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Item 3. Legal Proceedings

2021-03-10 compared with 2020-03-16 · 47 added, 69 removed, 10 unchanged (92% of the section changed)

1 unchanged sentence

The Company is subject to claims and legal proceedings that arise in the ordinary course of business.

Such matters are inherently uncertain, and there can be no guarantee that the outcome of any such matter will be decided favorably to the Company or that the resolution of any such matter will not have a material adverse effect upon the Company’s Consolidated Financial Statements.

The Company does not believe that any of such pending claims and legal proceedings will have a material adverse effect on its Consolidated Financial Statements.

The Company records a liability in its Consolidated Financial Statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated.

The Company does not believe that any of such pending claims and legal proceedings will have a material adverse effect on its Condensed Consolidated Financial Statements.

The Company records a liability in its Condensed Consolidated Financial Statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated.

The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate.

If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary for its Consolidated Financial Statements not to be misleading.

If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in its Consolidated Financial Statements.

CGI Producer Litigation

On November 28, 2016, CGI, a subsidiary of the Company, Great American Financial Resource, Inc.

("GAFRI"), American Financial Group, Inc., and CIGNA Corporation were served with a putative class action complaint filed by John Fastrich and Universal Investment Services, Inc.

in The United States District Court for the District of Nebraska alleging breach of contract, tortious interference with contract and unjust enrichment.

The plaintiffs contend that they were agents of record under various CGI policies and that CGI allegedly instructed policyholders to switch to other CGI products and caused the plaintiffs to lose commissions, renewals, and overrides on policies that were replaced.

The complaint also alleges breach of contract claims relating to allegedly unpaid commissions related to premium rate increases implemented on certain long-term care insurance policies.

Finally, the complaint alleges breach of contract claims related to vesting of commissions.

On August 21, 2017, the Court dismissed the plaintiffs’ tortious interference with contract claim.

CGI believes that the remaining allegations and claims set forth in the complaint are without merit.

The case was set for voluntary mediation, which occurred on January 26, 2018.

The Court stayed discovery pending the outcome of the mediation.

On February 12, 2018, the parties notified the Court that mediation did not resolve the case and that the parties’ discussions regarding a possible settlement of the action were still ongoing.

The Court held a status conference on March 22, 2018, during which the parties informed the Court that settlement negotiations remain ongoing.

Nonetheless, the Court entered a scheduling order setting the case for trial during the week of October 15, 2019.

Meanwhile, the parties’ continued settlement negotiations led to a tentative settlement.

On February 4, 2019, the plaintiffs executed a class settlement agreement with CGI, Loyal American Life Insurance Company, American Retirement Life Insurance Company, GAFRI, and American Financial Group, Inc.

(collectively, the Defendants).

The settlement agreement, which would require GAFRI to make a $1.25 million payment on behalf of the Defendants, is subject to Court approval.

On February 4, 2019, the plaintiffs filed a motion for preliminary approval of the class settlement in a parallel action in the Southern District of Ohio, Case No.

17-CV-00615-SJD, which motion was granted by the Southern District of Ohio on April 2, 2019.

Meanwhile, the case pending before the District of Nebraska was stayed on February 6, 2019, pending final approval of the class action settlement in the Ohio action.

The Court held a final settlement hearing on September 17, 2019.

On October 7, 2019, the Court entered a final approval order certifying the class and approving the class settlement.

On October 22, 2019, the Court granted Plaintiffs’ motion for attorney’s fees and costs.

On October 25, 2019, the Court entered final judgment and closed the Ohio action.

The case pending before the District of Nebraska was dismissed with prejudice on November 12, 2019, pursuant to the parties’ joint stipulation.

The Company and CGI sought defense costs and indemnification for plaintiffs’ claims from GAFRI and Continental General Corporation ("CGC") under the terms of an Amended and Restated Stock Purchase Agreement ("SPA") related to the Company’s acquisition of CGI in December 2015.

GAFRI and CGC rejected CGI’s demand for defense and indemnification and, on January 18, 2017, the Company and CGI filed a Complaint against GAFRI and CGC in the Superior Court of Delaware seeking a declaratory judgment to enforce their indemnification rights under the SPA.

On February 23, 2017, GAFRI answered CGI’s complaint, denying the allegations.

The dispute is ongoing and CGI intends to continue to pursue its right to a defense and indemnity under the SPA regardless of the tentative settlement in the class action.

Meanwhile, the parties’ continued settlement negotiations resulted in a settlement agreement in the Delaware action.

The settlement agreement, which was contingent on the final approval of the class action settlement in the Ohio action, required CGI to contribute $250,000 to the settlement payment made by GAFRI in the class action.

No further contributions to the class action settlement will be required of CGI.

Once the class action settlement became final, CGI and GAFRI filed a joint stipulation to dismiss the Delaware action, which stipulation was entered by the Court on January 21, 2020.

The Delaware action is now closed.

If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary for its Condensed Consolidated Financial Statements not to be misleading.

If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in its Condensed Consolidated Financial Statements.

Based on a review of the current facts and circumstances with counsel in each of the matters disclosed, management has provided for what is believed to be a reasonable estimate of loss exposure.

While acknowledging the uncertainties of litigation, management believes that the ultimate outcome of litigation will not have a material effect on its financial position and will defend itself vigorously.

VAT assessment

3 unchanged sentences

We do not believe the assessment to be probable and expect to prevail based on the facts and merits of our existing VAT position.

DBMG Class Action

On November 6, 2014, a putative stockholder class action complaint challenging the tender offer by which HC2 acquired approximately 721,000 of the issued and outstanding common shares of DBMG was filed in the Court of Chancery of the State of Delaware, captioned Mark Jacobs v.

