SC Administrative Law Court Decisions

Since Crider Appraisals, LLC has a female, Sylvia Crider, as its President and sole owner, Crider Appraisals seeks certification as a Disadvantaged Business Enterprise (DBE) under S.C. Code Ann. §12-28-2930 (2000) and 25A S.C. Code Ann. Regs. 63-700 (Supp. 2001), et seq. A review of the application by the South Carolina Department of Transportation (DOT) resulted in a denial of the requested certification. As a result of the denial, Crider Appraisals filed its request for a contested case with the Administrative Law Judge Division (ALJD). Jurisdiction over this case rests with the ALJD under S.C. Code Ann. § 1-23-600(B) (Supp. 2001) and 23A S.C. Code Ann. Regs. 63-704(K) (Supp. 2001).

Does Sylvia Crider hold and exercise the requisite degree of control over Crider Appraisals so as to entitle that firm to be certified as a Disadvantaged Business Enterprise?

1. Positions of Parties

Crider Appraisals argues that Sylvia Crider has the required power of control since she directs the management, sets policies, and makes the day-to-day decisions required to operate the business. On the other hand, DOT believes Sylvia Crider lacks the power of control for three reasons. First, Crider Appraisals is not independent. Second, Sylvia Crider does not have the technical expertise necessary to control the firm. Finally, non-disadvantaged individuals are disproportionately responsible for the operations of the firm.

2. Findings of Fact

I find by a preponderance of the evidence the following facts:

Sylvia Crider is not a licensed or certified appraiser. However, she has 25 years experience in the banking business and has received formal training and education in banking. Her banking duties have included reviewing real estate appraisals to ensure that the property being pledged as collateral for a bank loan was of sufficient value to support the loan.

Sylvia Crider has also worked in the field of real estate appraising. She and her husband, Heyward Crider, formerly owned Crider & Associates, Inc., a business offering real estate appraisals for a fee. In that business, Sylvia Crider was principally employed as the office manager for approximately fourteen years. However, in December 2001, she left her position as office manger to begin a new business, Crider Appraisals, LLC, a business engaged in providing appraisals of real estate for a fee. Her former employer, Crider & Associates, Inc., continues to operate, but is now owned solely by Charles Crider, Sylvia's son.

In the new business of Crider Appraisals, LLC, Sylvia Crider is the sole owner and President. However, Charles is the Vice-President. Further, Heyward, who is not currently an employee, is involved in the business in an advisory capacity, and Charles has assisted his mother in estimating and bidding as well as being consulted from time to time on business matters.

Crider Appraisals' principal place of business is 602 Pettigru Street in Greenville, South Carolina. The lot and the building housing the business is owned by Sylvia and Heyward who lease the property for $500 per month to their son's business, Crider & Associates, Inc. Crider & Associates, Inc., in turn, subleases to Crider Appraisals for $50 per month a 120 square foot room.

Since Sylvia Crider is not a licensed real estate appraiser, she does not provide real estate appraisals. However, for clients who seek real estate appraisals, Crider Appraisals hires licensed appraisers on a contract basis with the fees generated by the appraisals split between Crider Appraisals and the independent appraiser performing the appraisal.

The history of the business shows that Crider Appraisals has relied upon at least five different licensed appraisers to perform appraisals required by its clients: Smith, an independent appraiser who works under contract with Crider Appraisals; Mullikan, an independent "appraiser apprentice"working under contract with Crider Appraisals; Sylvia's husband, Heyward Crider, a licensed appraiser who supervises Mullikan's appraisal work; Sylvia's son, Charles Crider, an independent appraiser but who also holds the position of vice president of the firm; and Peden, a recently hired, independent appraiser, who works under contract with the firm. One of the five is a female, the other four are non-disadvantaged males.

In addition to being paid to provide an appraisal for a fee, Crider Appraisals also provides the service of reviewing appraisals. Indeed, Sylvia Crider performs review appraisals for her firm's clients even when the client is seeking an appraisal and not merely a review of an appraisal. In performing appraisal reviews, she personally reviews the appraisal report to see if the comparable sales are truly comparable to the subject property, whether the adjustments to values are reasonable, and whether the opinion of value is adequately supported.

3. Conclusions of Law

a. General Background

Both the General Assembly and Congress have determined that the effect of past discrimination in the contracting business has produced a need to provide opportunities for businesses that historically have been unable to obtain contracts because of discrimination against their owners. See 23 USC Section 101, specifically Public Law 105-108; 49 C.F.R. Part 26; S.C. Code Ann. Section 12-28-2930 (2000); 25A S.C. Code Ann. Regs. 63-700, et seq. (Supp. 2001). To meet the need to provide opportunities for these disadvantaged businesses, Congress and the General Assembly have required DOT to spend a portion of its funds with firms qualifying as disadvantaged businesses or DBE's.

