On The Case

L.A., Santa Clara oppose proposed $40 million Turbo Tax class deal

(Reuters) - The city attorney of Los Angeles and the county counsel for Santa Clara, California, told U.S. District Judge Charles Breyer of San Francisco in a brief this week that a proposed $40 million class action settlement with the financial software company Intuit will shortchange consumers who were allegedly duped into paying for tax prep services – and will diminish the government entities’ leverage in their own cases against Intuit.

The L.A. and Santa Clara brief is a new twist in an incredibly complex case that exemplifies the imbalance of power between consumers and corporations. As I’ve reported, Intuit was hit with consumer suits and regulatory investigations in 2019, after a Politico investigation of Turbo Tax. (Intuit has denied consumers’ allegations of improper charges, emphasizing that the company “has a long-standing commitment to free tax preparation, including more than 70 million completely free tax returns filed over the last six years.”) The company moved to compel consumers to arbitrate their claims rather than pursue a class action. Judge Breyer denied Intuit’s motion to compel arbitration last March but the 9th Circuit overturned his ruling in August. The appellate decision left consumers with virtually no leverage in the class action.

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Tens of thousands of Intuit customers, meanwhile, signed up with the mass arbitration firm Keller Lenkner and filed individual demands for arbitration at the American Arbitration Association. Intuit tried and failed to push thousands of those cases into small claims court. It also tried and failed to persuade a state-court judge to enjoin individual arbitrations. Intuit has accused Keller Lenkner of improper tactics and frivolous filings, but it has already paid $13 million to AAA to cover its share of fees in the first tranche of arbitrations. (Keller Lenkner has paid $8 million.) According to Keller Lenkner, the company is facing AAA deadlines in December and January that put it on the hook for another $23 million in fees.

Keller Lenkner contends that the proposed Intuit class action settlement shows the company’s cynicism: Intuit imposed unilateral arbitration clauses and classwide waivers on its customers but when customers actually exercised their arbitration rights, Intuit resorted to a class action to limit its exposure.

The mass arbitration firm moved on Monday to intervene in the class case before Judge Breyer. Its brief argued that the proposed settlement disadvantages Keller Lenkner clients by erecting obstacles to opt out of the class action, including a requirement that class members must personally sign opt-out notices even if they are represented by counsel. Keller Lenkner also asserted that the settlement’s proposed injunction on individual arbitrations until class members have opted out is a violation of the Federal Arbitration Act. “As defendants have successfully argued for years, there is no class action exception to FAA,” the brief said.

The Keller Lenkner motion was no surprise. The firm told Judge Breyer at a hastily convened Nov. 13 hearing, after class counsel disclosed the proposed settlement, that it intended to register its opposition to the deal.

So I was more intrigued by the proposed amicus brief from L.A. and Santa Clara. Both the city and the county have brought their own consumer cases against Intuit. Their brief argued that Intuit will attempt to use the class action settlement to diminish the value of their cases and those of other regulators that have sued the company. Intuit, according to L.A. and Santa Clara, is capitalizing on the “extreme imbalance of bargaining power” between the company and its consumers to “obtain a discount on consumers’ restitution claims by settling this action before resolution of governmental enforcement actions.”

Their concern, they said, is that millions of consumers will be deterred from filing claims because the settlement requires an affirmation that Intuit customers believed they were entitled to free services. Some class members may be confused by the requirement, the brief said, and others may have been unsure about whether they qualified for free tax help. The settlement allows only some Intuit consumers to submit claims, the brief said, but would release claims by all of them. Moreover, the brief argued, Intuit is getting off cheap: Consumers eligible for free tax programs paid nearly $2 billion for Intuit services, yet the class settlement provides only $40 million, less fees for class counsel from Girard Sharp and Stueve Siegel Hanson.

Intuit is represented in the class action by Fenwick & West and Wilmer Cutler Pickering Hale and Dorr. In response to my email query about the L.A. and Santa Clara amicus brief and the Keller Lenkner intervention motion, an Intuit spokesman said, “We disagree with assertions in this week’s filings and will be filing a full response on Monday.”

Class counsel Daniel Girard said via email that the settlement is fair and reasonable, and the only way to get quick relief to consumers. The deal, he said, allows Keller Lenkner’s clients to resume arbitration as soon as they opt out of the class action, following procedures that Girard called “customary and appropriate under the circumstances.” And the L.A. and Santa Clara concerns are “misguided,” he said, because “nothing in the settlement impairs the ability of any public plaintiff from continuing to pursue Intuit for additional injunctive relief and penalties.”