Opposition Brief — United States v. W. M. Webb, Inc.

In THE

Supreme Court of the United States

OCTOBER TERM, 1968

THE UNITED STATES OF AMERICA

v8,

W. M. WEsB, INC., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE FIFTH CIRCUIT

BRIEF FOR RESPONDENTS IN OPPOSITION

JOSEPH J. LYMAN

Attorney for the Respondents

1200 18th Street, N.W.

Washington, D. C. 20036

WILSON - Eres PRINTING Co. - RE 7-6002 - WASHINGTON, D. C. 20001

—

CONTENTS

Page

Opinions Below 1

Jurisdiction - 1

Question Presented ..... 2

Statutes and Regulations Involved 2

Statement -...-. 2

Reasons For Denying the Writ 5

Argument ......------- 5

Conclusion -... 19

Appendix . 20-22

CASES

Baker v. Texas & Pacific Ry. Co., 359 U.S. Ee 7

Bartels v. Birmingham, 332 US. 126 8,9

Burlington Truck Lines V. United States, 317 U.S. 156 -. 15

Cape Shore Fish Co. V. United States, 330 F.2d 961 ..5, 6, 12, 13

Capital Trawlers, Inc. V. United States, 324 F.2d 506,

aff’d. per curiam; 216 F. Supp. 440 5, 6, 14

Enochs Vv. Williams Packing and Navigation Co., 370

US. 1 - - 8, 10, 11, 12

Hoosier Home Improvement Co. V. United States, 350

F.2d 640 . 11

Hopson Vv. Texaco Co., 383 U.S. 262 13

Jackson V. Phinney, 266 F.Supp. 835 14

Kirkconnell v. United States, 347 F.2d 260 5, 7,13

Lifetime Siding Co. v. United States, 359 F.2d 657 (CA-

2), cert. den. 385 U.S. 921 -.......-.-.--- 11

NLRB Vv. Hearst Publications, Inc., 322 i & Fears 14

Service Trucking Co. v. United States, 347 F.2d 671 -... 11

United States v. Crawford Packing Co., 330 F.2d 194 .. 12

United States v. Silk, 331 U.S. 704 8, 9, 10

Wisconsin Electric Co. v. Dunmore, 282 ff se 6

Statutes and Regulations:

Statutes At Large:

49 Stat. 623

64 Stat. 482, 490

64 Stat. 524

United States Code:

Title 26, Section 3121 (d)

Title 26, Section 3306 (i) .....

Title 26, Section 3306 (c) (17)

Title 26, Section 7202 .......... ek

Tetde BB, FB.Clv.P. GRC a) es seccecnececceeee..

Internal Revenue Code, 1939:

| | eee 17

SI I nt ensoncsihintcnionsonsirnticseneonsbininbnscela 17

Internal Revenue Code 1954:

LS eee rae 17

NTI cnc cigsacncssnatnisdaokibdunseaiatemcmuanecae 2, 16

Section $121(G) ............c...coces.s. 2, 5, 6, 7, 10, 12, 14, 16

Section 8806 ........0..00000... sipennninteacinntediiaiinaimatic 2,16

| | | ee 2, 5, 6, 7, 10, 12, 17

26 C.F.R.

EE SERS nes ea Manes HEN A Tar 2,9

UIE cinnusrnteniaadercdieimciaaieahesecas ces 2

Miscellaneous:

Social Security Act

EE CR ae ae eS AMER CUS 16, 17, 18

OM UE sinicstntastadebn eed pate cue ate ae 16

Federal Insurance Contributions Act _....... 2, 12, 18, 16, 18

Federal Unemployment Tax Act ...................... 2, 12, 18, 16

Self Employment Contributions Act (1950) ............ 17, 18

Jones Act ............ 18, 15

Sen. Rept. No. 1255, 80th Cong. 2d Sess. _.............. 7,9, 10

Vol. 132, Supreme Court Records and Briefs, Oct.

Term 1961, No. 493 ...... i 11

Gilmore & Black, The Law of Admiralty, 1957 ed.

SARL Mai eee: 18

SST 387, 1940-1 Cum. Bull. 192 20.2.0... eeeecesceeoeeee 17

w——

IN THE

Supreme Court of the United States

OCTOBER TERM, 1968

No, 1124

THE UNITED STATES OF AMERICA

v8.

W. M. WEBB, INC., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE FIFTH CIRCUIT

BRIEF FOR RESPONDENTS IN OPPOSITION

OPINIONS BELOW

The findings of fact and conclusions of law of the dis-

trict court (R. 218-241) were officially reported at 271 F.

Supp. 249. The opinion of the Court of Appeals for the

Fifth Circuit below (Pet. App. A, 1a-9a) is reported at

402 F.2d 956.

JURISDICTION

The jurisdictional prerequisites are adequately set forth

in the petition. Time for filing the response was extended

by the Clerk of the Court to April 14, 1969.

