Pennsylvania Bankers Association v. Pennsylvania Department of Banking, No. 42 M.D. 2005 (PA 3/1/2006)
| Decision Date | 01 March 2006 |
| Docket Number | No. 157 C.D. 2005.,No. 98 M.D. 2005.,No. 42 M.D. 2005.,No. 158 C.D. 2005.,42 M.D. 2005.,98 M.D. 2005.,157 C.D. 2005.,158 C.D. 2005. |
| Parties | Pennsylvania Bankers Association and the Pennsylvania Business Bank, Petitioners v. Pennsylvania Department of Banking and Trumark Financial Credit Union, Respondents Pennsylvania Bankers Association, Pennsylvania Business Bank, Fulton Bank, and Premier Bank, Petitioners v. Pennsylvania Department of Banking, Pennsylvania Department of Revenue, The Attorney General of the Commonwealth, and Freedom Credit Union, Respondents Pennsylvania Bankers Association and the Pennsylvania Business Bank, Petitioners v. Pennsylvania Department of Banking, Respondent Pennsylvania Bankers Association and the Northwest Savings Bank, Petitioners v. Pennsylvania Department of Banking, Respondent |
| Court | Pennsylvania Supreme Court |
BEFORE: COLINS, President Judge; A. SMITH-RIBNER, Judge; PELLEGRINI, Judge; S. FRIEDMAN, Judge; LEADBETTER, Judge; JUBELIRER, Judge; SIMPSON, Judge.
ON ISSUES IN ORIGINAL JURISDICTION BY JUDGE SIMPSON.
These procedurally complex consolidated cases present issues of first impression which are of great interest to credit unions and banks. The core issue is whether, because of favorable tax status, credit unions which convert from group-based to community-based membership obtain an unfair competitive advantage over banks. This opinion and order deal with issues in our original jurisdiction.
In a companion opinion and order filed concurrently, we reviewed the statutory and procedural background, and we will not repeat that discussion here except as necessary. In essence, the Department of Banking (Department) entered orders allowing two credit unions to convert from group-based to geography-based membership. In response, the Pennsylvania Bankers Association, the Pennsylvania Business Bank, Fulton Bank, and Premier Bank (collectively, Banks) filed dual jurisdiction actions in this Court naming as respondents the Department, the Pennsylvania Department of Revenue, the Attorney General (collectively, Commonwealth Respondents) and the two credit unions, Trumark Financial Credit Union and Freedom Credit Union (collectively with intervenor,1 Credit Unions). The actions had both appellate jurisdiction components and original jurisdiction components.
In the original jurisdiction components of their petitions for review, Banks seek a declaratory judgment that two provisions of the current Credit Union Code2 are invalid because they violate Article VIII, Sections 1 (uniformity of taxation), 2 (exemptions and special provisions), 5 (exemption from taxation restricted), and 6 (taxation of corporations) of the Pennsylvania Constitution. Specifically, Banks challenge Section 517, 17 Pa. C.S. §517, which exempts credit unions from payment of various taxes, and Section 501(e), 17 Pa. C.S. §501(e),3 a recently amended provision which grants state-chartered credit unions "Federal parity" so that they may expand their field of membership from common bonds of association to common bonds of geography, thereby allowing them to serve "persons or organizations within a well-defined local community, neighborhood or rural district." See 12 U.S.C. 1759(b). An equal protection challenge under the United States Constitution is also made.
Respondents all filed preliminary objections to the original jurisdiction components of the cases. The Commonwealth Respondents question original jurisdiction to review Department actions, a question resolved by our companion decision. In addition, Respondents object in the nature of a demurrer to the original jurisdiction constitutionality challenges, claiming Banks lack standing to raise the challenges and claiming Banks fail to state an actual justiciable controversy as a matter of law.
The rule is well settled that in ruling upon preliminary objections, the courts must accept as true all well-pleaded allegations of material facts as well as all of the inferences reasonably deducible from the facts. Dep't of Gen. Servs. v. Bd. of Claims, 881 A.2d 14, 16 n.2 (Pa. Cmwlth. 2005). For preliminary objections to be sustained, it must appear with certainty that the law will permit no recovery, and any doubt must be resolved in favor of the non-moving party. North-Central Pa. Trial Lawyers Ass'n v. Weaver, 827 A.2d 550 (Pa. Cmwlth. 2003).
