The Pennsylvania Supreme Court last week upheld the
decertification of a class of H&R Block customers challenging
the tax preparer's "Rapid Refund" program as
deceptive, holding that the existence of a confidential
relationship between H&R Block and each class
member—a prerequisite to the plaintiff's claim for
breach of fiduciary duty—cannot be determined on a
classwide basis.
In Basile v. H & R Block, Inc., the
complaint—originally filed 19 years ago—claims
that Block, which loans customers the amount of their anticipated
tax refund through a short-term bank loan, deliberately confused
customers about the nature of the loan. According to the plaintiff,
customers did not know that the payment was actually a loan, nor
did they understand the high rate of interest involved.
In 2001, after certifying a class of 600,000 customers, the
trial court granted summary judgment in Block's favor on the
ground that Block was not the plaintiffs' agent, no
confidential relationship existed between Block and its customers,
and therefore Block owed no fiduciary duty. An intermediate court,
however, reversed the summary judgment ruling, determining that the
class had proferred sufficient evidence for a factfinder to find a
confidential relationship.
The common pleas court, based on this ruling, decertified the
class, finding that it would be necessary to consider "the
unique qualities of each class member" in order for a
factfinder to determine whether each class member placed
"complete trust in the defendant's expertise." The
intermediate court overturned this ruling as well, noting that the
class would be relying primarily on Block's internal documents,
which showed that Block understood its customers to enter the
relationship "in a position of pronounced economic and
intellectual weakness" and intentionally provided only minimal
information about the refund loans.
The Supreme Court reversed, holding that the common pleas court
correctly decertified the class. The court faulted the intermediate
court for relying on factual assertions accepted as true in the
summary judgment context, given the differing evidentiary standards
governing summary judgment and class certification. The court
further held that notwithstanding the common reliance on
Block's own documents, "it is not appropriate to presume
that Block's marketing and customer relations strategies had
the same impact on each and every putative class member."
On the one hand, the Basile decision is yet another example of
the difficulty of certifying a class where the complaint alleges
false or deceptive advertising. Class certification is frequently
denied in such cases on the ground that each consumer's
decision-making process requires an individualized inquiry to
determine the extent to which the consumer was affected by the
alleged deception.
On the other hand, Basile is not a deceptive advertising case,
but a breach of fiduciary duty case. It seems counterintuitive that
the existence of a fiduciary duty flowing from Block to its
customers would be an individualized issue. Did Block have a
confidential relationship, or owe a fiduciary duty, only to those
individuals who assumed Block was not being deceptive about the
character of the loan?
Presumably, the court would have reached a different result if
the defendant had been a law firm, a financial advisor, or a
similar professional whose relationships with clients fall more
clearly into "confidential relationship" territory. A
court presumably would not look at the personal circumstances of
each of an attorney's clients to determine whether the attorney
and the client had a confidential relationship. For this reason,
and because a class action is an unusual avenue for a breach
of fiduciary duty claim, Basile may not have a significant impact
on class certification jurisprudence. But it is a victory for
companies, like Block, whose business falls closer to the line,
wherever it may be, that separates the confidential from the
non-confidential.
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