Chris Haus Auto Sales L.L.C. v. Dept. of Job & Family Servs.

[Cite as Chris Haus Auto Sales L.L.C. v. Dept. of Job & Family Servs., 2018-Ohio-4341.]

IN THE COURT OF APPEALS OF OHIO

TENTH APPELLATE DISTRICT

Chris Haus Auto Sales, LLC, :

Appellant-Appellant, :

No. 17AP-896

v. : (C.P.C. No. 17CV-5930)

Ohio Department of Job and Family : (REGULAR CALENDAR)

Services et al.,

:

Appellees-Appellees.

:

D E C I S I O N

Rendered on October 25, 2018

On brief: Betras, Kopp & Harshamnn, LLC, Brian P. Kopp,

and Jennifer M. Reghetti, for appellant. Argued: Jennifer M.

Reghetti.

On brief: Michael DeWine, Attorney General, and

Susan M. Sheffield, for appellees. Argued: Susan M.

Sheffield.

APPEAL from the Franklin County Court of Common Pleas

DORRIAN, J.

{¶ 1} Appellant, Chris Haus Auto Sales, LLC ("CHAS"), appeals from a decision of

the Franklin County Court of Common Pleas affirming a decision of the Ohio

Unemployment Compensation Review Commission ("the Commission") finding CHAS was

the successor in interest to Ron Haus Motorcars, Inc. ("RHM") for purposes of

unemployment compensation liability and contribution rate. Because we conclude the

Commission's decision was not in accordance with law, we reverse and remand.

I. Facts and Procedural History

{¶ 2} This appeal involves the question of whether the Commission properly

determined that CHAS, operated by Chris Haus, is the successor in interest for purposes of

No. 17AP-896 2

unemployment compensation liability and contribution rate of RHM, which was operated

by Chris Haus's father, Ron Haus. CHAS, which does business as "Haus Auto Group," was

incorporated by Chris in October 2010. At the time, Chris was also an employee of RHM.

During 2010 through 2012, CHAS and RHM operated out of the same building in Canfield,

Ohio, with CHAS leasing the building from RHM beginning in 2011. RHM filed a petition

for bankruptcy on September 2012, and the bankruptcy proceeding closed on February

2013. In April 2013, Chris purchased the building where RHM had previously operated

from a court-appointed receiver.

{¶ 3} In May 2016, CHAS sent a letter to the Ohio Department of Job and Family

Services ("ODJFS") asserting CHAS had overpaid on its unemployment compensation fund

contributions from 2013 through 2016 due to an inaccurate contribution rate and

requesting repayment. On September 1, 2016, the ODJFS Office of Unemployment

Compensation notified CHAS of its determination of CHAS's liability and contribution rate,

indicating that CHAS had been found to be the successor in interest of RHM for purposes

of unemployment compensation law. CHAS filed an appeal of that determination, arguing

it was a separate and distinct entity from RHM. Appellee, Director of ODJFS ("the

Director") issued a reconsidered decision ("the Reconsidered Decision") affirming the

determination of CHAS's liability and contribution rate as the successor in interest to RHM

because the evidence was sufficient to demonstrate all of the trade or business of RHM had

been transferred to CHAS. CHAS appealed the Reconsidered Decision to the Commission,

and a Commission hearing officer conducted a hearing on the appeal. Following the

hearing, the Commission issued a decision affirming the Reconsidered Decision and

concluding that CHAS was the successor in interest to RHM because substantially all of the

business of RHM was transferred to CHAS.

{¶ 4} CHAS appealed the Commission's decision to the Franklin County Court of

Common Pleas pursuant to R.C. 4141.26(D). The common pleas court affirmed the

Commission's decision, holding there was reliable, probative, and substantial evidence to

support a conclusion that CHAS was the successor in interest to RHM by operation of law

pursuant to R.C. 4141.24(F).

II. Assignment of error

{¶ 5} CHAS appeals and assigns the following single assignment of error for our

review:

No. 17AP-896 3

The Franklin County Court of Common Pleas erred in

affirming the decision of the Unemployment Compensation

Review Commission, as its decision that Chris Haus Auto

Sales, LLC is a successor-in-interest to Ron Haus Motorcars,

Inc. is not supported by reliable, probative, and substantial

evidence and is not in accordance with the law.

