Y.11 Intervenors’ Objections to Class Action Settlement In the District Court 105th Judicial District for Kleberg County, Texas [plaintiff][Consumer 1], et al, Plaintiffs, [vs] [defendant]H&R Block, Inc., et al, Defendants. OBJECTIONS TO CLASS ACTION SETTLEMENT AND INTERVENTION 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 Defendants, 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 lawsuit 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 judgment 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 summary judgment in the trial 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.