Mich. Unemployment Ins. Agency v. Heinisch (In re Heinisch)

• Decision Date: 27 March 2019
• Docket Number: Case No. BT 17-03405,Adversary Proceeding No. 17-80170
• Citation: 600 B.R. 393
• Parties: IN RE: Kenneth James-George HEINISCH, Debtor. Michigan Unemployment Insurance Agency, Plaintiff, v. Kenneth James-George Heinisch, Defendant.
• Court: U.S. Bankruptcy Court — Western District of Michigan

600 B.R. 393

IN RE: Kenneth James-George HEINISCH, Debtor.

Michigan Unemployment Insurance Agency, Plaintiff,

v.Kenneth James-George Heinisch, Defendant.

Case No. BT 17-03405

Adversary Proceeding No. 17-80170

United States Bankruptcy Court, W.D. Michigan.

Signed March 27, 2019

Rebecca M. Smith, Lansing, Michigan, attorney for Plaintiff.

Paul I. Bare, Traverse City, Michigan, attorney for Defendant.

OPINION REGARDING NONDISCHARGEABILITY OF DEBT

James W. Boyd, United States Bankruptcy Judge

I.INTRODUCTION AND JURISDICTION.

In this adversary proceeding, the Michigan Unemployment Insurance Agency(referred to herein as the "UIA," the "Agency," or the "Plaintiff") alleges that Kenneth James-George Heinisch(the "Debtor" or "Defendant") failed to disclose material facts about being fired from prior employment and that this failure caused the Defendant to receive unemployment benefits that he was not entitled to receive.The Agency argues that the resulting debt for $ 21,697.00 in unemployment benefit overpayments, $ 86,788.00 in statutory penalties,¹ and $ 8,931.91 in interest (less $ 4,410.99 already collected from the Defendant) is nondischargeable under § 523(a)(2)(A) of the Bankruptcy Code² and the United States Supreme Court's opinion in Cohen v. de la Cruz , 523 U.S. 213, 118 S.Ct. 1212, 140 L.Ed.2d 341(1998).³

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);Parties' Discovery Plan, APDkt. No. 7, at ¶ 3(f)(2)(indicating both parties' consent to this court entering a final order.)

II.FACTS.

A trial was held in this adversary proceeding on September 5, 2018.At trial, the court heard testimony from two witnesses: the Debtor and Gretchen Frost, an unemployment insurance examiner for the Agency.Both witnesses testified credibly.Prior to the trial, the parties submitted a Stipulation of Facts for Trial, with five exhibits attached.(APDkt. No. 30.)The court also admitted Plaintiff's Exhibits 1 through 16 by stipulation at trial.After the conclusion of the trial, the Plaintiff submitted an Affidavit of Gretchen Frost which included supplemental testimony and two additional exhibits.(APDkt. No. 36.)On October 15, 2018, the court held a post-trial status conference, at which counsel for the Debtor stipulated to the admission of the affidavit and attached exhibits.The court subsequently entered an order admitting the Frost affidavit into evidence as Plaintiff's Exhibit 17 and the attached exhibits as Plaintiff's Exhibits 18 and 19.(APDkt. No. 41.)A Second Affidavit of Gretchen Frost with Supplemental Testimony Following Trial (APDkt. No. 40) was also admitted into evidence as Plaintiff's Exhibit 20 in accordance with the court's order and without objection from the Debtor.The following findings of fact are based on this trial record.

A.The Debtor's Employment and Termination from Harris IT Services.

The Debtor was hired by Harris IT Services as a field technician in August 2011.(Stip. Factsat ¶ 1.)Throughout the Debtor's employment, Harris IT had policies in effect which provided that employees were not permitted to have drug or alcohol-related convictions on their driving record and required employees to disclose any driving offenses to Harris IT.(Stip. Factsat ¶ 2.)

In September 2011, the Debtor was convicted of operating a motor vehicle while impaired by liquor and his driver's license was restricted by the State of Michigan.(Stip. Factsat ¶ 4-6.)The Debtor did not disclose the conviction or the restrictions on his driver's license to Harris IT.(Stip. Factsat ¶ 7.)In early 2012, Harris IT ran a search of the Debtor's driving record and discovered the conviction.(Stip. Factsat ¶ 8.)Harris IT terminated the Debtor's employment for failing to comply with the company's alcohol and vehicle policies on February 7, 2012.(Stip. Factsat ¶ 9-10.)

B.The Initial Application for Benefits and Eligibility Determination.

Soon after being fired from his job with Harris IT, the Debtor applied for unemployment benefits through the Agency.When initially applying for unemployment benefits, applicants like the Debtor are required to make various representations regarding their eligibility.One such requirement is that the claimant must indicate the reason they separated from their previous employer.(Plf. Exh. 1, at 5-6.)Claimants may be disqualified from receiving benefits if they do not meet the Agency's eligibility criteria, including if they have previously been fired for misconduct associated with their work.⁴(Plf. Exh. 1, at 6.)