—

2

QUESTION PRESENTED

The sole question presented is whether fishermen (cap.

tains and crewmen) operating menhaden fishing boats

owned by the respondents were their “employees” as that

term is defined in the Federal Insurance Contributions

Act (FICA) and the Federal Unemployment Tax Ac

(FUTA), Sections 3121 et seq. and 3306 et seq. of the

Internal Revenue Code of 1954; 26 USCA §§ 3121 et seq,

and 3306 et seq.

STATUTES AND REGULATIONS INVOLVED

The specific statutes involved are §§ 3121(d) and 3306

(i), Internal Revenue Code of 1954; 26 USCA §8§ 3121(d)

and 3306(i), and the interpretive regulations, 26 CFR

§ 31.8121(d)-1 and § 31.3306(i)-1. They are set forth in

the Appendix, infra, pp. 20-22,

STATEMENT

The importance of the facts to the decision requires a

full summary of the district court’s findings of fact.

(R. 219-238) Petitioner’s statement of the case ignored

a number of the district court’s special findings, necessary

to its conclusions, and distorted others.’ Adding to those

already stated (Pet. 2-6), the following are considered

pertinent:

The business of each respondent embraced: (1) owner-

1A material distortion in petitioner’s statement is embraced in

the words (Pet. 4): “The captain could be fired if he failed to

follow a respondent’s instructions (R. 224).” We have searched

the district court’s findings and petitioner’s record reference to no

avail. We think this statement exceeds the reasonable bounds of

inference and the outer limits of editorial license. It is a bald and

transparent attempt to inject elements of control into the court’s

findings which do not exist. The contrary was evident. See, R. 237,

Fdg. 47. The petitioner’s record r ference (“R. 224)” at (Pet. 4)

to the nonexistent language is a calious disregard for material mat-

ters basic to the resolution of questions raised by the petition.

—

ship of one or more menhaden fishing boats; (2) the fish-

ing for menhaden under contractual arrangements with

certain captains and (3) the processing of the fish into

fish meal products for sale on the open market. (R. 221;

Fdg. 7)

The employment tax effect of the contractual arrange-

ment between each respondent and the fishermen (cap-

tains and crewmen) was the sole question for determina-

tion below. (R. 219) While not formalized by the par-

ties and designated as such, the district court found that

the arrangement between them constituted an oral con-

tract. (R. 224; Fdg. 15). To this end, respondents re-

inquished control of their fishing boats for a season* to

captains who provisioned them at their own expense a5

they saw fit and staffed them with crews selected without

interference by the respondents. (R. 221, 227, 231; Fdgs.

8, 22, 34) Further, it was the exclusive prerogative of

the captains to conduct the fishing operations, actually

and entirely, by their own means and methods without

interference by the respondents and without a guarantee

of compensation of any kind. (R. 221, 224, 228; Fdgs.

8,15, 25,31) Unless fish were caught, the fishermen had

no earnings. (R. 230, Fdg. 31)

The general area to be fished (the Gulf of Mexico or

Atlantic Ocean) was determined by the seasonal presence

and availability of the menhaden fish. When a choice of

two places to fish occurred, the captain’s preference was

a factor in a joint decision with the respondent. (R. 225,

Fdg. 17) By their own choice the captains fished either

the Gulf of Mexico or the Atlantic Ocean. Some fished in

both areas for consecutive seasons in a single year. Some

captains contracted for a single season for a single year.

Others fished a single season for respondents and at other

times for competitors without any pattern of continuity

2A fishing season lasted anywhere from three to seven months

depending upon the area fished. (R. 224, 225; Fdgs. 13, 16).

4

of relationship with the respondents. (R. 225, 226; Fag,

18) Payment was made by respondents to captains at an

agreed rate per unit, i.e. each “1000-fish” caught and de

livered. (R. 230, Fdg. 30)

The commencement and termination of each season was

considered a separate and complete undertaking by the

captains and respondents. New negotiations between the

parties respecting prices per “1,000 fish” and arrange.

ments for staffing and provisioning of the boats were com-

menced with each separate season. There was no pattern

of continuity in the service relationship beyond the short

seasonal fishing period, each of which inaugurated a new

set of fiscal and personnel records between the fishermen

and respondents. (R. 226-227, 230; Fdgs. 19, 20, 32)

While respondents determined that a crew of 24 men

was necessary for successful fishing (Pet. 4), additional

persons could be hired in the captains’ discretion who, in

turn, bore the burden of the extra expense. Fewer than

24 men were not shipped by a captain without first con-

sulting a respondent. (R. 227; Fdgs. 21, 22) Although

respondents furnished the captains with seasonal pay

scales for crew members (Pet. 4), each captain was privi-

leged to increase the amount paid the crewmen, but,

again, he assumed the burden of the extra expense without

reimbursement by the respondent. (R. 228; Fdgs. 28, 24)

Although it was in the interest of the parties to fish the

boats as often as practicable, whether a boat remained in

port due to unseaworthiness or bad weather were consid-

erations left solely to the discretion of the captain, as

opposed to the respondents. (R. 234; Fdg. 40) A captain

used the radio communications facilities aboard the boat

as he deemed necessary, without interference by the re

spondent and freely accepted or rejected the services of

fish spotter airplanes provided by the processing plants.

