ABELA v. GEN. MOTORS CORP.

JANSEN, J.

Defendant appeals as of right from an order resolving all pending claims and closing the case in this action brought under the Magnuson-Moss Warranty Act (hereinafter MMWA), 15 USC 2301 et seq.; Michigan's warranties on new motor vehicles act (hereinafter lemon law), M.C.L. § 257.1401 et seq.; and Michigan's Consumer Protection Act (hereinafter MCPA), M.C.L. § 445.901 et seq.1 Although the order appealed from is the final order in this case, defendant's arguments on appeal take issue with the trial court's denial of defendant's motion for summary disposition to compel arbitration, as well as the trial court's grant of summary disposition in favor of plaintiff's pursuant to MCR 2.116(C)(9), for failing to state a valid defense.2 We reverse and remand.

The lone issue in this case is whether the agreement between plaintiff's and defendant to submit any warranty claims to binding arbitration must be enforced. Plaintiffs argue that the MMWA and, alternately, the Michigan lemon law preclude a party from waiving the right to pursue legal action in a judicial forum. Plaintiffs assert that, under the MMWA and the Michigan lemon law, the agreement that the parties entered into, requiring binding arbitration of disputes, is unenforceable.3 Defendant, on the other hand, maintains that the Federal Arbitration Act (FAA), 9 USC 1 et seq., requires enforcement of otherwise valid agreements to arbitrate.

Plaintiffs purchased a 1999 Chevrolet truck from John Bowman Chevrolet, a dealership that sells automobiles that defendant manufactures. At the time of the purchase, defendant offered plaintiff's various warranties related to the automobile. In addition to those warranties, plaintiff's entered into defendant's new vehicle purchase program. This purchase program was offered to, among other people, defendant's employees. On the agreement form, for this purchase, plaintiff John Abela is listed as the purchaser of the truck, and his spouse, plaintiff Barbara Abela, is the eligible employee. Although all the terms of this purchase program are not clearly set forth, defendant represents, and plaintiff's do not dispute, that a purchaser agreeing to participate in the purchase program could purchase a car for "either dealer cost or dealer cost + 2.5% of the MSRP [manufacturer's suggested retail price], depending on whether the participant purchased the car from dealer stock or directly from [defendant]."

The key provision of the purchase program agreement states:

In addition, if I am the purchaser/lessee, I understand that, in consideration of the discount I receive on the purchase or lease of the vehicle, I will not be able to bring lawsuit for any dispute involving repairs made to that vehicle under GM's Limited Warranty or regarding the extent to which such warranty coverage is provided on that vehicle. Instead, I AGREE to address such disputes through the GM Dispute Resolution Process, which includes mandatory arbitration that is binding on both GM and me. I acknowledge that this Certificate evidences a transaction involving interstate commerce. The Federal Arbitration Act ... shall govern the interpretation, enforcement, and proceedings of the arbitration. For matters the FAA does not cover, the laws of the State in which I reside shall govern. [Emphasis in original.]

Plaintiffs, apparently, encountered several problems with the truck that required numerous repairs by defendant and the dealership, and brought suit. Immediately following the filing of the complaint, defendant moved for summary disposition pursuant to MCR 2.116(C)(7), alleging that plaintiff's had agreed to arbitrate any claims that they had against defendant.

Defendant's first issue on appeal is that the trial court erred as a matter of law in holding that plaintiff's can breach the agreement to arbitrate warranty-related disputes with defendant because the MMWA bars the application of the FAA. We agree.

The trial court granted summary disposition in favor of plaintiff's pursuant to MCR 2.116(C)(9), for failure to state a valid defense. Our Court set forth the applicable standard of review for a motion under MCR 2.116(C)(9) in Slater v. Ann Arbor Pub. Schools Bd. of Ed., 250 Mich.App. 419, 425-426, 648 N.W.2d 205 (2002), as follows:

The trial court ruled that defendant's program for binding arbitration was contrary to federal law. The trial court noted that the MMWA and the federal regulations interpreting it permit a consumer to bring an action for damages and other relief in court. The trial court also noted that if the warrantor establishes an informal dispute settlement procedure that complies with the regulations, the consumer must use that mechanism, although the consumer is not bound by that decision. The trial court continued that the FAA was not instructive, because the MMWA was more specific in the area of arbitration in the area of warranties and was more recent. Accordingly, the trial court determined that the MMWA, and not the FAA, was controlling on this issue, and that the MMWA prohibited the use of binding arbitration for warranty claims.

Defendant asserts that the trial court erred as a matter of law in finding that the MMWA prohibited the use of binding arbitration for warranty claims. Specifically, defendant contends that the trial court's ruling is contrary to years of case law, both state and federal, that permit and uphold agreements for binding arbitration of disputes such as the warranty-related claims presented here.4

As a general rule, the MMWA provides that "a consumer who is 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, may bring suit for damages and other legal and equitable relief...." 15 U.S.C. 2310(d)(1). In keeping with its stated purpose that "Congress hereby declares it to be its policy to encourage warrantors to establish procedures whereby consumer disputes are fairly and expeditiously settled through informal dispute settlement mechanisms," 15 U.S.C. 2310(a)(1), the MMWA provides in 15 U.S.C. 2310(a)(3) that a warrantor may develop its own dispute settlement procedure. That provision in 15 U.S.C. 2310(a)(3) reads, in part:

If—

Thus, if a warrantor has an informal dispute settlement procedure in place, any warranty claim must be submitted for resolution under that procedure before a suit may be filed.

