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C L A S S A C T I O N R E P O R T E R
Thursday, February 10, 2000, Vol. 2, No. 29
Headlines
ACCUFIX LEADS: Pacific Dunlop Announces Aussi Settlement with Patients
AUTO INSURANCE: IL Sp Ct Denies Amicus Curiae for State Farm's Appeal
AUTO INSURANCE: PA Super. Ct Upholds No Getting Around No-Remedy Rule
BROWNING-FERRIS: LA Sp Ct Remands Case over Waste for Claims Settled
CAMPBELL SOUP: Schatz & Nobel Files Securities Suit in NJ
COCA-COLA: Fd Judge Orders Mediation for Workplace Racial Bias Suit
EPL PROLONG: 9th Cir Says Ct Had Right to Enjoin Stock Swap Shell Game
FIRST USA: Credit Card Recipient Loses in TILA Claim for Husband's Role
HEALTH CANADA: Patients Using Marijuana Fume over Pot Plan Privacy Leak
HOLOCAUST VICTIMS: Clinton Administration Signs Law Renewing Commission
INDUS INTERNATIONAL: Bernstein Liebhard Files Securities Suit in CA
LEGATO SYSTEMS: Harold Obstfeld Files Securities Suit in California
MICROSOFT CORP: Fails to Shift Case out of San Francisco to San Diego
MICROSOFT CORP: NLJ Says How 1 Atty. Aims to Monopolize Antitrust Suits
SUNSTAR HEALTHCARE: Milberg Weiss Files Securities Lawsuit in FL
SUNTERRA CORP: Schiffrin & Barroway Files Securities Lawsuit in FL
SUNTERRA CORP: Spector, Roseman Files Securities Lawsuit in FL
TD WATERHOUSE: Investor Sues Brokerage in NY over Unauthorized Trades
TOBACCO LITIGATION: CNN Coverage on Price Fixing and Antitrust Issues
TOBACCO LITIGATION: Distributors File Suit in New York over Pricing
TOBACCO LITIGATION: The Washington Post Says Data on Prices Are Foreign
WORLD FUEL: Milberg Weiss Files Securities Suit in Florida
* Law Journal Says Health Insurer Embraces Litigation to Reduce Costs
* LCJ Urges Messages of Support for S-353 of Act for Suits in Fed Cts
* Pitfalls of Employers' Use of Mandatory Arbitration for Women
*********
ACCUFIX LEADS: Pacific Dunlop Announces Aussi Settlement with Patients
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Pacific Dunlop Limited announced on February 9 that, led by the Group's
insurers, agreement in principle had been reached to settle the
remaining litigation in Australia arising out of the Accufix Atrial "J"
pacemaker leads formerly manufactured by Accufix Research Institute
(ARI). The proposed settlement addresses the claims for compensation of
those patients with working Accufix Atrial J pacemaker leads (the
Monitoring Class) and provides that such patients shall receive $3000.
The claims of these patients were not resolved in the settlement reached
by the Group's insurers in August 1998, resolving the claim of those
patients whose leads had been surgically removed. The proposed
settlement is subject to the approval of the Federal Court in Sydney at
a hearing scheduled for April 28, 2000.
The Court ordered on February 9 that all members of the Monitoring Class
be notified of the terms of the proposed settlement and the date of the
hearing by press advertisement on March 18, 2000. The Company also
reported that oral argument in the five appeals against last March's
settlement in the US involving US patients with Accufix Pacing Leads
took place in Cincinnati. No date has been set by the Court for the
handing down of its opinion on the outcome of these appeals. For further
information: Martin Hudson Chief General Counsel (61 3) 9270 7102
(Regulatory News Service, February 9, 2000)
AUTO INSURANCE: IL Sp Ct Denies Amicus Curiae for State Farm's Appeal
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The Illinois Supreme Court has denied attempts by several pro-insurance
industry organizations to support the nation's largest automobile
insurer's request for a direct appeal from a downstate circuit court's $
1.19 billion judgment against it for allegedly cheating its customers by
ordering body shops to use substandard repair parts. Chief Justice Moses
W. Harrison II on February 4 denied motions by several parties to file
amicus curiae briefs in support of State Farm Mutual Automobile
Insurance Co.'s motion for direct appeal to the Supreme Court. Those
motions were filed by:
* The Chamber of Commerce of the United States of America.
* The Illinois Chamber of Commerce.
* The National Association of Insurance Commissioners.
* The American Legislative Exchange Council and the National Conference
of Insurance Legislators.
* The Alliance of American Insurers, American Council of Life Insurers,
American Insurance Association, Health Insurance Association of
America, National Association of Independent Insurers and National
Association of Mutual Insurance Companies.
* Citizens for a Sound Economy Foundation.
The high court has not ruled on the State Farm's motion for direct
appeal, which was filed Jan. 20. The Williamson County judgment,
attorneys for State Farm wrote in the motion, was the largest ever
rendered in Illinois and reportedly the largest rendered against an
insurance company anywhere in the United States. The judgment included $
600 million inpunitive damages, which also represented the largest award
of punitivedamages ever rendered in the state, according to the motion.
But it is not the size of the judgment alone that makes this case one in
which the public interest requires expeditious determination by this
court," attorneys for State Farm wrote in a memorandumin support of the
motion. Rather, it is the importance of the issues raised by State
Farm's appeal concerning class actions, punitive damages, and a
defendant's right to a fair trial and the adverseeffect the judgment is
already having on consumers and insurance companies, on state regulatory
regimes nationwide, and on the integrity of Illinois' court system...."
In October, a Williamson County jury returned a $ 457 million verdict
against State Farm on a breach-of-contract claim involving as many as
4.7 million policyholders with claims dating from July 1987. Williamson
County Circuit Judge John Speroni added $ 130 million in compensatory
damages and $ 600 million in punitive damages after finding State Farm
committed consumer fraud by requiring the use of what jurors and the
judge found to be substandard auto-body repair parts, according to court
filings.
The case involved non-OEM" auto-body repair parts -- hoods, fenders and
other body parts designed and manufactured by a source other than the
automobile manufacturer. Critics say the partsfail to deliver the same
level of fit, finish, corrosion resistance, and in some cases safety, as
original parts.
The plaintiffs intended to respond and object to State Farm's motion ,
said one of their appellate attorneys, Edward J. Kionka of Carbondale.
"We think that the case should go through the normal appellate process,"
said Kionka, a professor at the SouthernIllinois University School of
Law. There's a winnowing process in the appellate court. We think the
normal process will work just fine in this case."
State Farm filed its notice of appeal with the 5th District Appellate
Court onDec. 17. The record is being prepared and has not been filed,
Kionka said.
Motions for direct appeal are not common, but neither are they unheard
of. According to the Annual Report of theIllinois Courts for 1998, six
motions fordirect appeal were filed in that year.Those were among 3,568
total filings for all three of the high court's dockets: general docket,
miscellaneous record and the prisoners' docket.
State Farm asserted several groundsfor the high court's consideration of
itsrequest for direct appeal.
State Farm wrote that, if left standing,the $ 1 billion-plus judgment
would force auto insurance companies to stop specifying non-OEM parts
and specify only the more expensive parts sold by automobile
manufacturers. State Farm already has done so, and says in its
motionthat Nationwide Insurance, Country Companies, Farmers Insurance
Company and Travelers Insurance Company reportedly have followed suit.
The moratorium on specifying non-OEM parts, State Farm wrote, would
ultimately hike repair costs.
State Farm wrote that state legislatures and state regulatory bodies
aroundthe nation have for years debated theuse of non-OEM parts. While
different states have different law, State Farmwrote, no state has
chosen to prohibitinsurance companies from specifying non-OEM parts.
State Farm wrote that Speroni and the Williamson County jury effectively
outlawed the practice of specifying non-OEM repair parts nationwide."
State Farm also wrote that Speroni'sdecision to certify the class of
almost 5 million present and former State Farm policyholders from 48
states and the District of Columbia would act like a magnet, attracting
lawyers from all overthe country to file multistate class actions in
what they perceive as a friendly forum in southern Illinois."
Kionka dismissed State Farm's complaints. State Farm has tried to
suggestthat this case is shaking the foundation of the automobile
insurance industry andour response is that that's not what this case is
about at all. It's about breach of contract and fraud," he said.
State Farm's motion for direct appealwas filed pursuant to Supreme Court
Rule 302(b), which permits direct appeals in cases in which the public
interest requires prompt adjudication by the Supreme Court. "If the high
court allows the motion, documents filed with the 5th District Appellate
Court would be transferred to the Supreme Court andthe case would
proceed in all respects as though the appeal had been takendirectly to
the Supreme Court," the rule provides.
Counsel to State Farm are Michele Odorizzi and Bradley J. Andreozzi of
the Chicago law firm of Mayer, Brown & Platt; William R. Quinlan and
Gino L. DiVito of the Chicago firm of Quinlan & Crisham Ltd.; Marci A.
Eisenstein of the Chicago firm of Schiff, Hardin & Waite; and Robert H.
Schultz Jr. of the Edwards ville office of Heyl, Royster, Voelker &
Allen. Michael B. Hyman, of the Chicago firm of Much, Shelist, Freed &
Denenberg, also represents the plaintiffs onappeal. The Supreme Court
case is Michael E.Avery, et al., etc. v. State Farm Mutual Automobile
Insurance Co., No. 88853. (Chicago Daily Law Bulletin, February 7, 2000)
AUTO INSURANCE: PA Super. Ct Upholds No Getting Around No-Remedy Rule
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Affirming a Philadelphia Common Pleas judge's decision in eight
consolidated class actions, the Superior Court has ruled plaintiffs
cannot get around the no-remedy rule of Donnelly v. Bauer by filing
consumer fraud and common law claims against their insurers. Judge
Stephen Levin ruled last February that under the Supreme Court's
decision in Donnelly, there is no remedy for plaintiffs who say that
they elected limited tort coverage without disclosure of price
differences.
