[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
September 19, 2002
THOMAS K. KAHN
CLERK
No. 01-13831
D. C. Docket No. 01-00415 CV-S-N
MICHAEL SHANE DAVIS,
HEATHER N. DAVIS,
Plaintiffs-Appellees,
versus
SOUTHERN ENERGY HOMES, INC.,
a corporation,
Defendant-Appellant,
BILO HOMES, INC., a corporation,
DAVID L. SMITHERMAN,
Defendants.
Appeal from the United States District Court
for the Middle District of Alabama
(September 19, 2002)
Before ANDERSON and DUBINA, Circuit Judges, and MILLS*, District Judge.
____________________________
*Honorable Richard Mills, U.S. District Judge for the Central District of Illinois, sitting by
designation.
DUBINA, Circuit Judge:
The important question presented in this appeal is whether the Magnuson-
Moss Warranty Act permits or prohibits the enforcement of pre-dispute binding
arbitration clauses within written warranties. We hold that the Magnuson-Moss
Warranty Act permits binding arbitration and that a written warranty claim arising
under the Magnuson-Moss Warranty Act may be subject to a valid pre-dispute
binding arbitration agreement.
I. BACKGROUND
In October 1999, Michael Shane Davis and Heather N. Davis (“the
Davises”) purchased a manufactured home constructed by Southern Energy
Homes, Inc. (“Southern”). When the Davises purchased the home, they signed a
binding arbitration agreement contained within the manufactured home’s written
warranty. The Davises later discovered multiple defects in the home and notified
Southern of the problems. After Southern failed to correct the defects to the
Davises’ satisfaction, the Davises filed suit in the Circuit Court of Lowndes
County, Alabama, asserting claims for breach of express and implied warranties,
violations of the Magnuson-Moss Warranty-Trade Commission Act (“MMWA” or
“the Act”), negligent and wanton repair, and fraud. Southern removed the case to
federal court and, in lieu of an answer, filed a Motion to Dismiss or, in the
2
Alternative, to Compel Arbitration. The district court, relying on its prior decision
in Yeomans v. Homes of Legend, Inc, No. 00-D-824-N (M.D. Ala. March 5, 2001),
which found that the MMWA prohibits binding arbitration, denied Southern’s
motion. Southern timely appealed the district court’s order denying Southern’s
Motion to Compel Arbitration.
II. ISSUES
(1) Whether Southern waived its right to appeal the district court’s order
denying its Motion to Compel Arbitration when Southern conceded that the
district court was bound by its prior decision in Yeomans.
(2) Whether the Magnuson-Moss Warranty Act permits or precludes
enforcement of binding arbitration agreements with respect to written
warranty claims.
III. STANDARD OF REVIEW
We review a district court’s order denying a motion to compel arbitration de
novo. Cunningham v. Fleetwood Homes of Ga., Inc., 253 F.3d 611, 614 (11th Cir.
2001) (citing Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054, 1060 (11th
Cir. 1998)).
IV. DISCUSSION
A. Waiver of Right to Appeal
3
The Davises contend that Southern waived its right to appeal by
acknowledging to the district court that the court was bound by its prior holding in
Yeomans. We disagree that Southern waived its right to appeal. Southern argued
in its initial motion and brief to the district court that Yeomans and the cases
Yeomans relies upon are incorrect. Southern, therefore, maintained its position and
did not waive its right to appeal. Thus, we must consider the merits of this appeal.
B. The MMWA and Binding Arbitration of Written Warranty Claims
In this appeal, Southern argues that, based upon the strong federal policy of
enforcing valid arbitration agreements under the Federal Arbitration Act (“FAA”),
the Davises must submit their written warranty claims to binding arbitration rather
than file suit for breach of warranty. To support this argument, Southern notes that
the Supreme Court continually enforces binding arbitration agreements of statutory
claims, and argues that the MMWA is similar to these other statutes because
nothing in the MMWA’s text, legislative history, or underlying purposes evinces
that Congress intended to preclude binding arbitration of written warranty claims.
Southern also asserts that the Federal Trade Commission’s (“FTC”) regulations
and interpretations, which prohibit binding arbitration of MMWA claims, are
unreasonable, and thus, we should accord them no deference.
