Opposition Brief — Davis v. Southern Energy Homes, Inc.

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Stapreme Court, U.S.

FILED

No. 02-1117 eo oe

SPREE CLadit

Jn The — pits

Supreme Court of the Anited States

MICHAEL SHANE DAVIS AND

HEATHER N. DAVIS,

Petitioners,

Vv.

SOUTHERN ENERGY HOMES, INC.,

a corporation,

Respondent.

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

{ For The Eleventh Circuit

BRIEF OF RESPONDENT IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

W. Scott SIMPSON MARK R. KRAVITZ

BATCHELOR & SIMPSON, P.C. Counsel of Record

3284 Morgan Drive SANDRA SLACK GLOVER

Suite 112 WIGGIN & DANA LLP

Birmingham, Alabama One Century Tower

35216 P.O. Box 1832

(205) 823-4211 New Haven, Connecticut

06508-1832

(203) 498-4400

Counsel for Southern Energy Homes, Inc.

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

OR CALL COLLECT (402) 342-2831

QUESTION PRESENTED

Did the Court of Appeals err when it concluded that

petitioners had failed to establish that Congress intended

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

seq., to override — and therefore partially repeal — the

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

the arbitration agreement between petitioners and re-

spondent “valid, irrevocable, and enforceable.”

CORPORATE DISCLOSURE STATEMENT -

Pursuant to Rule 29.6 of the Rules of the Supreme Court

of the United States, Southern Energy Homes, Inc. hereby

discloses that it has no parent corporation and that no

publicly held company holds ten (10%) percent or more of

its stock.

ill

TABLE OF CONTENTS

Page

AR ey By ol 4 yd ere i

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

RE IE PAPE BERIINE BAO ccnvevscrscyseceonssonsonseressessvess iv

BRIEF OF RESPONDENT IN OPPOSITION ........... 1

ITE csi cieuhicthcahatinennbce vend pisos duncueeonaneosoviens 1

REASONS FOR DENYING THE PETITION............ 4

I. THERE IS NO CONFLICT THAT RE-

QUIRES RESOLUTION BY THIS COURT.... 6

II. THIS CASE IS AN INAPPROPRIATE VE-

HICLE TO CONGUE, THE QUESTION

EEE inisciniukikethoinsnethdienenbonapnantvosetnneses 8

III. THE COURT OF APPEALS CORRECTLY

CONCLUDED THAT THE WARRANTY ACT

DOES NOT PROHIBIT ARBITRATION ........ 9

A. Neither the Text, Legislative History, nor

Purposes of the Warranty Act Demon-

strates a Clear Congressional Intent to

PWOMERES BIDE EIAID. «0.0000 s0ry000ccresivereeresesess 10

B. The Court of Appeals Rightly Declined to

' Defer to the FTC’s Unreasonable Inter-

pretation of the Warranty Act.................. 19

Nee ee, ccscsstsnndouabanciedomies 25

iv -

TABLE OF AUTHORITIES

Page

CASES

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

~ ee icicisinidenicacniabacinmcumeneuemibaimaiiaahaaebitieineiuns 11, 21

In re American Homestar of Lancaster, Inc., 50

i Re I ERs IS scicentiscciesincieppicsvabciiaiieenseasementeinetion 7

Borowiec v. Gateway 2000, Inc., 772 N.E.2d 256 (Ill.

BRA, Gis TE Gissiciteladachaecicihniicncneeesbscednliglosadasdailindnnchicitatenions 6

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

CHA HRs. SR acittastetsccicnneniasattacdacininiademnsutcannntiileesen 7

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

PD iikasicscicsassicieetnsevniecsnipiaisilainc duiaiieabeannineimanieigidean alsa 8

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

Council, Inc., 467 U.S. 837 (1984) ................06 3, 6, 21, 22

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

Cec siisahicnctsatecicuienilaieahanaunasaniiabiaséddanibiinhanatiaationati iin 19

Conroy v. Aniskoff, 507 U.S. 511 (19938) ......... eee eeeeeeeeee 17

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

Se Ce ee iets shcseite insistence passim

Davis v. Southern Energy Homes, Inc., No. 01-F-

GIGS CHEAP: Ca Fh ices seve nicttncrcinesstidinnninnsers 3

FCC v. NextWave Pers. Communications Inc., 123

i. Ee Ris aaintniiinnientananiiitcintsiiiyeininaet 6, 9, 19, 20, 21

Fed. Mar. Comm’n v. South Carolina State Ports

Awtht., 123 BS. CO. 1666 (BOOZ) ......cecvssssssseseesssverereseocesoooees 14

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

EG Ech vtkeusuivisetaheiaeinakteiniineainehationiiaialaeldaaiaass passim

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

SE: BadtF ei sncininbeseiteebihanlalnandbsadiaaciinatiadasimseiiamiaeeann 13, 15

TABLE OF AUTHORITIES -— Continued

Page

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

i. Bk GEE, Chat, GIR. BA, TID nse scccessenesnsontnsescntsnssivcsnnses 7

J.E.M. AG Supply, Inc. v. Pioneer Hi-Bred Int'l,

Bag Te Sk SO i iconic ianctenictaiansnnnbisnendgamdianinn 9

Norfolk & Western Ry. Co. v. American Train

Dispatchers’ Ass’n, 499 U.S. 117 (1991)........... cece eeeeeee 21

Parkerson v. Smith, 817 So. 2d 529 (Miss. 2002)............ 7,8

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

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

Pitchford v. Oakwood Mobile Homes, Inc., 124 F.

eam. TE BG COGE., Wes Se iat ssnensnsdecctcntininnnsonevsnneninvcene 7

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

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

aR ae Ee Cec SIPEEE sicrentiniesiniaeitinnmamiiaianes 7

Rush Prudential HMO, Inc. v. Moran, 122 S. Ct.

