Iverson, Larry et al v. J. David Tax Law, LLC

Filing 33

OPINION and ORDER IT IS ORDERED that:1. Defendant J. David Tax Law, LLC's motion to compel arbitration, Dkt. 6 , isDENIED.2. J. David's motion to dismiss Count 1 and to strike the class allegation s, Dkt. 18 , is DENIED without prejudice. 3. The parties may have until June 26, 2024, to file briefs addressing the four issues identified in the opinion. If the court needs additional input after those submissions, the court will ask for it. Signed by District Judge James D. Peterson on 6/4/2024. (voc)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN

LARRY R. IVERSON, DAWN M. IVERSON, GEORGE
HOWELL III, GH HEATING & AIR LLC, on behalf of
themselves and all others similarly situated,
Plaintiffs,
v.

OPINION and ORDER
23-cv-718-jdp

J. DAVID TAX LAW, LLC,
Defendant.
The plaintiffs in this proposed class action were clients of defendant J. David Tax Law,
LLC. They contend that J. David failed to help them with their tax debts as promised, and they
assert three claims.
First, plaintiffs say that J. David charged them “unreasonable and illegal fees.” Second,
plaintiffs say that J. David committed malpractice. Specifically, Larry Iverson and Dawn
Iverson allege that J. David failed to file an appeal of an adverse agency decision. Plaintiffs also
allege more generally that J. David was negligent because the lawyers working for the firm were
not licensed to practice in Wisconsin. Third, plaintiffs say that J. David violated Wis. Stat.
§ 100.18 by misrepresenting that it “would not . . . charge[] an unreasonable fee” and it “was
familiar with the applicable law and capable of meeting the deadlines and other requirements
imposed by law.”
Plaintiffs filed the case in state court, but defendants removed it under 28 U.S.C.
§ 1332(d). It is reasonable to infer from the allegations in the complaint, the notice of removal,
and the declaration of Jonathan Sooriash that plaintiffs are citizens of different states from J.
David, and the amount in controversy is more than $5,000,000, as required by § 1332(d).

Two motions filed by J. David are before the court. The first motion seeks to compel
plaintiffs to arbitrate their claims. Dkt. 6. The second motion seeks to dismiss plaintiffs’ claim
regarding “unreasonable and illegal fees” and to strike plaintiffs’ class allegations. Dkt. 18. The
court will deny the motion to compel because the court agrees with plaintiffs that Florida law
applies and that the arbitration agreement is invalid under Florida law. The court will deny the
motion to dismiss and strike without prejudice because plaintiffs’ claims and J. David’s motion
assume that Wisconsin law applies to this dispute, which appears to be inconsistent with the
choice-of-law provision. The court will give the parties an opportunity to file supplemental
briefs to allow the court to determine whether and how this case should proceed.

ANALYSIS
A. Motion to compel arbitration
Plaintiffs do not dispute that they entered into an arbitration agreement with J. David.
The parties’ briefs on the motion to compel focus on two other issues: (1) whether plaintiffs’
claims fall within the scope of the arbitration clause; and (2) whether the arbitration clause is
enforceable. The court must deny the motion to compel unless it resolves both of these issues
in J. David’s favor.
1. Scope of arbitration clause
Plaintiffs’ retainer agreement includes the following section, with the agreement to
arbitrate in bold:
I hereby understand and agree that in the event of any dispute as
a result of any provision hereof for the interpretation hereof or
otherwise in any way arising out of our relationship as attorney
and Client, if the Firm shall be the prevailing party, then they
shall be entitled to collect from Me all costs and expenses
necessitated in such dispute, including, but not limited to,

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reasonable attorney’s fees. All such disputes and any
counterclaim against the Firm in a collection action for set
off because of any alleged improper act or acts on the part of
the Firm shall be submitted to and shall be settled by a panel
of three (3) arbitrators, all of whom are lawyers licensed by the
Florida bar, one of whom shall be selected by Me, one by the Firm
and the third by the two (2) already selected. The Firm and I
further hereby agree that the award of the arbitrators shall be
accepted as the final determination of the matter and shall be
binding on both me and the Firm. Lastly, I understand that all
disputes are governed by the jurisdiction and laws of Jacksonville,
Florida in Duval County.
Dkt. 1-1, at 5, 9.
Plaintiffs contend that the scope of the arbitration agreement is limited to collection
actions. In other words, plaintiffs’ position is that the phrase “in a collection action” modifies
both “any counterclaim” and “[a]ll such disputes.” But that is not a reasonable interpretation.
The use of the word “such” refers to the disputes identified in the previous sentence, which
plaintiffs ignore. Those disputes include “any dispute . . . in any way arising out of our
relationship as attorney and Client.” Thus, the arbitration clause could be reasonably read to
say, “Any dispute in any way arising out of our relationship as attorney and Client and any
counterclaim against the Firm in a collection action for set off because of any alleged improper
act or acts on the part of the Firm shall be submitted to arbitration.” 1
The arbitration provision is not a model of clarity, but it is comprehensible. Read in
context, the only reasonable interpretation of the arbitration clause is that it applies to both

