Kolev v. Euromotors West/The Auto Gallery

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

DIANA KOLEV, 
Plaintiff-Appellant,
v.
EUROMOTORS WEST/THE AUTO
GALLERY; MOTORCARS WEST LLC; No. 09-55963
H M GRAY FAMILY II INC; GRAY
D.C. No.
FAMILY II LLC; BENNETT
AUTOMOTIVE I INC; BENNETT  8:07-cv-01171-
AG-AN
AUTOMOTIVE II INC,
Defendants-Appellees, OPINION
and
PORSCHE CARS NORTH AMERICA,
INC.,
Defendant.

Appeal from the United States District Court
for the Central District of California
Andrew J. Guilford, District Judge, Presiding

Argued and Submitted
February 7, 2011—Pasadena, California

Filed September 20, 2011

Before: Dorothy W. Nelson, Stephen Reinhardt, and
N. Randy Smith, Circuit Judges.

Opinion by Judge Reinhardt;
Dissent by Judge N.R. Smith

17791
17794 KOLEV v. PORSCHE CARS NORTH AMERICA

COUNSEL

Martin W. Anderson and Jeffrey Kane, Santa Ana, California,
for the plaintiff-appellant.

Arent Fox, Aaron H. Jacoby, John D. Bronstein, and Melanie
S. Joo, Los Angeles, California, for the defendants-appellees.

OPINION

REINHARDT, Circuit Judge:

Diana Kolev brought suit against Euromotors West/The
Auto Gallery, Motorcars West LLC, HM Gray Family II Inc.,
Gray Family II LLC, Bennett Automotive I Inc., Bennett
Automotive II Inc. (“the Dealership”) and Porsche Cars North
America, Inc. (“Porsche”), when the pre-owned (formerly
known as “used”) automobile that she purchased from the
Dealership developed serious mechanical problems during the
warranty period and the Dealership refused to honor her war-
ranty claims. She alleges breach of implied and express war-
ranties under the Magnuson-Moss Warranty Act (“MMWA”),
and breach of contract and unconscionability under California
law.

The district court granted the Dealership’s petition to com-
pel arbitration pursuant to the mandatory arbitration provision
in the sales contract that Kolev signed when she bought the
car. It also stayed the action against Porsche. After the arbitra-
tor resolved most of the claims in favor of the Dealership, the
district court confirmed the arbitration award. We review de
 KOLEV v. PORSCHE CARS NORTH AMERICA 17795
novo the district court’s order granting the petition to compel
arbitration. See Davis v. O’Melveny & Myers, 485 F.3d 1066,
1072 (9th Cir. 2007).

[1] Kolev’s principal argument on appeal is that the
Magnuson-Moss Warranty Act (“MMWA”), 15 U.S.C.
§ 2301 et seq. (2000), bars the provision mandating pre-
dispute binding arbitration of her warranty claims against the
Dealership. Although the text of the MMWA does not specifi-
cally address the validity of pre-dispute mandatory binding
arbitration, Congress expressly delegated rulemaking author-
ity under the statute to the Federal Trade Commission
(“FTC”). See 15 U.S.C. § 2310(a)(2). Pursuant to this author-
ity, the FTC construed the MMWA as barring pre-dispute
mandatory binding arbitration provisions covering written
warranty agreements and issued a rule prohibiting judicial
enforcement of such provisions with respect to consumer
claims brought under the MMWA. See 16 C.F.R. § 703.5; 40
Fed. Reg. 60167, 60210 (Dec. 31, 1975).

We apply a two-step inquiry in reviewing agency construc-
tions of statutes. See Chevron U.S.A. Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837 (1984). The
first step requires us to ask whether Congress has “directly
spoken to the precise question at issue” in a way that renders
its intention “clear” and “unambiguously expressed.” Id. at
842-44. If we find that the “statute is silent or ambiguous with
respect to the specific issue,” then we proceed to the second
step, and ask whether an interpretation by the agency to which
Congress has delegated rulemaking authority “is based on a
permissible construction of the statute.” Id. at 843. If Con-
gress’ intent is not clear under the statute and if “Congress
delegated authority to the agency generally to make rules car-
rying the force of law, and [ ] the agency interpretation claim-
ing deference was promulgated in the exercise of that
authority,” United States v. Mead Corp., 533 U.S. 218, 226-
17796 KOLEV v. PORSCHE CARS NORTH AMERICA
27 (2001), then we must defer to the agency’s reasonable con-
struction of the ambiguous statutory provision.1

“Under the first prong of Chevron, we use traditional tools
of statutory construction to determine whether Congress
expressed a clear intent on the issue in question.” Schneider
v. Chertoff, 450 F.3d 944, 953 (9th Cir. 2006) (internal cita-
tions omitted). We agree with the Fifth Circuit that “[t]he text
of the MMWA does not specifically address binding arbitra-
tion,” Walton v. Rose Mobile Homes LLC, 298 F.3d 470, 475
(5th Cir. 2002); see also Davis v. S. Energy Homes, Inc., 305
F.3d 1268, 1278 (11th Cir. 2002) (“Congress failed to directly
address binding arbitration anywhere in the text . . . of the
MMWA.”), and conclude that Congress has not “directly spo-
ken to the precise question,” Chevron, 467 U.S. at 842,
whether the MMWA bars warranty provisions that mandate
pre-dispute binding arbitration of warranty claims.

