FILED

U.S. COURT OF APPEALS

ELEVENTH CIRCUIT

September 19, 2002

THOMAS K. KAHN

CLERK

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

 

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.
2

DUBINA, Circuit Judge:

The important question presented in this appeal is whether the MagnusonMoss 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
3

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 
4

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.
5

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),
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

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,
7

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
8

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
9

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);
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

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-
11

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
12

“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).
3

 Section 2310(e) is irrelevant to the present discussion.

13

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
14

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
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

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
disputes.”).

16

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
17

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
5

 See note 4.

18

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
19

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
20

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
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 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
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

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,
23

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
24

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 nowabandoned 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
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

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.
26

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.