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Claims brought under the Magnuson-Moss Warranty Act (MMWA) are not arbitrable, consistent with the Federal Trade Commission's (FTC's) "reasonable interpretation" that the MMWA precludes binding arbitration, according to a federal district court in Ohio.
In Higgs v. Warranty Group, No. C2-02-1092, 2007 WL 2034376 (S.D. Ohio July 11, 2007), Higgs sued Warranty Group under a contract for warranty coverage. In a previous decision, the Sixth Circuit Court of Appeals determined that the parties had entered into an arbitration agreement but remanded the case for a determination on (1) the scope of the agreement and (2) whether claims brought under the Magnuson-Moss Warranty Act are arbitrable.
On remand, the Court found that all of Higgs' claims fell within the scope of the arbitration agreement because none of the claims could be maintained without reference to the underlying contract. The Court acknowledged that Higgs' claim for deceptive advertising appeared, on its face, to fall outside the scope of the agreement, but as the Court observed, this claim rested on the allegation that the contract purchased was materially different from the solicitation inducing the purchase. Since a comparison could not be made without referring to the underlying contract, the claim was found to be within the scope of the agreement.
The Court determined, however, that Higgs' MMWA claim was not arbitrable, reasoning that, in encouraging warrantors to establish procedures to fairly and expeditiously settle disputes through informal settlement procedures, the MMWA implicitly prohibited the use of binding arbitration to resolve claims brought thereunder. Noting the divergence of judicial opinions on the issue, the Court sided with two district courts which have held binding arbitration of MMWA claims is prohibited, thus parting ways with the two circuit courts which have found that the MMWA permits binding arbitration.
More specifically, the Court rejected the circuit courts' finding that there is no legislative text, history, or express intent to indicate a prohibition on binding arbitration of MMWA claims. In siding with the contrary district court rulings, the Court deferred to FTC regulations that preclude binding arbitration of MMWA claims as a "reasonable interpretation" of the MMWA.
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