Opinion
Case No. C2-02-1092.
July 11, 2007
OPINION AND ORDER
This matter is before the Court following remand from the Court of Appeals for the Sixth Circuit. On remand, the court of appeals directed this Court to consider (1) the scope of the arbitration agreement, (2) whether Congress intended arbitration to govern the federal claims asserted, and (3) whether to stay the proceedings pending arbitration if only some of the claims are arbitrable. The parties have briefed their views of all issues presented on remand.
The Court will not restate the facts of this case in detail except to the extent necessary to complete the analysis of these legal issues. The crux of the dispute for purposes of the present matter relates to the Limited Warranty Service Contract ("Warranty"), which contains an arbitration provision. The Court of Appeals found that Plaintiff assented to the terms of the arbitration clause found in the Warranty. In full, the clause provides:
Although Higgs has asserted both individual and putative class-action claims in his Complaint, the Court has not certified a class. Thus, at this juncture, the case remains an individual action on behalf of Mr. Higgs alone.
In particular, the Court of Appeals characterized the Warranty as an "accept-or-reject" type of agreement, which was formed because Higgs, as the purchaser, assented to the terms of the contract, including the arbitration clause, by not seeking a refund within the specified time following his opportunity to review the proposed terms. Higgs v. Automotive Warranty Corp. of Am., 134 Fed. Appx. 828, 2005 WL 131354, **3-4 (6th Cir. May 13, 2005) (unreported).
By accepting this contract you agree to the following:
Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof, or with the Better Business Bureau.
The parties agree that there shall be no further redress or appeal of the arbitration award. The parties also agree that the costs of the arbitration, excluding attorney's fees, will be paid by the party against whom the award is rendered.
(Amend. Compl., Exh. 6.)
The Federal Arbitration Act ("FAA") provides that arbitration clauses in commercial contracts "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Federal courts must apply the FAA to arbitration agreements arising in consumer cases. See Green Tree Financial Corp. v. Randolph, 531 U.S. 79 (2000) (arbitration agreement in a mobile home financing contract); Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265 (1995) (arbitration agreement in a residential termite protection plan).
Under the FAA, "a party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement" may petition a federal district court, which would otherwise have jurisdiction over the matter, "for an order directing that arbitration proceed in the manner provided for in such agreement." 9 U.S.C. § 4. "The FAA expresses a strong public policy favoring arbitration of a wide class of disputes." Cooper v. MRM Investment Co., 367 F.3d 493, 498 (6th Cir. 2004). The courts repeatedly have recognized that the FAA manifests "a liberal federal policy favoring arbitration agreements." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). "`[A]s a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.'" Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d 624, 627 (6th Cir. 2004) (quoting Moses H. Cone, 460 U.S. at 24-25). Where the arbitration clause is broad, "only an express provision excluding a specific dispute, or `the most forceful evidence of a purpose to exclude the claim from arbitration,' will remove the dispute from consideration by the arbitrators." Id. at 577 (quoting AT T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 650 (1986)). "While ambiguities in the language of the agreement should be resolved in favor of arbitration, [the courts] do not override the clear intent of the parties, or reach a result inconsistent with the plain text of the contract, simply because the policy favoring arbitration is implicated." EEOC v. Waffle House, Inc., 534 U.S. 279, 294 (2002) (internal citations omitted). If the court determines that the cause of action falls within the purview of an arbitration clause, it must stay the proceedings until the arbitration process is complete. 9 U.S.C. § 3.
"In determining whether the parties have made a valid arbitration agreement, `state law may be applied if that law arose to govern issues concerning the validity, revocability, and enforceability' of contracts generally, although the FAA preempts `state laws applicable to only arbitration provisions.'" Great Earth Cos. v. Simons, 288 F.3d 878, 889 (6th Cir. 2002) (quoting Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87 (1996)). Thus, "[s]tate law governs `generally applicable contract defenses [to an arbitration clause], such as fraud, duress, or unconscionability.'" Id. at 889 (quoting Casarotto, 517 U.S. at 687). "[A]lthough state law may dictate the standards for generally applicable contract defenses, such as fraudulent inducement, the FAA governs the enforceability of arbitration clauses generally . . . and expresses a `liberal federal policy favoring arbitration agreements' that must be taken into account even when state-law issues are presented." Great Earth, 288 F.3d at 887 (citations omitted).
