Petition for Writ of Certiorari — Davis v. Southern Energy Homes, Inc.

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- 1 17 JAN 27 2008

cxucenenntemsasmeiiieeieee nn.

In The

Supreme Court of the Anited States

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v

MICHAEL SHANE DAVIS AND

HEATHER N. DAVIS,

Petitioners,

V.

SOUTHERN ENERGY HOMES, INC.,

a corporation, |

Respondent.

yr

v

On Petition for a Writ of Certiorari

To the United States Court of Appeals

For the Eleventh Circuit

yr

v

PETITION FOR WRIT OF CERTIORARI

—

Vv

G. HOUSTON HOWARD II

Counsel of Record

HOWARD, DUNN,

HOWARD & HOWARD

P.O. Box 1148

Wetumpka, AL 36092

(334) 567-4356

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964 \ 2)

\

OR CALL COLLECT (402) 342-2831

ee

QUESTIONS PRESENTED

1. Does the Magnuson-Moss Warranty-Federal Trade

Commission Improvement Act (MMWA) prohibit a supplier

of a consumer product from creating a binding arbitration

procedure at the time of product sale?

2. Is the federal policy in favor of arbitration a sufficient

basis for a court to disregard the Federal Trade Commission’s

interpretation of the MMWA - expressed in a legislative

regulation — as prohibiting binding arbitration provisions in

consumer product warranties?

TABLE OF CONTENTS

QUESTIONS PRESENTED..............0sccrersesssseesorereers

TABLE OF AUTHORISES cvsscecsccssvessrsccosacsvevesorsvenes

SP EIFEUE IST cpncavinecsnsecsensreesinersecsessnesenennesenss

GRFEEI CHIEN ssesevvsnvassvesinsaveasswivincspeonsaceniteuotediienses

FE Cae BEF FT IEEE EEE cicencencnnsersnintiqerninivésssssineioinns

STATEMENT OF THE CASE...............ccssssssovceeeeeeeees

REASONS FOR GRANTING THE WRIT .................

THE. ELEVENTH CIRCUIT ERRED BY

HOLDING THAT THE MMWA ALLOWS

WARRANTORS TO CREATE BINDING AR-

BITRATION PROCEDURES AT THE TIME

OF FRA FIE COREE vnsvesectinevisccacsscinarceesarsnone

A. The Text: MMWA Dispute Settlement

Procedures May Not Be Binding, and Ar-

bitration is a Dispute Settlement Proce-

8

4.

MMWA dispute settlement proce-

cures may not be binding...................

Arbitration is a dispute settlement

OID ects sidiinsvitccnceadianinaint:

If arbitration is not an informal proce-

dure, then the MMWA prohibits it ........

The Eleventh Circuit’s opinion renders

portions of the MMWA meaningless......

B. Legislative History: Congress Intended

for Warranty Procedures to be Non-

ee snkunnsoatgatasepliaiaiin alae

ili

TABLE OF CONTENTS — Continued

a

Page

II]. THE ELEVENTH CIRCUIT ERRED BY

INVOKING THE FEDERAL POLICY IN FA-

VOR OF ARBITRATION AS BASIS FOR

DISREGARDING THE FTC’S INTERPRE-

TATION OF THE MMWA......00.0 occ.

A. The FTC Regulations...............................

B. The Legal Standard .....0.........0.000000000.......

The Eleventh Circuit erred by invok-

ing the federal policy in favor of arbi-

tration as a basis for refusing to

enforce FTC regulations.....................

The Eleventh Circuit erred by hold-

ing that section 700.8 contains the

reason that the FTC rejected binding

tyes, IORI OSETE Sean ae

The Eleventh Circuit erred by refus-

ing to defer to the FTC’s definition of

“dispute settlement procedure.” ........

The Eleventh Circuit erred by refus-

ing to defer to the FTC’s construction

of the statutory I

The Eleventh Circuit erred by substi-

tuting its judgment for that of the

FTC about the fairness of consumer

REESE oe ann

18

19

20

21

21

22

23

25

iv

TABLE OF CONTENTS - Continued .

Page

Ill. THIS COURT SHOULD DECIDE THE IM-

PORTANT QUESTIONS OF WHETHER THE

MMWA PROHIBITS WARRANTY PROVI-

SIONS REQUIRING BINDING ARBITRATION

AND WHETHER THE FEDERAL POLICY FA-

VORING ARBITRATION IS A SUFFICIENT

BASIS FOR DISREGARDING THE FTC’S

INTERPRETATION OF THE MMWA................ 28

eee INT ciexchiicocnscieniopticnbakivncniandidhbnaciausasvienent 30

APPENDIX

Opinion of the United States Court of Appeals for

Re TS CIN scat henecntcnnenncsrcsareternediicnions App. 1

Memorandum Opinion and Order of the United

States District Court for the Middle District of

ID sicticieesscsanbiaecinealanacsapelciiaieia wd amneainel App. 25

Eleventh Circuit Order Denying Rehearing......... App. 31

ie ei hthitiensiccaniestcaininnineiinainialacaietiamaelia App. 33

Bip SA ae: Se Se hhc sntcciarvinissenencentcenlicinideiamamecsmbides App. 33

15 U.S.C. § 2BOB .........cceseseee iS cncckensecnppnaiaaiamouammecans App. 37

Be Fee ee sei sa veicscancanenidicstnctecasinciieamentaditiiasaitnenns App. 38

SOF 6 i iccsitititeinscttinhciiviinabiaainait App. 43

ee ie ee vertaechnectahsickdasseeceecaennceateaiableiahied App. 44

BG CF | Pa cen cceesnsesesdeeisnoenenensieinietiniennerseenenien App. 46

Excerpt from Warranty of Southern Energy

DIG TI, siciniciencsstancitieseeininierviacesiaumainnicommatiniling App. 51

TABLE OF AUTHORITIES

Page

CASES

Andrews v. Grand Manor, Inc., 1999 U.S. Dist.

LEXIS 15429 (S.D. Ala. July 13, 1999), adopted,

1999 U.S. Dist. LEXIS 15464 (S.D. Ala. Sept. 13,

BET tenkitentinpiassastnntniasanitiiiaibneiaadbiaiitieica acini eas 29

Atkins v. Rivera, 477 U.S. 154 (1986). ....ccccccccsccoceccecescees... 20

Batterton v. Francis, 432 U.S. 416 (1977) cecccccecccccoccseese... 26

Boyd v. Homes of Legend, Inc., 981 F. Supp. 1423

(M.D. Ala. 1997), rev’d on other grounds, 188 F.3d

SE Be iiniriitssnitesdacnnitinid ee 29

Brown v. Gardner, 513 U.S. 115 (1994) ..ccccccccccccoccecccceeeeees, 7

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

SE SIE WD. BD isssicnisicescosnacdanssnnintiinieincce cnsisccnstead 29

Buffalo Forge Co. v. United Steelworkers of Am.,

SF AN TPF CR PR i ncninsacinnissceditpuciananddiacai kde t esd 6, 18

Chevron, U.S.A., Inc. v. Echazabal, 122 S. Ct. 2045

[Une vtEP ninstiinspsiasniiieesstnnannnounisubiatiaiinansiedadasiaram te. tale. 24

Chevron, U.S.A. v. Natural Res. Def: Council, 467

SRT GME D osikicerievinnitiniceaSspsiincenssadineicsee sts passim

Christensen v. Harris County, 529 U.S. 576 (B0GD)...:n0eveves 21

Detroit & Toledo Shore Line Transport. Union v.

United Transport. Union, 396 U.S. 142 (1969)............... 6

EEOC v. Waffle House, Inc., 534 U.S. 279 (2002).............. 22

Estate of Cowart v. Nicklos Drilling Co., 505 U.S.

PR iantiacteita baie ees ie teeadobibsabGebebnseies 27

FDA v. Brown & Williamson Tobacco Corp., 529

Ce ee Cec citadlecibcliectcani a eh 16

vi

~ TABLE OF AUTHORITIES -— Continued

Page

Hillsborough County v. Automated Med. Labs, Inc.,

Ae Rs, He OD inicacedackdnnaseannaleiansantonicnenmeniamanvncinsees 23

Homes of Legend, Inc. v. McCollough, 776 So. 2d

FN Si SE shi enstnciichtiehiinennaniniie 8

Howard Johnson Co. v. Hotel Employees, 417 U.S.

eR cas inichsqoestavicdinssscsdticsbuehbantuieaseghsnsnteaanaaeabiicniai 6

INS v. Cordoza-Fonseca, 480 U.S. 421 (1987)..............0 4

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

a Te ee ee Write insincere 7

Mourning v. Family Publ’n Serv., Inc., 411 U.S. 356

TD iwish sinc deacoceueiciainknicionticiiaiabiainedaeniiaapaniaiialla 9, 25

National Cable & Telecomm. Ass’n, Inc. v. Gulf

Power Co., 584 U.S. SBT (BOGB).....cecvovcccsccrcescccvseveses 25, 26

National R.R. Passenger Corp. v. Boston & Maine

Corp., 503 U.S. 407 (1992)................sscsseeeees 21, 23, 24, 25

National R.R. Passenger Corp. v. Morgan, 122 S.

ai: SII SITTIN sbi ctciseesssininirnsenierscnibionieienssagiiniaddeeniiaela’ 4,21

Nationsbank of N.C. v. Variable Annuity Life Ins.,

Be Py I 8 ITA oiniisesvecnestannncubniindeniigbeiaiinabininddiadahias 24

New Orleans S.S Ass’n v. General Longshore

Workers, 626 F.2d 455 (5th Cir. 1980)..................ccseeeeee 5

Norfolk & Western Ry. Ce. v. American Train

Dispatchers Ass’n, 499 U.S. 117 (1991)... eee 22

Parkerson v. Smith, 817 So. 2d 529 (Miss. 2002)........ 29, 30

Pitchford v. Oakwood Mobile Homes, Inc., 124

FP. Sapp. Bd OES CW.D. Ver. BODO). ar .cccccsssvcscssscvcessssesccccees 29

Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388

Br, Ce CTP icewtbiinsnnichiceslinsdeilitiebbvadshlcminenntatieeaeareetciias ace 22

I a a wh ln

vii

-~

TABLE OF AUTHORITIES - Continued

Page

Raesly v. Grand Hous., Inc., 105 F. Supp. 2d 562

Pe nd MINIT iacicalecctsdsdchGliciucbdeninuscsstnieaubiesiiallunnidiicacssctctandate 29

Rhodes v. E & T Investments, Inc., 6 F. Supp. 2d

Is SUIUD ecssctincivestnnstihersnicienstacsecsbuiiieenaconeonss 29

Ruckelshaus v. EPA, 463 U.S. 680 (1983)..................6....... 26

Rust v. Sullivan, 500 U.S. 173 (1991)......ccccccccccccccecceecceeees 21

Shearson/Am. Express, Inc. v. McMahon, 482 U.S.

Se ATT ihitl nh akc coaceunchiaceetniadisinaintiameccaescceicahes 2, 26, 27

Skidmore v. Swift & Co., 323 U.S. 134 (1944)....ccccccccccce. 21

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

Ee ie He iinicivenestnesininsisdsacesensiohicdnscelitietaminnoumceieal 29

Southern Energy Homes, Inc. v. Lee, 732 So. 2d 994

CS Are CC EE nT Se ee 29

Smiley v. Citibank (S.D.), N.A., 517 U.S. 735 (1996)........ 24

Trainmen v. Chicago River & Indiana R.R., 353

A TUN Di dahintleiiinsibibiiciceieiledibabdalian cae ete) i 4

Trans World Airlines, Inc. v. Independent Fed’n of

Flight Attendants, 489 U.S. 426 (1988) .........ccccccccccceeee. 18

United States v. Alaska, 503 U.S. 569 (1992).......cccccccecee-. 22

United States v. Gonzales, 520 U.S. 1 (1997) .o.cccccccecccoceee- 7

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

RTT esti liddiiesitletcieepaiiiaaibiopiiiinta aaa) 2 20

United States v. Mead Corp., 533 U.S. 218 (2001) ..21, 24, 28

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

PURSE estrecho 3,6

William E. Arnold & Co. v. Carpenters District

Commedl, 627 U.B. 2S (RDFA) on. cccecnccococcossccvecssesscoseresceseees 6

Viii

TABLE OF AUTHORITIES - Continued

Page

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

(M.D. Ala.), aff'd, 127 F.3d 40 (11th Cir. 1997)....20, 28, 29

Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205 (9th

GF Be nstsctesnincseccnnseessicnncensnnensenincnsetenstapibnnnesitiabiorteadia 8

Wood v. Cooper Chevrolet, Inc., 102 F. Supp. 2d

SE re Bas. HD ctctentncienannsenensnnenntintncnntanaimmeiinnndies 29

Yellow Transport., Inc. v. Michigan, 123 S. Ct. 371

ITI deienenntderceustennetucetlptaiseababnhdunanganéadiceniehiaantinianinnaumbend 24

Yeomans v. Homes of Legend, Inc., 2001 U.S. Dist.

LEXIS 2528 (M.D. Ala. 2001) ..........cccccccccsesorcecccccovecceees 29

Zenith Radio Corp. v. United States, 437 U.S. 443

eli insk ssnsensiniadiecdatensiaiiiicdeaisumaiiatndnnatintahdnieneatntenmieosiniinn 24

STATUTES AND REGULATIONS

ey Be IE Gacusescncaiescceiinsseiatinnaieneiinsinnibenihninntin 1, 22, 23

ee ee stitnscinlesnnsccsisicneincinntniandennsnpnnicepesinniaveinniins 1

BE ee OF Se centenacesksnnsestntcccnensensensnrnseiiamnmente passim

40 Fed. Reg. 60168 (1975)..............::cessseeeeeeeeees 20, 23, 25, 29

SE Fe, Fae Be Ce ic trtctccntnnsncictinstiniasiintiiinciaiiaaiauinis 23

GB Fd. Tae, FART CEG T 8 Paicviccescccevevccesssccerteccecsneqnesesees 20, 23

64 Fed. Reg. 19700 (1999)...................sssssesesee 20, 23, 26, 29

Fla. Stat. Ann. § 681.102(17) (2002)............:ccccseseeeeeeeeeeeees 16

Ga. Code Ann. § 10-1-782(8) (2002)..........cc:sscceseeeeeseeeeeees 16

Idaho Code § 48-906(2) (2002) ............:sssssssesrsereseesseseeneeeens 16

Ky. Rev. Stat. Ann. § 367.865 (2000).............:ccccccssessseseseees 16

Me. Rev. Stat. Ann. tit. 10, § 1161(5) (2001)................eee 16

ix

TABLE OF AUTHORITIES - Continued

Page

Minn. Stat. § 225F.665(1)(f) (2001)..........cccccccsccsesesesseeeseees 16

N.J. Rev. Stat. § 56-12-30 (2000) oo....ccccccccecccsececceceesececeeees 16

N.H. Rev. Stat. § 357-D:4(IV) (2002) ........cccccccssssceseesesesees 16

N.Y. Gen. Bus. Law § 198-a(m) (2002)........cccccccccccecceeeeee-.. 16

Pub. Law No. 93-637, 88 Stat. 2183 (1975) ....cccccccccccsececeees 9

Pub. Law No. 96-190, 94 Stat. 17 (1980). ....cccccccccccccsececeee, 15

Pub. Law No. 107-273, 116 Stat. 1758 (2002) .....ccccc.0... 27

EL AES SSNS REE 30

Oe II Wi icleluasintiaibidaaiiibdeschcdacsen rancneitice dc pcs 1, 22

eae Be Stil ansrsstsstinssitshvntoncbeiskeniindaimeneddeacecth eesesosees exe 1

i gE EFL NCR DRED AION CSTE IS 1,4

Para a iaienideosbiedaienindebbdSascedabstusecibtobdedobaacatseels 1,19

SERRE EIR ae ea ee passim

a AI inate suscieninulicasasastcncceslseckescsccecse cla. 5

I i lidicidsecasudctissibebchnsiiculéiideneciusecnedkele. 5

pI Glisten 2 Lees 5,6

tein en Vit) Doon 6

I lichens ictbiacacichdernitncaetennincneaarceiecca: 8

TABLE OF AUTHORITIES -— Continued

LEGISLATIVE HISTORY

Adequacy of Consumer Redress Mechanisms: Joint

Hearing Before the Subcomm. on Consumers of

the Senate Comm. on Commerce and the Sub-

comm. on the Representation of Citizens’ Interests

of the Senate Comm. on the Judiciary, 93d Cong.

a cckineshcnssdtdliaciciptaditesbiiamtaihedanienseiniiiens 10, 13, 14,

ype 8. g | ERRNO EOE ENED Cee

127 Comm. Rec. BESTS (1G71)...5..cscseverecersesscsenessenessecnss

Be, Be Ci iinicacebcccneteccscnenescacccsessciserevinys

a Ne, SR Sn Coie vvintsetosirccsensecccniensasenevssseis

Consumer Controversies Resolution Act: Hearings

Before the Subcomm. on Consumer Protection

and Finance of the House Comm. on Interstate

and Foreign Comm., 95th Cong. (1978)...............0008

Consumer Products Warranties and Improvement

Act of 1971: Hearings on S. 986 Before the Con-

sumer Subcomm. of the Senate Comm. on Com-

al: Te Ge Ce cn tacssnksicvitnsntininiciencstanenniinanes

Consumer Product Warranty Act: Hearings on S.

3074 Before the Consumer Subcomm. of the Sen-

ate Comm. on Commerce, 91st Cong. (1970) ...........

Consumer Warranty Protection — 1973: Hearings on

H.R. 20 and H.R. 5021 Before the Subcomm. on

Commerce and Finance of the House Comm. on

Interstate and Foreign Commerce, 93d Cong.

Sa ihiviiehenacentiiaensiblanbsaaldbsiiieisatdiesiisidasieetadsaialiapiscebisieaaii se

Page

15, 18

ae ee ee Se ee ee eee

xi

TABLE OF AUTHORITIES - Continued

Page

Consumer Warranty Protection: Hearings on H.R.

