author: CHESNUT, District Judge.

text:
    UNITED STATES v. MERCANTILE TRUST CO. OF BALTIMORE et al.
    Civil Action No. 2594.
    District Court, D. Maryland.
    Oct. 13, 1945.
    Bernard J. Flynn, U. S. Atty., of Baltimore, Md., Sam’l O. Clark, Jr., Asst. Atty. Gen. U. S., and Andrew D. Sharpe and Frederic G. Rita, Sp. Assts. to Atty. Gen., for plaintiff.
    Arthur W. Machen and Francis B. Burch, both of Baltimore, Md., for defendant.
   CHESNUT, District Judge.

■ In this case the United States is suing to establish and enforce a lien for federal income taxes against income which has accrued, and is payable by the Mercantile Trust Company of Baltimore, Trustee under the will of Mary K. Findlay, to a beneficiary therein, John V. L. Findlay. '

The claim of the government is for federal income taxes duly assessed to and now payable by John V. L. Findlay in the aggregate sum of $1158.61, for three taxable years. On July 1, 1944, officers of the In---' ternal Revenue Department visited the office of the Mercantile Trust Company, Trustee, and delivered notices of levy and lien on the income payable to Mr. Findlay, then in the hands of the Trustee. On July 1, 1944 it was ascertained that the amount of income accrued and payable to Mr. Findlay was $449.50. On or about August 1, 1944, the officers again visited the Mercantile Trust Company, Trustee, and gave notice of levy and lien at which time they ascertained that the accrued income so payable to the beneficiary then amounted to $1004.88.

On August 9, 1944 the Mercantile Trust Company, Trustee, filed its civil action in this court (Docket No. 2302) against George Hofferbert, Collector of Internal Revenue, to vacate the levy and notice of lien as invalid, principally on the ground that the income payable to Findlay arose under a spendthrift trust which was being administered under the jurisdiction of the Circuit Court No. 2 of Baltimore City. That case in due course was heard and determined by the court and the complaint dismissed. A written opinion was filed December 21, 1944, to which reference is made (Mercantile Trust Co. v. Hofferbert, D. C., 58 F.Supp. 701) for a fairly full discussion of the applicable law. For the reasons therein given this court was of the opinion that the income payable to Mr. Findlay as beneficiary under the will was not exempt from the lien for federal income taxes.

On May 23, 1945 the government filed this present suit to establish and enforce the lien. It is conceded that the amount of income now in the hands of the Trustee otherwise payable to Mr. Findlay as beneficiary, amounts to $1158.62. Additional income which has accrued in the trust since the institution of this suit has been paid over to the beneficiary, the Trustee retaining only a sufficient amount to meet the claim of the government if finally established. This suit as originally instituted was against the Mercantile Trust Company of Baltimore without designating the representative capacity in which it held the’ funds. At the trial of the case, to meet the technical point made by the defendant, leave was given to amend the complaint and name the defendant as Trustee. It appears also that the notices of lien above referred to were addressed to the Mercantile Trust Company without designating it as Trustee; but in view of the proceedings which have taken place and the well established facts in the case, that possibly technical defect seems unimportant.

The basis for the government’s lien is to be found ip 26 U.S.C.A. Int.Rev.Code, § 3670 which reads as follows:

“Sec. 3670. Property subject to lien.
“If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, penalty, additional amount, or addition to such tax, together with any costs that ma) accrue in addition- thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.”

Other related sections of the Internal Revenue Code, particularly sections 3678, 3690 and 3692, 26 U.S.C.A. Int.Rev.Code, §§ 3678, 3690, 3692 were discussed in the opinion in the former case above referred to. Evidence has also been taken in this case with respect to the current practice and procedure by the Collector in federal tax collections. There seems to be no substantial irregularity or defect in the procedure which has been taken in this case to collect the taxes. At the times the levy and notices of lien were given to the Trustee the federal officers also exhibited to it warrants of distraint issued to them, but they are not important here as this proceeding is under section 3678 to enforce the lien by sale, and not for sale under distraint, as to the applicability of which to this kind of property or rights to property, there is some conflict of judicial authority as noted in the opinion in the first case.

The principal defense relied upon here by both defendants is that the income payable to the beneficiary is not subject to attachment, distraint or execution in any form because it is said that under the Maryland law income from a spendthrift trust may not be subjected to the claims of creditors. As this proposition has been fully discussed in the opinion in the former case, it is unnecessary to repeat what was there said. I must adhere to the conclusion then reached.

In addition to that contention, the principal defense now urged is that the income from the trust fund is in custodia legis and is, therefore, not subject to seizure and sale or otherwise direct enforcement of the lien by order or decree of this court, but can only be reached by the Collector of Internal Revenue on petition filed by him in the Circuit Court No. 2 of Baltimore City setting up his claim as adjudicated in this case and asking that court, which it is said has possession of the fund, to direct the Trustee to pay it over to the collector.

The contention that the income is a fund in custodia legis is based on the following situation which appears fully stated in the papers in the first case above referred to.

Mary K. Findlay, the mother of the income taxpayer, John V. L. Findlay, died January 8, 1939 leaving a will which was probated in the Orphans Court of Baltimore City. In it the testatrix gave to the Mercantile Trust Company of Baltimore, as Trustee, a certain fund in trust to pay the income arising therefrom to her son John V. L. Findlay, during the term of his natural life in monthly instalments “his receipt alone to be a sufficient acquittance therefor”. There was supposed ambiguity in the provisions of the will as a whole with respect to certain questions including whether the quoted language constituted a spendthrift trust. Thereupon the Mercantile Trust Company as executor and trustee under the will instituted a proceeding in the Circuit Court No. 2 of Baltimore City, a Maryland State Court, to which all persons having any interest under the will were made parties. Pending the proceedings the parties reached a compromise agreement which was carried out and made effective by decree of the court by which (1) the court assumed jurisdiction of the completion of the administration of the trust created by the will, and further actions of the trustee were to be subject to the approval and supervision of the court; (2) the amount and composition of the trust fund was stated; and (3) the executor was directed to forthwith transfer and pay over to itself as trustee the securities and cash constituting the trust fund, and “that said trustee shall "pay the net income therefrom in monthly instalments to the defendant, John V. L. Findlay, during his life, and not into the hands of any other person, whether claiming by his authority or otherwise (italics supplied); and (4) the court retained jurisdiction for the purpose of supervising the administration of the trust and for the purpose of deciding any 'questions which may arise in the course thereof.

The evidence in the case does not show what subsequent proceedings have occurred in the administration of the trust in the State court except that pursuant to a standing rule of said court the securities constituting the principal of the trust fund have been registered by the Trustee in its name, subject to the order of the Circuit Court No. 2 of Baltimore City, and within a few days before the trial of the instant case John V. L. Findlay, the beneficiary, has filed a petition with the court asking a rule upon the Trustee to show cause why it should not be adjudged in contempt of court for not paying over the income which it has retained to meet the Collector’s claim for income taxes if established. It appears no action has been taken by the state court on this petition.

While I have reached the conclusion the government has a valid lien on the taxpayer’s income now in the hands of the Trustee, the question whether that lien can properly be enforced in this court by sale, or as the fund is in cash, by direct order of this court to the Trustee to pay over to the government, or whether the method of enforcing the lien should be by petition of the government in the state court, is not free from difficulty. The doctrine of law here invoked by the defendant is the so-called “non-interference” rule under which, where one court has first taken possession of or has jurisdiction over a fund in controversy, another court though of equal jurisdiction may not validly exercise control over the fund by an action in rem. The purpose of the rule is, of course, to prevent conflicts in jurisdiction and it is particularly important and necessary to avoid conflicts between state and federal courts. It is generally said that the doctrine applies only where both judicial proceedings are in rem or quasi in rem. This particular subject was discussed but not definitely decided, because unnecessary to the decision, in the opinion in the first case.

