Litigation Defenders

The regulated-business shield recently shattered in Michigan.

For more than two decades, Michigan’s regulated-business exemption under the Michigan Consumer Protection Act (MCPA) was the defense equivalent of a force field.

If your client held a license, operated under a regulatory scheme or sold a product that touched any federal or state agency’s jurisdiction, you had a near-automatic defense to any MCPA claim. File a motion citing Smith v Globe Life Ins Co, 460 Mich 446 (1999) and Liss v Lewiston-Richards, Inc, 478 Mich 203 (2007), and the case was over before it started.

That force field is gone.

On July 31, the Michigan Supreme Court issued its opinion in Attorney General v Eli Lilly and Company, No. 165961, expressly overruling both Smith and Liss and fundamentally changing the scope of MCL 445.904(1)(a)’s exemption from MCPA liability.

If you do business in Michigan in an industry that is licensed or regulated—pharmaceuticals, insurance, residential construction, auto sales, banking, you name it—this decision demands immediate attention.

What Changed

MCL 445.904(1)(a) exempts from MCPA liability “[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.”

Under Smith and Liss, the Supreme Court held that the “relevant inquiry” was “whether the general transaction is specifically authorized by law, regardless of whether the specific misconduct alleged is prohibited.” That meant if your client was licensed to sell insurance, build homes, deal cars or manufacture drugs, the entire category of business activity was exempt—full stop.

The Supreme Court in Eli Lilly held that Smith and Liss were wrongly decided for two reasons:

1. Those cases improperly inserted the word “general” into the statute. The text of MCL 445.904(1)(a) refers to “[a] transaction”—singular—not a “general transaction.” The Supreme Court emphasized that it “avoid[s] inserting words in statutes unless necessary to give intelligible meaning or to prevent absurdity,” and the addition of “general” was neither.
2. Smith and Liss wrote the phrase “specifically authorized” out of the statutory language. Under those cases, the mere existence of a licensing or regulatory scheme was sufficient to immunize the defendant. The Supreme Court held that this approach rendered the MCPA “an empty shell” and made Michigan’s consumer-protection statute, at one time among the nation’s strongest, rated among the worst in the country.

The New Test

Going forward, when determining whether the MCL 445.904(1)(a) exemption applies, the proper inquiry is whether the specific transaction or conduct at issue is authorized by law—not whether the defendant’s general line of business is regulated.

Courts must now follow a two-step framework: (1) identify the specific transaction or conduct that the plaintiff alleges violates the MCPA, and then (2) determine whether that transaction or conduct is “specifically authorized under laws administered by a regulatory board or officer acting under statutory authority of this state or the United States.”

This returns the law to the framework set out in Attorney General v Diamond Mtg Co, 414 Mich 603 (1982), which held that a real estate broker’s license did not specifically authorize all conduct and transactions of the licensee’s business.

Why It Matters for Regulated Businesses

The practical impact of this decision cannot be overstated. Under Smith and Liss, entire industries were judicially immunized from MCPA claims: car dealers, car makers, mortgage lenders and servicers, real estate agents, plumbers, doctors, grocery stores, casinos, pesticide application services, and—as this case demonstrates—pharmaceutical manufacturers. The rationale varied—some held licenses, others were subject to product regulations—but the mere existence of a regulatory scheme was enough.

That blanket immunity is gone. A pharmaceutical company authorized by the FDA to sell insulin is no longer exempt from MCPA scrutiny over its pricing practices simply because the FDA approved the drug. A licensed residential home builder is no longer shielded from claims about deceptive construction timelines simply because the state issued a building license. The exemption now protects only conduct or transactions that a regulatory scheme specifically authorizes—not conduct that merely occurs within a regulated industry.

