Ninth Circuit Rules that Pre-Dispute Mandatory Arbitration Clause Is Invalid Under the Magnuson-Moss Warranty Act

In Kolev v. Euromotors West/The Auto Gallery, 2011 U.S. App. LEXIS 19254 (9th Cir. Cal. Sept. 20, 2011) a pre-owned car Diana Kolev (“Kolev”) purchased developed serious mechanical problems during the warranty period and the dealership refused to honor her warranty claims. Kolev sued for breach of warranties under the Magnuson-Moss Warranty Act (“MMWA”), 15 U.S.C. Section 2301 et seq., breach of contract, and unconscionability. The dealership moved to compel arbitration pursuant to the mandatory arbitration provision in the sales contract that Kolev signed when she bought the car. The District Court granted the motion. After the arbitrator sided with the dealership, Kolev challenged the ruling in District Court, which upheld the arbitral decision.

The U.S. Court of Appeals for the Ninth Circuit , however, reversed the District Court’s decision to compel arbitration. The appellate court found that the statute on its face was ambiguous as to whether pre-dispute mandatory binding arbitration provisions were valid under the MMWA. However, the Court found the written warranty provision that mandated pre-dispute binding arbitration was invalid under the MMWA. The Court explained its conclusion as follows:

We do so for the following reasons: (1) the FTC interpreted the statute consistent with its carefully reasoned understand- ing of the enacting Congress’s intent, as evidenced by the statute’s language and legislative history; (2) the FTC’s con- struction advances the MMWA’s purpose to protect consum- ers from predatory warrantors and to provide them with fair and informal pre-filing procedures that preserve their rights to enforce their claims for breach of warranty through civil liti- gation in the state or federal courts; and (3) the persistence of the FTC’s rule that the MMWA bars pre-dispute mandatory binding arbitration — expressly reaffirmed more than a decade after the Supreme Court held that the FAA “mandates enforcement of agreements to arbitrate statutory claims” absent “contrary congressional command — requires that the courts afford the agency’s constructionparticularly strong deference. Because we are required to defer to the reasonable construction of a statute by the agency that Congress has authorized to interpret it, we hold that the MMWA precludes enforcement of pre-dispute agreements such as Porsche’s that require mandatory binding arbitration of consumer warranty claims.


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