J. L. Enochs, District Director of Internal Revenue v. Williams Packing & Navigation Co., Inc.

291 F.2d 402, 9 A.F.T.R.2d (RIA) 490, 1961 U.S. App. LEXIS 4211

• Court: Court of Appeals for the Fifth Circuit
• Decided: June 14, 1961
• Docket: 18272
• Status: Published

Opinions

CAMERON, Circuit Judge.

This appeal presents two questions; whether fishermen carrying on their occupation of catching shrimp and oysters aboard trawlers, owned or leased by Williams Packing & Navigation Company, Inc., taxpayer-appellee, were its employees during the taxable periods involved within the meaning of §§ 1426 and 1607 of the Internal Revenue Code of 1939 and §§ 3121 and 3306 of the Internal Revenue Code of 1954; and whether taxpayer has shown the existence of such extraordinary and unusual circumstances as to wax-rant the granting of an injunction notwithstanding the prohibitions contained in § 7421(a) of the 1954 Code.

The district court held that each of the questions should be answered in favor of the taxpayer and, after full hearing, denied the Director’s claim of $41,-568.57, plus statutory interest, assessed against it as Federal Insurance Contributions and Federal Unemployment Taxes for taxable periods in the years 1953, 1954 and 1955. Its action was taken after an extended hearing, at which it considered the oral testimony of eighteen witnesses and the depositions of three, along with a large number of exhibits the originals of which are before us; and it entered detailed findings of fact and conclusions of law occupying some twenty pages in the record. Its written opinion is reported in 176 F.Supp. at pages 168 et seq.

The opinion was based upon the evidence heard by the court and the consideration of written briefs filed by the parties. It deals in detail with the contentions made by the appellant Director, and we are of the opinion that the findings of fact of the court below, brought forward in part in the opinion, are supported by substantial evidence in the record and that its conclusions of law are sound; and, on the basis of the court’s findings and opinion and the brief comments which follow, we affirm the judgment of the court below.

The published opinion deals with all of the questions argued before us,¹ and the trial court’s handling of the issues is so clear and complete that we feel that an extended opinion by us is not called for.

A careful reading of the Director’s brief shows that the question underlying disposition of the whole case, that is, whether the fishermen were employees of the taxpayer corporation, was one essentially to be resolved from the facts as developed from the large number of witnesses the court heard.²

A few excerpts from the court’s published opinion will illustrate the accurate grasp which the court below had of the problems before it and the law under which they would be resolved:

“This case, like so many other cases, depends upon the individual facts as brought out here and not upon methods of other similar concerns engaged in like business. No uniform pattern covering the entire United States can be formulated except where the facts are identically the same. The judgment to be rendered in this case must be determined from the facts of this particular case, including all the exhibits and reasonable inferences therefrom and the conduct of the parties so far as it may have probative force upon the issues. The law must be determined from the Acts of Congress, the judicial interpretations by the courts and the Treasury Regulations * * *

“It has been the custom on the Coast of Mississippi since the seafood packing industry started that fishing vessels have operated upon a share or lay basis, but the details of this customary way varied between some of the packers and that is the reason that it is necesary to determine how the corporation in this particular case conducted its business. * * *

“These examples of the authorities simply illustrate the point that each case will be determined by the facts of the particular case and that no general pattern can be established or formulated. The record in the Gulf Coast Shrimpers and Oyster-mans Association case, supra [5 Cir., 236 F.2d 658], well demonstrates that fact and the fact that all packers on the Coast of Mississippi do not have identical patterns. * * * ”³

The careful analysis of the testimony and application of the cases the Government relied on before the Court below and now relies on before us demonstrate that it fully comprehended the issues of fact involved and the law applicable to them. The conclusion reached by the trial court from the testimony is entitled to the presumption of correctness with which the Federal Rules invest it.

The Director argues earnestly that the injunction was not properly granted in this case. His contention is thus summarized — each of the two points relating to the action of the court below in deciding a fact issue:

“In ruling that the injunction was properly granted, it (the trial court) held, erroneously, (1) that the tax was ‘illegal’ because the employer-employee relationship did not exist between the taxpayer-corporation and the fishermen, and (2) that to allow the Director to proceed to levy would have brought financial disaster to the taxpayer. * 'x' *

“As this Court said in United States v. Curd [5 Cir.], 257 F.2d 347, 350, the issuance of any such injunction must be tested in the light of the ‘emphatic language’ of the statute and the ‘limited circumstances’ in which, under equitable principles reflected in Miller v. [Standard] Nut Margarine Co., 284 U.S. 498 [52 S.Ct. 260, 76 L.Ed. 422], and cases following it, injunctive relief may be granted despite the statutory prohibition. * * *

“* * * Basically, the error of the court below lies in its failure to realize that the taxpayer-corporation and the DeJean partnership, though separate legal entities, were parts of an integrated operation and for all practical purposes, including financial, were merged.” [Emphasis added.]

