ORDERS:
FINAL ORDER AND DECISION
This matter comes before the Administrative Law Court (“ALC”
or “Court”) pursuant to S.C. Code Ann. § 1-23-600(B) (2005 & Supp. 2007)
and 25A S.C. Code Ann. Regs. 63-700 to 718 (Supp. 2007). New South Associates,
Inc. (“New South”) challenges the decision by the South Carolina Department of
Transportation (“Department”) regarding its denial of New South’s application
for certification
as a Disadvantaged Business Enterprise (“DBE”).
The
Department is required to certify eligible firms for
participation in the state DBE program pursuant to S.C. Code § 12-28-2930(B). The
Department, as a recipient of federal funds, is also
required to implement a DBE program in compliance with 49 C.F.R. Part 26. The
DBE program allows eligible firms to compete for and receive portions of
construction projects as subcontractors. Participation in the DBE program is
limited to firms which are certified by the Department as
a DBE, based upon the standards and procedures set forth in 25A S.C. Code Ann.
Regs. 63-703 & 63-704 and 49 C.F.R. Part 26. To be certified as a DBE, a
firm must be owned and controlled by one or more individuals who are either
socially and economically disadvantaged ethnic minorities
or females. See S.C. Code Ann. Regs. 63-703; 49
C.F.R. § 26.5.
In
this case, the Department makes two general arguments,
some of which contain arguments on more specific points. The first issue
involves the contributions that three individuals (collectively referred to as
“the disadvantaged individuals”) – Mary Beth Reed (“Reed”), Theresa Hamby
(“Hamby”), and Natalie Adams (“Adam”) – made in order to acquire their
ownership interests, and the related issue of whether the disadvantaged
individuals share in the risks and profits of New South commensurate with
their ownership interests.
Secondly,
the Department contends that Joe W. Joseph (“Joseph”), a shareholder and
employee of New South, controlled and/or controls New South. New South
maintains that Joseph did not and does not control New South.
The
Department further contends that a transfer of shares from Joseph to Reed
should not be counted for purposes of Reed’s ownership interests in New South;
however, because of its rulings herein, the Court does not need to reach the
issue of ownership of these gifted shares.
Pursuant
to notice to the parties, a hearing in this matter was held on March 4, 2008,
at the offices of the ALC in Columbia, South Carolina. Both parties appeared
at the hearing. Evidence was introduced and testimony was given. After
carefully weighing all the evidence, the Court grants New South’s application
for DBE certification.
STIPULATIONS
Stipulation of Exhibits
The parties stipulated to the following
exhibits:
1. Application for DBE
Certification of New South Associates, Inc.;
2. Resumes;
3. Promissory Notes;
4. Security Agreements;
5. Unanimous Written Consent
February 2, 2007;
6. Amortization Schedule;
7. Loan Agreements;
8. SCDOT’s On-Site Inspection
and Owner Interview Report;
9. Denial Letter of June 28,
2007;
10. Denial Letter of August 21,
2007;
11. Articles of Incorporation;
12. Corporate By-Laws and
Amendments;
13. Corporate Stock Certificates
and Stock Ledger;
14. Minutes of Stockholders and
Board of Directors Meetings;
15. Georgia DBE Certification and
WBENC Certificate; and,
16. New South Balance Sheets and
Income Statements 2003-2006.
Further, New South offered its exhibit
number one, which was accepted into the record:
1. Copies of
paychecks for New South employees Reed, Hamby, and Adams.
Stipulation
of Facts
Pursuant to ALC Rule
25(C), the parties submitted to the Court the following Stipulations of Fact:
1. Prior to 2006, Joe Joseph
was an owner of New South Associates, Inc.;
2. Prior to
2006, Joe Joseph was a member of the Board of Directors that controlled New
South Associates, Inc.;
3. Joe Joseph currently serves
as Executive Vice President and Project
Manager for New South
Associates;
4. The stock certificates for
New South Associates stock are issued to the
following individuals with the number
of shares issued to each individual designated in parentheses after each name:
a. Joe Joseph
(149)
b. Mary Beth
Reed (288)
c. Natalie
Adams (123)
d. Theresa
Hamby (60); and,
5. Mary Beth Reed, Natalie
Adams and Theresa Hamby are women and
are
presumed to be disadvantaged individuals under the DBE regulations.
