LAW OFFICE OF DONALD F. WOODS, JR. Donald F. Woods, Jr...

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

OPPOSITION TO MOTION FOR SUMMARY JUDGMENT

LAW OFFICE OF DONALD F. WOODS, JR. Donald F. Woods, Jr. (SBN 51854) 765 Ermont Place Santa Monica, California 90402 Telephone: (310) 459-7055 Facsimile: (310) 459-9387 [email protected] LAW OFFICES OF WILLIAM A. POLKINGHORN William A. Polkinghorn (SBN 48483) 209 22nd Street Santa Monica, California 90402 Telephone: (213) 804-7074 Facsimile: (310) 451-1077 [email protected]

Attorneys for Plaintiff Edith Adams

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

EDITH ADAMS,

Plaintiff,

v.

ELRAY WISE, an individual, H&R BLOCK, INC.,a corporation, H&R BLOCK TAX AND BUSINESS SERVICES, INC., a corporation, and DOES 1 through 10, inclusive,

Defendants.

) ) ) ) ) ) ) ) ) ) )

Case No. BC571788

Judge: Richard E. Rico Dept.: 17

Hearing Date:February 24, 2016 Time: 8:30 a.m.

Trial Date: April 12, 2016 Complaint Filed: February 9, 2015

PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO MOTION FOR SUMMARY

JUDGMENT OR, IN THE ALTERNATIVE, SUMMARY ADJUDICATION BY H&R BLOCK

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

i

Table of Contents

I. INTRODUCTION .............................................................................................................. 1

II. FACTS ................................................................................................................................ 2

III. SUMMARY JUDGMENT STANDARD .......................................................................... 3

IV. LAW ................................................................................................................................... 4

A. Actual Agency ........................................................................................................ 4

1. The Franchise License Agreement Conferred Upon H&R Block A Comprehensive Right To Control Every Aspect Of Mr. Wise’s Operation Of His Franchised Business ....................................................................... 4

2. The Fact That The Franchise License Agreement Was A Take-It-Or-Leave-It Contract Of Adhesion, And That H&R Block – Not Mr. Wise – Owned The Taxpayer Accounts Explains H&R Block’s Power of Absolute Control Over The Franchise Business. .................................................................................... 5

3. Applicable Case Authority Supports The Determination That Mr. Wise Was The Agent Of H&R Block In the Operation Of The Franchise Business. ..................................................................................................... 5

4. H&R Block Misconstrues The Cases That It Cites In Support of Its Contention That The Evidence In this Case Presents No Triable Issues as to Actual Agency. ........................................................................................... 7

B. Ostensible Agency ................................................................................................ 11

C. Conversion ............................................................................................................ 14

D. Negligent Misrepresentation ................................................................................ 16

E. Money Had And Received ................................................................................... 16

V. CONCLUSION ................................................................................................................ 17

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

ii

Table of Authorities

Cases

Aguilar v. Atlantic Richfield Co., 25 Cal.4th 826 (2001) ................................................... 3

Associated Creditors’ Agency v. Davis, 13 Cal.3d 374 (1975) ....................................... 11

Binder v. Aetna Life Insurance Co., 75 Cal.App.4th 462 (1999) ....................................... 3

Cortese v. H&R Block Tax and Business Servs. Inc. Case No 14-CV-750-PSG-MRW (C.D. Cal. 2015) .......................................................................................................... 10

Grigsby v. Hagler (1938) 25 Cal.App.2d 714 (1938) ..................................................... 15

Gutierrez v. Girardi, 194 Cal.App.4th 925 (2011) ....................................................... 16

Hiroshima v. Pacific Gas & Elec. Co., 18 Cal.App.2d 24 (1936) .................................. 16

Kaplan v. Coldwell Banker Residential Affiliates, Inc., 59 Cal.App.4th 741 (1997) ....... 12

Kuchta v. Allied Builders Corp., 21 Cal.App.3d 541 (1971) .................................... 4, 6, 7

Mann v. Cracchiolo, 38 Cal.3d 18 (1985) ......................................................................... 3

Nichols v. Arthur Murray, Inc., 248 Cal.App.2d 610 (1967) ............................................ 4

Patterson v. Domino’s Pizza, LLC, 60 Cal.4th 474 (2014) ................................................ 7

People v. JTH Tax, Inc., 212 Cal.App.4th 1219 (2013) ................................................... 10

Rutherford v. Rideout Bank, 11 Cal.2d 479 (1938) ......................................................... 15

Stevens v. Roman Catholic Bishop of Fresno, 49 Cal.App.3d 877 (1975) ........................ 4

Thomas v. Taco Bell Corp., 879 F.Supp. 1079 (C.D. Cal. 2012) ...................................... 9

Tomerlin v. The Canadian Indemnity Co., 61 Cal.2d 638 (1964) ................................... 11

Vann v. Massage Envy Franchising LLC, 2015 WL 74139 (S.D. Cal. 2015)................... 8

Wickham v. Southland, Corp., 168 Cal.App.3d 49 (1985) ................................................ 7

Yanchor v. Kagan, 22 Cal.App.3d 544 (1971) ................................................................ 12

Statutes

Cal. Civ. Code §2300 ...................................................................................................... 12

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

iii

Treatises

3 Witkin, Summary of California Law, Agency and Employment (10th Ed. 2005) .... 4, 15

55 Cal. Jur. 3d Restitution § 32................................................................................... 17

Brown & Weil, California Guide To Civil Procedure Before Trial, §10.270 (Rutter Group 2015)................................................................................................................... 4

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1


MEMORANDUM OF POINTS AND AUTHORITIES

I. INTRODUCTION

The central issues concerning the agency of Mr. Wise are all disputed.

