SC Administrative Law Court Decisions

After timely notice to the parties, a contested case hearing on the merits of Petitioner’s DBE application was held on March 26, 2003, at the Administrative Law Judge Division in Columbia, South Carolina. Noting a lack of communication between Petitioner and the Department during the application process, this tribunal, at the close of the hearing, ordered the Department to re-examine Petitioner’s application by considering additional documentation from Petitioner and conducting a second on-site review of the firm and ordered the parties to meet to discuss the application in light of the additional information. Accordingly, this matter was held in abeyance until the further consideration of Petitioner’s application could be completed. After reviewing additional documentation of ownership provided by Petitioner and conducting a second on-site review of TNT, the Department informed this tribunal, by letter filed April 10, 2003, that it no longer contests Ms. McMillan’s ownership of TNT, but that it nevertheless still contends that Ms. McMillan has failed to demonstrate sufficient control of TNT’s operations so as to qualify the firm as a DBE. However, based upon the evidence and arguments presented at the hearing of this matter, I find that Ms. McMillan does exercise control over TNT and that Petitioner’s application for certification as a DBE should be granted.

FINDINGS OF FACT

Having carefully considered all testimony, exhibits, and arguments presented at the hearing of this matter, and taking into account the credibility and accuracy of the evidence, I make the following Findings of Fact by a preponderance of the evidence:

1. Petitioner T-N-T of York County, Inc. is a general-purpose trucking company based in Fort Mill, South Carolina, and operating primarily in the Rock Hill, South Carolina, and Charlotte, North Carolina, areas. The trucking services provided by TNT generally include hauling materials to and from work sites for construction companies and other businesses with similar needs. At present, TNT directly owns and operates seven trucks and has eight employees; however, TNT also contracts work for some fifteen to twenty other owner-operated trucks. TNT is certified as a Disadvantaged Business Enterprise in North Carolina.

2. In 1996, Tammy McMillan and her husband, Tony McMillan, started a business known as T-N-T Trucking, which they operated essentially as a partnership. The sole asset of the business was a Ford dump truck purchased in 1996 for approximately $93,000. While Tony McMillan co-signed the promissory note for the purchase of the truck, Tammy McMillan provided the $7500 down payment for the loan, with $3000 from a gift from her father and the remaining $4500 from a personal bank loan. While T-N-T Trucking was in operation, Mr. McMillan drove the company’s dump truck while Ms. McMillan found work for the truck and handled the company’s administrative business matters. During this time, Ms. McMillan was also employed at Springs Industries in Rock Hill, South Carolina, as a programmer/analyst.

3. In 1999, dissatisfied with the difficulties of co-owning and operating a business with his wife, Tony McMillan left T-N-T Trucking to work as truck dispatcher and supervisor for Curtin Trucking and Drainage. At that time, he transferred his interest in T-N-T Trucking to Tammy McMillan, leaving her with 100% of the ownership interest in T-N-T Trucking. Ms. McMillan then incorporated the business in its current form as T-N-T of York County, Inc., with her as president and sole owner of the corporation. Finally, in 2000, Curtin Trucking, a company with which T-N-T Trucking had worked closely and for which Tony McMillan was employed, merged into Ms. McMillan’s current business, T-N-T of York County, and Mr. McMillan came to work for TNT as a dispatcher and truck driver.

4. As president and owner of TNT, Tammy McMillan finds jobs for TNT’s trucks and for the truckers who contract with TNT, calculates job prices and prepares bids for trucking jobs, purchases supplies and other equipment for the business, including the purchasing of TNT’s trucks, and handles the general business affairs of the company, including processing invoices, payroll, and other accounting matters, hiring and firing employees, and managing the company’s office. Ms. McMillan does not receive assistance from any other TNT employees in fulfilling her responsibilities as president and owner of TNT. In sum, Ms. McMillan manages the business operations of TNT and makes both short- and long-term planning decisions for the firm. Tony McMillan is an employee of TNT, who drives a truck for the company, performs some light maintenance on the firm’s trucks, and handles some of the dispatching for the company.^[1] Mr. McMillan does not share in the profits of TNT and instead receives a weekly paycheck for his services like the other TNT employees. Further, Mr. McMillan does not participate in the management decisions of the firm and instead defers to Ms. McMillan in such matters.^[2]

5. Prior to forming T-N-T Trucking with her husband in 1996, Ms. McMillan had no professional experience in the trucking industry. However, during the course of her work with her husband in T-N-T Trucking between 1996 and 1999, her informal association during that time with Curtin Trucking, and her operation of her current business from 1999 until the present, Ms. McMillan has acquired significant experience in the trucking industry. Before starting T-N-T Trucking with Ms. McMillan, Mr. McMillan’s experience in the trucking industry consisted of operating heavy equipment and driving trucks for Neal Grading and Land Clearing between 1989 and 1996. Since that time, he has worked as truck driver for T-N-T Trucking, a truck manager for Curtin Trucking, and a truck driver/dispatcher for TNT. While Mr. McMillan holds a commercial driver’s license (CDL), Ms. McMillan does not have any specific accreditation or licensure related to the trucking business.

