Court Opinion

ID: 8593308
Source: CourtListenerOpinion
Date Created: 2022-11-23 15:56:21.4867+00
Date Added: 2024-06-11T16:54:42.309783
License: Public Domain

Collins, Judge,
joins in the foregoing concurring opinion.
FINDINGS OF FACT
The court, having considered the evidence, the report of Trial Commissioner Wilson Cowen (now Chief Judge), and the briefs and argument of counsel, makes findings of fact as follows:
1. Plaintiffs brought these actions to recover taxes alleged to have been erroneously paid under the Federal Insurance Contributions Act (fica) , 26 TJ.S.C. §§ 8100 et seq., and the Federal Unemployment Tax Act (futa), 26 U.S.C. 88 3300 et seq., for the quarter ending March 31,1957, through March 31,1960.
2. Only that portion of the fica taxes, an excise tax paid by the plaintiffs, is sought to be refunded. No part of the fishermen’s fica taxes, an income tax, is sought to be refunded here. The futa tax, an excise tax paid by the plaintiffs without contributions by the fishermen, is also sought to be refunded for the years 1957,1958, and 1959.
3. By agreement these cases were consolidated for trial because of the similarity of the issues of law and fact in each. Except where otherwise indicated, these findings are applicable in both cases.
4. The trial was limited to the issues of law and fact relating to the right of the plaintiffs to recover, reserving the *58determination of tlxe amount of recovery to further proceedings.
5. The issue is whether the fishermen, comprised of captains and deckhands, who performed fishing services on plaintiffs’ boats, were employees of the plaintiffs under Sections 8121(d) and 3306 (i), Internal Revenue Code, Title 26, United States Code, §§ 3121(d) and 3306 (i), or independent contractors.
6. The plaintiffs in each case were separate and distinci partnerships.
(a) One was composed of two individuals, O. A. Kirk-connell, Jr., and Walter Godfrey, hereinafter referred to as Kirkconnell in these findings. O. A. Kirkconnell actively managed the shrimp boats of his partnership. During the period involved, the plaintiff-partners owned from five to eight shrimp boats. They dissolved their partnership in 1962, subsequent to the period involved in this litigation.
(b) The other partnership was composed of Harris Fal-gout, Harris Falgout, Jr., Louella F. Lemkowitz and M. F. Calíais, who traded under the name Grande Yalley Boat Company, hereinafter called Grande Valley. The boats were managed by Marcial Calíais, the husband of one of the partners.
(c) Both plaintiffs were engaged during the period involved here in the business of fishing for shrimp in the Gulf of Mexico and their headquarters were in Brownsville, Texas. There activities included the ownership of the shrimp fishing boats, fishing for shrimp, and the sale of shrimp to Western Shell Fish Co., Inc., which purchased and processed them.
7. The plaintiffs’ shrimp boats weighed about 60 gross tons and cost about $40,000 each. These boats were specially equipped, and were owned and operated solely for shrimp fishing, although occasionally fish other than shrimp were taken incidental to the shrimping activities.
8. In connection with the ownership and operation of the vessels, the plaintiffs hired maintenance workers (shore personnel) to keep the vessels and fishing gear in operating condition between trips. Such personnel were paid regular *59wages and worked under the direct supervision of the plaintiffs’ managers. Their status is not at issue here.
9. Walter Godfrey and Harris Falgout, in addition to their interests in their respective partnerships, held substantial interests in Western Shell Fish Co., Inc., a shrimp processing-plant. Western Shell Fish Company and three individuals unrelated to plaintiffs, held an interest in Basin Seafood Company. The latter company performed the service of unloading the shrimp from the various vessels of plaintiffs and others when the boats returned to port from the fishing grounds.
10. After a boat had been outfitted and equipped, plaintiffs would select from among those who applied to them an experienced fisherman who was placed in command of the boat for the purpose of fishing for shrimp in the Gulf of Mexico. The captains so selected were those in whose ability, production records, and integrity plaintiffs had confidence.
11. It was understood by the plaintiffs and those selected that the latter were to be in full charge of the fishing operations and were to be responsible as the boats’ captains until the boats returned to port.
12. The Kirkconnell plaintiffs had a written agreement, setting out the working arrangement with its captains. It provided as follows:
1. Crews will pay one-half of ice. M
2.Crews will pay all groceries. Groceries charged to account must be from Pace or Pollock. fcO
3. Crews must pay for bouy [sic] batteries, lights, and sockets. 05
4. All boats must have three man crews or will be charged three dollars per barrel to compensate for being short handed.
5. Company boats will pay half of all port charges incurred in any other port than Brownsville and should not enter any other port than Brownsville.
