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/raid1/www/Hosts/bankrupt/CAR_Public/000706.MBX C L A S S A C T I O N R E P O R T E R Thursday, July 6, 2000, Vol. 2, No. 130 Headlines AMERICAN FAMILY: Outreach Policy after Consent Decree Proves Good BANK PLUS: Updates on Settlement of Lawsuits over ADC Credit Card BANKAMERICA: E.D. Mo. Enjoins CA Securities Suit for Forum Shopping CARTER WALLACE: Drug Price-Fixing Suit Certified; No Action since 1996 CARTER WALLACE: Shareholders Appeal to Dismissal of NY Suit Filed '94 JUST FOR: AL Suit Says Officers Hid Problems That Led to Bankruptcy HARMONIC INC: Wolf Haldenstein Files Securities Suit in California NASCAR VENDORS: Fans May Be Due a Refund for Souvenirs Price-Fixing NETWORK SOLUTIONS: Legal Intelligencer Talks about Contract Re Monopoly PASMINCO LIMITED: Aust. Judge Says Suit on Emissions Doomed to Fail P COM: Discloses Securities Lawsuit at Very Early Stage STEVEN MADDEN: Schiffrin & Barroway Files Securities Lawsuit in NY SYNTHETIC STUCCO: Suits Spread from Homeowners to Business As Walls Rot TOBACCO LITIGATION: Big Tobacco Said to Be Getting Help from Officials VITAMIN PRICE-FIXING: Australian Arms Implicated in Int’l Conspiracy ********* AMERICAN FAMILY: Outreach Policy after Consent Decree Proves Good ----------------------------------------------------------------- Discrimination often can leave ugly scars, but even the deepest wounds heal over time, according to plaintiffs in the redlining lawsuit against American Family Mutual Insurance Co. Madison-based American Family, the largest insurer in the region, was sued in federal court in July 1990 by eight homeowners who charged that they were denied homeowners insurance because they were black. The plaintiffs -- including Marvin Pratt, now president of the Common Council -- were backed in the lawsuit by the American Civil Liberties Union and the National Association for the Advancement of Colored People. Redlining is the illegal practice of refusing to sell property insurance in neighborhoods based on their racial makeup. A court-ordered consent decree in the case is scheduled to expire July 13, and to all sides, it has proven to be a constructive exercise."We're pleased with the results," said Felmers Chaney, former president of the Milwaukee NAACP branch, which backed the suit. "Nothing would have changed in insurance had we not taken them on. We changed it from a fight to a marketing initiative." Under the federal consent decree, American Family agreed to increase its African-American sales staff by 10%, open sales offices in black neighborhoods, provide loans for emergency home repairs and expand its support for events in the black and Hispanic communities. "It was the best thing that happened to us," Babette Parker, the company's urban marketing manager, said of the consent decree. "The real key was working with the community. That was a new way of operating for us." And, as other major insurers have followed American Family and entered the urban market, it's much easier for central-city homeowners to shop around and find competitive prices, said Anne Landre, executive director of the Community Insurance Information Center. In one example, the Wisconsin Insurance Plan, which has broader acceptability and underwriting standards than most regular insurers, has seen a marked decrease in central-city market share during the five years of the consent decree. "We've been losing business left and right," said Tom Roeder, the plan's manager. "The consent decree certainly was a factor in making insurance companies look at some of their underwriting guidelines that kept owners of older central-city homes from getting coverage." As part of the bargain, American Family agreed to write 1,800 policies in target areas of the city. As of December 1999, the the company had written 1,758 such policies, according to the most recent data from a consent decree class committee. Since agreeing to a $14.5 million settlement of the class-action lawsuit in 1995, the company has had a greater presence in central-city neighborhoods. Its name has been attached to job fairs, fund-raisers and festivals such as Sherman Fest and African World Festival. The most tangible benefit for central-city homeowners has been increased access to insurance that once was denied to them, said James Hall, a lead attorney for the plaintiffs. "We think the consent decree has made a significant impact on addressing community deterioration in terms of programs that allow people to have insurance on their homes where they otherwise might not have had it," Hall said. Even so, complaints of redlining have not gone away, Landre said. "I don't think they're ever going to go away," Landre said. One example is a recent lawsuit filed against Travelers Property Casualty Corp. alleging that it denied protection or offered inferior coverage to black and Latino residents in inner-city neighborhoods in Milwaukee; Washington, D.C.; Richmond, Va.; New Orleans; and Toledo, Ohio. Now, the question is: Will American Family remain committed to the aggressive urban marketing initiatives it started under the consent decree? "Although the consent decree is expiring, our commitment to the community hasn't expired," American Family's Parker said. Meanwhile, some community leaders say they will be watching closely. "If we do see some areas where they (American Family) are backing down, we will be their conscience," said Betty Thompson, executive director of Project Equality of Wisconsin Inc. (The Milwaukee Journal Sentinel, Tuesday, July 4, 2000) BANK PLUS: Updates on Settlement of Lawsuits over ADC Credit