Cahoo et al v. SAS Analytics Inc. et al
Filing
552
OPINION AND ORDER Denying Motions for Reconsideration 535 , 536 , 537 . Signed by District Judge David M. Lawson. (SPin)
Case 2:17-cv-10657-DML-RSW ECF No. 552, PageID.40100 Filed 01/18/22 Page 1 of 13
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
PATTI JO CAHOO, KRISTEN MENDYK,
KHADIJA COLE, and MICHELLE DAVISON,
Plaintiffs,
Case Number 17-10657
Honorable David M. Lawson
v.
FAST ENTERPRISES LLC, CSG GOVERNMENT
SOLUTIONS, STEPHEN GESKEY, and SHARON
MOFFET-MASSEY,
Defendants.
__________________________________________/
OPINION AND ORDER DENYING MOTIONS FOR RECONSIDERATION
In March of last year, the Court denied motions for summary judgment by defendants Fast
Enterprises LLC and CSG Government Solutions, except with respect to former plaintiff Hyon
Pak. These defendants now have moved for reconsideration of that order, contending that the
Court failed to address whether they can be sued as state actors under 42 U.S.C. § 1983, and FAST
also asks the Court to revisit its causation ruling. The defendants are correct that the Court
overlooked their state-actor argument, which had been addressed in an earlier ruling on their
motions to dismiss. However, any resulting error is harmless and does not justify a different result
because the record establishes that the UIA was entwined with the defendants’ decision to develop
an adjudication system that denied claimants due process. Fact questions also remain regarding
FAST’s role in developing the unconstitutionally deficient forms as well as whether and how the
plaintiffs were affected by them. The motions for reconsideration will be denied.
I.
The parties are well aware of the facts of the case; they were set forth in detail in the Court’s
opinion on the cross motions for summary judgment, Cahoo v. Fast Enterprises LLC, 528 F. Supp.
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3d 719 (E.D. Mich. 2021), the opinion denying motions to dismiss, 508 F. Supp. 3d 162 (2020),
and the opinion denying the motion to certify a class, 508 F. Supp. 3d 138 (E.D. Mich. 2020). Put
briefly, on March 2, 2017 the plaintiffs filed a putative class action complaint for damages
allegedly caused by the Michigan Unemployment Insurance Agency (UIA)’s implementation of
an automated system called the Michigan Integrated Data Automated System (MiDAS), which
was used to make fraud determinations and to detect and punish individuals who submitted
fraudulent unemployment insurance claims. The case was brought against the UIA and some of
its employees, and two contractors, defendants CSG Government Solutions and FAST Enterprises
LLC, and their employees, who played key roles in the development and implementation of
MiDAS.
The defendants moved to dismiss the complaint, and the Court dismissed several individual
defendants and several counts, leaving intact the plaintiffs’ due process, equal protection, and
Fourth Amendment claims against certain defendants. The State defendants appealed the decision
arguing qualified immunity, and the Sixth Circuit affirmed the Court’s decision with respect to the
plaintiffs’ due process claims only. Cahoo v. SAS Analytics Inc., 912 F.3d 887, 907-08 (6th Cir.
2019). The parties then agreed to dismiss the equal protection and Fourth Amendment claims
against all defendants.
The parties engaged in another round of motion practice. On April 24, 2020, the plaintiffs
moved for class certification; the Court denied the motion. ECF Nos. 278, 497. CSG and FAST
moved to dismiss the complaint, raising jurisdiction and real-party-in interest arguments, ECF No.
297, 313; the Court denied those motions. ECF No. 495. All parties also filed motions for
summary judgment, which the Court denied except as to certain individual State defendants, who
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were dismissed from the lawsuit. 528 F. Supp. 3d 719. As a result of these and other decisions,
only one procedural due process claim remains against CSG and FAST and two UIA supervisors.
In the opinion denying the motions to dismiss, the Court determined that CSG and FAST
were state actors for the purposes of the plaintiffs’ section 1983 claims. Cahoo v. SAS Inst. Inc.,
322 F. Supp. 3d 772, 792-94 (E.D. Mich. 2018), aff'd in part, rev'd in part and remanded sub
nom. Cahoo v. SAS Analytics Inc., 912 F.3d 887 (6th Cir. 2019). FAST and CSG raised the issue
again post-discovery in their motions for summary judgment, but the Court did not address that
question again in its opinion on those motions. Additionally, with respect to FAST, the Court
found that a “question of fact remains about whether FAST helped develop the content of the
questionnaires and fraud determinations,” thereby precluding summary judgment on the claims
against it. 528 F. Supp. 3d at 737.
