Years-old false unemployment fraud case heads back to Michigan Supreme Court

A lawsuit seeking restitution and damages after thousands of people between 2013 and 2015 were falsely accused by the state of unemployment fraud is headed to the Michigan Supreme Court again. 

The high court on Wednesday ordered oral arguments on the question of whether the state should stand trial for what's expected to be millions of dollars in money damages on constitutional due process claims. 

The state has argued it should be exempt from such a trial, first arguing that the people falsely accused of fraud had not filed suit within the statutory deadline.

When that argument was batted down by the Michigan Supreme Court in April 2019, the state said the trial should not proceed because the agency had governmental immunity and money allocations — be they settlements or part of the state budget — should be awarded by the Legislature not the judiciary. 

But a Court of Appeals panel ruled against the state on that issue almost a year ago, arguing that Michigan violated the victims' constitutional due process rights when it seized money and properties without proper notice in response to mistaken accusations of unemployment fraud.

It said the "egregious" nature of the case entitled the plaintiffs to collect damages and the appellate panel remanded the case back to the Court of Claims for trial to determine those damages. 

Plaintiffs alleged the state “systemically, and by way of concerted and coordinated actions, unlawfully intercepted their state and federal tax refunds, garnished their wages, and forced plaintiffs to repay unemployment benefits that they had lawfully received,” Judge Karen Hood wrote in the Dec. 5 ruling.

When the appellate panel issued its decision, Judge Michael Gadola wrote that the Supreme Court should clarify when it is appropriate for a court to award damages in such a case.

He noted the decision may be important in the Flint water crisis litigation, which was ongoing at the time but has since been resolved through a $600 million settlement which the Legislature authorized.

Attorney General Dana Nessel's office appealed the appellate decision to the Michigan Supreme Court in January. 

At the time, Nessel's spokeswoman said the state wanted to "pay an appropriate amount" to victims in the case but that a clarification on Michigan law from the Supreme Court would be helpful. 

“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,” Nessel's spokeswoman Kelly Rossman-McKinney said earlier this year. 

Jennifer Lord, a lawyer for the plaintiffs in the case, could not be immediately reached Friday.

In January, Lord rejected the argument, noting the Constitution already prohibits the taking of property without due process and the state doesn't need the Legislature to make it any clearer. 

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

The case stems from an error-prone computer system used to identify suspected unemployment fraud that, between October 2013 and August 2015, made false fraud accusations that resulted in the reversal of at least 40,000 unemployment determinations.

The Unemployment Insurance Agency has estimated the cost of reimbursing those falsely accused by the computer system is at about $21 million, but lawyers for the falsely accused earlier this year said the total comes to more than $60 million. 

The agency maintains it has reimbursed the majority of those falsely accused but lawyers have questioned that claim. 

In any case, with a court trial, individuals are seeking damages above the reimbursement of revoked unemployment payments and penalties. Plaintiffs will seek compensation for the fallout from the faulty accusations, including bankruptcies, lawyer fees, criminal convictions based on the accusations and the emotional toll of the mistakes.

eleblanc@detroitnews.com