HR Block 2006 Annual Report Download - page 86

SECURITIES AND SHAREHOLDER DERIVATIVE LITIGATION –Over a Southern District of New York, Case No. 06-CV-2306-KMK (instituted on
period of several weeks beginning on March 16, 2006, eight shareholder March 24, 2006).
derivative actions were initiated against certain of the Company’s OTHER CLAIMS AND LITIGATION –As reported previously, the
current and former directors and officers (two of which were NASD brought charges against HRBFA regarding the sale by HRBFA of
subsequently dismissed voluntarily by the plaintiffs). These cases were Enron debentures in 2001. A hearing for this matter commenced in May
purportedly brought on behalf of the Company, which is named as a 2006 and was recessed until the fall of 2006. We intend to defend the
‘‘nominal defendant.’’ These cases generally involve allegations of NASD charges vigorously, although there can be no assurances
breach of fiduciary duty, abuse of control, gross mismanagement, waste regarding the outcome and resolution of the matter.
and unjust enrichment pertaining to (i) the Company’s restatement of As part of an industry-wide review, the IRS is investigating tax-
financial results due to errors in determining the Company’s state planning strategies that certain RSM clients utilized during fiscal years
effective income tax rate and (ii) certain of the Company’s products and 2000 through 2003. Specifically, the IRS is examining these strategies to
other business activities. We intend to defend these cases vigorously, determine whether RSM complied with tax shelter reporting and listing
but there are no assurances as to their outcome. The shareholder regulations and whether such strategies were abusive as defined by the
derivative cases that currently have not been dismissed are Hibbard v. IRS. If the IRS were to determine that RSM did not comply with the tax
H&R Block, Inc., et al., in the United States District Court for the shelter reporting and listing regulations, it might assess fines or
Western District of Missouri, Case No. 5:06-cv-06059-RED (instituted on penalties against RSM. Moreover, if the IRS were to determine that the
May 16, 2006); Gottlieb v. H&R Block, et al., in the Circuit Court of tax planning strategies were inappropriate, clients that utilized the
Jackson County, Missouri, Case No. 0616-CV-14109 (instituted on strategies could face penalties and interest for underpayment of taxes.
June 5, 2006); Lebowitz v. H&R Block, et al.,, in the Circuit Court of Some of these clients are seeking or may attempt to seek recovery from
Jackson County, Missouri, Case No. 0616-CV-14124 (instituted on RSM. There can be no assurance regarding the outcome of and
June 5, 2006); Staehr v. H&R Block, Inc., et al., in the United States resolution of this matter.
District Court for the Western District of Missouri, Case We have from time to time been party to claims and lawsuits not
No. 4:06-cv-00284-GAF (instituted on April 5, 2006); Momentum discussed herein arising out of our business operations. These claims
Partners v. H&R Block, et al., in the United States District Court for the and lawsuits include actions by state attorneys general, individual
Western District of Missouri, Case No. 06-cv-00465-SWH (instituted on plaintiffs, and cases in which plaintiffs seek to represent a class of
June 8, 2006); and Iron Workers Local 16 Pension Fund v. H&R Block, similarly situated customers. The amounts claimed in these claims and
et al., in the United States District Court for the Western District of lawsuits are substantial in some instances, and the ultimate liability
Missouri, Case No. 06-cv-00466-ODS (instituted on June 8, 2006). with respect to such litigation and claims is difficult to predict. Some of
In addition to the shareholder derivative actions, five putative class these claims and lawsuits pertain to RALs, the electronic filing of
actions alleging violations of certain securities laws were filed customers’ income tax returns, the POM guarantee program and our
beginning in March 2006 (two of which were subsequently dismissed by Express IRA program. We believe we have meritorious defenses to each
the plaintiffs). These actions allege, among other things, deceptive, of these claims, and we are defending or intend to defend them
material and misleading financial statements, failure to prepare vigorously, although there is no assurance as to their outcome.
financial statements in accordance with generally accepted accounting In addition to the aforementioned types of cases, we are parties to
principles and concealment of the potential for lawsuits stemming from claims and lawsuits that we consider to be ordinary, routine litigation
the allegedly fraudulent nature of the Company’s operations. The incidental to our business, including claims and lawsuits (Other Claims)
actions seek unspecified damages and equitable relief. We intend to concerning investment products, the preparation of customers’ income
defend these cases vigorously, but there are no assurances as to their tax returns, the fees charged customers for various products and
outcome. The cases that have not been dismissed are Nettie v. services, losses incurred by customers with respect to their investment
H&R Block, Inc. and Mark A. Ernst in the United States District Court accounts, relationships with franchisees, denials of mortgage loans,
in the Western District of Missouri, Case No. 06-0235-CV-W-ODS contested mortgage foreclosures, other aspects of the mortgage
(instituted on March 17, 2006); Winters v. H&R Block, Inc., et al., in the business, intellectual property disputes, employment matters and
United States District Court in the Western District of Missouri, Case contract disputes. We believe we have meritorious defenses to each of
No. 04:06-CV-00243-NKL (instituted on March 20, 2006); New Jersey the Other Claims, and we are defending them vigorously. While we
Carpenters Pension Fund v. H&R Block, Inc., et al., in the United States cannot provide assurance that we will ultimately prevail in each
District Court in the Southern District of New York, Case instance, we believe the amount, if any, we are required to pay in the
No. 06-CV-2204-KMK (instituted on March 21, 2006); and Kadagian v. discharge of liabilities or settlements in these Other Claims will not
H&R Block, Inc., et al., in the United States District Court in the have a material adverse effect on our consolidated financial statements.
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H&R BLOCK 2006 Form 10K