Opposition Brief — Borowiec v. Gateway 2000, Inc.

(2) sae 7} 1) US.

= AUG 2 4 2004 |

No. 04-3

OFFICE OF THE CLERK

In The

Supreme Court of the Gnited States

MICHAEL BOROWIEC, et al.,

Petitioners,

v.

GATEWAY 2000, INC.,

Respondent.

On Petition For A Writ Of Certiorari

To The Illinois Supreme Court

¢

RESPONDENT’S BRIEF IN OPPOSITION

*

JAMES D. ADDUCCI AARON S. BAYER

MARSHALL L. BLANKENSHIP Counsel of Record

ADDUCCI, DORF, LEHNER, SANDRA SLACK GLOVER

MITCHELL & BLANKENSHIP, PC. WIGGIN AND DANA LLP

150 N. Michigan, One Century Tower

Suite 2130 P.O. Box 1832

Chicago, IL 60601 New Haven, CT 06508-1832

(312) 781-2800 (203) 498-4400

Attorneys for Gateway Companies, Inc.

COCKLE LAW BRIEF PRINTING CO (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTION PRESENTED

Did the Illinois Supreme Court err when it concluded,

consistent with rulings of every federal circuit and state

supreme court that has addressed the issue, that petition-

ers had failed to establish that Congress intended the

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

to override — and therefore partially repeal — the Federal

Arbitration Act, 9 U.S.C. §§ 1 et seg., which makes the

arbitration agreement between petitioners and respondent

“valid, irrevocable and enforceable”?

CORPORATE DISCLOSURE STATEMENT

Pursuant to Rule 29.6 of the Rules of the Supreme Court

of the United States, Gateway Companies, Inc. hereby

discloses that it is a wholly-owned subsidiary of Gateway,

Inc., a publicly traded company. Currently, no publicly

held company owns more than ten percent (10%) of Gate-

way, Inc.’s common stock. |

mera ere

TABLE OF CONTENTS

QUESTION PRESENTED...........:.s0sescsssssssssssessescennsons

CORPORATE DISCLOSURE STATEMENT................

RN GPE TURE e AUR © BAU onsessssesrcsssasnceecnsscsnensssessess

COUNTERSTATEMENT OF THE CASE ............... er

REASONS FOR DENYING THE PETITION ..............

i.

II.

III.

THERE IS NO CONFLICT THAT REQUIRES

RESOLUTION BY THIS COURT.....................

PETITIONERS’ MAIN ARGUMENT — THAT

THE ILLINOIS SUPREME COURT ERRO-

NEOUSLY APPLIED CHEVRON —- CALLS

FOR MERE ERROR CORRECTION AND

THUS DOES NOT MERIT REVIEW BY THIS

THE ILLINOIS SUPREME COURT COR-

RECTLY CONCLUDED THAT THE WARRANTY

ACT DOES NOT PROHIBIT ARBITRATION .....

A. Neither the Text, Legislative History, nor

Purposes of the Warranty Act Demon-

strates a Clear Congressional Intent to

PRORIDEL ATDILTORION ..........cccccccssessecsccccscesees

B. The Illinois Supreme Court Correctly De-

clined to Defer to the FTC’s Unreasonable

Interpretation of the Warranty Act............

shai siicnicsabsaAbaneineinabiinanchenheeabeecnennencsescnsene

]

iv

TABLE OF AUTHORITIES

Page

CASES

Abela v. General Motors Corp., 677 N.W.2d 325

SEI UTNE duchciskisiicahaicaveoceuusabhtaaddeesdediaia ciuaipimbanmiineaansiaiiae 6

Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S.

Be SIE consnicnech dine sticciceiencatane ababadaahiiniides muaned 11, 16, 18

In re American Homestar of Lancaster, Inc., 50

re ee ED shiciniaer siickraicecla pease meeslaaetealbcaccaens 6

Borowiec v. Gateway 2000, Inc., 808 N.E.2d 957 (Il.

OUI \.knikcciseivinssnudabciica ntsara lla’ aia ddugticdhdeadaainites eatacdalnk teh oienaianal passim

Browne v. Kline Tysons Imports, Inc., 190 F. Supp. |

ee ee ey is ance vicvatexeaieieienaatnadinss penatiaennens 7 |

;

Buffington v. Mississippi, 824 So. 2d 576 (Miss.

BED sists tcecnsceecndictetelbicabieeapesiscice ballon deleted cinta anti ae sat iglesias 7

Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 |

LITE isiscon ciel fsb cechcealistendiea deecnseatnsiaaaieninendaaeeeiaiandianuseies 16 |

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

Council, Inc., 467 U.S. 837 (1984).................c.00cs008 passim

Circuit City Stores, Inc. v. Adams, 532 U.S. 105

| | EE aR een MLE ONES an More | 16

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

1268 (11th Cir. 2002), cert. denied, 538 U.S. 945

CRIUIN \ssichcticlaccesccenaisconiatpliicnsiuuaaisbdancaieionmmaedtenaiaia acs aia passim

Dombrowski v. General Motors Corp., 318 F. Supp.

ee Te I, Fi cikckiccs essa tihdnientio anaes 6

FCC v. NextWave Pers. Communications, Inc., 537

RFs Se CEE siivishtisvncincncrsicinrnnasieagadidabanat ties 4-5, 16, 18

TABLE OF AUTHORITIES — Continued

Page

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.

eRe RIED conecscosicnscunthcaidaasek a caaipuasealscaoesaneuukemnaiucepaasaneniad passim

Green Tree Financial Corp. v. Randolph, 531 U.S.

