STATE OF WISCONSIN
LABOR AND INDUSTRY REVIEW COMMISSION
P O BOX 8126, MADISON, WI 53708-8126 (608/266-9850)

AGGRESSIVE PITBULL SECURITY INC, d/b/a
AGGRESSIVE PIT BULL DETECTIVE AGENCY,
Account No. 124572, Transferor

APB SECURITY LLC, Account No. 591057, Transferee

UNEMPLOYMENT INSURANCE CONTRIBUTION LIABILITY DECISION
Hearing No. S0500123MW


An administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development issued a decision in this matter. A timely petition for review was filed.

The commission has considered the petition and the positions of the parties, and it has reviewed the evidence submitted to the ALJ. Based on its review, the commission makes the following:

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Aggressive Pitbull Security Inc., d/b/a Aggressive Pit Bull Detective Agency (hereinafter APS Inc.) is a Wisconsin corporation which was started by Jimmy Mangum and Ernest Klingsby in 1999 and which was engaged in private security work. (1)   The business filed for bankruptcy in early 2003.

APB Security LLC (hereinafter APBS LLC) is a Wisconsin limited liability company which was started by Sheila Mangum, Jimmy Mangum's wife, in early 2003. It was also involved in private security work. APBS LLC bought some of the assets of APS Inc. from the trustee in bankruptcy for APS Inc., it employed some individuals who had been employed by APS Inc., and some customers of APS Inc. became customers of APBS LLC.

The issue for decision is whether APBS LLC was a mandatory successor to the UI account of APS Inc. under Wis. Stat. § 108.16.

Under Wis. Stat. § 108.16(8), the first step in determining whether one entity is a successor to the UI account of another entity is to determine if there has been a business transfer from the former to the latter. If it is determined that there has been a business transfer, other provisions govern the question of whether the transferee is a successor to the account of the transferor. The relevant provision here would be § 108.16(8)(e), which describes the condition in which there will be mandatory successorship.  
 

Was there a business transfer from APS Inc. to APBS LLC ? -- With respect to business transfers, the UC Act provides, in Wis. Stat. § 108.16:

(8)(a) For purposes of this subsection a business is deemed transferred if any asset or any activity of an employer, whether organized or carried on for profit, nonprofit or governmental purposes, is transferred in whole or in part by any means, other than in the ordinary course of business.

In addition to this statute, the department has promulgated rules which expand on the meaning of "business transfer":

DWD 115.01 (1) BUSINESS TRANSFER. Under s. 108.16(8)(a), Stats., a transfer of business occurs when any asset or business activity is transferred in whole or in part by a transferor to a transferee by any method other than in the ordinary course of business.

(2) METHODS USED IN BUSINESS TRANSFERS. Methods of transferring assets or business activities include gift, sale, lease, inheritance, foreclosure, termination or cancellation of lease, bankruptcy sale, reorganization, merger or consolidation and receivership.

(3) EVENTS WHICH ARE NOT BUSINESS TRANSFERS. Corporate name changes, the election or cancellation of subchapter S status under section 1362 of the internal revenue code by a corporation, the transfer of payroll function only and the transfer of employees between an employee service company and its clients or customers are not transfers of a business. The transfer of shares of corporate stock by a stockholder is not a transfer of business for the corporation which issued the shares. Sale of used equipment or furniture and fixtures which are being replaced or no longer being used are considered transfers in the ordinary course of business rather than business transfers under ch. 108, Stats.

(4) TRANSFER OF AN ASSET. An asset is transferred if ownership, possession or use changes from the transferor to the transferee.

