Pa Bankers Ass'n v. Pa Dept. of Banking, No. 35 MAP 2006.

• Citation: 948 A.2d 790
• Decision Date: 16 June 2008
• Docket Number: No. 35 MAP 2006.,No. 36 MAP 2006.
• Parties: PENNSYLVANIA BANKERS ASSOCIATION and the Pennsylvania Business Bank, Appellants v. PENNSYLVANIA DEPARTMENT OF BANKING and Trumark Financial Credit Union, Appellees. Pennsylvania Bankers Association, Pennsylvania Business Bank, Fulton Bank, and Premier Bank, Appellants v. Pennsylvania Department of Banking, Pennsylvania Department of Revenue, the Attorney General of the Commonwealth and Freedom Credit Union, Appellees.
• Court: United States State Supreme Court of Pennsylvania

948 A.2d 790

PENNSYLVANIA BANKERS ASSOCIATION and the Pennsylvania Business Bank, Appellants v. PENNSYLVANIA DEPARTMENT OF BANKING and Trumark Financial Credit Union, Appellees.

Pennsylvania Bankers Association, Pennsylvania Business Bank, Fulton Bank, and Premier Bank, Appellants v. Pennsylvania Department of Banking, Pennsylvania Department of Revenue, the Attorney General of the Commonwealth and Freedom Credit Union, Appellees.

No. 35 MAP 2006.

No. 36 MAP 2006.

Supreme Court of Pennsylvania.

Argued May 14, 2007.

Re-Submitted January 11, 2008.

Decided June 16, 2008.

Christopher R. Nestor, Esq., Raymond P. Pepe, Esq., Kirkpatrick & Lockhart Preston Gates Ellis, L.L.P., Harrisburg, for Pennsylvania Bankers Association, et al.

Francis Crowley, Esq., Philadelphia, for Freedom Credit Union.

Victoria Ann Reider, Esq., Linda Carroll, Esq., for Pennsylvania Department of Banking.

Daniel T. Fitch, Esq., Philadelphia, Trumark Financial Credit Union.

Richard T. Wargo, Jr., Esq., PA Credit Union Association, for Pennsylvania Credit Union Association.

Howard G. Hopkirk, Esq., Harrisburg, for Attorney General's Office and Dept. of Revenue.

BEFORE: CASTILLE, C.J., and SAYLOR, EAKIN, BAER, TODD and McCAFFERY, JJ.

OPINION

Justice BAER.¹

This direct appeal arises from a procedurally complex dispute between various members of the banking industry, the credit union industry, and several administrative agencies, concerning the tax treatment of credit unions under the Pennsylvania Credit Union Code ("Credit Union Code"), 17 Pa.C.S. §§ 101-1504. At issue is whether the Commonwealth Court properly dismissed the declaratory judgment claims raised by the Pennsylvania Bankers Association, the Pennsylvania Business Bank, Fulton Bank, and Premier Bank ("Appellants" or "the Banks"), which alleged that § 517 of the Credit Union Code, 17 Pa.C.S. § 517, violates Article VIII, §§ 2 and 5 of the Pennsylvania Constitution.²³ As detailed later in our opinion, the Banks also raised several alternative constitutional challenges to § 517, which remain pending before the Commonwealth Court. For the reasons that follow, we hold that the Commonwealth Court's order dismissing the Banks' challenge under Article VIII, §§ 2 and 5, is not an appealable final order, and therefore, we quash this appeal as interlocutory.

Before taking up the specific circumstances of the case sub judice, a brief discussion of the tax treatment of credit unions is in order. Traditionally, credit unions have functioned as cooperative associations that were intended to provide persons of modest means with an opportunity to control their money and improve their economic and social condition.⁴ In light of these charitable purposes, credit unions enjoy numerous tax exemptions as non-profit corporations that are not enjoyed by banks. For instance, as non-profit corporations, credit unions are exempt from federal taxation, see 26 U.S.C. § 501(c)(14)(A), and from state taxation, on their profits. See 17 Pa.C.S. § 517. However, as discussed later in this opinion, credit unions are subject to state taxation on the real estate they own. Id.

Pennsylvania's legislation on credit unions originated with the Credit Unions Act of 1933, which has been replaced by the current Credit Union Code.⁵ Since the inception of legislation in this arena, membership in credit unions has been based on common bonds of association, which are defined in each credit unions' charter.⁶ These common bonds are often defined in terms of shared occupations, or by membership in a religious congregation or labor organization. See 17 Pa.C.S. § 701 (specifying common bonds on which membership in a credit union may be based). The events precipitating the instant litigation arise from a statutory amendment to the Credit Union Code that would allow credit unions to expand their membership by basing it not only on common bonds of association, but also on common bonds of geography. See 17 Pa.C.S. § 501(e) (extending to credit unions the power to engage in activities authorized by Section 109 of the Federal Credit Union Act, 12 U.S.C. § 1759(b), including the option of basing membership on geographical districts). The Banks now claim that the expanded membership afforded under the amendment would give credit unions an unfair competitive advantage over banks in light of the tax exemptions which credit unions, but not banks, enjoy under § 517 of the Credit Union Code.

