Last week, a nationwide class of taxpayers filed for preliminary settlement approval in a case claiming that Intuit Inc., via its TurboTax website, unfairly charged them for online tax services it had agreed to provide for free. The consolidated class action complaint alleged that “Intuit engaged in unfair and deceptive practices as part of a ‘free-to-fee’ business strategy.” The settlement, if approved, will resolve most of or all of the claims first lodged against Intuit in May 2019.
The case arose from the collection of fees on Intuit’s tax preparation website branded under the TurboTax name. The complaint explained that “pursuant to an agreement with the Internal Revenue Service (IRS), Intuit and 11 other tax preparation providers are required to provide free online tax return preparation and filing services to a substantial majority of U.S. tax filers, including lower income Americans and active duty military servicemembers (the “Free File Program”).”
The goal of the program was reportedly for “70% of U.S. taxpayers to e-file their taxes for free.” However, and allegedly “as a result of Intuit’s nationwide scheme to divert eligible filers to its paid products, less than 3% of eligible taxpayers filed for free under the Free File Program in the 2018 tax year,” the complaint claimed.
The motion for preliminary approval explained that the Northern District of California case was consolidated in June 2019, interim class counsel was appointed in August 2019, and the consolidated class action complaint was filed in September 2019. The 35-page filing detailed the settlement particulars, argued that it was reached as a result of arm’s length negotiations, and laid out the notice and claims administration plans. The motion also described the settlement negotiation process which began in January and included two mediations with former Judge Edward A. Infante.
According to the moving papers, “Class Counsel estimate(s) the recoveries provided, considering customary claim rates, will return a substantial percentage of the fees paid by participating class members when they first filed their taxes using TurboTax.” The motion also noted that no portion of the settlement will revert to Intuit and asked the court to require Intuit to make certain behavioral changes. These include mandating “Intuit to conform its marketing practices related to its Free Edition product to the FTC’s online marketing guidelines and to disclose the Free File Program—along with a taxpayer’s qualifications to file for free—on the TurboTax website.”
The plaintiffs contend that “all class members are eligible to participate by completing a simple claim form, which requires only that claimants attest that they understood they could file for free under the Free File Program but nevertheless paid a fee to use TurboTax.” In terms of claims rates, the filing estimates that “between 1% and 10% of the approximately 19 million person Settlement Class will submit a claim.” It provides an example contemplating that “if only 1% participate, each claimant will receive about $140—well over the average amount of $100 that a taxpayer paid Intuit in filing fees in a given tax year (not including those taxpayers who did, in fact, file for free).”
The preliminary approval hearing is scheduled for Dec. 17 before Judge Charles R. Breyer. The plaintiffs’ co-lead counsel are Girard Sharp LLP and Stueve Siegel Hanson LLP. Intuit is represented by Fenwick & West and Tyz Law Group.
