HR Block 2013 Annual Report Download - page 93

86 H&R Block 2013 Form 10-K
Although we sold H&R Block Financial Advisors, Inc. (HRBFA) effective November 1, 2008, we remain responsible
for any liabilities relating to the Express IRA litigation, among other things, through an indemnification agreement. A
portion of our accrual is related to these indemnity obligations.
LITIGATION AND CLAIMS PERTAINING TO THE DISCONTINUED OPERATIONS OF RSM
MCGLADREY – On April 17, 2009, a shareholder derivative complaint was filed by Brian Menezes, derivatively and
on behalf of nominal defendant International Textile Group, Inc. against McGladrey Capital Markets LLC (MCM) in
the Court of Common Pleas, Greenville County, South Carolina (C.A. No. 2009-CP-23-3346) styled Brian P. Menezes,
Derivatively on Behalf of Nominal Defendant, International Textile Group, Inc. (f/k/a Safety Components International,
Inc.) v. McGladrey Capital Markets, LLC (f/k/a RSM EquiCo Capital Markets, LLC), et al. Plaintiffs filed an amended
complaint in October 2011 styled In re International Textile Group Merger Litigation, adding a putative class action
claim. Plaintiffs allege claims of aiding and abetting, civil conspiracy, gross negligence and breach of fiduciary duty
against MCM in connection with a fairness opinion MCM provided to the Special Committee of Safety Components
International, Inc. (SCI) in 2006 regarding the merger between International Textile Group, Inc. and SCI. Plaintiffs
seek actual and punitive damages, pre-judgment interest, attorneys' fees and costs. On February 8, 2012, the court
dismissed plaintiffs' civil conspiracy claim against all defendants. A class was certified on the remaining claims on
November 20, 2012. The court granted summary judgment in favor of MCM on June 3, 2013 on the breach of fiduciary
duty claim. A trial date has been set for September 9, 2013 on the remaining claims. 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.
In connection with the sale of RSM and MCM, we indemnified the buyers against certain litigation matters. The
indemnities are not subject to a stated term or limit. A portion of our accrual is related to these indemnity obligations.
OTHER – We are from time to time a party to investigations, claims and lawsuits not discussed herein arising out
of our business operations. These investigations, claims and lawsuits may include actions by state attorneys general,
other state regulators, federal regulators, individual plaintiffs, and cases in which plaintiffs seek to represent a class of
others similarly situated. We believe we have meritorious defenses to each of these investigations, claims and lawsuits,
and we are defending or intend to defend them vigorously. The amounts claimed in these matters are substantial in
some instances; however, the ultimate liability with respect to such matters is difficult to predict. In the event of an
unfavorable outcome, the amounts we may be required to pay in the discharge of liabilities or settlements could have
a material impact on our consolidated financial position, results of operations and cash flows.
We are also a party to claims and lawsuits that we consider to be ordinary, routine litigation incidental to our business,
including, but not limited to, claims and lawsuits concerning the preparation of customers' income tax returns, the fees
charged customers for various services and products, relationships with franchisees, intellectual property disputes,
marketing and other competitor disputes, employment matters and contract disputes (Other Claims). While we cannot
provide assurance that we will ultimately prevail in each instance, we believe the amount, if any, we are required to
pay in the discharge from liabilities in, or settlements of, these Other Claims will not have a material impact on our
consolidated financial position, results of operations and cash flows.
NOTE 19: LOSS CONTINGENCIES ARISING FROM REPRESENTATIONS AND WARRANTIES OF
OUR DISCONTINUED MORTGAGE OPERATIONS
SCC ceased originating mortgage loans in December 2007 and, in April 2008, sold its servicing assets and discontinued
its remaining operations.
Mortgage loans originated by SCC were sold either as whole loans to single third-party buyers or in the form of
residential mortgage-backed securities (RMBSs). In connection with the sale of loans and/or RMBSs, SCC made certain
representations and warranties. These representations and warranties varied based on the nature of the transaction and
the buyer's or insurer's requirements, but generally pertained to the ownership of the loan, the validity of the lien securing
the loan, borrower fraud, the loan's compliance with the criteria for inclusion in the transaction, including compliance
with SCC's underwriting standards or loan criteria established by the buyer, ability to deliver required documentation,
and compliance with applicable laws. Representations and warranties related to borrower fraud in whole loan sale
transactions to institutional investors, which represented approximately 68% of the disposal of loans originated in