People v. Neal C. Oester, Inc., AP-34

• Citation: 316 P.2d 784,154 Cal.App.2d Supp. 888
• Decision Date: 18 October 1957
• Docket Number: No. AP-34,AP-34
• Court: California Superior Court
• Parties: 154 Cal.App.2d Supp. 888 The PEOPLE of the State of California, Plaintiff and Appellant, v. NEAL C. OESTER, Inc., et al., Defendants, Earl Kirby and David Beckett, Respondents. Appellate Department, Superior Court, Orange County, California

Page 784

316 P.2d 784

154 Cal.App.2d Supp. 888

The PEOPLE of the State of California, Plaintiff and Appellant, v. NEAL C. OESTER, Inc., et al., Defendants, Earl Kirby and David Beckett, Respondents.

No. AP-34.

Appellate Department, Superior Court, Orange County, California.

Oct. 18, 1957.

Robert P. Kneeland, Dist. Atty. of Orange County, Kenneth Williams Deputy Dist. Atty., Santa Ana, for appellant.

Boyle, Bissell & Atwill, Pasadena, for respondents.

GARDNER, Judge.

A criminal complaint was filed in the Anaheim-Fullerton Municipal Court charging the defendants, as an employing unit, with violation of Section 2110 of the California Unemployment Insurance Code in that these defendants did 'knowingly withhold the deductions required * * * and did wilfully and unlawfully fail and were financially unable to pay such deductions to the Department of Employment * * *'

The California Unemployment Insurance Code, after making provisions for the withholding by the employer or worker's contributions to the Unemployment Insurance Fund, holding the same in trust, and protecting these funds from civil processes, provides in Section 2110 that any employing unit which 'knowingly withholds the deductions required by this division from remuneration paid to the workers, and wilfully fails or is financially unable to pay such deductions * * * is guilty of a misdemeanor.'

On motion of the defendant, the trial court dismissed the complaint on the ground that this section is unconstitutional as constituting imprisonment for debt, contrary to Article I, Section 15 of the California Constitution. This section provides: 'No person shall be imprisoned for debt in civil actions * * * unless in cases of fraud * * *'

In the judicial review and interpretation of legislation, two basic principles govern the courts: (1) The courts do not pass on the wisdom or the discretion of the legislature in enacting a law, but merely test the enactment to ascertain whether or not it comes within the framework of the Constitution; (2) Legislation is presumed to be constitutional. Unconstitutionality must be clearly shown, and all doubts are to be resolved in favor of validity.

Keeping these principles firmly in mind, several issues are presented for decision.

1. Does the Constitutional Prohibition Against Imprisonment for Debt Apply in Criminal Cases? Yes.

The people contend that this constitutional prohibition does not apply in criminal cases. With that contention we cannot agree. Although such a general statement appears in several cases (In re Nowak, 184 Cal. 701, 195 P. 402; In re Oswald, 76 Cal.App. 347, 244 P. 940), these statements were expressly disproved in In re Trombley, 31 Cal.2d 801, 193 P.2d 734. In that case the court stated, 31 Cal.2d at page 804, 193 P.2d at page 737 (after quoting Section 15 of Article I of the California Constitution): 'Although by its terms the prohibition is directed to imprisonment in civil actions, it has been held to apply in a criminal proceeding where it appears that the legislation under which the accused in charged constitutes an attempt to make the mere act of failing to pay a debt a crime. (Citations.)'

II. Are These Workers' Contributions Taxes and, if so, does the Prohibition Against Imprisonment for Debt Apply to Taxes? The Answer to Both of These Questions is Yes.

The People contend that these contributions are taxes, and that the constitutional prohibition against imprisonment for debt does not apply to taxes. As to the first contention, the weight of authority appears to be that these workers' contributions are taxes.

The Supreme Court in Empire Stars Mining Company v. California Employment Commission, 28 Cal.2d 33, 168 P.2d 686, held that the word 'contributions' as used in the California Unemployment Insurance Code is 'a euphemistic expression meaning tax exactions (28 Cal.2d at page 47, 168 P.2d at page 694)'. Section 989 of the California Unemployment Insurance Code refers to 'the annual tax rate or contribution rate'. In In re Hacker-Byrne's Corp., D.C., 96 F.Supp. 349, 351, the court states: 'We think that the monies which were withheld from the wages of the employees (under California Unemployment Insurance Code) are clearly taxes.'

However, we cannot agree with the People's contention that this constitutional prohibition does not apply to taxes. The expression 'the law abolishing imprisonment for debt has no application for taxes' is to be found in Cooley on Taxation, Fourth Edition, Paragraphs 22 and 1349, and cases cited therein. However, most of these cases are license cases. There the penalty is for engaging in business without paying the tax, not simply for non-payment of a tax. There the defendant is not charged with failure to pay the license or tax; he is charged with carrying on a business without a license which he could secure by the paying of a license or tax.

In all cases found in our research the element of wilfulness is found to be present before a criminal act is held to have been committed. The expression 'wilfully non-complying', 'wilfully neglecting', 'wilfully refusing', 'wilfully attempting' appears in all legislation in which criminal prosecution of r failure to pay the tax is upheld. It appears to us that there must be criminal intent and wilfulness so as to bring the matter within the fraud exception to this constitutional prohibition (see below) before imprisonment for non-payment of taxes may be had. Thus, we hold that the constitutional prohibition against imprisonment for debt does apply to taxes.

III. Does Section 2110 of the California Unemployment Insurance Code Come Within the Fraud Exception to the Constitutional Prohibition Against Imprisonment for Debt? Yes.

This constitutional prohibition is expressly subject to the exception 'unless in case of fraud'. The people contend that this section, as reasonably interpreted, brings the case within this exception. With this contention we agree.

The section provides that an employer is guilty of a criminal offense who knowingly withholds the deduction and 'wilfully fails, or is financially unable to pay'. The first alternative, i. e., 'wilfully fails * * * to pay' is, under the authority of In re Trombley, supra, clearly constitutional as a 'case of fraud'. In that case it was declared a misdemeanor for an employer who 'having the ability to pay, * * * wilfully refuses to pay wages,' etc. The...