Court Opinion

ID: 2645540
Source: CourtListenerOpinion
Date Created: 2013-12-12 01:00:51.41742+00
Date Added: 2024-06-11T12:50:54.932321
License: Public Domain

PUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                             No. 13-1064

CHRISTINE SENEY, Individually and as Parent and Next Friend
of I.S. and N.S.; ANTWAN R. SENEY,

                Plaintiffs - Appellants,

           v.

RENT-A-CENTER, INC.; RENT-A-CENTER EAST, INC.,

                Defendants - Appellees.

Appeal from the United States District Court for the District of
Maryland, at Baltimore.      James K. Bredar, District Judge.
(1:12-cv-02347-JKB)

Argued:   October 31, 2013            Decided:   December 11, 2013

Before MOTZ and AGEE, Circuit Judges, and Joseph F. ANDERSON,
Jr., United States District Judge for the District of South
Carolina, sitting by designation.

Affirmed by published opinion. Judge Motz wrote the opinion, in
which Judge Agee and Judge Anderson joined.

ARGUED: Daniel Warren Whitney, Sr., WHITNEY & BOGRIS LLP,
Towson, Maryland, for Appellants. James Charles Mehigan, WILSON
ELSER MOSKOWITZ EDELMAN & DICKER LLP, Washington, D.C., for
Appellees.  ON BRIEF: Gerald S. Gaetano, WHITNEY & BOGRIS LLP,
Towson, Maryland, for Appellants.    Peter A. Coleman, WILSON
ELSER MOSKOWITZ EDELMAN & DICKER LLP, Baltimore, Maryland, for
Appellees.
DIANA GRIBBON MOTZ, Circuit Judge:

     Christine    and   Antwan   Seney    appeal   the     district   court’s

order compelling arbitration of their breach of warranty claim

under the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301 et seq.

(2006).   For the reasons that follow, we affirm.

                                    I.

     In March 2012, the Seneys entered into a “Rental-Purchase

Agreement” with Rent-A-Center, Inc. (“RAC”) for a wooden trundle

bed and mattress.       In that contract, the Seneys agreed to rent

the bed for two weeks, with an option to renew the lease.                   If

the couple leased the bed for an additional six months, RAC

would transfer title to them.            The contract also contained a

purchase option.     By exercising the option, the Seneys could buy

the bed before six months had passed.

     Pursuant to this contract, RAC retained the manufacturer’s

warranty to the bed.       RAC did provide, in the rental contract,

its own warranty to repair, replace, and service the bed during

the term of the lease.           In that contract, the parties also

agreed to submit any contract dispute to binding arbitration.

     In April 2012, RAC delivered the bed to the Seneys’ home

and assembled it in their son’s bedroom.           Within a week, the boy

complained   of   itchiness   and   pain.     A    doctor    diagnosed      his

condition    as   bedbug   bites,   and    Mrs.    Seney    called    RAC    to

                                    2
complain.        The company returned to the home and replaced the

bed’s mattress.           Workers, however, left behind the bedframe,

which    apparently        was     also       infested     with       bedbugs.            The

infestation continued, and Mrs. Seney complained again.                                   This

time,    RAC    removed    both    the    mattress       and    the    frame,       but    not

before dragging them through the Seneys’ home.                              The bed shed

bugs,    and    the    infestation       spread.         RAC   paid       for   a   partial

fumigation, but the company refused to treat the entire house.

      The Seneys filed suit in Maryland state court, alleging a

breach   of     warranty    by    RAC    in    violation       of   the     Magnuson-Moss

Warranty Act (“MMWA” or “the Act”).                      RAC removed the case to

federal court and filed a motion to compel arbitration.                                    In

response, the Seneys claimed that their dispute could not be

submitted to arbitration, at least insofar as that arbitration

was binding.          Relying on regulations promulgated by the Federal

Trade Commission (“FTC”) pursuant to its authority to interpret

the   MMWA,     the    Seneys     maintained      that    RAC       could    not    require

binding arbitration as part of a consumer warranty.                                  See 16

C.F.R. § 703.5(j) (2013).

      The      district    court    rejected       the    argument        that      the   FTC

regulations ban binding arbitration, and so granted RAC’s motion

to compel arbitration.             The Seneys noted a timely appeal.                        We

review a district court order compelling arbitration de novo.

                                              3
See Peabody Holding Co. v. United Mine Workers of Am., Int’l

Union, 665 F.3d 96, 101 (4th Cir. 2012).

                                         II.