(R. 236-237; Fdg. 45) Although the arrangements de-

scribed could be terminated voluntarily or involuntarily

_

5

by either party at the end of any trip (Pet. 3), the cap-

tains did not leave their boats prior to the season’s end.

There was no evidence of termination of any relationship

or contract during a season. (R. 237; Fdg. 47)

The district court further found that, (1) there was no

express agreement specifying the extent to which respond-

ents had control over the fishing activities of the captains

and it was clear that no actual control was exercised over

the details, manner or method employed by the captains

and their crews. (R. 236; Fdg. 44) ; (2) that respondents

had no agreement with the captains that entitled them to

a preferred call on all the time and services of the captains

(R. 237; Fdg. 48); and (3) that respondents had no

actual control over the crewmen, nor did they exercise

any control over the latter’s activities through the cap-

tains. (R. 238; Fdg. 49)

In applying the common law test of the employer-em-

ployee relationship, it was open to the district court to

hold that for purposes of 8§ 3121(d) and 3306(i), the

fishermen were employees of the respondents. But it was

obvious from its findings of fact that the district court had

the common-law control test clearly in mind. (R. 236,

237, 238; Fdgs. 44, 46, 48 and 49) And the Circuit Court

below affirmed, noting that there was ample evidence in

the record to support the district court’s findings. (Pet.

App. A, p. 9a)

REASONS FOR DENYING THE WRIT

Argument

L Petitioner’s contentions that different approaches

exist between the Fifth Circuit opinion below (Pet. App.

A, p. la), the Court of Claims* and the First Circuit *

* Cape Shore Fish Co. V. United States, 330 F.2d 961, and Kirk-

connell v. United States, 347 F.2d 260.

‘Capital Trawlers, Inc., et al v. United States, 324 F.2d 506,

aff’g., per curiam, 216 F. Supp. 440.

6

(Pet. 6-7) respecting the issue involved here will not

withstand analysis.

Petitioner concedes that the common law test determin-

ing who are employees, provided in §§ 3121(d) and 3806

(i), Title 26, United States Code, was applied to all the

cases claimed differently approached. (Pet. 2, “question

presented”, 10-11, 12) It clearly appears therefore, that

the asserted conflict in “approaches” arises from differ.

ences in states of fact, or from different inferences drawn

from similar facts and not in varied applications of a

principle of law. In these circumstances the writ should

not be granted.®

Petitioner forcefully argues that a complete identity of

circumstances, without important factual differences,

exists among the cases cited (Pet. 7, 10) and a rule of law

should be fashioned by this Court, under its supervisory

powers, to govern lower court decisions respecting tax

incidence growing out of service relationships in the fish-

ing industry. (Pet. 6, 9, 10) A casual reading of the

petitioner’s authorities cited for comparison® (Pet. 7)

discloses material differences from those at bar.

5 Wisconsin Electrical Co. v. Dunmore, 282 U.S. 813.

* Material departures in petitioner’s citations from the case at

bar are:

Cape Shore Fish Co. v. United States, supra; the service

relationship was governed by a union contract which materially

controlled the captain’s hiring practices, curtailed his free-

dom of boat operations as to time of departure, arrival and the

fixing of working hours and watches at sea for the crew;

payments were guaranteed following “brokers”, and patterns

of long and continued relationships were evident in a general

atmosphere of supervision of the captains under sanctions for

failure to follow the owner’s instructions.

Capital Trawlers, Inc., et al vy. United States, supra; the

arrangement provided for guaranteed payments following a

“broker”, patterns of continuity of service relationships for

extended periods and control by the owner over details of the

fishing operations, including staffing and provisioning of the

boats.

[Footnote continued on page 7]

—

But assuming, arguendo, that the facts were not mate-

rially different, as alleged, the rule is that where the

jury has tried the matter upon instructions, the only in-

quiry is whether it cannot be said that reasonable men

could reach differing conclusions or. the issue. Where, as

here, the trial has been by the judge without a jury, the

judge’s findings must stand, unless “clearly erroneous.”

F.R.Civ.P. 52(a), 28 USCA. These rules will on many

occasions be presented in cases deciding service relation-

ships, not alone in the fishing industry, but any indus-

_ And, as observed by the Circuit Court below (Pet.

App. A, P.- 8a), Congress having been explicit when it

amended Sections 3121(d) and 3306(i), Internal Reve-

nue Code, that the common-law standards alone should

be applied, anticipated a variance in results by triers of

the facts.’

The facts stressed by petitioner indicated at most that

the question of the fishermen’s status was a debateable

one, that is, one upon which reasonable men may differ.

