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/raid1/www/Hosts/bankrupt/CAR_Public/000405.MBX C L A S S A C T I O N R E P O R T E R Wednesday, April 5, 2000, Vol. 2, No. 67 Headlines ARMY CORPS: EEOC Approves Black Workers' on Discrimination AURORA FOODS: Berman DeValerio to File Expanded Securiteis Suit in CA BABY FORMULA: High Ct Oks Transfer to Fed Ct; Case over Price Killed BANK WEST: Judge Agrees with Plaintiffs But Says Filing Is Too Late ECONNECT, INC: Bernstein Liebhard Files Securities Suit in California ECONNECT: Faruqi & Faruqi Files Securities Lawsuit in California GLENDALE ELEMENTARY: School Retirees Told to Work for Medical Benefits HALACO ENGINEERING: CA Dept Alleges Hazardous Waste Incineration HOME SHOPPING: Angry PC Buyers Sue Defunct Proteva and TV Channel ILIFE.COM, INC: Vows to Defend Vigorously Shareholder Suit in New York INMATES LITIGATION: Former Representative for OK Prison Replaced INMATES LITIGATION: Teen Testifies for Widespread Fighting at DJJ in SC KTI, INCORPORATED: Donovan Miller Files Securities Suit in New Jersey MICROSOFT CORP: Some Believe Ruling Could Stall Company With Legalities MICROSOFT CORP: Vows to Fight Ruling on Antitrust MICROTEST INC: Arguments for Dismissal of Securities Suits in AZ Heard SEATTLE CITY: Parking Meter Lawsuit Dismissed; Faulty Equipment Fixed TOBACCO LITIGATION: Forces Arrayed Threaten Bankruptcy TOBACCO LITIGATION: Legislation Proposed to Shield Assets in NC WA STATE: Judge OKs Class over Foster Child Treatment ********* ARMY CORPS: EEOC Approves Black Workers' Appeal on Discrimination --------------------------------------------------------------- About 75 black workers have won approval from the Equal Employment Opportunity Commission to move forward with a class action complaint against the U.S. Army Corps of Engineers. Lee et al v. Dept. of the Army, EEOC No.01990384, Feb. 23, 2000. The employees claim that blacks in Vicksburg, Miss., are consistently underpaid and denied promotional and training opportunities. Josh Bowers, an attorney for the employees, said blacks in the agency go "so far, but no further," regardless of education. "It's really a 21st century practice," said Bowers. "They'll hire African-Americans, but they won't promote them." The complaint was initially filed with the agency's EEO office in 1997. It was appealed to the EEOC's Office of Federal Operations in Washington, after being dismissed by the agency and a local EEOC administrative judge. The AJ found the employees had not met the EEOC's rules for a class action complaint. For example, they failed to meet the "adequacy of representation" requirement because the AJ had given their attorney a 30-day extension to file his brief, and yet it was not submitted on time. The AJ's decision was overturned, however, at EEOC headquarters. OFO found the employees had indeed met the necessary requirements, including having an attorney who could "adequately" represent all the members of the class. "The attorneys representing the complainants have extensive litigation experience," the EEOC ruling says. OFO agreed with the attorneys that their brief was filed on time. It also noted that they had obtained a 1,000,000 settlement for 16 blacks in a previous case against the Army of Corps of Engineers in Memphis, Tennessee. Bowers, a partner with Washington-based Passman & Kaplan, was reluctant to form "stereotypes" about the agency, but he said it has a "culture of its own" that is historically tied to the Mississippi River. "It seems to attract people with that way of thinking," he said. About 200 of the agency's approximately 1,300 employees in Vicksburg are black. Of those, 70 have already signed the class complaint. As far as working out a settlement, Bowers said the agency had "not contacted us at this time." It was "premature," he said, to talk about remedies, but the employees will at least be looking for monetary compensation and job opportunities they claim they were denied. (Federal Human Resources Week, March 30, 2000) AURORA FOODS: Berman DeValerio to File Expanded Securiteis Suit in CA --------------------------------------------------------------------- Aurora Foods, Inc. (NYSE: AOR) announced on April 3 that it would be restating its 1998 third and fourth quarter financial statements and its financial statements for the first three quarters of 1999. The restatement will result in a reduction of earnings by an aggregate amount of $81.6 million. Berman DeValerio & Pease, LLP, which has already filed a class action in the United States District Court for the Northern District of California, on behalf of all persons who purchased common stock of Aurora Foods, Inc. (NYSE: AOR) between April 28, 1999 and February 17, 2000, will file an expanded class action to include purchasers during the period October 28, 1998 through February 17, 2000 (the "Class Period"). The action charges Aurora and certain of its officers with violations of the federal securities laws. Specifically, the complaint alleges that the Company improperly accounted for its promotional expenses paid to retailers of the Company's food products. As a result, expenses were allegedly understated and thereby earnings were materially inflated in violation of Generally Accepted Accounting Principles. Contact: Jennifer L. Finger, Esq., Jeffrey C. Block, Esq., Berman, DeValerio & Pease LLP, One Liberty Square, Boston, MA 02109, Email: bdplaw@bermanesq.com 800-516-9926 or Jennifer S. Abrams, Esq., Berman, DeValerio, Pease & Tabacco PC, 425 California St., San Francisco, CA 94104, E-Mail: jennifera@tabaccoesq.com 415-433-3200 Website: http://www.bermanesq.com BABY FORMULA: High Ct Oks Transfer to Fed Ct; Case over Price Killed -------------------------------------------------------------------- An evenly divided Supreme Court on April 3 killed a lawsuit that had accused three companies of illegally conspiring to raise the price of baby formula. The 4-4 decision was a defeat for a couple who had filed the lawsuit and had argued that it should have been handled in a Louisiana state court, not a federal court. The justices had been expected to use the case to clarify when some lawsuits filed in state courts can be transferred to federal courts. But the 4-4 vote, announced without any opinion, simply upheld a lower court's ruling that allowed the baby formula case to be transferred to a federal court, where it was dismissed. The high court deadlock came about because Justice Sandra Day O'Connor excused herself from the case. Although she did not explain her disqualification, her most recently filed financial disclosure form indicates that she owns between $15,000 and $50,000 worth of stock in one of the three sued companies, Bristol-Myers Squibb. The court, as is its custom after such votes, did not disclose which justices voted on what side of the issue. Such 4-4 votes are considered of little precedential value because of the possibility that the court will someday return to the issue with all nine justices participating. Robin and Renee Free sued in a Louisiana court in 1993, accusing Bristol-Myers Squibb, Abbott Laboratories and Mead Johnson & Co. of conspiring to raise the price of baby formula an alleged violation of Louisiana antitrust law. Their lawsuit was a class action seeking up to $20,000 in damages for each person. The companies sought to move the case to federal court, but the Frees argued that the amount of their