The issue presented in this case is the proper scope of the exemption for regulated conduct and transactions under the Michigan Consumer Protection Act (MCPA).
FACTS AND PROCEDURAL HISTORY
In December 2000, plaintiffs, Arthur and Beverly Liss (Lisses) and defendant Lewiston-Richards, Inc. (Lewiston-Richards), entered into a contract for the sale and completion of construction of a residential home. Defendant Jason Lewiston (Lewiston), President of Lewiston-Richards, executed the contract on Lewiston-Richards's behalf. The Lisses allege that Lewiston-Richards did not complete construction on time and that the construction that was completed was not done in a workman-like manner. In 2003, the Lisses filed this action alleging breach of contract, breach of warranty, and other causes of action.
STANDARD OF REVIEW
This Court reviews questions of statutory interpretation de novo.
Under the MCPA, "[u]nfair, unconscionable, or deceptive methods, acts, or practices in the conduct of trade or commerce are unlawful. . . ."
This Court first construed the scope of this particular exemption in Attorney General v. Diamond Mortgage Co.
This Court again considered the application of the MCPA exemption provision in Smith v. Globe Life Ins Co.
The Court of Appeals has applied this test in other regulated industries. For example, in Kraft v Detroit Entertainment, LLC,
In the area of residential home building, the Court of Appeals held in Forton v.
The Hartman panel's treatment of Forton was erroneous because Forton never addressed the exemption. As noted, Forton merely found that residential home building fell within the MCPA's definition of "trade or commerce." Because the builder did not timely raise the MCPA defense, the Forton panel did not have the opportunity to address the exemption. However, we agree with the Hartman panel's independent application of the exemption to residential home building.
Applying the Smith test, the relevant inquiry "is whether the general transaction is specifically authorized by law, regardless of whether the specific misconduct alleged is prohibited."
In this case, the general conduct at issue is residential home building. Residential home builders are licensed under the MOC
A residential home builder, by statutory definition, is one who engages in construction activities "for a fixed sum, price, fee, percentage, valuable consideration, or other compensation. . . ." Therefore, a residential home builder is "specifically authorized" to contract to build homes.
Thus, the MCPA exemption applies to residential home builders who engage in the type of activities that define a residential home builder, which activities are permitted by the MOC to be performed only by licensed residential home builders. This case is unlike Diamond Mortgage, where the defendants engaged in activity, mortgage writing, that their real estate broker license simply did not permit them to do. Forming an agreement to build a home is the essence of a residential home builder's activity that is specifically authorized by law.
Applying the Smith test, defendants' "general transaction," building a residential home, is "specifically authorized" under the MOC and the relevant regulations. Therefore, that transaction is exempt from the MCPA. We reverse the Oakland Circuit Court order to the contrary, as well as overrule any contrary holding in Forton and Hartman, and remand for further proceedings consistent with this opinion.
TAYLOR, C.J., WEAVER, CORRIGAM and MARKMAN, JJ., concur.
MICHAEL F. CAVANAGH, J. (dissenting).
I concur with the result reached by Justice Kelly in her dissent. While I agree with much of Justice Kelly's analysis regarding Attorney General v. Diamond Mortgage Co., 414 Mich. 603, 327 N.W.2d 805 (1982), and Smith v. Globe Life Ins. Co., 460 Mich. 446, 597 N.W.2d 28 (1999), I do not agree with all the stated rationale in her dissent. I do not believe that the application of Smith should be limited to the insurance industry. Instead, I believe that Smith should be overruled on the basis of the factors set forth in Robinson v. Detroit, 462 Mich. 439, 613 N.W.2d 307 (2000). As explained in my opinion concurring in part and dissenting in part in Smith, supra at 479-480, 597 N.W.2d 28, the test adopted in Smith is so broad that it precludes many permissible claims under the Michigan Consumer Protection Act, MCL 445.901 et seq. Moreover, not only was Smith wrongly decided, the Smith decision defies practical workability
Further, I do not agree that residential home builders are not specifically authorized to engage in the general conduct of residential home building. As stated in my opinion in Smith, a proper inquiry first examines "whether the specific transaction or conduct at issue, as opposed to the general transaction, is `specifically authorized under laws administered by a regulatory board or officer acting under statutory authority of this state. . . .'" Smith, supra at 476, 597 N.W.2d 28, quoting MCL 445.904(1)(a) (emphasis added). The specific conduct at issue in this case — essentially, not completing work by the agreed-upon time, doing work that did not meet the agreed-upon specifications, and making various misrepresentations — is not conduct that is specifically authorized. Thus, I would affirm the trial court's denial of defendants' motion for summary disposition.
