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A Better Partnership
June 07, 2015

MSC holds that courts have original jurisdiction over claims against governmental subdivisions

In Michigan Association of Home Builders v. City of Troy, No. 149150, the Michigan Supreme Court held that plaintiffs seeking declaratory and injunctive relief against the legislative body of a governmental subdivision do not have to exhaust their administrative remedies under the Single State Construction Code Act, outlined in MCL 125.1509b, in order for the court to have jurisdiction over the case.
 
The city of Troy entered into a contract with SafeBuilt Michigan, Inc., under which SafeBuilt assumed the duties of the city’s building inspection department for 80 percent of the inspection fees and the city retained the other 20 percent. Several Michigan construction associations brought this action against the city alleging that the contract generated a monthly surplus, which the city used to augment their general fund in violation of MCL 125.1522 and the Headlee Amendment, Const 1963, art 9, § 31. The circuit court granted summary disposition in favor of the city because the plaintiffs did not exhaust their administrative remedies as required by MCL 125.1509b. The Court of Appeals affirmed.        
 
            The Michigan Supreme Court reversed.  Under MCL 125.1522, the legislative body of a governmental subdivision (here, the Troy City Council) must establish reasonable fees the governmental subdivision will charge for acts and services performed by an enforcing agency that are commensurate with the costs of operating the enforcing agency (here, SafeBuilt). The plaintiffs alleged that the city violated MCL 125.1522 by augmenting its general fund with surplus fees. Citing MCL 125.1509b, the city argued that the plaintiffs must exhaust all their administrative remedies as a predicate to bringing an action in court. The Michigan Supreme Court held that the plain language of MCL 125.1509b limits the requirement that administrative remedies be exhausted to claims against enforcing agencies—in this case Troy’s building inspection department—not governmental subdivisions. As such, the plaintiffs could maintain their action against the city without exhausting their administrative remedies because their action was directed against the governmental subdivision and not the enforcing agency. 

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