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Lammers v. Board of Review


August 24, 2010


On appeal from the Board of Review, Department of Labor and Workforce Development, Docket No. 222,697.

Per curiam.


Submitted August 17, 2010

Before Judges Sabatino and Ashrafi.

Claimant, Michael Lammers, appeals the Board of Review's final agency decision of September 22, 2009, determining that he was disqualified for unemployment benefits under N.J.S.A. 43:21-19m(1) and N.J.A.C. 12:17-12.1. Because the Board correctly applied these applicable statutory and regulatory provisions, we affirm.

Claimant filed a claim for unemployment benefits on February 8, 2009. The record indicates that, at all times relevant to this matter, claimant has been the sole shareholder and the president of two companies organized as closely-held corporations under the laws of New Jersey: M.L. Service Associates, Inc. ("M.L. Service"), and AHM Service Corporation ("AHM"). The business of the two companies mainly involved the assembly and servicing of outdoor patio furniture and gas grills. The companies have functioned as sister corporations, employing the same persons, including claimant, during their periods of operation.

According to claimant, the companies encountered serious financial difficulties and revenue losses, particularly after their main customer, a large retail chain, stopped sending orders. Claimant testified at his hearing before the Appeal Tribunal in June 2009 that AHM has been inactive since July 2008. However, as of the June 2009 hearing when the factual record was developed, AHM had not yet been formally dissolved through the requisite filings with the Secretary of State. Claimant further testified that he last performed work for M.L. Services in September 2008, and that the company has been dormant since that time. He indicated that he has not dissolved M.L. Services either, because the company owes him certain funds that he had loaned to it, and also because he hoped to revive that company if more customers materialize.

After hearing the relevant proofs, the Appeal Tribunal found claimant ineligible for benefits under the pertinent statutory provision, N.J.S.A. 43:21-19m(1), and the associated regulation, N.J.A.C. 12:17-12.1. The Board of Review sustained the Tribunal's determination.

In N.J.S.A. 43:21-19m(1)(A), the Legislature specifically defined "unemployment" for the purpose of benefit entitlement as follows:

(m) "Unemployment."

(1) An individual shall be deemed "unemployed" for any week during which:

(A) The individual is not engaged in full-time work and with respect to which his remuneration is less than his weekly benefit rate, including any week during which he is on vacation without pay; provided such vacation is not the result of the individual's voluntary action, except that for benefit years commencing on or after July 1, 1984, an officer of a corporation, or a person who has more than a [five percent] equitable or debt interest in the corporation, whose claim for benefits is based on wages with that corporation shall not be deemed to be unemployed in any week during the individual's term of office or ownership in the corporation[.]

[N.J.S.A. 43:21-19m(1)(A)(emphasis added).]

In furtherance of this legislative mandate disqualifying certain corporate shareholders, officers and creditors from receiving unemployment benefits, the Department of Labor and Workforce Development adopted, after appropriate public notice and comment, an administrative regulation, N.J.A.C. 12:17-12.1. That regulation, in its present form, provides as follows:

(a) An officer of a corporation and/or a person who has more than five percent equitable or debt interest in the corporation, whose claim for benefits is based on wages with that corporation, shall not be considered unemployed in any week during the individual's term of office or ownership in the corporation and the claim shall be determined invalid.

1. An equitable interest in the corporation is defined as the ownership of the corporate stock.

2. A debt interest in the corporation is defined as being a creditor of the corporation.

3. A corporation is considered viable unless it has permanently ceased operations and has filed for formal dissolution in accordance with the New Jersey Business Corporation Act, N.J.S.A. 14A:1-1 et seq.; or has filed for bankruptcy under Chapter 7 of the United States Bankruptcy Code. [N.J.A.C. 12:17-2.1(a)(emphasis added).]

The regulation has been upheld as consistent with the statutory scheme and with associated case law. See, e.g., Rudbart v. Bd. of Review, 339 N.J. Super. 118, 124-25 (App. Div. 2001); Fernicola v. Bd. of Review, 335 N.J. Super. 523, 525 (App. Div. 2000). "The regulation neither contradicts the statutory language, nor does it go beyond it." Fernicola, supra, 335 N.J. Super. at 525.

The manifest purpose of these codified provisions is to strike a fiscal balance, one which limits the payout of public funds to persons deemed by the Legislature and by the agency to be most in need of unemployment compensation. On review, it is not our function to second-guess the wisdom of those policy decisions. Rather, we must apply the statute and regulation as they are written, and sustain the Board's administrative decision so long as it comports with those provisions and is supported by substantial and credible proof in the record. See, e.g., Brady v. Bd. of Review, 152 N.J. 197, 210 (1997); Self v. Bd. of Review, 91 N.J. 453, 459 (1982).

Claimant argues that he should be entitled to benefits because he is deriving no current economic benefit from the companies. He also emphasizes that he has not been able to work because of "difficult market conditions," and that while he was working in the past he did make appropriate contributions to the State's unemployment fund. He also contends that it is inefficient and costly to require him to dissolve both dormant companies, as there remains a prospect that the economy will improve and that business will once again come his way. He would like the flexibility to resume operations readily without having to recreate his businesses in corporate form.

Although we appreciate the concerns raised by claimant and the difficult economic circumstances that exist for him--as they unfortunately exist at present for many persons in our State and nation--the fact is that the record indisputably shows that at the time of claimant's hearing he remained an officer, sole shareholder, and creditor*fn1 of these corporations. That status, as a matter of law, disqualifies claimant from receiving benefits under the statute and regulation, regardless of the equities of his particular situation.

In addition, claimant's prospective intention to dissolve AHM, which he had not yet acted upon as of the time of his hearing, is insufficient to remove him from the statutory disqualification. The necessity of taking formal steps--either for corporate dissolution through a filing with the Secretary of State under N.J.S.A. 14A:12-1 to -5, or for bankruptcy through the filing of a Chapter 7 petition with the United States Bankruptcy Court--is clearly stated in subsection (3) of N.J.A.C. 12:17-21(a). That regulation was promulgated in response to this court's opinion in Nota v. Bd. of Review, 231 N.J. Super. 341, 343-44 (App. Div. 1989). See Fernicola, supra, 335 N.J. Super. at 524-25 (upholding the denial of unemployment benefits, under N.J.A.C. 12:17-12.1 to a claimant who remained an officer and a twenty-five percent owner of a corporation that had ceased operating a restaurant, in light of the fact that the corporation had not yet been dissolved and no Chapter 7 bankruptcy petition had been filed).

Finally, claimant's remaining arguments, including his assertion that the exclusions set forth in N.J.S.A. 43:21-19m(1) and N.J.A.C. 12:17-12.1 are invalid because they deprive him of equal protection and are otherwise unconstitutional, lack sufficient merit to warrant discussion in this written opinion.

R. 2:11-3(e)(1)(E).

The final agency decision of the Board of Review is affirmed.

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