HR Block 2008 Annual Report Download - page 93

NOTE 18: LITIGATION AND RELATED CONTINGENCIES
We are party to investigations, legal claims and lawsuits arising out of our business operations. We accrue our best
estimate of the probable loss upon resolution of investigations, legal claims and lawsuits, which totaled
$11.5 million and $7.7 million at April 30, 2008 and 2007, respectively. With respect to most of the matters
described below, we have concluded that a loss is not probable and therefore no liability has been recorded.
RAL LITIGATION – We have been named as a defendant in numerous lawsuits throughout the country regarding
our refund anticipation loan programs (collectively, “RAL Cases”). The RAL Cases have involved a variety of legal
theories asserted by plaintiffs. These theories include allegations that, among other things: disclosures in the RAL
applications were inadequate, misleading and untimely; the RAL interest rates were usurious and unconscionable;
we did not disclose that we would receive part of the finance charges paid by the customer for such loans; untrue,
misleading or deceptive statements in marketing RALs; breach of state laws on credit service organizations;
breach of contract, unjust enrichment, unfair and deceptive acts or practices; violations of the federal Racketeer
Influenced and Corrupt Organizations Act; violations of the federal Fair Debt Collection Practices Act and unfair
competition regarding debt collection activities; and that we owe, and breached, a fiduciary duty to our customers
in connection with the RAL program.
The amounts claimed in the RAL Cases have been very substantial in some instances, with one settlement
resulting in a pretax expense of $43.5 million in fiscal year 2003 (the “Texas RAL Settlement”) and other
settlements resulting in a combined pretax expense in fiscal year 2006 of $70.2 million.
We believe we have meritorious defenses to the remaining RAL Cases and we intend to defend them vigorously.
There can be no assurances, however, as to the outcome of the pending RAL Cases individually or in the aggregate
or regarding the impact of the RAL Cases on our financial statements. We are unable to determine an estimate of
the possible loss or range of loss, if any, in light of the early stages of the currently pending RAL Cases.
The following is updated information regarding the pending RAL Cases that are attorney general actions, class
actions or putative class actions:
Sandra J. Basile, et al. v. H&R Block, Inc., et al., April Term 1992 Civil Action No. 3246 in the Court of Common
Pleas, First Judicial District Court of Pennsylvania, Philadelphia County, instituted on April 23, 1993. The court
decertified the class on December 31, 2003, and the Pennsylvania appellate court subsequently reversed the trial
court’s decertification decision. On September 26, 2006, the Pennsylvania Supreme Court reversed the appellate
court’s reversal of the trial court’s decertification decision. On June 4, 2007, the appellate court affirmed its earlier
decision to reverse the trial court’s decertification decision. The Pennsylvania Supreme Court has granted our
request to review the appellate court ruling.
The People of California v. H&R Block, Inc., H&R Block Services, Inc., H&R Block Enterprises, Inc., H&R
Block Tax Services, Inc., Block Financial Corporation, HRB Royalty, Inc., and Does 1 through 50, Case No., CGC-
06-449461, in the California Superior Court, San Francisco County, instituted on February 15, 2006 (alleging,
among other things, untrue, misleading or deceptive statements in marketing RALs and unfair competition with
respect to debt collection activities; seeks equitable relief, civil penalties and restitution). This case is in the
discovery stage. No trial date has been set.
PEACE OF MIND LITIGATION – We are defendants in lawsuits regarding our Peace of Mind program
(collectively, the “POM Cases”). The POM Cases are described below.
Lorie J. Marshall, et al. v. H&R Block Tax Services, Inc., et al., Civil Action 2003L000004, in the Circuit Court of
Madison County, Illinois, is a class action case filed on January 18, 2002, that was granted class certification on
August 27, 2003. Plaintiffs’ claims consist of five counts relating to the POM program under which the applicable
tax return preparation subsidiary assumes liability for additional tax assessments attributable to tax return
preparation error. The plaintiffs allege that the sale of POM guarantees constitutes (1) statutory fraud by selling
insurance without a license, (2) an unfair trade practice, by omission and by “cramming” (i.e., charging customers
for the guarantee even though they did not request it or want it), and (3) a breach of fiduciary duty. In August 2003,
the court certified the plaintiff classes consisting of all persons who from January 1, 1997 to final judgment
(1) were charged a separate fee for POM by “H&R Block” or a defendant H&R Block class member; (2) reside in
certain class states and were charged a separate fee for POM by “H&R Block” or a defendant H&R Block class
member not licensed to sell insurance; and (3) had an unsolicited charge for POM posted to their bills by “H&R
Block” or a defendant H&R Block class member. Persons who received the POM guarantee through an H&R Block
Premium office and persons who reside in Alabama are excluded from the plaintiff class. The court also certified a
defendant class consisting of any entity with names that include “H&R Block” or “HRB,” or are otherwise affiliated
or associated with H&R Block Tax Services, Inc., and that sold or sells the POM product. The defendants filed a
motion to decertify the classes, which is set to be heard in July 2008. Discovery is proceeding. No trial date has
been set.
H&R BLOCK 2008 Form 10K 73