1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION 6 7 INTUIT INC., Case No. 5:24-cv-00253-BLF

8 Plaintiff,

ORDER GRANTING INTUIT INC.’S

9 v. MOTION TO DISMISS HRB DIGITAL

LLC’S FIRST AMENDED

10 HRB TAX GROUP, INC., et al., COUNTERCLAIMS 11 Defendants. [Re: Dkt. No. 154]

12 HRB DIGITAL LLC, 13 Counterclaim-Plaintiff, 14 v.

15 INTUIT INC., 16 Counterclaim-Defendant.

17 18 Before the Court is Plaintiff/Counterclaim-Defendant Intuit Inc.’s (“Intuit”) Motion to 19 Dismiss HRB Digital LLC’s First Amended Counterclaims. Dkt. No. 154 (“Mot.”). 20 Defendant/Counterclaim-Plaintiff HRB Digital LLC (“Block”) opposes the motion, Dkt. No. 163 21 (“Opp.”), and Intuit filed a Reply in support of its motion, Dkt. No. 168 (“Reply”). The Court 22 held a hearing on the motions on February 27, 2025. See Dkt. No. 192. 23 For the reasons stated below, the Court GRANTS Intuit Inc.’s Motion to Dismiss HRB 24 Digital LLC’s First Amended Counterclaims. 25 I. BACKGROUND 26 A. Factual Background 27 The following are the facts as stated in Block’s Counterclaims. For purposes of this 1 Counterclaim-Plaintiff HRB Digital LLC is a subsidiary of H&R Block, Inc. that 2 participates in marketing and selling various tax-preparation products and services, including 3 online tax-preparation services. Dkt. No. 125 (“Amend. Countercl.”) ¶ 10. Counterclaim- 4 Defendant Intuit Inc. markets and sells TurboTax, a brand of online tax-preparation products and 5 services. Id. ¶ 11. The TurboTax brand suite of products includes three tiers: (1) “Do-It- 6 Yourself;” (2) “Live Assisted;” and (3) “Live Full Service.” Id. ¶ 17. Do-It-Yourself and Live 7 Assisted are online products that permit taxpayers to prepare their own tax returns; the Live Full 8 Service tier involves an Intuit-associated tax professional preparing a taxpayer’s return on his or 9 her behalf. Id. 10 Intuit’s Live Assisted product includes an “expert final review” feature that Block alleges 11 Intuit markets as “mean[ing] that a live tax expert will automatically review [a consumer’s] entire 12 return before it is submitted to make sure that it is completely accurate and that their tax return 13 was done correctly.” Id. ¶ 1. According to Block, Intuit’s advertising related to expert final 14 review contains two misrepresentations. Id. ¶ 18. “First, Intuit conveys that the live ‘expert final 15 review’ is a review that is automatically conducted for all tax returns without a consumer having 16 to ask.” Id. “Second, Intuit also conveys that the live ‘expert final review’ always entails a 17 comprehensive, line-by-line review of a consumer’s tax return, to provide ‘100% accuracy 18 guaranteed.’” Id. Block alleges that, in reality, consumers using TurboTax Live Assisted are 19 “required to take affirmative steps to request an ‘expert final review’ by an Intuit tax expert,” id. 20 ¶ 31, including by “click[ing] a button that indicates that they have questions, enter[ing] their 21 specific question or questions about their tax return, enter[ing] their contact information, 22 connect[ing] with an expert, and receiv[ing] confirmation from Intuit that an expert is available to 23 consult with them,” id. ¶ 3. Then, the review is often “limited to answering a consumer’s final 24 questions and does not involve a comprehensive review” in most situations. Id. ¶ 62. 25 B. Procedural Background 26 On January 15, 2024, Intuit filed a complaint against H&R Block, Inc. in order to 27 challenge various allegedly false and misleading advertising claims Block made regarding its tax 1 No. 6. Intuit filed an amended complaint on January 18, 2024, adding HRB Tax Group, Inc. and 2 HRB Digital LLC as defendants. Dkt. No. 18. Following the January 22, 2024 hearing on Intuit’s 3 motion for a temporary restraining order, see Dkt. No. 32, the Court entered the Parties’ Consent 4 Order on January 29, 2024, Dkt. No. 38. As part of that Consent Order, Block agreed to 5 voluntarily remove or modify various challenged advertising statements until the Court had an 6 opportunity to hear and rule upon Intuit’s motion for a preliminary injunction. Id. 7 On February 27, 2024, HRB Digital LLC and HRB Tax Group, Inc. answered Intuit’s 8 Amended Complaint. Dkt. No. 49. Approximately three weeks later, they filed an amended 9 answer and Block asserted counterclaims against Intuit that mirrored Intuit’s claims. Dkt. No. 50. 