STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

BUELL & COMPANY, INC., )

)

Petitioner, )

)

vs. ) Case No. 99-0645

)

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

)

Respondent. )

)

RECOMMENDED ORDER

On July 13, 1999, a formal administrative hearing was held in this case in Bradenton, Florida, before J. Lawrence Johnston, Administrative Law Judge (ALJ), Division of Administrative Hearings.

APPEARANCES

For Petitioner: Diana D. Buell, President

Buell & Company, Inc. Post Office Box 20369 Bradenton, Florida 34204

For Respondent: Joseph L. Shields, Senior Attorney

Department of Labor and Employment Security

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

STATEMENT OF THE ISSUES

The issue in this case is whether the Petitioner, Buell & Company, Inc., should be certified as a minority business enterprise (MBE).

PRELIMINARY STATEMENT

The Petitioner applied for MBE certification on

September 23, 1998. The Respondent, the Department of Labor and Employment Security, Minority Business Advocacy and Assistance Office, denied the application by letter dated December 8, 1998, but not postmarked until January 14, 1999, and received on January 19, 1999. The Petitioner requested a formal administrative proceeding on February 8, 1999, and the matter was referred to the Division of Administrative Hearings (DOAH) on February 11, 1999.

Based on the parties' Response to Initial Order, final hearing was scheduled for June 16, 1999, in Bradenton, Florida; but the Respondent filed a Motion to Reset Hearing, which was granted, and final hearing was rescheduled for July 13, 1999.

At final hearing, Diana and Paul Buell testified for the Petitioner, and the Petitioner had Petitioner's Exhibits 1 through 6 admitted in evidence. The Respondent recalled Diana Buell and called its consultant, Polly Williams; the Respondent had Respondent's Exhibits A through H admitted in evidence.

Neither party ordered a transcript of the final hearing. The parties were given ten days to file proposed recommended orders, but only the Respondent filed one.

FINDINGS OF FACT

1. The Petitioner, Buell & Company, Inc., was incorporated in 1993. For five years after its incorporation, the

   Petitioner's sole business was to be the sales representative in a seven-state district for Crystal Tips, a Texas manufacturer of ice-making equipment. From 1985 through 1993, Paul Buell was the sales representative for Crystal Tips in approximately the same district.

2. As sales representative for Crystal Tips, Paul Buell received technical training and acquired knowledge of Crystal Tips' products, tried to establish wholesale distributors in exclusive geographic territories in his district, and sold Crystal Tips products, primarily to the wholesale distributors. The wholesale distributors sold primarily to Crystal Tips dealers in the district. A smaller percentage of Paul's sales were to national and government accounts. Product was delivered from Crystal Tips to the distributor (or, in some cases, to the national or government account); Paul had no warehouse and no inventory. Crystal Tips compensated Paul through a sales commission.

3. When the Petitioner was incorporated, 51 percent of the company's stock was placed in the name of Diana Buell, Paul's wife; 49 percent of the stock was placed in Paul's name. Diana was made president of the company; Paul initially was vice- president, secretary and treasurer; later, the duties of secretary and treasurer were transferred to Diana. Paul and Diana are co-directors of the company; corporate action is taken on written consent of both directors without the necessity of a

   meeting. Diana and Paul each have the authority to withdraw funds from and write checks on the Petitioner's bank account (which requires only one signature); each has the authority to incur debt on behalf of the company.

4. When the Petitioner was incorporated, the Petitioner became the Crystal Tips sales representative. Otherwise, business continued the same as before. Paul was the Petitioner's representative in the field and its contact with Crystal Tips.

5. Through June 1999, Diana was a full-time school teacher. She worked for the company after-hours, on weekends, and on vacation from her full-time job. Diana's work was limited to input (with Paul) on company policies, maintaining the books of accounts, paying accounts due, figuring and paying taxes, suggesting and arranging for advertising and promotions, representing the company on occasion at trade shows, and mailing information to customers.

6. It was not clear from the evidence why Diana got 51 percent of the stock and was made president upon incorporation of the Petitioner when Paul was the one directly involved in creating and developing the business both before and after incorporation.

7. In early 1998, the Petitioner began a new phase of its business. The Petitioner and Crystal Tips had lost the Central Florida Crystal Tips distributors and were unable to replace them despite 18 months of trying. Central Florida dealers and

   customers of Crystal Tips equipment were forced to go to Miami or Pensacola for service, repairs, and parts. In addition, it was perceived that new sales in the area were suffering from the absence of a central Florida distributor. The Petitioner proposed to Crystal Tips that it be permitted to act as the Central Florida wholesale distributor.

