Brewer v. Cantrell

• Decision Date: 04 November 1985
• Docket Number: Civ. A. No. 84-0239-B.
• Citation: 622 F. Supp. 1320
• Parties: Patricia BREWER and James Parker, Plaintiffs, v. Ralph CANTRELL, in his official capacity as Commissioner, Virginia Employment Commission, Defendant.
• Court: U.S. District Court — Western District of Virginia

622 F. Supp. 1320

Patricia BREWER and James Parker, Plaintiffs, v. Ralph CANTRELL, in his official capacity as Commissioner, Virginia Employment Commission, Defendant.

Civ. A. No. 84-0239-B.

United States District Court, W.D. Virginia, Big Stone Gap Division.

November 4, 1985.

Martin Wegbreit, Castlewood, Va., for plaintiffs.

Susan T. Ferguson, Asst. Atty. Gen., Richmond, Va., for defendant.

MEMORANDUM OPINION

GLEN M. WILLIAMS, District Judge.

This case is presently before the court on a motion for summary judgment by the plaintiffs and a cross-motion for summary judgment by the defendant. Jurisdiction of the court is invoked pursuant to 28 U.S.C. § 1331, 28 U.S.C. § 1337, 28 U.S.C. § 1343, and 42 U.S.C. § 1983. Plaintiffs allege that action taken by the Virginia Employment Commission violates the Social Security Act, 42 U.S.C. § 501 et seq., the Federal Unemployment Tax Act, 26 U.S.C. § 3301 et seq., the due process clause of the Fourteenth Amendment, and the equal protection clause of the Fourteenth Amendment. The defendant counters plaintiffs' arguments by alleging that plaintiffs' allegations are without merit, that plaintiffs may not maintain this action because there is no private right of action available in suits of this nature, and that this suit is barred by the Eleventh Amendment.

On September 4, 1979, Patricia Brewer left her job at Norton Community Hospital. She applied for unemployment benefits on September 12, 1979. It was determined that she was eligible for $39.00 per week for 14 weeks. But, after a hearing on December 12, 1979, the appeals examiner found that Mrs. Brewer had left work voluntarily. She was not entitled to any benefits. However, the Virginia Employment Commission (hereinafter, the Commission) had already paid Mrs. Brewer $546.00.

Using the address that Mrs. Brewer gave at the December 12, 1979 hearing, the Commission mailed overpayment notices to her. But Mrs. Brewer had moved to Ohio after the hearing. Even though she had left a forwarding address with the Postal Service, Mrs. Brewer testified that she never received any notices. The Commission also tried to recoup the overpayment from Mrs. Brewer's state income tax refunds, but she never received any refunds.

After moving back to Virginia, Mrs. Brewer obtained employment with B.F. Robinette. She was laid off on November 8, 1984 and applied for unemployment benefits on November 13, 1984. The Commission determined that Mrs. Brewer was eligible for benefits of $63.00 per week for a period of 14 weeks, but she would have to repay the $546.00 overpayment out of these benefits. The Commission acted under Va.Code § 60.1-132 (1982)¹ which allows overpayments to be collected. Mrs. Brewer then filed this suit.

The Commission had also overpaid James Parker. When Mr. Parker lost his job with the Wise County Sheriff's Department, he applied for and was awarded unemployment benefits. Like Mrs. Brewer, Mr. Parker was told that he would have to repay the previous overpayment out of his benefits. He was allowed to intervene as a party-plaintiff in this case. The court issued preliminary injunctions which ordered the Commission to pay each plaintiff a minimum of $40.00 per week for as long as they met all the other requirements for benefits.

I.

The defendant raises two defenses to this suit. The first is that the plaintiffs do not have a private cause of action. Defendant argues that a private cause of action does not exist in a suit of this nature. Private causes of action have regularly been allowed in suits based upon the Social Security Act, 42 U.S.C. § 301 et seq. See, e.g. California Department of Human Resources v. Java, 402 U.S. 121, 91 S.Ct. 1347, 28 L.Ed.2d 666 (1971); Jenkins v. Bowling, 691 F.2d 1225, 1228 (7th Cir. 1982); Brown v. Porcher, 660 F.2d 1001 (4th Cir.1981). To quote the Seventh Circuit in Jenkins v. Bowling, 691 F.2d 1225, 1228 (7th Cir.1982):

As an original matter, one might wonder how a state statute could be challenged as inconsistent with Section 303(c) of the Social Security Act, and hence as invalid under the supremacy clause, when Section 303(a) does not purport to require anything of the states....

Despite the lack of any obvious basis in the language of Section 303(a) for such an (injunctive) remedy, the Supreme Court, though without discussion of the issue beyond an extremely cryptic dictum in Rosado v. Wyman 397 U.S. 397, 420-422, 90 S.Ct. 1207, 1221-1222, 25 L.Ed.2d 442 (1970) , has consistently assumed that it is a proper remedy,.... We regard the point as too well settled to be questioned by us.

