PACKARD CLOTHES INC. vs. DIRECTOR OF THE DIVISION OF EMPLOYMENT SECURITY.

DOLAN, J. This is an action of contract brought under G. L. (Ter. Ed.) c. 151A, Section 18, as it appears in St. 1941, c. 685, Section 1, to recover alleged excessive contributions assessed to and paid by the plaintiff. See Griswold v. Director of the Division of Employment Security, 315 Mass. 371, 374. The action was heard upon a case stated. The facts set forth therein may be summed up as follows: One Abraham Close prior to January 1, 1942, was an employer doing business

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under the trade name of Packard Clothes, and also under the trade name of Abraham Close Manufacturing Company, and was an employer subject to the provisions of the statutes relative to unemployment compensation from January 1, 1936, to December 31, 1941. The businesses were concerned with the purchase of "suiting material and selling men's clothes at retail." Close employed approximately fifty persons during that period, and on December 31, 1941, he employed fifty-four persons. As a subject employer he filed reports and paid contributions at the rate of two and seven tenths per cent. On April 1, 1942, he was notified that in pursuance of said c. 151A, Section 14, his contribution rate was reduced to one per cent as of January 1, 1942. On December 31, 1941, Close ceased doing business under the name of Packard Clothes and of Abraham Close Manufacturing Company, having procured the incorporation of the plaintiff, Packard Clothes Inc., of which he has been at all times since the majority stockholder and person in control. On January 1, 1942, this corporation acquired and began operation of the business formerly carried on by Close as Packard Clothes. At about the same time Close procured the incorporation of Abraham Close, Inc., which on January 1, 1942, acquired and began operation of the business formerly carried on by Close under the name of Abraham Close Manufacturing Company. Close has since been the majority stockholder of Abraham Close, Inc., and the person in control of that corporation. He ceased doing business as an individual on December 31, 1941. On June 26, 1942, Close filed an application with the division of employment security, hereinafter referred to as the division, requesting that he be relieved from filing contribution reports and wage reports and from paying contributions to the division. This application was allowed by the division effective as of January 1, 1942. On September 24, 1942, the plaintiff was determined to be an employer under the provisions of said c. 151A, as amended, and notified that its contribution rate was two and seven tenths per cent. Similar action was taken by the division on the same day with respect to Abraham Close, Inc. For the first quarter of 1942 all the employees

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formerly of Close as an individual were erroneously so reported to the division. For the second and third quarters they were all erroneously reported to the division as employees of Abraham Close, Inc. For the fourth quarter all of these employees were reported by the plaintiff, Packard Clothes Inc. In order to rectify these mistakes and because all employees formerly of Abraham Close as an individual were employees of Packard Clothes Inc., and to carry out the intent of Packard Clothes Inc. to employ all employees formerly of Abraham Close as an individual as of January 1, 1942, on February 3, 1943, Abraham Close as treasurer of Abraham Close, Inc., and as an individual authorized the transfer of wage records and contributions paid to the division of employment security by Abraham Close as an individual and Abraham Close, Inc., to the account of Packard Clothes Inc. for the period beginning January 1, 1942. On March 29, 1943, Abraham Close, Inc., filed an application with the division requesting that it be suspended from filing contribution and wage reports as of January 1, 1942, and stating that all employees were paid by Packard Clothes Inc. and reported by it. On the basis of said application Abraham Close, Inc., was suspended by the division from filing contribution and wage reports and paying contributions to the division as of January 1, 1942.

