People v. JTH Tax, Inc.
212 Cal. App. 4th 1219
| Cal. Ct. App. | 2013Background
- Liberty Tax Service (Liberty) operates 2,000+ stores nationwide, including 195 California locations, offering tax prep, refunds and related bank products (RAL and ERC).
- Plaintiff People allege Liberty’s advertising and practices violated California’s UCL, FAL, and federal law by misrepresenting RAL/ERC products and failing to disclose costs; the state AG sought injunctive relief, civil penalties and restitution.
- The trial court found: ERC handling fee (about $24–$30) was an undisclosed TILA finance charge; cross-collection efforts targeted past debts and violated FDCPA/CLRA and UCL/FAL; franchisees’ ads were (via agency theory) liable to Liberty; penalties and injunctive relief were warranted.
- Evidence showed Liberty controlled RAL/ERC sales, bank relationships, and extensive advertising guidelines, including pre-approval of ads and manipulation of pricing and promotional offers.
- The court imposed civil penalties totaling hundreds of thousands of dollars for advertising violations, plus restitution and permanent injunctions restricting future practices and requiring monitoring of franchisees.
- Liberty appealed challenging the trial court’s legal conclusions and judgments on ERC finance charges, cross-collection practices, vicarious liability for franchisee advertising, penalties, and injunctive relief.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| ERC handling fee as a TILA finance charge | ERC fee should be a finance charge | Fee either not a charge or outside TILA scope | Fee is a finance charge; disclosure required |
| Comparable cash transactions defense under TILA | Carney/Berryhill logic rejects cash-transaction exception | Some ERC fees could be cash-equivalent | Comparable cash transaction defense rejected; ERC fee not exempt |
| Cross-collection practices and liability | Practices deceive and violate FDCPA/CLRA and UCL/FAL | No liability; defenses under FDCPA/CLRA and not waived | Cross-collection practices violated statutes; waiver on some grounds |
| Liberty's liability for franchisee advertising | Agency theory applies; franchisor liable for ads | Franchisees are independent; limited control | Liberty liable as agent for franchisee advertising; Ford Dealers exception not met |
| Equitable/ injunctive relief scope and penalties | Injunction and penalties necessary to prevent ongoing violations | Injunction too broad, due process concerns | Injunction and penalties affirmed; discretionary and appropriately tailored |
Key Cases Cited
- Berryhill v. Rich Plan of Pensacola, 578 F.2d 1092 (5th Cir. 1978) (service contract treated as part of credit extension under TILA)
- Carney v. Worthmore Furniture, Inc., 561 F.2d 1100 (4th Cir. 1977) (cash transactions do not remove finance charge when tied to credit extension)
- Toomey, 157 Cal.App.3d 1 (Cal. App. 1985) (vicarious liability limitations under UCL)
- Ford Dealers Assn. v. Dept. of Motor Vehicles, 32 Cal.3d 347 (Cal. 1982) (principal-agent liability under advertising regulation; potential unusual-circumstances exception)
- Emery v. Visa Int’l Serv. Ass’n, 95 Cal.App.4th 952 (Cal. App. 2002) (agency theory limitations in unfair practices context)
- Olson, 96 Cal.App.3d 181 (Cal. App. 1979) ( Olson standards for calculating civil penalties under UCL/FAL)
- Cel-Tech Comms., Inc. v. Los Angeles Cellular Telephone Co., 20 Cal.4th 163 (Cal. 1999) (broad scope of UCL; three varieties of unfair competition)