HARRISON v. NISSAN MOTOR CORPORATION IN

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United States Court of Appeals,Third Circuit.

Fannie HARRISON, Appellee v. NISSAN MOTOR CORPORATION IN U.S.A., Appellant.

No. 95-1300.

Decided: October 09, 1996

Before BECKER, ROTH and McKEE, Circuit Judges. Alfred S. Pelaez (argued), John E. Hall, and Brian K. Parker, Pietrangallo, Bosick & Gordon, Pittsburgh, PA, for Appellant. Samuel B. Fineman (argued), Glenn I. Gerber, Craig Thor Kimmel, and Robert M. Silverman, Kimmel & Silverman, Blue Bell, PA, for Appellee.

OPINION OF THE COURT

This appeal arises from a civil suit based on diversity jurisdiction brought by appellee, Fannie Harrison (“Harrison”), against appellant, Nissan Motor Corporation in U.S.A. (“Nissan”), seeking damages resulting from alleged defects in the 1994 Nissan Sentra that she purchased on July 11, 1994.   Nissan moved to dismiss the complaint for failure to exhaust the administrative remedy of non-binding arbitration.   The district court denied the motion, as well as Nissan's subsequent motion for reconsideration.   Nissan has appealed from both orders.

Harrison submits that, because the district court has not entered a final order, the appeal should be dismissed for lack of appellate jurisdiction.   Nissan rejoins that we have appellate jurisdiction under § 16 of the Federal Arbitration Act, 9 U.S.C. § 16 (“FAA”), which allows an interlocutory appeal of an order denying a motion to compel arbitration under the FAA.   Nissan argues that it is entitled to appellate jurisdiction under this provision because its motions before the district court were surrogates for a motion to compel arbitration.   Harrison takes issue with this characterization, and also contends that the FAA does not apply to non-binding arbitration.   We need not, however, reach these interesting questions because Nissan cannot show the existence of an adequate written agreement with Harrison to submit this dispute to arbitration, and hence, it cannot invoke the FAA.   We will therefore dismiss for lack of appellate jurisdiction.

I.

Under the Pennsylvania Automobile Lemon Law (“Lemon Law”), 73 P.S. § 1951 et seq. (Purdon 1993), “any purchaser of a new motor vehicle who suffers any loss due to nonconformity of such vehicle as a result of the manufacturer's failure to comply with this act may bring a civil action in a court of common pleas and, in addition to other relief, shall be entitled to recover reasonable attorneys' fees and all court costs.”  Id. § 1958.   However, the law requires the claimant to utilize available alternative dispute resolution procedures before filing a claim in court.  Id. § 1959.1

By the terms of the Lemon Law, the alternative dispute resolution procedures must comply with the Federal Trade Commission (“FTC”) regulations that were created to guide manufacturers establishing such mechanisms to resolve disputes under the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301 et seq.   See 16 C.F.R. pt. 703.   The most important of these regulations for the purposes of this case requires these alternative dispute resolution “mechanisms” to render a decision within forty days of notification of the dispute.

Nissan has contracted with the Better Business Bureau (“BBB”) to comply with the alternative dispute resolution provisions of both the Pennsylvania Lemon Law and the Magnuson-Moss Warranty Act.   Nissan's contract with the BBB states that the BBB Auto Line program will provide arbitration services that comply with the FTC requirements.2

The warranty that accompanies Nissan's vehicles briefly describes the BBB Auto Line as a remedy available to consumers who are dissatisfied with their vehicles' performance.3  The warranty explains to consumers how to contact the BBB Auto Line to register their complaints and what information to provide.   It also explains that the BBB Auto Line has both a mediation and arbitration component.   If the complaint cannot be mediated, the consumer can present the matter before a three-person arbitration panel.   The warranty explains that the arbitrators' decision is not binding unless the consumer accepts it as binding.   While the warranty states that the use of the BBB Auto Line is completely voluntary, it also explains that some state laws may require use of the program before filing a lawsuit.

Harrison, through counsel, sent to the BBB Auto Line a request for arbitration, dated August 16, 1994, which claimed that her 1994 Nissan Sentra did not comply with the warranty.   The Sentra allegedly had a faulty engine, air conditioner, and steering system, as well as other defects.   Harrison requested a refund of her purchase price, approximately nineteen thousand dollars.   After forty days had passed without a response, Harrison filed a civil suit pursuant to 28 U.S.C. § 1332 (diversity jurisdiction) against Nissan in the District Court for the Eastern District of Pennsylvania.   Harrison's five count complaint raised a Pennsylvania Lemon Law claim, a Magnuson-Moss Warranty Act claim 4 , a Uniform Commercial Code claim, a detrimental reliance claim, and a Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) claim.

