On June 6, 2011, the US District Court for the District of Columbia denied defendant H&R Block's motion to transfer venue. The district court ruled that H&R Block failed to meet their burden to show that a transfer of this case to the Western District of Missouri is warranted in the interests of justice.
On May 23, 2011, the Department of Justice (“DOJ”) filed a civil antitrust lawsuit to block H&R Block Inc.'s (“H&R”) proposed acquisition of TaxAct, a digital do-it-yourself tax preparation software provider. The DOJ's Antitrust Division filed its lawsuit in U.S. District Court in Washington, D.C., to prevent H&R Block from acquiring 2SS Holdings Inc., an entity within TA IX L.P. and the maker of TaxACT. The DOJ's complaint details H&R's motive to eliminate competition.
On October 13, 2010, H&R Block agreed to purchase 2SS Holdings in a transaction valued at $287.5 million. After a seven month review, the DOJ filed a complaint alleging that the proposed deal would substantially lessen competition in the growing U.S. digital do-it-yourself tax preparation software market resulting in higher prices and reduced innovation and quality for products that are used annually by millions of American taxpayers.
According to the DOJ's complaint, H&R Block's acquisition of TaxACT would eliminate a company that has aggressively competed with H&R Block and disrupted the U.S. digital do-it-yourself tax preparation market through low pricing and product innovation. Thus, the DOJ is characterizing TaxACT as the maverick in the industry. By ending the head-to-head competition between TaxACT and H&R Block, American taxpayers would be left with only two major digital do-it-yourself tax preparation providers.
The first major instance of maverick behavior by TaxACT that prompted a competitive reaction from H&R Block and Intuit occurred in 2004 in relation to the Free File Alliance (“FFA”), a public-private partnership of digital DIY tax preparation companies and the IRS designed to offer qualified individuals the ability to prepare and e-file free federal income tax returns. TaxACT was the first company to aggressively pursue lower prices in the Digital DIY Tax Preparation Product market for all taxpayers through the FFA by introducing an offer that was free to all individual US taxpayers.
TaxACT's FFA offering threatened the profits of all Digital DIY Tax Preparation Product providers. Accordingly, though they matched TaxACT's offering, members of the FFA, including H&R Block and Intuit, lobbied the government to limit the number of taxpayers to whom FFA members could offer free federal e-filing. Ultimately, the IRS, in October 2005, limited the type and the number of customers that could be offered a free product through the FFA. TaxACT responded to the FFA limitations by offering all taxpayers the ability to prepare and e-file their federal individual tax returns for free directly from TaxACT's website.
The district court considered private and public interest factors in rendering its decision. The public interest factors were neutral in nature and did not contribute significantly to the district court's transfer analysis. The private interest factors, on the other hand, invoked in depth review of the implications of the case. First, in considering the deference to plaintiff's choice of forum, the court found that the defendant had failed to prove that the case had no meaningful ties to the District of Columbia. The district court reasoned that other than the fact the DOJ is located in the District of Columbia, the first major instance of TaxACT's maverick market activity that prompted a competitive reaction from H&R Block occurred in the District of Columbia. Facts indicate that the elimination of TaxACT's alleged maverick activities is a key motivation for H&R Block's proposed acquisition of the company. Therefore, the interactions among the FFA, IRS, and the defendants relating to TaxACT's activities within the FFA are likely to implicate disputed issues of fact in this case. Since the FFA and IRS are headquartered in the District of Columbia, and TaxACT's offering of free tax products initiated in the District of Columbia, the court could not conclude that this case has no ties with the current forum.
Second, the court considered the aspect of where the claim arose to be less important than other private interest factors, particularly because defendant's products are sold online and the antitrust effect would be felt across the country. Third, the district court found that the convenience of the witnesses factor does slightly favor transfer, but not overwhelmingly so, because non-party witnesses are likely to be drawn from various districts around the country. The court agreed with the H&R Block that the Western District of Missouri would be more convenient for witnesses who work at H&R Block's headquarters, located in Missouri. However, the district court noted that nonparty witnesses' convenience carries the most weight in the analysis. Since non-party witnesses in this case are likely to come from around the country, including retired H&R Block employees in Kansas City, retired IRS employees in this district, and employees from competitor companies based in California, Utah, Georgia, and Arkansas, mere convenience of some H&R Block witnesses alone is insufficient to warrant transfer. In addition, the court pointed out the fact that H&R Block's merger agreement contains a forum selection clause calling for any disputes over the merger agreement between the parties to be litigated in Delaware. The court found that the fact that the H&R Block and TaxAct negotiated and agreed to such a clause indicates their ability to avail themselves of legal protections offered by different fora around the country. Finally, the district court was not convinced that sources of proof would be easier to access in Missouri given the ease of electronic transfer of data.