The opinion of the court was delivered by: Hart, District Judge.
MEMORANDUM OPINION AND ORDER
On July 29, 1980, the Attorney Registration and Disciplinary
Commission of the Supreme Court of Illinois ("Commission") and
Carl H. Rolewick, Administrator of the Commission, brought a
complaint on their own behalf and as trustees on behalf of all
employees of the Commission, against Patricia Harris, Secretary
of Health and Human Services ("Secretary"), Philip J.
DiBenedetto, Acting Regional Commissioner for Social Security
Region Five of the Department of Health and Human Services, and
G. William Miller, Secretary of the Treasury ("defendants"). On
September 16, 1980, Robert G. Cronson, Auditor General of the
State of Illinois, filed a motion to intervene as a defendant in
this action. On October 15, 1980, the defendants filed a motion
to dismiss pursuant to Fed.R.Civ.P. 12(b), arguing that this
Court lacks subject
matter jurisdiction over this action, that the plaintiffs*fn1 have
failed to exhaust their administrative remedies, and that the
plaintiffs lack standing to sue these defendants.
By this memorandum opinion and order, the Court grants the
defendants' motion to dismiss this action and states that it is
without power to reach the merits of the underlying dispute as
presented here. By virtue of granting defendants' motion to
dismiss, the Court need not reach the Auditor General's motion to
The Commission was created by rule of the Supreme Court of
Illinois in 1973. Ill.Rev.Stat., 1981, ch. 110A §§ 751 et seq.
Its primary duty is to investigate and prosecute complaints
against Illinois attorneys. Plaintiff Carl H. Rolewick is
Administrator of the Commission, with principal responsibility
for overseeing the operation of the Commission.
On March 26, 1973, the Commission applied to the Internal
Revenue Service ("IRS") seeking Social Security coverage for the
Commission employees. In a letter dated June 1, 1973, the IRS
stated that the term "employment" as defined by the applicable
federal statutes*fn2 did not include the Commission since it was a
wholly owned instrumentality of the State of Illinois. Therefore,
pursuant to the exceptions from coverage described by
42 U.S.C. § 410(a)(7) (defining "employment" in substantially the same way
as the statutes in n. 2 above), the Commission employees were
denied Social Security coverage. The IRS suggested that the
Commission employees might instead seek coverage through the
agreement previously entered into between the State of Illinois
and the Secretary, pursuant to 42 U.S.C. § 418(a)(1) ("the State
compact"). In essence, the IRS decided that the Commission was
not a private employer within the meaning of the federal
statutes. The effect of the June, 1973 decision was that the
Commission employees could be covered through the State compact
or not at all.
The Illinois State compact had been entered into by virtue of
the Illinois Social Security Enabling Act, Ill.Rev.Stat. ch. 108
1/2 § 21-119, which in relevant part states:
The [Social Security Unit of the State Employees'
Retirement System of Illinois] is authorized to enter
on behalf of the State of Illinois into an agreement
with the Secretary [of Health and Human
Services] . . . for the purpose of extending the
benefits of the Federal Social Security insurance
program to employees of the State of Illinois, or of
any political subdivision thereof, or of any
instrumentality of any one or more of the
foregoing. . . .
Therefore the Commission employees could be covered by the Social
Security laws through the State compact (1) if they were
employees of the state or a political subdivision, or (2) if they
were employees of an "instrumentality."
Since the Commission has consistently taken the position that
their employees are not employees of the state or of a political
subdivision, and the IRS had decided that they were not employees
of a private employer, the Commission now tried a different tack.
On November 30, 1973, the Commission requested the Attorney
General of Illinois to construe the term "instrumentality" as
defined by the Illinois Social Security Enabling Act,
Ill.Rev.Stat. ch. 108 1/2, § 21-107, which states:
"Instrumentality": A juristic entity which is
legally separate and distinct from the State of
Illinois and its political subdivisions and whose
employees are not by virtue of their relation to such
juristic entity employees of the State of Illinois or
such political subdivisions.
On January 10, 1975, the Commission asked the IRS to reconsider
its June, 1973 ruling in light of the opinion of the Attorney
General. The Commission wished to show the IRS that since the
Attorney General had stated that it was not an "instrumentality,"
the Commission could not come under the State compact and should
be treated as a private employer receiving Social Security
On May 9, 1975, the IRS reaffirmed its 1973 ruling on the basis
that services performed in the employ of a state, whether as an
instrumentality or as an agency of the judicial branch, were
excepted from Social Security coverage under the federal statutes
pursuant to which the Commission sought such coverage.
On November 10, 1975, the Commission applied to the IRS for
tax-exempt status pursuant to 26 U.S.C. § 501(c)(6). In its
letter of January 29, 1976, granting tax-exempt status, the IRS
stated that "unless specifically excepted, you are liable for
taxes under the Federal Insurance Contributions Act (Social
Security Taxes) . . . [a]nd, unless excepted, you are also liable
for tax under the Federal Unemployment Tax Act. . . ." The
Commission and its employees thereupon paid employment taxes and
interest for the years 1973, 1974, and 1975. They continued to
pay taxes as due from 1976 through the time this action was
By letter of February 8, 1980, the Secretary stated that the
Commission employees were never covered under the Social Security
laws, and that the erroneous payment of taxes "may have been made
in reliance on a favorable ruling by the IRS under Section
501(c)(6) of the Internal Revenue Code. . . . However, this
ruling is based solely on the income tax provisions of the law
and does not have any effect on the Social Security wage status
of an organization." The Secretary pointed out that the favorable
ruling by the IRS in its January, 1976 letter contained key
limiting language: "Unless ...