A recent decision of the Florida Supreme Court is a good reminder that automakers and dealers may have different arguments depending on whether consumer Magnuson-Moss Warranty Act (MMWA) claims are filed in state or federal court. In Krol v. FCA US, LLC et al., No. SC19-952, the Florida Supreme Court highlighted the different approaches between Florida state and federal courts as to arbitration clauses in consumer warranties. In the 5-1 decision, the Krol court compelled arbitration even though the binding arbitration agreement appeared in a document separate from the written warranty.
The MMWA is a federal act that provides minimum disclosure standards for written consumer product warranties. 15 USC 2301-2312. It provides consumers a private right of action for violations of the MMWA or for breach of a written warranty, implied warranty, or service contract. Consumers may bring claims in state or federal court.
In the MMWA, Congress delegated authority to the Federal Trade Commission (FTC) to promulgate rules setting mandatory disclosures for written warranties. The FTC established what is known as the single document rule, which requires warrantors to "clearly and conspicuously disclose [all warranty terms] in a single document in simple and readily understood language." 16 CFR 701.3(a). The FTC rules also require a warrantor to disclose nine material facts related to the warranty. 16 CFR 701.3(a). One of the nine required disclosures is "information respecting the availability of any informal dispute settlement mechanism elected by the warrantor in compliance with part 703 of this subchapter." 16 CFR 701.3(a)(6).
In Krol, the Florida Supreme Court considered whether a binding arbitration agreement falls within the disclosures required by the FTC rules and, if so, whether the FTC's single document rule was violated. The plaintiff purchased a truck from a dealership. The sales contract contained a binding arbitration agreement for any dispute related to the truck's purchase. The dealer separately provided an express written warranty on the truck. The plaintiff later sued the dealer in Florida state court under the MMWA, and the dealer moved to compel arbitration. The plaintiff argued the arbitration agreement was unenforceable under the FTC's single document rule.
Courts are divided as to whether the FTC's single document rule applies to binding arbitration agreements. Alabama state and federal district courts have enforced standalone arbitration agreements, while federal district courts in Florida and Michigan require the arbitration agreement be noted in the written warranty. The Eleventh Circuit Court of Appeals has sided with courts requiring the arbitration agreement to be in the written warranty. Cunningham v. Fleetwood Homes of Georgia, 253 F.3d 611 (11th Cir. 2001). The Eleventh Circuit found the FTC's rule requiring disclosure of "informal dispute settlement mechanism" to encompass binding arbitration.
The Florida Supreme Court disagreed. The Krol Court noted the FTC's rules on informal dispute mechanisms provided the mechanism "shall not be legally binding on any person." 16 CFR 703.5(j). In contrast, binding arbitration is, by its nature, binding on the parties. The "informal dispute settlement mechanism" in the FTC's single document rule is also a prerequisite to litigation, whereas binding arbitration is a substitute for litigation. The Florida Supreme Court thus reasoned that the FTC's single document rule does not apply to binding arbitration agreements. This interpretation of the MMWA and FTC rules is also consistent with the Florida Supreme Court's recent shift towards textualism, including in the notable January 2020 decision Advisory Opinion to the Governor Re: Implementation of Amendment 4, No. SC19-1341.
The result of the Krol decision is that litigants may find themselves with different arguments for MMWA claims in Florida state and federal courts. In Florida state court, parties could move to compel arbitration even if the arbitration agreement is not contained in the same document as the written warranty. Whereas a federal district court in Florida may decline to compel arbitration in the same circumstances, as long as Cunningham remains good law. Automakers and dealers should take a close look at their warranty documents and arbitration agreements in light of the Florida Supreme Court's Krol decision.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.