Opinion
12-18-1956
EVELYN, Incorporated, a corporation, a/k/a Evelyn, Inc., a/k/a Evelyn Cleaners; Evelyn M. Morris and Ernest M. Goveia, Plaintiffs and Appellants, v. CALIFORNIA EMPLOYMENT STABILIZATION COMMISSION, and the Director of Employment, Defendants and Respondents. * Civ. 8964.
Robert A. Waring, Homer E. Geis, Los Angeles, for appellants. Edmund G. Brown, Atty. Gen., Irving H. Perluss, Asst. Atty. Gen., and William L. Shaw, Deputy Atty. Gen., for respondents.
EVELYN, Incorporated, a corporation, a/k/a Evelyn, Inc., a/k/a Evelyn Cleaners; Evelyn M. Morris and Ernest M. Goveia, Plaintiffs and Appellants,
v.
CALIFORNIA EMPLOYMENT STABILIZATION COMMISSION, and the Director of Employment, Defendants and Respondents.
Dec. 18, 1956.
Rehearing Denied Jan. 10, 1957.
Hearing Granted Feb. 13, 1957.
Robert A. Waring, Homer E. Geis, Los Angeles, for appellants.
Edmund G. Brown, Atty. Gen., Irving H. Perluss, Asst. Atty. Gen., and William L. Shaw, Deputy Atty. Gen., for respondents.
SCHOTTKY, Justice.
Plaintiffs above named commenced an action to recover unemployment insurance taxes which were paid under protest. Following a trial, judgment was rendered in favor of defendants and plaintiffs have appealed from said judgment.
There is no substantial dispute as to the facts. The record shows that in February of 1939 Evelyn Morris and Ernest Goveia formed a corporation called Evelyn, Incorporated. They were the sole stockholders. Morris and Goveia determined their positions by mutual agreement. No corporate meetings were ever held. No salaries were officially declared. The parties withdrew the profits on an agreed basis. The business conducted was a cleaning business. It was known as Evelyn Cleaners. Morris and Goveia managed the business. They hired, fired and supervised the employees. Both business and personal bills were paid from the business. Goveia advanced funds to the business whenever necessary. These advanced funds were not set up as loans. The lease of the premises where the business was conducted was in Goveia's name. A payroll account was kept but neither Goveia nor Morris were carried on the payroll. However, the corporate status was always retained. The California franchise tax was paid each year. Mr. Goveia and Mrs. Morris included themselves in the federal social security returns filed by Evelyn, Incorporated. Both federal and state corporate income tax returns were filed by the corporation. Beginning with the year 1946 state unemployment insurance tax returns were filed by the corporation in which Goveia and Morris were named as employees. In 1950 a deficiency assessment was made by respondent California Unemployment Stabilization Commission for unemployment insurance contributions for the years 1942 through 1945. During the period involved the law provided that an employer must have a mimimum of four employees in order to be subject to the provisions of the state unemployment insurance law. It is conceded that unless Morris and Goveia are to be considered employees there were not four employees.
The first question presented on this appeal is whether Goveria and Morris were employers or employees. It employers, the tax was improperly assessed. If employees, the tax was due.
Appellants Goveia and Morris contend that they were not employees. They assert that the section of the law defining an employer exempts them. The provision reads in part: "Employer' means any employing unit, which * * * pays wages for employment.' Unempl.Ins.C.A., sec. 675. It is appellants' contention that they did not receive wages nor did they perform any services under any contract of hire. It is their contention that they were employers. They ask this court to disregard the corporation Evelyn, Incorporated, and determine that Evelyn, Incorporated, was a mere name--a shadow without substance.
One of the distinguishing characteristics of a corporation is that it is a separate entity from its members or stockholders and from its officers or directors. Thus, in legal contemplation a stockholder of a corporation, even though he be a large stockholder, is not the employer of those working for the corporation which is an entity distinct from its members and as such the only employer. Parkinson Co. v. Building Trades Council, 154 Cal. 581, 98 P. 1027, 21 L.R.A.,N.S., 550. While in the instant case Goveia and Morris acted as the proprietors of the business and managed its affairs as their own, still the corporation had to act through individuals. It could not act except through people. While the corporate status may have been maintained in a rather loose manner, and while the sums paid to Goveia and Morris may not have been entered on the books as wages, still they could only withdraw 'profits' as wages or dividends, and no dividends were ever declared. They supervised the employees. They then performed functions which normally an officer does perform. The finding of the court that 'each of Goveia and Morris received compensation from the corporation for their services; that such compensation received by Goveia and Morris from the corporation is wages with reference to the provisions of the Unemployment Insurance Act' is certainly supported by the record.