RY Ci coisa eciecnhccnsnncciaissenienapisesieininabbakabaeadiiamniiangaulade 14

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

Sid SD CAINE Diticivcintiievniin encnevaminiamanaaniin passim

Skelton v. General Motors Corp., 500 F. Supp. 1181

(N.D. Ill. 1980), rev’d on other grounds, 660 F.2d

RE CI I Fe ci sissiinnitenecsenirnaiinieksianbiitsthabiniaiilgsheatabiacaiin 17

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

1131 (Ala. 2000).............ccccceees seseseeseessesesereseseeesssssesesssssense 7

Sprietsma v. Mercury Marine, 123 S. Ct. 518 (2002)........ 11

United States v. Alaska, 503 U.S. 569 (1992).................... 21

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

CE Ny SE a cacsscckoietbiuctdaiatteniiblaboinesunionipasmaks passim

TABLE OF AUTHORITIES - Continued

Page

Wilko v. Swan, 346 U.S. 427 (1958)..........ccccccsesseceesseeeesees 18

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

CIDP inossersisncincessenteniebsmiieesnaiaaimaeisademalaaleaaaaaaae 22

STATUTES, RULES, AND REGULATIONS

DE Ce. 5 Fe viciscvisdittctincstvintnsstoncananiaaigeaieae 19

566 Ci. © Fe renicssnssistoutdinavcctatmaaaaae 22, 23

LG UG. B DOE OF WOM cescescsnsticschicassiciicenntiamanaa i

LE LABS, FBI icsecincssvsscisncthedinisetenistemmmammbmaaaiaian 19

BE UF Baas © Be eit cssinstinsnoscsssoninciapsnsimesaininia anand 12

BE UA, 5 ee te skcsnnclaniondcicceradieeaniiaiiaanaaaaaie 12

1S VBA. be ices tininintinmuaie 22

LS VAD. & Bd tisvicicnendisesasiiekectindeapeaiaaaan 12

LS UR FBR ee tcctesevenssinesanianinevcenisicamaueaaaananae 12

1B UA. | SRR oso vevressslincsinieinieuaensianmaneae 10

MISCELLANEOUS

40 Fed. Reg. 60,168, 60,210 (Dec. 31, 1975).............:cc0e008 22

64 Fed. Reg. 19,700, 19,708 (Apr. 22, 1999)................00000 22

Recent Case, Arbitration — Fifth Circuit Holds

Magnuson-Moss Warranty Act Claims Arbitrable

Despite Contrary Agency Interpretation, 116

Harv. L. Rev. 1201 (Feb. BO08)......cvcciccosessosessscevesvessceesees 20

D, Haag. Bim, CAPD CIB ip csversscanispisscissincsueessieonmapuaamamnal 16

BRIEF OF RESPONDENT IN OPPOSITION

Southern Energy Homes, Inc., (“Southern”) respect-

fully opposes the petition for writ of certiorari. The Court

of Appeals held that the Magnuson-Moss Warranty Act

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

petitioners’ dispute with Southern. Petitioners acknowl-

edge that in reaching this conclusion the Court of Appeals

utilized this Court’s test for determining whether a federal

statute prohibits arbitration. They ask this Court to grant

their petition to correct the Court of Appeals’ alleged

“error” in applying that test in this case. Pet. 3. However,

even if the Court of Appeals erred in applying this Court’s

test — and it did not — that fact alone is not a sufficient

reason for this Court to grant review. Indeed, this Court

should deny the petition. The Court of Appeals’ decision is

in accord with the decisions of every federal appellate

court and state supreme court to resolve the issue. The

decision is also correct and fully consistent with this

Court’s precedent. Finally, and in any event, this case is

not a proper vehicle to explore the issues petitioners wish

to raise because any consideration of the question pre-

sented may well become moot.

STATEMENT

In October 1999, petitioners purchased a mobile home

manufactured by Southern. In connection with the sale,

Southern extended petitioners a written warranty on the

home, which included an agreement to submit all disputes

to binding arbitration. Pet. App. 51-53. Petitioners signed

an additional arbitration agreement with Southern on

October 12, 1999. It is identical in all material respects to

the agreement in the warranty.

In contravention of their agreements to arbitrate any

dispute, petitioners filed a lawsuit in the Circuit Court for

Lowndes County, Alabama, alleging breach of express and

implied warranty and violations of the Warranty Act,

among other claims. Southern removed the case to the

United States District Court for the Middle District of

Alabama, and filed a motion to dismiss or, in the alterna-

tive, to compel arbitration under the Federal Arbitration

Act (“FAA”), which makes arbitration agreements “valid,

irrevocable, and enforceable.” In response, petitioners

argued that the Warranty Act overrides the FAA and

prohibits binding arbitration of their claims. They also

raised a host of other, unrelated challenges to the enforce-

ability of the arbitration agreement. The district court

denied Southern’s motion, holding that the Warranty Act

prohibits arbitration of written warranty claims. Pet. App.

29-30. The court did not address petitioners’ other argu-

ments regarding enforceability of the arbitration clause.

