Fidelity-Philadelphia Trust Company v. Hines, Secretary of Labor And Industry
| Decision Date | 02 January 1940 |
| Docket Number | 21,23,19,20,18,22,16,17 |
| Citation | 10 A.2d 553,337 Pa. 48 |
| Parties | Fidelity-Philadelphia Trust Company et al., Appellants, v. Hines, Secretary of Labor and Industry |
| Court | Pennsylvania Supreme Court |
Argued December 7, 1939
Appeals, Nos. 16-23, May T., 1940, from decrees of C.P Dauphin Co., Nos. 1290, 1325-1328, 1347-1348, Equity Docket Nos. 253, 304-307, 412-413, Com. Docket, in case of Fidelity-Philadelphia Trust Company et al. v. Lewis G. Hines successor to Ralph M. Bashore, Secretary of Labor and Industry. Decrees affirmed.
Bills in equity. Before RICHARDS, P.J., specially presiding, and WICKERSHAM, J.
The opinion of the Supreme Court states the facts.
Final decree entered dismissing bills in equity and dissolving preliminary injunctions, opinion by WICKERSHAM, J. Plaintiffs appealed.
Errors assigned, among others, related to the action of the court below in dismissing exceptions to the findings and conclusions of the chancellor.
The decrees are affirmed; costs to be paid by appellants.
John Russell, Jr., Charles Denby and Robert Dechert, with them Morgan, Lewis & Bockius, Robert D. Ferguson, Charles F. C. Arensberg, of Patterson, Crawford, Arensberg & Dunn, Robert V. Massey, Jr., Barnes, Myers & Price, Joseph S. Clark, Jr., Dechert, Smith & Clark, Reed, Smith, Shaw & McClay, George H. Hafer, Snyder, Hull, Leiby & Metzger and Homer Schoemaker, for appellants.
David R. Perry, Special Deputy Attorney General, with him Orville Brown and M. Louise Rutherford, Deputy Attorneys General, and Claude T. Reno, Attorney General, for appellee.
Before KEPHART, C.J., SCHAFFER, MAXEY, DREW, LINN, STERN and BARNES, JJ.
These appeals present a question of statutory construction. The Unemployment Compensation Law of December 5, 1936 (Second Special Session of 1936), P.L. 2897, 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," "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; Steward Machine Co. v. Davis, 301 U.S. 548, 582, 583.
By the Federal Reserve Act of December 23, 1913, ch. 6, section 9, 38 Stat. 259, 12 U.S.C.A. section 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. section 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 (11), empowers state banks and trust companies to become members of a Federal Reserve Bank, and (section 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, 4 F.2d 374, 375, it was said: 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; Commonwealth v. Wark Co., 301 Pa. 150, 153; Sellers's Estate, 325 Pa. 377, 380.
When there is borne in mind the purpose of the Unemployment Compensation Law, as expressed in Article 1, section 3, thereof, 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 legislature intended to exempt banks and trust companies from the operation of the act except in so far as it was constitutionally compelled to do so. The employes of state banks and trust companies which are members of the Federal Reserve System are subject to the same risk of unemployment as other workers, are just as dependent upon their wages for the necessities of life and just as likely, when unemployed, to become charges upon the state and to suffer all the other ills which the Unemployment Compensation Law was designed to alleviate. Therefore, it being admitted that the legislature had the power to impose this tax upon such banks, it would appear to be highly unlikely that their exemption was intended; rather it would seem reasonable to suppose that the exemption was meant to cover only those governmental agencies which were created by the federal government, or are wholly owned by it, or are not operated, at least exclusively, for private profit but are engaged primarily in the performance of some essential governmental function, -- a viewpoint which gains force from a statement in the opinion of the United States Supreme Court in the recent case of Buckstaff Bath House Company v. McKinley, 60 S.Ct. 279, that "The exclusion of federal instrumentalities from the scope of the Federal Act, and hence from the complementary state systems, emphasizes the purpose to exclude from this statutory system only that well defined and well known class of employers who have long enjoyed immunity from state taxation." Indeed, if the word "instrumentality" be taken in its broader sense, the exemption would cover every person or corporation contractually engaged to perform services helpful to the government, as, for example, to manufacture its war supplies, to build its ships, or to transport materials necessary or useful in the execution of its constitutional powers.
In the cases which have arisen in the state courts in regard to unemployment compensation laws and similar legislation, it has uniformly been held that the term "instrumentality of the United States" does not have a general but a technical meaning and does not apply to financial institutions which become members of a Federal Home Loan Bank or a Federal Reserve Bank: Capitol Building & Loan Association v. Kansas Commission of Labor and Industry, 148 Kans. 446, 83 P.2d 106; Unemployment Compensation Commission of North Carolina v. Jefferson Standard Life Insurance Co., 215 N.C. 479, 2 S.E.2d 584; Unemployment Compensation Commission of North Carolina v Wachovia Bank & Trust Co., 215 N.C. 491, 2 S.E.2d 592; Western Bank & Trust Co. v. Ohio Unemployment Compensation Commission, Franklin County Court of Appeals, Ohio, opinion filed Oct. 9, 1939. Of course, Congress may employ state corporations as "instrumentalities of the United States" in the broadest sense of that term, ( Clallam County v. United States, 263 U.S. 341; Westfall v. United States, 274 U.S. 256, 259), and may make frauds that impair their efficiency crimes ( Westfall v. United States, supra; Hiatt v. United States, 4 F.2d 374; Weir v. United States, 92 F.2d 634; Doherty v. United States, 94 F.2d 495), but such...
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