TRB-88-038-AK, 6-3001-2075-2
CHTR 32193, 59548/T-87-468
CSC 9115, 59548/T-87-470
LCC 596, 914/T-87-467
IRCC 32193, 59548/T-87-469
STATE OF MINNESOTA
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE MINNESOTA TRANSPORTATION REGULATION BOARD
In the Matter of the FINDINGS OF FACT,
Consolidated Hearings CONCLUSIONS,
Related to Space Center RECOMMENDATIONS
Transport and Wintz AND MEMORANDUM
Freight Systems
The above-entitled matter came on for hearing before Allan W. Klein,
Administrative Law Judge, on May 2 and 3, 1988, in South St. Paul.
Appearing on behalf of the Transferor, Space Center, Inc., was William B.
Hockensmith, General Counsel, Space Center, Inc., 444 Pine Street, St. Paul,
Minnesota 55101.
Appearing on behalf of the Transferee, DGT Properties, Inc. was Corey J.
Ayling, of the firm of O'Connor & Hannan, 3800 IDS Center, Minneapolis,
Minnesota 55402.
Appearing on behalf of Protestant Bjorklund Trucking was Andrew R. Clark,
of the firm of Mackall, Crounse & Moore, 1600 TCF Tower, 121 South Eighth
Street, Minneapolis, Minnesota 55402.
Appearing on behalf of Intervenor Commissioner of Transportation was
Special Assistant Attorney General John B. Galus, 515 Transportation Building,
St. Paul, Minnesota 55155.
The record closed on August 1, 1988.
Notice is hereby given that, pursuant to Minn. Stat. 14.61, and the
Rules of Practice of the Public Utilities Commission, as applicable to the
Transportation Regulation Board, and the Rules of the Office of Administrative
Hearings, exceptions to this Report, if any, by any party adversely affected
must be filed within 20 days of the mailing date hereof with the Transportation
Regulation Board, Minnesota Administrative Truck Center, 254 Livestock Exchange
Building, 100 Stockyards Road, South St. Paul, Minnesota 55075. Exceptions
must be specific and stated and numbered separately. Proposed Findings of
Fact, Conclusions and Order should be included, and copies thereof shall be
served upon all parties. If desired, a reply to exceptions may be filed and
served within ten days after the service of the exceptions to which reply is
made. Oral argument before a majority of the Board may be permitted to all
parties adversely affected by the Administrative Law Judge's recommendation
who request such argument. Such request must accompany the filed exceptions
or reply, and an original and five copies of each document must be filed with
the Board.
The Minnesota Transportation Regulation Board will make the final
determination of the matter after the expiration of the period for filing
exceptions as set forth above, or after oral argument, if such is requested
and had in the matter.
Further notice is hereby given that the Board may, at its own discretion,
accept or reject the Administrative Law Judge's recommendation and that said
recommendation has no legal effect unless expressly adopted by the Board as
its final order.
STATEMENT OF ISSUES
May the IRCC and LCC permits presently held by subsidiaries of Space
Center, Inc. be transferred to subsidiaries of DGT Properties, Inc. without
violating the provisions of Minn. Stat. 221.151? More particularly, who
effectively controls DGT Properties, Inc. -- George W. Wintz, Jr. or Thomas G.
Wintz?
Based upon all of the proceedings herein, the Administrative Law Judge
makes the following:
FINDINGS OF FACT
Historical_Baclground
1. Prior to the summer of 1987, Space Center, Inc. owned and operated
Space Center Transport, Inc. This was an intrastate carrier holding LCC and
IRCC permits. It also owned a charter permit which is not at issue in this
proceeding.
2. Prior to the summer of 1987, Space Center, Inc. also owned and
operated Sterling Cartage Company, which held a courier services carrier
permit, which is no longer at issue in this proceeding.
3. In the two-year period prior to June of 1987, Space Center Transport,
Inc. used its LCC authority to handle general commodities throughout the Twin
Cities commercial zone. Accounts included 3M Company and Ford. T. 40-41.
4. In the two-year period prior to June of 1987, Space Center Transport,
Inc. used its IRCC authority to transport general commodities for a large
number of customers. An abstract of activity during 11 months (Ex. 102)
demonstrates service to approximately 100 Minnesota cities involving a broad
array of general commodities. T. 46-49, Ex. 103 and 104.
5. In the fall of 1986, Space Center, Inc. decided to explore the
divestiture of Space Center Transport and Sterling Cartage either through a
sale of the assets, sale of the stock, or through liquidations. It attempted
to locate a buyer for the companies, and ultimately began negotiations with
George W. Wintz, Jr. in the spring of 1987. T. 9.
6. After negotiations in May and June of 1987, it was agreed that the
transportation businesses of Space Center, Inc. would be sold to DGT
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Properties, Inc. One of the conditions of the sale was that the Space Center
name and logo could not be used after the sale. Immediately prior to the
sale, Space Center Transport changed its name to Wintz Freight Systems, Inc.
The sale took the form of a sale of stock, so that what was actually sold was
100 percent of the stock of Wintz Freight Systems, Inc. by Space Center, Inc.
to DGT Properties, Inc. After the sale, which occurred on June 19, 1987,
Space Center, Inc. took no part in the operation of the transportation
businesses.
7. DGT Properties, Inc. is a Minnesota corporation. It was formed on
May 19, 1986. The sole shareholder was George Wintz. Its first officers were
George Wintz, President; Thomas Wintz, Vice-President; and Julie McDonald,
Secretary. The sole director was George Wintz.