Card ----------------------------------------------------------------- As has been reported in the CAR, Bank Plus Corporation previously announced resolution of the outstanding cardholder litigation in Alabama and Mississippi relating to the ADC credit card program. The following is an update on the status: -- Definitive settlement agreements have been executed for “all” of the individual lawsuits filed in Alabama. -- The Company has negotiated agreements in principle to settle all of the lawsuits filed in “Mississippi” and is in the process of executing these agreements. -- A definitive settlement agreement has been executed and “preliminarily approved by the court” for the initial class action lawsuit filed in Alabama. -- Notices will be mailed to all members of the class at the beginning of July. -- The cutoff date for members of the class to opt out of the class is August 8, 2000. -- The Company anticipates a final order from the Alabama court in early September. Such an order will become final within 42 days of its issuance, unless appealed. No assurances can be given that a final order will be entered or that such an order will not be appealed. -- The second class action lawsuit filed in Alabama was settled as an individual action. Fidelity Completes Sales of MMG Credit Card Business Bank Plus Corporation (Nasdaq: BPLS) reported that in June 2000 its wholly-owned subsidiary Fidelity Federal Bank, FSB completed the previously announced sales of the MMG Direct, Inc. credit card portfolio and the Bank's credit card servicing center located in Beaverton, Oregon. In conjunction with this sale, the buyer of the credit card servicing center is now servicing the Bank's American Direct Credit, Inc. credit card portfolio and has an option to purchase the ADC portfolio. Banks Sells Beverly Hills Branch to First Bank The Bank also reported the completion of the sale of its Beverly Hills branch office with $82 million of deposits to First Bank of Beverly Hills, FSB. Bank Plus Corporation is the holding company for Fidelity Federal Bank, FSB, which offers a broad range of consumer financial services, including demand and time deposits and mortgage loans. In addition, through its affiliate Gateway Investment Services, Inc., a NASD-registered broker/dealer, Fidelity provides customers of the Bank with investment products, including mutual funds, annuities and insurance. Fidelity operates through 30 full-service branches, 29 of which are located in Los Angeles and Orange counties in Southern California. BANKAMERICA: E.D. Mo. Enjoins CA Securities Suit for Forum Shopping ------------------------------------------------------------------- U.S. District Judge John F. Nangle of St. Louis has enjoined the California state securities action against BankAmerica Corp., criticizing the attorneys pursuing the parallel litigation for their "blatant attempt at forum shopping." In response, the judge presiding over the state action defended the law firm's behavior throughout the proceedings. In re BankAmerica Corp. Securities Litigation, MDL No. 1264 (E.D. Mo., Apr. 25, 2000); Desmond v. BankAmerica Corp. et al., No. 998629, order issued (Cal. Super. Ct., May 9, 2000). The district court said that the behavior of Milberg Weiss Bershad Hynes & Lerach was "outrageous" and "precisely the sort of lawyer-driven machinations" that the Private Securities Litigation Reform Act (PSLRA) was designed to prevent. The securities fraud suit arose out of the merger between the former BankAmerica Corp. and NationsBank Corp. The shareholders allege that the banks did not reveal the extent of BankAmerica's investment in D.E. Shaw & Co. that resulted in a $372 million charge off after the merger. Between October and November 1998, 24 proposed class actions were filed in federal court and seven in state court, based on the same alleged nondisclosures. According to Judge Nangle, when it became clear that Milberg Weiss' clients did not have the financial stake to be appointed lead plaintiff in the federal action, the firm dismissed the federal case to focus on the state action. Although the Securities Litigation Uniform Standards Act (SLUSA) was passed to hinder any attempts to circumvent federal securities law, the instant litigation against BankAmerica was filed prior to passage of this act in 1998. The federal action was consolidated and transferred by the Judicial Panel on Multidistrict Litigation to the Eastern District of Missouri. During the proceedings, the court appointed lead plaintiff and lead counsel and certified the class. In the interim, the state actions were consolidated under Desmond v. BankAmerica Corp ., but no class was certified. The defendants filed to have the case removed to federal court, arguing that the addition of new class representatives amounted to a new suit that was covered by the SLUSA. However, the Northern District of California remanded the case to state court finding that the removal action was premature. According to the opinion, Milberg Weiss then wrote a letter to Superior Court Judge William Cahill indicating the Desmond plaintiffs intended to structure the proposed classes to avoid removal. But the court never got the opportunity to address class certification as the parties agreed to begin mediation on April 27, 2000. In the district court opinion, Judge Nangle reviewed the PSLRA, stating it was implemented to curb the "race to the courthouse" mentality of securities class action lawyers. The legislation grants a federal right to be appointed lead plaintiff to the investors possessing the greatest financial stake, continued the court. "This federal