Petition for Writ of Certiorari — Hathcock v. Acme Truck Line, Inc.

—————

Supreme Court, U.S.

( FILED

O01 97 6 DEC 282001

Supreme Court of the United States

BOBBY HATHCOCK,

Petitioner,

ACME TRUCK LINE, INC.,

Respondent.

PETITION FOR A Writ OF CERTIORARI TO

THE UNITED StaTES Court OF APPEALS

FOR THE FIFTH CIRCUIT

PETITION }°OR WRIT OF CERTIORARI

a

RicHarp N. Counrtiss

Counsel of Record

LAW OFFICE OF

RICHARD N. COUNTISS

8441 Gulf Freeway

Suite 600

Houston, Texas 77017-5001

(713) 230-2203

Attorney for Petitioner

i

QUESTION PRESENTED

Federal statutes assess social security (FICA) and

unemployment (FUTA) taxes against an employer and

prohibit the employer from recouping those taxes from the

employee. State unemployment compensation statutes

(SUTA) have similar provisions. Acme Truck Line, Inc.

(“Acme”), a trucking company, has devised a scheme by

which it leases a truck from the owner, employs the owner to

drive the truck, and pays employment taxes on the owner’s

wages. (App. 25a.) However, as part of the lease agreement,

(App. 26a), Acme then requires the owner to reimburse it for

the taxes it pays on the owner’s wages. Bobby Hathcock

(“Hathcock”) is one of those lessor/drivers. The District

Court and the Court of Appeals found no fault with this

arrangement. Thus, the case presents the following issue:

Can an employer circumvent federal and state

statutes, which impose social security and

unemployment taxes solely on an employer,

by leasing equipment from a person and

employing the person to use the equipment,

then deducting from the person’s lease

payment the social _— security and

unemployment taxes paid because of the

person’s employment?

ii

TABLE OF CONTENTS

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STATUTORY PROVISIONS INVOLVED ..............ccccccsssssesesseee ces l

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REASONS FOR GRANTING THE WRIT ........ cielelhicenineemaden te 9

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APPENDIX

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TABLE OF AUTHORITIES

CASES

BOBBY HATHCOCK V. ACME TRUCK LINE, INC., _F.3D_ (5TH

CIR. 2001) (2001 WL 946407........:cccccscesesereeseeesssnenessseterereeeeses l

DVORAK V, CELEBREZZE, 345 F.2D 894 (1OTH CIR. 1965)........... 12

HELVERING V. DAVIS, 301 U.S. 619 (1937) ......ccccccecesreereeteeeeeenens 13

IN RE RICHARDSON DINNER THEATRE, INC., 421 F.SUPP.

423 (N.D. TEX. 1976)......cssssssssssersreseresssscssssssessensnssensssssersesees 13

LEGGETT V. MISSOURI STATE LIFE INS. CoO., 342 S.W.2D

B33 (MO. 1960)........ccccccssssssssescscssersecscerseesereneersssssserssesssssseversees 12

MATHEWS V. DE CASTRO, 429 U.S. 181 (1976) ........:ccccceeeeeeeeees 12

SOCIAL SEC. BD. V. NIEROTKO, 327 U.S. 358 (1946) ............ 11, 13

U.S. v. STATE OF NEW YORK, 315 U.S. 510 (1942) ....... eee 10

STATUTES

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SOCIAL SECURITY ACT, 42 U.S.C. § 401.000... cccceceeeeessteeeseeeeeeeees ll

TEX, LABOR CODE $ 204.003 ........cccscovesssosccccsssccoccsoccessevsscsseseees 3

THE LABOR CODE § 206.00G......cccccrcrccccessecsscorcrscoccvsccsrsessereeees 4

TEX. LABOR CODE § 207.071 ......ccccccsccssssscossscccsssccccosesessenceseonees 4

TEX. LABOR CODE § 207.071(B) ...........:ccccccssseceeseeeeeeeeneneeenes ll

TEE, LABOR CODE § 207.078 ....cccccesrovesseccevecscosessccsscessceeossesenses 4

TEX. LABOR CODE § 207.073 ..........::scssesssssseesssssesnscnenseneeenessees 4

1

OPINI” NS BELOW

The opinion of the Uruted States Court of Appeals for

the Fifth Circuit upon which the petition is based, Bobby

Hathcock v. Acme Truck Line, Inc., _F.3d_ (5" Cir. 2001)

(2001 WL 946407), is copied in the Appendix at App. la.

The unpublished opinion and Order of the United

States District Court for the Southern District of Texas in

Bobby Hathcock v. Acme Truck Line, Inc., is copied in the

Appendix at App. 14a.

BASIS FOR JURISDICTION

The final judgment of the United States Court of

Appeals for the Fifth Circuit was entered on September 6,

2001 (App. la.) Petitioner's Motion for Panel Rehearing was

denied on October 3, 2001. (App. 24a.) This petition for writ

of certiorari is filed within 90 days of the denial of the

petition for rehearing. U.S. SUP. CT. R. 13.3.

The jurisdiction of this Court is invoked under 28

U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

1. 26 U.S.C. § 3301

§ 3301. Rate of tax:

There is hereby imposed on every employer

(as defined in section 3306(a)) for each

calendar year an excise tax, with respect to

having individuals in his employ, equal to—

(1) 6.2 percent in the case of

calendar years 1988 through

2007; or

(2) 6.0 percent in the case of calendar

year 2008 and each calendar year

thereafter;

2

of the total wages (as defined in section

3306(b)) paid by him during the calendar year

with respect to employment (as defined in

section 3306(c)).

26 U.S.C. § 3111

§ 3111. Rate of tax:

(a) Old-age, survivors, and_ disability

insurance.—In addition to other taxes, there is

hereby imposed on every employer an excise

tax, with respect to having individuals in his

employ, equal to the following percentages of

the wages (as defined in section 3121(a)) paid

by him with respect to employment (as

defined in section 3121(b))—

In cases of wages paid during: The rate shall

be:

1984, 1985, 1986, or 1987...... 5.7 percent

1988 or 1989. ................ 6.06 percent

1990 or thereafter ............. 6.2 percent.

(b) Hospital insurance.-In additional to

the tax imposed by the preceding subsection,

there is hereby imposed on every employer an

excise tax, with respect to having individuals

in his employ, equal to the following

percentages of the wages (as defined in

section 3121(a)) paid by him with respect to

employment (as defined in section 3121(b))—

(1) with respect to wages

paid during the calendar years

1974 through 1977, the rate shall

be 0.90 percent;

(2) with respect to wages

paid during the calendar year

1978, the rate shall be 1.00

percent;

(3) with respect to wages

paid during the calendar years

1979 and 1980, the rate shall be

1.05 percent;

(4) with respect to wages

paid during the calendar years

1981 through 1984, the rate shall

be 1.30 percent;

(5) with respect to wages

paid during the calendar year

1985, the rate shall be 1.35

percent; and

(6) with respect to wages

paid after December 31,

1985, the rate shall be

1.45 percent.

(c) Relief from taxes in cases covered by

certain international agreements.—During any

period in which there is in effect an agreement

entered into pursuant to section 233 of the

Social Security Act with any foreign country,

wages received by or paid to an individual

shall be exempt from the taxes imposed by

this section to the extent that such wages are

subject under such agreement to taxes or

contributions for similar purposes under the

social security system of such foreign country.

TEX. LABOR CODE § 204.002

§ 204.002. Contribution Required:

(a) An employer shall pay a contribution on

wages for employment paid during a calendar

year or the portion of the calendar year in

which the employer is subject to this subtitle.

(b) The contribution shall be paid to the

commission in accordance with rules adopted

by the commission.

4

4. TEX. LABOR CODE § 204.003

§ 204.003. Contribution Not Deducted From Wages:

An employer may not deduct any part of a

contribution from the wages of an individual

in the employer's employ.

5. TEX. LABOR CODE § 207.071

§ 207.071. Waiver, Release, or Commutation

Agreement Invalid:

(a) Except for an employer's waiver under

Chapter 204 and Section 205.011, an

agreement by an individual to waive, release,

or commute the individual's right to benefit or

any other rights under this subtitle is not valid.

(b) An agreement by an_ individual

employed by an employer to pay all or a

portion of a contribution or reimbursement

required to be paid by the employer under this

subtitle is not valid.

6. TEX. LABOR CODE § 207.072

§ 207.072. Acceptance or Requirement of

Waiver Prohibited:

An employer may not require or accept a

waiver of a right of an individual employed by

the employer.

7. TEX. LABOR CODE § 207.073

§ 207.073. Prohibited Deduction From Wages:

An employer may not, directly or indirectly,

make, require, or accept a deduction from

wages to finance a_ contribution § or

reimbursement required to be paid by the

employer under this subtitle.

10.

5

LA. REV. STAT. § 23:1531

(a) Contributions shall accrue and become

payable be each employer for each calendar

year in which he is subject to this Chapter

with respect to wages for employment. These

contributions shall become due and be paid by

each employer to the administrator for the

fund in accordance with such regulations as

the administrator may prescribe, and shall not

be deducted, in whole or in part, from the

wages of individuals in the employer's employ.

LA. REV. STAT. § 23:1532

Each employer shall pay contributions equal

to two and seven-tenths percentum of wages

paid by him during each calendar year.”

LA. REV. STAT. § 23:1691

(a) No agreement by any individual in the

employ of any person or concern to pay all or

any portion of the employer's contribution,

required under this Chapter, from such

employee, shall be valid. No employer shall

directly or indirectly make or require or

accept any deduction from wages to finance

the employer’s contributions required from

him, require or accept any waiver or rights

hereunder by any individual in his employ.