On appeal, the United States Court of Appeals for the

Eleventh Circuit reversed. The Court of Appeals explicitly

applied the test announced in Shearson/American Ex-

press, Inc. v. McMahon, 482 U.S. 220 (1987), for determin-

ing whether a subsequent act of Congress repeals and

overrides the FAA. Pet. App. 9 (“we follow the Supreme

Court’s McMahon test”) (published at Davis v. Southern

Energy Homes, Inc., 305 F.3d 1268 (llth Cir. 2002)).

Examining in detail the text, legislative history, and

purposes of the Warranty Act, the court found no evidence

of a congressional intent to override the FAA and prohibit

binding arbitration of Warranty Act claims. Id. 9-17. In-

deed, the court noted, neither the text of the Warranty Act

nor its legislative history “mention[s] either binding arbitra-

tion or the FAA.” Jd. 10. Nor did the court find any inherent

conflict between the Warranty Act and the FAA. Id. 15.

Accordingly, the court concluded that the Warranty Act

“permits the enforcement of valid binding arbitration

agreements within written warranties.” Jd. 6.

After reaching this conclusion, the Court of Appeals

turned to petitioners’ alternative argument that the court

should defer to the Federal Trade Commission’s (“FTC”)

regulations, which purport to interpret the Warranty Act

to preclude binding arbitration. Jd. 17-23. Applying the

principles announced in Chevron U.S.A., Inc. v. Natural

Resources Defense Council, Inc., 467 U.S. 837 (1984), the

court held that the FTC’s regulations were unreasonable

because they were based on an impermissible construction

of the statute. Thus, the court declined to defer to the

FTC’s construction of the Warranty Act. Pet. App. 23.

Petitioners filed a timely petition for rehearing and

rehearing en banc, which the Court of Appeals denied

without opinion on November 14, 2002. Pet. App. 31-32.

Petitioners did not seek a stay in the Court of Appeals

pending the filing of their petition. Therefore, the case was

returned to the district court, which is proceeding forward

with the case. Petitioners have now once again asked the

district court to deny enforcement of the parties’ arbitra-

tion agreement, this time on the basis of the other grounds

previously presented to the court. See Plaintiffs’ Brief in

Opposition to Southern’s Motion to Compel Arbitra-

tion/Dismiss, Davis v. Southern Energy Homes, Inc., No.

01-F-415-N (M.D. Ala. Jan. 10, 2003). As of the date of this

opposition, there has been no ruling by the district court

on petitioners’ claims.

REASONS FOR DENYING THE PETITION

This Court should deny the petition for several rea-

sons. First, the decision of the Court of Appeals does not

conflict with any decision of this Court, or of any other

court of appeals or state supreme court. Although earlier

district court and lower state court decisions had reached

inconsistent results, recent developments (including the

decision in this case and a decision from the Fifth Circuit),

have brought a remarkable degree of uniformity and

consistency to the case law. Today, every federal appellate

court and state supreme court to consider the question has

reached the same conclusion: the Warranty Act does not

override the FAA and does not prohibit binding arbitration

of consumer warranty claims. There is no reason for this

Court to grant review of a petition founded entirely on a

claim of error correction.

Second, this case presents a poor vehicle for consider-

ing whether the Warranty Act precludes binding arbitra-

tion because petitioners continue to argue before the lower

courts that the arbitration clause is unenforceable on

grounds independent of the question presented by the

petition. Should petitioners succeed on any of their argu-

ments, this Court’s consideration of whether the Warranty

Act permits binding arbitration would become moot.

Third, in any event, the Court of Appeals’ decision is

correct. Under the FAA, courts must “rigorously enforce

agreements to arbitrate,” even when faced with statutory

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

This presumption in favor of arbitrability of statutory

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

tion” proves that “Congress intended to preclude a waiver

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

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

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

text, legislative history, or “an inherent conflict between

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

Applying these standards in this case, the Court of

Appeals properly held that petitioners had not overcome

the presumption in favor of arbitrability of statutory

claims. The text of the Warranty Act does not even men-

tion arbitration, much less prohibit it. In fact, the War-

ranty Act includes an express savings clause that

preserves all existing rights and remedies, thus demon-

strating a congressional intent to preserve parties’ rights

and remedies under the FAA.

The legislative history of the Warranty Act similarly

fails to reveal a congressional intent to prohibit arbitra-

tion. Indeed the only relevant legislative history demon-

strates that Congress knew the difference between the

informal dispute settlement mechanisms (“IDSMs”)

authorized by the Warranty Act and arbitration, and

expressly contemplated that arbitration would be avail-

able (as an alternative to litigation), if efforts through

IDSMs failed. Petitioners do not cite this history, relying

instead on snippets from the four-year legislative history —

of the Warranty Act that they claim show that Congress

considered and rejected a proposal to allow binding arbi-

tration of Warranty Act claims. But while Congress cer-

tainly considered a variety of dispute settlement

procedures for the Warranty Act, petitioners found no

evidence that Congress drafted the Warranty Act expressly

to prohibit arbitration.

With no support in the text or legislative history,

petitioners rely heavily on an FTC regulation which

purports to prohibit binding arbitration of Warranty Act

claims. As this Court recently emphasized, however,

administrative policy preferences cannot overrule prior

acts of Congress. FCC v. NextWave Pers. Communications

Inc., 123 S. Ct. 832, 840 (2003). In any event, even if the

FTC had been delegated authority to overrule a prior act

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

entitled to deference under Chevron because they rest on

an outmoded hostility to arbitration that has since been

rejected by this Court.

