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Ohio Department of Job and Family Services v. Delphi Automotive Systems, LLC

Court of Appeals of Ohio, Tenth District

March 7, 2017

Ohio Department of Job and Family Services, Appellee-Appellant,
v.
Delphi Automotive Systems, LLC, Appellant-Appellee.

         APPEAL from the Franklin County Court of Common Pleas, C.P.C. No. 13CV-13451

          On Brief: Michael DeWine, Attorney General, and Eric A. Baum, for appellant. Argued: Eric A. Baum.

          On Brief: Vorys, Sater, Seymour and Pease, LLP, Jonathan R. Vaughn, and Michael J. Ball, for appellee. Argued: Michael J. Ball.

          DECISION

          BRUNNER, J.

         {¶ 1} Appellant before this Court and appellee before the Franklin County Court of Common Pleas, the Ohio Department of Job and Family Services ("ODJFS") appeals a decision of the Franklin County Court of Common Pleas entered on November 5, 2014 which reversed a decision of the Unemployment Compensation Review Commission ("UCRC"). We find the court of common pleas entered a judgment that contained legal error in impermissibly narrowing the plain meaning of the phrase "at the time of the transfer." Because the court of common pleas did so, it abused its discretion in considering whether the UCRC decision was in accordance with law and supported by reliable, probative, and substantial evidence and we reverse.

         I. FACTS AND PROCEDURAL HISTORY

         {¶ 2} In an agreement dated July 30, 2009, and signed on August 5, 2009, General Motors Company and Delphi Corporation, among other entities, entered into a "MASTER DISPOSITION AGREEMENT" with DIP HOLDCO, LLP[1] ("DIP") and other parties whereby DIP would acquire certain assets of Delphi Corporation. (Apr. 8, 2014 UCRC Admin. Records at 455-607.) This agreement was part of a modified plan for reorganization of Delphi Corporation approved by the United States Bankruptcy Court for the Southern District of New York and had an effective date of October 6, 2009. Id. at 609-13, ¶ 3.

         {¶ 3} Insofar as this reorganization affected Ohio and the case at hand, a number of state unemployment compensation forms were completed showing the disposition of various component businesses of Delphi Corporation, specifically Delphi Automotive Systems Services LLC, Delphi Automotive Systems Human Resources LLC, and Delphi Diesel Systems Corporation (collectively "Old Delphi") transferred to a company which, for simplicity, we shall refer to as "New Delphi."[2], [3] Id. at 438-42. Among these forms was one which marked "yes" to the query, "Did you acquire a portion (less than 100%) of a trade or business from an employer with which your business has common ownership, management, or control?" Id. at 390, 442. These forms were completed and signed on a variety of dates in Fall 2009. See id. at 438-42. On the effective date of the transaction, October 6, 2009, Delphi published a press release in which it asserted, "Rodney O'Neal [who became President and CEO of Delphi Corp. in 2007] will remain President and CEO and the current leadership will continue to manage the company's global operations." Id. at 396, 406. A biography of Rodney O'Neal produced from New Delphi's investor relations page relates that O'Neal was Director of the Board since May 2011, "became President and Chief Executive Officer of [New Delphi] effective October 6, 2009, " and served as Old Delphi's President and CEO since January 2007. Id. at 406.

         {¶ 4} On June 20 and July 6, 2011, based on the common management or control of Old Delphi and New Delphi, the UCRC issued rate determination decisions that accorded Old Delphi's higher tax rate (rather than the lower rate for new companies) to New Delphi for the years 2009-2011. Id. at 10, 12-24. On July 19, 2011, Delphi sought reconsideration of the rate adjustments for 2009 and 2010. Id. at 5-9. The letter seeking reconsideration maintained that the forms admitting common ownership, management, or control were erroneous. Id. at 6. The letter represented that New Delphi was incorporated in Delaware on August 21, 2009. Id. at 5. It also represented that at the time of the transfer of assets from Old Delphi to New Delphi, the officers of the new company were David Miller and Jeff Fortizzi. Id. The directors and corporate officers of Old Delphi, the letter claimed, departed on October 6, 2009 and "[u]pon new board member approval, the corporate officers of New Delphi were appointed."[4] Id.

