Business successor liable for debt?

West Virginia Supreme Court Reports

IPI, INC. v. BURTON, 217 W. Va. 181 (2005) 617 S.E.2d 531
IPI, INC., Petitioner Below, Appellant v. Gregory A. BURTON,
in His Capacity as Acting Commissioner, West Virginia
Bureau of Employment Programs, Workers’ Compensation
Division, and West Virginia Division of Transportation,
Division of Highways, Respondents Below, Appellees. No.
31858. Supreme Court of Appeals of West Virginia.
Submitted February 22, 2005. Decided May 16, 2005.
Dissenting Opinion of Justice Starcher July 14, 2005.

Appeal from the Circuit Court, Kanawha County, James C.
Stucky, J. Page 182

Syllabus by the Court

1. “Each word of a statute should be given some effect and
a statute must be construed in accordance with the import
of its language. Undefined words and terms used in a
legislative enactment will be given their common, ordinary
and accepted meaning.” Syllabus Point 6, in part, State ex
rel. Cohen v. Manchin, 175 W.Va. 525, 336 S.E.2d 171
(1984).

2. The phrase “substantially all” in W.Va. Code §
23-2-14(b) (2003), regarding the determination of successor
liability under the Workers’ Compensation Act, means all
but an insignificant amount. Page 183

3. “Interpretations as to the meaning and application of
workers’ compensation statutes rendered by the Workers’
Compensation Commissioner, as the governmental official
charged with the administration and enforcement of the
workers’ compensation statutory law of this State, pursuant
to W.Va. Code § 23-1-1 (1997) (Repl.Vol. 1998),
should be accorded deference if such interpretations are
consistent with the legislation’s plain meaning and
ordinary construction.” Syllabus Point 4, State ex rel. ACF
Industries v. Vieweg, 204 W.Va. 525, 514 S.E.2d 176 (1999).

4. “The judiciary is the final authority on issues of
statutory construction, and we are obliged to reject
administrative constructions that are contrary to the clear
language of a statute.” Syllabus Point 5, CNG Transmission
Corp. v. Craig, 211 W.Va. 170, 564 S.E.2d 167 (2002).

Kenneth E. Webb, Jr., Esq., Jennifer L. Dowdy, Esq.,
Bowles Rice McDavid Graff & Love, Charleston, West
Virginia, Attorneys for Appellant.

William L. Ballard, Esq., Larry M. Bonham, Esq., Legal
Services Division, Charleston, West Virginia, Attorney for
Bureau of Employment Programs.

MAYNARD, Justice:

Appellant IPI, Inc. appeals the September 19, 2003, order
of the Circuit Court of Kanawha County that upheld a May
22, 2001, order of the Commissioner of the West Virginia
Bureau of Employment Programs Workers’ Compensation
Division. The Commissioner’s order adopted the recommended
decision of the Workers’ Compensation Division Hearing
Examiner that IPI, Inc. is the successor to North American
Construction, Inc. and, as successor, is liable for the
workers’ compensation debt resulting from the
reclassification and delinquencies of North American
Construction, Inc. and its predecessor company, North
American, Inc. After reviewing the arguments of the
parties, the record below, and the applicable law, we
reverse the circuit court.

I.

STATEMENT OF FACTS

Appellant IPI, Inc. is a West Virginia corporation which
was incorporated on February 3, 1998, and is currently a
subscriber to the West Virginia Workers’ Compensation Fund.
IPI was formed by Julia Dawn Taylor who is the
corporation’s sole shareholder. Mrs. Taylor’s husband,
Matthew J. Taylor (hereafter “Taylor”) is president of IPI.
IPI is in the business of residential, commercial, and
industrial painting.

IPI was informed by a notice of reclassification, notice
of succession, and notice of delinquency, dated April 24,
2000, that Appellee Workers’ Compensation Division
(hereafter “the Division”)[fn1] found IPI to be the
successor to the liability of North American Construction,
Inc. (hereafter “North American”) pursuant to W.Va. Code
§ 23-2-14 (1999).[fn2] North American was co-owned
by Taylor and Joseph Morris and became a subscriber to the
Workers’ Compensation system in 1996. In 1997, Taylor
discovered that North American was seriously delinquent in
the payment of monies owed to First National Bank of
Ronceverte and the Workers’ Compensation Division as well
as several other entities. Joseph Morris ultimately pled
guilty to various charges relating to these financial
delinquencies. Thereafter, Morris transferred North
American stock to Taylor, giving Taylor control of the
business. Taylor subsequently shut down North American.

