Warehouse Indem. Corp. v. Arizona Dept. of Economic Sec.

• Decision Date: 24 February 1981
• Docket Number: No. 1,CA-UB,1
• Parties: WAREHOUSE INDEMNITY CORPORATION, dba Superstition Mountain Inn, Plaintiff-Appellant, v. The ARIZONA DEPARTMENT OF ECONOMIC SECURITY, an agency, Defendant-Appellee. 062.
• Court: Arizona Court of Appeals

Page 235

627 P.2d 235

128 Ariz. 504

WAREHOUSE INDEMNITY CORPORATION, dba Superstition Mountain Inn, Plaintiff-Appellant, v. The ARIZONA DEPARTMENT OF ECONOMIC SECURITY, an agency, Defendant-Appellee.

No. 1 CA-UB 062.

Court of Appeals of Arizona, Division 1, Department C.

Feb. 24, 1981.

Rehearing Denied March 26, 1981.

Review Denied April 21, 1981.

Burch & Cracchiolo, P.A. by Stephen E. Silver, Phoenix, for plaintiff-appellant.

Robert K. Corbin, Atty. Gen. by James A. Tucker, Asst. Atty. Gen., Phoenix, for defendant-appellee.

OPINION

OGG, Judge.

This is an appeal from a decision of the Arizona Department of Economic Security Unemployment Insurance Appeals Board. The board held that the employment experience account of Superstition Management, Inc., (hereinafter Superstition Management) would be transferred to Warehouse Indemnity Corporation (hereinafter Warehouse), and that Warehouse was liable for any contributions, interest and penalties due or accrued and unpaid by Superstition Management. On appeal, this court affirms the appeal board's decision.

The facts of this case, as found by the appeals board, are not in dispute. Superstition Management operated a hotel known as Superstition Inn, located in Apache Junction, Arizona. Superstition leased the land from James Knaak, owner of the land and the improvements. Knaak was also the president of Superstition Management. Superstition Management leased the land until July 25, 1978, when the lease was cancelled, and the land and improvements were sold to Elliott Glasser.

On August 1, 1978, Elliott Glasser, by a written lease, leased the Inn to Warehouse Indemnity Corporation for five years. The name of the hotel was then changed to Superstition Mountain Inn. Warehouse was originally incorporated May 4, 1977, but remained inactive until it entered into the lease with Elliott Glasser. Elliott Glasser is president and treasurer, and owns 100% of the corporate stock of Warehouse.

In January of 1979, the Arizona Department of Economic Security issued a Notice of Liability Determination to Warehouse finding that Warehouse had "acquired the business" of Superstition Management. On appeal from this decision, the unemployment insurance appeals board found the following:

(A) conclusion is warranted that the successorship of Warehouse ..., to the trade or business of substantially all the assets of Superstition Management ... has been demonstrated by the lack of intervening operators, by the furnishings of hotel or inn accommodations in the same place or business, with no stop in business, with a trade name appearing to be very similar to the general public, and with the use of the personalty used by the former operator.

On appeal, this court views the evidence in a light most favorable to upholding the decision of the appeals board and will affirm that decision if it is supported by any reasonable interpretation of the record. Kane v. Arizona Department of Economic Security, 127 Ariz. 143, 618 P.2d 637 (1980). The agency's legal conclusions, however, are not binding on this court, and we are free to make an independent determination on such questions. See Phelps Dodge Corporation v. Arizona Department of Economic Security, 125 Ariz. 342, 609 P.2d 612 (App.1980).

The consequences of the decision below are better understood after a brief examination of Arizona's Employment Security Act, A.R.S. § 23-101 through A.R.S. § 23-1395 (hereinafter the Act). The purpose of the Act is to lessen the burdens of involuntary unemployment and to encourage employers to provide more stable employment. A.R.S. § 23-601. The principal source of unemployment benefits is contributions from an employer. The standard rate of an employer's contribution is 2.7% of the yearly wages paid by the employer. A.R.S. § 23-728. The system is based, however, on the proposition that employers whose workers suffer the most involuntary unemployment should pay compensation at a higher rate than those employers whose workers suffer little involuntary unemployment. Therefore, adjustments in the standard rate paid by an employer may be made that either increase or decrease the rate of contribution, depending upon the Commission's payment of benefits to ex-employees of that employer. A.R.S. §§ 23-730, 23-731. See Employment Security Com'n v. Valley Nat. Bank of Ariz., 20 Ariz.App. 460, 513 P.2d 1343 (1973).

The system was also designed so that the transfer of an operating business does not cut off the amount of employer contribution that will cover the risk of involuntary employment in that particular business. A.R.S. § 26-613(A)(3) defines an employer as "(a)ny individual or employing unit which acquired the organization, trade or business or substantially all the assets thereof, of another which at the time of acquisition was an employer subject to this chapter...." A.R.S. § 23-733(A) and (D) in pertinent part provide:

A. When any employing unit in any manner succeeds to or acquires the organization, trade or business, or substantially all of the assets thereof, ... and continues such organization, trade or business, the account of the predecessor employer shall be transferred as of the date of acquisition to the successor employer for the purpose of rate determination.

D. Any individual or organization ... which in any manner acquires the organization, trade or business, or substantially all of the assets thereof, shall be liable, in an amount not to exceed the reasonable value, as determined by the department, of the organization, trade, business or assets acquired, for any contributions, interest and penalties due or accrued and unpaid by such predecessor employer; ...

Resolution of the present case requires this court for the first time to interpret the meaning of the language "which in any manner acquires the organization, trade or business or substantially all of the assets thereof ... and continues such organization, trade or business." First, we must determine whether Warehouse "acquired" the business of Superstition Management. Then we will consider whether Warehouse "continued" the business. These issues must be resolved keeping the purpose of the Act in mind.

Appellant argues that Warehouse did not acquire the business or substantially all of the assets of Superstition Management because the real estate and hotel buildings were acquired personally by Glasser; his lease with Warehouse was separate from the lease held by the prior operator, Superstition Management.

It is this court's opinion, however, that Arizona's statute does not focus on the direct transfer of title for successorship. Rather, the statute focuses on the transfer of the business or assets. The statute does not say "acquire from." Instead, the language "which in any manner acquires" was used. Therefore this court will consider the substance of the transaction and not the form. Courts in other jurisdictions generally concur with this interpretation and hold that the word acquire as used in successor statutes does not require privity of contract. See State v. Gibson's Barbecue, 369 So.2d 1229 (Ala.Civ.App.1978); Mark Hotel Corp. v. Catherwood, 9 A.D.2d 412, 194 N.Y.S.2d 580 (1959); Mason v. City Cartage Co., 124 Ind.App. 314, 117 N.E.2d 387 (1954). Courts in other jurisdictions have also held...