The Court must make a number of threshold determinations before compelling arbitration:
When considering a motion to stay proceedings and compel arbitration under the Act, a court has four tasks: first, it must determine whether the parties agreed to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be nonarbitrable; and fourth, if the court concludes that some, but not all, of the claims in the action are subject to arbitration, it must determine whether to stay the remainder of the proceedings pending arbitration.Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000); see also Glazer v. Lehman Bros., Inc., 394 F.3d 444, 451 (6th Cir. 2005). In this case, the Court of Appeals for the Sixth Circuit has determined that, with respect to Plaintiff Higgs, the parties agreed to arbitrate. The Court of Appeals made no findings as to the remainder of the threshold inquiries, including, but not limited to, the scope or applicability of the arbitration agreement to each of Plaintiff's claims, whether Congress intended for Magnuson-Moss Warranty Act, 15 U.S.C § 2301 et seq., claims to be arbitrable, and whether, if some of the claims are not subject to arbitration, the Court should stay the case with respect to the causes of action that remain pending. Thus, the Court turns to the remaining considerations to determine whether to compel arbitration and stay these proceedings.
(1) Agreement to Arbitrate
Before arbitration may be compelled, the parties must, of course, have agreed to arbitration. In this case, the putative-Plaintiffs fall in two different categories-those who entered into the contract and those who did not. Plaintiff asserts that only consumers who purchased a Warranty and accepted the terms of the arbitration clause by failing to reject the contract when they did not return it within ten days can be bound to arbitrate their claims. Because this matter is a putative class action, however, Plaintiff asserts that the causes of action raised by potential-plaintiff consumers who were solicited by Defendants, but who did not purchase the Warranty, which they denominate as "Class One," are not within the scope of the arbitration agreement. The Class One Plaintiffs bring causes of action for violations of the Ohio Consumer Sales Practices Act ("CSPA") and the Home Solicitation Sales Act. Again, putative-Class One Plaintiffs received, but did not complete, the "Warranty Group Registration Form." They did not receive the "Limited Warranty Service Contract," which contained the arbitration clause.
Nothing in this Opinion and Order should be construed as a ruling on the propriety of class certification. The Court addresses the instant matter on the basis of Plaintiff's pleadings. Moreover, to the extent that Defendants assert that Plaintiff Higgs lacks standing to assert a solicitation claim for an automobile he no longer owns, that matter is more appropriate for disposition as it relates to whether he is representative of the putative class. Because the issue of whether this case should be certified as a class action is not at issue here, the Court declines to address these arguments at this juncture.
Plaintiff also asserts that the causes of action raised against the individually-named Defendants fall outside the scope of the arbitration agreement. Plaintiffs have failed to cite any authority for the proposition that the claims against the individual Defendants are not arbitrable. Indeed, the applicable case law on the subject suggests otherwise. See, e.g., Arnold v. Arnold Corp., 920 F.2d 1269, 1281-82 (6th Cir. 1990) (holding that plaintiffs may not avoid arbitration by naming individual, non-signatories); Orcutt v. Kettering Radiologists, Inc., 199 F. Supp.2d 746, 752-53 (S.D. Ohio 2002) (Rice, J.) (finding claims against non-signatory to an arbitration agreement were intertwined and substantially interdependent with claims against a party to the arbitration agreement and hence subject to arbitration).
Defendants assert that Plaintiff has not alleged that he was personally solicited at his residence, triggering the Home Solicitation Sales Act, and thus has not stated a claim for a violation of this statute. That matter, however, is not before the Court.
The registration form contained the following provision: "I UNDERSTAND THE CONTRACT IS NOT IN FORCE UNTIL THIS APPLICATION HAS BEEN ACCEPTED AND THE CONTRACT ACTUALLY ISSUED. ALLOW THREE WEEKS FOR THE COVERAGE TO BECOME EFFECTIVE. ATTEST THAT ALL INFORMATION IS TRUE AND ACCURATE." (Amend. Compl., Exh. 4.)
In this case, certain members of the putative class have claims related exclusively to AWCA's solicitation practices. Putative-Class One received only the advertisement for extended-service protection on a vehicle they purchased and a registration form, but did not receive or inspect the Warranty itself. As the Sixth Circuit found, the "accept-or-reject" Limited Warranty Service Agreement at issue here was formed at the time the purchaser assented to the terms of an agreement by not returning it for a refund after he or she had an opportunity to review the terms. Higgs, 2005 WL 131354, **3-4. The members of putative-Class One, however, never returned the registration form, never received the Limited Warranty Service Contract, which contained the arbitration provision, and thus could not have assented to its terms by failing to return the document.