The precise question is whether the accumulated income now admittedly payable by the Trustee to the taxpayer can properly be considered to be in the possession or control of the state court. The instant case, however, is further complicated by the fact that the income is payable from a spendthrift trust, at least as so heretofore determined by the consent decree of the state court, and as already noted, the decree of that court directed that the payment should be made to John V. L. Find-lay, the taxpayer, “and not into the hands of any other person, whether claiming by his authority or otherwise.” As already noted, the will did not contain this precise phraseology but that is the language of the consent decree and is the language of legal art which has long been regarded as sufficient and appropriate to create a spendthrift trust.

Counsel for the government' relies on a case in this Circuit, Art Students League v. Hinkley, D. C., 31 F.2d 469, affirmed, 4 Cir., 37 F.2d 225, certiorari denied 281 U. S. 733, 50 S.Ct. 247, 74 L.Ed. 1149, in support of his contention that the administration of the trust under the jurisdiction of the Circuit Court No. 2 of Baltimore City does not preclude the direct enforcement of the lien in this separate proceeding in this court. In that case the opinion of the District Court of Maryland was written by Judge Soper when District Judge. He had been Chief Judge of the Supreme Bench of Baltimore City, the judicial administrative tribunal for the several state courts of Baltimore City, and was, of course, thoroughly familiar with the subject matter of the administration of trusts in both equity courts of Baltimore City. In his opinion, 31 F.2d 471, 472, he reviews the nature of such jurisdiction over testamentary and similar trusts and held that such assumption and continuation of jurisdiction in an ex parte proceeding by a trustee did not preclude the District Court of Maryland, in a separate and independent proceeding, from determining the question of whether a power contained in the will creating the trust had been validly exercised even though adjudication of that question might result in a termination of the trust and the trustee would be required to deliver the trust property to the complainant in the federal court. In the opinion of the Circuit Court of Appeals for the Fourth Circuit, 37 F.2d 226, it was said:

“The proceeding in the state court, an ex parte proceeding by the trustees under the will of Edward G. McDowell asking the court to administer the trusts created by that' will, was commenced in 1914. But we think it clear that the trustees are not officers, such as receivers, administrators, sheriffs, and marshals, whose possession of property is the possession of the court. The trustees were not appointed, such by the court, and they did not acquire possession of the property by an order of the court. The possession of a sheriff by virtue of a writ issued by his court, or the possession of receivers, taken by virtue of an order of the court appointing them, is by general consent to be regarded as the possession of the court. But it seems to us an unauthorized and improper extension of the noninterference doctrine to treat the possession of the trustees here as the possession of the circuit court of Baltimore City. On the other hand, the trustees are more reasonably regarded as mere suitors, who have possession of the property in dispute; but whose possession could not prevent the trial court from taking jurisdiction to grant the relief asked in the bill.”

Shortly thereafter, in a somewhat similar situation, the Supreme Court of the United-States in Commonwealth Co. v. Bradford, 297 U.S. 613, 619, 56 S.Ct. 600, 602, 80 L. Ed. 920, cited the Hinkley case with approval. In the opinion of Mr. Justice Mc-Reynolds, it was said “property in its (trustee’s) possession is not in custodia le-gis as in case of receivers.”

But counsel for the defendants in this case now rely strongly on the later Supreme Court case of Princess Lida v. Thompson, 305 U.S. 456, 59 S.Ct. 275, 278, 83 L.Ed. 285. They contend that it has in effect overruled Hinkley v. Art Students League. I doubt that the Princess Lida case has this broad effect. I think it was only the application of the general rule of “non-interference” to the particular facts of what was described by Mr. Justice Roberts for the court as an “unusual state of affairs.” This arose from a controversy between trustees and beneficiaries of a fund. Under the applicable Pennsylvania law the trustee first started an action for accounting as to the fund in a state court of Pennsylvania, and promptly thereafter some of the beneficiaries filed a similar suit in a federal court in Pennsylvania. One of the beneficiaries had also intervened in the state court proceedings and filed exceptions to the trustee’s account. Both the state and federal courts had issued injunctions to the parties restraining continued conduct of litigation in the other court. The appeal to the Supreme Court of the United States was taken from the judgment of the Supreme Court of Pennsylvania affirming the jurisdiction of the state court and its injunction. It was held by the Supreme Court of the United States that the, controversy was in rem or quasi in rem and that its proper determination in either case necessarily required a substantial management or disposition of the fund in controversy. In this situation it was finally held that the federal court was without jurisdiction to adjudicate the case. There is no indication in the opinion that the court intended to overrule the Bradford case which in fact was cited with approval (305 U.S. at page 466, 59 S.Ct. at page 280, 83 L.Ed. 285, note 19) in connection with the following quotation from the opinion:

“We have said that the principle applicable to both federal and state courts that the court first assuming jurisdiction over property may maintain and exercise that jurisdiction to the exclusion of the other, is not restricted to cases where property has been actually seized under judicial process before a second suit is instituted, but applies as well where suits are brought to marshal assets, administer trusts, or liquidate estates, and in suits of a similar nature where, to give effect to its jurisdiction, the court must control the property. The doctrine is necessary to the harmonious cooperation of federal and state tribunals. While it has no application to a case in a federal court based upon diversity of citizenship, wherein the plaintiff seeks merely an adjudication of his right or his interest as a basis of a claim against a fund in the possession of a state court, this is not such a case. No question is presented in the federal court as to the right of any person to participate in the res or as to the quantum of his interest in it. The contentions are solely as to administration and restoration of corpus.”

The defendants contention here that the Princess Lida case in effect overrules Hinkley v. Art Students League, supra, seems to be based partly on the reference by Mr. Justice Roberts in the above quotation to - the administration of trusts, in this respect following similar language in the much earlier case of Farmers Loan & Trust Co. v. Lake St. Elevated R. et al., 177 U.S. 51, 61, 20 S.Ct. 564, 44 L.Ed. 667. In the Hinkley case in the district court (31 F.2d 472) Judge Soper had taken the view that the reference to administration of trusts in the earlier Supreme Court cases had reference to the particular kind of trust involved in those earlier cases, and particularly that of Farmers Loan & Trust Co., where the proceeding was for foreclosure of a bond mortgage and incidental receivership. Judge Soper thought that the administration of trusts thus referred to did not apply to the usual form of administration of trusts under the jurisdiction of the state equity courts in Baltimore City. In the still later case in the Supreme Court of the United States, Mandeville v. Canterbury, 318 U.S. 47, 50, 63 S.Ct. 472, 87 L. Ed. 500, both the Princess Lida case and the Bradford case were cited with approval.

Counsel for the government in this case relies simply upon the authoritative effect of the Hinkley case. On the other hand, counsel for the defendants similarly and simply rely on the Princess Lida case. I think these respective contentions are an over-simplification of the precise point now presented. It does not seem to have been presented in any of these cases just reviewed. In all of them the questions presented involved the power of the federal court to adjudicate rights; but they did not deal directly, or at least not primarily, with the method of enforcing the rights after adjudication. And this is the particular problem that is here sharply presented.

I think the point is not free from difficulty for the proper decision. On the one hand, it is of public importance that the federal government should not be embarrassed and impeded in the collection of taxes. On the other hand, it is perhaps equally important to avoid conflict of jurisdiction between federal and state courts. While I think the federal cases just reviewed establish the power and jurisdiction of the federal court in this case to adjudicate the government’s rights to a lien on the income under the trust, I do not think they necessarily go to the extent of determining that the right when established can be directly enforced against a fund if still in the possession and under the control of the state court, other than by intervention in that court and application to it for proper disposition of the fund. The precise question therefore is whether under the stated circumstances the income payable by the Trustee to the taxpayer can fairly be considered as still in the possession or under the control of the state court. The government is here requesting an order or decree of this federal court directing the Trustee to pay over the accumulated income to the Collector of Internal Revenue, without application to the state court. On this part of the relief asked in this case the proceeding is essentially one in rem as to the income. I take it also that the principal of the trust fund, being registered in the name of the Trustee, “subject to the order of the Circuit Court No. 2 of Baltimore City” is undoubtedly under the direct control of the state court. Of course this case in no way affects the principal of the trust fund; but only the income. And the question is thus seen to be whether the state court has entirely executed or exhausted its jurisdiction over the income, or is the latter still in custodia legis.

