Opinion
Nos. 43180, 43263.
July 5, 1938.
Paul Armitage, of New York City (George B. Furman, of Washington, D.C., on the brief), for plaintiff.
Fred K. Dyar, of Washington, D.C., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson, of Washington, D.C., on the brief), for defendant.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Suit by the Duquesne Club against the United States to recover taxes paid.
Petition dismissed.
These cases having been heard by the Court of Claims, the court, upon the report of a commissioner and the evidence, makes the following special findings of fact:
1. Plaintiff is a Pennsylvania corporation and is located in Pittsburgh. It was originally organized as a voluntary association in 1873 and incorporated in 1881. Its Certificate of Incorporation provides: "The purpose for which it is formed is the maintenance of a Club for social enjoyment." The name and purpose are stated in its By-laws as follows: "The name of the corporation is Duquesne Club and its purpose is the maintenance in the City of Pittsburgh, Pennsylvania, of a club for social enjoyment." Its By-laws were revised in 1934 in order to eliminate conflicting, ambiguous, and antiquated provisions, particularly in the House Rules, and to change those sections which did not conform with the operation of the club at that time. In making such revision the article of the By-laws quoted above was not discussed and no change was made therein. The "Official Directors Register of Pittsburgh" — 1935 Edition, published by the Official Railway Guide Publishing Co. of Pittsburgh — lists plaintiff as a "social club." That listing was made on the basis of information furnished by plaintiff.
2. For the period June 1929 to May 1933, plaintiff paid $110,519.64 as taxes on dues and initiation fees of its members, and likewise during the period June 1933 to August 1935 it paid taxes of a like nature in the amount of $54,696.35. With respect to both amounts payments were made monthly at the times and in the amounts shown in schedules attached to claims for refund, plaintiff's Exhibits 1 and 2, which schedules are incorporated herein by reference.
3. July 22, 1933, plaintiff filed a claim for refund of $110,534.05, plus interest, on the ground that it was not a social, athletic, or sporting club, and therefore not subject to tax on the dues and initiation fees of its members for the period June 1929 to May 1933. October 10, 1935, plaintiff filed a similar claim for refund of $54,696.35, plus interest, for the period June 1933 to August 1935. The first claim was rejected January 29, 1934, for the stated reason that plaintiff is a social club or organization within the meaning of the applicable statute and that its social activities are not merely incidental to its other activities but constitute an important and material part of the life of the organization. A portion of that claim was rejected for the further reason that with respect to the tax paid for the month of June 1929 in the amount of $239.25, such amount was barred from recovery by the four-year statute of limitations, 26 U.S.C.A. § 1433. The second claim was rejected June 4, 1934, on the ground that plaintiff is a social club within the meaning of the applicable statute.
4. Plaintiff's property and affairs were controlled and managed by a Board of Directors which elected from its members the officers of the club, consisting of President, First Vice President, Second Vice President, Secretary, and Treasurer. A resident manager supervises and directs the operation of the club. Its By-laws provided for, and there were during the periods involved in these suits, the following standing committees: Committee on Admissions, House Committee, Finance Committee, and Art and Library Committee.
The duties of the House Committee, selected from members of the Board of Directors, were to "supervise and direct the operation and upkeep of the club house and the use of its facilities by members and guests, make and enforce house rules and regulations and generally have power to deal with all matters and things arising in connection therewith."
The Committee on Admissions was composed of five members, all of whom were likewise members of the Board of Directors, and it was their duty to consider and vote upon candidates for membership. One negative vote was sufficient to reject a candidate for membership. While the By-laws provide that "Any male person of legal age may become a member upon election by the Committee on Admissions and the payment of the prescribed entrance fee," the By-laws further require that "No person shall become a member unless he has been proposed by two or more resident members not members of the Board of Directors, and his name with the names of the proposers shall have been posted on the bulletin board in the club house for a period of not less than two weeks prior to his election." A result of the application of the above rules has been that only people of certain classes have ever been admitted to membership.
The names of the other two committees are descriptive of the duties appertaining thereto.
