/raid1/www/Hosts/bankrupt/CAR

/raid1/www/Hosts/bankrupt/CAR_Public/000411.MBX C L A S S A C T I O N R E P O R T E R Tuesday, April 11, 2000, Vol. 2, No. 71 Headlines APPLETON: Office Workers Alleges Carbonless Copy Paper Makes Them Ill AURORA FOODS: Beatie and Osborn Files Securites Suit in California AUTO INSURANCE: State Farm Said to Have Secret Policy to Reject Claims AVT CORPORATION: Weiss & Yourman Files Securities Suit in Washington BELL ATLANTIC, GTE: Shareholder Pact Rejected in NY for Opt-Out Plan COCA-COLA: Pressure Builds for Coke to Settle Bias Suit CONSUMERS' PRIVACY: Advocate Says There's Public Ferment over Privacy CUMULUS MEDIA: Cauley & Geller Files Securities Lawsuit in Wisconsin ELI LILLY: Named with Rival Novo Nordisk in Case over Insulin Products FOCUS ENHANCEMENTS: Pomerantz Firm Files Securities Lawsuit HOLOCAUST VICTIMS: Swiss Minister Invites Jewish Refugees for Meeting PACIFIC GATEWAY: Abbey, Gardy Files Securities Lawsuit in California PACIFIC GATEWAY: Kaplan Kilsheimer Files Securities Suit in California PACIFIC GATEWAY: Milberg Weiss Files Securities Suit in California PACIFIC GATEWAY: Spector, Roseman Files Securities Suit in California SAIPAN SWEATSHOP: GAP INC Faces 2 Suits in CA; Hearing for 1 Set in May SBARRO INC: Restaurant Managers in CA Sue for OT Pay SBARRO INC: Restaurant Managers in WA Sue for OT Pay TOBACCO LITIGATION: $12.7M Award Opens Door for Huge Punitive Damages TOBACCO LITIGATION: Industry Plans Big Fight on Punitive Damages Phase TOBACCO LITIGATION: NY Times Says FL Legislature to Industry's Rescue TOBACCO LITIGATION: Philip Morris Says Verdicts Help Appeal U.S. CUSTOMS: Study Finds Wide Disparities in Intrusive Searches VISA, MASTERCARD: Consumers Sue over 1% Fee for Currency Conversion WARNER-LAMBERT: Gilman and Pastor Files Suit over Diabetes Drug Rezulin YIELD BURNING: More Global Settlements Anticipated * States Move Closer on Uniform Software, Signature Laws ********* APPLETON: Office Workers Alleges Carbonless Copy Paper Makes Them Ill --------------------------------------------------------------------- The international papermaker Arjo Wiggins Appleton is at the centre of a US court action in which office workers accuse it and other manufacturers of making them ill through their carbonless copy paper. A class-action lawsuit naming Appleton, a main subsidiary of Arjo Wiggins, and 11 other defendants has been launched in California seeking to force makers of carbonless copy paper (CCP) to give a clear warning on the product that it contains carcinogens and hazardous chemicals. Concern about CCP has existed for two decades, but early studies of the relationship between the paper and respiratory problems were inconclusive. Recurring allegations of a link to health problems encouraged the National Institute of Occupational Safety and Health (NIOSH), a US government agency, to launch a new inquiry into the matter. A first draft of its report was completed late last year but publication has been delayed. Carbonless paper is widely used in offices, frequently in forms or as receipts for credit card purchases. Pressure from a pen or printer causes microscopic capsules in the paper to explode, releasing chemicals that create a dye on the lower sheet. A spokeswoman for Arjo Wiggins said: "The claims against Appleton have no merit and will be vigorously defended." However, she confirmed that the company had settled claims in the past from people claiming injury and had now decided to fight cases. Arjo's carbonless division made profits of Pounds 100 million last year and the company has plans to demerge it. Brenda Smith, one of five people who launched the California class action, claims that she had to leave her job with Bell Atlantic after suffering chronic headaches, bronchitis and respiratory problems as a result of using such paper. (The Times (London), April 10, 2000) AURORA FOODS: Beatie and Osborn Files Securites Suit in California ------------------------------------------------------------------ Beatie and Osborn LLP, announces that it has filed a class action in the United States District Court, Northern District of California, on behalf of all persons who purchased the common stock of Aurora Foods, Inc. (NYSE: AOR) between April 28, 1999 and February 17, 2000 inclusive (the "Class Period"). The complaint alleges that Aurora and certain of its officers and/or directors made a series of materially false and misleading statements regarding Aurora's financial condition and financial performance during the Class Period. The complaint further alleges that Aurora materially understated its expenses in violation of Generally Accepted Accounting principles. As a result, on February 18, 2000, Aurora was forced to announce that it would take a non-cash charge which would result in "material reduction in earnings for 1999 and possibly a small loss." Contact: Eduard Korsinsky, Esq., Jose Noyes, Legal Assistant, Beatie and Osborn LLP, 599 Lexington Avenue, 42nd Floor, New York, New York 10022, Toll Free: 800-891-6305, Telephone: 212-888-9000, Facsimile: 212-888-9664, E-mail: bandolaw@aol.com AUTO INSURANCE: State Farm Said to Have Secret Policy to Reject Claims ---------------------------------------------------------------------- The following press release was issued by Stritmatter Kessler Whelan Withey Coluccio: State residents insured by State Farm Mutual Automobile Insurance Company filed a class action lawsuit against the nation's largest auto insurer on Friday, April 7th in King County Superior Court. The suit alleges State Farm has a "secret policy and practice" of routinely cutting off and denying benefits for its own policy holders injured in auto accidents caused by someone else. The coverage, Personal Injury Protection, is supposed to pay for reasonable and necessary medical expenses regardless of fault. The lead plaintiff, Mindy Sitton, was stopped on I-5 during rush hour when she was hit from the rear, totaling her vehicle. Rescue crews had to use a device called "jaws of life" to extract her from the car. When the medical bills started piling up, State Farm, her own insurance company immediately sent her file out for a "utilization review." They cut off her claim after payment of only a couple hundred dollars of the $5,500. "State Farm has got a lot of nerve telling me they won't pay for the treatment my own doctor prescribed. It was my insurance company. I trusted it and paid my premiums. But like a bad neighbor, when I needed it the most, State Farm disappeared," said Sitton. Similar to other successful lawsuits brought by individual policyholders around the country, this class action threatens to end State Farm's practice of shifting payment of medical costs to its injured policyholders. "People rely on State Farm to live up to its promises when tragedy strikes. Instead, this company does whatever it can to worm out of its responsibility to pay medical bills. Its goal is to increase its own financial bottom line at the cost of those who paid for supposed protection. When it comes time for State Farm to pay medical bills, it uses unreliable computerized statistics and junk science to avoid paying doctors," commented Karen Greig of LePley & Greig of Bellevue. Co-counsel and class action expert Mike Withey of Stritmatter Kessler Whelan Withey Coluccio stated: "State Farm calls it a 'cost containment strategy,' but we call it a giant rip off to the thousands of people that State Farm is legally obligated to help. It's unfair and has to stop," he added. The suit seeks what could amount to tens of millions of dollars in damages for the full value of the reasonable and necessary medical expenses that State Farm refused to pay, placing thousands of its policyholders in double jeopardy of needing medical treatments but not being able to afford them. On Monday, April 10th at 11 a.m., Mindy Sitton, Karen Greig, and Mike Withey will be available for press interviews about the lawsuit. The press can convene at 200 2nd Avenue West on the corner of 2nd Avenue West, West John and Western at 11 a.m. to interview the parties and class counsel. Contact: Karen Greig of LePley & Greig, 425-641-5353; or Mike Withey of Stritmatter Kessler Whelan Withey Coluccio, 206-448-1777. AVT CORPORATION: Weiss & Yourman Files Securities Suit in Washington -------------------------------------------------------------------- A class action lawsuit against AVT Corporation (NASDAQ:AVTC) and its senior executives was commenced in the United States District Court for the Western District of Washington seeking to recover damages on behalf of defrauded investors who purchased AVT common stock. If you purchased AVT shares between January 20, 2000 and March 17, 2000, please read this notice. The complaint charges AVT and its top executives with violations of the antifraud provisions of the Securities Exchange Act of 1934. The complaint alleges that defendants issued false and misleading statements during the class period which concealed AVT's true financial condition in order to prevent the decline in the price of AVT stock, and thereby reap more than $46 million in insider trading proceeds. On March 17, 2000, the Company stunned investors, revealing that it would fall desperately short of meeting its forecasted earnings for the first quarter 2000 and for the entire year 2000. This revelation caused AVT stock to be halted on NASDAQ and ultimately to plummet. Contact: David C. Katz, (888) 593-4771 or (212) 682-3025, via Internet electronic mail at wynyc@aol.com or by writing Weiss & Yourman, The French Building, 551 Fifth Avenue, Suite 1600, New York City 10176. BELL ATLANTIC, GTE: Shareholder Pact Rejected in NY for Opt-Out Plan -------------------------------------------------------------------- A Manhattan judge has rejected a $ 25 million settlement of a class-action suit arising from a merger agreement between communication giants Bell Atlantic and GTE. The proposed settlement had angered some plaintiff class members, who argued that the deal created a huge bonanza for plaintiffs' counsel, but did relatively little to benefit the stockholders. Under the terms of the failed settlement, individual GTE shareholders would have received an extra two cents a share, but plaintiffs' counsel could have received approximately $ 5 million in attorneys' fees. New York Supreme Court Justice Ira Gammerman rejected the deal in a written decision issued March 16. While Justice Gammerman noted the controversy over the attorneys' fees in his opinion, he sidestepped the issue and ruled that the deal should not go through because the GTE stockholders had not been given adequate notice of the terms of the settlement or of how to opt out of the class. Goehl v. Lee 60-3685-98. Bell Atlantic and GTE announced merger plans in July 1998. GTE stockholders almost immediately filed putative class-action suits. A total of 14 suits were filed, which were consolidated on Feb. 24, 1999. Although the plaintiffs challenged the merger on a number of grounds, the theory that emerged as most meritorious was that the merger would delay dividend payments of approximately $ 3.7 million a quarter. The proposed $ 25 million settlement would have compensated GTE stockholders for two years worth of delayed payments. Last year, a different judge, Charles Ramos, had approved the notice that was sent out to class members. Justice Ramos later discovered that he owned GTE stock and recused himself, according to Joseph Sternberg, a partner in Goodkind, Labaton Rudoff & Sucharow and one of the lawyers representing the plaintiffs. Mr. Sternberg said that he does not know whether the parties will resume negotiations, since the merger might go through before a new settlement can be reached. He added that he did not think the defendants would want to negotiate after the merger was complete. Defendants GTE and Bell Atlantic were represented by Kirkland & Ellis; Fried, Frank, Harris, Shriver & Jacobson; and Skadden, Arps, Slate, Meagher & Flom. (New York Law Journal, March 29, 2000) COCA-COLA: Pressure Builds for Coke to Settle Bias Suit ------------------------------------------------------- The clock is ticking for the Coca-Cola Co. A year after several former employees filed a racial bias suit, the issue is suddenly coming to a head. In less than a week, a group of African Americans plans a "bus ride for justice," a caravan of three buses from Atlanta, Coke's hometown, to Wilmington, Del., to protest at the company's annual meeting. Not only could this be a public relations debacle for Coke, but Larry Jones, the organizer, is now threatening to call for a national boycott of all Coke products. "We're asking everyone of all races and ethnic groups to join us to say to Coke and to Corporate America, do the right thing," he says. Coke's new CEO, Douglas Daft, has said he wants to settle the case quickly. Carl Ware, head of global public affairs and the company's top-ranking African American, has also said Coke is working hard to resolve it. So why hasn't the case been settled? A federal judge has sent it to non-binding mediation, so neither side will comment. But legal experts suggest that the possibility of the case expanding to a class action involving some 2,000 current and former workers could be complicating Coke's stance. "The problem is the 2,000," says John Coffee, a professor at Columbia Law School. "Coke can settle with the eight people at a price tag that is lucrative, but if they file a class action, then some representatives can't get more than the rest of the class." Plaintiffs' attorneys have until May 30 to decide whether to ask for the case be expanded into a class action. But with a shareholders' meeting coming April 19, some Coke executives want to settle it sooner. "I think that Coca-Cola management would be very unhappy with themselves if an agreement wasn't reached before the annual meeting," says Manny Goldman, senior beverage analyst at Merrill Lynch. "The last thing Coke needs is a march on the national news. I'm sure they're talking hard and heavy with the plaintiffs. It's not a bad bet that the lion's share of the issues will be handled before the annual meeting." "This is a high-stakes crap roll," says Atlanta activist Joe Beasley of Antioch Baptist Church North, who has been involved in the case. "People are getting restive." (USA TODAY, April 10, 2000) CONSUMERS' PRIVACY: Advocate Says There's Public Ferment over Privacy --------------------------------------------------------------------- A "Who's Who" of consumer and privacy experts met on Friday, March 31, to exchange information and suggest solutions to the escalating invasion of consumers' privacy. "There's a tremendous public ferment over privacy," said Gerri Detweiler, consumer advocate and president of MoneyForMail.com, whose company pays consumers cash to read targeted e-mail advertisements they've asked to receive. "It's no accident that today's headlines focus on both the investigation of a major player like Yahoo for privacy abuse and consumers' refusal to cooperate with the Census Bureau because they feel that their personal information is 'none of their business,'" adds Detweiler. As mega-companies and advertisers grow increasingly aggressive in their efforts to target their audiences in a highly competitive market, other trends have emerged which show the direction things are taking in the privacy arena: -- Government agencies normally sympathetic to business interests are re-directing their focus on the issue in response to public outcries. -- An increasing number of web sites are voluntarily developing and adhering to a privacy policy. -- Forward-thinking e-marketing companies are taking steps to earn consumers' trust by adopting opt-in marketing practices. -- Concerned consumers are taking it upon themselves to protect their privacy online via the use of software protection programs. -- Consumers are initiating class action suits against large name- brand companies who abuse their privacy. As a result, many of these companies have backed down and changed their policies. CUMULUS MEDIA: Cauley & Geller Files Securities Lawsuit in Wisconsin -------------------------------------------------------------------- The Law Firm of Cauley & Geller, LLP announced on April 7 that it has filed a class action in the United States District Court for the Eastern District of Wisconson on behalf of all individuals and institutional investors that purchased the common stock of Cumulus Media, Inc. (Nasdaq:CMLS) between May 11, 1999 and March 16, 2000, inclusive (the "Class Period"). The complaint charges that the Company and certain of its officers and directors violated the federal securities laws by providing materially false and misleading information about the Company's financial results. Specifically, the complaint alleges that the defendants overstated revenues, earnings, and Broadcast Cash Flow for each of the first three quarters i n1999. As a result of these false and misleading statements the Company's stock traded at artificially inflated prices during the class period. The false financial results were also contained in the offering documents of two secondary offerings which the Company used to raise $370 million. When the truth about the Company was revealed, the price of the stock dropped significantly. Contact: Cauley & Geller, LLP, Boca Raton Sue Null or Sharon Jackson Toll Free: 888/551-9944 Email: cauleypa@aol.com ELI LILLY: Named with Rival Novo Nordisk in Case over Insulin Products ---------------------------------------------------------------------- A class-action lawsuit against Eli Lilly and Co. and Novo Nordisk charges that the drug makers' biosynthetic insulin products can hurt diabetics. The lawsuit, filed in federal court in New Mexico, also claims the two companies have recklessly reduced the production of alternative medications. Rene Ostrochovsky, a lawyer handling the lawsuit for Roehl Law Firm in Albuquerque, said on April 6 it was too early to discuss the lawsuit. The suit was filed on behalf of Suzan Kawulok, a diabetic from New Mexico. She wrote on a diabetes Web site that she took Lilly's biosynthetic insulin, called Humulin, in 1987, and it caused "unbearable pain and loss of most use (of) my arms." She went back to animal insulin - then tried the biosynthetic version again in 1998 and experienced the same problems, she said. "It was the human insulin causing these horrible symptoms," said Kawulok, who now takes pork insulin. Both types of insulin - the biosynthetic versions made from human DNA and the animal-based versions made from the pancreas glands of cows and pigs - help control blood sugar levels for diabetics. The Indianapolis-based Lilly and Novo Nordisk began marketing the biosynthetic versions of the drug