/raid1/www/Hosts/bankrupt/CAR_Public/000718.MBX
C L A S S A C T I O N R E P O R T E R
Tuesday, July 18, 2000, Vol. 2, No. 138
Headlines
ALASKA AIRLINES 261: January Crash Lawsuits to Be Consolidated in CA
ALASKA AIRLINES 261: January Crash Lawsuits to Be Consolidated in CA
ASBESTOS LITIGATION: A 'New Wave' Case Gets A $ 9.8M Verdict in N.Y.
CELLUCCI: Mentally Retarded Adults Win Landmark Case against MA
CREDITRUST CORPORATION: Berger & Montague Files Securities Suit in MD
DENNY'S RESTAURANT: Judge Dismisses Customer Race Discrimination Suit
DRKOOP.COM INC: Finkelstein, Thompson Files Securities Fraud Suit in TX
DRKOOP.COM, INC: Wolf Haldenstein Commenced Securities Fraud Suit in TX
HMO: 3rd Circuit Hears Oral Argument in RICO Suit against Aetna
HOLOCAUST VICTIMS: Fund Created for Slave Laborers; Documents Signed
INMATES LITIGATION: Court Appoints Expert Witness in Tuberculosis Case
MA MUTUAL: Vanishing Premium NJ Buyers Met Predominance Rule for Cert
METLIFE, PRUDENTIAL: Accused of Charging Black Customers Higer Premiums
ORBITAL SCIENCES: Settles Securities Suit with $11 Mil Plus Warrants
REDLANDS CONTAMINATION: Residents Air Worries over Insurance Coverage
SEARS ROEBUCK: Court Dismisses Suit By Retirees for Life Insurance
TOBACCO LITIGATION: CNN Coverage on Likely Changes Brought by Verdict
TOBACCO LITIGATION: Fitch Comments On Rating Implications Of Engle Case
TOBACCO LITIGATION: FL Jury Awards $ 145 Bil in Punitives to Smokers
TOBACCO LITIGATION: Fund Manager Says Mega-Award Won't Be Paid
TOBACCO LITIGATION: Professor Says Engle Verdict Unlikely to Be Reversed
TOBACCO LITIGATION: Statement of Tri-Agency Coalition on $145B Verdict
TOBACCO LITIGATION: Statement of Tri-Agency Coalition on $145B Verdict
UTAH SCHOOL: Officials Say Tests for Diplomas May Face Court Challenge
* Hatch Takes Firm Stand on Class Action Removal Bill
*********
ALASKA AIRLINES 261: January Crash Lawsuits to Be Consolidated in CA
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San Francisco will be the center of legal activity for the lawsuits arising
from the Jan. 31 crash of Alaska Airlines Flight 261. The lawsuits brought
by hundreds of plaintiffs, including the families and estates of the 88
people killed in the crash, will be consolidated for pretrial proceedings,
including the discovery of evidence.
The families of the victims say the case against Alaska Airlines could
raise questions about U.S. aviation safety. Allegedly improper maintenance
operations at an Alaska Airlines hangar in Oakland are the subject of a
federal criminal investigation dating from 1998.
Attorneys on both sides of the case agreed with a panel of federal judges
who, in a ruling made public, chose San Francisco over Seattle or Los
Angeles. Alaska Airlines is based in Seattle, and typically, cases are
assigned to the jurisdictions nearest the crash. That would have been Los
Angeles, but the city already is backed up with other litigation.
Flight 261 crashed into the Pacific Ocean off Ventura County while flying
from Puerto Vallarta, Mexico, to San Francisco.
Civil wrongful death proceedings could begin within weeks, but it will be
about eight months before a trial or series of separate trials can start.
At least 14 wrongful-death claims have been filed so far.
Boeing is also a defendant in the case. Boeing acquired McDonnell Douglas,
which built the MD-83 airplane that crashed. At least one attorney plans to
focus on Boeing and the possibility of a design flaw in the planes.
Other attorneys said they planned to examine the maintenance practices of
the airline. The Federal Aviation Administration officials have said it is
likely that possible disciplinary action may follow a special inspection of
the airline.
The plaintiffs are expected to seek hundreds of millions of dollars in
damages. (The Associated Press State & Local Wire, July 14, 2000)
ALASKA AIRLINES 261: January Crash Lawsuits to Be Consolidated in CA
--------------------------------------------------------------------
San Francisco will be the center of legal activity for the lawsuits arising
from the Jan. 31 crash of Alaska Airlines Flight 261. The lawsuits brought
by hundreds of plaintiffs, including the families and estates of the 88
people killed in the crash, will be consolidated for pretrial proceedings,
including the discovery of evidence.
The families of the victims say the case against Alaska Airlines could
raise questions about U.S. aviation safety. Allegedly improper maintenance
operations at an Alaska Airlines hangar in Oakland are the subject of a
federal criminal investigation dating from 1998.
Attorneys on both sides of the case agreed with a panel of federal judges
who, in a ruling made public, chose San Francisco over Seattle or Los
Angeles. Alaska Airlines is based in Seattle, and typically, cases are
assigned to the jurisdictions nearest the crash. That would have been Los
Angeles, but the city already is backed up with other litigation.
Flight 261 crashed into the Pacific Ocean off Ventura County while flying
from Puerto Vallarta, Mexico, to San Francisco.
Civil wrongful death proceedings could begin within weeks, but it will be
about eight months before a trial or series of separate trials can start.
At least 14 wrongful-death claims have been filed so far.
Boeing is also a defendant in the case. Boeing acquired McDonnell Douglas,
which built the MD-83 airplane that crashed. At least one attorney plans to
focus on Boeing and the possibility of a design flaw in the planes.
Other attorneys said they planned to examine the maintenance practices of
the airline. The Federal Aviation Administration officials have said it is
likely that possible disciplinary action may follow a special inspection of
the airline.
The plaintiffs are expected to seek hundreds of millions of dollars in
damages. (The Associated Press State & Local Wire, July 14, 2000)
ASBESTOS LITIGATION: A 'New Wave' Case Gets A $ 9.8M Verdict in N.Y.
