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The MichiganB Y G A R Y M . V I C T O R

What’s left after Smith v Globe?

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W hen the Michigan Consumer Pro-tection Act (MCPA)1 was passedin 1977, it appeared to be one of

the broadest and most powerful consumerprotection acts in the country. It prohibitsmore than 30 types of conduct as unfair anddeceptive practices when committed in tradeor commerce.2 It def ines ‘‘trade or com-merce’’ very broadly, including nearly alltypes of economic activity providing goodsor services for ‘‘personal, family, or house-hold’’ purposes.3 It provides remedies in theform of declaratory judgments, injunctions,individual damages, and class actions.4 Per-haps most importantly, in individual actionsit provides for a minimum amount of dam-ages of $250 together with reasonable attor-neys’ fees.5

Over the last 25 years, the MCPA hasbeen the subject of numerous decisions, butuntil recently maintained much of its in-tended benefits for consumers. This mayhave come to an end with the SupremeCourt’s 1999 decision in Smith v Globe.6This article will consider principal issues anddecisions concerning the MCPA and what isleft after Smith.

In Nelson v Ho,15 the issue concerned theliability of physicians under the MCPA. Thecourt held that the professional practiceactivities of physicians are not included inthe meaning of trade or commerce, and thatphysicians can only be sued under the MCPAfor their entrepreneurial activities.16

‘‘person’’ to include ‘‘natural person, corpora-tion, trust, partnership, incorporated or unin-corporated association, or other legal entity.’’9

In the first major case to consider themeaning of ‘‘person,’’ Catallo Associates, Incv MacDonald & Goren, PC,10 the court ofappeals held that businesses could sue fordamages regarding goods or services pur-chased for use by the business.11 Catallowas, in essence, overruled by the subsequentcourt of appeals case of Jackson County HogProducers v Consumers Power Co.12 Thereremains a question, however, of whetherbusinesses can sue other businesses underthe MCPA.13

‘‘Trade or Commerce’’The MCPA defines ‘‘trade or commerce,’’

in part, to mean the ‘‘conduct of a businessproviding goods or services primarily for per-sonal, family, or household purposes.’’14 Itincludes just about every type of businessimaginable. Even so, in 1997 the court ofappeals went outside the wording of the actin order to create a ‘‘learned professions’’exception to the broad definition of ‘‘tradeor commerce.’’

Who Can Sue Under the MCPA?

Any ‘‘person’’ may sue under the MCPAto obtain declaratory judgments or injunc-tions.7 On the other hand, only a ‘‘personwho suffers a loss’’ may sue for individual orclass damages.8 The act very broadly defines

If goods or services are sold primarily forthe personal, family, or household use ofconsumers, they fit within the meaning oftrade or commerce.17 An individual con-sumer who buys goods or services and usesthem for primarily business purposes maynot sue under the act.18

What Types of Conduct Are Prohibited?

As mentioned above, more than 30 typesof conduct are prohibited by the MCPA.19

The types of conduct the act prohibits areextremely wide and varied. The breadth ofthe MCPA prohibitions is so great that it isarguable that almost any breach of contractwill be a violation of the act. For example, inMikos v Chrysler Corp20 the court held thata breach of an implied warranty of mer-chantability constituted a failure to ‘‘providethe promised benefits’’ within the meaningof MCL 445.903(1)(y), entitling the plaintiffto attorneys’ fees.

Generally, there is no requirement toshow intent or knowledge in order to estab-lish a violation of the MCLA. Few MCPAsubsections include the word ‘‘intent.’’

Remedies Available Under the MCPA

Declaratory Judgments and Injunctions

Since the MCPA provides that a ‘‘person’’rather than a ‘‘person who suffers a loss’’may seek declaratory or injunctive relief, no

ConsumerProtection Act

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T contractual or other relationship with thedefendant is necessary for standing to seekthese types of relief.21 The problem withthese remedies is that there is no provisionfor attorneys’ fees.

