Ernst v. Hingeley

• Decision Date: 07 November 1941
• Docket Number: 28457.
• Citation: 11 Wn.2d 171,118 P.2d 795
• Parties: ERNST, Director of State Department of Social Security, v. HINGELEY (MONTE CRISTO HOTEL, Garnishee).
• Court: Washington Supreme Court

118 P.2d 795

11 Wn.2d 171

ERNST, Director of State Department of Social Security, v. HINGELEY (MONTE CRISTO HOTEL, Garnishee).

No. 28457.

Supreme Court of Washington

November 7, 1941

Department 2.

Action by Charles F. Ernst, Director of Washington State Department of Social Security, against William Hingeley to recover contributions under the State Unemployment Compensation Act wherein a writ of garnishment was served on the Monte Cristo Hotel, a corporation, and William Hingeley filed a motion to quash and abate the writ of garnishment. From a judgment in plaintiff's favor against the garnishee, William Hingeley appeals.

Affirmed.

Appeal from Superior Court, King County; Roger J Meakim, Judge.

Wright & Wright and Eugene A. Wright, all of Seattle, for appellant.

Henry W. Parrott, of Seattle, amicus curiae.

Smith Troy, William J. Millard, Jr., and Lawrence W. Thayer, all of Olympia, for respondent.

BEALS Justice.

Prior to 1938, William Hingeley, the defendant in this action, was an employer of labor, and became indebted to the state of Washington in the sum of $343.62, for contributions under the state Unemployment Compensation Act. Plaintiff Charles F. Ernst, as director of the Washington state department of social security, instituted suit against Mr. Hingeley, demanding judgment in the amount of the contributions due the state as aforesaid. Judgment in favor of the state was rendered by default April 22, 1938, the judgment including interest up to the date thereof, and providing that it should bear interest at the rate of one per cent per month until paid. Judgment for costs was also awarded against defendant.

December 11, 1938, William Hingeley was adjudged a bankrupt, the judgment above referred to being scheduled as one of his liabilities. The claim on the judgment filed in the bankruptcy proceedings was allowed, and January 30, 1939, Hingeley received his discharge in bankruptcy, no objections to his discharge having been interposed.

March 14, 1941, the state, as plaintiff in the action, caused a writ of garnishment to be served upon Monte Cristo Hotel Company, a corporation, Hingeley being then in the company's employ. The garnishee answered that it was indebted to Hingeley in the sum of $228.98.

At this stage of the proceedings, Mr. Hingeley appeared in the action, and moved to quash and abate the writ of garnishment, on the ground that the judgment upon which the writ was issued had been barred and liquidated by Hingeley's discharge in bankruptcy. The plaintiff appeared in answer to this motion, pleading affirmatively that the judgment against defendant Hingeley was based upon a claim for unpaid unemployment compensation contributions, and that such contributions were taxes and not dischargeable in bankruptcy. Hingeley answered the plaintiff's pleading, denying that contributions under the Unemployment Compensation Act were taxes, again pleading his discharge in bankruptcy in support of his challenge to the writ of garnishment.

The matter was submitted to the court, and after argument Mr. Hingeley's motion to quash and abate the writ was denied, and judgment was entered in plaintiff's favor against the Monte Cristo Hotel Company, upon its answer as garnishee, in the sum of $228.98.

From this judgment, William Hingeley has appealed, making several assignments of error, all of which present his contention that the judgment rendered against him and in favor of respondent had been discharged and liquidated by appellant's discharge in bankruptcy.

If under chapter 162, Laws of 1937, Rem.Rev.Stat. (Sup.) §§ 9998-101 et seq., the unemployment compensation act, contributions to the unemployment compensation fund are taxes, then the discharge which appellant received under the national bankruptcy act would not relieve him from liability upon a judgment entered on acount of such unpaid contributions for which he was liable under the act. If, on the other hand, such contributions under the act are not taxes, within the meaning of the Federal bankruptcy act, appellant's discharge in bankruptcy would operate to liquidate and discharge any claim for such contributions on the part of the state, whether the claim had been reduced to judgment or not.

Section 17 of the Federal bankruptcy act, title XI, U.S.C.A. § 35, reads in part as follows: 'a. A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as (1) are due as a tax levied by the United States, or any State, county, district, or municipality * * *.'

