Court Opinion

ID: 4669446
Source: CourtListenerOpinion
Date Created: 2021-03-19 12:07:12.287966+00
Date Added: 2024-06-11T07:59:08.793033
License: Public Domain

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
                   revision until final publication in the Michigan Appeals Reports.

                           STATE OF MICHIGAN

                             COURT OF APPEALS

 DOCK FARISH, KEBEH GIBSON, MILLIE                                   FOR PUBLICATION
 NICHOLS, on Behalf of Themselves and All                            March 18, 2021
 Others Similarly Situated,                                          9:00 a.m.

                 Plaintiffs-Appellants,

 v                                                                   No. 350866
                                                                     Court of Claims
 DEPARTMENT OF TALENT AND ECONOMIC                                   LC No. 17-000035-MZ
 DEVELOPMENT,

                 Defendant-Appellee,

 and

 TALENT INVESTMENT AGENCY,
 UNEMPLOYMENT INSURANCE AGENCY,
 DIRECTOR DEPARTMENT OF TALENT AND
 ECONOMIC DEVELOPMENT, DIRECTOR
 TALENT INVESTMENT AGENCY, and
 ACTING DIRECTOR UNEMPLOYMENT
 INSURANCE AGENCY,

                 Defendants-Appellees.

Before: RIORDAN, P.J., and SHAPIRO and RONAYNE KRAUSE, JJ.

SHAPIRO, J.

        The question before us in this case is whether the Michigan Unemployment Insurance
Agency (UIA) may deduct sums from a recipient’s present benefits in order to collect penalties
and interest assessed because of a prior overpayment. We conclude that it may not. However, we
conclude that plaintiffs’ conversion and other damage claims fail and that they may only obtain
declaratory and injunctive relief. We remand for entry of orders providing such relief.
                                         I. BACKGROUND

        The Michigan Employment Security Act (MESA), MCL 421.1 et seq., provides that if an
individual is determined to have obtained benefits to which they are not entitled, the agency may
recover a sum equal to the overpayment plus interest in one of three ways: “deduction from benefits
or wages payable to the individual, payment by the individual in cash, or deduction from a tax
refund payable to the individual . . . . ” MCL 421.62(a). A deduction from benefits “is limited to
not more than 50% of each payment due the claimant,” MCL 421.62(a), but that cap does not apply
when the restitution sought by the agency results from the claimant’s “intentional false statement,
misrepresentation, or concealment of material information,” MCL 421.62(b). MESA authorizes
the assessment of penalties for such conduct. See MCL 421.54(b).

        At the time they brought suit, plaintiffs’ current unemployment benefits were being
deducted in whole or in part to recoup prior overpayments, penalties, and interest. Plaintiffs
claimed that the deductions violated state law as set forth in MCL 421.301 and MCL 421.62, as
well as federal law governing state unemployment systems that receive federal funds. Defendants
moved for summary disposition, arguing that the deductions from plaintiffs’ benefits were
authorized by the aforementioned state statutes and not precluded by federal law. The Court of
Claims dismissed plaintiffs’ suit in its entirety and plaintiffs appealed in Farish v Dep’t of Talent
& Economic Dev (Farish I), unpublished per curiam opinion of the Court of Appeals, issued
December 11, 2018 (Docket No. 341350). In that first appeal, we affirmed the trial court’s
conclusion that state law was not violated, and also affirmed dismissal of the procedural due
process claim, a standalone count for equitable relief2 and all claims against the individual
defendants. Id. at pp 2-7.

        However, we reversed dismissal of plaintiffs’ claim that deducting penalties and interest
violated federal law, specifically 42 USC 503 of the Social Security Act, and therefore constituted
conversion. The Court of Claims had determined that the deduction of penalties and interest from
plaintiffs’ unemployment benefits did not violate the federal statute. However, we remanded for
the court to consider certain administrative guidance promulgated by the United States Department

1
    MCL 421.30 provides:
         All rights to benefits shall be absolutely inalienable by any assignment, sale,
         garnishment, execution or otherwise, and, in case of bankruptcy, the benefits shall
         not pass to or through any trustees or other persons acting on behalf of creditors:
         Provided, That this section shall not prohibit the use of any remedy provided by
         law insofar as the collection of obligations incurred for necessaries furnished to the
         recipient of such benefits or his dependents during the time when such individual
         was unemployed is concerned.
2
 In our prior opinion, we explained that equitable relief was a remedy, not a cause of action, and
so summary disposition of plaintiffs’ equitable-relief claim was proper. Farish I, unpub op at 7.
This does not mean, however, that plaintiffs are foreclosed from an equitable remedy if entitled to
such relief under a different cause of action.

