United States v. Wholesale Oil Co., 3244.

• Decision Date: 15 March 1946
• Docket Number: No. 3244.,3244.
• Citation: 154 F.2d 745
• Parties: UNITED STATES v. WHOLESALE OIL CO., Inc.
• Court: U.S. Court of Appeals — Tenth Circuit

154 F.2d 745 (1946)

UNITED STATES v. WHOLESALE OIL CO., Inc.

No. 3244.

Circuit Court of Appeals, Tenth Circuit.

March 15, 1946.

Hilbert P. Zarky, of Washington, D. C. (Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key, A. F. Prescott, and Maurice P. Wolk, Sp. Assts. to Atty. Gen., and Randolph Carpenter, U. S. Atty., and Eugene W. Davis, Asst. U. S. Atty., both of Topeka, Kan., on the brief), for appellant.

Frank S. Hodge, of Hutchinson, Kan. (Roy C. Davis, Warren H. White, William H. Vernon, Jr., and Eugene A. White, all of Hutchinson, Kan., on the brief), for appellee.

Before BRATTON, HUXMAN and MURRAH, Circuit Judges.

HUXMAN, Circuit Judge.

This case arises under the Social Security Act, 49 Stat. 620, as amended, 42 U.S. C.A. § 301 et seq. The appellee, the Wholesale Oil Company, Inc.,¹ sued the United States to recover social security taxes which it had paid under protest. It recovered a judgment therefor, and the government has appealed. The only question is whether the persons who operated retail gasoline filling stations owned by the Company were employees within the meaning of the Act. The facts are substantially these:

The Company is a Kansas corporation, engaged in the distribution of petroleum products. In 1938 and through 1940 it entered into written agreements with individuals for the operation of the filling stations owned by it. While differing in some respects, the contracts are substantially the same. They generally provide that the Company was to furnish all equipment, funds, and merchandise necessary to stock the station; that the operator was to devote his entire time to the operation thereof; that a bank account was to be opened in the name of the Company in a bank designated by it; that the operator was to make daily deposits of all receipts in the bank account and was to furnish daily reports of designated, detailed information; that all books and records were to be kept in the Company's office in Hutchinson, and that no obligations were to be incurred except upon express authority of the Company; that credit extended without approval of the Company was at the risk of the operator; that the operator was to receive a drawing account of from $50 to $100 per month, which was to be charged against one-half of the profits which he was to receive at stated times; that the operator could not dispose of his interest in the business without the approval of the Company. Some of the contracts were for a number of years while others were for an indefinite time. All but one of the contracts were subject to cancellation by either party on written notice of from fifteen to ninety days, except that three could not be canceled until after the first year. Several contracts provided that the operator could purchase the stock and equipment at a price to be fixed by the Company, upon the termination of the contract. All purchase orders were to be issued from the office at Hutchinson. Express authority had to be obtained from the home office before the operator could incur any obligation. The stations were all operated in the Company's name. When one operator quit, there was no distribution of assets, but only a final accounting of the profits. When a new operator took over a station, the license was not canceled, but the new operation was continued under the same license.

Oral testimony was introduced at the trial substantially as follows: All checks on the bank account were supposed to be issued by the Company. The operator could check against the account only in emergency. All bills were paid from the home office of the Company. Small bills were paid by the operator out of petty cash. The Company left the matter of fixing prices to the operator. Orders for merchandise were placed by the operator where the order was less than car-load lots. Car-load lots were ordered through the Company at Hutchinson. The operator determined the character of the stock he would keep. He always hired all the help at the station. Salaries for such help were paid out of the proceeds of the business. Loss resulting from credit was "split fifty-fifty."

The trial court made appropriate findings of fact and conclusions of law. It concluded as a matter of law that the relationship between the parties was not one of employer and employee, but was more in the nature of a special partnership or joint adventure. There was no conflict in the evidence. The findings of fact are not in issue, and, being supported by the evidence, are accepted by us. But whether the conclusions of law which the court drew therefrom are correct is a matter concerning which we exercise our own independent judgment.

Appellee took the position that the contracts created a partnership rather than the relation of employer and employee. While the court at the conclusion of the trial expressed grave doubts as to this, it ultimately adopted this theory, as evidenced by its second conclusion of law.

Contracts for the rendition of services ordinarily result in one of three general classifications — such contracts may create a partnership, that of an independent contractor, or that of master and servant. It is necessary to consider the relationship created by these contracts because this enables us to determine into which classification they fall. By considering the elements of these three general classifications, we eliminate those that do not fit the facts and thus determine the correct relationship created by the contracts.

We cannot agree with the trial court that the contracts created a special partnership or joint adventure. A joint adventure is but one form of a partnership, and for the purpose of this part of the discussion we will speak only of a partnership. A partnership connotes a community of interest. More is required than a community of interest in the fruits of the venture. There must be such interest in the business and also in the management of the business. There must also be joint liability. None of these elements is present here. The Company owned all the assets. It owned the sites, the stations, and all the merchandise. At no time, either during the operation of the business or at the termination of the contract, did the operator have or acquire a vested interest in any of the property used in the business. The privilege which some of the contracts gave the operator to purchase the business upon termination of the contract evidenced no ownership as a partner in such assets, because he could buy them, not at their actual or appraised value, but only at such value as the Company alone chose to place on them. Had he been an employee, he could have done this either during the continuation of the contract or upon its termination, without such a provision in the contract. This provision means no more than that if the employee wants to buy the business, he may do so, at a valuation which the Company places on it. Neither did the operator have the right to exercise his independent judgment in the management and operation of the business. While there was some oral testimony to the effect that the operator was free from dictation of the Company in the management and operation of the business, when examined in the light of the contracts and of all of the testimony, this right is more fanciful than real. The business was conducted in the name of the Company; the bank account was kept in the name of the Company in a bank designated by it; the checks were written against the account only by the Company and none were written against this account by the operator save that in an emergency he might draw a check against the account. The license for the station was taken in the name of the Company. When the operator terminated his contract, the license of the Company was not surrendered. It continued, and the station was operated under the same license by the new operator or employee. The operator was required to make detailed, daily reports to Hutchinson. While he could place orders for merchandise less than in car-load lots, all purchase orders were issued from the home office and orders for car-load lots were issued by the Company. He had to procure the approval of the home office before he could incur any obligations. What independent powers of management did this leave him? What could he do that the Company could not veto? The contract did not give him the right to fix prices. The oral testimony was that the Company permitted him to fix prices. Neither did he assume any liability for the debts of the so-called partnership or joint adventure. He did not become liable for merchandise accounts or for other obligations incurred by the Company. The only liability he had was that he shared the net operating losses, if any. But sharing in the profits or losses alone of a business is not sufficient by itself to create a partnership relation.² The relationship created by these contracts lacked many of the usual elements necessary to create a partnership, either general or special, in the nature of a joint adventure. We accordingly conclude that no partnership relation existed between the parties.

The next question is, Were the operators independent contractors? In Jones v. Goodson, 10 Cir., 121 F.2d 176, 179, we discussed in detail the elements which distinguish an independent contractor from an employee. We said that: "In general, if an individual is subject to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is an independent contractor."

We also said that only a "reasonable measure of direction and control over method and means of performing the...