SUSAN GRASHOFF, Plaintiff-Appellant, v. DAVID J. ADAMS, Commissioner of the Indiana Department of Workforce Development, Defendant-Appellee.
No. 20-2739
United States Court of Appeals for the Seventh Circuit
ARGUED MAY 13, 2021 — DECIDED APRIL 18, 2023
Before SYKES, Chief Judge, and SCUDDER and KIRSCH, Circuit Judges.
Appeal from the United States District Court for the Northern District of Indiana, Fort Wayne Division. No. 1:19-CV-00276-HAB — Holly A. Brady, Judge. * Commissioner David Adams has been substituted for former Commissioner Frederick D. Payne, who resigned from office. See FED. R. APP. P. 43(c)(2).
Susan Grashoff violated the reporting requirement by omitting her part-time income on 24 weekly applications. After an investigation, the Department determined that she knowingly violated the law and assessed a forfeiture and penalty totaling $11,190—the sum of all benefits she received for each of the 24 weeks, see
Instead, she filed this federal suit under
That left the 25% penalty, which everyone agreed is a punitive sanction subject to Eighth Amendment scrutiny. Applying the framework established in United States v. Bajakajian, 524 U.S. 321 (1998), the judge concluded that a 25% penalty is not grossly disproportionate to the seriousness
Grashoff challenges both aspects of the decision below. We don’t need to decide whether the judge correctly drew the remedial/punitive line. Grashoff concedes that at least part of the forfeiture—the difference between the benefits she received and the smaller amount she would have received had she reported her income—is purely remedial. The remaining forfeiture amount, even when considered together with the 25% penalty, is not a grossly disproportionate sanction for Grashoff’s 24 knowing violations of the law.
Grashoff also contends that the Eighth Amendment inquiry must consider the sanctioned person’s ability to pay. We can leave that legal question for another day. Grashoff has sufficient assets to pay this civil sanction.
I. Background
A. Statutory Background
Indiana’s unemployment compensation system is administered by the state Department of Workforce Development and funded primarily by employer contributions.
The Department needs to know a claimant’s exact income to ensure eligibility for benefits and to calculate the correct amount of the weekly benefit. When claimants underreport their income, they receive more money than they should and undermine the financial integrity of the fund. Indiana law directs the Department to determine and recover overpayments.
The statutory scheme includes a provision addressing a claimant’s “knowing” failure to disclose income that “would disqualify the individual for benefits” or “reduce the individual’s benefits.”
Second, a knowing failure to report income is subject to a civil penalty. For a first-time violator, the penalty is 25% of the “benefit overpayment.”
training services, but 15% goes to the unemployment fund itself.
B. Grashoff’s Applications for Benefits
For decades Susan Grashoff worked at McDonald’s, including as an assistant manager. Throughout her career she has also taught swimming lessons at her local YMCA, and she resumed that part-time work in 2010 to supplement her income from McDonald’s. In late 2016 she lost her job at McDonald’s. She applied for and received unemployment benefits starting in December of that year. She submitted 24 weekly claims from then until May 2017, and the Department paid her $373 for each of those weeks.
Grashoff continued to work at the YMCA during this period, earning a total of $2,828.75 from swimming lessons. But
she never disclosed this income to the Department when she submitted claims for benefits, so her payments were not reduced as they should have been. She failed to do so despite repeated warnings and instructions. For example, the online application includes a notice titled “IMPORTANT UNEMPLOYMENT INSURANCE INFORMATION,” which reads in relevant part:
I understand that I must report all earnings from employment or self-employment regardless of source, including … part-time employment … .
… .
I am aware that if I knowingly make any false statements or fail to provide required information, this could be considered as fraudulent behavior. If detected, this would require repayment of my unemployment benefits, will cause penalty and interest to be added to the overpaid amount, … and may lead to civil and/or criminal prosecution.
In addition, the application form requires claimants to certify that they have “reported any and all work, earnings, and self-employment activity for th[e] week” and “that all answers and information given in th[e] application for benefits are true and accurate.” The online application form also contains a link to the Claimant Handbook, which claimants are required to read. The Handbook explains that a claimant “commit[s] fraud” by “[k]nowingly fail[ing] to report any earnings.”