in the 1980s. Since then, human insulins have gradually replaced animal-based insulins. Novo Nordisk is based in Bagsvaerd, Denmark, just north of Copenhagen. In the past five years, Novo Nordisk stopped selling all its animal insulins in the United States and Lilly dropped its beef-pork mix, which was once the nation's most-used insulin. The only animal insulin left on the U.S. market is a pure pork product sold by Lilly. The 18-page lawsuit says Lilly and Novo Nordisk "recklessly and maliciously discontinued or significantly reduced the manufacture of animal-based insulins knowing that diabetics had serious adverse symptoms" from the biosynthetic products. The suit also charges that the two companies failed to warn patients that human insulin can cause "injurious, life-threatening symptoms," including arthritic syndromes and a lack of awareness of low blood sugar. It also accuses Lilly and Novo Nordisk of trying to prevent other companies from making animal-based insulins, and asks that the firms be ordered to release their formulas for animal-based insulins to another manufacturer. "We stand behind the safety of our drug," said Lilly spokeswoman Doyia Chadwick. She said more than 3 million people rely on human insulin injections to live, and "the safety of human insulin has been proven by regulatory authorities almost 20 years ago. Human insulin is identical to the insulin produced naturally by the body. ... and is less allergenic than animal insulin." David Groves, a Birmingham, Ala., business consultant who runs an Internet discussion board on animal insulins, blames Novo Nordisk's human insulin for his near-death in a car crash years ago. He called the lawsuit a good thing, but questioned how the law firm will identify plaintiffs who can point to human insulin as the cause of their health problems. "The affected class has no way of knowing they're affected. It took me years and years and two additional auto accidents to make me aware human insulin was the cause of my accident, and I'm no dummy." (The Associated Press, April 7, 2000) FOCUS ENHANCEMENTS: Pomerantz Firm Files Securities Lawsuit ----------------------------------------------------------- A securities class action lawsuit was commenced by Pomerantz Haudek Block Grossman & Gross LLP (http://www.pomerantzlaw.com)against Focus Enhancements, Inc. (NASDAQ:FCSE) and two of the Company's senior executives on behalf of all those who purchased the common stock of Focus between April 29, 1999 and March 1, 2000, inclusive (the "Class Period"). The Complaint alleges that Focus and its executives issued a series of materially false and misleading financial statements regarding the Company's revenues and earnings. In particular, the Company allegedly engaged in fraudulent accounting practices, including improperly recording revenues and earnings of the Company throughout 1999. As a result, the price of the Focus Enhancement's common stock was artificially inflated during the Class Period. Contact: Pomerantz Haudek Block Grossman & Gross LLP, New York Andrew G. Tolan, Esq. Phone: (888) 476-6529 ((888) 4-POMLAW) Internet: agtolan@pomlaw.com HOLOCAUST VICTIMS: Swiss Minister Invites Jewish Refugees for Meeting --------------------------------------------------------------------- The Swiss finance minister has invited for a personal meeting a wartime Jewish refugee and his sister who are seeking compensation for the death of their parents in Auschwitz, an official said. The attorney for Charles and Sabine Sonabend said the government is offering a financial settlement along the lines of an amount ordered by the Swiss supreme court in a ruling on a similar case earlier this year. But the offer is too low, said lawyer Marc Richter. In any event, Richter added, the invitation from Finance Minister Kaspar Villiger ''is independent of the negotiations on a settlement.'' The Sonabends and their parents fled to neutral Switzerland from Nazi-occupied Belgium in 1942 but were arrested and deported to France. The parents later died at the Auschwitz concentration camp. In the January decision, the Federal Tribunal rejected a complaint by an Auschwitz survivor that the Swiss government should be held responsible for handing him over to the Nazis, but awarded him 100,000 francs (dlrs 61,000) in damages anyway. The court ruled that Swiss authorities at the time did nothing illegal in arresting Joseph Spring then 16 as he tried to enter the country from France. It upheld the government's view that the border guards' action did not amount to complicity to genocide, as claimed by Spring's lawyers. But the judges decided that the 73-year-old should be awarded the money the amount he had filed for on ethical grounds and to cover his costs. Richter said the government has offered the Sonabends a total sum of ''well under'' 200,000 francs (dlrs 122,000). But he said that isn't enough, and insisted their cases should be dealt with individually. The Swiss government last February rejected a 100,000 Swiss franc (dlrs 61,000) compensation claim by Charles Sonabend, 66, now living in London. The high court has still to rule on his appeal. Swiss officials said Sabine Sonabend, 68, filed for damages in late November but declined to give further details. No date has yet been fixed for the meeting with Villiger and possibly another member of the Swiss cabinet, Finance Ministry spokesman Daniel Eckmann said. The claims are separate from the $ 1.25 billion class action settlement reached between the two big Swiss banks and lawyers of Holocaust survivors in 1998. This is meant to cover claims of victims and their heirs in return for them dropping any other compensation demands. Last December, a report by an international panel of experts criticized the Swiss for turning back thousands of Jews even after it became clear that they would face almost certain death in Hitler's ''Final Solution.'' Surrounded by Germany, Nazi-occupied France and Nazi-allied Italy, neutral Switzerland took in nearly 30,000 Jews during World War II. But it expelled an equal number. (AP Worldstream, April 10, 2000) PACIFIC GATEWAY: Abbey, Gardy Files Securities Lawsuit in California -------------------------------------------------------------------- A class action lawsuit was filed in U.S. District Court for the Northern District of California on behalf of purchasers of Pacific Gateway Exchange, Inc. (Nasdaq: PGEX) common stock between May 13, 1999, and March 31, 2000, inclusive (the "Class Period"). Pacific Gateway owns and operates an international switched and domestic switched telecommunications network. The operations of Pacific Gateway include wholesale and retail long distance, Internet and bandwidth services. On March 31, 2000, Pacific Gateway stunned investors by announcing that its chief financial officer had resigned, the Company had materially reduced its quarterly reported net income for each of the four quarters of 1999, the Company's auditors had included a "going concern" explanatory note in Pacific Gateway's annual report and the Company was in default and had not been able to make a scheduled payment on its $100 million credit line. According to the complaint, during the Class Period, defendants issued to the investing public financial statements and press releases concerning Pacific Gateway's financial condition and performance that were false, misleading and deceptive because they failed to conform to mandatory Securities and Exchange Commission guidelines and Generally Accepted Accounting Procedures. As a result of these false and misleading statements, the market price of the Company's securities was artificially inflated during the Class Period. Contact: James Jay Seirmarco, of Abbey, Gardy & Squitieri, 415-538-3725, jseirmarco@a-g-s.com or Patricia Toher, of Abbey, Gardy & Squitieri, 800-889-3701, ptoher@a-g-s.com PACIFIC GATEWAY: Kaplan Kilsheimer Files Securities Suit in California ---------------------------------------------------------------------- Kaplan, Kilsheimer & Fox LLP announces on April 7 that a class action has been commenced in the United States District Court for the Northern District of California on behalf of all persons who purchased or otherwise acquired the common stock of Pacific Gateway Exchange, Inc. (NASDAQ:PGEX) between May 13, 1999 and March 31, 2000, inclusive (the "Class Period"). The lawsuit alleges that during the Class Period, the Company misled investors by materially overstating its earnings for the first, second and third quarters of 1999, thus causing the Company's stock to trade at artificially inflated prices. It is also alleges that during the Class Period certain insiders at the Company sold tens of thousands of shares of PGEX stock at artificially inflated prices for proceeds of over $1 million. On March 31, 2000, after the close of trading, the Company revealed that it would be restating downward its previously reported quarterly earnings for 1999. The Company also announced the resignation of its CFO. In response, on the next trading day, the price of PGEX stock plummeted to $101/4 per share down 75% from its Class Period high. Contact: Joel B. Strauss, Esq. Brigid T. Kavanaugh, Esq. Hae Sung Nam, Esq. Kaplan, Kilsheimer & Fox LLP 805 Third Avenue - 22nd Floor New York, NY 10022, (800) 290-1952, (212) 687-1980 Fax: (212) 687-7714 E-mail address: mail@kkf-law.com PACIFIC GATEWAY: Milberg