Kolev v. Euromotors West/The Auto Gallery

sеcurities profit Whitworth’s large remain at and victims of fraud will uncompensated. go

the fraud will sum, plain I adhere to would 523(a)(19)

language Judge and affirm

Snyder’s A “for” sensible decision. debt is

a violation of the securities laws when it is

caused such violation. Sherman’s caused a securities law

debt is violation legally obligated disgorge

because he is ill-gotten gains of such a violation that in trust for the

he held violator. KOLEY, Plaintiff-Appellant,

Diana

EUROMOTORS AUTO WEST/THE

GALLERY; LLC; Motorcars West H Gray Family Inc.; Gray Family

M II LLC; Inc.;

II Bennett Automotive I

Bennett Automotive II Defen

dants-Appellees, America,

Porsche Cars North

Inc., Defendant.

No. 09-55963.

United States of Appeals, Court

Ninth Circuit.

Argued and Submitted Feb. Sept.

Filed

signed bought when she the car. It also against the action stayed Porsche. After arbitrator resolved most of the claims Dealership, in favor the district court confirmed the arbitration award. review de novo the district court’s We petition compel arbi granting order Kane, Jeffrey Martin W. Anderson O’Melveny Myers, tration. See Davis v. & Ana, CA, plaintiff-appellant. for the Santa (9th Cir.2007). 1066, 1072 Fox, Jacoby, H. John D. Aaron Arent principal argument appeal Kolev’s is Joo, Bronstein, Ange- Los and Melanie S. Magnuson-Moss Warranty Act CA, les, defendants-appellees. (“MMWA”), 2301 et seq. U.S.C. (2000), provision mandating pre- bars the dispute binding arbitration of her warran- ty against claims Al- Dealership. text of the though the MMWA does not validity of specifically pre-dis- address the arbitration, mandatory binding pute Con- NELSON, Before: D.W. STEPHEN REINHARDT, SMITH, au- gress expressly delegated rulemaking and N. RANDY Judges. thority Circuit under the statute to the Federal (“FTC”). Trade See 15 Commission REINHARDT; by Judge Opinion 2310(a)(2). Pursuant to this au- by Judge N.R. SMITH. Dissent thority, the FTC construed the MMWA barring pre-dispute mandatory binding OPINION (cid:127) provisions covering REINHARDT, Judge: Circuit warranty agreements and issued a rule against Euro- brought Diana Kolev suit judicial enforcement of such prohibiting Gallery, Motorcars motors Auto West/The respect with to consumer provisions Inc., LLC, Gray Family Gray II HM West brought under the See 16 claims MMWA. LLC, I Family II Bennett Automotive 703.5; C.F.R. (“the II Inc. Bennett Automotive (Dec. North Dealership”) and Porsche Cars apply two-step inquiry re We America, (“Porsche”), Inc. when “used”) of statutes. viewing agency constructions (formerly known as automo- owned from the Dealer- Inc. v. Natural Re purchased that she See Chevron U.S.A. bile developed prob- Council, Inc., mechanical ship serious sources U.S. Defense warranty period and the during lems honor her Dealership refused to step requires us to ask whether The first implied' and alleges claims. breach of She Congress “directly spoken pre has to the Magnuson- express warranties under way at in a that ren question cise issue” (“MMWA”), and Warranty Act Moss “unambigu ders its intention “clear” and unconseionability of contract and breach 842-44, 104 ously expressed.” Id. at law. under California is silent 2778. If we find that the “statute specific ambiguous respect granted the The distriсt court issue,” step, proceed then we to the second Dealership’s petition compel and ask whether mandatory pro pursuant to the delegated to which that Kolev in the sales contract vision authority per- “is based on a 104 S.Ct. 2778. In enact- rulemaking MMWA, of the statute.” Congress expressly ‍‌​​‌​​‌​​​​‌​​‌‌‌‌‌‌​​​​​‌‌​‌​​‌​‌‌​​‌​​‌​​​‌​‌​‍missible construction dele- Congress’ If intent 104 S.Ct. 2778. authority gated “prescribe to the FTC to not clear under the statute and “Con- setting requirements rules forth minimum authority delegated agency gress any proce- settlement carrying to make rules the force generally incorporated dure which is into the terms law, agency interpretation [] warranty.” of a written 15 U.S.C. in claiming promulgated deference was 2310(a)(2). authority, Pursuant to this authority,” of that United States exercise 703, promulgated pro- the FTC Rule which 218, 226-27, 121 Corp., v. Mead [any] vides that Mechanism “[decisions (2001), then shall not be on legally binding person,” agency’s we must defer to the reasonable 703.5(j), defining 16 C.F.R. a “Mecha- ambiguous statutory construction of the nism” as an “informal provision.1 procedure which is incorporated into the Chevron, prong

“Under the first we 703.1(e). warranty.” § of a written terms statutory use traditional tools of construc- If a consumer “is dissatisfied with [a Congress tion to determine whether ex- Mechanism’s] decision or warrantor’s in- on pressed ques- clear intent the issue actions, performance,” tended or eventual Chertoff, tion.” Schneider 450 F.3d states, remedies, the Rule “legal then in- (9th Cir.2006) (internal omit- citations court, cluding use of small claims be ted). agree We with the Fifth Circuit that pursued.” 703.5(g). specifi- text of the MMWA does not “[t]he published When it Rule arbitration,” cally address Walton explained: LLC, v. Rose Mobile Homes 298 F.3d industry representatives Several con (5th Cir.2002); see also Davis v. S. tended that warrantors should al be Homes, Inc., Energy 305 F.3d to require lowed consumers to resort to (11th Cir.2002) (“Congress failed to direct- mechanisms whose decisions would be ly address anywhere legally binding (e.g., binding arbitra MMWA.”), the text ... of the and con- tion). The Rule not does allow this for “directly clude that not spo- two reasons. as the Chevron, Report Staff precise question,” ken to the indicates, Congressional U.S. at 104 S.Ct. whether intent was that MMWA bars warranty provisions that decisions of Section 110 Mechanisms ^[4] pre-dispute binding mandate arbitration of Second, legally binding. not be even warranty claims. contemplated mechanisms were Section 110 of the the [FTC] is