(b) An employer or officer or agent of an

employer who violates any provision of this

Section shall, for each offense, be fined not

less than one hundred dollars nor more than

one thousand dollars, or imprisoned for not

less than one month nor more than six

months, or both.

it

6

STATEMENT OF THE CASE

The suit was filed by Hathcock in the state court in

Harris County, Texas and removed by Acme to the United

States District Court for the Southern District of Texas

pursuant to 28 U.S.C. §§ 1331, 1332, and 1337(a). After the

District Court granted summary judgment for Acme, (App.

14a), Hathcock appealed the judgment to the United States

Court of Appeals for the Fifth Circuit. That court affirmed

the judgment of the trial court. (App. la.) The suit is based

upon the following facts.

1, Hathcock leased his truck to Acme. - Acme

is a trucking company that owns no trucks but leases vehicles

from others and often uses the owners to drive the leased

trucks and deliver the products transported by Acme. In July

of 1996, Hathcock leased his 1990 Ford F-250 truck to Acme

for five years by a document executed by both parties styled

“Lease Agreement.” (App. 25a.) The lease contained the

foliowing terms of payment to Hathcock:

3. As consideration for the use of the Leased

Equipment, as herein provided, Lessee agrees

to pay Lessor seventy (70%) percent of the

“Earned Revenue derived by the Lessee from

the Leased Equipment,” as defined herein, less

driver’s wages; payroll taxes (including FICA

and other deductions); cost of medical or

hospitalization insurance, if applicable; pre-

employment driver application information

costs, including cost of obtaining motor

vehicle driving record; cost of pre-employment

driver medical examinations, testing and

screening; cost of driver medical

examinations, testing and screening, including

driver drug testing, screening, medical

evaluations and consultations, and biennial

medical examinations as may be required by

the U.S. Department of Transportation,

Federal Highway Administration or any other

7

governmental body, and such other costs or

payments made by Lessee by reason of driver

employment, and less any “Operating costs

and expenses,” and other charges hereinafter

provided, which are incurred by Lessee in

connection with the use and/or operation of

the Leased Equipment and for which Lessor

shall be responsible.

(App. 26a.)

The quoted paragraph is the source of this

controversy. The Court will observe that Acme (as lessee)

agreed to pay to Hathcock (as lessor) 70% of the revenue

earned by the truck, “less driver’s wages; payroll taxes

(including FICA and other deductions); cost of medical or

hospitalization insurance” and various other expenses

incurred by Acme “by reason of driver employment.” Relying

on paragraph 3, Acme deducted from Hathcock’s 70%

payment a sum equal to 23% of the driver's wages. Acme

represented to Hathcock that the 23% deduction was to cover

Social Security (FICA), Federal Unemployment (FUTA), and

State Unemployment (SUTA) taxes and_ worker's

compensation expenses for the truck’s driver.

2. Hathcock drove his truck for Acme. -

During the term of the lease, Hathcock drove the truck he

had leased to Acme and delivered items for Acme. The

process by which he was paid, and occupied the position of

driver of his own vehicle is rather convoluted, however.

After a lessor, such as Hathcock, leases a vehicle, he decides

who will drive it, either by recruiting the driver or by

exercising veto power over a driver recruited by Acme.

Hathcock, as lessor, also sets the driver’s wages at between

10% and 25% of the gross 70% lease payment due to the lessor.

Hathcock, as lessor, also provides numerous other benefits

for the driver.

iM

- 8

Hathcock selected himself as the driver and set his

salary at 10% of the gross amount he was entitled to receive

as lessor.

Under that arrangement, Hathcock received two

checks from Acme. One check was for his services as a

driver of the truck. That check was in the gross sum of 10%

of 70% of the gross amount earned by the truck. From that

amount, Acme deducted federal taxes and state taxes, and

Hathcock received the balance.

The second check Hathcock received was the lease

payment. The gross amount of that check was based on 70%

of the revenue earned by the truck. From that 70%, Acme

deducted the wages paid to Hathcock and an additional

amount set by Acme at 23% of the amount of.the driver’s

wages, for (1) FICA, (2) FUTA, and (3) SUTA taxes and (4)

Worker’s Compensation expenses.

Thus, Acme deducted the 23% from money it owed

Hathcock as lessor to pay taxes it owed because it treated

Hathcock as an employee. Acme collected this money from

Hathcock even though it was fully aware that the taxes were

its responsibility under the law.

:

Also, although Acme told the drivers that the |

collection was for the taxes, it continued to deduct money |

from the lessor’s share for taxes even after it had paid all of |

the taxes it was required to pay. |

|

|

|

Under any view of the evidence, Acme was using

Hathcock’s money to pay taxes it owed and, had he earned

more than the taxable maximum, it would have continued to

take money from him for those taxes when it no longer owed

them. Whether it can do so under state and federal law is the

crux of this lawsuit.

9

REASONS TO GRANT THE WRIT

Introduction

The federal and state FICA and FUCA/SUCA statutes

are worded and designed to place on an employer

responsibility for the taxes the statutes assess. All of the

statutes either expressly or impliedly prohibit the employer

from recouping the taxes from the employee. Acme and

other trucking companies are evading the words and intent of

the statutes by doing indirectly what they cannot do directly,

and their scheme is eviscerating the statutes. For the

following reasons, this Court should address the problem and

stop the scheme.

1. The case presents an important question

of federal law that should be settled by this Court. - The

Fifth Circuit has approved a plan that allows an employer to

lease an asset from an employee, use the asset in the

business, then collect from the employee the FICA and

unemployment taxes paid on the employee. The Supreme

Court should address this problem now, for four reasons.

First, numerous cases that challenge the scheme are

pending in Texas and Louisiana including the following:

Cause No. E-161,158; William Lloyd Bridges v.

Andrews Transport, Inc.; In the 172™ Judicial District

for Jefferson County, Texas

Case No. 09-01-00477-CV; Bridges v. Andrews

Transport, Inc.; In the Court of Appeals for the Ninth

District of Texas

Cause No. 97-44489; Evans v. Dynasty

Transportation, Inc.; In the 281" Judicial District

Court of Harris County, Texas

Case No. 13-00-00615-CV; Charles Evans v. Dynasty

Transportation, Inc.; In the Court of Appeals for the

Thirteenth District of Texas

Case No. 6:00-2365; Sammie Don Jones v. Transport

Holdings, L.L.C., In the U.S. District Court for the

Western District of Louisiana

There may be more cases pending elsewhere in the United

States.

Second, the erroneous Fifth Circuit opinion will be

cited as precedent and trucking companies will continue to

obtain back door reimbursement for taxes that are their sole

responsibility. The wrong is compounded because the

employee pays both sides of the tax but cannot deduct either

side from his own tax liability.

Third, other companies will adopt the same kind of

scheme, now that the Fifth Circuit has validated it. With the

Fifth Circuit opinion to guide it, every employer can do

exactly what Acme is doing. Hathcock leased his second-

hand, worn out, low value pickup truck to Acme. Another

employer can require the potential employee to “lease”

sometbing else—a desk, a pencil, a hammer, a law book, or a

pair of shoes—then hire that person to sit at the desk, work

with the pencil, hammer, or law book, or wear the shoes to

call on customers. Like Acme, the employer can pay the

person a percent of the revenue the person generates, as a

lease payment for the item, but deduct from the lease

payment the taxes, insurance, and other “employee expenses”

paid because the person is an employee. Thus, the employer

can recoup the taxes assessed against it because of its

employment of the same person from whom it is recouping

the taxes.

Fourth, the companies that use this scheme are

working both sides of the street. They receive tax credits for

' these taxes, U.S. v. State of New York, 315 U.S. 510, 515

(1942), then collect from the employee the same taxes for.

which they are given credit.

eee

11

The FICA and FUTA/SUTA statutes become

meaningless if this scheme is permissible, because it violates

the purpose of FICA and FUTA/SUTA in two ways. First, it

allows the employer to escape the share Congress said it

should pay. It is crystal clear that Congress intended for the

employer to pay its share without reimbursement from the

employee. 26 U.S.C. 3301; 42 U.S.C. 407. Also, because the

salary is minuscule in most cases, the employee will not pay

for or receive maximum or even significant FICA or

FUTA/SUTA benefits, thus adding to the general public’s tax

burden for medical care and other welfare costs, a burden the

statutes were designed to prevent. Social Sec. Bd. v.

Nierotko, 327 U.S. 358, 364 (1946).

If the scheme is legal, this Court should say so and

settle the issue now. If it is illegal, the Court should say so

and stop this evasion of clear Congressional intent.

2. The Court of Appeals committed a serious

error. - There are two indisputable facts in this case. First,

the laws of the United States, Texas, and Louisiana prohibit

an employer from being reimbursed by the employee, directly

and indirectly, for the employer’s share of FICA, FUTA, and

SUTA taxes. 26 U.S.C. 3301, 3111; TEX. LABOR CODE §

207.071(B); LA . REV. STAT. § 23:1691. Second, Acme is

obtaining reimbursement from Hathcock, its employee, for

Acme’s share of FICA, FUTA, and SUTA taxes assessed

because of Hathcock’s employment. (App. 26a.) Acme and

the Fifth Circuit justify the scheme by saying Hathcock is

Acme’s employee when being paid for driving his truck but

not when being paid for allowing Acme to allow him to

use his truck. Hathcock suggests that the Fifth Circuit

opinion is wrong, and that Acme is violating the letter and the

spirit of the pertinent statutes and the public policy behind

them, for the following reasons.

a. The employer must pay its share of

the FICA tax. - The Social Security Act, 42 U.S.C. § 401 et.

seq. establishes a federal program for the benefit of the aged,

blind and disabled and their dependents. FICA imposes a tax

12

on both employees and employers that is measured by the

amount of wages paid with respect to employment. 26 U.S.C.

§ 3101, 3311; 42 U.S.C. § 1101(b). Social Security taxes are

excise taxes imposed upon employers for the privilege of

employing persons. See Leggett v. Missouri State Life Ins.