Baker v. Texas & Pacific Ry. Co., 359 U.S. 227, 228. It

was open to the fact finder to reach a contrary result but

the respondents prevailed. Decisions in close cases are @

familiar litigation casualty to which the government is

no more immune than taxpayers.

¢ [Continued]

Kirkconnell, et al v. United States, supra; a union contract

permeated the service relationship, creating an atmosphere

of tight control by the owner over the captains including crew

hire and permanency of relationship. The Court of Claims

called this a “very close case.” (id. 347 F.2d at p. 267) All

three cases contained language distinguishing their facts from

those in Fifth Circuit cases cited reaching contrary results.

1“Thus the inquiry when proceeding under the usual common-

law rules, realistically applied, has a clearly focused and practical

end point. A whole field of pertinent fact, documentary and other-

wise, is available to cast its weight one way or the other. Common-

sense and our own experience tell us that the rule so applied will

work a reasonable sifting of difficult cases.” Sen. Rept. No. 1255,

80th Cong. 2d. Sess., p. 10; 2 U.S. Code Cong. Serv., 1948, at p. 1762.

8

It is not in harmony with sound practice considerj

the nature of this Court’s function and those of the dig.

trict courts for the Supreme Court to undertake drawing

the final conclusion generally in these border-line cases

Having declared the principles of law in Enochs v, Wi.

liams Packing and Navigation Co., 370 U.S. 1 (di

infra, p. 10) to be applied in these boatowner-fishermen

cases, the function of this Court is sufficiently discharged

by seeing to it that they are observed. When this has

been done, drawing the final conclusion in matters s

largely factual as the end result must be in close

it is more properly the business of the district courts

than this Court.

II. Alternatively, petitioner argues that the holdings

in the case below and similar cases were not resolutions

of fact issues at all, but were ultimate conclusions based

on undisputed facts, representing pure questions of law

which are subject to plenary review on appeal. (Pet, 9)

Citing United States v. Silk, 331 U.S. 704 and Bartels

v. Birmingham, 332 U.S. 126 (Pet. 9, 11) for support,

petitioner not only misread those cases but ignored the

rules basic to issuing a writ of certiorari.

The writ was granted in those cases in 1947 because

the federal courts were applying varying standards when

determining who were employees under the Act. This

Court observed in Silk (id. 381 U.S. at 711): “No defini-

tion of employer or employee applicable to these cases

occurs in the Act. * * * Nothing that is helpful in deter-

mining the scope of the coverage of the tax sections of

the Social Security Act has come to our attention in the

legislative history of the passage of the Act or amend-

ments thereto.”

But, as petitioner says, in 1948 Congress passed clari-

fying legislation defining the term “employee”. (Pet.

10-11) There could be no mistake that the common law

standards and those alone were to be applied. The text

—

is contained in the petition, App. A, at 2a, 4a and in the

Appendix infra, pp. 20-22.

Although the moving principles in Silk and Bartels

were consistent with thé common law rules, the Commit-

tee Reports leading to the amendments emphatically re-

jected and overrode the liberalized “economic reality

test” suggested by this Court in prefatory remarks in

Silk,’ and as dictum in Bartels,’ which led to a new regu-

lation proposed by the Treasury Department for deciding

employee status.” (Pet. App. A. p. 3a) Thus Congres-

sional enactment removed the uncertainty of definition

as to who were “employees” under the Social Security Act.

No serious question of construction of a statute of nation-

wide importance remains, nor does petitioner present an

issue of clarity.

Petitioner would equate Congress’ desire for “nation-

wide uniformity of application of the act” (Pet. 11) with

some litmus paper test for deciding who are employees

under the common-law rules, Even the Treasury De-

partment in the text of its implementing regulations,”

approved by the Congress as the test to be applied, real-

ized that the diverse blends of personal relationships in

6 331 U.S. 704 at 713.

9332 U.S. 126 at 130.

10“But, we repeat, if it be argued that the Supreme Court

decisions establish a new definition of ‘employee’, then it is the

purpose of this resolution to reestablish its meaning according to

the usual common law rules, realistically applied.” Senate Rept. No.

1255, 80th Cong. 2d Sess. p. 7; 2 U.S. Code Cong. Serv. (1948) at

p. 1758.

11 See, 26 CFR §§ 31.3121 (d)-1 Who are employees.

ao * * *

(c) Common law employees. * * *

(3) Whether the relationship of employer and employee

exists under the usual common law rules will in doubtful

cases be determined upon an examination of the particular

facts of each case.

—

our industrial society present niceties for ajudication

which can not be put to rest by any kind of general for-

mulation. In situations so dependent upon the inferences

drawn from the facts in each case, the desired uniformity

of decision urged by the petitioner can be achieved only

by the application of appropriate legal rules, whether by

the judge as the trier of facts or the jury under appro.

priate instructions.