Accordingly, proceed we to the second prepared, time, not pоint at this prong inquiry, of the Chevron under which develop guidelines system for a in which agency we ask whether the to which Con- themselves, consumers would commit gress delegated rulemaking authority re- statutory solved the the time ambiguity product purchase, based on a to resolve permissible construction of the statute. difficulties but non Serv., 1. For requirements cases in which the Mead Fish & Wildlife met, (9th for Chevron deference are not we Cir.2003); Co., review Skidmore v. & Swift agency’s interpretation under the Skid- 134, 139, 89 L.Ed. 124 standard, whereby more explain We for the reasons set forth “entitled not to deference but to a lesser ‘re- why requirements below the Mead for Chev- spect’ persuasiveness based on the fully ron deference are satisfied in this case. Soc’y decision.” Wilderness v. U.S. Report as evidence is not Subcommittee Staff The judicial, proceeding. [FTC] that “[congressional intent was deci- which any guidelines convinced now 110 Mechanisms protec sions Section could ensure sufficient it set out Fed.Reg. at legally binding.” 40 consumers. tion for mechanisms MMWA, ence to ^[4] "Section found at 15 U.S.C. those informal 110 Mechanisms” is dispute settlement Section 110 of § 2310. a refer tion of that consumers must be made aware Subcommittee Congress’s based its independent interpreta- Staff intention makes ‍‌​​‌​​‌​​​​‌​​‌‌‌‌‌‌​​​​​‌‌​‌​​‌​‌‌​​‌​​‌​​​‌​‌​‍Report which clear (Dec. 60167, 60210 rights, including right pursue their their concluded explanation fate of litigation, The FTC’s because otherwise “the warranty to the written within aggrieved usually “reference rests with non-judicial remedy prohib- any binding, willingness and its the seller/manufacturer Act.” Id. at Rule and the Cong. ited Rec. up promises.” to live to its restated its 31,318 In the FTC 60211.2 reliance on such The FTC’s mandatory bind- pre-dispute that position history seeking implement in legislative under clauses are invalid arbitration intent is the first reason that Congress’s affirmed that “this inter- barring judicial and its rule enforcement of correct.” 64 pre-dispute mandatory binding continues arbitration pretation (Apr. Fed.Reg. agreements is a reasonable construction 16 C.F.R. declining to amend MMWA. Expressly arbitration, 703.5(j) permit binding Second, interpretation that the FTC’s that “Rule 703 will the FTC concluded mandatory pre-dispute the MMWA bars from in- prohibit warrantors continue binding arbitration advances the statute’s clauses in their cluding binding arbitration from purpose of consumers be- protecting re- consumers that would contracts with involuntary agreements ing forced into warranty dis- consumers to submit quire enacting they negotiate. cannot at binding arbitration.” putes MMWA, Congress sought to address 19708-09. in inequality bargaining pow- the extreme wielded over consumers why reasons er vendors There are three with access to rea- “providing of the MMWA as consumers effective remedies” for mandatory binding sonable pre-dispute precluding warranty, by “providing] construction of breaches of arbitration is reasonable (FTC) in the Federal Trade Commission with sought the statute. protecting consumers.” Congress’s means of better devising implement Rule 703 to 93-1107, (1974), H.R.Rep. No. at re- intent, legisla from the on evidence based 7702, 7702. printed in in 1974 U.S.C.C.A.N. history Specifically, of the MMWA. tive however, FTC, con- was “not Purpose Basis and its Statement which it set out any guidelines vinced that FTC cited to the House Rule actually appeared only in the warranty sales contract Although written in this case 2. record, warranty, also in the written then it the sales contained within was not clearly impermissible. would be even more an arbitration clause that contract included Cunningham v. Fleetwood Homes Geor- pre-dispute arbitration and mandated (11th Cir.2001) gia, F.3d regarding the vehi- warranties stated that a, ("Compelling the basis of an separate arbitration on located in cle would be agreement that is not referenced warranty; parties and the district court both warranty presents conflict warranty an inherent existed that such written assumed purpose providing with the [MMWAl's the arbitration clause. and that it referred to consumers.”). If, however, warranties to mandatory clause clear and concise protection for con- could ensure sufficient clauses written consumer at Most im- sumers.” 40 product promulgated warranties when it portant, construеd the statute Although Rule 703 in- several including pro- vendors from prohibiting as dustry representatives at that time had visions that mandate arbitration dis- recommended that the Rule allow war- putes over breaches of before require rantors to consumers to submit arises, prevent in order to them dispute arbitration, the Commission right of the depriving rejected that view being contrary guaranteed litigate it them to breaches of Congressional intent. H.R.Rep. No. warranty. See The Commission based this decision on (“An ad- U.S.C.C.A.N. analysis its plain language informal set- verse decision 110(a)(3) Warranty Act. Section proceeding tlement would not be bar to a Warranty Act provides that if a warran- civil action on the involved in the tor establishes set- proceeding.”). tlement complies mechanism that Third, particular we “should accord def- incorporates Rule 703'and that informal regulatory interpreta- erence to the FTC’s dispute settlement mechanism in its regulations tion of the MMWA because the product warranty, consumer represent longstanding, a consistent inter- “(t)he then may consumer not commence Walton, pretation of the statute.” (other action) a civil action than a class C.J., (King, dissenting). F.3d at 490 The initially unless he resorts to such Supreme Court has made clear that “a procedure.” language clearly This im- may great weight long- court accord plies that a mechanism’s decision cannot standing interpretation placed on a statute legally were, binding, because if it it by agency charged with its administra- would bar later court action. The tion,” NLRB Aerospace v. Bell Co. Div. Report supports House interpreta- this 267, 274-75, Textron 416 U.S. “(a)n by tion stating that adverse deci- (1974), because in any sion informal dispute settlement “agency interpretations long are of proceeding would not be a bar to a civil standing come before us with a certain action on the in involved reasonableness, credential of since it is proceeding.” H.R.Rep. No. 93-1107 long persist.” rare that error would Smi (1974), at 41 [1974 U.S.C.C.A.N. Citibank, ley 735, 740, 116 v. 7723]. (1996). case, L.Ed.2d 25 this agency’s interpretation of the statute [T]he Commission determined that “ref- persisted thirty-five more than erence within the written years, ever in promul- since 1975 the FTC any binding, non-judicial remedy pro- gated shortly Rule 703 after the enactment hibited the Rule and the Act.” 40 FR of the published MMWA. In 60168, 60211 The Commission regulatory a reaffirming review statement believes that this interpretation contin- its MMWA to Therefore, ues to be сorrect. pre-dispute mandatory clude Com- binding arbi- agreements. tration mission has Although we summa- determined not to amend rized the briefly 703.5(j) FTC’s 1999 statement allow for arbitra- above, it quoting greater is worth here at tion. Rule 703 will continue to prohibit length: warrantors from including binding arbi-