claim did not meet the $50,000 minimum required at the time for federal court jurisdiction. The minimum has since been raised by Congress to $75,000. The 5th U.S. Circuit Court of Appeals ruled that the case belonged in federal court. Both sides later reached a $4.3 million settlement, but a federal judge threw it out on grounds the settlement had not been proven fair for all class members. The judge then dismissed the case, saying Louisiana antitrust law did not allow price-fixing lawsuits by people who only indirectly bought a product from a manufacturer. The 5th Circuit court upheld the dismissal last year. The case is Free v. Abbott Laboratories, 99-391. (AP Online, April 3, 2000) BANK WEST: Judge Agrees with Plaintiffs But Says Filing Is Too Late ------------------------------------------------------------------- Though he agreed with the plaintiffs suing a Michigan bank, a judge dismissed their truth-in-lending case, saying they had filed too late. News of the dismissal was announced by the Company and reported in the CAR. A lawyer for the plaintiffs in the class action said they would appeal. At issue was a $250-per-loan fee charged by Bank West of Grand Rapids. The plaintiffs said the $237 million-asset bank misrepresented the fee to make its loans more attractive. The bank called it a document-preparation fee, but $250 was an "absurdly high" sum to charge for that purpose, the plaintiffs said. They claimed it was really a loan processing fee. These, unlike document-preparation fees, must be included in interest rate calculations. Kent County Judge Donald A. Johnston agreed. "The plaintiffs have an argument which is hard to beat," he wrote. "The fee is simply an inappropriate one under the Truth-in-Lending Act. ... Bank officials themselves have suggested that the fee is considerably beyond that limit." Judge Johnstone wrote that he ruled in the bank's favor only because the one-year statute of limitations in such cases had expired. Chris Harding, a partner at Drew, Cooper & Anding, the law firm representing the class of more than 500 plaintiffs, said the ruling would be appealed. Mr. Harding declined to give specifics, but sources said the appeal would focus on the judge's interpretation of the statute of limitations. Ronald A. Van Houten, president and chief executive officer of Bank West, said he agreed with the dismissal but disagreed that the plaintiffs' case had merit. He also predicted the bank would prevail in any appeals. (The American Banker, April 4, 2000) ECONNECT, INC: Bernstein Liebhard Files Securities Suit in California --------------------------------------------------------------------- A securities class action lawsuit was commenced on behalf of purchasers of the common stock of eConnect, Inc.(Nasdaq: ECNC), between November 23, 1999 and March 13, 2000 inclusive, (the "Class Period"), in the United States District Court for the Central District of California. The complaint charges eConnect 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 information and projections concerning the Company's business, earnings, growth and prospects. Specifically, the complaint charges that defendants misrepresented the daily revenue generated by the Company's websites as well as the nature of certain of the Company's purported acquisitions and alliances with other firms. On March 13, 2000 the SEC halted trading in eConnect shares and commenced a civil action against the Company on March 27, 2000. When trading in EConnect's shares resumed, EConnect's stock price collapsed, losing approximately 91% of their value. Contact: Mark Punzalan, Director of Shareholder Relations, Bernstein Liebhard & Lifshitz, LLP, 800-217-1522, or 212-779-1414, or ECNC@bernlieb.com ECONNECT: Faruqi & Faruqi Files Securities Lawsuit in California ---------------------------------------------------------------- The law firm of Faruqi & Faruqi, LLP gives notice that a class action lawsuit was commenced in the United States District Court for the Central District of California on behalf of all purchasers of eConnect, Inc. (NASDAQ: ECNC) common stock between November 23, 1999 and March 13, 2000, inclusive (the "Class Period"). The Complaint charged eConnect and certain of its executive officers with violations of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Among other things, plaintiff claims that defendants issued a series of materially false and misleading statements in press releases and SEC filings concerning the Company's business, earnings, growth and prospects. Specifically, the complaint charges that defendants misrepresented the daily revenue generated by the Company's websites as well as the nature of certain of the Company's purported acquisitions and alliances with other firms, including misrepresentations regarding its licensing agreement with Palm Pilot. As a result, the price of eConnect's common stock was inflated throughout the Class Period. On March 13, 2000 the United States Securities and Exchange Commission halted trading in eConnect shares and commenced a civil action against the Company on March 27, 2000. When trading in eConnect's shares resumed, eConnect's stock price plummeted, declining approximately 91% in value. Contact: Anthony Vozzolo, Esq. Faruqi & Faruqi, LLP 320 East 39th Street New York, NY 10016 Telephone: (877) 247-4292 or (212) 983-9330 Fax: (212) 983-9331 e-mail at FaruqiLawAV@aol.com GLENDALE ELEMENTARY: School Retirees Told to Work for Medical Benefits ---------------------------------------------------------------------- A Glendale school district has told more than 80 retired teachers and staff members that they must return to work for up to 70 days a year -- without pay -- or lose their medical benefits. The employees, some in poor health, signed early retirement packages with Glendale Elementary as long as 11 years ago. They OK'd the deals with the understanding that they would receive insurance until they reached 65. Superintendent Perry Hill says the issue popped up as he and district lawyers were creating a separate early retirement plan that requires 20 days of work annually in order to retain health insurance. That's when Hill realized that no work was being required of the 82 people who had signed papers since 1989. Letters were then sent out to the group, saying they'd have to report back in the 2000-01 school year. That might be difficult for some, like Alberta McCartney, 60, who worked in the district's accounting office. She has had a liver transplant, and the anti-rejection medication she takes has caused partial kidney failure. Retiree Truman Brewster, 56, is a diabetic, and the sores on his feet have at times confined him to a wheelchair. He is using a walker. "When you teach junior high school, you don't spend a lot of time sitting down," said Brewster, who taught math and science at Landmark Middle School. If retirees refuse to return, it could cost them as much as $700 a month for insurance premiums. New interpretation District lawyers cited attorneys general opinions, some of which were issued almost two decades ago, that it is illegal to pay benefits to school personnel who are not working. Some of these same opinions were read by teachers, who claim no such language speaks directly to their situation. The subject apparently has not been revisited in years. Work requirements and compensation vary widely throughout the state. Some districts pay the retirees for working