HR Block 2010 Annual Report Download - page 79

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.
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 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.
H&R BLOCK 2010 Form 10K 63