/raid1/www/Hosts/bankrupt/CAR

/raid1/www/Hosts/bankrupt/CAR_Public/000714.MBX C L A S S A C T I O N R E P O R T E R Friday, July 14, 2000, Vol. 2, No. 136 Headlines BRANCH DAVIDIAN: Testify Continues; Closing Statements Forthcoming CENDANT CORP: Securities Suit Re ABI Dismissed & Remanded on Appeal CHASE MANHATTAN: Customers Object to Motion to Dismiss Investment Suit DAIMLER CHRYSLER: Greitzer & Locks Defamation Suit Can Proceed FLOORING AMERICA: The Atlanta Journal Reports on Continued Upheaval GIULIANI: Ap. Ct Affirms Settlement for NY Child Welfare System Case HAMMERHEAD'S SEA: Agrees to Pay Patrons; Food Poisoning Hit 500 in '98 HIGHLAND PARK: Racial Pact Nears; ACLU Plan Aims to Prevent Profiling HOLOCAUST VICTIMS: Church to Contribute $5 Mil to Slave Labor Fund INMATES LITIGATION: Rikers to Receive Mental Health Care Arrangement IVAX CORP: Announces 11th Cir Dismisses Shareholder Suit with Prejudice MONSANTO CO: Anniston Residents Seek Court-Ordered PCB Cleanup MYLAN LABORATORIES: Agrees to Pay $135 Mil to Settle Generic Drugs Case NATIONAL SEMICONDUCTOR: Santa Clara Jury Rejects Securities Fraud Claim OFFICE DEPOT: Catalogue Prices Go to Miami-Dade Circuit Court OMEGA HEALTHCARE: Wolf Haldenstein Announces Securities Suit in NY ORBITAL SCIENCES: CFO at Center of Shareholder Suit to Quit REDLANDS CONTAMINATION: CA Sp Ct Voted to Review Decert in Lockheed Case TOBACCO LITIGATION: Companies Fail To Get Mistrial in FL Engle Case TOBACCO LITIGATION: Smoking Among CA Teenagers Drops More Than A Third WEYERHAEUSER CO: House Siding Suit Nears No Cap Settlement ********* BRANCH DAVIDIAN: Testify Continues; Closing Statements Forthcoming ------------------------------------------------------------------ Potentially incendiary military style tear gas rounds were fired at an underground bunker, but only ferret style rounds were launched into the Branch Davidian compound before it erupted in smoke and flames, an FBI agent testified Wednesday. David Corderman, a member of the FBI's Hostage Rescue Team, was in one of several tanks taking part in a tear-gassing operation designed to flush sect members out of the building April 19, 1993. Surviving Davidians and family members who filed a $675 million wrongful death lawsuit against the government contend a military-style gas round shot into the main building may have sparked the blaze. The government says suicidal sect members started three fires in the building and are responsible for their own deaths. Some 80 sect members, including leader David Koresh, died from either gunshots or fire as the compound erupted into flames. "I was concerned to make sure military rounds did not in any way go near the above-ground structure," Corderman testified Wednesday. Experts say ferret rounds - plastic canisters containing tear gas - are not considered incendiary devices. But military rounds are metallic canisters that potentially could be flammable devices. Corderman admitted there were 20 military rounds in his arsenal, but only three were launched at an underground bunker at the complex. They all bounced off a plywood roof and didn't penetrate the bunker. A 51-day standoff with federal agents began Feb. 28, 1993, when the Bureau of Alcohol, Tobacco and Firearms tried to search the complex and arrest Koresh on illegal weapons charges. A gunfight ensued; six Davidians and four ATF agents were killed. Plaintiffs say government agents violated a tear-gassing plan approved by Attorney General Janet Reno when tank drivers began a premature demolition of the structure on the final day of the siege. Government attorneys say the damage caused by the tanks was a function of the tear-gassing mission. And when FBI tanks punched holes in walls of the compound, plaintiffs say it helped fan the flames. They also argue the tanks could have knocked over lanterns used to illuminate the compound after the government cut off electricity. In a motion filed late Tuesday, the government argued it can present testimony showing that Davidians forcibly resisted arrest during an initial raid and weren't hindered from leaving their compound during the standoff. Lead plaintiffs' attorney Michael Caddell said the government intimidated sect members with tanks and noise-making equipment, making them too scared to leave. He compared a tear-gassing plan to force sect members from the compound to a tube of toothpaste. "Squeeze it and you get people coming out the end. But people don't act that way," Caddell said. U.S. Attorney Michael Bradford said the government could finish presenting its side of the case as early as Wednesday, clearing the way for closing statements to possibly begin Thursday. A five-member jury will act as an advisory panel to U.S. District Judge Walter Smith Jr., who will deliver a final verdict in the case. (The Associated Press State & Local Wire, July 12, 2000) CENDANT CORP: Securities Suit Re ABI Dismissed & Remanded on Appeal ------------------------------------------------------------------- In this ' 10b-5 action by investors alleging the public dissemination of misleading information that resulted in fluctuations of the share price, the complaint alleges sufficient facts to establish the elements of reliance and loss causation; under the materiality of the misrepresentation standard adopted here, it is irrelevant that the misrepresentations were not made for the purpose of influencing the investment decisions of market participants, and the "in connection with" element of a ' 10b-5 action can be satisfied simply by showing that the misrepresentations were material, and that they were disseminated to the public in a medium on which a reasonable investor would rely -- the class is not required to establish that the defendants actually envisioned that members of the class would rely on the alleged misrepresentations when making their investment decisions; the District Court applied the incorrect analysis for determining whether the complaint alleges that the purported misrepresentations were made "in connection with" the purchase or the sale of a security, and the matter is reversed and remanded. The P. Schoenfeld Asset Management LLC and the class of similarly situated investors appeal from the order of the district court dismissing their claims for securities fraud pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Class's complaint was filed under 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint also alleged that the individual defendants were liable for the underlying violations of 10(b) and Rule 10b-5 as control persons under 20(a) of the Exchange Act. The Class alleges that the defendants violated S 10(b) and Rule 10b-5 by making certain misrepresentations about Cendant during a tender offer for shares of American Bankers Insurance Group, Inc. ("ABI") common stock. The Class consists of persons who purchased shares of ABI common stock during the course of the tender offer. The class period runs from January 27, 1998 to October 13, 1998. The complaint does not allege that any member of the Class purchased securities issued by Cendant, or that any member of the Class tendered shares of ABI common stock to Cendant. Instead, it alleges that the defendants made certain misrepresentations about Cendant that artificially inflated the price at which the Class purchased their shares of ABI common stock, and that the Class suffered a corresponding loss when those misrepresentations were disclosed to the public and the merger agreement was terminated. On December 22, 1997, the American International Group, Inc. ("AIG") announced that it would acquire one hundred percent of the outstanding shares of ABI common stock for $47 per share. On January 27, 1998, Cendant made a competing tender offer to purchase the same shares at a price of $58 per share, or a total price of approximately $2.7 billion. In conjunction with its tender offer, Cendant filed with the Securities and Exchange Commission a Schedule 14D-1 that overstated its income during prior financial reporting periods. On March 3, 1998, AIG matched Cendant's bid and offered to pay ABI shareholders $58 for each share of outstanding ABI common stock. Cendant eventually raised its bid price to $67 per share. It then executed an agreement to purchase ABI for approximately $3.1 billion, payable in part cash and in part shares of Cendant common stock. Cendant filed an amendment to its Schedule 14D-1 on March 23, 1998 reporting the terms of the merger agreement. Eight days later, Cendant filed a Form 10-K reporting its financial results for the 1997 fiscal year. After the close of trading on April 15, 1998, Cendant announced that it had discovered potential accounting irregularities, and that its Audit Committee had engaged Willkie, Farr & Gallagher and Arthur Andersen LLP to perform an independent investigation. Cendant also announced that it had retained Deloitte & Touche LLP to reaudit its financial statements, and that "(i)n accordance with (Statement of Accounting Standards) No. 1, the Company's previously issued financial statements and auditors' reports should not be relied upon." Nevertheless, the April 15, 1998 announcement reported that the irregularities occurred in a single business unit that "accounted for less than one third" of Cendant's net income, and it indicated that Cendant would restate its annual and quarterly earnings for the 1997 fiscal year by $0.11 to $0.13 per share. Immediately after Cendant disclosed the accounting irregularities, the price of ABI common stock dropped from $64-7/8 to $57-3/4, representing an eleven percent decrease from the price at which the shares had been trading. Following the April 15 announcement, Cendant made several pubic statements in which it represented that it was