in addition to providing the benefits. Glendale Union High School District, for example, requires no work, and neither does Peoria Unified. The Phoenix Union High School and Alhambra districts say teachers must work one day, but they are paid, as well. Former teacher Nancy Haley told Hill at a recent meeting that the retirement packages are not gifts. "It's a benefit we earned," she said. "So many of us had faith that if we took the early retirement the benefits would be there. We had faith in you, and you let us down." A Broken Promise Mary Ellen Signorille, an attorney for the American Association of Retired Persons, said when someone leaves a job under certain retirement rules and there is a change, it constitutes a broken promise. "It's bad enough when there's a change when people are still working, but it's another thing to change after retirement," she said. "When you take retirement, it's with the expectations that the benefits are going to be maintained. "Of course it's not fair. It's changing the rules in the middle of the game. Unfortunately, from a legal perspective, participants have not been very successful in arguing that to a court." She said she is unaware of any other public sector situation similar to the one in Glendale. In the private sector, however, she said it has happened many times over. The courts have said that employers do have the right to change the rules unless the complainants can show that they were promised a lifetime benefit. In general, employees have reason to worry no matter what their profession, according to Earline Foster, human resources staff consultant in the employee/labor relations division of SRP. "It's getting to be more and more that many employers do not offer medical regardless of the age when you retire," she said. "There have been many changes and cost conservation as far as that benefit goes." A Change in Strategy Hill emphasized that this change is by no means a strategy to streamline the budget, and a spokeswoman in his office said it had nothing to do with rumors of an impending teacher shortage in the district. "The question came out when studying this with our attorney: Why do the present people (on the new plan) have to work and the present retirees do not," Hill said. Hill said he was advised that giving a benefit that does not require work is a gift of public funds. "We can't do that," he said. "To receive benefits, you have to work. We're not doing this based on what other districts do, that's their responsibility. The issue is we have to be legal. . . . When you find out you're doing something that's not legal, you have to stop the practice right then." Jim Kieffer, Glendale Union superintendent, said he has never entertained notions of making early retirees work again. When people retire, he said, they retire. Class-action Suit The retirees are thinking about filing a class-action lawsuit. Their union, the Glendale Education Association, has said it would assist the retirees in any way it could, including letter-writing and picketing. The group has met with the Arizona Education Association, and another session was planned. Officials at the AEA say they are monitoring the situation. "We would argue that (the health benefit) was part of their compensation package," said Raquel Altreche, an organization consultant. "There is nothing in the law that says you have to work dollar for dollar." Altreche has compassion for those employees who have to return: "What about the retirees who have moved out of state? And what about those who are disabled?" Glendale Elementary's new plan involves issuing credits, valued between $115 to $250 per day, based on the type of job performed. That means someone who either retired at a lower pay rate or decides to do a task on the lower end of the scale would have to put in at least 70 days a year. Former administrators, meanwhile, might have to work as few as 20 days to qualify for benefits. There are two potential catches here: If workdays are missed, the credits will be pro-rated, and all who return will face job evaluations. Flexibility Promised Hill said the GESD would be flexible, and that each case would be considered separately. Even that's not enough for McCartney, whose doctor has classified her as "lifetime disabled." Hill said: "In today's market, it's very difficult to develop a one-for-all attitude. There are still things we have to resolve, like disability issues. We're going by the ground rules that people will need to return." Problems may be lurking on that front. Many retirees have moved out of state, and others are caregivers. Health issues are paramount for some -- one woman had to go the hospital after she received her notice in the mail. Then there's Kathleen Stewart, who is a missionary in Peru. Hill said he would listen to concerns, and that he has until July 1 to work out everyone's case. "But we have to be careful that we just don't make exceptions for everything," he said. "It was not the intent of the board to go to extremes but to obey the law. To us, it is a legal issue, not a punitive issue." In addition, it has been reported that at least 34 other district employees have agreed in recent months to a similar deal, and they apparently will have to return to work when their retirements become official. (The Arizona Republic, March 28, 2000) HALACO ENGINEERING: CA Dept Alleges Hazardous Waste Incineration ---------------------------------------------------------------- The state Department of Toxic Substances Control alleges that Halaco Engineering Co. in Oxnard has illegally incinerated hazardous wastes in its furnaces for up to 20 years. The state agency and the Ventura County District Attorney's Office seized oil samples and records as part of a search warrant executed March 22 at Halaco's foundry at Ormond Beach. Search warrant documents state that Halaco spread used waste oil and a highly flammable, dangerous petroleum product called naphtha over tons of scrap magnesium and aluminum that it burns and recycles at the plant. The documents also indicate that Halaco plant manager Dave Gable lied to regulators - including the Oxnard Fire Department during a Dec. 28 inspection - about having such hazardous wastes at the plant and also falsely claimed he had a county Air Pollution Control District permit to conduct such burns. Gable denied telling inspectors he had such a permit. He referred other questions to Halaco attorney Arthur Fine. Fine acknowledged that Halaco has used oil and naphtha at the site. (AP) HOME SHOPPING: Angry PC Buyers Sue Defunct Proteva and TV Channel ----------------------------------------------------------------- Larry Loftis believed the TV host who extolled the quality, the ease of use and the lifetime of technical support Home Shopping Network offered for a Proteva personal computer. And when he paid about $2,000 for his first computer last year, Loftis assumed HSN was selling him a new one. "Then I found some pictures of somebody else's family vacation stored in the hard drive," said the 41-year-old Ohio resident. "Since then it's been a nightmare dealing with one problem after another." Loftis has plenty of company. Enough that a Chicago law firm has filed a class-action suit against the now-defunct Proteva and the TV shopping channel that sold thousands of computers to viewers. The suit accuses both companies of consumer fraud and deceptive trade practices by selling