Lawsuit over false fraud fiasco revived by Michigan Supreme Court

Jonathan Oosting
The Detroit News
Michigan Hall of Justice

Lansing — The Michigan Supreme Court on Friday revived a potential class-action lawsuit against the state by plaintiffs who were falsely accused of unemployment fraud, a decision with major implications for tens of thousands of claimants.

The Unemployment Insurance Agency had relied on an error-prone computer system to identify suspected fraud without human review but later reversed more than 40,000 determinations made between October 2013 and August 2015.

In a unanimous decision, Michigan Supreme Court justices ruled that two of three named plaintiffs in the case properly took action against the state within a six-month window required for suits seeking financial damages from the government.

A Michigan Court of Appeals panel had previously dismissed the suit, ruling plaintiffs should have filed within six months of receiving a fraud determination notice.

But the Supreme Court reversed that decision, ruling the six-month clock started ticking “when the deprivation of life, liberty, or property has occurred,” Justice Stephen Markman wrote in the majority opinion.

In this case, “plaintiffs were deprived of their property when their tax refunds were seized or their wages garnished,” he said. As a result, two of the three plaintiffs “timely filed their claims within six months following the deprivation of their property.”

The high court ordered the case back to the Michigan Court of Appeals, directing judges there to consider a separate argument by the state, which has acknowledged computer errors and changed unemployment insurance policies and protocols in recent years.

“We’re alive,” said Jennifer Lord, lead attorney in a case seeking class-certification for any claimants falsely accused of fraud under former Gov. Rick Snyder’s administration.

“We’ve got a completely different government structure now, and so I think this is a major tide,” she said, noting that new Gov. Gretchen Whitmer and Attorney General Dana Nessel could take a different approach in the case.

“The governor and the attorney general I think will think long and hard about whether or not they want to keep fighting this,” Lord said. “Because there are lots and lots of people out there, the majority of people, who still have never been fully compensated.”

The Unemployment Insurance Agency is “reviewing the decision” handed down by the Supreme Court, spokesman Chris DeWitt said Friday.

Likewise, the attorney general's office is "reviewing the Supreme Court’s decision and will work in tandem with our client to determine the most appropriate course of action moving forward," said Nessel spokeswoman Kelly Rossman-McKinney.

The agency announced in August 2017 that it was refunding falsely accused claimants more than $20.8 million. As of last fall, the state had processed almost all of the refunds, but plaintiffs contend monetary damages extended beyond the refunds paid by the state.

Whitmer and Nessel in February put out a public call for help to reach roughly 500 residents who were still owed refunds but had not claimed them.

Chief Justice Bridget McCormack concurred with the unanimous decision but wrote a separate opinion that questioned the blanket law requiring plaintiffs seeking monetary damages against the state to sue within six months.  

“Is the six-month, no-exceptions notice provision reasonable when the government has taken a person’s property without due process?” she asked.

Justice Megan Cavanagh, who took the bench this year after getting elected last fall, did not participate in the decision because it was argued before she assumed office.

Friday’s ruling does not send the case back to the Michigan Court of Claims for possible class certification. Instead, justices are asking the state Court of Appeals to consider the state’s argument it is entitled to dismissal on the grounds that “plaintiffs failed to raise cognizable constitutional tort claims.”

That issue, Lord said, boils down to whether individuals have a right to sue the state for monetary damages for violating a constitutional right in the absence of a law that provides a clear remedy.

The courts have “danced around the issue” for years, she said, and the false fraud lawsuit could provide justices with an opportunity to define what an “appropriate case” looks like.