Davis v. Southern Energy Homes, Inc.

• Citation: 305 F.3d 1268
• Decision Date: 19 September 2002
• Docket Number: No. 01-13831.,01-13831.
• Parties: Michael Shane DAVIS, Heather N. Davis, Plaintiffs-Appellees, v. SOUTHERN ENERGY HOMES, INC., a corporation, Defendant-Appellant, Bilo Homes, Inc., a corporation, David L. Smitherman, Defendants.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 1268

305 F.3d 1268

Michael Shane DAVIS, Heather N. Davis, Plaintiffs-Appellees, v. 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.

September 19, 2002.

W. Scott Simpson, Birmingham, AL, James C. Pennington, 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 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 warranties, 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 denying Southern's Motion to Compel Arbitration.

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., 134 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. Southern 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.

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 agreements 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 arbitration agreements of statutory claims and argues that the MMWA is similar to these other statutes because nothing in the MMWA's 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 Congress used the terms "dispute settlement procedures" and "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 reasonably 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 F.Supp. 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. Oakwood Mobile Homes, Inc., 124 F.Supp.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 Lancaster, 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.2002).¹ 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 conclude 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...." Id. § 2310(d)(1). Consumers may sue for a MMWA violation in either state or federal court. Id.

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 warrantors 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 requirements that the FTC prescribes. 15 U.S.C. § 2310(a)(2). If the informal dispute settlement procedure properly complies 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:

A written provision in any ... 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...