defective computers, refusing to honor rebates and providing shoddy customer service. The case undermines HSN's five-year effort to shed its bargain-basement image by promoting its quality-assurance lab, selling more brand-name goods and beefing up its selection of state-of-the-art consumer electronics. HSN denies it has misled anybody, saying it has made extra efforts to remedy any problems since Proteva filed for Chapter 11 bankruptcy protection in August. It says it fronted another vendor $835,000 to honor Proteva warranties for technical support. Proteva went out of business awash in debt and unpaid suppliers ranging from Microsoft to 3Com. Proteva filed for bankruptcy protection shortly after the lawsuit was filed and at about the same time HSN stopped selling its products. (The News & Observer Raleigh, March 28, 2000) ILIFE.COM, INC: Vows to Defend Vigorously Shareholder Suit in New York ---------------------------------------------------------------------- ilife.com, Inc. (NASDAQ:ILIF) announced on April 3 that it has received details of a shareholder class action lawsuit filed against the Company and certain of its officers, directors, auditor and underwriters in the U.S. District Court for the Southern District of New York on March 28, 2000. G. Cotter Cunningham, interim Chief Executive Officer of ilife.com, stated: "We have reviewed the complaint and believe the claims are unfounded and the lawsuit is without merit. This lawsuit represents the very type of shareholder strike suits, instigated by class action plaintiff's lawyers, that Congress has recognized as abusive. Ilife.com will vigorously defend itself against this litigation." The complaint alleges that ilife.com violated the federal securities laws by, among other things, misrepresenting and/or omitting material information concerning ilife.com's results for the quarter ended March 31, 1999 in its registration statement filed with the Securities and Exchange Commission in connection with the company's initial public offering. The complaint was filed by a single shareholder, Brian DeMaria, purportedly on behalf of all shareholders who purchased shares of ilife.com's stock during the period from May 13, 1999 through March 27, 2000. INMATES LITIGATION: Former Representative for OK Prison Replaced ---------------------------------------------------------------- The man who filed a lawsuit challenging Oklahoma's prison conditions has been removed as the class representative in the landmark case. The Battle vs. Anderson class-action lawsuit was filed by Bobby Battle in 1972, alleging the Department of Corrections failed to provide adequate medical care for inmates. But Battle hasn't been in state custody since 1982, which attorney Louis Bullock argued showed Battle is no longer a member of the affected class of prisoners. U.S. District Judge Michael Burrage agreed and made Mike Williams, an inmate at the Lawton Correctional Center, the class representative for prisoners in the case. Williams' claims "are typical of the claims of the class," Burrage said. The judge also ruled that Bullock may continue to represent prisoners in the lawsuit, despite Battle's request to get Bullock removed. Battle said Bullock didn't keep him adequately informed about the case, especially in the past year when Bullock and the Department of Corrections began to work out a settlement. Bullock maintained that Battle became angry with him after it became clear that the former inmate would not receive "pro se" attorney's fees in the settlement. "He wanted money," Bullock testified. Battle called that allegation "flat lying" on Bullock's part. Battle said Bullock's legal fees raised questions about where the attorney's interests lie. The state, which pays Bullock's fees, has paid him more than half a million dollars in the case. "I feel deeply that this case has gone on for 28 years not for the benefit of the prisoners but for the benefit of Mr. Bullock," Battle said. (The Associated Press, March 29, 2000) INMATES LITIGATION: Teen Testifies for Widespread Fighting at DJJ in SC ----------------------------------------------------------------------- A 15-year-old inmate in South Carolina's juvenile justice system said that fights at system facilities are frequent and that guards rarely prevent or stop them. The boy, referred to only as Robert, said in federal court on April 4 that he has been in 62 fights in the seven months he has been held at the John G. Richards facility in Columbia. He says he's witnessed many more. "A lot of the fights are over nothing, over stupid stuff," said Robert, who had a bandage on his forehead to cover an injury suffered in a fight on Saturday. Robert's testimony came on the first day on a non-jury trial in front of Judge Joe Anderson. Lawyer and child advocate Gaston Fairey has asked Anderson to order the state Juvenile Justice Department to increase staff at all agency facilities and change the way it reports injuries and sexual assaults. Fairey said the department underreports the number and severity of injuries. He said there are "extreme levels of violence and out of control behavior" at the facilities. Fairey filed a class-action lawsuit in 1990 to end overcrowding at department facilities. Fairey said in court that an inmate's face injury described in agency records as a "laceration to the lip with sutures" was actually a jaw broken in three places that required a two-week hospitalization and the jaw wired shut for two months. Department director Gina Wood said in a statement that agency facilities are safe and secure. "Although juveniles sometimes get into conflicts or horseplay, we provide the supervision and counseling needed to curtail these behaviors," she said. Robert was 14 when he first went to Richards for violating probation on an assault charge. He said fighting at the facilities was almost inevitable because if you don't fight, other inmates take advantage of you by stealing clothes, food and other possessions. He described "blitzing," when as many as 10 others beat a single inmate with body blows so they don't leave bruises on the face. Lawyer Chris Mills asked where the guards are during the fights. Robert said "You're guess is as good as mine." Robert said inmates rarely report fights because they are afraid guards will not believe them or that they will get beaten again for going to authorities. Earlier, a former guard at the Richards facility said he saw new bruises and scratches on Robert three days in a row. James E. Burkett testified the boy said he was beaten as part of a gang initiation in his dorm. Burkett said he quit his job as a guard because his superiors would do nothing to stop the beatings. However, Robert testified that he was never beaten as part of a gang initiation. Burkett currently works for the department in a different capacity. The trial is expected to last until the end of the week. The trial is expected to last until the end of the week. (The Associated Press, April 4, 2000) KTI, INCORPORATED: Donovan Miller Files Securities Suit in New Jersey --------------------------------------------------------------------- The law firm of Donovan Miller, LLC, announced on April 3 that a class action lawsuit was filed in the United States District Court for the District of New Jersey against KTI, Incorporated and Casella Waste Systems, Inc. (Nasdaq - CWST - news), and certain of their Officers and Directors, on behalf of all