     The Seneys contend that the district court erred in holding

that the FTC regulations interpreting the MMWA contain no ban on

binding arbitration.          They maintain that the court conducted “an

incomplete legal analysis.”              Reply Br. 1.        Specifically, they

maintain that the court failed to recognize that, while the FTC

regulations do permit binding arbitration after the parties have

engaged in informal dispute resolution, the regulations prohibit

binding arbitration before the parties have so engaged.                        Careful

examination of the MMWA, and the FTC regulations promulgated

pursuant to it, persuade us that the Seneys are correct.

     Congress       enacted    the   MMWA      in    response   to     a     swell   of

consumer complaints regarding the inadequacy of warranties to

protect    consumers’      interests.          See    H.R.   Rep.      No.    93-1107,

reprinted in 1974 U.S.C.C.A.N. 7702, 7708–11.                       By passing the

Act, Congress sought to “improve the adequacy of information

available      to    consumers,      prevent         deception,        and     improve

competition in the marketing” of goods.                  15 U.S.C. § 2302(a).

To further these goals, Congress provided a private right of

action    to   consumers      “damaged    by   the    failure     of    a    supplier,

warrantor, or service contractor to comply with . . . a written

                                          4
warranty,     implied     warranty,          or       service       contract.”           Id.

§ 2310(d)(1).

     Under the MMWA, consumers may sue in court or submit to

“informal     dispute      settlement           procedures”           in   advance        of

litigation.     Id. § 2310(a)(3).               The statute does not define or

describe    “informal     dispute      settlement           procedures.”         Instead,

Congress     provided     that        the       FTC        would     specify     “minimum

requirements”      for        informal          dispute          resolution.             Id.

§ 2310(a)(2).     To that end, the FTC has promulgated a host of

regulations     describing       a    variety         of     “mechanisms”      to     which

consumers may be required to resort before pursuing their claims

in court.    16 C.F.R. § 703.1 et seq.

     Pursuant     to     those       regulations,            a     “mechanism”      is    an

“informal    dispute     settlement         procedure        which    is   incorporated

into the terms of a written warranty.”                      Id. § 703.1(e).         The FTC

has interpreted the term broadly:                     “mechanisms” encompass all

nonjudicial       dispute            resolution             procedures,        including

arbitration.      See    40    Fed.     Reg.      60,168,        60,210–11     (Dec.     31,

1975).      Of importance here, the FTC regulations provide that

decisions of these informal dispute resolution mechanisms must

be nonbinding.         16 C.F.R. § 703.5(j).                     In other words, the

regulations limit warrantors’ ability to insist in their written

warranties that consumers submit to binding arbitration as part

of a mechanism (an informal dispute settlement procedure).                                40

                                            5
Fed. Reg. at 60,211 (“[R]eference within the written warranty to

any binding, non-judicial remedy is prohibited by . . . Rule

[703] and the Act.”).

       The FTC regulations, however, distinguish between so-called

“pre-dispute” and “post-dispute” binding arbitration.                 See Davis

v. So. Energy Homes, Inc., 305 F.3d 1268, 1280 n.8 (11th Cir.

2002); Walton v. Rose Mobile Homes, LLC, 298 F.3d 470, 481-82

(5th Cir. 2002) (King, C.J., dissenting). 1               “Pre-dispute” binding

arbitration refers to parties’ employment of binding arbitration

as   the    exclusive    means   of   resolving     disputes,    i.e.,     without

first obtaining a nonbinding “mechanism” decision.                  See Walton,
298 F.3d at 481–82 (King, C.J., dissenting); see also 40 Fed.

Reg. at 60,210.         In general, the FTC regulations prohibit “pre-

dispute” binding arbitration.               16 C.F.R. § 703.5(j); 40 Fed.

Reg.   at   60,210.      By   contrast,     the    regulations   permit     “post-

dispute” binding arbitration.           40 Fed. Reg. at 60,211.            “Post-

dispute”     arbitration      takes   place       after   parties   have     first

       1
       We recognize that the terms “pre-dispute” and “post-
dispute,” which the parties and other courts have consistently
used, are somewhat misleading.   Obviously, if the parties seek
to resolve a disagreement -- through a “mechanism” or otherwise
–- they have a dispute. But however described, the principle is
this: the FTC regulations ban a supplier from requiring binding
arbitration in a written warranty as the exclusive means of
dispute resolution. See 40 Fed. Reg. at 60,210. If the parties
first engage in some form of nonbinding dispute resolution,
however, the regulations permit the parties to then engage in
binding arbitration.