6. On May 24, 2002, Tammy McMillan submitted an application to the Department for certification of TNT as a Disadvantaged Business Enterprise (DBE). On August 6, 2002, Rogie Nelson, a DBE certification analyst for DOT, conducted a site visit of Ms. McMillan’s home office and met with Ms. McMillan. By letter dated September 6, 2002, the Department denied the certification request on two grounds: (1) that Ms. McMillan had not demonstrated that she has greater than 50% ownership of TNT such that she is the majority owner of TNT and not merely an equal partner with her husband, and (2) that Ms. McMillan had not established that she has technical competence and experience in the trucking industry such that she is capable of exercising true control over TNT’s operations. As noted above, after a second site visit to TNT by Mr. Nelson on April 1, 2003, and a review of additional financial documentation provided by Ms. McMillan, the Department has decided to no longer contest Ms. McMillan’s ownership of TNT and now only challenges her qualifications to exercise genuine control over TNT’s operations. Petitioner contends that Ms. McMillan has sufficient competence and experience to exercise, and, in fact, does exercise, sufficient control over TNT so as to satisfy the DBE certification criteria.

CONCLUSIONS OF LAW

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

Jurisdiction and General Background

1. This tribunal has jurisdiction over this matter pursuant to 25A S.C. Code Ann. Regs. 63-704(K) (Supp. 2002) and S.C. Code Ann. § 1-23-600(B) (Supp. 2002).

2. S.C. Code Ann. § 12-28-2930 (2000) establishes a program to set aside expenditures of state highway funds for contracts with disadvantaged business enterprises (DBEs). Under this program, the Department, in allocating state highway funds for road, bridge, and building contracts, is required to “ensure that not less than . . . five percent are expended through direct contracts with estimated values of two hundred fifty thousand dollars or less with firms owned and controlled by disadvantaged females (WBEs).” S.C. Code Ann. § 12-23-2930(A)(1)(b) (2000).^[3] In order to certify eligible firms under Section 12-28-2930(A), see S.C. Code Ann. § 12-28-2930(B) (2000), and to comply with the federal disadvantaged business enterprises program, the Department has promulgated regulations to implement the state and federal DBE programs. See 25A S.C. Code Ann. Regs. 63-700 et seq. (Supp. 2002). Under those regulations, applicants for DBE certification in South Carolina must comply with and satisfy the DBE standards set forth in the federal regulations at 49 C.F.R. Part 26 (2002). See 25A S.C. Code Ann. Regs. 63-702(A) and 63-703(A) (Supp. 2002).

3. A “disadvantaged business enterprise” is defined by regulation as a “for-profit small business concern–(1) that is at least 51 percent owned by one or more individuals who are both socially and economically disadvantaged or, in the case of a corporation, in which 51 percent of the stock is owned by one or more such individuals; and (2) whose management and daily business operations are controlled by one or more of the socially and economically disadvantaged individuals who own it.” 49 C.F.R. § 26.5 (2002). In order to be certified as a DBE, an applicant has the burden of demonstrating, by a preponderance of the evidence, that it meets the regulatory criteria for DBE status, including the requirements regarding group membership or individual disadvantage, business size, ownership, and control. 49 C.F.R. § 26.61(b) (2002).

4. In the instant matter, the Department does not contest that Ms. McMillan, as a woman, is a socially and economically disadvantaged individual pursuant to 49 C.F.R. § 26.67(a) (2002) (creating a presumption that women are socially and economically disadvantaged individuals for DBE purposes) or that TNT qualifies as a small business pursuant to 49 C.F.R. § 26.65 (2002). Further, after an additional review of TNT’s financial documents, the Department does not contest that Ms. McMillan owns at least 51% of TNT and otherwise satisfies the ownership requirements of 49 C.F.R. § 26.69 (2002). Rather, the Department contends that Ms. McMillan, the qualifying disadvantaged individual, does not have sufficient technical competence and experience to “control” TNT, as defined pursuant to 49 C.F.R. § 26.71 (2002), so as to make TNT eligible for DBE certification.

Control

5. 49 C.F.R. § 26.71 (2002) sets forth the criteria for determining whether socially and economically disadvantaged owners control a firm seeking DBE certification. In order to be considered in control of a firm, the disadvantaged owners “must possess the power to direct or cause the direction of the management and policies of the firm and to make day-to-day as well as long-term decisions on matters of management, policy, and operations.” Id. § 26.71(d). Consequently, a disadvantaged owner “must hold the highest officer position in the company” and “must control the board of directors,” if the firm is a corporation. Id. § 26.71(d)(1), (2). Beyond these incidents of formal control over the firm, the regulations require that:

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. . . . [These 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.