The Federal Trade Commission (FTC) was empowered to develop the minimum requirements for the informal dispute settlement mechanisms. 15 USC 2310(a)(2). By its very terms, the FTC guidelines specifically preclude a warrantor from implementing a procedure that is binding on the consumer, and that precludes bringing suit, 16 CFR 703.5(j) ("Decisions of the Mechanism shall not be legally binding on any person."). Moreover, a review of the FTC's response to public comments regarding the issue of binding arbitration indicates that the FTC was of the opinion that informal dispute settlement mechanisms, provided for in the MMWA, were intended to be nonbinding:

"Several industry representatives contended that warrantors should be allowed to require consumers to resort to mechanisms whose decisions would be legally binding (e.g., binding arbitration). The Rule does not allow for this for two reasons. First, ... Congressional intent was that Section 110 Mechanisms not be legally binding. Second, even if binding Mechanisms were contemplated by Section 110 of the Act, the Commission is not prepared, at this point in time, to develop guidelines for a system in which consumers would commit themselves, at the time of product purchase, to resolve any difficulties in a binding, but nonjudicial, proceeding. The Commission is not now convinced that any guidelines which it set out could ensure sufficient protection for consumers against warrantors, even if the Congressional report had not made clear, as it did, that it wished for such mechanisms to not be binding." [40 Fed. Reg. 60168, 60210 (1975), quoted in Wilson v. Waverlee Homes, Inc., 954 F.Supp. 1530, 1539 (M.D.Ala., 1997).]

Our Michigan Supreme Court has "repeatedly given great deference to the construction placed upon a statute by the agency legislatively chosen to enforce it." Breuhan v. Plymouth-Canton Community Schools, 425 Mich. 278, 282-283, 389 N.W.2d 85 (1986), citing Magreta v. Ambassador Steel Co., 380 Mich. 513, 519, 158 N.W.2d 473 (1968).

However, in Walton v. Rose Mobile Homes LLC, 298 F.3d 470, 478 (C.A.5, 2002), the United States Court of Appeals for the Fifth Circuit held that the text, legislative history, and purpose of the MMWA does "not evince a congressional intent to bar arbitration of MMWA written warranty claims." Additionally, the Walton court held "that the MMWA does not preclude binding arbitration of claims pursuant to" the FAA. Id. at 479. Therefore, the Walton court found that a purchaser's MMWA claim was subject to compulsory arbitration, and that such purchasers were "bound to arbitrate their claims." Id.

In Davis v. Southern Energy Homes, Inc., 305 F.3d 1268, 1272 (C.A.11, 2002), the United States Court of Appeals for the Eleventh Circuit held that the MMWA permits the enforcement of valid binding arbitration agreements within written warranties. The Eleventh Circuit concluded that the purposes of the MMWA and the FAA are very similar, stating:

The last [Shearson/American Express, Inc. v.] McMahon [482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) ] factor requires us to examine the purposes of the MMWA to determine whether the MMWA and the FAA conflict. The MMWA expressly states three purposes: "to improve the adequacy of information available to consumers, prevent deception, and improve competition in the marketing of consumer products." These purposes are not in conflict with the FAA. In fact, the Supreme Court has repeatedly enforced arbitration of statutory claims where the underlying purpose of the statutes is to protect and inform consumers....

In Davis, supra, the Eleventh Circuit concluded that the text, history, and purpose of the MMWA did not show a congressional intent to preclude predispute agreements to submit warranty claims to binding arbitration. Moreover, the Davis court examined the FTC regulations discussed hereinbefore, and determined that those regulations, which were ostensibly based on the plain language of the MMWA, were unreasonable, as follows:

In the legislative regulations, the FTC bases its construction on Congress' grant of concurrent jurisdiction. As we previously discussed, a statute's provision for a judicial forum does not preclude enforcement of a binding arbitration agreement under the FAA. Thus, the FTC's motive behind the legislative regulation is contradictory to Supreme Court rationale, and we conclude that its interpretation is unreasonable. We also conclude that the FTC's additional rationale is unreasonable. Although the FTC first stated that it looked to a subcommittee staff report (which appears to no longer be attainable) to determine Congress' intent, the FTC continued, evincing its major concern that an arbitral forum will not adequately protect the individual consumers. The Supreme Court in McMahon, however, rejected this same hostility shown by the SEC. Instead, the Supreme Court holds that arbitration is favorable to the individual. [Id. at 1280 (citations omitted).]

