HR Block 2009 Annual Report Download - page 72

EXPRESS IRA LITIGATION – On March 15, 2006, the New York Attorney General filed a lawsuit in the Supreme
Court of the State of New York, County of New York (Index No. 06/401110) entitled The People of New York v. H&R
Block, Inc. and H&R Block Financial Advisors, Inc. et al. The complaint alleged fraudulent business practices,
deceptive acts and practices, common law fraud and breach of fiduciary duty with respect to the Express IRA
product and sought equitable relief, disgorgement of profits, damages and restitution, civil penalties and punitive
damages. In July 2007, the Supreme Court of the State of New York issued a ruling that dismissed all defendants
other than HRBFA and the claims of common law fraud. The intermediate appellate court reversed this ruling in
January 2009. We believe we have meritorious defenses to the claims in this case and intend to defend this case
vigorously, but there are no assurances as to its outcome.
On January 2, 2008, the Mississippi Attorney General filed a lawsuit in the Chancery Court of Hinds County,
Mississippi First Judicial District (Case No. G 2008 6 S 2) entitled Jim Hood, Attorney for the State of
Mississippi v. H&R Block, Inc., et al. The complaint alleged fraudulent business practices, deceptive acts and
practices, common law fraud and breach of fiduciary duty with respect to the Express IRA product and sought
equitable relief, disgorgement of profits, damages and restitution, civil penalties and punitive damages. The
defendants have filed a motion to dismiss. We believe we have meritorious defenses to the claims in this case, and
we intend to defend this case vigorously, but there are no assurances as to its outcome.
In addition to the New York and Mississippi Attorney General actions, a number of civil actions were filed
against HRBFA and us concerning the Express IRA product, the first of which was filed on March 15, 2006. Except
for two cases pending in state court, all of the civil actions have been consolidated by the panel for Multi-District
Litigation into a single action styled In re H&R Block, Inc. Express IRA Marketing Litigation (Case No. 06-1786-
MD-RED) in the United States District Court for the Western District of Missouri. The amounts claimed in these
cases are substantial. We believe we have meritorious defenses to the claims in these cases and intend to defend
these cases vigorously, but there are no assurances as to their outcome.
Although we sold HRBFA effective November 1, 2008, we remain responsible for the Express IRA litigation
through an indemnification agreement with Ameriprise. See additional discussion in note 19.
SECURITIES LITIGATION – On April 6, 2007, a putative class action styled In re H&R Block Securities Litigation
(Case No. 06-0236-CV-W-ODS) was filed against the Company and certain of its officers in the United States District
Court for the Western District of Missouri. The complaint alleged, among other things, deceptive, material and
misleading financial statements and failure to prepare financial statements in accordance with generally accepted
accounting principles. The complaint sought unspecified damages and equitable relief. The court dismissed the
complaint in February 2008, and the plaintiffs appealed the dismissal in March 2008. In addition, plaintiffs in a
shareholder derivative action that was consolidated into the securities litigation filed a separate appeal in March
2008, contending that the derivative action was improperly consolidated. The derivative action is Iron Workers
Local 16 Pension Fund v. H&R Block, et al., in the United States District Court for the Western District of Missouri,
Case No. 06-cv-00466-ODS (instituted on June 8, 2006) and was brought against certain of our directors and
officers purportedly on behalf of the Company. The derivative action alleges breach of fiduciary duty, abuse of
control, gross mismanagement, waste, and unjust enrichment pertaining to (1) our restatement of financial results
in fiscal year 2006 due to errors in determining our state effective income tax rate and (2) certain of our products
and business activities. We believe we have meritorious defenses to the claims in these cases and intend to defend
this litigation vigorously. We currently do not believe that we will incur a material loss with respect to this
litigation.
RSM MCGLADREY LITIGATION – RSM McGladrey Business Services, Inc. and certain of its subsidiaries are
parties to a class action filed on July 11, 2006 and entitled Do Right’s Plant Growers, et al. v. RSM EquiCo, Inc., et
al. Case No. 06 CC00137, in the California Superior Court, Orange County. The complaint contains allegations
regarding business valuation services provided by RSM EquiCo, Inc., including fraud, negligent misrepresentation,
breach of contract, breach of implied covenant of good faith and fair dealing, breach of fiduciary duty and unfair
competition and seeks unspecified damages, restitution and equitable relief. On March 17, 2009, the court granted
plaintiffs’ motion for class certification on all claims. The class consists of all RSM EquiCo U.S. clients who signed
platform agreements and for whom RSM EquiCo did not ultimately market their business for sale. RSM EquiCo has
filed an appeal of this certification ruling and intends to defend this case vigorously. The amount claimed in this
action is substantial and could have a material adverse impact on our consolidated results of operations. There can
be no assurance regarding the outcome of this matter.
RSM McGladrey, Inc. (RSM) has a relationship with certain public accounting firms (collectively, “the Attest
Firms”) pursuant to which (1) some RSM employees are also partners or employees of the Attest Firms, (2) many
clients of the Attest Firms are also RSM clients, and (3) our RSM McGladrey brand is closely linked to the Attest
Firms. The Attest Firms are parties to claims and lawsuits (collectively, “Attest Firm Claims”) arising in the normal
course of business. Judgments or settlements arising from Attest Firm Claims exceeding the Attest Firms’
68 H&R BLOCK 2009 Form 10K