Weiss Files Securities Suit in California ------------------------------------------------------------------ Milberg Weiss (http://www.milberg.com/pacific/)announced on April 7 that a class action has been commenced in the United States District Court for the Northern District of California on behalf of purchasers of Pacific Gateway Exchange Inc. (Nasdaq:PGEX) publicly traded securities during the period between May 13, 1999 and March 31, 2000 (the "Class Period"). The complaint charges Pacific and certain of its officers and directors with violations of the Securities Exchange Act of 1934. The complaint alleges that while defendants were publicly reporting profits of more than $10.1 million for Pacific's first, second and third quarters of 1999, defendants used Pacific common stock to acquire the assets of Robo Tel Inc. and attempted to use its stock to fund its most important acquisition ever, the acquisition of NOS Communications Inc., just weeks before revelations of accounting fraud had surfaced. The complaint further alleges that as Pacific continued to report profits and defendants created the fiction that Pacific had earnings per share of $0.22, $ 0.13 and $0.18, respectively, in the first, second and third quarters of 1999, which defendants later admitted were false, the price of Pacific stock reacted, rising to a Class Period high of $44-5/8. Defendants sought to profit from Pacific's fictional record profits and purported growth and sold over 31,000 shares during the Class Period for proceeds of $1.1 million. After the market had closed, on March 31, 2000, Pacific shocked investors, revealing that it would restate its first, second and third quarter earnings for 1999. This revelation caused Pacific stock to plummet to $10-1/4 per share, a decline of 75 percent from its Class Period high the following trading day. Pacific's shares continued their descent to $7-1/2 in the days that followed. Contact: Milberg Weiss Bershad Hynes & Lerach LLP William Lerach, 800/449-4900 wsl@mwbhl.com PACIFIC GATEWAY: Spector, Roseman Files Securities Suit in California --------------------------------------------------------------------- Spector, Roseman, & Kodroff, P.C. announced on April 10 that a class action has been commenced in the United States District Court for the Northern District of California on behalf of purchasers of Pacific Gateway Exchange Inc. (Nasdaq:PGEX - news) publicly traded securities during the period between May 13, 1999 and March 31, 2000 (the "Class Period"). The complaint charges Pacific and certain of its officers and directors with violations of the Securities Exchange Act of 1934. The complaint alleges that while defendants were publicly reporting profits of more than $10.1 million for Pacific's first, second and third quarters of 1999, defendants used Pacific common stock to acquire the assets of Robo Tel Inc. and attempted to use its stock to fund its most important acquisition ever, the acquisition of NOS Communications Inc., just weeks before revelations of accounting fraud had surfaced. The complaint further alleges that as Pacific continued to report profits and defendants created the fiction that Pacific had earnings per share of $0.22, $ 0.13 and $0.18, respectively, in the first, second and third quarters of 1999, which defendants later admitted were false, the price of Pacific stock reacted, rising to a Class Period high of $44-5/8. Defendants sought to profit from Pacific's fictional record profits and purported growth and sold over 31,000 shares during the Class Period for proceeds of $1.1 million. After the market had closed, on March 31, 2000, Pacific shocked investors, revealing in a press release that it would restate its first, second and third quarter earnings for 1999. This revelation caused Pacific stock to plummet to $ 10-1/4 per share, a decline of 75 percent from its Class Period high the following trading day. Pacific's shares continued their descent to $7-1/2 in the days that followed. Contact: Spector, Roseman, & Kodroff, P.C. Robert M. Roseman, 888/844-5862 classaction@spectorandroseman.com For more detailed information about the firm you may visit website at http://www.spectorandroseman.com SAIPAN SWEATSHOP: GAP INC Faces 2 Suits in CA; Hearing for 1 Set in May ----------------------------------------------------------------------- The Company has been named as a defendant in two lawsuits relating to sourcing of products from Saipan (Commonwealth of the Northern Mariana Islands). A complaint was filed on January 13, 1999 in California Superior Court in San Francisco by the Union of Needletrades Industrial and Textile Employees, AFL- CIO; Global Exchange; Sweatshop Watch; and Asian Law Caucus against the Company and 17 other parties. The plaintiffs allege violations of California's unlawful, fraudulent and unfair business practices and untrue and misleading advertising statutes in connection with labeling of product and labor practices regarding workers of factories that make product for the Company in Saipan. The plaintiffs seek injunctive relief, restitution, disgorgement of profits and other damages. Trial has not been set in the state case. A second complaint was filed on January 13, 1999 in Federal District Court, Central District of California, by various unidentified worker plaintiffs against the Company and 25 other parties. Those unidentified worker plaintiffs seek class-action status and allege, among other things, that the Company (and other defendants) violated the Racketeer Influenced and Corrupt Organizations Act also in connection with the labor practices and treatment of workers of factories in Saipan that make product for the Company. The plaintiffs seek injunctive relief as well as actual and punitive damages. On September 29, 1999 the action was transferred to the United States District Court, State of Hawaii. On April 22, 1999 the Company, along with several other defendants, filed a motion in Federal District Court, Central District of California, to dismiss the case. That motion currently is set for hearing on May 22, 2000. Trial in the Federal case has been set for February 27, 2001. SBARRO INC: Restaurant Managers in CA Sue for OT Pay ---------------------------------------------------- On December 20, 1999, Antonio Garcia and eleven other current and former general managers of Sbarro restaurants in California amended a complaint filed in the Superior Court of California for Orange County. The complaint alleges that the plaintiffs were improperly classified as exempt employees under the California wage and hour law. The plaintiffs are seeking actual damages, punitive damages and costs of the lawsuit, including reasonable attorney's fees, each in unspecified amounts. Plaintiff's counsel has stated that he is in contact with the plaintiff's counsel in the Wanli case and that he may attempt to file a class action based upon alleged violations of the Fair Labor Standards Act. The Company says it believes that it has substantial defenses to the claims and intend to vigorously defend this action. SBARRO INC: Restaurant Managers in WA Sue for OT Pay ---------------------------------------------------- On November 17, 1999, an action entitled Shan Wanli, Basem Tawill, Abdul Hamid v. Sbarro, Inc. was filed in the Superior Court of the State of Washington for King County. The plaintiffs allege that they served as store managers, general managers, assistant managers or co-managers in our restaurants in the State of Washington at various times since November 17, 1996 and that, in connection with their employment, we violated the overtime pay provisions of the State of Washington's Minimum Wage Act by treating them as overtime exempt employees, breached alleged employment agreements and statutory provisions by failing to record and pay for hours worked at the contract rates and/or statutory minimum wage rates and failed to provide statutorily required meal breaks and rest periods. The plaintiffs also seek to represent all of our restaurant managers employed for any period of time on or after November 9, 1996 in the State of Washington. We currently own and operate 18 restaurants in the State of Washington. The plaintiffs seek actual damages, exemplary damages and costs of the lawsuit, including reasonable attorney's fees, each in unspecified amounts, and injunctive relief. The Company claims it has substantial defenses to the claims and intend to vigorously defend this action. TOBACCO LITIGATION: $12.7M Award Opens Door for Huge Punitive Damages --------------------------------------------------------------------- The tobacco industry was ordered to pay $12.7 million to three smokers with cancer, opening the door to a possible multibillion-dollar punitive verdict that cigarette makers fear could send them into bankruptcy. The tobacco industry is considering an appeal even before the question of punitive damages comes up and the damage verdict could be reduced. But former Food and Drug Administration director David Kessler said verdicts against the industry are "only going to multiply." Tobacco stocks closed down fractionally. "Everyone should be happy with what happened," said plaintiff Mary Farnan, who was awarded $2.85 million. Fellow plaintiff Frank Amodeo, whose $5.8 million verdict may be voided by the judge, said, "I'm smiling, I'm smiling, I'm smiling." Ralph Della Vecchia, husband of