The plaintiffs in Garcia v. American Independent Insurance Co. tried to
get around Donnelly by filing claims under the Pennsylvania Unfair Trade
Practices and Consumer Protection Statute and Pennsylvania's bad faith
statute, as well as related common law claims. But Levin found that the
Donnelly ruling that the Motor Vehicle Financial Responsibility Law
contained no remedy for the failure of an insurance company to provide
information on the differences in premiums implied that there was no
remedy under unfair trade laws, common law or any other source. The
Superior Court affirmed in a memorandum opinion released early this
year. President Judge Stephen McEwen and Judges Phyllis Beck and John
Kelly were on the panel. "Appellants vigorously attempt to dissociate
their claims from the provisions of the MVFRL," the three-judge panel
wrote in the case, which was re-captioned on appeal as Russ v. State
Farm Mutual Automobile Insurance Co. But "each of the claims contained
in the complaint filed in the instant case is, in essence, based upon or
arises out of an alleged violation of Section 1705 of [MVFRL]."
The plaintiffs in Russ, all residents of Philadelphia, were issued
insurance policies by the defendant insurance companies in which the
plaintiffs all chose limited tort coverage.
In their original complaint, the plaintiffs claimed the insurers
violated Section 1705 of MVFRL by failing to provide cost comparisons of
premiums for limited and full tort coverage. The plaintiffs, who had
elected limited tort coverage, sought to convert their coverage to full
tort as a result of the violation. But the high court in Donnelly
resolved that issue against insureds, holding that Section 1705
violations do not result in a change from limited to full tort coverage.
Levin then allowed the Russ plaintiffs the opportunity to present any
claims not precluded by the Donnelly decision. The plaintiffs filed
complaints alleging unfair trade practices, bad faith and related common
law claims. But the court still dismissed the plaintiffs' cases, ruling
the Donnelly decision dictates that the plaintiffs were not entitled to
any remedies for Section 1705 violations. On appeal, the plaintiffs
claimed the trial court misconstrued Donnelly by overextending its
holding. In the Russ case, the lawsuits were between insurers and
insureds, whereas Donnelly involved claims against the tortfeasors who
caused automobile accidents. In addition, the Russ plaintiffs said that
because their claims were not brought under MVFRL, Donnelly did not
apply.
The Superior Court, like the trial court, rejected the plaintiffs'
attempt to circumvent the Donnelly ruling. Basically, the court said, if
the plaintiffs were not relying on Section 1705 violations to make their
claims, then they had no claims at all. "Without Section 1705 [of
MVFRL], the basic premise of the causes of action set forth in
appellants' complaint is that the failure of the insurer to provide a
cost comparison was misleading," the panel said. "However, a review of
appellants' complaint compels our conclusion that none of the counts
state a valid cause of action." In order to state a claim that the
defendant engaged in fraudulent conduct under the unfair trade practices
law, the court said, a plaintiff must prove the elements of common law
fraud. The Donnelly court decided in that case that the notice from the
insurance companies, even absent the cost comparisons for full and
limited tort coverage, still provided "accurate information on the
difference between the tort alternatives" and that there was "free
choice." Accordingly, the Russ court said, the notice in question did
not contain a material misrepresentation sufficient to support a claim
of fraud. Similarly, the court said, without relying on the Section 1705
violation, the insureds could not support claims for bad faith, breach
of fiduciary duty, constructive and active fraud or negligent
misrepresentation. Accordingly, the Superior Court said, because all of
the claims advanced by the insureds "were based upon and arise out of
the violation of a duty created by Section 1705 and do not constitute
valid causes of action without reference to MVFRL," the trial court
properly dismissed the class actions. (Copies of the 13-page opinion in
Russ v. State Farm Mutual Automobile Insurance Co., PICS NO. 00-0141,
are available from The Legal Intelligencer. Please refer to the order
form on page 9). (The Legal Intelligencer, February 1, 2000)
BROWNING-FERRIS: LA Sp Ct Remands Case over Waste for Claims Settled
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The Louisiana Supreme Court on Nov. 12 said it is no longer necessary to
review class certification issues in a personal injury and property
damage case against the owner of a hazardous waste facility because
certain claims have been settled. It remanded the case for further
proceedings (J.W. Bartlett, et al. v. Browning-Ferris Industries
Chemical Services Inc., et al., No. 99-C-0494, La. Sup.).
The action was originally filed by approximately 400 plaintiffs who live
or own property near a Browning-Ferris Industries Chemical Services Inc.
(BFI) open-pit hazardous waste facility.
In 1995, plaintiffs filed a motion for class action and, in amended
petitions, suggested that the class could be broken down into four
subclasses based upon geographic location.
The trial court issued four separate written reasons for judgment before
signing a final judgment in January 1998 vacating its earlier decisions
to certify the class and, instead, denying certification pursuant to the
Louisiana Supreme Courts opinion in Ford v. Murphy Oil U.S.A. Inc.
(96-2913, 96-2917, 96-2929 [La. 9/9/97] 703 So. 2d 542).
Subsequently, the Third Circuit Louisiana Court of Appeal held that the
proposed class action is weighed down by individual issues and lacks the
common characteristics necessary for certification.
Later, the Louisiana Supreme Court accepted plaintiffs' writ application
to review the appeal court's decision.
Settlements Reached
The high court noted that just before oral argument, the defendants
notified the court by letter and without objection that approximately
130 of the original plaintiffs have settled or dismissed their claims.
The court further noted that there are approximately 270 remaining class
members.
"As a result of the parties' valiant efforts in concluding the multiple
claims through mediation, this case no longer stands in the same posture
as it did when writs were applied for and granted. Simply stated, what
plaintiffs originally proposed as a certifiable class action to the
trial court and court of appeal is no longer the case or controversy
that stands before this Court now," the court said. "Accordingly, the
Court recalls the writ of certiorari previously issued herein as
improvidently granted and remands this case to the district court for
further proceedings." (Mealey's Pollution Liability Report, December,
1999)
CAMPBELL SOUP: Schatz & Nobel Files Securities Suit in NJ
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According to Schatz & Nobel, P.C., purchasers of stock of Campbell Soup
Company at any time during November 18, 1997 through January 8, 1999
(even if they no longer own the stock) may still seek to be among the
lead plaintiffs in a securities fraud class action alleging a
significant accounting fraud.
According to the complaint, filed in United States District Court for
the District of New Jersey, Campbell intentionally sought to inflate its
stock price to meet earnings expectations by improperly recording
revenue through phony transactions, including trucking cans of soup from
one part of its property to another and shipping the soup to warehouses
owned by Campbell itself. Recording revenue and earnings from these
shipments was contrary to generally accepted accounting principles and
misleading to investors.
For additional information on the above-mentioned suit, you may contact
Andrew M. Schatz or Jeffrey S. Nobel toll-free at (800) 797- 5499, or by
e-mail at SN06106@aol.com and for more information about Schatz & Nobel,
P.C., you may visit their website at http://www.snlaw.net
COCA-COLA: Fd Judge Orders Mediation for Workplace Racial Bias Suit
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A federal judge has ordered Coca-Cola and the plaintiffs in a racial
discrimination suit to try to settle the case. In an order made public
on February 8, Judge Richard Story told both sides "to attempt in good
faith to settle this case by participating in non-binding, confidential
mediation." In mediation, a neutral third party attempts to bring both
sides together in talks aimed at reaching a compromise.
Both sides said they are pleased with the court's order in the case, in
which eight current and former employees allege Coca-Cola has
discriminated against African-Americans in pay, promotions and
performance evaluations. The plaintiffs are seeking class-action status
to represent more than 2,000 black salaried employees in the United
States.
Coca-Cola has strongly denied the allegations.
Legal experts said most class-action cases are settled prior to trial.
Some said a settlement in this case could be a wise move for the company
because the suit has called into question its long-held reputation for
supporting black organizations and institutions. "We welcome the court's
order," said Jack Stahl, president-designate of Coca-Cola and co-chair
of its Diversity Advisory Council. "This process may take some time, and
its outcome is uncertain. Our hope, however, is that we may be able to
resolve this lawsuit in a way that is reasonable and fair to all
concerned --- the plaintiffs, the prospective class members, the company
and its employees and shareowners."
Plaintiffs' attorney Cyrus Mehri said the order comes at an important
time for prospective class members who face layoffs as Coke cuts 3,300
jobs in the United States. That's because the judge ruled that the
company can require laid-off workers to sign release forms giving up
their right to be plaintiffs or prospective class members if they want
to receive enhanced severance benefits. They can, however, still get
those benefits if they are witnesses. "We are pleased that class members
facing the important decision of whether to stay in the case or accept
the enhanced severance benefits will be aware of the existence of the
attempts to settle the case through mediation," Mehri said.
Coke has announced that it is eliminating 6,000 jobs worldwide,
including 2, 500 in Atlanta.
While settlement talks are taking place in confidence, the litigation
will continue. "Because the length and outcome of the mediation are
uncertain, the litigation ... shall proceed as previously ordered
simultaneously with the mediation," the judge said.
Since the judge has not yet decided on whether to certify this case as a
class action, and since that decision is at least several months away,
this key issue will undoubtedly come up in settlement talks. For
example, will the company agree to compensate the proposed class of
employees, and if so, by how much? Another important issue is the
company's employment practices. The plaintiffs have repeatedly said they
want to make them fairer, while the company has steadfastly defended
them as being equitable. If a settlement is reached in mediation, the
judge would still have to approve it.
At least one civil rights leader hoped for a settlement. "I think the
settlement talks are a good move," said the Rev. Joseph Wheeler,
president of the Clayton County branch of the NAACP. "I'm sure the
employees at Coke would welcome that news. ... I think it's in the best
interest of the company to settle." (The Atlanta Journal and
Constitution, February 9, 2000)
EPL PROLONG: 9th Cir Says Ct Had Right to Enjoin Stock Swap Shell Game
---------------------------------------------------------------------
A federal judge had the right to enjoin a slick stock swap merger among
companies involved in the production of an automotive superlubicant
because it appears to be a corporate shell game that violated the
federal fraudulent conveyance law and state fiduciary duty statutes,
said a federal appeals court panel in San Francisco. Walczak et al. v.
EPL Prolong, Inc. et al., No. 99-55227 (9th Cir., Dec. 3, 1999).
The Ninth Circuit U.S. Court of Appeals said minority shareholders of
EPL Prolong Inc. should be able to show that officers and directors used
a licensing agreement and mergers with shell entities to shuffle assets
and value away from EPL for their benefit.
