TRAVERSE CITY — Alex Jarosz of Traverse City said he will never forget what it felt like to see a strange man standing across the street from his Hearthside Drive home taking photographs.
“It was beyond infuriating.”
That was in 2015, after Jarosz, 61, became one of as many as 46,000 Michigan workers ensnared in the state’s Unemployment Insurance Agency’s computer tangle.
After being falsely accused of fraud by the UIA, the agency said he’d been overpaid $3,331 in benefits and assessed him $13,324 in penalties for that overpayment, billing him a total of $16,665. Over a period of months the agency garnished thousands from his paycheck, causing him to fall behind on his mortgage.
The presence of the photographer meant the bank was preparing to foreclose.
“I’m disappointed in the state of Michigan,” Jarosz said, who managed to save his home. “When you have this kind of underhanded stuff going on, they’re abusing the common man.”
Until Tuesday, it looked like some relief might be made available to those falsely accused, but that ended when a three-judge panel of the Michigan Court of Appeals declined to allow a class action lawsuit, filed by Royal Oak attorney Jennifer Lord, to move forward.
The Associated Press reported that the Michigan Court of Appeals panel dismissed the potential class-action lawsuit against the state because named plaintiffs had not filed within six months “following the happening of the event giving rise to the cause of action,” as required in suits seeking financial damages against the state.
Claimants like Jarosz would have been automatically included in the lawsuit since he was charged with fraud and experienced a garnishment.
Traverse City attorney Mark Risk, who said prior to 2015 he’d defended fewer than 10 unemployment fraud cases in his 30-plus years practicing law, today has several dozen clients with stories similar to Jarosz’s. He estimated hundreds, perhaps thousands, of northern Michigan workers have been falsely accused by the agency of fraud.
“Every one of these people are hard-working, decent, tax-paying citizens who lost employment for a short period,” Risk said. “They paid into the fund, it was their money, they were legally entitled to it, and they just needed some short-term help. Instead, a computer said they’d committed fraud.”
Jarosz was club manager of the Traverse City Elks Club from 2008 to 2014 before being let go without severance.
After two months looking for a job, Jarosz found temporary part-time employment as a bus driver, then full-time employment with first Tom’s Food Markets and then Lucky’s Market. He’d only applied for unemployment benefits for the two months he spent job seeking.
The UIA’s computer flagged his account and the agency inexplicably charged him with fraud. On June 16 an administrative law judge in Traverse City found in favor of Jarosz, and ordered the UIA to return the money it garnished — approximately $12,000 by Jarosz’s account — within 30 days. As of July 18, Jarosz had not received reimbursement.
“I’ve had upwards of 50 cases of claimants accused of fraud; I’ve won every single hearing and I’m no Clarence Darrow,” said Risk, referencing the famous civil libertarian.
“There are good people at the UIA and I’d like to give them the benefit of the doubt, but right now I’m struggling mightily with that.”
What Jarosz calls “underhanded” and what Risk says he is struggling to understand, began in September 2013 when the UIA brought its new $47 million computer, the Michigan Integrated Data Automated System, or “MiDAS,” online.
The UIA had laid-off approximately 400 full- and part-time agents statewide and the computer was supposed to increase efficiency and reduce fraud and waste.
Instead, MiDAS flagged any discrepancy in a claimants’ application for benefits as an intentional act of fraud, always on behalf of the employee and never the employer, imposed a highest-in-the-nation penalty of 400 percent of benefits paid, tacked on 12 percent interest monthly, garnished bank accounts and seized tax refunds.
UIA data reveals between October 2013 and August 2015 the agency reviewed 53,633 cases that MiDAS had flagged as fraudulent. Of those, only 1,462 — or less than 7 percent — were found to actually be fraudulent. There is no way to know how many of these cases are in northern Michigan because county-by-county records have not been released.
“There used to be on-the-ground inspectors, many who were experienced detectives, but they replaced them with a computer,” said retired judge James Sisk, who taught unemployment law at Cooley Law School and worked as an administrative law judge from 1992 to 2010, spending some of that time assigned to Traverse City.
Sisk said unemployment fraud in those years “wasn’t all that common” in his recollection.
“The computer made all these determinations without any human contact with claimants,” Sisk said.
“There are people in the agency who still don’t think they’ve messed up,” he said. “When essentially what they did was bring in a pricey computer to replace human beings and it failed miserably.”