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The suffering of an electrician who died of asbestos-related cancer after
years of employment in New York's power plants has prompted a jury to award
his family $ 9.8 million.
However, Justice Helen Freedman, who presided in the case of Fazio v.
Bechtel, No. 119445-99 (N.Y. Sup. Ct.), has said that the verdict is
excessive and will be reduced.
The verdict -- part of a trend toward suing contracting and engineering
firms along with asbestos manufacturers -- was returned after a three-week
trial.
An Illness Strikes
Plaintiffs' lawyer Robert Gordon, of New York's Weitz & Luxenberg P.C., who
tried the case with Michael Roberts, said that the deceased, Dominick
Fazio, had inhaled asbestos particles during more than 20 years of working
with asbestos-containing boilers in power generating plants for the city of
New York.
"He worked in areas where he was exposed to asbestos products," Mr. Gordon
said. "In late 1998, he got mesothelioma, which is a cancer from asbestos.
Unfortunately, he died prior to the trial."
Bechtel was the general contractor and engineering contractor for those
boilers, Mr. Gordon said.
The boilers had been installed in the 14th Street Powerhouse, one of the
places where Mr. Fazio worked.
Mr. Fazio, who lived on Long Island, was diagnosed with mesothelioma at age
He died on March 13, at 72. The case was pressed by his widow and three
grown children.
"He was exposed to asbestos that was used on boilers and pipes, the
wrapping, " Mr. Gordon said. "He worked around others who were using it,
and the stuff gets airborne and floats through the air, and he would inhale
it."
Mesothelioma is a cancer of the lining of the lung. It invades the lungs,
the ribs and the diaphragm, bringing on severe shortness of breath and
pain.
Mr. Fazio had surgery in September to remove a lung, the pleura and part of
his diaphragm in an effort to eradicate the cancer, but this was
unsuccessful.
The family initially sought $ 50 million in punitive damages and $ 50
million in compensatory damages, alleging failure to warn, negligence and
violation of New York state labor laws requiring worksites to be safe.
The action started with a dozen plaintiffs and more than 50 named
defendants.
All the defendants had settled with Mr. Fazio and the other plaintiffs,
with the exception of Bechtel, by the time the verdict was issued. One
plaintiff settled during deliberations.
Bechtel argued before the trial that the company should not be held
responsible, but Justice Freedman ordered that the case be bifurcated, with
the first part determining damages. Liability will be decided in a separate
trial. It has already been stipulated that mesothelioma can be caused by
exposure to asbestos.
In closing arguments, defense lawyer Arthur Bromberg, of L'abbate Balkan
Colavita & Contini, in Garden City, N.Y., and Livingston, N.J., suggested
to the jury a verdict of $ 1.5 million. Mr. Gordon suggested $ 9.25 million
-- less than what the jury eventually awarded.
Motion for a New Trial
Mr. Bromberg said that Bechtel will file a motion for a new trial and a
remittitur motion, which would reduce the verdict in overall size and would
ensure that Bechtel pays only its proportional share of the settlement.
Neither lawyer would say how much the other defendants settled for.
Mr. Bromberg said that the suit is part of a wave of asbestos cases filed
not just against manufacturers, which have settled huge class actions or
have gone out of business, but also against secondary targets, including
the owners of building sites and engineering firms. "Many of the large
insulation companies are out of business, and plaintiffs are now suing
different companies -- contractors, building owners where construction went
on," Mr. Bromberg said. "Those companies have other defenses, and some of
them think they don't belong in the cases," he added. "You have different
defendants in the year 2000 than you did in 1980."
An Acceptable Range?
"I am not Bechtel's liability counsel, but they don't believe they have any
liability," Mr. Bromberg said. "They are a contracting and engineering
firm. They did not manufacture asbestos products." Mr. Bromberg said that
the award for pain and suffering in this case is "contrary to law" and
beyond what the courts have ultimately allowed, according to his analysis
of court rulings on appeal. He contended that the accepted range for pain
and suffering is $ 100,000 to $ 200,000 per month, not the nearly $ 1
million per month that the jury awarded in Fazio.
Mr. Bromberg also maintained that Mr. Fazio may be the unintended
beneficiary of the jury conflating the emotional stories of a dozen
defendants into the one verdict it was allowed to render. "It was too many
cases, and ultimately the jury could escalate the award because they heard
10 cases. It's a very large verdict. You can tell this jury felt very
moved," Mr. Bromberg said. "Granted, it was less than a year, but Mr. Fazio
did suffer before he died," he said. (The National Law Journal, July 10,
2000)
CELLUCCI: Mentally Retarded Adults Win Landmark Case against MA
---------------------------------------------------------------
In a landmark decision in Boulet, et al v. Cellucci, U.S. District Court
Judge Douglas Woodlock has entered summary judgment in favor of all
mentally retarded adults who have been deemed eligible for Medicaid
services by the Commonwealth of Massachusetts' Department of Mental
Retardation, but who have been placed on a waiting list for those services
for many years, or in some cases, even decades. Judge Woodlock found that
the Commonwealth failed to provide services with reasonable promptness as
required by the federal Medicaid Act and has ordered the state to provide
services to those on the waiting list within 90 days. The decision, which
is the first of its kind in the nation to order a state to provide
community-based residential services to eligible mentally retarded adults
within 90 days, means that the Commonwealth will have to serve
approximately 2,600 individuals who are now believed to be on the waiting
list.
The class-action lawsuit was filed on March 19, 1999 by the families of
five mentally retarded adults against the Governor of Massachusetts, the
Commonwealth's Secretary of the Executive Office of Administration and
Finance, the Commonwealth's Secretary of the Executive Office of Health and
Human Services, the Commissioner of the Department of Mental Retardation,
and the Commissioner of the Division of Medical Assistance based on the
failure of these individuals, in their official capacities, to ensure that
mentally retarded and developmentally disabled adults receive the Medicaid
services for which they are eligible under the federal Medicaid Act and the
Commonwealth's Medicaid Program. "This decision is a victory for the
thousands of families who have dedicated their lives to caring for their
mentally retarded children, but who now urgently need the state's help,"
commented Neil McKittrick, an attorney from the law firm of Hill & Barlow
who represented the plaintiffs on a pro-bono basis. "The parents and
caregivers of this class, many of whom are in their sixties and seventies,
have cared for their adult children in their own homes for 30 or 40 years,
saving the Commonwealth millions of dollars. This decision forces the
Commonwealth to live up to its legal obligation to provide Medicaid
services to these people now, not years from now."
