information, are appropriate for each customer. In this case, Block allegedly knew that Rapid Refund services would not work for Peterson because she was claiming an earned income credit. But instead of being truthful, Block used its discretion and superior knowledge to keep this information from her.
Likewise, Block's alleged actions show bad faith. Its concealment was allegedly deliberate, done with the improper motive of defrauding Peterson by charging her for a service she could not obtain. "Where a party acts with improper motive . . . that party is exercising contractual discretion in a manner inconsistent with the reasonable expectations of the parties and therefore is acting in bad faith." Dayan, 125 Ill. App. 3d at 991, 466 N.E.2d at 972; see also Saunders v. Michigan Ave. Nat'l Bank, 278 Ill. App. 3d 307, 316, 662 N.E.2d 602, 610, 214 Ill. Dec. 1036 (1st Dist. 1996) (improper motive is a "predominant theme" in bad faith cases). Rather than exercising its discretion reasonably, Block transgressed Peterson's reasonable expectation of receiving accurate tax advice by duping her into paying money for a service wholly unavailable to her. If proven, such conduct would unquestionably violate Block's duty of good faith and fair dealing.
In sum, when we consider the obligation of good faith and fair dealing inherent in every contract, we conclude that Peterson has satisfied the generous federal pleading standards for breach of contract. Block's motion to dismiss is therefore denied as to Count I.
II. Count V -- Breach of Fiduciary Duty
In Count V, Peterson alleges that Block owed her a fiduciary duty by virtue of its position as her tax adviser and accountant. Block allegedly abandoned this duty because it fraudulently misrepresented that Rapid Refund services were available to taxpayers who claimed an EITC. Instead of putting its customers' interests first, Block allegedly worked only to advance its own interests -- contrary to its fiduciary duty. Block responds that the Court should dismiss Count V because 1) Block's affiliation with Peterson does not fit any of the traditional fiduciary models, including an agency relationship; 2) its relation to her as a tax preparer (and assuming the truth of Peterson's allegations) advisor or accountant does not give rise to fiduciary duties; 3) Peterson does not plead facts sufficient to establish any other fiduciary relationship; and 4) even assuming that Block owed Peterson a fiduciary duty, the alleged wrongs fall outside the scope of that duty.
"A fiduciary duty is the duty of an agent to treat his principal with the utmost candor, rectitude, care, loyalty, and good faith -- in fact to treat the principal as well as the agent would treat himself." Lagen v. Balcor Co., 274 Ill. App. 3d 11, 21, 653 N.E.2d 968, 975, 210 Ill. Dec. 773 (2d Dist. 1995). Although courts may find a fiduciary relationship when one person solicits another to repose trust in his expertise, "the fact that one party trusts the other is insufficient [to create a fiduciary relationship]. We trust most people with whom we choose to do business." Id. The "essence" of a fiduciary relationship is one party's dominance over the other. Id. "Indeed, in the absence of dominance and influence there is no fiduciary relationship regardless of the level of trust between the parties." Id. (citations omitted). Significantly, a "slightly dominant business position . . . [does] not operate to turn a formal, contractual relationship into a confidential or fiduciary relationship." Id. (citations and internal quotations omitted). Courts therefore will not impose fiduciary duties absent a "significant degree of dominance and superiority of one party over another." Id.
Illinois courts recognize that these elements are manifested by nature in certain relationships, which they deem fiduciary as a matter of law. See, e.g., Winston & Strawn v. Nosal, 279 Ill. App. 3d 231, 239, 664 N.E.2d 239, 244-45, 215 Ill. Dec. 842 (1st Dist. 1996) (partners); Newton v. Aitken, 260 Ill. App. 3d 717, 722, 633 N.E.2d 213, 218, 198 Ill. Dec. 751 (2d Dist. 1994) (joint venturers); Lossman v. Lossman, 274 Ill. App. 3d 1, 7, 653 N.E.2d 1280, 1286, 210 Ill. Dec. 818 (2d Dist. 1995) (attorney and client); Matter of Estate of Dyniewicz, 271 Ill. App. 3d 616, 622, 648 N.E.2d 1076, 1081, 208 Ill. Dec. 154 (1st Dist. 1995) (guardian and ward); Smith v. First Nat. Bank of Danville, 254 Ill. App. 3d 251, 261, 624 N.E.2d 899, 907, 191 Ill. Dec. 711 (4th Dist. 1993) (trustee and beneficiary); Kurtz v. Solomon, 275 Ill. App. 3d 643, 651, 656 N.E.2d 184, 190, 212 Ill. Dec. 31 (1st Dist. 1995) (agent and principal). Peterson's first argument in support of her fiduciary claim is that Block owed her fiduciary duties as a matter of law by agreeing to act as her agent.
