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Item 3. Legal Proceedings

2020-09-04 compared with 2019-08-30 · 8 added, 78 removed, 3 unchanged (97% of the section changed)

Legal Proceedings

Periodically, there have been various claims and lawsuits involving the Corporation, such as claims to enforce liens, condemnation proceedings on properties in which the Corporation holds security interests, claims

involving the making and servicing of real property loans, employment matters and other issues in the ordinary course of and incidental to the Corporation’s business.

The Corporation is not a party to any pending legal proceedings that it believes

would have a material adverse effect on the financial condition, operations or cash flows of the Corporation, except as set forth below.

Additionally, in some actions, it is difficult to assess potential exposure because the Corporation is still in

the early stages of the litigation.

McKeen-Chaplin and Neal lawsuits:

On December 17, 2012, a class and collective action lawsuit, Gina McKeen-Chaplin, individually and on behalf of others similarly situated vs.

the Bank was filed in the United States District Court for the Eastern

District of California (the "Court") against the Bank claiming damages, restitution and injunctive relief for alleged misclassification of certain employees as exempt rather than non-exempt, resulting in a failure to pay appropriate overtime

compensation, to provide meal and rest periods, to pay waiting time penalties and to provide accurate wage statements (the “McKeen-Chaplin lawsuit”).

On May 22, 2013, counsel in the McKeen-Chaplin lawsuit filed another class action called Neal vs.

Provident Savings Bank, F.S.B.

(the “Neal lawsuit”) in California Superior Court in Alameda County (the "State Court").

The Neal lawsuit is virtually identical to the McKeen-Chaplin lawsuit alleging that mortgage underwriters were misclassified as exempt employees.

On August 12, 2015, the Court issued an order denying the plaintiffs' motion for summary judgment and granting the Bank's motion for summary judgment affirming that the plaintiffs were properly classified as exempt

employees and denying the federal claims under the Fair Labor Standards Act (“FSLA”).

On August 18, 2015, the plaintiffs filed an appeal to the order.

On July 5, 2017, the United States Court of Appeals for the Ninth Circuit (the “Ninth Circuit”)

reversed the Court’s ruling granting the Bank's motion for summary judgment, instead ruling the plaintiffs were improperly classified as exempt employees and were entitled to overtime compensation.

The Ninth Circuit remanded the case back to the

Court with instructions to enter summary judgement in favor of the plaintiffs.

As a result of the Ninth Circuit’s unfavorable ruling, the Bank filed on September 7, 2017, a petition for writ of certiorari to the United States Supreme Court, which was

denied on November 27, 2017.

On December 18, 2017, the Bank entered into a Memorandum of Understanding with the plaintiffs' representatives to memorialize an agreement in principle to settle the pending McKeen-Chaplin and Neal lawsuits.

Memorandum of Understanding assumes class certification for purposes of the settlement only and provides for an aggregate settlement payment

by the Bank of $1.8 million, which includes all settlement funds, the named plaintiff service payments, and class counsel's attorneys' fees and costs.

Any additional costs and expenses related to employer-side payroll

taxes will be paid by the Bank.

The parties subsequently successfully negotiated and executed a mutually acceptable long-form settlement agreement.

On February 21, 2018, plaintiffs filed a motion in McKeen-Chaplin asking the Court to approve the FLSA portion of the settlement agreement.

The parties also worked together to jointly request that the Court of Appeal

in the Neal lawsuit pass jurisdiction back to the State Court to oversee the settlement process, which was preliminary approved on May 15, 2018.

Subsequently, on July 18, 2018 the Court approved the FLSA portion of the settlement which allowed the

parties to begin the process of providing notice of the settlement to class members.

The State Court had already granted preliminary approval of the state law class settlement in the Neal lawsuit.

The Bank’s decision to settle these lawsuits was the result of the unfavorable ruling by the United States Supreme Court in the McKeen-Chaplin lawsuit and the significant legal costs, distraction from day-to-day

operating activities and substantial resources that would be required to defend the Bank in protracted litigation if the Neal lawsuit would proceed.

In addition, the Bank determined that the settlement would reduce the Bank's potential exposure to

damages, penalties, fines and plaintiffs' legal fees in the event of an unfavorable outcome in the Neal lawsuit.