4
The Davises, conversely, assert that arbitration is an improper forum for
MMWA claims and that the Act’s language, legislative history, and underlying
purposes compel a conclusion that dispute settlement procedures cannot be binding
under the MMWA. The Davises argue that § 2310(a) of the MMWA, which states
that consumers must resort to a warrantor’s informal dispute settlement mechanism
before commencing a civil action, necessarily implies that the decision of any
informal settlement procedure may not be binding. They reason that Congress’ use
of different terminology to describe the settlement procedures of § 2310(a)
throughout the MMWA’s text and legislative history, combined with the absence
of any statutory definition for the terms, establishes that Congress used the terms
“dispute settlement procedures” and “dispute settlement mechanisms” only as
generic terms, and thereby included binding arbitration as a type of alternative
dispute resolution procedure. The Davises also argue that this court must defer to
the FTC regulations, which reject binding arbitration of written warranty claims
arising under the MMWA, because the FTC reasonably interpreted the MMWA in
these regulations.
We recognize that state and federal courts are sharply divided on whether the
MMWA permits pre-dispute binding arbitration of written warranty claims.
Compare Boyd v. Homes of Legend, 981 F. Supp. 1423 (M.D. Ala. 1997),
5
remanded on jurisdictional grounds, 188 F.3d 1294 (11th Cir. 1999), Wilson v.
Waverlee Homes, Inc., 954 F. Supp. 1530 (M.D. Ala. 1997), Rhode v. E & T Invs.,
Inc., 6 F. Supp. 2d 1322 (M.D. Ala. 1998), Pitchford v. Oakwood Mobile Homes,
Inc., 124 F. Supp. 2d 958 (W.D. Va. 2000), Parkerson v. Smith, 817 So. 2d 529
(Miss. 2002), Browne v. Kline Tysons Imports, Inc., 190 F. Supp. 2d 827 (E.D. Va.
2002), and Borowiec v. Gateway 2000, Inc., 772 N.E.2d 256 (Ill. App. 2002), with
Southern Energy Homes, Inc. v. Ard, 772 So. 2d 1131 (Ala. 2000), Results
Oriented, Inc. v. Crawford, 538 S.E.2d 73 (Ga. Ct. App. 2000), aff’d 548 S.E.2d
342 (Ga. 2001), In re American Homestar of Lancaster, Inc., 50 S.W.3d 480 (Tex.
2001), and Howell v. Cappaert Manufactured Hous., Inc., No. 2002-0165 (La.
App. June 5, 2002). The Fifth Circuit is the only circuit court to directly address
this issue and, in a divided panel decision, it held that the MMWA permits binding
arbitration. See Walton v. Rose Mobile Homes LLC, No. 00-60742, __ F.3d __
(5th Cir. 2002).1 After a thorough review of the MMWA and its legislative history,
the FAA and the Supreme Court’s application of the FAA to other federal statutes,
1
In Cunningham v. Fleetwood Homes of Ga., 253 F.3d 611 (11th Cir. 2001), this court
discussed binding arbitration of MMWA claims. We declined to resolve the question, however,
because it was not necessary to the resolution of that case. 253 F.3d at 623-24 (“We are not required
to and do not decide whether Magnuson-Moss makes arbitration agreements unenforceable as to all
Magnuson-Moss claims. Nor it is necessary for us to determine whether warrantors may include
binding arbitration provisions in the warranty itself.”).
6
we conclude that the MMWA permits the enforcement of valid binding arbitration
agreements within written warranties.
1. MMWA
Congress passed the MMWA in 1975 in response to an increasing number of
consumer complaints regarding the inadequacy of warranties on consumer goods.
See H.R. Rep. No. 93-1107 (1974), reprinted in 1974 U.S.C.C.A.N. 7702, 7705-
11. The purpose of the MMWA is “to improve the adequacy of information
available to consumers, prevent deception, and improve competition in the
marketing of consumer products . . . .” 15 U.S.C. § 2302(a) (1994). In order to
advance these goals, § 2310(d) of the MMWA provides a statutory private right of
action to consumers “damaged by the failure of a supplier, warrantor, or service
contractor to comply with any obligation under this chapter, or under a written
warranty, implied warranty, or service contract . . . .” Id. § 2310(d)(1). Consumers
may sue for a MMWA violation in either state or federal court. Id.
