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Pipe Trades, Inc. v. Rauch





APPEAL from the Circuit Court of Cook County; the Hon. LEONARD C. REID, Judge, presiding.


We consider here an appeal from an order of the circuit court of Cook County affirming a decision of the board of review for the Department of Labor that Pipe Trades, Inc., was, during the year 1948, an employer liable for payment of contributions under the Unemployment Compensation Act. (Ill. Rev. Stat. 1947, chap. 48, pars. 217-250, incl.; Jones Ann. Stat. 45.128.) The appellant is actually Eusebius J. Biggs, who became the sole owner of Pipe Trades, Inc., in 1949, and who appears in this court pro se as the assignee of the company; the appellees are the Department of Labor, certain of its officers, and one Norbert J. Muller, whose claim for unemployment compensation precipitated the action.

The record discloses that Muller filed his claim during the benefit year which began April 1, 1949, and the deputy of the Department who processed it issued a finding that Muller had earned no wages in insured work in 1948. Muller carried the matter to the referee of the Department contending that he had earned more than $225 in wages while employed by Pipe Trades during that year and that Pipe Trades was an employer within the definition of the act. After a hearing, the referee reversed the deputy and entered a decision that Pipe Trades was an employer, that it was liable for contributions and that Muller had earned in excess of $1000 in wages during the last two quarters of 1948. Upon appeal to the Board of Review and upon administrative review in the circuit court of Cook County, the decision entered by the referee was adhered to.

Although somewhat obscured by the manner of appellant's presentation, the chief legal issue presented is whether Pipe Trades was an employer covered by the Unemployment Compensation Act. Under the statute, liability for contributions is imposed upon any individual or type of organization meeting any one of the several definitions of employer found in section 2. (Ill. Rev. Stat. 1947, chap. 48, par. 218.) One such definition, contained in section 2(e) (5), is as follows: "`Employer' means: * * * (5) Any employing unit which together with one or more other employing units is owned or controlled, directly or indirectly, by legally enforcible means or otherwise, by the same interests, or which owns or controls one or more other employing units directly or indirectly, by legally enforcible means or otherwise, and which if treated as a single unit with such other employing units or interests or both would be an employer under paragraph (1) of this subsection." The paragraph referred to, which is section 2(e) (1) (B), defines "employer" as any employing unit having six or more employees within twenty or more calendar weeks in a calendar year, and in the present case it is conceded both that Pipe Trades was an employing unit and that it did not have the work experience prescribed by the said paragraph (1). Thus, the issue presented is whether Pipe Trades was an employer within the meaning of section 2(e) (5). In approaching the facts of the case it is to be borne in mind that the words "owned or controlled" in the section have been construed to mean "owned and controlled" and, as thus construed, permit the combination of the employment experience of separate employing units only where they are both owned and controlled by the same interests. Todd v. Annunzio, 410 Ill. 343; McGrew Paint & Asphalt Co. v. Murphy, 387 Ill. 241; Moriarity, Inc. v. Murphy, 387 Ill. 119.

It is the contention of appellees, and was the apparent basis for the decisions of the lower tribunals, that Pipe Trades, Inc., and the E.J. Biggs Construction Company were owned and controlled by the same interests in 1948 and that the combining of their employment experience made Pipe Trades liable for contributions. While admitting that the combined employment experience would be sufficient to render Pipe Trades liable, appellant Biggs insists that the two organizations were neither owned nor controlled by the same interests within the definition of section 2(e) (5).

The facts pertinent to the issue show that the E.J. Biggs Construction Company was incorporated in September, 1945, and engaged in business as a general contractor. It is admitted that Eusebius J. Biggs has always been in full charge of the business and he is referred to as its manager in the corporate minutes. The officers and directors from the inception of the corporation through 1948 were Cecelia G. Biggs, president and treasurer, and George W. Voltz, secretary. Twenty shares of stock representing a capitalization of $2000 were issued and during the year in question Cecelia G. Biggs held 18 of the shares, while Catherine M. Biggs and Voltz held one share each. Cecelia G. Biggs is the wife of Eusebius J. Biggs and Catherine M. Biggs is his daughter. Early in the proceedings before the referee, Biggs testified that he owned a half share of stock in the construction company but at a later appearance testified that he was in error in so stating. Other evidence was to the effect that Biggs had never invested money in the corporation, that Mrs. Biggs had inherited some money in 1944 and invested approximately $1800 in the business, and that Biggs bought his wife's stock in 1949 for $3000 by paying off a mortgage for that amount on what Mrs. Biggs terms "her" home.

