Green v. H & R BLOCK, INC.

• Decision Date: 25 August 1999
• Docket Number: No. 125,125
• Citation: 355 Md. 488,735 A.2d 1039
• Parties: Joyce A. GREEN v. H & R BLOCK, INC. et al.
• Court: Maryland Court of Appeals

735 A.2d 1039

355 Md. 488

Joyce A. GREEN v. H & R BLOCK, INC. et al.

No. 125, Sept. Term, 1998.

Court of Appeals of Maryland.

August 25, 1999.

Steven E. Angstreich, Philadelphia, PA, Robert J. Hedge, Mobile, AL (Charles J. Piven and Marshall N. Perkins, Law Offices of Charles J. Piven, P.A., Baltimore), for appellant.

N. Louise Ellingsworth (Bryan Cave, LLP, Eric G. Zahnd, Kansas City, MO; Louis J. Ebert, Gebhardt & Smith, LLP, Baltimore), on brief, for appellees.

Argued before BELL, C.J., and ELDRIDGE, RODOWSKY, CHASANOW¹, RAKER, WILNER and CATHELL, JJ. CHASANOW, Judge.

This case involves the tax preparation and refund services provided by H & R Block to thousands of Maryland residents. The primary issue for our consideration relates to whether H & R Block may have a duty to disclose to customers the benefits it receives from lending institutions to which it refers customers who are seeking a bank loan in the amount of their anticipated tax refund. The trial court granted H & R Block's motion to dismiss, finding, inter alia, that H & R Block had no duty to disclose the benefits because no fiduciary obligation exists between H & R Block and its customers. For the reasons set forth below, we reverse, finding that sufficient facts have been alleged to warrant a factual determination regarding the existence of a principal-agent relationship that gives rise to a fiduciary duty to disclose any conflict of interest.

I. Factual Background

A.

This class action lawsuit was filed in the Circuit Court for Baltimore City on behalf of all those in Maryland for whom H & R Block prepared taxes and who participated in its "Rapid Refund" program by obtaining a "Rapid Anticipation Loan" (RAL) any time from January 1992 to present. The named plaintiff, Joyce A. Green, the appellant in this appeal, used H & R Block's tax preparation and filing services in 1993, 1994, and 1995. Because we are reviewing the trial court's dismissal of Green's complaint, we will assume the truth of the facts alleged in the complaint. See Part II, infra.

H & R Block's tax filing services allow customers to obtain faster tax refunds than would otherwise occur by simply mailing the return to the Internal Revenue Service (IRS). H & R Block offers two such services. A customer can pay $25 for H & R Block to file the return electronically, enabling the customer to obtain the refund in two weeks. For customers who want to obtain an even faster refund, H & R Block arranges bank loans in the amount of the customer's refund through its RAL program. H & R Block's RAL program lies at the center of this dispute, and so we describe it in detail.

Through its RAL program, H & R Block facilitates loans between its customers and a third-party bank that are secured by the taxpayer's anticipated refund. In Maryland, H & R Block arranges the loans through Beneficial National Bank (BNB). H & R Block informs the taxpayer of his or her eligibility for the loan after preparing a customer's return and learning that the taxpayer is entitled to a refund payment from the IRS. Interested customers then fill out a loan application. A paragraph on the reverse side of the loan application explains:

"Upon approval of your rapid Refund Anticipation Loan by Beneficial National Bank an account is opened in your name at Beneficial National Bank. This account is established to receive the Direct Deposit of your Federal Tax Refund from the IRS. When you endorse the Refund Anticipation Loan check you have authorized Beneficial National Bank to withdraw the amount deposited into this account by the IRS and apply this amount to your Refund Anticipation Loan balance. If your IRS refund is greater than your RAL, a check in such excess amount will be sent to you shortly after the bank receives your refund."

H & R Block transmits the loan application to the bank for the customer. H & R Block then files the refund electronically with the IRS, and the IRS is informed to send the customer's tax refund check directly to the bank. The customer picks up the loan check at H & R Block's offices within a day or two after filing. The service allows customers to obtain the amount of their refund in a loan within a few days rather than waiting approximately two weeks for the IRS to send the actual refunds that are electronically filed.

