Cunningham v. Fleetwood Homes of Georgia, Inc. , 253 F.3d 611 ( 2001 )

Gary R. CUNNINGHAM, Delores Cunningham, Plaintiffs-Appellees,
v.
FLEETWOOD HOMES OF GEORGIA, INC., Defendant-Appellant.
Nos. 00-12225, 00-12510.
United States Court of Appeals,
Eleventh Circuit.
June 6, 2001.
Appeals from the United States District Court for the Northern District of Alabama. (No. 99-02605-CV-PT-
E), Robert B. Propst, Judge.
Before ANDERSON, Chief Judge, and HULL and COX, Circuit Judges.
COX, Circuit Judge:
Fleetwood Homes of Georgia, Inc. (Fleetwood) appeals the district court's denial of Fleetwood's
motion to compel arbitration pursuant to 9 U.S.C. § 16(a).
I. FACTS
In April of 1998, Gary and Delores Cunningham (the Cunninghams) purchased a new mobile home
manufactured by Fleetwood from Ronnie Smith's Home Center, Inc. (Ronnie Smith's). The mobile home
came with a manufacturer's warranty, and, as a part of the sales transaction, the Cunninghams executed an
arbitration agreement with Ronnie Smith's.1 Shortly after the purchase and installation of the home, the
1
The text of the arbitration agreement, in pertinent part, provides as follows:
This agreement for binding arbitration is this date entered between Gary R. Cunningham
and Delores Cunningham hereinafter called "Buyer" and Ronnie Smith's Home Center
Mobile Home Center, a corporation, hereinafter called "Seller." ... Buyer and Seller
agree, covenant and consent that any controversies or claims arising out of or in any way
relating to the sale of the said mobile home and the negotiations leading up to the sale,
whether in the nature of covenant, warranty, misrepresentation, rescission, any breach of
contract, or other tort shall be settled solely by arbitration in accordance with the
applicable Rules of the American Arbitration Association then in effect, and that
judgment upon award rendered by the arbitrators may be entered in and enforceable by
any court of competent jurisdiction. Buyer and Seller further agree that they shall submit
any and all disputes, controversies and cases arising out of the negotiations for the sale
and service of the mobile home, whether in the nature of contract, warranty or tort, to the
decision of a three-person arbitration panel. Buyer and Seller agree that they shall be
bound by the determination of the said arbitration panel.... It is further agreed by the
parties that all rights, privileges and responsibilities under this agreement shall expressly
inure to the benefit of the manufacturer of the said mobile home insofar as any claims
may exist or thereafter arise against the manufacturer, including but not limited to,
enforcement of the warranties, whether express or implied.
(R.1-28 at 2-3). In addition, the retail installment contract and security agreement conspicuously
Cunninghams contacted Ronnie Smith's and Fleetwood with a variety of complaints about defects in the
home. Unsatisfied with the response, the Cunninghams filed suit.
II. PROCEDURAL HISTORY
The Cunninghams filed a complaint in Alabama circuit court alleging fraud, mental anguish and
emotional distress, fraud in the inducement, negligence and wantonness, breach of contract, breach of express
and implied warranties, breach of implied warranty of merchantability, violation of the Alabama Extended
Manufacturer's Liability Doctrine, ALA.CODE 1975, § 6-5-500, et seq., and violations of the Magnuson-Moss
Warranty Act, 15 U.S.C. § 2301-2312. Fleetwood and Ronnie Smith's removed to federal district court on
the basis of the Magnuson-Moss Warranty Act claims. See 28 U.S.C. §§ 1331, 1367 (1993).
Ronnie Smith's filed a motion to compel arbitration or in the alternative for dismissal, and Fleetwood
subsequently joined in the motion. The district court, concluding that Fleetwood was a third-party beneficiary
of the arbitration agreement but that the Magnuson-Moss Warranty Act precludes arbitration of the
Cunninghams' written or express warranty claims, issued an order compelling arbitration of all claims except
for the Magnuson-Moss claims for breach of written or express warranties. Fleetwood appeals.
III. ISSUE ON APPEAL
Fleetwood challenges the district court's conclusion that the Magnuson-Moss Warranty Act-Federal
Trade Commission Improvement Act, 15 U.S.C. §§ 2301-2312 (Magnuson-Moss), precludes Fleetwood from
utilizing its third-party beneficiary status under the Ronnie Smith's-Cunningham arbitration agreement to
compel binding arbitration of the Cunninnghams' breach of written or express warranty claims. We assume
for the purpose of deciding this case that Fleetwood is entitled to the benefit of the arbitration agreement.
IV. STANDARD OF REVIEW
We review an order denying a motion to compel arbitration de novo. Paladino v. Avnet Computer
Techs., Inc., 134 F.3d 1054, 1060 (11th Cir.1998).
