Judge Reagan takes under advisement arguments in H&R Block case

Steve Korris May 7, 2010, 4:24am

EAST ST. LOUIS – U.S. District Judge Michael Reagan scolded lawyers during a class action hearing for introducing surprise evidence.

"A pox on both your houses," Reagan said after a lawyer for H&R Block Tax Services sprang a half forgotten piece of evidence on a class action lawyer at an April 30 hearing.

The evidence might matter as Reagan ponders whether to certify a class action, but it irritated him because no one had verified it.

John Clear of St. Louis presented it while defending sales of "peace of mind" guarantees that protect customers from liability for Block's errors.

Countering a claim that Block treated all customers in a uniform manner, Clear said employees followed a different sales script every year.

Class action lawyer Allan Steyer of San Francisco jumped to his feet and asked where that came from.

Clear said Block produced it through discovery in 2004.

Steyer objected, saying Clear should have included it in his opposition brief.

Clear said this was his first opportunity to respond and it wasn't fair to the court to base a decision on a misunderstanding.

Steyer said they briefed class certification months ago.

"There has been no notice of this," he said.

"Our goal was not to sandbag," Clear responded.

He said he would be happy to give a declaration or an affidavit.

Reagan prescribed a pox and added, "If it is disputed, I need responses."

Steyer and local associates at LakinChapman claim Block omitted information that customers needed about peace of mind.

The former Lakin firm sued Block in Madison County in 2002, seeking to certify Lorie Marshall and Debra Ramirez as class representatives.

Associate Judge Ralph Mendelsohn certified them, and he certified Block Tax Services to represent all Block entities.

Block moved to decertify the plaintiff and defense classes.

Mendelsohn shrank the class action to 13 states and decertified the defense class.

Block removed the suit to federal court, claiming Mendelsohn turned it into a new case for purposes of the national Class Action Fairness Act.

Reagan sent it back to Mendelsohn, but Seventh Circuit appeals judges in Chicago ordered Reagan to keep it.

They wrote that Mendelsohn took Block Tax Services by surprise in pinning all liability of the former defendant class on it.

Steyer said at the hearing that customers needed peace of mind only in case of both error and audit, events he called extremely unlikely.

The vast majority of the class earned less than $50,000, Steyer said.

He said that 99.7 percent of clients didn't need peace of mind and that Block didn't disclose that it paid 15 percent commissions on peace of mind.

Clear responded, "Block takes pride in offering a product that one out of five customers wishes to have."

"People didn't buy it because they were stupid."

He said many customers buy it every year.

Plaintiff Marshall bought it four years in a row, he said.

Clear said eight years of unfettered discovery with thousands of pages produced results as skimpy as he had ever seen.

He said the case rested on absolute uniformity in transactions.

He said employees worked off a script but didn't always use the exact same words.

"This was a prompt to cause them to have a conversation," he said. "There was no dishonesty, no deception, no concealment."

He told Reagan he didn't dream that plaintiffs would hold out to him that employees followed the same script every year.

"It changes every year," he said, lifting Steyer from his seat.

After the wry judge prescribed a pox, he said he understood the same script was used every time.

"I misunderstood that?" Reagan said.

Steyer said, "The gist, yes. It's the same thing, nondisclosure."

Clear said the notion that 16 million conversations involved the same three sentences defied human experience.

"There is variation that is fatal to class treatment," he said.

Reagan took it under advisement.

More News