I. THERE IS NO CONFLICT THAT REQUIRES

RESOLUTION BY THIS COURT.

Almost as an afterthought at the end of their submis-

sion, petitioners suggest that this Court should grant the

petition to resolve an important conflict in the lower

courts. Although the question presented is certainly an

important one, petitioners fail to explain that over the last

year, federal and state courts have reached essentially a

uniform consensus on that question. Indeed, the pre-

existing division in the lower courts has virtually disap-

peared in the wake of recent decisions, including the

decision in this case, that together have brought a re-

markable degree of consistency to the law.’ Thus, there is

’ The decision in this case overruled contrary district court

precedent from Alabama, and the Fifth Circuit’s decision in Walton v.

Rose Mobile Homes, Inc., 298 F.3d 470 (5th Cir. 2002) — which, like

Davis, held that the Warranty Act permits binding arbitration -

overruled contrary district court precedent from Mississippi. Although

the Illinois Appellate Court held that the Warranty Act preciudes

binding arbitration, Borowiec v. Gateway 2000, Inc., 772 N.E.2d 256 (Ill.

App. Ct. 2002), the Illinois Supreme Court has accepted an appeal from

that decision, which remains pending. Borowiec v. Gateway 2000, Inc.,

No. 94235 (Ill. Nov. 2002).

no conflict to resolve because every federal appellate court

and state supreme court to decide the question has held,

consistent with the Court of Appeals in this case, that the

Warranty Act does not prohibit binding arbitration. Davis,

Pet. App. 2; Walton v. Rose Mobile Homes, Inc., 298 F.3d

470 (5th Cir. 2002); In re American Homestar of Lancaster,

Inc., 50 S.W.3d 480 (Tex. 2000); Southern Energy Homes,

Inc. v. Ard, 772 So. 2d 1131 (Ala. 2000); see also Results

Criented, Inc. v. Crawford, 538 S.E.2d 73 (Ga. Ct. App.

200), aff’d on other grounds, 548 S.E.2d 342 (Ga. 2001);

Hewell v. Cappaert Manufactured Hous., Inc., 819 So. 2d

461 (La. Ct. App. 2002).

In light of these developments, the only aberrant

jurisdictions that still adopt the position advocated by

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

tion) are two federal district courts and one state trial

court in Virginia, all of which issued their decisions before

Davis and Walton and relied on the district court decisions

expressly overruled by Davis and Walton.’

In search of a split in authority, petitioners seek

refuge in the Mississippi Supreme Court’s decision in

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

decision does not help them. In Parkerson, an evenly

divided Mississippi Supreme Court affirmed an intermedi-

ate appellate court’s holding that the FAA did not mandate

enforcement of arbitration clauses within written warran-

ties. How2ver, Parkerson is not even legally binding in

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

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

2d 958 (W.D. Va. 2000); Philyaw v. Platinum Enters., Inc., No. CL00-

236, 2001 WL 112107 (Va. Cir. Ct. Jan. 9, 2001).

Mississippi on this point because only four of eight Jus-

tices approved this holding; three Justices clearly rejected

it and one Justice expressed no opinion on the matter. See

Buffington v. Mississippi, 824 So. 2d 576, 580 (Miss. 2002)

(“It is true that a majority of all sitting judges is required

to create precedent, and therefore, it follows that a plural-

ity vote does not create a binding result.”). In any event,

the Parkerson plurality relied on the district court deci-

sions that have now been expressly overruled by Davis

and Walton.

In sum, there is no split for this Court to resolve.

II. THIS CASE IS AN INAPPROPRIATE VEHI-

CLE TO CONSIDER THE QUESTION PRE-

SENTED.

After this case returned to the district court following

the Court of Appeals’ decision, the district court issued an

order to show cause why it should not grant Southern’s

motion to compel arbitration. In response to this order,

petitioners filed a lengthy brief reciting various reasons

why the arbitration clause is unenforceable. This brief

(largely recycled from their earlier pleading in the district

court) argued that the arbitration clause is unenforceable

because (1) it violates various other provisions of the

Warranty Act, (2) it violates the rules of the American

Arbitration Association, and (3) it violates the Seventh

Amendment and the Commerce Clause of the United

States Constitution. Southern responded to these argu-

ments, and these issues remain pending before the district

court.

Although Southern believes that the arbitration

clause is fully enforceable as written, if the district court

accepts any of petitioners’ arguments, the arbitration

clause would be unenforceable for reasons completely

independent of the issue presented in this petition. There-

fore, before this Court could even decide whether the

Warranty Act prohibits binding arbitration, that issue

might wel! become moot. In light of this possibility, this

case is a poor candidate for resolving the question pre-

sented.

Ill. THE COURT OF APPEALS CORRECTLY

CONCLUDED THAT THE WARRANTY ACT

DOES NOT PROHIBIT ARBITRATION.

The central issue in this case is whether Congress in

enacting the Warranty Act partially repealed the FAA,

which otherwise makes all agreements to arbitrate “valid,

irrevocable, and enforceable.” Because implied repeal of

statutes is disfavored, when — as here — “two statutes are

capable of coexistence, it is the duty of the courts, absent a

clearly expressed congressional intention to the contrary,

to regard each as effective.” NextWave, 123 S. Ct. at 840

(quoting J.E.M. AG Supply, Inc. v. Pioneer Hi-Bred Int'l,

Inc., 534 U.S. 124, 143-44 (2001)).