right cannot be given its intended scope if competing state court plaintiffs, representing a significantly smaller number of shares, can institute premature settlement negotiations which threaten the orderly conduct of the federal case and which could result in the release of the federal claims," said Judge Nangle. The federal plaintiffs represent 2,583,505 shares of stock, while the state action only involves the shareholders of 98,678 shares. Of these, 70,000 shares are represented by Gold, Bennett & Cera and 28,678 are represented by Milberg Weiss. Judge Nangle enjoined the state court from certifying any class or allowing the mediation (or any other alternative dispute resolution) to proceed. In response, Judge Cahill stayed the proceedings, but came to the support of Milberg Weiss in its order. "During this case, this court has found the attorneys for plaintiffs and defendants to be of the highest quality. It appears to this court that all counsel have conducted themselves in a professional and ethical manner throughout this litigation in the California Superior Court," the judge concluded. Milberg Weiss intends to appeal Judge Nangle's ruling to the U.S. Court of Appeals for the Eighth Circuit. (Derivatives Litigation Reporter, June 19, 2000) CARTER WALLACE: Drug Price-Fixing Suit Certified; No Action since 1996 ---------------------------------------------------------------------- The Company, along with numerous other drug manufacturers, wholesalers and suppliers, was named in a series of class action suits, the first of which was filed in August, 1994 in the California Superior Court, San Francisco County. These suits were brought on behalf of all California independent retail pharmacists who had purchased any brand name prescription drugs since August, 1989. The complaint alleged that the defendants, including the Company, entered into a conspiracy to fix prices for brand-name prescription drugs and gave lower prices to certain favored purchasers, while the alleged favored prices were denied to the plaintiffs. Plaintiffs are seeking injunctive relief and unspecified trebled compensatory damages, restitution of unspecified amounts by which defendants are alleged to be unjustly enriched and litigation costs, interest and attorney's fees. Class certification of the price-fixing conspiracy claims was granted by order dated June 23, 1995, establishing a class of independent retail pharmacists and small chains with ten or fewer California locations. An individual action brought by two mid-size chain pharmacies was subsequently coordinated with the consolidated class action as an "add-on" case asserting virtually identical claims and demands for relief. Plaintiffs in that action have amended their complaint to seek class certification, which has not been granted. There has been no activity in these cases since 1996 because of the pendency of related actions brought under the federal antitrust laws. The Company believes that the claims against it are materially deficient. CARTER WALLACE: Shareholders Appeal to Dismissal of NY Suit Filed '94 --------------------------------------------------------------------- Two federal securities class action suits filed in 1994 by stockholders against the Company and certain of its present and former officers in the United States District Court, Southern District of New York, were consolidated for all purposes. A Consolidated Amended Complaint was filed, followed by a Second Amended Class Action Complaint. The consolidated action purports to be on behalf of all persons who purchased the Company stock in the period from January 20, 1994 through July 31, 1994. The complaint alleges that certain statements made by the Company with respect to the safety and anticipated future sales of its anti-epilepsy drug Felbatol were false and misleading. Both the Consolidated Amended Complaint and the Second Amended Class Action Complaint, which seek damages in an unspecified amount, were dismissed by the District Court for failure to state a claim upon which relief can be granted. The United States Court of Appeals for the Second Circuit affirmed the dismissal on all claims except those based on allegedly false statements in medical journal advertisements. The Company then moved for judgment on the pleadings with respect to those remaining claims, and the motion was granted. Plaintiffs' appeal is pending. JUST FOR: AL Suit Says Officers Hid Problems That Led to Bankruptcy ------------------------------------------------------------------- Investors claim in a securities fraud suit filed in federal court in Birmingham, Ala., that while officers of Just for Feet Inc. were calling the company the Wal-Mart of sport shoes, they were hiding problems that pushed the company into bankruptcy just seven months later. AAL High Yield Bond Fund and Delaware Delchester Fund v. Ruttenberg et al., No. 001404, complaint filed (N.D. Ala., May 24, 2000). The suit includes charges of violations of Sections 12(2), 15, 20-a a nd 10-b-(5) of the Securities and Exchange Act of 1933 and violations of Alabama's common-law fraud statute. In a suit that listed both class action and individual claims, investors AAL High Yield Bond Fund and Delaware Delchester Fund charged that Just For Feet officers and directors continually misrepresented the current state of the company's inventory and its inventory controls and capacity. Plaintiffs claim that the hidden problems were so severe that when they were revealed, the stock price dropped so fast trading was halted at the $1-a-share mark. Rapid, uncharted expansion and acquisition led to Just For Feet's