Fifth Third Bank 2014 Annual Report Download - page 136

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
134 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, claimed that the
interchange fees charged by card-issuing banks were unreasonable
and sought 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 have been
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. These “opt-out” federal lawsuits
have been 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 opt-out 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. On July 18, 2014,
the court in which all but one of the opt-out federal lawsuits has
been consolidated denied defendants’ motion to dismiss the
complaints. Several of the opt-out federal lawsuits have been
resolved. Refer to Note 17 for further information.
In 2008, two 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 previously reported
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
December 13, 2013, the Supreme Court granted certiorari and
agreed to hear the appeal. Oral arguments were held on April 2,
2014 and on June 25, 2014 the Supreme Court unanimously vacated
the Sixth Circuit decision and remanded the case for further
proceedings consistent with the standards articulated in its decision.
The Supreme Court issued its mandate remanding the case back to
the Sixth Circuit Court of Appeals but no further proceedings have
occurred.
In November 2014, a shareholder of the Bancorp filed a
shareholder derivative suit in the Court of Common Pleas for
Hamilton County, Ohio, against current and former members of the
Bancorp’s Board of Directors, the Bancorp’s former Chief Financial
Officer and current Executive Vice President, Daniel T. Poston, the
Bancorp’s Chief Executive Officer, Kevin T. Kabat, and, nominally,
the Bancorp. The suit alleges breach of fiduciary duty, waste of
corporate assets and unjust enrichment in connection with the
Bancorp’s alleged violations of federal and state securities laws,
among other charges, in relation to its administrative settlement
with the United States Securities and Exchange Commission
announced on December 4, 2013 to resolve the previously reported
investigation of the Bancorp’s historical accounting and reporting
with respect to certain commercial loans that were sold or
reclassified as held for sale by the Bancorp in the fourth quarter of
2008. The suit seeks, among other things, unspecified monetary
damages, disgorgement of profits, certain corporate governance and
personnel actions and compliance and disclosure changes. On
January 16, 2015 a motion to dismiss the complaint was filed on
behalf of all defendants. 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 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, the Department of Housing and
Urban Development and the Federal Housing Finance Authority in
civil investigations regarding compliance with requirements relating
to certain Federal Housing Agency-insured loans and certain loans
sold to government sponsored entities originated by affiliates of the
Bancorp. The investigations could lead to liability under the Federal
False Claims Act and/or 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.
Additionally, the Bancorp is also cooperating with an investigation
by the Department of Justice to determine whether the Bank
engaged in any discriminatory practices in connection with the
Bank's indirect automobile loan portfolio. Any claim resulting from
this investigation could include direct and indirect damages and civil
money penalties.
The Bancorp is party to numerous claims and lawsuits as well
as threatened or potential actions or claims concerning matters
arising from the conduct of its business activities. The outcome of
claims or 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