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Contingent Liabilities
3 Months Ended
Mar. 31, 2014
Commitments and Contingencies Disclosure [Abstract]  
Contingent Liabilities
CONTINGENT LIABILITIES
Legal Proceedings
Comerica Bank, a wholly owned subsidiary of the Corporation, was named a third-party defendant in Butte Local Development v. Masters Group v. Comerica Bank (“the case”), a lender liability case filed on November 16, 2011. The jury trial commenced January 6, 2014, in the Montana Second District Judicial Court for Silver Bow County in Butte, Montana ("the court"). The claims underlying the case against the Bank grew out of an initial, two-year $9 million revolving line of credit loan extended by the Bank to Masters in July 2006. The loan was subsequently increased to $10.5 million and expired by its terms in July 2008 and was later paid in full through collection actions initiated by the Bank in December 2008, following a default by Masters. Masters alleged that the Bank wrongfully collected the loan, causing Masters to cease operations, and claimed that as a result, they failed to repay a $200,000 loan that they owed to Butte Local Development (“BLD”). Masters did not dispute that it was required to repay the $10.5 million loan, but contended the Bank should have continued to give it more time.
Starting in July 2013, the Bank attempted to settle the case by offering to pay the debt owed by Masters to BLD. The Bank anticipated that such a settlement would improve the Bank's chances of defending the case in Federal court, the court in which Masters would have been required to sue the Bank, absent BLD’s claim. Those discussions and consideration of the settlement offer continued for several months. Accordingly, on September 30, 2013, the Corporation believed that a nominal loss was probable and recorded legal reserves for the settlement offer made to BLD.
On January 17, 2014, a jury awarded Masters $52 million for its claims against the Bank. The jury also awarded BLD $275,000 for its claims against Masters. Following the jury’s decision on the case, the Corporation increased its reserve for litigation-related expense, effective as of December 31, 2013, to $52 million.
On January 23, 2014, Masters filed motions for additional claims against the Corporation related to the case seeking court costs, pre-judgment interest, punitive damages above the statutory maximum permitted by the State of Montana and attorneys' fees. In March 2014, the court declined to increase the punitive damage award against the Bank above the amount awarded by the jury and declined the request by Masters for a percentage of the jury award in attorney's fees and instead allowed fees based on hourly rates. The Corporation stipulated to $2 million of attorney's fees and costs but reserved the right to appeal Masters' entitlement to such fees and costs. The Corporation accordingly increased its reserve related to the case to $54 million.
Masters filed a notice of their intent to appeal certain aspects of the court's ruling. The Corporation believes that it has meritorious defenses for this litigation and has appealed the jury's decision and certain rulings on the case, including the award for attorneys' fees, to the Montana Supreme Court, the sole appellate court for the state of Montana.
The Corporation and certain of its subsidiaries are subject to various other pending or threatened legal proceedings arising out of the normal course of business or operations. The Corporation believes it has meritorious defenses to the claims asserted against it in its other currently outstanding legal proceedings and, with respect to such legal proceedings, intends to continue to defend itself vigorously, litigating or settling cases according to management’s judgment as to what is in the best interests of the Corporation and its shareholders. Settlement may result from the Corporation's determination that it may be more prudent financially to settle, rather than litigate, and should not be regarded as an admission of liability. On at least a quarterly basis, the Corporation assesses its potential liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. On a case-by-case basis, reserves are established for those legal claims for which it is probable that a loss will be incurred either as a result of a settlement or judgment, and the amount of such loss can be reasonably estimated. The actual costs of resolving these claims may be substantially higher or lower than the amounts reserved. Based on current knowledge, and after consultation with legal counsel, management believes that current reserves are adequate, and the amount of any incremental liability arising from these matters is not expected to have a material adverse effect on the Corporation’s consolidated financial condition, consolidated results of operations or consolidated cash flows. Legal fees of $5 million and $8 million were included in "other noninterest expenses" on the consolidated statements of income for the three months ended March 31, 2014 and 2013, respectively.
For matters where a loss is not probable, the Corporation has not established legal reserves. The Corporation believes the estimate of the aggregate range of reasonably possible losses, in excess of reserves established, for all legal proceedings in which it is involved is from zero to approximately $85 million at March 31, 2014. This estimated aggregate range of reasonably possible losses is based upon currently available information for those proceedings in which the Corporation is involved, taking into account the Corporation’s best estimate of such losses for those cases for which such estimate can be made. For certain cases, the Corporation does not believe that an estimate can currently be made. The Corporation’s estimate involves significant judgment, given the varying stages of the proceedings (including the fact that many are currently in preliminary stages), the existence in certain proceedings of multiple defendants (including the Corporation) whose share of liability has yet to be determined, the numerous yet-unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims) and the attendant uncertainty of the various potential outcomes of such proceedings. Accordingly, the Corporation’s estimate will change from time to time, and actual losses may be more or less than the current estimate.
In the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the Corporation's consolidated financial condition, consolidated results of operations or consolidated cash flows.
For information regarding income tax contingencies, refer to Note 11.