Health Net 2010 Annual Report Download - page 138

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
in our favor against those receivers, finding that the receivers’ claims failed as a matter of law. As a result, those
receivers’ cross appeals were rendered moot. The Court of Appeal also reversed the trial court judgment in favor
of the AmCare-LA receiver, with the exception of a single breach of contract claim, on which it entered
judgment in favor of the AmCare-LA receiver in the amount of $2 million. On January 14, 2009, the three
receivers filed a request for rehearing by the Court of Appeal. On February 13, 2009, the Court of Appeal denied
the request for a rehearing. Following the Court of Appeal’s denial of the requests for rehearing, each of the
receivers filed applications for a writ with the Louisiana Supreme Court. On December 18, 2009, the Louisiana
Supreme Court granted the receivers’ writs, and oral argument was held on March 16, 2010.
In light of the original trial court judgments against us, on November 3, 2006, we filed a complaint in the
U.S. District Court for the Middle District of Louisiana and simultaneously filed an identical suit in the 19th
Judicial District Court in East Baton Rouge Parish seeking to nullify the three judgments that were rendered
against us on the grounds of ill practice which resulted in the judgments entered. We have alleged that the
judgments and other prejudicial rulings rendered in these cases were the result of impermissible ex parté contacts
between the receivers, their counsel and the trial court during the course of the litigation. Preliminary motions
and exceptions have been filed by the receivers for AmCare-TX, AmCare-OK and AmCare-LA seeking
dismissal of our claim for nullification on various grounds. The federal judge dismissed our federal complaint
and we appealed to the U.S. Fifth Circuit Court of Appeals. On July 8, 2008, the Fifth Circuit issued an opinion
affirming the district court’s dismissal of the federal complaint, albeit on different legal grounds from those
relied upon by the district court. The state court nullity action has been stayed pending the resolution of our
jurisdictional appeal in the federal action and has remained stayed during the pendency of the appeal of the
underlying judgments.
We intend to vigorously defend ourselves against the claims brought in these matters; however, these
proceedings are subject to many uncertainties, and, given their complexity and scope, their final outcome,
including the outcome of appeals, cannot be predicted at this time. It is possible that in a particular quarter or
annual period our financial condition, results of operations, cash flow and/or liquidity could be materially and
adversely affected by an ultimate unfavorable resolution of, or development in, any or all of these proceedings
depending, in part, upon our financial condition, results of operations, cash flow or liquidity in such period.
However, at this time, management believes that the ultimate outcome of these proceedings should not have a
material adverse effect on our financial condition, results of operations, cash flow and liquidity.
Miscellaneous Proceedings
In the ordinary course of our business operations, we are also subject to periodic reviews and audits by
various regulatory agencies with respect to our compliance with a wide variety of rules and regulations
applicable to our business, including, without limitation, the Health Insurance Portability and Accountability Act
of 1996, or HIPAA, rules relating to pre-authorization penalties, payment of out-of-network claims, timely
review of grievances and appeals, and timely and accurate payment of claims, any one of which may result in
remediation of certain claims and the assessment of regulatory fines or penalties. From time to time, we receive
subpoenas and other requests for information from such regulatory agencies, as well as from state attorneys
general. There also continues to be heightened review by regulatory authorities of, and increased litigation
regarding, the health care industry’s business practices, including, without limitation, premium rate increases,
utilization management, appeal and grievance processing, information privacy, rescission of insurance coverage
and claims payment practices.
In addition, in the ordinary course of our business operations, we are party to various other legal
proceedings, including, without limitation, litigation arising out of our general business activities, such as
contract disputes, employment litigation, wage and hour claims, real estate and intellectual property claims,
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