Petition for Writ of Certiorari — Borowiec v. Gateway 2000, Inc.

/ ) Suprem

No.

ae

. “hee 45

Supreme Court of the United States

MICHAEL BOROWIEC. ET AL..

Petitioners.

GATEWAY 2000, INC..

Respondent.

On Petition For Writ Of Certiorari

To The Illinois Supreme Court

PETITION FOR WRIT OF CERTIORARI

Ronald L. Burdge

Counsel of Record

Burdge Law Office Co. LPA

2299 Miamisburg Centerville Road

Dayton, Ohio 45459-3817

(937) 432- 9500

Scott M. Cohen

Additional Counsel for Petitioners

Krohn & Moss, Ltd.

120 W. Madison Street

Chicago, Illinois 60602

(312) 578-9428

AOE SLT ES LE SETS RR RE RSIS SANRMIMRMENGNR MP ADONECI OR RS “Se a Sn

AMERICAN FINANCIAL PRINTERS ®@ (202) 464-5500

Question Presented

In enacting the Magnuson-Moss Warranty—Federal Trade

Commission Improvement Act. 15 U.S.C. § 2301 ef seq., Congress

delegated express authority to the Federal Trade Commission

("FTC") to carry out Congress’ intent and to formulate policies and

rules to effectuate the Magnuson-Moss’ regulatory scheme. In doing

so, the FTC promulgated regulation barring warrantors from

including binding arbitration clauses in their warranties. 64 Fed.

Reg. 19700, 19708 (Apr. 22, 1999), Congress intended that the

obligation to participate in arbitration would not. foreclose a

consumer's eventual access to the courts to press a claim for

warranty breach. This regulation was disregarded by the Illinois

Supreme Court in contravention to this Court’s recent opinion in

Household Credit Services, Inc. v. Pfenning, 541 U.S. , 124 S.

Ct. 1741 (April 21.2004), where this Court held that the Chevron test

must be followed and where Congress has left gaps tor the agency to

fill, the agency's regulations must be given controlling weight unless

the interpretations are arbitrary, capricious, or manifestly contrary to

the statute. Chevron, U.S.A. Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837,843-44 (1984). Nevertheless, in contrast

to the Supreme Court of Mississippi in Parkerson vy. Smith. 817

So0.2d 529 (2002), a divided panel of the Illinois Supreme Court,

rejected the FTC's regulation and decided that the Magnuson-Moss

Warranty Act did not preclude binding arbitration. The question

presented for review is:

Whether the Supreme Court of Illinois improperly substituted

its Own interpretation of the Magnuson-Moss Warranty Act, in

violation of Household and Chevron, instead of giving controlling

Weight to the FTC’s regulation that the Warranty Act prohibits

Watrantors from requiring consumers to resort to binding arbitration.

Parties To The Proceedings Below

In addition to the parties identified in the caption, Dorota

Kobik, Tadeusz Kobik, and Leslie Waldror, were parties to the-

proceedings below and join in this Petition for Certiorart.

Table of Contents

Pages

QUESTIONS PRESENTED

PARTIES TO THE PROCEEDINGS BELOW i

TABLE OF CONTENTS i

TABLE OF AUTHORITIES IV

PETITION FOR WRIT OF CERTIORARI

OPINIONS BELOW |

JURISDICTION |

STATUTES AND REGULATIONS INVOLVED |

STATEMENT OF THE CASE 3

REASONS FOR GRANTING THE WRIT 10

1. THE DECISION BELOW IS CONTRARY TO THE

SUPREME OF MISSISSIPPI’'S INTERPRETATION OF

THE SAME FEDERAL QUESTION AND CONTRARY

TO THE FEDERAL TRADE COMMISSION’S

REGULATIONS AS TO THIS FEDERAL QUESTION IN

VIOLATION OF HOUSEHOLD AND CHEVRON . 14

Il. THE QUESTION PRESENTED IS. IMPORTANT

AND WARRANTS IMMEDIATE REVIEW BY. THIS

COURT TO CREATE UNIFORMITY AMONGST THE

STATE COURTS OF LAST RESORT AS TO AN ISSUE

OF FEDERAL LAW. 19

CONCLUSION 20

TABLE OF AUTHORITIES

Cases Pages

Household Credit Services, Inc. v. Pfennig, 541 U.S. 4-5. 6-7,

(April 21, 2004). 6n-7n, 9,

13, 14,

15, 19, 20

United States v. Mead Corp., 533 U.S. 218 (2001). Be es

Whitman v. Am. Trucking Assocs., Inc., 531 U.S. 457 17

(2001).

Pub. Lands Council v. Babbitt, 529 U.S. 728 (2000). 19

Christensen v. Harris County, 529 U.S. 576 (2000). 4

INS v. Aguirre-Aguirre, 526 U.S. 415 (1999). 16

United States v. Haggar Apparel Co., 526 U.S. 380° — 18

(1999).

AT&T v. lowa Utils. Bd., 525 U.S. 366 (1999). 19

Smiley v. Citibank (South) Dakota), 517 U.S. 735 12

(1996).

Rust v. Sullivan, 500 U.S. 173 (1991). 12. 16

Martin vy. Occupational Safety & Health Review — 4n

Comm'n, 499 U.S. 144 (1991).

Perry v. Thomas, 482 U.S. 483 (1987). Sn

Chevron U.S.A. Inc. v. Natural Resources Defense 4,5, 15,

Council, Inc., 467 U.S. 837 (1984). 16

Southland Corp. v. Keating, 465 U.S. | (1984). I8n

IV

a

VLRB vy. Bell Aerospace Co. Div. Textron, Inc., 416

U.S. 267 (1974).

Davis v. Southern Energy Homes, Inc., 305 F.3d 1268

(1t" Cir. 2002).

Walton v. Rose Mobile Homes LLC, 298 F.3d 470 5"

Cir. 2002).

Wilson v. Waverlee Homes, Inc., 954 F. Supp. 1530

(M.D. Ala. 1997), aff'd without opinion 127 F.3d 40

C11" Cir, 1997).

Borowiec V. Gateway 2000, Inc., 2004 IIL Lexis 675.

Borowiec v. Gateway 2000, Inc., 331 I. App. 3d 842,

772 N.E.2d 256 (1* Dist. Ill. May 31, 2002).

Parkerson v. Smith, 817 So.2d 529 (Miss. 2002).

Statutes

Magnuson-Moss Warranty--Federal Trade Commission

Improvement Act, 15 U.S.C. § 2301 et seq. (2004)

15 U.S.C. 2309 (2004)

15 U.S.C. 2310(2004)

1S U.S.C. 2312 (2004)

Regulations

16 C.F.R. § 700 (2004).

16 C.E.R. § 703 (2004).

6

6

7-8, 9-10,

10, 20

5-6

3, 10, 13

4.11

Treatises

ROBERT L. STERN ET AL... SUPREME COURT PRACTICI

(8"" ed. 2002)

Other Authorities

U.S. Const. Art. VI, el. 2

64 Fed. Reg. 19700 (Apr. 22, 1999).

40 Fed. Reg. 60167 (Dec. 31, 1975).

93 Cong. Rec. 40711, 40712 (Dec. 18, 1974).

Antonin Scalia, Judicial Deference to Administrative

interpretations of Law, 1989 Duke L.J. S11 (1989).

Katherine Van Wenzel Stone, Rustic Justice:

Community and Coercion Under The — Federal

Arhitration Act. 77 N. Carolina L. Rev. 931 (1999).

National Institute tor Consumer Justice.

Consumer Grievances - Report of The

Institute for Consumer Justice 9 (1973).

National

V1

Redress of

19

Sn

Sn

Opinions Below

The Illinois Supreme Court’s Opinion is reported at

2004 Ill. Lexis 675. Tie Court of Appeal’s opinion is reported at

331 Mi App. 3d 842 (2002).

Jurisdiction

The Hlinois Supreme Court entered its judgment on April |, 2004.

Statutes and Regulations Involved

This case involves the following provisions of the

Magnuson-Moss Warranty) - Federal Trade Commission

Improvement Act, /5 U.S.C. § 2301 et seg.

16 CFR. § 700.8.

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. Nor shall a warrantor or service

contractor state that it alone shall determine what is a defect

under the agreement. Such statements are deceptive since

section 110(d) of the Act gives state and federal courts

jurisdiction over suits for breach of warranty and service

contract.

15 U.S.C. § 2310(a)(1), (2).

(a) Informal dispute settlement procedures; establishment:

rules setting forth minimum” requirements; effect of

compliance by warrantor; review of informal procedures or

implementation by Commission; application to existing

informal procedures.

(1) Congress hereby declares it to be its policy to encourage

warrantors to establish procedures whereby consumer

disputes are fairly and expeditiously settled through informa!

dispute settlement mechanisms.

(2) The Commission shall prescribe rules setting forth

minimum requirements for any informal dispute settlement

16 C.F.

OCF.

IS U.S.

procedure which is incorporated into the terms of a written

warranty to which any provision of this ttle [1S USCS §s

2301 et) seg.| applies. Such rules shall) provide — tor

participation im such procedure by independent — or

governmental entities.

R. § 703. 5(2)(1)

(g) The Mechanism Shall inform the consumer, at the time of

disclosure required in paragraph (d) of this section that:

(1) If he or she ts dissatisfied with its decision. or

warrantor's intended actions, or eventual performance, legal

remedies, including use of small claims court, may be

pursued;

R. § 703. 5()

(j) Decisions of the Mechanism shall not be legally binding

on any person. However, the warrantor shall act in) good

faith, as provieted in § 703.2(g) of this part. In any civil action

arising Out of a warranty obligation and relating to a matter

considered by the Mechanism, any decision of — the

Mechanism shall be admissible in evidence, as provided in

section 110(a) (3) of the Act.

C. § 2310(a)(2)

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 title [1S USCS §§ 2301 et seq. |

applies. Such rules shall provide for participation in such

procedure by independent or governmental entities.

2

sis ib Adds

Statement of the Case

A divided panel of the Hlinois Supreme Court invalidated an

mMportant provision of the Magnuson-Moss Warranty Act /5 U.S.C.

§ 2307 et seg. as implemented by the Federal Trade Commission

(KTC") in 16 CER. § 703. The Magnuson-Moss Warranty Act as

interpreted by the FTC allows for warrantors to require a consumer

to submit to informal dispute setthement procedures or mechanisms

provided that, if the consumer ts dissatisfied with the outcome of the

procedure, the consumer may pursue a legal remedy. The decision

below raises a question of federal law and ts of exceptional

importance to consumers and the FTC's ability to promulgate and

effectuate the Magnuson-Moss Warranty Act’s regulatory scheme.

Further, the opinion reflects a conflict between state courts of last

resort that have decided this important federal question. — See

Parkerson v. Sinith, 817 So. 2d 529 (Miss. 2002).

A. The Relevant Statutes and Regulations

The tssue in this case is whether the Illinois Supreme Court

was required to defer to the interpretation of the Magnuson-Moss

Warranty Act expressed in’ the contemporaneous — legislative

regulations of the FTC, promulgated after formal rulemaking

proceedings and in accordance with the procedures established by

Congress, and consistently applied for 29 years by that agency, and

to therefore enforce those rules in this case by finding that the

binding arbitration clause ts illegal. Although a warrantor may, If tt

elects to do so, include a provision requiring a consumer to pursue

informal dispute resolution procedures before filing suit, /6 CFR. §

703.5(g)(1) requires that any such mechanism inform consumers that

if they are dissatisfied with the outcome of the procedures, they may

pursue legal remedies and that "[dJectsions of the [m]Jechanism shall

not be binding on any person." /d. at § 703.5(j).. Rule 703 has been

interpreted by the FTC to prohibit the use of binding arbitration

clauses in written warranties. See 64 Fed. Reg. at 19708 (discussing

Rule 703's prohibition against binding arbitration clauses in written

warranties). The FTC has noted that reference within the written

warranty to any binding non-judicial remedy is prohibited by the

Rule and the Act. Wilson v. Waverlee Homes, Inc., 954 F.Supp.

1530, 1537-40 (M.D.Ala.1997), aff'd, 127 F.3d 40 (11 Cir.1997).

3

ren

ccc necator ceeeititel iain diteaes

Congress, pursuant to an express delegation of rulemaking

authority in 75 U.S.C. SY 2309-2310, gave the FTC the power to

make legislative and interpretive regulations. 75 U.S.C. ¥ 2310(a)(2)

states that "[t]}he Commission shall prescribe rules setting forth

minimum requirements for any informal dispute © settlement

procedure which ts incorporated into the terms of a written warranty

to which any provision of this chapter applies."' [T]he Commission

determined that "reference within the written warranty to any

binding, non judicial remedy ts prohibited by the Rule and the Act."

The Commission -believes that this interpretation continues to

prohibit warrantors trom including binding arbitration clauses in

their contracts with consumers that would require consumers to

submit warranty disputes to binding arbitration. 64 Fed. Reg. 19700,

19708-19709.

This Court in Chevron U.S.A. Inc. vy. Natural Resources

Defense Council, Inc., 467 U.S. 837, 842 (1984) decided that "[t]he

power of an administrative agency to administer a congressionally

created... program necessarily requires the formulation of policy and

the making of rules to fill any gap left, implicitly or explicitly, by

Congress." (citation to Morton v. Ruiz, 415 U.S. 199, 231 (1974). UE

Congress has explicitly left a gap for the agency to fill, there ts an

express delegation of authority to the agency to elucidate a specific

provision of the statute by regulation. Such legislative regulations

are given controlling weight unless they are arbitrary; capricious, or

manifestly contrary to the. statute. Sometimes the legislative

delegation to an agency on a particular question is implicit rather

than explicit. In such a case, a court may not substitute its own

construction of a statutory provision tor a reasonable interpretation

made by the administrator of an agency. Chevron, 467 U.S. at

843-844. In Household Credit Services, Inc v. Pfenning, 541 |

(April 21, 2004), this Court held that the Chevron principles applied

to the Federal Reserve Board’s interpretation of the Truth in Lending

The interpretive regulations, found at 16 C.F.R. § 700, also bar binding

arbitration. See 16 C.F.R. § 700.8. They are not entitled to the same level of

Chevron deterence. See Martin v. Occupational Safety & Health Review Comm'n,

499 US. 144. 157 (1991). They are “entitled to respect.” provided they “have the

power to persuade." Christensen vo Harris County, 529 U.S. 576, 587 (2000),

Which they do here.

4

a

Act. This Court concluded that the agency’s decision should be

given controlling weight and that “Judges ought to refrain from

substituting their own interstitial lawmaking for the [Board].” /d.

Citing Ford Motor Credit Co., 444 U.S at S68.

B. Proceedings in the Circuit Court

Petitioners purchased Gateway personal computers

manufactured by Gateway which were accompanied by Gateway’s

limited written warranty that promised that the computer's hardware

systems would be tree from defects in materials and/or workmanship

during the warranty period. Incorporated into Gateway’s written

warranty was an arbitration clause which provided that all matters

will be submitted to the National Arbitration Forum (“NAF”) and

those decisions will be “final and binding.” Petitioners experienced

several defects in their computers and notified Gateway on numerous

occasions to repair the computer. Despite a number of reasonable

attempts to cure these defects, Gateway failed to repair the defects or

replace the computers as provided in the written warranty. As a

result of these defects, Petitioners revoked acceptance of the

computers in writing and filed four (4) count complaints against

Gateway alleging violations of the Magnuson-Moss Warranty Act

(“Magnuson-Moss”), violation of the Consumer Fraud and

Deceptive Business Practices Act and the commission of common

law fraud. As to each Petitioner, Gateway filed its Motion to

Dismiss for lack of subject matter jurisdiction and to compel

arbitration pursuant to Section 2-615 of the Illinois Code of Civil

Procedure. The Circuit Court of Cook County, Illinois denied

Gateway’s Motions to Dismiss and found that the Warranty Act did

not allow for binding arbitration.

Cc. Proceedings in the Court of Appeals

The Illinois Court of Appeals affirmed the Circuit Court's

judgment denying Gateway’s motion to dismiss or compel

arbitration. See Borowiec v. Gateway 2000, Inc. 331 Il App. 3d

842, 772 N.E.2d 256 (1* Dist. Ill. May 31, 2002) The court held that

in cases of consumer transactions, Congress had overridden the

Federal Arbitration Act through the Magnuson-Moss Warranty Act

15 U.S.C. § 2301 et seq (1994) and the regulations adopted by the

5

FTC pursuant to the Act prohibited the type of binding arbitration

provisions contained in Gateway’s warranties. Therefore, the court

concluded that) the arbitration” provisions were unenforceable.

Consistent with that conclusion, the court found that arbitration

provisions cannot operate as a bar to the consumers” claim in the

Circuit Court and affirmed the decision of the Circuit Court.

D. Proceedings in the Supreme Court of Illinois

A divided panel of the Supreme Court of Illinois reversed the

judgments of the Appellate and Circuit Courts. In reaching its

decision the court failed to give the regulations of the FTC

controlling weight and disregarded the regulations. The court opined

that binding arbitration is not part of informal dispute settlement

procedure, thereby falling outside the bounds of the Magnuson-Moss

Warranty Act and so there is no congressional intent to prevent

binding arbitration. Walton v. Rose Mobile Homes LLC, 298 F.3d

470, 475-76 (5" Cir. 2002) The court also relied on Davis. v.

