MSC Majority Overrules Two Decisions, Lets Consumer Protection Suit Against Insulin Manufacturer Proceed

When determining whether a Michigan Consumer Protection Act claim falls under the exemption in MCL 445.904(1)(a), courts “should consider whether the specific transaction or conduct at issue, rather than the general transaction, is authorized by law,” the Michigan Supreme Court has ruled in Attorney General v Eli Lilly and Company.

The case against Eli Lilly, a major manufacturer of insulin, arose in 2022 when the Michigan Attorney General (AG) began investigating the company for suspected violations of the Michigan Consumer Protection Act (MCPA), MCL 445.901 et seq. The AG alleged there was probable cause to believe the company had artificially increased the list prices of its insulin in violation of MCL 445.903(1)(z), among other things. The AG filed a complaint in Ingham County Circuit Court under MCR 2.605, seeking a declaration that MCL 445.904(1)(a) did not foreclose the civil investigation and any resulting lawsuit. That section of the MCPA provides an exemption for “[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.”

In particular, the AG argued the Michigan Supreme Court had wrongly decided two prior cases: Smith v Globe Life Ins Co, 460 Mich 446 (1999), and Liss v Lewiston-Richards, Inc, 478 Mich 203 (2007). In those cases, the high court had ruled that the MCPA exemption broadly encompassed general transactions authorized by law, even when the specific alleged misconduct was prohibited. The Ingham County Circuit Court found probable cause to believe that Eli Lilly violated the MCPA and authorized the AG to issue civil investigative subpoenas.

Thereafter, Eli Lilly filed a motion to stay the proceedings, including the subpoena issue, pending resolution of the AG’s complaint for declaratory relief. Eli Lilly also filed a motion for summary disposition, asserting the sale of pharmaceuticals is a regulated activity that is exempt from the MCPA under MCL 445.904(1)(a), as well as under Smith and Liss. The Ingham County Circuit Court agreed with Eli Lilly, granted it summary disposition and dismissed the AG’s complaint.

The AG appealed and the Michigan Court of Appeals affirmed (Docket No. 362272). Thereafter, the AG appealed to the Michigan Supreme Court.

In a 4-3 ruling, a Michigan Supreme Court majority reversed the Court of Appeals, vacated the Ingham County Circuit Court’s order and remanded the case to the trial court. Justice Noah P. Hood wrote the majority opinion, joined by Chief Justice Megan K. Cavanagh, Justice Elizabeth M. Welch and Justice Kimberly A. Thomas.

“The AG argues that this Court’s broad interpretation of the MCL 445.904(1)(a) exemption in Smith and Liss is incorrect,” the Michigan Supreme Court majority said. “We agree. We hold that Smith and Liss were wrongly decided because they improperly broadened the scope of the exemption, contrary to the plain language, structure, and purpose of the statute. And following our stare decisis principles, we overrule Smith and Liss. We hold that the MCL 445.904(1)(a) exemption should be applied narrowly in cases where the specific transaction or conduct at issue is authorized by law.”

Justice Kyra H. Bolden, joined by Justice Brian K. Zahra and Justice Richard H. Bernstein, dissented. “After twice reviewing briefing and hearing oral arguments in this case, I conclude that plaintiff, the Attorney General, does not have standing to litigate the complicated legal questions before us,” Justice Bolden wrote. “Without standing, we are without an adequate basis to consider them.”

According to Justice Bolden, the AG “made no attempt to plead a violation of the MCPA or to explain to the trial court an area of the law that needs further explanation so that the parties can understand their legal rights and responsibilities under the MCPA,” and therefore “has not advanced an actionable claim that we can answer at this time.”

Case Precedent ‘Wrongly Decided’

In its opinion, the Michigan Supreme Court majority first addressed whether the AG was required to plead a substantive MCPA violation before seeking declaratory relief as to the exemption.

“In other words, did the AG have to file a complaint alleging an MCPA violation for the court to address her request for declaratory relief?” the majority wrote. “Under the facts of this case, we hold that the AG did not have to first bring a separate claim alleging an MCPA violation for the applicability of MCL 445.904(1)(a) to be litigated. In the simplest terms, a circuit court may grant declaratory relief when there is an actual case or controversy. … So, we ask whether a case or controversy exists with regard to the AG’s complaint that solely seeks declaratory relief. Under the circumstances, it does. The only reason this case presents a question of whether a case or controversy exists is because the parties agreed to stay the proceedings and the AG has chosen not to serve the subpoenas that the circuit court already authorized. Put differently, the posture of this case (i.e., the stipulated stay of proceedings) does not change the fact that a live controversy exists just beneath the surface.”

After concluding the AG’s action could proceed, the high court majority turned to the substantive issue in the case – “the proper interpretation of the MCPA exemption found in MCL 445.904(1)(a).” Under the exemption, the MCPA “does not apply 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,’” the majority pointed out. “The language of MCL 445.904(1)(a) is unambiguous. The statute refers to ‘[a] transaction,’ in the singular. Based on the plain language of the statute, MCL 445.904(1)(a) was intended to be a narrow exemption, forbidding plaintiffs from bringing MCPA claims involving transactions or conduct that defendants are specifically authorized by law to do.”

Accordingly, “Smith and Liss incorrectly interpreted MCL 445.904(1)(a) for two key reasons,” the majority wrote. First, those decisions “improperly inserted the word ‘general’ into the statute.” And second, those decisions “wrote the phrase ‘specifically authorized’ out of the statutory language.”