6313, H.R. 6314, H.R. 261, H.R 4809, H.R. 5307,

H.R. 10673 (and Similar and Identical Bills)

Before the Subcomm. on Commerce and Finance

of the House Comm. on Interstate and Foreign

Commerce, 92d Cong. (1971)......ccccccccccseseccecceeceessec., 10, 12

Fairness and Voluntary Arbitration Act: Hearings

on H.R. 534 Before the Subcomm. on Commercial

and Administrative Law of the House Comm. of

the Judiciary, 106th Cong. (2000) ........cccccccseosececeeeceee... 27

H.R. Rep. No. 93-1107 (1974), reprinted in 1974

A, FD x vesissvercesnniessansesvvnistbacsseeneescsssen 12, 13

H.R. Rep. 96-492, pt. 1 (1979), reprinted in 1980

eT INIIG: TP Siiinn sobniciiiticnsheaiisceesbdin tice as 6, 16

S. 3074, 91st Cong., 115 Cong. Rec. 31483 (1969)......... 9,11

S. Conf. Rep. No. 93-1408 (1974), reprinted in 1974

PAPAS SARAN, OUD cwinsxsvursssnscovraxensirasenersnvreesseansoesesess, 9,17

S. Rep. No. 93-151 (1973)..........cccccccssssessocescoseceeceeeesse, 12, 14

S. Rep. No. 95-210 (1977).............:0:ececcsecescesesesvoveseseoesees...., 15

S. Rep. No. 107-266 (2002)............:s0csececcsececessaceseseseses. 27, 29

Warranties and Guaranties: Hearings Before the

Subcomm. on Commerce and Finance of the

House Comm. on Interstate and Foreign Com-

merce, 91st Cong. (1970) ..............cccccccscsssossosesecooees,. 10, 11

OTHER AUTHORITIES

American Arbitration Association, National Center

for Dispute Settlement, Consumer Arbitration

ET A ia cetsccnnstietcsssnorsitnrdilestbtsslends asiesieseasensen: Locak. 5

TABLE OF AUTHORITIES - Continued

Page

American Arbitration Association, Supplementary

Procedures for the Resolution of Consumer Re-

Sead, Ta TE. 1, BOG? pave sie censsstvnsessesevneperinivnentiee 8

Merton C. Bernstein, Private Dispute Settlement:

Cases and Materials on Arbitration (1968) ............... 5, 18

Alfred W. Blumrosen, Labor Arbitration, EEOC

Conciliation, and Discrimination in Employment,

24 The Arbitration Journal 88 (1969).............:::cecceeeeeeeee 5

Robert Coulson, Business Arbitration - What You

PE Be EE iiss insinadimemasevinieoaineeeine 7

Frank Elkouri & Edna Asper Elkouri, How Arbitra-

SE Se Ec hircinncsnideniicnsicancacsmnidapeiaaiialicinaiancomi 5

NAFTA, Institutional Arrangement and Dispute

Settlement Procedures, chapt. 20, http://www.world

tradelaw.net/nafta/chap-20.pdf 0.0.0.0... ccccecceceeeereeeeeeeees 5

National Consumer Disputes Advocacy Committee,

American Arbitration Association, Consumer Due

PORN FEE Ca evietcnstvnnsstisnicisscnsieceisiinhamenaetite 28

National Institute for Consumer Justice, Redress of

Consumer Grievances (19738)..........csscccseceeeceseceeeeeeees 10, 13

National Institute for Consumer Justice, Staff

EE i iiciciiiniiceratcitecnstentcsndieminnecntiiadaail 5, 7, 8, 14

Richard Nixon, Pub. Papers (1971) ..............sscccssesseessssssees 11

Jack C. Plano & Roy Olton, The International

FRG TCG (IID oviin sev ensessisncivnrecnienessiainivsncenent 4

Maurice Rosenberg & Myra Schubin, Trial by

Lawyer: Compulsory Arbitration of Small Claims

in Pennsylvania, 74 Harv. L. Rev. 448 (1961)............ 8,14

‘

Se ata

Bae bn ——

xiii

TABLE OF AUTHORITIES -— Continued

Page

Katharine Side, A Dictionary of Arbitration and Its

Terms — Labor-Commercial-International: A Con-

cise Encyclopedia of Peaceful Dispute Settlement

5 Rennes LE SENSI de Fo Ae Err 4

WTO, Understanding on Rules and Procedures

Governing the Settlement of Disputes, http://www.

worldtradelaw.net/uragreements/dsu.pdf..............cceccc0000. 5

1

OPINIONS BELOW

The opinion of the Eleventh Circuit of Appeals is

reported at Davis v. Southern Energy Homes, Inc., 305

F.3d 1268 (11th Cir. 2002), and appears in the Appendix at

1-24. The order denying rehearing appears in the Appen-

dix at 31. The district court’s opinion is not published and

appears in the Appendix at 25-30.

JURISDICTION

The district court had jurisdiction under 15 U.S.C.

§ 2310(d). The Eleventh Circuit had jurisdiction of the

appeal under 9 U.S.C. § 16. The opinion of the Eleventh

Circuit was issued September 19, 2002, App. at 1, and the

petitioners timely filed an Application for Rehearing on

October 3, 2002. The court denied rehearing on November

14, 2002. App. at 31. This court has jurisdiction under 28

U.S.C. § 1254(1).

STATUTES INVOLVED

9 U.S.C. § 2, Federal Arbitration Act.

15 U.S.C §§ 2302, 2309, 2310, Magnuson-Moss War-

ranty-Federal Trade Commission Improvement Act.

16 C.F.R. § 700.8, Interpretations, Warrantor’s Deci-

sion as Final.

16 C.F.R. §§ 703.1, 703.5, Informal Dispute Settlement

Procedures.

STATEMENT OF THE CASE

The Davises filed this action in the Circuit Court of

Lowndes County, Alabama, to recover for defects in a

manufactured home constructed by Southern. They

alleged state-law claims for fraud, negligence, and wan-

tonness, together with state-law and MMWA claims for

breach of warranty.

They further alleged that Southern’s warranty con-

tained an arbitration provision and that they had been

2

required to execute arbitration provisions as part of

product purchase. They alleged that these provisions

violated the MMWA and its regulations and “create[d] a

cause of action in favor of the plaintiffs under sections

2302 and 2310(d)(1) of title 15.” Southern removed the

action to the United States District Court for the Middle

District of Alabama, where it filed a Motion to Compel

Arbitration based on the arbitration provision in its

warranty. App. at 26-27, 51.

The district court denied Southern’s motion on the

ground that the MMWA precludes arbitration of written

warranty claims. App. at 29-30. Southern appealed, and

the Eleventh Circuit reversed, holding that “the MMWA

permits the enforcement of valid binding arbitration

agreements within written warranties.” App. at 6. The

court further held that “[iJn light of the Supreme Court’s

acknowledgement and continual enforcement of the strong

federal policy toward arbitration ... we conclude that the

FTC’s interpretation of the MMWA is unreasonable, and

we decline to defer to the FTC regulations of the MMWA

regarding binding arbitration.” App. at 23. The plaintiffs

filed an Application for Rehearing, which the court denied

without further opinion. App. at 31.

REASONS FOR GRANTING THE WRIT

I. THE ELEVENTH CIRCUIT ERRED BY HOLD-

ING THAT THE MMWA ALLOWS WARRAN-

TORS TO CREATE BINDING ARBITRATION

PROCEDURES AT THE TIME OF PRODUCT

SALE.

Summary. The test for determining whether a federal

statute preserves a judicial forum is stated in Shear-

son/American Express, Inc. v. McMahon, 482 U.S. 220,

227 (1987). “If Congress did intend to limit or prohibit

waiver of a judicial forum for a particular claim, such an

intent ‘will be deducible from [the statute’s] text or legisla-

tive history, ... or from an inherent conflict between

arbitration and the statute’s underlying purposes.”

3

Although the Eleventh Circuit correctly cited this test, it

failed tn give the statutory term, dispute settlement proce-

dure, its generally accepted meaning, and it ignored

relevant legislative history.

A. The Text: MMWA Dispute Settlement Pro-

cedures May Not Be Binding, and Arbitra-

tion is a Dispute Settlement Procedure.

1. MMWA dispute settlement procedures may not be

binding. All courts that have considered the issue, includ-

ing those that permit binding arbitration, have deter-

mined that MMWA dispute settlement procedures may not

be binding. See, e.g., Walton v. Rose Mobile Homes, LLC,

298 F.3d 470, 476 (5th Cir. 2002). The Eleventh Circuit

likewise recognized that “any informal dispute settlement

procedure must be non-binding.” App. at 14.

These holdings are consistent with language of the

Act. First, on a procedural level, the Act states that “the

consumer may not commence a civil action (other than a

class action) under subsection (d) of this section unless he

initially resorts to such procedure.” 15 U.S.C. § 2310(a)(3).

This implies that the dispute settlement procedure may

not be “final” or “binding.” If it were, the words requiring

only that the consumer “initially resort” to the procedure

would be meaningless.

Second, on an administrative level, the Act states that

the prohibition of suit applies only if the warrantor’s

settlement procedure “meets the requirements of the

Commission rules.” 15 U.S.C. § 2310(a)(3). Since the

Commission’s rules prohibit binding procedures, 16 C.FR.

§ 703.54), this language prohibits a warrantor from

creating a binding procedure.

Third, on an evidentiary level, the Act states, “In any

civil action arising out of a warranty obligation and

relating to a matter considered in such a procedure, any

decision in such procedure shall be admissible in evi-

dence.” 15 U.S.C. § 2310(a)(3). This implies that the

decision will have an evidentiary, but not binding, effect.

4

And finally, on a jurisdictional level, section 2310(d)

states, “Subject to subsections (a)(3) [informal dispute

settlement procedures] and (e) [class actions], a consumer

who is damaged ... may bring suit for damages and other

legal and equitable relief.” This, of course, implies that the

dispute settlement procedure may not be binding; if it

were, no right to suit would exist following utilization of

the procedure.

2. Arbitration is a dispute settlement procedure. The

Davises argued that “Congress used the terms ‘dispute

settlement procedures’ and ‘dispute settlement mecha-

nisms’ only as generic terms, and thereby included binding

arbitration as a type of alternative dispute resolution

procedure.” App. at 4-5. Without defining arbitration or

dispute settlement procedure, the court rejected this

argument, holding that arbitration “is of a different

nature.” App. at 15.

“In the absence of an indication to the contrary, words

in a statute are assumed to bear their ‘ordinary, contempo-

rary, common meaning.” National R.R. Passenger Corp. v.

Morgan, 122 S.Ct. 2061, 2070 n.5 (2002); see INS v.

Cordoza-Fonseca, 480-U.S. 421, 431 (1987). A statute may

establish an arbitration procedure without using the word

“arbitration.” See Trainmen v. Chicago River & Indiana

R.R., 353 U.S. 30 (1957). The MMWA does not define the

terms “dispute settlement procedure{s],” 15 U.S.C.

§ 2310(a)(4), “informal dispute settlement procedure[s],”

15 U.S.C. §§ 2302(a)(8), 2310(aX2) & 2310(a)\(3), and

“informal dispute settlement mechanisms.” 15 U.S.C.

§ 2310(a)(1). Thus, we must determine their “ordinary,

contemporary, common meaning.”

According to references published before enactment of

the MMWA, dispute settlement procedure is a generic term

that includes “all the possible means available to parties

or governments for the peaceful settlement of a contro-

versy.” Katharine Side, A Dictionary of Arbitration and Its

Terms—Labor-Commercial-International: A Concise Ency-

clopedia of Peaceful Dispute Settlement 73 (1970); see Jack

C. Plano & Roy Olton, The International Relations

5

Dictionary 303 (1969) (defining United Nations dispute

settlement procedures). “The dispute settlement mechanism

. consists of a wide variety of tribunals from informal

mediation to more formal conciliation, to arbitration and

administrative action and finally, judicial proceedings.”

Alfred W. Blumrosen, Labor Arbitration, EEOC Concilia-

tion, and Discrimination in Employment, 24 The Arbitra-

tion Journal 88, 90 (1969).

“Arbitration is a dispute-settlement procedure.” New

Orleans S.S Ass’n v. General Longshore Workers, 626 F.2d

455, 468 (Sth Cir. 1980). Generally, it is the last or final

step in a series of dispute settlement procedures. See

Merton C. Bernstein, Private Dispute Settlement: Cases

and Materials on Arbitration 2 (1968); Frank Elkouri &

Edna Asper Elkouri, How Arbitration Works 106 (3d 1973)

(“Arbitration generally is the last step or terminal point of

dispute settlement under union contracts.”). The American

Arbitration Association created a special division for

consumer arbitrations, and it named that division the

“National Center for Dispute Settlement.” See American

Arbitration Association, National Center for Dispute

Settlement, Consumer Arbitration Rules (1971) (reprinted

in Nationai Institute for Consumer Justice, Staff Studies

at 174-77 (1973) [hereinafter, NICJ, Staff Studies]).

This usage is reflected in statutes, treaties, and

judicial decisions. For instance, the Omnibus Trade and

Competitiveness Act of 1988 defined one of the United

States’ principal trade objectives as “to provide for more

effective and expeditious dispute settlement mechanisms

and procedures.” 19 U.S.C. § 2901(b)(1). Both the North

American Free Trade Agreement (NAFTA) and the World

Trade Organization (WTO) contain disputes settlement

procedures that begin with consultation and end with

arbitration. See NAFTA, Institutional Arrangement and

Dispute Settlement Procedures, chapt. 20, http://www.

worldtradelaw.net/nafta/chap-20.pdf; 19 U.S.C. § 3311

(approving NAFTA); WTO, Understanding on Rules and

Procedures Governing the Settlement of Disputes, http://

www. worldtradelaw.net/uragreements/dsu.pdf; 19 U.S.C.

6

§ 3511(d)(16) (approving WTO dispute settlement proce-

dures); 19 U.S.C. § 3533 (referring to WTO process as

“dispute settlement panels and procedures”).

Decisions of this Court, before enactment of the

MMWA, likewise used the terms dispute settlement proce-

dure and dispute settlement mechanism as generic terms

that included arbitration. In Detroit & Toledo Shore Line

Transport. Union v. United Transport. Union, 396 U.S.

142, 149-50 (1969), this Court said, “[The Railway Labor]

Act established rather elaborate machinery for negotia-

tion, mediation, voluntary arbitration, and conciliation. .. .

There are three status quo provisions of the Act, each

covering a different stage of the major dispute settlement

procedures.” See also Howard Johnson Co. v. Hotel Em-

ployees, 417 U.S. 249, 251 (1974) (“Both agreements

contained dispute settlement procedures leading ultimately

to arbitration.”).

Commenting on a binding arbitration procedure, the

Court in William E. Arnold & Co. v. Carpenters District

Council, 417 U.S. 12, 17 (1974), stated, “[T]he Board has

recognized added policy justifications for deferring to the

[parties’] contractual dispute settlement mechanism.” See

also Buffalo Forge Co. v. United Steelworkers of Am., 428

U.S. 397, 405, 407 (1976) (“dispute-settlement procedures”

and “private dispute settlement mechanisms”). The court

erred in failing to give the statutory terms their ordinary

meaning.

3. If arbitration is not an informal procedure, then

the MMWA prohibits it. The Fifth Circuit has concluded

that the FTC lacks the power to regulate “binding arbitra-

tion [because it] is not normally considered an informal |

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

470, 477 (5th Cir. 2002). This analysis is incorrect for two

reasons.

First, courts and ccmmentators — and even the Ameri-

can Arbitration Association — regard arbitration as an

informal procedure. The House Report on the Dispute

Resolution Act, passed in 1980, referred to “arbitration,

mediation, and conciliation” as “informal methods” of

SS! eRe Te |

7

dispute settlement. H.R. Rep. 96-492, pt. 1, at 14 (1979),

reprinted in 1980 U.S.C.C.A.N. 3, 6. Writing in 1980, the

President of the American Arbitration Association said,

“Arbitration procedures are generally informal.” Robert

Coulson, Business Arbitration -— What You Need to Know 4

(1980); see NICJ, Staff Studies, supra, at 63. Finally, this

court has characterized the arbitration process as one

marked by “simplicity, informalit;, and expedition.”

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,

473 U.S. 614, 628 (1985).

Second, if arbitration is a formal procedure, then the

language of the Act prohibits it. Section 2310(a)(4) allows

the FTC to “review the bona fide operation of any dispute

settlement procedure.” “The word ‘any’ has an expansive

meaning, that is ‘one or some indiscriminately of whatever

kind.’” United States v. Gonzales, 520 U.S. 1, 5 (1997).

Thus, the FTC may review dispute settlement procedures

“of whatever kind”; this includes formal procedures.

Yet, notwithstanding the FTC’s power to review “any

dispute settlement procedure,” sections 2310(a)(2) and

2310(a)(3) only allow warrantors to create informal proce-

dures. “[WJhere Congress includes particular language in

one section of a statute but omits it in another section of

the same Act, it is generally presumed that Congress acts

intentionally and purposefully in the disparate inclusion

or exclusion.” Brown v. Gardner, 513 U.S. 115, 120 (1994).

By allowing the FTC to review “any dispute settlement

procedure,” 15 U.S.C. § 2310(a)(4), but only allowing

warrantors to create “informal dispute settlement proce-

dures,” 15 U.S.C. § 2310(a)(3), Congress prohibited formal

procedures.

4. The Eleventh Circuit’s opinion renders portions of

the MMWA meaningless. Having permitted warrantors to

create non-binding procedures only if those procedures

comply with FTC rules, did Congress intend to permit

warrantors to create similar procedures that are exempt

from FTC regulation? The clear answer to this question is

no. Any other result would render meaningless the por-

tions of the Act regulating dispute settlement procedures.

en eee ee

8

No functional difference exists between dispute

settlement under the MMWA procedures and arbitration

except that arbitration “is usually binding on the parties.”

Compare American Arbitration Association, Supplemen-

tary Procedures for the Resolution of Consumer Related

Disputes, Glossary of Terms, “Arbitration” (Mar. 1, 2002),

available at http://adr.org., with 16 C.F.R. § 703.5 (describ-

ing mechanism procedures). That, however, is not a

sufficient basis to distinguish arbitration from MMWA

procedures.

The FAA does not require that arbitration be binding,

see Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1209

(9th Cir. 1998); Homes of Legend, Inc. v. McCollough, 776

So. 2d 741 (Ala. 2000), and when Congress passed the

MMWA, Pennsylvania and several other states recognized

non-binding arbitration. See Maurice Rosenberg & Myra

Schubin, Trial by Lawyer: Compulsory Arbitration of

Small Claims in Pennsylvania, 74 Harv. L. Rev. 448

(1961); NICJ, Staff Studies, supra, at 72-83 (1973). Fed-

eral courts now have a similar program, 28 U.S.C. § 657,

and statutes in over half the states recognize some form of

non-binding arbitration.

If the MMWA does not apply to arbitration, then any

warrantor may obtain the benefits of warranty settlement

procedures, but escape FTC regulation, by stating in its

warranty, “The dispute settlement procedure created in

this document is arbitration; it is not intended to be an

informal dispute settlement procedure regulated by the

Magnuson Moss Warranty Act.” Why would Congress

regulate some warranty procedures, but leave others

immune from regulation?

