STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

AGRICULTURAL LAND SERVICES, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 97-0362

) DEPARTMENT OF TRANSPORTATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case on April 21, 1997, at Tallahassee, Florida, before J.D. Parrish, a duly designated Administrative Law Judge of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Mary Piccard, Esquire

Vezina, Lawrence & Piscitelli, P.A.

318 North Calhoun Street Tallahassee, Florida 32301

For Respondent: Mary S. Miller

Assistant General Counsel Department of Transportation Haydon Burns Bldg, Mail Station 58 605 Suwannee Street

Tallahassee, Florida 32399-0458

STATEMENT OF THE ISSUE

Whether the Petitioner is entitled to certification as a disadvantaged business enterprise.

PRELIMINARY STATEMENT

This case began on December 13, 1996, when the Department of

Transportation (Department) issued an intent to deny Petitioner’s application for certification as a disadvantaged business enterprise (DBE). The denial notice alleged that the sixty percent ownership claimed by Mrs. Lines, the minority owner, of Petitioner, Agricultural Land Services, Inc. (ALS), was not the result of a contribution of capital commensurate to ownership in that amount. Upon receipt of the notice of intent to deny, the Petitioner timely filed a request for an administrative hearing. The case was then forwarded to the Division of Administrative Hearings for formal proceedings on January 24, 1997.

At the hearing, Petitioner presented testimony from Rachel

1. Lines, the president and sixty percent owner of ALS. Petitioner’s exhibits numbered 1 through 8 were admitted into evidence. The Department offered the testimony of Howard Jemison, the Department’s certification manager. Its exhibits numbered 1 through 10 were also received.

   The transcript of the proceeding was filed on May 5, 1997. Proposed recommended orders submitted by the parties have been considered in the preparation of this order. The Department’s motion filed on May 22, 1997, seeking to strike portions of the Petitioner’s proposed recommended order is hereby denied.

   FINDINGS OF FACT

   
   

   1. ALS is a Florida corporation which filed an application for DBE certification on or about August 21, 1996.

   2. On December 13, 1996, the Department issued the notice

      of intent to deny Petitioner’s application.

      
      

   3. ALS is owned by Rachel and Bobby Lines. Mr. Lines owns forty percent of the company, his wife the remaining sixty. Mrs. Lines serves as president for the corporation.

   4. ALS is in the business of providing seeding and grassing services for construction contracts. Mr. and Mrs. Lines have been in this business since the 1970s.

   5. Mrs. Lines has a bachelor’s degree in business and has always had an active role in the family business.

   6. In 1979 and 1980 Mrs. Lines borrowed $10,000 and invested the money in ALS. These loans were secured by assets which did not belong to Mr. Lines. Unlike his wife, Mr. Lines was not personally liable for the loans.

   7. Similarly, in 1981 and 1983 Mrs. Lines obtained loans for which she was personally responsible and used the funds to benefit ALS.

   8. All loans secured by Mrs. Lines were repaid by Petitioner.

   9. During the years the loans were secured, Mr. Lines did not borrow monies, for which he was personally responsible, to fund ALS business activities. In short, Mr. Lines made no capital contribution to the business commensurate with the funding Mrs. Lines put into the business.

   10. When the Petitioner was incorporated in 1980, one hundred percent of the corporate stock was placed in Mr. Lines’

       name. Although Mrs. Lines agreed to this arrangement, it did not truly reflect the partnership that she and her husband enjoyed regarding the business.

   11. Moreover, the issuance of the stock in her husband’s name did not accurately consider and compensate her for the loans for which she personally would have been liable had the company not repaid the sums she secured in its behalf.

   12. Mrs. Lines has worked full-time for the Petitioner since 1986. It is undisputed that she is responsible for the day-to-day operations of the company.

   13. In 1991, Mr. Lines conveyed sixty percent of the Petitioner’s stock to his wife. Mrs. Lines became president of ALS at the same time.

   14. In 1995, ALS was certified by Palm Beach County, the Palm Beach County Aviation Authority, and the South Florida Water Management District as a minority business enterprise.

   15. While it is apparent both Mr. and Mrs. Lines have contributed “sweat equity” to their company, only Mrs. Lines has personally been liable for loans taken out in order to put money into the company.

       CONCLUSIONS OF LAW

       
       

   16. The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.

   17. Section 339.0805, Florida Statutes, established the DBE

       program. Rule 14-78.005, Florida Administrative Code, implements that statute and provides the standards for certification of DBEs. That rule provides, in pertinent part:

       1. Pursuant to 49 CFR Subtitle A, Subpart C Section 23.51(a), and Subpart D, Appendix A, to ensure that this rule chapter benefits only small business concerns which are at least 51 percent owned and controlled in both form and substance by one or more disadvantaged individuals, the Department shall certify firms who wish to participate as DBEs under this rule chapter.

