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No Choice-of-Law for Promissory Estoppel Claim

Although the parties’ choice-of-law clause calls for application of California law, a Norfolk Circuit Court says the choice-of-law provision will not allow plaintiff tax preparation service to sue defendant bank for promissory estoppel, a claim that Virginia law does not recognize.

Plaintiffs provide tax preparation and electronic filing services directly to consumers at their own stores. Defendants are Santa Barbara Bank & Trust (SBBT) and Santa Barbara Tax Products Group LLC (SBTPG). SBBT is in the banking industry and provides tax refund related services. In January 2010, SBGT’s e-filing tax products division was sold to SBTGB, which is the successor in interest to SBBT’s e-filing tax products division.

In 2009, plaintiffs sought to offer CrossLink Multi-Site Online (MSO) which they believe was the only 100-percent web-based professional tax preparation solution for multi-site deployments. In order to provide services through MSO, plaintiffs would be forced to switch banks and work with SBBT because SBBT was the exclusive provider of bank products and services for tax filers using MSO.

The primary reason a tax return service is required to partner with a bank is to provide the service’s clients expedited access to funds based upon their anticipated tax refund. The two products at issue here are Refund Transfers and Refund Anticipated Loans (RALs). Plaintiffs allege that by Oct. 28, 2009, they reasonably believed they had reached an agreement for SBBT to provide both RALs and RTs for all of plaintiffs’ locations. Plaintiffs also began to receive materials that confirmed this belief, such as checks from SBBT, which constituted a bank product under the Financial Services Agreement (FSA).

The conflict between the parties began on Dec. 24, 2009, when the Office of the Comptroller of the Currency notified SBBT’s parent company that it would not receive regulatory approval to originate any RALs during the 2010 season. Plaintiffs were not made aware of this lack of regulatory approval until an email dated Jan. 13, 2010, only two days before the start of the tax season; therefore, plaintiffs had not time to make alternative arrangements with another bank. Despite knowing for three weeks that SBTPG would be unable to offer RALs for the 2010 tax season to plaintiff, SBBT and SBTPG continued to make misleading representations.

Because of the choice-of-law provision in the FSA, California law will apply to the breach of contract claim. Plaintiff allege they entered into a valid contract in the form of the FSA, that they fulfilled all their obligations under the FSA and that defendants breached their obligations , causing damage to plaintiffs. The court overrules the demurrer to the breach of contract claim.

However, the court sustains the demurrer to plaintiffs’ claim for promissory estoppel. Virginia does not recognize the claim of promissory estoppel among its equitable claims, and Virginia does not allow application of a choice-of-law provision to a claim of promissory estoppel. The sole Virginia case that mentions a choice-of-law provision’s relation to promissory estoppel is Ward’s Equip. Inc. v. New Holland N. Am., 254 Va. 379 (1997). It is apparent from reading Ward’s that a choice-of-law provision does not apply to a promissory estoppel action. Virginia does not recognize promissory estoppel as a cause of action and thus has a strong interest in restricting the use of promissory estoppel claims in its legal system. The choice-of-law provision will not apply to a claim of promissory estoppel.

Plaintiffs pled their claim of fraud with adequate specificity. Virginia law, not California law, applies to the claim of fraud because it is an extra-contractual claim that arises from tort law. Plaintiffs adequately allege with sufficient specificity all six elements of a fraud cause of action: the defendants falsely represented to plaintiffs that RALs would be available during the 2010 tax season; defendants’ misrepresentations were of a material fact because RALs are an important aspect of a successful tax preparation business; and defendants’ knowingly and intentionally concealed material facts related to defendants’’ abilities to provide RALs for the 2010 tax season. Plaintiffs further allege that defendants intended to mislead plaintiffs with their statements and that there was reliance on misleading statements by plaintiffs. Finally, plaintiffs allege the reliance on the misleading statements resulted in damage to plaintiffs.

R.T.O. Inc. v. Santa Barbara Bank & Trust N.A. (Poston) No. CL 12-0437, Nov. 20, 2012; Norfolk Cir.Ct.; William F. Devine, Joshua D. Rogaczewski for the parties. VLW 012-8-187, 7 pp.

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