Fifth Third Bank 2012 Annual Report Download - page 131

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
129 Fifth Third Bancorp
17. 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 16 and has
also entered into judgment and loss sharing agreements with Visa,
MasterCard and certain other named defendants. On October 19,
2012, the parties to the litigation entered into a settlement
agreement. The court entered a Class Settlement Preliminary
Approval Order on November 27, 2012. Pursuant to the terms of
the settlement agreement, the Bancorp paid $46 million into a class
settlement escrow account. Previously, the Bancorp paid an
additional $4 million in another settlement escrow in connection
with the settlement of claims from plaintiffs not included in the
class action. The Bancorp had no remaining reserves related to this
litigation as of December 31, 2012 and reserves of $49 million as of
December 31, 2011. Refer to Note 16 for further information
regarding the Bancorp’s net litigation reserve and ownership interest
in Visa.
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. On
December 18, 2012, the Bancorp entered into a settlement
agreement to resolve these cases. The settlement is subject to court
approval. Under the terms of the settlement, the Bancorp and its
insurer will pay a total of $16 million to a fund to settle all the claims
of the class members. In the settlement the Bancorp has denied any
liability and has agreed to the settlement in order to avoid potential
future litigation costs and uncertainty. The Bancorp does not
consider the impact of the settlement to be material to its financial
condition or results of operations. 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, but the Sixth Circuit Court of Appeals recently
reversed the trial court decision. The Bancorp intends to petition
the Supreme Court to review and reverse the Sixth Circuit decision
and seek a stay of proceedings in the trial court pending appeal. The
impact of the final disposition of these ERISA lawsuits 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, 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, and interviews of
certain of our current and former officers and employees and
others, 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.
The Bancorp is party to numerous claims and lawsuits
concerning matters arising from the conduct of its business
activities. The outcome of litigation and the timing of ultimate
resolution are inherently difficult to predict. The following factors,
among others, contribute to this lack of predictability: plaintiff
claims often include significant legal uncertainties, damages alleged
by plaintiffs are often unspecified or overstated, discovery may not
have started or may not be complete and material facts may be
disputed or unsubstantiated. As a result of these factors, the
Bancorp is not always able to provide an estimate of the range of
reasonably possible outcomes for each claim. A reserve for a
potential litigation loss is established when information related to
the loss contingency indicates both that a loss is probable and that
the amount of loss can be reasonably estimated. Any such reserve is
adjusted from time to time thereafter as appropriate to reflect
changes in circumstances. The Bancorp also determines, when
possible (due to the uncertainties described above), estimates of
reasonably possible losses or ranges of reasonably possible losses, in
excess of amounts reserved. Under U.S. GAAP, an event is
“reasonably possible” if “the chance of the future event or events
occurring is more than remote but less than likely” and an event is
“remote” if “the chance of the future event or events occurring is
slight.” Thus, references to the upper end of the range of reasonably
possible loss for cases in which the Bancorp is able to estimate a
range of reasonably possible loss mean the upper end of the range
of loss for cases for which the Bancorp believes the risk of loss is
more than slight. For matters where the Bancorp is able to estimate
such possible losses or ranges of possible losses, the Bancorp
currently estimates that it is reasonably possible that it could incur
losses related to legal proceedings including the matters discussed
above in an aggregate amount up to approximately $38 million in
excess of amounts reserved, with it also being reasonably possible
that no losses will be incurred in these matters. The estimates
included in this amount are based on the Bancorp’s analysis of
currently available information, and as new information is obtained
the Bancorp may change its estimates.