State v. Industrial Tool & Die Works

• Decision Date: 09 November 1945
• Docket Number: No. 34012.,No. 34011.,34011.,34012.
• Citation: 21 N.W.2d 31,220 Minn. 591
• Parties: STATE v. INDUSTRIAL TOOL & DIE WORKS, Inc.
• Court: Minnesota Supreme Court

21 N.W.2d 31

220 Minn. 591

STATE v. INDUSTRIAL TOOL & DIE WORKS, Inc.

No. 34011.

No. 34012.

Supreme Court of Minnesota.

November 9, 1945.

Rehearing Denied January 2, 1946.

Appeal from District Court, Hennepin County; Levi M. Hall, Judge.

Consolidated actions by State of Minnesota against Industrial Tool & Die Works, Inc., to collect war risk contributions pursuant to Mason's Minn.St.Supp.1940, § 4337-21 et seq., as amended by Laws 1941, c. 554, Laws 1943, c. 650, known as the Employment and Security Act. From an order denying a new trial in each of the actions, the defendant appeals.

Affirmed.

William E. G. Watson and John Ott, both of Minneapolis, for appellant.

J. A. A. Burnquist, Atty. Gen., and K. D. Stalland, Asst. Atty. Gen. (George W. Olson, of St. Paul, of counsel), for respondent.

MATSON, Justice.

Appeal from an order denying a new trial in each of two actions brought by the state to collect war risk contributions pursuant to Mason St.1940 Supp. c. 23AA, as amended by L.1941, c. 554, and by L.1943, c. 650, known as the employment and security act. One action pertains to war risk contributions for the first two calendar quarters of 1943 and the other to such contributions for the third calendar quarter. Both actions, consolidated for trial and appeal, involve substantially the same issues.

On and for many years prior to November 26, 1940, Wright-DeCoster, Inc., was an employer subject to said employment and security act. On said date, the corporation by conditional sales contract sold to Harry R. Naftalin and J. A. Campbell its entire physical assets, including its machinery, fixtures, inventory, and manufacturing plant, but not including its accounts receivable, and thereby transferred to said purchasers, doing business as Twin City Tool & Die Works, its organization, business, payroll, and personnel.

On December 19, 1940, Harry R. Naftalin and J. A. Campbell, with Gordon Campbell joining for statutory qualification purposes, as sole incorporators, organized a Minnesota corporation known as the Industrial Tool & Die Works, Inc. On December 24, 1940, Naftalin and J. A. Campbell sold, assigned, and transferred all their right, title, and interest in and under their conditional sales contract of purchase with Wright-DeCoster, Inc., to the said corporation, the defendant herein.

As a result of the above transactions, the business of Wright-DeCoster, Inc., for the calendar year 1940 was operated by Wright-DeCoster, Inc., from January 1, to November 26, 1940; from November 26 until December 24, 1940 (a period of approximately four weeks), by Naftalin and J. A. Campbell, doing business as Twin City Tool & Die Works; and from December 24 until the close of 1940 (and likewise throughout the succeeding years to date) by the defendant, Industrial Tool & Die Works, Inc.

On January 7, 1941, according to defendant's corporate records, 40 percent of its corporate stock was issued to Harry R. Naftalin, 40 percent to J. A. Campbell (inclusive of certain qualifying shares issued to Gordon Campbell), and 20 percent to William E. G. Watson, who never appeared of record as one of the incorporators.

It should be noted that Harry R. Naftalin and J. A. Campbell, doing business as Twin City Tool & Die Works, anent the four-week period they operated said business so acquired from Wright-DeCoster, Inc., made no return or report whatever as an employer about to go into business to the Minnesota division of employment and security. Furthermore, no written articles of partnership were executed. They did, however, file a certificate of trade name certifying that they were the two individuals operating a commercial business under the name and style of Twin City Tool & Die Works.

It is also to be noted that on January 16, 1941, defendant, Industrial Tool & Die Works, Inc., by H. R. Naftalin as vice president, filed its "Report to Determine Liability" with the division of employment and security and therein specifically certified that it had acquired its business on November 27, 1940, directly (and not from any intervening partnership or entity) from Wright-DeCoster, Inc., as its predecessor. Defendant's contribution report for the portion of the fourth quarter of 1940 from November 27 to December 31, 1940, dated January 29, 1941, specifically certifies Wright-DeCoster, Inc., as its predecessor. Another significant item is the "Employer's Notice of Termination of Business," dated November 26, 1940, executed by Wright-DeCoster, Inc., certifying that its business had on November 27, 1940, been sold and directly transferred to defendant, Industrial Tool & Die Works, Inc. The contribution report of Wright-DeCoster, Inc., for that portion of the fourth quarter of 1940 up to November 27 is of the same tenor.