The present dispute arose in 2003, when three state-chartered credit unions, including Appellees Trumark Financial Credit Union ("Trumark") and Freedom Credit Union ("Freedom"), filed formal notices with the Pennsylvania Department of Banking ("the Department") of their intention to convert their charters to allow membership based on common bonds of geography. The Banks opposed these notices by filing protests with the Department. The Department then held a consolidated hearing on the credit unions' notices and permitted the Banks to intervene and participate in the proceedings. After hearing the parties' arguments, the Secretary of Banking entered orders permitting Trumark and Freedom to convert their charters to allow membership based on common bonds of geography, after which the Secretary dismissed the Banks as intervenors.

In January 2005, the Banks filed a petition for review with the Commonwealth Court raising claims purporting to invoke the court's appellate and original jurisdiction. The portion of the Banks' petition invoking the Commonwealth Court's appellate jurisdiction challenged the Secretary of Banking's orders allowing Trumark's and Freedom's conversion to geography-based credit unions, as well as the Secretary's decision to dismiss the Banks as intervenors. This appellate jurisdiction portion of the Banks' petition was affirmed by the Commonwealth Court in a published en banc opinion, and is currently pending review by this Court under separate docket numbers. See Pa. Bankers Ass'n v. Dep't. of Banking, 893 A.2d 864 (Pa. Cmwlth.2006), appeal granted, 591 Pa. 729, 920 A.2d 835 (2007).⁷

The instant appeal concerns the portion of the Banks' petition invoking the Commonwealth Court's original jurisdiction, wherein the Banks raised several alternative declaratory judgment claims alleging that the exemption from taxation provided to credit unions under § 517 of the Credit Union Code, 17 Pa.C.S. § 517, violates Article VIII, §§ 1, 2, 5, and 6 of the Pennsylvania Constitution, as well as the Equal Protection Clause of the United States Constitution. In addition, the Banks sought a declaration that § 501(e) of the Credit Union Code, 17 Pa.C.S. § 501(e), also violated the above constitutional provisions. In response, the Pennsylvania Department of Banking, the Pennsylvania Department of Revenue, the Pennsylvania Office of Attorney General, the Pennsylvania Credit Union Association, Trumark, and Freedom, (collectively, "Appellees"), filed preliminary objections in the nature of demurrers to all of the Banks' constitutional claims.⁸

The Commonwealth Court overruled the Appellees' preliminary objections with respect to the Banks' challenges under Article VIII, § 1, and under the Equal Protection Clause. In an unpublished companion opinion, the court reasoned that factual findings would be necessary to determine whether the tax classifications provided under the Credit Union Code violate these provisions, and therefore, it was premature to dismiss these claims on preliminary objections. However, as detailed in the following paragraph, the Commonwealth Court sustained Appellees' preliminary objections with respect to the Banks' challenges under Article VIII, §§ 2, 5, and 6, resulting in the dismissal of these claims from the case.⁹

In dismissing the Banks' claims under Article VIII, §§ 2 and 5, the court took guidance from two ancient decisions of this Court where we analyzed the predecessors to §§ 2 and 5 under the Pennsylvania Constitution of 1874. In this regard, the Commonwealth Court noted that in Turco Paint and Varnish Co. v. Kalodner, 320 Pa. 421, 184 A. 37, 39-40 (1936), we rejected a constitutional challenge to a tax statute that directed different methods for calculating income taxes for corporations conducting business entirely in the Commonwealth and those conducting only a portion of their business in the Commonwealth. In finding the statute constitutional, we interpreted the predecessors to §§ 2 and 5 as being violated only when a statute exempted all taxation. Id. at 43. Similarly, the Commonwealth Court noted our decision in Commonwealth v. Germania Brewing Co., 145 Pa. 83, 22 A. 240 (1891), where we affirmed a lower court decision holding that a tax provision offended the predecessors to §§ 2 and 5 only where the exemption relieved an entity from paying all taxation.

With Turco Paint and Germania Brewing in mind, the Commonwealth Court turned to § 517 of the Credit Union Code and acknowledged that credit unions are exempt from federal and state taxation on their income. See 17 Pa.C.S. § 517. However, the court also observed that, under § 517, credit unions are still required to pay taxes on the real estate they own. Id. Consequently, because § 517 does not exempt credit unions from all taxation, the Commonwealth Court dismissed the Banks' claims regarding Article VIII, §§ 2 and 5 because, in the court's view, § 517 did not violate these provisions as a matter of law.¹⁰

On March 28, 2006, the Banks filed the instant appeal to this Court, arguing that the Commonwealth Court erred in dismissing their claims based on Article VIII, §§ 2 and 5. According to the Banks, the Commonwealth Court's decision was based on inapplicable case law, and failed to take into account fundamental differences between the Pennsylvania Constitution of 1874 and the current Pennsylvania Constitution. In response, the Appellees maintain that this appeal is interlocutory. Accordingly, before we reach the merits of the Banks' claim, we must first...