EAST ST. LOUIS – Mark Brown of LakinChapman claims H&R Block Tax Services tricked customers into paying extra for "peace of mind" guarantees they didn't need, but about 100,000 customers who bought it wound up needing it.
Brown would prefer that U.S. District Judge Michael Reagan focus on the millions who didn't need it as he decides whether to certify a 13-year old class action for 11 states.
"Block knew that 99.7 percent of its customers would not use the peace of mind coverage," Brown wrote on June 18.
Peace of mind coverage guarantees that Block will defend a customer if the Internal Revenue Service detects an error.
Brown wrote that "the overwhelming majority of Block's clients never have a peace of mind claim because their returns are so simple that the likelihood of error by Block and the chance of additional taxes being owed are remote."
Brown proposed a double class action for Illinois and three other states, combining consumer fraud claims with allegations of illegal insurance sales.
He sought injunctive relief for the four states, without explaining what he meant.
Block lawyer John Clear of St. Louis wrote on the same date that, "A party cannot amend a pleading through statements in a brief."
He wrote that "monetary damages are not merely incidental to plaintiffs' class claim for injunctive relief but, in fact, are the primary relief sought by plaintiffs."
"Federal rules of civil procedure require consideration of plaintiffs' claims as they are pleaded, not as plaintiffs might
choose to characterize them in briefs," Clear wrote.
Brown responded that he would "cure this technical issue" by amending the complaint.
The former Lakin Law Firm sued Block in Madison County circuit court in January 2001, while President Bill Clinton occupied the White House.
Lakin clients Lorie Marshall and Debra Ramirez alleged that Block committed fraud by failing to disclose material information.
Madison County Associate Judge Ralph Mendelsohn certified Marshall and Ramirez to represent a plaintiff class.
In an unusual step, he certified a defendant class of Block entities.
He decertified the defendant class in 2008, leaving H&R Block Tax Services as the sole defendant.
Block removed the case to federal court, claiming Mendelsohn turned it into a new case for purposes of the federal Class Action Fairness Act.
Reagan discarded Mendelsohn's order and started from scratch.
He held a class certification hearing in April and asked both sides to propose findings of fact and conclusions of law.
Brown wrote, "Plaintiffs allege that all class members received the same information about peace of mind as a result of uniform scripts concerning peace of mind and Block's standardized, mandatory peace of mind sales procedures."
Block didn't disclose its extremely low error rate or the extremely low IRS audit rate, he wrote.
Brown also claimed that Block didn't disclose that 99.7 to 99.9 percent of peace of mind purchasers never had a claim.
He wrote that Block didn't disclose that the coverage far exceeds the average claim.
He also wrote that Block didn't disclose that it pays a 15 percent commission on peace of mind, he wrote.
He alleged deceptive omission and breach of fiduciary duty in Arizona, California, Connecticut, Florida, Illinois, Massachusetts, Michigan, Missouri, New Jersey, New York, and North Carolina, back to 1997.
Brown asks for injunctive relief on a claim that peace of mind constituted insurance that Block lacked authority to sell in Arizona, California, Illinois and New Jersey.
He wrote that "between 1998 and 2001, only 20,054 of its clients needed the coverage."
"[B]etween 2000 and 2006, only 76,568 of its clients needed the coverage," Brown wrote.
Those periods overlap, and he didn't report totals for 1997 or the last four years, making an accurate count impossible.
"Because the question whether an omission was material is an objective test, not a subjective test, there is no need to determine whether individual class members would have decided not to purchase peace of mind had the omitted information been disclosed to them," Brown wrote.
"Because the issue of materiality is objective not subjective, the determination of liability will be the same for each and every class member based on the determination of whether failure to disclose this information would be likely to deceive a reasonable person."
Clear denied that preparers followed a uniform script, writing that they used computer "screen shots" as a guide.
Preparers didn't know IRS audit rates or Block error rates, Clear wrote.
Plaintiffs didn't claim commissions as a basis for relief for eight years, he wrote.
He wrote that Reagan would have to account for differences between franchise offices and offices Block owned.
He wrote that Block has paid more than $90 million on peace of mind claims in the 11 states since 2000.
"It is not possible to determine the reasons for particular purchase decisions without consideration of individualized facts and circumstances," Clear wrote.
"Neither named plaintiff could recall the details of the conversations she had with her tax professional.
"Cases such as this one that hinge on oral discussions are uniquely unsuited for class treatment."
He wrote that laws of the 11 states differ on statutes of limitations, punitive damages and fiduciary relationships.