The evidence shows that Mrs. Biggs's activities in the construction company consisted of signing checks, answering the phone or meeting people in her husband's absence from the office, which was in the family residence, and the keeping of various records. The corporation paid no dividends; Mrs. Biggs received no salary; she could not testify positively whether the company had ever made a profit and she never participated in the profits except to the extent her husband benefited and provided her with a higher standard of living and met his family obligations. Biggs testified that he drew no fixed salary during the year but at the conclusion of each year would pay himself an amount commensurate with the profits. While he stated that he usually advised his wife of the amount he was drawing, that she was always agreeable and that the other stockholders did not object to the procedure, the only interpretation which can come from the facts shown is that Biggs had uncontrolled discretion in fixing the amount of his annual salary from the construction company and in the disposition of the firm's profits.

Turning now to the Pipe Trades organization, it appears that Biggs first adopted the name in approximately 1940, and used it to buy plumbing materials for construction work in which he was engaged. In December, 1945, the Construction Company had difficulty in getting subcontractors to accept its plumbing and heating work and the directors of the company resolved to communicate with one James F. Walsh, a master plumber who had subcontracted at least one job for the company, with a view to having him handle its plumbing and heating. Thereafter, on January 2, 1946, Pipe Trades, Inc., was formed and stock was issued a few days later as follows: Cecelia G. Biggs, 7 shares; James F. Walsh, 1 share; E.W. Kilgore, 1 share, and George W. Voltz, 1 share. At the first hearing before the referee, Biggs testified that he owned a half share of stock in Pipe Trades and that he did not know who owned the remaining shares. At a later hearing, he testified that the seven shares issued to his wife had been immediately assigned by her to him, and the stock certificates so reflected, but that the transfer was not recorded in the Pipe Trades books in order to conceal the true ownership of the shares from a union which had allegedly threatened him with physical violence. In explaining his previous testimony about the ownership of the shares, Biggs stated that he had forgotten about the assignment from his wife; that she had invested nothing in Pipe Trades while he had invested $700 therein; and that he paid his wife nothing for the shares assigned.

Named as officers of Pipe Trades at the time of its incorporation were E.W. Kilgore, president; James F. Walsh, vice-president, and Cecelia G. Biggs, secretary and treasurer. Biggs likewise carried the title of manager of this corporation and, when testifying, he stated that in 1948, the firm's policies were established by the board of directors and carried out by James F. Walsh. In this respect, the record shows that Mrs. Biggs did not attend the meetings of the board or stockholders and that her sole activity in the corporation was the countersigning of its checks along with Walsh. Although the minutes do not reflect that Biggs attended such meetings, his name is frequently mentioned therein.

Pipe Trades did all of the plumbing and heating work for the E.J. Biggs Construction Company and, in addition, did plumbing work for others. All such work was done under the on-the-job supervision of Walsh, without whose master plumber's license Pipe Trades would have been unable to function. Walsh testified that Biggs gave him no orders with respect to jobs performed for others, which constituted the majority of the work, but that he did, as any general contractor would do, give him instructions with respect to work for the Biggs Construction Company. Walsh handled all estimates and matters pertaining to plumbing and testified that he consulted Biggs in some cases only about prices that should be charged for materials. For his services, Walsh drew $80 weekly against future profits of the corporation.