persons who purchased KTI securities between January 1, 1998 and April 14, 1999 inclusive (the "Class Period"). The plaintiff in the case is a stock purchaser who is alleged to have sustained losses as a result of defendants' alleged violations. The Complaint alleges that, during the Class Period, KTI and the three officer defendants (collectively, the "Individual Defendants") violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by, among other things, intentionally concealing material facts about KTI's fourth quarter 1998 financial and operating results and KTI's true financial and operating condition during 1998. The complaint further alleges that at some time prior to its April 14, 1999 public announcement of the termination of the merger agreement between KTI and Casella, Casella knew or should have known KTI's financial condition was materially worse than had been represented to the public and failed to disclose it. The Complaint further alleges that the price of KTI's shares was artificially inflated as a result of Defendants' omissions of material fact. Contact: Donovan Miller, LLC, Philadelphia Michael D. Donovan, 215/732-6020 Fax: 215/732-8060 E-mail mdonovan@dmlaw.com Website http://www.dmlaw.com MICROSOFT CORP: Some Believe Ruling Could Stall Company With Legalities ----------------------------------------------------------------------- Microsoft Corp's violation of antitrust laws will have no immediate effect on the company's operations, but the focus it will have to take on legal issues could hamper its future prospects, industry-watchers believe. Analysts agreed with Microsoft's verdict that the result was "not unexpected," and with the whole legal process likely to take another two years to resolve, the company's best weapon against the potential breakup of the group will be time, they said. However, with the software industry moving away from Microsoft's 'local power' model to remote delivery and application service provision, some viewers think Microsoft's time, effort and resources spent in court may lead it lose its leading position to smaller more web-focused competitors. "It took Bill Gates to personally turn Microsoft around two years ago when the company had no internet focus whatsoever," said one analyst, adding: "If all its energy is now invested in fighting in the courts, then maybe that kind of strategic maneuvering couldn't happen." Kevin Fogarty, business editor of Computercenter, said the only short-term benefactors from the ruling would be lawyers. He commented: "The whole process is going to take a long time. We've got several months to go before we'll know the remedies, and Microsoft is fighting back instantly by appealing to higher courts." Fogarty added that he believes the case against Microsoft has "some weak underpinnings" which would not stand up to appeals court scrutiny. Analysts now view the threat of spurious litigation as Microsoft's biggest immediate problem, with more than 115 class-action suits launched against Microsoft since the findings of fact were issued last November. Lawyers say many of these civil suits are unlikely to be sustainable -- Windows is primarily sold to PC resellers not consumers, and very few states have laws in place that would let third parties sue Microsoft. However, the cost of fighting these civil lawsuits could tie up Microsoft's resources and manpower, analysts said. Slim-client providers such as Sun Microsystems Inc, alternative operating systems suppliers like Red Hat Inc, and web-oriented software providers including Oracle Corp were all highlighted by analysts as being potential long-term benefactors from Microsoft's troubles. (AFX - Asia, April 4, 2000) A report on The Atlanta Journal and Constitution, April 4, 2000 says Judge Thomas Penfield Jackson's ruling Monday against Microsoft will strengthen lawsuits now pending against the company and spawn even more, antitrust lawyers predicted. "This ruling will have a significant impact in terms of creating a road map of liability against Microsoft in other cases," said Kevin Grady, an antitrust lawyer for the Atlanta firm Alston & Bird. "And certainly, a strongly worded order will probably bring a lot of other cases out of the woodwork." Dozens of lawsuits have already been filed against the company. These include class-action cases filed by Microsoft's wholesalers and distributors, suits filed by competitors of the software company and a number of consumer complaints. "The ruling from Judge Jackson is going to make it a lot easier because it will be admissible in cases like ours," said San Francisco lawyer Terry Gross. He filed suit against Microsoft on behalf of consumers and companies, contending they paid too much for the Windows operating system. Plaintiffs' lawyers in the California case will try to introduce Jackson's ruling into evidence under the legal doctrine of "collateral estoppel." This doctrine allows a ruling in another case --- such as the federal antitrust case in Washington before Jackson --- to be admitted in a similar case in another jurisdiction, The Atlanta Journal further reports. Because the issue before Jackson has already been litigated by Microsoft, it should not be allowed to be contested again, plaintiffs' lawyers said. The force of Jackson's ruling in these other cases, however, will have limited effect until Microsoft's appeals run the gamut. Only if Jackson's ruling is upheld can it be used persuasively in court. "All the plaintiffs' lawyers are expecting the judge's ruling will improve their position on liability against Microsoft or on damages, or both," said Atlanta lawyer Martin Chitwood, who specializes in class-action cases. Microsoft Chairman Bill Gates has called these types of class-action cases " piling on." He has predicted his company will prevail on appeal and contended that Microsoft has charged the lowest costs possible for Windows. But Gross countered that the class-action complaints are being filed because of the violations exposed in the federal antitrust litigation. "These lawsuits are not being filed because we're piling on," the San Francisco attorney said. "It's because the federal antitrust action has turned over the rock under which Microsoft was hiding evidence of its illegal monopolistic actions." California is one of only 17 states that allow state court antitrust lawsuits by consumers and companies that have not bought their products directly from the company. A U.S. Supreme Court decision in 1977 barred federal lawsuits by so-called indirect purchasers. For example, a consumer who bought Microsoft software from a retailer cannot sue Microsoft on antitrust grounds in federal court. Georgia is one of the states that does not allow antitrust lawsuits against companies in its state courts. In Silicon Valley, Microsoft's competitors are sure to be poring over Jackson's findings. When deciding valid antitrust claims, the courts first determine the total amount of commerce generated by the company found to have violated the law. The courts then calculate what percentage of business it cost the company that suffered the harm. "If upheld, this ruling could be very valuable to Microsoft's rivals," Atlanta lawyer W. Pitts Carr said. "In a case like this, looking at it from a damages standpoint, you're talking about enormous, enormous numbers, potentially billions and billions of dollars." (The Atlanta Journal and Constitution, April 4, 