                                                  -2-
of Labor, indicating that such deductions were impermissible under federal law, so states that
deduct past interest and penalties from future benefits (as opposed to only the actual overpayments)
may not be certified for federal assistance in funding their unemployment programs. See id. at 5-
6. On remand, the court again concluded that the statute was unambiguous and thus that the
Department of Labor’s interpretation of the statute was irrelevant and entitled to no deference.
The court also ruled that governmental immunity barred the conversion claims.3 Plaintiffs again
appealed to this Court.4

                                          II. ANALYSIS

                            A. INTERPRETATION OF 42 USC 503

        The federal Social Security Act governs various social welfare programs, including state
unemployment compensation, 42 USC 501 through 506. For all programs, the federal government
provides funding for the states on the condition that the states meet and follow certain
requirements. The requirements to receive federal funding for unemployment insurance are set
forth in 42 USC 503(a). First, the Secretary of Labor may not certify payment unless the state’s
law provides administrative methods “reasonably calculated to insure full payment of
unemployment compensation when due.” 42 USC 503(a)(1). In addition, all money withdrawn
from a state unemployment fund must, with certain stated exceptions, be expended “in the payment
of unemployment compensation . . . .” 42 USC 503(a)(5). The exception relevant to this appeal
provides “[t]hat amounts may be deducted from unemployment benefits and used to repay
overpayments as provided in subsection (g)[.]” 42 USC 503(a)(5). In turn, subsection (g) provides
in pertinent part:

3
  We review de novo grants of summary disposition. Genesee Co Drain Comm’r v Genesee Co,
309 Mich App 317, 324; 869 NW2d 635 (2015). The Court of Claims granted summary
disposition of plaintiffs’ 42 USC 503 claim under MCR 2.116(C)(8) (failure to state a claim).
Under subrule (C)(8), we accept all well-pleaded factual allegations as true to determine the legal
sufficiency of the complaint. See Maiden v Rozwood, 461 Mich 109, 119; 597 NW2d 817 (1999).
Questions of statutory interpretation are also reviewed de novo. Estes v Titus, 481 Mich 573, 578-
579; 751 NW2d 493 (2008). The goal when interpreting federal statutes is to give effect to
Congress’s intent. Johnson v Johnson, 329 Mich App 110, 119; 940 NW2d 807 (2019). Statutes
are reviewed “as a whole, reading individual words and phrases in the context of the entire
legislative scheme.” Ronnish Constr Group, Inc v Lofts on the Nine, LLC, 499 Mich 544, 552;
886 NW2d 113 (2016). “Statutory language should be construed reasonably, keeping in mind the
purpose of the act.” People v Zitka, 325 Mich 38, 49; 922 NW2d 696 (2018) (quotation marks and
citations omitted). When reviewing a motion under MCR 2.116(C)(7) (governmental immunity),
the parties may introduce evidence to support their claims or defenses, and “[t]he contents of the
complaint are accepted as true unless contradicted by documentation submitted by the movant.”
Maiden, 461 Mich at 119.
4
  The Center for Civil Justice filed an amicus brief in support of plaintiffs’ brief regarding the
interpretation of 42 USC 503.

                                                -3-
              A State shall deduct from unemployment benefits otherwise payable to an
       individual an amount equal to any overpayment made to such individual under an
       unemployment benefit program of the United States or of any other State, and not
       previously recovered. The amount so deducted shall be paid to the jurisdiction
       under whose program such overpayment was made. Any such deduction shall be
       made only in accordance with the same procedures relating to notice and
       opportunity for a hearing as apply to the recovery of overpayments of regular
       unemployment compensation paid by such State. [42 USC 503(g)(1) (emphasis
       added).]

         Defendants concede that the ordinary meaning of “overpayment” does not include penalties
and interest, i.e., the statute does not require or expressly authorize deductions for those amounts.
Defendants argue, however, that deductions for penalties and interest are nevertheless permissible
because they are not explicitly prohibited by 42 USC 503(g). Plaintiffs, on the other hand,
maintain that 42 USC 503(g)’s silence on deductions for penalties and interest renders the statute
ambiguous and that we should therefore defer to the Department of Labor’s stated position on this
matter. As set forth in our prior opinion, in an Unemployment Insurance Program Letter sent to
all state employment security agencies in 1989 (UIPL 45-89),5 the Department of Labor advised
that permissible deductions from payment of unemployment compensation did not include
penalties or interest:

               5. Specific Situations in which Deductions May or Must be Made from
       Unemployment Compensation. A State law may (or must) include provision for
       deducting and withholding any sum from compensation payable to an individual
       only if specifically permitted (or required) by Federal law.[6] These exceptions are
       limited to the following circumstances:

              a. If the claimant is legally liable to repay an overpayment of compensation
       made from the State’s unemployment fund, that amount owed may be deducted
       from compensation currently payable from such fund under State law. This is
       permissible because the amount previously overpaid is tantamount to a prepayment
       of compensation currently due the claimant.

                                              * * *

5
  Although issued in 1989, UIPL No. 45-89 remains active. See United States Department of
Labor, Active Unemployment Compensation Program Letters and Active Unemployment
Insurance         Program          Letters      as     of       July       28,      2016
 (accessed
March 9, 2021).
6
  When 42 USC 503(g) was enacted in 1986, states were permitted, but not required, to make
deductions to recoup overpayments. PL 99-272, § 12401(a)(2); 100 Stat 82. It became mandatory
in 2012 when Congress substituted “shall” for “may” in the original provision. PL 112-96,
§ 2103(a); 126 Stat. 161.

