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Bauserman v. Unemployment Insurance Agency

Court of Appeals of Michigan

December 5, 2019

GRANT BAUSERMAN, KARL WILLIAMS and TEDDY BROE, on Behalf of Themselves and All Others Similarly Situated, Plaintiffs-Appellees,
v.
UNEMPLOYMENT INSURANCE AGENCY, Defendant-Appellant.

          Court of Claims LC No. 15-000202-MM

          Before: Gadola, P.J., and Meter and Fort Hood, JJ.

         ON REMAND

          FORT HOOD, J.

         This putative class action lawsuit returns to us on remand from the Michigan Supreme Court. In our first opinion in this case, in which plaintiffs allege a deprivation of their due process rights pursuant to Const 1963, art 1, § 17, we concluded that plaintiffs had not given timely notice of their due-process claims to defendant, the Michigan Unemployment Insurance Agency (the Agency) in compliance with MCL 600.6431(3). In an opinion decided April 5, 2019, the Michigan Supreme Court disagreed with our conclusion, reasoning that plaintiffs did not incur an "actionable harm" in their due-process claims until they were deprived of their property when their income tax refunds were seized or their wages were garnished. Bauserman v Unemployment Ins Agency, __Mich __, __; __ N.W.2d__ (2019) (Docket No. 156398); slip op at 18, 20-21.[1] Because plaintiffs Bauserman and Broe filed their claims in a timely manner in compliance with MCL 600.6431(3), but plaintiff Williams did not, our Supreme Court affirmed in part and reversed in part our judgment and remanded to this Court with the directive that we "consider the Agency's argument that it is entitled to summary disposition on the ground that plaintiffs failed to raise cognizable constitutional tort claims." Bauserman, Mich. at; slip op at 21 n 20.

         I. BACKGROUND

         We adopt the pertinent facts of this case from our Supreme Court's opinion:

