Aarons 2013 Annual Report Download - page 69

59
Some of the proceedings to which we are currently a party are described below. We believe we have meritorious defenses to all
of the claims described below, and intend to vigorously defend against the claims. However, these proceedings are still
developing and due to the inherent uncertainty in litigation, regulatory and similar adversarial proceedings, there can be no
guarantee that we will ultimately be successful in these proceedings, or in others to which we are currently a party. Substantial
losses from these proceedings or the costs of defending them could have a material adverse impact upon our business, financial
position and results of operations.
The Company establishes an accrued liability for legal and regulatory proceedings when it determines that a loss is both
probable and the amount of the loss can be reasonably estimated. The Company continually monitors its litigation and
regulatory exposure, and reviews the adequacy of its legal and regulatory reserves on a quarterly basis in accordance with
applicable accounting rules. The amount of any loss ultimately incurred in relation to matters for which an accrual has been
established may be higher or lower than the amounts accrued for such matters.
At December 31, 2013, the Company had accrued $33.3 million for pending legal and regulatory matters for which it believes
losses are probable, which is our best estimate of our exposure to loss, and mostly relates to the regulatory investigation by the
California Attorney General described below. The Company estimates that the aggregate range of possible loss in excess of
accrued liabilities for such probable loss contingencies is between $0 and $4.6 million.
At December 31, 2013, the Company estimated that the aggregate range of loss for all material pending legal and regulatory
proceedings for which a loss is reasonably possible, but less likely than probable (i.e., excluding the contingencies described in
the preceding paragraph), is between $50,000 to $8.2 million. Those matters for which a reasonable estimate is not possible are
not included within estimated ranges and, therefore, the estimated ranges do not represent the Company's maximum loss
exposure. Our estimates as to legal and regulatory accruals, as to aggregate probable loss amounts and as to reasonably possible
loss amounts, are all subject to the uncertainties and variables described above.
Labor and Employment
In Kunstmann et al v. Aaron Rents, Inc., filed with the United States District Court, Northern District of Alabama (Case No.:
2:08-CV-01969-KOB-JEO) on October 22, 2008, plaintiffs alleged that the Company improperly classified store general
managers as exempt from the overtime provisions of the Fair Labor Standards Act (“FLSA”). The case was conditionally
certified as an FLSA collective action on January 25, 2010, and it now includes 227 individuals, nearly all of whom terminated
from the general manager position more than two years ago. Plaintiffs seek to recover unpaid overtime compensation and other
damages. On October 4, 2012, the Court denied the Company's motion for summary judgment as to the claims of Kunstmann,
the named plaintiff. On January 23, 2013, the Court denied the Company's motion to decertify the class. The Company has
since filed two additional motions for summary judgment, including one that seeks summary judgment in the entirety on all
class members' claims, or alternatively, on matters that will reduce the size of the class or exposure arising from the class
claims. Briefing on these motions began in July 2013.
The matter of Kurtis Jewell v. Aaron's, Inc. was originally filed in the United States District Court, Northern District of Ohio,
Eastern Division on October 27, 2011 and was transferred on February 23, 2012 to the United States District Court for the
Northern District of Georgia (Civil No.:1:12-CV-00563-AT). Plaintiff, on behalf of himself and all other non-exempt employees
who worked in Company stores, alleges that the Company violated the FLSA when it automatically deducted 30 minutes from
employees' time for meal breaks on days when plaintiffs allegedly did not take their meal breaks. Plaintiff claims he and other
employees actually worked through meal breaks or were interrupted during the course of their meal breaks and asked to
perform work. As a result of the automatic deduction, plaintiff alleges that the Company failed to account for all of his working
hours when it calculated overtime, and consequently underpaid him. Plaintiffs seek to recover unpaid overtime compensation
and other damages for all similarly situated employees nationwide for the applicable time period. On June 28, 2012, the Court
issued an order granting conditional certification of a class consisting of all hourly store employees from June 28, 2009 to the
present. The class size is approximately 1,788 opt-in plaintiffs, which is less than seven percent of the potential class members.
The parties are engaging in discovery, including depositions of court-designated class members. Discovery is expected to
continue until April 2014.
In Sowell, et al. v. Aaron's, Inc., United States District Court for the Northern District of Georgia (Civil No.:1:12-CV-03867-
CAP-ECS), two former Company associates filed separate lawsuits on November 5, 2012; Elizabeth Cook filed in Fulton
County Georgia State Court and Brittany Sowell filed in the U.S. District Court for the Northern District of Georgia. Plaintiff
Sowell then filed a First Amended Complaint in the U.S. District Court of the Northern District of Georgia on November 28,
2012. Thereafter, Plaintiff Sowell filed a Second Amended Complaint on December 21, 2012, which included Cook's claims
and consolidated the cases. The case settled on October 22, 2013, and the settlement payment was substantially covered by
insurance.