Other facts pertaining to the relationship of the two corporations show that both Pipe Trades and the construction company shared a joint office located at the residence of the Biggs family and those seeking employment with Pipe Trades would report there to Biggs, his wife, or one Weber, a bookkeeper, from whence they were sent out to the site of the plumbing job where they reported to Walsh. Pipe Trades paid no rent for the office, Biggs explaining that it compensated for rent by performing work for the construction company at a lower rate. Other evidence, however, showed that the title to the home was not in the construction company but was in a trustee under an agreement which made Mrs. Biggs the sole beneficiary. The close relationship of the two corporations is further evidenced by the corporate minutes of the construction company which, upon different occasions during 1946 and 1948, show its need for and preoccupation with the matter of obtaining plumbers and steam fitters for Pipe Trades, its resolve to combat union activities against Pipe Trades, its efforts to secure plumbing permits for Pipe Trades and its interest in Pipe Trades's objection to the payment of unemployment compensation to plumbers who allegedly refused to work.

Appellees contend that the evidence amply supports a finding that the two corporations were owned and controlled by the same interests within the meaning of section 2(e) (5). Appellant, however, urges that it shows majority ownership of the construction company in Cecelia G. Biggs, with control in her husband, Eusebius J. Biggs, and majority ownership of Pipe Trades in Biggs, with control in Walsh.

Without inquiring into the question of whether the transfer of the controlling shares in Pipe Trades from Mrs. Biggs to her husband was bona fide or not, we think the evidence is sufficient to support a finding that both corporations were owned by the same interests within the definition of the statute. This court has frequently pointed out that the Unemployment Compensation Act, being remedial in nature, should be liberally construed. (Zehender & Factor, Inc. v. Murphy, 386 Ill. 258; Crouch v. Murphy, 390 Ill. 112.) Broadly speaking, we have also held that the act deals with the realities of economic life and that it is with such realities that we are concerned in determining questions which arise in the course of its administration. (Parks Cab Co. v. Annunzio, 412 Ill. 549; Commonwealth Life and Accident Ins. Co. v. Board of Review, 414 Ill. 475.) In applying these concepts to the provisions of the act, including section 2(e) (5), which define "employer" under certain conditions so as to include several employing units and to include two or more separate entities, if owned and controlled by the same interests, we have construed the legislative intention to be that enterprises or units which economically and in reality constitute but a single business shall be deemed a single employer, familiar rules of corporation law, partnership law and the law of master and servant to the contrary notwithstanding. (Karlson v. Murphy, 387 Ill. 436; Todd v. Annunzio, 410 Ill. 343.) In construing the word "interests" as used in the same provisions we have held that the term is not necessarily synonymous with "persons" so as to require ownership by substantially the same persons, (Lindley v. Murphy, 387 Ill. 506,) but at the same time that it is sufficiently broad and elastic to include an individual. Todd v. Annunzio, 410 Ill. 343.

The facts peculiar to the present case, and which must control our decision, show that the construction company was in dire need of obtaining plumbing services on its construction work, and to that end Pipe Trades was organized. To put it in appellant's words: "Biggs wants to be in the plumbing business because he has to be, to run a construction company." While not conclusive evidence of joint ownership, it is pertinent to note that the two companies were caused to interlock in several organizational respects. Cecelia G. Biggs was an officer in each, Voltz owned a share of stock in each and Biggs carried the title of manager in both companies. After Pipe Trades was organized, and particularly in 1948, the year under scrutiny, Biggs's asserted role was that of controlling the construction company in which he claimed no proprietary interest while, at the same time, he exercised no control over Pipe Trades of which he claimed to be the real owner. When this assertion is measured against the facts which show the complete dominance of Biggs over the construction company, even to the extent that he could fix his salary without formal action and with little or no consultation with its officers and directors, and the facts which show that no dividends were paid nor profits distributed, we are of the opinion that it emerges clearly that both companies were owned by the same "interests" despite the corporate organizations which made it appear that the wife owned the controlling interest of one and the husband the controlling interest of the other. Section 2(e)(5) says that the one or more employing units must be owned or controlled, directly or indirectly, "by legally enforcible means or otherwise" (emphasis supplied) by the same interests. When facts such as shown ...

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