Before a firm may participate in the DBE program, DOT must certify that the firm qualifies for DBE treatment. S.C. Code Ann. § 12-28-2930(B)(2000). To accomplish the certification task, DOT must establish a certification program that complies with the applicable federal regulations promulgated by the U. S. Department of Transportation. See 49 C.F.R. Part 26.

In meeting its duty to establish a proper DBE certification program, DOT promulgated regulations. See 25A S.C. Code Ann. Regs. 63-700 et seq. (Supp. 2001). Under those regulations, applicants for South Carolina DBE certification must comply with the DBE standards set forth in the federal regulations. See 25A S.C. Code Ann. Regs. §§ 63-702(A) and 63-703(A) (Supp. 2001).

b. DBE General Requirements

A "DBE" is "a small business concern owned and controlled by a socially and economically disadvantaged individual." See 49 C.F.R., Subpart A, § 26.5. The regulations provide that woman owners are rebuttably presumed to be socially and economically disadvantaged individuals for purposes of the DBE program. See 49 C.F.R. § 26.67(a). Further, the regulations impose specific rules for determining whether a socially and economically disadvantaged individual "owns" and "controls" the firm as required by the eligibility standards. See 49 C.F.R. §§ 26.69 and 26.71. In meeting those specific rules, the applicant must establish by a preponderance of the evidence that the criteria for DBE certification have been satisfied. See 49 C.F.R. § 26.61. In this case, the only issue is whether Sylvia Crider controls the firm for which DBE status is sought.

c. DBE Control Requirements

Here, DOT asserts that Sylvia Crider does not have the required control. First, her firm is not independent. See 49 C.F.R. § 26.71(b). Second, she does not have the critical technical expertise necessary to control the firm. See 49 C.F.R. § 26.71(g) and (h). Finally, individuals who are not disadvantaged are disproportionately responsible for the operations of the firm. See 49 C.F.R. §26.71(e).

i. Lack of Independence

The applicable federal regulations at 49 C.F.R. § 26.71(b) require a showing of independence.

Only an independent business may be certified as a DBE. An independent business is one the viability of which does not depend on its relationship with another firm or firms . . . . (1) In determining whether a potential DBE is an independent business, you must scrutinize relationships with non-DBE firms, in such areas as personnel, facilities, equipment, financial and/or bonding support, and other resources.

Under the facts of this case, Sylvia Crider's business, Crider Appraisals, LLC, is not independent of her son's business, Crider & Associates, Inc. On the contrary, the facts show that Crider Appraisals, LLC, is closely associated with Crider & Associates, Inc. and that the two operations are intertwined.

First, while far from fatal, it is noteworthy that even the outward physical appearance of the two businesses fail to plainly reflect an independence. Indeed, the two firms operate within the same building and utilize essentially the same floor space except for the fact that Crider Appraisals, LLC occupies a 120 square foot room.. Further, both firms engage in the same business of real estate appraising.

Second, Charles Crider, the owner of Crider & Associates, Inc., is the vice-president of Crider Appraisals, LLC. Charles has in the past and (at the time of this hearing) still discusses the business of Crider Appraisals, LLC with Sylvia Crider. Further, Charles Crider has performed appraisals for Crider Appraisals, LLC, and has assisted his mother in preparing the estimating and bidding for Crider Appraisals, LLC.

Finally, Sylvia Crider was formerly involved in the operations of Crider & Associates, LLC. Indeed, it was a business that Heyward and Sylvia started which subsequently became the business now run by Charles Crider.

Accordingly, Crider Appraisals, LLC, is too closely associated and intertwined with Crider & Associates, Inc. to pass the test of being an independent business. Thus, Crider Appraisals, LLC cannot be certified as a DBE.

ii. Lack of Technical Expertise

It is unlawful for a person, directly or indirectly, to engage in or conduct the business of, or to advertise or hold himself out as engaging in or conducting the business of . . .an appraiser within this State without first obtaining a permit, license, or certification as provided in Chapter 60 of Title 40 of the Code of Laws of South Carolina. S.C. Code Ann. § 40-60-210 (Supp. 2001). For South Carolina purposes one is conducting an "appraisal" if one performs "the act or process of developing an opinion of value for or in expectation of compensation. fee or other consideration." S. C. Code Ann. § 40-60-20(2) (Supp. 2001).

The DBE rules do not absolutely impose a mandatory duty that the woman owner hold a certificate or license for the field of expertise in which the business is engaged in order to obtain DBE status. Indeed, case law regards "as wholly illogical the notion that technical expertise can be the sole factor in determining who 'controls' a business enterprise." Jack Wood Construction Co., Inc. v. U.S. Department of Transportation, 12 F.Supp.2d 25 (D.D.C.1998). Thus, the absence of a license is not dispositive of the control issue. However, the lack of a license may not be ignored. Rather, such a lack is a proper factor bearing on a lack of control in the woman owner. 49 C.F.R. § 26.71(h).

