COA: Consulting company that acquired another’s assets not its successor company

An automobile consulting company that acquired the name, assets and goodwill of a former staffing company will not have to pay more than $170,000 in liability and delinquent fees after the Indiana Court of Appeals determined the auto company was not a successor to the staffing company.

In November 2014, Diverse Technical Services Inc., a Pokey Inc.-owned staffing agency that served retired ALCOA employees, shut down its operation. Meanwhile, Daniel Harpenau incorporated Diversified Technical Services Inc. in July 2015.

Harpenau approached Richard and Pamela Martin, who owned Pokey, with an offer to pay for Diverse’s name, goodwill and accounts receivable as an “opening in the door” at ALCOA. Diverse and DTS executed an Asset Purchase and Sale Agreement that allowed DTS to purchase those items for $15,000. DTS then began operations with three employees, offering safety training and consulting services to ALCOA and Toyota Motor Manufacturing Indiana Inc.

In October 2015, DTS accountant Karen Moseley contacted the Indiana Department of Workforce Development wanting to know if the purchase of a company name was considered an acquisition.  After consulting with the department, Moseley answered a question on State Form 2837, SUTA Account Number Application and Disclosure Statement to indicate DTS had acquired 100 percent of Pokey Inc., which was labeled as a “disposer” Indiana corporation.

After receiving that completed form, the department concluded DTS had acquired the complete business of Diverse. The department then issued a Merit Rate Delinquency Notice to DTS, demanding $170,776.25 for delinquent quarters and liabilities related to Pokey.

DTS filed a protest on the basis that it and Pokey were “completely unrelated taxpayers.” After a hearing at which Harpenau estimated DTS had acquired 1 or 2 percent of Diverse’s assets, a liability administrative law judge determined “DTS acquired the organization, trade, or business, or substantially all of the assets of Diverse’s business and became an employer or successor employer.” Thus, the department’s determination was upheld.

DTS appealed that decision in Diversified Technical Services, Inc. v. Indiana Department of Workforce Development, 93A02-1702-EX-422, and the Indiana Court of Appeals reversed in a Thursday opinion. In the unanimous opinion, Justice Mark Bailey wrote the rationale of the ALJ’s decision “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 (Indiana Code 22-4-10-6) does not require that DTS prove a negative,” Bailey wrote. “…‘The Department is responsible for determining the successorship status of an acquiring employer when either a total or partial acquisition occurs between employers.’  It follows that the Department must have an adequate basis for making this determination. Here, the evidence fell short.”

 “Crucially, DTS did not acquire Diverse employees, the essence of an ongoing staffing business,” Bailey continued. “A most generous consideration of the Department’s evidence would reveal no more than DTS ‘acquired assets from which it built a new business.’ In such circumstances, an employer is not a successor employer.”