HR Block 2012 Annual Report Download - page 86

We accrue liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been
incurred and the amount of the loss can be reasonably estimated. Liabilities have been accrued for a number of
the matters noted below. If a range of loss is estimated, and some amount within that range appears to be a
better estimate than any other amount within that range, then that amount is accrued. If no amount can be
identified as a better estimate than any other amount, then the low end of the range is accrued.
For such matters where a loss is believed to be reasonably possible, but not probable, or the loss cannot by
reasonably estimated, no accrual has been made. It is possible that litigation and regulatory matters could
require us to pay damages or make other expenditures or accrue liabilities in amounts that could not be
reasonably estimated at April 30, 2012. While the potential future liabilities could be material in the particular
quarterly or annual periods in which they are recorded, based on information currently known, we do not
believe any such liabilities are likely to have a material effect on our consolidated financial position, results of
operations and cash flows. As of April 30, 2012, we have accrued liabilities of $79.0 million, compared to $69.6
million at April 30, 2011.
For some matters where a liability has not been accrued, we are able to estimate a reasonably possible range
of loss. For those matters, and for matters where a liability has been accrued, as of April 30, 2012, we estimate
the aggregate range of reasonably possible losses in excess of amounts accrued to be approximately $0 to
$122 million, of which approximately 80% relates to discontinued operations.
For other matters, we are not currently able to estimate the reasonably possible loss or range of loss. We are
often unable to estimate the possible loss or range of loss until developments in such matters have provided
sufficient information to support an assessment of the range of possible loss, such as quantification of a damage
demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the
court on motions or appeals, analysis by experts, and the progress of settlement negotiations. On a quarterly
and annual basis, we review relevant information with respect to litigation contingencies and update our
accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews.
LITIGATION AND OTHER CLAIMS PERTAINING TO DISCONTINUED MORTGAGE OPERATIONS – Although
SCC ceased its mortgage loan origination activities in December 2007 and sold its loan servicing business in
April 2008, SCC and the Company have been, remain, or may in the future be subject to regulatory
investigations, claims and lawsuits pertaining to SCC’s mortgage business activities that occurred prior to such
termination and sale. These investigations, claims and lawsuits include actions by state and federal regulators,
third party indemnitees, 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, fraud and other common law
torts, rights to indemnification, and violations of securities laws, the Truth in Lending Act (TILA), Equal Credit
Opportunity Act and the Fair Housing Act. Given the non-prime mortgage environment, the number of these
investigations, claims and lawsuits has increased over time and is expected to continue to increase further. The
amounts claimed in these investigations, claims and lawsuits are substantial in some instances, and the ultimate
resulting liability is difficult to predict and thus in many cases cannot be reasonably estimated. In the event of
unfavorable outcomes, the amounts that may be required to be paid in the discharge of liabilities or settlements
could be substantial and could have a material impact on our consolidated financial position, results of
operations and cash flows. Certain of these matters are described in more detail below.
On February 1, 2008, a class action lawsuit was filed in the United States District Court for the District of
Massachusetts against SCC and other related entities styled Cecil Barrett, et al. v. Option One Mortgage Corp.,
et al. (Civil Action No. 08-10157-RWZ). Plaintiffs allege discriminatory practices relating to the origination of
mortgage loans in violation of the Fair Housing Act and Equal Credit Opportunity Act, and seek declaratory and
injunctive relief in addition to actual and punitive damages. The court dismissed H&R Block, Inc. from the
lawsuit for lack of personal jurisdiction. In March 2011, the court issued an order certifying a class, which
defendants sought to appeal. On August 24, 2011, the First Circuit Court of Appeals declined to hear the appeal,
noting that the district court could reconsider its certification decision in light of a recent ruling by the United
States Supreme Court in an unrelated matter. SCC has filed a motion to decertify the class, which remains
pending. A portion of our loss contingency accrual is related to this lawsuit for the amount of loss that we
consider probable and estimable. We believe SCC has meritorious defenses to the claims in this case and it
intends to defend the case vigorously, but there can be no assurances as to its outcome or its impact on our
consolidated financial position, results of operations and cash flows.
On December 9, 2009, a putative class action lawsuit was filed in the United States District Court for the
Central District of California against SCC and H&R Block, Inc. styled Jeanne Drake, et al. v. Option One
72 H&R BLOCK 2012 Form 10K