Waterbury Sav. Bank v. Danaher

• Decision Date: 06 November 1941
• Citation: 20 A.2d 455
• Court: Connecticut Supreme Court
• Parties: WATERBURY SAV. BANK v. DANAHER, Com'r. FIRST FEDERAL SAVINGS & LOAN ASS'N OF MERIDEN v. SAME.

20 A.2d 455

WATERBURY SAV. BANK

v. DANAHER, Com'r.

FIRST FEDERAL SAVINGS & LOAN ASS'N OF MERIDEN

v. SAME.

Supreme Court of Errors of Connecticut.

Nov. 6, 1941.

As Amended June 4, 1941.

Appeal from Superior Court, Hartford County; John Rufus Booth, Judge.

Actions, which were tried together, by the Waterbury Savings Bank, and by the First Federal Savings & Loan Association of Mcriden, against Cornelius J. Danaher, Commissioner, by way of appeal from assessment of contributions by the defendant under the Unemployment Compensation Act. The Superior Court in Hartford County, Booth, J, sitting without a jury, sustained the appeals and exempted the plaintiffs from the operation of the Unemployment Compensation Act, and the defendant appeals.

Error in the Waterbury Savings Bank case, and judgment directed in accordance with opinion. No error in the other case.

Argued before MALTBIE, C. J, and AVERY, BROWN, JENNINGS, and ELLS, JJ.

Harry Silverstone, Asst. Atty. Gen., (Francis A. Pallotti, Atty. Gen, on the brief), for appellant (defendant).

William W. Gager, of Waterbury, for appellee (plaintiff Waterbury Savings Bank).

Harry R. Cooper, of Meriden, for appellee (plaintiff First Federal Savings & Loan Ass'n).

BROWN, Judge.

Each of these cases, which were tried together, is an appeal from the determination of the defendant as administrator of the Unemployment Compensation Act, Chapter 280a, Supp.1939, in assessing contributions against the plaintiff. In the first case the plaintiff is a corporation located in Waterbury, organized and existing under the laws of this state, while in the second case the plaintiff is a corporation located in Meriden, organized and existing under the laws of the United States. While the facts in the cases also differ in certain other respects, the question as to whether the plaintiff is exempt from contribution under § 1334e (a) (5) (E), Supp. 1939 of the Unemployment Compensation Act, is determinative of each. The court ruled in each case that it is. We deal first with the case of the Waterbury Savings Bank.

The plaintiff bank is a state chartered mutual savings bank incorporated in 1933, the result of a merger of other state chartered mutual savings banks, the oldest of which had been in continuous operation since 1851. At all times since the enactment of the Unemployment Compensation Act on November 30, 1936, Acts 1936, Sp.Sess. c. 2, Cen.St.Supp.1937, § 803d et seq., it has employed more than five persons and up to November 1, 1937, paid unemployment compensation contributions to the state as required under the act. On that date it was admitted into membership in the Federal Home Loan Bank of Boston, having previously applied for membership, and with the permission of the bank commissioner of this state as provided in § 1523c, Cum.Supp.1935, subscribed to fourteen hundred shares of stock in that bank, representing an investment of $140,000. Shortly thereafter the plaintiff bank notified the defendant administrator of the fact that it had joined the Federal Home Loan Bank system and of its claim that it was now a federal instrumentality and therefore no longer subject to the Unemployment Compensation Act. It thereafter paid no unemployment compensation contributions. During the period from November 1, 1937, to March 30, 1939, it was designated as exempt on the records of the administrator, but no notice thereof was sent to it. The administrator made no claim upon it for contributions until March 30, 1939, when he did demand them for this period, and upon its failure to comply made an assessment of $8,257.20 with interest. Since becoming a member of the Federal Home Loan Bank of Boston the plaintiff has at no time exercised any of its membership privileges except that it did make deposits totaling $500,000 at interest. It has not been designated or employed as fiscal agent of the United States government.

