Walton v. Rose Mobile Homes ( 2002 )

REVISED AUGUST 16, 2002
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 00-60742
_____________________
THOMAS E. WALTON; LE’ELLEN WALTON,
Plaintiffs-Appellees,
v.
ROSE MOBILE HOMES LLC; ET AL.,
Defendants,
SOUTHERN ENERGY HOMES, INC.,
Defendant-Appellant.
_________________________________________________________________
Appeal from the United States District Court
for the Southern District of Mississippi
_________________________________________________________________
July 30, 2002
Before KING, Chief Judge, and JOLLY and EMILIO M. GARZA, Circuit
Judges.
E. GRADY JOLLY, Circuit Judge:
Defendant-Appellant Southern Energy Homes, Inc. appeals the
district court’s denial of its motion to compel arbitration of the
Waltons’ claim for breach of express written warranty under the
Magnuson-Moss Warranty Act, 15 U.S.C. §§ 2301-12 (1994). For the
following reasons, we REVERSE.
I
In January 1999, Plaintiffs-Appellees Thomas and Le’Ellen
Walton (“the Waltons”) purchased a mobile home manufactured by
Defendant-Appellant Southern Energy Homes, Inc. (“Southern Energy”)
from a retail seller, Rose Mobile Homes (“Rose”). Southern Energy
issued the Waltons a one-year manufacturer’s warranty against
defects in materials and workmanship. This warranty contained an
arbitration provision requiring the Waltons to submit any claims
under the warranty to binding arbitration.1
The Waltons discovered a variety of defects in their mobile
home. They requested repairs from both Southern Energy and Rose on
numerous occasions, but these repairs never were completed to the
Waltons’ satisfaction. Consequently, in October 1999, the Waltons
revoked their acceptance of the mobile home by letter.
1
The sales contract also contained a binding arbitration
provision that stated: “[A]ny controversy or claim . . . arising
out of or relating to this Contract or any agreements or
instruments relating to or delivered in connection with this
Contract . . . shall . . . be determined by arbitration, reference,
or trial by a judge as provided below. A controversy involving
only a single claimant, or claimants who are related or asserting
claims arising from a single transaction, shall be determined by
arbitration [pursuant to the Federal Arbitration Act].” Separate
and apart from the warranty and the sales contract, Thomas Walton
also signed a “Binding Arbitration Agreement” at the time of sale.
This agreement stated: “All disputes . . . resulting from or
arising out of the design, manufacture, warranty or repair of the
manufactured home . . . will be submitted to BINDING ARBITRATION
[pursuant to the Federal Arbitration Act].”
2
In December 1999, the Waltons filed suit against Southern
Energy and Rose2 in the Circuit Court of Kemper County,
Mississippi, alleging negligence, breach of contract, breach of
express and implied warranties, and violation of the Magnuson-Moss
Warranty Act (the “MMWA”).3 The defendants removed the case to
federal district court pursuant to 28 U.S.C. § 1331, 28 U.S.C. §
1332, and the MMWA’s jurisdictional provision, 15 U.S.C. § 2310(d).
Both Southern Energy and Rose filed motions to compel
arbitration of the Waltons’ claims. They contended that the
arbitration provisions in the warranty and sales contracts and the
separate “Binding Arbitration Agreement” signed by Thomas Walton at
the time of sale are valid and enforceable under the Federal
Arbitration Act (the “FAA”) with respect to all of the Waltons’
claims. In response, the Waltons argued that the MMWA precludes
the enforcement of binding arbitration provisions contained in
express written warranties. The Waltons maintained that, because
of this statutory prohibition, neither their warranty claims under
the MMWA nor their related state law claims are subject to
2
The Waltons also named Greenpoint Financial Corporation (the
company that financed the purchase) as a defendant in the lawsuit,
arguing that the failure of the mobile home purchase gives the
Waltons a defense to Greenpoint’s secured claim against them. This
issue is not before this court.
3
The MMWA establishes standards governing the content of
consumer product warranties, see 15 U.S.C. §§ 2301-08 (1994), and
creates a legal remedy for consumers who are harmed by a
warrantor’s failure to comply with the obligations established in
a warranty, see id. § 2310. Both parties agree that the MMWA’s
provisions are applicable to the transaction at issue.
3
compulsory arbitration. A federal magistrate judge agreed with the
Waltons and denied Southern Energy and Rose’s motions to compel
arbitration with respect to all of the Waltons’ claims.
Upon review of the magistrate judge’s order, the district
court agreed with the magistrate judge’s conclusion that the MMWA
precludes Southern Energy (the warrantor) from requiring the
Waltons to submit their written warranty claims to binding
arbitration. Contrary to the magistrate judge’s conclusion,
however, the district court compelled arbitration of the Waltons’
claims that did not arise under the MMWA. Thus, the district court
ordered the Waltons to submit their negligence, breach of contract
and breach of implied warranty claims to arbitration.4 Southern
Energy now appeals the district court’s denial of its motion to
compel arbitration of the Waltons’ MMWA claim.
II
We review a district court’s grant or denial of a motion to
compel arbitration de novo. Webb v. Investacorp, Inc., 89 F.3d
252, 257 (5th Cir. 1996). We have determined that a two-step
inquiry governs the adjudication of motions to compel arbitration
under the FAA: “The first step is to determine whether the parties
agreed to arbitrate the dispute in question. . . . The second step
is to determine whether legal constraints external to the parties’
4
Because Rose issued no express written warranty to the
Waltons, all claims against Rose were deemed subject to
arbitration. Accordingly, Southern Energy is the only remaining
defendant in this action.
4
agreement foreclosed the arbitration of those claims.” Id. at 257-
58 (internal citations and quotations omitted). Because neither
party disputes that the warranty contains a valid arbitration
agreement that encompasses the Waltons’ breach of express warranty
claim, we focus our attention on the second step of the Webb
inquiry: whether the MMWA presents a legal constraint that
forecloses arbitration of the express warranty claim.
We first consider the background and dictates of the Federal
Arbitration Act, and then of the Magnuson-Moss Warranty Act.
A
The Federal Arbitration Act was enacted in 1924 to “revers[e]
centuries of judicial hostility to arbitration agreements by
plac[ing] arbitration agreements upon the same footing as other
contracts.” Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220,
225-26 (1987) (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506,
510-11 (1974)) (internal citations and quotations omitted,
alterations in original). The FAA provides that:
A written provision in . . . a 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 . . . 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).
5
There is a “liberal federal policy favoring arbitration,” and
the Supreme Court has read the FAA to establish a presumption in
favor of the enforceability of contractual arbitration agreements.
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-
25 (1983). The presumption of enforceability of arbitration
agreements applies equally to “claim[s] founded on statutory
rights.” McMahon, 482 U.S. at 226. Only a contrary congressional
command can override the dictates of the FAA. Id.
In order to overcome this presumption in favor of arbitration,
the party opposing arbitration bears the burden of demonstrating
that “Congress intended to preclude a waiver of judicial remedies
for the statutory rights at issue.” Id. (citing Mitsubishi Motors
Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)).
Courts consider three factors in determining whether Congress
intended to preclude application of the FAA to a particular
statutory right: (1) the statute’s text; (2) its legislative
history; and (3) whether there is “an inherent conflict between
arbitration and the statute’s underlying purposes.” Id.
In every case the Supreme Court has considered involving a
statutory right that does not explicitly preclude arbitration, it
has upheld the application of the FAA. This includes cases falling
under the Age Discrimination in Employment Act,5 Sherman Act,6
5
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 35
(1991).
6
Mitsubishi Motors, 473 U.S. at 628-40.
