Antkowiak v. Taxmasters

• Decision Date: 17 March 2011
• Docket Number: Civil Case No. 10–3331.
• Parties: Joseph A. ANTKOWIAK, on behalf of, himself and all others similarly situated, Plaintiffsv.TAXMASTERS, et al., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

779 F.Supp.2d 434

Joseph A. ANTKOWIAK, on behalf of, himself and all others similarly situated, Plaintiffs
v.
TAXMASTERS, et al., Defendants.

Civil Case No. 10–3331.

United States District Court, E.D. Pennsylvania.

March 17, 2011.

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Joseph A. O'Keefe, O'Keefe & Sher, Kutztown, PA, Kenneth A. Jacobsen, Jacobsen Law Offices LLC, Wallingford, PA, for Plaintiffs.Evan Lechtman, James T. Smith, Blank Rome, Philadelphia, PA, for Defendants.MEMORANDUM STENGEL, District Judge.

Mr. Antkowiak filed a complaint against TaxMasters, TaxMasters, Inc., TMIRS Enterprises Ltd., TM GP Services, LLC, Patrick R. Cox and Jeffrey A. Steinberg alleging violations of the Truth in Lending Act, the Fair Debt Collection Practices Act, and various state laws.

Defendants filed a motion to compel arbitration and dismiss, or in the alternative to dismiss for failure to state a claim. For the reasons set forth below I will deny the motion to compel arbitration and grant in part and deny in part the motion to dismiss.

I. Background

The complaint alleges TaxMasters, Inc. is a Nevada Corporation.¹ TMIRS is a Texas limited partnership, whose affairs are controlled by TM GP Services, LLC, its general partner. Complaint at ¶ 4. TM GP Services, is a Texas limited liability company, which serves as the general partner for TMIRS. Id. at ¶ 5. TaxMasters, Inc., TMIRS, and TM GP Services are not registered, licensed, or otherwise

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authorized to do business in Pennsylvania. Id. at ¶ 6.

Patrick R. Cox is the sole member of TM GP Services, and is the president, board director, and chief executive officer of TaxMasters, Inc. See Complaint at ¶ 7. Mr. Cox, TM GP Services, TMIRS, and TaxMasters, Inc. operate as “TaxMasters,” a fictitious Texas entity. Id. at ¶ 8. Jeffrey Aaron Steinberg is a licensed Texas attorney. Id. at ¶ 10. The complaint refers to Mr. Steinberg and other in-house attorneys of TaxMasters as “TaxMasters Collection Attorneys.” ² Id. at ¶ 11.

Mr. Antkowiak's complaint relies on a complaint filed in a Texas court by the Texas Attorney General. See Complaint at ¶ 21. The Texas AG complaint alleges TaxMasters offers to act as the consumer's agent in his dealings with the IRS. TaxMasters claims it “employ[s] and use[s] the expertise of ... tax attorneys [and] tax CPAs” but states it “is not a law firm or a CPA firm.”

Mr. Cox appears in the TaxMasters television commercials and on the TaxMasters website. He represents TaxMasters “will get between the IRS and the consumer, and will solve the consumer's tax problems.” He states former IRS agents and other tax professionals are standing by to assist consumers. See Complaint at ¶ 21.

The Texas AG complaint suggests each inquiry by consumers follows a pattern or scheme. When consumers call the toll free number, the sales person, who is not required to be a tax professional, presents a solution to the consumer's tax problem, and quotes a fee, which is presented as a flat fee. Id. The sales person obtains a credit card number or bank account number from the consumer. If the consumer requests to receive a written description of the services prior to agreeing to purchase the services, the salesperson refuses, informing the consumer the documents cannot be generated without inputting the payment method into the computer. Id. If a consumer cannot afford the quoted fee in full, the sales person offers an installment plan. See Complaint at ¶ 21. After the consumer agrees to retain TaxMasters, the consumer is routed to another member of the sales team, the “verifier,” who informs the consumer he has made a good decision and reviews the payment plan. See Complaint at ¶ 21.

After the call has ended, and “in most cases before TaxMasters sends the consumer any written materials,” TaxMasters charges the consumer's credit card or debits the consumer's debit card. Id. It sends to the consumer a letter, the IRS forms appointing TaxMasters as the consumer's agent, an engagement agreement, and an engagement guide. The letter instructs the consumer to sign the engagement agreement and IRS forms and return the documents to TaxMasters.