There are very many trusts of this same general nature which are being administered under the jurisdiction of Maryland equity courts. In many such cases the Trustee states annual or periodic accounts which are referred to an auditor of the court who files his account determining the amount of income payable to beneficiaries, and the auditors’ accounts, unless excepted to, are in due course finally ratified and approved by the court and the sums payable to the beneficiaries then become debts due and payable from the trustees to the beneficiaries respectively. In such cases it is my opinion that the state court has completed its jurisdictional control over the fund and the latter cannot be said to be still in custodia legis but is in fact subject to attachment and execution in a separate proceeding in a law court of the state; and likewise I think by appropriate action in the federal court under federal statutes, as in this case. Williams, Garnishee, v. Jones, 38 Md. 555; In re Hollander, D.C.Md., 181 F. 1019 (Judge Rose). But until the equity court has completely determined the proper disposition of the income, it may not be directly subjected to the force of the attachment in the separate proceeding in another court. Early v. Dorsett, 45 Md. 462, 467; Groome v. Lewis, 23 Md. 137, 8 Am.Dec. 563, and 38 C.J.S., Garnishment, p. 251, § 49.

These last cited Maryland cases did not involve spendthrift trusts. In the instánt case the state court has, by a consent decree, to which all persons in interest were parties, not only determined that the trust under Mrs. Findlay’s will was a spendthrift trust, but has in its decree expressly directed that the income therefrom shall be payable to John V. L. Findlay during his life “and not into the hands of any other person, whether claiming by his authority or otherwise”; and the court retained jurisdiction for the purpose of supervising the administration of the trust. It appears from the evidence in this case that pursuant to this general order of the court the Trustee has from time to time paid over the net income to Mr. Findlay without awaiting or obtaining annual or periodic auditorial accounts of income. It would seem to follow that the income now withheld by the Trustee is a debt due from it to Findlay, the taxpayer, which should be subject to direct disposition in this separate tax proceeding against the Trustee and Findlay as defendants, save only for the doubt created by the express general order or decree of the state court that the Trustee should pay the income to Findlay only. It is clear enough that a payment by the Trustee to an ordinary creditor of Findlay would be literally contrary to the order of that court and it is arguable that the control of the state court in this particular case continues until the income has been paid by the Trustee in literal compliance with the terms of the court decree or until the state court otherwise directs.

In this unusual situation this court must decide between two important policies both affecting the public interest. Should the greater weight be given to the facility of collection of taxes by the federal government or to the avoidance of possible conflict between the federal and state courts? After much consideration I reach the conclusion that the latter course should be followed. It will be noted that in the instant case both the Trustee and the beneficiary are parties defendant and therefore if this court has, as I think is the case, jurisdiction to adjudicate the existence of the lien in favor of the government, the judgment will be binding on both and res adjudicata unless it should be reversed on appeal. While it is not appropriate for this court to say what order should be passed by the state court if the government petitions there for an order on the Trustee to pay over the income, it would seem to logically follow that the United States would fee entitled to obtain such an order, unless the state court should be of the opinion that this court was without jurisdiction to make the adjudication. But however that may be, if the decision of the state court should be adverse to the United States, I presume of course that an appeal would lie first to the Court of Appeals of Maryland and ultimately if necessary, to the Supreme Court of the United States where the matter would doubtless be finally determined. United States v. Bank of New York, 296 U.S. 463, 479, 56 S.Ct. 343, 80 L.Ed. 331.

I conclude therefore that the plaintiff in this case is entitled to a judgment adjudicating its right to a lien on the income in the hands of the defendant Trustee; but that the proper method of enforcing the lien is by application to the state court to direct the Trustee to pay over the same to the Collector of Internal Revenue. I have signed a judgment to this effect.

I have also made and filed separately detailed findings of fact.and conclusions of law. I understand there is no real controversy as to the facts.


source: Caselaw Access Project

author: CLARK, District Judge.

license: Public Domain

text:
    UNITED STATES v. 55 CASES POPPED CORN et al.
    No. 1551.
    District Court, D. Idaho, Central Division.
    Dec. 21, 1943.
    John A. Carver, U. S. Dist. Atty., and E. H. Casterlin and R. W. Beckwith, Asst. U. S. Dist. Attys., all of Boise, Idaho, for plaintiff.
    Hamblin, Gilbert & Brooke, of Spokane, Wash., for defendants Mason, Ehrman & Co.
   CLARK, District Judge.

The libel of information in this case seeks destruction of four interstate shipments of popped corn charged to have been adulterated within the meaning of 21 U.S. C.A. in that:

“342(b) (1) in that a valuable constitu-ient, namely butter or an edible vegetable oil, has been in whole or in part omitted”
“342(b) (2) in that a substance consisting of popped corn with added arti-fically colored nonnutritive mineral oil and salt has been substituted for popcorn (or popper corn) which the article purports to be;”
“342(b) (3) in that inferiority has been concealed by the addition of artificial color
“342(b) (4) in that mineral oil has been mixed or packed therewith so as to reduce its quality or strength or make it appear better or of greater value than it is.”
“343(b) in that it is offered for sale under the name of ‘popped corn’ (55 cases) and ‘popcorn’ (20 cases and the two 25 cases), the same being the name of another food, ‘popped pop corn’, to which has been added melted butter or vegetable oil”.

The Government relies mainly on subsection 343(b) and contends under this subsection that the corn in question was not popped popcorn because melted butter or vegetable oil was not used in preparing it for the market. In other words, that popped popcorn has a definite and distinct definition and that if any other ingredients were added to popped popcorn than butter or vegetable oil, it was not popped popcorn, and in view of the fact that in the instant case, mineral oil was used, it was an adulterated food.

This libel is brought under subdivision (b) of Section 342, Title 21 U.S.C.A.— the Federal Food, Drug, and Cosmetic Act, which is as follows: “(1) If any valuable constituent has been in whole or in part omitted t>r abstracted therefrom; or (2) if any substance has been substituted wholly or in part therefor; or (3) if damage or inferiority has been concealed in any manner; or (4) if any substance has been added thereto or mixed therewith so as to increase its bulk or weight, or reduce its quality or strength, or make it appear better or of greater value than it is.”

The Federal Food, Drug, and Cosmetic Act, 21 U.S.C.A. § 301 et seq., was passed to protect the public health and should be construed liberally to meet the purpose for which it was enacted and the Court must endeavor to protect the public from interstate commerce in food products so adulterated as to injure or endanger health and also to see to it that food products are so branded that the consumer would know that there was no misrepresentation as to its substance and that the food purchased was what it purported to be.

The popped corn in question was branded plainly on each package as follows: “Masterson’s Food Products Popped corn Ingredients: Popcorn, Mineral Oil, Salt (If colored or flavored U S Certified coloring and flavoring used.”. * * * Mas-terson Food Products Co., Spokane Washington Net Weight 5 ounces When packed”.

The only change in the branding on the various packages being as to the weight, which was according to the size of the package. So in the first instance there is no misbranding and the consumer was fully advised as to the contents of the various packages. There was no deceit practiced in this matter and there is no contention on the part of the Government that there was. So it leaves only two questions for the Court.

First, is the food product in question popped popcorn?

Second, has any valuable constituent been in whole or in part abstracted therefrom, or has any substance been substituted in whole or in part therefor, or .is there any damage or inferiority that has been concealed in any manner, or has any substance been added thereto or mixed or packed therewith so as to increase its bulk or weight or reduce its quality or strength, or make it appear better or greater than it is?

I can see little merit in the contention that the article of food contained in the packages branded as hereinbefore stated was not popped popcorn. It would be just as reasonable to say that if the corn so popped had not had salt, butter or vegetable oil used in its manufacture and preparation that it would not have been popped popcorn, and it is plain from the evidence introduced in this case that there is no exact formula used in the preparation of popcorn for the market. In the case of W. B, Wood Mfg. Co. v. United States, 8 Cir., 292 F. 133, 134, the Court said: “The standard set by the statute is not what is customarily done by manufacturers but what is properly done by them * * Whether Mineral oil has ever been used heretofore, the Court is not advised but the Court is satisfied that there is no established formula for its preparation, and the Court is also satisfied that the corn in question is popped popcorn, and so holds.

