ABERDEEN AERIE NO. 24, ETC. v. United States, Civil Actions No. 459

• Decision Date: 09 July 1943
• Docket Number: 466.,608,Civil Actions No. 459
• Citation: 50 F. Supp. 734
• Parties: ABERDEEN AERIE NO. 24 OF FRATERNAL ORDER OF EAGLES v. UNITED STATES. BALLARD AERIE NO. 172 OF FRATERNAL ORDER OF EAGLES v. SAME. SEATTLE AERIE NO. 1 OF FRATERNAL ORDER OF EAGLES v. SQUIRE, Collector of Internal Revenue.
• Court: U.S. District Court — Western District of Washington

50 F. Supp. 734

ABERDEEN AERIE NO. 24 OF FRATERNAL ORDER OF EAGLES v. UNITED STATES.

BALLARD AERIE NO. 172 OF FRATERNAL ORDER OF EAGLES v. SAME.

SEATTLE AERIE NO. 1 OF FRATERNAL ORDER OF EAGLES v. SQUIRE, Collector of Internal Revenue.

Civil Actions Nos. 459, 608, 466.

District Court, W. D. Washington, S. D.

July 9, 1943.

Cornelius C. Chavelle and Chavelle & Chavelle, all of Seattle, Wash., for plaintiffs.

J. Charles Dennis, U. S. Atty., Harry Sager, Asst. U. S. Atty., and Thomas R. Winter, Special Representative to General Counsel, Bureau of Internal Revenue, all of Seattle, Wash., for defendant.

LEAVY, District Judge.

These three cases will be considered together for the purpose of disposition, since they all involve a construction of certain parts of Titles VIII and IX of the Social Security Act, 42 U.S.C.A. §§ 1001 et seq., 1101 et seq., before its amendment in 1939. The plaintiff in each case is a subordinate Aerie of the Fraternal Order of Eagles, and the defendant is Clark Squire, as Collector of Internal Revenue in this District. The actions are to recover sums assessed by the Government and paid by the plaintiffs.

For convenience, I shall refer to Cause No. 459 as the Aberdeen case; Cause No. 608 as the Ballard case, and Cause No. 466 as the Seattle case.

The specific question presented in the Aberdeen case is whether the Aerie physician, the president, vice president and treasurer, trustees and members of the audit committee, of a subordinate Aerie of the Fraternal Order of Eagles constitute employees under Section 811(b) and Section 1101(a) of the Social Security Act and Section 1426 (b) and (d) of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, § 1426(b, d), for the purposes of the tax imposed under Title VIII of the Social Security Act and under the Federal Insurance Contributions Act, 26 U.S.C.A. Int.Rev.Code, § 1400 et seq.

In the Ballard case, the question presented is whether the physician, the treasurer and the trustees of a subordinate Aerie of the Fraternal Order of Eagles, and a musician performing services for the Aerie, constitute employees under Title IX of the Social Security Act and Chapter 9, Subchapter C of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, § 1600 et seq.

It might be noted that in both cases mentioned the questions presented are of first impression, and there is no precedent resting upon a similar set of facts.

In the Seattle case, the question presented is whether members of an orchestra performing services for taxpayer constitute its employees under the provisions of the Social Security Act and Chap. 9, Subchapters A and C of the Internal Revenue Code.

A disposition of the issues raised by these actions involves an interpretation of certain provisions of Titles VIII and IX of the Social Security Act, prior to its amendment in 1939. In each case there is a stipulation on file dealing with the amounts involved for the years in question, and also the individuals or groups on whom tax was paid and refund demanded. The proof submitted was very limited, and heard as to the three cases at the same time.

In order to bring the Aberdeen and Ballard Aeries within the provisions of the Social Security Act prior to amendment, it is necessary to hold that the various officers of these two organizations be considered as employees as distinguished from mere ritualistic officers or independent contractors. If the facts establish the relationship of employer and employee as between these subordinate lodges and their officers, who are chosen in accordance with the provisions of their constitution provided for them by the Grand Aerie, then the actions would have to be dismissed insofar as they involve the Aberdeen and Ballard cases. If, on the other hand, that relationship does not exist, then the plaintiffs should prevail in these two cases, insofar as they have complied with the laws and regulations involving a refund of taxes erroneously assessed.

In the Seattle case, the issue involves only the question of whether the orchestra that furnished music for dances held at regular intervals was an orchestra supplied by an independent contractor, or whether the orchestra members were employees of the Seattle Aerie.

All three of these organizations are incorporated under the laws of the State of Washington, which specifically provide for the incorporation of fraternal organizations and distinguish them from commercial corporations, and relieve them from the payment of any tax or annual license fees.

With the exception of the musicians employed by the Ballard Aerie, and the orchestra that furnished music for the Seattle Aerie, all of the other individuals involved were essential and required officers of the subordinate Aeries provided for by their constitution. Their duties are enumerated in detail in the constitution, and then it is provided therein what the compensation of certain officers shall be, and with other officers the matter of fixing compensation is left to the discretion of the local Aerie. This compensation, with the exception of the Aerie Physician and Secretary, is a very nominal sum, being as low as 33 1/3 ¢ per month for the Worthy President and Worthy Vice President, and a number of the other officers of the Aerie, who are either elective or appointive, receive a compensation of $1 per month.

The first issue that must be disposed of here involves an interpretation of the word "employee". The Act of Congress itself gives only a most broad and comprehensive definition, and leaves detail to the Treasury Department. That Department, by Article 3, Regulation 91, furnishes a more detailed definition of the term "employee", and then distinguishes between an independent contractor and an employee.

There is a great wealth of authority to be found on the question of when one is an employee. No good could come from attempting to analyze in any degree of detail the innumerable cases touching this subject. It does seem to this Court that a very clear statement as to when the relationship of employer and employee exists is found in 35 Am.Jur., Page 445, Sec. 3, Master and Servant, where it is stated: "While it is said that at common law there are four elements which are considered upon the question whether the relationship of master and servant exists, — namely, the selection and engagement of the servant, the payment of wages, the power of dismissal, and the power of the control of the servant's conduct, — the really essential element of the relationship is the right of control — the right of one person, the master, to order and control another, the servant, in the performance of work by the latter, and the right to direct the manner in which the work shall be done."

In Deecy Products Co. v. Welch, 124 F.2d 592, 598, 139 A.L.R. 916, a well-considered opinion from the First Circuit, dealing with an interpretation of the provisions of the Social Security Act herein involved, the Court said: "We hold that an employee is one who meets the tests of the more or less established concept of `the legal relationship of employer and employee'". We need but cite this case from the First Circuit Court of Appeals to note that the construction and application of the laws herein involved are based upon the accepted tests as enumerated in the quotation from American Jurisprudence.

It is argued by the plaintiffs that the Act, as originally passed by Congress, never intended to include fraternal organizations, and this was established by the very...