Seney v. Rent-A-Center, Inc.

• Decision Date: 11 December 2013
• Docket Number: No. 13–1064.,13–1064.
• Parties: Christine SENEY, Individually and as Parent and Next Friend of I.S. and N.S.; Antwan R. Seney, Plaintiffs–Appellants, v. RENT–A–CENTER, INC.; Rent–A–Center East, Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

738 F.3d 631

Christine SENEY, Individually and as Parent and Next Friend of I.S. and N.S.; Antwan R. Seney, Plaintiffs–Appellants,

v.RENT–A–CENTER, INC.; Rent–A–Center East, Inc., Defendants–Appellees.

No. 13–1064.

United States Court of Appeals, Fourth Circuit.

Argued: Oct. 31, 2013.

Decided: Dec. 11, 2013.

ARGUED:Daniel Warren Whitney, Sr., Whitney & Bogris LLP, Towson, Maryland, for Appellants. James Charles Mehigan, Wilson Elser Moskowitz Edelman & Dicker LLP, Washington, D.C., for Appellees. ON BRIEF:Gerald S. Gaetano, Whitney & Bogris LLP, Towson, Maryland, for Appellants. Peter A. Coleman, Wilson Elser Moskowitz Edelman & Dicker LLP, Baltimore, Maryland, for Appellees.

Before MOTZ and AGEE, Circuit Judges, and JOSEPH F. ANDERSON, Jr., United States District Judge for the District of South Carolina, sitting by designation.

Affirmed by published opinion. Judge MOTZ wrote the opinion, in which Judge AGEE and Judge ANDERSON joined.

DIANA GRIBBON MOTZ, Circuit Judge:

Christine and Antwan Seney appeal the district court's order compelling arbitration of their breach of warranty claim under the Magnuson–Moss Warranty Act, 15 U.S.C. § 2301 et seq. (2006). For the reasons that follow, we affirm.

I.

In March 2012, the Seneys entered into a “Rental–Purchase Agreement” with Rent–A–Center, Inc. (“RAC”) for a wooden trundle bed and mattress. In that contract, the Seneys agreed to rent the bed for two weeks, with an option to renew the lease. If the couple leased the bed for an additional six months, RAC would transfer title to them. The contract also contained a purchase option. By exercising the option, the Seneys could buy the bed before six months had passed.

Pursuant to this contract, RAC retained the manufacturer's warranty to the bed. RAC did provide, in the rental contract, its own warranty to repair, replace, and service the bed during the term of the lease. In that contract, the parties also agreed to submit any contract dispute to binding arbitration.

In April 2012, RAC delivered the bed to the Seneys' home and assembled it in their son's bedroom. Within a week, the boy complained of itchiness and pain. A doctor diagnosed his condition as bedbug bites, and Mrs. Seney called RAC to complain. The company returned to the home and replaced the bed's mattress. Workers, however, left behind the bedframe, which apparently was also infested with bedbugs. The infestation continued, and Mrs. Seney complained again. This time, RAC removed both the mattress and the frame, but not before dragging them through the Seneys' home. The bed shed bugs, and the infestation spread. RAC paid for a partial fumigation, but the company refused to treat the entire house.

The Seneys filed suit in Maryland state court, alleging a breach of warranty by RAC in violation of the Magnuson–Moss Warranty Act (“MMWA” or “the Act”). RAC removed the case to federal court and filed a motion to compel arbitration. In response, the Seneys claimed that their dispute could not be submitted to arbitration, at least insofar as that arbitration was binding. Relying on regulations promulgated by the Federal Trade Commission (“FTC”) pursuant to its authority to interpret the MMWA, the Seneys maintained that RAC could not require binding arbitration as part of a consumer warranty. See16 C.F.R. § 703.5(j) (2013).

The district court rejected the argument that the FTC regulations ban binding arbitration, and so granted RAC's motion to compel arbitration. The Seneys noted a timely appeal. We review a district court order compelling arbitration de novo. See Peabody Holding Co. v. United Mine Workers of Am., Int'l Union, 665 F.3d 96, 101 (4th Cir.2012).

II.

The Seneys contend that the district court erred in holding that the FTC regulations interpreting the MMWA contain no ban on binding arbitration. They maintain that the court conducted “an incomplete legal analysis.” Reply Br. 1. Specifically, they maintain that the court failed to recognize that, while the FTC regulations do permit binding arbitration after the parties have engaged in informal dispute resolution, the regulations prohibit binding arbitration before the parties have so engaged. Careful examination of the MMWA, and the FTC regulations promulgated pursuant to it, persuade us that the Seneys are correct.

Congress enacted the MMWA in response to a swell of consumer complaints regarding the inadequacy of warranties to protect consumers' interests. SeeH.R.Rep. No. 93–1107, reprinted in 1974 U.S.C.C.A.N. 7702, 7708–11. By passing the Act, Congress sought to “improve the adequacy of information available to consumers, prevent deception, and improve competition in the marketing” of goods. 15 U.S.C. § 2302(a). To further these goals, Congress provided a private right of action to consumers “damaged by the failure of a supplier, warrantor, or service contractor to comply with ... a written warranty, implied warranty, or service contract.” Id. § 2310(d)(1).