When EPL sought shareholder approval of a proposed 1998 merger with an
entity controlled by members of the EPL board, Michael Walczak, on
behalf of the EPL minority shareholders, filed a class action derivative
suit after he unearthed a 1993 licensing agreement between EPL and a
company created by the directors. He charged that the previously
undisclosed licensing agreement was a device to transfer the true assets
of EPL over to Prolong Super Lubricants Inc. (PSLI), a company created
by EPL directors Elton Alderman, Edwin Auld, and Michael Davis. Walczak
charged that that transaction -- along with several other deals with
related entities -- violated the U.S. Uniform Fraudulent Transfer Act
and California fiduciary duty laws. The trial court granted his request
for a preliminary injunction against a stock exchange of EPL with
Prolong International Company, which was the new name for PSLI now that
the directors had merged it with a shell company whose only asset was
that, unlike PSLI, it was publicly traded.
The U.S. District Court for the Southern District of California issued a
preliminary injunction stopping the deal. The three directors appealed
on grounds that a recent California Supreme Court decision barred
federal judges from issuing injunctions that have the effect of freezing
the assets of a debtor based on the claims of an unsecured creditor.
The appellate panel disagreed. It said this case is different from the
decision in Grupo Mexicano de Desarrollo v. Alliance Bond Fund Inc. (CA
Sup. Ct., 1999) because none of the defendants' assets are actually
frozen -- only the proposed transaction is frozen.
The directors argued in their brief to the Ninth Circuit that the
district court had grounded its injunction on a never before used theory
-- that the license agreement was a fraudulent conveyance, despite the
lack of any such argument by the plaintiffs and without any opportunity
for the defendants to respond.
Defendants' protest is little more than a semantic exercise, Walczak
responded. What is readily apparent from the documents, he said, is that
defendants engaged in a pattern of :
-- creating shell corporations;
-- changing the name of the new corporation to something similar to the
previous corporation;
-- raising largest amounts of cash by selling unregistered securities
to investors;
-- entering into secret agreements to form a new shell corporation;
-- acquiring the assets and business of the former corporation to the
fraudulent detriment of the previous company's investors; and
-- starting the entire process all over.
The appellate panel noted that the lower court judge had found a wealth
of evidence which indicated a pattern of improperly dispersing and
transferring corporate assets which would support both the fraudulent
transfer and breach of duty charges. The appellate court found that EPL
got little of value for transferring its patent for a superlubricant
that generated over $30 million a year, and it found ample proof that
the series of deals were interested transactions which benefited the
directors who approved them.
The panel upheld the lower court in all respects. Plaintiffs are
represented by Bruce Corbett of Corbett & Steelman in Irvine, CA, and
Timothy Shimko and James Gemelas of Timothy Shimko & Assoc. in
Cleveland. Defendants are represented by Jeffrey Garland of Law Offices
of Jeffrey Garland and Neil Goteiner of Farella Braun & Martell in San
Francisco. (Corporate Officers and Directors Liability Litigation
Reporter, January 10, 2000)
HOLOCAUST VICTIMS: Survivors Press for Israel's Return Of Property
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In the days when Hitler was poised to exterminate Jews, Eleazar Shafrir
remembers his father waving what seemed like a ticket to freedom. It was
''a kind of certificate of acquisition'' for 1,000 square metres of land
in Palestine, which would later become Israel, Shafrir said. ''He was so
proud of this land. He said, 'When we get there, we will have a place to
build a home,' '' recalled Shafrir, who was 14 at the time.
It was not to be. When Adolf Hitler invaded Poland in 1939, Shafrir's
father was among the first Jews the Nazis arrested. He died in Auschwitz
concentration camp. By the end of the war, Shafrir was the only member
of his family to survive the Holocaust and he never again saw the
document about his father's land in Palestine.
Today, Shafrir and other Holocaust survivors are pressing Israel to
track down the Israeli assets of family members who perished at the
hands of the Nazis. They demand the same scrutiny of Israel that the
international community applied to Swiss banks which recently set up a
$1.8 billion fund to compensate heirs of Holocaust victims with dormant
accounts. ''We make demands on the whole world to return the property of
Holocaust victims. Why should it be any different when this property is
in the hands of Israeli institutions?'' said Shafrir, 75, a retired
professor of biochemistry. ''They should be embarrassed,'' he added,
referring to Israeli banks and government agencies.
Holocaust survivor groups in Israel have been reluctant to criticize the
Israeli government. They feared it would hurt demands for restitution
from other countries if it was noted that the Jewish state balks at
similar demands. ''We have a real problem with the Israeli government,''
said Aryeh Edelist, head of the private property restitution committee
for the Israeli-based Central Organization of Holocaust Survivors. ''We
have to be more aggressive - we have no choice,'' he added.
Shafrir is doing just that. He has launched a class action suit against
the Israel Land Development Company, set up in the early 1900s by the
Zionist Congress to buy land in Palestine. It later became an Israeli
government agency and was sold in 1989 - along with deeds to unclaimed
land, Shafrir alleges - to a private company.
Shafrir's lawyer, Roland Roth, has filed another class action suit to
recover money in dormant Israeli bank accounts that belonged to
Holocaust victims.
The pressure has moved Israel's parliament, the Knesset, to investigate
claims that banks and government agencies are dragging their feet on the
matter. A committee is expected to get final Knesset approval.
''It's a terrible injustice,'' said Colette Avital, the Knesset member
who will head the committee. ''It's an important moral issue. I simply
can't accept the fact that the Swiss banks have finally given in, and we
haven't.''
There are no official estimates to the amount of money or property
involved. Roth estimates the value of land purchased by Jews who died in
the Holocaust at $140 million and the amount in dormant accounts at
about $60 million.
''The (Israeli) authorities are just waiting for us to die off,'' said
Rachel Schreiber, 86, who is searching for the bank account her father
opened in Palestine before the Holocaust took his life. ''Why are they
dragging their feet? It's the principle: If we're going to ask the Swiss
for money, we should get our own house in order,'' said Schreiber, who
has no record of her father's account.
Schreiber was a teenager in Plonsk, Poland, when her father told her he
had opened a bank account in Palestine with his business partner in
1934. Schreiber said he deposited 1,000 English pounds, the amount which
would have assured him an entry visa from the British, who controlled
Palestine at the time. Schreiber said her father made the deposit at the
Anglo-Palestinian Bank Ltd., now called the Bank Leumi. Yona Fogel, the
bank's senior vice-president, said a search of records has found no
account listed in the name of Schreiber's father, or his business
partner. Fogel said the bank examines all requests made by heirs looking
for dormant accounts. Two weeks ago, the bank published a list of 13,000
names of dormant accounts, posting them in bank branches and on the
Internet. There's about $2.5 million in those accounts, Fogel said. But
more than half of the accounts hold no more than $20, he said.
Under Israeli law, all property abandoned for more than 10 years -
accounts or real estate, for example - must be forwarded to the
Custodian General. Custodian David Tzur said his office administers
15,000 abandoned properties about $400 million in real estate and $100
million in cash. He said his office will soon try to find out how many
of these abandoned properties belong to Holocaust victims. Shafrir said
the only reason the banks and the Custodian General have done anything
at all is because of pressure from people like him. ''This is not a
question of money. It's spiritually important for me. I want to redeem
what my father bought,'' said Shafrir, who has three children and four
grandchildren. ''If I get the land, or compensation, I will tell my
grandchildren, 'This is a gift from your (great) grandfather and he will
be happy to know that it will help you thrive,' '' Shafrir said. (The
Toronto Star, February 8, 2000)
FIRST USA: Credit Card Recipient Loses in TILA Claim for Husband's Role
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A class representative's husband's participation in a class action suit
and fee sharing agreement with class counsel defeated the
named-plaintiff's ability to adequately represent the class of consumers
who received unsolicited credit cards from First USA Bank. Swift v.
First USA Bank, et al., No. 98 C 8238 (N.D. Ill. 12/15/99).
Shelly D. Swift received a solicitation from First USA which informed
Swift she was pre-approved to receive a Visa credit card that also could
be used for long-distance calling. The cover letter enclosed with the
Platinum Connect card read, "Whether you decide to use it as a calling
card, a Pre-Approved credit card, or both, you'll receive one free hour
of long distance calling." The letter further explained that Swift could
activate the card immediately by calling an 800 telephone number.
Swift sued First USA under the Truth in Lending Act, the Fair Credit
Reporting Act, the Illinois Uniform Deceptive Trade Practices Act and
the Illinois Consumer Fraud and Deceptive Trade Practices Act claiming
it improperly acquired her credit report for an improper use. The U.S.
District Court for the Northern District of Illinois granted First USA's
motion to dismiss the FCRA count, the ICFA count and DTPA count.
Thereafter, Swift moved to certify a class composed of "[a]ll persons
who were mailed the First USA Platinum Connect Card without first
requesting or applying for said card prior to having it mailed." First
USA rebutted that neither Swift nor her counsel could adequately and
fairly represent the proposed class.
The District Court, in deciding the adequacy of Swift's representation,
considered three things:
* Whether the named plaintiff had conflicting claims with other class
members.
* Whether the named class representative possessed an adequate interest
in the case to assure other class members that she would zealously
pursue the case.
* Whether plaintiff's counsel possessed an adequate degree of
competence to represent the class.
First USA argued that Swift was an inadequate class representative
because "she permitted her financial-attorney-husband to represent her
interest and handle all interactions with class counsel." Swift, on the
other hand, contended that she only asked her husband, who practices in
the financial services industry with a competitor to First USA, whether
the mailing was legal and if not, who she should retain to represent her
interests. Her husband recommended Gold & Rosenfield. Gold & Rosenfield
filed the class action in December 1998. The defendants contend that
until they deposed Swift and her husband in October 1999, Swift's
husband and not Swift communicated with Gold & Rosenfield. First USA
argued that Swift's lack of contact with her counsel demonstrated her
inadequacy to serve as class representative.
Judge Kocoras opined that Swift possessed an adequate interest in the
case to ensure other class members of her resolve to pursue the action.
He added, "having a husband who is well-versed in the intricacies of
financial services law should be a benefit to the pursuit of the case."
First USA then charged that the Gold & Rosenfield attorneys could not
adequately represent the class as demonstrated by their allegedly
deficient investigation and the fact they entered into a fee-splitting
arrangement with Swift's husband. The District Court found that the
plaintiff's attorneys were qualified and experienced legal
practitioners. Thus, the court only considered First USA's argument
surrounding the retainer with Swift's husband.
