT OF MANAGEMENT SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

On April 6, 1993, a formal administrative hearing was held in this case in Tampa, Florida, before J. Lawrence Johnston, Hearing Officer, Division of Administrative Hearings.

APPEARANCES

For Petitioner: Cheryl Meehan, President

Tony Meehan's Auto Repair, Inc. 9805 Nebraska Avenue

Tampa, Florida 33612

For Respondent: Wayne H. Mitchell, Esquire

Staff Attorney

Department of Management Services Knight Building, Suite 309

2737 Centerview Drive

Tallahassee, Florida 32399-0950 STATEMENT OF THE ISSUE

The issue in this case is whether the Respondent, the Department of Management Services, should certify the Petitioner, Tony Meehan's Auto Repair, Inc., d/b/a Burnie's Auto Service, as a minority business enterprise.

PRELIMINARY STATEMENT

On or about May 13, 1992, the Petitioner applied to the Department for certification as a minority business enterprise. 1/ By letter dated September 16, 1992, the Department denied the application.

Referring to an October 6, 1992, letter that does not appear in the record, 2/ the Petitioner disputed the denial and requested formal administrative proceedings by letter dated November 12, 1992. The matter was referred to the Division of Administrative Hearings (DOAH) on December 1, 1992.

The Respondent's Motion in Opposition to the Petition also was referred to DOAH on December 1, 1992. An Order Granting Motion to Dismiss with Leave to Amend was entered on January 12, 1993.

The Petitioner's letter dated January 18, 1993, was treated as an amendment to the request for formal administrative proceedings, and the case was set for final hearing on April 6, 1993.

At the final hearing, Cheryl Meehan testified on behalf of the Petitioner.

In accordance with procedures established at the end of the hearing, Petitioner's Exhibits 1 through 4 were filed after the final hearing and, without objection, were received in evidence. The Department called one witness and had Respondent's Exhibits 1, 2 and 3 admitted in evidence. Cheryl Meehan testified again in rebuttal.

The Department ordered the preparation of a transcript of the final hearing. The parties were given ten days from the filing of the transcript, or from the filing of the Petitioner's late exhibits, whichever was later, in which to file proposed recommended orders. Both the transcript and the late exhibits were filed on April 14, 1993.

Both parties filed proposed recommended orders. Only the Department's contained proposed findings of fact, per se, but the Petitioner's proposed recommended order contradicted some of the Department's proposed findings of fact, and the contradictions are treated as the Petitioner's proposed findings of fact. Explicit rulings on the proposed findings of fact contained in the parties' proposed recommended orders may be found in the attached Appendix to Recommended Order, Case No. 92-7090.

FINDINGS OF FACT

1. The Petitioner, Tony Meehan's Auto Repair, Inc., is a Florida corporation doing business as Burnie's Auto Service. Essentially, it is the family business of a man and woman who are husband and wife, Anthony and Cheryl Meehan. Before moving to Florida to begin doing business as Burnie's Auto Service, the Meehans lived in New Jersey.

   
   

2. In New Jersey, Anthony Meehan worked as an auto mechanic for approximately 15 years. He is an ASE-certified master mechanic and also holds several other auto mechanic and repair competency certifications. Prior to leaving New Jersey, he was half owner of a small auto repair business. He and his partner did all of the work in the two-bay shop. Over the years, he built up a $15,000 equity in the business. In addition, he had an auto repair manual worth about $30, which he planned to contribute to the new business, and he had his own personal tool box worth about $10,000 to $15,000, which he planned to use in connection with the operation of the business.

   
   

3. Cheryl Meehan was not in the auto repair business in New Jersey. She worked for several different employers in an office administrator capacity. In her most responsible position, she essentially reported to a business executive daily and received daily assignments. During her employment, the company grew. Cheryl was exposed to, and gained valuable experience, in several areas of bookkeeping, accounting, banking, finance and personnel matters.

