Y.11 Intervenors’ Objections to

In the District Court 105th Judicial District for Kleberg County, Texas

[][Consumer 1], et al,

Plaintiffs,

[vs]

[]H&R Block, Inc., et al,

Defendants.

OBJECTIONS TO CLASS ACTION SETTLEMENT AND

TO THE HONORABLE JUDGE OF THE COURT:

[OBJECTOR 1] and [OBJECTOR 2] (“Objectors”) file these objections to the proposed class action settlement of [Consumer 1] and [Consumer 2], et al. and H&R Block, Inc., et al. (“Proposed Settlement”) for which Court approval is sought by plaintiffs [Consumer 1] and [Consumer 2], et al. (“Plaintiffs”) and , H&R Block, Inc., H&R Block & Associates, LP, H&R Block Tax Services, Inc., H&R Block of South Texas, Inc. , HRBO, LTD, HBR- Delaware, Inc., H&R Block, Ltd., HRBO III, Inc., HRBO II, LTD., HRBO I, Ltd., H&R Block of Dallas, Inc., H&R Block of Houston, Ltd., Houston Block, L.C., Block Management, Ltd., STI-Block, L.C., H&R Block, HRBO III, Ltd. and HRBO II, Inc. (“H&R Block”). Objectors urge the Court to reject the Proposed Settlement. Objectors also hereby intervene as plaintiffs in this matter.

GENERAL STATEMENT OF OBJECTION

1. The Proposed Settlement is not fair, adequate, and reasonable to either Objectors or to the class as a whole. Specifically, 1) the settlement amount is not fair and adequate, 2) the attorneys fees requested are excessive, 3) There is an inter-class conflict and inadequate representation, 4) settlement notice to the class is inadequate, 5) The settlement agreement contains terms that are unenforceable and against public policy, and 6) To receive the full benefits of the settlement the class members are required to do business with the Defendant . The Court should therefore reject the Proposed Settlement.

INTEREST OF OBJECTORS

1 2. Objectors are members of the class of persons affected by this settlement. They received notice of the proposed settlement by way of a news release issued by H&R Block and stories published in the Wall Street Journal and other publications. (Copies of the news releases issued by H&R Block and the Wall Street Journal Article are attached to this objection as Exhibits “A” and “B”). The settling parties have not filed the memorandum of the settlement nor have they provided copies of it upon request. The news release by H&R Block describes the settlement as follows:

Under the terms of the agreement, in which the company and other defendants continue to deny liability, H&R Block and its major franchisee in Texas will provide a package of five, $20 non- transferable rebate coupons that can be redeemed when mailed to a claims administrator along with the client’s receipt for tax preparation or electronic filing services at Block offices in Texas. The class members will also receive five transferable mail-in coupons each for TaxCut© software and the new H&R Block Tax Planning Advisor book, which offers year-round tax- planning information and strategies. The retail value of the software is $39.95, while the book’s retail value is $14.95. Class members can redeem one each of the tax preparation, software and book coupons every year for five years, beginning after final approval of the settlement. The coupons will be issued to Texas class members who received a refund anticipation loan between 1992 and 1996.

The Objector, [Objector 1], has received a notice of her right of participation as a class member in the settlement. (A copy of her notice is attached hereto as Exhibit “C”). [Objector 2] is a member of the class, but did not receive a copy of the Notice because of her change of residence from Austin, Texas to Corpus Christi, Texas.

3. As members of the class, Objectors have a justiciable interest in this case. Their claims arise from the same type of transactions that are made the basis of the herein. In addition to the claims of which they are aware and that have been raised in this matter, Objectors have claims pursuant to Texas law.

THE BASIS OF THE OBJECTION

1. THE SETTLEMENT AMOUNT IS NOT FAIR AND ADEQUATE

Unlike many class action settlements, this is not one where the claims of the plaintiff class appeared, at the time of settlement, to be speculative or insubstantial. Rather, in this case, the discussions that led to the settlement were triggered by an indication that this Court was prepared to issue summary in favor of one segment of the class (those class members who received Refund Anticipation Loans between 1992 and 1996) in the amount of approximately $75 million--an amount that works out to about $107 per class member based on class counsel’s estimate that there are approximately 700,000 class members who fall into that part of the class. Although a in the court does not, of course, remove uncertainty from the claim, it does at least provide an objective benchmark against which to assess the value of the settlement. Particularly when viewed against that benchmark, the settlement proposed here appears neither fair nor adequate.