Plaintiffs are former recipients of unemployment compensation benefits who allege that the Agency unlawfully seized their property without affording due process of law. Plaintiff Bauserman received unemployment compensation from October 2013 through March 2014. In October 2014, the Agency sent Bauserman and his former employer, Eaton Aeroquip (Eaton), a questionnaire regarding suspected unreported earnings that Bauserman received while he was receiving unemployment compensation. Both Bauserman and Eaton responded that Bauserman had not worked for Eaton at the time. On December 3, 2014, the Agency sent Bauserman two notices of redetermination, one claiming that he had received unemployment compensation for which he was ineligible and the other claiming that he had intentionally misled the Agency or concealed information from it to obtain compensation for which he was not eligible. As a result, the Agency informed Bauserman that he owed $19, 910 in overpayments, penalties, and interest. The next day, Bauserman submitted an online appeal through the Agency's website regarding its assertion that he had committed fraud, but did not submit a separate appeal regarding the Agency's determination that he had received compensation for which he was not eligible.
From January 2015 through June 2015, the Agency sent Bauserman multiple notices stating the amount he owed to the Agency, informing him of missed payments on his debt, and raising the possibility that his wages would be garnished or his tax refunds seized. One of these communications consisted of a "notice of intent to reduce/withhold federal income tax refund," which warned Bauserman that "if you do not pay the amount shown or take other action described below within 60 days of the mail date on this form, the [Agency] will submit this benefit overpayment balance (restitution) to . . . the United States Department of Treasury . . . [which] will reduce or withhold any federal income tax refund you may be due and will instead forward that amount to the [Agency]." Around this same time, Bauserman sent multiple letters to the Agency attempting to explain the situation, two of which included an attached letter from Eaton explaining that Bauserman received one payment in 2014 for work performed in 2013 but was not employed by Eaton during the time he was receiving unemployment compensation. Finally, on June 16, 2015, the Agency intercepted Bauserman's state and federal income tax refunds.
On September 9, 2015, Bauserman filed a putative class action against the Agency in the Court of Claims, alleging that the Agency had deprived him of his property without providing due process of law. More specifically, he alleged that "Michigan's unemployment fraud detection, collection, and seizure practices fail to comply with minimum due process requirements." On September 30, 2015, the Agency issued two new notices of redetermination, rendering its December 3, 2014 redeterminations "null and void," and the Agency has since returned all monies seized from Bauserman.
On October 19, 2015, Bauserman filed an amended complaint, which added Teddy Broe and Karl Williams as named plaintiffs to the class action. Broe had received unemployment compensation from April 2013 to August 2013, and he had initially been determined eligible on the basis that he had been laid off by his employer, Fifth Third Bank (Fifth Third). However, Fifth Third challenged that determination, alleging that Broe voluntarily terminated his employment to attend school. The Agency then sent requests for information to Broe regarding his eligibility for compensation, and on July 15, 2014, it sent two notices of redetermination to Broe, the first claiming that he had received compensation for which he was ineligible because his termination of employment at Fifth Third "was voluntary and not attributable to the employer," and the second claiming that he had intentionally misled the agency or concealed information from it to obtain compensation that he was not eligible to receive. As a result, the Agency informed Broe that he owed $8, 302 in overpayments, penalties, and interest.
From August 2014 through April 2015, the Agency sent Broe multiple notices stating the amount owed to the Agency, informing him of missed payments on the debt and raising the possibility that his wages would be garnished or his tax refunds seized. Specifically, on September 2, 2014, the Agency sent Broe a "notice of intent to reduce/withhold federal income tax refund" that was materially identical to the notice provided to Bauserman. In April 2015, Broe sent the Agency a letter appealing its redeterminations and claiming that he had not received the Agency's previous communications because they had been sent to him through his online account with the Agency, which he no longer accessed because he was reemployed and no longer seeking unemployment compensation. The Agency denied the appeal as untimely and, in May 2015, intercepted Broe's state and federal tax refunds. On November 4, 2015, the Agency issued two notices of redetermination, reversing its July 15, 2014 redeterminations that Broe was ineligible for compensation and had committed fraud. The Agency has since returned all monies seized from Broe.
Williams started working at Wingfoot Commercial Tire System in May 2011. When his employment with Wingfoot began, Williams was receiving unemployment compensation from a previous employer. Williams alleges that he advised the Agency that he was now receiving wages from Wingfoot, yet his unemployment compensation had not been altered; Williams believed that he was still entitled to unemployment compensation because his wages from Wingfoot were less than 1½ times his weekly compensation. See MCL 421.48(1). The Agency sent Williams a request to provide information regarding his employment with Wingfoot. On June 22, 2012, the Agency issued redeterminations that (1) terminated Williams's receipt of future unemployment compensation, (2) asserted that he had already received compensation for which he was ineligible due to his employment with Wingfoot, and (3) alleged that he had intentionally misled the Agency or concealed information from it to obtain compensation for which he was not eligible.
On October 29, 2013, the Agency sent Williams a "notice of garnishment" stating that, if the amount owed was not provided to the Agency within 30 days, his "employer [would] be required to deduct and send to [the Agency] up to 25% of [his] disposable earnings each pay period until the debt is paid in full." Williams's wages were first garnished, at the latest, on May 16, 2014, and on May 27, 2014, the Agency sent Williams a "notice of intent to reduce/withhold federal income tax refund" that was materially identical to the notices provided to Bauserman and Broe. Williams sent a letter appealing the Agency's redeterminations on May 22, 2014. The Agency denied Williams's appeal as untimely, as did an administrative law judge. Finally, on February 19, 2015, the Agency seized Williams's federal income tax refund and continues to collect his debt by this means. [Bauserman, __Mich at__; slip op at 2-6.]

         In our first opinion in this case, this Court was presented with the following question:

[W]e are asked to determine whether the six months within which plaintiffs were required to file a notice of intention to file a claim, or the claim itself [in compliance with MCL 600.6431(3)], began to run (1) when defendant issued notices informing plaintiffs that they were disqualified from receiving unemployment benefits, or (2) when defendant actually seized plaintiffs' property. [Bauserman v Unemployment Ins Agency, unpublished per curiam opinion of the Court of Appeals, issued July 18, 2017 (Docket No. 333181), p 4.]

