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Commitments and Contingencies
9 Months Ended
Sep. 30, 2012
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
Legal Proceedings
Shareholder Litigation
On August 16, 2012, a purported class action lawsuit captioned City of Monroe Employees Retirement System & Louisiana Municipal Police Employees Retirement System v. Capps, et al., C.A. No. 7788, was filed in the Delaware Court of Chancery, arising out of WellPoint's proposed acquisition of the Company, against the AMERIGROUP board of directors, several of its officers, one of the banks advising the Company on the proposed transaction, WellPoint and Merger Sub (see Note 10). The lawsuit generally alleged that the individual defendants breached their fiduciary duties in connection with the Merger because the Merger Consideration was unfair, certain other terms in the Merger Agreement were unfair, certain individual defendants were financially interested in the Merger, the Company's financial advisors were conflicted, and the disclosures concerning the Merger Agreement were materially misleading or incomplete. The lawsuit further alleged that WellPoint and the investment bank defendant aided and abetted these alleged breaches of fiduciary duty. Specifically, the plaintiffs alleged that the sales process was flawed because the investment bank defendant could have received certain cancellation payments for warrants that it purchased in 2007 in connection with the Company's purchase of hedge instruments and sale of warrant instruments ("Call Spread Transactions") associated with the issuance of its 2.0% Convertible Senior Notes if the Company completed a transaction by October 22, 2012 (see Note 9). Among other remedies, the lawsuit sought to enjoin the Merger, or in the event that an injunction was not awarded, unspecified money damages, costs and attorneys' fees.
On August 24, 2012, the plaintiffs amended their complaint and revised their allegations relating to the Call Spread Transactions. The amended complaint alleged that, under the terms of the Call Spread Transactions, the investment bank defendant was incentivized to cause a deal to be announced by August 13, 2012, the day the warrants began to expire, so that it could benefit from any increase in the price of the Company's common stock resulting from an announcement of the sale of the Company. The other claims and remedies in the amended complaint did not significantly change and did not materially alter the plaintiffs' original claims.
On October 2, 2012, solely to avoid the costs, risks and uncertainties inherent in litigation, and without admitting any liability or wrongdoing, the parties to the lawsuit entered into a memorandum of understanding (“MOU”) to settle all claims asserted therein. In connection with the MOU, the Company agreed to (i) reduce the termination fee in the Merger Agreement from $146.0 million to $97.0 million; (ii) extend the meeting date of the special meeting of stockholders of AMERIGROUP Corporation by two weeks (from October 9, 2012 to October 23, 2012); and (iii) file with the Securities and Exchange Commission a Current Report on Form 8-K that identified these terms and stated that the Company's board of directors, pursuant to the Merger Agreement and consistent with its fiduciary duties, was prepared to receive and consider in good faith any inquiries and superior proposals (as defined in the Merger Agreement) to purchase the Company. In addition, without admitting any wrongdoing, fault, or liability, the parties to the Merger Agreement acknowledged that the prosecution of the action and discussions with counsel for the plaintiffs were the principal cause of certain additional disclosures made in the proxy statement. On October 26, 2012, the parties submitted to the Court a Stipulation and Agreement of Compromise, Settlement and Release that provides, inter alia, that for settlement purposes only the action be certified as a non-opt out class pursuant to the Delaware Court of Chancery Rules, and that the parties will apply jointly for a scheduling order establishing procedures for the approval and dissemination of notice to the proposed settlement to the class as well as the court's consideration of the proposed settlement, final class certification, and the plaintiffs' application for attorneys' fees and expenses. The proposed settlement is subject to court approval, as well as the Merger becoming effective under applicable law. Subject to court approval and the satisfaction of the conditions set forth in the proposed settlement, the defendants will be released by the plaintiffs and all members of the relevant class of the Company's stockholders from all claims alleged in the lawsuit, all claims concerning or arising out of the Merger or otherwise relating to the transactions contemplated by the Merger Agreement, and all claims concerning, arising from or otherwise related to the disclosures contained in the proxy statement and the proxy statement supplement.
Employment Litigation
As previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, on November 22, 2010, Hamel Toure, a former AMERIGROUP New York, LLC marketing representative, filed a putative collective and class action complaint against AMERIGROUP Corporation and AMERIGROUP New York, LLC in the United States District Court, Eastern District of New York. Subsequently, another lawsuit, styled Andrea Burch, individually and on behalf of all others similarly situated v. AMERIGROUP Corporation and AMERIGROUP New York, LLC, was consolidated with the Toure case.
The Second Amended Class Action Complaint with respect to these consolidated cases alleged, inter alia, that the plaintiffs and certain other employees should have been classified as non-exempt employees under the Fair Labor Standards Act (“the FLSA”) and during the course of their employment should have received overtime and other compensation under the FLSA from October 22, 2007 until the entry of judgment and under the New York Labor Law (“the NYLL”) from October 22, 2004 until the entry of judgment. The Complaint requested certification of the NYLL claims as a class action under Rule 23, designation of the FLSA claims as a collective action, a declaratory judgment, injunctive relief, an award of unpaid overtime compensation, an award of liquidated damages under the FLSA and the NYLL, pre-judgment interest, as well as costs, attorneys’ fees, and other relief.
