                                                                          FILED
                                                                     Oct 12 2017, 9:47 am

                                                                          CLERK
                                                                      Indiana Supreme Court
                                                                         Court of Appeals
                                                                           and Tax Court




ATTORNEYS FOR APPELLANT                                    ATTORNEYS FOR APPELLEE
Mary Lee Schiff                                            Curtis T. Hill, Jr.
Wm. Michael Schiff                                         Attorney General of Indiana
Ziemer, Stayman, Weitzel & Shoulders,                      James D. Boyer
LLP                                                        Deputy Attorney General
Evansville, Indiana                                        Indianapolis, Indiana



                                            IN THE
    COURT OF APPEALS OF INDIANA

Diversified Technical Services,                            October 12, 2017
Inc.,                                                      Court of Appeals Case No.
Appellant,                                                 93A02-1702-EX-422
                                                           Appeal from the Indiana
        v.                                                 Department of Workforce
                                                           Development
Indiana Department of                                      The Honorable Aija Funderburk,
Workforce Development,                                     Liability Administrative Law
                                                           Judge
Appellee.
                                                           Cause No. 103781



Bailey, Judge.




Court of Appeals of Indiana | Opinion 93A02-1702-EX-422 | October 12, 2017                    Page 1 of 14
                                             Case Summary
[1]   Diversified Technical Services, Inc. (“DTS”) appeals the decision of a Liability

      Administrative Law Judge (“ALJ”) concluding that DTS was a successor

      employer that had assumed unemployment tax liabilities, upon acquiring

      substantially all the assets of Diverse Technical Services (“Diverse”), an entity

      owned by Pokey, Inc. DTS raises a single issue, whether the ALJ erred as a

      matter of law in concluding that DTS is a successor employer of Diverse or

      Pokey, Inc.,1 under Indiana Code Section 22-4-10-6(a). We reverse.



                              Facts and Procedural History
[2]   Pokey, Inc., an entity owned by Richard and Pamela Martin, registered with

      the Indiana Department of Workforce Development (“the Department”) and

      was assigned an Unemployment Insurance Benefit Fund (“Fund”) account

      number of 718021. Pokey, Inc. owned Diverse, a staffing agency that placed

      retired ALCOA employees in temporary post-retirement positions with

      ALCOA in Indiana. In November of 2014, Diverse shut down its operations.

      The Diverse labor force of approximately forty-five persons was, in large part,

      transferred to Manpower.




      1
       The appealed order states that “DTS acquired the organization, trade, or business, or substantially all of the
      assets of Diverse’s business and became an employer and a successor employer.” (App. Vol. II, pg. 8.)
      However, the tax liability at issue may have been that of Pokey, Inc., Diverse’s parent corporation, as the
      Merit Rate Delinquency Notice lists account numbers for each.

      Court of Appeals of Indiana | Opinion 93A02-1702-EX-422 | October 12, 2017                         Page 2 of 14
[3]   Daniel Harpenau (“Harpenau”) worked in the construction industry as an

      electrician, project manager, and general manager. He incorporated DTS in

      July of 2015. Having spent significant amounts of time at the ALCOA plant in

      Newburgh, Indiana, he was aware of the closing of Diverse. He approached

      the Martins with an offer to pay for the name, goodwill, and accounts

      receivable of Diverse as an “opening in the door” at ALCOA. (Tr. Vol. II, pg.

      83). At that time, Diverse had two dormant staffing accounts, one with

      ALCOA and one with Toyota Motor Manufacturing Indiana, Inc. Harpenau

      initially was advised that there was a “zero balance” due as receivables, but it

      was subsequently discovered that a sum was due on one account. (Tr. at 82.)


[4]   On September 9, 2015, DTS and Diverse executed an Asset Purchase and Sale

      Agreement (“the Agreement”) whereby DTS purchased from Diverse, for the

      sum of $15,000.00:


              A. Name “Diverse Technical Services”;


              B. Accounts receivable due from Alcoa Warrick accruing after
                 June 26, 2015;


              C. Any accounts receivable due from Toyota Motor
                 Manufacturing Indiana, Inc. to the extent work is performed
                 after the Closing Date;


              D. All goodwill associated with the Business.




      Court of Appeals of Indiana | Opinion 93A02-1702-EX-422 | October 12, 2017   Page 3 of 14
      (Exhibits, pg. 12.) Apart from the Agreement, DTS acquired W-2s and W-3s

      pertaining to former employees of Diverse. The Agreement stated that DTS

      was not acquiring any liability of Diverse.


