Basile v. H & R BLOCK, INC.

• Decision Date: 22 November 2000
• Citation: 563 Pa. 359,761 A.2d 1115
• Parties: Sandra J. BASILE and Laura Clavin, Individually and on behalf of others similarly situated, Appellees v. H & R BLOCK, INC., H & R Block Eastern Tax Services, Inc. and Mellon Bank (DE) National Association, Appellants. Appeal of H & R Block, Inc. and H & R Block Eastern Tax Services, Inc. Sandra J. Basile and Laura Clavin, Individually and on behalf of others similarly situated v. H & R Block, Inc., H & R Block Eastern Tax Services, Inc. and Mellon Bank (DE). Appeal of H & R Block, Inc., H & R Block Eastern Tax Services, Inc. Sandra J. Basile and Laura Clavin, Individually and on behalf of others similarly situated v. H & R Block, Inc., H & R Block Eastern Tax Services, Inc. and Mellon Bank (DE) National Association. Appeal of H & R Block, Inc., and H & R Block Eastern Tax Services, Inc. (Two Cases).
• Court: Pennsylvania Supreme Court

761 A.2d 1115

563 Pa. 359

Sandra J. BASILE and Laura Clavin, Individually and on behalf of others similarly situated, Appellees v. H & R BLOCK, INC., H & R Block Eastern Tax Services, Inc. and Mellon Bank (DE) National Association, Appellants.

Appeal of H & R Block, Inc. and H & R Block Eastern Tax Services, Inc.

Sandra J. Basile and Laura Clavin, Individually and on behalf of others similarly situated v. H & R Block, Inc., H & R Block Eastern Tax Services, Inc. and Mellon Bank (DE).

Appeal of H & R Block, Inc., H & R Block Eastern Tax Services, Inc.

Sandra J. Basile and Laura Clavin, Individually and on behalf of others similarly situated v. H & R Block, Inc., H & R Block Eastern Tax Services, Inc. and Mellon Bank (DE) National Association.

Appeal of H & R Block, Inc., and H & R Block Eastern Tax Services, Inc. (Two Cases).

Supreme Court of Pennsylvania.

Argued February 1, 2000.

Decided November 22, 2000.

James C. Schwartzman, Philadelphia, N. Louise Ellingsworth, Kansas City, MO, for appellants, H & R Block and H & R Block Eastern Tax Services.

Steven E. Angstreich, Michael Coren, Carolyn C. Lindheim, Philadelphia, for appellees, Sandra J. Basile and Laura Clavin.

Before FLAHERTY, C.J., and ZAPPALA, CAPPY, CASTILLE, NIGRO, NEWMAN and SAYLOR, JJ.

OPINION OF THE COURT

CASTILLE, Justice.

This Court granted allocatur to address questions concerning the scope and contours of agency relationships under Pennsylvania law. Specifically, we must determine whether appellees produced sufficient evidence of an agency relationship between appellants H & R Block, Inc., H & R Block Eastern Tax Services, Inc. (collectively "Block") and appellants' Rapid Refund customers so that appellees' class action complaint that Block breached a fiduciary duty to those customers may survive summary judgment.

H & R Block, Inc., provides tax preparation services nationwide through a network of retail offices operated through subsidiaries, one of which is H & R Block Eastern Tax Services. As part of its service, Block offers a program known as "Rapid Refund," which involves electronic filing of tax returns with the Internal Revenue Service (IRS), resulting in quicker refunds than a taxpayer filing a paper return would receive. Block also arranged for Mellon Bank (DE) National Association (Mellon Bank) to provide a refund anticipation loan (RAL) program to Block's qualified Rapid Refund customers. Under the RAL program, Mellon Bank advanced to the customer the amount of the customer's anticipated tax refund, less a financing charge, within days of Block's filing of the return. Appellee Sandra Basile applied for, and received, such a loan in 1993.

Basile and Laura Clavin filed this class action against Block and Mellon Bank in the Court of Common Pleas of Philadelphia County alleging that Mellon Bank, acting as a consumer lender providing RALs, participated with Block in practices designed to deceive consumers as to the true nature of the loans.¹ Block and Mellon Bank removed the case to the United States District Court for the Eastern District of Pennsylvania based upon diversity jurisdiction.² Appellees then filed an amended class action complaint asserting claims under the Truth in Lending Act,³ the Pennsylvania Unfair Trade Practices and Consumer Protection Law⁴ and the Delaware Legal Rate of Interest,⁵ as well as a claim that Block breached its fiduciary duty to appellees by failing to disclose that the RAL was a loan and that Block had a financial interest in arranging the RAL program.

Discovery was conducted in the federal court action, after which Block and Mellon Bank filed motions for summary judgment. The district court granted the motions in part and dismissed appellees' federal claims under the Truth in Lending Act and the Delaware Legal Rate of Interest. The court also found that appellees' unfair trade practices claim was preempted by the National Bank Act.⁶ Having dismissed the federal claims, and finding no diversity jurisdiction, the district court returned the matter to the Court of Common Pleas.

