JTH Tax Incorporated v. H&R Block Eastern, 4th Cir. (2004)
JTH Tax Incorporated v. H&R Block Eastern, 4th Cir. (2004)
JTH Tax Incorporated v. H&R Block Eastern, 4th Cir. (2004)
No. 03-1250
v.
H & R BLOCK EASTERN TAX
SERVICES, INCORPORATED; H&R
BLOCK TAX SERVICES, INCORPORATED,
Defendants-Appellees.
COUNSEL
ARGUED: Carl Jay Khalil, JTH TAX, INCORPORATED, Virginia
Beach, Virginia, for Appellants. Gregory Neil Stillman, HUNTON &
WILLIAMS, L.L.P., Norfolk, Virginia, for Appellees. ON BRIEF:
OPINION
GREGORY, Circuit Judge:
On March 7, 2001, the United States District Court for the Eastern
District of Virginia, after finding that H&R Block Eastern Tax Services, Inc. and H&R Block Tax Services, Inc. (hereinafter "H&R
Block") willfully and maliciously engaged in a false and misleading
advertising campaign aimed at preventing JTH Tax, Inc. d/b/a Liberty
Tax Service and thirteen of its franchisees (hereinafter "Liberty")
from competing for customers, entered a permanent nationwide
injunction against H&R Block requiring, among other things, that its
advertisements "clearly and prominently" disclose whether an advertised product is actually a loan. On October 10, 2001 and January 10,
2002, Liberty filed two separate civil contempt motions alleging that
H&R Block was in violation of the district courts injunction because
its "Instant Money" advertisements used much smaller type and less
apparent color print for the term "loan" than for terms such as "refund," "check today" and "instant money." Liberty further alleged that
H&R Blocks advertisements failed to "clearly and prominently" disclose whether an advertised product was a loan because the loan disclosures contained therein were placed in areas that increased the
likelihood that they would go unnoticed and consequently unread.
Liberty argued that the injunctions "clearly and prominently" language required that H&R Blocks loan disclosures be presented in a
manner that made them immediately noticeable to consumers.
The district court rejected Libertys argument, holding that its
injunction only required that H&R Blocks loan disclosures be presented in a manner that would allow a reasonable person to notice and
easily read them. In so holding, the court defined "prominent" according to the definition of "conspicuous" set forth in the Code of Virginia
(the "Code"), which provides that "[a] term or clause is conspicuous
when it is so written that a reasonable person against whom it is to
operate ought to have noticed it." VA. CODE ANN. 8.1-202(10).
prepared income tax returns in the United States and processed over
fifty percent of all federal income tax returns filed electronically.
H&R Block has approximately thirty-one offices in the Hampton
Roads area of Virginia.
One of the products offered by H&R Block to consumers is known
as a "refund anticipation loan" ("RAL"). RALs allow taxpayers to
obtain, through H&R Blocks partnered lending institutions, shortterm loans secured by their anticipated tax refund. In order to obtain
a RAL, taxpayers must submit a loan application through which they
certify and declare a number of things, including past bankruptcies
and current outstanding debt. They must also agree to pay any collection costs and attorneys fees if the amount of their actual tax refund
is less than the amount of their corresponding loan. Moreover, taxpayers are required to consent to "cross-collection" of delinquent loans
from other banks. Lastly, taxpayers must pay any applicable tax preparation fees, interest fees and bank fees. RALs are generally obtained
by low income consumers, a high percentage of which are unfamiliar
with financial terminology. RALs are attractive to low income consumers because they allow these consumers to receive their tax refund
checks within one to two days, whereas traditional electronic filings
require a two to three week processing period.
During the 1990s, however, several states challenged the manner
in which H&R Block advertised RALs. Specifically, these states
alleged that H&R Block was engaging in deceptive advertising practices by concealing the fact that RALs are actually loans. As a result
of these suits, H&R Block entered into a number of consent decrees
through which it agreed not to misrepresent loans as refunds or use
the term "rapid refund" to describe RALs. Among the states with
whom H&R Block entered into a consent decree are: Connecticut,
Florida and New York.
