State ex rel. HGC Ents., Inc. v. Buehrer

SUPREME COURT CASES

Laws-info.com » Cases » Ohio » 10th District Court of Appeals » 2013 » State ex rel. HGC Ents., Inc. v. Buehrer

State: Ohio

Court: Ohio Southern District Court

Docket No: 2013-Ohio-2108

Case Date: 05/23/2013

Plaintiff: State ex rel. HGC Ents., Inc.

Defendant: Buehrer

Preview:[Cite as State ex rel. HGC Ents., Inc. v. Buehrer, 2013-Ohio-2108.]
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
State of Ohio ex rel.                                                                    :
HGC Enterprises, Inc.,
                                                                                         :
Relator,
                                                                                         :   No.  12AP-482
v.
                                                                                         :   (REGULAR CALENDAR)
Stephen Buehrer, Administrator,
Bureau of Workers' Compensation,                                                         :
Respondent.                                                                              :
D    E    C    I    S    I    O    N
Rendered on May 23, 2013
Black, McCuskey, Souers & Arbaugh, and Brian R. Mertes,
for relator.
Michael DeWine, Attorney General, and Cheryl J. Nester, for
respondent.
IN MANDAMUS
ON OBJECTIONS TO THE MAGISTRATE'S DECISION
BROWN, J.
{¶ 1}  Relator, HGC Enterprises, Inc. ("HGC Enterprises"), has filed this original
action requesting that this court issue a writ of mandamus ordering respondent, Ohio
Bureau of Workers' Compensation  ("BWC")  (1) to vacate its order that denied HGC
Enterprises' request that it be issued a new policy number after the BWC applied Ohio
Adm.Code 4123-17-13(C), found HGC Enterprises was "essentially the same employer" as
HYWY Foods, Inc. ("HYWY Foods"), and assigned to HGC Enterprises the same policy
number that was previously assigned to HYWY Foods, (2) to find that HGC Enterprises is

No. 12AP-482                                                                               2
not essentially the same employer, and  (3) to issue HGC Enterprises its own policy
number.
{¶ 2}  This matter was referred to a court-appointed magistrate pursuant to Civ.R.
53(C) and Loc.R. 13(M) of the Tenth District Court of Appeals. The magistrate issued the
appended decision, including findings of fact and conclusions of law, and recommended
that this court deny HGC Enterprises' request for a writ of mandamus. HGC Enterprises
has filed objections to the magistrate's decision.
{¶ 3}  HGC  Enterprises  presents  two  objections.  In  its  first  objection,  HGC
Enterprises argues that the magistrate's decision incorrectly concluded that the BWC did
not abuse its discretion when it applied the "policy initiation rule" in Ohio Adm.Code
4123-17-13(C) instead of the two-step analysis required by Ohio Adm.Code 4123-17-02
and R.C. 4123.  Ohio Adm.Code 4123-17-13(C) provides:
If the bureau determines,  after reviewing the information
submitted with the application provided for in paragraph (A)
of this rule, that the employer is essentially the same employer
regardless of entity type for which risk coverage previously
had been provided, the bureau may transfer the prior risk
coverage to the employer and the employer shall assume any
outstanding obligations under the prior risk coverage. The
bureau may reactivate a previously cancelled risk coverage in
order to complete this transfer.
{¶ 4}                                                                                      R.C. 4123.32(C) provides:
The administrator of workers' compensation, with the advice
and consent of the bureau of workers' compensation board of
directors,  shall  adopt  rules  with  respect  to  the  collection,
maintenance, and disbursements of the state insurance fund
including all of the following:
(C)  Such  special  rules  as  the  administrator  considers
necessary  to  safeguard  the  fund  and  that  are  just  in  the
circumstances, covering the rates to be applied where one
employer takes over the occupation or industry of another or
where an employer first makes application for state insurance,
and  the  administrator  may  require  that  if  any  employer
transfers  a  business  in  whole  or  in  part  or  otherwise
reorganizes  the  business,  the  successor  in  interest  shall

No. 12AP-482                                                        3
assume,  in  proportion  to  the  extent  of  the  transfer,  as
determined by the administrator, the employer's account and
shall continue the payment of all contributions due under this
chapter.
{¶ 5}                                                               Ohio Adm.Code 4123-17-02(B) provides, in pertinent part:
Succeeding employers - experience.
(1) Where one legal entity, not having coverage in the most
recent experience period, wholly succeeds another legal entity
in the operation of a business, his or its rate shall be based on
the   predecessor's   experience   within   the   most   recent
experience period.
(3) Where a legal entity succeeds in the operation of a portion
of  a  business  of  one  or  more  legal  entities  having  an
established coverage or having had experience in the most
recent experience period, the successor's rate shall be based
on  the  predecessor's  experience  within  the  most  recent
experience period, pertaining to the portion of the business
acquired by the successor.
(6) Whenever one employer succeeds another employer in the
operation of a business under paragraphs (B)(1) to (B)(5) of
this  rule,  the  bureau  shall  transfer  the  predecessor's
experience  under  the  workers'  compensation  law  to  the
successor if one of the following criteria is met:
(a) The successor expressly or impliedly agrees to assume
such obligations;
(b)  The  succession  transaction  amounts  to  a  de  facto
consolidation or merger;
(c) The successor is merely a continuation of the predecessor;
or.
(d) The succession transaction is entered into for the purpose
of escaping obligations under the workers' compensation law.