Thus, as to putative-Class One and their solicitation claims, the Court concludes, these Plaintiffs did not voluntarily and mutually agree to arbitrate. They have no contract with AWCA and have not agreed to arbitrate their claims. The arbitration provision is inapplicable to these claims because the parties never manifested an understanding that such claims would be arbitrated.
(2) Scope of the Arbitration Agreement
With regard to those putative-Plaintiffs who did enter into a contract and did not reject arbitration, the Court must determine whether the claims made in this case are within the scope of the arbitration agreement. A court must assess whether the arbitration provision is applicable to each of the disputed claims because "unwilling parties" should not be forced "to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 945 (1995). District courts have the authority to decide whether an issue is within the scope of an arbitration agreement. Stout, 228 F.3d at 714. A proper method of analysis in this regard is to ask if a cause of action could be maintained without reference to the contract at issue. Fazio v. Lehman Bros., Inc., 340 F.3d 386, 395 (6th Cir. 2003). If it could, the dispute is likely outside the scope of the arbitration agreement. Id.
In addition to the claims related strictly to the Warranty, Plaintiff's action seeks remedies for deceptive, unfair and unconscionable advertising and promotional practices. These claims are separate from those allegedly arising from the Warranty-contract terms. The Warranty, by its terms, is limited to "[a]ny controversy or claim arising out of or relating to this contract, or the breach thereof. . . ." (Amend. Compl., Exh. 6.) Defendants maintain that this language is sufficiently broad to include solicitation claims, because the solicitations were for, and thus "relate to," the Warranty.
Indeed, in analyzing whether a claim falls within the ambit of an arbitration provision, courts have characterized the language "arising out of or related to" as broad. Courts have construed this and similar terms as expansive enough to encompass claims going to the formation of the underlying agreement to arbitrate. See, e.g., Highlands Wellmlont Health Network, Inc. v. John Deere Health Plan, Inc., 350 F.3d 568, 578 (6th Cir. 2003) (holding that "arising out of" language in arbitration agreement is broad enough to include a claim of fraudulent inducement of a contract); Battaglia v. McKendry, 233 F.3d 720, 725 (3d Cir. 2000) ("arising under" and "arising out of" are given broad construction and encompass claims related to the formation of the arbitration agreement); Mediterranean Enters., Inc v. Ssanyong Corp., 708 F.2d 1458, 1464 (9th Cir. 1983) (noting that phrase "arising hereunder" covers a much narrower range of disputes than the broad phrase "arising out of or relating to.")
As to subclass One, and Class Two, described in Plaintiffs' Complaint as those individuals who purchased the extended Warranty after July 27, 2000 and July 27, 1996, respectively, these claims are interrelated to the contract because the allegations of violations of the Consumer Sales Practices Act are based, among other things, on Plaintiff's contentions that the terms of the solicitation differed from the actual service contract. Higgs is claiming, as part of his solicitation claim, that the contract he purchased materially differed from the solicitation that induced his purchase. The issue of whether Defendants engaged in deceptive or unconscionable solicitation practices for these claims must be resolved by reference to the terms of the Warranty contract, which supports the determination that these claims are within the scope of the arbitration clause. See Fazio, 340 F.3d at 395.
(3) Whether Claims are Arbitrable
Plaintiff has asserted several causes of action on behalf of himself and of a putative class including the following: (1) violations of the Ohio Consumer Sales Practices Act, Ohio Rev. Code § 1345.01 et seq.; (2) violations of the Ohio Home Sales Solicitation Act, Ohio Rev. Code § 1345.21(A); (3) fraud and fraudulent inducement; (4) violations of the Ohio Corrupt Practices Act, Ohio Rev. Code § 2923.34 et seq., including mail fraud, telecommunications fraud and theft by deception; (5) unlicensed solicitation, advertising and sale of insurance; and (6) violations of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2310. With the exception of the claim raised on behalf of Class One, that is, solicitation claims for those who did not receive the Warranty and therefore did not enter into the arbitration contract, and those arising under the MMWA, addressed below, the parties do not dispute that Plaintiff's claims are arbitrable, subject to Plaintiff's defense of unconscionability.