On February 2, 2012, the Company reached an agreement in principle with the plaintiffs to settle the litigation and on August 6, 2012 the court granted final approval of the settlement. The settlement, which is reflected in the audited consolidated financial statements for the year ended December 31, 2011 and was paid in full during the nine months ended September 30, 2012, did not have a material impact on the Company’s financial position, results of operations or cash flows.
Louisiana
On July 25, 2011, the Louisiana Department of Health and Hospitals (“LA DHH”) announced that the Company was one of five managed care organizations selected through a competitive procurement to offer health care coverage to Medicaid recipients in Louisiana. Two managed care organizations that bid in the procurement, but were not selected, protested the award of the contract to the Company and the other successful bidders and have instituted legal proceedings regarding the contract awards. The Company has intervened in the legal proceedings instituted by the two managed care organizations that are protesting the awards, styled Coventry Health Care of Louisiana, Inc. v. Bruce D. Greenstein, in his official capacity as Secretary of the Department of Health and Hospitals, State of Louisiana which was filed on or about September 9, 2011 and Aetna Better Health, Inc. v. Bruce D. Greenstein, in his official capacity as Secretary of the Department of Health and Hospitals, State of Louisiana which was filed on February 2, 2012 (collectively, the “LA Cases”). The LA Cases have been consolidated and are currently pending in the 19th Judicial District Court for the Parish of East Baton Rouge, State of Louisiana. The plaintiffs have alleged, inter alia, that their respective administrative appeals of the contract awards should have been upheld and that the state erred in awarding the subject contracts. The LA Cases seek, inter alia, the entry of an order granting injunctive relief to prohibit the state from implementing the contract awards, canceling the contract awards, and granting such other legal and equitable relief as the nature of the cases permit.
The Company has intervened in the LA Cases as a defendant in support of LA DHH’s positions. While the Company believes that the award of the contract was proper, the Company is unable to predict the outcome of the LA Cases and can give no assurances that the award will be upheld or that the impact to the Company’s operations in Louisiana will not be significant if it is not upheld.
Ohio Medicaid Managed Care Contract
On April 6, 2012, the Company received notification from the Ohio Department of Job and Family Services (“ODJFS”) that the Company's Ohio health plan was not selected to participate as a provider of managed health care services for the contract period that was initially scheduled to begin on January 1, 2013, under the Ohio Medicaid Managed Care Plan Request for Applications (“RFA”) issued on January 11, 2012. The Company believes it has identified a number of process and scoring deficiencies in the state's evaluation of the responses to the terms of the RFA and filed a formal protest with ODJFS requesting that ODJFS cancel the current awards and reissue the RFA. Although ODJFS provided new scores to the applicants after receiving numerous protests from various applicants, the Company's Ohio health plan was not selected for an award.
On June 27, 2012, the Company's Ohio health plan instituted legal proceedings against ODJFS in the Court of Common Pleas of Franklin County, Ohio in connection with the RFA award by filing a Motion to Intervene and a Complaint in the case styled Aetna Better Health, Inc. v. Michael B. Colbert, et al. On July 9, 2012, the court granted the Motion to Intervene as to the Company's Ohio health plan as well as a number of other intervenors. The Company's Ohio health plan's Complaint requested, inter alia, a judicial determination that the RFA be rescored, that the Company's Ohio health plan be awarded a contract pursuant to the RFA, or that the court require ODJFS to issue a revised RFA. On July 30, 2012, the Court dismissed the Company's Ohio health plan in response to motions to dismiss that had been filed in the case. The Company's Ohio health plan has filed an appeal of the trial court's decision in the Tenth District Court of Appeals and oral argument occurred on November 1, 2012. The Company's Ohio health plan is awaiting the Court's decision.
The Company's current contract with the state will expire June 30, 2013, unless extended. Although the current contract states that membership is expected to transfer to the recipients of the new contracts on or before April 2013, ODJFS has issued a memorandum dated October 5, 2012 indicating that the new Medicaid managed care program implementation has been delayed until July 1, 2013. Therefore the Company's existing membership will not be transferred to recipients of the new contracts until at least July 1, 2013, subject to the outcome of the litigation. If the RFA is not reissued, or if the Company is not awarded a contract under a reissued RFA or pursuant to the judicial relief it has requested, the Company's existing contract with the state will expire without renewal and the Company will be required to account for the impact of the discontinuation of operations of its Ohio subsidiary, including the evaluation of the recoverability of the carrying value of assets related to the Ohio contract. The Company can make no assurances as to the outcome of its legal proceedings or to the impact of discontinuation of its operations in Ohio at this time. Premium revenue from the Company's existing contract with the state represented approximately 2.0% of consolidated premium revenue for the three and nine months ended September 30, 2012, respectively.
Other Litigation
The Company is involved in various other legal proceedings in the normal course of business. Based upon its evaluation of the information currently available, the Company believes that the ultimate resolution of any such proceedings will not have a material adverse effect, either individually or in the aggregate, on its financial position, results of operations or cash flows.
Letter of Credit
Effective July 1, 2012, the Company renewed a collateralized irrevocable standby letter of credit, initially issued on July 1, 2009, in an aggregate principal amount of approximately $17.4 million to meet certain obligations under its Medicaid contract in the state of Georgia through its Georgia health plan. On August 20, 2012, the letter of credit was amended to adjust the aggregate principal amount to approximately $4.3 million. The letter of credit is collateralized through cash and investments held by the Company’s Georgia health plan.