Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: U.S. Supreme Court asked to review arbitration requirement for Magnuson-Moss warranty claim in action against rent-to-own operator, (Mar 20, 2014)

By Linda O’Brien, J.D., LL.M.

Two renters have asked the U.S. Supreme Court to review a decision of the U.S. Court of Appeals in Richmond, Virginia, that required them to submit their breach of warranty claim under the Magnuson-Moss Warranty Act (MMWA) against a furniture rent-to-own operator to binding arbitration and found that, since the renters failed to establish the existence of a written warranty under FTC regulations, the arbitration clause was enforceable. The petition for certiorari was filed on March 11 (Seney v. Rent-A-Center, Inc., Dkt. 13-1109).

Christine and Antwan Seney entered into a rental-purchase agreement with Rent-A-Center (RAC) for a bed and mattresses. The Seneys agreed to rent a bed for two weeks from RAC, with an option to renew the lease. If they leased the bed for an additional six months, RAC would transfer title to them. The contract also contained a purchase option. The rental contract contained a warranty to repair, replace, and service the bed during the term of the lease. The parties also agreed to submit any contract dispute to binding arbitration. The renters alleged that, after their son was diagnosed with bedbug bites, they realized the bed provided by RAC had bedbugs. At first, RAC replaced the mattress but not the frame, which also contained bedbugs. After a second complaint, RAC removed both the mattress and the frame, but its workers caused the bedbugs to spread throughout the Seneys’ house. RAC paid for a partial fumigation, but the company refused to treat the entire house.

In its December 2013 decision (738 F.3d 631, 2013-2 Trade Cases ¶78,615), the Fourth Circuit affirmed the district court’s dismissal of the MMWA claim. The court also found that FTC regulations interpreting the MMWA prohibited pre-dispute binding arbitration. However, the prohibition did not apply to a lease of consumer goods.

The district court did not err in holding that prohibition on binding arbitration in the FTC regulations was limited to sales of consumers, according to the appellate court. MMWA provides a private right of action to consumers damaged by the failure of a company to comply with a written warranty, implied warranty, or service contract. A consumer is defined as (1) a buyer of any consumer product; (2) any person to whom the product is transferred during the duration of the warranty or service contract, or (3) any person who is entitled by the terms of the warranty or service contract to enforce the obligations of the warranty or service contract.

The Fourth Circuit also held that the FTC prohibition applies only to dispute settlement procedures included in a written warranty. In this case, the renters were not suing under the manufacturer’s warranty. A written warranty must implicate a sale and the warranty that RAC made to the Seneys was not in connection with a sale. Also, the Seneys cannot purport to be buyers before title to the bed passed to them and holding an option to purchase did not make them buyers. Thus, the ban on arbitration did not apply to the Seneys’ rental agreement.

The petitioners asked the High Court whether the FTC’s ban on pre-dispute binding arbitration under the Magnuson-Moss Warranty Act applies to the lease of consumer goods or whether it is limited to the sale of consumer goods in which title passes to the buyer.

Attorneys: Daniel W. Whitney (Whitney & Bogris, LLP) for Christine Seney and Antwan Seney.

Companies: Rent-A-Center, Inc.

News: ConsumerProtection