2000) MICROSOFT CORP: Vows to Fight Ruling on Antitrust ------------------------------------------------- Microsoft Chairman Bill Gates is vowing to fight a federal court decision that his company violated U.S. antitrust laws by mounting a ''deliberate assault'' on competition in the Internet browser market. The ruling could lead to drastic punishment, including the breakup of one of the world's major corporations. ''Microsoft placed an oppressive thumb on the scale of competitive fortune, thereby effectively guaranteeing its continued dominance,'' U.S. District Judge Thomas Penfield Jackson wrote in a sweeping decision that said Microsoft violated the Sherman Act, the same law used to break up monopolies from Standard Oil to AT&T. The judge issued his ruling Monday April 3 after the stock market closed, but word that it was coming caused Microsoft stock to drop by more than $15 a share to $90.871/2, costing Gates about $12.1 billion in paper losses. Gates, the super-competitive Harvard University dropout who in 25 years built Microsoft into a multibillion-dollar empire that dominates the personal computer software market, immediately promised to appeal. ''We believe we have a strong case,'' he said. ''This ruling turns on its head the reality that consumers know: That our software has helped make PCs accessible and more affordable to millions of Americans.'' Sen. John McCain, R-Ariz., chairman of the Senate Commerce Committee, said on NBC's ''Today'' that he will hold hearings on the case. ''I think it is the role of Congress to assess two things: one, the impact on the consumer of such action that might have to be taken on the part of Microsoft; and, two, what is the impact on this incredible engine that's driving America's economy?'' Jackson's ruling came days after settlement talks broke down between the Redmond, Wash.-based company and government lawyers, but both sides Monday still left the door open to an agreement. Justice Department antitrust chief Joel Klein said he was willing to consider a settlement as long as it resolved the violations Jackson cited. Microsoft Chief Executive Steve Ballmer said the company would be open to more negotiations but it ''would need to see an appropriate openness'' from the government. If no agreement is reached, Jackson will begin considering what penalty to impose, possibly by summer. The options range from breaking up the company whose Windows operating system runs most of the world's personal computers to forcing it to share its software code with competitors. Microsoft's appeal of the judge's decision could take years, postponing the effect of any penalty. The 19 states that joined the federal government in suing Microsoft also can seek penalties under their own anti-competition laws. Monday's decision affirms Jackson's previous ruling in November that the software giant is a monopoly that illegally bullied competitors and stifled innovation, hurting consumers in the process. The judge said Microsoft was guilty of ''unlawfully tying its Web browser'' to Windows. ''Microsoft mounted a deliberate assault upon entrepreneurial efforts that, left to rise or fall on their own merits, could well have enabled the introduction of competition into the market,'' Jackson wrote. ''Microsoft's anticompetitive actions trammeled the competitive process through which the computer software industry generally stimulates innovation.'' Microsoft didn't lose all of the case: Jackson ruled that the government failed to prove that Microsoft's exclusive marketing arrangements with other companies violated federal antitrust law. The Justice Department vowed to press the case until consumers are rewarded. ''Thanks to this ruling, consumers who have been harmed can now look forward to benefits,'' Attorney General Janet Reno said. Attorneys general for the states that joined the case called for strict sanctions. Connecticut Attorney General Richard Blumenthal urged Jackson to ''adopt remedies that are as far-reaching and fundamental as Microsoft's abuses of its monopoly.'' Consumer advocate Ralph Nader said, ''The judge has laid the foundation for the breakup of Microsoft. Anything less than that will be like a thundering elephant emitting the squeak of a mouse.'' However, Gates said, ''As we look ahead to the appeals process, innovation will continue to be the number one priority at Microsoft. ... It's important to note how much the high technology industry has changed just in the two years since this case has been filed.'' In an interview published in The Wall Street Journal before Jackson released his ruling, Gates said that regardless of what the judge decided, his company would continue to integrate the Internet into its Windows software, even though that linkage was at the core of the Justice Department lawsuit. Klein told reporters Microsoft's violations occurred after the company reached an agreement with the Justice Department in a previous case about five years ago. The government will seek a remedy that ''ensures that we not have this continued pattern of antitrust violation,'' he added. Both sides in the case had reasons to seek a settlement. For Microsoft, the verdict is expected to spur more consumer lawsuits. Microsoft already faces dozens of class-action lawsuits seeking potentially billions of dollars in damages. For the government, an out-of-court settlement could have meant immediate sanctions against Microsoft. Such relief would be delayed with a lengthy legal battle in federal appeals court, and the U.S. attorney general's office will be under a new administration by then. (AP Online, April 4, 2000) MICROTEST INC: Arguments for Dismissal of Securities Suits in AZ Heard ---------------------------------------------------------------------- Richard G. Meise, former Chief Executive Officer, Charles Mihaylo, former Chief Operating Officer and John O'Block, former Chief Financial Officer have been named as defendants in two purported class action lawsuits: * Great Neck Capital Appreciation Investment Partnership, L.P., et. al. v. Microtest, Inc., et. al., CIV 99-0438 PHX EHC filed on March 8, 1999, in United States District Court for the District of Arizona * Banks v. Microtest, Inc., et. al., CIV 99-672 PHX EHC filed on April 7, 1999 in United States District Court for the District of Arizona. The two lawsuits contain substantially the same allegations and were brought on behalf of a class of persons who purchased the Company's common stock between April 14, 1998 and March 2, 1999. The complaints allege claims under Section 10(b) and SEC Rule 10b-5 of the Securities and Exchange Act of 1934. The claims further allege that the Company made misrepresentations or omissions concerning our financial statements and public disclosures that artificially inflated the price of our common stock. The plaintiffs seek an unspecified amount of actual damages, attorney's fees and costs. On November 29, 1999, a motion to dismiss the lawsuit was filed. On January 10, 2000, the Court heard arguments on the motion to dismiss. This motion is currently pending. Microtest intends to defend the actions vigorously. The Company says it is unable to predict the ultimate outcome of this litigation and if the lawsuits were ultimately determined adversely to Microtest, it could have a material effect on the Company's results of operations and financial condition. The Securities and Exchange Commission ("SEC") is engaged