         {¶ 5} A designee of the director of ODFJS denied the request for reconsideration in a decision mailed on September 7, 2012 based on the finding of common management and control. Id. at 11. By letter dated October 4, 2012, Delphi sought an administrative hearing on the matter. Id. at 30-32. Delphi again indicated that the admission of common ownership, management, or control was an error but this time asserted that in the period immediately after the October 6 effective date of the transaction but before the "new board" approved "the corporate officers of New Delphi, " David Miller and Michael Gatto were in control of New Delphi as its officers. Id. at 5, 31.

         {¶ 6} On November 6, 2013, the UCRC held a hearing. Id. at 345-84. At the hearing, both sides agreed that the rate determination was based on R.C. 4141.24(G)(1) and that the hearing would, therefore, be limited to that topic. Id. at 350-51. ODJFS presented no witnesses, relying instead on its exhibits. Id. at 348-49. Delphi presented one witness, Mark Rozycki, who was (at the time of the hearing) the Director of Tax Administration for New Delphi and had been employed in that capacity since October 6, 2009. Id. at 352.

         {¶ 7} Rozycki testified that Old Delphi did not sell or transfer all of its trade or business, just certain assets. Id. at 362-64. In addition, not all employees transferred from Old Delphi to New Delphi; 882 of the original 1, 266 persons employed by Old Delphi were retained by New Delphi. Id. at 364. However, Rozycki acknowledged that the October 6, 2009 press release stated that the executive control of Old Delphi would continue to New Delphi. Id. at 371-72, 396-97. In addition, he confirmed that each of the executive officers of Old Delphi held the same positions in New Delphi after the transaction was complete. Id. at 354-55. Specifically, he testified that although the executives of Old Delphi were not formally appointed by the new board until October 23, 2009 (over two weeks after the October 6 effective date), they were paid in the interim and carried out their duties as corporate officers. Id. at 372-73. These officers acted in their paid capacities but were claimed to be not "officially" in control. Id. Official sign-off had to be completed, during the 17-day pre-appointment period, by Miller and Gatto. Id. at 373. Rozycki was not aware of the details of company ownership in terms of stock holdings or options, but he testified that he did not believe ownership was common between Old Delphi (which was publicly traded) and New Delphi (which was owned by two hedge funds). Id. at 360, 366-67, 369, 373. He also testified that the board members of Old Delphi and New Delphi were different persons. Id. at 369.

         {¶ 8} Following the hearing, in a decision mailed on November 13, 2013, the UCRC affirmed the rate determination subjecting New Delphi to the higher tax rate inherited from Old Delphi rather than the lower rate for new companies. (Nov. 13, 2013 UCRC Decision, filed in the Franklin County Court of Common Pleas on December 13, 2013.) In the decision, the UCRC stated findings of fact in relevant part as follows:

On October 6, 2009, assets that were previously held by [Old Delphi] were transferred to [New Delphi] through a bankruptcy reorganization. Approximately 67% of the employees who were previously employed by [Old Delphi] became employees of [New Delphi]. Some assets were excluded from the transfer. [New Delphi] did not receive all or substantially all of the assets that were previously held by [Old Delphi].
Immediately upon the transfer of the assets, [New Delphi] was owned and controlled by Silver Point Capital L.P. and Elliot Associates, L.P., which were two senior creditors of the business. However, [New Delphi] was managed by the same individuals who managed [Old Delphi]. The President, Treasurer, General Counsel and Secretary, and others in high-level management positions, remained the same. * * *[5] In a press release issued on October 6, 2009, Delphi stated, "Rodney O'Neal will remain President and CEO and the current leadership will continue to manage the company's global operations."

