Fifth Third Bank 2013 Annual Report Download - page 137

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
135 Fifth Third Bancorp
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 judgment and loss sharing agreements with Visa,
MasterCard and certain other named defendants. In October 2012,
the parties to the litigation entered into a settlement agreement. The
court entered a Class Settlement Preliminary Approval Order in
November 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. More than 7,900
merchants have requested exclusion from the class settlement.
Pursuant to the terms of the settlement agreement, 25% of the
funds paid into the class settlement escrow account will be returned
to the control of the defendants through Class Exclusion Takedown
Payments. Approximately 460 of the merchants who requested
exclusion from the class have filed separate federal lawsuits against
Visa, MasterCard and certain other defendants alleging similar
antitrust violations. The federal lawsuits have been tentatively
transferred to the United States District Court for the Eastern
District of New York. The Bancorp was not named as a defendant
in any of the federal lawsuits, but may have obligations pursuant to
indemnification arrangements and/or the judgment or loss sharing
agreements noted above. In addition, one merchant filed a separate
state court lawsuit against Visa, MasterCard and certain other
defendants, including the Bancorp, alleging similar antitrust
violations. On January 14, 2014, the court entered a final order
approving the class settlement. A number of merchants have filed
appeals from that approval. Refer to Note 17 for further
information.
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 alleged that the Bancorp and its Ohio
bank infringed on Katz’s patents for interactive call processing
technology by offering certain automated telephone banking and
other services. On December 23, 2013 the parties to the litigation
entered into a settlement agreement. The settlement amount was
immaterial to the Bancorp’s Consolidated Financial Statements.
Pursuant to the settlement agreement, the Bank paid the agreed
upon settlement proceeds to Katz resulting in the dismissal of the
lawsuit with prejudice on January 8, 2014.
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. Under the terms of the settlement,
the Bancorp and its insurer paid 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. On
November 20, 2013, the Court entered a Final Judgment and Order
of Dismissal approving the settlement. No appeal was filed and the
matter now is concluded.
In addition to the foregoing, in 2008 two similar cases were
filed in the United States District Court for the Southern District of
Ohio against the Bancorp and certain officers styled Dudenhoeffer v
Fifth Third Bancorp et al. Case No. 1:08-cv-538. The complaints alleged
violations of ERISA based on allegations similar to those set forth
in the securities class action cases. The ERISA actions were
dismissed by the trial court, but the Sixth Circuit Court of Appeals
reversed the trial court decision. The Bancorp petitioned the United
States Supreme Court to review and reverse the Sixth Circuit
decision and sought a stay of proceedings in the trial court pending
appeal. On March 25, 2013 the Supreme Court issued an order
directing the Solicitor General to file a brief stating the views of the
United States on the issues raised in the Bancorp petition and this
brief was filed on November 12, 2013. On December 13, 2013 the
Supreme Court granted certiorari and agreed to hear the appeal.
Oral argument is set for April 2, 2014.
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 involved in information-
gathering requests, reviews, investigations and proceedings (both
formal and informal) by various governmental regulatory agencies
and law enforcement authorities, as well as self-regulatory bodies
regarding their respective businesses. Additional matters will likely
arise from time to time. Any of these matters may result in material
adverse consequences to the Bancorp, its affiliates and/or their
respective directors, officers and other personnel, including adverse
judgments, findings, 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. Investigations by regulatory authorities may from
time to time result in civil or criminal referrals to law enforcement
authorities such as the Department of Justice or a United States
Attorney. Among other matters, the Bancorp has been cooperating
with the Department of Justice and the Office of the Inspector
General for the Department of Housing and Urban Development in
a civil investigation regarding compliance with requirements relating
to certain Federal Housing Agency-insured loans originated by
affiliates of the Bancorp. The investigation is ongoing, and no
demand or claim has been made of the Bancorp. The investigation
could lead to a demand under the federal False Claims Act and the
federal Financial Institutions Reform, Recovery and Enforcement
Act of 1989, which allow up to treble and other special damages
substantially in excess of actual losses.
As previously disclosed the SEC had been investigating the
Bancorp’s historical accounting and reporting with respect to certain
commercial loans that were sold or reclassified as held-for-sale in
the fourth quarter of 2008. At dispute in the matter was whether
certain of those loans should have been moved to held for sale in
the third quarter rather than the fourth quarter of that year. The
Bancorp and the SEC staff agreed to a settlement of that
investigation, pursuant to which the Bancorp, without admitting or