STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SYNERGY ADVERTISING & DESIGN ) INC., d/b/a SYNERGY DESIGN )

GROUP, )

)

Petitioner, )

)

vs. ) CASE NO. 94-2982

)

DEPARTMENT OF MANAGEMENT )

SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

The final hearing took place in Tallahassee, Florida, on December 1, 1994, before Robert E. Meale, Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

The parties were represented at the hearing as follows: For Petitioner: John S. Derr

Bush & Derr, P.A.

2874-A Remington Green Circle Tallahassee, Floirda 32308

For Respondent: Attorney Cindy Horne

Office of the General Counsel Department of Management Services Suite 312 Knight Building

2737 Centerview Drive

Tallahassee, Floirda 32399-0950 STATEMENT OF THE ISSUE

The issue in this case is whether Petitioner is entitled to certification as a minority business enterprise.

PRELIMINARY STATEMENT

By letter dated May 23, 1994, Petitioner requested a formal hearing on Respondent's denial of Petitioner's application for certification as a minority business enterprise.

At the hearing, Petitioner called four witnesses and offered into evidence two exhibits. Respondent called two witnesses and offered into evidence one exhibit. All exhibits were admitted.

The transcript was filed January 11, 1995. Rulings on timely filed proposed recommended orders are in the appendix.

FINDINGS OF FACT

1. Petitioner was incorporated in July 1992. Petitioner is a graphic design firm specializing in strategic, market-driven design. Petitioner conducts market analysis of a client and, only after defining the corporate identity of the client, engages in the development of suitable graphic design.

   
   

2. Mary Francis Weathington is the president and chief executive officer of Petitioner. Her experience in communications began in 1980 as a technical writer and editor. From 1989-92, Ms. Weathington served as an account supervisor for an advertising firm. In this role, Ms. Weathington supervised all junior account executives, developed marketing plans, presented proposals to clients, and communicated client needs to agency staff.

   
   

3. Ms. Weathington started Petitioner with John LoCastro, who had worked with her at the advertising agency during the same period of time. Mr. LoCastro was responsible for concept development, management, and design direction at the advertising agency.

   
   

4. A third person, David Miller, was also involved with the formation of Petitioner. Mr. Miller served as secretary and treasurer, Mr. LoCastro as vice president, and Ms. Weathington as president. Until December 31, 1993, when Mr. Miller resigned from Petitioner, the three principals each owned 50 shares of the 150 issued shares of Petitioner. The capital contribution of each principal was valued at $4500.

   
   

5. When he left the company, Mr. Miller transferred his stock to Petitioner in a transaction that required him to pay money to the company due to its thin capitalization and performance. At the same time, Ms. Weathington purchased two more shares. In the summer of 1994, Ms. Weathington bought three more shares and Mr. LoCastro's wife bought two shares. Presently, Ms. Weathington owns 55 shares, Mr. LoCastro owns 50 shares, and Mrs. LoCastro owns two shares. Petitioner has not issued other shares.

   
   

6. Petitioner's board of directors consists of Ms. Weathington, her husband, Mr. LoCastro, and his wife. However, Mr. Weathington is a nonvoting director.

   
   

7. Besides the two principals, Petitioner employs only one other fulltime employee, an office manager who is responsible for answering the phone, bookkeeping, proofreading, and handling miscellaneous clerical duties.

   
   

8. Petitioner also employs, as needed, freelance graphic designers. Petitioner has recently employed a freelance copywriter.

   
   

9. In a small company like Petitioner, there is necessarily some sharing of responsibilities in order to secure and produce design work and ensure that payables and receivables are properly managed. However, there are clear areas of responsibility for Ms. Weathington and Mr. LoCastro.

   
   

10. As his resume states, Mr. LoCastro is "[r]esponsible for overall creative management, with an emphasis on creative development, planning and design." He is in charge of visual graphics and does nearly all of the computer graphics work, unless it is assigned to a freelancer.

