Basile v. H & R Block, Inc.

Sandra Basile and Laura Clavin (plaintiffs) brought a class action alleging tax-return preparer H & R Block, Inc. (Block), and Mellon Bank (DE) National Association (Mellon) (defendants) deceived customers about refund-anticipation loans (RALs). In 1990, Block began a “Rapid Refund” program that allowed faster refunds than filing paper returns. For a fee, customers could file returns electronically and choose to receive refunds by check, direct deposit, or an RAL. Mellon provided RALs for Pennsylvania customers. If a customer wanted an RAL, preparers simultaneously transmitted return information to the Internal Revenue Service (IRS) and Mellon. Customers would receive a check in a few days for the amount of their refund, minus a flat-rate finance charge of $29 or $35. Block did not disclose the interest rate as a percentage, which ran as high as 151 percent because of the loans’ short-term nature. Basile and Clavin visited Block offices in response to Rapid Refund promotions to file their tax returns and obtain refunds. Basile and Clavin waited in Block’s offices while their returns were prepared to sign them before filing. The preparers said Basile and Clavin could obtain RALs and offered applications. Nobody disclosed that Block earned fees from Mellon for each loan and shared in the profits made from the program or that endorsing the back of the loan-proceeds check meant the customer signed a loan agreement printed on it. The trial court granted summary judgment, reasoning Block owed no fiduciary duty to disclose the loans’ nature absent an agency relationship with the customer. The appellate court reversed, finding Block acted as the customers’ agent. The Pennsylvania Supreme Court granted review.