Marvel v. U.S.

• Decision Date: 26 October 1983
• Docket Number: No. 80-1497,80-1497
• Citation: 719 F.2d 1507
• Parties: 83-2 USTC P 9659 Fred MARVEL and Angela Marvel, d/b/a Marvel Photo, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1507

719 F.2d 1507

83-2 USTC P 9659

Fred MARVEL and Angela Marvel, d/b/a Marvel Photo Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.

No. 80-1497.

United States Court of Appeals, Tenth Circuit.

Oct. 26, 1983.

Released for Publication Oct. 19, 1983.

James L. Edgar, Tulsa, Okl., for plaintiffs-appellants.

Anthony Ilardi, Jr., Atty., Dept. of Justice, Washington, D.C. (M. Carr Ferguson, Asst. Atty. Gen., Michael L. Paup and Carleton D. Powell, Attys., Tax Div., Dept. of Justice, Washington, D.C., Hubert H. Bryant, U.S. Atty., Tulsa, Okl., were also on brief), for defendant-appellee.

Before HOLLOWAY, DOYLE and SEYMOUR, Circuit Judges.

HOLLOWAY, Circuit Judge.

Taxpayers Fred and Angela Marvel appeal from a judgment of the district court finding taxpayers liable for unpaid Federal Insurance Contribution Act (FICA), Federal Unemployment Tax Act (FUTA), and Federal withholding taxes. Taxpayers contend that the district court erred (1) in referring their case to a federal magistrate for trial without statutory or constitutional sanction, (2) in finding that certain individuals who performed services for taxpayers' business were employees rather than independent contractors, (3) in denying taxpayers' motion for summary judgment and permanent restraining order when the notices of assessment were made in taxpayers' trade name, Marvel Photo, rather than taxpayers' individual names, and (4) in assessing penalties. We affirm.

I

Taxpayers operated a photography business under the name of Marvel Photo for tax years 1966 through 1971. In the course of this business, taxpayers utilized the services of various individuals, some of whom worked at taxpayers' studio and some of whom worked at their own homes. Taxpayers treated all of these individuals as independent contractors and did not collect or pay federal employment taxes.

In September 1974, the IRS issued assessments to Marvel Photo for unpaid FICA, FUTA, and federal withholding taxes for the period of January 1, 1966, through December 31, 1971. On November 1, 1974, the IRS issued a series of "Final Notices Before Seizure" stating that within ten days, and without further notice, any bank accounts, receivables, commissions, or other income or property belonging to taxpayers would be levied upon or seized. On November 6, 1974, taxpayers paid the employment taxes of one alleged employee, for the periods in question, and filed a claim for refund of this partial payment with the IRS. After six months elapsed without a determination of their refund claim by the IRS, taxpayers filed suit in federal district court for refund of the taxes paid and abatement of the remainder of the assessments. The Government counterclaimed for the balance of the unpaid taxes.

In conjunction with their suit, taxpayers moved for a temporary restraining order and preliminary injunction to restrain the IRS from levying on taxpayers' assets during the litigation. The district court, finding its jurisdiction to grant injunctive relief curtailed by the Anti-Injunction Act, 26 U.S.C. Sec. 7421(a), denied the motion, and we affirmed. Marvel v. United States, 548 F.2d 295, 301 (10th Cir.), cert. denied, 431 U.S. 967, 97 S.Ct. 2924, 53 L.Ed.2d 1062 (1977).

Prior to trial, the parties stipulated to the employment status of all but thirty-one individuals. The status of the remaining individuals was decided at trial, which, with the parties' consent, was heard before a federal magistrate with the assistance of an advisory jury.

At trial, the advisory jury found that seven individuals were employees and that the remaining twenty-four individuals were independent contractors; only the status of the seven individuals found to be employees is in dispute on this appeal. The district court adopted the magistrate's recommendations, which were in accordance with the findings of the advisory jury. The court also rejected taxpayers' motion for summary judgment and permanent injunction in which taxpayers contended that the notices of assessment to Marvel Photo were defective and therefore invalidated taxpayers' tax liability. From the adverse judgment which resulted, taxpayers brought this timely appeal.

II

Taxpayers contend that the adjudicatory procedure utilized by the district court, in which the trial of this cause was referred to a United States Magistrate with the consent of the parties, was statutorily and constitutionally infirm. They argue that there was no statutory authorization for such a reference prior to the enactment of the Federal Magistrate Act of 1979. ¹ They say further that even if such a trial were statutorily permissible, the district court, as an Article III court, could not abjure its adjudicatory responsibility by investing other non-Article III judicial officers, such as magistrates, with judicial authority to conduct civil trials.

A.

