Magnuson-Moss does not preclude arbitration of breach of warranty claim despite arbitration agreement's silence as to costs

Law Reporter, Jun 2001

Palm Harbor Homes, Inc. v. Turner, __ So. 2d __, No. 1991579, 2001 WL 111934 (Ala. Feb. 9, 2001).

The Alabama Supreme Court held that the MagnusonMoss Warranty Act, 15 U.S.C. Sec 2301 et seq., does not preclude arbitration of a breach of warranty claim despite the arbitration agreement's silence as to the fees and costs of arbitration.

Here, the Turners bought a home manufactured by Palm Harbor Homes. At the time of purchase, the couple signed an arbitration agreement providing, in part, that all claims arising out of or relating to any express or implied warranties on the home would be settled by arbitration. The Turners subsequently sued Palm Harbor, alleging it violated the Magnuson-Moss Warranty Act by breaching express and implied warranties on the home. Defendant moved to compel arbitration and plaintiffs opposed, arguing that (1) arbitration is barred by Magnuson-Moss and (2) the agreement is unenforceable because it is silent as to the issue of fees related to arbitration. The trial court denied defendant's motion.

Reversing, the state high court rejected both of plaintiffs' arguments opposing arbitration. First, the court noted that, under state case law, the Magnuson-Moss Act does not preclude enforcement of an arbitration agreement. The case relied on by plaintiffs-in which the court held that Magnuson-Moss invalidates an arbitration provision in a written warranty issued by a manufacturer of consumer goods-was subsequently overruled by another case, the court found. The court disagreed with plaintiffs that the later case should not apply here because it had been decided after plaintiffs filed their complaint. Citing U.S. Supreme Court and Alabama case law, the court found that retroactive application of cases is overwhelmingly the normal practice. Thus, Magnuson-Moss does not invalidate the arbitration provision here.

Turning to plaintiffs' second argument, the court found that they improperly relied on case law holding that the Truth in Lending Act, 15 U.S.C. Sec 1601 et seq., precludes the enforcement of an arbitration agreement that fails to address the payment of fees. In Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79 (2000), 44 ATLA L. Rep. 13 (Feb. 2001), the U.S. Supreme Court expressly overruled that holding, reasoning that, even though the arbitration agreement at issue was silent as to fees, the risk that a plaintiff would be burdened with prohibitive costs was too speculative to justify the invalidation of the agreement. To invalidate the agreement on such speculation would undermine the federal policy favoring arbitration agreements, the court said.

Accordingly, the court remanded the case for further proceedings.