[2] Accordingly, we proceed to the second prong of the
Chevron inquiry, under which we ask whether the agency to
which Congress delegated rulemaking authority resolved the
statutory ambiguity based on a permissible construction of the
statute. 467 U.S. at 843. In enacting the MMWA, Congress
expressly delegated authority to the FTC to “prescribe rules
setting forth minimum requirements for any informal dispute
settlement procedure which is incorporated into the terms of
a written warranty.” 15 U.S.C. § 2310(a)(2). Pursuant to this
authority, the FTC promulgated Rule 703, which provides that
“[d]ecisions of [any] Mechanism shall not be legally binding
on any person,” 16 C.F.R. § 703.5(j), defining a “Mechanism”
1
For cases in which the Mead requirements for Chevron deference are
not met, we review the agency’s interpretation under the Skidmore stan-
dard, whereby the interpretation is “entitled not to deference but to a lesser
‘respect’ based on the persuasiveness of the agency decision.” Wilderness
Soc’y v. U.S. Fish & Wildlife Serv., 353 F.3d 1051, 1067 (9th Cir. 2003);
Skidmore v. Swift & Co., 323 U.S. 134, 139 (1944). We explain for the
reasons set forth below why the Mead requirements for Chevron deference
are fully satisfied in this case.
 KOLEV v. PORSCHE CARS NORTH AMERICA 17797
as an “informal dispute settlement procedure which is incor-
porated into the terms of a written warranty.” § 703.1(e). If a
consumer “is dissatisfied with [a Mechanism’s] decision or
warrantor’s intended actions, or eventual performance,” the
Rule states, then “legal remedies, including use of small
claims court, may be pursued.” § 703.5(g).

When it published Rule 703, the FTC explained:

Several industry representatives contended that war-
rantors should be allowed to require consumers to
resort to mechanisms whose decisions would be
legally binding (e.g., binding arbitration). The Rule
does not allow this for two reasons. First, as the Staff
Report indicates, Congressional intent was that deci-
sions of Section 110 Mechanisms[4] not be legally
binding. Second, even if binding mechanisms were
contemplated by Section 110 of the Act, the [FTC]
is not prepared, at this point in time, to develop
guidelines for a system in which consumers would
commit themselves, at the time of product purchase,
to resolve any difficulties in a binding, but non-
judicial, proceeding. The [FTC] is not now con-
vinced that any guidelines which it set out could
ensure sufficient protection for consumers.

[4] “Section 110 Mechanisms” is a reference to those
informal dispute settlement mechanisms authorized
by Section 110 of the MMWA, found at 15 U.S.C.
§ 2310.

40 Fed. Reg. 60167, 60210 (Dec. 31, 1975). The FTC’s expla-
nation concluded that “reference within the written warranty
to any binding, non-judicial remedy is prohibited by the Rule
and the Act.” Id. at 60211.2 In 1999, the FTC restated its posi-
2
Although the written warranty in this case was not contained within the
record, the sales contract included an arbitration clause that mandated pre-
17798 KOLEV v. PORSCHE CARS NORTH AMERICA
tion that mandatory pre-dispute binding arbitration clauses are
invalid under the MMWA and affirmed that “this interpreta-
tion continues to be correct.” 64 Fed. Reg. 19700, 19708
(Apr. 22, 1999). Expressly declining to amend 16 C.F.R.
§ 703.5(j) to permit binding arbitration, the FTC concluded
that “Rule 703 will continue to prohibit warrantors from
including binding arbitration clauses in their contracts with
consumers that would require consumers to submit warranty
disputes to binding arbitration.” Id. at 19708-09.

[3] There are three reasons why the FTC’s interpretation of
the MMWA as precluding pre-dispute mandatory binding
arbitration is a reasonable construction of the statute. First, the
FTC sought in devising Rule 703 to implement Congress’s
intent, based on evidence from the legislative history of the
MMWA. Specifically, in its Statement of Basis and Purpose
for Rule 703, the FTC cited to the House Subcommittee Staff
Report as evidence that “[c]ongressional intent was that deci-
sions of Section 110 Mechanisms not be legally binding.” 40
Fed. Reg. at 60210. The Subcommittee Staff Report on which
the FTC based its independent interpretation of Congress’s
intention makes clear that consumers must be made aware of
their rights, including their right to pursue litigation, because
otherwise “the fate of aggrieved consumers usually rests with
the seller/manufacturer and its willingness to live up to its
promises.” 120 Cong. Rec. 31,318 (1974). The FTC’s reliance
on such legislative history in seeking to implement Con-

dispute binding arbitration and stated that any warranties regarding the
vehicle would be located in a separate written warranty; both parties and
the district court assumed that such written warranty existed and that it
referred to the arbitration clause. If, however, the mandatory arbitration
clause actually appeared only in the sales contract and not also in the writ-
ten warranty, then it would be even more clearly impermissible. See Cun-
ningham v. Fleetwood Homes of Georgia, Inc., 253 F.3d 611, 622 (11th
Cir. 2001) (“Compelling arbitration on the basis of an arbitration agree-
ment that is not referenced in the warranty presents an inherent conflict
with the [MMWA]’s purpose of providing clear and concise warranties to
consumers.”).
 KOLEV v. PORSCHE CARS NORTH AMERICA 17799
gress’s intent is the first reason that its rule barring judicial
enforcement of pre-dispute mandatory binding arbitration
agreements is a reasonable construction of the MMWA.

[4] Second, the FTC’s interpretation that the MMWA bars
pre-dispute mandatory binding arbitration advances the stat-
ute’s purpose of protecting consumers from being forced into
involuntary agreements that they cannot negotiate. In enacting
the MMWA, Congress sought to address the extreme inequal-
ity in bargaining power that vendors wielded over consumers
by “providing consumers with access to reasonable and effec-
tive remedies” for breaches of warranty, and by “provid[ing]
the Federal Trade Commission (FTC) with means of better
protecting consumers.” H.R. Rep. No. 93-1107, at 24 (1974),
reprinted in 1974 U.S.C.C.A.N. 7702, 7702. The FTC, how-
ever, was “not . . . convinced that any guidelines which it set
out could ensure sufficient protection for consumers.” 40 Fed.
Reg. at 60211. Most important, the agency construed the stat-
ute as prohibiting vendors from including provisions that
mandate arbitration of disputes over breaches of warranty
before a dispute arises, in order to prevent them from depriv-
ing consumers of the right that it guaranteed them to litigate
breaches of warranty. See H.R. Rep. No. 93-1107, at 41, 1974
U.S.C.C.A.N. at 7723 (“An adverse decision in any informal
dispute settlement proceeding would not be a bar to a civil
action on the warranty involved in the proceeding.”).

