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Court hears case about wrong fraud decisions by state agency

Michigan Supreme Court building photo
Subterranean via Wikimedia | CC BY 3.0
Michigan Supreme Court building

State computer wrongly accused thousands of people of unemployment benefits fraud.

The Michigan Supreme Court heard arguments Wednesday in a case that could open the door to financial penalties against the state for computer-driven decisions that wrongly accused thousands of people of fraud when they collected unemployment benefits.

No one disputes that a computer system automatically spitting out fraud verdicts was a disaster during Gov. Rick Snyder’s administration. Tax refunds were seized and other steps were taken before more than $20 million finally was returned by the state.

The issue now is whether people claiming due process violations under the Michigan Constitution can try to wring money from the state for the misery. A decision could break new legal ground.

“This court should say that a constitutional tort exists. ... This court does not need legislative approval to step in,” attorney Mark Granzotto argued.

An attorney for the Unemployment Insurance Agency said the department “does not seek to minimize” what happened to people wrongly accused of fraud. But he noted that any cure beyond returning the seized money should be up to the Legislature.

“This court should continue its precedent of staying out of the policy-making business that comes with creating remedies,” Assistant Attorney General Jason Hawkins said.

Advocates for the unemployed have repeatedly highlighted what happened over a roughly two-year period: A computer system was allowed to make jobless benefit determinations without a person stepping in. Tens of thousands of fraud decisions were eventually reversed.

There were reports of bankruptcies and people desperate for legal help.

“The false fraud scandal warped the public’s perception” of unemployment benefits, attorney Rachael Kohl said in a court filing for the Michigan League for Public Policy, which follows issues affecting low-income families.

Justice Richard Bernstein suggested he was struggling with the state’s opposition to compensation for alleged constitutional violations.

“This went on for quite a long period of time. It impacted a tremendous number of people,” Bernstein said. “If this wasn’t a policy or custom ... what exactly would be?”

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