Order Michigan Supreme Court
Lansing, Michigan
December 19, 2008 Clifford W. Taylor,
Chief Justice
132363 Michael F. Cavanagh
Elizabeth A. Weaver
Marilyn Kelly
Maura D. Corrigan
ROBERSON BUILDERS, INC., Robert P. Young, Jr.
Plaintiff/Counter-Defendant- Stephen J. Markman,
Justices
Appellant,
v SC: 132363
COA: 260039
Midland CC: 03-005718-CZ
JAMES LARSON,
Defendant/Counter-Plaintiff-
Appellee.
_________________________________________/
On order of the Court, leave to appeal having been granted and the briefs and oral
arguments of the parties having been considered by the Court, we VACATE our order of
February 1, 2008. The application for leave to appeal the September 19, 2006 judgment
of the Court of Appeals is DENIED, because we are no longer persuaded that the
questions presented should be reviewed by this Court.
KELLY, J. (concurring).
I concur in the Court’s order denying leave to appeal in this case. The Court of
Appeals correctly held that plaintiff is not entitled to a setoff against defendant’s
counterclaims.
Plaintiff, a contractor, sued defendant, a homeowner, for unpaid charges under a
home remodeling contract. The trial court dismissed plaintiff’s suit pursuant to MCL
339.2412(1) when it learned that plaintiff did not have a residential builder’s license.
The case proceeded to trial on defendant’s counterclaims for breach of contract and
violation of the Michigan Consumer Protection Act (MCPA).1 Despite plaintiff’s
unlicensed status, the trial court allowed it to present to the jury a claim for a setoff
against defendant’s claims based on work it had performed under the contract. The jury
awarded damages to defendant but set off several thousand dollars for work performed
by plaintiff.
1
MCL 445.901 et seq.
2
The Court of Appeals reversed, holding that plaintiff was not entitled to a setoff
because it was unlicensed and therefore barred from seeking compensation for work
performed. We initially granted leave to appeal to determine whether asserting a claim
for a setoff amounts to bringing or maintaining an action for purposes of MCL
339.2412(1).
MCL 339.2412(1) provides:
A person or qualifying officer for a corporation or
member of a residential builder or residential maintenance and
alteration contractor shall not bring or maintain an action in a
court of this state for the collection of compensation for the
performance of an act or contract for which a license is
required by this article without alleging and proving that the
person was licensed under this article during the performance
of the act or contract. [Emphasis added.]
Black’s Law Dictionary (8th ed) generally defines “action” as “a civil or criminal
judicial proceeding.” Black further notes that an “‘action’ in the sense of a judicial
proceeding includes recoupment, counterclaim, set-off, suit in equity, and any other
proceedings in which rights are determined.”2 Here, plaintiff’s claim was in fact a setoff
against an amount found by the jury to be owed to defendant.3 Specifically, the trial
court’s judgment provides:
ROBERSON’S CLAIM FOR SETOFF
5. Mr. Larson asked for or received services in addition
to those provided for in the construction contract and waived
the contract provision requiring his written change order as to
those items.
2
See MCL 440.1201(1).
3
Justice Markman opines that plaintiff’s claim is a “recoupment” rather than a “setoff.”
He relies on the definition of “setoff” in Black’s Law Dictionary (6th ed). But he
overlooks Black’s second definition of “setoff,” which includes “a debtor’s right to
reduce the amount of a debt by any sum the creditor owes the debtor; the
counterbalancing sum owed by the creditor.” I believe that, in his attempt to find the
proper label for plaintiff’s claim, Justice Markman misses the point. At issue is whether
plaintiff’s setoff, recoupment, counterclaim, counterdemand (call it what you may)
constitutes an “action” within the meaning of § 2412(1).
3
6. The dollar value of the items as to which Mr. Larson
waived the writing requirement and which Roberson performed
are as follows:
Extras: $6,378.
By labeling something a “recoupment” rather than a setoff, an unlicensed builder
may not avoid the proscription of § 2412(1). Such a maneuver, if permitted, would
elevate form over substance. Furthermore, in Stokes v Millen Roofing Co, we broadly
construed the statutory term “compensation.”4 Even though the plaintiff in Stokes sought
compensation in the form of a “setoff,” it was nonetheless “compensation” or “something
to be received as an equivalent for [the plaintiff’s] services.”5 Accordingly, given
Black’s definition of “action,” the precedent in Stokes, and the desirability of avoiding
misleading labels, plaintiff’s claim in this case constitutes an “action” for purposes of §
2412(1).6
This analysis is only the first step in applying § 2412(1). The second step is to
determine whether plaintiff’s setoff claim constitutes an action for the “collection of
compensation.” In Stokes, we held that because “compensation” is not a term of art, we
apply a dictionary definition to it.7 Accordingly, “compensation” means “something
given or received as an equivalent for services, debt, loss, injury, etc.; indemnity;
reparation; payment.”8 Applying this definition for purposes of § 2412(1), we held that
the statute “disallows an action for the reasonable value of materials conveyed, because
4
Stokes v Millen Roofing Co, 466 Mich 660, 666 (2002).