In December 1997, First National Bank of Ronceverte
(hereafter “the bank”) won a default judgment against North
American, Joseph Morris, and Taylor in the amount of
$463,773.00 with interest at the rate of 10% from the entry
of judgment until paid, and Page 184 perfected judgment
liens against their real and personal property. To satisfy
part of the judgment owed the bank, Taylor, with the bank’s
permission, sold North American’s real property, at a value
of approximately $125,000.00. In April 1998, IPI entered
into an equipment lease agreement with North American
Development, Inc.[fn3] wherein IPI agreed to lease some of
North American’s equipment. Taylor signed this contract on
behalf of both IPI and North American Development, Inc.

The Division ultimately reclassified North American from
small sheet metal building erection to the painting of
steel and other high rise structures.[fn4] As a result of
this reclassification, in addition to the reclassification
of North American’s predecessor business,[fn5] North
American, Inc., North American was found to be delinquent
in its payment of Workers’ Compensation premiums to the
Division. Because the Division determined that IPI is North
American’s successor, it found that IPI owes the Division
$865,486.57 which wholly comprises the delinquencies of
North American and its predecessor.

After receiving the notice of reclassification, notice of
succession, and notice of delinquency, IPI protested the
findings to the Division. The Hearing Examiner, after
holding hearings in which evidence was adduced, issued a
recommended decision of April 19, 2001, in which he found,
inter alia, that IPI is a successor to North American and,
as its successor, is liable for debt in the amount of
$865,486.57. The Hearing Examiner’s recommended decision
was affirmed by the Workers’ Compensation Commissioner[fn6]
and the Circuit Court of Kanawha County which adopted the
Division’s findings of fact and conclusions of law.

II.

STANDARD OF REVIEW

In Martin v. Randolph County Bd. of Educ., 195 W.Va. 297,
304, 465 S.E.2d 399, 406 (1995), this Court set forth the
extent of its review of a circuit court’s order that
affirmed the findings of a hearing examiner or
administrative law judge as follows:

[I]n reviewing an ALJ’s decision that was affirmed by the
circuit court, this Court accords deference to the
findings of fact made below. This Court reviews decisions
of the circuit [court] under the same standard as that by
which the circuit [court] reviews the decision of the ALJ.
We must uphold any of the ALJ’s factual findings that are
supported by substantial evidence, and we owe substantial
deference to inferences drawn from these facts. . . . We
review de novo the conclusions of law and application of
law to the facts.

III.

DISCUSSION

The legal standard governing whether a new employer is a
successor to a predecessor employer for liability purposes
under workers’ compensation law is found in W.Va. Code
§ 23-2-14(b) (2003)[fn7] as follows:

Notwithstanding any provisions of section five-a [§
23-2-5a] of this article to the contrary, in the event
that a new employer acquires by sale or other transfer or
assumes all or substantially all of a predecessor
employer’s assets: Page 185

(1) Any liens for payments owed to the commission for
premium taxes, premium deposits, interest or other
payments owed to the commission by the predecessor
employer shall be extended to the successor employer;

(2) Any liens held by the commission against the
predecessor employer’s property shall be extended to all
of the assets of the successor employer; and

(3) Liens acquired in the manner described in
subdivisions (1) and (2) of this subsection are
enforceable by the commission to the same extent as
provided for the enforcement of liens against the
predecessor employer in section five-a [§ 23-2-5a]
of this article.

According to W.Va. Code § 23-2-14(e),

As used in this article, the term “assets” means all
property of whatever type in which the employer has an
interest including, but not limited to, goodwill, business
assets, customers, clients, contracts, access to leases
such as the right to sublease, assignment of contracts for
the sale of products, operations, stock of goods or
inventory, accounts receivable, equipment or transfer of
substantially all of its employees.

Finally, subdivision (f) of W.Va. Code § 23-2-14
provides,

The transfer of any assets of the employer is presumed to
be a transfer of all or substantially all of the assets if
the transfer affects the employer’s capacity to do
business. The presumption can be overcome upon petition
presented and an administrative hearing in accordance with
section seventeen [§ 23-2-17] of this article.

