Mich., Dep't of Licensing & Regulatory Affairs, Unemployment Ins. Agency v. Green (In re Green)

• Decision Date: 29 July 2016
• Docket Number: Case No: BG 14-02752,Adversary Proceeding No. 14-80184
• Citation: 556 B.R. 853
• Court: U.S. Bankruptcy Court — Western District of Michigan
• Parties: In re: Barrid Bernard Green, Jr., Debtor. State of Michigan, Dept. of Licensing & Regulatory Affairs, Unemployment Insurance Agency, Plaintiff, v. Barrid Bernard Green, Jr., Defendant.

556 B.R. 853

In re: Barrid Bernard Green, Jr., Debtor.

State of Michigan, Dept. of Licensing & Regulatory Affairs, Unemployment Insurance Agency, Plaintiff,

v.Barrid Bernard Green, Jr., Defendant.

Case No: BG 14-02752

Adversary Proceeding No. 14-80184

United States Bankruptcy Court, W.D. Michigan.

Signed July 29, 2016

Michael O. King, Jr., Esq., Lansing, Michigan, attorney for State of Michigan, Dept. of Licensing & Regulatory Affairs, Unemployment Insurance Agency, Plaintiff.

Garrett J. Tenhave-Chapman, Esq., Grand Rapids, Michigan, attorney for Barrid Bernard Green, Jr., Debtor-Defendant.

OPINION REGARDING NONDISCHARGEABILITY OF DEBT FOR OVERPAID UNEMPLOYMENT BENEFITS, PENALTIES, AND INTEREST

James W. Boyd, United States Bankruptcy Judge

I. INTRODUCTION AND ISSUES PRESENTED.

In this adversary proceeding, the State of Michigan, Department of Licensing & Regulatory Affairs, Unemployment Insurance Agency (referred to herein as “Plaintiff,” “UIA” or the “Agency”) seeks a determination that debts for unemployment benefit overpayments, penalties, and statutory interest owed by Barrid Bernard Green, Jr. (the “Debtor” or “Defendant”) are nondischargeable under § 523(a)(2)(A) and § 523(a)(7) of the Bankruptcy Code.¹ The overpayments at issue occurred over the course of approximately two years and resulted from the Debtor's failure to report his part-time employment and wages from the City of Grand Rapids when he certified his eligibility for unemployment benefits with the Agency. After the overpayments were discovered, the Agency issued an administrative Redetermination finding that the Debtor owed $7,984.00 in restitution for the overpayments and imposing $31,416.00 in statutory penalties under § 54(b) of the Michigan Employment Security Act, Mich. Comp. Laws § 421.54(b).

The UIA now seeks a determination that these debts are nondischargeable in the Debtor's chapter 7 case. Specifically, the Agency asserts that the Debtor's failure to accurately report his part-time earnings constitutes intentional fraud and renders the debts resulting from the overpayments nondischargeable under § 523(a)(2)(A). The Agency argues that the elements of its § 523(a)(2)(A) claim were established both by the evidence presented at trial and by the factual findings in its prior administrative Redetermination, which was not appealed by the Debtor and which the UIA argues is entitled to preclusive effect in this adversary proceeding. The Agency also seeks a determination that the statutory penalties assessed against the Debtor are nondischargeable under § 523(a)(7).

For the reasons that follow, the court finds that the Debtor obtained the benefit overpayments by intentionally and fraudulently misrepresenting his employment and earnings to the Agency. Accordingly, the debts owed by the Debtor to the Agency for restitution and statutory interest are nondischargeable under § 523(a)(2)(A). The court further finds that the debt for statutory penalties is payable to the Agency, as a governmental entity, and is not compensation for pecuniary loss. Therefore, the debt for penalties is nondischargeable under § 523(a)(7).

II. JURISDICTION.

The court has jurisdiction over this bankruptcy case. 28 U.S.C. § 1334. The bankruptcy case and all related proceedings have been referred to this court for decision. 28 U.S.C. § 157(a) ; L. Civ. R. 83.2(a) (W.D. Mich.). This nondischargeable debt action is a statutory core proceeding and this court has constitutional authority to enter a final order. 28 U.S.C. § 157(b)(2)(I) (determinations as to the dischargeability of certain debts); see, e.g., Hart v. Southern Heritage Bank (In re Hart), 564 Fed.Appx. 773, 776 (6th Cir.2014) (unpublished opinion) (notwithstanding the Supreme Court's decision in Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), the bankruptcy court has “constitutional authority to enter a final money judgment in a dischargeability action”). Further, even Stern claims may be decided by bankruptcy courts if the parties consent. Wellness Int'l Network, Ltd. v. Sharif, ––– U.S. ––––, 135 S.Ct. 1932, 191 L.Ed.2d 911 (2015). While this is not a Stern claim, the parties have consented to this court entering a final order in this adversary proceeding. See Report of Parties' Rule 26(f) Conference, AP Dkt. No. 13 at ¶ 3(f)(2); Plaintiff's Consent to Entry of Final Order, AP Dkt. No. 9.