Since arbitration is not required to be binding, the

Eleventh Circuit has left no circumstance under which a

warrantor must comply with the FTC regulations. If a

dispute settlement procedure is binding, then the warran-

tor may argue, “It’s not a MMWA procedure; it’s binding

arbitration.” If the dispute settlement procedure is non-

binding, but violates some other FTC regulation, then the

9

warrantor may argue, “It’s not a MMWA procedure; it’s

non-binding arbitration.”

To believe that Congress intended this result, one

must believe that “Congress intended the obligations

established by the Act to be open to evasion by subter-

fuges.” Mourning v. Family Publ’n Serv., Inc., 411 U.S.

356, 371 (1972). Surely this is not the result that Congress

labored over five years to create.

B. Legislative History: Congress Intended

for Warranty Procedures to be Non-

binding.

“The Davises argue[d] that Congress considered all

methods of dispute resolution, including arbitration,

before allowing warrantors to pursue only informal, non-

binding settlement procedures.” App. at 13-14. The Elev-

enth Circuit rejected this argument, stating, “[L]egislative

history only addresses ‘internal [sic] dispute settlement

procedures;’ it never addresses the role of binding arbitra-

tion.” App. at 13. Again, the Eleventh Circuit is incorrect;

it ignored the legislative history.

Senator Magnuson introduced the first version of the

MMWA on October 27, 1969, S. 3074, 91st Cong., 115 Cong.

Rec. 31483 (1969), and the President signed the Act over

five years later on January 4, 1975. Pub. Law No. 93-637,

88 Stat. 2183 (1975). During that period, the National

Institute for Consumer Justice (NICJ) conducted a study

of “voluntary settlement procedures, including arbitration”

at the President’s direction. Richard Nixon, Pub. Papers

’ The court repeatedly referred to the statutory procedures as

“internal dispute settlement procedures.” App. at 13, 17. Although this

language appears in the conference report, it does not appear in the

statute. The conference report reflects, however, that Congress intended

to regulate all “internal or other private dispute settlement procedures,”

which would include external procedures. S. Conf. Rep. No. 93-1408, at

26 (1974), reprinted in 1974 U.S.C.C.AN. 7755, 7758-59; see pages 17-

18 infra.

10

209 (1971) (requesting study); National Institute for

Consumer Justice, Redress of Consumer Grievances (1973)

{hereinafter NICJ, Redress of Grievances] (presenting

results of study).

During debates on the MMWA, Senator Dole argued |

that Congress had “insufficient data on the nature and

frequency of consumer disputes and on the effectiveness of

existing procedures such as small claims courts, class

actions, and private dispute settlement techniques, includ-

ing arbitration in resolving grievances.” 117 Cong. Rec.

39626 (1971). On November 8, 1971, the Senate passed a

version of the Act that authorized a study “of existing and

potential and voluntary settlement procedures, including

arbitration.” 117 Cong. Rec. 39876, 39880 (1971) (passing

Senate Bill 986). The bill thus defined arbitration as a

type of dispute settlement procedure.

Public hearings on the MMWA spanned three sessions

of Congress. See Adequacy of Consumer Redress Mecha-

nisms: Joint Hearing Before the Subcomm. on Consumers

of the Senate Comm. on Commerce and the Subcomm. on

the Representation of Citizens’ Interests of the Senate

Comm. on the Judiciary, 93d Cong. (1973) [hereinafter

Redress Hearings); Consumer Warranty Protection — 1973:

Hearings on H.R. 20 and H.R. 5021 Before the Subcomm.

on Commerce and Finance of the House Comm. on Inter-

state and Foreign Commerce, 93d Cong. (1973) (hereinafter

1973 House Hearings]; Consumer Warranty Protection:

Hearings on H.R. 6313, H.R. 6314, H.R. 261, H.R 4809,

H.R. 5307, H.R. 10673 (and Similar and Identical Bills)

Before the Subcomm. on Commerce and Finance of the

House Comm. on Interstate and Foreign Commerce, 92d

Cong. (1971) [hereinafter 1971 House Hearings]; Warran-

ties and Guaranties: Hearings Before the Subcomm. on

Commerce and Finance of the House Comm. on Interstate

and Foreign Commerce, 91st Cong. (1970) [hereinafter

1970 House Hearings]; Consumer Products Warranties and

Improvement Act of 1971: Hearings on S. 986 Before the

Consumer Subcomm. of the Senate Comm. on Commerce,

92d Cong. (1971) [hereinafter 1971 Senate Hearings);

Consumer Product Warranty Act: Hearings on S. 3074

11

Before the Consumer Subcomm. of the Senate Comm. on

Commerce, 91st Cong. (1970) [hereinafter 1970 Senate

Hearings].

Although the original version of the MMWA encour-

aged warrantors to establish informal dispute settlement

procedures, it did not authorize the FTC to regulate the

procedures, and it did not require consumers to exhaust

them before filing suit. S. 3074, 91st Cong. § 16, 115 Cong.

Rec. 31483, 31485 (1969). Witnesses agreed that arbitra-

tion was an informal dispute settlement procedure, but

they disagreed about whether the FTC should regulate it.

The Chairman of the Federal Trade Commission

argued, “Since an arbitration remedy can be formulated

and administered in a variety of ways, we recommend that

the administering agency be authorized to lay down the

standards to which this arbitration remedy must conform.”

1970 House Hearings, supra, at 64 (statement of Miles W.

Kirkpatrick, Chairman of the FTC). Industry representa-

tives disagreed, arguing, “To require governmental super-

vision of our effort, and the efforts of all independent

organizations that undertake to provide procedures for

arbitrating consumer claims would delay and inhibit their

work.” See 1970 Senate Hearings, supra, at 153 (statement

of George P. Lamb, General Counsel, Associations of Home

Appliance Manufacturers). Congress accepted the FTC’s

recommendation. As passed, the Act authorizes the FTC to

regulate dispute settlement procedures. 15 U.S.C.

§ 2310(a)(2) & 2310(a)(4).

Wi<nesses likewise differed about whether the arbitra-

tion remedy should be binding. FTC Chairman Kirk-

patrick recommended that “a provision be included

requiring warrantors, in the event of a warranty dispute,

to submit to binding arbitration.” 1970 House Hearings,

* After President Nixon requested the study of “voluntary settle-

ment procedures, including arbitration” on February 24, 1971, Richard

Nixon, Pub. Papers 209 (1971), administration officials declined to offer

any further opinions about the proper form for the procedures, citing

(Continued on following page)

Cn oa ei em

12

supra, at 64. In the 1973 House Hearings Mr. Lemov

questioned Professor Leary about the possibility that the

Act would permit warrantors to require binding arbitra-

tion:

MR. LEMOV. Assuming this section was the law and

a consumer resorted to such [informal dispute settle-

ment] procedure and the decision was rendered by the

arbitration panel, would you say there would be court

review of that proceeding?

MR. LEARY. I would think it would depend entirely

on how the procedure was set up as to whether you

are going to bring into operation all the arbitration

statutes which limit court review of arbitrators’

awards.

MR. LEMOV. Is it possible that might be construed as

eliminating court review of the decision?

MR. LEARY. I think it would depend on how the pro-

cedure is set up, how it is set up by the industry and J

think they would write it so it would be final, binding

and conclusive and bar all the courts.

1973 House Hearings, supra, at 120-21.

The House Report clearly stated that it intended to

preclude this possibility: “An adverse decision in any

informal dispute settlement proceeding would not be a bar

to a civil action on the warranty involved in the proceed-

ing.” H.R. Rep. No. 93-1107 (1974), reprinted in 1974

U.S.C.C.A.N. 7702, 7723; see also S. Rep. No. 93-151 at 23

(1973) (“Any purchaser who utilizes an informal dispute

settlement mechanism would not be prevented from

seeking formal judicial relief following such utilization.”).

The minority views in the House Report, however,

criticized the majority report for failing to give sufficient

consideration to binding arbitration, stating, “These

matters [typical consumer complaints] can be more

the pending study. See 1971 Senate Hearings, supra, at 218-19; 1971

House Hearings, supra, at 250; 1973 House Hearings, supra, at 73-74.

ee ee eS ee Se ee

13

promptly and effectively resolved through such techniques

as more efficient small claims courts, neighborhood courts,

binding consumer arbitration, voluntary settlement

mechanisms, and improved enforcement agencies.” H.R.

Rep. No. 93-1107 (1974), reprinted in 1974 U.S.C.C.A.N.

7702, 7749.

The NICJ released its report in November 1973, and

representatives of the Institute, including present Su-

preme Court Justice Antonin Scalia, appeared before

Congress. See Redress Hearings, supra. The report rec-

ommended “that in some circumstances persons be per-

mitted to resort to arbitration only after they have

exhausted reasonable internal grievance procedures.”

NICJ, Redress of Grievances, supra, at 10; see also 120

Cong. Rec. 55 (1974) (summarizing NICJ recommenda-

tions). i

Senators questioned Judge Braucher of the Massa-

chusetts Supreme Court, the chairman of the NICJ Board,

not about whether consumers should exhaust internal

procedures before pursuing arbitration, but about whether

they should exhaust arbitration before filing suit:

SENATOR MOSS. Do you think that arbitration

might be better used in conjunction with some other

mechanism, such as a small claims court? Do you

think that we can have a more formal dispute mecha-

nism to be used with it?

JUDGE BRAUCHER. This is a matter we discussed

at considerable length, and there are models in the

field, as the chairman knows. We referred to the re-

port of the Philadelphia program, I think, and the

Harlem, New York City Program, where arbitration

right at the courthouse with lawyers taking the load

from the court cases, «nd that has worked and

worked pretty well.

* * *

SENATOR MOSS. That is something I was puzzling

about, whether it [arbitration] needed to be combined

with a more formal procedure, in order to persuade

the parties, so to speak, to get down to arbitration,

14

without losing the value of voluntary give-and-take

that settles the matter.

Redress Hearings, supra, at 10-11.

The Philadelphia and New York programs were non-

binding arbitration programs. See NICJ, Staff Studies,

supra, at 73, '78; see Maurice Rosenberg & Myra Schubin,

Trial by Lawyer: Compulsory Arbitration of Small Claims

in Pennsylvania, 74 Harv. L. Rev. 448 (1961) (reporting on

effectiveness of programs). These comments reflect Sena-

tor Moss’ consideration of informal, non-binding arbitra-

tion, after which the consumer could resort to a “more

formal procedure,” court. These comments also reflect

Congress’ judgment that the possibility of court action was

necessary to encourage warrantors “to develop workable

informal dispute settlement procedures.” S. Rep. No. 93-

151, at 8 (1973).

Senator Tunney questioned Judge Braucher further:

SENATOR TUNNEY. The Institute has recommended

business redress proposals. One proposal is to require

the consumer to first use whatever business-

sponsored mechanism exists prior to allowing a small

claims court action. Do you feel such a proposal is

fair?

JUDGE BRAUCHER. The recommendation that you

are referring to on that, well, at least the one I recall,

has to do with the possibility of exhausting internal

grievance procedures before you go to arbitration.

That is on page 10, recommendation No. 8. Now, I

don’t remember having a similar thing about small

claims, and I would be a little more dubious about it

here.

Redress Hearings, supra, at 17.

Congress did not fully accept the NICJ recommenda-

tions. Rather than requiring consumers to exhaust inter-

nal procedures before pursing binding arbitration, as the

NICJ had recommended, the MMWA requires consumers

to exhaust informal dispute settlement procedures before

filing suit. 15 U.S.C. § 2310(a)(3). This remedy was similar

to the Philadelphia and New York non-binding arbitration

15

programs that had “worked and worked pretty well.”

Redress Hearings, supra, at 10.

The Senate Commerce Committee Report on the

Consumer Controversies Resolution Act _ specifically

describes the MMWA as doing this:

Several existing experiments, which utilize proce-

dures such as arbitration prior to adjudication in or-

der to dispose of controversies more quickly, have

been brought to the Committee’s attention. Obviously,

the most efficient resolution of many disputes is to

encourage the parties to resolve them. This principle

was recognized by the Committee in section 110(a) [15

U.S.C. § 2310] of the Magnuson-Moss Warranty-

Federal Trade Commission Improvement Act, which

encourages the development of informal dispute set-

tlement mechanisms by warrantors.

S. Rep. No. 95-210, at 7 (1977).

By 1978 representatives of the American Arbitration

Association were complaining about the non-binding

arbitration procedure that the MMWA had established.

Testifying about the proposed Consumer Controversies

Resolution Act, its Associate General Counsel stated,

“There are certain provisions under the Magnuson-Moss

Warranty Act which have proven extremely difficult to

work with: (1) The mechanism for resolving disputes must

be nonbinding.” Consumer Controversies Resolution Act:

Hearings Before the Subcomm. on Consumer Protection

and Finance of the House Comm. on Interstate and Foreign

Comm., 95th Cong. 137 (1978). She then thanked Con-

gress for not including a similar prohibition in the Con-

sumer Controversies Act, stating, “This stumbling block

has been eliminated from the new bills.” Id.

In 1980 Congress passed the Dispute Resolution Act.

Pub. Law No. 96-190, 94 Stat. 17. This Act defined the

term dispute resolution mechanism as “a forum which

provides for arbitration, mediation, conciliation, or a

similar procedure, which is available to resolve a minor

dispute.” Id. at § 3(4), 94 Stat. at 18. The House Report

on this Act used the MMWA term, dispute settlement

16

mechanism, as synonymous with the term dispute resolu-

tion mechanism used in the Dispute Resolution Act. H.R.

Rep. 96-492, pt. 1, at 17 (1979) (“We expect that any

effective dispute settlement mechanism should not only

resolve individual disputes.... ”), reprinted in 1980

U.S.C.C.A.N. 3, 8.

The statutory definition in the Dispute Settlement Act

confirms that Congress used the term informal dispute

settlement procedure as a generic term for all non-judicial

dispute resolution procedures, including arbitration. See

FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120,

143 (2000) (subsequent acts may focus statute’s meaning).

States have defined the term informal dispute settlement

procedure as arbitration.’

* See, e.g., Fla. Stat. Ann. § 681.102(17) (2002) (“ ‘Procedure’ means

an informal dispute-settlement procedure established by a manufac-

turer to mediate and arbitrate motor vehicle warranty disputes.”); Ga.

Code Ann. § 10-1-782(8) (2002) (“‘Informal dispute resolution settle-

ment mechanism’ means any procedure established, employed, utilized,

or run by a manufacturer for the purpose of resolving disputes with

consumers regarding any warranty.”); Idaho Code § 48-906(2) (2002)

(“An informal dispute settlement mechanism provided by this chapter

shall, at the time a request for arbitration is made, provide to the

consumer and to each person who will arbitrate the consumer’s dispute,

information... .”); Ky. Rev. Stat. Ann. § 367.865 (2000) (refers to

decision maker in informal dispute resolution procedure as arbitrator);

Me. Rev. Stat. Ann. tit. 10, § 1161(5) (2001) (“‘State-certified arbitra-

tion’ means the informal dispute settlement procedure administered by

the Department of the Attorney General which arbitrates consumer

complaints....”); Minn. Stat. § 325F.665(1)(f) (2001) (“‘Informal

dispute settlement mechanism’ means an arbitration process or

procedure by which the manufacturer attempts to resolve disputes with

consumers....”); N.J. Rev. Stat. § 56-12-30 (2000) (“‘Manufacturer’s

informal dispute settlement procedure’ means an arbitration process or

procedure by which the manufacturer attempts to resolve disputes with

consumers regarding motor vehicle nonconformities and repairs. .. . ”);

N.H. Rev. Stat. § 357-D:4(IV) (2002) (“Arbitration of the consumer’s

complaint, either through the manufacturer’s dispute settlement

mechanism or the board, shall be heid within 40 days... .”); N.Y. Gen.

Bus. Law § 198-a(m) (2002) (refers to decision makers in informal

dispute settlement mechanism as “arbitrators”).

f

5

ee ee

17

The Conference Report on the final version of the

MMWA shows that Congress intended for the FTC and

courts to regulate arbitration under the Act:

It should be recognized, however, that provision for

governmental or consumer participation in internal or

other private dispute settlement procedures under the

bill is required by the legislation. ... The conference

substitute provides that the Federal Trade Commis-

sion shall establish rules for dispute settlement proce-

dures which operate under the legislation, and may

disapprove noncomplying procedures. Commission

rules must provide for participation in such proce-

dures by independent or governmental entities. An

independent entity is one which is not under the con-

trol of any party to the dispute. A governmental entity

would include a state or local agency or a small claims

court.[*] ... [T]he conferees recognize the limited re-

sources of the Commission and the fact that its other

responsibilities may preclude it from acting in some

cases where private dispute settlement proceedings

may not comply with the legislation or the Commis-

sion’s rules thereunder. Accordingly, the courts would

be free to determine that a given dispute settlement

procedure need not be exhausted because it was not

fair, had no provision for governmental or consumer

participation, or did not comply with FTC rules.

S. Conf. Rep. No. 93-1408, at 26 (1974), reprinted in 1974

U.S.C.C.A.N. 7755, 7758-59.

Congress had considered two types of private proce-

dures: internal procedures and arbitration. In his remarks

at the hearings on Redress Mechanisms, present Supreme

Court Justice Antonin Scalia had used the term “private

mechanism” to refer to both of these devices, stating,

* The reference to court participation in the settlement procedures

may be understood as a reference to the type of non-binding arbitration

programs about which Judge Braucher was questioned during the

Redress Hearings and to which the Senate Report on the Consumer

Controversies Resolution Act referred. See pages 13-14 supra.

18

“(T]he portions of the report that deal with private mecha-

nisms — the first two sections concerning internal mecha-

nisms and arbitration — are the portions that are perhaps

the most difficult to implement.” Redress Hearings, supra,

at 9 (remarks of Honorable Antonin Scalia). Justice Scalia

distinguished these “private mechanisms” from “court

mechanisms and other governmental mechanisms.” Jd. at

10.

Arbitration is a private dispute settlement procedure,

and the conference report reflects that Congress intended

for the FTC and courts to regulate it. See Trans World

Airlines, Inc. v. Independent Fed’n of Flight Attendants,

489 U.S. 426, 441 (1988) (“private dispute resolution

procedures”); Buffalo Forge Co. v. United Steelworkers of

Am., 428 U.S. 397, 407 (1976) (“private dispute settlement

mechanisms”); 117 Cong. Rec. 39626 (1971) (“private

dispute settlement techniques”) (statement of Senator

Dole); Merton C. Bernstein, Private Dispute Settlement:

Cases and Materials on Arbitration (1968) (book title).

