Club Hubba Hubba v. United States

• Decision Date: 31 March 1965
• Docket Number: Civ. A. No. 2093.
• Citation: 239 F. Supp. 324
• Parties: CLUB HUBBA HUBBA, a co-partnership, Plaintiff, v. The UNITED STATES of America and Vaughn W. Evans, District Director of Internal Revenue for the District of Honolulu, Hawaii, Defendants.
• Court: U.S. District Court — District of Hawaii

239 F. Supp. 324

CLUB HUBBA HUBBA, a co-partnership, Plaintiff, v. The UNITED STATES of America and Vaughn W. Evans, District Director of Internal Revenue for the District of Honolulu, Hawaii, Defendants.

Civ. A. No. 2093.

United States District Court D. Hawaii.

March 31, 1965.

Kazuo Oyama, Honolulu, Hawaii, for plaintiff.

Herman T. F. Lum, U. S. Atty., District of Hawaii, by Peter A. Donahoe, Asst. U. S. Atty., Jerome Fink, Trial Atty., Dept. of Justice, for defendants.

TAVARES, District Judge.

This is a civil action for recovery of employment taxes (so called FICA or social security taxes and FUTA or unemployment insurance taxes) paid by the plaintiff — a partnership doing business as the CLUB HUBBA HUBBA, — with respect to club entertainers, brought from Japan, whose services were under contracts with option to renew.

Plaintiff seeks recovery of Federal Insurance Contributions Act taxes (26 U.S. C. §§ 3101, 3111) for all quarters from the quarter ended March 31, 1955 through the quarter ended December 31, 1958 and Federal Unemployment Act taxes for the years 1956 and 1957. (26 U.S.C. § 3301) These taxes were assessed by the Commissioner of Internal Revenue on a determination that the entertainers in question were employees of plaintiff, so that their employer was required to pay employment taxes on their account.

Plaintiff paid these taxes, filed timely claims for refund, which were disallowed on November 16, 1960. Plaintiff instituted this action on October 30, 1962. Jurisdiction of the Court rests on Section 1346(a) (1) of Title 28, United States Code.

Plaintiff is a partnership composed of John R. Matsuoka, Evelyn Shizuko Matsuoka, Tadami Matsuoka and Takao Matsuoka, doing business as Club Hubba Hubba, (hereinafter sometimes also called the "Club") a night club or cabaret located at 25 N. Hotel Street, Honolulu, Hawaii.

During the period here included, namely 1955-1958 (hereinafter called the "tax period") as well as during the year 1954, the Plaintiff engaged in the sale of food and drink and furnished entertainment during the evening hours, with an increase in food and drink prices during the period of entertainment. During the tax period the Club gave three floor shows a night on weekdays and four shows a night on Fridays, Saturdays and holidays.

The Club's "floor show"—which in fact took place on a small elevated stage at the rear of the establishment—utilized as the principal attraction various featured performers, usually strip-tease dancers, whose services were retained on a short term (usually three week) basis. In addition to these "star" performers, the Club had a regular group of girl performers (ranging from four to nine persons), who were described in Club advertising as the "Hubba Hubba Girls," or "Cherry Blossom Sisters" or some similar collective named.

Practically all of the performers making up this regular group were brought to the Club from Japan under 6-month contracts, with option to renew.¹

In addition to wages after taxes of $150.00 a month, plaintiff furnished to these performers round trip transportation from Japan, including a specified advance payment for pocket money and preparation for the trip, living quarters and meals, and medical and dental care and hospitalization if required, and life, accident and health insurance in a specified amount.

The performers lived in a home rented by plaintiff. They cooked their meals, except those they ate while at the Club and they performed other household duties including cleaning.

Plaintiff withheld income taxes from the cash amounts it paid to these entertainers pursuant to the provisions of Section 1441, Internal Revenue Code of 1954, as amended.

The plaintiff filed Employers Quarterly Tax returns (Forms 941) with the Director of Internal Revenue under the Federal Insurance Contributions Act for the various quarters during the period 1955-1958 inclusive. Plaintiff also filed annual Federal Tax Returns of Employers (Forms 940) for the years 1956 and 1957. Plaintiff did not include on those forms the amounts paid to these performers it had brought from Japan, taking the position that these entertainers were not employees for federal employment tax purposes.