Appellant quotes from the Curd case (257 F.2d at pages 350-351) our estimate of the “extraordinary circumstances” which would meet the stringent requirements necessary to support the conclusion that “irretrievable injustice would be done were an injunction not issued.” The opinion of the court below shows that the judge carefully considered the authorities relied upon by the Government and others and concluded “as a matter of law that it was appropriate to grant the temporary injunction,” and to make it permanent.

Dealing with the relationship between DeJean and the taxpayer, which the Director referred to as basic, and with what the Director characterized as error leading to the wrongful issuance of the injunction, the court below in its opinion said:

“It * * * is the theory, of the Government that the DeJean Packing Company is able to pay the tax and that because of the relationship of Elmer Williams to the corporation and to the partnership that the corporation had it within its power to require the DeJean Packing Company to pay the tax for it if the corporation be liable. However, as heretofore stated, this contention is not sustained by the evidence. * * * ”

Large portions of the evidence in the record and of the Director’s brief deal with this relationship, which appellee charged to have encompassed fraudulent transactions and concealments in the dealings between the appellee corporation and the partnership in an effort to escape the exactions here involved. The witnesses, who detailed the circumstances from which an intelligent conclusion as to such a relationship would have to be drawn, were local people, doubtless well known to the judge. He heard them testify and he set forth fully in his findings and the opinion the nature and ingredients of that relationship as he found them to be. The inferences he drew and the conclusion he reached from the human testimony, the exhibits, and the evidence of customs given by the witnesses included the weighing and assaying of testimony involving subtleties and intangibles which could best be done by one having the “feel” of the case which was possessed by the district judge. The Director’s evidence was sharply contra-dieted, and the trial court doubtless considered that major reliance was placed by the Director on the testimony of one or more witnesses who were embittered by the events attending a strike against appellee. Its decision on this fact question is invested with the presumption of correctness, which an examination of the record does not tempt us to set aside as clearly erroneous.

The trial court’s decision on this fact question, treated by appellant throughout as being basic, virtually disposes of the claim that the injunction was not properly granted. Appellant did argue briefly that appellee was able to pay the exaction and sue for refund, relying to a considerable extent on the testimony of strongly biased witnesses to sustain this contention. The trial court’s findings4 are against appellant and they are clearly supported by the evidence.

This Court has been diligent in protecting the public revenues against improvident injunctions. The last case coming to our attention is McDonald v. Phinney, 5 Cir., 1961, 285 F.2d 121. There we affirmed the action of a district judge in refusing to make permanent a temporary injunction which had been issued and in dismissing the complaint under § 7421. In that ease the tax involved had been reduced to judgment in the Tax Court on the basis of stipulation between the parties and, more than a year and a half later, the taxpayer filed his action for injunction on the ground that “he lacked sufficient funds to pay the sum alleged to be owing to the government and that to allow the government to collect such sums would be to subject his property to a forced sale by reason of which he would suffer irreparable damage.”

In that case, we set forth a good summary of the applicable rule (at page 122):

“We think that the trial court acted properly in dismissing the complaint. Section 7421 clearly prohibits suits to restrain assessment or collection of taxes except in certain cases not relevant to the present inquiry. While it is true that, notwithstanding the statutory prohibition against such suits, they have been allowed under certain circumstances, see, e. g., Miller v. Standard Nut Margarine Co., 284 U.S. 498, 52 S.Ct. 260, 76 L.Ed. 422, they are not permitted when the complaining party asserts financial hardship and nothing or little more. State Railroad Tax Cases, 92 U.S. 575, 23 L.Ed. 663; Lloyd v. Patterson, 5 Cir., 242 F.2d 742; Enochs v. Green, 5 Cir., 270 F.2d 558; Robique v. Lambert, D.C., 114 F.Supp. 305, affirmed per curiam 5 Cir., 214 F.2d 3. We think it clear that the facts involved in the instant case necessitate its falling into the latter class of cases, for appellant has failed to show the extraordinary circumstances which would justify the issuance of an inunction by the district court. See United States v. Curd, 5 Cir., 257 F.2d 347; Tomlinson v. Poller, 5 Cir., 220 F.2d 308, and Darnell v. Tomlinson, 5 Cir., 220 F.2d 894.” [Emphasis added.]

The circumstances relied upon in that case and the cases cited by it fall far short of those found to be present here. The trial court said here, in addition to that quoted supra: “As before stated, if the Government had been permitted to execute upon the property and seize and sell it, it would totally wreck and ruin the corporation. The corporation is entitled to continue its existence because its charter has value and gives it valuable rights in Louisiana, and as long as it complies with all the federal laws it should not be permitted to be destroyed.” [Emphasis added.]