As applied in the context of the FAA, this Court has

repeatedly instructed courts that they may not find that a

subsequent act of Congress overrides the FAA unless

Congress “explicitly preclude[s] arbitration” of claims

under the later-enacted statute. Gilmer v. Inter-

state / Johnson Lane Corp., 500 U.S. 20, 29 (1991) (empha-

sis added). Furthermore, the party seeking to avoid

arbitration (here, petitioners) bears the burden of demon-

strating that Congress clearly intended to preclude arbi-

tration, an intent that, if it exists at all, must be found in

“[the statute’s] text or legislative history, or from an

inherent conflict between arbitration and the statute’s

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

omitted). Evidencing the stringent nature of these re-

quirements, no decision of this Court holds that Congress

intended a later act to repeal the FAA and prohibit arbi-

tration.

The Warranty Act is no exception. There is nothing in

the text, legislative history, or purposes of the Act that

demonstrates a congressional intention to prohibit arbitra-

tion.

A. Neither the Text, Legislative History, nor

Purposes of the Warranty Act Demon-

strates a Clear Congressional Intent to

Prohibit Arbitration.

1. The plain language of the Warranty Act does not

repeal the FAA or prohibit arbitration of consumer war-

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

Warranty Act do not mention arbitration at all. In other

words, nowhere in the language of the Warranty Act does

Congress expressly preclude binding arbitration of con-

sumer claims arising under the Act, or even suggest that

arbitration of consumer warranty claims was a congres-

sional concern. See Davis, Pet. App. 10; Walton, 298 F.3d at

475-76.

Indeed, a separate provision of the Act definitively

repudiates any argument that Congress intended to

preclude arbitration of Warranty Act claims. Section

111(bX1) of the Act, 15 U.S.C. § 2311(b)(1), states that

“[njothing in this chapter shall invalidate or restrict any

right or remedy of any consumer under State law or any

other Federal law.” Congress explicitly preserved consum-

ers’ existing rights to arbitrate claims under the FAA,

including the right to enforce arbitration agreements to

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

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

_ that ability to enforce arbitration agreements is an impor-

tant right for consumers). This provision thus expressly

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

remedies it protects, by the Warranty Act.

Moreover, to conclude as petitioners do, that Congress

foreclosed any arbitration remedy, a court would necessar-

ily have to find that Congress preempted each state’s

adoption of the Uniform Arbitration Act, which, like the

FAA, makes arbitration agreements binding and enforce-

able without regard to the subject matter of the parties’

dispute. Principles of federalism, however, preclude a

finding of preemption unless that was the “clear and

manifest intent” of Congress, a standard that petitioners

have not even attempted to demonstrate in this case. See

Sprietsma v. Mercury Marine, 123 S. Ct. 518, 530 (2002).

Conspicuously, petitioners do not even cite the savings

clause, much less point to any finding that Congress

clearly intended to preempt state arbitration laws and

deprive consumers of the important rights and remedies

those laws provide. And for good reason. The broad sav-

ings clause of Section 111(b) makes such a finding abso-

lutely impossible. For it expressly instructs courts not to

interpret the statute in precisely the manner petitioners

do.

In the absence of any direct language precluding

arbitration and with no discussion of the savings clause,

petitioners rely on three arguments to support their

assertion that the Warranty Act prohibits binding arbitra-

tion. None of these arguments support their cause.

First, petitioners rely on Section 110 of the Warranty

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

create an informal dispute settlement mechanism, and

argue that arbitration must fall within the scope of this

new IDSM. As petitioners correctly concede, however, the

Warranty Act does not define the term IDSM, Pet. 4, and

thus petitioners’ argument rests entirely on inferences.

Yet, as this Court has repeatedly held, inference is not

enough. A subsequent act of Congress does not repeal the

FAA unless Congress “explicitly” precludes arbitration.

Gilmer, 500 U.S. at 29. :

In any event, petitioners’ argument is meritless.

Section 110 is concerned with establishment of IDSMs, not

arbitration. Section 110 provides that Congress “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,” and designates the FTC to 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.” 15 U.S.C. § 2310(a)(2). The gist of

the new IDSM under Section 110 is to allow a warrantor to

incorporate in its written warranty “a requirement that

the consumer resort to such procedure before pursuing any

legal remedy under this section respecting such warranty,”

in which case the consumer “may not commence a civil

action (other than a class action)” under the remedies

provision of Section 110(d) without first resorting to that

procedure. Id. § 2310(aX3XC). See also id. § 2310(d)(1).

Therefore, in enacting the Warranty Act, Congress

gave consumers a new statutory cause of action and

provided warrantors with the option of establishing

IDSMs that consumers would need to use before pursuing

the new remedy. However, the mere fact that Congress

provided consumers with a remedy that could arise after

completing an IDSM does not mean that consumers could

not choose to pursue that statutory remedy in an arbitra-

tion proceeding rather than a judicial forum. Indeed, the

Warranty Act’s language allowing consumers to choose a

state or federal forum for their disputes is consistent with

the conclusion that Congress intended to allow for arbitra-

tion of consumer disputes under the Act. That is because

the provision for concurrent state and federal jurisdiction

reflects a congressional desire to “allow[] [claimants] a

broader right to select the forum for resolving disputes,

whether it be judicial or otherwise.” Gilmer, 500 U.S. at 29

(second alteration in original) (quotation omitted).

