Judge sends MDL over H&R Block anticipated loans to arbitration

By Jonathan Bilyk | Jul 30, 2014

A federal court will allow one of the nation’s largest for-hire tax preparers to head to arbitration to try to resolve multidistrict litigation over claims H&R Block unfairly and illegally preyed upon customers in persuading them to take out refund anticipation loans when completing their federal income tax returns.

In her July 23 ruling, U.S. District Judge Joan B. Gottschall went against the plaintiffs' wishes and granted H&R Block’s request to stay proceedings in the MDL, which was created and assigned to Chicago's federal court in 2012, and put the matter before an arbitrator.

Gottschall said federal laws governing arbitration and legal precedent interpreting those laws make an arbitration clause in the loan agreements signed by the plaintiffs enforceable, even if those agreements conflict with certain state laws.

The case arose over the past decade, as 17 named plaintiffs filed class action suits against H&R Block in courts in their home states, which included Illinois, Wisconsin, New York, California, Arkansas, Florida, Maryland, Minnesota and North Carolina.

The plaintiffs allege the company violated laws governing so-called refund anticipation loans and related products in each of those states, as well as other states in which H&R Block does business.

Refund anticipation loans are usually granted at the time individuals file their income tax returns and are typically in the amount of the anticipated tax refund, minus fees. The loans aim to let individuals more quickly obtain the income tax refunds they are anticipating from federal and state governments.

In the plaintiffs' cases, the loans were arranged by H&R Block, and processed and paid through the H&R Block Bank or other financial services partners.

While they concede they received their payments, the plaintiffs allege the loans were often awarded at extremely high interest rates, sometimes exceeding 100 percent, in violation of usury laws. They further claim H&R Block failed to disclose those rates and other key elements of the loans, as required by state lending laws.

In 2012, the complaints were consolidated into multidistrict litigation and transferred to Chicago's federal court, where Gottschall was assigned to handle the matter, In re: H&R Block Refund Anticipated Loan Litigation, MDL No. 2373.

The MDL, which places no estimate on the ultimate size of the class, asked the court to prohibit H&R Block from continuing to offer such loans in such a fashion, and to award the plaintiffs unspecified damages.

In response, H&R Block asked the court to send the matter to arbitration and suspend further legal action until arbitrators can rule, saying the terms of its refund anticipation loan agreements dictate that complaints be resolved through binding arbitration.

The plaintiffs objected, arguing that laws in the states in which the cases were filed “prohibit class-action waivers in consumer arbitration agreements” and the U.S. Supreme Court ruling in AT&T Mobility vs. Concepcion – a key piece of legal precedent concerning such waivers - was issued in 2011, after the loan agreements were signed.

Gottschall, however, said H&R Block has the better legal argument in this case, citing the case of Murphy vs. DirecTV, in which the federal appellate judges for the Ninth Circuit found the doctrines of Concepcion concerning arbitration could be applied retroactively.

She also said generally federal laws preempt state laws when the two conflict.

“Under Murphy, ‘the FAA (Federal Arbitration Act) has always preempted states from invalidating agreements that disallow class procedures,’” Gottschall wrote. “This means that the states in which the plaintiffs reside never ‘prohibited’ class-action waivers.

“Thus, the arbitration clause always applied to the plaintiffs’ claims.”

Gottschall's ruling directed the clerk to close this case, as well as all member cases associated with the MDL.

Records show Gottschall appointed the law firms of Carney Bates & Pulliam in Arkansas and Golomb & Honik in Philadelphia to serve as co-lead class counsel, with Cafferty Clobes Meriwether & Sprengel in Chicago as liaison counsel. 

The H&R Block defendants were represented by attorneys at Morgan Lewis & Bockius LLP in Chicago and Husch Blackwell LLP in Kansas City.

More News

The Record Network