Koons Ford of Baltimore, Inc. v. Lobach (Ct. of Appeals)

Filed March 20, 2007--Opinion by Judge Clayton Greene (JJ Raker and Harrell dissenting).

The Lobachs purchased a vehicle from Koons Ford and, after discovering defects in the vehicle, filed a complaint against Koons alleging, inter alia, that Koons violated the Magnuson-Moss Warranty Act ("MMWA"), the Maryland Consumer Protection Act ("MCPA"), breach of contract, violation of the Maryland Commercial Law Code, fraud, and a derivative action against Suntrust Bank for all of the aforementioned claims. Koons responded with a Petition for Order to Arbitrate and Dismissal of Complaint. Koons maintained that the claim had to be submitted to binding arbitration because, as part of the purchase, the Lobachs signed a buyer's order that contained a binding arbitration clause, and arbitration is expressly favored by the Federal Arbitration Act ("FAA"). The Lobachs argued the MMWA prohibits the forced resolution of claims through binding arbitration and, therefore, the FAA does not apply. The Lobachs further maintained that the arbitration clause must be included in the warranty document to be enforceable under the single document rule.

This Court rejected the Lobach's claim that they had no notice of the binding arbitration provision or that they were foregoing their ability to bring a civil suit. The applicable language was clear and comprehensible and appeared in the buyer's order in capital letters and bold print. Because the Lobachs signed their names below the arbitration provision, attesting to their understanding of what they read, the Court held that they may not evade their obligations simply because they choose to not read what they had signed.

Another provision in the buyer's order provided in relevant part, "NOR SHALL ANYTHING HEREIN BE CONSTRUED TO LIMIT ANY REMEDIES UNDER . . . THE MAGNUSON MOSS ACT." The Court interpreted this provision to mean that the Lobachs may not be precluded from pursuing claims for breach of warranty in a court of law. However, although the MMWA allows for non-binding, as opposed to binding, arbitration, the next issue is to determine whether the FAA trumps the MMWA and whether the binding arbitration provision contained in the buyer's order is nonetheless enforceable.

The Court rejected Koon's interpretation of the MMWA and agreed with the Lobach's contention that Congress expressed an intent to preclude binding arbitration of claims under the MMWA, a conclusion which is further supported by the FTC regulations. The language of 15 U.S.C. § 2310 makes clear that the warrantor may establish informal dispute settlement mechanisms that consumers must use to resolve their claims under the MMWA, but that consumers cannot be forced to resolve their claims through an informal dispute resolution mechanism that is binding. Consumers may be required by warrantors to participate in a non-binding informal dispute settlement mechanism, but only as a prerequisite; afterwards, consumers may pursue other legal remedies.

This Court held that, under the MMWA, claimants may not be forced to resolve their claims through binding arbitration because Congress expressed an intent to preclude binding arbitration when it enacted the MMWA. The FAA does not supersede the MMWA. Because of the resolution of this case, the Court did not address the parties' dispute over the single document rule.

The full opinion is available in PDF.