Jerry Stacy v. HRB Tax Group, Inc.

NOT RECOMMENDED FOR PUBLICATION
File Name: 13a0233n.06
No. 11-2012
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
Mar 06, 2013
DEBORAH S. HUNT, Clerk
JERRY STACY, EMILY STACY, THERESA )
ANDERS, AJA SMALLWOOD, JENNIFER ) ON APPEAL FROM THE UNITED
TOMASZEWSKI and CYNTHIA TLUCEK, ) STATES DISTRICT COURT FOR
) THE EASTERN DISTRICT OF
Plaintiffs-Appellants, ) MICHIGAN
)
v. )
)
HRB TAX GROUP, INC., )
)
Defendant-Appellee. )
)
BEFORE: CLAY and WHITE, Circuit Judges; HOOD, District Judge.*
HELENE N. WHITE, Circuit Judge. In this diversity case, Plaintiffs, clients of Defendant
HRB Tax Group who had their identities stolen by a tax preparer HRB hired, appeal the grant of
summary judgment to HRB on their three-count complaint. We AFFIRM the dismissal of the gross-
negligence claim, and REVERSE the dismissal of the negligent-safeguarding-of-information and
negligent hiring/supervision claims.
I.
The facts viewed in a light most favorable to Plaintiffs are that in 2007, Sophia Quill, a tax
preparer HRB hired, utilized the unfettered access HRB tax preparers have to clients’ past tax returns
*
The Honorable Joseph M. Hood, United States District Judge for the Eastern District of
Kentucky, sitting by designation.
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Stacy et al. v. HRB Tax Group, Inc.
to complete and submit 2006 tax returns in Plaintiffs’ names, without Plaintiffs’ knowledge or
authorization, and to collect the tax refunds. Quill worked as a tax-preparer at various HRB offices
in Michigan.
HRB conducted no criminal-background checks, credit checks, or checks of any kind when
hiring tax-preparers, including Quill; rather, it relied on their employment applications and answers
to interview questions. Quill’s employment application stated that she had no prior convictions
when, in fact, she had multiple convictions in Michigan for identity theft and using computers to
commit a crime. See R. 66 at 15 and penultimate exhibit (a Michigan Department of Corrections
Online Offender Search listing Quill’s multiple convictions pre-dating her employment with HRB,
including for identity theft, using computers to commit a crime, and embezzlement, and listing more
than 20 aliases). Quill testified on deposition that her interviewer filled out her employment
application for her and did not ask if she had a criminal record. HRB would have easily discovered
Quill’s convictions had it conducted a minimal investigation, e.g., by running (at no cost) an offender
search through the Michigan Department of Corrections’ free website,
http://mdocweb.state.mi.us/OTIS2/otis2.aspx.
Regarding HRB’s supervision of its tax preparers, Quill testified on deposition that no
supervisor ever sat down with her or supervised her preparation of tax returns.
Plaintiffs filed a three-count complaint in state court, alleging negligent hiring/supervision,
negligent safeguarding of private information and gross negligence. HRB removed the case to
federal court and moved for summary judgment. The district court dismissed Plaintiffs’ negligent
hiring/supervision claim for failure to allege a physical injury or act; the negligent-safeguarding-of-
No. 11-2012
Stacy et al. v. HRB Tax Group, Inc.
private-information claim on the basis that it was “simply an additional negligent hiring/supervision
claim in disguise”; and the gross-negligence claim for failure to state a cognizable claim.
II.
This court reviews de novo the district court’s grant of summary judgment, assessing the
evidence, facts, and inferences therefrom in the light most favorable to the nonmoving party. Bazzi
v. City of Dearborn, 658 F.3d 598, 602 (6th Cir. 2011). In diversity cases, federal courts must apply
state law in accordance with the then-controlling decisions of the highest state court. Ziegler v. IBP
Hog Market, Inc., 249 F.3d 509, 517 (6th Cir. 2001) (internal quotations and citations omitted). If
the state’s highest court has not spoken on a precise issue, which is the case here, a federal court may
not disregard a decision of the state appellate court on point, published or unpublished, unless it is
convinced by other persuasive data that the highest court of the state would decide the issue
otherwise. Id.Under Michigan law, a plaintiff must prove four elements to prevail in a negligence claim:
a duty owed by the defendant, a breach of that duty, causation, and damages. Case v. Consumers
Power Co., 615 N.W.2d 17, 20 (Mich. 2000) (citing Schultz v. Consumers Power Co., 506 N.W.2d
175, 177 (Mich. 1993)). Whether a duty exists is for the court to decide as a matter of law. Graves
v. Warner Bros., 656 N.W.2d 195, 200 (Mich. Ct. App. 2002).
[A] negligence action may be maintained only if a legal duty exists that requires the
defendant to conform to a particular standard of conduct in order to protect others
against unreasonable risks of harm. This analysis requires a determination whether
the relationship of the parties is the sort that a legal obligation should be imposed on
one for the benefit of another.
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Stacy et al. v. HRB Tax Group, Inc.
Id. (internal citations omitted). Because criminal activity by its deviant nature is normally
unforeseeable, generally, there is no duty to protect another from the criminal acts of a third party
in the absence of a special relationship between the defendant and the plaintiff or the defendant and
the third party. Id. Examples of the “special relationships” Michigan law recognizes include:
landlord-tenant, proprietor-patron, employer-employee, residential invitor-invitee, carrier-passenger,
innkeeper-guest, and doctor-patient. Id. at 201.
To determine whether there is a special relationship giving rise to a legal duty, Michigan
courts consider: 1) the societal interests involved, 2) the severity of the risk, 3) the burden on the
defendant, 4) the likelihood of occurrence of the risk, and 5) the relationship between the parties.
