Cash America 2010 Annual Report Download - page 122

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
93
Earn-Out Payments
The Company has agreed to pay earn-out payments related to the acquisition of Prenda Fácil and Primary
Innovations as defined in those specific purchase agreements. See Note 3 for further discussion.
Guarantees
The Company guarantees borrowers’ payment obligations to unrelated third-party lenders. At December 31,
2010 and 2009, the amount of consumer loans guaranteed by the Company was $48.8 million and $49.9 million,
respectively, representing amounts due under consumer loans originated by third-party lenders under the CSO
program. The estimated fair value of the liability related to these guarantees of $2.8 million and $2.9 million at
December 31, 2010 and 2009, respectively, was included in “Accounts payable and accrued expenses” in the
accompanying consolidated financial statements.
Litigation
On August 6, 2004, James E. Strong filed a purported class action lawsuit in the State Court of Cobb County,
Georgia against Georgia Cash America, Inc., Cash America International, Inc. (together with Georgia Cash America,
Inc., “Cash America”), Daniel R. Feehan, and several unnamed officers, directors, owners and “stakeholders” of Cash
America. The lawsuit alleges many different causes of action, among the most significant of which is that Cash
America made illegal short-term loans in Georgia in violation of Georgia’s usury law, the Georgia Industrial Loan Act
and Georgia’s Racketeer Influenced and Corrupt 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 was the “de
facto” lender and was illegally operating in Georgia. The complaint seeks unspecified compensatory damages,
attorney’s fees, punitive damages and the trebling of any compensatory damages. In November 2009, the trial court
certified the case as a class action lawsuit, and Cash America appealed the certification. In October 2010, the appellate
court affirmed the trial court’s grant of class certification and Cash America further appealed the class certification
ruling to the Georgia Supreme Court where a decision is still pending. 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 on September 7, 2004 in the U.S. District Court for
the Northern District of Georgia seeking to compel Mr. Strong to arbitrate his 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 in April 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 in February 2008, and at the request of the 11th Circuit panel, the parties provided additional briefing in the
summer of 2009 following a ruling by the United States Supreme Court that federal courts can compel arbitration of a
state court action in certain instances. The parties are awaiting the 11th Circuit 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