The Committee Report leading to amendments of

§§ 3121(d) and 3306(i) contained a chapter titled: Uni-

formity of Application of the Act Promoted by Supreme

Court Decisions Applying the Existing Regulation.” The

text following said in substance that the existing Treasury

Regulations “provide the answer to the Federal Security

Agency for a rule of common application promotive of

more uniform coverage of the act * * *” and encvuraged

its continued application rather than invite changes which

would give “rise to new uncertainties, more varied inter.

pretations, a larger area for litigation, greater diversity

of judicial decisions.” (Senate Rept. No. 1255, 80th

Cong. 2nd Sess. at p. 18; 2 U.S. Code Cong. & Admin.

News (1948) at p. 1769.)

The notion that “employee” status under §§ 3121(d)

and 3306(i) is a question of law runs counter to this

Court’s decision in Enochs vy. Williams Packing and Navi-

gation Co., 370 U.S. 1, holding the employment status of

fishermen for social security tax purposes is a question

of fact.” The Enochs v. Williams decision was based on

jurisdictional grounds not here applicable and discussed

the merits only for the purpose of determining “whether

the government has a chance of ultimately prevailing.”

10

72 “These sections specifically adopt the common law test for

ascertaining the existence of the employer-employee relationship.

As stated in United States v. Silk, 331 U.S. 704, 716, ‘degrees of

control, opportunities for profit or loss, investment in the facilities,

permanency of the relation and skill required .... are important

fo. decision [under the statutes]’.” (370 U.S. at 3)

_—_

11

On that record it held: “The record before us clearly re-

yeals that the government’s claim for liability was not

without foundation.” (370 U.S. at 8) Also, the govern-

ment’s petition for a writ of certiorari in Williams, supra,

successfully argued, “The record and issues in the present

case pose questions of law and fact * * * which are sub-

ject to reasonable disagreement * * *.” Likewise, the

government’s brief on the merits in Williams took consid-

erable comfort in the Circuit Court’s dissenting opinion

which described the issue, deemed controlling by the ma-

jority, as “closely and hotly litigated purely as a question

of fact.” See, Vol. 132 of the Supreme Court Records and

Briefs, Oct. Term 1961, No. 493, Petition at p. 7, and

petitioner’s Brief at pp. 23-24.

Unsuccessful taxpayers appealing adverse verdicts in

employment tax cases respecting other relationships *

have urged reversal, contending that the issue was one of

law for the Court and should not have been submitted to

the jury. The government opposed, arguing that conflict-

ing inferences deducible from the facts were properly jury

questions. The reviewing courts affirmed in each in-

stance, Thus, petitioner would require the respondents

plead in vain the very contentions urged so successfully

by the government.

The opinion below at most presents a unique set of

facts not likely to recur. Respondents pray the Court to

accept the concurring opinions of two courts below. We

believe the Circuit Court’s decision below is not one that

will have importance beyond the particular facts and par-

ties involved, nor is it in conflict with the applicable deci-

sions of this Court. The petition for the writ should be

denied.

18 Lifetime Siding Co. V. United States, 359 F.2d 657 (CA-2),

cert. denied 385 U.S. 921 (siding applicators) ;

Service Trucking Co. v. United States, 847 F.2d 671 (CA-4)

(truck unloaders) ;

Hoosier Home Improvement Co. v. United States, 350 F.2d 640

(CA-7) (window installers).

12

III. Petitioner’s third ground, hardly a model of clarity,

has two features: First, that the decisions in the Court of

Claims and the Fifth Circuit give opposing constructions

to the term “common law rules” in § 3121(d), which

should be resolved by this Court; (Pet. 12, 15) and Second,

as we understand it, petitioner says that respondents are

liable for FICA and FUTA taxes on the earnings of figh-

ermen even though they are not employees under the

common-law standards prescribed by §§3121(d) and

3306 (i), Interna] Revenue Code, so long as the respond-

ents, as owners of the boats, are liable to the fishermen for

maintenance and cure under maritime law. (Pet. 13, 14

14) The contentions are indefensible. We take them in

order.

First, there is no conflict between the Court of Claims

in Cape Shore Fish Co. and the Fifth Circuit decisions

cited.* They are in full accord. As did the Fifth Cir.

cuit, the Court of Claims in Cape Shore applied the com-

mon-law standards in the statutes and Treasury Regula-

tions involved to the facts adduced. (330 F.2d at 962,

964-5) Cape Shore listed as controlling (id. at 965) this

Court’s decision in Enochs vy. Williams Packing Co., supra,

which settled the question, saying: “These sections specifi-

cally adopt the common-law test for ascertaining the

existence of the employer-employee relationship.” (370

U.S. at 3) Petitioner’s asserted conflict became self-defeat-

ing when the Court of Claims itself, in Cape Shore, dis-

tinguished the contrary results reached by the Fifth Cir-

cuit in Crawford Packing Co., stating: “The facts in

Crawford Packing differed in material respects from the

facts here.” (330 F.2d at 973; ftn. 18)