(4) Arbitrability of Magnuson-Moss Warranty Act Claims
The Magnuson-Moss Warranty Act ("MMWA"), 15 U.S.C. § 2310(a)(1) (a)(3), declares Congress' policy "to encourage warrantors to establish procedures whereby consumer disputes are fairly and expeditiously settled through informal dispute settlement mechanisms" or an "informal dispute settlement procedure." A warrantor may establish an informal dispute settlement procedure provided it meets the minimum requirements established by Federal Trade Commission ("FTC"). The statute provides as follows:
(2) The Commission shall prescribe rules setting forth minimum requirements for any informal dispute settlement procedure which is incorporated into the terms of a written warranty to which any provision of this chapter applies. Such rules shall provide for participation in such procedure by independent or governmental entities.
(3) One or more warrantors may establish an informal dispute settlement procedure which meets the requirements of the Commission's rules under paragraph (2). If —
(A) a warrantor establishes such a procedure,
(B) such procedure, and its implementation, meets the requirements of such rules, and
(C) he incorporates in a written warranty a requirement that the consumer resort to such procedure before pursuing any legal remedy under this section respecting such warranty,
then (i) the consumer may not commence a civil action (other than a class action) under subsection (d) of this section unless he initially resorts to such procedure; and (ii) a class of consumers may not proceed in a class action under subsection (d) of this section except to the extent the court determines necessary to establish the representative capacity of the named plaintiffs, unless the named plaintiffs (upon notifying the defendant that they are named plaintiffs in a class action with respect to a warranty obligation) initially resort to such procedure. In the case of such a class action which is brought in a district court of the United States, the representative capacity of the named plaintiffs shall be established in the application of rule 23 of the Federal Rules of Civil Procedure. In any civil action arising out of a warranty obligation and relating to a matter considered in such a procedure, any decision in such procedure shall be admissible in evidence.
Thus, the informal dispute settlement procedure described in MMWA is non-binding on the consumer, and he or she can commence a civil action with respect to the warranty only after first resorting to the settlement procedure.
The FTC has consistently adopted regulations stating that informal dispute settlement procedures under the MMWA cannot be final and binding. Rule 703.5(j) provides that "[d]ecisions of the [informal dispute settlement procedure] shall not be legally binding on any person. . . .". 16 C.F.R. § 703.5(j) When it promulgated Rule 703 in 1975, the FTC examined the legality and the merits of mandatory binding arbitration clauses in written consumer product warranties. Despite the fact that several industry representatives at the time recommended that the Rule allow warrantors to require consumers to submit to binding arbitration, the FTC rejected that view as being contrary to Congressional intent. 64 Fed. Reg. 19708 n. 68 (April 22, 1999).
In 1999, the FTC reaffirmed that it would not amend its Rule 703.5(j) to allow binding arbitration under the MMWA. The FTC confirmed that "Rule 703 will continue to prohibit warrantors from including binding arbitration clauses in their contracts with consumers that would require consumers to submit warranty disputes to binding arbitration." 64 Fed. Reg. 19708-09 (April 22, 1999). Based on its analysis and consideration as to whether to amend Rule 703, the FTC determined that "reference within the written warranty to any binding, non-judicial remedy is prohibited by the Rule and the Act." Id. "The Commission believes that this interpretation continues to be correct. Therefore, the Commission has determined not to amend § 703.5(j) to allow for binding arbitration." Id.
The Supreme Court has stated:
When a court reviews an agency's construction of the statute which it administers, it is confronted with two questions. First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984) (footnotes omitted). Under the test announced in Chevron, the Court, therefore, must determine whether Congress evinced its intent to preclude, or allow, resolution of MMWA claims through binding arbitration, and, if not, whether the FTC's interpretation is a permissible construction of the federal statute.
Generally, the FAA's mandate for arbitration may be overridden by a contrary congressional command. The burden is on the party opposing arbitration, however, to show that Congress intended to preclude a waiver of judicial remedies for the statutory rights at issue. Shearson/American Exp., Inc. v. McMahon, 482 U.S. 220, 227-28 (1987). "If Congress did intend to limit or prohibit waiver of a judicial forum for a particular claim, such an intent `will be deducible from [the statute's] text or legislative history,' or from an inherent conflict between arbitration and the statute's underlying purposes." Id. (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)). Thus, in analyzing whether Congress intended to preclude arbitration of MMWA claims, courts apply the McMahon test and consider (1) the text of the statute; (2) its legislative history; and (3) whether an inherent conflict exists between arbitration and the purposes of the statute.