6
Racketeer Influenced and Corrupt Organization Act,7 Securities Act
of 1933,8 Securities Exchange Act of 1934,9 and the Truth in Lending
Act.10
B
We now turn to the provisions of the Magnuson-Moss Warranty
Act (“MMWA”). The MMWA was enacted in 1974 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). In addition to establishing standards governing
the content of warranties, the MMWA creates a statutory cause of
action for consumers “damaged by the failure of a supplier,
warrantor, or service contractor to comply with any obligation
[imposed by the Act] or [established by] a written warranty,
implied warranty, or service contract.” Id. § 2310(d)(1).11 Suits
under the MMWA may be brought in either federal or state court,
id., and consumers are permitted to recover reasonably-incurred
7
McMahon, 482 U.S. at 242 (civil RICO claims).
8
Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S.
477, 484-86 (1989), overruling Wilko v. Swan, 346 U.S. 427 (1953).
9
McMahon, 482 U.S. at 238.
10
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79,
88-92 (2000).
11
The MMWA also empowers the Attorney General and the Federal
Trade Commission to initiate proceedings for deceptive warranty or
noncompliance with the requirements of the Act. See 15 U.S.C. §
2310(c).
7
costs and expenses, including attorneys’ fees, if they prevail in
such suits. Id. § 2310(d)(2).
Before bringing a suit for breach of warranty, the consumer
must give persons obligated under the warranty a reasonable
opportunity to “cure” their failure to comply with the obligations
at issue. Id. § 2310(e). The MMWA also permits warrantors to
establish “informal dispute settlement procedures” for breach of
written warranty claims, and to require consumers to resort to such
procedures before bringing a civil action.12 Id. § 2310(a). While
the term “informal dispute settlement procedure” is not defined
anywhere in the text of the Act, the Federal Trade Commission (the
“FTC”) is instructed to “prescribe rules setting forth minimum
requirements for any informal dispute settlement procedure which is
incorporated into the terms of a written warranty.” Id.
§ 2310(a)(2). If a warrantor establishes an informal dispute
settlement procedure in accordance with the FTC rules, the
warrantor is permitted to include language in the warranty
requiring consumers to resort to this procedure “before pursuing
any legal remedy” under the Act. Id. § 2310(a)(3)(C). The FTC has
adopted a regulation stating that informal dispute settlement
12
The provisions of the MMWA governing informal dispute
settlement procedures appear to be applicable only to claims
brought pursuant to written warranties. See 15 U.S.C. § 2310(a)(2)
(1994) (“The Commission shall prescribe rules setting forth minimum
requirements for any informal dispute settlement procedure which is
incorporated into the terms of a written warranty to which any
provision of this chapter applies.”) (emphasis added).
8
procedures under the MMWA cannot be legally binding on any person.
See 16 C.F.R. § 703.5(j). The FTC therefore has found that
written warranties cannot require binding arbitration. 40 Fed.
Reg. 60168, 60211 (1975) (“[T]here is nothing in the Rule which
precludes the use of any other remedies by the parties following a
Mechanism decision . . . . However, reference within the written
warranty to any binding, non-judicial remedy is prohibited by the
Rule and the Act.”) Thus, according to the FTC’s interpretation,
binding arbitration is simply impermissible under the MMWA.
III
When we review an agency’s construction of a statute that it
administers, we must defer to that agency’s interpretation of the
statute if: (1) Congress has not spoken directly to the issue; and
(2) the agency’s interpretation “is based on a permissible
construction of the statute.” Chevron U.S.A., Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837, 843 (1984). “The
judiciary is the final authority on issues of statutory
construction and must reject administrative constructions which are
contrary to clear congressional intent . . . . If a court,
employing traditional tools of statutory construction, ascertains
that Congress had an intention on the precise question at issue,
that intention is the law and must be given effect.” Id. at 843 n.
9.
9
There is no doubt that Congress has expressed a clear
intention in favor of arbitration for contractual claims. See 9
U.S.C. § 2 (“A written provision in any maritime transaction or a
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 arbitration an
existing controversy arising out of such a contract, transaction,
or refusal, shall be valid, irrevocable, and enforceable, save upon
such grounds as exist at law or in equity for the revocation of any
contract.”) We therefore must determine if Congress expressed any
contrary intent with respect to such claims arising under the MMWA.
A
Under McMahon, in order to determine if Congress intended to
preclude arbitration of a statutory claim, we consider the
statute’s text, its legislative history, and its purpose. McMahon,
482 U.S. at 226. The text of the MMWA does not specifically
address binding arbitration, nor does it specifically allow the FTC
to decide whether to permit or to ban binding arbitration.
Although the MMWA allows warrantors to require that consumers use
“informal dispute settlement procedures” before filing a suit in
court, and allows the FTC to establish rules governing these
procedures, it does not define “informal dispute settlement
procedure.” However, the MMWA does make clear that these are to be
10
used before filing a claim in court. Yet binding arbitration
generally is understood to be a substitute for filing a lawsuit,
not a prerequisite. See Mitsubishi Motors Corp. v. Soler Chrysler-
Plymouth, Inc., 473 U.S. 614, 628 (1985) (“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 a judicial, forum.”)
In Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20
(1991), the Court held that the Age Discrimination in Employment
Act (“ADEA”) does not preclude compulsory arbitration of ADEA
claims, even though the ADEA allows the EEOC to pursue “‘informal
methods of conciliation, conference, and persuasion.’” Id. at 29
(quoting 29 U.S.C. § 626(b)). Therefore the availability of
informal methods of settling a dispute plainly does not itself
preclude the availability of arbitration. Further, the fact that
the MMWA creates a judicial forum for MMWA claims is insufficient
evidence of congressional intent to preclude application of the
FAA. See McMahon, 482 U.S. at 227 (finding that a provision of the
Securities Exchange Act stating that “[t]he district courts of the
United States . . . shall have exclusive jurisdiction of violations
of this title or the rules and regulations thereunder, and of all
suits in equity and actions at law brought to enforce any liability
or duty created by this title” did not preclude application of the
FAA to claims brought under the statute) (quoting 15 U.S.C. §
11
78aa); Gilmer, 500 U.S. at 29 (rejecting the argument that
compulsory arbitration under the ADEA is improper because the
statute provides claimants with a judicial forum); Matsushita Elec.
Indus. Co. v. Epstein, 516 U.S. 367, 385 (1996) (“[A] statute
conferring exclusive federal jurisdiction for a certain class of
claims does not necessarily require resolution of those claims in
a federal court.”). In short, the availability of a judicial forum
is no basis for precluding arbitration of claims under the MMWA.
We also note that binding arbitration is not normally
considered to be an “informal dispute settlement procedure,” and it
therefore seems to fall outside the bounds of the MMWA and of the
FTC’s power to prescribe regulations. We thus conclude that the
text of the MMWA does not evince a congressional intent to prevent
the use of binding arbitration.
B
We next consider the legislative history of the MMWA. The
legislative history does not specifically discuss the availability
of arbitration, nor does it define or shed light on the meaning of
“informal dispute settlement procedure.” The legislative history
does indicate that such procedures were meant to be non-binding.
For example, the House Report on the MMWA states that “[a]n adverse
decision in any informal dispute settlement procedure would not be
a bar to a civil action on the warranty involved in the proceeding
. . . .” H.R. Rep. No. 93-1107 (1974), reprinted in 1974
12
U.S.C.C.A.N. 7702, 7723. The Conference Committee report also
indicates that if a consumer chooses not to pursue an informal
dispute settlement procedure, a consumer can still pursue “all
alternative avenues of redress.” S. Conf. Rep. No. 93-1408 (1974),
reprinted in 1974 U.S.C.C.A.N. 7755, 7758. However, there 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. The legislative
history’s reference to “civil action” neither explicitly includes
nor precludes binding arbitration. However, the reference to
“informal dispute settlement procedure” seemingly precludes binding
arbitration from its scope, as binding arbitration is not normally
considered an informal procedure. Binding arbitration simply is
not part of these reports. These passages therefore do not support
an assertion that Congress intended to preclude binding
arbitration.
