4 Michiganders falsely accused of unemployment fraud settle for $180K

The saga of a group of Michigan residents falsely accused of unemployment insurance fraud nearly a decade ago has finally come to a close.

Four claimants seeking damages against the contractors who designed and sold the state the computer program that caused the false fraud claims have dropped the suit in exchange for a settlement payment.

The lawsuit, filed in federal court in March 2017 and proposed as a class action, ended when members of the proposed class dismissed their claims against FAST Enterprises LLC, the company that sold the state the $47 million Michigan Integrated Data Automated System (MiDAS), and CSG Government Solutions, a consulting firm, in exchange for settlement payments. CSG will pay $120,000, while FAST will pay $60,000, which will be distributed amongst the plaintiffs. A third vendor, SAS Analytics, was dropped from the initial suit.

The plaintiffs said they were all falsely accused of fraud, along with thousands of other claimants like them. Patti Cahoo, Kristin Mendyk, Khadija Cole, and Michelle Davison all live in Michigan and obtained unemployment benefits. At some point after they stopped receiving those benefits, Michigan's Unemployment Insurance Agency flagged their claims for fraud. Cole, for example, was told she owed the agency $29,000.

The four were among as many as 40,000 Michigan residents that from 2013-15 were wrongly accused of fraud by the computer system that operated without human supervision and had an error rate as high as 93%. The wrongly accused were subjected to quadruple penalties and many experienced aggressive collection techniques such as wage garnishment and seizure of income tax refunds that in some cases led to personal bankruptcy.

Several lawsuits were filed in response to the false fraud determinations, but this lawsuit was unique because it didn't name the state or Michigan's UIA. Instead, it named state contractors and six state officials, including former state UIA Director Sharon Moffett-Massey.

In June, the 6th U.S. Circuit Court of Appeals ruled that two of the defendants, including Moffet-Massey and another UIA employee, deserved qualified immunity from the suit, effectively ending the case against the former UIA officials. Qualified immunity is a type of legal immunity that protects government officials from individual liability unless the official violated a clearly established constitutional right.

In a statement, attorneys for the plaintiffs said their clients were "pleased with the $180,000 settlement as a fair compromise to a disputed claim."

Attorneys for CSG and FAST both separately said that it was clear their clients would prevail in a trial, which is what led the claimants to agree to settle.

"After extensive discovery, plaintiffs conceded that FAST was not responsible for any of the alleged harms or alleged damages," Erik Stidham, FAST's attorney, said in an emailed statement. "Having vindicated itself throughout the course of the lawsuit, FAST saw no need to take up judicial resources for a trial on claims on which even the plaintiffs agreed FAST would prevail."

Stephen Rosenfeld, CSG's attorney, in an emailed statement, echoed that sentiment: "After seven years of pretrial litigation on this baseless class action attempt ... we were able to finally put this matter to rest."

Nick Assendelft, a spokesperson for the state's UIA, said the agency "is satisfied with the resolution of this case," noting that the lawsuit predates the current director of the UIA, Julia Dale. Assendelft said the MiDAS system "is based on 2010 technology that is no longer suited to address very different needs of today and the future," and said the UIA's new Deloitte computer system is expected to be fully functional next year and "will be intuitive, user friendly, and employ robust anti-fraud measures."

While this lawsuit, Cahoo et al v. SAS Analytics Inc. et al, was not certified as a class-action, meaning it impacts just the four who sued in this case, relief is expected to come soon to thousands of Michigan residents who were wrongly accused of unemployment insurance fraud. More than 3,200 of these claimants appear close to receiving a portion of a $20 million settlement from a lawsuit called Bauserman v. Michigan's UIA in state court.

A fairness hearing in that class action, where class members will have an opportunity to voice their support or opposition to the proposed settlement in which claimants will receive an average of $1,600, is scheduled for Monday in the Michigan Court of Claims.

Contact Adrienne Roberts: [email protected].