Foote's Dixie Dandy, Inc. v. McHenry

• Decision Date: 20 October 1980
• Docket Number: No. 80-95,80-95
• Parties: , 21 A.L.R.4th 565 FOOTE'S DIXIE DANDY, INC., Appellant, v. Henry L. McHENRY, Administrator of Arkansas Employment Security Division, et al., Appellees.
• Court: Arkansas Supreme Court

Page 323

607 S.W.2d 323

270 Ark. 816, 21 A.L.R.4th 565

FOOTE'S DIXIE DANDY, INC., Appellant, v. Henry L. McHENRY, Administrator of Arkansas Employment Security Division, et al., Appellees.

No. 80-95.

Supreme Court of Arkansas.

Oct. 20, 1980.

Rehearing Denied Dec. 8, 1980.

Johnson & Tarvin by William E. Johnson, Hamburg, for appellant.

Employment Sec. Division by Thelma M. Lorenzo, Little Rock, for appellees.

HICKMAN, Justice.

The appellant, Foote's Dixie Dandy, Inc., a corporation which operates several retail grocery stores, filed suit in the Ashley County Chancery Court to prevent the Arkansas Employment Security Division from collecting over $20,000.00 in unemployment insurance contributions which the State claimed were owed by Foote's.

The chancellor found for the State, rejecting Foote's argument that it had substantially complied with the law. Foote's also argued that the State was estopped to collect the contributions and that the State had waived its collection rights. These arguments were also fruitless. We find the State can be estopped in this case from collecting the additional assessment and reverse the chancellor's decree, remanding the case for additional proceedings. In doing so, we abandon a principle of law that we previously followed, which was that the State can never be estopped because of the acts of its agents.

This case concerns Foote's failure to file a request in 1971 for a transfer of a favorable past record. If Foote's had filed the request, it would have been entitled to the benefit. Because of Foote's failure, the State seeks to collect Employment Security Division contributions for the past five years at a higher rate.

The facts are virtually undisputed. As early as 1967 the Footes, father and son, operated two grocery stores in Ashley County, one in Hamburg and one in Crossett. The stores were operated under the name of Foote's Grocery, Inc. The father ran the store in Hamburg, the son ran the Crossett store. In 1971, it was decided for business reasons that a separate corporation should be formed. The Crossett store was transferred to this new corporation and a majority of that corporate stock was taken by the son. The new corporation is the appellant, Foote's Dixie Dandy, Inc.

The older corporation, Foote's Grocery, Inc., had a good rating with the Employment Security Division because of its past experience. Ratings by the Employment Security Division are based on, among other things, the amount of claims made against contributions by a particular employer. Fewer claims result in a favorable rating.

The new corporation changed nothing as far as the Foote's store in Crossett was concerned. It had the same employees, same management, and the same location. A certified public accountant who handled all of the Footes' business talked to a Mr. Yates, a field auditor of the Employment Security Division, about the procedures the new corporation should use in complying with employment security law. The C.P.A. testified that the auditor told him, (1) nothing should be done except to report that a new name was being used and, (2) that the same number which the old corporation used should be retained in all reports. The auditor, Mr. Yates, was not called as a witness and the chancellor found as a fact, "That Mr. Yates, field auditor for the defendant, did in 1971 inform the plaintiff's agent that no further documentation (application) was necessary to utilize the favorable rate...."

The new corporation filed quarterly reports with the Employment Security Division thereafter under the name of the new corporation but using the same number as the older corporation. Beginning at least as early as the first quarter of 1972, Foote's Dixie Dandy acquired a new Federal Identification Number and began putting this new number on its reports to the Employment Security Division. Under cross-examination, the supervisor of the Rate Unit for Employment Security Division admitted that a 1972 return showed "Foote's Dixie Dandy, Inc., Crossett, Arkansas" at the bottom and this return had been hand certified. However, the supervisor testified that this was certified as a multiple unit under Foote's Grocery.

For five years, reports were filed with no action whatsoever by either party. The new corporation paid in during this period contributions of $36,344.67 and claims were made against these contributions that amounted to $11,962.92.

Sometime around 1975, Mr. Yates retired and a new auditor was assigned to the Ashley County area. He discovered that Foote's had never filed a request back in 1971 asking for a transfer of the favorable rating that the old corporation enjoyed. As a result the wheels of government began to turn.

