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Blachana, LLC v. Bureau of Labor and Industries

Supreme Court of Oregon

January 16, 2014

BLACHANA, LLC, dba Penner's Portsmouth Club, Petitioner, Respondent on Review,
v.
BUREAU OF LABOR AND INDUSTRIES, Respondent, Petitioner on Review.

Argued and submitted June 5, 2013

On review from the Court of Appeals. BOLI 0608; CA A143894 [*]

Jonathan M. Radmacher, McEwen Gisvold LLP, Portland, argued the cause and filed the brief for respondent on review.

Karla H. Ferrall, Assistant Attorney General, Salem, argued the cause and filed the brief for petitioner on review. With her on the brief were Mary H. Williams, Deputy Attorney General, and Anna M. Joyce, Solicitor General.

Shenoa L. Payne, Portland, filed a brief for amicus curiae Oregon Trial Lawyers Association.

Before Balmer, Chief Justice, Kistler, Walters, Linder, Landau, and Baldwin, Justices. [**]

WALTERS, J.

In this wage claim case, the issue is whether the Bureau of Labor and Industries (BOLI) correctly determined that a business entity, Blachana, LLC, is a "successor" employer and must, therefore, reimburse BOLI for wages paid from the Wage Security Fund on behalf of four wage claimants. The employees had worked for N.W. Sportsbar Inc. (NW Sportsbar) before that corporation went out of business and surrendered its property and the business to Blachana. On judicial review of BOLI's final order assigning liability to Blachana, the Court of Appeals reversed, holding that Blachana was not a "successor to the business" of N.W. Sportsbar, as that phrase is used in the wage claim statute, ORS 652.310(1).[1] Blachana, LLC v. Bureau of Labor and Industries, 250 Or.App. 80, 279 P.3d 248 (2012). For the reasons that follow, we conclude that BOLI did not err in deciding that an entity is a successor to a business if it "conducts essentially the same business as conducted by the predecessor" or in applying that test in this case. We therefore reverse the decision of the Court of Appeals.

The following facts are undisputed. Janet and Chris Penner, mother and son, owned and managed a limited liability corporation called CP Underhill LLC (CPU). CPU owned a building in Portland and, in that building, operated a bar called the Portsmouth Club and a restaurant called Mama's BBQ. Since 1940, five different businesses had operated a bar and restaurant in that location, and customers had referred to each business as the "Portsmouth Club." In February 2005, CPU executed an agreement to lease the building to N.W. Sportsbar for five years. The same day, CPU also executed a sales agreement under which N.W. Sportsbar bought the inventory of the Portsmouth Club for $50, 000 and the good will of the Portsmouth Club for $285, 000. The president of N.W. Sportsbar, Dustin Drago, signed both agreements on behalf of that company. Drago then registered with the Oregon Corporation Division as the authorized representative for "Portsmouth Club, " an assumed business name that had been registered in 1988.

For the rest of 2005 and until May 2006, N.W. Sportsbar operated its business in the leased building under the names "Portsmouth Club" and "Anchor Grill." The business offered food and drinks and live music as entertainment. Drago managed the business and hired the four wage claimants, two in 2005 and two in 2006. Drago paid some wages in 2005, but stopped paying any of the wage claimants' wages in 2006. The two wage claimants hired in 2006 never received any wages for their work.

By May 2006, Drago also was three months behind in his payments under the lease and sales agreements and began to discuss with Janet Penner the closing, and CPU's repossession, of the business. In early May 2006, "Portsmouth Club" closed its doors, and, on May 9, 2006, Drago and CPU entered into a Surrender and Release Agreement, under which N.W. Sportsbar surrendered all its businesses assets, including the business name and goodwill, and relinquished possession of the personal property left in the building to CPU. In exchange, CPU released N.W. Sportsbar from its obligations under the lease and sales agreements. Drago then left town without paying the four employees.

About a week later, Janet Penner registered Blachana, LLC, with the Oregon Corporation Division, listing herself as a manager and member[2] and stating Blachana's assumed business name as "Penner's Portsmouth Club." Blachana then obtained a liquor license and other required permits and licenses and on June 26, 2006, opened its business in the building that CPU owned and that had been leased to N.W. Sportsbar. Blanchana operated "Penner's Portsmouth Club" as a bar; its business did not initially provide meals. By late summer, the business included live musical entertainment[3] and, by May 2007, also included a restaurant that used the new assumed business name "Portsmouth Pizza and Pub." Blachana did not employ any of the same employees as N.W. Sportsbar. It used most of the same bar equipment and used the same beer vendor that N.W. Sportsbar had used, but used a different food vendor.

