1995 Decisions

Opinions of the United

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Precedential or Non-Precedential: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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Recommended Citation

"Serrant v VI Employ Sec Agency" (1995). 1995 Decisions. Paper 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 workrelated 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 workrelated 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 workrelated 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.