   
   

4. Burnie's Auto Service was a relatively large ongoing auto repair business in Tampa, Florida. It had five employees and 14 work bays. In approximately September, 1989, the Meehans negotiated to buy the business for

   $275,000, $50,000 down and the balance amortized over a period of years at ten percent interest. The seller took back a purchase money mortgage on the business property to secure payment of the balance. Both of the Meehans are liable, jointly and severally, on the note and mortgage to the seller.

   
   

5. The Meehans used the $15,000 Tony got for the sale of his interest in his New Jersey auto repair business as part of the down payment. In addition, they used a certificate of deposit in the amount of approximately $30,000. The CD had been obtained by use of funds that had been paid to Cheryl before their marriage as a result of a personal injury lawsuit. It is not clear whether the CD was held solely in Cheryl's name or in the names of both of the Meehans. In addition, $10,000 from the sale of Cheryl's automobile also went towards the purchase of the business. It was not clear from the evidence whether the automobile was titled in the name of Cheryl only, or in the name of both of the Meehans. Nor is it clear whether the automobile was purchased by Cheryl before the marriage.

   
   

6. The purchase of the business was to close in November, 1989, but the closing was postponed to January, 1990. The Meehans incorporated Tony Meehan's Auto Repair, Inc., as a Florida corporation on or about December 20, 1989. The Meehans were named as the sole members of the initial board of directors of the corporation.

   
   

7. The Meehans moved to Tampa on Christmas day, 1989. The initial meeting of the board of directors of Tony Meehan's Auto Repair, Inc., was held on December 28, 1989. At the meeting, the Meehans were confirmed as the sole members of the board of directors. Tony was named chairman of the board, and Cheryl was named secretary. 500 shares of stock were issued, all to "Anthony R. Meehan and Cheryl A. Meehan, husband and wife." In addition, Tony was made president of the corporation, and Cheryl was made secretary/treasurer.

   
   

8. When the Meehans took over the business, they decided to keep the shop foreman, master mechanic and two auto mechanics already employed there. They decided to use suppliers Tony had used when he was in business in New Jersey. They decided to contract out towing and transmission service to companies in Land O' Lakes, Florida. These were joint decisions based in large part on Tony's expertise. Cheryl has practically no training or experience in auto mechanics or auto repairs. She has no auto mechanic certifications. She has only recently begun to learn something about auto mechanics and about how to do certain auto repairs.

   
   

9. Hiring and firing continued to be joint decisions made by the two of them. To the extent that they were made based on an evaluation of the employee's skills in auto mechanics, they were based in large part on Tony's expertise. Since the beginning of the business, they have had to fire one employee, and they have hired two.

   
   

10. Tony's primary role in the daily operations of the business is to generally supervise the quality and efficiency of the auto repair work. He also sometimes diagnoses (or helps diagnose) mechanical problems, directs (or helps direct) the performance of repairs, and test drives vehicles after repairs are done. In connection with these functions, he sometimes orders (or directs the ordering of) parts. Sometimes, he will estimate repair costs.

    
    

11. Cheryl is the office administrator for the business. In this role, she handles all bookkeeping, accounting, banking, payroll and personnel matter details. She often bills jobs and operates the business cash register. She

    physically places orders for parts, at the direction of Tony or the employees, and pays for them. She generally will not countermand a parts order but may ask her husband or, if he is not there, the master mechanic to verify an order if she questions it. She makes sure parts get billed. As she became more familiar with the auto repair business, she began to estimate some jobs by reference to standard estimates manuals and was able to say which parts would have to be ordered for some jobs.

    
    

12. The corporation opened a business bank account with a local bank. Both Cheryl and Tony have signature authority on the account. Cheryl writes virtually all checks on the account and does all the banking. Tony only writes a check on the account on the rare occasions when Cheryl is not available when one has to be written.

    
    

13. Initially, the Meehans decided that Tony would be paid approximately

    $700 a week and that Cheryl would be paid approximately $300 to $350 a week. Tony did not have as much Social Security credit as Cheryl from their work in New Jersey, and they wanted to try to equalize their credits. Otherwise, as a practical matter, the relative size of their salaries did not matter to the Meehans. Cheryl deposited both checks into their joint personal bank account for the use of both of them, as needed.

