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Magnuson-Moss Warranty Act arbitration
March 22, 2007 by Ross Runkel at LawMemo

It's a rare case when a court holds that an agreement to arbitrate a statutory claim cannot be enforced - due to a finding that the statute does not allow it.

Koons Ford v. Lobach (Maryland Court of Appeals 03/20/2007) did it.

When Koons Ford sold a car to the Lobachs, one of the papers they signed contained an agreement for binding arbitration. Claiming defects in the car, the Lobachs brought a law suit that was based in part on the federal Magnuson-Moss Warranty Act. Koons Ford wanted the case taken out of court and sent to arbitration, as had been agreed.

The Maryland Court of Appeals held that the Lobachs "may not be forced to resolve their claims through binding arbitration because Congress expressed an intent to preclude binding arbitration when it enacted the Magnuson-Moss Warranty Act."

The court's reasoning: The Magnuson-Moss Warranty Act contains a provision that allows a seller (like Koons Ford) to include an informal dispute-settlement procedure (like arbitration) in a warranty, and a consumer cannot go to court unless he uses that procedure first. The Federal Trade Commission (FTC) adopted a formal rule saying that decisions under such procedures are not legally binding. Therefore, giving proper deference to the FTC's rule, the arbitration provision in this case cannot be enforced.

The Magnuson-Moss Warranty Act was enacted in 1975 - before the Supreme Court had interpreted the Federal Arbitration Act as requiring enforcement of a vast array of arbitration agreements. Therefore, Congress could not have intended for an agreement for binding arbitration of Magnuson-Moss claims to be enforceable.

My view: The case is wrong.

The intent of Congress comes primarily from the text of the statute. Magnuson-Moss permits sellers to include non-binding arbitration as a pre-litigation requirement. There is not a single word that says anything about traditional binding arbitration, let alone anything saying that an agreement for binding arbitration cannot be enforced. The FTC rule should get no deference because it has no roots in the statute.

By the way, most other courts go the other way, enforcing these arbitration agreements in the same way that other arbitration agreements are enforced.

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