5
Id. at 665 (citation and quotation marks omitted).
6
I agree with Justice Markman that, according to Black’s Law Dictionary, plaintiff’s
claim for a setoff may arguably be characterized as a “defense.” However, both Stokes
and Black’s lead to the conclusion that an “action” includes a claim for a setoff.
The Court of Appeals held, and this Court has agreed, that a claim such as
plaintiff’s constitutes an “action” as a matter of law. Any further discussion of whether
an “action” encompasses setoffs, recoupments, etc. is pointless once it was determined
that plaintiff’s claim constituted an “action” under § 2412(1).
Moreover, Justice Markman’s concern for the potential exposure of unlicensed
builders to lawsuits is of no consequence to the resolution of this case. The Legislature
clearly intended that builders who wish to use the courts to enforce their construction
contracts with homeowners must obtain licensure from the state.
7
Stokes, supra at 665.
8
Random House Webster’s College Dictionary (1995).
4
such an action seeks ‘payment’ or ‘something given or received as an equivalent for [a]
debt’ or ‘loss.’”9
When these definitions are applied to this case, plaintiff’s claim is explicitly
barred by § 2412(1). Plaintiff is seeking payment for work it performed on defendant’s
home. The trial court, pursuant to § 2412(1), dismissed plaintiff’s initial suit for breach
of contract because plaintiff was unlicensed. Thus, plaintiff is now essentially seeking to
do indirectly what it could not accomplish directly, maintain an action against defendant
for damages for breach of contract. In fact, the compensation plaintiff seeks is a dollar-
for-dollar reduction in the amount owed to defendant.
The Court of Appeals properly held that plaintiff was not entitled to seek a setoff
against defendant’s counterclaims. Accordingly, I concur in the Court’s order denying
plaintiff’s application for leave to appeal.
YOUNG, J., joins the statement of KELLY, J.
MARKMAN, J. (dissenting).
Plaintiff contractor sued defendant homeowner for unpaid charges under a contract
for home remodeling. Its suit was dismissed on the basis of MCL 339.2412(1) when it
was disclosed that plaintiff did not have a residential-construction license. The case then
proceeded to trial on defendant’s counterclaims for breach of contract and violation of the
Michigan Consumer Protection Act (MCPA), MCL 445.901 et seq. The trial court
allowed plaintiff to present a “setoff” claim as an affirmative defense based on certain
work it had performed under the contract.10 Although the jury eventually determined that
defendant was entitled to $25,464 because plaintiff had breached the contract by failing
to provide workmanlike services, it found that plaintiff was entitled to a “setoff” of
$6,378. The jury also determined that plaintiff had not “failed to provide the promised
benefit” under the contract, so the trial court awarded no MCPA damages. The Court of
Appeals ruled that plaintiff was not entitled to any “setoff” because it was unlicensed,
9
Stokes, supra at 666.
10
Although the parties and the lower courts refer to plaintiff’s claim as a setoff, the claim
is more accurately identified as a recoupment. A setoff is a “[r]emedy employed by
defendant to discharge or reduce plaintiff’s demand by an opposite one arising from a
transaction which is extrinsic to plaintiff’s cause of action.” Black’s Law Dictionary (6th
ed). A recoupment is “[t]he right of the defendant to have the plaintiff’s monetary claim
reduced by reason of some claim the defendant has against the plaintiff arising out of the
very contract giving rise to plaintiff’s claim.” Id. Because, here, plaintiff’s claim arises
from the same contract giving rise to defendant’s claim, it is one for a recoupment and
not for a setoff.
5
reversed on the MCPA claim, and remanded to the trial court to determine the attorney
fees that should be awarded to defendant under the MCPA.
MCL 339.2412(1) provides:
A person or qualifying officer for a corporation or member of a
residential builder or residential maintenance and alteration contractor shall
not bring or maintain an action in a court of this state for the collection of
compensation for the performance of an act or contract for which a license
is required by this article without alleging and proving that the person was
licensed under this article during the performance of the act or contract.
[Emphasis added.]
Therefore, an unlicensed contractor cannot “bring or maintain an action . . . for the
collection of compensation . . . .” See Stokes v Millen Roofing Co, 466 Mich 660, 667
(2002).
The issue here is whether making a claim for a setoff or recoupment as a defense
to another party’s claim amounts to “bring[ing] or maintain[ing] an action.” Black’s Law
Dictionary (6th ed) defines “action” as “a lawsuit brought in a court; a formal complaint
within the jurisdiction of a court of law.”11 A cause of action may be asserted by a
“complaint, cross-claim, counterclaim, or third-party claim . . . .” MCR 2.111(F)(2).