The question for decision in the first case is whether a state chartered institution which has subscribed for stock and thereby becomes a member of the Federal Home Loan Bank is an instrumentality of the United States within the meaning of the exception set forth in § 1334e (a) (5) (E). The problem presented is one of "statutory construction involving consideration of the terms of the act as a whole and the circumstances and conditions existing at the time and which may be deemed to have affected its intent and motivated its adoption." Hartford Production Credit Ass'n v. Clark, 118 Conn. 341, 343, 172 A. 266, 267. We are called upon to "look beyond the literal meaning of the words to the history of the law, its language considered in all its parts, the mischief it was designed to remedy, and the policy underlying it." Chambers v. Lowe, 117 Conn. 624, 626, 169 A. 912, 913. The mischief which the act was designed to remedy was unemployment. Its adoption followed the report of a special commission appointed by the Governor, predicated on exhaustive study and investigation. H. Duys & Co., Inc., v. Tone, 125 Conn. 300, 307, 5 A.2d 23. This report stated as a reason for its recommendation that the law be enacted "the seriousness of the unemployment problem even in normal times, with the suffering that unrelieved unemployment causes, and the many objections to any other method yet devised of relieving the able-bodied unemployed, such as made work, or a dole based on need and subject to a showing of destitution." The act was adopted in consequence of the enactment of the Federal Social Security Act, 42 U.S.C.A. §§ 501 et seq., 901 et seq., 1101 et seq., 49 U.S. Stat., pp. 626, 635, 639, and many other states have adopted similar acts. Duys case, supra, 125 Conn. 300, 304, 5 A.2d 23. It was designed to ameliorate the tragic consequences of unemployment. Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 515, 57 S.Ct. 868, 81 L.Ed. 1245, 1257, 109 A.L.R. 1327; Buckstaff Bath House Co. v. McKinley, 198 Ark. 91, 127 S.W.2d 802, affirmed 308 U.S. 358, 60 S, Ct. 279, 84 L.Ed. 322; Howes Bros. Co. v. Massachusetts Unemployment Compensation Commission, 296 Mass. 275, 5 N.E.2d 720, 725; Gillum v. Johnson, 7 Cal.2d 744, 760, 62 P.2d 1037, 1044, 63 P.2d 810, 108 A.L.R. 595.

The provisions of the act disclose that pursuant to the plan effective under it, a fund is created by employers' involuntary contributions, out of which employees who lose their jobs may, after a waiting period, be paid benefits limited in amount and duration, while looking for work but unable to find it. Certain types of employers are excluded from the requirement to pay contributions. Benefits are paid only to employees as to whose wages contributions are payable by the employer. § 1338e (f). Therefore the benefits of the act are denied to employees engaged in the excepted employments. That the purpose of the act is remedial in character is clear. It is therefore to be construed liberally as regards beneficiaries, in order to accomplish its purpose. Powers v. Hotel Bond Co., 89 Conn. 143, 146, 93 A. 245; Bradley v. Fenn, 103 Conn. 1, 4, 130 A. 126. Furthermore, since the advantage of an exemption from this law of general application imposing a tax applying to employment generally is sought by the plaintiff, the rule requiring liberal construction in favor of the taxpayer is not applicable. Allen v. Shelton, 5 Cir, 96 F.2d 102, 104. The case falls rather within the principle that exempting statutes are strictly construed and exempt only what is strictly within their terms. Klein v. Bridgeport, 125 Conn. 129, 131, 3 A.2d 675; Woodstock v. The Retreat, Inc., 125 Conn. 52, 56, 3 A.2d 232; Bickart v. Sanditz, 105 Conn. 766, 772, 136 A. 580.

The restrictive effect of the exemption upon the remedy for the evil of unemployment contemplated by the act, emphasizes the importance of discovering the reason for this exemption in ascertaining the legislative intent in enacting it. The material portion of § 1334c (a) (5) (E), the provision in question, is: "No provision of this chapter * * * shall apply to any of the following types of service or employment: * * * service performed in the employ of the United States government, this state, any other state, any town or city, or any political subdivision or instrumentality of any of them." The term "federal instrumentality" or "instrumentality of the United States" as used in the decided cases, has been identified with the doctrine that such agencies are immune from state control, and has been used to describe a government agency which is immune from state control. It is accordingly a fair inference that this is the sense in which the legislature used the term here. This is fortified by circumstances attending the adoption of the act. The act was based upon a draft of a bill submitted with its report by the special commission above mentioned, and the exceptions in this draft, including the one in question, conformed to its express recommendation that these "parallel the exemptions from tax in Section 907(c)" of the Federal Social Security Act, 42 U.S. C.A. § 1107(c). The Supreme Court of the United States has recently interpreted the purpose of this exemption in that act in these words: "The exclusion * * * 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." Buckstaff Bath House v. McKinley, 308 U.S. 358, 364, 60 S.Ct. 279, 282, 84 L.Ed. 322. Earlier, in considering the exception in the Alabama Unemployment Compensation Act, the court had said: "Fear of constitutional restrictions, and a wholesome respect for the proper policy of another sovereign, would explain exemption of the United States * * *." Carmichael v. Southern Coal & Coke Co., supra, 301 U.S. 513, 57 S.Ct. 874, 81 L.Ed. 1245, 109 A.L.R. 1327. That the reason so indicated was the one motivating the exception here...