The Michigan Supreme Court vacated its previous order from February 1, 2008, and denied the application for leave to appeal the Court of Appeals' judgment from September 19, 2006. The case involved Roberson Builders, Inc., a contractor who sued homeowner James Larson for unpaid charges related to a home remodeling contract. The trial court had dismissed Roberson's suit due to its lack of a residential builder’s license, leading to a trial on Larson's counterclaims for breach of contract and violations of the Michigan Consumer Protection Act (MCPA).
The jury awarded damages to Larson but allowed a setoff for work performed by Roberson. The Court of Appeals reversed this decision, ruling that Roberson, being unlicensed, was ineligible to claim a setoff. The Supreme Court had initially agreed to review whether a claim for a setoff constitutes an "action" under MCL 339.2412(1), which prohibits unlicensed contractors from pursuing compensation for contracted work.
Justice Markman noted that Roberson's claim could be viewed as "recoupment" instead of a "setoff," but the ruling emphasized that the classification does not exempt an unlicensed builder from the restrictions of MCL 339.2412(1). The Court concluded that Roberson's assertion of a setoff, regardless of its label, constitutes an "action" under the statute, reinforcing the prohibition against unlicensed contractors seeking compensation.
Permitting the maneuver in question would prioritize form over substance. In Stokes v Millen Roofing Co, the term “compensation” was broadly interpreted, encompassing a “setoff” as compensation for services rendered. Given Black's definition of “action” and the precedent from Stokes, the plaintiff's claim qualifies as an “action” under MCL 339.2412(1). The next step involves assessing if the plaintiff's setoff claim is an action for “collection of compensation.” Stokes clarified that “compensation” is not a legal term but defined it as something received as equivalent for various losses or services. Applying this, the statute disallows actions seeking payment for materials, as these are considered claims for compensation. In this case, the plaintiff's claim for payment for work on the defendant's home is explicitly barred by 2412(1). The trial court dismissed the plaintiff’s breach of contract suit due to lack of a residential construction license, leading the plaintiff to seek a setoff against the defendant’s counterclaims indirectly. The court ruled correctly that the plaintiff could not claim a setoff because of its unlicensed status, aligning with the precedent that unlicensed contractors cannot pursue compensation actions. The jury found the defendant entitled to damages for the plaintiff's breach, while also awarding a setoff, but the Court of Appeals overturned this, emphasizing that the unlicensed status precludes any action for compensation. Justice Kelly argued that a claim for setoff constitutes an action, but this view is disputed.
Black’s Law Dictionary indicates that recoupment is a purely defensive matter and an affirmative defense, distinct from an action. The case at hand involves the Occupational Code, which differs from the Uniform Commercial Code (UCC) as it aims to prevent unlicensed professionals from initiating legal actions. The Occupational Code's framework does not allow unlicensed professionals to bring an action, but it does not prevent them from defending against an action brought against them. According to MCR 2.111(F)(2), defenses must be raised in response to claims, suggesting that a defense is not an action but a protective response. The definition of a defense supports this view, as it refers to claims made to counter an opponent's case. Consequently, while MCL 339.2412(1) restricts certain individuals from initiating actions, it does not inhibit their ability to defend themselves, including the use of a setoff or recoupment. The Court of Appeals' decision is criticized for unfairly limiting unlicensed builders' ability to defend themselves, potentially leading to unjust outcomes where a landowner could exploit the situation by refusing payment without allowing the builder to raise a defense. The statute is interpreted as a means to protect the public, not to strip unlicensed contractors of their defense rights. The statement concludes with a certification from the Clerk of the Michigan Supreme Court.
