Note

10.

Contingencies

Litigation

We are party to numerous legal proceedings arising in the normal course of our business. Although we do not anticipate that the resolution of legal proceedings arising in the normal course of business or the proceedings described below will have a material adverse effect on our business, results of operations, financial condition, or cash flows, we cannot predict this with certainty.

In Re Lithia Motors Derivative Litigation

April

26,

2017,

the Circuit Court of the State of Oregon for Marion County entered an order approving a settlement agreement between the plaintiffs and each of the defendants in

In re Lithia Motors Derivative Litigation

, Case No.

15CV33696.

The claims in this case related to the adoption of a transition agreement between Lithia and Sidney B. DeBoer, as disclosed in a Current Report on Form

-K filed

September

16,

2015.

As part of the settlement, no changes were made to the transition agreement with Mr. DeBoer, no damages were paid by any defendant, and no fault was ascribed to any of Lithia’s directors. The parties agreed to payment of approximately

million in plaintiff’s attorney fees and changes to Lithia’s corporate governance procedures, which will remain in place for at least

five

years, as follows:

•	Lithia will publicly disclose the most recent five years’ compensation of named executive officers;

•	Lithia will identify in its annual proxy statement and on its website the committees of the board of directors and the members of the committees;

•	Lithia will disclose the results of its annual say-on-pay vote by voting share class;

•	The audit and compensation committees of the board will each have one independent director who is not a member of both committees, subject to a cure period;

•	After 2017, a director may not serve more than four consecutive years as the chair of a board committee;

•	After the annual shareholder meeting in 2019, a director who served more than 15 years on the board would no longer be considered independent;

•	A director who is over 79 years old may not serve as an independent director;

•

A bar on non-member participation in executive sessions of the compensation committee, except for committee advisers and independent directors, and best efforts to limit the involvement of non-independent board members from compensation committee meetings where that individual’s compensation is discussed;

•	By 2020, the board will have five independent directors, subject to a cure period;

•	The compensation committee will retain a compensation consultant each year;

•	Lithia will submit any life-time compensation agreements for named executive officers that include payments over $1 million per year to shareholders for approval; and

•	Related party transactions over $1 million must be reviewed by the audit committee of the board.

The original derivative claim (Stein v. DeBoer et al.) was filed on

December

14,

2015

and consolidated with a subsequent claim (Jessos v. DeBoer, et al.) that was filed on

February

12,

2016.

The plaintiffs alleged that Lithia's directors breached their fiduciary duties of loyalty and due care, and wasted corporate assets, when they approved the agreement with Mr. DeBoer. The plaintiffs also alleged a claim against Sidney B. DeBoer, asserting that he has been unjustly enriched by the agreement. The plaintiffs sought relief in the amount of damages allegedly sustained by Lithia as a result of the alleged breaches of fiduciary duty and alleged corporate waste, disgorgement and imposition of a constructive trust on all property and profits Sidney B. DeBoer received as a result of the alleged wrongful conduct, and an award of the costs and disbursements of the lawsuit, including reasonable attorney fees, costs, and expenses.

California Wage and Hour Litigations

June

2012,

Mr. Robles and Mr. Laredo brought claims against DCH Tustin Acura (

Robles v. Tustin Motors, Inc.

, Case No.

2012

00579414,

filed in the Superior Court of California, Orange County) alleging that the employer underpaid technicians citing California Wage Order provisions that require an employer to pay at least

two

times the minimum wage for each hour worked if the employee is required to bring his or her own tools. The plaintiffs amended the complaint in late

2013

to include allegations that the employer failed to pay technicians for non-productive time and time spent performing tasks not compensated by the flat-rate compensation system; off-the-clock time worked; and wages due at termination. The amended complaint also alleged that the employer failed to provide technicians accurate and complete wage statements; and statutory meal and rest periods. The plaintiffs are seeking relief on behalf of all employees at all DCH Auto Group dealerships in California in addition to attorney fees and costs. These plaintiffs (and several other former technicians in separate but partially overlapping actions) also seek relief under California’s Private Attorney General Action (PAGA) provisions, which allow private plaintiffs to recover civil penalties on behalf of the State of California. DCH successfully compelled arbitration based on arbitration agreements between these claimants and the employer, although certain representative claims were excluded and stayed pending arbitration.

During the pendency of Robles, related cases were filed that made substantially similar technician claims including Holzer (see below). DCH and the Robles claimants settled their individual claims in mediation in

2015.

April

2016,

DCH and all technician plaintiffs in Robles and the related cases agreed in principle to settle the representative claims, although this settlement has not yet been approved by the California courts as expressly contemplated by the parties and required by applicable law as a condition of the agreed release of claims. DCH Auto Group (USA) Limited must indemnify Lithia Motors, Inc. for losses related to this claim pursuant to the stock purchase agreement between Lithia Motors, Inc. and DCH Auto Group (USA) Limited dated

June

14,

2014.

We believe the exposure related to this lawsuit, when considered in relation to the terms of the stock purchase agreement, is immaterial to our financial statements.

August

2014,

Ms. Holzer filed a complaint in the Central District of California (

Holzer v. DCH Auto Group (USA) Inc.

, Case No.

BC558869)

alleging that her employer, an affiliate of DCH Auto Group (USA) Inc., failed to provide vehicle finance and sales persons, service advisors, and other clerical and hourly workers accurate and complete wage statements; and statutory meal and rest periods. The complaint also alleges that the employer failed to pay these employees for off-the-clock time worked; and wages due at termination. The plaintiffs also seek attorney fees and costs. DCH has sought to compel arbitration based on plaintiffs’ arbitration agreements. The plaintiffs (and several other employees in separate actions) are seeking relief under California’s PAGA provisions.

During the pendency of Holzer, related cases were filed that made substantially similar non-technician claims. DCH and all non-technician claimants settled their individual claims in mediation in

2017.

January

2017,

DCH and all non-technician plaintiffs agreed in principle to settle the representative claims, although this settlement has not yet been approved by the California courts as expressly contemplated by the parties and required by applicable law as a condition of the agreed release of claims. DCH Auto Group (USA) Limited must indemnify Lithia Motors, Inc. for losses related to this claim pursuant to the stock purchase agreement between Lithia Motors, Inc. and DCH Auto Group (USA) Limited dated

June

14,

2014.

We believe the exposure related to this lawsuit, when considered in relation to the terms of the stock purchase agreement, is immaterial to our financial statements.