           NOT RECOMMENDED FOR FULL-TEXT PUBLICATION

                                File Name: 05a0399n.06

                                   Filed: May 13, 2005

                                          03-4381

                     UNITED STATES COURT OF APPEALS
                          FOR THE SIXTH CIRCUIT

EARL HIGGS,                                    )
                                               )
       Plaintiff-Appellee,                     )
                                               )
v.                                             )
                                               )   ON APPEAL FROM THE UNITED
AUTOMOTIVE WARRANTY                            )   STATES DISTRICT COURT FOR
CORPORATION OF AMERICA,                        )   THE SOUTHERN DISTRICT OF
LARRY MYERS, GENA MAY, and                     )   OHIO
CLAUDE THOMPSON                                )
                                               )
       Defendants-Appellants.                  )
                                               )


       Before: DAUGHTREY, COOK, and FARRIS,* Circuit Judges.

       FARRIS, Circuit Judge. Defendants appeal from the denial of a stay of the

proceedings pending arbitration. The district court concluded that the arbitration

clause in the agreement between the parties was unenforceable. We reverse and

remand.


       *
          The Hon. Jerome Farris, United States Circuit Judge for the Ninth Circuit, sitting by
designation.
              FACTUAL AND PROCEDURAL BACKGROUND

      Several days after Earl Higgs bought a used 1995 Mercury Grand Marquis

automobile, he received an advertisement by mail from Automotive Warranty

Corporation of America soliciting the purchase of an extended warranty on the

vehicle. He completed a “Warranty Group Registration Form” contained in the

solicitation and returned it to AWCA along with a personal check for $148.50. The

registration form contained the following provision: “I UNDERSTAND THE

CONTRACT IS NOT IN FORCE UNTIL THIS APPLICATION HAS BEEN

ACCEPTED AND THE CONTRACT ACTUALLY ISSUED. ALLOW THREE

WEEKS FOR THE COVERAGE TO BECOME EFFECTIVE. ATTEST THAT ALL

INFORMATION IS TRUE AND ACCURATE.” The registration form and his check

were the only documents that Higgs signed in connection with the purchase of the

warranty. Subsequently, Higgs received by mail a “Limited Warranty Service

Contract.”

      The service contract, which Higgs was not required to sign, contained an

arbitration clause. The clause provided:

      By accepting this contract you agree to the following:

      Any controversy or claim arising out of or relating to this contract, or the
      breach thereof, shall be settled by arbitration in accordance with the
      Commercial Arbitration Rules of the American Arbitration Association,

                                           2
      and judgment upon the award rendered by the arbitrator(s) may be
      entered in any court having jurisdiction thereof, or with the Better
      Business Bureau. The parties agree that there shall be no further redress
      or appeal of the arbitration award. The parties also agree that the costs
      of the arbitration, excluding attorney’s fees, will be paid by the party
      against whom the award is rendered.

The service contract also contained a provision captioned “UNCONDITIONAL

GUARANTEE,” which stated: “After receiving ‘Your’ Warranty, if you’re not

completely satisfied, return it within 10 days and we’ll give you a full money back

guarantee.” Higgs retained the warranty for more than 10 days.

      The service contract provided a one-year warranty for Higgs’ vehicle. Some

months after receiving the contract, Higgs replaced the upper ball joint in his vehicle’s

front suspension. When he submitted a claim to AWCA for this repair, it was denied.

Consequently, Higgs brought individual and class action claims against AWCA, Larry

Myers (AWCA’s president and chief executive officer), Gena May (AWCA’s director

of customer relations), and Claude Thompson (AWCA’s executive vice president and

chief operating officer) in state court, alleging that the defendants do business through

unfair, deceptive, corrupt, and/or fraudulent practices in the solicitation and sale of

automobile repair warranty coverage for newly-purchased used cars. The defendants

removed the case to federal court under both federal question and diversity

jurisdiction.



                                           3
      After removal, the defendants asked the district court to (1) enforce the

arbitration clause included in the service contract and (2) to stay the proceedings under

the FAA, 9 U.S.C. § 3, and the Ohio Arbitration Act, O.R.C. § 2711.02. The district

judge denied the motion, writing that “the arbitration clause in the Limited Warranty

Service Agreement in [sic] unenforceable because there was no meeting of the minds

as to its inclusion.” Higgs v. The Warranty Group, No. C2-02-1092, 2003 WL

23335930, at * 4 (S.D. Ohio. Sept. 25, 2003). The district court concluded that the

arbitration provision was therefore not a term of the service contract. The defendants

took an immediate appeal, as is their right under the FAA.             See 9 U.S.C. §

16(a)(1)(A).

