Wells Fargo 2012 Annual Report Download - page 192

Note 15: Legal Actions
Wells Fargo and certain of our subsidiaries are involved in a
number of judicial, regulatory and arbitration proceedings
concerning matters arising from the conduct of our business
activities. These proceedings include actions brought against
Wells Fargo and/or our subsidiaries with respect to corporate
related matters and transactions in which Wells Fargo and/or
our subsidiaries were involved. In addition, Wells Fargo and our
subsidiaries may be requested to provide information or
otherwise cooperate with government authorities in the conduct
of investigations of other persons or industry groups.
Although there can be no assurance as to the ultimate
outcome, Wells Fargo and/or our subsidiaries have generally
denied, or believe we have a meritorious defense and will deny,
liability in all significant litigation pending against us, including
the matters described below, and we intend to defend vigorously
each case, other than matters we describe as having settled.
Reserves are established for legal claims when payments
associated with the claims become probable and the costs can be
reasonably estimated. The actual costs of resolving legal claims
may be substantially higher or lower than the amounts reserved
for those claims.
FHA INSURANCE LITIGATION On October 9, 2012, the United
States filed a complaint, captioned United States of America v.
Wells Fargo Bank, N.A., in the U.S. District Court for the
Southern District of New York. The complaint makes claims with
respect to Wells Fargo’s Federal Housing Administration (FHA)
lending program for the period 2001 to 2010. The complaint
alleges, among other allegations, that Wells Fargo improperly
certified certain FHA mortgage loans for United States
Department of Housing and Urban Development (HUD)
insurance that did not qualify for the program, and therefore
Wells Fargo should not have received insurance proceeds from
HUD when some of the loans later defaulted. The complaint
further alleges Wells Fargo knew some of the mortgages did not
qualify for insurance and did not disclose the deficiencies to
HUD before making insurance claims. On December 1, 2012,
Wells Fargo filed a motion in the U.S. District Court for the
District of Columbia seeking to enforce a release of Wells Fargo
given by the United States, which was denied on
February 12, 2013. On December 14, 2012, the United States
filed an amended complaint. On January 16, 2013, Wells Fargo
filed a motion in the Southern District of New York to dismiss
the amended complaint.
INTERCHANGE LITIGATION Wells Fargo Bank, N.A., Wells
Fargo & Company, Wachovia Bank, N.A. and Wachovia
Corporation are named as defendants, separately or in
combination, in putative class actions filed on behalf of a
plaintiff class of merchants and in individual actions brought by
individual merchants with regard to the interchange fees
associated with Visa and MasterCard payment card transactions.
These actions have been consolidated in the U.S. District Court
for the Eastern District of New York. Visa, MasterCard and
several banks and bank holding companies are named as
defendants in various of these actions. The amended and
consolidated complaint asserts claims against defendants based
on alleged violations of federal and state antitrust laws and seeks
damages, as well as injunctive relief. Plaintiff merchants allege
that Visa, MasterCard and payment card issuing banks
unlawfully colluded to set interchange rates. Plaintiffs also allege
that enforcement of certain Visa and MasterCard rules and
alleged tying and bundling of services offered to merchants are
anticompetitive. Wells Fargo and Wachovia, along with other
defendants and entities, are parties to Loss and Judgment
Sharing Agreements, which provide that they, along with other
entities, will share, based on a formula, in any losses from the
Interchange Litigation. On July 13, 2012, Visa, MasterCard and
the financial institution defendants, including Wells Fargo,
signed a memorandum of understanding with plaintiff
merchants to resolve the consolidated class actions and reached
a separate settlement in principle of the consolidated individual
actions. The proposed settlement payments by all defendants in
the consolidated class and individual actions total approximately
$6.6 billion. The class settlement also provides for the
distribution to class merchants of 10 basis points of default
interchange across all credit rate categories for a period of eight
consecutive months. The Court has granted preliminary
approval of the settlements. The settlements are subject to
further review and approval by the Court.
MEDICAL CAPITAL CORPORATION LITIGATION Wells Fargo
Bank, N.A. served as indenture trustee for debt issued by
affiliates of Medical Capital Corporation, which was placed in
receivership at the request of the Securities and Exchange
Commission (SEC) in August 2009. Since September 2009,
Wells Fargo has been named as a defendant in various class and
mass actions brought by holders of Medical Capital
Corporation’s debt, alleging that Wells Fargo breached
contractual and other legal obligations owed to them and seeking
unspecified damages. The actions have been consolidated in the
U.S. District Court for the Central District of California. On
July 26, 2011, the District Court certified a class consisting of
holders of notes issued by affiliates of Medical Capital
Corporation and, on October 18, 2011, the Ninth Circuit Court of
Appeals denied a petition seeking to appeal the class certification
order. A previously disclosed potential settlement of the case was
not consummated and the case is in discovery.
MARYLAND MORTGAGE LENDING LITIGATION On December
26, 2007, a class action complaint captioned Denise Minter, et
al., v. Wells Fargo Bank, N.A., et al., was filed in the U.S.
District Court for the District of Maryland. The complaint alleges
that Wells Fargo and others violated provisions of the Real
Estate Settlement Procedures Act and other laws by conducting
mortgage lending business improperly through a general
partnership, Prosperity Mortgage Company. The complaint
asserts that Prosperity Mortgage Company was not a legitimate
affiliated business and instead operated to conceal Wells Fargo
Bank, N.A.’s role in the loans at issue. A plaintiff class of
borrowers who received a mortgage loan from Prosperity that
was funded by Prosperity’s line of credit with Wells Fargo Bank,
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