Health Net 2013 Annual Report Download - page 155

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-51
has since transferred the case to the United States District Court for the Northern District of California (the “Northern
District of California”) to relate it to a virtually identical suit filed on October 2, 2012 against MHNGS and Managed
Health Network, Inc. (“MHN”) (also a subsidiary).
The October 2012 Northern District of California suit alleges misclassification under the FLSA on behalf of a
nationwide class, as well under several state laws on behalf of MFLCs who worked in California, New Mexico, Hawaii,
Kentucky, New York, Nevada, and North Carolina. On October 24, 2013, the parties agreed to toll the statutes of
limitations for overtime violations in the following states: Alaska, Colorado, Illinois, Maine, Maryland, Massachusetts,
Montana, New Jersey, North Dakota, Ohio, and Pennsylvania.
On November 1, 2012, we moved to compel arbitration in the Northern District of California, and the court
denied the motion on April 3, 2013. We noticed our appeal of that decision to the United States Court of Appeals for the
Ninth Circuit on April 8, 2013. On April 25, 2013, the district court granted Plaintiffs’ motion for conditional FLSA
collective action certification to allow notice to be sent to the FLSA collective action members. The court stayed all
other proceedings pending the Ninth Circuit appeal. On September 13, 2013, Plaintiffs moved to dismiss the appeal
based on collateral estoppel in light of the Washington Supreme Court’s August 15, 2013 ruling. We opposed that
motion. The appeal and Plaintiffs’ motion to dismiss are currently pending.
We intend to vigorously defend ourselves against these claims; however, these proceedings are subject to many
uncertainties.
Litigation and Investigations Related to Unaccounted-for Server Drives
We are a defendant in three related litigation matters pending in California state and federal courts relating to
information security issues. On January 21, 2011, International Business Machines Corp. ("IBM"), which handles our
data center operations, notified us that it could not locate several hard disk drives that had been used in our data center
located in Rancho Cordova, California. We have since determined that personal information of approximately two
million former and current Health Net members, employees and health care providers is on the drives. Commencing on
March 14, 2011, we provided written notification to the individuals whose information is on the drives. To help protect
the personal information of affected individuals, we offered them two years of free credit monitoring services, in
addition to identity theft insurance and fraud resolution and restoration of credit files services, if needed.
On March 18, 2011, a putative class action relating to this incident was filed against us in the U.S. District Court
for the Central District of California (the "Central District of California"), and similar actions were later filed against us
in other federal and state courts in California. A number of those actions were transferred to and consolidated in the
U.S. District Court for the Eastern District of California (the "Eastern District of California"), and the two remaining
actions are currently pending in the Superior Court of California, County of San Francisco ("San Francisco County
Superior Court") and the Superior Court of California, County of Sacramento ("Sacramento County Superior Court").
The consolidated amended complaint in the federal action pending in the Eastern District of California was filed on
behalf of a putative class of over 800,000 of our current or former members who received the written notification, and
also named IBM as a defendant. It sought to state claims for violation of the California Confidentiality of Medical
Information Act and the California Customer Records Act, and sought statutory damages of up to $1,000 for each class
member, as well as injunctive and declaratory relief, attorneys’ fees and other relief. On January 20, 2012, the district
court issued an order dismissing the consolidated complaint on the grounds that the plaintiffs lacked standing to bring
their action in federal court. On April 20, 2012, an amended complaint with a new plaintiff was filed against us, but no
longer asserted claims against IBM. The amended complaint asserted the same causes of action and sought the same
relief as the earlier complaint. On June 18, 2012, we filed a motion to dismiss the amended complaint, which is
currently pending.
The San Francisco County Superior Court proceeding was instituted on March 28, 2011 and is brought on behalf
of a putative class of California residents who received the written notification, and seeks to state similar claims against
us, as well as claims for violation of California's Unfair Competition Law, and seeks similar relief. We moved to
compel arbitration of the two named plaintiffs’ claims. The court granted our motion as to one of the named plaintiffs
and denied it as to the other. We are appealing the latter ruling. Thereafter, the plaintiff as to whom our motion to
compel arbitration was granted filed a petition for a writ of mandate with the California Court of Appeal seeking review