Consumer-TurboTax $40M Settlement Rejected by Court

On March 5, Judge Charles R. Breyer of the Northern District of California declined to greenlight a proposed settlement between a nationwide class of taxpayers and Intuit Inc. The court’s order reviewed the case’s unique and complex procedural posture and considered the interests of putative class members, thousands of arbitration claimants, and multiple state attorneys general and city attorneys who weighed in primarily against the proposal.  

The court’s order explained that, in 2019, the plaintiffs claimed the defendant, through its TurboTax tax preparation website, unfairly charged them for free online tax services. In addition to this lawsuit, Intuit reportedly faces arbitration demands from roughly 37,000 claimants and “massive costs associated with th[ose] individual arbitrations, even before considering potential liability on the merits.”

In August 2020, the Ninth Circuit reversed Judge Breyer’s order and held that the plaintiffs’ claims must proceed in arbitration. The plaintiffs and Intuit then tried to resolve the dispute, and in November, moved for settlement approval. 

Subsequently, nine arbitration claimants moved to intervene, two California municipalities’ legal counsel moved to file a joint amicus brief and participate in oral argument, and finally, nine state attorneys general sent the court a letter clarifying that their lack of affirmative action did not indicate their approval of the settlement, as Intuit had intimated.

At the hearing on Dec. 17, 2020, Judge Breyer issued an order denying the motion for settlement approval and explaining that an opinion would follow. Since the hearing, the plaintiffs, Intuit, and the intervenors have unsuccessfully attempted to settle. 

Last week’s order explained that under the proposed settlement, Intuit would pay a fixed sum of $40 million, less approximately $12 million for attorneys’ fees, litigation expenses, and class representatives’ service awards. It further stated that at the “midpoint” of the estimated participation rate, each class member would receive about $28, of the at least $100 they paid Intuit for tax preparation services.

In addition, Intuit would modify certain business practices for up to three years. The agreement’s contingency clauses would also require the court to enjoin any outside proceedings, including those being undertaken by the arbitration claimants.

The court held that the proposed agreement failed to meet the “fair, reasonable, and adequate” standard due to several problems, including the class members’ projected recovery amount. The opinion noted that the injunctive relief provisions would not overcome the settlement’s low figure, particularly because recipients would likely be many low-income individuals or families.

Judge Breyer further ruled that it was unfair to arbitration claimants to “stall” their claims by first forcing them to opt-out of the settlement, in part because the proposed opt-out procedures contain multiple “troubling features.” The court concluded that “in short, Intuit is a massive company that dominates the tax-filing space; it has no excuse, financial or otherwise, for undercompensating this class to avoid facing claims in arbitration.”

The plaintiffs’ co-lead counsel are Girard Sharp LLP and Stueve Siegel Hanson LLP. Intuit is represented by Fenwick & West and Tyz Law Group.