Individual Damage Claims

The act provides that a person who suffersa loss may bring an individual action ‘‘to re-cover actual damages or $250, whichever isgreater, together with reasonable attorneys’fees.’’22 The availability of attorneys’ fees al-lows consumers to obtain access to the courtsby offering attorneys the promise of attor-neys’ fees if they take MCPA cases and win.23

Non-Economic Damages

In Avery v Industry Mortgage Co,24 thefederal district court held that non-economicdamages were available because MCPA caseswere more analogous to tort claims than purecontract suits. Avery will provide guidance onthis issue until a Michigan appellate courtholds otherwise.25

Class Actions

The MCPA specifically provides for classactions.26 In Dix v American Bankers Life As-surance Co,27 the Supreme Court emphasizedthe importance of MCPA class actions inproviding a remedy for unfair and deceptivetrade practices.28 One of the major problemswith class actions in general is the cost of no-tice to class members. To remedy this prob-lem, the MCPA allows the cost of notice tobe shifted to the defendant where the plain-tiff can show by preponderance of the evi-dence that he will succeed on the merits.29

Attorneys’ Fees Under the MCPAGiven the economics of the legal profes-

sion, perhaps the most important question anattorney must consider before taking a case iswhether he or she will be able to be compen-sated for his or her efforts. The MCPA has afee shifting provision that offers attorneys thepromise of reasonable attorneys’ fees shouldthey succeed.30

The f irst case to provide an extensiveanalysis of how attorneys’ fees were to becalculated under the MCPA was Smolen vDahlmann Apartments, Ltd.31 The Smolencourt held that trial courts should consider

the guidelines established in Crawley vSchick,32 but were not limited to those fac-tors. However, the Smolen court made it clearthat CPA attorneys’ fees were available forwork performed on appeal. While the courtnoted that fee enhancements might be avail-able in some circumstances, it generally lefttrial courts with wide discretion to considerall aspects of the case.33

Both before and after Smolen, many trialcourts based low MCPA attorney fee awardson the ‘‘amount in question and resultsachieved’’ Crawley criteria. That approach isno longer permitted. The court of appeals, inJordan v Transnational Motors, Inc,34 heldthat trial courts cannot focus only on theamount involved; they must make awardsbased on the remedial nature of the statute.35

This was a very important development onthe attorney fee issue.

Class Actions

Although there is no specific provision ofthe MCPA providing for attorneys’ fees inclass actions, fees should generally be avail-able as a percentage of the amount collectedfor the class—the common law commonfund theory. Under this theory, class actionplaintiffs are usually awarded attorneys’ feesas a percentage of the fund recovered bythe class.36

Who is Exempted from MCPA Liability?

As originally passed, the MCPA exemp-tion section, MCL 445.904, read, in perti-nent part, as follows:

(1) This act does not apply to either of thefollowing:

(a) A transaction or conduct specificallyauthorized under laws administeredby a regulatory board or officer actingunder statutory authority of this stateor the United States . . . .

(2) . . . Except for the purposes of an actionfiled by a person under section 11, thisact does not apply to an unfair, uncon-scionable, or deceptive method, act, orpractice that is made unlawful by:(a) Chapter 20 of the insurance code . . .(b) The banking code . . . .(d) The motor carrier act . . . . (empha-

sis added).

The exemption section was designed tobe very narrow and had two purposes. Thefirst subsection was designed to protect busi-nesses from potential liability under theMCPA when they engaged in conduct thatwas ‘‘specifically authorized’’ by law.37 Thesecond subsection38 applied only to the at-torney general or prosecutors and exemptedcertain regulated industries from suit by thoseentities. The clear purpose here was to avoidconflicts between the attorney general orprosecutors and regulatory agencies with re-gard to the listed industries. Under this sub-section, individuals were still permitted tosue those industries.39

The exemption section has been the subjectof substantial and confusing litigation. TheSupreme Court, in Attorney General v Dia-mond Mortgage Co,40 dealt with the ‘‘specifi-cally authorized’’ language of the first exemp-tion subsection. The court gave this languagea narrow interpretation consistent with theact’s remedial purpose. Under Diamond, atransaction or conduct was only exempt fromthe MCPA if it was ‘‘specifically authorized’’by law. Here is the court’s analysis:

Fast Facts◆ Any person may sue under the MCPA

to obtain declaratory judgments or injunctions.

◆ An individual consumer who buysgoods or services and uses them forprimarily business purposes may notsue under the act.

◆ The MCPA has a fee shifting provisionthat offers attorneys the promise of reasonable attorneys’ fees shouldthey succeed.