On the audit of plaintiff's returns, the Commissioner of Internal Revenue, through his delegates, determined that these entertainers were employees for federal employment tax purposes, and accordingly assessed the following deficiencies: FICA taxes for all quarters 1955-1958 inclusive of $3,518.04 (consisting of $3,081.81 tax and $476.66 interest) and FUTA taxes for 1956 and 1957 of $118.12 (consisting of $103.45 tax and $14.67 interest).

Plaintiff paid these deficiencies, filed timely claims for refund, which were not allowed, and this action was timely commenced.

The ultimate issue is whether the entertainers brought by plaintiff from Japan under contracts with option to renew, were employees for purposes of federal employment taxes.

At intervals of from six months to a year² a Club partner would go to Japan and sign up individual entertainers for service in Honolulu at the Club's place of business. Each such individual would sign in Japan a written contract with the Club, which would then pay each entertainer's expenses to Hawaii.³ These entertainers were professional dancers and singers who worked in night clubs and theaters in Japan. Each such individual while engaged under such contract, would be paid separately by the Club.

According to the testimony of John Matsuoka, one of the Club partners who usually did the signing up of these entertainers, after he had, on each of his talent recruiting trips to Japan, selected a group of entertainers, they would "by custom" and allegedly without his intervention, choose a stage leader, based on experience and seniority, who would then become a sort of director of the group and speak for them from then on so long as that group was engaged in performing their services for the Club. This selection, he admitted, was subject to his approval (i. e., the approval of the Club represented by him), but he claimed that this approval was merely a "ceremonial" approval because he had always approved whatever selection they made. Be that as it may, the Court finds he had the power of disapproval, though he never chose to exercise it.

The entertainers in each group would then rehearse and work up their acts without interference by the Club, but it seems fair to infer, more or less under the leadership and direction of the selected leader.

The Japanese shows would change ordinarily every two weeks, but sometimes at the discretion of the management, a show would go on for three weeks before it would change.⁴ These were the Japanese shows; but there were also "American" acts or shows, as Matsuoka called them, not involved in this action, which would go on without change from week to week until the particular contract expired.

The acts performed by these Japanese entertainers during the tax period included the following: Japanese singers; jazz singers; Kabuki dancers; chorus girls; jugglers, acrobats; Japanese instrument players, guitar players; Japanese drums; and folk dancing. The "American" acts not involved in this case included roller-skating, bicycling, unicycling, pantomine; exotic or strip-tease dancers, and Mexican singers.

Although the management claimed they did not interfere in any way with the preparation of the shows, they admitted that a new proposed program was shown to them in advance of practice for the new show, and they had a right to approve or disapprove and to require particular portions and acts to be cut out, and to require new or different acts, but this power was exercised rather infrequently.

Practice for a new show took about two weeks, practice being undertaken at the Club and at the residence hired by the management for the performers. Management furnished the stage, the permanently engaged orchestra, and for most of the period, a Master of Ceremonies who announced the various acts and performed himself, supervised the lighting, and furnished some of the props and costumes, although the actors usually furnished their own, with occasional allowances furnished by the management or with materials paid for by management. In advertising in the press, usually the girls were referred to as the Hubba Hubba Girls, but they were also sometimes referred to by collective names of a group and were introduced on stage by their individual names, by the Master of Ceremonies, who was usually an American.

The plaintiff places its main reliance upon Radio City Music Hall Corporation v. United States (2 Cir. 1943) 135 F.2d 715, affirming (S.D.N.Y.1942) 50 F.Supp. 329. The defendant on the other hand, relies principally upon Ringling Bros.- Barnum & Bailey Combined Shows v. Higgins (2 Cir. 1951) 189 F.2d 865, and Matcovich v. Anglim (9 Cir. 1943) 134 F.2d 834 and Westover v. Stockholders Publishing Co. (9 Cir. 1956) 237 F.2d 948. Under the foregoing and other facts brought out by the evidence or stipulated to, this Court believes that the relationship in this case between plaintiff and the entertainers in question...