Lines v. STATE OF CALIFORNIA, DEPARTMENT OF EMPLOY.
| Decision Date | 28 March 1957 |
| Docket Number | No. 15484.,15484. |
| Parties | Kal W. LINES, Appellant, v. STATE OF CALIFORNIA, DEPARTMENT OF EMPLOYMENT, Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Max H. Margolis, San Francisco, Cal., for appellant.
Edmund G. Brown, Atty. Gen., James E. Sabine, Asst. Atty. Gen., and Eugene B. Jacobs, Deputy Atty. Gen., for appellee.
Before STEPHENS, POPE and HAMLEY, Circuit Judges.
This is an appeal from a decision of the District Court in bankruptcy proceedings entitled Matter of Blackwood, 147 F.Supp. 93. Appellant is the trustee in bankruptcy.1
We are here asked to determine whether a trustee in bankruptcy is required to pay to the State of California the tax imposed upon employers by the California Unemployment Insurance Code on wages which had been earned by employees of the bankrupt within the three month period preceding the filing of the bankruptcy petition, when to do so would in effect reduce the dividend paid to the employees out of the bankrupt estate after other expenses of administration had been paid.
Prior to demand by the state for the tax imposed on employers, it was determined that the value of the estate was only sufficient to pay the expenses of administration and a 52% dividend toward the wage claims. The trustee paid the wage dividend after first deducting state and federal taxes of the employees. There were no remaining assets in the estate from which the employer's tax on the wages could be paid. The referee in bankruptcy held that the trustee was not obligated to pay the employer taxes, but this holding was reversed by the District Court in a well-reasoned opinion. In re Blackwood, 147 F.Supp. 93.
As was pointed out by both the referee in bankruptcy and the District Court, a trustee in bankruptcy did not come within the exact statutory definition of "employer"2 or "employing unit,"3 since the trustee had not employed the persons to whom the wage dividend was paid. But the District Court, on the basis of United States v. Fogarty, 8 Cir., 164 F.2d 26, 174 A.L.R. 1284 and United States v. Curtis, 6 Cir., 178 F.2d 268, held that with respect to the wages claimed, the trustee was in effect an "employer" and liable for the employer's contribution based on the payments made to the wage claimants.
We agree with this holding by the District Court, but think it appropriate to further expand the reasons for reaching this result. United States v. Fogarty, supra, involved a claim against a trustee in bankruptcy for federal unemployment taxes as well as income withholding taxes. As to the federal unemployment taxes, it was held that the trustee was liable for such taxes based on wages earned by the bankrupt's former employees prior to bankruptcy. It was therein pointed out that social security legislation was enacted as a broad program for the assistance of the aged and needy and that the function of the courts is to apply it in a manner to effectuate the declared purposes. It was shown that the basis for the administration of federal old age benefits is "wages" and that the character of the payments as wages rather than the relationship of the payor to the payee was the particular concern of the taxing provisions. The Court also pointed out in Fogarty, supra, the federal statute failed to define employers and employees specifically. A Treasury regulation was cited which defined what the phrase "remuneration for employment" includes.
In the instant case the California Act defines "employer," and there is no state regulation or state statute which is similar to the Treasury regulation defining "remuneration for employment." But the difference is not controlling. We note that § 926 of the California Unemployment Insurance Code defines "wages" as "all remuneration payable for personal services, whether by private agreement or consent or by force of statute, including commissions and bonuses, and the reasonable cash value of all remuneration payable in any medium other than cash." (Emphasis supplied.) It is apparent that when a dividend is paid out of the bankrupt estate on a wage claim, it is being done "by force of statute." Thus the sums paid as dividends are "wage" payments within the meaning of the California Act. But we are of the opinion that even without Section 926 of the California Act defining wages, the dividend payments made would still properly be considered as wages. The mere fact that the sums were actually paid to the employees by the trustee does not deprive the payments of their primary identification as wages.
We think the following quotation in United States v. Fogarty, supra, 164 F.2d at page 29, is applicable to the...
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Otte v. United States 8212 375
...States v. Curtis, 178 F.2d 268, 269 (CA6 1949), cert. denied, 339 U.S. 965, 70 S.Ct. 1001, 94 L.Ed. 1374 (1950); Lines v. California Dept. of Employment, 242 F.2d 201, 202, reh. den., 246 F.2d 70 (CA9), cert. denied, 355 U.S. 857, 78 S.Ct. 86, 2 L.Ed.2d 64 (1957); In re Connecticut Motor Li......
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