McCain v. Crossett Lumber Co.

• Decision Date: 12 July 1943
• Docket Number: No. 7162.,7162.
• Citation: 174 S.W.2d 114
• Parties: McCAIN, Commissioner of Labor, et al. v. CROSSETT LUMBER CO.
• Court: Arkansas Supreme Court

174 S.W.2d 114

McCAIN, Commissioner of Labor, et al. v. CROSSETT LUMBER CO.

No. 7162.

Supreme Court of Arkansas.

July 12, 1943.

Dissenting Opinions October 4, 1943.

COPYRIGHT MATERIAL OMITTED

Appeal from Circuit Court, Pulaski County, Second Division; E. R. Parham, Special Judge.

Proceedings by Crossett Lumber Company against W. J. McCain, Commissioner of Labor, and others to obtain refund of unemployment compensation taxes paid under protest.

Affirmed.

Luke Arnett, of Little Rock, for appellants.

Williamson & Williamson, of Monticello, for appellee.

KNOX, Justice.

This case (hereinafter called present case) is a companion case to Crossett Lumber Co. v. McCain, Ark., 170 S.W.2d 64, (hereinafter called former case). The parties have stipulated that the evidence in that case, together with some additional evidence, might serve as the bill of exceptions here. Appellants, at times may be designated "Commissioner", and appellee designated "Crossett".

In order to properly define and dispose of the issues in the present case reference to, and perhaps quotations from, the statement of facts set out in the former case may be necessary, but in an effort to achieve brevity the whole of such statement is incorporated herein by reference, and the attention of the reader is directed thereto.

The former case was begun on July 9th, 1940, when Robert E. Linder, and various other timber cutters, filed their separate claims for unemployment compensation benefits, basing their claims upon allegations that they were employees of Crossett. Linder and the others had been engaged in cutting timber which belonged to, or which was destined for manufacture in the mills of, Crossett, but each of them had been hired by and worked under and for men who Crossett contended were independent contractors. Crossett, therefore contended that these claimants were not its employees, and that such benefits, if allowed, should not be chargeable against it.

Prior to the filing of such claims for benefits Crossett had regularly paid unemployment benefits covering men directly employed and paid by it, but had not reported or paid on compensation paid these independent contractors, or the wages of the men who were hired by and worked under them.

After the claims of Linder and others were filed Crossett at first took the view that it had no interest in the matter, but upon being advised that the allowance of the claims to these persons as employees of Crossett would establish its liability for the tax, it thereafter assumed the burden of a party to the litigation.

While the former case was still pending, and before there had been a final determination of the question as to what relationship, if any, existed between Crossett and the timber cutters, the office of the Commissioner of Internal Revenue, in Washington, elected to decide that question for itself, and ruled that these timber cutters, and contractors as well, were in fact the servants of Crossett, and that Crossett was liable for unemployment compensation tax based upon payments made to such contractors.

On November 27th, 1940, the Unemployment Compensation Division of the State Department of Labor forwarded to all lumber companies in Arkansas a circular letter, advising them of the ruling of the Commissioner of Internal Revenue, and in that letter said: "Under the terms of the second Revenue Act of 1940, Section 701, [26 U.S.C.A. Int.Rev.Acts] which was effective October 8, 1940, employers are allowed sixty (60) days after the date of the enactment of the Act in which to pay contributions to State Unemployment Compensation Funds for the years 1936, 1937, 1938 and 1939 and receive credit therefor against the Federal Unemployment Compensation Tax. The sixtieth day is December 6, 1940, and unless such contributions are made not later than that date, then employer will be required to pay the State and will also be required to pay the full tax to the Federal Government without credit for payments that will eventually have to be made to the State Agency anyhow."

Other paragraphs in the letter made demands for the payment of the State tax on or before December 6, 1940, and emphasized the fact that unless it was paid to the State by that date the companies would be required to pay the full amount twice, once to the Federal Government and once to the State Government.

