HR Block 2007 Annual Report Download - page 106

Case No. CGC-06-449461, in the California Superior Court, San New York, County of New York (Index No. 06/401110) entitled The
Francisco County, instituted on February 15, 2006 (alleging, among People of New York v. H&R Block, Inc. and H&R Block Financial
other things, untrue, misleading or deceptive statements in marketing Advisors, Inc. The complaint alleged fraudulent business practices,
RALs and unfair competition with respect to debt collection activities; deceptive acts and practices, common law fraud and breach of fiduciary
seeks equitable relief, civil penalties and restitution). This case is in the duty with respect to the Express IRA product and sought equitable
discovery stage. relief, disgorgement of profits, damages and restitution, civil penalties
PEACE OF MIND LITIGATION –Lorie J. Marshall, et al. v. H&R Block and punitive damages. On December 1, 2006, the Supreme Court of the
TaxServices, Inc., et al., Civil Action 2003L000004, in the Circuit Court State of New York issued a ruling that dismissed the New York Attorney
of Madison County, Illinois, is a class action case filed on January 18, General’s lawsuit in its entirety on procedural grounds but granted leave
2002, that was granted class certification on August 27, 2003. Plaintiffs’ to amend and refile the lawsuit. The amended complaint has been filed
claims consist of five counts relating to the POM program under which and alleges causes of action similar to those claimed in the original
the applicable tax return preparation subsidiary assumes liability for complaint and seeks equitable relief, disgorgement of profits, damages
additional tax assessments attributable to tax return preparation error. and restitution, civil penalties and punitive damages. We intend to
The plaintiffs allege that the sale of POM guarantees constitutes defend this case vigorously, but there are no assurances as to its
(i) statutory fraud by selling insurance without a license, (ii) an unfair outcome.
trade practice, by omission and by ‘‘cramming’’ (i.e., charging In addition to the New York Attorney General action, a number of
customers for the guarantee even though they did not request it or want civil actions were filed against us concerning the Express IRA matter,
it), and (iii) a breach of fiduciary duty. In August 2003, the court the first of which was filed on March 17, 2006. Except for two cases
certified the plaintiff classes consisting of all persons who from pending in state court, all of the civil actions have been consolidated by
January 1, 1997 to final judgment (i) were charged a separate fee for the panel for Multi-District Litigation into a single action styled In re
POM by ‘‘H&R Block’’ or a defendant H&R Block class member; H&R Block, Inc. Express IRA Marketing Litigation in the United States
(ii) reside in certain class states and were charged a separate fee for District Court for the Western District of Missouri. Weintend to defend
POM by ‘‘H&R Block’’ or a defendant H&R Block class member not these cases vigorously, but there are no assurances as to their outcome.
licensed to sell insurance; and (iii) had an unsolicited charge for POM SECURITIES LITIGATION –On March 17, 2006, the first of three
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posted to their bills by ‘‘H&R Block’’ or a defendant H&R Block class putative class actions alleging violations of certain securities laws were
member. Persons who received the POM guarantee through an H&R filed against the Company and certain of its current and former officers
Block Premium office and persons who reside in Alabama are excluded and directors (the ‘‘Securities Class Action Cases’’). In addition, on
from the plaintiff class. The court also certified a defendant class April 5, 2006, the first of nine shareholder derivative actions purportedly
consisting of any entity with names that include ‘‘H&R Block’’ or ‘‘HRB,’’ brought on behalf of the Company (which is named as a ‘‘nominal
or are otherwise affiliated or associated with H&R Block Tax Services, defendant’’) were filed against certain of the Company’s current and
Inc., and that sold or sells the POM product. The trial court former directors and officers (the ‘‘Derivative Cases’’). On
subsequently denied the defendants’ motion to certify class certification September 20, 2006, the United States District Court for the Western
issues for interlocutory appeal. Discovery is proceeding. No trial date District of Missouri ordered all of the Securities Class Action Cases and
has been set. the Derivative Cases consolidated into a single action styled In re H&R
There is one other putative class action pending against us in Texas Block Securities Litigation. The court appointed a lead plaintiff who
that involves the POM guarantee. This case is being tried before the filed a consolidated complaint on April 6, 2007 against the Company and
same judge that presided over the Texas RAL Settlement, involves the certain of its officers. The complaint alleges, among other things,
same plaintiffs’ attorneys that are involved in the Marshall litigation in deceptive, material and misleading financial statements, failure to
Illinois, and contains similar allegations. No class has been certified in prepare financial statements in accordance with generally accepted
this case. accounting principles and concealment of the potential for lawsuits
We believe the claims in the POM actions are without merit, and we stemming from the allegedly fraudulent nature of the Company’s
intend to defend them vigorously. The amounts claimed in the POM operations. The complaint seeks unspecified damages and equitable
actions are substantial, however, and there can be no assurances as to relief. We intend to defend this litigation vigorously, but there are no
the outcome of these pending actions individually or in the aggregate. assurances as to its outcome.
Likewise, there can be no assurances regarding the impact of these OTHER CLAIMS AND LITIGATION –As reported previously, the
actions on our consolidated financial statements. NASD brought charges against HRBFA regarding the sale by HRBFA of
EXPRESS IRA LITIGATION –On March 15, 2006, the New York Enron debentures in 2001. A hearing for this matter commenced in May
Attorney General filed a lawsuit in the Supreme Court of the State of 2006, was recessed until October 2006 and is scheduled to continue
H&R BLOCK 2007 Form 10K