The Eleventh Circuit concluded that “legislative

history . . . never addresses the role of binding arbitration.”

App. at 13. Contrary to that holding, Congress considered

three specific recommendations for binding arbitration:

one from the FTC commissioner, one from the minority

House Report, and one from the National Institute for

Consumer Justice. Congress rejected these proposals and

permitted warrantors to create only informal, non-binding

procedures, all subject to FTC regulation.

Il. THE ELEVENTH CIRCUIT ERRED BY IN-

VOKING THE FEDERAL POLICY IN FAVOR

OF ARBITRATION AS BASIS FOR DISRE-

GARDING THE FTC’S INTERPRETATION OF

THE MMWA

Summary. The validity of agency regulations is

determined by the test articulated in Chevron, U.S.A. v.

Natural Resources Defense Council, 467 U.S. 837, 842-43

(1984): first, “whether Congress has directly spoken to the

19

precise question at issue;” and second, “if the statute is

silent or ambiguous with respect to the specific issue, ...

whether the agency’s answer is based on a permissible

construction of the statute.”

Although the Eleventh Circuit determined that

neither the MMWA nor its history addresses binding

- arbitration, App. at 19, the court did not determine

whether “the agency’s answer is based on a permissible

construction” of the MMWA as required by Chevron. 467

U.S. at 842-43. Rather, it invoked the “strong federal

policy toward arbitration” as a basis for invalidating the

regulations. App. at 23. This was contrary to Chevron and

its progeny.

A. The FTC Regulations.

Section 2310(a)(4) authorizes the FTC to “review the

bona fide operation of any dispute settlement procedure

resort to which is stated in a written warranty to be a

prerequisite to pursuing a legal remedy,” and section

2310(a)(2) directs it to “prescribe rules setting forth

minimum requirements for any informal dispute settle-

ment procedure which is incorporated into the terms of a

written warranty.” Section 2309 required the FTC to

provide notice of proposed rulemaking, to receive oral and

written “presentations of data, views, and arguments,”

and to keep a record of its proceedings. It also authorized

judicial review of regulations adopted. 15 U.S.C. § 2309.

Congress intended for the MMWA regulations to carry

the force of law. Section 2310(b) of title fifteen states, “It

shall be a violation of section 5(a)(1) of the Federal Trade

Commission Act for any person to fail to comply with any

requirement imposed on any person by this title (or any

rule thereunder).”

In adopting regulations under the MMWA, the FTC

rejected industry arguments for binding arbitration. It

noted, “Several industry representatives contended that

warrantors should be allowed to require consumers to

resort to mechanisms whose decisions would be legally

binding (e.g., binding arbitration). The Rule does not allow

20

this.” 40 Fed. Reg. 60168, 60210 (1975). “[RJeference

within the written warranty to any binding, non-judicial

- remedy is prohibited by the Rule and the Act.” Id. at

60211.

The FTC gave two reasons for rejecting binding

arbitration. “First, as the Staff Report indicates, Congres-

sional intent was that Section 110 Mechanisms not be

legally binding.” Jd. at 60210. Second, the FTC was “not

now convinced that any guidelines which it set out [for

binding arbitration] could ensure sufficient protection for

consumers.” Jd.

Under legislative regulations adopted in 1975,

“[d]ecisions of the Mechanism shall not be legally binding

on any person,” 16 C.F.R. § 703.5(j), and the mechanism is

required to inform the consumer that “legal remedies,

including the use of small claims court, may be pursued.”

16 C.F.R. § 703.5(g). Under interpretative regulations

adopted in 1977, “A warrantor shall not indicate in any

written warranty ... that the decision of the warrantor,

service contractor, or any designated third party is final or

binding .... Nor shall a warrantor state that it alone shall

determine what is a defect .... Such statements are

deceptive.” 42 Fed. Reg. 36112, 36116 (1977) (codified at 16

C.F.R. § 700.8).

On April 22, 1999, the FTC completed a review of its

legislative regulations, and it again rejected industry

arguments for binding arbitration. 64 Fed. Reg. 19700,

19708-09 (1999). It also approved Wilson v. Waverlee

Homes, Inc., 954 F. Supp. 1530 (M.D. Ala.), aff’d, 127 F.3d

40 (1lth Cir. 1997), noting, “At least one federal district

court has upheld the Commission’s position that the

Warranty Act does not intend for warrantors to include

binding arbitration clauses in written warranties on

consumer products.” Jd. at 19709 n.72 (1999).

B. The Legal Standard.

“Valid regulations establish legal norms,” United

States v. Haggar Apparel Co., 526 U.S. 380 (1999), and are

entitled to “legislative effect.” Atkins v. Rivera, 477 U.S.

eT TT Ne TT

21

154, 162 (1986). The test for determining whether an

agency interpretation carries the force of iaw is whether

“Congress delegated authority to the agency generally- to

make rules carrying the force of law, and {[whether] the

agency interpretation claiming deference was promulgated

in the exercise of that authority.” United States v. Mead

Corp., 533 U.S. 218, 226-27 (2001). “[A]ny ensuing regula-

tion is binding in the courts unless procedurally defective,

arbitrary or capricious in substance, or manifestly con-

trary to the statute.” Jd. at 227; see also Chevron, U.S.A. v.

Natural Res. Def. Council, 467 U.S. 837, 842-43 (1984).

This level of deference is known as “Chevron deference.”

Under this standard, “[i]f the agency's interpretation

is not in conflict with the plain language of the statute,

deference is due.” National R.R. Passenger Corp. v. Boston

& Maine Corp., 503 U.S. 407, 417 (1992). “(Legislative

history which does not demonstrate a clear and certain

congressional intent cannot form the basis for enjoining

regulations.” Rust v. Sullivan, 500 U.S. 173, 190 (1991).

Other agency interpretations — those not adopted in

the exercise of an agency’s statutory authority to make law

— are entitled to respect, “but only to the extent that those

interpretations have the power to persuade.” National

R.R. Passenger Corp. v. Morgan, 122 S. Ct. 2061, 2071 n.6

(2002); Christensen v. Harris County, 529 U.S. 576, 587

(2000). Agency “interpretative guidelines” are entitled to

this type of deference, which is known as Skidmore defer-

ence. See id.; Skidmore v. Swift & Co., 323 U.S. 134 (1944).

C. The Eleventh Circuit’s Analysis.

I. The Eleventh Circuit erred by invoking the federal

policy in favor of arbitration as a basis for refusing to

enforce FTC regulations. The Eleventh Circuit “conclude[d]

that Congress failed to directly address binding arbitra-

tion anywhere in the text of or legislative history of the

MMWA.” App. at 19. Notwithstanding this, the court

refused to defer to the FTC’s interpretation of the Act.

The basis for the court’s refusal to defer was “the

strong federal policy toward arbitration.” App. at 23. This,

ee

22

however, is not a sufficient basis for stripping the FTC of

its statutory powers under the MMWA. As this court

recently stated, “(T]he proarbitration policy goals of the

FAA do not require [an] agency to relinquish its statutory

authority.” EEOC v. Waffle House, Inc., 534 U.S. 279, 294

(2002).

A federal agency, such as the FTC, may issue regula-

tions and determinations that limit the application of

other federal laws. See United States v. Alaska, 503 U.S.

569 (1992) (Corps of Engineers regulations, under Rivers

and Harbors Appropriation Act, could alter Alaska’s

seaward boundary under Submerged Lands Act); Norfolk

& Western Ry. Co. v. American Train Dispatchers Ass’n,

499 U.S. 117 (1991) (ICC, acting under Interstate Com-

merce Act, could abrogate collective bargaining agreement

enforceable under Railway Labor Act).

“(T]he purpose of Congress in 1925 was to make

arbitration agreements as enforceable as other contracts,

but not more so.” Prima Paint Corp. v. Flood & Conklin

Mfg. Co., 388 U.S. 395, 404 n.12 (1967). The FAA does not

preclude otherwise valid agency action; a court may nullify

an arbitration provision “upon such grounds as exist at

law or equity for the revocation of any contract.” 9 U.S.C.

§ 2. An agency regulation or determination is a recognized

ground for refusing to enforce a contract. See, e.g., Norfolk

& Western Ry. Co. v. American Train Dispatchers Ass’n,

499 U.S. 117 (1991).

2. The Eleventh Circuit erred by holding that section

700.8 contains the reason that the FTC rejected binding

arbitration. The court determined that section 700.8 is a

legislative regulation, that it contains the reason that the

FTC rejected binding arbitration, and that “the motive

behind the legislative regulation is contradictory to Su-

preme Court rationale.” App. at 21; see also App. at 20 (“In

its legislative regulations, the FTC reasoned that a deci-

sion regarding the warranty dispute may not be binding

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

courts jurisdiction over suits for breach of warranty and

service contracts.’”). The court was incorrect.

———

23

First, section 700.8 is not a legislative regulation; it is

an interpretation. The order adopting section 700.8 stated

that the interpretations “are not . . . substantive rules, and

do not have the force or effect of statutory provisions.” 42

Fed. Reg. 36112 (1977). Second, no evidence establishes

that section 700.8 contains the reason that the FTC

rejected binding arbitration. Section 700.8 does not men-

tion arbitration, and the FTC proposed it on August 16,

1976, see 41 Fed. Reg. 34654, 34656 (1976), over seven

months after it had rejected binding arbitration. See 40

Fed. Reg. 60168, 60210 (1975). Finally, the FTC did not

mention section 700.8 in 1999 when it reviewed its rules

against binding arbitration. See 64 Fed. Reg. 19700,

19708-09 (1999).

Considering legislative history, section 700.8 was

probably drafted to prohibit a warranty practice known as

“the opinion of the seller governs.” 120 Cong. Rec. 31317,

31320 (1974). “This clause typically reads, ‘The manufac-

turer will be the sole judge of whether the part is defec-

tive.” Id. This practice is deceptive, as the FTC

determined, because “section 110(d) of the Act gives state

and federal courts jurisdiction over suits for breach of

warranty and service contracts.” 16 C.F.R. § 700.8.

3. The Eleventh Circuit erred by refusing to defer to

the FTC's definition of “dispute settlement procedure.” The

court acknowledged that “any informal dispute procedure

must be non-binding,” App. at 14, and that “{iJn its inter-

pretative regulations, the FTC has defined ‘mechanism’

broadly to include all non-judicial resolution procedures,

including arbitration. See 40 Fed. Reg. 60167, 60210

(1975).” App. at 17-18.

First, the language cited is not an interpretative

regulation; it is the FTC’s explanation for the legislative

regulation contained in section 703.5(j). This definition is

entitled to deference. Hillsborough County v. Automated

Med. Labs, Inc., 471 U.S. 707, 714-16 (1985) (deferring to

explanatory statement made in adopting regulations);

National R.R. Passenger Corp. v. Boston & Marine Corp.,

503 U.S. 407, 420 (1992) (“[T]he fact that the ICC did not

24

in so many words articulate its interpretation of the word

‘required’ does not mean that we may not defer to that

interpretation.”).

Second, the definition of statutory terms is a classic

agency function. See, e.g., Nationsbank of N.C. v. Variable

Annuity Life Ins., 513 U.S. 251, 257 (1995). (“If the admin-

istrator’s reading fills a gap or defines a term in a way

that is reasonable in light of the legislature’s revealed

design, we give the administrator’s judgment ‘controlling

weight.’”); Smiley v. Citibank (S.D.), N.A., 517 U.S. 735

(1996) (deferring to definition of “interest”); National R.R.

Passenger Corp. v. Boston & Marine Corp., 503 U.S. 407

(1992) (deferring to definition of “required”); Chevron,

U.S.A. v. Natural Res. Def. Council, 467 U.S. 837 (1984)

(deferring to definition of “stationary source”); Zenith

Radio Corp. v. United States, 437 U.S. 443 (1978) (defer-

ring to definition of “bounty”).

Chevron recognizes that an agency may formulate

policy and “speak with the force of law” on issues about

which Congress had no specific intent. See United States v.

Mead Corp., 533 U.S. 218, 229 (2001). The court in Chev-

ron stated, “(W]e agree with the Court of Appeals that

Congress did not have a specific intention on the applica-

bility of the bubble concept in these cases, and conclude

that the EPA’s use of that concept here is a reasonable

policy choice for the agency to make.” 467 U.S. at 845; see

Chevron, U.S.A., Inc. v. Echazabal, 122 S. Ct. 2045 (2002)

(deferring to EEOC regulation establishing new ADA

defense).

Congress specifically intended for the FTC to deter-

mine what warranty procedures were subject to regulation

and the limits of that regulation. 15 U.S.C. §§ 2310(a)(2),

2310(a)(4); cf. Yellow Transport., Inc. v. Michigan, 123

S. Ct. 371, 378 (2002) (“It was precisely Congress’ com-

mand, ... that the ICC promulgate standards to govern

the Single State Registration System.”). If the FTC had

not defined mechanism broadly, then any warrantor could

easily evade FTC requirements — including its rules on

25

disclosure, impartiality, and fairness — by creating unregu-

lated procedures. Cf. Mourning v. Family Publ’n Serv.,

Inc., 411 U.S. 356, 371 (1972) (“To hold that Congress did

not intend the [FTC] to take action against this type of

manipulation would require us to believe that ... Con-

gress intended the obligations established by the Act to be

open to evasion by subterfuges.”).

Since Southern contended that the FTC regulations

were invalid, it bore the burden not merely of refuting that

arbitration is a type of dispute settlement procedure, but

also of proving that the FTC’s interpretation is unreason-

able. See National Cable & Telecomm. Ass’n, Inc. v. Gulf

Power Co., 534 U.S. 327, 333 (2002) (“Respondents’ bur-

den, then, is not merely to refute the proposition that ‘any

attachment’ means ‘any attachment’; they must also prove

the FCC’s interpretation is unreasonable.”).

The FTC’s definition of dispute settlement procedure to

include arbitration is consistent with dictionaries of

arbitration terms, ordinary English usage, and legislative

history. See pages 4-5, 9-18 supra. As a matter of law, the

FTC’s adoption of a standard dictionary definition of

dispute settlement procedure is reasonable and controlling.

See National R.R. Passenger Corp. v. Boston & Maine

Corp., 503 U.S. 407, 418 (1992).

4. The Eleventh Circuit erred by refusing to defer to

the FTC’s construction of the statutory language. The

first reason given by the FTC for rejecting binding

arbitration was “as the Staff Report indicates, Congres-

sional intent was that Section 110 Mechanisms not be

legally binding.” 40 Fed. Reg. 60168, 60210 (1975). If the

Staff Report was a “subcommittee staff report,” App. at

* The FTC order adopting the MMWA regulations refers to two

staff reports. The report of its own staff, the FTC Staff Report, and the

staff report of the House Subcommittee on Commerce and Finance. The

FTC refers to the subcommittee staff report as “House Subcomm. Staff

Report.” 40 Fed. Reg. 60168, 60169, n.9 (1975). This report appears at

120 Cong. Rec. 31317 (1974).

26

21, then presumptively it would support the FTC’s inter-

pretation of the statute. See Ruckelshaus v. EPA, 463 U.S.

680, 689 n.10 (1983) (relying on staff report); Heckler v.

Campbell, 461 U.S. 458, 466 n.10 (1983) (relying on staff

report).

Yet, although the Staff Report “appears to no longer

be attainable,” App. at 21, the court nevertheless dis-

missed the FTC’s reliance on it as unreasonable. This was

an improper assignment of the burden of proof. As the

party challenging the FTC’s interpretation, Southern was

required to prove that the FTC interpretation was unrea-

sonable. See National Cable & Telecomm. Ass’n, Inc. v.

Gulf Power Co., 534 U.S. 327, 333 (2002). Without examin-

ing the Staff Report, the court had no factual or legal basis

for its conclusion that the FTC’s reliance on it was unrea-

sonable.

Moreover, the court never discussed the remainder of

the FTC’s first and primary rationale; namely, that “Con-

gressional intent was that Section 110 Mechanisms not be

legally binding.” 40 Fed. Reg. 60210 (1975). In 1999 the

FTC again stated that binding arbitration was “contrary to

the Congressional intent” “based on the plain language of

the Warranty Act.” 64 Fed. Reg. 19700, 19708-09 (1999).

“A reviewing court is not free to set aside those regulations

simply because it would have interpreted the statute in a

different manner.” Batterton v. Francis, 432 U.S. 416, 425

(1977). Having determined that Congressional intent was

unclear, the court was required to defer to the FTC’s

construction of the statute.

5. The Eleventh Circuit erred by substituting its

judgment for that of the FTC about the fairness of con-

sumer arbitration. The second reason given by the FTC for

rejecting binding arbitration was “even if binding Mecha-

nisms were contemplated,” it was “not now convinced that

any guidelines which it set out could ensure sufficient

protection for consumers.” 40 Fed. Reg. 60210 (1975). The

court rejected this rationale, concluding, that, in Shear-

son/American Express, Inc. v. McMahon, 482 U.S. 220

27

(1987), this court had “declin[ed] to defer to the SEC’s

interpretation of the Securities Exchange Act of 1934

based on” a similar rationale. App. at 21.

First, this was a secondary basis for the FTC’s rejec-

tion of binding arbitration; this reasoning is important

only if the primary basis for the FTC’s decision — its

interpretation of Congressional intent — is unreasonable.

Second, the court’s explanation of the holding in McMahon

is incorrect. In McMahon “the SEC hald] specifically

approved the arbitration procedures of the New York Stock

Exchange, the American Stock Exchange, and the NASD.”

482 U.S. at 234. Although an old SEC regulation prohib-

ited arbitration agreements, the SEC’s position was that

the regulation should not be enforced. 482 U.S. at 234 n.3

& 243. The court did not “declin[e] to defer” to the regula-

tion; under Chevron no deference is due to abandoned

agency views, such as the SEC’s abandoned opposition to

arbitration agreements. See Estate of Cowart v. Nicklos

Drilling Co., 505 U.S. 469, 480 (1992).

Moreover, Congress recently accepted many of the

arguments that consumers have long made about the

unfairness of mandatory arbitration provisions, S. Rep.

No. 107-266, at 5-8 (2002) (describing unfairness of man-

datory arbitration clauses), and provided that such provi-

sions are unenforceable in motor vehicle franchise

contracts. Pub. L. No. 107-273, § 11028(a)(2), 116 Stat.

1758 (2002). “The same arguments which support the

argument against enforcement of these provisions in

business-to-business contracts apply more strongly to

consumer contracts.” Fairness and Voluntary Arbitration

Act: Hearings on H.R. 534 Before the Subcomm. on Com-

mercial and Administrative Law of the House Comm. of

the Judiciary, 106th Cong. 157 (2000) (statement of Joan

Claybrook, President of Public Citizens Congress Watch).