    
    

14. The business pays for a $200,000 whole life insurance policy on the life of Cheryl, and one on the life of Tony. It is not clear from the evidence who are the beneficiaries under those policies. The business also pays for a $2 million major medical insurance policy for Cheryl, and one for Tony.

    
    

15. As the business continued, Cheryl assumed increasing duties and responsibilities, and Tony assumed fewer. Cheryl worked harder, and Tony worked less. Also, Cheryl's mother persuaded Cheryl that she should have a greater share of the equity in the business to reflect her greater initial financial contribution. Tony agreed.

    
    

16. In January, 1991, additional stock in the company was issued. 135 shares went to Cheryl and 65 went to Tony. No changes were made in the constitution of the board of directors or in the officers of the corporation at that time.

    
    

17. Tony Meehan's Auto Repair, Inc., d/b/a Burnie's Auto Service, applied to the Department 3/ for certification as a minority business enterprise on or about May 13, 1992. By letter dated September 16, 1992, the Department denied the application. The denial was based, in part, on the Department's determinations (1) that Cheryl's compensation was not commensurate with her ownership interest in the business and (2) that minorities (i.e., Cheryl) did not make up more than 50 percent of the board of directors.

    
    

18. In reaction to the denial letter, and to improve their company's chances of being certified as a minority business enterprise, the Meehans decided to alter their respective salaries. Starting no earlier than December, 1992, Cheryl has been paid $725 a week, and Tony has been paid $450 a week. As before, as a practical matter, except for the Social Security credit, the relative size of their salaries does not matter to the Meehans. Cheryl deposits both checks into their joint personal bank account for the use of both of them, as needed.

    
    

19. Also in reaction to the denial letter, and to improve their company's chances of being certified as a minority business enterprise, the Meehans met as

    the board of directors on or about March 18, 1993, to change the constitution of the board of directors and to change the officers of the corporation. They made Cheryl the chairman and sole member of the board of directors, and the president of the corporation. They made Tony the vice-president, secretary, and treasurer.

    
    

    CONCLUSIONS OF LAW

    
    

20. F.A.C. Rule Chapter 60A-2 establishes a "Minority Business Utilization Plan" and a minority business certification program for purposes of complying with Section 287.0947, Fla. Stat. (1991), and Section 287.0943, Fla. Stat. (Supp. 1992).

    
    

21. Section 288.703(3)(e), Fla. Stat. (Supp. 1992), and F.A.C. Rule 60A- 2.001(5)(e) define the "American woman" as a minority.

    
    

22. Section 288.703(2), Fla. Stat. (Supp. 1992), provides in pertinent part:

    
    

    "Minority business enterprise" means any small business concern . . . which is at least 51 percent owned by minority persons and whose management and daily operations are controlled by such persons.

    
    

23. F.A.C. Rule 60A-2.005 states in pertinent part:

    
    

    1. An applicant must satisfy (a), (b) or (c), and (d), (e) and (f) below in order to be considered 51 percent owned by minority persons.

       * * *

       1. The minority owners must demonstrate that they share income, earnings and any other benefits from the business concern which are accorded to any other owner. The minority owners' share of income, earnings and benefits shall be commensurate with the percentage of their ownership in the business concern, including but not limited to, salaries, draws, bonuses, commissions, insurance coverage, proceeds from business investments and properties, and profit-sharing, and other benefits.

       2. The minority owners must demonstrate that they share in all the risks assumed by the business firm. Such sharing of business risks shall be demonstrated through the minority owners' primary role in decision-making, and negotiation and execution of related transaction documents either as individuals or as officers of the business. The minority owners' sharing in business risks shall be commensurate with their percentage of ownership, including but not limited to , start-up costs and contributions, acquisition of additional ownership interests, third-party

       agreements, bonding applications and other liabilities. Start-up contributions may be space, cash, equipment, real estate, inventory or services estimated at fair market value.

       All contributions of capital by the minority owners must be real and substantial. The following are presumed not to be real and substantial capital contributions:

       1. promises to contribute capital;

       2. notes payable to the applicant business;

       3. notes payable to the non-minority owners or to the non-minority family members of any owner; and

       4. past services rendered by the minority person as an employee, rather than as a decision-maker.

