02. Employer Liability, Tax Rate, Successorship

MESC v Caberfae Associates – 2.03

MESC v Caberfae Associates
Digest no. 2.03

Section 41(2)

Cite as: MESC v Caberfae Assoc, unpublished opinion of the Appeals Court of Michigan, issued May 24, 1990 (Docket No. 115311).

Appeal pending: No
Claimant: N/A
Employer: Caberfae Associates
Docket no.: L83 13583 1846
Date of decision: May 24, 1990

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COURT OF APPEALS HOLDING: The value of pending litigation was too speculative to be considered an asset. As such the employer acquired 75% or more of the predecessor and is a successor employer under Section 41(2).

FACTS: The predecessor corporation operated a ski resort. In 1982 it filed for Chapter 11 bankruptcy. The subsequent purchaser took over operation of the business under the supervision of the bankruptcy court and later purchased all of the assets except ski banks and boot lockers, and a cause of action known as the “Gary Airport Litigation”, for $820,000. It was appellant’s contention the litigation, which had been started ten years earlier seeking $300,000 in damages, was an asset worth that amount and that by not acquiring that asset appellant acquired less than 75% of the predecessor and as such was not a “successor” as defined in Section 41.

DECISION: The subsequent employer was a successor employer under Section 41(2).

RATIONALE: The value of the cause of action was speculative and had not been fixed by competent evidence. As such it is not to be considered an asset. The subsequent employer acquired more than 75% of the assets of the predecessor and is a successor under Section 41.

Digest Author: Board of Review (original digest here)
Digest Updated: 11/90

02. Employer Liability, Tax Rate, Successorship

Midway Stop-n-Shop, Inc v MESC – 2.19

Midway Stop-n-Shop, Inc v MESC
Digest no. 2.19

Sections 22, 41

Cite as: Midway Stop-n-Shop, Inc, v MESC, unpublished opinion of the Cass County Circuit Court, issued March 29, 1990 (Docket No. 86-12638AA).

Appeal pending: No
Claimant: N/A
Employer: Midway Stop-N-Shop, Inc.
Docket no.: L86-08390-RM1 (Bypassed Board of Review)
Date of decision: March 29, 1990

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CIRCUIT COURT HOLDING: Where successor took over an ongoing business, including the real estate via lease, and continued in business with essentially all the assets except for a large amount of cash, the cash was properly disregarded in determining the percentage of assets transferred.

FACTS: In June 1985, employer acquired an ongoing business (convenience store). Acquisition of $47,000 in inventory, equipment and goodwill was not in dispute. Issue was whether or not $59,000 in leasehold improvements on the realty and $80,000 in cash assets not transferred by the predecessor should be considered in determining whether or not more than 75 percent of assets were transferred. The referee found that out of a total of $126,000 in assets available for transfer, $106,000 was transferred, or 84 percent. He included the leasehold improvements in the transfer. He found that $20,000 of the $80,000 was available for transfer but should not be considered as a transferable asset.

DECISION: Employer is a successor under Sections 22 and 41, having acquired more than 75 percent of the predecessor’s assets.

RATIONALE: Transfer of a leasehold is the transfer of an asset for purposes of successorship because the transferee acquires an ownership interest in the property. With regard to cash assets, considering cash reserves (as opposed to receivables) as a transferable asset can lead to an absurd result of paying cash for cash. It could also lead to manipulation of the transaction for the purpose of, for example, reducing the amount of assets transferred as compared with the total assets.

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

02. Employer Liability, Tax Rate, Successorship

Ha-Marque Fabricators, Inc v MESC – 2.04

Ha-Marque Fabricators, Inc v MESC
Digest no. 2.04

Section 19, Section 22(d)(3), formerly 22(e)(3)

Cite asHa-Marque Fabricators, Inc v MESC, 178 Mich App 470 (1989); lv den 435 Mich 877 (1990).

Appeal pending: No
Claimant: N/A
Employer: Ha-Marque Fabricators, Inc.
Docket no.: L82 18210 1893
Date of decision: July 17, 1989

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COURT OF APPEALS HOLDING: A weighted average of the tax rate of the employer’s two predecessors which were merged into it must be used to determine the employer’s tax rate under Section 19 and 22(e)(3).

FACTS: The employer, based in Illinois, acquired two Michigan subsidiaries and merged them into its operation during a corporate reorganization and then filed a registration report to determine liability with the MESC. MESC assigned a 9% tax rate for 1982. The MESC based its calculations on legislative amendments to the rate calculation provision. The legislature failed to amend Section 22(e)(3) to conform to the other amendments. MESC interpreted the law to require that in mergers the employer should be assigned a total of the former employer’s rates.