                                                -4-
               Deductions to recover overpayments are limited to the offset of the
       overpayment itself. Offset may not be used to recover any additional interest or
       penalties due under State law as these additional amounts do not constitute a
       prepayment of compensation. Further, the offsetting of past due contributions,
       penalty, interest or costs incurred while the claimant was an employer is not
       permitted. See the Secretary’s decision in the Minnesota conformity proceedings,
       dated December 16, 1988, and transmitted to the States by UIPL 25-89. [Emphasis
       added.]

        Plaintiffs maintain that UIPL 45-89 is entitled to deference under Chevron USA v Natural
Resources Defense Council, Inc, 467 US 837; 104 S Ct 2778; 81 L Ed 2d 694 (1984), the seminal
decision from the United States Supreme Court concerning judicial deference to a federal agency’s
interpretation of a statute. Chevron presents a two-step inquiry. The first step is to determine
“whether ‘Congress has directly spoken to the precise question at issue. If the intent of Congress
is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the
unambiguously expressed intent of Congress.’ ” Dep’t of Labor & Economic Growth,
Unemployment Ins Agency v Dykstra, 283 Mich App 212, 223; 771 NW2d 423 (2009), quoting
Chevron, 467 US at 842-843. If, however, “ ‘the statute is silent or ambiguous with respect to the
specific issue, the question for the court is whether the agency’s answer is based on a permissible
construction of the statute.’ ” Dykstra, 283 Mich App at 224, quoting Chevron, 467 US at 843.

        Aside from whether the statute is ambiguous, defendants argue that UIPLs are not entitled
to Chevron deference. Plaintiffs disagree, but alternatively argue that even if Chevron does not
apply, we should defer to UIPL 45-89 under Skidmore v Swift & Co, 323 US 134; 65 S Ct 161; 89
L Ed 2d 124 (1944). Per Skidmore, an agency interpretation that does not “carry the force of law”
is nonetheless “eligible to claim respect according to its persuasiveness.” United States v Mead
Corp, 533 US 218, 221; 121 S Ct 2164; 150 L Ed 2d 292 (2001). See also Air Brake Sys, Inc v
Mineta, 357 F3d 632, 643 (CA 6, 2004), quoting Skidmore, 323 US at 140 (“Federal courts give
respectful consideration to authoritative interpretations that lack the force of law, but that
nonetheless have the ‘power to persuade.’ ”). Accord In re Complaint of Rovas Against SBC Mich,
482 Mich 90, 103; 754 NW2d 259 (2008) (explaining that, while not binding, state agency
interpretations are entitled to “respectful consideration” and should only be overruled for “cogent
reasons.”).

        To begin, we agree with the parties that 42 USC 503(g) is silent on the issue at hand. 42
USC 503(g) mandates that states recoup overpayments through deductions, but it does not
expressly preclude a state from making deductions for other amounts. Viewed by itself, 42 USC
503(g) could be read to mean, as the Court of Claims determined, that although states are required
to recover overpayments through deductions, they have discretion whether to also recoup penalties
and interest in that manner. However, viewing 42 USC 503 as a whole as opposed to 42 USC
503(g) alone, we conclude that the statute unambiguously precludes states from using
unemployment funds to satisfy penalties and interest assessed against benefit recipients. Although
42 USC 503 is silent as to deductions for penalties and interest, it remains the case that in the

                                                 -5-
absence of an applicable exception or express authorization,7 deductions for penalties and interest
violate 42 USC 503(a)(5)’s general directive that unemployment funds must be used to pay
benefits. See Grand Rapids Motor Coach Co v Mich Public Serv Comm, 323 Mich 624, 634; 36
NW2d 299 (1949) (“[E]xemptions in a statute are carefully scrutinized and not extended beyond
their plain meaning.”); Huggett v Dep’t of Natural Resources, 232 Mich App 188, 194; 590 NW2d
747 (1998) (“Statutory exceptions operate to restrict the general applicability of legislative
language and are strictly construed.”).

        Indeed, this is the precise reasoning behind the Secretary of Labor’s decision that is cited
in the relevant paragraph of UIPL 45-89. In 1987, Minnesota enacted a statutory provision
allowing the deduction of interest and penalties from unemployment benefits otherwise made to
individual claimants, for the purpose of recouping the value of those claimants’ unpaid obligations
to the state’s unemployment fund that the claimants failed to pay when they had been employers.
The United States Department of Labor challenged this provision as violating the Social Security
Act’s requirement that unemployment benefits be paid in full when due. Minnesota received a
hearing before an Administrative Law Judge (ALJ) and maintained that the contested deductions
were authorized by 42 USC 503(g). The ALJ determined that the Minnesota statute impermissibly
constituted a levy on unemployment compensation that exceeded the narrow statutory exceptions
in 42 USC 503(a)(5). The Secretary of Labor adopted the ALJ’s recommendation:

         [U]nder section 303(a)(5) of SSA,[8] all money withdrawn from the unemployment
         fund must be used in payment of unemployment compensation. . . . Section
         303(a)(1) of the SSA requires that a state unemployment compensation law provide
         for such methods of administration as will ensure full payment of unemployment
         compensation when due. Certain exceptions to the requirement that funds be used
         exclusively in the payment of unemployment compensation are statutorily provided
         but none of these are applicable here.

