ORDERS:
FINAL ORDER AND DECISION
STATEMENT OF THE CASE
This matter comes before the Administrative Law Judge Division (“ALJD”) upon the request
of Petitioner Case Consulting for a contested case hearing pursuant to S.C. Code Ann. § 1-23-600(B)
(Supp. 2003) and 25A S.C. Code Ann. Regs. 63-700 et seq. (Supp. 2003), challenging Respondent
South Carolina Department of Transportation’s (“DOT”’s) denial of Case Consulting’s application
for certification as a Disadvantaged Business Enterprise (“DBE”). After notice to the parties, a
contested case hearing was conducted before this tribunal on February 25, 2004. Upon review of the
relevant and probative evidence and the applicable law, I find that Case Consulting’s application for
DBE certification should be denied.
FINDINGS OF FACTHaving 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.Notice of the time, date, place, and subject matter of the hearing was given to all
parties in a timely manner.
2.Case Consulting is a partnership registered to practice in South Carolina. The primary
business of Case Consulting is contract administration for construction projects and structural
engineering.
3.Calvin Wise is the President and Chief Executive Officer (“CEO”) of Case Consulting.
Mr. Wise is a licensed general contractor. Mr. Wise currently owns a 53% interest in Case
Consulting. His two partners are Albert A. Stevens, P.E., a licensed structural engineer, and Garris
M. Haynes, a structural designer. Mr. Stevens and Mr. Haynes each currently own a 23.5% interest
in Case Consulting. Mr. Stevens is the responsible engineer in charge of the engineering services of
Case Consulting.
4.Mr. Wise worked for another engineer, Wayne H. Mabry, for approximately eighteen
years before becoming a partner in Case Consulting. Mr. Wise’s decision to become a partner in Case
Consulting was prompted by his decision to go into business for himself. Mr. Wise, who had known
Mr. Mabry longer than either Mr. Stevens or Mr. Haynes, asked Mr. Mabry if he would loan him
some money so that he could go out on his own. Mr. Mabry agreed, and the two of them entered
into a Loan Agreement whereby Mr. Mabry individually agreed to loan to Mr. Wise individually up
to $12,000 for use in opening Case Consulting. The date of loan origination was listed as May 2,
2002.
5.The original Partnership Agreement pursuant to which Case Consulting was formed
was entered into on May 8, 2002. Pursuant to the Partnership Agreement there were originally four
partners in Case Consulting: Mr. Wise, Mr. Stevens, Mr. Haynes, and Mr. Mabry. Mr. Wise
originally owned a 51% interest, Mr. Stevens and Mr. Haynes each owned a 20% interest, and Mr.
Mabry owned a 9% interest in Case Consulting. The Partnership Agreement did not indicate what,
if any, initial contribution each of the four original partners made to acquire their respective
partnership interests, or how it was decided how much of an interest each individual would receive
in the partnership. According to Mr. Wise’s testimony, each of the partners contributed his expertise
to the partnership.
6.In December 2002 Mr. Wise, Mr. Stevens, and Mr. Haynes bought Mr. Mabry’s
shares of Case Consulting. Pursuant to an Addendum to the original Partnership Agreement, dated
December 12, 2002, Mr. Wise received 2% of Mr. Mabry’s interest, making his total share in Case
Consulting 53%, and Mr. Stevens and Mr. Haynes each received 2.5% of Mr. Mabry’s interest,
making each of their interests in Case Consulting 23.5%. The language set forth in the Addendum
to the Partnership Agreement indicates that Mr. Wise, Mr. Stevens, and Mr. Haynes each bought Mr.
Mabry’s interest in Case Consulting “in accordance with their respective interests in the Partnership.”
However, even though Mr. Wise owned the majority of the interest in Case Consulting, Mr. Wise,
Mr. Stevens, and Mr. Haynes each paid $1,000 for the ownership interests they acquired from Mr.
Mabry. According to Mr. Wise’s testimony, the three remaining partners simply came up with an
agreement as to how they would purchase and divide Mr. Mabry’s shares, which did not necessarily
coincide with the language of the Addendum regarding the buy-out.
7.In order to be certified as an engineering firm within the laws of South Carolina, Case
Consulting had to list on its application for certification an individual Professional Engineer who
would be the responsible engineer in charge of the engineering services of Case Consulting. Case
Consulting listed Mr. Stevens as its Professional Engineer.
8.The services Mr. Wise performs within Case Consulting include negotiation, set-up,
design and drafting, and construction contract administration for projects. At some point after or
towards the end of the design and drafting process, Case Consulting’s Professional Engineer, Mr.
Stevens, must review, sign, and seal the documents; Mr. Wise may not sign and seal the final
documents, as he is not a Professional Engineer.
