                                                                                                                           Opinions of the United
1995 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


6-13-1995

Serrant v VI Employ Sec Agency
Precedential or Non-Precedential:

Docket 94-7639




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"Serrant v VI Employ Sec Agency" (1995). 1995 Decisions. Paper 166.
http://digitalcommons.law.villanova.edu/thirdcircuit_1995/166


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         UNITED STATES COURT OF APPEALS
             FOR THE THIRD CIRCUIT

                  ___________

                  No. 94-7639
                  ___________

                CHERYL SERRANT,
                                  Appellant

                       v.

   VIRGIN ISLANDS EMPLOYMENT SECURITY AGENCY,
        Unemployment Insurance Service,
                               Appellee

 _____________________________________________

         Appeal from the District Court
             of the Virgin Islands
      Division of St. Thomas and St. John
       D.C. Civil Action No. 91-cv-00068
 _____________________________________________

             Argued: April 20, 1995

Before: BECKER, NYGAARD and ROTH, Circuit Judges.

             (Filed June 13, 1995)


      RICHARD AUSTIN, ESQUIRE (ARGUED)
      Legal Services of the Virgin Islands, Inc.
      3017 Orange Grove
      Christiansted, St. Croix
      U.S. Virgin Islands 00820-4375

      Attorney for Appellant

      ALVA A. SWAN, ACTING ATTORNEY GENERAL
      PAUL L. GIMENEZ, SOLICITOR GENERAL
      ELLIOTT M. DAVIS (ARGUED)
         ASSISTANT ATTORNEY GENERAL

      Virgin Islands Department of Justice
      48B-50 Kronprindsens Gade
      St. Thomas, Virgin Islands   00802

      Attorneys for Appellee
                          ___________________________

                             OPINION OF THE COURT
                          ___________________________


BECKER, Circuit Judge.
            This is an appeal from a final order of a United States

Magistrate,      28   U.S.C.      §   636(c)(1).           That   order      affirmed    a

decision of a hearing examiner for the appellee Virgin Islands

Employment       Security      Agency,     Unemployment           Insurance     Service

(within the Virgin Islands Department of Labor) (“Agency”), which

in   turn     had     reversed        an   initial         determination       awarding

unemployment benefits to appellant Cheryl Serrant.                        The hearing

examiner also authorized the Agency to recoup previously paid

benefits from Serrant.            It is the latter decision, also affirmed

by the Magistrate Judge, that is challenged on this appeal.                            For

the reasons that follow, we reverse.



                                           I

            On    April     24,   1990,    Serrant         was    employed     at   Point

Pleasant Beach Resort as a reservations clerk.                      According to the

hotel management, Serrant was discharged because she refused to

prepare an “advance occupancy report.”                 According to the hearing

examiner, acting on the appeal of the hotel from the initial

award of benefits, Serrant’s actions leading to her dismissal

constituted      misconduct       within       the   meaning       of   21    V.I.C.     §

304(b)(3),       thereby     resulting         in    her     disqualification          for
unemployment    insurance   benefits       under   that   section.1     While

Serrant maintains that her actions did not constitute wilful

misconduct within the meaning of the statute, a position that may

have merit, the facet of the hearing examiner’s decision dealing

with   denial   of   benefits   is   not    challenged    on   this   appeal.

Rather, we consider only the portion of the hearing examiner’s

decision dealing with recoupment.

           The recoupment holding was predicated on 24 V.I.C. §

305(j)(2), which provides:
               If the Commissioner of Labor finds, within the
          two-year period following payment to any individual of
          any amount as benefits under this chapter, that such
          individual is not entitled, by reason other than that
          specified in subsection (h)(2) or subsection (j)(1)
          above, to such amount, he shall repay such amount to
          the Commissioner of Labor for the Unemployment Fund or
          in the absence of such repayment such amount shall be
          deducted from any future benefits payable to him under
          this chapter, within the two-year period following the
          date of notice of the final determination or decision;
          Provided, That no repayment or deduction from benefits
          shall be required under this paragraph if the amount
          overpaid was received by the individual without fault
          on his part, and such recoupment would be against
          equity and good conscience.


(emphasis added).




1
.   24 V.I.C. § 304(b)(3) provides in pertinent part:

           (b) An insured worker shall not be disqualified for
           writing week credits or benefits for any week of his
           unemployment unless with respect to such week the
           Director finds that:

           (3) he was discharged for misconduct connected with his
           most recent work . . . .
            The    hearing   examiner’s        rationale     for   authorizing

recoupment    is   contained   in   the    following       paragraph   of   his

opinion:
            It is clear that recoupment or denial of future
            benefits is warranted in the instant case.         This
            Claimant was awarded benefits where she was at fault.
            She was terminated because of her own misconduct.
            Section 305(j)(2) allows the Agency to elect to recover
            the benefits paid to a claimant or to deny future
            benefits.   This case provides an instance where that
            election must be made. The Commissioner must determine
            which is appropriate.   The Act offers no guidance on
            this point. It allows the Commissioner to do either as
            a matter of discretion.