8. Both Crystal Tips and the Petitioner perceived it to be unusual and a potential conflict of interest for the Petitioner, as the manufacturer's sales representative compensated by a commission on sales, to also act as a wholesale distributor. But both also saw no other way to meet their need for a wholesale distributor in Central Florida. It was decided that the Petitioner would have to establish a separate business entity to conduct the distributor business.

9. Instead of establishing a separate entity to conduct the distributor business, the Petitioner simply began to operate the new business by registering "The Ice Depot" as a fictitious name. No separate legal entity was created. All of the activities of the Petitioner, as sales representative, and The Ice Depot, as wholesale distributor, were operated under the legal auspices of the Petitioner. While separate records were maintained for The Ice Depot, the only bank account was under the name of the Petitioner, and all tax and payroll accounting was combined.

10. As The Ice Depot, the Petitioner warehouses Crystal Tips ice-making equipment on consignment in its warehouse

    facility in Bradenton, Florida. Upon the sale of equipment warehoused at The Ice Depot on consignment to either a dealer or end-customer, Crystal Tips invoices the equipment and pays the Petitioner its commission on the sale.

11. In addition, as part of The Ice Depot's business, the Petitioner buys parts and accessories for Crystal Tips equipment and stores them in The Ice Depot for sale to dealers and end- users and for use in service and repairs on Crystal Tips equipment. During the year ending June 30, 1999, The Ice Depot sold approximately $95,000 of parts and accessories at a cost of approximately $40,000. As of July 2, 1999, The Ice Depot had inventory costing approximately $105,000 with a retail value of approximately $275,000.

12. Approximately, 80 percent of the Petitioner's total revenues are from sales commissions. (These include not only sales of equipment on consignment at The Ice Depot but also sales of equipment to other distributors and sales to national accounts and government agencies.)

13. In addition to Paul, the Petitioner also employs Diana's brother, William Freeland. Freeland handles the day-to- day operations of The Ice Depot when Paul is away on sales calls or attending to the Petitioner's other responsibilities as sales representative for Crystal Tips. Freeland has acquired sufficient knowledge of the business and the products to take care of ordering new inventory as needed. He also bids on

    national and government agency accounts, using discount percentages authorized by Paul and Diana. There is some indication that Freeland also is responsible for some of the commissions earned by the Petitioner as a Crystal Tips sales representative. For this work, the Petitioner pays Freeland a salary of $2,100 a month, plus a bonus of $500 at least in some months.

14. It is not clear from the evidence how the Petitioner compensates Paul. The Respondent's preliminary investigation concluded that the Petitioner paid him a "$2,000/month salary and

    $1,000/month dividend and no other bonuses." But payroll records for the months of April through July 1998 were admitted in evidence and showed that Paul was paid $550 a month as an officer and no other salary for those months. Paul also receives dividends based on his stock ownership, depending on the Petitioner's corporate profits.

15. Diana retired from teaching at the end of the 1998-1999 school year. Since then, she has worked full-time for the Petitioner at The Ice Depot. In addition to her previous jobs, she now answers the telephone at The Ice Depot and helps dealers and customers who call. She is learning more about the business but still has much to learn compared to her husband and even her brother.

16. Diana has not yet been paid any salary by the Petitioner, but there are plans to begin paying her a salary now

    that she is full-time. Like Paul, Diana also receives dividends based on her stock ownership, depending on the Petitioner's corporate profits.

17. The Petitioner would use minority business certification to bid on state contracts not only on its behalf but also on behalf of Crystal Tips' other Florida distributors in Miami and in Pensacola.

    CONCLUSIONS OF LAW

    
    

18. The Minority Business Advocacy and Assistance Office of the Department of Labor and Employment Security is responsible for administration of Florida's MBE certification process. See Sections 287.0943 and 287.012(19), Florida Statutes (Supp. 1998).

19. Florida Administrative Code Rule 38A-20.005 provides in pertinent part:

    1. An applicant business must satisfy paragraphs (a), (b), (c), (d) and (e) 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.

       * * *

       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. 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 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 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 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.

       * * *

       (7) The applicant business shall establish that it is currently performing a useful business function in each specialty area requested by the applicant. For purposes of this rule, 'currently' means as of the date of the Office's receipt of the application for certification. The applicant business must also be currently providing goods and/or services to customers other than state agencies. The applicant business is considered to be performing a useful business function when it is responsible for the execution of a distinct element of the work of a contract and carrying out its responsibilities in actually performing, managing and supervising the work involved. The useful business function of an applicant business shall be determined in reference to the products or services for which the applicant business requested certification on Form MBE 7500. . . .

