Health Net 2002 Annual Report Download - page 77

HEALTH NET, INC. | 75
■we and FHC were guilty of California securities laws
violations in connection with the sale of BIG.
Superior seeks $300 million in compensatory
damages, unspecified punitive damages and the costs of the
action, including attorneys’ fees. In discovery, Superior has
offered testimony as to various damages claims, ranging as
high as $408 million plus unspecified amounts of punitive
damages. We dispute all of Superior’s claims, including the
entire amount of damages claimed by Superior.
On August 1, 2000, a motion filed by us and FHC to
remove the lawsuit from the jurisdiction of the Bankruptcy
Court to the United States District Court for the Central
District of California was granted. Pursuant to a June 12,
2002 intra-district transfer order, the lawsuit was trans-
ferred to Judge Percy A. Anderson. On August 23, 2002,
pursuant to a stipulation filed by Superior and M&R,
Superior dismissed all of its claims against M&R. On
December 5, 2002, however, Judge Anderson recused
himself and issued a second intra-district transfer order.
The lawsuit is now pending in the District Court under
case number SACV-00-658 (GLT)(MLG) before Judge
Gary L. Taylor. We and Superior are completing discovery
and are engaged in pretrial motions. On December 20,
2002, Judge Taylor issued an order setting a discovery cut-
off date of July 2, 2003 and a trial date to be held in
November 2003.
We intend to defend ourselves vigorously in this litiga-
tion. While the final outcome of these proceedings cannot
be determined at this time, based on information presently
available, we believe that the final outcome of such
proceedings will not have a material adverse effect upon
our results of operations or financial condition. However,
our belief regarding the likely outcome of such proceedings
could change in the future and an unfavorable outcome
could have a material adverse effect upon our results of
operations or financial condition.
FPA MEDICAL MANAGEMENT, INC.
Since May 1998, several complaints have been filed in
federal and state courts seeking an unspecified amount of
damages on behalf of an alleged class of persons who
purchased shares of common stock, convertible subordinated
debentures and options to purchase common stock of FPA
Medical Management, Inc. (FPA) at various times between
February 3, 1997 and May 15, 1998. The complaints name
as defendants FPA, certain of FPA’s auditors, us and certain
of our former officers, and were filed in the following courts:
United States District Court for the Southern District of
California; United States Bankruptcy Court for the District of
Delaware; and California Superior Court in the County of
Sacramento. The complaints allege that we and such former
officers violated federal and state securities laws by misrepre-
senting and failing to disclose certain information about a
1996 transaction between us and FPA, about FPA’s business
and about our 1997 sale of FPA common stock held by us.
All claims against our former officers were voluntarily
dismissed from the consolidated class actions in both federal
and state court. In early 2000, we filed a motion to dismiss
all claims asserted against us in the consolidated federal
class actions but have not formally responded to the other
complaints. That motion has been withdrawn without
prejudice and the consolidated federal class actions have
been stayed pending resolution of matters in a related case
in which we are not a party.
We intend to vigorously defend the actions. While
the final outcome of these proceedings cannot be deter-
mined at this time, based on information presently avail-
able, we believe that the final outcome of such proceedings
will not have a material adverse effect upon our results of
operations or financial condition. However, our belief
regarding the likely outcome of such proceedings could
change in the future and an unfavorable outcome could
have a material adverse effect upon our results of opera-
tions or financial condition.
STATE OF CONNECTICUT V. PHYSICIANS HEALTH SERVICES, INC.
Physicians Health Services, Inc. (PHS), a subsidiary of ours,
was sued on December 14, 1999 in the United States
District Court in Connecticut by the Attorney General of
Connecticut, Richard Blumenthal, acting on behalf of a
group of state residents. The lawsuit was premised on the
Federal Employee Retirement Income Security Act
(“ERISA”) and alleged that PHS violated its duties under
ERISA by managing its prescription drug formulary in a
manner that served its own financial interest rather than
those of plan beneficiaries. The suit sought to have PHS
revamp its formulary system and to provide patients with
written denial notices and instructions on how to appeal.
PHS filed a motion to dismiss which asserted that the state
residents the Attorney General purported to represent all
received a prescription drug appropriate for their condi-
tions and therefore suffered no injuries whatsoever, that his
office lacked standing to bring the suit and that the allega-
tions failed to state a claim under ERISA. On July 12,
2000, the court granted PHS’ motion and dismissed the
action. On March 27, 2002, the United States Court of
Appeals for the Second Circuit affirmed the district court’s
dismissal of the action. On June 25, 2002, the plaintiff filed
a petition requesting that the United States Supreme Court
review the Second Circuit’s decision to affirm dismissal of
the case. On October 7, 2002, the United States Supreme
Court denied plaintiff’s petition for review. As a result, we
believe the Company has no further exposure for this case.