Co., 342 S.W.2d 833 (Mo. 1960). The rationale is simple: For

every dollar amount of labor consumed by an employer, it is

required to commit an amount of money in the form of a tax

earmarked for the laborer during times of retirement or

disability.

Numerous courts have recognized the important and

overwhelming public policy interest which brought about the

existence of the Social Security Act. A common judicial

conclusion is that the Social Security Act is intended to

ameliorate some of the rigors of life for those who are

impoverished or disabled. Dvorak v. Celebrezze, 345 F.2d

894, 897 (10" Cir. 1965). Another is that the Act’s primary

objective is to provide workers and their families with the

basic protection against hardships created by loss of earnings

due to illness or old age. Mathews v. De Castro, 429 U.S. 181,

186 (1976).

The public importance of the Social Security Act is

sharply defined by the words printed on the face of the Act

itself. The preamble introducing the Act states that it is

intended:

“.. to provide for the general welfare by

establishing a system of Federal old-age

benefits, and by enabling the several States to

make more adequate provision for aged

persons, dependant and crippled children,

maternal and child welfare, public health, and

the administration of their unemployment

compensation laws ....” S. Rep. No. 74-628, 1"

Sess. 3-4 (1935).

13

Each benefit provided for under the Act is structured

by Congress to be paid for by both the employer and the

employee. This Court has said that the “purpose of the

Federal Old Age Benefits of the Social Security Act is to

provide funds through contributions by employer and

employee for the decent support of elderly workmen who

have ceased to labor.” Social Sec. Bd. v. Nierotko, 327 U.S.

358, 364 (1946). Accord: Helvering v. Davis, 301 US. 619,

641 (1937); H.R. Rep. No. 76-728, 1" Sess. 3-4 (1937); S. Rep.

No. 76-734, 1" Sess. 3-4 (1937). Here, however, Hathcock has

been required to pay both the employer’s and the employee's

contribution for FICA. Benefits flowing to Hathcock under

the Act have been directly diminished by the doubling of the

costs of those benefits to him. By forcing him to pay both

components of the amounts required by law, Acme has

decreased his benefits while creating an innovative windfall

profit center for itself. Acme escapes all of the financial

burden imposed upon it by law and, by shifting that burden to

Hathcock, enhances its own market competitiveness by

having a lower cost of doing business.

An analogous case illustrates the error. In In re

Richardson Dinner Theatre, Inc., 421 F.Supp. 423 (N.D. Tex.

1976), an employer in bankruptcy argued that the employee

should pay both halves of the FICA tax. The Court rejected

the argument because it “flies in the face of statutory intent

that the employee should only partially finance the benefits

of the system.” Jd. at 425-26. The court went on to say that

“a court should be loath diminish this limited protection by a.

.. reading . .. which lessens the worker’s” statutorily defined

benefits. Jd. It is clear that Acme’s scheme violates the

intent and purpose of the Social Security Act.

b. The employer must pay the FUTA

tax. - FUTA is a federal tax collected and used to benefit

employees during temporary periods of unemployment. 26

U.S.C. § 3301. To finance unemployment benefits, FUTA

imposes a tax only on employers for employees engaged in

certain categories of employment. 26 U.S.C. § 3306(c).

14

Deductions for an employer's contribution to FUTA

from an employee’s compensation is in violation of the

Federal Unemployment Compensation Act. Specifically, 26

U.S.C. § 3301 states “[t]here is hereby imposed on every

employer (as defined in section 3306(a) for each calendar

year an excise tax, with respect to having individuals in his

employ ...”. (emphasis added). By its scheme, Acme is also

illegally shifting the imposition of this tax to Hathcock.

Hathcock simply has no liability for FUTA taxes and hence

the deductions are patently and purposefully unlawful.

Judicial approval of the scheme will, of course, have the

consequences outlined above. There will be a fire storm of

activity by employers as they draft lease agreements to make

employees into two-headed cash cows.

Cc. The employer must pay the SUTA

taxes. - Texas enacted its SUTA law in 1935. Tex. S. Con.

Res. 5, 44" Leg., 3" Sess. (1935). When the Texas Legislature

passed the original SUTA law, the intent mirrored Congress’

intent to provide an orderly system of contributions for the

care of the unemployed during times of economic difficulty.

The original SUTA stated the “contributions shall accrue and

become payable by each employer for each calendar year in

which he is subject to this Act.” Chapter 482, sec. 7, Tex. S.

Con. Res. 5, 44” Leg., 3° Sess. (1935). With uncanny wisdom

and foresight, the Texas Legislature anticipated the very

conduct engaged in by Acme in this case when it enacted the

Texas Unemployment Tax Act. To protect the rights and

benefits of employees, the original Texas SUTA provided that

“no employer shall directly or indirectly make or require or

accept any deduction from wages to finance the employer’s

contributions required from him.” Chapter 482, sec. 15(a),

Tex. S. Con. Res. 5, 44" Leg., 3° Sess. (1935). (Emphasis

added).

Section 204.002(a) of the Texas Unemployment

Compensation Act provides that “... an employer shall pay a

contribution on wages for employment pay during a calendar

year or the portion of the calendar year in which the

employer is subject to this subtitle.”. Only employers are to

15

pay SUTA contributions. Specifically, § 204.003 of the Texas

Unemployment Compensation Act provides that “an

employer may not deduct any part of a contribution from the

wages of an individual in the employer’s employ.”

The legislature’s intent that the conduct of the

defendant in this case not be tolerated is clearly evidenced by

Section (b) of 207.071, which provides that “an agreement by

an individual employed by an employer to pay all or a portion

of a contribution or reimbursement required to be paid by the

employer under this subtitle is not valid.”

Unequivocally, the legislature went on to state in §

207.072 of the Act that “an employer may not require or

accept a waiver of a right of an individual employed by the

employer under this subtitle.” Acme has created a contract

that contains provisions preordained invalid and void by the

Texas Legislature. It is rare in law and litigation to discover

legislative commands and proscriptions so clear and

emphatic.

Section 207.073 of the Act also says “an employer may

not directly or indirectly, make, require or accept a deduction

from wages to finance a contribution or reimbursement

required to be paid by the employer under this subtitle.”

Under any view of the law, Acme’s scheme is an indirect

violation of the Act. Additionally, Acme exacerbates its

already unlawful conduct by continuing to exact monies

beyond the upper limit of the first $9,000 of a person's

compensation per annual period. Acme extracts these

dollars from the first $1.00 paid until the year’s end without

regard to the legislative command to stop such SUTA

contributions at $9,000.

Like the Texas act, Louisiana’s Employment Security

Act (SUTA) imposes a duty on every employer to provide

unemployment benefits for its employees through

contributions to the state’s unemployment security fund, and

the unemployment compensation contribution is paid solely

by the employer. The employer may not shift any part of the

16

contribution to the employees. LA. REV. STAT § 23:1531(A).

Louisiana’s version of SUTA is as clear as Texas’

version. Only employers are allowed to pay SUTA

contributions. In fact, the Louisiana legislature went further

to ensure only employers paid the contribution. To

determine the amount of contributions due annually, Section

1532 of Louisiana’s Employment Security Act states “each

employer shall pay contributions equal to two and seven-

tenths percentum of wages paid by him during each calendar

year.” LA. REV. STAT. § 23:1532.

Also, like Texas, Louisiana emphasizes its intentions

to protect individual workers rights by forbidding waivers or

unconscionable contract provisions by the employer.

Specifically, Section 1691 of Louisiana’s. Employment.

Security Act states that “No agreement by any individual in

the employ of any person or concern to pay all or any portion

of the employer’s contribution, required under this Chapter,

from such employee, shall be valid.” LA. REV. STAT. §

23.1691.

Acme has disregarded federal and state laws, the

intent of the federal and state legislatures, and the public

policy of the federal and state legislatures. This scheme

negates FICA, FUTA, and SUTA statutes. Whether directly or

indirectly Acme cannot recover its money from Hathcock.

17

CONCLUSION

For the foregoing reasons, Hathcock respectfully asks

the Court to issue a writ of certiorari to review the decision

of the United States Court of Appeals for the Fifth Circuit

and, upon review, to reverse the judgments of the Fifth

Circuit and the District Court and remand the case for trial.

Respectfully submitted,

Richard N. Countiss

Counsel of Record

Texas Bar No. 04887000

LAW OFFICE OF

RICHARD N. COUNTISS

8441 Gulf Freeway, Suite 600

Houston, Texas 77017-5001

TELEPHONE: 713/230-2203

FAX : 713/230-2215

ATTORNEY FOR PETITIONER

la

(Any footnotes trail end of each document)

No. 00-20810

UNITED STATES COURT OF APPEALS FOR THE FIFTH

CIRCUIT

BOBBY HATHCOCK,

Plaintiff-Appellant,

Versus

ACME TRUCK LINES, INC.,

Defendant-Appellee.

September 6, 2001, Decided

SUBSEQUENT HISTORY:

Rehearing Denied October 3, 2001, Reported at: 2001 U.S.

App. LEXIS 22378.

PRIOR HISTORY:

Appeal from the United States District Court for the Southern

District of Texas, Houston Division. H-99-CV-2216. Davie

Hittner, US District Judge.

DISPOSITION:

AFFIRMED.

COUNSEL:

For BOBBY HATHCOCK, Plaintiff - Appellant: Herbert Tobias

Schwartz, Williams Bailey Law Firm, Houston, TX. Richard

Neill Countiss, Law Office of Richard N Countiss, Houston,

TX.

For ACME TRUCK LINE INC, Defendant - Appellee: M David

Frock, Houston, TX. Ellis B Murov, Charles Frederick

Seemann, III, Deutsch, Kerrigan & Stiles, New Orleans, LA.

JUDGES:

Before JOLLY, SMITH, and WIENER, Circuit Judges.