Grashoff did not follow these requirements, nor did she heed the repeated warnings. She checked “no” on each of the 24 weekly forms when asked whether she had worked that week. Moreover, she reported none of her YMCA earnings during this period, despite certifying each time that she had reported “any and all work[] [and] earnings … for th[e] week” and that “all answers and information given … [were] true and accurate.” Grashoff received a total of $8,952 in benefits from her 24 claims. That amount would have been $6,123.25 had she complied with the law and truthfully reported her YMCA income.
The Department eventually discovered Grashoff’s failure to disclose her earnings. After an investigation, the Department notified her that she forfeited and owed repayment of the full amount of $8,952 in benefits pursuant to section 1.1(a). The Department tacked on $2,238 under section 1.1(b), the provision authorizing a 25% penalty for first-time knowing violations of
Grashoff requested an administrative review. An ALJ agreed with the Department’s determination that Grashoff had knowingly failed to report the income from her part-time job. Specifically, the ALJ found that Grashoff was “responsible for the falsely answered questions about her earnings” and had “fail[ed] to truthfully answer a direct and simple question about whether or not she was working.” The ALJ thus affirmed Grashoff’s liability for “all benefits received” and the “civil penalties assessed.”3
Grashoff did not seek further review under state law. She instead sued in federal court seeking declaratory and injunctive relief under
The case proceeded to cross-motions for summary judgment, and the judge entered judgment for the Department. She first held that section 1.1(a)—the forfeiture/repayment provision—is remedial rather than punitive and thus “avoids Eighth Amendment scrutiny.” She then turned to the 25% penalty in section 1.1(b), which everyone agreed is a punitive sanction. The judge held that a penalty of 25% of the total forfeiture amount is not an excessive sanction for knowing violations of the reporting requirement. To reach that conclusion, the judge considered the factors outlined in Bajakajian and found that each one weighed against Grashoff.
II. Analysis
The Eighth Amendment prohibits the imposition of “excessive fines.”
The analysis under the Excessive Fines Clause proceeds in two steps. The first is a threshold determination: Is the sanction punitive or purely remedial? Because the Eighth Amendment “limits the government’s power to extract payments … as punishment for some offense,” Austin v. United States, 509 U.S. 602, 609–10 (1993) (quotation marks omitted), only punitive sanctions fall within its scope; purely remedial sanctions are not subject to Eighth Amendment scrutiny, see Towers, 173 F.3d at 624.
The inquiry does not depend on whether the sanction arises in the civil or criminal context; “civil sanctions can constitute punishment, and therefore are subject to the limitations of the Excessive Fines Clause, if they serve, at least in part, retributive or deterrent purposes.” Id.; see also Pimentel v. City of Los Angeles, 974 F.3d 917, 921–22 (9th Cir. 2020) (explaining that the Ninth Circuit has applied the Excessive Fines Clause to “civil penalties imposed by federal law” and that Timbs “affirmatively opens the door for Eighth Amendment challenges to fines imposed by state and local authorities“).
If the sanction is punitive, the next step is to determine whether it is
In Bajakajian the Supreme Court identified several factors that may help guide the proportionality determination. Id. at 337–39. We have distilled the Court’s instructions into four general areas of inquiry. The first looks to the “essence of the [offense] and its relation to other criminal activity.” United States v. Malewicka, 664 F.3d 1099, 1104 (7th Cir. 2011). The second asks whether the sanctioned person “fit[s] into the class of persons for whom the statute was principally designed.” Id. The third considers the “maximum sentence and fine that could have been imposed” for like conduct. Id. As the Court explained in Bajakajian, legislative judgments about maximum sentences and fines for comparable offenses are “relevant evidence” when assessing the gravity of the offense. 524 U.S. at 339 n.14. The final factor is “the nature of the harm caused by the … conduct” that led to the sanction. Malewicka, 664 F.3d at 1104.
The Bajakajian factors come from a case about criminal forfeiture—that is, a punishment tied to a conviction for a crime—and most claims under the Excessive Fines Clause arise in that context. See Pimentel, 974 F.3d at 921. But the same basic framework applies here.