DECISION: Employer’s tax rate must be determined by a weighted average of the merged former employer’s rates pursuant to Section 22(e)(3) and 19(a)(6) of the Act.

RATIONALE: “Although in this appeal, the MESC interprets Section 22(e)(3) to mandate a calculation of the employer’s contribution rate based on the balances in the employer’s experience account, we do not believe that the legislature intended such a construction. While we give respectful consideration to the MESC’s interpretation of the statute, we are not bound by it and we decline to follow it here.”

“We believe that the circuit court judge correctly interpreted Section 22(e)(3) as requiring that a weighted average approach be applied to determine Ha-Marque’s contribution rate … .”

Digest Author: Board of Review (original digest here)
Digest Updated: 6/91

02. Employer Liability, Tax Rate, Successorship

MESC v Arrow Plating Co – 2.01

MESC v Arrow Plating Co
Digest no. 2.01

Section 22

Cite asMESC v Arrow Plating Co, 10 Mich App 323 (1968).

Appeal pending: No
Claimant: N/A
Employer: Arrow Plating Company, Inc.
Docket no.: L66 176 1277
Date of decision: March 27, 1968

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COURT OF APPEALS HOLDING: “If a vital integral part of the business is not transferred, regardless of how many people make up that integral part, so that the business could not continue, then there has not been a transfer of the `organization’ for the purposes of this Act.”

FACTS: The employer bought much of the assets of Wade Boring Works. The main asset of Wade Boring was the right of possession to a building leased by Wade Boriinng because special zoning allowing the flushing of waste chemicals into the public sewer system. Wade Boring Works retained its phone number, customers, and the right to compete. Arrow’s business was confined to plating operations, while Wade Boring had done both plating and sheet metal fabrication.

DECISION: The employer is not a successor employer under the Act.

RATIONALE: The critical wording of Sec. 41(2) is the phrase defining what must be acquired by a successor employer as “the organization; trade or business, or 75% or more of the assets.” As for “trade or business” it is clear that Arrow did not assume the trade or business, since the clientele were different and the type of work performed by the two companies would appeal to different markets.

In accordance with standard accounting principles, accounts receivable are assets to be considered when computing the percentage of assets transferred.

Arrow Plating’s right to use the building with favorable zoning was the primary concern, but such right was not assigned a value in the transfer. Poor accounting practices made it impossible for the Court to accurately determine the exact value of assets transferred and retained.

“`Organization’ means the vital, integral parts which are necessary for continued operation. In this case, there was not a transfer of the vital, integral parts required for continued operation of the Wade Boring Works. Mr. Frank Beck constituted the entire managerial component of Wade Boring Works, and it could not have continued as a going business without managerial talent.”

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

02. Employer Liability, Tax Rate, Successorship

MESC v Patt – 2.08

MESC v Patt
Digest no. 2.08

Cite asMESC v Patt, 4 Mich App 225 (1966).

Appeal pending: No
Claimant: N/A
Employer: Fred Patt
Docket no.: N/A
Date of decision: September 13, 1966

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COURT OF APPEALS HOLDING: The employer’s contributions required under the Michigan Employment Security Act are a tax within the meaning of Section 17 of the Bankruptcy Act and are not discharged in a bankruptcy proceeding. As a result the employer is still liable for them.

FACTS: Employer was a Michigan employer for the years 1955, 1956, and 1957. It was subject to the provisions of the Michigan Employment Security Act. During the period employer paid no contributions as required by the Act.

In 1959 the Commission tried to collect this delinquent contribution in the state circuit court, and got a judgment by default for the delinquent contributions with interest. Employer filed for bankruptcy and obtained a discharge in 1964. In 1965, the MESC garnisheed defendant’s employer to collect on its judgment. Defendant filed a motion to restrain the garnishment on the basis that the judgment had been discharged in bankruptcy.

DECISION: The discharge in bankruptcy did not discharge employer’s obligation to pay the judgment for the delinquent contributions.

RATIONALE: “Regardless of the terminology used, an involuntary exaction, levied for a governmental or public purpose, can be held to be nothing other than a tax within the purview of the Federal bankruptcy act. The right of the State to collect such tax was duly protected by the Congress in the bankruptcy act.”

Digest Author: Board of Review (original digest here)
Digest Updated: 12/91