Additionally, the Conference Committee Report states that the
legislation requires “provision [by the warrantor] for governmental
or consumer participation in internal or other private dispute
settlement procedures . . . .” Id. Again, this does not indicate
an intent to preclude binding arbitration. It simply requires that
the consumer (or perhaps the government) participate in the
13
informal procedures established by the warrantor. The Committee
cannot have had in mind binding arbitration in its comments, as the
government does not normally participate in private binding
arbitration procedures. Again, these congressional reports do not
demonstrate that Congress intended for binding arbitration to be
included within the scope of these informal dispute settlement
procedures, nor that it intended to preclude binding arbitration
under the MMWA.
In McMahon, the Court found that language in the legislative
history of the Securities Exchange Act of 1934 -- language that
appears more persuasive than that above -- did not evince a
congressional intent to bar all pre-dispute agreements to arbitrate
Securities Exchange Act claims. McMahon, 482 U.S. at 238.
Specifically, the legislative history stated:
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 (1953),
concerning the effect of arbitration proceedings
provisions in agreements entered into by persons dealing
with members and participants of self-regulatory
organizations.
Id. at 236-37 (quoting H.R. Rep. No. 94-229, at 111 (1975),
reprinted in 1975 U.S.C.C.A.N. 179, 342). This legislative history
implied a congressional intent to adopt the then-valid holding in
14
Wilko that arbitration is an inadequate forum for the enforcement
of Securities Act of 1933 statutory claims.13 The Court found that
this reference was not clear enough to evidence congressional
intent to preclude pre-dispute arbitration agreements as to
Securities Exchange Act claims. Id. at 237-38.
The legislative history here is not as persuasive as that in
McMahon -- which was found unpersuasive by the Supreme Court -- and
consequently we must conclude that the legislative history here
does not evidence a congressional intent to preclude arbitration of
MMWA claims.
C
Finally, we examine the purposes of the MMWA, and whether
there is an inherent conflict between the MMWA and the FAA. We
know that the MMWA was enacted in order 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). The House Report on the MMWA states that “[t]he purpose
of this legislation is (1) to make warranties on consumer products
more readily understood and enforceable, (2) to provide the Federal
Trade Commission (FTC) with means of better protecting consumers
and (3) to authorize appropriations for the operations of the FTC
for fiscal years 1975, 1976, and 1977.” We do not see any inherent
13
The Supreme Court later overruled Wilko and upheld agreements
to arbitrate Securities Act claims. See Rodriguez de Quijas v.
Shearson/Am. Express, Inc., 490 U.S. 477, 485 (1989).
15
conflict between arbitration and these purposes. Consumers can
still vindicate their rights under warranties in an arbitral forum.
Warranties can provide adequate and truthful information to
consumers, while also requiring binding arbitration. Arbitration
is not inherently unfair to consumers. See Allied-Bruce Terminix
Cos. v. Dobson, 513 U.S. 265, 280 (1995) (“Congress, when enacting
the [FAA], had the needs of consumers . . . in mind.”) Although
the legislative history of the MMWA expresses a concern with the
unequal bargaining power of consumers, see S. Rep. No. 93-151, at
22-23 (1973), a perception of unequal bargaining power is not
enough to unilaterally hold arbitration agreements unenforceable.
See Gilmer, 500 U.S. 33. Of course, courts can consider individual
claims of fraud or unconscionability in arbitration agreements as
they would in any other contract. See id. We thus can find no
inherent conflict between the MMWA and the FAA.
We therefore hold that the text, legislative history, and
purpose of the MMWA do not evince a congressional intent to bar
arbitration of MMWA written warranty claims.14 The clear
congressional intent in favor of enforcing valid arbitration
agreements controls in this case.15 The Waltons signed a valid
14
We therefore need not consider the second prong of the
Chevron analysis.
15
We note again, as we stated in Part II.B, that the MMWA
requires consumers to submit to informal dispute settlement
procedures for breach of written warranty claims, if the warrantor
has established such procedures, before filing a civil action.
See 15 U.S.C. § 2310(a)(3). Our holding in no way conflicts with
16
binding arbitration agreement, and they must arbitrate their MMWA
claims.
IV
We recognize that some courts have found that the MMWA
precludes binding arbitration, and that a number of courts have
agreed with us.16 We have found no other federal appellate opinions
this provision.
16
Compare Parkerson v. Smith, 2002 WL 358678, *3 (Miss.) (en
banc) (not yet released for permanent publication) (MMWA precludes
arbitration, as it was enacted more recently than the FAA and is
more specific; relying on Waverlee Homes, infra, the MMWA’s
provision of a judicial forum, and the FTC regulations under the
MMWA); Browne v. Kline Tysons Imports, Inc., 190 F. Supp. 2d 827
(E.D. Va. 2002) (claims under MMWA based on written warranties not
subject to binding arbitration because Congress intended to allow
consumers to adjudicate such claims in court); Yeomans v. Homes of
Legend, Inc., 2001 WL 237313 (M.D. Ala.) (finding that Congress
intended to preclude binding arbitration of express and written
warranty claims under the MMWA; relying on the reasoning in
Waverlee Homes, infra, which states in part that arbitration is
precluded because the MMWA grants access to a judicial forum);
Pitchford v. Oakwood Mobile Homes, Inc., 124 F. Supp. 2d 958, 962-65
(W.D. Va. 2000) (relying largely on FTC’s regulations finding
binding arbitration to be impermissible and on the MMWA’s grant of
access to a judicial forum to find that the MMWA precludes binding
arbitration of disputes over written warranties); Raesly v. Grand
Housing, Inc., 105 F. Supp. 2d 562, 573 (S.D. Miss. 2000) (finding
that MMWA precludes binding arbitration of written warranty claims,
relying on Waverlee Homes); Wilson v. Waverlee Homes, Inc., 954
F. Supp. 1530, 1532 (M.D. Ala. 1997) (MMWA precludes binding
arbitration of MMWA claims, in part because it provides access to
a judicial forum and because the FTC regulations have so
interpreted it), with In re American Homestar of Lancaster, Inc.,
50 S.W.3d 480, 490 (Tex. 2001) (MMWA’s text, legislative history,
and purpose do not preclude binding arbitration); Results Oriented,
Inc. v. Crawford, 538 S.E.2d 73, 79-81 (Ga. Ct. App. 2000) (MMWA
does not preclude arbitration of express and implied warranty
claims, unless arbitration clause is unconscionable), aff’d
as Crawford v. Results Oriented, Inc., 584 S.E.2d 432 (Ga. 2000);
Southern Energy Homes, Inc. v. Ard, 772 So. 2d 1131, 1135 (Ala.
2001) (holding arbitration provisions of a written warranty to be
17
on point, outside of the Eleventh Circuit. Those cases that have
found arbitration to be precluded have relied, at least in part, on
the fact that the MMWA provides consumer access to a judicial
forum.17 However, as discussed in Part III.A, this is not evidence
of an intent to prohibit arbitration of a statutory claim.
Some of those cases also rely on the FTC regulations to
determine congressional intent, and note that the regulations state
that consumers should have full access to the courts and that
informal dispute mechanisms should be non-binding. For example, in
Wilson v. Waverlee Homes, Inc., 954 F. Supp. 1530, 1537-39 (M.D.
Ala. 1997), aff’d, 127 F.3d 40 (11th Cir. 1997) (table op.), the
court held that the MMWA precludes binding arbitration of MMWA
claims. The court relied on: (1) the MMWA’s provision of access to
a judicial forum; (2) the fact that informal dispute settlement
mechanisms are a prerequisite to suit; (3) the FTC regulations
which reflect the MMWA’s “command” that consumers should have
access to the courts; and (4) the history of the FTC regulations
which prohibit binding arbitration. Id.; see also Yeomans v. Homes
of Legend, Inc., 2001 WL 237313 (M.D. Ala.) (expressly adopting the
reasoning and result in Wilson).18 But see Richardson v. Palm
Harbor Homes, Inc., 254 F.3d 1321 (11th Cir. 2001) (predispute
binding).