[5] Third, we “should accord particular deference to the
FTC’s regulatory interpretation of the MMWA because the
regulations represent a longstanding, consistent interpretation
of the statute.” Walton, 298 F.3d at 490 (King, C.J., dissent-
ing). The Supreme Court has made clear that “a court may
accord great weight to the longstanding interpretation placed
on a statute by an agency charged with its administration,”
NLRB v. Bell Aerospace Co. Div. Textron Inc., 416 U.S. 267,
274-75 (1974), because “agency interpretations that are of
long standing come before us with a certain credential of rea-
sonableness, since it is rare that error would long persist.”
17800 KOLEV v. PORSCHE CARS NORTH AMERICA
Smiley v. Citibank, 517 U.S. 735, 740 (1996). In this case, the
agency’s interpretation of the statute has persisted for more
than thirty-five years, ever since in 1975 the FTC promul-
gated Rule 703 shortly after the enactment of the MMWA. In
1999, the FTC published a regulatory review statement reaf-
firming its interpretation of the MMWA to preclude pre-
dispute mandatory binding arbitration agreements. Although
we summarized the FTC’s 1999 statement briefly above, it is
worth quoting here at greater length:

The Commission examined the legality and the mer-
its of mandatory binding arbitration clauses in writ-
ten consumer product warranties when it
promulgated Rule 703 in 1975. Although several
industry representatives at that time had recom-
mended that the Rule allow warrantors to require
consumers to submit to binding arbitration, the Com-
mission rejected that view as being contrary to the
Congressional intent.

The Commission based this decision on its analysis
of the plain language of the Warranty Act. Section
110(a)(3) of the Warranty Act provides that if a war-
rantor establishes an informal dispute settlement
mechanism that complies with Rule 703 and incor-
porates that informal dispute settlement mechanism
in its written consumer product warranty, then “(t)he
consumer may not commence a civil action (other
than a class action) . . . unless he initially resorts to
such procedure.” This language clearly implies that
a mechanism’s decision cannot be legally binding,
because if it were, it would bar later court action.
The House Report supports this interpretation by
stating that “(a)n adverse decision in any informal
dispute settlement proceeding would not be a bar to
a civil action on the warranty involved in the pro-
ceeding.” H.R. Rep. No. 93-1107 (1974), at 41.
 KOLEV v. PORSCHE CARS NORTH AMERICA 17801
....

[T]he Commission determined that “reference within
the written warranty to any binding, non-judicial
remedy is prohibited by the Rule and the Act.” 40
FR 60168, 60211 (1975). The Commission believes
that this interpretation continues to be correct. There-
fore, the Commission has determined not to amend
§ 703.5(j) to allow for binding arbitration. Rule 703
will continue to prohibit warrantors from including
binding arbitration clauses in their contracts with
consumers that would require consumers to submit
warranty disputes to binding arbitration.

64 FR 19700-01, 19708-09 (1999) (internal footnotes omit-
ted). That a quarter century passed between the FTC’s initial
construction of the MMWA as barring pre-dispute mandatory
binding arbitration and its most recent reaffirmation of that
conclusion merits that consistent FTC construction of the stat-
ute strong deference. Moreover, that Rule and its concomitant
construction of the MMWA by the agency charged with the
statute’s enforcement remains in effect to this day.

We reject the argument that the FTC’s construction is
unreasonable in light of the Supreme Court’s repeated hold-
ings that Congress established a “liberal federal policy favor-
ing arbitration agreements” when in 1924 it enacted the
Federal Arbitration Act (“FAA”), fifty-one years before
adopting the Magnuson-Moss Warranty Act in 1975. Moses
H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24 (1983); see also Hall Street Assocs. v. Mattel, Inc., 552
U.S. 576, 581 (2008); Buckeye Check Cashing Inc. v. Car-
degna, 546 U.S. 440, 443 (2006).

[6] The FAA provides in pertinent part that an arbitration
agreement “shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the revoca-
tion of any contract.” 9 U.S.C. § 2. The Supreme Court held
17802 KOLEV v. PORSCHE CARS NORTH AMERICA
in Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220
(1987), that the FAA’s mandate to enforce arbitration agree-
ments, “[l]ike any statutory directive, may be overridden by
a contrary congressional command.” Id. at 226.

The Fifth and Eleventh Circuits relied on McMahon to con-
clude that the MMWA does not overcome the FAA’s pre-
sumption that courts should enforce arbitration agreements.
See Walton, 298 F.3d at 478, 474; Davis, 305 F.3d at 1279,
1273. The Eleventh Circuit held that the agency’s rule prohib-
iting pre-dispute mandatory binding arbitration was an imper-
missible construction of the statute, Davis, 305 F.3d at 1279,
while a Fifth Circuit panel majority, over a vigorous dissent
by then-Chief Judge King, Walton, 298 F.3d at 480-92 (King,
C.J., dissenting), asserted that it need not even consider the
reasonableness of the FTC rule, because Congress, through
the FAA’s pro-arbitration presumption enacted nearly a half-
century before the MMWA, had “directly spoken to the pre-
cise question” whether a warrantor may mandate pre-dispute
binding arbitration under the MMWA. Id. at 478 n.14.

We disagree with the conclusions reached by the Fifth and
Eleventh Circuits for three reasons. First, as Chief Judge King
noted in dissent, it is unprecedented to locate Congress’s
intent with respect to one statute by looking to “a prior, less
specific statute.” Id. at 483 (King, C.J., dissenting). Where the
directives of two statutes create an apparent conflict, to iden-
tify congressional intent in one statute by reference to a previ-
ously enacted and more general statute would violate two
basic principles of statutory interpretation: first, that later
enacted statutes take priority over older ones, and second, that
more specific statutes control more general ones. See William
N. Eskridge, et al., Legislation and Statutory Interpretation
282-83 (2d ed. 2006) (italics omitted). Nor did the Supreme
Court purport to settle the question in McMahon, twelve years
after the MMWA’s enactment; it stated only that the FAA
established a rebuttable presumption in favor of arbitration
that Congress could override in any later statute by adopting
 KOLEV v. PORSCHE CARS NORTH AMERICA 17803
“a contrary congressional command.” 482 U.S. at 226. The
Fifth Circuit erred in holding that the prior adoption of the
FAA was in itself enough to find that Congress had in the
later-enacted MMWA “directly spoken to the precise ques-
tion” whether pre-dispute mandatory binding arbitration pro-
visions are enforceable under the MMWA. Id. at 478 n.14.

