Rojas v. Fitch

• Decision Date: 07 June 1996
• Docket Number: Civ. A. No. 94-0483B.
• Parties: Guadalupe ROJAS v. Lawrence FITCH, Individually and in His Capacity as Director of the Rhode Island Department of Employment and Training; The Salvation Army of Rhode Island, Inc., Defendant Intervenor; and Robert Reich, in His Official Capacity as Secretary, United States Department of Labor.
• Court: U.S. District Court — District of Rhode Island

928 F. Supp. 155

Guadalupe ROJAS v. Lawrence FITCH, Individually and in His Capacity as Director of the Rhode Island Department of Employment and Training; The Salvation Army of Rhode Island, Inc., Defendant Intervenor; and Robert Reich, in His Official Capacity as Secretary, United States Department of Labor.

Civ. A. No. 94-0483B.

United States District Court, D. Rhode Island.

June 7, 1996.

COPYRIGHT MATERIAL OMITTED

John William Dineen, Yesser, Glasson & Dineen, Providence, RI, for Plaintiff.

Rebecca Tedford Partington, William Kolb, Attorney General's Office, Providence, RI, Everett Samartino, U.S. Attorney's Office, Providence, RI, Scott Glabman, Office of the Solicitor, U.S. Dept. of Labor, Washington, D.C., Gerard Paul Cobleigh, Cobleigh, Watt, Rock & Giacobbe, Warwick, RI, Florence Barber, Cadwalader, Wickersham & Taft, New York City, Patricia Andrews, Providence, RI, for Defendant.

OPINION

FRANCIS J. BOYLE, Senior District Judge.

This action is a constitutional challenge to a federal statute and a Rhode Island statute which operate to exempt religious organizations from the payment of Rhode Island State unemployment taxes. Plaintiff claims that the statutes violate the Establishment Clause, and the Equal Protection Clause of the United States Constitution, as well as, Article I, § 3 of the Rhode Island Constitution. Defendants contend that the action should be dismissed from the federal forum pursuant to the Tax Injunction Act and the doctrine of abstention. Federal defendant also contends that plaintiff lacks standing to bring this action against him. In the alternative, defendants argue that the statutes withstand constitutional scrutiny. For the following reasons, the defendants' procedural challenges to this action are rejected. The statutes, however, are found to be constitutional.

I. BACKGROUND

The Federal Unemployment Tax Act ("FUTA" or "the Act"), 26 U.S.C. §§ 3301-3311, establishes a cooperative federal-state scheme to provide benefits to unemployed workers. The Act requires employers to pay a federal excise tax equal to a percentage of wages paid to "covered" employees, but also entitles them to a credit on contributions paid into federally approved state unemployment compensation programs. 26 U.S.C. §§ 3301, 3302. Prior to 1970, FUTA excluded from the definition of covered employment "service performed in the employ of a religious, charitable, educational, or other tax exempt organization." This "exemption" meant that such organizations were not required to pay either federal excise taxes or state unemployment taxes.

In 1970, Congress amended FUTA, requiring state plans to cover employees of non-profit organizations, state hospitals, and state institutions of higher education, thereby eliminating the broad state exemption available to non-profit organizations.¹See Employment Security Amendments of 1970, Pub.L. 91-373, § 104(b)(1), 84 Stat. 697. At that same time, however, Congress enacted § 3309(b), exempting from mandatory state coverage a narrow class of religious and educational employees² as well as other specifically enumerated services. In 1976, Congress once again amended FUTA, eliminating the blanket state exemption for school employees contained in § 3309(b)(3), but retaining the exemptions for religious employees and other services.

Title 28, chapters 42-44 of the General Laws of Rhode Island comprise the Rhode Island Employment Security Act. The purpose of this act is to provide "for the accumulation of a fund to assist in protecting the public against the ill effects of unemployment ..." R.I.G.L. § 28-42-2. Section 28-42-8 exempts certain types of employment from the requirements of the Employment Security Act. For instance, the statute exempts from coverage some domestic servants, golf caddies, certain insurance brokers and agents, as well as other services. R.I.G.L. § 28-42-8(1), (9) & (11). As pertains specifically to this action, § 28-42-8(4) exempts from Act coverage:

(4) Service performed:

(i) In the employ of:

(A) A church or convention or association of churches or

(B) An organization which is operated primarily for religious purposes and which is operated, supervised, controlled, or principally supported by a church or convention or association of churches ... R.I.G.L. § 28-42-8(4)(I)(A) & (B) (Michie 1995).

Accordingly, religious organizations and churches which qualify as exempt under § 28-42-8(4) are not required to pay an unemployment tax.

