Dep't of Licensing and Regulatory Affairs v. Lucente

DEPARTMENT OF LICENSING AND REGULATORY AFFAIRS/UNEMPLOYMENT INSURANCE AGENCY, Appellee, v. FRANK LUCENTE, Claimant-Appellant, and DART PROPERTIES II, LLC, Employer-Appellee. DEPARTMENT OF TALENT AND ECONOMIC DEVELOPMENT/UNEMPLOYMENT INSURANCE AGENCY, Appellee, v. MICHAEL HERZOG, Claimant-Appellant, and CUSTOM FORM, INC., Employer-Appellee.

Nos. SC 160843, SC160844

Supreme Court of Michigan

July 30, 2021

Argued March 3, 2021

Syllabus

This syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader.

The Unemployment Insurance Agency (UIA) brought actions in the Macomb and Wayne Circuit Courts against claimants Frank Lucente and Michael Herzog, respectively, to appeal the decisions of the Michigan Compensation Appellate Commission (MCAC) (whose duties have since been transferred, in part, to the Unemployment Insurance Appeals Commission) that the claimants were not required to pay restitution and fraud penalties under the Michigan Employment Security Act (MESA) MCL 421.1 et seq., despite the fact that they had improperly received unemployment benefits after becoming employed full-time and providing inaccurate responses to certification questions concerning their new employment. After the UIA discovered the overpayments and suspected fraud, it issued documents entitled "Notice[s] of Redetermination" to each claimant, one of which described the claimant's new employment and explained that it made him ineligible to receive the already-paid benefits, and the other of which alleged that the claimant had intentionally concealed his new employment from the UIA on the basis of the answers provided while certifying. The notices further explained that the claimants had the right to appeal these "redeterminations" under MCL 421.33 and provided instructions on how to exercise that right. The UIA also mailed each claimant a separate document that stated the appellants' repayment obligations: restitution for the overpayment and financial penalties for the fraud. Both sets of notices were issued within a year of the benefit payments at issue but more than 30 days after the last payment. The claimants appealed these "redeterminations." In Lucente, the ALJ affirmed both of the UIA's November 30, 2010 redeterminations, but the MCAC reversed. The MCAC concluded that the November 30, 2010 redetermination was not a valid "redetermination" unless the payment of benefits was considered an original determination that Lucente was unemployed for those weeks, and it further reasoned that the "redetermination" had not been issued within 30 days of any benefit check and no good cause was shown. In a separate opinion that addressed the alleged fraud, the MCAC similarly concluded that the UIA's failure to issue an original determination on the issue of fraud was grounds for setting aside that "redetermination." In Herzog, the ALJ set aside both "redeterminations," citing the UIA's failure to issue original determinations on eligibility and fraud. The MCAC affirmed, adopting the ALJ's factual findings and conclusions of law. In both Lucente and Herzog, the UIA appealed the MCAC's decisions in the circuit court. The Macomb Circuit Court, Diane M Druzinski, J., affirmed the MCAC in Lucente, and the Wayne Circuit Court, John A. Murphy, J., affirmed the MCAC in Herzog. The UIA sought leave to appeal in the Court of Appeals, which granted the applications and consolidated the appeals. In a published opinion, the Court of Appeals Gadola, P.J., and Servitto and Redford, JJ., concluded that the circuit courts had not applied the correct legal principles when they affirmed the decisions of the MCAC and held that the UIA's identification of its decisions as "redeterminations" was not grounds for setting aside the decisions. The panel held that the UIA was not proceeding under MCL 421.32a but rather under MCL 421.62, and therefore it was not constrained by the time limit for issuing redeterminations. 330 Mich.App. 237 (2019). The Supreme Court granted the appellants' joint application for leave to appeal. 505 Mich. 1127 (2020).

