DEBORAH B. BARNES, JUDGE.
¶ 1 Defendant/Appellant State of Oklahoma, ex rel. Oklahoma Employment Security Commission (the Commission) appeals the district court's Order reversing the decision of the Commission's Assessment Board. The Assessment Board found Plaintiff/Appellee JC Fab, Inc. (JC Fab) is a successor employer of Texoma Waste Control (Texoma), and the district court reversed. Based on our review, we conclude the Assessment Board's determination that, under 40 O.S.2011 § 3-111(A), JC Fab "continue[d] the operations" of Texoma "as a going business" is not supported by substantial evidence. Therefore, we affirm the district court's Order reversing the order of the Assessment Board.
¶ 2 JC Fab and Texoma entered into a "Commercial/Industrial Real Estate Purchase Contract" in May, 2011, in which they agreed that for $1.8 million, JC Fab would acquire the real property and certain personal property of Texoma. One year later, the Commission notified JC Fab, by letter, of its finding that "[JC Fab] has acquired substantially all of the organization, employees, trade, business or assets of Texoma . . ., and continued the operations of the predecessor as a going business." The Commission stated that "it has therefore been determined. . . that [JC Fab] is a successor to the account of the predecessor," and that JC Fab would, therefore, "acquire the merit rating account" of Texoma, including Texoma's "actual contribution and benefit experience, annual payrolls, and liability for current or delinquent contributions, interests and penalty."
¶ 3 The Commission's finding was made after a part-time employee of JC Fab submitted a form to the Commission entitled "Employer's Notice of Acquisition of Business." In this form, JC Fab appeared to represent it had "acquired substantially all of the trade, organization, employees, business or assets of [Texoma] . . . effecitive 8/12/11[,] and continued the operations of the predecessor as a going business." (Emphasis added.) However, after receiving the Commission's letter in May, 2012, JC Fab, by letter dated May 23, 2012, from its managing member, Scott Crain (Crain), "formerly disagree[d]" with the Commission's findings and requested a review and redetermination. Crain specifically stated in the May 2012 letter, in part, as follows: "I acquired [Texoma's] equipment and the real estate that [it] leased, to expand my existing business and not to continue [Texoma's] operation as a going business." Crain also stated in his May 2012 letter, as follows:
¶ 4 By letter dated July 23, 2012, the Commission noted, among other things, that "[Texoma] produced waste containers as does [JC Fab]," and the Commission stated it had decided to uphold its previous determination that JC Fab was a successor. In response, JC Fab submitted a written protest and a request for a hearing before the Assessment Board.
¶ 6 JC Fab appealed the Assessment Board's order to the district court. The district court, in its Order filed in August, 2013, reversed the Assessment Board's order, noting that JC Fab "did not have a non-competition agreement with [Texoma]. This fact, combined with all of the other evidence, establishes . . . that [JC Fab] was not a successor to the business known as [Texoma]."
¶ 7 The Commission now appeals the district court's Order reversing the order of the Assessment Board.
¶ 8 The Employment Security Act of 1980 sets forth the standard of judicial review in appeals of Assessment Board decisions as follows:
40 O.S.2011 § 3-404 (emphasis added).
Snider Bros. v. State ex rel. Okla. Employment Sec. Comm'n, 2008 OK CIV APP 80, ¶ 14, 194 P.3d 771.
Reliable Referring Serv., Inc. v. Assessment Bd., 2006 OK CIV APP 150, ¶ 6, 149 P.3d 1078. See also Dugger v. State ex rel. Okla. Tax Comm'n, 1992 OK 105, ¶ 9, 834 P.2d 964 ("The appellate courts will review the entire record made before an administrative agency acting in its adjudicatory capacity to determine whether the findings and conclusions set forth in the agency order are supported by substantial evidence," and "[a]n adjudicatory order will be affirmed on appeal if the record contains substantial evidence in support of the facts upon which the decision is based and the order is otherwise free of error.").