Southern Energy Homes, Inc., 305 F.3d 1268, 1276 (11"" Cir. 2002)

which held that the text of the Magnuson-Moss Act does not

expressly bar binding arbitration, nor did Congress express a clear

intent to bar arbitration in the Magnuson-Moss Act’s legislative

history. Unlike the Walton case, the Davis court did an analysis of

the reasonableness of the FTC's construction of the statute. The

court concluded that the motives behind the FTC’s regulations were

unreasonable. Davis, 305 F.3d at 1280.

In following the courts’ opinions in Walton and Davis, the

Illinois Supreme Court failed to do the Chevron analysis. As

recognized most recently by this Court, in determining what effect a

court must give to the FTC's regulations, a court must first

determine whether “Congress has directly spoken to the precise

question at issue.” Household, 541 U.S. at *5° citing Chevron,

~ In Household, this Court overturned a Sixth Circuit Court of Appeals’ decision

Wherein the Sixth Circuit declined to follow a regulation imposed by the Federal

Reserve Board interpreting the Truth in Lending Act. /d In reversing the Circuit

Court, the Supreme Court admonished the Sixth Circuit by noting, “In holding that

Regulation Z conflicts with § 1605°s definition of the term “finance charge.” the

Court of Appeals ignored our warning that ‘judges ought to refrain) trom

6

ee ee ei

467 U.S. at 842. “If so, courts, as well as the agency, ‘must give

effect to the unambiguously expressed intent. of Congress.’

Household at *5 quoting Chevron at 842. “However, whenever

Congress has ‘explicitly left a gap for the agency to fill, the

agency's regulation is ‘given controlling weight unless [it is]

arbitrary, capricious, or manifestly contrary to the statute.”

Household at *5 quoting Chevron at 842. The Illinois Supreme

Court tailed to apply the Chevron analysis and hence the decision it

reached was erroneous and needs to be reversed.

Justice Kilbride of the Illinois Supreme Court dissented in

Borowiec, and demonstrated that a proper application of statutory

construction would have required the Illinois Supreme Court to

determine if the FTC's regulation was “arbitrary, capricious, or

manifestly contrary to the statute.” Justice Kilbride correctly noted

the following:

In rejecting the FTC's regulations interpreting the

Magnuson-Moss Act, the majority relies heavily on

both Walton v. Rose Mobile Homes LLC, 298 F.3d

470 (Sth Cir. 2002) (slip op. at 10-13) and Davis v.

Southern Energy Homes, Inc., 305 F.3d 1268, 1276

(11th Cir. 2002) (slip op. at 13-15). 1 cannot agree

with the majority's approach to these cases.

* * *

In the instant case, | believe the majority has unwisely

chosen to follow the Walton court's erroneous

conclusion on prong one of the Chevron test. Slip op.

at 10 (finding the Walton analysis "particularly

helpful"). The Walton court held that Congress had

spoken directly to the precise issue of whether

binding arbitration provisions are permissible in

consumer product warranties. Walton, 298 F.3d at

478 (stating that "the clear congressional intent in

favor of enforcing valid arbitration agreements

Substituting their own interstitial lawmaking for that of the [Board].°" Household

7

controls in this case"). That mistaken conclusion, in

turn, obviated the need to reach the second prong of

the Chevron analysis and, thus, to address the

reasonableness of the FTC's interpretation. Walton,

298 F.3d at 478 n.14.

The Walton court's error is apparent from both the

text and the legislative history of the Magnuson-Moss

Act. Notably, the text of the Act is completely silent

concerning its interaction with the Arbitration Act in

consumer warranty cases. Walton, 298 F.3d at 475

(acknowledging that the text did not address the

permissibility of binding arbitration clauses in

consumer warranties). Under the Chevron analysis, if

the statute is silent on a given issue, We must next

consider whether the agency's construction of the

statute is permissible. Chevron, 467 U.S. at 843, 81 L.

Ed. 2d at 703, 104 S. Ct. at 2782. Thus, since the

statute itself is silent on the precise question at issue

here, the Walton court should have proceeded to

prong two of the analysis. At best, the statute's silence

necessarily creates a strong ambiguity regarding

Congress’ true intent on this issue. By overlooking the

absence of any language in the Magnuson-Moss Act

directly addressing its potential conflict with the

Arbitration Act and = rushing headlong to— the

conclusion that Congress has directly spoken on this

precise question, the majority in both Walton and this

case ignore the express directive of the Supreme

Court established in the Chevron test. Since the

Magnuson-Moss Act is undisputedly silent on this

issue, this court should proceed with an analysis of

prong two of the Chevron test and consider whether

the FTC's regulations are "arbitrary, capricious, or

manifestly contrary to the statute." Chevron, 467 U.S.

at 844, 81 L. Ed. 2d at 703, 104 S. Ct. at 2782.

Borowiec, at *38-39, *40-42 (emphasis added).

Since the Illinois Supreme Court in Borowiec did not

determine that the FTC’s regulation was “arbitrary, capricious, or

manifestly contrary” to the Magnuson-Moss Warranty Act, the

Ilinois Supreme Court's analysis was incomplete. In the absence of

such a finding, the Illinois Supreme Court per Household and

Chevron, was required to defer to the FTC and to give controlling

weight to the FTC’s regulations. Household at *5 quoting Chevron

at 842. As such, Petitioners pray that this Court reverse the IIlinois

Supreme Court’s decision based on its failure to conform to this

Court's directive in Chevron and Household.

As the other dissent in Borowiec, Justice Rarick of the

Ilinois Supreme Court noted:

| agree with those courts which have held that the

Magnuson-Moss Warranty Act supersedes the Federal

Arbitration Act in cases seeking relief based on

warranties encompassed by the Magnuson-Moss

Warranty Act’s provisions.

The regulations enacted by the FTC in accordance

with the authority conferred on them by Congress are

consistent with that view .... | reject the notion that

the FTC's regulations are not entitled to deference

and should be ignored by our court in analyzing the

validity of the binding arbitration clause in Gateway’s

warranties. Such an approach is inconsistent with

federal law. The United States Supreme Court has

expressly held that the legislative regulations adopted

by federal administrative agencies are given

controlling weight unless they are arbitrary,

capricious, or manifestly contrary to the statute

pursuant to which they were adopted. Chevron USA.,

Inc. v.. Natural Res. Defense Council, Inc., 467 U.S.

837, 843-844 (1984). The regulations here do not fall

within any of those exceptions.

Borowiec, at *80-81.

Justice Rarick concluded:

For a state court to override such regulations

would violate the supremacy clause of the United

States Constitution.

Borowiec, at *8O-81 citing Boron Oil Co. v. Downie, 873° kL 2d

67,71 (4" Cir, 1989).

Reasons for Granting the Petition Pursuant to Supreme Court

Rule 10(b) and 10(c)

This Court should grant Certiorart as this Petition meets the

requirements of Supreme Court Rule LO(b) and 10(¢). The Hhinots

Supreme Court's decision conflicts with the decision of the state

court of last resort in Mississippi involving a matter of federal law.

See Parkerson vo Smith, 817 So. 2d 529 (Miss. 2002). 9 The

Mississippt Supreme Court in Parkerson reached the opposite

conclusion of the [tlinots Supreme Court in Borowiec. Specifically,

the court in Parkerson determined that pursuant to Chevron it was

required to defer to the regulations of the FTC, and as such, the

Parkerson court: held) that the Magnuson-Moss Warranty Act

precludes enforcement of binding arbitration agreements in regards

to written or implied consumer warranties. /c/. at 535.

Additionally, this Court) should) grant) Certiorart: as— this

Petition meets the requirements of Supreme Court Rule 10(¢) as it

Involves an important question of federal law that should be settled

by this Court. It also involves a violation of the Supremacy Clause

as a state court of last resort disregarded the regulations of a federal

agency with respect to the interpretation of a federal statute without

applying the Chevron test.

Pursuant to this Court’s recent decision in Household and

previous decision in Chevron, the Illinois Supreme Court) was

required to follow the FTC's regulations absent a finding that the

regulation was “arbitrary, capricious, or manifestly contrary” to the

Warranty Act. The court was also required to deter to federal

10

CMA tt aon

regulations pursuant to the Supremacy-Clause of the United States

Constitution.

Pursuant to the express language of the Magnuson-Moss

Warranty Act, Congress empowered the FTC to promulgate rules for

determining several issues under the Act. In addition to 15 U.S.C. §

2312 (¢) which provided the FTC with the general authority to

“promulgate rules” for the implementation of the Act, section 2310

(a2) provided the FTC with the specific authority to promulgate

certain “minimum requirements” that a warrantor’s Informal Dispute

Resolution (“IDR”) program must meet before a warrantor may

require an aggrieved consumer to resort to IDR as a prerequisite to

legal action. 1S U.S.C. § 2310(a)(2). These regulations were

designed to ensure that IDR programs “not only look good on paper,

but function effectively and fairly in practice” and that a given IDR

mechanism “is fair and effective so that it does not just represent

another hurdle that the consumer is forced to surmount before being

provided a meaningful avenue of redress.” 93 Cong. Rec. 40711,

40712 (Dec. 18, 1974).

Under the Act's express delegation of rulemaking authority,

the FTC, which had assisted Congress for six years in_ the

development of the Act, began a formal rulemaking proceeding in

1975 that entailed hearings and the receipt ef data and written

submissions from interested persons. “[I]ndustry representatives

contended that warrantors should be allowed to require consumers to

resort to: mechanisms whose decisions would be legally binding

(e.g.. binding arbitration).” 40 Fed. Reg. 60167, 60210 (Dec. 31,

1975). On the basis of the congressional intent of the Act, and

because it could not devise a way to allow binding arbitration

provisions in time-of-sale warranties that would protect the interests

of consumers, the FTC rejected industry's contentions, and

promulgated legislative regulations that bar binding arbitration

clauses in warranties accompanying the sale of consumer products.

‘The Supremacy Clause states: “This Constitution, and the Laws of the United

States which shall be made in Pursuance thereof; and all Treaties made, or which

shall be made, under the Authority of the United States, shall be the supreme Law

of the Land: and the Judges in every State shall be bound thereby, any Thing in the

Constitution or Laws of any State to the Contrary notwithstanding.” USCS Const.

Art. ViLC1 2.

16 C.F.R. $$ 703.5(g), 703.5()); 40 Fed. Reg. 60167, 60210 (Dec.

31, 1975). The FTC reiterated its position in 1977 and 1999. The

FTC allows warrantors to offer “a binding arbitration option to

consumers after a warranty dispute has arisen.” 64 Fed. Reg.

19700, 19708 (Apr. 22, 1999). It bars only binding time-of-sale

arbitration clauses contained in warranties.

The fact that the FTC has consistently opposed binding

arbitration is also significant. 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, 274-274 (1974)

(“[A] court may accord great weight to the longstanding

interpretation placed on a statute by an agency charged with its

administration.”); and see Smiley v. Citibank (South Dakota), 517

U.S. 735, 740 (1996) (observing that “agency interpretations that are

of long standing come before us with a certain ‘credential of

reasonableness’ since it is rar> that error would long persist”). Such a

“credential of reasonableness” is especially applicable here since on

April 22, 1999, the FTC reported on an extensive review of Its

regulations in the warranty field and it explicitly reaffirmed its

position that the Magnuson-Moss Act prohibits binding arbitration.

64 Fed. Reg. 19700, 19708-19709 (April 22, 1999). The FTC

further approved the decision in Wilson v. Waverlee Homes, Inc.,

954 F. Supp. 1530 (M.D. Ala. 1997), aff'd without opinion, 127 F.3d

40 (11" Cir. 1997), which held binding arbitration clauses in

time-of-sale warranties illegal under the Act. 64 Fed. Reg. 19700,

19708 n. 72 (1999).

In its 1999 reaffirmation of its legislative rules, the FTC

explained that it requested comments on its rules and guides

interpreting and implementing the Magnuson-Moss Act “as part of a

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 FTC decided to retain the interpretations

and rules without change. The FTC wrote:

|?

—

NN ee ee

[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 prohibit warrantors from

including binding arbitration clauses in their contracts

with consumers that would require consumers to

submit warranty disputes to binding arbitration.

64 Fed. Reg. 19700, 19708-19709. The FTC said, like the court in

Wilson v. Waverlee, that it was troubled by a statutory construction

that “would enable warrantors and the retailers selling their

products to avoid the requirements of the Warranty Act simply by

inserting binding arbitration clauses in their sales contracts.” 64

Fed. Reg. 19700, 19709 at n. 72.

The Illinois Supreme Court in determining what effect it

should give to the FTC’s regulations should have first determined

whether “Congress has directly spoken to the precise question at

issue.” Household, 541 U.S. at *5 citing Chevron, 467 U.S. at

842. “If so, courts, as well as the agency, “must give effect to the

unambiguously expressed intent of Congress.”” Household at *5

quoting Chevron at 842. “However, whenever Congress has

‘explicitly left a gap for the agency to fill,’ the agency’s regulation is

‘given controlling weight unless [it is] arbitrary, capricious, or

manifestly contrary to the statute.” Household at *5 quoting

Chevron at 842. Since Congress had not spoken to the precise issue

betore the Court, the Illinois Supreme Court should have completed

the Chevron analysis. The court's failure to do so justifies reversal

of the court’s decision.

The question presented here warrants immediate review. By

holding in contrast to the Supreme Court of Mississippi, the Illinois

Supreme Court has decided an important federal question in a way

that conflicts with the decision of another state court of last resort.

See Parkerson v. Smith, 817 So.2d 529 (2002). Moreover, by

effectively not upholding the FTC’s interpretation of the Magnuson-

Moss Warranty Act regarding binding arbitration, the Illinois

Supreme Court has undermined the Magnuson-Moss Act and also

13

denied an important right to consumers. Absent a ruling by this

Court, every warrantor of consumer products will be free to insert a

binding arbitration clause in their warranties and deny consumers a

chance to litigate their claims if they are not satisfied with the

decision of the arbitration.

Such an effect on consumers should not be taken lightly,

especially where the Illinois Supreme Court did not engage in the

requisite statutory construction analysis for interpreting federal law.

As recognized on April 22, 2004 by this Court in Household, 541

U.S. , the Illinois Supreme Court should have engaged in a two

(2) part statutory construction analysis betore declining to follow the

FTC's regulations. As the court neither concluded nor relied on

authority that concluded that the FTC’s regulations were “arbitrary, ”

capricious, or manifestly contrary” to the intent of Congress in

drafting the Warranty Act, the Illinois Supreme Court should be

reversed for failing to give the regulations of the FTC controlling

weight.

The Illinois Supreme Court’s rejection of the FTC's

interpretation will have a far reaching impact on the rest of the

Magnuson-Moss Warranty Act, not only does it render a section of

the Act meaningless, but it also will bring about different results in

different areas of the country. This will create confusion and add to

lack of uniformity in the meaning of warranties and what relief is

available under the Warranty Act.

I. The Decision Below Is Contrary to the Supreme Court of

Mississippi’s Interpretation of the Same Federal Question

and Contrary to the Federal Trade Commission’s

Regulations as to This Federal Question in Violation of

Household and Chevron .

In light of this Court’s recent decision in Household, it is

apparent that the Illinois Supreme Court did not properly analyze

this issue of statutory construction in contrast to the Supreme Court

of Mississippi in Parkerson.

Even if one were to adopt the view that the Magnuson-Moss

Act does not expressly preclude binding arbitration, it does not

14

<x

So eo

follow that the FTC lacks the power to prohibit binding arbitration as

it has. This Court in Household restated the Chevron holding that

courts must first determine whether “Congress has directly spoken to

the precise question at issue.” Household, 541 U.S. , 124 S. Ct.

1741 (April 21, 2004) citing Chevron, 467 U.S. at 842 (1984) “If so,

courts, as well as the agency, ‘must give effect to the unambiguously

expressed intent of Congress.” Household at *5 quoting Chevron at

842. “However, whenever Congress has ‘explicitly left a gap for the

agency to fill,” the agency’s regulation is ‘given controlling weight

unless [it is] arbitrary, capricious, or manifestly contrary to the

statute.” Household at *5 quoting Chevron at 842.

Sometimes the legislative delegation to an agency on a

particular question is implicit rather than explicit. In such a case, a

court may not substitute its own construction of a statutory provision

for a reasonable interpretation made by the administrator of an

agency. Chevron, 467 U.S. at 843-844. The Chevron court quoted

from its decision in United States v. Shimer, 367 U.S. 374, 383

(1961), while making it clear that in a case like this a court 1s

required to defer to the FTC's expertise regarding the most

appropriate way to effectuate the consumer protection goals of a

statute such as Magnuson-Moss:

[T]he 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. .

".. If this choice represents a_ reasonable

accommodation of conflicting policies that were

committed to the agency's care by the statute, we

should not disturb it unless it appears from the statute

or its legislative history that the accommodation is not

one that Congress would have sanctioned."

Chevron, 467 U.S. at 844-845, quoting United States v. Shimer,

supra, at 367 U.S. 382383. This approach has been followed

consistently by this Court. See Rust v. Sullivan, 500 U.S. 173,

189-190 (1991) (“It is well established that legislative history which

does not demonstrate a clear and certain congressional intent cannot

form the basis for enjoining regulations."); aad see Antonin Scalia,

Judicial Deference to Administrative Interpretations of Law, 1989

Duke Law Journal 511, 512 (1989).

Petitioners maintain, first, that it is proper to review the

FTC's regulations under the “arbitrary, capricious, or manifestly

contrary to the statute" standard set forth in Household as pertaining

to those statutes where the "power of an administrative agency to

administer a congressionally created ... program necessarily requires

the formulation of policy and the making of rules" to fill a gap left

explicitly by Congress. Chevron, 467 U.S. at 843-844.