The Employment Security Division discovered that Foote's had not paid as a new company for those five years. Since it had not requested the favorable rating that it had been entitled to, the Employment Security Division claimed that over $20,000 in additional contributions were due.

This suit was brought by Foote's to prevent the collection of the additional contributions.

The law in 1971, Act 32 of 1959, provided that anyone acquiring a "segregable and identifiable" portion of a business should make application to the Employment Security Division Commissioner within thirty days to claim the benefit experience of the former owner. ¹ If an entire business was acquired, then the transfer was automatic and the new owner was entitled to keep the former rating. If only a partial transfer occurred, then an application had to be made. A partial transfer was made in this case since the ownership of the Crossett store, but not the ownership of the Hamburg store, was changed over to the new corporation.

The Employment Security Division never did call its auditor, Mr. Yates, as a witness. In fact, no inquiry was made of Yates as to whether he had, in fact, told Foote's accountant that a report did not have to be filed or a request made for a transfer. At that time there was no form in existence for making such a report. (The State is not criticized for not calling Yates as a witness. It had a right to rely upon the principle of law that the State cannot be estopped by the unauthorized acts of its agents.)

The State's position is that the report had to be filed and the Commissioner had to make certain findings before a transfer could be made, therefore, the transfer was not automatic; consequently, Foote's must pay. That is not what an Employment Security Division official said at the trial. James A. Waites, Chief of Contributions, Employment Security Division, testified as follows concerning the old law:

Q. And then, under the old law, though, there was no requirement, was there, of an actual transfer by the Commissioner? This is the brown book.

A. Under the brown, in the brown book, if the request was made, the request was granted for a partial transfer, if it were made timely.

Q. Okay. But, under the new law, in other words, the Commissioner has got to take action, whereas under the old law it was more or less automatic. Is that correct?

A. Well, sir, as a practical matter, it is automatic now.

Q. But, I am talking about the way the law reads. Under the old law there was no requirement that the Commissioner go ahead and make a finding and determination, and give them the permission to do this. Is that correct?

A. That's true....

There is no doubt then that the transfer in this case would have been made if a request had been filed. It is undisputed that an auditor for Employment Security Division told Foote's such a request was not necessary. Also, there is no dispute that Foote's had a good record. Everything was done that should have been done except that a request had not been filed five years before. The C.P.A. for Foote's testified that he always dealt with Yates on matters involving the Employment Security Division and, in fact, he regarded Yates as the Employment Security Division. It was also admitted that all the funds that were due to the State, based on a favorable rating, were paid for a period of five years and the new corporate name was timely reported to the State of Arkansas. In fact, Foote's is entitled to a credit of $2,561.00. There is no hint of bad faith on the part of Yates, the Footes, the C.P.A., or anybody else concerned in this matter.

There is no doubt that the State would have granted the transfer if a request had been made. Not to do so, based on this record, would have been an arbitrary and unreasonable act.

The State's claim is simply that it cannot be estopped regardless of the facts. Its position is based on a series of cases which announce the principle that the State cannot be estopped by the actions of its agent. See, Arkansas State Highway Commission v. Lasley, 239 Ark. 538, 540, 390 S.W.2d 443; Arkansas State Highway Commission v. McNeil, 222 Ark. 643, 645, 262 S.W.2d 129 (1953); Terminal Oil Co. v. McCarroll, Commr. of Revenues, 201 Ark. 830, 835, 147 S.W.2d 352 (1941); Superior Bathhouse Co. v. McCarroll, Commr. of Revenues, 200 Ark. 233, 237, 139 S.W.2d 378 (1940); Sherman v. Hallmark Loan & Investment Corp., 249 Ark. 964, 462 S.W.2d 840 (1971); Belvedere Sand & Gravel Co. v. Heath, 259 Ark. 767, 536 S.W.2d 312 (1976).

We do not overrule those cases but we do abandon the principle stated in those cases that the state can never be estopped by the actions of its agents. Estoppel is not a defense that should be readily available against the state, but neither is it a defense that should never be available. Estoppel of the state is a principle of law recognized in more and more jurisdictions.

The United States Court of Appeals, Eighth Circuit, has found that:

The equitable claims of the state or of the United States are no stronger than those of an individual under like circumstances, and a state or the United States may...