FAST and CSG filed the present motions for reconsideration of the Court’s summary
judgment opinion and order. Two weeks later, the State defendants filed a notice of appeal, but
that notice does not affect FAST’s and CSG’s present motions.
II.
The orders denying FAST’s and CSG’s motions for summary judgment are non-final
orders. The Court may grant reconsideration of non-final orders only if
(A) The court made a mistake, correcting the mistake changes the outcome of the
prior decision, and the mistake was based on the record and law before the court at
the time of its prior decision;
(B) An intervening change in controlling law warrants a different outcome; or
(C) New facts warrant a different outcome and the new facts could not have been
discovered with reasonable diligence before the prior decision.
E.D. Mich. LR 7.1(h)(2). Only the grounds listed in subparagraph (A) are in play here.
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A.
CSG argues that the Court erred by not addressing its argument that it is not a state actor
that it raised for the first time after discovery closed in its summary judgment motion. It contends
that the “joint action” tests require a showing of a civil conspiracy, which never occurred, and that
the plaintiffs essentially abandoned their original theory that CSG was entwined with the State.
FAST presents similar arguments in its reconsideration motion.
The plaintiffs’ claims against these defendants are based on 42 U.S.C. § 1983. For liability
to attach under section 1983, “the party charged with the deprivation must be a person who may
fairly be said to be a state actor.” Lugar v. Edmondson Oil Co., 457 U.S. 922, 937 (1982). That
is because, with one exception, the Constitution protects citizens from infringement of their rights
by the government, not by private parties. Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 156 (1978)
(recognizing that “most rights secured by the Constitution are protected only against infringement
by governments”) (citing Jackson v. Metro. Edison Co., 419 U.S. 345, 349 (1974); Civil Rights
Cases, 109 U.S. 3, 17-18 (1883)).
Although the Supreme Court has acknowledged that its “cases deciding when private
action might be deemed that of the state have not been a model of consistency,” Edmonson v.
Leesville Concrete Co., Inc., 500 U.S. 614, 632 (1991) (O’Connor, J., dissenting), the exceptions
tend to fall into two broad categories: the “public function exception,” and the “entanglement
exception.” See Chemerinsky, Constitutional Law at 552 (3d ed. 2009).
The Sixth Circuit has interpreted the public function category narrowly, noting only
functions like holding elections, exercising eminent domain, and operating a company-owned
town meet this test. Chapman v. Higbee Co., 319 F.3d 825, 833-34 (6th Cir. 2003) (en banc).
That category plays no role here.
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The entanglement category includes cases describing “state compulsion” of a private
person’s conduct, and cases where a “nexus” is found between private conduct and the state, such
that it “is entwined with governmental policies or when government is entwined in [its]
management or control.” Chapman, 319 F.3d at 834 (quoting Brentwood Acad., 531 U.S. at 295).
Private parties are deemed to be state actors when the state has affirmatively authorized,
encouraged, or facilitated the private unconstitutional conduct, or otherwise permitted a private
actor to “exercise[] power ‘possessed by virtue of state law and made possible only because the
wrongdoer is clothed with the authority of state law.’” West v. Atkins, 487 U.S. 42, 49 (1988)
(finding private physician under contract with state to provide medical services to prison inmates
was a state actor) (quoting United States v. Classic, 313 U.S. 299, 326 (1941)). In fact, “[i]t is
well settled that private parties that perform fundamentally public functions, or who jointly
participate with a state to engage in concerted activity, are regarded as acting ‘under the color of
state law’ for the purposes of § 1983.” United Pet Supply, Inc. v. City of Chattanooga, Tenn., 768
F.3d 464, 478 (6th Cir. 2014) (quoting Bartell v. Lohiser, 215 F.3d 550, 556 (6th Cir. 2000)).