In order to encourage settlements by means other than civil lawsuits, §
2310(a) allows a warrantor to include a provision for an informal dispute
settlement mechanism in a warranty. Id. § 2310(a)(3); see also H.R. Rep. No. 93-
1107 (1974), reprinted in 1974 U.S.C.C.A.N. 7702, 7722 (“Congress declares it to
be its policy to encourage warrantors to establish procedures whereby consumer
7
disputes are fairly and expeditiously settled through informal dispute settlement
mechanisms.”). Although the MMWA does not define “informal dispute
settlement procedure,” it does provide that if a warrantor incorporates a § 2310(a)
informal dispute settlement procedure, the provision must comply with the
minimum requirements that the FTC prescribes. 15 U.S.C. § 2310(a)(2). If the
informal dispute settlement procedure properly complies with the FTC’s minimum
requirements, and if the written warranty requires that the consumer “resort to such
procedure before pursuing any legal remedy under this section respecting such
warranty, the consumer may not commence a civil action . . . under subsection (d)
of this section unless he initially resorts to such procedure . . . .” Id. § 2310(a)(3).
2. FAA
Congress enacted the FAA in 1925 to reverse the longstanding judicial
hostility towards arbitration and “to place arbitration agreements on the same
footing as other contracts.” EEOC v. Waffle House, Inc., 534 U.S. 279, __, 122 S.
Ct. 754, 761, 151 L. Ed. 2d 755 (2002) (citing Gilmer v. Interstate/Johnson Lane
Corp., 500 U.S. 20, 24, 111 S. Ct. 1647, 1651, 114 L. Ed. 2d 26 (1991)). Section 2
of the FAA provides:
A written provision in any . . . contract evidencing a transaction
involving commerce to settle by arbitration a controversy thereafter
arising out of such contract or transaction, or the refusal to perform the
whole or any part thereof, or an agreement in writing to submit to
8
arbitration an existing controversy arising out of such a contract, . . .
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 (1994). The Supreme Court has interpreted § 2 of the FAA as “a
congressional declaration of a liberal federal policy favoring arbitration
agreements.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24, 103 S. Ct. 927, 941, 74 L. Ed. 2d 765 (1983).
Generally, a court should enforce an arbitration agreement according to its
terms, and no exception exists for a cause of action founded on statutory rights.
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626-27,
105 S. Ct. 3346, 3354, 87 L. Ed. 2d 444 (1985) (holding that “the Act itself
provides no basis for disfavoring agreements to arbitrate statutory claims by
skewing the otherwise hospitable inquiry into arbitrability”). In every statutory
right case that the Supreme Court has considered, it has upheld binding arbitration
if the statute creating the right did not explicitly preclude arbitration. See Gilmer,
500 U.S. at 35, 111 S. Ct. at 1657 (holding that courts should enforce binding
arbitration agreements regarding claims arising under the ADEA); Rodriguez de
Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 484-86, 109 S. Ct. 1917,
1921-22, 104 L. Ed. 2d 526 (1989) (holding that courts should enforce pre-dispute
agreements to arbitrate claims under the Securities Act of 1933);
9
Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 238, 242, 107 S. Ct.
2332, 2343, 2345-46, 96 L. Ed. 2d 185 (1987) (holding that courts should enforce
pre-dispute agreements to arbitrate Securities Exchange Act of 1934 claims and
Racketeer Influenced and Corrupt Organizations Act claims); Mitsubishi Motors
Corp., 473 U.S. at 628-40, 105 S. Ct. at 3355-61 (holding that courts should
enforce arbitration of Sherman Antitrust Act claims in international transactions).
“Having made the bargain to arbitrate, the party should be held to it unless
Congress itself has evinced an intention to preclude a waiver of judicial remedies
for the statutory rights at issue.” Mitsubishi Motors Corp., 473 U.S. at 628, 105 S.
Ct. at 3354-55. Thus, unless Congress has clearly expressed an intention to
preclude arbitration of the statutory claim, a party is bound by its agreement to
arbitrate. Id.2
3. McMahon Test
Turning to whether Congress intended to preclude arbitration of a statutory
claim, we follow the Supreme Court’s McMahon test. McMahon, 482 U.S. at 226-
2
We understand that arbitration agreements, like any other contract, are subject to general
contract law and defenses. “Of course, courts should remain attuned to well-supported claims that
the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that
would provide grounds ‘for the revocation of any contract.’” Mitsubishi Motors Corp., 473 U.S. at
627, 105 S. Ct. at 3354 (quoting 9 U.S.C. § 2 (1994)). In this opinion, however, we address only
the enforcement of binding arbitration agreements under the MMWA absent such other general
contract law considerations.
10
27, 107 S. Ct. at 2337-38. In McMahon, the Supreme Court instructed us to
consider three factors in deducing Congress’ intent: (1) the text of the statute; (2)
its legislative history; and (3) whether “an inherent conflict between arbitration and
the underlying purposes [of the statute]” exists. Id. at 227, 107 S. Ct. at 2338. The
party opposing the enforcement of the arbitration agreement has the burden of
showing that Congress intended to preclude arbitration of the statutory claim. Id.
