This is an appeal from a final order of a United States Magistrate, 28 U.S.C. Sec. 636(c)(1). That order affirmed a decision of a hearing examiner for the appellee Virgin Islands Employment Security Agency, Unemployment Insurance Service (within the Virgin Islands Department of Labor) ("Agency"), which in turn had reversed an initial determination awarding unemployment benefits to appellant Cheryl Serrant. The hearing examiner also authorized the Agency to recoup previously paid benefits from Serrant. It is the latter decision, also affirmed by the Magistrate Judge, that is challenged on this appeal. For the reasons that follow, we reverse.

* On April 24, 1990, Serrant was employed at Point Pleasant Beach Resort as a reservations clerk. According to the hotel management, Serrant was discharged because she refused to prepare an "advance occupancy report." According to the hearing examiner, acting on the appeal of the hotel from the initial award of benefits, Serrant's actions leading to her dismissal constituted misconduct within the meaning of 21 V.I.C. Sec. 304(b)(3), thereby resulting in her disqualification for unemployment insurance benefits under that section.1 While Serrant maintains that her actions did not constitute wilful misconduct within the meaning of the statute, a position that may have merit, the facet of the hearing examiner's decision dealing with denial of benefits is not challenged on this appeal. Rather, we consider only the portion of the hearing examiner's decision dealing with recoupment.

The recoupment holding was predicated on 24 V.I.C. Sec. 305(j)(2), which provides:

If the Commissioner of Labor finds, within the two-year period following payment to any individual of any amount as benefits under this chapter, that such individual is not entitled, by reason other than that specified in subsection (h)(2) or subsection (j)(1) above, to such amount, he shall repay such amount to the Commissioner of Labor for the Unemployment Fund or in the absence of such repayment such amount shall be deducted from any future benefits payable to him under this chapter, within the two-year period following the date of notice of the final determination or decision; Provided, That no repayment or deduction from benefits shall be required under this paragraph if the amount overpaid was received by the individual without fault on his part, and such recoupment would be against equity and good conscience.

(emphasis added).

The hearing examiner's rationale for authorizing recoupment is contained in the following paragraph of his opinion:

It is clear that recoupment or denial of future benefits is warranted in the instant case. This Claimant was awarded benefits where she was at fault. She was terminated because of her own misconduct. Section 305(j)(2) allows the Agency to elect to recover the benefits paid to a claimant or to deny future benefits. This case provides an instance where that election must be made. The Commissioner must determine which is appropriate. The Act offers no guidance on this point. It allows the Commissioner to do either as a matter of discretion.

The case then came on Writ of Review, 5 V.I.C. Sec. 1421 and 5 V.I.C. app. V Rule 11(a), before the Magistrate Judge. His resolution of the issue was equally terse. After quoting Sec. 305(j)(2) he stated:

The hearing examiner's rationale was that it was because of Petitioner's misconduct, which is an intentional act, that she was dismissed and that, therefore, since it was ultimately determined that the benefits were received through Petitioner's fault, she must repay the Agency.

In reviewing, this determination by the hearing examiner, this court finds that the decision is supported by a rational basis, and, therefore, cannot be disturbed.

The Magistrate Judge therefore affirmed the hearing examiner's decision. Because our own holding turns on questions of the interpretation and application of law, our review of the Magistrate Judge's conclusion is plenary.

The key terms in Sec. 305(j)(2) (for purposes of this appeal) are "without fault," and "equity and good conscience." Unfortunately, neither the hearing examiner nor the Magistrate Judge devoted much attention to the meaning of these terms, or to the record as it might bear on them. That may well be due to the fact that the parties directed the attention of these administrative and judicial officers primarily to the misconduct issue, and there was little, if anything, placed in the record relative to fault and "equity and good conscience."

* Turning first to the meaning of the phrase "without fault," the threshold question is the extent to which it is informed by the terms of Sec. 305(j)(1). That section provides:

(j)(1) Any person who makes, or causes to be made by another, a false statement or representation of a material fact, knowing it to be false or knowingly fails, or causes another to fail, to disclose a material fact, and as a result thereof has received any amount as benefits under this chapter to which he was not entitled shall, in the discretion of the Commissioner of Labor, be liable to repay such amount to the Commissioner of Labor for the Unemployment Fund or to have such amount deducted from any future benefits payable to him under this chapter within the two-year period following the date of notice of the final determination, redetermination or decision.

Serrant argues that the fault necessary to subject one to recoupment is that specified in Sec. 305(j)(1), that is, making misrepresentations to receive benefits. This approach makes eminent sense. It is also consistent with the most similar provision we have found, a Wyoming regulation set forth in the margin,2 which also defines fault principally in terms of considerations that bear on fault in making the application for benefits.