FINDINGS
OF FACT
Having
observed the witnesses and exhibits presented at the hearing and closely passed
upon their credibility, and taking into consideration the burden of persuasion
by the parties, the Court makes the following Findings of Fact by a
preponderance of the evidence:
1. New South was incorporated as a Georgia corporation on September 22,
1988. Its principal place of business is 6150 East Ponce de Leon Avenue, Stone Mountain, Georgia 30083. New South currently has 51 permanent employees; approximately
30 of its employees are females.
2. New South is a cultural resources management firm. It conducts studies
and site reviews in archaeology, history, and architectural history for its
clients. Its clients include federal agencies such as the Department of
Energy, the Centers for Disease Control, and Army Corps. of Engineers, state
agencies such as the Georgia and South Carolina Departments of Transportation,
and numerous private companies.
3. New South was owned by 3 shareholders from its inception in 1998 until
2006: JMA Services, Inc. – a/k/a John Milner and Associates – (“JMA”), Joseph,
and Thomas R. Wheaton (“Wheaton”). JMA did not actively participate in the
management or operation of New South. Rather, it provided financial assistance
and business advice to New South. New South was owned by non-disadvantaged
individuals until January 30, 2006.
4. When New South was incorporated, JMA owned 102 shares, Joseph owned 99
shares, and Wheaton owned 99 shares. From July 2, 1991 until January 30, 2006,
its shares were owned as follows:
a. 306 shares by JMA (34% of its issued and outstanding shares);
b. 297 shares by Joseph (33% of its issued and outstanding shares); and,
c. 297 shares by Wheaton (33% of its issued and outstanding shares.
5. From 1988 until December 9, 2005, New South’s Board of Directors (“Board”)
grew in size from a three-member board (consisting of Joseph, Wheaton, and Reed)
to a seven-member board (consisting of Joseph, Wheaton, Reed, Hamby, Adams,
Johannes Loubser (“Loubser”), and Hugh Matternes (“Matternes”)). Reed and Joseph are husband and wife.
6. From on or about December 9, 2005 until September, 2006, the Board consisted
of the following: Reed, Adams, Hamby, Joseph, Loubser, Matternes, and Yulounda
Ralls (“Ralls”), who replaced Wheaton. A majority of its members consisted of
females.
7. Presently, the Board consists of Reed, Adams, Hamby, Joseph, Matternes,
Ralls, and Chris Espenshade (“Espenshade”), who replaced Loubser in September,
2006.
8. As testified to at the hearing and as shown in various records of New
South, its owners decided to provide for a succession plan for New South. Further,
the Board (which contained at least 4 females in many of these discussions),
realized that most of its younger employees were female and that any
reorganization would need to include them based upon their lengthy past
contributions, their management skills, and their expertise. Thus, the owners
decided to reorganize its ownership structure into one which would be owned by
these key female employees. They recognized that by so doing, the emerging
firm would be able to qualify for and take advantage of those business
opportunities afforded to business entities owned by women. On January 30,
2006, New South purchased 603 shares of New South stock owned by two of its
three stockholders (Wheaton and JMA). On the same day, New South sold 323
shares of its stock to the disadvantaged individuals, as follows:
a. 140
shares to Reed;
b. 123
shares to Adams; and,
c. 60
shares to Hamby.
As a result of the reorganization, the outstanding shares of
New South are now owned in the following amounts and percentages:
a. 149 shares (24.032 %) by Joseph;
b. 288 shares (46.4516 %) by Reed;
c. 123 shares (19.8387 %) by Adams; and,
d. 60 shares (9.6777 %) by Hamby.