On October 20, 1942, Packard Clothes Inc. and Abraham Close, Inc., by Abraham Close, treasurer of both corporations, protested a contribution rate of two and seven tenths per cent and requested a hearing by the division of employment security. "On February 3, 1943, a hearing was held by the status division acting for the director and on the same facts stated (1) a finding was made that Abraham Close, Inc. is not entitled to be considered a continuing entity to Abraham Close d/b/a Abraham Close Mfg. Co. for the purpose of computing contribution rates because this corporation did not acquire all the business of the predecessor although the ownership of both Abraham Close, Inc. and Packard Clothes Inc. remains entirely with Abraham Close, and (2) a finding was made that Packard Clothes Inc. is not entitled to be considered a continuing entity to

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Abraham Close d/b/a Packard Clothes for the purpose of computing contribution rates because this corporation did not acquire all the business of the predecessor although the ownership of both Abraham Close, Inc. and Packard Clothes Inc. remains entirely with Abraham Close." For the first and second quarters of 1942 the plaintiff paid contributions to the division at the rate of one per cent, the same as most lately paid by Close as an individual. On October 5, 1942, the division demanded payment of contributions by the plaintiff at the rate of two and seven tenths per cent retroactive to January 1, 1942. Payments were made accordingly by the plaintiff, but under protest, which exceeded one per cent in the amount of $868.45, the sum it now seeks to recover. The plaintiff duly made application for refund as provided in said c. 151A, Section 18, but the application was denied in writing by the director on May 28, 1943. "In the administration of the act prior to the 1943 amendment, the director allowed a successor employer the merit rate of the predecessor employer if he found in fact that the successor employer was the continuing entity in whole of the predecessor employer."

After hearing the judge "found" for the plaintiff and assessed damages in the sum of $868.45. The case comes before us on the defendant's appeal. See G. L. (Ter. Ed.) c. 231, Section 96.

Section 8 of said c. 151A provides that any "employing unit shall be subject to the provisions of this chapter who or which, or whose agent: . . . (d) Has acquired the organization, trade, or business, or substantially all the assets thereof, of another employing unit which at the time of such acquisition was an employer; or (e) Has acquired a part of the organization, trade, or business of another, which part, if a separate organization, trade or business, would have been an employer." Section 1 (i) of the statute defines an employer as "any employing unit subject to this chapter." [Note p332-1] Section 1 (j) of the statute defines an employing

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unit as "any individual or type of organization including any partnership, firm, association, trust, trustee, estate, joint stock company, insurance company, corporation, whether domestic or foreign, or his or its legal representative, or the assignee, receiver, trustee in bankruptcy, trustee or successor of any of the foregoing or the legal representative of a deceased person who or which has or subsequent to January first, nineteen hundred and forty-one, had one or more individuals performing services for him or it within this commonwealth."

Section 14 of said c. 151A contains the provisions for the determination of the rate of contribution to be made by the employer to be based upon experience or merit ratings. It is unnecessary to recite in detail the provisions of this section, since no contention is made as to the rate of contributions that should be paid by the plaintiff in case it is entitled to the same rate as that enjoyed by Close when he ceased to conduct the business as an individual. The defendant, however, has stressed the fact that no provision is made in Section 14 for the transfer of a rating to a successor employing unit. The defendant has also referred in this connection to St. 1943, c. 534, Section 1A, [Note p333-1] which amended Section 14

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as it appears in St. 1941, c. 685, Section 1, by adding provisions for the continuance of rates of contribution of predecessor employing units in certain cases, and has argued that significantly this amendment did not apply to the facts in the present case. While St. 1943, c. 534, was enacted after the exaction and payment of the contributions by the plaintiff here in question, it is appropriate to consider its terms, dealing as they do with the same subject matter, so that, so far as possible, all the provisions of the statutes relative thereto may be made effectual pieces of legislation in harmony with common sense and sound reason. Morrison v. Selectmen of Weymouth, 279 Mass. 486, 492. Ring v. Woburn, 311 Mass. 679, 693. The amendment just referred to may be resorted to for the discovery of legislative intention. Hurle's Case, 217 Mass. 223, 226.