In his decision, Judge Woodlock concluded that the state had in fact
"recognized that those individuals on the waiting list ... need the
services for which they are waiting." He added that, " ... where some of
the delays extend more than a decade, I have little trouble finding that
the defendants have not been reasonably prompt ... "
Theresa Varnet, Board President of ARC Massachusetts (formerly the
Association for Retarded Citizens) and a parent of a mentally retarded
adult child, stated that, "This decision offers families peace of mind. We
now know that, when needed, the state will provide appropriate services. We
are so grateful to Hill & Barlow for taking on this case; the decision will
make such a difference to thousands of families across the state."
Contact: Kelly O'Connor of The Rasky-Baerlein Group, 617-443-9933, ext.
352, or pager, 781-945-8207, for Hill & Barlow
[Settlement for the case Rolland v. Cellucci was published in "Successful
Job Accommodation Strategies, May 22 and reported on the CAR.]
CREDITRUST CORPORATION: Berger & Montague Files Securities Suit in MD
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The law firm of Berger & Montague, P.C. on behalf of its client, on July
14, 2000, filed a complaint in a lawsuit in the United States District
Court for the District of Maryland on behalf of all persons who purchased
the common stock of Creditrust Corporation (Nasdaq: CRDT, CRDTQ) during the
period of July 29, 1998 through March 31, 2000.
The Complaint alleges certain officers and directors of Creditrust
Corporation ("Creditrust") with violations of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934. Specifically, the Complaint alleges
that the officers and directors, by causing Creditrust to issue false and
misleading statements in Creditrust's press releases and public filings
during the Class Period, artificially inflated the price of Creditrust
common stock during the class period. The defendant officers and directors
caused Creditrust to overstate its earnings by deliberately inflating the
estimated amounts that could be collected on bad debt receivables purchased
by the Company, thereby inflating revenue and pre-tax earnings by at least
$4.9 million for the fiscal year 1999 alone. In addition, defendant Rensin
sold more than 500,000 shares of his personal holdings in the company
during the class period for a profit in excess of $18 million.
Contact: Todd S. Collins, Esquire, or Kimberly A. Walker, Investor
Relations Manager, of Berger & Montague, P.C., 215-875-3000, 888-891-2289,
or Fax, 215-875-4604, or e-mail, InvestorProtect@bm.net, or Law Offices of
Bruce G. Murphy, 561-231-4202
DENNY'S RESTAURANT: Judge Dismisses Customer Race Discrimination Suit
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Frederick J. Scullin, Jr., Chief Judge of the U.S. District Court for the
Northern District of New York, has dismissed a race discrimination lawsuit
against Denny's. The highly-publicized lawsuit was filed by six
Asian-Americans and three African-Americans who visited a Denny's
restaurant in Syracuse, New York on April 11, 1997.
The Judge states in order the plaintiffs "have failed to show either that
they were expressly denied seating at the restaurant, that others
similarly-situated who arrived before them were provided seating while they
waited, or that they were denied security services based on their race ...
Their claims are therefore dismissed."
This is one of a number of claims of race discrimination against Denny's
that has been dismissed by the courts during the last several years.
DRKOOP.COM INC: Finkelstein, Thompson Files Securities Fraud Suit in TX
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Finkelstein, Thompson & Loughran has filed a securities class action
lawsuit in the United States District Court for the Western District of
Texas on behalf of investors who bought common stock of drkoop.com, Inc.
(Nasdaq: KOOP) between February 15, 2000 and March 30, 2000, inclusive (the
"Class Period")
The lawsuit charges drkoop and certain officers and directors of the
Company with violations of the federal securities laws. The lawsuit alleges
that defendants issued a series of false and misleading statements during
the Class Period concerning the Company's financial status and viability,
while concealing the known fact that the Company's auditors had issued a
qualified opinion letter that cast doubt on the Company's ability to
continue as a "going concern". The complaint further alleges that certain
insiders took advantage of their inside knowledge to sell significant
amounts of their own drkoop stock holdings for proceeds of over $4.5
million.
Contact: Donald J. Enright of Finkelstein, Thompson & Loughran,
888-333-4409, or 202-337-8000
DRKOOP.COM, INC: Wolf Haldenstein Commenced Securities Fraud Suit in TX
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On July 14, 2000, Wolf Haldenstein Adler Freeman & Herz LLP filed a class
action lawsuit in the United States District Court for the Western District
of Texas on behalf of purchasers of the securities of drkoop.com, Inc.
(NASDAQ: KOOP- news) between February 15, 2000 and March 30, 2000,
inclusive (the "Class Period"). A copy of the complaint filed in this
action is available from the Court, or can be viewed on the Wolf
Haldenstein website at www.whafh.com.
The complaint alleges that the Company and certain of its officers and
directors, namely: Donald Hackett, Pres. & CEO; Dr. C. Everett Koop,
Chairman of the Board; Neal K. Longwill, Sr. VP (Corporate Development);
and Directors Nancy L. Snyderman and John F. Zaccaro, violated the federal
securities laws by providing materially false and misleading information
about the Company's business, earnings growth and financial condition
during the Class Period. Specifically, on February 15, 2000, the Company's
auditors signed and delivered their opinion letter, which contained a
"going concern" qualification, a statement which indicated that the
auditors harbored substantial doubt as to the Company's continuing
viability. The defendants concealed the going concern qualification and
instead made optimistic statements about the Company's earnings and
operations that failed to provide this material information.
At the same time, the insider defendants were liquidating their stock
positions in the Company. Indeed, between February 18 and February 25,
2000, while in possession of the materially adverse non-public information
concerning the qualified auditor's opinion, insiders sold more than 400,000
shares of drkoop.com stock, for aggregate proceeds of more than $4.5
million.