The following portion of § 104 reads: 'a. The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankrupt estates, and the order of payment, shall be * * * (4) taxes legally due and owing by the bankrupt to the United States or any State or any subdivision thereof * * *.'

The pertinent portions of chapter 162, Laws of 1937, read in part as follows:

'Sec. 7. (a) Payment.----

'(1) On and after January 1, 1937, contributions shall accrue and become payable by each employer * * *.

'(b) Rate of Contribution.--Each employer shall pay contributions equal to the following percentages of wages payable by him with respect to employment * * *.'

Section 9 establishes a special fund separate from all public moneys or funds, designated an unemployment compensation fund, to be administered by the commissioner exclusively, the fund to consist of all contributions collected under the act.

The act then requires that employers make, from time to time, contributions computed on the basis of wages paid, the amount of the respective contributions to be determined upon an estimate of the unemployment hazard in the particular industry. The statute also provided that the unemployment compensation fund should be separate from all other public funds, and administered by the commissioner as custodian.

Section 14(c) of the act reads as follows: '(c) Priorities Under Legal Dissolutions or Distributions.--In the event of any distribution of an employer's assets pursuant to an order of any court under the laws of this state, including any receivership, assignment for benefit of creditors, adjudicated insolvency, composition, or similar proceeding contributions then or thereafter due shall be paid in full prior to all other claims except taxes and claims for remuneration for services of not more than $250.00 to each claimant, earned within six months of the commencement of the proceeding. In the event of an employer's adjudication in bankruptcy, judicially confirmed extension proposal, or composition, under the Federal Bankruptcy Act of 1898, as amended, contributions then or thereafter due shall be entitled to such priority as is provided in section 65(b) of that act (U.S.C., title 11, section 104(b) [11 U.S.C.A. § 104, sub. a]), as amended.'

Whether or not an exaction on the part of the state, pursuant to a state statute, constitutes a tax within the meaning of the national bankruptcy act, is a question to be ultimately determined by the Federal courts.

In the case of State of New Jersey v. Anderson, 203 U.S. 483, 27 S.Ct. 137, 140, 51 L.Ed. 284, the supreme court of the United States, in deciding whether or not a state corporation franchise tax was a tax within the meaning of the priority provision of the bankruptcy act, said: 'The state court may construe a statute and define its meaning, but whether its construction creates a tax within the meaning of a Federal statute, giving a preference to taxes, is a Federal question, of ultimate decision in this court.'

In Re Mid America Co., D.C., 31 F.Supp. 601, 603, in determining whether contributions provided for under the Illinois unemployment compensation act were taxes within the meaning of § 64, sub. a(4), and § 104, sub. a(4), 11 U.S.C.A., the Federal bankruptcy act, which specifies those debts of the bankrupt which shall be paid in advance of the payment of dividends to creditors, such debts including taxes due from the bankrupt to the United States or any state or any subdivision thereof, the court said:

'The law is well settled that the determination whether a given statute imposes a tax within the meaning of the Federal Bankruptcy Act is a Federal question of ultimate decision in the Federal Court. * * *

'Respondent in his brief contends at length that the enactment of the Illinois Unemployment Compensation Act was an exercise of the police power of the State of Illinois, and that it was not the intention of the General Assembly to create a tax; hence, that the contributions exacted pursuant to such act are not taxes, and therefore not entitled to priority in a bankruptcy proceeding. This position is not well taken. The word 'taxes' as used in Section 64, sub. a(4), quoted above, is not to be construed in a limited sense, but must be interpreted to include all types of involuntary exactions, regardless of name, levied by the Federal and State governments for governmental or public purposes, and it is immaterial which attribute of sovereignty, the police or taxing power, was employed in the imposition of such exactions.'

In the case of Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 57 S.Ct. 868, 871, 81 L.Ed. 1245, 109 A.L.R. 1327, the constitutionality of the unemployment compensation act of the state of Alabama was considered by the supreme court. The case reached the supreme court through the state courts, and in upholding the constitutionality of the act, the supreme court of the United States, in discussing whether or not the contributions exacted under the act were taxes, said:

' In Beeland Wholesale Co. v. Kaufman [234 Ala. 249 174 So. 516], the Supreme Court of Alabama held that the...