IN THE COMMONWEALTH COURT OF PENNSYLVANIA
James Saracino, :
:
Petitioner :
:
v. : No. 1188 C.D. 2016
: Submitted: March 31, 2017
Unemployment Compensation :
Board of Review, :
:
Respondent :
BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge
HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE JAMES GARDNER COLINS, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY
SENIOR JUDGE COLINS FILED: May 24, 2017
James Saracino (Claimant) petitions this Court for review of an order
of the Unemployment Compensation Board of Review (Board) imposing a $7,694
fault overpayment under Section 804(a) of the Unemployment Compensation Law
(the Law),1 43 P.S. § 874(a). For the reasons set forth below, we reverse the
Board’s imposition of a fault overpayment with respect to benefits paid for the
week ending October 18, 2014 through the week ending November 29, 2014 and
remand this matter to the Board to revise Claimant’s restitution obligation for those
seven weeks to a non-fault overpayment.
1
Act of December 5, 1936, Second Ex. Sess., P.L. (1937) 2897, as amended, 43 P.S. §§ 751-
919.10.
Claimant filed an application for unemployment compensation
benefits on August 24, 2014, after he was discharged by FGI Insurance
(Employer), and was determined to be eligible. (Record Item (R. Item) 9,
Referee’s Decision/Order Finding of Fact (F.F.) ¶1; R. Item 1, Claim Record.)
Between August 2014 and February 7, 2015, Claimant received benefits. On April
23, 2015, the Department of Labor & Industry (Department) issued three Notices
of Determination with respect to Claimant. The first determination ruled that
Claimant was ineligible for benefits for the week ending October 18, 2014 through
the week ending February 7, 2015, pursuant to Section 402(h) of the Law, which
provides in relevant part that “[a]n employe shall be ineligible for compensation
for any week … [i]n which he is engaged in self-employment.” 43 P.S. § 802(h).
(R. Item 3, Notice of Determination.) The second determination found that
Claimant had been paid a total of $7,694 in benefits for those 17 weeks and
imposed a fault overpayment of $7,694 pursuant to Section 804(a) of the Law. (Id.,
Notice of Determination of Overpayment.) The third determination assessed 19
penalty weeks and a 15% penalty of $1,154.10 pursuant to Sections 801(b) and
801(c) of the Law for knowingly making false statements or knowingly failing to
disclose information in order to obtain or increase benefits. (Id., Notice of
Determination of Penalty.)
Claimant appealed these determinations and, on May 22, 2015, the
referee held a hearing at which Claimant and a Department audit and investigation
specialist appeared and testified.2 The Department witness testified and introduced
evidence that Claimant and another individual formed S&L Insurance LLC on
2
A second Department representative also participated in the hearing by telephone but had no
personal knowledge of the facts or involvement in the investigation and decisions at issue.
2
September 22, 2014, opened a bank account for that entity on October 15, 2014,
and signed a one-year lease dated October 9, 2014 for office space for the period
November 1, 2014 through October 31, 2015. (R. Item 8, Referee Hearing
Transcript (H.T.) at 6; R. Item 2, Service Center Exs. 4, 5, 8, 10.) The Department
also showed that Claimant on November 25, 2014 entered into an agent agreement
with Farmers Insurance effective December 1, 2014, that Claimant admitted in
February 2015 that he was self-employed since December 2014, and that Claimant
received payments from Farmers Insurance of $167.65 on December 1, 2014,
$2,280.97 on January 2, 2015, and over $5,840 at the beginning of March 2015.
(R. Item 8, H.T. at 6-7; R. Item 2, Service Center Exs. 6, 7, 8.) The Department
witness testified that when Claimant filed for benefits for the weeks ending
January 31, 2015 and February 7, 2015, he reported that he had a new employer
and reported receiving wages. (R. Item 8, H.T. at 7.)
Claimant admitted that he signed the lease and took steps to start his
company in October 2014, but testified that the company did not start operations
until his agency agreement began in December 2014 and that no income was
coming in to the company before December 2014. (R. Item 8, H.T. at 9-10.)
Claimant testified that he did not realize that he was required to report activity to
start up a business or that the mere fact that he had started a business made him
ineligible for benefits. (Id. at 9, 11.) Claimant further testified that he talked to a
CareerLink representative about possibly starting his own business because of the
difficulty finding employment at his age and that the CareerLink representative did
not tell him that this would make him ineligible for unemployment benefits. (Id. at
9.) Claimant did not dispute that he received a copy of the unemployment
compensation handbook in August 2014, but testified that he did not review it. (Id.
3
at 11.) No evidence was introduced concerning the content of the unemployment
compensation handbook and the Department did not introduce any evidence that
Claimant knew that he was required to report activity taken to start a business. The
Department, moreover, did not introduce any evidence that Claimant was asked
whether he was self-employed or starting a business when he filed claims for
continued benefits between September 2014 and February 7, 2015.