On the second question there is no evidence before the Court showing that mineral oil in the quantities used would be injurious to the public health, nor is there any reason shown why the popcorn as prepared and branded should not be consumed by the public, nor that it is adulterated within the meaning of the statute, and as there is no proof of these facts, the popped corn could not be found to be adulterated within the meaning of the statute.

Realizing full well the duty of the Court to protect the public from interstate commerce in food products injurious to the public health and having in mind the importance of the strict enforcement of the Food and Drug Act, and giving the most liberal construction to the Government’s case, the Court is of the opinion that the libel of information is not supported by the evidence and should be dismissed. An order will be entered.


author: GIBSON, District Judge.

text:
    EVANS v. BOWLES, Administrator, O. P. A.
    No. 4642.
    District Court, W. D. Pennsylvania.
    Oct. 31, 1945.
    Anthony R. McGrath, of Pittsburgh, Pa., for plaintiff.
    John A. Metz, Jr., Dist. Enforcement Atty., and Samuel M. Chertoff and Marcella McNanamy, Enforcement Attys., all of Pittsburgh, Pa., and John D. Masterton, Regional Litigation Atty., of New York City, for defendant.
   GIBSON, District Judge.

The court, after hearing and consideration, makes the following Findings of Fact and Conclusions of Law:

Findings of Fact.

1. Upon hearing before John O’Rourke, Hearing Commissioner, on April 9, 1945, pursuant to which a suspension order was filed against the plaintiff, substantial evidence was introduced which tended to prove that plaintiff, its agents, servants and employees, received the transfer of, and possessed and used counterfeit A-ll gasoline ration coupons, in violation of the provisions of Section 1394.8178 (c) of Ration Order 5-C, and Section 2.5 of General Ration Order No. 8.

2. Upon appeal from hearing before John O’Rourke, Hearing Commissioner, to Charles L. Ferguson, Hearing Administrator, on July 18, 1945, substantial testi- • mony to the same effect was introduced, upon which a suspension of thirty days was ordered.

3. The plaintiff, on February 25, 1945, admitted to one Morgan, O. P. A. Investigator, that two sheets, one of which contained fifty stamps, all of them counterfeit, were his own “bingb sheets” turned over by him to his supplier for gasoline. Said fifty counterfeit stamps purported to have been delivered to plaintiff by a number of persons to whom he had sold gasoline.

4. Said counterfeit stamps had not been removed from ration books or folders, as required by O. P. A. Regulation, by purchasers of gasoline from plaintiff.

Conclusions of Law.

1. The order of John O’Rourke, Hearing Commissioner, suspending the operations of plaintiff, was not arbitrary or capricious.

2. The order of Charles L. Ferguson, Hearing Administrator, was not arbitrary or capricious.

3. Judgment should be entered against plaintiff and his bill of complaint dismissed.

Discussion.

The testimony disclosed that plaintiff had admitted that the “bingo sheets” offered in evidence were his sheets. One of the sheets contained fifty stamps, all counterfeit. It is plain that they were not taken from a ration book, and in fact there is no contention that they were. The plaintiff attempts to explain his possession of them by offering in evidence several newspaper articles which by mistake stated that dealers were allowed to accept coupons without book covers due to the alleged fact that the covers were required to be turned in for new books. . He denies personal knowledge as to when and .how the coupons were received, but seems to infer that they were received from persons while he, or his agents, were acting pursuant to the belief that stamps could be received without production from a ration book.

That the mistaken impression that loose stamps could be submitted when the purchaser was ^applying for a new ration book had some foundation is beyond question, but that fact does not excuse plaintiff in the instant case. It is too great a strain upon credulity to believe that fifty coupons, purporting to have been received from a number of different purchasers at about the same time and all counterfeit, should have been turned in without a ration book held by any of the purchasers.

The plaintiff’s bill of complaint will be dismissed.


author: CONNOR, District Judge.

text:
    DUGAS et al. v. NASHUA MFG. CO.
    Civil Action No. 355.
    District Court, D. New Hampshire.
    Oct. 11, 1945.

      Hamblett & Hamblett, of Nashua, N. H., and Louis E. Wyman, of Wyman, Starr & Booth, all of Manchester, N. H., for Nashua Mfg. Co.
    Karl E. Dowd, of Nashua, N. H., for Dugas et al.
   CONNOR, District Judge.

This action is brought by Charles A. Dugas and seventeen others against the Nashua Manufacturing Company, to recover from the defendant unpaid overtime compensation in the amount of Six Thousand, Three Hundred Seventy-One Dollars and Eighty-Nine Cents ($6,371.89), alleged to be due under Section 7 of the Fair Labor Standards Act of 1938, 52 Stat. 1060, 29 U.S.C.A. §§ 201-207-216, and an additional equal amount as liquidated damages, together with reasonable attorney’s fee and costs of this action' as provided in Section 16(b) óf the Act.

The complaint alleges that the defendant employed plaintiffs for workweeks, longer than the applicable maximum number of hours under Section 7, and in violation of said section, failed and refused to compensate them for such employment in excess of such applicable maximum number of hours, in such workweeks, at rates not less than one and one-half times the regular rates at which they were employed.

The complaint further- alleges that the work of the plaintiffs constituted the production of goods for interstate commerce within the meaning of the Act.

The defendant in its answer denies the allegations of employment and unpaid overtime compensation and further answers that the plaintiffs were employees of the Police Commission of the City of Nashua.

Jurisdiction is conferred on the Court by Section 16(b) of the Act, 29 U.S.C.A. Section 216(b).

Findings of Fact.

There is no serious dispute as to the essential facts. The defendant, The Nashua Manufacturing Company, is a New Hampshire corporation having its place of business in Nashua, New Hampshire. It is engaged in -the manufacture. of cotton goods, woolen blankets and war materials of cotton and wool. Substantially all the goods manufactured by the defendant have been produced for interstate commerce, and have been sold, offered for transportation, transported, shipped and delivered in interstate commerce from the defendant’s plant at Nashua, to various points outside the State of New Hampshire.

During the period beginning January 8, 1942, and ending March 30, 1944, and subsequent to the effective date of the Fair Labor Standards Act of 1938, the plaintiffs acted as armed guards at the defendant’s plant, their duties being to protect its property, prevent sabotage and trespassing, and to perform all work in connection therewith.

The defendant, through its officers, entered into an arrangement with the Police Commission of the City of Nashua to furnish defendant with certain protective measures in the way of armed guards, to man its gates and maintain protection over its property and supervision of employees and others who had occasion to enter upon its premises through these gates.

The inducing factors which prompted the defendant to seek this service were the suggestions and insistence of the U. S. Army that such steps be taken, it apparently being its policy that contractors engaged in the manufacture of war materials initiate the program of protection outlined above.

The Police Commission of the City of Nashua is a part of the government of said city, appointed by the Governor with the approval of the Executive Council. While a part of the city government, it is not an agent of the city, but an independent1 governmental body, charged with the duty to appoint police officers, constables and superior officers, as they in their judgment deem necessary, and to fix their compensation.