The Lemon Law allows for recovery of the purchase price of the car.  73 P.S. § 1955 (Purdon 1993).   The UTPCPL allows for recovery of three times the amount of actual damages recoverable under the Lemon Law.  Id. § 201-9.2.   Harrison asserts that the parties are citizens of different states and that the UTPCPL claim of treble damages meets the amount in controversy requirement of 28 U.S.C. § 1332.   Nissan moved to dismiss the complaint for lack of subject matter jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(1).   It argued that the Lemon Law claim should be dismissed because Harrison had failed to exhaust the alternative remedies established by Nissan to comply with the Lemon Law and Magnuson-Moss Warranty Act.   In Nissan's submission, if the Lemon Law claim was dismissed, Harrison could no longer assert an UTPCPL claim, and thus, the amount in controversy would no longer meet the fifty thousand dollar statutory requirement.   Under these circumstances, the district court would lack subject matter jurisdiction.

The district court denied the motion to dismiss, reasoning that, taking the facts of the complaint as true, Harrison had sufficiently resorted to the alternative remedies under the Lemon Law before filing her complaint.   Nissan moved for reconsideration, and in the alternative, to treat the motion to dismiss as a motion for summary judgment.

In its motion for reconsideration, Nissan represented that Harrison had failed to comply with the requirements of the Lemon Law.   Nissan attached as an exhibit an affidavit from the director of the Eastern Pennsylvania BBB Auto Line Program, who stated that a few days after receiving Harrison's request for arbitration, she sent a letter to Harrison's counsel informing him that he had an affirmative duty to respond and schedule an arbitration hearing within five days.   The director stated that neither Harrison nor her counsel contacted the BBB regarding arbitration.   Therefore, a week after sending the letter, the BBB Auto Line closed the case.

The district court denied the motion for reconsideration.   In doing so, it relied upon the decision filed in Polishchuk et al. v. Nissan Motor Corp. in U.S.A., Civ. No. 94-6771, 1995 WL 94798 (E.D.Pa. Mar. 6, 1995).   In Polishchuk, the court held that the Lemon Law did not require exhaustion of the informal mechanism prior to filing suit, but only required the plaintiff to ‘first resort’ to the informal dispute resolution process.   Nissan has appealed from both orders.

II.

A.

The denial of a motion to dismiss for lack of subject matter jurisdiction is not appealable.  Commonwealth of Pa. v. Brown, 373 F.2d 771 (3d Cir.1967).   However, an order denying a motion to compel arbitration under the Federal Arbitration Act (“FAA”) is immediately appealable.  9 U.S.C. § 16.   Nissan submits that this Court has jurisdiction because the district court orders were equivalent to orders denying motions to compel arbitration under the FAA.

Nissan's jurisdictional argument raises two potential issues of first impression for this Court.   First, it is unclear whether the FAA covers an agreement to participate in an “informal dispute resolution mechanism,” such as the BBB Auto Line, where the arbitrator's decision is not binding on both parties.   Second, it is unclear whether Nissan's motions before the district court were sufficient surrogates for a motion to compel arbitration under the FAA.

Initially, the panel believed that the FAA might provide a basis for appellate jurisdiction, and obtained extensive briefing from the parties on this issue.   We also instructed the parties to expand the record to include the terms of the warranty provided to Harrison when she purchased the Sentra.   We now address the appellate jurisdictional question, but in so doing we assume without deciding these two points in Nissan's favor.   First, we assume that the FAA could be applied to non-binding arbitration.5  Second, we assume a motion to dismiss can be a sufficient substitution for a motion to compel arbitration.6  Despite these assumptions, however, for reasons we will now explain, we dismiss this appeal for lack of appellate jurisdiction because Nissan cannot show that it made a written agreement with Harrison to arbitrate its dispute.

B.

