Opposition Brief — Hathcock v. Acme Truck Line, Inc.

Supreme Court, U.S.

FILED

NO. 01-0976

SUPREME COURT OF THE UNITED STATES. “|

BOBBY HATHCOCK,

Petitioner

versus

ACME TRUCK LINE, INC.,

Respondent

ON PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

ACME’S BRIEF IN OPPOSITION TO HATHCOCK’S

PETITION FOR WRIT OF CERTIORARI

ELLIS B. MUROV

Counsel of Record

CHARLES F. SEEMANN III

Deutsch, Kerrigan & Stiles, L.L.P.

755 Magazine Street

New Orleans, Louisiana 70130

Phone: 504-581-5141

- and -

M. DAVID FROCK

Frock & Broussard, P.C.

2550 North Loop West, Suite 260

Houston, TX 77092-8908

Phone: 713-688-2300

Attorneys for Respondent,

Acme Truck Line, Inc.

TABLE OF CONTENTS

py Re ge ee reer tere rer il

TAB Ge AUTRES ov ctsnewevecsedesssces XiV

EE Sordi Wi dundediae steed dsu coeur ss 2

PE Sk ih StS Sho ok ea heed ee cn aves 3

I. HATHCOCK’S PETITION DOES

NOT JUSTIFY THE EXERCISE OF

JURISDICTION HEREIN ...........-.: 3

Il. THE RELEVANT UNDISPUTED

PEATEs PIMIS o vcecvecccscvesss 5

Ill. JUDGES HITTNER, JOLLY, SMITH

AND WIENER CORRECTLY HELD

THAT THE AGREEMENT DID NOT

CONTAIN CONTRA BONOS MORES

a | ere rere reer 11

A. ENE OE re 11

B. The Statutes on Which

Hathcock Relies Address Or

Relate to Wages and Not Rental

cri adawddube ceive 12

od Acme Did Not and Has Not

Deducted Sums Representing

SUTA or FUTA Contributions,

Workers Compensation

Premiums and/or FICA from the

Wages of Hathcock or Any

Co CEE acs oceans evevseset 14

1. Wages include monies

for driving a truck. ....... 14

2. Wages do not include

consideration paid

pursuant to- a vehicle

ET eee ee ree 15

a Hathcock’s inability to

distinguish his dual

capacity is, to the extent

that it is not already

clear, discernible by

Acme’s_ consistent

treatment of all lessors .... 16

4, Summary: A refutation

of specific statements in

Ge PU ck ec cecsceves 19

D. Hathcock’s Contention _ that

Acme Has Illegally Shifted Its

Tax Burden Is Radical, Very,

Very Wrong, and Legally

VEINS i. viens Oe beebas: 21

iil

E. The Infirmity of Hathcock’s

Legal Position Is Exemplified

by the Absence of Legal

Support Therefor and a

Meritless Parade of Horribles .... 24

b The absence of legal

ee 24

2. Hathcock’s parade of

DD vows bayueens at 28

IES Uidvecadesccecestaveeeenecereceess 29

iV

TABLE OF AUTHORITIES

CASES

Backaus v. Murphy Motor Freight Lines,

oe Pee eee 12

Brown v. Vernon Sawyer, Inc., 645 So.2d 260

ee te BBR or er er re ee 15

Deleu v. Scaife, 775 F.Supp. 712

Sa PU CREE Siw CRS RUNS Rs theres Feuwwin ss 12

Delno v. Celebreeze, 347 F.2d 159 (9th Cir. 1965) ...... 16

Digiovanni v. City of Rochester, 680 F Supp. 80

CB ee SE bcp ows + 04 reek haw cuere des kes 12

Fontenot v. Trans Gulf, Inc., 664 So.2d 1238

as MEE SUE cacdbiwedtouesudsaeuevacsts 14

Ford v. Troyer, 25 F.Supp.2d 723 (E.D. La. 1998) ...... 12

Gardner v. Ewing, 88 F.Supp. 315

(S.D. Ohio 1950), aff'd, 185 F.2d 781

(6th Cir. 1950), aff'd, 341 U.S. 321 (1951) ............ 25

Hospital Resource Personnel, Inc. v. U.S.,

fh Foi kit ts 2. Serre er eerie 25, 26

In re Richardson Dinner Theater, Inc.,

421 F.Supp. 423 (N.D. Tex. 1976) ..........eeees 27, 28

McElwee v. Wharton, 19 F.Supp.2d 766

Cay ah I BE ks Cos cwhs piece nestiastektasaaes 12

Phillips v. Phillips, 820 S.W.2d 785 (Tex. 1991) .......

Rakowitz v. Zurich American Ins. Co.,

Docket No. SA/98-107023-/01-CC-5A45 .............