Swift's retainer with Gold & Rosenfield provided that the firm would pay
Attorney Swift 10 percent of whatever fees were awarded in the class
action and 30 percent of any attorney's fees awarded on Shelly Swift's
individual action. The court characterized this arrangement as a
"windfall" to the Swifts. Further, the court considered the close
association between the class representative and class counsel as a
conflict of interest because the relationship potentially could result
in class counsel recommending a settlement on terms less favorable to
the class.
It was irrelevant to the court that Attorney Swift recently waived his
right to any potential fees. The court explained that Attorney Swift's
employment with First USA's competitor "when coupled with the financial
interest he once had ... raised the image of potential impropriety."
Lastly, the court stated that Attorney Swift's "Rasputin-like influence
is further evidence that [Shelly] Swift should not be class
representative."
The District Court denied the motion for class certification but gave
class counsel 30 days to re-file. (Consumer Financial Services Law
Report, January 25, 2000)
HEALTH CANADA: Patients Using Marijuana Fume over Pot Plan Privacy Leak
-----------------------------------------------------------------------
Health Canada is under threat of legal action from sick, angry citizens
after a confidential list of names was leaked from its controlled
substances branch. More than 128 people who have corresponded with the
federal department about using marijuana as medicine were notified over
the weekend that their names could be in the hands of a print
journalist. They were sent letters by priority post on February 8 which
expressed "regret" for the breach and advised that a security
investigation is under way.
"I've been raped," said Steven Bacon of Oshawa, who suffers from
Hepatitis C. "They've taken the last sacred thing that I have -- my own
personal information that was, in my mind, in safe and caring hands."
Bacon is "mad as hell" and plans to explore his legal options. He hopes
to use the incident as leverage to make the federal government step up
its policies on medicinal marijuana, but fears the leak has destroyed
the program's credibility. "Who the hell is going to apply now? How can
you trust your government? You can't," he said.
As of late February 8, the Officer of the Privacy Commissioner had
received 11 formal complaints about the disclosure of confidential
information from Health Canada.
A Mississauga man whose wife uses cannabis to relieve the symptoms of
epilepsy was shocked to learn about the breach. His 14-year-old daughter
had received two calls from Health Canada on the weekend, but the
officer left no message about the reason for his call. "We're scared,"
he said. "My wife just burst into tears. We feel just sick about it --
I'm a professional and there's still a stigma about using marijuana." He
and others say they may launch a class-action suit claiming damages.
Rick Reimer, a Pembroke lawyer who uses marijuana to relieve symptoms of
multiple sclerosis, doesn't want the issue to be about financial
compensation. "Money is so unimportant compared to the real issue," he
said. Reimer is "appalled" by the bureaucratic breach of privacy, and is
anxiously awaiting an explanation from Health Canada. "We hear so much
about how doctors and lawyers have to be so careful," he said. "Here we
have the people who are setting the rules and they can't even abide by
them themselves."
The letter mailed out on February 8 said procedures for the control and
storage of classified and designated information are in place.
Health Minister Allan Rock said he's "concerned" that confidential
information was released by his department and pleaded with journalists
not to publish the list of names. But he said it would be up to his
deputy minister to decide if an independent inquiry is needed to find
out how this happened and prevent it from happening again. "I'm sure the
deputy will take whatever steps are required internally at Health Canada
to get to the bottom of this," he said.
A Hawkesbury victim of Hepatitis C and other chronic conditions was
reeling after the startling revelation from the health department. "This
is a terrible bureaucracy that has no place for sick people like me," he
said. (The Ottawa Sun, February 9, 2000)
HOLOCAUST VICTIMS: Clinton Administration Signs Law Renewing Commission
-----------------------------------------------------------------------
On December 9, 1999, President William J. Clinton signed into law a bill
renewing the Presidential Advisory Commission on Holocaust Assets in the
U.S. for another year. Mark Selinger, Holocaust Asset Panel Gets
One-Year Extension on Report , Daily Rep. For Exec ., Dec. 20, 1999, at
A14, col. 2.
The commission has the responsibility to ascertain what happened to
assets of Holocaust victims that came into the possession of the U.S.
Government, as well as state governments and other nonfederal entities.
The commission must make recommendations on restitution.
The legislation (H.R. 2401, P.L. 106-155), which Rep. Rick Lazio (R-NY)
introduced, extends the commission's report deadline from December 1999
to December 2000.
According to Lazio, the commission, which was established in 1998,
requires additional time because its task has become larger than
originally planned. There are approximately 75 U.S. government offices,
including the Federal Reserve Board, whose records must be found and
reviewed meticulously a page at a time.
Commission Chairman Edgar M. Bronfman has said that the more the
commission uncovers, the more it discovers it has to examine.
Because of the proactive role of the U.S. private lawyers and the U.S.
Government in settling the massive class actions brought in the U.S.
against Swiss and German countries and the U.S. Government pressure
exerted on other countries to resolve problems of Holocaust assets, many
international law and diplomatic observers will focus on the ability of
the U.S. to resolve its own Holocaust problems in a thorough and fair
manner. (International Enforcement Law Reporter, February, 2000)
INDUS INTERNATIONAL: Bernstein Liebhard Files Securities Suit in CA
-------------------------------------------------------------------
Bernstein Liebhard & Lifshitz, LLP filed a securities class action
lawsuit in the United States District Court for the Northern District of
California on behalf of purchasers of the common stock of Indus
International, Inc., between October 29, 1999 and January 27, 2000,
inclusive.
The complaint charges Indus International and certain of its directors
and executive officers with violations of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder. The complaint alleges that
the defendants issued materially false and misleading financial
statements during the Class Period. Specifically, the complaint alleges
that the financial statements for the third quarter ended September 30,
1999 materially overstated the Company's revenues and net income which
resulted in the Company's stock being artificially inflated. The truth
was revealed at the end of the Class Period when the Company announced
that it would restate its results for the third quarter, reducing its
net income by 89%. When the truth was disclosed, Indus International's
stock price plunged to close at $7.625, more than 23% below its previous
close and 42% below the Class Period high of $13 per share.
For additional information on this lawsuit, you may contact Mr. Mark
Punzalan, Director of Shareholder Relations at Bernstein Liebhard &
Lifshitz, LLP, 10 East 40th Street, New York, New York 10016,
800-217-1522 or 212-779-1414 or by e-mail at IINT@bernlieb.com
LEGATO SYSTEMS: Harold Obstfeld Files Securities Suit in California
-------------------------------------------------------------------
The law firm of Harold B. Obstfeld, P.C. filed a class action lawsuit in
the United States District Court, Northern District of California, on
behalf of all persons or entities who purchased common stock of Legato
Systems, Inc. between October 20, 1999 and January 19, 2000, and were
damaged thereby.
The Complaint alleges that defendants misled investors and violated the
federal securities laws by making false and misleading statements
regarding Legato's earnings and business prospects. By employing
improper accounting techniques, defendants caused Legato's reported
revenues and earnings to be artificially inflated. As a result, the
price of Legato stock was artificially inflated during the Class Period,
thereby injuring the members of the Class while allowing the individual
defendants to sell over 180,000 Legato shares for proceeds of over
$11,700,000.
For more information on the said lawsuit, you may contact Harold B.
Obstfeld, Esq. of Harold B. Obstfeld, P.C., 260 Madison Avenue, New
York, New York 10016, (212) 696-1212 or (888) 896-0347 or via Internet
electronic mail at hobsd@erols.com
MICROSOFT CORP: Fails to Shift Case out of San Francisco to San Diego
---------------------------------------------------------------------
Microsoft Corp. lost the first round on February 7 in an effort to shift
a proposed class action alleging unfair business practices out of San
Francisco. S.F. Superior Court Judge Stuart Pollak ruled coordination of
more than 20 pending cases should remain in the city despite arguments
by the Redmond, Wash., software maker's attorneys that San Francisco's
proximity to Silicon Valley -- home to many of Microsoft's competitors
-- could prejudice a jury pool. They suggested Pollak send the cases to
San Diego, where they say a more neutral atmosphere exists. "I have a
little trouble following that," Pollak said. "I don't think there's been
any factual showing that there would be more prejudice in this area than
in San Diego."
The judge said news of the U.S. Justice Department's antitrust action
against Microsoft in Washington, D.C., was as well-known in San Diego as
in San Francisco. He said most of the 25 cases pending in California
superior courts have been filed in San Francisco. He also agreed with
plaintiffs' attorneys that most of the witnesses will come from the Bay
Area rather than San Diego. "There is a showing that San Francisco will
be more convenient to a greater number of people," Pollak said. "This
would also be more convenient to more attorneys."
Stephen Bomse, lead local defense attorney for Microsoft, told the judge
that just because most cases have been filed in San Francisco and most
of the lawyers are from here should not determine the location of the
litigation. "I really feel that's a factor that should not tip the
scales at all," said Bomse, a partner at Heller Ehrman White &
McAuliffe. Bomse said witnesses "will come from all over the country."
He accused Microsoft's Silicon Valley business enemies of seeking to do
in court what they have been unable to do in the marketplace. Jurors, he
said, could be swayed by regional loyalties. "It would be unfair not to
recognize that there is a local angle here," Bomse said. "San Francisco
is part of Silicon Valley. What happens in Silicon Valley is mirrored in
San Francisco."
The judge remained unconvinced.
Eugene Crew, plaintiffs' lead counsel, said there was "unanimity" among
his fellow attorneys that San Francisco is the place to litigate the
unfair business practices and state antitrust allegations. "Everybody
but Microsoft suggests that San Francisco should be the venue," said
Crew, a partner at Townsend and Townsend and Crew. Crew said his case,
Lingo v Microsoft, 301357, which is the lead complaint in coordination,
has been pending for a year. He said the software maker never sought to
change the venue before but now decided to seek what it believes to be a
more sympathetic jurisdiction. "Microsoft has been mute on this
subject," Crew said.
Bomse countered that Crew has completed only "preliminary procedural
steps" and that the case is nowhere near the discovery stage. But again
Pollak was unswayed. "I do tend to believe, for better or worse, that
the cases started here in San Francisco . . . and I can't see a good
enough reason that they be assigned anywhere else," he said.
However, the judge reserved for a later date his decision on where the
cases would actually be tried -- if they make it to trial. But few
attorneys doubt it'll be anywhere but San Francisco.
Outside of court, Crew said he has been designated the spokesman for the
plaintiffs in the litigation. He said an executive committee was
selected from among the attorneys involved. The committee is composed of
12 law firms and is responsible for the direction the case will take and
the strategy for litigating it.
