Court Opinion

ID: 2858401
Source: CourtListenerOpinion
Date Created: 2015-09-05 19:00:58.171802+00
Date Added: 2024-06-11T15:13:44.659870
License: Public Domain

TEC v. Ben Hogan Co.                                                

IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,

AT AUSTIN

 

NO. 3-92-496-CV

TEXAS EMPLOYMENT COMMISSION,

	APPELLANT

vs.

BEN HOGAN COMPANY,

	APPELLEE

 

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 167TH JUDICIAL DISTRICT

NO. 495,114, HONORABLE JOHN K. DIETZ, JUDGE PRESIDING

 

	The Texas Employment Commission ("TEC") appeals from a district-court
judgment requiring it to reimburse Ben Hogan Company ("Hogan" or "the company") for
unemployment compensation contributions made to TEC in excess of the applicable statutory rate. 
Following a bench trial, the court rendered judgment against TEC and awarded Hogan actual
damages of $274,676.16, plus postjudgment interest.
	By six points of error, TEC complains of (1) the trial court's conclusion that a 1988
transaction between two corporations involving all the assets of Hogan constituted an
"acquisition," and (2) the trial court's award of postjudgment interest.  We will affirm the
trial-court judgment.

THE STATUTORY SCHEME
	Under the Texas Unemployment Compensation Act (the "Act"), Tex. Rev. Civ.
Stat. Ann. art. 5221b-1 to 5221b-24 (West 1987 & Supp. 1993), (1) until an employer has earned
at least four consecutive calendar quarters of compensation experience, (2) it is required to pay
contributions to the state Unemployment Compensation Fund at either the median rate of 2.7
percent of all wages paid, Act art. 5221b-5(b), or at the rate established for a particular industry,
whichever is greater. (3)  Act art. 5221b-5(c)(1).  Following the initial development of compensation
experience, the employer's experience tax rating is adjusted annually based on changes in that
compensation experience.  Numerous factors may effect changes in an employer's compensation
experience, including the frequency of claims filed by former employees, mergers by the
employer with other companies, and the employer's entry into other industries.  Act art. 5221b-5(c).
	On October 1st of each year, TEC computes each employer's experience tax rating
for the coming year by applying a complex statutory formula to the employer's compensation
experience.  This rating takes effect on the following January 1st and remains in effect for the
calendar year.
	Formerly, under article 5221b-5(c)(7)(A), when an "employing unit" acquired and
continued to operate all of the organization, trade, or business of an "employer," the successor
employing  unit  acquired  the  predecessor  employer's  compensation  experience rather than  

enjoying the "new employer" rate of 2.7 percent under article 5221b-5(b). (4)  However, in 1989,
article 5221b-5(c)(7)(A) was amended to confine its application to transfers involving any
relationship between shareholders, officers, or other interest-holders of the acquiring business and
the selling business.  Act art. 5221b-5(c)(7)(A)(iii). (5)  The amendment also permitted businesses
that had been adversely affected by former article 5221b-5(c)(7)(A) (e.g., employers who had
succeeded to a predecessor's existing experience rate greater than 2.7 percent) to apply to TEC
in writing between September 1 and December 31, 1989, to have their experience rates
recalculated for 1990 in light of the amendment.  Act art. 5221b-5(c)(7)(A)(iv).  Hogan's efforts
to secure a recalculation engendered the dispute now before us.