Here, we rely on the fact that "informal dispute settlement

mechanisms" did have a meaning, in light of the statute's text taken

as a whole, the legislative history, and the underlying statutory

purposes, and its meaning encompassed all nonjudicial procedures

including arbitration, and thus Congress’ use of the language

explicitly lett a "gap" for the FTC to ‘ill, specifically, the details of

how all such procedures weuld operate in the specific context of

consumer product warrantics issued at the time of sale. There ts

nothing arbitrary or capricious in the FTC's 29 year history of

effectuating the policies of Congress or in its legislative rules

promulgated back in 1975.

Even assuming, arguendo, that Congress did not explicitly

address the issue of binding arbitrations in this context, then

Congress implicitly left a "gap" in how to deal with this problem, and

its program of statutory protection for consumers requires the

formulation of policy and the making of rules "to fill" this "gap."

See, e.g., Immigration and Naturalization Serv. v. Aguirre Aguirre,

526 U.S. 415, 424 (1999).

The FTC, as we have noted, gave a two-part rationale for its

legislative regulations that bar binding arbitration. First, it said that it

was Congress’ intent to prohibit them. But, it also said that, "even if

16

binding Mechanisms were contemplated by Section 110 of the Act,"

it could not determine a way to issue "any guidelines” permitting

binding arbitration that "could ensure sufficient consumer protection

for consumers." 40 Fed. Reg. 60167, 60210 (Dec. 31, 1975). In other

words, the FTC believes (quite rightly) that it cannot effectively

administer the program that Congress required it to administer, the

program of guarding consumers’ interests in the warranty field,

unless it bars companies like Defendant from foiling its regulatory

control by inserting binding arbitration provisions into their

warranties, provisions that, simply because they are binding,

extinguish the protections Congress supplied to consumers under the

Act.

The FTC then is filling a "gap" in that it is formulating policy

and promulgating rules that are "necessarily require[d]" to effectuate

Congress' scheme of consumer protection in the warranty field.

Chevron, 467 U.S. at 843-844. It cannot be contended that in doing

so, the FTC has behaved unreasonably. Justice Souter explained that

it can "be apparent from the agency's generally conferred authority

and other statutory circumstances that Congress would expect the

agency to be able to speak with the force of law when it addresses

ambiguity in the statute or fills a space in the enacted law, even one

about which ‘Congress did not actually have an intent’ as to a

particular result." United States v Mead Corp., 533 U.S. 218, 229

(2001), quoting Chevron, 467 U.S. at 845. See also Whitman v. Am.

Trucking Assocs., Inc., 531 U.S. 457, 481 (2001).

Justice Souter wrote that in such circumstances, "a reviewing

court has no business rejecting an agency's exercise of its generally

conferred authority to resolve a particular statutory ambiguity simply

because the agency's chosen resolution seems unwise." /d. at 229. If

the agency's interpretation is reasonable, then it must be enforced,

regardless of whether the court would have reached a contrary result

if it was the entity charged by Congress to formulate the policy for

and to implement a statutory scheme. Petitioners maintain that this

justifies reversing the Illinois Supreme Court. It is not correct for a

court to supplant the agency's view in this case, on the basis of a

mythic "congressional intent" derived from a law passed in 1925,

before the age of mass-produced consumer products came into

being, before the rise of warrantics and guarantees as

17

Pe

ee a ees a |

mass-marketing devices emerged, and oefore the "warranty problem"

of the 1950's and 1960's aros:, a problem that prompted people like

Warren Magnuson and Frank Moss to act to protect the American

people. This is especially true in light of the fact that in the 1970's

the FAA was not viewed in the same way it is today.” If it had been,

perhaps Congress would have spoken about FAA-arbitration in

explicit terms. As Justice Kennedy wrote in United States v. Haggar

Apparel Co., 526 U.S. 380, 392 (1999), "Congress need not, and

likely cannot, anticipate all circumstances in which a general policy

must be given specific effect.”

It is Gateway that contended the FTC's regulations were

invalid, but Gateway did not meet its burden under Chevron or

Household. As such, this Court should reverse the Hlinois Supreme

Court's decision.

* In the 1970's FAA-governed arbitration was not in use as a means of resoly ing

consumer claims. "Before the 1980's, the FAA was interpreted as applying only to

federal question cases or diversity cases involving commerce that were in federal

court. Further, the FAA applied only to cases that were in federal court on an

independent federal question basis." Katherine Van Wezel Stone, Rustic Justice:

Community and Coercion Under The Federal Arbitration Act, 77 N. Carolina L.

Rev. 931, 935 (1999). It was only in the last eighteen years that the Supreme Court

of the United States began interpreting the FAA more broadly so as to promote its :

use in all forms of contractual relationships. /d. at 935-936, 943954. See also

Southland Corp. v. Keating, 465 U.S. 1, 10-16 (1984): Perry v. Thomas, 482 U.S.

483, 490-491 (1987). Courts that have placed emphasis on the fact that FAA

arbitration was not mentioned by Congress, and that have drawn from this fact, the

conclusion that, surely, Congress did not intend to interfere with the FAA when it

enacted Magnuson-Moss have failed to grasp this essential point. A point that

explains why when learned attorneys like Antonin Scalia, a future Justice of the

U.S. Supreme Court, and Robert Braucher, then an Associate Justice of the

Supreme Judicial Court of Massachusetts, issued in 1973 the National Institute for

Consumer Justice's final report, Redress of Consun or Grievances, while they

discussed private arbitration mechanisms, they did not discuss arbitration under the F

Federal Arbitration Act as a mechanism under which consumer warranty claims

could be resolved.

Lt, a

18

il. The Question Presented Is Important And Warrants

Immediate Review By This Court To Create Uniformity

Amongst The State Courts Of Last Resort As To An Issue

Of Federal Law.

As leading commentators have noted, issues involving “the

validity of agency regulations under the statutes pursuant to which

they were promulgated” are often sufficiently important to warrant

this Court’s Review. ROBERT L. STERN ET AL., SUPREME COURT

PRACTICE § 4.13, at 248 cs" ed. 2002). In fact, this Court has

granted Certiorari in a number of cases that have raised the issue

involving the validity of agency rules and regulations, even in the

absence of a direct conflict among the circuits. See, e.g., Pub. Lands

Council v. Babbitt, 529 U.S. 728,739 (2000) (reviewing decision that

sustained regulations promulgated by the Secretary of Interior under

the 1934 Taylor Grazing Act). Another case was the AT&T v. Jowa

Utils. Bd., 525 U.S. 366, 375-77 (1999) (reviewing decision that

invalidated federal Communication Commission rules under the

Telecommunications Act of 1996). And most recently, this Court

decided the case of Household, 541 U.S. , 1248. Ct. 1741.

The Illinois Supreme Court’s decision raises a_ similar

important question that has been decided contrary to the opinion of

the Supreme Court of Mississippi. Furthermore, allowing this

decision to stand will be doing a grave injustice to the consumers

and will also have an overwhelmingly undermining effect on the

Magnuson-Moss Warranty Act. This Court should grant certiorari

now without waiting for other courts to follow suit.

The Illinois Supreme Court’s decision has permitted

manufacturers to cut off consumers’ right to judicial remedy and

review hereby defeating the legislature's true intent in drafting the

Magnuson-Moss Act. The Magnuson-Moss Act was intended to

improve competition, but:under the courts decision the consumers

have no ability to shop for products without these overreaching,

binding arbitration provisions. Such a decision goes against

Congress’ express desire to protect the average consumers from

harmful overreaching in consumer product warranties.

19

Additionally and as articulated above, this Court has

repeatedly held that legislative regulations adopted by the federal

administrative agencies must be given controlling weight unless they

are arbitrary, capricious or manifestly contrary to the statute pursuant

to which they are adopted. See Household at *5, (Chevron, 467 U.S.

at 843-844).

Justice Rarick in his dissent in Borowiec recognized this

principle. He agreed that state courts may declare a federal statute or

regulation unconstitutional or hold a federal regulation invalid

because it has not been properly enacted. However, Justice Rarick

correctly opined that “properly promulgated agency regulations

implementing federal statutes have the force and effect of federal

law, which state courts are bound to follow. For a state court to

override such regulations would violate the Sipremacy Clause of the

United States Constitution.” Borowiec, at *80-81 citing Boron Oil

Co. v. Downie, 873 F. 2d 67,71 (4" Cir. 1989).

Only review by this Court can eliminate such compliance

problems with the Supremacy Clause and put consumers back on a

level playing field to address in a court of law grievances with their

defective products.

The question presented is ripe for review. On remand, the

issues will be whether Gateway breached the written and implied

warranties. The petition presents an important issue of law and

neeas to be decided immediately. These are compelling reasons to

grant certiorari now and summarily re“erse.

Conclusions

For the foregoing reasons, the petition for a writ of certiorari

should be granted. The Illinois Supreme Court’s decision not only

conflicts with another state court of last resort as to the same

question of federal law, the decision also conflicts with the Federal

Trade Commission’s regulation involving this same federal question.

Respectfully submitted,

Renald L. Burdge,

Lead Counsel for Petitioners

Burdge Law Office Co. LPA

2299 Miamisburg Centerville

Road

Dayton, Ohio 45459-3817

Voice: (937) 432-9500

Fax: (937) 432-9503

Scott M. Cohen,

Counsel! for Petitioners in

Illinois Proceedings

Krohn & Moss, Ltd.

120 West Madison Street

10" Floor

Chicago, IL 60602

Voice: (312) 578-9428

Fax: (866) 289-0898

June 29, 2004

Date

04/01/04

05/31/02

12/02/01

11/27/01

09/20/00

APPENDIX TABLE OF CONTENTS

Description Page

Borowiec v. Gatewayv2000, Inc.,

ee ee ave 2-A

Borowiec v. Gateway 2000, Inc.,

331 Ill App. 3d 842, 772 N.E. 256.000.0000. 46-A

Waldron v. Gateway, Inc., Order Denying

Pe OY CII os ccccnausanccenacencansscnscas 57-A

Kobik v. Gateway, Inc., Order Denying

REE IE SONI 56.555 cvicncvadnnncansneccsssck eee

Borowiec v. Gateway, Inc., Order Denying

INET BD TPUIIIIII ics ccc nesiscsasscceretcsiascccnePm

1-A

Docket No. 94235-Agenda 10-March 2003.

MICHAEL BOROWIEC ev al., Appellees, v. GATEWAY 2000,

INC., Appellant.

Opinion filed April 1, 2004.

JUSTICE FREEMAN delivered the opinion of the court:

In this appeal, we consider whether the circuit court of Cook County

erred in denying the motion to dismiss or to compel arbitration filed

by Gateway 2000, Inc. (Gateway), in each of three cases seeking,

inter alia, damages for breach of express and implied warranties

under the Magnuson-Moss Warranty-Federal Trade Commission

Improvement Act (15 U.S.C. §2301 ef seg. (1994)), and violation of

the Illinois Consumer Fraud and Deceptive Business Practices Act

(815 ILCS 505/1 et seg. (West 1998)). The appellate court

consolidated the cases and affirmed the circuit court’s dental of each

motion to dismiss or to compel arbitration. 331 Ill. App. 3d 842. We

granted Gateway’s petition for leave to appeal pursuant to Supreme

Court Rule 315 (177 Ill. 2d R. 315), and now reverse and remand for

further proceedings.

BACKGROUND

E. Michael Borowiec

In November 1999, plaintiff Michael Borowiec purchased a Gateway

Performance 600 PC computer and a three-year parts and on-site

labor services contract from Gateway. In connection with the

purchase, Gateway extended a limited money-back guarantee to

Borowiec, upon notification to Gateway within 30 days of shipment

of the computer and prompt return of the computer. Gateway also

warranted that the computer was free trom defects in materials and

workmanship. Both the “Labor Services Service Contract” and the

“Limited Warranty Agreement” contained a dispute resolution clause

whereby the parties agreed that any dispute between them would be

ill

“resolved exclusively and finally by arbitration administered by the

National Arbitration Forum (NAF) and conducted under its rules.”

In June 2000, Borowiec filed a complaint against Gateway in the

circuit court of Cook County. In the complaint, Borowiec alleged

that the computer had numerous defects and nonconformities.

Borowiec also alleged that € sateway refused to perform on-site repair

of the computer. As a consequence, Borowiec delivered the

computer to Gateway on numerous occasions for repair. Gateway

was unable to repair the computer to Borowiec’s satisfaction. On

May 13, 2000, Borowiec revoked his acceptance of the computer.

The complaint sought damages for breach of written and implied

Warranties pursuant to the Magnuson-Moss Warranty-Federal Trade

Commission Improvement Act (Magnuson-Moss Act or MMWA)

(IS U.S.C. §2301 ef seq. (1994)), violation of the Ilinois Consumer

Fraud and Deceptive Business Practices Act!’ (Consumer Fraud

Act) (815 ILCS 505/1 e seq. (West 1998)), and common law fraud.

On September |, 2000, Gateway filed a motion to dismiss the

complaint, pursuant to section 2-615 of the Code of Civil Procedure

(735 ILCS 5/2-615 (West 2000)), for lack of subject matter

jurisdiction and to compel arbitration. The circuit court denied the

motion to dismiss and Gateway appealed.

B. Dorota and Tadeusz Kobik

in January 2001, plaintiffs Dorota and Tadeusz Kobik purchased a

Gateway Performance 1000 PC computer, and a one-year on-site

service, three-year labor and parts contract from Gateway. In

connection with the purchase, Gateway extended a limited money-

back guarantee to the Kobiks, upon notification to Gateway within

30 days of shipment of the computer-and prompt return of the

computer. Gateway aiso warranted that the computer was free from

defects in materials and workmanship. The “Limited Warranty

Agreement” contained a dispute resolution clause whereby the

parties agreed that any dispute between them would be resolved

exclusively and finally by arbitration administered by the NAF.

3-A

In October 2001, the Kobiks filed a complaint against Gateway in

the circuit court of Cook County. In the complaint, the Kobiks

alleged that the computer had numerous defects and

noncontormities, including a defective hard drive. The Kobiks also

alleged that Gateway refused to perform on-site repair of the

computer. As a consequence, the Kobiks delivered the computer to

Gateway on numerous occasions for repair. Gateway was unable to

repair the computer and the Kobiks lost confidence in the computer's

reliability. On August 30, 2001, the Kobiks revoked their acceptance

of the computer. The complaint sought damages for breach of

written and implied warranties pursuant to the Magnuson-Moss Act

and violation of the Consumer Fraud Act.

al

Pursuant to section 2-619 of the Code of Civil Procedure (735 ILCS

5/2-619 (West 2000)), on October 22, 2001, Gateway filed a motion

to dismiss the complaint or, in the alternative, to compel arbitration

and stay the proceedings pending completion of arbitration. The

circuit court denied the motion and Gateway appealed.

C. Leslie Waldron

In November 2000, plaintiff Leslie Waldron purchased a Gateway

Essential 866 computer and a labor services contract from Gateway.

In connection with the purchase, Gateway extended a limited

money-back guarantee to Waldron, upon notification to Gateway

within 30 days of shipment of the computer and prompt return of the

computer. Gateway also warranted that the computer was free from

defects in materials and workmanship. The “Limited Warranty

Agreement” contained a dispute resolution clause whereby the

parties agreed that any dispute between them would be resolved

exclusively and finally by arbitration administered by the NAF.

In November 2001, Waldron filed a complaint against Gateway In

the circuit court of Cook County. In the complaint, Waldron alleged

that shortly after the purchase the computer exhibited numerous

defects and nonconformities, including a defective CD-ROM,

motherboard, power supply, and processor. Waldron also alleged

that Gateway refused to perform on-site repair of the computer and

required that Waldron bring the computer to Gateway’s facility for

4-A

a

Co

repairs. Waldron delivered the computer to Gateway on numerous — -

occasions for repair. Gateway was unable to repair the computer, and

Waldron lost confidence in the computer’s reliability. On October 1.

2001, Waldron revoked her acceptance of the computer. The

complaint sought damages for breach of written and implied

Warranties pursuant to the Magnuson-Moss Act, revocation of

acceptance pursuant to the Magnuson-Moss Act, and violation of the

Consumer Fraud Act.

Pursuant to section 2-619 of the Code of Civil Procedure (735 ILCS

5/2-619 (West 2000)), on November 21, 2001. Gateway filed a

motion to dismiss the complaint or, in the alternative, to compel

arbitration and stay the proceedings pending completion of

arbitration. The circuit court denied the motion, and Gateway

appealed.

D. Common Facts

In the consolidated appeals, the appellate court held that the

Magnuson-Moss Act precluded binding arbitration of the consumer

disputes. 331 Ill. App. 3d at 848. The court reasoned that Congress

intended to preserve a judicial forum for consumers. 331 III. App. 3d

at 848. Gateway’s limited warranty agreement, with its binding

arbitration clause, violated the Magnuson-Moss Act and was

therefore unenforceable. 331 III. App. 3d at 851. Accordingly, the

court affirmed the decisions of the circuit court denying Gateway’s

motion to dismiss and compel arbitration.

We granted Gateway’s petition for leave to appeal. We allowed the

Chamber of Commerce of the United States of America and the

Consumer Electronics Association to file an amicus curiae brief in

support of Gateway. We also allowed the National Association of

Securities and Commercial Law Attorneys to file an amicus curiae

brief in support of the plaintiffs.

ANALYSIS

E. Standard of Review

5-A

As noted above, Gateway filed a motion to dismiss Borowiec’s

complaint for lack of subject matter jurisdiction and to compel

arbitration pursuant to section 2-615 of the Code of Civil Procedure.

