Opinion ID: 842686
Heading Depth: 1
Heading Rank: 6

Heading: the holdings in smith and diamond mortgage are in conflict

Text: 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: (1) This act does not apply to either of the following: (a) 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. 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: We agree with the plaintiff that Diamond's real estate broker's license does not exempt it from the Michigan Consumer Protection Act. While the license generally authorizes Diamond to engage in the activities of a real estate broker, it does not specifically authorize the conduct that plaintiff alleges is violative of the Michigan Consumer Protection Act, nor transactions that result from that conduct. In so concluding, we disagree that the exemption of § 4(1) becomes meaningless. While defendants are correct in stating that no statute or regulatory agency specifically authorizes misrepresentations or false promises, the exemption will nevertheless apply where a party seeks to attach such labels 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. [ Id. at 617, 327 N.W.2d 805.] 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 that the entire insurance industry is exempt from the MCPA under § 4(1)(a). 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. [2]