Zynda et al v. Zimmer et al

Filing 38

OPINION AND ORDER granting Defendants' 32 Motion to File an Amended Answer and denying 33 Defendants' Motion for Partial Dismissal. Signed by District Judge Robert H. Cleland. (LWag)

UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

JENNIFER ZYNDA, et al.
Plaintiffs,
v.

Case No. 15-11449

STEVE ARWOOD, et al.
Defendants.
/
OPINION AND ORDER DENYING DEFENDANTS’ MOTION FOR PARTIAL
DISMISSAL AND GRANTING DEFENDANTS’ MOTION TO AMEND ANSWER
Plaintiffs, who are various individual unemployment-benefit claimants along with
an association and a union (Sugar Law Center, and the International Union, United
Automobile, Aerospace, and Agricultural Implement Workers of America), filed suit
alleging various Constitutional and statutory violations arising from Michigan’s
administration of its unemployment benefits program. (Dkt. #1, Pg. ID 2.) Before the
court is Defendants’ Motion to File an Amended Answer to Plaintiffs’ Amended
Complaint Pursuant to Federal Rule of Civil Procedure 15 (Dkt. # 32), and Defendants’
Motion For Partial Dismissal Pursuant to Federal Rule of Civil Procedure 12(b)(1) (Dkt.
# 33). Plaintiffs have filed a response to the latter motion (Dkt. #35), but have not filed
any response as to the Motion to Amend. Defendants have filed their reply. (Dkt. # 36.)
The matters have been briefed and the court concludes a hearing on the motions is
unnecessary. See E.D. LR7.1(f)(2). For the reasons stated below, the court will deny
Defendants’ Motion for Partial Dismissal and grant Defendants’ Motion to Amend.

I. BACKGROUND
The underlying facts of the instant case are explained in detail in this court’s prior
Opinion and Order Granting in Part and Denying in Part Defendants’ Motion to Dismiss
(Dkt. #27), familiarity with which is presumed. At the time the court issued that opinion,
Defendants had also filed a separate motion to dismiss pursuant to Federal Rule of Civil
Procedure 12(b)(1). (Dkt. #23.) Following the opinion resolving the earlier motion to
dismiss, the court terminated, without prejudice, Defendants’ latter-filed motion as moot,
and indicated that Defendants would remain free to re-file the motion in light of the
court’s order, which had become law of the case. (Dkt. #31.) The instant motion to
dismiss is an almost verbatim reiteration of the arguments offered in the motion that the
court terminated, but it adds a section expressing confusion over the language in the
court’s opinion regarding the availability of prospective relief. (Dkt. #33.)
Defendants argue that Plaintiffs’ claims related to computer determinations of
fraud should be dismissed as moot because: 1) Defendants voluntarily ceased using the
MiDAS system that Plaintiffs allege was responsible for making the faulty fraud
determinations at issue in this case; and 2) The United States Department of Labor
issued an Unemployment Insurance Program Letter (UIPL) instructing states that they
could no longer use computers to make fraud determinations.
Defendants also request leave to amend their answer. (Dkt. #32.) Defendants
first filed their answer to the amended complaint on April 12, 2016 (Dkt. # 28), and they
filed this motion to amend their answer just over one month later (Dkt. # 32).
II. STANDARD
A. Federal Rule of Civil Procedure 12(b)(1)
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Federal Rule of Civil Procedure 12(b)(1) allows for dismissal for “lack of
jurisdiction over the subject matter.” When a defendant challenges subject matter
jurisdiction pursuant to this Rule, the plaintiff has the burden of proving jurisdiction in
order to survive the motion. Mich. S. R. R. Co. v. Branch & St. Joseph Ctys. Rail Users
Ass’n Inc., 287 F.3d 568, 573 (6th Cir. 2002). However, “the heavy burden of
demonstrating mootness rests on the party claiming mootness.” Cleveland Branch,
NAACP v. City of Parma, 263 F.3d 513, 531 (6th Cir. 2001). “[A] case becomes moot
only when subsequent events make it absolutely clear that the allegedly wrongful
behavior cannot reasonably be expected to recur and interim relief or events have
completely and irrevocably eradicated the effects of the alleged violation.” Id.
(quotations omitted).
B. Federal Rule of Civil Procedure 15(a)
Leave to amend is “freely given when justice so requires.” Morse v. McWhorter,
290 F.3d 795, 799 (6th Cir. 2002). Denial may be appropriate, however, where there is
“undue delay, bad faith, or dilatory motive on the part of the movant, repeated failure to
cure deficiencies by amendments previously allowed, undue prejudice to the opposing
party by virtue of allowance of the amendment, futility of the amendment, etc.” Foman v.
Davis, 371 U.S. 178, 182 (1962).
III. DISCUSSION
A. Motion to Dismiss
1. Defendant’s Voluntary Cessation
Defendants argue that Plaintiffs’ claims regarding computerized fraud
determinations are moot because Defendants have implemented human review and