V. CONTENTIONS OF THE PARTIES
Fleetwood notes that the Federal Arbitration Act (FAA) creates a presumption of validity for
arbitration clauses, see 9 U.S.C. § 2, and argues that because Magnuson-Moss does nothing to disturb the
FAA's mandate, the arbitration agreement must be enforced according to its terms. See Volt Info. Scis., Inc.
v. Bd. of Trs. of Leland Stanford, Jr. Univ., 489 U.S. 468, 479, 109 S.Ct. 1248, 1255-56, 103 L.Ed.2d 488and explicitly detailed the parties' arbitration obligations. (R.1-28 at 4).
(1989). Fleetwood acknowledges that the FAA may be overridden by a contrary congressional command,
but contends that an examination of the text, legislative history, and purpose of Magnuson-Moss reveals no
evidence of a congressional intent to prevent the enforcement of arbitration agreements. See
Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 227, 107 S.Ct. 2332, 2337-38, 96 L.Ed.2d 185(1987) (noting that Congress's intent to limit or prohibit waiver of a judicial forum for a particular claim will
be deducible from a statute's text, legislative history, or from an inherent conflict between arbitration and the
statute's underlying purposes). The Cunninghams, on the other hand, argue that Magnuson-Moss and the
rules promulgated by the Federal Trade Commission pursuant to Magnuson-Moss prohibit binding arbitration
of warranty claims. Naturally, the Cunninghams contend that their view, not Fleetwood's, is supported by
the legislative history and the stated purpose of Magnuson-Moss.
A. The Text of the Magnuson-Moss Warranty Act
For their analysis of the text of Magnuson-Moss, the Cunninghams rely on the reasoning of opinions
from district courts within this circuit. See, e.g., Boyd v. Homes of Legend, 981 F.Supp. 1423, 1434-41
(M.D.Ala.1997); Wilson v. Waverlee Homes, Inc., 954 F.Supp. 1530, 1537-39 (M.D.Ala.1997). The
Cunninghams note that 15 U.S.C. § 2310(d) creates a statutory right of action for consumers "who [are]
damaged by the failure of a supplier, warrantor, or service contractor to comply with any obligation under
this chapter or under a written warranty, implied warranty, or service contract...." 15 U.S.C. § 2310(d). Also,
in § 2310(a) Magnuson-Moss provides for the inclusion of informal dispute settlement mechanisms within
written warranties,2 and delegates to the Federal Trade Commission the authority to establish minimum
requirements for these mechanisms. The Cunninghams argue that Magnuson-Moss prohibits binding
arbitration by making § 2310(a)'s informal dispute settlement mechanism the only exception to the right of
2
The text of the informal dispute settlement mechanism provision reads as follows: "[o]ne or more
warrantors may establish an informal dispute settlement procedure which meets the requirements of the
Commission's rules under paragraph (2). If—
(A) a warrantor establishes such a procedure,
(B) such procedure, and its implementation, meets the requirements of such rules, and
(C) he incorporates in a written warranty a requirement that the consumer resort to such
procedure before pursuing any legal remedy under this section respecting such warranty,
then (i) the consumer may not commence a civil action (other than a class action) under
subsection (d) of this section unless he initially resorts to such procedure...." 15 U.S.C. §
2310(a)(3).
action created by § 2310(d); no other mechanisms are permitted. In other words, in the Cunninghams' view
Magnuson-Moss permits alternative dispute resolution, including arbitration, but only of the non-binding sort
that fits the § 2310(a)(3) description and that complies with the rules promulgated by the Federal Trade
Commission.3 See id. § 2310(a)(2); 16 C.F.R. § 703.5(j) (1999).
Fleetwood argues that § 2310(a)(1) only encourages inclusion of informal dispute resolution
mechanisms in written warranties, and does not preclude enforcement of agreements to resolve claims by
binding arbitration. Under Fleetwood's reading of Magnuson-Moss, the mechanism described by § 2310(a)
is not the only method of alternative dispute resolution available to warrantors and consumers, and the
statutory cause of action created by § 2310(d) merely confers a right that can be waived by express
agreement. In support of this line of argument, Fleetwood notes that Magnuson-Moss expressly states that
nothing in the Act shall invalidate or restrict any right or remedy of a consumer under any other federal law.
15 U.S.C. § 2311(b). In Fleetwood's view, this provision necessarily includes the substantive portions of the
FAA that protect the ability of contracting parties to enter into binding arbitration agreements.
B. The Legislative History of the Act
Fleetwood argues that the legislative history of Magnuson-Moss does not express a clear intent to
prohibit binding arbitration, but that at most, it evidences an intention to prohibit warrantors from including
binding informal dispute resolution mechanisms in written warranties. Because the arbitration agreement at
issue here was not in the manufacturer's warranty, but was instead a part of the sales transaction between the
buyer and the seller, Fleetwood contends that legislative history indicating concerns with the content of
written warranties is inapplicable.
