Humana 2008 Annual Report Download - page 106

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 16, 2008, the lead plaintiffs filed a consolidated amended class action complaint (the “Consolidated
Class Action Complaint”), which alleges that, from February 4, 2008 through March 11, 2008, the Class Action
Defendants misled investors by knowingly making materially false and misleading statements regarding
Humana’s anticipated earnings per share for the first quarter of 2008 and for the fiscal year of 2008. The
Consolidated Class Action Complaint alleges that the Class Action Defendants’ statements regarding Humana’s
projected earnings per share were materially false and misleading because they failed to disclose that
(i) Humana’s financial reporting lacked a reasonable basis due to significant material weaknesses in Humana’s
internal controls, (ii) Humana could not properly calculate the prescription drug costs of its newly-acquired
members, the mix of high and low cost members, and the correct pricing and discounts for its stand-alone
Medicare Part D prescription drug plans (“PDPs”), and (iii) the assumptions underlying the earnings guidance
that Humana issued in February 2008 were flawed. The Consolidated Class Action Complaint alleges that these
actions violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder,
and that the named officers are also liable as control persons under Section 20(a) of the Securities Exchange Act.
The Consolidated Class Action Complaint seeks the following relief: (i) certification of the action as a class
action and designation of lead plaintiffs as class representatives; (ii) compensatory damages, including interest;
(iii) an award of plaintiffs’ legal fees and expenses; and (iv) other relief that the court deems just and proper. On
November 14, 2008, the Class Action Defendants filed a motion seeking dismissal of the case. The plaintiffs
filed their opposition to that motion on January 13, 2009. The Class Action Defendants’ reply brief in support of
their motion is due on February 27, 2009.
In addition, Humana’s directors and certain officers (collectively, the “Derivative Defendants”) have been
named as defendants in two substantially similar shareholder derivative actions filed in the Circuit Court for
Jefferson County, Kentucky (Del Gaizo v. McCallister et al., No. 08-CI-003527, filed on March 27, 2008; and
Regiec v. McCallister et al., No. 08-CI-04236, filed on April 16, 2008) (collectively, the “Derivative
Complaints”). Humana is named as a nominal defendant. The Derivative Complaints are premised on the same
basic allegations and events underlying the federal securities class action described above, and allege, among
other things, that some or all of the Derivative Defendants (i) caused Humana to misrepresent its business
prospects, (ii) failed to correct Humana’s earnings guidance, and (iii) caused Humana to charge co-payments for
its PDPs that were based on incorrect estimates. The Derivative Complaints assert claims against the Derivative
Defendants for breach of fiduciary duty, corporate waste, and unjust enrichment. The Derivative Complaints also
assert claims against certain directors and officers of Humana for allegedly breaching their fiduciary duties by
engaging in insider sales of Humana common stock and misappropriating Humana information. The Derivative
Complaints seek the following relief, among other things: (i) damages in favor of Humana; (ii) an order directing
Humana to take actions to reform and improve its internal governance and procedures, including holding
shareholder votes on certain corporate governance policies and resolutions to amend Humana’s Bylaws or
Articles of Incorporation; (iii) restitution and disgorgement of the Derivative Defendants’ alleged profits,
benefits, and other compensation; (iv) an award of plaintiffs’ legal costs and expenses; and (v) other relief that
the court deems just and proper. The state court derivative actions are stayed pending the outcome of the Class
Action Defendants’ motion to dismiss the federal securities case.
In mid-2008, Humana and certain of its officers (collectively, the “ERISA Defendants”) were also named as
defendants in three substantially similar class action lawsuits filed in the Western District of Kentucky,
Louisville Division, on behalf of a purported class of participants in and beneficiaries of the Humana Retirement
and Savings Plan and the Humana Puerto Rico 1165(d) Retirement Plan (the “Plans”) (Benitez et al. v. Humana
Inc. et al., No. 3:08cv-211-H, filed on April 22, 2008; Rose et al. vs. Humana Inc. et al., No. 3:08cv-236-JBC,
filed on May 1, 2008; and Riggs v. Humana Inc. et al., No. 3:08cv-304-M, filed on June 10, 2008). On
September 9, 2008, those cases were consolidated and captioned Benitez et al. v. Humana Inc. et al.,
No. 3:08cv-211-H, and four individuals were designated as lead plaintiffs. On October 24, 2008, the lead
plaintiffs filed an amended complaint alleging violations of the Employee Retirement Income Security Act
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