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Sipe v. Amerada Hess Corp.

decided: September 10, 1982.

WILLIAM SIPE, INDIVIDUALLY AND ON BEHALF OF ALL OTHER PERSONS WHO ARE SIMILARLY SITUATED, PLAINTIFF-APPELLANT IN NOS. 81-2689, 81-3005 AND CROSS-APPELLEE
v.
AMERADA HESS CORPORATION, DEFENDANT-THIRD PARTY PLAINTIFF-APPELLANT IN NOS. 81-2690, 81-3006 AND CROSS-APPELLEE V. STATE OF NEW JERSEY, DEPARTMENT OF LABOR AND INDUSTRY OF THE STATE OF NEW JERSEY, JOHN J. HORN, INDIVIDUALLY AND IN HIS CAPACITY AS COMMISSIONER OF THE DEPARTMENT OF LABOR AND INDUSTRY, THE DIVISION OF UNEMPLOYMENT AND DISABILITY INSURANCE AND JOSEPH S. VIVIANI, INDIVIDUALLY AND IN HIS CAPACITY AS DIRECTOR OF THE DIVISION OF UNEMPLOYMENT AND DISABILITY INSURANCE, THIRD PARTY DEFENDANTS-APPELLANTS IN NO. 81-2692; RALPH NOTARGIACOMO, INDIVIDUALLY AND ON BEHALF OF ALL OTHER PERSONS WHO ARE SIMILARLY SITUATED, PLAINTIFF-APPELLANT IN NOS. 81-2689, 81-3005 AND CROSS-APPELLEE V. UNITED STATES LINES, INC., DEFENDANT-THIRD PARTY PLAINTIFF-APPELLANT IN NOS. 81-2691, 81-3007 AND CROSS-APPELLEE V. STATE OF NEW JERSEY, DEPARTMENT OF LABOR AND INDUSTRY OF THE STATE OF NEW JERSEY, JOHN J. HORN, INDIVIDUALLY AND IN HIS CAPACITY AS COMMISSIONER OF THE DEPARTMENT OF LABOR AND INDUSTRY, THE DIVISION OF UNEMPLOYMENT AND DISABILITY INSURANCE AND JOSEPH S. VIVIANI, INDIVIDUALLY AND IN HIS CAPACITY AS DIRECTOR OF THE DIVISION OF UNEMPLOYMENT AND DISABILITY INSURANCE, THIRD PARTY DEFENDANTS-APPELLANTS IN NO. 81-2692; DONALD HENDERSON, JR., INDIVIDUALLY AND ON BEHALF OF ALL OTHER PERSONS WHO ARE SIMILARLY SITUATED, PLAINTIFF-APPELLANT IN NOS. 81-2689, 81-3005 V. SEA-LAND SERVICE, INC., DEFENDANT-APPELLEE AND STATE OF NEW JERSEY, DEPARTMENT OF LABOR AND INDUSTRY OF THE STATE OF NEW JERSEY, JOHN J. HORN, INDIVIDUALLY AND IN HIS CAPACITY AS COMMISSIONER OF THE DEPARTMENT OF LABOR AND INDUSTRY, THE DIVISION OF UNEMPLOYMENT AND DISABILITY INSURANCE AND JOSEPH S. VIVIANI, INDIVIDUALLY AND IN HIS CAPACITY AS DIRECTOR OF THE DIVISION OF UNEMPLOYMENT AND DISABILITY INSURANCE, DEFENDANTS-APPELLANTS IN NO. 81-2692



Appeals From The United States District Court For The District Of New Jersey.

Seitz, Chief Judge, Sloviter and Becker, Circuit Judges.

Author: Sloviter

Opinion OF THE COURT

SLOVITER, Circuit Judge.

In these consolidated cases, plaintiff seamen allege that the withholding of a portion of their wages by their employers pursuant to New Jersey's unemployment compensation and temporary disability benefits tax laws violates 46 U.S.C. § 601. They seek injunctive relief, a refund of monies withheld, and additional damages provided for by 46 U.S.C. § 596. The district court held that 46 U.S.C. § 601 prohibits the state of New Jersey from requiring employers of merchant seamen to withhold portions of their wages, enjoined both the state and the employers from future withholding, but denied plaintiffs' request for refunds and for damages under 46 U.S.C. § 596. The state of New Jersey and two of the employers appeal from the district court's order of injunctive relief, while the seamen cross-appeal from the court's denial of their claims for monetary relief. Because we conclude that the Tax Injunction Act, 28 U.S.C. § 1341, and the principle of comity precluded the district court from entertaining these actions, we do not reach the substantive issues presented. Instead, we will vacate the district court's order and remand for dismissal of the suits.

I.

The facts, which are not disputed, were set forth in the opinion of the district court. Sipe v. Amerada Hess Corp., 519 F. Supp. 781 (D.N.J. 1981). Plaintiff Sipe was employed by defendant Amerada Hess Corporation (a Delaware corporation with its principal place of business in New Jersey) to serve as an able-bodied seaman on the company's vessel The Hess Voyager. Sipe was paid a regular monthly wage of $874.95 plus "found" (i.e., food and lodging) and bonus. He was dismissed by Amerada Hess at the scheduled conclusion of the voyage less than four weeks later. When he received his wages, Sipe discovered that $19.68 had been withheld by Amerada Hess in compliance with New Jersey unemployment compensation and temporary disability benefits laws.*fn1

Plaintiff Henderson was employed as a third mate aboard the S.S. Baltimore, a vessel owned by defendant Sea-Land Service, Inc. (a Delaware corporation with its principal place of business in New Jersey), for a voyage of approximately 1 1/2 months. Henderson was paid at a rate of $1,664.18 per month plus found and bonus. When he was discharged at the conclusion of the voyage, he learned that $0.54 had been withheld from his wages by Sea-Land pursuant to New Jersey unemployment compensation law.