1. There is an issue of fact concerning the extent of control by H&R Block over Mr.

Wise. H&R Block contends Mr. Wise controlled the employment relations with his employees

(hiring, firing, discipline) which it contends was sufficient to make him an independent franchisee.

Plaintiff contends that H&R Block had (i) the complete contractual right to control the

establishment, management and conduct of Mr. Wise’s business pursuant to the omnibus power

clause of the Franchise License Agreement (the “FLA”) and (ii) the practical power to control all

aspects of the franchise because it purchased all of his customer accounts from him and licensed

him to service them. The controls over Mr. Wise exceeded those necessary to protect the

trademark.

2. There is an issue of fact concerning the scope of authority delegated to Mr. Wise.

H&R Block contends it was limited to tax preparation. Plaintiff contends that H&R Block

approved of Mr. Wise performing other financial services, including setting up corporations and

partnerships for clients, drawing up wills and living trusts, providing notary services, arranging

tax refund loans, and informing clients of the banking, mortgage lending and financial advisory

services available from other departments of H&R Block. Plaintiff contends that H&R Block on

its website, and in its advertisements, brochures, fliers, and stationery, represented that its

products and services were not limited to mere tax preparation but also included a wide variety of

financial services.

3. There is an issue of fact concerning whether Plaintiff reasonably believed that Mr.

Wise was acting for H&R Block when he offered to pay her bills and sell her assets in order to

make other investments on her behalf. H&R Block contends that Plaintiff let Mr. Wise take care

of her financial needs because she had been with him a long time and trusted him. Plaintiff

contends that she trusted Mr. Wise in substantial part because she believed he was working for

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2


H&R Block, a large, reputable, and competent firm offering a wide range of financial services,

that would stand behind him in what he did for her.

II. FACTS

Plaintiff Edith Adams is an African American woman raised in rural Louisiana where she

attended segregated public schools through the eighth grade. She had her first child at age 17 and

is the mother of seven having been widowed twice. She lives alone in South Central Los Angeles

and was 78 years old when the events at issue began. Adams Decl. ¶¶ 1-7.

When Mr. Wise began preparing Plaintiff’s tax returns sometime after 1998, he was doing

business as E.W. Holding. For the next 12 years approximately, he had no relationship with

Plaintiff other than preparing her short and uncomplicated tax returns once a year. In 2011 he

offered to assist Mrs. Adams with the management of her assets; and, among other things, began

paying her bills online. Adams Decl. ¶ 8-9.

In 2005 H&R Block bought Mr. Wise’s business for $405,485 and licensed him to service

the accounts. Woods Decl.¶ 1. At the time of the purchase, H&R Block had over 11,000 owned

locations. Woods Decl. ¶ 45, Goodman Depo Ex. 19, 13:6-13, 16: 18 – 17:5. Mr. Wise became

its first franchisee. Id. All of the interior and exterior signs at his office were changed to “H&R

Block.” Adams Decl. ¶ 10-12. He changed his dba to “H&R Block,” Woods Decl.¶ 7, and began

signing Plaintiff’s tax returns (copies of which went to H&R Block, Woods Decl.¶ 8) as working

for the firm of “H&R Block.” Woods Decl. ¶ 8; Adams Decl.¶¶ 14-15. His stationery ordered

from H&R Block displayed the H&R Block logo and contained promotional statements for H&R

Block products and services. Adams Decl.¶¶ 16-21, Ex. 4-9.

At the same time in 2005 Mr. Wise entered into the FLA with H&R Block and became

subject to Block’s Policy and Procedure Manual. Woods Decl.¶¶ 1-5. These documents specify

that H&R Block had the right to control a long list of itemized management tasks, Woods Decl.¶

4, and included an omnibus control provision that “Franchisee shall establish, manage and conduct

the Franchised Business in conformity with all provisions in the Manual which are designated as

applicable to Franchisee and all other directions from Block in writing.” Woods Decl.¶ 2, Ex. 2,

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3


para. 10, p. 7. In short, H&R Block had the right to control all franchisee operations.

For many years H&R Block has engaged in national television, radio and print

advertisement combined with fliers, brochures and stationery establishing itself as a large,

reputable firm capable of handling all sorts of financial transactions. Adams Decl.¶ 29-30. One

folder Plaintiff was given, for example, says that “H&R Block can also help with your other tax

and financial needs.” It identified H&R Block Bank and stated “With a wide variety of loan

programs, we may be able to help you refinance for a lower interest rate, take advantage of your

home’s equity or purchase a new property.” It also stated, “Contact us year-round – tax services,

financial services, banking services.” Adams Decl.Ex. 4.

The letterhead Mr. Wise used for Mrs. Adams’ transactions had the H&R Block logo and

the promotion, “tax, mortgage and financial services.” Adams Decl.Ex. 9.

Based on the above facts and circumstances, Mrs. Adams believed that Mr. Wise worked

for H&R Block, was the manager of its office in her neighborhood and was acting for H&R Block

when he offered to assist her with her financial needs. Adams Decl. ¶ 24, 31.