10 Intuit moved to dismiss Block’s counterclaims and to strike certain allegations within the 11 counterclaims. Dkt. No. 64. The Court granted Intuit’s motions on September 5, 2024, Dkt. No. 12 121, and Block filed Amended Counterclaims on September 9, 2024, Dkt. No. 125. Block’s 13 Amended Counterclaims assert four causes of action: (1) a claim for violation of the Lanham Act, 14 15 U.S.C. § 1125(a); (2) a claim for violation of California’s Unfair Competition Law, Cal. Bus. 15 & Prof. Code § 17200 et seq.; (3) a claim for violation of California’s False Advertising Law, Cal. 16 Bus. & Prof. Code § 17500 et seq.; and (4) a claim for violation of Missouri common law unfair 17 competition in the form of false advertising. Dkt. No. 125 ¶¶ 81–110. Intuit again moved to 18 dismiss. Dkt. No. 154. 19 II. LEGAL STANDARD 20 A. Rule 12(b)(1) 21 “[L]ack of Article III standing requires dismissal for lack of subject matter jurisdiction 22 under Federal Rule of Civil Procedure 12(b)(1).” Maya v. Centex Corp., 658 F.3d 1060, 1067 (9th 23 Cir. 2011). Since “[t]he party invoking federal jurisdiction[] bears the burden of establishing” the 24 elements of Article III standing, a counterclaim plaintiff must be able to demonstrate regarding its 25 counterclaims (1) an “injury in fact” that is (2) “fairly traceable to the challenged conduct of the 26 defendant,” and (3) likely to be “redressed by a favorable judicial decision.” Spokeo, Inc. v. 27 Robins, 578 U.S. 330, 338 (2016), as revised (May 24, 2016) (citing Lujan v. Defs. of Wildlife, 1 element must be supported . . . with the manner and degree of evidence required at the successive 2 stages of the litigation.” Lujan, 504 U.S. at 561. 3 B. Rule 12(b)(6) 4 “A motion to dismiss a counterclaim brought pursuant to Federal Rule of Civil Procedure 5 12(b)(6) is evaluated under the same standard as a motion to dismiss a plaintiff’s complaint.” 6 AirWair Int’l Ltd. v. Schultz, 84 F. Supp. 3d 943, 949 (N.D. Cal. 2015). Under Federal Rule of 7 Civil Procedure 12(b)(6), a court must dismiss a complaint if it fails to state a claim upon which 8 relief can be granted. To survive a Rule 12(b)(6) motion, the plaintiff must allege “enough facts to 9 state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 10 (2007). A claim is facially plausible when the plaintiff pleads facts that allow the court to “draw 11 the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 12 556 U.S. 662, 678 (2009) (citation omitted). There must be “more than a sheer possibility that a 13 defendant has acted unlawfully.” Id. While courts generally do not require “heightened fact 14 pleading of specifics,” a plaintiff must allege facts sufficient to “raise a right to relief above the 15 speculative level.” See Twombly, 550 U.S. at 555, 570. However, “[i]n alleging fraud or mistake, 16 a party must state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. 17 P. 9(b). 18 When determining whether a claim has been stated, the Court accepts as true all well-pled 19 factual allegations and construes them in the light most favorable to the plaintiff. Reese v. BP 20 Expl. (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the Court need not “accept as 21 true allegations that contradict matters properly subject to judicial notice” or “allegations that are 22 merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead 23 Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (internal quotation marks and citations 24 omitted). On a motion to dismiss, the Court’s review is limited to the face of the complaint and 25 matters judicially noticeable. See Stoyas v. Toshiba Corp., 896 F.3d 933, 938 (9th Cir. 2018). 26 C. Leave to Amend 27 In deciding whether to grant leave to amend, the Court must consider the factors set forth 1 Ninth Circuit in Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048 (9th Cir. 2003). A district 2 court ordinarily must grant leave to amend unless one or more of the Foman factors is present: 3 (1) undue delay, (2) bad faith or dilatory motive, (3) repeated failure to cure deficiencies by 4 amendment, (4) undue prejudice to the opposing party, or (5) futility of amendment. Eminence 5 Capital, 316 F.3d at 1051–52. “[I]t is the consideration of prejudice to the opposing party that 6 carries the greatest weight.” Id. at 1052. However, a strong showing with respect to one of the 7 other factors may warrant denial of leave to amend. Id. 8 III. DISCUSSION 9 A. Standing 10 “At the pleading stage, general factual allegations of injury resulting from the defendant’s 11 conduct may suffice” to show constitutional standing. Lujan v. Defs. of Wildlife, 504 U.S. 555, 12 561 (1992). However, “allegations of direct competition, standing alone,” are not enough to 13 establish Article III standing on a false advertising claim. Allbirds, Inc. v. Giesswein Walkwaren 14 AG, No. 19-cv-05638, 2020 WL 6826487, at *4 (N.D. Cal. June 4, 2020). To adequately allege a 15 competitive injury for the purpose of Article III standing, a party must show “injury resulting from 16 the defendant’s conduct,” Lujan, 504 U.S. at 561—for example, at least two links in “a chain of 17 inferences showing how [the] defendant’s false advertising could harm [the] plaintiff’s business.” 