MARILYN KELLY, J. (dissenting).
Plaintiffs Arthur and Beverly Liss sued defendants Lewiston-Richards, Inc., and Jason Lewiston, asserting a cause of action under the Michigan Consumer Protection Act (MCPA), MCL 445.901 et seq. As the basis of their claim, plaintiffs accused defendants of behavior that is arguably prohibited by the Michigan Occupational Code. MCL 339.101 et seq.
A majority of this Court finds that the behavior at issue is exempt from the MCPA because it is specifically authorized by the code. In reaching this result, the majority extends the holding of Smith v. Globe Life Ins. Co.
Plaintiffs, Arthur and Beverly Liss, purchased a house that was being built by defendant Lewiston-Richards, Inc. Construction was in progress when plaintiffs signed the agreement of sale. It contained provisions regarding the construction of a residential dwelling, Lewiston-Richards's experience and qualifications, and Lewiston-Richards's financing agreements. Lewiston-Richards's principal, defendant Jason Lewiston, signed a personal guaranty in connection with the agreement. Lewiston guaranteed that Lewiston-Richards would perform its obligations under the agreement, including those in the limited warranty. He further agreed that he would assume personal liability if a default occurred that Lewiston-Richards failed to cure.
The home was not completed by the agreed-upon date, and the work was not to plaintiffs' satisfaction. Plaintiffs filed suit claiming that the defendants engaged in unfair trade practices in violation of the MCPA. They alleged that defendants (1) misrepresented the characteristics, uses, and benefits of the residence; (2) misrepresented the standard, quality, and grade of the residence; (3) failed to complete the construction of the residence; and (4) made material misrepresentations or failed to advise of material information with respect to the transaction reflected in the agreement.
Defendants moved for summary disposition of the MCPA claim, asserting that the transaction, the building of a residential home, was exempt from the scope of the MCPA. The trial court denied the motion. Defendants then filed an application for
THE HOLDINGS IN SMITH AND DIAMOND MORTGAGE ARE IN CONFLICT
The majority's decision that MCL 445.904(1)(a) exempts licensed residential builders from liability under the MCPA when they are engaged in residential home building is erroneous for two reasons. First, it extends Smith to residential home builders. Smith should be strictly limited to the insurance industry. Second, even under Smith, the conduct at issue is not exempt from the MCPA because the law does not specifically authorize residential home builders to engage in residential home building.
The key part of the MCPA involved here is the exemption provision, MCL 445.904(1)(a). It provides:
The burden of proving the exemption is on the person claiming it. MCL 445.904(4).
This Court first interpreted the exemption provision in Attorney General v. Diamond Mortgage Co., 414 Mich. 603, 327 N.W.2d 805 (1982). Diamond Mortgage decided that real estate brokers are not exempt from liability under the MCPA even though their conduct is subject to regulation by the Michigan Department of Licensing and Regulation. Id. at 615-617, 327 N.W.2d 805. In holding that real estate brokers are subject to the MCPA, this Court reasoned:
Diamond Mortgage's interpretation of § 4(1)(a) was very narrow and followed the plain meaning of the words of the statute: "[a] transaction or conduct specifically authorized." Under Diamond Mortgage, only a transaction or conduct that is specifically authorized by a statute can be exempt from the MCPA.