Other than as above stated, it has no duties or functions. At the onset of the war, "the Commission had already entered into arrangements with other industrial concerns in the City of Nashua to provide guards for their plants, and this situation obtained when the defendant took up the matter with the Commission to provide guards at its plant. The defendant indicated the number of guards it would require, (a total of 15) at its various gates, that a twenty-four hour service for seven days each week was necessary, and informed the Commission that it would pay whatever expense incurred. In addition thereto a service charge of fifty cents per man per week was agreed upon between the defendant and the Commission. No pay scale was proposed by the defendant, and the Commission fixed the daily wage a's four dollars, with one day off in eight, which was the prevailing pay for special police officers. While this was the initial rate fixed by the Commission in respect to the men engaged, later a change in the wages was made by the Commission at the suggestion of the defendant. The Wages paid to armed guards furnished to all the industrial plants was not uniform. The Commission undertook to hire the guards, they to furnish their own uniforms, but the Commission to furnish badges, twisters, flashlights, night sticks and revolvers, etc. Each applicant was required to, fill out an application addressed to the Board of Police Commissioners in applying for the position of police officer. He was given a cursory examination and if found qualified was administered the oath customarily given the members of the police - force by the Commission. He then received instructions as to his duties, a post of duty was assigned to him, and a schedule of working hours arranged. The arrangement entered into between the Commission and the defendant lacked the formality of a written agreement, but resulted from various conferences between the officers of the defendant and the members of the Commission. The guards entered upon their duties January 8, 1942, and were under the general supervision of Commissioner Legasse, who was designated by the Commission to supervise this undertaking. They were required to examine the passes of the employees or others who sought admission at the gates, and during the night shift to report hourly to the police station. As time went on certain other incidental work was required of them, such as the recording of all license numbers, and other information concerning trucks entering or leaving the gates, the supervision of the parking area within the yard, and the relaying of messages by a bell system, in the event the presence of certain executives of the defendant was required. The Commission billed the defendant each week for the police protection rendered, together with the service charge, and the defendant forwarded the funds necessary to cover the charges. The hiring, discharge and control over these guards was wholly in the hands of the Commission. It was within the power of the Commission to assign these men to similar duty at plants owned by other concerns, if it deemed best, and ordered the guards to other duties, such as fires, blackout protection and parades, all unrelated to the business of the defendant.

There is no evidence that the defendant was consulted in the matter of the individual hiring or discharging of any of the guards, and in no way supervised or directed their work, or controlled their activities, other than that upon widely separated occasions it did make suggestions to the Commission as to changes beneficial to the general conduct of the affairs of the company, related to the program of protection.

Sometime in 1942, as a result of a ruling of the War Labor Board, the employees of the Company received a wage increase of seven and one-half cents an hour, retroactive to June 15, 1942. The defendant decided to give all of its employees not covered by the order a similar increase. It took up with the Commission the matter of providing the armed guards with a like increase with effective retroactive date, and stated that it would be willing to reimburse the Commission for the increased expense if the Commission was agreeable to make such wage revision. The Commission acceded to this suggestion in part, and a pay raise of four dollars per week per man resulted.

This arrangement between the defendant and the Commission continued until March 30, 1944, at which time the defendant was notified by the military authorities that armed guards would no longer be required. The defendant in turn so advised the Commission, and the men were discharged by it accordingly, and the arrangement terminated.

Conclusions of Law.

No claim is made that an employer-employee status existed by virtue of any express contract between the plaintiffs and the defendant. If any recovery is to be had by the plaintiffs, it must be based upon a principal and agent relationship. The plaintiffs urge that such situation did in fact exist and that the Police Commission of the City of Nashua was acting purely as an agent of the defendant in the engagement of them to act as armed guards on the property of the defendant. It is the contention of the defendant that the Police Commission was acting in the role of an independent contractor; that the whole undertaking was in that category, with the defendant divesting itself of all control or concern with the details and manner by which the objective would be accomplished and interested only in the result.

With the foregoing and opposite contentions in mind, consideration must be accorded to the basic legal principles thus involved and their application to the evidence.

The purposes and aims of the Act are social and remedial. It was not its purpose to create new wage liabilities, but where such existed, to measure them by the standards fixed by law. The usual and accepted concept of employer and employee relationship which has heretofore been recognized as fundamental in defining the elements necessary to its creation, still prevails, unimpaired and unchanged. This legislation was not intended to abrogate these principles, either in letter or in spirit, and while the rights of the employee were to be carefully guarded, the substantive law remained untouched.

It is essential that the status of pi'incipal and agent and that of independent contractor be defined. A concise definition to be found in Restatement on Agency, Section 1, reads: “Agency is the relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.”

“Agent” is a term used to describe a person authorized by another to act on his account and under his control. “Principal” is a term used to describe a person who has authorized another to act on his account and subject to his control.

Again in the same Restatement, Section 2, Sub-section 3 ; “An independent contractor is a person who contracts with another to do something for him but who is not controlled by the other nor subject to the other’s right to control with respect to his physical conduct in the performance of the undertaking.”

Taking up first the question of whether the situation presented in this action permits a finding of a principal and agent status, certain tests are to be considered and weighed in determining whether such relationship did in fact exist. In this connection it seems proper that the reasons prompting the defendant to enter into this arrangement above described be examined.

It is urged by the plaintiffs that the defendant sought by this method to evade the application of the Fair Labor Standards Act. The Court is unable to subscribe to this suggestion, having in mind that the defendant employed approximately five thousand persons in its plant. It is incredible that it would undertake to evade compliance with the Act in respect to fifteen guards in order to avoid inconsequential expense.

Accordingly it is the ruling of the Court that no evasion of the terms of the Act was intended, and no subterfuge resorted to by the defendants, nor did any collusive arrangement exist for that purpose between it and the Police Commission.

It is the opinion of the Court that the defendant in undertaking to comply with the requirements of the military, sought to have these men provided by an outside entity, and thereby divest itself of all control and responsibility for the presence of armed men on its premises and the tortious consequences which might ensue.

The arrangement which was finally entered into was first broached shortly after the outbreak of the war. The defendant indicated to the Police Commission the number of guards required, the property to be covered, and the schedule of working hours. There is no evidence that the Commission attempted or consented to act in a representative capacity, nor did it do anything in the name of the defendant. It did not hire any person as an employee of the defendant, nor is there any evidence that it considered itself subject to the defendant’s control. All of the plaintiffs made application to the Police Commission on the usual printed application form, and were sworn in as special officers, clothed with the authority as such.

While it is true that the relationship of principal and agent is not defined or created by what the parties thereto wish to declare it, the essentials above outlined must be recognized and applied. The evidence points more strongly to a situation creating an independent contractor status, and as such is a negation of a principal and agent relationship. Again, certain tests are to be examined and applied in order to determine whether such exists. One of the important elements to be considered is that of control; another is the right to hire and discharge; a further test is the question of supplying tools with which to perform the work, and still another is the obligation of the payment of wages.

An independent contractor is a person who, in the pursuit of an independent business, undertakes to do a specific work for other persons, using his own means and methods, without submitting himself to their control in respect to all its details. The true test of a contractor would seem to be that he renders service in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished. Kentucky Cottage Industries v. Glenn, D.C., 39 F. Supp. 642.

“Ordinarily, where one employs another to execute a piece of work, and the one so employed has the right to select his own assistants and help, the employer having no control over the hands of the employé, and no right to direct the manner in which the work shall be done, other than to require that it shall be done in accordance with the specifications under which it is contracted to be done, the one so contracted with is an ‘independent contractor.’ ” Lexington & E. R. Co. v. White, 132 Ky. 267, 206 S.W. 467, 471.

The existence or absence of power on the part of an employer to terminate the employment at any time, or to control the conduct of the employment by interrupting the work or changing the employees from one task to another task before the first task is completed, is one of the most decisive elements to be considered. The existence of such power on the part of the employer is compatible with the relationship of employer and employee; the absence of such power is indicative of the relationship of the independent contractor. Bowen v. Gradison Construction Co., 236 Ky. 270, 32 S. W.2d 1014.

In Walling v. Sanders, 6 Cir., 136 F.2d 78, 81, is to be found this very concise statement: “The usual test by which, in common experience, men determine the employer, is to ascertain who has authority on his own account to ‘hire and fire.’ ”

In the instant case there is abundant evidence that the defendant exercised no control over the plaintiffs, took no part in their hiring, nor was consulted or acted concerning the discharge of any of the guards so engaged. On the contrary, the Commission had full control over the activities of these men during their working hours, assigning them to their posts, promulgating their rules of conduct and duty, and in fact did assign some of them to other industrial plants in certain instances. The Commission furnished them' with full equipment, such as badges, night sticks, revolvers, flashlights. The defendant supplied them with nothing. The plaintiffs looked to the Commission for payment of their wages as an obligation on its part.

While certain requests as to the details of the work were transmitted by the defendant to the Commission, apd subsequently complied with, I do not find that they were of sufficient importance or significance to warrant adoption of the plaintiffs’ contention.

