Fifth Third Bank 2010 Annual Report Download - page 106

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
104 Fifth Third Bancorp
19. LEGAL AND REGULATORY PROCEEDINGS
During April 2006, the Bancorp was added as a defendant in a
consolidated antitrust class action lawsuit originally filed against
Visa®, MasterCard® and several other major financial institutions
in the United States District Court for the Eastern District of
New York. The plaintiffs, merchants operating commercial
businesses throughout the U.S. and trade associations, claim that
the interchange fees charged by card-issuing banks are
unreasonable and seek injunctive relief and unspecified damages.
In addition to being a named defendant, the Bancorp is also
subject to a possible indemnification obligation of Visa as
discussed in Note 18 and has also entered into with Visa,
MasterCard and certain other named defendants judgement and
loss sharing agreements that attempt to allocate financial
responsibility to the parties thereto in the event certain settlements
or judgments occur. Accordingly, prior to the sale of Class B
shares during 2009, the Bancorp had recorded a litigation reserve
of $243 million to account for its potential exposure in this and
related litigation. Additionally, the Bancorp had also recorded its
proportional share of $199 million of the Visa escrow account
funded with proceeds from the Visa IPO along with several
subsequent fundings. Upon the Bancorp’s sale of Visa, Inc. Class
B shares during 2009, and the recognition of the total return swap
that transfers conversion risk of the Class B shares back to the
Bancorp, the Bancorp reversed the remaining net litigation reserve
related to the Bancorp’s exposure through Visa. Additionally, the
Bancorp has remaining reserves related to this litigation of $30
million and $22 million as of December 31, 2010 and 2009,
respectively. Refer to Note 18 for further information regarding
the Bancorp’s net litigation reserve and ownership interest in Visa.
This antitrust litigation is still in the pre-trial phase.
In September 2007, Ronald A. Katz Technology Licensing,
L.P. (Katz) filed a suit in the United States District Court for the
Southern District of Ohio against the Bancorp and its Ohio
banking subsidiary. In the suit, Katz alleges that the Bancorp and
its Ohio bank are infringing on Katz’s patents for interactive call
processing technology by offering certain automated telephone
banking and other services. This lawsuit is one of many related
patent infringement suits brought by Katz in various courts
against numerous other defendants. Katz is seeking unspecified
monetary damages and penalties as well as injunctive relief in the
suit. Management believes there are substantial defenses to these
claims and intends to defend them vigorously. The impact of the
final disposition of this lawsuit cannot be assessed at this time.
For the year ended December 31, 2008, five putative
securities class action complaints were filed against the Bancorp
and its Chief Executive Officer, among other parties. The five
cases have been consolidated, and are currently pending in the
United States District Court for the Southern District of Ohio.
The lawsuits allege violations of federal securities laws related to
disclosures made by the Bancorp in press releases and filings with
the SEC regarding its quality and sufficiency of capital, credit
losses and related matters, and seeking unquantified damages on
behalf of putative classes of persons who either purchased the
Bancorp’s securities, or acquired the Bancorp’s securities pursuant
to the acquisition of First Charter Corporation. These cases
remain in the discovery stages of litigation. The impact of the final
disposition of these lawsuits cannot be assessed at this time. In
addition to the foregoing, two cases were filed in the United States
District Court for the Southern District of Ohio against the
Bancorp and certain officers alleging violations of ERISA based
on allegations similar to those set forth in the securities class
action cases filed during the same period of time. The two cases
alleging violations of ERISA were dismissed by the trial court, and
are being appealed to the United States Sixth Circuit Court of
Appeals.
On September 16, 2010, Edward P. Zemprelli (Zemprelli)
filed a lawsuit in the Hamilton County, Ohio Court of Common
Pleas. The lawsuit is a purported derivative action brought by a
shareholder of the Bancorp against certain of the Bancorp’s
officers and directors, and which names the Bancorp as a nominal
defendant. In the lawsuit, Zemprelli brings claims for breach of
fiduciary duty, waste of corporate assets, and unjust enrichment
against the defendant officers and directors. The alleged basis for
these claims is that the defendant officers and directors attempted
to disguise from the public the truth about the credit quality of the
Bancorp’s loan portfolio, its capital position, and its need to raise
capital. Zemprelli, on behalf of the Bancorp, is seeking
unspecified money damages allegedly sustained by the Bancorp as
a result of the defendants’ conduct, as well as injunctive relief. The
case is in the early stages of litigation. The impact of the final
disposition of this lawsuit cannot be assessed at this time.
The Bancorp and its subsidiaries are not parties to any other
material litigation. However, there are other litigation matters that
arise in the normal course of business. While it is impossible to
ascertain the ultimate resolution or range of financial liability with
respect to these contingent matters, management believes any
resulting liability from these other actions would not have a
material effect upon the Bancorp’s consolidated financial position,
results of operations or cash flows.
The Bancorp and/or its affiliates are or may become
involved from time to time in information-gathering requests,
reviews, investigations and proceedings (both formal and
informal) by government and self-regulatory agencies, including
the SEC, regarding their respective businesses. Such matters may
result in material adverse consequences, including without
limitation, adverse judgments, settlements, fines, penalties,
injunctions or other actions, amendments and/or restatements of
Fifth Third’s SEC filings and/or financial statements, as
applicable, and/or determinations of material weaknesses in our
disclosure controls and procedures. The SEC is investigating and
has made several requests for information, including by subpoena,
concerning issues which Fifth Third understands relate to
accounting and reporting matters involving certain of its
commercial loans. This could lead to an enforcement proceeding
by the SEC which, in turn, may result in one or more such
material adverse consequences.
20. RELATED PARTY TRANSACTIONS
The Bancorp maintains written policies and procedures covering
related party transactions to principal shareholders, directors and
executives of the Bancorp. These procedures cover transactions
such as employee-stock purchase loans, personal lines of credit,
residential secured loans, overdrafts, letters of credit and increases
in indebtedness. Such transactions are subject to the Bancorp’s
normal underwriting and approval procedures. Prior to the closing
of a loan to a related party, Compliance Risk Management must
approve and determine whether the transaction requires approval
from or a post notification be sent to the Bancorp’s Board of
Directors. At December 31, 2010 and 2009, certain directors,
executive officers, principal holders of Bancorp common stock,
associates of such persons, and affiliated companies of such
persons were indebted, including undrawn commitments to lend,
to the Bancorp’s banking subsidiary.
The following table summarizes the Bancorp’s activities with