In response the Cunninghams note that at the time of Magnuson-Moss's passage members of
Congress indicated that use of the informal dispute resolution mechanism was intended as only a prerequisite,
and would not be a bar to a later civil action on the warranty. See H.R.REP. NO. 93-1107, (1974) reprinted
in 1974 U.S.C.C.A.N. 7702, 7703. In keeping with their construction of the text, the Cunninghams interpret
this statement as an indication that Congress expected that all informal dispute resolution mechanisms would
be non-binding, as they would otherwise violate the provisions of the Act. In support the Cunninghams cite
the regulations promulgated by the Federal Trade Commission pursuant to the Act, which detail the
3
The Federal Trade Commission, drafting regulations pursuant to the Act, has provided that
"[d]ecisions of the Mechanism shall not be legally binding on any person." 16 C.F.R. § 703.5(j).
particulars of the informal dispute resolution mechanism of § 2310(a), as well as the history of the
regulations, which includes statements by the Federal Trade Commission rejecting industry calls for the
incorporation of legally binding mechanisms. See 40 Fed.Reg. 60,168, 60,211 (1975) (stating "reference
within the written warranty to any binding, non-judicial remedy is prohibited by the Rule and the Act.").
Fleetwood's retort courteous is to repeat that none of the above applies to arbitration agreements not in the
written warranty.
C. The Purpose of the Act
Fleetwood locates the purposes of Magnuson-Moss in the section detailing the Act's disclosure
requirements, which reads: "to improve the adequacy of information available to consumers, prevent
deception, and improve competition in the marketing of consumer products." 15 U.S.C. § 2302(a).
Fleetwood submits that enforcing seller-consumer arbitration agreements that make warrantors third-party
beneficiaries does not conflict with these purposes. Fleetwood analogizes to the federal securities statutes,
which share Magnuson-Moss's concern with the disclosure of information to consumers. Although, like
Magnuson-Moss, the Securities Act of 1933 and the Securities Exchange Act of 1934 require disclosure to
potential investors to prevent disinformation and fraud in a transactional context, the Supreme Court has held
that claims brought under both acts can be subject to binding arbitration. Rodriguez de Quijas v.
Shearson/American Express, Inc., 490 U.S. 477, 485-86, 109 S.Ct. 1917, 1922, 104 L.Ed.2d 526 (1989)
(Securities Act of 1933); McMahon, 482 U.S. at 238, 107 S.Ct. at 2343 (Securities Exchange Act of 1934).
Fleetwood concludes that the same reasoning applies to Magnuson-Moss claims.
The Cunninghams note that the legislative history provides that Magnuson-Moss was passed at least
in part to "provide[ ] the consumer with an economically feasible private right of action," Wilson, 954 F.Supp.
at 1538 (quoting 119 CONG. REC. 972 (1973) (remarks of Congressman Moss)), and they argue that allowing
Fleetwood to compel arbitration would force them to absorb costs that do not comport with the statutory
policy of Magnuson-Moss. See Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054, 1062 (11th
Cir.1998) (finding conflict between statutory policy of Title VII and restrictive arbitration clause).
Additionally, the Cunninghams argue that because Magnuson-Moss's purpose is to require manufacturers to
include all information relevant to the warranty in the warranty itself, allowing Fleetwood to compel
arbitration as a third-party beneficiary of the Ronnie Smith's-Cunningham agreement defeats the express
purpose of the Act. The Cunninghams also submit that the absence of language in the warranty referencing
the arbitration agreement is itself a violation of the Act, as Magnuson-Moss and the Federal Trade
Commission regulations require full and conspicuous disclosure of the terms and conditions of the warranty.
See 15 U.S.C. § 2302; 16 C.F.R. §§ 701.3, 703.2. Thus, the Cunninghams argue compelling arbitration on
the basis of an arbitration agreement that is not referenced in the warranty4 presents an inherent conflict with
the Act's purpose of providing clear and concise warranties to consumers.
VI. DISCUSSION
A. The Federal Arbitration Act
The Federal Arbitration Act, 9 U.S.C. § 1, et seq., "plac[es] arbitration agreements upon the same
footing as other contracts." McMahon, 482 U.S. at 226-27, 107 S.Ct. at 2337 (citations omitted). The FAA
provides that arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds
as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Statutorily-created causes of
action are no exception to the rule that arbitration agreements should be enforced according to their terms.
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626-27, 105 S.Ct. 3346, 3354, 87
L.Ed.2d 444 (1985).
Agreements to arbitrate are essentially forum-selection clauses, Scherk v. Alberto-Culver Co., 417
U.S. 506, 519, 94 S.Ct. 2449, 2457, 41 L.Ed.2d 270 (1974), and by "agreeing to arbitrate a statutory claim,
a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an
arbitral, rather than a judicial, forum." Mitsubishi, 473 U.S. at 628, 105 S.Ct. at 3354. However, Congress
may limit or prohibit waiver of a judicial forum for specific statutory claims. McMahon, 482 U.S. at 227,
107 S.Ct. at 2337. To deduce such an intent, reviewing courts must scrutinize a statute's text and legislative
history, and ascertain whether an inherent conflict exists between enforcement of the arbitration agreement
and the statute's underlying purposes. Id., 482 U.S. at 227, 107 S.Ct. at 2337-38.
