State Ex Rel. K & D Group, Inc. v. Buehrer

[Cite as State ex rel. K&D Group, Inc. v. Buehrer, 135 Ohio St.3d 257, 2013-Ohio-734.]

THE STATE EX REL. K&D GROUP, INC., APPELLANT, v. BUEHRER, ADMR.,
APPELLEE.
[Cite as State ex rel. K&D Group, Inc. v. Buehrer, 135 Ohio St.3d 257,
2013-Ohio-734.]
Workers’ compensation—Successor in interest—Experience rating.
(No. 2011-1918—Submitted January 8, 2013—Decided March 6, 2013.)
APPEAL from the Court of Appeals for Franklin County,
No. 10AP-608, 2011-Ohio-5051.
__________________
Per Curiam.
{¶ 1} Appellant, K&D Group, Inc., filed a complaint in mandamus in the
Franklin County Court of Appeals alleging that the Bureau of Workers’
Compensation abused its discretion when it transferred part of the experience
rating of Mid-America Management Corporation (“Mid-America”) to K&D
Group, Inc., as successor in interest.
{¶ 2} For the reasons that follow, we hold that K&D Group, Inc., was
not a successor in interest for purposes of workers’ compensation law. Thus, the
bureau abused its discretion when it transferred part of Mid-America’s experience
rating to K&D Group, Inc. We reverse the judgment of the court of appeals and
issue a writ of mandamus.
Facts
{¶ 3} In 2004, K&D Enterprises, Inc., contracted with Fame-Midamco
Company, L.L.C., through K&D Enterprises’s manager, Mid-America, to
purchase an apartment complex known as the Euclid-Richmond Gardens. Prior to
the closing, K&D Enterprises created a new company, Euclid-Richmond Gardens,
Ltd., and assigned its rights under the purchase agreement to that new company.
{¶ 4} Euclid-Richmond Gardens, Ltd., hired appellant, K&D Group, Inc.
(“K&D Group”), a property-management company, to manage the apartments,
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which were renamed Parkside Garden Apartments. K&D Group hired some
former employees of Mid-America and assumed the day-to-day operations of the
complex.
{¶ 5} The bureau conducted an audit of K&D Group in 2009 and
determined that it was the successor in interest to the business operations of Mid-
America. This determination authorized the bureau to base K&D Group’s
experience rating in part on Mid-America’s past experience, which included a
large workers’ compensation claim.
{¶ 6} K&D Group filed a protest, arguing that it was not a successor in
interest to Mid-America, because it had not been involved in the purchase of the
apartment complex and it did not acquire anything in the transaction. Following a
hearing, the bureau’s adjudicating committee denied the protest. The committee
concluded that the bureau had correctly transferred the predecessor’s experience
to K&D Group as the successor in interest: “The day to day operations of the
apartment complex remained the same after the purchase. The K&D Group
assumed the prior leases, retained some of the former employees and operated
under the same manual numbers.”1 K&D Group’s administrative appeal was
denied.
{¶ 7} K&D Group filed a mandamus action in the court of appeals. A
magistrate concluded that the bureau had not abused its discretion. The court of
appeals adopted the magistrate’s decision and denied the writ.
{¶ 8} This cause is now before this court on an appeal as of right.
Legal Analysis
{¶ 9} When determining what an employer’s premium should be, the
bureau follows the fundamental concept that rates are determined by “projecting
the experience of the past into the future.” Fulton, Ohio Workers’ Compensation

1. The term “manual number” refers to the bureau’s classification of an employer’s business
according to its degree of hazardousness. Ohio Adm.Code 4123-17-08.

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Law, Section 14.4, at 567 (3d Ed.2008). The bureau groups employers with
similar operations into classifications based on the risk exposures common to
those employers. Each classification is assigned a number known as the “manual
number.” Generally, it is the employer’s business that is classified, not the
separate occupations within the business. See Ohio Adm.Code 4123-17-08. The
bureau also relies on experience rating.

[E]xperience rating [is] a concept used to determine whether a
particular employer should be assigned premium rates higher than
or less than the “basic rate” that is assigned to employers within
the same classification. In experience rating, the employer’s past
claims history, or experience, is consulted to compute a rate that
produces premiums sufficient to pay future claims.

State ex rel. Crosset Co., Inc. v. Conrad, 87 Ohio St.3d 467, 473, 721 N.E.2d 986
(2000).
{¶ 10} The bureau transferred part of Mid-America’s experience rating to
K&D Group pursuant to its authority under R.C. 4123.32(C) and Ohio Adm.Code
4123-17-02. R.C. 4123.32(C) authorizes the bureau to adopt rules concerning
premiums in order to safeguard the State Insurance Fund. The bureau
administrator may make rules to cover

the rates to be applied where one employer takes over the
occupation or industry of another * * *, and the administrator may
require that if any employer transfers a business in whole or in part
* * *, the successor in interest shall assume, in proportion to the
extent of the transfer, * * * the employer’s account.

