RICKIE ROBINSON, Applicant
AUTO AIR RADIATOR SUPPLY, Employer
SPI DISTRIBUTION
Administrative law judge (ALJ) Randall R. Kaiser of the Worker's Compensation Division of the Department of Workforce Development issued a decision in this matter on August 7, 2003. 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:
The applicant sustained a compensable injury on May 11, 1999, while working for Auto Air Radiator Supply of Milwaukee (Auto Air Radiator.) (1) He was discharged on June 29, 1999. The next day, June 30, 1999, most of the assets of Auto Air Radiator, and of several other corporations conducting similar business, were transferred to SPI Distribution, Inc. (SPI Distribution) according to an Asset Purchase Agreement.
In February 2001, the applicant filed an application seeking compensation for an unreasonable refusal to rehire under Wis. Stat. § 102.35(3). His application names SPI Distribution, not Auto Air Radiator, as the employer. Applicant's exhibit 1. However, the Notice of Application and Notice of Hearing were sent only to Auto Air Radiator. See Respondent's exhibits B-2, B-4. The hearing notice was sent to an address in Niles, Illinois, that is now occupied by SPI Distribution, who acquired rights to Auto Air Radiator's mail under the Asset Purchase Agreement.
On September 14, 2001, ALJ Sherman Mitchell issued his decision in favor of the applicant -- by default as Auto Air Radiator did not appear -- and awarded compensation including fees of approximately $13,500. Only "Auto Air Radiator Supply" (with the Niles, Illinois address) is listed as the respondent in the ALJ's order. Applicant's exhibit 11.
ALJ Mitchell's decision was not appealed. The applicant, using the procedure under Wis. Stat. § 102.20, had ALJ Mitchell's decision reduced to a circuit court judgment. In doing so, the applicant listed "Auto Air Radiator Supply d/b/a SPI Distribution Inc." as the party against whom the judgment was rendered. A Milwaukee County Circuit Court judge signed an "Amended Order of Judgment" (2) to that effect on December 3, 2001. Applicant's exhibit 22.
In January 2002, SPI Distribution moved to have the order of judgment vacated. The judge heard the motion to vacate on May 9, 2002, and directed the applicant's attorney to contact ALJ Mitchell and determine if there was any administrative remedy that would address SPI Distribution's arguments. ALJ Mitchell declined to offer such a remedy, by letters dated July 18 and 22, 2002, which indicated that he felt the matter should proceed in court.
Following a hearing on August 2, 2002, the court issued an order remanding the matter to the Worker's Compensation Division, directing an ALJ to determine whether "the successor corporation doctrine applies to the asset purchase of Auto Air Radiator Supply by SPI Distribution Inc." Applicant's exhibit 23. The circuit court's order further stated that if the ALJ determined that successor corporation doctrine applies, "then a hearing will be scheduled to allow SPI Distribution Inc. the opportunity to contest Rickie Robinson's worker's compensation claim.
On remand to the Worker's Compensation Division, ALJ Randall Kaiser held a hearing for the limited purposes of hearing argument and introducing certain documents into the record. No testimony was taken. On August 7, 2003, ALJ Kaiser issued his decision holding that SPI Distribution was not the successor of Auto Air Radiator.
The applicant filed a petition for commission review, asserting that SPI Distribution is in fact the successor of Auto Air Radiator. SPI Distribution, for its part, opposes the petition, asserting there is no factual basis for a reversal.
2. LIRC jurisdiction?
Given the posture of this case, the commission turns first to the question of jurisdiction. While neither party has actually raised this issue, the commission is not bound by the argument of counsel generally (3) and it is axiomatic that a tribunal may raise the question of its subject matter jurisdiction at any time.
Under Wis. Stat. § 103.04(1), the commission must issue a decision in any case in which a petition for review is filed under Wis. Stat. ch. 102. Under Wis. Stat. § 102.18(3), a party may seek review of an examiner's decision awarding or denying compensation. Does ALJ Kaiser's decision finding that SPI Distribution is not the successor of Auto Air Radiator "award or deny compensation?"
The commission views ALJ Kaiser's decision as denying the applicant's claim for compensation from SPI Distribution, and takes jurisdiction. The commission also notes that the applicant actually named SPI Distribution in his original application on the unreasonable refusal to rehire claim. If the corporate successorship issue had arisen when the refusal to rehire claim was heard by ALJ Mitchell, the commission would undoubtedly have taken jurisdiction. Accordingly, the commission concludes it has jurisdiction on the applicant's petition for review.