The tration legality Commission examined the clauses their contracts with mandatory and the merits of consumers that require would consum- Walton, F.3d at agreements. to bind- warranty disputes ers submit Davis, 474; 305 F.3d ing arbitration. agency’s held that Eleventh Circuit (1999) (internal 19700-01, 19708-09 64 FR mandatory prohibiting pre-dispute rule omitted). quarter That a centu- footnotes impermissible was an initial con- the FTC’s between

ry passed Davis, statute, construction of barring pre- struction panel a Fifth Circuit F.3d at while mandatory binding arbitration by then- majority, vigorous over a dissent con- of that recent reaffirmatiоn its most Walton, King, Judge Chief con- that consistent FTC merits clusion C.J., dissenting), asserted (King, 480-92 strong deference. of the statute struction the reason- not even consider Moreover, concomitant that it need that Rule and its rule, Con- ableness of the FTC because of the MMWA construction pro-arbitration enforcement re- the FAA’s gress, through with the statute’s charged day. nearly half-century to this presumption mains in effect enacted MMWA, “directly spoken had before that the FTC’s reject argument We question” whether warran- precise light unreasonable construction is pre-dispute binding arbi- tor mandate repeated holdings Court’s Supreme the MMWA. Id. at 478 n. 14. tration under pol- federal established “liberal agreements” when favoring arbitration icy disagree with the conclusions We the Federal Arbitration it enacted Fifth and Elevеnth Circuits reached (“FAA”), adopt- years before fifty-one Act Judge for three reasons. as Chief Warranty Act in Magnuson-Moss dissent, unprecedented it is King noted Hosp. H. Mem’l Moses Cone respect intent with Congress’s to locate 24, 1, 103 Corp., 460 U.S. Mercury Constr. by looking prior, to “a less one statute (1983); see also S.Ct. C.J., (King, at 483 specific statute.” Id. Mattel, Inc., 552 Hall Street Assocs. the directives of two dissenting). Where 170 L.Ed.2d 128 S.Ct. conflict, apparent statutes create Inc. v. (2008); Buckeye Cashing Check 254 intent in one statute identify congressional 440, 443, 126 S.Ct. Cardegna, 546 U.S. previously to a enacted and by reference 1204, 163L.Ed.2d 1038 would violate two general more statute part in that provides pertinent statutory interpretation: FAA principles basic valid, agreement “shall be first, prior- an arbitration statutes take that later enacted enforсeable, irrevocable, upon second, save ones, that more ity over older equity in as exist at law or grounds such general control more ones. specific statutes any contract.” 9 al., the revocation of Legisla- for Eskridge, N. et See William in Court held Supreme 2. The U.S.C. Interpretation 282-83 Statutory tion and McMahon, Inc. v. Express omitted). (2d ed.2006) (italics Nor did Shearson/Am. L.Ed.2d ques- purport Court settle Supreme (1987), the FAA’s mandate that McMahon, years twelve after the tion in any agreements, “[l]ike enforce arbitration enactment; that only it stated MMWA’s directive, may be overridden statutory pre- a the FAA established rebuttable contrary congressional command.” that in favor of arbitration Con- sumption 226,107 any in later statute gress could override com- contrary congressional adopting “a reliеd Eleventh Circuits The Fifth and 226, 107 mand.” 482 U.S. to conclude that on McMahon that the holding erred in The Fifth Circuit presumption the FAA’s not overcome does in the FAA was itself prior adoption of should enforce that courts had in the and final enough find that The third reason that proarbitration presumption FAA’s does “directly spoken to later-enacted MMWA inter- not render unreasonable the FTC’s question” pre-dispute precise whether pretation barring MMWA as mandatory binding provisions dispute mandatory binding arbitration is Id. at enforceable under the MMWA. Warranty Magnuson-Moss the 1975 14,107 n. S.Ct. 2332. respects in Act is different four critical above, Second, the FTC explained as we every other federal statute that the lan- reasonably construed the statute’s rebut Supreme has found does not Court underlying guage, legislative history, pro-arbitratiоn in- presumption, FAA’s cluding the Sherman Act of Antitrust concluding that “reference purpose 1890,3 1933,4 the Securities Act of and the bind- within the written Exchange Act of Securities 1934.5 non-judicial remedy ing, prohibited is statutes, to these respect with other Warranty] Act.” [Magnuson-Moss none an authorized agency did construe (Dec. 1975). Fed.Reg. mandatory to bar pre-dispute the statute statement, regulatory its 1999 review With Second, arbitration. in the again carefully its considered and in none of stat- MMWA these other prohibiting construction statute as Congress say utes did in- anything about binding, non-judicial remedy,” and “any formal, non-judicial remedies, inso and do concluded that “this contin- a way binding procedures that would bar to be correct.” 64 ues mandatory such arbitration. See full (Apr. It so with did 2310(a)(2) (authorizing Supreme awareness Court had “prescribe setting rules forth minimum years set forth twelve earlier McMahon requirements informal set- presumption in favor of en- rebuttable procedure tlement which incorporated forcing agreements. agree We warranty”). into of a the terms longstanding interpretation Third, in the MMWA alone did Con- statute, judicial that it bars enforce- gress explicitly preserve, addition warranty provisions ment of mandate mechanisms, pre-dispute binding and that arbitration right press to consumer’s his claims under “contrary.congres- the MMWA evinces a the statute civil court. See 15 U.S.C. sional command” sufficient to override the 2310(a)(3)(C) (requiring a [to] “consumer presumption FAA’s in favor of arbitration. such [informal resort to settle- McMahon, 482 U.S. at S.Ct. 2332. 107 procedure legal pursuing any ment] before Chevron, important, however, More under remedy” (emphasis added)); id. 2310(a)(3)(C)(i)(no we are bound it. See 467 U.S. at 842- consumer “com- 44,104 S.Ct. 2778. initially mence a civil action unless he Chrys- Corp. subject binding Mitsubishi Soler pursuant See Motors v. to to the Inc., 614, 625-26, ler-Plymouth, proarbitration 473 presumption). 105 FAA’s (1985) (holding S.Ct. 87 L.Ed.2d 444 brought McMahon, 227-28, §§ that claims ‍‌​​‌​​‌​​​​‌​​‌‌‌‌‌‌​​​​​‌‌​‌​​‌​‌‌​​‌​​‌​​​‌​‌​‍U.S.C. 1-7 under 15 5. See 482 U.S. at 107 subject pursuant to are (holding brought S.Ct. 2332 that under claims proarbitration presumption). 