OPINIONBY:

WIENER

OPINION:

WIENER, Circuit Judge:

Plaintiff-Appellant Hathcock seeks reversal of the district

court's grant of summary judgment in favor of Defendant-

Appellee Acme Truck Lines, Inc. ("Acme"). Because we find

Hathcock, in his capacity as a truck driver, was an employee

of Acme at all pertinent times, we affirm the district's court

grant of summary judgment.

1.

FACTS AND PROCEEDINGS

Acme transports equipment, materials, and supplies

throughout the country. Hathcock, pursuant to a written

agreement (the "lease agreement") leased his truck to Acme.

The third paragraph of the lease agreement contains the

provision central to this case:

"As consideration for the use of the Leased

Equipment...Lessee [Acme] agrees to pay

Lessor [Hathcock] (70%) percent of the

"Earned Revenue derived by the Lessee from

the Leased Equipment {Hathcock's

truck],"...less driver's wages; payroll taxes

(including FICA and other deductions); cost of

medical or hospitalization insurance, if

applicable;...and such other costs or

payments made by Lessee by reason of driver

employment and less any "Operating costs and

expenses,"[defined in detail, and _ not

contested, in the fifth paragraph of the lease

agreement]...which are incurred by Lessee in

connection with the use and/or operation of

the Leased Equipment for which Lessor shall

be responsible" (emphasis added).

3a

Acme accorded Hathcock the option of choosing and

designating the driver of the truck he leased to Acme or

allowing Acme to supply the driver for his truck.

Exercising his option to choose the driver of his truck,

Hathcock selected himself. Pursuant to another provision of

the lease agreement, he allocated ten percent (10%) of his

Lessor's revenue to driver's wages. In keeping ‘with its

company policy, Acme informed Hathcock that he would be

paid by two separate checks _ one to him as lessor for the

lease of his truck ("rental check") and the other to him as the

designated driver of that truck ("paycheck"). In another

memorandum, Acme informed Hathcock of the fixed

percentage of the driver's wages that it would deduct from

the rental check to cover those driver-— and employee—

related costs detailed in the lease agreement's above-quoted

third paragraph as chargeable to the lessor. °

Eventually, Hathcock terminated the lease agreement. He

then filed suit against Acme in Texas state court, asserting

various causes of action including fraud, breach of contract,

conversion, and unjust enrichment. Acme removed the case

to the United States District Court for the Southern District of

Texas. After the parties filed cross motions for summary

judgment, the district court granted Acme's motion and

denied Hathcock's. After his Motion for Reconsideration was

denied, Hathcock timely filed a notice of appeal.

Il.

DISCUSSION

A. Standard of Review

We review a grant of summary judgment de novo,

applying the same standard as the district court.’ A motion

for summary judgment is properly granted only if there is no

genuine issue as to any material fact.” An issue is material if

its resolution could affect the outcome of the action.’ In

deciding whether a fact issue has been created, we must view

the facts and the inferences to be drawn therefrom in the

light most favorable to the nonmoving party.’

4a

The standard for summary judgment mirrors that for

judgment as a matter of law.” Thus, the court must review all

of the evidence in the record, but make no credibility

determinations or weigh any evidence.” In reviewing all the

evidence, the court must disregard all evidence favorable to

the moving party that the jury is not required to believe, and

should give credence to the evidence favoring the nonmoving

party as well as that evidence supporting the moving party

that is uncontradicted and unimpeached.

B. Hathcock's Dual Capacity as Lessor and Driver

Hathcock bases his claims on the proposition that Acme

and only Acme is responsible for FICA, FUTA, and SUTA

taxes." Therefore, contends Hathcock, Acme's deductions

from his rental check to help defray its costs for those taxes

were unlawful. The legality of the payment system employed ~*~

by Acme depends in large part on its statutory and

contractual ability to treat Hathcock as an owner-lessor for

some purposes while treating him as an employee for others.

Hathcock does not contend that if he had selected and

designated a third party to drive his truck for Acme, that

driver would not have been lawfully and properly deemed an

employee of Acme and paid directly by Acme and not by

Hathcock. Neither does he contest that if such had been the

case Acme would have been entitled to deduct from

Hathcock's rental check all employee costs designated as

such in the lease agreement. Hathcock's sole contention here

is that everything changes when the individual who leases his

truck to Acme drives it himself, i.e., that employee costs

incurred by Acme when the lessor drives cannot be charged

back against that person, wearing his lessor's hat.

In diametric opposition, Acme insists that it is entitled to

treat Hathcock the same way when he drives the truck that

he leased to Acme as it would treat a third-party driver

chosen by Hathcock. Thus, Acme insists, it was entitled to

pay him with two checks, one for each of his roles, and to

deduct the contractually specified employee costs from his

rental check. Acme uniformly treats all truck drivers

including those who own their trucks and lease them to Acme

5a

as employees, paying them by payroll checks from which the

employees' portions of federal income, state income, and

social security taxes are withheld. In contrast, Acme treats all

lessor-owners including those who choose to drive their

leased-out trucks as independent contractors, paying them by

rental check from which are deducted the lessor-designated

driver's wages plus a percentage thereof to cover the

employer's share of payroll taxes and other employer-related

costs incurred by Acme.

Because most of Acme's lessor-owners do not choose to

drive their own trucks, Acme's two-check system is the norm,

and is commercially logical as well. As suggested by a

venerable case from this court and by a decision from the

Texas Workers' Compensation Commission as well, Acme's

application of its two-check, dual-capacity system to

Hathcock is proper:’ Acme may simultaneously treat him as

an owner-lessor and as a driver-employee. Hathcock had the

option either to drive the truck himself or to select a third-

party driver, and the lease agreement clearly contemplates

the lessor/driver dichotomy. When Hathcock elected to drive

the truck himself, he donned a second hat.

C. Hathcock's Status as an Employee

Hathcock argues that he was an independent contractor

at all times and was never Acme's employee. Acme, on the

other hand, maintains that when Hathcock elected to serve as

a truck driver, he became Acme's employee despite his

continued role as the independent contractor/lessor of the

truck. The district court, in granting summary judgment in

Acme's favor, was satisfied that the facts, viewed in the light

most favorable to Hathcock, established that he was an

employee when he drove the truck leased to Acme. We agree

with this determination of the district court.

Hathcock's capacity vis-a-vis Acme when he drove the

truck is material. If he were Acme's employee, then he

paycheck not merely proper but mandated by state and

federal tax law. Conversely, if Hathcock were an independent

6a

contractor when wearing his driver's hat, withholding monies

from his rental check to cover Acme's employee expenses

would have been improper. In fact, if Hathcock were an

independent contractor when he drove, Acme would not have

been responsible for withholding and remitting income,

FICA, FUTA, and SUTA taxes because Acme is required to do

that for its employees only.

Courts have developed various tests to differentiate

employees from independent contractors. Case law from

both Texas and Louisiana recognizes "the right to control an

employee's conduct" as the most important component of the

determination.” The state appellate court in Hoecsht

Celanese Corp. v. Compton explained that Texas courts

analyze five factors in determining the employer's degree of

control: (1) the independent nature of the workman's

business; (2) the workman's obligation to furnish necessary

tools, supplies, and materials; (3) the workman's right to

control the progress of the work except as to the final results;

(4) the time for which the workman is employed; and (5)

whether the workman is paid by time or by job." Similarly,

we have evaluated employment relationships in the context

of Title VII and the ADEA by using a hybrid economic

realities/common law control test that focuses on whether

the alleged employer had the right to hire and fire, the right to

supervise, the right to set the work schedule, paid the

employee's salary, withheld taxes, provided benefits, and set

the terms and conditions of employment.” And, in examining

employee status under an FLSA claim, we considered five

factors: (1) degree of control exercised by the alleged

employer; (2) the extent of the relative investments of the

worker and alleged employer; (3) the degree to which the

worker's opportunity for profit or loss is determined by the

employer; (4) the skill and initiative required in performing

the job; and (5) the permanency of the relationship.”

Under each of the foregoing tests, the instant facts

mandate a conclusion that an employer-employee

relationship existed when Hathcock drove the truck for

Acme, regardless of his contemporaneous ownership of the

vehicle and his independent contractor role as its lessor.

Acme treated Hathcock as an employee for tax purposes and

7a

withheld mandated federal and state income and social

security taxes from his driver's paycheck, and paid Hathcock,

the driver, a regular salary as an employee. When he drove,

the terms and conditions of Hathcock's employment were set

by Acme: He had to submit to Acme's medical and driving

requirements; he was subject to discipline for violation of

Acme's personnel policies, including anti-harassment, drug

testing, and 401(k) Plan; he was subject to discharge by Acme

for violations of its Driver Manual; he was bound to work

exclusively for Acme; and while doing so he had to drive a

truck sporting the Acme logo at all times. In addition, Acme

covered the costs of advertising, employing administrative

staff, and soliciting business, including all business for

Hathcock. He had no outside or personal customer base; he

was "on-call" for Acme at all times; he did not participate in

setting prices or rates for his deliveries; and Acme owned all

permits and transportation rights required for Acme drivers,

including Hathcock. The relationship between Acme and its

drivers, including Hathcock, has always been of an indefinite

duration. Finally, Acme showed that the IRS conducted an

employment tax compliance check in 1996, and found no

fault with Acme's accounting, deductions, or treatment of

drivers as employees.

Hathcock does not dispute the facts presented by Acme.

Instead, he offers only his own deposition testimony

expressing his subjective belief that he was an independent

contractor and stating that he was treated as such by his

CPA. Neither we nor the courts of Texas, however, have

allowed a party's otherwise unsupported, conclusional

testimony to create a factual dispute sufficient to defeat a

motion for summary judgment."

