The US Court of Appeals for the Fourth Circuit in Seney v. Rent-a-Center, Inc. (No. 13-1064, 4^th Cir., Dec. 11. 2013) avoided deciding whether Federal agency regulatory limits on pre-dispute arbitration agreements for consumer warranty disputes, promulgated by the US Federal Trade Commission (FTC) under the general authority of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301 et seq. (the “MMWA”), are consistent with US Federal Arbitration Act (FAA) pro-arbitration jurisprudence.  The Court of Appeals simply concluded that the parties’ particular dispute was not encompassed within the FTC’s regulatory limits on pre-dispute agreements – “The FTC regulations limit suppliers’ ability to require binding arbitration of “written warranties” in sales agreements: they do not reach warranties included in leases.”

The permissibility of Federal agency regulations imposing limits on pre-dispute arbitration agreements, in circumstances where the operative statute itself affords that agency general regulatory authority but does not itself specifically address arbitration, will surely arise before the US Supreme Court in due course.  A similar issue, but under the National Labor Relations Act rather than the MMWA, arises in the D.R. Horton appellate decision I reported on earlier.  The result may, of course, depend on the specific language of the particular Federal statutory provisions granting general regulatory authority to the agency. 

The following summary from Seney v. Rent-a-Center of the “important tension between two major doctrines of statutory interpretation” (the Federal policy favoring arbitration established pursuant to Federal Arbitration Act jurisprudence vs. the “Chevron” principle that the courts owe deference to a regulatory agency’s reasonable exercise of its statutory authority) may be useful to help listserv participants understand the issue the US Supreme Court will ultimately face in some future case (footnotes omitted).

**** the parties argue at length about the permissibility of the FTC ban. In doing so, they expose an important tension between two major doctrines of statutory interpretation. In Shearson/American Express, Inc. v. McMahon, the Supreme Court instructed courts to evaluate the arbitrability of statutory rights in light of the liberal “federal policy favoring arbitration.” …. McMahon established that if a statute is silent with respect to arbitration, courts should presume its permissibility. …. McMahon, however, did not address whether agencies should also presume the permissibility of arbitration. The FTC, the agency that promulgated regulations interpreting the MMWA, did not employ a pro-arbitration presumption. …. Rather, as explained above, it concluded that pre-dispute binding arbitration was impermissible under the Act. …. Pursuant to the Supreme Court’s directive in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., that interpretation, if reasonable, should control. ….

The way in which Chevron squares with McMahon, however, is uncertain, and courts have divided on the question. Compare Davis, 305 F.3d at 1277–81 (concluding that courts should assess the FTC’s arbitration ban under Chevron, but that the ban is unreasonable in light of McMahon) with Walton, 298 F.3d at 475–78 (holding that the McMahon presumption renders the otherwise-ambiguous MMWA clear, obviating the need forChevron deference) and Kolev v. Euromotors W./The Auto Gallery, 658 F.3d 1024, 1025–30 (9th Cir. 2011), opinion withdrawn, 676 F.3d 867, 867 (9th Cir. 2012) (explaining that courts engage in Chevron analysis, pursuant to which the FTC’s regulation is permissible; the FTC need not apply the McMahon presumption because agencies need not subscribe to judicial canons).

We need not enter the fray. This is so because the FTC ban on binding arbitration does not apply to the Seneys’ contract with RAC.

This issue does not arise, of course, where Congress has been explicit in authorizing the competent Federal regulatory agency to limit pre-dispute arbitration agreements, as Congress did in the Dodd-Frank financial reform act for disputes under consumer finance agreements and for broker-dealer/investment advisor disputes.  Rather, the issue only arises when the Federal agency is seeking to exercise its general regulatory authority.

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