During the 2000 tax season, H&R Block began advertising in
selected areas of the country a new loan product known as a "no additional cost refund anticipation loan" ("NACRAL"). NACRALs are
very similar to RALs because they require taxpayers to submit loan
applications through which they certify a number things. Moreover,
they expose taxpayers to potential collection costs, attorneys fees and
cross-collection efforts. NACRALs, however, differ from RALs in
that they do not require taxpayers to pay any additional fees, such as
interest fees and lending fees.
One of the regions identified by H&R Block for the introduction
of NACRALs was the Hampton Roads area, where it operated
approximately thirty-one offices. At the same time that H&R Block
began marketing NACRALs in the Hampton Roads area, Liberty
opened twenty-five field offices in this same area. In marketing
NACRALs in the Hampton Roads area, H&R Block employed slogans such as "refund," "refund amount," and "check in the amount of
your refund." This marketing campaign proved to be successful as
H&R Blocks business in the Hampton Roads area increased by
24.8%. In other areas of Virginia where this marketing campaign was
not employed, however, H&R Blocks business only grew by 0.8%.
Due to H&R Blocks marketing success in the Hampton Roads area,
Liberty was forced to offer free tax preparation services as a means
of competing for customers.
On June 14, 2000, Liberty commenced an action in the United
States District Court for the Eastern District of Virginia alleging that
H&R Blocks NACRAL marketing campaign employed false and
misleading tactics in violation of the Lanham Act, 15 U.S.C.
1125(a). After a bench trial, the district court concluded that a number of H&R Blocks NACRAL advertisements violated the Lanham
Act by concealing the fact that NACRALs are loans. JTH Tax, Inc.
v. H & R Block E. Tax Servs., Inc., 128 F.Supp.2d 926, 935-37 (E.D.
Va. 2001). In addition, the district court concluded that H&R Blocks
marketing campaign violated the Internal Revenue Services ("IRS")
Publication 1345, which requires e-file providers to make "clear in the
advertising [of RALs] that the taxpayer is borrowing against the anticipated refund and not obtaining the refund itself from the financial
institution." Id. at 936 (quoting IRS Pub. 1345 12(.09), Rev. Proc.
98-50); id. at 943. The district court further concluded that H&R
Blocks deceptive practices were willful and malicious because H&R
Block was (1) aware of the IRS prohibition against referring to loans
as refunds, (2) on notice that loans should not be marketed as refunds
given its existing consent decrees, (3) encouraging the use of "refund," as evidenced by its internal study, over "loan" and (4) targeting
the Hampton Roads area solely as a means of preventing Liberty from
competing for consumers. Id. at 933.
The district court, however, concluded that it did not have sufficient evidence to give Liberty an award for its actual damages. Consequently, it awarded Liberty $506,477 of H&R Blocks profits. Id. at
943-45. It also ordered H&R Block to pay Libertys attorneys fees
and costs. Most importantly, for purposes of this appeal, the district
court issued a permanent nationwide injunction, which provides in
pertinent part:
[H&R Block] shall not:
(1) advertise in violation of IRS Publication 1345,
12(.09) of Revenue Procedure 98-50 . . . by representing
any loan product, whether or not fees or interest are charged,
as a "refund." In all advertisements, [H & R Block] shall
comply with the IRS requirement to disclose whether any
product is a loan. "Advance" shall be non-complying language. The disclosure shall appear clearly and prominently
in print advertisements and shall be clearly stated in broadcast advertisements. . . .
Id. at 952 (emphasis added).
H&R Block appealed the district courts judgment, which we
affirmed in part, vacated in part and remanded. JTH Tax, Inc. v. H &
R Block E. Tax Servs., Inc., 28 Fed. Appx. 207, 219-20 (4th Cir.
2002)(per curiam)(unpublished). Specifically, we affirmed the district
courts conclusion that H&R Block willfully and maliciously engaged
in deceptive advertising practices that materially impacted the purchasing decisions of reasonable consumers. Id. at 219. We also
affirmed the district courts award of attorneys fees and costs. Id. We
vacated, however, the courts award of H&R Blocks profits and
directed the court to redetermine the damages to which Liberty was
entitled under the Lanham Act. Id. Lastly, we instructed the district
court to remove a provision from the permanent injunction.1 Id. at
219-20. Pursuant to our instructions, the district court issued an
amended order, which neither party appealed.
