Community Feed Stores, Inc. v. Director of Div. of Employment Sec.

• Decision Date: 15 March 1984
• Parties: COMMUNITY FEED STORES, INC. et al. 1 v. DIRECTOR OF the DIVISION OF EMPLOYMENT SECURITY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 105

462 N.E.2d 105

391 Mass. 488

COMMUNITY FEED STORES, INC. et al. ¹ v. DIRECTOR OF the DIVISION OF EMPLOYMENT SECURITY.

Supreme Judicial Court of Massachusetts,

Hampden.

Argued Dec. 8, 1983.

Decided March 15, 1984.

Calvin W. Annino, Jr., Springfield, for plaintiffs.

George J. Mahanna, Asst. Atty. Gen., for Director of the Div. of Employment Sec.

Before WILKINS, NOLAN, LYNCH and O'CONNOR, JJ.

WILKINS, Justice.

The plaintiff corporations challenge the decision of the Board of Review (board) of the Division of Employment Security that, in determining their status, including rates they must pay for unemployment compensation insurance, the prior experience of two businesses of which they are, respectively, the successors must be disregarded. The same two individuals were the sole partners of what the plaintiffs claim were two partnerships, operating stores separately in East Longmeadow and in Easthampton. The board took the position that there was only one partnership or employing unit, that neither corporation succeeded to substantially all the assets of a predecessor entity, and that thus there was no continuity justifying carrying forward to the corporations the prior unemployment compensation experience of the predecessor partnership. We agree with the board's decision and thus affirm the judgment of the District Court affirming that decision.

Archie T. Rintoul had operated each store as a sole proprietorship. Effective January 1, 1963, he entered into a partnership agreement with his son James to conduct the business of the Easthampton store. Archie was to receive six-elevenths of the net profits, and James five-elevenths. Archie continued as sole proprietor of the East Longmeadow store. Thereafter the Director of the Division of Employment Security (director) assigned different employer numbers to the two enterprises. Effective January 1, 1967, Archie and James entered into a second partnership agreement to operate the East Longmeadow store, each having an equal interest in the net profits of that business. Thereupon the director treated the two operations as one employing unit. On January 1, 1979, the Rintouls formed the plaintiff corporations for estate planning purposes, and each corporation acquired the assets of one of the stores.

The board regarded the Rintouls as having established, in 1967, one partnership operating two stores and thus treated the partnership as a single employing unit. See G.L. c. 151A, § 9. The board, therefore, affirmed the decision of the director that the plaintiff corporations were not successors to all the assets of a predecessor employing unit and were not entitled to the benefit of the prior experience of the partnership operations. The plaintiffs' appeals were considered and decided together. A District Court judge affirmed the decision of the board, and the plaintiffs have appealed from that decision.

Under G.L. c. 151A, § 14(n )(1), as appearing in St.1976, c. 473, § 6, a transferee is deemed to be a successor for the purposes of determining the transferee's contribution rates "[i]f the entire organization, trade or business of an employer or substantially all the assets thereof, is transferred to another employer or employing unit." See McNear v. Director of the Div. of Employment Sec., 327 Mass. 717, 721, 100 N.E.2d 848 (1951). The general issue in this case is whether there were two employers (see G.L. c. 151A, § 1[i ], defining "employer") or two employing units (see G.L. c. 151A, § 1[j ], defining "employing unit"), each of whose business or assets were transferred, respectively, to the plaintiff corporations or, alternatively, whether the two businesses operated by the Rintouls constituted only one employer or employing unit whose assets were divided between the two plaintiff corporations and thus neither received "the entire organization, trade or business of an employer or substantially all the assets thereof." An employing unit is defined to include "any ... type of organization including any partnership ... which has or subsequent to [January 1, 1941], had one or more individuals performing services for ... it within this commonwealth." G.L. c. 151A, § 1(j ), as appearing in St.1941, c. 685, § 1.

Inherent in the plaintiffs' argument is the proposition that, for the purposes of the employment security law, there may be two employing units engaged in business activities carried on separately by the same persons who are the only partners in each activity. In other words, it is asserted that Archie and James may be the sole partners of a business operation in East Longmeadow and the sole partners of a business operation in Easthampton, each of which must be treated as an independent employing unit under G.L. c. 151A.

In considering this question, it may be important to determine whether a partnership should generally be treated as a separate entity, which would tend to support the plaintiffs' position, or whether a partnership is only an aggregate of the partners themselves, which would tend to support the board's position. The question whether the entity theory or the aggregate theory should be reflected in the Uniform Partnership Act was a subject of considerable debate among the members of the Commission on Uniform Laws more than sixty-five years ago. Jensen, Is a Partnership Under the Uniform Partnership Act an Aggregate or an Entity?, 16 Vand.L.Rev. 377, 378 (1963). Although the Uniform Partnership Act contains some provisions consistent with each theory ( id. at 379 n. 11), the act adopts neither theory explicitly. See Lewis, The Uniform Partnership Act--A Reply to Mr. Crane's Criticism, 29 Harv.L.Rev. 158 (1915). The Uniform Partnership Act, adopted in Massachusetts in 1922 (G.L. c. 108A, inserted by St.1922, c. 486, § 1), certainly recognizes a partnership as an entity for certain purposes. See, e.g., §§ 8 and 10 concerning the partnership's ability to own and convey property; §§ 21, 22, and 27 providing for the continuity of a partnership in certain circumstances; § 40(h ) giving partnership creditors priority in partnership assets. See Ryder's Case, 341 Mass. 661, 664-665, 171 N.E.2d 475 (1961). However, although the Uniform Partnership Act includes a partnership within its definition of a "person," the Massachusetts law omits the definition. That omission may be some indication of our Legislature's rejection of a general implication of an entity theory of partnership. On the other hand, a partnership is defined in G.L. c. 108A, § 6(1), as "an association of two or more persons to carry on as co-owners a business for profit." This definition could be read as justifying separate partnerships consisting exclusively of the same people.

In Ryder's Case, supra, we noted that a partnership is treated as an entity in certain situations but that generally the aggregate theory prevails. We declined to apply the entity theory so as to treat a working partner as an employee for the purposes of the Workmen's...