Christine Seney v. Rent-a-Center, Inc. , 738 F.3d 631 ( 2013 )

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
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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
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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.
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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.
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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).
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(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
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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
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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.
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