1
The provision removed from the district courts injunction is not pertinent to this appeal.
II.
On October 10, 2002, Liberty commenced the present action in the
United States District Court for the Eastern District of Virginia challenging the manner in which H&R Block conducted its "Instant
Money" marketing campaign during the 2001 tax season. Specifically, Liberty argued that H&R Block should be held in civil contempt of the district courts injunction because its "Instant Money"
advertisements failed to "clearly and prominently" disclose that the
product being advertised was actually a loan. Liberty contended that
H&R Blocks "Instant Money" advertisements violated the spirit and
letter of the courts injunction because they used "drastically smaller
letters and harder to read colors on the word loan and . . . much
larger and more prominent coloring on the words refund, check
today, and instant money." J.A. at 310. The district court held a
hearing on this motion on November 12, 2002. On January 10, 2003,
while the district court was still considering its first motion, Liberty
filed a second civil contempt motion, alleging that H&R Block was
engaging in the same prohibited conduct during the 2002 tax season.
A hearing on this motion was held on February 12, 2003.
On February 14, 2003, the district court entered an order denying
both of Libertys motions. In so doing, the court determined that a
loan disclosure is "clear and prominent," and therefore in compliance
with its injunction, if "it is so written that a reasonable person against
whom it is to operate ought to have noticed it." Id. at 881 (quoting
Matthews v. Ford Motor Co., 479 F.2d 399, 403 n.11 (4th Cir.
1973)(citation omitted)). Based on this determination, the district
court held that H&R Blocks loan disclosures were "clear and prominent" because "a reasonable person can easily read the word loan
even in ads where it appears in a smaller font or different color." Id.
at 884. The court stated that "simply because [H&R Blocks] ads
require consumers to read all of the words contained therein, large
and small, does not imply that smaller words are not conspicuous."
Id. at 885. To further support its holding, the district court noted that
Liberty and other tax preparation service providers use advertisements
in which the term "loan" appears in smaller and different color font.
Id. This appeal followed.
III.
To establish civil contempt, a movant must show each of the following elements by clear and convincing evidence:
(1) the existence of a valid decree of which the alleged contemnor had actual or constructive knowledge; (2) . . . that
the decree was in the movants "favor"; (3) . . . that the
alleged contemnor by its conduct violated the terms of the
decree, and had knowledge (at least constructive) of such
violations; and (4) . . . that [the] movant suffered harm as
a result.
Ashcroft v. Conoco, Inc., 218 F.3d 288, 301 (4th Cir. 2000)(quoting
Colonial Williamsburg Found. v. The Kittinger Co., 792 F.Supp.
1397, 1405-06 (E.D.Va. 1992), affd, 38 F.3d 133, 136 (4th Cir.
1994)). We review a district courts grant or denial of a civil contempt
motion for abuse of discretion. Id. When a district courts decision is
based on an interpretation of its own order, our review is even more
deferential because district courts are in the best position to interpret
their own orders. See Vaughns v. Bd. of Educ., 758 F.2d 983, 989 (4th
Cir. 1985); see also Anderson v. Stephens, 875 F.2d 76, 80 n.8 (4th
Cir. 1989)("We are, of course, mindful of the inherent deference due
a district court when it construes its own order.").
A.
Liberty argues that the district court abused its discretion by construing the term "prominent" in accordance with the Codes definition
of "conspicuous." We disagree.
The district courts injunction provides in pertinent part:
[H&R Block] shall not:
(1) advertise in violation of IRS Publication 1345,
12(.09) of Revenue Procedure 98-50 . . . by representing
any loan product, whether or not fees or interest are charged,
as a "refund." In all advertisements, [H & R Block] shall
10
11
12
13
V.
We hold that the district court did not abuse its discretion by denying Libertys contempt motions. Because we affirm the denial of Libertys contempt motions, we expressly decline to reach Libertys
discovery challenge.
AFFIRMED