committed to completing the merger with ABI notwithstanding the discovery of the accounting irregularities. On July 14, 1998, Cendant revealed that the April 15, 1998 announcement anticipating the restatement of its financial results for the 1997 fiscal year was inaccurate, and that the actual reduction in income would be twice as much as previously announced. Cendant further acknowledged that its investigation had uncovered several accounting irregularities that had not previously been disclosed, and that those accounting irregularities affected additional Cendant business units and other fiscal years. Cendant estimated that earnings would be reduced by as much as $0.28 per share in 1997. After the July 14, 1998 disclosure, the price of ABI common stock dropped until Cendant issued several public statements indicating that it intended to continue the tender offer and that it was "contractually committed" to completing the ABI merger. Thereafter, the market price of ABI common stock was "buoyed" by Cendant's repeated statements that it was committed to completing the merger. On August 13, 1998, Cendant issued a press release announcing that its investigation into the accounting irregularities was complete. The release stated that Cendant would restate its earnings by $0.28 per share in 1997, by $0.19 per share in 1996, and by $0.14 per share in 1995. On August 27, 1998, Cendant issued a statement that the board of directors had adopted the audit report. The audit report was publicly filed with the SEC on August 28, 1998, and a copy was forwarded to the United States Attorney for the District of New Jersey. The report included findings that "fraudulent financial reporting" and other "errors" inflated Cendant's pretax income by approximately $500 million from 1995 to 1997, and that Forbes and Shelton were "among those who must bear responsibility." After the audit report was filed with the SEC, the price of ABI common stock closed at $53-1/2 per share on August 28, 1998 and fell further to a closing price of $51-7/8 per share on August 31, 1998, the first day of trading following the disclosure. On September 29, 1998, Cendant filed an amended Form 10-K for the 1997 fiscal year announcing that Cendant had actually lost $217.2 million in 1997 rather than earning $55.5 million, as previously reported. That announcement caused the price of ABI common stock to drop further to $43 per share by the close of trading. On October 13, 1998, Cendant and ABI announced that they were terminating the merger agreement, and that Cendant would pay ABI a $400 million dollar break up fee, despite the fact that it was not contractually bound to do so. The termination agreement, which was executed the same day, provided that the termination of the merger would not result in liability on the part of Cendant or ABI, or on the part of any of their directors, officers, employees, agents, legal and financial advisors, or shareholders. In response to the disclosure, the price of ABI common stock dropped to $35- 1/2 per share by the end of the day. The district court granted the motion and entered an order dismissing the complaint under Rule 12(b)(6). In explaining its dismissal order, the district court stated that the complaint failed to establish that the alleged misrepresentations were made "in connection with" the Class's purchases of ABI common stock, that the Class reasonably relied on the purported misrepresentations, and that the Class suffered a loss as the proximate result of the purported misrepresentations. *To state a valid claim under Rule 10b-5, a plaintiff must show that the defendant (1) made a misstatement or an omission of a material fact (2) with scienter (3) in connection with the purchase or the sale of a security (4) upon which the plaintiff reasonably relied and (5) that the plaintiff 's reliance was the proximate cause of his or her injury. This case does not present a claim based on allegations of internal corporate misconduct arising from a contest for the control of a closely held corporation. See Ketchum v. Green, 557 F.2d 1022 (1977). Nor does it concern a fraudulent course of dealing by a brokerage firm. See Angelastro v. Prudential- Bache-Sec., Inc., 764 F.2d 939 (3d Cir. 1985). Rather, it involves the public dissemination of allegedly misleading information into an efficient securities market. The Second and the Ninth Circuits have generally adopted the standard articulated in Securities & Exch. Comm'n v. Texas Gulf Sulphur Co., 401 F.2d 833, 862 (2d Cir. 1968) (in banc), and applied an objective analysis that considers the alleged misrepresentation in the context in which it was made. They have held that, where the fraud alleged involves the public dissemination of information in a medium upon which an investor would presumably rely, the "in connection with" element may be established by proof of the materiality of the misrepresentation and the means of its dissemination. See In re Ames Dep't Stores Inc. Stock Litig., 991 F.2d at 963, 965 (2d Cir. 1993); Securities & Exch. Comm'n v. Rana Research, Inc., 8 F.3d 1358, 1362 (9th Cir. 1993). Under that standard, it is irrelevant that the misrepresentations were not made for the purpose or the object of influencing the investment decisions of market participants. Held: The materiality and public dissemination approach should apply in this case. The purpose underlying 10(b) and Rule 10b-5 is to ensure that investors obtain fair and full disclosure of material facts in connection with their decisions to purchase or sell securities. That purpose is best satisfied by a rule that recognizes the realistic causal effect that material misrepresentations, which raise the public's interest in particular securities, tend to have on the investment decisions of market participants who trade in those securities. Therefore, the Class may establish the "in connection with" element simply by showing that the misrepresentations in question were material, and that they were disseminated to the public in a medium upon which a reasonable investor would rely. Under the standard adopted here, the Class is not required to establish that the defendants actually envisioned that members of the Class would rely upon the alleged misrepresentations when making their investment decisions. It is no defense that the alleged misrepresentations were made in the context of a tender offer and a proposed merger, or that they did not specifically refer to the investment value of the security that was bought or sold. It is well established that information concerning a tender offer or a proposed merger may be material to persons who trade in the securities of the target company, despite the highly contingent nature of both types of transactions. It is also settled that 10(b) and Rule 10b-5 encompass misrepresentations beyond those concerning the investment value of a particular security. So long as the alleged misrepresentation were material, the "in connection with" requirement may be satisfied simply by showing that they were publicly disseminated in a medium upon which investors tend to rely. It is not resolved, however, whether the "in connection with" is satisfied in the present case. Because the standard set forth here is different from the one applied by the district court, and because the parties have not been afforded a full opportunity to brief the issues of materiality and public dissemination, the matter is remanded to allow the district court to consider, in the first instance, the question whether the Class's complaint pleads sufficient facts to satisfy the requirements of Rule 12(b)(6). It is noted, however, that the issue of materiality typically presents a mixed question of law and fact, and that the delicate assessment of inferences is generally best left to the trier of fact. The district court should decide the issue of materiality as a matter of law only if the alleged misrepresentations are so clearly and obviously unimportant that reasonable minds could not differ in their answers to the question. Next is the question of whether the Class's complaint alleges sufficient facts to establish the element of reliance. It is axiomatic that a private action for securities fraud must be dismissed when a plaintiff fails to plead that he or she reasonably and justifiably relied on an alleged misrepresentation. *Traditionally, purchasers and sellers of securities were required to establish that they were aware of, and directly misled by, an alleged misrepresentation to state a claim for securities fraud under S 10(b) and Rule 10b-5. Recognizing that the requirement of showing direct reliance presents an unreasonable evidentiary burden in a securities market where face- to-face transactions are rare and where lawsuits are brought by classes of investors, however, this court has adopted a rule that creates a presumption of reliance in certain cases. Under the fraud on the market theory, a plaintiff in a securities action is generally entitled to a rebuttable presumption of reliance if he or she purchased or sold securities in an efficient market. The fraud on the market theory of reliance is, in essence, a theory of indirect actual reliance under which a plaintiff is entitled to three separate presumptions in attempting to establish the element of direct reliance. Under the fraud on the market theory of reliance, the court presumes (1) that the market price of the security actually incorporated the alleged misrepresentations, (2) that the plaintiff actually relied on the market price of the security as an indicator of its value, and (3) that the plaintiff acted reasonably in relying on the market price of the security. The presumption of reliance may be rebutted by showing that