It is to be noted that the conditional sales contract dated November 26, 1940, providing for the sale of the business by Wright-DeCoster, Inc., to Harry R. Naftalin and J. A. Campbell, expressly provides that Naftalin and Campbell "may at their option organize a corporation for the purpose of conducting the business contemplated by them, and that upon so doing" (italics supplied) they may assign said contract, and all rights therein, to said corporation subject to the proviso, however, that they as individuals shall not be released from their contractual obligations. The contract also provides that the phrase "successors to Wright-DeCoster, Inc." may be used by the purchasers for a period of two years in connection with the sale of articles thereto manufactured, but that the name Wright-DeCoster, Inc., shall not be used at any time in connection with the manufacture of munitions or armament. The seller, on the other hand, covenants not to engage in any similar business for a period of three years.

Subsequent to all the foregoing, the state legislature enacted the war risk contributions act, namely, L.1943, c. 650, Mason St.1944 Supp. § 4337-24, subd. E, constituting an amendment to the employment and security act. This act, approved April 24, 1943, provided that it should "take effect and be in force from and after its passage, unless otherwise specifically provided therein, * * *." Section 10. The pertinent sections of said amendatory act follow:

"E. (1) Any employer who subsequent to December 31, 1940, has become or becomes subject to Chapter 23AA, Mason's Minnesota Statutes, 1940 Supplement, as amended by Laws 1941, Chapter 554, and as amended by this act, whose total current payroll, as defined in this subsection, for any calendar quarter within the period beginning January 1, 1942, and ending June 30, 1945, exceeds $50,000 shall pay war risk contributions, and any other employer whose total current payroll, as defined in this subsection, for any calendar quarter within such period exceeds $50,000, which has increased 100% or more over and above his normal payroll for the corresponding calendar quarter in 1940, shall in addition to his normal contributions pay war risk contributions on that part of his current payroll over and above 200% of his normal payroll, for the first such calendar quarter or the quarter commencing January 1, 1943, whichever is later and for each calendar quarter thereafter to and including June 30, 1945.

"(2) As used in this subsection, `normal contributions' means the contributions computed at a percentage rate on an employer's current payroll which he is required to pay under subsections B, C or D of this section.

"(3) `War risk contributions' means the additional contributions required under this subsection at a rate equal to 3%.

"(4) `Normal payroll' means an employer's payroll for any calendar quarter in the year 1940 with respect to wages paid for insured work which corresponds to the same calendar quarter in any year within the period beginning January 1, 1942, and ending June 30, 1945. The term `normal payroll' shall include the payroll of any organization, trade, or business of another employing unit acquired by the employer by purchase, consolidation, merger, liquidation, or other form of reorganization.

"(5) `Current payroll' means any current quarterly payroll with respect to wages paid for insured work in any year within the period beginning January 1, 1942, and ending June 30, 1945."

On May 12, 1943, the division of employment and security, using the payroll of Wright-DeCoster, Inc., for the first calendar quarter of 1940 as the "normal" payroll of defendant, made its determination of liability of defendant for war risk contributions for the first quarter of 1943 and notified defendant thereof by letter dated May 15, 1943. On May 28, defendant by letter notified the division that it had been informed by its attorney that it was not subject to war risk contributions for the first three quarters of 1943, and that "we shall contest payment of same if necessary." By letter dated May 29, 1943, defendant's attorney set forth in detail defendant's contention that its predecessor was not Wright-DeCoster, Inc., but the partnership of Naftalin and Campbell, doing business as Twin City Tool & Die Works, and that therefore the payroll of Wright-DeCoster, Inc., for the first three quarters of 1940 was not the "normal" payroll of defendant as specified by the war risk contributions act, and that in fact there was therefore no comparable period in 1940 upon which to establish a "normal" payroll subjecting defendant to liability for war risk contributions for the first three quarters. This latter letter stated that defendant had been advised to "withhold payment of this war risk contribution" in the hope that a ruling from the attorney general would obviate "the necessity of causing either trouble or expense to the State in connection with a suit for declaratory judgment." It appears that representatives of the division of employment and security had investigated all transactions leading to the organization of defendant and the acquisition of its business and that they had been...