Meanwhile, on May 18, 2006, one of N.W. Sportsbar's employees filed a wage claim with BOLI. The investigator assigned to the employee's case twice called the telephone number on file for N.W. Sportsbar and, each time, Chris Penner answered the phone by identifying the business as "Portsmouth Club." Three other former N.W. Sportsbar employees eventually also filed wage claims; the four wage claims totaled just over $7, 000. The investigator attempted unsuccessfully to locate Drago and ultimately determined that the wage claims were valid, that N.W. Sportsbar had ceased doing business, and that N.W. Sportsbar's former employees' wage claims could not be fully and promptly paid except through the Wage Security Fund, a fund established to pay wage claimants if the employer no longer is in business or is without sufficient assets to pay the claims. See ORS 652.409 (establishing Wage Security Fund for that purpose); ORS 652.414(1) (authorizing payment of wage claims in those circumstances). BOLI paid the claims through the Wage Security Fund and then notified Blachana that it was responsible for the unpaid wages under ORS 652.414(3) (authorizing commissioner to take appropriate action to recover from "employer, or other persons or property liable for the unpaid wages" amounts paid from Wage Security Fund) and ORS 652.310(1) (defining "employer" for purposes of ORS 652.414 to include "any successor to the business of any employer, or any lessee or purchaser of any employer's business property for the continuance of the same business").

After a contested case hearing before an administrative law judge, BOLI's commissioner concluded that Blachana was a "successor to the business of" N.W. Sportsbar. In his Final Order, the commissioner explained that BOLI consistently had held that the test to determine whether an employer is a successor in a wage claim case is "whether it conducts essentially the same business as conducted by the predecessor." In re Blachana, LLC, 30 BOLI 197, 221 (2009). The commissioner then listed several factors that the agency considers in determining whether an employer is conducting "essentially the same business, " including the name or identity of the business, its location, the lapse of time between the previous operation and the new operation, whether the businesses employed substantially the same workforce, whether the same product was manufactured or the same services offered, and whether the same machinery, equipment, or methods of production were used. Id. The commissioner further explained that, under the agency's jurisprudence, he need not find every factor to be present to conclude that a business is a successor employer but, instead, considers the factors together to reach a determination. Id. Based on his evaluation and weighing of those factors, the commissioner concluded that, during its first year in business, Blachana conducted essentially the same business as N.W. Sportsbar and was, therefore, a "successor to [that] business" as that phrase is used in ORS 652.310(1). Id. at 225. Thus, the commissioner ruled, Blachana was responsible for reimbursing the Wage Security Fund for the amount that had been paid to N.W. Sportsbar's former employees, plus penalties authorized under ORS 652.414(3) (authorizing a penalty of up to $200). Id. at 226.

Blachana sought review of that determination in the Court of Appeals. In that court, Blachana argued that BOLI's interpretation of the statutory phrase "successor to the business" was not within the legislature's intended meaning of that phrase and that Blachana was not a successor to N.W. Sportsbar, because it was a separate corporate entity with no connection to N.W. Sportsbar. The Court of Appeals agreed. After considering dictionary definitions of the operative words of the statute, the court concluded that those definitions did not resolve the issue. The court observed that the legislature could have intended a successor to be a "legal" substitute, which the court described as "a party that succeeds, by some operation of law, to the legal rights and obligations of the predecessor, " meaning that only parties that "could be held liable for the predecessor's liabilities as a function of law outside ORS chapter 652, such as contract, agency, common-law successor liability, or other statutory law" would be liable for a predecessor's wage claims as a successor "employer" under ORS 652.310(1) and ORS 652.414(3). Blachana, 250 Or.App. at 87. Or, the court continued, the legislature could have intended a broader meaning, imposing liability on any "functional" successor, which the court described as any business that "replaces the predecessor business in a functional sense but does not necessarily assume the predecessor's rights and liabilities as a matter of any law other than ORS 652.310(1)." Id.

To resolve the question, the court turned to the context of the phrase "successor to the business" as used in ORS 652.310(1). According to the court, that context includes the second clause of the definition of employer -- "or any lessee or purchaser of any employer's business property for the continuance of the same business" -- as well as the common law in 1931, when ORS 652.310(1) was enacted. In the court's view, because the common law in 1931 provided that "the transfer of assets between corporate entities does not automatically make the transferee liable for the transferor's debts and liabilities, " any "lessee or purchaser of any employer's business property for the continuation of the business" would not be liable for the debts and liabilities of the predecessor. Blachana, 250 Or.App. at 88.[4] Thus, the court stated, an interpretation of the text of ORS 652.310(1) that would give meaning to both parts of the definition of "employer" is that

"the legislature intended to impose liability in the first clause ['successor to the business'] on a party that succeeds to the rights and liabilities of the predecessor as a matter of law and, in the second clause, defined an additional circumstance -- when a party purchases or leases the employer's business property to continue the same business -- in which a party that would not be liable as a 'legal successor' could still be culpable for a wage claim."

Id. It followed, the Court of Appeals concluded, that the legislature intended the definition of "successor to the business" to be "limited to a party that has succeeded by law to the legal rights and obligations of the predecessor in that business." Id. at 88-89.

After applying that interpretation to the facts of the case, the Court of Appeals held that the record did not establish that Blachana was the "legal successor" to N.W. Sportsbar. The court stated:

"Blachana and N.W. Sportsbar were separate corporate entities and there was no contractual relationship between them. Blachana had no financial or ownership interest in N.W. Sportsbar. N.W. Sportsbar surrendered some, but not all, of the assets of the Portsmouth Club and Anchor Grill to [CPU], but there is nothing to indicate that any other interest of N.W. Sportsbar was surrendered. Nothing indicates that Blachana could be considered liable for N.W. Sportsbar's debts and liabilities under the common-law successor liability rule, and there does not appear to be any other source of law under which Blachana could be considered to have succeeded to the legal rights and obligations ...

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