5. The club membership during the period involved was approximately 1,800, of whom approximately 75 percent were resident members and 25 percent non-resident. In addition, during the period covered by these claims, there was a provision for honorary membership, and at one time during that period there were six honorary members but four have died, and the provision for honorary membership has been since eliminated. The initiation fee for resident members is $500 and for non-resident members $200. The annual dues for resident members are $150 and for non-resident members $75. The By-laws limit the resident membership to 1,800 and the non-resident to 600. Often there is a waiting list of applicants for membership. Both resident and non-resident memberships permit the wives and families of members to use the Ladies' Dining Room, and a similar privilege is extended to widows of deceased members, but ladies are not otherwise permitted to use the privileges of the club. The average age of members is between forty and fifty years.
The membership is made up of the highest type of leaders of industry and finance, and professional and business men of Pittsburgh, or those having business or professional relations in and about Pittsburgh. Membership in the club carries prestige in the business world. The resident and nonresident membership on November 1, 1934, which was typical of the periods involved in these claims, was made up of the following classes:
----------------------------------------------------- | Number | Number | resident | nonresident ----------------------------------------------------- Accountants ................ | 7 | ........... Attorneys .................. | 140 | 9 Bankers .................... | 85 | 14 Brokers .................... | 29 | ........... Corporation executives ..... | 830 | 221 Educators .................. | 8 | ........... Engineers and architects ... | 22 | 1 Financiers ................. | 7 | ........... Insurance .................. | 29 | 2 Judges ..................... | 6 | 2 Ministers .................. | 6 | ........... Physicians and dentists .... | 33 | 4 Public officials ........... | 13 | 2 Real estate ................ | 18 | ........... Retired .................... | 25 | 4 No occupation .............. | 2 | ........... Occupation unknown ......... | 28 | 65 Membership November 1, |----------|------------ 1934 .................... | 1,288 | 324 -----------------------------------------------------
6. Plaintiff occupies premises at No. 325 Sixth Avenue, Pittsburgh, which location is in the heart of the city and convenient to the various business interests. The property has a frontage of 116 feet on Sixth Avenue and a depth of approximately 200 feet.
The original club building of five stories was erected in 1889 and two additions have been made, the first in 1902 and the second completed in 1931. The final addition consists of twelve stories, and at the time of that improvement a general rearrangement of the old buildings was effected. The total floor space (including original building and additions) is 184,125 square feet, which is allocated approximately as follows:
Square feet
Dining rooms, kitchen, etc. ........ 63,692 Bedrooms ........................... 38,880 Billiard room ...................... 1,216 Pool room .......................... 2,240 Health department .................. 2,961 Old card room ...................... 1,040 Lounges ............................ 3,600
The balance, consisting of 70,496 square feet, was given over to machinery space, laundry, halls, storerooms, shops, cigar stand, barber shop, wash rooms, etc.
On the first floor is a large hall with space for reception clerk, office, telephone rooms, cigar counter, check and wash room, pool and billiard room, two large lounges and bar. In the hall are stock tickers. The well made by the buildings constitutes a sizable patio in which is a fountain and growing plants. This is used as a summer dining room.
The second floor is devoted exclusively to general and private dining rooms. At one time there was a ball room on this floor, but it was changed into a dining room many years ago, and no space is set apart in the building for a ball room or for dancing.
On the third floor are large and small private dining rooms and the kitchen. The fourth floor is generally reserved for dining service, with a bar and manager's quarters. On the fifth floor are the executive offices, three private dining rooms, rooms for the help, barber shop, library, card room and health department. The sixth floor is devoted to service rooms for linen, sewing room, valet room, wine and food storerooms, and locker room for the help. The seventh to the eleventh floors are given over to bedrooms, there being thirteen on each floor, each with a bath, a total of 65 rooms. The twelfth floor is devoted to storage, with penthouses containing machinery.
7. The land and buildings are carried on the books of plaintiff at a value of $2,845,855.19, after allowing for depreciation. The club premises are furnished and maintained in first-class condition and compare favorably with large modern first-class hotels. The halls are carpeted and Oriental rugs of a medium grade are in use in some of the public rooms. The cost of the Oriental rugs was approximately $6,000. Numerous oil portraits and paintings of various values are on the walls, the maximum value of an individual portrait or painting being $1,500. The furnishings and equipment were carried on the books of the plaintiff, after deduction for depreciation, at a value of $527,504.64.