PUNE cicachisiisiiscetacamranesmncaannadnsauieoneaiaaaaeeauacaveannniai 14

Harrison v. Nissan Motor Corp., 111 F.3d 343 (3rd

BI cru acssceenicacas ss entenicsallicconmctenoredehMebadamaaaatiaubadcocketeal 13

Household Credit Services, Inc. v. Pfennig, 124

Oe a os aah aalrn nae niinh 4,18

Howell v. Cappaert Manufactured Hous., Inc., 819

So. 2d 461 (La. Ct. App.), writ denied, 827 So. 2d

Be I iat ace whic cabanas nciealdeucaeewahedceie dd nleucauuiasicies 6

Pack v. Damon Corp., 320 F. Supp. 2d 545 (E.D.

NS a aa hmeamanies 6

Parkerson v. Smith, 817 So. 2d 529 (Miss. 2002) ............... 7

Philyaw v. Platinum Enters., Inc., No. CL00-236,

2001 WL 112107 (Va. Cir. Ct. Jan. 9, 2001)... 7

Pitchford v. Oakwood Mobile Homes, Inc., 124

I, BO De (WEE, WURs BD vevccesenssnccsicerionssnsonseccncsaes 7

Results Oriented, Inc. v. Crawford, 538 S.E.2d 73

(Ga. Ct. App. 2000), aff’d on other grounds, 548

ERR ARs RC oe a CO Ee 6

Rickard v. Teynor’s Homes, Inc., 279 F. Supp. 2d

a icesaeibdasuasenibenwe’s 7

Rodriguez de Quijas v. Shearson/American Ex-

SP, TI, Ge Wits GEE CIE vnsecsesiccnstissssccsntcsansceseses 14

Shearson/American Express, Inc. v. McMahon, 482

Es RIT ea eee ayer reer eee ERNE rm passim

Sikes v. Ganley Pontiac Honda, No. 79015, 2001

WL 1075726 (Ohio App. 8th Dist. Sept. 13, 2001).......... 6

ee

TABLE OF AUTHORITIES - Continued

Page

Southern Energy Homes, Inc. v. Ard, 772 So. 2d

I I, IIT cscs acinar saben back saeoka diene AOR ASID 6

Sprietsma v. Mercury Marine, 537 U.S. 51 (2002)............ 13

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

SE MPI, MEET casasisn sivnaicheradansndsnassrwhasankehsVanesanhbnineel passim

STATUTES, REGULATIONS AND RULES

ered: Ge TE WII, si cainccnpnenes cnacensnebiccnsennuedayetinciaeesdeaenens ie

I ST 5 arg ca ak Mannabidsnnenionmmanscnanean ealeepsiasaueeiamniauats 18

EE. A OP OE OE oii snnacsssntesinnnsnrstaaivincouesnmapsacinnsases i

WU MERE WIE ncn sossccnssnnssscsecussossessecaananaparnsansvonanenes 15 |

ALE SERINE incinbanksndnnoneaseinds<ypnieseiananreeniebiaiaaakanea passim |

Ne IN oo i.siskicascssarntsenenpngeeeeee 11 |

TEN! TF: SUID i: xescinnendacenaccnsadasnapenevonseconehiananeeaeinal 8,17, 19 |

ee a A... ,:sicadidsakcnionmneemonieneelaieaie eae 9 |

RS iy Ate 2 |

MISCELLANEOUS

40 Fed. Reg. 60,168 (Dec. 31, 1975) ........ ee eeeeeeeeeeee 19

64 Fed. Reg. 19,700 (Apr. 22, 1999) ............1.......0s0s000s00000: 19

i i ee Re i snninciasdisniaeacearorniericcreanaon 14, 15

RESPONDENT’S BRIEF IN OPPOSITION

Gateway Companies, Inc. (“Gateway”) respectfully

opposes the petition for writ of certiorari. The Illinois

Supreme Court held that the Magnuson-Moss Warranty

Act (“Warranty Act”) does not prohibit binding arbitration

of petitioners’ disputes with Gateway. In so doing, that

court applied settled precedent from this Court holding

that statutory claims are subject to arbitration unless

Congress clearly intended to preclude arbitration, and that

intent is found in the statute’s “text or legislative history,

or from an inherent conflict between arbitration and the

statute’s underlying purposes.” Shearson/American

Express, Inc. v. McMahon, 482 U.S. 220, 227 (1987) (inter-

nal quotation omitted). Nevertheless, petitioners ask this

Court to grant their petition to correct the Illinois Su-

preme Court’s alleged failure to properly apply Chevron

U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467

U.S. 837 (1984). However, even if the Illinois Supreme

Court erred in failing to properly apply Chevron — and it

did not — that fact alone is not a sufficient reason for this

Court to grant review. The Illinois Supreme Court’s

decision is in accord with the decisions of every federal

appellate court and state supreme court to resolve the

issue. The decision is also correct and fully consistent with

this Court’s precedent.

¢

COUNTERSTATEMENT OF THE CASE

Each petitioner purchased a personal computer from

Gateway or one of its related companies and in separate

actions sued to recover damages for, inter alia, alleged

breaches of express and implied warranties under the

Warranty Act and alleged violations of the Illinois Consumer

ne ner ne ee ere ee ere ee

2 i

Fraud and Deceptive Business Practices Act, 815 ILCS

505/2. Gateway moved to dismiss petitioners’ suits, or

alternatively, to compel arbitration and stay proceedings

under the Federal Arbitration Act, 9 U.S.C. §§1 et seq.

