HR Block 2010 Annual Report Download - page 29

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 putative class action case originally filed in the Circuit Court of Madison
County, Illinois on January 18, 2002. 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 plaintiffs seek unspecified damages, injunctive relief, attorneys’ fees and costs. The Madison County
court ultimately certified a class consisting of all persons residing in 13 states who paid a separate fee for POM
from January 1, 1997 to the date of a final judgment from the court. We subsequently removed the case to federal
court in the Southern District of Illinois, where it is now pending. In November 2009, the federal court issued an
order effectively vacating the state court’s class certification ruling and allowing plaintiffs time to file a renewed
motion for class certification under the federal rules. Plaintiffs filed a new motion for class certification seeking
certification of an 11-state class. Oral argument on plaintiffs’ motion occurred in April 2010 and the parties are
awaiting a ruling. A trial date has been set for November 2010.
There is one other putative class action pending against us in Texas that involves the POM guarantee. This case,
styled Desiri L. Soliz v. H&R Block, et al. (Cause No. 03-032-D), was filed on January 23, 2003 in the District Court
of Kleberg County, Texas. This case involves the same plaintiffs’ attorneys that are involved in the Marshall
litigation in Illinois and contains allegations similar to those in the Marshall litigation. The plaintiff seeks actual
and treble damages, equitable relief, attorneys’ fees and costs. 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 or their impact on our consolidated results of operations, individually or in
the aggregate.
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) styled The People of New York v. H&R
Block, Inc. and H&R Block Financial Advisors, Inc. et al. The complaint asserts nationwide jurisdiction and
alleges fraudulent business practices, deceptive acts and practices, common law fraud and breach of fiduciary
duty with respect to the Express IRA product and seeks equitable relief, disgorgement of profits, damages and
restitution, civil penalties and punitive damages. To avoid the cost and inherent risk associated with litigation, we
reached an agreement to settle this case and the civil actions described below. Details regarding the settlement are
below.
Subsequent to the filing of the New York Attorney General action, 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 were 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. To avoid the cost and inherent risk associated
with litigation, we reached an agreement to settle these cases and the New York Attorney General action. The
federal court presiding over the Multi-District Litigation approved the settlement in a final fairness hearing and
dismissed its underlying actions with prejudice on May 17, 2010. Stipulations of dismissal were subsequently filed
in the two cases pending in state court. The settlement requires a minimum payment of $11.4 million and a
maximum payment of $25.4 million. The actual cost of the settlement will depend on the number of claims
submitted by class members, which are due no later than July 30, 2010. We previously recorded a liability for our
best estimate of the expected loss.
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) styled Jim Hood, Attorney for the State of Mississippi v.
H&R Block, 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 Express IRA product in Mississippi and seeks
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 can be no assurances as to its outcome or its impact on our
consolidated results of operations.
Although we sold HRBFA effective November 1, 2008, we remain responsible for any liabilities relating to the
Express IRA litigation through an indemnification agreement.
SECURITIES AND SHAREHOLDER 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.
H&R BLOCK 2010 Form 10K 13