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Russell v. Board of Review

Superior Court of New Jersey, Appellate Division

December 26, 2013

JOHN A. RUSSELL, Appellant,


Submitted October 8, 2013

On appeal from the Board of Review, Department of Labor, Docket No. 323, 873.

John A. Russell, appellant pro se.

John J. Hoffman, Acting Attorney General, attorney for respondent Board of Review (Lewis A. Scheindlin, Assistant Attorney General, of counsel; Alan C. Stephens, Deputy Attorney General, on the brief).

Respondent Health Resources Publishing has not filed a brief.

Before Judges Ostrer and Carroll.


The Director of the Division of Unemployment Insurance (Director) charged that John A. Russell obtained unemployment benefits through false or fraudulent misrepresentation. The Director sought the return of $6720 in benefits, pursuant to N.J.S.A. 43:21-16(d)(1); disqualified him from future benefits for one year, pursuant to N.J.S.A. 43:21-5(g)(1); and imposed a fine of $1680, equal to twenty-five percent of the benefits, pursuant to N.J.S.A. 43:21-16(a). Russell now appeals from a Board of Review final decision, affirming the Appeal Tribunal, which, after an evidentiary hearing, affirmed the Director's initial determination. We reverse in part and affirm in part.


The record reflects that Russell had worked full-time as an editor for Health Resources Publishing, LLC. In late 2008, his employer experienced economic difficulty and converted Russell's status to part-time. Russell applied for benefits based on his partial unemployment. See N.J.S.A. 43:21-3(b), -19(m)(1)(a) (providing for benefits notwithstanding receipt of part-time wages).

Russell testified that for twelve weeks during the course of a twenty-six-week period between December 27, 2008 and June 20, 2009, his employer did not timely pay him at all for the weeks worked. Russell testified, "[H]e [his employer] was undergoing financial difficulties and he would just postpone paying people to the point where he would tell people[, ']I don't know whether I can make payroll or not. I don't know when you'll get paid.['] Some of the checks were almost a month late."

Consequently, for the weeks in which Russell worked but was not timely paid, he reported to the Division through its automated telephone reporting system, that he had worked for the particular week, but had received no wages. As a result, Russell received benefits as if he were fully unemployed. For those weeks in which Russell was timely paid, he dutifully reported that he was working, and he reported the earnings. Those weeks are not at issue.

Russell never reported to the Division that he ultimately received late payment of the wages for those weeks in which he initially reported he earned zero. Russell claimed he attempted to do so a number of times, but was unable to reach a staff person. He admitted he ultimately stopped trying and failed to write to the Division. He conceded that was an error, but denied he intentionally defrauded the Division.

After discovering that Russell ultimately received payment of the wages earned for the twelve weeks in question, the Division charged that Russell obtained benefits fraudulently. As noted, the Director sought the refund of all payments received, imposed the fine, and sought disqualification. The weeks involved, the benefits received, and the wages ultimately received thereafter, are set forth below:






















































6, 720.00

Upon Russell's appeal, the Appeal Tribunal agreed that he obtained benefits fraudulently. It affirmed the twenty-five percent fine, the one-year disqualification, and the refund of all benefits received. The Appeal Tribunal did so notwithstanding that it generally credited Russell's version of events. The Tribunal stated, "The claimant did not report the wages earned because his employer at times did not pay him until weeks later."

Nonetheless, the Tribunal found, "The claimant did not contact the Division to report his earnings when he was paid." The Appeal Tribunal concluded the failure to correct the previous statements amounted to fraud. Specifically, it held:

The evidence clearly indicates that the claimant knowingly made false statements to receive benefits because he did not report his earnings for the weeks in question to the Division. He made no attempt to repay the Division the monies he received from unemployment when he received his pay from his employer. He did nothing. The receipt of these benefits is considered to be as a result of false or fraudulent representation. Therefore, the claimant is disqualified for a period of one year from 12/24/10 as provided by N.J.S.A. 43:21-5(g)(1).

