PNC Bank 2015 Annual Report Download - page 220

Pre-need Funeral Arrangements
National City Bank and PNC Bank are defendants in a lawsuit
pending in the U.S. District Court for the Eastern District of
Missouri under the caption Jo Ann Howard, P.C., et al. v.
Cassity, et al. (No. 4:09-CV-1252-ERW) arising out of trustee
services provided by Allegiant Bank, a National City Bank
and PNC Bank predecessor, with respect to Missouri trusts
that held pre-need funeral contract assets. Under a pre-need
funeral contract, a customer pays an amount up front in
exchange for payment of funeral expenses following the
customer’s death. In a number of states, including Missouri,
pre-need funeral contract sellers are required to deposit a
portion of the proceeds of the sale of pre-need funeral
contracts in a trust account.
The lawsuit was filed in August 2009 by the Special Deputy
Receiver for three insolvent affiliated companies, National
Prearranged Services, Inc. a seller of pre-need funeral
contracts (NPS), Lincoln Memorial Life Insurance Company
(Lincoln), and Memorial Service Life Insurance Company
(Memorial). Seven individual state life and health insurance
guaranty associations, who claim they are liable under state
law for payment of certain benefits under life insurance
policies sold by Lincoln and Memorial, and the National
Organization of Life & Health Guaranty Associations have
also joined the action as plaintiffs. In addition to National City
Bank and PNC Bank (added following filing of the lawsuit as
successor-in-interest to National City Bank) (the PNC
defendants), other defendants included members of the
Cassity family, who controlled NPS, Lincoln, and Memorial;
officers and directors of NPS, Lincoln, and Memorial;
auditors and attorneys for NPS, Lincoln, and Memorial; the
trustees of each of the trusts that held pre-need funeral
contract assets; and the investment advisor to the Pre-need
Trusts. NPS retained several banks to act as trustees for the
trusts holding NPS pre-need funeral contract assets (the NPS
Trusts), with Allegiant Bank acting as one of these trustees
with respect to seven Missouri NPS Trusts. All of the other
defendants have settled with the plaintiffs, are otherwise no
longer a party to the lawsuit, or are insolvent.
In their Third Amended Complaint, filed in 2012 following
the granting by the court in part of motions to dismiss made
by the PNC defendants and the other NPS Trust trustees, the
plaintiffs allege that Allegiant Bank breached its fiduciary
duties and acted negligently as the trustee for the Missouri
NPS Trusts. In part as a result of these breaches, the plaintiffs
allege, members of the Cassity family, acting in concert with
other defendants, were able to improperly remove millions of
dollars from the NPS Trusts, which in turn caused NPS,
Lincoln, and Memorial to become insolvent. The complaint
alleges $600 million in present and future losses to the
plaintiffs due to the insolvency of NPS, Lincoln, and
Memorial. The lawsuit seeks, among other things, unspecified
actual and punitive damages, various equitable remedies
including restitution, attorneys’ fees, costs of suit and interest.
In July 2013, five of the six defendants in a parallel federal
criminal action, including two members of the Cassity family,
entered into plea agreements with the U.S. to resolve criminal
charges arising out of their conduct at NPS, Lincoln and
Memorial. In August 2013, after a jury trial, the sixth
defendant, the investment advisor to the NPS Trusts, was
convicted on all criminal counts against him. The criminal
charges against the defendants alleged, among other thing, a
scheme to defraud Allegiant Bank and the other trustees of the
NPS Trusts.
In May 2014, the court granted the plaintiffs’ motion to
disallow the PNC defendants’ affirmative defense relating to
the plaintiffs’ alleged failure to mitigate damages. In July
2014, the PNC defendants’ motion for reconsideration was
denied. In September 2014, the plaintiffs filed a motion
seeking leave to amend their complaint to reassert aiding and
abetting claims, previously dismissed by the court in 2012.
The court denied this motion in December 2014. Also in
December 2014, the court granted in part and denied in part
the PNC defendants’ motion for summary judgment.
In March 2015, following a jury trial, the court entered a
judgment against the PNC defendants in the amount of $356
million in compensatory damages and $36 million in punitive
damages. In April 2015, the plaintiffs filed motions with the
court seeking $179 million in pre-judgment interest. Also, in
April 2015, the PNC defendants filed motions with the court
to reduce the compensatory damages by the amounts paid in
settlement by other defendants, to strike the punitive damages
award, for judgment as a matter of law, and for a new trial. In
November 2015, the court granted the motion to reduce the
compensatory damages by amounts paid in settlement by
other defendants and denied the other motions by the PNC
defendants, with the judgment being reduced as a result to a
total of $289 million, and also denied the plaintiffs’ motion for
pre-judgment interest. In December 2015, the PNC defendants
appealed the judgment to the U.S. Court of Appeals for the
Eighth Circuit.
DD Growth Premium Master Fund
In June 2014, the liquidators of the DD Growth Premium
Master Fund (DD Growth) issued a Plenary Summons in the
High Court, Dublin, Ireland, in connection with the provision
of administration services to DD Growth by a European
subsidiary (GIS Europe) of PNC Global Investment Servicing
(PNC GIS), a former subsidiary of PNC. The Plenary
Summons was served on GIS Europe in June 2015.
In July 2010, PNC completed the sale of PNC GIS to The
Bank of New York Mellon Corporation (BNY Mellon).
Beginning in February 2014, BNY Mellon has provided notice
to PNC of three indemnification claims pursuant to the stock
purchase agreement related to DD Growth. PNC’s
responsibility for this litigation is subject to the terms and
limitations included in the indemnification provisions of the
stock purchase agreement.
202 The PNC Financial Services Group, Inc. – Form 10-K