Gomez v. Jackson Hewitt, Inc.

• Decision Date: 22 June 2012
• Docket Number: Sept. Term, 2011.,No. 72,72
• Citation: 427 Md. 128,46 A.3d 443
• Parties: Alicia GOMEZ v. JACKSON HEWITT, INC.
• Court: Maryland Court of Appeals

427 Md. 128

46 A.3d 443

Alicia GOMEZ

v.JACKSON HEWITT, INC.

No. 72, Sept. Term, 2011.

Court of Appeals of Maryland.

June 22, 2012.

Jonathan R. Krasnoff, Asst. Atty. Gen. (Douglas F. Gansler, Atty. Gen. of Maryland, W. Thomas Lawrie and William D. Gruhn, Asst. Attys. Gen., Baltimore, MD), on brief, for Petitioner.

Paul A. Solomon (Richard L. Brusca of Skadden, Arps, Slate, Meagher & Flom, LLP, Washington, D.C.), on brief, for Respondent.

Argued before BELL, C.J., HARRELL, GREENE,^*ADKINS, BARBERA, DALE R. CATHELL (Retired, Specially Assigned) and JAMES A. KENNEY, III (Retired, Specially Assigned), JJ.

KENNEY, J.

Petitioners, the Maryland Commissioner of Financial Regulation of the Department of Labor, Licensing & Regulation (“the Commissioner”) and the Consumer Protection Division of the Office of the Maryland Attorney General (“the Division”) have intervened in this case to challenge the ruling of the Circuit Court for Montgomery County granting the motion of respondent, Jackson Hewitt, Inc., to dismiss a complaint for failure to state a claim. ¹ The Court of Special Appeals affirmed in Gomez v. Jackson Hewitt, Inc., 198 Md.App. 87, 16 A.3d 261 (2011). On October 24, 2011, this Court granted certiorari.²Gomez v. Jackson Hewitt, Inc., 422 Md. 352, 30 A.3d 193 (2011). In their brief, petitioners present two questions, which we have modified slightly and condensed into one:

Does the Maryland Credit Services Businesses Act (“the CSBA”) apply to a tax preparer who receives payment from a lending bank for “facilitating” a consumer's obtention of a refund anticipation loan (“RAL”), where the tax preparer receives no direct payment from the consumer for this service?

For the reasons that follow, we shall affirm.

FACTS AND PROCEDURAL BACKGROUND

According to the February 4, 2009 complaint, respondent prepared Gomez's 2006 federal income tax return,³ and “obtained an extension of credit for ... Gomez in the form of a RAL ⁴ from [a] lender,” Santa Barbara Bank & Trust (“SBBT”), “in anticipation of her income tax refund.” Attached to the complaint were six pertinent documents: (1) the 8–K filing to the United States Securities and Exchange Commission filed by Jackson Hewitt Tax Service Inc.; (2) a “Program Agreement” between SBBT and respondent; (3) a “Technology Services Agreement” between SBBT and Jackson Hewitt Technology Services Inc. (“JHTSI”); (4) the “Taxpayer Information Form,” produced by the franchisee of respondent that prepared Gomez's tax return; (5) the RAL “Application and Agreement,” between SBBT and Gomez; and (6) the RAL “Truth–in–Lending Act (TILA) Disclosure Form,” produced by SBBT.⁵

According to the 8–K,

Under the SBBT Program Agreement, SBBT will offer, process and administer certain financial products, including RALs, to customers of certain of [respondent's] franchised and company owned Jackson Hewitt Tax Service locations (“the SBBT Program”). In connection with the SBBT Program Agreement, SBBT will pay [respondent] a fixed annual fee. Pursuant to the SBBT Technology Services Agreement, JHTSI will provide certain technology services and related support in connection with the SBBT Program. Under the SBBT Technology Services Agreement, JHTSI will receive a fixed annual fee as well as variable payments tied to growth in the SBBT Program.

The Program Agreement specifically states that respondent “(i) is the franchisor of the Jackson Hewitt Tax Service® tax preparation system to independently owned and operated franchisees ... and (ii) through Tax Service of America, Inc., a wholly owned subsidiary, owns and operates Jackson Hewitt Tax Service locations.” It also provides:

6. [Respondent's] Obligations and Procedures. [Respondent] agrees, in connection with the operation of the [RAL] Program, to: (i) conduct such advertising; (ii) prepare forms and other written materials; (iii) cause its offices to be equipped with computer equipment and hardware; (iv) maintain personnel; (v) train such personnel and EROs ⁶ with respect to the Program Protocols; and (vi) take such other actions, in each case as reasonably necessary to advertise and accommodate the facilitation of Financial Products to Applicants at its expense,as well as the following specific duties:

6.2 Application Process. [Respondent] shall require participating EROs to require that each Applicant (i) complete and sign an application in a form developed by SBBT and reviewed by [respondent] prior to each Tax Season ... which application may also include a loan agreement ... and a disclosure statement meeting the requirements of the federal Truth–in–Lending Act....

