ON APPEAL FROM FINAL JUDGMENT OF UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY (D.C. Civil No. 74-0818)
Before Gibbons and Higginbotham, Circuit Judges, and Markey*fn* , Chief Judge, United States Court of Customs and Patent Appeals.
A tension exists, in the administration of public welfare or benefit programs, between the need to guarantee the fair handling of each individual's claim and the need to efficiently monitor such programs to minimize fraudulent and otherwise improper claims. This case presents the issue of whether the procedures utilized by the New Jersey Department of Labor and Industry to prevent fraud in the receipt of unemployment benefits adequately protect the interests of those claiming entitlement to unemployment compensation funds. We must also decide whether a plaintiff is entitled to counsel fees where procedures have been changed subsequent to the filing of the plaintiff's lawsuit, but when there has been no formal judgment or settlement decree mandating such changes.
More specifically, appellants in this class action*fn1 contend that the procedures utilized by the Division of Employment Security of the New Jersey Department of Labor and Industry in the processing of suspected unemployment fraud ("wage-benefit conflict") cases violate the "fair hearing" and "when due" provisions of 42 U.S.C. Section 503(a)*fn2 as well as the due process clause of the Fourteenth Amendment.*fn3 The district court found no such violations and entered judgment for the appellees. Appellants were also denied counsel fees. We affirm the entry of judgment in favor of appellees but remand for a re-determination of the counsel fees issue.
1. THE CHALLENGED PROCEDURES
The following background to these proceedings was succinctly set forth by the court below:
New Jersey participates in the jointly-funded federal-state unemployment compensation program established by Title III of the Social Security Act, 42 U.S.C. § 501, Et seq. The unemployment compensation law in New Jersey, N.J.Stat.Ann. 43:21-1, Et seq., is administered by the Division of Employment Security of the Department of Labor and Industry, represented by the defendant Horn.
The Bureau of Unemployment and Disability Insurance Programs in the New Jersey Department of Labor and Industry is responsible for developing and implementing programs, procedures, and instructions for the forty-one (41) local unemployment claims offices throughout the State and appraising the quality of the operation of those offices. Various manuals have been prepared by the Bureau setting forth the procedures to be followed by the local offices, and so-called administrative instructions are issued to the office managers from time to time in order to supplement or update the information in the manuals. Similar directives are issued to the head of the Department's Fraud Inspection Section. Both the local offices and the latter Section are bound by such directives.
To file a claim for unemployment benefits, an individual must report in person to a local office, where an application for benefits is filled out which, among other things, warns him that he is subject to certain penalties for any misrepresentation. The initial application is processed through a computer and a written request for wage and separation information respecting the claimant is mailed to the responsible employer. When he reports back to the local office fourteen (14) to twenty-one (21) days after the filing of the claim, the claimant is given a written determination as to his eligibility for benefits and, if found eligible, is advised of his maximum benefit amount and weekly benefit rate. At that time, the claimant receives his first benefit check upon signing a pay order, which, like the claim application, contains a warning as to the consequences of a misstatement. He continues to report to the local office and receive his benefit checks on a bi-weekly basis. If his eligibility for benefits is called into question, a hearing is held, and if the decision is adverse to the claimant he is entitled to a plenary De novo hearing before the Appeal Tribunal, with a further right of appeal to the Board of Review and the New Jersey courts. The same right of administrative and judicial review exists in the case of decisions rendered by the Fraud Inspection.
Instances of suspected unemployment fraud, or so-called wage-benefit conflicts, come to the attention of the Department of Labor and Industry by various means. The responsible employer is furnished monthly with a statement showing the benefits paid to the claimant; if the employer, upon matching the statement against its payroll records, finds that the claimant was employed during weeks for which he was paid benefits, this is brought to the attention of the Department. The Department also submits a list of all claimants and their benefit payment records on a quarterly basis to the Social Security Administration, where the information is cross-matched against any payroll data received by the federal agency for the same period; upon being advised of a possible wage-benefit conflict by this means, a Form B-98B, Claimant's Benefit Payment and Employment Record (D-1 in evidence) is forwarded to the employer requesting information on the claimant's employment, if any, during the period in question. Also, information respecting a possible wage-benefit conflict may be supplied the claimant himself, and periodic agency audits of payroll records in industries where there appears to be a high incidence of unemployment fraud.
Ross v. Horn, No. 74-818 (D.N.J. May 23, 1978), Appellants' Appendix, pp. 40-42.
At the time the complaint in this action was filed, New Jersey's procedures with respect to those suspected of having wage-benefit conflicts varied according to the seriousness of the suspected violations. In the more serious cases, where criminal prosecution was contemplated, a claimant was sent a notice requesting his appearance at a hearing so that he might show cause why his unemployment benefits should not be suspended. If, after the hearing, a wage-benefit conflict was found, the claimant was notified that his case would be referred for criminal prosecution and that any future payments owed the claimant would be suspended pending disposition of the criminal case. In less serious cases, a claimant received no hearing, but was sent a Determination and Demand for Refund of Unemployment Benefits. Pursuant to an unwritten policy, applications by persons suspected of wage-benefit conflicts were not acted upon until criminal action was either decided against or completed.
Shortly after this case was filed, new procedures were implemented whereby all claimants suspected of wage-benefit conflicts were given an opportunity to be heard prior to a termination of their benefits. These new procedures have evolved somewhat since their initial implementation. The following are the procedures mandated by the most recent regulations and Administrative Instructions.
Local unemployment insurance claims offices are to schedule hearings "as soon as possible, but no later than 30 days" after they have been notified by the Fraud Inspection Section of the Department of Labor and Industry's Bureau of Payment Control that a wage-benefit conflict may exist. Appellants' Appendix, p. 87. Notice is then sent to the claimant informing him that evidence has been received that he was employed for a specified period during which he received unemployment benefits, that he may be subject, as a result, to specified consequences, and requesting that he report for a fact-finding interview at a given time and date. The notice informs the claimant that he has "the right to representation and witnesses," that he should bring any evidence he has to support his claim, and that the local office must be notified if he cannot attend the interview. In the less serious or "non-criminal" cases, the interview is conducted by a claims examiner in the local office. In the more serious cases, the interview is conducted by investigators in the Fraud Inspection Section. In both cases, the claimant is told that information has been received indicating that he received benefits for periods during which he was employed and is shown a form which reveals the basis for the allegations. The claimant is given an opportunity to rebut the allegations. The examiner prepares a summary of the claimant's statements which the claimant is asked to sign. In the more serious cases, claimants are advised of their privilege against self-incrimination and their right to representation by counsel.
The relevant information is then sent to the Inspection Section along with a suggestion as to whether further investigation is warranted. That Section then makes a determination as to whether there was in fact a wage-benefit conflict. If a wage-benefit conflict is found, a form entitled "Determination and Demand for Refund of Unemployment Benefits and Imposition of Penalty and Disqualification Because of Conflicting Wages" is sent to the claimant. This Determination and Demand informs the claimant that, under New Jersey's Unemployment Compensation Law, he is disqualified for benefits for a 17-week period and that the maximum amount of benefits the claimant can receive is reduced by 17 times the weekly amount of improper benefits received. The claimant is requested to repay the improperly received benefits and to pay a statutorily imposed fine. The claimant is also informed that he has a right of appeal which must ...