6. Crews will be responsible for all equipment loaned or borrowed.
7. Crews shall clean and maintain .pilot house, mast, booms, engine room, and deck. If this is not done satisfactorily a shore crew will do it at the crews’ expense.
8. No settlement of less than ten boxes will be made. co
9. If third man is paid by the barrel, his pay is the a *60responsibility of the other two men on-a short trip.
10. When in port, full crew must visit ship to check and .... pump boat at least once a day, unless arrangements are otherwise made. .
11. Absolutely no advances will be made unless we have shrimp to crews’ credit.
13.. The above-quoted contract resulted from negotiations between the owners and the Kio Grande Shrimp Fishermen’s Association, which was the authorized representative of the fishermen and captains during a period of approximately 11 years prior to the time the agreement was adopted.
14. Not all the Kirkconnell captains executed the agreement. Nevertheless the working arrangements between that plaintiff and the non-signing captains did not differ in practice from the working arrangements between the plaintiff and signers of the agreement, because many of the provisions of the agreement were rarely enforced and the general practices of the trade actually governed. The Grande Yalley plaintiffs and their captains entered into oral understandings concerning the duties of the parties with respect to the shrimp fishing activities. The actual manner in which both plaintiff partnerships conducted business was similar for all practical purposes.
15. There was no express agreement specifying the extent of plaintiffs’ control over the captain’s fishing activities. Ordinarily, while the vessel was away from Brownsville, the crew of the boat was under the direct and sole control of the captain upon whose skill and expertise the owners depended for a good catch. The captains usually made the decision where to fish and in what direction to go but, if the boat was not in safe mechanical condition for long distance fishing,, the owner would tell the captain to fish “just off the bar.” In addition, the owners passed on to the captains information obtained as to where fish were being caught.
16. Under the terms of the working arrangements between plaintiffs and the captains, the latter were not allowed to have or to permit intoxicating liquor aboard the vessels. They were also instructed by plaintiffs to avoid any violation of Mexican territorial waters, to refrain from entering Mexican ports except in emergencies, and to comply with *61Mexican fishing regulations when the boat was in Mexican waters. These precautions regarding Mexican territorial waters and regulations were taken to avoid the imposition of fines and the confiscation of the catch and the ship’s gear by the Mexican authorities.
17. The working arrangements between the captains and the plaintiffs as they existed and were practiced did not specify a term during which the captain would remain in command of the vessel.
18. The plaintiffs attempted to keep their vessels in operation as much and as often as was consistent with the condition of the vessel. Usually two or three days ashore elapsed between trips. If a captain was not ready or available to ship out when the boat was equipped to go, plaintiffs would select another captain to take over command of the vessel. The captains so replaced could and thereafter often did take out other boats owned by plaintiffs.
19. The arrangement contemplated that the captain would command the vessel on a trip-to-trip basis. The arrangement could be terminated by either party at the conclusion of any trip or prior to the commencement of another. A captain was not called in, nor interrupted during his fishing operations, nor required to surrender his boat. However, on one occasion, the captain docked a boat at Aransas Pass to avoid impending bad weather, left the boat with the crewmen and spent the night on shore with friends. Mr. Kirk-connell was notified that the captain had disappeared and had abandoned the boat, whereupon the owners directed the mate to return the vessel to Brownsville.
20. After a captain took command of a vessel, he would take the boat’s identification papers to the Bureau of Customs and would register the vessel, listing himself as captain according to law. At times the Kirkconnell plaintiffs would make an arrangement with an alien who would then be recognized as the captain of a boat, although he was ineligible to sign the vessel’s papers as captain under the customs laws. In such instances, a citizen crewman would execute the boat’s identification papérs as captain to satisfy the customs law requirements. Such a person was known as a “paper captain” or a captain in name only. The plaintiffs considered *62the alien, captain as the party responsible for the boat and the conduct of the fishing operations.
These aliens later acquired citizenship and then commanded vessels as regular captains properly registered under the Federal customs laws.
21. It' was customary for the captain to determine which deckhands he would hire, their qualifications, the length of time they would work, their duties, and the amount they would be paid.1 On occasions, the owners requested that certain individuals not be hired by the captain, and these requests were complied with.
' 22. Usually, the captain selected two deckhands but some captains hired three crewmen. The Kirkconnell contract required that a captain select a minimum of two deckhands.
