Lawsuit challenging Michigan unemployment fraud cases moves forward

Mar 30, 2016 at 6:16 pm
click to enlarge Lawsuit challenging Michigan unemployment fraud cases moves forward
State of Michigan

A lawsuit against the Michigan Unemployment Insurance Agency that contends “countless” claimants were wrongfully accused of insurance fraud is moving forward.

U.S. District Judge Robert Cleland dismissed only one of several claims filed by the plaintiffs in a 34-page ruling issued Tuesday. The case highlights the myriad issues of an automated unemployment insurance fraud detection system that launched in 2013 under Michigan Gov. Rick Snyder.

At the core of the case is the system known as the Michigan Integrated Data Automated System, or MiDAS. Following the system’s launch in late 2013, the unemployment insurance agency witnessed an immediate spike in claims of insurance fraud. It’s since been revealed that thousands of people were incorrectly accused of fraud by MiDAS, in what the lawsuit’s plaintiffs describe as a “robo-adjudication” system.

By the following year, the unemployment agency (UIA) established nearly 27,000 fraud cases, according to a memo sent last year by a University of Michigan professor to the Department of Labor, nearly double the fraud caseload from just two years prior. The uptick in cases generated nearly $57 million in penalties for the state, as claimants were assessed significant fines that, in one case, totaled more than $100,000, says David Blanchard, the plaintiff’s attorney.

Blanchard says claimants often ask him, “If I file my taxes, are they going to take my return I’m otherwise entitled to?” MiDAS also generated a major backlog of 23,000 appeals in the Michigan Administrative Hearing System that oversees unemployment cases.

The state’s revenue stream from fraud penalties has ballooned since MiDAS came online. While officials say weeding out fraudulent claims helps maintain the integrity of the system, critics argue that thousands are being wrongly accused of fraud.

Indeed, in August, the UIA reviewed roughly 8,500 fraud cases from the administrative court. A review of a majority of the cases found only 8 percent were confirmed as fraudulent, according to a spokesperson at the time.

The agency announced earlier this year all fraud determinations are now reviewed and issued by employees, not by MiDAS alone.

The federal lawsuit, filed in April 2015, alleges MiDAS deprives claimants of constitutional rights under the Fourth, Fifth, Eighth, and Fourteenth amendments, as well as the Social Security Act. In his ruling, Cleland dismisses the Eighth Amendment claim on the agency’s “quintuple” fines, saying they don’t “come anywhere near a level of constitutional concern,” citing the impact fraud has on the administration of public programs.

Blanchard says he was disappointed by the dismissed claim, but added he’s “very heartened and pleased that the case is going to go forward on the equal protection, due process, and other arguments presented.”

A spokesperson for the agency says it’s “currently reviewing the court’s decision and will then be reviewing its legal options.”

The state has filed a separate motion to dismiss that Cleland hasn’t yet ruled on, claiming the decision to scale back MiDAS and have all fraud determinations reviewed and issued by employees renders the case moot. Still, Blanchard says he believes the plaintiffs will prevail, as problems presented by Midas still exist, despite now having human oversight.

“I would have to say overall many of the abusive standards we saw perpetrated through the robo-fraud system … continue to be an issue, continue to be abusive, and continue to be followed, even if now they’re administering that through individuals rather than a computerized system,” he says.

A separate, potential class-action lawsuit filed in state court, accusing the unemployment agency of illegally seizing state and federal income tax refunds, is pending.

Anthony Paris, an attorney with the Detroit-based Sugar Law Center, a plaintiff in the federal lawsuit, says he’s received hundreds of additional calls from claimants who say they’ve been wrongly accused of fraud.

“We still see a very high amount of intakes from … folks who’ve been flagged for fraud in this robotic adjudication,” he says. “And unfortunately, many of them [don’t] really know what the basis of the fraud charge is — which is unfortunate that the state hasn’t fixed that — but, also, once we we learned what the basis may be, it’s something that could easily still be fixed, if there was a proper human reviewing the case.”

Cleland dismissed the state’s claim that Sugar Law lacked standing in the case: “Sugar Law must spend additional time during intake attempting to determine what might be the problem with any particular claimant’s application,” the judge wrote in his ruling.

“Not only does this make claim processing more costly, it also, allegedly, lengthens the administrative hearing process,” Cleland says, adding he was “satisfied that Sugar Law has carried its burden at this stage of the litigation.”

Ryan Felton is a Detroit-based freelance journalist and former MT staff writer.