Vaughan v. Warner

• Citation: 157 F.2d 26
• Decision Date: 08 August 1946
• Docket Number: No. 9053.,9053.
• Parties: VAUGHAN et al. v. WARNER et al. (GRAVES et al., Third-Party Defendants).
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

157 F.2d 26 (1946)

VAUGHAN et al. v. WARNER et al. (GRAVES et al., Third-Party Defendants).

No. 9053.

Circuit Court of Appeals, Third Circuit.

Argued April 19, 1946.

Decided August 8, 1946.

John F. Finney, of Philadelphia, Pa. (David R. Perry, Sp. Deputy Atty. Gen., and James H. Duff, Atty. Gen., on the brief), for appellant.

Samuel H. Levy, of Philadelphia, Pa. (Morris Wolf and Stanley E. Gilinsky, both of Philadelphia, Pa., on the brief; Wolf, Block, Schorr & Solis-Cohen, of Philadelphia, Pa., of counsel), for claimant-appellee, Frances E. Morrow.

Before BIGGS and GOODRICH, Circuit Judges, and GOURLEY, District Judge.

GOURLEY, District Judge.

From a date prior to 1936 and continuing thereafter until July 2, 1940, George T. Graves owned and operated in Philadelphia, Pennsylvania, a vaudeville and motion picture thereafter known as Carman Theatre. In the course of his business, George T. Graves engaged the services of vaudeville artists who were singers, dancers, magicians and special performers of the type usually appearing in vaudeville theatres in conjunction with moving pictures. These vaudeville artists were engaged by George T. Graves through a New York booking agency under specific contracts not subject to cancellation, and designating the performers as independent contractors, and requiring them to appear for rehearsals and conform generally to the regulations of the theatre. The management reserved only the right to delete objectionable features and to vary the exhibitions to the extent of prescribing the duration and appropriate place in the program. It had no control over the manner of performance or the direction of the individual talents of the artists.

On July 2, 1940, a receivership in equity was created, pursuant to the terms of a mortgage secured on the Carman Theatre, in order to preserve and protect the rights of lien holders under said mortgage. On the same day, pursuant to an Order of the District Court of the United States, Eastern District of Pennsylvania, Jay Emanuel, George McHugh, and Norman Fernon, Receivers, entered into possession of the Carman Theatre and continued the operation of the business thereof until the receivership was terminated May 27, 1943. During the period of their operation of the theatre and in the course of the business thereof, the Receivers continued to engage, through a New York booking agency, the services of vaudeville artists to appear from time to time and in conjunction with the showing of motion pictures to perform in the theatre for remuneration.

In the operation of the theatre, the Receivers followed the practice previously adopted prior to receivership. All vaudeville acts were booked through the Edward Sherman Agency at New York City, which was paid $15 a week by the theatre or the Receivers as the booking agency's commission. Separate contracts were entered into for each act, and the acts were selected by the Sherman Booking Agency and scheduled to conform generally with the type of motion picture being exhibited and the length of time available for the vaudeville acts. Vaudeville acts made available by the Booking Agency were either for a period of three days or for one week exclusive of Sundays. The Sherman Booking Agency would execute a separate contract for each vaudeville act with the artist, person or persons who were to perform in the act. Each act furnished its own properties and the management had no control over the performances other than to specify the time and order of appearance, or to delete objectionable or inappropriate lines or features. The performers were artists having special talents, and their compensation was based upon their commercial value to the exhibitor or their individual drawing power. The compensation or rate of pay of the artists was arrived at by bargain, and the contracts expressly represented the artists as individual contractors. On the basis of the contract the theatre owner, and subsequently the Receivers, paid the entertainer or the person in the vaudeville act who was stipulated in the contract. For instance, if there were five people in the act, one person would be designated to collect the amount provided in the contract. In addition thereto, the theatre owner, and subsequently the Receivers, deducted the amount of five percent (5%) from the contract price for the Edward Sherman Booking Agency and forwarded said amount to said Agency. Furthermore the Edward Sherman Booking Agency executed the contracts with the entertainer in behalf of the theatre and the Receivers. The contract which was executed in each of the cases with the entertainer followed a common form. A typical contract is set out in footnote 1.¹

Under and pursuant to the provisions of the Pennsylvania Unemployment Compensation Law, the Receivers filed reports and paid to the appellant, Commonwealth of Pennsylvania, unemployment compensation contributions based upon wages paid certain types of individuals performing services in and about the theatre. The Receivers, under protest, filed employers' reports as to the remuneration paid by them to the vaudeville artists appearing and performing in the theatre, but refused to pay unemployment compensation contributions based thereon. Appellant filed with the Receivers its claim for such contributions, together with statutory interest thereon in accord with the Act of Assembly in such case made and provided. Payment of such contributions and interest was refused.