Petitioner observed that the “Court of Claims exam-

ined the maritime cases in detail and relied for its con-

clusion on the fact that under maritime law the arrange-

ments in that case would not have sufficed to relieve the

* United States v. Crawford Packing Co., 330 F.2d 194 (Pet. 6,

8, 10, 12) and the opinion below at Pet. App. A, 1a et seq.

wa

13

boat owner of the employer’s traditional obligations to

his seamen.” (Pet, 14) The observations are beside the

point. A boat owner’s obligations for maintenance and

cure have no relation to his tax liabilities on the seamen’s

earnings under FICA and FUTA. Each obligation and

liability is governed by different acts having different leg-

islative purposes. Maintenance and cure is a fact of the

seaman’s attachment to the boat which creates the right

and not the form of the contract with the owner. A term

in a contract under which a seaman purported to waive

the right would be unquestionably void. Gilmore & Black,

The Law of Admiralty, 1957 ed. p. 257. “Employees” de-

fined under the FICA and FUTA statutes are specifically

described and their identity for tax purposes is finely

drawn. On the other hand, the term “employee” in mari-

time law is left at large, without definition to give effect

to the ameliorating purposes of maritime law which recog-

nizes the cost and debilitating effect of industrial injury.

That the fishermen here are not employees in the common

law sense is no bar to their rights and protection as wards

of the admiralty court under maritime law. This Court

said in Hopson v. Texaco Co., 383 U.S. 262 at 263-4, that

the application of the Jones Act, an extension of the mari-

time law, was “an avowed departure from the rules of the

common law * * *.”

“Suffice it to say here that the Court of Claims’ discus-

sion of maritime cases was obiter dicta, having only his-

torical significance. It is noteworthy that in Kirkconnell

y. United States, supra, decided after Cape Shore, the

Court of Claims reached a similar result, but made no

mention of maritime law as a basis for conclusion that the

fishermen were employees. Applying solely $$ 3121(d),

3306(i) and the Regulations in Kirkconnell, the Court of

Claims again distinguished the contrary results reached

by the Fifth Circuit and added that it was a “very close

case”. (347 F.2d at 265, 267) It seem strange indeed

that petitioner’s authorities, ie., Kirkconnell in the Court

of Claims and Capital Trawlers in the First Circuit, cited

earlier in the petition (Pet. 7) to support its transparent

assertions of conflict have not been summoned here to lend

aid and comfort to petitioner’s maritime-oriented em.

ployee argument.’®

14

All that remains is a dictum from a single case which

was later disowned by the same Court of Claims that

spawned it. Numerous cases deciding the same tax issue,

applying the same rules of law made no reference to prin-

ciples of maritime law. The dictum in Cape Shore has

authority only in the government’s petition.

The second feature of petitioner’s ground suggests that

in seafaring arrangements boatowners are liable for

FICA and FUTA taxes on the earnings by seamen by vir.

tue of the former’s obligation to the latter for maintenance

and cure, irrespective of the true service relationship

stemming from the contract between them. (Pet. 13, 14,

15) On its face the contention is unsound. As we said,

the clear differences between the term “employee” spe

cifically defined and circumscribed under the common law

tests outlined by the tax statute on the one hand, and the

term “employee” under marit.me law which is without

definition on the other, should conclude the matter, Peti-

tioner thus puts forth a contention which not only ignores

basic concepts in admiralty and maritime jurisprudence,

but also ignores elementary principles of statutory con-

struction. Their exposition is out of place in these limited

proceedings. Suffice it to say that this Court pointed the

way in an analogous situation, a labor case, in NLRB vy.

18 The petition is not uniformly respectiful of its own cited autor-

ities. At Pet. 7 and 15, petitioner asserted an alleged conflict within

the Fifth Circuit citing Jackson v. Phinney, 266 F.Supp. 885 (WD

Tex., 1967) as indicative of the necessity for resolution of the con-

flict by this Court. Holding the fishermen employees under § $121

(d), the district court rejected the government’s maritime argu-

ment, stating that “it seems questionable at best whether Congress

in reaffirming the use of the common-law tests intended to thereby

incorporate maritime law under the FICA and FUTA”. (id., at 889)

_—

15

Hearst Publications, Inc., 322 U.S. 111 at 122, saying:

we * * a person who * * * is held to be an ‘independent con-

tractor’ for the purpose of imposing vicarious liability in

tort may be an ‘employee’ for purposes of particular legis-

lation, such as unemployment compensation.”

Thus, while the fishermen may be excluded from the

common-law type employee category they are nevertheless

“employees” for maintenance and cure under the liberal

tests applied in maritime law. In this regard this Court

further stated (id, 322 U.S. at 126):

“Myriad forms of service relationship, with infinite

and subtle variations in the terms of employment,

blanket the nation’s economy. Some are within this

Act, others beyond its coverage. Lavge numbers will

fall clearly on one side or on the other, by whatever

test may be applied.”