Falcone, Keith M.

Hladek, Paul Voigt, Michael R.

Hill, Rustin Roach, D.

Ronald Yagoda, Phillip O.

Elbert, HC2 Holdings, Inc., and Schuff International, Inc., Civil Action No.

10323 (the "Complaint").

On November 17, 2014, a second lawsuit was filed in the Court of Chancery of the State of Delaware, captioned Arlen Diercks v.

Schuff International, Inc.

Falcone, Keith M.

Hladek, Paul Voigt, Michael R.

Hill, Rustin Roach, D.

Ronald Yagoda, Phillip O.

Elbert, HC2 Holdings, Inc., Civil Action No.

On February 19, 2015, the court consolidated the actions (now designated as Schuff International, Inc.

Stockholders Litigation) and appointed lead plaintiff and counsel.

The currently operative complaint is the Complaint filed by Mark Jacobs.

The Complaint alleges, among other things, that in connection with the tender offer, the individual members of the DBMG Board of Directors and HC2, the now-controlling stockholder of DBMG, breached their fiduciary duties to members of the plaintiff class.

The Complaint also purports to challenge a potential short-form merger based upon plaintiff’s expectation that the Company would cash out the remaining public stockholders of DBMG following the completion of the tender offer.

The Complaint seeks rescission of the tender offer and/or compensatory damages, as well as attorney’s fees and other relief.

The defendants filed answers to the Complaint on July 30, 2015.

On November 15, 2019, the parties filed definitive documentation in support of a proposed settlement of the action.

On January 14, 2020, plaintiff filed an amended complaint restating and elaborating on the claims raised in the Complaint.

The amended Complaint seeks compensatory and rescissory damages, as well as attorney’s fees and other relief.

On February 13, 2020, the Court held a settlement hearing to consider the proposed settlement and certain objections filed by two current DBMG stockholders.

The Court expressed concerns about certain terms of the proposed settlement and the parties are considering how to address the Court’s concerns.

There can be no assurance that any settlement will be resubmitted by the parties or that the Delaware Courts will approve any settlement proposed by the parties.

If a settlement cannot be reached, the Company believes it has meritorious defenses and intends to vigorously defend this matter.

Fair Value Investments Litigation

On October 1, 2020, Fair Value Investments Incorporated (“FVI”) filed a putative stockholder class action and derivative complaint in the Delaware Court of Chancery against HC2 and certain of DBMG’s current and former officers and directors, including current and former HC2 officers and directors AJ Stahl, Kenneth S.

Courtis, Robert V.

Leffler, Jr., Philip A.

Falcone, Michael J.

Sena, and Paul Voigt (together with HC2, the “HC2 Defendants”) styled Fair Value Investments Incorporated v.

Roach, et al., C.A.

2020-0847-JTL (Del.

Ch.) (the “FVI Action”).

In the FVI Action, FVI alleges that HC2, in its capacity as DBMG’s controlling stockholder, and DBMG’s current and former officers and directors breached their fiduciary duties to DBMG and DBMG’s minority stockholders by approving certain transactions that allegedly provide disproportionate benefits to HC2.

FVI challenges the following transactions:

(i) DBMG’s payments to HC2 from 2016–present pursuant to a Tax Sharing Agreement between DBMG and HC2;

(ii) DBMG acting as a guarantor or providing collateral for loans taken on by HC2;

(iii) DBMG’s issuance of dividends to its common and preferred stockholders in 2017–2020;

(iv) DBMG’s issuance of preferred stock to HC2 to finance DBMG’s 2018 acquisition of GrayWolf Industrial;

and (v) HC2’s appointment of directors to DBMG’s board of directors by written consent in lieu of holding an annual stockholder meeting.

On February 23, 2021, FVI filed an Amended Verified Stockholder Class Action Complaint (the "Amended Complaint").

In the Amended Complaint, FVI named two additional defendants:

HC2’s Chief Executive Officer, Wayne Barr, and DBMG’s General Counsel, Scott D.

The Amended Complaint

includes additional fact allegations in support of the largely similar claims raised in the original complaint.

Defendants expect to file a motion to dismiss the Amended Complaint in early April.

HC2 believes the allegations in the FVI Amended Complaint are without merit and the HC2-related defendants have filed a motion to dismiss the complaint, which continues to be pending.

HC2 intends to vigorously defend this litigation.

OSHA Complaint

On November 4, 2020, the Company received notice that a complaint was filed on August 27, 2020 with the U.S.

Department of Labor ("DOL") (OSHA Complaint Number 2-4173-20-156), by a former employee of Continental Insurance Group Ltd.

alleging retaliatory employment practices in violation of the whistleblower provisions of the Sarbanes-Oxley Act.

The Company submitted a position statement to the DOL denying the material allegations in the complaint.

The DOL has not issued a determination.

Separation from Philip A.

The Company has engaged in ongoing negotiations with Philip A.

Falcone, the former Chairman, President and Chief Executive Officer of the Company, regarding his separation.

Falcone rejected the Company’s most recent severance offer, and on December 18, 2020, Mr.

Falcone filed a demand for arbitration against the Company with the American Arbitration Association.

The Company contends that the claims in Mr.

Falcone’s demand are without merit and that the Company has both factual and legal defenses.

In addition, Mr.

Falcone made two books and records demands of the Company, which the Company has denied, including in light of the fact that Mr.

Falcone is no longer a director of the Company.

MINE SAFETY DISCLOSURES

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 3. Legal Proceedings