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Administrative Law Court
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SC Administrative Law Court Decisions

CAPTION:
Jenner & Tyler Construction, Inc vs. DOT

AGENCY:
South Carolina Department of Transportation

PARTIES:
Petitioners:
Jenner & Tyler Construction, Inc

Respondent:
South Carolina Department of Transportation
 
DOCKET NUMBER:
02-ALJ-19-0095-CC

APPEARANCES:
Steven L. Smith, Esquire, for Petitioner

Linda C. McDonald, Esquire, for Respondent
 

ORDERS:

FINAL ORDER AND DECISION

STATEMENT OF THE CASEThis matter comes before the Administrative Law Judge Division (Division) upon the request of Petitioner Jenner & Tyler Construction, Inc. (Petitioner or Company) for a contested case hearing pursuant to S.C. Code Ann. § 1-23-600(B) (Supp. 2002) and 25A S.C. Code Ann. Regs. 63-700 et seq. (Supp. 2002), challenging Respondent South Carolina Department of Transportation's (Department) denial of Petitioner's application for certification as a Disadvantaged Business Enterprise (DBE). After notice to the parties, a final hearing before the Division was conducted on February 6, 2003. Upon review of the relevant and probative evidence and the applicable law, I find that the DBE Certification of Jenner & Tyler Construction, Inc. should be granted.

FINDINGS OF FACT

After observing the witnesses and considering the testimony and evidence presented at the hearing, I make the following Findings of Fact based on the preponderance of the evidence:

1. Notice of the date, time, place, and nature of the hearing was timely given to all

parties.

2.Jenner & Tyler Construction, Inc. is a construction firm which does “site work” for

commercial construction jobs. This type of work involves everything which prepares the property for vertical construction. It includes clearing the land, laying storm drains, reading blue prints to determine and set lines, etc.

3.Marshall Tyler is the President of the Company, which is a statutory close

corporation. He has over 21 years experience in site work. After working with Tim Jenner at Jenner Construction doing residential clearing and landscaping, Mr. Tyler wanted to form his own construction firm to return to doing commercial site work. Mr. Tyler talked with Mr. Jenner, and they agreed to establish Jenner & Tyler Construction, Inc. in April, 2000. The business was incorporated with Marshall Tyler owning 51% of the stock and Tim Jenner owning 49%. At the time of the initial incorporation, Tyler was Chairman of the Board of Directors, President and Secretary of the Corporation; Jenner was Vice-President and Secretary. Currently, Tyler continues as President and Jenner as Secretary. Tyler borrowed $20,000 from Jenner to open the business, and has paid back $10,000 as part of their verbal agreement to pay back the loan as the company made money.

4.In November 2002, the corporation was changed to a statutory close corporation to

provide a more streamlined operation. Tyler controls the corporation, including the organization of the company, the authority to bid for work and the authority to hire and fire employees for the company. Tyler still owns the majority of the stock and continues as President. He alone has the authority to sign checks for the company, and he is the only person who has ever signed a contract for the company. David Jensen, an employee of Jenner and Tyler, testified that Tyler is the person he goes to for everything, including safety concerns, vacations, permits, bids and proposals, and purchases.

5.The Respondent contends that Tyler does not “own” the corporation as required in

the state and federal statutes.

6.Mike Amerson, a general contractor, testified as to his experience in the commercial

construction industry, and his dealings with Jenner and Tyler Construction Company. He has hired Jenner and Tyler Construction approximately six or seven times in the past. He talks with Marshall Tyler about scheduling, work orders and employees. He has not talked with Jenner regarding any site work.

CONCLUSIONS OF LAW

Based upon the foregoing Findings of Fact, I conclude, as a matter of law, the following:

1.The Division has subject matter jurisdiction in this case pursuant to S.C. Code Ann.

§ 1-23-600(B) (Supp. 2002) and 23A S.C. Code Ann. Regs. 63-704(K) (Supp. 2002). The statutory standard of proof is to determine the case by a preponderance of the evidence.

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) (Rev. 2002). Businesses receiving the certification are then allocated a certain percentage of highway funds for construction and renovation projects.

3.As a recipient of federal highway funds, the Department is also 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. 2002).

4.Pursuant to the regulations, the Department has adopted the standards for certifying DBEs,

which are set forth in 49 C.F.R. Part 26. See 25A S.C. Code Ann. Regs. 63-702(A) and 63-703(A) (Supp. 2002).

