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Marshall v. H&R Block Tax Services Inc.

September 17, 2010

LORIE J. MARSHALL AND DEBRA RAMIREZ, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
H&R BLOCK TAX SERVICES INC., DEFENDANT.



The opinion of the court was delivered by: Reagan, District Judge.

MEMORANDUM AND ORDER

I. Introduction and Overview of Case

In January 2002, Laurie Marshall and Debra Ramirez filed suit in State court against H&R Block, Inc., and H&R Block Group, Inc., alleging statutory fraud by omission in violation of the Illinois Consumer Fraud Act ("ICFA") and "the substantially similar statutes of specific sister states," and breach of fiduciary duty. The First Amended Complaint ("FAC"), filed June 7, 2002, alleges statutory fraud - selling insurance without a license in violation of the ICFA and "the substantially similar statutes of specific sister states"; statutory fraud - unfair practice; statutory fraud by omission; statutory fraud -cramming; and breach of fiduciary duty. On August 18, 2008, Block removed the action to this federal district court, asserting subject matter jurisdiction under 28 U.S.C. § 1332, as amended by the Class Action Fairness Act of 2005 ("CAFA"), Pub. L. No. 109-2, 119 Stat. 4 (codified in scattered sections of 28 U.S.C.) (Doc. 2).

In brief, Plaintiffs allege that this is a deceptive sales and marketing omissions case predicated on Block's failure to disclose the same material information to each class member. The action arises from Block's sale of the "Peace of Mind" guarantee ("POM") to its tax preparation clients since January 1, 1997. POM is an extended-warranty product under which consumers are paid additional taxes owed as a result of a tax-preparation error. POM reimburses Block's clients for payment of additional taxes they may owe as the result of (1) any error by Block; (2) a change in the tax law; and/or (3) a change in the IRS's interpretation of the tax law. Plaintiffs allege that the overwhelming majority of Block's clients never have a POM claim because their returns are so simple that the likelihood of error by Block of additional taxes being owed is remote.

Pursuant to Rule 23 of the Federal Rules of Civil Procedure, Plaintiffs move for certification of the following two classes (collectively the "Class"): Rule 23(b)(3) Class:

All persons residing in Arizona, California, Connecticut, Florida, Illinois, Massachusetts, Michigan, Missouri, New Jersey, New York and North Carolina who purchased POM since January 1, 1997.

Rule 23(b)(2) Class:

All persons residing in Arizona, California, Illinois and New Jersey (Doc. 45).*fn1

The motion is fully briefed, and a hearing was held to address the issues therein on April 30, 2010. For the reasons set forth below, the Court DENIES Plaintiffs' motion for class certification (Doc. 45).

II. Plaintiffs' Motion for Class Certification

Plaintiffs request an order determining that this case should proceed as a class action against Block. They assert that they have met the requirements of Rule 23 of the Federal Rules of Civil Procedure. Plaintiffs further claim that a class action is the appropriate tool for the adjudication of this action. Block maintains, to the contrary, that Plaintiffs have failed to meet those requirements, and, as a result, this Court should deny the motion for class certification.

Rule 23 of the Federal Rules of Civil Procedure governs class actions. Where a plaintiff seeks class certification, the court should not consider the merits of the case. Wiesmueller v. Kosobucki, 513 F.3d 784, 787 (7th Cir. 2008); Chavez v. Illinois State Police, 251 F.3d 612, 629-30 (7th Cir. 2001). Plaintiffs seeking class certification bear the burden of proving the action satisfies the four requirements of Rule 23(a) - numerosity, commonality, typicality, and adequacy of representation. Harper v. Sheriff of Cook County, 581 F.3d 511, 513 (7th Cir. 2009). "Failure to meet any of the Rule's requirements precludes class certification." Id. (quoting Arreola v. Godinez, 546 F.3d 788, 794 (7th Cir. 2008)). Once all of the requirements of Rule 23(a) are satisfied, Plaintiffs' claims must fall within at least one subsection of Rule 23(b). Arreola, 546 F.3d at 797. In this case, Plaintiffs seek to certify classes under Rules 23(b)(2) and 23(b)(3).

The Court first turns to the question of whether the requirements of Rule 23(a) are satisfied.