Most if not all of the suggestions were initiated by the military and in cooperation therewith were passed on to the supervisor^/ body for action. Nor did the suggestion of the defendant to the Commission, that the increase accorded to all other employees be made available to the guards, which was not fully accepted by the Commission, alter the character of the arrangement or create an employer and employee relationship.

Certain other incidents, such as the continuance of group insurance and the payments of vacation pay to some of the plaintiffs previously or subsequently employed beyond the period under consideration, do not appear to be sufficiently important to aid in determining the issue. Judged by the usually accepted concept of principal and agent and employer and employee, it is my conclusion that the Police Commission acted in the capacity of an independent contractor rather than that of agent. Excepting only the fact that the renunreration might be in a greater sum than the service charge paid to the Commission, an entity or instrumentality specifically engaged in the business of furnishing armed guards or detective service would stand upon no different basis than that which must be accorded the status of the Police Commission. Both would be clothed with all the attributes common to the independent contractor status, such as control over the details, the hiring and discharging, and the right to direct the activities of the individual so engaged. The surrender of these prerogatives by the defendant would of necessity occur in dealing with a firm engaged in furnishing such service as it did occur in the instant case.

It is urged by the plaintiffs that in interpreting the Act, the technical common law concept of “employer and employee” is not to be the standard determinative of whether certain individuals are brought within the terms of the Act. The- Court, upon examination of the pertinent sections of the Act and the interpretation accorded thereto by the several holdings of our courts, is unable to accept the broad implication of this contention. 29 U.S.C.A. § 203, defines “employer”, “employee” and “employ” as follows:

“(d) ‘Employer’ includes any person acting directly or indirectly in the interest of an employee. * * *
“(e) ‘Employee’ includes any individual employed by an employer. * * *
“(g) ‘Employ’ includes to suffer or permit to work.”

The leading cases dealing with the meaning of these definitions appear to be those of Maddox v. Jones, D.C., 42 F.Supp. 35, 36, and Bowman v. Pace, 5 Cir., 1941, 119 F.2d 858.

In Maddox v. Jones, supra, is found the following language: “The definition of ‘employer1 in [this section] as ‘one acting directly or indirectly in the interest of an employer in relation to an employee’ means that there must be a contract of employment to constitute the relationship of employer and employee. * * * This court is of the opinion that the definitions in the Act were not intended by Congress, however moved it was by humanitarian impulses, to destroy the well founded and long established rules fixing the status and affecting the relationship of employer and employee in actions based upon that relationship. It is not the province of courts to give the words used in the statute a strained or unreasonable meaning. It is difficult to believe that Congress intended to make the employee an employer or to change the relationship existing between one who has obligated himself to pay, and another obligated to labor for such pay. A court should not, by a masterly use of words or by twisting their meaning, give to a statute a construction other than was intended by the lawmakers.”

In Bowman v. Pace, supra [119 F.2d 860], the Court said: “If one has not hired another expressly, nor suffered or permitted him to work under circumstances where an obligation to pay him will be implied, they are not ‘employer and employee’ under the Act.”

"The statutory definitions of ‘employer,’ ‘employee’ and ‘employ’ are in very general terms, and should be understood in ‘their natural sense, and intended to describe the conventional relations of employer and employee.’ * * * The Act thus contemplates (a) a situation in which the employer, expressly or impliedly, agrees to pay a certain sum of money to the employe, and (b), has the control and determination of the hours of work by the employe. * * * ” Schroepfer v. A. S. Abell Co., D.C., 48 F.Supp. 88, 94.

In Helena Glendale Ferry Co. v. Walling, 8 Cir., 132 F.2d 616, 620, we find the following statement: “The Act defines an employee as ‘any individual employed by an employer,’ and the word ‘employ’ as used in the Act includes ‘to suffer or permit to work.’ ”

“In providing by the Fair Labor Standards Act that the term ‘employ’ includes ‘to suffer or permit to work,’ Congress did not intend to destroy established rules fixing the status and affecting the relationship of employer and employee in actions based upon that > relationship, and the quoted phrase was used to protect employees who actually were employees within the usually accepted meaning of the terms, regardless of terminology used in contract of employment.” Walling v. Todd, D.C., 52 F.Supp. 62, 65.

In defining the term “employ” in this section as “to suffer or permit to work,” it was the intent of Congress to hold every manufacturer engaged in interstate commerce responsible for connivance or collusion with anyone who assumed the status of independent contractor when in fact such individual was merely agent or servant or employee of the manufacturer, and to protect the employee against anyone whose real status in bringing about a contractual relationship in employment is not bona fide. See: Maddox v. Jones, supra.

It is my ruling that the evidence does not warrant a finding that collusion existed or good faith was lacking between the defendant and' the Commission.

While it is true that the defendant regularly “suffered” or “permitted” the plaintiffs to perform necessary protective services in and upon its premises, in the absence of the contractual relationship of employer and employee such is not within the sense or meaning of the term “suffer or permit” as used in the Fair Labor Standards Act of 1938. It is therefore my conclusion that the plaintiffs’ action fails and may not be maintained as provided by the terms of Section 216(b) of the Act.

Accordingly the defendant’s motion for judgment is granted, and an order in conformity therewith will be entered.


author: LEAVY, District Judge.

text:
    TIPPER v. NORTHERN PAC. RY. CO. (POWERS et al., Interveners).
    No. 1283.
    District Court, W. D. Washington, N. D.
    Aug. 20, 1945.
    The plaintiff, Raymond R. Tipper, a veteran of World War I, in November, 1942, voluntarily enlisted in the armed forces of the United States. At the time of his enlistment, he was forty-six years of age, and was an employee of the Northern Pacific Railway Company, as a mechanic. He had attained a position in seniority of No. 9 from the top of his group. Under Selective Service Regulations promulgated subsequent to his enlistment, he was entitled, being over thirty-eight years of age, to be classified in a reserve status and allowed to engage in essential war work in a civilian capacity, but subject to recall to active military duty, should conditions require that this be done.
    The plaintiff sought to have the defendant, Northern Pacific Railway Company, certify to the Army that his services were required by it in his former capacity. Such request was not made by the Railway Company, but he was granted release from active military service, and placed in a reserve status in order to enter civilian employment with the Puget Sound Navy Yard at Bremerton, Washington. He continued-in this work until some time early in 1945, during all of which time he was subject to the orders and under the jurisdiction of his local draft board. Early in 1945 he was given an honorable discharge from military service by the Army, and he, thereafter, within the ninety day period provided by law, made a formal request for reinstatement with his former employer, the defendant herein. This request was denied on the ground that it had not been timely presented. The defendant and the in-tervenors, who were those members of the Union whose seniority would be affected by reinstating the plaintiff, took the position that the plaintiff, in order to preserve his rights under the Selective Training and Service Act of 1940, 50 U.S.C.A.Appendix, § 301 et seq., should have made his request within ninety days after his release from active military service.
    The question presented is whether the release from active service and the classification in reserve status is intended to apply, by the Selective Training and Service Act, or whether the time begins to run when a final discharge from military service is granted.
    J. Charles Dennis, U. S. Atty., John E. Belcher, Asst. U. S. Atty., and Captain Patrick Henry Winston, State Director, Selective Service System, all of Seattle, Wash., for plaintiff.
    Robert S. Macfarlane and Earl F. Requa, both of Seattle, Wash., for defendant.
    Samuel B. Bassett, of Seattle, Wash., for intervenors.
    George E. Flood, of Seattle, Wash., for American Legion, amicus curiae.
   LEAVY, District Judge.

I appreciate the arguments that have been made by counsel representing the parties here, and likewise the argument of Mr. Flood, appearing amicus curiae, and I appreciate also the importance of this case, not alone to the plaintiff, but to perhaps hundreds and thousands of men who have been or who are now in the service and will be discharged. I am conscious also of the fact that this case will be one of first impression, and is therefore of great importance.

I want to say further, at the outset, that there certainly can be no charge of a lack of that high degree of patriotism, that perhaps right now, due to the ending of the Japanese war, is more in evidence than during ordinary periods. No one can challenge the defendant corporation Northern Pacific Railway Company- for taking the position they have in contesting this issue, nor can anyone challenge the various employees of the union, taking the position that they have, because the matter does not turn upon a question of who is the more patriotic. It must be determined purely from an objective basis, and for the purpose of giving a construction such as the framers of this Act intended should be given to it, so that its objectives and purposes might be accomplished.