If Sec. 305(j)(1) were controlling, Serrant's position would be strong because there is no administrative or judicial finding that she made any kind of misrepresentation to obtain benefits. However, Sec. 305(j)(2) by its terms appears not to apply where the person received benefits to which he or she was not entitled by reasons specified in (j)(1). Section 305(j)(2) therefore seems to contemplate a situation where a claimant receives benefits through his or her own fault but not by means of what are essentially misrepresentations as described in (j)(1).

But this conclusion is quite problematic, for it is difficult to identify such a scenario. Indeed, if the (lamented) construction is correct, hearing examiners would, as Serrant contends, and as the hearing examiner and Magistrate Judge did here, be likely to conflate the facts to be considered in connection with the unemployment benefit application process under Sec. 305(j) (i.e., the putative misconduct) with the work-related conduct relevant to the determination of disqualification for benefits under 24 V.I.C. Sec. 304(b)(3). This seems dubious inasmuch as these are discrete statutory provisions and appear to serve different purposes. For example, if there is no misconduct, there is no overpayment. However, if there is misconduct, and that automatically was deemed fault in receipt of benefits, a recipient who was denied benefits for misconduct would, in view of the conjunctive wording of the recoupment provision,3 always be subject to recoupment regardless of the background circumstances and the dictates of equity and good conscience. We doubt that the legislature intended such an untoward result.

But then what does Sec. 305(j)(2) mean? What additional or different conduct (other than misrepresentation to obtain benefits) transforms being disqualified for benefits due to work-related misconduct into receiving overpayment through fault of one's own? That is far from clear. Moreover, Sec. 305(j)(2) exempts from recoupment not individuals who applied for benefits through no fault of their own, but those who received them without fault. This distinction seems opaque, and leads us to doubt that these provisions really fit together.4 Taking the statute at its most literal meaning, however, Serrant was not at fault in receiving the benefits. She received them as the result of an order of the (appellee) Agency, and there is no finding that, at the time she received them, she had done anything blameworthy in connection with their receipt. Even the work-related misconduct finding came months later, at the time of the hearing examiner's decision. In short, Serrant's failing to complete the occupancy report for the hotel does not render her later receipt of benefits due to Agency order to be through fault of her own.

The meaning of "equity and good conscience" probably favors Serrant's position even more strongly. The terms are not defined in any Virgin Islands Regulation, but similar provisions in other jurisdictions make clear that equity and good conscience relate to the ability of the recipient to repay the debt without experiencing hardship. See 20 C.F.R. Sec. 10.323:

(a) Recovery of an overpayment is considered to be "against equity and good conscience" when an individual presently or formerly entitled to benefits would experience severe financial hardship in attempting to repay the debt....

See also International Union, UAW v. Dole, 919 F.2d 753, (D.C.Cir.1990) (financial hardship is key factor in interpretation and consideration of "equity and good conscience" as used in 20 C.F.R. Sec. 617.55(a)(2)(ii)(A), concerning recoupment of Trade Adjustment Assistance benefits); Giles v. Director of Labor, 2 Ark.App. 301, 621 S.W.2d 10, 11 (1981) (Corbin, J., concurring) ("[O]ne factor in determining equity and good conscience is the financial condition of the claimant."); Gilles v. Department of Human Resources Development, 11 Cal. 3d 313, 113 Cal. Rptr. 374, 381, 521 P.2d 110, 117 (1974) (considering "whether recovery of the overpayment, by imposing extraordinary hardship on the claimant, would tend to defeat the objectives of the Unemployment Insurance Code."); Section 2 of the Wyoming Regulations cited above.5 We believe that the Virgin Islands statute carries with it a similar meaning. There is no indication in the record, that Serrant, who has been granted leave to proceed in this case in forma pauperis, has an ability to repay the sums she has received. There is not only no fact finding contra but nothing in the record from which any such finding could be inferred. And while we acknowledge that there may be "other relevant factors," see supra note 4, none have been suggested as being applicable here.

In view of the foregoing, it appears from the record that, had the hearing examiner and Magistrate Judge focused on the pertinent issue, they would have determined that any overpayment received by Serrant was received without fault on her part, and further, that any recoupment would have to be deemed against equity and good conscience. Repayment of benefits is therefore not required. The fact that Serrant was found to have been guilty of wilful misconduct in terms of the benefit entitlement ruling does not affect this result.6

The order of the district court, therefore, will be reversed, and the case remanded with the directions to vacate the order for recoupment.