A. Rule 23(a) - Numerosity

Rule 23(a)(1) requires that the class be "so numerous that joinder of all members is impracticable." Fed. R. Civ. P 23(a)(1). Plaintiffs "cannot rely on 'mere speculation' or 'conclusory allegations' as to the size of the putative class to prove that joinder is impractical for numerosity purposes." Arreola, 546 F.3d at 797 (citing Roe v. Town of Highland, 909 F.2d 1097, 1100 n. 4 (7th Cir. 1990)). However, if Plaintiffs are unable to provide exact numbers, "a good faith effort is sufficient to establish the number of class members." Jenkins v. Mercantile Mortg. Co., 231 F.Supp.2d 737, 744 (N.D.Ill. 2002) (citations omitted).

In this case, Plaintiffs assert that Block's own documents show that Block has sold millions of POM insurance contracts. Block does not contest numerosity. Accordingly, the Court finds that the first requirement of Rule 23(a) is met.

B. Commonality

Rule 23(a)(2) requires that questions of law or fact common to the class must be present. The Rule insists that the class be "reasonably homogeneous." Culver v. City of Milwaukee, 277 F.3d 908, 910 (7th Cir. 2002) (citing Sosna v. Iowa, 419 U.S. 393, 403 n. 13 (1975)). "The fact that there is some factual variation among the class grievances will not defeat a class action." Rosario v. Livaditis, 963 F.2d 1013, 1017-18 (7th Cir. 1992) (citing Patterson v. General Motors Corp., 631 F.2d 476, 481 (7th Cir. 1980)). "A common nucleus of operative fact is usually enough to satisfy the commonality requirement of Rule 23(a)(2)." Id. (citing Franklin v. City of Chicago, 102 F.R.D. 944, 949-50 (N.D.Ill. 1984); see also Keele v. Wexler, 149 F.3d 589, 594 (7th Cir. 1998) (There need only be at least one question of law or fact common to the class).

As Plaintiffs' counsel, Mr. Macrae stated at the hearing on the motion for class certification, commonality cannot really be disputed because it only requires a single common question of law or fact. Doc. 86, Hrg. Trans. 18:19-20. The Court agrees that Plaintiffs have met their burden in showing that at least one question of law or fact common to the class is present. Consequently, the Court finds that the commonality prong of Rule 23(a)(2) has been met.

C. Typicality

A plaintiff's claim is typical "if it arises from the same event or practice or course of conduct that gives rise to the claims of other class members, and his or her claims are based on the same legal theory.De La Fuente v. Stokely-Van Camp, Inc., 713 F.2d 225, 232 (7th Cir. 1983).As a result, a proposed class member's claim is not typical if proof "would not necessarily prove all the proposed class members' claims." Ruiz v. Stewart Assocs., 167 F.R.D. 402, 405 (N.D.Ill. 1996). The purpose of the typicality requirement is to ensure that the interests of the class representatives are aligned with those of the class as a whole. See Insolia v. Philip Morris Inc., 186 F.R.D. 535, 544 (W.D.Wis. 1998).

A "plaintiff's claim is typical if it arises from the same event or practice or course of conduct that gives rise to the claims of other class members and his or her claims are based on the same legal theory."De La Fuente, 713 F.2d at 232 (citations and internal quotation omitted). Not every class member need suffer the same injury as the class representatives, for typicality may be found even where "there are factual distinctions between the claims of the named plaintiffs and those of the other class members." Rosario, 963 F.2d at 1018; De La Fuente, 713 F.2d at 232. As summarized by the Seventh Circuit in Oshana v. Coca-Cola Co., 472 F.3d 506 (7th Cir. 2006),

A claim is typical if it arises from the same event or practice or course of conduct that gives rise to the claims of other class members and her claims are based on the same legal theory. Even though some factual variations may not defeat typicality, the requirement is meant to ensure that the named representative's claims have the same essential characteristics as the claims of the class at large. 472 F.3d at 514 (quotation marks and citations omitted).

The named Plaintiffs' claims arise from the same practice or course of conduct (the sale of POM) that gives rise to the claims of other class members and are based on the same legal theory (violation of the ICFA and substantially similar statutes of specific sister states). Accordingly, consistent with the Seventh Circuit's decisions in De La Fuente and Oshana, the Court finds that the typicality prong of Rule 23(a)(2) has been met.

D. Adequacy of Representation

The final prerequisite of Rule 23(a) is that the named Plaintiffs be adequate representatives of the Class. Block does not dispute that Plaintiffs will fairly and adequately protect the interest of the class. Doc. 86, 18:20-21. Therefore, the Court does not address the adequacy of representation but finds that Plaintiffs adequately represent the class.

In sum, the Court finds that the Class has satisfied the requirements of Rule 23(a) and will now turn its attention to the question of whether Plaintiffs' claims fall ...


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