Contingencies

9 Months Ended

Sep. 30, 2012

Contingencies

Contingencies

12.   Contingencies

The Company is involved from time to time in various legal proceedings, regulatory investigations and claims incident to the normal conduct of business, which may include proceedings that are specific to us and others generally applicable to business practices within the industries in which we operate. A substantial legal liability or a significant regulatory action against us could have an adverse effect on our business, financial condition and on the results of operations in a particular quarter or year.

Michael E. Taylor, Kenneth B. Young, individuals, on behalf of themselves individually and on behalf of others similarly situated v. Waddell & Reed, Inc., a Delaware Corporation; and DOES 1 through 10 inclusive; Case No. 09-CV-2909 DMS WVG; in the United States District Court for the Southern District of California.

In this action filed December 28, 2009, the Company was sued in an individual action, class action and Fair Labor Standards Act (“FLSA”) nationwide collective action by two former advisors asserting misclassification of financial advisors as independent contractors instead of employees.  Plaintiffs, on behalf of themselves and a purported class of Waddell & Reed, Inc. financial advisors, assert claims under the FLSA for minimum wages and overtime wages, and under California Labor Code Statutes for timely payment of wages, minimum wages, overtime compensation, meal periods, reimbursement of losses and business expenses and itemized wage statements and a claim for Unfair Business Practices under §17200 of the California Business & Professions Code.  Plaintiffs seek declaratory and injunctive relief and monetary damages.

Plaintiffs moved for conditional collective action certification under the FLSA.  The Company opposed this motion and additionally moved for summary judgment on Plaintiffs’ individual FLSA claims.  The Court issued an order on January 3, 2012 granting the Company’s summary judgment motions, holding that Plaintiffs’ individual FLSA claims fail as a matter of law, and denying Plaintiffs’ motion for conditional collective action certification under the FLSA as moot.  This ruling effectively removes all nationwide FLSA claims from the case.

Subsequently, the Company moved for summary judgment on Plaintiffs’ individual California claims.  The court issued an order on August 20, 2012 granting the Company’s summary judgment motions, holding that Plaintiff’s individual California claims fail as a matter of law.  This order effectively dismissed Plaintiffs from the case, both individually and as putative class representatives.

However, in its August 20, 2012 order, the court also granted Plaintiffs’ motion to add a new individual and putative class representative to the action, effectively replacing the originally named Plaintiffs.  The newly named Plaintiff intends to continue to pursue the California claims referenced above on behalf of the putative class, as well as newly added representative derivative claims under the California Private Attorney General Act.

The Company has moved for summary judgment, asking the court to dismiss the newly named Plaintiff’s individual claims.  The arguments made in support of this request are the same as those that prevailed in the Taylor and Young motions for summary judgment.  If the court grants the pending motion, it will effectively dismiss all remaining claims in the case.

An adverse determination in this matter could have a material adverse impact on the financial position and results of operations of the Company.  The Company intends to continue to vigorously defend against all claims.

At this stage in this litigation, based upon the information currently available to the Company, the Company is not able to determine that an unfavorable outcome is remote, reasonably possible, or probable, and the Company has determined that it cannot reasonably estimate either the amount or the range of possible losses that would result if plaintiffs were to prevail, therefore, the Company has not made any accruals for damages with respect to this matter in its consolidated financial statements.