Opinion ID: 1101218
Heading Depth: 2
Heading Rank: 2

Heading: Application to Magnuson-Moss Claims

Text: If the plaintiffs in these appeals are to bear their burden of establishing that Congress intended the Magnuson-Moss Act to preclude binding arbitration under the FAA, they must demonstrate such an intent from the text of the Magnuson-Moss Act, from its legislative history, or from an irreconcilable conflict between arbitration and the purposes of the Magnuson-Moss Act. McMahon, 482 U.S. at 226-27, 107 S.Ct. 2332. The plaintiffs rely on Wilson and Boyd to establish that none of their claims is subject to binding arbitration. Based on the analytical framework established by the Supreme Court for determining whether a statute clearly precludes arbitration, I disagree. First, the text of the Magnuson-Moss Act does not expressly preclude arbitration. The plaintiffs rely on Boyd for the argument that the provision in 15 U.S.C. § 2310(a)(3) for the use of a nonbinding dispute-resolution procedure as a prerequisite for pursuing a written-warranty claim in court implies a statutory prohibition of binding arbitration of those claims. However, the Supreme Court noted in Gilmer, 500 U.S. at 27, 111 S.Ct. 1647, that the ADEA imposes a similar prerequisite that a claimant file a charge with the Equal Employment Opportunity Commission (EEOC)before pursuing an action in court. The ADEA also requires the EEOC to engage in `informal methods of conciliation, conference, and persuasion.' Id. (quoting 29 U.S.C. § 626(b)). The Supreme Court nonetheless concluded that the ADEA's express provision for out-of-court dispute resolution is not inconsistent with the FAA, and it held that ADEA claims are subject to arbitration. Gilmer, 500 U.S. at 30, 35, 111 S.Ct. 1647. Thus, the express provision for one type of out-of-court settlement mechanism does not preclude another. Second, the legislative history of the Magnuson-Moss Act does not express a clear intent to preclude enforcement of the FAA. In Boyd, 981 F.Supp. at 1439, the district court quoted the following from a Senate Report on the Magnuson-Moss Act: `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.' (Quoting S. Rep. 93-151, 93d Cong., 1st Sess., as quoted in 40 Fed.Reg. 60,168 (1975)). While expressing the concern that written warranties are often legalistic and complex, the Senate Report quoted above says absolutely nothing about arbitration. If, as the Supreme Court of the United States held in Mitsubishi Motors, 473 U.S. at 633-34, 105 S.Ct. 3346, arbitration panels are sufficiently sophisticated to resolve complex antitrust claims arising out of the sale of automobiles in international commerce, I fail to see how an arbitration panel would be unable to decipher a warranty arising from the sale of a mobile home in Alabama. Moreover, the main opinion's suggestion that the legislative history of the Magnuson-Moss Act more clearly indicates an congressional intent to prohibit arbitration than does the legislative history of the Securities Exchange Act of 1934 (dealt with in McMahon ) is untenable. A comparison of the legislative history of the Magnuson-Moss Act and the district court's interpretation of that history in Wilson, with the legislative history of an amendment to the Securities Exchange Act of 1934 and the Supreme Court's interpretation of that history in McMahon is revealing. The portion of the main opinion's indented quotation that constitutes legislative history contains this statement: `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.' 732 So.2d at 999 (quoting Wilson, 954 F.Supp. at 1538 (quoting H.R.Rep. 93-1107, 93d Cong., 2d Sess. 41, reprinted in 1974 U.S.C.C.A.N. 7702, 7723)). This statement is not irreconcilable with the purpose of the FAAto allow civil actions to be resolved by an efficient, impartial arbitration panel. The portion of the main opinion's indented quotation that constitutes the district court's interpretation of the legislative history quoted above is as follows: `This history reflects that it was Congress's intent that any non-judicial dispute resolution procedures would be nonbinding, and consumers would always retain the right of final access to court.' 732 So.2d at 999 (quoting Wilson, 954 F.Supp. at 1538). This interpretation is inconsistent with McMahon. In McMahon, 482 U.S. at 236-37, 107 S.Ct. 2332, the Supreme Court quoted the following legislative history of a 1975 amendment to the Securities Exchange Act of 1934: `The Senate bill amended section 28 of the Securities Exchange Act of 1934 with respect to arbitration proceedings between self-regulatory organizations and their participants, members, or persons dealing with members or participants. The House amendment contained no comparable provision. The House receded to the Senate. It was the clear understanding of the conferees that this amendment did not change existing law, as articulated in Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953), concerning the effect of arbitration proceedings provisions in agreements entered into by persons dealing with members and participants of self-regulatory organizations.' (Quoting H.R. Conf. Rep. No. 94-229, 94th Cong., 1st Sess. 111, reprinted in 1975 U.S.C.C.A.N. 179, 342) (emphasis added). Despite