23. There was a considerable turnover in personnel, both with respect to the captains and the deckhands, although a number of captains made many consecutive trips in command of the same boat for either of the plaintiffs. The turnover was greater in the Kirkconnell operations than in those of Grande Valley.
24. Plaintiffs had no direct relationship with the deckhands in respect to their fishing activities. As previously stated, they were selected by the captain who fixed their conditions of work and paid them by negotiating on a share basis out of his share of the whole catch.
25. The deckhands frequently changed from trip to trip and plaintiffs did not know who the deckhands would be at the time they were selected by the captains. Generally, the names of the crew were given to plaintiffs, however, prior to sailing.
26. In any event the names of the deckhands became known to the plaintiffs at the time of settlement. At that time a settlement'sheet was drawn up by plaintiffs to compute for the captains and the deckhands their respective participation *63in the captain’s share as agreed upon between the captain and his crew.
27. While in port the captain was responsible for keeping the vessel in a clean condition, either with his deckhands or with others with whom he made an arrangement. No payment was made by the plaintiffs for this work other than as such payment came out of sharing in the shrimp caught from the boat.
28. The length of a trip depended upon various factors, such as the capacity of the boat for fuel and ice, the weather, food aboard, the inclinations of the captain to prolong or terminate the trip, and general shrimping conditions. A trip off Texas waters would last from three to eight days after which a settlement was made. If the vessel fished off Cam-peche, Mexico, the trip might last as long as 60 days.
29. The captain not only determined where to fish, how to fish, and when the boat was to return to port, but he was in complete charge of the boat concerning all matters of its operation and maintenance, including the mechanical process of operating the nets, gear, and other equipment from the time of departure until the boat returned from a particular trip. These were the prerogatives of the captain and the deckhands took their orders exclusively from him.
30. The captains were not required nor expected to communicate with the plaintiffs with any degree of frequency once they left port. The communication facilities aboard the vessels were used by the captains to communicate with other boats to obtain information about fishing grounds and prices of shrimp and for weather reports. Contact between the captain and plaintiffs was infrequent and usually limited to emergencies,
31. Under the agreement between the plaintiffs and the captains, the latter worked or fished the boats on the lay or share basis, consistent with the long standing custom in the fishing industry. During the earlier portion of the period, the proceeds from the catch of shrimp from each trip were divided equally between the plaintiffs and the captain, but during the latter part of the period, each catch was divided 60 percent to plaintiffs and 40 percent to the captains.
32. Various expenses were incurred in connection with a *64fishing trip. Some were paid by plaintiffs and some by the captains and crews. The crew paid for groceries, one-half of the ice, and for all personal items such as rainwear, boots, gloves, and laundry. The cost of processing the shrimp was deducted from the gross price before the shares were disbursed. In addition, the crew paid for shoveling the shrimp out of the holds, and paid the expense of employing a guard or watchman to protect the catch when the boat was not to be immediately unloaded. All other expenses were paid by the plaintiffs.
33. It was the captain’s function to decide how much fuel or ice to take aboard, depending on the distance he contemplated going and the time he planned to remain away from port. When the boats were in Brownsville, Texas, fuel and ice were obtained from the Yalley Fuel and Ice Company, with which concern plaintiffs had credit arrangements. Mr. W. J. Godfrey was a stockholder in the company. When a captain was placed in command of the boat, he customarily inquired of plaintiffs where to obtain his fuel and ice and was told to purchase them from the Yalley Fuel and Ice Company. In all instances shown in the record, the cost of both the fuel and the ice was charged to plaintiffs. When settlement was made after the conclusion of the fishing trip, one-half of the cost of the ice was deducted from the captain’s share of the proceeds from the sale of the shrimp, but the cost of the fuel was paid by plaintiffs.
34. The captains had a right to purchase groceries from stores of their choice for cash. However, in most instances, the groceries were bought on credit. The captains would inquire where to purchase groceries and plaintiffs would give them the names of stores where plaintiffs had established credit. The choice of groceries and food items was the captain’s prerogative. The stores allowed plaintiffs a discount ranging from two to five percent of the purchase price if the account was paid on presentation, but the captain was charged for the full price of the groceries when settlement for a fishing trip was made.
