Emard v. Squire

• Decision Date: 04 January 1945
• Docket Number: No. 594.,594.
• Citation: 58 F. Supp. 281
• Parties: EMARD et al. v. SQUIRE, Collector of Internal Revenue.
• Court: U.S. District Court — Western District of Washington

58 F. Supp. 281

EMARD et al. v. SQUIRE, Collector of Internal Revenue.

No. 594.

District Court, W. D. Washington, S. D.

January 4, 1945.

Raymond G. Wright, Clarence R. Innis, and Arthur E. Simon, all of Seattle, Wash., for plaintiffs.

J. Charles Dennis, U. S. Atty., and Harry Sager, Asst. U. S. Atty., both of Tacoma, Wash., and Thomas R. Winter, Sp. Asst. to Chief Counsel, Bureau of Internal Revenue, of Seattle, Wash., for defendant.

LEAVY, District Judge.

This is an action by the plaintiffs, copartners, to recover the sum of $12,694.99, with interest from June 6, 1943, representing taxes, penalties and interest paid for the period beginning July, 1937, and ending September 30, 1942, under the Federal Insurance Contributions Act, 26 U.S. C.A.Int.Rev.Code, §§ 1400-1403, 1410, 1411, 1420-1432, formerly Title 8 of the Social Security Act, 42 U.S.C.A. § 1001 et seq. The defendant, by counterclaim, seeks an affirmative judgment in the sum of $515.99, plus interest covering a balance due for taxes, penalties and interest for said periods. It is admitted that if the plaintiffs do not sustain the burden of proof in support of the allegations they make, the defendant would be entitled to a judgment in this latter sum.

The facts are not disputed in this case. The specific issue here involved is the perplexing one of determining the relationship that existed between the plaintiffs and the persons who sold fish to them during the time in question. The tax, as levied and collected by the Collector of Internal Revenue, was based upon the payments made by plaintiffs for fish they purchased from the numerous individuals who were engaged in catching salmon in Cook Inlet of the Alaskan waters. It is the contention of plaintiffs that these fishermen were "independent contractors" engaged in the business of selling fish they had caught to the plaintiffs. It is the contention of the defendant that these fishermen were "employees" of the plaintiffs, and, therefore, subject to the tax.

The material facts are:

1. During all of the times herein mentioned and for many years preceding 1937, the plaintiffs, H. J. Emard and Loretta Emard, co-partners, doing business as Emard Packing Company, had been engaged in salmon packing, operating their cannery at Anchorage, Alaska; that the method of obtaining fish for canning remained unchanged and there was no attempt to alter the relationship between the plaintiffs and the fishermen who sold fish to them following the effective date of the Social Security Act, so as to try to avoid the effects of that Act, if applicable to them.

2. During all of the times herein mentioned, the plaintiffs reported and paid Social Security Tax upon all of the persons who received compensation from them in connection with their fish canning operations, such as "tendermen" "beachmen," "winchmen," "fish pitchers," machinists," "mechanics" and the "Filipino cannery crew," but did not report for Social Security Tax any of the persons from whom they purchased fish.

3. In June, 1943, a Deputy Collector of Internal Revenue for the District of Washington and Alaska, upon being given access to the plaintiffs' fish ledgers, classified the individuals selling fish as "employees," and computed a tax based upon the payments for fish purchased from such persons upon the theory that the sums involved in such purchases constituted wages. The plaintiffs paid, under protest and threat of distraint, the amount demanded, and thereafter duly filed claims for refund, which were rejected.

4. That beginning in 1928, and each year thereafter until 1933, the plaintiffs made contracts, generally oral, with local resident fishermen for the purchase by the plaintiffs and sale by the fishermen of the fish which the plaintiffs needed in their canning operations, the prices being fixed as the result of individual bargaining. In the year 1933, the price of fish was fixed by collective bargaining negotiations conducted on behalf of the fishermen by the Alaska Fishermen's Union, Cook Inlet Branch, a local of the C.I.O. International Fishermen's Union, and this arrangement continued until the year 1940. Thereafter, the negotiations with the Fishermen's Union were conducted on behalf of the plaintiffs by an association of packers known as the Alaska Salmon Industry, Inc.

