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.