2 The recovery provided by the settlement proposal to the part of the class that would have benefited by the Court’s summary judgment had it been entered consists of coupons for three items each year for five years: One coupon useable annually for a tax preparation software package supposedly valued at $39.951; one for tax preparation services of $202; and one for a free tax planning book with supposedly worth $14.95.3 The aggregate value of each annual set of coupons adds up to $74.90, so class counsel appear to value the settlement at $374.50 for each 1992–96 class member, or about $262,150,000 in the aggregate.

The difficulty with class counsel’s projections is that they fail to take into account that the items are likely not worth their face amount to the members of the class. Many members of the class will likely have no desire to do business with H&R Block and/or no interest in any of these items; for them, the coupons may be entirely without value.4 In addition, class counsel’s valuation of the settlement involves a substantial element of double-counting. Persons who use tax preparation software to do their own taxes for a given year presumably do not generally use tax preparation services, and vice versa. Thus, in any given year, even a class member who wanted to redeem one of the coupons would likely use only one or the other, not both. Further, if the class member chose the tax preparation software, which includes tax planning information, that class member would not likely have much need for or interest in an additional book on the subject. Moreover, even class members who would be interested in a book on tax planning would not likely want or need one every year. Thus, even for a class member who wanted to continue doing business with H&R Block and use the coupons, a more realistic gross value of the settlement would range from a maximum of about $200 (for a class member who wanted to buy

1 In the most recent study conducted for the United States Department of Commerce, the average number of homes in the United States that have internet service is 54 percent. See www.ntia.doc.gov/ntiahome/dn/index.html. The number of homes in Texas were approximately 47.7 percent See www.ntia.doc.gov/ntiahome/dn/hhs/TableH1.htm. The percentage drops significantly when it comes to Hispanic homes See www.ntia.doc.gov/ntiahome/dn/hhs/ChartH8.htm. (Also, See Collective Exhibit “D”).

2 The coupon is not a discount coupon, but rather a rebate coupon which requires the class member to first pay for the preparation of the return and send their receipt along with the coupon to another address for a rebate to be mailed at a later date. During the time that this settlement was entered into an filed with the court Jackson-Hewitt, a competitor of H&R Block, was offering a $15 discount for tax preparation for the general public and a $20 discount for military. (See Collective Exhibit “E”). Also, between the time the settlement entered into and the preliminary hearing H&R Block offered a $30 savings on premium services and a $15 H&R Block tax preparation to Capital One Customers (See Capital One Coupon attached as (Exhibit “F”). 3 At last check, it was available on Amazon.com for less than $11.00. 4 The Texas Supreme Court, in Gen. Motors Corp. v. Bloyed, 916 S.W.2d 949 (Tex. 1996), clearly recognized that in valuing a coupon-based class settlement, a court should not assume that all the coupons would be redeemed, but instead should view the settlement value as being discounted by the redemption rate, which in that case was estimated by experts to be between 10 and 46 percent. Id., at 956 n.2.

3 the software each year)5 to $100 (or perhaps $115) for a class member who wanted to use Block’s preparation services (and, perhaps, might also want a copy of the tax planning book).

The high end of that range, however, is probably significantly too high, because it is very questionable whether many of the class members would really find value in Block’s “platinum” software package, which reflects the higher end of its range of software choices and contains a number of “extras,” such as “assistants” for rental properties, depreciation, and capital gains, that may be of little utility for consumers with less elaborate tax preparation needs. Block’s “standard” tax software, which would likely be just as valuable for many members of the class, is only $25.00. Moreover, good tax preparation software is currently available free over the internet at, among other sites, www.taxactonline.com, and given trends in the proliferation of web-based services, it seems likely that more rather than less extensive low- or no-cost options will increasingly become available to taxpayers as an alternative to such relatively high-priced software packages as Block’s or TurboTax. The notion, therefore, that class members would reap a benefit that was truly worth $200 to them if they used the tax software coupons provided in this case is without support; indeed, to many members of the class the software may have no value beyond what is already available to them elsewhere for nothing.

