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Litigation and Contingencies
12 Months Ended
Dec. 31, 2021
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Disclosure [Text Block]

Note 22 Litigation and Contingencies

 

The Company is a party to, and certain of its property is the subject of, various pending claims and legal proceedings that routinely arise in the ordinary course of its business. The Company accrues 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, the Company records the minimum estimated liability related to the claim. As additional information becomes available, the Company assesses the potential liability related to its pending litigation and revises its estimates.

 

A purported class action lawsuit was filed on November 10, 2020 in the United States District Court for the District of Delaware (Brown v. JAKKS Pacific, Inc. et al) alleging that the Proxy Statement issued in connection with the shareholder meeting held in June 2020 contained misstatements regarding the manner in which broker votes would be counted and that such votes were improperly included in approving the Company’s Reverse Stock Split at the meeting. The purported class action seeks damages in an unspecified amount, alleging breach of fiduciary duties by the Company’s directors. On April 30, 2021, the Company held a Special Meeting of the Shareholders to obtain shareholder ratification of the filing of the Certificate of Amendment to its Certificate of Incorporation effecting the Reverse Stock Split, in accordance with ratification procedures under Delaware law, which approval was obtained. The Company settled this matter on December 14, 2021, paying only legal fees to plaintiff’s attorneys, and the case was dismissed.

 

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 the Company’s warehouses and was retained via Workforce Enterprises, a provider of temporary employees. The lawsuit alleges that the Company violated various California Labor Code provisions governing wage and hour requirements, including that the Company 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 the Company—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, but we cannot determine if a Complaint was served on them. No formal discovery has commenced, and so the Company cannot be assured of the outcome of the action and cannot estimate the range of any potential damage award.

 

In addition, 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 the Company’s warehouses and was retained via Workforce Enterprises, a provider of temporary employees. The lawsuit alleges that the Company 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 the Company—either directly or through a staffing agency—in California since December 8, 2020 and who were classified as non-exempt. No formal discovery has commenced, and so the Company cannot be assured of the outcome of the action and cannot estimate the range of any potential damage award.

 

The Company has demanded indemnification for both of these matters from the temporary employee providers who supplied temporary employees to the Company during the relevant time periods at issue in the lawsuits. A mediation between the Company and counsel for both matters is scheduled for March 24, 2022.

 

In the normal course of business, the Company may provide certain indemnifications and/or other commitments of varying scope to a) its licensors, customers and certain other parties, including against third-party claims of intellectual property infringement, and b) its officers, directors and employees, including against third-party claims regarding the periods in which they serve in such capacities with the Company. The duration and amount of such obligations is, in certain cases, indefinite. The Company's director’s and officer’s liability insurance policy may, however, enable it to recover a portion of any future payments related to its 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 the Company's licensors, no liabilities have been recorded for indemnifications and/or other commitments.