DEBORAH B. BARNES, JUDGE:
¶1 Defendant/Appellant State of Oklahoma, ex rel. Oklahoma Employment
Security Commission (the Commission) appeals the district court's Order
reversing the decision of the Commission's Assessment Board. The Assessment
Board found Plaintiff/Appellee JC Fab, Inc. (JC Fab) is a successor employer of
Texoma Waste Control (Texoma), and the district court reversed. Based on our
review, we conclude the Assessment Board's determination that, under 40 O.S. 2011 § 3-111(A), JC Fab
"continue[d] the operations" of Texoma "as a going business" is not supported by
substantial evidence. Therefore, we affirm the district court's Order reversing
the order of the Assessment Board.
BACKGROUND
¶2 JC Fab and Texoma entered into a "Commercial/Industrial Real Estate
Purchase Contract" in May, 2011, in which they agreed that for $1.8 million, JC
Fab would acquire the real property and certain personal property of Texoma. One
year later, the Commission notified JC Fab, by letter, of its finding that "[JC
Fab] has acquired substantially all of the organization, employees, trade,
business or assets of Texoma . . . , and continued the operations of the
predecessor as a going business." The Commission stated that "it has therefore
been determined . . . that [JC Fab] is a successor to the account of the
predecessor," and that JC Fab would, therefore, "acquire the merit rating
account" of Texoma, including Texoma's "actual contribution and benefit
experience, annual payrolls, and liability for current or delinquent
contributions, interests and penalty."
¶3 The Commission's finding was made after a part-time employee of JC Fab
submitted a form to the Commission entitled "Employer's Notice of Acquisition of
Business." In this form, JC Fab appeared to represent it had "acquired
substantially all of the trade, organization, employees, business or assets of
[Texoma] . . . effecitive 8/12/11[,] and continued the operations of the
predecessor as a going business." (Emphasis added.) However, after receiving the
Commission's letter in May, 2012, JC Fab, by letter dated May 23, 2012, from its
managing member, Scott Crain (Crain), "formerly disagree[d]" with the
Commission's findings and requested a review and redetermination. Crain
specifically stated in the May 2012 letter, in part, as follows: "I acquired
[Texoma's] equipment and the real estate that [it] leased, to expand my existing
business and not to continue [Texoma's] operation as a going business." Crain
also stated in his May 2012 letter, as follows:
I did hire [Texoma's] existing employees which totaled 14 persons, of
which only 5 remain. The other 9 left within the first few months of their
initial employment with [JC Fab]. We currently have approximately 80
employees. It does not seem equitable or fair that the merit rating of 5
former employees of [Texoma] should affect 80 employees of my
company.
¶4 By letter dated July 23, 2012, the Commission noted, among other things,
that "[Texoma] produced waste containers as does [JC Fab]," and the Commission
stated it had decided to uphold its previous determination that JC Fab was a
successor. In response, JC Fab submitted a written protest and a request for a
hearing before the Assessment Board.
¶5 A telephonic hearing was held before a hearing officer of the Assessment
Board on September 7, 2012. At the hearing, Crain testified on behalf of JC Fab,
and Theresa Capolino (Capolino), a compliance officer for the Commission,
testified on behalf of the Commission. On the same date as the hearing, the
Assessment Board entered its order finding JC Fab is a successor employer of
Texoma under 40 O.S. 2011 §
3-111(A). The Assessment Board noted that a successor employer, under §
3-111(B), may request that only a portion of the experience rating of the
previous employer be applied, but stated that JC Fab failed to make such a
request within 120 days of the acquisition as required under § 3-111(B). That
is, the Assessment Board stated: "Although the employer asserts that they make a
different type of refuse container than the previous employer and that
percentage of their sales is small, they did not request that consideration
within the 120 days of acquisition . . . ." The Assessment Board found that
because JC Fab "did continue to operate as a manufacturer of refuse containers,
in addition to the other manufacturing products they produce, they did continue
similar operations of the previous employer," and that JC Fab "is a successor
employer."
¶6 JC Fab appealed the Assessment Board's order to the district court. The
district court, in its Order filed in August, 2013, reversed the Assessment
Board's order, noting that JC Fab "did not have a non-competition agreement with
[Texoma]. This fact, combined with all of the other evidence, establishes . . .
that [JC Fab] was not a successor to the business known as [Texoma]."
¶7 The Commission now appeals the district court's Order reversing the order
of the Assessment Board.
STANDARD OF REVIEW
¶8 The Employment Security Act of 1980 sets forth the standard of judicial
review in appeals of Assessment Board decisions as follows:
In any judicial review under this part the findings of the Commission, or
its duly authorized representative, as to the facts, if supported by
evidence and in the absence of fraud, shall be conclusive, and the
jurisdiction of the court shall be confined to questions of
law.
