Turbotax by Intuit, tax filling software in a box inside Costco warehouse, on Jan. 3, 2020. (Photo: ZikG/Shutterstock.com)

The company behind TurboTax has lost out on a bid to compel arbitration in a case brought on behalf of consumers who were eligible to file their taxes for free who claim they were fooled into paying for tax filing services. 

In a ruling exploring the limits of so-called "sign-in wrap" agreements, U.S. District Judge Charles Breyer of the Northern District of California on Thursday found that the company's terms of service were not "reasonably conspicuous" and that consumers, therefore, didn't agree to arbitrate disputes with TurboTax maker Intuit. The terms of use were hyperlinked in blue text under the TurboTax sign-in button, but not underlined, falling short of what the judge called "the gold standard." Breyer also found that Intuit's sign-in and account recovery pages contained multiple, confusingly similar hyperlinks purportedly binding consumers to both the "Turbo Terms of Use" and the "Turbo Tax Terms of Use," only the latter of which contained the arbitration agreement the company was seeking to enforce. 

"Because the terms were too inconspicuous to give plaintiffs constructive notice that they were agreeing to be bound by the arbitration agreement when they signed in to TurboTax, the court finds that plaintiffs did not agree to the arbitration provision," Breyer wrote. 

Fenwick & West's Rodger Cole, who represents TurboTax maker Intuit in the litigation, said the company "has a long-standing policy of not commenting on pending litigation."

But with the tax filing deadline a little more than a month away, the ruling puts Intuit on a defensive footing. Cole had indicated at oral argument on the motion to compel arbitration that Intuit would seek an interlocutory appeal if Breyer were to deny the company's arbitration motion. Breyer in Thursday's order indicated that even in light of the impending appeal he plans to move forward with portions of the case, including to consider the plaintiffs' request for an injunction restricting the company's promotion of its free product. Co-lead counsel Daniel Girard of Girard Sharp and Norm Siegel at Stueve Siegel Hanson filed court papers in January seeking an injunction that would among other things bar Intuit from using "confusing" trade names including Free Edition and Freedom Edition and using software code or other means to prevent consumer from accessing to its actual free file website.

Breyer found that regardless of the appellate outcome on the arbitration issue, he will ultimately have to decide issues related to injunctive relief. Intuit's arbitration provision, the judge wrote, provides that any party can seek injunctions or equitable relief "from any court of competent jurisdiction." Plaintiffs, he noted, have indicated they would seek injunctive relief even if the case is ultimately pushed into arbitration.

"Tax season is well underway, making plaintiffs request for injunctive relief time sensitive," Breyer wrote. "It is therefore wiser to continue working to resolve those issues relevant to claims for injunctive and other equitable relief, even while the appeal is pending." 

Girard and Siegel said in an email statement that they were pleased that Breyer "joined with several other courts in ruling that 'sign-in wrap' agreements like the one Intuit relied on must adequately present terms of use to bind consumers." 

"We look forward to moving these claims forward and obtaining relief for the millions of low income Americans and active military who were victims of Intuit's scheme," they wrote.

Intuit and competitor H&R Block were hit with a string of lawsuits last year after a ProPublica investigation revealed the companies allegedly guided qualified users away from free services.