It was not until March 30, 2000, when drkoop.com filed its Annual Report on
Securities and Exchange Commission ("SEC") Form 10-K, that defendants
disclosed for the first time the material fact that its auditors doubted
the Company's ability to continue as a "going concern." Following these
revelations, the Company's stock plummeted from a previous close of $6.25
(which itself was down from the Class Period high of $13 5/8) to a close of
$3 11/16 on March 31, 2000 a one day drop of approximately 41%.
Contact: Wolf Haldenstein Adler Freeman & Herz LLP 800/575-0735 Fred Taylor
Isquith, Esq. Gregory M. Nespole, Esq. Brian S. Cohen, Esq. Michael Miske
e-mail at classmember@whafh.com whafh@aol.com nespole@whafh.com
Gnespole@aol.com or our website at www.whafh.com All e-mail correspondence
should make reference to DRKOOP.COM, INC.
HMO: 3rd Circuit Hears Oral Argument in RICO Suit against Aetna
---------------------------------------------------------------
The Third Circuit heard oral arguments in the plaintiffs' appeal of the
dismissal of one of the earliest of the recent rash of civil RICO class
action suits against managed care organizations on June 19. Maio et al. v.
Aetna Inc. et al., No. 99-1854, oral arguments (3d Cir., June 19, 2000).
Judging by their questions, the U.S. Court of Appeals for the Third Circuit
judges seemed unpersuaded by the arguments raised by the
plaintiff-appellants that they had suffered a discernable injury from the
alleged false and misleading advertising that had induced them to sign up
with HMOs owned by defendant Aetna Inc.
U.S. District Judge John P. Fullam, sitting in the Eastern District of
Pennnsylvania, dismissed the civil Racketeer Influenced and Corrupt
Organization Act class action against Aetna US Healthcare last September.
The suit was brought by named plaintiffs Jo Ann Maio and Gary Bender on
behalf of a proposed class of nearly six million consumers who enrolled in
or renewed their HMO membership with Aetna-owned companies from July 1996
through April 1999.
The plaintiffs asserted that Aetna lured them in with false promises of
high-quality care, while secretly pressuring physicians to cut costs and
minimize provided health care. Aetna allegedly conspired to and profited
from these activities, and used and invested these profits in the operation
of the enterprise in violation of Sections 1962(a) and (c) of the RICO
statute. Plaintiffs claimed to have been injured because the HMO plans they
actually received were worth less than what they paid for them.
In his four-page opinion last September, Judge Fullam found that the
plaintiffs had failed to state a cause of action for which relief may be
granted, because they failed to demonstrate the existence of an "injury in
fact" that is concrete and particularized and actual or imminent.
"A vague allegation that 'quality of care' may suffer in the future is too
hypothetical an injury to confer standing," Judge Fullam wrote.
He further found that as a matter of law, it was highly doubtful that
advertising one's commitment to "quality of care" can serve as the
predicate for a fraud claim. "Such general assertions as to quality are
mere puffery and do not constitute a fraudulent inducement to membership in
defendants' HMO plans, particularly where the complained of cost
containment provisions are disclosed to prospective members," he wrote.
At oral argument, the Third Circuit panel raised many of the same issues in
questions directed at plaintiffs' attorney Edith Kallas of Milberg, Weiss,
Bershad, Hynes & Lerach.
Kallas argued that Fullam missed the point of the suit, that the class
members suffered an injury as soon as they signed up with Aetna. The injury
could be determined by comparing the value of the product Aetna claimed to
be selling with the value of the product the plaintiffs actually received,
she said.
The judges, however, continued to ask Kallas what specific injuries the
class members are claiming to have suffered. "Tell us exactly what your
theory of fraud is. It's a little elusive," said Circuit Judge Morton I.
Greenberg.
Senior Circuit Judge Joseph F. Weis questioned whether this suit is not an
attempt at "an end run around the Pegram" case decided last month by the
U.S. Supreme Court. In Pegram v. Herdrich , No. 98-1949 (U.S., June 13,
2000), the court held that a patient could not sue an HMO in federal court
for injuries sustained from mixed treatment and coverage decisions made up
HMO doctors. The plaintiff in that case argued that she suffered
life-threatening rupture of her appendix because her HMO doctor delayed
diagnosis and treatment in order to comply with an undisclosed cost-cutting
incentive plan.
Kallas said Pegram is not applicable here because the issue in this case is
that Aetna attempted to distinguish itself from other HMOs by claiming it
delivered a higher quality of medical care.
U.S. District Judge Murray Schwartz of the District of Delaware, sitting by
designation, asked if there was any allegation that any of the plaintiffs
received less than quality care.
Kallas responded that what the HMO's doctors do is irrelevant and that the
case simply involves the HMO's alleged false advertising.
"The Maio case is a fraud case," she told the court. "It's about Aetna's
misrepresentations. It does not have to do with any other HMO out there.
This is not a referendum on managed care."
Aetna's attorney, Alan Davis of Ballard, Spahr, Andrews & Ingersoll in
Philadelphia, told the court that he agreed with Judge Weis that this suit
is an end-run around Pegram.
"The only injury that was alleged," he said, "is that these complex
insurance arrangements will somehow produce a malfunction it hasn't
produced yet in the future, under some undefined circumstances."
In addition to Kallas, the plaintiffs are represented by David J. Bershad,
Patricia M. Hynes, Joseph P. Guglielmo, Charles S. Hellman and Anita B.
Kartalopoulos of Milberg, Weiss, Bershad, Hynes & Lerach in New York; James
J. Binns of Philadelphia; Jeffrey L. Kodroff and Eugene A. Spector of
Spector & Roseman in Philadelphia; and Harvey Rosenfield and Edward P.
Howard of the Foundation for Taxpayer and Consumer Rights.
In addition to Davis, Aetna's counsel includes Michael M. Baylson, Michael
M. Mustokoff, Teresa N. Cavanagh, Sandra A. Jeskie and Jonathan Swichar of
Duane Morris & Hecksher in Philadelphia. (Managed Care Litigation Reporter,
July 3, 2000)
HOLOCAUST VICTIMS: Fund Created for Slave Laborers; Documents Signed
--------------------------------------------------------------------
More than 50 years after World War II, eastern Europeans, Jews and others
forced to work for the Nazi war machine moved closer to finally receiving
compensation Monday with the creation of a $5 billion fund financed by
German government and industry.