THE CONTROVERSY
	The parties have stipulated to the facts of this case.  Ben Hogan, a professional
golfer, founded the Ben Hogan Company in 1953 to manufacture golf equipment.  The company
was incorporated in Texas in 1960.  In the early 1960s, Mr. Hogan sold all of the stock of the
company to AMF Corporation, which operated Hogan as one of its subsidiaries.  In the early
1980s, Minstar, Inc. ("Minstar"), a Delaware corporation, purchased AMF.  Minstar owned all
of the issued and outstanding stock of Min-V Corporation ("Min-V"), which owned all of the
issued and outstanding capital stock of Hogan.
	In May 1988, Cosmo World Corporation ("Cosmo"), a California corporation,
purchased from Minstar all of the shares of Min-V for approximately $52 million, thereby
becoming the owner of all of Hogan's assets, including its trade name, goodwill, reputation,
patents, equipment, business, property, and stock.  With the purchase of Hogan, Cosmo installed
its own directors and officers to continue the operations and business of the company.  Before the
purchase, Cosmo had no shareholder, officer, or other owner of a legal or equitable interest in
its corporation in common with Minstar or Min-V, nor were any of the respective shareholders,
officers, or other owners of the three businesses related by blood or marriage.
	In November 1989, Hogan submitted the proper application, pursuant to article
5221b-5(c)(7)(A)(iv), requesting recalculation of the experience tax rate to be applied to the
company for 1990.  In February 1990, TEC mailed Hogan a tax rate notice that indicated a
general tax rate of 6 percent, with an effective rate of 6.29 percent; the notice made no reference
to Hogan's request for a recalculation.  At Hogan's further request, TEC held a hearing for the
purpose of considering Hogan's position: that because Cosmo's purchase of Hogan was a bona
fide acquisition involving two wholly unrelated corporations, the new subparagraph (iii) precluded
TEC from applying subparagraph (i) to carry forward the company's previous experience tax rate. 
Hogan therefore sought the new employer tax rate of 2.7 percent.  TEC refused to recalculate
Hogan's experience rate, taking the position that the change in ownership of the company did not
constitute an "acquisition" because Hogan retained the same corporate identity before and after
the transfer.
	In August 1990, Hogan sought a refund or adjustment under the Act of all tax
contributions made in excess of the 2.7 percent tax rate.  After TEC denied its request, Hogan
brought this suit on December 17, 1990.  See Act art. 5221b-12(j)(2) (West 1987).  In a bench
trial, the court found that Cosmo's purchase of Hogan's assets, patents, equipment, business, and
property constituted an "acquisition" and awarded the company a refund of $274,676.16, plus
postjudgment interest.  TEC appeals that judgment.

ANALYSIS
Acquisition
	In its first five points of error, TEC contends that the trial court erred in concluding
that Cosmo's purchase of Hogan's stock constituted an "acquisition," making the company eligible
for the 2.7 percent tax rate as a new employer.  Because TEC and Hogan have stipulated to all
facts, the question on appeal is limited to whether the trial court properly applied the law to the
undisputed facts.  State Bar of Tex. v. Faubion, 821 S.W.2d 203, 205 (Tex. App.--Houston [14th
Dist.] 1991, writ denied).
	TEC argues that because Hogan has continued to exist as the same corporate entity
before and after Minstar's May 1988 transfer of all its stock to Cosmo, such transfer was not an
"acquisition"; hence, there is no new employer qualified to be taxed at the 2.7 percent rate under
article 5221b-5(b).  The Act does not define the terms "acquire" and "acquisition." 
Subparagraphs (i) and (iii) provide in pertinent part:

Art. 5221b-5.  Contributions.

*	*	*

	(c) Experience rating:

*	*	*

	(7)(A)(i)  An employing unit that acquires all of the organization, trade, or
business of an employer and that continues operation of the organization, trade, or
business acquires the compensation experience of the predecessor employer as
provided by this Paragraph (A).

*	*	*

	(iii)  The Commission shall apply Subparagraph (i) of this paragraph only
if, as of the date of the acquisition, a shareholder, officer, or other owner of a legal
or equitable interest in the employing unit that is transferring the organization,
trade, or business, or the spouse or a person within the first degree of
consanguinity or affinity . . . of such an individual, is a shareholder, officer, or
other owner of a legal or equitable interest in the acquiring successor employing
unit, or holds an option to purchase such an interest.