the market did not respond to the alleged misrepresentations, or that the plaintiff did not actually rely on the market price when making his or her investment decision. The court has also held that a defendant may defeat the presumption of reliance by showing that the plaintiff 's reliance on the market price was actually unreasonable. See Zlotnik v. Tie Communications, 836 F.2d 818, 822 (3rd. Cir. 1988). In the present case, the Class has sufficiently pleaded the element of reliance to withstand a challenge under Rule 12(b)(6) with respect to at least some of the alleged misrepresentations. The complaint alleges that ABI common stock traded in an open and developed market throughout the class period, that the market price of ABI common stock incorporated the alleged misrepresentations, and that the Class members purchased shares of ABI common stock in reliance on that price. The complaint also states that the Class was directly misled by the alleged misrepresentations. Those allegations, if true, are sufficient to establish direct reliance and to create a presumption of indirect actual reliance so long as the Class's reliance on the purported misrepresentations or the market price of ABI common stock was not unreasonable as a matter of law. It was reasonable for the Class members who purchased shares prior to March 3, 1998 to rely on the alleged misrepresentations occurring prior to that date. *It is not unreasonable as a matter of law to rely on information concerning a tender offer or a merger before the transaction is finalized. If it may be reasonable for an investor to find information concerning a tentative tender offer or a merger important when making an investment decision, we see no reason why the conditional nature of those transactions should necessarily prevent the investor from reasonably relying on that information as well. Also, the Class members who purchased shares of ABI common stock between March 3, 1998 and April 15, 1998 alleged sufficient facts to satisfy the element of reliance. In this case, the Class's complaint alleges that the market price of ABI common stock was inflated due to the alleged misrepresentations, and it states that the Class purchased "ABI shares believing they would receive $58 per share . . . in a combination of cash and Cendant stock." Though we agree with the defendants that the market price of ABI common stock incorporated information concerning AIG's $58 tender offer, it may not be assumed for the present purposes that it did not also incorporate information concerning a potential acquisition by Cendant, or that Cendant's tender offer did not have an actual effect on the Class. Indeed, it is likely that the shares of ABI common stock traded at a relative premium during the competing tender offer based on the fact that two purportedly willing and able suitors sought to acquire the company. It is also possible that members of the Class would not have purchased shares of ABI common stock had they been unable to exchange them for shares of Cendant. The Class has failed to demonstrate that it was reasonable for its members to rely on the defendants' prior financial statements and auditors' reports following the April 15, 1998 disclosure of the accounting irregularities. The complaint states that Cendant disclosed on April 15, 1998 that it had uncovered accounting irregularities, and that it warned investors not to rely on its prior financial statements and auditor's reports when making an investment decision. The complaint further alleges that the common stock of both Cendant and ABI traded in an efficient market, and that the market price of each stock instantly dropped after Cendant issued the warning. In light of the curative nature of the warning statement, and given the instantaneous decline in the market price of both companies' common stock, the announcement immediately rendered the prior misrepresentations concerning Cendant's financial condition thereafter immaterial as a matter of law. Thus, neither the market nor the Class members could have reasonably relied upon Cendant's prior financial statements or its audit reports after April 15, 1998. Because it made no misrepresentations after the curative statement was issued, Ernst & Young may not be held liable to members of the Class who purchased shares of ABI common stock after April 15, 1998. *Nevertheless, the Class could have reasonably relied on the alleged misrepresentations that were included in the April 15, 1998 announcement. The Class claims that the April 15, 1998 announcement misrepresented Cendant's financial condition by stating that the company expected to restate its 1997 earnings by $0.11 to $0.13 per share and to reduce its net income prior to restructuring and unusual charges by approximately $100 to $115 million. The defendants claim that the Class was not entitled to rely on those statements or on any subsequent statements, because the announcement warned that the representations were subject to "known and unknown risks and uncertainties including, but not limited to, the outcome of the Audit Committee's investigation." Their argument is based upon both the bespeaks caution doctrine, which renders alleged misrepresentations immaterial, and the common sense principle that investors do not act reasonably in relying on statements that are accompanied by meaningful cautionary language. The accompanying warnings were not sufficiently cautionary to warn against the danger of relying on the specific numbers identified in the announcement. The cautionary language set forth in the April 15, 1998 announcement generally pertains only to the risk that the results of operations could vary in future fiscal years. In fact, the only risk factor that is apparently applicable to the restatement of Cendant's results for the 1997 fiscal year relates to the risk that the announcement's calculations might differ from those made by the Audit Committee. Such a general statement of risk is not sufficiently substantive and tailored to satisfy the requirements of the bespeaks caution doctrine. Nor is it adequate to give investors reasonable notice that the projected restatement of Cendant's financial statements should not be trusted so as to make any reliance unreasonable as a matter of law. The Class was not entitled, however, to rely indefinitely upon the April 15, 1998 misrepresentations. Cendant announced on July 14, 1998 that it had revised the restatement of its 1997 income, and it disseminated the formal results of the Audit Committee's investigation one month later. It is possible that either, if not both, of those announcements might have cured the effect of the alleged misrepresentations in the April 15, 1998 announcement and rendered the disclosure thereafter unreliable. However, in light of the decision to remand this case, and given that the parties have not discussed the issue, it is for the district court to decide in the first instance the point at which the particular misrepresentations could no longer be trusted. Finally, it must be decided whether the Class's complaint adequately pleads the element of loss causation. The defendants contend that the complaint failed to allege sufficient facts to support an inference that the alleged misrepresentations were the proximate cause of the Class's loss. They maintain that the complaint shows that several intervening events, and not the alleged misrepresentations, led first to the artificial inflation and then to the decline in the market price of ABI common stock. In particular, they assert that the price of ABI common stock was inflated by AIG's $58 tender offer and by the approval of the merger agreement by the board of directors of ABI. They also suggest that the Class's loss was actually caused by the mutual termination of the merger agreement by the board of directors of both ABI and Cendant. Scattergood v. Perelman, 945 F.2d 618, 624 (3d Cir. 1991), and Hayes v. Gross, 982 F.2d 104, 107 (3d Cir. 1992), hold that, where the claimed loss involves the purchase of a security at a price that is inflated due to an alleged misrepresentation, there is a sufficient causal nexus between the loss and the alleged misrepresentation to satisfy the loss causation requirement. However, those decisions assume that the artificial inflation was actually "lost" due to the alleged fraud. Where the value of the security does not actually decline as a result of a misrepresentation, it cannot be said that there is in fact an economic loss attributable to that alleged misrepresentation. In the absence of a correction in the market price, the cost of the alleged misrepresentation is still incorporated into the value of the security and may be recovered at any time simply by reselling the security at the inflated price. Because a plaintiff in an action under 10(b) and Rule 10b-5 must prove that he or she suffered an actual economic loss, an investor must also establish that the alleged misrepresentations proximately caused the decline in the security's value to satisfy the element of loss causation. The Class has alleged sufficient facts to show that the alleged misrepresentations proximately caused the claimed loss. The Class contends that it purchased shares of ABI common stock at a price that was inflated due to the alleged misrepresentations, and that it suffered a loss when the truth was made known and the price of ABI common stock returned to its true value. The complaint further indicates that the price of ABI common stock was " buoyed" by the defendants alleged misrepresentations, and that it dropped in response to disclosure of the alleged misrepresentations and the termination of the merger agreement. Assuming the truth of those allegations, and taking