Health Net 2005 Annual Report Download - page 122

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
On August 5, 2004, the District Court granted plaintiffs’ motion for class certification and issued an Order
certifying a nationwide class of Health Net subscribers who received medical services or supplies from an
out-of-network provider and to whom Defendants paid less than the providers’ actual charge during the period
from 1997 to 2004. On August 23, 2004, we requested permission from the Court of Appeals for the Third
Circuit to appeal the District Court’s class certification Order pursuant to Rule 23(f) of the Federal Rules of Civil
Procedure. On November 14, 2004, the Court of Appeals for the Third Circuit granted our motion to appeal. On
March 4, 2005, the Third Circuit issued a briefing and scheduling order for our appeal. Briefing on the appeal
was completed on June 15, 2005. Oral argument was heard by the Third Circuit on December 15, 2005. The
Third Circuit has not rendered a decision on the appeal.
On January 13, 2005, counsel for the plaintiffs in the McCoy/Wachtel actions filed a separate class action
against Health Net, Inc., Health Net of the Northeast, Inc., Health Net of New York, Inc., Health Net Life
Insurance Co., and Health Net of California, Inc. captioned Scharfman v. Health Net, Inc., 05-CV-00301
(FSH)(PS) (United States District Court for the District of New Jersey) on behalf of the same parties who would
have been added to the McCoy/Wachtel action as additional class representatives had the District Court granted
the plaintiffs’ motion for leave to amend their complaint in that action. This new action contains similar
allegations to those made by the plaintiffs in the McCoy/Wachtel action.
Discovery has concluded and a final pre-trial order was submitted to the District Court in McCoy/Wachtel
on June 28, 2005. Both sides have moved for summary judgment, and briefing on those motions has been
completed. In their summary judgment briefing, plaintiffs also sought appointment of a monitor to act as an
independent fiduciary to oversee the administration of our Northeast health plans (including claims payment
practices). We have opposed the appointment of a monitor. Notwithstanding our pending Third Circuit appeal of
the District Court’s class certification order, a trial date was set for September 19, 2005. On July 29, 2005, we
filed a motion in the District Court to stay the District Court action and the trial in light of the pending Third
Circuit appeal. On August 4, 2005, the District Court denied our motion to stay and instead adjourned the
September 19 trial date and ordered that the parties be prepared to go to trial on seven days’ notice as of
September 19, 2005. We immediately filed a request for a stay with the Third Circuit seeking an order directing
the District Court to refrain from holding any trial or entering any judgment or order that would have the effect of
resolving any claims or issues affecting the disputed class until the Third Circuit rules on the class certification
order. Plaintiffs cross-moved for dismissal of the class certification appeal. On September 27, 2005, the Third
Circuit granted our motion for a stay and denied plaintiffs’ cross-motion. Plaintiffs have not specified the amount
of damages being sought in this litigation and, although these proceedings are subject to many uncertainties,
based on the proceedings to date, we believe the amount of damages ultimately asserted by plaintiffs could be
material.
On August 9, 2005, Plaintiffs filed a motion with the District Court seeking sanctions against us for a
variety of alleged acts of serious misconduct, discovery abuses and fraud on the District Court. The sanctions
sought by plaintiffs and being considered by the Court include, among others, entry of a default judgment,
monetary sanctions, including a substantial award for plaintiffs’ legal fees and either the appointment of a
monitor to oversee our claims payment practices and our dealings with state regulators or the appointment of an
independent fiduciary to replace the company as a fiduciary with respect to our claims adjudications for
members. On September 12, 2005, we responded to plaintiffs’ motion denying that any sanctionable misconduct,
discovery abuses or fraud had occurred. The District Court held hearings on plaintiffs’ motion for sanctions on
October 17 and 18, 2005, November 15 – 17, 2005, November 22, 2005, December 19 and 20, 2005 and
January 5, 2006. Throughout the hearing process, the parties took additional depositions and submitted additional
briefs on issues that arose during the hearings. The hearings have recessed but not concluded.
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