in an investigation relating primarily to the Company's accounting matters. They have requested and received documents from Microtest and taken testimony from certain former employees. The SEC has not indicated whether they intend to formally expand the scope of the investigation, or take any other measures. They have not, to date, asserted any specific claims, or remedy. The Company is unable to predict the effect, if any, of this inquiry. SEATTLE CITY: Parking Meter Lawsuit Dismissed; Faulty Equipment Fixed --------------------------------------------------------------------- A judge has dismissed a class-action lawsuit filed over parking meters in Seattle that shorted motorists on time, and the lawyer handling the case is considering whether to appeal. "Part of what we wanted has already been accomplished - the meters have been fixed," said attorney Steve Berman in a telephone interview Monday. "One of our objectives was to force them to fix the meters." In addition to city assurances about improved accuracy, he said, "We've done a test and they seem to be" repaired. The lawsuit filed last fall sought unspecified damages, with Berman citing an estimated $30 million in excess parking citations. The case was dismissed by King County Superior Court Judge Larry Jordan. "Now we're evaluating whether to appeal the decision, which I think is wrong," Berman said. He had contended that motorists putting money in parking meters had an implied contract, paying a certain sum for a certain time period. According to Berman, the judge found that when a motorist rents a meter from city, "the city is acting in a police-power capacity, and you can't have a contract when the city is engaged in law enforcement activity." He contends that in operating meters, the city is simply collecting money. "A city can act in commercial capacity - they do it all time," Berman said. When it comes to operating meters, "they're not engaged in law enforcement, they're engaged in money collection. I think the law is pretty clear that we're right on that." The case caused a local flap when Mayor Paul Schell suggested people who believe they've been shortchanged by meters should contest their parking tickets. After he was lambasted in the media, Schell apologized and promised to have the meters repaired. Berman figured the public had paid out $5 million in overtime-parking fees in each of the past six years, based on the city's estimate that 40 percent of the meters had faulty timing devices and the $13 million in parking fines levied annually. Berman says the meters should have been replaced in 1993, if not before. (The News Tribune Tacoma, March 28, 2000) TOBACCO LITIGATION: Forces Arrayed Threaten Bankruptcy ------------------------------------------------------ Litigation against tobacco companies has reached the point where it could eventually force fundamental restructuring of one of the oldest and most profitable industries in America, according to The Christian Science Monitor, April 4, 2000. Taken together, recent judgments against tobacco firms indicate that their potential legal opponents are more numerous than previously thought - and that those opponents have a better shot at victory than they did only a few years ago. For tobacco companies, this raises the specter of bankruptcy via liability costs. It may put them under increasing pressure to seek congressional regulation to ensure future financial viability. If nothing else, some antitobacco activists say they finally see progress toward their own vision of 22nd-century tobacco: A stripped-down industry that focuses on serving existing customers, while making no overt effort to win new ones. "My guess is that in the future tobacco firms will be run by different executives largely for the financial benefit of their generations of victims," says Richard Daynard, a law professor at Northeastern University in Boston and head of the Tobacco Products Liability Project. Tobacco's new legal peril has developed quickly. From the beginning of the modern era of tobacco litigation in 1954 until 1996, the industry was never forced to pay anything to an individual litigant. As recently as two years ago, the industry's mammoth settlement with state attorneys general held out the promise of protection against many prospective lawsuits. What caused the change? In a word, paper. Millions of pages of internal industry documents unearthed by state lawsuits have provided juries an unprecedented glimpse into the mind of Big Tobacco. In the past, juries have tended to hold smokers responsible for their own smoking. That is especially true for litigants who began smoking after the 1960s, when the federal government forced the industry to slap labels on cigarettes, warning of tobacco's dangers. But the internal documents have reversed this tendency and caused jurors to increasingly consider the industry's role in luring smokers into addiction. "When [jurors] see the way tobacco companies behave, it all changes," says Professor Daynard. Attitude as well as actions have hurt the firms in this regard. Consider an R.J. Reynolds Tobacco Co. memo boasting about making legal cases prohibitively expensive for plaintiffs: "The way we won these cases, to paraphrase Gen. Patton, is not by spending all of Reynolds' money, but by making the other [person] spend all of his," says the memo. Lately it is the other person that has been winning. Last week, a San Francisco Superior Court jury awarded a Californian $ 20 million in punitive damages from tobacco firms. It was the third straight West Coast defeat for tobacco. The plaintiff, Leslie Whiteley, took up smoking long after warning labels became standard practice. This week, a jury in Miami begins deliberations in the first antitobacco class-action lawsuit to ever reach trial. The jury has already held that the tobacco industry engaged in deceptive practices. Since a class-action involves tens of thousands of litigants, punitive damages in the Florida case could total tens of billions of dollars - possibly pushing some tobacco companies into bankruptcy. The tobacco industry still has some hope in these cases, of course. They could be overturned on appeal, restoring the legal status quo in respect to the industry. State legislators in Florida are considering legislation that would have the effect of greatly delaying tobacco's punitive-damage payout. But the outcome of these particular lawsuits is no longer the point, say legal experts. Plaintiff lawyers now sense that the once-invulnerable tobacco industry can be beaten. Once that happens, they circle like sharks. More such cases inevitably follow. "It could be the death of a million cuts," says Stephen Gillers, a tobacco-litigation expert at New York University. The future shape of the industry is thus an open question, says Professor Gillers. He hazards three possible scenarios. In one, tobacco firms could go to Congress and ask for legislative protection, in return for agreeing to some regulation of their product. Second, they could simply hike prices and accept legal losses as a cost of doing business. Or third, they could launch an aggressive antismoking campaign on their own, in an effort to change their legal situation and persuade juries they are not acting in a predatory manner. One way or another, cigarettes will continue to be made and sold in the United States. The industry is too large to fade away, and there are