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Robert Snyder & Associates v. Cullerton

SEPTEMBER 15, 1966.




Appeal from the Circuit Court of Cook County; the Hon. CHARLES S. DOUGHERTY, Judge, presiding. Judgment adverse to plaintiff affirmed.


This is a proceeding brought by the plaintiff under the Administrative Review Act to review an order of the circuit court of Cook County, entered on February 17, 1965, which order affirmed the decision of the Director of Labor who determined that the plaintiff's contribution rate under the Unemployment Compensation Act was 1.6 percent for the year 1960. Kling Film Enterprises, Inc. (Kling) had an unfavorable experience rating record and for rate determination purposes, this record must be charged either to Fred A. Niles Productions, Inc. (Niles), or to the plaintiff. If Kling's record is charged to the plaintiff, it would tend to increase plaintiff's 1960 contribution rate, and if charged to Niles, would tend to increase Niles' rate for that year. The sole issue presented is whether, for unemployment compensation purposes, the unfavorable experience rating record of Kling should be attributable to plaintiff Robert Snyder & Associates, Inc. (Snyder), or to defendant Niles.

The Director of Labor found that the defendant Niles did not succeed to substantially all of the employing enterprises of Kling, and as a consequence, for rate determination purposes, the plaintiff Snyder was charged with the experience rating record of Kling.

It is the plaintiff's theory that the evidence clearly indicates that defendant Niles succeeded to the business interests of Kling, and under the applicable provisions of the Unemployment Compensation Act, should have therefore been charged with Kling's employment experience.

This case involves the construction of paragraph A of section 1507 of the Unemployment Compensation Act (Ill Rev Stats 1963, c 48, par 577) which provides, in material part, as follows:

"Contribution Rates of Successor and Predecessor Employing Units.) A. Whenever any employing unit succeeds to substantially all of the employing enterprises of another employing unit, then in determining contribution rates for any calendar year, the experience rating record of the predecessor prior to the succession shall be transferred to the successor and thereafter it shall not be treated as the experience rating record of the predecessor, except as provided in Subsection B. For the purposes of this Section, such experience rating record shall consist of all years during which liability for the payment of contributions was incurred by the predecessor prior to the succession, all benefit wages based upon wages paid by the predecessor prior to the succession, and all wages for insured work paid by the predecessor prior to the succession, on which contributions have been paid."

On October 13, 1958, Kling, a corporation engaged in making commercial films for television and industrial use, sold its tangible personal property to defendant Niles, a corporation engaged in a similar business. Defendant operated its business at 22 West Hubbard Street, Chicago, and Kling operated from leased premises at 1058 Washington Boulevard, Chicago. Kling was a wholly owned subsidiary of the plaintiff until Kling was dissolved. Thereafter, the remaining assets and liabilities were distributed to the plaintiff in 1962. By virtue of the sale, the defendant assumed the lease of the Kling premises, and Kling agreed that it would not engage in the business of making commercial films for a period of 15 years following the date of the sale.

The purchase price of approximately $350,000 was payable $2,000 upon the consummation of the contract and the balance in annual installments. The sale was consummated on October 13, 1958, by the transfer to Niles of all of the tangible assets and leasehold improvements owned by Kling and used by it in its business, and the assignment to Niles of Kling's lease. Niles also took over Kling's telephone number since it could not transfer its Hubbard Street telephone number to the Washington Boulevard studio.

The tangible assets of Kling immediately prior to the sale consisted of cameras, lighting equipment, sound recording devices, and the related equipment and leasehold improvements required to synchronize and record image and sound on film. These assets, which cost Kling $452,302 and had a depreciated value on its books of $204,722, were all sold to Niles. Kling retained its cash, accounts receivable, certain prepaid items, and its investments in other companies, which had a value on Kling's books of approximately $258,000.

At the time of the purchase Niles had tangible assets carried on its books at a value of approximately $117,063. The effect of the purchase was to increase the value of Niles' tangible assets to approximately $469,295.

According to the testimony of Fred A. Niles, principal owner of Niles, Niles purchased no goodwill from Kling, nor the right to use its corporate name, because Niles did not want to be identified in any way with Kling. Kling's record was such that any connection with Kling could mean trouble for Niles. It was agreed that Kling's unfinished work would be completed by Niles but it was stipulated that Kling would bill the customers for the work and they would pay Kling. Niles' sole interest was in the expansion of its own business. Consequently, Niles wanted only Kling's facilities, its studio and its equipment.

At the time of the sale Kling had a library of film negatives, accumulated over a period of ten years. These negatives are owned by the customer but customarily retained by the studio. Niles agreed to retain custody of these negatives accumulated by Kling. The business from these negatives was very insignificant, and never exceeded 3% of the total business of Kling. Consequently, retention of these negatives was no assurance that Niles would receive any additional business.

Prior to October 13, 1958, Kling employed approximately 60 persons. Kling reduced its work force so that at the time of sale it had 43 employees on its payroll. The President of Niles, in negotiations with Kling, stated that Niles had "plenty of personnel" and had no need for Kling employees. Niles informed Kling that Niles would not agree to hire any of Kling's employees, but that Niles would consider former employees if they were free agents and could be used by Niles. Fifteen of Kling's employees were employed by Niles for varying periods of time. On October 13, 1958, four were hired by Niles — two secretaries, a set painter, and an electrican. Prior to October 13 three of Kling's employees were hired by Niles. After October 13 seven persons who had been employed by Kling were hired by Niles. One of them worked for Niles for three days. Four of those hired worked for Niles for periods ranging from one to three weeks. Four of the persons hired were employed to work on the jobs which Niles was completing for Kling. Kling released those employees not taken on by Niles at the time of sale or shortly thereafter.

The plaintiff contends that the transaction between Fred A. Niles Productions, Inc. and Kling Film Enterprises, Inc. was a succession by the former to "substantially all of the employing enterprises" of the latter, as that phrase is used in section 1507 of the ...

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