In applying the McMahon test, “questions of arbitrability must be addressed with a
healthy regard for the federal policy favoring arbitration.” Gilmer, 500 U.S. at 26,
111 S. Ct. at 1652 (quoting Moses H. Cone Mem’l Hosp., 460 U.S. at 24, 103 S.
Ct. at 941). Thus, we analyze each factor in turn to determine whether Congress
clearly expressed an intention to preclude binding arbitration of MMWA claims.
a. McMahon Factor One: MMWA’s Text
The MMWA’s text does not expressly prohibit arbitration and, in fact, fails
to directly mention either binding arbitration or the FAA. Nevertheless, the
Davises argue that the MMWA reserves strictly a judicial forum for consumers by
providing a private right of action for consumers. The Supreme Court, however,
has held that a statute’s provision for a private right of action alone is inadequate to
show that Congress intended to prohibit arbitration. Gilmer, 500 U.S. at 29, 111 S.
Ct. at 1653-54 (rejecting the argument that binding arbitration is improper
11
“because it deprives claimants of the judicial forum provided for by the ADEA”).
As the Fifth Circuit recently recognized, “binding arbitration generally is
understood to be a substitute for filing a lawsuit, not a prerequisite.” Walton, __
F.3d at __ (citing Mitsubishi Motors Corp., 473 U.S. at 628, 105 S. Ct. at 3354)
(“By agreeing to arbitrate a statutory claim, a party does not forgo the substantive
rights afforded by the statute; it only submits to their resolution in an arbitral,
rather than judicial, forum.”). Furthermore, the fact that the MMWA grants a
judicial forum with concurrent jurisdiction in state and federal courts for MMWA
claims is insufficient evidence that Congress intended to preclude binding
arbitration. See McMahon, 482 U.S. at 227, 107 S. Ct. at 2338 (rejecting the
argument that compulsory arbitration under the Securities Exchange Act of 1934 is
improper because the statute provides that “[t]he district courts of the United States
. . . shall have exclusive jurisdiction of violations of this title . . . .”); see also
Gilmer, 500 U.S. at 29, 111 S. Ct. at 1654 (noting that Congress’ grant of
concurrent jurisdiction in state and federal courts for ADEA claims is consistent
with binding arbitration because “arbitration agreements, ‘like the provision for
concurrent jurisdiction, serve to advance the objective of allowing [claimants] a
broader right to select the forum for resolving disputes, whether it be judicial or
otherwise’”) (quoting Rodriquez de Quijas, 490 U.S. at 483, 109 S. Ct. at 1291).
12
The Davises also argue that because § 2310(d) lists only two exceptions to
the private right of action, the internal dispute settlement procedure referenced in §
2310(a) and the class action exception referenced in § 2310(e),3 Congress intended
to preclude any other method of dispute resolution, including binding arbitration.
See Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 19-20, 100 S. Ct.
242, 247, 62 L. Ed. 2d 146 (1979) (“[W]here a statute expressly provides a
particular remedy or remedies, a court must be chary of reading others into it.
When a statute limits a thing to be done in a particular mode, it includes the
negative of any other mode.”) (internal quotations and citations omitted). The §
2310(a) exception to a consumer’s private right of action states that, if a warrantor
establishes an informal dispute settlement procedure, a consumer must resort to the
procedure “before pursuing any legal remedy under this section respecting such
warranty.” 15 U.S.C. § 2310(a)(3)(c). Section 2310(a) also states that “the
consumer may not commence a civil action . . . unless he initially resorts to such
procedure” and that “[i]n any civil action arising out of a warranty obligation and
relating to a matter considered in such a procedure, any decision in such procedure
shall be admissible in evidence.” Id. Based on this language, the Davises assert
3
Section 2310(e) is irrelevant to the present discussion.
13
that Congress intended to allow only non-binding alternative dispute resolution
procedures. We disagree.