B. George Wintz is a successful trucking entrepreneur who owns Wintz
Truck Leasing Co., Winko Warehouse, Milbank Freightways, Quality Drivers, Twin
City Garage & Trailer Repair, and Opportunity Management, Inc. He also owns
98 percent of a partnership known as Wintz Investment Company. George Wintz
has a personal net worth in excess of $10 million. T. 229.
9. Wintz Truck Leasing holds local cartage, charter and contract carrier
authority pursuant to Minn. Stat. ch. 221. Winko Warehouse also holds a local
cartage permit. Milbank Freightways operates as an interstate carrier.
Opportunity Management, Inc. provides legal, financial and accounting services
to George Wintz and his various companies and to Thomas Wintz and his various
companies.
10. George Wintz was born in March of 1940. He began working in the
trucking business when he was still in school as a driver, and, in 1965,
started his own company. He has been involved in the transportation industry
since then. He has two children, Thomas George Wintz and Debra Strom.
11. Thomas Wintz was born in April of 1966. He is currently 22 years
old. He graduated from St. Thomas College in June of 1988. He was,
therefore, still a student at the time of the hearing and at all times
discussed in this Report. He is legally blind, but has progressed through
high school and college with a high degree of success. He graduated from St.
Thomas cum laude, with a 3.51 (A-) grade point average overall, and a 3.70
(A-) grade point average in his major field. T. 266. He has developed an
interest in electronics, having been licensed as an amateur radio operator as
a child, and has since become involved with computers. He has an aptitude for
independent study and self teaching, and has developed an ability to program,
debug and operate both microcomputers and minicomputers. T. 268.
12. Since the start of high school, and extending intermittently during
his college career, Thomas Wintz has performed various duties for his father's
businesses. He has done computer consulting, programming and debugging since
the ninth grade. In addition, he has been a dock laborer, dock foreman, and
weekend dispatcher. T. 258-78.
13. For a number of years, it has been the goal of both George Wintz and
Thomas Wintz that Thomas would establish himself in the trucking industry, but
independent of his father. T. 64, 280. A logical time for him to do this
would be upon his graduation from college. His college graduation was
scheduled for June of 1988. The acquisition of the Space Center businesses
occurred in June of 1987, a year ahead of the graduation date.
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The First Year of DGT and the Acquisition of the_Space Center Businesses
14. DGT was formed in May of 1986. At the outset, George Wintz was its
sole director, sole shareholder and president. T. 58, Ex. 114.
15. DGT Properties was named for George Wintz and his children, the
initials being the first letters of their first names, Debbie, George and
Tom. T. 391. George Wintz's testimony that there was no particular
significance to the initials is not credible. T. 58, 105.
16. In the spring of 1986, George Wintz entered into an agreement whereby
Wintz Investment Company would purchase a truck terminal located at 2707
Territorial Road in St. Paul. The purchase price was $500,000. T. 117. Once
DGT was formed, George Wintz assigned Wintz Investment's rights under the
purchase agreement to DGT. DGT then purchased the terminal. T. 118.
17. DGT financed the purchase of the terminal with a $650,000 loan from
Sprague National Bank. This bank loan was guaranteed by George Wintz
personally. Financing of the Territorial Road terminal resulted in a
$299,579.87 balance which was deposited in DGT's checking account at the St.
Anthony Park Bank. Ex. 7 and 8. The sole signatory on that checking account
at the St. Anthony Park Bank was George Wintz.
18. For approximately the next six months DGT leased the Territorial Road
terminal to Mix Transfer. T. 61.
19. In October of 1986, George Wintz caused DGT to acquire two residen-
tial condominiums, one in Roseville and the other in Scottsdale, Arizona.
These condominiums had originally been acquired by George Wintz, who assigned
them to Tom Wintz, who, in turn, assigned them to DGT Properties. The
condominiums still carried a mortgage from Sprague National Bank, which was
also assigned to DGT. T. 106-08. Since October of 1986, and for some time
before then, George Wintz has occupied the Roseville condominium rent-free as
his principal residence. The Arizona condominium has been used by George
Wintz, Thomas Wintz and other family members as a vacation property. T. 108.
DGT makes all mortgage payments on both condominiums. In addition, DGT pays
the association fees charged for the Arizona condominium. George Wintz pays
the association fees for the Roseville condominium. T. 108-09.
20. In addition to paying the association fees for the Arizona condo-
minium, DGT also pays the association fees for a second Arizona condominium,
which is owned by Thomas Wintz, but is occupied by his grandmother and
grandfather. T. 234-35.
21. During the first year of DGT's operations, the balance in its St.
Anthony Park Bank checking account declined from its high of $299,579.87 on
May 30, 1986 to $2,843.17 on May 29 of 1987. The bulk of the money was
withdrawn during June and July of 1986, and for the most part the balance
remained under $5,000 since the end of July, 1986. This reduction was
accomplished by George Wintz writing out checks totalling $181,700 to himself,
$169,000 to Wintz Investment Company, and $50,000 to obtain an option on a
terminal which was later assigned to Wintz Truck Leasing. The total of such
intercompany transfers out of DGT during that year was, therefore, $400,700.