In short, because of the difference in concept between

an “employee” for federal tax purposes and an “employee”

for compensation purposes under maritime law, the fish-

ermens’ right to maintenance and cure or Jones Act bene-

fits cannot be considered an indication that they were

employees in the common law sense. The sole issue here

is whether these fishermen were employees within the

meaning of the pertinent federal tax statutes. This ques-

tion cannot be determined by whether or not they were em-

ployees within the meaning of the Jones Act or general

maritime law. (Pet. 14) This action was brought by

respondents solely to recover taxes overpaid by them. The

fishermen have no direct interest in this controversy, nor

does it appear their rights to maintenance and cure, or

any other rights, are affected. The fishermen’s status for

other purposes is not in issue here, nor would it seem they

were bound by any attempt to decide such status in a

proceeding in which they are not parties.

This Court’s observation in Burlington Truck Lines v.

United States, 371 U.S. 156 at 173 is appropriate here:

«“<* * * nor should a determination under one statute

be mechanically carried over into the interpretation

—

of another statute involving significantly different

considerations and legislative purposes.’ ”

Thus it may be said that while petitioner’s maritime

concept is basic to the resolution of suits between owners,

captains, crewmen and outside third parties, it is a non-

sequitur in the resolution of tax controversies where the

parties are solely the United States and the boatowner-re.

spondents.

16

The opinion below observed that the Treasury Depart.

ment unsuccessfully proposed to Congress that § 3121 (d)

be amended to include as “employees” captains and crew-

men of the kind concerned here, irrespective of their em-

ployment status under the common law rules. The Com-

mittee’s rejection of the agencies’ maritime-oriented em-

ployee was considered by the Circuit Court as indicative of

Congress’ intention to retain the common law control test

as the sole test here for tax purposes, (Pet. App. A, 7a

and footnotes 5 and 6) In recent times Congress amended

various parts of Sections 3121 and 3306 of the Internal

Revenue Code, but subsections (d) and (i), defining “em-

ployee” remain intact—lending weight to the common-law

definition of employee. If we understand the petition cor-

rectly, it invites this Court to sit as a congressional com-

mittee to bring about by its certiorari jurisdiction that

which the Congress refused to do by legislative amend-

ment,

Petitioner’s reference to 26 U.S.C.A. § 3306(c) (17)

(Pet. 13) demonstrates the government’s confusion in

attempting to frame an issue for the Court to resolve. A]-

though proposed by the petitioner (Pet. 13-14), that sec-

tion has no bearing on the old-age benefits program ad-

ministered under Title II of the Social Security Act and

the correlative tax provisions of the Federal Insurance

Contributions Act (FICA), §§ 3121 et seg. Petitioner’s

reference deals solely with Title III of the Social Security

Act, and the correlative tax sections of the Federal Un-

employment Tax Act (FUTA), § 3306, et seq. The latter

_

17

provisions are concerned solely with grants of money to

those states having unemployment jnsurance programs ap-

proved by the Social Security Administration. And even

in this limited area, the common law standards prescribed

in $$ 3306(i), Internal Revenue Code determine whether

fishermen on vessels over 10 gross tons are employees for

unemployment insurance tax purposes. A careful reading

of § 3306(c) (17) shows that fishermen on vessels under

10 gross tons are exempt, irrespective of their status

under the common law standard.

Petitioner’s single reference to g.8.T. 387, 1940-1 Cum.

Bull, 192, as the official position of the Social Security

Administration (Pet. 7) is misleading. It cannot be the

official or other position of anyone. It has no sanction in

the law. S.S.T. 387 was promulgated under the Federal

Insurance Contributions Act, Sections 1426(b) (14) and

(g) of the Internal Revenue Code of 1939. The 1954 re-

vision of the Internal Revenue Code renumbered the FICA

as §§ 3121, et seq. The provisions relating to fishermen

contained in the 1939 Code sections were deleted from

FICA entirely in the 1954 Code. No basis for granting

the writ is warranted by any coritention put forth.

IV. The petitioner, in closing, sugggests that the con-

trary results in these cases may pose some administrative

problems for the Social Security Administration in dis-

pensing benefits. (Pet. 15-16) A further assertion is

made that benefits may be denied to some, while they ac-

crue to others without payment of the required social se-

curity taxes (Pet. 16). These notions are not only un-

sound, but disclose a gross misconception of the social

security system.

It is common knowledge that following the enactment of

the Self-Employment Contributiens Act of 1950 (SECA)

(64 Stat. 524) §§ 1401, et seq., internal Revenue Code, all

persons, employees under any test and others in service

relationships, including conventional independent contrac-

tors (with few exceptions), are covered under the social

18

security program and accorded equal benefits. (Title

II, Social Security Act; 49 Stat. 623 and 64 Stat, 482,

490) The benefits so accorded are besed upon the indi.

vidual’s earnings. Taxes are paid by those liable for

them and are collectible under the provisions of the FICA

and SECA Acts. Under FICA the taxes are paid by the

employer and employee in equal shares. The employer

bears the burden of certain administrative duties and

payments. His failure to abide by them may result in as-

sessments and penalties and possible criminal sanctions,

See, 26 U.S.C. § 7202. Under the Self-Employment Con-

tributions Act (SECA) the individual pays the tax,

(about 34 of the combined FICA tax) and assumes the

responsibilities for reporting and payment to the tax col-

lector. The alleged problems, it seems, lie with the agen-

cies who, for administrative convenience, bring pressure

to bear on respondents and others to assume liability for

taxes under FICA without a basis in law or fact.