9. Prior to January 30, 2006, Joseph was
the president and chief executive officer of New South and served as treasurer
of its Board. Currently, Joseph is its executive vice president and project
manager. He owns 149 shares of stock in New South, which is 24% of its
outstanding shares. Since January 30, 2006, his wife, Mary Beth Reed, is the
owner of almost 46.5% of the company’s stock and serves as its president and
chief executive officer. The disadvantaged individuals did not make any cash
payment for the stock purchase on January 30, 2006. They purchased shares on
that date by executing individual secured promissory notes payable to New South.
The consideration in each promissory note equaled the value each paid for the
stock she purchased. Pursuant to the provisions of the security agreements, a
third party, John E. Robinson – an attorney with McClarty, Robinson & Van
Voorhies, LLP – was named the escrow agent to hold the shares purchased in
trust pending full payment by the purchasers. Each disadvantaged individual
made a contribution of capital by executing the promissory notes and security
agreements and made a contribution of expertise to the furtherance of the good
will of New South.
10. The terms of the promissory notes
executed by each of the disadvantaged individuals are similar:
a. interest is paid by the individual to
New South on the principal balance at
a rate of 7% per annum;
b. payments are made payable to New South for
a term of fifteen (15) years
and the note will be paid in full on February 1,
2022;
c. New South is granted the right to
accelerate payments in the event of
default in payment; and,
d. New South may recover attorney’s fees in
the event the terms of the notes
are breached.
11. Each note differs on the principal
amounts owed and the required monthly payments:
a. Reed’s note is for the principal amount
of $156,112.60, and requires
monthly payments in the amount of $1,403.18;
b. Adams’
note is for the principal amount of $137,156.07, and requires
monthly payments in the amount of $1,232.80;
and,
c. Hamby’s note is for the principal amount
of $66,905.40, and requires
monthly payments in the amount of $ 601.36.
12. Each of the disadvantaged individuals
makes bi-monthly payments on her respective note by means of a deduction from
her paycheck at New South. These cash payments become an asset of the company
which increases the value of the stock owned by each stockholder.
13. On March 4, 2008, the disadvantaged individuals
had made payments toward the principal and interest owed on their respective
promissory notes as follows: $34,377.91 by Reed, $30,203.58 by Adams, and $14,733.32 by Hamby.
14. Each of the disadvantaged individuals
secured their promissory notes to New South by executing a security agreement
in which they pledged as security their shares in New South. Further, the
terms of the security agreements provided, that upon default in payments, New
South had the right to take possession of the shares owned by the maker.
15. Further, each disadvantaged individual executed
personal guarantees in connection with their note and security agreement.
16. New South has been certified by the
Georgia Department of Transportation as a DBE.
17. Reed is a female with a net worth of less than $750,000. She is the
President of and Director of History for New South. Reed has been with New
South since its inception in 1998. Her resume chronicles her substantial
education and experience in the areas of history and anthropology. Reed’s
current salary is $92,000 per year. She testified extensively about her
involvement in New South and particularly concerning her duties and obligations
since becoming an officer and shareholder. Reed testified that she sets the
agenda for New South’s Board and that she places matters to the Board for its
consideration. In addition to her duties as New South’s Director of History,
Reed described her involvement in the preparation of and review of bid
proposals and contracts, as well as other aspects of its business. The minutes
of the Board’s meetings demonstrate Reed’s leadership, involvement, and
participation in New South’s business affairs.
18. Adams is a female with a net worth of less than $750,000. She is the
Vice President of and Director of Archaeology for New South. She is the branch
manager for its South Carolina office. Adams has been with New South since
1996. Her resume chronicles her substantial education and experience in the
field of archaeology. Adams’ current salary is $77,000 per year. She described
her duties and responsibilities with New South in her testimony and stated that
they have increased since she became an officer and shareholder. The minutes
of New South’s Board meetings describe Adams’ active participation in its business
affairs.