III. Analysis

{¶ 6} CHAS appealed the Commission's decision to the common pleas court

pursuant to R.C. 4141.26(D)(2), which provides the common pleas court may affirm the

Commission's determination if, based on consideration of the entire record, it finds the

determination is supported by reliable, probative, and substantial evidence and is in

accordance with law. In the absence of such a finding, the court may reverse, vacate, or

modify the determination, or make other such ruling as is supported by reliable, probative,

and substantial evidence and is in accordance with law. R.C. 4141.26(D)(2). In resolving

evidentiary conflicts, the court must give due deference to the Commission's determination

because as the finder of fact it had the opportunity to observe the demeanor of the witnesses

and weigh their credibility. Valentine Contrs., Inc. v. Dir., Ohio Dept. of Job & Family

Servs., 10th Dist. No. 15AP-86, 2015-Ohio-5576, ¶ 13.

{¶ 7} On appeal from the common pleas court, our standard of review is more

limited. On questions of fact, we consider whether the common pleas court abused its

discretion. Valentine Contrs. at ¶ 14. "When considering appeals involving questions of

successor-in-interest liability, this court has defined 'abuse of discretion' as connoting more

than an error of judgment, but implying a decision that is without a reasonable basis and

clearly wrong." All Star Personnel, Inc. v. Unemp. Comp. Rev. Comm., 10th Dist. No. 05AP-

522, 2006-Ohio-1302, ¶ 13. On questions of law, we exercise de novo review. Valentine

Contrs. at ¶ 14; Slats & Nails Pallets, Inc. v. Ohio Dept. of Job & Family Servs., 10th Dist.

No. 14AP-690, 2015-Ohio-1238, ¶ 8.

{¶ 8} Ohio employers must contribute to the State Unemployment Compensation

Fund. R.C. 4141.09; 4141.23(A). The Director must determine each employer's contribution

rate, which may be a standard rate or an experience-based rate. R.C. 4141.25(A). Under

certain circumstances, an employer may be deemed to be a successor in interest of another

employer for purposes of determining experience and contribution rate. In the present

appeal, the Director and the Commission determined CHAS was the successor in interest

to RHM pursuant to R.C. 4141.24(F).

No. 17AP-896 4

{¶ 9} "Generally, R.C. 4141.24(F) provides two methods by which an employer may

qualify as a successor in interest: (1) by operation of law or (2) through voluntary

application." Resource Title Natl. Agency, Inc. v. Ohio Dept. of Job & Family Servs., 10th

Dist. No. 14AP-39, 2014-Ohio-3427, ¶ 10. The distinction between these two methods, and

the appropriate test to be applied to each, is clearly set forth in the statute:

If an employer transfers all of its trade or business to another

employer or person, the acquiring employer or person shall be

the successor in interest to the transferring employer and shall

assume the resources and liabilities of such transferring

employer's account, and continue the payment of all

contributions, or payments in lieu of contributions, due under

this chapter.

If an employer or person acquires substantially all, or a clearly

segregable and identifiable portion of an employer's trade or

business, then upon the director's approval of a properly

completed application for successorship, the employer or

person acquiring the trade or business, or portion thereof, shall

be the successor in interest. The director by rule may prescribe

procedures for effecting transfers of experience as provided for

in this section.

(Emphasis added.) R.C. 4141.24(F). ODJFS has promulgated different administrative rules

for each method of becoming a successor in interest pursuant to R.C. 4141.24(F). Ohio

Adm.Code 4141-17-04 applies in the case of automatic successorship by operation of law

under the first part of R.C. 4141.24(F), whereas Ohio Adm.Code 4141-17-03 applies in cases

of voluntary successorship under the second part of R.C. 4141.24(F). It is undisputed that

CHAS did not apply to be the successor in interest of RHM. Therefore, the question is

whether the Commission properly found CHAS to be the successor in interest of RHM by

operation of law pursuant to the first part of R.C. 4141.24(F).

{¶ 10} Under the first part of R.C. 4141.24(F), an employer must acquire "all of [the]

trade or business" of the transferring employer to be considered the successor in interest of

the transferring employer by operation of law. This court has held this means the

transferring employer must transfer "all the property integral to its business" to the

acquiring employer in order for the acquiring employer to be the successor in interest by

operation of law. Resource Title at ¶ 18.