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22. During the first year of operations, money deposited into the DGT
checking account from George Wintz and his companies totaled $190,885.93. Of
this, $170,852.35 came from George Wintz personally, $18,008.51 came from
Wintz Investment Company, and $2,025.07 came from Opportunity Management
Services.
23. Although both George and Thomas Wintz testified that it was the
intent of both that various intercompany transfers between DGT and George
Wintz (and his companies) would be interest bearing in both directions, there
is no evidence that any interest has, in fact, been computed or paid, either
by DGT or by George Wintz and his companies. While DGT has made regular
payments to banks and others outside of the family operations, there have not
been regular payments made to or from the family operations to reflect any
regular settling of debts or payment of interest for the May '86-May '87 time
period.
24. Explanations for the intercompany transactions included an argument
that it made no sense to leave large sums of money sitting in the DGT checking
account because that account was non-interest bearing, and, that advances made
to George Wintz or his companies enabled them to make profitable investments
that would eventually be credited to the benefit of DGT. However, there is no
paperwork memorializing these "investments", so that it would be impossible
based on this record to determine what profits were due to DGT or, for that
matter, if there were any profits at all. George Wintz candidly explained why
he wrote some checks to himself individually, while he wrote others to Wintz
Investment Company -- it depended upon which entity needed the money at that
particular time. T. 80-81. Moreover, George Wintz was unable to recall or
identify the details of any of the investments which were allegedly made for
the account of DGT. T. 178-80.
Purchase of the Space_Center Businesses
25. As detailed earlier, George Wintz negotiated, on behalf of DGT
Properties, for the purchase of 100 percent of the common stock of two
subsidiaries of Space Center Transport, Inc. By the time of the purchase,
these had been renamed Wintz Freight Systems, Inc. and Sterling Freight
Systems, Inc. The negotiations were handled entirely by George Wintz, and
Thomas Wintz did not participate in them at all.
26. In payment for the stock of these businesses, DGT paid $370,000 in
cash, and transferred the Territorial Road terminal free and clear of any
outstanding obligations. The total transaction was valued at approximately
$1,020,000.
27. In order to come up with the $370,000 cash portion of the payment,
George Wintz arranged for DGT to borrow $370,000 from the Maplewood State
Bank. The loan was personally guaranteed by George Wintz, and further secured
by his pledging the equipment of Wintz Truck Leasing as collateral. T. 67,
73-74, and 184-89.
28. In order to transfer the Territorial Road terminal free and clear, it
was necessary to pay off the existing mortgage. In order to do this, George
Wintz caused Wintz Truck Leasing to loan $1.4 million to DGT. On July 2, 1987,
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George Wintz signed a note on behalf of DGT for the $1.4 million. Ex. 110.
Part of the proceeds of this loan was used to clear the mortgage, and the
remainder ($712,552.20) was deposited in DGT's checking account. T 221, 380
and Ex. 22. The purpose of the excess cash was to provide sufficient operating
funds for DGT. Operating funds were needed because DGT had taken on the Space
Center businesses, and Space Center's pro forma combined balance sheets for
Wintz Freight Systems and Sterling indicated that current liabilities exceeded
current assets by $664,000.
Scaling Down the Space Center Businesses
29. At the time of the June 19, 1987 stock sale from Space Center to DGT,
Space Center Transport and Sterling Cartage, together, enjoyed approximately
$6,000,000 in annual traffic. Sterling owned approximately 50 units of
rolling stock, and Space Center Transport owned between 50 and 75 motorized
units and approximately 250 trailers. T. 189-94, 199-200, and 328-34. Thomas
Wintz felt this was more than he could handle. T. 280-81.
30. Wintz Truck Leasing and DGT agreed that within six months of July 2,
1987, DGT would sell certain rolling stock to Wintz Truck Leasing for a price
to be negotiated, but not to exceed $800,000. This was one of the provisions
in the $1.4 million loan agreement. This sale did, in fact, occur shortly
after the June 19 stock transfer. The fair market value of the rolling stock
was approximately $1.0 million. Its book value was around $700,000. T. 319.
31. The $1.4 million note from DGT to Wintz Truck Leasing calls for
interest to be paid monthly, commencing February 2, 1988, up to and including
January 2, 1991, at which time the entire balance then remaining is due and
payable. By the date of the hearing (May 1988), DGT had made no interest
payments to Wintz Truck Leasing. T. 350. Depending upon how the rolling
stock is valued (its fair market value was $1.0 million, but the note SayS the
purchase price shall not exceed $800,000), the balance outstanding on the note
is either $400,000 or $600,000. Interest is at the rate of nine percent, and,
therefore, the monthly interest payments would be somewhere between $3,000 and
$4,500. But if the various monies transferred in and out of DGT by George
Wintz and his companies are deemed to affect the outstanding balance on this
note, then the amount of interest due and owing, if any, is unknown, as there
has been no final accounting of those various transfers. T. 351.
32. The sale of the rolling stock resulted in all of Sterling's rolling
stock going to Wintz Truck Leasing, and all but between 20 and 25 of Space
Center Transport's tractors going to Wintz Truck Leasing. Aside from new
equipment purchased since then, the balance of the Space Center equipment is
currently owned and operated by Wintz Freight Systems.
33. In addition to the rolling stock, some of the business that used to
be carried by the Space Center companies has gone to Wintz Truck Leasing.
Wintz Truck Leasing acquired approximately $3.0 million of annual traffic
previously serviced by the two Space Center businesses, and Wintz Freight
Systems retained approximately $1.4 million. Sterling Cartage is dormant, and
handles no traffic. The balance of the Space Center business is being handled
by other carriers.
