Wisconsin Labor and Industry Review Commission --
Summary of Wisconsin Court Decision relating to Unemployment Insurance

Subject: Neenah Foundry Co. v. LIRC,  2015 WI App 18, 360 Wis. 2d 459, 860 N.W.2d 524   [No. 2014 AP 1113 (Wis. Ct. App., District 2, January 29, 2015)]

Digest Code: ER 470.01

Digest Summary: Neenah Foundry underwent a federal Chapter 11 bankruptcy reorganization. At the time it did so, it had a high unemployment tax rate due to large numbers of layoffs in 2009 and 2010. Upon the filing of the bankruptcy, Neenah Foundry continued in business as a debtor in possession. Following the bankruptcy reorganization, it sought to be treated as a new employer, in order to gain the lower tax rate given to new employers. It still had the same name, address, and federal ID number. All of its employees remained the same, and the business continued, without interruption, in the same location.

The commission's decision  held that there had been no transfer of business, within the meaning of Wis. Admin. Code § DWD 115.01(1). Wisconsin Admin. Code § DWD 115.01(5) lists criteria to consider when determining whether there has been a transfer of business, and several of the criteria specifically refer to both a transferor and a transferee. The commission concluded therefrom that, for there to be a business transfer, the transferor and transferee must be separate, and Neenah Foundry, the employer, did not transfer anything.

As part of the bankruptcy proceeding, Neenah Foundry's “grandparent,” Neenah Enterprises, also underwent reorganization. One result of its reorganization was the cancellation of the corporate stock and reissuance of stock to the corporations' pre-bankruptcy secured creditors. By operation of Wis. Admin. Code § DWD 115.01(3), the transfer of shares of corporate stock by a stockholder is not a business transfer for the corporation which issued the shares. The commission noted that, in both scenarios, the only change is that of the identity of the shareholders, such that the cancellation and reissuance of shares was a de facto transfer of stock, in which case § 115.01(3) would have applied had there been a transfer.

The commission also held that, had there been a transfer, the reorganized companies would have been mandatory successors of the transferors. By operation of Wis. Stat. § 108.16(8)(e)1., successorship is mandatory if, at the time of the transfer, the transferor and transferee are owned, managed, or controlled in whole or in substantial part, either directly or indirectly by legally enforceable means or otherwise, by the same interest or interests. Neenah Enterprises retained six of its eight pre-petition officers, with four of them staying in their pre-petition positions, including its chief operating officer. The commission reasoned that, at the very least, this represented direct management in substantial part by the same interests. The commission also rejected Neenah Foundry's argument that the bankruptcy proceeding itself entitled Neenah Foundry to shed its adverse tax rate.

In a bench decision, the circuit court affirmed the commission's decision, giving it due weight deference. The court agreed with the commission that there had not been a transfer. The court noted that a debtor in possession is not a trustee or receiver, entities which are considered transferees pursuant to Wis. Stat. § 108.16(8)(c)1., and so rejected Neenah Foundry's argument that the bankruptcy proceeding resulted in a transfer. Because it found there had been no transfer, the court did not address whether post-reorganization Neenah Foundry was a mandatory successor of pre-petition Neenah Foundry.

Held: The court of appeals, in a published decision, affirmed the circuit court's order upholding the commission's decision. In doing so it assumed, without deciding, that Neenah Foundry's reorganization resulted in a transfer under Wis. Stat. § 108.16(8)(a). The court expressly declined to weigh in on the issue whether, because of the bankruptcy proceedings, Neenah Foundry became a new legal entity. It held instead that the commission reasonably interpreted § 108.16(8)(e) in concluding that Neenah Foundry was a mandatory successor, and it agreed with the commission that it was entitled to great weight deference on this issue. The court rejected Neenah Foundry's argument that, because the commission had not previously considered the applicability of § 108.16(8) to a reorganized debtor, the matter was one of first impression. In doing so, the court distinguished between a fact situation not previously before the commission, and a statutory provision not previously before it. The court also reasoned that the issue was not the commission's expertise in federal bankruptcy law, but rather its expertise in comparing the ownership, management, and control of the pre-petition entity with that of the post-reorganization one.

The court of appeals recited the commission's analysis of the changes in leadership of Neenah Enterprises, and held that the commission reasonably concluded that post-reorganization Neenah Foundry was “managed . . . in substantial part . . . directly . . . by the same . . . interests” as before the reorganization. The court rejected Neenah Foundry's argument that only board members, and not officers, manage a corporation within the meaning of § 108.16(8)(e)1. The court also rejected, finally, Neenah Foundry's argument that a Chapter 11 reorganization frees a debtor from a pre-petition, adverse tax rate.

Please note that this is a summary prepared by staff of the commission, not a verbatim reproduction of the court decision.

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