Michigan's high court considers whether to let unemployment false fraud case proceed

Beth LeBlanc
The Detroit News

A lawyer representing individuals who were falsely accused of unemployment fraud years ago argued Wednesday before the Michigan Supreme Court that Michigan's violation of his clients' due process rights merits monetary damages beyond the reimbursement of unemployment benefits that were taken from them. 

But a lawyer for the state said the jobless benefits case doesn't meet the standard of a due process rights violation. 

Attorney Mark Granzotto argued to the high court that it should let his clients proceed with what could amount to a multimillion dollar lawsuit against the state. The state usually is exempt from monetary damages because of Michigan's governmental immunity law, but suits filed under constitutional claims are expected to bypass state law. 

The false fraud unemployment scandal dates back to a state-run computer program that falsely accused thousands of people between 2013 and 2015 of unemployment fraud, which was then, in many cases, collected on by the state. For some individuals who had to return the jobless aid they received, the burden led to bankruptcies and foreclosures.

The Michigan Supreme Court heard arguments about whether lawsuits against the state for false unemployment fraud claims should be allowed to go forward despite a law giving the government immunity.

The court needs no "imprimatur" from the Legislature to uphold the state Constitution and determine damages based on a constitutional violation of claimants' right to due process, Granzotto said.

"We have a situation where the administrative process cannot address the constitutional claims the plaintiff is making and it can’t award the damages the plaintiff is asking for," he said. 

"...This court has a role, a special role it seems to me, in the enforcement of constitutional rights." 

But a lawyer for the state disagreed. To bypass the Legislature's governmental immunity law in favor of court-ordered damages based on a constitutional violation, Granzotto must prove that his clients' due process rights were violated due to a "policy or custom" — a connection that is lacking in the unemployment case, Assistant Attorney General Jason Hawkins said. 

Hawkins argued there wasn't a direct correlation between the flawed computer system that falsely flagged thousands of claims as fraudulent between 2013 and 2015 and the eventual garnishment of wages or the interception of tax refunds with which the state recouped jobless benefits. There were several "intervening events" — such as appeal opportunities — between the false determination by the software and the eventual recouping of benefits, he said. 

"Under the Michigan Employment Security Act, the agency cannot collect on an adjudication until it becomes final and it cannot become final until several appeals windows have closed," Hawkins said. The software determinations were "not self-executing," he said.

But justices pushed back on the idea that there wasn't significant correlation between the false fraud determination and the eventual claw back of people's jobless benefits. 

"Logically, how is it not a direct correlation between the common practice and the injury to these people?” asked Justice Richard Bernstein.

The question of what benchmarks need to be met to establish a state constitutional claim and sidestep governmental immunity is one that has been pending in Michigan for some time. It was most recently called into question in civil litigation involving the 2016 Flint water crisis and the 2020 Midland dam failure.

In its 2019 decision to allow the constitutional claims to proceed against the state in the unemployment case, the state Court of Appeals noted 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.

The appeals court said the "egregious" nature of the case entitled the plaintiffs to collect damages, and it remanded the case back to the Court of Claims for trial to determine those damages. Attorney General Dana Nessel's office challenged the decision, leading to Wednesday's hearing.

Wednesday’s oral argument marked the second time the unemployment case was before the high court. In April 2019, the Michigan Supreme Court batted down state arguments that plaintiffs should not be allowed to continue forward with their cases because they had not filed suit within the statutory deadline.

A separate lawsuit in federal court is continuing against the company that developed the jobless aid software and some state employees. 

The software that led to the issues still is being used by the state, but the Unemployment Insurance Agency said earlier this year it would begin seeking other bids for the service.