         We answered this question by stating "that plaintiffs' cause of action accrued when the wrong on which they base their claims was done." Bauserman, unpub op at 7. Disagreeing with plaintiffs' argument that their cause of action arose when their federal and state income tax refunds were seized or their wages garnished, we held that because plaintiffs alleged a constitutional claim alleging a deprivation of due process, plaintiffs' cause of action accrued when the Agency first notified "plaintiffs of its determination that plaintiffs had engaged in fraudulent conduct, and they were not given the requisite notice and opportunity to be heard." Bauserman, unpub op at 9. We reversed the order of the Court of Claims denying the Agency's motion for summary disposition and remanded to the Court of Claims for entry of an order granting summary disposition in favor of the Agency. Bauserman, unpub op at 11.

         Plaintiffs subsequently filed an application for leave to appeal in the Michigan Supreme Court, which scheduled oral argument on the application, directing the parties to address the following issues:

whether "the happening of the event giving rise to [appellants'] cause of action" for the deprivation of property without due process occurred when the appellee issued its allegedly wrongful notice of redetermination, or when the appellee actually seized the appellants' property. MCL 600.6431(3); MCL 600.5827; cf. Frank v Linkner, 500 Mich. 133, 149-153; 894 N.W.2d 574 (2017). [Bauserman v Unemployment Ins Agency, 501 Mich. 1047 (2018).]

         In its subsequent decision, the Michigan Supreme Court considered whether plaintiffs had complied with MCL 600.6431, which provides, in pertinent part:

(1) No claim may be maintained against the state unless the claimant, within 1 year after such claim has accrued, files in the office of the clerk of the court of claims either a written claim or a written notice of intention to file a claim against the state or any of its departments, commissions, boards, institutions, arms or agencies, stating the time when and the place where such claim arose and in detail the nature of the same and of the items of damage alleged or claimed to have been sustained, which claim or notice shall be signed and verified by the claimant before an officer authorized to administer oaths.
* * *
(3) In all actions for property damage or personal injuries, claimant shall file with the clerk of the court of claims a notice of intention to file a claim or the claim itself within 6 months following the happening of the event giving rise to the cause of action.

         Our Supreme Court concluded that the dispositive question "is at what point plaintiffs first incurred or suffered the 'actionable harm' for a claim alleging a violation of predeprivation due process." Bauserman, __Mich at__; slip op at 13. Our Supreme Court went on to recognize that "the 'actionable harm" in a pre-deprivation due-process claim occurs when a plaintiff has been deprived of property, and therefore such a claim 'accrues' when a plaintiff has first incurred the deprivation of property." Id. at; slip op at 15.

Accordingly, the Court of Appeals erred by holding that plaintiffs' due-process claims seeking monetary relief accrued when plaintiffs were deprived of process. Rather, these claims accrued only when they were deprived of property, as they incurred no harm before that deprivation. Because the accrual under MCL 600.5827 of a due-process claim seeking monetary relief "giv[es] rise to [a] cause of action" for purposes of MCL 600.6431(3), the six-month period from MCL 600.6431(3) was triggered when plaintiffs were deprived of property. [Bauserman, __ Mich. at__; slip op at 18.]

         Applying its holding to the facts of this case, our Supreme Court rejected the Agency's argument that plaintiffs were first deprived of property when initial redetermination notices were sent to the plaintiffs informing them of their financial liability, or when plaintiffs received the Agency's notice of its intention to intercept their tax returns or wages. Instead, our Supreme Court concluded that plaintiff Bauserman first incurred a deprivation of property when the Agency actually intercepted his federal and state income tax refunds, and therefore his September 9, 2015 complaint was filed in compliance with MCL 600.6431(3). Bauserman, __ Mich. at__; slip op at 20. Our Supreme Court reached a similar conclusion with regard to plaintiff Broe, holding that he first incurred a deprivation of property when the Agency seized his tax refunds in May 2015, thus his claims were also timely filed in accordance with MCL 600.6431(3). In contrast, plaintiff Williams incurred a deprivation of his property on May 6, 2014 when his wages were first garnished, and he did not comply with MCL 600.6431(3), because his claims were not filed within six months of that initial deprivation. Bauserman, Mich. at__; slip op at 21. Observing that "[i]t is yet to be determined whether plaintiffs will succeed on their claims against the Agency," our Supreme Court stated the following instructions for this Court:

