Classmates.com 2010 Annual Report Download - page 40

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class in the NetZero action, have reached an agreement in principle under which the insurers for the issuer defendants in the coordinated cases
will make a settlement payment on behalf of the issuers, including NetZero. On October 5, 2009, the district court issued an order granting final
approval of the settlement and certifying the settlement class. Two individuals have appealed the October 5, 2009 order and plaintiffs have filed
motions to dismiss the appeals. The appellate court has not ruled on either the appeals or the motions to dismiss.
On October 30, 2008, Anthony Michaels filed a purported class action complaint against Classmates Online, Inc., now known as Memory
Lane, Inc., Classmates Media Corporation and United Online in Superior Court of the State of California, County of Los Angeles, alleging
causes of action for intentional misrepresentation, negligent misrepresentation, negligence, fraudulent concealment, and for violations of
California Business and Professions Code sections 17200 and 17500 et seq. On December 19, 2008, Xavier Vasquez filed a purported class
action complaint against Classmates Online, Inc., Classmates Media Corporation and United Online in Superior Court of Washington, Kings
County, alleging causes of action for violation of the Washington Consumer Protection Act, violation of California's Unfair Competition Law,
violation of California's Consumer Legal Remedies Act, unjust enrichment and violation of California Civil Code section 1694, dealing with
dating services contracts. In both actions, the plaintiffs are seeking injunctive relief and damages. On April 30, 2009, the United States District
Court of the Western District of Washington consolidated the Michaels and the Vasquez actions and designated the Michaels action as the lead
case. On March 12, 2010, the parties entered into a comprehensive class action settlement agreement. On December 16, 2010, the court
conducted a final approval hearing on the settlement. On February 22, 2011, the court issued an Order formally denying final approval of the
settlement. Discovery has not recommenced and no trial date has been set.
In 2009, Classmates Online, Inc., now known as Memory Lane, Inc., received a civil investigative demand from the Attorney General for
the State of Washington. In 2010, FTD.com Inc. and Classmates Online, Inc. received subpoenas from the Attorney General for the State of
Kansas and the Attorney General for the State of Maryland, respectively. These subpoenas were issued on behalf of a Multistate Work Group
that consists of the Attorneys General for the following states: Delaware, Florida, Idaho, Illinois, Kansas, Maine, Maryland, Michigan, New
Mexico, New Jersey, North Dakota, Ohio, Oregon, Pennsylvania, Texas, and Vermont. Based on the demand and the subpoenas, we believe that
the primary focus of the inquiries concerns certain post-transaction sales practices in which these subsidiaries previously engaged with certain
third-party vendors. In addition, in 2010, Classmates Online, Inc. received a subpoena from the Attorney General for the District of Columbia
regarding its marketing, billing, and renewal practices, including, without limitation, its post-transaction sales practices. We have been
cooperating with these investigations. However, we cannot predict the outcome of these or any other governmental investigations or other legal
actions or their potential implications for our business. There are no assurances that additional governmental investigations or other legal actions
will not be instituted in connection with our former post-transaction sales practices or other current or former business practices.
We are subject to various legal proceedings, investigations, claims, and litigation that can involve complex questions of fact and law and
may require the expenditure of significant funds and the diversion of other resources to defend. There can be no assurance, however, that such
legal proceedings, investigations, claims, and litigation, which are inherently uncertain, will not materially and adversely affect our business,
financial condition, results of operations, or cash flows. At December 31, 2010, we had a reserve of $2.2 million for a pending lawsuit.
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