8. The club maintains 33 dining rooms, seating from 4 to 300 persons, and having a total seating capacity of approximately 1,000. At times they are used to full capacity. All of these are identified by names or letters, the rooms having such names and letters as "Guest Dining Room," "Ladies' Dining Room," "Old Breakfast Room," "Pine," "Georgian," "Print," "Red," "Adam," "Walnut," and "Main Dining Room," and "B," "C," "D," "G," "H," and "I." Some of these names are indicative of the type of decoration or finish. Most of these rooms, with the exception of the Ladies' Dining Room and Guest Dining Room, may be reserved for private luncheons, and many of them are regularly reserved by groups or individuals who use the same dining room or have the same places at the same table from day to day. The large number of private dining rooms maintained by the club was provided to meet the demand of members, particularly business and industrial groups who desire privacy at their luncheons when they discuss their business affairs. These groups are often made up of the executives of a given concern or of an executive who is entertaining business men from out of town. The dining rooms are served from a large modern kitchen which is located on the third floor.
The Ladies' Dining Room is open to wives and daughters of members and wives of deceased members, as well as to members of the club. It is open from noon until midnight, where service may be had after the Guest Dining Room closes at 9 p.m. It seats approximately 50 and is used by ladies who are shopping, for the entertainment of women friends, and by family groups. It is reached by a separate building entrance, both by stairway and elevator. This is the only room in the building to which ladies are admitted, except on New Year's Day, when open house is held and the entire club is open to members and their guests, including ladies. An orchestra is provided for that occasion, and members bring their wives to see the club and have a meal at the club, individual members paying for whatever they and their guests eat or drink. Dancing is not indulged in then or at any other time.
Food is served from 7 a.m. until midnight. The Guest Dining Room is opened in the morning and is the only dining room available until noon, when all dining rooms are opened. For the year ended March 31, 1934, there were 147,937 meals served in the club. Of these 6,934 (4.69%) were breakfasts, 111,526 (75.39%) were lunches, 12,329 (8.33%) were dinners, and 17,148 (11.59%) were private luncheons and dinners. Of the aforementioned meals, 1,713 were served on Sunday.
9. The bedrooms, 65 in number, occupy five floors of the building. Some are single and others double rooms, and each has a private bath. Their furnishings compare favorably with the furnishings in large modern first-class hotels. They are rented for both permanent and transient occupancy. Members engage these rooms for the use of out-of-town business acquaintances and associates and friends, and for personal use. The rates charged for the rooms are $5 to $6 per day for the guest of a member; $3.75 to $5.50 per day for members, and from $75 to $120 per month for permanent occupancy. The percentage of room occupancy for four years, which is typical of the period covered by this suit, is shown by the following schedule:
------------------------------------------------------ | | | Year ended | Total occupancy | Permanent | Transient March 31st | | occupancy | occupancy ------------------------------------------------------ | | | | Percent | Percent | Percent | | | 1933 ....... | 43.72 | 29.50 | 14.22 1934 ....... | 48.81 | 31.40 | 17.41 1935 ....... | 47.94 | 31.78 | 16.16 1936 ....... | 47.37 | 26.88 | 20.40 ------------------------------------------------------
The percentage of occupancy shown above includes rooms engaged and paid for by members even though they may not have been used.
10. The club maintains two large lounges, both located on the first floor and at opposite ends of the building, the front lounge being 30 × 70 feet and the rear lounge 20 × 40 feet. They are attractively furnished and equipped with desks, chairs, divans, reading lamps, paintings, and other furnishings giving a pleasing and club-like effect. The beams, pillars, and woodwork which are in evidence are nicely finished, some with attractive wood carving. Pittsburgh and New York newspapers, financial journals, and an assortment of popular weekly and monthly publications and magazines are available in the lounges. The principal use of the lounges is during the noonday period.
