STRINE, Vice Chancellor.
Plaintiff DaimlerChrysler Corporation has moved for summary judgment in this action seeking to compel defendant Harry S. Matthews, Jr. to arbitrate his claims related to a vehicle that Matthews purchased, and to stay litigation that Matthews initiated in Superior Court asserting those claims. The supposedly "binding" arbitration clause that DaimlerChrysler seeks to invoke allows Matthews to first request nonbinding arbitration, a request that Matthews made and DaimlerChrysler refused before Matthews filed suit. That refusal constituted a repudiation of the arbitration agreement that precludes DaimlerChrysler from enforcing that agreement against Matthews. I will therefore enter summary judgment in Matthews' favor.
Moreover, the binding arbitration clause that DaimlerChrysler seeks to invoke is not contained in the written warranty that Matthews received at the time he purchased the vehicle, but in a separate document, in contravention of the disclosure requirements of the Magnuson-Moss Warranty Act and FTC regulations promulgated thereunder, as authoritatively interpreted by a federal court of appeals. DaimlerChrysler therefore cannot compel arbitration of Matthews' written warranty and statutory claims under the Magnuson-Moss Warranty Act, providing an additional ground for entering summary judgment in Matthews' favor with respect to those claims.
I. Factual Background
Harry S. Matthews, Jr., a Maryland resident, purchased a Dodge truck from Kirkwood Motors, Inc., in Delaware, on November 29, 2001, under a program offered by DaimlerChrysler that allows employees, retirees and eligible family members to obtain a new vehicle at a discount. In connection with the purchase, Matthews signed, among other documents, an "Employee New Vehicle Purchase/Lease Claim Form" (the "Claim Form"), which contained the following provision:
Matthews contends that, contrary to his representation in the Claim Form, he was never provided with any documents entitled "Program Rules and Provisions" or "Vehicle Resolution Process — Binding Arbitration." Indeed, to this day DaimlerChrysler has been unable to produce any document with either of the precise titles mentioned in the Claim Form, instead producing a document entitled "Rules & Procedures for the Final and Binding Determination of Auto Warranty Disputes,"
When purchasing the vehicle, Matthews was also provided with a warranty that made no mention of binding arbitration. Rather, the warranty describes, in a section entitled "How to Deal with Warranty Problems," a voluntary "Customer Arbitration Process"
Matthews has submitted an affidavit stating that after experiencing problems with the vehicle, he took it to the dealer on numerous occasions. When the dealer could not fully address Matthews' concerns, he suggested that Matthews seek to resolve the problem first through the customer
Understandably frustrated, Matthews filed suit in the Delaware Superior Court on February 13, 2003, against Kirkwood Motors and DaimlerChrysler, alleging violations of the Delaware "Lemon Law,"
After oral argument on July 18, 2003, the Superior Court denied DaimlerChrysler's motion to dismiss without prejudice, holding that 10 Del. C. § 5701 vests the Court of Chancery with subject matter jurisdiction over actions seeking to enforce agreements to arbitrate. DaimlerChrysler then filed a petition in this court on September 22, 2003, seeking to stay the Superior Court action and compel Matthews to submit his claims to binding arbitration. Kirkwood Motors is not a party to that petition. On December 16, 2003, Matthews, Kirkwood Motors and DaimlerChrysler stipulated to the appointment of an arbitrator under Superior Court Rule 16.1. That arbitration has not been scheduled because of this action.
DaimlerChrysler has moved for summary judgment, arguing that the arbitration provision in the Claim Form requires Matthews to submit all his claims to binding arbitration. Matthews' arguments in response are twofold. First, Matthews contends that DaimlerChrysler has itself
Matthews' second argument also provides an alternative ground for entering summary judgment in his favor, at least with respect to his written warranty and MMWA claims. Specifically, Matthews argues that the MMWA and Federal Trade Commission regulations promulgated thereunder 1) prohibit enforcement of binding arbitration provisions that are not included within the written warranty; and 2) prohibit binding arbitration altogether, whether or not the arbitration provision is included in the written warranty. Because I agree that DaimlerChrysler's failure to reference the binding arbitration provision in the warranty renders that provision unenforceable as to Matthews' claims arising under the written warranty or the MMWA, I do not reach Matthews' broader argument that such provisions are per se unenforceable regardless of whether they are included in the written warranty.