                                    DISCUSSION

      A written agreement to arbitrate disputes arising out of a transaction in

interstate commerce “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.

To enforce this mandate, the FAA “provides for a stay of proceedings when an issue

is referable to arbitration and for orders compelling arbitration when one party has

failed or refused to comply with an arbitration agreement.” Javitch v. First Union

Securities, Inc., 315 F.3d 619, 624 (6th Cir. 2003) (citing 9 U.S.C. §§ 3 & 4). The

denial of a stay pending arbitration is reviewed de novo.

                                           4
       The question is: Did Higgs agree to arbitrate disputes arising from his purchase

of AWCA’s extended warranty? In the absence of a valid agreement to arbitrate,

Higgs was not required to do so. See First Options of Chicago, Inc. v. Kaplan, 514

U.S. 938, 943 (1995) (“[A]rbitration is simply a matter of contract between the

parties; it is a way to resolve those disputes – but only those disputes – that the parties

have agreed to submit to arbitration.”). Here, there is no dispute that the document

labeled “Limited Warranty Service Contract” contains an arbitration clause. There is

sharp dispute, however, as to whether this clause is enforceable. Higgs contends he

did not agree to the provision. He notes that the arbitration provision was contained

within the “Limited Warranty Service Contract,” which was provided to him after he

signed the registration form and after he forwarded the form along with a personal

check for payment. The district court, applying Ohio law, concluded that the contract

was formed when Higgs paid for the warranty; as a result, only terms known to Higgs

at that moment were part of the contract, and the arbitration clause articulated in the

service contract is of no force or effect.

       The service contract is an “accept-or-return” type of contract. Higgs received

a solicitation and application by mail. He completed the application, which expressly

stated that no contract was in force until the application had been accepted by AWCA

and the contract was issued. Higgs forwarded the application along with payment to

                                             5
AWCA, and in return, he received a Limited Warranty Service Contract, which

contained the terms of the agreement, including an arbitration clause and an

unconditional full money back guarantee if he returned the warranty within ten days.

Higgs retained the warranty past the ten days.

      Under similar facts, the Seventh Circuit enforced an arbitration clause found in

a “pay now, terms later” type of customer agreement. See, e.g., Hill v. Gateway 2000,

105 F.3d 1147 (7th Cir. 1997). In Hill, the consumer purchased a computer over the

telephone and was sent the computer and contract terms, including the arbitration

clause, at the same time. The contract provided that the consumer could return the

computer if dissatisfied with the terms of the agreement within 30 days and receive

a full refund. The court held that the consumer assented to the contract, including the

arbitration provision, by keeping the computer for more than 30 days.           T h e

“accept-or-return” mechanism to contract formation has been enforced by courts,

including in contexts involving the sale of products and services by mail and

telephone, software licensing and sales, mobile telephone service agreements, satellite

television agreements, credit card agreements, and bank account agreements. See,

e.g., Hill, 105 F.3d at 1149; O’Quin v. Verizon Wireless, 256 F. Supp. 2d 512 (M.D.

La. 2003); Bischoff v. DirecTV, Inc., 180 F. Supp. 2d 1097 (C.D. Cal. 2002); Bank

One v. Coates, 125 F. Supp. 2d 819 (S.D. Miss. 2001); Stiles v. Home Cable

                                          6
Concepts, 994 F. Supp. 1410 (M.D. Ala. 1998). The “accept-or-reject” type of

agreement “relies on the proposition that a contract is formed not at the time of

purchase or earlier but rather when the purchaser either rejects by seeking a refund or

assents by not doing so within a specified time, providing the purchaser with an

opportunity to review the proposed terms.” Register.Com, Inc. v. Verio, Inc., 356

F.3d 393, 431 n.43 (2d Cir. 2004).

      Although Ohio courts have not directly addressed the issue, one intermediate

appellate court decision in Ohio suggests that the “approve-or-reject” mechanism to

contract formation would be permissible under state contract law. In Reedy v.