U.S. Deputy Treasury Secretary Stuart Eizenstat, representatives of Poland,
Russia, Ukraine, Belarus, the Czech Republic and the head of the Jewish
Claims Conference signed documents along with German officials establishing
the compensation fund.
German Foreign Minister Joschka Fischer called the fund's creation ''above
all a gesture of moral responsibility'' toward hundreds of thousands of
Nazi victims. ''It can't undo the suffering that the victims went through,
and unfortunately it also comes too late for many,'' he said in opening
remarks. But he said it was still a ''historic day'' not only for the
survivors, but Germans as well. ''Germany learned many things about itself
and its past during the negotiating process, and openly discussed what had
been suppressed all too willingly and successfully for a long time,'' he
said.
More than 1 million former laborers are expected to be eligible for
payments from the fund, mostly central and eastern Europeans. The fund also
will compensate people subjected to medical experiments by the Nazis and
some with other Holocaust-related claims.
''Finally we have a victory, not only morally but also in a material
sense,'' said Karel Horak, a 79-year-old Czech survivor of a Nazi-era
forced labor camp who attended Monday's ceremony.
German officials say application procedures will soon be publicized and
have expressed confidence that payments could begin this year. But German
businesses have yet to raise their half of the fund, which is being split
50-50 with the government.
About 3,000 German businesses had pledged $1.5 billion as of last week.
Chief German negotiator Otto Lambsdorff has appealed for more companies to
join, even if they didn't exist during the war. During a debate in
parliament, which approved the fund July 6, Lambsdorff spoke about
''collective responsibility'' and noted the foundation would also fund
educational and research on the Holocaust.
Among the latest institutions to pledge support was Germany's Evangelical
Church, which promised $5 million last week as it acknowledged that
Protestant churches used forced laborers during the Nazi era for such jobs
as grave-digging. Lambsdorff said he would ''be happy'' if Germany's Roman
Catholic church would do the same. But a church spokesman said they had no
immediate plans for a general contribution to the fund.
Rudolf Hammberschmidt, spokesman for the German Bishops Conference, said
they were aware of only two Catholic church communities in Berlin who
employed forced laborers in cemeteries, and appropriate action would be
taken at that level.
Among the documents signed Monday were guarantees from Washington intended
to protect German companies from class-action lawsuits in the United
States. Such legal actions catapulted the slave labor issue to the
forefront and induced Schroeder and leading industrialists to begin talks
on a comprehensive fund more than a year ago. (AP Online, July 17, 2000)
INMATES LITIGATION: Court Appoints Expert Witness in Tuberculosis Case
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Plaintiff prisoner challenged a policy created by the New York State
Department of Correctional Services to address the impact of tuberculosis
in the state prison system. A preliminary injunction hearing was scheduled
to decide whether plaintiff may be placed in restricted confinement for
refusing, on religious grounds, to submit to the tuberculin skin test.
Plaintiff now requested that the court appoint a particular expert witness
for the hearing. The Attorney General's Office objected because the expert
was retained about 18 months ago as its expert in a class action brought
against the Department of Correctional Services by inmates infected with
HIV. The court found no conflict preventing appointment of the expert as
the court's expert witness. The expert had not yet been involved in the HIV
case and had not obtained any confidential information.
Judge Cote
REYNOLDS v. GOORD QDS:02762610 - In this case, a prisoner challenges a
policy created by the New York State Department of Correctional Services
("DOCS") to address the impact of tuberculosis in the state prison system.
A preliminary injunction hearing is scheduled for July 10, 2000, to decide
whether the plaintiff Dennis Reynolds, who initiated this suit pro se, may
be placed in restricted confinement known as Tuberculin Hold for his
refusal, on religious grounds, to submit to the Mantoux tuberculin skin
test used by DOCS to determine whether inmates have been infected with
tuberculosis. The plaintiff, who is now represented by counsel, has
requested that the Court appoint Dr. Ronald Shansky as its expert witness
for the preliminary injunction hearing. The defendants oppose the
appointment.
Dr. Shansky is a leading expert in correctional medicine in the United
States, and has significant expertise in the issues in this case. Dr.
Shansky has served on many prior occasions as an expert for courts,
correctional systems, and as an appointed receiver. Dr. Shansky is willing
to serve as a court-appointed expert in this case, and is available on the
dates this matter is scheduled for a preliminary injunction hearing.
The Attorney General's Office objects to the appointment of Dr. Shansky on
the ground that Dr. Shansky was retained approximately eighteen months ago
as its expert in a class action brought against DOCS by inmates infected
with HIV. Although that action has been pending in the Northern District of
New York since 1990, and the Attorney General's Office has entered into a
contract with Dr. Shansky, he has not yet consulted with DOCS regarding
that litigation. He has neither been prepared for a deposition nor been
deposed, nor has he been consulted by the State toward the preparation of
an expert report. He has not yet received any confidential or privileged
information from DOCS in connection with that litigation. DOCS expects to
begin consulting with Dr. Shansky when it receives the plaintiffs' final
set of contentions, which may arrive within the next few months.
Having heard the defendants' objections, the Court gave the defendants an
opportunity to determine whether they wished to call Dr. Shansky as an
expert witness in this case, but advised them that they should presume that
the Court would appoint Dr. Shansky as its expert if the defendants
declined to call him as their expert. The defendants have now notified the
Court that they do not wish to use Dr. Shansky as their expert in this
case.
Having considered the parties' arguments and submissions, the Court
determines that pursuant to Rule 706, Fed. R. Evid., Dr. Shansky shall
serve as a court-appointed expert at the preliminary injunction hearing in
this matter scheduled to begin on July 10, 2000. The defendants have
offered no basis, legal or otherwise, to prevent the Court from appointing
Dr. Shansky to assist in its understanding of the issues relating the
containment and treatment of tuberculosis in a correctional facility.