[o]n remand, the Court of Appeals should consider the Agency's argument that it is entitled to summary disposition on the ground that plaintiffs failed to raise cognizable constitutional tort claims. [Id.__; slip op at 21 n 20.]

         A. PROCEDURE IN THE COURT OF CLAIMS AS PERTINENT TO PLAINTIFFS' CONSTITUTIONAL TORT CLAIMS

         Given that our Supreme Court has expressly directed that we consider the Agency's assertion that plaintiffs[2] did not allege cognizable constitutional tort claims, a brief background regarding the proceedings in the Court of Claims as pertinent to this issue is helpful in our analysis. In the Court of Claims, the Agency argued that it should not be held liable for plaintiffs' claims on the basis of governmental immunity. In this vein, the Agency asserted that plaintiffs could not pursue a constitutional tort claim against the Agency because other alternate remedies were available if plaintiffs pursued their appellate rights pursuant to the Michigan Employment Security Act, MCL 421.1 et seq (the MES Act). In response, plaintiffs countered that governmental immunity would not insulate the Agency from liability in this case, given that plaintiffs alleged a constitutional tort against the Agency, a department of the state of Michigan. Because the Agency acted pursuant to what plaintiffs characterized as an "unconstitutional custom or policy[, ]" plaintiffs could pursue a claim for damages against it in state court, particularly given that plaintiffs could not pursue redress under 42 USC 1983. Plaintiffs also claimed that their administrative remedies were "inadequate" because appeals to the Agency were not handled in a competent, timely and responsive fashion. Observing that they were challenging "the entire [Agency] fraud-determination procedure, plaintiffs also questioned whether the Agency "is . . . empowered at any level to decide the constitutionality of its own customs and policies."

         The Court of Claims held a hearing on the Agency's motion on March 8, 2016, and the parties advanced legal arguments consistent with their briefing in the Court of Claims. Specifically, during oral argument, counsel for plaintiffs stated, "[t]his case is not a super appeal of [an] individual fraud determination. Rather, this is a structural challenge to the constitutionality of [the] fraud determination and seizure process." According to plaintiff's counsel, "[plaintiffs are] not challenging the administration of the [MES Act]. We're challenging the constitutionality of the seizure that flows from a fraud finding that's made without due process of law." The Court of Claims issued a lengthy written opinion and order denying the Agency's motion to dismiss on May 10, 2016. In addressing whether plaintiffs could maintain a cause of action seeking damages for an alleged violation of the Michigan constitution, the Court of Claims, ruled, in pertinent part, as follows:

However, defendant further argues that plaintiffs cannot establish an additional prerequisite for maintaining a constitutional tort claim. Following its decision in Smith [v Dep't of Pub Health, 428 Mich. 540, 544; 410 N.W.2d 749 (1987)], the [Michigan] Supreme Court in [Jones v Powell, 462 Mich. 329; 612 N.W.2d 423 (2000)], further explained that "Smith only recognized a narrow remedy against the state on the basis of the unavailability of any other remedy. Id. at 337 (emphasis added). Relying upon the language in Smith, defendant argues that because plaintiffs could pursue the administrative process, they had "other remedies available," and therefore, they cannot maintain a constitutional tort claim. This Court finds defendant's argument unavailing. Simply put, the administrative process fails to afford sufficient relief to plaintiff's [sic] challenging an entire statutory and policy scheme. Therefore, a constitutional claim continues to be viable.

         On remand, we now review the Court of Claims' decision regarding plaintiffs' claims alleging constitutional torts as instructed by our Supreme ...


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