Walton v. Rose Mobile Homes LLC

Thomas and Le’Ellen Walton (plaintiffs) purchased a mobile home manufactured by Southern Energy Homes, Inc. (Southern) (defendant). Southern issued a warranty to the Waltons that contained an arbitration provision requiring the Waltons to resolve claims brought under the warranty through binding arbitration. The Waltons filed a lawsuit in state court against Southern, alleging breaches of warranties and a violation of the Magnuson-Moss Warranty Act (MMWA). Southern removed the case to federal court and filed a motion to compel arbitration, arguing that the arbitration provision applied to the Waltons’ claims and was enforceable under the Federal Arbitration Act (FAA). The Waltons argued that binding arbitration could not be used to resolve their MMWA claims. The Waltons based their argument on rules enacted by the Federal Trade Commission (FTC), which had determined that informal nonjudicial dispute-resolution proceedings under the MMWA could not be legally binding because such proceedings took away a consumer’s right to eventually bring her claims in court. Because the warranty mandated binding arbitration, the Waltons reasoned that its arbitration provision could not apply to their MMWA claim. The district court held that the MMWA precluded binding arbitration and denied Southern’s motion to compel arbitration with regard to the MMWA claim. Southern appealed.