“[A]ll such disputes” also includes disputes about “interpretation” of the retainer agreement.
But J. David does not contend that the arbitrator should decide questions about arbitrability,
so J. David has forfeited that issue. See Haas v. Slate Lending of Wisconsin, No. 21-cv-648-jdp,
2022 WL 2209604, at *2 (W.D. Wis. June 21, 2022) (“There is a presumption that courts
decide threshold issues of arbitrability, including . . . whether the arbitration clause applies to
a particular type of controversy.”).

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claims arising out of the attorney-client relationship and to counterclaims for setoff in a
collection action brought by J. David. The clause simply does not make any sense if “in a
collection action” modifies “[a]ll such disputes” because “[a]ll such disputes” encompasses
much more than collection actions. It also makes sense that the arbitration clause would single
out counterclaims in a collection action because collection actions are one of the few instances
in which a law firm would be suing the client rather than the other way around. Plaintiffs
identify no reason why J. David would limit its arbitration agreement to collection actions only.
The court concludes that the arbitration clause is unambiguous, and it applies to all
claims arising out of the attorney-client relationship. Plaintiffs’ claims are all about alleged
failures and wrongdoing in the context of J. David providing plaintiffs legal services, so those
claims fall within the scope of the arbitration clause.
2. Validity of the arbitration clause
Plaintiffs contend that the arbitration agreement is invalid and therefore unenforceable.
Plaintiffs’ argument has multiple steps. First, plaintiffs say that Florida law applies under a
choice-of-law provision in the retainer agreement. Second, plaintiffs say that the arbitration
clause is invalid under Florida law because it does not include a required notice about
consulting with a different lawyer before agreeing to an arbitration clause. Alternatively,
plaintiffs say that the arbitration agreement is invalid under Wisconsin law.
J. David’s only response to plaintiffs’ argument regarding the application of Florida law
is that the retainer agreements “are silent as to which laws govern the interpretation of the
Agreements” and that “no choice of law provision exists for contract interpretation within the
Agreements.” Dkt. 12, at 6. J. David does not explain further, but the court understands J.

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David’s position to be that the validity of the arbitration clause raises an issue of contract
interpretation, and issues of contract interpretation fall outside the choice-of-law provision.
J. David does not identify any issues about the scope of the choice-of-law provision that
would be decided differently under Florida or Wisconsin law. The choice-of-law provision states
that “all disputes are governed by the jurisdiction and laws of Jacksonville, Florida in Duval
County.” Dkt. 1-1, at 5.2 The phrase “all disputes” is broad, and J. David identifies no reason
why it should not be construed as including disputes about the validity of the arbitration clause.
The phrase “governed by the . . . laws of Jacksonville, Florida in Duvall County” is awkwardly
worded, but both sides assume it requires application of Florida law, and that is the most
reasonable interpretation. So the court will apply Florida law to determine the enforceability
of the arbitration clause.
On the merits, plaintiffs rely on Owens v. Corrigan, 252 So.3d 747 (Fla. App. 4 Dist.,
2018), in which the court invalidated an arbitration clause that applied to “[a]ny controversy,
dispute or claim arising out of or relating to our fees, charges, performance of legal services,
obligations reflected in this letter, or other aspects of our representation.” The court relied on
Florida Bar Rule 4–1.5(i), which prohibits a lawyer from requiring arbitration of “fee disputes”
without first advising the client in writing to consider obtaining independent legal advice about
entering into an agreement that contains a mandatory arbitration provision. The plaintiffs in
Owens were suing their lawyer for malpractice, not a fee dispute, but the court said that did not
matter. The arbitration clause at issue included fee disputes, and the court declined to sever
the valid portion of the clause from the invalid portion:

J. David does not contend that the choice-of-law provision is also a forum-selection clause, so
J. David has forfeited that contention.