The Stare Decisis Analysis

The Supreme Court applied the Robinson factors and additional stare decisis considerations, finding that overruling Smith and Liss was warranted. Among the key findings:

• Practical workability: Smith and Liss rendered much of the MCPA “completely unworkable” because most businesses engaged in trade or commerce are subject to regulation and licensure, making them “almost entirely exempt from liability under the MCPA, even when they engage in unfair, unconscionable, deceptive, or even illegal practices.”
• Reliance: If Michigan businesses were relying on Smith and Liss to engage in unfair or deceptive practices without fear of repercussion, the Supreme Court held this “is not a valid reliance interest.”
• Public interest: Smith and Liss “severely limit the ability to conduct state-specific consumer-protection enforcement” and were “a stark and inexplicable departure” from the Supreme Court’s earlier holding in Diamond Mortgage.

The Supreme Court noted that Smith essentially overruled Diamond Mortgage without ever performing a stare decisis analysis—a factor that further justified correcting the error now.

What the Case Does Not Decide

Importantly, the Supreme Court did not decide whether Eli Lilly actually violated the MCPA. The case arose from the Michigan attorney general’s petition for civil investigative subpoenas and a parallel declaratory-judgment action. The attorney general has not yet pleaded a substantive MCPA violation.

The case was remanded to the Ingham County Circuit Court to determine whether Eli Lilly’s specific pricing conduct is “specifically authorized” by law—and only if it is would the exemption apply.

The Supreme Court also addressed justiciability, holding that an actual case or controversy existed because the circuit court had already authorized investigative subpoenas, even though the parties had stipulated to stay their enforcement pending resolution of the legal question. Declaratory relief was appropriate to “guide the parties’ future conduct.”

Practical Defense Takeaways

For regulated businesses in Michigan, the landscape has shifted fundamentally. Here is what an effective defense should now entail:

1. Reassess pending MCPA defenses. If you have pending motions or cases relying on Smith and Liss as a complete defense, those arguments are no longer viable. The exemption now requires a showing that the specific conduct at issue is authorized by law, not merely that the defendant operates in a regulated industry.
2. Identify specific authorizations. The exemption is not dead—it is narrowed. If a regulatory scheme specifically authorizes the transaction or conduct the plaintiff challenges, the defense still applies. The key is specificity: point to the statute, regulation or regulatory order that authorizes the exact conduct at issue, not just the company’s general right to do business.
3. Anticipate new MCPA exposure. Claims that would have been dismissed at the pleading stage under Smith and Liss will now survive longer and require substantive defense. Prepare for increased litigation costs and seek legal advice accordingly. Industries that have operated for decades with effective MCPA immunity—from car dealers to mortgage servicers to pharmaceutical manufacturers—should evaluate their practices for MCPA compliance.
4. Watch for retroactivity issues. The opinion does not expressly address whether the new standard applies retroactively to conduct that predates the decision. Expect plaintiffs to argue it does, particularly for cases currently in litigation or for claims within the applicable limitations period.
5. Consider compliance issues. Businesses that previously relied on the broad exemption to avoid MCPA scrutiny should immediately audit their consumer-facing practices for potential MCPA exposure. The MCPA prohibits unfair, unconscionable or deceptive methods, acts or practices—and being regulated no longer insulates a business from those standards.
6. Preserve alternative defenses. The MCPA still contains numerous other exemptions under MCL 445.904. Evaluate whether alternative exemptions apply. Additionally, MCL 445.904(2) provides a partial exemption for conduct made unlawful under certain specific statutes governing banks, credit unions, and motor carriers—allowing attorney general enforcement while barring private suits. These nuances matter more now than they ever did.

Bottom Line

For a quarter century, Smith and Liss turned a narrow statutory exemption into a blanket immunity for regulated businesses. The Michigan Supreme Court has now returned the law to what the statute actually says: the exemption applies only when the transaction or conduct at issue is specifically authorized by law. Being regulated is no longer a get-out-of-MCPA-free card.

For litigation defenders, this is not a sky-is-falling moment. The exemption still exists, and it still has teeth when the defense can point to a specific authorization for the specific conduct at issue. But the days of citing a license number and walking away from an MCPA claim are over.

The defense now requires what it always should have: a close reading of the statute, specific regulatory analysis, and a targeted argument that the challenged conduct—not just the defendant’s industry—is specifically authorized by law.