As a mediator who handles a lot of “lemon” law matters, I have mediated many cases in which an alleged violation of the Magnuson-Moss Warranty Act is one of the claims. Last fall, the Ninth Circuit Court of Appeals issued an opinion involving this Act. Recently, it withdrew its opinion in light of the hullaballoo surrounding class action arbitration waivers. As it impacts you as the consumer, it is the subject of this week’s blog.

In 1975, Congress passed the Magnuson-Moss Warranty Act (“Act”), 15 U.S.C. å¤2301, “. . . in response to an increasing number of consumer complaints regarding the inadequacy of warranties on consumer goods.” Davis v. Southern Energy Homes, 305 F.3d 1268, 1272 (11th Cir. 2002). Consequently, the Act “”. . .provides a statutory private right of action to consumers “damaged by the failure of a supplier, warrantor, or service contractor to comply with an obligation under this chapter, or under a written warranty, implied warranty, or service contract . . . .” Id. at å¤2301(d) (1). Consumers may sue for a . . .violation in either state or federal court. Id.””

The Act encourages the parties to settle their disputes through the use of informal settlement procedures. 15 U.S.C. å¤2310(a). One such procedure is arbitration.

One issue is whether such an arbitration can be binding. That is, can the manufacturer require a consumer to resort to binding arbitration (and thereby take away the consumer’s right to file a lawsuit in court?) The Eleventh Circuit (encompassing Alabama, Georgia and Florida) held in Davis,supra, that “. . . written warranty claims arising under the Magnuson-Moss Warranty Act may be subject to valid binding arbitration agreements.” (Id. at p. 1280).

On September 20, 2011, the Ninth Circuit (encompassing the Western United States including California, Washington, Oregon, Nevada, Arizona, Idaho, Montana, and Alaska) disagreed. In Kolev v. Euromotors West/The Auto Gallery, et al. (Case No. 09-55963) (decided under the Act on September 20, 2011), the appellate court concluded that “. . .written provisions that mandate pre-dispute binding arbitration are invalid under the

[Act]” (Id. at p. 17806). It based its decision in large part on Rule 703promulgated by the Federal Trade Commission (“FTC”) in 1975 and re-affirmed in 1999. The FTC promulgated the Rule to explain or interpret the Act. In part, Rule 703 (16 C.F.R. å¤703.5(j)) states that a decision in any informal dispute resolution procedure “shall not be legally binding on any person.” (Id. at p. 17796). When the FTC published this Rule in 1975, it explained that “” reference within the written warranty to any binding, non-judicial remedy is prohibited by the Rule and the Act.” ” (Id. at p. 17797).

In its re-affirmation of the Rule in 1999, the FTC again stated that mandatory pre-dispute binding arbitration clauses are invalid under the Act. (Id. at p. 17798).

Consequently, the Ninth Circuit reversed the trial court’s determination that had concluded otherwise, and remanded the decision back to the trial court for further proceedings on the alleged breach of the warranty claims.

Then, on April 11, 2012, the Ninth Circuit, on its own ( i.e., sua sponte), withdrew its opinionfiled September 20, 2011 appearing at 658 F. 3d 1024 (9th Cir. 2011). It also vacated the submission of this case on rehearing and rehearing en banc pending the issuance of a decision by the California Supreme Court in Sanchez v. Valencia Holding Co, LLC. (“Sanchez“) that appeared at (2011) 201 Cal. App. 4th 74, but is “depublished” by virtue of the appeal to the Supreme Court pursuant to California’s Rules of Court, Rule 8.1105(e) (1).

In Sanchez , the plaintiff, a car buyer, filed a class action against a car dealer, alleging various California state law violations. The defendant car dealer filed a motion to compel arbitration pursuant to the terms of the sales contract. The contract also contained a provision stating that plaintiff waived the right to file an arbitration as a class action. The trial court found the class action waiver to be unenforceable. Because the arbitration provision provided that if a court found the class action waiver to be unenforceable, then the whole arbitration clause itself was unenforceable, the trial court denied the petition to compel arbitration.

The defendant car dealer appealed. The appellate court affirmed the trial court’s ruling, but for a different reason; it found the arbitration provision to be unconscionable, as it was adhesive and one sided strongly favoring the defendant car dealer to the detriment of the plaintiff purchaser.

Again, the defendant car dealer appealed to the California Supreme Court, prompting the Ninth Circuit to withdraw its opinion.

Will the California Supreme Court uphold or invalidate the mandatory arbitration provisions including its waiver of the buyer’s right to file class action arbitration? Is its decision governed by the Federal Arbitration Act, 9 U.S. C. å¤2 et. seq. and the U. S. Supreme Court’s recent pronouncement in AT & T Mobility LLC v. Concepcion (2011) 563 U. S. ___, 131 S. Ct. 1740, 179 L. Ed. 2d 742? That decision held that the Federal Arbitration Act preempts California law regarding unconscionability such that the arbitration clause prohibiting class action arbitrations was valid under federal law. In so holding, the U.S. Supreme Court invalidated an earlier California Supreme Court decision holding that a waiver of class action arbitrations was unconscionable.

Will the California Supreme Court be constrained to follow the U. S. Supreme Court’s ruling, especially after having its earlier decision to the contrary struck down by this same court of last resort?

We shall see…… stay tuned!

. . .Just something to think about!

POSTSCRIPT: On February 6, 2012, I posted a blog about Peters v. Honda in which Paintiff Heather Peters won a small claims judgment against American Honda Motor Co., Inc for approximately $9800 because her Honda was not getting the gas mileage as advertised. As one migh expect, Honda appealed this judgment. In a decision issued on May 8, 2012, the Superior Court, sitting as an appellate court, reversed the smaill claims judgment, (HondaDecision+Scan) holding that the advertising of fuel economy was governed, if not mandated, by federal law and so beyond Honda’s control, and that further, Honda’s advertised cliams were “non-actionable sales puffery.” As this appeal is final; this is, indeed, the rest and the end of the story!

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