Even the American Arbitration Association’s general

counsel admitted reservations about the fairness of pre-

dispute arbitration clauses in consumer contracts:

The Advisory Committee, which prepared the

Consumer Due Process Protocol, was divided on the

28

question of whether pre-dispute agreements to arbi-

trate were suitable for transactions between indi-

viduals and businesses, under any circumstances.

Some commentators feel strongly that such agree-

ments are not appropriate, on the basis of such con-

cerns as the reasonable expectations of consumers

and relative bargaining power.

Id. at 114 (statement of Florence Peterson); see National

Consumer Disputes Advocacy Committee, American

Arbitration Association, Consumer Due Process Protocol

Introduction: Genesis of Advisory Committee (1998)

(recognizing “legitimate concerns regarding the fairness of

consumer conflict resolution mechanisms ... particularly

... binding arbitration.”), available at http://adr.org.

“[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.” United

States v. Mead Corp., 533 U.S. 218, 229 (2001); see also

Chevron, 467 U.S. at 866 (“When a challenge to an agency

construction of a statutory provision, fairly conceptualized,

really centers on the wisdom of the agency’s policy, ... the

challenge must fail.”). As a matter of law, the FTC did not

act unreasonably in adopting a rationale similar to that

recently accepted by Congress.

Ill. THIS COURT SHOULD DECIDE THE IM-

PORTANT QUESTIONS OF WHETHER THE

MMWA PROHIBITS WARRANTY PROVI-

SIONS REQUIRING BINDING ARBITRATION

AND WHETHER THE FEDERAL POLICY FA-

VORING ARBITRATION IS A SUFFICIENT

BASIS FOR DISREGARDING THE FTC’S IN-

TERPRETATION OF THE MMWA.

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

(M.D. Ala. 1997), aff’d, 127 F.3d 40 (11th Cir. 1997), held

that the MMWA prohibits binding arbitration of consumer

warranty disputes; it was the first case to address the

issue. The Eleventh Circuit affirmed Waverlee without

29

opinion, and the FTC approved the decision. See 64 Fed.

Reg. 19700, 19709 n.72 (1999).

Federal district courts followed Waverlee. See Browne

v. Kline Tysons Imports, Inc., 190 F. Supp. 2d 827 (E.D. Va.

2002); Yeomans v. Homes of Legend, Inc., 2001 U.S. Dist.

LEXIS 2528 (M.D. Ala. 2001); Pitchford v. Oakwood

Mobile Homes, Inc., 124 F. Supp. 2d 958, 962-65 (W.D. Va.

2000); Raesly v. Grand Hous., Inc., 105 F. Supp. 2d 562,

573 (S.D. Miss. 2000); Wood v. Cooper Chevrolet, Inc., 102

F. Supp. 2d 1345, 1349 (N.D. Ala. 2000); Andrews v. Grand

Manor, Inc., 1999 U.S. Dist. LEXIS 15429 (S.D. Ala. July

13, 1999), adopted, 1999 U.S. Dist. LEXIS 15464 (S.D. Ala.

Sept. 13, 1999); Rhodes v. E & T Investments, Inc., 6

F.Supp. 2d 1322 (M.D. Ala. 1998); Boyd v. Homes of

Legend, Inc., 981 F. Supp. 1423 (M.D. Ala. 1997), rev’d on

other grounds, 188 F.3d 1294 (11th Cir. 1999), as did some

state courts. See Parkerson v. Smith, 817 So. 2d 529 (Miss.

2002). Compare Southern Energy Homes, Inc. v. Lee, 732

So. 2d 994 (Ala. 1999) (following Waverlee), with Southern

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

(overruling Lee).

In holding that the MMWA allows warrantors to

impose binding arbitration on consumers, the Eleventh

Circuit characterized the issue as an “important question,”

App. at 1, about which “state and federal courts are

sharply divided.” App. at 5. This issue affects the legal

rights of every citizen in the nation. Consumers have no

more power today than in 1975 to negotiate sales terms. If

suppliers require a waiver of judicial access as a condition

of selling human necessities, as is the case in Alabama, S.

Rep. No. 107-266, at n.5 (2002) (“Mandatory binding

arbitration clauses are not prevalent in most dealer-

consumer new car contracts except in Alabama.”), then

consumers have no alternative but to surrender their

rights to judicial access.

By holding that arbitration is not a dispute settlement

procedure, the Eleventh Circuit disregarded the FTC’s

long-standing interpretation of the MMWA, 16 C.FR.

§ 703.5G); 40 Fed. Reg. 60168, 60210 (1975), and it

30

stripped the FTC of its statutory power to regulate con-

sumer warranties. Any supplier may evade FTC regula-

tion by labeling its dispute settlement procedure

“arbitration.” This nullifies the statutory scheme that

permits warranty settlement procedures only if those

procedures comply with FTC regulations, 15 U.S.C.

§ 2310, and it is contrary to Chevron, U.S.A. v. Natural

Res. Def. Council, 467 U.S. 837 (1984).

These important issues have not been, but should be,

settled by this court. See Sup. Ct. R. 10(c). Moreover, the

Eleventh Circuit’s decision is in conflict with the decision

of the Mississippi Supreme Court in Parkerson v. Smith,

817 So. 2d 529 (Miss. 2002), a state court of last resort. See

Sup. Ct. R. 10(a).

Although Congress enacted the MMWA over twenty-

eight years ago, and although it is the only national

consumer warranty law, this court has never decided any

case under it.

CONCLUSION

For the reasons stated above, the Court should grant

the Petition for a Writ of Certiorari, resolve the important

issues raised, and reverse the decision of the Eleventh

Circuit Court of Appeals.

Respectfully submitted,

G. HOUSTON HOWARD II

Counsel of Record for Petitioners

HOWARD, DUNN, HOWARD

& HOWARD

P. O. Box 1148

Wetumpka, AL 36092

(334) 567-4356

App. l

Michael Shane DAVIS, Heather N. Davis,

Plaintiffs-Appellees,

Vv.

SOUTHERN ENERGY HOMES, INC.,

a corporation, Defendant-Appellant,

Bilo Homes, Inc. a corporation,

David L. Smitherman, Defendants.

No. 01-13831.

United States Court of Appeals, Eleventh Circuit

Sept. 19, 2002.

W. Scott Simpson, Birmingham, AL, James C. Pen-

nington, Amy Elizabeth Glenos, Ogletree, Deakins, Nash

Smoak & Stewart, P.C., Birmingham, AL, for Defendant-

Appellant.

G. Houston Howard, II, Howard, Dunn, Howard &

Howard, Wetumpka, AL, for Plaintiffs-Appellees.

Appeal from the United States District Court for the

Middle District of Alabama.

Before ANDERSON and DUBINA, Circuit Judges,

and MILLS’, District Judge.

DUBINA, Circuit Judge:

The important question presented in this appeal is

whether the Magnuson-Moss Warranty Act permits or

prohibits the enforcement of pre-dispute binding arbitration

‘ Honorable Richard Mills, U.S. District Judge for the Central

District of Illinois, sitting by designation.

App. 2

clauses within written warranties. We hold that the

Magnuson-Moss Warranty Act permits binding arbitration

and that a written warranty claim arising under the

Magnuson-Moss Warranty Act may be subject to a valid

pre-dispute binding arbitration agreement.

I. BACKGROUND

In October 1999, Michael Shane Davis and Heather N.

Davis (“the Davises”) purchased a manufactured home

constructed by Southern Energy Homes, Inc. (“Southern”).

When the Davises purchased the home, they signed a

binding arbitration agreement contained within the

manufactured home’s written warranty. The Davises later

discovered multiple defects in the home and notified

Southern of the problems. After Southern failed to correct

the defects to the Davises’ satisfaction, the Davises filed

suit in the Circuit Court of Lowndes County, Alabama,

asserting claims for breach of express and implied warran-

ties, violations of the Magnuson-Moss Warranty-Trade

Commission Act (“MMWA” or “the Act”), negligent and

wanton repair, and fraud. Southern removed the case to

federal court and, in lieu of an answer, filed a Motion to

Dismiss or, in the Alternative, to Compel Arbitration. The

district court, relying on its prior decision in Yeomans v.

Homes of Legend, Inc., 2001 WL 237313, No. 00-D-824-N

(M.D.Ala. March 5, 2001), which found that the MMWA

prohibits binding arbitration, denied Southern’s motion.

Southern timely appealed the district court’s order deny-

ing Southern’s Motion to Compel Arbitration.

App. 3

II. ISSUES

(1) Whether Southern waived its right to appeal the

district court’s order denying its Motion to Compel

Arbitration when Southern conceded that the district

court was bound by its prior decision in Yeomans.

(2) Whether the Magnuson-Moss Warranty Act permits

or precludes enforcement of binding arbitration

agreements with respect to written warranty claims.

III. STANDARD OF REVIEW

We review a district court’s order denying a motion to

compel arbitration de novo. Cunningham v. Fleetwood

Homes of Ga., Inc., 253 F.3d 611, 614 (11th Cir. 2001)

(citing Paladino v. Avnet Computer Techs., Inc., 1384 F.3d

1054, 1060 (11th Cir. 1998)).

IV. DISCUSSION

A. Waiver of Right to Appeal

The Davises contend that Southern waived its right to

appeal by acknowledging to the district court that the

court was bound by its prior holding in Yeomans. We

disagree that Southern waived its right to appeal. South-

ern argued in its initial motion and brief to the district

court that Yeomans and the cases Yeomans relies upon are

incorrect. Southern, therefore, maintained its position and

did not waive its right to appeal. Thus, we must consider

the merits of this appeal.

App. 4

B. The MMWA and Binding Arbitration of Written

Warranty Claims

In this appeal, Southern argues that, based upon the

strong federal policy of enforcing valid arbitration agree-

ments under the Federal Arbitration Act (“FAA”), the

Davises must submit their written warranty claims to

binding arbitration rather than file suit for breach of

warranty. To support this argument, Southern notes that

the Supreme Court continually enforces binding arbitra-

tion agreements of statutory claims and argues that the

MMwWA is similar to these other statutes because nothing

in the MMWA’ss text, legislative history, or underlying

purposes evinces that Congress intended to preclude

binding arbitration of written warranty claims. Southern

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

regulations and interpretations, which prohibit binding

arbitration of MMWA claims, are unreasonable, and thus,

we should accord them no deference.

The Davises, conversely, assert that arbitration is an

improper forum for MMWA claims and that the Act’s

language, legislative history, and underlying purposes

compel a conclusion that dispute settlement procedures

cannot be binding under the MMWA. The Davises argue

that § 2310(a) of the MMWA, which states that consumers

must resort to a warrantor’s informal dispute settlement

mechanism before commencing a civil action, necessarily

implies that the decision of any informal settlement

procedure may not be binding. They reason that Congress’

use of different terminology to describe the settlement

procedures of § 2310(a) throughout the MMWA’s text and

legislative history, combined with the absence of any

statutory definition for the terms, establishes that Con-

gress used the terms “dispute settlement procedures” and

App. 5

“dispute settlement mechanisms” only as generic terms,

and thereby included binding arbitration as a type of

alternative dispute resolution procedure. The Davises also

argue that this court must defer to the FTC regulations,

which reject binding arbitration of written warranty

claims arising under the MMWA, because the FTC rea-

sonably interpreted the MMWA in these regulations.

We recognize that state and federal courts are sharply

divided on whether the MMWA permits pre-dispute

binding arbitration of written warranty claims. Compare

Boyd v. Homes of Legend, Inc., 981 FSupp. 1423

(M.D.Ala.1997), remanded on jurisdictional grounds, 188

F.3d 1294 (11th Cir.1999), Wilson v. Waverlee Homes, Inc.,

954 F.Supp. 1530 (M.D.Ala.1997), Rhode v. E & T Invs.,

Inc., 6 F.Supp.2d 1322 (M.D.Ala.1998), Pitchford v. Oak-

wood Mobile Homes, Inc., 124 FSupp.2d 958

(W.D.Va.2000), Parkerson v. Smith, 817 So.2d 529

(Miss.2002), Browne v. Kline Tysons Imports, Inc., 190

F.Supp.2d 827 (E.D.Va.2002), and Borowiec v. Gateway

2000, Inc., 331 Ill.App.3d 842, 265 Ill.Dec. 218, 772 N.E.2d

256 (2002), with Southern Energy Homes, Inc. v. Ard, 772

So.2d 1131 (Ala.2000), 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), In re American Homestar of Lan-

caster, Inc., 50 S.W.3d 480 (Tex.2001), and Howell v.

Cappaert Manufactured Hous., Inc., 819 So.2d 461

(La.App.2002). The Fifth Circuit is the only circuit court to

directly address this issue and, in a divided panel decision,

it held that the MMWA permits binding arbitration. See

Walton v. Rose Mobile Homes LLC, 298 F.3d 470 (5th Cir.

App. 6

2002). After a thorough review of the MMWA and its

legislative history, the FAA and the Supreme Court’s

application of the FAA to other federal statutes, we con-

clude that the MMWA permits the enforcement of valid

binding arbitration agreements within written warranties.

1. MMWA

Congress passed the MMWA in 1975 in response to an

increasing number of consumer complaints regarding the

inadequacy of warranties on consumer goods. See H.R.Rep.

No. 93-1107 (1974), reprinted in 1974 U.S.C.C.A.N. 7702,

7705-11. The purpose of the MMWA is “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). In

order to advance these goals, § 2310(d) of the MMWA

provides a statutory private right of action to consumers

“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. ...” Jd. § 2310(d)(1). Consumers may sue

for a MMWA violation in either state or federal court. Id.

' In Cunningham v. Fleetwood Homes of Ga., 253 F.3d 611 (11th

Cir.2001), this court discussed binding arbitration of MMWA claims. We

declined to resolve the question, however, because it was not necessary

to the resolution of that case. 253 F.3d at 623-24 (“We are not required

to and do not decide whether Magnuson-Moss makes arbitration

agreements unenforceable as to all Magnuson-Moss claims. Nor it is

necessary for us to determine whether warrantors may include binding

arbitration provisions in the warranty itself.”).

App. 7

In order to encourage settlements by means other

than civil lawsuits, § 2310(a) allows a warrantor to include

a provision for an informal dispute settlement mechanism

in a warranty. Id. § 2310(a)(3); see also H.R.Rep. No. 93-

1107 (1974), reprinted in 1974 U.S.C.C.A.N. 7702, 7722

(“Congress declares it to be its policy to encourage warran-

tors to establish procedures whereby consumer disputes

are fairly and expeditiously settled through informal

dispute settlement mechanisms.”). Although the MMWA

does not define “informal dispute settlement procedure,” it

does provide that if a warrantor incorporates a § 2310(a)

informal dispute settlement procedure into the warranty,

the provision must comply with the minimum require-

ments that the FTC prescribes. 15 U.S.C. § 2310(a)(2). If

the informal dispute settlement procedure properly com-

plies with the FTC’s minimum requirements, and if the

written warranty requires that the consumer “resort to

such procedure before pursuing any legal remedy under

this section respecting such warranty, the consumer may

not commence a civil action . . . under subsection (d) of this

section unless he initially resorts to such procedure.... ”

Id. § 2310(a)(3).

2. FAA

Congress enacted the FAA in 1925 to reverse the

longstanding judicial hostility towards arbitration and “to

place arbitration agreements on the same footing as other

contracts.” EEOC v. Waffle House, Inc., 534 U.S. 279, 122

S.Ct. 754, 761, 151 L.Ed.2d 755 (2002) (citing Gilmer v.

Interstate / Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct.

1647, 1651, 114 L.Ed.2d 26 (1991)). Section 2 of the FAA

provides:

App. 8

A written provision in any ... contract evidenc-

ing a transaction involving commerce to settle by

arbitration a controversy thereafter arising out of

such contract or transaction, or the refusal to

perform the whole or any part thereof, or an

agreement in writing to submit to arbitration an

existing controversy arising out of such a con-

tract, ... shall be valid, irrevocable, and enforce-

able, save upon such grounds as exist at law or in

equity for the revocation of any contract.

9 U.S.C. § 2 (1994). The Supreme Court has interpreted

§ 2 of the FAA as “a congressional declaration of a liberal

federal policy favoring arbitration agreements.” Moses H.

Cone Mem’ Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24,

103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983).

Generally, a court should enforce an arbitration

agreement according to its terms, and no exception exists

for a cause of action founded on statutory rights. Mitsubi-

shi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.

614, 626-27, 105 S.Ct. 3346, 3354, 87 L.Ed.2d 444 (1985)

(holding that “the Act itself provides no basis for disfavor-

ing agreements to arbitrate statutory claims by skewing

the otherwise hospitable inquiry into arbitrability”). In

every statutory right case that the Supreme Court has

considered, it has upheld binding arbitration if the statute

creating the right did not explicitly preclude arbitration.

See Gilmer, 500 U.S. at 35, 111 S.Ct. at 1657 (holding that

courts should enforce binding arbitration agreements

regarding claims arising under the ADEA); Rodriguez de

Quijas v. Shearson/American Express, Inc., 490 U.S. 477,

484-86, 109 S.Ct. 1917, 1921-22, 104 L.Ed.2d 526 (1989)

(holding that courts should enforce pre-dispute agree-

ments to arbitrate claims under the Securities Act of

1933); Shearson/American Express, Inc. v. McMahon, 482

i Seas ene he Viral ae aba

App. 9

U.S. 220, 238, 242, 107 S.Ct. 2332, 2343, 2345-46, 96

L.Ed.2d 185 (1987) (holding that courts should enforce

pre-dispute agreements to arbitrate Securities Exchange

Act of 1934 claims and Racketeer Influenced and Corrupt

Organizations Act claims); Mitsubishi Motors Corp., 473

U.S. at 628-40, 105 S.Ct. at 3355-61 (holding that courts

should enforce arbitration of Sherman Antitrust Act claims

in international transactions). “Having 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.” Mitsu-

bishi Motors Corp., 473 U.S. at 628, 105 S.Ct. at 3354-55.