78aa; FAA's 78cc(a) the §§ subject 15 arbitration); Inter see also Gilmer v. Rodriguez Quijas Corp., de v. Lane 500 U.S. Shearson/Ameri state/Johnson Express, (1991) (same can S.Ct. for (1989) (holding Age Employment 104 L.Ed.2d the Discrimination in 621-34). §§ §§ that claims under 77a-77aa are 15 U.S.C. 29 U.S.C. congressional (emphasis “contrary add command”—re- procedure” to such resorts agency’s the the ed)). Fourth, quires that courts afford sought the as MMWA strong particularly construction deference. consumers purpose protect its primary we are to defer to required Because the imposing from by prohibiting vendors a statute reasonable construction of By con non-judicial remedies. that trast, policy, the proarbitration the FAA’s it, pre- we hold MMWA interpret that the term, just last especially made clear Court pre-dispute cludes enforcement of through expedite disputes intended require that man- ments such Porsche’s efficient, dispute-specific procedures datory binding arbitration of consumer of consumers. not to advance interests warranty claims. Mobility Concepcion, T See AT & U.S. -, -, we In view conclusion have (“The (2011) overarching pur above, L.Ed.2d we address reached need not Ko- FAA, in the text pose of evident lev’s additional contentions that 2, 3, §§ is to the enforce ensure tration clause was unconscionable under agreements according ment of arbitration law and California that the district court stream terms so as their by admitting its discretion abused re- facilitate added)). (emphasis proceedings.” lined lying on sales contract authenticated principal Dealership and by sum, having found that the statute compelling arbitration of her claims ambiguous its face is as to whether against Dealership staying while mandatory binding pro- against action Porsche. MMWA, we are valid under the visions warranty conclude that the construction hold provi- We for that mandate pre-dispute not is We do so sions ar- they are reasonable. (1) are invalid following FTC inter- bitration under MMWA and reasons: the district court therefore erred in its care- preted the statute consistent with Porsche’s enforcing warranty clause by the enact- fully understanding reasoned compelling mandatory arbitration of Ko- intent, by the ing Congress’s as evidenced Accordingly, lev’s claims. we reverse and language history; and legislative statute’s court as to remand district all (2) FTC’s construction advances the breach claims. purpose to protect MMWA’s provide and to predatory from warrantors REVERSED AND REMANDED. pro- fair pre-filing them with and informal SMITH, Judge, dissenting. N.R. Circuit preserve rights to en- cedures that their force their claims breach of departure Supreme In a Court litigation civil or fed- through the state prevailing view of our precedent, sister (3) courts; and persistence eral circuits, statutes, applicable major- rule that the MMWA bars ity opinion nearly every nullifies mandatory arbitration— dispute binding non-judicial warranty dispute remedy a decade expressly rеaffirmed more than adopted by private parties in this circuit. Supreme after the Court held majority by conclusion The reaches this conflating FAA “mandates enforcement of settlement dispute “informal “Mechanisms”)1 (“IDSMs” statutory to arbitrate claims” absent or procedures” ments 703.1(e); dispute Concerning § 1. FTC refers to settle- C.F.R. Final Action “informal MMWA, by procedures” Interpretations ment Review of Fed. Dispute Mecha- 22, 1999). "Informal Settlement Reg. (Apr. simply See 16 nisms” or "Mechanisms.” Warranty Magnuson-Moss under the regulations A. regarding FTC (“MMWA”) “IDSMs” under the MMWA do not § seq. 2301 et —a apply binding arbitration warranty dispute narrow class of resolu- remedy in this case procedures remedy tion ADR —with adopted private contract. regulatory authority The FTC’s under the MMWA Here, regula- we address whether FTC The MMWA authorizes warrantors to (proscribing binding tiоns the use of create “informal proce- ”) by tration “Mechanisms bar the use of a dures” called Mechanisms. Such Mecha- binding remedy to which arbitration Kolev unique nisms are procedures ADR Angeles dealership and a Los Porsche prevent pursuing consumers from warran- agreed. party Neither contends that the ty claims court without exhausting first dealership’s remedy is a Mech- the warrantor’s Mechanism procedures. Indeed, remedy anism. the arbitration 2310(a). § 15 U.S.C. Recognizing Mecha- (chosen not, by parties) and has nisms and “potential their benefits as an alternative to judicial be, process,” Con- purported compliant never with fed- gress made such exhaustion a prerequisite regulating eral law the creation opera- filing suit “encourage warrantors to tion of Mechanisms. importantly, More establish procedures whereby consumer the FTC acknowledges private parties disputes fairly and expeditiously set- may agree pursue “some avenue of re- tled.” Action Interpreting MMWA, dress other than the they Mechanism if Fed.Reg. 19700, (Apr. feel it appropriate,” is more including Congress charged the FTC with exclusive “binding Promulgation arbitration.” authority “prescribe rules setting forth Rule, (Dec. 60,190, 60,210 requirements minimum any [IDSM],” 1975) added). (emphasis Yet, majority compliance monitor with regula- IDSM concludes that the FTC’s ban on Mecha- tions, investigate complaints, and take re- nisms’ use of ap- must medial measures against non-compliant 2310(a)(2), IDSMs. Id. ply to all Pursuant warranty dispute remedies. This authority, this promulgated Rule view support finds no in the text of the provides Rule 703 the minimum re- statute, rules, opin- administrative FTC quirements for IDSMs authоrized under ions, judicial authority on subject. the MMWA. See Informal Dispute Settle- Additionally, even if regulations Procedures, ment 16 C.F.R. seq. 703 et IDSM, To qualify as an program were applicable and must pro- could be read to (1) (2) by warrantor, be established com- hibit arbitration of ply FTC, rules set forth MMWA, arising under the this (3) incorporated into a written warranty view would light be unreasonable in agreement as a prerequisite litigation. presumption of arbitrability created 2310(a)(3). 15 U.S.C. Federal Arbitration Act. See Walton v. The FTC has also indicated that use of LLC, Rose Mobile Homes is prohibited IDSMs (5th Cir.2002); 475-78 Energy Davis v. S. by the MMWA and Rule because Homes, Inc., 1268, 1272-77, 305 F.3d “[djecisions of the Mechanism shall not be (11th Cir.2002). legally binding person.”

