Suit dismissed over false fraud charges; court says jobless claimants filed too late

LANSING, MICH. - The Michigan Court of Appeals on Tuesday dismissed a class-action lawsuit brought by unemployment insurance claimants falsely accused of fraud by a state computer system, saying the lawsuit was filed too late.

The state has acknowledged that at least 20,000 Michigan residents – and possibly as many as 40,000 – were wrongly accused of fraud by a $47-million state computer system that the state operated without human supervision and with an error rate as high as 93%.

Those wrongly accused of fraud through robo-adjudications by the Michigan Integrated Data Automated System (MiDAS) were subjected to highest-in-the-nation quadruple penalties and many were subjected to aggressive collection techniques such as wage garnishment and seize of income tax refunds.

Dismissal of the suit on a legal technicality – how soon after the alleged harm the lawsuit was filed – will be appealed to the Michigan Supreme Court, said Royal Oak attorney Jennifer Lord, who said the ruling is "incredible," and "based on circular logic."

The unanimous opinion by a three-judge panel of the Michigan Court of Appeals reversed an earlier ruling by Court of Claims Judge Cynthia Stephens, who said the lawsuit, filed in September 2015, could proceed.

"We're really disappointed, but we've always planned on taking this as far as we need to, not matter how long it takes," Lord told the Free Press.

An agency spokesman had no immediate comment.

Under state law, the suit alleging violation of the constitutional right to due process, had to be filed within six months of the injury to the jobless claimants.

Lord, representing the plaintiffs, argued the damage was done when the state wrongly seized money from lead plaintiff Grant Bauserman and the other jobless claimants, and the suit was timely.

But the panel agreed with the Michigan Unemployment Insurance Agency's position that the harm occurred when the state "issued notices informing plaintiffs of its determination that plaintiffs had engaged in fraudulent conduct." Using that standard, the suit was filed too late.

"Plaintiffs in this case erroneously focus on the potential consequence of a due process violation, the taking of their property, rather than the hallmark of a due process claim, the right to notice and an opportunity to be heard," said the opinion from Judges Michael Gadola, Patrick Meter and Karen Fort Hood.

Lord said the ruling means those harmed would have to have filed lawsuits based on speculation that they might be harmed. Courts would rule such lawsuits premature, she said.

The state notified one of the named defendants. Teddy Broe, of the fraud allegations against him by sending a message to Broe's online unemployment insurance account in the summer of 2014, according to the ruling made by Stephens. But Broe, who collected benefits in 2012, had found a new job in November 2013 and no longer had a reason to check his account. Broe didn't find out about the interest and penalties until 2015, and his income tax refunds were seized in May 2015, according to the Stephens ruling quoted in Tuesday's Court of Appeals opinion.

"This is going to embolden agencies, potentially, to continue to use programs like MiDAS and continue to take actions such as switching water sources for Flint without proper treatment," Lord said.

The state has pledged to return all funds wrongly taken, but Lord says the claimants, who in some cases were forced into bankruptcy, are also entitled to damages.

Michigan Democratic Party Chairman Brandon Dillon issued a statement attacking Republican Attorney General Bill Schuette, a likely candidate for governor, whose attorneys are representing the state agency in the case.

"The lives of thousands of Michigan workers were made a living hell when they were falsely accused of defrauding a system in which they did everything right and followed all the rules.," Dillon said.

"Anyone even thinking about running for governor should be absolutely ashamed for seeking to deny people, irreparably harmed by the state of Michigan, their day in court."

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Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4.

© 2017 Detroit Free Press


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