For years the Michigan Consumer Protection Act (MCL 445.901) has been used as a means for consumers to make claims against various types of businesses for perceived wrong-doing. This statute has been construed by the courts to hold that residential builders were subject to Consumer Protection Act claims. Most Consumer Protection Act claims against builders revolve around some type of alleged misrepresentation or failure to follow contract or other project directions. While the facts of the cases generally are no different than a typical breach of contract claim, the Consumer Protection Act had one critical difference from a breach of contract claim. Specifically, the homeowners could recover their attorney fees that they would have expended in pursuing the claim, if they prevailed on the claim. That number could easily equal or exceed even a medium-sized claim.

On June 6, 2007 the Supreme Court of the State of Michigan ruled, “Under MCL 445.904(1)(A), residential home builders are exempt from the MCPA[.]” That means no more Consumer Protection Act claims can be brought against residential home builders.

It is worth noting that the rationale that the Court used went something like this:

The Michigan Consumer Protection Act only applies to individuals who engage in transactions that are not “specifically” authorized by law, regardless of whether the specific misconduct alleged is prohibited.

What that means to the residential builder is that if you do run afoul of some legal or contractual obligation while building, a Consumer Protection Act claim cannot be maintained against you. However, if a residential builder decided to open some non-building related business, then the licensure in the one activity (building) would do nothing to prevent a Consumer Protection claim on this other unrelated activity.

The other item which the Court placed great emphasis on is that in response to a Consumer Protection Act claim the builder and/or his attorney must immediately allege that the complained-of conduct is specifically exempted because of the builder’s licensed status. This is what the law calls an “affirmative defense”. An affirmative defense must be alleged with the initial pleading that you or your attorney file on your behalf, or it is forever waived.

To understand the importance of this holding it would be appropriate to compare the Consumer Protection Act for homeowners to the Construction Lien Act for builders. By being able to recover attorney’s fees, consumers (read: “homeowners”) could sue builders for alleged wrong-doing and have the additional incentive or consequence of also being able to recover attorney’s fees. Now think of the times that you have either engaged in or heard of a construction lien act case. Besides the cloud on the title that the construction lien provides, the ability for the Construction Lien Act to provide for the contractor’s attorney’s fees to be paid is a huge incentive for many homeowners to pay their bill.

The effect of eliminating Consumer Protection Act claims against builders is that homeowners cannot pressure a builder into some form of settlement merely out of the builder’s fear that there is some chance that the builder will end up losing the claim and paying the homeowner’s attorney’s fees. However, the newly-constituted Michigan Supreme Court may overturn the exemption if the right case is presented to them.

If you have any questions about this topic or any related to it, please contact Smith & Johnson.