III. SUMMARY JUDGMENT STANDARD

In Aguilar v. Atlantic Richfield Co., 25 Cal.4th 826 (2001) the Supreme Court held that once a

party moving for summary judgment meets its initial burden of production, the burden of

production shifts to the opposing party; but the burden of persuasion always remains with the

moving party. In sum, defendant at all times has the burden of persuasion that there is no evidence

from which any reasonable jury could conclude in favor of plaintiff. Accordingly, the court must

liberally construe Plaintiff’s submission while strictly scrutinizing H&R Block’s and resolve all

doubts and ambiguities in Plaintiff’s favor, Mann v. Cracchiolo, 38 Cal.3d 18, 35-36 (1985). “[I]f

the court concludes that the plaintiff's evidence or inferences raise a triable issue . . . , it must

conclude its consideration and deny the defendants' motion,” Aguilar v. Atlantic Richfield Co., 25

Cal.4th 826, 856 (2001).

The standard is not what the court itself might believe but whether there is evidence from

which a reasonable trier of fact (in this case, the jury) might find liability. In Binder v. Aetna Life

Insurance Co., 75 Cal.App.4th 462, 470 (1999), the court of appeal stated:

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4


“The trial court may not weigh the evidence in the manner of a factfinder to

determine whose version is more likely true. Nor may the trial court grant

summary judgment based on the court's evaluation of credibility. Nor may the trial

court grant summary judgment for a defendant based simply on its opinion that

plaintiff’s claims are ‘implausible’ if a reasonable factfinder could find for

plaintiff on the evidence presented.”

Brown & Weil, California Guide To Civil Procedure Before Trial, §10.270 (Rutter Group 2015)

[“The court’s sole function on a motion for summary judgment is issue finding … not issue

determination.”].

IV. LAW

A. Actual Agency

1. The Franchise License Agreement Conferred Upon H&R Block A Comprehensive Right To Control Every Aspect Of Mr. Wise’s Operation Of His Franchised Business

A franchisee is the agent of its franchisor if the franchisor has the right to exercise

substantial control over the franchisee in their franchise business. Kuchta v. Allied Builders

Corp., 21 Cal.App.3d 541, 547 (1971) (“In the field of franchise agreements, the question of

whether the franchisee is an independent contractor or an agent is ordinarily one of fact,

depending on whether the franchisor exercises complete or substantial control over the

franchisee.”); Stevens v. Roman Catholic Bishop of Fresno, 49 Cal.App.3d 877, 884 (1975) (“It is

not essential that the right of control be exercised or that there be actual supervision of the work

of the agent; the existence of the right establishes the relationship.”); 3 Witkin, Summary of

California Law, Agency and Employment §24 (10th Ed. 2005) (“It is … the control that may be

exercised, i.e. the right of control, that determines the issue …”). The parties own

characterization of their relationship is not determinative. Nichols v. Arthur Murray, Inc., 248

Cal.App.2d 610, 614 (1967) (“The declarations of the parties to the agreement respecting the

nature of the relationship created thereby are not controlling.”)

Here, the FLA conferred upon H&R Block a comprehensive right to direct Mr. Wise in his

operation of the H&R Block franchise. For example, it provided that “Franchisee shall not offer in

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5


the Franchised Business a product or service unless it has been authorized by Block to do so”

(Woods Decl. Ex 2, p. 1, definition of “Franchised Business”); and that “Franchisee shall establish,

manage and conduct the Franchised Business in conformity with all provisions in the [H&R Block

Policy and Procedure] Manual (the “Manual”) which are designated as applicable to Franchisee

and all other directions from Block in writing ...” (Woods Decl. Ex. 2, p. 7) These provisions and

other provisions of the FLA establish that H&R Block conferred upon itself the right to direct Mr.

Wise in the operation of his franchise and to intervene in the event that he disregarded its

directions, regardless of whether such right of control actually was exercised. Woods Decl.¶ 4

(Listing 61 mandates H&R Block imposed over Wise).

2. The Fact That The Franchise License Agreement Was A Take-It-Or-Leave-It Contract Of Adhesion, And That H&R Block – Not Mr. Wise – Owned The Taxpayer Accounts Explains H&R Block’s Power of Absolute Control Over The Franchise Business.

The FLA was an H&R Block form document -- “FLA (5/05)” -- that Mr. Wise signed

without any changes. Woods Decl. Ex. 2. The agreement is uniformly biased in favor of H&R

Block. As but one example, section 27, entitled “Applicable Law; Partial Invalidity,” restricts Mr.

Wise to suing H&R Block only in a state or federal court located in Jackson County, Missouri

while allowing H&R Block to sue him in a court of competent jurisdiction anywhere.

Moreover, pursuant to the Purchase Agreement, H&R Block – not Mr. Wise – owned the

customer accounts following H&R Block’s purchase of his “Client Lists” for $405,485. Indeed,

without an ownership interest in his former customer accounts, Mr. Wise in effect relinquished the

chief asset of his former tax preparation business, lost his former independent status as a small

business owner and was relegated to H&R Block’s control. Regardless of any language in the

FLA to the contrary, Mr. Wise became the agent of H&R Block because he no longer possessed

the independence and resources to operate his H&R Block franchise in any other capacity.