Moreover, allowing warrantors to establish an IDSM

that they may require consumers to resort to as a prereq-

uisite to filing a lawsuit does not evince a congressional

intent to preclude arbitration. For the Warranty Act

speaks only of an “informal dispute settlement mecha-

nism.” As both the Third and Fifth Circuits have ex-

plained, arbitration is not the same as an IDSM. Walton,

298 F.3d at 476 (“binding arbitration is not normally

considered to be an ‘informal dispute settlement proce-

dure’”); Harrison v. Nissan Motor Corp., 111 F.3d 343, 351

(3rd Cir. 1997) (“[TJhe informal dispute resolution mecha-

nism provided [by the Warranty Act] does not constitute

arbitration within the meaning of the FAA.”) (emphasis

added). Furthermore, while the Warranty Act provides for

an IDSM, it also states that that procedure must be used

before filing suit in court; arbitration, however, is “gener-

ally ... understood to be a substitute for filing a lawsuit,

not a prerequisite.” Walton, 298 F.3d at 475-76.

The words Congress chose in Section 110 show that

Congress did not equate IDSMs with arbitration, as

petitioners do in this case. Section 110 refers to an “infor-

mal” process, but arbitration is a formal proceeding,

complete with rules and procedures to govern the conduct

of the proceedings. See, e.g., American Arbitration Associa-

tion, http://www.adr.org (the rules referred to in Southern’s

arbitration clause). Moreover, Section 110 governs only

informal “settlement” procedures. Arbitration is not a

“settlement” procedure in any ordinary sense of that word.

Arbitration is a formal proceeding for the final and bind-

ing adjudication of a claim. The outcome, unlike a settle-

ment, is not voluntarily agreed upon; it is decided by an

independent third party after a hearing and presentation

of evidence. See Rush Prudential HMO, Inc. v. Moran, 122

S. Ct. 2151, 2168 (2002). In short, unlike an IDSM, arbi-

tration. “walks, talks, and squawks very much like a

lawsuit.” Fed. Mar. Comm’n v. South Carolina State Ports

Auth., 122 S. Ct. 1864, 1873 (2002) (quoting lower court

opinion).

Second, petitioners argue that because some individu-

als included arbitration when they used the phrase “dis-

pute settlement procedures,” this Court should infer that

Congress did so as well. Like petitioners’ first argument,

this argument is based on inference, and inference alone.

It thus fails to meet the standards enunciated in McMa-

hon and Gilmer: a statute precludes arbitration only when

it “explicitly precludes arbitration.” Gilmer, 500 U.S. at 29

(emphasis added).

Moreover, the inferences actually work against peti-

tioners. Congress was keenly aware of the terms “arbitra-

tion” and “alternative dispute resolution” when it enacted

the Warranty Act. Those procedures were well known and

in wide use at the time of the Act’s passage. Yet, notably,

Congress never used either of those terms in the Warranty

Act, clearly indicating that Congress was talking about

something else. By using the new term “IDSM,” rather

than a broad generic term such as “ADR,” Congress thus

signaled that it was referring to a more limited and newly

created process, wholly distinct from existing procedures

such as arbitration. See Harrison, 111 F.3d at 351.

Third, petitioners contend that because Congress

created — and regulated — IDSMs, it must have intended to

preclude any other procedure, such as arbitration, that

would be exempt from IDSM regulations. Pet. 7-9. This

argument fundamentally misstates the standard an-

nounced by this Court for determining whether Congress

intended to prohibit arbitration. Instead of asking, as

directed by McMahon, whether the Warranty Act unambi-

guously and explicitly prohibits arbitration, plaintiffs

comb through the text for evidence on whether Congress

intended to allow arbitration. See Pet. 7 (“Having permit-

ted warrantors to create [IDSMs] . . . , did Congress intend

to permit warrantors to create similar procedures that are

exempt from FTC regulation?”).

This line of reasoning turns the analytic framework

upside down. For this Court has held that statutory causes

of action must be arbitrated notwithstanding the lack of

any provision in the statute allowing arbitration. This

Court has expressly and repeatedly declared that Con-

gress does not demonstrate an intent to prohibit arbitra-

tion merely by providing a statutory cause of action that

expressly allows an injured party to sue in a judicial

forum, or by providing for an extra-judicial method of

resolving claims, Gilmer, 500 U.S. at 26, 29; McMahon,

482 U.S. at 232. Indeed, in Gilmer, this Court held that

congressional creation of an informal dispute resolution

mechanism suggests that arbitration is consistent with the

statutory scheme. Gilmer, 500 U.S. at 29. That is because

the question is not — as petitioners would have it —

whether Congress expressed an intent to allow arbitration,

but rather whether Congress expressed an intent to

prohibit arbitration.

In sum, when the correct question is asked, an analy-

sis of the text of the Warranty Act demonstrates that

Congress did not express an intent to prohibit binding

arbitration of consumer warranty claims.

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

the Warranty Act’s legislative history that suggests Con-

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

vant legislative history shows that Congress knew the

difference between arbitration and IDSMs and expressly

contemplated arbitration of consumer warranty claims

that could not be settled informally. Senators Magnuson

and Moss introduced the first version of a consumer

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

Commerce issued a report interpreting the language of

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

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

intent that warrantors of consumer products cooperate

with government and private agencies to establish infor-

mal dispute settlement mechanisms that take care of

consumer grievances without the aid of litigation or formal

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

clearly understood that litigation and arbitration were

equivalent alternatives if informal dispute settlement

efforts failed.