On May 29, 2015, the referee issued a decision affirming the
Department’s ineligibility determination, but reversing the fault overpayment and
penalty determinations. The referee made the following findings of fact:
1. The claimant filed an application for unemployment
compensation benefits effective August 24, 2014, following
separation from employment with FGI Insurance.
2. The claimant and another individual formed a limited
liability corporation to establish a business called S&L
Insurance on September 22, 2014.
3. The claimant and his partner signed a rental agreement for a
business location in Yardley, Pennsylvania on October 9,
2014, with an effective date of November 1, 2014.
4. The claimant and his partner made an opening deposit in a
business bank account totaling $10,000 on October 15, 2015,
to which the claimant contributed $2,000.
5. The claimant and his partner entered into a contract with
Farmer’s Group Insurance on November 25, 2014 with an
effective date of December 1, 2014.
6. The claimant engaged in the business of selling insurance
throughout the period at issue.
7. The claimant did not report his business activities to the
Department.
4
8. The claimant did not review an Unemployment
Compensation Handbook prior to starting the business.
9. The claimant claimed and received benefits for the weeks
ending October 18, 2014 through February 7, 2015.
(R. Item 9, Referee’s Decision/Order at 1.) The referee concluded that Claimant’s
activities in forming the business, signing a lease and opening a bank account were
sufficient to constitute self-employment and that Claimant was therefore ineligible
for benefits for the weeks ending October 18, 2014 through February 7, 2015 under
Section 402(h) of the Law. The referee, however, also found Claimant’s testimony
credible and that Claimant did not know that starting a business made him
ineligible for unemployment benefits or that he was required to report his business
activity to the Department. (R. Item 9, Referee’s Decision/Order at 2-3.) Based on
this credibility determination, the referee ruled that the overpayment was a non-
fault overpayment and that no penalties would be imposed. The Department
appealed the referee’s decision.
On June 15, 2016, the Board issued an order affirming the referee’s
decision that Claimant was ineligible for benefits for the weeks ending October 18,
2014 through February 7, 2015 and the denial of penalties, but holding that the
overpayment was a fault overpayment. In its Order, the Board adopted and
incorporated the referee’s findings, including the referee’s credibility
determination, and made no findings that Claimant was aware or had reason to
believe that starting a business disqualified him from benefits or that he was
required to notify the Department that he was starting a business. (Record Item 12,
Board Order at 1-2.) Indeed, the Board rejected the Department’s argument that
Claimant’s receipt of the unemployment compensation handbook was sufficient to
give him notice of his ineligibility on the ground that “the Department did not
5
establish what the handbook stated regarding start up businesses.” (Id. at 1.) The
Board, however, concluded that “because he failed to inform the Department that
he started his own business,” Claimant “was paid benefits to which he was not
entitled by reason of his fault” and was therefore subject to a fault overpayment for
the entire $7,694 in benefits received for the weeks ending October 18, 2014
through February 7, 2015. (Id.) Claimant filed the instant petition for review
appealing the Board’s order to this Court.3
In this appeal, Claimant argues that the Board’s imposition of a fault
overpayment is in error because Claimant’s failure to report his business activity
was a result of mistake and confusion, not blameworthy conduct. We agree that
with respect to the period prior to December 2014, there was no basis on which a
fault overpayment could properly be imposed.4
Section 804(a) of the Law provides that “[a]ny person who by reason
of his fault has received any sum as compensation under this act to which he was
not entitled, shall be liable to repay … a sum equal to the amount so received by
him and interest.” 43 P.S. § 874(a). The Department’s recovery of a fault
overpayment contains punitive elements not applicable to other erroneous
payments of unemployment compensation: the rate of interest imposed on fault
3
Our review of the Board’s decision is limited to determining whether necessary findings of fact
are supported by substantial evidence, whether errors of law were committed and whether
constitutional rights were violated. Chishko v. Unemployment Compensation Board of Review,
934 A.2d 172, 176 n.4 (Pa. Cmwlth. 2007).
4
Claimant also argues that the fault overpayment cannot be sustained because the Department
allegedly did not sufficiently show the nature of his relationship with Farmers Insurance to prove
that he was self-employed. This argument is without merit. The record before the referee
showed that Claimant admitted that his company, S&L Insurance LLC, and his work for Farmers
Insurance were self-employment and that Claimant disputed only his knowledge of whether this
affected his eligibility and what he was required to report. (R. Item 2, Service Center Ex. 6 at 1;
R. Item 8, H.T. at 9-12.)
6
overpayments is 9% and the fault overpayment and interest may be collected by
civil action or by placing a lien on the claimant’s property. Fugh v. Unemployment
Compensation Board of Review, 153 A.3d 1169, 1173 (Pa. Cmwlth. 2017) (en
banc). In contrast, a non-fault overpayment may be recouped from the claimant
only through deduction from future unemployment compensation benefits. 43 P.S.