Within the entanglement exception, state action by private parties has been found when the
executive or judicial arm of state government has provided assistance in perpetrating
unconstitutional conduct. See, e.g., Shelley v. Kraemer, 334 U.S. 1 (1948) (state action found
where private party resorted to state courts to enforce discriminatory private deed restrictions);
Burton v. Wilmington Parking Auth., 365 U.S. 715 (1961) (state action found based on the
symbiotic relationship between restaurant and publicly-run parking facility leasing property to the
restaurant); North Ga. Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601 (1975) finding the use of
state courts and bailiffs to enforce creditor’s remedies lacking in procedural due process); Fuentes
v. Shevin, 407 U.S. 67 (1972) (same); Sniadach v. Family Finance Corp., 395 U.S. 337 (1969)
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(same). However, neither authorization of private conduct by law, Flagg Bros., 436 U.S. at 16465, nor restriction by licensure or regulation alone, Moose Lodge No. 107 v. Irvis, 407 U.S. 163
(1972), will be sufficient to constitute state action. Instead, the Supreme Court has held that “a
State normally can be held responsible for a private decision only when it has exercised coercive
power or has provided such significant encouragement, either overt or covert, that the choice must
in law be deemed to be that of the State.” Blum v. Yaretsky, 457 U.S. 991, 1004 (1982) (finding
no state action in decisions of physicians and administrators of privately owned and operated
nursing home to transfer Medicaid patients); see also Rendell-Baker v. Kohn, 457 U.S. 830, 840
(1982) (finding no state action in employment discharge decisions of privately owned and operated
school receiving nearly all revenue from state contracts). Perhaps most significant here, a private
corporation whose business depends primarily on public contracts with the state does not become
a state actor simply because of its “significant or even total engagement in performing public
contracts.” Id. at 840-41.
The defendants are correct that the Court did not address at summary judgment their
arguments that they cannot be held liable as state actors under Section 1983. However, it was not
a winning argument.
1. CSG
CSG’s argument that it is not a state actor under section 1983 relies on a narrow and
inaccurate reading of the various state-actor tests. It argues, essentially, that the entanglement test
requires a showing of either conspiracy or entwinement, and that the plaintiffs have abandoned the
latter theory. But the law is not so exacting. “The cases establish no clear standard” or “‘readily
applicable formulae’” for identifying a “‘sufficiently close nexus’” between the state and private
conduct. Lansing v. City of Memphis, 202 F.3d 821, 830 (6th Cir. 2000) (quoting Burton v.
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Wilmington Parking Authority, 365 U.S. 715, 726 (1961)). Rather, a finding of state action “can
be determined only in the framework of the peculiar facts or circumstances present.” Ibid. In
examining the facts, the Court must look not at “whether the state actor . . . was entwined generally
with the private entity,” M.S. by Covington v. Hamilton Cty. Dep’t of Educ., 756 F. App’x 510,
515 (6th Cir. 2018), but at whether “there is a sufficiently close nexus between the state and the
challenged action” specifically, Marie v. Am. Red Cross, 771 F.3d 344, 363 (6th Cir. 2014)
(quoting Wilcher v. City of Akron, 498 F.3d 516, 520 (6th Cir. 2007)).
That was the analysis applied when the Court found at the motion to dismiss stage that
CSG could be considered a state actor:
First, there is no question that the administration of unemployment benefits is a
power traditionally exclusively reserved to the State. Second, CSG’s contract
suggests the State authorized CSG’s allegedly unconstitutional conduct. The
plaintiffs cite terms of CSG’s contract to describe the managerial authority
delegated to it by the State. Among the deliverables outlined in the contract, CSG’s
Project Management Office was required to “support the State — and the State’s
application development and implementation vendor — in meeting the timely
delivery of quality information technology services for all stakeholders of the UI
System Modernization project.” It was also understood that the System Integration
Project team would be comprised of both CSG’s Project Management Office and
the State of Michigan DIT and UIA staff. “[CSG] is responsible for utilizing and
mentoring these State staff.” These terms support the plaintiffs’ allegations that
CSG, acting in concert with the State, was “entwined” with the UIA in
administering and maintaining the robo-fraud-adjudication system that deprived the
plaintiffs of their constitutional rights.
Cahoo, 322 F. Supp. 3d at 793.
This reasoning remains valid, even after discovery.
CSG argues otherwise, citing
deposition testimony indicating that the UIA retained the exclusive responsibility for determining
the business rules that MiDAS and human adjudicators applied, John Walsworth Dep., ECF No.