More to the point, however, are the DBE regulations which specifically require the woman owner to have the technical competence in the type of business in which the firm is engaged to enable her both to intelligently and critically evaluate information presented to her and to use that information to make independent decisions concerning the firm's daily operations. Specifically, the regulations at 49 C.F.R. § 26.71(g) provide the following:

The socially and economically disadvantaged owners must have an overall understanding of and managerial and technical competence and experience directly related to, the type of business in which the firm is engaged and the firm's operations. The socially and economically disadvantaged owners are not required to have experience or expertise in every critical area of the firm's operations, or to have greater experience or expertise in a given field than managers or key employees. The socially and economically disadvantaged owners must have the ability to intelligently and critically evaluate information presented by other participants in the firm's activities and to use this information to make independent decisions concerning the firm's daily operations, management, and policymaking. Generally, expertise limited to office management, administration, or bookkeeping functions unrelated to the principal business activities of the firm is insufficient to demonstrate control.

Under the facts of this case, the primary business of Crider Appraisals, LLC is that of performing real estate appraisals for and delivering those appraisals to third party consumers. In providing that chief function of the business, Sylvia Crider is not a licensed or certified appraiser. Thus, she is unable to perform a real estate appraisal nor can she collaborate with a licensed appraiser to determine an ultimate opinion of value since to do so would be "developing an opinion of value for or in expectation of compensation." S.C. Code Ann. § 40-60-20(2) (Supp. 2001). Accordingly, her control of the appraisals issued by the firm are necessarily limited to an administrative review and not the technical control that would enable her to make independent decisions. Indeed, for DBE certification, the regulations contemplate the ability to make such independent decisions.

It is quite true that Sylvia Crider's firm offers the service of reviewing appraisals. ⁽¹⁾ Likewise, given her experience in analyzing and reviewing appraisals as the result of her work with the bank and her work with her husband's former appraisal business, it is equally true that she is capable of performing such reviews for her firm and that she is clearly in control of that aspect of her firm's work. However, such work reviewing appraisals prepared by others is in the nature of an administrative function, not as a professional provider of appraisal services. Thus, this administrative or clerical function does not rise to the level of the kind of technical control required by the regulations. Accordingly, DBE certification is not available.

iii. Lack of Disadvantaged Individuals

The DBE regulations governing control of the firm address the degree of participation of non-minority individuals.

Individuals who are not socially and economically disadvantaged may be involved in a DBE firm as owners, managers, employees, stockholders, officers, and/or directors. Such individuals, must not, however possess or exercise the power to control the firm or be disproportionately responsible for the operation of the firm. 49 C.F.R. § 26.71(e).

The primary product of Crider Appraisals, LLC is that of providing real estate appraisals. Such appraisals must be performed, signed and issued by a licensed or certified appraiser. Because Sylvia Crider is not an appraiser, she must rely exclusively on licensed appraisers. With the exception of a recent contract with a female appraiser, all of the appraisers relied upon by Sylvia Crider have been non-disadvantaged individuals.

For example, her husband, Heyward, is a licensed appraiser who does not issue appraisals, but who instead assists Mullikan (an appraisal apprentice who works for the firm) with the preparation of appraisals for the firm. As an appraiser apprentice, Mullikan must work under the supervision of a certified appraiser. Sylvia Crider's son, Charles, the vice president of the firm, is a licensed appraiser who has performed appraisals on behalf of the firm. Smith, a non-disadvantaged individual, also performs appraisals for the firm under a contract arrangement with the firm. Only recently has Sylvia Crider contracted with Peden, a female appraiser, to perform appraisals for the firm. Thus, the evidence produced shows that an overwhelming majority of the firm's appraisers (Heyward Crider, Charles Crider, Mullikan, and Smith being non-disadvantaged males with only Peden being a female) have been and continue to be non-disadvantaged individuals. Therefore, non-disadvantaged individuals are disproportionately involved in the operations of the firm and preclude certifying the current applicant as a DBE.

For the reasons stated above, Crider Appraisals, LLC, owned by Sylvia Crider, may not be certified as a Disadvantaged Business Enterprise by the South Carolina Department of Transportation.

AND IT IS SO ORDERED.

______________________

RAY N. STEVENS

Administrative Law Judge

Dated: November 7 , 2002

Columbia, South Carolina

1. Here, Crider testified that she performs review appraisals for her firm's clients even though she is not a licensed or certified appraiser. In performing appraisal reviews, she reviews the appraisal report to determine if the comparable sales are truly comparable to the subject property, if the adjustments to values are reasonable, and if the opinion of value is adequately supported. She distinguishes an appraisal review as being an "administrative review" rather than a "technical review." Indeed, such a distinction is recognized in Standard 3 of the Uniform Standards of Professional Appraisal Practice (USPAP) and in Advisory Opinion 6 issued by the Appraisal Standards Board. While only licensed or certified appraisers can perform technical reviews, administrative reviews can he performed by a variety of non-certified or non-licensed individuals such as lawyers, accountants, loan underwriters, bank examiners, and corporate decision-makers. However, the intent of the administrative review is to allow a non-appraiser to consider the information in the appraisal along with other information to enable the non-appraiser to make a business decision.