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The portion of the arbitration clause requiring arbitration of fee
disputes was inextricably intertwined with the portion requiring
arbitration of disputes concerning the performance of legal
services. Stated another way, an attorney's entitlement to recover
fees depends in large part upon the competence of the attorney's
performance. See, e.g., Fla. Patient's Compensation Fund v. Rowe, 472
So. 2d 1145, 1150 (Fla. 1985). Thus, because the mandatory
arbitration of fee disputes went to the essence of the arbitration
agreement, we decline to sever the invalid portion of the
arbitration clause, which would require us to rewrite the
agreement. See Shotts v. OP Winter Haven, Inc., 86 So. 3d 456, 459
(Fla. 2011) (refusing to sever the invalid portion of an arbitration
agreement because it went to the “very essence of the
agreement”).
Owens, 252 So.3d at 751.
As in Owens, the retainer agreement between J. David and plaintiffs does not provide
the notice required by Florida law. And as in Owens, J. David’s arbitration clause applies to
both fee disputes and malpractice claims. J. David identifies no way to distinguish the
arbitration clause at issue in Owens from the arbitration clause in this case. J. David also does
not contend that this court should disregard Owens because the Florida Supreme Court would
likely reach a different conclusion or for any other reason.3 In fact, J. David says nothing about
Owens in either of its briefs. So J. David has forfeited any arguments to distinguish or disregard
Owens, and the court will follow that case. This means that the arbitration agreement is invalid,
and the court will deny the motion to compel. This makes it unnecessary to decide whether
the arbitration clause is enforceable under Wisconsin law.

The U.S. Supreme Court has held that an arbitration clause may not 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, 563 U.S. 333, 339 (2011).
J. David does not contend the principle in Concepcion applies to Owens or Florida Bar Rule 4–
1.5(i), so the court does not consider that issue.
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B. Motion to dismiss Count 1 and strike class allegations
J. David moves to dismiss plaintiffs’ claim for unreasonable fees for failure to state a
claim. In the same motion, J. David also asks the court to strike plaintiffs’ class allegations. The
court cannot decide the merits of the motion because of an important procedural issue that
both sides have ignored: the claims in plaintiffs’ complaint are based on Wisconsin law despite
a choice-of-law provision directing the court to apply Florida law. As discussed in the previous
section, the choice-of-law provision applies to “all disputes.” Neither side explains why the
provision would not apply to the merits of plaintiffs’ claims, but both sides assume that
Wisconsin law applies in their briefs on the motion to dismiss and strike.
A choice-of-law provision is not jurisdictional, so J. David could waive its application.
But plaintiffs have already relied on the choice-of-law provision to defeat J. David’s motion to
compel arbitration. This raises the question whether plaintiffs should be judicially estopped
from relying on Wisconsin law when they previously contended that Florida law applies.
Walton v. Bayer Corp., 643 F.3d 994, 1002–03 (7th Cir. 2011) (setting forth standard for
judicial estoppel). Courts may raise judicial estoppel on their own motion. Grochocinski v. Mayer
Brown Rowe & Maw, LLP, 719 F.3d 785, 794–95 (7th Cir. 2013).
Defendants’ motion assumes that Wisconsin law governs this case, so the court cannot
consider the merits of the motion. Instead, the court will deny the motion without prejudice
and direct the parties to address the following issues: (1) whether the choice-of-law provision
governs the merits of plaintiffs’ claims; (2) whether plaintiffs are judicially estopped from
arguing that the choice-of-law provision does not apply to the merits of their claims; (3) if
Florida law applies, whether some or all of plaintiffs’ claims should be dismissed; and (4) if
plaintiffs’ claims should be dismissed, whether plaintiffs should be given leave to replead their

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claims under Florida law. If the court ultimately concludes that Wisconsin law should apply,
the court will again take up J. David’s motion to dismiss and strike.

ORDER
IT IS ORDERED that:
1. Defendant J. David Tax Law, LLC’s motion to compel arbitration, Dkt. 6, is
DENIED.
2. J. David’s motion to dismiss Count 1 and to strike the class allegations, Dkt. 18, is
DENIED without prejudice.
3. The parties may have until June 26, 2024, to file briefs addressing the four issues
identified in the opinion. If the court needs additional input after those submissions,
the court will ask for it.
Entered June 4, 2024.
BY THE COURT:
/s/
________________________________________
JAMES D. PETERSON
District Judge

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