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In construing the interplay between the Federal Arbitration Act (FAA) and the Magnuson-Moss Warranty Act (MMWA), the Maryland Court of Appeals held that the FAA does not require courts to enforce an arbitration agreement for claims brought under the MMWA. As the two dissenting justices explained, in reaching this holding, the Court rejected the reasoning of "the vast majority" of courts and instead "pin[ned] its decision on the reasoning adopted previously by only three federal district courts, a handful of law journal articles, and a dissent."
In Koons Ford of Baltimore, Inc. v. Lobach, 919 A.2d 722 (Md. 2007), Lobach bought a used car from Koons Ford (Koons). When he discovered that the car was allegedly defective and damaged, Lobach sued Koons, alleging violations of the MMWA and several other causes of action. Koons responded by filing a motion to compel arbitration in accordance with the parties' arbitration agreement. The trial court denied the motion with respect to the alleged violation of the MMWA but granted the motion in all other respects.
The issue on appeal was whether Congress, in enacting the MMWA, intended to override the FAA by precluding binding arbitration of claims brought under the MMWA. As the Court noted, this issue is governed by the test articulated in Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987). Under the McMahon test, the party opposing arbitration must demonstrate that Congress, in enacting the applicable statute, intended to carve out an exception to the FAA.
Even though the vast majority of courts have reached the opposite conclusion, the Court held that Congress intended to preclude binding arbitration of claims brought under the MMWA. The textual basis for the Court's holding was a provision in the MMWA directing the Federal Trade Commission (FTC) to adopt requirements "for any informal dispute settlement procedure which is incorporated into the terms of a written warranty to which [the MMWA] applies."
In reaching its holding, the Court relied heavily on the Supreme Court's evolving interpretation of the FAA. Specifically, the Court reasoned that "the modern view of arbitration cannot be used to glean Congress's intent in enacting the MMWA more than thirty years ago when binding arbitration was considered something much different."
As the two dissenting justices pointed out, the Court's holding goes against the weight of authority, including the only two circuit courts to examine the issue. See Davis v. Southern Energy Homes, Inc., 305 F.3d 1268 (11th Cir. 2002); Walton v. Rose Mobile Homes LLC, 298 F.3d 470 (5th Cir. 2002). The Court's decision is noteworthy in two other respects.
First, in construing Congress' intent in enacting the MMWA, the Court relied primarily on the Supreme Court's erstwhile disregard for Congress' intent in enacting the FAA. See Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 480 (1989) ("The Court's characterization of the arbitration process in Wilko is pervaded by what Judge Jerome Frank called 'the old judicial hostility to arbitration.'"). The task of statutory interpretation often requires courts to discern legislative intent, but allowing overturned judicial precedent to dictate legislative intent is a classic example of the tail wagging the dog.
Second, even standing alone, the Court's reasoning is inconsistent. The Court concedes that binding arbitration is not an "informal dispute settlement procedure" within the meaning of the MMWA. Nevertheless, the Court gives credence to the FTC's position that the MMWA does not allow for binding arbitration. Those positions are inconsistent because under the MMWA, the FTC's authority is limited to prescribing rules "for any informal dispute settlement procedure."
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