19. Hamby is a female with a net worth of less than $750,000. She is the
Vice President for Express Projects and the Treasurer of New South. Hamby has
been with New South since 1989. Her resume chronicles her substantial
education and experience in the areas of anthropology and historic
preservation. Hamby’s current salary is $55,000. In her testimony, she
described her duties with New South and stated that they have increased since
she became an officer and shareholder. The minutes of New South’s Board meetings
describe Hamby’s active participation in its business affairs.
20. Reed, Adams, and Hamby gave testimony concerning their knowledge
of New South’s business as a cultural resource management firm. Each demonstrated
familiarity with its operations, its relationships with its clients and
customers, and its day-to-day operations.
21. On or about March 23, 2007, New South applied to the Department for
certification as a DBE. Alex Nelson (“Nelson”), currently employed with the
Department of Transportation, was project manager for the Department’s DBE
Program at that time.
22. After the Department concluded its investigation, it denied New
South’s request for DBE certification by letter dated August 21, 2007.
CONCLUSIONS OF LAW
Based on the foregoing Findings of Fact, I conclude
the following as a matter of law:
Jurisdiction and Background
1. This Court has subject matter
jurisdiction in this case pursuant to S.C. Code § 1-23-600(B) and 25A S.C. Code
Ann. Regs. 63-704(K).
2. The Department is required to certify
eligible firms to participate in the South Carolina DBE program pursuant to
S.C. Code Ann. § 12-28-2930(B).
3. As a recipient of federal highway funds,
the Department is required to implement a DBE program in compliance with 49
C.F.R. Part 26. The Department has promulgated regulations to implement both
the state and federal DBE programs in South Carolina. See 25A S.C. Code
Ann. Regs. 63-700 et seq. (Supp. 2007). Pursuant to regulations,
the Department adopted the standards for certifying DBEs which are set forth in
49 C.F.R. Part 26. 25A S.C. Code Ann. Regs. 63-702(A) and 63-703(A) (Supp.
2007).
Burden of Proof
4. The determination of whether individuals
or firms have met their burden of demonstrating group membership, ownership,
control, and economic disadvantage must be made by considering all the facts in
the record viewed as a whole. 49 C.F.R. § 26.61(b).
5. A firm seeking certification as a DBE
has the burden of demonstrating, by the preponderance of the evidence, that it
meets the requirements of 49 C.F.R. Part 26 concerning group membership or
individual disadvantage, business size, ownership, and control. 49 C.F.R. §
26.61(b).
6. The Department does not contest that New
South meets the requirements for business size. New South qualifies as a
“small business” because its annual gross receipts do not exceed the limitation
set out in the federal regulations. See 49 C.F.R. § 26.65; 13 C.F.R. §
121.201.
7. The Department denied certification to
New South based upon concerns about its ownership and control. It contends
that the disadvantaged individuals neither own New South in accordance
with the ownership standards set forth in 25A S.C. Code Ann. Regs. 63-701(E)
and 49 C.F.R. § 26.69 nor do they control New South as required by those
standards set forth in 25A S.C. Code Ann. Regs. 63-701(E) and 49 C.F.R. §
26.71. New South, however, contends that it meets the requirements of the
regulations concerning ownership and control.
8. The Department contends that the
disadvantaged individuals do not own New South because they did not make a real
and substantial financial contribution when they acquired their stock ownership
in it. Further, it contends that the method by which the disadvantaged
individuals obtained their ownership interests did not demonstrate that they
assumed or acquired any risk as mandated in the DBE rules.
Real and Substantial Financial Contribution toward
Ownership
9. The first issue presented is whether the amounts payable to
New South by the disadvantaged individuals (pursuant to their secured
promissory notes) represent “real and substantial” capital contributions
pursuant to 49 C.F.R. § 26.69(e).
