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  8:07-cv-01171- AUTOMOTIVE I INC; BENNETT 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
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 warranty claims. She alleges breach of implied and express warranties 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 compel 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 arbitrator resolved most of the claims in favor of the Dealership, the

district court confirmed the arbitration award. We review de

17794 KOLEV v. PORSCHE CARS NORTH AMERICA
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 predispute binding arbitration of her warranty claims against the

Dealership. Although the text of the MMWA does not specifically address the validity of pre-dispute mandatory binding

arbitration, Congress expressly delegated rulemaking authority under the statute to the Federal Trade Commission

(“FTC”). See 15 U.S.C. § 2310(a)(2). Pursuant to this authority, 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 constructions 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 Congress’ intent is not clear under the statute and if “Congress

delegated authority to the agency generally to make rules carrying the force of law, and [ ] the agency interpretation claiming deference was promulgated in the exercise of that

authority,” United States v. Mead Corp., 533 U.S. 218, 226-

KOLEV v. PORSCHE CARS NORTH AMERICA 17795
27 (2001), then we must defer to the agency’s reasonable construction 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 citations omitted). We agree with the Fifth Circuit that “[t]he text

of the MMWA does not specifically address binding arbitration,” 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 spoken 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”

1For cases in which the Mead requirements for Chevron deference are

not met, we review the agency’s interpretation under the Skidmore standard, 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. 

17796 KOLEV v. PORSCHE CARS NORTH AMERICA
as an “informal dispute settlement procedure which is incorporated 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 warrantors 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 decisions 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 nonjudicial, proceeding. The [FTC] is not now convinced 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 explanation 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 posi2Although the written warranty in this case was not contained within the

record, the sales contract included an arbitration clause that mandated preKOLEV v. PORSCHE CARS NORTH AMERICA 17797
tion that mandatory pre-dispute binding arbitration clauses are

invalid under the MMWA and affirmed that “this interpretation 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 decisions 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 Condispute 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 written warranty, then it would be even more clearly impermissible. See Cunningham v. Fleetwood Homes of Georgia, Inc., 253 F.3d 611, 622 (11th

Cir. 2001) (“Compelling arbitration on the basis of an arbitration agreement that is not referenced in the warranty presents an inherent conflict

with the [MMWA]’s purpose of providing clear and concise warranties to

consumers.”). 

17798 KOLEV v. PORSCHE CARS NORTH AMERICA
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 statute’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 inequality in bargaining power that vendors wielded over consumers

by “providing consumers with access to reasonable and effective 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, however, 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 statute 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 depriving 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., dissenting). 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 reasonableness, since it is rare that error would long persist.”

KOLEV v. PORSCHE CARS NORTH AMERICA 17799
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 promulgated Rule 703 shortly after the enactment of the MMWA. In

1999, the FTC published a regulatory review statement reaffirming its interpretation of the MMWA to preclude predispute 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 merits of mandatory binding arbitration clauses in written consumer product 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 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 warrantor establishes an informal dispute settlement

mechanism that complies with Rule 703 and incorporates 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 proceeding.” H.R. Rep. No. 93-1107 (1974), at 41. 

17800 KOLEV v. PORSCHE CARS NORTH AMERICA
. . . .

[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. Therefore, 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 omitted). 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 statute 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 holdings that Congress established a “liberal federal policy favoring 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. Cardegna, 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 revocation of any contract.” 9 U.S.C. § 2. The Supreme Court held

KOLEV v. PORSCHE CARS NORTH AMERICA 17801
in Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220

(1987), that the FAA’s mandate to enforce arbitration agreements, “[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 conclude that the MMWA does not overcome the FAA’s presumption 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 prohibiting pre-dispute mandatory binding arbitration was an impermissible 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 halfcentury before the MMWA, had “directly spoken to the precise 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 identify congressional intent in one statute by reference to a previously 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

17802 KOLEV v. PORSCHE CARS NORTH AMERICA
“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 question” whether pre-dispute mandatory binding arbitration provisions 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 prohibited 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 construction of the statute as prohibiting “any binding, nonjudicial remedy,” and concluded that “this interpretation continues 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 statute, that it bars judicial enforcement of warranty provisions

that mandate pre-dispute binding arbitration and that the

MMWA evinces a “contrary congressional command” sufficient to override the FAA’s presumption in favor of arbitration. 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 interpretation of the MMWA as barring pre-dispute mandatory binding 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.

KOLEV v. PORSCHE CARS NORTH AMERICA 17803
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. Second, only in the MWWA and in none of these other statutes

did Congress say anything about informal, non-judicial remedies, 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 minimum requirements for any informal dispute settlement procedure which is incorporated into the terms of a written

warranty”). 

Third, in the MMWA alone did Congress explicitly preserve, 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 primary 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 proarbitration 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 presumption). 

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). 

17804 KOLEV v. PORSCHE CARS NORTH AMERICA
563 U.S. __, __ (2011) (slip op., at 9) (“The overarching purpose 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 arbitration 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 understanding of the enacting Congress’s intent, as evidenced by the

statute’s language and legislative history; (2) the FTC’s construction advances the MMWA’s purpose to protect consumers 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 litigation 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 DealerKOLEV v. PORSCHE CARS NORTH AMERICA 17805
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 Porsche’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 prevailing 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 circuit. The majority reaches this conclusion by conflating “informal 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 warranty 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

1The 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). 