3. Applicable Case Authority Supports The Determination That Mr. Wise Was The Agent Of H&R Block In the Operation Of The Franchise Business.

California case authority further supports a determination that Mr. Wise acted as the agent

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6


of H&R Block in operating the franchise. In Kuchta v. Allied Builders Corp., 21 Cal.App.3d 541

(1971), a franchisor of a home-improvement franchise appealed from a judgment in favor of

homeowners in an action for fraud and breach of a building contract with a franchisee for

construction of an outdoor patio and living area. In affirming the judgment, the court of appeal

determined that the franchisor exercised “strong control” over the franchisee based on the

franchise agreement alone. Id., 21 Cal.App.3d at 547. The controls in the Allied Builders

franchise agreement, which match provisions in H&R Block’s FLA, were held sufficient to

establish actual agency, Id. For example:

i. Franchisor shall have the right “to control the standards of construction” and “to …

approve the design and quality of the construction” [of its home-improvement projects.].

(The FLA here provides that “Franchisee shall establish, manage and conduct the

Franchised Business in conformity with all provisions in the Manual. . . and all other

directions from Block in writing,” Woods Decl. Ex. 2, p. 7; that “The Manual may

address. . . the policies and procedures which Franchisee must follow in dealing with

customers,” Id.; and that “The Manual may address…the manner in which the Franchised

Business and the services and products which it offers is to be conducted,” Id.)

ii. Franchisor shall “assign persons to see that the franchisee performed according to the

franchisor’s standards.” (The FLA provides that “Block or its representatives shall have

the right ... to inspect any Approved Locations for the purpose of … assuring itself that the

provisions of this Agreement are being observed by Franchisee.” Woods Decl. Ex. 2, p. 9)

iii. Franchisor further had the right to inspect plans and specifications, franchisee’s work in

progress, and finished jobs, and to share in the profits of franchisee and to inspect

franchisee’s books. (The FLA provides Block with the right to inspect any Approved

Locations for the purpose of “examining and auditing the books and records,” “observing

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

7


the manner and method of Franchisee’s operation,” and “otherwise assuring itself that the

provisions of this Agreement are being observed…” Woods Decl. Ex. 2, p.9)

In Nichols v. Arthur Murray, Inc., supra, 248 Cal. App. 2d 610, the court of appeal

affirmed a judgment for the customer of a franchisee who sued the franchisor to recover money

paid for dance lessons that the franchisee failed to provide as promised. Reciting one provision of

the franchise agreement, among many others, requiring the franchisee “to conduct the studio. . . in

accordance with the general policies of the [franchisor] as established from time to time,” Id. at

615, the court of appeals concluded that “the controls imposed upon [the franchisee] by the

[franchisor] completely deprived the former of any independence in the business operation subject

to the agreement.” Id. at 615-17.

The question of whether a franchisee is the agent of its franchisor generally is one of fact.

See, Kuchta v. Allied Builders Corp., supra, 21 Cal.App.3d 541, 547; Wickham v. Southland,

Corp., 168 Cal.App.3d 49, 55 (1985). Here, the undisputed facts of ownership of the accounts by

H&R Block and the omnibus right to control any and all franchise operations makes Mr. Wise the

agent of H&R Block.

4. H&R Block Misconstrues The Cases That It Cites In Support of Its Contention That The Evidence In this Case Presents No Triable Issues as to Actual Agency.

H&R Block’s principal reliance on what it terms the “seminal “ case of Patterson v.

Domino’s Pizza, LLC, 60 Cal.4th 474 (2014) misstates the holding and ignores the facts of this

narrow and unrelated decision. There, a male supervisor sexually harassed a female employee on

the premises of a franchised pizza restaurant. The employee brought an action against the

supervisor, franchisee and franchisor.

The Supreme Court granted review solely to address a specific question: “Does a

franchisor stand in an employment or agency relationship with the franchisee and its employees

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8


for purposes of holding it vicariously liable for workplace injuries allegedly inflicted by one

employee of a franchisee while supervising another employee of the franchisee?” Id. at 477-8

(emphasis added). It proceeded to hold that the case presented no triable issue as to such liability,

concluding that “[n]o reasonable inference can be drawn that [the franchisor] through [the

franchisee] retained or assumed the traditional right of general control an ‘employer’ or ‘principal’

has over facts such as direction, supervision, discipline, discharge, and relevant day-to-day aspects

of the workplace behavior of the franchisee’s employees.” Id. at 503.

The factors that the opinion cites all directly relate to the limited issue subject to review,

namely, the extent of a franchisor’s liability “for wrongful acts of one employee of a franchisee

while supervising another employee of the franchisee.” These five factors, i.e. direction,

supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of

the franchisee’s employees, all specifically relate to “a franchisor’s potential liability for wrongful

acts of one employee of a franchisee while supervising another employee of the franchisee,” the

only issue that the Court accepted for review and to which its holding is limited.