425-2, PageID.19524, and that CSG’s managerial role was procedural, not substantive, Clay
Tierney Dep., ECF No. 474-2, PageID.35826-27. Nevertheless, the fact remains that Clay Tierney,
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a state employee and Director of the Agency’s Office of Technology and Modernization, served
as “the dotted line supervisor” of CSG employees on the project, id. at PageID.36736, to whom
the State delegated the responsibility of keeping the project on task and working with state
employees in UIA’s Detroit office, id. at PageID.35646 (“There’s a lot of administration to a large
project like this, and it was not something that we did everyday”); CSG Cont., ECF No. 425-4,
PageID.19665. The state worked hand in hand with CSG to develop and implement the robofraud-adjudication system. CSG Contract, ECF No. 425-4, PageID.19664-65; Tierney Dep., ECF
No. 474-2, PageID.35827-28. CSG’s ultimate function was “help administer and organize what
the agency has decided it wants or needs in functionality.” Tierney Dep., ECF No. 474-2,
PageID.35673; see also Project Summ., ECF No. 474-5, PageID.36462 (stating that CSG senior
project manager was “[r]esponsible for overseeing all aspects of the UIA-IVR project”). Its
employees were co-located with state employees, used state email addresses, and worked on and
led teams comprised of both CSG and UIA staff. Tierney Dep., ECF No. 474-20, PageID. 35708,
36731-32, 36738. CSG’s arguments therefore do not contradict the Court’s finding that CSG was
entwined with the State.
There also is no merit in CSG’s argument that the plaintiffs abandoned their original
entwinement theory. The plaintiffs raised that exact theory in their response in opposition to
CSG’s motion for summary judgment. Plfs.’ Response to CSG’s Mot. Summ. J., ECF No. 474,
PageID.35592-95 (“The State was not only ‘entwined’ with CSG’s management and control, CSG
employees were the virtual employees of the State . . . .”); see also Resp. to FAST Mot. Summ. J.,
ECF No. 471, PageID.31023. CSG also mistakenly believes that the plaintiffs must establish a
civil conspiracy to show state action. A civil conspiracy is a sufficient means of showing
entwinement, but it is not a necessary condition. See Weser v. Goodson, 965 F.3d 507, 516 (6th
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Cir. 2020) (“A plaintiff may [] allege that a private party has engaged in a conspiracy or concerted
action with other state actors.”) (emphasis added); Memphis, Tennessee Area Loc., Am. Postal
Workers Union, AFL-CIO v. City of Memphis, 361 F.3d 898, 905 (6th Cir. 2004) (suggesting that
allegations of conspiracy are only relevant if the other state-action tests do not apply). The
plaintiffs adduced facts that tend to show concerted action by demonstrating that CSG “works so
closely with state agencies that it is difficult to delineate between them,” to the point that “the
government is ‘entwined in [the private entity’s] management or control.’” See Marie, 771 F.3d
at 364 (quoting Vistein v. Am. Registry of Radiologic Technologists, 342 F. App’x 113, 128 (6th
Cir. 2009)).
This nexus between the state and the challenged action far exceeds “mere
cooperation,” contract, authorization, restriction, or funding, and it is enough to demonstrate that
CSG is a state actor that may be subject to suit under section 1983. See ibid. (quoting Lansing,
202 F.3d at 831); Wolotsky v. Huhn, 960 F.2d 1331, 1335 (6th Cir. 1992).
2. FAST
FAST also argues that the discovery demonstrates it is not a state actor under any of the
applicable tests. It insists that it merely provided software for the State under its contractual
obligations and that State officials do not work for or control it. The record, however, tells a
different story.
First, as with CSG, there is no question that the administration of unemployment benefits
is a power traditionally reserved to the State. Second, FAST’s contract suggests that it was
“entwined” with the State and played a significant role in developing its MiDAS system. UIA
manager Tierney described FAST’s contract as encompassing “all of the claims activities” and
“the universe of what’s done by UI.” Tierney Dep., ECF No. 474-20, PageID.36752. FAST
contracted with the State to “design, configure and implement” its commercial software for the
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UIA’s use in administering unemployment insurance, including fraud investigation,
overpayments, collections, tax intercepts, and “decision support”. FAST Cont., ECF No. 399-65,
PageID.17800, 17802-03. It was contractually responsible for configuring the system and for
training UIA employees on how to use it. Id. at PageID.17803. It also agreed to develop the
templates of all MiDAS correspondence, including questionnaires and determination notices, and
ensured that the templates complied with “Federal and State law delivery requirements.” Id. at
PageID.17803-04; see also Tierney Dep., ECF No. 474-2, PageID.36109. Third, the record
suggests that the State was heavily involved in FAST’s “management or control.” See Chapman,
319 F.3d at 834. FAST employees reported to the UIA, worked alongside UIA employees, used
state email addresses, and continuously sought approval from UIA managers for the work
performed on the project. Tierney Deps., ECF No. 474-2, PageID.35704, 35707-08, 35712; ECF
No. 474-20, PageID.36731-32, 36736, 36750. Again, UIA manager Tierney was “the dotted line
supervisor” to FAST personnel. Ibid.