The courts are sharply divided as to whether the MMWA forecloses binding arbitration of express warranty claims. The interplay between the right to bring a MMWA-statutory rights claim to court and the FAA's broad mandate to enforce arbitration agreements is not as new to the courts as it is divisive. See Walton v. Rose Mobile Homes, 298 F.3d 470 n. 16 (5th Cir. 2002) (collecting cases); Davis v. Southern Energy Homes, Inc., 305 F.3d 1268, 1271-72 (11th Cir. 2002) (collecting cases); Rickard v. Teynor's Homes, Inc., 279 F. Supp. 2d 910 n. 9 (N.D. Ohio 2003) (collecting cases). Only two federal appeals courts, the United States Courts of Appeal for the Fifth and Eleventh Circuits, have addressed the issue, and neither the Supreme Court nor the Sixth Circuit has taken a position.
The United States Court of Appeals for both the Fifth and Eleventh Circuits have held that MMWA claims are subject to binding arbitration. In both Walton and Davis, and consistent with Shearson/American Exp., Inc. v. McMahon, 482 U.S. 220, 227-28 (1987), the courts examined the text of the MMWA, its legislative history, and whether arbitration conflicted with the MMWA's purpose. In Walton, the court noted that "[i]n every case the Supreme Court has considered involving a statutory right that does not explicitly preclude arbitration, it has upheld the application of the FAA." Id. at 474. The court concluded that "the text, legislative history, and purposes of the MMWA do not evince a congressional intent to bar arbitration of MMWA written warranty claims." 298 F.3d at 478. In examining the text of the MMWA, that court stated that it "does not specifically address binding arbitration, nor does it specifically allow the FTC to decide whether to permit or to ban binding arbitration." Id. at 475. As to the legislative history, the court held that it "does not specifically discuss the availability of arbitration, nor does it define or shed light on the meaning of `informal dispute settlement procedure.'" Id. at 476. The court determined that under the MMWA, when a warrantor creates an informal dispute settlement procedure, the warrantor is permitted to include language in the warranty that would require a consumer to resort to this settlement procedure before pursuing a legal remedy. Id. at 475. The court therefore concluded that binding arbitration falls "outside the bounds of the MMWA and of the FTC's power to prescribe regulations." Id. at 476. The court also examined the MMWA's purposes and determined that there did not exist "any inherent conflict between arbitration and these purposes. Consumers can still vindicate their rights under warranties in an arbitral forum. Warranties can provide adequate and truthful information to consumers, while also requiring binding arbitration. Arbitration is not inherently unfair to consumers." Walton, 298 F.3d at 478.
Similarly, the Davis court determined that neither the text nor legislative history of the MMWA expressly prohibited binding arbitration and further concluded that the purpose of the MMWA did not conflict with the FAA. 305 F.3d at 1274-77. The court examined the FTC regulations and concluded that the FTC's regulations prohibiting binding arbitration was "unreasonable." The court held that "this interpretation is no longer valid based on the Supreme Court's abandonment of its hostile attitude towards arbitration. In light of the Supreme Court's acknowledgment and continual enforcement of the strong federal policy toward arbitration, we conclude this rationale to be based on an impermissible construction of the statute." Id. at 1280. Davis further determined that arbitration did not constitute an informal dispute mechanism, because the FTC defined such a mechanism as "only a precursor to litigation and never binding" and binding arbitration is understood generally to be a substitute for litigation. The court therefore held that "[a]fter a thorough review of the MMWA and the FAA, combined with the strong federal policy favoring arbitration, we hold that written warranty claims arising under the Magnuson-Moss Warranty Act may be subject to valid binding arbitration agreements." Id.
Other courts have concluded that the MMWA constitutes an exception to the FAA and, therefore, claimants cannot be forced to resolve their consumer warranty disputes through binding arbitration. Chief Judge King dissented in Walton and examined the congressional intent at the time of the MMWA's enactment. She determined that the congressional intent was unclear as to binding arbitration and that Congress did not speak directly to the issue. Chief Judge King observed, however, that the lack of discussion on the matter was not surprising, given that the Supreme Court expanded the FAA after the MMWA was enacted and before the Arbitration Act was applied broadly. In reviewing the FTC regulations, Chief Judge King determined that "the FTC's construction of the statute is eminently reasonable," and would have deferred to the regulations that proscribe binding arbitration under the MMWA. Walton, 298 F.3d at 492 (King, C.J., dissenting).