Patterson provides no guidance for resolving Plaintiff’s claim that Mr. Wise acted as H&R

Block’s agent in providing professional services to clients. Mr. Wise is the franchisee – not an

employee of the franchisee. The gravamen of the action is his conduct in rendering professional

services which H&R Block controlled in myriad ways including, without limitation, its purchase

and ownership of the accounts upon which Mr. Wise acted, its control over Mr. Wise’s conduct of

the franchised business in accordance with the FLA and the Manual, Woods Decl. Ex 2, pp. 7-8,

its right to inspect the office for the purpose of assuring itself that the provisions of the FLA were

being observed, Woods Decl. Ex 2, p. 9, and its course of dealing in which its business consultants

visited him “to make sure they were, you know, following the H&R Block brand “suggestive”

procedures, Woods Decl.¶ 45, Goodman Depo 26: 5-7. See Woods Decl. ¶ 4.

Vann v. Massage Envy Franchising LLC, 2015 WL 74139 (S.D. Cal. 2015) is another

franchise employment relationship case. There, a massage therapist working for several different

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

9


franchisees of the same franchisor filed a class action against the franchisor alleging violation of

California’ minimum wage laws. The federal district court in San Diego granted the franchisor’s

motion for summary judgment, relying in large part on provisions of a standard operating

agreement, providing that franchisees were responsible for “hiring, managing and compensating

their employees”, and of a franchise agreement, stating that the franchisor “neither dictates[s] nor

control[s] labor and employment matters” and that it has ‘no relationship with [the franchisee’s]

employees.” Id. at p. 3.

In direct contrast to the independence conferred upon the franchisee over employment

relations with its own employees in Vann, this case involves the control of H&R Block over Mr.

Wise in his rendering professional services to its clients. Here, the FLA provides at paragraph 10

that “Franchisee shall, establish, manage and conduct the Franchised Business in conformity with

all provisions in the Manual which are designated as applicable to Franchisee and all other

directions from Block in writing.” The FLA in turns defines the Manual as including “any written

direction from Block to the Franchisee, whether given by electronic or other means.” Together the

FLA and Manual provide H&R Block with the unfettered right to control and supervise Mr.

Wise’s professional conduct to the full extent that H&R Block determined to exercise such right of

control.

Thomas v. Taco Bell Corp., 879 F.Supp. 1079 (C.D. Cal. 2012) is a class action against a

trade association, whose members consisted of Taco Bell and eleven of its franchisees, alleging

that the association’s advertising agency and its text messaging firm sent unauthorized,

promotional text messages to plaintiff and other consumers in violation of the Telephone

Consumer Protection Act. The district court found no evidence that Taco Bell exercised any

direction or supervision over the association, much less over the advertising agency and text

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

10


messaging firm that composed and sent the text messages. This case involves the relationship

between an advertising firm and its clients. It is not really a franchise case at all.

H&R Block also cites the unpublished minutes of a local federal district court in Cortese v.

H&R Block Tax and Business Servs. Inc. Case No 14-CV-750-PSG-MRW (C.D. Cal. 2015). 1

This case is entirely distinguishable. First, it is a ruling upon motion to dismiss, not summary

judgment. Second, the court stated that plaintiff did not plead that “the H&R Block Defendants

owned the businesses that agreed to prepare Plaintiff’s taxes.” Here, however, H&R Block did

buy Mr. Wise’s business and owned the clients for whom Mr. Wise prepared tax returns and

performed other financial services. Third, the court in Cortese stated that plaintiff’s allegations of

reliance on unspecified representations, assertions and signage were insufficient. In this case,

Plaintiff in her interrogatory answers, deposition and declaration has provided detailed and

specific, written evidence of H&R Block’s representations in its advertising, folders and other

stationery. Finally, the decision is merely an interlocutory order. The fact that the District Court

did not publish the order suggests that it may have been superseded, nullified by later

developments in the case or simply deemed to lack sufficient value to deserve consideration as

precedent.

Conversely, H&R Block fails to cite the analogous case of People v. JTH Tax, Inc., 212

Cal.App.4th 1219, 1238-1247 (2013) which is an action against Liberty Tax Service2, one of

Block’s competitors. The State brought a civil action alleging Liberty and its franchisees violated

the Truth In Lending Act. The court of appeal held that the franchisees were the actual agents of

Liberty because the restrictions upon their business by Liberty exceeded what was needed “to

police its [trade]mark.” Id. at 1239. The provisions deemed to establish a principal-agent

relationship are replicated in H&R Block’s Manual. Specifically, Liberty required franchisees to

1 California Rules of Court, Rule 8.1115 provides that “an opinion of a California Court of Appeal or superior court appellate division that is not certified for publication or ordered published must not be cited or relied on by a court or a party in any other action,” subject to several, limited exceptions not applicable here. Since an unpublished California appellate court opinion “must not be cited or relied on,” a fortiori an unpublished, interlocutory, minute order of a federal trial court likewise should be ignored. 2 Liberty Tax Service is the dba of JTH Tax, Inc.

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

11


offer refund anticipation products, prohibited them from offering products and services without

Liberty’s permission, mandated minimum hours, mandated the computers to be used, prescribed

the filing system to be used, controlled pricing by mandatory participation in promotional

discounts, required all advertising to be pre-approved, and retained the open-ended right to modify

the operations manual without consent of the franchisees.

The court of appeal held that, “[t]his right of essentially complete control over franchisee

operations . . . exceeded what Liberty reasonably needed to protect its trademark and goodwill.”

