JP Morgan Chase 2010 Annual Report Download - page 289

JPMorgan Chase & Co./2010 Annual Report 289
confirmed, the Firm currently estimates it will not incur additional
obligations beyond those already reflected in its liabilities for the
numerous disputes covered by the Global Settlement.
Other proceedings related to Washington Mutual’s failure are
pending before the United States District Court for the District of
Columbia include a lawsuit brought by Deutsche Bank National
Trust Company, initially against the FDIC, asserting an estimated $6
billion to $10 billion in damages based upon alleged breach of
various mortgage securitization agreements and alleged violation of
certain representations and warranties given by certain WMI sub-
sidiaries in connection with those securitization agreements.
Deutsche Bank filed an amended complaint in August 2010, adding
JPMorgan Chase Bank, N.A. as a party. The amended complaint
includes assertions that JPMorgan Chase may have assumed liabili-
ties relating to the mortgage securitization agreements. In Novem-
ber 2010, JPMorgan Chase and the FDIC moved to dismiss the
complaint. JPMorgan Chase also moved for a partial summary
judgment holding that the FDIC retained liability for Deutsche
Bank’s claims.
In addition, JPMorgan Chase was sued in an action originally filed
in State District Court in Texas (the “Texas Action”) by certain
holders of WMI common stock and debt of WMI and Washington
Mutual Bank who seek unspecified damages alleging that JPMor-
gan Chase acquired substantially all of the assets of Washington
Mutual Bank from the FDIC at an allegedly too-low price. The Texas
Action was transferred to the United States District Court for the
District of Columbia, which ultimately granted JPMorgan Chase’s
and the FDIC’s motions to dismiss the complaint. Plaintiffs have
appealed this dismissal to the United States Court of Appeals for
the District of Columbia Circuit. Oral argument is currently sched-
uled for April 5, 2011.
* * *
In addition to the various legal proceedings discussed above, JPMor-
gan Chase and its subsidiaries are named as defendants or otherwise
involved in a substantial number of other legal proceedings. The Firm
believes it has meritorious defenses to the claims asserted against it
in its currently outstanding legal proceedings and it intends to defend
itself vigorously in all such matters. Additional legal proceedings may
be initiated from time to time in the future.
The Firm has established reserves for several hundred of its cur-
rently outstanding legal proceedings. The Firm accrues for potential
liability arising from such proceedings when it is probable that such
liability has been incurred and the amount of the loss can be rea-
sonably estimated. The Firm evaluates its outstanding legal pro-
ceedings each quarter to assess its litigation reserves, and makes
adjustments in such reserves, upwards or downwards, as appropri-
ate, based on management’s best judgment after consultation with
counsel. During the years ended December 31, 2010 and 2009, the
Firm incurred $7.4 billion and $161 million, respectively, of litiga-
tion expense. During the year ended December 31, 2008, the Firm
recorded a net benefit of $781 million to litigation expense. There
is no assurance that the Firm’s litigation reserves will not need to
be adjusted in the future.
In view of the inherent difficulty of predicting the outcome of legal
proceedings, particularly where the claimants seek very large or
indeterminate damages, or where the matters present novel legal
theories, involve a large number of parties or are in early stages of
discovery, the Firm cannot state with confidence what the eventual
outcome of the currently pending matters will be, what the timing
of the ultimate resolution of these pending matters will be or what
the eventual loss, fines, penalties or impact related to each cur-
rently pending matter may be. JPMorgan Chase believes, based
upon its current knowledge, after consultation with counsel and
after taking into account its current litigation reserves, that the
legal proceedings currently pending against it should not have a
material adverse effect on the Firm’s consolidated financial condi-
tion. The Firm notes, however, that in light of the uncertainties
involved in such proceedings, there is no assurance the ultimate
resolution of these matters will not significantly exceed the reserves
currently accrued by the Firm; as a result, the outcome of a particu-
lar matter may be material to JPMorgan Chase’s operating results
for a particular period, depending on, among other factors, the size
of the loss or liability imposed and the level of JPMorgan Chase’s
income for that period.