[5]   DTS, which had three employees including its owner/incorporator, offered

      safety training and consulting services, project management services, project

      funding management, electrical design services and electrical safety services to

      ALCOA and Toyota.


[6]   In October of 2015, an accountant employed by DTS, Karen Moseley

      (“Moseley”), contacted the Department regarding completion of State Form

      2837, SUTA Account Number Application & Disclosure Statement. The “call

      came in” to Department staff to pose an inquiry summarized as “if you buy the

      name of a company, does that count as an acquisition?” (Tr. Vol. II, pg. 38.)

      After consultation, Moseley answered Question 5(a) on the SUTA form to

      reflect that DTS had acquired 100% of a “disposer” Indiana corporation,

      specified as “Pokey, Inc.” having SUTA account number 412947. Harpenau

      reviewed and signed the form, and it was submitted to the Department.


[7]   After receipt of the SUTA form, the Department concluded that DTS had

      acquired the complete business of Diverse (having SUTA account 412947).2

      On November 6, 2015, the Department issued a Notice of Complete




      2
       The SUTA form in the record now includes a hand-written notation in the right-hand corner of 718021, the
      experience account number assigned to Pokey, Inc.

      Court of Appeals of Indiana | Opinion 93A02-1702-EX-422 | October 12, 2017                   Page 4 of 14
       Disposition of Business to New Acquirer. The Notice identified the “Acquirer”

       as Diversified Technical Services with an account number of 718021 and

       identified the “Disposer” as Diverse Technical Services, Inc. with an account

       number of 412947. In part, the Notice stated: Our records show you acquired

       the complete business on or about 06/26/2015 from the named disposer.”

       (Exhibits, pg. 69.)


[8]    On November 9, 2015, the Department issued a Merit Rate Delinquency

       Notice to DTS for January 2011 forward. The notice alternately referenced

       SUTA account numbers 718021 and 412947. The notice demanded the sum of

       $170,776.25, which was identified as “Delinquent Quarters for Account

       Number 718021 – 2/2015” and liabilities for “predecessor with account number

       412947.” (Exhibits, pg. 70.) The notice demanded payment within ten days on

       Account Number 412947.


[9]    On November 20, 2015, a representative of DTS’s accounting firm issued a

       letter to the Department, stating that DTS did not acquire the business, stock,

       or substantially all assets of Pokey, Inc., and claiming that DTS and Pokey, Inc.

       were completely unrelated taxpayers. Subsequently, DTS filed a tax protest

       form with the Department to oppose the determination of successorship.


[10]   On December 7, 2016, and January 18, 2017, the ALJ conducted a hearing to

       address whether DTS had timely protested the successorship determination 3




       3
           The ALJ ruled that the protest was permissible, and this is not challenged on appeal.


       Court of Appeals of Indiana | Opinion 93A02-1702-EX-422 | October 12, 2017                  Page 5 of 14
       and whether DTS was a “successor employer assuming the liabilities and

       experience balance of the predecessor [pursuant to] IC 22-4-10-6(a).” (App.

       Vol. II, pg. 4.)


[11]   The Department’s representative testified that the Department had relied upon

       the SUTA form submitted by DTS’s accountant, and the Department had no

       independent knowledge of the extent of the assets formerly held by Diverse.4

       The Department had attempted to obtain information on the holdings of

       Diverse from the former owners, but they were unresponsive.


[12]   Moseley testified that she had “filled in 100%” on the form, attached a copy of

       the Agreement, and “relied on the Department.” (Tr. Vol. II, pg. 66.) She

       denied having any knowledge of the percentage of total assets purchased and

       testified that her intent was to apply “as a new business for this SUTA account

       number” reported on the form. (Tr. Vol. II, pg. 66-67.) She described the form

       as a “request for an unemployment insurance account.” (Tr. Vol. II, pg. 68.)

       Harpenau testified that he “didn’t know what Diverse had to sell.” (Tr. Vol. II,

       pg. 100.) He estimated that DTS had acquired 1 or 2% of Diverse’s assets.


[13]   On February 1, 2017, the ALJ issued an order providing in relevant part:


               DTS acquired the organization, trade, or business, or
               substantially all of the assets of Diverse’s business and became an
               employer and a successor employer. See Ind. Code § 22-4-7-2(a);



       4
        Despite the SUTA form’s use of an account number for Pokey, Inc., no focus was placed upon Pokey,
       Inc.’s assets apart from Diverse.