§ 703.5(j). Addressing requests renewed (under a “prerequisite” litigation to use tion permitted warrantors be bind- that 2310(a)(3) MMWA), § MMWA-approved ing as Mechanism, explained: binding FTC ment a makes arbitration alterna- operates that litigation completely tive this Rule does not allow for two

The optional procedures outside the IDSM Congressional in- reasons. of 110 available under the MMWA. was that decisions Section tent legally binding. Mechanisms not be 3. Neither nor Second, binding even if Mechanisms prohibits binding, the use of non- contemplated by Section 110 of the were judicial remedies as an alternative prepared, the Commission is to IDSMs time, develop guidelines in point this system for a in which would by authorized are IDSMs themselves, at the time of prod- commit many one alternative reso- any difficulties purchase, uct to resolve procedures lution private par- available to binding, non-judicial proceeding. but In concluding ties federal law. under 1975). (Dec. 31, Fed.Reg. 60167, non-judicial dispute resolution program is a “Mechanism” under dealership’s The arbitration reme- MMWA, majority errant adopts the dy is not an IDSM Judge reasoning King of Chief Walton record It is clear from the and the Homes, v. Rose Mobile binding that the arbitration rem- pleadings (5th Cir.2002) J., (King, dissenting). Writ- agreed in edy, parties to which the this dissent, Judge King Chief concluded case, not an The no- majority’s is IDSM. that no warrantor use remedy is an tion tration warranty disputes, to settle be- Indeed, cloth. is made out of whole IDSM prohibits cause the FTC the use of (and party there is indi- alleges neither no by arbitration Mechanisms. Id. This view record) in the that the arbitration cation conflates the word “Mechanism” with “all (or remedy complies has ever attempted non-judicial dispute procedures, resolution comply) regula- with the extensive exрlained including arbitration.” Id. As in Rule 703. tions IDSMs See above, of the statute misreading this is 2310(a)(3)(B). sure, § To be regulations. applicable FTC remedy fits none statuto- legal adopted “Mechanism” is term regulatory requirements for an ry narrowly that refers to IDSMs For example, dealership IDSM. does the MMWA. 16 C.F.R. See remedy as not describe the arbitration 703.1(e) (“Mechanism means an something that be exhausted “be- must in- procedure which is pursuing litigation. fore” id. corporated into the terms of a written 2310(a)(3)(C). Agreement provides any provision Title I warranty to which (1) disputes resolved by will “be neu- provided applies, Act Section tral, binding arbitration and not a court ” Act.”); 64 Fed.Reg. (2) action; arbitrator’s award shall “[t]he “Mecha- (Apr. Although (3) parties;” final and on all procedures, nisms” ADR not all ADR “any appeal, permitted by the terms procedures The FTC are “Mechanisms.” agreement, to a will be three-arbitra- acknowledges that non- itself there are panel, (emphasis tor not to a law.” court of added). Thus, judicial making arbitra- ADR remedies that fall outside instead 15 U.S.C. 2. Section 110 codified at tration) by regulation warranty address the of procedures