       (a) In determining if an applicant business

       is acting as a regular dealer and that it is not acting as a conduit to transfer funds to a non-minority business, the Office shall consider the applicant business' role as agent or negotiator between buyer and seller or contractor. Though an applicant business may sell products through a variety of means, the Office shall consider the customary and usual method by which the majority of sales are made in its analysis of the applicability of the regular dealer requirements. Sales shall be made regularly from stock on a recurring basis constituting the usual operations of the applicant business. The proportions of sales from stock and the amount of stock to be maintained by the applicant business in order to satisfy these rule requirements will depend on the business' gross receipts, the types of commodities sold, and the nature of the business operations. The stock maintained

       shall be a true inventory from which sales are made, rather than be a stock of sample, display, or surplus goods remaining from prior orders. Consideration shall be given to the applicant's provision of dispensable services or pass-through operations which do not add economic value, except where characterized as common industry practice or customary marketing procedures for a given product. An applicant business acting as broker or packager shall not be regarded as a regular dealer absent a showing that brokering or packaging is the normal practice in the applicant business industry.

       Manufacturer's representatives, sales

       representatives and non-stocking distributors shall not be considered regular dealers for purposes of these rules.

       
       

20. Florida Administrative Code Rule 38A-20.001(11) provides:

    "Regular dealer" means a firm that owns, operates or maintains a store, warehouse, or other establishment in which the material or supplies required for the performance of the contract are bought, kept in stock, and regularly sold to the public in the usual course of business. To be a regular dealer, the firm must engage in, as its principal business and in its own name, the purchase and sale of products as defined in Section 287.0943(1)(e)3., Florida Statutes. A regular dealer in such bulk items as steel, cement, gravel, stone, and petroleum products, does not need to keep such products in stock, if the dealer owns or operates the appropriate distribution facility and/or equipment,

    either of which shall be used by the business as its primary means to provide and deliver products to customers.

    
    

21. Under the facts of this case, Diana Buell cannot be considered the owner of 51 percent of the Petitioner under Rule 38A-20.005, Florida Administrative Code. Although she holds 51 percent of the stock in the Petitioner, it is clear that the Petitioner is operated as a family business in which husband and wife make joint business decisions for the company. Diana's authority and control over the Petitioner never has exceeded Paul's, notwithstanding her 51 percent stock ownership. At most, she shared authority and control with him.

22. The corporate by-laws reflect the reality and also make it clear that Diana and Paul share authority and control equally. They require written consent of both directors before the corporation can take action. Paul and Diana also are equally able to spend corporate funds (write checks and withdraw funds from the corporation's bank account) and incur corporate debt.

23. For years, the business of sales representative for Crystal Tips was Paul's primary means of contributing to the family's income; Diana contributed to the family income primarily through her profession as a teacher. As Paul's wife (and as a beneficiary of his part of the family income), Diana also helped with the business, as needed, to the extent that time and her abilities would permit. But the Petitioner always has been primarily Paul's responsibility and area of expertise. By

    comparison, Diana's knowledge of the business has been limited to office management.

24. Diana has never been paid a salary by the Petitioner. It has been reasonable for Paul to be paid a salary since he plays a more central and important role in making the company successful. The evidence did not prove that Diana is not receiving earnings and benefits commensurate with her stock ownership, as compared to Paul. (It likewise is not unreasonable for Diana's brother to receive his salary. He may well provide more valuable service to the Petitioner than Diana has to date, and he does not receive any dividend from the Petitioner by virtue of stock ownership.)

25. There is nothing wrong with the way in which the Buells conduct their family business. To the contrary, it is a normal and natural arrangement. But a normal and natural family business does not qualify for MBE certification based on the qualifications of just one spouse. In addition, for the other reasons set forth above, Diana Buell does not qualify as a minority owner of the Petitioner.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is

RECOMMENDED that the Respondent, the Department of Labor and Employment Security, Minority Business Advocacy and Assistance Office, enter a final order denying the Petitioner's application for certification as an MBE.

DONE AND ENTERED this 11th day of August, 1999, in Tallahassee, Leon County, Florida.

J. LAWRENCE JOHNSTON 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 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 11th day of August, 1999.

COPIES FURNISHED:

Diana D. Buell, President Buell & Company, Inc.

Post Office Box 20369 Bradenton, Florida 34204

Joseph L. Shields, Senior Attorney Department of Labor and

Employment Security

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

Sherri Wilkes-Cape, General Counsel Department of Labor and

Employment Security

The Hartman Building, Suite 307 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: 99-000645

Orders for Case No: 99-000645