Koons Ford v. Lobach

• Decision Date: 20 March 2007
• Docket Number: No. 66, September Term, 2006.,66, September Term, 2006.
• Citation: 919 A.2d 722,398 Md. 38
• Parties: KOONS FORD OF BALTIMORE, INC. v. Raymond Calvin LOBACH, et al.
• Court: Court of Special Appeals of Maryland

919 A.2d 722

398 Md. 38

KOONS FORD OF BALTIMORE, INC. v. Raymond Calvin LOBACH, et al.

No. 66, September Term, 2006.

Court of Appeals of Maryland.

March 20, 2007.

Ryan R. Dietrich (Thomas M. Wood, IV of Neuberger, Quinn, Gielen, Rubin & Gibber, P.A. of Baltimore), on brief, for appellant.

C. Sukari Hardnett (Law Office of C. Sukari Hardnett of Silver Spring), on brief, for appellees.

Argued before BELL, C.J., RAKER, WILNER^*, CATHELL, HARRELL, BATTAGLIA and GREENE, JJ.

GREENE, J.

This case is an appeal from the Circuit Court for Baltimore County. William and Raymond Lobach purchased a vehicle from Koons Ford of Baltimore, Inc. ("Koons Ford") and, after discovering defects in that vehicle, filed a complaint against Koons Ford in the Circuit Court, alleging, inter alia, that Koons Ford violated the Magnuson-Moss Warranty Act ("MMWA"), 15 U.S.C. § 2301 et seq. Koons Ford contends that the claim must be submitted to binding arbitration because, as part of the purchase, William and Raymond signed a buyer's order that contained a binding arbitration clause, and arbitration is expressly favored by the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et. seq. Raymond argues that the MMWA prohibits the forced resolution of claims through binding arbitration, and, therefore, the FAA does not apply. He also claims that the arbitration clause must be included in the warranty document to be enforceable under the single document rule.

We conclude that, under the MMWA, claimants may not be forced to resolve their claims through binding arbitration because Congress expressed an intent to preclude binding arbitration when it enacted the MMWA. The FAA does not supersede the MMWA. Because of our resolution of this case, we need not address the parties' dispute over the single document rule.

FACTUAL AND PROCEDURAL BACKGROUND

On October 20, 2001, William Lobach went to the Koons Ford dealership on Security Boulevard in Baltimore, Maryland, with the intention of purchasing a vehicle. William's father, Raymond Lobach, accompanied William to the dealership. A sales representative presented William and Raymond with a 2001 Ford Escort, which William ultimately purchased. Raymond was a co-signer on the purchase. As part of the transaction, William and Raymond signed several documents, including a double-sided buyer's order; both men signed both sides of the buyer's order. The reverse side of the buyer's order contained the following provision:

10. WE AGREE THAT ANY CLAIM, DISPUTE OR CONTROVERSY DIRECTLY OR INDIRECTLY RELATING TO THIS AGREEMENT OR TO ANY VEHICLE INVOLVED HEREIN SHALL BE RESOLVED BY BINDING ARBITRATION THROUGH THE NATIONAL ARBITRATION FORUM, UNDER ITS CODE OF PROCEDURE THEN IN EFFECT. RULES AND FORMS OF THE NATIONAL ARBITRATION FORUM MAY BE OBTAINED AND ALL CLAIMS SHALL BE FILED AT ANY NATIONAL ARBITRATION FORUM OFFICE, www.arb-forum.com OR PO BOX 50191, MINNEAPOLIS, MINNESOTA 55405. THIS AGREEMENT IS MADE PURSUANT TO A TRANSACTION INVOLVING INTERSTATE COMMERCE, AND SHALL BE GOVERNED BY THE FEDERAL ARBITRATION ACT, 9 U.S.C. SECTIONS 1-16. JUDGMENT UPON ANY AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. THE PARTIES ACKNOWLEDGE THAT THEY HAVE KNOWINGLY WAIVED THEIR RIGHTS TO A JUDGE OR JURY TRIAL. NOTHING HEREIN SHALL BE CONSTRUED TO PREVENT EITHER PARTY'S USE OF REPOSESSION, REPLEVIN, DETINUE OR ANY OTHER REMEDY, WITH OR WITHOUT JUDICIAL PROCESS, CONCERNING ANY COLLATERAL, SECURITY OR PROPERTY INTEREST RELATING TO THIS AGREEMENT, NOR SHALL ANYTHING HEREIN BE CONSTRUED TO LIMIT ANY REMEDIES UNDER THE MARYLAND AUTOMOTIVE WARRANTY ENFORCEMENT ACT, OR THE MAGNUSON MOSS ACT.