The Board of Review later affirmed based on the Appeal Tribunal's decision.

This appeal followed. Russell argues that he accurately reported employment and lack of wages on the call-in date for the twelve weeks in question, and his failure to advise the Division that he was later paid wages for those weeks did not constitute fraud.


We begin by restating well-settled principles governing our standard of review. Our role in reviewing administrative agency decisions involving unemployment benefits is generally limited. Brady v. Bd. of Review, 152 N.J. 197, 210 (1997). We defer to fact-findings if reasonably based on the proofs. Ibid. Nonetheless, we shall intervene when the agency's action is arbitrary, capricious or unreasonable, or "'clearly inconsistent with its statutory mission or with other State policy.'" Ibid. (quoting George Harms Constr. Co. v. N.J. Tpk. Auth., 137 N.J. 8, 27 (1994)). Although we give "some deference to [the agency's] 'interpretation of statutes and regulations within its implementing and enforcing responsibility, ' . . . we are 'in no way bound by the agency's interpretation of a statute or its determination of a strictly legal issue[.]'" Utley v. Bd of Review, 194 N.J. 534, 551-52 (2008) (quoting In re Appeal by Progressive Cas. Ins. Co., 307 N.J.Super. 93, 102 (App. Div. 1997); Mayflower Sec. Co. v. Bureau of Sec., 64 N.J. 85, 93 (1973)) (rejecting Board of Review's application of the "good cause attributable to [employee's] work" standard to facts presented); see also Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995) ("A trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference.").

Our decision is also guided by fundamental principles of law governing unemployment compensation. Our State's unemployment compensation law, N.J.S.A. 43:21-1 to -24.30 (Act), is primarily designed to lessen the impact of unemployment that befalls workers without their fault. Brady, supra, 152 N.J. at 212. "The public policy behind the Act is to afford protection against the hazards of economic insecurity due to involuntary unemployment." Yardville Supply Co. v. Bd. of Review, 114 N.J. 371, 374 (1989) (emphasis omitted); see also N.J.S.A. 43:21-2 (declaring public interest in addressing the burden of "[i]nvoluntary unemployment"). On the other hand, "it is also important to preserve the fund against claims by those not intended to share in its benefits. The basic policy of the law is advanced as well when benefits are denied in improper cases as when they are allowed in proper cases." Yardville Supply Co., supra, 114 N.J. at 374.

The statutory scheme provides that if an employee receives benefits that were not rightfully due, they must be repaid, even if the employee was acting in good faith in seeking benefits, expended the benefits in reliance on the initial determination, and would face difficulty repaying the benefits. Bannan v. Bd. of Review, 299 N.J.Super. 671, 674-76 (App. Div. 1997); N.J.S.A. 43:21-16(d)(1). However, if the employee obtains benefits fraudulently, the consequences include more than repayment. An employee may be required to refund all benefits received, including those to which the employee was entitled. Malady v. Bd. of Review, 76 N.J. 527, 531 (1978) (interpreting N.J.S.A. 43:21-16(d)); cf. Orzel v. Bd. of Review, 386 N.J.Super. 338, 342-43 (App. Div. 2006) (absent a showing of fraud, refund obligation pertains only to overpayment of what was otherwise payable to claimant based on part-time employment). An employee is also subject to a fine equal to twenty-five percent of the amount fraudulently obtained. N.J.S.A. 43:21-16(a)(1). An employee may also be disqualified from receiving benefits for one year. N.J.S.A. 43:21-5(g)(1).

The issue we must resolve is whether the facts presented satisfy the statutory prerequisites for imposing on Russell those three sanctions — refund of deserved benefits; twenty-five-percent fine; and one-year disqualification. We do not understand Russell to contest his obligation to refund the benefits that would have been withheld had his eventual earnings been reported.

We begin by examining the statutory language. Our task is unassisted by regulatory interpretations of the governing statutes. We are also unaware of any controlling precedent — and the agency has pointed to none — that addresses the case where an employee becomes aware of facts after the receipt of benefits that render false prior statements that were true when made.