       Court of Appeals of Indiana | Opinion 93A02-1702-EX-422 | October 12, 2017                  Page 6 of 14
               Ind. Code 22-4-10-6(a). Based on the foregoing conclusions, the
               Liability Administrative Law Judge concludes that the
               Department correctly determined that DTS made a complete
               acquisition and assumed all the resources and liabilities of the
               predecessor’s experience account as a successor employer.
               DTS’s protest is DENIED. The Department’s determination is
               AFFIRMED.


       (App. Vol. II, pg. 8.) This appeal ensued.



                                   Discussion and Decision
[14]   Both DTS and the Department acknowledge a dearth of evidence as to the

       disposer’s assets, due to the disposer’s non-cooperation. DTS observes that the

       ALJ initially advised the parties that the Department bore the burden of proof

       to establish successorship, but then concluded that DTS had failed to provide

       adequate proof of non-acquisition of assets. The Department responds that it

       relied upon DTS’s own representation that it acquired 100% of a predecessor

       corporation and, despite DTS “challenging its own representation,” there is an

       absence of evidence to show that DTS did not acquire all assets “that existed at

       the time of transfer.” Appellee’s Brief at 9. Thus, the parties disagree as to

       which bore the burden of proof on scope of acquisition. Additionally, DTS

       argues that determining a proportional share of assets is not summarily

       dispositive of successorship, as the statutory focus is upon continuity of

       employment and DTS took none of Diverse’s employees.


[15]   Our applicable standard of review was set forth in Franklin Elec. v. Unemployment

       Ins. Appeals, 953 N.E.2d 1066, 1069 (Ind. 2011):
       Court of Appeals of Indiana | Opinion 93A02-1702-EX-422 | October 12, 2017   Page 7 of 14
               Under Indiana Code § 22-4-32-9 (2007), “Any decision of the
               liability administrative law judge shall be conclusive and binding
               as to all questions of fact.” The decision of the LALJ may be
               appealed “solely for errors of law under the same terms and
               conditions as govern appeals in ordinary civil court.” Id. The
               LALJ’s legal conclusions are not entitled to the same deference.
               Ind. Dep’t of Envtl. Mgmt. v. West, 838 N.E.2d 408 (Ind. 2005).


       “When the facts are undisputed, and the question is whether those facts lead to

       a certain conclusion, the case presents a question of law and the courts need not

       defer to agency decision making.” Ashlin Transp. Servs. v. Ind. Unemployment Ins.

       Bd., 637 N.E.2d 162, 165 (Ind. Ct. App. 1994). Here, we are asked to apply a

       statutory provision to sparse, undisputed facts.


[16]   Unemployment insurance in Indiana is financed by a tax on Indiana employers.

       The employer contributions are charged proportionally against an employer’s

       experience account. I.C. § 22-4-11-1(a). The greater the number of

       unemployment claims, the more that employer must contribute to the

       unemployment fund. Franklin Elec., 953 N.E.2d at 1069. Indiana Code Section

       22-4-10-4 requires that the Department maintain within the fund a separate

       experience account for an individual employer. Each year, the Department

       determines the contribution rate applicable to each employer, and the

       contribution is then credited to the experience account. UTLX Mfg., Inc. v.

       Unemployment Ins. Appeals, 906 N.E.2d 889, 892 (Ind. Ct. App. 2009).


[17]   Pursuant to Indiana Code Section 22-4-7-2(a), an “employer” includes “any

       employing unit … which acquires substantially all the assets within this state of


       Court of Appeals of Indiana | Opinion 93A02-1702-EX-422 | October 12, 2017   Page 8 of 14
       such an employer used in or in connection with the operation of such trade or

       business, if the acquisition of substantially all such assets of such trade or

       business results in or is used in the operation or continuance of an organization,

       trade, or business.”


[18]   Indiana Code Section 22-4-10-6(a) governs whether an entity is a “successor

       employer” that “shall assume the position of the predecessor with respect to all

       the resources and liabilities of the predecessor’s experience account.” A

       successor employer includes one that becomes an employer under Indiana

       Code Section 22-4-7-2(a), and an employer that “acquires the organization,

       trade, or business, or substantially all the assets of another employer.”


