100 F.Supp. 796 (S.D.Cal. 1951), 12126, United States v. Swedlow Engineering Co., Inc.

Docket Nº12126.
Citation100 F.Supp. 796
Party NameUNITED STATES v. SWEDLOW ENGINEERING CO., Inc., et al.
Case DateOctober 24, 1951
CourtUnited States District Courts, 9th Circuit, Southern District of California

Page 796

100 F.Supp. 796 (S.D.Cal. 1951)

UNITED STATES

v.

SWEDLOW ENGINEERING CO., Inc., et al.

No. 12126.

United States District Court, S.D. California.

Oct. 24, 1951

Ernest A. Tolin, U.S. Atty., E. H. Mitchell, Edward R. McHale, Asst. U.S. Attys., Eugene Harpole, Frank W. Mahoney, Sp. Attys., Bureau of Internal Revenue, Los Angeles, Cal., for the plaintiff.

Anderson, McPharlin & Conners, Los Angeles, Cal., for the defendants.

YANKWICH, Chief Judge.

The Government seeks to recover under the 'special trust fund' provision, Internal Revenue Code, Sec. 3661, 26 U.S.C.A. § 3661, withholding taxes assessed against the wages of employees, Internal Revenue

Page 797

Code, Sec. 1623, 26 U.S.C.A. § 1623, taxes upon the income of employees, Internal Revenue Code, Sec. 1622, 26 U.S.C.A. § 1622, taxes assessed under the Federal Insurance Contributions Act, Internal Revenue Code, Secs. 1400-1401, 26 U.S.C.A. §§ 1400-1401, and the Federal Unemployment Tax, Internal Revenue Code, Sec. 1600, 26 U.S.C.A. § 1600. The contractor did not withhold any of the taxes for three quarter year periods in 1948 and one quarter year period in 1949. The total asked is $7,995.12.

The facts are not in dispute.

The problem before the Court is whether the Bonding Company, which executed a bond for labor and materials on a contract for public work, as required by the law of California, California Government Code, Secs. 4200-4208, is liable.

And the most serious question relating to this liability is whether the six-months limitation after 'termination' of work imposed by California law applies. California Government Code, Sec. 4206. As the time is computed with reference to Section 1184e of the California Code of Civil Procedure providing for the filing of claims within a certain time after 'acceptance', it is contended that the limitation period began to run on July 24, 1949. As the action was not filed until August 21, 1950, it is asserted that, although statutes of limitation do not bind the Government, the statute being one of 'creation', the right to bring the action ceased to exist in favor of anyone claiming under the bond. See the writer's opinion in Adams v. Albany, D.C. Cal. 1948, 80 F.Supp. 876; United States ex rel. Texas Portland Cement Co. v. McCord, 1914, 233 U.S. 157, 34 S.Ct. 550, 58 L.Ed. 893; United States v. Smelser, 5 Cir., 1937, 87 F.2d 799.

A study of the problem leads me to the conclusion that, under the stipulated facts, the restrictions of Section 4206 of the California Government Code do not apply and that the only applicable limitation is the five-year period contained in Section 3312 of the Internal Revenue Code, 26 U.S.C.A. § 3312. The stipulation set forth that on August 13, 1948, the contractor ran out of money and made a request in writing of the bonding company to furnish the funds with which to meet the payrolls. Thereafter, a system was adopted whereby the bonding company, over a period of months, gave to the bank, on each pay day, a draft to cover the payroll, including the portions supposed to be withheld, with instructions that the funds were to be used to cover the payroll checks of the contractor which were attached to the draft.

I am of the view that, under this arrangement, the bonding company had 'control of the payment of the wages'. Internal Revenue Code, Sec. 1621(d)(1), 26 U.S.C.A. § 1621(d)(1). And see, United States v. Fogarty, 8 Cir., 1947, 164 F.2d 26, 174 A.L.R. 1284; United States ex rel. Ivy v. Blair, 1945, D.C. Tex., 34 A.F.T.R. 1651, 1655, 1657. The Fogarty case is especially persuasive because the question before the court related to the liability of the trustee in bankruptcy for wages earned by the bankrupt's employees prior to the bankruptcy. The Court of Appeals held that the trustee was liable, because he had control over the payment of wages past due, and was 'the employer'.

More recently, the Court of Appeals for the Sixth Circuit adopted this...

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  • 210 F.2d 472 (9th Cir. 1954), 13341, Fireman's Fund Indem. Co. v. United States
    • United States
    • Federal Cases United States Courts of Appeals Court of Appeals for the Ninth Circuit
    • 19 Febrero 1954
    ...action by appellee, the United States, against Swedlow Engineering Company, Inc., and appellant, Fireman's Fund Indemnity Company, D.C., 100 F.Supp. 796, and a judgment was entered against both defendants on November 21, 1952. Appellant has appealed. The judgment is reversed as to appellant......
1 cases
  • 210 F.2d 472 (9th Cir. 1954), 13341, Fireman's Fund Indem. Co. v. United States
    • United States
    • Federal Cases United States Courts of Appeals Court of Appeals for the Ninth Circuit
    • 19 Febrero 1954
    ...action by appellee, the United States, against Swedlow Engineering Company, Inc., and appellant, Fireman's Fund Indemnity Company, D.C., 100 F.Supp. 796, and a judgment was entered against both defendants on November 21, 1952. Appellant has appealed. The judgment is reversed as to appellant......