Block Files to Terminate McGladrey Agreement

H&R Block subsidiary RSM McGladrey has terminated its service agreement with McGladrey & Pullen, two months after M&P also moved to terminate the agreement.

In an SEC filing last week, RSM McGladrey said it had delivered the notice of termination to McGladrey & Pullen on Sept. 15. M&P had earlier terminated the agreement in July, prompting RSM to file suit (see Feather Fly over Block/M&P Divorce). The two firms had operated in an alternative practice structure arrangement since 1999, with M&P focused on audit and attest services, and RSM providing other types of accounting and tax services.

Under the administrative services agreement, RSM provided accounting, payroll, marketing and other administrative services to M&P in return for a management fee. The two entities also had a cost-sharing arrangement under which M&P would reimburse RSM for certain costs, mainly for the use of RSM-owned or leased real estate, property and equipment.

Either party had the ability to terminate the agreement after giving 210 days' notice. According to Block’s SEC filing, “Following such a termination, M&P generally is prohibited for a period of three years from engaging in businesses in which RSM engages or soliciting RSM clients.”

Disentangling the two firms has been difficult since M&P filed to terminate the agreement on July 21, however. Many of the staff and accountants had worked for both M&P and RSM, and the two parties have been engaged in both mediation and arbitration. In the SEC filing, Block noted, “The notice by RSM is intended to make certain that mutual consent is required for any reconciliation between M&P and RSM.”

In a letter accompanying the filing, RSM McGladrey president C.E. Andrews said the two sides were continuing to engage in talks. “This notice should not in any way be construed as unwillingness on our part to continue discussions on developing a way for our two organizations to work together going forward, which continues to be RSM's preference,” he said.