The Hearing Examiner based his recommended decision that
IPI is North American’s successor on the fact that IPI
leased from North American “a substantial portion” of North
American’s equipment; IPI acquired at least three key
management employees of the ten employees who worked for
North American at the time North American ceased
operations; IPI completed the work on a contract entered
into but left unfinished by North American; IPI, in the
year it began operations, had job contracts with eight
separate entities of which four were previous customers of
North American; and Taylor, through correspondence,
attempted to receive favorable consideration for IPI from
former North American customers and held IPI out to be a
successor to North American.

IPI, in challenging the finding that it is North
American’s successor, first asserts that it never acquired
a majority of North American’s equipment much less
substantially all of it. IPI also disputes the Hearing
Examiner’s reliance on the finding that three “key
management employees” transferred from North American to
IPI. According to IPI, there was no evidence below that two
of these three employees were key management employees of
either North American or IPI. Further, says IPI, this
finding is irrelevant because nowhere does the statutory
scheme differentiate key employees from regular employees.
IPI also refutes the Hearing Examiner’s dependence on
several letters signed by Taylor in which he stated that
IPI would continue the projects of North American using its
personnel and equipment, and that he would assume its
liabilities. According to IPI, Taylor’s representations are
legally insignificant because there is no statutory
provision that makes the assumption of obligations legally
relevant to the question of successor liability.

The crucial inquiry in determining whether IPI is the
successor to North American for workers’ compensation
liability purposes is whether IPI acquired “substantially
all” of North American’s assets. It is not claimed that IPI
acquired all of North American’s assets. Therefore, under
W.Va. Code § 23-2-14(b), IPI can be found to succeed
to North American’s liability only if IPI assumed
“substantially all” of North American’s assets.

This Court has held that “[e]ach word of a statute should
be given some effect and a statute must be construed in
accordance with the import of its language. Undefined words
and terms used in a legislative enactment will be given
their common, ordinary and accepted meaning.” Syllabus
Point 6, in part, State ex rel. Cohen v. Manchin, 175 W.Va.
525, 336 S.E.2d 171 (1984). Several Page 186 courts have
defined the phrase “substantially all.” In Atmel Corp. v.
Information Storage Devices, Inc., 997 F.Supp. 1210, 1229
(N.D.Cal. 1998), the court defined “substantially all” as
used in a patent to mean “all but an insignificant amount.”
Similarly, in Ahlstrom Machinery, Inc. v. Clement, 13
F.Supp.2d 45, 49 (D.D.C. 1998), affirmed, Kamyr, Inc. v.
Clement, 217 F.3d 860 (Fed. Cir. 1999), the phrase
“substantially all,” again as used in claim of patent, was
construed to mean “largely but not wholly that which is
specified.” We believe that the definition stated by the
Atmel court as “all but an insignificant amount” both
accurately and clearly expresses the common and ordinary
meaning of the phrase “substantially all.” Accordingly, we
hold that the phrase “substantially all” in W.Va. Code
§ 23-2-14(b) (2003), regarding the determination of
successor liability under the Workers’ Compensation Act,
means all but an insignificant amount.

We note also that this definition is consistent with how
the phrase “substantially all” has been applied by several
courts in various contexts. See Continental Can v. Chicago
Truck Drivers, et al., 916 F.2d 1154, 1158 (7th Cir. 1990)
(noting that “[a]ll of the [tax] regulations we could find
. . . quantify this phrase [“substantially all”] as 85% or
more”); Central States, et al., Pension Fund v. Bellmont,
610 F.Supp. 1505, 1511 (N.D.Ind. 1985), affirmed, 788 F.2d
428 (7th Cir. 1986) (concluding that “[t]he 85% figure . .
. comports with the common meaning of `substantially all'”
in a trucking industry exemption); Theurer v. Bd. of Review
Indus. Com’n, 725 P.2d 1338 (Utah 1986) (holding that newly
practicing dentist’s acquisition of 75% of former dentist’s
assets is not “substantially all” assets of former
dentist); James v. McCoy Mfg. Co., 431 So.2d 1147, 1149
(Ala. 1983) (concluding that 65% was insufficient to
constitute “substantially all the assets” within context of
unemployment statute for purposes of calculating
corporation’s contribution to state unemployment
compensation fund); Auclair Transp. v. Riley, 96 N.H. 1, 69
A.2d 861, 863 (N.H. 1949) (finding that word “substantially”
in unemployment compensation act “cannot be less than 90%
[of the whole] in the ordinary situation”).

