Mattel 2003 Annual Report Download - page 43

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These shareholder complaints were consolidated into two lead cases, one under §10(b) of the Securities
Exchange Act of 1934 (“the Act”), and the other under §14(a) of the Act. In November 2002, the United States
District Court for the Central District of California permitted the actions to proceed as class actions.
Several stockholders filed related derivative complaints purportedly on behalf of Mattel. Some of the
derivative suits were consolidated into one lawsuit in Los Angeles County Superior Court in California, which
was dismissed for the plaintiff’s failure to make pre-suit demand on the board of directors. An appeal from that
decision was dismissed in July 2003 by stipulation of the parties. Another derivative suit was filed in the
Delaware Court of Chancery, and was dismissed without prejudice in August 2002 in deference to the
then-ongoing California derivative case. A third derivative suit, filed in federal court in the Central District of
California, was dismissed in July 2002, and re-filed in November 2002 as part of the settlement described below.
In November 2002, the parties to the federal cases negotiated and thereafter memorialized in a final
settlement agreement a settlement of all the federal lawsuits in exchange for payment of $122.0 million and
Mattel’s agreement to adopt certain corporate governance procedures. The court granted final approval to the
settlement in September 2003, and judgments were entered accordingly. On October 9, 2003, a group of persons
purporting to be members of the §14(a) class filed a notice of appeal, challenging the manner in which the
$122.0 million was allocated between the §10(b) class and the §14(a) class. Briefing on the appeal is scheduled
to be completed in the first half of 2004. An oral argument date has not been set.
At the time of the lawsuits, Mattel maintained directors and officers liability insurance with a maximum
coverage of $120 million through several different carriers. One of those carriers, Reliance Insurance Company,
had become insolvent, and was unable to meet its coverage obligation for its $20 million excess layer. As a
result, Mattel contributed this $20 million layer to the settlement fund, and made a claim against the California
Insurance Guarantee Association (“CIGA”) to recoup the full $20 million of the Reliance layer. CIGA disputed
that it had to pay this amount, but on June 27, 2003, agreed to pay $0.5 million to Mattel, without prejudice to
Mattel’s right to seek additional amounts. That same day, Mattel filed a lawsuit in Los Angeles County Superior
Court seeking a declaration that CIGA was obligated to pay additional amounts to Mattel. On September 30,
2003, the parties entered into a written settlement agreement whereby CIGA agreed to pay Mattel $7.75 million
(in addition to the $0.5 million previously paid), and Mattel agreed to dismiss its lawsuit. CIGA has since paid
this sum, and the case has been dismissed.
Litigation Related to Cunningham
This suit was filed in September 1999 in the Circuit Court of Madison County, Illinois. The two named
plaintiffs, who purchased “limited edition” Barbie
®
dolls, contend that Mattel’s use of the term “limited edition” on
Barbie
®
dolls was deceptive and fraudulent to consumers (and that it constituted a breach of contract and breach of
express warranty) on the grounds that the dolls were not “true” limited editions and thus are not as valuable as they
would be otherwise. Originally, the plaintiffs claimed that use of the terms “special edition,” “collector’s edition”
and “exclusive” on Barbie
®
dolls was also deceptive and fraudulent to consumers and constituted a breach of
contract and breach of express warranty, but these claims were dismissed during motion practice.
In August 2003, a nationwide class of “all persons who have purchased limited edition Barbie®dolls or
Barbie®dolls which were described, promoted or packaged as available only in small, limited amounts” was
certified based on California Business and Professions Code sections 17200 and 17500 et seq. Plaintiffs’ claims
under the Illinois Consumer Fraud Act, as well as their breach of contract and breach of express warranty claims,
have not been certified for class action status, and thus, currently apply only to the two named representative
plaintiffs.
The plaintiffs claim that the class has suffered compensatory damages of at least between $100 million and
$200 million, and seek punitive damages, attorneys’ fees and injunctive relief. Mattel believes the actions are
without merit and intends to defend them vigorously.
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