[7] Second, as we explained above, the FTC reasonably
construed the statute’s language, legislative history, and
underlying purpose in concluding that “reference within the
written warranty to any binding, non-judicial remedy is pro-
hibited by . . . the [Magnuson-Moss Warranty] Act.” 40 Fed.
Reg. 60167, 60211 (Dec. 31, 1975). With its 1999 regulatory
review statement, the FTC again carefully considered its con-
struction of the statute as prohibiting “any binding, non-
judicial remedy,” and concluded that “this interpretation con-
tinues to be correct.” 64 Fed. Reg. 19700, 19708 (Apr. 22,
1999). It did so with full awareness that the Supreme Court
had twelve years earlier in McMahon set forth a rebuttable
presumption in favor of enforcing arbitration agreements. We
agree with the FTC’s longstanding interpretation of the stat-
ute, that it bars judicial enforcement of warranty provisions
that mandate pre-dispute binding arbitration and that the
MMWA evinces a “contrary congressional command” suffi-
cient to override the FAA’s presumption in favor of arbitra-
tion. McMahon, 482 U.S. at 226. More important, however,
under Chevron, we are bound by it. See 467 U.S. at 842-44.

The third and final reason that the FAA’s proarbitration
presumption does not render unreasonable the FTC’s interpre-
tation of the MMWA as barring pre-dispute mandatory bind-
ing arbitration is that the 1975 Magnuson-Moss Warranty Act
is different in four critical respects from every other federal
statute that the Supreme Court has found does not rebut the
FAA’s pro-arbitration presumption, including the Sherman
Antitrust Act of 1890,3 the Securities Act of 1933,4 and the
3
See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473
U.S. 614, 625-26 (1985) (holding that claims brought under 15 U.S.C.
17804 KOLEV v. PORSCHE CARS NORTH AMERICA
Securities Exchange Act of 1934.5 First, with respect to these
other statutes, in none did an authorized agency construe the
statute to bar pre-dispute mandatory binding arbitration. Sec-
ond, only in the MWWA and in none of these other statutes
did Congress say anything about informal, non-judicial reme-
dies, and do so in a way that would bar binding procedures
such as mandatory arbitration. See 15 U.S.C. § 2310(a)(2)
(authorizing the FTC to “prescribe rules setting forth mini-
mum requirements for any informal dispute settlement proce-
dure which is incorporated into the terms of a written
warranty”).

Third, in the MMWA alone did Congress explicitly pre-
serve, in addition to informal dispute settlement mechanisms,
a consumer’s right to press his claims under the statute in civil
court. See 15 U.S.C. § 2310(a)(3)(C) (requiring a “consumer
[to] resort to such [informal dispute settlement] procedure
before pursuing any legal remedy” (emphasis added)); id.
§ 2310(a)(3)(C)(i) (no consumer may “commence a civil
action . . . unless he initially resorts to such procedure
(emphasis added)). Fourth, only the MMWA sought as its pri-
mary purpose to protect consumers by prohibiting vendors
from imposing binding, non-judicial remedies. By contrast,
the FAA’s proarbitration policy, the Court made especially
clear just last term, is intended to expedite disputes through
efficient, dispute-specific procedures and not to advance the
interests of consumers. See AT&T Mobility v. Concepcion,

§§ 1-7 are subject to binding arbitration pursuant to the FAA’s proarbitra-
tion presumption).
4
See Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S.
477, 486-88 (1989) (holding that claims under 15 U.S.C. §§ 77a-77aa are
subject to binding arbitration pursuant to the FAA’s proarbitration pre-
sumption).
5
See McMahon, 482 U.S. at 227-28 (holding that claims brought under
15 U.S.C. §§ 78aa; 78cc(a) are subject to binding arbitration); see also
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 35 (1991) (same
for the Age Discrimination in Employment Act, 29 U.S.C. §§ 621-34).
 KOLEV v. PORSCHE CARS NORTH AMERICA 17805
563 U.S. __, __ (2011) (slip op., at 9) (“The overarching pur-
pose of the FAA, evident in the text of §§ 2, 3, and 4, is to
ensure the enforcement of arbitration agreements according to
their terms so as to facilitate streamlined proceedings.”
(emphasis added)).

[8] In sum, having found that the statute on its face is
ambiguous as to whether pre-dispute mandatory binding arbi-
tration provisions are valid under the MMWA, we conclude
that the FTC’s construction that they are not is reasonable.
We do so for the following reasons: (1) the FTC interpreted
the statute consistent with its carefully reasoned understand-
ing of the enacting Congress’s intent, as evidenced by the
statute’s language and legislative history; (2) the FTC’s con-
struction advances the MMWA’s purpose to protect consum-
ers from predatory warrantors and to provide them with fair
and informal pre-filing procedures that preserve their rights to
enforce their claims for breach of warranty through civil liti-
gation in the state or federal courts; and (3) the persistence of
the FTC’s rule that the MMWA bars pre-dispute mandatory
binding arbitration — expressly reaffirmed more than a
decade after the Supreme Court held that the FAA “mandates
enforcement of agreements to arbitrate statutory claims”
absent “contrary congressional command — requires that the
courts afford the agency’s construction particularly strong
deference. Because we are required to defer to the reasonable
construction of a statute by the agency that Congress has
authorized to interpret it, we hold that the MMWA precludes
enforcement of pre-dispute agreements such as Porsche’s that
require mandatory binding arbitration of consumer warranty
claims.

In view of the conclusion we have reached above, we need
not address Kolev’s additional contentions that the arbitration
clause was unconscionable under California law and that the
district court abused its discretion by admitting and relying on
the sales contract authenticated by a principal of the Dealer-
17806 KOLEV v. PORSCHE CARS NORTH AMERICA
ship and by compelling arbitration of her claims against the
Dealership while staying the action against Porsche.

