LANSING — The Michigan Court of Appeals on Tuesday dismissed a class-action brought by unemployment insurance claimants falsely accused of fraud by a state computer system, saying the lawsuit was filed too late.

The state has acknowledged that at least 20,000 Michigan residents — and possibly as many as 40,000 — were wrongly accused of fraud by a $47-million state computer system that the state operated without human supervision and with an error rate as high as 93%.

Those wrongly accused of fraud through robo-adjudications by the Michigan Integrated Data Automated System (MiDAS) were subjected to highest-in-the-nation quadruple penalties and many were subjected to aggressive collection techniques such as wage garnishment and seizure of income tax refunds.

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Jobless claimants, falsely accused of fraud, frustrated by legal arguments

Dismissal of the suit on a legal technicality — how soon after the alleged harm the lawsuit was filed — will be appealed to the Michigan Supreme Court, said Royal Oak attorney Jennifer Lord, who said the ruling is "incredible," and "based on circular logic."

The unanimous opinion by a three-judge panel of the Michigan Court of Appeals reversed a March 2016 ruling by Court of Claims Judge Cynthia Stephens, who said the lawsuit, filed in September 2015, could proceed.

"We're really disappointed, but we've always planned on taking this as far as we need to, no matter how long it takes," Lord told the Free Press.

Wanda Stokes, director of the Talent Investment Agency, which oversees the Unemployment Insurance Agency, said she agrees with the opinion but, "it does not change the ongoing focus ... regarding the review of our unemployment insurance cases and improving customer service and integrity."

Stokes said a review of about 50,000 fraud determinations made between 2013 and 2015 is nearly completed and any money wrongly taken will be returned. So far the state has returned more than $16 million, she said.

Lord, representing the plaintiffs, maintains hundreds of millions of dollars were wrongly taken and the claimants, who in some cases were forced into bankruptcy, are also entitled to damages.

Under state law, the suit alleging violation of the constitutional right to due process, had to be filed within six months of the injury to the jobless claimants.

Lord argued the damage was done when the state wrongly seized money from lead plaintiff Grant Bauserman and other jobless claimants, and the suit was timely.

But the panel agreed with the Michigan Unemployment Insurance Agency's position that the harm occurred when the state "issued notices informing plaintiffs of its determination that plaintiffs had engaged in fraudulent conduct." Using that standard, the suit was filed too late.

"Plaintiffs in this case erroneously focus on the potential consequence of a due process violation, the taking of their property, rather than the hallmark of a due process claim, the right to notice and an opportunity to be heard," said the opinion from Judges Michael Gadola, Patrick Meter and Karen Fort Hood.

Lord said the ruling means those harmed would have to have filed lawsuits based on speculation that they might be harmed. Courts would rule such lawsuits premature, she said.

The state notified one of the named plaintiffs, Teddy Broe, of the fraud allegations against him by sending a message to Broe's online unemployment insurance account in the summer of 2014, according to the ruling made by Stephens. But Broe, who collected benefits in 2012, had found a new job in November 2013 and no longer had a reason to check his account. Broe didn't find out about the interest and penalties until 2015, and his income tax refunds were seized in May 2015, according to the Stephens ruling quoted in Tuesday's Court of Appeals opinion.

Another named plaintiff, Karl Williams of Lansing, whose wages are still being garnished over an alleged debt to the agency of more than $50,000, told the Free Press he's not surprised by the decision, but "the State of Michigan really does need to be held accountable for what they have done and the mistakes they have made."

He said he doesn't understand the logic of the court's decision, in terms of when the state harmed him and the other plaintiffs. "If you shoot somebody, the damage is not done until that bullet hits them," Williams said.

Lord said the ruling "is going to embolden agencies, potentially, to continue to use programs like MiDAS and continue to take actions such as switching water sources for Flint without proper treatment."

The agency still uses MiDAS, but stopped using it without human oversight in August 2015. Stokes, who came on board in July 2016, replaced the director of the UI Agency and launched a "top-to-bottom review" of agency practices.

"We are working tirelessly to restore the public’s trust in our system, and we are on the road to doing that," she said Tuesday.

Michigan Democratic Party Chairman Brandon Dillon issued a statement attacking Republican Attorney General Bill Schuette, a likely candidate for governor, whose attorneys are representing the state agency in the case.

"The lives of thousands of Michigan workers were made a living hell when they were falsely accused of defrauding a system in which they did everything right and followed all the rules," Dillon said.

"Anyone even thinking about running for governor should be absolutely ashamed for seeking to deny people, irreparably harmed by the State of Michigan, their day in court."

Andrea Bitely, a spokeswoman for Schuette, did not immediately respond to an e-mail seeking comment.

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