(CN) — A federal judge said he rejected a proposed $40 million class action settlement against financial software company Intuit because it “is not fair, reasonable, and adequate” for those taxpayers who were allegedly misled into paying for tax preparation services rather than the company’s free services.
Intuit faced a class action from customers who used the company’s online tax preparation software TurboTax. In a deal with the IRS, the company agreed to offer the services for free for low-income taxpayers and active military.
But the plaintiffs allege the company duped eligible taxpayers into using its paid services instead, paying about $100 a year between 2015 to 2020.
U.S. District Judge Charles Breyer of the Northern District of California denied preliminary approval of the settlement on Dec. 17 last year, but held off on issuing an opinion at the request of the parties to reach a new settlement deal.
Since both sides have been unable to agree upon a deal to date, Breyer released his opinion on Friday, calling the proposed settlement unfair to consumers.
“In particular, the proposed settlement provides class members with inadequate compensation and sets forth opt out procedures that unduly burden all class members, but especially those who have already begun to pursue claims through arbitration,” he wrote in a 20-page opinion.
The company made a motion in 2019 to compel arbitration, a motion Breyer denied due to Intuit’s online contract failing to give adequate notice to users. Intuit appealed the decision and the Ninth Circuit reversed it last August.
Since then, more than 100,000 customers have filed individual arbitration requests, costing the company tens of millions of dollars. Under the settlement, customers would only receive an average of $28.
As part of the proposed settlement, customers would not be able to go forward with their arbitration requests unless they opted out of the settlement.
Judge Breyer said in Friday’s opinion that he found that to be unacceptable.
“In particular, the proposed settlement provides class members with inadequate compensation and sets forth opt out procedures that unduly burden all class members, but especially those who have already begun to pursue claims through arbitration,” he wrote.
At the Dec. 17 hearing, Judge Breyer offered Intuit attorney Rodger Cole of Fenwick & West no sympathy for the company, which has had to pay millions in arbitration costs and unsuccessfully sued arbitration claimants in California, asking the state court to move such claims to small claims court.
“You knew what the rules of arbitration were. You knew all these things. And you elected, you elected to go to arbitration,” Breyer said. “And you fought fairly, vigorously, and it turns out correctly, that you had this right to insist on arbitration. Now you come in, when you see how it is unfolding, and say, ‘Not so fast. Now we want to turn and do something else.’”
Judge Breyer also emphasized how little customers would have received under the settlement terms.
“It also bears emphasizing that here, that harm is significant. Mostly low-income class members suffered at least $100 in damages,” he wrote. “For class members who paid filing fees over multiple years, the harm was much more. And for a family or individual with limited disposable income, $100-per-year can have a material effect. It might be the difference in whether someone can pay rent for a month or buy groceries for a week.”
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