[9] We hold that written warranty provisions that mandate
pre-dispute binding arbitration are invalid under the MMWA
and that the district court therefore erred in enforcing Pors-
che’s warranty clause by compelling mandatory arbitration of
Kolev’s claims. Accordingly, we reverse and remand to the
district court as to all breach of warranty claims.

REVERSED AND REMANDED.

N.R. SMITH, Circuit Judge, dissenting

In a departure from Supreme Court precedent, the prevail-
ing view of our sister circuits, and applicable statutes, the
majority opinion nullifies nearly every binding, non-judicial
warranty dispute remedy adopted by private parties in this cir-
cuit. The majority reaches this conclusion by conflating “in-
formal dispute settlement procedures” (“IDSMs” or
“Mechanisms”)1 under the Magnuson-Moss Warranty Act, 15
U.S.C. § 2301 et seq. (“MMWA”)—a narrow class of war-
ranty dispute resolution procedures—with any ADR remedy
adopted in a private contract.

Here, we address whether FTC regulations (proscribing the
use of binding arbitration by “Mechanisms”) bar the use of a
binding arbitration remedy to which Kolev and a Los Angeles
Porsche dealership agreed. Neither party contends that the
dealership’s arbitration remedy is a Mechanism. Indeed, the
1
The FTC refers to “informal dispute settlement procedures” authorized
by the MMWA as “Informal Dispute Settlement Mechanisms” or simply
“Mechanisms.” See 16 C.F.R. § 703.1(e); Final Action Concerning
Review of Interpretations of MMWA, 64 Fed. Reg. 19700, 19701 (Apr.
22, 1999).
 KOLEV v. PORSCHE CARS NORTH AMERICA 17807
arbitration remedy (chosen by the parties) is not, and has
never purported to be, compliant with federal law regulating
the creation and operation of Mechanisms. More importantly,
the FTC acknowledges that private parties may agree to pur-
sue “some avenue of redress other than the Mechanism if they
feel it is more appropriate,” including “binding arbitration.”
Promulgation of Rule, 40 Fed. Reg. 60,190, 60,210 (Dec. 31,
1975) (emphasis added). Yet, the majority concludes that the
FTC’s ban on Mechanisms’ use of binding arbitration must
apply to all warranty dispute remedies. This view finds no
support in the text of the statute, administrative rules, FTC
opinions, or judicial authority on the subject.

Additionally, even if FTC regulations were applicable and
could be read to prohibit binding arbitration of any warranty
dispute arising under the MMWA, this view would be unrea-
sonable in light of the presumption of arbitrability created by
the Federal Arbitration Act. See Walton v. Rose Mobile
Homes LLC, 298 F.3d 470, 475-78 (5th Cir. 2002); Davis v.
S. Energy Homes, Inc., 305 F.3d 1268, 1272-77, 1280 (11th
Cir. 2002).

A. FTC regulations regarding “IDSMs” under the
MMWA do not apply to the binding arbitration rem-
edy in this case

1. The FTC’s regulatory authority under the MMWA

The MMWA authorizes warrantors to create “informal dis-
pute settlement procedures” called Mechanisms. Such Mecha-
nisms are unique ADR procedures that prevent consumers
from pursuing warranty claims in court without first exhaust-
ing the warrantor’s Mechanism procedures. 15 U.S.C.
§ 2310(a). Recognizing Mechanisms and their “potential ben-
efits as an alternative to the judicial process,” Congress made
such exhaustion a prerequisite to filing suit to “encourage
warrantors to establish procedures whereby consumer dis-
putes are fairly and expeditiously settled.” Action Interpreting
17808 KOLEV v. PORSCHE CARS NORTH AMERICA
the MMWA, 64 Fed. Reg. 19700, 19701 (Apr. 22, 1999).
Congress charged the FTC with exclusive authority to “pre-
scribe rules setting forth minimum requirements for any
[IDSM],” monitor compliance with IDSM regulations, inves-
tigate complaints, and take remedial measures against non-
compliant IDSMs. Id. § 2310(a)(2), (4). Pursuant to this
authority, the FTC promulgated Rule 703. Rule 703 provides
the minimum requirements for IDSMs authorized under the
MMWA. See Informal Dispute Settlement Procedures, 16
C.F.R. § 703 et seq. To qualify as an IDSM, a program must
(1) be established by a warrantor, (2) comply with rules set
forth by the FTC, and (3) be incorporated into a written war-
ranty agreement as a prerequisite to litigation. 15 U.S.C.
§ 2310(a)(3).

The FTC has also indicated that use of binding arbitration
by IDSMs is prohibited by the MMWA and Rule 703, because
“[d]ecisions of the Mechanism shall not be legally binding on
any person.” Id. § 703.5(j). Addressing renewed requests that
warrantors be permitted to use binding arbitration as an
MMWA-approved Mechanism, the FTC explained:

The Rule does not allow this for two reasons. First,
. . . Congressional intent was that decisions of Sec-
tion 110 Mechanisms not be legally binding. Second,
even if binding Mechanisms were contemplated by
Section 110 of the Act, the Commission is not pre-
pared, at this point in time, to develop guidelines for
a system in which consumers would commit them-
selves, at the time of product purchase, to resolve
any difficulties in a binding, but non-judicial pro-
ceeding.

40 Fed. Reg. 60167, 60210 (Dec. 31, 1975).

2. The dealership’s arbitration remedy is not an IDSM

It is clear from the record and the pleadings that the binding
arbitration remedy, to which the parties agreed in this case, is
 KOLEV v. PORSCHE CARS NORTH AMERICA 17809
not an IDSM. The majority’s notion that the arbitration rem-
edy is an IDSM is made out of whole cloth. Indeed, neither
party alleges (and there is no indication in the record) that the
arbitration remedy complies (or has ever attempted to com-
ply) with the FTC’s extensive regulations for IDSMs in Rule
703. See 15 U.S.C. § 2310(a)(3)(B). To be sure, the arbitra-
tion remedy fits none of the statutory or regulatory require-
ments for an IDSM. For example, the dealership does not
describe the arbitration remedy as something that must be
exhausted “before” pursuing litigation. See id.
§ 2310(a)(3)(C). The Agreement provides that (1) disputes
will “be resolved by neutral, binding arbitration and not by a
court action;” (2) “[t]he arbitrator’s award shall be final and
binding on all parties;” and (3) any appeal, if permitted by the
terms of the agreement, will be to a three-arbitrator panel, not
to a court of law.” (emphasis added). Thus, instead of making
arbitration a “prerequisite” to litigation (under § 2310(a)(3) of
the MMWA), the agreement makes arbitration a binding
alternative to litigation that operates completely outside the
optional IDMS procedures available under the MMWA.