all reasonable inferences in the light most favorable to the Class, the Class is entitled to offer evidence to support its claim. Rather, the judgment of the district court is vacated and the matter is remanded so that the district court may determine, in the first instance, whether the alleged misrepresentations were material and publicly disseminated in a reliable medium and, if so, whether the complaint nevertheless should be dismissed for a failure to plead scienter with particularity. For appellants - George Semerenko et al - Arthur N. Abbey, Jill S. Abrams, Stephen J. Fearon, Jr.and Nancy Kaboolian (Abbey, Gardy & Squitieri, of the Ny bar), Allyn Z. Lite, Joseph J. DePalma and Mary Jean Pizza (Lite DePalma Greenberg & Rivas), Andrew Barroway and David Kessler (Schiffrin & Barroway, of the Pa bar). For appellees: Cendant Corporation - Jonathan J. Lerner and Samuel Kadet (Skadden, Arps, Slate, Meagher & Flom, of the NY bar), Michael M. Rosenbaum and Carl Greenberg (Budd Larner Gross Rosenbaum Greenberg & Sade); Walter Forbes and Christopher McLeod - James M. Hirschhorn and Steven S. Radin (Sills Cummis Radin Tischman Epstein & Gross), Dennis J. Block and Howard R. Hawkins, Jr. (Cadwalader, Wickersham & Taft) and Greg A. Danilow and Timothy E. Hoeffner (Weil, Gotshal & Manges); E. Kirk Shelton - Richard Schaeffer and Bruce Handler (Dornbush Mensch Mandelstam & Schaeffer, of the NY bar); Cosmo Corigliano - Gary P. Naftalis (Kramer, Levin, Naftalis & Frankel, of the NY bar); Ernst & Young LLP - Alan N. Salpeter and Michele Odorizzi (Mayer, Brown & Platt, of the Il. bar), William P. Hammer, Jr. and J. Andrew Heaton, of the D.C.(Ernst & Young LLP), and Douglas S. Eakeley (Lowenstein Sandler). For amicus-appellant Securities and Exchange Commission - Harvey J. Goldschmid, General Counsel, Jacob H. Stillman, Solicitor, Eric Summergrad, Deputy Solicitor, and Hope Hall Augustini, Special Counsel (Securities & Exchange Commission). (Digested by Steven P. Bann, (New Jersey Law Journal, July 3, 2000) CHASE MANHATTAN: Customers Object to Motion to Dismiss Investment Suit ---------------------------------------------------------------------- The plaintiffs in two related suits pending in the Southern District of New York against Chase Manhattan Bank have filed a joint brief in opposition to dismiss the bank's motions to dismiss on the grounds of forum non conveniens. The bank, which has also filed its brief, seeks to dismiss complaints alleging that it misled long-time customers about risky investment opportunities with regard to emerging market securities, including unstable Russian bonds. Springwell Navigation Corp. v. Chase Manhattan Bank. (Bank & Lender Liability Litigation Reporter, June 29, 2000) DAIMLER CHRYSLER: Greitzer & Locks Defamation Suit Can Proceed -------------------------------------------------------------- Greitzer & Locks has won a significant battle in its war with DaimlerChrysler Corp. now that a federal judge has ruled that the law firm can proceed with its defamation counterclaims against the auto giant over statements that accused the firm of engaging in "legalized blackmail" and trying to transform the legal system into a "rigged lottery." The case was previously reported in the CAR. The statements were made by DaimlerChrsyler's general counsel at the time that the auto maker was filing a Dragonetti Act suit against the law firm for filing an allegedly frivolous class action suit in which the lead plaintiff was later found not even to own the car at issue. DaimlerChrysler sued three parties Greitzer & Locks; the lead plaintiff in the suit, Brian Lipscomb; and Maryland attorney William Askinazi. Askinazi and Lipscomb moved to have the suit dismissed. But Greitzer & Locks's lawyers, John D. Lewis and David D. Langfitt of Montgomery McCracken Walker & Rhoads, took a different approach by filing an answer with counterclaims that accused DaimlerChrysler of defamation and tortious interference with prospective contractual relations. In recent weeks, U.S. District Judge William H. Yohn Jr. has issued three opinions in the case, DaimlerChrysler v. Askinazi. The first held that DaimlerChrysler's general counsel, Lewis Goldfarb, must answer to the defamation counterclaims. The second rejected the motions to dismiss filed by Askinazi and Lipscomb. Now Yohn has issued a third opinion in which he ruled that the defamation and tortious interference counterclaims survive DaimlerChrysler's motion to dismiss. (The Legal Intelligencer, July 13, 2000) FLOORING AMERICA: The Atlanta Journal Reports on Continued Upheaval ------------------------------------------------------------------- Four top officers, including the new chairman, have joined the exodus from the troubled Kennesaw-based retailer as the company tries to reorganize under bankruptcy protection. Flooring America said Wednesday that Chairman David Nichols had resigned after six months on the job. Nichols also had taken the additional responsibilities of chief executive when A.J. Nassar left the company in May. The new CEO and president is Michael Worrall, a retail restructuring specialist. Worrall recently led a reorganization of Tampa-based Sports & Recreation, which formerly operated as JumboSports. The company said Wednesday that three other officers resigned, including the new executive vice president of operations, Jim Frede. Also gone is Sue Salg, who was just promoted to senior vice president of planning as part of the company's reorganization. Flooring America also announced that F.G. "Buck" Rodgers had resigned after five months on its board of directors. The chief internal auditor, Leonard Thill, has also left. Thill, a former accountant with the Securities and Exchange Commission, was brought in last fall to tackle the company's accounting problems. The SEC has been investigating Flooring America's bookkeeping practices following its downward restatement of fiscal 1999 earnings. The company also said in May that it would restate earnings for each of the first two quarters of this fiscal year. Last month Flooring America filed for Chapter 11 protection and planned to cut two-thirds of its corporate staff of 300. The former chairman said the company would close roughly 300 corporately owned stores to focus on its franchises. Flooring America has about 725 franchise stores that operate under names such as CarpetMax and GCO Carpet Outlet. The earnings restatement and bankruptcy filing have spurred a series of shareholder lawsuits seeking class action status. Meanwhile, the company's common shares have been delisted by the New York Stock Exchange. (The Atlanta Journal and Constitution, July 13, 2000) GIULIANI: Ap. Ct Affirms Settlement for NY Child Welfare System Case -------------------------------------------------------------------- An appeals court panel has affirmed a settlement of a 1995 federal class-action lawsuit against New York City's child welfare system. Under the settlement, known as Marisol v. Giuliani, child welfare experts are taking two years to review the operations of the Administration of Children's Services. But lawyers for gay and lesbian young people in foster care argued that the settlement offered no relief for their clients. On Monday, the three-member panel of the United States Court of Appeals for the Second Circuit said the settlement "does not have to be perfect, just reasonable and fair." Somini Sengupta (NYT) (The New York Times, July 12, 2000) HAMMERHEAD'S SEA: Agrees to Pay Patrons; Food Poisoning Hit 500 in '98 ---------------------------------------------------------------------- A defunct Juno Beach restaurant could pay more than $ 730,000 as part of a tentative settlement reached on Wednesday in a class-action lawsuit filed by customers who got food poisoning. Hammerhead's Sea Grille agreed to pay between $ 400 and $ 5,000 to customers who got sick one July 1998 weekend. It was the second-largest outbreak in Palm Beach County. The amount the restaurant will pay each customer depends on how sick they got. As many as 500 patrons became ill from a type of bacteria that causes diarrhea and vomiting. Palm Beach County Health Department officials determined customers got sick from the spore-forming Bacillus cereus found on the remnants of a $ 9 dolphin salad that was saved in a doggie bag. The poisonous spores may have come from a dry mixture of seasoning or a restaurant-produced sauce that was used in preparing many of the dishes at the 170-seat eatery, health officials said. Wednesday's agreement calls for anyone who got sick to file a claim for money by Sept. 15. In addition, the restaurant will pay $ 175,000 to the attorneys who filed the class-action complaint and $ 3,000 to each of the 20 customers who spearheaded the lawsuit. Estimates indicate that customers will file claims for a total of about $ 500,000, said Paul Geller, one of the customer's attorneys. A mediator handling the case will determine how much each customer receives. "This was not a case where either side caved in," Geller said. "They were fighting very hard and we were fighting very hard, and ultimately the resolution is one that the class members that we've spoken with are very happy with." Palm Beach County Circuit Judge Stephen Rapp will finalize the settlement Sept. 11 after individual customers are given a chance to comment on the case. Geller said notices of the settlement will be sent to the customers and placed in newspapers within the coming weeks. They could see their money as early as the fall, he said. Hammerhead's Sea Grille attorney, Anita Tamayo, declined to comment on Wednesday and spoke only briefly during the court hearing. Jon Burstein can be reached at jburstein@sun-sentinel.com or 561-832-2895. (Sun-Sentinel (Fort Lauderdale, FL), July 13, 2000) HIGHLAND PARK: Racial Pact Nears; ACLU Plan Aims to Prevent Profiling --------------------------------------------------------------------- Highland Park and the American Civil Liberties Union of Illinois asked a federal judge Wednesday to approve a plan that would ensure the wealthy suburb keeps its promise to curb racial profiling. The ACLU filed a lawsuit against the city Wednesday on behalf of Karen Lynn Ledford, a longtime Highland Park resident, and her 21-year-old son, Michael. The suit, which seeks class-action status, claims the Ledfords and other African-Americans have been unfairly targeted for traffic stops. At the same time, however, the city and the ACLU filed a joint motion for the approval of a consent decree, which would legally require city officials to implement initiatives proposed by the city in May. Those initiatives, which came in response to an earlier suit, are designed to prevent officers from stopping minorities without cause. The proposed settlement agreement would also relieve the city, which denies all wrongdoing alleged by the Ledfords, from paying any damages, fines, penalties or legal fees. In addition, the ACLU would agree not to file any other racial profiling complaints against the city based on events before this month. ACLU of Illinois legal director Harvey Grossman said U.S. District Senior Judge William Hart will be asked to proceed on the motion July 19. During a news conference at Highland Park's City Hall, Grossman called the city a model for the state and nation. Mayor Daniel Pierce added: "Highland Park and the ACLU may have somewhat different perspectives on the specifics of the case that led to this agreement. But we are of one mind in our pursuit of racial, ethnic and religious tolerance in our society, and in our belief that law-enforcement officers must not target minorities." The Highland Park Police Department was thrust into controversy recently after three current and two former police officers filed a lawsuit in federal court. The original lawsuit, which stemmed from a labor-management dispute, was filed in 1998. But the plaintiffs refiled the suit last year, adding allegations of racial profiling and sexism. U.S. District Judge Joan B. Gottschall dismissed the most recent lawsuit filed by officers last month, saying it was incomprehensible. Keevan Morgan, the plaintiffs' attorney, has not refiled the complaint, but said he intends to do so within the next few days. In response to the suit, the city hired former U.S. Atty. Thomas P. Sullivan to investigate the complaints. Sullivan found that while the top brass did not order rank-and-file officers to stop African-Americans and Hispanics, there have been isolated cases of racial profiling in Highland Park. The department has also allowed for an environment where racial jokes had been tolerated, the report said. After Sullivan's report was released, Pierce outlined 11 initiatives to discourage racial profiling, including the installation of cameras in patrol cars and mandatory sensitivity courses for the 60-member department. The proposed consent decree would make the initiatives legally binding, said City Atty. Steven Elrod, who has been negotiating with the ACLU since April, when the city was informed that the Ledfords were considering a lawsuit. "This is making it permanent ... and that really says that the city is willing to stand behind the measures that it had adopted. It's willing to put its money where its mouth is, basically," Elrod said. The term for the proposed consent decree is five years, but if the city has no violations for three years, it will expire. The Ledfords' suit claims that police unfairly targeted Michael Ledford in 1997 and 1998 and that Karen Lynn Ledford was stopped by officers for no apparent reason April 11. But the mother and son had little criticism for the Police Department at Wednesday's news conference. Michael Ledford said he had a positive experience growing up in Highland Park. "Race made no difference with my friends. We all dressed alike. We listened to the same music. We have similar interests," he said. Karen Lynn Ledford said, "We are grateful for the opportunity to be part of this process, and we are happy that this new policy of accountability is being established here in Highland Park." (Chicago Tribune, July 13, 2000) HOLOCAUST VICTIMS: Church to Contribute $5 Mil to Slave Labor Fund ------------------------------------------------------------------ Acknowledging that German churches used forced laborers during the Nazi era too, the Evangelical Church in Germany pledged $ 5 million Wednesday to the 1 compensation fund recently established by government and industry. "This was participation in a forced and unjust system. We recognize this guilt,"a church statement said. Churches and church-related social agencies used forced laborers during the war for such things as cemetery upkeep. Protestant Bishop Wolfgang Huber said the Berlin diocese ran a camp for about 100 people from 1943-45 to ease labor shortages. The Evangelical Church in Germany includes 24 Lutheran, Reformed, and United regional churches. Germany's Catholic church, meanwhile, said it had no plans to make a general contribution to the fund. Rudolf Hammerschmidt, spokesman for the German Bishops Conference, told a Berlin radio station that it was aware of only two Catholic church communities, both in Berlin, where forced laborers were employed at cemeteries, and that local church leaders would decide on an appropriate action. Germany's Catholic church has contributed about $ 5 million over the past 20 years to support Polish concentration camp victims, he added. More than 3,000 German businesses have pledged $ 1.5 billion so far to the $ 5 billion fund, which is to be financed 50-50 by industry and the government. The bill setting up the foundation is to get final approval Friday from Germany's upper house of parliament before a formal signing ceremony Monday with representatives from the German, U.S., and eastern European governments. The agreement also includes guarantees from Washington intended to protect German firms from class-action lawsuits in the United States. More than 1 million former laborers are expected to be eligible for payments, which Germany hopes to begin this year. (The Record (Bergen County, NJ), July 13, 2000) INMATES LITIGATION: Rikers to Receive Mental Health Care Arrangement -------------------------------------------------------------------- The Giuliani administration must arrange for the continuing mental health care of thousands of inmates before they are released from the Rikers Island jail, a Manhattan judge has ruled. On Wednesday, Justice Richard F. Braun, of State Supreme Court in Manhattan, granted a preliminary injunction and gave class action status to a suit filed against the city last August by seven mentally ill inmates of the jail. The suit contends that the 25,000 inmates who are treated for mental illness at the prison each year were being released without proper provision for treatment in the community or a way to continue their psychotropic medication. The city has not disputed those claims, but argued that Rikers inmates have no legal right to the kind of prerelease planning required for mental hospital patients under state law. Braun found that the plaintiffs were highly likely to win the lawsuit on its merits, and said they would suffer irreparable harm unless the city was required to provide them with a discharge plan while the case is fought in court. Braun rejected the city's contention that because many of these inmates are held for less than 45 days, there would be no time to arrange for such services, instead agreeing with the plaintiffs that release planning could begin at the start of treatment. In the New York state prison system, most prisoners who have been treated for mental illness during their incarceration are provided with a two-week supply of psychotropic medication, a two-week prescription and a referral to an outpatient mental health clinic. (The Associated Press State & Local Wire, July 13, 2000) IVAX CORP: Announces 11th Cir Dismisses Shareholder Suit with Prejudice ----------------------------------------------------------------------- IVAX Corp. (AMEX: IVX) of Miami said that the 11th U.S. Circuit Court of Appeals upheld the dismissal of a number of consolidated shareholder class-action lawsuits against the company. The court dismissed the Malin et al. v. Ivax suit, originally filed in 1996, with prejudice -- meaning it cannot be filed again. This is the last of a slew of shareholder lawsuits filed in 1996. Earlier this year and last year, the generic drug manufacturer won other appeals in similar cases filed in 1997 and 1996. The lawsuit alleged price discounts offered by Ivax to buyers artificially inflated financial results. Ivax made money in 1995 but posted a loss in the second quarter of 1996. The company issued a news release expressing optimism while acknowledging problems, and its share price rose. Later, Ivax announced that it expected a $ 43 million loss in the third quarter, and the stock plummeted. (Miami Daily Business Review, July 13, 2000) MONSANTO CO: Anniston Residents Seek Court-Ordered PCB Cleanup -------------------------------------------------------------- Residents who claim Monsanto Co. is to blame for PCB contamination in their town asked a judge to make the chemical manufacturer clean up the mess. Attorneys representing 3,600 clients in a class-action lawsuit against Monsanto made the request in a motion filed Tuesday in the ongoing case. There was no immediate ruling. The company, now known as Solutia, has spent more than $30 million since 1995 to clean