The relevant statutory framework which governed magistrates during the period in question was the 1976 amendments to the Federal Magistrates Act. Pub.L. 94-577, Sec. 1, 90 Stat. 2729 (1976). 28 U.S.C. Sec. 636(b) (1976) contains the controlling provisions. ²

We believe that subsection (b)(2), under which the agreed order of reference was apparently made in this instance, ³ provides statutory authorization for such a consensual reference. ⁴ As originally adopted in the Federal Magistrates Act of 1968, ⁵ section 636(b) authorized magistrates to be appointed as special masters subject to the "exceptional circumstances" restrictions placed on such references by Rule 53(b) of the Federal Rules of Civil Procedure. ⁶ Significantly, however, in the 1976 amendments to the Act, Congress expressly provided that the restrictions of Rule 53(b) would not apply to consensual references to a magistrate since "no significant purpose is served by restricting the use of magistrates when the parties agree to this procedure. At the same time, Rule 53 contains many important rules governing the powers of masters, the conduct of proceedings before them, and the submission of reports. Thus, subsection 636(b)(2) retains these provisions in any case in which a magistrate is appointed as a special master." H.R.Rep. No. 1609, 94th Cong., 2d Sess. 12, reprinted in 1976 U.S.Code Cong. & Ad.News 6162, 6172. It is thus clear that the Federal Magistrates Act, prior to the adoption of the 1979 amendments, authorized reference by the court to a magistrate, as a masters, for trial when the parties consented.

In National Railroad Passenger Corp. v. Koch Industries, Inc., 701 F.2d 108 (10th Cir.1983), a magistrate heard a diversity action while sitting as a special master under 28 U.S.C. Sec. 636(b)(2), and reported his findings and recommendations to the district court in accordance with Fed.R.Civ.P. 53(e). On appeal, the precise issue was the degree of deference the district court should have given to the magistrate's recommendation of a new trial. Nevertheless, we stated that "[b]y consent of the parties and as authorized by 28 U.S.C. Sec. 636(b)(2) and local court rule, all proceedings at the district court level were conducted by a magistrate sitting as a special master with final judgment entered at the direction of the chief judge of the district court." 701 F.2d at 109 (emphasis added); cf. Polin v. Dun & Bradstreet, Inc., 634 F.2d 1319, 1321 (10th Cir.1980) (en banc).

Moreover, in the legislative history of the Federal Magistrate Act of 1979, it is evident that Congress not only was aware of the practice of consensual trials before magistrates, but apparently viewed such practice as already authorized by subsections (b)(2) and (b)(3). See S.Rep. No. 74, 96th Cong., 1st Sess. 4, reprinted in 1979 U.S.Code Cong. & Ad.News 1469, 1473 (1979 Act would "codify and replace the experimental practice now being carried on in a number of districts under 28 U.S.C. 636(b)(2) and (b)(3)"). The basic change resulting from the 1979 Act is that under newly created section 636(c), the decision of the magistrate may be appealed directly to the appropriate court of appeals. Here, of course, the appeal lies not from the order of the magistrate, but from the judgment of the district court.

In sum, we hold there is ample statutory authority under 28 U.S.C. Sec. 636(b)(2) to refer a civil case to a federal magistrate for trial on the merits, provided the parties consent to such a procedure.

B.

Taxpayers further contend that even if the consensual reference to the magistrate were statutorily sanctioned prior to the enactment of the Federal Magistrate Act of 1979, the reference would not be constitutionally permissible under Article III of the Constitution. We disagree.

In United States v. Raddatz, 447 U.S. 667, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980), in reviewing a different section of the Federal Magistrates Act, the Court upheld the constitutionality of a reference to a magistrate of a motion to suppress incriminating statements in a criminal case. The Court pointed out that an Article III judge had made a de novo determination whether to accept, reject or modify, in whole or in part, the findings and recommendations of the magistrate. Id. at 673-74, 100 S.Ct. at 2411. In the instant case, as in Raddatz, the district court subjected the magistrate's determination to its own final review and entered the final judgment. ⁷ Therefore, the strictures of Article III were satisfied. See also Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 78-79, 102 S.Ct. 2858, 2875-76, 73 L.Ed.2d 598 (1982) (plurality opinion).

Taxpayers' reliance on Taylor v. Oxford, 575 F.2d 152 (7th Cir.1978), is misplaced. As the Seventh Circuit itself made clear in Muhich v. Allen, 603 F.2d 1247, 1250 (7th Cir.1979), Taylor did not hold unconstitutional consensual references to a United States Magistrate pursuant to an order of the district court; rather, Taylor merely held that magistrates are not empowered to enter final judgments and that the court of appeals was...