too many existing customers to service. Not even the toughest antismoking group wants 43 million US smokers to have to quit, cold turkey. The focus for many antismoking groups is future generations. And even if they are successful in forcing the industry to in essence de-market itself, young people could still pick up pro-smoking messages through the Internet or foreign cultures. "There are a lot of ways to be exposed to smoking. That may be where the battle is finally fought," says Gillers. (The Christian Science Monitor, April 4, 2000) TOBACCO LITIGATION: Legislation Proposed to Shield Assets in NC --------------------------------------------------------------- A day before a special session of the General Assembly, legislators were to gather on April 4 for an informal briefing on proposed legislation that would shield the assets of tobacco companies in North Carolina from seizure while they appeal a potentially crippling verdict in a Florida class-action lawsuit. Lawmakers will consider a measure that imposes a $ 25 million cap on the bonds that North Carolina companies must post during appeals. Three other states with large tobacco manufacturing operations already have passed similar measures. State Sen. Linda Garrou, a Winston-Salem Democrat who will sponsor the bill, said in an interview Monday that the cap is necessary to protect an important part of the state's economy. She said the debate over the bill should be about economic issues, not health concerns about smoking. "I see it more from a people standpoint than a product standpoint," Garrou said. "It's an economic issue and one that hits home." Tobacco companies face the prospect of a huge legal judgment of more than $ 100 billion in the class-action lawsuit seeking damages from smoking related illnesses. Under Florida law, the companies would be required to post an appeal bond equal to the amount awarded in damages plus interest. If tobacco companies can't post that amount, they've suggested they could be forced to declare bankruptcy. Supporters of the measure contend that it is a matter of fairness that North Carolina companies have the same right of appeal of legal judgments awarded in other states as they would in North Carolina without being forced into bankruptcy. "Obviously people are going to work very aggressively to get a crack at Reynolds," Senate President Pro Tem Marc Basnight, a Manteo Democrat, said. "They'll do it to Hershey's chocolate one day. You should have the opportunity to exhaust that appeal. To let some attorney in Florida get billions of dollars, I'm not for that - without an appeal." Tobacco companies first approached legislative leaders last year and wanted the General Assembly to take up the issue during the special session on Hurricane Floyd. They tried again when it appeared the legislature would have a session on redistricting. Rep. Phil Baddour, a Goldsboro Democrat who will chair the House committee on the legislation, said there appears to be broad support for the legislation. Some legal scholars have said the legislation violated the Full Faith and Credit Clause of the U.S. Constitution, which requires states to honor each other's court decisions. But Baddour said the proposed cap would not interfere with a final judgment. Instead, he said, it would establishes a procedure for enforcing judgments in this state. "I'm not interested in seeing RJR go under so all the tobacco jobs can go to Virginia or some other state," Baddour said. (The News and Observer (Raleigh, NC), April 4, 2000) WA STATE: Judge OKs Class over Foster Child Treatment ----------------------------------------------------- A lawsuit alleging that the state failed to give foster children stable homes has moved toward class-action status and could ultimately cover thousands of children in Washington. The suit, filed in Whatcom County Superior Court, originally covered 13 children from nine families. It sought unspecified damages as well as large-scale changes in the foster-care system administered by the state Department of Social and Health Services. A judge accepted a motion to expand the suit to a class-action earlier this month, after a national child-advocacy group agreed to join Bellingham attorney Tim Farris as co-counsel. Farris filed the original suit in November 1998. "There's no excuse for the number of times children are being moved," Farris said. One of the original foster children in the suit was moved 29 times over 14 years in foster care, attending 20 different schools and seeing 19 different therapists and seven caseworkers. According to Department of Social and Health Services documents, the girl, now 18, suffers from depression and has had been admitted to a hospital twice for psychiatric illness. "If a biological parent abandoned a child in 29 different homes, we'd call that neglect. That's exactly what the state does when it brings these children into care and then abandons them with strangers again and again," Farris said. "This has got to stop," said Bill Grimm, an attorney with the National Center for Youth Law, which has agreed to join Farris in the suit. "One of the worst ways the system treats children is moving them around. ... We want DSHS to learn a lesson - that it is not free or cheap to move these children around," Grimm said. Farris and Grimm will ask the court within a month to certify the suit as a class action, as well as scheduling a 2000 trial date. The state will oppose certification, Assistant Attorney General Jeff Freimund said. He said the suit blames the state for psychological problems that existed before children were placed into foster care. As a class action, it also unfairly assumes all foster children are treated in the same way, he said. "By definition, these children are victims of severely dysfunctional upbringings," Freimund said. "That seems to be a more likely explanation (for their problems)." If certified as a class action, the suit would not seek damages for any but the first 13 plaintiffs but would seek changes in the state system. A 1996 state study found that 44 percent of children who stay in care for one year or longer are moved three or more times, while 15 percent of children in care more than a year live in five or more homes. About 28 percent of the state's 11,000 foster children are in care longer than one year. Fifty percent of foster children go back to their biological parents' home within two months, while the rest go home after two to 12 months in care. Besides frequent moves, the suit seeks changes in psychological care for foster children, claiming the state often fails to provide appropriate treatment. A similar lawsuit in Arkansas led to a settlement five years ago that increased the number of caseworkers and resulted in all foster children receiving mental-health and physical evaluations within 60 days of removal from their families, Grimm said. In a California case, a judge ruled in favor of the state, finding that while children ideally would be raised by a single set of parents, it does not follow that they will be emotionally damaged when that doesn't happen. (The Associated Press, March 29, 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. 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 written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The CAR subscription rate is $575 for six months delivered via e-mail. 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