Discussion
Rule 706 of the Federal Rules of Evidence provides that "the court may
appoint expert witnesses of its own selection." Rule 706, Fed. R. Evid. As
the Advisory Committee Notes to Rule 706 point out, "the inherent power of
a trial judge to appoint an expert of [her] own choosing is virtually
unquestioned." Fed. R. Evid. 706 advisory committee's note. See also
Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579, 595 (1993) (judges
should be "mindful" of the Rule 706 power); Scott v. Spanjer Bros., Inc.,
298 F.2d 928, 930-31 (2d Cir. 1962).
The defendants argue that the Court should not appoint Dr. Shansky as an
expert witness in this case because his testimony is unnecessary; because
of the conflict that would be created due to his prior retention by the
State in the pending HIV class action; and because of the potential
financial cost to defendants. The Court finds these arguments to be without
merit.
The most important factor in favor of appointing an expert is that the case
involves a complex or esoteric subject beyond the trier-of-fact's ability
to adequately understand without expert assistance.
29 Charles Alan Wright & Victor James Gold, Federal Practice and Procedure
@ 6304 (1997). In this regard, Dr. Shansky's testimony will undoubtedly be
of assistance to the Court. This case involves complex issues of infectious
disease, public health, and correctional medicine. Moreover, the
significant public policy implications presented by this action highlight
the importance of obtaining the perspective of an expert in medical issues
unique to the correctional context. Although plaintiff and the defendants
have identified their own expert medical witnesses, neither possesses Dr.
Shansky's first-hand experience with correctional medicine.
There is no conflict that prevents the appointment of Dr. Shansky as the
Court's expert witness in this case. The date of the hearing has been
chosen to allow the hearing to be completed before DOCS returns the
plaintiff to Tuberculin Hold on July 14.
The Attorney General's Office has candidly admitted that despite their
retention of Dr. Shansky as an expert in the pending HIV litigation, he has
not yet been involved in that case and has not obtained any confidential
information regarding DOCS' policies or any other issue at stake in this
litigation. The fact that Dr. Shansky may offer testimony unfavorable to
the State's position in either this proceeding or the HIV litigation does
not - as the defendants argue - warrant his absence from this case. DOCS
should not be permitted, by merely signing a contract with Dr. Shansky many
months ago, to prevent his disclosure of relevant knowledge at any judicial
proceeding in which the State is a party by arguing that they may
thereafter be required to impeach their own witness. Such a policy would
permit a party to deprive a court or an adversary of access to an expert's
highly probative testimony without that party making any substantive use of
the expert. See E.E.O.C. v. Locals 14 and 15, Int'l Union of Operating
Engineers, 72 Civ. 2498, 1981 WL 163, at *4 (S.D.N.Y. Feb. 11, 1981) (VLB).
Ultimately, any prior statement or testimony of Dr. Shansky's may be
grounds for his impeachment in future litigation whether given in this
case, in other cases, or in his learned writings; such an argument does not
counsel against his appointment here. Presumably DOCS has retained Dr.
Shansky because it seeks from him his unvarnished opinion on matters of
public importance. That opinion cannot reasonably be expected to change
because he has or has not yet spoken publicly on the issues. Moreover,
despite defendants' suggestion that the Court should choose a corrections'
expert who has no relationship with either party, the defendants have not
offered the names of any alternative candidates, much less candidates with
comparable credentials who are available at the time of the hearing. The
date of the hearing has been chosen to allow the hearing to be completed
before DOCS returns the plaintiff to Tuberculin Hold on July 14.
Despite their contention that there is an "inherent conflict posed by Dr.
Shansky testifying at this hearing," the defendants fail to cite any legal
authority to support this argument.
Finally, the Court declines to refrain from appointing Dr. Shansky on the
ground that the defendants may ultimately be responsible for the cost of
such an expert. Ultimately, it is as much the interest of the defendants as
it is the plaintiff's to educate the Court on these issues and to obtain a
fully informed opinion.
Conclusion
For the reasons stated, Dr. Shansky shall be appointed to serve as the
Court's expert at the preliminary injunction hearing scheduled to begin on
July 10, 2000. The parties shall confer and attempt to reach agreement as
to the procedures that should govern Dr. Shansky's involvement in this
litigation, including what materials and questions he should be sent in
preparation for his testimony. (New York Law Journal, June 30, 2000)
MA MUTUAL: Vanishing Premium NJ Buyers Met Predominance Rule for Cert
---------------------------------------------------------------------
In Varacallo V. Massachusetts Mutual Life Insurance Co., Appellate
Division, A-1257-99T5, June 14, 2000, approved for publication June 14,
2000. By Keefe, Also on panel: Havey and A. A. Rodriguez. Appealed from T.
C. Brown, J., Law Division, Essex County. (27 pages).
Facts-on-Call Order Number 5996
A proposed class of plaintiffs consisting of all New Jersey residents who
had purchased "vanishing premium" whole life insurance policies from
Massachusetts Mutual Life Insurance Company between 1985 and 1989 met the
predominance requirement of Rule 4:32-1(b).
Between January 1985 and December 1989, Massachusetts Mutual Life Insurance
Company issued more than 8,250 "N-Pay" life insurance policies to New
Jersey residents through 840 licensed agents. The "N-Pay" policy is based
on the so-called "vanishing premium" concept. According to Mass Mutual's
literature, the objective of the N-Pay strategy is "to allow you to pay
premiums out of pocket for a limited number of years only (until such time
as dividends can completely fund)" the policy. The literature states that
the out-of-pocket payment period depends on dividend results, "which are
not guaranteed."
Paul Varacallo purchased N-Pay policies to insure his life and the lives of
his wife and daughter in 1983. In 1989, Varacallo purchased another policy.
The 1989 policy projected that he would pay a $ 150 annual premium for 13
years. A "HYPOTHETICAL POLICY ILLUSTRATION" issued by Mass Mutual dated May
11, 1989 cautioned that "A DIVIDEND CHANGE MAY INCREASE THE NUMBER OF CASH
PREMIUM PAYMENTS." The May 1989 illustration was exactly the same as the
individual illustrations that Mass Mutual's authorized agents had used
between 1985 and 1988.