See 735 ILCS 5/2-615 (West 2000). In the actions initiated by

Waldron and the Kobiks, Gateway filed motions to dismiss and to

compel arbitration pursuant to section 2-619 of the Code of Civil

Procedure. See 735 ILCS 5/2-619 (West 2000). A section 2-615

motion to dismiss attacks the legal sufficiency of the complaint.

lilinois Graphics Co. v. Nickum, 159 Ub. 2d 469, 484 (1994). Such a

motion does not raise affirmative factual defenses, but alleges only

detects appearing on the face of the complaint. ///inois Graphics,

159 Ul. 2d at 484; Kolegas v. Heftel Broadcasting Corp., 154 Ub 2d

1,8 (1992). Thus, the question presented by a section 2-615 motion

is Whether the allegations of the complaint, when viewed in a light

most favorable to the plaintiff, are sufficient to state a cause of action

upon which relief can be granted. Vernon v. Schuster, 179 Ul. 2d

338, 344 (1997); Brvson v. News America Publications, Inc., 174 Ul.

2d 77, 86-87 (1996). When ruling on a 2-615 motion, a trial court Is

to dismiss the cause of action only if it is clearly apparent that no set

of facts can be proven which will entitle the plaintiff to recovery.

Bryson, 174 Ill. 2d at 86-87; //inois Graphics, 159 Il. 2d at 488. A

court of review determines de novo whether the trial court should

have granted dismissal. Beahringer v. Page, 204 IIL. 2d 363, 369

(2003).

In contrast, a section 2-619 motion provides for the involuntary

dismissal of a cause of action based on certain defects or defenses.

Amongst the enumerated grounds for a 2-619 dismissal are that the

court does not have jurisdiction of the subject matter of the action

(735 ILCS 5/2-619(a)(1) (West 2000)) and that the claim asserted ts

barred by other affirmative matter which avoids the legal effect of or

defeats the claim (735 ILCS 5/2-619(a)(9) (West 2000)). Affirmative

matter must be supported by affidavit, unless apparent on the face of

the pleading attacked (735 ILCS 5/2-619(a) (West 2000)), and, in

ruling on the motion, the trial court must interpret all pleadings and

supporting documents in the light most favorable to the nonmoving

party. In re Chicago Flood Litigation, 176 IM. 2d 179, 189 (1997).

The standard of review on appeal is de novo. Weatherman v. Gary-

Wheaton Bank of Fox Valley, N.A., 186 UL 2¢ 472, 480 (1999);

Chicago Flood Litigation, 176 Il. 2d at 189.

6-A |

Initially we note that Gateway’s motion to dismiss Borowiec’s

complaint was for lack of subject matter jurisdiction and was

supported by affidavit. The motion was more appropriately

designated a motion pursuant to section 2-619 than a motion

pursuant to section 2-615. Borowiec, however, was not prejudiced

by the improper designation, and responded appropriately to the

motion. Accerdingly, we will consider the motion as though it had

been filed under section 2-619. Wallace v. Smyth, 203 Wl. 2d 441.

447 (2002); City of Burbank v. Czaja, 331 ML. App. 3d 369, 374

(2002).

B. Federal Arbitration Act

Turning to the merits of the appeal, we consider first the history and

purpose of the Federal Arbitration Act (Arbitration Act or FAA) (9

U.S.C. §1 ef seg. (1994)). Congress enacted the Arbitration Act in

1925 “to reverse the longstanding judicial hostility to arbitration

agreements that had existed at English common law and had been

adopted by American courts, and to place arbitration agreements

upon the same footing as other contracts.” Gi/mer v.

Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 114 L. Ed. 2d 26.

36, ILLS. Ct. 1647, 1651 (1991). The Arbitration Act provides:

“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

*** 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).

The Arbitration Act also provides for orders compelling arbitration

when one party has failed, neglected, or refused to comply with an

arbitration agreement. 9 U.S.C. $4 (1994). The Arbitration Act

reflects a “liberal federal policy favoring arbitration agreements.”

Moses H. Cone Memorial Hospital v. Mercury Construction Corp.,

450 U.S. 1, 24, 74 L. Ed. 2d 765, 785, 103 S. Ct. 927. 941 (1983).

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In Gilmer, 500 U.S. 20, 114 L. Ed. 2d 26, 111 S. Ct. 1647, the Court

commented on the interplay between the Arbitration Act and

statutory remedies created by Congress. The Court observed:

“It is by now clear that statutory claims may be the subject of an

arbitration agreement, enforceable pursuant to the FAA. Indeed, in

recent years we have held enforceable arbitration agreements

relating to claims arising under the Sherman Act, 15 U.S.C. §$1-7:

$10(b) of the Securities Exchange Act of 1934, 15 U.S.C. $78)(b);

the civil provisions of the Racketeer Influenced and Corrupt

Organizations Act (RICO), 18 U.S.C. $1961 ef seg.; and §12(2) of

the Securities Act of 1933, 15 U.S.C. §77/(2). [Citations.] In these

cases we recognized that *[b]y 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.’ [Citation. |

Although all statutory claims may not be appropriate for arbitration,

‘{hJaving made the bargain to arbitrate, the party should be held to it

unless Congress itself has evinced an intention to preclude a waiver

of judicial remedies for the statutory rights at issue.” [Citation.| In

this regard, we note that the burden is on [the plaintiff] to show that

Congress intended to preclude a waiver of a judicial forum for [the

statutory] claims. [Citation.] If such an intention exists, it will be

discoverable in the text of the [act], its legislative history, or an

‘inherent conflict’ between arbitration and the [act’s] underlying

purposes. [Citation.] Throughout such an inquiry, it should be kept in

mind that ‘questions of arbitrability must be addressed with a healthy

regard for the federal policy favoring arbitration.” * Gilmer, 500 U.S.

at 26, 114 L. Ed. 2d at 37, 111 S. Ct. et 1652.

Lastly, in Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 684-

85, 134 L. Ed. 2d 902, 907, 116 S. Ct. 1652, 1655 (1996), the

Supreme Court commented on the preemptive effect of the

Arbitration Act:

“In Southland, we held that §2 of the FAA applies in state as well as

federal courts [citation] and ‘withdr[aws] the power of the states to

require a judicial forum for the resolution of claims which the

contracting parties agreed to resolve by arbitration,’ [citation]. We

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noted in the pathmarking Southland decision that the FAA

established a ‘broad principle of enforceability,’ [citation], and that

§2 of the federal Act provided for revocation of arbitration

agreements only upon ‘grounds as exist at law or in equity for the

revocation of any contract.’ In Perry, we reiterated: ‘[S]tate law,

whether of legislative or judicial origin, is applicable if that law

arose to govern Issues concerning the validity, revocability, and

enforceability of contracts generally. A state-law principle that takes

its meaning precisely from the fact that a contract to arbitrate is at

issue does not comport with [the text of §2].’[Citation.]” (Emphasis

In original.)

In the present case, both the labor services service contract and the

limited warranty agreement contained a dispute resolution clause

whereby the parties agreed that any dispute between them would be

resolved by binding arbitration. Thus, the claims advanced by the

plaintiffs are subject to arbitration unless the plaintiffs show that

Congress intended to preclude a waiver of a judicial forum for their

federal statutory claims. Further. plaintiffs’ state law claims may not

be premised solely on the fact that a contract to arbitrate is at issue.

We turn then to provisions of the Magnuson-Moss Act.

C. The Magnuson-Moss Act

The Magnuson-Moss Act was enacted in 1975 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) (1994). To that end, the Magnuson-Moss Act

establishes standards governing the content of consumer product

warranties and service contracts. 15 U.S.C. §§2301 through 2308

(1994). The Magnuson-Moss Act also provides a statutory private

right of action to consumers who are “damaged by the failure of a

supplier, warrantor, or service contractor to comply with any

obligation under this chapter, or under a written warranty, implied

warranty, or service contract.” 15 U.S.C. §23 10(d)(1) (1994). The

consumer may bring an action in either federal or state court and

May recover costs and expenses that were reasonably incurred in

connection with the commencement and prosecution of the action.

As part of costs and expenses, the consumer may recover attorney

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ee

fees, unless the court determines that such an award ts inappropriate.

1S U.S.C. $23 10(d)(2) (1994).

The Magnuson-Moss Act does not expressly prohibit arbitration,

and, in fact, does not refer either to binding arbitration or to the

Arbitration Act. The Magnuson-Moss Act does provide, however,

that, prior to filing an action for failure to comply with any

obligation under a written or implied warranty or service contract, a

consumer give the person obligated under the warranty or service

contract a reasonable opportunity to cure such failure to comply. 15

U.S.C. §2310(e) (1994). Also, the Magnuson-Moss Act provides for

the establishment of informal dispute settlement mechanisms, and

authorizes the Federal Trade Commission (FTC) to prescribe rules

setting forth the minimum requirements for the procedures. [5

U.S.C. $2310(a) (1994). Ifa warrantor establishes an informal

dispute settlement procedure which complies with the requirements

of the FTC rules, and the warrantor incorporates 1n a written

warranty a requirement that the consumer resort to such procedure,

the consumer may not commence a civil action unless he initially

resorts to the procedure. 15 U.S.C. §2310(a)(3) (1994). Furthermore,

in any civil action instituted by a consumer “arising out of a

warranty obligation and relating to a matter considered in [the

informal dispute resolution] procedure, any decision in such

procedure shall be admissible in evidence.” 15 U.S.C. §2310(a)(3)

(1994). The Magnuson-Moss Act nowhere defines the terms

“informal dispute settlement procedures” and “informal dispute

settlement mechanisms.”

In enforcing the Magnuson-Moss Act, the FTC has determined that

decisions of an informal dispute setthement mechanism “shall not be

legally binding on any person” (16 C.F.R. §703.5() (2003)) and has

defined the term “mechanism” broadly to include binding arbitration.

40 Fed. Reg. 60167, 60210, 60211, 60218 (1975). The FTC has also

ruled 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 ts final or

binding in any dispute concerning the warranty or service contract.”

16 C.F.R. $700.8 (2003). In 1999, the FTC affirmed that the

regulations “will continue to prohibit warrantors from including

binding arbitration clauses in their contracts with consumers that

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eee

Ae DS TSW a OD

ete eh A

would require consumers to submit warranty disputes to binding

arbitration.” 64 Fed. Reg. 19700, 19708-09 (1999).

D. Binding Arbitration

The appellate court recognized that federal policy strongly favors the

judicial enforcement of arbitration agreements. 331 III. App. 3d at

847. However, from its examination ofthe text of the Magnuson-

Moss Act, the appellate court determined it was Congress’ intent to

ultimately preserve a judicial forum for consumers. 331 TIL App. 3d

at 848. In arriving at this conclusion, the appellate court noted the

Magnuson-Moss Act provides that a decision in an informal dispute

resolution procedure shall be admissible in evidence in any civil

action arising out of a warranty obligation and relating to a matter

considered in the informal dispute resolution procedure. 331 III.

App. 3d at 849. The appellate court opiied that an informal dispute

settlement procedure is a prerequisite, not a bar, to relief in court.

331 Ill, App. 3d at 849. The appellate court also referenced

legislative history to the effect that an informal dispute settlement

procedure is not a bar to legal action. 331 Ill. App. 3d at 849-50.

Lastly, the appellate court relied on the FTC’s ruling that informal

dispute resolution mechanisms, including arbitration, may not be

binding upon the consumer.

In this court, plaintiffs urge affirmance of the appellate court

decision. Plaintiffs ask that we defer to the FTC’s interpretation of

the Magnuson-Moss Act and argue that the agency's interpretation is

supported by the legislative history of the Act. Plaintifts also

maintain that, while the Arbitration Act policy favoring arbitration

and the Magnuson-Moss Act consumer protection objectives are

generally not in conflict, a conflict arises when a binding arbitration

clause is inserted in an agreement purporting to extend a warranty to

the consumer. Plaintiffs believe this conflict must be resolved by

giving precedence to the Magnuson-Moss Act over the Arbitration

Act. We disagree with the reasoning of the appellate court and the

arguments advanced by plaintiffs.

In arriving at our decision, we note that the federal circuits which

have considered the issue have rejected the FTC’s interpretation. We

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find the Fifth Circuit’s analysis in Walion v. Rose Mobile Homes

LLC, 298 F.3d 470 (5" Cir. 2002), particularly helpful. In Walton,

the court of appeals reversed the district court’s order denying the

manufacturer’s motion to compel arbitration of the consumer's

Magnuson-Moss claim. The court first examined the roles of the

judiciary and the FTC in interpreting the Magnuson-Moss Act:

“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.” [Citation.] “The judiciary is the final authority on issues

of statutory construction and must reject administrative constructions

which are contrary to clear congressional intent ... . [fa 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.” “ Walton, 298 F.3d at

475.

Next, the court examined the text of the Magnuson-Moss Act:

“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 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, 105 S. Ct. 3346,

87 L. Ed. 2d 444 (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.’)

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.” (Emphasis omitted.) Walton, 298 F.3d at 475-76.

Latte Peale col jt ipl ticeb

The court then considered the legislative history of the Magnuson-

Moss Act:

“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 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 ... .” /d. Again, this does not indicate an intent to preclude

binding arbitration. It simply requires that the consumer (or perhaps

‘isi aoe.

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the government) participate in the 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.” Walton, 298 F.3d at 476-77.

Lastly, the court examined the purposes of the Magnuson-Moss Act

and considered whether they conflicted with the Arbitration Act:

“We do not see any inherent 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, 115 S. Ct. 834, 130 L.

Ed. 2d 753 (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. at 33,

111 S. Ct. 1647. 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.” Halton, 298 F.3d at 478.

The court concluded that the text, legislative history, and purposes of

the Magnuson-Moss Act do not evince a congressional intent to bar

arbitration of written warranty claims. There being no doubt that

‘Congress has expressed a clear intention in favor of arbitration, the

court held the plaintiffs signed a valid binding arbitration agreement

and must arbitrate their Magnuson-Moss claims. Walton, 298 F.3d at

478.

Similarly, in Davis v. Southern Energy Homes, Inc., 305 F.3d 1268

= . . sis

(11" Cir. 2002), the court of appeals rejected the FTC's

interpretation of the Magnuson-Moss Act. In doing so, the court

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employed an analysis similar to that used by the Walton court. The

| court reviewed the text and legislative history of the Magnuson-

Moss Act as well as the purposes of the Magnuson-Moss Act and the

: Arbitration Act. The court found that the text of the Magnuson-Moss

Act does not expressly prohibit arbitration. Davis. 305 F.3d at 1274-

75. Further, Congress did not express a clear intent in the legislative

history of the Magnuson-Moss Act to bar binding arbitration

agreements in written warranties. Davis, 305 F.3d at 1274-77. The

court also found that the declared purposes of the Magnuson-Moss

Act do not evince such a conflict with the Arbitration Act as to

prohibit binding arbitration of Magnuson-Moss claims. Davis, 305

F.2d at 1277.

Unlike the Walton court, however, the court in Davis also examined

the reasonableness of the FTC’s construction of the statute. Initially,

the Davis court differentiated between the FTC's legislative

regulations and the FTC’s interpretive regulations. The court noted

} that the Chevron (Chevron U.S.A. Inc. y. Natural Resources Defense

Council, Inc., 467 U.S. 837, 81 L. Ed. 2d 694, 104 S. Ct. 2776

(1984)) standard of deference applies to the FTC’s legislative

regulations and not to the interpretive regulations. The court

observed that “while we must defer to the legislative regulations in

16 C.F.R. §$701.1-703.8 (2002) if they are reasonable, the FTC’s

interpretive regulations are only ‘entitled to respect’ to the extent

No eek 8 dar Mela tiensr tb

they ‘have the power to persuade.” * Davis, 305 F.3d at 1278 n.7.

Turning to the legislative regulations, the court noted that the FTC

based its construction on Congress’ grant of concurrent jurisdiction.

| The court observed, however, that a statute's provision for a judicial

forum does not preclude enforcement of a binding arbitration

agreement under the Arbitration Act. Consequently, the court

concluded that the FTC’s motive behind the legislative regulation is

unreasonable. Davis, 305 F.3d at 1280. The court then referred to the

FTC's interpretive regulations:

“The FTC further explained that binding arbitration agreements are

not allowed in written warranties for several reasons:

First, as the Staff Report indicates, C ongressional intent was that

decisions of Section 110 Mechanisms not be legally binding.

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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 ts not now convinced that any guidelines which it set

out could ensure sufficient protection for consumers. 40 Fed. Reg.

60167, 60210 (1975).° Davis, 305 F.3d at 1278-79.

The court noted this rationale was also unreasonable:

“Although the FTC first stated that it looked to a subcommittee staff

report (which appears to no longer be attainable) to determine

Congress’s intent, the FTC continued, evincing its major concern

that an arbitral forum will not adequately protect the individual

consumers. The Supreme Court in AfcMahon, however, rejected this

same hostility shown by the SEC. 482 U.S. at 234 n.3, 107 S. Ct. at

2341 n.3 (declining to deter to the SEC’s interpretation of the

Securities Exchange Act of 1934 based on the SEC's Wi/ko attitude).

Instead, the Supreme Court holds that arbitration ts favorable to the

individual. See Allied-Bruce Terminix Cas., 513 U.S. at 279, LISS.

Ct. at 842-43 (noting that ‘arbitration’s advantages often would seem

helpful to individuals, say, complaining about a product, who need a

less expensive alternative to litigation.”)” Davis, 305 F.3d at 1279.