§ 874(b).
The word “fault,” under Section 804(a), requires an act to which
blame, censure, impropriety, shortcoming, or culpability attaches. Fugh, 153 A.3d
at 1175-76; Castello v. Unemployment Compensation Board of Review, 86 A.3d
294, 298 (Pa. Cmwlth. 2013); Chishko v. Unemployment Compensation Board of
Review, 934 A.2d 172, 177 (Pa. Cmwlth. 2007); Greenawalt v. Unemployment
Compensation Board of Review, 543 A.2d 209, 211 (Pa. Cmwlth. 1988). “A
blameworthy act requires a showing of the actor’s state of mind, or mens rea.”
Fugh, 153 A.3d at 1176. The mere fact that the claimant did not provide correct
information to the Department is not sufficient by itself to permit imposition of a
fault overpayment. Fugh, 153 A.3d at 1176-77; Greenawalt, 543 A.2d at 211.
Where the error or failure to provide information is shown only to be the result of
ordinary negligence, mistake or confusion by the claimant, the claimant cannot be
held liable for a fault overpayment under Section 804(a). Fugh, 153 A.3d at 1176-
77; Cruz v. Unemployment Compensation Board of Review, 531 A.2d 1178, 1180
(Pa. Cmwlth. 1987). Knowing recklessness or gross negligence by the claimant in
failing to provide correct information, in contrast, is sufficient to support a fault
overpayment. Fugh, 153 A.3d at 1176.
Here, the Board’s findings and the evidence in the record do not
permit a conclusion that Claimant’s failure to report his activities from September
7
2014 through November 2014 of setting up his company and preparing to go into
business was anything other than a mistake or confusion as to his eligibility and
reporting obligations. Prior to December 2014, Claimant was not working or
earning income. (R. Item 8, H.T. at 9.) Claimant testified that he was unaware
that merely starting a business made him ineligible for benefits and that when he
discussed going into business for himself with a CareerLink representative, the
representative did not tell him that starting a business affected his eligibility. (Id.
at 9-11.) The Board found Claimant’s testimony credible and there was no
evidence that Claimant was given any instruction by the Department to report
business start-up activity. Although Claimant received a copy of the
unemployment compensation handbook, no evidence was introduced as to the
contents of that handbook. Moreover, the Claim Record shows that the questions
Claimant answered when he filed for continued benefits asked whether he worked,
but did not ask about self-employment or business ventures. (R. Item 1, Claim
Record at 7.) We therefore conclude that the Department did not show a fault
overpayment of benefits for the weeks ending October 18, 2014 through November
29, 2014.
The evidence is substantially different for the period after December
1, 2014. Claimant entered into an agency agreement with Farmers Insurance
effective December 1, 2014 and began at that time selling insurance under that
agreement for which he would be paid commissions. (R. Item 8, H.T. at 6-7; R.
Item 2, Service Center Exs. 6, 7, 9; R. Item 9, F.F. ¶¶5-6.) The questions that
Claimant answered when he filed for continued benefits asked whether he was
working and, while Claimant did not understand the legal standards for and effect
of self-employment, he knew he was working. Claimant, however, did not report
8
this work or inquire with the Department as to whether he should provide
information concerning this work. (R. Item 9, F.F. ¶7.) “Truthfully divulging all
pertinent information regarding one’s employment status is required so the
unemployment compensation authorities may make an intelligent and well-
informed decision as to a claimant’s eligibility for benefits and proper computation
of such benefits.” Castello, 86 A.3d at 298. The Board’s conclusion that the
overpayment was by reason of Claimant’s fault is therefore supported by the
record with respect to the payments for weeks ending December 6, 2014 through
February 7, 2015.
For the foregoing reasons, we reverse the Board’s order insofar as it
imposed a fault overpayment with respect to benefits paid to Claimant for the week
ending October 18, 2014 through the week ending November 29, 2014 and remand
this matter to the Board to revise Claimant’s restitution obligation for those seven
weeks to a non-fault overpayment and reduce the fault overpayment to $4,453.
____________________________________
JAMES GARDNER COLINS, Senior Judge
9
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
James Saracino, :
:
Petitioner :
:
v. : No. 1188 C.D. 2016
:
Unemployment Compensation :
Board of Review, :
:
Respondent :
ORDER
AND NOW, this 24th day of May, 2017, the order of the
Unemployment Compensation Board of Review (Board) in the above-captioned
matter is REVERSED insofar as it imposed a fault overpayment with respect to
benefits paid to Petitioner for the week ending October 18, 2014 through the week
ending November 29, 2014. This matter is REMANDED to the Board for revision
of Petitioner’s restitution obligation for those seven weeks to a non-fault
overpayment and for reduction of the fault overpayment to $4,453.
Jurisdiction relinquished.
____________________________________
JAMES GARDNER COLINS, Senior Judge