17
See note 16.
18
See also cases in note 16.
18
arbitration agreement not rendered unenforceable by MMWA with
respect to breach of oral express warranty claim under the Alabama
Uniform Commercial Code). Again, the provision of access to a
judicial forum is not evidence of intent to prevent the use of
arbitration. Further, it is improper to use the FTC regulations
themselves to determine congressional intent here. As noted
previously, we must consider the statute’s text, legislative
history, and whether its purpose conflicts with another statute, to
determine congressional intent. An agency’s regulations,
promulgated pursuant to a statute, are not part of this test. It
is only after considering these three factors and determining that
Congress’s intent is ambiguous, that we would then proceed to
consider the FTC’s regulations and whether they are a permissible
interpretation of the statute, per Chevron. We would not, in any
case, use the regulations themselves to determine congressional
intent.
V
We hold that the MMWA does not preclude binding arbitration of
claims pursuant to a valid binding arbitration agreement, which the
courts must enforce pursuant to the FAA. The Waltons are bound to
arbitrate their claims. We REVERSE the judgment of the district
court and REMAND for entry of judgment in accordance with this
opinion.
REVERSED and REMANDED.
19
20
KING, Chief Judge, dissenting:
The case before us is, in essence, a classic Chevron case.
The text of the MMWA contains a conspicuous and significant
ambiguity: the Act can be read to prohibit the use of binding
arbitration agreements in written warranties, or it can be read
not to address the enforceability of binding arbitration clauses
in written warranties, in which case the FAA’s presumption of
arbitrability would likely be applicable. The FTC – the agency
to which Congress entrusted the task of implementing and
elaborating the provisions of the MMWA – has interpreted the MMWA
to preclude the enforcement of binding arbitration clauses in
written warranties governed by the Act. We are bound to defer to
the FTC’s interpretation of the Act unless (1) Congress has
“directly spoken to the precise question at issue” or (2) the
FTC’s construction of the statute is unreasonable. Chevron
U.S.A., Inc. v. Natural Res. Defense Council, Inc., 467 U.S. 837,
842-43 (1984). While the majority apparently concedes that the
text of the Act is ambiguous and that the legislative history is
unilluminating, the majority nonetheless concludes that we must
reject the FTC’s interpretation under the first prong of Chevron
because Congress has unambiguously stated that binding
arbitration clauses in written warranties governed by the MMWA
are enforceable. Because I find no such clear indicia of
21
congressional intent, and because I conclude that the
Commission’s interpretation of the MMWA is reasonable and
entitled to judicial deference,19 I respectfully dissent.
I. The FTC’s Regulatory Construction of § 2310
The text of the MMWA contains no language explicitly
indicating whether Congress intended to preclude application of
the FAA to breach of written warranty claims brought under the
MMWA.20 While the statute makes clear that the “informal dispute
19
A number of federal district courts and state
intermediate appellate courts have similarly deferred to the FTC’s
interpretation of the MMWA. See, e.g., Pitchford v. Oakwood Mobile
Homes, Inc., 124 F. Supp. 2d 958, 963 (W.D. Va. 2000); Wilson v.
Waverlee Homes, Inc., 954 F. Supp. 1530, 1538-39 (M.D. Ala. 1997);
Boroweic v. Gateway 2000, Inc., –-- N.E.2d ---, 2002 WL 1159707, at
*6 (Ill. App. 1 Dist. May 31, 2002); Philyaw v. Platinum Enters.
Inc., No. CL00-236, 2001 WL 112107, at *2 (Va. Cir. Ct. Jan. 9,
2001). In addition, the Mississippi Supreme Court recently held
that binding pre-dispute arbitration agreements are not enforceable
under the MMWA, based in part upon the court’s determination that
Chevron requires deference to the FTC regulations. See Parkerson v.
Smith, 817 So. 2d 529, 533-34 (Miss. 2002) (four justices concurring, one
justice concurring in the result only).
20
The absence of such explicit language is not particularly
surprising. At the time of the MMWA’s passage, the FAA was not
understood to be as broadly applicable as it is today. The Act was
widely thought to be inapplicable to claims based on assertions of
statutory rights (as opposed to purely contractual claims). See,
e.g., Wilko v. Swan, 346 U.S. 427, 438 (1953), overruled by
Rodriguez de Quijas v. Shearson/Am. Express Inc., 490 U.S. 477,
484-85 (1989). In the early 1980s, however, the Supreme Court
clarified (and, arguably, expanded) the scope of the FAA in a
number of ways. See Katherine Van Wezel Stone, Rustic Justice:
Community and Coercion under the Federal Arbitration Act, 77 N.C.
L. Rev. 931, 943-54 (1999) (detailing the history of the Court’s
increasingly expansive interpretation of the FAA’s jurisdictional
and substantive applicability). Under this modern reading of the
FAA, the presumption of enforceability “is not diminished when a
party bound by an agreement raises a claim founded on statutory
22
settlement procedures” governed by § 2310 of the MMWA cannot be
binding in nature, see 15 U.S.C. § 2310(a)(3)(c) (clarifying that
a warrantor can require a consumer to resort to an informal
dispute settlement procedure “before pursuing any legal remedy
under this section”) (emphasis added), the Act does not define
the term “informal dispute settlement procedure” or clarify
whether such proceedings are intended to be the exclusive
alternative to litigation available under the Act.
The MMWA expressly authorizes the FTC to “prescribe rules
setting forth minimum requirements for any informal dispute
settlement procedure which is incorporated into the terms of a
written warranty.” See 15 U.S.C. § 2310(a)(2) (2000). Pursuant
to this congressional delegation of rulemaking authority, the FTC
has established detailed regulations governing the “mechanisms”
that warrantors can require customers to utilize prior to
“exercising rights or seeking remedies created by Title I of the
Act.” 16 C.F.R. § 703.2(b)(3) (2001).21 The regulations define
a “mechanism” as “an informal dispute settlement procedure which
rights.” Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220, 226
(1987).
21
Any mechanism established in a warranty must be funded by
the warrantor, 16 C.F.R. § 703.3(a) (2001), but must be
sufficiently insulated from the warrantor “so that the decisions of
the members and the performance of the staff are not influenced by
either the warrantor or the sponsor,” id. § 703.3(b). The
regulations establish guidelines for investigation and collection
of evidence, rendering of decisions, oral presentation by parties,
and monitoring of settlement obligations. Id. § 703.5.
23
is incorporated into the terms of a written warranty to which any
provision of Title I of the Act applies.” Id. § 703.1(e). The
FTC regulations clearly contemplate that mechanisms are a
precursor, not an alternative, to litigation, stating:
The Mechanism shall inform the consumer . . .
that:
(1) If he or she is dissatisfied with its
decision or warrantor’s intended actions, or
eventual performance, legal remedies,
including use of small claims court, may be
pursued;
(2) The Mechanism’s decision is admissible in
evidence as provided in section 110(a)(3) of
the Act.
Id. § 703.5(g). Indeed, the regulations explicitly announce that
“[d]ecisions of the Mechanism shall not be legally binding on any
person.” Id. § 703.5(j).22
The FTC interprets these regulatory provisions to preclude
the inclusion of binding arbitration agreements in written
warranties. The FTC apparently adopts the position that the term
“mechanism” is appropriately read broadly, to encompass all non-
22
However, a warrantor must “act in good faith in
determining whether, and to what extent, it will abide by a
Mechanism decision.” 16 C.F.R. § 703.2(g) (2000).
24
judicial dispute resolution procedures, including arbitration.
See, e.g., 40 Fed. Reg. 60167, 60210 (Dec. 31, 1975)
(characterizing binding arbitration as a type of “mechanism[]
whose decisions would be legally binding”). Under this reading,
binding arbitration is precluded by the plain language of the
regulations specifying that mechanisms cannot be legally binding
on any party. Indeed, in responding to public comments
suggesting that warrantors should be permitted to include binding
arbitration agreements in written warranties, the FTC explicitly
indicated that the rule precluded such arrangements. The
Commission clarified that:
The Rule does not allow this for two reasons.
