Juno 2013 Annual Report Download - page 33

Table of Contents
Group consisting of certain injunctive relief and the consideration of two areas of monetary relief: (1) restitution to consumers and (2) a
$20 million payment by Classmates, Inc. and FTD.COM for the violations alleged by the Multistate Work Group and to reimburse the
Multistate Work Group for its investigation costs. The Company rejected the Multistate Work Group's offer. The Company has since
had ongoing discussions with the Multistate Work Group regarding the non-monetary aspects of a negotiated resolution. In December
2013, Classmates and FTD.COM, Inc. proposed to the Multistate Work Group to resolve the matter without admitting liability by
making a settlement payment of $2.2 million. On February 11, 2014, the Multistate Work Group responded to the Company's settlement
offer of $2.2 million with a counter offer of (1) $17.5 million plus (2) restitution by Classmates to a group of purchasers of its
subscription services. The Multistate Work Group did not provide an explanation as to how the $17.5 million was determined or the
proposed allocation of such counter offer between Classmates, Inc. and FTD.COM Inc. In addition, the Multistate Work Group did not
propose a limit on the amount of such restitution. The Company has rejected the Multistate Work Group's counter offer and is seeking
clarification regarding such counter offer. While the Company anticipates that settlement discussions will be ongoing, there can be no
assurances as to the terms on which the Multistate Work Group and Classmates, Inc. may agree to settle this matter, or that any
settlement of this matter may be reached. If no settlement is reached, certain Attorneys General of the Multistate Work Group may file
litigation against Classmates, Inc. and, in the event of litigation, Classmates, Inc. intends to vigorously defend itself.
•In 2011, Classmates, Inc. received a civil investigative demand from the Attorney General for the State of Washington regarding its
marketing, refund, cancelation, and renewal practices. Prior to that, in 2009, Classmates, Inc. had received a civil investigative demand
from the Attorney General for the State of Washington regarding certain post-transaction sales practices in which it had previously
engaged with certain third-party vendors. In 2012, the Attorney General for the State of Washington joined the aforementioned
Multistate Work Group. The Company believes that by joining the Multistate Work Group, the Attorney General's investigation may
have been consolidated into the Multistate Work Group's inquiry.
The Company cannot predict the outcome of these or any other governmental investigations or other legal actions or their potential implications for
its business. There are no assurances that additional governmental investigations or other legal actions will not be instituted in connection with the
Company's former post-transaction sales practices or other current or former business practices.
The Company records a liability when it believes that it is both probable that a loss will be incurred, and the amount of loss can be reasonably
estimated. The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously
accrued, and makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount. The Company
may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (i) if the damages sought are
indeterminate; (ii) if the proceedings are in early stages, (iii) if there is uncertainty as to the outcome of pending appeals, motions or settlements, (iv) if
there are significant factual issues to be determined or resolved, and (v) if there are novel or unsettled legal theories presented. In such instances, there is
considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any. At December 31, 2013, the
Company had a reserve of $1.5 million recorded in liabilities of continuing operations for the proposed settlement of the Multistate Work Group's
inquiry of Classmates, Inc. With respect to the legal matters described above, including the Multistate Work Group's inquiry of Classmates, Inc., the
Company has determined, based on its current knowledge, that the amount of possible loss or range of loss, including any reasonably possible losses in
excess of amounts already accrued, is not reasonably estimable. However, legal matters are inherently unpredictable and subject to significant
uncertainties, some of which are beyond the Company's control.
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