Farish v. Dep't of Talent & Econ. Dev.

Decision Date18 March 2021
Docket Number350866
Citation336 Mich.App. 433,971 N.W.2d 1
Parties Dock FARISH, Kebeh Gibson, Millie Nichols, on Behalf of Themselves and All Others Similarly Situated, Plaintiffs-Appellants, v. DEPARTMENT OF TALENT AND ECONOMIC DEVELOPMENT, Defendant-Appellee, and Talent Investment Agency, Unemployment Insurance Agency, Director Department of Talent and Economic Development, Director Talent Investment Agency, and Acting Director Unemployment Insurance Agency, Defendants-Appellees.
CourtCourt of Appeal of Michigan — District of US

Excolo Law, PLLC (by Daniel W. Weininger and Keith L. Altman, Southfield) for plaintiffs.

Dana Nessel, Attorney General, Fadwa A. Hammoud, Solicitor General, and Kimberly K. Pendrick, Assistant Attorney General, for defendants.

Workers’ Rights Clinic of the University of Michigan Law School (by Andrea Van Hoven) for the Center for Civil Justice, Amicus Curiae.

Before: Riordan, P.J., and Shapiro and Ronayne Krause, JJ.

Shapiro, J.

The question before us in this case is whether the Michigan Unemployment Insurance Agency (UIA) may deduct sums from a recipient's present benefits in order to collect penalties and interest assessed because of a prior overpayment. We conclude that it may not. However, we further conclude that plaintiffs’ conversion and other damage claims fail and that they may only obtain declaratory and injunctive relief. We remand for entry of orders providing such relief.

I. BACKGROUND

The Michigan Employment Security Act (MESA), MCL 421.1 et seq. , provides that if an individual is determined to have obtained benefits to which they are not entitled, the agency may recover a sum equal to the overpayment plus interest in one of three ways: "deduction from benefits or wages payable to the individual, payment by the individual in cash, or deduction from a tax refund payable to the individual ...." MCL 421.62(a). A deduction from benefits "is limited to not more than 50% of each payment due the claimant," MCL 421.62(a), but that cap does not apply when the restitution sought by the agency results from the claimant's "intentional false statement, misrepresentation, or concealment of material information," MCL 421.62(b). MESA authorizes the assessment of penalties for such conduct. See MCL 421.54(b).

At the time they brought suit, plaintiffs’ current unemployment benefits were being deducted in whole or in part to recoup prior overpayments, penalties, and interest. Plaintiffs claimed that the deductions violated state law as set forth in MCL 421.301 and MCL 421.62, as well as federal law governing state unemployment systems that receive federal funds. Defendants moved for summary disposition, arguing that the deductions from plaintiffs’ benefits were authorized by the aforementioned state statutes and not precluded by federal law. The Court of Claims dismissed plaintiffs’ suit in its entirety and plaintiffs appealed. Farish v. Dep't of Talent & Economic Dev. , unpublished per curiam opinion of the Court of Appeals, issued December 11, 2018 (Docket No. 341350, 2018 WL 6517575) ( Farish I ). In that first appeal, we affirmed the trial court's conclusion that state law was not violated and also affirmed dismissal of the procedural due-process claim, a standalone count for equitable relief,2 and all claims against the individual defendants. Id. at pp. 2-7.

However, we reversed the dismissal of plaintiffs’ claim that deducting penalties and interest violated federal law, specifically 42 USC 503 of the Social Security Act, and therefore constituted conversion. The Court of Claims had determined that the deduction of penalties and interest from plaintiffs’ unemployment benefits did not violate the federal statute. However, we remanded for the court to consider certain administrative guidance promulgated by the United States Department of Labor indicating that such deductions were impermissible under federal law so states that deduct past interest and penalties from future benefits (as opposed to only the actual overpayments) may not be certified for federal assistance in funding their unemployment programs. See Farish I , unpub. op. at 5-6. On remand, the court again concluded that the statute was unambiguous and that the Department of Labor's interpretation of the statute was therefore irrelevant and entitled to no deference. The court also ruled that governmental immunity barred plaintiffs’ conversion claims.3 Plaintiffs again appealed in this Court.4

