HR Block 2010 Annual Report Download - page 80

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.
On June 3, 2008, the Massachusetts Attorney General filed a lawsuit in the Superior Court of Suffolk County,
Massachusetts (Case No. 08-2474-BLS) styled Commonwealth of Massachusetts v. H&R Block, Inc., et al., alleging
unfair, deceptive and discriminatory origination and servicing of mortgage loans and seeking equitable relief,
disgorgement of profits, restitution and statutory penalties. In November 2008, the court granted a preliminary
injunction limiting the ability of the owner of SCC’s former loan servicing business to initiate or advance
foreclosure actions against certain loans originated by SCC or its subsidiaries without (1) advance notice to
the Massachusetts Attorney General and (2) if the Attorney General objects to foreclosure, approval by the court.
An appeal of the preliminary injunction was denied. A trial date has been set for June 2011. We believe the claims in
this case are without merit, and we intend to defend this case vigorously. There can be no assurances, however, as
to its outcome or its impact on our consolidated results of operations.
OTHER CLAIMS AND LITIGATION – We have been named in several wage and hour class action lawsuits
throughout the country, respectively styled Alice Williams v. H&R Block Enterprises LLC, Case No.RG08366506
(Superior Court of California, County of Alameda, filed January 17, 2008); Arabella Lemus v. H&R Block
Enterprises LLC, et al., Case No. CGC-09-489251 (United States District Court, Northern District of
California, filed June 9, 2009); Delana Ugas v. H&R Block Enterprises LLC, et al., Case No. BC417700
(United States District Court, Central District of California, filed July 13, 2009); Joaquin Llano v. H&R Block
Eastern Enterprises, Inc., Case No. 09-CV-22531 (United States District Court, Southern District of Florida, filed
August 27, 2009); Barbara Petroski v. H&R Block Eastern Enterprises, Inc., et al., Case No. 10-CV-00075 (United
States District Court, Western District of Missouri, filed January 25, 2010); Lance Hom v. H&R Block Enterprises
LLC, et al., Case No. 10CV0476 H (United States District Court, Southern District of California, filed March 4,
2010); Stacy Oyer v. H&R Block Eastern Enterprises, Inc., et al., Case No. 10-CV-00387-WMS (United States
District Court, Western District of New York, filed May, 10 2010); Rita Greene v. H&R Block Eastern Enterprises,
Inc., et al., Case No. 10-CV-21663-FAM (United States District Court, Southern District of Florida, filed May 21,
2010); and Li Dong Ma v. RSM McGladrey TBS, LLC, et al., Case No. C-08-01729 JF (United States District Court,
Northern District of California, filed February 28, 2008). These cases involve a variety of legal theories and
allegations including, among other things, failure to compensate employees for all hours worked; failure to provide
employees with meal periods; failure to provide itemized wage statements; failure to pay wages due upon
termination; failure to compensate for mandatory off-season training; and/or misclassification of non-exempt
employees. The plaintiffs seek actual damages, in addition to statutory penalties, pre-judgment interest and
attorneys’ fees. The Company has moved to consolidate certain of these cases into a single action because they
allege substantially identical claims. We believe we have meritorious defenses to the claims in these cases and
intend to defend them vigorously. The amounts claimed in these matters are substantial in some instances,
however, and the ultimate liability with respect to these matters is difficult to predict. There can be no assurances
64 H&R BLOCK 2010 Form 10K