In 1925, Congress enacted the FAA to encourage courts to enforce arbitration clauses in contracts, contrary to prior common law which disfavored such agreements.  Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 1651, 114 L.Ed.2d 26 (1991).   The FAA provides the following:

A written provision in any ․ contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2.   In furtherance of this purpose, the FAA authorizes a party to file a motion requesting that the court compel arbitration if the other party refuses to comply with the agreement to arbitrate.  Id. § 4.7

Section 16 of the FAA, added in 1988, allows an interlocutory appeal of an order denying a motion to compel arbitration under the Act.   The section was added to “make[ ] clear that any order favoring litigation over arbitration is immediately appealable and any order favoring arbitration over litigation is not.”  Ballay v. Legg Mason Wood Walker, Inc., 878 F.2d 729, 732 (3d Cir.1989).

Nissan argues that since the district court chose litigation over arbitration, the orders are immediately appealable.8  However, for any section of the FAA to apply, the two parties must have made a written agreement that contains an arbitration clause and affects interstate commerce.   Moreover, the party seeking to compel arbitration under the FAA must show these threshold elements.   See 9 U.S.C. § 1, § 2, and § 4.

Essentially, in deciding a claim that a dispute must be arbitrated, the district court should interpret and enforce the contract clauses that allegedly provide for arbitration.   See First Options of Chicago, Inc. v. Kaplan, U.S., 514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995).   In this case, however, Nissan did not assert in any of its pleadings before the district court that Nissan and Harrison had a written agreement that contained an arbitration clause.   Nissan only made a passing reference to the warranty provision regarding arbitration.   Therefore, the district court was not given the opportunity to make the requisite factual findings to compel arbitration under the FAA.   If the district court was not given the opportunity to make these factual determinations, this Court cannot substitute its own findings.   Goodwin v. Elkins & Co., 730 F.2d 99, 109 (3d Cir.1984).   In an excess of caution, however, we remanded the matter to the district court pursuant to Fed. R.App. P. 10(e) so that the record might be supplemented and the warranty supplied.

The warranty submitted to us in response to the remand states:

Use of BBB AUTOLINE is completely voluntary.

Some states may specify that complaint resolution systems such as AUTOLINE ․ must be used ․ before you may file a lawsuit.   Except as required by state law, Nissan does not require that AUTOLINE be used.

In our view, this language does not meet the FAA requirement that there be a written arbitration agreement.   The failure of this language to constitute an agreement or undertaking to arbitrate is so plain that extended analysis is unnecessary.   Since Nissan cannot show the existence of a written agreement to arbitrate, it cannot invoke § 16 of the FAA.

We note in this regard the importance of the FAA requirement that the contract contain a sufficient written agreement to arbitrate before a court can compel arbitration.   Although the FAA was written to encourage arbitration, Congress also sought to protect the due process rights of the party refusing to arbitrate.   H.R.Rep. No. 96, 68th Cong., 1st Sess. 2 (1924).   Since arbitration would allow the parties to avoid the courts, Congress wanted the courts to be able to confirm that the parties had agreed to settle their claim outside of the judicial system.   Therefore, the FAA requires a written agreement and notice to the party refusing to perform in accordance with the agreement, as well as an opportunity to contest these two issues before a judge and jury.  Id. at 3.   These factors are no less important today than when the Act was written in 1924.   Because the warranty that accompanied Harrison's Sentra did not constitute a sufficient written agreement to arbitrate disputes, it could not protect the values that underlie the FAA.

C.

Nissan has not argued that these orders entered by the district court are collaterally appealable.   See Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949).   At all events, there is no support for treating the orders as such.   To satisfy Cohen, the order must be conclusive, resolve an important issue severable from the merits of the action, and be effectively unreviewable upon appeal from the final order.   The district court's orders do not meet these requirements.   The fact that an order will require a party to continue to litigate the matter does not alone make the order effectively unreviewable.   See Lauro Lines v. Chasser, 490 U.S. 495, 109 S.Ct. 1976, 104 L.Ed.2d 548 (1989) (district court order denying a motion to dismiss based on a forum selection clause in a contract was not a collaterally appealable order under Cohen );  Digital Equipment Corp. v. Desktop Direct, Inc., 511 U.S. 863, 114 S.Ct. 1992, 128 L.Ed.2d 842 (1994) (district court's order vacating dismissal based on settlement agreement that would protect settling parties from trial was not a collaterally appealable order).   Therefore, there is no other basis for exercising appellate jurisdiction.

III.

For the foregoing reasons, the district court's orders denying appellant's motion to dismiss for lack of subject matter jurisdiction and appellant's motion for reconsideration are not immediately appealable.   The appeal will therefore be dismissed for lack of appellate jurisdiction.