Thus, a realistic valuation of this settlement is highly unlikely to approach $262,150,000. Rather, such a valuation should start with an assessment of the value of the coupons that avoids both double-counting and overvaluation. Under that approach, the gross value of the coupons to a class member who actually wanted to use them might be more like $100 to $115 over a five- year period, which would aggregate to $70 to $80.5 million on the very unlikely assumption that all 700,000 members of the 1992–96 class used the coupons. That figure would have to be further discounted both by the expected number of class members who would actually redeem coupons and by the present discounted value of coupons available for redemption only years in the future. In the Chicago class action 17 million notices were sent out and only 1 millions claims were filed resulting in 5.88 percent of the class filing claims. If the same percentage of the class filed claims in Texas that would only be 41,160 clams. See Reynolds v. Beneficial Nat’l Bank, et al 288 F.3d 277, 283–84 (7th Cir. 2002).6 Given that redemption rates in coupon settlements are often well below 25 percent, see Christopher R. Leslie, A Market-Based Approach to Coupon Settlements in Antitrust and Consumer Class Action Litigation 49 UCLA L. Rev. 991, 1035 (2002) (citing redemption rates of 25 percent and lower for coupon settlements in consumer class actions); Buchet v. ITT Consumer Fin. Corp., 858 F. Supp. 944 (D. Minn. 1994) (citing redemption rates well below 1 percent), the result is that the real value of this settlement is undoubtedly only a fraction of the $262 million estimated by class counsel, and very likely considerably less than the approximately $75 million this Court indicated it was prepared to award on summary judgment. Additionally, the coupons are being mailed out in a single mailing and it is required that there three coupons will be used during certain date for each of the following five years that the coupons would have the available and use them in the respective time periods each year resulting in far less value than estimated by the counsel for the Plaintiff and Defendants.

5 Since the class by definition consists of persons who went to Block rather than doing it themselves, it is speculative whether a significant number would fit in the do-it-yourself category. 6 This Texas Class was carved out of the Chicago Class action.

4 This is not to suggest that a coupon settlement is necessarily always improper. Indeed, in the General Motors case, the Texas Supreme Court said that the coupon settlement at issue there could not be held to be inadequate given that the “class representatives apparently decided that accepting the certificates was preferable to proceeding with a lengthy lawsuit based on dubious evidence of . . . .” 916 S.W.2d at 957. But in that case, the Supreme Court emphasized that a critical consideration was “the difficulties the trial court found with the plaintiff’s case on the merits.” Id., at 956. The trial court in General Motors found that there were substantial legal issues about whether class certification could be maintained through and trial and that there was uncertainty about the proof of both liability and damages. Id. Those difficulties were such, the court noted, that “the individual class members faced considerable problems with proving any damages at all.” Id., at 957. Moreover, in that case, the settlement provided benefits to class members, “almost all” of whom faced “a strong likelihood” that the claims “would have been barred by the statute of limitations.” Id.

Here, by contrast, this Court’s certification of the class has already been affirmed on appeal. Moreover, far from presenting substantial uncertainty as to liability and damages that would entail lengthy and complex proceedings in the trial court, this case has already been determined by this Court to be one where summary judgment is appropriate on both liability and damages. And although some members of the class, as in General Motors, face a potential statute of limitations barrier to recovery, that cannot have any bearing on the adequacy of the benefits provided by this proposed settlement to those class members whose cases present no statute of limitations issue. Unlike in General Motors, therefore, this case offers little reason to accept the notion that a coupon settlement negotiated by class counsel and endorsed by the class representatives reflects a fair alternative to the uncertainties of litigation. This is especially true in light of the role self-evidently played in the settlement process by the extremely large award of attorneys’ fees, to which we now turn.7

2. THE ATTORNEYS’ FEE REQUEST IS EXCESSIVE

As part of the settlement, Block agrees to pay class counsel up to $49 million in fees (and $900,000) in expenses, subject to approval by the Court. The fee award is payable directly by Block, and under the terms of the settlement agreement, a reduction in the fee award will not increase compensation to the class, but will simply benefit Block. Although the settlement agreement itself does not indicate that any of the fee award is to be directed to the class (apparently because that was not the intention at the time it was negotiated),8 the class notice

