Opinion ID: 842686
Heading Depth: 1
Heading Rank: 7

Heading: smith should be limited to the insurance industry

Text: 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. [3] Yet under Smith, even if plaintiffs' allegations are true, defendants would be exempt from liability under the MCPA. This is an illogical result. The statute provides that there is an exemption for [a] transaction or conduct specifically authorized under laws. . . . MCL 445.904(1)(a). A transaction or conduct that is actually prohibited by law cannot be deemed to be specifically authorized. [4] 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. [5] It was enacted to provide an enlarged remedy for consumers who are mulcted by deceptive business practices. . . . Dix v. American Bankers Life Assurance Co., 429 Mich. 410, 417, 415 N.W.2d 206 (1987). The Legislature created this enlarged remedy by making the MCPA applicable to trade or commerce [6] and by defining trade or commerce to include virtually all consumer transactions. [7] In order to accomplish the goal of provid[ing] an enlarged remedy for consumers, [8] courts should construe the act's exemption narrowly. Smith v. Employment Security Comm., 410 Mich. 231, 278, 301 N.W.2d 285 (1981) (Moody, J., dissenting). Though no Michigan court has previously explored the purpose of the exemption in § 4(a)(1), courts in numerous other jurisdictions have considered the purpose of similar provisions. These decisions are helpful in understanding the purpose and scope of our exemption. In Skinner v. Steele, [9] the Tennessee Court of Appeals was called upon to determine the scope of a similarly worded exemption to the Tennessee consumer protection act (TCPA). Id. at 337. The exemption provided: The provisions of this chapter shall not apply to: (a) Acts or transactions required or specifically authorized under the laws administered by or rules and regulations promulgated by, any regulatory bodies or officers acting under the authority of this state or of the United States. [TCA § 47-18-111.] 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: The purpose of the exemption is to insure that a business is not subjected to a lawsuit under the Act when it does something required by law, or does something that would otherwise be a violation of the Act, but which is allowed under other statutes or regulations. It is intended to avoid conflict between laws, not to exclude from the Act's coverage every activity that is authorized or regulated by another statute or agency. Virtually every activity is regulated to some degree. [ Id. at 337.][ [10] ] 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, a court must be convinced that a direct and unavoidable conflict exists between the application of the [CSPA] and application of the other regulatory scheme or schemes. It must be convinced that the other source or sources of regulation deal specifically, concretely, and pervasively with the particular activity, implying a legislative intent not to subject parties to multiple regulations that, as applied, will work at cross-purposes. [ Elder v. Fischer, 129 Ohio App.3d 209, 219, 717 N.E.2d 730 (1998), quoting Lemelledo v. Beneficial Mgt. Corp. of America, 150 N.J. 255, 270, 696 A.2d 546 (1997) (interpreting the New Jersey consumer fraud act).][ [11] ] 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. [12] Mr. Bladen states that the MCPA exemptions were intended to be given a limited interpretation. Id. at 12. Specifically, he says that the intent was to look to see, not whether the entity is subject to the act, but whether the method, act or practice alleged to violate the act is indeed one addressed and prohibited by the act. To the extent Smith v. Globe Life Insurance . . . arrived at a different view, it is clearly erroneous. . . . Id. 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 authorized by one statute and prohibited by the MCPA. Section 4(1)(a) was designed to avoid that conflict. The Diamond Mortgage holding is in harmony with the purpose of § 4(1) because it applies the exemption only when there is a direct and unavoidable conflict between the MCPA and another law. [13] 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). [14] Aside from matters involving the insurance industry, I would apply the standard articulated in Diamond Mortgage. I would hold that the focus of the § 4(1)(a) inquiry is whether the discrete transaction alleged to be in violation of the MCPA is specifically authorized by some other law. 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 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. These transactions, rather than being authorized, are arguably specifically prohibited by law. See MCL 339.2411(2)(d),(m). Accordingly, because defendants were not specifically authorized to perform the discrete transactions at issue, the exemption does not apply. 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. [15] Id. Hence, for the general transaction or conduct to be specifically authorized, there must be a law that explicitly gives the power to perform the general transaction or conduct at issue. The provisions of the Michigan Occupational Code that apply to residential home builders [16] are devoid of any specific authorizations of transactions or conduct. There are broad definitions of residential builder and other positions. [17] MCL 339.2401. There are exemptions from licensure. MCL 339.2403. Minimum licensing qualifications are set forth. MCL 339.2404. Contributions to the Homeowner Construction Lien Recovery Fund [18] are made mandatory. MCL 339.2409. 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 any of these provisions explicitly gives residential home builders the power to engage in residential home building. Because there is no law that specifically authorizes residential home builders to engage in any activity, let alone residential home building, defendants cannot claim the protection of the exemption. 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.