Hathcock's second argument purporting to create a

genuine fact issue is that he possessed significant control

over his work as a driver. Under the lease agreement,

Hathcock, as a lessor, was allowed to set the driver's wages

as a percentage of the lessor's revenue, was authorized to

choose a driver and could veto Acme's choice of driver if

Hathcock elected not to choose one.” As lessor, Hathcock

also had the responsibility of maintaining the truck and

providing specified services. The flaw in Hathcock's second

8a

argument lies in his failure to recognize (or his deliberate

blurring of) the distinction between Hathcock, the owner-

lessor, and Hathcock, the driver. Even though, as the owner-

lessor, he possessed a modicum of control, as a driver he

possessed none of consequence.

Although it is virtually indistinguishable from his second

argument, Hathcock's third argument for insisting on the

existence of genuine issue of material fact is grounded in the

jurisprudential definition of an independent contractor.

Under both Texas and Louisiana case law, an independent

contractor is one who "works according to his own methods

without direct supervision or control by the employer except

as to the overall result." Proffering this standard, Hathcock

notes that, as driver, he picked his own delivery routes, and

Acme did not interfere with "other details" of his

performance.

In assessing whether drivers for a courier service were

employees or independent contractors, we stated that

"initiative, not efficiency determines independence.""

Hathcock's ability to pick his delivery route and work details

does not evince sufficient initiative to allow him to be

classified as an independent contractor as a matter of law.

Generally, the worker-status inquiry is fact intensive, and

presumption weighs in favor of submission of such inquiries

to the jury. The instant case, however, presents a situation

that permits only one reasonable conclusion: Wearing his

truck driver's hat, Hathcock was Acme's employee.”

D. Exclusivity of Tax Provisions at Issue

Undeterred, Hathcock argues alternatively that, even if

Acme's lessor-drivers are deemed to be its employees, Acme

nevertheless violates federal and state law when it deducts

money from a lessor-driver's rental check to defray the

employer's FICA, FUTA, and SUTA tax expenses. The tax

liabilities created by those provisions, he contends, are the

exclusive responsibility of employers.” The relevant

provisions, however, do not forbid Acme's practice of

charging those. employee costs back to its lessors. Acme

expressly deducts from the rental check given to its lessors a

9a

fixed percentage of the drivers' wages to recoup its

employee-related costs; it does not deduct these

contributions from the paychecks given to its employees,

including drivers.” Although the statutes delineate the

functions of withholding and remitting these taxes as the

responsibility of the employer vis-a-vis the taxing authority,

they only bar deduction of the employer's portion of these

taxes from the "wages of an individual in the employer's

employ." The statutes do not prohibit employers from

charging back and deducting from independent contractors,

suppliers, lessors, or other non-employee personnel, funds to

defray the employer's costs in connection with those taxes.

As the arrangement embodied in Acme's lease agreement

does not contravene federal or state laws or regulations,

much less their respective public policies, Acme may, in

keeping with its contracts, lawfully deduct part of its

employee-related expenses from its rental payments to

lessors qua lessors, even if Acme incurs those expenses by

virtue of its employment of lessors qua drivers.

Il.

CONCLUSION

For the foregoing reasons, the district court's grant of

summary judgment in favor of Acme is

AFFIRMED.

Footnotes

' Morris v. Covan World Wide Moving, Inc., 144 F.3d

377, 380 (5th Cir. 1998).

? Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S.

317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986).

> Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91

L. Ed. 2d 202, 106 S. Ct. 2505 (1986).

‘ See Olabisiomotosho v. City of Houston, 185 F.3d 521,

525 (5th Cir. 1999).

10a

* Celotex Corp., 477 U.S. at 323.

° Reeves v. Sanderson Plumbing Products, Inc., 530 U.S.

133, 150, 147 L. Ed. 2d 105, 120 S. Ct. 2097 (2000). [**5]

“Td. at 151.

* FICA refers to Social Security or Federal Insurance

Contribution Act taxes. FUTA refers to _ Federal

Unemployment Tax Act taxes. SUTA refers to the state

analogues of the FUTA taxes. In the case at bar, SUTA will

refer to both the Texas and Louisiana counterparts to FUTA.

* See Helms v. Sinclair Refining Co., 170 F.2d 289, 291

(5th Cir. 1948) (There is not necessarily such repugnance

between them that both relationships [that of independent

contractor-employer and that of master-servant] could not

exist at the same time in connection with different phases of

the work. An employee might be an independent contractor

as to certain work and a mere servant as to other work not

embraced within the independent contract."); see also,

Rakowitz v. Zurich American Ins. Co., Docket No. SA/98-

107023/01-CC-SA45 (Tex. Workers' Comp. Comm'n 1999)

(deciding that the deceased occupied dual roles of lessor and

driver with Acme and that on the day of his accident, he was

acting as a lessor and therefore could not recover benefits

due to him as an employee).

"’ Newcomb v. North East Ins. Co., 721 F.2d 1016, 1017

(5th Cir. 1983) (discussing the Louisiana test); Hoechst

Celanese Corp. v. Compton, 899 S.W.2d 215, 220 (Tex. App.

- Houston 1994).

" Hoecsht, 899 S.W.2d at 220 (citing Pitchfork Land and

Cattle Co. v. King, 162 Tex. 331, 346 S.W.2d 598 (1961)).

" Deal v. State Farm County Mutual Ins. Co., 5 F.3d

117, 118-19 (5th Cir. 1993).

" Herman v. Express Sixty-Minutes Delivery Service,

161 F.3d 299, 303 (Sth Cir. 1998) (rigorously applying the

five factors to the specific facts of the case and stating, "no —

single factor is determinative.").

lla

“ See, e.g., Marshall v. East Carroll Parish Hosp., 134

F.3d 319, 324 (5th Cir. 1998) (citing Clark v. America's

Favorite Chicken Co., 110 F.3d 295, 297 (5th Cir. 1997)

("Unsupported allegations . . . or deposition testimony setting

forth ultimate or conclusory facts and conclusions of law are

insufficient to defeat a motion for summary judgment."));

Hoecsht, 899 S.W.2d at 221 ("The key inquiry in such a

situation is control, not a party's belief as to their status.").

' Acme allows lessors who choose their own drivers to

select a percentage, between 10% and 25% of their lessors'

revenue, as the drivers' wage.

' Newcomb, 721 F.2d at 1017; Hoechst, 899 S.W.2d at

220 ("An independent contractor has been defined as any

person who, in the pursuit of an independent business,

undertakes to do a specific piece of work for other persons,

using his own means and methods, without submitting

himself to their control in respect to all its details.") (internal

quotations omitted) (citations omitted).

“ Herman, 161 F.3d at 305 (citing Usery v. Pilgrim

Equipment Co., 527 F.2d 1308, 1314 (Sth Cir. 1976)

("Routine work which requires industry and efficiency is not

indicative of independence and nonemployee status.")).

'’ Here, we assume that when driving the truck Hathcock

was discharging his driver obligations, including pick-up and

delivery of items pursuant to Acme's business. When

Hathcock drove his own truck for the limited purpose of

discharging his contractual obligation of truck maintenance

and service, then he was acting in the capacity of lessor.

” Hathcock relies on the following federal and state tax

statutes:

26 U.S.C. § 3111: "Old age, survivors, and disability

insurance In addition to other taxes, there is hereby

imposed on every employer an excise tax, with respect to

having individuals in his employ...paid by him with respect to

employment..."

26 U.S.C. § 3301: "There is hereby imposed on every

employer...an excise tax, with respect to having individuals in

12a

his employ..."

Tex. Labor Code § § 204.002, 204.003: "An employer shall pay

a contribution on wages for employment paid during a

calendar year..."

"An employer may not deduct any part of a contribution from

the wages of an individual in the employer's employ."

La. Rev. Stat. Ann. § 23:1531: "Contributions shall accrue and

become payable by each employer...with respect to wages for

employment. These contributions shall become due and be

paid by each employer...and shall not be deducted, in whole

or in part, from the wages of individuals in the employer's

employ."

* Pursuant to federal law, Acme withholds the employees’

share of required federal and state income and social security

(FICA)taxes, including deductions from drivers.

13a

No. 00-20810

UNITED STATES COURT OF APPEALS FOR THE FIFTH

CIRCUIT

BOBBY HATHCOCK,

Plaintiff-Appellant,

Versus

ACME TRUCK LINES, INC.,

Defendant-Appellee.

October 11, 2001 Filed

Appeal from the United States District Court for the Southern

District of Texas, Houston.

Before JOLLY, SMITH, and WIENER, Circuit Judges.

JUDGMENT

This cause was considered on the record on appeal

and was argued by counsel.

It is ordered and adjudged that the judgment of the

District Court is affirmed.

IT IS FURTHER ORDERED that plaintiff-appellant

pay to defendant-appellee the costs on appeal to be taxed by

the Clerk of this Court.

ISSUED AS MANDATE: OCT 11 2001

l4a

No. 00-20810

CIVIL ACTION NO. H-99-2216

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

BOBBY HATHCOCK,

Plaintiff,

Versus

ACME TRUCK LINES, INC.,

Defendants.

July 14, 2000 Filed

ORDER

Pending before the Court is the Motion for Summary

Judgment (Document #48) filed by the plaintiff Bobby

Hathcock (“Hathcock”), the Motion for Summary Judgment

(Document #49) filed by the defendant Acme Truck Line, and

the Motion to Strike Plaintiffs Summary Judgment Evidence

and Alternative Evidentiary Objections (Document #57) filed

by Acme. Having considered the motions, submissions, and

applicable law, the Court determines that Acme’s motion for

summary judgment should be granted and Hathcock’ s

motion for summary judgment denied. Acme’s motion to

strike is denied as moot.

Acme is a Louisiana corporation with truck terminals

in Louisiana and Texas. Acme transports equipment,

materials, and supplies throughout the United States. Acme

does not own its own trucks. Rather, it leases vehicles of

various sizes from other corporations, partnerships, and

individuals. Acme employs drivers about half of whom own

theft own trucks.