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While defendants are correct in stating that nostatute or regulatory agency specifically au-thorizes misrepresentations or false promises,the exemption will nevertheless apply where aparty seeks to attach such labels to ‘‘[a] trans-action or conduct specif ically authorizedunder laws administered by a regulatoryboard or officer acting under statutory author-ity of this state or the United States.’’ (Empha-sis added.)41

Despite its inferior status, a later court ofappeals case, Kekel v Allstate Ins Co,42 ap-peared to make holdings directly contrary toDiamond.43 With regard to the ‘‘specificallyauthorized’’ language, the Kekel court ren-dered a holding that would allow virtuallyany regulated business to avoid MCPA liabil-ity. It accomplished this by simply deletingthe statutory words ‘‘specifically authorized’’and substituting ‘‘subject to regulatory con-trol’’44 Continuing in that vein, the Kekelcourt went on to completely leave the intro-ductory clause ‘‘Except for the purposes ofan action filed by a person under section 11’’out of the second exemption subsectionholding that individuals’ suits against insur-ance companies were not permitted.45

It seemed that this confusion created byKekel was cleared up when the court of ap-peals rendered its decision in Smith v GlobeLife Insurance Co.46 Like Kekel, Smith in-volved a suit by an individual against aninsurance company. Smith concerned the saleof credit life insurance. This panel sided withthe Diamond ’s interpretation of ‘‘specificallyauthorized’’ and held that the Kekel courtwas clearly in error when it held that indi-vidual actions could not be brought againstinsurance companies.47 Unfortunately, thecourt of appeals’ decision in Globe was re-versed by the Supreme Court.48 As a result ofthis reversal, the MCPA has entered a newera. Indeed, there may be little left of thepower to protect consumers that the legisla-ture had in mind when it passed the act.

The Smith Supreme Court dealt its majorblow to the MCPA with its interpretation ofthe ‘‘specifically authorized’’ language in thefirst exemption subsection. Under the court’sinterpretation of ‘‘specifically authorized,’’the inquiry on the issue of exemption is notwhether the defendant’s alleged deceptiveconduct was ‘‘specifically authorized’’ by law,

but whether the general transaction wasspecifically authorized. The court stated:

Contrary to the ‘‘common-sense reading’’ of thisprovision by the court of appeals, we concludethat the relevant inquiry is not whether thespecific misconduct alleged by the plaintiffs is‘‘specifically authorized.’’ Rather, it is whetherthe general transaction is specifically author-ized by law, regardless of whether the specificmisconduct alleged is prohibited.49

Applying the Smith analysis, if the generaltransaction is specifically authorized by stat-ute, e.g., selling credit life insurance; theneven if the defendant has engaged in unfairor deceptive trade practices in selling thecredit life insurance, the transaction is ex-empt from MCPA liability.

Having created a gaping hole in theMCPA by its interpretation of the first ex-emption subsection,50 the court turned tothe second subsection. The problem herewas the fact that the language clearly allowedindividual MCPA suits against insurancecompanies.51 The court resolved this appar-ent dilemma by holding that the second sub-section created an exception to the broad,blanket exemption it had ‘‘legislated’’ in itsinterpretation of ‘‘specifically authorized.’’ Inother words, any industry that has its generaltransactions specifically authorized by law isexempt from suit under the MCPA exceptfor those industries listed in the second sub-section such as insurance and banking.52

The question left by Smith is what typesof businesses will be entitled to its blanketexemption from MCPA liability. Any attor-ney considering taking an MCPA case in-volving a regulated industry must considernot only whether the trial court may find anexemption under Smith; but the likelihood,should the plaintiff prevail in the trial court,that the defendant may be willing to pursue

the case to the higher courts in order to ob-tain an exemption.

The MCPA and Other Causes of Action

Leaving aside the Smith problem for themoment, the use of the MCPA with othercauses of action should be considered. Viola-tions of many statutes will also violate theMCPA. In Smolen v Dahlmann Apartments,Ltd,53 for example, the court held that a fail-ure to return security deposit monies withinthe Landlord-Tenant Relationships Act54

timeframe was a ‘‘failure to promptly returna deposit’’ within the meaning of MCL445.903(1)(u) of the MCPA. In motor vehi-cle repair cases, the MCPA can be used inconjunction with violations of the Motor Ve-hicle Service and Repair Act.55 Violations ofthe Pricing and Advertising Act56 also lendthemselves to use of the MCPA. In cases in-volving breaches of warranty, the MCPA canbe used as a complement to the Magnuson-Moss Warranty Act.57 In all such statutoryviolation cases, however, the Smith issuemust be investigated.

Evaluating an MCPA CaseThe general considerations in deciding

whether to work on an MCPA case are simi-lar to those of other cases. Several items thatare more unique to the MCPA, especially forthose not experienced in litigating MCPAcases, are as follows:

• Does the defendant’s conduct fall withinthe meaning of the acts prohibited underthe MCPA?