       * * *

    2. An applicant must establish that the minority owners possess the authority to control and exercise dominant control over the management and daily operations of the business.

       * * *

       1. If the applicant is a corporation and the business and affairs of the corporation are managed under the direction of a board of directors as provided by the articles of incorporation or bylaws of the corporation or Section 607.11, Florida Statutes, a majority of the directors must be minority owners, notwithstanding whether the directors are required to be elected by a majority vote of the outstanding shares of the corporation.

       2. The minority owners must exercise sufficient management and technical responsibilities and capabilities to maintain control of the business. If the owners of the business who are not minority persons are disproportionately responsible for the operations of the business, then the business is not controlled by minority owners.

       3. The control exercised by the minority owners shall be real, substantial and continuing. In instances where the applicant business is found to be a family-operated business, with duties, responsibilities and decision-making occurring jointly and mutually among owners and principals, or severally along managerial and operational lines between minority and non-minority owners, the minority owners shall not be considered as controlling the business. Where the minority owners substantiate that the assumption of duties is not based on their lack of knowledge or capability to independently make decisions regarding the business' management and

       day-to-day operations, the minority owners'

       control may not be affected. The minority owners shall establish that they have dominant responsibility for the management and daily operations of the business as follows:

       1. The minority owners shall control the purchase of goods, equipment, business inventory and services needed in the

          day-to-day operation of the business.

       2. The minority owners shall control the hiring, firing and supervision of all employees, and the setting of employment policies, wages, benefits and other employment conditions. In instances where minority owners have delegated the hiring and firing of employees, the minority owners shall demonstrate that their knowledge and capability is sufficient to evaluate the employees' performance in the given industry;

       3. The minority owners shall have knowledge and control of all financial affairs of the business. The ability of any non-minority owner or employee to sign checks and enter into financial transactions on behalf of the business shall be considered in determining financial control. The minority owners shall expressly control the investments, loans to/from stockholders, bonding, payment of general business loans, payroll and establishment of lines of credit.

       4. The minority owners shall have managerial and technical capability, knowledge, training, education and experience required to make decisions regarding that particular type of work. In determining the applicant's eligibility, the Department will review the prior employment and educational backgrounds of the minority owners, the professional skills, training and/or licenses required for the given industry, the previous and existing managerial relationship between and among all owners, especially those who are familially related, and the time and purpose of management changes. If the minority owners have delegated management and technical responsibility to others, the minority owners must substantiate that they have caused the direction of the management of the business through their demonstrable knowledge and capability.

       5. The minority owners shall display independence and initiative in seeking and negotiating contracts, accepting and rejecting bids and in conducting all major aspects of the business. In instances where the minority owners do not directly seek or negotiate contracts, prepare estimates or coordinate with contracting officials, but claim to

       approve or reject bids and contractual agreements, the minority owner shall demonstrate that they have the knowledge and expertise to independently make contractual decisions.

       
       

24. Tony Meehan's Auto Repair, Inc., clearly is a "family-operated business," as the term is used in F.A.C. Rule 60A-2.005(3)(d). Under F.A.C. Rule 60A-2.005(3)(d), if duties, responsibilities and decision-making occur jointly and mutually, or severally along managerial and operational lines, it is assumed that the minority family member does not exercise control that is "real, substantial and continuing."

    
    

25. Even if duties, responsibilities and decision-making in a family- operated business occur jointly and mutually, or severally along managerial and operational lines, F.A.C. Rule 60A-2.005(3)(d) allows the minority family members to "substantiate that the assumption of duties is not based on their lack of knowledge or capability to independently make decisions regarding the business' management and day-to-day operations." To do this, the minority family members must "establish that they have dominant responsibility for the management and daily operations of the business." "Dominant control" is established by: (1) control over the purchase of goods, equipment, business inventory and services needed in the day-to-day operation of the business; (2) control over hiring, firing and supervision of employees, and the setting of employment policies, wages, benefits and other employment conditions; and (3) knowledge and control of all financial affairs of the business, taking into consideration whether non-minorities have the ability to sign checks and enter into financial transactions for the business.