The 12 firms are: from San Francisco, Townsend and Townsend and Crew;
Furth Fahrner & Mason; Saveri & Saveri; Scarpulla & Scarpulla;
Rosenblum, Parish & Isaacs; Cooper & Kirkham; Lieff, Cabraser, Heimann &
Bernstein; and solo Lingel Winters; and from San Diego, Milberg Weiss
Bershad Hynes & Lerach and solo Daniel Mogin; and from Washington, D.C.,
Berry & Leftwich and Kellogg, Huber, Hansen, Todd & Evans.
Crew also said that Furth Fahrner has been assigned the duty of calling
meetings for plaintiffs' attorneys. Lieff, Cabraser is charged with
mailing notices from the court to all plaintiffs' lawyers.
Joining Bomse at the defense table will be Heller Ehrman partner Robert
Rosenfeld and Richard Wallis, Microsoft's corporate attorney from the
company's Washington state headquarters.
Pollak set March 6 at 10 a.m. for a status conference. Issues such as
class certification could be considered then. (The Recorder, February 8,
2000)
MICROSOFT CORP: NLJ Says How 1 Atty. Aims to Monopolize Antitrust Suits
-----------------------------------------------------------------------
A whopping 96 antitrust class-action suits have been filed against
Microsoft Corp. since last year, and that number is growing. The trickle
that began last February with a handful of lawyers pursuing class
actions against Microsoft has turned into a deluge since November when
Judge Thomas Penfield Jackson called Microsoft a predatory monopolist in
his findings of fact in the U.S. government's antitrust case against the
company. Now, in a race to the courthouse that determines which lawyers
control the class actions, one lawyer is moving quickly -- and so far
effectively -- to get to know them all, according to a front-page story
in The National Law Journal(R).
The National Law Journal's Karen Donovan, reports that Michael Hausfeld,
a Washington, D.C., attorney, is preparing a takeover of the class
actions by trying to assemble many of the plaintiffs' lawyers under his
tent. In fact, Mr. Hausfeld brought together a group of them last month
to agree on a five-man team that will be lead counsel in the private
class actions. If that agreement is formalized, Mr. Hausfeld and his
dream team will call the shots -- and reap a hefty share of the legal
fees. Mr. Hausfeld's meeting also produced an informal agreement on who
the lead counsel in state class actions against Microsoft will be.
Aside from Mr. Hausfeld, the proposed lead counsel in the private class
actions include prominent power brokers in mass litigation, such as
Stanley M. Chesley, the breast-implant lawyer; and Christopher Lovell,
who helped negotiate a $1 billion settlement of claims that Wall Street
firms conspired to fix Nasdaq stock prices. One of the lawyers who will
take the lead in the state cases is Leonard B. Simon, a San Diego
partner at New York's Milberg Weiss Bershad Hynes & Lerach LLP, who has
fought to get control of state class actions pending in California,
where there are 24 competing suits.
The full story is available in the recent issue of The National Law
Journal and online at http://www.nlj.com
SUNSTAR HEALTHCARE: Milberg Weiss Files Securities Lawsuit in FL
----------------------------------------------------------------
The law firm of Milberg Weiss Bershad Hynes & Lerach LLP commenced a
class action lawsuit in the United States District Court for the Middle
District of Florida, Orlando Division, on behalf of all persons who
purchased the common stock of SunStar Healthcare Inc. between November
13, 1998, and December 14, 1999, inclusive.
The complaint charges the defendants who controlled Sunstar, including
certain of its officers and directors, with violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 as well as Rule 10b-5
promulgated thereunder. The complaint alleges that defendants issued a
series of materially false and misleading statements the Company's
business, financial condition, earnings and prospects. Specifically, the
Complaint alleges that defendants caused the Company to fail to take
adequate reserves to pay foreseeable healthcare claims and, as a result,
the Company materially overstated it income and earnings per share at
all times during the Class Period.
As a result of these materially false and misleading statements and
omissions, plaintiff alleges that the price of Sunstar common stock was
artificially inflated during the Class Period.
For more details on the above-mentioned lawsuit, please contact, at
Milberg Weiss Bershad Hynes & Lerach, in Boca Raton: Kenneth Vianale or
Maya Saxena at 5355 Town Service Road, Suite 900, Boca Raton, Florida
33486, by telephone (561) 361-5000, or in New York: Steven G. Schulman
or Samuel H. Rudman at One Pennsylvania Plaza, 49th Floor, New York, New
York 10119-0165, by telephone 1-800-320-5081 or via e-mail at
endfraud@mwbhlny.com or visit website at http://www.milberg.com
SUNTERRA CORP: Schiffrin & Barroway Files Securities Lawsuit in FL
------------------------------------------------------------------
The law firm of Schiffrin & Barroway, LLP filed a class action lawsuit
in the United States District Court for the Middle District of Florida
on behalf of all purchasers of the common stock of Sunterra Corporation
from October 4, 1998 through January 19, 2000, inclusive.
The complaint charges Sunterra and certain of its officers and directors
with issuing false and misleading statements concerning the Company's
business and financial condition. Specifically, the complaint alleges
that on January 20, 2000, the Defendants announced that Sunterra would
be taking a charge of $38 to $45 million to write off delinquent
accounts receivable which had been improperly left on the Company's
books. Following this disclosure, the Company's stock price fell by more
than 35%.
Please contact Schiffrin & Barroway, LLP (Stuart L.Berman, Esq.) toll
free at 888/299-7706 or 610/667-7706, or via e-mail at
info@sbclasslaw.com or visit websit at http://www.sbclasslaw.com
SUNTERRA CORP: Spector, Roseman Files Securities Lawsuit in FL
--------------------------------------------------------------
Spector, Roseman, & Kodroff, P.C. commenced securities class action
lawsuit in the United States District Court for the Middle District of
Florida on behalf of purchasers of the common stock of Sunterra
Corporation between October 4, 1998 and January 19, 2000, inclusive.
The complaint charges Sunterra and certain of its directors and
executive officers with violations of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated there under. The complaint alleges that
the defendants issued materially false and misleading information
concerning Sunterra's business, earnings growth and profitability and
materially overstated the Company's revenues and earnings throughout the
Class Period.
Contact plaintiff's counsel Jeffrey L. Kodroff, Esquire at Spector,
Roseman, & Kodroff, P.C., toll free at 888/844-5862 or via E-mail at
classaction@spectorandroseman.com
TD WATERHOUSE: Investor Sues Brokerage in NY over Unauthorized Trades
---------------------------------------------------------------------
TD Waterhouse Investor Services, the third-largest on-line discount
brokerage, was sued on February 8 for allegedly executing unauthorized
trades in customers' accounts in order to generate large commissions.
The lawsuit, which seeks class-action status on behalf of TD Waterhouse
customers, was filed in Manhattan federal court by investor Tony Hoffman
of Albuquerque, N.M. It seeks unspecified damages.
TD Waterhouse Investor Services, which is a member of the New York Stock
Exchange, is the third-largest on-line discount brokerage, based on
trading volume and customer assets, the suit said. The online brokerage
firm ranks behind No. 1 U.S. Internet broker Charles Schwab Corp. and
No. 2, E+Trade Group Inc. TD Waterhouse Investor Services is a unit of
TD Waterhouse Group , the world's second-largest discount brokerage.
The suit states that Waterhouse attracts customers by offering on-line
discount brokerage services with ``rock-bottom'' commission fees as low
as $12 per trade. It alleged that the company's on-line service allowed
TD Waterhouse to collect substantial commissions on trades that
investors did not intend to make and which they thought had been
cancelled. The suit alleged that although Waterhouse repeatedly informed
investors that their cancellation orders had been received and accepted
before execution, the company allegedly ignored the orders and carried
out the transactions. Waterhouse allegedly refused to compensate
investors for the losses suffered because of the trades, the suit said.
It further alleged that when investors' accounts did not contain
adequate funds to pay for the unauthorized trades, Waterhouse liquidated
their accounts and charged commission fees far in excess of those
advertised by the company.
The stock of the brokerage's parent, TD Waterhouse Group, rose 5/8 to
15-5/8 a share in New York Stock Exchange trading on February 8. Last
June, Canada's Toronto-Dominion Bank sold 10 percent of TD Waterhouse
Group to the public in an initial public offering that raised $1
billion. The big Canadian bank still owns 90 percent of TD Waterhouse
Group. (Reuters, February 8, 2000)
TOBACCO LITIGATION: CNN Coverage on Price Fixing and Antitrust Issues
---------------------------------------------------------------------
Broadcast on Cable News Network on February 9, 2000
DEBORAH MARCHINI, CNN ANCHOR: Another legal problem arising for the
embattled tobacco industry.
JOHN DEFTERIOS, CNN ANCHOR: This is a case of kicking them while
they're down. Is there, perhaps, some value built into this sector?
Let's welcome Christine Romans. It's part of her first focus here on
AHEAD OF THE CURVE.
Good morning.
MARCHINI: Hi.
CHRISTINE ROMANS, CNN CORRESPONDENT: Hi there. Well, if you watched
tobacco stocks yesterday, it was a pretty bloody day on Wall Street for
some of these tobacco shares, some of them trading near five-year lows,
many of them definitely near their 52-week lows.
A little bit of trouble for the company again, a lawsuit coming out,
word out of Washington that just when you thought that health litigation
was the big problem on the horizon for these stocks, turns out another
negative comes up. This is U.S. cigarette wholesalers launching a
class-action suit alleging price-fixing and antitrust issues and such.
So a completely different kind of litigation than this industry has seen
lately. Usually we're talking about things like the sick smoker Engle
(ph) case in Florida, which, by the way, is expected to be picking up
steam here in the next few months. Maybe march or April we could get
some definitive headlines out of that one.
Now, the industry calls it "nonsense," "make-believe," these are their
words. This is what these cigarette companies are saying. And when you
talk to analysts about the stocks, they're saying that maybe if you
think that this is this wholesaler price-fixing issue is a one-time
litigation aberration, that maybe these stocks are undervalued.
(BEGIN VIDEO CLIP)
MARTIN FELDMAN, SALOMON SMITH BARNEY: The stocks are being valued
presently as though they're going bust. RJR is yielding 18 percent;
Philip Morris is yielding just under 10 percent. Philip Morris is one of
the biggest consumer goods companies in the world. I do not believe that
any of the litigation out there suggests that the companies are going
bust or that they will not be able to prevail in this litigation in the
longer term. They are risky, but if you don't believe they're going bust
and the stocks are valued that way, you want to own them.
