Opinion ID: 75978
Heading Depth: 4
Heading Rank: 2

Heading: Reasonableness of the FTC's construction

Text: 35 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 for several reasons: 36 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, 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. 37 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. 38 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. 1273-74. 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 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.). 39 The dissent in Walton, which holds that the FTC regulations are reasonable, admits that deference might be inappropriate if the FTC's concerns about the impact of binding arbitration on consumers were attributable to the Commission's reliance on the Supreme Court's expressed hostility towards arbitration in now-abandoned cases such as Wilko.  298 F.3d at 476 (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: 40 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 intent. The Commission based this decision on its analysis of the plain language of the Warranty Act. 41 298 F.3d at 487 (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 toward 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.