I do not intend to review in detail the facts in this case, because there is scarcely any disagreement concerning them. The question is more one of an interpretation of the statute and the regulations that have been promulgated, based upon that statute. We must review, to a degree at least, the Selective Training and Service law, and just what Congress had in mind in the matter of insuring to those people who fell within the provisions of the Act and were called to the Colors, even before we had gone into the war. As I have already indicated, the Act and the regulations made thereunder, must be liberally construed, but such liberal construction, of course, should not be carried to the point where it does violence to the Act itself.

When the Selective Training and Service Act was first passed by Congress, it fixed a minimum age of 21 years, as I recall, arid it seems to me, though I may be in error,, that the maximum age was 45 for service. It might have been less than that. We were at peace, and the discussions in the Congress were extensive. The proponents advocated reasons for the necessity of a peacetime draft from almost every conceivable' angle, and the opponents with an equal degree of vigor, eloquence and logic, opposed a peacetime draft. At any rate, this issue as to whether the man who came under the provisions of the Act and who was taken into the service, should or should not lose anything in the way of a job that he had, was discussed at great length. I feel that I ame safe in saying that if anyone would care to review the debates, and the reports of the committees of both houses of Congress, that the stun and substance of that feature of the Act was that the man who was called to service shoud not be prejudiced in any way when he came out of the service, in the matter of his occupation. Later, the Act was amended just a few months before we got into the war, and instead of a 12 months’ service and a long period of reservability, the 12 months’ provision was virtually taken out of the Act, because it perhaps was more or less imminent to those in authority that the world was moving at such. a rapid pace toward war, that we were apt to become involved, or at least the threat was so serious that changes in the Act were demanded, and then the Act was again changed to include 18-year olds — dropped from 21. Because of the tremendous field of human activity and citizenship responsibility that was covered by this exceptional and unusual legislation, great powers were conferred upon those who it provided should execute the law, and the regulations promulgated became law themselves.

In construing the Act as it now exists and applies to this particular case, this Court does give great weight and consideration to the regulations of the Director of Selective Service. While not being able to look to them as a precedent, nevertheless, if it can be read into them or out of them just exactly what the intent was when issued, why certainly that intent should be given expression not only with the many Selective Service and Training regulations put into effect, but the War and Navy Departments’ orders and other emergency agencies that came into this war picture, which promulgated directives and regulations and orders from time to time concerned either directly or indirectly with this identical question that we have here.

After we became engaged in the war, draft numbers or the calls to the service were increased tremendously — millions were being called where it had only been expected that hundreds of thousands might be called in the first instance, and the country found itself confronted with tremendous economic problems. Its difficulties grew almost daily as to how it was going to meet the civilian responsibility of carrying on such a war. Then we find this regulation about men 38 years old and beyond that age — and it is not necessary in deciding this matter to cite the numerous regulations from the Man-power Commission and the War Labor Board and the other emergency agencies. Suffice it is to say, that under the regulation that permitted a man past the age of 38 to relieve himself from responsibilities that were incident to active military service at the time, he had to do certain, things. I want to briefly refer to some of the exhibits here, because it seems to me they throw considerable light on this situation.

It might be argued that the plaintiff should have discussed more fully with the executive officials of his union and his employer, his plan to re-enter the service. Be that as it may, he did go into the service; he was accepted, and after taking the oath of a soldier and commencing his training, he received this communication, which is in evidence here as Plaintiff’s Exhibit 2, and I shall only read the one paragraph of it:

“This letter will grant to you an indefinite leave of absence for that purpose, with the requirement that you will return to the service of the Northern Pacific Railway Company within 40 days after your honorable discharge from military service. Leave of absence effective November 19, 1942”.

When the new regulations were issued by the War Department that recognized the possibility of a discharge, or of a release from active service for men over 38, early in 1943, we have the next letter of the plaintiff to the defendant. He took the course as advised by some of his superiors in the Army. He applied to his employer for some sort of a written showing that his services were needed on the job that he had held before he went into the service with the railroad company, and he received in reply Plaintiff’s Exhibit 5, which is signed by the Roundhouse foreman, and which advises him, under date of April 29, 1943:

“Your letter was received. I am sorry to say at this time it will be impossibe to grant your request, as you went into the army at your own request, so do not feel justified in asking for your return.”

Because of the language of this particular letter that I have just read, I am sure that if the request had been made or brought to the attention of the executive officials of the defendant railway company or the executive officials of this plaintiff’s union, they would not have taken such an arbitrary attitude. Without any challenge whatever to the plaintiff’s patriotism, but rather as an indication of his good faith and his high degree of patriotism which was the motivating cause of his going into the service at a great financial sacrifice to himself, he was persuaded under this new regulation he could serve his country better in a civilian capacity, even though he would have to submit to certain restrictions from the military, and when his employer refused, thus summarily to ask his transfer back into his former status, why he took the next step open to him and was, given a certificate that permitted him to go into the Bremerton Navy Yard, as a civilian employee.

Some argument is made that this work in the Navy Yard was not necessarily classified under the terms of essential industry, but was rather a governmental war activity. I am convinced that it would readily fall under an essential war industry, but even then, according to the record as made here, the plaintiff sought, after having gone into this work at the Bremerton Navy Yard, to get back his place in the employ of the railway company.

I am accepting the undisputed evidence of the plaintiff himself, and he was advised— whether the person had any authority to so advise him or not, but he testifies it was some one connected with the personnel division of the Navy Yard — that if he left there and went back over to the railway company, his draft board would immediately return him to his status of active military service. We can well take the position that they might not have done that, and probably couldn’t have done so. Nevertheless, when we test the good faith of this veteran, it seems to me that he acted just as any other person would have acted under like circumstances.

I am conscious of the fact that standing alone, one paragraph of the Selective Service and Training Regulations would clearly require that the plaintiff must have made his application within 90 days, following his release from active military service, otherwise he would be barred, but we can not single out one regulation and consider that standing alone. It is so evident to this Court by a reading of Defendant’s Exhibit A-2, entitled “Information Concerning the Veterans’ Assistance Program” of the Selective Service System, that we must consider all the regulations, together. This document reads:

“When it is claimed that a veteran has waived his re-employment rights, the waiver must be proved by clear and positive evidence.” Such proof is not found in this record.

In light of what I have said, and I do not intend to even remotely imply there was any fraud or any overreaching, intentionally or willfully by the language that I just read, but I am convinced by that alone, it was intended there should be a most liberal construction given to the act and all regulations and directives to the end each man or woman who answered their country’s call in a period of great crisis, should not find himself or herself at the conclusion of such service, in a position where they were at a disadvantage, or prejudiced by reason of having given such service.

Fortunately in this case, none of the union members are made to suffer a reduced status in the matter of seniority lower than that they had when plaintiff entered the military service even when he is restored to his former position as an employee, because had he not voluntarily gone forward when he did enter the service, he would have kept the status that he now seeks, and would not have even gone beyond nine from the top on the seniority list, since that is where he was when granted his leave; that is where he goes again, no one having dropped out or come into the service above him. Really there are no rights of anyone who is junior to this applicant being prejudiced. If there is anything in the contract of employment between the railroad company and the union that runs counter to a liberal construction of the language of these various Acts or regulations, such matters would have to give way and take a subordinate place in the determination of issues such as we have here.

From what I have said, I am convinced that under all of the facts in this case, and under the law as I see it, the plaintiff must prevail and the defendant railroad company will be required to restore him to his .status of an employee that he had when he left their service, to answer the call of his country. The Act itself contemplated, in spite of certain apparent inconsistencies in the regulations and War Department orders, that the word “service” means a termination of such responsibility, by a discharge. That was not until a period here indicated by plaintiff’s exhibit No. 1, on March 19, 1945. His application for reinstatement was well within the time allowed by law.