A. Punitive or Remedial?
As we’ve noted, it’s undisputed that the 25% penalty under section 1.1(b) is punitive; it punishes claimants who knowingly fail to disclose their income. The parties also agree that of the $8,952 in forfeited benefits that Grashoff was ordered to repay, roughly $2,829—the amount that would have been deducted from her benefit payments had she reported her income as required—qualifies as a purely remedial recoupment of a benefits overpayment. So that part of the forfeiture raises no Eighth Amendment concerns. Grashoff concedes as much.4
The parties disagree, however, on how to classify the balance of the forfeiture—the $6,123 in benefits that Grashoff would have received if, counterfactually, she had disclosed her YMCA income as required. The Department argues that this part of the forfeiture also qualifies as remedial because a claimant who knowingly fails to disclose income becomes ineligible for any benefits for that week by operation of section 1.1(a). In other words, Grashoff was not eligible to receive a single dollar during each of the 24 weeks for which she knowingly failed to report her YMCA earnings. On the Department’s reasoning, the entire forfeiture is remedial because it recoups all wrongfully obtained benefits.
Grashoff sees things differently. She argues that a forfeiture of all benefits received is punitive because it strips her of
There’s no need for us to resolve this dispute. Assuming for the sake of argument that Grashoff is right about how to draw the remedial/punitive line, the total sanction subject to Eighth Amendment scrutiny is $8,361: the penalty imposed under section 1.1(b) ($2,238) plus the portion of the total section 1.1(a) forfeiture that Grashoff insists is punitive ($6,123). And as we will explain, that sanction—$8,361—is not grossly disproportionate to Grashoff’s offense.
B. Proportionality Analysis
The first Bajakajian factor—the “essence” of the underlying offense and its relation to other unlawful activities—weighs against Grashoff. Although the sanction at issue here is civil rather than criminal, the underlying violation of the law is significant. Grashoff knowingly failed to disclose her income on 24 applications for public benefits, and each time she falsely certified that she had reported her earnings and given truthful answers on her applications. Put another way, on 24 occasions Grashoff knowingly withheld information about her income to obtain a higher benefit from a limited fund meant to support economically vulnerable people in Indiana. This case is far afield from Bajakajian, where the essence of the offense—a single failure to report the transportation of more than $10,000 outside the United States—suggested that the forfeiture of over $357,000 was unconstitutional. Bajakajian, 524 U.S. at 325, 337–38.
Grashoff disagrees, characterizing her offense as a “single administrative violation” that resulted from her mistaken understanding of the reporting requirements. That flatly contradicts the ALJ’s findings that Grashoff knowingly and repeatedly violated the reporting requirement. Grashoff tries to lump her 24 violations into one, but the “gravity of [her] offenses does not diminish because [she] repeatedly committed the same offense.” Korangy v. FDA, 498 F.3d 272, 278 (4th Cir. 2007). To the extent that Grashoff contends that she did not knowingly fail to report her earnings, the ALJ found otherwise. Grashoff did not seek judicial review of that determination, and she cannot use federal excessive-fines litigation to collaterally attack the ALJ’s factual findings.
The second Bajakajian factor asks whether the sanctioned person fits within the “class of persons for whom the statute was principally designed.” Malewicka, 664 F.3d at 1104. Grashoff clearly does. Section 22-4-13-1.1 generally protects the integrity and viability of Indiana’s unemployment fund by recouping improperly paid benefits and punishing claimants who receive more than their proper share through their own fraud. Grashoff suggests that the benefits scheme is meant to help people like her, so applying
The third factor “considers the maximum fine and sentence that could have been imposed.” Malewicka, 664 F.3d at 1106. Grashoff was not criminally prosecuted, so she contends that it is improper to consider any criminal penalties that might have been imposed. This argument misunderstands the relevance of this Bajakajian factor. The point is not to suggest that Grashoff would have been convicted if she had been criminally prosecuted. Rather, penalties for similar conduct are relevant evidence of legislative judgments about the seriousness of the offense. Bajakajian, 524 U.S. at 339 n.14.
Indiana’s criminal penalties for conduct similar to Grashoff’s demonstrate that the state takes this kind of public-benefits fraud seriously. A person commits a class C misdemeanor if he knowingly violates the statutes concerning the unemployment-compensation system, and “[e]ach day a violation continues constitutes a separate offense.”
Indiana is not alone in viewing unemployment fraud as a serious offense. For example, Alaska penalizes unemployment-benefit claimants who knowingly make a material
false statement with the intent to defraud by rendering them ineligible for benefits for the weeks in which they made the false statements.
In New Hampshire the knowing failure to disclose a material fact to increase unemployment benefits by more than $1,000 is a class A felony, which is punishable by up to 15 years in prison and a maximum fine of $4,000.
These legislative judgments about punishments for unemployment fraud provide clues about the nature and gravity of Grashoff’s offense. Like other states, Indiana has deemed unemployment fraud to be a serious offense. The civil sanction imposed here reflects that judgment, which “belong[s] in the first instance to the legislature.” See Bajakajian, 524 U.S. at 336.
