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The Indiana Court of Appeals has refused to follow a Federal Trade Commission (FTC) regulation stating that Magnusson-Moss Warranty Act (the Act) claims cannot be subject to binding arbitration. Of the nine courts to consider the issue, the Indiana Court of Appeals is the eighth one to find the FTC regulation “unreasonable.”
In Walker v. DaimlerChrysler Corp., No. 27A02-0507-CV-596, 2006 WL 3093977 (Ind. Ct. App. Nov. 2, 2006), William Walker appealed from an order compelling arbitration of Magnusson-Moss claims that he brought against DaimlerChrysler. On appeal, Walker relied on an FTC regulation stating that Congress did not intend to allow binding arbitration under the Act.
Before denying Walker’s appeal, the Court noted that seven of the eight courts to consider whether the Act prohibits arbitration have refused to defer to the FTC’s interpretation. The Court proceeded to explain that a statute will not be construed as precluding arbitration unless that intent is manifest by the statute’s text, its legislative history, or an inherent conflict between arbitration and the statute’s underlying purpose. The Court further explained that the United States Supreme Court has always upheld binding arbitration when “the statute creating the right did not explicitly preclude arbitration.”
With that background, the Court applied the test for deferring to an agency’s interpretation of a statute set forth in Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842 (1984). Under the test, since Congress did not specifically address the arbitrability of claims under the Act, the Court would have to defer to the FTC’s interpretation unless it was “unreasonable.”
The Court found the FTC interpretation unreasonable for three reasons. First, the FTC incorrectly interpreted the Act’s provision granting concurrent jurisdiction to both state and federal courts as precluding arbitration. Second, the FTC incorrectly concluded that a provision for non-binding dispute resolution acted as a prohibition on binding arbitration, when in fact it was only one option for dispute resolution. And finally, the FTC unreasonably concluded that an arbitral forum would not adequately protect consumers, when the Supreme Court has already determined that “arbitration’s advantages often would seem helpful to individuals.”
The Court, like others before it, followed the liberal federal policy favoring arbitration and recognized that arbitration can serve both consumers and companies seeking a less expensive alternative to litigation.
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