7 In addition, the notice to the class indicates that counsel will seek an “incentive award” for the named class representatives, a factor that suggests that their willingness to accept the settlement as fair and adequate may not be based entirely on the amounts it provides to members of the class generally. The Supreme Court’s opinion in Gen. Motors did not consider the possibly distorting effect on the judgment of the class representatives of the prospect of an “incentive award” that gives them benefits beyond the coupons to which the rest of the class is relegated. 8 The counsel for the Plaintiff in fact entering to negotiations with the counsel for the objectors, but when the counsel to the objectors refused the an agreement which would allow the Plaintiffs counsel to keep $23.9 million from the settlement as said that other areas need to be address. Plaintiffs’ Counsel filed a to distribute funds as if they were going to voluntarily give a

5 states that if the full amount of the fee award is approved, the attorneys will seek permission to pay approximately $26 million of it to the 1992–96 class members ($37.14 for each class member). It appears from the class notice that if less than $49 million in attorneys’ fees is approved by the Court, no amount of the fee will be distributed to the class.

As an initial matter, it is apparent that the fee award requested is, on its face, unjustified. According to class counsel, the request for fees of $49 million reflects 18.7 percent of the “aggregate value” of the settlement, which they claim is $262,150,000. As discussed above, however, it is apparent that the real value of the settlement is far less than that, and that any realistic valuation of the settlement must recognize that not all of the coupons will be used. Critically, the Supreme Court in the General Motors case made clear that in a case such as this one, any percentage-based fee recovery must, at best, be tested against the value of settlement coupons actually expected to be redeemed, and even then, “because the value of the settlement can only be roughly estimated,” “any fee awarded on a percentage basis should be tested against the lodestar approach to prevent grossly excessive attorney’s fee awards and to minimize the inherent conflict between class counsel and the class members.”9 916 S.W.2d at 961. Here, there has been no attempt either to arrive at a realistic valuation of the case or to determine a lodestar value. Given the likelihood that the true value of the settlement is a small fraction of $262 million, it is hardly likely that an appropriate fee would approach $49,000,000 (or even $23,000,000) on a percentage basis, and it is even more unlikely that the lodestar method would support such a result. This is particularly true since Counsel for the Plaintiffs sought fees in the Chicago case in November 2000 in the amount of $781,358. There is no explanation why their fees and expenses have risen to be over twenty three times the amount they were in the Chicago case in two years. (See Fee Application of Plaintiffs’ Counsel attached hereto as Exhibit (“G”).

The fee award requested in this case represents a troubling instance of what the Supreme Court in General Motors referred to as the “potential for abuse of the class action procedure,” 916 S.W.2d at 954, that can result when settlement negotiations are driven in part by the attorneys’ desire for excessive fees, and the class’s interests are traded off against the prospect of a fee award. As the court there emphasized:

[W]hen considering whether to approve the settlement of a class action, including the award of attorney’s fees, the trial court should be particularly aware of the conflicting interests of the class and its counsel. The defendant’s economic interests consist only of the total value of the settlement, including attorney’s fees and expenses. Unlike class counsel, the defendant has no economic interest in the allocation of settlement funds between the class members and counsel for the class. Thus, it is incumbent on the trial court to determine that the settlement’s award of attorney’s fees does not unfairly diminish the value of the settlement fund generated for the class’s benefit.

Id., at 961. The potential for conflict is magnified where, as here, class counsel seek to negotiate portions of the fees to the class without and notice to the objectors counsel or even serving a copy on him. An affidavit will be produced before hearing substantiating these facts. 9 The “lodestar approach” refers to calculating fees based on hours actually expended by counsel, multiplied by an hourly rate and adjusted if appropriate to take into account such factors as risk and quality of the services performed.

6 their fees directly with the defendant as a payment separate from the payment to the class. In such instances, class counsel seek to reserve for themselves funds that could as easily have gone to the class, and to do it in such a way that the class will not even stand to benefit by contesting their fee award--indeed, any excess will simply go back to the defendant if the full amount is not awarded by the court.

Because of the inherent potential for abuse in such fee awards, the U.S. Court of Appeals for the Ninth Circuit has recently held that a court should never approve a percentage based fee award that is paid by the defendant separately from the rest of the class action settlement instead of out of a true “common fund.” See Staton v. Boeing Co., 327 F.3d 938 (9th Cir. 2003). As the court in Staton explained: “Under regular common fund procedure, the parties settle for the total amount of the common fund and shift the fund to the court’s supervision. The plaintiffs’ lawyers then apply to the court for a fee award from the fund.” 327 F.3d at 969. When, instead of using that method, “the agreement provides for payment of fees by the defendant, . . . but the parties choose to justify the fee as coming from a putative common fund,” the arrangement creates the risk that the settlement is in fact “so dependent upon class counsel receiving a greater-than- lodestar amount of fees that the parties were not willing to give the court supervisory discretion to determine the distribution of the total settlement package between counsel and the class.” Id., at 970–71. To avoid giving approval to such tactics, the court in Staton determined that if class counsel want their fees determined on a percentage basis, they must “negotiate and agree to the value of a common fund [for the class] (which will ordinarily include an amount representing an estimated hypothetical award of statutory fees) and provide that, subsequently, class counsel will apply to the court for an award from the fund, using common fund fee principles. In those circumstances, the agreement as a whole does not stand or fall on the amount of fees. Instead, after the court determines the reasonable amount of attorneys’ fees, all the remaining value of the fund belongs to the class rather than reverting to the defendant.” Id., at 972.

The fee award here is directly contrary to the “common fund” principle as articulated by the federal court in Staton. Instead of negotiating a payment for the class, and then seeking a portion of it for their fee, class counsel initially sought to wall off the fee award from the settlement benefits for the class, so that disapproval of the fee award could not benefit the class even if it was deemed to be excessive. In short, counsel took a portion of what was on the table for the potential benefit of the class and claimed it for their own, with the further proviso that if they couldn’t have it, neither could the class.

Apparently recognizing that they had overreached, counsel here have offered to give a portion of “their” fee to the class if the fee award is approved by the court in its entirety. While this gesture may appear to ameliorate the patent excessiveness of the fee award to some extent, it still results in a process that is completely upside down. Under the proposal presented to the Court for approval, instead of a common fund creating a pool of money from which a reasonable fee may be awarded, it is only the approval of an unreasonable fee that creates the fund to be distributed to the class. And even then, the Court is not offered the ability to make its own judgment about the proper apportionment of the fund between class and counsel. Instead, it is given what amounts to a take-it-or-leave-it offer by class counsel: Approve the full amount of the fee award and we will give an amount of our choosing to the class; otherwise, they get nothing. Moreover, this way of structuring the fee award is obviously intended to create a disincentive for

7 objections to the award by class members, as the consequence of challenging approval of the fee award requested by counsel is the threat that both Block and class counsel will get more while the class gets less. The attempt to create such pressure for approval of class counsel’s fees is an obvious badge of an improper process likely to yield a questionable result. See Staton, 327 F.3d at 971 (rejecting “all-or-nothing approach” that “imposes pressure to approve” excessive fee awards).

Finally, even if the Court were to put aside these irregularities in the way in which the fee award has been the determined and were simply to consider whether a $23 million fee award is proper for a settlement that produces a fund of $34.17 per 1992–96 class members plus the coupons that are a part of this settlement, it is far from apparent that the fee award does not remain excessive. Given the highly questionable value of the coupons, even the addition of a small cash infusion into the settlement seems unlikely to justify a fee award of this magnitude. Certainly, neither the settlement notice nor the motion for preliminary approval of the settlement provides a justification for such an award that (1) accurately reflects the real value of the coupons to the class and (2) explains how $23 million either represents a reasonable percentage of the total settlement value or is justifiable via the lodestar method that the Texas Supreme Court has advocated as an independent “test” on fee awards in such cases.

3. INTRA-CLASS CONFLICT AND INADEQUATE REPRESENTATION

The settlement is obviously infected by a severe conflict of interest among components of the class. Under the proposed settlement, all the benefits flow to one part of the class: The 1992– 96 class members. Other class members get precisely nothing, but are still, according to the class notice, to be bound by a broad release of all claims against Block that relate in any way to Refund Anticipation Loans. In addition to being bound by the release, pre-1992 class members have summary judgment entered against them on statute of limitations grounds (with class counsel’s acquiescence), and post-1996 class members will have their claims dismissed in favor of arbitration (again with class counsel’s acquiescence). In short, unless they opt out, all class members other than the 1992–96 members are bound by releases, lose their claims in this lawsuit and the assistance of class counsel in pursuing them, and get absolutely no benefits from the settlement.

Class counsel have thus negotiated a settlement under which class members outside the 1992–96 part of the class gratuitously provide Block with something it values and wants--a broad release. If Block did not really want releases from these class members, it could have simply agreed to exclude them from the class. Instead, however, Block sought to bind them to the release and, as a further indication of the seriousness of its desire to bind as many of them as possible to the settlement, it reserves the right to cancel the settlement if too many of them opt out.

Thus, it is apparent that even though the claims of the class members outside the 1992–96 group face significant legal obstacles not faced by class members within the 1992–96 window, their participation in the settlement added to the value of the settlement to Block and thus, as a logical matter, necessarily must have contributed to some degree to the overall package Block was willing to offer to settle the case. Class counsel, however, chose to negotiate a settlement

8 that gave no recognition to that value, and instead channeled all the benefits of the settlement to class counsel and the 1992–96 segment of the class.

Such an effort to achieve benefits for counsel and for one part of the class at the expense of others is plainly improper. A release for no consideration, which is what the settlement would accomplish, is not valid, see Franks v. Brookshire Bros., Inc., 986 S.W.2d 375 (Tex. App. 1999), and it is no more acceptable in the context of a class settlement than an individual one. See Reynolds v. Beneficial Nat’l Bank, 288 F.3d 277, 283–84 (7th Cir. 2002) (rejecting a nationwide class settlement relating to H&R Block Refund Anticipation Loans in part because it would have released claims of Texas class members against Block for no consideration). It is even less acceptable where, as here, one part of the class is made to release claims solely to benefit another part of the class: “An advantage to the class, no matter how great, simply cannot be bought by the uncompensated sacrifice of claims of members, whether few or many.” Nat’l Super Spuds v. N.Y. Mercantile Exch., 660 F.2d 9, 19 (2d Cir. 1981). “In other words, there is no reason why some class members should be forced to give up something of value to enable other class members to benefit from a settlement made richer at their expense.” In re Auction Houses Antitrust Litig., 2001 WL 170792 at *12 (S.D.N.Y. Feb 22, 2001), aff’d, 42 Fed. Appx. 511 (2d Cir. 2002).

Moreover, where there is such an obvious conflict among the interests of the class, it is imperative that the separate parts of the class receive separate representation. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 626–27 (1997). There is no indication that the pre-1992 and post- 1996 segments of the class were represented by separate counsel concerned only with their interests in the negotiation of the Block settlement. That procedural unfairness would itself be grounds for declining to approve the settlement even if it had not resulted in the substantively unfair agreement here, which trades their rights away to benefit class counsel and the rest of the class.

Finally, there is a further, and perhaps unintended, element of unfairness specific to the post-1996 part of the class. The settlement effectively provides that these class members will have their claims dismissed in favor of arbitration. Simultaneously, however, it appears to bind them to a broad release of all their claims against Block, thus extinguishing the very claims said to be subject to arbitration.10 If a post-1996 member (who does not request exclusion from the class) subsequently seeks arbitration against Block, Block will apparently be able to use the class member’s release of all claims against it as a complete defense in the arbitration proceeding. There can simply be no justification for requiring release of the claims of these members of the class even if, as Block asserts and class counsel no longer contests, those claims are arbitrable.

We assume that it was not the intent of the drafters of this agreement to require the class members Block says must arbitrate to release their claims before they have even had a chance to arbitrate.11 Nonetheless, it is the inevitable result of the scope of the release as described in the

10 The class notice is explicit that the release will apply to all class members who received RALs in Texas at any time. 11 If that was Block’s intent, class counsel’s failure to catch this point is a further mark of the inadequate representation they provided to this part of the class.

9 notice of proposed settlement. Clearly, no settlement that could have such effect could fairly be approved.

4. THE SETTLEMENT NOTICE IS INADEQUATE

In the General Motors case, the Texas Supreme Court emphasized the critical importance of providing class members “adequate notice of all of the material terms of the proposed settlement,” 916 S.W.2d at 957, so that class members may make an informed decision whether to object to the settlement. Id., at 958. The information provided must also include not only the maximum amount of attorneys’ fees sought by class counsel, but also an explanation of “the proposed method of calculating the award.” Id., at 957. “Without this vital information,” the court stressed, “class members cannot make informed decisions about their right to challenge the fee award at the hearing, including the allocation of the settlement proceeds between the class and its attorneys.” Id., at 958.

The form of notice used in this case failed to meet these criteria in a number of respects. First, the notice nowhere informed class members of the critical fact that this court had, just before the settlement was reached, announced its intention to issue a $75 million summary judgment in favor of the 1992–96 class members--a disposition that would have resulted in larger cash payments to those class members and, most likely, significantly smaller fees for counsel. Such information would obviously be of critical relevance to class members trying to determine whether this proposed settlement was a good deal. A class member who merely read the class notice might conclude that while the coupons were of little value to him or her, they were better (or no worse) than nothing. Reading it in the context of the court’s tentative summary judgment disposition would cast it in an entirely different light.

Second, the notice does not adequately explain the “method of calculating” the attorneys’ fee award. It states the amount sought ($49 million) and asserts that this represents “18.7 percent of the estimated value” of the settlement benefits, but does not explain that “estimated value” unrealistically assumes that all of the coupons will be redeemed. Even more importantly, the notice provides no rationale whatsoever for the further division of the $49 million into approximately $26 million for the class and $23 million for counsel. Nowhere in the notice is there a shred of explanation of how the final amount of $23 million to be retained by counsel was arrived at--whether as a percentage of some larger amount assumed to more accurately represent the true value of the settlement, as a “lodestar” figure, or just as the smallest amount class counsel will willing to agree to. Indeed, the ultimate distribution of the money between the class and counsel is presented simply as an unexplained matter of grace: a gift from the attorneys to the class (if the Court approves the full $49 million award). Such a nonexplanation clearly does not comply with the command of the Supreme Court in General Motors.

Third, the notice does not clearly and forcefully explain to the pre-1992 and post-1996 class members that they get nothing from this settlement, that they will be releasing their claims, that counsel is abandoning efforts to avoid summary judgment and dismissal of the claims, and that they have nothing to lose by excluding themselves from the class if the settlement goes through (and potentially something to lose if they do not exclude themselves). Only if the class member wades through two-and-a-half pages of small print describing a settlement that appears

10 primarily to involve other people will he or she come to these realizations, and then only if he or she is a sophisticated reader of legal documents and understands the scope of the definition of the class, the scope of the release and its implications, and the meaning of the summary judgments, dismissals, and procedures for exclusions from the class described on the final page of the notice. An adequate notice would have highlighted up front that the pre-1992 and post-1996 class members would receive nothing from the settlement, but might irrevocably lose any claims they had if they did not promptly exclude themselves, and would have told them that if the settlement were approved, they would have nothing to lose by opting out and should only remain in if they thought they could successfully press their objections to the settlement.

Of course, there is an obvious reason the notice did not contain these clear disclosures: They might lead pre-1992 and post-1996 class members to exclude themselves, and the settlement agreement provides that Block may terminate the agreement if more than 1 percent of the persons receiving the notice opt out. Class counsel thus have an obvious interest in ensuring that even those class members who will be adversely affected by the settlement do not exercise their right to exclude themselves--yet another sign of the conflicts of interest that infect this agreement from top to bottom.

5. THE SETTLEMENT AGREEMENT CONTAINS TERMS THAT ARE UNENFORCEABLE AND AGAINST PUBLIC POLICY

Section III.9 of the settlement agreement purports to provide that even if the settlement agreement is disapproved by this Court or on appeal, the class will be precluded from seeking sanctions in excess of $10 million against Block for any past misconduct in this action. This provision is obviously improper and unenforceable. A class action may be settled only with approval of the court, Gen. Motors Corp., 916 S.W.2d at 954, and an agreement purporting to settle a class claim in whole or in part cannot be binding on the class without approval of the court--let alone in the face of disapproval by the Court. The attempt by Block and class counsel to make a part of the settlement binding on the class even if the court disapproves it is obviously improper, and is a further indication of the degree of overreaching that has been resorted to in this case.

Section III.20 is even more extraordinary: It purports to impose a broad gag order on all members of the class forbidding them to make any public communications about this settlement agreement or to “disparage” H&R Block in any way. The agreement would thus forbid class members who object to the inadequacy and unfairness of this settlement, to their treatment by H&R Block, and to the representation they have received from class counsel from publicly stating their views of the settlement, of Block’s negotiation of the settlement, and of Block’s underlying conduct. The involuntary imposition of such a restriction on objecting class members by the Court is contrary to public policy and to the guarantees of freedom of speech of the Texas and United States Constitutions. Davenport v. Garcia, 834 S.W.2d 4 (Tex. 1992). See also Davis v. E. Baton Rouge Parish Sch. Bd., 78 F.3d 920 (5th Cir. 1996). Such a gag order can be justified only where it is the least restrictive means of avoiding “an imminent and irreparable harm to the judicial process will deprive litigants of a just resolution of their dispute.” Garcia, 834 S.W.2d at 10. Mere “convenience” to the parties and the desire to facilitate settlement cannot support such an order, Id., at 11, nor can the simple desire to spare Block and class counsel criticism from

11 those who object to their handiwork.

Finally, the same section of the settlement agreement provides that class counsel may not hereafter “assist any party” “in any other RAL-related case now existing or filed at any time in the future,” and section IV.5 further specifically provides that class counsel may not solicit the representation of any class member who opts out. Both provisions appear to violate Texas Disciplinary Rule of Professional Conduct 5.06, which provides that “[a] lawyer shall not participate in offering or making: . . . (b) an agreement in which a restriction on the lawyers right to practice is part of the settlement of a suit or controversy.” Comment 2 to the Rule states very clearly that “[p]aragraph (b) prohibits a lawyer from agreeing not to represent other persons in connection with settling a claim on behalf of a client.” The cited provisions of the settlement do just that, in apparent violation of the Rule. The restrictions on practice in the settlement are both unethical and unenforceable. See, e.g., In re Conduct of Brandt, 10 P.3d 906 (Or. 2000); Jarvis v. Jarvis, 758 P2d 244 (Kan. 1988). See also ABA Formal Op. 00-417 (“[T]he lawyer may not participate or comply with a settlement agreement that would prevent him from using information gained during the representation in later representations against the opposing party, or a related party, except in limited circumstances. An agreement not to use information learned during the representation effectively would restrict the lawyer’s right to practice and hence would violate Rule 5.6(b).”); ABA Formal Op. 93-371 (“The rationale of Model Rule 5.6 is clear. First, permitting such agreements restricts the access of the public to lawyers who, by virtue of their background and experience, might be the very best available talent to represent these individuals. Second, the use of such agreements may provide clients with rewards that bear less relationship to the merits of their claims than they do to the desire of the defendant to “buy off” plaintiff’s counsel. Third, the offering of such restrictive agreements places the plaintiff’s lawyer in a situation where there is conflict between the interests of present clients and those of potential future clients.”).

6. TO RECEIVE THE FULL BENEFITS OF THE SETTLEMENT THE CLASS MEMBERS ARE REQUIRED TO DO BUSINESS WITH THE DEFENDANT

In order to receive the benefits of the discounts for tax preparation the class members will have to have their returns prepared by the Defendants which will give up their rights to trial in case of dispute and agree to arbitration. Types of settlements are abusive because the class member must return and do business with the same defendant who abused them to obtain benefit from the settlement See National Association of Consumer Advocates--Standard and Guidelines for Litigating and Settling Consumer Class Actions, 176 F.R.D. 370 (1998).

CONCLUSION

The proposed coupon settlement agreement for part of the class is unfair, inadequate, tainted by excessive counsel fees, conflicts of interest within the class, inadequate representation, and inadequate notice, and further infected by provisions in the agreement that are unenforceable and against public policy. The proposed settlement agreement should not be approved.

PRAYER FOR RELIEF

12 THEREFORE, Objectors pray that the Court find that the Proposed Settlement is not fair, adequate, and reasonable, and deny approval of the Proposed Settlement. Objectors pray for such other relief to which they may be entitled.

Respectfully Submitted,

[Attorney for Objecting Plaintiffs]

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