18 Allbirds, 2020 WL 6826487, at *4. 19 The Court previously dismissed Block’s Counterclaims for failure to adequately allege 20 Article III standing, Dkt. No. 121, and Intuit argues that Block’s Amended Counterclaims suffer 21 the same fatal flaw, Mot. at 10–13. Specifically, Intuit claims that “Block continues to mistakenly 22 argue that it has standing merely because it competes with Intuit and the ‘expert final review’ is an 23 important factor that influences consumer purchasing decisions.” Id. at 11. On Intuit’s reading, 24 Block’s Amended Counterclaims do not show that the alleged misrepresentations forming the 25 basis for Block’s claims cause harm to Block’s business. See id. 26 Block responds that it can adequately allege standing by showing at least two links in “a 27 chance of inferences showing how defendant’s false advertising could harm plaintiff’s business,” 1 online tax preparation industry; and (2) that Intuit’s false advertising “results in loss of business 2 and revenue to Block because, without the false impression created by Intuit’s advertising, 3 consumers would likely decide to purchase” one of Block’s products instead. Opp. at 12 (citing 4 Amend. Countercl. ¶¶ 8, 65, 67, 69). Block elaborates that “Intuit’s advertisements tout the 5 ‘expert final review’ feature of Live Assisted—and its automatic and comprehensive nature—to 6 entice consumers to favor Intuit over Block, which results in lost profits to Block.” Id. at 13 7 (citing Amend. Countercl. ¶ 70). 8 The Court finds it to be a close question, but ultimately concludes that Block’s Amended 9 Counterclaims adequately allege constitutional standing. While the Court appreciates Intuit’s 10 careful examination of the Allbirds and TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820 (9th 11 Cir. 2011), cases, it appears that Intuit’s position inadvertently adopts a heightened Article III 12 standing requirement. On one hand, it is correct that “[i]n a false advertising suit, a plaintiff 13 establishes Article III injury if ‘some consumers who bought the defendant[’s] product under [a] 14 mistaken belief’ fostered by the defendant ‘would have otherwise bought the plaintiff[’s] 15 product.’” Id. at 825 (quoting Joint Stock Soc’y v. UDV N. Am., Inc., 266 F.3d 164, 177 (3d Cir. 16 2001)). On the other hand, the Court does not agree with Intuit that—for Article III standing 17 purposes—the chain of inferences alleged must include specific allegations of the materiality to 18 consumers of the purported deception. Imposing this requirement would seem to “confuse[] the 19 jurisdictional inquiry (does the court have power under Article III to hear the case?) with the 20 merits inquiry (did the defendant violate the law?).” Ecological Rts. Found. v. Pac. Gas & Elec. 21 Co., 874 F.3d 1083, 1094 (9th Cir. 2017) (citing Ecological Rts. Found. v. Pac. Lumber Co., 230 22 F.3d 1141, 1151 (9th Cir. 2000)); see Inland Empire Waterkeeper v. Corona Clay Co., 17 F.4th 23 825, 834 (9th Cir. 2021) (“One does not lose standing to sue just because his claims may fail on 24 the merits.”). In other words, “[a]lthough a merits question may look similar to the standing 25 question of whether there is an injury in fact traceable to the relevant law under which the plaintiff 26 has brought suit, confusing the two ‘conflate[s] standing with the merits.’” Iten v. Los Angeles, 81 27 F.4th 979, 985 (9th Cir. 2023) (quoting Lazar v. Kroncke, 862 F.3d 1186, 1198 (9th Cir. 2017)). 1 the merits.” See AshBritt, Inc. v. Ghilarducci, No. 20-cv-04612, 2020 WL 7388071, at *6 (N.D. 2 Cal. Dec. 16, 2020) (quoting Equity Lifestyle Props., Inc. v. Cnty. of San Luis Obispo, 548 F.3d 3 1184, 1189 n.10 (9th Cir. 2008)). 4 Here, allegations of the materiality of the specific identified misrepresentations are, of 5 course, necessary for Block to state a claim. The Court will turn to that issue in the next section of 6 this Order. For constitutional standing purposes, though, the Court concludes that it is enough to 7 show that “[s]ales gained by one are . . . likely to come at the other’s expense” and that the 8 challenged advertisements are logically likely to lead the advertising party to “capture a larger 9 share of the . . . market.” TrafficSchool.com, 653 F.3d at 825–26; see also Strategic Partners, Inc. 10 v. FIGS, Inc., No. 19-cv-2286, 2019 WL 12435672, at *4 (C.D. Cal. Aug. 19, 2019) (finding 11 allegations that defendant was “a competitor and that its allegedly wrongful conduct allowed it to 12 gain an upper hand in the market . . . sufficient for standing purposes”). This is because “[w]hile 13 ‘the causal connection put forward for standing purposes cannot be too speculative or rely on 14 conjecture about the behavior of other parties,’ it ‘need not be so airtight at this stage of the 15 litigation as to demonstrate that the plaintiff[] would succeed on the merits.’” Intel Corp. v. U.S. 16 Citizenship & Immigr. Servs., 739 F. Supp. 3d 762, 771 (N.D. Cal. 2024) (quoting Pac. Lumber 17 Co., 230 F.3d at 1152). 