My National Tax & Insurance Services, Inc. v. H & R Block Tax Services, Inc

Filing 31

MEMORANDUM OPINION. Signed by Judge Alexander Williams, Jr on 1/11/12. (jnls, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
SOUTHERN DIVISION

MY NATIONAL TAX & INSURANCE
SERVICES, INC.,
Plaintiff,
v.

Civil Action No. 8:10-cv-02411-AW

H&R BLOCK TAX SERVICES, INC.,
Defendant.

MEMORANDUM OPINION
My National Tax & Insurance Services, Inc. brings this action against Defendant H&R
Block Tax Services, Inc. Plaintiff asserts claims for (1) fraud and misrepresentation and (2)
breach of contract. Pending before the Court is Defendant’s Motion to Dismiss Plaintiff’s Fraud
Claim (“Motion to Dismiss”). The Parties have fully briefed the matter and the Court deems no
hearing necessary. For the reasons that follow, the Court GRANTS Defendant’s Motion to
Dismiss.
I.

FACTUAL AND PROCEDURAL BACKGROUND
This case arises from a series of business negotiations that culminated in Plaintiff My

National Tax & Insurance Services, Inc. (“My National”) becoming a franchisee of Defendant
H&R Block Tax Services, Inc. (“HR Block”). The Court takes the following facts from My
National’s Amended Complaint and assumes their truth for the purpose of ruling on the instant
Motion.

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In June 2006, HR Block representative Carroll Koon (“Koon”) approached My National
regarding converting its business into an H&R Block franchise. Shortly thereafter, My National
and HR Block started negotiating the terms of the conversion. On July 6, 2007, the Parties
entered into a Franchise License Agreement and Conversion Agreement (“Agreement”) for the
conversion of My National into an H&R Block franchise. The Agreement provided that HR
Block was to pay My National an amount of $450,000.00 in two installments. Specifically, the
Agreement provided that HR Block owed the initial payment of $225,000 upon its execution and
the final payment of $225,000 no later than sixty days following its first anniversary.
My National executed the Agreement without noticing that the Agreement conditioned
payment of the second installment of $225,000 on the number of returns My National prepared
during the first year following the execution of the Agreement. Specifically, My National had to
prepare 4,105 returns as a condition of receiving the full $225,000 payment. My National alleges
that, in the prelude to the Parties’ consummation of the Agreement, Koon conducted a “due
diligence review.” Allegedly, “[i]t was apparent from the due diligence [review] that the most tax
returns [that can be] prepared within the same demographic area within a year is 2,600.” In other
words, My National alleges that Koon knew that My National could not reach the performance
target.
In October 2007, My National discovered that the Agreement conditioned receipt of the
$225,000 on completion of the performance target. My National protested, whereupon the
Parties engaged in a series of discussions regarding the performance target. Allegedly, My
National “contacted the Director of [the] Franchise Department at Defendant’s headquarters in
Kansa[s] City and was advised that they [sic] will look into the discrepancy and rectify it.” My
National also alleges that HR Block eventually advised it that it was entitled to receive only

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$72,241.17 of the disputed $225,000 sum. According to My National, the Agreement obligated
HR Block to make the final payment—irrespective of amount—on September 4, 2008. My
National asserts, however, that HR Block failed to make even the $72,241.17 payment until
February 6, 2009.
On July 6, 2010, My National sued HR Block in the Circuit Court for Prince George’s
County, Maryland, asserting claims for fraud and misrepresentation and breach of contract.
Shortly after it removed the case, HR Block moved for a more definitive statement. Doc. 12. The
Court granted HR Block’s motion in an Order issued on July 8, 2011. Doc. 20. In its Order, the
Court ruled that, in contravention of Rule 9 of the Federal Rules of Civil Procedure, My National
failed to plead its fraud and misrepresentation claim with particularity.
A couple of weeks later, My National filed an Amended Complaint. Doc. 23. On August
4, 2011, HR Block filed the instant Motion to Dismiss. Doc. 24.
II.

STANDARD OF REVIEW
The purpose of a motion to dismiss is to test the sufficiency of the plaintiff’s complaint.

See Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999). In two recent cases, the
U.S. Supreme Court has clarified the standard applicable to Rule 12(b)(6) motions. Ashcroft v.
Iqbal, 129 S. Ct. 1937 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). These cases
make clear that Rule 8 “requires a ‘showing,’ rather than a blanket assertion, of entitlement to
relief.” Twombly, 550 U.S. at 556 n.3 (quoting Fed. R. Civ. P. 8(a)(2)). This showing must
consist of at least “enough facts to state a claim to relief that is plausible on its face.” Id. at 570.
In deciding a motion to dismiss, the court should first review the complaint to determine
which pleadings are entitled to the assumption of truth. See Iqbal, 129 S. Ct. at 1949–50. “When
there are well-pleaded factual allegations, a court should assume their veracity and then

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determine whether they plausibly give rise to an entitlement to relief.” Id. at 1950. In so doing,
the court must construe all factual allegations in the light most favorable to the plaintiff. See
Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783 (4th Cir. 1999). The Court
need not, however, accept unsupported legal allegations, Revene v. Charles County
Commissioners, 882 F.2d 870, 873 (4th Cir. 1989), legal conclusions couched as factual
allegations, Papasan v. Allain, 478 U.S. 265, 286 (1986), or conclusory factual allegations
devoid of any reference to actual events, United Black Firefighters v. Hirst, 604 F.2d 844, 847
(4th Cir. 1979).
Furthermore, “[i]n alleging fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). To satisfy this standard,
plaintiffs “must, at a minimum, describe the time, place, and contents of the false
representations, as well as the identity of the person making the misrepresentation and what he
obtained thereby.” United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370,
379 (4th Cir. 2008) (internal quotation marks omitted) (citing Harrison, 176 F.3d at 784). “These
facts are often referred to as the ‘who, what, when, where, and how’ of the alleged fraud.” Id.
(some internal quotation marks omitted) (quoting United States ex rel. Willard v. Humana
Health Plan of Tex. Inc., 336 F.3d 375, 384 (5th Cir. 2003)).
III.

LEGAL ANALYSIS
In its Motion to Dismiss, HR Block sets forth two primary arguments. First, HR Block

argues that My National failed to plead its fraud and misrepresentation claim with particularity in
its Amended Complaint. Second, HR Block argues that My National failed to file its initial
Complaint within the time that the applicable Maryland statute prescribes for fraud and
misrepresentation claims. The Court rejects HR Block’s second argument outright: My National

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alleges, and essentially all the record evidence indicates, that My National filed its Complaint
exactly three years from the date it executed the Agreement. HR Block’s second argument,
however, carries the day. The Court considers the merits of this argument in the subsequent
space.
My National fails to plead its fraud and misrepresentation claim with particularity.1 As
for its affirmative misrepresentation claim, My National fails to identify the person who
allegedly misrepresented that the Agreement contained the disputed performance target term.
Although My National alleges that Koon negotiated the Agreement, My National never alleges
that Koon affirmatively misrepresented that My National would not have to prepare 4,105
returns as a precondition to receiving the full $225,000 payment. The closest My National comes
to alleging that anyone from HR Block affirmatively misrepresented anything is its allegation
that it “contacted the Director of [the] Franchise Department . . . and was advised that they [sic]
will look into the discrepancy and rectify it.” To the extent this vague statement constitutes an
affirmative misrepresentation, HR Block made it well after My National had entered into the
Agreement. Therefore, My National fails to state a facially plausible claim for affirmative
misrepresentation, let alone plead it with particularity.
What is more, My National fails to allege satisfaction of the elements of an affirmative
misrepresentation claim. “To recover damages in a fraud action, a plaintiff must prove the
following elements: (1) that the defendant made a false representation to the plaintiff; (2) that the
falsity was known to the defendant or made with reckless indifference to its truth; (3) that the
misrepresentation was made for the purpose of defrauding the plaintiff; (4) that the plaintiff
relied on the misrepresentation and had the right to rely on it; and (5) that the plaintiff suffered
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My National fails to specify whether its fraud and misrepresentation claim is for affirmative misrepresentation,
fraudulent concealment, or both. Mindful of its obligation to construe pleadings liberally, the Court treats the
Amended Complaint as stating claims for both affirmative misrepresentation and fraudulent concealment.