35. The plaintiffs did not share in the fish caught or objects dredged from the water incidental to shrimp fishing.
*6536. The captains were paid only for shrimp actually caught, for other fish caught incidental to the shrimping and which belonged to the crew, and for heading the shrimp. Heading was a necessary step in processing the shrimp for packing and ultimate sale. It could be done by the deckhands before the catch was unloaded or by others at the fish-house after unloading. If done before unloading, it served two beneficial purposes. First, it would reduce-.the weight of the shrimp and thereby permit a larger catch to be canght; second, it would help prevent the shrimp from spoiling and would thus permit a longer trip and insure a fresher product. In addition to the captain’s share of the catch, plaintiffs agreed to pay him two cents per pound for heading the shrimp. It was optional to the captain whether the heading would be done on the boat, but if it was not performed there, the captain was charged for it. In the latter part of the taxable period involved here, the captains were not paid for heading, the cost thereof being deducted from, the captain’s share.
37. Each trip was considered by the parties as a separate transaction for purposes of settlement. The amount received by the captain and crew depended entirely on the proceeds of the catch of the shrimp. There was no guarantee of any kind made by plaintiffs to the captain regardless of the time and effort expended in fishing for shrimp.
38. If a trip was unsuccessful, it was known in the trade as a “broker.” Where the value of the captain’s portion of the catch was insufficient to cover his share of the expenses, the.remainder would be carried over and taken out of the captain’s share from subsequent trips. These unpaid expenses were regarded as the personal obligation of the captain and were uniformly treated as such by the plaintiffs. In those instances where a captain owing unpaid expenses failed to ship out for plaintiffs on subsequent trips, the unpaid expenses of the “broker” were borne by plaintiffs. -
39. Prior to the commencement of the trip, it was understood by the plaintiffs and the captain that the boat would return to Brownsville whenever possible, that the shrimp would be unloaded at Basin Seafood Company, and that the *66catcb would be purchased by Western Shell Fish Company, which was owned by W. J. Godfrey, a partner in Kirkconnell and Godfrey, and Harris Falgout, a partner in Grande Valley, and his brother Tillman Falgout. The evidence shows that in all instances Western Shell Fish Company paid the prevailing market price for the shrimp purchased by it. The captains made it a practice to inquire over the radio about the price of shrimp before coming into port and thus they knew the market price at the time the boat was unloaded.
40. Often a captain who fished off Campeche, Mexico, would send his catch on another boat returning to the United States and continue fishing if he desired. The captains tried to find a boat returning to Brownsville, but they sent the catch back on the first boat returning to port and, in the captain’s discretion, the catch could be sent on a boat going to Florida, or to Aransas Pass, or Freeport, Texas.
In some instances also, necessity dictated that the captain go to another port along the Texas coast or to Louisiana. When the shrimp were unloaded at a port other than Brownsville, they were sold to fishhouses which had been designated by plaintiffs prior to the beginning of the trip and were fish-houses whom plaintiffs considered to be reliable and with whom plaintiffs had credit arrangements. As a rule, the captain called plaintiffs to inform them where the shrimp were being unloaded. Also, plaintiffs’ boats were serviced in these ports with fuel, ice, and groceries. The costs were initially charged to plaintiffs but when settlement for the trip was made in Brownsville, the captain’s share of the expenses was deducted from the amount due him. Settlement was made on the basis of the prevailing market price of shrimp in Brownsville at that time.
41. When a boat returned to port, the shrimp were unloaded and sent to Western’s processing plant where they were sized and weighed. The captains had a right to be present when the shrimp were weighed but they seldom did so and, as a rule, neither they nor the crewmen knew how much they earned on a particular trip until they received the settlement sheet and check from Western’s bookkeeper. He was a salaried employee of Western but was authorized by both plain*67tiffs to maintain their books of account and to write checks on their bank accounts. The bookkeeper was compensated for these services by the plaintiffs. All partnership bills, including bills for groceries, ice, fuel, and compensation to the fishermen were paid by partnership checks drawn on the partnership bank account. When the bookkeeper received the gross amount of the sale of the shrimp from Western, he deducted the cost of the ice and then divided the remainder in two shares — SO percent (later 60 percent) for the boat owner and 50 percent (later 40 percent) as the share due the captain and the crew. From the latter share the bookkeeper also deducted grocery bills, cost of heading (where the shrimp were not headed by the crew), unloading fees, guard fees, union dues, and dues to the Texas Shrimp Association.
42. The Texas Shrimp Association was a trade association composed of suppliers to the industry, boat owners, processors, and some captains. Its income was derived by the collection of a certain amount per box or per barrel of shrimp. If a boat was seized by the Mexican authorities or was otherwise in distress in Mexican waters, the association, which had representatives in the Republic of Mexico, rendered assistance. When fishermen were seriously ill, the association would make arrangements to return them home by airplane. In addition, a portion of the funds received by the association was spent for advertising shrimp.