In Cunningham v. Fleetwood Homes of Ga., Inc., we noted that the district
court erred “in concluding that, standing alone, the presence of the non-binding §
2310 mechanism in the statutory text requires the conclusion that Magnuson-Moss
claims may not be the subject of binding arbitration agreements.” 253 F.3d 611,
619 (11th Cir. 2001). The fact that the MMWA regulates § 2310(a) informal
dispute settlement procedures does not mean that the Act precludes a court from
enforcing a valid binding arbitration agreement. See id. at 620 (noting that a
statute’s provision for one out-of-court settlement mechanism does not necessarily
preclude the enforcement of all alternative mechanisms); see also Gilmer, 500 U.S.
at 29, 111 S. Ct. at 1654 (holding that the ADEA’s provision for “out-of-court
dispute resolution” is not inconsistent with permitting arbitration under the FAA
and that it even “suggests that out-of-court dispute resolution, such as arbitration,
is consistent with the statutory scheme established by Congress”). Thus, we are
unpersuaded that Congress intended to bar binding arbitration agreements in the
language of the MMWA.
b. McMahon Factor Two: Legislative History
14
The second factor the Supreme Court instructs us to examine in determining
Congress’s intent to preclude the application of the FAA is the MMWA’s
legislative history. See McMahon, 482 U.S. at 226-27, 107 S. Ct. at 2238. Like the
MMWA’s text, its legislative history only addresses “internal dispute settlement
procedures;” it never directly addresses the role of binding arbitration or the FAA.
In trying to show that Congress intended to bar binding arbitration, the Davises rely
on the MMWA’s House Report, which notes 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 proceeding.” H.R. Rep. No. 933-1107 (1974), reprinted in
1974 U.S.C.C.A.N. 7702, 7723.4 The Davises argue that Congress considered all
4
The Davises also assert that the Senate intended to bar binding arbitration in the following
legislative history:
For many years warranties have confused and misled the American consumer. A
warranty is a complicated legal document whose full essence lies buried in myriads
of reported legal decisions and in complicated State codes of commercial law. The
consumer’s understanding of what a warranty on a particular product means to him
frequently does not coincide with the legal meaning. . . . Typically, a consumer today
cannot bargain with consumer product manufacturers or suppliers to obtain a
warranty or to adjust the terms of a warranty voluntarily offered. Since almost all
consumer products sold today are typically done so with a contract of adhesion, there
is no bargaining over contractual terms.
S. Rep. No. 93-151, quoted in 40 Fed. Reg. 60168 (1975). Although several other courts have found
this language persuasive, see, e.g., Boyd v. Homes of Legend, Inc., 981 F. Supp. 1423, 1439 (M.D.
Ala. 1997), we do not. Instead, we conclude that this passage only expresses Congress’ concerns
over the complexities of warranties and the unequal bargaining power between warrantors and
consumers. The passage does not, however, prohibit binding arbitration. To hold otherwise would
be to revert to a Wilko attitude towards arbitration. See Rodriguez de Quijas, 490 U.S. at 481, 109
S. Ct. at 1920 (“To the extent that Wilko rested on suspicion of arbitration as a method of weakening
the protections afforded in the substantive law to would-be complainants, it has fallen far out of step
with our current strong endorsement of the federal statutes favoring this method of resolving
15
methods of dispute resolution, including arbitration, before allowing warrantors to
pursue only informal, non-binding settlement procedures. After a thorough reading
of the MMWA’s legislative history, we disagree.
The Davises have proved only that the MMWA’s legislative history is
ambiguous at most. When considering a preliminary draft of the MMWA, the
Senate reflected that “it is Congress’ intent that warrantors of consumer products
cooperate with government and private agencies to establish informal dispute
settlement mechanisms that take care of consumer grievances without the aid of
litigation or formal arbitration.” S. Rep. No. 91-876, at 22-23 (1970) (emphasis
added). As the Fifth Circuit concluded, “[t]here is still no evidence that Congress
intended binding arbitration to be considered an informal dispute settlement
procedure. Therefore the fact that any informal dispute settlement procedure must
be non-binding, does not imply that Congress meant to preclude binding arbitration,
which is of a different nature.” Walton, __ F.3d at __ . In McMahon, the Supreme
Court upheld binding arbitration even though the Securities Exchange Act of 1934's
legislative history implied that Congress intended to adopt the Wilko attitude that
arbitration is an inadequate forum in which to enforce statutory claims. McMahon,
482 U.S. at 238, 107 S. Ct. at 2343. Any congressional intent to prohibit arbitration
disputes.”).