Banks argue taxpayers may challenge a taxing scheme that treats certain taxpayers differently than it treats others similarly situated paying the taxes, and they rely on City of Allentown v. MSG Assocs., Inc., 747 A.2d 1275 (Pa. Cmwlth. 2000). In particular, they claim exposure to an unconstitutional system of taxation that forces banks and savings associations to pay taxes for which similarly situated credit unions are exempt constitutes a direct, immediate and substantial injury. Also, Banks claim standing under the traditional test of direct, immediate and substantial injury. These contentions relating to unfair competition are discussed in greater detail in the companion decision on appeal issues. Finally, they assert taxpayer standing under the rule of In re Application of Biester, 487 Pa. 438, 409 A.2d 848 (1979)(special circumstances may justify standing in absence of direct, immediate and substantial interest).
Commonwealth Respondents counter that Banks fail to plead facts to support conclusions of substantial similarity with credit unions. Thus, Banks fail to plead facts to satisfy standing under the City of Allentown test. Also, Banks fail to plead that they are impacted directly by the tax status of credit unions and therefore do not meet the requirements under the traditional test for standing. Finally, Commonwealth Respondents question whether under the Biester rule the impact on Banks of the tax policy for credit unions is too remote to be protected by the constitutional guarantees at issue.
In the amended petition for review at 42 M.D. 2005, Banks pled in relevant part (with emphasis added):
20. The Petitioners have standing to pursue the claims as set forth in this Count as taxpayers of this Commonwealth whose interests are directly, immediately and substantially affected and because the claims set forth in this Count involve an emolument given through the exercise of government power that would otherwise go unchallenged; the credit unions more directly and immediately affected by the complained activities are beneficially affected and not inclined to challenge the constitutionality of the emolument; judicial relief is appropriate to resolve issues regarding the constitutionality of a statute facially and as-applied; and no other persons are better suited to assert the claims.
21. This Count challenges the constitutionality, facially and as-applied, of the exemptions from taxation provided to state-chartered credit unions pursuant to §517 of the Credit Union Code that result in unfair competition with the Petitioners in violation of Article VIII, §§1, 2, 5 and 6 of the Constitution of this Commonwealth and in violation of the Petitioners' right to equal protection of the law arising under the U.S. Constitution.
* * *
39. Even if prior to the adoption of §501(e)(2) of the Credit Union Code, credit unions could be permissibly classified as a separate class of persons subject to taxation for purposes of Article VIII, §1 of the Constitution of Pennsylvania and the Equal Protection Clause of the Fourteenth Amendment to the U.S Constitution, by allowing credit unions to serve entire local communities, §501(e)(2) of the Credit Union Code impermissibly expands the exemption from taxation provided by §517 of the Credit Union Code in a manner that violates Article VIII, §1 of the Constitution of Pennsylvania and violates the Petitioners' right to equal protection of the law under the U.S. Constitution by authorizing credit unions to exercise rights and privileges on a community-wide basis substantially equivalent to those possessed by other financial institutions subject to either the Bank Shares Tax or the Mutual Thrift Institutions Income Tax and to the Sales and Use Tax, the Vehicle Rental Tax, the Public Transportation Assistance Fund Fee, the Liquid Fuels Tax, the Payroll Tax and other general taxes imposed by this Commonwealth or its political subdivisions.
Nearly identical averments are made in the amended petition at 98 M.D. 2005. Clearly, Banks challenge a taxing scheme, alleging community credit unions exercise rights and privileges substantially equivalent to those possessed by banks and other financial institutions. Also, Banks aver the tax exemption results in unfair competition.
As to standing as taxpayers challenging a taxing scheme, Banks' reliance on City of Allentown is well-founded. In that case a tax uniformity challenge was raised by a taxpayer, and the standing of the taxpayer was questioned. This Court held that a taxpayer does not have the direct interest necessary to allow a challenge to the amount of taxes another taxpayer pays; however, a taxpayer does have the right "to challenge a taxing scheme that treats certain taxpayers differently than it treats others similarly situated that are paying the taxes." 747 A.2d at 1281 (citations omitted). Under this holding, a taxpayer must aver and ultimately prove taxpayer status in a taxing scheme and different treatment of taxpayers similarly situated.
Pa. R.C.P. No. 1019(a) requires the concise and summary pleading of the material facts on which a cause of action is based. Moreover, case law makes abundantly clear that a party should not plead evidence. Smith v. Allegheny County, 397 Pa. 404, 155 A.2d 615 (1959). See also 4 Standard Pennsylvania Practice 2d, §21:51 (2001 ed.). Considering this authority, we discern no error in Banks' concise pleading of the material fact of substantial similarity.
It is noteworthy that...
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