Los Angeles Athletic Club v. United States

• Citation: 54 F. Supp. 702
• Decision Date: 05 February 1944
• Docket Number: No. 2099-M.,2099-M.
• Court: U.S. District Court — Southern District of California
• Parties: LOS ANGELES ATHLETIC CLUB v. UNITED STATES.

54 F. Supp. 702

LOS ANGELES ATHLETIC CLUB v. UNITED STATES.

No. 2099-M.

District Court, S. D. California, Central Division.

February 5, 1944.

David E. Hinckle, of Los Angeles, Cal., for plaintiff.

Charles H. Carr, U. S. Atty., E. H. Mitchell, Asst. U. S. Atty., and Eugene Harpole, Sp. Atty., Bureau of Internal Revenue, all of Los Angeles, Cal., for defendant.

McCORMICK, District Judge.

This is an action to recover the sum of $1,546.60 paid to the United States as Social Security taxes during the period January 1, 1936 to September 30, 1940. Plaintiff contends that it was not an employer within the meaning of Titles VIII and IX of the Social Security Act, hereinafter called the Act, 42 U.S.C.A. §§ 1001 et seq., 1101 et seq., under which Act the taxes in question were assessed. The amount of the payment is not controverted and the issues herein are those bearing upon the relationship between the club and orchestra members. The paramount and crucial question for decision is whether or not within the meaning of applicable laws of the United States the relation of employer and employee existed at the applicable times between plaintiff and the individual musicians in orchestra playing at social events occurring in club activities.

Plaintiff during the applicable period operated five social and athletic clubs and one hotel, namely, the Los Angeles Athletic Club, the Hollywood Athletic Club, the Santa Monica Deauville Club, the Pacific Coast Club, the Riviera Country Club and the Hermosa Biltmore Hotel. The hotel was open to the public, while the facilities of the five clubs were restricted to members and their guests.

At various times plaintiff for the benefit of its members and guests gave dinners and dances at its clubs or at its hotel. Having no musicians on its regular staff of employees, plaintiff's individual club or hotel manager contacted orchestra leaders, or occasionally a booking agency, to engage an orchestra suitable for the specified event. If the leader was contacted or if he solicited the employment at his own instance, the manager of the club or hotel negotiated directly with him and the fixed sum agreed upon for orchestral service was dependent upon the size of the orchestra and the hours it was required to play. Seldom, if ever, were written contracts entered into, and if a music agency secured the orchestra it regularly charged plaintiff a fee. Between January 1, 1936 and September 30, 1940, 103 orchestras, varying in size from 6 to 10 members, played for plaintiff on 868 occasions, and if not already existent at the time the agreements to play for plaintiff were made, orchestras were assembled for the events, respectively, by the various leaders from among musicians of their own acquaintance who were free to play at the specified time. No orchestra ever worked exclusively for plaintiff and the orchestras or their members were privileged to work any other time and place and for the public so long as such engagement did not conflict with the arrangement made by their leader or the agency with plaintiff. A majority of the orchestras during the period here involved played but once or twice for the establishment, although one orchestra did play on 137 occasions during the approximate five years involved in this action.

Section 804 of the Social Security Act, 42 U.S.C.A. § 1004, provides that every employer shall pay an excise tax with respect to having individuals in his employ, equal to a designated percentage of the wages paid by the employer after December 31, 1936, with respect to employment (as defined in Section 811 of the Social Security Act), after such date. Section 811 of the Act, 42 U.S.C.A. § 1011(b), provides that the term "employment" means any service, of whatever nature, performed within the United States by an employee for his employer, excepting certain classes of employment which are exempt and which are not here applicable.

Sections 901 and 907 of the Act, 42 U. S.C.A. §§ 1101 and 1107, provide in effect that every employer of eight or more persons shall for the purposes of unemployment compensation on and after January 1, 1936, pay for each calendar year an excise tax with respect to having individuals in his employ, equal to a designated percentage of the total wages payable by him with respect to employment during such calendar year; and that the term "employment" means any service, of whatever nature, performed within the United States by an employee for his employer, except certain types of employment not herein applicable.

The tax imposed is an excise tax and it has been sustained as a tax levied upon the privilege of establishing and maintaining the relationship of employer and employee. Steward Machine Co. v. Davis, Collector, 301 U.S. 548, 57 S.Ct. 883, 81 L.Ed. 1279, 109 A.L.R. 1293; Helvering, Commissioner of Internal Revenue, et al. v. Davis, 301 U.S. 619, 672, 57 S.Ct. 904, 81 L.Ed. 1307, 109 A.L.R. 1319; Jones, Collector of Internal Revenue, v. Goodson et al., 10 Cir., 121 F.2d 176. The tax is confined to those cases where such relationship exists. Anglim, Collector, etc., v. Empire Star Mines Co., Ltd., 9 Cir., 129 F.2d 914; Jones, Collector of Internal Revenue, v. Goodson et al., supra; Texas Company v. Higgins, 2 Cir., 118 F.2d 636; Burruss et al. v. Early, Collector of Internal Revenue, D.C.W.D.Va., 44 F.Supp. 21. Neither the word "employer" nor the word "employee" is specifically defined in either of the titles of the Act involved in this action. In the regulations promulgated under the authority of the Act both terms are defined and interpreted by the Treasury Department which is charged with administration of the taxing features of the Act. Article 3 of Treasury Regulations 91, under Title VIII of the Act, 42 U.S.C.A. § 1001 et seq.; and almost identically worded Article 205 of Treasury Regulations 90, under Title IX of the Act, 42 U.S.C.A. § 1101 et seq.

The above regulations do no more than gloss upon familiar common law principles and judicial pronouncements respecting employer-employee relationship. Such relationship exists when the employer has the right to direct and control the manner and method in which the work shall be done as well as the result to be accomplished. The contradistinctive relationship between persons where one renders or performs services for another is that of an independent contractor. It exists where one engages to perform some service for another according to his own method and manner, free from direction and control of the other in matters relating to the performance of the work, except as to the ultimate result or product. The line of separation between the two relationships is factual and is dependent upon the degree of direction and control that may properly be exercised by the employer. In employer-employee status direction and control cover both the method and the manner of doing the work as well as the ultimate result; while in an independent contractor situation direction and control are limited to the result. Singer Mfg. Co. v. Rahn, 132 U.S. 518, 10 S.Ct. 175, 33 L. Ed. 440; Radio City Music Hall Corp. v. United States, 2 Cir., 135 F.2d 715; Jones, Collector of Internal Revenue, v. Goodson et al., supra; In re Ten Eyck Co., Inc., D.C.N.D.N.Y., 41 F.Supp. 375; 39 C.J. 35. Moreover, inasmuch as the right to control and direct the method and manner of doing the work necessarily involves the power to discharge, the existence or absence of this right on the part of the employer is a factor...