Carolina Seafoods, Inc. v. U.S., s. 77-1120

• Decision Date: 01 August 1978
• Docket Number: 77-1121,Nos. 77-1120,s. 77-1120
• Citation: 581 F.2d 1098
• Parties: CAROLINA SEAFOODS, INC., a corporation, Appellee, v. UNITED STATES of America, Appellant. Thomas P. DUKE, Jr., Thomas P. Duke, III, d/b/a Bulls Bay Seafood Company, a partnership, Appellees, v. UNITED STATES of America, Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1098

581 F.2d 1098

CAROLINA SEAFOODS, INC., a corporation, Appellee, v. UNITED STATES of America, Appellant.

Thomas P. DUKE, Jr., Thomas P. Duke, III, d/b/a Bulls Bay

Seafood Company, a partnership, Appellees, v. UNITED STATES of America, Appellant.

Nos. 77-1120, 77-1121.

United States Court of Appeals Fourth Circuit.

Argued Feb. 9, 1978.

Decided Aug. 1, 1978.

Libero Marinelli, Jr., Tax Div., Dept. of Justice, Washington, D. C. (Myron C. Baum, Acting Asst. Atty. Gen., Washington, D. C., Mark W. Buyck, Jr., U. S. Atty., Columbia, S. C., A. Elliott Barrow, Jr., Asst. U. S. Atty., Charleston, S. C., Gilbert E. Andrews and Ann Belanger Durney, Tax Div., Dept. of Justice, Washington, D. C., on brief), for appellant.

Jim Dunn, Conway, S. C. (Irby E. Walker, Jr., Myrtle Beach, S. C., on brief), for appellees.

Before BRYAN, Senior Circuit Judge, and WINTER and HALL, Circuit Judges.

ALBERT V. BRYAN, Senior Circuit Judge:

Wholesale oysterhouses in South Carolina were assessed with Federal Insurance Contributions Act taxes, 26 U.S.C. § 3101 Et seq., in 1972 and 1973 upon moneys paid to the pickers of oysters who gathered and brought them to the houses for disposal in their business. The assessments were paid under protest by the taxpayers, Carolina Seafoods, Inc. and Bulls Bay Seafood Company. These moneys were ordered refunded by the District Court in taxpayers' suits contending that the pickers were not employees but were independent contractors. ^* The United States appeals and we affirm.

The oysters are tonged or picked by hand from the State-owned wetlands along the Atlantic coast in areas leased to the oysterhouses by the State. Occasionally South Carolina allows commercial oystermen to take oysters from land which she owns but has not leased to anyone. When and as picked, the oysters are put in a flat bottom boat, commonly called a bateau, outfitted with a small outboard motor for movement from one place to another over the beds. Ordinarily, at the beginning of the day's work one or more of the bateaux are towed from the dock of the oysterhouse onshore to the beds where the pickers will work, and are towed back to the dock at the end of the day for unloading.

During the period in suit, each bateau was owned either by an oysterman or by the oysterhouse and leased to him. In either circumstance, the evidence showed the gathering operation was performed by the oystermen in identical fashion, whether the boat was owned by them or leased to them. If they were lessees, they paid for the use of the boats at the rate of 10 cents per bushel of oysters they had gathered with a maximum of $10 per week.

The District Court's judgment for the taxpayers determining the non-owner oystermen not to be employees was based on the Internal Revenue Code, 26 U.S.C. § 3121(d), Treasury Regulations, 26 C.F.R. 31.3121(d)-1(c) and the common law prescribing guides for the determination of such status. The Court observed, too, that the United States had conceded that the oystermen bateaux-owners were not employees, and perceiving no difference therefrom in the manner of dealing between the oysterhouses and the non-owner oystermen, the Court felt this concession was the equivalent of an admission to the same effect as to the non-owners. While agreeing with the conclusion of the District Judge based on the law and evidence, and recognizing the force of his inference from the concession, we also rest affirmance upon indisputable facts establishing the relationship in law between the oysterhouse and the non-owner oystermen as one of owner and lessee.

Appellant quite soundly asserts that the question of who is an employee must be judged by maritime law. To this point the Government cites United States v. Webb, Inc., 397 U.S. 179, 192, 90 S.Ct. 850, 856, 25 L.Ed.2d 207 (1970). It affirms this premise:

"Control is probably the most important factor under maritime law, just as it is under the tests of land-based employment. . . . However, except where there is nearly total relinquishment of control through a bare-boat, or demise, charter, the owner may nevertheless be considered, under maritime law, to have sufficient control to be charged with the duties of an employer." (Accent added and footnote omitted.)