Petitioners do not cite this Report, preferring instead to

scour the Warranty Act legislative history for support, an

undertaking that one judge has called “the legal equivalent

of an archaeological dig.” Skelton v. General Motors Corp.,

500 F. Supp. 1181, 1184 (N.D. Ill. 1980), rev’d on other

grounds, 660 F.2d 311 (7th Cir. 1981). Based on their

archaeological research, petitioners infer from scattered

(and selective) comments, that Congress purportedly

considered — and rejected — a proposal to allow binding

arbitration of Warranty Act claims. While petitioners point

to evidence that Congress considered different types of

dispute settlement procedures, they point to no evidence

that Congress drafted the Warranty Act to prohibit arbitra-

tion. Put another way, after “entering a crowded cocktail

party and looking over the heads of the guests for [their] |

friends,” petitioners came up short. Conroy v. Aniskoff, 507

U.S. 511, 519 (1993) (Scalia, J., concurring). They were

unable to find even a single reference to a congressional

intent to prohibit binding arbitration.

Under the McMahon test, petitioners’ failure to

identify any clear legislative history expressing a congres-

sional intent to prohibit binding arbitration dooms their

argument, for this Court has held that a subsequent act of

Congress overrides the FAA’s command to enforce arbitra- -

tion agreements only when Congress “explicitly preclude[s]

arbitration.” Gilmer, 500 U.S. at 29 (emphasis added).

Even taking petitioners’ research at face value, the

fact that some people may on occasion use the phrase

“dispute settlement procedures” as encompassing arbitra-

tion falls far short of the type of unambiguous evidence

necessary to conclude that Congress itself intended to

preclude binding arbitration. In McMahon, this Court set

the standard for evaluating evidence of legislative history,

and it set the standard quite high. In that case, this Court

upheld binding arbitration in cases arising under the

Securities Exchange Act of 1934, even though the legisla-

tive history of that statute strongly suggested that Con-

gress had intended to adopt this Court’s now-repudiated

holding in Wilko v. Swan, 346 U.S. 427 (1953), that arbi-

tration was an inadequate forum for the resolution of

statutory claims. Thus, even though the Conference

Report for the 1934 Act expressly stated that the “amend-

ment did not change existing law, as articulated in Wilko v.

Swan, 346 U.S. 427 (1953), concerning the effect of arbi-

tration proceedings provisions in agreements,” this Court

concluded that this explicit legislative history was insuffi-

cient to override the FAA. McMahon, 482 U.S. at 236-39.

Since petitioners’ legislative history evidence is considera-

bly less clear than the explicit statement in a Conference

Report that this Court found wanting in McMahon, it

cannot, by comparison, demonstrate congressional intent

to prohibit arbitration. Not surprisingly, petitioners make

no attempt to reconcile their use of legislative history with

the standard established in McMahon.

As with the text of the Warranty Act, therefore, there

is absolutely no evidence from its legislative history that

Congress intended to prohibit arbitration or override the

provisions of the FAA. To the contrary, the only proper

evidence of the Act’s legislative history shows that Con-

gress harbored no such intent.

3. Petitioners do not address the final part of the

McMahon inquiry (whether arbitration conflicts with the

Warranty Act’s purposes), perhaps because it would be

futile to argue that there is any conflict between arbitra-

tion and the Warranty Act’s express purpose “to improve

the adequacy of information available to consumers,

EEE

prevent deception, and improve competition in the market-

ing of consumer products.” 15 U.S.C. § 2302(a). As this

Court has repeatedly reminded courts, “by agreeing to

arbitrate ...a party does not forgo the substantive rights

afforded by the statute; it only submits to their resolution

in an arbitral, rather than a judicial, forum.” Circuit City

Stores, Inc. v. Adams, 532 U.S. 105, 123 (2001) (quoting

Gilmer, 500 U.S. at 26).

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

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

Indeed, arbitration promotes the purposes of the Warranty

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

streamlined procedure to resolve their claims. Because the

FAA and the Warranty Act are “two statutes .. . capable of

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

effective.” NextWave, 123 S. Ct. at 840, That is precisely

what the Court of Appeals did in this case.

B. The Court of Appeals Rightly Declined to

Defer to the FTC’s Unreasonable Interpre-

tation of the Warranty Act.

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

support its interpretation of the Warranty Act, petitioners

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

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

Warranty Act overrides the FAA and prohibits arbitration

of Warranty Act claims. Reliance on these FTC statements

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

irrelevant to the McMahon standard, and in any event,

they are not entitled to any deference.

1. Although the FTC has authority to implement

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

pret the Warranty Act to override the FAA. Under the

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

agency, that is determinative in deciding whether a

subsequently enacted statute abrogates the FAA’s em-

phatic federal policy making arbitration agreements

binding, irrevocable, and enforceable. See McMahon, 482

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

rule that Exchange Act precluded arbitration). Thus, the

Fifth Circuit rejected reliance on the FTC’s regulations,

stating that “[aJn agency’ regulations, promulgated

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

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

regulations cannot determine whether one Congress

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

simply irrelevant to the central question governed by the

McMahon test.

This conclusion — that agency interpretations are

irrelevant under the McMahon standard — is merely an

application of the basic principle, recently reaffirmed by

this Court in NextWave, that an agency may not interpret

a statute to deny the clear rights provided in a different

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

“administrative preferences cannot be the basis for deny-

ing respondent rights provided by the plain terms of a

law.” 123 S. Ct. at 840; see Recent Case, Arbitration — Fifth

Circuit Holds Magnuson-Moss Warranty Act Claims

Arbitrable Despite Contrary Agency Interpretation, 116

Harv. L. Rev. 1201, 1205 (Feb. 2003) (“Congress cannot

delegate to an agency the authority to override congres-

sional statutes.”).