up PCBs, said Craig Branchfield, manager of remedial projects. The efforts have included moving mountains of PCB-free soil atop the plant's old landfill areas, sealing contaminated soil underground and rerouting water flowing from Coldwater Mountain. An attorney for the residents, Donald Stewart, said Solutia's plan "just ain't working." Polychlorinated biphenyls were manufactured at the Anniston plant for nearly 50 years, until production ceased in 1971. PCBs, which have been linked to cancer in laboratory animals, were banned in the United States in 1977. (The Associated Press State & Local Wire, July 12, 2000) MYLAN LABORATORIES: Agrees to Pay $135 Mil to Settle Generic Drugs Case ----------------------------------------------------------------------- The nation's second-largest maker of generic drugs agreed Wednesday to pay $ 135 million to settle federal, state and private lawsuits charging it with fixing the prices of two widely prescribed anti-anxiety medications. The suits against Mylan Laboratories of Pittsburgh marked the first time the federal government had sought such massive fines against a pharmaceutical company for price fixing, and just the second time that it had asked for fines in an antitrust action against a drug maker. Mylan Laboratories said it was admitting no wrongdoing in agreeing to the settlements, which took 19 months to negotiate after the Federal Trade Commission filed the lead suit late in 1998. The company, which makes lorazepam, the generic version of Ativan, and clorazepate, the generic for Tranxene, raised prices by as much as 3,000% on the two drugs, officials claimed in the suits. The drugs are commonly used to treat anxiety and hypertension among the elderly. The FTC and attorneys general for 32 states including California said that Mylan--along with Cambrex Corp. of East Rutherford, N.J.; Cambrex's Italian subsidiary, Profarmaco; and drug distributor Gyma Laboratories of America Inc. of Westbury, N.Y., conspired in 1997 to control ingredients for the two drugs. Then, according to the suits, Mylan raised the price of lorazepam from $ 7.30 for a bottle of 500 tablets to $ 190. The price for clorazepate rose from $ 11.36 to $ 377 for a bottle of 500. "This kind of behavior is unconscionable and caused nursing home and hospice patients who frequently use the drugs to suffer from astronomical price hikes," said California Atty. Gen. Bill Lockyer, who joined the other states' suit after taking office in 1999. Lockyer, who recently participated in a suit that resulted in a $ 300-million settlement with credit card issuer Providian Inc., said the Mylan settlement was among the larger ones negotiated by federal and state officials. Ohio Atty. Gen. Betty Montgomery said the Mylan price hikes cost U.S. consumers as much as $ 180 million. The exact amount of the settlements are still fluid, pending final negotiations with the states and federal officials. Most likely, according to several attorneys involved in the cases, $ 100 million will be paid to the states and federal government, and will eventually be returned to consumers. About $ 35 million more will settle private class-action lawsuits filed on behalf of consumers and other purchasers of pharmaceuticals. An additional $ 12 million has been earmarked for attorneys' fees. In settling the lawsuits, Mylan has indemnified its subcontractors, and will bear the cost of the payouts, Mylan said in its news release. Mylan Chairman and Chief Executive Milan Puskar continued to dispute the accusations, which he characterized at the time the suits were filed as "radical, rushed and wrong." "This is the first time in Mylan's 39-year history that any government agency has accused us of improper conduct," Puskar said. "We continue to believe we acted properly. However, the board and I view these settlements to be in the best interest of our company's shareholders, customers and employees. By putting a significant portion of this case behind us, we can now look forward to devoting our full resources to the business of this company." Shares of Mylan rose 50 cents to close at $ 19.50 in regular trading on the New York Stock Exchange on news of the settlement. Last month, the company warned that its first-quarter earnings would be only half of what Wall Street expected because of lower prices for the two anxiety drugs. The company has not, however, settled suits brought by pharmaceutical wholesalers, and plans to fight them in court. Final details are expected to be worked out in the next several weeks, pending formal approval by government authorities. (Los Angeles Times, July 13, 2000 Reuters contributed to this report) NATIONAL SEMICONDUCTOR: Santa Clara Jury Rejects Securities Fraud Claim ----------------------------------------------------------------------- A Santa Clara County Superior Court jury Tuesday rejected a $240 million class action securities fraud claim by shareholders who alleged National Semiconductor Corp. lied to them about the stock's value. The class was comprised of 25,000 shareholders who had originally held stock in Cyrix, a producer of microprocessors. In November 1997, Santa Clara-based National Semiconductor purchased Texas-based Cyrix to utilize its embedded microprocessor technology. Cyrix shareholders exchanged their stock for National stock as a result of their merger. The stock price dropped and within a month, the shareholders filed suit. In Jason Forge v. National Semiconductor, CV770082, plaintiffs argued National Semiconductor violated sections 11 and 12 of the Federal Securities Act of 1993 by including misleading information about National in the stock prospectus. They also alleged National lied about its available fabricating capacity to make Cyrix processors. The plaintiffs also said the company's claim that its wafer fabricating facility was state of the art was false. But in a special jury form, jurors rejected the plaintiffs' allegations. They spent 3 1/2 hours in deliberations before rendering their verdict. The case was unusual in that most securities fraud class action suits are settled out of court, said National attorney Benjamin Riley on Wednesday. "National and its directors firmly believed that there was no basis for plaintiffs' claims, and we weren't going to give in to their demands," said Riley, a Cooley Godward partner in San Francisco. Paul Vizcarrondo, a partner at New York's Wachtell, Lipton, Rosen & Katz, served as Riley's co-counsel. The plaintiffs were represented by Matthew Zevin, an associate at Los Angeles' Weiss & Yourman, and Guy Mailly, an associate at Los Angeles' Stull, Stull & Brody. The technically difficult trial, presided over by Superior Court Judge Frank Cliff, spanned over six weeks including motions and jury selection. Between 30 to 40 witnesses were called to testify, Riley said. Riley said he was grateful the case was heard before a Santa Clara County jury_ with some technology experience. Several of the jurors were engineers familiar with the technology and the other jurors had rudimentary knowledge about the subject, he said. "Santa Clara County is probably the best place to present an IP case," Riley said. (The Recorder, July 13, 2000) OFFICE DEPOT: Catalogue Prices Go to Miami-Dade Circuit Court ------------------------------------------------------------- As a certified public accountant, David Simons job is to keep close tabs on his clients bottom line. So when he noticed that the prices of some of the items he bought at Office Depot varied, depending on whether he purchased them at a store or through the stores catalogue, it raised his suspicions. Cheryl Cohen of Georgia also questioned Office Depots pricing policies after she purchased a printer cartridge and file folder through the stores catalogue and later found she could have saved $ 2.30 if she had purchased them at a store. Delray Beach-based Office Depot promised on its catalogue, Low prices guaranteed, every item every day. Simon of Miami and Cohen are plaintiffs in a suit filed this week in Miami-Dade Circuit Court against the Delray Beach-based office supply company, alleging that the companys low-price guarantee advertising is deceptive. The suit, which seeks class-action status on behalf of more than 1,000 Office Depot customers in Florida and Georgia, alleges they were led to believe they would get a better deal by ordering through the catalogue than by buying through the store. The suit seeks unspecified compensatory and punitive damages and alleges, among other things, unfair and deceptive trade practices. It seeks to prevent the chain from continuing to make such pricing claims. If the lawsuit sounds familiar, its because Simon filed a similar suit about three years ago, but dropped it after Cohen filed the same suit in federal court in Miami on behalf of some 39,000 Office Depot customers nationwide. Then, in April 1998, U.S. District Judge Joan Lenard dismissed Cohens suit. Lenard ruled the $ 2.30 Cohen alleged she was overcharged was well below the $ 75,000 in damages required to get a case heard in federal court. Last August, a federal court in Atlanta reinstated the suit, ruling that a Florida state law regarding punitive-damage pleading requirements do not apply to class-action cases involving more than one state. But it didnt stop there. In February, that same court vacated its previous order and affirmed Lenards ruling. Alvin Lodish, the attorney who represents Simon and Cohen, was granted a stay of the ruling last week so he can pursue the case to the U.S. Supreme Court. So, why the suit in circuit court? If the case is dismissed, the statute of limitations could run, said Lodish. To protect their claims, we have filed the case in state court asking for class certification