Court OKs Class Action Against H&R Block

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March 4, 2004
A Pennsylvania appeals court has ruled that lawsuits accusing H&R Block Inc. of charging unnecessary fees for filing tax forms electronically can be treated as class actions and don't have to be arbitrated.

Erin McNulty and Brian Erzar sued block, claiming the company charged clients millions of dollars in unnecessary e-filing fees. The plaintiffs alleged that Block did not adequately indicate that customers could avoid the fees by filing traditional paper returns.

Block's lawyers argued that a provision in a separate contract that the clients signed with Household Bank requires any claims to be settled through arbitration, not a class action. The agreement with Household Bank was for refund anticipation loans related to the clients' tax returns.

But in the court's opinion, Pennsylvania Superior Court Judge Richard Klein held that an e-filing fee was a separate and distinct transaction from the application for the loan and wasn't covered by the arbitration clause.

"The trial court found that charging a fee to push the 'send' button (basically the equivalent of putting a stamp on an envelope) was too attenuated to the loan application process and so was exempt from the arbitration case," Klein wrote.

"We believe the court's decision runs counter to the weight of state and federal law, and are considering an appeal of the decision to the Pennsylvania Supreme Court," Block said in a statement.

The case now returns to the Lackawanna County, Pa., Court of Common Pleas for trial.

Block has faced consumer class actions and criticism dating to the mid-1990s for how it hss marketed its high-interest refund anticipation loans.

The company settled a Texas lawsuit in June that called for it to distribute $26 million in cash, as well as tax preparation and software coupons, to 700,000 tax service customers. In April, a federal judge in Chicago rejected Block's proposed settlement in a similar class-action suit. That suit is pending.

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