Cash America 2013 Annual Report Download - page 67

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ITEM 3. LEGAL PROCEEDINGS
Litigation
2013 Litigation Settlement
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 (the Company’s chief executive officer), and several unnamed officers,
directors, owners and “stakeholders” of Cash America. In August 2006, James H. Greene and Mennie Johnson were
permitted to join the lawsuit as named plaintiffs, and in June 2009, the court agreed to the removal of James E. Strong as
a named plaintiff. 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. First National Bank of Brookings, South Dakota
(“FNB”), and Community State Bank of Milbank, South Dakota (“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 FNB and 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 case was certified as a class action
lawsuit.
This case was scheduled to go to trial in November 2013, but on October 9, 2013, the parties agreed to a
memorandum of understanding (the “Settlement Memorandum”). Pursuant to the Settlement Memorandum, the parties
filed a joint motion containing the full terms of the settlement (the “Settlement Agreement”) with the trial court for
approval on October 24, 2013, and the trial court preliminarily approved the Settlement Agreement on November 4,
2013. On January 16, 2014, the trial court issued its final approval of the settlement and entered the Final Order and
Judgment. The Settlement Agreement requires a minimum payment by the Company of $18.0 million and a maximum
payment of $36.0 million to cover class claims (including honorarium payments to the named plaintiffs) and the
plaintiffs’ attorneys’ fees and costs (including the costs of claims administration) (the “Class Claims and Costs”), all of
which will count towards the aggregate payment for purposes of determining whether the minimum payment has been
made or the maximum payment has been reached. The actual payout will depend on the number of claimants who
submit claims for payment. The Company denies all of the material allegations of the lawsuit and denies any and all
liability or wrongdoing in connection with the conduct described in the lawsuit, but the Company agreed to the
settlement to eliminate the uncertainty, distraction, burden and expense of further litigation.
In accordance with Financial Accounting Standards Codification Accounting Standards Codification (“ASC”)
450, Contingencies, the Company recognized a liability in 2013 in the amount of $18.0 million. The liability was
recorded in “Accounts payable and accrued liabilities” in the consolidated balance sheets and “Operations and
administration expense” in the consolidated statements of income for the year ended December 31, 2013. In February
2014, the amount to be paid in connection with the Class Claims and Costs was substantially finalized, and the amount
is not materially different than the liability accrued by the Company at December 31, 2013. The Class Claims and Costs
will be paid during the first quarter of 2014.
Ohio Litigation
On May 28, 2009, one of the Company’s subsidiaries, Ohio Neighborhood Finance, Inc., doing business as
Cashland (“Cashland”), filed a standard collections suit in an Elyria Municipal Court in Ohio against Rodney Scott
seeking judgment against Mr. Scott in the amount of $570.16, which was the amount due under his loan agreement.
Cashland’s loan was offered under the Ohio Mortgage Loan Act (“OMLA”), which allows for interest at a rate of 25%
per annum plus certain loan fees allowed by the statute. The Municipal Court, in Ohio Neighborhood Finance, Inc. v.
Rodney Scott, held that short-term, single-payment consumer loans made by Cashland are not authorized under the
OMLA, and instead should have been offered under the Ohio Short-Term Lender Law, which was passed by the Ohio
legislature in 2008 for consumer loans with similar terms. Due to a cap on interest and loan fees at an amount that is less
than permitted under the OMLA, the Company does not offer loans under the Ohio Short-Term Lender Law.