HR Block 2009 Annual Report Download - page 71

provide assurance we will ultimately prevail in the event any such claims are asserted, we believe the fair value of
these guarantees and indemnifications is not material as of April 30, 2009.
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
$11.7 million and $11.5 million at April 30, 2009 and 2008, 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 have settled all but one of the RAL Cases. The sole remaining RAL Case is a putative class action entitled
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. In Basile, the
court decertified the class in December 2003, and the Pennsylvania appellate court subsequently reversed the trial
court’s decertification decision. In September 2006, the Pennsylvania Supreme Court reversed the appellate
court’s reversal of the trial court’s decertification decision. In June 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. We believe we have meritorious defenses to this case and we intend to
defend it vigorously. There can be no assurances, however, as to the outcome of this case or its impact on our
financial statements.
PEACE OF MIND LITIGATION – We are defendants in lawsuits regarding our Peace of Mind program
(collectively, the “POM Cases”), under which our applicable tax return preparation subsidiary assumes
liability for additional tax assessments attributable to tax return preparation error. The POM Cases are
described below.
Lorie J. Marshall, et al. v. H&R Block Tax Services, Inc., et al., Case No. 08-CV-591 in the U.S. District Court for
the Southern District of Illinois, is a class action case originally filed in the Circuit Court of Madison County, Illinois
on January 18, 2002, in which class certification was granted in August 2003. 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. The court has certified plaintiff classes consisting of all persons
residing in 13 states who from January 1, 1997 to final judgment (1) were charged a separate fee for POM by “H&R
Block;” (2) were charged a separate fee for POM by an “H&R Block” entity not licensed to sell insurance; or (3) had
an unsolicited charge for POM posted to their bills by “H&R Block.” Persons who received the POM guarantee
through an H&R Block Premium office were excluded from the plaintiff class. In August 2008, we removed the case
from state court in Madison County, Illinois to the U.S. District Court for the Southern District of Illinois. In
December 2008, the U.S. District Court remanded the case back to state court. On April 3, 2009, the United States
Court of Appeals for the Seventh Circuit reversed the decision to remand the case back to state court, ruling that
the case had been properly removed to federal court. The plaintiffs have filed a petition for rehearing of this
decision with the Seventh Circuit.
There is one other putative class action pending against us in Texas that involves the POM guarantee. This case
is pending before the same judge that presided over the Texas RAL Settlement, involves the same plaintiffs’
attorneys that are involved in the Marshall litigation in Illinois, and contains allegations similar to those in the
Marshall case. No class has been certified in this case.
We believe we have meritorious defenses to the claims in the POM Cases, and we intend to defend them
vigorously. The amounts claimed in the POM Cases are substantial, however, and there can be no assurances as to
the outcome of these pending actions individually or in the aggregate.
H&R BLOCK 2009 Form 10K 67