This Court considered the exemption again in Smith. Without explanation, the majority in Smith concluded that, in drafting § 4(1)(a), the Legislature intended to exempt "conduct the legality of which is in dispute." Smith, 460 Mich. at 465, 597 N.W.2d 28. The Smith majority went on to create a new test for determining exemptions under § 4(1)(a). It is whether the "general transaction is specifically authorized by law, regardless of whether the specific misconduct alleged is prohibited." Smith, 460 Mich. at 465, 597 N.W.2d 28. Under this new test, the Court concluded
It is apparent to me that the decisions in Diamond Mortgage and Smith cannot be squared. Diamond Mortgage asked whether the transaction or conduct alleged to be in violation of the MCPA is "specifically authorized" by another statute, and it created a narrow exception. Diamond Mortgage, 414 Mich. at 617, 327 N.W.2d 805. Smith asked whether the general transactions of the industry are "specifically authorized," and it created a broad exemption exempting the entire insurance industry. Smith, 460 Mich. at 465, 597 N.W.2d 28. Because the two interpretations are inconsistent, this Court should determine which was intended by the Legislature.
SMITH SHOULD BE LIMITED TO THE INSURANCE INDUSTRY
When interpreting any statutory provision, a court should begin with an examination of the statutory language. MCL 445.904(1)(a) provides that the exemption applies to "[a] transaction or conduct specifically authorized under laws administered by a regulatory board or officer acting under statutory authority of this state or the United States." By the statute's terms, the exemption applies to "[a] transaction." This statutory language is in the singular. It follows that the proper inquiry is whether the singular transaction or conduct at issue is specifically authorized by law.
However, instead of exempting a singular transaction or conduct, the Smith test classifies the transaction in question in broad terms and exempts all the transactions of the entire industry. Smith, 460 Mich. at 465, 597 N.W.2d 28. On the other hand, Diamond Mortgage considers the discrete transaction or conduct at issue and concludes that the exemption applies only if that transaction or conduct is specifically authorized by law. Diamond Mortgage, 414 Mich. at 617, 327 N.W.2d 805. Accordingly, solely on the basis of the common meaning of the language of the exemption, Diamond Mortgage offers the more accurate interpretation.
Smith is inconsistent with the language of the statute in another regard. It permits illegal behavior to be exempt from the MCPA. In this case, plaintiffs accuse defendants of behavior that is illegal under the Michigan Occupational Code.
By contrast, Diamond Mortgage's narrow reading of the exemption is harmonious with the language of the exemption and also furthers the purpose of the MCPA. In the 1970s, the MCPA was the crown jewel of an aggressive legislative effort to expand consumers' rights and remedies.
In order to accomplish the goal of "provid[ing] an enlarged remedy for consumers,"
In Skinner v. Steele,
The defendant argued that this provision exempted the entire insurance industry from the TCPA. Skinner, 730 S.W.2d at 337. In deciding that the insurance industry was not exempt, the court noted:
Similarly, in considering whether regulated industries were exempt from the Ohio consumer sales practices act (CSPA), the Ohio Court of Appeals has stated that, in order to overcome the presumption that the CSPA applies,
Another source that sheds light on the purpose of the exemption is the recent article written by Assistant Attorney General Edwin Bladen. The MCPA was authored in large part by Mr. Bladen and, in the article How and why the Consumer Protection Act came to be, he discusses at length the history and intent of the act.
From these sources, it emerges that the Legislature included the exemption out of concern that the MCPA, because of its breadth, might prohibit a transaction or conduct that another act authorizes. A merchant could be put on the horns of a dilemma if the same transaction were specifically
Given the language and purpose of the MCPA, I believe that this Court interpreted the exemption correctly in Diamond Mortgage and incorrectly in Smith. Even so, because I do not think the compelling interests necessary to overrule a prior decision of this Court are present, I do not advocate overruling Smith. Instead, I would limit the holding of Smith to the insurance industry.
The Smith Court itself indicated that its opinion has limited application by explicitly stating that it did not address other consumer transactions not before the Court and warning that "insurance companies are not `[l]ike most businesses.'" Smith, 460 Mich. at 465-466 n. 12, 597 N.W.2d 28 (citation omitted).