Reef v. Mills Novelty Co., 89 S.W.2d 210

a FO. | repre ey er re renner ys

Salazar v. Brown, 940 F.Supp. 160

Oe eae

Sanchez v. Overmeyer, 845 F.Supp. 1178

Ce CD HONE 5b 6005 Fee sic bus her ONS 00a ews

Spilky v. Helphand, 1993 WL 159944

ES | Re roe re rrr Pr err re Pe

Tenneco v. Padre Drilling Co., 453 S.W.2d 814

SE inde ik sae ae Uke ees Vee ot bondaneeban

United States v. Pomponio, 528 F.2d 247

(4th Cir. 1975), rev'd and remanded,

tt RL Re re an ne ee

STATUTES

y is Toe Tre ry rer rere

GRE ET ais be ice CaN dec schon saneeass

Eh a ED Sc eS nian ee ewer eek es

Fe 8 4 | eer Te CIEE CLE TEE RTT Por ree

vl

Fes y - - POPrrrerirriir ott ii 12

Tender Cate GOR. Stee bees se cess is 0210 as 14

Tex. Labor Code $206.00QO) .ncccccccvccvcccccccns 12

FUR EMT COE BIIGGGD cccccccccccusetercbvsres 25

BORE AOOE COGS SRST Te cc ccccecieias¥awsaves 25, 26

Tex. Labor Code §§207.071-72 ........ cece 27, 28

MISCELLANEOUS

mene Comt Rake 30 ii ios 6c bai vcdewexiosaent: 12

Vii

SUPREME COURT OF THE UNITED STATES

—-

BOBBY HATHCOCK,

Petitioner

versus

ACME TRUCK LINE, INC.,

Respondent

ACME’S BRIEF IN OPPOSITION TO HATHCOCK’S

PETITION FOR WRIT OF CERTIORARI

TO THE HONORABLE, THE CHIEF JUSTICE

AND THE ASSOCIATE JUSTICES OF THE

COURT OF THE UNITED STATES

Bobby Hathcock (“‘Hathcock”) was a driver/employee

of Acme Truck Line, Inc. (“Acme”) and a lessor of capital

equipment. Hathcock, as an employee, received a wage. Acme

undisputedly withheld and paid the appropriate taxes on those

wages. Acme, as lessee, also paid rent to Hathcock in his

capacity as a lessor.

Hathcock sued challenging provisions in his Lease

Agreement (“Lease,” “Lease Agreement,” or “Agreement”’)

that resulted in the reduction of the total amount of rent.

Hathcock contends that the Agreement is contra bonos mores.

The trial court and the court of appeals dismissed

Petitioner’s lawsuit because his entire case is predicated upon

|

the erroneous presupposition that all of the monies paid by

Acme to him were wages for personal services and that none of

the monies represented consideration for lease of capital

equipment. Petitioner’s writ is absolutely meritless and was

properly rejected by the district court and the court of appeals.

BACKGROUND

Hathcock has owned a 1990 Ford pickup truck since

1995. He leased the truck to Acme pursuant to the Lease.

Acme paid Hathcock rent for the truck in accordance with the

Agreement.

Hathcock drove the truck for Acme. Acme treated him

as an employee, and for good reason. He was. Accordingly,

Acme compensated Hathcock with a paycheck.

After Hathcock resigned, he filed suit in state court.

There, Hathcock alleged on behalf of himself and others that he

was an independent contractor rather than an employee, that

Acme breached the Lease, that Acme defrauded him, that

Acme was unjustly enriched, and that Acme had committed

conversion. He further contended that the Lease was contra

bonos mores. Finally, Hathcock sought declaratory and

injunctive relief.

Acme removed the case to the United States District

Court for the Southern District of Texas.

Acme sought summary judgment based on 94

statements of material fact. Hathcock did not dispute any of

the 94 statements of material fact. Nevertheless, he filed a

cross-motion for summary judgment. Judge David Hittner

granted Acme’s Motion and denied Hathcock’s Motion, as well

as Hathcock’s Motion for Reconsideration.

Hathcock appealed. A panel composed of the Hon.

Grady Jolly, Jerry L. Smith and Jacques L. Wiener, Jr. affirmed

summary dismissal. Hathcock sought reconsideration. Judges

Jolly, Smith and Wiener denied the Motion for

Reconsideration. Hathcock then filed a Petition for Writ of

Certiorari (“Petition’’).

Judges Hittner, Jolly, Smith and Wiener correctly

concluded that Hathcock’s allegations were so lacking in merit

that summary dismissal was warranted. For that reason and

others, Hathcock’s Petition should be denied.

ARGUMENT

I. HATHCOCK’S PETITION DOES NOT

JUSTIFY THE EXERCISE OF

JURISDICTION HEREIN

Hathcock does not ask this Court to review the

summary determination of his status as an employee. Nor does

Hathcock appear to ask this Court to review the summary

dismissal of his state law breach of contract, conversion, fraud

and unjust enrichment claims. Rather, Hathcock seems to ask

this Court to only review whether the Agreement contravenes

public policy.

Supreme Court Rule 10 requires a petition to show the

existence of a compelling reason to grant a petition. Rule 10

itself describes the type of cases that potentially warrant

Supreme Court review.

According to Rule 10, review could be appropriate

where an appellate decision conflicts with an opinion of

another court of appeal, a state court of last resort, or a decision

of this Court. Hathcock’s Petition, however, does not claim

that the Fifth Circuit’s opinion below conflicts with the opinion

of another federal court of appeal, a court of last resort of any

state in this country or with any decision of this Court.

Review could also be appropriate, according to Rule 10,

where an important question of federal law has not been

resolved by this Court. Hathcock seems to contend that the

Fifth Circuit Court of Appeals has decided an important

question of federal law that has not been but should be decided

by this Court. Petitioner is wrong for three reasons.

First, Hathcock filed his Petition in state court. He

asserted only state law causes of actions. Second, a cursory

review of Hathcock’s Petition herein shows that most of the

statutes which purportedly support his contra bonos mores

claim are state rather than federal statutes. See pp. 3, 4, 5, 11,

and 14-16 of the Petition.