    
    

26. Based on the facts of this case, it is concluded that Tony Meehan's Auto Repair, Inc., did not establish that Cheryl has dominant control over the business. It is concluded that she shares control with her husband and that responsibilities and duties in the operation of the business are divided along the lines of their respective knowledge and capabilities. It is perhaps true, as the Petitioner argues, that Cheryl could operate the business herself by relying on employees to supply the knowledge, expertise and capabilities that her husband now supplies to the business. If they were capable employees whose loyalty and faithfulness could be relied upon, the business could be successfully operated in that fashion. But that is not how the business operates. Despite the recent changes in the constitution of the board of directors and in the officers of the corporation, made for the primary purpose of trying to obtain MBE certification, the Meehans essentially operate as equal partners in a family business. The history of their compensation, even including the recent changes, also made for the primary purpose of trying to obtain MBE certification, bear out the essential character of the family business: the relative size of their salaries does not matter to the Meehans; Cheryl deposits both checks into their joint personal bank account for the use of both of them, as needed.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department of Management Services enter a final order denying the application of Tony Meehan's Auto Repair, Inc., d/b/a Burnie's Auto Service, for certification as a minority business enterprise.

RECOMMENDED this 13th day of May, 1993, in Tallahassee, Florida.

J. LAWRENCE JOHNSTON 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 13th day of May, 1993.

ENDNOTES

1/ At the time, the Department of General Services had jurisdiction over the application, but this function was transferred to the new Department of Management Services, which was created by the merger of the Department of General Services and the Department of Administration.

2/ This may be the date on which the Petitioner received the denial letter. 3/ See endnote 1.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-7090

To comply with the requirements of Section 120.59(2), Fla. Stat. (1991), the following rulings are made on the parties' proposed findings of fact:

Petitioner's Proposed Findings of Fact.

1. Accepted and incorporated to the extent not subordinate or unnecessary.

2. Rejected as not proven and as contrary to facts found. It is found that, due to their relationship as husband and wife, Cheryl relies primarily on Tony, as opposed to the other employees.

10. Last sentence, rejected as not proven and as speculation. The rest is accepted and incorporated.

12. Rejected as argument and as conclusion of law that it "should not matter whether the money went into a joint account." It is evidence of the essential character of Tony Meehan's Auto Repair, Inc., as a family business. Otherwise, accepted and incorporated.

14. Accepted and incorporated. But it is found that, due to their relationship as husband and wife, Cheryl relies primarily on Tony, as opposed to the other employees. The decisions are the joint decisions of the two principals.

Respondent's Proposed Findings of Fact.

1.-6. Accepted and incorporated to the extent not subordinate or unnecessary.

7.-8. Rejected in part. Cheryl Meehan does have some knowledge about the business, and probably could operate the business without her husband (although

she would have to rely on her employees as she now relies primarily on her husband and, to a lesser extent, on the business's employees).

9.-14. Accepted and incorporated to the extent not subordinate or unnecessary.

COPIES FURNISHED:

Cheryl Meehan, President

Tony Meehan's Auto Repair, Inc. 9805 Nebraska Avenue

Tampa, Florida 33612

Wayne H. Mitchell, Esquire Staff Attorney

Department of Management Services Knight Building, Suite 309

2737 Centerview Drive

Tallahassee, Florida 32399-0950

William H. Lindner Secretary

Department of Management Services Knight Building, Suite 307

2737 Centerview Drive

Tallahassee, Florida 32399-0950

Susan B. Kirkland, Esquire General Counsel

Department of Management Services Knight Building, Suite 309

2737 Centerview Drive

Tallahassee, Florida 32399-0950

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit to the Department of Management Services written exceptions to this Recommended Order. All agencies allow each party at least ten days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should consult with the Department of Management Services concerning its rules on the deadline for filing exceptions to this Recommended Order.

Docket for Case No: 92-007090

Orders for Case No: 92-007090