HR Block 2010 Annual Report Download - page 30

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 alleged breach of
fiduciary duty, abuse of control, gross mismanagement, waste, and unjust enrichment. In September 2009, the
appellate court affirmed the dismissal of the securities fraud class action, but reversed the dismissal of the
shareholder derivative action. The plaintiffs in the shareholder derivative action subsequently agreed to
voluntarily dismiss their complaint; an order dismissing their complaint was entered on April 19, 2010,
thereby ending this litigation.
RSM McGLADREY LITIGATION –RSM EquiCo, its parent and certain of its subsidiaries and affiliates, are
parties to a class action filed on July 11, 2006 and styled 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 relating
to business valuation services provided by RSM EquiCo, including allegations of fraud, negligent
misrepresentation, breach of contract, breach of implied covenant of good faith and fair dealing, breach of
fiduciary duty and unfair competition. Plaintiffs seek unspecified actual and punitive damages, in addition to pre-
judgment interest and attorneys’ fees. On March 17, 2009, the court granted plaintiffs’ motion for class certification
on all claims. The defendants filed two requests for interlocutory review of the decision, the last of which was
denied by the Supreme Court of California on September 30, 2009. A trial date has been set for January 2011.
The certified class consists of RSM EquiCo’s U.S. clients who signed platform agreements and for whom RSM
EquiCo did not ultimately market their business for sale. The fees paid to RSM EquiCo in connection with these
agreements total approximately $185 million, a number which substantially exceeds the equity of RSM EquiCo. We
intend 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.
As more fully described in Item 8, note 17, RSM and M&P operate in an alternative practice structure.
Accordingly, certain claims and lawsuits against M&P could have an impact on RSM. More specifically, any
judgments or settlements arising from claims and lawsuits against M&P which exceed its insurance coverage
could have a direct adverse effect on M&P’s operations. Although RSM is not responsible for the liabilities of M&P,
significant M&P litigation and claims could impair the profitability of the APS and impair the ability to attract and
retain clients and quality professionals. This could, in turn, have a material adverse effect on RSM’s operations and
impair the value of our investment in RSM. There is no assurance regarding the outcome of any claims or litigation
involving M&P.
On December 7, 2009, a lawsuit was filed in the Circuit Court of Cook County, Illinois (2009-L-014920) against
M&P, RSM and H&R Block styled Ronald R. Peterson ex rel. Lancelot Investors Fund, L.P., et al. v. McGladrey &
Pullen LLP, et al. The case was removed to the United States District Court for the Northern District of Illinois on
December 28, 2009, where it remains pending (Case No. 08-28225). The complaint, which was filed by the trustee
for certain bankrupt investment funds, seeks unspecified damages and asserts claims against RSM for vicarious
liability and alter ego liability and against H&R Block for equitable restitution relating to audit work performed by
M&P. The amount claimed in this case is substantial. We believe we have meritorious defenses to the claims
against RSM and H&R Block in this case and intend to defend it vigorously, but there can be no assurances as to its
outcome or its impact on our consolidated results of operations.
LITIGATION AND CLAIMS PERTAINING TO DISCONTINUED MORTGAGE OPERATIONS –Although mortgage
loan origination activities were terminated and the loan servicing business was sold during fiscal year 2008, SCC
remains subject to investigations, claims and lawsuits pertaining to its loan origination and servicing activities that
occurred prior to such termination and sale. These investigations, claims and lawsuits include actions by state
attorneys general, other state regulators, municipalities, individual plaintiffs, and cases in which plaintiffs seek to
represent a class of others alleged to be similarly situated. Among other things, these investigations, claims and
lawsuits allege discriminatory or unfair and deceptive loan origination and servicing practices, public nuisance,
fraud, and violations of the Truth in Lending Act, Equal Credit Opportunity Act and the Fair Housing Act. In the
current non-prime mortgage environment, the number of these investigations, claims and lawsuits has increased
over historical experience and is likely to continue at increased levels. The amounts claimed in these
investigations, claims and lawsuits are substantial in some instances, and the ultimate resulting liability is
difficult to predict. In the event of unfavorable outcomes, the amounts SCC may be required to pay in the discharge
of liabilities or settlements could be substantial and, because SCC’s operating results are included in our
consolidated financial statements, could have a material adverse impact on our consolidated results of operations.
14 H&R BLOCK 2010 Form 10K