“Mechanism” i.e., governed Rule agreements the MMWA: 703— warranty agreements creating IDSMs. only to warrantors applies Rule [703] written give throughout offer to The FTC indicates both ac- ‘give who informal warranty incorporates an which are incon- binding tions that Mechanisms mechanism,’ but dispute settlement Congressional underly- with intent sistent few incorporate an into warrantors IDSM 2310(a). See, § e.g., 15 U.S.C. 40 Fed. i.e., a pri- include their few warranties — at 60210 intent Reg. (“Congressional was warran- in their requirement or resort of thаt decisions Section Mechanisms Therefore, there are IDSMs ties. added)); few legally (emphasis binding.” the ambit [FTC that come within of (“[E]ven if binding id. Mechanisms were regulations]. contemplated by 110 the Section the of added). 19,707(emphasis 64 Fed.Reg. at ... prepared develop is not Commission system for a in which guidelines consum- Significantly, FTC addressed themselves, at ers would commit the time whether a “warrantor specific question agree product purchase, any to use of to resolve diffi- [can] a[n the consumer as remedy binding non-judicial such in a binding, pro- ADR] culties but added)). proceeding instead Mechanism.” (emphasis ceeding.” Similarly, of added). 60,210 Fed.Reg. (emphasis at adopted formal rules the FTC that “nothing It answered that the Rule binding, non-judicial apply forbid remedies parties agreeing cludes the to the use pursuаnt to Mechanisms created of some avenue redress other than the See, e.g., 16 the MMWA. C.F.R. they feel it ‍‌​​‌​​‌​​​​‌​​‌‌‌‌‌‌​​​​​‌‌​‌​​‌​‌‌​​‌​​‌​​​‌​‌​‍appropri- Mechanism is more (“The 703.5(g)(1) Mechanism shall in- truly ate.” If Id. we must afford Chevron ... [i]f form the consumer that he or she deference to the FTC’s is with legal dissatisfied its decision majority MMWA—as concludes— ... may (emphasis be pursued.” remedies majority’s ADR determination all added)); (“Decisions § 703.5(j) id. .of procedures con- plainly are “Mechanisms” legally shall binding Mechanism not be on tradicts the FTC’s view’ of the statute. added)). any person.” (emphasis disapproval binding, 4. The FTC’s Thus, the disapproval binding, FTC’s non-judicial remedies in written non-judicial in written remedies consumer applies only written warranties on premised warranties is the limitations incorporate warranties 2310(a). 703 and Rule 15 U.S.C. IDSMs (“[Reference 60,211 Fed.Reg. within Proceeding assumption this errant the written non- warranty-related judicial that all procedures remedy prohibited by ADR the Rule “Mechanisms,” Act.”). majority But, holds and the FTC acknowl- regulations disfavoring (entitled use of edges, Rule 703 “Informal Dis- binding IDSMs precludes Procedures”) pute applies Settlement use of arbitration in war- “only ‘give to warrantors or offer who However, context, ranty dispute. read . give incorporates a written which arbitra- prohibition mecha- clearly applies only tion warran- 19,707. nism ....’” Like- ties that IDSMs. adopt 2310(a), wise, which author- 703, only ized FTC to Rule promulgate The relevant sections the 1975 to a (discussing applies FTC actions warrantor who establishes an