	One of the stipulated facts before us is that Cosmo had no subparagraph (iii) ties
to either Hogan, Minstar, or Min-V at the time of the transaction, making subparagraph (i)
inapplicable.  Hogan argues that after Cosmo purchased all of Hogan's assets, it was entitled to
the 2.7 percent tax rate as a new employer.  TEC maintains that Hogan is not entitled to treatment
as a new employer because there has been no "acquisition."  We reject this argument.
	Article 5221b-5(c)(7)(A)(i) reflects the legislature's concern that companies were
attempting to circumvent high compensation rates by reorganizing their businesses solely to obtain
the favorable new-business tax rate of 2.7 percent.  To close the "loophole," the legislature
initially provided that all employing units that acquired other employers' businesses and continued
their operations were deemed to have acquired their predecessors' compensation experience. 
However, the legislature's subsequent 1989 addition of subparagraph (iii) relaxed that provision,
so that it now applies only where the acquisition involves businesses that are in some manner
"related."  In those instances, there is a stronger presumption that the objective of the acquisition
is to reduce tax liability.  By the addition of subparagraph (iii), the legislature removed the burden
of acquiring the predecessor's compensation rate if there is a bona fide transfer, where no
relationships of identity, affinity, or consanguinity exist between the two parties involved in the
transaction.  Cosmo's purchase of Hogan was a $52 million acquisition involving no common
directors, officers, or shareholders, or other subparagraph (iii) ties, and it resulted in the complete
replacement of all directors and officers then managing the company.
	TEC attempts to avoid the amended policy of article 5221b-5(c)(7)(A) by denying
that this transfer was an "acquisition."  Nothing in the historical background of the Act supports
TEC's argument that a company that maintains the same corporate charter after its purchase
cannot have been the subject of an acquisition.  In fact, the statute has been amended to remove
the implication that an acquisition occurs only through a change in legal identity or form.  In
1941, subdivision (c)(7) of the Act provided that "two or more employing units which are parties
to or the subject of a merger, consolidation, or other form of reorganization effecting a change
in legal identity or form" would be considered a single employing unit for the purposes of
calculating compensation experience if various conditions were met.  Texas Unemployment
Compensation Act, Act of Mar. 27, 1941, 47th Leg., R.S., ch. 83, § 1, 1941 Tex. Gen. Laws
101, 104 (emphasis added).  However, in 1949 the "change in legal identity" language was
eliminated.  Texas Unemployment Compensation Act, Act of May 3, 1949, 51st Leg., R.S., ch.
148, § 5D, 1949 Tex. Gen. Laws 282, 293.  Subsequent amendments to article 5221b-5(c)(7) have
not reinstated any suggestion that a "change in legal identity" must accompany an acquisition. 
We construe the current language of subdivision (c)(7) to mean that an acquisition need not be
attended by a change in legal identity. 
 	Further, we find no merit in TEC's contention that Cosmo's purchase of Min-V's
stock was not an acquisition of the "organization, trade or business" of Hogan.  Because the Act
provides no statutory definition of the terms "acquire" or "acquisition," we must apply the
ordinary meaning of those terms in construing their meaning within the Act.  Hopkins v. Spring
Indep. Sch. Dist., 736 S.W.2d 617, 619 (Tex. 1987).  We must give the statute a reasonable
interpretation, and it is assumed that the ordinary meaning of the words used expresses the intent
of the legislature.  Texas Employment Comm'n v. City of Houston, 616 S.W.2d 255, 257-58 (Tex.
Civ. App.--Houston [1st Dist.] 1981, writ ref'd).  
	According to Black's Law Dictionary 24 (6th ed. 1990), to "acquire" means "[t]o
gain by any means . . . to obtain by . . . purchase; receive or gain in whatever manner; come to
have . . . [t]o gain ownership of"; similarly, "acquisition" means "[t]he act of becoming the owner
of certain property; the act by which one acquires or procures the property in anything." 
According to Webster's Ninth New Collegiate Dictionary (1987), to "acquire" means "to come
into possession or control of, often by unspecified means," and "acquisition" is simply "the act
of acquiring."  Cosmo's purchase of all Minstar's stock and subsequent installation of its own
directors and officers resulted in new ownership and new control of Hogan.  This transaction
unquestionably involved an "acquisition" within the ordinary meaning of that term.
	Because Cosmo's purchase of Min-V's stock was an acquisition of the assets of
Hogan, and because there were no related shareholders, officers, or owners of the acquiring or
selling businesses that would require Cosmo to succeed to the compensation experience of the
predecessor employer, we hold that after the transfer, Hogan was entitled to the 2.7 percent
compensation rate established by article 5221b-5(b).  Therefore, we overrule TEC's points of
error one through five.