The court concluded, “[a]fter a thorough review of the MMWA and

the FAA, combined with the strong federal policy favoring

arbitration,” that written warranty claims arising under the

Magnuson-Moss Warranty Act may be subject to valid binding

arbitration agreements. Davis, 305 F.3d at 1280. See also Southern

Energy Homes, Inc. v. Ard, 772 So. 2d 1131 (Ala. 2000); /n re

American Homestar of Lancaster, Inc., 50. S.W.3d 480 (Tex. 2001);

Stacy David, Inc. v. Consuegra, 845 So. 2d 303 (Fla. App. 2003);

Abela v. General Motors Corp., 257 Mich. App. 513, 669 N.W.2d

271 (2003); but see Parkerson v. Smith, 817 So. 2d 529 (Miss.

2002).

We also take note of the holding of Harrison v. Nissan Motor Corp.,

111 F.3d 343 (3d Cir. 1997). In Harrison, the defendant moved to

dismiss the complaint because the plaintiff had failed to resort to an

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informal dispute resolution procedure provided by the defendant

pursuant to the Pennsylvania Automobile Lemon Law. By the terms

of the Lemon Law, the alternative dispute resolution procedure

provided by the manufacturer had to comply with the FTC

regulations promulgated under the Magnuson-Moss Act. The FTC

regulations at issue required alternative dispute resolution

mechanisms to render a decision within 40 days of notification of the

dispute. 16 C.F.R. §703.5(d) (2003). The regulations also provided

that a “requirement that a consumer resort to the Mechanism prior to

commencement of an action *** shall be satisfied 40 days after

notification to the Mechanism of the dispute or when the Mechanism

completes all of its duties under *** this section, whichever occurs

sooner.” 16 C.F.R. §703.5(i) (2003). The district court denied the

motion to dismiss and the defendant appealed, arguing that the

district court order denying the motion to dismiss was equivalent to

an order denying a motion to compel arbitration under the

Arbitration Act.

On appeal, the Third Circuit noted that for the Arbitration Act to

apply, the party seeking to compel arbitration was required to show

the existence of a written agreement that contained an arbitration

clause and affected interstate commerce. Harrison, 111 F.3d at 348.

The court found there was an “agreement qua agreement” between

the parties to submit the dispute to the alternative dispute resolution

mechanism. Harrison, 111 F.3d at 348 n.&. Although the warranty

stated that the use of the mechanism was voluntary, and it alone did

not constitute a sufficient written agreement, the warranty

constituted an offer for dispute resolution that was accepted by the

Written request for dispute resolution sent by plaintiff's counsel to

the mechanism. Harrison, 111 F.3d at 348 n.&. However, the

alternative dispute resolution procedure at issue was not “arbitration”

within the meaning of the Arbitration Act. The court explained:

“Although it defies easy definition, the essence of arbitration, we

think, is that, when the parties agree to submit their disputes to it,

they have agreed to arbitrate these disputes through to completion,

i.e. to an award made by a third-party arbitrator. Arbitration does not

occur until the process is completed and the arbitrator makes a

decision. Hence, if one party seeks an order compelling arbitration

and it is granted, the parties must then arbitrate their dispute to an

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—ssSsS—S~S

arbitrators’ decision and cannot seek recourse to the courts before

that time. [Citation. |

But the informal alternative dispute resolution process contemplated

by the Lemon Law does not fit this characterization. Rather, while

many cases in which claimants invoke the informal process will

proceed to an arbitrator's award, some will not. That is because,

under the FTC regulations with which a mechanism must comply, a

dissatisfied car owner can file suit under the Lemon Law if he or she

has not received a decision from the arbitrator after forty days. In

other words, whatever the meaning of the ‘first resort’ requirement, a

claimant cannot be barred from pursuing litigation under the Lemon

Law if the mechanism delays for more than forty days. The claimant

would not, therefore, pursue the procedure to completion in all cases.

Under all these circumstances, the informal dispute resolution

mechanism provided for by Nissan pursuant to the Lemon Law does

not constitute arbitration within the meaning of the FAA.

EK. **

We find further support for the conclusion that the FAA does not

apply to Lemon Law ADR procedures in the fact that the Lemon

Law, the Magnuson-Moss Warranty Act, and the FTC regulations all

refer to the procedure at issue as an “informal dispute resolution

procedure.” If the drafters had intended this procedure to be

cognizable under the FAA, then it is likely that they would have

referred to it as “arbitration.” Indeed, the term ‘arbitration’ has come

into this case solely because the [Mechanism] has labeled the second

part of its procedures “arbitration.” That alone ts not sufficient to

trigger the FAA. We, therefore, hold that Harrison and Nissan did

not enter into a contract to arbitrate their dispute within the meaning

of the FAA and that we lack jurisdiction over Nissan’s appeal.”

Harrison, \\1 F.3d at 350-51. :

As noted above, the FTC believes that informal dispute resolution

procedures include arbitration. Further, according to the FTC, an

agreement which contains a binding arbitration clause violates the

provisions of the Magnuson-Moss Act because the Act provides that

informal dispute resolution procedures cannot be binding on the

consumer. By holding that an informal dispute resolution procedure

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Se ee) aa TE eT eee en Pee

DAV Lille 23 6 ee?

does not qualify as “arbitration” under the Arbitration Act, Harrison

calls into question the FTC’s interpretation of the Magnuson-Moss

Act.

In Busch v. Graphic Color Corp., 169 Ill. 2d 325, 335 (1996),

quoting Bowman v. Illinois Central R.R. Co... V1 WL 2d 186, 200

(1957), this court observed that “decisions of the Federal courts

Interpreting a Federal act *** are controlling upon Illinois courts, ‘in

order that the act be given uniform application.” * See also Sundance

Homes, Inc. v. County of Du Page, 195 Ul. 2d 257, 266 (2001):

Wilson v. Norfolk & Western Ry. Co., 187 Ml. 2d 369, 383 (1999):

Bover v. Atchison, Topeka & Santa Fe Rv. Co., 38 Ul. 2d 31, 34-35

(1967). This court has also noted that support for an agency's

administrative pronouncements must be abandoned where the

pronouncements are found by a reviewing court to be at odds with

the law. Castillo v. Jackson, 149 IL 2d 165, 189 (1992). As

discussed above, in Walton and Davis, the Fifth Circuit and the

Eleventh Circuit ruled that the FTC’s interpretation of the

Magnuson-Moss Act is incorrect and a clause requiring binding

arbitration of a consumer’s claim does not violate the statute. And in

Harrison, the Third Circuit cast doubt upon the FTC’s ruling that

informal dispute resolution procedures include arbitration.

Accordingly, the federal circuit courts of appeals are in agreement in

their interpretation of this federal statute. Because federal circuit

court authority on the issue is uniform, we, too, hold that the

Magnuson-Moss Act does not bar arbitration of a consumer's claims

under the Act. See Weiland v. Telectronics Pacing Systems, Inc., 188

II. 2d 415, 422-23 (1999).

E. Other Issues

In this court, plaintiffs raise additional issues regarding the validity

of the arbitration clauses. Plaintiffs argue that the arbitration clauses

are inconspicuous and are not “disclose[d] in simple and readily

understood language.” thus violating section 2302(a) of the

Magnuson-Moss Act and the FTC regulations. Plaintiffs also argue

that the arbitration clauses contain a fee-shifting provision and are

therefore illegal under the Arbitration Act. Lastly, plaintiffs argue

that the arbitration clauses are unenforceable. under ordinary state

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law principles, because of the fee-shifting provision and because

there are exorbitant charges for the use of the arbitration procedure.

We note that the complaints do not contain allegations in support of

these claims and plaintiffs did not raise these arguments tn the

memoranda they filed in opposition to Gateway’s motions to

dismiss. We also note that the appellate court did not address the

additional issues plaintiffs now raise. Lastly, we note that in /7i// v.

Gateway 2000, Inc., \OS F.3d 1147 (7 Cir. 1997), the court required

two customers who purchased a Gateway 2000 computer to submit

their claims against Gateway to arbitration. In doing so, the court

rejected several challenges to the validity of the Gateway arbitration

clause. In light of these circuinstances, we elect not to address

plaintiffs’ additional arguments.

CONCLUSION

For the reasons stated above, in the absence of such grounds as exist

at law or in equity for the revocation of any contract, the circuit court

should have granted Gateway’s motions to dismiss the complaints

and compel arbitration. The judgments of the appellate and circuit

courts are therefore reversed and the causes are remanded to the

circuit court for proceedings consistent with this opinion.

Appellate court judgments reversed;

circuit court judgments reversed;

causes remanded.

JUSTICE KILBRIDE, dissenting:

| join in Justice Rarick’s dissent, but | write separately to raise

several additional points, including my belief that the majority

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opinion runs afoul of the most fundamental of all statutory rules,

namely, to construe statutes so as to effectuate the true intent of the

drafters. See Krafi, Inc. y. Edgar, 138 IL. 2d 178, 189 ( 1990) (stating

that “[i]n interpreting a statute, the primary rule *** is to ascertain

and give effect to the true intent and meaning of the legislature’’).

The Magnuson-Moss Act was specifically designed to protect

consumers. See 15 U.S.C. §2302(a) (1994) (stating the Magnuson-

Moss Act was enacted “to improve the adequacy of information

available to consumers, prevent deception, and improve competition

in the marketing of consumer products”). The result reached by the

majority, however, directly undermines this purpose by permitting

manufacturers to slip mandatory, binding arbitration provisions into

nonnegotiable consumer product warranties and, thus. to limit

consumers’ avenues of relief in the event of a warranty dispute.

Because | believe this result contradicts the legislature’s intent to

protect consumers’ interests in product warranty disputes, |

respectfully dissent.

In rejecting the FTC’s regulations interpreting the Magnuson-Moss

Act, the majority relies heavily on both Walton v. Rose Mobile

Homes LLC, 298 F.3d 470 (5" Cir. 2002) (slip op. at 10-13) and

Davis v. Southern Energy Homes, Inc., 305 F.3d 1268. 1276 qi"

Cir. 2002) (slip op. at 13-15). I cannot agree with the majority’s

approach to these cases.

In Walton, the tederal appeals court applied the test adopted by the

Supreme Court in Chevron U.S.A. Inc. vy. Natural Resources Defense

Council, Inc., 467 U.S. 837, 842-43, 81 L. Ed. 2d 694, 702-03. 104

S. Ct. 2778, 2781-82 (1984), to determine whether courts must defer

to agencies’ statutory interpretations. Under this test. a court must

first determine “whether Congress has directly spoken to the precise

question at issue.” Chevron, 467 U.S. at 842, 81 L. Ed. 2d at 702-03,

104 S. Ct. at 2781. If the legislature’s intent is clear and

unambiguous, we must follow it. Chevron, 467 U.S. at 842-43, 81 L.

Ed. 2d at 703, 104 S. Ct. at 2781. If Congress has not clearly

addressed the issue before us, however, we must consider whether

the agency’s interpretation of ihe section is reasonable. Chevron, 467

U.S. at 843, 81 L. Ed. 2d at 703, 104 S. Ct. at 2781-82.“ ‘If [the

agency's] choice represents a reasonable accommodation of

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conflicting polictes that were committed to the agency's care by the

statute, We should not disturb tt unless tappears from the statute or

its legislative history that the accommodation ts not one that

Congress would have sanctioned.” * Chevron, 467 U.S. at 845, 81 L.

Ed. 2d at 704, 104-8. Ct. at 2783, quoting Uaited States v. Shimer,

367 ULS. 374, 383, 6 L. Ed. 2d 908, 91S, 81S. Ct. 1554, 1560

(1961).

tn the mstant case, | believe the majority has unwisely chosen to

follow the Hadron court’s erroneous conclusion on prong one of the

Chevron test. Slip op. at 10 (finding the Wad/ton analysts

“particularly helpful’). Phe Wa/ron court held that Congress had

spoken directly to the precise issue of Whether binding arbitration

provisions are permissible in consumer product warranties. Walton,

298 F.3d at 478 (stating that “[t}he clear congressional intent in favor

of entoreing valid arbitration agreements controls in this case”). That

mistaken conclusion, in turn, obviated the need to reach the second

prong of the Chevron analysis and, thus, to address the

reasonableness of the FTC's interpretation. Walton, 298 F.3d at 478

nt.

The Walton court's error is apparent trom both the text and the

legislative history of the Magnuson-Moss Act. Notably, the text of

the Act is completely silent concerning its interaction with the

Arbitration Act in consumer warranty cases. | a/ton, 298 F.3d at 475

(acknowledging that the text did not address the permissibility of

binding arbitration clauses in consumer warranties). Under the

Chevron analysis, if the statute is silent on a given issue, We Must

next consider whether the agency’s construction of the statute ts

permissible. Chevron, 467 U.S. at 843, 81 L. Ed. 2d at 703, 1048S. |

Ct. at 2782. Thus, since the statute itself is silent on the precise

question at tssue here, the Walton court should have proceeded to

prong two of the analysis. At best, the statute's silence necessarily

creates a strong ambiguity regarding Congress’ true intent on thts

issue. By overlooking the absence of any language in the Magnuson-

Moss Act directly addressing its potential conflict with the

Arbitration Act and rushing headlong to the conclusion that

Congress has directly spoken on this precise question, the majority in

both Walton and this case ignere the express directive of the

Supreme Court established in the Chevron test. Since the Magnuson-

JI-A

ae a eee i?

BNW ads eg Vp anne.

Moss Act ts undisputedly silent on this issue, this court should

proceed with an analysis of prong two of the Chevron test and

consider whether the FTC’s regulations are “arbitrary, capricious, or

manifestly contrary to the statute.” Chevron, 467 U.S. at 844. 81.

bd. 2d at 703, 104.8. Ct. at 2782.

In addition, yet another material ambiguity exists in the Magnuson-

Moss Act, precluding adoption of the Walton court’s conclusion that

Congress had already directly spoken to this issue. The scope of the

term “informal dispute settkement procedures” in section 2310 is

directly at issue here, yet it is not at all clear whether Congress

intended that term to include mandatory binding arbitration. This

additional ambiguity in the text of the Magnuson-Moss Act again

requires reviewing courts to examine the second prong of the

Chevron test and determine the reasonableness of the FTC's

interpretation. See Chevron, 467 U.S. at 843, 81 L. Ed. 2d at 703,

lO4-S. Ct. at 2782 (explaining that “if the statute is silent or

ambiguous with respect to the specific issue, the question for the

court ts whether the agency’s answer is based on a permissible

construction of the statute”). | believe that here the statutory

language ts inherently ambiguous and, thus, a reviewing court must

proceed to prong two of the Chevron analysis. Due to the Walton

court's failure to recognize any of these ambiguities, however, it

erroneously concluded its analysis under prong one of the Chevron

test.

Moreover, the Supreme Court has explained that, in examining the

first prong of the Chevron test, courts should view the relevant

statutory language in context and with an eye toward advancing the

overall statutory scheme. FDA v. Brown & Willianson Tobacco

Corp., 529 U.S. 120, 132-33, 146 L. Ed. 2d 121, 133-34, 120 S. Ct.

1291, 1300-01 (2000). While the Walton court purported to review

the relevant legislative history, it appears to have applied the wrong

standard in conducting the Chevron test. Walton, 298 F.3d at 276-77.

The court required a showing that the legislature clearly intended to

preclude the arbitration of claims under the Magnuson-Moss Act

before it would proceed to prong two of the Chevron test. Walton,

298 F.3d at 477. As stated in Chevron, the actual test under prong

one is not whether the legislature expressed a clear intent to adopt

the premise underlying the regulation subsequently issued by the

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agency but, rather, whether the “statute is silent or ambiguous with

respect to the specific issue.” Chevron, 467 U.S. at 843, 81 L. Ed. 2d

at 703, 104 S. Ct. at 2782. | believe that, at most, when reviewed

under the proper standard, the legislative histories of the relevant

acts demonstrate the ambiguous nature of the relationship between

section 2310 and the Arbitration Act. Thus, the majority's reliance

on Walton is misplaced.

In Davis v. Southern Energy Homes, lac., 305 F.3d 1268, 1276 (1

Cir. 2002), cited with favor by the majority here (slip op. at 13-15),

the federal appeals court also concluded that the legislative history of

the Magnuson-Moss Act “is ambiguous at most.” As the Davis court

noted, a preliminary Senate report on the Magnuson-Moss Act stated

that * ‘it is Congress* intent that warrantors of consumer products

cooperate with government and private agencies to establish

informal dispute settlement mechanisms that take care of consumer

grievances without the aid of litigation or formal arbitration. ~

(Emphasis added.) Davis, 305 F.3d at 1276, quoting S. Rep. No. 91-

876, at 22-23 (1970). Viewed in this context, the congressional intent

underlying section 2310 ts not at all clear from the statutory

language and legislative history, contrary to the Walton court's

conclusion. Accordingly, the Davis court concluded that “the intent

of Congress ts unclear,” requiring it to proceed to prong two of the

Chevron test. Davis, 305 F.3d at 1278.

Although the majority also supports its decision by looking to

Harrison v. Nissan Motor Corp., U1 F.3d 343 (3d Cir. 1997), 1 fail

to see how Harrison adds any substantial support to the result

reached in this case. Harrison held that a voluntary, nonbinding

arbitration provision in a car warranty does not qualify as “a contract

to arbitrate their dispute with'n the meaning of the FAA,” thus

leaving the court without jurisdiction over the appeal. Harrison, 111

F.3d at 351. This is not the same case. Here, a mandatory, binding

arbitration provision, that is nonnegotiable and was unilaterally

created by Gateway, effectively cuts off all consumers’ rights to any

opportunity for judicial recourse.