No. 12AP-482                                                                                    4
If one or more of the criteria set forth in this paragraph is met,
the bureau shall transfer the predecessor's experience under
the workers' compensation law, regardless  of whether  the
predecessor's  transfer  to  the  successor  was  voluntary  or
through an intermediary bank or receivership.
{¶ 6}  HGC Enterprises contends that R.C. 4123.32(C) and Ohio Adm.Code 4123-
17-02(B) contemplate the following two-step analysis:  (1) the BWC must assess and
determine whether a predecessor employer transferred a business in whole or in part or
otherwise reorganized the business, and then (2) the BWC must assess and determine
whether a subsequent employer is a successor-in-interest of that business. If the BWC
finds that both steps have been satisfied, argues HGC Enterprises, the successor-in-
interest shall assume the prior employer's experience rating.
{¶ 7}  Applying this framework to the present case, HGC Enterprises asserts that,
if a transfer of the franchise did occur, as the magistrate concluded, then the only logical
conclusion is that there was a transfer of the business from HYWY Foods to HGC
Enterprises, and BWC should have applied the two-step analysis contemplated by R.C.
4123.32(C) and Ohio Adm.Code 4123-17-02(B).
{¶ 8}  In response to HGC Enterprises' argument that the BWC should have
applied R.C. 4123.32(C) and Ohio Adm.Code 4123-17-02 instead of Ohio Adm.Code 4123-
17-13(C), the magistrate found there was no evidence that HGC Enterprises purchased
HYWY Foods, and there were no client lists or contracts to assume. We agree with the
magistrate. HGC Enterprises' argument in its objection is, essentially, that a transfer of a
franchise equates with a transfer of a business; thus, the analysis in Ohio Adm.Code 4123-
17-02 is triggered. However, there was simply no transfer of a business in the present case
so as to apply Ohio Adm.Code 4123-17-02. Instead, when there are circumstances to
suggest that something other than a partial or whole transfer of a business has taken
place,  the  "essentially-the-same-business"  analysis  in  Ohio  Adm.Code                      4123-17-13(C)
applies. HGC Enterprises' contention throughout the case was that there was no transfer
or purchase of business between it and HYWY Foods. Nevertheless, even lacking a
transfer or purchase of a business, Ohio Adm.Code 4123-17-13(C) permits the BWC to
find that the two entities are "essentially the same employer," so that the subsequent
entity cannot unfairly escape liability for any outstanding obligations incurred by the prior

No. 12AP-482                                                                                   5
entity by artful maneuvers that technically and legally sever the succession between the
two entities. The present circumstances support such a finding that both entities were
essentially the same employer, for the reasons stated by the magistrate on pages 23-24,
although no transfer of business took place.
{¶ 9}  As for HGC Enterprises' specific contention that a transfer of a franchise is
necessarily the same as a transfer of a business, we note initially that the franchise
agreement was a private contractual matter between HGC Enterprises and Fox's Pizza
Den, and their characterization of the franchise agreement is neither binding upon the
BWC nor determinative of whether a transfer of business took place. Notwithstanding, the
characterization of the franchise agreement as a transfer could be used to support either
of the competing views at issue here. To be sure, under certain circumstances, evidence of
a transfer of a franchise agreement could be used to support the conclusion that a transfer
of business took place between two entities. However, where, as here, there is no other
evidence to demonstrate that a transfer of business took place, the characterization of the
franchise agreement as a transfer, alone, does not prove that an actual transfer of the
underlying pizza business took place so as to trigger the analysis in Ohio Adm.Code 4123-
17-02. Instead, where, as here, there is evidence of a relationship between the two
businesses, yet no evidence of an actual transfer of business, the transfer of franchise
would support the conclusion that the two pizza businesses were essentially the same
employer, though maybe not technically or legally.
{¶ 10} Thus,  in  the  present  case,  where  HGC  Enterprises  has  argued  from
inception that no transfer of business took place between it and HYWY Foods, the fact
that Fox's Pizza Den and HGC Enterprises believed the businesses were related enough to
merit a transfer of franchise instead of a new franchise agreement supports a finding that
the HGC Enterprises and HYWY Foods were essentially the same employer, while doing
nothing to alter the fact that there was no legal transfer of business. Therefore, the trial
court's finding that there was a transfer of franchise but no triggering of the transfer-of-
business analysis in Ohio Adm.Code 4123-17-02 is not inconsistent. For these reasons,
HGC Enterprises' first objection is without merit.
{¶ 11} HGC Enterprises argues in its second objection that Ohio Adm.Code 4123-
17-13(C), the policy initiation rule, is unconstitutionally vague. HGC Enterprises asserts

No. 12AP-482                                                                                    6
that the policy initiation rule offers no guidance or factors to determine what actions will
cause one employer to be deemed essentially the same as another employer. Although the
magistrate agreed that the policy initiation rule does not identify any factors for the BWC
to consider when determining whether one employer is essentially the same as another
employer, the magistrate found that, at least in the present case, such factors were not
necessary because the facts in the present case clearly show that HGC Enterprises is
essentially the same employer as HYWY Foods.
{¶ 12} The party asserting that a statute is unconstitutionally vague must establish
that  "upon  examining  the  statute,  an  individual  of  ordinary  intelligence  would  not
understand what he is required to do under the law." State v. Anderson, 57 Ohio St.3d
168, 171 (1991). Thus, laws are vague when they "trap the innocent by not providing fair
warning." Grayned v. Rockford, 408 U.S. 104, 108 (1972).  Additionally, in order to defeat
an allegation of vagueness, a law must contain explicit standards as guidance for those
who  apply  them,  thereby  preventing  arbitrary  and  discriminatory  enforcement.  Id.
However, there is a strong presumption that all legislative enactments are constitutional.
State v. Collier,  62 Ohio St.3d  267,  269  (1991). When it is alleged that a statute or
ordinance is void for vagueness, all doubts must, if possible, be resolved in favor of its
constitutionality. Oregon v. Lemons, 17 Ohio App.3d 195, 196 (6th Dist.1984).
{¶ 13} In the present case, we find that Ohio Adm.Code  4123-17-13(C) is not
unconstitutionally vague. As the Supreme Court of the United States has noted:
[A] statute is not unconstitutionally vague merely because it
fails to define specific terms: "many statutes will have some
inherent vagueness, for in most English words and phrases
there lurk uncertainties. Even trained lawyers may find it
necessary to consult legal dictionaries, treatises, and judicial
opinions before they may say with any certainty what some
statutes may compel or forbid." Rose v. Locke (1975), 423 U.S.
48, 50, 96 S.Ct. 243, 46 L.Ed.2d 185 (citations and internal
quotations  omitted).  Thus,  a  statute  is  not  vague  if  the
meaning of words can be ascertained from these sources or,
for words in common usage, from the meaning commonly
attributed to them. See [ State v.] Glover [1984], 17 Ohio St.3d
[256] at 258, 479 N.E.2d 254 (citations omitted); Jeandell v.
State (2005), 165 Md.App. 26, 884 A.2d 739.
State v. Sommerfield, 3d Dist. No. 14-05-23, 2006-Ohio-1420, ¶ 16.

