H&R Block claims plaintiffs introduced new theories in 8-year old class action

By Steve Korris | Jul 15, 2010


EAST ST. LOUIS – Class action lawyers complain that H&R Block Tax Services introduced new evidence in an old case, and Block's lawyers insist they did it because the class action lawyers introduced new theories.

The dispute taxes the patience of U.S. District Judge Michael Reagan, who must decide whether to certify a class action over Block's "peace of mind" coverage.

At a class certification hearing in April, Reagan pronounced a pox on both houses for introducing new arguments.

He asked for briefs and affidavits to help him make up his mind, but the responses have only increased the difficulty in the decision.

On June 24, plaintiff lawyer Frank Janecek of San Diego moved to strike 50 exhibits and six affidavits that Block submitted after the hearing.

Janecek wrote that Block should have submitted the exhibits and affidavits in January, with its memorandum opposing class certification.

He wrote that "there has been no change in the law or facts to warrant the submission of new evidence."

"Block's new affidavits describe and comment on entirely new documents that were not in the record at the time of the hearing," he wrote.

On June 29, Block lawyer John Clear of St. Louis wrote that the materials establish beyond doubt that allegations against Block are absolutely untrue.

He wrote that plaintiffs asked Reagan to find that preparers followed a uniform script and uniformly omitted information about the likelihood of needing peace of mind.

"Block was timely in presenting these materials to the court, and is entitled to rebut the mistaken assertions of fact which had never been made before," Clear wrote.

"Block moreover acted in compliance with specific instructions from the court," he wrote.

Preventing the court from considering vital evidence is hypocritical and unfair when plaintiffs have yet to plead their claims, he wrote.

The current complaint claims Block failed to disclose that peace of mind had little or no value, he wrote.

"That has been the way plaintiffs have couched their theory since 2002: an attack on the product itself, not on statistical details as to tax audits or error rates," Clear wrote.

"Plaintiffs had never asserted a theory that there were omissions to disclose error and claims rates or sales commissions until they moved for class certification on these theories on December 3, 2009."

He wrote that on Jan. 19, plaintiffs for the first time espoused a theory that preparers followed a single uniform script on computer screens throughout the class period.

The class certification hearing was Block's first opportunity to respond, he wrote, and Block advised the court that its screen shots changed every year.

"Plaintiffs complained that it was for some reason unfair for Block to bring these facts to the court's attention because, they claimed, they had no prior notice despite the fact that other screen shots had been produced years before in discovery," he wrote.

Block also demonstrated that it expected preparers to discuss peace of mind in their own words, he wrote.

Plaintiffs then asserted that the court could certify a class on an omission theory because Block failed to provide statistical information to preparers, he wrote.

"This was the first time such an assertion was made as the basis for class treatment of an omissions theory," he wrote.

"Block would violate duties to the court if it permitted the court to make findings of fact on a record that both plaintiffs and Block know to be incomplete," he wrote.

On July 9, Mark Brown of LakinChapman replied that plaintiffs misinterpreted Reagan.

"The parties have wildly divergent interpretations of the court's invitation to submit affidavits authenticating documents on which either party wished the court to rely in the forthcoming class certification order," he wrote.

"First, although the same uniform scripts were used for all customers in any given year, plaintiffs did not mean to suggest that the scripts went unchanged from year to year," he wrote.

"Second, this argument is a red herring, because whatever the disclosures may have been from year to year, it is undisputed that the scripts uniformly omitted the same information at issue and which plaintiffs consider to be material," he wrote.

"Third, any dispute about the scripts could not even remotely justify the post hearing submission of defendant's other non script related documents not previously part of the record," he wrote.

The former Lakin Law Firm sued Block in Madison County circuit court in 2002, on behalf of Lorie Marshall and Debra Ramirez.

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

Block Tax Services moved to decertify the class, and Mendelsohn shrank it to 13 states.

He decertified the defense class, prompting Block to remove the suit to federal court.

Block claimed Mendelsohn turned it into a new case for purposes of the national Class Action Fairness Act.

Reagan remanded it to Mendelsohn, but Seventh Circuit appeals judges in Chicago reversed Reagan.

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

When the case returned to Reagan, he ruled that he would not honor Mendelsohn's ruling on class certification.

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