Health Net 2013 Annual Report Download - page 154

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-50
Note 13—Commitments and Contingencies
Legal Proceedings
Overview
We record reserves and accrue costs for certain legal proceedings and regulatory matters to the extent that we
determine an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. While such
reserves and accrued costs reflect our best estimate of the probable loss for such matters, our recorded amounts may
differ materially from the actual amount of any such losses. In some cases, no estimate of the possible loss or range of
loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal and
regulatory proceedings, which may be exacerbated by various factors, including but not limited to that they may
involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel
legal theories or legal uncertainties; involve disputed facts; represent a shift in regulatory policy; involve a large
number of parties, claimants or regulatory bodies; are in the early stages of the proceedings; involve a number of
separate proceedings, each with a wide range of potential outcomes; or result in a change of business practices. Further,
there may be various levels of judicial review available to the Company in connection with any such proceeding in the
event damages are awarded or a fine or penalty is assessed. As of the date of this report, amounts accrued for legal
proceedings and regulatory matters were not material. However, it is possible that in a particular quarter or annual
period our financial condition, results of operations, cash flow and/or liquidity could be materially adversely affected by
an ultimate unfavorable resolution of or development in legal and/or regulatory proceedings, including those described
below in this Note 13 under the headings “Military Family Life Consultants Putative Class and Collective Actions” and
“Litigation and Investigations Related to Unaccounted-for Server Drives,” depending, in part, upon our financial
condition, results of operations, cash flow or liquidity in such period, and our reputation may be adversely affected.
Except for the regulatory and legal proceedings discussed in this Note 13 under the headings “Military Family Life
Consultants Putative Class and Collective Actions” and “Litigation and Investigations Related to Unaccounted-for
Server Drives,” management believes that the ultimate outcome of any of the regulatory and legal proceedings that are
currently pending against us should not have a material adverse effect on our financial condition, results of operations,
cash flow and liquidity.
Military Family Life Consultants Putative Class and Collective Actions
We are a defendant in three related litigation matters pending in Washington state court and California federal
court relating to the independent contractor classification of Military Family Life Consultants (“MFLCs”) who
contracted with our subsidiary, Managed Health Network Government Services, Inc. (“MHNGS”), to provide short-
term, non-medical counseling at U.S. military installations throughout the country.
On June 14, 2011, two former MFLCs filed a putative class action in the Superior Court of the State of
Washington for Pierce County against Health Net, Inc., MHNGS, and MHN Services d/b/a MHN Services Corporation
(also a subsidiary), on behalf of themselves and a proposed class of current and former MFLCs who have performed
services as independent contractors in the state of Washington from June 14, 2008 to the present. Plaintiffs claim that
MFLCs were misclassified as independent contractors under Washington law and are entitled to the wages and overtime
pay that they would have received had they been classified as non-exempt employees. Plaintiffs seek unpaid wages,
overtime pay, statutory penalties, attorneys’ fees and interest. We moved to compel the case to arbitration, and the court
denied the motion on September 30, 2011. We appealed the decision. The Washington Supreme Court affirmed the trial
court’s decision on August 15, 2013. On February 26, 2014, we removed this case to the United States District Court
for the Western District of Washington, pursuant to the Class Action Fairness Act.
On May 15, 2012, the same two MFLCs who filed the Washington action, as well as twelve other named
plaintiffs, filed a proposed collective action lawsuit against the same defendants in the United States District Court for
the Western District of Washington on behalf of themselves and other current and former MFLCs who have performed
services as independent contractors nationwide from May 15, 2009 to the present. They allege misclassification under
the federal Fair Labor Standards Act (“FLSA”) and seek unpaid wages, unpaid benefits, overtime pay, statutory
penalties, attorneys’ fees and interest. They also seek penalties under California Labor Code section 226.8. The court