B. The Magnuson-Moss Warranty-Federal Trade Commission Improvement Act
Congress enacted the Magnuson-Moss Warranty Act "to improve the adequacy of information
available to consumers, prevent deception, and [to] improve competition in the marketing of consumer
products." 15 U.S.C. § 2302. Magnuson-Moss does not require manufacturers to provide warranties, but
instead creates specific duties and liabilities for manufacturers that choose to do so. 16 C.F.R. § 700.03. The
4
Fleetwood notes in its reply brief that the written warranty is not a part of the record in this appeal.
However, it is undisputed that the warranty does not contain any reference to the arbitration agreement or
to an informal dispute settlement mechanism.
Act focuses primarily on written warranties for consumer products.5
The most significant provisions in Magnuson-Moss pertain to the disclosure of written consumer
product warranty terms and conditions, the pre-sale availability of written warranty terms, the authorization
of consumer suits for damages and other legal and equitable relief, and the procedures for creating informal
dispute settlement mechanisms. See 15 U.S.C. §§ 2302-04, 2310. The Cunninghams argue that the text of
these provisions evidences Congress's intention to prohibit or limit the waiver of judicial remedies for
Magnuson-Moss claims. We turn first to § 2310, the civil action and informal dispute settlement mechanism
section.
1. Section 2310: the Civil Action and Informal Dispute Settlement Mechanism
Section 2310 of Magnuson-Moss provides a statutory cause of action to consumers "damaged by the
failure of a supplier, warrantor, or service contractor to comply with [any obligation imposed by the Act] or
under a written warranty, implied warranty or service contract." Id. § 2310(d)(1). Suit may be brought in
either state or federal court.6 Id. The Act also permits class actions, and in an effort to encourage consumers
to pursue claims, Magnuson-Moss allows prevailing consumer litigants to receive attorneys' fees and costs.
Id. § 2310(d)(2), (e).
The Act also places certain impediments in the way of litigation-minded consumers. First, prior to
bringing suit for breach of warranty, a consumer must give persons obligated under the warranty a reasonable
opportunity to "cure" the failure to comply with the obligations at issue. Id. § 2310(e). Second, in order to
bring suit in federal court, the amount in controversy must be at least $50,000, exclusive of interests and
5
Magnuson-Moss defines "written warranty" as "any written affirmation of fact or written promise
made in connection with the sale of a consumer product by a supplier to a buyer which relates to the
nature of the material or workmanship and affirms or promises that such material or workmanship is
defect free or will meet a specified level of performance over a specified period of time, or ... any
undertaking in writing in connection with the sale by a supplier of a consumer product to refund, repair,
replace or take other remedial action with respect to such product in the event that such product fails to
meet the specifications set forth in the undertaking, which written affirmation, promise, or undertaking
becomes part of the basis of the bargain between a supplier and a buyer for purposes other than resale of
such product." 15 U.S.C. § 2301(6).
6
Magnuson-Moss does not restrict the ability of consumers to pursue relief under Uniform
Commercial Code or other state law theories, but merely establishes minimum federal standards within its
limited ambit. 15 U.S.C. § 2311(b), (c); see also HOWARD J. ALPERIN AND ROLAND F. CHASE, 2
CONSUMER LAW: SALES PRACTICES AND REGULATION § 214 (1986) (describing design of Magnuson-
Moss Warranty Act as complementing rather than superseding state warranty law).
costs.7 Id. § 2310(d)(1)(B), (d)(3)(B). Significantly, Magnuson-Moss also gives warrantors the ability to
establish procedural prerequisites to a consumer's civil action.
To encourage the settlement of consumer disputes by means other than civil suits, § 2310 allows
warrantors to include informal dispute settlement mechanisms in the warranty. Id. § 2310(a)(3). So long as
the mechanism complies with the Act's requirements and the rules established by the Federal Trade
Commission,8 id. § 2310(a)(3)(B), and the written warranty contains the requirement that the consumer utilize
the mechanism before pursuing a legal remedy, id. § 2310(a)(3)(C), warrantors can make the informal dispute
settlement process a mandatory prerequisite to instituting a consumer suit in state or federal court. Id.
The district court concluded that the informal dispute settlement procedure of § 2310(a)(3) is a
non-binding mechanism, in that it serves at most as a prerequisite, and not a bar, to relief in court. We agree.