Application of the above definition of “substantially all”
to the instant facts leads this Court to conclude that IPI
did not acquire substantially all of North American’s
assets pursuant to W.Va. Code § 23-2-14. We
recognize the Hearing Examiner’s findings that IPI
completed the only contract left uncompleted by North
American and that Taylor on several occasions held IPI out
to be North American’s successor. Significantly, however,
IPI did not acquire North American’s real estate which was
valued at approximately $125,000.00. Also, IPI acquired
only three of the ten employees of North American, a number
which certainly does not constitute substantially all of
North American’s employees. Further, as noted by IPI, even
though the three employees acquired by IPI are
characterized as “key management employees” by the Hearing
Examiner, W.Va. Code § 23-2-14(e) does not
distinguish between types of employees in its listing of
categories of assets.

Finally, the Hearing Examiner found that IPI acquired a
“substantial portion” of North American’s equipment by
comparing the list of equipment leased by IPI on “Schedule
A” attached to the lease to the Division’s Exhibit 14 which
is a list of equipment owned by North American. However, as
asserted by IPI, a “substantial portion” of the whole is
not the same as “substantially all” of the whole. While a
“substantial portion” may mean “a majority of” or “most
of,” it does not necessarily indicate “all but an
insignificant amount.” Schedule A, by this Court’s count,
lists approximately 115 sundry items used in offices or in
the painting business acquired by IPI out of a total of
approximately 182 such items owned by North American and
listed on Exhibit 14. A comparison of the two lists appears
to indicate, among other things, that IPI leased
approximately seven trucks from North American, while
approximately ten trucks were retained by North American.
Also, several trailers, campers, and a boat owned by North
American were not acquired by IPI. In addition, while IPI
acquired six “Louisville pick boards” from North American,
sixteen such pick boards were retained by North American
along with all of North American’s step and extension Page
187 ladders. Moreover, while IPI acquired various pieces of
office equipment such as a computer hard drive, laser
printer, office tables and chairs, typewriter, two office
trailers, and a fax machine, it did not acquire phones, a
copier, refrigerator, microwave, television, video cassette
recorder, monitors, and key pads. This Court concludes from
this that while, as found by the Hearing Examiner, IPI
acquired a substantial portion of North American’s
equipment, it clearly did not assume all but an
insignificant amount of the equipment.

The Division asserts that the applicable statute does not
require that substantially all of each category of the
assets owned by the predecessor employer be transferred.
Rather, a sale of any of the assets shall be presumed to be
substantially all of the assets if the transfer affects the
employer’s capacity to do business. In addition, says the
Division, W.Va. Code § 23-2-14(e) provides that the
types of assets listed are not inclusive. Therefore, the
Division can consider all of the assets transferred within
the totality of the circumstances in its successorship
analysis. While these assertions are not necessarily
incorrect, the fact remains that an employer can rebut a
presumption of successorship by showing that it did not
acquire or assume all or substantially all of the
predecessor employer’s assets. See Expedited Transp.
Systems, Inc. v. Vieweg, 207 W.Va. 90, 529 S.E.2d 110
(2000) (holding that when presumption is used to find
successor liability and employer requests a hearing to
rebut the presumption, the Division must grant such a
hearing). In the instant case, we find that IPI rebutted
the presumption of successorship by showing that, although
it may have acquired a substantial portion of North
American’s assets, it did not acquire all but an
insignificant amount of the assets. Specifically, IPI did
not acquire North American’s real estate, or substantially
all of North American’s employees and equipment.

This Court has held that,

Interpretations as to the meaning and application of
workers’ compensation statutes rendered by the Workers’
Compensation Commissioner, as the governmental official
charged with the administration and enforcement of the
workers’ compensation statutory law of this State,
pursuant to W.Va. Code § 23-1-1 (1997) (Repl.Vol.
1998), should be accorded deference if such
interpretations are consistent with the legislation’s
plain meaning and ordinary construction.

