Schaffer v. Public Employees Retirement System ( 1986 )

Per Curiam.

The sole issue presented for review is whether the Federal Reserve Bank of Cleveland is an “entity operated by the United States government” so as to come within the purview of R.C. 145.293. Based on the following, we affirm the judgment of the court of appeals.

The term “operated by” as used in R.C. 145.293, could conceivably describe any of several degrees of control. Whether the words mean direct control or a more remote supervision is not clarified by a reading of the statute. From an overall review of the statutory enactments, we conclude that the General Assembly did not intend the strict degree of control argued for by appellant. Former R.C. 145.292 limited those who could purchase service credits in PERS to one who was “an employee of the United States Government.”² It was replaced by R.C. 145.293³ which allowed similar purchases by one with “service in any entity operated by the United States government.” It would seem to be a reasonable interpretation of the enactment that the current R.C. 145.293 admits a broader class of service credit purchasers than the former R.C. 145.292, since “operated by” allows a lesser degree of control than the more direct, employment relationship. However, it remains to be inquired whether the degree of control exercised by the federal government over the federal reserve banks is sufficiently direct so as to be comprehended within the term “operated by,” as used within R.C. 145.293.

The Federal Reserve System was created by an Act of Congress in 1913.⁴ The system is composed of a Board of Governors, twelve regional federal reserve banks, and nearly 6,000 privately owned member banks. The Board of Governors has seven members appointed for fourteen-year terms by the President of the United States and confirmed by the Senate. This board is clearly an executive agency and exercises supervisory authority for the entire Federal Reserve System.⁵

The Board of Governors, through control of the federal reserve bank’s board of directors, has a significant impact on the management of the federal reserve bank. Each board of directors directly regulates and manages the business of that bank.⁶ The Board of Governors chooses three of the nine members of the board of directors. One of these three members is then designated by the Board of Governors to be chairman of the board of directors. A second member, selected as deputy chairman, sits as chairman whenever the first is absent. The third member selected is designated to preside when the other two are absent.⁷ It is not without import that the Board of Governors fixes the salary of the chairman of the board of directors, and approves the salaries of all the other board members.⁸ The board of directors’ choice of president and first vice-president for the bank’s management must be approved by the Board of Governors.⁹ Among the enumerated powers of the Board of Governors are: the power to examine the books, accounts and activities of a federal reserve bank; the power to suspend or remove any officer or director; and the power to suspend the operations of and take possession of any federal reserve bank.¹⁰ Thus, the United States government, through the Federal Reserve System, exercises substantial control over the regional federal reserve banks. The banks “are plainly and predominantly fiscal arms of the federal government.”¹¹

The applicable federal cases do not contradict this conclusion. Those federal courts which have attempted to determine whether the federal reserve banks are entities of the United States have been far from unanimous. This divergence in results has primarily depended on the words used in the statute at issue. Where the statute allowed a broader reading, the cases have consistently held that a federal reserve bank qualifies as an instrumentality or agency of the United States.¹² On the other hand, where the statute was narrowly drawn so as to include only “employees” of the United States government, then the federal reserve bank was considered a mere private entity.¹³ The principal cases in this category involve determinations of whether the Federal Tort Claims Act (“FTCA”) was applicable to federal reserve banks. The FTCA requires a “negligent or wrongful act or omission of [an] employee of the Government.”¹⁴ As previously shown, R.C. 145.293 does not limit the class of persons who may purchase equivalent service credit in PERS to employees of the federal government. Consequently, those federal decisions which hold that the federal reserve bank is a private entity for purposes of the FTCA are inapplicable to the facts of the case here. For purposes of this determination, we hold that the entity involved, the federal reserve bank, is a governmental entity “operated by” the United States government so as to qualify for credit within Ohio’s Public Employees Retirement System.

Accordingly, the judgment of the court of appeals is affirmed.

Judgment affirmed.

Celebrezze, C.J., Sweeney, Holmes and C. Brown, JJ., concur. Locher, Douglas and Wright, JJ., dissent.

2 Am. S.B. No. 160, 128 Ohio Laws 169, 170, effective August 1, 1959, repealed Am. Sub. H. B. No. 268, 136 Ohio Laws, Part II, 2091, 2239, effective August 20, 1976.

3 See Am. H. B. No. 1160, 135 Ohio Laws, Part II, 1119, effective September 30, 1974.

4 See Section 221, Title 12, U.S. Code, et seq.

5 Sections 241 and 248Q), Title 12, U.S. Code.

6 Sections 301-308, Title 12, U.S. Code.

7 Sections 301 and 305, Title 12, U.S. Code.

8 Sections 305 and 307, Title 12, U.S. Code.

9 Section 341, Title 12, U.S. Code.

10 Sections 248(a)(1), (f) and (h), Title 12, U.S. Code.

11 Federal Reserve Bank of Boston v. Commr. of Corporations & Taxation (C.A.1, 1974), 499 F. 2d 60, 62.

12 See, e.g., Flight Intenatl. Group v. Federal Reserve Bank of Chicago (D. Ga. 1984), 583 F. Supp. 674; United States v. Hollingshead (C.A.9, 1982), 672 F. 2d 751; Federal Reserve Bank of St. Louis v. Memphis (D.Tenn. 1979), 515 F. Supp. 63, affirmed (C.A.6, 1981), 649 F. 2d 462; Federal Reserve Bank of Boston, supra; Lee Constr. Co. v. Federal Reserve Bank of Richmond (D.Md. 1982), 558 F. Supp. 165.

13 Arney v. United States (Dec. 4,1979), D.Tenn. No. 77-3503-NA-CV, unreported; Lewis v. United States (C.A. 9, 1982), 680 F. 2d 1239.

14 Section 1346(b), Title 28, U.S. Code.