# Opposition Brief — Borowiec v. Gateway 2000, Inc.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2004
- **Citation:** 543 U.S. 869

## Text

(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.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386008_0808%3A2. Public record. Not legal advice.