Plaintiff Notargiacomo served on the S.S. American Legion, a vessel owned and operated by defendant United States Lines, Inc. (a Delaware corporation with its principal place of business in New Jersey). At the end of a voyage of approximately 1 1/2 months, Notargiacomo was discharged. He was paid an ordinary seaman's wage of $798.33 per month plus found and bonus, and $13.48 was withheld from his earnings by his employer pursuant to New Jersey unemployment compensation law.

On March 14, 1980, plaintiffs, purporting to sue on behalf of themselves and a class consisting of all other seamen similarly situated, filed three separate actions against their employers in the United States District Court for the District of New Jersey. Each complaint was predicated on the same legal theory and sought similar relief, and all three plaintiffs were represented by the same counsel. The complaints alleged that the employers' withholding of monies from plaintiffs' wages for payment to the state of New Jersey violated 46 U.S.C. § 601, which provides in part:

That no part of the wages due or accruing to a . . . seaman . . . shall be withheld pursuant to the provisions of the tax laws of any State, Territory, possession, or Commonwealth, or a subdivision of any of them.

Plaintiffs sought to enjoin their employers from further withholding under New Jersey tax law. Plaintiffs also sought reimbursement for the deductions already made and additional monetary relief pursuant to 46 U.S.C. § 596, which requires employers to pay seamen two days' pay for every day that full payment of wages has been delayed if the payment has been withheld "without sufficient cause." The three actions were consolidated by the district court.

The three employers defended on similar grounds. They claimed that they withheld seamen's wages pursuant to the requirements of the New Jersey Unemployment Compensation Law and the Temporary Disability Benefits Law, N.J. Stat. Ann. §§ 43:21-1 et seq., and as agents of the state of New Jersey, and that the Federal Unemployment Tax Act, 26 U.S.C. § 3305(f), affirmatively authorizes the withholding of seamen's wages pursuant to state unemployment compensation laws. Section 3305(f) provides in part:

The Legislature of any State in which a person maintains the operating office, from which the operations of an American vessel operating on navigable waters within or within and without the United States are ordinarily and regularly supervised, managed, directed and controlled, may require such person and the officers and members of the crew of such vessel to make contributions to its unemployment fund under its State unemployment compensation law approved by the Secretary of Labor under section 3304 and otherwise to comply with its unemployment compensation law with respect to the service performed by an officer or member of the crew on or in connection with such vessel to the same extent and with the same effect as though such service was performed entirely within such State.

Two of the three employers, Amerada Hess and United States Lines, filed separate third-party complaints against the state of New Jersey, the New Jersey Department of Labor and Industry and its Commissioner, and the New Jersey Division of Unemployment and Disability Insurance and its Director. In these third-party complaints, Amerada Hess and United States Lines alleged that they had withheld monies from plaintiffs' wages as agents or trustees for the state of New Jersey, according to the mandates of state law, and on the advice of state officials that such withholding was proper. The employers sought indemnification by the state in the event that the withholding should be found to have been improper, and a declaration that if the withholding was prohibited by federal law, they would not be in violation of New Jersey state law by failing to withhold. The third employer, Sea-Land, moved to join the state defendants as parties defendant pursuant to Fed.R.Civ.P. 19(a). The district court granted this motion. Plaintiff Henderson then filed an amended complaint against Sea-Land and the state defendants seeking refunds, additional monetary relief under 46 U.S.C. § 596, and permanent injunctions against both the employer and the state defendants. Sea-Land filed an answer and cross-claim against the state defendants seeking the same relief as did the other employers' third-party complaints against the state. The employers moved to dismiss the complaints for failure to state a claim or for summary judgment. New Jersey joined in defendants' motions and asserted that any monetary claims against it were barred by sovereign immunity. The plaintiff seamen filed cross-motions for summary judgment.

The district court granted plaintiff seamen's motions for summary judgment. The court held that 46 U.S.C. § 601 prohibited New Jersey from requiring the employers of seamen to deduct portions of their wages to satisfy the state's unemployment compensation or temporary disability benefits laws. It rejected the defendants' contention that section 601 applied only to state income taxes, as well as the argument that withholding pursuant to state unemployment tax laws was affirmatively authorized by 26 U.S.C. § 3305(f). The court concluded that although 26 U.S.C. § 3305(f) permitted a state to require contributions from seamen pursuant to an unemployment compensation scheme, 46 U.S.C. § 601 prohibited it from using the withholding method to do so.

The district court granted a permanent injunction restraining the employers from making any future deductions from the seamen's wages for the purpose of complying with the New Jersey unemployment compensation and temporary disability laws, and also enjoined the state from enforcing against merchant seamen the withholding provisions of its statute. However, the court denied plaintiffs' requests that either the employers or the state of New Jersey refund the monies withheld from their wages, stating that the Eleventh Amendment barred recovery of these funds. The court also denied plaintiffs' request for imposition of damages under 46 U.S.C. § 596, finding that the plaintiffs had not demonstrated that the defendant-employers withheld their wages "without sufficient cause" within the meaning of section 596. In support of this conclusion, the court stated that the employers were operating under the requirements of a state law which made them fully liable for their employees' contributions if they failed to make the deductions, and that they had also relied on a 1960 U.S. Department of Labor memorandum stating the Department's view that withholdings pursuant to state unemployment compensation laws were valid under federal law.

On appeal to this court, New Jersey and two of the three employers (Amerada Hess and United States Lines) challenge the district court's holding that 46 U.S.C. § 601 prohibits the state and employers from withholding seamen's contributions under state unemployment and/or temporary disability benefits laws. The ...


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