                  [The Minnesota law at issue] permits the deduction and withholding of up
         to 50 percent of an individual’s unemployment compensation payment for unpaid
         contributions, interest, penalties and costs for which the individual has been
         determined to be liable. Thus, an unemployed claimant would not receive in hand
         the full amount of his or her cash benefits if the claimant owed contributions to the
         unemployment fund from a prior period when the claimant had been an employer.
         The question, therefore, arises whether the reduction in the claimant’s cash benefits
         for the purpose of recouping contribution owed conforms to the Federal statutory
         prescriptions as to use of unemployment fund monies.

7
  In addition to the exceptions stated in 42 USC 503(a)(5), other subsections in 42 USC 503 allow
or require deductions from benefits but none is relevant here. See 42 USC 503(d)(2)(B) (allowing
for deductions to recover uncollected overissuance of supplemental nutrition assistant program
benefits); 42 USC 503(e)(2)(A)(iii) (requiring deductions to recover unpaid child support).
8
    42 USC 503 is section 303 of the Social Security Act.

                                                 -6-
                The ALJ’s recommendation, that I find Minnesota’s recoupment provision
         in nonconformity with Federal law, is based on the ALJ’s analysis of the
         applicable . . . SSA provisions. Specifically, the ALJ concluded that the statutory
         language is clear and unambiguous, and that the legislative history and historical
         application of the . . . SSA provisions support the limiting of the use of
         unemployment fund monies to cash benefits for unemployed claimants or to certain
         other specifically stated expenditures. The ALJ then found that Minnesota’s
         recoupment provision involves the constructive withdrawal of funds for a purpose
         other than permitted by law and resulted in the unemployed claimant failing to
         receive full benefits when due.

                Upon review of the entire record in this case, I agree with the analysis and
         conclusion of the administrative law judge. [USDOL Case No. 88-UIA-9
         (emphasis added).]

        We agree with the Secretary of Labor’s conclusion that 42 USC 503 unambiguously
precludes the deduction of penalties and interest from current benefits. Alternatively, even if the
statute was ambiguous, we would find that the Secretary’s reasoning is persuasive and is at least
entitled to Skidmore deference. We recognize that UIPL 45-89 cites the Minnesota proceedings
in support of the statement that deductions cannot be made to recover unpaid contributions,
penalties, and interest assessed against the recipient as an employer. However, the reasoning set
forth in the Secretary’s decision applies with equal force to the general principle announced in
UIPL 45-89 that deductions must be limited to recovery of the overpayment itself, and an offset
may not be made to recover penalties and interest. It makes no difference that the Minnesota law
allowed for recoupment of penalties and interest related to unpaid contributions as an employer
rather than past benefits obtained because of an intentionally false statement or concealment of
material information. The point is that any deduction to recover penalties and interest is
impermissible because it is not authorized by 42 USC 503 and therefore violates the statute’s
starting point that all amounts withdrawn from the unemployment compensation fund must be
used for payment of benefits.9

9
    The dissent relies on 42 USC 503(m), which provides:
         In the case of a covered unemployment compensation debt (as defined under
         section 6402(f)(4) of the Internal Revenue Code of 1986) that remains uncollected
         as of the date that is 1 year after the debt was finally determined to be due and
         collected, the State to which such debt is owed shall take action to recover such
         debt under section 6402(f) of the Internal Revenue Code of 1986. [42 USC
         503(m).]

In turn, 26 USC 6402(f) requires the Secretary of Treasury to deduct a “covered unemployment
compensation debt” from a taxpayer’s tax refund and pay that amount to the state, 26 USC
6402(f)(1), and it defines covered unemployment compensation debt to include “any penalties and
interest assessed” on “past-due debt for erroneous payment of unemployment compensation due
to fraud . . . .” 26 USC 6402(f)(4)(A) and (C). Thus, if the state does not collect penalties and

                                                 -7-
        Finally, our conclusion is bolstered by the fact that 42 USC 503(a)(11) requires states to
assess a penalty against an individual when a payment from the unemployment fund is found to
have been made because of fraud, but there is no corresponding provision allowing deductions for
such penalties.10 Given the express authorizations in 42 USC 503 allowing for deductions, we
presume that Congress was acting intentionally when it declined to allow or mandate deductions
to recover penalties. See Russello v United States, 464 US 16, 23; 104 S Ct 296; 78 L Ed 2d 17
(1983) (“[W]here Congress includes particular language in one section of a statute but omits it in
another section of the same Act, it is generally presumed that Congress acts intentionally and
purposely in the disparate inclusion or exclusion.”) (quotation marks and citation omitted). See
also People v Miller, 498 Mich 13, 24-25; 869 NW2d 204 (2015) (“If the Legislature had intended
[the proffered interpretation inferring authorization for multiple punishments], it clearly knew how
to do so” given “specific authorization” for multiple punishments elsewhere in the statute).