49 C.F.R § 26.69(e)
provides that “[t]he contributions of capital or expertise by the socially and economically disadvantaged
owners to acquire their ownership interests must be real and substantial. Examples
of insufficient contributions include a promise to contribute capital, an
unsecured note payable to the firm or an owner who is not a disadvantaged
individual, or mere participation in a firm’s activities as an employee. Debt
instruments from financial institutions that lend funds in the normal course of
business do not render a firm ineligible, even if the debtor’s ownership
interest is security for the loan. Also, 49 C.F.R. § 26.69(c) provides that
“[t]he firm’s ownership by socially and economically disadvantaged individuals
must be real, substantial, and continuing, going beyond pro forma ownership of
the firm as reflected in ownership documents. The disadvantaged owners must
enjoy the customary incidents of ownership, and share in the risks and profits
commensurate with their ownership interests, as demonstrated by the substance,
not merely the form, of arrangements.”
As a threshold matter, the price paid by each of the disadvantaged
individuals for the shares of stock they purchased, as enumerated in their secured
notes and security agreements, was real and substantial. The amounts paid were
not nominal---they were based upon the actual value of the stock in New South.
Further, the amounts paid to New South for the stock did not consist of mere
promises to pay. The disadvantaged individuals signed notes and secured them
with collateral (security agreements using a third party/escrow agent who held
their stock until the amount owed to New South would be paid in full). The
disadvantaged individuals cannot pledge their stock or sell it until they
satisfy the notes; only at that time will the stock be released to them and
they will have clear title to the shares. This secured transaction is not
dissimilar to one with a financial institution where the asset (either real or
personal) that is pledged as collateral for payment of an amount borrowed is
released from the lien only when the balance owed on the outstanding
indebtedness is paid in full. Thus, although the “loans” for the stock
purchases were not made by a financial institution, the formalities and
legalities apparent in these transaction are just as apparent and legal. These
promissory notes are valid legal obligations by their makers which require them
to make payments to New South pursuant to an amortization schedule (which includes
the amount to be applied to reduction in principal and the amount to be applied
for interest). The notes contain acceleration clauses which authorize New
South to declare immediately due and payable the unpaid principal and the accrued,
unpaid interest if the disadvantaged individual fail to make payments on her
note when due; such a failure would cause the disadvantaged individual to lose
all her interest in the stock held as collateral and it would, upon default, become
an asset of New South and become treasury stock. Although the Department
asserted that the notes and security agreements are dissimilar to those made
with financial institutions because they require down payments, the Court
finds this position totally lacking in merit, without any basis, and absolutely
contrary to the practices of financial institutions. Further, the Court finds
that the regulation does not support this assertion. Accordingly, the Court concludes
that the disadvantaged individuals made real and substantial payments for their
stock purchases in New South.
The disadvantaged individuals, although they are the owners
of a majority of the shares of stock in New South, have made payments, as
delineated in the amortization schedules, on the amounts owed for the stock
purchases through bi-monthly deductions from their salaries with New South. Further,
the Court concludes that each disadvantaged individual has put at risk the
substantial amounts she has paid toward principal reduction if she were to
default on her note.
The Department contends that the “succession” whereby the
disadvantaged individuals became shareholders in New South was not legitimate.
However, it offered nothing to demonstrate that the disadvantaged individuals
were not qualified to become shareholders in New South, given their education,
experience, and tenure with New South. Furthermore, when the succession plan
was executed in January 2006, the Board was consisted of a majority of females.