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Sale of DGT From George_to Thomas Wintz
34. The sale of DGT stock from George Wintz to Thomas Wintz was
accomplished sometime in May of 1987. The records are contradictory with
regard to the exact date. The actual purchase agreement for the sale of the
stock is dated May 27, 1987, and calls for a closing on May 27. The payment
for the stock was a $40,000 note. That note is dated May 12, 1987, and refers
to a purchase agreement dated May 12. There is no purchase agreement dated
May 12 in the record. Ex. 107 and 108. The corporate records indicate that
the stock certificate owned by George Wintz was surrendered on May 27, and
formally received on May 29, but a new stock certificate to Thomas Wintz was
not issued until July 25. Ex. 114, T. 286. Neither George nor Thomas Wintz
have any independent recollection of the dates upon which these various
documents were executed, and it can only be concluded that either the stock
purchase agreement or the note is in error. T. 205-06, 382-84.
35. June 19, 1987 was the closing date for the sale of the stock of the
Space Center businesses to DGT. George Wintz attended the closing, which was
a complex and prolonged affair, lasting over 15 hours. Near the end of the
closing, near midnight, George Wintz signed a thick stack of papers. Among
these papers was a document entitled "Certified Copy of the Resolutions of
the Combined Meeting of the Board of Directors and the Shareholders of DGT
Properties, Inc." See, Knapp Deposition Exhibit 2, part of Ex. 118. In that
document, George L. Wintz identified himself as the sole shareholder of DGT
Properties, Inc., and executed the document as sole director and sole
shareholder. The document authorized the stock purchase and the conveyance of
the Territorial Road terminal as part of the purchase price. When it later
came to light that this document was incorrect, George Wintz executed an
affidavit asserting that on May 27, 1987, all the stock of DGT was transferred
to Thomas G. Wintz, and that the certified copy of the resolutions which
George Wintz had executed on June 19, 1987 was mistakenly executed. The
affidavit goes on to state that as of June 19, 1987, Thomas G. Wintz was the
sole shareholder of DGT.
36. The DGT corporate record book also contains a document entitled
"Combined Meeting of Board of Directors and Shareholders of DGT Properties,
Inc.". This document is dated June 19, 1987, and contains the resolutions
which were discussed in the "Certified Copy of the Resolutions of the Combined
Meeting of Board of Directors and the Shareholders of DGT Properties, Inc."
which is part of the Knapp deposition. This document is signed by George L.
Wintz as sole director, and Thomas G. Wintz as sole shareholder. See, Ex. 114,
p. 24.
37. On July 29, 1987, Gilbert Wiedenhoeft, of the Department of
Transportation, sent a letter to Space Center Transport, Inc., indicating that
it had been reported to Mn/DOT that the IRCC, CHTR and LCC authority had been
sold. The letter requests Space Center Transport to provide certain
information to the Department regarding the sale and the new owners.
38. On August 4, 1987, Paul R. Knapp, corporate counsel for Space Center
Transport, Inc., replied to the Wiedenhoeft inquiry. He indicated that the
authorities were not sold, but rather the corporate stock was sold. He went
on to say that the stock was sold "to DGT Properties, Inc., a company
controlled by Mr. George Wintz." Knapp sent a copy of the letter to Mr.
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Stanley C. Olsen, who Knapp identified as an attorney representing DGT
Properties, Inc. with regard to operating authority issues. Ex. 32.
39. On August 11, 1987, Attorney Stanley C. Olsen sent a letter to Mr.
Wiedenhoeft. The letter was written to "correct misstatements" contained in
the Knapp letter. Olsen stated:
Mr. George Wintz is not the control person of DGT
Properties, Inc. The sole shareholder and control person
of DGT Properties, Inc. is Thomas Wintz.
Olsen sent a copy of this letter to Knapp, who was surprised by its contents.
Knapp had believed that George Wintz was the sole shareholder of DGT
Properties as a result of the document (Certified Copy of the Resolutions of
the Combined Meeting of Board of Directors . . ., Knapp Deposition Ex. 2,
described above) executed by George Wintz at the closing on June 19. Upon
receipt of Olsen's letter, Knapp telephoned Olsen and confirmed the letter.
Knapp was concerned because the Territorial Road terminal had been transferred
to Space Center in the transaction. Knapp wanted assurances that title to the
property was clear and that the person who had transferred the property to
them (George Wintz) had authority to transfer it. Knapp Deposition, p. 13.
Presidency of DGT
40. When DGT was first formed in May of 1986, George Wintz was elected
its first president. He continued in that position for the remainder of 1986
and into 1987. At the time of the June 19, 1987 closing discussed above,
George Wintz was still the corporation's president. Indeed, it was George
Wintz, and not Thomas Wintz, who participated in the closing. Thomas Wintz
did not even attend.
41. The corporate minute book contains a letter, dated July 15, 1987,
executed by George Wintz, whereby he resigned as president of DGT, effective
immediately. The minute book contains a written action of the Board of
Directors dated July 16, 1987, indicating that Thomas G. Wintz was elected
president of DGT.
42. The corporate minute book also contains an agreement between DGT and
George L. Wintz (hereinafter the "consulting agreement"). This agreement is
signed by Thomas Wintz as president of DGT. Ex. 112. It is dated July 1,
1987. This date must be an error. T. 386. The correct dates for George
Wintz's resignation and Thomas Wintz's election are July 15 and 16,
respectively.