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
25
set out could ensure sufficient protection
for consumers.
Id. While the FTC did clarify that a warrantor and a consumer
could agree to submit their dispute to binding arbitration after
the mechanism has rendered a decision (thus approving post-
dispute binding arbitration agreements), the Commission adhered
firmly to its position that inclusion of pre-dispute binding
arbitration clauses in a written warranty is impermissible
because “reference within the written warranty to any binding,
non-judicial remedy is prohibited by the Rule and the Act.” Id.
at 60211.23
As the majority correctly recognizes, we are required to
defer to the FTC’s construction of the MMWA unless: (1) Congress
has directly spoken to the precise question at issue, or (2) the
FTC’s construction is unreasonable. Chevron, 467 U.S. at 842-43.
The majority reaches only the first of these inquiries, finding
that Congress has unambiguously stated that binding arbitration
23
The FTC’s interpretive regulations under the MMWA
(promulgated two years after the legislative regulations) further
clarify the Commission’s position on the use of binding arbitration
clauses in written warranties. These regulations explain that “[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 . . . the Act
gives state and federal courts jurisdiction over suits for breach
of warranty and service contract.” 16 C.F.R. § 700.8 (2001)
(emphasis added).
26
clauses are enforceable in written warranties governed by the
MMWA. Because I cannot agree with this conclusion, I address
both prongs of the Chevron inquiry in turn.
II. Has Congress Directly Spoken to the Precise Question at
Issue?
Despite its acknowledgment that neither the text nor the
legislative history of the MMWA clearly indicates whether the
“informal dispute settlement procedures” provided for in § 2310
are intended to be the exclusive alternative to litigation
available for breach of written warranty claims under the Act,
the majority nonetheless finds that Congress has “directly spoken
to the precise question at issue.” Initially, the majority
points to the fact that, fifty years prior to the passage of the
MMWA, Congress expressed a general policy favoring arbitration of
contractual claims in a different statute. The majority
apparently finds that this general policy expressed in the FAA is
indicative of Congress’s intent in enacting the MMWA.
The Supreme Court has indicated that a reviewing court
considering whether Congress has specifically addressed a
question under the first prong of Chevron “should not confine
itself to examining a particular statutory provision in
isolation” but should instead read the words of the statute “in
27
their context and with a view to their place in the overall
statutory scheme.” F.D.A. v. Brown & Williamson Tobacco Corp.,
529 U.S. 120, 132-33 (2000) (quoting Davis v. Michigan Dept. of
Treasury, 489 U.S. 803, 809 (1989)). For example, in Brown v.
Gardner, 513 U.S. 115 (1994), the Court considered a Department
of Veterans’ Affairs regulation that interpreted the term
“injury” in a veterans’ benefits statute to include only
intentionally inflicted injuries. The Court concluded that
Congress had directly spoken to the question at issue, based in
part upon the Court’s finding that the word “injury” was used in
other portions of the same veterans’ benefits statute and in
analogous statutes dealing with service-related injuries in ways
clearly indicating a reference to both intentional and
unintentional injuries. See id. at 118.
Similarly, the Supreme Court has also acknowledged that a
court considering whether Congress has specifically addressed a
particular question under the first prong of Chevron may glean
Congress’s “clear intent” regarding an earlier statute from
subsequent statutes addressing the same subject matter. As the
Brown & Williamson Court recognized:
At the time a statute is enacted, it may have
a range of plausible meanings. Over time,
however, subsequent acts can shape or focus
those meanings. The classic judicial task of
reconciling many laws enacted over time, and
28
getting them to “make sense” in combination,
necessarily assumes that the implications of
a statute may be altered by the implications
of a later statute. This is particularly so
where the scope of the earlier statute is
broad but subsequent statutes more
specifically address the topic at hand. As
we recognized recently . . . a specific
policy embodied in a later federal statute
should control our construction of the
[earlier] statute, even though it ha[s] not
been expressly amended.
529 U.S. at 143 (internal citations and quotations omitted,
alterations in original). Based in part on this reasoning, the
Brown & Williamson Court concluded that the Food, Drug, and
Cosmetic Act did not permit the Food and Drug Administration to
regulate tobacco products, because Congress had expressed its
intent regarding the appropriate regulation of such products in
the six tobacco-specific pieces of legislation it enacted
subsequent to the Food, Drug, and Cosmetic Act. See id. at 143-
57.
In the instant case, the majority has not gleaned clear
congressional intent from the use of similar words in related
statutes, as did the Court in Gardner. Nor has the majority
found such clear intent by examining Congress’s refinement of a
29
general statute in a subsequent, more specific statute, as did
the Brown & Williamson Court. Instead, the majority bases its
conclusion that Congress has “directly spoken to the precise
question” of how to interpret § 2310 of the MMWA on a general
policy expressed in a prior, less specific statute. The Supreme
Court has never invoked similar reasoning in applying the first
prong of the Chevron inquiry. However, even assuming, arguendo,
that this method of statutory construction would be appropriate
in some circumstances, it is clearly problematic in the context
of the instant case.
As the Supreme Court has consistently recognized, the
presumption of arbitrability established by the FAA is not
absolute and “may be overridden by a contrary congressional
command” in the statute creating the right at issue.
Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220, 226 (1987);
see also Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26
(1991). The question in the instant case is whether the informal
dispute settlement mechanism provisions in § 2310 of the MMWA
express such a contrary congressional command. The majority,
however, concludes that Congress did not intend to express such a
command in the MMWA, based on indicia of congressional intent
expressed in the FAA. Such circular logic is unpersuasive: the
presumption of arbitrability becomes relevant after it is
established that there is no contrary congressional command. It
30
is inappropriate to apply the presumption in ascertaining whether
the statute in question contains such a command.
The majority further argues that Congress could not possibly
have intended for § 2310's provisions regarding “informal dispute
settlement procedures” to govern arbitration proceedings because
“binding arbitration is not normally thought of as an informal
procedure.” Unlike the majority, I am extremely hesitant to
conclude that Congress has directly addressed an apparent
statutory ambiguity based on a judicial assumption about what a
term “normally” means. In addition, even assuming the majority’s
understanding of the generally accepted meaning of “informal
procedures” was persuasive indicia of Congress’s intent in
enacting the MMWA, it is not at all clear that the majority’s
conclusion that arbitration “is not normally thought of as an
informal procedure” accurately reflects how “arbitration” was
perceived at the time of the MMWA’s enactment in 1974. As
numerous commentators have recognized, the formality of
arbitration proceedings has increased notably in the latter half
of the twentieth century, particularly in the period since the
Supreme Court “revitalized” the FAA by clarifying its
applicability to statutory claims in the late 1980s. See, e.g.,
Edward Brunet, Replacing Folklore Arbitration with a Contract
Model of Arbitration, 74 Tul. L. Rev. 39, 42-47 (1990)
(describing the shift from the “folklore arbitrations” that were
common in the early part of the twentieth century, wherein
31
“informal procedures dominated,” there was “little or no
discovery” and “[e]vidence rules were inapplicable” to modern
arbitrations which “resemble litigation” in the sense that there
can be “routine discovery, motion practice, application of
substantive legal rules, [and] written discursive awards with
findings of fact and conclusions of law”); G. Richard Shell,
ERISA and Other Federal Employment Statutes: When is Commercial
Arbitration an “Adequate Substitute” for the Courts?, 68 Tex. L.
