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A Philadelphia judge has decertified a class of consumers that accused H&R Block, the national tax preparation company, of misrepresenting its “Rapid Refund” program. The judge in Basile v. H&R Block Inc. said the class could no longer stand because a fact finder must determine whether each individual member trusted the company’s expertise entirely when the individual member opted for a cash advance on his or her federal tax refund through the program. When taxpayers hire H&R Block to prepare tax returns, they can choose to file electronically and use the Rapid Refund service to get any refund they’re owed sooner than the government could deliver it. The class action was filed in 1993, alleging that H&R Block neglected to make clear to Rapid Refund users that the “refund” was actually a “Refund Anticipation Loan” with high interest rates. The trial court’s March 1 ruling comes after the Superior Court decided in 2001 that to bring a claim for breach of fiduciary duty, the class had to prove that a confidential relationship existed between H&R Block and class members. The Superior Court panel reviewed the evidence the trial judge had relied upon when he entered summary judgment in 1997 and concluded it was sufficient to make out a prima facie case of a confidential relationship — that is, a situation where one party exerted an “overmastering influence” to gain an unfair advantage over another, less sophisticated party. “As documented by Block, the company was aware of the limited economic and educational standing of its customers, their confusion about the ‘Rapid Refund’ service, and the fact that they trusted the company to ‘take the worry out,’” Judge Justin M. Johnson wrote in 2001. “Notwithstanding this knowledge, the company, ostensibly, made no effort to provide a clear explanation of its services, but in Sandra Basile’s case, merely told her where to sign,” Johnson continued. “Thus, we conclude that the jury could reasonably find that Block occupied a position of substantial strength which, relative to the pronounced intellectual and economic weakness of the plaintiffs, presented Block with the opportunity to abuse the plaintiffs’ trust for its own gain. Such a scenario is consistent with confidential relations as defined by our Supreme Court.” Class counsel, Steven Angstreich of Levy Angstreich Finney Baldante Rubenstein & Coren, had argued that the Superior Court’s ruling had decided the confidential relationship issue on a classwide basis when it accepted the evidence as sufficient to demonstrate that H&R Block and the class members had not dealt on equal terms, Angstreich said. But the judge, Common Pleas Senior Judge Stephen E. Levin, didn’t accept this position. “This court finds that proof of a confidential relationship requires consideration of the disparity between the respective parties and whether the inferior party places primary trust in the other’s counsel,” Levin wrote. Levin pointed to Johnson’s note in the 2001 decision that the holding was “narrow” — “We do not conclude that the relationship of a tax consultant to his client is confidential, per se, nor do we conclude that the parties here were engaged in such a relationship as a matter of law,” Johnson wrote. The court was only finding the evidence was sufficient to establish a confidential relationship between the parties in the case. “If, upon remand, the fact finder accepts as truthful, evidence adduced tending to demonstrate a confidential relationship, Block will be bound by a corresponding fiduciary duty as a matter of law,” Johnson wrote. Thus, it is up to the trial judge to examine whether H&R Block — on a classwide basis — advised the class members to invest “‘by virtue of their own weakness or inability, the adviser’s presence of expertise, or a combination of both � such a level of trust that they seek no other counsel,’” Levin explained, quoting Johnson. In a 1981 case, Frowen v. Blank, the Pennsylvania Supreme Court said a confidential relationship “appears when the circumstances make it certain that the parties did not deal on equal terms, but, on the one side there was an overmastering influence, or, on the other, weakness, dependence or trust, justifiably reposed.” Angstreich had argued that the “or” in the court’s ruling means that a plaintiff must establish only one of the positions — superiority or inferiority. Angstreich said the Superior Court had made a clear finding of a superior position and so the court didn’t have to address an inferior position. But Levin said that while he recognized both elements weren’t necessary to establish a confidential relationship, “nevertheless, to find an overmastering influence, the fact finder must consider the relative positions of the both parties and determine if the plaintiffs place complete trust in the adviser’s expertise.” The Superior Court only considered H&R Block’s position, Levin said. To form a confidential relationship, it must also be proved that the class members — in an inferior position — placed their complete trust in H&R Block’s expertise. And to accomplish this, it’s necessary to consider evidence of the “unique qualities” of each class member, Levin concluded. Because each class member’s situation would need to be examined individually, the class lacks the commonality and typicality prerequisites of a class action, Levin found. Sandra Basile, the class representative, has appealed Levin’s ruling, Angstreich said. “We’re 100 percent convinced it’ll be reversed by the Superior Court,” Angstreich said. Levin’s decision was contrary to the Superior Court’s 2001 decision on the confidential relationship issue — finding the class had presented a prima facie case, Angstreich said. Basile has been up to the Pennsylvania Supreme Court once already but on a different issue. In 2000 the justices ruled there was no agency relationship between the class members and the company that would have imposed a fiduciary relationship. At that point, the justices remanded the case to the Superior Court to consider the issue of whether H&R Block owed the Rapid Refund users a fiduciary duty based on a confidential relationship. The Superior Court addressed that issue and remanded it to the trial court for consideration. Levin’s March 1 decision was the result. Mary Kohart of Drinker Biddle & Reath, who represented the tax preparer, said Levin’s conclusion was correct. “Once the plaintiffs decided to go forward on the confidential relationship theory, the trial court had to decertify the class because it necessitated looking at individual issues,” she said. H&R Block’s national outside counsel, N. Louise Ellingsworth of Bryan & Cave in Kansas City, Mo., declined to comment Wednesday.

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