Paschal v. Jackson

• Citation: 936 F.2d 940
• Decision Date: 09 July 1991
• Docket Number: No. 90-3301,90-3301
• Parties: Unempl.Ins.Rep. CCH 22,027 Bonita PASCHAL, et al., Plaintiffs-Appellants, v. Sally JACKSON, Director of the Illinois Department of Employment Security, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 940

936 F.2d 940

Unempl.Ins.Rep. CCH 22,027

Bonita PASCHAL, et al., Plaintiffs-Appellants, v. Sally JACKSON, Director of the Illinois Department of Employment Security, et al., Defendants-Appellees.

No. 90-3301.

United States Court of Appeals, Seventh Circuit.

Argued May 10, 1991.

Decided July 9, 1991.

Jeffrey B. Gilbert, Steven Coursey, Karyn Glass, Legal Assistance Foundation of Chicago, Chicago, Ill., for plaintiffs-appellants Bonita Paschal, Daniel Dodson, and Paul Bucasas.

Barbara C. Biddle, Katherine S. Gruenheck, Dept. of Justice, Civ. Div., Appellate Section, Washington, D.C., Jerome J. Webb, Koutsky, Boudreau & Lassen, Martin B. Lowery, Office of U.S. Atty., Crim. Div., Nancy K. Needles, Asst. U.S. Atty., Office of U.S. Atty., Civ. Div., Appellate Section, Chicago, Ill., for defendants-appellees Sally Jackson, Stella Cuthbert, Ann E. McLaughlin, Robert T. Jones and DOL.

Before BAUER, Chief Judge, and POSNER and RIPPLE, Circuit Judges.

BAUER, Chief Judge.

In a second appeal of this case, we are asked to determine whether the State of Illinois' sovereign immunity bars an award of benefits to two classes of unemployment insurance claimants. Pursuant to 42 U.S.C. Sec. 1983, the claimants challenged the method by which the Illinois Department of Employment Security ("IDES") administered two unemployment insurance programs: the extended benefits ("EB") program, which pays benefits during periods of sufficiently high unemployment to claimants who have exhausted their regular benefits (which last up to twenty-six weeks), and the federal supplemental compensation ("FSC") program, which paid benefits during the recession in the early 1980s to otherwise eligible unemployment insurance claimants who had exhausted their regular benefits and any extended benefits.

In the first appeal, we held that the claimants had proven at trial two due process violations. Cosby v. Ward, 843 F.2d 967 (7th Cir.1988). They established that IDES had failed to give claimants adequate notice of their work search responsibilities and had failed to provide claimants with notice of the issues to be determined at claims adjudicators' interviews and referees' hearings. Id. at 985-86. Because the district court terminated the trial after the claimants had presented their case and before the defendants had a chance to offer a case in rebuttal, we remanded the matter back to the district court for another proceeding.

There never was a second trial, however, because the parties entered into a partial settlement. We call the settlement "partial" because it affected only the EB claimants and provided only for prospective relief. Also, the relief was contingent because the EB program is available only when triggered by adverse economic conditions. The settlement provided no relief whatsoever for the FSC claimants because FSC benefits were distributed pursuant to a temporary program that since has ended. The partial settlement agreement contained one more provision as well: the parties agreed to litigate any questions concerning the remaining claims for retroactive relief. Acting on that provision, the IDES moved to dismiss the retroactive claims on the ground that the eleventh amendment to the United States Constitution deprives a federal court of jurisdiction to award retroactive relief. The district court agreed, and entered a final judgment approving the consent decree and dismissing the retroactive claims. Cosby v. Jackson, 741 F.Supp. 740, 743 (N.D.Ill.1990). From that judgment, the claimants brought a timely appeal.

The eleventh amendment provides that an unconsenting state is immune from lawsuits brought in federal court by its own citizens as well as by citizens of other states. See Hans v. Louisiana, 134 U.S. 1, 10 S.Ct. 504, 33 L.Ed. 842 (1890). Ever since Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908), however, it has been recognized that the eleventh amendment does not prevent a federal court from directing state officials to bring their conduct into conformity with federal law. We have that very situation here. We affirmed the judgment of the district court that certain practices of IDES were held to violate the Due Process Clause of the fourteenth amendment and the "fair hearing clause" of Title III of the Social Security Act, 42 U.S.C. Sec. 503(a)(3). Although the eleventh amendment does not prohibit a federal court from finding liability when state officials' acts are ultra vires, it bars a judgment awarding retroactive damages that must come directly from the general revenues of the state. Edelman v. Jordan, 415 U.S. 651, 663, 668, 94 S.Ct. 1347, 1358, 39 L.Ed.2d 662 (1974). The question we are asked to resolve is whether the accrued unemployment compensation benefits sought here will have to be paid out of these types of funds.