The cost of an RAL is described in the loan materials as a "finance charge" of BNB. For the tax years 1993-95, when Green used the RAL program, the finance charges ranged from $29 to $89. The finance charge is deducted directly from the taxpayer's refund by the bank. The annual percentage rate of interest that corresponds to the finance charge ranged from approximately 25% to 500%, depending on the amount of the refund and the amount of the finance charge to the particular customer.²

The loan application, entitled "A Refund Anticipation Loan Program Offered by Beneficial National Bank in Association with H & R Block," authorizes H & R Block to disclose to the bank the customer's federal income tax return "for the purpose of enabling BNB to determine whether or not to make a Refund Anticipation Loan ("RAL") to me in response to my application for such loan which is a part of this form." As a result of H & R Block's and the bank's screening of potential RAL customers, customers who for one reason or another may not receive their IRS refund are deemed ineligible for the RAL program. Because of this screening process, and because the IRS deposits the tax refunds directly into the customers' account at the lending bank which may then withdraw the proceeds to pay the loan, lenders take on few risks by lending money to the taxpayer.

The 1993 application requires the H & R Block customer to sign an "acknowledgment," stating:

"By signing below, I acknowledge that the FINANCE CHARGE for my RAL is $_____ and I further acknowledge that I have read and understand the important disclosures above and on the reverse side of this Loan Application form...."

For each RAL that it arranges between the taxpayer and the bank, H & R Block benefits financially in at least one, and up to as many as three ways. First, for every RAL referred to a lending bank, H & R Block receives a "license fee" that is not disclosed to the H & R Block taxpayer/customer. The "license fee" is a payment by the lending bank to H & R Block for each loan customer referred to it by H & R Block. The fee has ranged from $3 to $9 per loan. Second, through its subsidiary, H & R Block Financial, H & R Block purchases about one-half of the RALs from the lender banks. This fact is also not disclosed to the H & R Block customer. Finally, H & R Block has arranged with Sears, Roebuck & Company (Sears) for H & R Block to receive 15% of the check-cashing fee that Sears charges for cashing BNB loan checks. Many H & R Block offices are located at Sears, and H & R Block encourages RAL customers to cash their RAL checks there. This arrangement with Sears is also not disclosed to H & R Block customers. Thus, for each RAL it procures, the lending banks effectively return a portion of the finance charge back to H & R Block, and H & R Block may additionally benefit as a result of profits earned from its purchase of RALs through its subsidiary or from the RAL customer's cashing of the check at a Sears store.

B.

Green's claims turn on H & R Block's failure to disclose the various ways it may benefit from the RAL program. She labels these various benefits illegal "kickbacks" and asserts that they are in violation of the fiduciary obligations H & R Block owes to its customers as a result of an agency relationship. The complaint generally alleges that H & R Block's fiduciary obligations arise out of the contract by which H & R Block prepares and files the tax returns, H & R Block's role with respect to the loan application, H & R Block's advertising campaigns, and H & R Block's procedures for encouraging customers to use its RAL service.

According to the amended complaint, for consumers who contract with H & R Block for tax preparation and filing, H & R Block undertakes a fiduciary duty in the form of an agency relationship "to both explain and/or prepare ... the various options, elections, forms and documents involved in an individual's tax preparation matters, including those involved with the taxpayer obtaining back any tax refund he or she was owed by the government." This duty pertains to all matters within the scope of the taxpayer/tax preparer relationship, including assuring that the amount of refund a customer receives is the maximum amount or the additional taxes required to be paid is the minimal amount. As evidence of the agency relationship. Green points out that H & R Block agrees to accompany the taxpayer to any IRS audit should one be required.³ Further, H & R Block's tax preparers offer general tax advice for retirement and for the sale of residences. Regarding the RAL program, Green alleges that H & R Block acts as the customer's agent in preparing and explaining the loan application and forwarding the application to the lender bank.

As further support for her claim that a fiduciary relationship exists between H & R Block and its customers, Green emphasizes the context in which H & R Block offers and provides its services, particularly its promotional activities. H & R Block's advertising campaigns create "the impression that [H & R] Block and its tax preparation offices and personnel are trustworthy," Green alleges. These advertisements tell consumers to "[d]o what millions of Americans do. Trust H & R Block." H & R Block also advertises its ability to obtain tax refunds quickly. Green quotes H & R Block advertisements stating, "WHY WAIT? IT'S YOUR MONEY!" Signs placed at storefronts in Maryland declare: "RAPID REFUND. REFUND IN 2 DAYS," and "GET YOUR REFUND FAST!" Once these advertisements provoke interest in a consumer who wants a fast refund, H & R Block's goal is to get the consumer to participate in...