Lawyer to judge: Don’t let state raid jobless fund

May 09--LANSING -- A judge should block the State of Michigan from taking $10 million from an Unemployment Insurance Agency fund to balance the state budget until refunds are paid to tens of thousands of residents falsely accused of unemployment insurance fraud, a lawyer says in a court filing.

Jennifer Lord, a Royal Oak attorney representing wrongly accused unemployment insurance claimants, also said in the filing with the Michigan Court of Claims that the state is continuing aggressive collection techniques against some of her clients -- including wage garnishes and seizure of income tax refunds -- despite a federal judge's cease and desist order. She wants a state order to enforce the federal order.

A hearing on the two requests is set for Thursday in Detroit in front of Michigan Court of Claims Judge Cynthia Stephens.

The hearing is part of the continuing fallout from a scandal over the state's use of a $47-million automated fraud detection system -- the Michigan Integrated Data Automated System (MiDAS). The state's use of the system with little or no human supervision resulted in error rates as high as 93% in its determinations of claimant fraud. Those wrongly accused were hit with highest-in-the-nation quadruple penalties and aggressive collection practices that in some cases preceded personal bankruptcy filings.

The wrongly collected penalties were put in a Michigan UI Agency contingent fund whose balance soared from $3.1 million in 2011 to about $155 million last October. In January, Gov. Rick Snyder signed legislation passed by the Republican-controlled Legislature that shifts $10 million from the contingent fund to the state general fund to help balance the budget.

Lord estimates the state could owe more than $500 million to claimants wrongly accused of fraud and said "the fund assets must be preserved because it is likely that the fund will contain less money than will be required to reimburse UIA claimants."

"The number of wrongful seizure claims is astounding," and "the experience of lead plaintiff Jason Doss is illustrative of the experience of thousands of ... claimants whose property was seized by the state without due process," Lord said in a court filing.

Doss continues to have his wages garnished, as was his recent bonus check from a Detroit automaker, she said.

But Snyder and other defendants say in court filings that Snyder can't block legal appropriations made by the Legislature.

Also, Doss is not covered by the federal judge's January order because the agency made a fraud determination against him in 2011 -- years before it brought the automated system online, attorneys from the office of Attorney General Bill Schuette, representing Snyder and other defendants, said in a court filing.

"Like thousands of Michigan citizens, Doss has interacted with the Michigan Unemployment Insurance Agency," the defendants said in an April 28 filing. "But he now seeks to capitalize on recent controversies involving the agency by asserting rights to state monies and making allegations devoid of factual or legal support."

The Michigan UI Agency -- whose director was re-assigned in January -- is completing a review of about 50,000 fraud determinations, involving about 40,000 claimants, made between October 2013 and August 2015. More than 20,000 of the findings -- which involved no human oversight and were reviewed last year -- had an error rate of 93%, the agency has acknowledged. A review continues of about 28,000 additional fraud findings, which involved some human oversight. So far, 6,872 of 14,454 of those fraud findings have been found to be false -- a 44% error rate.

The state, which also used the automated system to review cases going back six years prior to 2013, still uses the MiDAS system. But, since August 2015, all fraud determinations are subject to human confirmation.

In January, in response to a separate lawsuit brought by other attorneys, U.S. District Judge Robert Cleland ordered the state to halt all collection proceedings against anyone who received a fraud determination during that October 2013 to August 2015 period.

Lord said in a supplemental filing on Monday that Doss is covered by the federal order, based on a review of his file obtained under the Michigan Freedom of Information Act, and an order to garnish his wages was issued during the relevant two-year period.

Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4.

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