1035 [IDSM],” non-judicial, monitoring for quirements the Because IDSM.3 rules, and remedy, taking to which Kolev the compliance with these and subject agreed, is not an IDSM dealership against non-compliant action remedial 2310(a), regula- § 2310(a). FTC regulation under § See 15 Mechanisms. U.S.C. question to the are irrelevant tions says about nothing The MMWA remedies above, sure, as the To noted hand. Mechanisms, outside and nowhere optional “nothing explained [Rule has FTC it have authori- imply does FTC should precludes parties agreeing 703] ty to decide such issues. redress the use of some avenue of other Congress has not authorized Because if it is more they than the Mechanism feel regulate non-judicial remedies FTC including “binding arbitra- appropriate,” scheme, regulatory outside the Mechanism 60,210. (emphasis 40 tion.” (to it is commentary the FTC’s extent added). relevant) any judicial even is not due def- Corp., United v. erence. See States Mead appropri- not B. Chevron deferenсe is 229-32, 121 533 U.S. 150 ate this case (2001); Co., Adams Fruit Inc. L.Ed.2d 1975 and 1995 FTC Actions Even 649-50, Barrett, v. 110 S.Ct. here, this is not case applicable are (1990) (“Although 108 L.Ed.2d 585 warranting judicial deference. There are agency scope within determinations why two persuasive at least reasons we delegated authority entitled to defer- not to the action should defer FTC state- ence, ‘that agency it is fundamental question on the regulations ments be- bootstrap not itself into an area in fore us. ”) (citation jurisdiction.’ no which it has omitted); NLRB v. United Food delegated The no FTC has author- cf. Union, Commercial Workers U.S. warranty-related ity regarding (1987) procedures ADR outside (explaining that Chevron deference to MMWA Mechanism agency interpretations applies of statutes delegated has Congress not au- only to regulations “promulgated pursuant thority to the FTC address authority”). to congressional outside of MMWA-au- dispute remedies U.S.A., thorized Mechanisms. Chevron Congress granted au- courts Council, Inc., Inc. v. Nat. Res. Defense thority to decide enforcement is- explained that Supreme Court courts under sues agency’s defer to an administrative should Additionally, “we need defer statutory provisions when elucidation of view of outside [FTC]’s [remedies “Congress explicitly implicitly] [or left has 2310(a) ], Congress express- because gap fill.” U.S. ly Judiciary not the established L.Ed.2d adjudicator private rights as the [FTC] left for the gap arising of action under statute.” in the was limited to “pre- MMWA Barrett, scrib[ing] setting forth minimum re- Fruit Co. rules Adams 2310(a) (entitled procedures”) speaks only "Informal dis- Neither 3. 15 IDSMs. establishment; pute procedures; 2310(a) provision nor other requirements; setting minimum rules forth MMWA addresses that warrantors remedies warrantor; compliance review effect of agree pursue and customers outside the procedures implementation informal Commission; process. IDSM existing application to statute,” Fruit, 1384, 649, 494 110 108 L.Ed.2d 585 the Adams U.S. at S.Ct. Fruit, judiciary de- In Adams Court 110 S.Ct. owes no def- Chevron deference to the legality clined to accord erence FTC’s views on the Department resolving extra-judicial of Labor statuto- procedures of enforcement ry scope of ambiguities surrounding the such as arbitration. Agricultural Protec- the Seasonal Worker C. The Arbitration Act establishes (AWPA) judieially-enforceable

tion Act’s policy favoring rigorous federal en- 650, 110 remedy. Id. at S.Ct. 1384. “Con- agreements of forcement to arbi- envisioned, gress clearly expressly indeed warranty disputes trate mandated, for the оf Department a role administering Labor in the statute re- if authority Even FTC had to ad- quiring Secretary promulgate to stan- question, this regulations dress and FTC implementing dards [certain] AWPA[ ] be prohibit could construed to the use of However, provisions.” Id. “es- binding arbitration dis- indepen- tablished an enforcement scheme pute procedure, agree resolution I with the dent provided ag- of the Executive and Fifth and Eleventh Circuits—the fed- grieved farm workers with direct recourse eral courts of to appeals consider this to federal when their under rights court question such a view would be un- —that the statute are violated.” Id. at 110 in light reasonable of the presumption of Thus, “[a]lthough S.Ct. 1384. de- arbitrability created the Federal Arbi- scope delegated terminations within the Walton, Act. tration 298 F.3d at 475- deference,” authority are entitled to it Davis, 78; 1272-77, 1280; 305 F.3d at see would be execu- “inappropriate consult also In re American Homestar Lancas- interpretations tive [the statute] re- ter, (Tex.2001). 50 S.W.3d 490-92 ambiguities scope solve surrounding the of The Arbitration Act was “intended to re- judicially remedy.” AWPA’s judicial hostility verse centuries of enforceable added). (emphasis Id. agreements, by placing tration agreements upon footing the same as oth- Department As with the of Labor in er contracts.” Express, Shearson/Am. Fruit, Congress clearly Adams envisioned McMahon, Inc. v. 482 U.S. a role in “administering for the FTC (1987) (in- 107 S.Ct. by requiring statute [Commission] quotation ternal marks and alterations promulgate implementing standards [the omitted) (quoting Scherk Id.; Alberto-Culver provisions.” also IDSM] see 15 Co., 506, 510-11, 417 U.S. 2310(a). However, Congress “es- (1974)). Act provides, L.Ed.2d tablished an enforcement indepen- scheme part, agreements relevant that arbitration dent of the Executive and provided ag- valid, irrevocable, “shall grieved enforce- [consumers] direct recourse able, upon grounds save such [state federal court exist at or] where their equity rights law or revocation under the statute are violated.” Fruit, 2.§ Adams at contract.” 9 U.S.C. “The Act U.S. 110 S.Ct. also 1384; 2310(d).4 provides see that a stay also court must its pro- Because “Con- gress if it expressly ceedings established the Judi- is that an satisfied issue ciary and not the it adjudicator as the before under [FTC] arbitrable private ment, 3;§ rights arising action under it authorizes a federal dis- that, noting It many deciding is worth unlike Chevron the substantive claims of , involving deference cases formal administra- arising under statute. adjudications, tive part the FTC takes no inherent conflict between arbitration compelling an order court issue trict ” ‘failure, underlying purposes.’ has been a and the statute’s there Mitsu- comply (quoting with the at or refusal’ neglect, McMahon, Motors, agreement, 4.” bishi omitted). 3346) (alterations 226,107 S.Ct. 2332. repeatedly Supreme Court has Davis followed the The U.S. Both Walton and Act “es- the Arbitration to de- emphasized Supreme Court’s test McMahon favoring arbitra- arbi- policy presumption a ‘federal whether the tablishes termine rigorously enforce tion,’ that ‘we the FAA requiring trability established should (quoting by contrary congressional to arbitrate.’” Id. com- agreements overridden Davis, Hosp. Mercury H. Mem’l v. F.3d Moses Cone mand the MMWA. See 305 1, 24, 103 927, 1273; Walton, at “After Corp., 460 U.S. F.3d 475. Constr. at 298 (1983) and L.Ed.2d Dean Witter and the thorough 74 765 a review of the MMWA 213, 221, Byrd, FAA, Inc. 470 strong v. U.S. combined with the federal Reynolds (1985)). arbitration,” favoring L.Ed.2d 158 courts рolicy 105 S.Ct. 84 both arising duty enforce claims “This held “written party a Magnuson-Moss Warranty is not when Act ments diminished under the claim subject raises a agreement may be to valid bound statutory rights---- Davis, 1280; [W]e on at agreements.” founded judicial suspicion Walton, (“[T]he text, the time when past well 298 at 478 F.3d see of the desirability of history, purpose legislative in- should competence arbitral tribunals in- congressional do not MMWA evince the Act in controver- hibit enforcement to bar arbitration of MMWA written tent McMahon, 482 claims.”). sies based statutes.” Although Congress (internal quota- 2332 at 107 S.Ct. U.S. improve “to the ade- adopted MMWA omitted) (quoting marks Mitsubishi tion available to consum- quacy information Corp. Chrysler-Plymouth, v. Soler Motors prevent deception, [and] [t]hese ers 626-27, Inc., 473 U.S. 105 S.Ct. FAA. are not in conflict with the purposes (1985)). 444 Arbitration L.Ed.2d “The 87 fact, Supreme has repeatedly Court alone, Act, standing therefore mandates statutory arbitration of claims enforced arbitrate agreements enforcement underlying purpose of the stat- where statutory claims.” Id. protect inform utes is to consumers.” (citations omitted). Davis, F.3d 1276 Nonetheless, Act’s man- “the Arbitration “ under a statute arising claims ‘[E]ven contrary may be overridden date poli- designed important further social is on burden congressional command. may long be arbitrated because so cies opposing arbitration to show party prospective litigant effectively vin- preclude a waiver of Congress intended statutory or of action [his dicate cause her] statutory rights for the judicial remedies forum, its in the arbitral the statute serves 226-27, 2332. Id. at 107 S.Ct. at issue.” ” Fin. (quoting function.’ Green Tree excep- to сreate an If intended 79, 90, Act, Corp.-Ala. Randolph, v. 531 U.S. intent “such an tion to Arbitration ‘will be deducible from ^[1] the statute’s 121 S.Ct. L.Ed.2d (2000)). text or ^[2] legislative history, ^[3] Indeed, every case5 raising statutory 477, 484-86, Exp., arising under These include claims son/Am. Fin., (1989); Se L.Ed.2d 526 Lending Green Truth in Tree McMahon, 513; Exchange Act of Securities curities 121 S.Ct. 2332; the Sherman Rodriguez Quijas de U.S. at v. Shear Act of right explicitly preclude that does not