The language of the section makes this clear when it states that, if a warrantor establishes a mechanism, "then
... the consumer may not commence a civil action ... unless he initially resorts to such procedure." Id. §
2310(a)(3). Congress's inclusion of the word "initially" in the proviso clause indicates that once a consumer
has utilized the warrantor's conforming mechanism, a subsequent civil action is permissible9—a possibility
that binding arbitration does not anticipate. The legislative history buttresses this conclusion. One of the
original sponsors of the bill explained that the informal dispute settlement mechanism was drafted as a
possible "prerequisite to suit." 119 CONG. REC. 972 (1973). Additionally, the Federal Trade Commission,
drafting regulations pursuant to the Act, has provided that "[d]ecisions of the Mechanism shall not be legally
binding on any person." 16 C.F.R. § 703.5(j).
The Cunninghams contend, and the district court agreed, that the only permissible conclusion to be
7
Additionally, there is a $25 per claim requirement and there must be 100 named plaintiffs for
Magnuson-Moss class actions. 15 U.S.C. § 2310(d)(3)(A), (d)(3)(C).
8
As in other areas, Magnuson-Moss delegates to the Federal Trade Commission the prescription of
minimum requirements for any informal dispute settlement procedure incorporated into the terms of a
written warranty. 15 U.S.C. § 2310(a)(2). The detailed requirements may be found at 16 C.F.R. § 703.1-
8, and include among other things, the duties of the warrantor, who can qualify as a member of a dispute
resolution panel, how the process must be conducted, and the method for keeping records. See 16 C.F.R.
§ 703.1-8.
9
We do not consider here the possibility that a consumer may forgo utilization of the mechanism
where the consumer pursues rights or remedies that are not created by but are actionable under
Magnuson-Moss. See Rules, Regulations, Statements and Interpretations Under Magnuson-Moss
Warranty Act, 40 Fed.Reg. 60,168, 60,194-95 (Dec. 31, 1975) (to be codified at 16 C.F.R. 701, et seq.)
(discussing design of § 703.2(b) as intending "to ensure that the consumer is not deceived into believing
that prior resort to the Mechanism is required in all instances.").
drawn from the text of § 2310 and the attendant legislative history is that Magnuson-Moss makes the
non-binding § 2310 mechanism the sole exception to its guarantee of a consumer cause of action; these two
alternatives eclipse the field of possibilities. Thus, binding arbitration agreements executed between buyer
and seller that designate manufacturers as third-party beneficiaries violate the Act because they are binding,
whether they are in the warranty or not, and they are therefore unenforceable. However, as Fleetwood notes,
there is no explicit reference to binding arbitration in the statute, and a contrary conclusion is in fact
permissible.
Since its decision in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105
S.Ct. 3346, 87 L.Ed.2d 444 (1985), which made clear the applicability of the FAA's mandate to
statutorily-created causes of action, the Supreme Court has revisited similar arbitration issues in a variety of
contexts.10 A review of these cases convinces us that the district court was incorrect in concluding that,
standing alone, the presence of the non-binding § 2310 mechanism in the statutory text requires the
conclusion that Magnuson-Moss claims may not be the subject of binding arbitration agreements.
Aspects of § 2310 of Magnuson-Moss resemble provisions in statutory schemes previously
considered in the Supreme Court's FAA jurisprudence. For instance, in Gilmer the Court noted that the
ADEA establishes prerequisites to a claimant's civil action. Gilmer v. Interstate/Johnson Lane Corp., 500
U.S. 20, 27, 111 S.Ct. 1647, 1653, 114 L.Ed.2d 26 (1991). First, ADEA claimants must file a charge with
the Equal Employment Opportunity Commission (EEOC). Id. The ADEA also requires the EEOC to "attempt
to eliminate the discriminatory practice or practices alleged, and to effect voluntary compliance ... through
informal methods of conciliation, conference, and persuasion" before bringing an action. Gilmer, 500 U.S.
at 27, 111 S.Ct. at 1653 (quoting 29 U.S.C. § 626(b)). This aspect of the ADEA is not unlike that portion of
§ 2310 which announces a "policy to encourage warrantors to establish [informal dispute settlement]
procedures whereby consumer disputes are fairly and expeditiously settled," 15 U.S.C. § 2310(a)(1), and
which obligates Magnuson-Moss claimants to first give warrantors an opportunity to cure. Id. § 2310(e).
10
See, e.g., Circuit City Stores, Inc. v. Adams, --- U.S. ----, 121 S.Ct. 1302, --- L.Ed.2d ---- (2001)
(compelling arbitration of state court employment discrimination action); Gilmer v. Interstate/Johnson
Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) (compelling arbitration of Age
Discrimination in Employment Act of 1967 claim); Rodriguez de Quijas v. Shearson/American Express,
Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989) (compelling arbitration of Securities Act of
1933 claims, overruling Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953)); McMahon,
482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) (compelling arbitration of Securities Exchange Act
of 1934 and Racketerer Influenced and Corrupt Organizations Act claims).