downfall, the suit averred. Plaintiffs are represented by James North of James North & Associates in Birmingham, Ala., and Thomas Dubbs of Goodkind Labaton Rudoff & Sucharow LLP in New York. (Corporate Officers and Directors Liability Litigation Reporter, June 19, 2000) HARMONIC INC: Wolf Haldenstein Files Securities Suit in California ------------------------------------------------------------------ Wolf Haldenstein Adler Freeman & Herz LLP today announced that a class action was commenced in the United States District Court for the Northern District of California on behalf of purchasers of Harmonic Inc. (NASDAQ:HLIT - news) common stock during the period between March 27, 2000 and June 26, 2000 (the "Class Period"). A copy of the complaint may be reviewed at the Wolf Haldenstein web site (www.whafh.com). The complaint charges Harmonic and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Harmonic designs, manufactures and markets digital and fiber optic systems for delivering video, voice and data services over cable, satellite, telephone and wireless networks. The company's solutions enable cable television and other network operators to provide a range of broadcast and interactive broadband services that include high-speed Internet access, telephony and video on demand. The complaint alleges that defendants' false and misleading statements concerning the revenues to be derived from Harmonic's largest customer, AT&T, and from its newly acquired C-Cube division (DiviCom), which would result in 2000 EPS of $1.19+, artificially inflated the price of Harmonic stock to a Class Period high of $102. This upsurge in Harmonic's stock caused by defendants' false and misleading statements enabled Harmonic to complete the $1.7 billion acquisition of the C-Cube's DiviCom business. After the acquisition was completed, on 6/26/00, Harmonic revealed that it was in fact suffering a huge drop in revenues and exposed the problems Harmonic had been experiencing during the Class Period in attempting to grow its business. This announcement caused its stock price to drop to as low as $22-11/16 on record volume of 21.9 million shares on 6/27/00 causing hundreds of millions of dollars in damages to members of the class. Contact: Wolf Haldenstein Adler Freeman & Herz LLP, Michael Miske, George Peters, Fred Taylor Isquith, Esq. Gregory M. Nespole, Esq. (www.whafh.com) (classmember@whafh.com) (nespole@whafh.com) (gnespole@aol.com) (800) 575-0735 NASCAR VENDORS: Fans May Be Due a Refund for Souvenirs Price-Fixing ------------------------------------------------------------------- A class-action lawsuit over price-fixing at NASCAR souvenir stands has been settled for more than $ 11 million, and the race fans who bought the souvenirs may be due a refund. Attorney Ed Livingston filed suit in March 1997, alleging price-fixing among the companies that sell souvenirs at NASCAR races. Twenty-one companies are listed as contributors to the settlement, including International Speedway Corp., which is owned by the France family who owns and operates NASCAR. The settlement total includes $ 5.65 million in cash and $ 5.8 million in coupons for discounts on future purchases. It is expected to be approved Aug. 25 in a hearing at U.S. District Court in Atlanta. Anyone who bought a souvenir from an on-track vendor from Jan. 1, 1991, through Dec. 31, 1999, is eligible to receive a portion of the settlement, which includes about five million people, Livingston said. A special Web site - www.stockcarnotice.com - has been started to help people apply for part of the settlement. (The News and Observer (Raleigh, NC), July 5, 2000) NETWORK SOLUTIONS: Legal Intelligencer Talks about Contract Re Monopoly ----------------------------------------------------------------------- As previously reported in the CAR, Calif. Federal Court Class Action Says Network Solutions Gouged Consumers. An article published in the Legal Intelligencer, July 5 reveals that eight years ago, the federal government handed a tedious-sounding contract to a little-known company called Network Solutions Inc. The contract granted Network Solutions the right to administer a server at its Herndon, Va., headquarters that stores virtually all Internet addresses. The database is the taproot of the information superhighway. The contract turned into a fortune, and Network Solutions was recently sold to Verisign Inc. for $ 15 billion. But with success came lawyers, and Network Solutions has been the target of several lawsuits over the years challenging the company's exclusive deal to dole out domain names. Although the company was recently forced to give up its monopoly and open up domain registration to competitors, the suits haven't stopped. In a $ 2.4 billion class action antitrust suit before U.S. District Judge Vaughn Walker, William Bode, of Washington, D.C.'s Bode & Beckman, charges that Network Solutions used its government-sanctioned monopoly to gouge customers. While courts have so far ruled that Network Solutions' monopoly was government-sanctioned, Bode intends to prove that the company acted outside the four corners of its contract. Under the terms of the initial contract with the government, it's doubtful Network Solutions would have ended up on the Nasdaq 100. At first, the company's contract called for it to administer the database at cost, plus a fixed fee, which allowed for a nominal profit. But in 1995, Network Solutions got the contract amended and began charging $ 100 per registration, plus an annual renewal fee. That move made Network Solutions villains among disgruntled programmers and Web heads long before the