• Does it appear that other similarly situ-ated consumers have been subjected tothe same type of conduct? This is the pri-mary consideration for class treatment?

• To what extent is the defendant’s busi-ness activity regulated?

Over the last 25 years, the MCPA has been the subject of numerous decisions, but until recently maintained much of itsintended benefits for consumers.

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T • How far will the defendant go to avoidliability? Many cases that appear to bequite simple will generate considerablelitigation? This is especially true becausedefense firms do not know how to liti-gate MCPA cases.

• If there are several theories of liability,will the inclusion of an MCPA courtcontribute to the ability to settle or easeof trying the case?

• Are other attorneys who are familiarwith MCPA cases available for participa-tion or advice? Generally, there are anumber of experienced consumer attor-neys who are willing to provide adviceand support to other attorneys workingon MCPA cases. ♦

Gary M. Victor is a sole practitioner specializing inconsumer law and is “of counsel” to Lyngklip & TaubConsumer Law Group PLC, Southfield, Michigan.Mr. Victor is also a professor in the Department ofMarketing and Law in the College of Business atEastern Michigan University. He is a council mem-ber of the State Bar Consumer Law Section and wasselected by the council to be the second recipient ofthe Frank J. Kelley Consumer Advocacy Award. Hehas litigated several landmark consumer law casesand has written many articles on consumer law andrelated topics.

Footnotes1. MCL 445.901, et seq.2. See MCL 445.903(1)(a) through (cc).3. MCL 445.902(c).4. MCL 445.911.5. MCL 445.911(2).6. 460 Mich 446; 597 NW2d 28 (1999).7. MCL 445.911(1)(a) and (b).8. MCL 445.911(2) and (3). See Mayhall v A H

Pond Co, Inc, 129 Mich App 178; 341 NW2d268 (1983).

9. MCL 445.902(c).10. 186 Mich App 571; 465 NW2d 28 (1990).11. Catallo was decided prior to the 1990 Adminis-

trative Order on court of appeals decisions. See,MCR 7.215(H).

12. 234 Mich App 72; 592 NW2d 112 (1999).13. See, e.g., John Labatt Ltd v Molson Breweries, 853

F Supp 965 (ED Mich 1994) and Action Glass vAuto Glass Specialists, 134 F Supp 2d 892 (WDMich 2001).

14. MCL 445.902(c).15. 222 Mich App 74; 564 NW2d 482 (1997).16. See Victor, Nelson v Ho—The Court of Appeals

Creates a ‘‘Learned Professions’’ Exception to theMichigan Consumer Protection Act, 32 MTLAQuarterly 19 (Winter, 1998). Nelson may have be-come moot as a result of Smith v Globe Life Insur-ance Co, 460 Mich 446; 597 NW2d 28 (1999).See infra.

17. See, e.g., Noggles v Battle Creek Wrecking, Inc, 153Mich App 363; 395 NW2d 322 (1986), and

McRaild v Shepard Lincoln Mercury, Inc, 141 MichApp 406; 367 NW2d 404 (1985).

18. See Zine v Chrysler Corp, 236 Mich App 261;600 NW2d 384 (1999).

19. See MCL 445.903(1)(a) through (cc); MCL445.903(b).

20. 158 Mich App 781; 404 NW2d 783 (1987).21. See MCL 445.911(1)(a) and (b). See also, Victor,

The Michigan Consumer as a Private AttorneyGeneral, 4 Colleague 13 (December, 1991).

22. MCL 445.911(2).23. See infra.24. 135 F Supp 2d 840 (WD Mich 2001).25. See Victor, A Federal Judge Holds Non-Economic

Damages Available Under the MCPA, 6 ConsumerLaw Newsletter 2 (August, 2001).

26. MCL 445.911(3).27. 429 Mich 410; 367 NW2d 896 (1987).28. The Dix court said:

The Consumer Protection Act was en-acted to provide an enlarged remedy forconsumers who are mulcted by deceptivebusiness practices, and it specifically pro-vides for the maintenance of class actions.This remedial provision of the ConsumerProtection Act should be construed liber-ally to broaden the consumers’ remedy,especially in situations involving con-sumer frauds affecting a large number ofpersons. Id. at 417–418.

29. MCL 445.911(5).30. MCL 445.911(2).31. 186 Mich App 571; 465 NW2d 28 (1990).32. These are: (1) the professional standing and experi-

ence of the attorney; (2) the skill, time, and laborinvolved; (3) the amount in question and the re-sults achieved; (4) the difficulty of the case; (5) theexpenses incurred; and (6) the nature and length ofthe professional relationship with the client. 48Mich App 728; 211 NW2d 217 (1973).