¶ 9 "The Commission, however, may not arbitrarily discredit and disregard unimpeached, competent and relevant testimony which is uncontradicted." Sanders, 1954 OK 155, ¶ 9, 272 P.2d 379. See also Wright & Edwards v. Okla. Employment Sec. Comm'n,
¶ 10 Title 40 O.S.2011 § 3-111(A)
(Emphasis added.) The dispositive issue presented on appeal is whether the Assessment Board's determination that JC Fab continued the operations of Texoma as a going business is supported by substantial evidence.
¶ 11 Regarding whether JC Fab continued the operations of Texoma as a going business, Crain testified at the Assessment Board hearing that, prior to the acquisition, JC Fab "built jacks and couplers for the gooseneck trailer industry. We built safe rooms, storm shelters. We did custom fabrication work for other manufacturers. We did a machine shop business. And we built oil field equipment, such as frac tanks and mud tanks." He also testified JC Fab had "a small line of open top refuse containers" prior to the acquisition. Crain testified that the production of refuse containers constituted "[l]ess than five percent, maybe one or two percent. It was a very small part of our business." He stated that as of the date of the hearing, and after the acquisition, the portion of JC Fab's business related to the production of refuse containers was "[p]robably less than five percent if—you know, two to three percent, probably." Crain stated that Texoma, on the other hand, "did 100 percent compactors," meaning Texoma only produced "hydraulically powered" waste compactors "used behind restaurants, department stores, anybody wanting to compact refuse for volume purposes."
¶ 12 Crain testified that JC Fab's sales in the past 12 months were "[p]robably right around, I think, seven or eight million," and that "[r]oughly, $100,000 to $200,000" of that was from the production of refuse containers. When questioned how much Texoma was generating from sales of refuse containers prior to the acquisition, Crain, who testified that Texoma had shown him their financial statements "[w]hen I was discussing buying their assets . . . to show how much equipment they had," stated that Texoma was "doing close to $2 million a year in sales" of refuse containers. The following exchange occurred between Crain and JC Fab's attorney:
¶ 13 Regarding sales of refuse compactors, Crain testified, "we have never got into that type of business," but admitted that after the acquisition, JC Fab
Crain further testified that JC Fab kept, and did not change, the telephone and fax numbers at the facility acquired from Texoma, and that previous customers of Texoma would
Crain also responded in the negative when questioned, "Did you, on behalf of JC Fab, or any of your employees, to your knowledge, contact previous customers of [Texoma] to make sales?"
¶ 14 When questioned at the hearing, "If you weren't going to continue building the powered refuse containers that [Texoma] built, why did you buy their assets?" Crain responded,
Crain stated that the acquisition occurred "to expand our frac paint (sic) business." He similarly testified that "we were using the new assets solely for the use of our existing business and to build the products that we were already currently building."
¶ 15 Crain further testified, consistent with the "Addendum to Purchase Contract" contained in the record, that there were a number of Texoma assets "that all had to do with [Texoma's] existing business" that JC Fab did not purchase, including "hoists," "tarpers and tarps," and "truck chassis." The following exchange occurred between Crain and JC Fab's attorney:
Regarding the hoists that JC Fab did not purchase, Crain explained that JC Fab does not use them for "the frac tanks that we build. . . . We—our containers that we build are pulled by trucks. And these containers are pulled up onto trucks and dumped. So it's a totally different business model than JC Fab." When questioned whether, if JC Fab had continued producing the type of refuse
¶ 16 Crain explained that "[b]asically, everything we bought from [Texoma] [-] the real estate . . . and then the equipment . . . that we bought[,] . . . the welding machines, drill presses, press brakes . . . [-] were generic fabrication equipment, the same type of equipment that we already owned, but more of it. More welding machines, more press brakes. And then their facility." He further explained,
¶ 17 Crain testified that, prior to the acquisition, JC Fab had a building that was "[r]oughly, 16,000 square feet," and that through the acquisition "[w]e added 63,000 square feet." Crain testified:
¶ 18 In addition, the following exchange occurred between Crain and JC Fab's attorney:
[A] That's exactly right. The products that we're building that are oil field related and the stuff that we're doing for Caterpillar required extensively more experience in welding, the type of welding procedures, and the work force at [Texoma] was very nonskilled, seasonal-type workers. And, you know, they weren't able to do the work that we needed. And most of them have moved on and found other jobs.