(“FAA”), because each petitioner had agreed to arbitrate

“any dispute, controversy, or claim arising out of or relat-

ing to” the sale of the computer.

In response, petitioners argued that the Warranty Act

overrides the FAA and prohibits binding arbitration of

their claims. Without written decision, the trial court in

each case denied Gateway’s motions to dismiss with |

respect to all of petitioners’ claims. Gateway appealed and |

the Illinois Appellate Court consolidated the three cases

for argument and decision.

On May 31, 2002, the Appellate Court affirmed the

trial courts’ denials of Gateway’s motions to dismiss. That |

court held, as a matter of federal law, that the Warranty |

Act repeals the FAA and thereby precludes arbitration of |

consumer warranty claims. Gateway filed a timely petition

for leave to appeal to the Illinois Supreme Court, and that

court granted the petition on November 4, 2002.

In a decision issued April 1, 2004, the Illinois Supreme

Court reversed the judgment of the Illinois Appellate

Court. Pet. App. 2 (published at Borowiec v. Gateway 2000,

Inc., 808 N.E.2d 957 (Ill. 2004)). The court explicitly

applied the test announced in McMahon for determining

whether a subsequent act of Congress repeals and over-

rides the FAA. Id. at 8-9 (quoting recitation of McMahon

test in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.

20, 26 (1991) and stating that petitioners’ claims are

subject to arbitration “unless [petitioners] show that

Congress intended to preclude a waiver of a judicial forum

|

. 3

for their federal statutory claims”). In applying this test,

the Illinois Supreme Court relied heavily on the analysis

contained in two federal appellate court decisions, Davis v.

Southern Energy Homes, Inc., 305 F.3d 1268 (11th Cir.

2002), cert. denied, 538 U.S. 945 (2003), and Walton v. Rose

Mobile Homes LLC, 298 F.3d 470 (5th Cir. 2002). It re-

viewed the McMahon test as applied by those two courts,

and the reasons those courts gave for declining to defer to

the Federal Trade Commission’s (“FTC”) regulation that

purports to prohibit binding arbitration of consumer

warranty claims. In light of this uniform federal appellate

court authority on the question, the Illinois Supreme

Court held that the Warranty Act does aot preclude

binding arbitration of warranty claims. Pet. App. 19.

Petitioners did not seek a stay in the Illinois Supreme

Court pending the filing of their petition. Therefore, the

cases were returned to the trial courts. Consistent with

the [llinois Supreme Court’s decision, petitioners initiated

arbitrations, and those proceedings are moving forward.

¢

REASONS FOR DENYING THE PETITION

This Court should deny the petition for several rea-

sons. First, the decision of the Illinois Supreme Court does

not conflict with any decision of this Court, or of any other

court of appeals or state supreme court. Every federal

appellate court and state supreme court to consider the

question has reached the same conclusion: the Warranty

Act does not override the FAA and does not prohibit

binding arbitration of consumer warranty claims. Peti-

tioners cite an evenly divided Mississippi Supreme Court

decision as evidence of a split, but that decision is not

4

legally binding in Mississippi and, in any event, relied on

cases that have since been overruled. This Court denied a

petition for writ of certiorari on this precise question just

last year, see Davis v. Southern Energy Homes, Inc., 538

U.S. 945 (2003) (No. 02-1117, cert. denied, March 31,

2003), and in light of subsequent decisions that have

further solidified the growing consensus of federal and

state courts on the issue, there is even less reason now to

revisit that decision.

Second, the central claim of the petition — that the

Illinois Supreme Court failed to properly apply Chevron —

presents a question of error correction that does not

warrant this Court’s review. Although petitioners suggest

this Court should review the Illinois Supreme -Court’s

decision because it invalidated an agency regulation, this

suggestion is misplaced. True, the Illinois Supreme Court

rejected the FTC’s interpretation of one of its regulations,

but that regulation retains validity in all other contexts.

In any event, there is no evidence that the FTC considers

its interpretation an important one. In the more than 25

years since it enacted the regulation, the FTC has not

initiated a single enforcement proceeding to test its

interpretation. Thus, the only question presented by this

petition is whether the [Illinois Supreme Court properly

applied Chevron. Although petitioners believe that the

Illinois Supreme Court erred in its application of Chevron,

that issue does not merit review, especially because, as

described below, the Illinois Supreme Court’s decision is

fully consistent with Chevron and all of this Court’s

governing precedents, including Household Credit Ser-

vices, Inc. v. Pfennig, 124 S. Ct. 1741 (2004), cited by

petitioners.

5

Third, the Illinois Supreme Court’s decision is correct.

Under the FAA, courts must “rigorously enforce agree-

ments to arbitrate,” even when faced with statutory

claims. McMahon, 482 U.S. at 226 (quotation omitted).

This presumption in favor of arbitrability of statutory

claims can be overcome only if “the party opposing arbitra-

tion” proves that “Congress intended to preclude a waiver

of judicial remedies for the statutory rights at issue.” Id. at

227. Further, if Congress did intend to preclude arbitra-

tion of statutory claims, this intent must be evident in the

text, legislative history, or “an inherent conflict between

arbitration and the statute’s underlying purposes.” Jd.