With respect to the deductions made for dues to the union and the association, the evidence shows that there was no authorization by the captains or crewmen in advance of each trip for plaintiffs to make such deductions. The checkoff for the union dues was made pursuant to an agreement with the union. The deductions for the Texas Shrimp Association were made on the basis of an agreement entered into between the union and the boat owners. Some of the fishermen were informed of the agreement and favored it because it helped to maintain the price of shrimp. However, most of the fishermen were not members of the association and were not consulted regarding the deduction of association dues from their share of the catch.
43. While the arrangement between the plaintiffs and the *68captains could be terminated at the conclusion of any fishing trip or prior to the commencement of another, the arrangement was customarily continued for an extended time, the length thereof differing among the various captains. There was nothing in the arrangement which prohibited a captain from taking a- vessel belonging to another owner and thereafter returning to plaintiffs for a boat. Thus, some captains would complete a series of trips for plaintiffs, act as captains on boats belonging to other owners, and then return to sail a vessel belonging to plaintiffs. No recrimination resulted because of the fact that the captains took shrimp boats for others between trips for plaintiffs.
44. Occasionally when the owners had a successful year they paid year-end or Christmas bonuses to some of their captains. On one occasion, the Kirkconnell plaintiffs gave a captain $100 to divide between himself and the crew after a “broker.”
45. The owners frequently made advances to captains and crewmen with the understanding that they were loans to be repaid without interest. The amounts so advanced were deducted from the amount due the individuals at the time settlement was made after a fishing trip. If the settlement check was not sufficient to pay the amount advanced, the owner carried the excess on his books as an account receivable. On occasions, a captain owing such a debt would return to take a vessel from plaintiffs and would either repay the outstanding loan or pay it out of his share of the catch.
46. The owners carried hull insurance, as well as protection and indemnity insurance. The protection and indemnity clauses in these policies indemnified the owners against any liability incurred by them for loss of life or personal injury or for life salvage.
47. The owners were responsible for all repair and maintenance of the vessels owned by them. Although the captains made suggestions from time to time concerning repairs or replacements, the owners made the final decision as to what repair or maintenance work should be done.
48. On June 29, 1961, Kirkconnell and Godfrey filed two answers in the United States District Court for the Southern *69District Court of Texas, Brownsville Division, in two separate libel actions in admiralty (Lonnie Spears v. “Big Dahlia” and B. B. Eckersley Jr. v. “Big Dahlia”) in which Kirk-connell alleged that it “hires the captains on each and every boat operated by the partnership” and “requested” each captain “to sign and agree to a contract” prior to working for the partnership. The contract referred to contained substantially the same provisions as the agreement quoted in finding 12.
49. At the time settlements were made with the captain and the crew, plaintiffs made deductions for Federal income taxes and for Federal Insurance Contributions Act taxes Cfica) from the amounts due the fishermen. In connection with the withholding of income taxes, plaintiffs had the captain and the crewmen to execute Treasury form W-4, Employees Withholding Exemption Certificate. The bookkeeper for the plaintiffs kept a book of account for each year entitled “Employee Earning Kecords” in which each fisherman was denominated as an “employee” and the amount paid him was designated as “wages.” In the Federal income tax returns for both plaintiffs during the period involved in this action, plaintiffs deducted the net earnings of the captains and crewmen as “Salaries and Wages.”
50. Plaintiffs duly filed employment tax returns with the Internal Revenue Service during the period in issue and paid employment taxes on the earnings of regular employees and also upon the earnings of captains and fishermen. They now contend that the captains and fishermen were not employees for tax purposes.
■51. Plaintiffs withheld income and fica taxes from the amounts due the fishermen, had the fishermen sign the Employee Withholding Exemption Certificates, filed income and employment tax returns and paid the taxes shown to be due therein, in the belief that if they failed to do so, penalties would be assessed against them by the Internal Revenue Service.
52. Plaintiffs filed timely claims for refund on that portion of the fica taxes and the futa taxes which were paid solely by them on the earnings of the captains and crewmen. *70The claims were disallowed by the Commissioner- of Internal Revenue, and the suits were timely filed.
CONCLUSION OP LAW
Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that plaintiffs are not entitled to recover, and their petitions are therefore dismissed.

 On one occasion a captain, who had only one deckhand, caught an unusually large quantity of shrimp in a short time and had to return to port to get extra help for heading the shrimp. The Kirkconnell plaintiffs located two headers, who performed the work and were each paid $24 out of the captain’s share. The evidence is not clear as to how or by whom their compensation was determined.