Postjudgment Interest
	In its sixth point of error, TEC contends that the trial court improperly awarded
Hogan postjudgment interest.  The Act provides that plaintiffs may "commence an action . . .
against the Commission for a refund of the contributions and/or penalties which the Commission
refused to refund" and that "such recovery, if any, shall be without interest."  Act art. 5221b-12(j)(2) (emphasis added).  TEC maintains that this provision precludes the award of postjudgment
interest.  Hogan responds that the award merely complied with the statutory requirement that "all
judgments, together with taxable court costs, of the courts of this state earn interest, compounded
annually."  Tex. Rev. Civ. Stat. Ann. art. 5069-1.05, § 2 (West Supp. 1993); see also State v.
Tennessee Gas Transmission Co., 289 S.W.2d 309, 311-12 (Tex. Civ. App.--Austin 1956, writ
ref'd n.r.e.) (state, as judgment debtor, is subject to statutory requirement that all judgments bear
interest).
	TEC avers that article 5221b-12(j)(2) conflicts with article 5069-1.05, section 2,
and that because the former is a more specific statute, it should control.  Because we discern no
conflict between the two statutes, we reject TEC's argument.  The manifest purpose of article
5221b-12(j) is to provide various means by which an employing unit that has overpaid
contributions or penalties may be compensated for the overpayment.  In providing these means,
the legislature took pains to clarify that such compensation, whether secured by an adjustment,
a refund, or a lawsuit, would result only in a credit for or the return of those monies overpaid,
but would not include any interest as compensation for the lost use of those monies during the
time of the unauthorized or improper retention of the same.  Consequently, an employing unit
bringing suit pursuant to article 5221b-12(j)(2) may recover as damages only the actual amount
of overpayment, but not interest on that amount running from the time of the overpayment.
	Because article 5221b-12(j)(2) addresses only the amount of compensation an
overpaying employing unit may recover as damages, it cannot be construed to preclude application
of article 5069-1.05, section 2 once judgment has been rendered in favor of an employing unit. 
We, therefore, hold that the trial court's award to Hogan of postjudgment interest under article
5069-1.05, section 2 was proper. (6)  Consequently, we overrule TEC's sixth point of error.

 CONCLUSION
	The trial court's judgment is affirmed.

  					Bea Ann Smith, Justice
[Before Justices Powers, Kidd and B. A. Smith]
Affirmed
Filed:  May 19, 1993
[Publish]
1.      1  All statutory citations refer to this Act unless otherwise noted.
2.      2  An employer's compensation experience is the body of information to which TEC
applies a statutory formula to derive an employer's experience tax rating.  Texas Employment
Comm'n v. Manpower, Inc., 795 S.W.2d 261, 263 n.1 (Tex. App.--Austin 1990, no writ). 
3.      3  TEC establishes average contribution rates for each particular industry listed in the
Standard Industrial Classification Manual prepared by the United States Office of Management
and Budget.  These rates are determined on an industry-by-industry basis by averaging the
contribution rates paid by employers in each industry over the preceding fiscal year ending
September 30.  Act art. 5221b-5(c)(1). 
4.      4  The Act defines "employing unit" as "any individual or type of organization, including
but not limited to . . . [a] corporation" that employs at least one individual performing services
within Texas.  Act art. 5221b-17(e). 

	The Act includes within its definition of "employer" an "individual or employing unit
which acquire[s] the organization, trade, or business, or substantially all of the assets thereof,
of another . . . . employer."  Act art. 5221b-17(f)(2). 
5.      5 See Act of May 28, 1989, 71st Leg., R.S., ch. 436, § 1, 1989 Tex. Gen. Laws 1583,
1583.  The 1989 amendment refers to section 7(c)(7)(A), using a numbering scheme different
from the version codified at Tex. Rev. Civ. Stat. Ann. art. 5221b-5(c) (West Supp. 1993). 
What was referred to in the 1989 session laws as section 7(c)(7)(A) of the Act became article
5221b-5(c)(7)(A) through codification.  We shall refer to the codified numbering scheme
rather than to that used in the 1989 session laws.
6.      6  To the extent that our holding in this case conflicts with State v. El Paso Natural Gas
Co., 300 S.W.2d 170 (Tex. Civ. App.--Austin 1957, no writ), we overrule that earlier case.