Third, Hathcock does not even remotely demonstrate

that the decisions and reasoning of Judges Hittner, Jolly, Smith

and Wiener are erroneous. Accordingly, there is no reason why

this Court should grant the Petition.

een es,

Il. THE RELEVANT UNDISPUTED

MATERIAL FACTS.

The following Statements of Material Fact' appear to be

relevant to the issues raised by Hathcock in his Petition for

Writ of Certiorari:

l.

Acme transports equipment, materials and supplies

throughout the United States.

4.

Acme does not own trucks; rather, it leases vehicles of

various sizes from corporations, partnerships, companies and

individuals.

5.

Acme employs drivers about half of whom drive their

own trucks. Stated differently, about half of Acme’s drivers

operate trucks owned by another natural or artificial person.

For example, Lee Trucking Corporation owns and leases eight

trucks to Acme. However, its President, Ronnie Lee, does not

drive any of them. Similarly, James Rakowitz (now deceased)

owned and leased five trucks to Acme. He drove one of them.

exhibits and affidavits to Judge Hitter and with record references to same

|

; These were presented with attached deposition testimony

in the Fifth Circuit. References to same are deleted herein.

5

6.

Hathcock acquired a 1990 Ford pickup truck with over

85,700 miles on it in April 1995 for $7,050.

11.

On July 18, 1996, Hathcock and Acme executed a

Lease Agreement for a 1990 pickup truck.

12.

Pursuant to 93 of the Lease Agreement, Acme paid

lessors, including Hathcock:

. 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

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. (Emphasis

added).

13.

Acme executed identical leases with its other natural

and artificial lessors.

14.

During the existence of the Lease Agreement, Acme

issued Hathcock a weekly settlement check (“rental check”)

pursuant to and in accordance with paragraph 3 of the Lease

Agreement.

15.

Hathcock cancelled his Lease Agreement with Acme on

February 6, 1997.

22.

Acme has discharged drivers, while at the same time

maintaining (not canceling) the Lease Agreement (lessor/lessee

relationship) with said drivers.

56.

Hathcock and other drivers received weekly paychecks

(“employee paycheck”) from Acme. Acme withheld income,

social security and Medicare taxes.

62.

The IRS has conducted an employment tax compliance

check on July 18, 1996. At the time, the IRS reviewed and

reconciled Forms 940, 941, W-2, W-3, W-4, 1096 and 1099,

together with the related compensation and leasing agreements.

The compliance check specifically examined the status

(employee/independent contractors) of the driver.

63.

The IRS did not find fault with Acme’s:

a. Treatment of drivers as employees.

b. Deductions.

c. Accounting.

65.

Acme has submitted its Lease Agreement to federal and

state agencies, including the Interstate Commerce Commission

Cha}

-- LO te IE LN A TEL

66.

The ICC suggested changes to Acme’s Lease

Agreement in the late 1980s. The ICC, however, did not

suggest, much less require, a change to §3 of the Lease

Agreement.

67.

Neither the Texas Railroad Commission nor the Public

Service Commissions in Oklahoma, Mississippi, Louisiana and

Alabama have ever suggested, much less required, a change to

q3 of the Lease Agreement.

77.

Lessors, such as Hathcock, set drivers wages with

parameters (10%-25%) supplied by Acme.

78.

Hathcock chose to pay himself 10% for his driving

services.

79.

Hathcock fully understood the operator/interaction of

the two-check system as he chose to set the driver wage as low

as possible, i.e., at 10%.

80.

Acme paid rental to Hathcock in accordance with

paragraph 3 of the Lease Agreement.

81,

Hathcock alleges that his economic damages consist of

or are equal to the 23% of driver wages deducted from his

rental check pursuant to 43 of the Lease Agreement.

82.

Acme and its lessors, including Hathcock, agreed that

lessors would share in the costs of driver employment (up to

23% of driver wages) for such things as FUTA, SUTA, FICA,

Workers Compensation insurance and more, pursuant to 43 of

the Lease Agreement.

83.

Hathcock claims that he was self-employed and an

independent contractor.

84.

As an independent contractor, however, Hathcock owed

FICA and Medicare, as well as income taxes.

85.

Moreover, the cost of duplicating benefits, such as

10

workers compensation, SUTA, FUTA and the value of 401(k)

contributions, when coupled with monies due by independent

contractors for FICA, Medicare and income taxes, exceeds the

monies actually deducted from Hathcock’s rental and employee

paychecks.

III. JUDGES HITTNER, JOLLY, SMITH AND

WIENER CORRECTLY HELD THAT

THE AGREEMENT DID NOT CONTAIN

CONTRA BONOS MORES PROVISIONS.

A. Introduction.

Hathcock did not dispute Statement of Material Fact

Nos. 4, 5, 11-14, 56, 80, 81 and 82. These statements and

Coatney Affidavit (No. 2)’ show that Acme paid in full FICA

and FUTA to the federal government and SUTA to state

governments.

These statements also show that Acme issued all lessors

(including Hathcock) a rental check to compensate them for the

use of their vehicles, and that Acme issued all drivers

(including Hathcock) a paycheck to compensate them for

driving vehicles.

These statements, moreover, show that Acme did not

pass along to employees any of the costs of driver employment.