No. 12AP-482                                                                                 7
{¶ 14} Here,  under  Ohio  Adm.Code  4123-17-13(C),  "essentially,"  "same,"  and
"employer" have simple, common meanings, and a reasonable person can ascertain their
meanings. An ordinary person is expected to understand and apply the common meaning
of everyday terms used in legislation. Traditions Tavern v. Columbus, 171 Ohio App.3d
383, 2006-Ohio-6655, ¶ 24 (10th Dist.). The issue is not whether the regulation provides
"factors" that one might look to determine whether he or she falls within the definition;
rather, what is important is that "essentially the same employer" is capable of being
understood  by  the  reasonable  person.  What  constitutes  being  essentially  the  same
employer  may vary from case to  case, but  that  does not  render the phrase vague.
Furthermore, because the phrase is capable of being understood and uses direct, common
words, we do not believe it is subject to any more arbitrariness or discrimination in its
enforcement than any of the other many undefined terms in the code. For these reasons,
HGC Enterprises' second objection is without merit and overruled.
{¶ 15} After an examination of the magistrate's decision, an independent review of
the record, pursuant to Civ.R. 53, and due consideration of HGC Enterprises' objections,
we overrule the objections and adopt the magistrate's findings of fact and conclusions of
law. HGC Enterprises' writ of mandamus is denied.
Objections overruled;
writ of mandamus denied.
SADLER & CONNOR, JJ, concur.

[Cite as State ex rel. HGC Ents., Inc. v. Buehrer, 2013-Ohio-2108.]
APPENDIX
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
State of Ohio ex rel.                                                                   :
HGC Enterprises, Inc.,
                                                                                        :
Relator,
                                                                                        :   No.  12AP-482
v.
                                                                                        :   (REGULAR CALENDAR)
Stephen Buehrer, Administrator,
Bureau of Workers' Compensation,                                                        :
Respondent.                                                                             :
M A G I S T R A T E ' S     D E C I S I O N
Rendered January 17, 2013
Black, McCuskey, Souers & Arbaugh, and Brian R. Mertes,
for relator.
Michael DeWine, Attorney General, and Cheryl J. Nester, for
respondent.
IN MANDAMUS
{¶ 16} Relator, HGC Enterprises, Inc. ("HGC Enterprises"), has filed this original
action requesting that this court issue a writ of mandamus ordering respondent, Ohio
Bureau  of Workers'  Compensation  ("BWC"), to vacate its order which denied HGC
Enterprises' request that it be issued a new policy number after the BWC applied Ohio
Adm.Code  4123-17-13(C),  and  found  HGC  Enterprises  was  "essentially  the  same
employer" as HYWY Foods, Inc. ("HYWY Foods") and assigned to HGC Enterprises the

No. 12AP-482                                                                               9
same policy number that was previously assigned to HYWY Foods and ordering the BWC
to find that it is not essentially the same employer, and issue HGC Enterprises its own
policy number.
Findings of Fact:
A.  Facts Pertaining to HYWY Foods
{¶ 17} 1.  HYWY Foods was formed on December 16, 1999 by George Joseph, III.
{¶ 18} 2.  Between December  1999 and January 2011, HYWY Foods operated a
Fox's Pizza Den, Inc.  ("Fox's  Pizza Den")  franchise  at  1213 Third Street  NW, New
Philadelphia, Ohio.
{¶ 19} 3.  HYWY  Foods  ceased  operating  the  Fox's  Pizza  Den  on  or  about
January 29, 2011.
{¶ 20} 4.  On April  22,  2011, HYWY Foods filed a form U-117 with the BWC
requesting that its coverage be cancelled since it was no longer actively operating a
business.
{¶ 21} 5.  At the time it ceased operating the Fox's Pizza Den, HYWY Foods had
allowed its workers' compensation coverage to lapse.
{¶ 22} 6.  As a result, a claim was filed against it during the period of lapsed
coverage and, as of January 2011, HYWY Foods owed the BWC approximately $44,000
related to the non-covered claim and approximately $2,800 in past due premiums.
{¶ 23} 7.  At some point, the BWC negotiated a payment plan with HYWY Foods on
the amount it owed and began collecting $500 per month from HYWY Foods.
B. Facts Pertaining to HGC Enterprises
{¶ 24} 8.  HGC Enterprises was formed on February 25, 2011 by George Joseph, Jr.
("Joseph, Jr.").
{¶ 25} 9.  Joseph, Jr. is the father of George Joseph, III, the owner of HYWY
Foods.
{¶ 26} 10.  On March 1, 2011, HGC Enterprises entered into a franchise agreement
with Fox's Pizza Den.   In a letter from the law firm representing Fox's Pizza Den dated
March  14,  2011, HGC Enterprises was advised regarding "Fox's Pizza Den Franchise
Transfer/New Philadelphia, OH," as follows:

