ORDERS:
FINAL ORDER AND DECISION
I. Introduction
Carol A. Smith (Carol) seeks to have C & J Enterprises certified as a Disadvantaged Business
Enterprise (DBE) under S.C. Code Ann. § 12-28-2930 (2003) and 25A S.C. Code Ann. Regs. 63-700
(Supp. 2003), et seq. After a review, the South Carolina Department of Transportation (DOT)
denied the requested certification. Carol challenges DOT’s decision in this contested case before
the Administrative Law Court (ALC) with jurisdiction in the ALC provided by S.C. Code Ann. §
1-23- 600(B) (Supp. 2003) and 23A S.C. Code Ann. Regs. 63-704(K) (Supp. 2003).
II. Issue
The issue here is whether Carol has the requisite degree of ownership in C & J Enterprises to qualify
the business as a Disadvantaged Business Enterprise.
III. Analysis
A. Findings of Fact
I find by a preponderance of the evidence the following facts:
In 1996, Carol and Jimmie Smith formed a business known as C & J Enterprises. As more fully
discussed in the Conclusions of Law, the only significant assets of the business are a computer and
a fax machine and from its inception Carol owned 51% of the business and Jimmie owned 49%. The
assets of the business were acquired from funds held in a joint savings account with the joint account
funds derived from separate deposits made over a period of years by Carol and Jimmie. The separate
deposits into the account were made from Carol’s and Jimmie’s respective employment incomes
with Carol’s employment income consisting of wages earned as an electrical technician from 1976
to 1993.
Over time, the activities of the business have changed. Initially, the business sold buses but later
began assisting lenders in repossessing buses. However, due to the declining health of Jimmie, the
repossession business was abandoned. In fact, Jimmie’s health has declined to a state that has
resulted in his being classified as disabled. As a result, the repossession business is no longer
feasible. Ultimately, due to Jimmie’s disability, Carol began a new business activity of inspecting
equipment of companies providing bus transportation. While Jimmie continues to advise Carol in
the new activity, his disability prevents any significant involvement.
The inspection activity began in late 2002 and continues today. However, on January 1, 2003, Carol
became the sole owner of the business when Jimmie relinquished his ownership in C & J Enterprise
to Carol.
B. Conclusions of Law
Based on the foregoing Findings of Fact, I conclude the following as a matter of law:
1. Background
Both the General Assembly and Congress have determined that the effect of past discrimination in
the contracting business produced a need to provide opportunities for businesses that historically
were unable to obtain contracts because of discrimination against their owners. See 23 USC § 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. 2003). To meet the need to provide opportunities
for these disadvantaged businesses, Congress and the General Assembly require DOT to spend a
portion of its funds with firms qualifying as disadvantaged businesses or DBE's.
However, 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)(2003). To accomplish the
certification task, DOT was given the duty of establishing a certification program that complied with
the applicable federal regulations promulgated by the U. S. Department of Transportation. See 49
C.F.R. Part 26. DOT met that duty by promulgating regulations. See 25A S.C. Code Ann. Regs. 63-700 et seq. (Supp. 2003). Under these regulations, applicants for South Carolina DBE certification
must comply with the standards set in the federal regulations. See 25A S.C. Code Ann. Regs. §§ 63-702(A) and 63-703(A) (Supp. 2003). Thus, the federal regulations are controlling.
2. DBE General Requirements
To qualify as a DBE the entity under review must be "a small business concern owned and controlled
by a socially and economically disadvantaged individual." See 49 C.F.R., Subpart A, § 26.5. Here,
Carol, a female, is rebuttably presumed to be a socially and economically disadvantaged individual
for purposes of the DBE program. See 49 C.F.R. § 26.67(a). Indeed, Carol’s status as a socially and
economically disadvantaged individual is not challenged. Likewise, DOT does not seek to deny the
DBE application on the ground that Carol does not control the business. Rather, the issue is one of
deciding whether Carol has the requisite degree of ownership in the business. See 49 C.F.R. § 26.69.
3. DBE Ownership Requirements
To qualify, Carol must show that she owns at least 51% of the business. § 26.69(b). In deciding
whether the 51% is met, a presumption arises that Carol is not the owner of any assets that she
acquired from her husband if she acquired the assets without adequate consideration and if Jimmie
is a “non-disadvantaged individual . . . who is . . . [i]nvolved in the same firm for which [Carol] is
seeking certification.” § 26.69(h)(1)(i).
Given the presumption of “non-ownership” found in § 26.69(h)(1)(i), DOT argues that Jimmie is a
non-disadvantaged individual (i.e., a white male) actively involved in the business for which Carol
seeks to obtain DBE status. Next, DOT argues that Jimmie transferred his ownership of company
assets to Carol and did so without adequate consideration so as to prevent such assets from being
considered owned by Carol for purposes of determining if Carol has the requisite degree of
ownership. Finally, DOT concludes by asserting that excluding the assets transferred to Carol by
Jimmie leaves Carol with less than the 51% ownership needed to obtain DBE status.
While I agree with much of DOT’s analysis, I am unable to agree with its conclusion that Carol lacks
the required degree of ownership. Certainly, Jimmie is a non-disadvantaged individual. Further, it
is true that he has played an active role in the business due to his advising Carol. Further, it is also
true that Jimmie relinquished his ownership of the business to Carol on January 1, 2003 and did so
without Carol having provided adequate consideration. Accordingly, given these circumstances,
Carol is presumptively not the owner of any assets that she acquired from her husband, Jimmie.
However, such conclusions do not leave Carol with less than the needed degree of ownership. On
the contrary, under the facts found in this case, the business assets were acquired from funds derived
in significant part from Carol’s employment income as an electrical technician over at least a 17 year
period. Moreover, the evidence establishes that Jimmie held only a 49% ownership in the business
assets, leaving Carol with majority ownership in the business.
Thus, even excluding Jimmie’s ownership interests, Carol still holds a 51% ownership in the
business. Accordingly, Carol satisfies the ownership requirement of § 26.69(b) so as to qualify her
firm as a DBE.
IV. Order
Carol A. Smith has the requisite degree of ownership of C & J Enterprises to qualify that entity as
a Disadvantaged Business Enterprise. Accordingly, the application seeking to have C & J
Enterprises certified as a Disadvantaged Business Enterprise is granted.
AND IT IS SO ORDERED
RAY N. STEVENS
Administrative Law Judge
Dated: August 16, 2004
Columbia, South Carolina |