These statements finally show that Acme passed along some of

. Coatney A ffidavit No. 2 was submitted along with “Acme

Truck Line, Inc.’s Response to Plaintiff's ‘Factual Basis’ that Allegedly

Supports his Motion for Summary Judgment.”

11

the costs of driver employment to truck suppliers, i.e., lessors

such as Hathcock.

B. The Statutes on Which Hathcock

Relies Address Or Relate to Wages

and Not Rental Revenues.

Hathcock cites to the provisions calling for payment of

FICA and Medicare taxes at p. 3 of his Petition. For example,

he represents that employers are required to pay a portion (4),

and that employees are required to pay the other half. See 26

U.S.C. § 3111(a) and (b).? Hathcock, however, does not

; Hathcock does not claim that he has a private cause of

action under the Social Security Act, and for good reason. He does not.

See Salazar v. Brown, 949 F.Supp. 160, 164 (W.D. Mich. 1996); Spilky v.

Helphand, 1993 WL 159944 at p. 2 (S.D. N.Y. 1993).

Nor is there an implied private cause of action where an employer

does not comply with its FICA obligations. See, e.g., McElwee v. Wharton,

19 F.Supp.2d 766, 770 (W.D. Mich. 1998) (holding remedy of restitution

is not available); Salazar, 940 F.Supp. at 164-65; Spilky, 1993 WL at pp. 2-

3; Digiovanni v. City of Rochester, 680 F.Supp. 80, 82-83 (W.D. N.Y.

1988). See also Deleu v. Scaife, 775 F.Supp. 712, 716 (S.D. N.Y. 1991)

(granting defendant’s unopposed motion to dismiss FICA and FUTA claims

finding that “Congress [did not intend] to imply a private remedy for

violation of these sections of federal tax law”).

While Acme is not ethically required to bring contrary authority

to the attention of this Court, two district court judges have reached a

different conclusion. See Sanchez v. Overmeyer, 845 F.Supp. 1178 (S.D.

Ohio 1993); Ford v. Troyer, 25 F.Supp.2d 723 (E.D. La. 1998). Acme

submits that these decisions are not sound.

Regardless, none of these cases involve situations where the

employer withheld the employer and employee portions of FICA and, thus,

all taxes had been paid. POINT: Even Sanchez and Troyer do not support

Hathcock’s claim herein.

12

contend that these taxes were not paid, and for good reason.

They were.

At p. 11 of the Petition, Hathcock cites provisions

prohibiting assignments, attachments and garishments of

Social Security benefits (42 U.S.C. §407), even though there

are no allegations, much less facts, showing the applicability of

42 U.S.C. §407.

Hathcock also cites 26 U.S.C. §3301 which imposes an

unemployment tax on employers. There are, however, neither

allegations nor facts showing that Acme did not pay all FUTA

sums due.

Hathcock further cites provisions requiring Texas

employers to pay an unemployment compensation tax based on

a percentage of “wages for employment paid during a calendar

year...” (Tex. Labor Code §204.002(a) (emphasis added))

and prohibiting employers from “deduct[ing] any part of [said]

contributions from the wages of an individual in the

employer’s employ.” Tex. Labor Code §204.003 (emphasis

added).* See also Texas Labor Code 207.073 (same). Again,

however, Hathcock cannot point to any evidence showing that

Acme failed to pay all SUTA due or that Acme recouped said

costs from its employees.

Moreover, Hathcock cites La. R.S. 23:1531, which

prohibits employers from recouping their SUTA contributions

from wages, and La. R.S. 23:532, which sets forth the amount

F Private causes of action are not specifically authorized for

violations of this statute and Hathcock has never claimed that one exists.

13

of the tax. Again, there are no facts supporting an allegation

that Acme did not pay SUTA or reduced Hathcock’s or anyone

else’s wages to cover its liability for SUTA.

Finally, Hathcock cites §§207.071-73 of the Texas

Labor Code that prohibit employers from agreeing to employ

persons provided that they agree not to seek unemployment

compensation benefits. However, there are no allegations or

facts showing the applicability of said provisions herein.

C. Acme Did Not and Has Not Deducted

Sums Representing SUTA or FUTA

Contributions, Workers

Compensation Premiums and/or

FICA from the Wages of Hathcock or

Any Other Driver.

1. Wages include monies for

driving a truck.

Wages are defined as “all remuneration for personal

services.” Tex. Labor Code Ann. §201.181. Personal services

are those “rendered by the claimant personally.” Tenneco v.

Padre Drilling Co., 453 S.W.2d 814, 819 (Tex. 1970). See

also Fontenot v. Trans Gulf, Inc., 664 So.2d 1238, 1248

(La.App. Ist Cir. 1995) (stating that “wages means the amount

earned by the employee through his own labor, rather than

profits for his enterprising or rental for any equipment he may

provide. ..”).

Hathcock, for some reason, fails to cite the provisions

in the Louisiana Revised Statutes stating that “[e]mployment,

14

————— <a

for purposes of unemployment insurance coverage, is

employment of workers who work for wages...” La. R.S.

23:1472(19)(b) (Emphasis added).°

2. Wages do not _ include

consideration paid pursuant

to a vehicle lease.

Acme compensated lessors for leasing vehicles with one

check and paid employees for driving vehicles with another

check. Disputes have occasionally arisen over the proper

allocation or characterization of wages and rent.

