Pennsylvania Supreme Court Reinstates Decertification of “Rapid Refund” Claims, Citing “The Inherently Discrete and Subjective Aspects of Marketing and Customer-Relations Impact”

October 4, 2012

On September 7, 2012, the Pennsylvania Supreme Court effectively ended a 19-year effort to litigate state-law claims arising from H & R Block’s “Rapid Refund” program as a class action.  In a unanimous decision in Basile v. H & R Block, Inc., 37 EAP 2011, 2012 WL 3871504 (Pa. Sept. 7, 2012), available here, the court upheld decertification of the class, reversing a contrary Pennsylvania Superior Court ruling because that court “failed to account for the inherently discrete and subjective aspects of marketing and customer-relations impact.”  The decision will make it harder to obtain class certification under Pennsylvania state law in cases alleging that customers were deceived by a defendant’s marketing, advertising, or other customer communications program.

Plaintiff alleged that, from 1990 through 1993, H & R Block failed to explain to its “Rapid Refund” customers that the fee they were paying to receive their tax refund in a few days was actually a high-rate interest charge on a short-term loan from a bank.  In 1997, a Philadelphia trial court denied class certification on plaintiff’s common-law fraud and negligent misrepresentation claims but granted certification on her breach-of-fiduciary-duty claim.  Seven years later, after the first of many trips through Pennsylvania’s appellate courts on various issues, the trial court decertified the class.  By then, the Pennsylvania Supreme Court had determined that plaintiff could not proceed on a theory that H & R Block and its customers had a relationship that imposed a fiduciary duty as a matter of law – e.g., principal and agent – but could only proceed on a more fact-intensive theory that a confidential relationship existed in which one party is able to exert “an overmastering influence” on the other because of the other’s weakness, dependence or trust.  See 2012 WL 3871504, at *1-*2.  With plaintiff’s breach-of-fiduciary-duty claim limited to such a theory, the trial court ruled that continued class treatment was inappropriate.  “[I]t will be necessary to consider the evidence of the unique qualities of each class member since the fact finder must determine whether each place[d] his or her complete trust in the defendant’s expertise.”  Id. at *3, quoting Basile v. H & R Block, Inc., No. 3246 April Term 1993, slip op. at 8 (Phila. C.C.P. Mar. 26, 2004).

On appeal, the Pennsylvania Superior Court reversed the decertification order, concluding that because plaintiff intended to meet her burden of showing the existence of a confidential relationship with evidence from H & R Block’s own documents, it would not be necessary to consider evidence of each customer’s knowledge, sophistication, and motivation to determine whether a confidential relationship existed.  Basile v. H & R Block, Inc., 11 A.3d 992  (Pa. Super. Ct. 2010).  The Superior Court cited evidence that H & R Block (a) engaged in an extensive advertising campaign designed to cultivate customer trust in its expertise, (b) knew that many of its customers had low income, were not highly educated, and were often in difficult economic straits, and (c) despite reports of customer confusion, instructed its tax preparers to provide minimal information about the program.  11 A.3d at 999.

The Pennsylvania Supreme Court reversed, concluding:

Even if the substance of these documents is taken as true, however, 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.  While Block may very well have desired to assert strong influence in the marketplace, and it may have possessed information reflecting vulnerability across a wide segment of its clientele, nothing in the record presented demonstrates an actual, class-wide homogeneous effect on 600,000 of Block’s customers in the nature of “overmastering influence.”  In other words, the Superior Court’s decision fails to account for the inherently discrete and subjective aspects of marketing and customer-relations impact.

Basile v. H & R Block, Inc., 2012 WL 3871504, at *6.

The court also faulted the intermediate appellate court on two procedural class certification issues.  First, the Superior Court incorrectly relied on its earlier assessment that plaintiff’s evidence was sufficient to defeat summary judgment as dispositive on the issue of whether her claim could be proven with common evidence.  The Pennsylvania Supreme Court addressed the differences between the two types of pretrial decisions and instructed, “[W]here material facts are in dispute, class certification-and decertification-rulings are to be premised on properly determined facts, not assumed ones.”  Id.  Second, because whether a confidential relationship exists is “intensely fact-specific” and the procedural issue of determining whether class treatment is appropriate is “inherently fact-laden[,]” the Superior Court should have exercised greater deference to the trial court’s “discretionary class certification ruling.”  Id. at *6, *7.

An unusual aspect of the Basile decision is that class certification faltered on the first element of the plaintiff’s claim:  namely, whether, in fact, the defendant owed a fiduciary duty to the plaintiff and her proposed class of customers.  However, the reason the Pennsylvania Supreme Court gave for agreeing with the trial court that decertification was warranted – that it cannot be presumed that a defendant’s “marketing and customer relations strategies had the same impact on each and every putative class member” – will often apply to a different element that is hotly contested in many types of consumer class actions:  causation.  For this reason, the Basile court’s recognition of “the inherently discrete and subjective aspects of marketing and customer-relations impact” will likely raise the bar for class certification in consumer-protection cases in Pennsylvania state courts.