State v. Kitsap County Bank

• Decision Date: 02 October 1941
• Docket Number: 28334.
• Citation: 10 Wn.2d 520,117 P.2d 228
• Parties: STATE v. KITSAP COUNTY BANK.
• Court: Washington Supreme Court

117 P.2d 228

10 Wn.2d 520

STATE v. KITSAP COUNTY BANK.

No. 28334.

Supreme Court of Washington, En Banc.

October 2, 1941

Action by the State of Washington against Kitsap County Bank to recover contributions to the unemployment compensation fund. From a judgment dismissing the action with prejudice, after trial court sustained defendant's demurrer to the complaint and the plaintiff elected to stand upon its complaint, the plaintiff appeals.

Reversed and remanded, with instructions.

STEINERT J., ROBINSON, C.J., and SIMPSON, J.; dissenting.

Appeal from Superior Court, Kitsap County; H. G Sutton, judge.

Smith Troy and William J. Millard, Jr., both of Olympia, for appellant.

Meier & Meagher, Arthur G. Barnett, both of Seattle, Amici Curiae.

Falknor, Emory & Howe, of Seattle, for respondent.

BEALS Justice.

This action was instituted by the state of Washington against Kitsap County Bank, a corporation, as defendant. The complaint alleged that the commissioner of unemployment compensation and placement of the state of Washington had, prior to the institution of the action, demanded from defendant payment of contributions to the unemployment compensation fund, and the defendant had failed to pay the same. It was also alleged that the majority of stock of the defendant corporation was owned by F. E. Langer; that Mr. Langer also owned the majority of the stock of the First National Bank of Poulsbo; and that the two banks together employed eight or more persons for twenty weeks during the year 1940. Judgment was demanded for contributions alleged to be due. Defendant demurred to plaintiff's complaint, upon the ground that the complaint failed to state facts sufficient to constitute a cause of action. After argument the trial court sustained the demurrer, and plaintiff having elected to stand upon its complaint, judgment was entered dismissing the action with prejudice, from which judgment the state of Washington has appealed.

Error is assigned upon the ruling of the trial court sustaining the demurrer, and upon the entry of judgment dismissing the action.

Section 19(f), chapter 162, Laws of 1937, Rem.Rev.Stat. Supp. § 9998-119(f) reads in part as follows:

'(f) 'Employer' means:

'(1) Any employing unit which in each of twenty different weeks within either the current or the preceding calendar year * * * has or had in employment eight or more individuals * * *;

'(4) Any employing unit which together with one or more other employing units, is owned or controlled (by legally enforcible means or otherwise) directly or indirectly by the same interest, or which owns or controls one or more other employing units (by legally enforcible means or otherwise), and which, if treated as a single unit with such other employing unit, would be an employer under paragraph (1) of this subsection.'

(The section last quoted will be hereinafter referred to as subsection (4).)

It was contended below, and the trial court found, that the section of the statute above quoted violates the equal protection clauses of the Federal constitution and of the constitution of the state of Washington, which, respectively, read as follows:

'No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.' Federal Constitution, Amend. art. XIV, § 1.

'No law shall be passed granting to any citizen, class of citizens, or corporation, other than municipal, privileges or immunities which, upon the same terms, shall not equally belong to all citizens or corporations.' Washington State Constitution, art. I, § 12.

Respondent also contends that the statute relied upon by appellant cannot be enforced in this action, because it in effect imposes a tax upon an instrumentality of the Federal government, to-wit, the First National Bank of Poulsbo. The trial court did not rule upon the latter phase of the case, being of the opinion that the statute is unconstitutional as based upon an unreasonable and discriminatory classification, and consequently within the ban of the Federal and state constitutions.

It is, of course, conceded that, according to the express terms of the section of the act above quoted, respondent could be classified as an 'employer,' within the meaning of the act, whereas other individuals and corporations employing less than eight employees, within the provisions of the act, but not similarly situated in regard to some other employing unit, as was respondent, would not be subject to the tax. The question to be determined is whether the legislature acted within its constitutional powers in classifying employers as it did by subsection (4) of the act above quoted.