FOOTNOTES

1.   73 P.S. § 1959 Informal dispute settlement procedure.   If the manufacturer has established an informal dispute settlement procedure which complies with the provisions of 16 C.F.R. Pt. 703, as from time to time amended, the provisions of [73 P.S. § 1958] shall not apply to any purchaser who has not first resorted to such procedure as it relates to a remedy for defects or conditions affecting the substantial use, value or safety of the vehicle.   The informal dispute settlement procedure shall not be binding on the purchaser and, in lieu of such settlement, the purchaser may pursue a remedy under [§ 1958].

2.   Harrison supplemented the record with documents that call into question whether the BBB Auto Line program complies with 16 C.F.R. Part 703;  however, that is a matter for the FTC, rather than this Court, to decide.   See Magnuson-Moss Warranty Act, 15 U.S.C. § 2310(a)(2), 2310(a)(4);  Rudder v. American Honda Motor Co., Inc., Civ. No. 94-6769, 1995 WL 216955 (E.D.Pa. Apr.12, 1995);  Jenkins v. General Motors Corp., Civ. No. 95-2710, 1995 WL 422680 (E.D.Pa. July 13, 1995);  Smith v. Chrysler Motors Corp., Civ. No. 89-2898, 1990 WL 65700 (E.D.Pa. May 15, 1990).

3.   A copy of the warranty was submitted after this Court asked the parties to supplement the record pursuant to F.R.A.P. 10(e).   This document was not in the record before the district court.

4.   Although the Magnuson-Moss Act is a federal law, a private enforcement action cannot be brought in federal court unless the value of all of the claims in the suit is at least $ 50,000.  15 U.S.C. § 2310(d)(1)(B) and (d)(3).

5.   There is authority for the proposition that the court may issue an order compelling non-binding arbitration under the FAA.   See AMF Inc. v. Brunswick Corp. 621 F.Supp. 456, 461 (E.D.N.Y.1985) (court could compel the parties to submit their dispute to third party for an advisory non-binding opinion under the Federal Arbitration Act where there is a contractual agreement between the parties to do so).   Moreover, New York appellate courts have held that the New York Arbitration Act can be used to enforce agreements to submit disputes to non-binding arbitration.   See Board of Ed. of Clarkstown v. Cracovia, 36 A.D.2d 851, 321 N.Y.S.2d 496 (1971) (court can compel arbitration although the arbitration may be advisory rather than binding), and the Federal Arbitration Act was based upon the New York Arbitration Act.   See S.Rep. No. 536, 68th Cong. 1st Sess. 3 (1924).   However, this point is far from clear.

6.   We note that other courts have treated a motion to dismiss for failure to arbitrate claims as a motion to compel arbitration.   See Hercules & Co. v. Beltway Carpet Serv., 592 A.2d 1069 (D.C.App.1991) (order denying motion to dismiss was appealable under the D.C. arbitration statute, which is similar to the FAA, where the motion argued that the claim should be dismissed because it had to be arbitrated rather than litigated);  Interstate Securities Corp. v. Siegel, 676 F.Supp. 54, 55 (S.D.N.Y.1988) (motion to dismiss treated as motion to compel arbitration and stay proceedings until completion of arbitration).   This point too is not without difficulty.   Obviously, counsel could avoid this problem by styling such motions as motions to compel arbitration.   This would have the added advantage of sharpening the issue.

7.   § 4 provides:  A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28 in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement․  The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement․  If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.

8.   Nissan also contends that Congress, by encouraging the creation of informal dispute mechanism in the Magnuson-Moss Warranty Act, and the Pennsylvania Legislature, by adopting the FTC regulations, wished to encourage speedy, informal, and inexpensive resolution of warranty disputes.   See, e.g., H.R.Rep. No. 93-1107, 93rd Cong., 2d Sess. (1974), reprinted in 1974 U.S.C.C.A.N. 7702.   Therefore, Nissan asserts, the courts should not thwart the legislatures' intent by allowing consumers to by-pass the informal dispute resolution mechanism.   In making this assertion, however, Nissan asks this Court to advance the legislative intent of the Lemon Law and Magnuson-Moss Warranty Act while disregarding the legislative intent of the Federal Arbitration Act-to enforce contracts providing for the arbitration of disputes.

BECKER, Circuit Judge.

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