Opinion ID: 2982087
Heading Depth: 3
Heading Rank: 3

Heading: Property Interest Under Michigan Law

Text: The First Amended Complaint identifies the employees’ injuries as including the fraudulent termination and denial of worker’s compensation benefits that they were due pursuant to the Michigan Worker’s Disability Compensation Act (“WDCA”). Specifically, Jackson alleges that the defendants conspired to terminate fraudulently No. 10-1453 Jackson, et al. v. Sedgwick, et al. Page 27 benefits that he had been receiving, and Scharnitzke alleges that the defendants conspired to deny him fraudulently benefits that he was due. R. 2 (First Am. Compl. at 18–21) (Page ID #41–44). Because Michigan’s nondiscretionary worker’s compensation scheme creates a property interest in the continued receipt of statutory benefits as well as in the expectancy of statutory benefits following notice to the employer of injury, I cannot agree with the majority’s characterization of the interest at issue as relating only to a personal injury. Both Michigan law and federal law recognize that the recipient of a statutory entitlement “has a statutorily created property interest in the continued receipt of those benefits.” Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 60 (1999) (citing Goldberg v. Kelly, 397 U.S. 254, 262 & n.8 (1970)); Perry v. Sindermann, 408 U.S. 593, 601 (1972); Logan, 455 U.S. at 428; Mathews v. Eldridge, 424 U.S. 319, 332 (1976); see also Williams v. Hofley Mfg. Co., 424 N.W.2d 278, 282, 283 n.16 (Mich. 1988) (relying on federal due process law articulated in Logan, 455 U.S. at 428). A recipient of Michigan worker’s compensation benefits undoubtedly has a property interest under state law in the continued receipt of those benefits. Jackson has therefore alleged a property interest in the continued receipt of his worker’s compensation benefits under Michigan law. Because Scharnitzke’s allegations center on the fraudulent denial of benefits as opposed to the fraudulent termination of benefits, the next issue is whether an injured employee obtains a property interest in his expectancy of worker’s compensation benefits. For the reasons explained below, I would hold that an employee obtains a property interest at the time the employer becomes aware of the injury. Michigan has not directly addressed at what point an injured employee has a property interest in the benefits provided by the WDCA. In construing other statutes, Michigan courts have held that “a unilateral expectation of [a statutory] benefit” before the benefit is awarded is not property because the claimant must “have a legitimate claim of entitlement to the funds.” City of St. Louis v. Mich. Underground Storage Tank Fin. Assurance Policy Bd., 544 N.W.2d 705, 708–09 (Mich. Ct. App. 1996) (citing Williams, No. 10-1453 Jackson, et al. v. Sedgwick, et al. Page 28 424 N.W.2d 278). However, that principle originates in federal due process law.2 Castle Rock, 545 U.S. at 756 (quoting Bd. of Regents of State Colls. v. Roth, 408 U.S. 564, 577 (1972)). And when interpreting federal due process law, “[e]very regional circuit to address the question,” including the Sixth Circuit, “has concluded that applicants for benefits, no less than benefits recipients, may possess a property interest in the receipt of public welfare entitlements,” Cushman v. Shinseki, 576 F.3d 1290, 1297 (Fed. Cir. 2009) (internal quotation marks and alteration omitted), so long as “a statute mandates the payment of benefits to eligible applicants based on objective, particularized criteria,” Mallette v. Arlington Cnty. Emps.’ Supplemental Ret. Sys. II, 91 F.3d 630, 640 (4th Cir. 1996); see also Hamby v. Neel, 368 F.3d 549, 559 (6th Cir. 2004); Flatford v. Chater, 93 F.3d 1296, 1305 (6th Cir. 1996).3 Federal due process law therefore recognizes a property interest in benefits that have not yet been awarded if the party asserting the property entitlement can “point to some policy, law, or mutually explicit understanding that both confers the benefits and limits the discretion of the [other party] to rescind the benefit.” R.S.W.W., Inc. v. City of Keego Harbor, 397 F.3d 427, 435 (6th Cir. 2005) (internal quotation marks omitted); see also Castle Rock, 545 U.S. at 756 (“[A] benefit is not a protected entitlement if government officials may grant or deny it in their discretion.”). Michigan law is consistent with this approach. For example, the Michigan Supreme Court has held that a bar owner with a liquor license has a property interest in his expectancy of receiving a renewal license, independent of his interest in his existing license, despite having had no property interest in his expectancy of an initial license in the first place. Bundo v. City of Walled Lake, 238 N.W.2d 154, 160 (Mich. 1976). The Michigan Supreme Court 2 Michigan often looks to federal due process law in analyzing whether property interests are at stake. Williams, 424 N.W.2d at 282, 283 n.16 (relying on federal due process law articulated in Logan, 455 U.S. at 428). 