Applying these standards in this case, the [Illinois

Supreme Court properly held that petitioners had not

overcome the presumption in favor of arbitrability of

statutory claims. The text of the Warranty Act does not

even mention arbitration, much less prohibit it. The

legislative history of the Warranty Act similarly fails to

reveal a congressional intent to prohibit arbitration.

Indeed the only relevant legislative history demonstrates

that Congress expressly contemplated that arbitration

would be available (as an alternative to litigation) to

resolve Warranty Act claims.

With no support in the text or legislative history,

petitioners rely heavily on an FTC regulation which

purports to prohibit binding arbitration of Warranty Act

claims. But agency “terpretations of a statute are simply

irrelevant to the McMahon inquiry. It is Congress’s intent,

not an agency’s intent, that matters when deciding

whether one statute overrules a prior statute. This Court

made that very point just last year when it emphasized

that administrative policy preferences cannot overrule prior

acts of Congress. FCC v. NextWave Pers. Communications,

6

Inc., 587 U.S. 293, 304 (2003). In any event, even if the

FTC had been delegated authority to overrule a prior act

of Congress — and it has not been — its views would not be

entitled to deference under Chevron because they rest on

an outmoded hostility to arbitration that has since been

rejected by this Court.

I. THERE IS NO CONFLICT THAT REQUIRES

RESOLUTION BY THIS COURT.

Petitioners suggest that this Court should grant the

petition to resolve an important conflict in the lower courts

and bring uniformity to the law. Although the question

presented is certainly an important one, petitioners fail to

explain that federal and state courts have reached an

essentially uniform consensus on that question. Thus,

there is no conflict to resolve because every federal appel-

late court and state supreme court to decide the question

has held, consistent with the Illinois Supreme Court in

this case, that the Warranty Act does not prohibit binding

arbitration. Pet. App. 2; Davis, 305 F.3d 1268; Walton, 298

F.3d 470; In re American Homestar of Lancaster, Inc., 50 |

S.W.3d 480 (Tex. 2001); Southern Energy Homes, Inc. v.

Ard, 772 So. 2d 1131 (Ala. 2000); Abela v. General Motors

Corp., 677 N.W.2d 325 (Mich. 2004).’

* See also Results Oriented, Inc. v. Crawford, 538 S.E.2d 73 (Ga. Ct.

App. 2000), aff’d on other grounds, 548 S.E.2d 342 (Ga. 2001); Howell v.

Cappaert Manufactured Hous., Inc., 819 So. 2d 461 (La. Ct. App.), writ

denied, 827 So. 2d 1161 (2002); Dombrowski v. General Motors Corp.,

318 F. Supp. 2d 850 (D. Ariz. 2004); Pack v. Damon Corp., 320 F. Supp.

2d 545 (E.D. Mich. 2004); Sikes v. Ganley Pontiac Honda, No. 79015,

2001 WL 1075726 (Ohio App. 8th Dist. Sept. 13, 2001).

}

ee

In light of these developments, the only aberrant

jurisdictions that still adopt the position advocated by

petitioners (i.e., that the Warranty Act precludes arbitra-

tion) are two federal district courts and one state trial

court in Virginia (all of which issued their decisions before

Davis and Walton), and a federal district court decision in

Ohio.’

In search of a split in authority, petitioners seek

refuge in the Mississippi Supreme Court’s decision in

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

decision does not help them. In Parkerson, an evenly

divided Mississippi Supreme Court affirmed an interme-

diate appellate court’s holding that the FAA did not man-

date enforcement of arbitration clauses within written

warranties. However, Parkerson is not even legally bind-

ing in Mississippi on this point because only four of eight

Justices approved this holding; three Justices clearly

rejected it and one Justice, while concurring in the result,

expressed no opinion on the matter. See Buffington v.

Mississippi, 824 So. 2d 576, 580 (Miss. 2002) (“It is true

that a majority of all sitting judges is required to create

precedent, and therefore, it follows that a plurality vote

does not create a binding result.”) (internal quotation

omitted). In any event, the Parkerson plurality relied on

the district court decisions that were expressly overruled

by Davis and Walton.

* See Browne v. Kline Tysons Imports, Inc. 190 F. Supp. 2d 827

(E.D. Va. 2002); Pitchford v. Oakwood Mobile Homes, Inc., 124 F. Supp.

2d 958 (W.D. Va. 2000); Philyaw v. Platinum Enters., Inc., No. CLO0-

236, 2001 WL 112107 (Va. Cir. Ct. Jan. 9, 2001); Rickard v. Teynor’s

Homes, Inc., 279 F. Supp. 2d 910 (N.D. Ohio 2003).

8

In sum, the law is uniform and there is no split for

this Court to resolve. The federal appellate courts and

state courts of last resort have reached a unanimous

conclusion: the Warranty Act permits binding arbitration.

II. PETITIONERS’ MAIN ARGUMENT - THAT THE

ILLINOIS SUPREME COURT ERRONEOUSLY

APPLIED CHEVRON - CALLS FOR MERE ER-

ROR CORRECTION AND THUS DOES NOT

MERIT REVIEW BY THIS COURT.

Petitioners suggest this Court should grant review

because the Illinois Supreme Court erroneously applied

Chevron to invalidate an agency regulation. This request

for error correction does not merit review.

As a preliminary matter, the Illinois Supreme Court’s

decision does not invalidate an agency regulation. The

FTC has adopted a series of regulations to govern “infor-

mal dispute settlement mechanisms” (“IDSMs”) under the

Warranty Act, and has interpreted one of those regula-

tions, 16 C.F.R. § 703.5, to prohibit binding arbitration.