16
in the MMWA’s legislative history is considerably less clear than the legislative
history of the Securities Exchange Act of 1934, which the Supreme Court held did
not prohibit binding arbitration in McMahon. In light of this ambiguity, the Davises
fail to carry their burden of showing a clear congressional intent to prohibit binding
arbitration of MMWA claims. Thus, given the absence of any meaningful
legislative history barring binding arbitration, coupled with the unquestionable
federal policy favoring arbitration, we conclude that Congress did not express a
clear intent in the MMWA’s legislative history to bar binding arbitration
agreements in written warranties.
c. McMahon Factor Three: The MMWA’s Underlying Purposes
The last McMahon factor requires us to examine the purposes of the MMWA
to determine whether the MMWA and the FAA conflict. See McMahon, 482 U.S.
at 226-27, 107 S. Ct. at 2232. The MMWA expressly states three purposes: “to
improve the adequacy of information available to consumers, prevent deception,
and improve competition in the marketing of consumer products.” 15 U.S.C. §
2302(a). These purposes are not in conflict with the FAA. In fact, the Supreme
Court has repeatedly enforced arbitration of statutory claims where the underlying
purpose of the statutes are to protect and inform consumers. See, e.g., Basic Inc. v.
Levinson, 485 U.S. 224, 234, 108 S. Ct. 978, 985, 99 L. Ed. 2d 194 (1988) (stating
17
that a fundamental purpose of the Securities Acts is the disclosure of information to
potential investors); Rodriguez de Quijas, 490 U.S. at 485-86, 109 S. Ct. at 1922
(holding that parties may arbitrate Securities Act of 1933 claims); McMahon, 482
U.S. at 242, 107 S. Ct. at 2345 (holding that parties may arbitrate Securities
Exchange Act of 1934 claims). “[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.” Green Tree Fin. Corp.-Ala. v.
Randolph, 531 U.S. 79, 90, 121 S. Ct. 513, 521, 148 L. Ed. 2d 373 (2000) (citations
omitted) (holding that parties may arbitrate Truth in Lending Act claims).
Consumers can adequately vindicate their rights arising under the MMWA and
written warranties in an arbitral forum. See Allied-Bruce Terminix Cos. v. Dobson,
513 U.S. 265, 280, 115 S. Ct. 834, 842, 130 L. Ed. 2d 753 (1995) (“Congress, when
enacting [the FAA], had the needs of consumers . . . in mind.”). Thus, we conclude
that the MMWA’s consumer protection goals do not conflict with the FAA.
The MMWA’s legislative history also indicates that Congress was concerned
with addressing the unequal bargaining power between warrantors and consumers
with the enactment of the MMWA, thus creating another possible purpose.5
5
See note 4.
18
Unequal bargaining power alone, however, is not a sufficient reason to never
enforce an arbitration agreement of a statutory claim. Gilmer, 500 U.S. at 33, 111
S. Ct. at 1655 (stating that “[m]ere inequality in bargaining power, however, is not a
sufficient reason to hold that arbitration agreements are never enforceable . . .”).
Inequality in bargaining power is a procedural question that courts should analyze
on a case by case basis. Id.; see also McMahon, 482 U.S. at 230-31, 107 S. Ct. at
2339-40. Thus, unequal bargaining power, like the three declared purposes of the
MMWA, does not create such a conflict with the FAA so as to prohibit binding
arbitration of MMWA claims.
4. FTC Regulations and the Chevron Test
The Davises further argue that we must defer to the FTC regulations, which
prohibit binding arbitration. Section 2310(a) authorizes the FTC to promulgate
regulations for the MMWA’s internal dispute settlement procedures. 15 U.S.C. §
2310(a)(2). The FTC defines “mechanism” as “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 110 of the Act.” 16
C.F.R. § 703.1(e) (2002). The FTC has clearly stated that the mechanism is only a
precursor to litigation and never binding. Id. § 700.8 (“A warrantor shall not
indicate in any written warranty or service contract either directly or indirectly that
19
the decision of the warrantor, service contractor, or any designated third party is
final or binding in any dispute concerning the warranty or service contract.”).
Specifically, the FTC regulations provide that “[d]ecisions of the Mechanism shall
not be legally binding on any person.” Id. § 703.5(j). In its interpretive regulations,
the FTC has defined “mechanism” broadly, to include all non-judicial resolution
procedures, including arbitration. See 40 Fed. Reg. 60167, 60210 (1975) (stating
that binding arbitration is a “mechanism[] whose decisions would be legally
binding”); see also 40 Fed. Reg. 60618, 60211 (1975) (stating that a “reference
within the written warranty to any binding, non-judicial remedy is prohibited by the
Rule and the Act”) .
In determining whether we should defer to the FTC’s interpretation of the
MMWA, we look to the Supreme Court’s decision of Chevron U.S.A., Inc. v.
Natural Res. Def. Council, Inc., 467 U.S. 837, 104 S. Ct. 2778, 81 L. Ed. 2d 694
(1984).
