Sears 2015 Annual Report Download - page 106

NOTE 18—LEGAL PROCEEDINGS
We are a defendant in several lawsuits containing class or collective action allegations in which the plaintiffs
are current and former hourly and salaried associates who allege violations of various wage and hour laws, rules and
regulations pertaining to alleged misclassification of certain of our employees, the failure to pay overtime and/or the
failure to pay for missed meal and rest periods and other payroll violations. The complaints generally seek
unspecified monetary damages, injunctive relief, or both. Further, certain of these proceedings are in jurisdictions
with reputations for aggressive application of laws and procedures against corporate defendants.€We also are a
defendant in several putative or certified class action lawsuits in California relating to alleged failure to comply with
California laws pertaining to certain operational, marketing and pricing practices. The California laws alleged to
have been violated in each of these lawsuits provide the potential for significant statutory penalties.€At this time, the
Company is not able to either predict the outcome of these lawsuits or reasonably estimate a potential range of loss
with respect to the lawsuits.
We are subject to various other legal and governmental proceedings and investigations, including some
involving the practices and procedures in our more highly regulated businesses. Some matters contain class action
allegations, environmental and asbestos exposure allegations and other consumer-based, regulatory or qui tam
claims, each of which may seek compensatory, punitive or treble damage claims (potentially in large amounts), as
well as other types of relief. Additionally, some of these claims or actions, such as the qui tam claims, have the
potential for significant statutory penalties.
In May and June of 2015, four shareholder lawsuits were filed in the Delaware Chancery Court, which have
since been consolidated into a single action.€A consolidated complaint has been filed, naming Holdings, the
members of our Board of Directors, ESL Investments, Inc., Seritage, our CEO, and Fairholme, alleging, among
other things, breaches of fiduciary duties in connection with the Seritage transaction. Among other forms of relief,
the plaintiffs are currently seeking damages in unspecified amounts and equitable relief related to the Seritage
transaction.€The Company believes that the Seritage transaction has provided substantial benefits to Holdings and its
shareholders and believes further that the plaintiffs' claims are legally without merit. Holdings intends to contest
these lawsuits vigorously.
In accordance with accounting standards regarding loss contingencies, we accrue an undiscounted liability for
those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and we
disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such
disclosure is necessary for our financial statements to not be misleading. We do not record liabilities when the
likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when
the liability is believed to be only reasonably possible or remote.
Because litigation outcomes are inherently unpredictable, our evaluation of legal proceedings often involves a
series of complex assessments by management about future events and can rely heavily on estimates and
assumptions. If the assessments indicate that loss contingencies that could be material to any one of our financial
statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then we disclose
the nature of the loss contingencies, together with an estimate of the range of possible loss or a statement that such
loss is not reasonably estimable. While the consequences of certain unresolved proceedings are not presently
determinable, and an estimate of the probable and reasonably possible loss or range of loss in excess of amounts
accrued for such proceedings cannot be reasonably made, an adverse outcome from such proceedings could have a
material effect on our earnings in any given reporting period. However, in the opinion of our management, after
consulting with legal counsel, and taking into account insurance and reserves, the ultimate liability related to current
outstanding matters is not expected to have a material effect on our financial position, liquidity or capital resources.
SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
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