The Illinois Supreme Court’s decision rejects that inter-

pretation, but the FTC regulation itself retains full force to

govern IDSMs under the Warranty Act.

While petitioners suggest that the rejection of an FTC

interpretation of a regulation is an important event

warranting intervention by this Court, see, e.g., Pet. at 19,

it is worth noting that the FTC itself has not demon-

strated a similar level of concern about this regulation.

The FTC is empowered to restrain warrantors from failing

to comply with any requirement of the Warranty Act. 15

U.S.C. § 2310(c)(1). Yet, since it enacted its regulations

more than 25 years ago, it has never once initiated an

et

9

enforcement action to test its interpretation or to restrain

the thousands of warrantors who are supposedly violating

the Act. It is hardly worth this Court’s time to review an

agency interpretation that the agency itself cannot be

bothered to enforce.

At base, then, petitioners’ argument reduces to a claim

that the Illinois-Supreme Court failed to defer to an

agency regulation under Chevron. Even if this were true,

petitioners’ argument is nothing more than a request for

error correction, and as such, it does not merit review by

this Court. See Sup. Ct. Rule 10. This is especially true

here because, as described below, the Illinois Supreme

Court did not err. Like all the state supreme courts and

federal appellate courts to consider the question, the

Illinois Supreme Court properly declined to defer to the

FTC’s interpretation of the Warranty Act.

Ill. THE ILLINOIS SUPREME COURT CORRECTLY

CONCLUDED THAT THE WARRANTY ACT

DOES NOT PROHIBIT ARBITRATION. |

According to petitioners, the Illinois Supreme Court

erred because it failed to defer to an FTC regulation under

Chevron. The Illinois Supreme Court did not err, however,

because the FTC’s regulations are completely irrelevant to

the legal standards governing this case.

The central issue in this case is whether Congress in

enacting the Warranty Act partially repealed the FAA,

which otherwise makes all agreements to arbitrate “valid,

irrevocable and enforceable.” This Court has repeatedly

instructed courts that they may not find that a subsequent

act of Congress overrides the FAA unless Congress “explic-

itly preclude[s] arbitration” of claims under the later-enacted

10

statute. Gilmer, 500 U.S. at 29 (emphasis added). Fur-

thermore, the party seeking to avoid arbitration (here,

petitioners) bears the burden of demonstrating that

Congress clearly intended to preclude arbitration, an

intent that, if it exists at all, must be found in “[the stat-

ute’s] text or legislative history, or from an inherent

conflict between arbitration and the statute’s underlying

purposes.” McMahon, 482 U.S. at 227 (citation omitted).

Evidencing the stringent nature of these requirements, no

decision of this Court holds that Congress intended a later

act to repeal the FAA and prohibit arbitration.

The Warranty Act is no exception. Although petition-

ers do not cite the McMahon test or make any attempt to

apply it, that test controls the outcome here. There is

nothing in the text, legislative history, or purposes of the

Act that demonstrates a congressional intention to pro-

hibit arbitration. And under the McMahon test, the FTC’s

regulations are simply irrelevant. But even if they were

relevant, the [Illinois Supreme Court properly declined to

defer to the FTC’s interpretation because it is an unrea-

sonable interpretation of the Warranty Act.

A. Neither the Text, Legislative History, nor

Purposes of the Warranty Act Demonstrates

a Clear Congressional Intent to Prohibit

Arbitration.

1. The plain language of the Warranty Act does not

repeal the FAA or prohibit arbitration of consumer war-

ranty disputes. In fact, the text and stated purpose of the

Warranty Act do not mention arbitration at all. In other

words, nowhere in the language of the Warranty Act does

Congress expressly preclude binding arbitration of con-

sumer claims arising under the Act, or even suggest that

11

arbitration of consumer warranty claims was a congres-

sional concern. See Pet. App. 12-13 (quoting Walton), 14-15

(describing Davis); Davis, 305 F.3d at 1274-75; Walton, 298

F.3d at 475-76.

Indeed, a separate provision of the Act definitively

repudiates any argument that Congress intended to

preclude arbitration of Warranty Act claims. Section

111(b)(1) of the Act, 15 U.S.C. § 2311(b)(1), states that

“[njothing in this chapter shall invalidate or restrict any

right or remedy of any consumer under State law or any

other Federal law.” Congress explicitly preserved consum-

ers’ existing rights to arbitrate claims under the FAA,

including the right to enforce arbitration agreements to

which the consumer is a party. See Allied-Bruce Terminix

Cos., Inc. v. Dobson, 513 U.S. 265, 281 (1995) (recognizing

that ability to enforce arbitration agreements is an impor-

tant right for consumers). This provision thus expressly

negates any implied repeal of the FAA, and the rights and

remedies it protects, by the Warranty Act.

Conspicuously, petitioners do not even cite the savings

clause, much less point to any finding that Congress

clearly intended to deprive consumers of the important

rights and remedies provided by the FAA. And for good

reason. The broad savings clause of Section 111(b) makes

such a finding absolutely impossible. For it expressly

instructs courts not to interpret the statute in precisely

the manner petitioners do.

In the absence of any direct language precluding

arbitration and with no discussion of the savings clause,

petitioners rely on two arguments to support their asser-

tion that the Warranty Act prohibits binding arbitration.

Neither of these arguments supports their cause.