These three females were legitimate individuals and well qualified – based upon
their ages, work history and experiences, education and management skills – to purchase
shares of stock in New South. It is significant that the disadvantaged individuals
have demonstrated a long-term commitment to New South through their many years
of employment there and through their “ownership” of the vast expertise in the
services provided by New South. Reed has been with New South for 20 years,
Adams for 12 years, and Hamby for 19 years. Their interests are intertwined
with the interests of New South and each has a vast degree of expertise in the various
facets of the company’s mission. Their years of day-to-day business and
management experience and expertise through their years of employment helped make
New South profitable and a “going concern.” The Court concludes that the promissory
notes and obligations herein together with all their terms and provisions
(which it finds legally valid), the consistent payments to New South by the
disadvantaged individuals as required by the notes, the risk of the
disadvantaged individuals upon default in payment of the amounts owed, the
length of service given by the disadvantaged individuals to New South, the
expertise of the disadvantaged individuals in those primary services which
constitute the mission and diverse cultures of New South, and their continuing
commitment to New South’s success, demonstrate that their contributions are “real
and substantial.”
Risk of Ownership
10. The second issue the Court will
consider is whether the disadvantaged individuals have complied with the
requirements of 49 C.F.R. § 26.69(c) and 49 C. F. R. § 26.71 (d) which involves
the enjoyment of the customary incidents of ownership, sharing the risks and
profits commensurate with their ownership interests and, the power to direct
and cause the direction of the management and policies of the firm and to make
day-to-day decisions as well as long term decisions on matters of management,
policy and operations.
It is clear that the disadvantaged individuals
share in the profits and risks of New South commensurate with their ownership
interests. Each personally guaranteed a number of New South’s debts which subject
the disadvantaged individuals to greater risk than entailed by their actual
ownership interest. In the event that New South files for bankruptcy, these
individuals will be responsible for the debts of New South pursuant to the
personal guarantees. However, it is clear from the record that the
disadvantaged individuals, as shown by their financial and business
contributions, are determined that New South will not face bankruptcy or other
financial crisis, and their actions follow their commitment to New South. Thus,
their interests are clearly aligned with those of New South. In addition, the
disadvantaged individuals share in the profits of New South commensurate with
their ownership interests. Their salaries have increased since they became
shareholders and are more commensurate with their ownership interests.
Control
11. Finally, the Department posits
that the disadvantaged individuals do not control New South as required by
applicable regulations. It contends that Joseph formerly controlled New South
and that he continues to exercise a significant degree of control, albeit
informally. 49 C.F.R. § 26.71(1) provides that: “Where a firm was formerly owned and/or
controlled by a non-disadvantaged individual (whether or not an immediate
family member), ownership and/or control were transferred to a socially and
economically disadvantaged individual, and the non-disadvantaged individual
remains involved with the firm in any capacity, the disadvantaged individual
now owning the firm must demonstrate to you, by clear and convincing evidence,
that: (1) The transfer of ownership and/or control to the disadvantaged
individual was made for reasons other than obtaining certification as a DBE;
and (2) The disadvantaged individual actually controls the management, policy,
and operations of the firm, notwithstanding the continuing participation of a
non-disadvantaged individual who formerly owned and/or controlled the firm.”
Joseph did not “control” New South
either before or after the disadvantaged individuals acquired their shares of
stock in the company. He has never owned more than 33% of the stock of New
South, either before or after the stock purchases by the disadvantaged
individuals. Although he was its president and chief operating officer, Joseph
was one of a number of members of the Board; there is no evidence he controlled
its members. His position as president of New South was given to him pursuant
to authority delegated by the Board. JMA and Wheaton, the two other initial
shareholders, owned more than 50 % of the stock in New South and Joseph needed
their votes to institute any policy for New South. He acted solely in his
position as a manager.
The disadvantaged individuals must
show that they possess the power to direct or cause the direction of the
management and policies of New South and that they make its day-to-day
decisions as well as long-term decisions on matters of management, policy and
operations. Further, they are required to show that they 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. Also,
a disadvantaged individual must hold the highest officer position in the
company, and disadvantaged individuals must control the Board of Directors. 49
C.F.R. § 26.71(d) (1) & (2). In this case, the evidence shows that Reed holds the position of president of New South, which is
its highest office. Further, it is clear that four of the seven members of
its Board are females. There is no question that the disadvantaged individuals
possess an overall understanding of the technical as well as the managerial
aspects of New South and are capable of and direct its day-to-day operations as
well as make its long term decisions concerning the company’s operations.