3. Neither Congress nor the FTC prohibits the use of
binding, non-judicial remedies as an alternative to
IDSMs

IDSMs authorized by the MMWA are only one of many
alternative dispute resolution procedures available to private
parties under federal law. In concluding that any binding,
non-judicial dispute resolution program is a “Mechanism”
under the MMWA, the majority adopts the errant reasoning
of Chief Judge King in Walton v. Rose Mobile Homes, 298
F.3d 470, 481 (5th Cir. 2002) (King, J., dissenting). Writing
in dissent, Chief Judge King concluded that no warrantor may
use binding arbitration to settle warranty disputes, because the
FTC prohibits the use of binding arbitration by Mechanisms.
Id. This view conflates the word “Mechanism” with “all non-
judicial dispute resolution procedures, including arbitration.”
17810 KOLEV v. PORSCHE CARS NORTH AMERICA
Id. As explained above, this is a misreading of the statute and
applicable FTC regulations.

“Mechanism” is a legal term adopted by the FTC that refers
narrowly to IDSMs authorized by the MMWA. See 16 C.F.R.
§ 703.1(e) (“Mechanism means an informal dispute settlement
procedure which is incorporated into the terms of a written
warranty to which any provision of Title I of the Act applies,
as provided in Section 1102 of the Act.”); 64 Fed. Reg. 19700,
19701 (Apr. 22, 1999). Although “Mechanisms” are ADR
procedures, not all ADR procedures are “Mechanisms.” The
FTC itself acknowledges that there are non-judicial ADR
remedies that fall outside the “Mechanism” procedures autho-
rized by the MMWA:

Rule [703] applies only to warrantors who ‘give or
offer to give a written warranty which incorporates
an informal dispute settlement mechanism,’ but few
warrantors incorporate an IDSM into their
warranties—i.e., few include a prior resort require-
ment in their warranties. Therefore, there are few
IDSMs that come within the ambit of [FTC regula-
tions].

64 Fed. Reg. at 19,707 (emphasis added).

Significantly, the FTC has addressed the specific question
whether a “warrantor and the consumer [can] agree to use a[n
ADR] remedy such as binding arbitration instead of proceed-
ing to the Mechanism.” 40 Fed. Reg. at 60,210 (emphasis
added). It answered that “nothing in the Rule precludes the
parties from agreeing to the use of some avenue of redress
other than the Mechanism if they feel it is more appropriate.”
Id. If we truly must afford Chevron deference to the FTC’s
interpretation of the MMWA—as the majority concludes—
the majority’s determination that all ADR procedures are
2
Section 110 is codified at 15 U.S.C. § 2310.
 KOLEV v. PORSCHE CARS NORTH AMERICA 17811
“Mechanisms” plainly contradicts the FTC’s view of the stat-
ute.

4. The FTC’s disapproval of binding, non-judicial
remedies in written warranties applies only to written
warranties that incorporate IDSMs

Proceeding with this errant assumption that all warranty-
related ADR procedures are “Mechanisms,” the majority
holds that FTC regulations disfavoring the use of binding
arbitration by IDSMs precludes the use of binding arbitration
in any warranty dispute. However, read in context, the FTC’s
prohibition on binding arbitration clearly applies only to writ-
ten warranties that adopt IDSMs.

The relevant sections of the 1975 and 1997 FTC actions
(discussing binding arbitration) address the regulation of war-
ranty agreements governed by Rule 703—i.e., warranty agree-
ments creating IDSMs. The FTC indicates throughout both
actions that binding Mechanisms are inconsistent with Con-
gressional intent underlying 15 U.S.C. § 2310(a). See, e.g., 40
Fed. Reg. at 60210 (“Congressional intent was that decisions
of Section 110 Mechanisms not be legally binding.” (empha-
sis added)); id. (“[E]ven if binding Mechanisms were contem-
plated by Section 110 of the Act, the Commission is not
prepared . . . to develop guidelines for a system in which con-
sumers would commit themselves, at the time of product pur-
chase, to resolve any difficulties in a binding, but non-judicial
proceeding.” (emphasis added)). Similarly, formal rules
adopted by the FTC that forbid binding, non-judicial remedies
apply only to Mechanisms created pursuant to the MMWA.
See, e.g., 16 C.F.R. § 703.5(g)(1) (“The Mechanism shall
inform the consumer that . . . [i]f he or she is dissatisfied with
its decision . . . legal remedies . . . may be pursued.” (empha-
sis added)); id. § 703.5(j) (“Decisions of the Mechanism shall
not be legally binding on any person.” (emphasis added)).
17812 KOLEV v. PORSCHE CARS NORTH AMERICA
Thus, the FTC’s disapproval of binding, non-judicial reme-
dies in written consumer warranties is premised on the limita-
tions of Rule 703 and 15 U.S.C. § 2310(a). See 40 Fed. Reg.
at 60,211 (“[R]eference within the written warranty to any
binding, non-judicial remedy is prohibited by the Rule and the
Act.”). But, as the FTC acknowledges, Rule 703 (entitled “In-
formal Dispute Settlement Procedures”) applies “only to war-
rantors who ‘give or offer to give a written warranty which
incorporates an informal dispute settlement mechanism
. . . .’ ” 64 Fed. Reg. at 19,707. Likewise, 15 U.S.C.
§ 2310(a), which authorized the FTC to promulgate Rule 703,
only applies to a warrantor who establishes an IDSM.3
Because the binding, non-judicial arbitration remedy, to
which Kolev and the dealership agreed, is not an IDSM sub-
ject to regulation under § 2310(a), FTC regulations are irrele-
vant to the question at hand. To be sure, as noted above, the
FTC has explained that “nothing in [Rule 703] precludes the
parties from agreeing to the use of some avenue of redress
other than the Mechanism if they feel it is more appropriate,”
including “binding arbitration.” 40 Fed. Reg. at 60,210.
(emphasis added).