Thus, unless Congress has clearly expressed an intention

to preclude arbitration of the statutory claim, a party is

bound by its agreement to arbitrate. Jd. ’

3. McMahon Test

Turning to whether Congress intended to preclude

arbitration of a statutory claim, we follow the Supreme

Court’s McMahon test. McMahon, 482 U.S. at 226-27, 107

S.Ct. at 2337-38. In McMahon, the Supreme Court in-

structed us to consider three factors in deducing Congress’

intent: (1) the text of the statute; (2) its legislative history;

* We understand that arbitration agreements, like any other

contract, are subject to general contract law and defenses. “Of course,

courts should remain attuned to well-supported claims that the

agreement to arbitrate resulted from the sort of fraud or overwhelming

economic power that would provide grounds ‘for the revocation of any

contract.’” Mitsubishi Motors Corp., 473 U.S. at 627, 105 S.Ct. at 3354

(quoting 9 U.S.C. § 2 (1994)). In this opinion, however, we address only

the enforcement of binding arbitration agreements under the MMWA

absent such other general contract law considerations.

App. 10

and (3) whether “an inherent conflict between arbitration

and the underlying purposes [of the statute]” exists. Id. at

227, 107 S.Ct. at 2338. The party opposing the enforce-

ment of the arbitration agreement has the burden of

showing that Congress intended to preclude arbitration of

the statutory claim. Jd. In applying the McMahon test,

“questions of arbitrability must be addressed with a

healthy regard for the federal policy favoring arbitration.”

Gilmer, 500 U.S. at 26, 111 S.Ct. at 1652 (quoting Moses H.

Cone Mem1 Hosp., 460 U.S. at 24, 103 S.Ct. at 941). Thus,

we analyze each factor in turn to determine whether

Congress clearly expressed an intention to preclude

binding arbitration of MMWA claims.

a. McMahon Factor One: MMWA’s Text

The MMWA’s text does not expressly prohibit arbitra-

tion and, in fact, fails to directly mention either binding

arbitration or the FAA. Nevertheless, the Davises argue

that the MMWA reserves strictly a judicial forum for

consumers by providing a private right of action for

consumers. The Supreme Court, however, has held that a

statute’s provision for a private right of action alone is

inadequate to show that Congress intended to prohibit

arbitration. Gilmer, 500 U.S. at 29, 111 S.Ct. at 1653-54

(rejecting the argument that binding arbitration is im-

proper “because it deprives claimants of the judicial forum

provided for by the ADEA”). As the Fifth Circuit recently

recognized, “binding arbitration generally is understood to

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

Walton, 298 F.3d at 475 (citing Mitsubishi Motors Corp.,

473 U.S. at 628, 105 S.Ct. at 3354) (“By agreeing to arbi-

trate a statutory claim, a party does not forgo the substan-

tive rights afforded by the statute; it only submits to their

App. 11

resolution in an arbitral, rather than judicial, forum.”).

Furthermore, the fact that the MMWA grants a judicial

forum with concurrent jurisdiction in state and federal

courts for MMWA claims is insufficient evidence that

Congress intended to preclude binding arbitration. See

McMahon, 482 U.S. at 227, 107 S.Ct. at 2338 (rejecting the

argument that compulsory arbitration under the Securi-

ties Exchange Act of 1934 is improper because the statute

provides that “[tJhe district courts of the United States...

shall have exclusive jurisdiction of violations of this

title.... ”); see also Gilmer, 500 U.S. at 29, 111 S.Ct. at

1654 (noting that Congress’ grant of concurrent jurisdic-

tion in state and federal courts for ADEA claims is consis-

tent with binding arbitration because “arbitration

agreements, ‘like the provision for concurrent jurisdiction,

serve to advance the objective of allowing [claimants] a

broader right to select the forum for resolving disputes,

whether it be judicial or otherwise’”) (quoting Rodriguez

de Quijas, 490 U.S. at 483, 109 S.Ct. at 1921).

The Davises also argue that because § 2310(d) lists

only two exceptions to the private right of action, the

internal dispute settlement procedure referenced in

§ 2310(a) and the class action exception referenced in

§ 2310(e),° Congress intended to preclude any other

method of dispute resolution, including binding arbitra-

tion. See Transamerica Mortgage Advisors, Inc. v. Lewis,

444 U.S. 11, 19-20, 100 S.Ct. 242, 247, 62 L.Ed.2d 146

(1979) (“[W]here a statute expressly provides a particular

remedy or remedies, a court must be chary of reading

* Section 2310(e) is irrelevant to the present discussion.

App. 12

others into it. When a statute limits a thing to be done in a

particular mode, it includes the negative of any other

mode.”) (internal quotations and citations omitted). The

§ 2310(a) exception to a consumer’s private right of action

states that, if a warrantor establishes an informal dispute

settlement procedure, a consumer must resort to the proce-

dure “before pursuing any legal remedy under this section

respecting such warranty.” 15 U.S.C. § 2310(a)X(3)(c). Section

2310(a) also states that “the consumer may not commence a

civil action ... unless he initially resorts to such proce-

dure” and that “[iJn any civil action arising out of a war-

ranty obligation and relating to a matter considered in

such a procedure, any decision in such procedure shall be

admissible in evidence.” Jd. Based on this language, the

Davises assert that Congress intended to allow only non-

binding alternative dispute resolution procedures. We

disagree.

In Cunningham v. Fleetwood Homes of Ga., Inc., we

noted that the district court erred “in concluding that,

standing alone, the presence of the non-binding § 2310

mechanism in the statutory text requires the conclusion

that Magnuson-Moss claims may not be the subject of

binding arbitration agreements.” 253 F.3d 611, 619 (11th

Cir. 2001). The fact that the MMWA regulates § 2310(a)

informal dispute settlement procedures does not mean

that the Act precludes a court from enforcing a valid

binding arbitration agreement. See id. at 620 (noting that

a statute’s provision for one out-of-court settlement

mechanism does not necessarily preclude the enforcement

of all alternative mechanisms); see also Gilmer, 500 U.S. at

29, 111 S.Ct. at 1654 (holding that the ADEA’s provision

for “out-of-court dispute resolution” is not inconsistent

with permitting arbitration under the FAA and that it

App. 13

even “suggests that out-of-court dispute resolution, such

as arbitration, is consistent with the statutory scheme

established by Congress”). Thus, we are unpersuaded that

Congress intended to bar binding arbitration agreements

in the language of the MMWA.

b. McMahon Factor Two: Legislative History

The second factor the Supreme Court instructs us to

examine in determining Congress’ intent to preclude the

application of the FAA is the MMWA’s legislative history.

See McMahon, 482 U.S. at 226-27, 107 S.Ct. at 2338. Like

the MMWA’ss text, its legislative history only addresses

“internal dispute settlement procedures;” it never directly

addresses the role of binding arbitration or the FAA. In

trying to show that Congress intended to bar binding

arbitration, the Davises rely on the MMWA’s House

Report, which notes that “[aJn adverse decision in any

informal dispute settlement proceeding 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 Davises argue that Congress considered all

* The Davises also assert that the Senate intended to bar binding

arbitration in the following legislative history:

For many years warranties have confused and misled the

American consumer. A warranty is a complicated legal

document whose full essence lies buried in myriads of re-

ported legal decisions and in complicated State codes of

commercial law. The consumer’s understanding of what a

warranty on a particular product means to him frequently

does not coincide with the legal meaning.... Typically, a

consumer today cannot bargain with consumer product

manufacturers or suppliers to obtain a warranty or to adjust

the terms of a warranty voluntarily offered. Since almost all

(Continued on following page)

App. 14

methods of dispute resolution, including arbitration,

before allowing warrantors to pursue only informal, non-

binding settlement procedures. After a thorough reading of

the MMWA's legislative history, we disagree.

The Davises have proved only that the MMWA’s

legislative history is ambiguous at most. When considering

a preliminary draft of the MMWA, the Senate reflected

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.” S.Rep. No. 91-876, at 22-

23 (1970) (emphasis added). As the Fifth Circuit con-

cluded, “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,

consumer products sold today are typically done so with a

contract of adhesion, there is no bargaining over contractual

terms.

S. Rep. No. 93-151, quoted in 40 Fed.Reg. 60168 (1975). Although

several other courts have found this language persuasive, see, e.g., Boyd

v. Homes of Legend, Inc., 981 F.Supp. 1423, 1439 (M.D.Ala.1997), we do

not. Instead, we conclude that this passage only expresses Congress’

concerns over the complexities of warranties and the unequal bargain-

ing power between warrantors and consumers. The passage does not,

however, prohibit binding arbitration. To hold otherwise would be to

revert to a Wilko attitude towards arbitration. See Rodriguez de Quijas,

490 U.S. at 481, 109 S.Ct. at 1920 (“To the extent that Wilko rested on

suspicion of arbitration as a method of weakening the protections

afforded in the substantive law to would-be complainants, it has fallen

far out of step with our current strong endorsement of the federal

statutes favoring this method of resolving disputes.”).

App. 15

which is of a different nature.” Walton, 298 F.3d at 476. In

McMahon, the Supreme Court upheld binding arbitration

even though the Securities Exchange Act of 1934’s legisla-

tive history implied that Congress intended to adopt the

Wilko attitude that arbitration is an inadequate forum in

which to enforce statutory claims. McMahon, 482 U.S. at

238, 107 S.Ct. at 2343. Any congressional intent to pro-

hibit arbitration in the MMW4A’s legislative history is

considerably less clear than the legislative history of the

Securities Exchange Act of 1934, which the Supreme Court

held did not prohibit binding arbitration in McMahon. In

light of this ambiguity, the Davises fail to carry their

burden of showing a clear congressional intent to prohibit

binding arbitration of MMWA claims. Thus, given the

absence of any meaningful legislative history barring

binding arbitration, coupled with the unquestionable

federal policy favoring arbitration, we conclude that

Congress did not express a clear intent in the MMWA’s

legislative history to bar binding arbitration agreements

in written warranties.

c. McMahon Factor Three: The MMWA’s Un-

derlying Purposes

The last McMahon factor requires us to examine the

purposes of the MMWA to determine whether the MMWA

and the FAA conflict. See McMahon, 482 U.S. at 226-27,

107 S.Ct. at 2337-38. The MMWA expressly states three

purposes: “to improve the adequacy of information avail-

able to consumers, prevent deception, and improve compe-

tition in the marketing of consumer products.” 15 U.S.C.

§ 2302(a). These purposes are not in conflict with the FAA.

In fact, the Supreme Court has repeatedly enforced arbi-

tration of statutory claims where the underlying purpose

Apo. 16

of the statutes is to protect sad inform consumers. See,

e.g., Basic Inc. v. Levinson, 485 U.S. 224, 234, 108 S.Ct.

978, 985, 99 L.Ed.2d 194 (1988) (stating that a fundamen-

tal purpose of the Securities Acts is the disclosure of

information to potential investors); Rodriguez de Quijas,

490 U.S. at 485-86, 109 S.Ct. at 1922 (holding that parties

may arbitrate Securities Act of 1933 claims); McMahon,

482 U.S. at 242, 107 S.Ct. at 2345 (holding that parties

may arbitrate Securities Exchange Act of 1934 claims).

“[E]ven claims arising under a statute designed to further

important social policies may be arbitrated because so long

as the prospective litigant effectively may vindicate [his or

her] statutory cause of action in the arbitral forum, the

statute serves its function.” Green Tree Fin. Corp.-Ala. uv.

Randolph, 531 U.S. 79, 90, 121 S.Ct. 513, 521, 148 L.Ed.2d

373 (2000) (citations omitted) (holding that parties may

arbitrate Truth in Lending Act claims). Consumers can

adequately vindicate their rights arising under the MMWA

and written warranties in an arbitral forum. See Allied-

Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 280, 115

S.Ct. 834, 842, 130 L.Ed.2d 753 (1995) (“Congress, when

enacting [the FAA], had the needs of consumers ... in

mind.”). Thus, we conclude that the MMWA’s consumer

protection goals do not conflict with the FAA.

The MMWAs legislative history also indicates that

Congress was concerned with addressing the unequal

bargaining power between warrantors and consumers

with the enactment of the MMWA, thus creating another

possible purpose.” Unequal bargaining power alone,

* See note 4.

App. 17

however, is not a sufficient reason to never enforce an

arbitration agreement of a statutory claim. Gilmer, 500

U.S. at 33, 111 S.Ct. at 1655 (stating that “[mJere inequal-

ity in bargaining power, however, is not a sufficient reason

to hold that arbitration agreements are never enforce-

able. .. ”). Inequality in bargaining power is a procedural

question that courts should analyze on a case by case

basis. Id.; see also McMahon, 482 U.S. at 230-31, 107 S.Ct.

at 2339-40. Thus, unequal bargaining power, like the three

declared purposes of the MMWA, does not create such a

conflict with the FAA so as to prohibit binding arbitration

of MMWA claims.

4. FTC Regulations and the Chevron Test

The Davises further argue that we must defer to the

FTC regulations, which prohibit binding arbitration.

Section 2310(a) authorizes the FTC to promulgate regula-

tions for the MMWA’s internal dispute settlement proce-

dures. 15 U.S.C. § 2310(a)(2). The FTC defines

“mechanism” as “an informal dispute settlement procedure

which is incorporated into the terms of a written warranty

to which any provision of Title I of the Act applies, as

provided in section 110 of the Act.” 16 C.F.R. § 703.1(e)

(2002). The FTC has clearly stated that the mechanism is

only a precursor to litigation and never binding. Id.

§ 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.”).

Specifically, the FTC regulations provide that “[dJecisions

of the Mechanism shall not be legally binding on any

person.” Jd. § 703.5(j). In its interpretive regulations, the

App. 18

FTC has defined “mechanism” broadly, to include all non-

judicial resolution procedures, including arbitration. See

40 Fed.Reg. 60167, 60210 (1975) (stating that binding

arbitration is a “mechanism [] whose decisions would be

legally binding”); see also 40 Fed.Reg. 60618, 60211 (1975)

(stating that a “reference within the written warranty to

any binding, non-judicial remedy is prohibited by the Rule

and the Act”).

In determining whether we should defer to the FTC’s

interpretation of the MMWA, we look to the Supreme

Court’s decision of Chevron U.S.A., Inc. v. Natural Res.

Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81

L.Ed.2d 694 (1984).

When a court reviews an agency’s construction of

the statute which it administers, it is confronted

with two questions. First, always, is the question

whether Congress has directly spoken to the pre-

cise question at issue. If the intent of Congress is

clear, that is the end of the matter; for the court,

as well as the agency, must give effect to the un-

ambiguously expressed intent of Congress. If,

however, the court determines Congress has not

directly addressed the precise question at issue,

the court does not simply impose its own con-

struction on the statute, as would be necessary in

the absence of an administrative interpretation.

Rather, if the statute is silent or ambiguous with

respect to the specific issue, the question for the

court is whether the agency’s answer is based on

a permissible construction of the statute.

Chevron, 467 U.S. at 843-44, 104 S.Ct. at 2781-82. Under

this instruction, we must first determine whether Con-

gress directly addressed binding arbitration under the

MMWA. See id. If Congress’ intent is clear, our inquiry

App. 19

ends as we must uphold Congress’ will. Jd. If, however,

Congress is silent or the statute is ambiguous, we must

then decide if the FTC’s interpretation is reasonable. Jd.

a. Congress’ intent

“Addressing the first prong of the Chevron inquiry . ..

we begin by examining the language in the enforcement

provision itself.” Smith v. BellSouth Telecomm., 273 F.3d

1303, 1307 (11th Cir. 2001). After the previously illus-

trated thorough examination of the MMW4A’s text and

legislative history, we conclude that Congress failed to

directly address binding arbitration anywhere in the text

or legislative history of the MMWA.° See discussion infra

Parts IV.B.3.a-3.b. Because we believe the intent of Con-

gress is unclear, we must proceed to the second prong of

the Chevron analysis.

b. Reasonableness of the FTC’s construction

The second prong of the Chevron inquiry requires us

to determine whether the FTC’s construction of the statute

is reasonable. See Chevron, 467 U.S. at 843-44, 104 S.Ct.

at 2781-82; see also Amberg v. FDIC, 934 F.2d 681, 687

(5th Cir. 1991) (“[Wle will not bow our heads with closed

eyes and walk away; rather we must still look at the

* In Walton, the Fifth Circuit held that because Congress did not

evince a clear intent to prohibit arbitration in the MMWA, “[t]he clear

congressional intent in favor of enforcing valid arbitration agreements

controls in this case.” 298 F.3d at 478. Thus, believing that Congress’

clear intent in passing the FAA controlled the MMWA, the majority

opinion of Walton never reached the second prong of the Chevron

analysis. Jd. at 478 n. 14.

App. 20

[agency’s interpretations] and see if they can be classified

as reasonable.”).’ In determining whether the FTC regula-

tions are reasonable, we look to the rationale behind the

FTC’s construction. In its legislative regulations, the FTC

reasoned that a decision regarding the warranty dispute

may not be binding because “section 110(d) of the Act gives

state and federal courts jurisdiction over suits for breach

of warranty and service contracts.” 16 C.F.R. § 700.8. The

FTC further explained that binding arbitration agree-

ments are not allowed in written warranties for several

reasons:

First, as the Staff Report indicates, Congres-

sional intent was that decisions of Section 110

Mechanisms not be legally binding. Second, even

if binding Mechanisms were contemplated by

Section 110 of the Act, the Commission is not

prepared, at this point in time, to develop guide-

lines for a system im which consumers would

commit themselves, at the time of product pur-

chase, to resolve any difficulties in a binding, but

non-judicial, proceeding. The Commission is not

now convinced that any guidelines which it set

" The Chevron standard of deference appears to apply only to the

FTC's legislative regulations, and not to the FTC’s interpretive regula-

tions. See Walton, 298 F.3d at 474 n. 7 (discussing the level of deference

for legislative regulations versus interpretive regulations). Thus, 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 they “have the power to per-

suade.” See Christensen v. Harris County, 529 U.S. 576, 587, 120 S.Ct.

1655, 1663, 146 L.Ed.2d 621 (2000) (quoting Skidmore v. Swift & Co.,

323 U.S. 134, 140, 65 S.Ct. 161, 164, 89 L.Ed. 124 (1944)) (internal

quotations omitted); see also Walton, 298 F.3d at 474 n. 7.

App. 21

out could ensure sufficient protection for con-

sumers.

40 Fed.Reg. 60167, 60210 (1975). In light of the FTC’s

reasoning, we conclude its rationale is unreasonable and

do not defer to it.

In the legislative regulations, the FTC bases its

construction on Congress’ grant of concurrent jurisdiction.