[19]   The word “substantially” does not invoke a “definite, fixed amount of

       percentage but is an elastic term which must be construed according to the facts

       of the particular case.” Astral Indus., Inc. v. Ind. Emp. Sec. Bd., 419 N.E.2d 192,

       197 (Ind. Ct. App. 1981). A “prime question” in determining whether

       substantially all assets were acquired is whether the acquisition resulted in a

       substantial continuation of the same or like business. Id.5


[20]   In Indianapolis Concrete v. Unemployment Ins., 900 N.E.2d 48 (Ind. Ct. App.

       2009), a panel of this Court observed that several factors have been considered

       in determining whether one employer has acquired substantially all the assets of




       5
        The Astral Court expressed the view that Accounts Receivable are not “assets” for successorship purposes,
       as they are not usable by both the predecessor and successor in continuing a business. Id. at 198.

       Court of Appeals of Indiana | Opinion 93A02-1702-EX-422 | October 12, 2017                      Page 9 of 14
       another. These have traditionally included acquisition of: (1) manufacturing

       equipment and machinery; (2) office equipment; (3) corporate name; (4)

       inventories; (5) covenants not to compete; (6) possession of premises; (7) good

       will; (8) work in progress; (9) patent rights; (10) licenses; (11) trademarks; (12)

       trade names; (13) technical data; (14) lists of customers; (15) sales

       correspondence; (16) books of accounts; and (17) employees transferred. Id. at

       51.


[21]   In Indianapolis Concrete, the Court considered the following facts of record.

       Indianapolis Concrete was an entity formed one week after the dissolution of

       Indy Concrete. Indianapolis Concrete initially hired five of Indy Concrete’s

       former employees, and, after six weeks, had acquired a total of eighteen.

       Indianapolis Concrete received Indy Concrete’s telephone number, two trucks,

       a trailer, several water pumps, trowel machines, and other equipment.

       Indianapolis Concrete acquired and leased other equipment and ten vehicles.

       Indianapolis Concrete did not take Indy Concrete’s computers or office

       equipment or conduct business from Indy concrete’s office. Indianapolis

       Concrete did not use Indy Concrete’s goodwill but did acquire two of Indy

       Concrete’s clients. See id. at 49. The Court concluded that “Indianapolis

       Concrete did not acquire substantially all of the assets of Indy Concrete.

       Rather, it acquired assets from which it built a new business.”


[22]   By contrast, this Court affirmed the decision of the ALJ in concluding that D &

       D NAPA, Inc. was a partial successor to Chaffins Enterprises, Inc. for purpose

       of calculating its unemployment benefit contributions. D & D NAPA, Inc. v.

       Court of Appeals of Indiana | Opinion 93A02-1702-EX-422 | October 12, 2017   Page 10 of 14
       Unemployment Appeals of Ind., 44 N.E.3d 67 (Ind. Ct. App. 2015). There, the

       acquirer testified that “D & D purchased Chaffins’s assets and hired the

       employees ‘to operate the same business in the same location under the same

       DBA that the former entity had used.’” Id. at 77. She also testified that the

       business had operated “seamlessly” between D & D and Chaffins and the store

       was a NAPA store before and after the sale, never ceasing to be a NAPA

       location. Id.


[23]   Here, at the hearing before the ALJ, DTS contended that it acquired no tangible

       property from Diverse, DTS provided different services from those offered by

       Diverse, and DTS had not acquired substantially all Diverse’s assets.

       Testimony from the Department and DTS witnesses distilled to the following:

       Diverse ceased doing business as a staffing agency and transferred the majority

       of its forty-five employees to Manpower; DTS reported an acquisition of an

       Indiana entity and provided an unemployment account number for Pokey, Inc.;

       the reporting accountant made a written representation that was not founded

       upon her personal knowledge or information provided to her; DTS’s owner,

       despite having signed the form, disputed its accuracy; and the extent of Diverse

       assets prior to or at the time of the execution of the Agreement was not known

       by either the Department or DTS.


[24]   The ALJ made factual findings, including: DTS has three employees; DTS did

       not acquire assets like equipment, inventory, machinery, vehicles, leases, or

       intellectual property; DTS did not acquire Diverse’s employees; Harpenau did

       not know what assets Diverse had available to sell; and DTS submitted a SUTA

       Court of Appeals of Indiana | Opinion 93A02-1702-EX-422 | October 12, 2017   Page 11 of 14
       form to report “100% of a business called Pokey, Inc., with SUTA# 412947

       transferred to DTS on June 26, 2015.” (App. Vol. II, pg. 5.) In the findings of

       fact section, the ALJ acknowledged Harpenau’s testimony regarding the

       estimated percentage of assets acquired, but did not adopt the testimony or

       make a credibility determination. However, the ALJ appeared to credit

       Harpenau’s testimony in part, in that he provided the sole testimony that DTS

       did not acquire any physical assets from Diverse and the ALJ enumerated

       excluded assets.