Id. at 1239-40. H&R Block’s controls far exceed Liberty’s, see Woods Decl.¶ 4, and Block’s FLA

has the same omnibus provision that “Franchisee shall establish, manage and conduct the

Franchised Business in conformity with all provisions in the Manual which are designated as

applicable to Franchisee and all other directions from Block in writing” and “Block may revise or

supplement the Manual from time to time, and Franchisee shall comply with the Manual as so

modified …” See, Woods Decl. Ex 2.

In sum, the FLA and the Manual of H&R Block plus the other facts and circumstances

presented here demonstrate that H&R Block had (i) the contractual right to control and (ii) the

practical means to control all of the professional conduct of Mr. Wise. And it is Mr. Wise’s

professional service to his customers – not his employment relationship with his employees -- that

is the subject of this case.

B. Ostensible Agency

Plaintiff’s cause of action alleging ostensible agency is separate and distinct from its claim

of actual agency. See Associated Creditors’ Agency v. Davis, 13 Cal.3d 374, 399 (1975) (“The

Civil Code recognizes that agency, and the authority conferred upon an agent, may be ostensible

as well as actual”); Tomerlin v. The Canadian Indemnity Co., 61 Cal.2d 638, 643 (1964)

(“[O]stensible agency arises out of conduct of the principal which causes the third party

reasonably to believe that the agent possesses the authority to act on the principal’s behalf.”)

CACI Jury Instruction 3709 succinctly sets forth the elements of ostensible agency as

follows:

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

12


“Ostensible Agent

[Name of plaintiff] claims that [name of defendant] is responsible for [name of agent]’s conduct because [he/she] was [name of defendant]’s apparent [employee/agent]. To establish this claim, [name of plaintiff] must prove all of the following:

1.That [name of defendant] intentionally or carelessly created the impression that [name of agent] was [name of defendant]’s [employee/agent];

2. That [name of plaintiff] reasonably believed that [name of agent] was [name of defendant]’s [employee/agent]; and

3. That [name of plaintiff] was harmed because [he/she] reasonably relied on [his/her] belief.”

Thus, a defendant is vicariously liable for the acts of a person ostensibly acting on its

behalf even if such person in fact is not an agent of the defendant and even if the principal does

not in fact control the “means and manner” of the alleged agent’s conduct. Cal. Civ. Code §2300

(“An agency is ostensible when the principal intentionally, or by want of ordinary care, causes a

third person to believe another to be his agent who is not really employed by him.”). Ostensible

agency is a question of fact and may be implied from the circumstances. See, e.g., Yanchor v.

Kagan, 22 Cal.App.3d 544, 549 (1971) (“Under these provisions, if a principal by his actions had

led others to believe that he has conferred authority upon an agent, he cannot be heard to assert, as

against third persons who have relied and acted thereon in good faith, that he did not intend to

confer such power.”).

Kaplan v. Coldwell Banker Residential Affiliates, Inc., 59 Cal.App.4th 741 (1997), an

identical case is compelling authority that this motion for summary judgment should be denied. In

Kaplan, the court of appeal of this appellate district reversed a summary judgment in favor of

Coldwell Banker on the ground that the evidence presented triable issues of fact as to whether a

Coldwell Banker franchisee, who defrauded the plaintiff in the purchase of agricultural property,

acted as Coldwell Banker’s ostensible agent in the transaction.

While the court of appeal held that the evidence of actual control by Coldwell Banker over

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

13


the franchisee was insufficient to establish an actual agency, it determined that the following

evidence of ostensible agency raised triable issues of material fact precluding summary judgment:

Here Coldwell Banker made no specific representations to appellant personally. It did, however, make representations to the public in general, upon which appellant relied. We understand why appellant, and members of the public generally, might believe that Coldwell Banker “stood behind” Marsh’s realty company [the franchisee]. The venerable name, Coldwell Banker, the advertising campaign, the logo, and the use of the word “member” were and are designed to bring customers into Coldwell Banker franchises. As appellant stated at his deposition: Coldwell Banker’s “outreach was successful. I believed they [the franchisee and one of his sales agents] were Coldwell Banker. They do a good job of that.”

Appellant, a sophisticated real estate investor and superior court judge, did not notice the small print disclaimer language [on the business cards and office letterhead of the franchisee that it was an “independently owned and operated member of Coldwell Banker Residential Affiliates Incorporated.”] Instead, he relied on the large print and believed that he was dealing with Coldwell Banker, i.e., that Coldwell Banker “stood behind” Marsh. An ordinary reasonable person might also think that Marsh was an ostensible agent of Coldwell Banker.… For summary judgment purposes, it is sufficient to observe that a triable issue of material fact is present.” Id. at 747-8.

The presence of triable issues of fact in the instant case is far stronger. Instead of being an

experienced and sophisticated investor in commercial real estate and a highly educated Los

Angeles Superior Court judge, Plaintiff is an elderly, low-income widow with only an eighth-

grade education in a segregated Louisiana public school. Further, while the franchisee there was

named “Coldwell Banker Citrus Valley Realtors,” giving notice that it was a separate entity from

“Coldwell Banker Residential Affiliates,” the franchisor, here “H&R Block” was the only name

used by both H&R Block and Mr. Wise, providing no notice to Plaintiff that they were not one and

the same. But, as Judge Kaplan did with Coldwell Banker, Plaintiff believed, through H&R

Block’s venerable name, brand, logo, advertising campaign, signage, and other circumstances, that

she was dealing with H&R Block, that Mr. Wise was employed by H&R Block as the manager of

its office in her neighborhood and H&R Block stood behind his work and endorsed him.

