K & K Woodworking, Inc v. Michigan Employment Security Commission

522 N.W.2d 694 | Mich. Ct. App. | 1994

206 Mich. App. 515 (1994)
522 N.W.2d 694

K & K WOODWORKING, INC
v.
MICHIGAN EMPLOYMENT SECURITY COMMISSION

Docket No. 159037.

Michigan Court of Appeals.

Submitted April 6, 1994, at Grand Rapids.
Decided August 16, 1994, at 9:25 A.M.

Varnum, Riddering, Schmidt & Howlett (by Joan Schleef), for K & K Woodworking, Inc.

Frank J. Kelley, Attorney General, Thomas L. Casey, Solicitor General, and Duane R. Johnson, Assistant Attorney General, for the Michigan Employment Security Commission.

Before: MARILYN KELLY, P.J., and R.B. BURNS[*] and W.E. 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 *517 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, MCL 421.15(g); MSA 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.

*518 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), MCL 421.41(2)(a); MSA 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 NW2d 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 App 504; 627 P2d 235 (1981); Mason v City Cartage Co, 124 Ind App 314; 117 NE2d 387 (1954).

This result dovetails harmoniously with other sections of the MESA pertaining to successor employers, such as MCL 421.22(a); MSA 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 NW2d 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 *519 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 NW2d 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 NW2d 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, MCL 440.9101 et seq.; MSA 19.9101 et seq., when it amended the formula in § 15(g) in 1971 PA 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 NW2d 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 NW2d 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" *520 and "which are entitled to priority." Nor are we persuaded that issues of fairness should affect how § 15(g) is interpreted. See Mercy Hosp v Crippled Children Comm, 340 Mich. 404, 408; 65 NW2d 838 (1954).

We believe it is appropriate to construe § 15(g) in conjunction with the lien rules for the MESC in § 15(e), MCL 421.15(e); MSA 17.515(e), which were in effect at the time K & K acquired Timmer's assets. In so doing, it is apparent that the only secured interests the Legislature intended to be subtracted from the reasonable value of the business or assets that establish the successor employer's maximum liability in § 15(g) are secured interests superior to the MESC's own lien to collect unpaid contributions and interest. Stated otherwise, the Legislature's intent in § 15(g) was to adjust for those assets that the MESC could not reach because of the existence of superior secured interests. In this regard, the transferee (K & K) stands in the same shoes as the transferor (Timmer) in relation to the MESC because the "priority" language in § 15(g) effectively limits the MESC's ability to reach assets to pay for contributions and interest to those assets that it could have reached had there been no sale of the business or assets.

We therefore hold that the referee erred in construing § 15(g) as allowing a reduction for the amount of the secured interest in the assets of a predecessor only when that secured interest is owned by the transferee. The question under § 15(g) is not who held the secured interest, but rather whether the secured interest was superior to the MESC's own lien or interest. Because the referee's interpretation of § 15(g) was contrary to law, we reverse this part of the MESC decision. MCL 421.38(1); MSA 17.540(1); Schultz v Oakland Co, 187 Mich. App. 96, 102; 466 NW2d 374 (1991).

*521 We vacate the circuit court decision, reverse the MESC decision regarding K & K's liability, and remand to the MESC for further proceedings consistent with this opinion. We do not retain jurisdiction.

NOTES

[*] Former Court of Appeals judge, sitting on the Court of Appeals by assignment pursuant to Administrative Order No. 1993-6.

[**] Circuit judge, sitting on the Court of Appeals by assignment.