18 For example, in Allbirds, the Court could “reasonably infer that both parties compete for 19 the same revenue as both companies sell wool running shoes in the same geographic market,” but 20 the problem was that there was not “evidence that the material of shoes is an important factor for 21 consumers in deciding which shoes to buy.” Allbirds, 2020 WL 6826487, at *4. Thus, it was not 22 clear that advertising stating that the defendant’s products were “natural” or made of “natural 23 materials” would affect buyer decisions. See id. at *1, *4. But the question of whether the 24 challenged ads might affect the parties’ respective market shares was somewhat distinct from the 25 question of how, precisely, the ads were false or misleading. Regarding the latter issue, the party 26 asserting the false advertising claim suggested that “advertising of . . . products as ‘natural’ or 27 ‘made of natural materials’ conveys that the products are made entirely of natural (i.e., non- 1 Id. at *1 (emphasis added) (citations omitted). In other words, the alleged deception pertained to 2 whether the shoes were constructed entirely out of natural materials. Yet in the standing inquiry, 3 the Court sought only a showing that shoe material might affect purchasing decisions, such that an 4 advertisement with content suggesting that a shoe was “natural” might influence market share in 5 the relevant industry. Id. at *4. The Court did not require a specific showing that consumers’ 6 purchasing decisions were influenced by the mistaken belief that the shoe was 100 percent natural. 7 Here, too, the question of whether the challenged ads from Intuit might affect buyers’ 8 decisions is distinguishable from the question of how exactly the content of those ads is false or 9 misleading. As a first link in the chain of inferences supporting standing, Block has adequately 10 alleged that Block and Intuit are direct competitors, such that the Court can reasonably infer that 11 these Parties compete for the same revenue in the online tax preparation product market. Then, as 12 Block explains, the second link in the chain is that false advertising related to expert final review 13 is likely to affect consumer purchasing decisions, see Amend. Countercl. ¶¶ 70–71, because the 14 consumers read those advertisements and “mistakenly believe their purchase of Intuit’s product 15 includes an automatic, line-by-line expert final review” that renders the product superior to 16 Block’s products, id. ¶¶ 70, 72. As the next section of this Order will reveal, the Court does not 17 see adequate allegations supporting Block’s assertion that consumers’ decisions are specifically 18 animated by the suggestion that expert final review is automatic or comprehensive. However, the 19 Court does see express allegations that expert final review is material to consumers. E.g., Amend. 20 Countercl. ¶¶ 58–59. Therefore, the Court finds it reasonable to infer that the challenged 21 advertisements—which mention expert final review—may draw sales away from Block. See 22 Allbirds, 2020 WL 6826487, at *4. Thus, Intuit’s alleged wrongdoing is “fairly traceable” to an 23 injury allegedly suffered by Block—even if, ultimately, Block fails to establish all of the elements 24 necessary to proceed on the merits of its claims. 25 In sum, the Court concludes that Block has done enough to survive Intuit’s motion to 26 dismiss on constitutional standing grounds by showing a chain of inferences indicating that the 27 challenged ads are likely to divert sales from Block to Intuit. 1 B. Adequacy of the Allegations 2 The Parties agree that all four of Block’s causes of action in the Amended Counterclaims 3 are premised upon the same false advertising standard, which requires a showing of: 4 (1) a false statement of fact by the defendant in a commercial advertisement about its own or another’s product; (2) the statement actually deceived or has the tendency to deceive a 5 substantial segment of its audience; (3) the deception is material, in that it is likely to 6 influence the purchasing decision; (4) the defendant caused its false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of 7 the false statement, either by direct diversion of sales from itself to defendant or by a lessening of the goodwill associated with its products. 