H&R Block noted in its New Franchisee Personal Qualifications Summary that Mr. Wise’s

franchise was a “Black Practice” and an “Ethnic Conversion.” Woods Decl.¶ 20. In view of Mr.

Wise’s franchise territory in South Central Los Angeles, H&R Block knew his clients would

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

14


include low-income and less-educated minorities. In light of H&R Block’s entry into this market,

its knowledge of the demographics, and its advertising and signage everywhere stressing the skill,

resources and strength of its nationwide enterprise, its contention now that Plaintiff should have

understood that Mr. Wise was not its employee and agent, but only an independent contractor, is

unpersuasive.3

Moreover, H&R Block strenuously avoided any distinction in its public communications

between its far more numerous owned offices and its franchisees. Woods Decl. ¶ 9. Thus, in the

introductory page of its 2010 Annual Report, it boasts that it “[has] a retail office within 5 miles of

most Americans” and “employs more than 100,000 highly trained tax professionals” (emphasis

added). Woods Decl. ¶ 22, Ex. 18. Despite the fact that Mr. Wise then had operated his H&R

Block office for five years, H&R Block does not mention that it operated franchise offices or that

some of its “tax professionals” were independent contractors for whose misconduct it had no

responsibility. Any acknowledgement that customers could not rely upon H&R Block to stand

behind its professionals employed at franchise offices would dilute its brand and undermine its

marketing efforts.

In this case, the Plaintiff contends that H&R Block, by its extensive advertising and

marketing upon which Plaintiff relied, ostensibly authorized Mr. Wise to perform, not only tax

preparation, but the financial services other than tax preparation through which he misappropriated

her assets.

C. Conversion

Plaintiff’s cause of action for conversion against H&R Block is based solely upon the

misconduct of Mr. Wise as its agent. Plaintiff has testified that Mr. Wise transferred her assets to

his name and kept them without her approval. Adams Decl.¶¶ 32-33. Although H&R Block itself

3 Plaintiff did not understand the purpose or meaning of the sign “this office is independent owned and operated” and never paid any attention to it. Adams Decl.¶ 27. Moreover, neither Mr. Wise nor H&R Block, nor anyone else, explained it to her. After flooding the marketplace with advertisements of its size, expertise, trustworthiness and reliability, H&R Block cannot hide behind this little sign to evade its liability for inducing Mrs. Adams to trust Mr. Wise with her financial affairs and well-being.

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

15


did not receive any of the assets, it is equally liable to Plaintiff under the doctrine of respondeat

superior. Grigsby v. Hagler (1938) 25 Cal.App.2d 714, 716 (1938) [Employer liable when

employee fraudulently overcharged customer.]; 3 Witkin, Summary of California Law, Agency

and Employment § 165 (10th ed. 2005) [“Liability under the doctrine of respondeat superior

extends to malicious acts and other intentional torts of an employee committed while acting within

the scope of employment.”]

In Rutherford v. Rideout Bank, 11 Cal.2d 479 (1938), the Supreme Court affirmed a

judgment against a bank in an action by a depositor who relied upon false representations by the

bank manager in selling real estate at below its market value to a confederate of the bank manager.

The opinion notes that, during a period when her husband was ill, the depositor (like Mrs. Adams)

undertook the management of the property but was inexperienced and unfamiliar with such

matters, that she relied upon the bank through its manager for financial advice, that she sold the

property for a price that he recommended and that she continued to believe in the bank manager’s

truthfulness and good faith until she was presented with documents disclosing that he had accepted

a bribe in exchange for his fraudulent misrepresentations. Id. at 481-483.

The Supreme Court specifically rejected the bank’s argument that its manager was acting

outside the scope of his authority in his wrongful conduct. Instead, noting that the bank manager

was authorized to give general advice to a customer as to the condition of a business in which the

bank had an interest,4 the Court concluded that the bank was liable for advice that was fraudulent,

quoting Restatement of Law of Agency §261 (1933) that “The principal is subject to liability …

although he is entirely innocent, although he has received no benefit from the transaction and, …

although the agent acts solely for his own purposes. Liability is based upon the fact that the

agent’s position facilitates consummation of the fraud…” Id. at 484. See also, 3 Witkin, Summary

of California Law, Agency and Employment §193 (10th ed. 2005). (”If the principal places an

agent in a position to deceive, and the third party relies on the agent’s apparent authority to make

the representations, the principal is liable even though the agent is acting for his or her own

4 The bank held a trust deed to a separate property of the depositor that was not subject to the sale as to which the bank manager made his false representation. Id, at 481.

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

16


purposes.”)

In Hiroshima v. Pacific Gas & Elec. Co., 18 Cal.App.2d 24, 29 (1936), defendant's

collector, went to a ranch of which plaintiff was the manager with instructions to collect a power

bill or disconnect the line. They argued over whether plaintiff had received prior notice, then

plaintiff gave defendant’s collector a check; while the latter commenced to write a receipt, the two

exchanged vile epithets, whereupon defendant’s collector struck plaintiff. Held, defendant was

liable. It is not requisite that the wrongful act be done for the purpose of transacting the employer's

business, nor in furtherance of it. It is simply necessary that it be connected with and grow out of

the employment; it is then considered within its scope. The court approved the following quotation

from a Texas case: “It is not the illegal, malicious, unauthorized or negligent act of the servant

which is required to be within the scope of the employment, or the authority of the servant, or in

furtherance of the master's business, because … the master is liable for any such act of the servant

which, if isolated, would not be imputable to the master, but which is so connected with and

immediately grows out of another act of the servant imputable to the master, that both acts are

treated as one indivisible tort.”