Hathcock owns a 1990 Ford pick-up truck. In July,

15a

1996, Hathcock and Acme executed a Lease Agreement for

that truck. Pursuant to the terms of the Lease Agreement,

Acme paid Hathcock seventy percent of the earned revenue

derived by the lessee from the leased equipment, less inter

alia driver’s wages, payroll taxes (including FICA and other

deductions), and such other costs or payments made by

Lessee by reason of driver employment. Pursuant to the

Lease Agreement, Hathcock received a rental check

whenever his truck was used to deliver supplies, materials

and other goods as requested by Acme customers.

Acme contends that the twenty-three percent it

charged lessors was not the actual withholding of FICA,

FUTA or other taxes paid to Hathcock under the lease.

Rather, the twenty three percent deducted from the lease

payments to Hathcock was a percentage of the driver's

wages, intended to cover part of Acme’s payroll taxes with

respect to those wages as provided for under the lease. Thus,

the 23 percent did not represent the withholding of taxes but

was an amount calculated by Acme and intended to defray

part of Acme’s cost for FICA, FUTA, SUTA, worker's

compensation and other taxes as a result of paying wages to

drivers.

Acme also employed Hathcock to drive his own truck.

Pursuant to the employment agreement, Hathcock would

receive a separate employment check and separate truck

rental check.

Hathcock filed the instant complaint alleging that

Acme engages in an illegal scheme whereby it deducts the

employer’s portion of FICA/Medicaid, the employees portion

of FICA/Medicaid, FUTA and SUTA from the paychecks of its

employees. Hathcock asserted claims of fraud, breach of

contract, conversion and unjust enrichment.

Hathcock filed a motion for summary judgment

arguing that he is entitled to prevail in this lawsuit as there

are no genuine issues of material fact. Acme also has filed a

motion for summary judgment. In its motion, Acme argues

16a

that it is entitled to summary judgment with respect to each

of the claims asserted by Hathcock.

Summary judgment is mandated “against a party who

fails to make a showing sufficient to establish the existence

of an element essential to that party’s case, and on which that

party will bear the burden of proof at trial.” Celotex Corp. v.

Catrett, 477 U.S. 317, 322 (1986). Initially the movant bears

the burden of demonstrating to the Court that there is an

absence of a genuine issue of any material fact. Id. at 323. The

burden then shifts to the party who bears the burden of proof

on the claims on which summary judgment is sought, to

present evidence beyond the pleadings to show there is a

genuine issue for trial, Id. A genuine issue for trial exists

when “there is sufficient evidence favoring the nonmoving

party for a jury to return a verdict for that party. If the

evidence is merely colorable, or is not significantly probative,

summary judgment may be granted.” Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 249-50 (1986) (citations omitted).

The Court has reviewed Hathcock’s motion for

summary judgment and determines that it should be denied.

Hathcock, as a plaintiff, has failed to establish that he is

entitled to prevail on summary judgment. Acme, however, has

established that it is entitled to prevail on summary judgment

on each of Hathcock’ s claims, as is more filly discussed,

infra.

In his complaint, Hathcock alleges that he was an

independent contractor when he worked for Acme. Thus, he

alleges that Acme should not have withheld various taxes

which are only applicable for employees. In response, Acme

has exhaustively briefed the issue of why Hathcock is an

employee and not an independent contractor. However, in his

motion for summary judgment, Hathcock argues that the

issue of whether or not he is an employee is irrelevant to this

case.

Whether the plaintiff and class members are

independent contractors or whether they are

employees of the Defendant is immaterial. If

17a

the plaintiff and these class members are

employees, the owners/operators have no

liability for FUTA taxes and hence the

deductions are patently and purposefully

unlawful. If the Plaintiff and class are

independent contractors, they may not be

assessed FUTA taxes because they are, by

statute, the sole obligation and responsibility

of an employer for the benefit of an employee

and an independent contractor is not an

employee.

Plaintiffs Motion for Summary Judgment at 18.

Notwithstanding Hathcock’s equivocation on this point, the

Court determines that the summary judgment evidence

submitted establishes that Hathcock was an employee and

not an independent contractor during the time he worked for

Acme.

Acme seeks summary judgment with respect to

Hathcock’ s allegations of fraud. To establish a cause of

action for fraud a plaintiff must prove an intentional

misrepresentation or omission regarding a material fact upon

which one reasonably and detrimentally relies. Abbott v.

Equity Group, Inc., 2 F.3d 613, 624 (5th Cir. 1993), cert.

denied, 114 S.Ct. 1219 (1994). According to Acme, it should

prevail on summary judgment with respect to the fraud claim

because: (1) Hathcock knew, pursuant to the rental

agreement that he signed that he would receive two separate

checks, one for driving his truck and one for leasing his

vehicle to Acme; and (2) Hathcock knew that Acme would

withhold twenty three percent of driver wages from his rental

check, pursuant to the lease agreement. Thus, Acme argues

that Hathcock cannot maintain a fraud cause of action as no

misrepresentations were made.

The Court agrees with Acme’s argument with respect

to the fraud claim. Hathcock signed a lease agreement which

specifically sets forth the amount of money that Acme would

18a

withhold from the rental paymnents. Hathcock has offered no

summary judgment evidence to the contrary. Accordingly,

summary judgment is granted with respect to the

fraud/misrepresentation claim.

The thrust of Hathcock’s breach of contract claim is

that Acme was in a special business relationship with him

that gave rise to an implied covenant of good faith and fair

dealing. Acme breached this implied covenant by deducting

money for taxes for which Hathcock did not owe, by not

informing Hathcock that he owned no taxes, and by charging

Hathcock an excessive administrative fee to accomplish

these unlawful takings.

Acme argues that it did not breach any contract with

Hathcock or breach any terms of its employment agreement

with Hathcock. Hathcock, in response, has failed to adduce

summary judgment evidence to support his breach of

contract claim, other than to rely upon his general contention

that Acme wrongfully deducted FICA, SUTA, FUTA, worker’s

compensation and other taxes from its employees’

paychecks. The Court determines that there is no summary

judgment evidence to support a claim for breach of contract

and summary judgment is proper with respect to this claim.

Hathcock has alleged that Acme converted funds from

the paychecks of its employees for its own use, while

representing that the funds were being used to pay for

plaintiff's tax liability under SUTA, FUTA, FICA, worker’s

compensation and other taxes when in fact, plaintiff has no

obligation to pay such taxes. Pursuant to Texas and Louisiana

law, a party commits conversion if it exercises wrongful

dominion and control over personal property belonging to

another. Mitchell Energy Corp. v. Samson Resources Co., 80

F.3d 976, 984 (Sth Cir. 1996); Dual Drilling Co. v. Mills Equip.

Inv., Inc., 712 So.2d 853, 857 (La. 1998).

Acme argues that summary judgment is proper with

respect to the conversion claim because where a party

consents to the complained of conduct, a party cannot be

held liable for conversion under either Texas or Louisiana

/ 19a

law. Gronberg v. York, 568 S.W.2d 139, 145 (Tex. App—Tyler

1978); Seal v. Knorpp, 957 F.2d 1230, 1238 (5th Cir. 1992). In

Gronberg, the court rejected the plaintiffs conversion claim

in a similar factual setting, stating that:

Where a person has knowledge that funds are

being deducted from his weekly earnings .. .

and he does not object or forbid the same to

be done, he certainly acquiesces in such taking

and cannot base an action of conversion on

such circumstances. . .

Prior to entering into the lease agreement with Acme,

Hathcock knew that Acme would be deducting twenty-three

percent from his rental check. Thus, even assuming the facts

in the light most favorable to Hathcock, he has presented no

summary judgment evidence that he was unaware that funds

were being withdrawn from his rental payments (even

assuming arguendo that the withdrawal of such funds was

unlawful). Accordingly, summary judgment will be granted

on the conversion claim.

Hathcock also has alleged a cause of action for unjust

enrichment. According to the complaint, Acme took

deductions of the various taxes from the plaintiff on the

pretext that the funds taken were taken lawfully and were the

employee’s burden to pay. Through this practice, Hathcock

argues that Acme was unjusfly enriched.

In its motion for summary judgment, Acme argues

that neither Texas nor Louisiana law recognizes unjust

enrichment claims where the parties have a contractual

relationship. Marple v. Kurzweg, 902 F.2d 397, 401 (Sth Cir.

1990); Green v. Levis Motors. Inc., 994 F. Supp. 735, 741-42

(M.D. La. 1997). Thus, because the lease agreement in this

case constitutes a contract, extra-contractual remedies, such

as unjust enrichment, are not available to Hathcock. The

Court agrees and determines that as a matter of law,

Hathcock is precluded from asserting a cause of action for

unjust enrichment in this case.

20a

Hathcock’s final cause of action is money had and

received. Specifically, Hathcock alleges that Acme wrongfully

took money from Hathcock’ s compensation, purportedly

pursuant to the requirements of SUTA, FUTA, FICA, worker's

compensation, and various other taxes, when in fact no such

taxes were owed. Thus, Hathcock argues that these monies

belong to him and must be returned to him.

Acme argues that this claim should be dismissed

because Acme’s two-check system is legal and valid.’ Acme

contends that it did not deduct or withhold SUTA, FUTA,

FICA, worker’s compensation premiums, or any other taxes

from the paychecks of those driving the leased trucks.

Rather, Acme has passed along some of the costs to the

lessor of the trucks. According to Acme, this does not

constitute a violation of the statutes upon which. Hathcock

relies, as those sums have not been deducted from the

paychecks of the drivers. Thus, Acme did not violate the laws

prohibiting it from passing along these costs to the its

employees.