When a court reviews an agency’s construction of the statute which it
administers, it is confronted with two questions. First, always, is the
question whether Congress has directly spoken to the precise question at
issue. If the intent of Congress is clear, that is the end of the matter; for
the court, as well as the agency, must give effect to the unambiguously
expressed intent of Congress. If, however, the court determines Congress
has not directly addressed the precise question at issue, the court does not
simply impose its own construction on the statute, as would be necessary
in the absence of an administrative interpretation. Rather, if the statute
is silent or ambiguous with respect to the specific issue, the question for
20
the court is whether the agency’s answer is based on a permissible
construction of the statute.
Chevron, 467 U.S. at 843-44, 104 S. Ct. at 2781-82. Under this instruction, we
must first determine whether Congress directly addressed binding arbitration under
the MMWA. See id. If Congress’ intent is clear, our inquiry ends as we must
uphold Congress’ will. Id. If, however, Congress is silent or the statute is
ambiguous, we must then decide if the FTC’s interpretation is reasonable. Id.
a. Congress’ intent
“Addressing the first prong of the Chevron inquiry . . . we begin by
examining the language in the enforcement provision itself.” Smith v. Bellsouth
Telecomm., 273 F.3d 1303, 1307 (11th Cir. 2001). After the previously illustrated
thorough examination of the MMWA’s text and legislative history, we conclude
that Congress failed to directly address binding arbitration anywhere in the text or
legislative history of the MMWA.6 See discussion infra Parts IV.B.3.a-3.b.
Because we believe the intent of Congress is unclear, we must proceed to the
second prong of the Chevron analysis.
b. Reasonableness of the FTC’s construction
6
In Walton, the Fifth Circuit held that because Congress did not evince a clear intent to
prohibit arbitration in the MMWA, “[t]he clear congressional intent in favor of enforcing valid
arbitration agreements controls in this case.” __ F.3d at __. Thus, believing that Congress’ clear
intent in passing the FAA controlled the MMWA, the majority opinion of Walton never reached the
second prong of the Chevron analysis. Id. at __ n.14.
21
The second prong of the Chevron inquiry requires us to determine whether
the FTC’s construction of the statute is reasonable. See Chevron, 467 U.S. at 843-
44, 104 S. Ct. at 2781-82; see also Amberg v. FDIC, 934 F.2d 681, 687 (5th Cir.
1991) (“[W]e will not bow our heads with closed eyes and walk away; rather we
must still look at the [agency’s interpretations] and see if they can be classified as
reasonable.”). 7 In determining whether the FTC regulations are reasonable, we
look to the rationale behind the FTC’s construction. In its legislative regulations,
the FTC reasoned that a decision regarding the warranty dispute may not be binding
because “section 110(d) of the Act gives state and federal courts jurisdiction over
suits for breach of warranty and service contracts.” 16 C.F.R. § 700.8. The FTC
further explained that binding arbitration agreements are not allowed in written
warranties because:
First, as the Staff Report indicates, Congressional intent was that
decisions of Section 110 Mechanisms not be legally binding. Second,
even if binding Mechanisms were contemplated by Section 110 of the
Act, the Commission is not prepared, at this point in time, to develop
guidelines for a system in which consumers would commit themselves,
7
The Chevron standard of deference appears to apply only to the FTC’s legislative
regulations, and not to the FTC’s interpretive regulations. See Walton, __ F.3d at __ n.7 (discussing
the level of deference for legislative regulations versus interpretive regulations). Thus, while we
must defer to the legislative regulations in 16 C.F.R. § 701-03 (2002) if they are reasonable, the
FTC’s interpretive regulations are only “entitled to respect” to the extent they “have the power to
persuade.” See Christensen v. Harris County, 529 U.S. 576, 587, 120 S. Ct. 1655, 1663, 146 L. Ed.
2d 621 (2000) (quoting Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S. Ct. 161, 164, 89 L. Ed.
124 (1944)) (internal quotations omitted); see also Walton, __ F.3d at __ n.7.
22
at the time of product purchase, to resolve any difficulties in a binding,
but non-judicial, proceeding. The Commission is not now convinced that
any guidelines which it set out could ensure sufficient protection for
consumers.
40 Fed. Reg. 60167, 60210 (1975). In light of the FTC’s reasoning, we conclude its
rationale is unreasonable and do not defer to it.
