UNITED STATES DISTRICT COURT
SOUTHERN OHIO DISTRICT
EASTERN DIVISION

GARY R. MORRISON, et al.,
Plaintiffs,

V. Case No. C-2-84-1601

C-2-86-0112

ROBERTA STEINBACHER, et al.,
Defendants.

and

GEORGE COTTRELL, et al.,
Plaintiffs,

V.

ROBERTA STEINBACHER, et al., Defendants.

OPINION AND ORDER

This matter comes before the Court to consider the parties' cross-motions for summary judgment.

This consolidated action presents statutory and constitutional claims challenging the procedure used by the Ohio Bureau of Employment Services ("OBES") to adjudicate the unemployment benefit claims of laid-off workers in a new "benefit year." Specifically, plaintiffs challenge the OBES policy of readjudicating the eligibility criteria, especially the circumstances surrounding a claimant's separation from employment, in a claimant's second benefit year. The named defendants include the Administrator of OBES, several members of the OBES Board of Review, and plaintiffs' respective employers.


The facts set forth in the parties' stipulations establish that plaintiff George Cottrell applied for unemployment compensation benefits in September of 1984. Pursuant to O.R.C. § 4141.01(R), OBES established a benefit year for Cottrell which ran from September 2, 1984 to August 31, 1985. The other named plaintiff, Gary Morrison, applied for unemployment compensation benefits in November of 1982. Thereafter, OBES established a benefit year for Morrison which ran from November 7, 1982 to November 5, 1983. Although both plaintiffs were subsequently re-employed during their initial benefit year, each plaintiff re-applied for unemployment compensation within that year. The OBES Administrator determined that neither Cottrell nor Morrison was eligible for benefits because each had been discharged for good cause.

Both Cottrell and Morrison appealed the Administrator's decision. On August 21, 1985, the OBES Board of Review found that Cottrell had been terminated without just cause and accordingly awarded him unemployment benefits. Although Cottrell's employer appealed the Review Board's decision, the appeal was denied on January 14, 1986. However, during the course of the employer's appeal, Cottrell's initial benefit year expired and the Administrator established a new benefit year which ran from September 1, 1985 to August 30, 1986. Consistent with its procedures, OBES readjudicated Cottrell's eligibility for the new benefit year. On December 23, 1985, the Administrator issued a determination disallowing Cottrell's claim for the new benefit year on the grounds that Cottrell had been discharged for just cause. Although Cottrell filed an appeal with the Board of Review, this Court enjoined any further proceedings with respect to Cottrell's second benefit year until resolution of this action. See order, February 7, 1986.

The facts with respect to plaintiff Morrison are quite similar, except that the Administrator's unfavorable decision with respect to the second benefit year was rendered while Morrison's initial appeal was pending before the Board of Review. The Board of Review eventually held that Morrison's discharge was without just cause and accordingly found that he was entitled to benefits in his first benefit year. Although Morrison filed an appeal with respect to the Administrator's decision regarding the second year, the appeal was not timely filed. Given that Morrison was precluded from seeking further administrative or judicial review, he never received any benefits in the second year despite the conflicting eligibility determinations.

Plaintiffs filed two separate actions seeking declaratory and injunctive relief on the grounds that OBES's relitigation procedure with respect to the second benefit year violates the Due Process and Equal Protection Clauses of the fourteenth amendment to the United States Constitution. In addition, plaintiffs contend that this procedure violates the "when due" and "fair hearing" provisions of 42 U.S.C. §§ 503(a)(1) and (3). As noted above, the Court consolidated these actions and granted temporary injunctive relief in favor of Cottrell in February of 1986. Thereafter, the plaintiffs moved for certification of this consolidated case as a class action.

In two separate Orders, the Court certified the following class: all past, present, and future unemployed workers (1) whose unemployment compensation claims have been, are being, or will be subjected to adjudication by the Administrator of OBES of the same issues of law and fact in the second benefit year which were initially adjudicated in the first benefit year pursuant to O.R.C. § 4141.28(D)(1); (2) whose first benefit year expired on or after August 31, 1983; and (3) whose second benefit year claims have not been finally decided in their favor. Opinion and Order, January 6, 1987; Opinion and Order, April 24, 1986. Plaintiffs Morrison and Cottrell are the class representatives for purposes of this consolidated action.