It is clear that the corporate status was always maintained. Whatever may have been the reasons of Goveia and Morris for adopting the corporate entity, the record shows that in filing social security tax returns with the federal government they listed themselves as employees of the corporation along with the other employees, and made payments to the government accordingly. When asked by the referee as to why he had included Mrs. Morris and himself on the federal security returns, appellant Goveia replied: 'Well, I had paid social security since the beginning, since it was inaugurated, and as I am nearing the period when I will derive benefits from it, I wanted to keep it up to its highest point.' It is quite apparent that in filing such social security returns appellant Goveia and Morris whished to gain benefits under the Social Security Act, 42 U.S.C.A. § 301 et seq. that they could not obtain as employers. It is not only good law but it is sound public policy that as stated in Ballantine on Corporations, page 291: 'The cloak of corporate capacity adopted by a taxpayer may not be shed or donned to suit his personal convenience or caprice.'
Appellant Goveia contends further that this is a case where to recognize the corporate status would result in an injustice. He argues that it is inequitable to $2,143 from a small businessman. While this may be true, "As a general rule a corporation and its stockholders are deemed separate entities, and this is true in respect to tax problems." Northwestern Pacific R. Co. v. State Board of Equalization, 21 Cal.2d 524, 530-531, 133 P.2d 400, 404. It is also a general rule that the entity is disregarded to prevent injustice or fraud. But generally cases where the entity is disregarded are cases in which the person suing the corporation seeks to have the veil pierced.
We know of no case where a court has approved the piercing of the corporate veil to give it an advantage, not to prevent an injustice.
Appellants' final contention is that the assessment or at least a part of it was barred by the statute of limitations. The tax was assessed in 1950 for taxes due for the years 1942 to 1945. If the statute of limitations had run on the assessment or any part of it the assessment would be barred in part or in whole. In 1943 the statute of limitations read that in the absence of any intent to evade the provisions of the act an assessment must be made within three years of the date on which the contribution liability included in the assessment became due. Section 45.5 of the Act as it read in 1943. In September of 1945 the statute was changed to read: 'Except in the case of failure without good cause to file a return, fraud or intent to evade this act or the authorized rules and regulations, every notice of assessment shall be made within three years after the last day of the month following the close of the calendar quarter during which the contribution liability included in the assessment accrued or within three years after the deficient return is filed, whichever period expires the later.' (It was in effect stipulated in this case that there was no fraud or intent to evade the act because no 25% penalty was imposed in the assessment.) If the 1943 statute applies, no tax would be due since no intent to evade was in issue. Appellants argue that the 1943 statute must apply because generally statutes are not made to apply retrospectively.
While it is true, generally, statutes are not construed to apply retroactively, it is also true that before the action is barred by the statute the legislature has absolute power to amend the statute and alter the period of limitations prescribed therein. It is well settled that an amendment to a statute of limitations enlarging the period of time within which an action can be brought as to pending causes of action is not retroactive legislation and does not impair any vested right. In accordance with this rule the legislature could alter or amend the statute as to causes which had not been barred, and the legislature could remove the statute entirely or say that it will not run in certain situations. This being so, the amendment effective September, 1945, applies to this case and the assessments then were not barred when made in 1950 since the employee first became subject to the act in September, 1942. It is conceded that no returns were filed so that unless good cause were shown the statute would be tolled. Appellant contends that he does have good cause. Whether appellants had good cause for not filing the required tax returns with the Department of Employment was a question of fact for the trial court to determine. Appellants gave as excuses that they were ignorant of the law requiring the filing of the returns to the state, but, even if true, this would hardly compel a finding that there was good cause for tolling the statute. The trial court found that there was an absence of good cause and we are satisfied that such finding is supported by the record.
No other points raised require discussion.
The judgment is affirmed.
VAN DYKE, P. J., and PEEK, J., concur. --------------- * Opinion vacated 311 P.2d 500. 1 Now Unemployment Insurance Code, § 1132.