8 9 Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997). Intuit challenges 10 the adequacy of Block’s allegations regarding the first and third factors of the Southland Sod test 11 (falsity and materiality). See Mot. at 16–21. The Amended Counterclaims adequately allege 12 falsity. However, as was foreshadowed by the previous section of this Order, the Court finds that 13 Block has failed to allege materiality and dismisses the Amended Counterclaims on that ground. 14 1. Falsity 15 On the first prong of the Southland Sod test, Intuit argues that Block has failed to identify a 16 “false statement of fact” in Intuit’s advertisements. Mot. at 18–21. “To demonstrate falsity within 17 the meaning of the Lanham Act, a plaintiff may show that the statement was literally false, either 18 on its face or by necessary implication, or that the statement was literally true but likely to mislead 19 or confuse consumers.” Southland Sod, 108 F.3d at 1139 (citing Castrol Inc. v. Pennzoil Co., 987 20 F.2d 939, 943, 946 (3d Cir. 1993)). If falsity is premised upon a statement that is literally true but 21 likely to mislead consumers, the plaintiff must be able to “plausibly suggest a likelihood to 22 mislead.” Clorox Co. v. Reckitt Benckiser Grp. PLC, 398 F. Supp. 3d 623, 636 (N.D. Cal. 2019). 23 Intuit argues that “Block’s allegations do not plausibly suggest a likelihood to mislead” 24 because Block’s counsel and employees have made various concessions throughout this lawsuit 25 suggesting that Intuit’s advertising makes clear to consumers that the expert final review is not 26 always automatic or comprehensive. Mot. at 18–19. Moreover, Intuit points out that none of the 27 advertisements “expressly state” that the review has those features, and that Block was unable to 1 || 7d. at 19-20. 2 Block responds that “whether a particular statement is false and misleading is a question of 3 fact that is inappropriate for adjudication on a motion to dismiss.” Opp. at 14-15 (quoting Instant 4 Checkmate, Inc. v. Background Alert, Inc., No. 14-cv-01182, 2014 WL 12526275, at *5 (S.D. Cal. 5 Dec. 5, 2014) (citing Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1053 (9th Cir. 6 || 2008))). Block also correctly emphasizes that, at the hearing on Intuit’s first motion to dismiss, 7 || the Court believed that Block had likely met its burden to adequately plead falsity under the Rule 8 9(b) standard. Id. at 15. 9 Reviewing Block’s First Amended Counterclaims, the Court finds that Block has crossed 10 || the threshold to adequately plead falsity—barely. As illustrated by Block’s helpful chart, see Opp. ll at 16-19, Block has identified the “who, what, when, where, and how” of each challenged 12 || advertisement. For example, Block points to the following advertisement on Intuit’s website:

14 = © 2 15 Know it’s done right with ere 16 an expert final review sana Fe & Deduc 2 17 musuricta “ olor 18 oe 7 tot 19 ,

20 □ 21 22 23 Block identifies that Intuit ran this advertisement on its website in March 2024, Amend. 24 |) Countercl. 4 20—the who, what, when, and where—and also explains the “how”: the ad is 25 misleading because it suggests that review will be automatic and line-by-line, including because 26 || the ad reads “I finished reviewing your taxes,” followed by a checklist suggesting that the review 27 covered all of the following areas: “Income & Wages,” “Deductions & Credits,” “California State 28 || Taxes,” “Federal Taxes,” and “Tax Returns.” Jd. J] 19-20; Opp. at 16. Combined with the

1 phrases “[k]now it’s done right” and “you can be 100% confident it’s done right,” the 2 advertisement plausibly suggests that a consumer using this product can be assured that no errors 3 appear in their tax return—and, by extension, that the return was reviewed in its entirety (since 4 otherwise, how could one be sure that there were absolutely no errors?). It is true that the 5 advertisement says only that “experts can review your tax return,” and not that they affirmatively 6 will do so. Amend. Countercl. ¶ 20 (emphasis added). However, although Block layers many 7 assumptions to reach its allegation that Intuit’s ads are misleading, the Court does not think it 8 wholly implausible that a consumer could still be misled as to whether the review is automatic and 9 comprehensive. As just one consideration, that vague limiting language appears in much smaller 10 text than “Know it’s done right with an expert final review,” so the Court finds it plausible that a 11 consumer might simply miss the word “can” and assume, based on the remainder of the ad, that 12 the review will occur without further prompting. Whether that is a reasonable conclusion is best 13 determined on a developed record. 