2011 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

12-22-2011

Joseph Antkowiak v. Taxmasters

Precedential or Non-Precedential: Non-Precedential

Docket No. 11-1882

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Recommended Citation

"Joseph Antkowiak v. Taxmasters" (2011). 2011 Decisions. Paper 49.

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 NOT PRECEDENTIAL 

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

______

No. 11-1882

_____________

JOSEPH A. ANTKOWIAK, on behalf of himself and all others similarly situated

v.

TAXMASTERS; TAXMASTERS, INC.; TMIRS ENTERPRISES LTD; TM GP 

SERVICES, LLC; TM GP SERVICES, LLC, d/b/a Taxmasters; PATRICK R. COX; 

JEFFREY AARON STEINBERG,

 Appellants

_____________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. Civil No. 2:10-cv-03331-LS)

District Judge: Honorable Lawrence F. Stengel

______

 

Submitted Pursuant to Third Circuit L.A.R. 34.1(a)

December 06, 2011

Before: HARDIMAN, BARRY, and VAN ANTWERPEN, Circuit Judges.

(Filed : December 22, 2011)

______

OPINION OF THE COURT

______

 

VAN ANTWERPEN, Circuit Judge.

Appellants TaxMasters, TaxMasters, Inc., TMIRS Enterprises, Ltd., TM GP 

Services, LLC, Patrick R. Cox, and Jeffrey Aaron Steinberg (hereinafter “TaxMasters”) 
2

appeal the District Court’s denial of its motion to compel arbitration. For the reasons that 

follow, we will vacate and remand.

I. Facts

Because we write solely for the parties, we recount the facts and proceedings only 

to the extent required for resolution of this appeal. TaxMasters, a “tax resolution” firm 

based in Houston, Texas, advertises on national television that it can “solve” delinquent 

taxpayers’ problems with the IRS. TaxMasters’s advertisements encourage distressed 

taxpayers to call the company’s toll-free number for a “free consultation” with a “tax 

consultant.” On December 29, 2008, Appellee, Joseph Antkowiak, called the toll-free 

number to obtain assistance with his tax problems. During the consultation, Antkowiak 

was told that TaxMasters could represent him for $4,000 and that, if he couldn’t afford to 

pay in one lump sum, he could make an initial down payment and pay through an 

installment plan. Antkowiak agreed to the installment plan, under which he was required 

to make an initial down payment of $500. Although the parties dispute when Antkowiak 

actually made this down payment,1

 1 TaxMasters claims that Antkowiak did not make the down payment until he returned a

signed written Engagement Agreement on January 7, 2009. Antkowiak, however, claims 

that he gave TaxMasters his credit card information during the initial phone call and that 

TaxMasters charged his card prior to him signing the Engagement Agreement. Although 

TaxMasters has charged other customers’ credit cards on the same day as the initial 

phone consultation, App. 163–64, and prior to the Engagement Agreement being signed, 

App. 189, the present record does not include financial records which show when

Antkowiak’s card was actually charged.

TaxMasters has taken the position with other 
3

customers that the initial phone call creates a “legal binding agreement” under which the

customer is liable for the full contract price.2

After the December 29 phone consultation, TaxMasters sent Antkowiak a copy of 

the “Engagement Agreement,” a written document containing an arbitration clause as 

well as other specific terms and conditions of the contract. Based on the documented 

experience of other customers, TaxMasters does not always disclose all of these terms 

and conditions, including the arbitration clause, during the phone consultation. See App. 

118–75. For example, TaxMasters’s representatives do not always disclose that the down 

payment is non-refundable, see id., or that the Engagement Agreement relieves 

TaxMasters of any orally professed obligation to begin working on the customer’s case 

“immediately” upon receiving the first payment. See App. 166. The arbitration clause 

contains the following four conditions: (1) a requirement that Antkowiak, but not 

TaxMasters, use arbitration to resolve all claims;

 App. 189. 

3

 2 TaxMasters has taken this position irrespective of whether it performed any further 

services and whether or not there was a subsequent written agreement. See App. 189.

3 The Engagement Agreement provides: “Client agrees that any and all claims. . . that 

Client has . . . shall be settled by binding arbitration.” App. 285. The District Court 

interpreted this to mean that the agreement imposes a unilateral arbitration requirement 

on Antkowiak. Although the provision also provides that “[e]ither party may demand 

arbitration by filing with the American Arbitration Association,” TaxMasters has not 

objected to the District Court’s interpretation in its appeal.