9.Mr. Stevens also provides the services that Mr. Wise provides for the clients he brings
into the partnership. Approximately 45% of Case Consulting’s services are devoted to design, detail,
and drafting, services which are provided by all three of Case Consulting’s partners.
10.Pursuant to the Partnership Agreement, Mr. Wise, as the owner of a majority interest
in Case Consulting, has the ultimate power to hire and fire within the partnership.
11.According to their 2002 tax returns, Mr. Wise contributed $275 of capital in the year
2002, and Mr. Stevens and Mr. Haynes each contributed $122 of capital to Case Consulting in the
year 2002.
CONCLUSIONS OF LAW
Based upon the above-listed findings of fact, I conclude the following as a matter of law:
1.The Division has subject matter jurisdiction in this case pursuant to S.C. Code Ann.
§ 1-23-600(B) (Supp. 2003) and 23A S.C. Code Ann. Regs. 63-704(K) (Supp. 2003).
2.DOT is required to certify eligible firms to participate in the South Carolina DBE
program pursuant to S.C. Code Ann. § 12-28-2930(B) (2000).
3.As a recipient of federal highway funds, DOT is also required to implement a DBE
program in compliance with 49 C.F.R. Part 26. DOT 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. 2003). Pursuant to the regulations, DOT 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. 2003).
4.A DBE 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 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.
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
individual disadvantage, business size, ownership, and control. 49 C.F.R. § 26.61. DOT does not
contest whether Case Consulting meets the requirements of 49 CFR Part 26 as to individual
disadvantage or business size; DOT recognizes that Mr. Wise falls within the definition of a socially
and economically disadvantaged individual contemplated by the DBE laws. DOT contends only that
Case Consulting has failed to meet its burden of proving that it meets the requirements for ownership
and control by a disadvantaged individual, in this case Mr. Wise.
6.In determining whether the disadvantaged individual of a firm owns the firm, the finder
of fact must consider all the facts in the record, viewed as a whole. 49 C.F.R. §26.69(a). To be an
eligible DBE, a firm must be at least 51 % owned by a disadvantaged individual. 49 C.F.R. §
26.69(b). In the case of a partnership, the ownership by the disadvantaged individual of at least 51
% of the partnership interest must be reflected in the firm’s partnership agreement. 49 C.F.R. §
26.69(b)(2). Additionally, the disadvantaged individual’s ownership of the firm must be real,
substantial, and continuing, going beyond pro forma ownership of the firm as reflected in ownership
documents. The disadvantaged owner must enjoy the customary incidents of ownership and share
in the risks and profits commensurate with his ownership interest, as demonstrated by the substance,
not merely the form, of arrangements. 49 C.F.R. § 26.69(c).
7.In order to amount to ownership as contemplated under the DBE program,
contributions of capital or expertise by the disadvantaged owner to acquire his ownership interests
must be real and substantial. 49 C.F.R. § 26.69(e). Examples of insufficient contributions include
a promise to contribute capital and an unsecured note payable to the firm or to an owner who is not
a disadvantaged individual. Id.
8.As in determining ownership of the firm, to determine control of the firm the fact
finder must consider all the facts in the record, viewed as a whole. 49 C.F.R. § 26.71(a). For the
firm to be considered controlled by a disadvantaged owner, the disadvantaged owner must hold the
highest officer position in the company. 49 C.F.R. § 26.71(d)(1). In a partnership, the disadvantaged
owner must serve as general partner, with control over all partnership decisions. 49 C.F.R. §
26.71(d)(3). No non-disadvantaged partners may have the power, without the specific written
concurrence of the disadvantaged partner, to contractually bind the partnership or subject the
partnership to contract or tort liability. 49 C.F.R. § 26.71(p). A firm may only be granted DBE
certification for the specific types of work in which the disadvantaged owner has the ability to control
the firm. 49 C.F.R. § 26.71(n).
9.Regarding control of the firm, 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).
10.The disadvantaged owner of the firm may delegate various areas of management,
policymaking, or daily operations of the firm to other participants in the firm, regardless of whether
those other participants are disadvantaged individuals. 49 C.F.R. § 26.71(f). However, the
disadvantaged owner 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. 49 C.F.R. § 26.71(g).
11.According to the DBE program, if state or local law requires persons to have a
particular license or other credential in order to own and/or control a certain type of firm, then the
disadvantaged person who owns and controls a potential DBE firm of that type must possess the
required license or credential. 49 C.F.R. § 26.71(h). If state or local law does not impose such a
requirement, then the fact finder must not deny certification solely on the ground that the person lacks
the license or credential; however, the fact finder may take into account the absence of the license or
credential as one factor in determining whether the disadvantaged individual owner actually controls
the firm. Id.