Cincinnati Bengals, Inc., 758 N.E.2d 678 (Ohio Ct. App., 2001), the Cincinnati

Bengals offered season ticket holders the opportunity to buy a guaranteed seat in a

specific area of the team’s new football stadium. The solicitation included a brochure

with a diagram of the arena seating areas, corresponding prices, and detailed “Charter

Ownership Rules & Regulations,” which required that applicants pay one-third of the

total price up front and explained that applicants would receive a contract after making

the initial payment. Applicants were required to sign and return the contract within

thirty days of receipt or lose their guaranteed seat, and they could not receive a refund

of their initial payment. The “Rules & Regulations” did not contain the arbitration

clause that was included in the contract the applicants subsequently received, and the

                                           7
court held that the parties had not agreed to the arbitration provision because the

parties agreed only to the terms contained in the “Rules & Regulations.” The court

in Reedy refused to recognize the contract as an “approve-or-reject” type of agreement

because the contract terms, including an arbitration clause, did not permit the buyer

to reject the terms with impunity after the buyer made an initial payment.

      The plain language of the service contract provided Higgs with an opportunity

to revoke the agreement and receive a full refund for the warranty he purchased – an

unconditional “full money back guarantee.” This unconditional guarantee is a firm

commitment from AWCA to refund all of Higgs’ money without restriction if he

returned the warranty within 10 days. Keeping the warranty past ten days was

sufficient to demonstrate agreement to the terms of the contract, including the

arbitration clause.2

      A “meeting of the minds” existed as to the arbitration clause. Higgs, while


      2
         A case relied on by the district court is distinguishable from the instant case.
In Nationwide Mut. Ins. Co. v. Marsh, 472 N.E.2d 1061,1062-63 (1984), the court
held that an arbitration clause added to an insurance policy after the premium was paid
and coverage began was unenforceable because there was no “meeting of the minds”
as to its inclusion. In that case, however, the insurance policy endorsement, which
contained the arbitration clause, was first communicated to the insured by the insurer
after the insured purchased the policy and after the insured sought coverage for an
accident. Significantly, the contract at issue in Nationwide did not involve an
“approve-or-return” mechanism or include any type of unconditional guarantee as part
of the contract formation process.

                                           8
completing his application, was instructed that a service contract was forthcoming.

Once he received the agreement, he was given the opportunity to reject its terms and

obtain a full refund. Instead, he kept the warranty, thereby assenting to its terms,

including the arbitration provision.

      On remand, the district court should consider several issues, including (1) the

scope of the arbitration agreement, (2) whether Congress intended arbitration to

govern the federal claims asserted, and (3) whether to stay the proceedings pending

arbitration if only some of the claims are arbitrable. See Stout v. J.D. Byrider, 228

F.3d 709, 714 (6th Cir. 2000).

      REVERSED AND REMANDED.




                                         9
      MARTHA CRAIG DAUGHTREY, Circuit Judge, dissenting. In holding that

the plaintiff is bound by the arbitration clause that was contained in the warranty but

not in the contract to purchase the warranty, the majority relies in part on the opinion

of the Ohio Court of Appeals in Reedy v. Cincinnati Bengals, Inc., 143 Ohio App.3d

516, 758 N.E.2d 678 (2001), interpreting that decision to “suggest[] that an ‘approve-

or-reject’ mechanism would be permissible under [Ohio] state contract law.” But the

Reedy court declined to enforce the arbitration clause in that case, because – in the

words of the majority here – it was not presented in a manner that “permit[ted] the

buyer to reject the terms with impunity after the buyer made an initial payment.” See

Reedy, 758 N.E.2d at 686; see also Dunkelman v. Cincinnati Bengals, Inc., 158 Ohio

App.3d 604, 612, 821 N.E.2d 198 (2004) (“For a subsequent arbitration term to have

become enforceable by the payment of the accompanying invoice, the [buyer] would

have had to retain the contractual option to reject the terms with impunity without

having to forfeit the substantial initial payments.”)


       In this case, I would hold likewise that the buyer lacked the ability to reject

with impunity, if for no other reason than the ambiguous language in the warranty that

he received. Moreover, as the district court noted:


      [T]he Unconditional Guarantee at issue in the Service Contract did not

                                          10
      provide Plaintiff with an “opt-out” option. In fact, reading it by its plain
      terms, this provision in the contract does not provide Plaintiff with an
      opt-out or a refund: it simply advised Plaintiff that he could return the
      Warranty within ten days to obtain a “money back gurantee.” Plaintiff
      did not have an option to revoke the contract and receive a full refund
      after reviewing the terms of the agreement.


The district court thus concluded, as has the Ohio Court of Appeals in Reedy and

Dunkelman, that the arbitration clause in the warranty “i[s] unenforceable because

there was no meeting of the minds as to its inclusion.”


      I agree, and I therefore respectfully dissent from the majority’s decision to

remand this case to the district court to enforce the arbitration provision.




                                          11
