Carter Bankshares, Inc. 10-Q

ITEM 1- LEGAL PROCEEDINGS In the normal course of business, the Company is subject to various legal and administrative proceedings and claims. Legal and administrative proceedings are subject to inherent uncertainties and unfavorable rulings could occur, and the timing and outcome of any legal or administrative proceeding cannot be predicted with certainty. Other than as set forth below, as of June 30, 2021, the Company is not involved in any other material pending legal proceedings other than proceedings occurring in the ordinary course of business. On May 31, 2021, the Bank and its directors were named as defendants in a lawsuit filed in the United States District Court for the Southern District of West Virginia by James C. Justice, II, Cathy L. Justice, James C. Justice, III and various related entities that he and/or they own and control (such entities, the “Justice Entities” and collectively, the “Plaintiffs”). The allegations contained in the lawsuit relate to a series of loans (the “Loans”) made by the Bank to certain Justice Entities that are secured by collateral pledged by certain Justice Entities and are backed by personal guarantees from James C. Justice, II and Cathy L. Justice and, in certain cases, by personal guarantees from James C. Justice, III. In the lawsuit the Plaintiffs allege that the Bank (i) breached an implied covenant of good faith and fair dealing, (ii) breached fiduciary duties of care and loyalty, and (iii) violated anti-tying restrictions of the Bank Holding Company Act of 1956, as amended, and allege that the Bank’s directors aided and abetted breaches of fiduciary duties of care and loyalty by the Bank. The Plaintiffs seek monetary damages of $421 million, additional punitive damages and interest on damages as allowed by law, payment of costs, expenses and attorneys’ fees, and a declaratory judgment from the court that certain confessions of judgment, release and affirmation agreements, and forbearance agreements executed by the Plaintiffs in favor of the Bank and relating to the Loans and/or their origination, extension, restructuring or forbearance, are unenforceable. The Company and the Bank deny the allegations contained in the lawsuit and intend to vigorously defend the matter and the validity of the confessions of judgment and release and affirmation agreements and forbearance agreements. Based on information presently available to the Company and the Bank and based on consultation with legal counsel, the Company believes that the Bank has meritorious defenses to all allegations contained in the lawsuit. However, because the lawsuit is in its early stages, no prediction can be made as to the outcome thereof.