In an opinion by Chief Justice McCormack, joined by Justices Bernstein, Clement, Cavanagh, and Welch (as to Parts I, II, III, IV(A), and V as it relates to MCL 421.62 and determinations concerning fraud and restitution), the Supreme Court held:

The Court of Appeals correctly held that MCL 421.62 authorizes the UIA to issue original fraud and restitution determinations that are not subject to the constraints of MCL 421.32a. However, it erred by concluding that the UIA's decision to issue "redeterminations" in these cases was of no substantive effect. The UIA must issue an original determination alleging fraud, and its failure to do so was grounds for invalidating the "redeterminations" in this case. On this issue, the payment of benefits cannot serve as an original "determination" on the alleged fraud, and the UIA's issuance of determinationless "redeterminations" deprives claimants of their right to protest. When UIA-initiated review of a past-paid benefit results in a decision that the claimant received benefits during a period of ineligibility or disqualification and owes restitution as a result, the UIA must begin with an original "determination" as described in MCL 421.62.

1. MCL 421.62(a) has long permitted the UIA to recover already-paid benefits when it determines that a person has obtained benefits to which that person is not entitled. And MCL 421.62(b) provides that when the UIA determines that a person has intentionally made a false statement or misrepresentation or has concealed material information to obtain benefits, the person shall have their right to benefits canceled in addition to any other applicable penalties, e.g., the penalties for fraud described in MCL 421.54. This language refers to the UIA making a "determination" that the claimant received an overpayment or engaged in fraud, and, significantly, a "determination" under § 62 is distinguishable from a "redetermination" under § 32a. The MESA plainly contemplates the issuance of the former before the latter. In light of this language and the different protest and appeal processes described in §§ 32a and 33 the UIA must issue an original determination that either requires restitution for an overpayment or assesses penalties for fraud. This conclusion is reinforced by the MESA's different time constraints for UIA action under § 62(a) and § 32a. Accordingly, the Court of Appeals correctly concluded that § 62 authorizes the UIA to make original determinations imposing restitution for an overpayment or penalties for fraud.

2. With respect to the "redeterminations" accusing the appellants of fraud and imposing fines and penalties under §§ 54 and 62(b), the issue of fraud does not relate to whether or not the claimant was eligible or qualified during any period of time. Whether a claimant satisfies the eligibility criteria described in § 28(1) (or might be disqualified under § 29) is distinct from whether the claimant has willfully violated or intentionally failed to comply with the MESA under MCL 421.54(a) and from whether the claimant has made a false statement or representation knowing it to be false or has knowingly and willfully with intent to defraud failed to disclose a material fact under MCL 421.54(b). The latter involves a culpable mental state; the former does not. Supreme Court precedent-specifically, Royster v Employment Security Comm, 366 Mich. 415 (1962)-supported this understanding of the MESA. While the relevant language has changed slightly, the MESA still refers to UIA-initiated "redeterminations" as applying where there is a "disputed issue." As in Royster, the issue of fraud was not disputed at the time these claimants received benefits; the UIA first alleged fraud when it issued the "Notice[s] of Redetermination." The appellants' characterization of the UIA's fraud decisions as untimely but otherwise valid "redeterminations" was incorrect, because the UIA must issue an original determination when it is alleging that a claimant engaged in fraud.

3. While the language of MCL 421.32(f) would seem to support the view that the payment of benefits is a "determination" that these appellants were unemployed, because being unemployed is a criterion of eligibility, this conclusion was incongruous with other language in the MESA. MCL 421.62(a) allows the UIA to issue "determinations" that a claimant received a benefit to which they were not entitled. Because an overpayment necessarily involves the payment of a benefit, whenever the UIA issues a "determination requiring restitution" under MCL 421.62(a), that same decision might be described as the UIA "redetermining" any determination on eligibility that is created by the benefit check pursuant to § 32(f). The reference in § 32(f) to a benefit check as a "determination" was best understood by reading that provision as a whole. That subsection explains that "[a] chargeable employer, upon receipt of a listing of the check as provided in [MCL 421.21(a)], may protest by requesting a redetermination of the claimant's eligibility or qualification as to that period and a determination as to later weeks and benefits still unpaid that are affected by the protest." But no text in § 32(f) refers to UIA-initiated redeterminations under § 32a. Instead, it is the employer's protest of the benefit-check determination that is the triggering event. This understanding is reinforced by § 32(f)'s reference to the employer's receipt of a listing of the check as provided in § 21(a). Reading § 21(a) together with § 32 clarifies that, upon the filing of an initial application for benefits, every base-period employer will receive a monetary determination

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