Walton v. Rose Mobile Homes LLC

• Decision Date: 30 July 2002
• Docket Number: No. 00-60742.,00-60742.
• Citation: 298 F.3d 470
• Parties: Thomas E. WALTON; Le'Ellen Walton, Plaintiffs-Appellees, v. ROSE MOBILE HOMES LLC; et al., Defendants, Southern Energy Homes, Inc., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

298 F.3d 470

Thomas E. WALTON; Le'Ellen Walton, Plaintiffs-Appellees, v. ROSE MOBILE HOMES LLC; et al., Defendants, Southern Energy Homes, Inc., Defendant-Appellant.

No. 00-60742.

United States Court of Appeals, Fifth Circuit.

July 30, 2002.

Amanda Lee Trawick (argued), John Gibson Compton, Witherspoon & Compton, Meridian, MS, for Plaintiffs-Appellees.

James L. Quinn (argued), Zachary & Leggett, Hattiesburg, MS, Robert Emmett Kerrigan, Jr. (argued), W. Clay McGehee, Isaac H. Ryan, Deutsch, Kerrigan & Stiles, New Orleans, LA, Wayne Scott Simpson, Southern Energy Homes Inc., Birmingham, AL, for Defendant-Appellant.

Appeal from the United States District Court for the Southern District of Mississippi.

Before KING, Chief Judge, and JOLLY and EMILIO M. GARZA, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

Defendant-Appellant Southern Energy Homes, Inc. appeals the district court's denial of its motion to compel arbitration of the Waltons' claim for breach of express written warranty under the Magnuson-Moss Warranty Act, 15 U.S.C. §§ 2301-12 (1994). For the following reasons, we REVERSE and REMAND.

I

In January 1999, Plaintiffs-Appellees Thomas and Le'Ellen Walton ("the Waltons") purchased a mobile home manufactured by Defendant-Appellant Southern Energy Homes, Inc. ("Southern Energy") from a retail seller, Rose Mobile Homes ("Rose"). Southern Energy issued the Waltons a one-year manufacturer's warranty against defects in materials and workmanship. This warranty contained an arbitration provision requiring the Waltons to submit any claims under the warranty to binding arbitration.¹

The Waltons discovered a variety of defects in their mobile home. They requested repairs from both Southern Energy and Rose on numerous occasions, but these repairs never were completed to the Waltons' satisfaction. Consequently, in October 1999, the Waltons revoked their acceptance of the mobile home by letter.

In December 1999, the Waltons filed suit against Southern Energy and Rose² in the Circuit Court of Kemper County, Mississippi, alleging negligence, breach of contract, breach of express and implied warranties, and violation of the Magnuson-Moss Warranty Act (the "MMWA").³ The defendants removed the case to federal district court pursuant to 28 U.S.C. § 1331, 28 U.S.C. § 1332, and the MMWA's jurisdictional provision, 15 U.S.C. § 2310(d).

Both Southern Energy and Rose filed motions to compel arbitration of the Waltons' claims. They contended that the arbitration provisions in the warranty and sales contracts and the separate "Binding Arbitration Agreement" signed by Thomas Walton at the time of sale are valid and enforceable under the Federal Arbitration Act (the "FAA") with respect to all of the Waltons' claims. In response, the Waltons argued that the MMWA precludes the enforcement of binding arbitration provisions contained in express written warranties. The Waltons maintained that, because of this statutory prohibition, neither their warranty claims under the MMWA nor their related state law claims are subject to compulsory arbitration. A federal magistrate judge agreed with the Waltons and denied Southern Energy and Rose's motions to compel arbitration with respect to all of the Waltons' claims.

Upon review of the magistrate judge's order, the district court agreed with the magistrate judge's conclusion that the MMWA precludes Southern Energy (the warrantor) from requiring the Waltons to submit their written warranty claims to binding arbitration. Contrary to the magistrate judge's conclusion, however, the district court compelled arbitration of the Waltons' claims that did not arise under the MMWA. Thus, the district court ordered the Waltons to submit their negligence, breach of contract and breach of implied warranty claims to arbitration.⁴ Southern Energy now appeals the district court's denial of its motion to compel arbitration of the Waltons' MMWA claim.