Thus considered we are of opinion that, upon the facts set forth in the case stated, the plaintiff was the successor in fact of Close in the business formerly conducted by him as an individual under the name of Packard Clothes and Abraham Close Manufacturing Company. Concededly the plaintiff was in law a separate entity, but it is difficult to conceive of a more complete factual succession than that by the plaintiff to the individual businesses of Close involved, comprising, as it does, within the corporate form all of his former employees, under the same actual control and management by Close, who was substantially the sole stockholder. The plaintiff was so treated by the division itself when it released Close as an individual and Abraham Close, Inc., from filing contribution and wage reports as of January 1, 1942, because all of the former employees of Close as an individual and Abraham Close, Inc., were in fact the employees of the plaintiff, and neither Close nor

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Abraham Close, Inc., had any employees. This was in accord with the practice of the division prior to the enactment of St. 1943, c. 534. Manifestly Abraham Close, Inc., was no more than an empty shell. We are of opinion that in these circumstances the plaintiff was the successor employing unit in toto of the former employing unit within the meaning of Sections 1 (j), 8 (d) (e), and as such entitled to the merit ratings previously acquired by Close. It is competent to pierce the veil of the corporation and to disregard the corporate form, and to consider substance rather than form in order to carry out the legislative intent. Munson Steamship Line v. Commissioner of Internal Revenue, 77 Fed. (2d) 849, 850, 851. See C. A. Lund & Co. v. Rolfe, 93 N. H. 280; S. & J. Supply Co. v. Warren, 191 Okla. 683, 684; 51 Harv. L. Rev. 1373, 1402-1403, and cases cited.

We are of opinion that the absence from Section 14 as it appears in St. 1941, c. 685, Section 1 of any provision for the transfer of merit ratings does not mean that a successor employing unit, such as the plaintiff, is not entitled to enjoy the merit ratings acquired and enjoyed by the predecessor employing unit at the time of the succession. That the Legislature did not so intend is evidenced by the provisions of St. 1943, c. 534, Section 1A. It is unnecessary to consider the retroactive features of that statute since they do not touch the facts in the present case. That amendment provided for transfers of merit ratings in four specific cases. An examination of the statute reveals that in the cases provided for no continuity of the management and control by the predecessor unit is essential. The present case may be contrasted with case number one, set out in the amendment of 1943, where the transfer of merit ratings is permitted where "two or more employers are consolidated into a new employing unit." It would do violence to rational processes to conclude that the Legislature intended to confer the benefits of merit ratings enjoyed by two or more employers who consolidated into one employing unit, and to deny the benefit of such ratings in the case, as here, of one individual employer who incorporated his individual businesses

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in the manner hereinbefore set forth. [Note 336-1] We think that the amendment was intended to clarify the subject matter and to assure transfer of merit ratings in the particular cases specified, leaving the subject as to cases such as the present one to be governed by those provisions of Section 14 that were unaffected by the amendment.

The defendant has relied in part on C. A. Lund & Co. v. Rolfe, 93 N. H. 280. In that case, however, while the court referred to the absence of any provision for transfer of the merit rating of a predecessor to a successor employing unit, the predecessor in that case being a corporation, and the successor a partnership, the court, indicating its readiness "to pierce `the veil of corporate structure'" for the purpose of accomplishing justice, pointed out that, contrasting the stock ownership with the composition of the partnership, it could not be said that the partnership was the corporation in a different form. That distinguishes the case from the case at bar. The case of George v. Unemployment Compensation Commission, 42 Del. 558, also relied upon by the defendant, is likewise distinguishable from the present case, since the court there held that there was no real continuity of interest and identification in the successor employing unit with respect to the predecessor individuals who had been carrying on the business. We are not called upon to decide whether upon the facts of that case a different result would be reached in this jurisdiction in the light of the provisions of St. 1943, c. 534, relating to the succession to the employing enterprises of a previous partnership and the rate benefits. No such statute is referred to in the George case. So far as the cases of Schwob Manuf. Co. v. Huiet, 69 Ga. App. 285, and Florida Industrial Commission v. Schwob Co. of Florida, 153 Fla. 356, may be in conflict with our views we do not follow them.

Order for judgment affirmed.