(2) a bar on class action arbitration; (3) 

a forum-selection clause specifying Harris County, Texas, as the forum for all disputes; 

and (4) an expense provision requiring Antkowiak to “bear all costs of arbitration.” 
4

Consistent with the experience of other customers, Antkowiak states that TaxMasters did 

not disclose the arbitration clause during his phone consultation.4

On January 7, 2009, Antkowiak faxed a signed copy of the Engagement 

Agreement to TaxMasters and thereafter made two additional payments of $500. 

Antkowiak stopped making payments, however, when it became apparent that 

TaxMasters was not working on his case. After TaxMasters threatened to take legal 

action if Antkowiak did not pay the remaining $2,500 due on his account, Antkowiak 

filed a class action suit alleging deceptive sales practices and improper debt collection 

activities in violation of the Truth in Lending Act, the Fair Debt Collection Practice Act, 

and various Pennsylvania statutes. TaxMasters responded by filing a motion to compel 

arbitration pursuant to the arbitration clause. The District Court denied TaxMasters’s 

motion based on its conclusion that the arbitration clause is unconscionable under 

Pennsylvania law.5

 4 To the extent that Antkowiak formed an oral agreement during the phone call, the 

Engagement Agreement contains an integration clause stating: “[A]ll prior contracts and 

agreements between the parties of any kind and executed at any time prior to the date of 

this agreement shall . . . be deemed to be modified to include and adopt the arbitration 

terms of this agreement.” App. 285. Antkowiak’s argument that he received no 

consideration for this modification is addressed below.

5 The District Court also granted in part and denied in part TaxMasters’s Rule 12(b)(6) 

motion to dismiss for failure to state a claim.

 Although the District Court did not expressly find any of the four 

individual arbitration terms to be specifically unconscionable, it found that, when 

bundled together, the four terms created an unconscionable agreement. Antkowiak v. 
5

TaxMasters, 779 F. Supp. 2d 434, 446–47 (E.D. Pa. 2011). Thereafter, TaxMasters filed 

a timely appeal. 

II. Legal Background

We have appellate jurisdiction over this dispute pursuant to 9 U.S.C. § 16(a)(3). 

When a district court rules on a motion to compel arbitration, we review the decision de 

novo. Kaneff v. Del. Title Loans, Inc., 587 F.3d 616, 620 (3d Cir. 2009). Motions to 

compel arbitration are decided under the same standard applied to motions for summary 

judgment. Id. Summary judgment is only proper if “there is no genuine dispute as to any 

material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 

56(a). A party opposing a motion to compel arbitration bears the burden of proving the 

arbitration clause unenforceable. Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 

92 (2000). All reasonable inferences from the evidence are to be granted to the party

opposing arbitration. Kaneff, 587 F.3d at 620. 

Under the Federal Arbitration Act (FAA), arbitration clauses are just as “valid, 

irrevocable, and enforceable” as any other contractual obligation, 9 U.S.C. § 2, and 

cannot be invalidated by “defenses that apply only to arbitration or that derive their 

meaning from the fact that an agreement to arbitrate is at issue.” AT&T Mobility LLC v. 

Concepcion, 131 S. Ct. 1740, 1746 (2011). Accordingly, courts may only invalidate 

arbitration clauses on the grounds of “generally applicable contract defenses, such as 

fraud, duress, or unconscionability.” Id. (quoting Doctor's Assocs., Inc. v. Casarotto, 517 

U.S. 681, 687 (1996)).
6

In Pennsylvania, unconscionability is a general defense to contract formation. 

Salley v. Option One Mortg. Corp., 925 A.2d 115, 119 (Pa. 2007). For a contract to be 

unconscionable, it must be both procedurally and substantively unconscionable. Gay v. 

CreditInform, 511 F.3d 369, 392 (3d Cir. 2008). Procedural unconscionability exists 

when the party challenging the contractual provision had “an absence of meaningful 

choice in accepting [it].” Denlinger, Inc. v. Dendler, 608 A.2d 1061, 1068 (Pa. Super. 

