LANSING – In a ruling that could affect tens of thousands of Michigan residents falsely accused of unemployment insurance fraud, the Michigan Supreme Court on Friday revived a proposed class-action lawsuit that a lower court had dismissed.
Two of the three named plaintiffs who sued the State of Michigan after they were wrongly subjected to harsh financial penalties can sue the state, the Supreme Court ruled.
Under Michigan law, the suits had to be filed within six months of the event that gave rise to the legal action.
The unanimous opinion, written by Justice Stephen Markman, said the clock started ticking when the state seized their income tax returns or other property as it sought to collect tens of thousands of dollars in penalties wrongly assessed against each of the plaintiffs for alleged fraud that never occurred.
The Michigan Court of Appeals had ruled in 2017 that the clock began ticking much earlier — when the state "issued notices informing plaintiffs of its determination that plaintiffs had engaged in fraudulent conduct." Using that standard, which was also endorsed by the Michigan Unemployment Insurance Agency, all three plaintiffs filed their suits too late.
"The Court of Appeals erred by holding that plaintiffs' due-process claims seeking monetary relief accrued when plaintiffs were deprived of process," Markman wrote. "Rather, these claims accrued only when they were deprived of property, as they incurred no harm before that deprivation."
Under the new ruling, plaintiffs Grant Bauserman and Teddy Broe can proceed with their lawsuits, the court ruled. A third plaintiff, Karl Williams, still filed too late and his suit cannot proceed, the court ruled.
The case still has a legal hurdle to clear before class certification can be considered by the Michigan Court of Claims. The Supreme Court sent the case back to the Michigan Court of Appeals to consider whether an individual can sue the state for monetary damages for violation of constitutional rights.
The state has acknowledged that at least 20,000 Michigan residents — and possibly as many as 40,000 — were wrongly accused of fraud by a $47-million state computer system that the state operated without human supervision and with an error rate as high as 93%.
Those wrongly accused of fraud through robo-adjudications by the Michigan Integrated Data Automated System (MiDAS) were subjected to highest-in-the-nation quadruple penalties and many were subjected to aggressive collection techniques such as wage garnishment and seizure of income tax refunds.
Jennifer Lord, the Royal Oak attorney representing the plaintiffs, said she is "gratified that the Michigan Supreme Court has revived this important case."
"We will keep fighting for the 40,000 victims of a computer that ran amok and falsely accused them of fraud," she said. "I hope that our elected officials will take this opportunity to finally right this wrong for the many, many Michiganders who are still suffering from a harm inflicted on them by the state."
Lord said she hopes Friday's ruling will prompt discussions aimed at settling the lawsuit.