Yacht Maker's Arbitration Clause Struck In Warranty Fight

By Joyce Hanson

Law360 (June 2, 2025, 10:28 PM EDT) -- A Delaware judge has declined to send to arbitration a proposed class action accusing a French yacht maker's American subsidiary of violating U.S. consumer protection law by requiring buyers to have their boats periodically serviced at the company's dealerships.

Delaware Superior Court Judge Sheldon K. Rennie on Friday denied Beneteau Group America Inc.'s motion to compel arbitration in a suit alleging violations by the subsidiary and its parent, Beneteau SA, of the Magnuson-Moss Warranty Act, a federal consumer protection statute.

In a 41-page opinion, Judge Rennie said he had decided to take a "head-on" look at the issue of the Federal Trade Commission's prohibition against binding arbitration under the act. The judge noted that consumers Phil and Melodee Bartel asserted the arbitration clause in their warranty is prohibited by the Magnuson-Moss Warranty Act, arguing the FTC has determined that an informal dispute settlement procedure provided in a warranty under the act cannot be legally binding.

However, Beneteau Group America had countered that the arbitration clause is enforceable, according to the judge. The subsidiary pointed to case law rejecting the FTC's interpretation based on a pro-arbitration presumption created by the Federal Arbitration Act, and BGA cited the 1987 U.S. Supreme Court decision in Shearson/American Express Inc. v. McMahon to support its argument. With that in mind, Judge Rennie said the high court, since McMahon, has been "reluctant" to find that a statute contains sufficiently clear congressional intent to preclude enforcement of arbitration agreements.

"But the U.S. Supreme Court has not applied this test to assay the FTC's prohibition against binding arbitration under the MMWA, nor have any Delaware courts taken up the challenge directly," the judge said. " Decisions by lower federal courts and other state courts that addressed this issue are split. Thus, this court will address the issue head-on."

Judge Rennie found that Congress' intent in the Magnuson-Moss Warranty Act is clear, and the arbitration clause in question is precluded under a so-called McMahon test. Congress intended an informal dispute settlement mechanism to be nonbinding under the act, the judge ruled. He found that the MMWA's legislative history bolsters his belief because a House report on the act stated that an adverse decision in any informal dispute settlement procedure would not be a bar to civil action.

The judge's opinion also considered how some courts have concluded that the FTC's prohibition of binding informal dispute settlement mechanisms is based on "hostility" or "skepticism" toward arbitration that contravenes federal policy favoring arbitration.

But Judge Rennie disagreed. "Notably, the FTC's rule does not contemplate a blanket ban of arbitration. Indeed, both the statute and the FTC's rules encourage the use of IDSMs, including arbitration proceedings, as long as they meet the minimum requirements promulgated by the FTC and are not legally binding," the judge said.

The FTC's rules say parties are free to enter into an agreement to arbitrate a claim under the act after a dispute arises, according to Judge Rennie. "The FTC's rule only prohibits binding arbitration where it is incorporated into the terms of a written warranty, which puts it under the reign of the IDSM provision," he said. In the Beneteau case, Judge Rennie granted the defendants motion to dismiss the proposed class plaintiffs claims against the parent company. He found the parent company is not a warrantor for the Bartels' boat purchase. He also granted American subsidiary BGA's motion to dismiss consumer Brian Lovett's claims, finding the warranty wasn't covered because Lovett obtained it in a transaction abroad.

BGA is a Delaware corporation headquartered in Fort Lauderdale, Florida. In the putative class action, the plaintiffs allege the warranties of the boat manufacturer and its subsidiary violate the Magnuson-Moss Warranty Act because the companies say the warranties are valid only if customers use authorized service centers and pay for mandatory inspections. This requirement constitutes an illegal "tying" provision, according to the plaintiffs, who claim they suffered economic damages and loss of enjoyment due to excessive delays, hidden fees and diminished resale value of their warranted boats.

Counsel for the parties did not immediately respond to requests for comment Monday. Lovett and the Bartels are represented by Dashiell "Dash" R. Radosti of Equal Justice Solutions, and Edwin J. Kilpela Jr., James M. LaMarca and Raymond Collins Kilgore of Wade Kilpela Slade LLP. The Beneteau defendants are represented by Matthew B. Goeller, Michael J. Vail and David Osipovich of K&L Gates LLP, and Jeffrey D. Smith, Raechel T.X. Conyers and Anna C. Transit of Honigman LLP.

The case is Brian Lovett et al. v. Beneteau Group America Inc., case number n24c-09-266, in the Superior Court of the State of Delaware.

--Editing by Drashti Mehta.

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