33. See Victor, Attorneys’ Fees Under the Michigan Con-sumer Protection Act, and Other Recent Develop-ments on Attorneys’ Fees, 4 Colleague 8 (May, 1991).

34. 212 Mich App 94; 537 NW2d 471 (1995).35. The Jordan court stated:

In consumer protection (sic) as this, themonetary value of the case is typically low.If courts focus only on the dollar value andthe result of the case when awarding attor-ney fees, the remedial purposes of thestatutes in question will be thwarted. Sim-ply put, if attorney fee awards in thesecases do not provide a reasonable return, itwill be economically impossible for attor-neys to represent their clients. Thus, prac-tically speaking, the door to the courtroomwill be closed to all but those with eitherpotentially substantial damages, or thosewith sufficient economic resources to af-ford the litigation expenses involved. Sucha situation would indeed be ironic: it is butprecisely those with ordinary consumercomplaints and those who cannot affordtheir attorney fees for whom these reme-dial acts are intended. Id. at 98–99.

See also, Victor, Court of Appeals Gives New Eco-nomic Life To Consumer Protection Cases, 30MTLA Quarterly 11 (October, 1996).

36. See, e.g., In re Attorney Fees of Kelman, Loria,Downing, Schneider & Simpson, 406 Mich 497,503–504; 280 NW2d 457 (1979); Amerisure Ins

Co v Folts, 181 Mich App 288, 291; 448 NW2d829 (1989).

37. For example, the Motor Vehicle Service and RepairAct (MVSRA)—MCL 257.1301, et seq. authorizesa repair facility to charge 10 percent or $10 over awritten estimable without getting the permission ofthe customer. See MCL 257.1332(1). That con-duct could constitute a violation of several sectionsof the MCPA. See, e.g., MCL 445.903(1)(s), (bb)and (cc).

38. MCL 445.904(2).39. As section 11 of the act, MCL 445.911 authorizes

actions by individuals, the language ‘‘Except forthe purpose of an action filed by a person undersection 11’’ clearly means that this exemptionsubsection does not affect the right of individualsto sue the listed industries under the MCPA.

40. 414 Mich 603; 327 NW2d 805 (1982).41. Id. at 617.42. 144 Mich App 379; 375 NW2d 455 (1985).43. In fact, the Kekel court apparently adopted the

losing party’s argument from Diamond. See Dia-mond at 416–417. One federal judge has made itclear that ‘‘Kekel simply can not be reconciled withDiamond Mortgage in any principled manner.’’Lawson v American Sec Ins Co, No. 88-CV-10280-BC (ED Mich, 1989).

44. In a rather brazen act of judicial legislating theKekel panel stated:

We first look to the exemption languageof § 4(1)(a) to determine if plaintiffs’complaint speaks to a transaction or con-duct which would be the subject of reg-ulatory control ‘‘under laws administeredby a regulatory board or off icer actingunder statutory authority of this state orthe United States.’’ MCL 445.904(1)(a);MSA 19.418(4)(1)(a). Id. at 383. (Em-phasis added.)

45. Here the Kekel court simply ignored the intro-ductory clause of the statutory provision stating:

As indicated above, the Michigan Con-sumer Protection Act specifically exemptstransactions between an insurance com-pany and its insured which are coveredunder the Uniform Trade Practices Act ofthe Insurance Code. Id. at 385.

46. 223 Mich App 264; 565 NW2d 877 (1997).47. See Victor, The Liability of Professionals, Insurance

Companies and Other Regulated Industries Underthe Michigan Consumer Protection Act, 77 Michi-gan Bar Journal 69 (1998).

48. Smith v Globe Life Insurance Co, 460 Mich 446;597 NW2d 28 (1999).

49. Id. at 465.50. See Justice Cavanagh’s opinion concurring in part

and dissenting in part, Id. at 475–483.51. See supra, n 63.52. Effective March 28, 2001, the MCPA was amended

to read:This act does not apply to or create a causeof action for an unfair, unconscionable, ordeceptive method, act or practice that ismade unlawful the chapter 20 of the insur-ance code.

53. 127 Mich App 108; 338 NW2d 892 (1983).54. MCL 554.601, et seq.55. MCL 257.1301, et seq.56. MCL 445.351, et seq.57. 15 USC 2301 et seq. See Jordan v Transnational

Motors, Inc, 212 Mich App 94 (1995).