40 O.S. 2011 § 3-404 (emphasis
added).
The Oklahoma Supreme Court has determined the phrase, "if supported by
evidence," as found in § 3-404, "means evidence which is substantial, that
is, affords a substantial basis in fact from which the fact in issue can be
reasonably inferred." Oklahoma Employment Sec. Comm'n v. Sanders, 1954 OK 155, 272 P.2d 379. The Court went on
to state it was Commission's function to weigh the evidence and make
findings, which findings must be accepted on judicial review if supported by
substantial evidence and not clearly erroneous.
Snider Bros. v. State ex rel. Okla. Employment Sec. Comm'n, 2008 OK CIV APP 80, ¶ 14, 194 P.3d 771.
The words "if supported by evidence" mean substantial evidence.
[Sanders], 1954 OK
155, ¶¶ 8-9 . . . . Substantial evidence is "evidence . . . [that]
affords a substantial basis in fact from which the fact in issue can be
reasonably inferred" or "a reasonable mind might accept as adequate to
support a conclusion." Id.
Reliable Referring Serv., Inc. v. Assessment Bd., 2006 OK CIV APP 150, ¶ 6, 149 P.3d 1078. See also
Dugger v. State ex rel. Okla. Tax Comm'n, 1992 OK 105, ¶ 9, 834 P.2d 964 ("The appellate courts
will review the entire record made before an administrative agency acting in its
adjudicatory capacity to determine whether the findings and conclusions set
forth in the agency order are supported by substantial evidence," and "[a]n
adjudicatory order will be affirmed on appeal if the record contains substantial
evidence in support of the facts upon which the decision is based and the order
is otherwise free of error.").
¶9 "The Commission, however, may not arbitrarily discredit and disregard
unimpeached, competent and relevant testimony which is uncontradicted."
Sanders, 1954 OK 155, ¶ 9.
See also Wright & Edwards v. Okla. Employment Sec. Comm'n, 1997 OK 163, ¶ 24, 934 P.2d 1088 ("We stated, in
[Sanders], that the function of the employment security commission is to
weigh the evidence on matters properly before it and make findings thereon, and
where such findings are supported by substantial evidence or are not clearly
erroneous, they must be accepted, but that the Commission may not arbitrarily
discredit and disregard unimpeached competent and relevant testimony that is
uncontradicted.").
ANALYSIS
¶10 Title 40 O.S. 2011 §
3-111(A)1
provides, in part, as follows:
Any employing unit, whether or not an employing unit at the time of the
acquisition, which acquires substantially all of the trade, organization,
employees, business, or assets of any employer (excepting in such
case any assets retained by that employer incident to the liquidation of the
employer's obligations) and who continues the operations of the
predecessor employer as a going business, shall be determined to be a
successor employer. The successor employer shall acquire the merit rating2 account of
the predecessor employer, including the predecessor's actual contribution
and benefit experience, annual payrolls, and contribution rate. The
successor employer shall also become jointly and severally liable with the
predecessor employer for all current or delinquent contributions, interest,
penalties and fees owed to the [Commission] by the predecessor
employer.
(Emphasis added.) The dispositive issue presented on appeal is whether the
Assessment Board's determination that JC Fab continued the operations of Texoma
as a going business is supported by substantial evidence.
¶11 Regarding whether JC Fab continued the operations of Texoma as a going
business, Crain testified at the Assessment Board hearing that, prior to the
acquisition, JC Fab "built jacks and couplers for the gooseneck trailer
industry. We built safe rooms, storm shelters. We did custom fabrication work
for other manufacturers. We did a machine shop business. And we built oil field
equipment, such as frac tanks and mud tanks." He also testified JC Fab had "a
small line of open top refuse containers" prior to the acquisition. Crain
testified that the production of refuse containers constituted "[l]ess than five
percent, maybe one or two percent. It was a very small part of our business." He
stated that as of the date of the hearing, and after the acquisition, the
portion of JC Fab's business related to the production of refuse containers was
"[p]robably less than five percent if - you know, two to three percent,
probably." Crain stated that Texoma, on the other hand, "did 100 percent
compactors," meaning Texoma only produced "hydraulically powered" waste
compactors "used behind restaurants, department stores, anybody wanting to
compact refuse for volume purposes."
¶12 Crain testified that JC Fab's sales in the past 12 months were
"[p]robably right around, I think, seven or eight million," and that "[r]oughly,
$100,000 to $200,000" of that was from the production of refuse containers. When
questioned how much Texoma was generating from sales of refuse containers prior
to the acquisition, Crain, who testified that Texoma had shown him their
financial statements "[w]hen I was discussing buying their assets . . . to show
how much equipment they had," stated that Texoma was "doing close to $2 million
a year in sales" of refuse containers. The following exchange occurred between
Crain and JC Fab's attorney:
[Q] Do you have any reason to believe that, if you had purchased [Texoma]
and continued that operation, that you would have done anything different
than their $2 million?