A peculiar equity existing in appellee’s favor — which the Government does not dispute except on the ground that the facts did not support the court’s findings — arises from the effort of the Director to enforce taxes against the corporation by coercion of its stockholders to pay the corporation’s supposed indebtedness. The Director did not assess the tax against the stockholders or the partnership, but confined his effort to an attempt to reach the assets of those not made parties to the assessment or brought into this action, by this indirect proceeding aimed at collecting the money from those held by the court not to be liable for it.

We do not find any case decided by the Supreme Court or by this Court denying injunctive relief under facts approximating those justifiably found by the trial court as present in this case. All of the tests and requirements of Miller v. Standard Nut Margarine Co., supra, were met by the proof and the findings of the court; and we think, moreover, that the injunction was justified under Allen v. Regents of University System of Georgia, 1938, 304 U.S. 439, at pages 448-449, 58 S.Ct. 980, at page 984, 82 L.Ed. 1448, where it is said: “The dispute as to the propriety of a suit in equity must be resolved in the light of the nature of the controversy. * * *. These extraordinary circumstances we think justify resort to equity. What we have said indicates that R.S. § 3224, supra [now § 7421], does not oust the jurisdiction. The statute is inapplicable in exceptional cases where there is no plain, adequate, and complete remedy at law. This is such a case, for here the assessment is not of a tax payable by respondent but of a penalty for failure to collect it from another.” The facts here bring this case closely in line with that case, as well as Hill v. Wallace, 1922, 259 U.S. 44, 62, 42 S.Ct. 453, 66 L.Ed. 822; Dodge v. Brady, 1916, 240 U.S. 122, 36 S.Ct. 277, 60 L.Ed. 560; and Lassoff v. Gray, 6 Cir., 1959, 266 F.2d 745, and the cases therein listed at page 746.

Based upon the published opinion of the court below, supplemented by these comments, the judgment appealed from is

Affirmed.

1 . “Appellant asserts that the court below erred in the following respects:

“1. In holding that the relationship of employer-employee did not exist between the taxpayer and the fishermen (boat captains and crew members).

“2. In holding that taxpayer had no right of control over the fishermen.

“3. In holding that the taxes assessed were illegal.

“4. In holding that collection of the taxes would ‘totally wreck and ruin the corporation.’

“5. In holding that collection of the taxes should be enjoined.”

2 . The Director’s contentions with respect to this question embrace these propositions : “ * * * The fishermen were subject to taxpayer’s right of control, and control was actually exercised; the employee relationship is evidenced by taxpayer’s right to discharge the boat captains and crew members; the method of remuneration is not inconsistent with an employer-employee relationship; the parties treated their relationship as that of employer-employee; a realistic application of the common law control test requires the conclusion that the fishermen were employees, rather than independent contractors * * * ”

3 . The accuracy of these statements of the trial judge is illustrated by recent decisions rendered by the National Labor Retions Board which have been called to our attention. We refer to six decisions and Orders by the Labor Board based upon its published decision and F. Alioto Co., 129 N.L.R.B. No. 6, where, under circumstances similar to those existing in this case, the Labor Board held that the employees on shrimp boats were not employees of the company owning the boats, but of the captains who leased them:

Case No. 23-RC-1542, Independent Fish Co., Inc., Employer, and General Drivers’ Etc., Union, Petitioner, Order entered Oct. 5, 1980;

Case No. 23-RC-1538, Doro Besteiro, Employer, and General Drivers and Helpers Local Union No. 657, decided Oct. 6, 1960;

Case No. 23-RC-1550, Sea Garden Corporation, Employer, and General Drivers and Helpers Local Union No. 657, etc., decided Oct. 5, 1960;

Case No. 23-RC-1549, Wilhelm Sea-foods, Inc., et al., Employers, and General Drivers and Helpers Union No. 657, decided Oct. 5, 1960;

Case No. 23-RC-1539, Roberto deLuna Employer, and General Drivers and Helpers Local Union No. 657, decided Oct. 5, 1960.

These decisions have no decisive effect in this case, but serve merely to attest the fact that agencies of the Government are' resolving similar issues in á way which is consonant with the trial court’s decision here.

4 . “I find as a fact that if the levy had been made upon the assets of the corporation it would have wrecked the corporation and thrown it into bankruptcy, as it did not have and does not have assets with which to pay the taxes and not sufficient assets with which it could have negotiated a loan to pay the tax. * * *

“The Government complains of bad faith on the part of the plaintiff and concealment of evidence. The court finds as a fact that the plaintiff was not guilty of any bad faith or any intentional concealment of any records or evidence.”