Appellees then filed a class certification motion in common pleas court, and the parties filed cross motions for summary judgment on the breach of fiduciary duty claim. The initial trial judge denied the motions for summary judgment without prejudice pending a ruling on class certification. The matter was reassigned to the Honorable John W. Herron, who conducted a class certification hearing. Judge Herron held that the unfair trade practices claim was preempted and denied certification as to appellees' claims for fraud and negligent misrepresentation. The court granted certification on the breach of fiduciary duty claim and disqualified Laura Clavin as a class representative due to a conflict of interest.

The parties then filed renewed cross motions for summary judgment on the fiduciary duty claim. The trial judge, the Honorable Stephen E. Levin, granted Block's motion for summary judgment finding that Block was not appellees' agent because appellees did not exercise substantial control over Block's preparation of the tax returns and, further, that no confidential relationship otherwise existed between the parties. Appellees appealed Judge Levin's order granting summary judgment on the breach of fiduciary duty claim, as well as Judge Herron's order finding that the unfair trade practices claim was preempted and disqualifying Clavin as a class representative.⁷ The Superior Court reversed Judge Levin's grant of summary judgment, as well as Judge Herron's order denying class certification based on preemption of the unfair trade practices claim as to Block. The court affirmed the denial of class certification as to Mellon Bank. With respect to summary judgment, the Superior Court found "as a matter of fact" that the pleadings established a principal-agent relationship between Block and appellees giving rise to a fiduciary duty as to all matters within the scope of the agency. Basile v. H & R Block, Inc., 729 A.2d 574, 582 (Pa.Super.1999). The court remanded to the trial court for "disposition of questions of fact concerning the extent to which Block's failure to disclose the nature of the Rapid Refund program and its participation in the profits generated by the RALs constituted a violation of Block's duty as an agent." Id. Having found that a fiduciary duty existed as a result of an agency relationship, the court did not reach appellees' alternate theory of liability—i.e., that a fiduciary duty arose as a result of a confidential relationship between Block and appellees. Id. Block sought allocatur only on the agency issue, and this Court granted allocatur to consider the propriety of the Superior Court's conclusion that an agency relationship existed between appellees and Block such that appellees may pursue a claim that Block breached its fiduciary duties to them.

This Court's scope of review of an order granting summary judgment is plenary. O'Donoghue v. Laurel Savings Ass'n, 556 Pa. 349, 354, 728 A.2d 914, 916 (1999). Our standard of review is clear: the trial court's order will be reversed only where it is established that the court committed an error of law or clearly abused its discretion. Cochran v. GAF Corp., 542 Pa. 210, 215, 666 A.2d 245, 248 (1995). Summary judgment is appropriate only in those cases where the record clearly demonstrates that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. P.J.S. v. Pennsylvania State Ethics Comm'n, 555 Pa. 149, 153, 723 A.2d 174, 175 (1999). The reviewing court must view the record in the light most favorable to the nonmoving party, resolving all doubts as to the existence of a genuine issue of material fact against the moving party. Id. When the facts are so clear that reasonable minds cannot differ, a trial court may properly enter summary judgment. Cochran, 542 Pa. at 215, 666 A.2d at 248.

The parties do not dispute the facts material to the issue of whether an agency relationship existed. In 1990, Block began offering its Rapid Refund program whereby its taxpayer customers could receive speedier refunds using one of three services: (1) electronic filing of the tax return for a fee; (2) electronic filing for a fee with direct deposit of the taxpayer's refund by the IRS to the taxpayer's bank account; or (3) electronic filing for a fee with a RAL arranged by Block with a lender such as Mellon Bank. The third option involving the RALs is the service at issue.

Block offered its RAL program through Mellon Bank to Block's Pennsylvania customers. Between 1990 and 1993, more than 600,000 Pennsylvania residents participated in the RAL program. Specifically, Block customers who filed their returns electronically and met the lender's eligibility requirements were informed of the availability of loans in the amount of their anticipated refunds from Mellon Bank. If the customer was interested in the loan, Block would simultaneously transmit the taxpayer's income tax return information to the IRS and Mellon Bank. Within a few days of the transmittal, the taxpayer, if approved, would receive a check in the amount of the loan minus a bank transaction fee. The taxpayer could also elect to have Block's tax preparation and electronic filing fees withheld by the lender from the RAL check so that the taxpayer would not have to advance any money. When the taxpayer's actual tax refund was ready, usually within a matter of weeks, the IRS would deposit the refund check into an account with Mellon Bank to repay the loan. In exchange for the RAL, the taxpayer paid to Mellon Bank a flat rate finance charge of $29.00 or $35.00, which Block employees presented to the taxpayer as a flat dollar amount rather than as a percentage interest rate on the short term loan.⁸ Since the RAL is secured by the tax refund, and the tax refund is paid directly into a proprietary account at Mellon Bank, the lender bank takes on few risks with the...