PNC Bank 2008 Annual Report Download - page 149

responsible for litigation pending against Sterling and its
subsidiaries at that time. We will also be responsible for future
litigation arising out of the conduct of the business of Sterling
and its subsidiaries before the acquisition.
All of the matters described below arise in connection with
Sterling’s commercial finance subsidiary, Equipment Finance
LLC, which we refer to as EFI. We provide additional
information regarding the EFI situation in our Registration
Statement on Form S-4 relating to the merger.
See also “Regulatory and Governmental Inquiries” for
information regarding regulatory matters with respect to
Sterling and the EFI situation.
Several class action lawsuits were filed in May, June and July
2007 in the United States District Courts for the Eastern
District of Pennsylvania and the Southern District of New
York related to the EFI situation. In October 2007, the
lawsuits filed in New York were transferred to the
Pennsylvania court for coordinated pretrial proceedings. In
February 2008, the plaintiffs filed a consolidated amended
complaint on behalf of those who purchased Sterling common
stock during the period from April 27, 2004 through May 24,
2007. This complaint names Sterling, Bank of Lancaster
County, N.A. (a predecessor to a bank subsidiary of Sterling),
EFI, and members of their management as defendants. The
plaintiffs allege violations of the federal securities laws,
including allegations that Sterling’s public statements and
filings fraudulently omitted information and included
fraudulent misrepresentations about the improprieties at EFI
as well as about their impact on Sterling’s earnings and related
matters. The plaintiffs assert that the price for Sterling stock
was fraudulently inflated during the class period due to the
alleged omissions and misrepresentations, and seek
unspecified damages, interest, attorneys’ fees and costs. (As a
result of our acquisition of Sterling, we may be responsible for
indemnifying individual defendants in connection with this
lawsuit.) We have a tentative agreement to settle this lawsuit,
which is subject to customary conditions, including court
approval following notice to the class. The amount of this
settlement would not be material to PNC.
In addition, a group of shareholders who received Sterling
common shares as consideration in Sterling acquisition
transactions have brought a separate lawsuit asserting claims
similar to those in the consolidated amended complaint. Our
motion to dismiss this complaint is pending. Other
shareholders who received Sterling shares in acquisitions have
also threatened to file similar lawsuits.
CBNV Mortgage Litigation
Between 2001 and 2003, on behalf of either individual
plaintiffs or a class of plaintiffs, several separate actions were
filed in state and federal courts against Community Bank of
Northern Virginia (“CBNV”) and other defendants
challenging the validity of second mortgage loans the
defendants made to the plaintiffs. CBNV was merged into one
of Mercantile’s banks prior to Mercantile’s acquisition by
PNC. These cases were either filed in, or removed to, the
United States District Court for the Western District of
Pennsylvania.
In August 2006, a proposed settlement agreement covering an
action in which the plaintiffs and class members have second
mortgages that were assigned to Residential Finance
Corporation (“RFC”) was submitted to the district court for its
approval. In January 2008, the district court conditionally
certified a class for settlement purposes, preliminarily
approved the proposed settlement agreement, and directed that
the settlement agreement be submitted to the class members
for their consideration. In August 2008, the district court
entered an order giving final approval to the settlement
agreement. Some objecting class members have appealed that
order to the Third Circuit Court of Appeals. Separately, other
individuals, whose loans were not acquired by RFC, have
actions pending on behalf of themselves or a class alleging
claims similar to those asserted in the settled action with
respect to the RFC loans. In one of these actions, the alleged
class overlaps the class in the settled action. These actions
remain pending in the district court.
In January 2008, the district court also issued an order sending
back to state court in North Carolina the claims of two class
members. These two plaintiffs then sought to represent a class
of North Carolina borrowers in state court, but the federal
district court in Pennsylvania enjoined class proceedings in
March 2008. In April 2008, the General Court of Justice,
Superior Court Division, for Wake County, North Carolina
granted these two plaintiffs’ motion for summary judgment on
their individual claims in this case. We have appealed this
order to the North Carolina Court of Appeals.
The plaintiffs in all of these lawsuits seek unquantified
monetary damages, rescission of loans, interest, attorneys’
fees and other expenses.
BAE Derivative Litigation
In September 2007, a derivative lawsuit was filed on behalf of
BAE Systems plc by a holder of its American Depositary
Receipts against current and former directors and officers of
BAE, Prince Bandar bin Sultan, PNC (as successor to Riggs
National Corporation and Riggs Bank, N.A.), Joseph L.
Allbritton, Robert L. Allbritton, and Barbara Allbritton. The
complaint alleges that BAE directors and officers breached
their fiduciary duties by making or permitting to be made
improper or illegal bribes, kickbacks and other payments with
respect to a military contract obtained in the mid-1980s from
the Saudi Arabian Ministry of Defense, and that Prince Bandar
was the primary recipient or beneficiary of these payments.
The complaint also alleges that Riggs, together with the
Allbrittons (as former directors, officers and controlling
persons of Riggs), acted as the primary intermediaries through
which the payments were laundered and actively concealed,
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