the late Angie Della Vecchia, had tears in his eyes after the jury awarded him and his son $4 million. "It's been a long time and so hard since she died" last July, he said. Asked about the smokers' chances for punitive damages, "I think they've got a good shot." Martin Feldman, an analyst who follows tobacco stocks for Salomon Smith Barney, said the verdict indicates "the jury is going to go in there with some tough attitudes about tobacco" during the punitive-damage phase. Circuit Judge Robert Kaye must decide two key questions that could shrink the awards based on the verdict form and decide how to determine punitive damages for an estimated 500,000 sick Florida smokers covered by the class-action suit. Looking ahead in the case, lead tobacco attorney Dan Webb said: "We have never believed this jury would award a large amount of damages to thousands of unidentified smokers. ... We're confident that after we present our evidence that we will prevail." The same jury, which began hearing the case 18 months ago, ruled last July that the industry fraudulently conspired to produce a dangerous, addictive product that caused 29 illnesses, including cancer and heart disease. The lawsuit was the first smokers' class-action to come to trial. The compensatory issue has been overshadowed by industry fears of a ruinous $300 billion punitive award. But under state law, a punitive verdict cannot put a company out of business. Several tobacco-growing states have rushed to protect the industry from any crippling award by setting a cap of $25 million to $100 million on the amount a company has to post as bond to pursue an appeal. Around the country, juries have awarded damages to individual smokers only six times. Three verdicts were overturned, two are on appeal, and one was returned last month with a then-record $1.72 million compensatory award to a single smoker. That smoker and her husband also were awarded $10 million each in punitive damages. The industry has yet to pay anything in a smoker's case but has started paying on $246 billion in settlements with states. Matt Myers, president of the Campaign for Tobacco-Free Kids, said the Miami verdict won't end the sale of tobacco products but "it is going to be the most serious financial blow the tobacco industry has ever faced." Kaye set a closed-door session with lawyers to determine what happens next and told jurors he would contact them in a few weeks, but the tobacco industry hinted it may not wait for the judge to act. R.J. Reynolds Tobacco, the maker of Camel and Winston cigarettes, said: "The errors committed by the trial judge during this trial are too numerous to mention, but all of them will be raised during our appeal." The three smokers had asked for $13.2 million in compensatory damages: a total of $4.2 million in medical costs and other past and future expenses and up to $3 million each for pain and suffering. The jury, which deliberated for more than two days, heard the life stories and microscopic details of cancer in the three plaintiffs. Farnan is a 44-year-old nurse from Inglis, Amodeo is a 60-year-old clockmaker from Orlando, and Della Vecchia, a housewife from New Port Richey, died last year at 53, three weeks after the initial verdict. Both women started smoking at 11 and had lung cancer that spread to the brain. Amodeo was diagnosed with throat cancer in 1987.Della Vecchia smoked for 40 years, Amodeo 34 years and Farnan 29 years. Cigarette makers hoped to be spared some liability by asking the jury to decide damages based on brands smoked rather than industry behavior, but that strategy failed as the panel ruled against all companies and industry support groups. Two legal issues raised by the verdict could reduce the amount of damages. Taken in the light most favorable to the industry, the verdict would fall to $ 5.7 million. The jury ruled that Amodeo ran out of time to file his claim under a four-year statute of limitations and couldn't collect his $5.8 million. Kaye said he would decide later how to handle that award. The other issue is whether money will be deducted due to the partial fault of smokers. The jury assessed 25 percent of the blame to Amodeo, 20 percent to Farnan and 15 percent to Della Vecchia. Smokers' attorney Stanley Rosenblatt, who left court without comment, argued all three plaintiffs became addicted in the 1950s, long before they became aware of the dangers of smoking even though the industry was discovering links to disease and addiction at the same time. The industry disputed smoking as a cause of their cancers, fought the smokers' addiction claims and said they should not be rewarded for continuing to smoker years after health dangers became widely known. The defendants are Philip Morris Inc., R.J. Reynolds Tobacco Co., Brown & Williamson, Lorillard Tobacco Co., Liggett Group Inc. and the industry's Council for Tobacco Research and Tobacco Institute. On the stock market, Philip Morris Cos., parent of the biggest U.S. cigarette company, was the most active issue on the New York Stock Exchange, falling 43 3/4 cents to $22.50 a share. R.J. Reynolds Tobacco Holdings' shares slipped 6 1/4 cents a share to $20 on the NYSE. But Loews Corp., parent of Lorillard Tobacco, was unchanged at $51.81 1/4 and Brooke Group, parent of Liggett Group, was steady at $12.62 1/2 a share. British American Tobacco Industries, parent of Brown & Williamson Tobacco, was down 43 3/4 cents per American Depositary Receipt at $10.18 3/4 on the American Stock Exchange. On the Net: Trial transcript service: http://www.engle.cc(The Associated Press State & Local Wire, April 7, 2000) TOBACCO LITIGATION: Industry Plans Big Fight on Punitive Damages Phase ---------------------------------------------------------------------- The tobacco industry wants to use every weapon in its arsenal - from CEOs to convenience store owners - in its fight against punitive damages for sick Florida smokers. "They have the right to prove we're reprehensible. We have the right, your honor, to prove we're not reprehensible," lead tobacco attorney Dan Webb said in court. "There is an enormous risk that an industry is going to be destroyed." Circuit Judge Robert Kaye, who accepted a jury verdict awarding $12.7 million in compensatory damages to three smokers last Friday, April 7 tentatively set a one-month punitive trial May 15. In the meantime, Webb said the industry will file an appeal based on the case to date without delaying the next phase. If permitted by Kaye, the industry would call Philip Morris president and CEO Mike Szymanczyk and other corporate officers to tell the jury how the companies have changed with the times on health issues and youth smoking. A tobacco farmer, convenience store owner and an African American newspaper publisher also would testify to explain the industry's financial significance to their livelihoods. The effect on employees and shareholders also would be factored in. "We are absolutely given the mandatory right to offer evidence of any, and I say any, mitigating factor or circumstance that could tend to reduce" a punitive award, Webb said. Indications that industry testimony also would cover product development, cigarette smuggling, excise tax payments and Web sites is "just way off what punitive damages should be about," said smokers' attorney Susan Rosenblatt. She said the industry wants to tell the jury: "We're really very nice. We're doing a lot of great things." If those subjects are allowed, she wants to raise cigarette marketing to Third World children and the industry's successful fight against Food and Drug Administration regulation. Rosenblatt wants testimony pared down to information about the industry's financial value and ability to pay, stressing that by state law the companies can't be pushed into bankruptcy by a punitive award. The size of the potential multibillion-dollar punitive award and the number of smokers covered by the lawsuit also were discussed, without resolution. Rosenblatt charged Webb's talk of a potential $300 billion award was intended to scare jurors into setting a low figure and frighten state Legislatures into passing measures protecting the industry. Four tobacco-growing states have set a cap of $25 million to $100 million on the amount a company has to post as bond to pursue an appeal. The industry plans to file a package of motions Friday, including 46 unresolved from the trial. An attempt to decertify the class-action case covering an estimated 500,000 sick Florida smokers will be among them. Kaye also will be asked to decide whether Frank Amodeo, who was awarded $5.8 million, can receive any money under an expired statute of limitations and whether the $4 million award on behalf of the late Angie Della Vecchia and $ 2.9 million award to Mary Farnan will be reduced based on a jury finding of their partial fault as smokers. (The Associated Press, April 10, 2000) TOBACCO LITIGATION: NY Times Says FL Legislature to Industry's Rescue --------------------------------------------------------------------- When a Miami jury on Friday awarded nearly $13 million in compensatory damages to three smokers who claimed they were harmed by cigarettes, it might have seemed a devastating blow to the tobacco industry. After all, the jury in this class action lawsuit can now go ahead and award punitive damages in the tens or even hundreds of billions of dollars. However, the