        To summarize, we conclude that 42 USC 503 precludes the UIA’s practice of deducting
penalties and interest from unemployment benefits. Where the federal government contributes to
a state’s unemployment fund, the fund may only be used to pay unemployment compensation
unless an exception applies or express authorization for the deduction exists.11 And no

interest relating to past benefits erroneously paid because of fraud within a year, it must seek
recovery under 26 USC 6402(f), i.e., through interception of the recipient’s federal tax refund.
From these statutory provisions allowing offset from federal tax refunds, the dissent infers
authorization for deduction of penalties and interest from current unemployment benefits. How
the dissent reaches this conclusion is mystifying. Put simply, authorization to offset penalties and
interest from tax refunds does not equate to authorization to deduct the same amounts from current
benefits owed to unemployment compensation recipients. The dissent suggests that allowing
recoupment through one method but not the other is unreasonable. Congress apparently disagreed.
We also note that we ordered the parties to provide supplemental briefs on 26 USC 6402(f)(4)(C),
Farish v Dep’t of Talent & Economic Dev, unpublished order of the Court of Appeals, entered July
8, 2020 (Docket No. 350866), and they filed a joint supplement brief agreeing that it is not relevant
to the interpretation of 42 USC 503. While we are not bound by the parties’ stipulation of law, for
the reasons stated we agree that 26 USC 6402(f) is not relevant to the issue before us.
10
   The dissent concludes that the lack of an express authorization for deduction of penalties is
irrelevant. We disagree. Given that Congress authorized states to assess penalties, it could have
easily provided that states could deduct penalties from current benefits, as it did in 42 USC 503
for numerous other amounts. That there is no express authorization for deduction of penalties is
telling.
11
   The dissent acknowledges that 42 USC 503 generally requires that the money withdrawn from
an unemployment fund be used in the payment of unemployment compensation and that the statute
contains multiple provisions expressly allowing or mandating deductions from benefits.
Nonetheless, the dissent concludes that a deduction for penalties and interest does not require
express authorization “because such a deduction is inherent within the unemployment statutory
scheme itself.” In other words, the dissent reads language into an unambiguous statute, contrary
to the rules of statutory interpretation. See Michigan Ass’n of Home Builders v City of Troy, 504
Mich 204, 212; 934 NW2d 713 (2019). The dissent also notes that recovered penalties are

                                                -8-
authorization for deducting penalties or interest is contained in the statute. Our reasoning is
consistent with UIPL 45-89 and the Secretary’s decision in the Minnesota conformity proceedings.
We conclude that the statute is unambiguous and, to the degree that conclusion may be questioned,
that UIPL 45-89 is entitled to Skidmore deference. Accordingly, we need not address whether
UIPLs are entitled to Chevron deference.

                      B. CAUSE OF ACTION TO ENFORCE 42 USC 503

        We agree with defendants, however, that plaintiffs do not have a private cause of action
under 42 USC 503 for money damages or remittance of the improper deductions, but conclude that
plaintiffs may seek declaratory and injunctive relief.

         As an initial matter, we disagree with plaintiffs that we are precluded from considering this
question under the law-of-the-case doctrine. “The law of the case doctrine holds that a ruling by
an appellate court on a particular issue binds the appellate court and all lower tribunals with respect
to that issue.” New Props, Inc v George D Newpower, Jr, Inc, 282 Mich App 120, 132; 762 NW2d
178 (2009). “The law of the case doctrine applies only to questions actually decided in the prior
decision and to those questions necessary to the court’s prior determination.” Kalamazoo v Dep’t
of Corrections, 229 Mich App 132, 135; 580 NW2d 475 (1998).

        In its first opinion granting defendants summary disposition, the Court of Claims
determined that plaintiffs had an implied cause of action to enforce 42 USC 503, relying on federal
caselaw to that effect. As an alternative ground for affirmance in the first appeal, defendants
maintained that plaintiffs did not have a cause of action under 42 USC 503. See Middlebrooks v
Wayne Co, 446 Mich 151, 166 n 41; 521 NW2d 774 (1994) (a party may present a preserved
“alternative ground for affirmance.”). We did not address the cause-of-action issue and instead
remanded for consideration of the Department of Labor’s administrative guidance interpreting 42
USC 503. Contrary to plaintiffs’ argument, that result did not impliedly determine that they had a
cause of action and resolution of that issue was not necessary to our prior determination.

deposited into the unemployment fund, and so allowing deductions for penalties does not divert
funds from the payment of unemployment compensation. This argument overlooks, however, that
42 USC 503 is concerned not only with using funds for proper purposes but also insuring that
recipients receive “full payment of unemployment compensation when due,” 42 USC 503(a)(1),
which counsels against implying authorization for deductions. Finally, the dissent observes that
no federal or state appellate court has relied on UIPL 45-89 for the proposition that states may not
make deductions for penalties and interest. We presume this is because other states have followed
the Department of Labor’s unequivocal directive that “[o]ffset may not be used to recover any
additional interest or penalties due under State law,” UIPL 45-89, and so the issue has not arisen
until now. In any event, we are aware of no authority—administrative or otherwise—consistent
with the dissent’s view that such deductions are permitted.

