United States v. Zschach Const. Co.

• Decision Date: 05 February 1953
• Docket Number: Civ. No. 3040.
• Citation: 110 F. Supp. 551
• Parties: UNITED STATES v. ZSCHACH CONST. CO. et al.
• Court: U.S. District Court — Eastern District of Oklahoma

110 F. Supp. 551

UNITED STATES v. ZSCHACH CONST. CO. et al.

Civ. No. 3040.

United States District Court, E. D. Oklahoma.

February 5, 1953.

Edwin Langley, U. S. Atty., Muskogee, Okl., for plaintiff.

Looney, Watts, Ross, Looney & Smith, Oklahoma City, Okl., and Smith & Rogers, Tulsa, Okl., for defendants.

WALLACE, District Judge.

In January of 1948, the defendant, Pool Construction Company, was awarded a contract for a Federal public works project known as the Heyburn Dam Project. All work was performed in Creek County, Oklahoma. Pool Construction Company, as prime contractor, furnished the performance bond and payment bond as required by the Miller Act.¹

The Government brings this action in the Eastern District of Oklahoma to recover the Federal income and unemployment insurance taxes owed by the defendant, Zschach Construction, a sub-contractor on this project, for withholding taxes it owes by virtue of it's employment of labor in performance of this sub-contract.² The Government seeks judgment against the defendant, sub-contractor, for the total amount of withholding taxes it was obligated as a matter of law to withhold,³ and seeks judgment against the remaining defendants, the prime contractor, Pool Construction and its sureties for that amount of the taxes actually withheld by the sub-contractor, Zschach, for the payment of these taxes.⁴

If this be considered an action brought under the provisions of the Miller Act this court is without jurisdiction inasmuch as the statute specifically vests venue in the District Court in the district in which the work was done.⁵ Thus, since this project was located in Creek County, Oklahoma, venue lies in the District Court for the Northern District.

The Government takes the position that although the action has been brought under a payment bond which was furnished pursuant to the Miller Act, that in reality this is an action for the collection of taxes and consequently can be brought in the district in which the taxpayer resides.⁶

Thus, considering this an action for taxes this court has jurisdiction over the sub-contractor, Zschach Construction, who by statute is liable for such withholding taxes whether or not actually withheld.⁷ On this theory the Government further asserts that although this be an action for taxes, that the taxes which were actually withheld by the defendant taxpayer, Zschach Construction, partake of the nature of "labor and materials", being a part of wages paid. Under this rationale the Government takes the position that the prime contractor, Pool Construction and its sureties, are liable under the payment bond for such "wages" owed to government in the form of withholding taxes. The Government stresses that it is suing on this bond in an orthodox manner and argues that even though this particular bond was given by virtue of the Miller Act it is not mandatory that they bring suit within the jurisdictional requirements of the Miller Act.

The court is of the opinion that if this be a suit on the payment bond furnished in compliance with the Miller Act for "labor and materials" that the Government must comply with the jurisdictional requirements of this Act in order to bring suit.

Although, of course, the Government can bring a suit to recover taxes in any District wherein the taxpayer resides it cannot sue for "taxes" thereby gaining jurisdiction over the sub-contractor liable for these taxes and then claim that these taxes owed, to the extent actually withheld, become "wages" and claim jurisdiction over the parties to the payment bond. Such a ruse cannot be used to circumvent express statutory jurisdictional requirements.

Even if the Government could obtain jurisdiction over all the parties here involved, it still could not recover against the prime contractor and sureties of the prime contractor.

In a case where jurisdiction wasn't in issue but otherwise involving almost the identical problem now before the court, the United States Court of Appeals of the Tenth Circuit, recently held that, the sums withheld by a sub-contractor were not in the nature of wages as covered by the prime contractor's payment bond.⁸ After quoting the Government's contention that it succeeded to the rights of the wage earners by operation of law, as effectively as if it had taken a written assignment from the wage earners covering the withheld portion of their wages, Judge Huxman said:

"* * * from the statutes and regulations as set out it seems clear that when an employer withholds the tax from an employee's wage and

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