Reference no: EM1339010

Explain Fiduciary Duty through Failure to Disclose

Please read question below and answer or discuss. Minimum 230 words

QUESTION : H & R Block's tax filing services allow customers to obtain faster tax refunds than would otherwise occur by simply mailing the return to the Internal Revenue Service. For customers who want to obtain a faster refund, H&R Block arranges bank loans with a third-party bank in the amount of the customer's refund through its "Rapid Action Loan"{(RAL) program. H&R Block then files the refund electronically with the IRS, and the IRS is informed to send the customer's tax refund check directly to the bank. The service allows customers to obtain the amount of their refund in a loan within a few days rather than waiting approximately two weeks for the IRS to send the actual refunds that are electronically filed. The cost of an RAL is described in the loan materials as a "finance charge" of the lender bank. For each RAL that it arranges between the tax payer and the bank, H&R Block benefits financially in at least one way, and up to as many as three ways. First, for every RAL referred to a lending bank, H&R Block receives a "license fee." Second, through its subsidiary, H&R Block Financial, H&R Block purchases about one-half of the RALs from the lender banks. Finally, H&R Block has arranged with Sears, Roebuck & Company for H&R Block to receive 15 percent of the check-cashing fee Sears's charges for cashing loan checks. H&R Block encourages RAL customers to cash their RAL checks at Sears. None of these three arrangements are disclosed to H&R Block customers. Plaintiffs in the class action claim focused on H&R Block's failure to disclose the various ways it might have benefited from the RAL program. They labeled these various benefits illegal "kickbacks" and asserted that the kickbacks were in violation of the fiduciary obligations H&R Block owed to its customers as a result of an agency relationship. H&R Block filed a motion to dismiss, which was granted by the trial court. Plaintiffs appealed Did H&R Block violate a fiduciary duty through its failure to disclose its relationship with the banks involved? Why?