Although no court had declared these timber cutters to be its employees, and, although Crossett was at that time contending they were not (a contention which was finally sustained by this court), Crosset, nevertheless, found itself in a position where if it refused to pay and it was thereafter determined that such persons were its employees within the meaning of the then existing unemployment compensation law its liability would be doubled. As a result of this gentle persuasion Crossett elected to pay, but not without an effort to reserve the question and protect its rights.

After some conferences between representatives of Crossett and the Unemployment Compensation Division, Crossett tendered payment by check, which bore the endorsement "Paid Under Written Protest". This check was enclosed in a letter which set out in detail the basis of the protest referred to. We quote from said letter as follows:

"This payment is made solely as a matter of precaution, by reason of your aforesaid demand and said credit provision of Sec. 701(a) of the Second Revenue Act of 1940.

"Crossett Lumber Company reserves all rights to recover the payment herewith made, or to take credit for it upon any taxes or contributions that may hereafter become legally due, and particularly reserves its rights to such refund or credit in accordance with Sec. 14(d) of the Arkansas Unemployment Compensation Law as amended, or any other provisions of Law now or hereafter in force, and particularly pursuant to the Agreement rules, regulations, and stipulations made by you in connection with or relative to this payment."

At the same time a written agreement was entered into between the Commissioner and Crossett. Such agreement set out the history and nature of the controversy, recognized the good faith of Crossett throughout, acknowledged that the payment so made and accepted was not to be considered a closed transaction but that such payment was made under protest, and only for the purpose of avoiding the penalties of, and to obtain credit under, § 1600 et seq. of Internal Revenue Code, 26 U.S.C.A. Int. Rev.Code, § 1600, et seq. and then recited:

"It is further agreed that the Commissioner of Labor under the authority vested in him by law does hereby adopt a special rule with respect to said Company and with respect to the demand for payment of unemployment contributions upon the remuneration of the individuals herein mentioned to the effect that the due date of said contributions is and shall be the date of this instrument, and the Company hereby acknowledges receipt of notice of said special rule for the required ten days.

"It is further agreed and understood that the said Company will within one year file an application for refund of the entire amount paid and that said application will be received by the Commissioner and will be passed upon by the Commissioner upon the merits thereof; and it is further agreed that, if the Commissioner should deny said application for refund and his denial should be contested in the courts, no contention will be made by the Commissioner that the application for refund was not made in due time."

Immediately following such payment under protest Crossett filed its complaint in the present case, seeking a return of the money. The parties were of the opinion that all questions involved in both cases could be and would be determined in the final decision of the former case, and for that reason attorneys on both sides, tacitly at least, consented that the present case should be held in abeyance, and the former case pressed in the belief that both cases would be thereby determined. In the course of his oral argument before this court in the former case, the attorney for Crossett stated without objection by attorneys for the Commissioner that it was the desire of all parties that all questions, including the tax liability, be decided in that case.

In accordance with what appeared to be the desire of the parties, we sought to completely dispose of the controversy and decide all issues in the opinion rendered in the former case, and with respect to the question as to whether or not Crossett was liable for this tax we said, "it necessarily follows that appellant [Crossett] is neither the employer nor the employing unit of claimants and that it cannot be required to pay a social security tax on persons not in its employment."

We thus sought to express the conclusion which we had reached, that under either the existing or the prior statute Crossett in the past had not been, was not then, and in the future would not become, on account of wages earned by timber cutters, who were employed and performed services in the manner and under conditions and circumstances disclosed by the record in that case, liable for unemployment benefit assessments.

After the decision in the former case Crossett requested the Commissioner to refund these taxes, which had been paid under protest, and, although the Commissioner admittedly has authority under Section 14(d) of Act 391 of the Acts of 1941 to make refunds or allow credits in cases where he finds benefit assessments have been erroneously paid or collected, the Commissioner failed to grant Crossett's application, whereupon the present case was called and heard in the trial court, resulting in a judgment requiring the Commissioner to refund these monies.

In the opinion rendered in the former case it is said: "The National Social Security Act was enacted by Congress in 1935, 42 U.S.C.A. § 301 et seq. Arkansas entered the field in 1937 by the enactment of Act 155 of 1937 known as...