Syllabus Point 4, State ex rel. ACF Industries v. Vieweg,
204 W.Va. 525, 514 S.E.2d 176 (1999). Thus, the Division’s
construction of W.Va. Code § 23-2-14 should only be
accorded deference if it is consistent with that statute’s
plain meaning. We also have recognized that “[t]he
judiciary is the final authority on issues of statutory
construction, and we are obliged to reject administrative
constructions that are contrary to the clear language of a
statute.” Syllabus Point 5, CNG Transmission Corp. v.
Craig, 211 W.Va. 170, 564 S.E.2d 167 (2002). In the instant
case, we reject the Division’s application of W.Va. Code
? 23-2-14 to the instant facts as inconsistent with
that statute’s clear language.[fn8]

In summary, we have determined that the “substantially
all” test for successor liability in W.Va. Code ?
23-2-14 means “all but an insignificant amount.” The
application of this standard to the instant facts indicates
that a significant amount of North American’s assets were
not acquired by IPI including real estate, employees, and
equipment. Therefore, because IPI did not acquire
substantially all of North American’s assets, it is not a
successor employer to North American pursuant to W.Va. Code
? 23-2-14. Accordingly, the circuit court’s order
that affirmed the ruling of the Commissioner and the
Hearing Examiner that IPI is a successor to North American
is reversed.[fn9] Page 188

IV.

CONCLUSION

For the reasons stated above, the September 19, 2003, order
of the Circuit Court of Kanawha County that ruled that IPI
is a successor to North American is reversed.

Reversed.

Justice STARCHER dissents and reserves the right to file a
dissenting opinion.

[fn1] Effective July 1, 2003, the Division was reorganized
and reconstituted by the Legislature as the Workers’
Compensation Commission. See W.Va. Code ? 23-1-1
(2003).

[fn2] This code section was amended in 2003. The amendment
did not change the language at issue in this case.
Accordingly, we will hereafter quote from, and cite to, the
2003 version of the code section.

[fn3] North American Development, Inc. was formed in 1996 as
a holding company for North American.

[fn4] An employee of the Workers’ Compensation Division
testified in the hearing before the Division Hearing
Examiner below that the Division recognizes 93 separate
worker’s compensation rates. The rate charged to an
individual employer is based on that employer’s placement
in one of the approximately 252 different employer
classifications recognized by the Division. The employee
further testified that “[t]he governing class system
basically states that the classification assigned to a
business shall be the highest rated exposure that is a
normal general part of their business operations.” See also
W.Va. Code ? 23-2-4(a) (2005).

[fn5] North American was found by the Division to be the
successor to North American, Inc., formerly North American
Sanding and Painting, which was owned by Taylor and Joseph
Morris.

[fn6] The Commissioner’s order adopted in its entirety the
findings and conclusions of the Hearing Examiner’s
recommended decision.

[fn7] See note 2, supra.

[fn8] The Division further emphasizes that even though IPI
did not acquire all of North American’s equipment, the
evidence indicates that all of the equipment remained in
Taylor’s possession. We believe this to be legally
insignificant, however, since the operative test is the
portion of North American’s equipment actually acquired by
IPI.

[fn9] IPI also asserted that the circuit court committed
reversible error by misapplying the statutory provisions
governing reclassification and by accepting the findings of
the Hearing Examiner absent further analysis. Because of
our disposition of IPI’s first assignment of error, these
alleged errors are now moot.

STARCHER, J., dissenting:

(Filed July 14, 2005)

The facts of this case demonstrate, in a nutshell, why our
workers’ compensation system is on financially tenuous
ground. A historical problem in West Virginia has been the
use by employers of “shell” corporations which are created,
pay little or no workers’ compensation premiums, and then
go out of business a year or two later. The Workers’
Compensation Commissioner and companies that do pay their
compensation premiums are then left to foot the bill for
injured workers. Shortly thereafter, the first shell
corporation is replaced by another shell corporation with
the same corporate officers using the same equipment and
same employees to do the same work, and the cycle repeats
itself endlessly.

The Legislature has tried to fix this problem. I dissent
because the majority opinion undoes the Legislature’s work,
and strips the Workers’ Compensation Commissioner of the
statutory authority to put the workers’ compensation system
back on the right financial track and make all employers
pay their fair share.