Internet became crassly commercial. "I think it will go down in history. This was one of the great malfeasances of the 1990s," Bode said. "I get e-mails every day from disgruntled registrants who want to become plaintiffs." Last week, Walker heard Network Solutions' motion to move the suit to Washington, D.C., which has been a successful stage for the company in past antitrust suits. "That court has very recently considered many of the same claims, and in that connection has analyzed the issues, the statutory schemes involved, and the relevant cases," wrote Folger Levin & Kahn associate Michael Kelleher, a Network Solutions attorney, in court briefs. Washington, D.C.'s Wilmer Cutler & Pickering, along with Hanson & Molloy, are also working the case for Network Solutions. It is the company's policy not to allow lawyers to comment on pending cases.Bode has sued Network Solutions before, with mixed results. In the 1999 D.C. Circuit case, Thomas v. Network Solutions, 176 F. 3d 500, Bode challenged the fees NSI charged registrants. The court ruled that 30 percent of the $ 100 fee was diverted into a government fund for improving the Internet, which amounted to an unconstitutional tax. But Bode lost on his claim that the $ 70 NSI kept was a violation of antitrust law. To win in the San Francisco case, Hoefer v. Network Solutions, 00-0918, Bode will have to get around Thomas. But Bode sees hope in a recent 2nd U.S. Circuit Court of Appeals ruling, Name. Space v. Network Solutions, 202 F. 3d 573, which held that NSI was a monopoly, but acted at the direction of its government contract. "Clearly, any alleged abuse of monopoly power was specifically mandated by NSF and the Commerce Department. As the District Court recognized, 'private parties, to the extent they are acting at the discretion or consent of federal agencies, also fall outside the pale of the [Sherman Act],'" wrote 2nd Circuit Judge Robert Katzmann in January. But Bode says Network Solutions acted outside the scope of its government contract and should never have been allowed to hike its registration fee in 1995. Bode also claims that NSI violated written protocol by allowing, even encouraging, businesses to register under more than one domain. For example, Yahoo.net, Yahoo.com and Yahoo.org all take the user to the same page. The domains .net and .org are intended for Internet-related companies and nonprofit organizations, respectively. Network Solutions has been in and out of courtrooms for most of its corporate career, but efforts to sue the company have proved quixotic. "You can't sue Network Solutions," said one lawyer familiar with a previous suit against the company, adding that the company's interests are too closely tied to the interests of government agencies and the future of the Internet. Network Solutions has been before Walker in the past. As usual, they won. But Walker did express, in passing, his thoughts on the fees NSI charged registrants. In the pro se Beverly v. Network Solutions, 98-0337, Walker wrote: "The general public benefits from the contractual relationship because it affords relatively inexpensive Internet access." Bode's class period ended last November, when the company was forced to give up its monopoly and open up domain registration to competitors. Even then, Network Solutions fought the move. After a summer of contentious negotiations, an agreement was hammered out where every new company allowed to register domain names must pay NSI $ 6 for each registrant to maintain the central domain name database. "It's no secret that they weren't real psyched about giving up their government-mandated monopoly," said Pam Brewster, spokesman for the recently created Internet Corporation for Assigned Names and Numbers, or ICANN, which oversees all registration companies. But since then, the company has had a run of good luck. On Jan. 18, the U.S. Supreme Court denied certiorari in Thomas. The public was apparently more skeptical of Network Solutions' case than the justices. On the news, the company's stock shot up 500 percent. On Feb. 1, Network Solutions announced the Justice Department had ended a longstanding antitrust investigation of the company, with no charges brought. On March 7, the Verisign deal was announced. While Walker has given no inclination of how he'll rule, Network Solutions found itself enmeshed in controversy again last week when the Washington Post reported that the company told delinquent domain-name holders that, instead of returning them to the pool of available names, it would auction off their addresses if accounts were not paid in full by June 28. That brought more charges of anti-competitive activity, and ICANN is investigating to see if the policy violates its agreement with Network Solutions. (This article, taken from the Legal Intelligencer, July 5, 2000, previously appear in The Recorder, an American Lawyer Media affiliate. P COM: Discloses Securities Lawsuit at Very Early Stage ------------------------------------------------------- In its report to the SEC, P Com Inc. discloses that the Company is a defendant in a consolidated class action lawsuit in which the plaintiffs are alleging various securities laws violations by the Company and certain of its officers and directors. The plaintiffs seek unspecified damages based upon the decrease in market value of shares of the Company's Common Stock. The Company believes the action is without merit and intends to defend this action vigorously. This proceeding is at a very early stage and the Company is unable to speculate on its ultimate outcome. However, the ultimate result of the matter