(END VIDEO CLIP)
ROMANS: A share of Philip Morris still costs less than a carton of
cigarettes. And, interestingly enough, Philip Morris owns Kraft Foods,
and some analysts value this company at at least $20 a share, which is
more than Philip Morris stock is trading for right now. Analysts valuing
Kraft, some of them, between $21 and $23 a share. Yesterday, CSFB,
Credit Suisse First Boston, came out and said that Global Kraft Foods is
worth $20 a share, a traders on the floor of the New York Stock Exchange
tell me repeatedly that they think maybe the next two or three years,
Philip Morris might be a buy. But if you have any kind of qualms about
waiting out sideways to downside action until then, you might want to
stay away from this one. But if you have a longer-term horizon, it might
be a good one.
Also, RJ Reynolds Tobacco, RJR, this one spun off from Nabisco, you
might remember, June 1, 1999. You can see this one down 43.8 percent
since June 1, Traders on the floor that I was talking to yesterday say
that this one is definitely dead in the water. May be a buy again for a
two to three price horizon, but when you talk to the analysts on the
Street, they're quick in this particular situation to defend the
industry and say they don't think there's much merit in this particular
lawsuit. But they say what it does do is it shines the light back on the
whole litigation things. This is an industry -- these stocks are
event-driven, not fundamentals driven, and it is litigation headlines
that drive things here.
DEFTERIOS: A fair point about the fact that their food stock is low.
It's affiliated with Philip Morris, obviously. But everybody was saying,
including Martin Feldman, that it was a buy at $33 a share, and that's
been the story for the last 12 months, right?
MARCHINI: Christine, I'm also curious about something, which is that
the federal government jumped on the bandwagon when the states sued the
tobacco companies to recover damages for the cost of treating sick
smokers. Federal government got antitrust authority, too. Does anybody
think they might try to jump on the bandwagon in the civil antitrust
suit?
ROMANS: All of these analysts say that this price-fixing thing, when
you look at how competitive this industry's been over the last 20 years
and how Philip Morris has managed to garner more and more market share
from Brown and Williamson and from RJR, that it's unfounded. That's what
all the analysts are saying.
MARCHINI: All right, thanks, Christine.
DEFTERIOS: Thanks a lot for that.
TOBACCO LITIGATION: Distributors File Suit in New York over Pricing
-------------------------------------------------------------------
United States cigarette wholesalers filed a lawsuit on February 9
against the five leading tobacco companies, accusing them of illegally
fixing prices. The wholesalers said that the tobacco companies convened
regularly to rig prices to wholesalers and distributors. Stocks of the
tobacco companies tumbled on the news. The suit, filed in federal court
in New York, contends that the companies "have increased prices in lock
step," said Paul Gallagher, a lawyer for the plaintiffs.
Michael York, a spokesman for the Philip Morris Companies, the leading
cigarette manufacturer, said, "These cases have no legal merit."
R. J. Reynolds Tobacco Holdings denied any wrongdoing. "Our pricing
practices conform to all applicable federal and state laws," John
Singleton, a company spokesman, said. "All pricing decisions are based
on our own unilateral, independent judgment."
The suit accuses the companies of raising prices charged to cigarette
distributors within hours and sometimes minutes of each other.
Class-action lawsuits on behalf of smokers who may have overpaid for
cigarettes also are likely to be filed, Mr. Gallagher said.
Also named as defendants in the suit are the Brown & Williamson Tobacco
unit of British American Tobacco; the Lorillard unit of the Loews
Corporation, and the Liggett Group, a unit of Brooke Group Ltd.
American depository receipts of British American Tobacco fell 75 cents,
to $8.50; shares of Philip Morris fell $1.0625, to $19.50; Loews slid
$4.1875, to $52.8125; RJR fell 37.5 cents, to $18.25; Brooke shares were
off 68.75 cents, at $15.875.
The suit, in which lawyers plan to seek class-action status, seeks
unspecified damages that Mr. Gallagher said could reach hundreds of
millions or billions of dollars. The contentions are based on documents
and evidence that have been amassed in litigation against the tobacco
industry. (The New York Times, February 9, 2000)
TOBACCO LITIGATION: The Washington Post Says Data on Prices Are Foreign
-----------------------------------------------------------------------
The latest lawsuit filed against the tobacco industry -- alleging price
fixing -- might seem to be packed with incriminating evidence, but it is
far from certain that the legal salvo will hit its target, antitrust
experts said.
Documents used to support a class-action lawsuit filed February 8 in
U.S. District Court appear to show major U.S. tobacco companies agreeing
on the prices they will charge for cigarettes to be sold in far-flung
places such as Saudi Arabia, Jamaica, Costa Rica and Argentina. "Price
increases to be put into effect ASAP," one document reads about sales in
Guatemala. "It was agreed," reads another about sales in Trinidad, "that
the three companies would exchange information on proposed price
increases."
But, because the documents are about foreign sales and not U.S. sales,
the lawsuit may not be another devastating blow to the beleaguered
tobacco industry. In fact, because the records fail to show executives
specifically colluding to fix the prices of cigarettes sold in the
United States, some antitrust experts said it is the class-action
plaintiffs' attorneys who have the difficult task ahead of them.
The lawsuit alleges that tobacco companies conspired "in a long-running
and systematic series of agreements to fix cigarette prices above
competitive levels in violation of both the Sherman Act and
international law."
The suit relies heavily on circumstantial and anecdotal evidence -- and
the hearsay account of a former attorney for the Liggett Group Inc. --in
an effort to show that while the industry was setting prices overseas
that it most likely was doing the same thing in the United States.
In federal court, experts said, the attorneys will need more. "It sounds
like it is going to be a difficult case," said Mark Schechter, an
antitrust lawyer at Howrey & Simon who was a Department of Justice
antitrust enforcer for 18 years. "It is an industry that's recognized to
be relatively highly concentrated and one where there is a fair amount
of uniformity in pricing. They are going to need to come up with
something more than identical pricing."
But Jon Ferguson, a prime architect of the lawsuit along with D.C.
lawyer Michael Hausfeld, argues that the evidence is strong enough now
to go to trial. Hausfeld's firm, Cohen, Milstein, Hausfeld & Toll, had
been mulling the lawsuit when Ferguson joined Chandler, Franklin &
O'Bryan of Alexandria, specifically to work on tobacco litigation.
Ferguson should know the documents: He helped collect them when he was
an assistant attorney general in Washington state suing the tobacco
industry. "I'm pretty certain that if we get into discovery we're going
to find other evidence," said Ferguson, who lives in Seattle and helped
direct his state's lawsuit against the tobacco industry. "But I wouldn't
feel badly if we took it to a jury right now."
Representatives for the tobacco industry strongly disagreed. The suit
names Philip Morris Cos., R.J. Reynolds Tobacco Co., British American
Tobacco Co., Brown & Williamson Tobacco Corp., Lorillard Tobacco Co. and
the Liggett Group in the alleged price-fixing conspiracy.
"Tobacco companies are brutally competitive," said Mark Smith of Brown &
Williamson. "We often talk about the 'war in the store,' 'the battle in
the marketplace.' This [lawsuit] is nonsense."
A cornerstone of the lawsuit, which seeks certification of a class of up
to 1,000 tobacco wholesalers across the nation, is that for decades
tobacco companies increased their prices in lock step.
But antitrust experts said that such evidence is simply not enough to
prove price fixing. Courts also look for what are known as "plus
factors," additional evidence to prove collusion. But the lines are not
clear. "There is a certain arbitrariness," said Herb Hovenkamp, a
University of Iowa professor of antitrust law. "Courts look at the
evidence and say 'Well, this looks close enough to an agreement [to fix
prices] and we'll call it one.' And other courts look at the same
evidence and disagree. There is a spotty won-loss record. There are a
lot of reversals."
The case will hinge in part on the testimony of Lawrence Meyer, an
outside lawyer who once represented the Liggett Group. In a 1998
deposition taken by Ferguson, who was then antitrust chief for
Washington state, Meyer testified that the chief counsels for the major
tobacco companies regularly met and agreed upon price increases for
their companies.
But even Meyer acknowledges that he did not attend the meeting and was
relying on what he had been told by Joseph Greer, Liggett's general
counsel at the time. Greer died more than a decade ago. (The Washington
Post, February 9, 2000)
WORLD FUEL: Milberg Weiss Files Securities Suit in Florida
----------------------------------------------------------
Milberg Weiss Bershad Hynes & Lerach announced on February 8 that a
class action lawsuit was filed in the United States District Court for
the Southern District of Florida on behalf of all persons who purchased
the common stock of World Fuel Services Corp. (NYSE: INT) between May
26, 1999, and January 31, 2000, inclusive.
The complaint charges the defendants who controlled World Fuel,
including certain of its officers and directors, with violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 as well
as Rule 10b-5 promulgated thereunder. The complaint alleges that
defendants issued a series of materially false and misleading statements
the Company's business, financial condition, earnings and prospects.
Specifically, the Complaint alleges that the Company failed to take
adequate reserves for losses, failed to disclose that it lacked
insurance on key assets and failed to disclose that bad debts had been
consistently accounted for as advances to third-parties.
As a result of these materially false and misleading statements and
omissions, plaintiff alleges that the price of World Fuel common stock
was artificially inflated during the Class Period.
Contact: Milberg Weiss Bershad Hynes & Lerach LLP Shareholder Relations
Dept. E-Mail: endfraud@mwbhlny.com 1-800-320-5081
* Law Journal Says Health Insurer Embraces Litigation to Reduce Costs
---------------------------------------------------------------------
Litigation is a poor way to settle disputes, especially when it takes
place among parties who have to continue doing business with each other.
Executives are distracted, profits decline, the economy suffers, the
lawyers get rich and so on. Most corporate attorneys would agree with
these bromides, and if they didn't, they probably would avoid saying so
on the record.
An exception to the rule has cropped up in an unlikely setting. Blue
Cross & Blue Shield United of Wisconsin, the largest health insurer in
the state, has embraced litigation as a way to bring healthcare costs
down and affect healthcare policy in ways designed to benefit customers.
"We actively and aggressively prosecute cases," says Lawrence R. LaSusa,
litigation counsel at Milwaukee-based United Wisconsin Services Inc.,
the publicly traded affiliate of the Wisconsin Blue Cross. "One thing we
are currently doing is promoting health insurer versus pharmaceutical
company lawsuits."