The asserted “dilemma” of the Internal Revenue Serv-

ice complained of (Pet. 17) is self-induced. Systematic

refusal to consider (R. 3, par. 10) and summary disallow-

ance of claims for refund, without examination of the

working relationships in issue, are a standing National

Office policy of the Internal Revenue Service in disposing

of all boatowner-fishermen claims. By this device the

agency transfers its entire administrative responsibilities

to the courts to sift the validity of the claims on a case by

case basis, and, by a show of statistics (Pet. 17) accuses

the respondents and other taxpayers for the responsibility

of increased calendar loads in the Fifth Circuit. Respond-

ents were left no alternative in these circumstances but to

bring this suit. Review of the decision below by writ of

certiorari will not resolve the petitioner’s administrative

lapses.

—

19

CONCLUSION

The decision of the court below is clearly correct. There

are no conflicts of decision, and the case does not call for

review. The petition for a writ of certiorari should, there-

fore, be denied.

Respectfully submitted,

Washington, D. C. 20036

April 1969

20

APPENDIX

STATUTES AND REGULATIONS INVOLVED

Internal Revenue Code of 1954:

Sec. 3121. DEFINITIONS.

* * * *

(d) EMPLOYEE.—For purposes of this chapter,

the term “employee” means—

(1) any officer of a corporation; or

(2) any individual who, under the usual con.

mon law rules applicable in determining

the employer-employee relationship, has

the status of an employee;

© = & =

Sec. 3306. DEFINITIONS

(i) EMPLOYEE.—For purposes of this chapter,

the term “employee” includes an officer of a

corporation, but such term does not include—

(1) any individual who, under the usual con-

mon law rules applicable in determining

the employer-employee relationship, has

the status of an independent contractor,

or

(2) any individual (except an officer of a cor-

poration) who is not an employee under

such common law rules.

* * * ae

(26 U.S.C. 1955 ed., Sec. 3121 and 3306)

—

21

Treasury Regulations under the 1954 Internal Revenue

Code, promulgated under the Federal Insurance Contri-

putions Act:

§ 31.3121 (d)-1. Who Are Employees.

(a) | a wd

(c) Common Law Employees. (1) Every individ-

ual is an employee if under the usual common law

rules the relationship between him and the person

for whom he performs services is the legal relation-

ship of employer and employee.

(2) Generally such relationship exists when the

n for whom services are performed has the

right to control and direct the individual who per-

forms the services, not only as to the result to be

accomplished by the work but also as to the details

and means by which that result is accomplished.

That is, an employee is subject to the will and con-

trol of the employer not only as to what shall be

done but how it shall be done. In this connection, it

is not necessary that the employer actually direct or

control the manner in which the services are per-

formed; it is sufficient if he has the right to do so.

The right to discharge is also an important factor in-

dicating that the person possessing that right is an

employer. Other factors characteristic of an employ-

er, but not necessarily present in every case, are the

furnishing of tools and the furnishing of a place to

work, to the individual who performs the services. In

general, if an individual is subject to the control or

direction of another merely as to the result to be ac-

complished by the work and not as to the means and

methods for accomplishing the result, he is an inde-

pendent contractor. An individual performing serv-

ice as an independent contractor is not as to such

services an employee under the usual common law

rules. Individuals such as physicians, lawyers, den-

22

tists, veterinarians, construction contractors, pub

stenographers, and auctioneers, engaged in the x

suit of an independent trade, business, or profe

in which they offer their services to the public,

independent contractors and not employees. If an

dividual enters into an agreement with another pe

son pursuant to which such individual undertakes q

produce a crop or livestock on land owned or leg

by such other person and pursuant to which (i) ¢

crop or livestock produced by such individual or th

proceeds thereof are to be divided between such indi

vidual and such other person, and (ii) the amou

of such individual’s share depends on the amount @

the crop or livestock produced, such individual ig

with respect to such undertaking an independent com

tractor and not an employee. d

(8) Whether the relationship of employer and em-

ployee exists under the usual common law rules will”

in doubtful cases be determined upon an <n

of the particular facts of each case.

Treasury Regulations promulgated under the Federal Un

employment Tax Act, q

§ 31.3306(i)-1. Who Are Employees

* s * id

are the same for purposes of this case as provided in |

§ 31.8121(d)-1, Federal Insurance Contributions Act and ~

Regulations thereunder. ;