For Michigan homeowners dealing with defective construction, delays, unfinished work, or misleading statements from a residential builder, a recent Michigan Supreme Court decision may open an important additional avenue for relief.
In Attorney General v Eli Lilly & Co., the Michigan Supreme Court overturned two longstanding decisions that had significantly limited the reach of the Michigan Consumer Protection Act (“MCPA”) against licensed and regulated businesses. One of those decisions, Liss v Lewiston-Richards, Inc, 478 Mich 203; 732 NW2d 514 (2007), involved a residential home builder. The overruling of Liss could have a direct impact on homeowners’ potential claims against residential builders in Michigan.
The problem with the old rule
The MCPA prohibits unfair, unconscionable, and deceptive methods, acts, or practices in trade or commerce. The statute also contains an exemption for “[a] transaction or conduct specifically authorized” under laws administered by a state or federal regulatory authority. MCL 445.904(1)(a). For years, however, Michigan courts interpreted that exemption broadly.
In Smith v Globe Life Ins Co, 460 Mich 446; 597 NW2d 28 (1999), the Michigan Supreme Court held that the relevant question was not whether the specific misconduct alleged by the consumer was authorized by law. Instead, the court asked whether the general transaction was authorized by law. That interpretation became particularly important in Liss, a case involving the construction of a residential home. The homeowners alleged that the builder failed to complete construction on time and that the construction was not performed in a workmanlike manner. The homeowners sought relief under the MCPA.
The Michigan Supreme Court nevertheless held that the MCPA exemption applied to licensed residential builders because the activities defining residential home building were activities that Michigan law permitted licensed residential builders to perform. Under Liss, claims relating to the general transaction of residential home building were therefore exempt from the MCPA. In practical terms, the builder’s license could become a significant barrier to a homeowner pursuing a consumer-protection claim.
How the Michigan Supreme Court changed that rule
In AG v Eli Lilly, the Supreme Court expressly overruled Smith and Liss. The Court held that when determining whether the MCPA exemption applies, courts must examine whether the specific transaction or conduct at issue is specifically authorized by law. It is not enough that the defendant operates in a regulated industry or is licensed to conduct its business generally. That distinction is critical for residential construction disputes. A residential builder may be licensed to construct homes. But that does not necessarily mean Michigan law specifically authorizes the builder to:
- make false representations to a homeowner;
- misrepresent the quality or characteristics of construction materials;
- misrepresent what work will be performed;
- engage in deceptive sales practices;
- conceal known construction problems;
- misrepresent the status or completion of construction;
- charge consumers for work that was not performed; or
- otherwise engage in conduct prohibited by the MCPA.
The question after AG v Eli Lilly is whether the particular conduct alleged by the homeowner is specifically authorized by law. It is not simply whether the builder is licensed or the general activity of home construction is regulated.
The Supreme Court explained that the prior decisions had effectively transformed a narrow statutory exemption into broad immunity for regulated businesses. The Court specifically identified residential home builders among the industries that had benefited from this broader interpretation.
What does this mean for homeowners?
The decision does not mean that every homeowner with a construction dispute automatically has an MCPA claim. Homeowners still must establish the elements of whatever statutory or common law claims they assert, and the applicability of the MCPA will depend on the particular facts. But the decision changes an important threshold question.
Before AG v Eli Lilly, a licensed residential builder could argue that the homeowner’s claim was barred because residential construction was a regulated activity and therefore fell within the MCPA exemption under Liss. That argument is no longer sufficient merely because the builder is licensed.
Instead, the analysis must focus on the specific transaction or conduct challenged by the homeowner. The Supreme Court emphasized that MCL 445.904(1)(a) is a narrow exemption and that the statutory language requires the transaction or conduct itself to be specifically authorized.
Why the distinction matters in a construction lawsuit
Consider a homeowner who purchases a newly constructed home and later discovers significant defects. The homeowner may have traditional claims for breach of contract, breach of warranty, negligence, or other construction-related causes of action, depending on the circumstances. But suppose the evidence also shows that the builder made specific representations about the home’s construction, materials, workmanship, energy efficiency, completion status, or compliance with contractual specifications that were false or misleading.
Before AG v Eli Lilly, the builder might have relied on Liss to argue that the entire transaction was exempt from the MCPA because the builder was licensed to construct residential homes. That categorical argument has now been rejected.
The homeowner’s attorney can instead focus on the precise conduct at issue and ask whether Michigan law specifically authorized that conduct. That could make the MCPA an important additional component of a homeowner’s case when the facts support a claim under the statute. The MCPA provides for private consumer actions, in addition to enforcement mechanisms available to the Attorney General.
What homeowners should do if they have a construction dispute
Because AG v Eli Lilly is so recent, Michigan courts will have to apply its new interpretation to particular factual circumstances. Homeowners should therefore have their claims evaluated based on the specific conduct of the builder rather than simply labeling a dispute as a “construction defect” case.
If you believe your builder breached the construction contract, performed defective work, failed to complete the project as promised, or made misleading representations, make sure to preserve your contract, change orders, photographs, inspection reports, emails, text messages, invoices, warranties, advertisements, and communications with the builder. Those documents may help establish not only what the builder promised to do, but also what the builder actually did.
The bottom line
AG v Eli Lilly does not guarantee an MCPA claim for every homeowner. But by overruling Liss, the Michigan Supreme Court has removed a significant legal obstacle that previously prevented homeowners from pursuing MCPA claims against licensed residential builders. For homeowners facing serious construction problems, that change makes it especially important to have the builder’s specific representations and conduct examined before deciding which legal claims may be available.
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