ILNews

Appeals court rules on corporate subsidiaries case

Back to TopE-mailPrintBookmark and Share

The Indiana Court of Appeals has ruled against a Bluffton electric company, finding that corporations can’t simply create subsidiaries internally and declare them separate entities in order to avoid paying higher tax rates under state unemployment compensation law.

Instead, the state’s appellate court affirmed a determination by a liability administrative law judge with the Indiana Department of Workforce Development and found that Franklin Electric Company and two subsidiaries constituted only one employer for purposes of the Indiana Unemployment Compensation Act.

The decision today came in Franklin Electric Company v. Unemployment Insurance Appeals of the Department of Workforce Development, No. 93A02-0911-EX-1121.

Dating back to late 2003, parent company Franklin Electric created the two subsidiaries Franklin Electric Sales and Franklin Electric Manufacturing by transferring employees to those new corporations in exchange for 100 percent stock ownership in both. At first, the state DWD gave both new employer accounts and allowed them to be taxed at 2.7 percent rather than 4.9 percent that Franklin Electric had paid in 2004 – a savings of about $64,000. But the state later investigated that change and examined the organizational structures of all three, and eventually cancelled the new employer accounts and transferred their accounts back to Franklin Electric. An LALJ determined last year that the new corporate subsidiaries didn’t constitute partial successorships, and so no new employers were created to receive the lower tax rate. The judge did determine the company hadn’t tried to defraud the state agency in paying a lower amount. Franklin Electric appealed, and the state agency asked the appellate court to disregard their corporate structures for purposes of the compensation act.

Relying on Indiana Supreme Court precedent on the issue of “piercing-the-corporate-veil” and what the 7th Circuit Court of Appeals has found, the Indiana Court of Appeals pierced the corporate veils of both FEM and FES because Franklin Electric owns 100 percent of the stock from both subsidiaries and neither has its own separate board of directors. Franklin Electric also controls the bank accounts of all three and displays ownership activity in multiple ways.

That led to its holding affirming the judgment.

“In summary, we conclude that the LALJ correctly disregarded the corporate forms of FEM and FES for purposes of the Act,” Judge Cale Bradford wrote for the unanimous panel. “Allowing FEM and FES to qualify as independent new employers would work an injustice to the taxpayers and citizens of the State of Indiana.”

A footnote on the final page of the opinion adds, “Were we to accept Franklin Electric’s argument, any Indiana corporation could avoid ever having to pay a contribution rate of greater than the new employer rate by periodically creating a new corporation and selling itself to it.”
 

ADVERTISEMENT

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Just an aside, but regardless of the outcome, I 'm proud of Judge William Hughes. He was the original magistrate on the Home place issue. He ruled for Home Place, and was primaried by Brainard for it. Their tool Poindexter failed to unseat Hughes, who won support for his honesty and courage throughout the county, and he was reelected Judge of Hamilton County's Superior Court. You can still stand for something and survive. Thanks, Judge Hughes!

  2. CCHP's real accomplishment is the 2015 law signed by Gov Pence that basically outlaws any annexation that is forced where a 65% majority of landowners in the affected area disagree. Regardless of whether HP wins or loses, the citizens of Indiana will not have another fiasco like this. The law Gov Pence signed is a direct result of this malgovernance.

  3. I gave tempparry guardship to a friend of my granddaughter in 2012. I went to prison. I had custody. My daughter went to prison to. We are out. My daughter gave me custody but can get her back. She was not order to give me custody . but now we want granddaughter back from friend. She's 14 now. What rights do we have

  4. This sure is not what most who value good governance consider the Rule of Law to entail: "In a letter dated March 2, which Brizzi forwarded to IBJ, the commission dismissed the grievance “on grounds that there is not reasonable cause to believe that you are guilty of misconduct.”" Yet two month later reasonable cause does exist? (Or is the commission forging ahead, the need for reasonable belief be damned? -- A seeming violation of the Rules of Profession Ethics on the part of the commission) Could the rule of law theory cause one to believe that an explanation is in order? Could it be that Hoosier attorneys live under Imperial Law (which is also a t-word that rhymes with infamy) in which the Platonic guardians can do no wrong and never owe the plebeian class any explanation for their powerful actions. (Might makes it right?) Could this be a case of politics directing the commission, as celebrated IU Mauer Professor (the late) Patrick Baude warned was happening 20 years ago in his controversial (whisteblowing) ethics lecture on a quite similar topic: http://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=1498&context=ilj

  5. I have a case presently pending cert review before the SCOTUS that reveals just how Indiana regulates the bar. I have been denied licensure for life for holding the wrong views and questioning the grand inquisitors as to their duties as to state and federal constitutional due process. True story: https://www.scribd.com/doc/299040839/2016Petitionforcert-to-SCOTUS Shorter, Amici brief serving to frame issue as misuse of govt licensure: https://www.scribd.com/doc/312841269/Thomas-More-Society-Amicus-Brown-v-Ind-Bd-of-Law-Examiners

ADVERTISEMENT