On December 8, 1986, the parties filed agreed stipulations of fact. Thereafter, both plaintiffs and defendants filed motions for summary judgment. Although the parties agree that there are no genuine issues of material fact precluding summary judgment, they clearly dispute in whose favor judgment should be entered as a matter of law. See Fed. R. Civ. P. 56. Their cross-motions for summary judgment are now before the Court.

Initially, plaintiffs contend that the OBES practice of conducting de novo review of eligibility issues, including the circumstances surrounding a claimant's separation from employment, in a claimant's second benefit year violates 42 U.S.C. § 503(a)(1). This section provides that the Department of Labor may make payments of unemployment compensation funds only to state agencies that use such "methods of administration" which are "reasonably calculated to insure full payment of unemployment compensation whendue...." 42 U.S.C. § 503(a)(1) (emphasis added). Although there is no express private right of action to enforce this requirement, the courts have generally recognized an implied cause of action to enforce the provisions of Section 503(a). See Jenkins v. Bowling, 691 F.2d 1225, 1228 (7th Cir. 1982). The primary case interpreting the "when due" requirement of Section 502(a) is California Dept. of Human Resources v. Java, 402 U.S. 121 (1971). That case involved a California procedure whereby a claimant's benefits were automatically terminated if the employer filed an appeal. The Supreme Court found that this procedure violated the "when due" requirement of Section 503(a)(1), which the Court defined as follows

The word "due" in S 303(a)(1), when construed in light of the purposes of the Act,
means the time when payments are first administratively allowed as a result of a
hearing of which both parties have notice and are permitted to present their respective
positions.

402 U.S. at 133.

Thus, the "when due" requirement essentially means that "once a hearing is held and it is determined that a person is due benefits, the benefits will be paid regardless of an appeal." Brewer v. Cantrell, 622 F. Supp. 1320, 1323 (W.D. Va. 1985). This requirement, however, is "limited to situations [wherein] a claimant has been initially determined eligible to receive benefits for a particular period...." Graves v. Meystrik, 425 F. Supp. 40, 50 (E.D. Mo.), aff'd, 431 U.S. 910 (1977). Thus, reconsideration of eligibility for another period of time is not a direct violation of the "when due" requirement. Brewer, 622 F. Supp. 1324; Graves, 425 F. Supp. at 50.

In this case, plaintiffs contend that readjudication of the eligibility issues in the second benefit year violates the dictates of Java. It appears to the Court, however, that Java is not applicable because the OBES decision with respect to a claimant's second benefit year is for a different period of time. As noted in Graves, the "when due" requirement is not offended by an eligibility determination with respect to a different period of time. The Court finds, therefore, that the OBES readjudication procedure does not violate the "when due" requirement of Section 503(a)(1).

In an alternative argument, plaintiffs contend that the OBES readjudication procedure violates the "fair hearing" requirement of 42 U.S.C. § 503(a)(3) and the Due Process Clause of the fourteenth amendment. Pursuant to Section 503(a)(3), the Department of Labor may make payments of unemployment compensation funds only to state agencies that provide an "[o]pportunity for a fair hearing." This statutory "fair hearing" requirement mandates that procedural due process must be provided to every claimant. Ross v. Horn, 598 F.2d 1312, 1318 n.4 (3d Cir. 1979), cert. denied, 448 U.S. 906 (1980). Thus, if the Court finds that the OBES readjudication procedure violates procedural due process, it follows that the procedure also violates Section 303(a)(3). Camacho v. Bowling, 562 F. Supp. 1012, 1020 (N.D. Ill. 1983).


In the Opinion and Order of March 27, 1986, the Court held that plaintiffs' unemployment benefits constitute a property interest protected by due process. See Ross v. Giles, No. C-2-81-902 (S.D. Ohio July 13, 1984). Thus, it is not disputed that plaintiffs are entitled to procedural due process. See also Horn, 598 F.2d at 1317-18. In determining whether the OBES readjudication procedure satisfies the mandate of due process, the Court must consider the balancing test set forth in Mathews v. Eldridge, 424 U.S. 319 (1976). This test requires consideration of the following factors:

 First the private interest that will be affected by the official action; second, the
risk of an erroneous deprivation or such interest through the procedures used, and the
probable value, if any, of additional or substitute procedural safeguards; and finally,
the Government's interest, including the function involved and the fiscal and
administrative burdens that the additional or substitute procedural requirement would
entail.

Id. at 335 (emphasis added).