II. Legal Analysis
Under Court of Chancery Rule 56, "[s]ummary judgment will be granted if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. The moving party has the burden to show the absence of any genuine issue of material fact. All doubt must be resolved in favor of the nonmoving party. The court may grant summary judgment to the nonmoving party if the evidence supports that conclusion."
A. DaimlerChrysler Repudiated The Claim Form And Therefore Cannot Compel Binding Arbitration
DaimlerChrysler seeks to compel Matthews to arbitrate his claims pursuant to the arbitration clause in the Claim Form. That clause explicitly delineates the procedure that the parties must follow before proceeding to binding arbitration, providing:
It is undisputed that Matthews attempted to resolve his dispute first at the dealership and then through the customer assistance center, as the Claim Form provides. Matthews argues that the rejection of his request for nonbinding arbitration pursuant to the Customer Arbitration Process, without any further guidance on how Matthews could invoke his rights under the Claim Form, therefore constituted a repudiation of the Claim Form that precludes DaimlerChrysler from compelling binding arbitration. I agree.
Under both the Federal Arbitration Act and 10 Del. C. § 5701, arbitration agreements are valid, enforceable and irrevocable, "save upon such grounds as exist at law or in equity for the revocation of any contract."
DaimlerChrysler contends that the December 3, 2002 letter rejecting Matthews' request for arbitration was not a repudiation of the Claim Form because the warranty that Matthews was provided explicitly indicated that he was ineligible for the Customer Arbitration Process. In other words, DaimlerChrysler argues that Matthews invoked the "wrong" nonbinding arbitration process, even though it was the very dealer who sold Matthews his vehicle who also provided him with the Customer Arbitration Process booklet and told him to use that process, and even though the December 3, 2002 letter provides absolutely no instructions on what Matthews needed to do to invoke the "correct" nonbinding arbitration process. The record contains no documents describing the nonbinding process to which the Claim Form explicitly refers, or even how one might invoke that process, and counsel for DaimlerChrysler could not identify any such documents at oral argument.
Thus, the only reasonable conclusion that can be drawn from the record is that, even if any actual documents implementing the nonbinding arbitration process to which Matthews is contractually entitled under the Claim Form exist, DaimlerChrysler failed to provide such documents to Matthews or otherwise provide him with guidance on how he could exercise his rights under the Claim Form when it rejected his attempt to utilize the Customer Arbitration Process.
Moreover, DaimlerChrysler's later offer — which came just three days before oral argument in Matthews' suit in Superior Court — to submit the dispute to non-binding arbitration was ineffective to retract its repudiation because Matthews' filing of suit plainly "cut off the repudiator's right to retract."
B. DaimlerChrysler Cannot Compel Arbitration Of Written Warranty And MMWA Claims Pursuant To An Arbitration Clause That Is Not Included Within The Written Warranty
Matthews alternatively argues that his written warranty and MMWA claims are not subject to arbitration because 1) the warranty contains no binding arbitration provision and 2) binding arbitration provisions are prohibited by the MMWA and relevant FTC regulations. After briefly reviewing the statutory and regulatory scheme, I will explain why I conclude that Matthews' first argument in this regard is persuasive, and will address the second argument only to the extent necessary to support that conclusion.
The MMWA "generally applies to written warranties covering consumer products."
The MMWA also imposes various disclosure obligations on warrantors. Section 2302(a) mandates that warrantors disclose certain information in accordance with rules promulgated by the FTC. Specifically, § 2302(a) of the MMWA provides:
Implementing § 2302(a),
Consistent with subsection (a)(6) of the one-document rule, the FTC also requires that a warrantor "disclose clearly and conspicuously... on the face of the written warranty ... [a] statement of the availability of the informal dispute settlement mechanism."
