Cunningham v. Fleetwood Homes of Georgia

• Decision Date: 06 June 2001
• Docket Number: Nos. 00-12225,s. 00-12225
• Citation: 253 F.3d 611
• Parties: (11th Cir. 2001) GARY R. CUNNINGHAM, DELORES CUNNINGHAM, Plaintiffs-Appellees, v. FLEETWOOD HOMES OF GEORGIA, INC., Defendant-Appellant. & 00-12510
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 611

253 F.3d 611 (11th Cir. 2001)

GARY R. CUNNINGHAM, DELORES CUNNINGHAM, Plaintiffs-Appellees, v. FLEETWOOD HOMES OF GEORGIA, INC., Defendant-Appellant.

Nos. 00-12225 & 00-12510

IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

June 6, 2001

Appeals from the United States District Court for the Northern District of Alabama.D. C. Docket No. 99-02605-CV-PT-E

Before ANDERSON, Chief Judge, HULL and COX, Circuit Judges.

COX, Circuit Judge:

Fleetwood Homes of Georgia, Inc. (Fleetwood) appeals the district court's denial of Fleetwood's motion to compel arbitration pursuant to 9 U.S.C. § 16(a).

I. FACTS

In April of 1998, Gary and Delores Cunningham (the Cunninghams) purchased a new mobile home manufactured by Fleetwood from Ronnie Smith's Home Center, Inc. (Ronnie Smith's). The mobile home came with a manufacturer's warranty, and, as a part of the sales transaction, the Cunninghams executed an arbitration agreement with Ronnie Smith's.¹ Shortly after the purchase and installation of the home, the Cunninghams contacted Ronnie Smith's and Fleetwood with a variety of complaints about defects in the home. Unsatisfied with the response, the Cunninghams filed suit.

II. PROCEDURAL HISTORY

The Cunninghams filed a complaint in Alabama circuit court alleging fraud, mental anguish and emotional distress, fraud in the inducement, negligence and wantonness, breach of contract, breach of express and implied warranties, breach of implied warranty of merchantability, violation of the Alabama Extended Manufacturer's Liability Doctrine, Ala. Code 1975, § 6-5-500, et seq., and violations of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301-2312. Fleetwood and Ronnie Smith's removed to federal district court on the basis of the Magnuson-Moss Warranty Act claims. See 28 U.S.C. §§ 1331, 1367 (1993).

Ronnie Smith's filed a motion to compel arbitration or in the alternative for dismissal, and Fleetwood subsequently joined in the motion. The district court, concluding that Fleetwood was a third-party beneficiary of the arbitration agreement but that the Magnuson-Moss Warranty Act precludes arbitration of the Cunninghams' written or express warranty claims, issued an order compelling arbitration of all claims except for the Magnuson-Moss claims for breach of written or express warranties. Fleetwood appeals.

III. ISSUE ON APPEAL

Fleetwood challenges the district court's conclusion that the Magnuson-Moss Warranty Act-Federal Trade Commission Improvement Act, 15 U.S.C. §§ 2301-2312 (Magnuson-Moss), precludes Fleetwood from utilizing its third-party beneficiary status under the Ronnie Smith's-Cunningham arbitration agreement to compel binding arbitration of the Cunninnghams' breach of written or express warranty claims. We assume for the purpose of deciding this case that Fleetwood is entitled to the benefit of the arbitration agreement.

IV. STANDARD OF REVIEW

We review an order denying a motion to compel arbitration de novo. Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054, 1060 (11th Cir. 1998).

V. CONTENTIONS OF THE PARTIES

Fleetwood notes that the Federal Arbitration Act (FAA) creates a presumption of validity for arbitration clauses, see 9 U.S.C. § 2, and argues that because Magnuson-Moss does nothing to disturb the FAA's mandate, the arbitration agreement must be enforced according to its terms. See Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford, Jr. Univ., 489 U.S. 468, 479, 109 S. Ct. 1248, 1255-56 (1989). Fleetwood acknowledges that the FAA may be overridden by a contrary congressional command, but contends that an examination of the text, legislative history, and purpose of Magnuson-Moss reveals no evidence of a congressional intent to prevent the enforcement of arbitration agreements. See Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 227, 107 S. Ct. 2332, 2337-38 (1987) (noting that Congress's intent to limit or prohibit waiver of a judicial forum for a particular claim will be deducible from a statute's text, legislative history, or from an inherent conflict between arbitration and the statute's underlying purposes). The Cunninghams, on the other hand, argue that Magnuson-Moss and the rules promulgated by the Federal Trade Commission pursuant to Magnuson-Moss prohibit binding arbitration of warranty claims. Naturally, the Cunninghams contend that their view, not Fleetwood's, is supported by the legislative history and the stated purpose of Magnuson-Moss.