The Division is entitled to a refund when an employee receives benefits to which he or she was not entitled, regardless of whether the employee was aware of his non-entitlement, and regardless of whether the employee knew the statements made were false. N.J.S.A. 43:21-16(d)(1); Bannan, supra, 299 N.J.Super. at 674. The refund provision states:

When it is determined by a representative or representatives designated by the Director of the Division of Unemployment and Temporary Disability Insurance of the Department of Labor and Workforce Development of the State of New Jersey that any person, whether (i) by reason of the nondisclosure or misrepresentation by him or by another of a material fact (whether or not such nondisclosure or misrepresentation was known or fraudulent), or (ii) for any other reason, has received any sum as benefits under this chapter (R.S.43:21-1 et seq.) while any conditions for the receipt of benefits imposed by this chapter (R.S.43:21-1 et seq.) were not fulfilled in his case, or while he was disqualified from receiving benefits, or while otherwise not entitled to receive such sum as benefits, such person, unless the director (with the concurrence of the controller) directs otherwise by regulation, shall be liable to repay those benefits in full.
[N.J.S.A. 43:21-16(d)(1).]

In order to establish liability for a civil fine, the Division must prove that the employee acted knowingly in obtaining or attempting to obtain benefits or increased benefits. The provision states:

Whoever makes a false statement or representation, knowing it to be false, or knowingly fails to disclose a material fact, to obtain or increase or attempts to obtain or increase any benefit or other payment under this chapter (R.S.43:21-1 et seq.) . . . shall be liable to a fine of 25% of the amount fraudulently obtained, to be recovered in an action at law in the name of the Division of Unemployment and Temporary Disability Insurance of the Department of Labor and Workforce Development of the State of New Jersey or as provided in subsection (e) of R.S.43:21-14 . . . .
[N.J.S.A. 43:21-16(a)(1).]

Thus, under N.J.S.A. 43:21-16(a)(1), there are three essential elements of a fine claim: (1) the making of a "false statement or representation" or the "failure to disclose a material fact"; (2) a knowing state of mind, which, as applied, requires knowledge of falsity in the case of the affirmative statement or representation and requires knowledge of both the non-disclosure and its materiality in the case of non-disclosure; and (3) the actions occur in obtaining benefits or increased benefits, or attempting to do so. We note that the provision describes the benefits secured under the section to be "fraudulently obtained."

To subject an employee to a one-year disqualification from benefits, the statute does not expressly state a mens rea. But, it refers to "illegal receipt" of benefits and to "false or fraudulent representation[s]." The provision states:

An individual shall be disqualified for benefits:
(g) (1) For a period of one year from the date of the discovery by the division of the illegal receipt or attempted receipt of benefits contrary to the provisions of this chapter, as the result of any false or fraudulent representation . . . .
[N.J.S.A. 43:21-5(g)(1).] Thus, to disqualify an employee under N.J.S.A. 43:21-5(g)(1), the Division must prove (1) illegal receipt of benefits, or the attempt to receive benefits contrary to law; (2) as a result of a "false or fraudulent representation."

We note that the word "illegal" is not used elsewhere in the chapter. We interpret it to refer to more than the just the innocent receipt of unauthorized benefits. Also, the "attempted receipt of benefits" apparently refers to the attempted illegal receipt of benefits. See L. 1984, c. 24, § 3 (codified as amended at N.J.S.A. 43:21-5(g)(1)) (adding the "attempted receipt of benefits" language).

