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Consumer Warranty Law: 13.4.3.3 When Originating Creditor Is Not the Dealer

The Truth in Lending Act (TILA) provision prevents arbitration agreements from being inserted into the documents for a direct loan from a third-party lender that is secured by the manufactured home. But in such a case, as the dealer did not extend the credit, the TILA provision does not prohibit the insertion of an arbitration clause in the contract for sale between the dealer and the buyer. Nevertheless, the limit on arbitration in the third-party lender’s loan documents has important implications for the consumer’s ability to raise warranty claims in court.

Consumer Warranty Law: 13.4.4.1 General

Written warranties and service contracts must comply with the disclosure requirements set out in the Magnuson-Moss Warranty Act.247 While the Federal Arbitration Act may preempt state disclosure requirements,248 it does not preempt federal disclosure requirements.

Consumer Warranty Law: 13.4.4.2 Significance of Disclosure of Arbitration Requirement in Written Warranty

Manufactured home manufacturers and other warrantors often avail themselves of arbitration agreements found in dealers’ contracts. Cunningham and cases that follow it require that such an arbitration requirement also be included in the manufacturer’s written warranty. It may not be sufficient for the manufacturer to disclose in its warranty the bare fact that the consumer is bound by an arbitration clause that is found elsewhere.258 The actual arbitration requirement must be disclosed in the written warranty.

Consumer Warranty Law: 13.4.5 Does Magnuson-Moss Prohibit Merchant’s Designation of Arbitration Service Provider?

The Magnuson-Moss Warranty Act states that the warrantor cannot “condition his written or implied warranty of such product on the consumer’s using, in connection with such product, any article or service (other than article or service provided without charge under the terms of the warranty) which is identified by brand, trade, or corporate name.”264 Congress was concerned that warrantors would diminish the “free” aspect of a warranty by conditioning its coverage on the consumer’s use of a designated product or service, whose price would be in

Consumer Warranty Law: 13.4.6.3 Case Law Interpreting the Magnuson-Moss Warranty Act and Arbitration

Initially, federal court decisions unanimously held that the Magnuson-Moss Warranty Act prohibits binding arbitration of written warranty disputes.282 But in 2002, notwithstanding the FTC’s rule, the Fifth and Eleventh Circuits ruled to the contrary.283 A number of state and federal district court decisions follow this result as well.284 In general, these courts do not treat arbitration as an informal dispute resolution mechanism but instead treat

Consumer Warranty Law: 13.4.7.1 No Arbitration of Self-Help Remedies

Arbitration agreements require consumers to submit “claims,” “disputes,” or “controversies” to arbitration. When a consumer rightfully rejects or revokes acceptance of the goods, or withholds payments because of a breach of contract, the consumer is not making a claim, disputing anything, or engaging in a controversy. The consumer has a right to take these actions and is exercising that right, despite any enforceable arbitration requirement.

Consumer Warranty Law: 13.4.7.2 Does Consumer’s Cancellation of the Contract Invalidate the Arbitration Requirement?

When a consumer revokes acceptance or rejects the goods, the UCC allows the consumer to cancel the contract.289 If the contract is canceled, then the rights and obligations of the parties as spelled out by the contract are canceled. Instead, the parties’ rights and obligations are determined only by UCC Article 2. The arbitration clause is canceled with the rest of the contract and is no longer binding on the consumer.

Federal Deception Law: 2.3.10 Private Remedies for Credit Practices Rule Violations

There is generally no private right of action under the FTC Act for a violation of an FTC trade regulation rule.223 It seems clear, however, that a consumer can challenge a violation of the FTC Credit Practices Rule under the many state UDAP statutes that prohibit “unfair” and/or “unconscionable” practices.224 The rule is an official FTC ruling that use of certain creditor remedies is an “unfair” trade practice.

Consumer Arbitration Agreements: 11.2.3.2 Longer Period to Confirm an Award

There are longer deadlines to confirm an award, although there is significant confusion as to what those deadlines are. The FAA states that a party “may” seek to confirm an award in federal court within one year of that award,72 and federal courts come to differing views as to whether the one-year period requires strict compliance.73

Consumer Arbitration Agreements: 11.2.5.1 Contract Cannot Limit Court’s Power to Vacate or Modify an Award

The Second Circuit has stated in the most clear-cut terms that parties to an arbitration agreement cannot eliminate judicial review of the award, while still seeking court review to confirm the award.100 In other words, when one party seeks to confirm an award, the other party must have the rights set out by statute and case law to seek to vacate or modify that award. Parties cannot contract to eliminate judicial review.

Consumer Arbitration Agreements: 11.2.6 Appeals of Trial Court Review of Arbitration Award

Motions to confirm, vacate, or modify an award are brought before a trial court, whether in federal or state court. Appellate courts generally have jurisdiction to review these decisions but, under both the FAA and most state arbitration acts, appellate courts do not have jurisdiction to consider appeals of the denial of a motion to vacate an arbitration award unless the lower court also confirmed the award.

Consumer Arbitration Agreements: 11.4.2 The Grounds for Vacating an Award Are Not Waivable

Some arbitration agreements may appear to restrict the grounds on which an award is reviewable in court, for example, by stating that an arbitration award is “unappealable” or “non-reviewable.” At least one appellate court has concluded that the grounds for vacatur spelled out in section 10 of the FAA are not waivable, and therefore contractual provisions like these are not enforceable.139 Other courts have avoided answering the question of whether the grounds for vacatur may be narrowed by agreement by finding that agreem

Consumer Arbitration Agreements: 11.4.3.1 General

The court may vacate an award when the arbitrators exceeded their powers or when they failed to render a decision in the matter.140 Arbitration is a matter of contract, and the arbitrator’s powers emanate from that contract. There is no federal or state policy favoring arbitration of claims that the parties have not agreed to arbitrate; an arbitrator’s powers are solely the product of the parties’ agreement.141

Consumer Arbitration Agreements: 11.4.4.1 General

Upon a party’s application, a court can vacate an arbitration decision when there was evident arbitrator partiality or corruption.179 Evident partiality has been defined as when a reasonable person would have to conclude that an arbitrator was partial to one party in the arbitration.180 This standard requires more than just that partiality might be questioned,181 and the party seeking vacatur bears the burden of proving this partiali

Consumer Arbitration Agreements: 11.4.4.3 California Statutes Requiring Disclosures by Arbitrators

California law requires arbitrators to make certain disclosures to the parties participating in the arbitration, including any relationships the arbitrator has with the parties or with the attorneys for the parties.211 California law also specifies that the court “shall” vacate an award if the arbitrator fails to make a disclosure of a ground for disqualification of which the arbitrator was then aware.212

Consumer Arbitration Agreements: 11.4.4.5 Equal Protection in Selection of Arbitrator

A creative attempt to challenge the constitutionality of an arbitration clause was made in Smith v. American Arbitration Association, Inc.223 In that case, the plaintiff argued (among other things) that the defendant’s action in striking the only woman on a list of fifteen possible arbitrators, thus guaranteeing an all-male arbitration panel, violated the Equal Protection Clause. The Seventh Circuit rejected this claim, holding that the AAA is a private body that does not operate as a state actor:

Consumer Arbitration Agreements: 11.4.5 Arbitrator’s Misconduct Including Refusal to Postpone the Hearing or to Hear Evidence

Upon proper application, a court may vacate an arbitration decision when the arbitrator is guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or when the arbitrator refuses to hear evidence pertinent and material to the controversy, or when the arbitrator otherwise engages in misbehavior by which the rights of any party are prejudiced.225