It is, of course the law that every presumption is in favor of the constitutionality of a legislative act, and that in matters of classification, the legislature has a very broad discretion. State Board of Tax Commissioners v. Jackson, 283 U.S. 527, 51 S.Ct. 540, 75 L.Ed. 1248, 73 A.L.R. 1464, 75 A.L.R. 1536; Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 31 S.Ct. 337, 55 L.Ed. 369, Ann.Cas.1912C, 160; State v. Jones, 137 Wash. 556, 243 P. 1; Elkins v. Schaaf, 4 Wash.2d 12, 102 P.2d 230.

In the case of State ex rel. Bacich v. Huse, 187 Wash. 75, 59 P.2d 1101, 1104, this court, in considering a similar problem, said:

'To comply with these constitutional provisions, legislation involving classifications must meet and satisfy two requirements: (1) The legislation must apply alike to all persons within the designated class; and (2) reasonable ground must exist for making a distinction between those who fall within the class and those who do not.

'Within the limits of these restrictive rules, the Legislature has a wide measure of discretion, and its determination, when expressed in statutory enactment, cannot be successfully attacked unless it is manifestly arbitrary, unreasonable, inequitable, and unjust.'

The recent case of Bauer v. State, Wash., 110 P.2d 154, is to the same effect.

Considering the statute here in question, it is obvious that it meets the first test referred to in the foregoing quotation from State ex rel. Bacich v. Huse, as all who are within the class established by subsection (4) are subject to the act in the same manner and to the same extent.

Study of the act in connection with the second requirement referred to in the case last cited, presents a more difficult question. In discussing the matter of what constitutes a reasonable basis for classification, in the course of the opinion in the Bacich case we said:

'A classification, to be legal and valid, must rest on real and substantial differences bearing a natural, reasonable, and just relation to the subject-matter of the act in respect to which the classification is made. The distinctions giving rise to the classification must be germane to the purposes contemplated by the particular law and may not rest upon a mere fortuitous characteristic or quality of persons, or upon personal designation. In short, the classification cannot be an arbitrary selection. These principles have been so frequently stated and so thoroughly recognized that it is unnecessary to cite any authority in their support.'

A classification which is based upon a substantial difference, and which is reasonably calculated to carry out the purposes of the statute, is not arbitrary. The purpose of the unemployment compensation act is to reduce 'involuntary unemployment and the suffering caused thereby to a minimum.' Rem.Rev.Stat.Supp. § 9998-102. Obviously the reason for the enactment of subsection (4) was to prevent persons who would otherwise fall within the classification of employers within the terms of the act, from evading the statute through various forms of disintegrated ownership and control, thus lessening the number of employees within the protection of the act. The subsection referred to, if valid, closes certain avenues by which the scope of the act could be narrowed, and aids in accomplishing one of the important purposes of the act, in broadening its field of operations. Any successful evasion of the act would itself result in unjust discrimination and inequality of administration.

Respondent argues that to state that the purpose of the subsection referred to was to prevent evasions of the act is to indulge in pure speculation. Of course the legislature did not, in enacting the statute, state in each section the precise objective which that section was intended to attain, but it is not legislative practice to make such statements. A study of subsection (4), in the light of the remainder of the unemployment compensation act, and consideration of the section together with the expressed and manifest purpose of the statute, renders the purpose of the subsection plain. Contemplation of some of the practical difficulties in the administration of the act renders the matter even clearer. Our conclusion in this regard is supported by the recent opinion of the supreme court of Connecticut, in the case of New Haven Metal & Heating Supply Co. v. Danaher, 128 Conn. 213, 21 A.2d 383, in which case the court referred to the provision in the statute of Connecticut comparable to subsection (4) of the act of this state, as having been by the legislature expressly added to the statute as an amendment, for the purpose of preventing evasive practices which were being adopted by employers in order to avoid falling within the terms of the statute.

In any event, if the question of the existence of a sound basis for the inclusion of the statute referred to be considered doubtful, such...