Courts have addressed the proper allocation or

characterization of wages v. rent in the context of the amount

of benefits due employees who suffer on-the-job injuries when

they also lease equipment to their employers. Courts have

unanimously concluded that the computation of workers

compensation benefits due employees does not include sums

paid for leasing equipment, as said sums do not constitute

wages. E.g., Brown v. Vernon Sawyer, Inc., 645 So.2d 260,

263-64 (La.App. 2d Cir. 1994) (basing computation of benefits

on gross receipts of each load hauled, with rest representing

compensation for the lease of claimant’s truck);° Backaus v.

Murphy Motor Freight Lines, 442 N.W.2d 326, 327 (Minn.

’ Private causes of action are not specifically authorized for

purported violations of Louisiana’s Unemployment Compensation Act and

Hathcock has never claimed that one exists.

The Vernon Sawyer court used 20% concluding same was

the industry standard. Lessors set driver wages at Acme within a range of

10% to 23% of each load hauled.

15

1989) (stating that “[w]ages are compensation for labor and

services . . . reflect the worker’s ability to earn . . . [and do not]

include . . . the income from capital equipment...”). Cf

Delno v. Celebreeze, 347 F.2d 159 (9th Cir. 1965) (discussing

differences between remuneration or wages, which are

includable in determining amount due, and rental income

derived from capital investments, which are not).

Rental revenues are not wages. The operation of 93 of

the Lease, about which Hathcock complains, reduced rental

revenues and not wages. The statutes on which Hathcock

relies, therefore, do not void the provisions of 93 of the Lease.

3. Hathcock’s inability to

distinguish his dual capacity

is, to the extent that it is not

already clear, discernible by

Acme’s consistent treatment

of all lessors.

Acme has leases with both natural and artificial persons.

Some natural and artificial persons own more than one truck

and do not drive any of them. Some natural and artificial

lessors own numerous trucks and drive only one of them.

Some natural and artificial lessors own only one truck and

drive it.

Regardless, Acme treats all lessors alike. Pursuant to

q3 of the Lease Agreement, lessors receive 70% of earned

revenues less driver wages and 23% of driver wages in order to

16

cover some of the costs of driver employment.’

That Acme has not violated laws prohibiting deduction

from wages for FUTA and SUTA can be gleaned from the

following examples.

Lee Trucking Corporation owns and leases eight trucks

to Acme. Ronnie Lee does not drive any of them. Rather, at

least eight others drive them.

Acme deducts wages paid to those who drive Lee

Trucking’s vehicles from Lee Trucking’s rental checks,

pursuant to 93 of the Lease. Acme also withholds 23% of

wages paid to those who drive Lee Trucking’s vehicles from

Lee Trucking’s rental checks.

If one subscribes to Hathcock’s theory of the case,

Acme has withheld FUTA, SUTA, FICA and workers

compensation premiums from the wages of Ronnie Lee. This,

however, is plainly incorrect. Ronnie Lee does not drive;

therefore, he does not receive wages or wage checks.

Likewise, Acme has not deducted or withheld SUTA,

FUTA, FICA or workers cornpensation premiums from the

paychecks of those who drive Lee Trucking’s eight trucks.

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

lessor, Lee Trucking. This does not constitute a violation of

the statutes on which Hathcock relies, as those sums have not

’ Paragraph 3 of the Lease contains other provisions that

reduce rent.

17

been deducted from the paychecks (wages) of the drivers.*

Another dual capacity example involves James G.

Rakowitz. He leased five trucks to Acme. Unlike Ronnie Lee,

however, he drove one of them.

Mrs. Rakowitz sued Acme’s workers compensation

insurance carrier seeking workers compensation benefits, after

he was killed, while driving to obtain a replacement part for

one of the leased vehicles on a day that he was not scheduled

by Acme to drive. The Texas Workers Compensation

Commission in Rakowitz v. Zurich American Ins. Co., Docket

No. SA/98-107023-/01-CC-5A45, denied her claim holding

that he was acting in his capacity as lessor, with responsibility

to repair the leased vehicle, rather than as an employee at the

time of his death. See R. at 898-94.

The Rakowitz decision clearly recognized that

individuals could be both lessors and drivers (employees). The

Rakowitz decision also demonstrates that worker compensation

benefits are only available to one acting in his capacity as an

employee at the time of the accident.

Application of the Rakowitz decision herein shows that

the statutes on which Hathcock relies do not apply when he

received rental checks for leasing rather than wages for driving.

Therefore, when Acme passed along some of the costs

: Statement of Material Fact No. 22 evinces dual capacity.

Under Hathcock’s theory of the case, Acme could not discharge a driver

(employee) while maintaining the Lease Agreement with the driver (lessor).

But, it has.

18

eae

of driver employment to its lessors, it did not violate laws

prohibiting it from passing along FUTA and SUTA taxes to its

employees.

4. Summary: A refutation of

specific statements in the

Petition.

Hathcock, at p. 10, calls the Fifth Circuit opinion

“erroneous” and adds that “(t]he wrong is compounded because

the employee pays both sides of the tax . . .” (emphasis added).

| At p. 11, Hathcock argues that “Congress intended for the

employer to pay its share without reimbursement from the

employee” (emphasis added).

