Carbajal v. H&R Block Tax Services, Inc.

H&R Block Tax Services, Inc. (H&R) (defendant), a tax-return preparer, calculated that Roy Carbajal (plaintiff) was expected to receive a tax refund. Carbajal applied for a “rapid refund” transaction through H&R, by which Carbajal was to receive a refund-anticipation cash-advance loan in exchange for Carbajal’s assignment of the actual refund to a lender. H&R’s refund-anticipation loan (RAL) agreement was a standard-form contract offered to Carbajal on a take-it-or-leave-it basis without giving Carbajal the ability to negotiate. The RAL agreement provided that the cash may be used by the lender to satisfy outstanding balances from prior years. The RAL agreement also contained a broad arbitration clause that required any disputes to be resolved via arbitration and that the parties would be responsible for their respective costs of going to arbitration. Delaware state law applied to the RAL agreement. After the RAL agreement was executed, Carbajal received a cash advance less than the expected tax refund. The rest of the money was used to pay off a prior balance. Carbajal filed suit against H&R for alleged violations of the Fair Debt Collection Practices Act (FDCPA). H&R moved to enforce the arbitration clause. The district court dismissed the case based on the arbitration clause. Carbajal appealed, arguing that the arbitration clause was unenforceable because the entire RAL agreement was an unconscionable contract of adhesion. Carbajal also asserted that requiring the parties to bear their arbitration costs was inconsistent with the FDCPA law allowing the prevailing party to recover attorney’s fees.