Id. § 26.71(g).

6. Moreover, where, as here, after Mr. McMillan transferred his ownership interest in T-N-T Trucking to Ms. McMillan,

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 . . . 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.

49 C.F.R. § 26.71(l) (emphasis added).^[4]

7. In the case at hand, Ms. McMillan, as president of TNT, holds the highest officer position in the company, directs the management and policies of the firm, and makes both short- and long-term decisions regarding the management, policies, and operations of the business. Further, Ms. McMillan has demonstrated a sufficient understanding of, and managerial and technical competence and experience related to, the trucking industry such that she can intelligently and critically evaluate information presented to her regarding TNT’s activities and that she can make independent decisions regarding the management, policies, and operations of TNT. While Ms. McMillan does not have a commercial driver’s license and has never been employed as a truck driver, her general business experience with Springs Industries, including work with shipping and warehousing at Springs Industries, her work experience with her husband in T-N-T Trucking, and her informal apprenticeship with Curtin Trucking have provided her with significant experience in the trucking industry such that she has gained the basic knowledge and experience necessary to control TNT’s operations. It should be further noted that the trucking services provided by TNT, such as hauling debris from construction sites, are not highly-specialized or high-technical services that require specialized training or experience to be performed competently. Rather, the work performed by TNT is generally limited to calculating the appropriate rate for hauling the material in question and then assigning either a TNT truck or an owner-operated truck of a contracted trucker to handle the job. Accordingly, Ms. McMillan has sufficient technical competence and experience directly related to the trucking services provided by TNT such that she is capable of exercising control over TNT’s operations as defined by 49 C.F.R. § 26.71.

8. Beyond the technical regulatory requirements for control of the firm, the uncontradicted testimony of Ms. McMillan, Mr. McMillan, and Larry Edwards, a truck driver and dispatcher for TNT, establishes that, while she does not drive a truck for the firm, Ms. McMillan actually exercises full control over the business activities of TNT, including control of the management, policies, and operations of the company. As the individual in control of TNT, Ms. McMillan finds jobs for the firm, prices and bids those jobs, purchases supplies, equipment, and trucks for the company, hires and fires employees, and handles all of the other general business activities of the firm.

9. Further, there is no evidence in the record to suggest that Mr. McMillan or any person other than Ms. McMillan exercises control over TNT’s operations. The employment of Ms. McMillan’s husband, Tony McMillan, at TNT does not diminish Ms. McMillan’s control over the firm. The relevant regulations allow non-disadvantaged individuals, including immediate family members of the qualifying disadvantaged individuals, to have substantial involvement in a DBE so long as the disadvantaged individuals retain and actually exercise control over the firm’s operations, management, and policy. See 49 C.F.R. § 26.71(e) (permitting non-disadvantaged individuals to be involved in a DBE firm as owners, managers, employees, stockholders, officers, and directors), id. § 26.71(f) (allowing the disadvantaged owners of a DBE to delegate certain managerial, policymaking, and operational duties to non-disadvantaged individuals), id. § 26.71(k)(1) (providing that a disadvantaged individual may control a firm even though one or more of that individual’s immediate family members participate in the firm as a manager, employee, or owner). Such is the case here. Even though Mr. McMillan is a key employee of TNT, Ms. McMillan retains and exercises full control over the operations, management, and policy of the business.

10. Finally, Mr. McMillan’s decision to transfer his ownership interest in T-N-T Trucking to Ms. McMillan was made for reasons other than obtaining certification of TNT as a DBE. Mr. McMillan transferred his ownership interest in TNT to Ms. McMillan some three years before she sought certification of TNT as a DBE, and, in fact, after transferring his interest in the business, Mr. McMillan had no involvement with the firm for at least a year. Plainly, then, the transfer was not made to secure DBE certification.

11. Based upon the above conclusions, I find, by clear and convincing evidence, that Ms. McMillan holds and exercises full control over TNT’s management, operations, and policy-making. Therefore, as TNT is a small trucking business wholly owned and controlled by a woman, it qualifies for certification as a DBE.

ORDER

Based upon the Findings of Fact and Conclusions of Law stated above,

IT IS THEREFORE ORDERED that the Department GRANT the application of Petitioner T-N-T of York County, Inc. for certification as a Disadvantaged Business Enterprise pursuant to S.C. Code Ann. § 12-23-2930 (2000) and 25A S.C. Code Ann. Regs. 63-700 et seq. (Supp. 2002).

AND IT IS SO ORDERED.

______________________________

JOHN D. GEATHERS

Administrative Law Judge

Post Office Box 11667

Columbia, South Carolina 29211-1667

May 14, 2003

Columbia, South Carolina