H&R Block expert allowed to testify in spite of effort to shut him out

By Steve Korris | Apr 30, 2010



EAST ST. LOUIS – Three days before a hearing on certification of a LakinChapman class action against H&R Block Tax Services, U.S. District Judge Michael Reagan rejected a bid to shut the defense's expert witness out of the proceedings.

On April 27, Reagan denied a motion to exclude West Virginia University economics professor Russell Sobel from an April 30 hearing.

"Dr. Sobel's extensive academic background – his research, writing and teaching – in the field of economics and his review of available data qualify him as an expert on consumer choice theory," Reagan wrote.

"Dr. Sobel will testify to valid scientific knowledge, and his testimony will assist the trier of facts with facts at issue," he wrote.

Plaintiffs Lorie Marshall and Debra Ramirez claim Block Tax Services committed fraud in selling "peace of mind" guarantees with tax preparation contracts.

The guarantees protect taxpayers from liability for any mistakes Block commits.

Marshall and Ramirez sued in 2002, in Madison County circuit court.

Associate Judge Ralph Mendelsohn certified them to lead a national class action, and he certified Block Tax Services to represent all Block entities.

Block Tax Services moved to decertify the plaintiff and defense classes.

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

Block Tax Services removed the suit to federal court in 2008, claiming Mendelsohn turned it into a new case for purposes of the national Class Action Fairness Act.

Reagan remanded it to Mendelsohn, writing that plaintiffs didn't amend the complaint.

Seventh Circuit appeals judges in Chicago reversed Reagan, writing that he elevated form over substance.

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

They sent it back to Reagan, who declared he would not honor any state court ruling on class certification.

Marshall and Ramirez challenged Sobel's qualifications.

Sobel answered by affidavit that he taught and published in economics for 20 years.

"It is well established, both with formal models and empirical evidence, that risk averse consumers are willing to pay in advance to eliminate risk from their portfolio of future outcomes, and are better off for doing so," he wrote.

"This standard model has broad applications from the fields of insurance to consumer purchase of warranties, guarantees, and even lottery tickets and gambling," he wrote.

He wrote that "consumers spend time and effort to acquire the information that is important to them in the purchase process."

"Due to differences in state and local income tax codes, the potential for data entry errors, the degree of risk aversion, family situation, and many other factors, each consumer faced a unique set of circumstances on which they based their decision," he wrote.

He wrote that he published research on variability in state income tax codes.

That didn't satisfy LakinChapman lawyers, who argued that Sobel never performed research specifically on consumer choice, but it satisfied Reagan.

Reagan wrote that "consumer choice is an area of study within the field of economics and a subject on which Dr. Sobel has researched, written and taught."

Professionals with broad experience may qualify as experts in specialized areas, he wrote, as a physician in general practice may testify about problems a specialist treats.

Mark Brown, Andrew Kuhlmann and Daniel Cohen of LakinChapman represent Marshall and Ramirez, along with California lawyers Allan Steyer, Christopher Collins, Scott Macrae and Frank Janecek.

John Clear of St. Louis, Scott Schutte of Chicago and Jason Rankin of Springfield represent Block Tax Services.

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