Arthur Venneri Company v. United States

• Citation: 340 F.2d 337
• Decision Date: 16 April 1965
• Docket Number: No. 412-60.,412-60.
• Parties: ARTHUR VENNERI COMPANY v. The UNITED STATES.
• Court: Court of Federal Claims

340 F.2d 337 (1965)

ARTHUR VENNERI COMPANY v. The UNITED STATES.

No. 412-60.

United States Court of Claims.

January 22, 1965.

Rehearing Denied April 16, 1965.

COPYRIGHT MATERIAL OMITTED

Gael Mahony, Boston, Mass., for plaintiff. Hill, Barlow, Goodale & Adams, Boston, Mass., of counsel.

Mitchell Samuelson, Washington, D. C., with whom was Asst. Atty. Gen., Louis F. Oberdorfer, for defendant. C. Moxley Featherston, Lyle M. Turner and Philip R. Miller, Washington, D. C., were on the brief.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS, and COLLINS, Judges.

COWEN, Chief Judge.

Plaintiff, Arthur Venneri Company (hereinafter generally referred to as Venneri) sues for refund of income tax withholdings, Federal insurance contribution taxes (FICA) and Federal unemployment compensation taxes (FUTA) paid for the tax year 1954 and for a portion of the tax year 1955. The taxes were assessed on the wages received by employees of the George B. Landers Construction Co., Inc. (hereinafter referred to as Landers), a subcontractor of Venneri.

In 1954, Venneri, a New Jersey corporation, was engaged in construction work under five contracts with the Army Corps of Engineers at an air base in New Hampshire. As Venneri's subcontractor, Landers agreed to furnish all the labor, material, and equipment required to perform the excavation and related work called for under Venneri's five general contracts. The subcontracts also specified that Landers would bear the liability "for any contributions for unemployment social security, or other insurance covering the Landers employees * * *."

Shortly after Landers began work under the subcontracts, it became apparent that Landers was in financial difficulty and would be unable to meet its payroll and other obligations as they arose. In order to enable Landers to perform its subcontracts, Venneri and Landers made a financing arrangement to provide Landers with advance payments of the sums which would become due under its several subcontracts. In a special bank account which was opened for this purpose, Venneri deposited funds which were to be used by Landers to pay only those obligations arising directly under the sub-contracts. Venneri did not make any wage payments to Landers' employees, and Landers continued as before to prepare its payroll and disburse the wages due. Checks signed by a Venneri representative were drawn upon the special account for payroll and other expenses incurred by Landers in performing the contracts. The payroll checks were issued in the net amounts due after deducting all Federal and State taxes. Landers did not make payment to the Government for such taxes withheld or deducted.

In connection with the financing arrangement, Venneri and Landers executed rider agreements which became a part of the subcontracts. The riders, a typical copy of which is set out in the findings of fact, provided in substance that Venneri would advance money to Landers prior to the dates that Venneri was obligated to pay Landers under the subcontracts and that Landers would share any profits earned on the subcontracts equally with Venneri; Landers also agreed to perform certain additional work without extra charge. Except for these conditions, the subcontracts remained unchanged.

On February 9, 1955, Venneri terminated the subcontracts because of Landers' alleged failure to comply with specified terms and conditions of the subcontracts.

On or about May 2, 1956, the District Director for the Internal Revenue District of New Hampshire made a levy in the amount of $14,962.25 against Venneri and Landers for alleged nonpayment of income and FICA taxes withheld for the last two quarters of 1954 and the first quarter of 1955 and nonpayment of FUTA taxes withheld for the year 1954. On May 9, 1956, Venneri paid the full amount of the levy, and thereafter filed timely claims for refund. Upon denial of the claims, the present suit followed.

The sole issue for our determination is whether Venneri was the employer, as that term is defined in the taxing statutes, of Landers' employees during the period in question.

Whether one is the employer of another for purposes of the FICA and FUTA taxes depends on the degree of control exercised over or the right to control the activities of the alleged employees. Edwards v. United States, 168 F.Supp. 955, 144 Ct.Cl. 158 (1958). We have held that the determination of the existence of such a relationship is to be made only after a realistic consideration of all the factors involved. Cutler v. United States, 180 F.Supp. 360, 148 Ct.Cl. 537 (1960). Defendant argues that the "explicit terms of the contracts and rider agreements" are "clear and convincing evidence that the taxpayer, both before and after the execution of the riders, had the right to control the daily operations of Landers Company's personnel." The defendant has pointed to certain provisions of the subcontracts, which when viewed apart from the basic purposes for which the agreements were made and the circumstances under which they were executed, lend apparent support to defendant's position.

The terms of the subcontracts are set forth in our findings of fact and will not be repeated in detail here. Landers was required to furnish all the labor and equipment for the work covered in the subcontracts in consideration of the payment of a fixed fee. Venneri had no right to hire or fire any of the subcontractors' employees. Although Venneri had the right to direct Landers as to the number of men it would employ on the job, it is clear that this provision was inserted to assure Venneri that the work would be completed within the time required by the prime contract rather than to grant Venneri control over the details of how the work would be performed. In Article VII of each subcontract, provision was made for Venneri's superintendent to give orders directly to Landers' foremen and employees, but the other terms of this article show that the contractor's right to give such directions was for the purpose of facilitating the orderly prosecution of the contract work, to avoid delay and interference to other trades on the job, and to make certain that the subcontracts would be completed within the time fixed by the general contract. All of the subcontracts were on standard forms that Venneri used in its various construction projects. The provisions of the subcontracts are similar to those which are often found in subcontracts executed in connection with Government construction projects and are included to insure the prime contractor that the work will be accomplished within the time and in accordance with the requirements of the general contract. The authorities cited by defendant do not support its contention in such a contractor-subcontractor relationship. Subcontractors, like physicians, lawyers, and contractors, are generally regarded as independent contractors and not as employees.¹

However, defendant places special emphasis on the rider agreements by which, as Commissioner Arens found, "Venneri, through its assistant project manager, and/or a supervisor, exercised closer supervision over Landers' work." The commissioner characterized such supervision as including "ordering Landers regarding the work to be done, where it was to be done, and how many men Landers was to use on certain jobs." He noted that "George B. Landers continued at the jobsite, however, in the capacity of supervisor for Landers." In view of the financial difficulties encountered by Landers and the advance of funds by Venneri, it was to be expected that the latter would exercise a greater degree of control over the work than before. However, in our opinion, the evidence as a whole shows that the additional supervision on the part of Venneri was directed toward the results to be accomplished rather than toward the means and methods for accomplishing the result. Consequently, the rider agreements did not change the relationship between Venneri and Landers so as to make Venneri liable for the payment of the taxes involved here. Bartels v. Birmingham, 332 U.S. 126, 67 S.Ct. 1547, 91 L.Ed. 1947 (1947) and Cutler v. United States, supra, each involved operators of nightclubs and organizers of social events who contracted with bandleaders for bands to play at these functions. The contracts expressly provided that the operators were to have complete control at all times of the services to be performed under the contracts. In Cutler, the operators specified the services to be performed, the locations where the work was to be done, and the number of men the bandleader was to use on particular programs, plus the type of music to be used and its tempo, as well as the physical location of the musicians. In each case, it was held that the bandleader was an independent contractor and that he, rather...