Health Net 2005 Annual Report Download - page 126

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
which those plaintiffs, in light of the Court’s December 20 judgment dismissing their claim for punitive damages,
“elected” to receive treble damages pursuant to the Texas Insurance Code and the Texas Civil Practices and
Remedies Code. On that same day AmCare-OK filed a motion for a new trial on the Court’s denial of its request
for attorneys’ fees. We filed a motion to strike that “election” of treble damages and deny the claim for treble
damages, and a motion for a new trial on the “election” of treble damages on January 3, 2006. On January 23,
2006, the Court heard the motion for a new trial filed by AmCare-OK, and the motion to strike and the motion
for a new trial that we filed. The Court denied AmCare-OK’s motion for a new trial on the attorneys’ fees, and
granted our motion to strike the election of treble damages. The grant of our motion to strike rendered our motion
for a new trial moot. The effect of the Court’s January 23, 2006 ruling is that the December 12 and December 20,
2005 judgments are now final for purposes of appeal. AmCare-LA and AmCare-OK have not yet appealed those
judgments.
The AmCare-LA action was originally filed against us on June 30, 2003. That original action sought only to
enforce a parental guarantee that FHC had issued in 1996 which obligated it to contribute sufficient capital to the
Louisiana health plan to enable the plan to maintain statutory minimum capital requirements. The original action
also alleged that the parental guarantee was not terminated in connection with the 1999 sale of the Louisiana
plan.
The AmCare-TX and AmCare-OK actions were originally filed in Texas state court, and we were made a
party to that action in the Third Amended Complaint that was filed on June 7, 2004. On September 30, 2004 and
October 15, 2004, the AmCare-TX receiver and the AmCare-OK receivers, respectively, intervened in the
pending AmCare-LA litigation. The actions before the Texas state court remained pending despite these
interventions. Following the intervention in the AmCare-LA action, all three receivers amended their complaints
to assert essentially the same claims and successfully moved to consolidate their three actions in Louisiana. The
consolidation occurred in November 2004. The consolidated actions then proceeded rapidly through extensive
pre-trial activities, including discovery and motions for summary judgment.
On April 25, 2005, the Court granted our motion for summary judgment on the grounds that AmCareco’s
mismanagement of the three plans after the 1999 sale was a superseding cause of approximately $46 million of
plaintiffs’ claimed damages. On May 27, 2005, the Court reconsidered that ruling and entered a new order
denying our summary judgment motion. The other defendants in the consolidated actions settled with plaintiffs
before the pre-trial proceedings were completed in early June 2005.
Following the Court’s reversal of its ruling on our summary judgment motion, the Court scheduled a trial
date of June 16, 2005, despite our repeated requests for a continuance to allow us to complete trial preparations
and despite our argument that the Louisiana Court lacked jurisdiction to adjudicate the claims of the Texas and
Oklahoma receivers due to the pendency of our appeal from the Louisiana court’s earlier order denying our
venue objection. Prior to the commencement of trial, the Court severed and stayed our claims against certain of
the settling defendants.
As noted above, there is substantially identical litigation against us pending in Texas. On January 9, 2006,
the Texas court ordered that the Texas action be stayed. The court ordered the parties to submit quarterly reports
regarding the status of the appeal in the Louisiana litigation. The Texas court will review those quarterly reports
and determine whether the stay should remain in place pending the appeal in the Louisiana case.
We have vigorously contested all of the claims asserted against us by the AmCare-TX receiver and the other
plaintiffs in the consolidated Louisiana actions since they were first filed. We intend to vigorously pursue all
avenues of redress in these cases, including post-trial motions and appeals and the prosecution of our pending but
stayed cross-claims against other parties. During the three months ended June 30, 2005, we recorded a pretax
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