A. Block Was Not Peterson's Agent
An agency relationship has two components: 1) the principal has the right to control the manner and method in which the agent performs work for her; and 2) the agent has the power to subject the principal to personal liability. Knapp v. Hill, 276 Ill. App. 3d 376, 380, 657 N.E.2d 1068, 1071, 212 Ill. Dec. 723 (1st Dist. 1995). To form an agency, the parties need not use the word "agent" nor characterize their relationship as principal-agent. RTC v. Hardisty, 269 Ill. App. 3d 613, 619, 646 N.E.2d 628, 632-33, 207 Ill. Dec. 62 (3d Dist. 1995). Their actions need only demonstrate a desire to create an agency relationship, for example, through a previous course of dealing that is sanctioned or ratified by the principal. 646 N.E.2d at 633. "Once an agency relationship is found, a fiduciary relationship arises as a matter of law." Letsos v. Century 21-New West Realty, 285 Ill. App. 3d 1056, , 675 N.E.2d 217, 224, 221 Ill. Dec. 310 (1st Dist. 1996).
Peterson and Block's relationship fails the first and most critical element. The "key consideration" in determining whether an agency relationship exists is whether the principal had the right to control the "manner and method" in which the agent performs work. Knapp, 276 Ill. App. 3d at 380, 657 N.E.2d at 1071. Although Peterson argues in her brief that Block's clients "directed" Block "regarding what returns to file and what information to put in the return," Pl. Br. at 9-10, the allegations in her complaint do not support this. The most Peterson alleges is that she provided Block the information it needed to complete her tax return. From there, Block took over. It was Block who made the determination that Peterson was eligible for an EITC and, according to ServicePlus, ensured that all of Peterson's income was reported, her adjustments and deductions claimed, and her credits and payments identified. Furthermore, Peterson's complaint indicates that it was Block who wielded complete control in determining RAL eligibility. There is no allegation that Peterson instructed Block as to how it should go about preparing her return or assessing what services were available to her. Consequently, the complaint is devoid of facts demonstrating that Peterson controlled the "manner or method" in which Block performed its services.
Although the trier of fact most often answers whether particular facts giving rise to an agency relationship exist, "a plaintiff must still plead facts, which, if proved, could establish the existence of an agency relationship." Knapp, 276 Ill. App. 3d at 382, 657 N.E.2d at 1072. Peterson has not done so.
B. No Other Fiduciary Relationship Exists
Unable to establish a fiduciary relationship as a matter of law, Peterson attempts to impose fiduciary duties on Block on an "ad hoc" basis, alleging that the particular tax advisor/accountant-client relationship between her and Block rendered Block her fiduciary.
See Burdett v. Miller, 957 F.2d 1375, 1381 (7th Cir. 1992) (while investment advisor-advisee relationship is not fiduciary by law, "fiduciary duties are sometimes imposed on an ad hoc basis."). In support of her position, Peterson cites a plethora of cases, only two of which were decided in this circuit and/or based on Illinois law, where courts held that the facts before them warranted attributing fiduciary status to a tax advisor or accountant. See, e.g., Burdett, 957 F.2d 1375, Terrell v. Childers, 920 F. Supp. 854 (N.D. Ill. 1996).
But these cases do not assist Peterson because in each, the defendants did far more than simply provide basic tax advice on an isolated basis. The courts' decisions to impose fiduciary duties were all premised on the parties' long-term, ongoing relationships, as well as the defendants' roles in managing assets, rendering complex investment advice and/or performing audits. For example, in Burdett the Seventh Circuit held a financial advisor liable to his investor for breach of fiduciary duty where the advisor, in addition to preparing the investor's income tax returns, recommended a number of investments over several years and rendered advice on a series of tax shelters. Burdett, 957 F.2d at 1378-79. The court emphasized that the parties "cultivated a relation of trust . . . over a period of years," and that the defendant induced the plaintiff "to accept his advice with no questions asked or answered." Id. at 1381-82. Likewise, in Terrell, the court concluded that a genuine issue of fact existed as to whether the defendant, a tax planning expert retained for several years to provide budget advice and preparation, tax advice and planning, insurance and estate planning, as well as to manage the plaintiff's assets, owed a fiduciary duty to his client. Terrell, 920 F. Supp. at 857.
