Aarons 2012 Annual Report Download - page 32

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ITEM 3. LEGAL PROCEEDINGS
From time to time, we are party to various legal proceedings arising in the ordinary course of business. While we do not
presently believe that any of the legal proceedings to which we are currently a party will ultimately have a material
adverse impact upon our business, financial position or results of operations, there can be no assurance that we will
prevail in all the proceedings we are party to, or that we will not incur material losses from them. Some of the
proceedings we are currently a party to are described below. For further information, see Note 8 to the consolidated
financial statements.
In Alford v. Aaron Rents, Inc. et al originally filed in the U.S. District Court for the Southern District of Illinois (No.:
3:08-MJR-DGW-683) on October 2, 2008, plaintiff alleged, among other claims, that she was sexually harassed and
subjected to retaliation, in violation of Title VII of the Civil Rights Act of 1964, by a general manager of a Company
store. Based on the judgment in the June 14, 2011 jury verdict (as reduced by the court), the Company recorded a
charge of $36.5 million in the second quarter of 2011, which represented an accrual for the judgment and associated
legal fees and expenses of $41.5 million, less insurance coverage of $5.0 million. On March 26, 2012, following the
court’s ruling that the verdict would not be sustained, the Company entered into a settlement agreement resolving the
claims in the amount of $6.0 million. The Company recognized $35.5 million of income related to the reversal of the
lawsuit accrual in the first quarter of 2012.
In Kunstmann et al v. Aaron Rents, Inc., originally filed with the United States District Court, Northern District of
Alabama (Case No.: 2:08-CV-1969-WMA), on October 29, 2008, plaintiffs alleged that the Company improperly
classified store general managers as exempt from the overtime provisions of the Fair Labor Standards Act (―FLSA‖).
Plaintiffs seek to recover unpaid overtime compensation and other damages for a class almost exclusively comprised of
former general managers, most of whom terminated employment with the Company more than a year ago. On
October 4, 2012 the Court denied the Company’s motion for summary judgment, and on January 23, 2013, the Court
denied the Company’s motion for class decertification. The current class includes 247 individuals. The parties are now
working on proposing next steps for the conduct of the case.
In Margaret Korrow, et al. v. Aaron’s, Inc., originally filed in the Superior Court of New Jersey, Middlesex County,
Law Division on October 26, 2010, plaintiff filed suit on behalf of herself and others similarly situated alleging that the
Company is liable in damages to plaintiff and each class member because the Company’s lease agreements issued after
March 16, 2006 purportedly violated certain New Jersey state consumer statutes. The Company removed the lawsuit to
the United States District Court for the District of New Jersey on December 6, 2010 (Civil Action No.: 10-
06317(JAP)(LHG)). Plaintiff on behalf of herself and others similarly situated seeks equitable relief, statutory and treble
damages, pre- and post-judgment interest and attorneys’ fees. Discovery on this matter is closed. To date, no class has
been certified and, on December 17, 2012, the Company moved to dismiss the class allegations from plaintiff’s
complaint. On February 5, 2013, plaintiff filed its response and also moved to certify the class.
In Crystal and Brian Byrd v. Aaron’s, Inc., Aspen Way Enterprises, Inc., John Does (1-100) Aaron’s Franchisees and
Designerware, LLC., filed on May 16, 2011 in the United States District Court, Western District of Pennsylvania (Case
No. 1:11-CV-00101-SPB), plaintiffs allege that the Company and its franchisees knowingly violated plaintiffs’ and
other similarly situated plaintiffs’ privacy in violation of the Electronic Communications Privacy Act and the Computer
Fraud Abuse Act through its use of a software program called ―PC Rental Agent.‖ The District Court dismissed the
Company from the lawsuit on March 20, 2012. On September 14, 2012, plaintiffs filed an amended complaint against
the Company and its franchisees alleging, among other claims, invasion of privacy, interception of electronic
communications in violation of the Federal Wiretap Act as amended by the Electronic Communications Privacy Act and
vicarious liability claims against the Company. The plaintiffs are seeking damages in connection with the allegations of
the amended complaint. On October 15, 2012, the Company filed a motion to dismiss the amended complaint, which
still remains pending.
The Company has received inquiries from and is responding to government agencies, including the Federal Trade
Commission, requesting information regarding the Byrd litigation and another incident involving the compromise of
customer information, and inquiring about, among other things, the Company’s retail transactional, information security
and privacy policies and practices.
The matter of Kurtis Jewell v. Aaron’s, Inc. was originally filed in the United States District Court, Northern District of
Ohio, Eastern Division on October 28, 2011 and was transferred on February 23, 2012 to the United States District
Court for the Northern District of Georgia (Atlanta Division) (Civil No.:1:12-CV-00563-AT). Plaintiff, on behalf of
himself and all other non-exempt employees who worked in Company stores, alleges that the Company violated the