failure to allege incremental materiality dooms false advertising counterclaims

Intuit Inc. v. HRB Tax Group, Inc., 2025 WL 1168897, No. 5:24-cv-00253-BLF (N.D. Cal. Apr. 22, 2025)

Counterclaim-plaintiff (Block) alleged that Intuit engaged in false advertising of its TurboTax services. TurboTax includes three tiers: (1) “Do-It-Yourself;” (2) “Live Assisted;” and (3) “Live Full Service.” “Do-It-Yourself and Live Assisted are online products that permit taxpayers to prepare their own tax returns; the Live Full Service tier involves an Intuit-associated tax professional preparing a taxpayer’s return on his or her behalf.”

Live Assisted includes an “expert final review” feature that Block alleges Intuit markets as “mean[ing] that a live tax expert will automatically review [a consumer’s] entire return before it is submitted to make sure that it is completely accurate and that their tax return was done correctly.” Allegedly, Intuit misrepresents that the review is completed automatically, without a consumer’s request, and that “the live ‘expert final review’ always entails a comprehensive, line-by-line review of a consumer’s tax return, to provide ‘100% accuracy guaranteed.’ ” In reality, consumers using TurboTax Live Assisted are allegedly “required to take affirmative steps to request an ‘expert final review’ by an Intuit tax expert,” including by “click[ing] a button that indicates that they have questions, enter[ing] their specific question or questions about their tax return, enter[ing] their contact information, connect[ing] with an expert, and receiv[ing] confirmation from Intuit that an expert is available to consult with them,” Then, the review is allegedly often “limited to answering a consumer’s final questions and does not involve a comprehensive review” in most situations.

Block alleged Article III standing by alleging: (1) Block and Intuit are direct competitors in the online tax preparation industry; and (2) that Intuit’s false advertising “results in loss of business and revenue to Block because, without the false impression created by Intuit’s advertising, consumers would likely decide to purchase” one of Block’s products instead. (The court found it a “close question,” which doesn’t seem right to me.) It rejected Intuit’s argument that Article III standing requires specific allegations of materiality to consumers. “Imposing this requirement would seem to ‘confuse[ ] the jurisdictional inquiry (does the court have power under Article III to hear the case?) with the merits inquiry (did the defendant violate the law?).’” Although the court didn’t think the allegations were sufficient to plausibly allege that “consumers’ decisions are specifically animated by the suggestion that expert final review is automatic or comprehensive,” there were express allegations that expert final review is material to consumers. “Therefore, the Court finds it reasonable to infer that the challenged advertisements—which mention expert final review—may draw sales away from Block.”

But these inadequate materiality allegations still led the counterclaim to be dismissed, even though Block successfully—though “barely”—pled falsity. For example, one ad plausibly suggested that review would be automatic and line-by-line, including because the ad reads “I finished reviewing your taxes,” followed by a checklist suggesting that the review covered all of the following areas: “Income & Wages,” “Deductions & Credits,” “California State Taxes,” “Federal Taxes,” and “Tax Returns.” Combined with the phrases “[k]now it’s done right” and “you can be 100% confident it’s done right,” the advertisement “plausibly suggests that a consumer using this product can be assured that no errors appear in their tax return—and, by extension, that the return was reviewed in its entirety (since otherwise, how could one be sure that there were absolutely no errors?).” The ad said “experts can review your tax return” (emphasis added) and not “experts will review your tax return,” but that didn’t make deception implausible, especially since that vague limiting language appeared in much smaller text than “Know it’s done right with an expert final review.”

Block argued that it sufficiently pled materiality by pleading that expert final review was “an inherent quality or characteristic of its Live Assisted product and is a centerpiece of Intuit’s marketing.” The court disagreed. “[T]he expert final review feature does not go to the very nature of an online tax preparation product—rather, the heart of such a product would seem to be the online tax forms the consumer uses to prepare their own return.” Regardless, Block conflated deception “related to a feature that is material and deception that is itself material.” Block hadn’t adequately alleged facts indicating that consumers’ purchasing decisions were based upon their belief that expert final review would occur automatically or involve a line-by-line review of the entire tax return. I don’t really understand why it isn’t plausible that consumers think that automatic review is a valuable feature/more valuable than potential, non-automatic review—that seems to be a factual allegation that needs further testing, but the court found Block’s claims to be an “unwarranted deduction[ ] of fact, or unreasonable inference” in the absence of further supporting facts.

Block did point to “a few customer reviews suggesting frustration with the advertising about expert final review.” But those also weren’t good enough. “But the deception alleged is not whether customers would receive an expert final review; rather, it is specifically whether that review is automatic and/or comprehensive.” Even if some consumers were confused specifically about whether the review would be automatic or line-by-line, “a handful of select consumer reviews do not support the inference that the alleged deception is material to the ‘reasonable consumer.’” So basically, the court has to agree with the consumers for them to count—why weren’t the reviews presumptively from reasonable consumers?