Ct. 1992) (citing Witmer v. Exxon Corp., 434 A.2d 1222, 1228 (Pa. 1981)). Substantive 

unconscionability exists when the contractual provision is “unreasonably favorable” to 

the party who imposed it. Witmer, 434 A.2d at 1228. 

III. Discussion

A) Procedural Unconscionability

We agree with the District Court’s conclusion that, under the facts of this case, the 

arbitration agreement is procedurally unconscionable. Contracts of adhesion are per se

procedurally unconscionable under Pennsylvania law. McNulty v. H & R Block, Inc., 843 

A.2d 1267, 1273 n.6 (Pa. Super. Ct. 2004); see also Nino v. Jewelry Exch., Inc., 609 F.3d 

191, 201 (3d Cir. 2010). A contract of adhesion is a “form contract prepared by one 

party, to be signed by the other party in a weaker position, [usually] a consumer, who has 

little choice about its terms.” McNulty, 843 A.2d at 1273; cf. Concepcion, 131 S. Ct. at 

1750 (“[T]he times in which consumer contracts were anything other than adhesive are 

long past.”). Here, Antkowiak produced admissions showing that TaxMasters considers 

a customer liable for the full contract price agreed to during the phone consultation 
7

irrespective of whether the customer ever signed the Engagement Agreement.

6

In its discussion, the District Court expressed significant concern with the class 

action waiver. This concern, however, was based on case law that has subsequently been 

overruled by the Supreme Court. Concepcion, 131 S. Ct. at 1748 (2011); Litman v. 

Cellco P’ship, 655 F.3d 225, 231 (3d Cir. 2011) (stating that Concepcion’s “broad and 

clear” holding preempts “impos[ing] class arbitration despite a contractual agreement for 

individualized arbitration”). Because it is unclear to what extent the District Court’s 

concern with the class action waiver influenced its conclusion that the arbitration 

 

Antkowiak has also produced evidence from tape-recorded phone consultations showing 

that TaxMasters’s representatives do not disclose the arbitration clause during the initial 

phone call, see App. 118–75, and Antkowiak states that he was not informed of the 

clause. We believe this evidence and the reasonable inferences arising therefrom are

sufficient to demonstrate that the arbitration agreement was a contract of adhesion. For 

these reasons, we agree that the arbitration agreement is procedurally unconscionable. 

There remains, however, the question of whether the agreement is also substantively 

unconscionable. 

B) Substantive Unconscionability

 6 Antkowiak has produced an October 26, 2009 letter from TaxMasters wherein 

TaxMasters informed a customer that the phone consultation created a “legal binding 

agreement.” App. 189. TaxMasters refused the customer’s request for a refund, even 

though he had never signed the Engagement Agreement. TaxMasters also informed the 

customer that he was “liable for the remaining fee of $7,150.00,” even though 

TaxMasters had not provided any additional services following the consultation. Id.
8

agreement is unconscionable in toto, we will remand to ensure that the disposition of this 

case is consistent with Concepcion.

We also believe that prior precedent demands further factual development with 

respect to the substantive unconscionability of the “bear all costs” provision. While the 

requirement that Antkowiak bear all arbitration costs is notably more one-sided than 

expense provisions we have previously considered,7 the provision is only substantively

unconscionable if it prevents Antkowiak from vindicating his rights in the arbitral forum. 

See Green Tree, 531 U.S. at 90–91. To make this showing, we have required a party

challenging an expense provision to show (1) the projected costs that would apply and (2) 

the party’s inability to pay those costs. See Parilla v. IAP Worldwide Servs. VI, Inc., 368 

F.3d 269, 283–85 (3d Cir. 2004); Alexander v. Anthony Int’l, L.P., 341 F.3d 256, 268–69 

(3d Cir. 2003). Because this evidence is not currently in the record, we will remand for

further factual development to determine the projected costs that Antkowiak will bear and 

his ability to pay them.

8

 7 Under the expense provisions we previously considered, arbitration costs were either 

split equally among the parties, e.g., Nino v. Jewelry Exch., Inc., 609 F.3d 191, 198 (3d 

Cir. 2010), or were imposed on the losing party, e.g., Parilla v. IAP Worldwide Servs. VI, 

Inc., 368 F.3d 269, 273 (3d Cir. 2004). Here, the clause imposes all of the costs on 

Antkowiak, irrespective of the outcome. 

