PNC Bank 2012 Annual Report Download - page 243

January 2012, upon application by GIS Europe, the court
issued a judgment ordering a hearing on certain preliminary
issues (a “modular trial”). In March 2012, the plaintiff
appealed this judgment to the Supreme Court of Ireland. In
December 2012, the Supreme Court reversed the order of the
High Court and directed that no modular trial take place at this
stage of the proceedings. We now expect that the matter will
proceed with full discovery and various pre-trial steps, after
which it will be set for trial.
In May 2011, BNY Mellon provided notice to PNC of an
indemnification claim pursuant to the stock purchase
agreement related to this litigation. PNC’s responsibility for
this litigation is subject to the terms and limitations included
in the indemnification provisions of the stock purchase
agreement.
365/360 Litigation
In December 2008, a lawsuit was filed as a class action
against National City Bank in the Court of Common Pleas of
Cuyahoga County, Ohio (DK&D Properties, LLC v. National
City Bank (Case no. 08 cv 680078)) alleging breach of
contract arising from the use of the 365/360 method of interest
computation in certain commercial promissory notes. The
plaintiffs sought to certify a class consisting of certain Ohio
commercial borrowers of National City Bank. The plaintiffs
alleged that they obtained fixed or variable rate commercial
loans from National City Bank pursuant to promissory notes
or loan agreements setting forth annual or per annum interest
rates, that the bank’s use of the 365/360 method of calculation
of interest caused the borrower to pay interest over a calendar
year at a higher rate than the per annum rate stated in the
promissory notes, and that this was a breach of the terms of
the promissory notes. The plaintiffs sought declaratory and
injunctive relief, compensatory damages, prejudgment
interest, and attorneys’ fees.
In December 2011, the court granted National City Bank’s
motion to stay the case pending the decision of the Ohio
Supreme Court in JNT Properties, LLC v. KeyBank National
Association (Case No. 11-1392), which, although neither PNC
Bank nor National City Bank were parties, presented many of
the same issues as those in DK&D Properties. In November
2012, following the decision of the Ohio Supreme Court in
JNT Properties, the plaintiffs voluntarily dismissed their
complaint without prejudice.
False Claims Act Lawsuit
PNC Bank was named as a defendant, along with other
lenders, in a qui tam lawsuit brought in the U.S. District Court
for the Northern District of Georgia by two individuals on
behalf of the United States under the federal False Claims Act
(United States ex rel. Bibby & Donnelly v. Wells Fargo, et al.
(1:06-CV-0547-AT)). The lawsuit was originally filed under
seal, with a second amended complaint filed in June 2011. The
second amended complaint was unsealed by the district court
in October 2011. In the second amended complaint, the
plaintiffs, who alleged that they are officers of a mortgage
broker, allege that several mortgage originators, including
entities affiliated with PNC Bank’s predecessor, National City
Bank, made false statements to the U.S. Department of
Veterans Affairs in order to obtain loan guarantees by the VA
under its Interest Rate Reduction Refinancing Loans (IRRRL)
program. Under that program, the VA guarantees refinancing
loans made to veterans if the loans meet program
requirements, one of which limits the type and amount of fees
that can be charged to borrowers by lenders. The plaintiffs
alleged, among other things, that the defendants charged
impermissible fees to borrowers under the VA program and
then made false statements to the VA concerning such fees in
violation of the civil False Claims Act. The plaintiffs alleged
that, by doing so, National City Bank and the other defendants
caused the VA to pay, among other costs, amounts in respect
of the loan guarantees to which the defendants were not
entitled. On their behalf and on behalf of the United States, the
plaintiffs sought, among other things, unspecified damages
equal to the loss the defendants allegedly caused the United
States (including treble damages under the False Claims Act),
statutory civil penalties between $5,500 and $11,000 per false
claim made by the defendants, injunctive relief against
submission of false claims to the United States and imposing
unallowable charges against veterans participating in the
IRRRL program, and attorneys’ fees. In April 2012, PNC
Bank reached an agreement with the plaintiffs to settle this
lawsuit. In October 2012, the United States provided its
consent to the settlement. The settlement became final in
December 2012. The amount of the settlement was not
material to PNC and had been previously fully accrued.
Captive Mortgage Reinsurance Litigation
In December 2011, a lawsuit (White, et al. v. The PNC
Financial Services Group, Inc., et al. (Civil Action No. 11-
7928)) was filed against PNC (as successor in interest to
National City Corporation and several of its subsidiaries) and
several mortgage insurance companies in the United States
District Court for the Eastern District of Pennsylvania. This
lawsuit, which was brought as a class action, alleges that
National City structured its program of reinsurance of private
mortgage insurance in such a way as to avoid a true transfer of
risk from the mortgage insurers to National City’s captive
reinsurer. The plaintiffs allege that the payments from the
mortgage insurers to the captive reinsurer constitute
kickbacks, referral payments, or unearned fee splits prohibited
under the Real Estate Settlement Procedures Act (RESPA), as
well as common law unjust enrichment. The plaintiffs claim,
among other things, that from the beginning of 2004 until the
end of 2010 National City’s captive reinsurer collected from
the mortgage insurance company defendants at least $219
million as its share of borrowers’ private mortgage insurance
premiums and that its share of paid claims during this period
was approximately $12 million. The plaintiffs seek to certify a
nationwide class of all persons who obtained residential
mortgage loans originated, funded or originated through
correspondent lending by National City or any of its
224 The PNC Financial Services Group, Inc. – Form 10-K