Judge Rejects $40M Intuit TurboTax Free Edition Class Action Settlement

A federal judge this week rejected a proposed $40 million settlement between Intuit, the company behind TurboTax, and a Class of consumers suing the company for allegedly directing them away from the TurboTax free edition even though they were eligible to use it.

District Judge Charles R. Breyer, who sits on the bench in the Northern District of California, issued a terse opinion, saying only that, having considered the arguments both sides made during the settlement hearing, and the legal briefs they filed, he was denying approval to the proposed settlement.

“An opinion will follow in due course,” Judge Breyer wrote.

The issue likely preventing Judge Breyer from approving the deal is the objections raised by some of the Class Members who said the settlement would deprive them of their due process rights because it would prevent them from continuing through arbitration with Intuit.

The company had originally argued its users were required to submit any claims to mandatory arbitration under the terms of the TurboTax user agreement. Lawyers for the plaintiffs fought that claim, but ultimately Intuit prevailed in the Ninth Circuit Court of Appeals.

As a result, many of the consumers participating in the class action lawsuit entered into arbitration with Intuit.

Shortly after that happened, the company and the plaintiff’s legal team worked out a proposed settlement that called for $28 million to be paid to the Class Members – which reportedly would have netted them $56 each if 7.5% of those eligible submitted a claim form. The lawyers representing the consumers would get $10 million plus litigation expenses.

The TurboTax free edition case began as multiple class actions, all claiming the same financial injuries, that were consolidated in June 2019. The plaintiffs all said they were intentionally directed away from the TurboTax free edition and to a version of the tax filing software they had to pay for, even though they qualified to use the free edition.

By doing so, the plaintiffs claimed that Intuit violated its agreement with the Internal Revenue Service to offer free filing services to some low-income users.

Under the terms of the Free File Alliance agreement, Intuit and other tax preparation services are required to offer free filing programs to the lowest 70% of income earners. In return, the IRS is prevented from offering competing tax filing services.

They also accused Intuit of violating various consumer protection and unfair business practices laws in California, New York, and Pennsylvania.

Have you ever qualified for the TurboTax free edition? Were you directed to a paid version of the software instead? Tell us about it in the comment section below.

Arena and the other Class Members are represented by Daniel Girard, Jordan Elias and Simon Grille of Girard Sharp LLP and by Norman E. Siegel, J. Austin Moore and Jillian Dent of Stueve Siegel Hanson LLP.

The TurboTax Free Edition Class Action Lawsuit is Michele Arena, et al. v. Intuit Inc., et al., Case No. 3:19-cv-02546, in the U.S. District Court for the Northern District of California.

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