14 The same considerations support the adequacy of Block’s pleading with regard to the 15 alleged falsity of each identified advertisement. Ultimately, the finder of fact could determine that 16 Intuit’s advertising statements are not likely to mislead consumers, but it is “rare” for a court to 17 determine, as a matter of law, that an advertising claim is not misleading. See Tobin v. Procter & 18 Gamble Co., No. 23-cv-05061, 2024 WL 1560050, at *4 (N.D. Cal. Apr. 9, 2024) (citing Williams 19 v. Gerber Prods. Co., 552 F.3d 934, 938 (9th Cir. 2008)). Nor is Block obliged to come forward 20 with actual evidence of consumer confusion at this stage in the litigation. See Clorox Co., 398 F. 21 Supp. 3d at 636 (“[D]ismissal of Clorox’s ‘likely to mislead’ claims is not warranted merely 22 because Clorox has not demonstrated actual deception at this stage.”). And the Court agrees with 23 Block that the various statements Intuit identifies as “judicial admissions” are not unequivocal 24 enough to bind Block at the motion to dismiss stage. “The purpose of the doctrine of judicial 25 admissions is to ‘act[] as a substitute for evidence in that it does away with the need for evidence 26 in regard to the subject matter of the judicial admission.’” Nat’l Abortion Fed’n v. Ctr. for Med. 27 Progress, 134 F. Supp. 3d 1199, 1205 (N.D. Cal. 2015) (alterations in original) (quoting State 1 Co. v. Lacelaw Corp., 861 F.2d 224, 226 (9th Cir. 1988) (“Judicial admissions are formal 2 admissions in the pleadings which have the effect of withdrawing a fact from issue and dispensing 3 wholly with the need for proof of the fact.” (citation omitted)). Accordingly, “[t]o qualify as a 4 judicial admission, the admission must be ‘deliberate, clear, and unequivocal.’” In re Twitter, Inc. 5 Sec. Litig., No. 16-cv-05314, 2020 WL 5904407, at *1 (N.D. Cal. Oct. 6, 2020) (citation omitted). 6 Most of the statements identified by Intuit as “judicial admissions” reflect only that 7 Block’s counsel and high-level executives understood that expert final review is not always 8 automatic or comprehensive. E.g., Dkt. No. 26 (Declaration of Heather Watts in Support of 9 Opposition to Plaintiff’s Motion for Temporary Restraining Order) ¶ 32; Dkt. No. 21 (Block’s 10 Opposition to Intuit’s Motion for Temporary Restraining Order) at 6–8; Dkt. No. 149 (Transcript 11 of Preliminary Injunction Hearing) at 106:11–16. Naturally, these individuals would have a much 12 deeper understanding of how expert final review works relative to the average consumer, since 13 they had been embroiled in litigation (and discovery) related to the feature for months at the time 14 those statements were made. In any event, “statements of fact contained in a brief”—or at a 15 hearing—“may be considered admissions of the party in the discretion of the district court,” and 16 this Court declines to consider those statements as judicial admissions for purposes of the motion 17 to dismiss. Lacelaw Corp., 861 F.2d at 227 (emphasis added); see In re Twitter, Inc. Sec. Litig., 18 2020 WL 5904407, at *2 (“[T]he Court declines to exercise its discretion to treat the statement as 19 a judicial admission.”). 20 In short, the Court concludes that Block has adequately pled falsity in its Amended 21 Counterclaims. 22 2. Materiality 23 The materiality factor of the Southland Sod test inquires into whether the deception at 24 issue is material to consumers. Southland Sod, 108 F.3d at 1139. Here, the alleged deception is 25 (1) “that the live ‘expert final review’ . . . is automatically conducted for all tax returns without a 26 consumer having to ask,” and (2) that “the live ‘expert final review’ always entails a 27 comprehensive, line-by-line review of a consumer’s tax return.” Amend. Countercl. ¶ 18. 1 comprehensive nature of expert final review is what influences consumer purchasing decisions 2 related to Intuit’s challenged advertisements. 3 Intuit argues that Block has failed to do so. Mot. at 16–17. Pointing to Block’s various 4 assertions that “[i]f Intuit’s consumers knew the truth . . . their decision to purchase Intuit’s 5 product would be impacted,” Amend. Countercl. ¶¶ 60, 62, and that “[t]here is a material 6 difference between” “the ability to ask questions of a human tax expert” and an expert “looking at 7 the consumer’s return before it is filed, id. ¶ 78, Intuit argues that Block’s materiality assertions 8 are conclusory and targeted more generally to the expert final review feature—as opposed to the 9 alleged deception over whether that feature entails an automatic, comprehensive review. Mot. at 10 16–17. Intuit also challenges Block’s reliance on consumer reviews in attempting to establish 11 materiality, saying that “the isolated reviews are not reliable representations of consumers’ 12 experiences” and do not show that the alleged misrepresentations about a comprehensive, 13 automatic review were material. Id. at 17. 