Costco 2011 Annual Report Download - page 80

Buckfire v. James D. Sinegal, et al., No. 2:09-cv-00893-TSZ (United States District Court for the
Western District of Washington), was filed on or about June 29, 2009, and contains allegations
substantially similar to those in the Pirelli action. On August 12, 2009, the court entered an order
consolidating the Pirelli and Buckfire actions. On October 2, 2009, plaintiffs Pirelli and Buckfire filed a
consolidated amended complaint. On November 16, 2009, the defendants filed motions to dismiss the
amended complaint on various grounds, including that plaintiffs failed to properly allege why a pre-suit
demand had not been made on the Board of Directors. On September 20, 2010, a special committee
of the Board of Directors of the Company approved an agreement in principle with the plaintiffs that
would terminate the litigation. The agreement, which was subject among other things to federal district
court approval, provided that the Company will pay an amount not to exceed $4.85 million in attorneys’
fees to plaintiffs’ counsel and will adopt or maintain certain governance, control and other process
changes. On December 20, 2010, the parties executed a stipulation of settlement, and on January 14,
2011, plaintiffs filed a motion for court approval of the settlement. On February28, 2011, the court
entered an order that preliminarily approved, subject to further consideration at a settlement hearing,
the proposed settlement of the action involving, among other things, a dismissal of the consolidated
derivative actions with prejudice. On June 10, 2011, the court granted final approval to the settlement,
and the case has been dismissed.
On October 4, 2006, the Company received a grand jury subpoena from the United States Attorney’s
Office for the Central District of California, seeking records relating to the Company’s receipt and
handling of hazardous merchandise returned by Costco members and other records. The Company
has entered into a tolling agreement with the United States Attorney’s Office.
The Environmental Protection Agency (EPA) issued an Information Request to the Company, dated
November 1, 2007, under the Clean Air Act. The EPA sought records regarding warehouses in the
states of Arizona, California, Hawaii, and Nevada relating to compliance with regulations concerning
air-conditioning and refrigeration equipment. On March 4, 2009, the Company was advised by the
Department of Justice that the Department was prepared to allege that the Company has committed at
least nineteen violations of the leak-repair requirements of 40 C.F.R. § 82.156(i) and at least seventy-
four violations of the recordkeeping requirements of 40 C.F.R. § 82.166(k), (m) at warehouses in these
four states. The Company has responded to these allegations, is engaged in communications with the
Department about these and additional allegations made by letter dated September 10, 2009, and has
entered into tolling agreements. Substantial penalties may be levied for violations of the Clean Air Act.
The Company is cooperating with this inquiry.
On October 7, 2009, the District Attorneys for San Diego, San Joaquin and Solano Counties filed a
complaint, People of the State of California v. Costco Wholesale Corp., et al, No. 37-2009-00099912
(Superior Court for the County of San Diego), alleging on information and belief that the Company has
violated and continues to violate provisions of the California Health and Safety Code and the Business
and Professions Code through the use of certain spill clean-up materials at its gasoline stations. Relief
sought includes, among other things, requests for preliminary and permanent injunctive relief, civil
penalties, costs and attorneys’ fees. On September 2, 2010, the court dismissed the complaint without
prejudice. An amended complaint was filed on September 13, 2010.
The Company has received notices from most states stating that they have appointed an agent to
conduct an examination of the books and records of the Company to determine whether it has
complied with state unclaimed property laws. In addition to seeking the turnover of unclaimed property
subject to escheat laws, the states may seek interest, penalties, costs of examinations, and other relief.
The State of Washington conducted such an examination on its own behalf and on February 4, 2011
issued an assessment. The Company filed suit on March 4, 2011, to contest the assessment.
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