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voluntarily ceased use of the MiDAS system that Plaintiffs allege was responsible for
due process violations. (Dkt. # 33.) However, “[t]he voluntary cessation of challenged
conduct does not ordinarily render a case moot because a dismissal for mootness
would permit a resumption of the challenged conduct as soon as the case is dismissed.”
Knox v. Service Employees Intern. Union, Local 1000, 132 S.Ct. 2277, 2287 (2012)
(citation omitted). In Knox, the Court stated that an offer of full refunds to Plaintiffs did
not moot the case because the defendant “continued to defend the legality of the [fee,
so] it is not clear why the [defendant] would necessarily refrain from collecting similar
fees in the future.” Id. The same reasoning applies to the instant case.
Defendants do not explain in detail how fraud determinations are currently made,
nor do they explain how any improvements will affect Plaintiffs’ due process concerns
going forward. It strains credulity to assert that Defendants will never again use
computer systems similar to MiDAS to make fraud determinations, even if use of the
specific MiDAS system has been discontinued and staff determinations have been
implemented as Defendants suggest. The implementation of staff determinations is
evidently no great deviation from the earlier procedure, as Defendants admit that
“[p]reviously, the Agency used MiDAS, in addition to staff, to issue Agency
determinations and redeterminations involving fraud.” (Dkt. #33-1 (emphasis added).)
Defendants have given the court no basis to conclude that their current or future
methods for determining fraud are any more likely to comport with due process than the
procedures that the Defendants have discontinued. For example, Defendants do not
indicate whether they are using some system similar to MiDAS to assist in the staff
determinations, whether staff are actively involved in assessing the facts suggesting the
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presence of fraud, or if the staff are simply responsible for the “issuance” of the
determinations in a way such that a person may rubber-stamp the findings of a
computer system substantially similar to MiDAS. (See generally Dkt. #33-1.) Therefore,
the court cannot conclude on this basis that “subsequent events make it absolutely clear
that the allegedly wrongful behavior cannot reasonably be expected to recur.” See
Cleveland Branch NAACP, 263 F.3d at 531. However, even if the court were armed with
these facts, it could not rule out the possibility that Defendants might resume the
allegedly unconstitutional conduct. Thus, Defendants’ voluntary cessation, even if
entirely correct and fully disclosed herein, does not render Plaintiffs’ claims moot.
2. United States Department of Labor’s UIPL
Defendants also claim that Plaintiffs’ claims are moot because the United States
Department of Labor issued a UIPL directing state agencies not to use computerized
systems in making fraud determinations. (Dkt. #33.) However, the facts and law cited by
Defendants do not support a finding of mootness. Defendants cite to Ammex Inc. v.
Cox, but the court in that case actually reversed the lower court’s finding of mootness
because the Attorney General’s withdrawal of a notice of intended action did “not make
it absolutely clear that the enforcement action is not reasonably likely to recur.” 351 F.3d
697, 705 (6th Cir. 2003). Another case cited by Defendants, Mosley v. Hairston, is
easily distinguishable. 920 F.2d 409, 414 (6th Cir. 1990). In Mosley, Congress had
passed the Family Support Act under which state regulations were promulgated and
federal regulations were proposed which effectively granted plaintiff the relief that she
sought. Id.

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Defendants do not point to any act of Congress or agency rulemaking with
respect to the facts of this case but instead say only that the state of Michigan has
ceased use of MiDAS for the time being and that the Department of Labor had issued a
UIPL directing them not to continue use of computer systems to make fraud
determinations. (Dkt. #33.) Defendants insist that they “will comply with its terms,” but
also admit that “the UIPL is not binding federal law.” Id. Moreover, the UIPL upon which
Defendants rely does not actually prohibit the use of computers in making fraud
determinations but instead merely requires that the agency have “‘independently
verified the information’ obtained from the computer match” before granting notice and
an opportunity to respond. U.S. Dep’t of Labor, Unemployment Insurance Program
Letter No. 1-16, Federal Requirements to Protect Individual Rights in State
Unemployment Compensation Overpayment Prevention and Recovery Procedures
(Oct. 1, 2015).
The UIPL does not guarantee that Plaintiffs will receive the relief that they seek.
The Department of Labor may change its policy at a later date. Indeed, the affidavit filed
in support of Defendants’ motion contemplates this very possibility by stating that “[u]ntil
such time as the US DOL rescinds or amends [the UIPL] ... the Agency cannot use
MiDAS ...” (Dkt. #33-1.) Another possibility is that the Defendants will disagree with and
refuse to abide by UIPL entirely at the risk of reduced federal funding; again the affidavit
contemplates this when it states that “[i]f the Agency fails to comply with the
requirements set forth in [the UIPL] ... the Agency’s federal funding could be impacted.”
Id. Thus, the UIPL, lacking the force of law that the statutes and regulations had in