                                                 -9-
        Turning to the merits, plaintiffs identify federal authority holding that there is an implied
private cause of action under 42 USC 503.12 See Gann v Richardson, 43 F Supp 3d 896, 901-904
(SD Ind, 2014); Shaw v Valdez, 819 F2d 965, 966 (CA 10, 1987); Kelly v Lopeman, 680 F Supp
1101, 1105-06 (SD Ohio, 1987); Brewer v Cantrell, 622 F Supp 1320, 1322-1323 (WD Va, 1985),
aff’d without a published opinion 796 F2d 472 (CA 4, 1986). Although the exact basis for allowing
private litigants to enforce 42 USC 503 is unclear, the United States Supreme Court “has
consistently assumed that it is a proper remedy.” Jenkins v Bowling, 691 F2d 1225, 1228 (CA 7,
1982). For instance, in California Dep’t of Human Resources Dev v Java, 402 US 121, 125; 91 S
Ct 1347; 28 L Ed 2d 666 (1971), the United States Supreme Court entertained a private class action
lawsuit challenging a state’s refusal to pay unemployment benefits while an administrative appeal
was pending. The Court concluded that the state law “must be enjoined because it is inconsistent
with § 303(a)(1) of the Social Security Act.” Id. at 135. See also Ohio Bureau of Employments
Servs v Hodory, 431 US 471; 97 S Ct 1898; 52 L Ed 2d 513 (1977) (furloughed employees obtained
declaratory and injunctive relief in the district court that state law conflicted with the Social
Security Act, and the Supreme Court reversed on the merits).

        Given the federal caselaw holding that a private cause of action exists under 42 USC 503,
we agree with the Seventh Circuit that this issue is “too well settled to be questioned by us . . . .”
Jenkins, 691 F2d at 1228. That said, we agree with defendants that these cases have only allowed
the plaintiffs to seek declaratory and injunctive relief. And while plaintiffs ask that we follow this
caselaw, they do not explain why it should be extended to allow for a cause of action for money
damages. Nor do plaintiffs argue that they have an enforceable “right” under 42 USC 503 such
that they may proceed under 42 USC 1983.13 See Blessing v Freestone, 520 US 329, 340-341;
117 S Ct 1353; 137 L Ed 2d 569 (1997). For these reasons, we see no basis to infer a cause of
action under 42 USC 503 for money damages or a remittance of improperly withheld funds.

        Accordingly, plaintiffs do not have a money damages remedy for the violation of 42 USC
503, but they can seek declaratory and injunctive relief as to whether defendants may continue to
reduce benefits to collect interest and penalties. Indeed, plaintiffs could seek that relief even if
they did not have an implied cause of action under 42 USC 503. In Lash v City of Traverse City,
479 Mich 180, 196; 735 NW2d 628 (2007), the Supreme Court held that the plaintiff-employee
did not have an implied cause of action for damages against the employer for violating a statute
prohibiting governmental entities from imposing residency requirements. However, the Court
explained that the lack of a cause of action for damages did not preclude the plaintiff from seeking
declaratory and injunctive relief:

12
  Defendants attempt to distinguish these cases by arguing that they imply a cause of action under
42 USC 503(a), not 42 USC 503(g). First, this distinction is insignificant because 42 USC 503(g)
operates within the general framework of the administration of a state unemployment fund
governed by the rules set forth in 42 USC 503(a). Second, as discussed, although the parties focus
on 42 USC 503(g), we conclude that deductions for penalties and interest violates 42 USC 503(a).
13
  Plaintiffs’ 42 USC 1983 claim pertained only to their allegations that defendants’ procedures for
recouping overpaid benefits did not provide adequate notice or an opportunity for a hearing.

                                                -10-
       [P]laintiff’s claim that a private cause of action for monetary damages is the only
       mechanism by which the statute can be enforced is incorrect. Plaintiff could
       enforce the statute by seeking injunctive relief pursuant to MCR 3.310, or
       declaratory relief pursuant to MCR 2.605(A)(1). . . . [A]n “actual controversy”
       exists for the purposes of a declaratory judgment where a plaintiff pleads and proves
       facts demonstrating an adverse interest necessitating a judgment to preserve the
       plaintiff’s legal rights. In this case, plaintiff’s claim is that defendant’s residency
       requirement, made a condition of plaintiff’s employment, was in violation of MCL
       15.602(2). Such a claim would constitute an “actual controversy” for the purposes
       of an action for a declaratory judgment. [Id. at 196-197.]

         “In a case of actual controversy within its jurisdiction, a Michigan court of record may
declare the rights and other legal relations of an interested party seeking a declaratory judgment,
whether or not other relief is or could be sought or granted.” MCR 2.605(A)(1). The “actual
controversy” requirement is easily satisfied in this case because deductions from plaintiffs’
benefits were being made in violation of federal law. Further, it is well established that declaratory
actions may be brought to determine issues of statutory construction. See Board of Educ of Detroit
v Elliott, 319 Mich 436, 455; 29 NW2d 902 (1947) (explaining that cases involving the “the
validity and interpretation” of statutes were within the purview of the former declaratory judgment
statute). See also 26 CJS, Declaratory Judgment, § 53, p 95 (“Questions as to the validity or
construction of statutes may be determined in declaratory judgment proceedings, provided there is
an actual or justiciable controversy.”).

