Health Net 2013 Annual Report Download - page 56

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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 Item 3 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 Item 3 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
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