See 16 C.F.R. § 700.8. As we previously discussed, a

statute’s provision for a judicial forum does not preclude

enforcement of a binding arbitration agreement under the

FAA. See infra pp. 1273-74. Thus, the FTC’s motive behind

the legislative regulation is contradictory to Suprem>

Court rationale, and we conclude that its interpretation is

unreasonable. See McMahon, 482 U.S. at 238, 107 S.Ct. at

2343 (refusing to follow Congress’ prohibition of arbitra-

tion in the Securities Exchange Act of 1934’s legislative

history when Congress’ motive was contradictory to

Supreme Court rationale). We also conclude that the FTC’s

additional rationale is unreasonable. Although the FTC

first stated that it looked to a subcommittee staff report

(which appears to no ionger 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 McMa-

hon, 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 defer to the SEC’s interpretation of the Securities

Exchange Act of 1934 based on the SEC’s Wilko attitude).

Instead, the Supreme Court holds that arbitration is

favorable to the individual. See Allied-Bruce Terminix

Cos., 513 U.S. at 279, 115 S.Ct. at 842-43 (noting that

“arbitration’s advantages often would seem helpful to

App. 22

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

less expensive alternative to litigation.”).

The dissent in Walton, which holds that the FTC

regulations are reasonable, admits that “deference might

be inappropriate if the FTC’s concerns about the impact of

binding arbitration on consumers were attributable to the

Commission’s reliance on the Supreme Court’s expressed

hostility towards arbitration in now-abandoned cases such

as Wilko.” 298 F.3d at 476 (King, dissenting) (citing

McMahon, 482 U.S. at 234 n. 3, 107 S.Ct. at 2341 n. 3)

(declining to defer to the SEC’s interpretation of the

Securities Exchange Act of 1934 based on the SEC’s

admission that its actions were “based on the court of

appeals decision following Wilko, ... that agreements to

arbitrate Rule 10b-5 claims were not, in fact, enforceable”).

The Walton dissent distinguishes this case from McMahon

based on a recent FTC regulatory review statement:

The Commission examined the legality and the

merits of mandatory binding arbitration clauses

in written consumer products warranties when it

promulgated Rule 703 in 1975. Although several

industry representatives at that time had rec-

ommended that the Rule allow warrantors to re-

quire consumers to submit to binding arbitration,

the Commission rejected that view as being con-

trary to the congressional intent. The Commis-

sion based this decision on its analysis of the

plain language of the Warranty Act.

298 F.3d at 487 (King, dissenting and adding emphasis)

(quoting 64 Fed.Reg. 19700, 19708 (Apr. 22, 1999)). In the

next paragraph, however, the FTC reaffirms its original

rationale that it “is not prepared ... to develop guidelines

App. 23

for a system in which consumers would commit them-

selves, at the time of product purchase, to resolve any

difficulties in a binding, but non-judicial, proceeding. The

Commission is not now convinced that any guidelines

which it set out could ensure sufficient protection for

consumers.” 64 Fed.Reg. 19700, 19708 (Apr. 22, 1999)

(citing 40 Fed.Reg. 60167, 60210 (1975)). As we have

previously explained, this interpretation is no longer valid

based on the Supreme Court’s abandonment of its hostile

attitude toward arbitration. In light of the Supreme

Court’s acknowledgment and continual enforcement of the

strong federal policy toward arbitration, we conclude this

rationale to be based on an impermissible construction of

the statute. Thus, we conclude that the FTC’s interpreta-

tion of the MMWA is unreasonable, and we decline to defer

to the FTC regulations of the MMWA regarding binding

arbitration in written warranties.

V. CONCLUSION

After a thorough review of the MMWA and the FAA,

combined with the strong federal policy favoring arbitra-

tion, we hold that written warranty claims arising under

the Magnuson-Moss Warranty Act may be subject to valid

binding arbitration agreements. Accordingly, we reverse

* The FTC admits that, under the MMWA, “warrantors are not

precluded from offering « binding arbitration option to consumers after

a warranty dispute has arisen.” 64 Fed.Reg. 19700, 19708 (Apr. 22,

1999) (citing 40 Fed.Reg. 60168, 60211 (1975)). As to pre-dispute

binding arbitration, however, “[tJhe Commission believes that [its

original] interpretation continues to be correct.” 64 Fed.Reg. 19700,

19708 (Apr. 22, 1999).

App. 24

the judgment of the district court and remand this case for

further proceedings consistent with this opinion.

REVERSED and REMANDED. ,

App. 25

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF ALABAMA

NORTHERN DIVISION

MICHAEL SHANE )

DAVIS, et al., )

an )

_— ) Civil Action No.

v. ) 01-D-415-N

SOUTHERN ENERGY”

HOMES, INC.,et al,

)

Defendants.

MEMORANDUM OPINION AND ORDER

(Filed Jun. 1, 2001)

On October 12, 1999, Plaintiffs Michael and Heather

Davis (“Plaintiffs”) purchased a manufactured home,

constructed by Defendant Southern Energy Homes, Inc.

(“Southern”), from Bilo Homes, Inc. (“Bilo”). Plaintiffs

allege that they have discovered multiple defects, for

which Southern is responsible, and that Southern has

failed to correct the problems. On March 2, 2001, Plaintiffs

commenced this action in the Circuit court of Lowndes

County, asserting claims against Southern for breach of

express and implied warranties, violations of the Magnuson-

Moss Warranty-Trade Commission Act (“Magnuson-Moss

Act”), 15 U.S.C. §§ 2301, et seg., negligent and wanton

repair, and fraud. Plaintiffs assert similar claims against

Bilo and Bilo’s sales agent.

Defendants removed this case April 6, 2001. (Notice of

Removal, Doc. No. 2.) In lieu of an Answer, Southern filed

2 Motion to Dismiss Or, Alternatively, To Compel Arbitra-

tion (“Mot.”) on April 20, 2001. The basis for dismissal is

App. 26

that Plaintiffs’ sole remedy is arbitration. Thus, the issue

before the court is whether Plaintiffs claims are due to be

submitted to arbitration. After careful consideration of the

arguments of counsel, relevant law, and the record as a

whole, the court finds that Southern’s Motion is due to be

denied.

I. JURISDICTION

The court exercises jurisdiction over this action

pursuant to 28 U.S.C. § 1331, 28 U.S.C. § 1332, and the

Magnuson-Moss Act, 15 U.S.C. § 2310(d).

II, FACTUAL BACKGROUND

In connection with the purchase of their manufac-

tured home, Plaintiffs entered into a binding arbitration

agreement with Southern. (McNutt Decl. 73, Ex. A

attached to McNutt Decl.) The agreement provides in

relevant part:

All disputes not barred by the applicable statutes

of limitation or otherwise barred by law, result-

ing from or arising out of the design, manufac-

ture, warranty or repair of the manufactured

home, (including but not limited to: the terms of

this arbitration agreement and all clauses herein

contained, their breath and scope, and any term

of any agreement contemporaneously entered

into by the parties concerning any goods or ser-

vices manufactured or provided by Southern En-

ergy Homes, Inc.; the condition of the

manufactured home; the conformity of the manu-

factured home to federal building standards; the

representations, promises, undertakings, war-

ranties or covenants made by Southern Energy

App. 27

Homes, Inc., (if any); or otherwise dealing with

the manufactured home), will be submitted to

Binding Arbitration, pursuant to the provisions

of 9 U.S.C. section 1 et seq.

* * *

Any party to this agreement who fails or refuses

to arbitrate in accordance with the terms of this

pre-dispute binding arbitration agreement shall,

in addition to any other relief awarded through

arbitration, be taxed by the arbitrator or arbitra-

tors with all costs, including reasonable attor-

neys|[’] fees, of the other party who had to resort

to judicial or other means of compelling arbitra-

tion in accordance with the terms herein con-

tained.

THIS ARBITRATION SHALL BE IN LIEU OF

ANY CIVIL LITIGATION IN ANY COURT,

AND IN LIEU OF ANY TRIAL BY JURY.

(Ex. A to McNutt Decl.)

In addition, Plaintiffs were given Southern’s Owner’s

Manual in connection with the purchase of their manufac-

tured home. The Manual sets forth Southern’s “One Year

Limited Warranty,” which also contains a binding arbitra-

tion provision. (McNutt Decl. J 3, Ex. B to McNutt Decl.)

The arbitration provision contained in the Limited War-

ranty is similar in all material respects to the provisions

contained in the binding arbitration agreement.

Ill. FEDERAL ARBITRATION ACT

Section 2 of the Federal Arbitration Act (“FAA”) pro-

vides that a written agreement to arbitrate in a contract

involving interstate commerce “shall be valid, irrevocable,

App. 28

and enforceable, save upon such grounds as exist at law or

in equity for the revocation of any contract.’ 9 U.S.C. § 2.

The effect of § 2 is “to create a body of federal substantive

law of arbitrability, applicable to any arbitration agree-

ment within the coverage of the Act.” Moses H. Cone Mem

Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983).

Section 3 provides for the stay of proceedings in federal

district courts when an issue in the proceedings is refer-

able to arbitration. 9 U.S.C. §3. Section 4 provides for

orders compelling arbitration when one party has failed,

neglected, or refused to comply with an arbitration agree-

ment. 9 U.S.C. § 4. L

Whether an arbitration provision is enforceable is a

question of law. Dean Witter Reynolds, Inc. v. Byrd, 470

U.S. 213, 218 (1985); Kelly v. Merrill Lynch, Pierce, Fenner

& Smith, Inc., 985 F.2d 1067 (11th Cir. 1993). Any doubts

about the scope of arbitrable issues should be resolved in

favor of arbitration, even if the result is piecemeal litiga-

tion. See Byrd, 470 U.S. at 218-21; Moses H. Cone, 460

U.S. at 24; Kelly, 985 F.2d at 1069.

' Plaintiffs do not contest that the contracts in this action satisfy

the interstate commerce requirement of the FAA. Further, after an

independent review of the record, the court finds sufficient facts to

demonstrate this requirement is satisfied. Accordingly, the court finds

that, for the purposes of this Memorandum Opinion and Order,

Plaintiffs’ contracts satisfy this jurisdictional prerequisite of the FAA.

See generally, Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265

(1995); Staples v. Money Tree, Inc., 936 F. Supp. 856 (M.D. Ala. 1996).

App. 29

IV. DISCUSSION

On January 8, 1999, the Supreme Court of Alabama

held that the Magnuson-Moss Act precluded enforcement

of an arbitration provision as to written warranty claims.

See Southern Energy Homes, Inc. v. Lee, 732 So.2d 994

(Ala. 1999). The decision was based upon Judge Thomp-

son’s reasoning in Wilson v. Waverlee Homes, Inc., 954

F. Supp. 1530 (M.D. Ala. 1997). Seventeen months later,

in Southern Energy Homes, Inc. v. Ard, 772 So.2d 1131

(Ala. 2000), the Supreme Court of Alabama overruled Lee.

In Yeomans v. Homes of Legend, Inc., 2001 WL 237313

(M.D. Ala. 2001), this court declined to follow Ard. Yeo-

mans reiterated Waverlee’s conclusion that Congress

intended to preclude binding arbitration of written or

express warranty claims arising under the Magnuson-

Moss Act. Jd. at *7. Applying this reasoning, the court

found that the plaintiffs in Yeomans could be compelled to

arbitrate their implied warranty and state law claims, but

that the Magnuson-Moss Act mandated that a judicial

forum for the plaintiffs’ written or express warranty

claims. Id. at *8.

The court’s findings in Yeomans resulted in piecemeal

litigation — a portion of the plaintiffs’ claims in arbitration

and a portion of the plaintiffs’ claim in court — but the FAA

permits such. See Byrd, 470 U.S. at 218-21; Moses H.

Cone, 460 U.S. at 24; Kelly, 985 F.2d at 1069. In the

instant case, Southern wishes to avoid such a result.

Specifically, Southern indicates that it “has no interest in

arbitrating some claims and not others.” (Reply { 4.)

Therefore, knowing that the court is bound by its decision

in Yeomans as to Plaintiffs’ written warranty claims,

Southern has elected to resolve all claims, even those

App. 30

encompassed by the arbitration agreement, in a judicial

forum. (Id. 49 3, 4.) Thus, the court need not address

Plaintiffs’ arguments against arbitration of their own non-

warranty and state law claims.

V. ORDER

Based on the foregoing, it is CONSIDERED and

ORDERED that Southern’s Motion to Dismiss Or, Alter-

natively, To Compel Arbitration be and the same is hereby

DENIED.

DONE this the Ist day of June, 2001.

/s/ Ira DeMent

UNITED STATES DISTRICT

JUDGE

App. 31

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

No. 01-13831-HH

MICHAEL SHANE DAVIS,

HEATHER N. DAVIS,

versus

Plaintiffs-Appellees,

SOUTHERN ENERGY HOMES,

a. en Defendant-Appellant,

BILO HOMES, INC., a corporation

DAVID L. SMITHERMAN

Defendant.

On Appeal from the United States District Court

for the Middle District of Alabama

ON PETITION(S) FOR REHEARING AND PETITION(S)

FOR REHEARING EN BANC

(Opinion , Lith Cir., 19_, _-

F.2d ___).

(Filed Nov. 14, 2002)

Before: ANDERSON and DUBINA, Circuit Judges,

and MILLS’, District Judge.

* Honorable Richard Mills, U.S. District Judge for the Central

District of Illinois, sitting by designation.

App. 32

PER CURIAM:

The Petition(s) for Rehearing are DENIED and no Judge

in regular active service on the Court having requested

that the Court be polled on rehearing en banc (Rule 35,

Federal Rules of Appellate Procedure), the Petition(s)

for Rehearing En Banc are DENIED.

ENTERED FOR THE COURT:

/s/ Joel F. Dubina

UNITED STATES CIRCUIT JUDGE

App. 33

9 U.S.C. § 2. Validity, irrevocability, and enforcement

of agreements to arbitrate.

A written provision in any maritime transaction or a

contract evidencing a transaction involving commerce to

settle by arbitration a controversy thereafter arising out of

such contract or transaction, or the refusal to perform the

whole or any part thereof, or an agreement in writing to

submit to arbitration an existing controversy arising out of

such a contract, transaction, or refusal, shall be valid,

irrevocable, and enforceable, save upon such grounds as

exist at law or in equity for the revocation of any contract

15 U.S.C. § 2302. Rules governing contents of

warranties

(a) Full and conspicuous disclosure of terms

and conditions; additional requirements for con-

tents. In order to improve the adequacy of information

available to consumers, prevent deception, and improve

competition in the marketing of consumer products, any

warrantor warranting a consumer product to a consumer

by means of a written warranty shall, to the extent re-

quired by rules of the Commission, fully and conspicuously

disclose in simple and readily understood language the

terms and conditions of such warranty. Such rules may

require inclusion in the written warranty of any of the

following items among others:

(1) The clear identification of the names and

addresses of the warrantors.

(2) The identity of the party or parties to whom

the warranty is extended.

App. 34

(3) The products or parts covered.

(4) A statement of what the warrantor will do

in the event of a defect, malfunction, or failure to

conform with such written warranty — at whose

expense — and for what period of time.

(5) A statement of what the consumer must do

and expenses he must bear.

(6) Exceptions and exclusions from the terms of

the warranty.

(7) The step-by-step procedure which the con-

sumer should take in order to obtain perform-

ance of any obligation under the warranty,

including the identification of any person or class

of persons authorized to perform the obligations

set forth in the warranty.

(8) Information respecting the availability of

any informal dispute settlement procedure of-

fered by the warrantor and a recital, where the

warranty so provides, that the purchaser may be

required to resort to such procedure before pur-

suing any legal remedies in the courts.

(9) A brief, general description of the legal

remedies available to the consumer.

(10) The time at which the warrantor will per-

form any obligations under the warranty.

(11) The period of time within which, after no-

tice of a defect, malfunction, or failure to conform

with the warranty, the warrantor will perform

any obligations under the warranty.

(12) The characteristics or properties of the

products, or parts thereof, that are not covered

by the warranty.

App. 35

(13) The elements of the warranty in words or

phrases which would not mislead a reasonable,

average consumer as to the nature or scope of the

warranty.

(b) Availability of terms to consumer; manner

and form for presentation and display of informa-

tion; duration; extension of period for written

warranty or service contract. (1)(A) The Commission

shall prescribe rules requiring that the terms of any

written warranty on a consumer product be made avail-

able to the consumer (or prospective consumer) prior to the

sale of the product to him.

(B) The Commission may prescribe rules for

determining the manner and form in which information

with respect to any written warranty of a consumer

product shall be clearly and conspicuously presented or

displayed so as not to mislead the reasonable, average

consumer, when such information is contained in

advertising, labeling, point-of-sale material, or other

representations in writing.

(2) Nothing in this chapter (other than paragraph (3)

of this subsection) shall be deemed to authorize the Com-

mission to prescribe the duration of written warranties

given or to require that a consumer product or any of its

components be warranted.

(3) The Commission may prescribe rules for extend-

ing the period of time a written warranty or service

contract is in effect to correspond with any period of time

in excess of a reasonable period (not less than 10 days)

during which the consumer is deprived of the use of such

consumer product by reason of failure of the product to

conform with the written warranty or by reason of the

App. 36

failure of the warrantor (or service contractor) to carry out

such warranty (or service contract) within the period

specified in the warranty (or service contract).

(c) Prohibition on conditions for written or

implied warranty; waiver by Commission. No war-

rantor of a consumer product may condition his written or

implied warranty of such product on the consumer’s using,

in connection with such product, any article or service

(other than article or service provided without charge

under the terms of the warranty) which is identified by

brand, trade, or corporate name; except that the prohibi-

tion of this subsection may be waived by the Commission

if —

(1) the warrantor satisfies the Commission that

the warranted product will function properly

only if the article or service so identified is used

in connection with the warranted product, and

(2) the Commission finds that such a waiver is

in the public interest.

The Commission shall identify in the Federal Register,

and permit public comment on, all applications for waiver

of the prohibition of this subsection, and shall publish in

the Federal Register its disposition of any such applica-

tion, including the reasons therefor.

(d) Incorporation by reference of detailed

substantive warranty provisions. The Commission

may by rule devise detailed substantive warranty provi-

sions which warrantors may incorporate by reference in

their warranties.

(e) Applicability to consumer products costing

more than $5. The provisions of this section apply only to

App. 37

warranties which pertain to consumer products actually

costing the consumer more than $5.

15 U.S.C. § 2309. Procedures applicable to promul-

gation of rules by Commission.

(a) Oral presentation. Any rule prescribed under

this chapter shall be prescribed in accordance with section

553 of title 5; except that the Commission shall give

interested persons an opportunity for oral presentations of

data, views, and arguments, in addition to written sub-

missions. A transcript shall be kept of any oral presenta-

tion. Any such rule shall be subject to judicial review

under section 57a(e) of this title in the same manner as

rules prescribed under section 57a(a)(1)(B) of this title,

except that section 57a(e)(3)(B) of this title shall not apply.

