Discover 2014 Annual Report Download - page 157

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The Company’s estimated range above involves significant judgment, given the varying stages of the
proceedings, the existence of numerous yet to be resolved issues, the breadth of the claims (often spanning multiple
years and, in some cases, a wide range of business activities), unspecified damages and/or the novelty of the legal
issues presented. The outcome of pending matters could be material to the Company’s consolidated financial condition,
operating results and cash flows for a particular future period, depending on, among other things, the level of the
Company’s income for such period, and could adversely affect the Company’s reputation.
On July 5, 2012, the Antitrust Division of the United States Department of Justice (the “Division”) issued a Civil
Investigative Demand (“CID”) to the Company seeking information regarding an investigation related to potential
violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§1-2, by an unidentified party other than Discover. The
CID seeks documents, data and narrative responses to several interrogatories and document requests, related to the
debit card market. A CID is a request for information in the course of a civil investigation and does not constitute the
commencement of legal proceedings. The Division is permitted by statute to issue a CID to anyone whom it believes may
have information relevant to an investigation. The receipt of a CID does not presuppose that there is probable cause to
believe that a violation of the antitrust laws has occurred or that a formal complaint ultimately will be filed. The
Company is cooperating with the Division in connection with the CID.
On August 14, 2012, a purported shareholder, James Groen, filed a shareholder derivative action in the U.S.
District Court for the Northern District of Illinois (Groen v. Nelms et al.) against the Company’s board of directors,
certain current and former officers and directors and the Company as nominal defendant. On August 27, 2012, a
second purported shareholder, the Charter Township of Clinton Police and Fire Retirement System, filed a substantially
identical shareholder derivative action in the same court against the same parties (Charter Township of Clinton Police
and Fire Retirement System v. Nelms et al.). On September 25, 2012, the actions were consolidated, and on February
19, 2013, the plaintiffs filed an amended consolidated complaint. The consolidated complaint asserts claims against the
board of directors and certain current and former officers and directors for alleged breach of fiduciary duty, corporate
waste and unjust enrichment arising out of the Company’s alleged violations of the law in connection with the marketing
and sale of its protection products. The relief sought in the consolidated complaint includes changes to the Company’s
corporate governance procedures; unspecified damages, injunctive relief, restitution and disgorgement from the
individual defendants; and attorneys’ fees. On April 5, 2013, the defendants filed a motion to dismiss the amended
consolidated complaint, and on June 5, 2013, briefing on the motion to dismiss was completed. The motion to dismiss is
currently pending.
On June 13, 2014, Discover Bank entered into a Consent Order with the FDIC to resolve previously disclosed
matters related to the FDIC’s examination of Discover Bank’s anti-money laundering and related compliance programs.
In the Consent Order, Discover Bank agreed to, among other things, enhance its anti-money laundering and related
compliance programs. The order does not include civil money penalties.
On September 2, 2014, a purported shareholder, Steamfitters Local 449 Pension Fund, filed a shareholder
derivative action in the Circuit Court of the Nineteenth Judicial Circuit, Lake County, Illinois (Steamfitters Local 449
Pension Fund, derivatively on behalf of Discover Financial Services v. David W. Nelms, et al.) against the Company’s
board of directors and certain current and former officers and directors of the Company. The complaint asserts claims
for alleged breach of fiduciary duty, corporate waste and unjust enrichment arising out of the Company’s alleged
violations of the law in connection with the marketing and sale of protection products. The relief sought in the
consolidated complaint includes changes to the Company’s corporate governance procedures, unspecified damages,
restitution and disgorgement from the individual defendants, and attorneys’ fees. On September 25, 2014, the court
entered an order staying the case until 30 days after the U.S. District Court for the Northern District of Illinois enters an
order on defendants’ motion to dismiss the amended consolidated complaint in Groen v. Nelms et al. and Charter
Township of Clinton Police and Fire Retirement System v. Nelms et al. (as consolidated, the Groen and Charter
Township cases are now captioned: In re Discover Financial Services Derivative Litigation).
On September 3, 2014, a collective action lawsuit was filed against the Company by a former employee in the
U.S. District Court for the Northern District of Illinois (Pawel Holda, et al. v. Discover Financial Services). The plaintiff
alleges that the Company misclassified employees as being exempt from the Fair Labor Standards Act. The plaintiff
seeks to recover overtime pay on behalf of himself and other allegedly similarly situated employees together with
penalties, interest and attorney's fees. The Company will seek to vigorously defend against the claims asserted in this
matter. On January 6, 2015, the parties entered into a confidential settlement and release agreement for resolution of
this matter. On January 12, 2015, the court found that the parties’ settlement was fair and reasonable, and entered an
order dismissing the case with prejudice.