Rev. 509, 534 (1990) (“Historically, commercial and labor
arbitration have shared a basically informal approach to the
actual fact-finding and adjudication process. . . . In response
to recent Supreme Court decisions encouraging the use of
commercial arbitration, however, and as part of a general effort
to ensure that arbitration procedures adequately protect
substantive rights, commercial arbitration institutions have
begun to reform their procedures and have added considerable
formality to their proceedings.”); cf. Bernhardt v. Polygraphic
Co., 350 U.S. 198, 203 (1956) (describing commercial arbitration
proceedings in 1956 and concluding that “[a]rbitrators do not
have the benefit of judicial instruction on the law; they need
not give their reasons for their results; the record of their
proceedings is not as complete as it is in a court trial; and
judicial review of an award is more limited than judicial review
of a trial”). Moreover, even today, arbitration undoubtedly
constitutes a more “informal” procedure than litigation. Thus,
32
to categorize arbitration as “formal” or “informal” largely begs
the question of the appropriate basis of comparison. Under these
circumstances, even if the majority is correct that most people
would characterize arbitration as a “formal” procedure at this
point in time, this perception hardly provides conclusive
evidence that the 1974 Congress did not intend to address
arbitration proceedings in enacting MMWA provisions governing
“informal dispute resolution proceedings.”
Neither the text of § 2310 nor the statutory context of this
provision conclusively indicates whether § 2310 applies to
arbitration proceedings (i.e., whether § 2310-governed “informal
dispute settlement procedures” are intended to be the exclusive
alternative to litigation under the Act). While the legislative
history contains some indication that Congress did intend for
§ 2310 procedures to be the exclusive non-judicial forum
available under the Act,24 these indicia are not sufficiently
illuminating that the legislative history can be deemed
conclusive regarding congressional intent. Moreover, there are
no subsequent congressional enactments addressing written
warranties that clarify this issue. Under these circumstances,
there is no basis for this court to conclude that Congress has
“directly spoken to the precise question at issue.”
24
See infra Part III.
33
Because I conclude that Congress has not directly spoken to
the question we face today, I find it is necessary to reach the
second prong of the Chevron inquiry – namely, whether the
Commission’s interpretation of § 2310 is based on a permissible
construction of the statute.
III. Is the FTC’s Interpretation of the MMWA Unreasonable?
Because Congress has “delegated authority to the agency
generally to make rules carrying the force of law,” United States
v. Mead Corp., 121 S. Ct. 2164, 2171 (2001), we are required to
defer to the Commission’s construction of the statute unless that
interpretation is unreasonable. Chevron, 467 U.S. at 843.25
25
It merits notice that this standard of deference appears
to be applicable to the Commission’s legislative regulations, but
not necessarily to its interpretive regulations. The legislative
regulations, 16 C.F.R. §§ 701-03 (2001), were promulgated pursuant
to Congress’s express grant of rulemaking authority to the FTC in
the MMWA, 15 U.S.C. §§ 2309-10 (1994). As the Supreme Court
recently recognized, “express congressional authorizations to
engage in the process of rulemaking” are “a very good indicator of
delegation meriting Chevron treatment.” Mead Corp., 121 S. Ct. at
2172. Accordingly, to the extent that the statute is “silent or
ambiguous” with respect to an issue, we must defer the Commission’s
interpretation in its legislative regulations if that
interpretation is reasonable. See Whitman v. Am. Trucking Assocs.,
Inc., 531 U.S. 457, 481 (2001).
In contrast, the FTC’s interpretive rules are not necessarily
subject to Chevron deference. See, e.g., Martin v. Occupational
Safety & Health Review Comm’n, 499 U.S. 144, 157 (1991) (noting
that interpretive rules and enforcement guidelines are “not
entitled to the same deference as norms that derive from the
exercise of the Secretary’s delegated lawmaking powers”). While
the FTC’s rules, unlike many interpretive rules, were subject to
notice and comment (i.e., the FTC published a notice of the
proposed rules in the Federal Register and interested parties were
permitted to submit written comments), these interpretations were
not subject to the level of public participation mandated by the
MMWA’s provisions governing the promulgation of regulations. See
34
Southern Energy argues that the FTC’s interpretation is
unreasonable because the regulations indicate that the
Commission’s rationale for concluding that the MMWA prohibits
binding arbitration provisions in written warranties was its
determination that such provisions are “deceptive since . . . the
Act gives state and federal courts jurisdiction over suits for
breach of warranty and service contract.” 16 C.F.R. § 700.8
(2001). Pointing to the Supreme Court’s holding that a mere
statutory grant of jurisdiction to federal or state courts does
not preclude enforcement of a mandatory arbitration provision
under the FAA, see, e.g., Gilmer, 500 U.S. at 29; McMahon, 482
U.S. at 227, Southern Energy argues that deference to the FTC
regulations is inappropriate because the Commission’s
interpretation of the MMWA is not based on a permissible
15 U.S.C. § 2309 (1994) (noting that to properly prescribe a rule
under the MMWA, the Commission must “give interested persons an
opportunity for oral presentations of data, views, and arguments,
in addition to written submissions”). Moreover, in light of the
agency’s disclaimer that its interpretive regulations are not
intended to have the force of law, see 42 Fed. Reg. 36111, 36112
(July 13, 1977) (noting that the interpretive regulations “are not
. . . substantive rules and do not have the force or effect of
statutory provisions” and that “like industry guides, they are
advisory in nature”), it appears that these regulations are not
entitled to Chevron deference. See Christensen v. Harris County,
529 U.S. 576, 587 (2000) (“Interpretations such as those in opinion
letters — like interpretations contained in policy statements,
agency manuals, and enforcement guidelines, all of which lack the
force of law — do not warrant Chevron-style deference.”). Such
interpretive regulations are “entitled to respect,” but only to the
extent that they “have the power to persuade.” Id. at 587 (quoting
Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944) (internal
quotations omitted)).
35
construction of the statute. Two state supreme courts have found
this reasoning persuasive in determining that the FTC’s
regulations do not preclude the enforceability of binding
arbitration agreements in written warranties. See In re Am.
Homestar of Lancaster, Inc., 50 S.W.3d 480, 491 (Tex. 2001)
(noting that while it would normally be appropriate to accord
Chevron deference to the FTC’s interpretation of the statute it
administers, no such deference is owed to the regulation
precluding binding arbitration agreements under the MMWA because
“the Supreme Court . . . has rejected arguments similar to those
upon which the FTC relies to conclude the statute prohibits
binding arbitration”); Southern Energy Homes, Inc. v. Ard, 772
So. 2d 1131, 1135 (Ala. 2000) (explicitly adopting Justice See’s
dissent in Southern Energy Homes, Inc. v. Lee, 732 So. 2d 994,
1010 (Ala. 1999), which reasoned that “[a]lthough 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”).
While the FTC’s interpretive regulations do suggest that the
Commission’s construction of the statute was partially based on
its reading of the statute’s jurisdictional provision, the
materials accompanying the FTC’s promulgation of its legislative
36
regulations (the appropriate focus of our Chevron inquiry)26
signal that the Commission had a number of permissible reasons
for reading the statute as it did. According to the Federal
Register commentary accompanying the FTC’s promulgation of its
legislative regulations, the Commission based its determination
that Congress intended to preclude enforcement of binding
arbitration clauses in written warranties on two factors: (1) the
Commission’s reading of a staff report of the House Interstate
and Foreign Commerce Committee’s Subcommittee on Commerce and
Finance; and (2) the Commission’s concern that such arbitration
provisions would inadequately protect the interests of consumers.
See 40 Fed. Reg. 60167, 60210 (Dec. 31, 1975). Initially, the
Commission apparently read portions of the legislative history of
the MMWA (specifically, the subcommittee staff report) to signal
Congress’s intent that dispute resolution mechanisms established
pursuant to the Act would not be legally binding. While it is
not possible to confirm the validity of this reading of the
subcommittee staff report,27 such resources are certainly a
permissible basis for an agency’s conclusions regarding
congressional intent, as the reasonableness of an agency’s
construction of a statute is often assessed in light of the
legislative history. See, e.g., Chevron, 467 U.S. at 862-64;
26
See supra note 7.