[25]   Nonetheless, in the “decision” section of the order, the ALJ found a “complete

       acquisition” had been achieved or, more particularly, that DTS had not

       established the absence of a complete acquisition:


               DTS argues that it did not acquire all of Diverse’s assets or
               business and, therefore, did not make a complete acquisition.
               The [ALJ] disagrees. More specifically, DTS acquired Diverse’s
               name, two main client accounts and all of the goodwill
               associated with Diverse’s business. DTS acquired those items in
               order to preserve Diverse’s business reputation, conduct business
               with Diverse’s clients, and prevent any business competition.
               Based on those facts, the [ALJ] concludes that DTS acquired the
               organization, trade or business of an employer in this state and
               became an employer under Indiana Code § 22-4-7-2(a).


               In addition, while DTS did not acquire certain assets, like
               equipment or employees, DTS did not know what assets, if any,
               that Diverse had available to sell. Thus, DTS failed to establish
               that it did not acquire substantially all of the assets of Diverse’s
               business.



       Court of Appeals of Indiana | Opinion 93A02-1702-EX-422 | October 12, 2017   Page 12 of 14
       (App. Vol. II, pg. 8.)


[26]   The foregoing language indicates that the ALJ placed squarely upon DTS the

       burden of proving it was not a successor employer because it did not acquire

       substantially all Diverse’s assets. However, the relevant statutory scheme does

       not require that DTS prove a negative. Rather, an employer is to be treated by

       the Department as a successive employer, for purposes of assumption of an

       experience account, when the employer has acquired the “organization, trade,

       or business, or substantially all the assets of another employer.” I.C. § 22-4-10-

       6. “The Department is responsible for determining the successorship status of

       an acquiring employer when either a total or partial acquisition occurs between

       employers.” Indianapolis Concrete, 900 N.E.2d at 50. It follows that the

       Department must have an adequate basis for making this determination. Here,

       the evidence fell short.


[27]   “[S]uccessor employer status occurs under Section 6(a) when the entity or

       substantially all of its assets are acquired by another employer.” Ashlin, 637

       N.E.2d at 169. The Department determination of successorship did not rest on

       grounds that DTS simply took over and continued Diverse’s trade or business.

       Indeed, the ALJ stated that DTS did not provide all the same services as

       Diverse and such was not required. The Department’s position was that of

       substantial acquisition, based upon the SUTA form identifying Pokey, Inc. as a

       disposer corporation and including Diverse’s account number. Because the

       ALJ concluded that DTS was a successor employer without addressing the

       credibility of the testimony of error, it is unclear whether the ALJ treated the

       Court of Appeals of Indiana | Opinion 93A02-1702-EX-422 | October 12, 2017   Page 13 of 14
       SUTA form as conclusive under the law, something not to be amended or

       contradicted. Ultimately, what is clear is that, after the presentation of

       evidence, it remained unknown what assets either Pokey, Inc. or Diverse held

       prior to DTS’s acquisition of some assets. Thus, it is impossible to determine

       on the limited record whether DTS acquired substantially all those assets.


[28]   But regardless of percentile apportionment of assets, clearly the intangibles

       purchased by DTS were insufficient to support continuation of the business

       conducted by Diverse. Crucially, DTS did not acquire Diverse employees, the

       essence of an ongoing staffing business. See Ashlin, 637 N.E.2d at 167

       (“Employees add value just as do physical assets and customer good will.”) A

       most generous consideration of the Department’s evidence would reveal no

       more than DTS “acquired assets from which it built a new business.”

       Indianapolis Concrete, 900 N.E.2d at 52. In such circumstances, an employer is

       not a successor employer. See id.



                                                Conclusion
[29]   The ALJ’s conclusion that DTS is the successor employer of Diverse was

       incorrect as a matter of law.


[30]   Reversed.


       Baker, J., and Altice, J., concur.




       Court of Appeals of Indiana | Opinion 93A02-1702-EX-422 | October 12, 2017   Page 14 of 14