The Court agrees with Acme’s analysis. The twenty-three

percent deducted from the rental payments did not represent

withholdings of the various taxes but rather was an amount

estimated by Acme to defray Acme’s cost for the taxes as a

result of its having to pay wages to the drivers. The summary

judgment evidence presented to the Court convincingly

establishes that this practice did not violate the federal laws

or the laws of Texas or Louisiana. Accordingly, summary

judgment is proper.

Based upon the foregoing, the Court hereby

ORDERS the following:

(1) the Plaintiffs Motion for Summary Judgment

(Document #48) is DENIED;

(2) the Defendant’s Motion for Summary

Judgment (Document #49) is GRANTED; and

(3) the Motion to Strike Plaintiffs Summary

Judgment Evidence and Alternative Evidentiary Objections

2la

(Document #57) is DENIED AS MOOT.

All parties shall bear their own costs.

SIGNED at Houston, Texas on this the 14 day of July,

2000.

DAVID HITTNER

United States District Judge

Footnote

‘In Fact, Acme argues that Hathcock actually earned more

money under the twocheck system than he would have

earned if had received only one global paycheck.

obi nd

22a

CIVIL ACTION NO. H-99-2216

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

BOBBY HATHCOCK,

Plaintiff,

Versus

ACME TRUCK LINES, INC.,

Defendants.

July 14, 2000 Filed

FINAL JUDGMENT

As the Court has entered an Order granting summary

judgment in favor of the defendant and against the plaintiff

the Court hereby

ORDERS that judgment be entered in favor of the

defendant

THIS IS A FINAL JUDGMENT.

All parties shall bear their own costs.

SIGNED at Houston, Texas on this the 14 day of July,

2000.

23a

CIVIL ACTION NO. H-99-2216

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

BOBBY HATHCOCK,

Plaintiff,

Versus

ACME TRUCK LINES, INC.,

Defendants.

August 29, 2000 Filed

ORDER

Pending before the Court is the Motion for

Reconsideration and Motion for Rehearing of Summary

Judgment (Document #64) filed by the plaintiff Having

considered the motion, submissions, and applicable law, the

Court determines that the motion should be denied.

Accordingly, the Court hereby

ORDERS that the Motion for Reconsideration and

Motion for Rehearing of Summary Judgment (Document #64)

is DENIED.

SIGNED at Houston, Texas on this the 28 day of

August, 2000.

DAVID HITTNER

United States District Judge

24a

No. 00-20810

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BOBBY HATHCOCK,

Plaintiff - Appellant

Vv.

ACME TRUCK LINE INC.,

Defendant - Appellee.

October 3, 2001, Filed

PRIOR HISTORY:

Appeal from the United States District Court for Southern

District of Texas, Houston.

Original Opinion of September 6, 2001, Reported at:

Hathcock v. Acme Truck Lines, Inc., 262 F.3d 522, 2001

U.S. App. LEXIS 19693.

JUDGES: |

Before JOLLY, SMITH, and WIENER, Circuit Judges.

ON PETITION FOR REHEARING

PER CURIAM:

IT IS ORDERED that the petition for rehearing is

DENIED.

ENTERED FOR THE COURT:

Jacques L. Wiener, Jr.

United States Circuit Judge

25a

LEASE AGREEMENT

STATE OF TEXAS

COUNTY/PARISH OF HARRIS

DATE: JULY 18, 1996

THIS LEASE AGREEMENT made and entered into on this

18 day of July 1996, by and between Robert Hathcock, Jr.,

(Owner) of 5650 Timber Creek Place Dr. #509 (Resident

Address) Houston (City) Texas 77084(County/Parish and

State) (hereinafter called the “Lessor”), and Acme Truck Line,

Inc. of Post Office Box 183, Harvey, Jefferson Parish,

Louisiana 50059 (hereinafter called the “Lessee”).

FOR AND IN CONSIDERATION of the mutual covenants,

agreements and stipulations as hereinafter provided, the

parties hereto agree as follows:

1.Robert H. Hathcock, Jr., Lessor, represents and does by

these presents, lease and let unto Acme Truck Line, fnc.,

Lessee, for a term of five (5) years, beginning on the 18 day of

July, 1996 and ending on the 17 day of July, 2001, as hevein

provided the following commercial motor vehicle equiriment

(hereinafter called “Leased Equipment”):

Year Make Truck Vehicle I.D. # License

and a #

Type

Ford

1990 F250 1FTHF25M1LNA45402 MF4111

a0 8 &

2. Lessor warrants and represents that he is the owner or

agent and attorney-in-fact for the owner of the Leased

Equipment and that said Leased Equipment, including all

accessories and parts, is in good operating and mechanical

condition in every respect, capable and suitable for the

transportation of Lessee’s commodities, in full compliance

i eee

26a

with the U.S. Department of Transportation, Federal Highway

Administration rules and regulations for safety, and that said

Leased Equipment meets all rules and regulations of the

Interstate Commerce Commission and all other regulatory

authorities, as well as all statutes, ordinances or other laws of

all local, state and federal governmental authorities having

jurisdiction, and that said Leased Equipment is not subject to

any other lease, memorandum or agreement.

3. As consideration for the use of the Leased Equipment, as

herein provided, Lessee agrees to pay Lessor seventy (70%)

percent of the “Earned Revenue derived by the Lessee from

the Leased Equipment”, as defined herein, less driver’s wages;

payroll taxes (including FICA and other deductions); cost of

medical or hospitalization insurance, if applicable; pre-

employment driver application information costs, including

cost of obtaining motor vehicle driving record; cost of pre-

employment driver medical examinations, testing and

screening; cost of driver medical examinations, testing and

screening, including driver drug testing, screening, medical

evaluations and consultations, and biannual medical

examinations as may be required by the U.S. Department of

Transportation, Federal Highway Administration or any other

governmental body, and such other costs or payments made

by Lessee by reason of driver employment, and less any

“Operating and costs and expenses”, and other charges,

hereinafter provided, which are incurred by Lessee in

connection with the use and/or operation of the Leased

Equipment and for which Lessor shall be responsible.

4. “arned Revenue derived by the Lessee from the Leased

Equipment” shall include the following charges in connection

with the operation and/or use of the Leased Equipment from

which Lessee has derived earned revenues pursuant to the

applicable tariffs or contracts, to-wit: line haul charges,

hourly work and detention time charges, diversion or

reconsignment charges and pipe stringing and pick-up

charges. Other earned revenues involving non-Leased

Equipment and extra labor charges shall not be included in

the “Earned Revenue derived by the Lessee from the Leased

Equipment”. On earned revenues involving contract rates,

there shall be deducted an amount equal to the current

27a

interstate tariff insurance surcharge percentage which

deduction shall not be considered “Earned Revenue derived

by Lessee from the Leased Equipment”.

5. “Operating costs and expenses” which are incurred by

Lessee in connection with the operation and/or use of the

Leased Equipment and for which Lessor shall be responsible

shall, without limitation, include the following, to-wit:

advances made by Lessee (wired money, purchase orders,

fuel card purchases and cash advances): wrecker service

charges; vehicle inspection charges; loading and unloading

charges; interchange fees; license plate fees; cab cards; fuel

taxes; road taxes; sales taxes; equipment use and ad valorem

taxes and fees; state and federal registration fees, taxes, tags

or stamps; empty mileage; permits of all types; tolls; ferries;

detention and accessorial services; base plates and licenses;

driver fines and penalties for violations of traffic or highway

regulations or laws as imposed by any governmental body;

and, any other fees, charges, penalties, fines, tolls, or other

taxes which may be assesses of levied against the Leased

Equipment or its driver or against Lessee resulting from the

operation an/or use of the Leased Equipment.

Notwithstanding the above, except when a violation results

from any acts or omissions of the Lessor, Lessee shall assume

the risks and costs of fines for overweight and oversize

trailers when the trailers are pre-loaded, sealed, or the load is

containerized, or when the trailer or lading is otherwise

outside of Lessor’s control, and for improperly permitted

overdimension and overweight loads, and Lessee will

reimburse Lessor for any fines paid by Lessor in this

connection. In addition, Lessor shall be solely responsible for

all maintenance and repairs to the Leased Equipment,

including, without limitation, cost of fuel, gasoline, oil, tires,

tubes, tarpaulins, chains, binders, accessorial equipment,

parts and repairs, and all cost, advances, and/or expenses

incurred by Lessee in this regard shall be deducted from this

amounts due Lessor. In this connection, Lessor agrees to

maintain the Leased Equipment and its accessories in good

working order and condition during the term of this lease,

and Lessor agrees to hold Lessee harmless and to indemnify

Lessee against any and all loss damages. Cost or expenses

28a

which the Lessor may hereafter incur, suffer or be required to

pay by reason of the failure of the Lessor to properly

maintain and repair the Leased Equipment and _ its

accessories. The Lessor shall be afforded copies of those

documents which are necessary to determine the validity of

any of the above described charges.

6. It is understood and agreed that Lessor shall be

responsible to Lessee for payment of an Administrative

Service Charge in the amount of TWENTY AND NO/100

($20.00) in addition to all costs incurred by Lessee in

connection therewith for issuance of wired money, fuel card

purchases, purchase orders, registration items and cash

advances made by Lessee in connection with the operation

and/or use of the Leased Equipment. In addition, Lessor shall

be responsible to Lessee for payment of a fixed

Administrative Service Charge of ONE THOUSAND AND

NO/100 ($1000.00) for any accident involving a cargo claim

and ONE THOUSAND AND NO/100 ($1000.00) DOLLARS for

any accident involving a liability claim involving bodily injury

and/or property damages. Lessor shall be responsible for an

additional Administrative Service Charge of FIVE HUNDRED

AND NO/100 ($500.00) DOLLARS for any cargo claim

involving rain and/or water damage to any cargo. These

Administrative Service Charges shall be deducted from

Lessor’s weekly settlements in an amount not to exceed ONE

HUNDRED AND NO/100 ($100.00) DOLLARS a week. The

Administrative Service Charges provided herein shall be non-

refundable and will be used to defray administrative

expenses incurred by Lessee. Lessor will be provided with a

written explanation and itemization of all of the above

described charges.

