v3.22.2.2
Contingencies
9 Months Ended
Oct. 31, 2022
Commitments and Contingencies Disclosure [Abstract]  
Contingencies Contingencies
Derivative Litigation. On December 1, 2014, an alleged shareholder, purportedly on behalf of the Company, filed a shareholder derivative lawsuit in federal court against us and certain of our current and former directors and former executive officers captioned Robert Hack, derivatively on behalf of Conn’s, Inc., v. Theodore M. Wright (former executive officer and former director), Bob L. Martin, Jon E.M. Jacoby (former director), Kelly M. Malson (former director), Douglas H. Martin, David Schofman, Scott L. Thompson (former director), Brian Taylor (former executive officer) and Michael J. Poppe (former executive officer) and Conn’s, Inc., Case No. 4:14-cv-03442 (S.D. Tex.) (the “Hack Litigation”). The complaint asserts claims for breach of fiduciary duty, unjust enrichment, gross mismanagement, and insider trading based on substantially similar factual allegations as those asserted in the securities action (In re Conn's Inc. Sec. Litig., Cause No. 14-CV-00548 (S.D. Tex.)), which was settled in October 2018. The plaintiff seeks unspecified damages against these persons and does not request any damages from Conn’s. On February 25, 2015, an additional federal derivative action, captioned 95250 Canada LTEE, derivatively on Behalf of Conn’s, Inc. v. Wright et al., Cause No. 4:15-cv-00521 (S.D. Tex.), was filed, asserting substantially similar claims against the same defendants. It was consolidated with the Hack Litigation (collectively, the “Federal Derivative Actions”).
The parties have reached a settlement in principle to fully resolve the Federal Derivative Actions. Judge Ellison approved the settlement and entered a Final Order and Judgement dismissing the derivative action with prejudice on March 15, 2022 (the “Final Order”). Neither the Company nor any individual defendant admits any wrongdoing through the settlement agreement.
In addition to the Federal Derivative Actions, a derivative action was filed in Texas state court by alleged shareholder Richard A. Dohn (“Dohn”) on January 27, 2015, captioned Dohn v. Wright, et al., Cause No. 2015-04405, in the 281st Judicial District Court, Harris County, Texas (the “Dohn State Court Action”). This action makes substantially similar allegations to the Federal Derivative Actions against the same defendants. The parties agreed to stay this case during the Securities Litigation and Federal Derivative Actions. Counsel for Dohn attended the February 17, 2022 and March 15, 2022 settlement hearings in the Federal Derivative Actions and objected to the proposed settlement. Dohn has filed an appeal of the Final Order with the Fifth Circuit Court of Appeals, and on May 17, 2022, the court entered an agreed order staying the case pending the outcome of that appeal.
On April 7, 2022, State Court Plaintiff and Objector Dohn, filed an appeal of the Final Order with the Fifth Circuit Court of Appeals (Hack v. Wright, No. 22-20177 (5th Cir.)). Dohn’s opening brief was filed on July 5, 2022. Plaintiffs’ and Defendants’ filed their respective response briefs on August 24, 2022. Dohn filed his reply brief on September 14, 2022.
Plaintiffs in the Federal Derivative Actions filed a motion for appeal bond in May 2022, which was heard by Judge Ellison on November 3, 2022. At the hearing, Judge Ellison ordered Dohn to supply the court with a record of continuous stock ownership to establish his standing to bring suit prior to the continuation of the appeal bond hearing set for November 10, 2022. Prior to the November 10, 2022 hearing, Dohn’s counsel advised Judge Ellison that Dohn's appeal was being withdrawn/dismissed from the Fifth Circuit and Judge Ellison canceled the November 10, 2022 appeal bond hearing.
On November 14, 2022, Dohn filed a motion for voluntary dismissal of the appeal with the Fifth Circuit. On November 16, 2022, the Company and the individual Defendants-Appellants filed a response to Dohn's voluntary dismissal motion regarding the dismissal being “without prejudice.”
On November 18, 2022, Dohn filed an unopposed motion to dismiss the Dohn State Court Action with prejudice.
Prior to the filing of the Dohn State Court Action, another alleged shareholder, Robert J. Casey II (“Casey”), submitted a demand under Delaware law, which our Board of Directors refused. On May 19, 2016, Casey, purportedly on behalf of the Company, filed a second state court lawsuit against us and certain of our current and former directors and former executive officers in the 55th Judicial District Court, Harris County, Texas, captioned Casey, derivatively on behalf of Conn’s, Inc., v. Theodore M. Wright (former executive officer and former director), Michael J. Poppe (former executive officer), Brian Taylor (former executive officer), Bob L. Martin, Jon E.M. Jacoby (former director), Kelly M. Malson (former director), Douglas H. Martin, David Schofman, Scott L. Thompson (former director) and William E. Saunders Jr., and Conn’s, Inc., Case No. 2016-33135. The complaint asserts claims for breach of fiduciary duties and unjust enrichment based on substantially similar factual allegations as those asserted in the Federal Derivative Actions. The complaint does not specify the amount of damages sought. Since April 2018, this case has been abated pending the resolution of related cases. In July 2021, the parties requested that the court extend the abatement pending further developments in the Federal Derivative Actions. On November 16, 2022, Casey filed an unopposed motion to dismiss this action with prejudice.
Other than Casey, none of the plaintiffs in the other derivative actions made a demand on our Board of Directors prior to filing their respective lawsuits. The defendants in the two state court derivative actions intend to vigorously defend against these claims. It is not possible at this time to predict the timing or outcome of any unsettled litigation, and we cannot reasonably estimate the possible loss or range of possible loss from such claims.
We are involved in other routine litigation and claims, incidental to our business from time to time which, individually or in the aggregate, are not expected to have a material adverse effect on us. As required, we accrue estimates of the probable costs for the resolution of these matters. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. However, the results of these proceedings cannot be predicted with certainty, and changes in facts and circumstances could impact our estimate of reserves for litigation. The Company believes that any probable and reasonably estimable loss associated with the foregoing has been adequately reflected in the accompanying financial statements.