No. 12AP-482                                                                              10
As you know, we are in receipt of the partially executed
transfer documents relative to the recent transfer of the New
Philadelphia, Ohio Fox's Pizza Den franchise from your son's
company, to your new company, HGC Enterprises, Inc. Mr.
James Fox has signed the Franchise Agreements, and I am
pleased to  enclose  herein for  your  company's file a fully
executed original Franchise Agreement and photocopies of
the Promissory Note and Guaranty in connection with this
transfer.
If you have any questions regarding the operation of your
store, please do not hesitate to telephone Ken Crosby or Jim
Fox directly at * * * .
{¶ 27} 11.  The copy of the franchise agreement contained in the stipulated record
of evidence specifically provides as follows:
SECTION THIRTEEN-ROYALTY & FRANCHISE FEE
In consideration of the grant of a license to use Franchisor's
trademarked system, etc., Franchisee shall pay to Franchisor
the following amounts:
[One] Franchise Fee:
[Two] Training Fee:
[Three] Site Consulting Fee:                                                              $
Total                                                                                     $
{¶ 28} No  dollar  amounts  were  listed  here;  instead,  the  word  "transfer"  was
stamped upon the document.
{¶ 29} 12.  On March  21,  2011, HGC Enterprises filed an application for Ohio
Workers' Compensation Coverage.
{¶ 30} 13.  The business was identified as follows:   Fox's Pizza Den located at 1213
Third Street NW, New Philadelphia, Ohio, 44683, and the telephone number was listed as
(330) 343-4600.   On page two, in response to the question "[d]id you acquire/purchase
the business," Joseph, Jr. answered "no."
{¶ 31} 14.  On April 4, 2011, the BWC sent a letter to HGC Enterprises requesting
additional  information  regarding  the  application  for  Ohio  Workers'  Compensation

No. 12AP-482                                                                                  11
coverage.   Specifically, the BWC asked for information concerning whether or not the
business had been acquired or purchased.
{¶ 32} 15.  Joseph, Jr. again answered that question as "no."
{¶ 33} 16.  On April 20, 2011, two separate letters were sent from the BWC to HGC
Enterprises.   The first letter indicated that the BWC had received a request to change
policy information and that, as a result of the request, BWC records would now indicate:
OLD POLICY NAME                                                                               NEW POLICY NAME
Hywy Foods Inc                                                                                Hgc Enterprises Inc
{¶ 34} 17.  In  the  second  letter  dated  April 20,                                         2011,  HGC  Enterprises  was
informed that records indicated that an existing policy already existed and, as such, the
March 21, 2011 application for coverage would not be processed.   Specifically, that letter
provides:
We  received  your  application  for  workers'  compensation
coverage. However, our records show you have an existing
policy, which is referenced above.  Therefore, we will not
process  the  application  you  recently  filed.  Please  report
payroll and pay your workers' compensation premium using
the existing policy.
In addition, our records show your policy has an inactive
coverage status. To bring this policy into compliance with
Ohio workers' compensation laws, you must:
   Report payroll and pay premium for any outstanding
payroll reporting periods; and/or
   Pay  any  outstanding  balance  due  BWC,  including
amounts  certified  to  the  Office  of  the  Attorney
General of Ohio for collection.
I have enclosed the documents and information you need to
resolve this issue.
   Please  complete  and  return  any  payroll  reporting
forms  I  have  included  to  BWC,  along  with  your
premium payment.
   If an invoice/statement is enclosed, please pay the
balance shown.

No. 12AP-482                                                                                12
   Please  return  all  enclosed  documents  and  any
applicable payments using the envelope provided.
   Once we process the documents, BWC will bill you for
any additional late filing penalties and interest/fees
accrued due to referrals to the Office of the Attorney
General of Ohio.
(Emphasis sic.)
{¶ 35} 18.  In a letter dated April 27, 2011, Kevin E. Willoughby, a certified public
accountant whose client was HGC Enterprises, sent a letter to the BWC explaining that
HGC Enterprises did not buy the business of HYWY Foods and that HGC Enterprises
should be assigned a new policy number as requested.  Specifically, that letter provides:
To follow please find the request for additional information
received  by  our  client  HGC  Enterprises,  Inc.  This  is  the
second request our client received and the first request was
faxed back on April 8, 2011 noting that the business was not
purchased. It appears that the BWC is transferring coverage
from  HYWY  Foods,  Inc.  to  HGC  Enterprises,  Inc.  The
business was closed by HYWY Foods, Inc. on January 29,
2011 and not opened by HGC Enterprises until April of 2011.
HGC Enterprises, Inc. did not buy the business from HYWY
Foods, Inc. and therefor should be assigned a new policy
number as requested.
{¶ 36} 19.  In a letter dated June 22, 2011, Brian R. Mertes, an attorney whose firm
represents HGC Enterprises, sent a letter to the BWC requesting a hearing on the
following issues:
HGC  seeks  to  bring  the  following  issues  before  the
Adjudicating  Committee:                                                                    1)  assessment  of  premium;   2)
transfer/combination of experience and risk coverage; and,
3)  failure to  issue a  risk  number.  As set  forth herein,  a
hearing is needed so that HGC has an opportunity to be
heard on these issues and present its position to the Bureau.
Mertes also provided a history of the formation of HGC Enterprises and how it should
be distinguished from HYWY Foods.
{¶ 37} 20.  In a letter dated July 28, 2011, counsel for HGC Enterprises reiterated
its request for a hearing before the adjudicating committee and indicated that the matter