In Gilmer, however, the Supreme Court held that ADEA claims are arbitrable, in spite of the presence of an
alternative settlement mechanism within the statute. This indicates that the presence of one type of
non-judicial mechanism in the text does not necessarily preclude the possibility of all alternative
mechanisms.11 See Southern Energy Homes, Inc. v. Lee, 732 So.2d 994, 1007 (Ala.1999) (See, J. dissenting).
However, while we are inclined to think that the presence of the non-binding § 2310 mechanism in
the statutory text does not in and of itself mandate the conclusion that Magnuson-Moss renders binding
arbitration agreements unenforceable, other key provisions of Magnuson-Moss, together with § 2310, cast
considerable doubt on the propriety of the particular arrangement at issue here. These provisions include the
requirements that significant conditions, limitations, and terms of the warranty be included in simple language
in the warranty itself, and that the warranty must consist of a single, understandable document made available
prior to sale to the consumer.
2. Section 2302: the Disclosure Requirements
Magnuson-Moss provides rules governing the content of warranties "[i]n order to improve the
adequacy of information available to consumers, prevent deception, and improve competition in the
marketing of consumer products." 15 U.S.C. § 2302(a). The Act requires that any warrantor that chooses
to provide a written warranty with a consumer product "shall ... fully and conspicuously disclose in simple
and readily understood language the terms and conditions of such warranty." Id. The Act suggests the
inclusion of thirteen items, among them: "[a] statement of what the warrantor will do in the event of a defect,
malfunction, or failure to conform with [the] written warranty-at whose expense-and for what period of time,"
id. § 2302(a)(4); "[a] statement of what the consumer must do and expenses he must bear," id. § 2302(a)(5);
"[e]xceptions and exclusions from the terms of the warranty," id. § 2302(a)(6); "[t]he step-by-step procedure
which the consumer should take in order to obtain performance of any obligation under the warranty," id. §
2302(a)(7); "[i]nformation respecting the availability of any informal dispute settlement procedure offered
by the warrantor and a recital, where the warranty so provides, that the purchaser may be required to resort
to such procedures before pursuing any legal remedies in the courts," id. § 2302(a)(8); and "[t]he elements
of the warranty in words or phrases which would not mislead a reasonable, average consumer as to the nature
or scope of the warranty." Id. § 2302(a)(13). Magnuson-Moss delegates promulgation of specific disclosure
11
Of course, there are discernible differences, both in the language and structure of the Magnuson-
Moss Warranty Act and the ADEA. See 15 U.S.C. § 2301, et seq.; 29 U.S.C. § 621, et seq.
requirements to the FTC, but requires that the terms of any written warranty be made available to the
consumer or prospective consumer prior to sale. Id. § 2302(a), (b)(1)(A).
The disclosure requirements established by the FTC pursuant to Magnuson-Moss are codified at 16
C.F.R. § 701.3, and obligate warrantors to "clearly and conspicuously disclose [warranty terms] in a single
document in simple and readily understood language." 16 C.F.R. § 701.3(a). Among these mandatory items,
nondisclosure of which is a violation of both Magnuson-Moss and the Federal Trade Commission Act as an
unfair or deceptive act or practice,12 15 U.S.C. §§ 45(a)(1), 2310(b), the FTC includes: "[a] statement of what
the warrantor will do in the event of a defect, malfunction or failure to conform with the written warranty ..."
16 C.F.R. § 701.3(a)(3); "[a] step-by step explanation of the procedure which the consumer should follow
in order to obtain performance of any warranty obligation ..." id. § 701.3(a)(5); and "[i]nformation respecting
the availability of any informal dispute settlement mechanism...." Id. § 701.3(a)(6). This last requirement
is echoed in § 703.2, which requires the warrantor to disclose "clearly and conspicuously at least the
following information on the face of the written warranty: ... [a] statement of the availability of the informal
dispute settlement mechanism." Id. § 703.2(b)(1).
The comprehensive disclosure requirements of Magnuson-Moss are an integral, if not the central,
feature of the Act, perhaps eclipsing even the civil action and informal dispute resolution mechanisms in their
importance to consumers. CURTIS R. REITZ, CONSUMER PROTECTION UNDER THE MAGNUSON-MOSS
WARRANTY ACT 31 (1978). Prior to the passage of Magnuson-Moss, consumers had been inundated with
problems concerning the complexity of warranties, complexity generated by the presence of misleading terms
and incomplete disclosure on the part of warrantors. See 40 Fed.Reg. 60,168, 60,168 (Dec. 31, 1975).
Magnuson-Moss's enactors anticipated that "[o]ne of the most important effects of this bill [would] be its
ability to relieve consumer frustration by promoting understanding." Id. (citing 119 CONG. REC. 972 (1973)
(remarks of Congressman Moss)); see also H.R. REP. NO. 93-1107, at 1 (1974) reprinted in 1974
U.S.S.C.A.N. 7702, 7702 (stating "[t]he purpose of this legislation is (1) to make warranties on consumer
products more readily understood and enforceable").
