Fifth Third Bank 2011 Annual Report Download - page 123

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 121
18. 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 17 and has
also entered into with Visa, MasterCard and certain other named
defendants judgment 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 $49
million and $30 million as of December 31, 2011, and 2010,
respectively. Refer to Note 17 for further information regarding the
Bancorp’s net litigation reserve and ownership interest in Visa. Fact
and expert discovery in the litigation has been essentially completed.
A motion for class action certification, certain defense motions to
dismiss, and cross-motions for summary judgments are pending. A
tentative date has been set for the third quarter of 2012.
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 under the caption Local 295/Local 851 IBT Employer
Group Pension Trust and Welfare Fund v. Fifth Third Bancorp. et
al., Case No. 1:08CV00421, 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 trust preferred 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 was a purported derivative action brought by a
shareholder of the Bancorp against certain of the Bancorp’s officers
and directors, and which named the Bancorp as a nominal
defendant. In the lawsuit, Zemprelli brought 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 was 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, brought unspecified
money damages allegedly sustained by the Bancorp as a result of the
defendants’ conduct, as well as injunctive relief. On August 15,
2011, the Court granted defendants’ motion to dismiss and motion
for summary judgment. Zemprelli has filed a notice of appeal but
later dismissed the appeal, as a result the trial court dismissal is final.
In September 2011, DataTreasury Corporation filed a suit in
the United States District Court for the Eastern District of Texas
against the Bancorp and its banking subsidiary. In the suit,
DataTreasury alleges that the Bancorp and its banking subsidiary are
infringing on DataTreasury’s patents for imaged-based check
processing. This lawsuit is one of many related patent infringement
suits brought by DataTreasury against numerous other defendants.
DataTreasury is seeking unspecified monetary damages and
penalties. Due to the recent filing of the lawsuit, management is in
the process of reviewing the claims against the Bancorp and its
banking subsidiary.
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, orders, injunctions or other
actions, amendments and/or restatements of the Bancorp’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 the Bancorp 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.
On May 16, 2011, the Bancorp caused a notice to be delivered
to the trustee of Fifth Third Capital Trust VII (the “Trust”) to
mandatorily redeem the 8.875% trust preferred securities of the
Trust (the “Trust Preferred Securities”) at an aggregate cash
redemption price of $25.18 per Trust Preferred Security. The Trust
Preferred Securities were listed on the NYSE. The NYSE was
notified of the redemption on May 17, 2011 and a Current Report
on Form 8-K describing the redemption notice was filed by the
Company with the SEC on May 18, 2011. Trading in this security
was halted by the NYSE shortly after this Form 8-K was filed and
did not resume until May 19, 2011. The Trust Preferred Securities
traded at prices above the redemption amount during the period