for the state of Florida and Georgia. Simon, in his suit, claims that items purchased through the catalogue were 4 cents to $ 1.50 more than they would have been had he purchased them directly from an Office Depot store. While it doesnt sound like much, Simon says consumers need to look at the percentages. When you have a net income of 20 percent and you can get an extra 20 percent thats like doubling your bottom line, said Simon. You cant look at it as dollars and cents, you have to look at it as a percentage. Eileen Dunn, vice president of investor and public relations for Office Depot, said she had not seen the suit and declined to comment. However, when Simon filed his original suit three years ago, an Office Depot spokesman said catalogue and store prices sometimes differ because the catalogue is published only twice a year. He also said customers may pay more for the convenience of ordering by catalogue and that catalogue prices are sometimes lower. (Broward Daily Business Review, July 13, 2000) OMEGA HEALTHCARE: Wolf Haldenstein Announces Securities Suit in NY ------------------------------------------------------------------ Wolf Haldenstein Adler Freeman & Herz LLP the firm was filing a class action lawsuit in the United States District Court for the Southern District of New York on behalf of all individuals and entities who acquired the securities of Omega Healthcare Investors, Inc. between April 13, 1999 and May 11, 2000 and who were damaged thereby. If you wish to discuss this action please contact Wolf Haldenstein Adler Freeman & Herz LLP (Michael Miske or Robert Abrams, Esq.) at (800) 575-0735 or visit our website at www.whafh.com The Complaint charges Omega and certain officers and directors of the Company during the relevant time period with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder, for, among other things, making false and misleading public statements concerning its financial condition during the Class Period. During the Class Period, Omega issued a series of false and misleading statements regarding the profitability of its investments in healthcare facilities. Contact: Wolf Haldenstein Adler Freeman & Herz LLP Michael Miske or Robert Abrams, Esq. 800/575-0735 www.whafh.com classmember@whafh.com ORBITAL SCIENCES: CFO at Center of Shareholder Suit to Quit ----------------------------------------------------------- The chief financial officer of Orbital Sciences Corp., the Dulles-based satellite maker whose accounting missteps forced its stock to record lows and left analysts questioning management, plans to step down July 13, according to Orbital representatives. Pirone's conduct is at the center of a class-action shareholder lawsuit filed against Orbital that accuses the company of using fraudulent accounting to artificially inflate its stock price. The lawsuit also accuses Pirone and Thompson of using inside information to profit from trading in Orbital stock. The case was scheduled to go to trial next week, but the judge removed it from the court's active docket last week to allow the two sides to reach a settlement, according to Beneski. Orbital has denied the charges. In unrelated news, Orbital announced yesterday that its MacDonald Dettwiler and Associates Ltd. subsidiary had completed a $ 57 million initial public offering on the Toronto Stock Exchange; $ 38 million went to McDonald Dettwiler and $ 14 million went to Orbital. Private investors raised the rest through an offering of secondary shares. The subsidiary, based in British Columbia, manufactures space robotics used on NASA space shuttles and the International Space Station and offers online geographic information for real estate transactions. Jeffrey V. Pirone joined Orbital in 1992 and became chief financial officer in 1996, launching a tenure marred by disappointing financial results and accounting practices that former auditor KPMG LLP said were often in error. Company officials have called the former practices aggressive. The missteps eventually led the company to restate several years' worth of financial information in April. Orbital fired KPMG last spring after a long string of disagreements and hired PricewaterhouseCoopers. Garrett E. Pierce, now CFO for Sensormatic Electronics Corp. of Boca Raton, Fla., will replace Pirone on Aug. 1, and Pirone will become a consultant to Orbital. (The Washington Post, July 13, 2000) REDLANDS CONTAMINATION: CA Sp Ct Voted to Review Decert in Lockheed Case ------------------------------------------------------------------------ The California Supreme Court on Wednesday voted to decide whether residents of the city of Redlands can be certified as a class for the purpose of a toxic tort suit. The court will also decide if the California Highway Patrol is immune from liability if an officer's actions put a driver in harm's way. All but vacationing Justice Stanley Mosk voted to review the Fourth District Court of Appeal's decision in Lockheed Martin v. San Bernardino Superior Court, S088458 -- a case which could establish the legal remedies available for communities that are the victims of toxic pollution. "It's time for California courts to address the right to medical monitoring from exposure to chemicals in people's drinking water," said Gary Praglin, a partner at Los Angeles' Engstrom, Lipscomb & Lack, one of the firms acting as class counsel. As previously reported in the CAR, in April the court of appeal ruled that city residents could not sue as a class for exposure to contaminated groundwater. Decertifying the 50,000- person class, Justice Thomas Hollenhorst ruled that proposed damages in the form of a court-certified medical monitoring program relied too heavily upon factors unique to each individual. "Many courts, both California and federal, have found that mass tort actions for personal injuries are not appropriate for class treatment due to the plethora of individual factual issues regarding liability, causation and damages," Hollenhorst wrote in his unanimous opinion. Plaintiffs had sought the medical monitoring program as well as punitive damages for claimed exposure to a laundry list of solvents, including rocket fuel components and rocket fuel decomposition products. Residents allege that as early as 1954, Lockheed and other defendants conducted manufacturing operations in San Bernardino County that resulted in the discharge of dangerous chemicals into the Redlands groundwater. In another case from the Fourth District, four justices agreed to decide if the Highway Patrol is liable for a 1996 accident that killed one man and severely injured another. In a case that could extend immunity for California law enforcement agencies, the court must decide in Lugtu v. California Highway Patrol, S088116, whether an officer owed a duty of care to the driver of a Toyota Camry who was instructed to pull over in the highway median and was then hit by a passing truck. The California Attorney General's office won summary judgment after it argued that the accident was not foreseeable and, in any event, the officer was immune from liability. But the court of appeal disagreed, holding that a triable issue of fact existed and no immunity applied. The appellate court ruling came one day after the California Supreme Court held that police officers involved in vehicle pursuits are immune from liability even if they are negligent. That case was Cruz v. Briseno, 00 C.D.O.S. 2299. Chief Justice Ronald George and Justices Ming Chin, Joyce Kennard and Janice Rogers Brown voted to review Lugtu. (The Recorder, July 13, 2000) TOBACCO LITIGATION: Companies Fail To Get Mistrial in FL Engle Case ------------------------------------------------------------------- A judge Thursday brushed aside a request for a mistrial in a landmark case against the tobacco companies, rejecting the suggestion jurors could have been influenced by a headline saying the companies could afford to pay billions in damages. The judge refused the request after no jurors told him they had seen any news coverage, and the tobacco attorneys then resumed their closing arguments. The 300,000 to 700,000 smokers accuse the industry of making a deadly, defective product and are asking for up to $196 billion in punitive damages. The front-page headline in Thursday's Miami Herald read, ''Experts say tobacco firms can afford to pay billions.'' The tobacco companies have told jurors they cannot afford a multibillion-dollar verdict. Philip Morris attorney Dan Webb asked for the mistrial outside the jury's presence. Circuit Judge Robert Kaye brought the jurors into the courtroom and asked them collectively if they had been exposed to any publicity about the case since they went home Wednesday. The jurors are instructed not to read articles or watch reports of the trial, and Kaye asks that question daily. When no jurors said they had seen any stories, Kaye continued the trial without comment. Attorney Anthony Upshaw, representing Brown & Williamson, the last company to address the jury, told the jury it must decide whether it is ''necessary to spank (the cigarette companies) or destroy them.'' The tobacco attorneys have argued that even a multimillion-dollar punitive damage award would snuff out the industry. Brown & Williamson asked for the smallest punitive damage award in a landmark smokers' case Thursday, saying it has the lowest profits among the five tobacco companies on trial. After saying 7,000 employees are working to make Brown & Williamson a responsible company, attorney Gordon Smith pleaded: "I ask that you don't kill that dream. Don't stop a better future." Smith offered two different dollar ranges for consideration based on Brown & Williamson's net worth, its share of underage smokers and Florida sales, but