Control of DGT After the AcquiAitions and Chanqe_of Officers
43. On June 19, 1987, when DGT acquired the Space Center businesses,
Thomas Wintz was still a college student. He was not scheduled to graduate
until May 1988. During the 1986-1987 winter, Thomas worked as a computer
consultant for Opportunity Management Services. He was assigned to Milbank
Freightways, where he was working with their computer. He worked approximately
20 hours per month, on the Milbank computer, and continued that work through
the summer of '87, the fall of '87, and the winter of '87-'88. He was still
doing it as of the date of the hearing (May 1988). T. 275-77.
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44. During the summer of 1987, Thomas Wintz did not go to summer school.
He resumed his studies, for his senior year, in the fall of 1987. He carried
a full load during the fall semester. Some classes were day classes, some
were evening classes. During the spring semester of his senior year (early
1988), he carried a 50 percent course load, made up of all evening courses.
45. In July of 1987, Thomas became the president and sole officer (and
sole director) of DGT. In addition, he is the president of Wintz Freight
Systems, which is the actual company operating equipment relevant to this
proceeding. Thomas is also the president of Sterling Freight Systems, which
is dormant.
46. A review of the checks drawn on the account of DGT from July 15, 1987
onward indicates no change from past practices: George Wintz signed all of
them, and they reflect large transfers of money to himself, Wintz Investment
Company, Debra Strom (George's daughter, and Thomas' sister), Craig Hallum, a
local broker-dealer where George Wintz maintained his personal investments,
payments on the condominiums (both in Roseville and Scottsdale), and payments
to a construction company in connection with work done on a residential
investment belonging to Debra Strom. Indeed, although the record contains
copies of checks and check registers from July of 1987 through March of 1988,
Thomas Wintz did not sign any of the checks. They were all signed by George
Wintz. Thomas Wintz was added as a signatory sometime in 1988. T. 12b-27.
47. On August 13, 1987, George Wintz issued a DGT check in the amount of
$210,000, payable to the Park Bank. When asked about this, he indicated it
was to purchase a cashier's check for payment to Wintz Truck Leasing in order
to reduce the $1.4 million note. But he was not sure of that. T. 155-56.
There are numerous checks flowing between Wintz Truck Leasing and DGT, and
none of them are cashier's checks. When asked further about why a cashier's
check was needed in this case, he was unable to explain the reason. T. 233-34.
Thomas Wintz had no knowledge of the check or its purpose. T. 352.
48. On February 5 and March 3, 1988, George Wintz signed and issued DGT
checks in the amounts of $20,000 and $15,000, payable to Merle's Construction.
These checks were for the purpose of paying for the repair of certain real
property which Debra Strom was preparing to put up for sale. T. lb6-70. This
is supposedly a loan to Debra, but like the other loans, there is no written
loan agreement or any evidence in the record of the purpose for the payments.
She has not made any repayments. Despite the fact that these were issued in
the winter of 1988, well after Thomas became the president of the company, he
did not know the purpose of the two checks until he heard his father testify
about them at the hearing. T. 386-87.
49. In general, Thomas Wintz had no knowledge of the money flowing
between DGT, his father, other companies controlled by his father, and to
third parties for payment of his father's obligations. He did not routinely
review the checks either before or after issuance. T. 128. At the time of
the hearing (May 1988), his accountants were still working on the income tax
returns for DGT and his own personal return in an attempt to compute the
interest due to and from DGT, George Wintz and the other Wintz companies.
T. 351-52, 356-64, 390-91.
50. It was planned that Tom would take over control of the DGT checkbook
in June or July of 1988. T. 86.
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51. Despite George Wintz's control of the DGT checkbook, Thomas Wintz did
control the day-to-day, nuts-and-bolts of the trucking operation. After the
company was "scaled down" as discussed earlier, Wintz Freight Systems had
between 20 and 25 trucks and 50 drivers. Fifteen of them were employed on a
regular fulltime basis. The customer base consisted of one large house
account, at which 11 trucks were domiciled, and the remainder was miscellaneous
irregular route hauling for a variety of customers. T. 291-93.
52. Thomas Wintz directly supervises all of the drivers. He carries a
beeper with him so that he can be located. He is responsible for collective
bargaining, grievances, and labor relations. T. 295-99.
53. Thomas Wintz handles customer relations, including the preparation of
bills. T. 296-97. He processes and computes the payroll. T. 294. He
handles the checkbook of Wintz Freight Systems and authorizes payment on all
bills. T. 300. He oversees maintenance schedules. T. 204-05. A fair
characterization of his activities, as compared with those of his father,
might be to characterize Thomas as the vice-president in charge of operations,
while his father is the chief executive officer. Neither of those titles are
legally correct, but they are accurate reflections of the division of labor
which has existed to date. From the date of its formation through the date of
the hearing, George Wintz effectively controlled DGT Properties.
Qther Indicia of Control
54. 2323 Terminal Road in Roseville is the administrative office of DGT
and its two subsidiaries, Wintz Freight Systems and Sterling Freight Systems.
This is also the location where George Wintz operates Wintz Truck Leasing.
George has provided Thomas with space, rent free.
55. Maintenance for DGT's rolling stock is performed by Wintz Truck
Leasing. The rolling stock is based (when not at a house account or
elsewhere) at the Wintz Truck Leasing facility.