described above could have a material adverse effect on the Company's results of operations or financial position either through the defense or result of such litigation. PASMINCO LIMITED: Aust. Judge Says Suit on Emissions Doomed to Fail ------------------------------------------------------------------- A judge in the Federal Court of Australia has dismissed a class action suit against a lead and zinc miner, ruling that the case was incompetent and the charges "clearly untenable" (Roslyn Gay Cook & Ors v. Pasminco Limited & Ors, No. N132OF2000, Australia Fed.). (Order in Section E. Document # 14-000526-106.) Roslyn Gay Cook sued Pasminco Ltd. alleging the mining company wrongfully permitted emissions of noxious fumes, vapor and gases containing lead, sulfur dioxide and other toxic pollutants around its smelters at Cockle Creek in New South Wales and Port Pirie in South Australia. The suit involved 1,082 people seeking compensation for alleged health problems from the emissions. Cook's Application Cook applied to the Federal Court of Australia for the right to got to trial against Pasminco for negligence, nuisance and two statutory causes of action under the Trade Practices Act 1974. Citing Section 75AD of the act, Cook contended that the emissions from the smelter were goods manufactured by Pasminco and supplied by them to the plaintiffs; the goods had a defect being a deleterious effect on human health; and as a result, Cook and the others suffered injuries. Cook used Section 75AG to argue that the emissions had the same effect on the land, buildings and fixtures which the plaintiffs used, and therefore they suffered a loss as a result of the defect. Pasminco's Response The mining company argued that the claims made under the Trade Practices Act should not be permitted to proceed to trial, and that on that basis the court lacks jurisdiction to entertain the common law causes of action in negligence and nuisance. Pasminco cited In re: Wakim; Ex Parte McNally ([1999] 163 ALR 270) to argue that Cook could not rely on the cross-vesting legislation to give the court jurisdiction to entertain the claims in negligence and nuisance. Senior counsel for Pasminco indicated that so far as his instructions went at the time, it would not be the company's contention that if the claims under the Trade Practices Act survived the present challenge, nonetheless the two common law claims lay outside the court's accrued jurisdiction. The Court's Ruling Judge Kevin Lindgren ruled that the only question to be answered was whether or not the claims under the Trade Practices Act were "doomed to fail," "quite hopeless," or "clearly untenable." Quoting the Trade Practices Act, Judge Lindgren said there were five questions that had to be answered affirmatively in order to qualify to go to trial under the act: Could the emissions arguably be found to constitute "goods"; could the emissions arguably be found to have been "manufactured" by Pasminco; could the emissions arguably be found to have been "supplied" by Pasminco; if so, could the emissions arguably be found to have been supplied by Pasminco "in trade or commerce"; and could the emissions arguably be found to have had a "defect"? "In my view, therefore, it is clear that the emissions were not supplied 'in trade or commerce' and that no evidence on the final hearing can alter this conclusion," Judge Lindgren ruled. "From the applicants' viewpoint it will be thought unfortunate that they do not have access to the procedure which they have chosen, namely, that of the Representative Proceeding which is provided for in Part IVA of the Federal Court of Australia Act 1976 (Cth) and Order 73 of this court's rules. Applying legal principle, however, I think it clear that the applicants' case is doomed to fail so long as it remains in this court. It is better that this be determined to be the case now rather than later when legal costs have increased," the judge added. (Mealey's Litigation Report: Lead, May 26, 2000) STEVEN MADDEN: Schiffrin & Barroway Files Securities Lawsuit in NY ------------------------------------------------------------------ A class action lawsuit was filed in the United States District Court for the Eastern District of New York on behalf of all purchasers of the common stock of Steven Madden Ltd. (Nasdaq: SHOO) from November 3, 1999 through June 20, 2000 inclusive (the "Class Period"). The complaint charges Steven Madden Ltd. and certain of its officers and directors with issuing false and misleading statements concerning the Company's financial condition. Specifically, Steven Madden Ltd. failed to disclosed material adverse facts about the Company. Among other things, the Company had participated in a scheme to manipulate the market for various initial public offerings of common stock of certain companies. Contact: Schiffrin & Barroway, LLP Marc A. Topaz, Esq. Robert B. Weiser, Esq. 888/299-7706 (toll free) or 610/667-7706 info@sbclasslaw.com SYNTHETIC STUCCO: Suits Spread from Homeowners to Business As Walls Rot ----------------------------------------------------------------------- The legal fight over synthetic stucco is shifting from homeowners to businesses, as rotting walls blamed on the material have shown up in a chain of fast-food restaurants in North and South Carolina. Those involved in the controversy over the past 4 1/2 years are now watching closely to see how much of a problem it will turn out to be for places such as restaurants, hotels and large apartment complexes. The fallout over residential buildings has been staggering for the EIFS - "exterior insulation finish system" - industry