12.No firm may engage in the practice of engineering in South Carolina unless one or
more of the people in full authority and responsible charge of such work is licensed to practice such
work in South Carolina. 24 S.C. Code Ann. Regs. 49-205(A)(3) (Supp. 2003). South Carolina law
allows the practice of engineering by individual licensed professional engineers through a firm offering
engineering services if the following criteria are met:
(1) one or more of the corporate officers, in the case of a corporation, or one or more
of the principal owners, in the case of other firms, are designated as being responsible
for the professional services regulated by this board and are licensed under this
chapter;
(2) all personnel of the firm who act on behalf of the firm as professional engineers
or land surveyors in this State are licensed under this chapter; and
(3) the firm has been issued a certificate of authorization by the board as required by
this section.
S.C. Code Ann. § 40-22-250(B) (Supp. 2003).
The “practice of engineering” is defined as “any service or creative work, the adequate
performance of which requires engineering education, training, and experience in the application of
special knowledge of the mathematical, physical, and engineering sciences to such services or creative
work as consultation, investigation, expert technical testimony, evaluation, design and design
coordination of engineering works and systems, design for development and use of land and water
. . . .” S.C. Code Ann. § 40-22-20(22) (Supp. 2003).
13.Mr. Wise testified that if he does not agree with the direction in which an engineer is
going, he can fire that engineer and bring in someone else he feels will go in the direction he chooses.
Mr. Wise thus exercises control over the engineers in Case Consulting through his power to hire and
fire. However, if Mr. Wise were to fire Mr. Stevens, the sole Professional Engineer of Case
Consulting, he would then have to hire another Professional Engineer and make that Professional
Engineer a partner in Case Consulting and apply for re-certification of Case Consulting with that
Professional Engineer designated as the person in responsible charge for the engineering services of
the partnership in order for Case Consulting to be able to continue providing the engineering services
that it does pursuant to South Carolina law. The Professional Engineer is an essential, integral part
of Case Consulting’s operation; Mr. Stevens, the only Professional Engineer at Case Consulting, is
the only partner and employee who can sign and seal final documents regarding the drafting and
designing of engineering projects, and he is the sole partner and employee in full authority and
responsible charge of all of the engineering work for Case Consulting.
According to Mr. Wise, engineering work is not the only work Case Consulting does; Case
Consulting also serves as consultant on many projects. Mr. Wise argues that there are many
components of the services provided by Case Consulting which do not constitute engineering, and
that he is ultimately in charge of those areas. However, it is clear that Mr. Wise is not the person in
full authority and responsible charge of all of the engineering work for Case Consulting, and it is clear
that if Mr. Wise were to exercise his power to hire and fire by firing Mr. Stevens, Case Consulting
would no longer be able to provide its engineering services until it gained re-certification with another
Professional Engineer partner, as described above. Further, Mr. Stevens’s role in Case Consulting
is not limited solely to signing off on designs Mr. Wise produces; rather, Mr. Stevens, like Mr. Wise,
negotiates, sets up, drafts and designs, and administers contracts for their clients, in addition to
signing and sealing final drafts.
Mr. Wise argues that “control” of the partnership means solely the ability to hire and fire.
However, control must include more than merely the ability to hire and fire employees. In the present
circumstances, considering all of the facts in the record as a whole, Case Consulting has not met its
burden of proving that Mr. Wise controls Case Consulting within the meaning of the laws governing
DBE certification.
14.As for ownership, Case Consulting has failed to establish what real and substantial
capital contributions Mr. Wise made to acquire his original 51% interest in the partnership. Mr. Wise
testified that the contribution he made to acquire his percent interest in Case Consulting was the Loan
Agreement he entered into with Mr. Mabry. However, that money was used for operating expenses,
not as a capital contribution. Additionally, that unsecured debt which Mr. Wise owed to Mr. Mabry,
a non-disadvantaged partner in Case Consulting, is insufficient contribution and does not rise to the
level of “real” and “substantial” contribution pursuant to the laws governing DBE certification. See
49 C.F.R. § 26.69(e). Mr. Wise failed to show any other contribution that he made to Case
Consulting that rises to the level of a “real” and “substantial” contribution sufficient enough to enable
him to acquire his initial 51% majority interest in the partnership. Thus, viewing all the facts in the
record as a whole, Case Consulting has not met its burden of proving that Mr. Wise owns Case
Consulting within the meaning of the laws governing DBE certification.
ORDER
Based upon the foregoing findings of fact and conclusions of law,
IT IS HEREBY ORDERED that Case Consulting’s application for certification as a
Disadvantaged Business Enterprise is DENIED;
AND IT IS SO ORDERED.
____________________________________
C. DUKES SCOTT
ADMINISTRATIVE LAW JUDGE
March 11, 2004
Columbia, South Carolina |
