GLRS Leasing Services, LLC v. State of Michigan – 2.24

GLRS Leasing Services, LLC v. State of Michigan
Digest No. 2.24

Section 421.22

Cite as: GLRS Leasing Services, LLC v. State of Michigan, Oakland County Circuit Court, No. 2008 095740 AE (April 27, 2009).

Appeal pending: No
Claimant: State of Michigan
Respondent: GLRS Leasing Services, LLC
Docket no: 3012
Date of decision: April 27, 2009

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Holding: The Board’s decision that there was a transfer of business is contrary to law and not supported by the evidence on the record. The transfer of assets from LRS to GLRS is not deemed statutorily a transfer of business for purposes of assigning to the transferee the transferor’s rating account.

Facts: In 2004, there was a migration of 110 employees from LRS, a staffing leasing company, to GLRS, which was in the same business. There was no common ownership between the two companies but the owner of GLRS was still an employee of LRS as a commissioned salesperson. He had formed GLRS to provide PEO services, which LRS did not wish to provide. Some of these employees had told the Unemployment Insurance Agency examiner that the transfer was so that LRS could reduce its Worker’s Compensation costs and provide health insurance to those employees. LRS was also a client of GLRS, though GLRS also had contracts with other employers for its services.

Decision: The circuit court reversed the Board’s decision, and found that there was not a transfer of business under Section 22 of the MES Act.

Rationale: The migration of employees did not satisfy any of the four statutory ways that a transfer of business assets will be deemed a “transfer of business” under MCL 421.22. First, there was no evidence in this case that the transferee GLRS acquired the transferor LRS’ name or goodwill; GLRS merely used a similar name. Second, there was no evidence that GLRS continued all or part of LRS’ business, as GLRS was formed to provide a different type of service than LRS. Third, more than 75% of LRS’ assets were not transferred. Even assuming that employees were LRS’ only assets, 110 out of 191 transferred to GLRS, which is only 57%. Fourth, GLRS and LRS were not substantially owned or controlled by the same interests. There was no evidence that the owner of GLRS had any control over LRS, as he was a salesperson and not a manager, nor that LRS had any control over GLRS. Any work done for GLRS was done separately from LRS.  Therefore, the decision of the Board that there was a transfer of business was in error.

Digest Author: Alisa Hand, Michigan Law, Class of 2017
Digest Updated: 3/27/2016

GLRS Leasing Services v State of Michigan – 2.24

GLRS Leasing Services v State of Michigan
Digest no. 2.24

Section 22

Cite as: GLRS Leasing Services v State of Michigan, unpublished opinion of the Oakland County Circuit Court, issued April 27, 2009 (Docket No. 2008-095740-AE).

Appeal pending: No
Claimant: N/A
Employer: GLRS Leasing Services, LLC
Docket no.: 2008-095740-AE
Date of decision: April 27, 2009

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HOLDING: Transfer of business does not occur between two companies under Section 22 if (1) there is no evidence that transferee acquired transferor’s trade name or goodwill; (2) transferee and transferor provide similar, but different, services; (3) there is no evidence that transferor transferred more than 75 percent of its assets to transferee; and (4) owner of transferee did not previously hold a managerial position within the transferor.

FACTS: Between two consecutive years, the unemployment insurance tax rate for company LRS (Transferor) increased from 2.4 percent to 6.7 percent. Around the same time, Transferor transferred 135 of its 191 employees to company GLRS (Transferee). There were many connections between the two companie, such as the owner of Transferee was a one time employee of Transferor, and the two companies shared a controller and an accountant. Both companies were also in the business of providing staffing, except Transferee provided some services that Transferor did not. The owner of Transferee testified that he founded the new company because Transferor was not interested in providing such services.

The State of Michigan claims that a “transfer of business” occurred between the two companies under the meaning of Section 22 when Transferor transferred the employees to Transferee, while the Transferee argues that no such transfer occurred. The Board of Review found for the State of Michigan. Transferee appealed to the Circuit Court.

DECISION: The Circuit Court reversed the decision of the Board of Review as contrary to law and not supported by the evidence on the record.

