Scott v. Dep't of Labor & Econ. Opportunity
| Decision Date | 10 March 2022 |
| Docket Number | 350690 |
| Court | Court of Appeal of Michigan — District of US |
| Parties | LILLIAN A. SCOTT, Claimant-Appellant, v. DEPARTMENT OF LABOR AND ECONOMIC OPPORTUNITY/UNEMPLOYMENT INSURANCE AGENCY, Appellee. |
Berrien Circuit Court LC No. 18-000266-AE
Before: Shapiro, P.J., and Cavanagh and Redford, JJ.
Claimant Lillian A. Scott appeals by leave granted[1] the trial court's order affirming a judgment of the Michigan Compensation Appellate Commission (MCAC) finding that Scott is time-barred from challenging the Unemployment Insurance Agency's determinations and redeterminations requiring her to pay restitution and fraud penalties under the Michigan Employment Security Act (MESA), MCL 421.1 et seq. For the reasons discussed in this opinion, we reverse.
In October 2012, Scott successfully applied for unemployment benefits. Payment of the benefits commenced the week ending November 10, 2012 and ended on March 8, 2014.
Beginning in October 2013, the Agency began using a fraud detection software, Michigan Integrated Data Automated System (MiDAS). "MiDAS searched for discrepancies in the records of individuals who were receiving-or who, in the six years prior to the program's introduction, had received-unemployment insurance benefits." Cahoo v SAS Analytics Inc, 912 F.3d 887, 892 (CA 6, 2019).
When MiDAS detected a discrepancy, "it initiated an automated process to determine whether the individual had engaged in fraudulent behavior," which included sending the claimant a multiple-choice questionnaire with the questions, "Did you intentionally provide false information to obtain benefits you were not entitle[d] to receive," and, "Why did you believe you were entitled to benefits?" Id. at 892-893. However, "MiDAS did not allow for a fact-based adjudication or give the claimant the opportunity to present evidence to prove that he or she did not engage in disqualifying conduct." Id. at 893. And if the claimant answered either question affirmatively or did not respond to the questionnaire, a default determination of fraud was entered. Id.
The Agency claims to have sent the fraud questionnaire to Scott in April 2014.[2] On May 9, 2014, the Agency generated a series of four notices retroactively finding Scott disqualified from receiving unemployment benefits. For reasons that are not clear, the notices each carry their own case number, even when referring to the same matter. Specifically, in LARA case no. 0-002-333-913, the Agency generated a "Notice of Determination" informing Scott that she was disqualified from benefits because she voluntarily quit her employment on May 30, 2013. In case no. 0-001-824-775, the Agency issued an additional Notice of Determination informing Scott that her actions indicated that she intentionally misled or concealed information to obtain benefits she was not entitled to and that her benefits will be terminated on any claims active on May 25, 2013. The Agency also produced a separate document titled, "Restitution," listing the amounts of overpayments and penalties that Scott was required to pay for benefits received from June 8, 2013, to March 8, 2014.
In addition to the Notices of Determination, the Agency issued two "Notice[s] of Redetermination." In case no. 0-002-333-915, the Notice of Redetermination found that Scott was ineligible for benefits collected from November 04, 2012 through June 01, 2013, because she was working full-time during that time period. The second Notice of Redetermination, issued in case no. 0-002-333-916, asserted that Scott's actions indicated that she intentionally misled or concealed information to obtain benefits she was not entitled to and that her benefits will be terminated on any claims active on November 03, 2012. The Agency also produced a statement of restitution owed, totaling the amounts of overpayments and penalties assessed for November 10, 2012, through June 1, 2013.
Each notice informed Scott of how to protest a determination and how to appeal a redetermination. She claims, however, that she did not receive any of the May 9, 2014 notices.
At some point, [3] the Agency began intercepting Scott's income tax refunds and garnishing her wages in satisfaction of the outstanding restitution and penalty amounts. In January 2016, Scott requested a financial hardship waiver from the Agency in order to reduce the financial burden imposed by the Agency's efforts to recoup overpayment of benefits and penalties. The Agency denied the request for the reason that overpayments generated by fraud are not subject to waiver.