Despite the widely conflicting analyses in Walton and Davis, and the

tangential and inapposite reference to Harrison, the majority in this

case attempts to support its result by citing the uniformity of the

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federal appellate courts that have reviewed the issue. Slip op. at 18.

[Even a cursory examination of the Walton and Davis decisions,

however, reveals that they could not be further apart in their

rationales. Thus, the purported uniformity of the federal circuit

courts of appeals relied on here by the majority is illusory.

Regrettably, the majority opinion does not adopt a single rationale

based on either of these cases. appearing instead to apply both. Slip

op. at 18. Without any explanation of the specific rationale used to

decide this case, the majority's opinion fails to provide any guidance

for future cases. | cannot countenance such an open-ended approach

to setting precedent in this state.

| also believe the majority has ignored a basic rule of statutory

construction by approving the rationale in Walton. The Walton court

failed to apply the long-standing general rule that more recent and

specitic legislation prevails over broader. earlier legislation. Knolls

Condominium Ass'n v. Harms. 202 2d 450, 459 (2002). See also

slip op. at 33-34, 40 (Rarick. J. dissenting, joined by Kilbride, J.).

Recently, the United States Supreme Court also applied this

fundamental rule of construction.

“The ‘classic judicial task of reconciling many laws enacted over

time, and 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.’ [Citation.] This is particularly so

Where the scope of the earlier statute is broad but the 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.’ [Citation.]” FDA

'. Brown & Williamson Tobacco Corp., 529 U.S. 120, 143, 146 L.

Ed. 2d 121, 140, 120 S. Ct. 1291, 1306 (2000).

Here, the Magnuson-Moss Act was passed 50 years after the

Arbitration Act and expressly addressed consumer warranty issues.

In contrast, the Arbitration Act concerned the use of arbitration in

general contract disputes. Under the applicable rule of construction.

the Magnuson-Moss Act trumps the Arbitration Act when addressing

arbitration clauses in consumer warranties because it was enacted

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ee SS Roe AGES ea ee

SSS SSN

after the Arbitration Act and deals directly with the consumer

warranty issue.

The Walton cour. relied exclusively on the favorable treatment of

arbitration reflected in the Arbitration Act. Walton, 298 F.3d at 474.

Thus, the court relied 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.”

Walton, 298 F.3d at 483 (King, C.J., dissenting). In doing so, the

majority in Walton failed to recognize the precedence that the

Magnuson-Moss Act had over the Arbitration Act in consumer

warranty cases such as this one. By approving of the Walton

rationale, this court has duplicated this error.

Finally, if the Act is viewed in the proper historical context, it ts

apparent that the disputed terms “informal dispute settlement

procedures” and “informal dispute settlement mechanisms” fail to

support the Wa/ton court’s conclusion that the Magnuson-Moss Act

was not intended to preclude mandatory binding arbitration. See

Walton, 298 F.3d at 476. Assuming, arguendo, that the Act ts

unambiguous, these terms must be considered in light of their

meaning in 1975, when the Magnuson-Moss Act was enacted. The

Walton court appears to have erroneously based its conclusion on its

belief that, wader today's standards, “binding arbitration ts normally

considered to be an ‘intormal dispute setthkement procedure,” and ***

therefore seems to fall outside the bounds of the MMWA and of the

FTC's power to prescribe regulations.” Walton, 298 F.3d at 476.

That is not the correct context for reviewing the meaning of the

: statutory language. Statutes are to be construed to effectuate the

intent of the drafters at the time of their adoption. Sayles v.

Thompson, 99 Ul. 2d 122, 125 (1983).

In 1975, contractual arbitration outside the context of labor law was

not the same highly evolved creation it is today, and binding

arbitration was not the norm. Today, binding arbitration is quite

formalized, with many of the trappings of traditional litigation, but in

1975, it was in its relative intancy. See 4 Am. Jur. 2d Alternative

Dispute Resolution §1, at 64 (1995). See also Walton, 298 F.3d at

484 (King, C.J., dissenting). | believe it is error to apply today’s

standards to determine whether the “informal dispute settlement

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oe ee

procedures” prohibited by the Magnuson-Moss Act include

mandatory binding arbitration clauses in consumer warranties. As

viewed in 1975, “informal dispute settlement procedures” were

equivalent to today’s “lternative dispute resolution” and meant any

honjudicial redress mechanisms. See 4 Am. Jur. 2d Alternative

Dispute Resolution SI, at 64-65 (1995),

A leading advocate of arbitration at the time. the American

Arbitration Association, referred to arbitration as a settlement

mechanism (American Arbitration Association. A Dictionary of

Arbitration and Its Terms-Labor-Commercial-International, A

Concise Encyclopedia of Peaceful Dispute Settlement 12 (1970)),

and the plain and ordinary meaning of the word “arbitrate” included

“[t]o submit to settlement or judgment by arbitration” (American

Heritage Dictionary of the English Language 87 (1969)). It is a

fundamental rule of statutory construction that the plain and ordinary

meaning of the language employed by the drafters is the best

evidence of their intent. Lulay v. Lulay, 193 Il. 2d 455, 466 (2000).

Moreover, the Supreme Court was also contemporaneously using the

term “dispute settlement” to include arbitration. reflecting the widely

held view that arbitration was a “dispute settlement procedure.”

Detroit & Toledo Shore Line R.R. Co. v. United Transportation

294, 298-99 (1969).

Thus, the Magnuson-Moss Act's prohibition of “legally binding”

mechanisms (16 C.F.R. §$703.5(j) (2003)) is properly interpreted to

mean that permissible “informal dispute settlement procedures.”

including arbitration, may not preclude subsequent judicial redress.

Arbitration may, however, be a necessary condition precedent to

litigation under the Magnuson-Moss Act. In any case, It may not be

the exclusive remedy for claims involving consumer warranties.

This interpretation comports with the primary purpose of the

Magnuson-Moss Act, that is, to protect consumers. See 15 U.S.C.

$2302(a) (2000) (stating the Magnuson-Moss Act was enacted “to

improve the adequacy of information available to consumers,

prevent deception, and improve competition in the marketing of

consumer products”). The result reached by the majority directly

conflicts with this purpose by approving manufacturers” unilateral

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inclusion of mandatory, binding arbitration provisions in consumer

product warranties. As a practical matter, these warranties are

contracts of adhesion, and the binding arbitration provisions are

nonnegotiable. Consumers possess disparate bargaining power and

ih

are faced with the dilemma of having to either “take it or feave it

Williams v. Illinois State Scholarship Comm'n, 139 Ul. 2d 24, 72

(1990). Thus, even though the Magnuson-Moss Act was intended to

improve competition, under the majority’s ruling consumers have no

ability to shop for products without these overreaching, binding

arbitration provisions. Under these circumstances, permitting

manufacturers to cut off consumers” right to a judicial remedy and

review cannot be construed as upholding the legislature's true intent

in drafting the Magnuson-Moss Act. Such a result flies in the face of

Congress’ express desire td protect average consumers trom harmful

overreaching in consumer product warranties. See 15 U.S.C.

§2303(a) (2000).

For these reasons, as well as those outlined in Justice Rarick’s

dissent, | respectfully dissent from the majority opinion in this case.

JUSTICE RARICK joins tn this dissent.

JUSTICE RARICK, also dissenting:

This appeal presents a single question: Does the Magnuson-Moss

Warranty-Federal Trade Commission Improvement Act (the

Magnuson-Moss Warranty Act) (15 U.S.C. §2301 ef seg. (1994))

prohibit a seller of consumer goods from requiring purchasers to

waive their judicial remedies and submit their warranty claims to

binding arbitration? In three separate lawsuits, the circuit court of

Cook County held that it did. Based on that conclusion, the court

denied motions filed by the seller to dismiss the purchasers’

complaints or to compel arbitration and stay the proceedings pending

outcome of the arbitration. The seller appealed. The appellate court

consolidated the appeals and affirmed. 331 Ill. App. 3d 842. We

subsequently granted the seller’s petition for leave to appeal. 177 III.

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2d R. 315. For the reasons that follow, | would affirm the judgment

of the appellate court.

The plaintiffs in the cases before us are Michael Borowiec. Tadeusz

and Dorota Kobik, and Leslie Waldron. Borowiec’s complaint

alleged that in November of 1999, he purchased a personal computer

from Gateway 2000, now doing business as Gateway, Inc.

According to the complaint, Borowiec began experiencing

“numerous defects and non-conformities within the computer”

shortly after he bought it. Borowiec alleged that Gateway had

intentionally or recklessly misrepresented to him that his service

contract with Gateway for labor services provided for on-site repair,

and that when he requested on-site repair, Gateway refused and

required him to bring the computer to a Gateway facility for service.

Borowiec further alleged that despite repeated attempts to obtain

redress from Gateway pursuant to a warranty which the company

had issued when it sold the computer to him, Gateway refused to

honor the warranty, and the defects in his computer remain

uncorrected.

According to Borowiec’s complaint, he revoked acceptance of the

computer based on the foregoing acts or omissions by Gateway and

filed this action against the company to recover his damages.

Borowiec’s complaint asserted four claims for relief: (1) breach of

written warranty pursuant to the Magnuson-Moss Warranty Act, (2)

breach of implied warranty pursuant to the Magnuson-Moss

Warranty Act, (3) violations of the Illinois Consumer Fraud and

Deceptive Business Practices Act (815 ILCS 505/I ef seq. (West

1998)) and (4) common law fraud.

The complaint filed by Tadeusz and Dorota Kobik paralleled the one

filed by Borowiec. It alleged that the Kobiks purchased their

computer from Gateway on or about January 31, 2001, and shortly

thereafter “began to experience numerous defects and

nonconformities” with the machine. As did Borowiec. the Kobiks

asserted that Gateway had intentionally or recklessly misrepresented

to them that their service contract with Gateway for labor services

provided for on-site repair, and that when they requested on-site

repair, Gateway refused and required them to bring the computer to a

Gateway facility for service. The Kobiks further alleged that despite

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repeated attempts to obtain redress from Gateway pursuant to a

warranty which the company had issued when it sold the computer to

them, Gateway refused to honor the warranty and the detects in their

computer remain uncorrected.

As a result of the defects and nonconformities with the computer, the

Kobiks gave written notice to Gateway that they were revoking

acceptance of the unit. This litigation tollowed. As grounds for their

complaint, the Kobiks asserted claims for (T) breach of written

warranty pursuant to the Magnuson-Moss Warranty Act, (2) breach

of implied warranty pursuant to the Magnuson-Moss Warranty Act,

and (3) violations of the Illinois Consumer Fraud and Deceptive

Business Practices Act. Unlike Borowtec, they did not include a

count based on common law fraud. 7

The complaint filed by Leslie Waldron, the fourth plaintiff involved

in this litigation, was similar. Waldron alleged that she purchased a

computer and services from Gateway in November of 2000. Shortly

thereafter, she discovered that the computer was defective.

According to Waldron’s complaint, the defects and noncontormities

in the unit violated both the express written warranty issued to her by

Gateway and an implied warranty of merchantability. Waldron

contended that despite numerous attempts to have Gateway repair

the unit, the defects remain uncorrected. Waldron further contended

that Gateway had intentionally or recklessly misrepresented to her

that it her service contract with Gateway for labor services provided

for on-site repair, and that when she requested on-site repair,

Gateway refused and required her to bring the computer to a

Gateway facility for repairs. Waldron subsequently revoked

acceptance of the computer, which, she alleged, remains ina

defective and nonconforming condition, and brought this action

against Gateway for damages. Her complaint alleged: (1) breach of a

written warranty pursuant to the Magnuson-Moss Warranty Act, (2)

breach of an implied warranty pursuant to the Magnuson-Moss

Warranty Act, (3) revocation of acceptance pursuant to the

Magnuson-Moss Warranty Act, and (4) violation of the Illinois

Consumer Fraud and Deceptive Business Practices Act.

Gateway filed a motion to dismiss Borowiec’s complaint, arguing

- that under the terms of the warranty it issued when it sold the

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computer to Borowiec, Borowiec had agreed to waive his right to

seek redress in the courts and was obligated by the warranty’s

provisions to submit any claims he might have to arbitration. In

Gateway’s view, that arbitration provision in the warranty divested

the circuit court of subject matter jurisdiction to consider Borowiec’s

complaint on the merits.”’ The circuit court was only empowered to

compel Borowiec to submit to arbitration.

The circuit court disagreed and denied Gateway’s motion to dismiss.

Following an unsuccessful effort by Gateway to remove the action to

federal court, the company sought interlocutory review in the

appellate court pursuant to Supreme Court Rule 307 (188 TIL. 2d R.

307).

In the Kobiks* case, Gateway filed a motion under section 2-619 of

the Code of Civil Procedure (735 ILCS S/2-619(a)(1) (West 1998))

to dismiss the complaint based on the arbitration provision in the

warranty issued to the Kobiks when they bought their computer. In

the alternative, Gateway asked for an order compelling the Kobiks to

submit their claims to arbitration and staying their civil action until

the arbitration was completed. Gateway’s motion was denied.

Immediately thereafter, the company filed a notice of interlocutory

appeal pursuant to Supreme Court Rule 307.

Waldron’s case proceeded in exactly the same way. Invoking the

arbitration clause in the warranty that came with Waldron’s

computer, Gateway moved to dismiss her complaint under section 2-

619 of the Code of Civil Procedure (735 ILCS 5/2-619(a)(1) (West

1998)) or, in the alternative, to compel arbitration and stay

proceedings pending the completion of arbitration. As in Borowiec’s

case and the litigation brought by the Kobiks, that motion was

denied and Gateway brought an interlocutory appeal under Supreme

Court Rule 307.

The appellate court consolidated Gateway’s appeals in each of the

three cases and affirmed the orders entered by the circuit court. In

ruling as it did, the appellate court noted that under the Federal

Arbitration Act (9 U.S.C. §1 et seg. (1994)), written contractual

provisions requiring arbitration of disputes are “valid, irrevocable.

and enforceable, save upon such grounds as exist at law or in equity

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ia

for the revocation of any contract.” The court further opined,

however, that in the case of consumer transactions, Congress has

overridden the Federal Arbitration Act through the Magnuson-Moss

Warranty Act (15 U.S.C. §2301 ef seg. (1994)). The court held that

the Magnuson-Moss Warranty Act and the regulations adopted by

the Federal Trade Commission (FTC) pursuant to the Act prohibit

the type of binding arbitration provisions contained in Gateway’s

warranties. Accordingly, the court concluded that those arbitration

provisions are unenforceable. Consistent with that conclusion, the

court found that the arbitration provisions cannot operate as a bar to

the plaintiffs’ claims in circuit court and that Gateways motions to

dismiss or to compel arbitration and stay the circuit court

proceedings were therefore properly denied.

In undertaking review of the appellate court’s judgment, | begin by

noting that the issues before us have arisen in the context of motions

to dismiss. A motion to dismiss pursuant to section 2-619 of the

Code of Civil Procedure admits the legal sufficiency of the

complaint but asserts an affirmative defense or other matter that

avoids or defeats the plaintiffs claim. See Busch v. Bates, 323 UL.

App. 3d 823, 831-32 (2001). For purposes of reviewing a court's

ruling on a defendant’s motion to dismiss, this court accepts as true

the well-pleaded allegations of the plaintiff's complaint. Board of

Managers of the Village Centre Condominium Ass'n v. Wilmette

Partners, 198 Ul. 2d 132, 134 (2001). Motions to dismiss under

section 2-619 of the Code of Civil Procedure present a question of

law, which we review de novo. Robinson v. Tovota Motor Credit

Corp., 201 Ul. 2d 403, 411 (2002).

Central to the dispute before us 1s Gateway’s “Limited Warranty and

Terms and Conditions Agreement,” which governed the purchase of

the computers in all three of the cases at issue here. The “Limited

Warranty and Terms and Conditions Agreement” contains a dispute

resolution clause, which reads:

“You agree that any Dispute between You and Gateway will be

resolved exclusively and finally by arbitration administered by the

National Arbitration Forum (NAF) ***. *** Any decision rendered

in sech arbitration proceedings will be final and binding on each of

the parties ***. *** You understand that You would have had a right

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to litigate disputes through a court, and that You have expressly and

knowingly waived that right and agreed to resolve any Disputes

through binding arbitration. This arbitration agreement is made

pursuant to a transaction involving interstate commerce, and shall be

governed by the Federal Arbitration Act, 9 U.S.C. Section |. et

: sod)

Seq.

Section 2 of the Federal Arbitration Act provides, in relevant part:

“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).

Although plaintiffs in each of the three cases before us asserted in

their complaints that they revoked their contracts with Gateway, they

do not argue, for the purposes of this appeal, that the revocations

avoided the effect of the arbitration requirement in the contracts’

dispute resolution clauses. Nor do they dispute that the arbitration |

requirement would be valid and enforceable under the Federal

Arbitration Act, standing alone. Their contention is that the Federal

Arbitration Act has been superseded by the Magnuson-Moss

Warranty Act (15 U.S.C. §2301 ef seg. (1994)) in cases involving

consumer transactions and that under the Magnuson-Moss Warranty

Act and the regulations adopted by the Federal Trade Commission

pursuant thereto, arbitration requirements of this kind are prohibited.

The Federal Arbitration Act, 43 Stat. 883. was originally enacted in

1925 and then reenacted and codified in 1947 as title 9 of the United

States Code. The purpose of the law was to reverse a longstanding

hostility by the courts to arbitration agreements and to place

arbitration agreements on the same footing as other contracts. Egual

Employment Opportunity Comm'n v. Waffle House, Inc.. 534 U.S.

