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United States of America v. H&R Block

June 6, 2011

UNITED STATES OF AMERICA, PLAINTIFF,
v.
H&R BLOCK, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Beryl A. Howell United States District Judge

MEMORANDUM OPINION

Counsel on opposite sides of this pending motion both used the same terms to describe the merits of their respective positions as "not even a close call." While this may be a sign that the case is closer than either side will let on, in this case, the Court finds that the weight of the argument is against the movants. The United States, through the Antitrust Division of the Department of Justice, brought this civil case to enjoin the proposed acquisition of a digital do-it-yourself tax preparation company known as TaxACT by H&R Block, another company that sells digital do-it-yourself tax preparation products. The defendants have moved to transfer this case from the District of Columbia to the United States District Court for the Western District of Missouri, where H&R Block is headquartered. For the reasons that follow, the Court denies the motion to transfer venue.

I.BACKGROUND

The United States, through the Antitrust Division of the Department of Justice (the "DOJ" or the "plaintiff"), filed this action on May 23, 2011. The DOJ seeks to enjoin Defendant H&R Block, Inc. from acquiring Defendant 2SS Holdings, Inc. ("TaxACT"), which sells digital do-it-yourself tax preparation products marketed under the brand name TaxACT. Compl. ¶ 10. H&R Block is a Missouri corporation headquartered in Kansas City, Missouri. Id. ¶ 9. 2SS Holdings, or TaxACT, is a Delaware corporation headquartered in Cedar Rapids, Iowa. Id. ¶ 10. Defendant TA IX, L.P. ("TA"), a Delaware limited partnership headquartered in Boston, Massachusetts owns a two-thirds interest in TaxACT.*fn1 Id. ¶ 11.

According to the complaint, last year an estimated 35 to 40 million taxpayers filed their taxes using digital do-it-yourself tax preparation products ("Digitial DIY Tax Preparation Products"). Id. ¶ 1. In the U.S. Digital DIY Tax Preparation Product market, the three largest firms collectively have about 90% of the market share. Id. The leading company in the market is Intuit, Inc., the maker of "TurboTax." Id. ¶ 3. H&R Block's proposed acquisition of TaxACT, if allowed to proceed, would combine the second- and third-largest providers in the market -- i.e., H&R Block and TaxACT, respectively. Id.

The complaint alleges that TaxACT is a "maverick" competitor that has a history of "disrupting" the Digitial DIY Tax Preparation market and has forced its competitors, including H&R Block and Intuit, "to offer free products and increase the quality of their products for American taxpayers." Id. ¶ 28. The first major instance of TaxACT's maverick behavior alleged in the complaint occurred in 2004 in relation to the Free File Alliance ("FFA"), a public-private partnership of digital DIY tax preparation companies and the Internal Revenue Service designed to offer qualified individuals the ability to prepare and e-file free federal income tax returns. Id. TaxACT aggressively pursued lower prices by introducing an offer through the FFA that was free to all individual U.S. taxpayers in 2004. Id. Other members of the FFA, including H&R Block and Intuit, then matched TaxACT's offering, but lobbied the government to limit the number of taxpayers to whom FFA members could offer free federal filing. Id. ¶ 29. In October 2005, the IRS did limit the type and number of customers that could be offered a free product through the FFA. Id.

The complaint goes on to allege other areas in which TaxACT has aggressively competed with H&R Block and Intuit by providing high-quality products and services at low cost. See id.

¶¶ 30-40.The DOJ alleges that the acquisition of TaxACT by H&R Block would reduce competition in the industry and make anticompetitive coordination between the two major remaining market participants -- H&R Block and Intuit -- substantially more likely. Id. ¶¶ 40-49. The DOJ alleges that therefore the proposed acquisition violates Section 7 of the Clayton Act, 15 U.S.C. § 18, and accordingly it seeks an injunction blocking H&R Block from acquiring TaxACT. Id. ¶¶ 53-55.

On May 27, 2011, four days after the DOJ filed its complaint, Defendants H&R Block, TaxACT, and TA moved for an expedited hearing and a transfer of venue from this Court to the United States District Court for the Western District of Missouri, the home district of H&R Block's headquarters in Kansas City, Missouri. See Defs.' Mot. for Expedited Hr'g, ECF No. 6; Mem. of Points and Authorities in Support of Defs.' Mot. to Transfer Venue ("Defs.' Mem."). The plaintiff opposes the transfer.

On May 31, 2011, the Court granted the defendants' motion for an expedited hearing on their motion to transfer venue. Minute Order dated May 31, 2011. On June 3, 2011, the Court heard oral argument on the defendants' motion, which is now before the Court.

II.DISCUSSION

A.Legal Standard

Under the federal venue transfer statute, 28 U.S.C. § 1404, a district court may transfer a case to another district "[f]or the convenience of parties and witnesses, in the interest of justice."

28 U.S.C. § 1404(a). The Court may only transfer a case to another district "where it might have been brought." Id. This statute "vests discretion in the District Court to adjudicate motions for transfer on an 'individualized, case-by-case consideration of convenience and fairness.'" Otter v. Salazar, 718 F. Supp. 2d 62, 63-64 (D.D.C. 2010) (quoting Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988)). Courts evaluate a series of public and private interest factors in determining whether to grant a transfer of venue. Bederson v. United States, 756 F. Supp. 2d 38, 46 (D.D.C. 2010). "The private interest factors that are considered include: (1) the plaintiff's choice of forum; (2) the defendant's choice of forum; (3) where the claim arose; (4) the convenience of the parties; (5) the convenience of the witnesses; and (6) the ease of access to the sources of proof." Id. "The public interest factors . . . include: (1) the local interest in making local decisions regarding local controversies; (2) the relative congestion of the transferee and transferor courts; and (3) the potential transferee court's familiarity with the governing law." Id. "[C]courts have imposed a heavy burden on those who seek transfer and a court will not order transfer unless the balance is strongly in favor of the defendant." United States v. Microsemi Corp., No. 1:08cv1311, 2009 WL 577491, at *6 (E.D. Va. Mar. 4, 2009).

B.Application of the Transfer Criteria

As a threshold issue, transfer of venue pursuant to Section 1404(a) is only permissible if the receiving district is one where the case could have been brought in the first instance. The Clayton Act's venue provision provides, in relevant part, that "[a]ny suit, action, or proceeding under the antitrust laws against a corporation may be brought . . . in any district wherein it may be found or transacts business." 15 U.S.C. ยง 22. All the parties agree, as does the Court, that the plaintiff could have brought this case in either the Western District of Missouri or in this District because the defendants, who sell tax preparation products nationally, transact ...


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