The automatic fraud determinations issued pursuant to MiDAS have spawned multiple lawsuits by unemployment benefit claimants alleging, in part, inadequate predeprivation notice. See Bauserman v Unemployment Ins Agency, 330 Mich.App. 545; 950 N.W.2d 446 (2019); Cahoo, 912 F.3d 887; Zynda v Arwood, 175 F.Supp.3d 791 (ED Mich, 2016). According to the Agency, as part of the settlement in Zynda, it voluntarily reviewed misrepresentation determinations made between 2013 and 2015 and issued certain notices upon completion of the review. In June 2107, the Agency issued notices to Scott summarily concluding that after review of her case "there was no basis to reconsider the primary case associated with the intentional misrepresentation (re)determination."
On Scott's behalf, in March 2018 the University of Michigan Law School's Unemployment Insurance Clinic filed a protest of the 2014 determinations and redeterminations with the Agency. This protest included a request to reopen Scott's cases. The Agency denied the request, concluding that it was time-barred because it had not been filed within one year of the mailing of the May 9, 2014 notices. See MCL 421.32a(2), 2011 PA 269. Scott then filed an appeal of the Agency's decision and requested an administrative hearing.
Scott testified before the Administrative Law Judge (ALJ) and denied receiving the determinations and redeterminations that bore the mail date of May 9, 2014, and her address. She explained that it was not until she called the Agency in 2016 that she became aware of the fraud allegations against her.
Laura Glynn, a claims examiner with the Agency, testified that Scott elected to receive any correspondence from the Agency via mail and that the address on the May 9, 2014 notices was the address that Scott provided. Glynn stated that this was the address to which the notices would have been sent. Glynn further testified that she had reviewed the Agency's file in this matter and found no evidence that the notices were ever returned to the Agency as undeliverable. Glynn also testified, however, that she had no personal knowledge whether or not the notices were mailed and that Scott's file contained no proofs of service or other record of mailing for any of the notices.
The ALJ affirmed the Agency's denial to reopen Scott's case because the ALJ found that Scott did not establish a timely protest or good cause for her late protest of the 2014 determinations and redeterminations. The MCAC then affirmed the decision of the ALJ, and Scott filed a timely appellate challenge in the circuit court. In an opinion and order, the trial court rejected Scott's challenges to the rulings of ALJ and the MCAC and dismissed her appeal. Scott now appeals in this Court. The Michigan League for Public Policy filed an amicus brief in support of Scott's positions on appeal.[4]
After Scott's appeal to this Court, the Michigan Supreme Court decided Dep't of Licensing and Regulatory Affairs/Unemployment Ins Agency v Lucente, __Mich__;__ N.W.2d__ (2021) (Docket Nos. 160843 and 160844). The underlying facts are substantially similar to the instant case. After the claimants-appellants in that case had received unemployment benefits, the Agency sent two "redeterminations" to each claimant. Id. at __; slip op at 11. "The Agency also mailed each appellant a separate document that stated the appellants' repayment obligations: restitution for the overpayment and financial penalties for the fraud." Id. at __; slip op at 12.
The claimants argued that if the notices sent by the Agency were in fact "redeterminations" of the earlier benefit determinations, they were untimely under MCL 421.32a(2).[5] The Supreme Court determined that MCL 421.62 authorizes the Agency "to make original determinations imposing restitution for an overpayment or penalties for fraud" that are not subject to the time requirements of MCL 421.32a. Id. at__; slip op at 18. However, the Agency must begin with a "determination" rather than a "redetermination" when it "seeks to established that a claimant received a 'benefit to which [the claimant] is not entitled' and imposes restitution pursuant to MCL 421.62(a)." Id. at __; slip op at 26. The Court then held that the Agency's failure to begin with "determinations" was grounds for setting aside the "redeterminations," considering the different protest and appeal processes for determinations and redeterminations. See id. at__; slip op at 26-30. Accordingly, the Court invalidated the "redetermination[s] finding fraud and imposing associated fines and penalties." Id. at __; slip op at 3.
Following the Supreme Court's decision, we ordered the parties to file supplemental briefs addressing the effect of that decision on this case.[6] Having reviewed the supplemental briefs we now conclude that Lucente requires invalidation of the "redeterminations...
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