12

First, petitioners rely on Section 110 of the Warranty

Act, 15 U.S.C. § 2310, which authorizes warrantors to

create an informal dispute settlement mechanism, and

argue that arbitration must fall within the scope of this

new IDSM. Pet. at 16. But because the Warranty Act does

not define the term IDSM, this argument rests entirely on

inferences. Yet, as this Court has repeatedly held, infer-

ence is not enough. A subsequent act of Congress does not

repeal the FAA unless Congress “explicitly” precludes

arbitration. Gilmer, 500 U.S. at 29.

In any event, petitioners’ argument is meritless.

Section 110 is concerned with establishment of IDSMs, not

arbitration. The gist of the new IDSM under Section 110 is

to allow a warrantor to incorporate in its written warranty

“a requirement that the consumer resort to such procedure

[t.e., an IDSM] before pursuing any legal remedy under

this section respecting such warranty,” in which case the

consumer “may not commence a civil action (other than a

class action)” under the remedies provision of Section

110(d) without first resorting to that procedure. Id.

§ 2310(a)(3)(C). See also id. § 2310(d)(1).

Therefore, in enacting the Warranty Act, Congress

gave consumers a new statutory cause of action and

provided warrantors with the option of establishing

IDSMs that consumers would need to use before pursuing

the new remedy. However, the mere fact that Congress

provided consumers with a remedy that could arise after

completing an IDSM does not mean that consumers could

not choose to pursue that statutory remedy in an arbitra-

tion proceeding rather than a judicial forum.

Moreover, allowing warrantors to establish an JDSM that

they may require consumers to resort to as a prerequisite to

13

filing a lawsuit does not evince a congressional intent to

preclude arbitration. For the Warranty Act speaks only of

an “informal dispute settlement mechanism.” As both the

Third and Fifth Circuits have explained, arbitration is not

the same as an IDSM. Walton, 298 F.3d at 476 (“binding

arbitration is not normally considered to be an ‘informal

dispute settlement procedure’”); Harrison v. Nissan Motor

Corp., 111 F.3d 348, 351 (8rd Cir. 1997) (“[T]he informal

dispute resolution mechanism provided [by the Warranty

Act] does not constitute arbitration within the meaning of

the FAA.”) (emphasis added). Furthermore, while the

Warranty Act provides for an IDSM, it also states that

that procedure must be used before filing suit in court;

arbitration, however, is “generally ... understood to be a

substitute for filing a lawsuit, not a prerequisite.” Walton,

298 F.3d at 475.

Finally, to conclude that Congress foreclosed any

arbitration remedy, a court would necessarily have to find

that Congress preempted each state’s adoption of the

Uniform Arbitration Act, which, like the FAA, makes

arbitration agreements binding and enforceable without

regard to the subject matter of the parties’ dispute. Princi-

ples of federalism, however, preclude a finding of preemp-

tion unless that was the “clear and manifest intent” of

Congress, a standard that petitioners have not even

attempted to demonstrate in this case. See Sprietsma uv.

Mercury Marine, 537 U.S. 51, 69 (2002).

Second, petitioners suggest that despite the clear

command of McMahon, this Court should not insist on an

explicit statement from Congress to preclude arbitration

because, when the Warranty Act was enacted in 1975,

arbitration was not widely used as a means for resolving

consumer disputes. Pet. at 17-18 & n.4. However, this

14

identical argument could be made about many of the

statutes that this Court has evaluated to determine

whether they preclude arbitration. For example, the

Securities Act of 1933, the Securities Exchange Act of

1934, the Truth in Lending Act (originally enacted in

1968), and RICO (enacted in 1970) — all of which can be

enforced by consumers — were all passed well before the

Warranty Act, and hence (according to petitioners) before

arbitration had become a widespread alternative to litiga-

tion for consumers. Yet, this fact did not stop this Court

from insisting on an express statement from Congress that

it intended to preclude arbitration in any of those statutes.

See Rodriguez de Quijas v. Shearson/American Express,

Inc., 490 U.S. 477, 483 (1989); McMahon, 482 U.S. at 232,

242; Green Tree Financial Corp. v. Randolph, 531 U.S. 79

(2000). Because this Court required an express statement

in those cases, there is no basis for excusing that require-

ment here.

In sum, an analysis of the text of the Warranty Act

demonstrates that Congress did not express an intent to

prohibit binding arbitration of consumer warranty claims.

2. As with its text, there is not a shred of evidence in

the Warranty Act’s legislative history that suggests Con-

gress intended to preclude arbitration. In fact, the rele-

vant legislative history shows that Congress knew the

difference between arbitration and IDSMs and expressly

contemplated arbitration of consumer warranty claims

that could not be settled informally. Senators Magnuson

and Moss introduced the first version of a consumer

warranty bill in 1969. In 1970, the Senate Committee on

Commerce issued a report interpreting the language of

this forerunner of the Warranty Act. S. Rep. No. 91-876

(1970). That Senate Report states that “it is Congress’

15

intent that warrantors of consumer products cooperate

with government and private agencies to establish infor-

mal dispute settlement mechanisms that take care of

consumer grievances without the aid of litigation o; formal

arbitration.” Id. at 22-23 (emphasis added). Congress thus

clearly understood that litigation and arbitration were

equivalent alternatives if informal dispute settlement

efforts failed.

Thus there is absolutely no evidence from its legisla-

tive history that Congress intended to prohibit arbitration

or override the provisions of the FAA, let alone the clear

expression of congressional intent required by McMahon

and Gilmer. To the contrary, the oril¥* proper evidence of

the Act’s legislative history shows that Congress harbored

no such intent.

