Fidelity-Philadelphia Trust Co. v. Hines

Decision Date02 January 1940
PartiesFIDELITY-PHILADELPHIA TRUST CO. et al. v. HINES.
CourtPennsylvania Supreme Court
10 A.2d 553
337 Pa. 48

FIDELITY-PHILADELPHIA TRUST CO. et al.
v.
HINES.

Supreme Court of Pennsylvania.

Jan. 2, 1940.


10 A.2d 554

Appeals Nos. 16-23, May term, 1940, from decrees of Court of Common Pleas of Dauphin County, Equity Docket Nos. 1290, 1323-1328, 1347, 1348, Commonwealth Docket, Nos. 253, 304-307, 412, 413; Frank B. Wickersham, Judge.

Suit by the Fidelity-Philadelphia Trust Company and others against Louis G. Hines, successor in office to Ralph M. Bashore, Secretary of Labor and Industry of the commonwealth of Pennsylvania, to restrain defendant from attempting to enforce payment for contributions to the unemployment compensation fund. From decrees for the defendant, plaintiffs appeal.

Affirmed.

Morgan, Lewis & Bockius, of Philadelphia, Snyder, Hull, Leiby & Mctzger, of Harrisburg, Patterson, Crawford, Arensburg & Dunn, of Pittsburgh, Homer Shoemaker, of Harrisburg, Robert V. Massey, Jr., Barnes, Myers & Price, and Dechert, Smith & Clark, all of Philadelphia, Reed, Smith, Shaw & McClay, of Pittsburgh, John Russell, Jr., of Philadelphia, Robert D. Ferguson and Charles F. C. Arensberg, both of Pittsburgh, Joseph S. Clark, Jr., and Robert Dechert, both of Philadelphia, Charles Denby, Jr., of Pittsburgh, and George H. Hafer, of Harrisburg, for appellants.

Claude T. Reno, Atty. Gen, and David R. Perry, Spec. Dep. Atty. Gen, Orville Brown and M. Louise Rutherford, Dep. Attys. Gen, for appellees.

STERN, Justice.

These appeals present a question of statutory construction. The Unemployment Compensation Law of December 5, 1936, Second Special Session of 1936, P.L. 2897, 43 P.S. § 751 et seq, which provides for the payment of contributions by employers into the Unemployment Compensation Fund, exempts from its operation (section 4 (j) (5) "service performed in the employ of the United States Government or of an instrumentality of the United States."1 The Supreme Court of the United States has never precisely defined the phrase "instrumentality of the United States." Is a state bank which is a member of the Federal Reserve System such an instrumentality within the meaning of the act?

Fidelity-Philadelphia Trust Company, a corporation of the State of Pennsylvania and member of the Federal Reserve System, filed a bill in equity to restrain the Secretary of Labor and Industry of the Commonwealth from attempting to enforce the act against it. Several other trust companies in Philadelphia and Pittsburgh, being likewise Pennsylvania corporations and Federal Reserve members, brought similar proceedings. It is their contention that the word "instrumentality" is to be given its general dictionary meaning of a "means",

10 A.2d 555

"medium", or "agency". Defendant, on the other hand, maintains, on behalf of the Commonwealth, that the phrase "instrumentality of the United States," as used in the act, is intended to cover only those federal agencies which the State, by reason of the federal nature of our government, is impliedly prohibited from taxing. The court below dismissed the bills brought by the trust companies and they now appeal.

Although the act provides in form for a payment of "contributions," such enforced contributions are in reality excise taxes on the right to employ. Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 508, 57 S.Ct. 868, 81 L.Ed. 1245, 109 A. L.R. 1327; Steward Machine Co. v. Davis, 301 U.S. 548, 582, 583, 57 S.Ct. 883, 81 L. Ed. 1279, 109 A.L.R. 1293.

By the Federal Reserve Act of December 23, 1913, ch. 6, § 9, 38 Stat. 259, 12 U.S.C.A. § 321, a state bank or trust company may, on application, subscribe to the stock of a Federal Reserve Bank and become a member of the Federal Reserve System, and by the same act, 12 U.S.C.A. § 328, may withdraw from such membership on six months' notice. State banks or trust companies becoming members may be designated by the Secretary of the Treasury as depositaries of public money, and be employed as financial agents of the Government, and must perform all such reasonable duties, in those capacities, as may be required of them. Our Banking Code of May 15, 1933, P.L. 624, section 1001, subd. A (11), 7 P.S. § 819—1001, subd. A (11), empowers state banks and trust companies to become members of a Federal Reserve Bank, and (section 1019, 7 P.S. § 819— 1019) for that purpose to purchase and hold the necessary qualifying stock, and to acquire and exercise all powers, not in conflict with the laws of the Commonwealth, which are conferred upon such member banks by the Federal Reserve Act; but otherwise they are to continue to be subject to all the liabilities and duties imposed upon them by the laws of the Commonwealth. The membership of a state bank in the Federal Reserve System is thus purely voluntary both in its inception and duration. In Hiatt v. United States, 7 Cir., 4 F.2d 374, 375, it was said: "The matter of affiliation between the Dickinson Trust Company and the Federal Reserve Bank, aside from the investment in stock, seems to present merely a business arrangement between the Federal Reserve Bank and the trust company, which was not made under compulsion, and was doubtless regarded as advantageous by both concerns. It was simply an arrangement made for the advancement and in the interests of the business for which the trust company was chartered." It is true that the Federal Reserve System could probably not perform its functions without the membership of an adequate number of state banks, and therefore, in a general sense, they may be considered to be public means or agencies to carry out a policy of the federal government; but the question still remains whether they are instrumentalities of the kind intended by the use of that term in the Unemployment Compensation Law.

The approach to the solution of this question should be made in the light of the well known principle that language which provides exemptions from the general imposition of a tax must be strictly construed. Commonwealth v. Lowry-Rodgers Co., 279 Pa. 361, 366, 123 A. 855; Commonwealth v. Wark Co., 301 Pa. 150, 153, 151 A. 786; Sellers' Estate, 325 Pa. 377, 380, 191 A. 170.

When there is borne in mind the purpose of the Unemployment Compensation Law, as expressed in Article 1, section 3, thereof, 43 P.S. § 752, which, as a declaration of public policy, asserts that the general welfare requires the exercise of the police powers of the Commonwealth for the compulsory setting aside of unemployment reserves to be used for the benefit of persons unemployed through no fault of their own, it is practically impossible to believe that the...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT