Announced Actions for June 6, 2003

For Your Information

Commission authorization of the staff to file Amicus Brief: The Commission has authorized the staff to file a motion for leave to file an amicus brief in the case Haese v. H&R Block, Inc., No. CV-96-423 (Dist. Ct. of Kleberg County, TX). The brief, which is available on the FTC's Web site as a link to this press release, concerns a proposed class action settlement preliminarily approved by the court in this matter. In addition to addressing concerns about the uncertain and likely low value of the proposed coupon settlement in this case, the brief addresses the class action counsel's request for certain fees and their proposal that those fees be shared with the class members. The brief contends that the proposed settlement as a whole is contrary to the public interest.

The FTC's brief addresses the proposed settlement of a case currently pending in Texas, in which the plaintiffs filed suit in 1996 against H&R Block (H&R) and a number of affiliated companies on their own behalf and on behalf of other Texas residents. The plaintiffs, who were due income tax refunds, obtained refund anticipation loans or "RALs" from a bank. H&R assisted the plaintiffs in obtaining these RALs. In doing so, H&R allegedly failed to disclose the fact that it was receiving a "kick back" or license fee from the lending bank for each RAL it facilitated.

The court on March 31, 2003 approved a preliminary settlement that provides coupons to qualifying class members to use at H&R. The coupons could be used by the 700,000 class members to obtain a tax preparation service $20 rebate, free tax preparation and planning computer software, and a free tax planning advisor booklet each year for five years. The estimated face value of the coupons is about $262 million. In addition, the settlement called for H&R to pay class counsel up to $49 million in attorney's fees and to reimburse them for up to $900,000 in expenses, as approved by the court. The settlement further provides H&R with broad releases from related plaintiff claims. Class counsel also filed a motion for the release of funds, asking the court to allow them to pay $26 million of their attorney's fees to class members ($37.14 per member). The offer is contingent on the court's approval of the class counsel's attorney fee request.

The FTC's amicus brief, filed with the court on June 5, addresses the case settlement and proposed attorney's fees. The brief argues that the value of the proposed coupon settlement is likely substantially lower than the purported $262 million face value of the coupons for several reasons. First, coupon programs are widely known to have low redemption rates. Second, the likelihood of class members using all the coupons is remote, in part because they are unlikely to use the service and the two products during the same tax season. Third, according to the brief, the parties have not shown that there will be a market for the transferrable software and book coupons. Finally, class members who buy tax preparation services may not submit the coupon and proof of payment to obtain the rebate.

The brief also contends that the court must assess the adequacy and propriety of the settlement as a whole, including the strength of the plaintiffs' case on the merits and the settlement's provision for fee awards. The brief maintains that there is strong reason to conclude that the proposed settlement package is not fair or reasonable, regardless of the strength of plaintiffs' claims. If one assumes, in keeping with the court's preliminary ruling, that plaintiffs are ultimately likely to prevail on the pertinent issues - i.e., that H&R owed a fiduciary duty to plaintiffs as a matter of law; that its violation was intentional, willful and deliberate; and that plaintiffs are entitled not only to forfeiture of the license fees H&R received, but also the fees paid by plaintiffs to H&R (a total of nearly $75 million) - then the coupon settlement of uncertain and likely low value is inadequate. If by contrast, as H&R contends - and consistent with rulings it has obtained in other states - there is a substantial likelihood that the court's preliminary ruling would be overturned on appeal, the coupon settlement may be adequate, but the attorneys' fees are even more unreasonable.

The brief also contends that any fees must be based on the actual value - as opposed to the face value - of the coupons, and that the court must, consistent with precedent, test the proposed "percentage-of-recovery" fee against established standards to prevent excessive attorneys' fee awards. Finally, the brief argues that the class counsel's attempt to divert some of their fees to the class is problematic for several reasons, including questions about whether it could be enforced and the fact that class counsel have not offered to pay a specific amount if the court approves the payment of fees of more than $26 million but less than $49 million. The Commission vote authorizing staff to file the brief was 5-0. (FTC File No. P024210, staff contact is Robert M. Frisby, Bureau of Consumer Protection, 202-326-2098.)

Commission authorization of comments to the Department of Transportation: The Commission has filed comments with the U.S. Department of Transportation (DOT) concerning proposed rules governing computer reservations systems (CRS). The FTC’s comments, which can be found as a link to this press release on the Commission’s Web site, were filed in response to a DOT Notice of Proposed Rulemaking (NPR) that advised the public that the DOT was initiating a proceeding to examine whether its existing CRS rules were still necessary and, if so, whether they should be modified.

The Commission’s comments address references to FTC case law and policy in the DOT’s analysis of its proposed revisions of the CRS regulations. The Commission vote authorizing the filing of the comments with the DOT was 5-0. (FTC File No. P859907, staff contact is Melvin H. Orlans, Office of the General Counsel, 202-326-2475.)

Copies of the documents mentioned in this release are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. Call toll-free: 1-877-FTC-HELP.

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