¶ 19 Crain also testified that he "didn't require [Texoma] to sign a noncompete clause or prohibit them from going on and doing anything related to that business, because I wasn't getting into that business." He stated that Texoma could start up the same business they were running before the acquisition "and I wouldn't have a problem with it whatsoever. We wouldn't even be competing."
¶ 20 Crain's testimony was neither impeached nor contradicted at the hearing. The only witness who testified on behalf of the Commission at the hearing was its own employee, Capolino, who investigated the acquisition and made the initial determination that JC Fab was a successor of Texoma. However, Capolino testified that she determined JC Fab continued the operations of Texoma as a going business based merely on the fact that "[Texoma] produced refuse containers. And JC Fab also produces refuse containers." She similarly testified, "[JC Fab] still made some of the product that [Texoma] made."
¶ 21 On cross-examination, Capolino admitted that during her investigation, she did not determine, for example, what percentage of Texoma's business was the production of refuse containers; whether any of the Texoma owners, shareholders, or board members continued to be a part of JC Fab; or how much of JC Fab's business consisted of sales to Texoma account holders. She testified, "I made my determination [based] on the amount of assets that [JC Fab] acquired and
¶ 22 As quoted above, the Commission "may not arbitrarily discredit and disregard unimpeached, competent and relevant testimony which is uncontradicted." Sanders, 1954 OK 155, ¶ 9, 272 P.2d 379. Here, Crain's testimony supports only one reasonable conclusion: that JC Fab did not "continue[the operations of the predecessor employer as a going business[.]" Crain testified that JC Fab acquired Texoma's facility along with a substantial portion of its assets not in order to continue Texoma's $2 million per year refuse compactor business but, instead, to expand its own, distinct metalworking business, especially as it relates to the oil and gas industry. Crain did testify, as set forth above, that JC Fab's production of refuse containers increased after the acquisition from "maybe one or two percent" to "two to three percent, probably," and that "[r]oughly, $100,000 to $200,000" of its "seven or eight million" in sales over the past 12 months before the hearing was from the production of refuse containers. However, Crain testified that this increase was the result of a de minimis "service" to two former Texoma customers; that it was not performed on a regular basis; that it was not advertised by JC Fab; that it was not part of JC Fab's business plan; that JC Fab did not, though it could have, continue to generate, or exceed, anywhere near the $2 million per year in sales of refuse compactors that Texoma generated before the acquisition; and that JC Fab did not acquire various assets of Texoma that would have been necessary to continue Texoma's refuse container sales as a going business. Moreover, Crain testified there was no noncompete clause with Texoma because JC Fab did not care if Texoma continued to manufacture its refuse containers as JC Fab was not in Texoma's product line.
¶ 23 In turn, the Commission did not assemble competent evidence to contradict, discredit, or impeach Crain's testimony. Instead, the Commission's only witness testified, in essence, that, from a certain remove, and absent "a lot of information," it appears JC Fab is a successor of Texoma and is continuing its operations as a going business. However, although this may have been a reasonable conclusion at the early stages of this case, the uncontradicted details elicited at the hearing reveal otherwise.
¶ 24 We must conclude, with the district court, that the Assessment Board's determination is not supported by substantial evidence. In particular, the Assessment Board's determination that, under § 3-111(A), JC Fab "continue[d] the operations" of Texoma "as a going business" is not supported by substantial evidence. Consequently, we affirm the district court's reversal of the Assessment Board's order.
¶ 25 We conclude the Assessment Board's determination that, under 40 O.S.2011 § 3-111(A), JC Fab "continue[d] the operations" of Texoma "as a going business" is not supported by substantial evidence. Therefore, we affirm the district court's Order reversing the order of the Assessment Board.
¶ 26 AFFIRMED.
RAPP, P.J., and THORNBRUGH, J., concur.