11. The library occupies a small alcove on the fourth floor and contains 264 square feet of floor space. It has approximately 1,120 volumes, consisting of histories, standard works, encyclopædias, and other reference books. A few of the books were purchased but most of them were donated to the club by members many years ago. No books have been purchased in over twenty years and the library is little used.
12. A pool and billiard room extending the full width of the building and containing 3,456 square feet of floor space, is located about the middle of the first floor. This space was originally used for a dining room, but as the location was not convenient to the kitchen, the dining room occupying this space was moved to the second floor and the space converted into a pool and billiard room. It contained six pool tables and three billiard tables. One of the billiard tables was purchased secondhand and added when the last addition was made to the building, about 1931 or 1932. A regular attendant and an assistant are on duty in this room from 11 a.m. until 8 p.m., and during the busy time of the day, from 1 until 2:30 p.m., they are assisted by two bell boys. Members, however, can play at other times if they desire. During the period from 1 until 2:30 p.m. all of the tables are generally in use but not much playing is engaged in except during that period. An average of about 30 members use the pool and billiard facilities per day during the winter months and approximately 16 per day during the summer months. Generally the same players use these facilities from day to day. While the club does not sponsor billiard or pool tournaments, members arrange and conduct tournaments among themselves, which are usually played during the period from 1 to 2:30 p.m. Prizes for the winners are purchased with contributions made by the players.
13. The club maintained a card room on the fourth floor which contained 1,040 square feet of floor space and was equipped with six tables accommodating four players at each table. A charge of 50 cents was made for each player who used the card room. There were approximately twelve habitual players who used the card room and others made use of it at irregular intervals. Card playing was also indulged in in private dining rooms, for example, at times where a member had the room reserved for his own use, though no charge was made for such use and no record was maintained of the extent of the use for card playing. While the club does not sponsor a bridge team, bridge-playing members have a team which is selected by them and which they have designated as the "Duquesne Club Team." This team plays other clubs in the city in an inter-club bridge league, and the league games are played at the Duquesne Club once or twice a year. A room for that purpose and meals served at that time are paid for by the players. Ladies do not participate in these games.
14. The health department occupies 2,961 square feet of floor space on the fifth floor, which is made up of a dressing room, an exercise room, sun room, massage room, hot room, steam room, office space, shower room, and rest rooms. It is equipped with infra-red and ultra-violet ray apparatus, cabinets for sweating, showers, salt rub slabs, hydrotherapy room, and exercising machines, such as rowing machines, electric horse, and vibratory chair. There are seven employes in attendance who are on duty from 9 a.m. until midnight and the department is in charge of a physician who spends two hours each day at the club. Each member coming in for treatment is examined by the physician in charge who advises as to appropriate treatment or exercise. The members who use this department average approximately 60 years of age. A fee is charged for a service or treatment, and the physician, as well as the employes, is paid by the club.
The department is not operated as a gymnasium in the usual sense or for the purpose of conditioning members to engage in sports but is used primarily for the purpose of improving their general physical condition. The largest use of these facilities is from 3 until 7:30 p.m. No sporting or athletic facilities are maintained by the club, and the club has no arrangement with a golf club or similar organization for the use of that organization's facilities.
15. A barber shop, with four barbers and a manicurist in attendance, is located on the fifth floor and it is open from 7:30 a.m. until 7 p.m.
A cigar stand is located on the first floor, where the merchandise for sale includes a variety of smoking articles, playing cards, candies, and other items of a similar nature. The club has its own brand of cigars and playing cards with the name "Duquesne Club" thereon.
A ticket service is available for theaters or games, for which a charge is made of 50 cents per ticket.
16. Both before and subsequent to prohibition the club maintained a bar. The main barroom, which is a combination bar and grill room, is located on the first floor to the right and in the rear of the pool and billiard room, and it is served by two bartenders. Regular luncheons, in addition to liquors, are served in this room during the noonday period and after that period food may be ordered in that room on an a la carte basis. From 40 to 50 luncheons per day are served from this room during the winter and from 90 to 100 during the summer. Light free lunch from the bar is available from 4 to 6 p.m. Two other bars are on the fourth floor — one is open from noon until 6 p.m. and is for service to the rooms; the other bar is in a private dining room and is rented in connection with dinners for a fixed charge, which includes the services of a bartender. Drinks are charged for in addition to the charge for the room. Two additional bartenders provide service for the two latter bars.
