Ninth Circuit Reverses Itself, Withdraws Opinion Which Held that Magnuson-Moss Warranty Act Prohibits Mandatory Arbitration in Warranties

As reported in an earlier post in September 2011, the Ninth Circuit in Kolev v. EuroMotors West/The Auto Gallery held that the Magnuson Moss Warranty Act (“MMWA”) “precludes enforcement of pre-dispute agreements . . . that require mandatory binding arbitration of consumer warranty claims.”

The Ninth Circuit’s ruling would have prohibited manufacturers and distributors of consumer products from attempting to take advantage of the Supreme Court’s recent pro-arbitration rulings, including AT&T Mobility v. Concepcion, involving MMWA consumer warranty claims. According to the original majority opinion in Kolev, to the extent the MMWA precludes arbitration clauses, class waivers in such clauses, which Concepcion rendered immune from invalidation under state laws, would thus likewise be unenforceable in MMWA actions, providing a complete end-run around Concepcion.

The panel decision prompted a stinging dissent by Judge Smith, who characterized the panel decision as “a departure from Supreme Court precedent, the prevailing view of our sister circuits, and applicable statutes, [which] . . . nullifies nearly every binding, non-judicial warranty dispute remedy adopted by private parties in this circuit.” The Kolev majority in fact parted company with the Fifth and Eleventh Circuits, which had concluded that the MMWA does not overcome the Federal Arbitration Act’s presumption that courts should enforce arbitration agreements. See Walton v. Rose Mobile Homes LLC; Davis v. S. Energy Homes, Inc.

On April 11, 2012, the Ninth Circuit in Kolev reversed itself by entering an Order withdrawing its prior opinion. The withdrawal of the original panel decision came as the circuit court was considering dueling petitions for rehearing en banc by both parties. By withdrawing the opinion, the petitions were rendered moot, and the court stated that the parties could file petitions for rehearing en banc after a new decision by the court. The April 11, 2012 Order also held that “submission of this case is vacated pending the issuance of a decision by the California Supreme Court in Sanchez v. Valencia Holding Co. LLC, No. S199119,” where the California high court is reviewing a decision invalidating an arbitration clause, with a class action waiver, in a car dealer’s sales contract.

Michael R. McDonald is a Director in the Gibbons Business & Commercial Litigation Department.
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