(b) Warranties and warranty practices in-

volved in sale of used motor vehicles. The Commis-

sion shall initiate within one year after January 4, 1975, a

rulemaking proceeding dealing with warranties and

warranty practices in connection with the sale of used

motor vehicles; and, to the extent necessary to supplement

the protections offered the consumer by this chapter, shall

prescribe rules dealing with such warranties and prac-

tices. In prescribing rules under this subsection, the

Commission may exercise any authority it may have under

this chapter, or other law, and in addition it may require

disclosure that a used motor vehicle is sold without any

warranty and specify the form and content of such disclo-

sure.

App. 38

15 U.S.C. § 2310. Remedies in consumer disputes.

(a) Informal dispute settlement procedures;

establishment; rules setting forth minimum re-

quirements; 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 informal dispute settlement mechanisms.

(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

chapter applies. Such rules shall provide for participation

in such procedure by independent or governmental enti-

ties.

(3) One or more warrantors may establish an infor-

mal dispute settlement procedure which meets the re-

quirements of the Commission’s rules under paragraph

(2). If-

(A) a warrantor establishes such a procedure,

(B) such procedure, and its implementation,

meets the requirements of such rules, and

(C) he incorporates in a written warranty a re-

quirement that the consumer resort to such pro-

cedure before pursuing any legal remedy under

this section respecting such warranty,

then (i) the consumer may not commence a civil action

(other than a class action) under subsection (d) of this

section unless he initially resorts to such procedure; and

App. 39

(ii) a class of consumers may not proceed in a class action

under subsection (d) of this Section except to the extent

the court determines necessary to establish the represen-

tative capacity of the named plaintiffs, unless the named

plaintiffs (upon notifying the defendant that they are

named plaintiffs in a class action with respect to a war-

ranty obligation) initially resort to such procedure. In the

case of such a class action which is brought in a district

court of the United States, the representative capacity of

the named plaintiffs shall be established in the application

of rule 23 of the Federal Rules of Civil Procedure. In any

civil action arising out of a warranty obligation and

relating to a matter considered in such a procedure, any

decision in such procedure shall be admissible in evidence.

(4) The Commission on its own initiative may, or

upon written complaint filed by any interested person

shall, review the bona fide operation of any dispute set-

tlement procedure resort to which is stated in a written

warranty to be a prerequisite to pursuing a legal remedy

under this section. If the Commission finds that such

procedure or its implementation fails to comply with the

requirements of the rules under paragraph (2), the Com-

mission may take appropriate remedial action under any

authority it may have under this chapter or any other

provision of law.

(5) Until rules under paragraph (2) take effect, this

subsection shall not affect the validity of any informal

dispute settlement procedure respecting consumer war-

ranties, but in any action under subsection (d) of this

section, the court may invalidate any such procedure if it

finds that such procedure is unfair.

App. 40

(b) Prohibited acts. It shall be a violation of

section 45(a)(1) of this title for any person to fail to comply

with any requirement imposed on such person by this

chapter (or a rule thereunder) or to violate any prohibition

contained in this chapter (or a rule thereunder).

(c) Injunction proceedings by Attorney Gen-

eral or Commission for deceptive warranty,

noncompliance with requirements, or violating

prohibitions; procedures; definitions.

(1) The district courts of the United States shall

have jurisdiction of any action brought by the Attorney

General (in his capacity as such), or by the Commission by

any of its attorneys designated by it for such purpose, to

restrain (A) any warrantor from making a deceptive

warranty with respect to a consumer product, or (B) any

person from failing to comply with any requirement

imposed on such person by or pursuant to this chapter or

from violating any prohibition contained in this chapter.

Upon proper showing that, weighing the equities and

considering the Commission’s or Attorney General’s

likelihood of ultimate success, such action would be in the

public interest and after notice to the defendant, a tempo-

rary restraining order or preliminary injunction may be

granted without bond. In the case of an action brought by

the Commission, if a complaint under section 45 of this

title is not filed within such period (not exceeding 10 days)

as may be specified by the court after the issuance of the

temporary restraining order or preliminary injunction, the

order or injunction shall be dissolved by the court and be

of no further force and effect. Any suit shall be brought in

the district in which such person resides or transacts

business. Whenever it appears to the court that the ends

of justice require that other persons should be parties in

App. 41

the action, the court may cause them to be summoned

whether or not they reside in the district in which the

court is held, and to that end process may be served in any

district.

(2) For the purposes of this subsection, the term

“deceptive warranty” means (A) a written warranty which

(i) contains an affirmation, promise, description, or repre-

sentation which is either false or fraudulent, or which, in

light of all of the circumstances, would mislead a reason-

able individual exercising due care; or (ii) fails to contain

information which is necessary in light of all of the cir-

cumstances, to make the warranty not misleading to a

reasonable individual exercising due care; or (B) a written

warranty created by the use of such terms as “guaranty” or

“warranty”, if the terms and conditions of such warranty

so limit its scope and application as to deceive a reason-

able individual.

(d) Civil action by consumer for damages, etc.;

jurisdiction; recovery of costs and expenses; cogni-

zable claims. (1) Subject to subsections (a)(3) and (e) of

this section, a consumer who is 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, may bring

suit for damages and other legal and equitable relief —

(A) in any court of competent jurisdiction in any

State or the District of Columbia; or

(B) in an appropriate district court of the

United States, subject to paragraph (3) of this

subsection.

(2) If a consumer finally prevails in any action

brought under paragraph (1) of this subsection, he may be

App. 42

allowed by the court to recover as part of the judgment a

sum equal to the aggregate amount of cost and expenses

(including attorneys’ fees based on actual time expended)

determined by the court to have been reasonably incurred

by the plaintiff for or in connection with the commence-

ment and prosecution of such action, unless the court in its

discretion shall determine that such an award of attor-

neys’ fees would be inappropriate.

(3) No claim shall be cognizable in a suit brought

under paragraph (1)(B) of this subsection —

(A) if the amount in controversy of any individ-

ual claim is less than the sum or value of $25;

(B) if the amount in controversy is less than the

sum or value of $50,000 (exclusive of interests

and costs) computed on the basis of all claims to

be determined in this suit; or

(C) if the action is brought as a class action,

and the number of named plaintiffs is less than

one hundred.

(e) Class actions; conditions; procedures appli-

cable. No action (other than a class action or an action

respecting a warranty to which subsection (a)(3) of this

section applies) may be brought under subsection (d) of

this section for failure to comply with any obligation under

any written or implied warranty or service contract, and a

class of consumers may not proceed in a class action under

such subsection with respect to such a failure except to the

extent the court determines necessary to establish the

representative capacity of the named plaintiffs, unless the

person obligated under the warranty or service contract is

afforded a reasonable opportunity to cure such failure to

comply. In the case of such a class action (other than a

App. 43

class action respecting a warranty to which subsection

(a)(3) of this section applies) brought under subsection (d)

of this section for breach of any written or implied war-

ranty or service contract, such reasonable opportunity will

be afforded by the named plaintiffs and they shall at that

time notify the defendant that they are acting on behalf of

the class. In the case of such a class action which is

brought in a district court of the United States, the repre-

sentative capacity of the named plaintiffs shall be estab-

lished in the application of rule 23 of the Federal Rules of

Civil Procedure.

(f) Warrantors subject to enforcement of reme-

dies. For purposes of this section, only the warrantor

actually making a written affirmation of fact, promise, or

undertaking shall be deemed to have created a written

warranty, and any rights arising thereunder may be

enforced under this section only against such warrantor

and no other person.

PART 700 — INTERPRETATIONS OF MAGNUSON-

MOSS WARRANTY ACT

16 C.F.R. § 700.8: Warrantor’s decision as final.

A warrantor shall not indicate in any written war-

ranty 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

App. 44

gives state and federal courts jurisdiction over suits for

breach of warranty and service contract.

PART 703 - INFORMAL DISPUTE SETTLEMENT

PROCEDURES

16 C.F.R. § 703.1 Definitions.

(a) The Act means the Magnuson-Moss Warranty —

Federal Trade Commission Improvement Act, 15 U.S.C.

2301, et seq.

(b) Consumer product means any tangible personal

property which is distributed in commerce and which is

normally used for personal, family, or household purposes

(including any such property intended to be attached to or

installed in any real property without regard to whether it

is so attached or installed).

(c) Written warranty means:

(1) Any written affirmation of fact or written prom-

ise made in connection with the sale of a consumer product

by a supplier to a buyer which relates to the nature of the

material or workmanship and affirms or promises that

such material or workmanship is defect free or will meet 2.

specified level of performance over a specified period of

time, or

(2) Any undertaking in writing in connection with

the sale by a supplier of a consumer product to refund,

repair, replace, or take other remedial action with respect

to such product in the event that such product fails to

meet the specifications set forth in the undertaking, which

written affirmation, promise or undertaking becomes part

App. 45

of the basis of the bargain between a supplier and a buyer

for purposes other than resale of such product.

(d) Warrantor means any person who gives or offers

to give a written warranty which incorporates an informal

dispute settlement mechanism.

(e) Mechanism means an informal dispute settle-

ment procedure which is incorporated into the terms of a

written warranty to which any provision of Title I of the

Act applies, as provided in section 110 of the Act.

(f) Members means the person or persons within a

Mechanism actually deciding disputes.

(g) Consumer means a buyer (other than for pur-

poses of resale) of any consumer product, any person to

whom such product is transferred during the duration of a

written warranty applicable to the product, and any other

person who is entitled by the terms of such warranty or

under applicable state law to enforce against the warran-

tor the obligations of the warranty.

(h) On the face of the warranty means:

(1) If the warranty is a single sheet with

printing on both sides of the sheet, or if the war-

ranty is comprised of more than one sheet, the

page on which the warranty text begins;

(2) If the warranty is included as part of a

longer document, such as a use and care manual,

the page in such document on which the war-

ranty text begins.

App. 46

16 C.F.R. § 703.5. Operation of the Mechanism.

(a) The Mechanism shall establish written operating

procedures which shall include at least those items speci-

fied in paragraphs (b) through (j) of this section. Copies of

the written procedures shall be made available to any

person upon request.

(b) Upon notification of a dispute, the Mechanism

shall immediately inform both the warrantor and the

consumer of receipt of the dispute.

(c) The Mechanism shall investigate, gather and

organize all information necessary for a fair and expedi-

tious decision in each dispute. When any evidence gath-

ered by or submitted to the Mechanism raises issues

relating to the number of repair attempts, the length of

repair periods, the possibility of unreasonable use of the

product, or any other issues relevant in light of Title I of

the Act (or rules thereunder), including issues relating to

consequential damages, or any other remedy under the Act

(or rules thereunder), the Mechanism shall investigate

these issues. When information which will or may be used

in the decision, submitted by one party, or a consultant

under section 703.4(b) of this part, or any other source

tends to contradict facts submitted by the other party, the

Mechanism shall clearly, accurately, and completely

disclose to both parties the contradictory information (and

its source) and shall provide both parties an opportunity to

explain or rebut the information and to submit additional

materials. The Mechanism shall not require any informa-

tion not reasonably necessary to decide the dispute.

(d) If the dispute has not been settled, the Mecha-

nism shall, as expeditiously as possible but at least within

App. 47

40 days of notification of the dispute, except as provided in

paragraph (e) of this section:

(1) Render a fair decision based on the in-

formation gathered as described in paragraph (c)

of this section, and on any information submitted

at an oral presentation which conforms to the re-

quirements of paragraph (f) of this section (A deci-

sion shall include any remedies appropriate under

the circumstances, including repair, replacement,

refund, reimbursement for expenses, compensa-

tion for damages, and any other remedies avail-

able under the written warranty or the Act (or

rules thereunder); and a decision shall state a

specified reasonable time for performance);

(2) Disclose to the warrantor its decision

and the reasons therefor;

(3) If the decision would require action on

the part of the warrantor, determine whether,

and to what extent, warrantor will abide by its

decision; and

(4) Disclose to the consumer its decision,

the reasons therefor, warrantor’s intended ac-

tions (if the decision would require action on the

part of the warrantor), and the information de-

scribed in paragraph (g) of this section. For pur-

poses of paragraph (d) of this section a dispute

shall be deemed settled when the Mechanism has

ascertained from the consumer that:

(i) The dispute has been settled to the

consumer’s satisfaction; and

(ii) The settlement contains a specified

reasonable time for performance.

App. 48

(e) The Mechanism may delay the performance of its

duties under paragraph (d) of this section beyond the 40

day time limit:

(1) Where the period of delay is due solely

to failure of a consumer to provide promptly his

or her name and address, brand name and model

number of the product involved, and a statement

as to the nature of the defect or other complaint;

or

(2) For a7 day period in those cases where

the consumer has made no attempt to seek re-

dress directly from the warrantor.

(f) The Mechanism may allow an oral presentation

by a party to a dispute (or a party’s representative) only if:

(1) Both warrantor and consumer expressly

agree to the presentation;

(2) Prior to agreement the Mechanism fully

discloses to the consumer the following informa-

tion:

(i) That the presentation by either party

will take place only if both parties so agree,

but that if they agree, and one party fails to

appear at the agreed upon time and place, the

presentation by the other party may still be al-

lowed;

(ii) That the members will decide the dis-

pute whether or not an oral presentation is

made;

(iii) The proposed date, time and place

for the presentation; and

(iv) A brief description of what will occur

at the presentation including, if applicable,

App. 49

parties’ rights to bring witnesses and/or coun-

sel; and

(3) Each party has the right to be present

during the other party’s oral presentation. Noth-

ing contained in this paragraph (b) of this section

shall preclude the Mechanism from allowing an

oral presentation by one party, if the other party

fails to appear at the agreed upon time and

place, as long as all of the requirements of this

paragraph have been satisfied.

(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 is dissatisfied with its deci-

sion or warrantor’s intended actions, or eventual

performance, legal remedies, including use of

small claims court, may be pursued;

(2) The Mechanism’s decision is admissible

in evidence as provided in section 110(a)(3) of the

Act; and

(3) The consumer may obtain, at reason-

able cost, copies of all Mechanism records relat-

ing to the consumer’s dispute.

(h) If the warrantor has agreed to perform any

obligations, either as part of a settlement agreed to after

notification to the Mechanism of the dispute or as a result

of a decision under paragraph (d) of this section, the

Mechanism shall ascertain from the consumer within 10

working days of the date for performance whether per-

formance has occurred.

(i) A requirement that a consumer resort to the

Mechanism prior to commencement of an action under

App. 50

section 110(d) of the Act shall be satisfied 40 days after

notification to the Mechanism of the dispute or when the

Mechanism completes all of its duties under paragraph (d)

of this section, whichever occurs sooner. Except that, if the

Mechanism delays performance of its paragraph (d) of this

section duties as allowed by paragraph (é) of this section,

the requirement that the consumer initially resort to the

Mechanism shall not be satisfied until the period of delay

allowed by paragraph (e) of this section has ended.

(j) Decisions of the Mechanism shall not be legally

binding on any person. However, the warrantor shall act

in good faith, as provided in section 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.

App. 51

EXCERPT FROM WARRANTY

OF SOUTHERN ENERGY HOMES, INC.

BINDING ARBITRATION

IF THE PROBLEM IS STILL NOT RESOLVED

All disputes between us not resolved as outlined above and

not barred by applicable statutes of limitations or other-

wise barred by law, resulting from or arising out of the

design, manufacture, warranty, or repair of the manufac-

tured home, (including but not limited to: the terms of the

warranty, the terms of this arbitration agreement, and all

clauses herein contained, their breadth and scope, and any

term of any agreement contemporaneously entered into by

the parties concerning any goods or services manufactured

or provided by Southern Energy Homes, Inc.; the condition

of the manufactured home; the conformity of the manufac-

tured home to federal building standards; the representa-

tions, promises, undertakings, warranties or covenants

‘made by Southern Energy Homes, Inc., (if any); or other-

wise dealing with the manufactured home); will be sub-

mitted to BINDING ARBITRATION, pursuant to the

provisions of 9 U.S.C. section 1, et. seq. and according to

the Commercial Rules of the American Arbitration Asso-

ciation then existing in Addison, Alabama, where Southern

Energy Homes, Inc., maintains its principal place of

business. The Commercial Rules of the American Arbitra-

tion Association shall apply except as follows: (a) The

party seeking affirmative relief shall prepay all arbitration

filing fees and processing fees. (b) In all disputes in which

the matter in controversy is $10,000.00 or less, one arbi-

trator shall be selected (from a list of no less than fifteen

arbitrators supplied by the American Arbitration Associa-

tion) through strikes, in accordance with said Association’s

Commercial rules. In all disputes in which the matter in

App. 52

controversy exceeds $10,000.00, the arbitrators shall be

selected as follows: Southern Energy Homes, Inc., shall

select one arbitrator; the purchaser(s) of the manufactured

home shall select one arbitrator; the two arbitrators so

selected shall select a neutral arbitrator. In the event any

issue is raised in the demand for arbitration or counter

demand for arbitration (if any) concerning the design,

manufacture, repair or condition of the manufactured

home, the neutral arbitrator shall be an individual who

shall have been gainfully employed in the design, manu-

facture or actual repair of manufactured homes, as his or

her principal income producing activity, for at least ten

years immediately preceding his or her appointment as an

arbitrator. Such neutral arbitrator shall be selected by

mutual agreement of the arbitrators appointed by the

parties. If no agreement on the appointment of such a

neutral arbitrator can be agreed upon by the arbitrators

appointed by the parties, then the American Arbitration

Association shall submit a list of no less than five suitable

arbitrators (in accordance with the criteria set forth

above), from whom the arbitrators selected shall make

their eliminations through the strike method established

by the American Arbitration Association. (c) An arbitrator

or arbitrators impaneled to hear any dispute brought

before them shall be empowered to enter an award of such

damages, fees, and costs, as said arbitrator or arbitrators

deem just and proper. Notwithstanding, the maximum

award permitted, in connection with any dispute submit-

ted to said arbitrator or arbitrators, shall not exceed the

amount originally demanded by the party seeking affirma-

tive relief at the time the demand for arbitration is filed.

Any party to this agreement who fails or refuses to arbi-

trate in accordance with the terms of chis pre-dispute

binding arbitration agreement shall, in addition to any

App. 53

other relief awarded through arbitration, be taxed by the

arbitrator or arbitrators with all of the costs, including

reasonable attorney fees, of the other party who had to

resort to judicial or other means of compelling arbitration

in accordance with the terms herein contained. THIS

ARBITRATION SHALL BE IN LIEU OF ANY CIVIL

LITIGATION IN ANY COURT, AND IN LIEU OF ANY

TRIAL BY JURY.

(R1-11-exhibit 1, at 5-6)