This decision compels the conclusion that in law the non-owner oystermen were not employees. The reason is that they operated the boats under a demise investing them with the character of charterers. While in this status, the owner the oysterhouse as a matter of law had no control of the boats whatsoever, for as charterers the oystermen were lessees thereof.

Apparently this accounts for the litigating parties' uniform designation of the arrangement between an oysterman and the oysterhouse as a "lease." Although the oysterhouse remained the owner, the oysterman and his co-worker, if any, aboard the bateau had exclusive possession and control of it. The owner could terminate the lease at will, concededly, but so long as it subsisted, he had no control of the oysterman. Such a charter does not require any particular time span; it may be for a day, for a month or for years. The charter is further instantly emphasized by the fact that the non-owner paid daily charter hire in money and he had no lay on the catch.

On the score of control G. Gilmore and C. Black, The Law of Admiralty (1957), declared the present relationship in explaining the demise charter:

"C. The Demise or Bareboat Charter. In this form, the charterer takes over the ship, lock, stock and barrel, and mans her with his own people. He becomes, in effect, the owner Pro hac vice, just as does the Lessee of a house and lot, to whom the demise charterer is analogous. Obviously, such an arrangement is suitable to the needs of anyone who wants, For a time, to be in the position of the owner of a vessel, but who does not want to go to the expense and trouble of buying one or having one built." At 171.

"The demise, in practical effect and in important legal consequence, shifts the possession and control of the vessel from one person to another, just as the shoreside Lease of real property shifts many of the incidents of ownership from lessor to lessee. The owner of a demised ship still has an interest in her, just as the lessor is interested in the house and lot he has leased to somebody else. But the principal interests he has are in receiving the agreed hire and getting the vessel back at the end of the term; . . ." At 215. (Accents added.)

Again, 1 Benedict on Admiralty § 225, at 14-28 (7th ed. 1974) states:

"In a charter party of the second kind, (the demise charter) not only the entire capacity of the ship is let, but the ship itself, and the possession is passed to the charterer. The Entire control and management of it is given up to him." (Accent added.)

That small craft, such as bateaux, are subject to maritime jurisdiction is evident in the holding that a rowboat is within it. Chimene v. Dow, 104 F.Supp. 473 (S.D.Tex.1952). Note, too, the Motorboat Act of 1940, 46 U.S.C. § 526a, classifying motorboats by lengths, including those less than 16 feet. Thus this case comes within the exception made in United States v. Webb, supra, 397 U.S. at 192, 90 S.Ct. 850, as previously noted.

The judgment of the District Court granting recovery of the taxes will stand.

Affirmed.

WINTER, Circuit Judge, dissenting:

Close attention to the facts in the light of the pertinent applicable law persuades me that the "lessee" oystermen ¹ were the taxpayers' employees; and as a consequence, the judgment of the district court granting tax refunds should be reversed. From the majority's contrary conclusion, I respectfully dissent.

The appeal presents the question of whether lessees are "employees" of the taxpayers for purposes of liability on the part of the taxpayers for taxes under the Federal Insurance Contributions Act (FICA), 26 U.S.C. §§ 3101 Et seq. The rules of law to be applied are not complex; the case is largely factual. ² To make the relevance of the facts more obvious, I will defer stating them until I have developed the law. But even before I proceed to a discussion of the law, I am constrained to express my complete disagreement with the method of decision employed by the district court. Were it simply that the district court was wrong in its conclusion, its method of reasoning properly could go unnoticed; but in affirming, the majority states its recognition of the "force" of the inference drawn by the district court, thus indicating, to my mind, that the majority not only approves the district court's thesis but is influenced by it to affirm. I therefore think that comment by me is warranted.

I.

Oysters in the oyster beds leased by taxpayers and sold by them to the consuming public are not gathered by the taxpayers' principals. They are harvested by lessees and independents from whom the taxpayers "purchase" the oysters. In the proceedings in the district court, the government conceded that, for the purposes of the case, independents were self-employed and not subject to the tax imposed by FICA on taxpayers. ³ Indeed, the government had never asserted liability on the part of the taxpayers for the tax with respect to independents.

As we were told when this appeal was argued, the government took this position because the independents by self-assessment were paying the tax. Having obtained this concession, the district...