B. Chevron deference is not appropriate in this case

Even if the 1975 and 1995 FTC Actions are applicable
here, this is not a case warranting judicial deference. There
are at least two persuasive reasons why we should not defer
to the FTC action statements and regulations on the question
before us.
3
15 U.S.C. § 2310(a) (entitled “Informal dispute settlement procedures;
establishment; rules setting forth minimum requirements; effect of compli-
ance by warrantor; review of informal procedures or implementation by
Commission; application to existing informal procedures”) speaks only to
IDSMs. Neither § 2310(a) nor any other provision of the MMWA
addresses remedies that warrantors and customers agree to pursue outside
the IDSM process.
 KOLEV v. PORSCHE CARS NORTH AMERICA 17813
1. The FTC has no delegated authority regarding
warranty-related ADR procedures outside the MMWA
Mechanism

First, Congress has not delegated authority to the FTC to
address warranty dispute remedies outside of MMWA-
authorized Mechanisms. In Chevron U.S.A., Inc. v. Nat. Res.
Defense Council, Inc., the Supreme Court explained that
courts should defer to an administrative agency’s elucidation
of statutory provisions when “Congress has explicitly [or
implicitly] left a gap for the agency to fill.” 467 U.S. 837,
843-44 (1984). The gap Congress left for the FTC in the
MMWA was limited to “prescrib[ing] rules setting forth mini-
mum requirements for any [IDSM],” monitoring compliance
with these rules, and taking remedial action against non-
compliant Mechanisms. See 15 U.S.C. § 2310(a). The
MMWA says nothing about remedies outside optional Mech-
anisms, and nowhere does it imply the FTC should have
authority to decide such issues.

Because Congress has not authorized the FTC to regulate
non-judicial remedies outside the Mechanism regulatory
scheme, the FTC’s commentary (to the extent it is even rele-
vant) is not due any judicial deference. See United States v.
Mead Corp., 533 U.S. 218, 229-32 (2001); Adams Fruit Co.,
Inc. v. Barrett, 494 U.S. 638, 649-50 (1990) (“Although
agency determinations within the scope of delegated authority
are entitled to deference, it is fundamental ‘that an agency
may not bootstrap itself into an area in which it has no juris-
diction.’ ”) (citation omitted); cf. NLRB v. United Food and
Commercial Workers Union, 484 U.S. 112, 123 (1987)
(explaining that Chevron deference to agency interpretations
of statutes applies only to regulations “promulgated pursuant
to congressional authority”).

2. Congress granted the courts authority to decide
enforcement issues under the MMWA

Additionally, “we need not defer to the [FTC]’s view of
[remedies outside § 2310(a)], because Congress has expressly
17814 KOLEV v. PORSCHE CARS NORTH AMERICA
established the Judiciary and not the [FTC] as the adjudicator
of private rights of action arising under the statute.” Adams
Fruit Co. v. Barrett, 494 U.S. 638, 649 (1990). In Adams
Fruit, the Court declined to accord Chevron deference to the
Department of Labor in resolving statutory ambiguities sur-
rounding the scope of the Seasonal Agricultural Worker Pro-
tection Act’s (AWPA) judicially-enforceable remedy. Id. at
650. “Congress clearly envisioned, indeed expressly man-
dated, a role for the Department of Labor in administering the
statute by requiring the Secretary to promulgate standards
implementing [certain] AWPA[ ] . . . provisions.” Id. How-
ever, Congress “established an enforcement scheme indepen-
dent of the Executive and provided aggrieved farm workers
with direct recourse to federal court when their rights under
the statute are violated.” Id. at 650. Thus, “[a]lthough agency
determinations within the scope of delegated authority are
entitled to deference,” it would be “inappropriate to consult
executive interpretations of [the statute] to resolve ambigui-
ties surrounding the scope of AWPA’s judicially enforceable
remedy.” Id. (emphasis added).

As with the Department of Labor in Adams Fruit, Congress
clearly envisioned a role for the FTC in “administering the
statute by requiring the [Commission] to promulgate stan-
dards implementing [the IDSM] provisions.” Id.; see also 15
U.S.C. § 2310(a). However, Congress “established an
enforcement scheme independent of the Executive and pro-
vided aggrieved [consumers] with direct recourse to [state or]
federal court where their rights under the statute are violated.”
Adams Fruit, 494 U.S. at 600; see also § 2310(d).4 Because
“Congress has expressly established the Judiciary and not the
[FTC] as the adjudicator of private rights of action arising
under the statute,” Adams Fruit, 494 U.S. at 649, the judiciary
4
It is worth noting that, unlike many Chevron deference cases involving
formal administrative adjudications, the FTC takes no part in deciding the
substantive warranty claims of consumers arising under the statute.
 KOLEV v. PORSCHE CARS NORTH AMERICA 17815
owes no deference to the FTC’s views on the legality of extra-
judicial enforcement procedures such as binding arbitration.

