On March 6, 2013, Calfee, on behalf of the K&D Group, Inc. (K&D), won a unanimous decision in the Ohio Supreme Court against the Ohio Bureau of Workers’ Compensation (BWC).  In the case of State ex rel. The K&D Group, Inc. v. Buehrer, the Court clarified the law governing successor liability in the workers’ compensation context when it reversed a Tenth District decision upholding the BWC’s determination that K&D, a manager of apartment buildings, was the “successor” of property manager Mid-America Management Corp. (Mid-America) and subject to higher premiums based on Mid-America’s poor workers’ compensation experience rating.

The dispute centered around a property that was, as of January 2004, owned by a company called the Fame-Midamco Company (Fame) and managed by Mid-America.  In early 2004, Fame sold the building and it eventually ended up in the hands of a company called Euclid-Richmond Gardens, LTD (ERG).  ERG rebranded the apartment complex and its agent contracted with K&D to manage it. Neither ERG nor K&D had any affiliation with Fame or Mid-America.

At some point after the sale, the BWC audited K&D at Mid-America’s request and decided to increase K&D’s workers’ compensation premiums by transferring Mid-America’s poor workers’ compensation history to K&D. The BWC considered K&D to be Mid-America’s “successor.” It was undisputed, however, that K&D had nothing to do with the purchase of the building and did not acquire any assets of Mid-America. The connection between Mid-America and K&D was that K&D independently hired about half of Mid-America’s former employees to work at the rebranded property.

Recognizing that the sole legal issue involved the proper interpretation of O.A.C. § 4123-17-02(B)(3), the regulation that allows for a transfer of experience rating “[w]here a legal entity succeeds in the operation of a portion of a business,” K&D fought to be judged on its own merits. After finding no success in the BWC’s administrative process, K&D filed a Complaint and Petition for a Writ of Mandamus in Ohio’s Tenth District Court of Appeals. Losing there, K&D eventually appealed to the Supreme Court.

In a relatively brief 7-0 opinion, the Supreme Court unanimously found that K&D was not, and could not be, a successor to Mid-America. The Court’s opinion was largely based on its decision in the 2009 case of State ex rel. Valley Roofing, LLC v. Ohio Bureau of Workers’ Compensation, 122 Ohio St.3d 275, 2009-Ohio-2684, a case heavily briefed by K&D. In Valley Roofing, the Court found no successor liability because the plaintiff did not purchase a dissolved company’s assets directly, but acquired them through an intermediary bank. In K&D Group, the alleged successor was even further removed from the alleged predecessor since Mid-America did not transfer any of its assets to K&D at all.

According to the BWC, the K&D Group case was distinguishable because K&D did not receive Mid-America’s assets from a bank, a fact from Valley Roofing that the BWC found particularly important. The K&D Group Court, however, found no relevance in the role of the intermediary bank in Valley Roofing and disposed of the BWC’s arguments. The Court agreed with K&D that the fact that Mid-America did not voluntarily transfer any of its assets to K&D was all that mattered — K&D was not Mid-America’s successor.

The K&D Group case is an important case for Ohio employers, especially those few who are willing to take over troubled operations. The decision should limit the BWC’s ability to effect experience rating transfers in all manner of situations. As Valley Roofing and now K&D Group make clear, the BWC may only transfer a company’s experience rating to an alleged successor when there has been a voluntary transfer of assets from the predecessor.

“The K&D Group case is an important case for Ohio employers, especially those few who are willing to take over troubled operations. The decision should limit the BWC’s ability to effect experience rating transfers in all manner of situations.”