Florida legislature is trying to come to the rescue of the tobacco companies -- whose product addicts as many as 3,000 minors per day and kills more than 400,000 Americans annually. Worse, the legislature is doing so under the guise of protecting the health of children. For example, while the jury was in deliberations, Florida's attorney general, Bob Butterworth, proposed changing the rules of litigation in midstream. He wants to scrap the current class action protocol (which has been upheld by the Florida Court of Appeals), under which a few representative plaintiffs seek compensatory damages on behalf of the class before broader punitive damages are sought. Mr. Butterworth would require that compensatory damages be established for each and every member of the class before punitive damages are even considered. This proposal would basically negate the entire concept of a class action and would offer tobacco companies considerable financial relief by indefinitely postponing punitive damage awards. A measure like this, which would effectively nullify a jury's decision, is a stark portrait of the hypocrisy of the state settlements with the cigarette industry in 1997 and 1998. Supporters of the proposal defended it by expressing concerns that a large monetary judgment against the industry might interrupt the annual flow of the $450 million Florida is due from cigarette manufacturers under that state's settlement. John Thrasher, the Florida House speaker, further argues that such legislation is necessary to ensure settlement-supported anti-smoking programs for children, worrying "about the kids in the state of Florida who are benefiting from the settlement." Only a small portion of the settlement money is directed toward discouraging youth smoking, yet these lawmakers are chanting the usual "we want to protect our kids" mantra. However, they are actually maneuvering to protect their part of the loot by keeping the cigarette companies financially viable. To remain in business, the companies must ensure that people keep buying and smoking cigarettes so there is predictable supply of cash to send to Florida's coffers. It is no wonder that tobacco company stocks are soaring, what with the prospect of a new Teflon coating for Big Tobacco against the threats of litigation. Florida is not the only state working hard to protect the tobacco companies. Bills to protect cigarette manufacturers from jury awards have been passed, or are being considered, in Georgia, North Carolina, Kentucky and Virginia. Novel protective approaches to blunt jury verdicts include placing "caps" on the amount of bond money the industry would have to post while appealing a case. State Representative Leo Daughtry of North Carolina was up front about his motives, telling a special session of the Legislature "we are here to help the tobacco companies." According to legal experts, such bills probably violate the constitutional requirement that states respect the judicial decisions of other state and federal courts. If cigarette manufacturers continue to be protected from both federal regulations and jury-approved punishment, they will have no incentive to produce a safer product or fully inform their customers of the inherent health risks of smoking. (The New York Times, April 10, 2000) TOBACCO LITIGATION: Philip Morris Says Verdicts Help Appeal ----------------------------------------------------------- Philip Morris said the verdicts in the Engle case demonstrate why the case should not have been allowed to proceed as a class action. Indeed, the company said, April 7's verdicts - which made clear distinctions among the three plaintiffs - should reinforce the company's argument that the class should finally be decertified. In addition, the company said, the mixed verdicts highlight the practical and legal problems of going forward with a lump-sum, class-wide punitive damage claim. The mixed verdicts are a direct result of an inappropriate trial procedure fashioned by the judge, the company said. The company said it now intends to present a substantial defense to the claim for punitive damages, demonstrating to the panel how the company has changed the way it does business. William S. Ohlemeyer, Philip Morris vice president and associate general counsel, said the company is considering how quickly to ask an appellate court to review the trial procedure that led to these verdicts. Ohlemeyer said it is important to understand that the jury has now assessed compensatory damages only. Whether there will be additional, punitive damages will be decided by the same jury at the next phase, which will begin sometime in May. "This trial has demonstrated why 21 other federal and state courts have concluded smoking and health class actions do not work," Ohlemeyer said. "Such common issues' trials really decide nothing definitive when it comes to determining liability for a particular individual's alleged injury." Ohlemeyer also said the company will prepare for the next phase of the trial, the phase relating to a possible punitive award. "As we move ahead to the next phase, it will be important to understand that while we urged the jury to return a different decision, the jury's verdict will be accorded the respect it deserves," Ohlemeyer said. "An appellate court must eventually decide whether the trial court's decision to try this case as a class action was proper. In the meantime, we will present what we hope will be a compelling case against punitive damages." U.S. CUSTOMS: Study Finds Wide Disparities in Intrusive Searches ---------------------------------------------------------------- African American women returning from abroad were disproportionately singled out for strip-searches by U.S. Customs Service inspectors at airports, according to a congressional report scheduled for release. Black women were nearly twice as likely to be strip-searched on suspicion of smuggling drugs as white men and women, the report by the congressional General Accounting Office said. Moreover, black women were three times as likely as African American men to be strip-searched. The intrusive searches were not justified by a higher rate of discovery of contraband among minority groups, according to the report. Only about 102,000 of the roughly 140 million Americans returning from abroad were subject to special searches in fiscal years 1997 and 1998. The GAO said 95 percent of those were given simple pat-downs and were not required to disrobe. Another 4 percent underwent strip-searches and 1 percent were X-rayed. African American men and women were nearly nine times as likely as white men and women to be X-rayed, while Hispanic American men and women were nearly four times as likely, the report said. The GAO prepared the report for Sen. Richard J. Durbin (D-Ill.), and it is the first comprehensive analysis of "personal-search" patterns by the Customs Service. The report follows two years of criticism by minority women in Chicago and other cities who have complained of "racial profiling" and humiliating treatment by Customs inspectors. Since 1998, the Customs Service has tightened up search procedures and put its lawyers on 24-hour duty to advise inspectors who detain travelers suspected of smuggling drugs or other contraband. "We have made it clear to our people that racial profiling will not, cannot, be tolerated," Customs Commissioner Raymond W. Kelly said in an interview. Customs said the number of intrusive searches has dropped by about half, and those that are conducted are far more likely to find drugs. But Durbin said the GAO analysis showed the need for legislation that would ban racial profiling by Customs and "make sure this is a permanent policy that lives beyond Kelly and this particular report." Durbin has drafted a bill to require Customs to document its reasons for frisking or intrusively searching individuals and submit such information to Congress annually. Rep. John Lewis (D-Ga.), who also has investigated claims that Customs mistreats international travelers, has introduced similar legislation in the House. Every year, the Customs Service seizes hundreds of pounds of cocaine and heroin that international air passengers carry inside their clothes or in their bodies. Growing numbers of smugglers swallow cocaine-filled balloons or insert packages of heroin and cocaine into their body cavities, officials said. Customs has far-reaching powers, upheld by the courts, to take travelers to holding rooms for pat-downs. Customs inspectors look for passengers who give evasive answers to their questions, exhibit signs of nervousness or give off other clues, such as wearing thick-soled shoes. Often inspectors act on general information about a flight from "source countries" of the drug cartels or on intelligence tips about a specific passenger. If a frisk or strip-search fails to ease an inspector's suspicions, the passenger can be handcuffed and taken from the airport to a hospital or clinic where doctors probe the person's body or take X-rays. Travelers may be forced to drink laxatives to enable inspectors to monitor bowel movements. Detention times can last from hours to days. About 3 percent of the passengers undergoing a pat-down were caught with contraband. Twenty-three percent of strip-searches turned up drugs and 31 percent of X-rays were positive, the GAO found. In its study, the GAO analyzed the