C. The Arbitration Act establishes a federal policy
favoring rigorous enforcement of agreements to arbitrate
warranty disputes

Even if the FTC had authority to address this question, and
FTC regulations could be construed to prohibit the use of
binding arbitration by any warranty dispute resolution proce-
dure, I agree with the Fifth and Eleventh Circuits—the only
federal courts of appeals to consider this question—that such
a view would be unreasonable in light of the presumption of
arbitrability created by the Federal Arbitration Act. See Wal-
ton, 298 F.3d at 475-78; Davis, 305 F.3d at 1272-77, 1280;
see also In re American Homestar of Lancaster, Inc., 50
S.W.3d 480, 490-92 (Tex. 2001). The Arbitration Act was
“intended to reverse centuries of judicial hostility to arbitra-
tion agreements, by placing arbitration agreements upon the
same footing as other contracts.” Shearson/Am. Express, Inc.
v. McMahon, 482 U.S. 220, 225-26 (1987) (internal quotation
marks and alterations omitted) (quoting Scherk v. Alberto-
Culver Co., 417 U.S. 506, 510-11 (1974)). The Act provides,
in relevant part, that arbitration agreements “shall be valid,
irrevocable, and enforceable, save upon such grounds as exist
at law or in equity for the revocation of any contract.” 9
U.S.C. § 2. “The Act also provides that a court must stay its
proceedings if it is satisfied that an issue before it is arbitrable
under the agreement, § 3; and it authorizes a federal district
court to issue an order compelling arbitration if there has been
a ‘failure, neglect, or refusal’ to comply with the arbitration
agreement, § 4.” McMahon, 482 U.S. at 226.

The U.S. Supreme Court has repeatedly emphasized that
the Arbitration Act “establishes a ‘federal policy favoring
arbitration,’ requiring that ‘we rigorously enforce agreements
to arbitrate.’ ” Id. (quoting Moses H. Cone Mem’l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24 (1983) and Dean Wit-
17816 KOLEV v. PORSCHE CARS NORTH AMERICA
ter Reynolds Inc. v. Byrd, 470 U.S. 213, 221 (1985)). “This
duty to enforce arbitration agreements is not diminished when
a party bound by an agreement raises a claim founded on stat-
utory rights. . . . [W]e are well past the time when judicial
suspicion of the desirability of arbitration and of the compe-
tence of arbitral tribunals should inhibit enforcement of the
Act in controversies based on statutes.” McMahon, 482 U.S.
at 226 (internal quotation marks omitted) (quoting Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614,
626-27 (1985)). “The Arbitration Act, standing alone, there-
fore mandates enforcement of agreements to arbitrate statu-
tory claims.” Id.

Nonetheless, “the Arbitration Act’s mandate may be over-
ridden by a contrary congressional command. The burden is
on the party opposing arbitration to show that Congress
intended to preclude a waiver of judicial remedies for the stat-
utory rights at issue.” Id. at 226-27. If Congress intended to
create an exception to the Arbitration Act, “such an intent
‘will be deducible from [1] the statute’s text or [2] legislative
history, or [3] from an inherent conflict between arbitration
and the statute’s underlying purposes.’ ” Id. at 227 (quoting
Mitsubishi Motors, 473 U.S. at 628) (alterations omitted).

Both Walton and Davis followed the Supreme Court’s test
in McMahon to determine whether the presumption of arbitra-
bility established by the FAA should be overridden by con-
trary congressional command in the MMWA. See Davis, 305
F.3d at 1273; Walton, 298 F.3d at 475. “After a thorough
review of the MMWA and the FAA, combined with the
strong federal policy favoring arbitration,” both courts held
that “written warranty claims arising under the Magnuson-
Moss Warranty Act may be subject to valid binding arbitra-
tion agreements.” Davis, 305 F.3d at 1280; see Walton, 298
F.3d at 478 (“[T]he text, legislative history, and purpose of
the MMWA do not evince a congressional intent to bar arbi-
tration of MMWA written warranty claims.”). Although Con-
gress adopted the MMWA “to improve the adequacy of
 KOLEV v. PORSCHE CARS NORTH AMERICA 17817
information available to consumers [and] prevent deception,
. . . [t]hese purposes are not in conflict with the FAA. In fact,
the Supreme Court has repeatedly enforced arbitration of stat-
utory claims where the underlying purpose of the statutes is
to protect and inform consumers.” Davis, 305 F.3d at 1276
(citations omitted). “ ‘[E]ven claims arising under a statute
designed to further important social policies may be arbitrated
because so long as the prospective litigant effectively may
vindicate [his or her] statutory cause of action in the arbitral
forum, the statute serves its function.’ ” Id. (quoting Green
Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90 (2000)).
Indeed, in every case5 raising a statutory right that does not
explicitly preclude arbitration, the Supreme Court has
enforced the presumption of arbitrability under the Arbitration
Act.6 See Walton, 298 F.3d at 474. Therefore, the majority’s
conclusion that the consumer-friendly policies underlying the
MMWA imply congressional intent to exempt warranty
claims from arbitration is in error.

5
These include claims arising under the Truth in Lending Act, Green
Tree Fin., 531 U.S. at 88-92; the Securities Act of 1933, Rodriguez de
Quijas v. Shearson/Am. Exp., Inc., 490 U.S. 477, 484-86 (1989); the
Securities Exchange Act of 1934, McMahon, 482 U.S. at 238; the Sher-
man Act, Mitsubishi Motors, 473 U.S. at 628-40; and the Racketeer Influ-
enced and Corrupt Organization Act, McMahon, 482 U.S. at 242.
6
The majority argues that other FAA cases are inapposite, because this
is the only case in which (1) “an authorized agency construed the statute
to bar pre-dispute mandatory binding arbitration,” (2) Congress created a
non-binding, informal dispute remedy, (3) Congress preserved a consum-
er’s right to press claims in civil court, and (4) the statute “sought as its
primary purpose to protect consumers by prohibiting vendors from impos-
ing binding, non-judicial remedies.” Maj. Op. at 17804-05. All of these
arguments hinge on the majority’s errant conclusion that the MMWA pro-
hibits private parties from agreeing to resolve warranty disputes in binding
arbitration outside an MMWA-authorized Mechanism. As explained
above, this view finds no support in the statute, and contradicts the FTC’s
opinions on the subject.
17818 KOLEV v. PORSCHE CARS NORTH AMERICA
D. Conclusion

In sum, the MMWA does not prohibit private parties from
agreeing to binding arbitration as a remedy to warranty dis-
putes arising under the MMWA. The FTC acknowledges this
flexibility in multiple administrative opinions. The FTC’s ban
on arbitration cannot reasonably be read to apply to anything
other than an MMWA “Mechanism.” Even if it could, this
view would be incompatible with the clear federal policy
favoring arbitration under the Arbitration Act. Therefore, I
must respectfully dissent.