            The case then came on Writ of Review, 5 V.I.C. § 1421

and 5 V.I.C. app. V Rule 11(a), before the Magistrate Judge.                His

resolution of the issue was equally terse.                   After quoting §

305(j)(2) he stated:
               The hearing examiner’s rationale was that it was
          because of Petitioner’s misconduct, which is an
          intentional act, that she was dismissed and that,
          therefore, since it was ultimately determined that the
          benefits were received through Petitioner’s fault, she
          must repay the Agency.

                 In reviewing, this determination by the hearing
            examiner, this court finds that the decision is
            supported by a rational basis, and, therefore, cannot
            be disturbed.


The Magistrate Judge therefore affirmed the hearing examiner’s

decision.     Because our own holding turns on questions of the

interpretation     and   application      of    law,   our    review   of   the

Magistrate Judge’s conclusion is plenary.



                                    II
           The key terms in § 305(j)(2) (for purposes of this

appeal) are “without fault,” and “equity and good conscience.”

Unfortunately, neither the hearing examiner nor the Magistrate

Judge devoted much attention to the meaning of these terms, or to

the record as it might bear on them.        That may well be due to the

fact   that   the    parties     directed    the     attention    of    these

administrative and judicial officers primarily to the misconduct

issue, and there was little, if anything, placed in the record

relative to fault and “equity and good conscience.”

                                     A

           Turning first to the meaning of the phrase “without

fault,” the threshold question is the extent to which it is

informed by the terms of § 305(j)(1). That section provides:
               (j)(1) Any person who makes, or causes to be made
          by another, a false statement or representation of a
          material fact, knowing it to be false or knowingly
          fails, or causes another to fail, to disclose a
          material fact, and as a result thereof has received any
          amount as benefits under this chapter to which he was
          not   entitled  shall,   in  the   discretion  of   the
          Commissioner of Labor, be liable to repay such amount
          to the Commissioner of Labor for the Unemployment Fund
          or to have such amount deducted from any future
          benefits payable to him under this chapter within the
          two-year period following the date of notice of the
          final determination, redetermination or decision.


Serrant   argues    that   the   fault   necessary    to    subject    one   to

recoupment is that specified in § 305(j)(1), that is, making

misrepresentations    to   receive   benefits.       This    approach   makes

eminent sense.       It is also consistent with the most similar

provision we have found, a Wyoming regulation set forth in the
margin,2    which    also    defines     fault    principally   in       terms   of

considerations that bear on fault in making the application for

benefits.

            If   §   305(j)(1)   were     controlling,     Serrant’s      position

would be strong because there is no administrative or judicial

finding that she made any kind of misrepresentation to obtain

benefits.    However, § 305(j)(2) by its terms appears not to apply

where the person received benefits to which he or she was not

entitled    by   reasons     specified    in     (j)(1).    Section 305(j)(2)

therefore    seems    to    contemplate    a   situation    where    a    claimant

receives benefits through his or her own fault but not by means



2
 . Fault Criteria. In determining whether a claimant is without
fault for purposes of deciding whether to waive recovery of
overpaid benefits under [Wyo. Stat.] § 27-3-409, the Division
shall consider the following criteria:
               (a) Whether the claimant made an incorrect
          statement of facts of a material nature in order to
          collect benefits; or
               (b) Whether the claimant knew or should have
          known that the statement he gave the Division was
          incorrect; or
               (c) Whether the claimant failed to disclose or
          caused another person to fail to disclose a material
          fact in connection with a claim for benefits; or
               (d) Whether the claimant knew or should have
          known the fact not disclosed was material; or
               (e) Whether the claimant knew or should have
          known he was not entitled to benefits; or
               (f) Whether the overpayment resulted directly or
          indirectly, in whole or part, from some other erroneous
          act or omission of the claimant, which he knew or
          should have known was wrong; or
               (g) Any other relevant factor.

Div. of Unemployment Ins., Dep’t of Employment, Rules and
Regulations, ch. XXXII, § 1 (1990).
of   what      are    essentially         misrepresentations           as    described        in

(j)(1).

               But this conclusion is quite problematic, for it is

difficult to identify such a scenario.                    Indeed, if the (lamented)

construction         is   correct,        hearing     examiners       would,      as   Serrant

contends, and as the hearing examiner and Magistrate Judge did

here,    be    likely      to       conflate    the    facts     to    be   considered        in

connection      with      the       unemployment       benefit     application         process

under § 305(j) (i.e., the putative misconduct) with the work-

related conduct relevant to the determination of disqualification

for benefits under 24 V.I.C. § 304(b)(3).                             This seems dubious

inasmuch as these are discrete statutory provisions and appear to

serve     different        purposes.            For     example,       if    there      is    no

misconduct,      there         is    no   overpayment.         However,       if    there     is

misconduct, and that automatically was deemed fault in receipt of

benefits, a recipient who was denied benefits for misconduct

would,    in    view      of    the conjunctive         wording       of    the    recoupment

provision,3 always be subject to recoupment regardless of the

background circumstances and the dictates of equity and good

conscience.          We    doubt      that     the    legislature      intended        such   an

untoward result.