RATIONALE: No transfer of business occurred under Section 22(a)(1) and (2). Transferee did not acquire Transferor’s trade name or goodwill, as transferee used a similar name but Transferor continued to operate under its own name. Furthermore, Transferee was formed to provide a service that owners of Transferor did not provide. Because Transferee provided services that Transferor did not, Transferee was not continuing in the business of Transferor.

Similarly, no transfer of business occurred between Transferor and Transferee under Section 22(b). Transferor did not transfer more than 75 percent of its assets to Transferee. The State of Michigan wrongly assumed that Transferor’s only assets were staffing contracts with other business and that the value of these contracts could be measured by examining only the number of employees. The State ignored other assets, such as goodwill, office equipment, lease/ownership interest, and trained salespeople and clerical staff. However, even if the State’s assumption was correct, Transferee only transferred 135 out of 191 employees– approximately 70 percent. Transferor therefore transferred less than 75 percent of its assets to Transferee even under the State’s narrow view of assets.

Finally, Section 22(c) is inapplicable since there is no evidence that owner of Transferee, a former top salesman of Transferor, held a managerial position with Transferor. There is no evidence that owner of Transferee had any control over the decision making process of Transferor. The records show that owner of Transferee created the new company because owners of Transferor did not want to provide certain services.

Digest Author: Chris Kang
Digest Student-Editor: Nick Phillips
Digest Updated: 8/14

Midwest Rubber Co v UIA – 2.28

Midwest Rubber Co v UIA
Digest no. 2.28

Sections 22, 41

Cite as: Midwest Rubber Co v UIA, Unpublished Opinion of the Michigan Court of Appeals, December 18, 2008 (Docket No. 07-031516-AE).

Appeal pending: No (denied)
Claimant: N/A
Employer: Midwest Rubber Company
Docket no.: 2868H
Date of decision: December 18, 2008

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HOLDING: A company does not become a “successor employer” under Sections 22 and 41 when it purchases all of the assets of a corporate subsidiary if the subsidiary was formed for the purposes of corporate restructuring.

FACTS: Newcor was a publicly-held corporation that filed for bankruptcy in 2001, and was required to spin off and sell some of its divisions pursuant to the bankruptcy restructuring plan. As a result, the Deckerville division of Newcor was incorporated as Michigan Rubber and Plastic, Inc. on January 13, 2003.

In July of 2003, Ken Jehle, the general manager of the Deckerville division and later MRPI, formed appellee, Midwest Rubber Co., to purchase the Deckerville division of Newcor. After the sale was completed, Jehle completed the UC Schedule B Successorship Questionnaire at the UIA’s request. However, he had difficulty understanding the form, and decided to list MRPI and Newcor both as the prior owners of the business, although Midwest Rubber had actually purchased the assets from Newcor. As a result of the Schedule B mistake, UIA assigned Midwest Rubber Co. the same tax rate which had been assigned to MRPI, which was the same tax rate that had been assigned to Newcor.

The ALJ found that because appellee had purchased all of the assets of MRPI, it should be assigned the same tax rate as a successor employer, and the Board of Review agreed on appeal. However, the circuit court ruled that it was necessary to “look at substance over form,” and therefore ruled in favor of appellee, having found that appellee purchased the division from Newcor. Since the assets in MRPI only constituted about nine percent of the assets of Newcor, the circuit court found that appellee was not a successor employer for purposes of Sections 22 and 41, and therefore should not be subject to the same tax rate.

DECISION: The Michigan Court of Appeals affirmed the Circuit Court determination that Appellee is not a successor employer for purposes of Sections 22 and 41.

RATIONALE: As in K&K Woodworking v. MESC, 206 Mich App 515 (1994), the Court of Appeals held that under Section 41, “the Legislature intended to permit a factual inquiry into the substance of the transaction rather than require any technical form of acquisition.” Accordingly, it was appropriate to consider that appellee had only purchased about nine percent of Newcor’s assets, and that MRPI was only created to facilitate the selling of the Deckerville division of Newcor.

Further, MRPI would not be considered a new business for the purposes of Section 22, as there was “substantially common ownership, management, or control,” there was never any “transfer of business” for the purposes of the statute. Therefore, appellant’s argument that appellee received the tax rate of MRPI as a successor employer, which had received its tax rate from Newcor as a successor employer must fail.