In Rickard v. Teynor's Homes, 298 F. Supp. 2d at 921, the United States District Court for the Northern District of Ohio agreed with the reasoning of the Walton dissent, and explained that "the creators of the FAA understood that arbitration agreements historically were entered into in the commercial or contractual context where the parties were sophisticated and deliberately desired to avoid the expense and delay attendant on the civil trial system." The Rickard court noted that the Supreme Court has expanded the scope of the FAA beyond that which Congress anticipated at the time of the enactment of the MMWA. Further, "notwithstanding the Supreme Court's recent expansion of the FAA, the statute's `liberal policy' should not encroach on or undermine the manifest pro-consumer policy of the MMWA." Id. at 921. The court concluded that the MMWA precludes the enforcement of binding arbitration agreements for claims under written warranties, and deferred to the FTC's regulations. Rickard, 279 F. Supp.2d at 921.
The court in Browne v. Kline Tysons Imports, Inc., 190 F. Supp. 2d 827 (E.D. Va. 2002), found that Congress intended to preclude binding arbitration for claims under the MMWA, in addition to the FTC's regulations precluding binding arbitration. That court stated: "A clear reading of the statute evinces Congress's intent to encourage informal dispute settlement mechanisms, yet not deprive any party of [his or her] right to have [a] written warranty dispute adjudicated in a judicial forum." Browne, 190 F. Supp.2d at 831. The court therefore determined that, under the MMWA, "[a]ny informal dispute settlement procedure that may be utilized to resolve written warranty disputes under the MMWA must be a non-binding mechanism, which serves as a prerequisite, and not a bar, to relief in court." Id.
Recently, the Supreme Court had occasion to reexamine Chevron and the power of an administrative agency to administer congressionally-created programs. In Long Island Care at Home v. Coke, ___ U.S. ___, 127 S. Ct. 2339 (2007), the Court assessed the power of an administrative agency to fill interstitial gaps, as to the scope and definition of statutory terms, through the regulatory process. The Court found that "it is reasonable to infer . . . that Congress intended its broad grant of definitional authority to the Department to include the authority to answer [whether and how a definition should apply]. Id. at 2348. The Court ultimately concluded that the Department of Labor's interpretation of the regulations fell within the principle that an agency's interpretation of its own regulations is "controlling" unless "`"plainly erroneous or inconsistent with"'" the regulations being interpreted. Id. at 461 (quoting Robertson v. Methow Valley Citizens Council, 490 U.S. 332, 359 (1989)).
Although recognizing the deep divide among the circuits on the issue of the effect of mandatory arbitration clauses for claims arising under the MMWA, the Court concludes that the FTC's regulations are entitled to deference under Chevron. The FTC is the agency that Congress obliged the task of implementing and elaborating the provisions of the MMWA. The agency derives its rulemaking authority from the MMWA, which directs the FTC to "prescribe rules setting forth minimum requirements for any informal dispute settlement procedure which is incorporated into the terms of a written warranty to which any provision of this chapter applies." 15 U.S.C. § 2310(a)(2). The FTC is entrusted with the power to interpret the MMWA, and has construed the statute to preclude the enforcement of binding arbitration. The Court joins those courts which have concluded that the FTC's construction of the statute is not unreasonable and is therefore entitled to deference. The FTC based its determination on the fact that Congress intended to preclude enforcement of binding arbitration clauses in written warranties based upon two chief factors: its reading of a staff report of the House Interstate and Foreign Commerce Committee's Subcommittee on Commerce and Finance; and its concern that such arbitration provisions would inadequately protect the interests of consumers. See 40 Fed. Reg. 60167, 60210 (Dec. 31, 1975); Rickard, 279 F. Supp. 2d at 921 (citing Walton, 298 F.3d at 486 (King, J. dissenting)). The Court concludes that the FTC's regulations are based on a reasonable construction of the statute. The Court, therefore, defers to the FTC's expertise. Thus, the MMWA precludes enforcement of binding arbitration agreements for claims under a written warranty.
