Health Net 2005 Annual Report Download - page 125

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
years after the sale of the three health plans, the plans were placed under applicable state oversight and ultimately
placed into receivership later that year. The receivers for each of the plans later filed suit against certain of
AmCareco’s officers, directors and investors, AmCareco’s independent auditors and outside counsel, and us. The
plaintiffs contend that, among other things, we were responsible as a “controlling shareholder” of AmCareco
following the sale of the plans for post-acquisition misconduct by AmCareco and others that caused the three
health plans ultimately to be placed into receiverships.
On June 16, 2005, a trial of the claims asserted against us by the three receivers commenced in state court in
Baton Rouge, Louisiana. The claims of the receiver for the Texas plan (AmCare-TX) were tried before a
Louisiana jury and the claims of the receiver for the Louisiana plan (AmCare-LA) and the receiver for the
Oklahoma plan (AmCare-OK) were simultaneously tried before the Court. On June 30, 2005, the jury
considering the claims of AmCare-TX returned a $117 million verdict against us, consisting of $52.4 million in
compensatory damages and $65 million in punitive damages. The jury found us 85% at fault for the
compensatory damages based on the AmCare-TX receiver’s claims of breach of fiduciary duty, fraud, unfair or
deceptive acts or practices and conspiracy. Following the jury verdict, the AmCare-TX receiver asserted that, as
an alternative to the award of punitive damages, the Court could award up to three times the compensatory
damages awarded to the AmCare-TX receiver. We opposed that assertion. On August 2, 2005, the Court entered
judgment on the jury’s verdict in the AmCare-TX matter. In its judgment, the Court, among other things, reduced
the compensatory damage award to $44.5 million (which is 85% of the jury’s $52.4 million compensatory
damage award) and rejected the AmCare-TX receiver’s demand for a trebling of the compensatory damages. The
judgment also included the award of $65 million in punitive damages.
On August 12, 2005, after entry of judgment in the AmCare-TX claim, we filed post-trial motions with the
Court asking that the judgment be vacated or, alternatively, reduced. On August 19, 2005, the Court heard the
motions and granted us partial relief by reducing the compensatory damage award by an additional 15% (based
upon the fault of other individuals involved in the proceeding) and by reducing the punitive damage award by
30%. As a result of these reductions, the compensatory damages have been reduced to $36.7 million, and the
punitive damages have been reduced to $45.5 million. The Court signed the judgment reflecting these reductions
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. But, 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, 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
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