3. Petitioners obliquely address the final part of the

McMahon inquiry (whether arbitration conflicts with the

Warranty Act’s purposes) when they argue that the Illinois

Supreme Court’s decision allowing arbitration of Warranty

Act claims harms consumers and thereby undermines the

Warranty Act. Pet. at 19-20. Nothing could be further from

the truth.

It would be futile to argue that there is any conflict

between arbitration and the Warranty Act’s express

purpose “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). As this Court has repeatedly reminded courts,

“by agreeing to arbitrate ... 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,

16

forum.” Circuit City Stores, Inc. v. Adams, 532 U.S. 105,

123 (2001) (quoting Gilmer, 500 U.S. at 26).

There is, in fact, “no inherent conflict between the

[Warranty Act] and the FAA.” Walton, 298 F.3d at 478.

Indeed, arbitration promotes the purposes of the Warranty

Act insofar as it provides consumers with a cost-effective,

streamlined procedure to resolve their claims. This Court

has repeatedly emphasized these pro-consumer benefits of

arbitration. In Terminix, for example, this Court noted

that “Congress, when enacting [the FAA], had the needs of

consumers ... in mind.” 513 U.S. at 280. The relative

inexpensiveness of arbitration is “helpful to individuals...

complaining about a product, who need a less expensive

alternative to litigation.” Jd. For consumers, “who seek[ ]

... the value of only a defective refrigerator or television

set,” the costs and delays of litigation could “eat up the

value of an eventual small recovery.” Jd. at 281. Consum-

ers also benefit from arbitration in the form of cost savings

passed on to them from the seller’s reduced exposure to

costly court litigation. See Carnival Cruise Lines, Inc. v.

Shute, 499 U.S. 585, 594 (1991) (Customers “benefit [from

arbitration] in the form of reduced [prices] reflecting the

savings that [the seller] enjoys by limiting the fora in

which it may be sued.”).

Accordingly, the FAA promotes and complements the

pro-consumer goals of the Warranty Act. Because the FAA

and the Warranty Act are “two statutes ... capable of co-

existence,” it is this Court’s “duty” to regard “each as

effective.” NextWave, 537 U.S. at 304 (internal quotations

omitted). That is precisely what the Illinois Supreme

Court did in this case.

17

B. The Illinois Supreme Court Correctly De-

clined to Defer to the FTC’s Unreasonable

Interpretation of the Warranty Act.

Given the lack of any text, history, or purpose to

support its interpretation of the Warranty Act, petitioners

seize on an FTC regulation, 16 C.FR. § 703.5, and the

FTC’s statements about that regulation, to argue that the

Warranty Act overrides the FAA and prohibits arbitration

of Warranty Act claims. Reliance on these FTC statements

is unwarranted, however, because the FTC’s views are

irrelevant to the McMahon standard, and in any event,

they are not entitled to any deference.

1. Although the FTC has authority to implement

portions of the Warranty Act, it has no authority to inter-

pret the Warranty Act to override the FAA. Under the

McMahon standard, it is the intent of Congress, not an

agency, that is determinative in deciding whether a

subsequently enacted statute abrogates the FAA’s em-

phatic federal policy making arbitration agreements

binding, irrevocable and enforceable. See McMahon, 482

U.S. at 234 n.3 (rejecting reliance on long-standing agency

rule that Exchange Act precluded arbitration). Thus, the

Fifth Circuit rejected reliance on the FTC’s regulations,

stating that “[aJn agency’s regulations, promulgated

pursuant to a statute, are not part of [the McMahon] test.”

Walton, 298 F.3d at 479. Simply put, because an agency’s

reguiations cannot determine whether one Congress

intended to override the acts of a prior Congress, they are

irrelevant to the central question governed by the McMa-

hon test.

This conclusion — that agency interpretations are

irrelevant under the McMahon standard — is merely an

application of the basic principle, recently reaffirmed by

18

this Court in NextWave, that an agency may not interpret

a statute to deny the clear rights provided in a different

act of Congress. As this Court expressly held in NextWave,

“administrative preferences cannot be the basis for deny-

ing respondent rights provided by the plain terms of a

law.” 537 U.S. at 304.

Similarly, here, the FAA makes agreements to arbi-

trate “valid, irrevocable, and enforceable,” 9 U.S.C. § 2,

and this guarantee provides significant rights for consum-

ers and other signatories to arbitration agreements. See

Terminix, 513 U.S. at 281. Nevertheless, as in NextWave,

the FTC has interpreted the Warranty Act to prohibit

binding arbitration of claims arising under that Act,

thereby denying consumers and warrantors their rights

under the plain terms of the FAA. Because, as in

Next Wave, the Warranty Act does not require this interpre-

tation, the FTC’s policy preference “cannot be the basis for

denying ... rights provided by the plain terms of a law.”

537 U.S. at 304. In short, because there is no inherent

conflict between the Warranty Act and the FAA, this Court

has a “duty” to regard “each as effective,” id., regardless of

the FTC’s preference to the contrary.