You may prepare and submit findings and a judgment along the lines that have been indicated by the Court.


author: MILLER, District Judge.

text:
    HARRIS v. CROSSETT LUMBER CO.
    No. 172.
    District Court, W. D. Arkansas, El Dorado Division.
    Nov. 29, 1943.

      J. R. Wilson, of El Dorado, Ark., for plaintiff.
    Mahony & Yocum, of El Dorado, Ark., for defendant.
   MILLER, District Judge.

This cause was tried before the court without a jury on October 21, 22, 1943, upon ore tenus testimony. Counsel for the respective parties filed a statement of their contentions and citations of authorities which the court has carefully considered, along with all of the testimony adduced and exhibits thereto. The law governing this case is so well settled that the court does not believe it could add anything to the literature already existing and therefore is not submitting a memorandum opinion other than the findings of fact and conclusions of law.

Findings of Fact.

1. The plaintiff, Ray Harris, was employed by the defendant, Crossett Lumber Company, a corporation, from October 24, 1938, and prior thereto, to October 3, 1942, as a pumper or tender of five water wells, each of which was equipped with an electric pump. The wells are located about a mile east of the city of Crossett and in making a round trip in oiling or inspecting the wells the plaintiff would travel approximately one and one-tenth miles.

2. This suit was filed March 20, 1943, by the plaintiff, seeking to recover overtime compensation under Sections 7 and 16. of the Fair Labor Standards Act of 1938, 29 U.S.C.A. §§ 207, 216. Defendant, among other defenses, pleaded the Arkansas Statute of Limitations of three years, Pope’s Dig. § 8928, as a bar to the complaint of the plaintiff.

3. The plaintiff was employed to operate the wells and to keep them in operation for a period of 24 hours per day and to give whatever time was required therefor. No definite hours of employment were considered in fixing the monthly salary. The plaintiff was not required to make and did not make any repairs to the machinery or property of the defendant, but was required to advise the master mechanic or some other person of any breakdown in the machinery under his control and supervision. The plaintiff lived with his family on the property near the wells. His residence was equipped with a telephone and electric lights and he was required by the defendant company to be on the property at all times or to have someone present that could be notified if the company desired any of the wells to be cut off or put on, if they had previously been cut off for any reason. The plaintiff was subject to call during his employment any time, day or night, and often received calls during the night time which required his attention to one or more wells.

4. The water produced by the wells under the supervision of the plaintiff was pumped into a reservoir from which it was conveyed to the defendant, Crossett Lumber Company, and to the other industries operated in connection with the lumber mills, and the furnishing of an adequate and uniform supply of water was essential and necessary to the operation of the business of the defendant.

From 70 to 90 per cent of the manufactured products of the defendant moved in interstate commerce.

5. The plaintiff, in the operation of the wells and in furnishing water therefrom to the defendant, was engaged in commerce or in the production of goods for commerce and the use of the water so furnished was essential to the defendant in the business of producing goods for commerce.

6. Not in excess of 40 hours per week was required by the plaintiff in which to perform the actual physical work of oiling and inspecting the machinery of the wells and in keeping the premises, such as the wellhouse and machinery clean, but plaintiff was required to be available and to perform work at irregular times. Many calls that were received by plaintiff during the night time during the period beginning March 20, 1940, and extending to October 3, 1942, when plaintiff left the employ of the defendant, were from those in charge of the operation of the mills of the defendant and required the plaintiff to either cut out one or more wells or to start the pumps on such wells as might not at that particular time be pumping. This was necessary in order to maintain a uniform and adequate supply of water at all times. The amount of water required depended largely upon the extent of the operations of the defendant and the allied industries, but the plaintiff was required to keep all five of the wells either operating on a 24-hour basis or to be available for that purpose.

7. A reasonable computation of the working hours of the plaintiff per week during the time from May 20, 1940, to October 3, 1942, is 84 hours. It appears reasonable to the court that 12 hours of every 24 was available to the plaintiff for uninterrupted sleep, the conduct of his own personal affairs and the ordinary normal routine of living and, therefore, the court finds that the plaintiff did not work 24 hours per day as contended by him, but that he did work 12 hours per day, or 84 hours per week.

8. From March 20, 1940, to July 19, 1940, a period of 18 weeks, the plaintiff received a weekly wage of $26.18. That sum divided by 84 hours establishes the regular rate of pay of plaintiff for said period as 31.16 cents per hour. The amount of overtime worked by plaintiff during that time was 42 hours each week for 18 weeks.

9. For the period fiom July 19, 1940, to October 24, 1940, a period of 14 weeks, the plaintiffs weekly wage was $27.02, and that sum divided by the hours worked each week establishes the regular rate of pay received by plaintiff during said period as 32.16 cents per hour. During this period the plaintiff worked 42 horns overtime each week for 14 weeks.

10. During the period from October 24, 1940, to October 5, 1941, a period of 49 weeks, the weekly wage of plaintiff was $27.02, and that sum divided by the hours worked per week establishes the regular rate of pay received by plaintiff during said period as 32.16 cents per hour. The overtime worked by plaintiff during said period was 44 hours each week for 49 weeks.

11. During the period from October 5, 1941, to April 26, 1942, a period of 29 weeks, plaintiff received a weekly wage of $30, and that sum divided by the hours worked each week establishes the regular rate of pay received by plaintiff during said period as 35.7 cents per hour. During each of these weeks plaintiff worked 44 hours overtime for 29 weeks.

12. During the period from April 26, 1942, to October 3, 1942, a period of 23 weeks, plaintiff received a weekly wage of $33, and that sum divided by the hours worked each week establishes the hourly vrage as 39.28 cents per hour. The overtime worked by plaintiff each week was 44 hours for 23 weeks.

13. The plaintiff was not paid for any of the overtime worked by him, but the wages received by him exceeded the minimum wage established by the statute and he has been paid wages above the minimum for 84 hours each week.

14. The defendant made no attempt to establish an hourly rate of pay for the plaintiff, but contented itself to pay a monthly wage in weekly installments. Neither did the defendant attempt to keep any record of the hours which it required the plaintiff to work or remain subject to call.

Conclusions of Law.

1. The court has jurisdiction of the parties hereto and the subject matter hereof.

2. The plaintiff is entitled to recover for the period of time referred to in paragraph 8 of the findings of fact a sum equal to one-half times the regular rate of pay for each hour of overtime. The hours of overtime are established by multiplying the weekly overtime of 42 hours by 18, and that sum multiplied by one-half times the regular rate of 31.16 cents amounts to $117.78.

3. The plaintiff is entitled to recover as overtime compensation for the period referred to in finding of fact No. 9 a sum equal to one-half times the regular rate of pay for each hour of overtime. The weekly overtime was 42 hours for a period of 14 weeks and the hours multiplied by one-half times 32.16 cents amounts to $94.51.

4. The plaintiff is entitled to recover during the period of time set forth in finding of fact No. 10, a sum equal to one-half times the regular rate of pay for each hour of overtime. The overtime was 44 hours per week for a period of 49 weeks. The hours multiplied by one-half times 32.16 cents amounts to $346.59.

5. The plaintiff is entitled to recover for the period of time set forth in finding of fact No. 11, a sum equal to one-half times the regular rate of pay for each hour of overtime. The overtime was 44 hours each week for 29 weeks, and the hours multiplied by one-half times 35.7 cents amounts to $227.77.

6. The plaintiff is entitled to recover for the period set forth in finding of fact No. 12 a sum equal to one half times the regular rate for each hour of overtime. The overtime was 44 hours per week for a period of 23 weeks, and the hours multiplied by one-half times 39.28 cents amounts to $198.72.

7. The total amount of overtime due the plaintiff is $985.37 and the plaintiff is entitled to recover an equal sum as liquidated damages, or the sum of $1,970.74 for overtime and liquidated damages.

8. The plaintiff is also entitled to recover a reasonable attorney’s fee which the court fixes at 15 per cent of the amount recovered, or $295.61.

9. The plaintiff is not entitled to recover any sum for overtime that accrued more than three years prior to the filing of this suit.

10. Judgment is being entered for plaintiff for the total sum of $2,266.35, with interest thereon from this date at the rate of 6 per cent per annum, together with costs against the defendant.