If the test set forth in Diamond Mortgage were applied to the facts of this case, the exemption would not apply. Here, plaintiffs allege that defendants misrepresented their experience and qualifications and misrepresented the financing of the construction mortgage. Defendants have failed to point to any authority for the proposition that either of these transactions is "specifically authorized" by law.
Plaintiffs also allege that defendants (1) misrepresented the characteristics, uses, and benefits of the residence; (2) misrepresented the standard, quality, and grade of the residence; (3) failed to complete the
EVEN UNDER SMITH, THE EXEMPTION DOES NOT APPLY HERE BECAUSE THE TRANSACTION OR CONDUCT AT ISSUE IS NOT SPECIFICALLY AUTHORIZED BY LAW
In Smith, this Court interpreted the § 4(1)(a) exemption to apply if the "general transaction is specifically authorized by law. . . ." Smith, 460 Mich. at 465, 597 N.W.2d 28. As I explained earlier, Smith should not be extended beyond the facts of that case. However, even under the test in Smith, the exemption should not apply here because there is no law specifically authorizing the general transaction or conduct at issue.
The determinative issue under the Smith test is whether the general conduct or transaction is specifically authorized by law. Accordingly, in order to apply this test, it is first necessary to give meaning to the phrase "specifically authorized." In so doing, it is appropriate to consider dictionary definitions. Koontz v. Ameritech Services, Inc., 466 Mich. 304, 312, 645 N.W.2d 34 (2002). "Specific" is defined as "having a special application, bearing, or reference; explicit or definite." Random House Webster's College Dictionary (2001). "Authorize" means "to give authority or official power to; empower."
The provisions of the Michigan Occupational Code that apply to residential home builders
Perhaps the most significant provision is MCL 339.2411, which lays out in detail the conduct of a licensee that will result in discipline and the procedures applicable to certain complaints. The most that can be said of this provision, however, is that it defines prohibited conduct. Nothing in
By erroneously finding that residential home builders are exempt from the MCPA, the majority essentially reads the phrase "specifically authorized" out of the statute. Rather than requiring specific authorization, the majority concludes that the exemption applies as long as the transaction or conduct is not prohibited. Yet, the majority is aware that every word in a statute should be given meaning, and the Court should avoid a construction that would render any part surplusage or nugatory. Wickens v. Oakwood Healthcare Sys., 465 Mich. 53, 60, 631 N.W.2d 686 (2001). By ruling as it does, the majority has essentially decided that merely being a licensee in a regulated industry qualifies one for the exemption. Nothing indicates that the Legislature intended such a result.
This case addresses the scope of the exemption in MCL 445.904(1)(a). The majority finds that the exemption extends to builders when engaged in residential home building. Essentially, it decides that the exemption applies to any business that has a licensing scheme similar to that used by residential home builders. The result may well be that a large number of Michigan businesses will be able to engage in unfair or deceptive practices without running afoul of the MCPA. For this reason, and for the other reasons set forth in this opinion, I must dissent.
Justice Kelly also states that "[a] transaction or conduct that is actually prohibited by law cannot be deemed to be specifically authorized." Post at 525 (emphasis in original). In this case, however, the general transaction of residential home building has been specifically authorized. The prohibitions cited by the dissent address specific misconduct in the course of fulfilling that transaction: MCL 339.2411(2)(d) prohibits "[a] willful departure from or disregard of plans," and MCL 339.2411(2)(m) prohibits "[p]oor workmanship." Contrary to the dissent, these provisions do not prohibit the transaction of residential home building. To the contrary, they assume the propriety of such transaction. Hence, the dissent errs in concluding that the transaction in this case has been "prohibited by law." Post at 525 (emphasis omitted).
Because plaintiffs allege that defendants (1) misrepresented the characteristics, uses, and benefits of the residence; (2) misrepresented the standard, quality, and grade of the residence; (3) failed to complete the construction of the residence; and (4) made material misrepresentations or failed to advise of material information with respect to the transaction reflected in the agreement, defendants' behavior arguably violates these provisions.