Murdock v. Higgins, 527 N.W.2d 1, 3 (Mich. Ct. App. 1994) (citing Dykema v. Gus Macker Enters.,
Inc., 492 N.W.2d 472, 474 (Mich. Ct. App. 1992)). Other factors that may give rise to a duty include
the foreseeability of the harm, the defendant’s ability to comply with the duty, the victim’s inability
to protect himself, the cost of providing protection, and whether the victim bestowed any economic
benefit on the defendant.
III.
A.
Plaintiffs argue that physical injury is not a requirement of the negligence claims they assert
because they can establish a special relationship such that HRB owed them a duty to safeguard their
personal information and that the cases that HRB and the district court relied on do not foreclose
them from doing so.
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HRB argues that summary judgment was proper not only because Michigan courts do not
recognize negligence claims for purely economic injury but also because Plaintiffs cited no authority
extending the tort to claims for purely economic injury or suggesting an inclination for such an
extension of state law and because it is not for this court to do so absent some authoritative signal
to that effect from the Michigan legislature or courts.
HRB overlooks several such authoritative signals–first, by the Michigan Court of Appeals
in Bell v. Mich. Council 25 of Am. Fed’n of State, Cnty., and Mun. Emps., No. 246684, 2005 WL
356306 (Mich. Ct. App. Feb. 15, 2005) (unpublished decision), perm. to appeal denied, 707 N.W.2d
597 (2005), and second, by the Michigan legislature’s 2004 enactment of the Social Security Number
Privacy Act (SSNPA), Mich. Comp. Laws Ann. § 445.81 et seq. (West 2013).1
1
Both the Bell majority and dissenting judge cited the SSNPA, see Bell v. Mich. Council 25
of Am. Fed’n of State, Cnty., and Mun. Emps., No. 246684, 2005 WL 356306, at *6 n.3 & *12
(Murray, J., dissenting), which provides in part:
Sec. 4. (1) Beginning January 1, 2006, a person who obtains 1 or more social
security numbers in the ordinary course of business shall create a privacy policy that
does at least all of the following concerning the social security numbers the person
possesses or obtains:
(a) Ensures to the extent practicable the confidentiality of the social security
numbers.
(b) Prohibits unlawful disclosure of the social security numbers.
(c) Limits who has access to information or documents that contain the social
security numbers.
(d) Describes how to properly dispose of documents that contain the social security
numbers.
(e) Establishes penalties for violation of the privacy policy.
Mich. Comp. Laws Ann. § 445.84 (West 2013). The SSNPA authorizes civil actions (as well as
criminal):
An individual may bring a civil action against a person who violates section 3 and
may recover actual damages. If the person knowingly violates section 3, an
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Stacy et al. v. HRB Tax Group, Inc.
B. Bell
As the Michigan Supreme Court has not spoken on the precise issue presented here, we look
to and apply the Michigan state appellate courts’ decisions on point. Ziegler, 249 F.3d at 517. The
Michigan Court of Appeals in Bell held that under certain circumstances, a special relationship can
exist between a defendant and plaintiffs such that the defendant does owe the plaintiffs a duty to
protect them from identity theft by providing some safeguards to ensure the security of their most
essential confidential identifying information, information which easily could be used to appropriate
a person’s identity. Bell, 2005 WL 356306, at *5 (holding that a duty to protect personal information
arose where union was entrusted with union members’ personal information because relationship
was similar to a fiduciary relationship between a financial institution and its clients).
Having considered the matter and reasoning from the decision in Bell, we conclude that the
Michigan courts would also determine that HRB owed a duty of care to safeguard the plaintiffs’
confidential identifying information in this instance because of the special relationship between
taxpayer and tax preparer. Further, we reason from Bell that the Michigan courts are prepared to
recognize that economic and emotional injuries allegedly occasioned by reasonably foreseeable
instances of identity theft that result from an employee’s actions may serve as the basis for recovery
in these types of cases, even in the absence of a physical injury. In this vein, we note that two of the
cases on which HRB has relied for the proposition that negligent hiring and supervision claims are
individual may recover actual damages or $1,000.00, whichever is greater. If the
person knowingly violates section 3, an individual may also recover reasonable
attorney fees . . . .
Id. at § 445.86(2).
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limited to those where physical acts and injuries are involved pre-date Bell, see Bean v. Directions
Unlimited, Inc., 609 N.W.2d 567 (Mich. 2000); Vennittilli v. Primera, Inc., 943 F. Supp. 793 (E.D.
Mich. 1996), and that neither Bean nor a third case relied on, and the only one that post-dates Bell,
Dudley v. Thomas, No. 08-14017, 2009 WL 1620413 (E.D. Mich. June 9, 2009), expressly relegate
negligent hiring/supervision claims to those involving a physical act and injury. Accordingly we are
not persuaded that the Michigan courts would foreclose relief to Plaintiffs because of the economic
and emotional, rather than physical, nature of the damages alleged.2
IV.
The district court properly dismissed the gross negligence claim, as Plaintiffs did not present
sufficient evidence such that reasonable minds could differ regarding whether HRB’s conduct was
so reckless as to demonstrate a substantial lack of concern for whether an injury resulted. See Xu
v. Gay, 668 N.W.2d 166, 170 (Mich. Ct. App. 2003) (citing Vermilya v. Dunham, 489 N.W.2d 496,
499 (Mich. Ct. App. 1992)).
V.
For these reasons, we AFFIRM the dismissal of Plaintiffs’ gross negligence claim, and
REVERSE the dismissal of Plaintiffs’ negligent-safeguarding-of-information and negligent
hiring/supervision claims.
2
We are not persuaded by HRB’s post-argument supplemental briefing on Bell, in which it
contends that “Bell’s relevance to this case is marginal, at best.”