With respect to the first factor, it is clear that the private interest in receiving unemployment benefits is great. Camacho, 562 F. Supp. at 1024. This interest is especially important during the initial stage of eligibility determination and during the first level appeal proceedings. Wilkinson v. Abrams, 627 F.2d 650, 666 (3d Cir. 1980). The Court concludes, therefore, that plaintiffs' private interest is of great significance.

The second factor requires consideration of both the risk of erroneous deprivation and the probable value of substitute procedures. The parties have stipulated that in at least 100 cases a year the determination of eligibility issues in the second benefit year is different from the determination of the same facts in the first benefit year. Although 100 cases is far from a majority, it appears to the Court that a significant number of claimants are adversely affected by the OBES readjudication procedure. Thus, the Court believes that there is a significant risk of erroneous deprivation.

Plaintiffs contend that collateral estoppel should be used as a "substitute procedure" for the OBES readjudication procedure. In this regard, the Court notes that collateral estoppel, also known as "issue preclusion," see Duncan v. Peck, 752 F.2d 1135, 1138 (6th Cir. 1985), is a "rule of fundamental and substantial justice" encompassed within procedural due process. Federated Dept. Stores, Inc. v. Moitie, 452 U.S. 394, 401 (1981). The Courts have generally held that collateral estoppel effect should be given to administrative findings that have been "fully and fairly" litigated and upon which the agency has taken "final" action. City of Cleveland v. Cleveland Electric Illuminating Co., 538 F. Supp. 1227, 1231 (N.D. Ohio 1980); see also Continental Can Co. v. Marshall, 603 F.2d 590 (7th Cir. 1979). In this case, plaintiffs contend that the initial hearing and appeal process with respect to eligibility issues, including the separation from employment issue, should preclude relitigation of those issues in the second benefit year.

In response to plaintiffs' argument, and with respect to the final factor under Mathews, defendants contend that the state has a significant interest in relitigating eligibility issues in the second year. Initially, OBES contends that relitigation is required by Section 4141.28(C) of the Ohio Revised Code. Having reviewed this statute at length, the Court does not believe that relitigation is statutorily mandated. Furthermore, even if the statute required relitigation, it is well settled that a state statute may not negate the constitutional mandate of procedural due process. The Court finds, therefore, that this argument is entirely without merit.

Defendants also contend that the state's interest in relitigation is great because relitigation is necessary to the "efficient administration and management of Ohio's unemployment program." Def. Memo. at 11. Apparently, OBES believes that the relitigation of identical issues is necessary to an eligibility determination in a claimant's second year., The Court fails to see the logic in this argumeht. If an issue has been fully litigatedr or is in the process of being fully litigated, it appears to the Court that relitigating the exact same issue is extremely inefficient and costly. Any inconvenience caused by requiring OBES personnel to determine and follow a previous OBES ruling with regard to an identical issue is clearly de minimus as compared to the cost of relitigating the exact same issue in the second benefit year. Thus, the Court believes that the state's interest, if any, in relitigating eligibility issues is clearly insignificant.

Having carefully considered the Mathews criteria, the Court finds that the balance tips strongly in plaintiffs' favor. The application of collateral estoppel with respect to all eligibility issues in the second benefit year, including the separation from employment issue, would benefit everyone concerned by expediting the application process and decreasing the risk of erroneous deprivation of unemployment compensation benefits. Furthermore, the Court believes that OBES should bear the burden of determining if an issue has been previously adjudicated since OBES has the resources to do so at very little cost. This "substitute procedure" will better accommodate all of the interests involved and also satisfy the mandates of due process.

Accordingly, the Court finds that the OBES relitigation procedure violates the principles of procedural due process as well as the "fair hearing" requirement of 42 U.S.C. § 503(a)(3). Having thus determined that plaintiffs and the class members that they represent are entitled to summary judgment as a matter of law on this issue, the Court declines to consider plaintiffs' claims under the Equal Protection Clause of the fourteenth amendment.

WHEREUPON, upon consideration and being duly advised, the Court finds plaintiffs' motion for summary judgment to be meritorious and it is, therefore, GRANTED. Defendants' crossmotion for summary judgment is DENIED.

FURTHER, the Court hereby DECLARES that the OBES relitigation procedure discussed herein violates 42 U.S.C. §503(a)(3) and the United States Constitution and ENJOINS defendants from further use of that relitigation procedure with respect to a claimant's second benefit year. The Court DIRECTS defendants to reconsider in accordance with this order and Ohio law the claim of any class member whose benefits were denied or terminated as a result of the relitigation procedure. This consolidated action is hereby DISMISSED in its entirety.

IT IS SO ORDERED.