We also interpret "fraudulent" to imply a requirement of both knowledge of a present or past fact, and an intent that the other party rely, consistent with the common law elements of fraud. See Jewish Ctr. of Sussex Cnty. v. Whale, 86 N.J. 619, 624-25 (1981) ("A misrepresentation amounting to actual legal fraud consists of a material representation of a presently existing or past fact, made with knowledge of its falsity and with the intention that the other party rely thereon, resulting in reliance by that party to [its] detriment."). This interpretation is consistent with the refund provision, N.J.S.A. 43:21-16(d)(1), which contrasts fraudulent conduct with unknowingly false representations. It is also consistent with the fine provision, N.J.S.A. 43:21-16(a)(1), which equates "fraudulently obtained" benefits to those secured by knowingly making false statements or representations or withholding material facts.

Although we recognize the phrase "false . . . representation[s]" is not entirely clear, we construe it to include at least knowledge of falsity. Where such knowledge is irrelevant, as in the refund provision, N.J.S.A. 43:21-16(d)(1), the Legislature has expressly said so. Moreover, if mens rea were irrelevant as it relates to "false . . . representation[s]" under the disqualification provision, N.J.S.A. 43:21-5(g)(1), then including mention of "fraudulent" representation would be superfluous, which would be a disfavored reading. See Medical Soc. of N.J. v. N.J. Dep't of Law & Pub. Safety, 120 N.J. 18, 26-27 (1990); Abbotts Dairies, Inc. v. Armstrong, 14 N.J. 319, 327-28 (1954).

Moreover, when the Legislature in 1984 adopted amendments to extend the disqualification period to one year, L. 1984, c. 24, § 3 (codified as amended at N.J.S.A. 43:21-5(g)(1)), it characterized the disqualification as one "for illegal receipt of benefits as a result of fraudulent misrepresentations[.]" Statement to Senate Bill 1322, 201st Leg. (1984); see also Senate Labor, Industry and Professions Committee, Committee Statement to Senate Bill 1322, 201st Leg. (1984). Thus, the Legislature apparently contemplated that more than mere falsity was required; rather, the disqualification provision required proof of "fraudulent representation[s], " implicitly requiring proof of both knowledge and intent.

Applying these statutory provisions, we conclude that Russell's representation that he earned zero dollars for the twelve weeks at issue were not false, let alone knowingly false, when made. There also was no proof that he intended the Division detrimentally rely on false statements. Consequently, Russell's representations do not satisfy the statutory prerequisites for imposing a fine or disqualification, or a refund of all benefits received.

The Appeal Tribunal focused on what it perceived to be Russell's obligation to provide updated information to the Division once he eventually received payment of his wages. However, nothing in the fine and disqualification provisions expressly addresses the case of an employee who, after receiving benefits, discovers information that renders previously provided information false. Moreover, the fine provision refers to obtaining benefits, not retaining them. N.J.S.A. 43:21-16(a)(1). Likewise, the disqualification provision refers to the initial receipt of benefits. N.J.S.A. 43:21-5(g)(1).

Under common law, the nondisclosure of subsequently received information would not constitute fraud unless received before the transaction was consummated. See Restatement (Second) of Torts § 551(2)(c) (1977) ("One party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated, . . . subsequently acquired information that he knows will make untrue or misleading a previous representation that when made was true or believed to be so[.]") (emphasis added). Here, Russell received the wages, and the information, after the benefits were already paid.

We have no doubt that Russell was unjustly enriched by retaining all the unemployment compensation benefits he received for the twelve weeks in question. Under the refund statute, as well as common law principles of restitution, he was obliged to return the undeserved portions of the payments. However, the statutory provisions do not support characterizing Russell's behavior as fraudulent, nor do they justify the imposition of a fine and disqualification. In the absence of fraud, Russell should be obliged to return only the overpayment — that is, the difference between the benefits he would have received for partial unemployment for the twelve weeks, and the benefits he received as if he were fully unemployed. See Orzel, supra, 386 N.J.Super. at 342-43.

We therefore affirm the Board of Review's decision only to the extent it requires Russell to refund the overpayment. The decision is reversed as to the order that Russell: (1) refund benefits otherwise due; (2) pay a fine, and (3) be disqualified from receiving benefits for one year.

Reversed and remanded in part; affirmed in part. We do not retain jurisdiction.

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