Appeals court rejects suit over false fraud scandal

Lansing — A Michigan Court of Appeals panel on Tuesday sided with the state Unemployment Insurance Agency in its fight to dismiss a major lawsuit brought by residents who said they were falsely accused of unemployment fraud.

The three-judge panel did not weigh in on the merits of the case, but instead unanimously ruled the plaintiffs failed to file their case within six months “following the happening of the event giving rise to the cause of action,” as required in suits seeking financial damages against the state.

The panel reversed an earlier Michigan Court of Claims ruling that had allowed the suit to proceed, sending it back to that court “for an order granting summary disposition” in favor of the state’s motion to dismiss the case.

Plaintiff attorney Jennifer Lord called the ruling “a disgusting result” for tens of thousands of residents caught up in the state’s false fraud scandal and vowed appeal to the Michigan Supreme Court.

“To use a technicality like this and then flat out get it wrong is a big disappointment,” Lord said.

The Michigan Unemployment Insurance Agency has acknowledged widespread problems with an automated computer system used to determine fraud and so far reversed more than more than 27,800 determinations from between October 2013 and August 2015.

The potential class-action lawsuit alleges the state agency violated constitutional due process rights of those and other claimants by seizing their property without proper notice, but the state argued the case was not filed within a prescribed statute of limitations.

At issue is whether named plaintiffs in the case filed their complaint within six months of the alleged “harm” done to them. Plaintiffs said the harm occurred when their income taxes were seized, but the state argued the harm would have occurred when they first received notice of the penalties.

The conservative-leaning appeals court panel sided with the state in a unanimous decision by Appeals Court Judge Michael Gadola, Judge Patrick Meter and Judge Karen Hood. Gadola and Meter were first appointed by Republican governors, while Hood was elected directly to the bench but tends to align more with Democrats.

Lead plaintiff Grant Bauserman of Chelsea received notice in February 2015 that he owed the state $15,928 in penalties and $40.59 in interest after he received a deferred bonus payment from a previous job, which the agency later redetermined was not fraud. His federal income tax refund was seized in June, then he lost his state refund. He filed suit in September, roughly seven months after the initial penalty and interest notice.

The appeals court panel said two other named plaintiffs in the case received redetermination notices in July 2014 and June 2012.

The plaintiffs “erroneously focus on the potential consequence of a due process violation, the taking of their property, rather than the hallmark of a due process claim, the right to notice and an opportunity to be heard,” the ruling said.

Lord said she expects to appeal to the Michigan Supreme Court within the next month.

The ruling “completely ignores the fact that the vast majority of these claimants have never in fact received notice of their redeterminations and did not learn a determination had been made until their tax refunds were snatched,” she said. “It’s really a completely circular argument.”

Wanda Stokes, director of the Talent and Investment Agency that oversees the UIA, said the state agrees with the ruling but continues to focus on reviewing old unemployment cases and improving customer service.

The agency already has or intends to refund claimants $16 million in payments, interest and penalties for erroneous fraud determinations and expects to complete its review of additional cases by July, she said.

“People come to the Unemployment Insurance Agency when they are going through a difficult and stressful time in their lives,” Stokes said in a statement. “… We are working tirelessly to restore the public’s trust in our system, and we are on the road to doing that.”

U.S. Rep. Sander Levin, the Royal Oak Democrat who helped uncover the problem, expressed disappointment about the court's ruling and urged Gov. Rick Snyder and Attorney General Bill Schuette to stop the legal fight with residents they have recognized as victims.

"The Governor and the Attorney General could still do the right thing and pursue a fair settlement for those so harmed by the State’s policies<" Levin said in a Tuesday statement.

joosting@detroitnews.com