3. The successorship issue
a. Facts.
The transfer giving rise to the successorship issue occurred on June 30, 1999. On that day, SPI Distribution purchased the assets of several corporations referred to in the closing documents as the "AARS Group." The businesses in the AARS Group apparently were all closely held by the same individuals, including James Wickless, Michael Wickless, Steven Wickless, and Robert Chodil. The applicant's former employer, Auto Air Radiator, was one of the AARS Group.
The sale was structured as an asset sale rather than a stock sale. The underlying agreement is an "Asset Purchase Agreement." Applicant's exhibit 6; Respondent's exhibit C. As noted above, the remand order from the Milwaukee County Circuit Court refers to "the asset purchase of Auto Air Radiator Supply by SPI Distribution Inc." Indeed, not all of the assets of the AARS Group were purchased by SPI Distribution. A list of the assets purchased is included among the applicant's exhibits. A list of assets not purchased is also included. Applicant's exhibit 6, General Conveyance, Bill of Sale and Assignment, Schedules A and B.
Among the assets purchased were the names of the individual businesses in the AARS Group, all rights under insurance policies listed in a schedule which is not in the record, the business's goodwill, all claims and choses in action, and the right to retain and receive the mail of the AARS Group. The Asset Purchase Agreement also contained a non-assumption of liabilities clause (section 2.6 entitled "Assumption of Liabilities") that specifically provided that the AARS Group or its shareholders would remain liable for any and all liability or indebtedness.
In its brief, the applicant asserts that SPI Distribution agreed to re-employ not only all of the employees of the AARS Group, but also some of the AARS Group shareholders (James Wickless, Michael Wickless, Steven Wickless, and Robert Chodil). Indeed, the list of closing documents refers to "Employment Agreements between Purchaser and each of James, Michael, Steven and Chodil" though the record does not include the actual employment agreements themselves. Applicant's exhibit 6, Index of Closing Documents, item 29. The recitals to the Asset Purchase Agreement also state that all but two of the shareholders had agreed to enter into employment with SPI Distribution.
The commission reads the recitals to the Asset Purchase Agreement and the Index of Closing Documents to establish the proceeds of sale of the assets of the AARS Group businesses -- after paying certain creditors -- were used in part to buy shares of SPI Distribution for the AARS shareholders and in part to make cash payments to them. Applicant's exhibit 6, Index of Closing Documents, items 26 through 28, and 39 to 41. However, the commission cannot tell how much of distribution to the AARS Group shareholders would be retained in cash, and how much was used to buy shares of SPI Distribution stock. See particularly, Applicant's exhibit 6, Index of Closing Documents, items 40 and 41.
A month after the transfer, Auto Air Radiator Supply of Milwaukee, Inc., changed its name to Wickless Milwaukee, Inc. Applicant's exhibit 13. SPI Distribution now leases premises from Wickless Milwaukee, Inc., in Niles, Illinois. See exhibit A to SPI Distribution's brief, affidavit of Robinson, item 5. Some of the other members of the AARS Group have subsequently had their corporate status dissolved by Illinois for nonpayment of franchise taxes; it does not appear that has happened to Wickless Milwaukee, Inc. Applicant's exhibit 12.
Finally, SPI Distribution has obtained an optional successorship to the
unemployment insurance account of Wickless Milwaukee, Inc. (formerly Auto Air
Radiator Supply of Milwaukee, Inc.) under Wis. Stat. § 108.16(8)(b).
Applicant's exhibit 19. This means SPI Distribution asked to be named successor,
as distinguished from having successorship to the unemployment insurance
account forced upon it by the Unemployment Insurance Division under Wis.
Stat.
§ 108.16(8)(c) to (e).
b. Successorship law.
Unlike the unemployment insurance statutes, the worker's compensation statutes contain no "successorship" provisions. Instead, the matter is dealt with by the application of general corporate law principles.
When a purchase is done by a stock transfer -- that is, when the purchaser buys the shares of stock of a corporate entity from the persons who hold the stock -- the transferred corporate entity remains intact. The new shareholders own the old corporation, including its liabilities as well as assets.
