TD Bank 2012 Annual Report Download - page 161

TD BANK GROUP ANNUAL REPORT 2012 FINANCIAL RESULTS 159
LITIGATION
The Bank and its subsidiaries are involved in various legal actions in the
ordinary course of business. Legal provisions are established when it
becomes probable that the Bank will incur an expense and the amount
can be reliably estimated. The Bank may incur losses in addition to the
amounts recorded when the loss is greater than estimated by manage-
ment, or for matters when an unfavourable outcome is reasonably
possible. The Bank considers losses to be reasonably possible when
they are neither probable nor remote. The Bank believes the estimate
of the aggregate range of reasonably possible losses, in excess of
provisions, for its legal proceedings where it is possible to make such
an estimate, is from nil to approximately $354 million as at October
31, 2012. This estimated aggregate range of reasonably possible losses
is based upon currently available information for those proceedings in
which the Bank is involved, taking into account the Bank’s best esti-
mate of such losses for those cases which an estimate can be made.
The Bank’s estimate involves significant judgment, given the varying
stages of the proceedings and the existence of multiple defendants in
many of such proceedings whose share of liability has yet to be deter-
mined. The matters underlying the estimated range will change from
time to time, and actual losses may vary significantly from the current
estimate. For certain cases, the Bank does not believe that an estimate
can currently be made as many of them are in preliminary stages and
certain cases have no specific amount claimed. Consequently, these
cases are not included in the range.
In management’s opinion, based on its current knowledge and after
consultation with counsel, the Bank believes that the ultimate disposi-
tion of these actions, individually or in the aggregate, will not have a
material adverse effect on the consolidated financial condition or the
consolidated cash flows of the Bank. However, in light of the uncer-
tainties involved in such proceedings, some of which are beyond the
Bank’s control, there is a possibility that the ultimate resolution of
those legal actions may be material to the Bank’s consolidated results
of operations for any particular reporting period.
The following is a description of the Bank’s material legal proceedings.
Rothstein Litigation
TD Bank, N.A. has been named as a defendant in multiple lawsuits
pending in state and federal court in Florida related to an alleged
US$1.2 billion Ponzi scheme perpetrated by, among others, Scott
Rothstein, a partner of the Fort Lauderdale, Florida based law firm,
Rothstein, Rosenfeldt and Adler.
Four cases are currently in state court in the Broward County Circuit
Court (Platinum Partners Value Arbitrage Fund, L.P., et al. v. TD Bank,
N.A.; Louella Arvidson, et al. v. TD Bank, N.A., et al.; Don Beverly, et
al. v. TD Bank, N.A., et al.; and RWRK Investments, LLC, et al. v. TD
Bank, N.A., et al.), and one case is in Federal Bankruptcy Court for
the Southern District of Florida (Trustee in Bankruptcy for RRA v.
TD Bank, N.A.).
Six matters have been settled: Razorback Funding, LLC, et al. v.
TD Bank, N.A. (Broward County Circuit Court – settled April 3, 2012);
VRLP1 v. TD Bank, N.A. (Broward County Circuit Court – settled May 5,
2012); Platinum Estates, Inc. and OPMonies 2, LLC v. TD Bank, N.A.
(Southern District of Florida – settled May 31, 2012); Edward J. Morse,
et al. v. TD Bank, et al. (Broward County Circuit Court – settled
October 1, 2012); Amy Adams, et al. v. TD Bank, N.A., et al. (Broward
County Circuit Court – settled October 5, 2012); and Emess Capital,
LLC v. TD Bank, N.A., et al. (Southern District of Florida – settled
September 7, 2012).
The non-bankruptcy lawsuits are all substantially similar and gener-
ally allege that TD Bank, N.A. conspired with Rothstein, facilitated
Rothstein’s Ponzi scheme and overlooked signs of wrongdoing in order
to obtain profits and fees. Claims against TD Bank, N.A. include,
among other things, fraudulent misrepresentation, aiding and abetting
fraud, aiding and abetting breach of fiduciary duty, civil conspiracy and
negligent misrepresentation. The plaintiff in Platinum Partners Value
Arbitrage Fund, L.P. v. TD Bank also alleges claims under Florida’s civil
RICO statute, which TD Bank, N.A. has moved to dismiss. All active
cases are in the pleading or discovery phase. Louella Arvidson v. TD
Bank, N.A. has been filed in the Broward County Circuit Court but has
not yet been served on TD Bank. The time allowed for TD Bank to
respond to Don Beverly v. TD Bank, N.A. has not yet elapsed. TD Bank,
N.A. has filed answers and/or motions to dismiss, denying all liability in
all of the other lawsuits.