{¶ 11} In the present case, the initial determination of liability and contribution rate

issued by ODJFS indicated CHAS was found to be the successor in interest to RHM in

No. 17AP-896 5

accordance with R.C. 4141.24(F) and Ohio Adm.Code 4141-17-04. Although the

determination notice did not indicate which part of R.C. 4141.24(F) applied, the reference

to Ohio Adm.Code 4141-17-04 establishes it was a determination that CHAS was the

successor in interest to RHM by operation of law under the first part of R.C. 4141.24(F).

This conclusion required a finding that CHAS acquired all of the trade or business of RHM.

R.C. 4141.24(F). Similarly, in the Reconsidered Decision affirming the initial

determination, after reviewing the evidence, the Director concluded "[a]ll these factors

combines [sic] are sufficient to demonstrate a transfer of 'all of the trade or business' as

contemplated by the statute." (Nov. 16, 2016 Director's Reconsidered Determination at 3.)

{¶ 12} Unlike the initial determination and the Reconsidered Decision, however, the

Commission does not appear to have relied on the standard set forth in the first part of R.C.

4141.24(F) in its decision on appeal from the Reconsidered Decision. The Commission

quoted the full statute in setting forth the relevant law and stated in the reasoning section

of the decision that "[s]ection 4141.24(F) of the Ohio Revised Code provides that if an

employer transfers all or substantially all of its trade or business to another employer or

person, the acquiring employer or person shall be the successor in interest to the

transferring employer." (June 7, 2017 Decision at 5.) Thus, the Commission appears to have

disregarded the distinction between automatic successorship by operation of law under the

first part of R.C. 4141.24(F) and voluntary successorship by application under the second

part of R.C. 4141.24(F). After reviewing the evidence, the Commission reached the

following conclusion:

Section 4141.24(F) of the Ohio Revised Code provides that an

employer can be considered a successor in interest if the

employer or person acquires substantially all of an employer's

trade or business. The weight of the evidence has established

that Chris Haus Auto Sales, LLC, acquired substantially all of

the business of Ron Haus Motorcars, Inc. Based on the

evidence, Chris Haus Auto Sales, LLC, was correctly

determined to be a successor in interest to Ron Haus Motor

Cars, Inc. and the 2012-2016 contribution rates have been

properly computed for Chris Haus Auto Sales, LLC.

(Emphasis added.) (June 7, 2017 Decision at 6.) As noted above, it is undisputed that CHAS

did not submit an application for successorship of RHM. Therefore, by applying the

"substantially all" standard contained in the second part of R.C. 4141.24(F), the

Commission applied the wrong test to determine whether CHAS was the successor in

No. 17AP-896 6

interest of RHM by operation of law. Pursuant to the first part of R.C. 4141.24(F), the

appropriate test would have been whether CHAS acquired all of the trade or business

integral to the business of RHM.

{¶ 13} The common pleas court affirmed the Commission's decision, concluding it

was supported by reliable, probative, and substantial evidence and in accordance with law.

In reaching this conclusion, the court found the evidence demonstrated that CHAS became

the successor of RHM by operation of law, citing R.C. 4141.24(F) and Ohio Adm.Code 4141-

17-04. However, the common pleas court does not appear to have recognized the

Commission applied the statutory standard for voluntary successorship by application,

rather than the standard for automatic successorship by operation of law.

{¶ 14} Because the Commission applied the incorrect statutory standard in

determining whether CHAS had automatically become the successor in interest to RHM by

operation of law, the Commission's decision was not in accordance with law and the

common pleas court erred by affirming the Commission's decision. On remand, the

common pleas court should enter a decision reversing the Commission's decision and

remanding the matter for application of the appropriate statutory standard.

{¶ 15} Accordingly, we sustain CHAS's single assignment of error.

IV. Conclusion

{¶ 16} For the foregoing reasons, we sustain CHAS's single assignment of error and

reverse the judgment of the Franklin County Court of Common Pleas and remand this

matter to that court for further proceedings in accordance with law and consistent with this

decision.

Judgment reversed

and cause remanded.

BROWN, P.J., and SADLER, J., concur.