The Debtor testified that he had no recollection of completing the initial application for unemployment benefits and could not recall if he filled it out online or in person.(Tr.at 49.)Agency records, however, establish that his initial application was completed online.(Plf. Exh. 2;Tr.at 18-19.)The application, which was filed on February 21, 2012, lists "laid off" as the reason for the Debtor's separation from his prior employer.(Plf. Exh. 2.)The Debtor offered no explanation for why he gave "laid off" as his separation reason.He stated that he generally remembered the application being long, but not especially confusing.(Tr.at 51.)He explained that he believed that he was entitled to unemployment benefits because "as far as [he] knew, unless you quit a job ... you're eligible for unemployment."(Tr.at 49.)Based on the information in his application, the Debtor was approved for unemployment benefits.(Tr.at 20.)

After being approved for benefits, claimants like the Debtor receive a Monetary Determination from the Agency which includes important information about their claim, such as the weekly benefit amount.The Monetary Determination received by the Debtor is dated February 24, 2012, and states that his weekly benefit amount is $ 362.00.⁵(Plf. Exh. 3.)The issuance of the Monetary Determination put the Debtor's claim into "pay status."(Plf. Exh. 17 at ¶ 16.)According to the Frost affidavit, Agency policy and binding case law⁶ mandate that once a claim is put into pay status, "the Agency ‘must promptly begin paying the benefits and may not terminate the payments merely on the basis of an employer protest.’ "(Plf. Exh. 17 at ¶ 14, quotingPlf. Exh. 19.)In addition, "once benefit payments begin, they may be terminated only ‘after a redetermination has been issued finding the claimant disqualified or ineligible for benefits.’ "(Plf. Exh. 17 at ¶ 15, quotingPlf. Exh. 19.)

Consistent with his initial application, the reason for the Debtor's separation from Harris IT is listed on the Monetary Determination as "lack of work."(Plf. Exh. 3.)Gretchen Frost testified that this information would have come directly from the Debtor's application.⁷(Tr.at 21.)She further explained that upon receiving a monetary determination from the Agency, applicants are required to correct any information on the determination that they know to be inaccurate.(Tr.at 22.)She stated that an applicant may accomplish this by exercising the protest rights outlined in the determination.(Tr.at 23.)These protest rights are also set forth in the handbook provided to all claimants, entitled "Unemployment Benefits in Michigan: A Handbook for Unemployed Workers"(herein, the "Handbook").(Plf. Exh. 1.)The Handbook states that each claimant should review his or her monetary determination carefully to ensure that the information, including the separation reason, is correct.(Plf. Exh. 1, at 6.)It defines the Last Employer Separation Reason as the reason the claimant"gave for leaving [his or her] last employer" and informs the claimant that if he or she was "not laid off for lack of work" the Agency will issue a "separate decision" determining whether the claimant"can receive unemployment benefits."(Plf. Exh. 1, at 5.)Ms. Frost testified that Agency records showed that a hard copy of the Handbook was mailed to the Debtor.(Tr.at 16.)The Debtor acknowledged that he likely received a copy of the Handbook but testified that he"probably didn't even read it."(Tr.at 51-52.)

The Debtor did not protest his Monetary Determination, despite the fact that the separation reason it listed was inaccurate.(Tr.at 24.)Gretchen Frost testified that if the Debtor had protested the determination and corrected the determination to reflect that he was fired from his employment with Harris IT, "his benefits would have stopped" and the Agency would have commenced an investigation into his eligibility.(Tr.at 24.)As a practical matter, because the Monetary Determination was in the Debtor's favor, he had little incentive to file a protest and point out that the separation reason was inaccurate.

C.The Debtor's Bi-Weekly MARVIN Certifications.

After initially being approved for benefits, the Debtor was required to certify his eligibility to actually receive the benefits by calling or logging in to the Michigan Automated Response Voice Interactive Network ("MARVIN").The MARVIN system asks claimants a series of questions to establish the claimant's eligibility to receive benefits for the prior two-week period.The relevant question in this adversary proceeding is Question # 5, which asks:

QUESTION #5: DID YOU QUIT ANY WORK, FAIL TO ACCEPT ANY JOB OFFER, OR GET FIRED FROM A JOB?

Did this occur during the 2 weeks you are claiming?

(Plf. Exh. 1, at 15.)

Plaintiff's Exhibit 4 shows that the Debtor certified for benefits through MARVIN numerous times beginning in March 2012 and continuing through May 2013.The exhibit establishes that the Debtor answered "no" to Question # 5 every time he certified for benefits.(Plf. Exh. 4.)...