data by gender and race and said women and men were equally likely to carry drugs, and whites and blacks were equally likely to be caught smuggling drugs. Some passengers, however, were more likely than others to be forced to undergo an intrusive search, the GAO found. "The most pronounced difference occurred with black women who were U.S. citizens," the GAO report said. "They were nine times more likely than white women who were U.S. citizens to be X-rayed after being frisked or patted down in fiscal year 1998. "But on the basis of X-ray results, black women who were U.S. citizens were less than half as likely to be found carrying contraband as white women," the GAO said. Hugh Price, president of the National Urban League, said the GAO report showed "a major profiling problem. . . . It is a pattern of outrageous behavior." Amanda Buritica of Port Chester, N.Y., said the GAO report showed why Customs needed to change its procedures. "I don't want people put through the hell they put me through," she said. Buritica was held for 22 hours at a San Francisco hospital in 1994, given a laxative and X-rayed. Her lawyers argued that Customs had no reason to suspect her of being a drug courier, and a federal jury agreed, awarding her $ 450,000. In Chicago, Customs faces a class-action lawsuit originally brought by about 80 women, but the number has grown to about 1,300 women, lawyer Edward M. Fox said. Fox said Kelly's policy changes "are a step in the right direction." Customs officials said Kelly's changes have reduced the number of intrusive searches from 1,386 in the first six months of fiscal 1998 to 649 for the same period in fiscal 2000. According to Customs data from Oct. 1, 1999, to March 31, 2000, more African Americans and Hispanics than whites were X-rayed, but Customs found drugs in more than half the cases involving minorities, officials said. "We have to factor in where the drugs are coming from," Kelly said. "We are never going to have searches that reflect in a proportionate way people who are traveling. It is skewed by where the drugs come from and skewed in some sense by the intelligence information we collect." During the past year, Kelly began a new policy requiring Customs supervisors to approve all pat-downs and senior managers to approve body searches that involve taking a traveler to a medical facility. Kelly also revised the handbook used by inspectors, increased their training and ordered more systematic collection of data on searches. Customs purchased 10 body-scan machines, which see through clothing, to make the search process less intrusive. The machines have been installed at major airports, including Atlanta, Chicago, Los Angeles, Miami, New York and Washington. Customs also plans to spend $ 9 million this fiscal year to install on-site X-ray machines at nine airports. (The Washington Post, April 10, 2000) VISA, MASTERCARD: Consumers Sue over 1% Fee for Currency Conversion ------------------------------------------------------------------- Another antitrust lawsuit has been filed against Visa and MasterCard, one that experts say draws on allegations already brought against the card companies by the U.S. Department of Justice and national retail stores. The latest attack is on the 1% fee that both associations charge for currency conversion. Consumers incur the fee when they make purchases abroad. The lawsuit which names Visa International, Visa U.S.A., and MasterCard International -- says the fee is unfair because "there is no rational relationship between the additional cost to the defendants of a foreign card charge and the currency conversion fee defendants levy." The lawsuit was filed Feb. 15 in California State Superior Court in Alameda County. Neither company would comment directly on the litigation. However, a Visa spokesman said Visa is not alone in charging a fee for currency conversion; hotels and independent currency exchanges also do so. Under Visa policies, member banks are charged a fee equivalent to 1% of the purchase price of each item bought in another country. Some banks absorb the fee, and some pass it along to the customer, the Visa spokesman said. The lawsuit, filed by Adam A. Schwartz, says that over the past four years, Visa has taken in about $500 million in currency conversion fees, and MasterCard has reaped about $200 million. The suit states: "The currency conversion fee is not an attempt to recoup the trivial costs, if any, incurred by defendants in connection with foreign card charges, but rather an attempt to create an unconscionable profit center from a fee defendants implement in a deceptive manner." Among the allegations in the lawsuit are that Visa and MasterCard do not disclose the fee to consumers, thus violating the Truth in Lending Act. The fees do not appear on cardholders' monthly statements, but are spelled out in customers' cardholder agreements. The complaint says, "many of these disclosures are vague, misleading, and incomplete." Often the disclosures do not give the amount of the fee -- only the existence of a fee, the complaint says. MasterCard spokeswoman Sharon Gamsin said, "Cardholders use their MasterCard cards around the world millions of times a year to make purchases and to get cash even though they have many other options." But the complaint said that in practical terms, customers cannot avoid the currency conversion fee because "a credit card has become a necessity for persons traveling abroad, and there is no close substitute payment method." Some hotels and car rentals will not do business with people without a major credit card, the lawsuit states. These fees are not new, but they are "an issue now," said Thomas F. Schrag, a lawyer at Schrag & Baum PC of Berkeley, Calif., a firm involved in the case. Also involved is the prominent class action firm of Milberg Weiss Bershad Hynes & Lerach LLP of San Francisco. "No one knew about the fees," Mr. Schrag said. "Our client just noticed them. It took some digging." Curiously, the client, Mr. Schwartz, says in his complaint that he doesn't have a credit card. But his lawsuit says he filed "on behalf of the general public" and seeks to eliminate the currency conversion fees as "a private attorney general." Mr. Schrag said the complaint might be broadened to include American Express Co., which also levies currency conversion fees. Legal experts say Visa and MasterCard have been under a microscope since major retailers sued the card associations in 1996 and the Department of Justice filed an antitrust lawsuit in 1998. The retailers' complaint, which also alleges antitrust violations, is about debit card acceptance and interchange rules. The government is focusing on the membership rules of the associations. The two cases are closely aligned, so much so that the government is a party to the retailers' case, which is also known as the Wal-Mart case, after one of the original plaintiffs. The government case goes to trial in June, and the retailers' case is to begin in November. The currency fee lawsuit "is a clear attempt to ride on the coattails of the DOJ," said Anita Boomstein, a card payment specialist at the New York law firm of Hughes Hubbard & Reed. "They are trying to use that (case) as a basis for alleging that other aspects of their business are not competitive." Many of the antitrust allegations in the currency fee complaint mirror the allegations in the other two lawsuits. The new lawsuit refers to the "co-ownership and overlapping financial interest" between Visa and MasterCard, alleging that the card companies "essentially operate as a single business enterprise with a shared community of interest." These are central points of the Wal-Mart and government cases. There are other overlapping issues. The law firm Milberg Weiss also represents Payless Shoe Stores, which is a party in the Wal-Mart case. Payless sued Visa and MasterCard separately after the Wal-Mart case had been filed, said Lloyd Constantine of Constantine & Partners, the lead law firm representing the retailers. The Payless case was consolidated into the Wal-Mart case, Mr. Constantine said, and there are 12 other companies seeking separate legal representation against Visa's and MasterCard's debit card rules. All the cases have been folded into the larger one. Mr. Constantine said the Wal-Mart and government cases have "opened up Visa and MasterCard to scrutiny." These lawsuits have "created the impression that the card associations are more vulnerable," he said. (The American Banker, April 10, 2000) WARNER-LAMBERT: Gilman and Pastor Files Suit over Diabetes Drug Rezulin ----------------------------------------------------------------------- A class action lawsuit against Warner-Lambert Company and Parke-Davis Pharmaceuticals, Ltd. was filed in the U.S. District Court for the District of New Jersey on behalf of all purchasers and/or users of Rezulin, a prescription drug promoted and prescribed to treat type 2 adult onset diabetes, a disease characterized by high blood sugar levels. The suit alleges that defendants, Warner and Parke, misled potential users of Rezulin concerning the health risks associated with the drug. Rezulin has been associated with severe liver failure, heart disorders and the death of at least 63 people. The suit alleges that defendants' product warnings were wholly inadequate and failed to warn prescribing physicians and patients of the