In 1996, Varacallo received an inforce policy illustration for the 1989
policy, which predicted that the premium obligation would not expire until
the eighteenth year. The in-force illustration reiterated that dividend
changes may increase the number of cash premium payments, and it also
contained the following language that was not in the earlier illustration:
"ILLUSTRATED DIVIDENDS ARE NEITHER ESTIMATES NOR GUARANTEES, BUT ARE BASED
ON OUR 1996 DIVIDEND SCALE. . . . WE STRONGLY RECOMMEND THAT YOU LOOK AT A
LOWER SCALE ILLUSTRATION."
Varacallo sued Mass Mutual, alleging common law fraud and violations of the
Consumer Fraud Act. Varacallo and other New Jersey residents who had
purchased N-Pay policies between 1985 and 1989 sought class certification.
The plaintiffs claimed that Mass Mutual had "knowingly and intentionally"
inflated its dividends to encourage N-Pay sales and that Mass Mutual had
concealed "material information, which if disclosed would have conveyed the
notion that there was a substantial probability that the rates illustrated"
would not last. The plaintiffs maintained that the failure to disclose had
induced them to purchase the policies. Significantly, the plaintiffs
asserted that Mass Mutual withheld the information from their agents; thus,
the plaintiffs did not claim that the agents had withheld material
information.
The Law Division concluded that the plaintiffs had met the requirements of
Rule 4:32-1(a) but that they had failed to satisfy the predominance
requirement of Rule 4:32-1(b). Therefore, the judge denied the
class-certification motion. The plaintiffs appealed, and the Appellate
Division reversed, "respectfully" disagreeing with the motion judge's
analysis.
Initially, the appeals court reviewed the requirements of Rule 4:32-1(a) --
"numerosity, commonality, typicality, and adequacy of representation." The
court noted that the motion judge's findings and conclusions concerning
those requirements were undisputed. As to Rule 4:32-1(b), the plaintiffs
contended that they had demonstrated both the "predominance of the common
issues" and the "superiority" of a class action.
The appeals court observed that a motion for class certification requires a
"less penetrating" evaluation than a motion for summary judgment.
Specifically, a court should analyze the plaintiffs' "underlying theories
of liability," the necessary proofs, and the "predictable defenses" when it
considers the predominance requirement.
In this case, the plaintiffs advanced two theories of liability: common law
fraud and Consumer Fraud Act violations. Common law fraud requires proof
(1) that the defendant made a material misrepresentation or omission, (2)
knowing it to be false, and (3) that the plaintiff detrimentally relied on
it. The proofs in a consumer-fraud action are similar in that the plaintiff
needs to show that the defendant "concealed, suppressed, or omitted a
material fact, knowingly and with intent that others rely on the omission."
However, common law fraud requires proof of detrimental reliance while
consumer fraud entails only "proof of a causal nexus between the
concealment of a material fact and the loss."
The appeals court indicated that the motion judge had found a "lack of
predominance" because "individualized consideration of each policyholder's
interaction with the agent who sold the policy" would be necessary. The
appeals court recognized that the majority of jurisdictions that have dealt
with class certification in vanishing-premium litigation have rejected
certification on the predominance issue. Nevertheless, the court believed
that it was "more appropriate to "identify and apply principles established
in this State on the issue" than to count cases for and against
certification in other jurisdictions.
Turning to New Jersey's class-action principles, the appeals court
mentioned that the New Jersey Supreme Court has instructed trial courts to
"liberally allow class actions involving allegations of consumer fraud."
The appeals court pointed out that State courts have deemed the
predominance factor satisfied upon finding a "common core of operative
facts," if the plaintiffs sought "to redress a 'common legal grievance.'"
Based on the case law, the appeals court perceived that an "overarching
principle of equity" should be applied to class certifications.
Specifically, "class actions should be liberally allowed where consumers
are attempting to redress a common grievance under circumstances that would
make individual actions uneconomical to pursue."
The court added that this equitable principle applied to this case based on
the "relatively small damages" suffered by each policyholder and the
"shared common grievances." In addition, the court believed that a class
action would promote judicial economy.
The court then considered Mass Mutual's arguments against certification,
noting that "it is unlikely that a court will encounter a defendant who
embraces a plaintiff's effort to obtain class certification." As to Mass
Mutual's contention that the matter would involve individual "mini trials,"
the court assumed that Mass Mutual had knowingly omitted material
information from its literature and withheld the information from its
agents. The court found no evidence that any agents had known that Mass
Mutual could not support the projected dividends and had withheld that
information from prospective policyholders.
Moreover, the reliance element of common law fraud can be satisfied by
proof of "indirect reliance." The court explained that the plaintiffs were
required to prove only that Mass Mutual's conduct was "a cause" of their
damages, not that it was "the sole cause of loss." The court conceded that
an "extraordinary sales agent" may have become the superceding cause of
loss, but it considered the possibility "small." Thus, the court concluded
that prima facie proof of causation under the Consumer Fraud Act is
established if the plaintiffs show that "Mass Mutual withheld material
information with the intent that consumers would rely on it in purchasing"
policies and that policies were purchased by persons who had seen the
literature.
For the purposes of certifying a class based on common law fraud, the court
concluded that the plaintiffs were not required to offer direct proof that
the entire proposed class relied on the representations, which omitted
material facts, if the plaintiffs established that Mass Mutual withheld
material facts for the purpose of inducing persons to purchase policies.
The court cited case law from other jurisdictions involving the
"presumption or inference of reliance and causation" in the context of
omissions of material fact, adding that class certification is favored
where "the omission of fact is common to the entire class."
Accordingly, the appeals court rejected Mass Mutual's claim that individual
lawsuits were superior in this case. The court held that, if these
plaintiffs "establish the core issue of liability, they will be entitled to
a presumption of reliance and/or causation" and that Evidence Rule 301
would control the presumption. For appellants: Bruce D. Greenberg (Lite,
DePalma, Greenberg & Rivas; Mary Jean Pizza on the brief) and Joseph N.
Kravec, Jr. of the Pennsylvania bar admitted pro hac vice (Specter,
Specter, Evans & Manogue). For respondent: Robert J. Del Tufo (McCarter &
English and Skadden, Arps, Slate, Meagher & Flom, attorneys; Vaughn C.
