Green v. H & R BLOCK, INC.
735 A.2d 1039, 1999 Md. LEXIS 488, 355 Md. 488 (1999)
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Rule of Law:
A tax preparer who facilitates a refund anticipation loan for a customer may have a principal-agent relationship with that customer, giving rise to a fiduciary duty to disclose any secret profits or financial benefits it receives from the loan transaction. The existence of such a relationship is a question of fact for the jury when sufficient evidence is alleged.
Facts:
- Joyce A. Green used H & R Block for tax preparation and filing services for several years.
- H & R Block offered a "Rapid Refund" program, through which it arranged "Refund Anticipation Loans" (RALs) for customers from a third-party bank, Beneficial National Bank (BNB).
- H & R Block prepared and transmitted the loan applications for customers to BNB, and the IRS was directed to send the refund directly to BNB to repay the loan.
- Green and other customers signed loan applications authorizing H & R Block to disclose their tax return information to BNB for the purpose of the loan.
- For each RAL it arranged, H & R Block received undisclosed financial benefits, including a "license fee" from BNB, profits from its subsidiary purchasing the loans, and a percentage of check-cashing fees from Sears.
- H & R Block's advertising campaigns encouraged customers to trust the company to get them the fastest and largest possible refund, using slogans like "Trust H & R Block."
- Green was not informed of the financial benefits H & R Block received from her participation in the RAL program.
Procedural Posture:
- Joyce A. Green filed a class action lawsuit against H & R Block in the Circuit Court for Baltimore City, a state trial court.
- The complaint alleged breach of fiduciary duty, violation of the Maryland Consumer Protection Act, and fraudulent concealment.
- H & R Block filed a motion to dismiss for failure to state a claim upon which relief can be granted.
- The trial court granted H & R Block's motion to dismiss, holding that no agency or fiduciary relationship existed between H & R Block and its customers as a matter of law.
- Green, as appellant, appealed the dismissal of her claims.
- The Court of Appeals of Maryland, the state's highest court, granted a writ of certiorari on its own motion before the case was heard by the intermediate appellate court.
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Issue:
Does a tax preparer who arranges a refund anticipation loan for a customer have a principal-agent relationship that creates a fiduciary duty to disclose financial benefits it receives from the lending institution?
Opinions:
Majority - Chasanow, J.
Yes. A tax preparer who arranges a refund anticipation loan may have a principal-agent relationship creating a duty to disclose financial benefits. Green alleged sufficient facts for a jury to find that such a relationship existed between H & R Block and its customers. The court's determination of an agency relationship rests on the parties' intent, and factors like control, the power to alter legal relations, and acting for the principal's benefit are guides, not rigid requirements. Here, the customer's ultimate authority to approve the loan application constitutes sufficient control, and H & R Block's integral role in the transaction is enough to alter the customer's legal relations. Given H & R Block's advertisements promoting trust and its role as an intermediary, a jury could reasonably find it was acting as the customer's agent for the entire refund process, including the loan. If an agency relationship is found, H & R Block has a fiduciary duty to disclose any secret profits or conflicts of interest, and its failure to do so could constitute a breach.
Analysis:
This decision clarifies that the existence of an agency relationship is a fact-intensive inquiry that is not easily dismissed as a matter of law. It establishes that even in transactional, consumer-facing relationships, a fiduciary duty can arise if one party's actions and representations induce the other party to trust them to act on their behalf. The ruling prevents companies from narrowly defining their role to avoid fiduciary duties, especially when they act as intermediaries and profit from undisclosed side-deals. Future cases involving financial advisors, brokers, or similar intermediaries will likely cite this case to argue for a duty of disclosure when there are potential conflicts of interest.