Joseph, a non-disadvantaged individual, does continue to
serve on the Board and does function as an officer of the company. However,
he does not exercise any control in its operation and management. After observing
and listening to the testimony of the disadvantaged individuals concerning
their management skills and those needed to operate the many functions of this
company, it is clear to this Court that they operate this company. The
president exercises her authority for day-to-day duties as New South’s chief
operating officer and includes the Board in decision-making and policy-making
when appropriate and required. The Court notes that DBE regulations do not
prohibit Joseph from participating in the activities of New South as a
shareholder and officer. 49 C.F.R. § 26.71(e) provides that “[i]ndividuals 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.” The DBE regulations further
specifically allow the Board to delegate authority to other employees. 49
C.F.R. § 26.71(f) provides that: “The socially and economically
disadvantaged owners of the firm may delegate various areas of the management,
policymaking, or daily operations of the
firm to other participants in the firm, regardless of whether these
participants are socially and economically disadvantaged individuals.
Such delegations of authority must be
revocable, and the socially and economically disadvantaged owners must
retain the power to hire and fire any person to whom such authority is
delegated. The managerial role of the socially
and economically disadvantaged owners in the firm’s overall affairs must
be such that the recipient can reasonably conclude that the socially and economically
disadvantaged owners actually exercise control over the firm's operations,
management, and policy.”
The Board of New South retains the power to hire
and fire all its employees. That Board is dominated by females. Further, the minutes
from Board meetings demonstrate and the evidence during the trial adduces that
the Board exercises control over New South’s operations, management, and
policy. There is no evidence that any individual possesses or exercises the
power to control New South or that any individual is disproportionately
responsible for its operation(s). Joseph
neither controls New South nor has the Board delegated any authority or
responsibility to him to control it. Any authority that may have been
delegated to him by the Board in the past has been withdrawn. Further, his
designated responsibilities as an executive vice president and a project
manager do not provide to him any authority to control New South. It is clear
from the record that Joseph’s role is well-defined and limited to the area of
administration. As an example, Reed testified that she signs all contracts on
behalf of New South, not her husband. Additionally, the minutes from meetings of
New South’s Board demonstrate, in great detail, that Joseph does not actually
control New South or exercise disproportionate responsibility for the operation
of New South. It is clear that Joseph, just as any board member, may make
recommendations, which must be approved by the Board. Further, minutes of
various meetings of the Board reflect participation by all Board members and do
not demonstrate any disproportionate participation by Joseph.
The Court finds that the Petitioner
has met its burden in showing that the
disadvantaged individuals have complied with the requirements of 49 C.F.R. §
26.69(c) and 49 C. F. R. § 26.71 (d). The disadvantaged individuals enjoy the
customary incidents of ownership in their company and share in its risks and
profits commensurate with their ownership interests. Further, they have the
power to direct and cause the direction of the management and policies of New
South and to make its day to day as well as long term decisions on matters of
management, policy and operations. In addition, the Court finds that
Petitioner has shown, by clear
and convincing evidence, that the transfer of ownership and control of New
South to the disadvantaged individuals was made for reasons other than
obtaining certification as a DBE and, that they control the management, policy,
and operations of the firm and possess the
power to direct and cause the direction of the management and policies of the
firm, notwithstanding the
continuing participation of Joseph, a non-disadvantaged individual.
Accordingly, the Court finds and concludes that
the disadvantaged individuals exhibit the control over New South required
for it to be certified as a DBE.
ORDER
Based upon the foregoing Findings of Fact and Conclusions of
Law,
IT IS HEREBY ORDERED that the Department must
forthwith grant the application of New South Associates,
Inc. for certification as a Disadvantaged Business Enterprise.
AND IT IS SO ORDERED.
______________________________
Marvin F. Kittrell
Chief
Administrative Law Judge
April 8, 2008
Columbia, South Carolina
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