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compensable injury resulting from the misrepresentation.” Bank of America, N.A. v. Jill P.
Mitchell Living Trust U/A DTD 06.07.1999, Civil Action No. 10-CV-00857 AW, 2011 WL
5386379, at *24 (D. Md. Nov. 3, 2011) (citing Nails v. S & R, Inc., 639 A.2d 660, 668–69 (Md.
1994)). As indicated above, My National fails to adequately allege that HR Block made a false
statement. Further, My National fails to allege that it had a right to rely on any alleged
misrepresentation. Generally, a plaintiff has no right to rely on an alleged misrepresentation that
directly contradicts the terms of a contract to which the person is a signatory. See id. at *25
(citing James v. Goldberg, 261 A.2d 753, 758 (Md. 1970)). Here, assuming arguendo that My
National’s allegations supported the inference that Koon affirmatively misrepresented the
performance target term, the allegations would still support the inference that the performance
target term expressly and directly contradicts the alleged misrepresentation. Accordingly, My
National has failed to state a cognizable claim for affirmative misrepresentation.
My National has also failed to state a cognizable claim for fraudulent concealment. The
essential elements of a claim for fraudulent concealment are as follows: “(1) the defendant owed
a duty to the plaintiff to disclose a material fact; (2) the defendant failed to disclose that fact; (3)
the defendant intended to defraud or deceive the plaintiff; (4) the plaintiff took action in
justifiable reliance on the concealment; and (5) the plaintiff suffered damages as a result of the
defendant’s concealment.” Green v. H & R Block, Inc., 735 A.2d 1039, 1059 (Md. 1999)
(citation omitted). “‘Absent a fiduciary relationship, [the Court of Appeals of Maryland] has
held that a plaintiff seeking to establish fraudulent concealment must prove that the defendant
took affirmative action to conceal the cause of action and that the plaintiff could not have
discovered the cause of action despite the exercise of reasonable diligence.’” Lloyd v. Gen.
Motors Corp., 916 A.2d 257, 275 (Md. 2007) (emphasis added) (quoting Frederick Rd. Ltd.

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P’ship v. Brown & Sturm, 756 A.2d 963, 976 n.14 (2000)). In other words, for a claim of
fraudulent concealment to be actionable, plaintiffs generally must allege and prove the existence
of a fiduciary relationship. See id. Here, however, My National has made no such allegation.
Moreover, the Amended Complaint is not amenable to such an inference. Accordingly, although
My National alleges that Koon failed to disclose the true performance target, My National’s
allegations fail to state a facially plausible claim that HR Block owed it such a duty.
Furthermore, My National’s fraudulent concealment claim would fail even if HR Block owed it
such a duty as My National has not adequately alleged that it justifiably relied on the alleged
material omission.2 Again, My National’s allegations lead to the inference that the performance
target was an express term of the Agreement. My National has alleged no justification for its
apparent failure to read the Agreement, identify the performance target term, and object to it. Cf.
Jill P. Mitchell Living Trust, 2011 WL 5386379, at *24 (granting summary judgment against a
party’s material omission claim under the Maryland Consumer Protection Act because the party
willfully failed to read the contract in dispute despite voluntarily signing it).
In light of the analysis above, My National’s fraud and misrepresentation claim fails as a
matter of law. My National has not adequately alleged a claim for either affirmative
misrepresentation or fraudulent concealment. The Amended Complaint’s allegations are vague
2

My National also apparently attempts to state a claim for fraud under the The Maryland Franchise
Registration and Disclosure Law. See Md. Code Ann., Bus. Reg. § 14-227. Section 14-227 essentially
provides that a franchisor is civilly liable to a franchisee where the franchisor (1) makes an affirmative
misrepresentation or (2) makes a material omission that is necessary to make the franchisor’s
representations not misleading. See id. § 14-227(a). My National’s claim under this provision fails, more
or less, for the same reasons that its common law fraud claims fail. First and foremost, the Amended
Complaint fails to adequately allege that Koon—or any other HR Block representative—made an untrue
statement. Second, although My National has identified a purported material omission (Koon’s alleged
knowledge that the performance target was unattainable), the Amended Complaint does not sufficiently
state that disclosure of this knowledge was required to render HR Block’s other statements not
misleading. Indeed, the Amended Complaint contains no allegations concerning any other statements of
substance on which My National supposedly relied. Accordingly, My National has failed to state a
facially plausible claim under this statute.

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and My National does not sufficiently plead satisfaction of the elements of fraud, no matter the
variety. Accordingly, the Court dismisses My National’s fraud claim. This dismissal is with
prejudice. My National has failed to state a cognizable claim for fraud in both its Complaint and
Amended Complaint; there is no reason to think that the third time would be a charm.
IV.

CONCLUSION
For the foregoing reasons, the Court GRANTS Defendant’s Motion to Dismiss. A

separate Order follows. As Plaintiff’s breach of contract claim remains in the suit, the Court will
issue a Scheduling Order.

January 11, 2012
Date

/s/
Alexander Williams, Jr.
United States District Judge

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