Cahoo v. Fast Enters. LLC

• Decision Date: 21 December 2020
• Docket Number: Case Number 17-10657
• Citation: 508 F.Supp.3d 162
• Parties: Patti Jo CAHOO, Kristen Mendyk, Khadija Cole, Hyon Pak, and Michelle Davison, Plaintiffs, v. FAST ENTERPRISES LLC, CSG Government Solutions, Stephen Geskey, Shemin Blundell, Doris Mitchell, Debra Singleton, and Sharon Moffet-Massey, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

508 F.Supp.3d 162

Patti Jo CAHOO, Kristen Mendyk, Khadija Cole, Hyon Pak, and Michelle Davison, Plaintiffs,

v.FAST ENTERPRISES LLC, CSG Government Solutions, Stephen Geskey, Shemin Blundell, Doris Mitchell, Debra Singleton, and Sharon Moffet-Massey, Defendants.

Case Number 17-10657

United States District Court, E.D. Michigan, Southern Division.

Signed December 21, 2020

Anthony D. Paris, John C. Philo, Sugar Law Center, Hannah Rachael Fielstra, Kevin S. Ernst, Ernst Charara & Lovell, Jonathan R. Marko, Tyler M. Joseph, Marko Law PLC, Julie H. Hurwitz, William H. Goodman, Goodman and Hurwitz, P.C., Detroit, MI, Donald H. Slavik, Slavik Law Firm LLC, Steamboat Springs, CO, Jennifer L. Lord, Kevin M. Carlson, Michael L. Pitt, Pitt McGehee Palmer & Rivers, P.C., Royal Oak, MI, for PlaintiffsPatti Jo Cahoo, Kristen Mendyk, Khadija Cole.

Anthony D. Paris, John C. Philo, Sugar Law Center, Hannah Rachael Fielstra, Kevin S. Ernst, Ernst Charara & Lovell, Jonathan R. Marko, Marko Law, Julie H. Hurwitz, William H. Goodman, Goodman and Hurwitz, P.C., Detroit, MI, Donald H. Slavik, Slavik Law Firm LLC, Steamboat Springs, CO, Jennifer L. Lord, Kevin M. Carlson, Michael L. Pitt, Pitt McGehee Palmer & Rivers, P.C., Royal Oak, MI, for PlaintiffsHyon Pak, Michelle Davison.

Claire E. Wells Hanson, Hoban Law Group, Craig E. Stewart, Holland & Hart LLP, Denver, CO, Erik F. Stidham, Sara M. Berry, Holland & Hart LLP, Boise, ID, Stephen J. Rosenfeld, McDonald Hopkins LLC, Chicago, IL, Walter J. Piszczatowski, Hertz, Schram, Bloomfield Hills, MI, for DefendantFast Enterprises LLC.

Jennifer D. Armstrong, McDonald Hopkins LLC, Cleveland, OH, John D. Fitzpatrick, Mandell Menkes LLC, Stephen J. Rosenfeld, McDonald Hopkins LLC, Chicago, IL, Timothy J. Lowe, McDonald Hopkins PLC, Bloomfield Hills, MI, for Defendant CSG Government Solutions.

Kimberly Pendrick, State of Michigan, Detroit, MI, Rebecca M. Smith, Zachary A. Risk, Department of Attorney General, Lansing, MI, for DefendantsSteven Geskey, Shemin Blundell, Dorris Mitchell, Debra Singleton.

Debbie K. Taylor, Department of Attorney General, Kimberly Pendrick, State of Michigan, Detroit, MI, Rebecca M. Smith, Lansing, MI, for DefendantSharon Moffet-Massey.

OPINION AND ORDER DENYING MOTIONS BY FAST ENTERPRISES LLC AND CSG GOVERNMENT SOLUTIONS TO DISMISS FOR WANT OF SUBJECT MATTER JURISDICTION

DAVID M. LAWSON, United States District Judge

The five named plaintiffs have commenced this putative class action to recover damages allegedly caused by the State of Michigan's Unemployment Insurance Agency's (UIA) implementation of an automated system to detect and punish individuals who submitted fraudulent unemployment insurance claims.They say that they are victims of the system's many failures: it lacked human oversight, it detected fraud by certain claimants where none existed, it provided little or no notice to the accused claimants, it failed in many instances to allow administrative appeals, and it assessed penalties and forfeitures against individuals who were blameless.Their amended complaint listed twelve counts against the companies and individuals whom they believe contributed to the State's implementation of the flawed fraud-adjudication system.The case has been whittled down through motion practice and an interlocutory appeal, and now only one procedural due process claim remains.The defendants have filed a second round of motions to dismiss, raising for the first time that the Court lacks subject matter jurisdiction over the dispute.

DefendantsFAST Enterprises LLC and CSG Government Solutions argue that the plaintiffs cannot establish Article III standing because (1)they failed to demonstrate an injury-in-fact because their claims were not entirely adjudicated by the Michigan Integrated Data Automated System (MiDAS); (2) their alleged injuries are not fairly traceable to the corporate defendants; and (3)plaintiffsPatti Jo Cahoo, Kristen Mendyk, and Khadija Cole are precluded from bringing their claims because they failed to disclose their property interests in this cause of action during their respective bankruptcy proceedings.