actual heart and liver risks associated with Rezulin. On March 21, 2000 the Federal Drug Administration issued an emergency request for Warner to immediately halt sales of Rezulin and recall it from the market. The suit seeks monetary damages and equitable relief on behalf of the proposed class, including a court supervised medical monitoring and early diagnosis and testing procedure which will permit prompt and effective treatment of patients who are at risk of developing heart and liver disease from ingesting Rezulin. Plaintiff and the proposed class are represented by the law firm of Gilman and Pastor, LLP, One Boston Place, 28th Floor, Boston, MA 02108, a firm with significant experience in prosecuting class actions on behalf of consumers. Contact: Daniel D'Angelo, Esquire, or Edward L. Manchur, Esquire Gilman and Pastor, LLP, One Boston Place, 28th Floor, Boston, MA 02108, Telephone 617-589-3750, Telecopier 617-589-3749, email ddangelo466@aol.com YIELD BURNING: More Global Settlements Anticipated -------------------------------------------------- A second group of broker-dealer firms is in the midst of negotiating a global yield-burning settlement with federal regulators that could be completed and announced as early as next month, sources said. The group is likely to include firms named in the secret False Claims Act yield-burning suit filed in early 1995 by former Smith Barney Inc. managing director-turned whistleblower Michael Lissack that were not included in the federal settlement announced. Seventeen Wall Street and regional firms paid $138.3 million in that settlement. The second group also will likely include some of the firms named in private lawsuits pending in courts in Florida and Illinois that are seeking class action status, such as Everen Securities Inc., the sources said. "It makes sense that there's going to be a second round," said one source. "There were a lot of obvious names missing from the settlement." Bear, Stearns & Co. said they could not comment. Stifel Nicolaus & Co., and Stephens Inc. said they are not involved in any settlement talks. Other firms involved in the private suits could not be reached for comment. Meanwhile, the settlement announced covered more than 60% or 3,603 of the 5,924 negotiated advance refundings done from 1990 through 1994, according to Thomson Financial Securities Data. Enforcement documents for the 17 firms that settled with the Securities and Exchange Commission and National Association of Securities Dealers cited markups from .37% to 1.29%, with an average level of .55% -- the same was the markup level cited in the SEC's settled court case with Dain Rauscher Inc. The average level is .44% if the 1.26% markup cited for William R. Hough & Co. is excluded. But both regulators and industry officials said observers should be careful about drawing any conclusions from these numbers. The SEC and NASD cited only one isolated yield-burning example for each firm. The example only showed the amount of Treasuries sold to the issuers and the markups taken. SEC officials would not reveal what the range of markups was for the 3,603 transactions involved in the settlement. Some sources speculated that the SEC disclosed the markups to show the enforcement actions involved excessive markups well below the 1% level the industry had initially argued should be legitimate. But Paul Saltzman, The Bond Market Association's executive vice president and general counsel, said, "These settlements should not be looked at for markup precedent. First of all, the settlements are negotiated for all sorts of reasons besides merit. And these are levels that occurred in the context of advance refundings that aren't representative of secondary market transactions in government securities." The enforcement documents also disclosed the details of conflicts of interest abuses allegedly committed by William R. Hough & Co. in two transactions for Florida issuers. Hough, one of the 17 firms that settled, had the only set of enforcement documents besides Rauscher that contained such detail. The SEC alleged Hough breached its fiduciary duty to the Canaveral Port Authority in Florida and knowingly committed securities fraud in connection with a 1992 $26 million refunding, for which it was financial adviser. The SEC charged Hough failed to disclose to the port authority that it was acting as principal in selling the authority escrow securities from its own account and also failed to disclose that it had a profit-sharing arrangement with the senior managing underwriter that created conflicts of interest. The SEC documents did not name the senior managing underwriter. But according to Securities Data, it was the former Smith Barney, Harris Upham & Co. Hough also certified that "the prices quoted for the U.S. Treasury securities resulted in yields ... to the authority at least as high as the yield offered on similar securities in the secondary market for trades which have similar complexities." The port authority relied on Hough's certifications that the prices were determined in arm's-length negotiations without any intent to reduce yield, the SEC said. Yet, Hough took a markup of 1.29% from the "prevailing interdealer market prices" on the $30.7 million in escrow securities it sold to the port authority, the commission said. In addition, the SEC charged Hough with negligence-based securities fraud in connection with a refunding for Boynton Beach, Fla., in late June 1992, for which the firm was co-managing underwriter. The SEC does not cite the size of the refunding, but Securities Data shows a $60.25 million refunding dated June 29, 1992, was underwritten for the city by Hough and Smith Barney. The SEC said Hough failed to disclose that it took a $300,000 fee from a forward-supply contract provider at the same time Hough certified in writing, at the request of bond counsel, that it was a fair market price. The provider paid $2.09 million to the city. The SEC said that if the provider had withheld as little as $4000 to reduce the yield, it would have jeopardized the tax-exempt status of the bonds. (The Bond Buyer, April 10, 2000) * States Move Closer on Uniform Software, Signature Laws -------------------------------------------------------- On March 14, Virginia became the first state to pass the controversial software licensing legislation known as the Uniform Computer Information Transactions Act (UCITA). The effective date for the law, however, is still more than a year away. UCITA strengthens the legal status of agreements entered into by software makers and consumers, creating the presumption that such transactions are licenses rather than sales, and providing more control for software makers over the use and distribution of their products. The Virginia law contains several amendments to the model law drafted and promoted by the National Conference of Commissioners on Uniform State Laws (NCCUSL). For example, the Virginia law exempts from UCITA's coverage movies or audiovisual programs that are part of business-to-business transactions. UCITA's choice-of-law provisions were also amended by the Virginia Legislature. Several other states, including Hawaii, Illinois, Maryland and Oklahoma, have also taken legislative action on UCITA. In addition, a number of state legislatures have recently introduced versions of the Uniform Electronic Transactions Act (UETA). Another NCCUSL-drafted uniform law that would govern the use of electronic signatures, UETA asserts that "an electronic record or signature may not be denied legal effect or enforceability solely because it is in electronic form," furthermore "if a law requires a record to be in writing, an electronic record satisfies the law." Legislation introduced Jan. 5 in Nebraska, LB929, is virtually identical to the NCCUSL version. Additional states looking at UETA include Arizona, Colorado, Indiana and Maryland. California and Pennsylvania have already enacted versions of UETA. Congress Hears Testimony on ADA Applicability to Web The House Judiciary Committee's Subcommittee on the Constitution heard testimony from nine witnesses at a Feb. 9 hearing that addressed the applicability of the Americans with Disabilities Act (ADA) to private Internet sites. The hearing was prompted by many recent developments, including the class action filed in November by the National Federation for the Blind against America Online, alleging violations of the ADA's accessibility requirements, as well as forthcoming regulations to address the accessibility of federal government web sites. Although many of the witnesses generally favored applying the provisions of the ADA to the Internet because of the central place that the Internet has taken in society, others cautioned against a draconian approach that could inhibit growth or compromise functionality. Several witnesses explained technology that is already available to assist people with disabilities--especially the blind--in accessing web pages, and urged companies to make accessibility a consideration at the earliest stages of product and web site development. Links to the witnesses' statements can be found on the House Judiciary Committee web site, http://www.house.gov/judiciary/2.htm (E-Commerce, March 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. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 301/951-6400. * * * End of Transmission * * *