                                        6
mediated   their      dispute       informally        through    a   nonbinding

“mechanism.”        See     Walton, 298 F.3d   at   482    (King,     C.J.,

dissenting);   40    Fed.    Reg.     at   60,211.      Thus,    under   the   FTC

regulations, if the parties first engage in nonbinding dispute

resolution, a warrantor may then require a consumer dissatisfied

with the “mechanism” decision to submit to binding arbitration.

40 Fed. Reg. at 60,211 (“[N]othing in the Rule . . . precludes

the use of any other remedies [e.g., binding arbitration] by the

parties following a Mechanism decision.”) (emphasis added). 2

     Accordingly, the district court erred in holding that the

FTC regulations contain no ban on binding arbitration.                     The FTC

ban is intricate and limited, but it certainly exists.

     2
        Even within the category of “pre-dispute” binding
arbitration, the FTC’s ban is not absolute.          Although a
warrantor may not include a “pre-dispute” binding arbitration
clause within the terms of a written warranty, 16 C.F.R.
§ 703.5(j), the parties may agree to “pre-dispute” binding
arbitration in some other document. See 40 Fed. Reg. at 60,211
(“[Although] reference within the written warranty to any
binding non-judicial remedy is prohibited . . . , nothing in the
Rule precludes the parties from agreeing to use [binding
arbitration].”) (emphasis added).     Thus, if after signing a
warranty the parties agree to employ binding arbitration as
their only means of redress, the FTC regulations do not ban that
preference. Id. This additional exception to the general rule
is not implicated in this case.

                                           7
                                                III.

      That the ban exists, however, does not resolve this appeal.

The   Seneys     must      also    establish           that      the   ban     on    arbitration

applies to their rental agreement with RAC.

      Before addressing that most fundamental question, we note

that, rather than focusing on it, the parties argue at length

about the permissibility of the FTC ban.                                In doing so, they

expose    an    important         tension        between         two   major      doctrines       of

statutory interpretation.                 In Shearson/American Express, Inc. v.

McMahon, the Supreme Court instructed courts to evaluate the

arbitrability        of     statutory        rights         in    light      of     the    liberal

“federal       policy      favoring        arbitration.”               482 U.S. 220,    226

(1987).    McMahon established that if a statute is silent with

respect        to         arbitration,           courts           should          presume         its

permissibility.             Id.    at     226–27.           McMahon,      however,         did    not

address whether agencies should also presume the permissibility

of    arbitration.             The        FTC,        the     agency      that       promulgated

regulations         interpreting          the     MMWA,       did      not    employ       a     pro-

arbitration presumption.                  See 40 Fed. Reg. at 60,210.                       Rather,

as    explained       above,       it     concluded          that      pre-dispute          binding

arbitration         was     impermissible             under      the    Act.         16        C.F.R.

§ 703.5(j).          Pursuant        to     the       Supreme       Court’s       directive        in

Chevron,   U.S.A.,          Inc.     v.    Natural          Resources        Defense      Council,

                                                  8
Inc., that interpretation, if reasonable, should control.                            467
U.S. 837, 842–43 (1984).

       The way in which Chevron squares with McMahon, however, is

uncertain, and courts have divided on the question.                             Compare

Davis, 305 F.3d at 1277–81 (concluding that courts should assess

the FTC’s arbitration ban under Chevron, but that the ban is

unreasonable in light of McMahon) with Walton, 298 F.3d at 475–

78 (holding that the McMahon presumption renders the otherwise-

ambiguous MMWA clear, obviating the need for Chevron deference)

and Kolev           v.    Euromotors    W./The     Auto   Gallery,   658 F.3d 1024,

1025–30 (9th Cir. 2011), opinion withdrawn, 676 F.3d 867, 867

(9th       Cir.     2012)      (explaining   that     courts   engage      in   Chevron

analysis, pursuant to which the FTC’s regulation is permissible;

the FTC need not apply the McMahon presumption because agencies

need not subscribe to judicial canons).

       We need not enter the fray.                 This is so because the FTC ban

on binding arbitration does not apply to the Seneys’ contract

with       RAC. 3        The   FTC   regulations    limit   suppliers’     ability    to

       3
       The parties initially failed to brief the applicability of
the FTC arbitration ban to the Seneys’ contract with RAC; we
requested and received supplemental statements of authority on
the issue.    In their submission, the Seneys contend that we
cannot (or should not) address the question because no party
raised it. The contention is unpersuasive. See Kamen v. Kemper
Fin. Servs., Inc., 500 U.S. 90, 99 (1991) (“When an issue . . .
is properly before the court, the court is not limited to the
particular legal theories advanced by the parties, but rather
(Continued)
                                             9
require     binding    arbitration    of    “written    warranties”       in   sales

agreements: they do not reach warranties included in leases.