The plaintiffs adequately have established standing.Although the plaintiffs’ fraud cases may not entirely have been auto-adjudicated by MiDAS, the UIA determined that each of the plaintiffs committed fraud by applying the UIA's logic trees, which mandated a finding of fraud whenever a plaintiff failed to respond to a MiDAS-issued questionnaire.Moreover, each plaintiff sufficiently demonstrated that the UIA did not provide adequate notice of the plaintiffs’ fraud determinations and subsequent efforts to collect on their debts.And because FAST and CSG worked hand-in-hand with the UIA in developing and managing the MiDAS system (which included the deficient notice procedures), the plaintiffs’ alleged injuries are fairly traceable to them.The record requires further factual development on the accrual dates for the due process claims of plaintiffs Cahoo, Cole and Mendyk vis-à-vis their bankruptcy filings, and there is insufficient information to rule out ratification by a potential real party in interest under Federal Rule of Civil Procedure 17(a)(3).The motions will be denied.

I.Background

The facts of the case are well known to the parties and have been discussed in previous opinions issued by this Court and the court of appeals.SeeCahoo v. SAS Inst. Inc. , 322 F. Supp. 3d 772, 785-89(E.D. Mich.2018), aff'd in part, rev'd in part and remanded sub nom.Cahoo v. SAS Analytics Inc. , 912 F.3d 887(6th Cir.2019).The dispute focuses on an automated fraud detection computer application that the UIA implemented sometime around 2013 known as MiDAS, which stands for the Michigan Integrated Data Automated System.MiDAS was developed to search for discrepancies in the records of unemployment compensation recipients, automatically determine whether the claimants committed fraud, and execute collection proceedings, which included intercepting tax refunds and garnishing wages.Auto-adjudication is a process that starts with the automated generation of a flag, then leads to the automated generation of questionnaires, then to an automated determination based on logic trees, followed by an automated generation of a notice of fraud determination, then automated collection activity.

MiDAS, by no means a marvel of artificial intelligence, operated on automated "logic trees."It adjudicated fraud in "stages," which included "created,""opened,""pending fact finding,""determination issued," and "issue closed."If the word "batch" appeared next to any stage, it signified that MiDAS had changed the status automatically.A human could perform any of these stages, except for the generation of the fraud questionnaire.But human involvement could only be established if a staff member edited the file, which could be seen in the system.

When MiDAS detected some discrepancy between employer-paid wages and employee-claimed eligibility, it automatically issued questionnaires to the claimant.Failure to respond timely to a questionnaire (10 days for "green"claimants and 14 days for those corresponding via paper) resulted in a default determination that the claimant knowingly and intentionally misrepresented or concealed information to receive benefits unlawfully.When a claimant did respond to the questionnaire, MiDAS's programming, based on its logic trees, found intentional fraud whenever a claimant chose certain multiple-choice options on the form, even if she indicated that she did not intentionally provide false information.MiDAS had no programming that permitted it to determine whether a claimant intentionally misled the UIA or concealed information.

MiDAS made an automated fraud determination, usually at night, based on the UIA's logic trees.Staff members could also make the fraud determinations based on the same logic trees.In either instance, the case would be staged from "pending adjudication" to "determination issued" to "issue closed," and the name of whoever made the decision would appear beside the stages on the "Nonmonetary Issue" screen.MiDAS would then automatically issue a notice of determination.

Once a default fraud determination was made, MiDAS automatically issued three notices: a primary "Notice of Determination"(Form 1302), which explained why the UIA believed it overpaid (e.g., a claimant quitting a job voluntarily) but not its reasoning for why it believed the plaintiff's alleged misrepresentation was intentional; another "Notice of Determination"(also Form 1302), which generally informed the claimant that his or her actions misled or concealed information to obtain benefits and announced that benefits were terminated on any active claims; and a "List of Overpayments," which demanded payment of actual benefits overpaid as well as a statutory penalty for fraudulent misrepresentation of two-to-four times that amount, depending on whether the value of improper payments equaled or exceeded $500.Confusingly, the first two notices have the same title and same form numbers, but different contents.

The primary determination notices indicated that claimants were entitled to appeal a determination of fraud to an Administrative Law Judge (ALJ) within 30 days.But the notices did not inform claimants about their abilities to file late appeals for good cause.And because of errors in notifying claimants, many claimants did not become aware of their assessments until after the appeal deadlines passed.

If a claimant did not appeal the determination within 30 days, MiDAS automatically issued a letter (Form 1088) demanding that the claimant pay restitution, a penalty, and accrued interest.If a claimant failed to pay the charges voluntarily, MiDAS issued tax refund intercepts to the IRS and State of Michigan.And if intercepting a claimant's tax returns did not satisfy the claimant's debt, the UIA then garnished his or her wages.

In August 2015, the UIA...