No. 12AP-482                                                                              13
was now urgent because the BWC was presently characterizing HGC Enterprises as a non-
employer with lapsed coverage.
{¶ 38} 21.  On August 10, 2011, the BWC denied HGC Enterprises' application for
the issuance of a new policy, stating:
The Bureau has reviewed your complaint requesting that a
new policy be issued. Regrettably, the Bureau must deny
your request at this time due to the fact that the Bureau
cannot waive application of the rule. It has been confirmed
that the Policy Processing Unit updated your existing policy
rather  than  establishing  a  new  policy  and  followed  the
guidelines in the BWC Policy Statement regarding Coverage
Initiation (copy attached).
The Ohio Administrative Code section 4123-17-13(3)(C) [sic]
establishes the protocol for the Rule controlling the making
of the initial application for rating to determine when the
bureau may transfer the prior risk coverage to the employer
and the employer shall assume any outstanding obligations
under the prior risk coverage.
If you disagree with this decision, you may appeal in writing.
{¶ 39} 22.  HGC Enterprises appealed, resubmitted the June 22, 2011 letter and a
second letter dated August 26, 2011 concerning the issues which needed to be addressed:
Please be advised that I have been retained to represent HGC
Enterprises. Please let this letter serve as an appeal/request
for an Adjudication Hearing regarding the above-referenced
Complaint number. On or about June 22, 2011, the employer
sought  a  request  for  a  hearing  for  the  Adjudication
Committee  on  several  issues,  including  assessment  of
premium,  transfer/combination  of  risk  experience,  risk
coverage, and failure to issue a risk number. Again on or
about July 28, 2011, the employer brought these issues to the
Bureau's attention. On August 10, 2011, the Bureau, through
its  Policy  Processing  Unit,  issued  a  response  to  the
employer's complaint. However, the response only addressed
the denial of the issuance of a new policy/risk number. The
other issues were not addressed.
As set forth in the attached correspondence to the Bureau
dated  June                                                                               22,   2011,  the  employer  disagrees  with  the
Bureau's   treatment   of   its   application   for   workers'
compensation coverage. The employer requests a hearing

No. 12AP-482                                                                               14
before the Adjudicating Committee on the issues it raised in
the attached letter.
{¶ 40} 23.  In a letter dated September 28, 2011, HGC Enterprises was given notice
that the hearing would be held on October  19,  2011 and that the only issues to be
addressed were contained in the enclosed statement of protest, which provided:
Pursuant to Ohio Administrative Code Section  4123-17-13
(3)(C)  [sic], the Bureau did not issue the employer a new
policy  when  the  employer  filed  a  new  application  for
coverage. Instead the Bureau instructed the employer to use
an existing policy. The employer objected to the denial of a
new policy and requested a hearing with the Adjudicating
Committee.
{¶ 41} 24.  The hearing was held before the adjudicating committee on October 19,
2011.  The order which followed set out the statement of protest and then summarized the
arguments.  That order summarized the arguments as follows:
HGC Enterprises' Position
The employer's representatives stated the old company is on
a payment plan of $500.00 a month. The old company might
owe around $2,800.00 in premiums. In January 2011, the
son  closed  the  business.  The  father  then  inquired  about
opening his own franchise of the same business previously
owned by the son. The father got a new corporation ID and
reopened the business at the same location using the same
trade name. However, the son was not an owner of the new
business.  There  were  equipment  and  supplies  purchased
from the son's old business. Some of the old employees were
hired by the new business. The old lease for the building was
not assumed. A new lease was entered into. There was no
transfer of business between HYWY and HGC.
BWC's Position
The BWC representative stated that a new application was
received on March 21, 2011. The dba for the business was
Fox['s] Pizza Den. The Bureau researched the application
and found that the old restaurant was owned by George
Joseph III. The new owner was George Joseph Jr. Given the
company was a pizza restaurant at the same location and the
owners were all family members, the Bureau applied OAC
4123-17-13.

No. 12AP-482                                                                                 15
{¶ 42} 25.  Thereafter, the adjudicating committee determined that the BWC had
properly applied the law, stating:
Based on the testimony at the hearing and the materials
submitted  with  the  protest,  the  Adjudication  Committee
DENIES the employer's protest. The BWC correctly applied
the policy initiation rule. The two businesses operated out of
the same location, with the same line of business, using the
same phone numbers and equipment. The two owners were
close family members. The Committee properly applied the
rule.
(Emphasis sic.)
{¶ 43} 26. HGC Enterprises notified the BWC that it was appealing the order from
the adjudicating committee in a letter dated November 30, 2011.   After setting forth the
facts concerning HYWY Foods and HGC Enterprises, counsel for HCG Enterprises argued
that Ohio Adm.Code 4123-17-13(C) was unconstitutionally vague because the rule failed to
provide any guidance to a perspective employer as to the criteria that would be used to
determine whether two entities were essentially the same.   Counsel also argued that the
BWC ignored the statutory provisions related to successor employers contained in Ohio
Adm.Code 4123-17-02, which do provide guidance to perspective employers as to the
criteria that will be used to determine whether an employer will be determined to be a
successor-in-interest, arguing that the adjudicating committee applied the wrong law.   In
arguing that Ohio Adm.Code  4123-17-02 should have been applied instead, counsel
stated:
In this matter, the BWC completely ignored the applicable
statutory  and  regulatory  framework.  The  BWC  made  no
determination  whether  HYWY  transferred  a  business  in
whole or in part to HGC. Additionally, the BWC made no
determination whether HGC was a "successor-in-interest" to
HYWY. The BWC chose to apply, albeit incorrectly OHIO
ADMIN.  CODE                                                                                 4123-17-13,  while  at  the  same  time
completely disregarding Ohio Admin. Code 4123-17-02. The
BWC cannot pick and choose what rules it will apply, yet,
that is exactly what it did in this case.
The BWC's failure is magnified when one considers that Ohio
Admin.  Code                                                                                 4123-17-02  requires  that   a  subsequent
employer succeed a predecessor employer in the operation of
the business that had established coverage or experience in