since the material was first blamed for damaging dozens of homes in the Wilmington area in 1995. Similar damage was found in Triangle homes, across the state and eventually in other parts of the country, leading to several class-action lawsuits and more than 1,000 individual suits, with settlements costing manufacturers tens of millions of dollars. "A lot of commercial-building owners are facing the same issues that residential owners did," said Trey Thurman, a lawyer for the Wilmington firm Shipman and Associates, which handled North Carolina's class-action suit. "They experience the same problems that residential owners do, simply on a larger scale." The value of synthetic stucco is in its easily sculpted looks and in the fact that it is waterproof. Unfortunately, some say that waterproof feature traps moisture that leaks inside the walls through windows and other openings, eventually rotting the wood. Only a small portion of homes treated with EIFS have had the problem, but North Carolina and some other states no longer allow the material, and a building code group is expected to recommend a ban nationwide. An improved, drainable system has been developed and can be used in its place. The industry's newest headache is a lawsuit filed last year in New Hanover County Superior Court by the McDonald's Corp., which claims that 70 of its restaurants in North and South Carolina have sustained moisture damage because of the exterior stucco. McDonald's amended its complaint Friday to include all of the five major manufacturers of EIFS; also named as defendants are the general contractor and several distributors and applicators. The general contractor, in turn, sued the window manufacturers and installers and the roofers. It is apparently the first and only large-scale litigation against EIFS involving commercial buildings. The industry, meanwhile, continues to defend the product and blame the moisture damage on construction contractors' and subcontractors' shoddy workmanship. Stephan Klamke, executive director of the Georgia-based EIFS Industry Members Association, said he didn't know about the McDonald's lawsuit but insisted the controversy simply hasn't lapped over into the commercial field. "We haven't seen it," Klamke said. "As we've contended all along, the issue is the installation of not only EIFS but component parts and pieces as well. Good construction practices, commercial and residential, address that issue." Klamke said commercial projects tend to be monitored better than housing construction at every stage, and that should limit any problems. Thurman said commercial buildings are more likely than houses to have design features such as overhangs that keep rain from running down the outside of walls and leaking inside. The industry association points to commercial structures throughout the country coated in synthetic stucco that haven't yet had water damage even in severe weather, such as Denver's 18,000-seat sports complex. Last year, Fayetteville, Ark., built a city government center with the product. Although EIFS is the most widely used wall-coating material in commercial construction in the United States, it remains to be seen whether there are few commercial problems or, as Raleigh lawyer Steven Epstein suggests in an article in an American Bar Association publication, they have just only begun to surface. Epstein, who represents McDonald's, agrees that commercial buildings should not be as susceptible, but he cautions that commercial tenants who come and go don't necessarily notice moisture damage, and typically the building owners aren't local. There is another concern, he said. "The more commercial buildings resemble residential buildings - in construction methods and materials - the more likely it is there will be problems," Epstein said. "For that reason, commercial-building owners concerned about the possibility of a problem ought to have testing done to determine if there is damage behind the surface they simply can't see." What is clear is that there will be no quick end to costly synthetic stucco litigation, which already has plenty of steam from the residential lawsuits that continue to be filed across the country. A new speciality of stucco law has evolved that already has begun to rival the long-running class-action cases over breast implants and tobacco. One of the few stucco lawsuits to go to trial - brought by a Wilmington-area couple who claimed their home sustained $ 220,000 worth of rot damage - cost well over $ 1 million in fees for attorneys and experts for all the parties, according to Epstein. The manufacturers settled the case for an undisclosed amount six weeks into the trial. (The News and Observer (Raleigh, NC), July 5, 2000) TOBACCO LITIGATION: Big Tobacco Said to Be Getting Help from Officials ---------------------------------------------------------------------- Cigarette makers have made some surprising new friends in recent months: state officials across the country. The tobacco industry's $246 billion legal settlement in late 1998 certainly created some problems, but the billions of dollars now flowing to the states is buying cigarette makers critical protection over the long haul, many legal experts say. From Hawaii to Maine, state officials are hoping the industry won't get hit with a punitive damages award in a huge class action lawsuit wrapping up in Miami. That is because a crippling verdict could force cigarette makers into bankruptcy, disrupting the steady stream of big annual payments states are expecting to receive over the next 25 years. That fear even led some states, including North Carolina