(5) TRANSFER OF A BUSINESS ACTIVITY. For a transfer of a business activity to be a business transfer under this section and s. 108.16(8)(a), Stats., the business activity after the transfer shall be similar to the business activity before the transfer. In determining whether a business activity has been transferred, continued or resumed, the department shall consider factors which suggest a similarity in business activity including the following:

(a) The existence of the same customers or the same type of customer after the transfer;

(b) The closeness of the transferee's business location to that of the transferor when location is important to the business;

(c) The continued use of the transferor's trade name by the transferee;

(d) A lapse in operation of 6 months or less unless extensive remodeling is involved or the business is seasonal in nature but in no event shall the lapse be considered if greater than 2 years;

(e) Few if any changes in the product or in brand names after the transfer;

(f) The similarity in days and hours of the business under both the transferor and transferee;

(g) The transfer of inventory, expensive plant machinery, heavy equipment or unique assets as opposed to general office furniture and fixtures;

(h) The transfer of key employees or employees with highly technical professional skills;

(i) The transfer of goodwill;

(j) The existence of a noncompetition clause in the contract prohibiting the transferor from engaging in the same kind of business activity in the area; and

(k) The transfer of a license or a franchise.

At the beginning of the hearing, the appellant's counsel expressly conceded that there had been a business transfer, and identified the sole issue as being whether successorship was mandatory or optional:

Q: ...What is the appellant's position, Mr. Baldwin?

A: Well, the appellant's position, uh, your honor, in this matter is while certainly they, there is concession that there was a business transfer, which was utilized by the transfer of assets through a legitimate bankruptcy sale of assets through the trustee at the time, that the Mangums went through legal counsel at the time of this transfer, and that they subsequently followed the rules related to whether or not this would constitute a mandatory transfer or an optional transfer and followed the guidelines necessary to make this an optional successorship versus a mandatory successorship.

In addition to the fact that counsel for APBS LLC expressly conceded that there was a business transfer from APS Inc. to APBS LLC, the evidence in the record also supports the conclusion that there was such a transfer. APBS LLC purchased some of the assets of APS Inc. through the bankruptcy trustee; this resulted in a transfer of ownership, use or possession of such assets. APBS LLC engaged in the same type of business (providing private security) as did APS Inc., doing so for some of the same customers that APS Inc. had and employing some of the same employees that APS Inc. had. It operated out of the same location that APS Inc. had for a time operated out of, and a key employee of APS Inc. (Larry Wade, APS Inc's. "head of operations") became an employee of APBS LLC. The commission concludes that under the standards of Wis. Stat. § 108.16(8)(a) and Wis. Admin. Code § DWD 115.01(2), (4) and (5), the record establishes that there was a business transfer from APS Inc. to APBS LLC. 
 

Is APBS LLC a mandatory successor to the unemployment account of APS Inc.? -- The question of whether a business transferee is a mandatory successor to the UI account of the transferor is governed by § 108.16(8)(e), which provides:

(8) (e) Notwithstanding par. (b), a transferee is deemed a successor for purposes of this chapter, if the department determines that all of the following conditions are satisfied:

1. At the time of business transfer, the transferor and the transferee are owned, managed, or controlled in whole or in substantial part, either directly or indirectly by legally enforceable means or otherwise, by the same interest or interests. Without limitation by reason of enumeration, it is presumed unless shown to the contrary that the "same interest or interests" include the spouse, child, or parent of the individual who owned, managed or controlled the business, or any combination of more than one of them.

2. The transferee has continued or resumed the business of the transferor, either in the same establishment or elsewhere; or the transferee has employed substantially the same employees as those the transferor had employed in connection with the business transferred.

3. The same financing provisions under s. 108.15, 108.151, 108.152, or 108.18 apply to the transferee as applied to the transferor on the date of the transfer.

There is no dispute here but that the same financing provisions under s. 108.15, 108.151, 108.152, or 108.18 would apply (2),  and therefore the first two conditions are the important ones. 
 

