JAKKS PACIFIC INC 10-Q

Item 1. Legal Proceedings We are a party to, and certain of our property is the subject of, various pending claims and legal proceedings that routinely arise in the ordinary course of our business. We accrue for losses when the loss is deemed probable and the liability can reasonably be estimated. Where a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the claim. As additional information becomes available, we assess the potential liability related to its pending litigation and revises our estimates. A putative class action lawsuit was filed on May 18, 2021 in the Superior Court of the State of California for the County of Los Angeles (Isaiah Villarica v. JAKKS Pacific, Inc.). Plaintiff formerly worked in one of our warehouses and was retained via Workforce Enterprises, a provider of temporary employees. The lawsuit alleges that we violated various California Labor Code provisions governing wage and hour requirements, including that we failed to pay all minimum and overtime wages owed, provide legally compliant meal and rest periods, or reimburse business expenses. The lawsuit further alleges derivative wage and hour claims for failure to timely pay all wages owed at separation of employment, failure to provide accurate wage statements, and unfair business practices. Plaintiff seeks to represent a class consisting of all individuals who have worked for us—either directly or through a staffing agency—in California since November 19, 2016 and who were classified as non-exempt. Plaintiff seeks unpaid wages, meal and rest period premiums, interest, various statutory penalties, attorneys’ fees, and costs, all in unspecified amounts. Workforce Enterprises has also been named as a defendant in this matter. The same counsel in the Villarica matter filed a related lawsuit on February 15, 2022 in the same court (Matthew Cordova v. JAKKS Pacific, Inc). Plaintiff also formerly worked in one of our warehouses and was retained via Workforce Enterprises, a provider of temporary employees. The lawsuit alleges that we committed wage and hour violations under the California Private Attorneys General Act, including failing to provide compliant meal and rest periods, properly calculate and pay all minimum and overtime wages, provide accurate wage statements, provide all wages due at separation of employment, provide sick leave, maintain accurate payroll records, or reimburse business expenses. Plaintiff seeks to collect civil penalties on behalf of the State of California under the Private Attorneys General Act for each violation experienced by “aggrieved employees,” defined as all individuals who have worked for us—either directly or through a staffing agency—in California since December 8, 2020 and who were classified as non-exempt. At a mediation between us, counsel to three temporary providers who provided temporary employees to us during the relevant time periods, and counsel for both lawsuits occurred on March 24, 2022. We are responsible for our own fees related to the lawsuits and have demanded and are in the process of obtaining indemnification for the settlement amounts for both of these matters from the three temporary employee providers who supplied temporary employees to us during the relevant time periods at issue in the lawsuits. Following mediation in March 2022, we agreed to settlement terms with respect to both cases and are currently waiting for the settlement paperwork to be finalized. We currently expect to incur only a nominal amount to settle both cases. In the normal course of business, we may provide certain indemnifications and/or other commitments of varying scope to a) our licensors, customers and certain other parties, including against third-party claims of intellectual property infringement, and b) our officers, directors and employees, including against third-party claims regarding the periods in which they serve in such capacities with us. The duration and amount of such obligations is, in certain cases, indefinite. Our director’s and officer’s liability insurance policy may, however, enable us to recover a portion of any future payments related to our officer, director or employee indemnifications. For the past five years, costs related to director and officer indemnifications have not been significant. Other than certain liabilities recorded in the normal course of business related to royalty payments due to our licensors, no liabilities have been recorded for indemnifications and/or other commitments.