5.“ DBE” stands for “Disadvantaged Business Enterprise” and is defined generally as a small

business concern owned and controlled by a socially and economically disadvantaged individual. See 49 CFR, Subpart A, Section 26.5. The regulations provide that Native American owners are rebuttably presumed to be socially and economically disadvantaged for purposes of the DBE program. See 49 CFR Section 26.67(a). The regulations further set forth certain rules to be used for determining whether or not the socially and economically disadvantaged individual "owns" and "controls" the firm as required by the eligibility standards. See 49 CFR 26.69 and 26.71.

6.A business 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. The Department does not contest that Jenner & Tyler Construction, Inc. meets the requirements of 49 CFR Part 26 as to individual disadvantage and business size. The Department contends only that the firm has failed to meet its burden of proving that it meets the requirements for ownership and control by the minority owner.

7.The DBE regulations require that:

The socially and economically disadvantaged owner must possess the power to direct and cause the direction of the management and policies of the firm and to make the day-to-day as well as long-term decisions on matters of management, policy and operations. 49 CFR Section 26.71(d).

8.In addition, the regulations provide the following in regard to the degree of technical

expertise required in order to control a firm within the meaning of the DBE regulations:

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. 49 C.F.R. § 26.71(g).

9.The regulations require the disadvantaged owner to have "technical competence" and

experience directly related to the type of business in which the firm is engaged and the firm's operations. Unfortunately, however, the regulations do not define "technical competence."

10.At the very least, "technical competence" must consist of "a base level of technical

knowledge of the industry" and "a sufficient background and expertise...with respect to delegated aspects of the business to be able to intelligently use and critically evaluate information" presented by employees in making "decisions concerning the daily operational activities of the business." See Car-Mar Construction Corp. v. Skinner, 777 F. Supp. 50, 55-56 (D.D.C. 1991). The evidence is clear that Marshall Tyler does have the technical competence and experience related to commercial site work, and makes cogent decisions concerning the daily operations of the company. See, e.g. Hoffman & Company, Inc. v. SC DOT, 00-ALJ-19-0533-CC.

11.The Department contends that Tyler does not "own" Jenner and Tyler Construction Company, Inc. within the meaning of the regulations because he did not make a "real and substantial" financial contribution to the firm. 49 C.F.R §26.69(c) sets forth that a firm's

ownership by 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.


Additionally, 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 . . . an unsecured note payable to the firm or an owner who is not a disadvantaged individual . . . .

11. Tyler’s initial ownership was acquired, in substantial part, by a loan from Jenner. However,

49 C.F.R §26.73(b) provides: “[y]ou must evaluate the eligibility of a firm on the basis of present circumstances. You must not refuse to certify a firm based solely on historical information indicating a lack of ownership or control of the firm by socially and economically disadvantaged individuals at some time in the past, if the firm currently meets the ownership and control standards of this part.”

12.Currently, the only debt Tyler owes to Jenner on the original loan of $20,000 is $10,000. In

addition, Tyler’s expertise is in the area of commercial site work. Jenner’s expertise is almost exclusively residential. Even though Jenner was the party who provided the capital to fund the start-up, Tyler had the experience and knowledge in the specific area of the business. He enjoys the “incidents of ownership, and [he] share[s] in the risks and profits. . . . .” This situation seems to be exactly the type to be addressed by the DBE program. Therefore, I conclude that Marshall Tyler has made, and continues to make, a real and substantial contribution to Jenner and Tyler Construction Company, Inc., and that he is the "owner" of the Company within the meaning of 49 C.F.R. §26.69.

13.The DBE regulations do not prohibit the involvement of non-disadvantaged persons in a firm. 49 C.F.R. § 26.71(e) states, in part, 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." Furthermore, 49 C.F.R. § 26.71(f) provides that:

[t]he 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.


Applying these guidelines to the facts of this case, it is undisputed that Tyler holds the position of President of Jenner and Tyler. The evidence further reveals that Tyler performs virtually all key management functions for the Company. Tyler has the power to direct the management and policies of the firm and to make both day-to-day and long-term decisions concerning the management, policy and operations of the Company.


ORDER

IT IS HEREBY ORDERED that the application for certification as a Disadvantaged Business Enterprise of Jenner & Tyler Construction, Inc., is GRANTED.

AND IT IS SO ORDERED.

____________________________________

CAROLYN C. MATTHEWS

Administrative Law Judge

April 24, 2003

Columbia, South Carolina


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