56. DGT and Sterling Freight Systems have no employees. Wintz Freight
Systems has a number of drivers, but otherwise has no employees other than
Thomas. All administrative and clerical services are provided to DGT, Wintz
Freight Systems and Sterling Freight Systems, free of charge, by George Wintz
through his wholly owned management company, Opportunity Management Services.
These services include the preparation of Wintz Freight Systems' payroll
checks, invoices, and all necessary secretarial services. T. 98-99, 103-05,
and 295-98.
57. The secretarial support provided without charge is worth only
approximately $100 per month. The clerical support amounts to only another
$100 per month. The rent is worth between $200 and $500 per month.
58. Wintz Freight Systems receives $10,000 per month from Milbank
Freightways for the services of drivers and tractors to shuttle Milbank
trailers. In addition, Wintz Freight Systems receives another $10,000 a
month for the lease of approximately five trucks to Milbank. T. 306-07.
59. DGT hired George Wintz as a management consultant in an agreement
dated July 1, 1987. Ex. 112. For ten years, DGT must pay George Wintz a
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percentage of its gross revenues in monthly installments. For the first five
years, he is to be paid five percent of the gross revenues; for the sixth and
seventh years, six percent; and for the eighth, ninth and tenth years, seven
percent of the gross revenues. In addition, he is to be reimbursed for all
reasonable expenses. The agreement recognizes that he may continue other
business activities, and that it is not exclusive as to his time or services.
Finally, the agreement is not contingent upon any level of profitability of
the company. In other words, George Wintz is entitled to receive a percentage
of the gross revenues regardless of whether or not the company is profitable.
For example, if the operations of Wintz Freight Systems are consolidated with
DGT, there are roughly $140,000 in monthly revenues. T. 306-07. At the rate
of five percent of gross revenues, George Wintz is owed $7,000 per month, or
$84,000 per year. However, no payments have been made under the agreement.
While George Wintz initially spent between five and six hours per week
assisting Thomas, that has dropped, and now he spends only about ten hours per
month. Since this is less than was originally contemplated, George and Thomas
have agreed to renegotiate the consulting agreement to provide for remuneration
at an hourly rate, rather than as a percentage of gross revenues. The
renegotiation has not yet taken place, so the rate has not yet been set.
T. 85-94 and 313.
60. The consolidated income statement of DGT, Wintz Freight Systems and
Sterling shows $140,000 in monthly revenues, and $131,100 in monthly expenses.
If the free rent, secretarial service, clerical support and an estimate of the
hourly value of George Wintz's consulting is added in, the expenses increase
to $132,800. This leaves a Ing forma net profit (before taxes) of $7,200.
T. 315.
Procedural-Historv
61. On or about August 31, 1987, a Stock Transfer Reporting Form (Mn/DOT
Form 7059) was filed with the Department of Transportation. Ex. 115. It
indicates that Space Center, Inc. (Transferor) and DGT Properties, Inc.
(Transferee) did, on June 19, 1987, transfer shares of Wintz Freight Systems,
Inc. (f/n/a Space Center Transport, Inc.). The form indicates that the
transferee did not hold or own any other certificate or permit issued by the
Commission, but that it did own 100 percent of the stock in another permit
carrier, Sterling Freight Systems, Inc.
62. On or about September 9, 1987, a joint petition for transfer of local
cartage carrier authority was filed with the Department of Transportation on
Mn/DOT Form 7046. It indicated that Wintz Freight Systems, Inc. (f/n/a Space
Center Transportation, Inc.) was the transferor, and Wintz Freight Systems,
Inc. was the transferee. It indicated that Thomas G. Wintz was the sole
officer, sole director and sole shareholder. It indicated that transferee
presently held CHTR authority and IRCC authority, as well as ICC authority.
Ex. 116.
63. On or about September 9, 1987, a joint petition for transfer of
irregular route common carrier permit authority was filed with the Department
on Form Mn/DOT 7048. It indicates that the transferor is Wintz Freight
Systems, Inc. (f/n/a Space Center Transport, Inc.) and the transferee is Wintz
Freight Systems, Inc. It indicates that Thomas G. Wintz is the sole officer,
sole director and sole shareholder of the transferee. It indicates that
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transferee presently holds LCC and CHTR authority, as well as interstate motor
carrier authority. In response to the question, 'Please list if stockholder
or partner in other permit or certificate", the answer is "no". Ex. 117.
64. At the request of the Board, new joint petitions were filed. On or
about October 12, 1987, another joint petition for transfer of local cartage
carrier authority was filed with the Department on Form Mn/DOT 7046. This one
indicates that the transferor is Space Center, Inc. and the transferee is DGT
Properties, Inc. It indicates that Thomas G. Wintz is the sole officer, sole
director and sole shareholder of transferee, and that the transferee presently
holds IRCC and CHTR authority, as well as interstate authority. Notice of the
proposed transfer was published in the Board's weekly calendar of October 16,
1987, with a protest date of November 5, 1987. Protests were received from
four Protestants, and the matter was set for hearing on January 25 and
subsequent days, as part of a consolidated hearing involved not only the LCC
authority, but also the IRCC, CSC and CHTR authorities. Notice of that
consolidated hearing was published in the Board's calendar of December 18,
1987 and weekly thereafter. However, on December 15, 1987, the Protestants in
the LCC part requested that they be permitted to withdraw their protests.