No. 12AP-482                                                     16
the  most  recent  period.  In  this  matter,  the  alleged
predecessor business — HYWY — was not in existence when
HGC began its operations. There was no business to succeed.
Furthermore, the BWC completely ignored the criteria set
forth in Ohio Admin. Code 4123-17-02 allowing for transfer
of risk or experience. First, there is no evidence that HGC
expressly  or  impliedly  agreed  to  assume  any  of  HYWY's
obligations. HGC entered into its own lease and franchise
agreement.  There  was  no  assumption  of  any  HYWY
obligations by HGC. Second, there is no evidence of a defacto
merger  or  consolidation  of  HGC  and  HYWY.  HGC  and
HYWY were owned by two different individuals. HYWY's
owner has no ownership interest in or other role in HGC.
Similarly, HGC's owner had no interest in or relationship
with HYWY. Third, there is no evidence that HGC is merely a
continuation of HYWY. HYWY's pizza shop ceased to exist as
of January 2010 [sic]. HGC began operating a pizza shop in
April 2011. The only similarity between HYWY and HGC is
that each business operates a pizza shop. HGC purchased its
own equipment, entered into its own agreements related to
the operation of the shop, hired its own employees, and
installed new management. Fourth, there is no evidence that
HYWY ceased operating to escape its workers compensation
obligations. To the contrary, HYWY has continued to fulfill
its obligations to the BWC by entering into a payment plan
with the BWC. The BWC's actions in accepting payments
from HYWY are tantamount to an express admission that
HYWY, not HGC, is the party responsible for the obligations
that the BWC has transferred to HGC.
As set forth above, had the BWC considered the applicable
statutory provisions, it would have concluded that the risk
and  experience  of  HYWY  should  not  transfer  to  HGC.
However, this is not what happened. Instead, the BWC relied
upon a rule that is unconstitutionally vague, while ignoring
the statutory framework that provides specific instruction
and criteria to be used when considering whether to transfer
risk and experience [from] one employer to another.
The  BWC  should  reconsider  and  vacate  its  Order  issued
herein on October 28, 2011, and issue a new order finding
that  the  risk  and  experience  of  HYWY  was  not  properly
transferred  to  HGC.  HGC  requests  that  a  hearing  be
scheduled  so  that  the                                         [issues]  raised  herein  can  be
addressed.

No. 12AP-482                                                                         17
{¶ 44} 27.  HGC Enterprises sent a letter to the BWC and attached the affidavit of
Joseph, Jr.  In that affidavit, Joseph averred as follows:
[Two] I am the majority owner of HGC Enterprises, Inc.
("HGC"), which I formed in March 2010 [sic]. My daughter
and I are the only two shareholders.
[Three] HGC operates a pizza shop in New Philadelphia[,]
Ohio known as Fox's Pizza Den.
[Four] Prior to opening the pizza shop, I entered into various
agreements as needed for the operation of my pizza shop,
including a franchise agreement with Fox's Pizza Den, Inc., a
lease with my landlord, and various vendors as needed.
[Five] For a time before I opened my pizza shop, another
Fox's Pizza Den owned by HYWY Foods ("HYWY") operated
at the location where I am now located. However, that shop
closed several months before I opened. I do not know why
HYWY closed the pizza shop.
[Six] I do not presently and have never had any interest of
any kind in HYWY, nor was I ever an employee of HYWY.
[Seven]  However, after it  closed, I  considered opening  a
pizza shop in the same location, and that is why I formed
HGC.
[Eight]  HGC  has  not  assumed  any  contractual,  or other,
obligations  of  HYWY.  HGC  has  entered  into  its  own
agreements and secured its own loans for the operation of its
pizza shop.
[Nine] Prior to opening the shop, I purchased some, not all,
of the equipment I needed to operate my pizza shop from
HYWY.  I  purchased  a  pizza  oven,  steel  prep  table  and
freezer. The equipment I purchased from HYWY was not in
any way unique and almost identical to such equipment used
in all restaurants.
[Ten] Before opening, I hired employees, some, but not all,
of which worked for HYWY. I hired a manager that had no
prior relationship of any kind with HYWY.
[Eleven] I did not assume any part of HYWY's business. At
the time that I opened my pizza shop, HYWY had ceased

No. 12AP-482                                                                               18
operating its pizza shop. There was no business to acquire or
assume.
{¶ 45} 28.  In a letter dated March 5, 2012, HGC Enterprises sent the BWC the
affidavit of Kevin Willoughby, the certified public accountant for HGC Enterprises.   In
that affidavit, Willoughby explained the basis upon which he advised HGC Enterprises
that it would not have to assume any of the outstanding monetary obligations of HYWY
Foods as follows:
[Four] George Joseph, Jr., owner of HGC, came to me in
February  2011 with questions concerning a new business
opportunity. He wanted to open a pizza franchise. His son
previously operated a franchise in the area and Mr. Joseph
wanted  to  open  a  pizza  shop  where  his  son  previously
operated his pizza shop.
[Five] I explained to George that his son's business (HYWY
Foods)  had  an  outstanding  monetary  obligation  with  the
Ohio BWC, and that he should not open the pizza shop if the
BWC would assign the obligation of HYWY Foods to HGC. I
was aware of the outstanding obligation as HYWY Foods is
also a client.
[Six] George asked that I look into the matter and let him
know if it would be an issue as he did not want to open a
pizza shop if the obligation would follow his business. As
such, on or about February 8, 2011, I called Don Henegar, an
auditor with the BWC who I knew from audits that he had
conducted  on  my  clients.  I  explained  mine  and  HGC's
concerns  to  Don  regarding  the  outstanding  obligation  of
HYWY Foods and asked what action HGC should take to
make sure that the obligation did not follow HGC if it opened
a  pizza  shop.  Based  on  my  prior  dealings  with  Don,  I
considered him a knowledgeable person on such issues who
had the  authority to  make decisions concerning workers'
compensation coverage issues as this is what he did as an
auditor with the BWC.
[Seven] At the end of our initial conversation, Don told me
that he would talk to another person at the BWC and get
back to me with an answer, which he did later that day.
When  we  again  spoke,  Don  advised  me  to  file  a  new
application for workers' compensation coverage for HGC.
Based on the context of our conversations, I took this to