Because the Seneys rely on a warranty in a lease (not a sales)

agreement,     their     contract    falls    outside    the   FTC    regulation

banning binding arbitration.

                                       A.

      The    FTC   regulations      clearly    state    that   if    a    supplier

provides for dispute resolution by way of a “mechanism,” the

“[d]ecisions of the [m]echanism shall not be legally binding.”

16 C.F.R. § 703.5(j).        At the same time, the FTC ban is far from

sweeping.     The regulations define a “mechanism” as “an informal

dispute     settlement    procedure    which     is    incorporated       into   the

terms of a written warranty.”              Id. § 703.1(e).     In other words,

the   FTC    ban   applies    only    to     dispute    settlement       procedures

included in a “written warranty.”

      The FTC regulations specifically define the term “written

warranty” as:

retains the independent power to identify and apply the proper
construction of governing law.”); accord United States ex rel.
May v. Purdue Pharma, L.P., -- F.3d -- (4th Cir. 2013) [No. 12-
2278, argued Sept. 20, 2013].    Indeed, the Supreme Court has
expressly held that a court may consider an issue like this one,
which is “antecedent to and ultimately dispositive of the
dispute before it, even an issue the parties fail to identify
and brief.”   U.S. Nat’l Bank of Or. v. Indep. Ins. Agents of
Am., Inc., 508 U.S. 439, 447 (1993) (internal quotation marks
and alteration omitted).

                                       10
      (1) Any written affirmation of fact or written
      promise made in connection with the sale of a consumer
      product by a supplier to a buyer which relates to the
      nature of the material or workmanship and affirms or
      promises that such material or workmanship is defect
      free or will meet a specified level of performance
      over a specified period of time, or

      (2) Any undertaking in writing in connection with the
      sale by a supplier of a consumer product to refund,
      repair, replace, or take other remedial action with
      respect to such product in the event that such product
      fails to meet the specifications set forth in the
      undertaking, which written affirmation, promise or
      undertaking becomes part of the basis of the bargain
      between a supplier and a buyer for purposes other than
      resale of such product.

Id. § 703.1(c) (emphasis added).          Thus, as the definition makes

plain, for purposes of the FTC regulations, a “written warranty”

must implicate a “sale.”      A promise -- even a written promise --

does not constitute a “written warranty” under the regulations

if it is not made “in connection with a sale” or is not “part of

the basis of the bargain between a supplier and a buyer.”                   See

id.

      Here, the promise that RAC made to the Seneys was not “in

connection with a sale.”      The Uniform Commercial Code specifies

that a “sale” consists of “the passing of title from the seller

to the buyer for a price.”         U.C.C. § 2-106(1) (1977).             In its

contract   with   the   Seneys,   RAC    did   not   pass   title   to    them.

Rather, RAC expressly retained title to the bed unless and until

the Seneys purchased the bed or renewed their lease for six

                                    11
months.   The Seneys did not exercise either of these options,

and thus title remained with RAC.

     For the same reasons, the Seneys do not constitute “buyers”

of the bed.       As the Seventh Circuit has noted, a plaintiff

cannot purport to be a “buyer” before title has passed to him.

See Voelker v. Porsche Cars N.A., Inc., 353 F.3d 516, 523 (7th

Cir. 2003).   That a plaintiff holds a purchase option does not

alter the analysis.    Until a plaintiff exercises his option, he

remains an option-holder, not a buyer.     See id.   Here, again,

the Seneys never exercised their option.    At the time of suit,

RAC -- not the Seneys -- held title to the bed, and nothing in

the record suggests that the Seneys subsequently took title.

     A different result might obtain if the lease of the bed

were the “economic equivalent” of a sale.       See Henderson v.

Benson-Hartman Motors, Inc., 33 Pa. D. & C.3d 6, 24-26 (Pa. Ct.

Com. Pl. 1983).    This is so because a court might then conclude

that there is no economic difference between a lease and a sale

when, for instance, a lessee pays an amount in rent equal to the

full purchase price of the item, including interest.    See J.L.

Teel Co. v. Houston United Sales, Inc., 491 So. 2d 851, 858–59

(Miss. 1986); Sawyer v. Pioneer Leasing Corp., 428 S.W.2d 46,

53-54 (Ark. 1968); U.C.C. § 1-203.     In that circumstance, the

transaction is effectively the same as a sale in which a buyer

purchases an item but pays for it over time.    Of course, with a

                                12
lease, title remains with the lessor, while with a sale, the

buyer acquires ownership.      But this difference has not prevented

some courts from applying the law of sales to this very specific

class of leases, even in the MMWA context.              See Henderson, 33
Pa. D. & C.3d at 25–26.