The settlement includes the dismissal of all claims against the Bank and related parties in the McKeen-Chaplin and Neal lawsuits without

any admission of liability or wrongdoing attributed to the Bank.

Based on the proposed settlement, the Corporation recorded a litigation settlement expense accrual of $650,000 in the second quarter of fiscal 2018 to fully reserve for the agreed upon settlement amount.

On November 13, 2018, the State Court approved the motion for final approval of the settlement agreement in the two class and collective action lawsuits filed by McKeen-Chaplin and Neal, respectively, against the Bank.

Following the grant of the final approval, the Court in McKeen-Chaplin dismissed the case.

The settlement funds have been distributed to the plaintiffs and plaintiff’s counsel consistent with the settlement agreements.

On April 8, 2019, the State

Court signed an order closing and dismissing the cases.

The McKeen-Chaplin and Neal cases are now completed and dismissed.

Cannon lawsuit:

On August 6, 2015, a former employee, Christina Cannon, filed a lawsuit called Cannon vs.

the Bank in the California Superior Court for the County of San Bernardino (the “Cannon lawsuit”).

Cannon seeks to represent a

class of all non-exempt employees in a class action lawsuit brought under California’s Unfair Competition Law, Business & Professions Code section 17200.

The underlying claims include unpaid overtime (including off-the-clock work), meal and rest

period violations, minimum wage violations, and failure to reimburse business expenses.

On September 8, 2017, the attorneys for the plaintiffs in the Cannon lawsuit sent notification to the Bank and to the California Labor & Workforce Development

Agency informing them of their intent to bring a claim under the Private Attorneys’ General Act of 2004 (“PAGA”) on behalf of all non-exempt employees and covering a variety of alleged wage and hour violations.

On September 12, 2017, the Bank entered

into a Memorandum of Understanding with the plaintiffs’ representatives to memorialize an agreement in principle to settle the pending Cannon lawsuit.

The Memorandum of Understanding assumes class certification for purposes of the settlement only and

provides for an aggregate settlement payment by the Bank of up to $2.8 million, which includes all settlement funds, the class representative enhancement award, settlement administrator’s expenses, any employer-side payroll taxes, and class counsel’s

attorneys’ fees and costs.

The Bank’s decision to settle this matter was the result of the significant legal costs, distraction from day-to-day operating activities and substantial resources that would be required to defend the Bank in protracted

In addition, the Bank determined that the settlement would reduce the Bank’s potential exposure to damages, penalties, fines and plaintiffs’ legal fees in the event of an unfavorable outcome in a court trial.

The settlement includes the

dismissal of all claims against the Bank and related parties in the Cannon lawsuit and claim under the PAGA, without any admission of liability or wrongdoing attributed to the Bank.

Because of the uncertainty surrounding this litigation, no

litigation reserve had been previously established by the Bank resulting in the full $2.8 million settlement expense being recognized in the first quarter of fiscal 2018 .

On December 20, 2018, counsel in the Cannon lawsuit filed a Motion for Preliminary Approval of the Settlement in the California Superior Court for the County of San Bernardino.

On April 12, 2019, this court granted

preliminary approval of the settlement.

On July 24, 2019, the California Superior Court for the County of San Bernardino, California granted final approval of the settlement in the Cannon vs.

Bank lawsuit.

On July 26, 2019, the final order was signed by this

court and on August 6, 2019, the Bank forwarded the settlement amount to the class administrator.

The total settlement may be slightly reduced.

The Corporation is not a party to any other pending legal proceedings that it believes would have a material adverse effect on the financial condition, operations and cash flows of the Corporation.

Periodically, there have been various claims and lawsuits involving the Corporation, such as claims to enforce liens, condemnation proceedings on properties in which the Corporation holds security

interests, claims involving the making and servicing of real property loans, employment matters and other issues in the ordinary course of and incidental to the Corporation’s business.

These proceedings and the associated legal claims are often

contested and the outcome of individual matters is not always predictable.

Additionally, in some actions, it is difficult to assess potential exposure because the

Corporation is still in the early stages of the litigation.

The Corporation is not a party to any pending legal proceedings that it believes would have a material adverse effect on its financial

condition, operations or cash flows.

Mine Safety Disclosures

1 unchanged sentence

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What changed 10-K

Item 3. Legal Proceedings