HR Block 2015 Annual Report Download - page 82

H&R Block, Inc. | 2015 Form 10-K 75
arbitration. A portion of our loss contingency accrual is related to this matter for the amount of loss that we consider
probable and reasonably estimable.
LITIGATION, CLAIMS AND OTHER LOSS CONTINGENCIES PERTAINING TO OTHER DISCONTINUED OPERATIONS –
Express IRA Litigation. On January 2, 2008, the Mississippi Attorney General in the Chancery Court of Hinds County,
Mississippi First Judicial District (Case No. G 2008 6 S 2) filed a lawsuit regarding our former Express IRA product that
is styled Jim Hood, Attorney for the State of Mississippi v. H&R Block, Inc., H&R Block Financial Advisors, Inc., et al. The
complaint alleges fraudulent business practices, deceptive acts and practices, common law fraud and breach of
fiduciary duty with respect to the sale of the product in Mississippi and seeks equitable relief, disgorgement of profits,
damages and restitution, civil penalties and punitive damages.
Although we sold H&R Block Financial Advisors, Inc. (HRBFA) effective November 1, 2008, we remain responsible
for any liabilities relating to the Express IRA litigation, among other things, through an indemnification agreement. A
portion of our accrual is related to these indemnity obligations.
OTHER – We are from time to time a party to litigation, claims and other loss contingencies not discussed herein
arising out of our business operations. These matters may include actions by state attorneys general, other state
regulators, federal regulators, individual plaintiffs, and cases in which plaintiffs seek to represent a class of others
similarly situated.
While we cannot provide assurance that we will ultimately prevail in each instance, we believe the amount, if any,
we are required to pay to discharge or settle these other matters will not have a material adverse impact on our
business or our consolidated financial position, results of operations and cash flows.
We believe we have meritorious defenses to the claims asserted in the various matters described in this note, and
we intend to defend them vigorously. The amounts claimed in the matters are substantial, however, and there can be
no assurances as to their outcomes. In the event of unfavorable outcomes, it could require modifications to our
operations; in addition, the amounts that may be required to be paid to discharge or settle the matters could be
substantial and could have a material adverse impact on our consolidated financial position, results of operations and
cash flows.
NOTE 18: LOSS CONTINGENCIES ARISING FROM REPRESENTATIONS AND WARRANTIES OF OUR DISCONTINUED
MORTGAGE OPERATIONS
SCC ceased originating mortgage loans in December 2007 and, in April 2008, sold its servicing assets and discontinued
its remaining operations.
Mortgage loans originated by SCC were sold either as whole loans to single third-party buyers, who generally
securitized such loans, or in the form of RMBSs. In connection with the sale of loans and/or RMBSs, SCC made certain
representations and warranties. Claims under these representations and warranties together with any settlement
arrangements related to these losses are collectively referred to as "representation and warranty claims." These
representations and warranties varied based on the nature of the transaction and the buyer's or insurer's requirements,
but generally pertained to the ownership of the loan, the validity of the lien securing the loan, borrower fraud, the
loan's compliance with the criteria for inclusion in the transaction, including compliance with SCC's underwriting
standards or loan criteria established by the buyer, ability to deliver required documentation, and compliance with
applicable laws. Representations and warranties related to borrower fraud in whole loan sale transactions to
institutional investors, which were generally securitized by such investors and represented approximately 68% of the
disposal of loans originated in calendar years 2005, 2006 and 2007, included a "knowledge qualifier" limiting SCC's
liability to those instances where SCC had knowledge of the fraud at the time the loans were sold. Representations
and warranties made in other sale transactions effectively did not include a knowledge qualifier as to borrower fraud.
SCC believes it would have an obligation to repurchase a loan only if it breached a representation and warranty and
such breach materially and adversely affects the value of the mortgage loan or certificate holder's interest in the
mortgage loan. SCC also would assert that it has no liability for the failure to repurchase any mortgage loan that has
been liquidated prior to a repurchase demand, although there is conflicting case law on the liquidated loan defense
issue. These decisions are from lower courts, are inconsistent in their analysis and receptivity to this defense, and
may be subject to appeal.