However, a different rule applies when the assets of a corporation are bought from the corporation itself, as distinguished from corporate stock being purchased from the shareholders. Recognizing this distinction in a worker's compensation disability case, the court of appeals has stated:
Even if the companies are not identical, there are circumstances in which a successor corporation can, contrary to the general rule of non-responsibility, be held to the liabilities of its predecessor. The Wisconsin Supreme Court recently restated the circumstances:
"As a general rule, 'a corporation which purchases the assets of another corporation does not succeed to the liabilities of the selling corporation.' There are four well-recognized exceptions to this general rule:
'(1) when the purchasing corporation expressly or impliedly agreed to assume the selling corporation's liability; (2) when the transaction amounts to a consolidation or merger of the purchaser and seller corporations; (3) when the purchaser corporation is merely a continuation of the seller corporation; or (4) when the transaction is entered into fraudulently to escape liability for such obligations.'"
Fish v. Amsted Indus. Inc., 126 Wis. 2d 293, 298, 376 N.W.2d 820, 823 (1985) (quoting from Leannais v. Cincinnati, Inc., 565 F.2d 437, 439 [7th Cir. 1977]). Although this rule is now often advanced in connection with product liability litigation, it has a long and honorable history. See id. at 303, 376 N.W.2d at 825. Its application here is consistent with that history. As recounted by Fish:
"The traditional rule of nonliability of successor corporations and its exceptions were developed prior to the adoption of strict products liability law.
' "Courts have come to recognize that the traditional rule of nonliability was developed not in response to the interests of parties to products liability actions, but rather to protect the rights of commercial creditors and dissenting shareholders following corporate acquisitions, as well as to determine successor corporation liability for tax assessments and contractual obligations of the predecessor." '
Ibid. [Fish]. (quoting from Ramirez v. Amsted Indus. Inc., 431 A.2d 811, 815-16 [N.J. 1981]) (other citations omitted).
The reason for the rule of nonliability is clear. A business should not be liable for acts of another unless it has assumed that obligation or, as discussed in Fish, nonliability would subvert recognized public policy because the two entities are substantially identical or there was a fraudulent attempt to avoid liability. Id. at 298, 376 N.W.2d at 823. Simply put, the law functions best when it fixes liability on those causing harm."
Northwestern Insulation v. LIRC, 147 Wis. 2d 72, 80-82 (Ct. App. 1988).
One additional point that is noteworthy here. In discussing the second and third Leannis/Fish exceptions to the general rule against successor liability in cases of asset transfers, the Supreme Court indicated that courts look to see if the identity of the transferring corporation is retained. Identity, the court explains, refers to identity of ownership, not product line or assets. Fish, 126 Wis. 2d at 300-01. In considering whether a merger or de facto merger has occurred, the key element "is whether the transfer of ownership was for stock in the successor corporation rather than cash." Fish, 126 Wis. 2d at 301. In determining if the successor is the continuation of the seller corporation, "the key element `is a common identity of the officers, directors, and stockholders in the selling and purchasing corporations.'" Fish, 126 Wis. 2d at 302 .
c. Discussion.
(1) Stock TRANSFER OR ASSET SALE
In his brief, the applicant asserts that
[SPI Distribution] continued to make the same products, in the same location, using the same management and employees, with the same accounts and telephone numbers and selling to the same customers as Auto Air after the [Asset Purchase Agreement.] The business of Auto Air was basically unchanged except for the name of the company, which was now SPI Distribution. Furthermore, the purchase of Auto Air by [SPI Distribution] was a stock for stock transaction, therefore the owners of Auto Air continued to be owners of [SPI Distribution] after the closing date of the [Asset Purchase Agreement.] See Exhibit 6, p. 6, para. 26. (4)
However, this case involves an asset sale, not a stock for stock transaction. It was their assets, not stock, that Auto Air Radiator and the other businesses in the AARS Group sold to SPI Distribution. The various papers documenting the sale -- to the extent they are in the record -- structure the sale as asset transfer. For example, the agreement is denominated an "Asset Purchase Agreement," and it lists the "sellers" as the AARS Group corporations themselves and not the shareholders of those corporations. The way the commission reads the Index of Closing documents -- and again the record contains only some of the actual closing documentation -- the AARS Group shareholders are not surrendering their stock in exchange for SPI Distribution stock. Rather, the businesses in the AARS Group sold their assets to SPI Distribution, then AARS Group shareholders apparently used at least part of the proceeds of that asset sale to buy some shares of stock of SPI Distribution. The commission reads the Index of Closing Documents at page 6, item 26, to refer to that purchase of SPI Distribution stock with the proceeds of the asset sale.