Many health insurance companies are taking a beating from the brand-name
pharmacy companies, according to LaSusa. "The big companies have been
vigilant about keeping generics off the market through anti-competitive
behavior," he says. "It typically works out to be advantageous for the
brand name to pay what to some people would be exorbitant amounts of
money, many millions every quarter, to the generic manufacturers to keep
their product off the market."
In 1999, UWS became involved in three lawsuits targeting pharmaceutical
companies. Allegations include payoffs to the generic manufacturers to
keep them from selling their product. "That is just one of the issues,"
he says. "We take on all kinds of health policy litigation. We have
found there is a lot of fraud, waste and abuse impacting healthcare
services, and we decided we are going to be at the forefront of stopping
it. "The funny thing is," he adds, "very few health insurers prosecute
this sort of thing. It's not a popular concept, to sue your providers."
Among the Blues affiliates nationally, which represent about one in four
people with health insurance, it's not a concept that has caught on. His
organization is the "laboring oar" of this endeavor, according to
LaSusa. He thinks it ought be embraced more widely.
A Legal Milieu
When LaSusa went to work at Wisconsin Blue Cross in 1997, he found a
soul mate in Russell Streur, the head of an aggressive UWS fraud
investigation unit. "They hooked me up with Russ, and we have been
collaborating on all sorts of cases since then, in the investigation
phase as well as litigation." LaSusa calls Streur an old fashioned
gumshoe and a first-rate investigator. Streur is not an attorney. "It's
been fun," says LaSusa. "I get to do some of the stuff I originally
started out doing for the Illinois attorney general, which was fraud
investigations and recoveries that helped thousands of people. In a
sense, I'm doing the same thing here."
LaSusa's view is that he has helped articulate and take to the level of
corporate strategy an effort that Streur was already implementing, in a
corporate culture that was predisposed to accept an aggressive legal
strategy. The CEO of United Wisconsin Services and Blue Cross & Blue
Shield United, Thomas R. Hefty, is a former Wisconsin deputy insurance
commissioner and former attorney with the Federal Trade Commission.
"This is one of the companies that promotes lawyers to business
positions," LaSusa says. "Half the strategic business units here are
headed by law department alumni." This is one reason that, when the
company makes strategic business plans, the attorneys are involved,
according to LaSusa. "When we looked at these issues, it wasn't just
business people saying, 'Yeah, there's a problem out there, but no, we
don't want to ruffle any feathers.' It was, 'There's a problem, and as
lawyers, we are going to do something about it.'"
Moving Target
Russell Streur, gumshoe, has been working for the organization since
1991. He began in the subrogation unit, dealing with accidents. As
interest in healthcare costs and abuses waxed, his job changed. Since
1992, Streur's unit has been involved in numerous UWS lawsuits,
including cases involving false billings in the mental health and
homecare industries. Today Streur's title is supervisor of the fraud
investigation unit at Meridian Resource Corp. Meridian is a subsidiary
of United Wisconsin Services. Spun off early in 1999, it handles the
fraud investigations for Blue Cross & Blue Shield United of Wisconsin
and works on contract for other carriers.
According to Streur, we are currently in the third era of the rapid-fire
history of healthcare fraud. The first, in the early part of the 1990s,
was the era of inappropriate mental health treatment: committing people
who didn't need to be committed and keeping them committed until their
insurance benefits ran out. The second, roughly the mid-1990s, saw an
upsurge in clinical billing irregularities. This was the age of
"upcoding."
Now we are in the third cycle of abuse, according to Streur, and it
involves pharmaceuticals. The first indicators, he says, showed up a few
years ago, "when the cost of prescription drugs began to outrun not only
the base rate of inflation, but the higher rate of medical cost
inflation." "The prices are spiking. Why are they spiking?" he asks.
"You come to certain conclusions. A brand-name drug company pays a
generic competitor not to market. Brand-name drug company pays a
supplier not to supply to rivals. "We are trying to provide an answer
and create a lead," he says, "a position that other companies can
follow."
The Drug Cases
In March 1999, UWS filed a lawsuit against Hoechst and a generic
manufacturer, Andrx Pharmaceuticals Inc., Ft. Lauderdale, Fla. In May,
UWS filed a suit against, among others, Mylan Pharmaceuticals Inc. In
October, it filed against Abbott Laboratories. All three lawsuits were
filed as class actions.
The Abbott suit was filed in the Circuit Court of Cook County, Chancery
Division, under the Illinois Fraud and Deceptive Practices Act. It
alleges that at least five companies could have manufactured a generic
equivalent for Abbott's best-selling drug Hytrin. But they were stymied,
according to the complaint, "by the unfair and deceptive trade practices
of Abbott."
The suit alleges that Abbott first filed irrelevant or invalid patents;
then paid two generic manufacturers (both also defendants in the
lawsuit) tens of millions of dollars not to market the generic.
The Abbott suit is filed in the name of United Wisconsin Services Inc.,
Blue Cross & Blue Shield United of Wisconsin, and other UWS affiliates
and subsidiaries, and a class consisting of insurers who paid for Hytrin
prescriptions since 1995. The complaint estimates that in 1998 alone,
U.S. sales of Hytrin were more than $ 540 million, most of it paid for
by insurers.
The Hoechst suit (United Wisconsin Services Inc. et al v. Hoechst
Aktiengesellschaft, Hoechst Marion Roussel Inc. and Andrx
Pharmaceuticals Inc.), was filed in State of Wisconsin Circuit Court,
Milwaukee County.
This suit, brought under Wisconsin antitrust laws, accuses the Hoechst
companies of a two-stage effort to monopolize the $ 900 million annual
market for the prescription heart drug diltiazem hydrochloride, which
Hoechst markets as Cardizem CD. According to the complaint, starting in
1992, Hoechst engaged in a variety of anti-competitive practices,
including filing frivolous patent infringement actions. Then in 1997,
realizing that its efforts were not sufficient, it conspired with Andrx
to divide the market, under an agreement that involved Hoechst paying
Andrx millions of dollars a year not to market its generic version of
Cardizem and to block other generic manufacturers from the market.
The Mylan suit, United Wisconsin Services Inc., et al v. Mylan
Laboratories et al, was filed in U.S. District Court, District of
Columbia. It seeks damages for alleged violations of state antitrust and
consumer protection laws, and disgorgement for defendants' "unjust
enrichment." According to the complaint, the defendants' actions allowed
them raise the price for the generic drugs lorazepam and clorazepate by
as much as 4,000 percent beginning in 1998.
The suit against Mylan is also brought in the name of a class of third
party payers. It alleges that Mylan and the other defendants have
arranged to keep generic manufacturers other than Mylan from obtaining
necessary ingredients to manufacture the drugs named. "As evidence of
the success of Mylan's monopolization scheme, its market shares of
generic Lorazepam and generic Chlorazepate increased when Mylan raised
prices more than tenfold," according to the complaint ["FTC Pushes
Boundaries With Disgorgement Case, January 1999, p. 74].
A spokesperson for PhRMA, the Pharmaceutical Research and Manufacturers
of America (formerly the Pharmaceutical Manufacturer's Association),
says that Hoechst and Abbott are members, but as a matter of policy, the
organization would not comment on the lawsuits, nor would it comment
more generally on the issues raised by LaSusa or the lawsuits.
A spokesperson for Abbott says it is policy not to comment on pending
litigation. Calls to the legal department at Hoechst Marion Roussel and
to the general counsel's office at Mylan were not returned.
Although UWS has been notably active in this area, it is far from the
only party that has been involved. The Federal Trade Commission has
indicated it is looking at the Hoechst and the Hoechst-Andrx
relationship. Aetna has sued Hoechst over allegations relating to
Cardizem CD, and there are now about 30 pending lawsuits relating to
Cardizem, according to Richard W. Cohen, partner at Lowey Dannenberg
Bemporad & Selinger in White Plains, N.Y. Cohen, in fact, has filed
several of them, including the case for Aetna, as well as for UWS. Cohen
is representing UWS in all three of its 1999 pharmaceutical company
litigations.
In the Mylan case, the FTC, numerous state attorneys general and
consumer plaintiffs have filed. UWS was the first traditional
third-party payer to file, according to Cohen.
A key tactic of the brand-name pharmaceuticals is something that Cohen
characterizes as evergreening: They wait until the patent on "the
molecule" is about to expire, lard on some new and invariably
off-the-wall patent applications that allegedly pertain to the product
and then litigate against the generic that is coming on the market.
Under provisions of the Hatch-Waxman Act, that automatically gives them
another 30 months of protection, in addition to the 17 years, plus
extensions in some cases, that they have already enjoyed.
100 Billion in Drugs
The managed care industry has been caught flat-footed, in Cohen's view.
Its response, now that criticism has reached critical mass, is to pour
resources into lobbying while failing to confront economic facts that
are making their business untenable. Last year, according to Cohen,
about $ 100 billion was expended on prescription drugs in the United
States, about 70 percent of it through managed care companies. "What
percent of that is affected by the acrobatics done to keep generics off
the market?" he asks. "Ten billion? Fifteen? It's a lot of money. "A lot
of these in-house counsel have been ignoring the impact of
pharmaceutical expenditures on their plans, and why it is happening,"
Cohen says. "Larry has been on the soap box, exhorting them to get
active." (Corporate Legal Times, February, 2000)
* LCJ Urges Messages of Support for S-353 of Act for Suits in Fed Cts
---------------------------------------------------------------------
Lawyers for Civil Justice (LCJ) recently sent letters to members and
friends urging them to contact key members of the U.S. Senate Judiciary
Committee in support of S.353, The Class Action Fairness Act of 1999.
The bill would allow the removal of interstate class action suits from
state courts to federal courts.
"LCJ, along with other business associations and defense bar
organizations, strongly supports S.353, the class action removal bill
and for good reason," LCJ President Kevin Dunne said in a recent letter.
"As defense practitioners, we know the importance of trying class action
disputes in a neutral forum, free of local prejudice, and in a venue
where the due process rights of defendants will not be ignored.
"Yet as former LCJ President Steve Morrison testified last spring before
the Senate Judiciary Committee, many state courts simply do not give a
fair shake to either class action defendants or members of the putative
class. And to make matters worse, there is compelling evidence that the
recent growth in class actions is primarily a state court phenomenon.