he asked not to bring back a verdict larger than $25 million. About 300,000 to 700,000 smokers in their first class-action trial asked for up to $196 billion to punish the tobacco industry for decades of deceit. Considering the size of the smokers' request, Smith said: "Brown & Williamson isn't in that league. You can't squeeze blood out of a turnip." Other tobacco attorneys calculated their suggestions based on cash on hand, potential verdicts in other cases and the difference between a congressional lawsuit settlement that failed and state settlements. All five defendants have said they could only afford awards in the millions of dollars, somewhere around $150 million to $375 million. The difference between their assets and liabilities on their balance sheets is a combined $15.3 billion. R.J. Reynolds attorney Jim Johnson said Wednesday his company cannot pay a substantial award because its current debts outpace its ready cash. ''Like many individuals, Reynolds is living paycheck to paycheck.'' Webb asked jurors not to make smokers rich with a big verdict. ''They can become instant millionaires as a bonus above and beyond fully compensating them for their injuries,'' he said. ''In many ways, the future of my client Philip Morris and its employees and its stockholders rest in your hands.'' If the jury awarded $75 million, the average smoker would receive about $150 if it were split among 500,000 people. If the jury awarded the $154 billion suggested by the smokers, the average payout would be more than $300,000. The attorney for Liggett, the smallest corporate defendant, called the smokers' request irresponsible given the company's break with the industry in 1997 to begin settling lawsuits. ''Liggett has shown that a tobacco company can act responsibly,'' Aaron Marks said. The six-member jury already has awarded $12.7 million in compensatory damages to three representative smokers. The jury must now decide how much to award in punitive damages, which are intended to punish and deter misconduct. The key tobacco defense is that the industry has changed its ways since states began suing in 1994, and that $257 billion in settlements is enough. The companies have argued that they should not be required to pay any more than their combined net worth of $15.3 billion, the difference between their assets and liabilities. The case is the first smokers' class-action lawsuit to go to trial and the most serious financial threat to the industry. Any verdict will be appealed and could take at least two years to move through Florida's courts. Other defendants are Lorillard Tobacco and the industry's defunct Council for Tobacco Research and Tobacco Institute. (The Associated Press, July 13, 2000) TOBACCO LITIGATION: Smoking Among CA Teenagers Drops More Than A Third ---------------------------------------------------------------------- Smoking among California teenagers fell by more than a third last year, prompting Gov. Gray Davis to proclaim Wednesday that a decade of anti-smoking efforts in California is paying off. A survey by the state Department of Health Services shows that 6.9% of the state's youths ages 12 to 17 smoked in 1999, a drop from 10.7% in 1998. Smoking among adults fell slightly last year to 18% from 18.4% in 1998, and was far less than the 25% of Californians who smoked in the late 1980s before California voters approved an initiative that funded the state's anti-tobacco campaign. Nationally, a fourth of adults smoke. "This survey shows that our efforts are reducing youth smoking," Davis said in a statement, adding that California's anti-smoking programs have led to the decreases. But even as they applauded the overall declines, several anti-smoking advocates attributed the latest decline to a voter-approved initiative that raised cigarette prices 50 cents a pack in 1999. Also in 1999, cigarette makers raised prices by about 45 cents per pack, as companies passed along costs from the $ 200-billion settlement of a nationwide class action suit brought by states. "The precipitous drop is because the prices were raised," said actor and producer Rob Reiner, who sponsored Proposition 10 in 1998 to raise cigarette taxes by 50 cents a pack. "Every study shows that the single best way to reduce teen smoking is to raise prices." Although the governor's statement cited the fall in smoking among teenagers and the slight decline among all adults, the full health department survey shows that smoking is rising among young adults, ages 18 to 24. About 22.7% smoked last year, up from 22% in 1998, and from 16.3% in 1994. "That's bad news; that's worse than bad," said Marc Burgat, spokesman for the American Heart Assn. "The tobacco industry is targeting them and we're not responding." There are several theories about the increase. One is that young adults were influenced by ads from their youth, particularly the Joe Camel cartoon character. Additionally, young adults are a major focus of tobacco industry marketing now, as cigarette makers sponsor events at bars and take out ads in college and alternative publications. "Their campaign is working with young adults, and the state is not responding to their tactics," said Paul Knepprath of the American Lung Assn. of California. He and others said increased smoking among young adults could result in more tobacco use by teenagers, because middle school and high school-age children view young adults as role models. California's anti-smoking effort is funded by a separate 25-cent-per-pack tax imposed by voters when they approved Proposition 99 in 1998. California will spend about $ 115 million on anti-tobacco efforts this year, including $ 45 million for anti-tobacco advertising. Davis, who touted his anti-tobacco credentials when he ran for governor, increasingly is the target of criticism by tobacco opponents, who demand that he sharply increase the state program, and that his administration start airing tougher anti-tobacco television ads. Former Davis spokesman Michael Bustamante had said earlier this year that a new batch of anti-tobacco ads would be released by mid-May. A state health department official said Wednesday that the Screen Actors Guild strike is slowing production. "The Davis administration has done nothing to reduce tobacco use," said anti-smoking advocate Stanton Glantz, UC San Francisco medical professor. "The word everyone uses is 'disappointment.' " Contending that price hikes brought about by initiatives and litigation are causing the drop in youth smoking, Glantz said, "For him to claim credit for the reductions for what the voters did is outrageous." (Los Angeles Times, July 13, 2000) WEYERHAEUSER CO: House Siding Suit Nears No Cap Settlement ---------------------------------------------------------- A proposed settlement in a class-action lawsuit against the Weyerhaeuser Co. over defective house siding has won preliminary approval in a state court in California. Under the deal presented Wednesday, Weyerhaeuser agreed to pay to replace swollen, warped, split and rotted siding made from compressed wood chips, fiber, resin and wax at a plant in Klamath Falls, Ore. Production of the siding ended in 1996, the year after the first claims were brought. The settlement covers a class-action lawsuit filed in 1998 in Superior Court in San Francisco and could extend to similar litigation pending in Oregon, Iowa, South Carolina and Texas. The dismissal of a similar case in Washington state is on appeal. Unlike a settlement with Louisiana-Pacific Corp. of Portland, Ore., in a similar case four years ago, there is no limit cap on what Weyerhaeuser may be required to pay. ''Whatever comes in, comes in, and it gets paid no matter how many other people get paid,'' said Christopher I. Brain of Seattle, one of the principal lawyers for homeowners who brought the case. Nearly 2 billion board-feet of the hardboard siding was made by Weyerhaeuser, based in this Seattle suburb, or was sold under the company's name between 1981 and 1999, Brain said. More than a third ended up on homes, apartments and other buildings in California, he said. Colorado, Arizona, Washington and Oregon also have affected buildings. Weyerhaeuser is paying 11 law firms representing plaintiffs at least $18 million, representing 15 percent of the first $120 million in claims, and a maximum of another $8.4 million, representing 12 percent of the next $70 million in claims. The deadline for filing claims is 2009. Weyerhaeuser announced earlier that it was setting up a reserve for the settlement with $82 million of its after-tax profits in the second quarter. It earned $244 million in the first quarter, and it plans to report second-quarter results next week. The Louisiana-Pacific settlement, in which Brain also represented homeowners, required the company to pay $275 million into a compensation fund. When claims soared higher, the company put another $100 million in the fund and established a second fund with $125 million that could be used to pay homeowners more quickly if they accepted a fraction of their original claim. Payments have exceeded $470 million, thousands of claims remain unpaid and new claims are still being filed. Terms of the Weyerhaeuser agreement should result in faster payment on claims, Brain said. (AP Online, July 13, 2000) ********* S U B S C R I P T I O N I N F O R M A T I O N Class Action Reporter is a daily newsletter, co-published by Bankruptcy Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc., Washington, DC. Theresa Cheuk, Managing Editor. Copyright 1999. All rights reserved. ISSN 1525-2272. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The CAR subscription rate is $575 for six months delivered via e-mail. 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