[A] I probably - if we would have taken over that part of the business,
it probably would have increased, but that wasn't our plan.
The oil field work that we do and the work that we do for one of our
largest customers is Caterpillar, is what - that's more profitable, and
that's what our focus is. But we've chosen not to do [refuse
compactors].
We've turned down several opportunities to bid jobs that [Texoma] had
built products. And, because we don't have the time and we're - our backlog
is filled up. Our capacity is filled up doing oil field equipment work right
now.
¶13 Regarding sales of refuse compactors, Crain testified, "we have never got
into that type of business," but admitted that after the acquisition, JC Fab
continued [production of compactors] in a very small way. We don't do any
compactors on a continuous basis. But there's . . . two old [Texoma]
customers that, occasionally, will place orders. And we do it more as a
service to them. But we don't advertise it. We don't have a salesman out on
the road selling those. It's not part of our business plan, as a
whole.
Crain further testified that JC Fab kept, and did not change, the telephone
and fax numbers at the facility acquired from Texoma, and that previous
customers of Texoma would
call in, periodically, asking us if we can build them a compactor or sell
them some parts . . . - and . . . I've lived in this community and worked in
it for over 40 years. And, you know, as a service to their older . . .
customers, we try to help them out.
. . . . So, you know, we try to provide a service for them. But it's not
part of our business model.
Crain also responded in the negative when questioned, "Did you, on behalf of
JC Fab, or any of your employees, to your knowledge, contact previous customers
of [Texoma] to make sales?"
¶14 When questioned at the hearing, "If you weren't going to continue
building the powered refuse containers that [Texoma] built, why did you buy
their assets?" Crain responded,
For their facility. The biggest and only reason that we bought [Texoma]
assets is because the year prior to that, we had got into building frac
paint (sic),3 and our existing building that we were in was
too small. . . . And I needed some real estate and some buildings and
welding machines.
Crain stated that the acquisition occurred "to expand our frac paint (sic)
business." He similarly testified that "we were using the new assets solely for
the use of our existing business and to build the products that we were already
currently building."
¶15 Crain further testified, consistent with the "Addendum to Purchase
Contract" contained in the record, that there were a number of Texoma assets
"that all had to do with [Texoma's] existing business" that JC Fab did not
purchase, including "hoists," "tarpers and tarps," and "truck chassis." The
following exchange occurred between Crain and JC Fab's attorney:
[Q] If you had continued to make the products that [Texoma] made, would
you have had to have tarpers and tarps?
[A] Yes.
. . . .
[Q] Okay. Would those truck chassis have been used in the refuse
container business that [Texoma] did?
[A] Yes.
[Q] And that's a
different business than JC Fab was involved in; is that correct?
[A]
Exactly.
Regarding the hoists that JC Fab did not purchase, Crain explained that JC
Fab does not use them for "the frac tanks that we build . . . . We - our
containers that we build are pulled by trucks. And these containers are pulled
up onto trucks and dumped. So it's a totally different business model than JC
Fab." When questioned whether, if JC Fab had continued producing the type of
refuse containers that Texoma built, it would have purchased the hoists, Crain
responded, "Yes. We would have needed these assets, but that wasn't, again, part
of our business plan."
¶16 Crain explained that "[b]asically, everything we bought from [Texoma] [-]
the real estate . . . and then the equipment . . . that we bought[,] . . . the
welding machines, drill presses, press brakes . . . [-] were generic fabrication
equipment, the same type of equipment that we already owned, but more of it.
More welding machines, more press brakes. And then their facility." He further
explained,
I didn't buy anything related to, specifically, for what [Texoma was]
doing.
The welding machines, and I think you can understand, like the equipment
I bought, like the welding machines weld the metal together, no matter what
shape it is. So I could use it in my business. The sheers or the pressed
brake cut metal and bend it. So it's very
universal.
¶17 Crain testified that, prior to the acquisition, JC Fab had a building
that was "[r]oughly, 16,000 square feet," and that through the acquisition "[w]e
added 63,000 square feet." Crain testified:
The whole point of buying this building and this equipment was to grow.
And, as we got into that building, we got - we've had large orders for frac
paints (sic) and oil field related stuff. We've hired new people. It was all
part of our move to buy that building and our
expansion.
¶18 In addition, the following exchange occurred between Crain and JC Fab's
attorney:
[Q] At the time you acquired [Texoma] assets, how many employees did they
have?