11. Ms. Weathington is responsible for marketing in two respects. First, she markets for Petitioner. She has brought a large majority of the clients to Petitioner and continues to remain responsible for their use of the company. Second, Ms. Weathington assists the clients in developing advertising and design programs that will effectively market the products and services of the clients. Ms. Weathington conducts market research of a client's needs and prepares advertising and design strategies to maintain and enhance the client's business.

    
    

12. Ms. Weathington also is chiefly responsible for the management and administration of Petitioner. The office manager's bookkeeping duties are performed under the supervision of Ms. Weathington, who handles personnel, purchasing, planning, and accounting. Although the signatures of both principals are required on checks over $500, this requirement reflects security concerns and does not have a bearing on the division of responsibilities between Ms. Weathington and Mr. LoCastro.

    
    

13. Although Mr. LoCastro is responsible for the in-house visuals, Ms. Weathington is responsible for copywriting, which is performed in-house nearly in its entirety.

    
    

14. Each principal has been required to guarantee personally the debt of Petitioner. But, given the greater assets of Ms. Weathington, the financial risk is actually borne by her, not Mr. LoCastro. Petitioner's lender would not have made the loan on Mr. LoCastro's guarantee alone, but would have on Ms. Weathington's guarantee alone.

    
    

15. Ms. Weathington's control of Petitioner is evidenced in other respects. Petitioner pays for a cellular telephone for her, but not Mr. LoCastro. The marketing brochure prepared by Petitioner features Ms. Weathington in a superior role to the subordinate roles of Mr. LoCastro and Mr. Miller.

    
    

16. Ms. Weathington's indispensable contribution to Petitioner is documented by gross sales figures for 1993, during which, for personal reasons, she was unable to work in the spring and fall. When she returned to work in the summer, gross sales increased from less than $10,000 per month to over $50,000 per month. When she left work again in the fall, gross monthly sales fell again to the $20,000 level. Profits have also increased by 16 percent since Ms. Weathington's return.

    
    

    CONCLUSIONS OF LAW

    
    

17. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties. Section 120.57(1), Florida Statutes. (All references to Rules are to the Florida Administrative Code.)

    
    

18. Rule 60A-2.005(2) provides:

    
    

    An applicant business must satisfy paragraphs (a), (b), (c), and (d) below in order to be considered 51 percent owned by minority persons. The ownership exercised by minority persons shall be real, substantial, and continuing,

    and shall go beyond mere pro forma ownership of the firm as reflected in its ownership documents. In its analysis, the Office may

    also consider the transferral of ownership percentages with no exchange of capital at fair market value.

    
    

19. Petitioner has satisfied the requirement of Rule 60A- 2.005(2)(a) that minority shareholders own at least 51 percent of the issued stock. At the hearing, Respondent did not challenge compliance with this issue.

20. Rule 60A-2.005(2)(b) states:

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 commen- surate 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, profit-sharing and other benefits.

1. Although the salaries of the two principals do not appear to be different, Ms. Weathington has the use of a company- provided cellular phone, which is a superior benefit roughly commensurate with the fact that she owns 52 percent of the stock. At the hearing, Respondent did not challenge compliance with this issue.

   
   

2. Rule 60A-2.005(2)(c) requires that the minority owners share in the business risks through decision-making and negotiations. The rule demands that the sharing in business risk be commensurate with the owner's percentage of ownership. Ms. Weathington plays a key role in the management of Petitioner and bears significant business risks, which, from a practical perspective, greatly exceeds her percentage ownership of stock.

   
   

3. Rule 60A-2.005(2)(a) and (b) address the management of the business, including by its board of directors. At the hearing, Respondent did not challenge compliance with this issue.

   
   

4. Rule 60A-2.005(2)(c) provides:

   
   

   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.

   
   

5. Rule 60A-2.005(2)(d) requires:

   
   

   The control exercised by the minority owners shall be real, substantial and continuing. . . .

   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 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. The minority owners' control of purchasing shall be evidence of their knowledge of products, brands, manufacturers, types of equipment and products and their uses, etc. rather than merely reflective of the minority owners' ministerial execution of the ordering/acquisition of goods.

