On November 17, 2006 the judge granted defendants' motion to dismiss the complaint. Plaintiff's have not appealed the decisions and the case has been closed.
According to the Company’s Form 10-Q for the quarterly period ended September 30, 2006, the class action complaints were consolidated into a single consolidated action, Case No. CV 05-5460 GPS (SHx) (the “Class Action”), and a lead plaintiff was appointed. On March 13, 2006, the lead plaintiff filed its consolidated complaint. On May 1, 2006, the defendants filed a motion to dismiss the consolidated complaint for failure to state a claim upon which relief can be granted, and the motion has been fully briefed by the parties. On July 27, 2006, the federal court judge vacated the hearing on the motion and took the motion under submission.
The original complaint charges Molina Healthcare and certain of its officers with violations of the Securities Exchange Act of 1934. More specifically, the Complaint alleges that the Company failed to disclose and misrepresented the following material adverse facts which were known to defendants or recklessly disregarded by them: (1) that as the Company aggressively expanded through acquisitions, Molina Healthcare underestimated the financial impact of absorbing new members and failed to close favorable contracts with providers; (2) that as a result of the foregoing the Company experienced significant increases in medical costs; (3) that the Company failed to identify and mitigate the impact of higher-than-expected catastrophic cases and increased maternity costs; and (4) as such, defendants' positive statements regarding the Company's outlook were lacking in any reasonable basis when made.
The complaint further alleges that on or around July 20, 2005, after the market closed, Molina Healthcare slashed its forecast for 2005, blaming rising medical costs, and said it expects a loss in the range of 15 to 20 cents per share for the second quarter. More specifically, Molina Healthcare cut its earnings forecast to 73 cents to 80 cents per share for the full year, from a prior $2.40 to $2.45 per share. On news of this, shares of Molina Healthcare fell $20.00 per share, or 43.48 percent, to close at $26.00 per share on unusually heavy trading volume.