65. On or about October 12, 1987, another joint petition for transfer of
permit carrier authority (relating to the IRCC authority) was filed with the
Department on Mn/DOT Form 7048. This petition indicated Space Center, Inc. as
the transferor, and DGT Properties, Inc. as the transferee. It indicated that
Thomas G. Wintz was the sole officer, sole director and sole shareholder of
the transferee, and that the transferee presently held LCC and CHTR authority,
as well as interstate motor carrier authority. In response to the question,
"Please list if stockholder or partner in other permit or certificate", this
form indicates that the answer is "no" with regard to Wintz Freight Systems,
Inc., but it goes on to indicate that DGT Properties, Inc. owns 100 percent of
the stock in Sterling Freight Systems, Inc., which holds CSC permit
authority. Notice of this joint petition was published in the Board's weekly
calendar of October 16, 1987, setting a protest date for November 5, 1987.
Protests were received from three Protestants, and the matter was scheduled
for hearing on January 25 and following days. Notice of the hearing was given
in the Board's weekly calendar of December 18, 1987, and weekly thereafter.
66. The consolidated hearing was continued from its January date in order
to permit parties to discuss settlement.
67. On February 19, 1988, the Commissioner of Transportation filed a
petition to intervene in the four proceedings in order to "present evidence
and argument concerning the public interest and the appropriateness of the
Board's approval of the transfer petitions involved in these proceedings
pursuant to Minn. Stat. 221.151." The transferees filed an objection to the
petition. On March 10, 1988, the Administrative Law Judge issued the First
Prehearing Order, wherein he granted the Commissioner's petition to intervene.
68. On March 28, 1988, a prehearing conference was conducted by telephone
call, and on March 29, 1988, the Administrative Law Judge issued the Second
Prehearing Order resolving various discovery disputes. As a part of this
Order, a Protective Order was entered to protect certain information which was
claimed to be proprietary information or trade secret.
69. The consolidated hearing included petitions to transfer IRCC, LCC,
CHTR and courier authority. However, by the start of the hearing in May,
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1988, the joint petitioners had withdrawn the courier permit and charter
permit petitions, leaving only the IRCC and LCC petitions at issue. And with
regard to those two petitions, by the time of the start of the hearing, all
Protestants had withdrawn their protests, subject to the adoption of a
restriction to the IRCC authority. T. 7 and 34.
PERTINENT STATUTORY EXCERPTS
Minn. Stat. 221.151, subd. 1 (1986) provides, in pertinent part:
Permits, except livestock permits, issued under section
221.121 may be assigned or transferred, but only upon the
order of the board approving the transfer or assignment
after notice and hearing.
Provided, however, that the board shall make no order
granting the sale or lease of a permit to a person or
corporation or association which holds a certificate or
permit, other than local cartage carrier permit, from the
board under this chapter or to a common carrier by rail.
If an authority to operate as a permit carrier is held by a
corporation, a sale, assignment, pledge, or other transfer
of the stock interest in the corporation which will
accomplish a substantial or material change or transfer of
the majority ownership of the corporation, as exercised
through its stockholders, must be reported in the manner
prescribed in the rules of the board within 90 days after
the sale, assignment, pledge or other transfer of stock.
The board shall then make a finding whether or not the
stock transfer does, in fact, constitute a sale, lease, or
other transfer of the permit of the corporation to a new
party or parties and, if they so find, then the continuance
of the permit issued to the corporation may only be upon
the corporation's complying with the standards and
procedures otherwise imposed by this section.
Based upon the foregoing, the Administrative Law Judge makes the following:
CONCLUSIONS
1. The Transportation Regulation Board has jurisdiction over the subject
matter of the hearing.
2. Proper notice of the hearing was timely given, and all relevant
substantive and procedural requirements of law or rule have been fulfilled
and, therefore, the matter is properly before the Administrative Law Judge.
3. There is no legal bar to the transfer of the local cartage carrier
permit (LCC 596) at issue in this proceeding. There are no remaining
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Protestants and the Commissioner has not made any showing of noncompliance.
The tests of Minn. Stat. 221.296, subd. 8 have been met with one
exception -- the notice of the stock transfer was not given within 30 days.
However, this is deemed to be directory, not jurisdictional. See, Memorandum.
4. With regard to the IRCC transfer, the sale of the stock interest in
Wintz Freight Systems, Inc. did accomplish a substantial or material change or
transfer of the majority ownership of the corporation to a new party or
parties within the meaning of Minn. Stat. S 221.151. Wintz Freight Systems,
Inc. is, therefore, required to comply with the standards and procedures
imposed by Minn. Stat. 221.151.
5. The Transportation Regulation Board is prohibited from issuing an
Order granting the sale of a permit to a corporation which holds a certificate
or permit. The Board has appropriately interpreted the statute to extend to
situations involving the transfer of a permit to a corporation which is owned
or effectively controlled by an individual with a pre-existing interest in
another certificate or permit (other than local cartage carrier permit).
Petition of Fritz Truckinq, Inc., 407 N.W.2d 447 (Minn. App. 1987).
6. DGT Properties, Inc., being effectively controlled by George L.
Wintz, Jr., does not comply with the standards of Minn. Stat. 221.151
because George L. Wintz, Jr. also effectively controls Wintz Truck Leasing,
which already holds contract carrier permit authority and charter permit
authority.