17. Plaintiff's largest source of income, outside of dues, was from food served on the premises. Its total income for the year ended March 31, 1934, which year is fairly typical of the years involved in these proceedings, was $594,401.66, and that amount was distributed as follows:
Dues ............................. $224,862.95 Admission fees ................... 20,800.00 Rooms ............................ 43,732.49 Food ............................. 167,168.72 Beverages ........................ 65,555.92 Cigars and cigarettes ............ 37,295.35 Telephone ........................ 12,088.76 Valet ............................ 1,050.15 Barber shop ...................... 5,966.82 Baths ............................ 10,809.75 Card room ........................ 2,070.50 Billiards and pool ............... 3,000.25 ___________ Total ......................... $594,401.66
The income from the sale of beverages has increased very substantially since the year ended March 31, 1933, which for that year amounted to $6,004.22 as compared with $65,555.92 for the year ended March 31, 1934. Dues and initiation fees are necessary to maintain the club. For example in the year ended March 31, 1934, the club had a net loss of $1,846.00 after including dues and initiation fees in its income.
18. During the period involved in these proceedings the approximate number of employes ranged from 190 to 300, of whom approximately 50 percent were engaged in food service. The kitchen had from 25 to 28 employes, who came under the supervision of the chef, and 10 dishwashers. There were approximately 90 waiters, of whom approximately two-thirds were girls. The girls were employed only during the day, primarily at the noonday luncheon period, and they were assigned for service in the general dining rooms. The private dining rooms were served by men. Engineers, bell boys, elevator operators, upholsterers, carpenters, janitors, painters, barbers, and the health department attendants made up the balance of the employes. The employes are of a very high class, particularly the heads of departments, who are the best obtainable.
19. As shown in finding 5, a large majority of the membership is made up of business leaders, corporation executives alone accounting for approximately two-thirds of the membership and representing some of the largest industries in the United States. Because of the opportunities provided for business contacts through the club, many corporations pay the dues of their higher officials. The large number of private dining rooms was provided by reason of the demand for quarters where business matters could be discussed with the desired privacy, particularly during the luncheon period. The chief use of the club premises and facilities is during the luncheon period when they are generally used to their practical capacity. In many cases the same groups eat together from day to day. In some instances these groups are from a given business concern or a given industry or are cliques who because of congeniality and from long association meet at the club for luncheon. Many members have particular seats in one of the dining rooms, which they regularly occupy, and some of the private dining rooms are rented by certain groups from month to month. Business conferences of various types for the promotion of their business are held at the club, including directors' meetings and meetings with associates and competitors. Through the medium of this common meeting place, not only the immediate business or professional ends of the members are served but also acquaintances and social contacts are made which prove useful in future business relations.
The predominant purpose and use of the club is of the character described above, namely, a meeting place for business and professional men for luncheon where they can meet and discuss business matters with associates and competitors, as well as make acquaintances and social contacts of value in future business relations.
However, in order to serve that predominant purpose, many features are provided, maintained, and used which are social in their nature, including means for amusement, relaxation, and conveniences, such as pool, billiard and card facilities, health department, barrooms, lounges, bedrooms, and extensive furnishings. These social features are not merely incidental to the life of the club but are material to its operation and existence.
The facts in these cases show that they are governed by the rule laid down in the Chicago Engineers' Club v. United States, 9 F. Supp. 680, 80 Ct.Cl. 615, 621. See, also, Transportation Club of San Francisco v. United States, 17 F. Supp. 201, 84 Ct.Cl. 253; Army Navy Club of America v. United States, 53 F.2d 277, 72 Ct.Cl. 684, certiorari denied, 285 U.S. 548, 52 S.Ct. 405, 76 L.Ed. 939, and Union League Club of Chicago v. United States, 4 F. Supp. 929, 78 Ct.Cl. 351.
The petitions are dismissed. It is so ordered.