No. 12AP-482                                                                                     19
mean  that  so  long  as  HGC  filed  a  new  application  the
obligation of HYWY Foods would not follow HGC.
[Eight] I then explained to Mr. Joseph what Don told me,
and based on the information, he decided to proceed with
opening his pizza shop.
{¶ 46} 29.  Following a hearing on March 6, 2012, the administrator's designee for
the BWC issued a final order affirming the determination of the adjudicating committee,
stating:
Pursuant to Ohio Revised Code Section 4123.291, this matter
came on for hearing before the Administrator's Designee on
the employer's appeal of the Adjudicating Committee order
dated October 19, 2011. At issue before the Administrator's
Designee,   the   Employer   protested   of   the   Bureau's
determination that policy HYWY and HGC are essentially the
same employer. Therefore, in accordance with OAC 4123-17-
13(C), the Bureau required HGC to use the policy of HYWY.
The Administrator's Designee adopts the statement of facts
contained in the order of the Adjudicating Committee.
Based on the testimony and other evidence presented at the
hearing,   the   Administrator's   Designee   affirms   the
Adjudicating Committee's findings, decision, and rationale
set forth in the order.
{¶ 47} 30.  Thereafter, relator, HGC Enterprises, Inc., filed the instant mandamus
action in this court.
Conclusions of Law:
{¶ 48} For the reasons that follow, it is this magistrate's decision that this court
should deny HGC Enterprise's request for a writ of mandamus.
{¶ 49} The Supreme Court of Ohio has set forth three requirements which must be
met in establishing a right to a writ of mandamus: (1) that relator has a clear legal right to
the relief prayed for; (2) that respondent is under a clear legal duty to perform the act
requested; and (3) that relator has no plain and adequate remedy in the ordinary course
of the law.  State ex rel. Berger v. McMonagle, 6 Ohio St.3d 28 (1983).

No. 12AP-482                                                                                 20
{¶ 50} The  BWC  applied  Ohio Adm.Code  4123-17-13, the rule  controlling the
making of the initial application for rating, to HGC Enterprises' application for workers'
compensation coverage.   Ohio Adm.Code 4123-17-13(A) requires an employer seeking
workers'  compensation  coverage  to  submit  an  application  containing  the  following
relevant information:
(1) On the occasion of instituting coverage under this rule,
the employer shall submit an application for coverage that
completely  provides  all  the  information  required  for  the
bureau to establish coverage for the employer. The employer
shall, at a minimum, provide the following information:
(a) Legal name of the employer;
(b) Address of the employer;
(c) Federal identification number or social security number;
(d)   Business   entity   type                                                               (corporation,   L.L.C.,   sole
proprietorship, partnership, etc.);
(e) Information related to whether the applicant for coverage
has purchased an existing business or has another associated
policy;
(f)  Name  of  the  owner  or  corporate  officer,  and,  where
applicable  for  elective  coverage,  the  name  of  the  sole
proprietor, partners, or minister;
(g) Information related to the description of the employer's
operations;
(h) Signature of the person completing the application for
coverage.
{¶ 51} Upon receipt of the application, the BWC classifies the applicant-employer's
status as to the type of industry or nature of the enterprise with regard to the degree of
hazard involved and advises the applicant of its classification, rate, and amount of first
premium security deposit.
{¶ 52} After receiving HGC Enterprises' application for coverage, the BWC applied
paragraph (C) of Ohio Adm.Code 4123-17-13 and determined that HGC Enterprises was

No. 12AP-482                                                                                     21
"essentially  the  same  employer"  as  HYWY  Foods  and,  instead  of  granting  HGC
Enterprises' application for coverage, the BWC concluded that HGC Enterprises already
had coverage in the form of the policy already issued to HYWY Foods.   Paragraph (C)
provides as follows:
If the bureau determines, after reviewing the information
submitted with the application provided for in paragraph (A)
of  this  rule,  that  the  employer  is  essentially  the  same
employer regardless of entity type for which risk coverage
previously had been provided, the bureau may transfer the
prior risk coverage to the employer and the employer shall
assume  any  outstanding  obligations  under  the  prior  risk
coverage. The bureau may reactivate a previously cancelled
risk coverage in order to complete this transfer.
(Emphasis added.)
{¶ 53} HGC Enterprises argues that the BWC should have applied Ohio Adm.Code
4123-17-02  and  determined whether  it  was a  successor  employer to  HYWY.    HGC
Enterprises argues further that Ohio Adm.Code 4123-17-13 is unconstitutionally vague
and that employers would have no way of knowing whether or not they would be found to
be essentially the same as some other  employer.    For the reasons that follow, the
magistrate disagrees.
{¶ 54} Following a search on Westlaw, the magistrate was unable to find any cases
where an employer was challenging the applicability of this rule to them.   Although the
magistrate  does  not  know  how  frequently  this  rule  is  applied,  it  appears  that  its
application has not been challenged before.
{¶ 55} When considering an administrative agency's application of its own rules
and regulations, court's give due deference to the agency's interpretation, provided the
analysis is reasonable and is not in conflict with relevant statutes.   Northwestern Ohio
Bldg. & Constr. Trades Council v. Conrad,  92 Ohio St.3d  282  (2001); State ex rel.
McLean v. Indus. Comm., 25 Ohio St.3d 90 (1986).   On several occasions, the Supreme
Court  of  Ohio  has  repeatedly  acknowledged  the  difficulty  of  setting  workers'
compensation rates and has deferred to the BWC's determination in these matters unless
the agency has acted in an arbitrary, capricious, or discriminatory manner.   State ex rel.
Cafaro Mgt. Co. v. Kielmeyer, 113 Ohio St.3d 1, 2007-Ohio-968.