§ 108.16(8)(e)1.- Same interests -- Because Sheila Mangum was the spouse of Jimmie Mangum at the time of the transfer, the presumption of "same interests" created by § 108.16(8)(e)1. applies. The only remaining question is whether this presumption was effectively overcome by the establishment of the five conditions described in Wis. Admin. Code § DWD 115.08(2)(a)-(e). These conditions are linked by an "and" and must therefore all be met:

DWD 115.08 (2) THE SAME INTEREST OR INTERESTS. The department shall presume, unless shown to the contrary, that the same interest or interests includes the spouse, child or parent of the individual who owned or controlled the business, or any combination of more than one of them. To overcome the presumption that these are the same interest or interests, it must be established that:

(a) Usual and customary sales procedures were followed;

(b) All transactions were at fair market value and similar to those available to unrelated parties under similar circumstances;

(c) The spouse, child or parent of the individual who owned or controlled the business was not employed by the business in the 12-month period prior to the transfer in a position in which he or she was able to make management decisions;

(d) The individual who owned or controlled the business prior to the transfer has no ownership interest, either directly or indirectly, in the transferee; and

(e) The individual who owned or controlled the business prior to the transfer is not employed by the transferee in a position in which he or she is able to make management decisions.

With regard to the questions of whether "usual and customary sales procedures [were] followed" and "all transactions [were] at fair market value and similar to those available to unrelated parties under similar circumstances" within the meaning of DWD 115.08(2)(a) and (b), there is relatively little evidence. Jimmy Mangum testified that the assets of APS Inc. at the time it went into bankruptcy consisted of office furniture, computer, videos and uniforms, and that he did not know the value of those items. He also made reference to a car which was levied on in the bankruptcy. Sheila Mangum testified about having bought assets including office furniture (at least two desks, if not more) which had belonged to APS Inc., and also some uniforms. However, she also testified that the amount spent on such purchases was $250 or $500. No evidence was presented as to the manner in which the sales of the assets was handled.

It is important to note that § DWD 115.08(2) creates a presumption and defines what has to be "established" to overcome that presumption. Thus, a lack of evidence adequate to allow a decision one way or the other cuts against the putative transferee, since it has the burden to prove affirmatively that the conditions are met. Here, it was not affirmatively established that the assets were transferred pursuant to usual and customary sales procedures and at fair market value, and there is some reason to believe that the assets were not transferred at fair market value. Therefore, the first and second conditions cannot be considered to have been established.

In the context of this case, the condition stated in § DWD 115.08(2)(c) looks to whether Sheila Mangum was employed by APS Inc. in a management position in the 12 months before the transfer. Jimmie Mangum testified that his wife was an employee of the corporation, doing "administration", in 2002. Sheila Mangum confirmed that she was an employee of the corporation in 2002, and that she was an "administrative assistant" who would set up files, get the paperwork concerning hiring people and file it and keep it in order. She also testified that in that capacity she was not in charge of hiring or firing, was not in charge of any financial decisions, did not decide what vendors would be paid, and did not write checks. This condition was shown to be satisfied, in that the evidence about what Sheila Mangum did was sufficiently detailed to allow the conclusion that while she was employed by APS Inc. she did not make "management decisions".

The conditions stated in § DWD 115.08(2)(d) and (e) are that the individual who owned or controlled the business prior to the transfer has no ownership interest, either directly or indirectly, in the transferee, and that the individual who owned or controlled the business prior to the transfer is not employed by transferee in a position making management decisions. In the context of this case, this condition looks to whether Jimmie Mangum had an ownership interest in APBS LLC or was employed by it in a management position.

Jimmie Mangum testified that he was not involved at all in APBS LLC until 2005, and there is no evidence that he was employed by APBS LLC in any managerial capacity. However, Jimmie Mangum could be considered to have had an interest in APBS LLC as marital property. Under Wis. Stat. § 766.31, all property of spouses is presumed to be marital property, and is marital property unless specifically excepted therein. It is well accepted that businesses owned by a spouse or spouses are marital property, see, e.g., Skomaroske v. Skomaroske, 2004 WI App 220 6, 277 Wis. 2d 589; 690 N.W.2d 25. Significantly, § DWD 115.08(2)(d) reaches "indirect" ownership interests. The commission concludes that it was not shown that Jimmie Mangum had no ownership interest, either directly or indirectly, in APBS LLC. Therefore, the condition stated in subsection (d) was not established.