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Mosley, does not “make it absolutely clear that the allegedly wrongful behavior cannot
reasonably be expected to recur[.]” See Cleveland Branch NAACP, 263 F.3d at 531.
3. Prospective and Retrospective Relief
Finally, Defendants’ arguments as to retrospective relief were addressed in the
court’s opinion and order. (Dkt. #27.) The opinion made a distinction between
prospective injunctive relief, which is available under Ex Parte Young, 209 U.S. 123,
159-160 (1908), and retrospective relief, which is barred by the Eleventh Amendment.
(Dkt. #27.) It explained that to the extent that Plaintiffs requested that the court “‘[o]rder
defendants to return any state or federal tax returns or wages garnished or intercepted’
by the state” their claims were barred by the Eleventh Amendment. Id. It also cautioned
that relief requiring “Defendants to reopen a case and compensate a Plaintiff for
previously unpaid benefits” would be similarly prohibited. Id. The opinion contrasted
these retrospective forms of relief with the prospective injunctive relief implicated in
Plaintiffs’ request for “reinstatement of [Plaintiffs’] current and continuing eligibility for
unemployment benefits[,]” which were determined to be permissible under the binding
precedent of Carten v. Kent State University, 282 F.3d 391, 396 (6th Cir. 2002). (Dkt.
#27.) Finally it explained that “declaratory and injunctive requests as are truly
prospective” would include “an order that Defendants establish and maintain procedures
for detecting and acting upon incidents of fraud that meet Constitutional standards.” Id.
Defendants’ arguments regarding the termination of the MiDAS program in no
way address Plaintiffs’ request for reinstatement of current and continuing eligibility for
unemployment benefits. Defendants’ change of policy cannot be said to “have
completely and irrevocably eradicated the effects of the alleged violation,” see
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Cleveland Branch NAACP, 263 F.3d at 531, because Plaintiffs allege that they still feel
the effects of their current and future ineligibility. On the other hand, Defendants’
change of policy arguably confronts the request that they establish and maintain
procedures that meet Constitutional standards. However, for the reasons discussed
above, Defendants have not shown that the current practices are constitutional and that
Defendants will not revert to previous practices and thus have not successfully carried
the “heavy burden of demonstrating mootness[,]” see Cleveland Branch NAACP, 263
F.3d at 531. That these specific forms of relief are truly prospective was determined in a
prior opinion citing to controlling Sixth Circuit precedent and is now law of the case.
(See Dkt. #27.) The court will not revisit that determination here.
B. Motion for Leave to Amend Answer
Plaintiffs have filed no opposition to Defendants’ motion for leave to amend their
answer. Defendants’ proposed amendments do not add any new affirmative defenses
but will provide additional detail as to the Defendants’ view of factual allegations
included on the face of the amended complaint. (Dkt. #32-1.) This is the first time that
Defendants have moved to amend, and Defendants did so quickly. Therefore, nothing
suggests “undue delay, bad faith, or dilatory motive on the part of the movant, repeated
failure to cure deficiencies by amendments previously allowed, undue prejudice to the
opposing party by virtue of allowance of the amendment, futility of the amendment, etc.”
Foman v. Davis, 371 U.S. 178, 182 (1962). The court grants Defendants leave to
amend their answer.
IV. CONCLUSION

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For the foregoing reasons, IT IS ORDERED that Defendants’ Motion to Dismiss
(Dkt. # 33) is DENIED.
IT IS FURTHER ORDERED that Defendants’ Motion For Leave to Amend
Answer (Dkt. #32) is GRANTED. Defendants shall file their amended answer within 7
days of the issuance of this opinion.

s/Robert H. Cleland
ROBERT H. CLELAND
UNITED STATES DISTRICT JUDGE
Dated: September 2, 2016
I hereby certify that a copy of the foregoing document was mailed to counsel of record
on this date, September 2, 2016, by electronic and/or ordinary mail.
s/Lisa Wagner
Case Manager and Deputy Clerk
[phone]

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