II

We review a district court's grant or denial of a motion to compel arbitration de novo. Webb v. Investacorp, Inc., 89 F.3d 252, 257 (5th Cir.1996). We have determined that a two-step inquiry governs the adjudication of motions to compel arbitration under the FAA: "The first step is to determine whether the parties agreed to arbitrate the dispute in question.... The second step is to determine whether legal constraints external to the parties' agreement foreclosed the arbitration of those claims." Id. at 257-58 (internal citations and quotations omitted). Because neither party disputes that the warranty contains a valid arbitration agreement that encompasses the Waltons' breach of express warranty claim, we focus our attention on the second step of the Webb inquiry: whether the MMWA presents a legal constraint that forecloses arbitration of the express warranty claim.

We first consider the background and dictates of the Federal Arbitration Act, and then of the Magnuson-Moss Warranty Act.

A

The Federal Arbitration Act was enacted in 1924 to "revers[e] centuries of judicial hostility to arbitration agreements by plac[ing] arbitration agreements upon the same footing as other contracts." Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220, 225-26, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 510-11, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974)) (internal citations and quotations omitted, alterations in original). The FAA provides that:

A written provision in ... 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... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2 (1994).

There is a "liberal federal policy favoring arbitration," and the Supreme Court has read the FAA to establish a presumption in favor of the enforceability of contractual arbitration agreements. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). The presumption of enforceability of arbitration agreements applies equally to "claim[s] founded on statutory rights." McMahon, 482 U.S. at 226, 107 S.Ct. 2332. Only a contrary congressional command can override the dictates of the FAA. Id.

In order to overcome this presumption in favor of arbitration, the party opposing arbitration bears the burden of demonstrating that "Congress intended to preclude a waiver of judicial remedies for the statutory rights at issue." Id. (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985)). Courts consider three factors in determining whether Congress intended to preclude application of the FAA to a particular statutory right: (1) the statute's text; (2) its legislative history; and (3) whether there is "an inherent conflict between arbitration and the statute's underlying purposes." Id.

In every case the Supreme Court has considered involving a statutory right that does not explicitly preclude arbitration, it has upheld the application of the FAA. This includes cases falling under the Age Discrimination in Employment Act,⁵ Sherman Act,⁶ Racketeer Influenced and Corrupt Organization Act,⁷ Securities Act of 1933,⁸ Securities Exchange Act of 1934,⁹ and the Truth in Lending Act.¹⁰

B

We now turn to the provisions of the Magnuson-Moss Warranty Act ("MMWA"). The MMWA was enacted in 1974 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). In addition to establishing standards governing the content of warranties, the MMWA creates a statutory cause of action for consumers "damaged by the failure of a supplier, warrantor, or service contractor to comply with any obligation [imposed by the Act] or [established by] a written warranty, implied warranty, or service contract." Id. § 2310(d)(1).¹¹ Suits under the MMWA may be brought in either federal or state court, id., and consumers are permitted to recover reasonably-incurred costs and expenses, including attorneys' fees, if they prevail in such suits. Id. § 2310(d)(2).

Before bringing a suit for breach of warranty, the consumer must give persons obligated under the warranty a reasonable opportunity to "cure" their failure to comply with the obligations at issue. Id. § 2310(e). The MMWA also permits warrantors to establish "informal dispute settlement procedures" for breach of written warranty claims, and to require consumers to resort to such procedures before bringing a civil action.¹² Id. § 2310(a). While the term "informal dispute settlement procedure" is not defined anywhere in the text of the Act, the Federal Trade Commission (the "FTC") is instructed to "prescribe rules setting forth minimum requirements for any informal dispute settlement procedure which is incorporated into the terms of a written warranty." Id. § 2310(a)(2). If a warrantor establishes an informal dispute settlement procedure in accordance with the FTC rules, the warrantor is permitted to include language in the warranty requiring consumers to resort to this procedure "before pursuing any legal remedy" under the Act. Id. § 2310(a)(3)(C). The FTC has adopted a regulation stating that informal dispute settlement procedures under the MMWA cannot be legally binding on any person. See 16 C.F.R. § 703.5(j). The FTC therefore has found that written warranties cannot require binding arbitration. 40 Fed. Reg. 60168, 60211 (1975) ("[T]here is nothing in the Rule which precludes the use of any other remedies by the parties following a Mechanism decision.... However, reference within the written warranty to any binding, non-judicial remedy is prohibited by the Rule and the Act.") Thus, according to the FTC's interpretation, binding arbitration is simply impermissible under the...