27
This report appears to be no longer obtainable.
37
Babbitt v. Sweet Home Chapter of Cmtys. for a Great Or., 515 U.S.
687, 704-08 (1995).
The Commission’s second expressed motive for precluding
binding arbitration agreements in written warranties is its
concern that such binding arbitration agreements inadequately
protect consumers. As a general rule, this court is obliged to
defer to the FTC’s expertise regarding the most appropriate way
to effect the MMWA’s consumer protection goals. As the Supreme
Court noted in Chevron, “the principle of deference to
administrative interpretations has been consistently followed by
this Court whenever a decision as to the meaning or reach of a
statute has involved reconciling conflicting policies, and a full
understanding of the force of the statutory policy in the given
situation has depended upon more than ordinary knowledge
respecting the matters subjected to agency regulations.” 467
U.S. at 844. However, such 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.28 See, e.g., McMahon, 482 U.S. at
234 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 not based on any independent analysis of [the
28
See supra note 2.
38
statute], but instead were premised on the Commission’s
assumption, based on court of appeals decisions following Wilko,
. . . that agreements to arbitrate Rule 10b-5 claims were not, in
fact, enforceable”) (internal citations and quotations omitted,
alterations in original). Unlike the SEC in McMahon, however,
the FTC in the instant case has published a recent regulatory
review statement29 in the Federal Register confirming that its
original reading of the MMWA to preclude binding arbitration was
based on independent analysis of the statute. See 64 Fed. Reg.
19700, 19708 (Apr. 22, 1999) (“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.”) (emphasis added).
29
The FTC requested comments on its rules and guides
interpreting and implementing the MMWA “as part of its regulatory
review program, under which it reviews rules and guides
periodically in order to obtain information about the costs and
benefits of the rules and guides under review, as well as their
regulatory and economic impact.” 64 Fed. Reg. 19700, 19700 (Apr.
22, 1999). “After careful review of the comments received in
response” to its request, the Commission decided to retain the
interpretations and rules without change. Id.
39
This regulatory review statement by the FTC confirms that,
even in light of the Court’s post-Wilko endorsement of
arbitration, the FTC continues to read the MMWA’s provisions to
preclude binding arbitration agreements in written warranties.
See id. (“[T]he Commission determined that reference within the
written warranty to any binding, non-judicial remedy is
prohibited by the Rule and the Act. The Commission believes that
this interpretation continues to be correct . . . Rule 703 will
continue to prohibit warrantors from including binding
arbitration clauses in their contracts with consumers that would
require consumers to submit warranty disputes to binding
arbitration.”) (internal citations and quotations omitted).
Accordingly, unlike the regulation at issue in McMahon, the
agency’s statutory interpretation in the instant case cannot be
deemed “unreasonable” based on the agency’s presumed reliance on
abandoned legal principles.30 Contrary to Southern Energy’s
30
It merits notice that the FTC’s justification for its
prohibition on binding arbitration in the 1999 regulatory review
proceeding is consistent with the rationale that the FTC advanced
at the time of its original promulgation of the legislative
regulations. Accordingly, we are not precluded from giving
appropriate consideration to the Commission’s post-promulgation
explanation by the Court’s precedents disapproving deference to
“post-hoc” agency justifications for regulatory interpretations.
See, e.g., Citizens to Preserve Overton Park, Inc. v. Volpe, 401
U.S. 402, 419-21 (1971) (holding that post-hoc rationalizations
cannot justify an agency decision that was based on an otherwise
invalid rationale); see also America’s Cmty. Bankers v. Federal
Deposit Ins. Corp., 200 F.3d 822, 835 (D.C. Cir. 2000) (applying
the holding of Overton Park to the review of statutory
interpretations under the second prong of Chevron).
40
assertion, neither of the FTC’s expressed rationales for its
interpretation of the MMWA indicates that the Commission’s
reading is based on an impermissible construction of the statute.
While the majority purports not to reach the second prong of
Chevron, see majority opinion at note 14, the majority espouses
an additional argument against the Commission’s construction of
§ 2310 that appears to be more directly relevant to the inquiry
under the second Chevron prong (i.e., whether the Commission’s
interpretation of the MMWA is reasonable) than under the first
Chevron prong. Specifically, the majority contends that the
agency’s construction of § 2310 is unreasonable because it is
inconsistent with the Supreme Court’s opinion in Gilmer. In
Gilmer, the Court considered whether an employee’s claim under
the Age Discrimination in Employment Act (ADEA), 29 U.S.C. § 621
et seq. (1994), should be submitted to compulsory arbitration
pursuant to an arbitration agreement in the employee’s securities
registration application. The employee argued that Congress
intended to preclude application of the FAA to claims under the
ADEA, suggesting that under the third prong of the McMahon test,
there is an “inherent conflict” between arbitration and the
ADEA’s underlying purpose. Gilmer, 500 U.S. at 26-27. The
employee relied in part upon an ADEA provision requiring the EEOC
to “promptly seek to eliminate any alleged unlawful practice by
informal methods of conciliation, conference, and persuasion”
upon receipt of a charge of discrimination. 29 U.S.C. § 626(d)
41
(1994). The employee apparently argued, inter alia, that this
provision signaled Congress’s intent to have the EEOC involved in
any judicial or non-judicial resolution of statutory claims, thus
precluding enforcement of a binding arbitration provision that
would resolve disputes without EEOC involvement because this
alternative would “undermine the role of the EEOC.” Gilmer, 500
U.S. at 28. The Court rejected this argument, concluding that
“nothing in the ADEA indicates that Congress intended that the
EEOC be involved in all employment disputes” and that “the mere
involvement of an administrative agency in the enforcement of a
statute is not sufficient to preclude arbitration.” Id. at 28-
29.
The majority reads Gilmer to hold, as a broad proposition,
that express provision in a statute for out-of-court dispute
resolution does not preclude application of the FAA. See also,
e.g., Cunningham v. Fleetwood Homes of Georgia, Inc., 253 F.3d
611, 619-20 (11th Cir. 2001); Am. Homestar, 50 S.W.3d at 487;
Ard, 772 So. 2d at 1135 (explicitly adopting Justice See’s dissent
in Lee, 732 So. 2d at 1012). However, I find the Gilmer Court’s
discussion of the EEOC’s participation in “informal methods of
conciliation, conference, and persuasion” to be too far afield
from the facts of the instant case to be dispositive.
Initially, it merits notice that the position advanced by
the Waltons in the instant case is materially different from the
position advanced by the employee in Gilmer. The Waltons ask
42
this court to defer to an administrative agency’s regulatory
interpretation that Congress intended for a statute to preclude
binding arbitration, not to read a prohibition of binding
arbitration into a statute and its regulations based on concerns
about impermissibly diminishing the role of the agency.
Moreover, the language of the statutory provision at issue in
Gilmer is materially different from the language in the MMWA at
issue in this case. The ADEA’s admonishment that the EEOC should
attempt to engage in “conciliation, conference, and persuasion”
with the employer upon receipt of an employment discrimination
charge cannot be read to speak to the availability of binding
arbitration in the same way as a statutory provision that, by its
terms, addresses “any informal dispute settlement procedure”
provided for in a written warranty. Indeed, it is clear that
Congress did not attribute the same meaning to the two phrases.
Unlike the MMWA, the ADEA contains no statutory language
instructing the regulatory agency to promulgate procedures and
regulations governing “conciliation, conference, and persuasion”
under the ADEA. Moreover, the EEOC regulations contain no
detailed alternative dispute resolution procedures akin to those
contained in the FTC’s MMWA regulations, suggesting that the EEOC
did not read the “conciliation, conference and persuasion”
language in the ADEA to constitute a congressional delegation of
authority to regulate alternative dispute resolution mechanisms
under the Act. Under these circumstances, the FTC’s construction
43
of the MMWA cannot be deemed “unreasonable” based on a perceived
inconsistency with the Court’s reasoning in Gilmer. Gilmer is
simply inapposite.