(UCRC Decision at 4.)

         {¶ 9} The UCRC then reasoned:

[New Delphi] can be deemed a successor in interest [] if a portion of the business of [Old Delphi] was transferred to [New Delphi], and [New Delphi] was under substantially common ownership, management, or control as [Old Delphi].
** * The Review Commission finds that [New Delphi] was an employer at the time of the transfer as 67% of the employees were transferred to [New Delphi]. Further, Section 4141-17-01(C) of the Ohio Administrative Code defines "successor in interest" to include any person or employer as defined by Section 4141.01(A)(1) of the Ohio Revised Code that is or becomes an employer and that acquires a trade or business under Rules 4141-17-02 to 4141-17-05 of the Ohio Administrative Code. Even assuming that [New Delphi] was not an employer at the time of the transfer, it subsequently became an employer soon after the transfer. * * *
** * [U]nder Section 4141.24(G)(1) of the Ohio Revised Code, the transferee assumes the unemployment experience attributable to the transferred trade or business if, at the time of transfer, both "employers" are under substantially common ownership, management, or control. In this case, [New Delphi] was, at the time of the transfer, under substantially the same management as the transferred business. Individuals in key management positions, such as the President, Treasurer, and General Counsel and Secretary, continued to manage [New Delphi]. On October 6, 2009, Delphi issued a media release which stated that "Rodney O'Neal will remain President and CEO and the current leadership will continue to manage the company's global operations." Therefore, based on the evidence presented in this case, the Review Commission finds that [New Delphi] was under substantially common management as [Old Delphi] as of October 6, 2009, which was the date of the transfer. In addition, the Review Commission finds that [New Delphi] acquired a portion of the trade or business of [Old Delphi].

(Decision at 5-6.)

         {¶ 10} On December 13, 2013, Delphi appealed the decision to the Franklin County Court of Common Pleas. Both parties to the administrative appeal submitted briefing, and, on November 5, 2014, the common pleas court issued a decision reversing the finding of the UCRC. (Nov. 5, 2014 Common Pleas Decision.) The common pleas court noted that the UCRC decision "was based upon the Commission's conclusions that (i) Old Delphi and New Delphi were under substantially common management at the time of the transfer and (ii) New Delphi was an employer at the time of the transfer of a portion of Old Delphi's trade and/or business to New Delphi on October 6, 2009." (Com. Pl. Decision at 1.) The common pleas court concluded that the phrase "at the time of transfer" is limited to the exact moment of transfer, neither pre-transfer nor post-transfer. Id. at 10. Having narrowly interpreted the field of inquiry, the common pleas court stated "there is no evidence in the record that prior to or at the time of the transfer there was any common, let alone substantial, ownership, management or control of Old and New Delphi." Id. at 8; see also id. at 4, 10-11. It also concluded, "[t]here is no evidence in the record that New Delphi was an employer, as defined by R.C. 4141.01(A)(1) and used in R.C. 4141.24(G), at the time of the transfer." Id. at 11; see also id. at 4.

         {¶ 11} ODJFS now appeals.

         II. ASSIGNMENT OF ERROR

         {¶ 12} ODJFS assigns a single error for our review:

As the Review Commission found, Old Delphi funneled certain of its assets to a hedge fund, only to reroute them to New Delphi 17 days later. But because the same management team made executive decisions throughout the process, the trial court improperly made factual findings, and thus abused its discretion, in determining that New Delphi was not an "employer" and did not have common ownership, management, and control of the business at the time of the transfer.

         III. STANDARD OF REVIEW

         {¶ 13} R.C. 4141.26 instructs that the court of common pleas, when reviewing a decision of the UCRC:

[M]ay affirm the determination or order complained of in the appeal if it finds, upon consideration of the entire record, that the determination or order is supported by reliable, probative, and substantial evidence and is in accordance with law. In the absence of such a finding, it may reverse, vacate, or modify the determination or order or make such other ruling as ...

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