Under the MMWA, consumers may sue in court or submit to “informal dispute settlement procedures” in advance of litigation. Id. § 2310(a)(3). The statute does not define or describe “informal dispute settlement procedures.” Instead, Congress provided that the FTC would specify “minimum requirements” for informal dispute resolution. Id. § 2310(a)(2). To that end, the FTC has promulgated a host of regulations describing a variety of “mechanisms” to which consumers may be required to resort before pursuing their claims in court. 16 C.F.R. § 703.1 et seq.

Pursuant to those regulations, a “mechanism” is an “informal dispute settlement procedure which is incorporated into the terms of a written warranty.” Id. § 703.1(e). The FTC has interpreted the term broadly: “mechanisms” encompass all nonjudicial dispute resolution procedures, including arbitration. See40 Fed.Reg. 60,168, 60,210–11 (Dec. 31, 1975). Of importance here, the FTC regulations provide that decisions of these informal dispute resolution mechanisms must be nonbinding.16 C.F.R. § 703.5(j). In other words, the regulations limit warrantors' ability to insist in their written warranties that consumers submit to binding arbitration as part of a mechanism (an informal dispute settlement procedure). 40 Fed.Reg. at 60,211 (“[R]eference within the written warranty to any binding, non-judicial remedy is prohibited by ... Rule [703] and the Act.”).

The FTC regulations, however, distinguish between so-called “pre-dispute” and “post-dispute” binding arbitration. See Davis v. So. Energy Homes, Inc., 305 F.3d 1268, 1280 n. 8 (11th Cir.2002); Walton v. Rose Mobile Homes, LLC, 298 F.3d 470, 481–82 (5th Cir.2002) (King, C.J., dissenting).¹ “Pre-dispute” binding arbitration refers to parties' employment of binding arbitration as the exclusive means of resolving disputes, i.e., without first obtaining a nonbinding “mechanism” decision. See Walton, 298 F.3d at 481–82 (King, C.J., dissenting); see also40 Fed.Reg. at 60,210. In general, the FTC regulations prohibit “pre-dispute” binding arbitration. 16 C.F.R. § 703.5(j); 40 Fed.Reg. at 60,210. By contrast, the regulations permit “post-dispute” binding arbitration. 40 Fed.Reg. at 60,211. “Post-dispute” arbitration takes place after parties have first mediated their dispute informally through a nonbinding “mechanism.” See Walton, 298 F.3d at 482 (King, C.J., dissenting); 40 Fed.Reg. at 60,211. Thus, under the FTC regulations, if the parties first engage in nonbinding dispute resolution, a warrantor may then require a consumer dissatisfied with the “mechanism” decision to submit to binding arbitration. 40 Fed.Reg. at 60,211 (“[N]othing in the Rule ... precludes the use of any other remedies [e.g., binding arbitration] by the parties following a Mechanism decision.”) (emphasis added).²

Accordingly, the district court erred in holding that the FTC regulations contain no ban on binding arbitration. The FTC ban is intricate and limited, but it certainly exists.

III.

That the ban exists, however, does not resolve this appeal. The Seneys must also establish that the ban on arbitration applies to their rental agreement with RAC.

Before addressing that most fundamental question, we note that, rather than focusing on it, the parties argue at length about the permissibility of the FTC ban. In doing so, they expose an important tension between two major doctrines of statutory interpretation. In Shearson/American Express, Inc. v. McMahon, the Supreme Court instructed courts to evaluate the arbitrability of statutory rights in light of the liberal “federal policy favoring arbitration.” 482 U.S. 220, 226, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987). McMahon established that if a statute is silent with respect to arbitration, courts should presume its permissibility. Id. at 226–27, 107 S.Ct. 2332.McMahon, however, did not address whether agencies should also presume the permissibility of arbitration. The FTC, the agency that promulgated regulations interpreting the MMWA, did not employ a pro-arbitration presumption. See40 Fed.Reg. at 60,210. Rather, as explained above, it concluded that pre-dispute binding arbitration was impermissible under the Act. 16 C.F.R. § 703.5(j). Pursuant to the Supreme Court's directive in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., that interpretation, if reasonable, should control. 467 U.S. 837, 842–43, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).

The way in which Chevron squares with McMahon, however, is uncertain, and courts have divided on the question. Compare Davis, 305 F.3d at 1277–80 (concluding that courts should assess the FTC's arbitration ban under Chevron, but that the ban is unreasonable in light of McMahon ) with Walton, 298 F.3d at 475–78 (holding that the McMahon presumption renders the otherwise-ambiguous MMWA clear, obviating the need for Chevron deference) and Kolev v. Euromotors W./The Auto Gallery, 658 F.3d 1024, 1025–30 (9th Cir.2011), opinion withdrawn,676 F.3d 867, 867 (9th Cir.2012) (explaining that court...