In the legislative regulations, the FTC bases its construction on Congress’
grant of concurrent jurisdiction. See 16 C.F.R. § 700.8. As we previously
discussed, a statute’s provision for a judicial forum does not preclude enforcement
of a binding arbitration agreement under the FAA. See infra pp. 10-12. Thus, the
FTC’s motive behind the legislative regulation is contradictory to Supreme Court
rationale, and we conclude that its interpretation is unreasonable. See McMahon,
482 U.S. at 238, 107 S. Ct. at 2343 (refusing to follow Congress’ prohibition of
arbitration in the Securities Exchange Act of 1934's legislative history when
Congress’ motive was contradictory to Supreme Court rationale). We also conclude
that the FTC’s additional rationale is unreasonable. Although the FTC first stated
that it looked to a subcommittee staff report (which appears to no longer be
attainable) to determine Congress’s intent, the FTC continued, evincing its major
concern that an arbitral forum will not adequately protect the individual consumers.
The Supreme Court in McMahon, however, rejected this same hostility shown by
the SEC. 482 U.S. at 234 n.3, 107 S. Ct. at 2341 n.3 (declining to defer to the
23
SEC’s interpretation of the Securities Exchange Act of 1934 based on the SEC’s
Wilko attitude). Instead, the Supreme Court holds that arbitration is favorable to the
individual. See Allied-Bruce Terminix Cos., 513 U.S. at 279, 115 S. Ct. at 842-43
(noting that “arbitration’s advantages often would seem helpful to individuals, say,
complaining about a product, who need a less expensive alternative to litigation.”).
The dissent in Walton, which holds that the FTC regulations are reasonable,
admits that “deference might be inappropriate if the FTC’s concerns about the
impact of binding arbitration on consumers were attributable to the Commission’s
reliance on the Supreme Court’s expressed hostility towards arbitration in now-
abandoned cases such as Wilko.” __ F.3d at __ (King, dissenting) (citing McMahon,
482 U.S. at 234 n.3, 107 S. Ct. at 2341 n.3) (declining to defer to the SEC’s
interpretation of the Securities Exchange Act of 1934 based on the SEC’s admission
that its actions were “based on the court of appeals decision following Wilko, . . .
that agreements to arbitrate Rule 10b-5 claims were not, in fact, enforceable”). The
Walton dissent distinguishes this case from McMahon based on a recent FTC
regulatory review statement:
The Commission examined the legality and the merits of mandatory
binding arbitration clauses in written consumer products warranties when
it promulgated Rule 703 in 1975. Although several industry
representatives at that time had recommended that the Rule allow
warrantors to require consumers to submit to binding arbitration, the
Commission rejected that view as being contrary to the congressional
24
intent. The Commission based this decision on its analysis of the plain
language of the Warranty Act.
__ F.3d at __ (King, dissenting and adding emphasis) (quoting 64 Fed. Reg. 19700,
19708 (Apr. 22, 1999). In the next paragraph, however, the FTC reaffirms its
original rationale that it “is not prepared . . . 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 Commission
is not now convinced that any guidelines which it set out could ensure sufficient
protection for consumers.” 64 Fed. Reg. 19700, 19708 (Apr. 22, 1999) (citing 40
Fed. Reg. 60167, 60210 (1975)).8 As we have previously explained, this
interpretation is no longer valid based on the Supreme Court’s abandonment of its
hostile attitude towards arbitration. In light of the Supreme Court’s
acknowledgment and continual enforcement of the strong federal policy toward
arbitration, we conclude this rationale to be based on an impermissible construction
of the statute. Thus, we conclude that the FTC’s interpretation of the MMWA is
unreasonable, and we decline to defer to the FTC regulations of the MMWA
regarding binding arbitration in written warranties.
8
The FTC admits that, under the MMWA, “warrantors are not precluded from offering a
binding arbitration option to consumers after a warranty dispute has arisen.” 64 Fed. Reg. 19700,
19708 (Apr. 22, 1999) (citing 40 Fed. Reg. 60168, 60211 (1975)). As to pre-dispute binding
arbitration, however, “[t]he Commission believes that [its original] interpretation continues to be
correct.” 64 Fed. Reg. 19700, 19708 (Apr. 22, 1999).
25
V. CONCLUSION
After a thorough review of the MMWA and the FAA, combined with the
strong federal policy favoring arbitration, we hold that written warranty claims
arising under the Magnuson-Moss Warranty Act may be subject to valid binding
arbitration agreements. Accordingly, we reverse the judgment of the district court
and remand this case for further proceedings consistent with this opinion.
REVERSED and REMANDED.
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