The engagement agreement contains previously undisclosed terms and conditions. See Complaint at ¶ 21. Among these terms are the early termination provision, which suggests the consumer may be entitled to a refund if the agreement is terminated. If the consumer attempts to obtain a refund, he is told TaxMasters informed the consumer during the telephone call that all fees were non-refundable. Id. TaxMasters does not routinely disclose that the fees are non-refundable during the telephone calls. Id. Contrary to the engagement agreement, which

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states the quoted fee is the “minimum fee,” id.,³ the sales representative informs consumers the services will be provided for a flat fee, see Complaint at ¶ 21.

On its website and during the telephone conversations, TaxMasters informs consumers it will begin working on the consumer's tax problems as soon as the consumer purchases the services. The engagement agreement, however, states TaxMasters is not required to begin work until the consumer has paid in full. Id.

The Texas AG complaint also identifies Mr. Antkowiak's interactions with TaxMasters. See Complaint at ¶ 22. It states Mr. Antkowiak's engagement with TaxMasters to handle his problems with the IRS was “closed” by TaxMasters during the initial call. Id. Mr. Antkowiak was placed on an installment plan and charged an initial $500 payment. Id. TaxMasters charged his credit card before Mr. Antkowiak received disclosures from TaxMasters.⁴ Id.

TaxMasters refused to begin work on Mr. Antkowiak's IRS matter until it received full payment. Id.⁵ The contract “belatedly” sent to Mr. Antkowiak denies

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the fee paid is a non-refundable “flat-fee” and authorizes TaxMasters to charge up to $850.00 per hour extra for its services. Id.

Mr. Antkowiak attempted to cancel the contract. TaxMasters stated Mr. Antkowiak still owed the “flat fee” even though no services were provided. See Complaint at ¶ 22. Mr. Antkowiak filed a complaint with the Better Business Bureau seeking a refund. TaxMasters maintained it was not required to perform any services until full payment was made and the “flat fee” was non-refundable. Id. On March 8, 2010, the TaxMasters Collection Attorneys contacted Mr. Antkowiak by mail demanding full payment of the outstanding balance under the installment plan. Id.

The engagement agreement contains an arbitration provision. Specifically, the arbitration provision provides:

[A]ny and all claims, demands, disputes, or controversies of any kind or nature that Client has concerning any of the negotiations leading to the purchase of services, terms, and provisions of the sale, engagement agreement, arrangements of payments, purchase of service contracts, performance of the engagement agreement or services, or any other aspect of the services from Firm shall be settled by binding arbitration conducted pursuant to the provisions of Title 9 of the United States Code Chapter 1 et seq. and according to the Rules of the American Arbitration Association.

Client agrees, covenants, and contracts that there shall be no class arbitration between the parties and the only parties to any disputes or controversies to be arbitrated as more particularly described herein shall be the Client and Firm.

.... The Client agrees that the arbitration proceedings to resolve all such disputes shall be conducted in Houston, Harris County, Texas. Client agrees to bear all costs of arbitration. Client agrees to keep confidential the results, decisions, and controversies and all communications in connection with the arbitration proceedings and/or Arbitration Agreement....

Client and Firm agree that all prior contracts and agreements between the parties of any kind and executed at any time prior to the date of this agreement shall, as part of this agreement, be deemed to be modified to include and adopt the arbitration terms of this agreement and to remove the litigation provisions as if all of the prior agreements of contracts originally contained these provisions.

Defendant's Memorandum at Exh. A at 8.

The March 8, 2010 letter Mr. Steinberg sent Mr. Antkowiak states:

... If I do not hear from you, I will assume that you have no intention of voluntarily satisfying your obligation and will make my recommendations regarding further action on your case accordingly.

In addition to the amount of $2,500 due to TaxMasters, if you choose not to voluntarily resolve your account and litigation is filed, TaxMasters would also seek to collect late fees, reasonable attorneys' fees, and costs of court to the full extent provided for in the engagement agreement and/or is otherwise allowed by the law.

I urge you to satisfy your obligation to TaxMasters within 30 days of your receipt

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of this letter. Not only is this the right thing to do, but it could also be your last opportunity to settle this matter for only $2,500.00.

Compl. at Exh. G.

II. DiscussionA. Arbitration Provision

The Federal Arbitration Act (“FAA”) provides that agreements to resolve disputes by arbitration “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. The United States Supreme Court has acknowledged that the arbitrability of a particular dispute is to be determined with a “healthy regard for the federal policy favoring arbitration.” Moses H. Cone Mem'l Hosp. v. Mercury Constr., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). “[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Id. at 24–25, 103 S.Ct. 927.

“[A]rbitration is a creature of contract law.” E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 195 (3d Cir.2001). As such, “it is a way to resolve those disputes-but only...