III. FINDINGS OF FACT.

At the trial held in this adversary proceeding on March 9, 2016, the court heard testimony from the Debtor and three witnesses called by the UIA: Katherine Potter, an unemployment insurance examiner with the Agency; Shemin Adat-Blundell, manager of the Benefit Payment Control Unit and Fraud Enforcement Unit at the Agency; and Marianne Peterson, an employee of the City of Grand Rapids Parks and Recreation Department who processes payroll. All of the Agency's witnesses testified credibly. The Debtor also testified credibly, although his testimony concerning whether he intentionally misled the UIA strained credulity, for the reasons set forth herein. The court also admitted ten exhibits into evidence. The testimony and exhibits provided information about the general policies and procedures utilized by the Agency, as well as the specific facts pertaining to the Debtor's application for benefits and the Agency's ultimate determination that he was overpaid.

The Debtor first applied for the unemployment benefits at issue in this adversary proceeding on January 19, 2010. (Plf. Exh. 1.) The initial application, which was completed and signed by the Debtor, lists the City of Grand Rapids as the Debtor's most recent employer. (Id.) It indicates that the Debtor began work for the City in September 2008 and lists the “Last Day Worked” as “present.” (Id.) The Debtor lists “lack of work” as the reason for separation from this job. (Id.) The application also discloses Mac's Convenience Stores as the Debtor's next most recent employer. (Id.) When asked to explain his reason for separation from this job as a store clerk, the Debtor states that he “got fired for being out of uniform.” (Id.) The application states that the Debtor's last day of employment at Mac's Convenience Store was January 15, 2010. (Id.)

In her testimony at trial, Katherine Potter from the UIA explained the apparent discrepancy between the representations on the application that the Debtor was both presently employed by the City of Grand Rapids and separated for lack of work. She stated that, at the time the Debtor's application was completed in 2010, the Agency only offered limited options for a claimant's separation from their prior employment. (Trial Transcript, AP Dkt. No. 52, at 31, herein “Tr. at ––––.”) As a result, listing “lack of work” as the reason for separation could indicate that the claimant was either completely unemployed or underemployed due to a lack of full-time hours. (Id.) It was not possible for the Agency to determine, based solely on a claimant's application, which of these applied. (Id.)

Ms. Potter also explained the general criteria the Agency utilizes when it evaluates a claimant's eligibility for benefits. When a claimant files a new claim for unemployment benefits, the Agency reviews the claimant's wages from the five quarters preceding the filing of the claim to determine whether the claimant is eligible to receive benefits. (Tr. at 43-44; Plf. Exh. 2 at 1-5.) This quarterly wage information, which is obtained directly from employers pursuant to State reporting requirements, is also used to make a monetary determination as to the weekly benefit amount the claimant may be entitled to receive. (Tr. at 61; Plf. Exh. 2 at 2.)

Even if a claimant is eligible for unemployment benefits based on past wages, he or she may be disqualified from receiving benefits if other criteria are not met. (Plf. Exh. 2 at 1, 5.) For instance, upon the Agency's initial review of the Debtor's application, he was disqualified from receiving benefits because he had been terminated from his employment with Mac's Convenience Stores for misconduct. (Tr. at 54.) The Debtor protested that original determination, and the Agency issued a redetermination which again found him to be disqualified. (Tr. at 54-55.) The Debtor appealed the redetermination to an administrative law judge, who held that the Debtor was not disqualified and allowed the benefits to be released. (Tr. at 55.)

After a claimant establishes initial eligibility for unemployment benefits, the claimant is also required to certify his or her entitlement to actually receive the benefits by calling or logging on to the Michigan Automated Response Voice Interactive Network (“MARVIN”) every two weeks. (Tr. at 31.) The MARVIN system requires claimants to answer a series of questions about their employment status for each week that they seek to collect benefits. (Id.) Among other things, the questions require claimants to certify that they are able and available to work full-time, seeking full-time work, and either unemployed or underemployed (i.e., only working part-time). (Plf. Exh. 2 at 8.) The questions asked by MARVIN, and information about how to answer them, are included in a guide entitled “Unemployment Benefits in Michigan: A Handbook for Unemployed Workers” that is given to all unemployment claimants. (Plf. Exh. 2, herein the “Handbook,” at 13.)

A section of the Handbook entitled, “BEFORE YOU CALL MARVIN—How to Properly Report Earnings for Each Week” explains the effect that part-time earnings may have on the weekly benefit amount a claimant is entitled to receive. (Plf. Exh. 2 at 8.) That section states:

If you work less than full-time in a week, you may be paid unemployment benefits but your benefit amount will be reduced depending on how much you earned in each week. If you return to work less than full-time and do not earn at least 1 ½ times your weekly benefit amount, you may claim (certify/report for) benefits .... When using MARVIN, report total gross earnings for the

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