the express language indicating a congressional approval of Wilko 's holding against arbitration, the Supreme Court held that Congress did not intend to bar enforcement of all predispute arbitration agreements. Given the Supreme Court's pro-arbitration interpretation of the Conference Report to the Securities Exchange Act, which expressly deals with arbitration, I cannot accept the district court's anti-arbitration interpretation of the House Report to the Magnuson-Moss Act, which does not expressly deal with arbitration. Under the Supreme Court's decision in McMahon, 482 U.S. at 227, 107 S.Ct. 2332, the legislative history of the Magnuson-Moss Act does not demonstrate an intent to limit or prohibit waiver of a judicial forum. Third, there is no irreconcilable conflict between arbitration an the purposes of the Magnuson-Moss Act. The purposes of the Magnuson-Moss Act are 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). To these, the Boyd court added a concern for the inequality of bargaining power between warrantors and consumers. Boyd, 981 F.Supp. at 1439. One of the fundamental purposes of the Securities Act of 1933 and of the Securities Exchange Act of 1934 is the disclosure of information to potential investors. Basic Inc. v. Levinson, 485 U.S. 224, 234, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988). The Supreme Court has held that claims brought under both securities acts are subject to arbitration. See Rodriguez de Quijas, 490 U.S. at 485-86, 109 S.Ct. 1917 (holding that claims brought under the Securities Act of 1933 are subject to arbitration); McMahon, 482 U.S. at 242, 107 S.Ct. 2332 (holding that claims brought under the Securities Exchange Act of 1934 are subject to arbitration). Further, in McMahon, 482 U.S. at 230-31, 107 S.Ct. 2332, the Supreme Court expressly rejected the inequality of bargaining power argument as a means of creating an irreconcilable conflict between the Securities Exchange Act and the FAA, holding that assertions of unequal bargaining power should be addressed in the context of the particular facts of each individual case. [21] Thus, there is no irreconcilable conflict between binding arbitration and the purposes of the Magnuson-Moss Act. The plaintiffs have not borne their burden under the Supreme Court's three-pronged test to show from the text of the Magnuson-Moss Act, from its legislative history, or from an irreconcilable conflict between that act and arbitration, that it was the clear intent of Congress to preclude enforcement of the FAA. Nonetheless, the main opinion relies on statements by the FTC with respect to the following regulation:  A warrantor shall not indicate in any written warranty or service contract either directly or indirectly that 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.... Such statements are deceptive since [15 U.S.C. § 2310(d)] gives state and federal courts jurisdiction over suits for breach of warranty and service contracts. 16 C.F.R. § 700.8 (1998) (emphasis added). This regulation rejects binding arbitration because the Magnuson-Moss Act grants to the courts jurisdiction over warranty claims brought under the Act. See 15 U.S.C. § 2310(d) (investing any court of competent jurisdiction in any State ... or... an appropriate district court of the United States with jurisdiction over Magnuson-Moss Act claims). Although reasonable deference is due an interpretation of a statute by an agency charged with administering that statute, no such deference is due when the Supreme Court has expressly rejected the rationale on which the agency interpretation is based. See generally Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). [22] In McMahon, 482 U.S. at 227-30, 107 S.Ct. 2332, the plaintiff argued that an arbitration clause was ineffective to waive the provisions of § 27 of the Securities Exchange Act that the `district courts of the United States ... shall have exclusive jurisdiction of violations of this title.' Id. at 227, 107 S.Ct. 2332. The Supreme Court explained that `[b]y 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 a judicial forum.' McMahon, 482 U.S. at 229, 107 S.Ct. 2332 (quoting Mitsubishi Motors, 473 U.S. at 628, 105 S.Ct. 3346). Accord Gilmer, 500 U.S. at 29, 35, 111 S.Ct. 1647 (holding that ADEA claims are arbitrable notwithstanding that 29 U.S.C. § 626(c)(1) provides for a judicial forum for relief); Rodriguez de Quijas, 490 U.S. at 485-86, 109 S.Ct. 1917 (holding that Securities Act of 1933 claims are arbitrable notwithstanding that 15 U.S.C. § 77v(a) provides a judicial forum for relief); McMahon, 482 U.S. at 242, 107 S.Ct. 2332 (holding that RICO claims are arbitrable notwithstanding that 18 U.S.C. § 1964 provides a judicial forum for relief); Mitsubishi Motors, 473 U.S. at 640, 105 S.Ct. 3346 (holding that antitrust claims are arbitrable notwithstanding that 15 U.S.C. § 29 presumes a judicial forum for relief). Moreover, in McMahon, 482 U.S. at 227-30, 107 S.Ct. 2332, the Supreme Court reached its conclusion that the Securities Exchange Act's provision of a judicial forum does not imply the preclusion of a nonjudicial forum, notwithstanding the fact that § 27 of the Securities Exchange Act expressly prohibits any waiver of compliance with the Securities Exchange Act. Therefore, because the Magnuson-Moss Act does not even arguably prohibit a waiver of a judicial forum, the conclusion is even more compelling that the Magnuson-Moss Act allows for the binding arbitration of warranty claims. [23] The main opinion and the plaintiffs note that in response to public comments addressing the adoption of its regulation, the FTC has stated: 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 [15 U.S.C. § 2310] Mechanisms not be legally binding. Second, even if binding Mechanisms were contemplated by [§ 2310], 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 nonjudicial, proceeding. The Commission is not now convinced that any guidelines which it set out could ensure sufficient protection for consumers.  