The local UIA investigator at the Michigan Works office on Garfield Avenue said she was not allowed to comment publicly.
UIA Communications Director in Lansing, Dave Murray, said the UIA had offered an apology to those harmed unintentionally by the agency and had made significant changes in how fraud is determined.
“We know this has been a difficult time for people and we know they are frustrated,” said Director of the Michigan Talent Investment Agency, Wanda Stokes, who now oversees the UIA. “UIA continues to review every potential fraud case that was determined during the period of adjudication, which ended in August 2015. We are focused on making sure residents are treated fairly, and we are issuing refunds when appropriate.
“It’s important that we restore trust in the agency and help people receive benefits they are entitled to during a stressful time in their lives.”
This week, the Michigan Talent Investment Agency asked district court judges to dismiss 186 bench warrants in Wayne, Genesee and Macomb counties for those accused of unemployment fraud and pledged to review each case file.
The UIA set up a toll free number for claimants with questions about their fraud case: 1-800-638-6372, staffed Monday-Friday from 8 a.m. to 4 p.m.
But people are still getting bills in the mail.
Another of Risk’s clients, Jeff Kelly, 57, of Lakeview, was a maintenance tech for the Michigan Department of Transportation for 23 years before suffering a heart attack in 2009. Kelly applied for and received unemployment benefits.
Michigan law allowed the MiDAS computer to comb records for possible fraud going back as far as 2007, which was why Kelly’s 2009 claim wasn’t flagged until 2015. The UIA said Kelly owed the agency $1,603.59; $312 of which was supposedly overpayment, $1,248 was penalties, and $43.59 in interest.
“That might not seem like much but when you’re living on a fixed income, it’s the difference between lights and groceries, or lights or groceries,” Kelly said.
Risk could find no evidence Kelly committed fraud in paperwork provided by the UIA.
At his hearing a representative from the agency could not identify anything from Kelly’s file that constituted fraud and a Detroit judge ruled in Kelly’s favor. This spring, however, the UIA still sent Kelly a bill for $1,603.59, which he said he will not pay and has filed in a manila envelope with a dozen other identical documents.
On Jan. 11 a federal judge ordered the state to halt all collection activity against claimants like Jarosz and Kelly within 45 days.
The agency reported it did so sometime in late March. The state also agreed with the judge to make changes on how the UIA determines fraud. A person — not just a computer — now has to investigate and the claimant has to be properly notified. However, the judge’s order said nothing about sending out the kind of correspondence Jarosz, Kelly, and thousands of others continue to receive.
Risk said he worries some people might pay the state the money, not realizing they are being billed for something they might not owe. He even put some of UIA’s standard correspondence through an online linguistic evaluator, a tool that calculates how many years of school a person would have to have completed in order to understand a particular text. In this case, according to Risk, the answer was 14 years — the equivalency of an associate’s degree.
And what about the people who may have already pleaded guilty to false fraud charges, or agreed to give back alleged overpayments, attorney Lord asked in an Associated Press report.
“It’s just another example of how this is rotten from top to bottom, and the state has ignored it,” Lord said. “The elements of harm that have impacted people are so wide and varied.”
Plaintiffs intend to appeal to the Michigan Supreme Court, the Associated Press report said.
Meanwhile, the UIA’s MiDAS computer system has dramatically increased the balance on the UIA’s “contingency” fund, the account that stores all the fraud penalties, garnishments, and interest money collected from Michigan workers by the agency.
At the close of 2011, its balance was $3.1 million. After three years of combing through data, by September 2016 this same fund ballooned to $154.7 million.
On Jan. 9, Gov. Rick Snyder signed into law a one-time transfer of $10 million from the fund into the state’s general fund. But then in late March, the House Appropriations Subcommittee on General Government submitted a draft budget that included two more transfers, one for $15 million and one for $9.8 million, a move that infuriated claimants.
“The money in that fund does not belong to the state,” Lord said. “We can trace every penny of that money to innocent claimants.”
A legislative analysis of the transfer says that if needed, the funds would be returned to the UIA.
State agencies like the UIA are generally immune from prosecution except when they violate the state constitution, Lord said.
“If the state harms its own citizens, it can’t hide behind government immunity,” she said.
The Associated Press contributed to this report.