          * * *

          
          

          (7) Pursuant to 49 CFR Subtitle A, Subpart D, Section 23.62, a firm seeking certification and recertification as a DBE shall meet the following standards. A firm which does not fulfill all the Department's criteria for certification shall not be considered a Disadvantaged Business Enterprise.

          * * *

          1. Pursuant to 49 CFR Subtitle A, Subpart C, Section 23.53(a)(6), to be certified under this rule chapter, the DBE shall be one in which the contributions of capital or expertise are real and substantial.

             1. In order for expertise to be utilized to substantiate stock ownership, the applicant must be able to calculate and verify the dollar value of such expertise and establish that the dollar value correlates to the value of the interest acquired; and establish that such expertise was actually contributed.

             2. Contributions of capital may be considered in the form of payment for stock, conversion of liabilities or contributions of cash or other assets. For the purposes of the DBE program these sources of capital contributions are considered investments in the business and as such cannot be considered loaned to the company.

             3. Contributions of capital and expertise documentation shall include but are not limited to transfer titles of equipment

                and property, checks, financial statements, partnership agreements, corporate organization minutes, educational documentation, professional licenses or work experience in the administrative and technical areas of the business.

             4. Pursuant to 49 CFR Subtitle A, Subpart C, Section 23.53(a)(6), examples of insufficient contributions include, but are not limited to, a promise to contribute capital, a note payable to the firm or its owners who are not disadvantaged individuals, or the mere participation as an employee, rather than as a manager.

          * * *

          (13) Decision-making rationale as well as specific U.S. Department of Transportation denials will be considered by the Department in its certification and recertification process.

          
          

   18. The sole basis for the denial of Petitioner’s application for DBE certification was an alleged lack of capital contribution commensurate with Mrs. Lines’ ownership interest of sixty percent. The Department maintains that in accordance with, and after consideration of, the decisions of the U.S. Department of Transportation, under the criteria set forth in 49 CFR Part 23, the Petitioner has failed to establish that the contribution of capital was real and substantial. Moreover, the Department argues, in this case, the transfer of stock from Mr. Lines to his wife was more in the nature of a gift.

   19. To the contrary, Mrs. Lines’ contributions to this company have been real and substantial. Although not a contribution of capital as defined by the rule, Mrs. Lines has made contributions to benefit this company which equal or exceed,

       and which are commensurate with, her sixty percent stock ownership. Mrs. Lines’ experience, education, and operation of the company are not disputed. Her day-to-day involvement with the overall business objectives of the company matches and exceeds that of her husband.

   20. That she was able to contribute resources to the company not matched by her husband is also documented. Had Mrs. Lines not met the financial needs of the company, there is no indication that it would have survived. Moreover, there is no indication that absent the funds for which she was personally liable, the company could have obtained a loan on its own financial strength. Thus, while technically not a contribution of capital, the ability to secure funds to meet the operational needs of the company was a real and substantial contribution to the Petitioner which was unmatched by any non-minority owner.

   21. Finally, the Department’s reliance on the decisions cited in its exhibit 9 is misplaced. The transfer of stock to Mrs. Lines was not a gift. Her testimony as to the historical basis for her husband’s one hundred percent interest has been deemed persuasive. In short, he was issued stock only as a convenience and never in proportion to their partnership efforts. Mrs. Lines has demonstrated her contributions to the company have equaled and exceeded those of her husband. The current stock issuance more accurately reflects their proportional interests in the Petitioner.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Transportation enter a final order granting Petitioner’s application for certification as a DBE.

DONE AND ENTERED this 4th day of June, 1997, in Tallahassee, Florida.

J. D. PARRISH

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(904) 488-9675 SUNCOM 278-9675

Fax Filing (904) 921-6847

Filed with the Clerk of the Division of Administrative Hearings this 4th day of June, 1997.

COPIES FURNISHED:

Ben G. Watts, Secretary Department of Transportation Haydon Burns Building

605 Suwannee Street

Tallahassee, Florida 32399-0450 Attn: Ms. Diedre Grubbs, MS #58

Pamela Leslie, General Counsel Department of Transportation

562 Haydon Burns Building Tallahassee, Florida 32399-0450

Mary S. Miller

Assistant General Counsel Department of Transportation Haydon-Burns Bldg, Mail Station 58 605 Suwannee Street

Tallahassee, Florida 32399-0458

Mary Piccard, Esquire

Vezina, Lawrence & Piscitelli, P.A.

318 North Calhoun Street Tallahassee, Florida 32301

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15 days from the date of 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: 97-000362

Orders for Case No: 97-000362