5. This over-all contract between the Alaska Salmon Industry, Inc., and the union which represented the fishermen and all other persons employed by the plaintiffs required that all of them be members of the union and pay dues thereto. These contracts were general in their terms and covered conditions and situations as to wages, hours, over-time pay and such provisions as are usually found in a contract of employment entered into between a labor organization and an employer. The contract provisions covering the fishermen related to the price per fish when such fishermen used the company gear, and when they used their own gear, and made provisions for compensation to be paid fishermen when hanging and salvaging company gear; it provided that the company should deduct union membership dues; the fishermen agreed to operate in accordance with federal and territorial regulations; if the company furnished the gear, such gear was to be in first-class condition, and if the company failed in this respect, the fishermen would not be held responsible for loss of fish; where the company did the hanging of the webbing, it assumed the responsibility of having it properly hung before being distributed to the fishermen, and it agreed to furnish all equipment for blue-stoning gear where it was supplying such gear. There was further provision that any dispute as to gill-net fishing locations was to be settled by the union, and the company would recognize such settlement. The company reserved the right to limit the fishermen's catch, whether it be gill-net or hand-trap fish.

6. After 1933, the plaintiffs bought fish only from fishermen who were members of the union, but made oral individual contracts with such fishermen, and the overall contract between the union and the plaintiffs governed as to the price per fish that the plaintiffs were required to pay to the fishermen for their fish. The plaintiffs would deduct the union dues from the amounts owing the fishermen, and by the payment of such dues the fishermen became qualified members of the union.

7. About fifteen per cent of the plaintiffs' fish supply was taken by trap-fishermen, and the remainder thereof by gillnetters. The trap-fishermen owned or leased their trap locations. They supplied all of the equipment and labor for constructing the traps except netting and guy wire. They paid their own license fees; they commenced construction of their traps at such time as they regarded proper, and operated entirely without direction or supervision from the plaintiffs. The gill-net fishermen who furnished fish to the plaintiffs during the period in question were all local residents. They paid their own license fees and complied with national and local regulations concerning the taking of salmon from the Alaskan waters. Each fisherman owned his own fishing location, and exercised, by custom, a proprietory control of such location. These locations, while not recognized by law as the property of the gill-net fishermen, are considered by long-established custom as belonging to the fishermen, and made the subject of barter and sale, such sale price ranging from $200 to $7,000 for a single location.

8. The price the plaintiffs paid to the fishermen for fish was fixed in the union contract and provided a differential allowing a higher price to fishermen who supplied all of their own gear than to those who used "company gear," and a fisherman supplying his own gear had an average investment, apart from his fishing location, of approximately $1,200.

9. Approximately twenty-five per cent of the fishermen here involved had helpers who had no contractual relationship with the plaintiffs, and received no payment whatever from plaintiffs, such helpers frequently being the members of the fishermen's families, and in some instances being persons not identified with the union by membership, or otherwise, receiving compensation from the fishermen.

10. The plaintiffs at no time asserted any right to direct the fishermen as to where, or how, or when they should fish. Each fisherman received compensation in direct proportion to the number of fish he caught and delivered.

11. Under the arrangement between the union, the plaintiffs and the fishermen, the plaintiffs took the entire catch of the fishermen for the season, with few minor exceptions, and the fishermen were required to sell their catches to the plaintiffs. The general contracts existing between the union and the plaintiffs, insofar as they cover fishermen, provided: "The companies agree to buy and the fishermen agree to sell salmon," and then they further provide, "Each company agrees to buy from its fishermen, and the fishermen agree to sell to their company, all the fish caught by them." The contracts, however, in no manner direct the time or place or manner in which fish shall be caught nor any limit under 650 fish per fisherman in a twenty-four hour period for gill-net and hand-trap fishermen, and 1500 fish for seine fishermen.

12. The master contract, insofar as the fishermen were concerned, contained no provision whatever requiring the fishermen to fish at any given time or place, nor subjecting them to direction or control by the plaintiffs, neither did it contain any provision requiring the plaintiffs to compensate the...