11
Justice Kelly concludes that because Black’s Law Dictionary (7th ed) provides that
“‘[a]ction’, in the sense of a judicial proceeding, includes recoupment, counterclaim, set-
off, suit in equity, and any other proceeding in which rights are determined,” and because
plaintiff’s claim was a “setoff,” it is necessarily an “action” for purposes of MCL
339.2412(1). I disagree. Not only does Black’s (6th ed) itself indicate that a recoupment,
which, as noted above, properly describes the instant claim, is “a purely defensive
matter,” and not only does Black’s (8th ed) itself states that a recoupment constitutes an
“affirmative defense,” which, as noted below, is distinct from an “action,” but the
language invoked by Justice Kelly quotes the Uniform Commercial Code (UCC) § 1-
201(b)(1). The instant case does not involve the UCC, but, rather, the Occupational
Code, which statute has a very different purpose, with particular implications in terms of
what constitutes an “action.” Unlike the UCC, which is designed to simplify, clarify, and
make uniform the law of commercial transactions, the Occupational Code specifically
prohibits unlicensed professionals from bringing an “action” in order to facilitate the
code’s purpose of preventing and penalizing unlicensed activity. Finally, even on its own
terms, that an “action” under the UCC “includes” a recoupment and a setoff does not
logically signify that a recoupment or setoff can only be considered an action, and not
something else in a different context as well. That, for example, the term “Christmas
Decorations” includes pine trees does not mean that pine trees may not also be considered
coniferous trees for different purposes.
6
Here, the setoff or recoupment claim was not asserted in a complaint, cross-claim,
counter claim, or third-party claim. Rather, it was asserted only as a defense in plaintiff’s
answer to defendant’s counterclaim.
MCR 2.111(F)(2) provides that a “party against whom a cause of action has been
asserted by complaint, cross-claim, counterclaim, or third-party claim must assert in a
responsive pleading the defenses the party has against the claim.” That is, a party must
file an answer raising any defenses it has to an action that has been filed against it.12 This
at least suggests that a defense does not constitute an “action,” but, rather, constitutes
something one files to protect oneself against an action that has already been brought
against one. Thus understood, raising a defense would not constitute “bring[ing] or
maintain[ing] an action” under MCL 339.2412(1).
This conclusion is further underscored by the definition of “defense.” A “defense”
is “[t]hat which is offered and alleged by the party proceeded against in an action or suit
. . . to diminish plaintiff’s cause of action or defeat recovery.” Black’s Law Dictionary
(6th ed). Thus, a defense is not an action, i.e., a complaint or counterclaim, but
something one files in response to a complaint or a counterclaim to shield oneself from
that action. Although MCL 339.2412(1) prohibits certain persons from “bring[ing] or
maintain[ing] an action,” it does not prohibit them from defending themselves in an
action brought against them. And one of the ways by which a party may defend itself is
to “diminish [an opponent’s] cause of action” by way of a setoff or recoupment. Because
nothing in the law precludes an unlicensed builder from raising a setoff or recoupment
claim as a defense, I believe the Court of Appeals decision is in error.
The Court of Appeals decision deprives unlicensed builders of even the most basic
opportunity to defend themselves in a court of law and opens the door to extraordinarily
unfair exercises in gamesmanship by those who might sue an unlicensed builder. For
example, under the court’s interpretation of MCL 339.2412(1), a landowner could
knowingly hire an unlicensed contractor to build a home and contract to pay him
$200,000. The builder completes the project after spending $150,000 in labor and
construction materials. Relying on the Court of Appeals decision in this case, the owner
may then claim that the builder failed to properly perform part of the project, refuse to
pay him, and seek additional damages of $40,000 knowing that the builder would be
wholly unable to obtain compensation for the benefits conferred by his work or even raise
a setoff or recoupment defense to the additional claim. While the former result may be
required under the statute, see Stokes, supra at 675-677 (2002) (Markman, J.,
concurring), I do not believe the latter result is. I do not believe that the Legislature
12
An “answer” is “the formal written statement made by a [party] setting forth the
grounds for [the party’s] defense[.]” Black’s Law Dictionary (6th ed).
7
intended by this statute to deprive the builder in the foregoing hypothetical scenario of
$190,000 ($150,000 in labor and construction materials and $40,000 in additional
damages sought by the owner) without affording him even a minimal opportunity to
defend himself by raising a setoff or recoupment defense. “The statute removes an
unlicensed contractor’s power to sue, not the power to defend. [MCL 339.2412] was
intended to protect the public as a shield, not a sword.” Parker v McQuade Plumbing &
Heating, Inc, 124 Mich App 469, 471 (1983).
CAVANAGH, J., joins the statement of MARKMAN, J.
I, Corbin R. Davis, Clerk of the Michigan Supreme Court, certify that the
foregoing is a true and complete copy of the order entered at the direction of the Court.
December 19, 2008 _________________________________________
s1216 Clerk