Cahoo v. Fast Enters. LLC

Decision Date22 December 2020
Docket NumberCase Number 17-10657
Citation508 F.Supp.3d 138
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.
CourtU.S. District Court — Eastern District of Michigan

Anthony D. Paris, John C. Philo, Maurice and Jane 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 Plaintiffs Patti Jo Cahoo, Kristen Mendyk, Khadija Cole.

Anthony D. Paris, John C. Philo, Maurice and Jane 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 Plaintiffs Hyon 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 Defendant Fast 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 Defendants Steven 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 Defendant Sharon Moffet-Massey.

OPINION AND ORDER DENYING MOTION TO CERTIFY CLASS

DAVID M. LAWSON, United States District Judge The five named plaintiffs, all former claimants in Michigan's unemployment compensation system, allege that their constitutional right to due process of law was infringed when the defendants designed, built, and implemented an automated system to detect and punish individuals who submitted fraudulent unemployment insurance claims. They seek to certify an opt-out class, the definition of which has evolved throughout the case, with the pace of evolution accelerating during the briefing on this motion.

In 2012, the State of Michigan's Unemployment Insurance Agency (UIA) began using its Michigan Integrated Data Automated System (MiDAS) to investigate and adjudicate fraud cases against claimants. It remained operative until August 2015, when the UIA discontinued use of that system for that purpose. The named plaintiffs each were adjudicated as having submitted fraudulent claims and were assessed penalties and interest, collected in some instances by seized income tax refunds and wage garnishments. They were denied due process, they say, because MiDAS failed to provide adequate notice of the fraud accusations and automatically adjudicated fraud claims through the rote operation of built-in decision trees that rigidly were applied either through automation or by UIA functionaries. They wish to represent a class of "[a]ll persons whose fraud determinations were made using the MiDAS system in any way from October 1, 2013 until August 7, 2015," which, they believe, consists of about 67,000 individuals. They propose four subclasses in the alternative.

The plaintiffs have identified a number of faults with MiDAS, several of which support a claim for denial of due process. However, the evidence does not sustain the idea that all members of the main proposed class, or even the proposed subclasses, experienced the same problems with their MiDAS encounters or suffered the same consequences. Put another way in class-action parlance, except for the defendants’ accountability, the plaintiffs have not identified a decisive common issue "that is central to the validity of each one of the claims" of each one of the class members. Wal-Mart Stores, Inc. v. Dukes , 564 U.S. 338, 349-50, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011). And they have not established that the named plaintiffs’ experiences were typical of the other absent class members whose fraud claims were adjudicated at various stages of the MiDAS process. There is one group of potential plaintiffs whose claims may benefit from class treatment: those individuals adjudicated guilty of fraud solely because they did not return their questionnaires. But the named plaintiffs who fall in that category are not suitable class representatives because their individual circumstances — particularly their failure to list the cause of action in their bankruptcy schedules — subject them to unique and individual defenses that threaten to become the focus of the litigation and consume a significant measure of their time and energy. Finally, although many class members’ claims raise legitimate grievances, the plaintiffs have not demonstrated that the class-action structure is superior to other methods of claim resolution. The motion to certify a class will be denied.

I. Facts

Under the Michigan Employment Security Act (MESA), an individual may be eligible for benefits if she is unemployed, registers for and actively seeks work, and is available to perform suitable full-time work. Mich. Comp. Laws § 421.28. A claimant also must show that he was neither fired for misconduct nor voluntarily left employment without good cause. Once the UIA determines that a claimant meets the basic requirements for benefits, the claimant must report biweekly to the Agency to maintain her eligibility. The claimant must answer a series of questions by phone through the Michigan Automated Response Voice Interactive Network (MARVIN) or by accessing the Michigan Web Account Manager (MiWAM). Failure to answer truthfully can expose claimants to penalties.

MiDAS is the UIA's fraud-detection software that records and searches for inconsistencies in the data that might indicate fraud. The data originate from several sources, including a claimant's benefits application and the bi-weekly updates. Employers also independently submit information about employees, including descriptions on why an employee was discharged and quarterly wages paid.

MiDAS went live on October 1, 2013. One main function was to detect, investigate, adjudicate, and issue determinations in unemployment insurance matters, including fraud cases, and then to assess and collect penalties. Efficiency was to be achieved by automating certain stages in the process. Defendant CSG recommended the automaton to "reverse the Agency culture where staff is reluctant to render a determination of fraud because it is viewed as too punitive on the claimant."

Defendant FAST designed the platform 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. MiDAS was intended to "increase timeliness and quality" of fraud determinations by using "system-assisted" adjudication. The parties use the term "auto-adjudication," although that nomenclature is not used consistently in the briefs. The plaintiffs allege that FAST programmed MiDAS with an inherent bias to find fraud.

Auto-adjudication is a process. This system 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. A human could perform one or more of these stages, except for the generation of the fraud questionnaire.

A. Investigating Fraud

A finding that a claimant is guilty of fraud requires a determination that the claimant received an overpayment of benefits, which was caused by an intentional and material misrepresentation or omission. Mich. Comp. Laws § 421.54(b). For the first step in the fraud adjudication process, MiDAS used an electronic "cross-matching" mechanism to alert the UIA when income was reported for claimants or when some activity affected a claimant's eligibility for benefits. MiDAS cross-referenced income received in a fiscal quarter under each claimant's Social Security number with the corresponding quarterly report of the claimant's employer.

The UIA requested that employers itemize the claimant's earnings for each of the 13 weeks in a quarter. If an employer did not itemize the claimant's earnings, MiDAS used an "income-spreading" formula, which prorated the claimant's quarterly earnings in an equal amount for each of the 13 weeks. The UIA then determined that claimants were guilty of fraud if they received benefits during any of the weeks in the quarter, despite lacking evidence of actual earnings.

If MiDAS detected that an employer paid a claimant within a quarter in which the claimant received unemployment benefits, the issue was "flagged" as potentially fraudulent. MiDAS then sent a questionnaire to a claimant (Form 1713).

If a claimant had a MiWAM account, the questionnaire would be posted to that account. For claimants who chose the paperless "Go Green" option, MiDAS sent a generic email to the claimant's last email on file, notifying them to check their MiWAM account for correspondence. The emails did not inform claimants that the correspondence concerned eligibility or potential fraud.

If a claimant did...

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3 cases
  • Cahoo v. Fast Enters. LLC
    • United States
    • U.S. District Court — Eastern District of Michigan
    • January 18, 2022
    ...the opinion denying motions to dismiss, 508 F. Supp. 3d 162 (2020), and the opinion denying the motion to certify a class, 508 F. Supp. 3d 138 (E.D. Mich. 2020). Put briefly, on March 2, 2017 the plaintiffs filed a putative class action complaint for damages allegedly caused by the Michigan......
  • Cahoo v. Fast Enters.
    • United States
    • U.S. District Court — Eastern District of Michigan
    • January 18, 2022
    ...the opinion denying motions to dismiss, 508 F.Supp.3d 162 (2020), and the opinion denying the motion to certify a class, 508 F.Supp.3d 138 (E.D. Mich. 2020). Put briefly, March 2, 2017 the plaintiffs filed a putative class action complaint for damages allegedly caused by the Michigan Unempl......
  • Elmy v. Western Express, Inc., 3:17-cv-01199
    • United States
    • U.S. District Court — Middle District of Tennessee
    • July 27, 2021
    ... ... commonality prerequisite of Rule 23(a)(2). See Cahoo v ... Fast Enterprises LLC , 508 F.Supp.3d 138, 160 (E.D. Mich ... 2020) (noting that ... ...

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