The record contains conflicting evidence about FAST’s role in developing the content of
the forms. Tierney testified that some FAST employees worked with State employees to “design
and program the system” and “draft[] the language” of the UIA’s forms. Tierney Dep., ECF No.
474-2, PageID.35719-20, 35791, 35937, 36113. However, FAST’s contract obligated it with
developing the templates (not the content) for MiDAS correspondence, and UIA witnesses Shemin
Blundell and Sharon Moffet-Massey testified that “no CSG, FAST, or SAS employees were
involved in determining the content or crafting the language of those notices or questionnaires sent
to claimants.” Shemin Blundell Dep., ECF No. 297-8, PageID.11186; see also Sharon MoffetMassey Dep., ECF No. 297-7, PageID.11171.
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But the factual inferences are drawn in favor of the plaintiffs as the nonmoving parties.
Alexander v. CareSource, 576 F.3d 551, 557-58 (6th Cir. 2009) (quoting Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 251-52 (1986)). And even if FAST lacked final authority over key
aspects of the project, the record establishes a “nexus” between FAST’s conduct developing
MiDAS and its forms and the State’s implementation of MiDAS such that FAST is “entwined”
with the State. Chapman, 319 F.3d at 834; West, 487 U.S. at 49.
B.
FAST also asks the Court to revisit its argument that it did not cause any of the plaintiffs’
injuries because (1) the remaining plaintiffs did not receive the deficient notices or questionnaires
FAST allegedly designed; and (2) the UIA found fraud based on non-responses to questionnaires
before its involvement with FAST. It raised substantially the same arguments in its prior motions.
Now, it contends that the Court’s ruling is erroneous because it is based on the incorrect premise
that the questionnaires and content of the notices provide the basis for the plaintiffs’ claims.
It is true that the Court found that “[a] question of fact remains about whether FAST helped
develop the content of the questionnaires and fraud determinations” that the Court found
constitutionally deficient. Cahoo, 528 F. Supp. 3d at 737. It is also true that the remaining
plaintiffs alleged that they had not read or received those notices. Cahoo, 508 F. Supp. 3d at 15053 (observing that plaintiffs Patti Jo Cahoo, Kristen Mendyk, Khadija Cole, and Michelle Davison
alleged that they did not see or receive the questionnaires or determinations and therefore failed to
respond). But as the Court observed in its opinion addressing the parties’ cross motions for
summary judgment, the record is unclear “as to how [the deficiencies in the notices] affected the
individual plaintiffs.” Cahoo, 528 F. Supp. 3d at 762. Each of the remaining claimant’s claim
files showed that individuals checked their MiWAM accounts around the times the notices were
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sent. Id. at 762-63 (“Cahoo’s claim file reflects that someone checked her MiWAM account 22
times between the day the first questionnaire was sent . . . and when the fraud determinations were
issued”; Mendyk’s “claim files reflect that she began checking her MiWAM account regularly
since January 10, 2014, just before the UIA issued her third determination notice”; Cole’s claim
files “reflect[] that someone frequently logged into her MiWAM account, including before the
UIA sent the first fraud questionnaire . . . and after it issued the second determination notice”; and
Davison’s “claim files indicate that someone frequently checked her MiWAM account before and
after MiDAS posted the . . . questionnaire and . . . determinations”). The record, therefore, allows
a fair inference that the plaintiffs were influenced by the contents of the notices even though they
had no current recollection of receiving them. Without more evidence establishing whether and
how the plaintiffs were impacted by the deficient questionnaires and notices, the Court correctly
denied FAST summary judgment.
It is also true that the UIA developed its policy of determining fraud based on a claimant’s
failure to respond before it began working with FAST.
MiDAS 2011 Intentional
Misrepresentation Guidelines, ECF No. 445-54, PageID.26689, 26698. But the fact remains that
FAST had a role in instituting and maintaining this potentially problematic policy. Cahoo, 528 F.
Supp. 3d at 737 (“Moreover, once MiDAS went live, FAST’s role transitioned to ‘support and
maintenance;’ that is, ‘making sure [the system] continues to function and do what it’s expected
to do,’ per FAST’s contractual warranty.”) (citing FAST Cont., ECF No. 471-10, PageID.31362).
Therefore, there is no basis to reconsider FAST’s causation argument.
III.
Defendants CSG and FAST have not shown that there is a proper basis to reconsider the
opinion and order denying their motions for summary judgment.
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Accordingly, it is ORDERED that the motions for reconsideration (ECF No. 535, 536,
537) are DENIED.
s/David M. Lawson
DAVID M. LAWSON
United States District Judge
Date: January 18, 2022
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