7. Payment to the Lessor pursuant to this Lease shall be

made within fifteen (15) days after submission by Lessor to

Lessee of the necessary “delivery documents” and other

“paperwork” concerning a trip in the service of the Lessee.

Necessary “delivery documents “ shall include bills of

lading/waybills properly signed by shipped/customer

(complete), customer purchase orders, weight tickets and

delivery receipts, and other “paperwork” of the rated freight

bill (invoice) shall be surrendered by Lessee prior to or at the

29a

time of settlement and the Lessor shall be granted the right to

examine copies of the applicable tariff.

8. It is understood and agreed that Lessee shall have

continuous and exclusive possessicn, control and use of the

Leased Equipment for the duration of this Lease. Lessee

assumes complete responsibility for the operation of the

leased equipment for the duration of this lease. During the

term hereof, the Leased Equipment shall not be operated for

any purpose other than the transportation for Lessee and on

Lessee’s behalf of machinery, equipment and materials as

authorized by Interstate Commerce Commission Certificate #

120675, Louisiana Public Service Commission Certificate #

5266-C, Texas Railroad Commission Certificate # 5206,

Alabama Public Service Commission Certificate # 3269,

Mississippi Public Service Certificate # 3040-T and Georgia

Public Service Commission Certificate #2605, and any other

authority which hereafter may be granted to Lessee herein.

Further, Lessor is specifically prohibited from entering into

any trip-lease, interchange or other agreement or contract

involving the Lease Equipment or otherwise with any other

carrier or entity, nor shall Lessor permit the unauthorized use

of the Leased Equipment at any time whatsoever. In

connection with these prohibitions, Lessor agrees to hold

Lessee harmless and to indemnify Lessee against any and all

liability, loss, damages, costs and expenses which Lessee may

hereafter incur, suffer or be required to pay by reason of such

lease violations.

9. It is understood and agreed that Lessee shall make all

management decisions regarding the use and/or operation of

the Leased Equipment, including, but without limitation,

decisions concerning when and where the Leased Equipment

is to operate and the type of functions it is to perform within

the scope of Lessee’s authority; Lessor hereby acknowledges

that Lessee has made no representations, guarantees or

warranties regarding minimum revenues which may be

derived from the operation and/or use of the Leased

Equipment and/or which will accrue to the Lessor during the

term of this Lease, and Lessor acknowledges that Lessee has

made no representations or guarantees as to the amount of

work or number of loads which will be handled by said

30a

Leased Equipment, and it is hereby agreed by the parties

hereto that any solicitation for work regarding the Leased

Equipment shall be within the sole and exclusive discretion

of the Lessee. :

10. Lessor agrees to be familiar with the Federal Motor

Carrier Safety Regulations as prescribed by the US.

Department of Transportation, Federal Highway

Administration and to comply with all applicable rules and

regulations thereof as well as all applicable policies and rules

of Lessee.

ll. Lessee agrees to provide insurance coverage on the

Leased Equipment for the protection of the public with

minimum limits of liability as required by Interstate

Commerce Commission regulations under 49 U.S.C. 10927,

insuring Lessee for public liability for bodily injury, property

damage liability and cargo damage liability during the term of

this Lease. Lessor understands and agrees that it may not be

named as an insured on the above specifies policy of

insurance provided by Lessee herein, and Lessor agrees to

provide adequate liability insurance for its protection,

including bobtail insurance which is not provided by Lessee

herein. It is understood that Lessor will not initiate nor

participate in any third-party claims against Lessee relation to

any loss or damage involving bodily injury liability, property

damage liability or cargo damage liability and Lessor agrees

to hold Lessee harmiess and to indemnify Lessee in

connection therewith. Lessor agrees to provide and maintain

adequate insurance on the Leased Equipment covering

physical damage to the Leased Equipment and _ its

accessories, including comprehensive and collision coverage

and Lessor shall be responsible for all claims related thereto,

and agrees to hold Lessor harmless in connection herewith.

Further, Lessor agrees to immediately report to Lessee any

accident, claims, losses, or damages of any kind relation to

the Leased Equipment or any cargo carried theron, and

agrees to provide Lessee with all written reports, affidavits,

or other assistance as may be necessary to adjudicate or

settle of such claim. A penalty of ONE HUNDRED AND

NO/100 ($100.00) DOLLARS will be charged to Lessor’s

settlement for failure to report any accident within twenty-

3la

four (24) hours of that accident.

12. It is understood and agreed between the parties hereto

that Lessor shall hold Lessee harmless and indemnify Lessee

against any and all liability, loss, damages, costs or expenses

which Lessee may hereafter incur, suffer or require to pay by

reason of any breech of any obligation or responsibility on

the part of Lessor as contained in this Lease Agreement.

13. It is understood and agreed that Lessor shall furnish

Lessee with any and all information or documents required

by any governmental agency or authority; further, Lessor

shall be responsible to Lessee and ultimately to all regulatory

commissions or authorities for all required records and

schedules, including, but without limitation, driver’s logs,

mileage reports, fuel receipts and other relevant documents.

In this connection, Lessor agrees to fully cooperate with

Lessee and assist Lessee in requiring drivers of the Leased

Equipment to submit to required medical examinations,

testing, and screening as may be required for driver

qualification and certification or in order to meet such

requirements as are imposed by the U.S. Department of

Transportation, Federal Highway Administration or any other

governmental body. In addition and without limitation,

Lessor shall specifically cooperate and assist Lessee in

requiring drivers to maintain and submit daily logs, fuel

receipts, mileage reports, accident reports, vehicle inspection

reports and any other reports required by federal, state,

county/parish, or municipal body, If through the negligence

or fault of Lessor, Lessee is penalized or fined as a result

hereof, then Lessee reserves the right to collect the amount of

all such penalties or fines from Lessor.

14. Lessor understands and agrees, under penalty of

immediate cancellation of said Lease, that at no time shall

non-authorized individuals drive, rid in or accompany the

Leased Equipment; only authorized employees listed on

Lessee’s payroll and acting in the course and scope of their

employment shall be permitted to drive, ride in or accompany

said Leased Equipment.

15. It is understood and agreed between the parties that the

Lessor is not required to purchase or rent any products,

equipment or services from Lessee as a condition of entering

32a

into this Lease Agreement. Other that the lease provisions

contained herein, no other equipment purchase or rental is

provided herein.

16. It is understood and agreed between the parties hereto

that this Lease may be immediately cancelled at the option of

either Lessor or Lessee upon advance written notice to the

other party; however, this Lease shall not be cancelled by

either party within the initial thirty (30) days of its term

hereof, except for cause.

17. ‘It is understood and agreed that upon termination or

cancellation of this Lease, Lessor shall immediately surrender

to Lessee all cab cards, stamps, fuel decals, lease

acknowledgements and all other regulatory documents in

Lessor’s possession issued by Lessee; further, all company

identification of Lessee shall be immediately removed by

Lessor from the Leased Equipment. and_returned to Lessee.

Lessor shall immediately surrender all for-hire apportioned

license plates issued for the Leased Equipment to the Lessee

or appropriate state governmental agency or department, and

any monies received by Lessee in this connection shall be

refunded to Lessor. In addition, there is an Administrative

service charge of FIFTY AND NO/100 ($100.00) DOLLARS to

effectively cancel this Equipment and Lease Agreement with

all regulatory commissions and agencies as prescribed by

law.

18. At the option of Lessee, an escrow fund will be

established upon execution of this Lease in the amount of

FIVE HUNDRED AND NO/100 ($500.00) DOLLARS to be

funded by Lessor and administered and maintained by Lessee

for the purpose of covering those herein-provided obligations

incurred by Lessor, including, but without limitation

“Operating costs and expenses”, driver's expenses,

maintenance expenses, service charges, penalties, and in

addition, shall include the amount of all charge back items

and overpayments. Lessee agrees to provide individual

settlement sheets indication the amount and description of

any deduction or additions made to the escrow fund.

However, Lessor shall have the right to demand an

accounting for transactions involving the escrow fund at any

time. While the escrow fund is under the control of Lessee,

x Lx&@<eo<xaoo

33a

the Lessee shall pay interest on the escrow fund on at least a

quarterly basis. The interest rate shall be established on the

date the interest period begins and shall be at least equal to

the average yield or equivalent coupon issued yield on 91-day,

13-week Treasury bills as established in the weekly auction

by the Department of Treasury. At the time of the return of

the escrow funs Lessor, Lessee will deduct monies for those

obligations incurred by Lessor as provided in this Lease

Agreement and a final accounting will be provided to Lessor

of all such final deductions made to the escrow fund in

accordance herewith. The balance in said escrow fund will be

given to Lessor by Lessee within forty-five (45) days from the

date of cancellation or termination of said Lease. In the event

those obligations assumed herein by Lessor, including, but

without limitation, “Operating costs and expenses”, driver’s

expenses, maintenance expenses, services charges, penalties,

chargeback items and overpayments exceed revenues due

Lessor, then upon presentation of a final accounting

statement by Lessee, Lessor shall immediately pay Lessee the

balance due on said account.

19. This instrument constitutes the entire agreement

between the parties hereto, and it shall not be amended,

altered or changed except by a written agreement signed by

the parties hereto.

20. The parties hereto acknowledge receipt of an original

copy of this Lease Agreement.

THIS LEASE, executed in quadruplicate, on the day,

month and year hereinabove first written, and in the presence

of the undersigned competent witnesses, who hereunto sign

their names with the said appearers, afterdue reading of the

whole.

WITNESSES: LESSOR

BY:

LESSEE- ACME

TRUCK LINE, INC.

BY: