CarMax 2013 Annual Report Download - page 74

15. CONTINGENT LIABILITIES
(A) Litigation
On April 2, 2008, Mr. John Fowler filed a putative class action lawsuit against CarMax Auto Superstores California,
LLC and CarMax Auto Superstores West Coast, Inc. in the Superior Court of California, County of Los Angeles.
Subsequently, two other lawsuits, Leena Areso et al. v. CarMax Auto Superstores California, LLC and Justin
Weaver v. CarMax Auto Superstores California, LLC, were consolidated as part of the Fowler case. The allegations
in the consolidated case involved: (1) failure to provide meal and rest breaks or compensation in lieu thereof;
(2) failure to pay wages of terminated or resigned employees related to meal and rest breaks and overtime;
(3) failure to pay overtime; (4) failure to comply with itemized employee wage statement provisions; and (5) unfair
competition/California’s Labor Code Private Attorney General Act. The putative class consisted of sales
consultants, sales managers, and other hourly employees who worked for the company in California from
April 2, 2004, to the present. On May 12, 2009, the court dismissed all of the class claims with respect to the sales
manager putative class. On June 16, 2009, the court dismissed all claims related to the failure to comply with the
itemized employee wage statement provisions. The court also granted CarMax’s motion for summary adjudication
with regard to CarMax’s alleged failure to pay overtime to the sales consultant putative class. The plaintiffs
appealed the court's ruling regarding the sales consultant overtime claim. On May 20, 2011, the California Court of
Appeal affirmed the court’s ruling in favor of CarMax. The plaintiffs filed a Petition of Review with the California
Supreme Court, which was denied. As a result, the plaintiffs’ overtime claims are no longer part of the case.
The claims currently remaining in the lawsuit regarding the sales consultant putative class are: (1) failure to provide
meal and rest breaks or compensation in lieu thereof; (2) failure to pay wages of terminated or resigned employees
related to meal and rest breaks; and (3) unfair competition/California’s Labor Code Private Attorney General Act.
On June 16, 2009, the court entered a stay of these claims pending the outcome of a California Supreme Court case
involving unrelated third parties but related legal issues. Subsequently, CarMax moved to lift the stay and compel
the plaintiffs’ remaining claims into arbitration on an individualized basis, which the court granted on
November 21, 2011. Plaintiffs filed an appeal with the California Court of Appeal. On March 26, 2013, the
California Court of Appeal reversed the trial court's order granting CarMax's motion to compel arbitration. CarMax
intends to pursue an appeal of this decision. The Fowler lawsuit seeks compensatory and special damages, wages,
interest, civil and statutory penalties, restitution, injunctive relief and the recovery of attorneys’ fees. We are unable
to make a reasonable estimate of the amount or range of loss that could result from an unfavorable outcome in these
matters.
We are involved in various other legal proceedings in the normal course of business. Based upon our evaluation of
information currently available, we believe that the ultimate resolution of any such proceedings will not have a
material effect, either individually or in the aggregate, on our financial condition, results of operations or cash flows.
(B) Other Matters
In accordance with the terms of real estate lease agreements, we generally agree to indemnify the lessor from certain
liabilities arising as a result of the use of the leased premises, including environmental liabilities and repairs to
leased property upon termination of the lease. Additionally, in accordance with the terms of agreements entered into
for the sale of properties, we generally agree to indemnify the buyer from certain liabilities and costs arising
subsequent to the date of the sale, including environmental liabilities and liabilities resulting from the breach of
representations or warranties made in accordance with the agreements. We do not have any known material
environmental commitments, contingencies or other indemnification issues arising from these arrangements.
As part of our customer service strategy, we guarantee the used vehicles we retail with at least a 30-day limited
warranty. A vehicle in need of repair within this period will be repaired free of charge. As a result, each vehicle
sold has an implied liability associated with it. Accordingly, based on historical trends, we record a provision for
estimated future repairs during the guarantee period for each vehicle sold. The liability for this guarantee was
$4.6 million as of February 28, 2013, and $4.5 million as of February 29, 2012, and is included in accrued expenses
and other current liabilities.
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