         That plaintiffs unsuccessfully pursued a cause of action for damages does not defeat their
claim for declaratory relief. The same is true as to plaintiffs’ request for an injunction to prevent
further unlawful deductions from unemployment benefits. Injunctive relief may be granted in
declaratory actions as necessary. See Barry Co Probate Court v Mich Dep’t of Social Servs, 114
Mich App 312, 319; 319 NW2d 571 (1982) (“After entry of judgment for declaratory relief, further
relief, such as an injunction, may be granted, if necessary or proper, against any adverse party
whose rights were determined by the declaratory judgment.”). See also Stein, Hinkle, Dawe &
Assoc, Inc v Continental Cas Co, 110 Mich App 410, 426; 313 NW2d 299 (1981).

        In sum, per federal caselaw, plaintiffs have a cause of action for declaratory and injunctive
relief under 42 USC 503. They could also seek that relief in an action for a declaratory judgment
under MCR 2.605(A)(1). We remand to the Court of Claims for entry of a declaratory judgment
that deductions from unemployment benefits to satisfy penalties and interest violates 42 USC 503
and for an injunction enjoining such deductions in the future.

                                        C. CONVERSION

       We next address whether plaintiffs can maintain a claim of conversion on the basis of
deductions made in violation of federal law. Plaintiffs argue that the Court of Claims erred by

                                                -11-
determining that their statutory and common-law conversion claims are barred by the
governmental tort liability act (GTLA), MCL 691.1401 et seq. We disagree.14

       The GTLA broadly shields government agencies from tort liability:

       Except as otherwise provided in this act, a governmental agency is immune from
       tort liability if the governmental agency is engaged in the exercise or discharge of
       a governmental function. Except as otherwise provided in this act, this act does not
       modify or restrict the immunity of the state from tort liability as it existed before
       July 1, 1965, which immunity is affirmed. [MCL 691.1407(1).]

Both common law and statutory conversion are considered torts. See Aroma Wines & Equip, Inc
v Columbian Distribution Servs, Inc, 497 Mich 337, 354, 361; 871 NW2d 136 (2015). Plaintiffs
nonetheless offer several reasons for why their suit is not barred by governmental immunity.

        First, they argue that defendants are not immune from tort liability because the deduction
of penalties and interest in violation of federal law exceeded the scope of defendants’ governmental
functions. This issue not properly preserved as it was raised for the first time in plaintiffs’ reply
brief on appeal. See Henderson v Dep’t of Treasury, 307 Mich App 1, 7-8; 858 NW2d 733 (2014);
Blazer Foods, Inc v Restaurant Props, Inc, 259 Mich App 241, 252; 673 NW2d 805 (2003). In
any event, plaintiffs’ argument lacks merit. The GTLA defines a “governmental function” as “an
activity that is expressly or impliedly mandated or authorized by constitution, statute, local charter
or ordinance, or other law.” MCL 691.1401(b). In this case, defendants deducted penalties and
interest while exercising the governmental function of administering unemployment insurance
benefits. Although we conclude that the agency defendants violated federal law by deducting
penalties and interest from subsequent unemployment benefits, there is no present dispute—given
the dismissal of plaintiffs’ state law claims—that their actions were authorized by MESA.
Accordingly, the deductions were not ultra vires activity.

        Plaintiffs next argue that because they seek restitution rather than damages, their suit does
not sound in tort and so is not barred by immunity. In support, they rely on Wright v Genesee Co,
504 Mich 410; 934 NW2d 805 (2019). In that case, the county drain commissioner (Wright)
sought a proportionate share of group health insurance premiums that were overpaid and refunded
to the county and deposited into its general fund. Id. at 415. We held that Wright’s breach-of-
contract claim could proceed but that his tort claims, including conversion, were barred by the
GTLA. Id. On remand, Wright amended his complaint to include a claim for unjust enrichment,
which the county argued was also barred by the GTLA. Id. at 416. The Supreme Court disagreed
and held that a claim of unjust enrichment does not subject the defendant to tort liability. The
Court reasoned that, unlike tort and contract actions where the party seeks compensatory damages,
the remedy for unjust enrichment was restitution. Id. at 419. Significantly, Wright did not merely

14
  As noted, in our prior opinion we affirmed dismissal of plaintiffs’ conversion claims against the
individual defendants who were acting in their official capacity. Therefore, we need only address
immunity with respect to plaintiffs’ claims against the agency defendants.

                                                -12-
allege the mechanism used by the county to obtain the monies was improper, but that the county
had no right to the sums at all.

