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A Concepcion Work-Around?

By Gary E. Mason | 

In Kolev v. Euromotors West, No. 09-55963 (9 th Cir., Sept. 20, 2011), the Ninth Circuit Court of Appeals has seemingly found an important exception to Concepcion.  Kolev arises from a claim an owner of a Porsche brought against her dealer and others after it developed serious mechanical problems during the warranty period and the dealer refused to honor the warranty.  The plaintiff, Kolev, alleged breach of implied and express warranties under the Magnuson-Moss Warranty Act ("MMWA").

The district court granted the dealer's petition to compel mandatory arbitration provision pursuant to the mandatory arbitration provision in the sales contract. On appeal, Kolev argued that the MMWA bars the provision mandating arbitration.  Plaintiff pointed out that the FTC had construed the MMWA as barring pre-dispute mandatory binding arbitration provisions covering written warranty agreements and issued a rule prohibiting judicial enforcement of such provisions with respect to consumer claims brought under the MMWA. See 16 C.F.R Sec. 703.5; 40 Fed. Reg. 60167, 60210 (Dec. 31, 1975).

The Ninth Circuit held that the FTC's interpretation of the MMWA demanded due deference.  More significantly, it rejected the argument that the FTC's construction is unreasonable in light of the Supreme Court's strict enforcement of the Federal Arbitration ("FAA"). Disagreeing with the conclusions reached by the Fifth and Eleventh Circuit, the Ninth Circuit found that the FAA's pro-arbitration presumption does not render unreasonable the FTC's interpretation of the MMWA as barring pre-dispute mandatory arbitration.

In light of Kolev, practitioners prosecuting claims under warranties with mandatory arbitration provisions should also add a count for violation of the MMWA.