7. The appropriate test for determining whether George L. Wintz,
Jr.'s control of Wintz Truck Leasing Co. ought to be attributed to DGT
Properties, Inc. is not the traditional "pierce the corporate veil" test
used to determine a shareholder's financial liability for corporate debts.
Instead, the appropriate test is the plain meaning of the "effectively
controls" test of Fritz. Effective control means the ability to direct
the management and policies of a corporation. The question is one of fact,
to be determined not by any artificial test, but rather from the particular
circumstances of each case. It is a complex question requiring appraisal of
the overall effect of various relationships between individuals and other
circumstances present in a particular case based upon the realities of the
situation.
THIS REPORT IS NOT AN ORDER AND NO AUTHORITY IS GRANTED HEREIN. THE
TRANSPORTATION REGULATION BOARD WILL ISSUE THE ORDER OF AUTHORITY WHICH MAY
ADOPT OR DIFFER FROM THE FOLLOWING RECOMMENDATIONS.
Based upon the foregoing, the Administrative Law Judge makes the following:
RECOMMENDATIONS
1. That the joint petition to transfer local cartage carrier permit
authority be GRANTED.
2. That the joint petition to transfer irregular route common carrier
permit authority be DENIED; or, in the alternative, that it be GRANTED,
SUBJECT TO such conditions as the Board may prescribe to ensure that the
operations of DGT Properties, Wintz Freight Systems and Sterling Cartage are
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separated and isolated from those of George L. Wintz, Jr. within a reasonable
period of time. See, Memorandum.
Dated this 28th day of September, 1988.
ALLAN W. KLEIN
Administrative Law Judge
NOTICE
Pursuant to Minn. Stat. 14.62, subd. 1, the agency is required to serve
its final decision upon each party and the Administrative Law Judge by first
class mail.
Reported: Tape Recorded, Transcribed by Mary Ann Hintz.
MEMORANDUM
I.
Alternative recommendations are made because there is nothing illegal
about what the Wintzes are trying to accomplish -- the father is trying to
help the son get set up in business for himself. The law does not prohibit
this. The problem arises because George Wintz started about a year too
early, while Thomas was still in college. Thomas was unable to participate
in the formation of DGT, in the acquisition of the Space Center businesses,
and in the restructuring of those businesses into a manageable size for him
to operate. All that was done by George Wintz, with Tom either totally
absent or very much on the sidelines. There is no question but that from
the formation of DGT to the date of the hearing, George Wintz controlled DGT.
In late May of this year, however, Thomas graduated from college, and is now
able to devote his full energies to the businesses.
The purpose of the law would be served if Thomas Wintz were forced to
modify DGT's relationship with his father, so that Thomas controlled DGT in
fact, as well as in name. There is nothing in the law that prohibits members
of the same family holding permits, so long as they are truly independent of
each other.
The Board has the particular expertise to fashion the specifics of how
the two ventures ought to be separated, as well as to set reasonable time
periods to accomplish the details. Such conditions could relate to the
sharing of common services and facilities, the repayment of advances and
debts, prohibitions against future operational and financial entanglements,
and such other reasonable conditions as the Board might require in order
to ensure that the operations are kept independent of one another. The goal
is to make sure that George Wintz is not in control of DGT and its
subsidiaries.
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II.
One of the issues in this case is what test should be used to determine
who "effectively controls" DGT and Wintz Freight Systems. Counsel for DGT
urges that the test for "piercing the corporate veil" to determine individual
liability for corporate debts ought to be the test used here. See, for
example, Victoria Elevator Co. v. Meriden Grain Co., 283 N.W.2d 509 (Minn.
1979). On the other hand, counsel for the Commissioner urges that the
appropriate test is that derived from plain language and common usage of the
word "control".
The Commissioner's position is the correct one. In determining whether or
not a person effectively controls a corporation, each case must be determined
on its own facts. Relationships between individuals must be assessed and
evaluated, and the past history of corporate decision-making must be analyzed,
not only in terms of form, but also in terms of substance. It boils down to
deciding, as a practical matter, who was able to direct the management of the
corporation.
There can be no serious question but that George Wintz controlled DGT
Properties from the time of its inception up to the date of the hearing. He
decided who it would do business with, he decided on what terms and conditions
it would enter into contracts and arrangements, and he determined its size and
shape. The various transfers of money to and from DGT dramatically evidence
his total dominion and control, both before and after the transfer of stock
from father to son.
In conclusion, there is nothing wrong with George Wintz setting his son up
in business. The problem in this case arises because he started too early,
and, as of the date of the hearing, he still had not relinquished control to
his son. The only way in which the Board can allow the transfer to take place
is if it can be assured that George Wintz will not control DGT and its
subsidiaries. One way to achieve such assurance is to impose a list of
conditions, and a timetable for their completion. Otherwise, the Board must
deny the transfer.
IV.
The LCC permit transfer is governed by a different statute than the IRCC
permit transfer. The IRCC transfer statute requires notice of a stock
transfer within 90 days thereafter. The LCC transfer statute requires notice
within 30 days of the transfer. The notice given was, at best, given on
August 5 or 6, which is 48 or 49 days after June 19. The exact receipt date
of Ex. 32 is unknown.
There is no penalty specified in the statute for failure to give timely
notice, and no party to this proceeding has suggested that the failure to give
timely notice deprived the Board of jurisdiction over the transfer. Under the
circumstances, the delay is a harmless error.
A.W.K.
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