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KOSTELIC v. BERNARDI

April 12, 1982

MIECZYSLAW KOSTELIC, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
E. ALLEN BERNARDI, DIRECTOR, ILLINOIS DEPARTMENT OF LABOR, AGALIECE MILLER, ADMINISTRATOR, BUREAU OF EMPLOYMENT SECURITY, STELLA CUTHBERT, COMMISSIONER, DIVISION OF UNEMPLOYMENT INSURANCE, AND THE ILLINOIS DEPARTMENT OF LABOR, DEFENDANTS.



The opinion of the court was delivered by: Getzendanner, District Judge.

MEMORANDUM OPINION AND ORDER

Plaintiff Mieczyslaw Kostelic brings this action challenging defendants' decision to withhold from Kostelic, and persons similarly situated, state unemployment insurance benefits. This withholding is said to violate the Social Security Act, 42 U.S.C. § 501 et seq., and the Fourteenth Amendment of the United States Constitution. Kostelic seeks declaratory and injunctive relief and damages from the administrators of the Illinois Unemployment Insurance Program.

Defendants have moved to dismiss the complaint on the grounds that there is no jurisdiction over the defendant Illinois Department of Labor, and that the complaint fails to state a claim upon which relief can be granted. For reasons hereinafter stated, the defendants' motion is granted in part and denied in part.

Statement of Facts

In September, 1976, an unemployment insurance referee held that Kostelic had fraudulently received benefits for a portion of the above period in the amount of $1,708, which included $1,332 in regular and extended benefits and $376 under the FSB program.

Kostelic was employed in 1976 but in May, 1980, he again became unemployed. He applied for unemployment insurance benefits and was found eligible for maximum weekly benefits of $180. Kostelic has never received any of the unemployment insurance benefits, however. Defendants, relying upon the referee's finding of fraud, first recouped $1,332 from his present benefits for the past overpayments in the regular and extended benefit programs, pursuant to ¶¶ 900 and 901 of the Illinois Act. As Kostelic still owed $376 in overpayments under the FSB, defendants informed him that they would not pay any regular state unemployment benefits until he repaid the $376 in cash. Kostelic has not repaid the $376, and defendants have continued to withhold his current benefits.

Defendants contend that the Eleventh Amendment bars suit against the Illinois Department of Labor and that defendants were authorized to withhold state benefits until the FSB overpayments were repaid in cash. These are the issues that must be decided.

The Eleventh Amendment Argument

The Eleventh Amendment does not bar suit against the Illinois Department of Labor as an alter ego of the state for payment of past benefits because the unemployment benefits claimed are payable from a trust fund comprised solely of money contributed by private employers in the State of Illinois. Jenkins et al. v. Bowling et al., 80 C 928 (January 28, 1982) (Grady, J.). See Miller-Davis Co. v. Illinois State Toll Highway Authority, 567 F.2d 323 (7th Cir. 1977) (Eleventh Amendment does not bar recovery from the Illinois State Toll Highway Authority special fund segregated from general public funds); Bowen v. Hackett, 387 F. Supp. 1212 (D.R.I. 1975) (Eleventh Amendment does not bar payment of retroactive benefits from the unemployment insurance fund because the fund is segregated from the general state revenues).

The question remains, however, whether a cause of action will lie against the Illinois Department of Labor. Both parties agree that the Department of Labor is not a "person" for 42 U.S.C. § 1983 purposes,*fn1 but Kostelic contends that the Department can be sued for the limited purpose of obtaining an award of attorneys' fees under 42 U.S.C. § 1988. It is true that attorneys' fees may be awarded, payable by the state, when officials are sued in their official capacity, Hutto v. Finney, 437 U.S. 678, 694, 98 S.Ct. 2565, 2575, 57 L.Ed.2d 522 (1978), but § 1988 does not provide an independent cause of action. As Kostelic is not proceeding against the Department under § 1983, and as no other basis for jurisdiction appears in the complaint, the motion to dismiss the Department is granted.

Repayment of FSB Overpayments

The Social Security Act requires that state programs "insure full payment of unemployment compensation when due," 42 U.S.C. § 503(a)(1). Kostelic claims that defendants' requirement that he repay in cash fraudulently obtained overpayments of federal benefits before he may receive regular state benefits violates the "when due" requirement of the Social Security Act.*fn2

The dispute centers on the differing interpretations of the FSB statute, which provides the remedy for overpayment of FSB benefits whether obtained by fraud or otherwise. Emergency Unemployment Compensation Act, § 105(b), 26 U.S.C. § 3304 note.*fn3 If a claimant fraudulently receives FSB benefits, ยง 105(b)(1) provides that the individual is ineligible for further FSB benefits until he or she complies with the applicable state fraud provision. Subsection (2) applies in situations where persons have received, by fraud or otherwise, FSB benefits to which they were not entitled, and authorizes each state "to require such individuals to repay ...


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