   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

      [sic] 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 deter- mining the applicant business' 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 timing 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 and each phase of the technical operations

      of the business through their demonstrable knowledge of and capability in the delegated areas.

   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 regard to any and all bidding and contracting. 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 arrange- ments, the minority owners shall demonstrate that

      they have the knowledge and expertise to independently make contractual decisions.

   6. The minority owners shall substantiate personal direction and actual involvement with all major aspects of the applicant business. The major aspects shall be defined as those tasks essential

      to accomplish all objectives and operations related to those services or commodities for which the applicant business requests certification.

      
      

6. Petitioner has shown that Ms. Weathington has sufficient management and technical responsibilities and capabilities to control the business. Her administrative duties largely preclude Mr. LoCastro. The same is true of her management duties, although Mr. LoCastro presumably bears primary responsibility in hiring and firing graphic designers. Given her supervisory background in an advertising agency, Ms. Weathington can determine for herself whether visual artists are performing satisfactorily. But the visuals are only part of the product, and Ms. Weathington assumes the responsibility for the remainder of the product, copywriting. Ms. Weathington also takes the primary role in the conception of a client's design strategy.

   
   

7. Ms. Weathington does not perform nonessential parts of Petitioner's business. She has not left the defining work of Petitioner to a nonminority. Her technical skills in copywriting and design strategy conceptualization, her broad management and administrative duties, her substantial financial exposure, and her business-producing skills have made her the integral component of Petitioner--a fact evidenced by Petitioner's superior performance during Ms. Weathington's presence in 1993.

   
   

8. Petitioner is at least 51 percent owned by Ms. Weathington, and her ownership is real, substantial, and continuing.

RECOMMENDATION

It is hereby

RECOMMENDED that the Department of Management Services enter a final order granting Petitioner's application for minority business enterprise certification.

ENTERED on January 24, 1995, in Tallahassee, Florida.

ROBERT E. MEALE

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 on January 24, 1995.

APPENDIX

Rulings on Petitioner's Proposed Findings

8, 9, and 12: adopted, although based on the facts and not a claimed concession or absence of dispute.

22: adopted, except that the evidence showed only that gross revenues went down during Ms. Weathington's absences. Nothing in the record addressed net earnings or profits during these periods.

Remaining proposed findings: adopted or adopted in substance.

Rulings on Respondent's Proposed Findings

1 (first sentence): adopted.

1 (remainder)-4 (except for last sentence): rejected as subordinate.

4 (last sentence): adopted.

5-6: rejected as subordinate.

7-8: adopted or adopted in substance.

9: rejected as recitation of evidence and subordinate.

10: to the extent not subordinate, adopted or adopted in substance. 11-12: adopted or adopted in substance.

13 (first sentence): adopted or adopted in substance.

13 (remainder): rejected as unsupported by the appropriate weight of the evidence.

14-15: adopted or adopted in substance.

16-19: rejected as unsupported by the appropriate weight of the evidence, subordinate, and recitation of evidence.

20 (first sentence): adopted or adopted in substance.

20 (second sentence): rejected as legal argument.

21: adopted or adopted in substance, except for the implication that, as a practical matter, Mr. LoCastro's guarantee represents as real a financial risk as Ms. Weathington's guarantee.

22 (first sentence): adopted.

22 (second sentence): rejected as unsupported by the appropriate weight of the evidence. Increased sales does not mean increased profits, and nothing in the record indicates increased profits.

22 (remainder): rejected as unsupported by the appropriate weight of the evidence.

COPIES FURNISHED:

William H. Lindner, Secretary Department of Management Services Knight Building, Suite 307

2737 Centerview Drive

Tallahassee, FL 32399-0950

Paul A. Rowell, General Counsel Department of Management Services Knight Building, Suite 312

2737 Centerview Drive

Tallahassee, FL 32399-0950

John S. Derr

Bush & Derr, P.A.

2874-A Remington Green Circle Tallahassee, FL 32308

Attorney Cindy Horne

Office of the General Counsel Department of Management Services Knight Building, Suite 312

2737 Centerview Drive

Tallahassee, FL 32399-0950

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 94-002982

Orders for Case No: 94-002982