But Eli Lilly argued the decisions in Smith and Liss were “justified because the word ‘transaction’ is necessarily broader than the word ‘conduct,’” the majority observed. “According to Eli Lilly, a narrow reading of MCL 445.904(1)(a) would render the word ‘conduct’ in the statute nugatory. We disagree.”

The high court majority explained that “’conduct’ … reaches certain activity before or after a ‘transaction’ is executed – or deceptive activity that occurs even in the absence of a transaction. Thus, the terms ‘transaction’ and ‘conduct’ in MCL 445.904(1)(a) ensure that any such activity otherwise subject to MCPA liability but specifically authorized elsewhere still falls within the MCL 445.904(1)(a) exemption. By inserting the word ‘general’ into the statutory language, Smith and Liss changed the meaning of the exemption in a way that is contrary to the statute’s text – and ultimately its purpose.”

In addition, the interpretation of MCL 445.904(1)(a) in Smith and Liss “is at odds with legislative intent because Smith and Liss wrote the phrase ‘specifically authorized’ out of the statutory language,” the majority said.

“Since we decided 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 under the MCL 445.904(1)(a) exemption, demonstrating how these cases turned a narrow exception into broad immunity,” the Michigan Supreme Court majority noted. “Moreover, Smith and Liss render some sections of the MCPA completely nugatory.”

Smith and Liss “were wrongly decided,” the majority held. “Smith’s and Liss’s broad interpretation of the MCL 445.904(1)(a) exemption 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.”

‘Proper’ Statutory Interpretation

Next, the Michigan Supreme Court majority turned to the “proper interpretation” of MCL 445.904(1)(a).

“We hold 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,” the majority wrote. “When applying the exemption, courts should first consider the specific transaction or conduct that the plaintiff alleges violates the MCPA. Then courts should 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.’”

According to the majority, this approach “is consistent with” the high court’s holding in Attorney General v Diamond Mortgage, 414 Mich 603 (1982), as well as the “plain language of MCL 445.904(1)(a).”

The majority then addressed the issue of stare decisis (“to stand by things decided”) – the legal doctrine that requires courts to follow its prior decisions, to help ensure consistency, predictability and stability in the law.

“In Smith and Liss, this Court departed from and distorted the plain language of MCL 445.904(1)(a),” the high court majority explained. “Smith and Liss transformed the narrow statute into a broad exemption, precluding a significant number of MCPA claims that would not be exempt under a plain reading of the text. Michigan litigants are no longer able to rely on the plain language of the statute when determining whether potential MCPA claims fall under the exemption. By misconstruing a narrow exemption and ignoring the statute’s plain language and purpose, this Court has disrupted the reliance interest for consumer protections. It is this Court that should remedy its prior mistakes.  …  Accordingly, the reliance factor does not support the retention of Smith and Liss.”

In addition, the AG adequately pleaded a request for declaratory relief, the majority pointed out. “An actual case or controversy exists because the AG petitioned for civil investigative subpoenas, requesting authorization from the circuit court to investigate Eli Lilly’s insulin-pricing practices. The circuit court, finding probable cause to believe that Eli Lilly violated the MCPA, authorized the AG to issue subpoenas. Eli Lilly has not challenged this probable-cause finding. The fact that the parties stipulated to stay the proceedings does not negate the fact that there is a live controversy present in this case. Thus, although the AG has not pleaded a substantive MCPA violation, we are able to address whether Smith and Liss were correctly decided, through the AG’s request for declaratory relief.”

Accordingly, “[w]e hold that Smith and Liss were wrongly decided and cannot stand under our stare decisis analysis,” the Michigan Supreme Court majority said. “Smith’s and Liss’s interpretation of MCL 445.904(1)(a) is contrary to the plain language of the statute. We overrule Smith and Liss and ‘return the law, as is our duty, to what we believe the citizens of this state reading these statutes at the time of enactment’ would have understood them to mean.”

Therefore, “we reverse the decision of the Court of Appeals, vacate the circuit court order granting summary disposition in favor of Eli Lilly, and remand to the Ingham Circuit Court for further proceedings,” the majority concluded. “On remand, the circuit court must determine whether the particular transaction or conduct that the AG alleges violates the MCPA is specifically authorized by law. Only then would the MCL 445.904(1)(a) exemption apply.”

Dissent: No Standing

In her dissent, Justice Bolden, joined by Justices Zahra and Bernstein, said the AG did not have standing to litigate the questions presented because no violation of the MCPA was alleged and without a case of actual controversy, declaratory relief was unavailable under MCR 2.605.

“Whether Smith, Liss, or both cases have improperly interpreted the MCPA are questions we are unable to reach because plaintiff does not have standing to litigate those questions,” Justice Bolden wrote. “Until today, a plaintiff in this state was always required to show that there was an actual case or controversy before a court could resolve their issue. This requirement served the important purposes of protecting innocent parties against lawsuit and acting as a check on our own authority to resolve hypothetical problems. Today, the majority overturns two opinions after overhauling our standing doctrine.”

Further, “[a]lthough the majority tries to cabin its holding to the facts presented in this case and to the specific context of MCPA investigatory subpoenas, its reasoning that standing should be found whenever alternative facts would establish standing would seem to grossly expand our standing doctrine without restriction,” the justice observed.

“I reserve all judgment on whether Smith, Liss, or both cases have analytic flaws or whether those cases ought to be preserved by way of stare decisis,” Justice Bolden said. “Instead, I would simply affirm the longstanding requirement that a party needs to demonstrate standing before our Court can address the underlying substantive legal issues presented. Therefore, I respectfully dissent.”