Before we proceed, we must take some time to consider the workings of the Unemployment Trust Fund scheme. Unemployment insurance was born of the economic ills of the Great Depression. See generally ernstein and Ramel, The Illinois Unemployment Insurance Act, 42 Ill.Ann.Stat. XIII (Smith-Hurd 1986). From the beginning, unemployment compensation was conceived as a joint effort among the states and the federal government. The Social Security Act, 42 U.S.C. Secs. 301 et seq. (1935), contained two provisions that were designed to induce the states to pass unemployment compensation laws. Title III of the Social Security Act provided that approved state unemployment compensation schemes would be financed entirely with federal funds. Title IX assigned a uniform national payroll tax on employers for contributions paid to federally approved state unemployment compensation programs. Employers who pay contributions to a state unemployment insurance program that complies with federal law are entitled to a credit against their federal unemployment tax. 26 U.S.C.A. Secs. 3301-3302 (1987). The federal government has imposed certain requirements upon the states primarily to protect funds, but the states have had "wide latitude" to administer their own programs. Bernstein and Ramel, 42 Ill.Ann.Stat. at XIX.

In Illinois, as in other states, the basic operating mechanism of the unemployment compensation program is quite simple: the contributions from liable employers are collected and then distributed to eligible recipients. There are, however, more than a few intermediary steps. Pursuant to the State Unemployment Insurance Act, Ill.Rev.Stat.1989, ch. 48, pp 300-820 ("Act"), the Director of the Department of Employment Security must deposit all monies payable under the Act in a "clearing account," one of three separate accounts maintained by the Director (the other two being the benefit and special administrative accounts). Ill.Rev.Stat. ch. 48, p 660. The Act provides that "[m]oneys in the clearing, benefit and special administrative accounts shall not be commingled with other State funds." Id. After the funds in the "clearing account" clear, the Director must immediately deposit them with the United States Secretary of the Treasury to the credit of Illinois' account in the federal unemployment trust fund. Id. See also 42 U.S.C. Secs. 503(a)(4) and 1104. The Director may draw upon the funds to pay benefits up to, but not exceeding, the amount in the State's account. Id. The monies payable under the Act are the "sole and exclusive source for the payment of benefits." Ill.Rev.Stat. ch. 48, p 790.

When the State needs funds to pay benefits, the necessary amounts are requisitioned from the federal unemployment trust fund and deposited into an unemployment fund called the "benefit account." Id. See also 42 U.S.C. Sec. 1104(f); 26 U.S.C. Sec. 3306(f). In addition to the payments to unemployed workers, the funds in the benefit account may be expended for "refunds of contributions, interest and penalties under the provisions of the Act, the payment of health insurance in accordance with [the Act], and the transfer or payment of funds to any Federal or State agency pursuant to reciprocal arrangements...." Ill.Rev.Stat. ch. 48, p 660. If unclaimed or unpaid amounts remain in the benefit account after the period for which they were requisitioned, they must be used to pay benefits in succeeding periods or redeposited in the State's account in the federal unemployment trust fund. Id.

Within the federal unemployment trust fund is an employment security administration account. Each fiscal year, funds are appropriated from the United States Treasury to the unemployment trust fund in an amount equal to the year's federal unemployment tax receipts. These funds then are credited to an employment security administration account. IDES can requisition money from this account to help cover administrative expenses. Id. See also 42 U.S.C. Sec. 1101(c). If the federal employment security administration account has insufficient funds to defray IDES' administrative expenses, additional funds are available to IDES in its special administrative account, which is comprised of interest payments and penalties collected from employers who fail to make timely contributions. Ill.Rev.Stat. ch. 48, pp 661 and 663.

Should the federal unemployment trust cease to exist, Illinois' money would be transferred to the State Treasurer for disposition at the behest of the Director in accordance with the Act. Ill.Rev.Stat. ch. 48, p 662. If the State's account falls short, then the governor is authorized to apply to the United States Secretary of Labor for an advance to the State's account. Any federal money received by the State or the IDES Director "shall be received and held by the State Treasurer as ex-officio custodian thereof separate and apart from all other State moneys, and such funds shall be distributed or expended ... for the proper and efficient administration of the Act." Id. at p 663.

The EB and FSC programs operate a bit differently. States were induced to pass the EB program pursuant to the Federal-State...