(5) Remaining Issues and Stay of Proceedings
As the matter thus stands, Plaintiff's pure solicitation claims as well as those arising under the MMWA are not subject to arbitration. Because the Court has determined that some, but not all of the claims are subject to arbitration, "it must determine whether to stay the remainder of the proceedings pending arbitration." Stout, 228 F.3d at 714.
As an initial matter, the Court disagrees with Defendants' assertions that the Sixth Circuit's decision in this case resolved all matters related to whether the parties have made a valid and enforceable agreement to arbitrate. The Court further disagrees with Defendants' contention that Plaintiff's unconscionability challenge is foreclosed by the appellate court's determination that the parties had a meeting of the minds in the formation of the contract. The Sixth Circuit's opinion was confined to the issue of whether the parties mutually assented to the arbitration clause, and simply did not address or limit the Court's duty to assess Plaintiff's other defenses to the validity of the contract.
Plaintiff Higgs argues that the arbitration clause is not enforceable with respect to his state law claims because it is both procedurally and substantively unconscionable. In particular, Plaintiff asserts that the agreement is unconscionable, because it is an adhesion contract, born of substantially unequal bargaining power between the parties. Plaintiff also asserts that the cost for a consumer to arbitrate a claim against a business is so large that it renders the clause unenforceable and that the cost-shifting mechanism in the arbitration agreement is unconscionable.
Under Ohio law, a contract clause is unconscionable where one party has been misled as to its meaning, where a severe imbalance of bargaining power exists, or where the specific contractual clause is outrageous. See, e.g., Cross v. Carnes, 132 Ohio App.3d 157, 170, 724 N.E.2d 828 (Ohio Ct.App. 11th Dist. 1998). Unconscionability generally encompasses an absence of meaningful choice on the part of one of the parties to a contract, combined with contract terms that are unreasonably favorable to the other party. Collins v. Click Camera Video, Inc., 86 Ohio App.3d 826, 834, 621 N.E.2d 1294 (Ohio Ct.App. 2d Dist. 1993). The unconscionability doctrine is comprised of two separate components: "(1) substantive unconscionability, i.e., unfair and unreasonable contract terms, and (2) procedural unconscionability, i.e., individualized circumstances surrounding each of the parties to a contract such that no voluntary meeting of the minds was possible." Rickard, 279 F. Supp. 2d at 914 (quoting Jeffrey Mining Prods. L.P. v. Left Fork Mining Co., 143 Ohio App.3d 708, 758 N.E.2d 1173 (Ohio Ct.App. 8th Dist. 2001)).
In assessing whether procedural unconscionability forestalls the formation of the contract, Ohio courts looks to "factors bearing on the relative bargaining position of the contracting parties, including their age, education, intelligence, business acumen and experience, relative bargaining power, who drafted the contract, whether the terms were explained to the weaker party, and whether alterations in the printed terms were possible." Cross v. Carnes, 132 Ohio App.3d 157, 170, 724 N.E.2d 828 (Ohio Ct. App. 11th Dist. 1998).
With respect to Plaintiff's prohibitive-cost defense, the Supreme Court and the Sixth Circuit have recognized that the existence of high arbitration costs potentially payable by an individual litigant may preclude a litigant from effectively vindicating federal statutory rights. As to a court's review of prohibitive arbitration costs, the Supreme Court in Green Tree Financial Corp. — Alabama v. Randolph, 531 U.S. 79 (2001) held that "[w]here . . . a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs." 531 U.S. at 91-92. In Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 659 (6th Cir. 2003), the Sixth Circuit adopted a "case-by-case" approach to determine whether an arbitration provision is enforceable.
Plaintiff has requested an evidentiary hearing to determine matters related to whether the arbitration contract is procedurally and substantively unconscionable. Defendants, however, have chosen to stand on their argument that the Sixth Circuit's decision resolved any issues as to which an evidentiary hearing would have been relevant, namely matters related to unconscionability. Given the Court's disposition that the issue of unconscionability remains, and the fact that the record is evidentially undeveloped, the Court will conduct a hearing on these final matters. The Court therefore defers resolution as to whether to stay the remainder of the proceedings pending arbitration.
This matter is hereby scheduled for a TELEPHONE STATUS AND SCHEDULING CONFERENCE on JULY 27, 2007 at 10:30 A.M.
IT IS SO ORDERED.