Discover 2010 Annual Report Download - page 147

indeterminate damages or where investigations and proceedings are in the early stages, the Company cannot predict
with certainty the loss or range of loss, if any, related to such matters, how such matters will be resolved, when they will
ultimately be resolved, or what the eventual settlement, fine, penalty or other relief, if any, might be. Subject to the
foregoing, the Company believes, based on current knowledge and after consultation with counsel, that the outcome of
the pending matters will not have a material adverse effect on the consolidated financial condition of the Company,
although the outcome of such matters could be material to the Company’s operating results and cash flows for a
particular future period, depending on, among other things, the level of the Company’s income for such period.
Bennett et al. v. Discover Card. On November 16, 2010, a putative class action lawsuit was filed against the Company
by a cardmember in the U.S. District Court for the Southern District of California (Michele Bennett et al. v. Discover Card,
a/k/a DFS Services LLC). The plaintiff alleges that the Company contacted her, and members of the putative class, on
their cellular telephones without their express consent in violation of the Telephone Consumer Protection Act (“TCPA”). The
TCPA provides for statutory damages of $500 for each violation ($1,500 for willful violations). Plaintiff seeks statutory
damages for alleged negligent and willful violations of the TCPA, attorneys’ fees, costs and injunctive relief. The Company
will seek to vigorously defend all claims asserted against it. The Company is not in a position at this time to assess the
likely outcome or its exposure, if any, with respect to this matter.
Payment Protection Cases. On December 6, 2010, the Attorney General for the State of Minnesota filed a lawsuit
against the Company in the District Court for Hennepin County, Minnesota (Minnesota v. Discover Financial Services,
Discover Bank and DFS Services, LLC). The lawsuit challenges the Company’s enrollment of Discover cardmembers in its
various fee based products under Minnesota law. The remedies sought in the lawsuit include an injunction prohibiting the
Company from engaging in the alleged violations, restitution for all persons allegedly injured by the complained of
practices, civil penalties and costs. The Company will seek to vigorously defend all claims asserted against it. The
Company is not in a position at this time to assess the likely outcome or its exposure, if any, with respect to this matter.
As of November 30, 2010, there were four putative class action cases pending in relation to the sale of the Company’s
payment protection fee product. The cases were filed (all in United States District Courts) on July 8, 2010 in the Northern
District of California (Walker, et al. v. DFS, Inc. and Discover Bank; subsequently transferred to the Northern District of
Illinois); July 16, 2010 in the Central District of California (Conroy v. Discover Financial Services and Discover Bank);
October 22, 2010 in the District of South Carolina (Alexander v. Discover Financial Services, Inc.; DFS Services, LLC;
Discover Bank; and Morgan Stanley); and November 5, 2010 in the Northern District of Illinois (Callahan v. Discover
Financial Services, Inc. and Discover Bank). Subsequent to November 30, 2010, two additional cases were filed on
December 17, 2010 in the Western District of Tennessee (Sack v. DFS Services, LLC; Discover Financial Services, Inc.;
and Discover Bank) and January 14, 2011 in the Eastern District of Pennsylvania (Boyce v. DFS Services LLC; Discover
Financial Services Inc.; Discover Bank). Each of these lawsuits challenges the Company’s marketing practices with respect
to its payment protection fee product to its cardmembers under various state laws and the Truth in Lending Act. The
plaintiffs seek monetary remedies including unspecified damages and restitution, attorneys’ fees and costs, and various
forms of injunctive relief including an order rescinding the payment protection fee product enrollments of all class
members. The Company will seek to vigorously defend all claims asserted against it. The Company is not in a position at
this time to assess the likely outcome or its exposure, if any, with respect to this matter.
Morgan Stanley Special Dividend Agreement. The Company filed a lawsuit captioned Discover Financial Services, Inc.
v. Visa USA Inc., MasterCard Inc. et al. in the U.S. District Court for the Southern District of New York on October 4,
2004. Through this lawsuit the Company sought to recover substantial damages and other appropriate relief in
connection with Visa’s and MasterCard’s illegal anticompetitive practices that, among other things, foreclosed the
Company from the credit and debit network services markets. The Company executed an agreement to settle the lawsuit
with MasterCard and Visa for up to $2.75 billion on October 27, 2008, which became effective on November 4, 2008
upon receipt of the approval of Visa’s Class B shareholders. At the time of the Company’s 2007 spin-off from Morgan
Stanley, the Company entered into an agreement with Morgan Stanley regarding the manner in which the antitrust case
against Visa and MasterCard was to be pursued and settled, and how proceeds of the litigation were to be shared (the
“Special Dividend Agreement”).
On October 21, 2008, Morgan Stanley filed a lawsuit against the Company in New York Supreme Court for New
York County seeking a declaration that Morgan Stanley did not breach the Special Dividend Agreement, did not interfere
with any of the Company’s existing or prospective agreements for resolution of the antitrust case against Visa and
MasterCard, and that Morgan Stanley is entitled to receive a portion of the settlement proceeds as set forth in the Special
Dividend Agreement. On November 18, 2008, the Company filed its response to Morgan Stanley’s lawsuit, which
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