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(Emphases added.)
{¶ 11} The rule to determine rates for succeeding employers is Ohio
Adm.Code 4123-17-02(B)(3), which provides:

Where a legal entity succeeds in the operation of a portion
of a business of one or more legal entities having an established
coverage or having had experience in the most recent experience
period, the successor’s rate shall be based on the predecessor’s
experience within the most recent experience period, pertaining to
the portion of the business acquired by the successor.

(Emphasis added.)
{¶ 12} Thus, for the bureau to transfer the experience rating from a
predecessor employer to a successor employer, there must be a transfer of
business either in whole or in part and the successor employer must be the
successor in interest. “[A] successor-in-interest, for workers’ compensation
purposes, is simply a transferee of a business in whole or in part.” State ex rel.
Lake Erie Constr. Co. v. Indus. Comm., 62 Ohio St.3d 81, 83-84, 578 N.E.2d 458
(1991).
{¶ 13} K&D Group contends that it is not a successor in interest of Mid-
America. First, K&D Group argues that it was not a party to the sale of the
apartments and it did not acquire any assets as a result of the transaction. But
neither R.C. 4123.32(C) nor Ohio Adm.Code 4123-17-02(B)(3) requires the
transfer of assets. The focus of the statute and the rule is the transfer of business
operations or labor, not the legal concept of corporate succession. R.C.
4123.32(C) (“where one employer takes over the occupation or industry of
another” [emphasis added]); Ohio Adm.Code 4123-17-02(B)(3) (“Where a legal
entity succeeds in the operation of a portion of a business * * *” [emphasis

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added]). A business operation may be transferred through methods other than a
purchase. For instance, an employer was considered a successor in interest for
experience-rating purposes when it leased a nursing-home facility and continued
the ongoing business of the predecessor employer. State ex rel. Lynnhaven XIV,
L.L.C. v. Conrad, 10th Dist. No. 02AP-36, 2003-Ohio-825, 2003 WL 462506.
{¶ 14} Next, K&D Group contends that it cannot be a successor in interest
to Mid-America, because there was no direct transfer of the business from Mid-
America to K&D Group. K&D Group relies on State ex rel. Valley Roofing,
L.L.C. v. Ohio Bur. of Workers’ Comp., 122 Ohio St.3d 275, 2009-Ohio-2684,
910 N.E.2d 1018, in which this court held that an employer is not a successor in
interest if the business assets of the predecessor entity are purchased from a bank,
not directly from the predecessor entity. Id. at ¶ 5.
{¶ 15} In that case, Valley Roofing Company, L.L.C., had purchased the
assets of Tech Valley Contracting, Inc., from PNC Bank after foreclosure and
continued the business operation. The bureau transferred Tech Valley’s
experience rating to Valley Roofing as a successor in interest. But this court held
that Valley Roofing was not a successor in interest, because Valley Roofing had
acquired the assets from an intermediary bank. Id. at ¶ 6. “Successor in interest,”
as defined in Lake Erie, 62 Ohio St.3d 81, 578 N.E.2d 458, “does not apply if the
business assets of the predecessor entity have been purchased from a bank and not
directly from that employer. * * * ‘The language of [R.C. 4123.32(C)] clearly
refers to a voluntary act of the employer and not the involuntary transfer of the
employer’s business through an intermediary bank.’ ” Valley Roofing at ¶ 5,
quoting State ex rel. Crosset Co., 87 Ohio St.3d at 471, 721 N.E.2d 986.
{¶ 16} Here, there is no evidence that Mid-America voluntarily
transferred the business of managing the apartment complex to K&D Group. The
bureau emphasized that K&D Group hired some former employees of Mid-
America, assumed management of the leases that the prior apartment-complex

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owner had with its tenants, and operates under the same workers’ compensation
manual numbers as Mid-America. But these facts are not sufficient to show that
Mid-America voluntarily transferred its business operation to K&D Group for
purposes of workers’ compensation. K&D Group merely contracted with the new
owner to assume management of the existing apartment complex. Thus, the
bureau abused its discretion when it treated K&D Group as a successor in interest.
Conclusion
{¶ 17} K&D Group has demonstrated that it has a clear legal right to the
relief requested because it was not a successor in interest to the business
operations of Mid-America for purposes of workers’ compensation. The bureau
abused its discretion when it transferred part of Mid-America’s experience rating
to K&D Group based on R.C. 4123.32(C) and Ohio Adm.Code 4123-17-02.
Thus, we reverse the judgment of the court of appeals and issue a writ of
mandamus ordering the bureau to determine K&D Group’s experience rate
without taking into consideration Mid-America’s experience rate.
Judgment reversed
and writ granted.
O’CONNOR, C.J., and PFEIFER, O’DONNELL, LANZINGER, KENNEDY,
FRENCH, and O’NEILL, JJ., concur.
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Calfee, Halter & Griswold, L.L.P., Thomas I. Michals, and Jeffrey J.
Lauderdale, for appellant.
Michael DeWine, Attorney General, and Stephen D. Plymale, Assistant
Attorney General, for appellee Bureau of Workers’ Compensation.
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