279, 289, ISI L. Ed. 2d 755, 765, 122 S. Ct. 754. 76] (2002),

quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24,

114 L. Ed. 2d 26, 36, 111 S. Ct. 1647, 1651 (1991). The Supreme

Court has construed the Act’s provisions as establishing a liberal

federal policy favoring arbitration. Moses H. Cone Memorial

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Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 74 Lb. Ed.

2d 765, 785, 103 S. Ct. 927, 941 (1983). In accordance with that

policy, the Supreme Court has held that courts have a duty to enforce

arbitration agreements subject to the Act. See Shearson/American

Express, Inc. v. McMahon, 482 U.S. 220, 226. 96 L. Ed. 2d 185, 193,

107 S. Ct. 2332, 2337 (1987). The Court has further held, however,

that the mandates of the Federal Arbitration Act are not absolute. As

with any statutory directives, they may be overridden by a contrary

congressional command. McMahon, 482 U.S. at 226, 96 L. Ed. 2d at

194, 107 S. Ct. at 2337.

To deteat application of the Federal Arbitration Act based on

conflicting federal legislation, the party opposing arbitration of a

dispute has the burden of showing that Congress intended to

preclude a waiver of judicial remedies for the rights at issue. Such an

intent may be discerned trom the text of the congressional enactment

or the enactment’s legislative history or through the existence of an

inherent conflict between arbitration and the enactment’s underlying

purposes. Gilmer v. Interstate Johnson Lane Corp., 500 U.S. 20, 26,

114 L. Ed. 2d 26, 37, 111 S. Ct. 1647, 1652 (1991).

The Magnuson-Moss Warranty Act, the statute in question here, was

enacted in 1975, 50 years after passage of the Federal Arbitration

Act. While the Federal Arbitration Act deals generally with

contractual arbitration agreements, the Magnuson-Moss Warranty

Act was designed for a more specific purpose, namely, “to improve

the adequacy of information available to consumers [and] prevent

deception” in connection with written warranties issued with

consumer products. 15 U.S.C. §2302(a) (1994).

In keeping with its purposes, the Magnuson-Moss Warranty Act sets

out clear and comprehensive requirements regarding disclosures,

duties, and remedies associated with warranties on consumer

products. Products covered by the Act include any “tangible personal

property which is distributed in commerce and which ts normally

used for personal, family, or household purposes.” 15 U.S.C.

§$2301(1) (1994). There is no dispute that the computers purchased

by the plaintiffs in this case fell within this definition and that the

warranties issued by Gateway on those computers were subject to

the Magnuson-Moss Warranty Act's requirements.

; 34-A

While the Federal Arbitration Act calls for enforcement of

arbitration agreements, the Magnuson-Moss Warranty Act

specifically provides that where a consumer has been damaged by

the failure of a supplier, warrantor or service contractor to comply

with any obligation under the Act or under a written warranty,

implied warranty or service contract, the consumer “may bring suit

for damages and other legal relief *** in any court of competent

jurisdiction in any State or the District of Columbia.” 15 U.S.C.

$23 10(d)(1 (A) (1994). An aggrieved consumer is also given the

option of suing in federal court if certain restrictions are met. 15

U.S.C. §2310(d)(1)(B) (1994). Moreover, if the consumer “finally

prevails” in the litigation, the Act authorizes the court to award the

consumer his costs and expenses, including his attorney fees. 15

U.S.C. $23 10(d)(2) (1994).

The right conterred on consumers by the Act to seek redress in the

courts is subject to two basic conditions. First, where an individual

consumer complains that a company obligated under a warranty has

failed to comply with its warranty obligations, the consumer must

afford the company a reasonable opportunity to cure such failure

before he brings suit. 15 U.S.C. §§2310(d)(1), (e) ( 1994). Second, if

a warrantor has established informal dispute settlement procedures

that comply with rules established by the Federal Trade

Commission, the warrantor may require the consumer to resort to

those procedures before pursing any legal remedies in the courts. 15

U.S.C. §2310(a)(3)(C) (1994).

When Congress enacted the Magnuson-Moss Warranty Act, it did

not include within the statute itself a detailed listing of the standards

a warrantor’s informal dispute settlement procedures must meet.

Rather, it delegated authority for prescribing the minimum standards

for such procedures to the Federal Trade Commission. 15 U.S.C.

$2310(a)(2) (1994). Pursuant to that authority, the FTC has adopted

a comprehensive set of legislative regulations governing informal

dispute procedures. 16 C.F.R. §703.1 et seg. (2002). Those

regulations provide that the decisions of any informal dispute

resolution procedure incorporated into the terms of a written

warranty “shall not be legally binding on any person.” 16 C.F.R.

§703.5(j) (2002). Interpretive regulations adopted by the FTC further

provide that a

35-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 ts final or

binding in any dispute concerning the warranty or service contract.”

16 C.F.R. $700.8 (2002).

The FTC’s legislative regulations were adopted in 1975. Its

interpretive regulations were issued in 1977. Those regulations have

now been followed by the FTC for over a quarter century without

deviation. As recently as 1999, the FTC reaffirmed its position. Ina

regulatory review statement published in April of that year, the FTC

determined that it would net umend 16 C.F.R. §703.5(j) to allow for

binding arbitration and that 16 C.F.R. pt. 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.” 64 Fed. Reg.

19,700, 19,708-09 (eff. April 22, 1999).

In view of the statutory and regulatory provisions | have just

detailed, numerous federal district courts have held that the

Magnuson-Moss Warranty Act overrides the mandates of the Federal

Arbitration Act and prohibits warrantors from requiring consumers

to waive their judicial remedies in favor of binding arbitration where,

as here, an express written warranty is involved. See Wilson v.

Waverlee Homes, Inc., 954 F. Supp. 1530, 1538-39 (M.D. Ala.

1997), aff'd, 127 F.3d 40 (11" Cir. 1997); Boyd v. Homes of Legend,

Inc., 981 F. Supp. |- 2 (M.D. Ala. 1997), remanded on

jurisdictional grounds, 188 F.3d 1294 (11 Cir. 1999); Rhode v.

E&T Investments, Inc., 6 F. Supp. 2d 1322 (M.D. Ala. 1998);

Pitchford v. Oakwood Mobile Homes, Inc., 124 F. Supp. 2d 958,

963-65 (W.D. Va. 2000); Raes/y v. Grand Housing, Inc., 105 F.

Supp. 2d 562, 573 (S.D. Miss. 2000); Yeomans v. Homes of Legend,

Inc., No. 00-D-824-N (M.D. Ala. March 5, 2001); Brown v. Kline

Tysons Imports, Inc., 190 F. Supp. 2d 827, 830-31 (E.D. Va. 2002);

see Walton vy. Rose Mobile Homes, LLC, 298 F.3d 470 (5" Cir. 2002)

(King, C.J., dissenting). State trial courts (see Philvaw v. Platinum

Enterprises, Inc., No. CLO0-236 (Va. Cir. Ct. 2001)), intermediate

appellate courts (see /n re Van Blarcum, 19 S.W.3d 484, 491-92

(Tex. Ct. App. 2000)), and courts of last resort (see Parkerson v.

Smith, 817 So. 2d 529, 533-35 (Miss. 2002); Southern Energy

36-A

Homes, Inc. v. Lee, 732 So. 2d 994 (Ala. 1999)) have taken the same

View.

The judgment of the appellate court now before us for review

adhered to that precedent. Several courts in other jurisdictions have -

recently adopted a contrary position. A divided three-judge panel of

the United States Court of Appeals for the Fifth Circuit has held that

the Magnuson-Moss Warranty Act is not an exception to the Federal

Arbitration Act and does not preclude warrantors from requiring

binding arbitration of claims asserted under written warranties.

Walton v. Rose Mobile Homes, LLC, 298 F.3d 470 (5" Cir. 2002). Its

interpretation is now shared by the Eleventh Circuit (see Davis v.

Southern Energy Homes, Inc., 305 F.3d 1268 (11"" Cir. 2002)) and

has been adopted by the Supreme Courts of Texas (see In re

American Homestar of Lancaster, Inc., 50 S.W.3d 480 (Tex. 2001 ),

directing appellate court to vacate order in In re Van Blarcum, 19

S.W.3d 484 (Tex. Ct. App. 2000)), and Alabama (see Southern

Energy Homes, Inc. v. Ard, 772 So. 2d 1131 (Ala. 2000), overruling

Southern Energy Homes, Inc. v. Lee, 732 So. 2d 994 (Ala. 1999))

and by appellate courts in Florida (see Stacy David, Inc. v

Consuegra, 845 So. 2d 303 (Fla. App. 2003)), Georgia (see Results

Oriented, Inc. v. Crawford, 245 Ga. App. 432, 538 S.E.2d 73 (2000),

aff'd, 273 Ga. 884, 548 S.E.2d 342 (2001)), Louisiana (see Howell vy.

Cappaert Manufactured Housing, Inc., 819 So. 2d 461 (La. App.

2002)) and Michigan (see Abela v. General Motors Corp., 257 Mich.

App. 513, 669 N.W.2d 271 (2003).

Various rationales are advanced in this latter group of decisions to

uphold mandatory binding arbitration in the face of the Magnuson-

Moss Warranty Act and its attendant rules and regulations. All are

premised on the notion that the courts which have invalidated

binding arbitration provisions under the Magnuson-Moss Warranty

Act have misinterpreted the Act’s legislative history and text.

Although the latter cases acknowledge that the decisions of the other

courts are fully consistent with the FTC’s rules and regulations, they

argue that the FTC’s interpretation of the law is, itself, erroneous and

should not be followed.

Gateway urges our court to adopt this reasoning and to reject the

view taken by our appellate court and by the tribunals which have

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concluded that the Magnuson-Moss Warranty Act forbids warrantors

trom requiring consumers to forgo their judicial remedies in favor of

binding arbitration. A majority of my colleagues has accepted this

invitation. | do not.

The Federal Arbitration Act, which applies generally to transactions

involving commerce, allows judicial access to be supplanted by

arbitration. The legislative scheme created under the more recently

enacted Magnuson-Moss Warranty Act, which pertains specifically

to warranties on consumer products, does not. Although the

Magnuson-Moss Warranty Act makes provision for alternative

dispute resolution procedures, those procedures may operate only as

precondition to bringing suit. 1S U.S.C. §2310(a)(3)(c) (1994). They

may not be imposed as a substitute for legal action, as the FTC's

regulations recognize.

Some have attempted to reconcile the two statutes by arguing that

the informal dispute resolution procedures contemplated by the

Magnuson-Moss Warranty Act are distinguishable from and do not

include arbitrations. | have found nothing in the text or legislative

histories of the statutes to support such an interpretation. To the

contrary, it seems clear to me that the informal dispute settlement

procedures referenced by the Magnuson-Moss Warranty Act were

intended by Congress to include all mechanisms of redress other

than court proceedings, including private arbit-ation. Current legal

scholarship supports this view. A. Lamis, The New Age of Artificial

Legal Reasoning as Reflected in the Judicial Treatment of the

Magnuson-Moss Act and the Federal Arbitration Act, \5 Loy.

Consumer L. Rev. 173 (2003).

To hold otherwise would contravene basic principles of statutory

construction. If the Magnuson-Moss Warranty Act were read to

permit binding arbitration in accordance with the Federal Arbitration

Act, warrantors would have no reason to provide consumers with the

option of pursing any other type of dispute resolution mechanisms.

Warrantors would always opt for binding arbitration because that

mechanism would foreclose any subsequent access to the courts by

consumers and defeat the consumers’ Concomitant right to obtain an

award of their attorney fees f.om the courts if they prevailed (see 15

U.S.C. §2310(d)(2) (1994)). As a result, the provisions in the

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Magnuson-Moss Warranty Act governing informal dispute

resolution procedures would be rendered meaningless. That is fatal,

for under federal law, as under the law of Illinois, the court has a

duty to give effect, if possible, to every clause and word of a statute.

Statutes are to be so construed that, if it can be prevented, no clause,

sentence, or word ts superfluous, Void, or insignificant. TRW Inc. v.

Andrews, 534 U.S. 19, 31, IST L. Ed. 2d 339, 350, 122 S. Ct. 441,

449 (2001), quoting Duncan, Superintendent, Great Meadow

Correctional Facility v. Walker, 533 U.S. 167, 174, 150 L. Ed. 2d

251, 259, 121 S. Ct. 2120, 2125 (2001).

The claim has been made that rather than thwarting the Magnuson-

Moss Warranty Act, enforcement of binding arbitration provisions

under the Federal Arbitration Act is actually consistent with the

Magnuson-Moss Warranty Act because that statute provides that

nothing therein “shall invalidate or restrict any right or remedy of

any consumer under State law or any other Federal law” (15 U.S.C.

§2311(b)(1) (1994)) and consumers, no less than corporations,

should have the right to resort to binding arbitration if they so

choose. | find this contention unpersuasive. There is no question that

informal dispute resolution procedures, including arbitration, can

benefit consumers by offering them the opportunity to pursue their

claims in a manner that is usually cheaper than litigation, with

simpler rules, less formality, and more flexible scheduling. See

Allied-Bruce Terminix Cos. V. Dobson, 513 U.S. 265, 280, 130 L.

Ed. 2d 753, 768, 115 S. Ct. 834, 842-43 (1995). That is why the

Magnuson-Moss Warranty Act encourages warrantors to establish

such procedures. See 15 U.S.C. §2310(a)(1) (1994). Where

arbitration 1s mandatory and binding, however, and access to courts

is foreclosed, the benefits flow primarily to the warrantors. That is

why the Magnuson-Moss Warranty Act makes recourse to informal

dispute resolution procedures a precondition to litigation rather than

a replacement for it.

That arbitration profits warrantors rather than consumers when it is

made compulsory and binding is demonstrated by experience. If

binding arbitration were advantageous to consumers, one would

expect to find instances where warrantors were asking for judicial

relief while consumers demanded arbitration. In fact, the reported

decisions seem to be uniformly to the contrary. | have searched in

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vain for a single instance in the case law where the consumer ts the

party seeking to avoid litigation through arbitration. In every

instance | have seen, the substitution of bindu g arbitration for

judicial remedies is a mode of recourse sought by warrantors, not

their customers. Accordingly, adherence to the Magnuson-Moss

Warranty Act and its opportunities for redress in the courts cannot,

in any meaningful sense, be regarded as invalidating or restricting

“any right or remedy of any consumer.” Indeed, the notion that

enforcement of binding arbitration is necessary to protect consumers,

notwithstanding the Magnuson-Moss Warranty Act’s provision for

judicial remedies and statutory attorney fees, turns the Act on its

head. It is the same as holding that portions of the Act must be

nullified to give the statute effect. | cannot countenance such a

construction,

By any reasonable measure, the Magnuson-Moss Warranty Act and

the Federal Arbitration Act ace in irreconcilable conflict. Because the

Magnuson-Moss Warranty Act became law five decades after

promulgation of the Federal Arbitration Act, we must presume that it

was enacted in light of the Federal Arbitration Act. See Parkerson v.

Smith, 817 So. 2d at 533. In construing federal statutes, courts follow

the familiar principle that where statutes are in irreconcilable

conflict, as the statutes here are, the more recently enacted law

controls over an earlier and more general statute. See, e.g., Tug Allie-

B, Inc. v. United States, 273 F.3d 936, 949-50 (1 1" Cir. 2001 ): Bolar

v. Frank, 938 F.2d 377, 379 (2d Cir. 1991). Because the statutes

before us today cannot be reconciled and because the Magnuson-

Moss Warranty Act deals more specifically with written warranties

on consumer products, | agree with those courts which have held that

the Magnuson-Moss Warranty Act supersedes the Federal

Arbitration Act in cases seeking relief based on warranties

encompassed by the Magnuson-Moss Warranty Act’s provisions.

The regulations enacted by the FTC in accordance with the authority

conferred on them by Congress are consistent with that view. As |

wrote earlier in this dissent, the FTC’s regulations do not allow

binding arbitration of disputes concerning written warranties or

service contracts. Under those regulations, warrantors are prohibited

trom including clauses in contracts with consumers that would

require consumers to submit their warranty disputes to binding

40-A

arbitration. That, however, is precisely what Gateway attempted to

do in the consolidated cases before us today.

I reject the notion that the FTC's regulations are not entitled to

deference and should be ignored by our court in analyzing the

validity of the binding arbitration clause in Gateway’s warranties.

Such an approach is inconsistent with federal law. The United States

Supreme Court has expressly held that legislative regulations

adopted by federal administrative agencies are given controlling

Weight unless they are arbitrary, capricious or manifestly contrary to

the statute pursuant to which they were adopted. Chevron U.S.A. Inc.

v. Natural Resources Defense Council, Inc., 467 U.S. 837. 844. 81 L.

Ed. 2d 694, 703, 104 S. Ct. 2778, 2782 (1984). The regulations here

do not fall within any of those exceptions.

Adherence to the FTC’s regulations is further supported by the

United States Supreme Court's precept that considerable weight

should be accorded to executive department construction of a ;

Statutory scheme it is entrusted to administer. Chevron. 467 US. at

844, 81 L. Ed. 2d at 704, 104 S. Ct. at 2782. Such deference is

particularly appropriate where, as-in this case. the agency has

interpreted the statutory scheme in a consistent fashion over a

considerable period of time. Barnhart v. Walton, 535 U.S. 212. 220.