Since the conditions stated in § DWD 115.08(2)(a),(b) and (d) were not established, and since all of the conditions in § DWD 115.08(2) have to be established to overcome the presumption that spouses represent the "same interest", the presumption is not overcome here, and the "same interests" condition set out in § 108.16(8)(e)1. is satisfied.  
 

§ 108.16(8)(e)2.- Continued or resumed transferor's business, or employed transferor's employees -- The condition described in § 108.16(8)(e)2. is satisfied if "the transferee has continued or resumed the business of the transferor, either in the same establishment or elsewhere."

While APBS LLC argued that the businesses were different because they had a different customer bases, the nature of the businesses was fundamentally the same. The primary business of APS Inc. was providing security guards; the primary business of APBS LLC was also providing security guards. Sheila Mangum also testified that when she started the business she went after some accounts that had been customers of APS Inc., and that 3 of her 13 customers had been customers of APS Inc. APBS LLC operated out of the same address (6108 N. 40th Street, which was the Mangum's residence) that APS Inc. had operated at for most of its existence. APBS LLC employed Larry Wade, who APS Inc. had employed as "head of operations".

In addition, there was a potential similarity in the names under which the businesses were conducted. The original June, 2000 subjectivity determination, a November, 2002 contribution liability determination, and the December, 2004 successorship determination all reflect that the corporation used the trade name "Aggressive Pit Bull Detective Agency", with "Pit Bull" as two words. Such a name creates the potential initials "APB". While Sheila Mangum testified that the "APB" in the name of her LLC stood for "All Points Bulletin", it is difficult to believe that the choice of the initials "APB" was not intended, at least in part, to connect to or suggest a connection to the agency which her husband had operated.

Considering all of the circumstances here, the commission concludes that APBS LLC continued or resumed the business of APS Inc., within the meaning of § 108.16(8)(e)2.

The commission therefore finds that APB Security, LLC is a mandatory successor to the unemployment insurance account of Aggressive Pitbull Security, Inc., within the meaning of Wis. Stat. § 108.16(8)(e).

DECISION

The decision of the administrative law judge is modified to conform with the foregoing and, as modified, is affirmed. Accordingly, there was a total transfer of business from Aggressive Pitbull Security, Inc. to APB Security, LLC, and APB Security, LLC is a mandatory successor to the unemployment insurance account of Aggressive Pitbull Security, Inc.

Dated and mailed February 27, 2008
aggress . ssd : 110 : 8   ER 470.01  ER 470.02  ER 470.05   ER 470.07

James T. Flynn, Chairperson

/s/ Robert Glaser, Commissioner

/s/ Ann L. Crump, Commissioner

cc:
Attorney Erin Patterson
Attorney Michael J. Mathis
Attorney Timothy Baldwin



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Footnotes:

(1)( Back ) APS Inc. was determined to be a subject employer by an initial determination issued on June 22, 2000, which referred to it simply as "Agressive (sic) Pit Bull Detective Agency". An amended initial determination was issued on November 7, 2002 to reflect the correct legal name of the subject employer as being "Aggressive Pitbull Security, Inc." Subsequently, both a contribution liability determination issued on November 22, 2002, and the transfer determination issued on December 7, 2004, identified the subject employer both by the corporate name and by the trade name "Aggressive Pit Bull Detective Agency".

(2)( Back ) Wis. Stat. §108.15 applies to public employees, 108.151 to non-profits, 108.152 to Indian tribes, and 108.18 to all other employers; in this case, both transferor and transferee would have their financing governed by §108.18.

 


uploaded 2008/03/10