40 Fed.Reg. 60,168, 60,210 (1975) (emphasis added). Thus, the FTC concluded that the Magnuson-Moss Act's express provision for nonbinding settlement mechanisms implied that binding arbitration of warranty claims is precluded. In addition, the FTC stated that it has not provided guidelines for arbitration and does not believe any guidelines could sufficiently protect buyers of products with warranties. In Gilmer, 500 U.S. at 27-33, 111 S.Ct. 1647, the Supreme Court acknowledged that the ADEA provided for informal dispute resolution. Nonetheless, the Supreme Court interpreted the ADEA's express provision of nonbinding settlement mechanisms as not inconsistent with the strong federal policy favoring arbitration. Id. at 29, 111 S.Ct. 1647. Similarly, the Magnuson-Moss Act's express provision for nonbinding settlement mechanisms is not inconsistent with the strong federal policy favoring arbitration. In McMahon, 482 U.S. at 234 n. 3, 107 S.Ct. 2332, the majority of the Supreme Court rejected the argument made in dissent that the existence of a long-established SEC rule prohibiting arbitration [24] required the Supreme Court to interpret the Securities Exchange Act to preclude arbitration. See id. at 262-63 nn. 21 & 22, 107 S.Ct. 2332 (Blackmun, J., concurring in part and dissenting in part) (noting that the SEC's rule, which prohibited arbitration, protected the buyers of securities). The majority in McMahon noted, and the SEC agreed, that the SEC's statements were premised on the former understanding expressed in Wilko, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168, that arbitration agreements for securities claims were not enforceable. This former mistrust of arbitration has been replaced by decisions like Mitsubishi Motors, 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444, and Rodriguez de Quijas, 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526, which expressly overruled Wilko. Further, the Supreme Court, in McMahon, 482 U.S. at 233-34, 107 S.Ct. 2332, noted that since the 1953 Wilko decision, private organizations had promulgated comprehensive rules to govern arbitration and that Congress had granted the SEC authority to review such rules. Thus, the previously expressed concern for buyers of securities no longer justified avoidance of the FAA. McMahon, 482 U.S. at 233-34, 107 S.Ct. 2332. Similarly, the FTC's statements against arbitrating Magnuson-Moss Act claims predate Mitsubishi Motors, 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444, McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185, Rodriguez de Quijas, 490 U.S. 477, 109 S.Ct. 1917, and Gilmer, 500 U.S. 20, 111 S.Ct. 1647, and reflect the now defunct rationale of Wilko. These later decisions uniformly recognize that `we 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 [FAA] `in controversies based on statutes.' McMahon, 482 U.S. at 226, 107 S.Ct. 2332 (citations omitted). Further, although the FTC, unlike the SEC in McMahon, 482 U.S. at 233-34, 107 S.Ct. 2332, has not expressly approved a comprehensive set of arbitration rules, the arbitration clause at issue in these present cases expressly incorporates the Commercial Rules of Arbitration of the American Arbitration Association, which are well established and uniformly accepted by the federal courts. See, e.g., Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265, 280, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995) (noting the simpler and more efficient operation of the American Arbitration Association's rules); Southland Corp. v. Keating, 465 U.S. 1, 4, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984) (enforcing an arbitration clause that expressly incorporated the Rules of the American Arbitration Association); Gregory v. Electro-Mechanical Corp., 83 F.3d 382, 383 (11th Cir.1996) (enforcing an arbitration clause that expressly incorporated the Rules of the American Arbitration Association). [25] Finally, although the FTC does not have express statutory authority to regulate all the rules of the American Arbitration Association, it does have express authority to regulate the content of informal settlement provisions included in written warranties. 15 U.S.C. § 2310(a). Accordingly, the FTC, like the SEC, has the authority to ensure that the arbitration process adequately protects consumers who purchase products with warranties. Thus, I conclude that the Magnuson-Moss Warranty Act does not evidence a clear congressional intent to prohibit the arbitration of written or implied warranty claims.