These arguments deliberately distort facts. Hathcock

was not just an employee; he was also a lessor. Hathcock

refuses to admit that he leased something of substantial value,

was compensated under the Lease Agreement therefor, and that

the deductions about which he complains herein reduced his

rental revenue under the Lease Agreement and did not reduce

his wages.

| ; At p. 11, Hathcock somehow contends that his FICA,

| FUTA and SUTA benefits are adversely affected. This

represents another distortion of the facts. Acme has

undisputedly paid all of the FICA, FUTA and SUTA taxes

that it owed and owes. Hathcock is eligible to receive benefits

to which he is entitled under these statutes. That Hathcock may

have received less money under the Agreement for the lease of

his truck is irrelevant and unrelated to the amount of FICA,

A te

19

FUTA and SUTA he might receive one day as a result of his

wage earnings’ as opposed to receipt of rental revenues.

At p. 11, Hathcock further asserts that Acme is

obtaining reimbursement of its FICA, FUTA and SUTA

obligations “from Hathcock, its employee” (emphasis added).

This is again a plain distortion of the facts. The dispute herein

involves the amount of rent that Hathcock claims he should

have received and not the amount of wages that Hathcock

received.

Atp. 11 ofthe Petition, Hathcock characterizes the facts

as follows: “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.” That Hathcock must go

to such extreme length to mischaracterize facts is indicative of

the meritlessness of his Petition. Why can’t Hathcock just

admit that he leased his truck to Acme and that Acme paid him

rent therefor under the Agreement? Answer: A fair

characterization of the payment dispositively undermines his

Petition.

At p. 14, Hathcock attempts to confuse the relationship

between the parties. More specifically, the Petition states that

“Acme is also illegally shifting the imposition of this tax to

Hathcock. Hathcock similarly has no liability for FUTA taxes

and hence the deductions are patently and purposefully

unlawful.” Here, Hathcock merges the concepts of employee

= Hathcock, as lessor, chose to pay the driver (employee)

10%. He could have chosen as much as 25%. Hathcock, therefore, chose

to pay less money into his Social Security account.

20

ee

and lessor into just employ<e, again ignoring that Acme was

paying Hathcock rent for the lease of his truck under the Lease

Agreement. See also pp. 21-24, infra (Hathcock’s

interpretation is radical and so very, very wrong).

D. Hathcock’s Contention that Acme

Has Illegally Shifted Its Tax Burden

Is Radical, Very, Very Wrong, and

Legally Unsupported.

Hathcock cannot show that Acme recouped any monies

representing its FICA, FUTA and/or SUTA obligations from its

employees, because Acme in fact did not.

Hathcock, therefore, argues that Acme has violated the

spirit of said statutes. In order to contend that Acme has

violated even the spirit of the law, Hathcock argues that only

the employers can pay the taxes.

Acme, however, has undisputedly paid the taxes.

Hathcock, thereivre, incredibly argues that Acme cannot

recoup monies to cover these taxes not only from employees,

but also from customers, lessors, or anyone else.

Hathcock’s argument is economically radical, totally

alien and so very, very wrong.

Every company can and must cover its overhead or it

will go out of business. Assume for purposes of simplicity and

clarity that Edsel Motors employs 10,000 persons and that it

paid $1,000,000 in salaries in 1998. Assume that Edsel’s

FICA, FUTA and SUTA costs in 1998 were 23% of salaries or

21

ee

$230,000. Assume further that Edsel paid $1,000,000 to

suppliers in 1998 and that it received $2,645,500"° for cars

which it manufactured and sold.

Edsel has, in this example, made a 15% profit by not

only recouping from its consumers the cost of salaries, FICA,

FUTA and supplies, but also another $415,500. While

Hathcock argues that employers cannot pass along their FICA,

FUTA and SUTA obligations to any third party (including

consumers), he offers no legal support for the contention and he

is just wrong. This is not illegal.

Now assume a slightly different set of facts. Again

assume that Edsel employed 10,000 persons, but that its

salaries and benefit costs increased by 10% in 1999 so that it

paid $1,100,000 in salaries and $253,000 in FICA, FUTA and

SUTA. Assume that Edsel knew that it would receive

$2,645,500 for cars which it manufactured and sold in 1999

because competition prevented it from passing along these

increases to consumers. As a result, assume that Edsel notified

its suppliers that it would decrease payments by $123,000 to

cover increases in salaries, FICA, FUTA and SUTA. Edsel,

therefore, maintained its 15% profit in 1999 because it paid just

$897,000, rather than $1,000,000, to suppliers in 1999.

Under Hathcock’s legal theory, Edsel has illegally

passed along to a third person costs which only it can and must

pay. Suppliers refer to demands to cut costs as “squeezing.”

$2,645,000 represents 115% times $2,300,000. Stated

differently, it represents a 15% profit. For purposes of this example,

numerous other costs of doing business, such as marketing, utilities,

workers compensation, etc., are not included.

22

ee

Squeezing occurs frequently in our economy.'' Even though,

under this simplistic example, Edsel recoups its increased

FICA, FUTA and SUTA costs from its suppliers rather than its

customers (consumers), it is not illegal and Hathcock offers no

authority whatsoever — analogous, direct or otherwise — that

it is.

Here, Acme passes along some of the costs of driver

employment to its lessors, i.e., those who supply its trucks.

Even if Acme had passed along all of its FICA, FUTA, SUTA

and worker compensation costs to its truck suppliers, i.e.,

lessors, its conduct would be no more illegal than Edsel in

either of the aforementioned examples.

Nevertheless, for further clarification, assume that Edsel

just informed its suppliers that it would reduce payment by

$123,000. That is, Edsel did not state that it was doing so in

order to cover increases in salaries and employment taxes.