The fourth factor directs us to consider the harm caused by Grashoff’s conduct. Towers, 173 F.3d at 625; see also Malewicka, 664 F.3d at 1104. Her knowing nondisclosures led to monetary harm to the unemployment fund in the form of overpaid unemployment benefits. If unchecked and undeterred, this conduct would threaten the viability of this government-administered fund designed to help financially vulnerable unemployed people in Indiana.
Moreover, the harm from Grashoff’s conduct goes beyond the overpayment of benefits. See U.S. ex rel. Bunk v. Gosselin World Wide Moving, N.V., 741 F.3d 390, 409 (4th Cir. 2013) (“For purposes of our Eighth Amendment analysis, … the concept of harm need not be confined strictly to the economic realm.“); Yates v. Pinellas Hematology & Oncology, P.A., 21 F.4th 1288, 1316 (11th Cir. 2021) (“Fraud harms the United States in ways untethered to the value of any ultimate payment.“). Fraud like hers complicates the administration of the fund. The Department must spend time and resources investigating fraud and, when detected, remedying it. Put differently, when some claimants don’t comply with the baseline requirement to honestly report their income, it becomes harder to administer the fund and complicates the distribution of benefits to all claimants. See Yates, 21 F.4th at 1316 (“Fraud imposes costs … in the form of the expense of the constant Treasury vigil [it] necessitate[s].” (alterations in original) (quotation marks omitted)); United States v. Aguasvivas-Castillo, 668 F.3d 7, 17 (1st Cir. 2012) (considering this Bajakajian factor and noting that food-stamp fraud “introduce[s] waste into the program“).
Fraud also undermines the integrity of the fund and the public’s faith in the state’s ability to administer it efficiently and fairly. As other courts have noted when reviewing fines imposed under the False Claims Act, fraud “erodes the public confidence in the [g]overnment’s ability to manage” the defrauded program. United States v. Eghbal, 548 F.3d 1281, 1285 (9th Cir. 2008); see also Gosselin World Wide Moving, 741 F.3d at 409 (noting that the “prevalence of defense contractor scams … shakes the public’s faith in the government’s competence“); Yates, 21 F.4th at 1316 (“[W]hen the [government] is defrauded, [it] has been damaged to the extent that such corruption causes a diminution of the public’s confidence … .” (quotation marks omitted)). The same is true when claimants defraud the state’s unemployment fund by underreporting income. These nonmonetary harms, “although not readily quantifiable, [are] certainly real and a legitimate subject of the [state’s] concern.” Towers, 173 F.3d at 625.
In sum, all the Bajakajian factors weigh against Grashoff. A sanction of $8,361 is not grossly disproportionate to the gravity of the offense that triggered it—here, unemployment fraud in the form of 24 knowing
We recognize that $8,361 is not a small sum. But even if Indiana could recoup overpayments and effectively deter unemployment fraud with a lesser sanction, the Excessive Fines Clause does not require the state legislature to adopt an antifraud statute that penalizes claimants no more than necessary. Because this sanction is not grossly disproportionate to the gravity of Grashoff’s offense, it is not unconstitutionally excessive.
C. Consideration of Individual Financial Circumstances
Grashoff also argues that the Eighth Amendment inquiry must consider her personal financial circumstances—essentially, her ability to pay. She contends that a sanction is more likely to be excessive if the sanctioned person has limited means with which to pay it.6 Grashoff points to the Clause’s historical roots in the Magna Carta, which “required that economic sanctions … not be so large as to deprive [an offender] of his livelihood.” Timbs, 139 S. Ct. at 687–88 (second alteration in original) (quotation marks omitted).
The Supreme Court has declined to address whether the sanctioned person’s financial condition is relevant to the excessiveness inquiry. See id. at 688; Bajakajian, 524 U.S. at 340 n.15. So do we. Grashoff does not contest the Department’s evidence that as of 2020, she had more than $500,000 in a retirement account—including about $12,000 in “Cash, Money Funds, [and] Bank Deposits“—and significant equity in her home. At the same time, she had relatively few liabilities: no credit-card balances, about $22,000 remaining on her mortgage, and a $12,000 obligation to her mother. Even if her personal circumstances are a relevant factor in the constitutional analysis, she has the ability to pay this sanction.
AFFIRMED