Similarly, here, the FAA makes agreements to arbi-

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

and this guarantee provides significant rights for consum-

ers and other signatories to arbitration agreements. See

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

the FTC has interpreted the Warranty Act to prohibit

binding arbitration of claims arising under that Act,

thereby denying consumers and warrantors their rights

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

NextWave, the Warranty Act does not require this interpre-

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

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

123 S. Ct. at 840. In short, because there is no inherent

conflict between the Warranty Act and the FAA, this Court

has a duty to regard each as effective, regardless of the

FTC’s preference to the contrary.’ Id. at 840.

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

determining whether one act of Congress (the Warranty

Act) overrides another act (the FAA), the Court of Appeals

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

interpretation is entitled to Chevron deference only if

* The cases cited by petitioners are not to the contrary. Pet. 22. In

United States v. Alaska, 503 U.S. 569, 585-86 (1992), this Court

expressly held that the agency’s action under one statute (the Rivers

and Harbors Act) did not alter rights or guarantees under a different

federal statute (the Submerged Lands Act). Similarly, in Norfolk &

Western Ry. Co. v. American Train Dispatchers’ Ass’n, 499 U.S. 117

(1991), the relevant statute expressly provided that the agency’s actions

exempted the affected parties from all other laws. In other words,

Congress expressly authorized the agency to take action that would

have the effect of overriding other laws. Because the Warranty Act does

not expressly authorize the FTC to override other laws, much less the

FAA, Norfolk & Western does not help petitioners.

Congress has not spoken to the precise question at issue —

if, in other words, the statute is silent or ambiguous on the

topic. Yellow Transp., Inc. v. Michigan, 123 S. Ct. 371, 377

(2002); see Chevron, 467 U.S. at 843-44. But here, if the

Warranty Act is silent or ambiguous regarding arbitration,

then, by definition, Congress has not clearly expressed its

intent to override the FAA as required by McMahon. See

supra at 9-10. In short, the factual predicate for Chevron

deference — silence or ambiguity in the statutory language

— refutes any argument that Congress explicitly precluded

arbitration, as required by McMahon, when it enacted the

Warranty Act.

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

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

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

ing on any person.” Although the FTC never expressly

states that “IDSM” should be interpreted broadly to

include all non-judicial dispute resolution processes

(including arbitration), the FTC has indicated that it

interprets Section 703.5(j) to preclude binding erbitration.

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

explained that it had adopted this interpretation because

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

lines which it set out could ensure sufficient protection for

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

rationale, stating expressly that it “believes that this

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

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

that its interpretation rested on the language of the Act

providing that “the consumer may not commence a civil

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

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

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

implies that a mechanism’s decision cannot be legally

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

Id. (emphasis added).

The Court of Appeals properly held that the FTC’s

asserted justifications for its regulation are unreasonable

because they all conflict with this Court’s precedent.‘ See

Davis, Pet. App. 19-23. The FTC’s 1975 statement that

arbitration might not adequately protect consumers is

based on an inappropriate hostility to arbitration, and

therefore an impermissible reading of the statute. As the

Court of Appeals recognized, this Court “in McMahon ...

rejected this same hostility shown by the SEC.” Jd. 21; see

McMahon, 482 U.S. at 234 n.3.

Furthermore, the FTC’s 1999 statement that the

language of Section 110 “clearly implies that a mecha-

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

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

arbitration were deemed an IDSM - which defies all

evidence to the contrary — mere “implication” is never

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

500 U.S. at 27-33; McMahon, 482 U.S. at 236-38.

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

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

rationale also cannot survive modern precedent interpret-

ing the arbitration of statutory claims under the FAA. This

Court has repeatedly rejected arguments that claims

* Petitioners criticize the Court of Appeals for mistakenly labeling

Section 703.5) an “interpretive” regulation, but this minor drafting

error does not undermine the court’s comprehensive analysis of the

FTC’s regulations.

under employment discrimination laws, the federal anti-

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

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

subject to arbitration. This precedent requires that Section

110 of the Warranty Act be interpreted as providing an

informal, non-binding settlement mechanism to be fol-

lowed by arbitration or a civil action if the consumer were

dissatisfied with the informal settlement result. See

Gilmer, 500 U.S. at 29.°

At base, the FTC and petitioners have each made the

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

knowledge, what this Court has repeatedly emphasized

about arbitration — namely, that an agreement to arbitrate

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

transfers a dispute concerning those substantive rights

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

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

Supreme Court rationale,” the Court of Appeals properly

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

more compelling here than in McMahon because the statute there —

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

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

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

agreements because the SEC believed such an agreement constituted a

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

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

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

complexities of antitrust claims, notwithstanding the absence of judicial

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

arbitration do not entail any consequential restriction on substantive

rights.” McMahon, 482 U.S. at 232.

concluded that the FTC’s regulations are entitled to no

deference. Davis, Pet. App. 21.

CONCLUSION

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

certiorari should be denied.

Respectfully submitted,

MARK R. KRAVITZ

Counsel of Record

SANDRA SLACK GLOVER

WIGGIN & DANA LLP

One Century Tower

P.O. Box 1832

New Haven, Connecticut

06508-1832

(203) 498-4400

W. Scott SIMPSON

BATCHELOR & SIMPSON, P.C.

3284 Morgan Drive, Suite 112

Birmingham, Alabama 35216

(205) 823-4211

Counsel for Southern Energy

Homes, Inc.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.