Having discovered easy access to state courts, plaintiffs' counsel are
filing class action lawsuits which they would never have seriously
considered bringing a few years ago."
LCJ has called on members and friends to fax messages of support for
S.353 to the following members of the Senate Judiciary Committee: Sen.
Orrin G. Hatch (fax: 202-224-6331), Sen. Robert G. Torricelli (fax:
202-224-8567), Sen. Charles G. Schumer (fax: 202-228-3027), Sen. Dianne
Feinstein (fax: 202-228-3954) and Sen. Arlen Spector (fax:
202-228-1229).
Mr. Dunne recently sent the following letter to Sen, Hatch:
"I am writing on behalf of Lawyers for Civil Justice to respectfully
request that you schedule S.353, The Interstate Class Action Fairness
Act, for mark up by the Senate Judiciary Committee as soon as the Senate
returns from recess in early 2000. As a national coalition of defense
practitioners and corporate counsel, representing over 20,000 defense
practitioners through our affiliated organizations, we are extremely
concerned that class actions which are truly interstate in nature, are
being tried in state courts, subverting a core function of the federal
courts.
"Given the enormous stakes involved in nearly all class actions, we
believe that federal courts are the appropriate forum for litigating
interstate class actions. The inherent bias against out of state deep
pocket defendants and the inability of state courts to properly protect
the due process rights of corporate defendants have taken on greater
significance as state court class action filings have skyrocketed in
recent years. As a coalition of defense practitioners, we know the value
of affording the due process to defendants in a neutral forum. Yet
current law has been manipulated by plaintiffs' lawyers making removal
of class actions to federal court virtually impossible. Based upon our
practical experience, we sincerely believe that S.353, by addressing
this removal aspect of class action reform, would significantly improve
the administration of justice in these cases."
Mr. Dunne also urges anyone contacting the Judiciary Committee to fax
copies to LCJ (fax: 202-429-6982). For additional information of the
issue, contact LCJ Executive Director Barry Bauman at (202) 429-0045.
Senate Bill 353 Backgrounder
Lawyers for Civil Justice, a national tort reform coalition, has
prepared the following background paper on S.353, The Class Action
Fairness Act.
The Class Action Fairness Act - Why It Is Needed
In recent years, state courts have been flooded with interstate class
action lawsuits; however, many state courts are not equipped to deal
with these cases.
Interstate class actions are increasingly being brought in certain state
courts because those courts tend to favor lawyers in cases against
out-of-state companies or because those courts are ill-equipped to
handle such cases. Many state courts don't have either the support staff
and other resources or the complex litigation experience to handle
interstate class actions, which often involve thousands (and sometimes
millions) or purported class members.
In addition to forum-shopping, lawyers frequently exploit major
loopholes in federal jurisdiction statutes to block the removal of class
actions that belong in federal court. For example, plaintiffs' counsel
may name parties that are not really relevant to the class claims in an
effort to destroy diversity. In other cases, counsel may waive federal
law claims or reduce the amount of damages claimed to ensure that the
action will remain in state court.
Currently, interstate class actions provide a mechanism for state courts
to interpret the laws of other states.
Some state courts use very lax class certification criteria, making
virtually any controversy subject to class action treatment and allowing
state courts to hear purely interstate class actions. The result is that
state courts are increasingly deciding out-of-state residents claims
against out-of-state companies under other states' laws. When state
courts preside over class actions involving claims of residents of more
than one state (especially nationwide class actions), they end up giving
an interpretation to states, dictating the substantive laws of other
states, sometimes over the protests of those states.
For example, The New York Times recently reported that in a nationwide
class action, one Illinois state court may effectively "overturn
insurance regulations or state laws in New York, Massachusetts, and
Hawaii, among other places," notwithstanding the protests of officials
in those other states. According to the Times, that Illinois state court
(elected by the residents of one county) was on the verge of "making
what amounts to a national rule on insurance."
Similarly, after a federal court found itself without jurisdiction over
the matter, a county court in Alabama is now handling a nationwide class
action brought on behalf of 20 million people nationwide alleging that
federally-mandated air bags in their vehicles are faulty. This situation
raises serious federalism-related policy questions. Why should an
Alabama court (elected by 11,000 residents of one county) be telling 20
million people in all 50 states what kind of air bag is appropriate for
their vehicles? What business does an Alabama state court have in
presiding over such a case when fewer than 20 percent of the claims are
by Alabama residents and none of the out-of-state defendants even do
business in the county where the court sits?
Often class actions result in settlements that are very costly for
defendants and do not really benefit class members.
In an editorial, the San-Diego Union-Tribune criticized the settlement
of a state court class action in which the author had received 93 cents
and the lawyers got $ 140,000.
According to Business Today, class members in another case got free
cereal coupons (good if they bought more cereal), while their lawyers
were paid $ 2 million - $ 2,000 per hour.
Worse yet, the Chicago Tribune reported that one state court class
action settlement yielded an $ 8.5 million payment to the class
attorneys, but each class member ended up having to pay $ 91.13. That's
right, the consumers lost money!
Currently, federal diversity jurisdiction statutes limit the authority
of federal courts to hear purely interstate class actions.
At present, our federal diversity jurisdiction statutes essentially
provide that interstate disputes involving significant sums of money may
be heard in a federal court. But because class actions (as we now know
them) did not exist when those statutes were initially framed, class
actions were omitted, leading to unintentional results.
For example, under current law, a citizen of one state usually may bring
in a federal court a simple $ 75,000 slip-and-fall claim against a party
from another state. But if a class of 25 million product owners living
in all 50 states brings claims collectively worth $ 15 billion against
the product manufacturer, the lawsuit usually must be heard in a state
court.
How will the Class Action Fairness Act remedy the class action crisis?
The Class Action Fairness Act offers a solution to the class action
crisis by making it easier for plaintiff class members and defendants to
remove class actions to federal court, where multiple state laws are
more appropriately heard.
The act doesn't limit the ability of anyone to file a class action
lawsuit. It doesn't change anybody's rights to recovery. It merely
allows federal courts to hear big lawsuits involving truly interstate
issues, while ensuring that purely local controversies remain in state
courts. This is exactly what the framers of the Constitution had in mind
when they established federal diversity jurisdiction. (The Metropolitan
Corporate Counsel, February, 2000)
* Pitfalls of Employers' Use of Mandatory Arbitration for Women
---------------------------------------------------------------
Recent settlements of two highly publicized Wall Street sex
discrimination class actions have not settled a key issue: employers'
use of mandatory arbitration to resolve such grievances. The issue has
broad significance.
One settlement, involving Salomon Smith Barney, established a new system
of mediation and arbitration to handle the claims of approximately
20,000 women. Some claimants have now challenged the fairness of that
system, as well as the company's continued requirement that employees
agree to arbitrate future grievances.
Merrill Lynch, the other defendant, has agreed to end its compulsory
arbitration policy, but only one other Wall Street firm has followed
suit. Such cases make clear the need for courts, policymakers and
employers to rethink the appropriateness of requiring alternative
dispute resolution (ADR), or at least to ensure that it includes more
procedural safeguards.
The securities industry helped pioneer the use of compulsory arbitration
clauses, which have become increasingly common. According to a
Government Accounting Office survey, about 300 corporations impose such
requirements on 3 million employees, and more intend to do so. Yet a
growing number of experts have expressed concern about this.
Organizations such as the American Arbitration Association and the
National Academy of Arbitrators oppose compelling parties to arbitrate
based on agreements predating the dispute. The reasons for such
opposition are illustrated by the Wall Street litigation.
Until this past year, self-regulatory groups such as the National
Association of Securities Dealers required their members to resolve
employment disputes through industry-sponsored arbitration. From
employees' standpoint, the process left much to be desired.
According to a recent isssue of the ABA Journal, arbitrators, typically
white males with little or no experience in employment cases, are
selected by the industry. They are not required to follow Title VII law,
to authorize discovery or to issue written opinions. Significant
recoveries are so infrequent that plaintiffs' lawyers seldom find it
worthwhile to take such claims. The low likelihood of employer liability
encourages a climate of pervasive sex-based discrimination and
harassment.
Unwilling to Change
Although companies like Salomon Smith Barney now pay the price of that
neglect, they have been unwilling to abandon mandatory arbitration. For
many employers, these procedures still appear preferable to litigation;
they reduce the risks of expensive, protracted trials, large judgments
and adverse publicity. Managers claim employees also benefit from such
expedited resolution of disputes, but presumably, there would be little
need to compel participation if the advantages were equally shared.
The growing use, and misuse, of mandatory arbitration has generated a
growing body of legal challenges. In the leading Supreme Court decision,
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), the
majority upheld a required agreement to arbitrate employment disputes
that a broker had to sign to register with the New York securities
exchange.
In so ruling, the court held that the record did not establish that the
arbitration process was unfair, but left open the possibility that
future plaintiffs might be able to demonstrate structural biases or
procedural inadequacies that made such agreements unenforceable.
Since Gilmer, most federal courts have upheld mandatory arbitration
clauses, but an increasing number of decisions have demanded significant
procedural safeguards, and the U.S. Court of Appeals for the 9th Circuit
has refused to uphold such clauses in the Title VII context because of
their potential to interfere with congressionally authorized
protections. The Equal Employment Opportunity Commission has declined to
view compulsory arbitration agreements as precluding EEOC claims.
These decisions are steps in the right direction. Given the demonstrated
risks of abuse connected with mandatory ADR procedures, Congress would
do well to ban them entirely for cases involving civil rights.
Alternatively, courts could insist on compliance with standards
developed by independent organizations such as the American Arbitration
Association, which provide for protections such as written decisions,
adequate discovery, enforcement of applicable laws and selection of
neutral arbitrators.
ADR procedures that are fair in form as well as fact will not need to be
compulsory. And procedures that fail to meet that standard do not belong
in a system that implicates fundamental human rights. (The National Law
Journal, January 31, 2000)
*********
S U B S C R I P T I O N I N F O R M A T I O N
Class Action Reporter is a daily newsletter, co-published by Bankruptcy
Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc.,
Washington, DC. Romeo John D. Piansay, Jr., editor, Theresa Cheuk,
Managing Editor.
Copyright 1999. All rights reserved. ISSN 1525-2272.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
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Information contained herein is obtained from sources believed to be
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The CAR subscription rate is $575 for six months delivered via e-mail.
Additional e-mail subscriptions for members of the same firm for the
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