The Chapter 11 Trustee for the bankruptcy estate of Rothstein,
Rosenfeldt and Adler filed an adversary proceeding against TD Bank,
N.A. in the In re: Rothstein Rosenfeldt Adler, P.A. bankruptcy pending
in the U.S. Bankruptcy Court for the Southern District of Florida. The
Trustee has asserted multiple causes of action against TD Bank, N.A.
seeking to avoid certain transfers made to TD Bank, N.A. that are
alleged to have been preferential and/or fraudulent. Other causes of
actions alleged in the complaint include unjust enrichment, aiding and
abetting conversion, negligence and negligent supervision. The adver-
sary complaint purports to allege losses on behalf of creditors and
appears to seek to recoup losses for the investors. TD Bank, N.A. has
moved to dismiss the Trustee’s claims.
The Coquina Investments v. TD Bank, N.A. et al. trial has been
completed. The jury returned a verdict against TD Bank, N.A. on
January 18, 2012 of US$67 million comprised of US$32 million of
compensatory damages and US$35 million of punitive damages. On
August 3, 2012, the trial court entered an order sanctioning TD Bank,
N.A. and its former outside counsel, Greenberg Traurig, for alleged
discovery misconduct. The sanctions order established certain facts
relating to TD Bank, N.A.’s knowledge of the Rothstein fraud and the
unreasonableness of TD Bank, N.A.’s monitoring and alert systems,
and ordered TD Bank, N.A. and Greenberg Traurig to pay the costs
incurred by the plaintiff in bringing the sanctions motions. An amended
notice of appeal of the jury verdict and the sanctions order was filed
to the United States Court of Appeals for the Eleventh Circuit on
October 3, 2012.
Multidistrict Overdraft Litigation
The Bank was named as a defendant in four putative nationwide class
actions challenging the manner in which it calculates and collects over-
draft fees. The actions were all transferred to the United States District
Court for the Southern District of Florida for pretrial proceedings in
conjunction with similar actions pending against other banks. Plaintiffs
claim generally but not exclusively that the posting method for debit
transactions (by high to low amount rather than time of transaction)
and related practices breach an implied covenant of good faith, consti-
tute unfair and deceptive acts and practices, cause a conversion of the
customers’ property, and otherwise render the Bank liable for compen-
satory damages in the amount of all overdraft fees collected as a result
of the challenged practices, punitive damages, injunctive relief termi-
nating the challenged practices, and attorneys fees, costs and interest.
The Bank’s motion to dismiss the actions was denied, and discovery
commenced. Subsequently, two of the original actions were dismissed
voluntarily by the plaintiffs. The scope of the classes in the remaining
actions nevertheless effectively encompasses the scope of the classes
in the dismissed actions. More recently, a fifth, similar class action also
challenging overdraft practices was filed against the Bank in the United
States District Court for New Jersey (the Hughes case), the temporal
scope of which is potentially broader than the other overdraft cases.
On April 3, 2012, the Court in Florida granted Plaintiffs’ motion for
class certification, determining that the two actions then pending in
that court may proceed as a class action. On May 8, 2012, the Bank
entered into a settlement with Plaintiffs in the Florida actions, whereby
the Bank, without admission of liability, agreed to pay Plaintiffs
$62 million plus the costs of class notice and administration in return
for release of class members’ claims. On May 14, 2012, the Hughes
case was transferred to Florida and consolidated with the proceedings
there. The effect of the settlement on the Hughes case is yet to be
determined. The court granted preliminary approval of the parties’
settlement agreement; a hearing on final approval is scheduled for
March 7, 2013.
A pro se class action complaint was filed by plaintiff Hackney in
federal court in PA against the Bank on October 23, 2012 relating to
overdraft fees and deceptive advertising allegations. The Bank has
not yet responded.