Congress sought to remedy the situation by requiring that material terms be presented in clear
12
For purposes of an FTC-instituted action, a warranty is deceptive if it "contains an affirmation,
promise, description, or representation which is either false or fraudulent, or which, in light of all of the
circumstances, would mislead a reasonable individual exercising due care; or [if the warranty] fails to
contain information which is necessary in light of all of the circumstances, to make the warranty not
misleading to a reasonable individual exercising due care...." 15 U.S.C. § 2310(c)(2).
language in a single document. The FTC, instructed to implement Congress's solutions to the perceived
problems, crafted the disclosure requirements so that they might "inform the consumer of the full extent of
his or her obligations under the warranty, and to eliminate confusion as to the necessary steps which he or
she must take in order to get warranty performance." 40 Fed.Reg. 60,168, 60,175 (Dec. 31, 1975). The
single document rule reinforces these concerns by requiring warrantors to present all information relevant to
the warranty in one place, where it might be easily located and assimilated by the consumer. Id. at 60,172.
Significantly, the FTC, bringing its regulatory experience to the task, recognized that the omission of relevant
terms13 was as likely to foster erroneous assumptions as inclusion of misleading terms, because "the failure
to disclose all conditions, limitations, and exclusions as to product warranties renders any affirmative claims
about warranties deceptive."14 Id. at 60,170.
Our preceding analysis commands the conclusion that Fleetwood's use of its third-party beneficiary
status under the Ronnie Smith's-Cunningham agreement to compel arbitration where Fleetwood has failed
to disclose in the warranty a term or clause requiring the Cunninghams to utilize an informal dispute
resolution mechanism contravenes the text, legislative history, and purpose of the Magnuson-Moss Warranty
Act. Fleetwood contends that neither Magnuson-Moss nor the rules promulgated by the FTC pursuant to
Magnuson-Moss apply to agreements that are not incorporated into the terms of the written warranty, like the
arbitration agreement here. Whether Fleetwood is correct in this contention or not, Magnuson-Moss and the
rules do apply to the content of written warranties, including omissions, and Fleetwood can not "do by [the]
surrogate or vicarious means" of the Ronnie Smith's-Cunningham arbitration agreement what Magnuson-
13
Magnuson-Moss's treatment of informal dispute resolution mechanism clauses in warranties is
consistent with general contract law, in that arbitration clauses, like other kinds of forum selection
clauses, are generally considered material terms under state law variants of the Uniform Commercial
Code. See Coastal Indus., Inc. v. Automatic Steam Prods. Corp., 654 F.2d 375 (5th Cir.1981) (finding
unilateral insertion of arbitration clause per se alteration of the contract under state law); General
Instrument Corp. v. Tie Mfg., Inc., 517 F.Supp. 1231, 1234 (S.D.N.Y.1981) (finding forum selection
clause materially alters contract for Connecticut corporation); Lorbrook Corp. v. G&T Industries, Inc.,
162 A.D.2d 69, 562 N.Y.S.2d 978, 980 (1990) (discussing addition of forum selection term as material
alteration to prior agreement); see also Michael A. Stiegal & Debra J. Williams, The Battle of the Forms:
UCC Section 2-207, in PLI COMMERCIAL LAW & PRACTICE COURSE HANDBOOK SERIES ORDER NO. A4-
4297 at 6 (1990) (stating that "[i]t is generally recognized that a 'forum selection' clause 'materially alters'
a contract within the meaning of U.C.C. § 2-207").
14
The FTC explains further that "absolute silence on a material fact may be deceptive where the
public assumes from this silence that a state of facts exists when, in fact, affirmative disclosure would
reveal that these assumptions are unfounded. In such instances, the consumer's normal and reasonably
foreseeable expectations are exploited, and a false or misleading impression is created." 40 Fed.Reg.
60,168, 60,170 (Dec. 31, 1975).
Moss requires that it do directly: disclose in a single document all relevant terms of the warranty. See Wilson
v. Waverlee Homes, Inc., 954 F.Supp. 1530, 1539 (M.D.Ala.1997). Compelling arbitration on the basis of
an arbitration agreement that is not referenced in the warranty presents an inherent conflict with the Act's
purpose of providing clear and concise warranties to consumers.
