Overturning Its Own Precedents, the Michigan Supreme Court Significantly Narrows Immunity for Licensed/Regulated Businesses Under the State’s Consumer Protection Act
The list of businesses and professions regulated and/or licensed by the state of Michigan or the federal government is lengthy. For years, pursuant to Michigan Supreme Court precedent, licensed/regulated businesses that faced claims by consumers arising under the Michigan Consumer Protection Act (MCPA) could defeat such claims by availing themselves of an immunity defense provided under a provision of the MCPA that exempted “[a] transaction or conduct specifically authorized” by a regulatory board or officer acting under state or federal statutory authority.
However, in its recent decision in Attorney General v. Eli Lilly and Company, the Court overturned its own precedents and significantly narrowed the scope of MCPA immunity for regulated and licensed businesses. This change in the law means that a business sued by a consumer under the MCPA can no longer avoid liability simply because they operate in a regulated industry. Instead, courts must now consider whether the specific transaction or conduct at issue, rather than the general activity of the business, is “specifically authorized” by law.
Precedents Overstated the Scope of MCPA Immunity
At issue in Eli Lilly was MCL 445.904(1)(a), which exempts from the MCPA a “transaction or conduct specifically authorized” under laws administered by a regulatory board or officer. In its 1999 decision Smith v. Globe Life Insurance Co., and subsequent 2007 opinion in Liss v. Lewiston-Richards, Inc., the Michigan Supreme Court adopted an expansive version of that exemption, holding that it could apply when the general transaction was authorized by law (e.g., a construction contract by a licensed general contractor) even if the particular conduct challenged by the consumer (e.g., misrepresentations or fraud by the contractor) was not itself authorized.
The recent case arose from the Michigan Attorney General’s investigation into Eli Lilly’s pricing practices for insulin products. The Attorney General alleged there was probable cause to believe those practices violated provisions of the MCPA.
In response to the Attorney General’s investigatory efforts and its subsequent declaratory judgment action seeking a ruling that the MCPA did not foreclose its investigation, Eli Lilly argued that since it manufactures and distributes pharmaceuticals under state and federal regulatory regimes, the MCPA did not apply. Under Smith and Liss, Lilly asserted, the sale of pharmaceuticals was a regulated transaction and therefore fell within the statutory exemption.
The Ingham County Circuit Court agreed with Eli Lilly, and the Court of Appeals affirmed. The Supreme Court, however, reversed and remanded the case and, in so doing, overturned its decisions in Smith and Liss.
Specific Transaction or Conduct, Not General Business, Must Be Authorized by Law
Writing for the majority, Justice Noah P. Hood noted that, under Smith and Liss, “a broad range of industries—regardless of the transaction or conduct in the specific case—have been judicially immunized from MCPA claims” and that those decisions “apply the exemption broadly to nearly all claims against regulated businesses and licensed entities (but, curiously, not unregulated or unlicensed entities).”
The Court held that the broad interpretation of the MCL 445.904(1)(a) exemption established by those two cases “is at odds with the plain language of the statute and thus contradicts legislative intent. Smith and Liss essentially nullify all MCPA claims against swathes of industry sectors that would otherwise be subject to consumer-protection claims, contrary to the intent of the MCPA.”
Accordingly, the Court found that Smith and Liss had interpreted the statutory exemption too broadly. It held that “when determining whether the MCL 445.904(1)(a) exemption applies, the proper inquiry is whether the specific transaction or conduct at issue, rather than the general transaction, is authorized by law.
What Eli Lilly Means for Regulated Businesses
The decision in Eli Lilly should prompt Michigan businesses that hold licenses, permits, or are subject to regulatory oversight to reconsider how they evaluate MCPA risk. Historically, a company could have viewed its regulatory status as a significant shield against MCPA claims. This case makes clear that regulatory status alone is insufficient. A company should instead ask a more precise question: What specific law or regulation authorizes the particular conduct at issue?
For example, a financial institution may be extensively regulated, but particular advertising, fee, or customer-service practices may not receive the benefit of the MCPA exemption merely because the institution operates under a regulatory framework.
The bottom line is that Michigan businesses should no longer assume that being licensed or regulated provides unlimited immunity from consumer claims under the MCPA. For Michigan businesses, that is a meaningful change in the risk landscape that warrants review with experienced Michigan counsel.
If you have any questions about this decision and its implications for your business, please contact David Hart at Maddin Hauser.