STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

COMMERCIAL AIR TECH, INC., )

)

Petitioner, )

)

vs. ) Case No. 97-3871

)

DEPARTMENT OF LABOR AND ) EMPLOYMENT SECURITY, MINORITY ) BUSINESS ADVOCACY AND ASSISTANCE ) OFFICE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case on April 7, 1998, at Fort Lauderdale, Florida, before Susan B. Kirkland, a duly designated Administrative Law Judge of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Edmund L. Sugar, Esquire

950 South Federal Highway Hollywood, Florida 33020

For Respondent: Joseph L. Shields, Esquire

Department of Labor and Employment Security Suite 307, Hartman Building

2012 Capital Circle, Southeast Tallahassee, Florida 32399-2189

STATEMENT OF THE ISSUE

Whether Petitioner's application for certification as a minority business enterprise should be granted.

PRELIMINARY STATEMENT

On April 28, 1997, Petitioner, Commercial Air Tech, Inc., (Commercial Air), applied to the Respondent, Department of Labor and Employment Security, Minority Business Advocacy and Assistance Office (Department), for certification as a Minority Business Enterprise (MBE). By letter dated July 17, 1997, the Department denied Commercial Air's application for MBE certification on the grounds that Commercial Air did not qualify as a minority business enterprise pursuant to Sections 288.703(2), and 287.0943(1)(e)1, Florida Statutes, and Rules

38A-20.005(3)(a)-(c), (d)1, 3-6, and 38A-20.005(7), Florida

Administrative Code. Commercial Air requested an administrative hearing, and the case was received by the Division of Administrative Hearings on August 26, 1997, for assignment to an administrative law judge.

At the final hearing, Petitioner testified on her own behalf. Petitioner's Exhibits 1-5 were admitted in evidence. David Rackard testified for the Respondent. Respondent's Exhibits 1-11 were admitted in evidence. The parties stipulated to the facts contained in paragraphs 5-10 of the Prehearing Stipulation.

The parties agreed to file their proposed recommended orders within ten days of the close of the final hearing. No transcript was ordered. Respondent filed its Proposed Recommended Order on April 17, 1998. Petitioner did not file a proposed recommended

order. The undersigned Administrative Law Judge has considered

Respondent's Proposed Recommended Order in rendering this Recommended Order.

FINDINGS OF FACT

1. Virginia Valletti, an American woman, within the meaning of Section 288.703, Florida Statutes, holds 75 percent of the stock of Petitioner, Commercial Air Tech, Inc., (Commercial Air). Sam Valletti, the husband of Virginia Valletti, owns 15 percent of the stock of Commercial Air, and the two daughters of the Valetti's each owns five percent of the stock of the business.

2. Sam Valletti is not a minority person as defined in Section 288.703, Florida Statutes.

3. Article II, Section 1 of the bylaws of Commercial Air provides that "All Corporate powers shall be exercised by or under the authority of, and the business affairs of the corporation shall be managed under the direction of, the Board of Directors." The bylaws state that the corporation shall have two directors. Those directors are Virginia and Sam Valletti.

4. Article III, Section 2 of the bylaws of Commercial Air sets out the duties of the President of the company as follows:

   The President shall be the chief executive officer of the corporation, shall have general and active management of the business and affairs of the corporation subject to the directions of the Board of Directors, and shall preside at all meetings of the shareholders and Board of Directors.

   
   

5. Commercial Air provides heating, ventilation, and air conditioning (HVAC) services and is required by Florida statutes

   to be qualified by a licensed contractor. Sam Valletti holds the contractor's license which qualifies Commercial Air. Virginia Valletti testified that she does not believe that she could pass the contractor's test to become the qualifying agent for the company.

6. Sam Valletti is authorized to sign checks on the account of Commercial Air, but Virginia Valletti signs the majority of the checks for the business.

7. Sam Valletti signed the business lease for Commercial Air. Sam Valletti or a male employee, signs the contracts on behalf of the business. According to Virginia Valletti, the two men sign the contracts for appearance sake because the HVAC business is a male-dominated industry.

8. According to the application submitted to the Respondent, Department of Labor and Employment Security, Minority Business Advocacy and Assistance Office (Department), Virginia Valletti's major responsibilities in the business are as follows:

   Open and close office Monday through Friday Transact all accounts receivables and payables

   Answer customer calls and inquiry's [sic] all on customers to insure their needs are being met

   Dispatch technicians to job sites

   Compose all company forms and form letters and contract forms

   Track job costs

   Analyze profit & loss statement, balance sheet and other financial reports

   Oversee office personnel - hire, review (all personnel) and fire (office only)

   Shop and purchase all insurance (workman's comp., liability, bond, etc)

   Figure payroll and all associated taxes Negotiate credit lines and loans

   Track truck maintenance and inventory

   Place orders with vendors and track shipments to job sites

9. The application submitted to the Department lists Sam Valletti's major responsibilities as follows:

   Estimates jobs in construction and service Troubleshoots equipment problems with technicians

   Recommends and designs new installations with property managers and owners

   Keeps up to date on So. Florida code changes, labor laws, and union regulations

   Finds new resources and seeks out leading edge technological advances

   Customer liaison for technical questions Hires, reviews, and fires service personnel Purchases company vehicles

10. Sam Valletti receives approximately $16,000 per quarter in wages from Commercial Air, and Virginia Valletti receives approximately $3,000 in wages.

