Anglim v. Empire Star Mines Co., 10001.

• Decision Date: 07 August 1942
• Docket Number: No. 10001.,10001.
• Parties: ANGLIM, Collector of Internal Revenue, v. EMPIRE STAR MINES CO., Ltd.
• Court: U.S. Court of Appeals — Ninth Circuit

129 F.2d 914 (1942)

ANGLIM, Collector of Internal Revenue, v. EMPIRE STAR MINES CO., Ltd.

No. 10001.

Circuit Court of Appeals, Ninth Circuit.

August 7, 1942.

Samuel O. Clark, Jr., Asst. Atty. Gen., J. Louis Monarch, A. F. Prescott, and Michael Gould, Sp. Assts. to Atty. Gen., and Frank J. Hennessy, U. S. Atty., and Esther B. Phillips, Asst. U. S. Atty., both of San Francisco, Cal., for appellant.

Robert M. Searls, John Parks Davis, and Willard Lee Pope, all of San Francisco, Cal., for appellee.

Before MATHEWS, HANEY, and HEALY, Circuit Judges.

HEALY, Circuit Judge.

The Collector appeals from an adverse judgment in a suit for refund of taxes exacted under Titles VIII and IX of the Social Security Act, Act of August 14, 1935, Chapter 531, 49 Stat. 620, 42 U.S.C.A. § 1004 et seq.¹ The question for determination is whether or not miners operating under a certain type of lease are employees within the intendment of the Act.

By the statute an excise tax is imposed on every employer, with respect to having individuals in his employ, equal to a percentage of the wages paid by him with respect to "employment" as that term is defined in the statute. With exceptions unimportant here, employment is defined as "any service, of whatever nature, performed within the United States by an employee for his employer." 42 U.S.C.A. §§ 1011(b) and 1107(c).

There is no controversy as regards the facts. Since 1929 the taxpayer has operated a group of mines in California, one of which, the North Star Mine, contains about 150 miles of underground workings. Portions of the underground area reputed to contain good ore were so remote from the only available shaft that they did not permit of profitable operation by the taxpayer itself. Believing that these remote areas could be mined successfully by independent leasers, working with the incentive of a greater return than a day's wage, and exercising more than the usual care in the selection and handling of ore, the taxpayer, in 1930, adopted a program of leasing them on a royalty basis. Written leases were made granting to the lessees, for a period of six months, the exclusive right to mine specified areas. The majority of the lessees, all of whom were experienced miners, had previously worked in the mine and were familiar with the particular ground selected. While each contract was made with a single lessee, each such lessee was in fact the representative of a small group the members of which had associated themselves together as partners for the purpose in hand. These leases were extended, sometimes orally, for successive periods. Written leases were signed in 1935 and again in 1939. At the time of the trial there were about thirty miners working under leasing arrangements. Colloquially, these men were referred to as "leasers."

The terms of the lease contracts are substantially uniform except as to the description of the area. The lessee, in addition to the exclusive right to mine, is given the right to carry on development work within the leased area and to exploit under the terms of the lease any new ore bodies discovered. The lessee agrees to furnish all necessary labor for mining the ore and transporting it to the shaft, from which point the lessor agrees to hoist it and transport it to the ore bins. The lessee, however, is to provide the labor for transporting the ore from bin to mill, as well as for milling and concentrating it, and for disposing of the tailings. All work is agreed to be performed by the lessee in a good and minerlike manner. In supplying necessary labor the lessee may employ workmen upon either a wage or a profit-sharing basis at his option, but may not employ men in excess of a certain number varying with each lease. It is provided that there shall be no privity of contract between the lessee's employees and the lessor and that all such employees, whether on a wage or tribute basis, shall under no circumstances be deemed the employees of the lessor. The lessee assumes sole responsibility for the operation and direction of the work, and agrees to carry compensation insurance sufficient to cover all hazards incident thereto.

While the lessor has no part in the "selection, employment or direction" of the employees, the lessee agrees upon written request to discharge any employee designated by the lessor as objectionable. The lessor undertakes to furnish machine drills, together with compressed air and the accessories and fittings necessary for the operation of the drills; and to furnish track, pipe, tools, picks, shovels, and drill steel, and to sharpen the steel and picks as required. It agrees to provide power for hoisting and power and water for milling and for the disposal of tailings; also to sell to the lessees at cost to itself all required explosives and fuse — an arrangement, incidentally, of substantial advantage to the leaser. The lessor is to supply facilities at its mill for crushing and treating the ores, and undertakes to retort the amalgam and market the bullion. (Apparently, after the milling operation is completed, the lessor purchases the concentrates outright, their value being determined by the usual sampling methods.) The lessee is to have no interest in the tailings. The lessor has the right to inspect both the underground workings and the milling operations "for the purpose of determining the grade of ore being mined, the size and location of veins and the efficiency of the milling operations." It may regulate the tramming, hoisting, and storage of the ore and the treatment of it at the mill. It has the right to perform exploration work within the leased area, subject to the prior right of the lessee to do the same. In the event a discovery is made by the lessor, it has the exclusive right to mine and mill the ore on its own account. The lessor retains a royalty of 50% of the gross recoveries of amalgam and concentrates, and the remaining 50% goes to the lessee. There is a provision for monthly settlements.

The lease is terminable by the lessee on ten days' written notice, and by the lessor upon the following contingencies: (a) failure of the lessee to perform any covenant; (b) suspension by the lessor of all its operations; (c) destruction of the mine; (d) discovery that substantial amounts of ore, amalgam, or concentrates are being stolen or not accounted for; (e) assignment of the lease without the written consent of the lessor; and (f) financial loss sustained by the lessor for a period of thirty days after written notice of such loss to the lessee. The lessor must give ten days' written notice of any of these grounds of forfeiture except (c) and (d), the lessee to have the opportunity meanwhile to cure his breach.

Operations under these leases differed substantially from those of the taxpayer...