Southern Energy Homes, Inc. v. Lee

• Decision Date: 08 January 1999
• Citation: 732 So.2d 994
• Parties: SOUTHERN ENERGY HOMES, INC. v. Pennie O. LEE. Southern Energy Homes, Inc. v. Alicia Tanks and Essie M. Goodwin. Southern Energy Homes, Inc. v. Barbara G. Shields and Lillie R. Coleman. Southern Energy Homes, Inc. v. Mary Frances Gardner and Travis Gene Thornton.
• Court: Alabama Supreme Court

732 So.2d 994

SOUTHERN ENERGY HOMES, INC. v. Pennie O. LEE.

Southern Energy Homes, Inc. v. Alicia Tanks and Essie M. Goodwin.

Southern Energy Homes, Inc. v. Barbara G. Shields and Lillie R. Coleman.

Southern Energy Homes, Inc. v. Mary Frances Gardner and Travis Gene Thornton.

1998.

Supreme Court of Alabama.

January 8, 1999.

Rehearing Dismissed June 11, 1999.

John Martin Galese and Jeffrey L. Ingram of John Martin Galese, P.A., Birmingham, for appellant.

R. Bradford Wash of Lucas, Alvis & Wash, P.C., Birmingham; and William L. Utsey and J. Jefferson Utsey of Utsey, Christopher, Newton & Utsey, Butler, for appellees.

ALMON, Justice.

The question presented by these appeals is whether a written warranty governed by the Magnuson-Moss Warranty-Federal Trade Commission Improvement Act, 15 U.S.C. § 2301 et seq., may require a consumer to submit to arbitration. The Federal Trade Commission has expressly stated that such written warranties may not provide for binding arbitration, and the United States District Court for the Middle District of Alabama has so held. Wilson v. Waverlee Homes, Inc., 954 F.Supp. 1530 (M.D.Ala.1997), aff'd, 127 F.3d 40 (11th Cir.1997) (table); Boyd v. Homes of Legend, Inc., 981 F.Supp. 1423 (M.D.Ala. 1997).

These cases are unlike Wilson and Boyd in that the arbitration clauses at issue here are contained in the manufacturer's written warranty, whereas in those cases the question was whether the manufacturer could invoke the arbitration clause in the sales contract, to which it was not a party. Through extended discussion and analysis, the Wilson court held that the manufacturer could not invoke the arbitration clause, both because it was not a party to the sales contract and, pertinent here, because allowing it to do so would contravene the Magnuson-Moss Act. This holding was repeated in Boyd, in which the court then proceeded to decide whether the Magnuson-Moss Act precluded the seller from invoking the arbitration clause in its sales contract to require binding arbitration of implied warranty claims against it. The Boyd court held that the Magnuson-Moss Act's prohibitions against binding arbitration applied only to written warranties, not to implied-warranty claims against a party that had not issued a written warranty.

Boyd stated in footnote 9 the following:

"It is important to note that the court is not now confronted with a claim where a consumer seeks to pursue both written and non-written warranty claims against a warrantor. Therefore, the court need not address the interesting question of whether the Magnuson-Moss Act would restrict binding arbitration of the non-written warranty claim as well, in particular if it were closely related to, or intertwined with, the written warranty claim. Although this issue could have been raised in Waverlee Homes, it was not."

981 F.Supp. at 1435, n. 9 (emphasis in original). The court's reservation of this question could apply, however, only to a situation where an issuer of a written warranty can invoke some arbitration clause other than one in its written warranty as a bar to a legal action on implied-warranty claims against it. This is clear from the repeated references in both Wilson and Boyd to the fact that the Magnuson-Moss Act prohibits the inclusion in a written warranty of a provision requiring binding arbitration.

Both Wilson and Boyd quote a comment by the Federal Trade Commission regarding its rules promulgated pursuant to the Magnuson-Moss Act; that comment concludes: "However, reference within the written warranty to any binding, nonjudicial remedy is prohibited by the Rule and the Act." Boyd, 981 F.Supp. at 1438, quoting 40 Fed.Reg. 60,168, 60,211 (1975) (emphasis added); Wilson, 954 F.Supp. at 1539, quoting the same provision. Wilson makes several unequivocal statements that the Magnuson-Moss Act prohibits a warrantor from including a binding arbitration clause in a written warranty. For example:

"Had Waverlee [the manufacturer/warrantor defendant] sought to include, in its warranty, the type of absolute bar on judicial remedies it is seeking here, it would have been in clear and direct violation of the Magnuson-Moss Act."

