Health Net 2014 Annual Report Download - page 59

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an ultimate unfavorable resolution of or development in legal and/or regulatory proceedings, including those described
below in this Item 3 under the heading “Military and Family Life Counseling Program Putative Class and Collective
Actions,” 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 heading “Military and Family Life Counseling Program Putative Class and Collective Actions,” 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 and Family Life Counseling Program Putative Class and Collective Actions
We are a defendant in three related litigation matters pending in the United States District Court for the Northern
District of California (the “Northern District of California”) relating to the independent contractor classification of
counselors (“MFLCs”) who contracted with our subsidiary, MHN Government Services, Inc. (“MHNGS”), to provide
short-term, non-medical counseling at U.S. military installations throughout the country under our Military and Family
Life Counseling (formerly Military and Family Life Consultants) program.
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 12 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 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 third October 2012 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 an outcome in the Ninth Circuit appeal. On December 17, 2014, a divided (2-1) Ninth
Circuit panel affirmed the district court’s decision denying our motion to compel arbitration. On January 14, 2015, we
petitioned for rehearing en banc, and the Ninth Circuit denied the petition on February 9, 2015. On February 13, 2015,
the Ninth Circuit granted our motion to stay the proceedings, and the proceedings will remain stayed until the final
disposition by the U.S. Supreme Court of our petition for a writ of certiorari.
On March 28, 2014, the original Washington case was transferred to the Northern District of California to relate it
to the two FLSA suits pending there. On April 11, 2014, we moved to stay the suit pending the Ninth Circuit appeal. We
also filed two alternative motions seeking an order to either compel the case to arbitration or dismiss Plaintiffs’ class
claims and California Labor Code section 226.8 claims. On June 3, 2014, the court granted our motion to stay, and
denied the later alternative motions without prejudice to renewal after the stay is lifted.
We intend to vigorously defend ourselves against these claims; however, these proceedings are subject to many
uncertainties.