17806 KOLEV v. PORSCHE CARS NORTH AMERICA
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 pursue “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 unreasonable 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 remedy in this case

1. The FTC’s regulatory authority under the MMWA

The MMWA authorizes warrantors to create “informal dispute settlement procedures” called Mechanisms. Such Mechanisms are unique ADR procedures that prevent consumers

from pursuing warranty claims in court without first exhausting the warrantor’s Mechanism procedures. 15 U.S.C.

§ 2310(a). Recognizing Mechanisms and their “potential benefits as an alternative to the judicial process,” Congress made

such exhaustion a prerequisite to filing suit to “encourage

warrantors to establish procedures whereby consumer disputes are fairly and expeditiously settled.” Action Interpreting

KOLEV v. PORSCHE CARS NORTH AMERICA 17807
the MMWA, 64 Fed. Reg. 19700, 19701 (Apr. 22, 1999).

Congress charged the FTC with exclusive authority to “prescribe rules setting forth minimum requirements for any

[IDSM],” monitor compliance with IDSM regulations, investigate complaints, and take remedial measures against noncompliant 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 warranty 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 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, at the time of product purchase, to resolve

any difficulties in a binding, but non-judicial proceeding. 

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

17808 KOLEV v. PORSCHE CARS NORTH AMERICA
not an IDSM. The majority’s notion that the arbitration remedy 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 comply) with the FTC’s extensive regulations for IDSMs in Rule

703. See 15 U.S.C. § 2310(a)(3)(B). To be sure, the arbitration remedy fits none of the statutory or regulatory requirements 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 nonjudicial dispute resolution procedures, including arbitration.”

KOLEV v. PORSCHE CARS NORTH AMERICA 17809
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 authorized 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 requirement in their warranties. Therefore, there are few

IDSMs that come within the ambit of [FTC regulations]. 

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 proceeding 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

2Section 110 is codified at 15 U.S.C. § 2310. 

17810 KOLEV v. PORSCHE CARS NORTH AMERICA
“Mechanisms” plainly contradicts the FTC’s view of the statute. 

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 warrantyrelated 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 written warranties that adopt IDSMs. 

The relevant sections of the 1975 and 1997 FTC actions

(discussing binding arbitration) address the regulation of warranty agreements governed by Rule 703—i.e., warranty agreements creating IDSMs. The FTC indicates throughout both

actions that binding Mechanisms are inconsistent with Congressional 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.” (emphasis added)); id. (“[E]ven if binding Mechanisms were contemplated by Section 110 of the Act, the Commission 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.” (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.” (emphasis added)); id. § 703.5(j) (“Decisions of the Mechanism shall

not be legally binding on any person.” (emphasis added)). 

KOLEV v. PORSCHE CARS NORTH AMERICA 17811
Thus, the FTC’s disapproval of binding, non-judicial remedies in written consumer warranties is premised on the limitations 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 “Informal Dispute Settlement Procedures”) applies “only to warrantors 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 subject to regulation under § 2310(a), FTC regulations are irrelevant 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 compliance 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. 

17812 KOLEV v. PORSCHE CARS NORTH AMERICA
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 MMWAauthorized 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 minimum requirements for any [IDSM],” monitoring compliance

with these rules, and taking remedial action against noncompliant Mechanisms. See 15 U.S.C. § 2310(a). The

MMWA says nothing about remedies outside optional Mechanisms, 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 relevant) 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 jurisdiction.’ ”) (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

KOLEV v. PORSCHE CARS NORTH AMERICA 17813
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 surrounding the scope of the Seasonal Agricultural Worker Protection Act’s (AWPA) judicially-enforceable remedy. Id. at

650. “Congress clearly envisioned, indeed expressly mandated, a role for the Department of Labor in administering the

statute by requiring the Secretary to promulgate standards

implementing [certain] AWPA[ ] . . . provisions.” Id. However, Congress “established an enforcement scheme independent 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 ambiguities 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 standards implementing [the IDSM] provisions.” Id.; see also 15

U.S.C. § 2310(a). However, Congress “established an

enforcement scheme independent of the Executive and provided 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. 

17814 KOLEV v. PORSCHE CARS NORTH AMERICA
owes no deference to the FTC’s views on the legality of extrajudicial 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 procedure, 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 Walton, 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 arbitration 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. AlbertoCulver 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 WitKOLEV v. PORSCHE CARS NORTH AMERICA 17815
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 statutory rights. . . . [W]e are well past the time when judicial

suspicion of the desirability of arbitration and of the competence 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, therefore mandates enforcement of agreements to arbitrate statutory claims.” Id. 

Nonetheless, “the Arbitration Act’s mandate may be overridden 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 statutory 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 arbitrability established by the FAA should be overridden by contrary 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 MagnusonMoss Warranty Act may be subject to valid binding arbitration 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 arbitration of MMWA written warranty claims.”). Although Congress adopted the MMWA “to improve the adequacy of

17816 KOLEV v. PORSCHE CARS NORTH AMERICA
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 statutory 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.6See 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.

5These 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 Sherman Act, Mitsubishi Motors, 473 U.S. at 628-40; and the Racketeer Influenced and Corrupt Organization Act, McMahon, 482 U.S. at 242. 

6The 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 consumer’s right to press claims in civil court, and (4) the statute “sought as its

primary purpose to protect consumers by prohibiting vendors from imposing binding, non-judicial remedies.” Maj. Op. at 17804-05. All of these

arguments hinge on the majority’s errant conclusion that the MMWA prohibits 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. 

KOLEV v. PORSCHE CARS NORTH AMERICA 17817
D. Conclusion

In sum, the MMWA does not prohibit private parties from

agreeing to binding arbitration as a remedy to warranty disputes 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. 

17818 KOLEV v. PORSCHE CARS NORTH AMERICA