Would anyone, other than perhaps Hathcock, contend that such

action was illegal? Of course not.

Likewise, suppose Acme had notified its lessors that it

would, in the future, pay only 58% of each haul and did not

specify that the 12% reduction was to cover some of the costs

of driver employment. That is, Acme did not explicitly state

that it was reducing payments under the Lease from 70% to

58% in order to recoup driver wages and 23% of driver wages

” Acme submitted eleven articles from the Wall Street

Journal and other newspapers to Judges Hitter, Jolly, Smith and Weiner in

support of this statement below.

23

to cover some of the costs of driver employment.”

Hathcock’s theory of the case would not void such a

lease. Acme, therefore, could reduce rental payments to lessors

from 70% to 58% without violating the law. Yet, Hathcock

argues herein that the Lease, which has the identical economic

impact, is illegal.

Hathcock is plain wrong when he argues that Acme

cannot pass along some of the costs of driver employment to its

suppliers, i.e., its lessors. Acme just cannot pass along some

of the costs of employment to its employees.

The decisions of Judges Hittner, Jolly, Smith and

Wiener were correct. Therefore, there is no reason to grant

Hathcock’s Petition.

E. The Infirmity of Hathcock’s Legal

Position Is Exemplified by the

Absence of Legal Support Therefor

and a Meritless “Parade of

Horribles.”

1. The absence of legal support.

Acme’s Motion for Summary Judgment herein was

filed on May 31,2000. Judge Hittner summarily dismissed the

Complaint on July 14, 2000. Hathcock then sought

= Acme pays lessors 70% of each haul less driver wages

and 23% of driver wages. Hathcock set his driver wages at 10% of each

haul. Therefore, on a haul of $1,000, Hathcock as lessor would receive

$700 less $100 less $23 or $577.

24

reconsideration. Judge Hittner denied Hathcock’s Motion for

Reconsideration on August 29, 2000. Judges Jolly, Smith and

Wiener affirmed Judge Hittner’s opinion on September 6, 2001

and denied Hathcock’s Petition for Panel Rehearing on October

3, 2001.

Between May 31, 2000 and October 2001, Hathcock

was unable to find any case that even remotely supported his

position herein. For example, Hathcock submitted the

decisions in Gardner v. Ewing, 88 F.Supp. 315 (S.D. Ohio

1950), aff'd, 185 F.2d 781 (6th Cir. 1950), aff'd, 341 U.S. 321

(1951);"? Hospital Resource Personnel, Inc. v. U.S., 68 F.3d

+s There, Charles Warner applied for benefits, but died prior

to furnishing proof of his age. Lump-sum death benefits but not primary

insurance benefits were awarded, based on a finding that Warner had

abandoned his claim for primary insurance benefits. Gardner, the executor

of the estate of Charles Warner, then supplied proof of age and eligibility

and sued Oscar Ewing, the Federal Security Administrator, seeking benefits.

The court held that the estate was entitled to receive the

primary insurance benefits because Warner was an insured who had reached

age 65 and who had applied for primary insurance benefits. That is, his

benefits vested as of the time he complied with the aforementioned criteria.

The court next addressed defendant's contention that

§407(a) prevented the transfer of benefits from Warner to his estate

representative. The court rejected this contention, holding that “Congress

intended to prohibit voluntary alienation by the wage-earer, nothing

more.” Gardner, 88 F.Supp. at 323.

Hathcock is 51 years old and has never applied for social

security benefits. There is no evidence that Hathcock has sought to transfer

benefits to any third person. There is certainly no evidence that Acme has

somehow sought to transfer Hathcock’s benefits to itself or any third

person. Section 407(a) and the Gardner decision, accordingly, afford no

support whatsoever for the proposition that the facts herein constitute a

prohibited waiver, assignment or transfer.

25

421 (11th Cir. 1995);'* Phillips v. Phillips, 820 S.W.2d 785

(Tex. 1991); Reef v. Mills Novelty Co., 89 S.W.2d 210 (Tex.

App. 1936);'® and United States v. Pomponio, 528 F.2d 247

" In Hospital Resources, the government assessed Hospital

Resource about $1,144,000 for unpaid employment taxes. The taxpayer

(Hospital Resource) paid and sued seeking a refund contending that it did

not owe any employment taxes because its nurses were independent

contractors. The court agreed and ordered a refund. Hospital Resource, 68

F.3d at 428-29.

ws In Phillips, former spouses, Harry and Martha Phillips,

created a partnership to hold their oil and gas interests rather than break

same apart when they divorced. Harry Phillips was named the general or

managing partner in an agreement which also required him to pay his

former spouse ten times actual damages for breaches of trust. When he did

not distribute all sums due, she sued to dissolve the partnership and for

damages including the stipulated ten times actual damages.

A jury awarded her actual damages. The trial, appellate

and Supreme Court however, rejected her stipulated or liquidated damages

claim because the stipulated damages: provisions contained in the

partnership agreement contravened Texas law prohibiting penalty clauses.

Phillips, 820 S.W.2d at 788-89.

is: In Mills Novelty, B.B. Moseley, an employee of Mills

Novelty, assigned commissions due him to Fred Reef. Mills Novelty

refused to recognize the assignment based on its contract with Reef

prohibiting assignments without its consent. Mills Novelty, accordingly,

paid all sums due to Moseley and Reef sued Mills Novelty claiming that

Mills Novelty should have paid him.