On May 27, 1943, James L. Baxter was appointed Special Master to audit the First and Final Account of the Receivers filed. On April 23, 1945, the Special Master filed a second report, and denied therein payment to the appellant of its claim. Appellant filed with and argued before the lower court exceptions to this second report of the Special Master. The lower court entered an order dismissing the exceptions and confirmed the report of the Special Master. The Commonwealth of Pennsylvania appealed from this order.

The appellant contends that the District Court erred in holding that the principal question involved was whether vaudeville artists who fill engagements of several days duration at the Carman Theatre were employees within the meaning of the Pennsylvania Unemployment Act, or whether they were independent contractors. Appellant argues that the two main questions involved were:

(1) Did the services performed by the "vaudeville entertainers" at the Carman Theatre for remuneration paid by the management in the course of its enterprise constitute "employment" within the meaning and intent of the Pennsylvania Unemployment Compensation Law of December 5, 1936, P.L. of 1937, 2897, as amended, 43 P.S. § 753 et seq.?

(2) Did the remuneration paid such "vaudeville entertainers" for such services rendered constitute "wages" within the intent and meaning of the Pennsylvania Unemployment Compensation Law of December 5, 1936, P.L. of 1937, 2897, as amended, 43 P.S. § 753 et seq.?²

Claims for the recovery of unemployment taxes applicable to the vaudeville performers involved in this case were originally filed both by the Federal Government and the Commonwealth of Pennsylvania. Both claims were denied by the Receivers. The Special Master sustained the Receivers' action.

The first problem before the Court is the orientation of the facts in this case into the law applicable in the federal court. Federal jurisdiction is invoked solely on account of the receivership of the defendants; there is no independent federal question involved before the Court in the claims of the Commonwealth. Since the claim of the Commonwealth is based on the provisions of a Pennsylvania statute, the Court must first try to determine, by all the available decisions which might exist, what construction has been placed on said statute by the courts in this Commonwealth. The Supreme Court of the United States and the Circuit Court of Appeals in this Circuit and other circuits have repeatedly held that in the interpretation or construction of a state statute, it is the duty of the federal courts to accept the meaning ascribed to state laws by the highest court of the state.³

If no interpretation or construction has been placed on said Act of Assembly by the Supreme Court of Pennsylvania, it is next necessary for the federal court to ascertain whether or not any alternative determination of the questions which exist has been made by any other appellate tribunal in the Commonwealth of Pennsylvania, and if this has not been done, whether or not the trial courts are in agreement.⁴

It, therefore, appears that we are bound to give due deference to the state law as declared by the highest court in the Commonwealth, any other appellate tribunal, or decisions of the lower court, if in accord, which will govern in disposing of the questions now before this Court.

The Pennsylvania Unemployment Compensation Act imposes contributions on an employer as an excise tax. The Federal Social Security Act, Section 901, 42 U.S.C.A. § 1101, so defines it, and the United States Supreme Court so construed it.⁵

Since the payments provided by the Unemployment Compensation Act are in a nature of an excise tax, every doubt of its application must be resolved in favor of the defendant and against the taxing power. Planters' Lumber Co. v. Wells, 147 Miss. 279, 112 So. 9.

Tax statutes must be strictly construed, and words must be clear and unambiguous to subject the taxpayer to the tax. Commonwealth v. Philadelphia Rapid Transit Co., 29 Dauph. Co. Rep., Pa., 298; Id., 287 Pa. 190, 134 A. 455. The Commonwealth has the burden of showing that the property, on which it is seeking to impose a tax, comes within the statute, and any doubt or uncertainty should be resolved in favor of the taxpayer. Commonwealth v. Quaker City Cab Co., 29 Dauph. Co. Rep., Pa., 90; Id., 287 Pa. 161, 134 A. 404; In re Barber's Estate, 304 Pa. 235, 155 A. 565. Tax laws are to be construed most strictly against the...