Supreme Court decisions regarding the arbitrability of claims brought under the Securities Act of
1933 and the Securities Exchange Act of 1934, which also contain mandatory disclosure requirements,
support our conclusion. Rodriguez de Quijas, 490 U.S. at 485-86, 109 S.Ct. at 1922 (Securities Act of 1933);
McMahon, 482 U.S. at 238, 107 S.Ct. at 2343 (Securities Exchange Act of 1934). In McMahon the Supreme
Court examined a provision of the Securities Exchange Act that declared void "any provision waiving
compliance with any provision of [the Act]." McMahon, 482 U.S. at 227-28, 107 S.Ct. at 2338 (quoting 15
U.S.C. § 78cc(a)). The respondents argued that this section forbade waiver of 15 U.S.C. § 78aa, which
creates exclusive jurisdiction for federal district courts, and that therefore the waiver of a judicial forum in
the arbitration agreement was unenforceable. The key to the Court's analysis lies in its conclusion that §
78cc(a) only forbade waiver of "the substantive obligations imposed by the Exchange Act," and that because
the jurisdictional provision of § 78aa "does not impose any statutory duties, its waiver does not constitute a
waiver" of a substantive obligation. Id., 482 U.S. at 228, 107 S.Ct. at 2338. For this reason, selection of an
arbitral forum would not prevent enforcement of the statutory rights created by the Securities Exchange Act.
Id. Similarly, in Rodriguez de Quijas, the Supreme Court distinguished between substantive and procedural
provisions of the Securities Act, and declined to extend the scope of a no-waiver provision to encompass the
latter class. Rodriguez de Quijas, 490 U.S. at 481-82, 109 S.Ct. at 1920-21.
Unlike the procedural provisions of McMahon and Rodriguez de Quijas, § 2302 of Magnuson-Moss
and the rules promulgated by the FCC that Fleetwood seeks to avoid do in fact impose substantive obligations
on manufacturers that choose to issue warranties, requiring clear disclosure of warranty terms in a single
document. The substantive obligation must be met at the time the consumer receives the warranty in order
to effectuate the concerns of Magnuson-Moss, and permitting warrantors to compel arbitration through a third
party contractual arrangement that allows them to evade the substantive obligations imposed by the Act
eviscerates Magnuson-Moss's core provisions.
It is clear from our earlier discussion that the Congressional purposes of avoiding consumer
misinformation and deceptive practices are effectuated where warrantors adhere to the requirements of
Magnuson-Moss. Additional goals are also furthered in that adherence to uniform standards will foster
Congress's purpose of "improv[ing] competition in the marketing of consumer products." 15 U.S.C. §
2302(a). As the FTC has noted, the "requirement of minimum uniformity in warranty disclosures should
enable consumers to make valid and informed comparisons of warranties for similar products." 40 Fed.Reg.
60,168, 60,170 (Dec. 31, 1975). Allowing Fleetwood to condition the warranty by invoking an arbitration
agreement executed by the buyer and seller confounds this purpose in that consumers confronted with
warranties that do not contain arbitration clauses that are nonetheless subject to arbitration will have no basis
for judging the suitability of a warranty. This is of particular concern because the warranty is issued
unilaterally, and, as the enactors of Magnuson-Moss noted, a consumer cannot bargain with manufacturers
to adjust the terms of a warranty offered voluntarily by the manufacturer: "[t]he warranty provisions of
[Magnuson-Moss] are not only designed to make warranties understandable to consumers, but to redress the
ill effects resulting from the imbalance which presently exists in the relative bargaining power of consumers
and suppliers of consumer products." Id. at 60,168 (quoting S.REP. NO. 93-151 (1973)). The unilateral nature
of warranties by manufacturers makes full disclosure in a single document mandatory for the attainment of
Congress's goals.
VII. CONCLUSION
Because of the unique nature of the contractual arrangement at issue here, it is important that we
describe what is and what is not decided on this appeal. First, the propriety of Ronnie Smith's and the
Cunninghams' agreement to arbitrate—the seller and buyer agreement—is not before us. We are not required
to and do not decide whether Magnuson-Moss makes arbitration agreements unenforceable as to all
Magnuson-Moss claims.15 Nor is it necessary for us to determine whether warrantors may include binding
arbitration provisions in the warranty itself. The only issue we are presented with here, and thus decide, is
whether Fleetwood can utilize its third-party beneficiary status under the Ronnie Smith's-Cunningham
arbitration agreement to compel binding arbitration of the Cunninghams' breach of written or express
warranty claims against Fleetwood when there is no reference to binding arbitration in the warranty. Because
15
We also note, and the Cunninghams concede, that warrantors and consumers may agree to binding
arbitration after a dispute has arisen between them. The Commission stated shortly after passage of the
Act that nothing in Magnuson-Moss prevents warrantors from offering binding arbitration options to
consumers after non-binding informal dispute settlement mechanisms have been completed. 40 Fed.Reg.
60,168, 60,211 (1975). More recently the FTC has reiterated that warrantors are not precluded from
offering consumers a binding arbitration option after a warranty dispute has arisen. 60 Fed.Reg. 19,700,
19,708 (1999).
we conclude that Fleetwood's failure to disclose in the warranty a term or clause requiring the Cunninghams
to utilize an informal dispute resolution mechanism runs afoul of the disclosure requirements of the
Magnuson-Moss Warranty Act, we affirm the district court's order declining to compel arbitration of the
written or express warranty claims.
AFFIRMED.