On April 20, 2005, Raymond, individually, and as next of kin to William,¹ filed a complaint in the Circuit Court for Baltimore County against Koons Ford. According to the complaint, after taking possession of the Ford Escort, the buyers discovered defects in, and undisclosed prior damage to, the vehicle; specifically, water began leaking into the interior of the car and into the trunk. The complaint alleged violation of the MMWA (Count I),² violation of the Maryland Consumer Protection Act ("MCPA") § 13-301(1) (Count II), violation of the MCPA § 13-301(9) (Count III), breach of contract (Count IV), violation of the Maryland Commercial Law Code § 12-1005 (Count V), fraud (Count VI), and a derivative action against Suntrust Bank for all of the aforementioned claims (Count VII). On June 3, 2005, Koons Ford filed a Petition for Order to Arbitrate and Dismissal of Complaint, requesting that the Circuit Court stay the case so that the claims could be submitted to arbitration pursuant to the provisions in the buyer's order.

A motions hearing was held on August 26, 2005, and the Circuit Court denied Koons Ford's petition without prejudice.³ On September 26, 2005, Koons Ford filed an Amended Petition for Order to Arbitrate and Dismissal of Complaint, with an attached affidavit, requesting the same relief as the original petition. On March 10, 2006, the Circuit Court granted Koons Ford's Amended Petition for Order to Arbitrate as to Counts II through VI, and denied it with respect to Count I.⁴ On April 10, 2006, Koons Ford filed its Notice of Appeal to the Court of Special Appeals.⁵ On September 13, 2006, while the appeal was pending in the intermediate appellate court, this Court issued a writ of certiorari on its own motion. Koons Ford v. Lobach, 394 Md. 478, 906 A.2d 942 (2006).

DISCUSSION

Koons Ford contends that under the FAA, arbitration agreements are enforceable absent a showing that Congress intended to override the FAA by precluding binding arbitration for claims arising under a particular statute. Koons Fords explains that under the test articulated in Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 227, 107 S.Ct. 2332, 2337-38, 96 L.Ed.2d 185, 194 (1987), the congressional intent "`will be deducible from [the statute's] text or legislative history' or from an `inherent conflict between arbitration and the statute's underlying purposes.'" Koons Ford contends (1) that neither the text nor legislative history of the MMWA indicates that Congress intended to preclude binding arbitration, (2) that the MMWA explicitly allows informal dispute settlement procedures but that there is no mention that Congress intended binding arbitration to be considered an informal dispute settlement mechanism, (3) that binding arbitration does not conflict with the purposes of the MMWA because enforcement of a binding arbitration clause "would have no effect on the ability of a consumer to vindicate his or her substantive rights under the MMWA," (4) that there exist several cases to support this proposition, and (5) that the regulations, promulgated by the FTC pursuant to the MMWA, stating that any informal dispute settlement mechanism must not be binding, is unreasonable "because it relies on a conclusion, rejected by many courts, that binding arbitration is considered an informal dispute settlement mechanism."⁶

In addition, Koons Ford argues that under the single document rule, a warrantor is required to include certain disclosures pertaining to a warranty in one document but that the FTC regulations make no mention of the inclusion of binding arbitration clauses in that one document. Instead, according to Koons Ford, the regulations require that the warranty document contain "[i]nformation respecting the availability of any informal dispute settlement mechanism" and binding arbitration is not an informal dispute settlement mechanism.

Raymond counters that the Circuit Court correctly denied arbitration of the MMWA claims. First, Raymond argues that no valid arbitration agreement exists since neither he nor William had notice or knowledge of the binding arbitration provision because they did not understand that they were forgoing their day in court; the buyer's order was, in their view, a contract of adhesion. Raymond next contends that both the text and legislative history of the MMWA "evince Congress's intent to preserve the rights of consumers to seek judicial redress on warranty claims" and therefore ban binding arbitration of claims under the MMWA.

Furthermore, according to Raymond, because Congress intended to preclude a waiver of judicial remedies, the FAA is inapplicable to MMWA claims and the presumption of arbitrability is overridden. Raymond notes that although the MMWA does not explicitly mention the words "binding arbitration," at the time of the MMWA's passage, binding arbitration was not widely used in consumer contracts so there was no need at the time for Congress to expressly identify it. In addition, Raymond states that "it is not at all clear that arbitration was perceived as a `formal' dispute resolution mechanism at the time of its enactment in 1974 ... [and] the modern view of arbitration cannot be used to glean Congress's intent in enacting the MMWA more than thirty years ago when binding arbitration was considered much different." Further, Raymond avers that the FAA was not as broadly applicable at the time of the MMWA's enactment; the Supreme Court subsequently extended the meaning of the FAA. Raymond also posits that there exists an inherent conflict between binding arbitration and the underlying principles of the MMWA because the MMWA seeks to protect consumers. As such, Raymond argues that courts should not circumvent the right of consumers to take their MMWA claims to court. Raymond also argues that those courts that have compelled arbitration of MMWA claims have wrongly excluded binding arbitration from the MMWA's definition of an "informal dispute resolution mechanism" and also do not afford the FTC regulations the weight to which they are entitled. Raymond explains that the FTC has interpreted the MMWA to preclude the enforcement of binding arbitration clauses in written warranties covered by the MMWA and that this preclusion is not arbitrary or capricious and is reasonable. Lastly, Raymond argues that the...