Finally, and most importantly, the circuit court that remanded the case to the Workers Compensation Division has denominated it as an "asset purchase." See Applicant's exhibit 23. The commission is therefore extremely reluctant to conclude it is faced with something besides an asset sale. Nonetheless, as the circuit court recognized, under Northwestern Insulation, the transfer in this case may still fall into one of the Leannis/Fish exceptions to the rule against successor liability in cases of corporate asset sales.
(2) LEANNIS/FISH EXCEPTIONS IN CASES OF ASSET SALES.
Have any of the Leannis/Fish exceptions been established in this case? The
Supreme Court has repeatedly held that "the applicant has the burden of proving
beyond a legitimate doubt all the facts essential to the recovery of compensation."
Leist v. LIRC, 183 Wis. 2d 450, 457 (1993). More specifically, a party seeking
recovery from a successor entity has the burden of proof on the issue of successor
liability. Schawk, Inc. v. City Brewing Co., LLC, No. 02-1833 (Wis. Ct. App.
Mar. 27, 2003)(<http://www.wicourts.gov/html/ca/02/02-1833
The first Leannis/Fish exception applies when the purchasing corporation
expressly or impliedly agreed to assume the selling corporation's liability. That, of
course, has not happened here. Rather, section 2.6 of the Asset Purchase
Agreement provides exactly the opposite.
The second Leannis/Fish exception applies where the transaction amounts to a
consolidation or merger of the purchaser and seller corporations. Here, the record
establishes that the AARS Group shareholders (Messrs. Wickless, Chodil, et al.)
obtained some stock in SPI Distribution with proceeds of the asset sale. The
record does not establish that all of the proceeds of the sale paid to the AARS
Group shareholders were used to buy SPI Distribution stock, and in fact suggests
that at least some of the proceeds were retained as cash. (5) Because the relative amount of cash
retained versus stock obtained by the AARS Group shareholders has not been
established, the commission cannot conclude that a consolidation, merger or de
facto merger -- the key element of which is whether the transfer of ownership was
for stock in the successor corporation rather than cash -- has occurred in this case.
See: Fish, 126 Wis. 2d at 301.
The third Leannis/Fish exception applies where the purchaser corporation is
merely a continuation of the seller corporation. Here, the record establishes that
Denis Poirier, who is not one of the AARS Group shareholders, is president of SPI
Distribution. On the other hand, AARS Group shareholders were apparently
employed by SPI Distribution in some capacity for some time. However, the
commission does not know the extent to which the AARS Group shareholders
managed SPI Distribution's business. In fact, SPI Distribution president Poirier
avers that none of the AARS Group shareholders are officers or directors of SPI
Distribution. Exhibit A to SPI Distribution's brief, affidavit of Poirier, item 8. In
addition, as explained above, the record does not establish how the ownership
interest that the AARS Group shareholders now have in SPI Distribution compares
to the value of the assets transferred. Regarding the third exception, then, the
commission cannot find the key element -- a common identity of the officers,
directors, and stockholders in SPI Distribution and the AARS Group -- is present,
and so cannot conclude the former is a mere continuation of the latter. Fish, 126
Wis. 2d at 302 .
Fourth, there is no evidence at all that the Asset Purchase Agreement, or the
underlying transaction, was entered into fraudulently to escape liability.
4. Conclusion.
In sum, none of the Leannis/Fish exceptions have been established in this case. In
the terms of the circuit court's mandate, the "successor corporation doctrine" does
not apply to the asset purchase of Auto Air Radiator by SPI Distribution. Therefore,
SPI Distribution is not the successor to Auto Air Radiator for the purposes of the
applicant's claim under Wis. Stat. § 102.35(3), and SPI Distribution is not
liable under ALJ Mitchell's September 14, 2001 order in favor of the applicant and
against Auto Air Radiator.
NOW, THEREFORE, the Labor and Industry Review Commission makes this
The findings and order of the administrative law judge are modified to conform to
the foregoing and, as modified, are affirmed. The claim against SPI Distribution,
Inc., as the successor to Auto Air Radiator Supply of Milwaukee, Inc., for the
purposes of this claim for worker's compensation benefits is dismissed.
Dated and mailed July 29, 2004
/s/ James T. Flynn, Chairman
/s/ David B. Falstad, Commissioner
/s/ Robert Glaser, Commissioner
cc:
[ Search Decisions ] - [ WC Legal Resources ] - [ LIRC Home Page ]
robinsr . wrr : 101 : 8 ND § 2.2 § 9.2
Attorney Michael Katarincic
Attorney Kevin Noonan