Decided: December 11, 2013
The Fourth Circuit affirmed the district court’s order compelling arbitration of a breach of warranty claim in accordance with a lease agreement between the parties.
Christine and Antwan Seney (the “Seneys”) entered into a “Rental-Purchase agreement” with Rent-A-Center (“RAC”) for a bedframe and mattress. In that contract, the Seneys agreed to rent the bed for two weeks, with an option to renew the lease. The contract also contained a purchase option. Pursuant to the contract, RAC retained the manufacturer’s warranty to the bed. However, RAC provided its own warranty to repair, replace, and service the bed during the lease term. Additionally, the parties agreed to submit any contract dispute to binding arbitration. Soon thereafter, RAC delivered the bed to the Seneys’ home and assembled it in their son’s bedroom. Within a week, the boy was infested with bedbugs. After Mrs. Seney notified RAC, RAC employees returned to the home and replaced the mattress, but not the bedframe, which apparently was also infested with bedbugs. The infestation continued. Ultimately, RAC returned once more, this time removing both the mattress and the frame, but not before dragging them through the Seneys’ home. The bed shed bugs, and the infestation spread. RAC paid for a partial fumigation, but refused to treat the entire house.
The Seneys’ filed suit in Maryland state court, alleging breach of warranty in violation of the Magnuson-Moss Warranty Act (“MMWA” or “the Act”). RAC removed to federal court and filed a motion to compel arbitration. The district court rejected the Seneys’ argument that the regulations promulgated by the Federal Trade Commission (“FTC”) interpreting the MMWA ban binding arbitration and therefore granted RAC’s motion to compel arbitration. This appeal followed.
On appeal, the Fourth Circuit first held that the district court erred in holding that the FTC regulations contain no ban on binding arbitration. The court explained that, although the ban is intricate and limited, it certainly exists. Nonetheless, the court held that the Act’s ban on arbitration did not apply to the rental agreement at issue in this case. In so holding, the court found that the contract fell outside the FTC regulation banning binding arbitration because the Seneys’ relied on a warranty in a lease agreement—not a sales agreement. Specifically, the FTC ban applies only to dispute settlement procedures included in a “written warranty.” According to the FTC regulations, the term “written warranty” must implicate a sale. Here, because the promise made in the contract was not made in connection with a sale, but rather in connection with a lease, the FTC regulation banning binding arbitration did not apply. Therefore, the district court’s order compelling arbitration was affirmed.
– W. Ryan Nichols