[A] I'm going to - to the best of my knowledge, I think it was 15
to 16 employees.
[Q] Okay. Did you hire all of those employees to work at
JC Fab?
[A] We gave most of them an opportunity to come work for us when
[Texoma] shut down. And I think the majority of them did, initially. But
several of them quit right after for various reasons. But - and we're down
to just a few of them right now.
[Q] Could some of the reasons be that
you weren't building the products they were used to building?
[A] That's
exactly right. The products that we're building that are oil field related
and the stuff that we're doing for Caterpillar required extensively more
experience in welding, the type of welding procedures, and the work force at
[Texoma] was very nonskilled, seasonal-type workers. And, you know, they
weren't able to do the work that we needed. And most of them have moved on
and found other jobs.
¶19 Crain also testified that he "didn't require [Texoma] to sign a
noncompete clause or prohibit them from going on and doing anything related to
that business, because I wasn't getting into that business." He stated that
Texoma could start up the same business they were running before the acquisition
"and I wouldn't have a problem with it whatsoever. We wouldn't even be
competing."
¶20 Crain's testimony was neither impeached nor contradicted at the hearing.
The only witness who testified on behalf of the Commission at the hearing was
its own employee, Capolino, who investigated the acquisition and made the
initial determination that JC Fab was a successor of Texoma. However, Capolino
testified that she determined JC Fab continued the operations of Texoma as a
going business based merely on the fact that "[Texoma] produced refuse
containers. And JC Fab also produces refuse containers." She similarly
testified, "[JC Fab] still made some of the product that [Texoma] made."
¶21 On cross-examination, Capolino admitted that during her investigation,
she did not determine, for example, what percentage of Texoma's business was the
production of refuse containers; whether any of the Texoma owners, shareholders,
or board members continued to be a part of JC Fab; or how much of JC Fab's
business consisted of sales to Texoma account holders. She testified, "I made my
determination [based] on the amount of assets that [JC Fab] acquired and the
employees," and took "into consideration the fact that Texoma made refuse
containers and the fact that JC Fab also made refuse containers." She stated, "I
did not have a lot of information."
¶22 As quoted above, the Commission "may not arbitrarily discredit and
disregard unimpeached, competent and relevant testimony which is
uncontradicted." Sanders, 1954
OK 155, ¶ 9. Here, Crain's testimony supports only one reasonable
conclusion: that JC Fab did not "continue[] the operations of the predecessor
employer as a going business[.]" Crain testified that JC Fab acquired Texoma's
facility along with a substantial portion of its assets not in order to
continue Texoma's $2 million per year refuse compactor business but, instead, to
expand its own, distinct metalworking business, especially as it relates to the
oil and gas industry. Crain did testify, as set forth above, that JC Fab's
production of refuse containers increased after the acquisition from "maybe one
or two percent" to "two to three percent, probably," and that "[r]oughly,
$100,000 to $200,000" of its "seven or eight million" in sales over the past 12
months before the hearing was from the production of refuse containers. However,
Crain testified that this increase was the result of a de minimis "service" to
two former Texoma customers; that it was not performed on a regular basis; that
it was not advertised by JC Fab; that it was not part of JC Fab's business plan;
that JC Fab did not, though it could have, continue to generate, or exceed,
anywhere near the $2 million per year in sales of refuse compactors that Texoma
generated before the acquisition; and that JC Fab did not acquire various assets
of Texoma that would have been necessary to continue Texoma's refuse container
sales as a going business. Moreover, Crain testified there was no noncompete
clause with Texoma because JC Fab did not care if Texoma continued to
manufacture its refuse containers as JC Fab was not in Texoma's product
line.
¶23 In turn, the Commission did not assemble competent evidence to
contradict, discredit, or impeach Crain's testimony. Instead, the Commission's
only witness testified, in essence, that, from a certain remove, and absent "a
lot of information," it appears JC Fab is a successor of Texoma and is
continuing its operations as a going business. However, although this may have
been a reasonable conclusion at the early stages of this case, the
uncontradicted details elicited at the hearing reveal otherwise.4
¶24 We must conclude, with the district court, that the Assessment Board's
determination is not supported by substantial evidence. In particular, the
Assessment Board's determination that, under § 3-111(A), JC Fab "continue[d] the
operations" of Texoma "as a going business" is not supported by substantial
evidence. Consequently, we affirm the district court's reversal of the
Assessment Board's order.
CONCLUSION
¶25 We conclude the Assessment Board's determination that, under 40 O.S. 2011 § 3-111(A), JC Fab
"continue[d] the operations" of Texoma "as a going business" is not supported by
substantial evidence. Therefore, we affirm the district court's Order reversing
the order of the Assessment Board.
RAPP, P.J., and THORNBRUGH, J., concur.