Health Net 2005 Annual Report Download - page 38

on November 3, 2005. We filed a motion for suspensive appeal and posted the required security within the delays
allowed by law. A briefing schedule will be issued once the record is lodged with the appellate court.
The proceedings regarding the claims of the AmCare-LA receiver and the AmCare-OK receiver continued
in the trial court until July 8, 2005, when written final arguments were submitted. In their final written
arguments, the AmCare-LA and AmCare-OK receivers asked the Court to award approximately $33.9 million in
compensatory damages against us and requested that the Court award punitive or other non-compensatory
damages and attorneys’ fees. On November 4, 2005, the Court issued two judgments, one awarding AmCare-LA
compensatory damages, and a separate judgment awarding AmCare-OK compensatory damages. Both judgments
allocated 70% of the fault to us, and the remaining 30% to other persons and companies. The judgment in favor
of AmCare-LA found that despite the allocation of fault, we were contractually liable for 100% of AmCare-LA’s
compensatory damages. The result is that the Court awarded AmCare-LA approximately $9.5 million and
AmCare-OK approximately $17 million in compensatory damages. We filed motions for suspensive appeal and
posted security within the delays allowed by law.
On November 21, 2005, the Court proceeded with the bifurcated trial on AmCare-LA and AmCare-OK’s
claims for punitive damages, other non-compensatory damages and attorneys’ fees. The Court signed a judgment
on December 6, 2005, in which it denied AmCare-LA’s request for attorneys’ fees. The Court signed a judgment
on December 12, 2005, in which it denied AmCare-OK’s request for attorneys’ fees. The Court signed another
judgment on December 20, 2005, in which it dismissed AmCare-LA and AmCare-OK’s claim for punitive
damages. On December 21, 2005, AmCare-LA and AmCare-OK filed a notice of election of treble damages in
which those plaintiffs, in light of the Court’s December 20 judgment dismissing their claim for punitive damages,
“elected” to receive treble damages pursuant to the Texas Insurance Code and the Texas Civil Practices and
Remedies Code. On the same day AmCare-OK filed a motion for a new trial on the Court’s denial of its request
for attorneys’ fees. We filed a motion to strike that “election” of treble damages and deny the claim for treble
damages, and a motion for a new trial on the “election” of treble damages on January 3, 2006. On January 23,
2006, the Court heard the motion for a new trial filed by AmCare-OK, and the motion to strike and the motion
for a new trial that we filed. The Court denied AmCare-OK’s motion for a new trial on the attorneys’ fees, and
granted our motion to strike the election of treble damages. The grant of our motion to strike rendered our motion
for a new trial moot. The effect of the Court’s January 23, 2006 ruling is that the December 12 and December 20,
2005 judgments are now final for purposes of appeal. AmCare-LA and AmCare-OK have not yet appealed those
judgments.
The AmCare-LA action was originally filed against us on June 30, 2003. That original action sought only to
enforce a parental guarantee that FHC had issued in 1996 which obligated it to contribute sufficient capital to the
Louisiana health plan to enable the plan to maintain statutory minimum capital requirements. The original action
also alleged that the parental guarantee was not terminated in connection with the 1999 sale of the Louisiana
plan.
The AmCare-TX and AmCare-OK actions were originally filed in Texas state court, and we were made a
party to that action in the Third Amended Complaint that was filed on June 7, 2004. On September 30, 2004 and
October 15, 2004, the AmCare-TX receiver and the AmCare-OK receivers, respectively, intervened in the
pending AmCare-LA litigation. The actions before the Texas state court remained pending despite these
interventions. Following the intervention in the AmCare-LA action, all three receivers amended their complaints
to assert essentially the same claims and successfully moved to consolidate their three actions in Louisiana. The
consolidation occurred in November 2004. The consolidated actions then proceeded rapidly through extensive
pre-trial activities, including discovery and motions for summary judgment.
On April 25, 2005, the Court granted our motion for summary judgment on the grounds that AmCareco’s
mismanagement of the three plans after the 1999 sale was a superseding cause of approximately $46 million of
plaintiffs’ claimed damages. On May 27, 2005, the Court reconsidered that ruling and entered a new order
36