954 F.Supp. at 1539. Boyd reiterates this holding. Although it relies principally upon Wilson to hold that the manufacturer/ warrantor could not rely upon the arbitration clause in the sales contract because it was not a signatory to that contract, the Boyd court notes in footnote 8 that "the court sees no reason why its holding in [Wilson], that under the Act such arbitration clauses may not be enforced by a manufacturer who offers a written warranty to the purchaser, should not apply to Homes of Legend. 954 F.Supp. at 1537-40." 981 F.Supp. at 1434-35, n. 8.

We refer the reader to the statutory-and legislative-history analysis in Wilson by which the court concluded that Congress, in the Magnuson-Moss Act, precluded the use of binding arbitration clauses in written warranties. Suffice it to say that although several sections of the Magnuson-Moss Act make reference to informal dispute-resolution procedures or mechanisms, those and other provisions also make it clear that a consumer is to have access to a judicial remedy. In short, a warranty may expressly set forth an informal dispute-resolution mechanism and may make the use of that mechanism a prerequisite for filing a court action, but it may not provide that the use of such a mechanism is binding or that it is a bar to a court action. See 15 U.S.C. § 2310; Wilson, 954 F.Supp. at 1537-40, and authorities cited therein.

The dissent discusses the fact that Boyd limits the holding of Wilson in regard to arbitration of implied-warranty claims where the motion to compel arbitration is not based on an arbitration clause in a written warranty. Boyd does not affect the holding in Wilson that the Magnuson-Moss Act precludes a written warranty from including a binding arbitration clause. The court in Boyd was addressing an implied-warranty claim against a seller, not an issuer of a written warranty, so Boyd does not affect the question whether an invalidly included arbitration clause in a written warranty may affect the consumer's implied-warranty claims against the warrantor. All that Boyd pertains to is an implied-warranty claim against a seller that did not issue a written warranty but included an arbitration clause in the sales contract.

The dissent also notes that the FTC has stated that consumers and warrantors may agree to binding arbitration after an informal dispute-settlement procedure has failed to achieve a mutually agreeable result. 732 So.2d at 1006 n. 20, citing Boyd, 981 F.Supp. at 1437 (quoting 40 Fed.Reg. 60,168, 60,211 (1975)). However, this refers to post-dispute arbitration agreements.

Randolph v. Green Tree Financial Corp., 991 F.Supp. 1410 (M.D.Ala.1997), does nothing to call the above-stated holdings of Wilson and Boyd into question. The arbitration clause in question in Randolph was included in an installment sales contract, not a warranty, and the complaint did not even state any warranty claims; instead, the plaintiff alleged violations of the Truth-in-Lending Act ("TILA") and the Equal Credit Opportunity Act ("ECOA"). The only mention in Randolph of Wilson and Boyd comes at pages 1425-26, in the court's January 5, 1998, order on a "motion for reconsideration." The Randolph court notes that "in Boyd, the court ordered the arbitration of non-written and implied warranty claims arising under the Magnuson-Moss Act." 991 F.Supp. at 1425. The Randolph court did not need to, and so did not, observe the difference between implied-warranty claims against a party that had issued a written warranty, and implied-warranty claims against a seller relying on an arbitration clause in a sales contract. Randolph simply holds that because Wilson and Boyd analyzed and applied the "highly detailed and specific provisions of the Magnuson-Moss Act," those cases were "inapplicable to the court's analysis under the TILA and the ECOA."¹ 991 F.Supp. at 1425-26. Randolph does not imply that the court erred in Wilson and in Boyd in holding that the Magnuson-Moss Act prohibits the inclusion in a written warranty of a clause providing for binding arbitration.

Furthermore, the district court in Rhode v. E & T Investments, Inc., 6 F.Supp.2d 1322 (M.D.Ala.1998), held that the nonsignatory manufacturer could not rely on the arbitration clause in the installment sales contract. The court held that, to the extent that the complaint stated express-warranty claims against the seller, the Magnuson-Moss Act prevented the seller from invoking the arbitration clause in the sales contract, but, to the extent that the complaint stated implied-warranty claims against the seller, it could invoke the arbitration clause in the sales contract. Again, Rhode provides no implication that a written warranty may include a provision requiring binding arbitration.

Wilson notes that it addresses a question of first impression regarding the application of the Magnuson-Moss Act to an attempt by a warrantor to invoke a provision providing for binding arbitration. We have found no other authority on point. Cf. Harrison v. Nissan Motor Corp. in U.S.A., 111 F.3d 343, 350 (3d Cir.1997), holding that, for purposes of an appeal under 9 U.S.C. § 16, "the informal dispute resolution procedure provided by Nissan pursuant to ... the Magnuson-Moss Warranty Act is not `arbitration' as contemplated by the FAA."

Relying on Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); Shearson/American Express Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987); Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989); and Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991), the dissent concludes that the Federal Arbitration Act ("FAA")...