HR Block 2010 Annual Report Download - page 78

NOTE 18: LITIGATION AND RELATED CONTINGENCIES
We are party to investigations, legal claims and lawsuits arising out of our business operations. As required, we
accrue our best estimate of loss contingencies when we believe a loss is probable and we can reasonably estimate
the amount of any such loss. Amounts accrued, including obligations under indemnifications, totaled $35.5 million
and $27.9 million at April 30, 2010 and 2009, respectively. Litigation is inherently unpredictable and it is difficult to
predict the outcome of particular matters with reasonable certainty and, therefore, the actual amount of any loss
may prove to be larger or smaller than the amounts reflected in our consolidated financial statements.
RAL LITIGATION – We have been named in multiple lawsuits as defendants in litigation regarding our refund
anticipation loan program in past years. All of those lawsuits have been settled or otherwise resolved, except for
one.
The sole remaining case is a putative class action styled 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 plaintiffs allege inadequate disclosures with respect to the
RAL product and assert claims for violation of consumer protection statutes, negligent misrepresentation, breach
of fiduciary duty, common law fraud, usury, and violation of the Truth In Lending Act. Plaintiffs seek unspecified
actual and punitive damages, injunctive relief, attorneys’ fees and costs. A Pennsylvania class was certified, but
later decertified by the trial court in December 2003. The trial court’s decertification decision is currently on
appeal. We believe we have meritorious defenses to this case and intend to defend it vigorously. There can be no
assurances, however, as to the outcome of this case or its impact on our consolidated results of operations.
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 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
62 H&R BLOCK 2010 Form 10K