Expert witness against H&R Block admits he bought 'peace of mind'

By Steve Korris | Jan 29, 2010

EAST ST. LOUIS – Class action expert Don Kovacic plans to swear that tax preparer H & R Block shouldn't sell peace of mind, but apparently his wife made him buy it.

According to H & R Block lawyer Jason Rankin of Edwardsville, Kovacic confirmed in a deposition that he and his wife bought a peace of mind warranty on their tax return.

Warranties protect customers from charges and penalties on errors.

LakinChapman lawyers designated Kovacic as an expert in federal court for a claim that peace of mind lacks value because 99.7 percent of customers don't need it.

They moved to certify a class action in December, and Rankin opposed it on Jan. 4.

He wrote that Kovacic disagreed with his wife about peace of mind.

"In both the Kovacic household and the proposed class, there is no single measure of 'value' that can permit objective determination whether a purchaser was misled or deceived in buying POM," Rankin wrote.

"There is real value to certain individuals to have the comfort of knowing they have eliminated all serious risk of paying more taxes or having to face the IRS alone," he wrote.

The former Lakin Law Firm sued H & R Block in Madison County circuit court in 2002, on behalf of Lorie Marshall.

They later added Debra Ramirez as a plaintiff.

Madison Associate Judge Ralph Mendelsohn certified a 48 state class in 2003.

In 2006, following the Illinois Supreme Court's Avery decision that disfavored national consumer fraud class actions, Lakin lawyers amended the complaint.

Although they shrank it to 11 states, they multiplied the liability.

Mendelsohn again certified a class action.

H & R Block removed it to federal court, arguing that under the Class Action Fairness Act, Mendelsohn turned an old case into a new one that a state court couldn't touch.

District Judge Michael Reagan tried to toss it back to Mendelsohn, but appeals judges in Chicago intercepted it last April and tossed it back to Reagan.

They held that "from the standpoint of the original claim, the expansion of potential liability was a surprise."

On Dec. 11, Mark Brown of LakinChapman moved to certify Marshall and Ramirez as representatives of a class in 11 states.

"The overwhelming majority of Block's clients do not need POM because their returns are so simple that the chance of additional taxes being owed is infinitesimal," he wrote.

He wrote that H & R Block conceals its low error rate, the extremely low IRS audit rate, and the difference between the cost of coverage and the average claim.

He wrote that it conceals a 15 percent commission on peace of mind payments.

He claimed damages back to 1997, in Arizona, California, Connecticut, Florida, Illinois, Massachusetts, Michigan, Missouri, New Jersey, New York and North Carolina.

He sought separate class certification on a claim that in four states, peace of mind constituted insurance that H & R Block needed a license to sell.

He wrote that "the jury will not be required to examine individual tax returns to determine liability and damages."

Rankin answered that the allegations of Marshall and Ramirez didn't match.

"Ms. Marshall, who purchased POM for four consecutive years, alleges that her tax preparer told her POM was insurance and that it would guarantee that her taxes were prepared correctly," he wrote.

"She says she was told that if her taxes were not prepared correctly, the entity that sold her the POM would act as her representative with the Internal Revenue Service," he wrote.

She testified she bought it because she was afraid not to, he wrote.

"Quite to the contrary, Ms. Ramirez testified that she did not recall if she was told anything about POM, did not know she had bought it until she saw it on her statement, had no interest in the product and claimed to have received no value from it," he wrote.

A reply from Marshall and Ramirez on Jan. 19 didn't offer new argument but it introduced a new lawyer.

Brown didn't file it. Scott Macrae of San Francisco filed it.

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