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I am sorry to hear about this situation.
1) The police report is not subject to a "privacy law" and may be published provided one has a copy of it lawfully. So this would not be illegal to do, with certain parts redacted or not.
2) A lawsuit for defamation may indeed be in order. n Michigan, the elements of a defamation claim are: a false and defamatory statement concerning the plaintiff; an unprivileged publication to a third party; fault amounting at least to negligence on the part of the publisher; and either actionability of the statement irrespective of special harm (defamation per se) or the existence of actual harm caused by the publication.
3) In fact, this may be defamation per se, which is a special type of defamation where the false allegations are about (alleged) criminal actions. If so, then the defamation damages are PRESUMED and do not have to be proven, making the case easier. See George v. Senate Democratic Fund, 2005 WL 102717 (Mich. Ct. App. 2005); Pierson v. Ahern, 2005 WL(###) ###-####(Mich. Ct. App. 2005).
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