[52 L. Ed. 2d 330, 340, 122 S. Ct. 1265, 1270 (2002).

| note, moreover, that unlike the intermediate federal appeals courts

Whose decisions have been cited by the majority, we are a state

court. As such, our authority to reject federal law is more

constrained. It is true that state courts normally have jurisdiction to

hear claims arising under both federal and state law unless that

jurisdiction has been validly limited. It is also true. however, that the

federal constitution requires the states to recognize federal law as

paramount. Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 477-

78, 69 L. Ed. 2d 784, 791, LOL S. Ct. 2870, 2875 (1981).

| have no doubt that a state court has authority to declare that a

federal statute or regulation violates the United States Constitution. |

would even concede that a state court may hold that a federal

regulation is invalid because it has not been properly enacted.

Neither of those circumstances is present here, however. The

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regulations at issue in this case, which bar binding arbitration clauses

in written warranties, are not claimed to violate the federal

constitution, and no argument has been made that the FTC did not

tollow the proper procedures in adopting them. The majority

declines to follow the regulations simply because it disagrees with

them. That it may not do.

Properly promulgated agency regulations implementing federal

statutes have the force and effect of federal law, which state courts

are bound to follow. For a state court to override such regulations

would violate the supremacy clause of the United States

Constitution. Boron Oil Co. v. Downie, 873 F.2d 67, 71 (4"" Cir.

1989). None of the state courts which have followed the decisions by

the federal circuit courts of appeal in Walton v. Rose Mobile Homes,

LLC, 298 F.3d 470 (5" Cir. 2002), and Davis v. Southern Energy

Homes, Inc., 305 F.3d 1268 (11 Cir. 2002), have recognized this

limitation.

Arbitration provisions that violate federal statutory or regulatory

provisions, as Gateway’s do, are void and unenforceable. See, e.g.,

In re Conticommodity Services, Inc., No. H-86-4202 (N.D. IL. May

8, 1987) (arbitration clause which violated regulations of the

Commodities Futures Trading Commission was null and void, and

the Federal Arbitration Act did not mandate its enforcement). The

appellate court was therefore correct in upholding the circuit court's

decisions to deny the motions filed by Gateway to dismiss the

plaintiffs’ respective complaints or to compel arbitration and stay the

proceedings pending outcome of the arbitration.

Gateway argues, in the alternative, that even 1: its binding arbitration

provisions are unenforceable with respect to plaintiffs” warranty

claims, they can still be applied to require arbitration of plaintiffs’

non-Warranty Act claims. This argument ts untenable. Because the

Magnuson-Moss Warranty Act prohibits inclusion of mandatory

binding arbitration provisions in warranties on consumer products,

those provisions should not have been in the warranties extended to

plaintiffs by Gateway. Because they should not have been included

in the warranties, they have no force or effect. We must treat them as

if they do not exist. That is the consequence of finding them void

and unenforceable. No principle of contract law permits us to excise

42-A

the arbitration provisions from the warranties, where they are illegal,

and restore them to the agreement in some other place in some other

way for some other purpose.

A second, and equally fundamental, flaw in Gateway’s argument is

that it would require us to overlook the nature of plaintiffs’ other

claims. Although plaintiffs’ complaints include counts alleging

Violation of Illinois’ consumer fraud and deceptive business

practices statute and, in one instance, common law fraud, those

counts are all premised on the substantive provisions of the

Warranties issued by Gateway. The statutory consumer fraud counts,

for example, are based on the proposition that Gateway’s inclusion

of the binding arbitration requirement in its warranties is a deceptive

practice because under the Magnuson-Moss Warranty Act,

Warrantors are not, in fact, permitted to represent to consumers that

the results of arbitration or other types of informal dispute resolution

proceedings will be final and binding.

As with plaintiffs’ other claims, the viability of these claims plainly

turns on the underlying question of whether Gateway has violated its

obligations under the Magnuson-Moss Warranty Act. In this sense,

all of plaintiffs’ claims are Warranty Act claims. Under the statutory

and regulatory scheme adopted by Congress, plaintiffs have the right

to litigate such claims in the courts.

For the foregoing reasons, | would affirm the judgment of the

appellate court. | therefore respectfully dissent.

JUSTICE KILBRIDE joins in this dissent.

|. As to all the plaintiffs, we note that the claims for violation of the

Consumer Fraud Act are premised on the alleged violations of the

Magnuson-Moss Act. The plaintiffs allege that Gateway’s

requirement that the plaintiffs submit the disputes to final and

binding arbitration is deceptive and constitutes a violation of the

Consumer Fraud Act.

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2. Gateway purported to base its motion on section 2-615 of the

Code of Civil Procedure (735 ILCS 5/2—615 (West 1998)). Where,

as here, a defendant in a civil action challenges the circuit court’s

subject matter jurisdiction, dismissal is properly sought under section

2—619(a)(1) of the Code of Civil Procedure (735 ILCS 5$/2-619(a)(1)

(West 1998)), rather than section 2-615. Sound practice dictates that

motions be correctly designated. Nevertheless, reversal based on

misdesignation is necessary only if the error has prejudiced the

nonmoving party. See Scott Wetzel Services v. Regard, 27\ Ul. App.

3d 478, 481 (1995). There is nothing in the record before us to

suggest that Borowiec suffered any such prejudice. He clearly

understood Gateway’s position and was able to address it on the

merits.

3. Denial of a motion to dismiss and to compel arbitration ts

appealable under Rule 307, which governs interlocutory appeals as

of right, because demanding that court proceedings be halted and

that a dispute be sent to arbitration 1s analogous to a motion seeking

injunctive relief. See Bass v. SMG, Inc., 328 Ul. App. 3d 492, 496

(2002). Rule 307(a) requires the notice of appeal to be filed within

30 days of the circuit court’s order. Although the notice in

Borowiec’s case was not filea until several months after the circuit

court ruled, the filing period was tolled by the removal proceedings

(see Hartlein v. Illinois Power Co., 151 Ub. 2d 142, 155 (1992)), and

Gateway does not argue that Borowiec’s appeal was untimely.

4. Gateway’s binding arbitration provisions have evolved in the

wake of court challenges. A prior version specified that arbitrations

were to be conducted in accordance with the rules of Conciliation

and Arbitration of the International Chamber of Commerce. Those

rules required consumers to pay up-front fees that exceeded the cost

of most Gateway products and to bear Gateway’s legal tees if the

consumer did not prevail. In addition, the rules mandated that all

arbitrations were to be held in Chicago regardless of where the

consumer resided, and that all correspondence regarding the

arbitration was to be sent to the International Chamber of

Commerce’s headquarters in France. In Brower v. Gateway 2000,

Inc., 246 A.D.2d 246, 676 N.Y.S.2d 569 (1998), the New York

Supreme Court, Appellate Division, found this to be unconscionable

and therefore invalidated the arbitration agreement to the extent that

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it required arbitration before the International Chamber of

Commerce. The court in Brower was not asked to resolve the more

basic question presented by this case, namely, whether the binding

arbitration clause violated the Magnuson-Moss Warranty Act.

5. Stacy David, Inc. v. Consuegra, 845 So. 2d 303 (2003), did not

directly advance this rationale. It merely cited the Davis v. Southern

Energy Homes, Inc., 305 F.3d 1268 (11" Cir. 2002). Similarly,

Abela vy. General Motors Corp., 257 Mich. App. 513, 669 N.W.2d

271 (2003), undertook no independent analysis. It simply invoked

the decisions of the federal courts of appeals in Walton v. Rose

Mobile Homes, LLC, 298 F.3d 470 Se Cir. 2002), and Davis v.

Southern Energy Homes, Inc., 305 F.3d 1268 (11"" Cir. 2002), which

it felt obliged to follow. To the extent such an obligation existed, it

was an obligation the courts of Michigan elected to assume as a

matter of Michigan state law. The only federal court whose

interpretation of federal law is controlling on state courts is the

United States Supreme Court. Neither federal supremacy nor any

other principle of federal law requires that a state court’s

interpretation of federal law give way to a lower federal court's

interpretation. If a state court follows a federal circuit court’s

interpretation of federal law, it does so only because it chooses to,

not because it must. Lockhart v. Fretwell, 506 U.S. 364, 376. 122 L.

Ed. 2d 180, 193, 113 S. Ct. 838, 846 ( 1993) (Thomas, J..

concurring). Consistent with this principle, our court has expressly

held that decisions of lower federal courts are not conclusive on the

courts of Illinois except insofar as the decision of the lower federal

court may become the law of the case. People v. Kokoraleis, 132 Il.

2d 235, 293-94 (1989). See also Bishop v. Burgard, 198 Il. 2d 495.

507 (2002); Weiland v. Telectronics Pacing Systems, Inc., 188 Il. 2d

415, 423 (1999).

MICHAEL BOROWIEC, ) Appeal from the

) Circuit Court of

Plaintitf-Appellee, ) Cook County.

)

E. )

) No. 00 MI 125578

)

GATEWAY 2000, INC., ) Honorable

) John Laurie

Defendant-Appellant. ) Judge Presiding.

TADEUSZ KOBIK and

DOROTA KOBIK, Appeal trom the

Circuit Court of

Plaintiffs-Appellees, Cook County.

V. No. 01 MI 145067

Honorable

James P. McCarthy

Judge Presiding.

GATEWAY, INC.,

Nm mem ee ee”

Detendant-Appellant.

LESLIE WALDRON Appeal trom the

Circuit Court of

Plaintift-Appellee, Cook County

V. No. O01 MI 151803

Honorable

James P. McCarthy

Jaidge Presiding.

GATEWAY, INC.,

Nem eee”

Detendant-Appellant.

JUSTICE REID delivered the opinion of the court:

The defendant, Gateway, Inc., appeals the trial courts’ orders

which dented its motions to dismiss. The plaintiffs, Michael

46-A

Borowiec, Tadeusz and Dorota Kobik, and Leslie Waldron

purchased personal computers from Gateway and subsequently sued

in their individual capacities to recover damages alleging: (1) breach

of express and implied warranty pursuant to the Magnuson-Moss

Warranty-Federal Trade Commission Improvement Act (Warranty

Act) (15 U.S.C. ‘2301 et seq. (1994)), (2) violations of the Illinois

Consumer Fraud and Deceptive Business Practices Act (815 ILCS

505/2, (West 1998)) and (3) common law fraud. Gateway moved to

have the complaints dismissed pursuant to sections 2-615 and 2-619

of the Illinois Code of Civil Procedure. 735 ILCS 5/2-615. 2-619

(West 1998). The trial courts denied Gateway’s motions to dismiss.

The cases were subsequently consolidated, and this appeal ensued.

The main issue before this court, which is one of first impression, is

whether a written warranty governed by the Warranty Act can

require a consumer to submit to binding arbitration, or simply, does

the Warranty Act preclude binding arbitration? For the reasons that

follow, we affirm the decisions of the trial courts.

|

THE FACTS

E. Michael Borowiec

On or about November 18, 1999, Borowiec purchased a

Gateway Performance 600 PC computer from Gateway, Inc.

(Gateway), which was formerly doing business as Gateway 2000,

Inc. The sale and purchase of the computer were subject to

Gateway’s “Limited Warranty and Terms and Conditions

Agreement.” Upon receiving the computer in the mail, Borowiec

discovered that it was defective. On three different occasions,

Borowiec attempted to have Gatev ‘ay repair the computer. After

Gateway failed to repair the computer, Borowiec subsequently

revoked acceptance of it and sued to recover damages. |

On May 26, 2000, Borowiec filed a four-count complaint

against Gateway alleging: (1) violations of the Warranty Act, (2)

violation of the Consumer Fraud and Deceptive Business Practices

Act, and (3) common law fraud. Gateway filed a motion to dismiss

Borowiec’s complaint pursuant to section 2-615 for lack of subject

matter jurisdiction and to compel arbitration. On September 20,

2000, the trial court denied Gateway’s motion to dismiss. Following

47-A

ee

an unsuccessful attempt to have the cause removed to federal court,

Gateway timely filed a notice of appeal.

E. Tadeusz and Dorota Kobik

On or about January 31, 2001, the Kobiks purchased a

Gateway Performance 1000 PC computer and services trom

Gateway Country Stores LLP (Gateway). The sale and purchase of

the computer were subject to Gateway’s “Limited Warranty and

Terms and Conditions Agreement.” Upon receiving the computer,

the Kobiks realized that it was defective. After unsuccessfully

attempting to have Gateway cure the defects, the Kobiks revoked

acceptance of the computer and brought suit against Gateway to

recover damages. .

On September 13, 2001, the Kobiks filed a three-count

complaint wherein they alleged: (1) violations of the Warranty Act,

and (2) violations of the Consumer Fraud and Deceptive Business

Practices Act. Gateway subsequently filed a motion to dismiss or

alternatively to compel arbitration and stay proceedings pending

completion of arbitration pursuant to section 2-619. The trial court

denied Gateway’s motion on November 27, 2001, and Gateway

timely filed a notice of appeal.

E. Leslie Waldron

On or about November 14, 2000, Waldron purchased a

Gateway Essential 866 computer and services trom Gateway Direct

LP (Gateway). The sale and purchase of the computer were subject

to Gateway’s “Limited Warranty and Terms and Conditions

Agreement.” After receiving the computer in the mail, Waldron

discovered that it was defective. After several failed attempts to

have Gateway cure the defects, Waldron revoked acceptance of the

computer.

On October 19, 2001, Waldron filed a four-count complaint

wherein she alleged: (1) violations of the Warranty Act, and (2)

violations of the Consumer Fraud and Deceptive Business Practices

Act. On November 21, 2001, Gateway filed a motion to dismiss or

alternatively to compel arbitration and stay proceedings pending

completion of arbitration pursuant to section 2-619. The trial court

denied Gateway’s motion to dismiss on December 20, 2001, and

Gateway timely filed its notice of appeal the same day.

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E. Gateway’s Warranty Agreement

It is undisputed that Gateway’s “Limited Warranty and

Terms and Conditions Agreement” governed the purchase of the

computers in all three matters. In each of the plaintiffs’ “Limited

Warranty and Terms and Conditions Agreement” there appears a

dispute resolution clause. The dispute resolution clause is identical

in all the plaintiffs’ warranties and is as follows:

“You agree that any Dispute between You

and Gateway will be resolved exclusively and

finally by arbitration administered by the National

Arbitration Forum (NAF) ***, **# Any decision

rendered in such arbitration proceedings will be

final and binding on each of the partics °°*, S09

You understand that You would have had a

right to litigate disputes through a court, and

that You have expressly and knowingly waived

that right and agreed to resolve any Disputes

through binding arbitration. This arbitration

agreement is made pursuant to a_ transaction

involving interstate commerce, and shall be

governed by the Federal Arbitration Act, 9 U.S.C.

Section |, et seg.”

E. Consolidation of the Cases

In each of Gateway’s motions to dismiss. Gateway argued

that dismissal was proper because the “Limited Warranty and Terms

and Conditions Agreement” requires all disputes between Gateway

and its customers to be resolved through binding arbitration pursuant

to the Federal Arbitration Act (FAA) (9 U.S.C ‘1 et seg. (1994)). In

response, the plaintiffs argued that the Warranty Act precludes

binding arbitration, and as such, the arbitration agreement in

Gateway’s warranty is unenforceable. On February 11, 2002, the

three cases were consolidated.

II

ANALYSIS

The issue before this court is whether the trial courts erred

When they denied Gateway’s motions to dismiss pursuant to sections

2 615 and 2 619. “A section 2 615 motion poses the question of

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whether the complaint states a cause of action upon which relief can

be granted. [Citation.] A section 2 619 motion, on the other hand,

raises certain defects or defenses and questions whether defendant ts

entitled to judgment as a matter of law. [Citation.] Since the

resolution of either motion only involves a question of law, the

standard of review is de novo. [Citation.] On a motion to dismiss,

this court must accept all well pleaded facts as true. [Citation.]” In

re Parentage ot M.J., 325 Ill. App. 3d 826, 829 (2001).

On appeal, Gateway argues that the trial courts erred when

they denied its motions to dismiss pursuant to sections 2-615 and 2-

619. Specifically, Gateway maintains that when the plaintiffs

accepted the terms in the warranty agreement, they agreed to resolve

any dispute with Gateway through binding arbitration, and

subsequently, the trial courts erred when they did not dismiss the

plaintiffs’ complaints and enforce the binding arbitration clause in

the warranty.

In reply, the plaintiffs assert that the binding arbitration

clause in Gateway’s warranty violates the Warranty Act, and as such

is unenforceable. In particular, the plaintiffs contend that the

Warranty Act preserves for consumers the right to ultimately have

their disputes with warrantors settled in a judicial forum = and

consequently precludes binding arbitration. We agree.

E. The Warranty Act and the FAA

In 1975, Congress enacted the Warranty Act in order “to

improve the adequacy of information available to consumers [and]

prevent deception” in connection with written warranties issued with

consumer products. 15 U.S.C. *2302(a) (1994). The Warranty Act

sets out clear and comprehensive requirements regarding disclosures,

duties, and remedies associated with warranties on consumer

products. Products covered by the Warranty Act include any

“tangible personal property which is distributed in coinmerce and

which is normally used for personal, family, or household purposes.”

15 U.S.C. *2301(1) (1994).

In 1925, Congress passed the FAA to reverse the long-

standing judicial hostility to arbitration agreements and to place

arbitration agreements upon the same footing as other contracts.

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 114 L. Ed.

2d 26, 36, 111 S. Ct. 1647, 1651 (1991); Circuit City Stores, Inc. v.

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Adams, 532 U.S. 105, 111, 149 L. Ed. 2d 234, 244. 121 S. Ct 1302,

1307 (2001). The FAA provides:

“A written provision in any *** 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

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