Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—8th Cir.: Denial of class certification upheld in claim against H&R Block, (Jun 19, 2015)

By Michael Menzhuber, J.D., LL.M.

The U.S. Court of Appeals in St. Louis upheld the denial of an individual’s motion for class certification in an action against a tax preparation company for adding deceptive charges to customers’ bills in violation of the Missouri Merchandising Practices Act (MMPA) (Perras v. H&R Block, June 18, 2015, Kelly, J.).

Background. After the Internal Revenue Service (IRS) imposed new regulations for certain tax preparers in 2011, Missouri-based H&R Block, Inc. decided to pass on the compliance costs to their customers. In 2012, Ronald Perras, a California resident, sued H&R Block under the MMPA, on behalf of himself and a putative class of others similarly situated, alleging that the compliance fee included in customer bills was deceptive because it exceeded the actual costs of compliance with the new IRS regulations. Perras sought to define the class to include persons in all states, except Missouri, who purchased tax-return services from H&R Block in 2011 and 2012 and paid a compliance fee.

Initially, the federal district court in Kansas City compelled arbitration of the 2011 claims. In a later order, it addressed Perra’s motion for class certification. After determining that the proposed class did not satisfy the “predomination” requirement under Federal Rule of Civil Procedure 23(b)(3), the district court denied Perra’s motion to certify the class. The Eight Circuit Court of Appeals granted Perra’s request to file an interlocutory appeal and reviewed the district court’s denial of class certification for abuse of discretion.

Class certification. For Perras to qualify for class certification, he had to meet all the requirement of Rule 23(a) and the three subsections of Rule 23(b). The district court concluded, and H&R Block did not challenge, that Perras met the Rule 23(a) requirements. However, in denying class certification, the district court determined that the Rule 23(b)(3) “predominance” requirement was not met. To meet this requirement, it must be shown that “the questions of law or fact common to class members predominate over any questions affecting only individual members.”

The district court determined that Perras failed to meet the “predominance” requirement because each potential class member’s claim would be governed by the laws of the class member’s home state, not by the laws of Missouri. The court reached this decision after analyzing the claims under the Due Process and Full Faith and Credit Clauses of the U.S. Constitution.

Although agreeing with district court’s outcome, the appeals court addressed the question based on the scope of the state law that was involved, the MMPA. The appeals court noted that the MMPA makes unlawful “any deception, fraud, false pretense, false promise, misrepresentation, [or] unfair practice . . . in connection with the sale or advertisement of any merchandise in trade or commerce . . . in or from the state of Missouri.” Mo. Stat. § 407.025.1. Consequently, it determined that whether Perras could bring a class action claim would depend on whether the tax-return services performed and paid for outside of Missouri nonetheless constituted trade or commerce “in or from the state of Missouri.”

The appeals court determined that there were no ties between H&R Block’s allegedly fraudulent transactions and Missouri. It found that, although the compliance fee was designed and implemented from H&R Block’s headquarters in Missouri, every part of the transactions occurred in each class member’s home state. Therefore, the appeals court found that the evidence each class member would proffer to support his or her claim would be specific to that individual’s experience in his or her state at his or her local H&R Block office.

Since there were no other connections between the claims in the class action and Missouri, the acts of commerce alleged by Perras did not occur in, or originate from, the state of Missouri. The court of appeals determined that questions of law common to the class members did not predominate over any individual questions of law and therefore the district court did not abuse its discretion in concluding that the Perras’ class action did not meet the “predominance” requirement. Because it determined that the “predominance” requirement was not met, the appeals court concluded that it was unnecessary to decide whether the class action would meet the “superiority” requirement.

The case is No. 14-2892

Attorneys: Norman Siegel (Stueve & Siegel) for Ronald Perras. James David Griffin (Scharnhorst & Ast), Kathryn Lee (Spencer & Fane), and Glen David Nager (Jones & Day) for H&R Block, HRB Tax Group, Inc., and HRB Technology, LLC.

Companies: H&R Block; HRB Tax Group, Inc.; HRB Technology, LLC.

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