and Florida, to pass laws earlier this year to protect cigarette makers from being forced into bankruptcy. The landmark 1998 agreement, which settled 46 states' claims for compensation for the cost of treating sick smokers, was expensive for the industry. But some industry watchers think it was a brilliant ploy by the tobacco industry to secure its future by addicting state officials to a yearly dose of settlement cash. Now that states have started getting the money, some experts are predicting that they will intervene again and again with attempts to mitigate damages from lawsuits against the industry, as they did with the Florida case. State officials also can be a powerful lobby against other threats to the industry, they said. Cigarette company representatives disagree, saying the settlement will do little to benefit Big Tobacco in the long run - other than bringing a close to the huge class-action lawsuits brought by state attorneys general. "I think the only thing the companies gained was that it settled those lawsuits," said Phil Carlton, a lawyer and former N.C. Supreme Court justice who was the lead negotiator for the cigarette makers on the settlement. "It really accomplished nothing else for the industry." Not so, according to Mary Aronson, a Washington legal consultant who specializes in tobacco cases. She and other legal experts think the settlement was specifically set up to function like a big insurance policy for the cigarette companies. "The state governments are going to be loath to do anything to the cigarette companies that could cut off the billions of dollars they are collecting under the settlement agreement," Aronson said. "In addition, the states are going to lobby the federal government to refrain from doing anything that could cut off all that money flowing into the states." A top North Dakota official said her state is happy to have the settlement money - and is counting on it in the future. North Dakota Treasurer Kathi Gilmore said the $717 million in settlement money headed to her sparsely populated state over the next 25 years will help pay for a number of important programs. North Dakota plans to use 90 percent of its annual cut of the settlement to help finance schools and construction of a long-delayed water management project in the northern part of the state. The remaining 10 percent will be earmarked for health programs, Gilmore said. "The biggest thing for us with the settlement is that it promises us a fairly reliable source of income for the foreseeable future," Gilmore said. "That has allowed us to get going on some things we couldn't have done otherwise. It has helped us, no question about it." The amount of money at stake for the states is staggering. California and New York are expected to get an average of more than $1 billion each year for the next 25 years under the settlement. And all that money will come to the states with no strings attached, even though the settlement stemmed from the states' lawsuits to recoup their Medicaid costs. "These are huge chunks of money that are allowing state governments to do some things they never imagined," said David Logan, a law professor at Wake Forest University who has studied the settlement. "It's not very shocking that state legislatures would be willing to do just about anything within reason to keep that money flowing." Anti-smoking activists say cigarette makers gave states a very short timetable to finalize the settlement in order to keep them from uncovering any loopholes favorable to the tobacco industry. "This settlement was drafted by the cigarette companies and then the states were told they had less than a week to sign on," said Ed Sweda, an attorney with the Tobacco Products Liability Project in Boston. "That was a very strong sign this deal would end up benefiting the industry in hidden ways. Sadly, we are only now finding out what a good job the industry did." But not everyone is convinced the settlement was a back-door effort by cigarette makers to co-opt state government officials to help protect the tobacco industry's future. "If Big Tobacco was able to pull off something like that, it would be the most amazing lobbying and public relations coup in history," said Edward Segal, a public relations consultant to businesses and author of "Getting Your 15 Minutes of Fame - And More." "I can't imagine any politician agreeing to do the bidding of companies that regularly kill off many of their constituents." But Aronson, the tobacco litigation expert, said the ability of cigarette makers to turn bad situations to their advantage should not be underestimated. "The tobacco industry has shown time and again it is always thinking several steps ahead of its enemies. I think we are now learning this settlement is just the latest and most brilliant example of that." (Scripps Howard News Service, July 5, 2000) VITAMIN PRICE-FIXING: Australian Arms Implicated in Int’l Conspiracy -------------------------------------------------------------------- The Australian vitamin industry has been implicated in an alleged international conspiracy. The Australian arms of Hoffman La Roche, BASF Aktiengesellschaft and Aventis SA are to be served with writs on 5 July 2000. It is alleged that the pharmaceutical companies were involved in an illegal cartel which fixes the price of vitamins for 10 years. The cartel is said to run from Paris to Sydney, via South East-Asia. An $100m class action is being brought against the companies. (World Reporter (TM), Tuesday, July 4, 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. 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