II. ANALYSIS
A. INTERPRETATION OF 42 USC 503

The federal Social Security Act governs various social welfare programs, including state unemployment compensation, 42 USC 501 through 42 USC 506. For all programs, the federal government provides funding for the states on the condition that the states meet and follow certain requirements. The requirements to receive federal funding for unemployment insurance are set forth in 42 USC 503(a). First, the Secretary of Labor may not certify payment unless the state's law provides administrative methods "reasonably calculated to insure full payment of unemployment compensation when due[.]" 42 USC 503(a)(1). In addition, all money withdrawn from a state unemployment fund must, with certain stated exceptions, be expended "in the payment of unemployment compensation." 42 USC 503(a)(5). The exception relevant to this appeal provides "[t]hat amounts may be deducted from unemployment benefits and used to repay overpayments as provided in subsection (g)[.]" 42 USC 503(a)(5). In turn, Subsection (g) provides in pertinent part:

A State shall deduct from unemployment benefits otherwise payable to an individual an amount equal to any overpayment made to such individual under an unemployment benefit program of the United States or of any other State, and not previously recovered. The amount so deducted shall be paid to the jurisdiction under whose program such overpayment was made. Any such deduction shall be made only in accordance with the same procedures relating to notice and opportunity for a hearing as apply to the recovery of overpayments of regular unemployment compensation paid by such State. [ 42 USC 503(g)(1) (emphasis added).]

Defendants concede that the ordinary meaning of "overpayment" does not include penalties and interest, i.e., the statute does not require or expressly authorize deductions for those amounts. Defendants argue, however, that deductions for penalties and interest are nevertheless permissible because they are not explicitly prohibited by 42 USC 503(g). Plaintiffs, on the other hand, maintain that the silence of 42 USC 503(g) on deductions for penalties and interest renders the statute ambiguous and that we should therefore defer to the Department of Labor's stated position on this matter. As discussed in Farish I , in an Unemployment Insurance Program Letter sent to all state employment security agencies in 1989 (UIPL No. 45-89),5 the Department of Labor advised that permissible deductions from payment of unemployment compensation did not include penalties or interest:

5. Specific Situations in which Deductions May or Must be Made from Unemployment Compensation. A State law may (or must) include provision for deducting and withholding any sum from compensation payable to an individual only if specifically permitted (or required) by Federal law.[6] These exceptions are limited to the following circumstances:
a. If the claimant is legally liable to repay an overpayment of compensation made from the State's unemployment fund, that amount owed may be deducted from compensation currently payable from such fund under State law. This is permissible because the amount previously overpaid is tantamount to a prepayment of compensation currently due the claimant.
* * * Deductions to recover overpayments are limited to the offset of the overpayment itself. Offset may not be used to recover any additional interest or penalties due under State law as these additional amounts do not constitute a prepayment of compensation. Further, the offsetting of past due contributions, penalty, interest or costs incurred while the claimant was an employer is not permitted. See the Secretary's decision in the Minnesota conformity proceedings, dated December 16, 1988, and transmitted to the States by UIPL 25-89. [Emphasis added.]

Plaintiffs maintain that UIPL No. 45-89 is entitled to deference under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. , 467 U.S. 837, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984), the seminal decision from the United States Supreme Court concerning judicial deference to a federal agency's interpretation of a statute. Chevron presents a two-step inquiry. The first step is to determine "whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.’ " Dep't of Labor & Economic Growth, Unemployment Ins. Agency v. Dykstra , 283 Mich. App. 212, 223, 771 N.W.2d 423 (2009), quoting Chevron , 467 U.S. at 842-843, 104 S.Ct. 2778. If, however, " ‘the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.’ " Dykstra , 283 Mich. App. at 224, 771 N.W.2d 423, quoting Chevron , 467 U.S. at 843, 104 S.Ct. 2778.

Aside from whether the statute is ambiguous, defendants argue that UIPLs are not entitled to Chevron deference. Plaintiffs disagree, but alternatively argue that even if Chevron does not apply, we should defer to UIPL No. 45-89 under Skidmore v. Swift & Co. , 323 U.S. 134, 65 S. Ct. 161, 89 L. Ed. 124 (1944). Per Skidmore , an agency interpretation that does not "carry the force of law" is nonetheless "eligible to claim respect according to its persuasiveness." United States v. Mead Corp. , 533 U.S. 218, 221, 121 S. Ct. 2164, 150 L. Ed. 2d 292 (2001), citin...

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