tration, MARONYAN, Mariam Supreme Court has enforced Plaintiff- Appellant, presumption arbitrability under the Walton, Arbitration Act.6 See 298 F.3d at Therefore, majority’s conclusion SALES, TOYOTA U.S.A., ‍‌​​‌​​‌​​​​‌​​‌‌‌‌‌‌​​​​​‌‌​‌​​‌​‌‌​​‌​​‌​​​‌​‌​‍MOTOR consumer-friendly that the policies under- INC., Defendant-Appellee. lying imply congressional in- No. 09-56949. exempt warranty tent to claims from arbi- tration is in error. United States Court of Appeals,

Ninth Circuit. D. Conclusion Submitted Feb. 2011.* Filed Sept. sum, the MMWA does prohibit private parties agreeing from a remedy to warranty dis-

putes arising under the MMWA. The FTC

acknowledges flexibility this in multiple opinions.

administrative The FTC’s ban

on arbitration cannot reasonably be read apply to anything other than an MMWA could,

“Mechanism.” Even if it this view

would incompatible with the clear fed- policy

eral favoring arbitration under the Therefore,

Arbitration Act. I respect- must

fully dissent. Motors, Mitsubishi 473 U.S. at by prohibiting vendors from im- 3346; and the Racketeer Influenced posing binding, non-judicial Maj. remedies.” Act, McMahon, Corrupt Organization Op. at arguments 1030-31. All of these hinge U.S. at 107 S.Ct. 2332. majority’s on the errant conclusion that the prohibits private MMWA parties majority argues 6. The that other FAA cases ing to warranty disputes resolve inapposite, because this is the case in arbitration outside an MMWA-authorized (1) which “an construed above, explained Mechanism. As this view the statute pre-dispute to bar mandatory bind- statute, support finds no in the and contra- arbitration,” (2) Congress created a non- dicts the opinions subject. on the (3) dispute remedy, Con- * gress preserved right panel press unanimously consumer’s concludes this case is court, (4) claims in civil the statute suitable for argument. decision without oral "sought primary purpose as its protect 34(a)(2). R.App. See Fed. P.

Case Details

Case Name: Kolev v. Euromotors West/The Auto Gallery

Court Name: Court of Appeals for the Ninth Circuit

Date Published: Sep 20, 2011

Citation: 658 F.3d 1024

Docket Number: 09-55963

Court Abbreviation: 9th Cir.