         Thus, plaintiffs’ reliance on Wright is misplaced. Plaintiffs do not allege unjust
enrichment, i.e., they do not claim that the state is not entitled to collect penalties and interest.
They argue only that the mechanism used by the state to recoup those sums violates federal law, a
proposition with which we agree. But absent a claim that the state has no right to assess penalties
and interest, we do not see how our holding that deductions from future unemployment benefits is
not permitted by federal law renders the state “unjustly enriched.” Receipt of sums to which the
state is entitled is not unjust enrichment and 42 USC 503 does not bar a state from imposing or
collecting those sums except by the means at issue. Our conclusion that a particular means of
collection may not be used does not change the fact that the state has an underlying and undisputed
right to the amounts in question.

        Plaintiffs next argue that the GTLA does not provide immunity from suits for intentional
torts. In support, they cite several Court of Appeals cases decided prior to 1984.15 However, after
these cases were decided, the Supreme Court issued its decision in Smith v Dep’t of Public Health,
428 Mich 540, 544; 410 NW2d 749 (1987), in which it unambiguously stated that “[t]here is no
‘intentional tort’ exception to governmental immunity.” See also Genesee Co Drain Comm’r v
Genesee Co, 309 Mich App 317; 869 NW2d 635 (2015); Harrison v Director of Dep’t of
Corrections, 194 Mich App 446, 460; 487 NW2d 799 (1992).

        Lastly, plaintiffs argue that defendants are specifically not immune from conversion
claims, asserting that governmental defendants were subject to such claims before July 1, 1965,
and that the scope of the state’s common law immunity was continued in accordance with the
second sentence of MCL 691.1407(1).16 However, the pre-1965 cases relied on by plaintiffs all
involved municipalities and counties, which are not included in the GTLA’s definition of “state.”
See MCL 691.1401(a), (e), and (g). Further, we have reviewed the cases cited by plaintiffs for the
proposition that conversion claims were permitted against other governmental entities prior to July
1, 1965, and find that the cited cases do not support their argument. 17 Accordingly, plaintiffs fail
to establish that conversion claims are excepted from the GTLA.

15
  Plaintiffs rely on Elliott v Dep’t of Social Servs, 124 Mich App 124, 130; 333 NW2d 603 (1983),
Randall v Delta Charter Twp, 121 Mich App 26, 34; 328 NW2d 562 (1982), and Lawrence v Dep’t
of Corrections, 81 Mich App 234, 240; 265 NW2d 104 (1978).
16
  The sentence reads, “Except as otherwise provided in this act, this act does not modify or restrict
the immunity of the state from tort liability as it existed before July 1, 1965, which immunity is
affirmed.” MCL 691.1407(1).
17
  Loranger v City of Flint, 185 Mich 454; 152 NW 21 (1915), and Stock v City of Hillsdale, 155
Mich 375; 119 NW 435 (1909), considered whether a city may use river water for public use when
doing so allegedly burdens downriver users. These cases involved claims for damages and there
was no assertion that the plaintiffs held title to the water. Other cited cases involved claims for
assumpsit, which were essentially breach-of-contract claims involving municipal governments

                                                -13-
                                        III. CONCLUSION

        We reverse the Court of Claims as to the interpretation of 42 USC 503. The statute
unambiguously precludes states from deducting penalties and interest from unemployment
compensation. To the extent that conclusion may be questioned, the Department of Labor’s
interpretation of the statute in UIPL 45-89 is entitled to deference. Thus, we conclude that the
state may not reduce future unemployment benefits as a mechanism to collect interest and penalties
due because of an overpayment. We further conclude that federal law provides for a private cause
of action to enforce the statute, but only as to declaratory and injunctive relief. Finally, we affirm
the Court of Claims dismissal of plaintiffs’ conversion claims because they are barred by
governmental immunity. Affirmed in part, reversed in part, and remanded for further proceedings
consistent with this opinion. We do not retain jurisdiction.

                                                              /s/ Douglas B. Shapiro
                                                              /s/ Amy Ronayne Krause

allegedly failing to pay their contractors for certain materials. See Ward v Alpine Twp, 204 Mich
619; 171 NW 446 (1919); City of Detroit v Mich Paving Co, 38 Mich 358 (1878). Plaintiffs also
cite City of Detroit v Mich Paving Co, 36 Mich 335 (1877), which, although it makes reference to
conversion, was essentially a contract case (whether the city could use sand left in the street by a
plaintiff contractor after termination of the contract). Detroit Municipal Employees Ass’n v City
of Detroit, 344 Mich 670; 74 NW2d 888 (1956), involved an unusual situation in which employees
sought to recover wages that had been withheld during the Great Depression pursuant to a city
ordinance. The only reference to conversion in that case was the observation that had such a claim
been brought, the period of limitations would have barred it. And McCurdy v Shiawassee Co, 154
Mich 550; 118 NW 625 (1908), concluded that a city could not be required to repay a loan when
the borrowing was not authorized by the voters as was required. The only mention of conversion
in that case was its inclusion in a list of several causes of action brought by plaintiff all of which
were rejected on the ground that plaintiff did not have an enforceable right to repayment. In sum,
plaintiffs have not cited any pre-1965 cases that support their view regarding the viability of a
conversion claim against a governmental entity.

                                                -14-