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ATTORNEYS FOR APPELLANT Heather L. Wilson Amy S. Wilson Margaret L. Smith Indianapolis, Indiana ATTORNEYS FOR AMICUS CURIAE INDIANA CHAMBER OF COMMERCE, INC. Jon B. Laramore Fenton D. Strickland Indianapolis, Indiana ATTORNEYS FOR AMICUS CURIAE INDIANA LEGAL FOUNDATION Bryan H. Babb Marisol Sanchez Indianapolis, Indiana

ATTORNEYS FOR APPELLEE Gregory F. Zoeller Attorney General of Indiana David L. Steiner Deputy Attorney General Ronnie L. Miller Lauren D. Bogan Indiana Department of Workforce Development Indianapolis, Indiana

FILED
Sep 29 2011, 3:29 pm
of the supreme court, court of appeals and tax court

CLERK

In the

Indiana Supreme Court
No. 93S02-1102-EX-89 FRANKLIN ELECTRIC COMPANY, INC., Appellant (Plaintiff below), v. UNEMPLOYMENT INSURANCE APPEALS OF THE INDIANA DEPARTMENT OF WORKFORCE DEVELOPMENT, Appellee (Defendant below).

Appeal from the Indiana Department of Workforce Development, No. 08-37203 The Honorable Robert K. Robisch, Liability Administrative Law Judge On Petition to Transfer from the Indiana Court of Appeals, No. 93A02-0911-EX-01121

September 29, 2011 Shepard, Chief Justice.

Franklin Electric formed two new subsidiaries and started new unemployment experience accounts with a low introductory contribution rate for each one. We hold that the new subsidiaries are not new employers and that Franklin Electric's experience rate should have applied to contributions made by the subsidiaries.

Facts and Procedural History

Franklin Electric Co., Inc. is an Indiana corporation that manufactures pumps. In 2002, Franklin Electric hired a new CEO who decided to expand the company's product line and reorganized the business to do so. To that end, Franklin Electric formed two new wholly owned subsidiary corporations, Franklin Electric Manufacturing, Inc. and Franklin Electric Sales, Inc. Franklin Electric Manufacturing took over all manufacturing operations and Franklin Electric Sales began selling the goods made by Franklin Electric Manufacturing.

Franklin Electric transferred real estate, equipment, and other assets related to its manufacturing operations to Franklin Electric Manufacturing in exchange for one hundred percent ownership of the new corporation. Franklin Electric also transferred approximately 470 employees to Franklin Electric Manufacturing. Franklin Electric transferred all its sales-related personal property, sales contracts, and other related items to Franklin Electric Sales in exchange for one hundred percent ownership of the new corporation. Franklin Electric also transferred about ten employees to Franklin Electric Sales. Franklin Electric retained some 170 employees. Franklin Electric also retained some assets including all its intellectual property. It continued to serve as corporate headquarters for the two new subsidiaries.

Franklin Electric engaged an accounting firm to advise it on tax issues related to the formation of the subsidiaries. The accounting firm believed that the two new subsidiaries would be eligible for a new unemployment insurance experience account with the new employer rate of 2.7%. Prior to the transfer, Franklin Electric had an experience rating approaching 5%.

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Franklin Electric filed a "Report to Determine Status" for both Franklin Electric Sales and Franklin Electric Manufacturing. (Division's Ex. 2, 3.) The Department of Workforce Development responded by acknowledging that Franklin Electric had disposed of a "distinct and segregable portion of its Indiana business," and informing Franklin Electric that it had the option to transfer part of its experience balance to the new entities or start with the new rate. (Employer's Ex. 2.)

In 2006, Franklin Electric sold a portion of the manufacturing operation previously contributed to Franklin Electric Manufacturing to another company, Bluffton Motor Works LLC. Franklin Electric Manufacturing was not a direct party to the sales contract between Franklin Electric and Bluffton Motorworks and the assets were not transferred back to Franklin Electric before the sale.

In 2006, the Department received new software that allowed it to monitor wage records more closely. The Department noted a transfer of a large number of wage records from Franklin Electric to Franklin Electric Sales and Franklin Electric Manufacturing. The Department next noticed a transfer of wage records from Franklin Electric Manufacturing to Bluffton Motor Works. These transfers prompted the Department to begin an investigation into Franklin Electric Sales' and Franklin Electric Manufacturing's status.

On November 18, 2008, the Department notified Franklin Electric that it had conducted an investigation and determined that Franklin Electric "did not dispose of a distinct and segregable portion of its organization, trade, or business." (Division's Ex. A.) The Department canceled Franklin Electric Manufacturing's and Franklin Electric Sales's experience accounts. All experience balances and liabilities reverted to Franklin Electric, and the Department recalculated Franklin Electric's merit rate for 2005, 2006, 2007, and 2008. The Department demanded back payments, interest, and a ten percent penalty. Franklin Electric appealed the Department's determination to a liability administrative law judge (LALJ) who affirmed the Department's determination that the three entities are a

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single employer, but waived the penalties imposed by the Department. The Court of Appeals affirmed the LALJ. Franklin Elec. Co. v. Unemployment Ins. Appeals of the Dep't of

Workforce Dev., 928 N.E.2d 880 (Ind. Ct. App. 2010). We granted transfer, vacating the opinion of the Court of Appeals. determination of the LALJ. 950 N.E.2d 1199 (Ind. 2011) (table). We affirm the

Standard of Review Under Indiana Code

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