As none of the arguments advanced by Southern Energy or the
majority convincingly demonstrates that the FTC’s construction of
§ 2310 is unreasonable, this court is required to defer to the
FTC’s interpretation of the statute. Moreover, there are a
number of compelling independent reasons why the FTC regulations
at issue in the instant case are entitled to particular deference
from this court.
Initially, it merits notice that the FTC’s legislative
regulations constitute a contemporaneous regulatory
interpretation of the MMWA. An administrative interpretation
“has peculiar weight when it involves a contemporaneous
construction of a statute by the [persons] charged with the
responsibility of setting its machinery in motion, of making the
parts work efficiently and smoothly while they are yet untried
and new.” Zenith Radio Corp. v. United States, 437 U.S. 443, 450
(1978) (alteration in original) (quoting Norwegian Nitrogen
Prods. Co. v. United States, 288 U.S. 294, 315 (1933)); cf.
Stephen Breyer, Judicial Review of Questions of Law and Policy,
38 Admin. L. Rev. 363, 368 (1986) (noting that one rationale for
deference to an agency’s contemporaneous interpretation of a
statute is the notion that “[t]he agency that enforces the
statute may have had a hand in drafting its provisions” and that
44
the agency “may possess an internal history in the form of
documents or ‘handed-down oral tradition’ that casts light on the
meaning of a difficult phrase or provision”). But cf. Smiley v.
Citibank (South Dakota), N.A., 517 U.S. 735, 740-41 (1996)
(reasoning that “contemporaneity” is not a condition of validity
under the second prong of Chevron, as Chevron deference is
grounded in notions of congressional delegation of interpretive
authority to agencies rather than “a presumption that [the
agency] drafted the provisions in question, or were present at
the hearings, or spoke to the principal sponsors”).
Similarly, this court should accord particular deference to
the FTC’s regulatory interpretation of the MMWA because the
regulations represent a longstanding, consistent interpretation
of the statute. While agency interpretations that are revised
over time are certainly entitled to Chevron deference, see Rust
v. Sullivan, 500 U.S. 173, 186 (1991), longstanding and
consistent agency interpretations carry special weight. See NLRB
v. Bell Aerospace Co. Div. Textron Inc., 416 U.S. 267, 274-75
(1974) (“[A] court may accord great weight to the longstanding
interpretation placed on a statute by an agency charged with its
administration.”); see also Smiley, 517 U.S. at 740 (noting that,
while antiquity is not a condition of validity under the second
prong of Chevron, “agency interpretations that are of long
standing come before us with a certain credential of
reasonableness, since it is rare that error would long persist”).
45
Such a “credential of reasonableness” appears to be particularly
warranted in the instant case, where the agency has recently
reconsidered and reaffirmed its longstanding, consistent
interpretation of the statute through a notice-and-comment
regulatory review proceeding.
Finally, while the legislative history of the MMWA does not
contain any specific discussion of the availability of
arbitration,31 there is some indirect indication in the
legislative history that Congress intended for internal dispute
settlement mechanisms governed by § 2310 to be the exclusive
alternative to litigation available under the Act, thus
confirming the validity of the reading espoused by the FTC and
the Waltons. Language in the report of the Senate Committee on
Commerce is particularly enlightening.32 The general description
of the legislation contained in that report describes the bill’s
remedial provisions as follows:
31
In light of the statutory history of the FAA outlined
supra at note 2, the absence of such discussion is unsurprising –
it is unclear whether and to what extent Congress would have
contemplated that the FAA might be applicable to statutory remedies
at the time of the MMWA’s enactment.
32
While the House version of the MMWA legislation was the
basis for the conference committee’s deliberations and the eventual
legislation that was enacted, see S. Conf. Rep. No. 93-1408 (1974),
reprinted in 1974 U.S.C.C.A.N. 7755, 7758, the House and Senate
versions of the legislation contained only minor differences with
respect to the remedial provisions of the MMWA. See generally id.
None of these minor differences undermine the value of the Senate
report in illustrating Congress’s intentions regarding the MMWA.
46
If a supplier fails to honor his warranty or
service contract promises, the consumer can
avail himself of certain specified remedies.
If that supplier has provided a bona fide
informal dispute settlement mechanism by
which disputes between suppliers and
consumers are to be resolved, then the
consumer would utilize the informal dispute
settlement mechanism before pursuing other
avenues of redress. If a supplier does not
have an informal dispute settlement mechanism
for resolving consumer complaints, or if the
consumer is not satisfied with the results
obtained in any informal dispute settlement
proceeding, the consumer can pursue his legal
remedies in a court of competent
jurisdiction, provided that he has afforded
the supplier a reasonable opportunity to cure
the breach.
S. Rep. No. 93-151, at 2-3 (1973) (emphasis added). This passage
suggests that Congress intended for the MMWA to authorize only
the specific remedial mechanisms mentioned in the Act. This
language also implies that litigation, not arbitration, is the
“other avenue[] of redress” available to the consumer if the
warrantor has not established an informal dispute settlement
mechanism or if the consumer is unsatisfied with the results of
that proceeding.
The same conclusion is suggested in the report’s subsequent,
more detailed analysis of the MMWA’s remedial provisions. This
portion of the report states: “[Section 2310] spells out the
remedies available to the purchaser of consumer products. A
purchaser can utilize informal dispute settlement procedures
established by suppliers or, having afforded a supplier a
47
reasonable opportunity to cure, may resort to formal adversary
proceedings with reasonable attorney’s fees available if
successful in the litigation.” Id. at 22-23. This passage
suggests that litigation (not arbitration) is the “formal
adversary proceeding” contemplated by the Act for a consumer who
is dissatisfied with the warrantor’s attempt to cure or with any
informal dispute settlement procedure that the warrantor has
established.
Language in the Conference Committee report provides further
confirmation that Congress intended § 2310-compliant procedures
to be the exclusive method of non-judicial dispute resolution
available under the Act. The Conference Committee report states:
It should be recognized . . . that provision
for governmental or consumer participation in
internal or other private dispute settlement
procedures under the bill is required by this
legislation. Consequently warranties
providing that consumers must first resort to
informal dispute settlement procedures before
initiating a suit are contrary to the intent
of the legislation where there is no
provision for governmental or specific
consumer participation in the procedure or
where the procedure is otherwise unfair.
S. Conf. Rep. No. 93-1408 (1974), reprinted in 1974 U.S.C.C.A.N.
7755, 7758 (emphasis added). This passage is enlightening for
two reasons. First, it equates the term “informal dispute
settlement procedure” as used in the Act with a more general
definition (i.e., “internal or other private dispute settlement
procedure”), thus suggesting that Congress intended for the term
48
“informal dispute settlement procedure” to be read broadly. In
addition, by specifically indicating that any procedure that does
not comply with the statutory requirement for consumer or
governmental participation is “contrary to the intent of the
legislation,” this passage suggests that § 2310 was intended to
govern all forms of alternative dispute resolution provided for
in a written warranty.
These passages from the Conference Committee report and the
Senate report reinforce the Commission’s interpretation that
Congress intended for § 2310 (and, thus, the FTC’s implementing
regulations) to govern all non-judicial forms of dispute
resolution included in the terms of written warranties. Thus,
while the legislative history of the MMWA may not be sufficient
by itself to establish Congress’s intent to preclude application
of the FAA to claims for breach of written warranty under the
MMWA, these materials provide added support for the
“reasonableness” of the Commission’s interpretation.
Accordingly, because I find that Congress has not “directly
spoken to the precise question” whether binding arbitration
clauses in written warranties governed by the MMWA are
enforceable, and because the FTC’s construction of the statute is
eminently reasonable, I would defer to the Commission’s expertise
and affirm the district court’s judgment refusing to compel
arbitration of the Waltons’ written warranty claims. I dissent.
49