The facts before us are vastly different: Block has no close, long-term relationship with Peterson or influence over the management and investment of her assets. Unlike the sophisticated financial advisor in Burdett and the tax planning expert in Terrell, Block is alleged to have done nothing more than perform a basic accounting function -- preparing tax returns and advising its customers on the process. "Where an accountant merely performs basic accounting functions, no fiduciary relationship is created." Fleet Nat'l Bank v. H & D Entertainment, Inc., 926 F. Supp. 226, 242 (D. Mass. 1996), aff'd, 96 F.3d 532 (1st Cir. 1996). Indeed, to render an accountant liable as a fiduciary, the plaintiff must allege that he either provided investment advice, recommended complex financial transactions, structured deals, see id., or performed audits, see, e.g., In re DeLorean Motor Co., 56 B.R. 936 (Bankr. E.D. Mich. 1986), none of which Peterson claims Block did here. Moreover, Peterson did not have to accept Block's advice blindly. Block expressly offered her the opportunity, via the ServicePlus pamphlet, to ask questions, a factor whose absence the Seventh Circuit found significant in Burdett. The sharp distinctions between these cases and the one before us prevent Peterson from resting her ad hoc fiduciary duty claim on this authority.
Aside from the defeating factual distinctions in her cited case law, Peterson fails to plead the "essence" of a fiduciary duty claim. Peterson is required to plead that Block had "a significant degree of dominance and superiority" over her, a standard her complaint does not meet. See Lagen, 274 Ill. App. 3d at 21, 653 N.E.2d at 975. Peterson claims that she trusted in Block's "superior knowledge, help, and guidance" in filing her tax return and dispensing RAL advice; however, nothing in these allegations shows significant dominance. Her relationship with Block was limited to an arms-length, isolated transaction for tax preparation services and basic tax advice; Block did not retain continuing control or influence over Peterson's assets, was in no position to stake large sums of her money in risky venture, nor had unquestioning control over her financial portfolio. The fact that she trusted Block is simply not enough, see id., especially when she had the opportunity to ask questions about the process. In short, Peterson and Block's relationship was merely contractual, not fiduciary. Although Block was somewhat dominant, given that Peterson lacked sophistication in tax matters and yielded control over preparing her return, a "slightly dominant business position . . . [does] not operate to turn a formal, contractual relationship into a confidential or fiduciary relationship." Id; see Pottinger, 238 Ill. App. 3d 908 at 918, 605 N.E.2d 1130 at 1138 ("We do not consider the existence of a contractual relationship . . ., without more, to support a finding that a fiduciary relationship in fact existed."). We find that her allegations fall short of pleading an ad hoc fiduciary relationship.
We acknowledge that Block is alleged to be a commercially successful and well-known expert on tax matters and the world's largest provider of tax services to United States taxpayers. But no case in Illinois or anywhere else holds that every expert is ipso facto a fiduciary. If this were so, every business that specializes in a particular type of service would be the fiduciary of its customers. And making Block a fiduciary to all of its customers would produce absurd results given that Block allegedly assists in filing one in every seven federal income tax returns. See Amd. Cmplt. Ex. B (H & R Block Report to Stockholders for Year Ending 4/30/95, at *14). The deterrent effect of saddling Block with fiduciary obligations could easily leave taxpayers without the firm's valuable services altogether.
After considering all of Peterson's arguments, we find that the complaint, as it stands, pleads neither an agency relationship nor any other fiduciary affiliation with Block. Because we accept Block's argument that no fiduciary relationship exists, we need not address its alternative argument that the facts alleged fall outside the scope of Block's fiduciary duty. Accordingly, we dismiss Count V without prejudice.
For the reasons stated above, Block's motion to dismiss is granted in part and denied in part. It is granted as to Count V and denied as to Count I.
United States District Judge
July 10, 1997