14 Block responds that it “has sufficiently pled materiality in its Amended Counterclaims” by 15 alleging that “(1) Intuit misrepresented its ‘expert final review,’ [and] (2) the ‘expert final review’ 16 is an inherent quality or characteristic of its Live Assisted product and is a centerpiece of Intuit’s 17 marketing.” Opp. at 20 (citing Amend. Countercl. ¶¶ 74–80). In other words, Block says, 18 “Intuit’s false advertisements regarding its ‘expert final review’ create a false impression in the 19 market that the feature is materially more beneficial than it claims to be, in a way that would affect 20 consumers’ purchasing decisions.” Opp. at 21. Moreover, Block points out that Intuit itself 21 agrees that expert final review is a material feature. Id. 22 Block’s main argument that the alleged deceptive statements are material because they 23 “misrepresent[] an inherent quality or characteristic of the product” is not persuasive. See Opp. at 24 20. An inherent quality or characteristic is one that goes to “the very nature” of the product in 25 question, as “the amount of beef in a burger is an inherent quality or characteristic of a burger,” 26 thus going “‘to the very nature’ of [the] burger product.” In-N-Out Burgers v. Smashburger IP 27 Holder LLC, No. 17-cv-1474, 2019 WL 1431904, at *7 (C.D. Cal. Feb. 6, 2019)). Here, in 1 product—rather, the heart of such a product would seem to be the online tax forms the consumer 2 uses to prepare their own return. The possibility of a review by a tax professional is a benefit that 3 might improve the consumer’s experience, but the Court is not persuaded that its presence or 4 absence would alter the fundamental nature of the product. 5 Setting aside the “inherent quality or characteristic” argument, Block’s various assertions 6 regarding materiality muddy the distinction between deception related to a feature that is material 7 and deception that is itself material. Although at odds with Block’s position at the preliminary 8 injunction hearing that expert final review is not a material feature, Block’s current position 9 appears to be consistent with Intuit’s: the availability of expert final review is material to 10 consumers, in that it is likely to affect purchasing decisions. See Amend. Countercl. ¶ 71; Opp. at 11 20. There is no alleged deception, however, about the availability of the expert final review 12 feature in Intuit’s Live Assisted product. The deception Block targets is narrower than that, 13 concerning only whether expert final review is automatic and/or comprehensive—yet the Court is 14 unconvinced that Block has adequately alleged facts indicating that consumers’ purchasing 15 decisions were based upon their belief that expert final review would occur automatically or 16 involve a line-by-line review of the entire tax return. 17 In its opposition brief and at oral argument, Block pointed the Court to a number of 18 paragraphs in the Amended Counterclaims that it said serve to allege materiality. Some of those 19 paragraphs clearly pertain only to the materiality of expert final review, rather than the materiality 20 of the alleged deception. For example, one paragraph states that the “offer of an ‘expert final 21 review’ drives positive conversion for Intuit.” Amend. Countercl. ¶ 59. Another states that 22 “Intuit’s own data shows” that customers “place a lot of value in knowing that an expert is 23 available to provide a final review of their tax return.” Id. ¶ 58; see also id. ¶ 78. Those 24 statements adequately allege that expert final review is material to consumers, but they do not 25 support the assertion that the alleged deception regarding whether it is automatic or 26 comprehensive is material. 27 There are some paragraphs that include statements targeting the comprehensive and/or 1 manner, to wit: “Intuit’s false and misleading statements are duping consumers into purchasing 2 Intuit’s product by making them believe they will automatically receive a service valued by 3 consumers—a live, final, line-by-line review of their tax return by a tax expert, which will occur 4 automatically and without inconveniencing consumers with additional actions on their part, and 5 guaranteed to ensure their tax returns are 100% accurate—that is not actually included with 6 Intuit’s TT Live Assisted product.” Amend. Countercl. ¶ 63. The problem with this paragraph is 7 that everything between the em dashes is editorializing on Block’s part. The factual allegation is 8 simply that Intuit’s ads make consumers “believe they will automatically receive a service valued 9 by consumers . . . that is not actually included” with Live Assisted. Because Block is unable to 10 allege any other facts indicating that consumers specifically make their purchasing decisions based 11 upon the allegedly automatic and/or comprehensive nature of expert final review—instead of, for 12 example, just the knowledge that an expert is available for some kind of final review, should the 13 consumer want that—Block strategically defines the “service valued by consumers” to include 14 those features. The Court finds this wordsmithing effort to be an “unwarranted deduction[] of 15 fact, or unreasonable inference[].” In re Gilead Scis. Sec. Litig., 536 F.3d at 1055. Without 16 further supporting facts, it is not reasonable to infer that consumers’ purchasing decisions are 17 animated by a belief that the expert review would be line-by-line or automatic (as opposed to 18 inferring that consumers are motivated by the belief that some form of expert review is available at 19 no extra charge). 20 Block has pointed to a few customer reviews suggesting frustration with the advertising 21 about expert final review. See Amend. Countercl. ¶¶ 47–54. However, these reviews do not 22 support Block’s claim of materiality. Indeed, Block itself argues that the consumer reviews 23 demonstrate that consumers believed based on the advertisements that “an expert would review 24 their taxes . . . and . . . they felt misled and duped when they did not receive what they were 25 promised.” Opp. at 21 (citing Amend. Countercl. ¶¶ 47–56, 80); see also Dkt. No. 195 (“Hr’g 26 Tr.”) at 10:20–25 (arguing that the reviews show “consumers are picking [Intuit’s product] 27 because they thought they were getting an expert final review . . . that they ultimately don’t get”). 1 is specifically whether that review is automatic and/or comprehensive. In any event, even if the 2 Court accepts that the reviews show that some consumers were confused specifically about 3 whether the review would be automatic or line-by-line, a handful of select consumer reviews do 4 not support the inference that the alleged deception is material to the “reasonable consumer.” See 5 Scilex Pharms. Inc. v. Sanofi-Aventis U.S. LLC, No. 21-cv-01280, 2022 WL 20286688, at *7 n.6 6 (N.D. Cal. Feb. 24, 2022) (falsity and materiality are assessed based on a “reasonable consumer” 7 standard). 8 Accordingly, Block has failed to allege facts showing that the deception itself is material, 9 as is required for its claims to survive a 12(b)(6) motion. Since the failure to adequately allege 10 materiality is fatal to Block’s Amended Counterclaims, the Court need not consider whether the 11 claims are barred by laches. The Court hereby DISMISSES Block’s Amended Counterclaims, all 12 of which rely on the same Southland Sod test. 13 The Court has already given Block an opportunity to amend its Counterclaims. In fact, 14 Block submitted proposed Amended Counterclaims with its opposition to Intuit’s first motion to 15 dismiss, see Dkt. No. 67-1, and Block received feedback on both its original Counterclaims and 16 those proposed Amended Counterclaims at the hearing on Intuit’s first motion to dismiss, see Dkt. 17 No. 112 at 4, 29. The Court is therefore surprised that Block has still failed to adequately allege 18 materiality in its third attempt at asserting its Counterclaims, and generally would not give leave to 19 amend in this situation. See Eminence Capital, 316 F.3d at 1052. However, while the Court is 20 somewhat skeptical that there are additional allegations to be pled, the Court will permit Block 21 one final opportunity to amend its materiality allegations only. No other sections of the Amended 22 Counterclaims may be altered. 23 IV. ORDER 24 For the foregoing reasons, IT IS HEREBY ORDERED that Block’s Amended 25 Counterclaims are DISMISSED. This dismissal is WITH LEAVE TO AMEND as to the 26 materiality allegations only. In light of the narrowness of the permitted amendment, any further 27 motion to dismiss Block’s Counterclaims shall be subject to the following page limits: 1 Block’s opposition shall be no longer than 10 pages; 2 Intuit’s reply brief shall be no longer than 7 pages. 3 Block’s Second Amended Counterclaims shall be filed within fourteen (14) days. 4 5 IT IS SO ORDERED. 6 7 || Dated: April 22, 2025

A LABSON FREEMAN

9 United States District Judge 10 11 a 12

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