2. Even if the FTC’s regulation were relevant to

determining whether one act of Congress (the Warranty

Act) overrides another act (the FAA) the Illinois Supreme

Court properly declined to defer to the FTC’s views. An

agency’s interpretation is entitled to Chevron deference

only if Congress has not spoken to the precise question at

issue — if, in other words, the statute is silent or ambigu-

ous on the topic. Household Credit, 124 S. Ct. at 1746-47;

see Chevron, 467 U.S. at 843-44. But here, if the Warranty

Act is silent or ambiguous regarding arbitration, then, by

definition, Congress has not clearly expressed its intent to

OP EDA, DAL Shas Tn nes

19

override the FAA as required by McMahon. See supra at 9-

10. In short, the factual predicate for Chevron deference —

silence or ambiguity in the statutory language — refutes

any argument that Congress explicitly precluded arbitra-

tion, as required by McMahon, when it enacted the War-

ranty Act.

3. In any event, the FTC’s interpretation is unrea-

sonable. Section 703.5(j) of the FTC’s regulations provides

that “[dJecisions of the [IDSMs] shall not be legally bind-

ing on any person.” Although the FTC never expressly

states that “IDSM” should be interpreted broadly to

include all non-judicial dispute resolution processes

(including arbitration), the FTC has indicated that it

interprets Section 703.5(j) to preclude binding arbitration.

See 40 Fed. Reg. 60,168, 60,210 (Dec. 31, 1975). The FTC

explained that it had adopted this interpretation because

“[t]he Commission is not now convinced that any guide-

lines which it set out could ensure sufficient protection for

consumers.” Jd. In 1999, the FTC reaffirmed this original

rationale, stating expressly that it “believes that this

interpretation continues to be correct.” 64 Fed. Reg.

19,700, 19,708 (Apr. 22, 1999). The FTC further stated

that its interpretation rested on the language of the Act

providing that “the consumer may not commence a civil

action ... unless he initially resorts to such [informal

dispute settlement] procedure.” See id. (quoting 15 U.S.C.

§ 2310(a)(3)). According to the FTC, “this language clearly

implies that a mechanism’s decision cannot be legally

binding, because if it were, it would bar later court action.”

Id. (emphasis added).

The Illinois Supreme Court properly rejected reliance

on the FTC’s regulation. The FTC’s asserted justifications

20

for its regulation are unreasonable because they all

conflict with this Court’s precedent. The FTC’s 1975

statement that arbitration might not adequately protect

consumers is based on an inappropriate hostility to arbi-

tration, and therefore an impermissible reading of the

statute. This Court “in McMahon ... rejected this same

hostility shown by the SEC.” Davis, 305 F.3d at 1279; see

McMahon, 48? U.S. at 234 n.3.

Furthermore, the FTC’s 1999 statement that the

language of Section 110 “clearly implies that a mecha-

nism’s decision cannot be legally binding,” is similarly

inconsistent with this Court’s precedent. For, even if

arbitration were deemed an IDSM —- which defies all

evidence to the contrary — mere “implication” is never

enough to override the provisions of the FAA. See Gilmer,

500 U.S. at 27-30; McMahon, 482 U.S. at 236-38.

Finally, if it is the FTC’s position that the provision of

a civil remedy in Section 110(d) precludes arbitration, that

rationale also cannot survive modern precedent interpret-

ing the arbitration of statutory claims under the FAA. This

Court has repeatedly rejected arguments that claims

under employment discrimination laws, the federal anti-

trust laws, RICO, and the securities laws, all of which

provide for civil actions just like Section 110(d), are not

subject to arbitration. This precedent requires that Section

110 of the Warranty Act be interpreted as providing an

informal, non-binding settlement mechanism to be fol-

lowed by arbitration or a civil action if the consumer were

21

dissatisfied with the informal settlement result. See

Gilmer, 500 U.S. at 29.°

At base, the FTC and petitioners have each made the

same mistake. They have failed to accept, or even ac-

knowledge, what this Court has repeatedly emphasized

about arbitration — namely, that an agreement to arbitrate

does not result in a loss of substantive rights, but merely

transfers a dispute concerning those substantive rights

from a judicial to an arbitral forum. Because “the FTC’s

motive behind [those] regulation[s] is contradictory to

Supreme Court rationale,” Davis, 305 F.3d at 1279, the

Illinois Supreme Court properly concluded that the FTC’s

regulations are entitled to no deference. Pet. App. 19.

2

v

* Indeed, the basis for this interpretation of Section 110 is even

more compelling here than in McMahon because the statute there —

unlike the Warranty Act — contained a provision that expressly prohib-

ited parties from waiving provisions of the Act. The SEC had inter-

preted this non-waiver provision as prohibiting pre-dispute arbitration

agreements because the SEC believed such an agreement constituted a

waiver of the provisions of the Act granting injured parties the right to

file a civil action. This Court rejected that argument, recognizing that

“arbitral tribunals are readily capable of handling the factual and legal

complexities of antitrust claims, notwithstanding the absence of judicial

instruction and supervision,” and that the “streamlined procedures of

arbitration do not entail any consequential restriction on substantive

rights.” McMahon, 482 U.S. at 232.

22

CONCLUSION

For the reasons set forth above, the petition for writ of

certiorari should be denied.

Respectfully submitted,

AARON S. BAYER

Counsel of Record

SANDRA SLACK GLOVER

WIGGIN AND DANA LLP

One Century Tower

P.O. Box 1832

New Haven, CT 06508-1832

(203) 498-4400

JAMES D. ADDUCCI

MARSHALL L. BLANKENSHIP

ADDUCCI, DoRF, LEHNER, MITCHELL &

BLANKENSHIP, P.C.

150 N. Michigan, Suite 2130

Chicago, IL 60601

(312) 781-2800

Counsel for Gateway Companies, Inc.