     Here,    however,   the   Seneys’   lease    was   not   the   economic

equivalent of a sale.      Rather, their contract with RAC provided

that the Seneys were not required to pay an amount equal to the

purchase price of the bed.        To be sure, the Seneys could have

exercised their renewal or purchase options, at which point they

might have become so bound.          But they had no obligation to

exercise their options -- nor did they elect to do so.                Their

contract with RAC required only that the Seneys rent the bed for

two weeks, for an amount far below the purchase price.               Because

this transaction bears no indicia of a sale, we cannot treat it

as such.     Thus, the FTC arbitration ban simply does not apply to

the Seneys’ rental agreement with RAC.

                                   B.

     In the hope of convincing us otherwise, the Seneys direct

us to a host of cases, most of which hold that lessees are

appropriate plaintiffs under the MMWA. 4         This may be so.    But the

     4
       See Voelker, 353 F.3d at 525; Cohen v. AM Gen. Corp., 264
F. Supp. 2d 616, 621 (N.D. Ill. 2003); Am. Honda Motor Co. v.
Cerasani, 955 So. 2d 543, 549 (Fla. 2007); O’Connor v. BMW N.
(Continued)
                                   13
fact that the Seneys may (or may not) have a cause of action

under the statute does not answer the question here:                         must the

Seneys     initially    submit       that        cause   of   action   to     binding

arbitration?

      All of the cases cited by the Seneys involve facts very

different from those in the case at hand.                         In every case on

which    the   Seneys    rely,   a     lessor       bought    a    product    from   a

manufacturer and obtained a manufacturer’s warranty.                      The lessor

then assigned the warranty to a lessee, who subsequently sued

the   manufacturer      when   the    product        proved   defective.        These

courts have concluded that the lessee, who had been assigned the

manufacturer’s warranty, was entitled to bring a cause of action

against the manufacturer.            They reasoned that the lessee held a

“written    warranty”    by    virtue       of    the    manufacturer’s      warranty,

made in connection with a sale.                  They found it unimportant that

the lessee did not participate in the sale.                       Rather, according

to these courts, for MMWA purposes, as long as the manufacturer

Am., LLC, 905 So. 2d 235, 240 (Fla. Dist. Ct. App. 2005); Mesa v.
BMW N. Am., LLC, 904 So. 2d 450, 453 (Fla. Dist. Ct. App. 2005);
Mangold v. Nisson N. Am., Inc., 809 N.E.2d 251, 253-55 (Ill.
App. Ct. 2004); Dekelaita v. Nissan Motor Corp., 799 N.E.2d 367,
373-374 (Ill. App. Ct. 2003); Ryan v. Am. Honda Motor Co., 896
A.2d 454, 456 (N.J. 2006); Szubski v. Mercedes-Benz, U.S.A.,
L.L.C., 796 N.E.2d 81, 88 (Ohio Ct. Com. Pl. 2003); Peterson v.
Volkswagen Am., Inc., 679 N.W.2d 840, 846 (Wis. Ct. App. 2004);
but see Parrot v. DaimlerChrysler Corp., 130 P.3d 530, 536
(Ariz. 2006) (lessees may not sue under the MMWA); DiCintio v.
DaimlerChrysler Corp., 768 N.E.2d 1121, 1127 (N.Y. 2002) (same).

                                        14
made a written promise “in connection with a sale” to someone,

and that someone assigned the promise to the lessee, the lessee

could sue the manufacturer.

       We pass no judgment on the holdings of these cases.              Right

or wrong, they are not helpful here.            The Seneys do not sue on

the manufacturer’s warranty.          Indeed, they cannot -- RAC never

assigned it to them.        The Seneys can and do sue only on RAC’s

warranty.    But that warranty –- to service the bed –- is utterly

divorced from a sale.      In the cases relied on by the Seneys, the

manufacturer’s warranty accompanied a sale:           the one between the

manufacturer and the lessor.          Here, RAC’s warranty accompanied

no sale; the Seneys never bought the bed.

       Because the Seneys have not linked RAC’s warranty to any

sale, they have failed to establish the existence of a “written

warranty” under FTC regulations.            Accordingly, their attempt to

rely    on   these     regulations,    which     presuppose   a     “written

warranty,”    is     unavailing.      For    this   reason,   the    binding

arbitration clause is enforceable, and so the judgment of the

district court is

                                                                    AFFIRMED.

                                      15