The Information Form indicates that Gomez had requested a RAL, lists $2,323.00 as her anticipated federal refund and $1950.97 as the “estimated amount of [her] RAL disbursement (this amount is net [of] all fees to be deducted from the loan and does not include any state refund amount ...),” and states that she owes $284.00 “to [her] Jackson Hewitt Tax Service office” for tax preparation services.

The Application and Agreement explains that a “RAL is a loan from SBBT in the amount of all or part of your refund. Your refund is used to pay back the loan.” To accomplish that, the borrowers

authorize SBBT to receive your income tax refund(s) on your behalf and to make disbursements from your refund(s) as authorized by this Agreement. You authorize SBBT to establish a temporary deposit account (the “Account”) in your name for the purpose of receiving a direct deposit of your refund.... If and when SBBT receives your income tax refunds, you authorize SBBT to deduct from your Account an SBBT tax refund handling fee and any other amounts, fees and charges authorized by this Agreement....

The Application and Agreement also states that “SBBT will pay compensation to [respondent] and an affiliate ⁷ ... in consideration of rights granted by [respondent] to SBBT and the performance of services by [respondent] on behalf of SBBT.” ⁸

The Disclosure Form reflects an “Annual Percentage Rate” of 85.089%, which is “[t]he cost of ... credit as a yearly rate.” It also lists $2,323.00 as the “Total Loan Amount,” which includes:

• $1,950.97 as the “[a]mount paid directly to you;”

• $284.00 as the “[t]ax preparation fees paid to” respondent;

• $29.95 as the “SBBT tax refund account handling fee;” and

• $58.08 as the “total prepaid finance charge (SBBT bank fee).”

Asserting that respondent is a “credit services business” under the CSBA ⁹, the complaint reasons that Gomez “ indirectly ” paid respondent for arranging ¹⁰ the RAL, because the RAL “included in its principal amount” the $284.00 tax preparation fee, which the complaint describes as “the cost of obtaining this extension of credit[.]” ¹¹ The complaint also reasons that respondent “received money from ... SBBT in connection with the extension of credit to” Gomez,¹² and alleges violations of the CSBA, Md.Code Ann., Com. Law (“CL”), § 14–1901 et seq. and the Maryland Consumer ProtectionAct (“the CPA”), id. § 13–301 et seq.¹³ More specifically, the complaint states that respondent failed: (1) “to obtain a license from the Commissioner ... as is required by” § 14–1902 of the CSBA; (2) “to obtain a surety bond as required by” § 14–1908; and (3) “to provide [Gomez] with the documents and disclosures required by” §§ 14–1904 to –1906, “including but not limited to the buyer's rights and other disclosures” and “detachable copies of a notice of cancellation and a contract with the necessary inclusions.”

Respondent moved to dismiss the complaint for failure to state a claim. It acknowledges that, “[i]n exchange for being permitted to offer its products in [respondent's] offices, in 2006 ... [SBBT] agreed to pay [respondent] a fixed fee,” but asserts that Gomez made a payment for the RAL only to SBBT and “did not pay anything of value to [respondent] in exchange for receiving credit services.” Because respondent did not receive direct payment from Gomez for credit services, respondent asserts that she “failed to state a claim under the CSBA as a ‘consumer’ who purchased services from a ‘credit services business.’ ” Respondent adds that Gomez's “interpretation of the CSBA would lead to absurd results in applying the statute to tremendous numbers of retailers throughout Maryland who have never registered under the CSBA.”

On June 18, 2009, the Circuit Court held a hearing on the motion to dismiss, and on June 23, 2009, the court filed a Memorandum Opinion and Order. The court determined that the definitions “credit services business” in § 14–1901(e) and “consumer” in § 14–1901(c) of the CSBA were ambiguous “because the language can be read in a number of different ways.” Turning to the legislative history, the court concluded that the General Assembly enacted the CSBA to regulate credit repair agencies, and not RAL facilitators:

It is manifest that the reason why the General Assembly passed the CSBA was to protect unsuspecting Marylanders from credit repair agencies who offered to “fix” their credit rating, or to obtain loans for the credit impaired customer, in exchange for a fee. The CSBA simply was neither intended nor designed to cover firms engaged in the business of selling goods or services to their customers, when such goods or services are not aimed at improving one's credit rating. Nor was it intended to cover the extension of credit by a third-party, not privy to the primary transaction, which is ancillary to the customer's purchase of the goods or services provided by the merchant....

[Gomez] is [sic] this case neither had a contract with [respondent] in return for credit services nor a contract for the extension of credit. The documents appended to her complaint make it clear that her contract in this regard was with SBBT and that the fee she paid for the extension of credit was paid by her to SBBT. The only fee [Gomez] was obligated to pay to [respondent] was the $284.00 she agreed to pay for the preparation of her income tax returns.

Accordin...