The Salvation Army was founded in 1865 as an international religious and charitable organization. A fundamental belief of the Army is that the physical needs of a person must be administered to before that person can truly receive and accept spiritual guidance. Therefore, as part of its religious mission, The Salvation Army conducts rehabilitative programs, maintains shelters for the homeless, soup kitchens, day care centers and provides many other charitable services. The Salvation Army has been deemed a "church" for tax purposes by both the federal government and the government of the State of Rhode Island. In 1955, the Internal Revenue Service ("IRS") determined that The Salvation Army constituted a "church or a convention or association of churches" for purpose of the Internal Revenue Code. Likewise, in 1987 the Rhode Island Department of Employment and Training determined that the Salvation Army was a "church" and thus entitled to an exemption pursuant to § 28-42-8(4)(a).

Plaintiff worked for The Salvation Army in Providence, Rhode Island from 1988 to 1994 with a brief interruption in 1990-91 during which she was employed by Catholic Social Services. During her time with The Salvation Army, she worked as a social case worker. On March 18, 1994, plaintiff was terminated due to "financial constraints."

Approximately one month later, plaintiff filed an application for unemployment insurance benefits with the Rhode Island Department of Employment and Training ("DET"). DET determined that plaintiff was ineligible for unemployment benefits due to the fact that her former employer was exempt under § 28-42-8(4) of the Rhode Island General Laws. Plaintiff appealed, and a hearing was held before a DET referee on May 12, 1994. At that hearing, plaintiff argued that The Salvation Army was not a "church" within the meaning of R.I.G.L. § 28-42-8(4), and that even if it was a church, § 28-42-8(4) was violative of the First, Fourth and Fifteenth Amendments to the U.S. Constitution and Article I, § 3 of the Rhode Island Constitution.

The referee, in a decision dated June 6, 1994, affirmed the DET's denial stating in part, "claimant's wages are exempt under the provisions of Section 28-42-8(4) of the Employment Security Act and cannot be used to establish a valid Employment Security claim." Furthermore, the referee stated that based upon a review of the case law cited by plaintiff, the Rhode Island statute did not violate either the United States Constitution or the Rhode Island Constitution. Plaintiff appealed that decision to the DET Board of Review. In a decision dated August 16, 1994, the Board "approved and confirmed" the referee's decision.

On September 9, 1994, plaintiff initiated this action in the United States District Court for the District of Rhode Island by filing a complaint naming the Director of DET as defendant. In that complaint, plaintiff sought a judgment declaring R.I.G.L. § 28-42-8(4) as violative of the First, Fifth and Fourteenth Amendments to the United States Constitution and Article I, § 3 of the Rhode Island Constitution.

Approximately one week later, plaintiff initiated a similar action in the District Court of the State of Rhode Island. That action, however, has been stayed by agreement of the parties pending a decision in the federal action.

In December of 1994, the Salvation Army moved without objection to intervene in this action on the grounds that it was a party to the DET proceedings and that its exemption under § 28-42-8(4) is at issue. The motion was granted. In March of 1995, plaintiff moved to amend her complaint to add the Secretary of the United States Department of Labor on the grounds that § 3309(b) of FUTA was inextricably connected with the Rhode Island statute in question. This motion was also granted.

II. ANALYSIS

A. Procedural Issues

1. Tax Injunction Act.

Defendants first contend that this action should be dismissed from the federal forum under the Tax Injunction Act. This contention, however, is without merit.

The Tax Injunction Act provides:

The District Courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State. 28 U.S.C. § 1341 (West 1993).

It is clear from the very text of the statute that it is not applicable in this instance. The present action is not an action to "enjoin, suspend or restrain" the collection of taxes. In fact, it is quite the opposite. This is, in essence, an action to compel the State of Rhode Island to collect taxes. See Moton v. Lambert, 508 F.Supp. 367, 368 (N.D.Miss. 1981) (plaintiffs action to invalidate tax exemption for racially segregated schools was not enjoined because it was a "demand that taxes be collected and not enjoined").

Defendants rely on the 1982 United States Supreme Court case of California v. Grace Brethren Church, 457 U.S. 393, 408, 102 S.Ct. 2498, 2507-08, 73 L.Ed.2d 93 (1982), for their assertion that "the Act also prohibits a district court from issuing a declaratory judgment holding state tax laws unconstitutional." That reliance is misplaced. Justice O'Connor in the majority opinion specifically stated, "Congress' intent in enacting the Tax Injunction Act was to prevent federal-court interference in the assessment and collection of state taxes." Id. at 411, 102 S.Ct. at 2509 (emphasis added). Grace Brethren involved an action initiated by parties seeking a declaratory judgment to enj...