3 “The Supreme Court has repeatedly reserved decision on the question of whether applicants for benefits (in contradistinction to current recipients of benefits) possess a property interest protected by the Due Process Clause.” Kapps v. Wing, 404 F.3d 105, 115 (2d Cir. 2005). Nevertheless, “the Supreme Court’s procedural due process jurisprudence focuses on whether statutory provisions create a right, not whether benefits have been received in the past.” Mallette, 91 F.3d at 640 (citing Roth, 408 U.S. at 577). “[T]he potential consequences of denying . . . benefits are no less potentially dire than those of revoking them.” Id. No. 10-1453 Jackson, et al. v. Sedgwick, et al. Page 29 focused entirely on the differences in the statutory procedures for obtaining a renewal license as compared to an initial license. An initial applicant for a liquor license must obtain approval from the local legislative body before the license may be granted; the initial applicant therefore has nothing more than a unilateral expectation or hope that he may receive the license. An existing licensee need not obtain such approval; unless an objection by the local body is filed prior to thirty days before his license expires, renewal “take[s] place as a matter of course.” Id. at 157, 161. Upon application of this principle to the present context, the statutory procedures for obtaining worker’s compensation benefits in Michigan indicate that applicants for worker’s compensation benefits have a property interest in those benefits at the time that their employer becomes aware of the injury. The WDCA’s mandatory language deprives the Worker’s Compensation Appellate Commission (“WCAC”) of discretion about whether to award benefits. The statute says that employees injured in the course of employment “shall be paid compensation,” which is calculated according to a rigid schedule. MICH. COMP. LAWS § 418.301(1) (emphasis added); see also Reed v. Yackell, 703 N.W.2d 1, 7 (Mich. 2005) (referring to the WDCA process and the employer’s assumption of responsibilities as “automatic”). Moreover, there is no “well established tradition” of government officials having “discretion” despite “apparently mandatory . . . statutes” in the context of the WDCA. Castle Rock, 545 U.S. at 760. In fact, no adjudication is required: an employee receives worker’s compensation benefits fourteen days “after the employer has notice or knowledge of the disability.” MICH. COMP. LAWS § 418.801(1). Applicants therefore acquire a property interest in worker’s compensation when employers learn of their employees’ physical injuries. The property interest has an “ascertainable monetary value” and the identity of the entitlement is neither indeterminate nor vague. Castle Rock, 545 U.S. at 766 (internal quotation marks omitted). These features demarcate a property interest guaranteed by the mandatory language of the WDCA. The defendants argue that the employer’s statutory ability to dispute the payment of benefits negates any claim of legal entitlement to benefits prior to a decision to award No. 10-1453 Jackson, et al. v. Sedgwick, et al. Page 30 them. As an initial matter, the defendants misread § 418.801(2) as permitting the nonpayment of otherwise mandatory weekly compensation in the event of an ongoing dispute. It does not. Subsection (2) relieves an employer of an otherwise automatic penalty for the non-payment of the benefits owed under the statute in the event of an ongoing dispute. But even if it did relieve the employer of its obligation, the existence of a limited mechanism to dispute the receipt of benefits otherwise awarded as a matter of course does not make the expectation cease to be a property interest.4 In Bundo, for example, the Michigan Supreme Court deemed it of no consequence that the local legislative body retained a statutory right to object to renewal of a liquor license. 238 N.W.2d at 160–61. The absence of a specific statutory provision authorizing an employer not to pay compensation during a dispute also distinguishes this case from American Manufacturers. In American Manufacturers, the Supreme Court held that claimants of worker’s compensation benefits in Pennsylvania did not have a property interest in the payment of benefits prior to an adjudication that the medical treatments for which they sought compensation were “reasonable and necessary.” 526 U.S. at 61. In 1993, Pennsylvania had amended its worker’s compensation laws to insert a procedure by which an employer could require a review of the necessity of an employee’s treatments “before a medical bill must be paid.” Id. at 45. The Supreme Court held that under the new regime, it was no longer enough that the plaintiffs demonstrated their “initial eligibility for medical treatment” because they had not overcome the second statutory hurdle of showing “that the particular medical treatment they received was reasonable and necessary.” Id. at 61. The injured employees therefore could not yet claim a property interest in their expectation of benefits. Id. Here, the underlying Michigan state law does not require injured employees to make such an initial showing before they receive benefits, as Pennsylvania’s law did. 4 Otherwise a party could never be denied benefits, even for proper grounds, which is clearly not the case. The ability of an employer to dispute an otherwise nondiscretionary claim of benefits, and such employer’s potential success, impacts only the value of the employee’s claim to benefits, not the determination that such an expectancy of benefits is the employee’s property in the first place. No. 10-1453 Jackson, et al. v. Sedgwick, et al. Page 31 In contrast, Michigan law resembles the old Pennsylvania regime, stating simply that “[a]n employee[] who receives a personal injury arising out of and in the course of employment by an employer . . . shall be paid compensation as provided in this act.” MICH. COMP. LAWS § 418.301(1). Although an employee bears the burden of showing that his personal injury arose during the course of his employment in the event of a dispute, no Michigan statutory provision permits the employer to withhold compensation until such a showing has been made. MICH. COMP. LAWS § 418.851. Where, as here, the receipt of the benefit is nondiscretionary and statutorily occurs as a matter of course, I firmly believe that the Michigan courts would recognize a property interest in an injured employee’s expectancy of worker’s compensation.5 Because Scharnitzke has alleged that he was denied benefits that he was due under the WDCA’s mandates, I would hold that he has alleged a property interest cognizable under RICO.