    CONCLUSIONS OF LAW

    
    

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

12. Petitioner has the burden of proof in this proceeding. The burden of proof in an administrative proceeding is on the party asserting the affirmative of the issue unless the burden is otherwise specifically established. Young v. State, Department of Community Affairs, 567 So. 2d 2 (Fla. 3d DCA 1990); Florida Department of Transportation v. J.W.C. Company, Inc., 396 So. 2d 778 (Fla. 1st DCA 1981); Balino v. Department of Health and Rehabilitative Services, 348 So. 2d 349 (Fla. 1st DCA 1977). Petitioner must show by a preponderance of the evidence that it is entitled to be certified as a minority business enterprise.

13. The Department denied Commercial Air's application based on Section 288.703(2), Florida Statutes, which provides that the management and daily operations of the applicant business must be controlled by the minority owners, and Section 287.0943(1)(e)1, Florida Statutes, which states:

    (e) In assessing the status of ownership and control, certification criteria shall, at a minimum:

    1. Link ownership by a minority person, as defined in s. 288.703(3), or as dictated by the legal obligations of a certifying organization, to day-to-day control and financial risk by the qualifying minority owner, and to licensure of a minority owner in any trade or profession that the minority business enterprise will offer to the state when certified; however, the minority

    license-holder need not be the controlling owner of the enterprise, but must hold an ownership interest. . . .

14. The Department has adopted Rule 38-20.005(3), Florida Administrative Code, as the criteria for establishing that the minority owner controls the management and daily operations of the business. Rule 38-20.005(3)(a), (b), Florida Administrative Code provides:

    (3) 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. The discretion of the minority owners shall not be subject to any formal or informal restrictions (including, but not limited to, by-law provisions, purchase agreements, employment agreements, partnership agreements, trust agreements or voting rights, whether cumulative or otherwise), which would vary or usurp managerial discretion customary in the

       industry.

    2. If the applicant business is a corporation and the business 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 607.0824, Florida Statutes, the articles of incorporation or bylaws must explicitly clarify the number of the board of directors for establishing a quorum, or it will be deemed by this office that a quorum of the board of directors consists of a majority of the number of directors presented by the articles of incorporation or the bylaws.

15. The bylaws of Commercial Air provides that the corporation shall have two directors and that the directors shall manage the corporation. Those directors are Virginia and Sam Valletti, one of whom is minority person. A quorum of the board of directors is a majority of the number of directors authorized by the bylaws. In the instant case, a majority of the board of directors is not made up of the minority owners; thus, the minority owners do not control the business through the board of directors.

16. The bylaws state that the president of the company is the chief executive officer and has general and active management of Commercial Air subject to directions from the board of directors. Sam Valletti, the nonminority owner, is the president of the company and is authorized by the bylaws to manage the business.

17. Commercial Air does not meet the requirements of Rule 38-20.005(3)(a), (b), Florida Administrative Code.

18. The Department also denied the application for certification based on Commercial Air's failure to meet the requirements of Rules 38A-20.005(3)(c) and (d)1, 3-6, Florida Administrative Code, which provide:

    1. 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.

       
       

    2. 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 either jointly and mutually among owners and principals, or severally along managerial and operational lines between minority owners and non-minority owners or principals, 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, but on their execution of delegation of duties the minority owners'

    demonstration of 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. 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.

    
    

    * * *

    
    

    1. 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.

    2. The minority owners shall have managerial capability, knowledge, training, education and experience required to make decisions regarding the operations of the business. In determining the applicant business' eligibility, the Office 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 familiarly 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 and the technical responsibilities of the business. When the applicant business provides services which require that the business and/or its professional qualifier be licensed, the minority owner shall hold the requisite license issued by the State of Florida or local licensing entity. The minority license holder need not be the controlling owner of the business, but must hold an ownership interest.

    3. 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 agreements, the minority owners shall demonstrate that they have the knowledge and expertise to independently make contractual decisions.

    4. 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.

    
    

19. The responsibilities for running the business are divided between Virginia and Sam Valletti. Mrs. Valletti is responsible for the office, and Mr. Valletti is responsible for the technical side of the business. The qualifying agent for the company is Mr. Valletti and not a minority owner.

20. Both Sam and Virginia Valletti have the authority to write checks on the company account. Sam Valletti signed the lease for the business, signs bids, and signs contracts on behalf of the company.

21. Commercial Air has not established that a minority owner controls the management and daily operations of the company.

22. Commercial Air has not established that it is in compliance with Rule 38A-20.005(2)(b), Florida Administrative Code, which provides:

    (b) 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.

23. Virginia Valletti's salary of $3,000 per quarter is not commensurate with her 75 percent ownership interest in the company.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered denying Commercial Air, Tech Inc.'s request for certification as a minority business enterprise.

DONE AND ENTERED this 28th day of April, 1998, in Tallahassee, Leon County, Florida.

SUSAN B. KIRKLAND

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847

Filed with the Clerk of the Division of Administrative Hearings this 28th day of April, 1998.

COPIES FURNISHED:

Joseph L. Shields, Esquire Florida Department of Labor

and Employment Security

2012 Capital Circle, Southeast Suite 307, Hartman Building Tallahassee, Florida 32399-2189

Edmond L. Sugar, Esquire 950 South Federal Highway Hollywood, Florida 33020

Douglas L. Jamerson, Secretary

Department of Labor and Employment Security

Suite 303, Hartman Building 2012 Capital Circle, Southeast Tallahassee, Florida 32399-2189

Edward A. Dion, General Counsel Department of Labor and

Employment Security

Suite 307, Hartman Building 2012 Capital Circle, Southeast Tallahassee, Florida 32399-2189

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: 97-003871

Orders for Case No: 97-003871