In re Ten Eyck Co.

• Decision Date: 17 September 1941
• Docket Number: No. 29421.,29421.
• Citation: 41 F. Supp. 375
• Parties: In re TEN EYCK CO., Inc.
• Court: U.S. District Court — Northern District of New York

41 F. Supp. 375

In re TEN EYCK CO., Inc.

No. 29421.

District Court, N. D. New York.

September 17, 1941.

Alfred W. Gray, of Niagara Falls, N. Y., and George J. Hatt, 2nd, of Albany, N. Y., for debtor.

Ralph L. Emmons, U. S. Atty., of Binghamton, N. Y., and Robert Leamy, Asst. U. S. Atty., of Oneonta, N. Y., for the United States.

COOPER, District Judge.

This is a motion by the debtor to expunge certain parts of claims and amended claims for taxes filed by Harry M. Hickey, as Collector of Internal Revenue for the 14th District of New York, and allowing the claims at the alleged correct amounts.

More specifically the motion is for an order reducing the claim filed by the Collector under the Federal Insurance Contributions Act from $2,261.94 to $942.70, and for an order reducing the claim filed by the Collector under the Federal Unemployment Tax Act from $2,324.88 to $813.83.

Since the service of papers on the above motion the Collector filed a further amended claim. The claim under the Federal Insurance Contributions Act is identical with the claim previously filed; but the claim under the Federal Unemployment Tax Act is increased by $6,834.38 of principal and additional $143.64 of interest, a total additional claim of $6,988.02 for the period from January 1, 1940, to November 26, 1940 (which latter date was the last day before the petition for arrangement was filed). This additional tax arises from the fact that no credit was given the debtor for contributions due and payable to the New York State Unemployment Insurance Fund for the said period last above mentioned.

The debtor moved in open Court to expunge this additional tax and the matter was adjourned one or more times and came on before the Court on June 21, 1941. The difference between $2,261.94, the amount claimed by the Collector, and $942.70, the amount admitted by the debtor to be due, on the first item above mentioned; and the difference between $2,324.88, the amount claimed by the Collector, and $813.83, the amount admitted by the debtor to be due on the second item first above mentioned, arises solely from the contention by the Collector that members of certain orchestras hired by the debtor were employees of the debtor.

The debtor denies that the members of these orchestras were its employees and that it is liable in any way for taxes or contributions on the wages of the members of the orchestras under the Two Federal Acts first above mentioned.

At the final hearing the debtor offered proof both oral and written on the employment of the orchestras in question.

The debtor offered the written contract dated June 2, 1937, between the debtor and Richard Mansfield for the employment of Mansfield's Orchestra for the summer season of 1937 beginning June 5, 1937, for the sum of $590.

The debtor also offered the written contract between itself and Herb Gordon for the services of Herb Gordon's orchestra to furnish dinner music to the patrons of debtor's hotel from 7:00 to 9:00 P. M. and from 10:00 P. M. to the closing each day of the week, except Sunday, beginning October 29, 1937, for the sum of $550 per week.

Herb Gordon, in the contract, guaranteed that the Herb Gordon orchestra of eleven pieces would provide satisfactory entertainment and that the debtor might terminate the contract at any time if the said orchestra was not satisfactory to the debtor.

The contract further provided: "The said "Director" is to have exclusive charge and direction of the persons employed in said orchestra in the performance of their work at said hotel, and is to have the sole right of employing and discharging the said persons so employed by him, and the said "Director" is to be solely responsible for the payment of the wages to said persons employed in said orchestra."

The "Director" also agreed to take out compensation insurance and pay the premium therefor and to hold the debtor harmless from all liability to maintain unemployment and old age insurance and other similar charges growing out of the employment by the "Director" of such employees as render service under the agreement (contract).

The debtor also offered the written contract with the Music Corporation of America, as agent, for the appearance of Nobby Barney's orchestra, called "Men of Note", consisting of himself and three other musicians for $236 per week, commencing October 20, 1939, and continuing indefinitely and subject to cancellation on two weeks notice.

The manager of the hotel testified that orchestras in other years here involved were hired under oral contracts at a lump sum payable weekly or monthly, as the case might be; that such lump sums were paid to the owner or leader of the orchestra as per the agreement; that under neither oral nor written contracts did he have any dealings whatever with the individual members of the orchestra; that he did not know their names; that he never hired or discharged any member of such orchestra; never paid them any money whatever, that he exercised no control whatever over them or the music they should play, never talked with any of them about music to be played; or about anything else connected with their work as members of the orchestra.

The proof also showed that while there were broadcasting facilities at the hotel, the orchestra leaders made all arrangements with the station for broadcasts and the debtor hotel had nothing to do with what was to be broadcast or the time of the broadcast.

The Collector offered no testimony or other evidence whatever.

The debtor strenuously contends that the facts shown without dispute admit of only one conclusion, viz., that the orchestra owner or leader was an independent contractor; that the members of the orchestras were his employees, hired, discharged, and paid by him; that under no reasonable construction of law were the members of the orchestras employees of the debtor. Therefore, says the debtor, it is not liable for any taxes or contributions under either of the two Federal Acts in question.

Section 1400, Title 26 U.S.C.A. Int.Rev. Code, imposes a tax on employees equal to one per cent of their wages as defined in Section 1426(a) with respect to employment as defined in Section 1426(b).

Section 1410 imposes a similar tax on employers.

Section 1426(a) defines "wages" as meaning all remuneration for employment with certain exceptions not material here.

Section 1426(b) defines "employment" to mean "any service performed * * * by an employee for the person employing him * * *."

Subchapter C of Chapter 9 of the Internal Revenue Code, formerly Title IX of the Social Security Act, Section 1600 of Title 26 U.S.C.A. Int.Rev.Code, imposes an excise tax upon every employer, as defined in Section 1607(a), of eight or more persons. Sec. 1607(c) defines "employment" to mean "any service performed * * * by an employee for the person employing him."

The distinction between an employee and an individual contractor depends upon whether he undertakes to achieve an agreed result and to accept the directions of the employer as to the manner in which the result shall be accomplished, or agrees to achieve a certain result but is not subject to the orders of the employer as to the means which are used.

"This distinction between a servant and an individual contractor is the existence of a right of control over the agent in respect to the manner in which his work is to be done. A servant is an agent who works under the supervision and direction of his employer; an individual contractor is a person engaged to do certain work, but to exercise his own discretion as to the mode and time of doing it * * * he is bound by his contract but not by his employer's orders." Salmond on the Law of Torts, 9th Edition, Page 90; Irwin v. Klein, 271 N. Y. 477, 485, 3 N.E.2d 601; Pollack on the Law of Torts, 14th Edition, Page 64.

The foregoing conception, evolved by a long line of tort cases and authorities, has been applied in cases arising under the Workmen's Compensation Act N.Y. McK.Consol.Laws, c. 67. Matter of Pierce v. Bowen, 247 N.Y. 305, 160 N.E. 379; Matter of Glielmi v. Netherland Dairy Company, 254 N.Y. 60, 171 N.E. 906.

The same rule has also been applied to cases under the Unemployment Insurance Law, Labor Law N.Y. § 500 et seq. Matter of Scatola, 282 N.Y. 689, 26 N. E.2d 815; Matter of Levine, 283 N.Y. 577, 27 N.E.2d 439.

A case analogous to the case at bar, relative to the liability of a hotel to a member of an orchestra under the New York State Unemployment...