8 As part of the determination of the projected costs, the District Court should determine 

whether the expense provision encompasses attorney fees. See, e.g., Nino, 609 F.3d at 

203 (finding that provision requiring payment of attorney’s fees conflicted with feeshifting statute and thereby deprived party of ability to vindicate its federal rights).

 We reject TaxMasters’s assertion, however, that its postlitigation offer to pay Antkowiak’s arbitration costs has any bearing on this inquiry. See
9

Nino, 609 F.3d at 205; Parilla, 368 F.3d at 285; Spinetti v. Serv. Corp. Int’l, 324 F.3d 

212, 217 n.2 (3d Cir. 2002).

Finally, if after further factual development the District Court finds that the 

expense provision is substantively unconscionable, an analysis should be conducted to 

determine if it can be severed from the remainder of the arbitration clause. Consistent 

with the “equitable override” principle in general contract law, see Parilla, 368 F.3d at 

288–89 (discussing Restatement (Second) of Contracts § 184(1)), an unconscionable 

provision can be severed from the remainder of an arbitration agreement (1) if the 

provision is not “an essential part of the agreed exchange,” or (2) if the provision does 

not evince “a systematic effort to impose arbitration . . . as an inferior forum.” Nino, 609 

F.3d at 206–07 (quoting Parilla, 368 F.3d at 288; Spinetti, 324 F.3d at 214). Since a 

finding of non-severability would render moot TaxMasters’s objection to the District 

Court’s use of a “totality-of-the-circumstances” or “bundling” approach, it is unnecessary 

to decide here whether such an approach is available under Pennsylvania law.

C) Consideration

In his reply brief, Antkowiak provides an additional basis for invalidating the 

arbitration agreement. According to Antkowiak, the Engagement Agreement materially 

modified the binding oral contract that he and TaxMasters formed during the phone 

consultation. See J.W.S. Delavau, Inc. v. E. Amer. Transp. & Warehousing, Inc., 810 

A.2d 672, 681 (Pa. Super. Ct. 2002) (“[O]nce a contract has been formed, its terms may 

be modified only if both parties agree to the modification and the modification is founded 
10

upon valid consideration.”). Since Antkowiak claims he received no additional 

consideration for signing the Engagement Agreement, he claims any of the Agreement’s 

provisions (including the arbitration clause) that materially alter the oral contract are void 

for lack of consideration. Even if we were to assume that this is an appropriate matter for 

a court, and not an arbitrator, to decide, see Buckeye Check Cashing, Inc. v. Cardegna, 

546 U.S. 440, 445 (2006), the argument is unavailing. The Engagement Agreement 

imposes many specific responsibilities upon TaxMasters.9

 Unless all of these 

responsibilities were agreed to during the phone call (an unlikely scenario which runs 

directly counter to Antkowiak’s own evidence10

Antkowiak also argues that TMIRS is the only defendant with standing to compel 

arbitration. Antkowiak bases this argument on the fact that TMIRS is the only defendant 

actually named in the Engagement Agreement. However, because this raises a question 

), the Engagement Agreement would not 

fail for lack of consideration. Accordingly, we find no merit in this argument.

D) Defendants’ Standing to Compel Arbitration

 9 For just a few examples, TaxMasters agreed to “analyze Client financial data submitted 

in the form requested by [TaxMasters],” “prepare the IRS Form 656 for submission of an 

offer in compromise with the IRS of federal tax obligations,” “contact the IRS to seek 

reinstatement of the settlement forms previously held by Client,” and “[n]egotiat[e] on 

behalf of client with IRS agents to establish payment plans and other alternatives to 

payment plans.” While Antkowiak may perceive this additional consideration as trivial 

in nature, it is more than a mere “peppercorn” and not for this court to weigh. 

10 Antkowiak has provided the complete transcript of a phone consultation between 

TaxMasters and another customer. See App. 118–75. At no point during this 

consultation does TaxMasters’s representative spell out all of the specific responsibilities 

which TaxMasters assumes under the Engagement Agreement. 
11

of contract interpretation, it is a matter for an arbitrator, not a district court, to decide. 

See Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 453 (2003) (“[M]atter[s] of contract 

interpretation should be for the arbitrator, not the courts, to decide.”). 

IV. Conclusion

For the foregoing reasons, we will vacate the District Court’s decision and remand 

for proceedings and findings consistent with this opinion.