3
.    The language reads (with emphasis supplied):

               . . . provided, that no repayment or deduction from
               benefits shall be required under this paragraph if the
               amount overpaid was received by the individual without
               fault on his part, and such recoupment would be against
               equity and good conscience.
              But then what does § 305(j)(2) mean?                     What additional

or   different      conduct     (other    than    misrepresentation         to   obtain

benefits) transforms being disqualified for benefits due to work-

related misconduct into receiving overpayment through fault of

one’s   own?        That   is   far     from    clear.      Moreover,      § 305(j)(2)

exempts from recoupment not individuals who applied for benefits

through      no   fault    of   their    own,    but     those   who    received   them

without fault.        This distinction seems opaque, and leads us to

doubt that these provisions really fit together.4                          Taking the

statute at its most literal meaning, however, Serrant was not at

fault in receiving the benefits.                She received them as the result

of an order of the (appellee) Agency, and there is no finding

that,   at    the   time    she   received       them,    she    had    done   anything

blameworthy in connection with their receipt.                          Even the work-

related misconduct finding came months later, at the time of the

hearing examiner’s decision.                   In short, Serrant’s failing to

complete the occupancy report for the hotel does not render her

later receipt of benefits due to Agency order to be through fault

of her own.

                                           B

              The meaning of “equity and good conscience” probably

favors Serrant's position even more strongly.                     The terms are not

defined in any Virgin Islands Regulation, but similar provisions

in other jurisdictions make clear that equity and good conscience

4
 . We leave clarification to the Virgin Islands legislature,
which might be well advised to look at the problems we have
identified.
relate to the ability of the recipient to repay the debt without

experiencing hardship. See 20 C.F.R. § 10-323:
          (a)   Recovery of an overpayment is considered to be
          “against equity and good conscience” when an individual
          presently or formerly entitled to benefits would
          experience severe financial hardship in attempting to
          repay the debt . . . .


See also International Union, UAW v. Dole, 919 F.2d 753, (D.C.

Cir. 1990) (financial hardship is key factor in interpretation

and consideration of “equity and good conscience” as used in 20

C.F.R.   § 617.55(a)(2)(ii)(A),       concerning     recoupment   of   Trade

Adjustment Assistance benefits); Giles v. Director of Labor, 621

S.W.2d 10, 11 (Ark. App. 1981) (Corbin, J., concurring) (“[O]ne

factor in determining equity and good conscience is the financial

condition   of   the   claimant.”);    Gilles   v.   Department   of   Human

Resources Development, 521 P.2d 110, 117 (Cal. 1974) (considering

“whether recovery of the overpayment, by imposing extraordinary

hardship on the claimant, would tend to defeat the objectives of

the Unemployment Insurance Code.”); Section 2 of the Wyoming

Regulations cited above.5       We believe that the Virgin Islands


5
 . Section 2. Equity and Good Conscience and Defeats the
Purpose of the Act Criteria. In determining whether recovery of
an overpayment defeats the purpose of the Employment Security Law
or is against equity and good conscience for the purpose of
deciding whether the overpayment of benefits shall be waived, the
Division shall consider the following criteria:
          (a) The extent to which recovery of the overpayment
would create an extreme financial hardship on the claimant.
Extreme financial hardship as used herein means the claimant
would be unable to provide himself or his immediate family with
minimal necessities of food, clothing, medicine, and shelter as a
result of the Division recovering the overpayment. Extreme and
lasting financial hardship may be expected to endure for more
than 120 days.
statute   carries     with    it    a    similar    meaning.         There   is   no

indication in the record, that Serrant, who has been granted

leave to proceed in this case in forma pauperis, has an ability

to repay the sums she has received.                There is not only no fact

finding contra but nothing in the record from which any such

finding could be inferred.              And while we acknowledge that there

may be “other relevant factors,” see supra note 4, none have been

suggested as being applicable here.



                                         III

           In view of the foregoing, it appears from the record

that, had the hearing examiner and Magistrate Judge focused on

the    pertinent     issue,    they      would   have    determined     that      any

overpayment received by Serrant was received without fault on her

part, and further, that any recoupment would have to be deemed

against equity and good conscience.                 Repayment of benefits is

therefore not required.        The fact that Serrant was found to have

been   guilty   of    wilful       misconduct      in   terms   of    the    benefit

entitlement ruling does not affect this result.6
(..continued)
          (b) The extent to which an agent of the Division made
an error which contributed to causing the overpayment of
benefits. However, such an error shall not include making a
decision to pay benefits which was reversed through the appeals
process.
          (c) Any other relevant factor, provided the claimant
is without fault.
6
 . In light of our disposition, we do not address Serrant’s
contention that the doctrine of equitable estoppel would prohibit
the Agency from recouping the overpayment of benefits due to the
Agency’s seven-month delay in issuing a final decision reversing
her award of benefits.
          The order of the district court, therefore, will be

reversed, and the case remanded with the directions to vacate the

order for recoupment.