"`The interpretation of a federal statute is a question of federal law.'" Ann Arbor Housing Comm. v. Wells, 240 Mich.App. 610, 614 n. 4, 618 N.W.2d 43 (2000), quoting Auto-Owners Ins. Co. v. Corduroy Rubber Co., 177 Mich.App. 600, 604, 443 N.W.2d 416 (1989). Where there is no conflict among the circuits of the federal court of appeals on a question of federal law, we are bound by the authoritative holdings of the federal circuit courts on federal questions. See Schueler v. Weintrob, 360 Mich. 621, 105 N.W.2d 42 (1960); Woodman v. Miesel Sysco Food Co., 254 Mich.App. 159, 165, 657 N.W.2d 122 (2002); Ann Arbor Housing Comm, supra at 614 n. 4, 618 N.W.2d 43. Both the Fifth Circuit Court of Appeals and the Eleventh Circuit Court of Appeals have ruled that binding arbitration agreements are not prohibited by the MMWA, albeit with a different rationale. We are unaware of any conflict among the federal appellate courts with regard to this issue and, thus, are bound by the holdings of Walton, supra, and Davis, supra, to the extent they are consistent in permitting the enforcement of valid binding arbitration agreements within written warranties.5 Consequently, we find that the trial court erred in granting plaintiffs' motion for summary disposition with regard to plaintiffs' MMWA claim and in denying defendant's motion for summary disposition with regard to this claim.6

Defendant's final issue on appeal is that the trial court erred as a matter of law in holding that plaintiff Barbara Abela's agreement to arbitrate warranty-related claims violates the Michigan lemon law. We agree.

We find that the FAA surmounts plaintiffs' lemon law claim. In DeCaminada v. Coopers & Lybrand, LLP, 232 Mich.App. 492, 498, 591 N.W.2d 364 (1998), this Court noted that "[s]tate courts are bound, under the Supremacy Clause, U.S. Const., art. VI, cl. 2, to enforce the FAA's substantive provisions." The DeCaminada Court further indicated:

Here, there is no question that the FAA applies. Plaintiffs' only defense to its application is that the MMWA surmounts it, but as we determined, hereinbefore, the MMWA does not surmount the FAA in this regard.7

The case law is clear that the FAA surmounts any state law that invalidates agreements to submit claims to binding arbitration. Thus, the trial court erred in ruling that Michigan's lemon law precludes enforcement of predispute agreements to submit claims to binding arbitration. Plaintiffs' lemon law claim should have been resolved through binding arbitration. The trial court erred in ruling that Michigan's lemon law bans binding arbitration because the FAA surmounts applicable state law claims. Because the FAA surmounts any state law, to the extent that that law prohibits a binding arbitration agreement, the trial court erred in granting summary disposition in favor of plaintiff's on the basis that the lemon law forbids agreements to submit to binding arbitration. We reverse, on the basis that the lemon law claim should have been resolved in binding arbitration.

We reverse the trial court's grant of summary disposition on plaintiffs' MMWA and lemon law claims, and reverse the trial court's denial of defendant's motion for summary disposition on the MMWA and lemon law claims, because these claim should have been resolved through binding arbitration.

Reversed and remanded to the trial court with instructions to enter judgment in favor of defendant consistent with this opinion. We do not retain jurisdiction.

RICHARD ALLEN GRIFFIN, P.J., concurred.

MURPHY, J. (concurring).

I concur with the majority that we are required to conclude that warranty claims arising under the Magnuson-Moss Warranty Act (MMWA), 15 USC 2301 et seq., may be subject to valid binding arbitration agreements in light of the holdings in Davis v. Southern Energy Homes, Inc., 305 F.3d 1268 (C.A.11, 2002), and Walton v. Rose Mobile Homes LLC, 298 F.3d 470 (C.A.5, 2002). We are bound by the authoritative holding of a federal appellate court concerning interpretation of a federal statute absent a conflict among the various federal appellate circuits. Ann Arbor Housing Comm. v. Wells, 240 Mich.App. 610, 614 n. 4, 618 N.W.2d 43 (2000). A review of federal appellate case law reveals no conflict with the holdings in Davis and Walton, supra, although there has been a split of authority in the federal district courts and in state courts as acknowledged by the majority.

I also concur with the majority that plaintiffs' claim under Michigan's lemon law, M.C.L. § 257.1401 et seq., is precluded by the doctrine of preemption, which is predicated on the Supremacy Clause, U.S. Const., art. VI, cl. 2, and which mandates state courts to enforce the substantive provisions of the Federal Arbitration Act (FAA), 9 USC 1 et seq., regardless of state law to the contrary, unless the state law concerns the validity, revocability, and enforceability of contracts generally. Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 686-688, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996); see also DeCaminada v. Coopers & Lybrand, LLP, 232 Mich.App. 492, 498, 591 N.W.2d 364 (1998).

I write separately to merely voice my disagreement with the federal appellate court rulings on the interpretation of the MMWA and the FAA. I agree with the dissenting opinion of Chief Judge King in Walton, supra at 480. After a very reasoned analysis, Chief Judge King concluded:

If we were not obligated to apply the majority opinion from Walton and the holding in Davis, I would conclude that the MMWA, as reasonably interpreted by the FTC,1 precludes the application of binding arbitration agreements to claims arising under the MMWA for the reasons set forth by Chief Judge King in Walton, supra at 480-492.

I concur.