While Section 303(a) is not in issue here, this illustrates that private causes of action are allowed under the Social Security Act.

Under 42 U.S.C. § 1983, a private cause of action is also allowed. In Maine v. Thiboutot, 448 U.S. 1, 100 S.Ct. 2502, 65 L.Ed.2d 555 (1980), the United States Supreme Court said "The § 1983 remedy broadly encompasses violations of federal statutory as well as constitutional rights." Id. 448 U.S. at 4, 100 S.Ct. at 2504. The Fourth Circuit Court of Appeals has allowed a private cause of action in unemployment benefits suits under 42 U.S.C. § 1983. Brown v. Porcher, 660 F.2d 1001 (4th Cir.1981); cert. denied 459 U.S. 1150, 103 S.Ct. 796, 74 L.Ed.2d 1000 (1983).

Defendant also raises as a defense a claim that the Eleventh Amendment bars this claim. In Brown, Id., the Fourth Circuit held that the unemployment compensation fund of South Carolina is a special fund which was administered separate and apart from all public monies or funds of that state. Id. at 1006. Virginia's unemployment compensation fund is almost identical to South Carolina's. It is a special fund. Code of Virginia § 60.1-106. All monies which are paid into the fund are from employers or entities which are treated as employers for this purpose, Code of Virginia §§ 60.1-75 and 60.1-89.1, along with federal funds and investment income. Money may not be taken from this fund except for payment of benefits. Code of Virginia § 60.1-111. Unemployment benefits are payable only from the unemployment compensation fund. Code of Virginia § 60.1-46. This protects the general funds of the public treasury from liability on suits on unemployment claims. The Eleventh Amendment bars suits which would cause funds to be paid out of the general treasury of a state. See Cory v. White, 457 U.S. 85, 90, 102 S.Ct. 2325, 2328, 72 L.Ed.2d 694 (1982). For the reasons stated above, the plaintiffs have a viable cause of action in this suit.

II.

The main thrust of plaintiffs' first arguments is that the Commission's attempt to recoup the overpayments violates the federal statutory scheme of full payments of benefits when due. 42 U.S.C. § 503(a)(1). Plaintiffs argue that the Code of Virginia § 60.1-132 conflicts with 42 U.S.C. § 503(a)(1). Essentially, plaintiffs say that any withholding of benefits to pay the prior overpayment is not allowed.

The United States Supreme Court in California Department of Human Resources v. Java, 402 U.S. 121, 91 S.Ct. 1347, 28 L.Ed.2d 666 (1971) defined the term "when due" of § 503(a)(1) as "when benefits are allowed as a result of a hearing of which both parties have notice and at which they are permitted to present their respective positions."

This definition of "when due" basically means that once a hearing² is held and it is determined that a person is due benefits, the benefits will be paid regardless of an appeal. This results in overpayments if, at the appellate hearing, it is determined that the recipient was not qualified to receive any benefits. States with limited unemployment benefit funds are being caught in a "catch-22." On one hand, the benefits must be paid at the earliest possible moment. On the other hand, limited funds are being extended to those who do not deserve them which results in a violation of 26 U.S.C. § 3304(a)(4):

(4) all money withdrawn from the unemployment fund of the State shall be used solely in the payment of unemployment compensation, exclusive of expenses of administration, and for refunds of sums erroneously paid into such fund and refunds paid in accordance with the provisions of section 3305(b)....

These overpayments are not unemployment compensation.

In order to alleviate this problem, many states, including Virginia, have passed recoupment statutes.³ These statutes are not designed to operate as penalties. They serve only to regain monies which have been awarded to the undeserving. When the undeserving become eligible for benefits, the overpayments are actually treated as advances.⁴ The recipient's benefits are reduced by the amount which was erroneously paid. There are no fines levied, nor does the recipient have to pay any interest. If states are not allowed to recoup the overpayments, then those who truly deserve the benefits are punished. The funds are not unlimited.

In actuality, these recoupment statutes or some other means are required. 42 U.S.C. § 503(a)(9) states the following:

(a) Provisions required

The Secretary of Labor shall make no certification for payment to any State unless he finds that the law of such State, approved by the Secretary of Labor under the Federal Unemployment Tax Act, includes provision for —

. . . . .

(9) Effective July 1, 1941, the replacement, within a reasonable time, of any moneys received pursuant to section 502 of this title, which, because of any action or contingency, have been lost or have been expended for purposes other than, or in amounts in excess of, those found necessary by the Secretary of Labor for the proper administration of such State law.

If a state is not allowed to recoup monies which were expended in overpayments, then the Secretary of Labor is required to stop paying federal unemployment grants. These monies help subsidize the state's unemployment compensation funds.

Several state courts have dealt with their recoupment statutes. These cases have found that the statutes do not conflict...