Health Net 2003 Annual Report Download - page 103

Cap Z’s complaint alleges that we made certain misrepresentations and/or omissions, relating to the sufficiency of
BIG’s reserves, the nature of its internal financial condition (including its accounts receivable) and the status of certain of
its “captive” insurance programs. Cap Z claims that in reliance thereon it voted its shares in favor of the BIG acquisition
and provided financing to Superior for that transaction. Cap Z alleges at least $250 million in damages and seeks
unspecified punitive damages and the costs of the action, including attorney’s fees. We removed the action from New
York state court to the District Court for the Southern District of New York. Presently before that court is Cap Z’s motion
to remand the action to state court and our motion to dismiss the action. No hearing date for those motions has been
scheduled. We intend to defend ourselves vigorously against Cap Z’s claims. Based on the information we have to date,
we believe that the final outcome of this case would not have a material adverse effect upon our financial condition,
results of operations or liquidity; however, our belief regarding the likely outcome could change in the future and an
unfavorable outcome could have a material adverse effect upon our financial condition, results of operations or liquidity.
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
San Diego. The complaints allege that we and such former officers violated federal and state securities laws by
misrepresenting 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 was withdrawn without prejudice and the cases were settled without calling for any
payment from us or our insurer. The United States District Court for the Southern District of California granted final
approval to the settlement on October 14, 2003.
In July 1998, FPA and its corporate affiliates filed petitions in the United States Bankruptcy Court for the District of
Delaware (Bankruptcy Court) seeking protection from their creditors under Title 11 of the U.S. Code. In 2000, we were
served with an adversary complaint filed in the Bankruptcy Court by Joseph Pardo, Trustee of The FPA Creditor Trust
established under FPA’s Chapter 11 Plan of Reorganization (Trustee) in connection with certain transactions between us
and FPA entered into between 1996 and 1998. In January 2004, we and the Trustee reached a global settlement of all
claims and disputes between us, subject to final Bankruptcy Court approval. The agreement provides that we will make a
one-time settlement payment of $800,000 to the Trustee, in exchange for full and complete releases of all known or
unknown claims that the Trustee or the FPA Debtors might now hold against us or any of our affiliates, as well as a
dismissal with prejudice of the Trustee’s adversary action. We expect that the Bankruptcy Court will issue its order
approving the settlement during the first calendar quarter of 2004. Once final Bankruptcy Court approval of the settlement
is obtained and the settlement agreement is performed, this matter will be fully and completely resolved.
In Re Managed Care Litigation
The Judicial Panel on Multidistrict Litigation (JPML) has transferred various class action lawsuits against managed
care companies, including us, to the United States District Court for the Southern District of Florida for coordinated or
consolidated pretrial proceedings in In re Managed Care Litigation, MDL 1334. This proceeding is divided into two
tracks, the subscriber track, which includes actions brought on behalf of health plan members, and the provider track,
which includes suits brought on behalf of health care providers. As described below, each of the subscriber track actions
against Health Net-affiliated entities has been dismissed with prejudice, either pursuant to a settlement agreement or on
the merits, and the subscriber track has been closed.
Subscriber Track
The subscriber track included four actions involving us, three of which sought certification of nationwide class
actions for unspecified damages and injunctive relief.
On September 26, 2002, the Court denied the motion for class certification in the lead action against us in the
subscriber track. In the interest of avoiding the further expense and burden of continued litigation, we resolved all three
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