Background
Louis Weber and Publications International, Ltd. sued Baker Tilly US, LLP, and Jeremy Bivens for accounting malpractice arising from Wisconsin tax work. The plaintiffs alleged that Baker Tilly failed to file required Wisconsin returns, adequately advise them about negotiations and potential liability, properly document a settlement with the Wisconsin Department of Revenue, and advise them how to avoid interest charges. They sought more than $2 million in damages.
Baker Tilly moved to compel arbitration based on arbitration provisions in earlier written engagement letters. After initially granting the motion, the circuit court reconsidered, conducted an evidentiary hearing, and denied arbitration. It found that the Wisconsin services were performed under unwritten agreements and were among the categories of work expressly excluded from the earlier engagement letters, including state-nexus analysis, state tax controversy assistance, organizational tax issues, and determining filing obligations in additional states.
The Court’s Holding
The appellate court affirmed the denial of Baker Tilly’s motion to compel arbitration. It held that the circuit court’s findings that the parties formed an oral contract for the Wisconsin tax services and that the oral contract contained no arbitration provision were not against the manifest weight of the evidence. Baker Tilly performed the services and accepted payment but could not produce signed engagement letters governing that work.
The court also rejected Baker Tilly’s contention that the Wisconsin services related back to prior written engagement letters. The letters expressly excluded the categories of services underlying the malpractice claims and stated that certain tax-consulting work required a separate engagement letter. Because no written arbitration agreement governed the services at issue, the court—not an arbitrator—properly resolved the threshold question, and the plaintiffs could not be compelled to arbitrate.
Key Takeaways
- A party seeking to compel arbitration must establish that a valid arbitration agreement covers the particular services and dispute at issue.
- An arbitration provision in an engagement letter does not extend to services that the same letter expressly excludes from its scope.
- Incorporating arbitral rules that authorize an arbitrator to decide arbitrability does not require delegation when the disputed work was performed under a separate oral agreement containing no arbitration provision.
Why It Matters
The decision underscores that Illinois courts will not expand an arbitration agreement by implication merely because the parties had earlier written contracts containing arbitration clauses. Professional-services firms must ensure that separate or additional engagements—particularly services expressly excluded from existing letters—are documented if they intend arbitration provisions to apply.
The order was issued under Illinois Supreme Court Rule 23 and therefore is nonprecedential except in the limited circumstances permitted by Rule 23(e)(1).