K & K Woodworking, Inc. v. Michigan Employment Sec. Com'n

• Decision Date: 16 August 1994
• Docket Number: Docket No. 159037
• Citation: 206 Mich.App. 515,522 N.W.2d 694
• Parties: K & K WOODWORKING, INC., Plaintiff-Appellee, v. MICHIGAN EMPLOYMENT SECURITY COMMISSION, Defendant-Appellant.
• Court: Court of Appeal of Michigan — District of US

Page 694

522 N.W.2d 694

206 Mich.App. 515

K & K WOODWORKING, INC., Plaintiff-Appellee, v. MICHIGAN EMPLOYMENT SECURITY COMMISSION, Defendant-Appellant.

Docket No. 159037.

Court of Appeals of Michigan.

Submitted April 6, 1994, at Grand Rapids.

Decided Aug. 16, 1994, at 9:25 a.m.

Released for Publication Oct. 31, 1994.

Varnum, Riddering, Schmidt & Howlett by Joan Schleef, Grand Rapids, for K & K Woodworking, Inc.

Frank J. Kelley, Atty. Gen., Thomas L. Casey, Sol. Gen., and Duane R. Johnson, Asst. Atty. Gen., for the Mich. Employment Sec. Com'n.

Before MARILYN J. KELLY, P.J., and BURNS ^* and COLLETTE, ^** JJ.

PER CURIAM.

The Michigan Employment Security Commission appeals as of right from a circuit court order reversing an MESC referee's decision that K & K Woodworking, Inc., is a successor employer to Timmer & Brummel Inc. We vacate the circuit court's ruling, reverse the MESC's decision regarding K & K's liability, and remand for further proceedings.

On August 28, 1989, Timmer executed an agreement with NBD Bank, agreeing to voluntarily surrender ownership of its corporate assets and cash to NBD to pay a business loan. Timmer's assets were subject to NBD's first-priority security interest.

On September 6, 1989, K & K purchased Timmer's assets from NBD. The MESC subsequently issued a determination and a redetermination that K & K succeeded Timmer as employer and was liable for Timmer's unpaid contributions and interest.

Following a hearing, an MESC referee on March 13, 1991, affirmed the redetermination, ruling that K & K was not entitled to a reduction in its MESC obligation because it did not hold a security interest in the assets it acquired from Timmer. On appeal, the circuit court reversed the MESC's determination of successorship, holding that K & K was not a successor employer because it had acquired Timmer's assets from NBD. The present appeal followed.

The primary issue presented on appeal is whether K & K can be held liable for Timmer's unpaid contributions and interest pursuant to § 15(g) of the Michigan Employment Security Act, M.C.L. § 421.15(g); M.S.A. § 17.515(g). At the time of the events in question in this case, § 15(g) provided in pertinent part:

A person or employing unit, which acquires the organization, trade, business, or 75% or more of the assets from an employing unit, as a successor defined in section 41(2), shall be liable for contributions and interest due to the commission from the transferor at the time of the acquisition in an amount not to exceed the reasonable value of the organization, trade, business, or assets acquired, less the amount of a secured interest in the assets owned by the transferee which are entitled to priority.

Resolution of this issue requires an interpretation of the acquisition requirements in the MESA for an individual, legal entity, or employing unit to become a successor employer. We find that the following definition of "employer" in § 41(2)(a), M.C.L. § 421.41(2)(a); M.S.A. § 17.543(2)(a), does not require any particular form of acquisition:

Any individual, legal entity, or employing unit which acquired the organization, trade, or business, or 75% or more of the assets thereof, of another which at the time of the acquisition was an employer subject to this act.

Liberally construing § 41(2)(a), Grand Rapids Public Schools v. Falkenstern, 168 Mich.App. 529, 536, 425 N.W.2d 128 (1988), we hold that the Legislature intended to permit a factual inquiry into the substance of the transaction rather than require any technical form of acquisition. Cf. Warehouse Indemnity Corp. v. Arizona Dep't of Economic Security, 128 Ariz. 504, 627 P.2d 235 (1981); Mason v. City Cartage Co, 124 Ind.App. 314, 117 N.E.2d 387 (1954).

This result dovetails harmoniously with other sections of the MESA pertaining to successor employers, such as M.C.L. § 421.22(a); M.S.A. § 17.524(a), which specifically recognizes that business transfers may occur other than in the ordinary course of trade. See Nelligan v. Gibson Insulation Co., 193 Mich.App. 274, 280-281, 483 N.W.2d 460 (1992). We disagree with the circuit court's view that the phrase "from an employing unit" in § 15(g) requires a direct transfer between the predecessor and successor employer. Nowhere in § 15(g) or § 41(2)(a) is a transfer through an intermediary prohibited. Hence, the lack of direct privity of contract between K & K and Timmer did not preclude the MESC from finding that K & K was liable under § 15(g) for Timmer's unpaid contributions and interest.

Because it could reasonably be found that the bank acted as a conduit to facilitate the transfer of assets between K & K and Timmer in order to safeguard its own secured interest, we affirm the referee's finding that K & K was the successor employer to Timmer. See McArthur v. Borman's Inc., 200 Mich.App. 686, 689, 505 N.W.2d 32 (1993). In light of this holding, we need not consider the circuit court's ruling that the bank did not fall within the definition of an "employing unit."

Next, although the MESC's interpretation of the formula in § 15(g) for determining plaintiff's maximum liability is entitled to respectful consideration, we are not bound by it and we decline to follow it here. Ha-Marque Fabricators, Inc. v. Michigan Employment Security Comm., 178 Mich.App. 470, 478, 444 N.W.2d 190 (1989). We must presume that the Legislature was aware of other laws governing secured transactions, such as Article 9 of the Uniform Commercial Code, M.C.L. § 440.9101 et seq.; M.S.A. § 19.9101 et seq., when it amended the formula in § 15(g) in 1971 P.A. 231 to add the reduction for "a secured interest in the assets owned by the transferee which are entitled to priority." See In re Recorder's Court Bar Ass'n. v. Wayne Circuit Court, 443 Mich. 110, 126, 503 N.W.2d 885 (1993). We agree with K & K that the phrase "owned by the transferee" modifies the word "assets" because neither the subject matter nor dominant purpose of § 15(g) requires a different interpretation. People v. Pigula, 202 Mich.App. 87, 90, 507 N.W.2d 810 (1993). However, we are not persuaded that this interpretation clarifies how "assets owned by the transferee" should relate to the additional limitations for "a secured interest" and "which are entitled to priority." Nor are we persuaded that issues of...