State appeals to Supreme Court in unemployment fraud case

Beth LeBlanc
The Detroit News

Lansing — A state unemployment agency that mistakenly accused more than 40,000 people of fraudulently obtaining unemployment benefits is asking the Michigan Supreme Court to dismiss a case alleging the state violated those individuals’ due process rights.

Attorney General Dana Nessel office said the appeal filed Thursday is in part an effort to clarify the role of the judiciary in awarding damages in such a case.

“We certainly want to get this right,” said Kelly Rossman-McKinney, Nessel’s spokeswoman. “That is, we want to pay an appropriate amount to those individuals who have truly been harmed because of the failure to receive notice and an opportunity to be heard before the agency issued its fraud adjudication.”

The appeal by the state could mean another months-long delay in the case, a "tactic that the agency has taken since this started," said Jennifer Lord, a lawyer for the plaintiffs in the case. 

"It's just continuing to drag out the harm to the 40,000 people who have yet to be made whole," Lord said.

State of Michigan Supreme Court seal in The Hall of Justice in Lansing.

An appeals panel in December ruled 3-0 that the state violated the victims’ due process rights when it seized money and properties without proper notice in response to mistaken accusations of unemployment fraud and that the violations arose from a standing government policy. The ruling led the Court of Appeals' judges to deny a request to dismiss the case.

But Court of Appeals Judge Michael Gadola noted that the Supreme Court should clarify when it is appropriate for a judge to award damages in such a case, noting it may also be important in the Flint water crisis litigation.

The separation of powers between the judiciary and Legislature, Gadola wrote, indicates "the judiciary lacks the power to create such a remedy when the Legislature has failed to act.”

Nessel’s office also appears to be seeking clarification on the same question.

In its Thursday appeal filing, Nessel's office argued that the appellate decision "would allow for the violation of the separation-of-powers doctrine by permitting courts to authorize sizable awards of money damages without legislative authorization."

“This appeal was necessary because Michigan has no case law on how or when a court can award money damages in a case where the plaintiffs allege a violation of their due process rights,” Rossman-McKinney said.

Lord rejected the explanation, arguing that the Constitution already prohibits the taking of property without due process and doesn't need legislative clarification.

"When there is a constitutional question, it’s the court that makes that decision, not the Legislature," she said. 

The lawsuit dates back to an error-prone computer system the state’s Unemployment Insurance Agency relied on to identify suspected fraud without human review. Glitches with the software caused the state to reverse more than 40,000 determinations made between October 2013 and August 2015.

The agency has pegged the cost of reimbursing those falsely accused because of a software glitch at $21 million, but plaintiffs' lawyers in the case say the total comes to more than $60 million.

In August 2017, the Unemployment Insurance Agency said it was refunding falsely accused claimants more than $20.8 million, but Lord argued what was refunded actually amounted to about $6 million.

The falsely accused individuals are seeking damages above the unemployment payment and penalties seized to compensate for the fallout from the faulty accusations, including bankruptcies, lawyer fees, criminal convictions based on the false accusations and the emotional toll of the mistakes.