Cash America 2009 Annual Report Download - page 56

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Organizations Act. Community State Bank (“CSB”) for some time made loans to Georgia residents through
Cash America’s Georgia operating locations. The complaint in this lawsuit claims that Cash America was the
true lender with respect to the loans made to Georgia borrowers and that CSB’s involvement in the process
is “a mere subterfuge.” Based on this claim, the suit alleges that Cash America is the “de facto” lender and is
illegally operating in Georgia. The complaint seeks unspecified compensatory damages, attorney’s fees,
punitive damages and the trebling of any compensatory damages. A previous decision by the trial judge to
strike Cash America’s affirmative defenses based on arbitration (without ruling on Cash America’s previously
filed motion to compel arbitration) was upheld by the Georgia Court of Appeals, and on September 24, 2007,
the Georgia Supreme Court declined to review the decision. The case was returned to the State Court of Cobb
County, Georgia, where Cash America filed a motion requesting that the trial court rule on Cash America’s
pending motion to compel arbitration and stay the State Court proceedings. The Court denied the motion to
stay and ruled that the motion to compel arbitration was rendered moot after the Court struck Cash America’s
affirmative defenses based on arbitration. The Georgia Supreme Court declined to review these orders and
remanded the case to the State Court of Cobb County, Georgia. On November 2, 2009, the Court granted
class certification, and on November 18, 2009, Cash America filed its notice of appeal of the class
certification order. Cash America believes that the Plaintiffs’ claims in this suit are without merit and is
vigorously defending this lawsuit.
Cash America and CSB also commenced a federal lawsuit in the U.S. District Court for the Northern
District of Georgia seeking to compel Plaintiffs to arbitrate their claims against Cash America and CSB. The
U.S. District Court dismissed the federal action for lack of subject matter jurisdiction, and Cash America and
CSB appealed the dismissal of their complaint to the U.S. Court of Appeals for the 11th Circuit. The 11th
Circuit issued a panel decision on April 27, 2007 reversing the district court’s dismissal of the action and
remanding the action to the district court for a determination of the issue of the enforceability of the parties’
arbitration agreements. Plaintiff requested the 11th Circuit to review this decision en banc and this request
was granted. The en banc rehearing took place on February 26, 2008. The 11th Circuit stayed consideration
of this matter pending the resolution of the United States Supreme Court case, Vaden v. Discover Bank. In
March 2009, the United States Supreme Court determined, in Vaden v. Discover Bank, that the federal courts
were able to compel arbitration of a state court action if the underlying issues involved a federal question.
Following the United States Supreme Court ruling in Vaden v. Discover Bank, the 11th Circuit en banc court,
without ruling on the case, remanded the case to the 11th Circuit panel for further consideration in light of the
decision in Vaden. The 11th Circuit panel requested the parties provide additional briefing following the
decision in Vaden, which has been completed, and the parties are awaiting the court’s decision. The Strong
litigation is still at an early stage, and neither the likelihood of an unfavorable outcome nor the ultimate
liability, if any, with respect to this litigation can be determined at this time.
On July 26, 2008, the Pennsylvania Department of Banking issued a notice announcing a “change in
policy,” effective February 1, 2009. The notice concluded that out-of-state lenders such as the Company were
lending “in” Pennsylvania. Accordingly, the notice purported to subject such lenders to the licensing
requirements of the CDCA, which sets the maximum permissible interest at a level well below the interest
rate the Company charges on its internet cash advance loans. On January 8, 2009, the Company brought suit
against the Pennsylvania Department of Banking in the Pennsylvania Commonwealth Court, arguing that the
notice was invalid because it was adopted in violation of applicable procedural requirements and because it
conflicted with the plain language of the CDCA. As a part of these proceedings, the Pennsylvania
Department of Banking filed a counterclaim against the Company seeking a declaratory judgment that the
Company’s internet lending activities to Pennsylvania consumers are not authorized by Pennsylvania law,
however, the Pennsylvania Department of Banking represented that it had “no intent to pursue a retroactive
financial remedy” against the Company or any similarly situated lender for loans made prior to the date of the
decision by the Commonwealth Court. After a hearing on the Company’s initial request for a preliminary
injunction, the judge expressed the view that the matter should be heard by all the judges of the
Commonwealth Court. A hearing on the merits of the Company’s claim against the Pennsylvania Department
of Banking was held before the entire Commonwealth Court on April 1, 2009. On July 10, 2009, the
Commonwealth Court issued its decision in favor of the Pennsylvania Department of Banking, and in