A. The Text of the Magnuson-Moss Warranty Act

For their analysis of the text of Magnuson-Moss, the Cunninghams rely on the reasoning of opinions from district courts within this circuit. See, e.g., Boyd v. Homes of Legend, 981 F. Supp. 1423, 1434-41 (M.D. Ala. 1997); Wilson v. Waverlee Homes, Inc., 954 F. Supp. 1530, 1537-39 (M.D. Ala. 1997). The Cunninghams note that 15 U.S.C. § 2310(d) creates a statutory right of action for consumers "who [are] 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 . . . ." 15 U.S.C. § 2310(d). Also, in § 2310(a) Magnuson-Moss provides for the inclusion of informal dispute settlement mechanisms within written warranties,² and delegates to the Federal Trade Commission the authority to establish minimum requirements for these mechanisms. The Cunninghams argue that Magnuson-Moss prohibits binding arbitration by making § 2310(a)'s informal dispute settlement mechanism the only exception to the right of action created by § 2310(d); no other mechanisms are permitted. In other words, in the Cunninghams' view Magnuson-Moss permits alternative dispute resolution, including arbitration, but only of the non-binding sort that fits the § 2310(a)(3) description and that complies with the rules promulgated by the Federal Trade Commission.³ See id. § 2310(a)(2); 16 C.F.R. § 703.5(j) (1999).

Fleetwood argues that § 2310(a)(1) only encourages inclusion of informal dispute resolution mechanisms in written warranties, and does not preclude enforcement of agreements to resolve claims by binding arbitration. Under Fleetwood's reading of Magnuson-Moss, the mechanism described by § 2310(a) is not the only method of alternative dispute resolution available to warrantors and consumers, and the statutory cause of action created by § 2310(d) merely confers a right that can be waived by express agreement. In support of this line of argument, Fleetwood notes that Magnuson-Moss expressly states that nothing in the Act shall invalidate or restrict any right or remedy of a consumer under any other federal law. 15 U.S.C. § 2311(b). In Fleetwood's view, this provision necessarily includes the substantive portions of the FAA that protect the ability of contracting parties to enter into binding arbitration agreements.

B. The Legislative History of the Act

Fleetwood argues that the legislative history of Magnuson-Moss does not express a clear intent to prohibit binding arbitration, but that at most, it evidences an intention to prohibit warrantors from including binding informal dispute resolution mechanisms in written warranties. Because the arbitration agreement at issue here was not in the manufacturer's warranty, but was instead a part of the sales transaction between the buyer and the seller, Fleetwood contends that legislative history indicating concerns with the content of written warranties is inapplicable.

In response the Cunninghams note that at the time of Magnuson-Moss's passage members of Congress indicated that use of the informal dispute resolution mechanism was intended as only a prerequisite, and would not be a bar to a later civil action on the warranty. See H.R. Rep. No. 93-1107, (1974) reprinted in 1974 U.S.C.C.A.N. 7702, 7703. In keeping with their construction of the text, the Cunninghams interpret this statement as an indication that Congress expected that all informal dispute resolution mechanisms would be non-binding, as they would otherwise violate the provisions of the Act. In support the Cunninghams cite the regulations promulgated by the Federal Trade Commission pursuant to the Act, which detail the particulars of the informal dispute resolution mechanism of § 2310(a), as well as the history of the regulations, which includes statements by the Federal Trade Commission rejecting industry calls for the incorporation of legally binding mechanisms. See 40 Fed. Reg. 60,168, 60,211 (1975) (stating "reference within the written warranty to any binding, non-judicial remedy is prohibited by the Rule and the Act."). Fleetwood's retort courteous is to repeat that none of the above applies to arbitration agreements not in the written warranty.

C. The Purpose of the Act

Fleetwood locates the purposes of Magnuson-Moss in the section detailing the Act's disclosure requirements, which reads: "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). Fleetwood submits that enforcing seller-consumer arbitration agreements that make warrantors third-party beneficiaries does not conflict with these purposes. Fleetwood analogizes to the federal securities statutes, which share Magnuson-Moss's concern with the disclosure of information to consumers. Although, like Magnuson-Moss, the Securities Act of 1933 and the Securities Exchange Act of 1934 require disclosure to potential investors to prevent disinformation and fraud in a transactional context, the Supreme Court has held that claims brought under both acts can be subject to binding arbitration. Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 485-86, 109 S. Ct. 1917, 1922 (1989) (Securities Act of 1933); McMahon, 482 U.S. at 238, 107 S. Ct. at 2343 (Securities Exchange Act of 1934). Fleetwood concludes that the same reasoning applies to Magnuson-Moss claims.

The Cunninghams note that the...