'Concepcion' May Not Reach Claims Under The Magnuson-Moss Act - Recent Decision Has Broad Implications For Companies That Seek To Enforce Class Action Waivers In The Ninth Circuit

After the U.S. Supreme Court resuscitated class action waivers earlier this year in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), companies have once again sought to enforce those waivers or have considered adding them to their consumer agreements as a means of managing class action risk. The Ninth Circuit recently issued a decision in Kolev v. Euromotors West/The Auto Gallery, __ F.3d __, 2011 U.S. App. LEXIS 19254 (9th Cir. Sept. 20, 2011), that could have broad implications for companies that seek to enforce class action waivers in the Ninth Circuit.

NINTH CIRCUIT HOLDS THAT MAGNUSON-MOSS BARS PRE-DISPUTE MANDATORY ARBITRATION

The plaintiff in Kolev filed suit against a dealership after the car she purchased developed mechanical problems during the warranty period and the dealer refused to honor her warranty claims. She asserted claims for breach of express and implied warranty under the Magnuson-Moss Warranty Act ("Magnuson-Moss"), breach of contract, and unconscionability under California law. The dealership then successfully moved to compel arbitration based on a mandatory arbitration provision in the sales contract.

On appeal, the plaintiff argued that Magnuson-Moss barred the provision mandating arbitration of her warranty claims. Although Magnuson-Moss does not specifically address the validity of pre-dispute mandatory arbitration provisions, the plaintiff argued that the Federal Trade Commission (FTC), pursuant to its rulemaking authority under Magnuson-Moss, had issued a rule prohibiting judicial enforcement of such provisions with respect to consumer claims brought under the Act. See 16 C.F.R. § 703.5; 40 Fed. Reg. 60167, 60210 (Dec. 31, 1975).

The Ninth Circuit held that in issuing the rule, the FTC "reasonably construed" the Act's language, legislative history, and underlying purpose, and that interpreting Magnuson-Moss to bar pre-dispute mandatory binding arbitration "advances the [Act's] purpose of protecting consumers from being forced into involuntary agreements that they cannot negotiate." Kolev, 2011 U.S. App. LEXIS at *9, *15. The court was further persuaded by statements in the Act's legislative history on which the FTC relied to the effect that "[a]n adverse decision in any informal dispute settlement proceeding would not be a bar to a civil action on the warranty involved in the proceeding." Id. at *10 (quoting H.R. Rep. No. 93-1107, at 41, 1974 U.S.C.C.A.N. at 7723).

The Ninth Circuit rejected the...