Appeals panel allows unemployment insurance fraud lawsuit against state to proceed

Beth LeBlanc
The Detroit News
Michigan's Unemployment Insurance Agency (UIA) website.

A federal appeals panel has allowed residents to proceed with a federal lawsuit arising from a state computer program that falsely accused out-of-work residents of unemployment insurance fraud.

The unanimous decision from the three-member Sixth Circuit U.S. Court of Appeals panel came with a strong rebuke for the state employees who attempted to blame the faulty program for the issue even though they were the ones “implementing, overseeing and continuing” the program.  

The decision released Thursday was written by Eric Clay, an appointee of former President Bill Clinton. He was joined by Judge Damon Keith, an appointee of former President Jimmy Carter, and John Nalbandian, an appointee of President Donald Trump. 

The state-designed automated unemployment benefits program, called MiDAS, falsely accused more than 40,000 people of fraud between 2013 and 2015, ended their benefits and assessed monetary penalties that amounted, in some cases, to more than $187,000.

“MiDAS rendered a staggeringly high ratio of false fraud determinations” without meaningful fact-finding, adequate notice or an appeals process “prior to terminating claimants’ unemployment benefits, garnishing their wages, and seizing their tax returns,” the decision said.

The panel Thursday upheld a district court decision allowing the lawsuit to proceed in respect to due process claims, but reversed the district court’s refusal to dismiss based on equal protection and Fourth Amendment claims.

Thursday's opinion applied specifically to the state employees named in the lawsuit, since the companies and contractors also listed in the suit had not appealed the district court's refusal to dismiss, said Tony Paris, a lawyer with the Sugar Law Center in Detroit who is representing residents in the lawsuit. Paris said he was pleased with the ruling.

The case, he said, should concern "not just the 47,000 people in Michigan who were wrongly accused, but the rest of the citizens whose taxpayer dollars have gone into the previous administration’s enforcing of this system and defending of this system." 

Chris DeWitt, a spokesman for the Michigan Unemployment Insurance Agency, declined to comment on the pending litigation.

With Wednesday’s change in administration from a Republican to Democratic governor and attorney general, it is unclear what the state’s stance on the litigation will be in the future.

Paris said he was hopeful the new administration would take a different approach to the matter. The state's continued defense of the case — even after extensive media coverage, court rulings and clear evidence of error — is troubling, Paris said.

"It was almost like they just put the pedal down on a broken car," Paris said. "I couldn’t get over it.”

Among the plaintiffs in the federal lawsuit are Patti Jo Cahoo, who was evicted from her home for failure to pay rent after her benefits were denied; Kristen Mendyk, who was forced to declare bankruptcy; and Khadija Cole, who was told she owed roughly $29,000.

The lawsuit was filed against some private contractors and several members of the Michigan Unemployment Insurance Agency, whom the appeals panel accused of attempting “to hide behind” the technology that bungled the thousands of cases.

The opinion rejected the employees’ “attempt to evade responsibility for their actions by deflecting blame away from themselves and onto the computerized system that they implemented and oversaw, and whose invalid fraud determinations they knowingly enforced.”

The federal case is separate from a class-action lawsuit in state court in which tens of thousands of claimants are suing the state. The Michigan Supreme Court is considering whether to revive that case, which was dismissed in 2017 because of delayed filings.  

The state unemployment insurance agency said in October that it had refunded nearly $21 million to affected residents, but lawyers in the class-action lawsuit questioned the accuracy of the statement.

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