Federal and state courts applying the statutory and regulatory scheme outlined above have addressed two significant issues involving efforts by warrantors to compel arbitration of consumer claims. First, courts have addressed the question of whether the MMWA itself prohibits final and binding arbitration, and whether the FTC's implementation of that prohibition in Rule 703 deserves judicial deference under Chevron, U.S.A. Inc. v. Natural Resources Defense Council, Inc.
DaimlerChrysler and Matthews join issue on whether Walton and Davis were correctly decided, arguing over the soundness of the complex statutory interpretation and Chevron analyses performed in those cases. But, I need not enter the fray, because the second question presented by DaimlerChrysler's motion — whether it can compel arbitration of claims arising under written warranties and the MMWA where the warranty does not include a reference to an arbitration provision — is a less controversial one that has been consistently answered in the negative.
In Cunningham v. Fleetwood Homes of Georgia, Inc.,
Without expressly saying so, DaimlerChrysler asks that I reject Cunningham and its progeny, seizing on the language quoted above and contending that binding arbitration is not an "informal dispute settlement mechanism" that must be disclosed in a single document under 16 C.F.R. § 701.3(a)(6), and that the binding arbitration provision in the Claim Form does not otherwise fall within the categories of information that are required to be disclosed in the warranty under 15 U.S.C. § 2302(a) and/or Rule 701.3.
In addressing this argument, it must be remembered that the reason that FTC Rules as they are currently written do not explicitly require warrantors to include binding arbitration provisions in the warranty (and, indeed, prohibit them from doing
Nonetheless, there admittedly is some tension between Cunningham, on the one hand, and Walton and Davis, on the other. Both Davis and Walton, which held that binding arbitration provisions are not precluded by the MMWA and invalidated the FTC's contrary regulation under Chevron, stated that "there is ... no evidence that Congress intended binding arbitration to be considered an informal dispute settlement procedure. Therefore the fact that any informal dispute settlement procedure must be nonbinding, does not imply that Congress meant to preclude binding arbitration, which is of a different nature."
But the central holding of Cunningham — that binding arbitration provisions cannot be enforced where they are not referred to in the warranty — did not rest solely on a strict reading of the text of the FTC's one-document rule. Whether or not the specific terms of Rule 701.3(a)(6) require disclosure of binding arbitration provisions in the warranty, the Court of Appeals for the Eleventh Circuit in Cunningham read § 2302(a) and the FTC's one-document rule, as well as the legislative history and purposes of the MMWA, to establish the broader principle that a warrantor is required to "disclose in a single document all relevant terms of the
Neither Davis nor Walton — both of which involved situations where the warranty at issue did in fact contain an arbitration clause — undermine Cunningham's analysis of that particular question.
Guiding my conclusion in this regard is the fact that I have no doubt that when the FTC or Congress revisit the regulatory scheme in this area, they will adhere to Cunningham and decline to adopt the position advanced by DaimlerChrysler, which, in effect, is that while warrantors are required to include any nonbinding arbitration provisions in the warranty itself,
For the foregoing reasons, I deny DaimlerChrysler's motion for summary judgment and enter summary judgment in favor of Matthews. The parties are hereby ordered to submit all Matthews' claims to the Rule 16.1 arbitrator that has been appointed by the Superior Court.
Also, in Richardson v. Palm Harbor Homes, Inc., 254 F.3d 1321 (11th Cir.2001), the Court of Appeals for the Eleventh Circuit held that a consumer could be compelled to arbitrate warranty claims under a predispute arbitration agreement, without discussing whether that agreement was included within the written warranty. But, the court's decision was based on its conclusion that even if the MMWA prohibits binding arbitration of some warranty claims, that prohibition would extend only to written express warranty claims and not to the consumer's state law oral express warranty claim, which was the only express warranty claim that had been asserted and was "simply outside any superseding scope of the MMWA." Id. at 1327. The court plainly did not intend to disturb Cunningham, and indeed cited it approvingly throughout its opinion.