The Mills Novelty court recognized that parties could not

contract away a third-party’s right to garnish monies. It, however, also

acknowledged that parties were free to contract so long as statutes were not

infringed. The Mills Novelty Court then rejected Reef’s claim holding that

the contract did not infringe asa any statutory prohibition. Mills Novelty,

89 S.W.2d at 241.

26

iinet a

(4th Cir. 1975), rev'd and remanded, 429 U.S. 10 (1976)," to

Judge Hittner in sur~~tt of his argument herein. There is a

reason why he did nc.. ~. 2 these cases in his Fifth Circuit Briefs

and in his Petition herein.

In the Fifth Circuit, Hathcock did not cite even one

decision that supported his argument. Now he proffers the

decision in Jn re Richardson Dinner Theater, Inc., 421 F.Supp.

423 (N.D. Tex. 1976). His reliance on the Richardson Dinner

Theater decision herein is plainly misplaced and just

underscores the lack of authority in support of his position.

The court in Richardson Dinner Theater did not address

the validity or propriety of a lease agreement or anything

remotely close or related thereto. Rather, the court resolved the

order (priority) of Social Security taxes due by the bankrupt

where the estate was so lean that no claims beyond the second

priority received assets. More specifically, the Richardson

Dinner Theater court had to decide whether FICA taxes

generated by wages, earned before the date of the bankruptcy

but paid after the bankruptcy, would be given a priority one,

two or four. Hathcock quotes from that part of the decision

= There, three brothers were charged with filing false

income tax returns. The charges stemmed out of their control of a

corporation. More specifically, they reported dividends, on which they

owed taxes, as loans and deducted losses on their personal returns which

belonged to the corporation. The issue on appeal was whether the jury,

which convicted them, was properly instructed on defendants’ alleged good

faith beliefs.

Here, Acme has never been charged with submission of

false tax returns and no wonder. It has paid all monies due and has passed

IRS audits.

27

rejecting assignment of a priority two (wages) to the FICA

taxes:

Third, the benefit argument — that it is not

unjust to make the employee pay this tax

because of its important social purpose to

benefit the employee — flies in the face of the

statutory intent that the employee should only

partially finance the benefits of this system.

Inclusion as wages makes the employee pay his

employer’s share of this tax.

In re Richardson Dinner Theater, 421 F.Supp. at 425-26.

“I may not be nght, but I’m adamant” seems to be

Hathcock’s battle cry. Hathcock was an employee and a

lessor. Acme paid Hathcock a wage for driving his truck and

rental for the lease of his truck. Hathcock continues to ignore

the facts. Judges Hittner, Jolly, Smith and Wiener did not

ignore these dispositive facts and neither should this Court.

2. Hathcock’s parade of

horribles.

Unable to locate any jurisprudence applying the statutes

on which he relies to lessors/suppliers, Hathcock submits a

hypothetical in an effort to show that a reduction of monies

paid to suppliers is illegal. More specifically, Hathcock

hypothesizes at p. 10 of the Petition that employers will lease

pencils, desks, shoes, etc. from a person for some unspecified

sum, then employ the person, and then pass along some of the

costs of employment to the lessor/supplier.

28

Hathcock cites no real world examples of this practice.

And for good reason. He cannot.'*

There are companies who employ some persons and

who have an independent contractor relationship with others.

Supplying one’s own equipment is an indicia ofan independent

contractor relationship.

Hathcock’s inability to locate even remote support for

his argument and to provide a realistic hypothetical just

underscores the radicalness and meritlessness of his position.

It also demonstrates that the decisions of Judges Hittner, J olly,

Smith and Wiener were correct and that his Petition should be

denied.

CONCLUSION

Hathcock seems to primarily ask for Supreme Court

review due to the pendency of other cases. He fears that the

decision by the Fifth Circuit will have precedential value and

result in the dismissal of these other cases.’

- Rent in this example would have to be nominal given the

ability of companies to outright buy such goods for 10¢ to $20. FICA,

FUTA and SUTA costs, however, exceed $20. Hathcock’s example

obliviously assumes that the individual would, nevertheless, contract at a

loss.

Trucks are far more valuable than pencils or hammers.

Unlike pencils and hammers, companies lease vehicles.

= Hathcock cites the pendency of five cases at pp. 9-10 of

his Petition. He omits disclosure of the fact that he was represented at trial

by Gallagher, Young, Lewis, Hampton, Downey & Kim and Williams

Bailey Law Firm. He omits disclosure of the fact that these firms represent

the plaintiffs in those cases, that a Texas Court of Appeals was set to affirm

29

The decisions of Judges Hittner, Jolly, Smith and

Wiener were undisputedly correct. They are, accordingly,

entitled to precedential value.

ELLIS B. MUROV, T.A.

CHARLES F. SEEMANN III

Deutsch, Kerngan & Stiles, L.L.P.

755 Magazine Street

, New Orleans, Louisiana 70130

Phone: 504-581-5141

- and -

M. DAVID FROCK

Frock & Broussard, P.C.

2550 North Loop West, Suite 260

Houston, TX 77092-8908

Phone: 713-688-2300

Attorneys for Respondent,

Acme Truck Line, Inc.

the summary dismissal of Evans v. Dynasty based on the Fifth Circuit

decision herein in Hathcock, and that to avoid dismissal, Mr. Evans’

attorney stated that Hathcock would file a Petition for Writ of Certiorari.

30