Digest Author: Nick Phillips
Digest Updated: 8/14

CTC Acquisition CO, LLC v. State of Michigan – 2.23

CTC Acquisition CO, LLC v. State of Michigan
Digest No. 2.23

Section 421.22, Section 421.41

Cite as: CTC Acquisition CO, LLC v. State of Michigan, unpublished opinion of the Kent County Circuit Court, issued November 10, 2008 (Docket No. 2008-06293-AE).

Appeal pending: No
Claimant: N/A
Employer: CTC Acquisition Co., LLC
Docket no.: No. 2008-06293-AE
Date of decision: November 10, 2008

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HOLDING: CTC is a “new employer” under the statute and a 2.7% rate must be applied.

FACTS:  Case stems from CTC Acquisitions Co’s purchase of most of Grand Rapids Controls, Inc’s (GRC) assets. GRC was a spring and cable manufacturer solely owned by Linda Southwick. Sale occurred in April 2004. CTC stopped the spring manufacturing but continued the cable production line. Production staff was retained, management was not. CTC reported the acquisition to the UIA for the determination of the appropriate contribution rate. The company was renamed GRC, LLC. Under the statute (MCL 421.1), a “new employer” is assigned 2.7% contribution (2.7% of its payroll to the UIA). A new employer is an acquisition under 75%. When a business acquires more than 75% of another business, then it is considered a “transfer of business” and the former employer’s contribution rate is transferred. In August 2004 UIA determined GRC, LLC to be a new employer because it has acquired less than 75% of GRC, Inc’s assets. However in June 2005 the UIA reversed its determination because it found that more than 75% of the assets were purchased and assigned a 10.3% contribution rate. UIA determined that the leasehold improvements (valued at $1.3 million) were not GRC, Inc assets.

DECISION: Board of Review’s decision is reversed. The decision reversed was the decision of the agency to recalculate Appellant-Employer’s contribution rate and increase the rate from 2.7% to 10.3%.

RATIONALE: UIA is permitted to reconsider and redetermine an employer’s contribution rate. MCL 421.32(a). However, if the reconsideration occurs within 30 days of the original intent, the rate may only be reconsidered for good cause.As a matter of law, the leasehold improvements were GRC, Inc’s assets and should have been included in the calculation.

Question 1: Is remand required for a determination of whether the agency had good cause to reconsider CTC’s contribution rate because the rate was not reconsidered within 30 days of the original determination?

  • Based on this decision is it not necessary to remand for a determination of whether the agency has good cause to reconsider the rate determination more than 30 days after the original determination.

Question 2: Did the Board err in not considering GRC, Inc’s leasehold improvements in the asset calculation? The improvements were properly written off and they were assets.

  • Court believes that the focus must be on what the seller’s total assets were and what percentage of those assets was transferred to a particular acquiring business. Not the total percentage of what was transferred.
  • CTC is a new employer and must be assessed under the 2.7% rate.

Digest author: Katrien Wilmots, Michigan Law, Class of 2017
Digest updated: 3/27/2016

Zgol v UIA – 2.27

Zgol v UIA
Digest no. 2.27

Section 15

Cite as: Zgol v. UIA, Unpublished Opinion of the Oakland County Circuit Court, Issued April 27, 2005 (Docket No. 2004-063262-AE).

Appeal pending: No
Claimant: N/A
Employer: Zgol, dba Berkley Amoco
Docket no.: 2839
Date of decision: April 27, 2005

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HOLDING: Under Section 15(g), a former employer who sold business to current employer can be assessed for employment taxes that were due and not paid when he still owned the business.

FACTS: Zgol owned Berkley Amoco until December 1999, when he sold 100% of the business assets to another entity. On June 10, 2003, the UIA issued an assessment against Zgol for unpaid employment contributions that were due between 1996 and 1998, during which time he still owned the business. Zgol appealed to an ALJ, and during that hearing it was stipulated that Zgol had sold 100% of the assets, discontinuation of the business was timely filed, and the amount of the assessment was $5,639.96.

DECISION: The Board of Review decision to hold the former owner liable for the unpaid employment taxes during the time he still owned the business is upheld.

RATIONALE: Since Section 15(g) is ambiguous as to whether a former employer can be assessed unpaid employment taxes from the period when it still owned the business, the Court looked to statutory interpretation through analyzing both the enacting section of the Act and the declaration of policy.  Next, the Court determined that the unemployment system was considered to be “of vital importance to the health and welfare of the state’s citizenry,” which therefore indicates that “the legislature intended to create a system where employers could not escape payment by merely selling their business.”

Digest Author: Nick Phillips
Digest Updated: 8/14

MESC v Park Lane Management – 2.22

MESC v Park Lane Management
Digest no. 2.22

Section 22

Cite as: MESC v Park Lane Mgt, No. 210592 (Mich App September 28, 1999).

Appeal pending: No
Claimant: N/A
Employer: Park Lane Management
Docket no.: N/A
Date of decision: September 28, 1999

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COURT OF APPEALS HOLDING: The doctrines of res judicata, and collateral estoppel may preclude relitigation of MESC administrative decisions that are adjudicatory in nature. The defendant’s failure to timely appeal the MESC determination of successorship rendered that determination res judicata, to any subsequent challenges.

FACTS: Defendant provided information to the MESC, from which the MESC was able to determine that defendant acquired 100% of its predecessor’s Michigan assets. The MESC ruled that defendant was subject to the 10% unemployment tax rate. The MESC sent a notice of successorship determination to the defendant, which had 30 days to appeal. The defendant failed to timely appeal. Plaintiff sent revised 10% yearly rate notices to defendant’s correct address. Defendant’s witness denied seeing the notices but admitted that a secretary opened the mail and sent any tax-related documents to a firm that prepared defendant’s taxes.

DECISION: Plaintiff was entitled to collect $23,698.02 in disputed unemployment insurance taxes.

RATIONALE: Plaintiff relied on the “mailbox rule” to prove that defendant received the notice of successorship and yearly tax notices. “[P]roper addressing and mailing of a letter creates a [rebuttable] legal presumption it was received.” Stacey v Sankovich, 19 Mich App 688 (1969). Plaintiff’s regularly conducted business included the mailing of 200,000 rate determinations and payment notices a year. In this matter, although direct proof that the notices were mailed to defendant was impractical due to the large volume of mailing plaintiff generated, “evidence of the settled custom and usage of the sender in the regular and systematic transaction of its business may be sufficient to give rise to a presumption of receipt by the addressee. “Insurance Placements v Utica Mutual Ins, 917 SW2d 592, 595 (1996). Plaintiff presented sufficient evidence to give rise to the common-law presumption that defendant received the mailed notices, which defendant failed to rebut.

Digest Author: Board of Review (original digest here)
Digest Updated: 11/04

MESC v Monkman Construction – 2.20

MESC v Monkman Construction
Digest no. 2.20

Sections 18(d)(2), 32a

Cite as : MESC v Monkman Constr, unpublished per curiam Court of Appeals, May 7, 1996 (No. 176053).

Appeal pending: No
Claimant: N/A
Employer: Monkman Construction
Docket no.: L92-02019-2287
Date of decision: May 7, 1996

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COURT OF APPEALS HOLDING: Where employer failed to request redetermination of its tax rate for more than one year after issuance of rate determination, reconsideration was time barred and Referee properly dismissed case for lack of jurisdiction.

FACTS: Employer’s contribution rate was set at 10 percent and a determination to that effect was issued on February 14, 1990. Employer failed to submit a quarterly report for 1989. The 30 day protest period ended March 16, 1990. Employer submitted the missing report on March 27, 1990, but did not request redetermination of its rate until November 19, 1991, more than a year after the determination was issued.

DECISION: Redetermination of tax rate denied due to lack of jurisdiction.

RATIONALE: Section 32a(2) bars appeals filed more than one year after prior decision or determination. Statutory time restrictions on seeking review of unemployment tax assessments are jurisdictional. As a result, the “good cause” analysis was inapposite.

Digest Author: Board of Review (original digest here)
Digest Updated: 7/99