North American, Inc. and North American Construction,
Inc., were both owned equally by Joseph Morris and Matthew
Taylor, and had common officers. Both companies used the
same equipment, employees, business location and had the
same clients. In June 1992, North American, Inc. filed an
application for workers’ compensation coverage stating the
type of business as “putting up metal and aluminum storage
buildings.” In June 1996, North American Construction filed
an application which stated that the type of business was
“small building erection.” These were both lies. Both North
American companies were actually incorporated as industrial
painting businesses, and had the company’s owners been
honest, their correct business classification would have
resulted in the companies paying much higher workers
compensation premiums.

In October 1997, the First National Bank of Ronceverte
sued both North American companies, and Mr. Morris and Mr.
Taylor individually, claiming a default had occurred on
certain loans. At this point, Mr. Taylor allegedly became
suspicious of Mr. Morris’ activities, and upon
investigation discovered the companies had serious
delinquencies to the bank, the Workers’ Compensation
Division, the Internal Revenue Service, the Department of
Tax and Revenue, and to others. Mr. Morris’ and Mr.
Taylor’s activities also apparently came to the attention
of federal investigators.

Shortly thereafter, Mr. Morris transferred enough stock to
Mr. Taylor to give him an 80% share of the stock in the
North American companies. Mr. Taylor asserts that at this
point he calculated that the companies could not be
financially salvaged, and made a decision to shut the
companies down effective January 1, 1998.

Two months later, Julia Taylor, Mr. Taylor’s wife, formed a
new corporation called IPI, Inc., with Mrs. Taylor owning
100% of the stock and Mr. Taylor acting as president. IPI
was incorporated as an industrial painting business, and
had the same general manager, foreman and office
manager/bookkeeper as the North American companies. The new
corporation continued to paint for the same customers. Mr.
Taylor represented to an industry trade group that IPI
“utilized the same employees and equipment” as North
American, because North American had “ceased all business
activities, and I reincorporated under the name IPI.” IPI
retains all personnel, equipment and projects of the Page
189 former North American. IPI “leased” all of its
equipment ? trucks, power washers, fax machines, air
compressors, safes, paint guns, trailers, etc. ?
from North American. However, not all of North American’s
property was leased by IPI; that which was not leased
remained in the physical possession of Mr. Taylor.

The record shows the financial relationships of these
companies were substantially entangled, with each company
agreeing to pay debts of one of the others, including IPI.
All of these financial transactions were calculated to
benefit Mr. Taylor. For instance, the bank won a default
judgment against the North American companies and Mr.
Taylor in the amount of $463,773.00. To partially satisfy
this judgment, Mr. Taylor used North American Development
to sell certain North American real estate for $125,000.00.
Similarly, North American bought equipment from W.W.
Graingers, but in March 1998 Mr. Taylor sent a letter to
W.W. Graingers saying “North American, Inc. has been
changed to IPI, Inc.,” and asking the vendor to “send us a
new statement so we can clear the balance on this account.”
Furthermore, IPI loaned Mr. Taylor $25,000.00 for legal
fees to defend his criminal charges related to the North
American companies.

In sum, the facts show that IPI acquired substantially all
of the goodwill, customers, clients, contracts, leases,
operations, stock of goods, inventory, equipment and
employees that existed at the time that the North American
companies ceased doing business. Only the cash and
outstanding accounts receivable were not transferred,
because there was apparently no cash or accounts receivable
in existence. The acquisition caused North American to be
incapable of continuing its business.

The North American companies had racked up an $865,486.57
delinquency to the Workers’ Compensation Commissioner
through their misconduct. The average citizen can see that
Mr. Taylor created IPI as a way to keep doing business as
usual, but to avoid responsibility for the workers’
compensation delinquency and other debts. The majority
opinion gives the Workers’ Compensation Act a ridiculously
narrow construction, finding that the phrase “substantially
all” in W.Va.Code, 23-2-14(b) [2003] means “all” and
nothing less. And because IPI was not a mirror image of the
North American companies, the majority opinion determined
that IPI was not a successor liable for the North American
companies’ workers’ compensation debts.

I would have held Mr. Taylor’s feet to the fire and
permitted the Commissioner to extract payment for that
delinquency from IPI’s corporate hide. Instead, the
majority opinion has dropped Mr. Taylor’s $865,000.00 debt
into the lap of State taxpayers and honest, premium-paying
businesses. I therefore respectfully dissent.