The question of Mr. Wise’s agency, the scope of the agency and whether his misconduct is

sufficiently connected with and grows out of his agency – actual or ostensible – are all jury

questions.

D. Negligent Misrepresentation

Discovery has clarified beyond doubt that this is a case of intentional misrepresentation.

Accordingly, Plaintiff no longer will pursue this cause of action for negligent misrepresentation

and thus does not contest the motion in connection with this cause of action.

E. Money Had And Received

H&R Block asserts a claim for money had and received may not lie because no “certain

sum” was taken. But the undisputed evidence is that Mr. Wise without authority transferred $12,200

from the account of Plaintiff to his own account and has not returned it. Moreover, he sold Plaintiff’s

Intel Corporation shares, with a market value of $82,006.31, and deposited the proceeds to his

separate account. Adams Decl. ¶¶ 32-33. Gutierrez v. Girardi, 194 Cal.App.4th 925, 937 (2011)

("This common count is available in a great variety of situations and 'lies wherever one person

has received money which belongs to another, and which in equity and good conscience should

be paid over to the latter.' Where, as here, the defendant allegedly misappropriates the proceeds

of a settlement that belong to the plaintiff, the plaintiff can maintain a money had and received

cause of action. [citations omitted]"); 55 Cal. Jur. 3d Restitution § 32 (2011) ("When money is

received by one person which belongs to another, the law imposes an obligation to pay it over to the

person entitled to it and implies a promise to do so. The person so entitled may maintain an

action, based upon the implied promise, to recover it.").

V. CONCLUSION

Plaintiff has submitted material evidence that raises genuine issues of fact with respect to

the true business relationship between H&R Block and Mr. Wise and Plaintiff's belief concerning

such relationship based upon H&R Block's advertising, marketing and other representations and

conduct. The existence of these issues bars summary judgment.

LAW OFFICE OF DONALD F. WOODS, JR.

B y l&-eN" Donald F. Woods, Jr.

LAW OFFICES OF WILLIAM A.

POLKINGHORN

By /SJ waix.e„... a. Rtectic.„‘„ William A. Polkinghorn

Attorneys for Plaintiff Edith Adams

17


Dated: February 9, 2016

Dated: February 9, 2016

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

PROOF OF SERVICE

I declare as follows:

I am a resident of the State of California and over the age of eighteen years and not a party to the within action; my business address is 865 South Figueroa Street, Suite 2900, Los Angeles, California 90017. On February 9, 2016, I served the foregoing documents described as

PLAINTIFF'S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, SUMMARY ADJUDICATION BY H&R BLOCK

on the interested parties in this action as follows:

by transmitting via facsimile the documents listed above to the fax numbers set forth below on this date. These transmissions were reported as complete without error by transmission reports issued by the facsimile machine upon which the said transmissions were made immediately following the transmissions. True and correct copies of the said transmissions are attached hereto and incorporated herein by this reference.

by placing the documents listed above in sealed envelopes with postage thereon fully prepaid, in the United States mail at Los Angeles, California, addressed as set forth below.

by electronic transmission. I caused the documents listed above to be transmitted by electronic mail to the individuals on the service list as set forth below.

by placing the documents listed above in sealed envelopes and affixing pre-paid air bills and causing the envelopes to be delivered to a Federal Express agent for delivery.

by personally delivering the documents listed above to the persons at the address set forth below.

Mr. Elray Wise

Attorneys for Defendant H&R Block In Propria Persona

Tax & Business Services, Inc. 7047 Alvern Street #C-224

Heather L. Mayer

Los Angeles, California 90045

Abelson Herron Halpern LLP Telephone: (323) 293-1668

333 South Grand Avenue, Suite 1550

[email protected]

Los Angeles, California 90071-1559 Telephone: (213) 402-1900 Facsimile: (213) 402-1901 [email protected]

[email protected];

Anthony J. Durone [email protected];

Jennifer B. Wieland

[email protected];

Berkowitz Oliver Williams [email protected]

Shaw & Eisenbrandt LLP 2600 Grand Boulevard, Suite 1200 Kansas City, Missouri 64108 Telephone: (816) 561-7007 Facsimile: (816) 561-1888

PROOF OF SERVICE

[email protected] [email protected]

I am readily familiar with the firm's practice of collection and processing correspondence for mailing. Under that practice it would be deposited with the U.S. Postal Service on that same day with postage thereon fully prepaid in the ordinary course of business. I am aware that on motion of the party served, service is presumed invalid if postal cancellation date or postal meter date is more than one day after date of deposit for mailing in affidavit.

Executed on February 9, 2016, at Los Angeles, California.

I declare under penalty of perjury under the laws of the State of California that the above is true and correct.

Donald F. Woo J

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

PROOF OF SERVICE

LAW OFFICE OF DONALD F. WOODS, JR. Donald F. Woods, Jr...

Documents

Transcript of LAW OFFICE OF DONALD F. WOODS, JR. Donald F. Woods, Jr...