HR Block 2012 Annual Report Download - page 87

Mortgage Corp., et al. (Case No. SACV09-1450 CJC). Plaintiffs allege breach of contract, promissory fraud,
intentional interference with contractual relations, wrongful withholding of wages and unfair business practices
in connection with not paying severance benefits to employees when their employment transitioned to
American Home Mortgage Servicing, Inc. in connection with the sale of certain assets and operations of Option
One. Plaintiffs seek to recover severance benefits of approximately $8 million, interest and attorney’s fees, in
addition to penalties and punitive damages on certain claims. On September 2, 2011, the court granted summary
judgment in favor of the defendants on all claims. Plaintiffs have filed an appeal, which remains pending. We
have not concluded that a loss related to this matter is probable nor have we established a loss contingency
related to this matter. We believe we have meritorious defenses to the claims in this case and intend 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 October 15, 2010, the Federal Home Loan Bank of Chicago filed a lawsuit in the Circuit Court of Cook
County, Illinois (Case No. 10CH45033) styled Federal Home Loan Bank of Chicago v. Bank of America
Funding Corporation, et al. against multiple defendants, including various SCC-related entities, H&R Block,
Inc. and other entities, arising out of FHLB’s purchase of RMBSs. The plaintiff seeks rescission and damages
under state securities law and for common law negligent misrepresentation in connection with its purchase of
two securities originated and securitized by SCC. These two securities had a total initial principal amount of
approximately $50 million, of which approximately $41 million remains outstanding. The plaintiff agreed to
voluntarily dismiss H&R Block, Inc. from the suit. The remaining defendants, including SCC, have filed motions
to dismiss, which are pending. We have not concluded that a loss related to this matter is probable nor have we
accrued a liability related to this matter. We believe SCC has meritorious defenses to the claims in this case and
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 February 22, 2012, a lawsuit was filed by SCC against American Home Mortgage Servicing, Inc. (now known as
Homeward Residential, Inc.) in the Supreme Court of the State of New York, County of New York, styled Sand
Canyon Corporation v. American Home Mortgage Servicing, Inc. (Index No. 650504/2012), alleging breach of
contract and breach of the implied covenant of good faith and fair dealing in connection with the Cooperation
Agreement entered into with SCC in connection with SCC’s sale of its mortgage loan servicing business to the
defendant in 2008. SCC is seeking relief to, among other things, require the defendant to provide loan files only by the
method prescribed in applicable agreements.
On May 31, 2012, a lawsuit was filed by Homeward Residential, Inc. (formerly known as American Home
Mortgage Servicing, Inc.) in the Supreme Court of the State of New York, County of New York, against SCC
styled Homeward Residential, Inc. v. Sand Canyon Corporation (Index No. 651885/2012). Plaintiff, in its
capacity as the master servicer for Option One Mortgage Loan Trust 2006-2 and for the benefit of the trustee and
the certificate holders of such trust, asserts claims for breach of contract, anticipatory breach, indemnity and
declaratory judgment in connection with alleged losses incurred as a result of the breach of representations and
warranties relating to loans sold to the trust and representation and warranties related to SCC. Plaintiff seeks
specific performance of repurchase obligations and/or damages to compensate the trust and its certificate
holders for alleged actual and anticipated losses, as well as a repurchase of all loans due to alleged
misrepresentations by SCC as to itself and representations given as to the loans’ compliance with its
underwriting standards and the value of underlying real estate. We have not concluded that a loss related to this
matter is probable nor have we accrued a liability related to this matter. We believe SCC has meritorious
defenses to the claims in this case and 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 April 24, 2012, the U.S. Securities and Exchange Commission (SEC) simultaneously filed a complaint, in
the United States District Court for the Central District of California styled United States Securities and
Exchange Commission vs. Option One Mortgage Corporation n/k/a Sand Canyon Corporation (Case No.
SACV 12-633-JST (MLGx)), and a proposed settlement in connection with its investigation into RMBS
transactions of SCC. The negotiated settlement, in which SCC neither admits nor denies the allegations of the
complaint, calls for the payment of approximately $28 million in full settlement of all claims by the SEC. On
April 26, 2012, the court filed a final judgment in accordance with the terms of the settlement agreement,
concluding the matter. SCC accrued a liability of approximately $28 million in connection with this matter
during the quarter ended January 31, 2012 and payment was made in the first quarter of fiscal year 2013.
As of April 30, 2012, underwriters and depositors were involved in multiple lawsuits related to securitization
transactions in which SCC participated. These lawsuits allege a variety of claims, including violations of federal
and state securities law and common law fraud, based on alleged materially inaccurate or misleading
disclosures. SCC has received notice of a claim for indemnification from underwriters or depositors relating to
H&R BLOCK 2012 Form 10K 73