No. 12AP-482                                                                                    22
{¶ 56} Here, HGC Enterprises contends that the BWC abused its discretion when it
applied Ohio Adm.Code 4123-17-13 instead of 4123-17-02 which applies when the BWC
needs to determine whether or not an employer is not a successor in interest.  Part of HGC
Enterprises'  argument  focuses  on  its  assertion  that  Ohio  Adm.Code                       4123-17-13  is
unconstitutionally vague.
{¶ 57} The vagueness doctrine is an outgrowth of the due process clause of the
Fifth Amendment to the United States Constitution.   U.S. v. Williams, 553 U.S. 285,
(2008).   Due process demands that the law provide sufficient warning of what conduct is
proscribed so people may conduct themselves in such a manner as to avoid that which is
forbidden.   Rose v. Locke, 423 U.S. 48 (1975).   Consequently, a legislative enactment is
void for vagueness if it fails to provide sufficient definition and guidance that would
enable a person of ordinary intelligence to conform his or her conduct to the law.   Hill v.
Colorado, 530 U.S. 703 (2000).   A statute can be impermissibly vague for either of two
independent reasons: (1) it fails to provide people of ordinary intelligence a reasonable
opportunity  to  understand  what  conduct  it  prohibits,  or  (2)  it  authorizes  or  even
encourages arbitrary and discriminatory enforcement.   Id.   HGC Enterprises' argument
focuses on the steps Joseph, Jr. took to make certain he did not assume the debts of his
son's business.  HGC Enterprises argues that Joseph, Jr. relies on his accountant's advice.
Because the accountant, after talking with a BWC auditor, believed Joseph, Jr. could
avoid liability by filing a new application, HGC Enterprises argues that the average person
could not know if and when the policy would be applied.
{¶ 58} The   magistrate   finds   that   Ohio   Adm.Code                                        4123-17-13   is   not
unconstitutionally vague and that the commission did not abuse its discretion in applying
it to the facts of this case.
{¶ 59} Although, Ohio Adm.Code 4123-17-13(C) does not identify any factors for
the BWC to consider when determining whether or not one employer is essentially the
same as another employer, the magistrate finds that, at least in the present case, no such
factors are necessary.   As noted in the findings of fact, the former Fox's Pizza Den was
operated by HYWY Foods, a company which was owned and operated by George Joseph,
III, who happens to be the son of George Joseph, Jr., the man whose company, HGC
Enterprises, operates the current Fox's Pizza Den restaurant.  The current Fox's Pizza Den

No. 12AP-482                                                                                   23
is located at the same address as the former Fox's Pizza Den and the two establishments
share the same telephone number.   Further, some of the equipment used by the former
Fox's Pizza Den was bought by HGC Enterprises and is currently being used in the new
Fox's Pizza Den.   Some of the former employees of the first Fox's Pizza Den employed at
the current Fox's Pizza Den.   Based on these facts alone, the magistrate finds that the
BWC did not abuse its discretion by finding that HGC Enterprises is essentially the same
employer as HYWY Foods.
{¶ 60} In its defense, HGC Enterprises makes the following arguments: (1) we have
our own franchise agreement and lease, and (2) we have no idea why HYWY Foods went
out of business.   As noted in the findings of fact, the franchise agreement between Fox's
Pizza Den and HGC Enterprises was designated by Fox's Pizza Den as a transfer of the
franchise license previously granted to HYWY Foods.  This fact cuts against the argument
that HGC Enterprises had its own franchise agreement.   Further, although Joseph, Jr.
averred in his affidavit that he had no idea why his son's company went out of business,
the BWC was not required to find this statement credible.   Also, the fact that Joseph, Jr.
knew of his son's outstanding debt to the BWC cuts against his argument that he did not
know why HYWY went out of business. As the BWC noted, the same business, Fox's Pizza
Den, was being operated out of the same location as the previous Fox's Pizza Den utilizing
some of the same equipment and some of the same employees.   Further, this was not an
arms length transaction; instead, the owner of HYWY Foods is the son of the owner of
HGC Enterprises.  Again, given these facts, the magistrate finds that it was not an abuse of
discretion for the BWC to find that HGC Enterprises is essentially the same employer as
HYWY Foods.
{¶ 61} To the extent that HGC Enterprises argues that the BWC was required to
apply Ohio Adm.Code  4123-17-02 and determine whether or not it was a successor
employer to HYWY Foods before the BWC could transfer the experience of HYWY Foods
to HGC Enterprises, the magistrate disagrees.  There is no evidence that HGC Enterprises
purchased HYWY Foods and there were no client lists or contracts to assume.   However,
HGC Enterprises is operating the same type of business, a pizza shop, under the same
name, Fox's Pizza Den, and is serving customers in the same geographical location.  Ohio
Adm.Code 4123-17-02 does not apply here; however, Ohio Adm.Code 4123-17-13 does.

No. 12AP-482                                                                               24
{¶ 62} Based on the forgoing, it is this magistrate's decision that HGC Enterprises
has not demonstrated that the BWC abused its discretion when it determined that it was
essentially the same employer as HYWY Foods and this court should deny its request for a
writ of mandamus.
/S/ MAGISTRATE
STEPHANIE BISCA BROOKS
NOTICE TO THE PARTIES
Civ.R. 53(D)(3)(a)(iii) provides that a party shall not assign
as error on appeal the court's adoption of any factual finding
or legal conclusion, whether or not specifically designated as
a  finding  of  fact  or  conclusion  of  law  under  Civ.R.
53(D)(3)(a)(ii),  unless  the  party  timely  and  specifically
objects to that factual finding or legal conclusion as required
by Civ.R. 53(D)(3)(b).

Download 12ap-482.pdf