Williams, Stanley Chinitz, and Elliot Rothstein on the brief). (New Jersey
Lawyer, June 26, 2000)
METLIFE, PRUDENTIAL: Accused of Charging Black Customers Higer Premiums
-----------------------------------------------------------------------
The two largest American life insurance companies, MetLife and Prudential
Insurance of America, have been accused in two class-action lawsuits of
charging their black customers higher premiums for life insurance coverage
than they charged white customers.
The lawsuits, the latest of several on similar grounds, were filed in
Federal District Courts in New York and Newark, where the companies have
their headquarters. The companies said they stopped using race as a factor
in life insurance sales about 50 years ago.
Both companies said that some of these policies remained in effect, but
that they had stopped collecting premiums on them in the early 1980's.
"This is in no way reflective of MetLife's business today," said Kevin
Foley, a spokesman for MetLife, which is based in New York. Prudential said
through a spokesman, Robert DeFillippo, that while race had once been a
factor in the company's sales, it was now "completely unacceptable."
Less than three weeks ago, American General, the fourth-largest life
insurer, agreed to pay restitution of $206 million to settle a class-action
lawsuit and claims from insurance regulators that for decades the company
charged black customers higher premiums than whites and that it often
collected premiums from customers of all races that exceeded the value of
their insurance policies.
Florida is investigating four other companies for similar practices.
The focus of the lawsuits and investigation has been on policies intended
to cover burial expenses. Death benefits were often a few hundred or a few
thousand dollars.
Insurance regulators say more than 30 companies sold these policies, and
they suspect that many discriminated against blacks. For years, insurance
actuarial tables were based on the assumption that blacks had shorter life
spans than whites. Now, actuaries and sociologists say that poverty rather
than race led to shorter lives.
The two suits were first reported in The Wall Street Journal.
Prudential said that over several decades it had been increasing the death
benefits on policies for black customers who had paid higher premiums, or
had been refunding the higher premiums. MetLife insisted that it never had
separate rates for blacks and whites, but that being black was regarded as
an additional risk factor.
"If you were rated a high risk, white or black, you paid the same price and
got the same benefits," Mr. Foley, the MetLife spokesman, said. He said he
did not know whether the high-risk category was made up of more blacks than
whites.
John Stoia, a partner in the law firm of Milberg Weiss Bershad Hynes &
Lerach, who has been working on both lawsuits with lawyers at several other
firms, said he hoped to get refunds or increased death benefits for
customers who paid higher rates for coverage.
Mr. Foley of MetLife said his company would "defend itself against the idea
that MetLife was deceitful, that it defrauded African-American
policyholders or hid from them any facts necessary for them to make their
purchases." He added, "There was no economic loss on the part of any
African-American policyholder who bought a policy from us." (The New York
Times, July 14, 2000)
ORBITAL SCIENCES: Settles Securities Suit with $11 Mil Plus Warrants
--------------------------------------------------------------------
Orbital Sciences Corporation (NYSE: ORB) announced on July 17 that the
company has reached an agreement with the counsel for the plaintiff class
to settle all outstanding securities class- action litigation claims
related to the company's prior-year financial restatements. The settlement,
which requires no cash payment by Orbital and is subject to final
documentation and Court approval, provides for $11 million to be paid to
the shareholder class by the company's insurance carrier, National Union
Fire Insurance Company. In addition, Orbital has agreed to issue
approximately 2 million shares of common stock at a 10% discount to the
market price at the time the settlement is finally approved by the Court.
The warrants are designed to have a total value of $11.5 million. Orbital
anticipates that final approval of the settlement will occur before year
end.
Orbital's press release says that the company is one of the largest space
technology and satellite services companies in the world, with 1999 total
enterprise revenues (including revenues from unconsolidated affiliates) of
approximately $915 million. Headquartered in Dulles, Virginia, Orbital is
also a manufacturer of low-cost space systems, including satellites and
space robotics, launch vehicles, electronics and sensors, satellite ground
systems and related digital infrastructure.
REDLANDS CONTAMINATION: Residents Air Worries over Insurance Coverage
---------------------------------------------------------------------
The news that one of their neighbors lost some insurance coverage because
of water contamination on his property had Red Bank residents - and
potential residents - asking state officials what they could do to prevent
the same from happening to them. Most homeowners may not have to worry,
said Allison Dean Wright of the South Carolina Insurance News Service.
Wright told residents that she had surveyed a half dozen major insurance
companies and found none ready to withdraw coverage from the area. Concern
over cancellation began when Gray Macaulay, owner of a contaminated pond,
lost liability coverage on his property. But his insurance still covers
fire and other types of damage.
State Rep. Jake Knotts, a Republican who represents the area, warned
residents there also may be problems in selling homes and land in the area.
Homeowners like Luther and Martha Lown said he called it valuable to learn
how to get help from state insurance officials. "We learned what to do in
case we have a problem," he said.
State officials have fined Tin Products Inc., which makes chemicals for
plastic pipe, bottles and vinyl siding, $4 million for causing the spill
that contaminated two Lexington County waterways and killed wildlife
earlier this year.
The Lexington-based company challenged South Carolina environmental
officials, saying any discharge from its plant "is not the sole" of a major
fish kill in February. The company has said a malfunctioning county sewer
plant is partly to blame. Lawyer William Walker, of Lexington, said a
class-action lawsuit seeking damages for the spill may be expanded to state
and Lexington County sewer officials if negligence is found.
State environmental officials said seven companies and one owner are
responsible for poisoning ground water. The companies deny the charge.
The concerns about contamination and all the problems is prompting one
woman to delay building in the area. "My fears are increased," said Sheryl
Lorick, of West Columbia. "It's more severe than I thought. I don't want to
move out there for the safety of my family." (The Associated Press State &
Local Wire, July 14, 2000)
SEARS ROEBUCK: Court Dismisses Suit By Retirees for Life Insurance
------------------------------------------------------------------
In In re Sears Retiree Group Life Insurance Litigation, the US District
Court for the Northern District of Illinois dismissed a class action
lawsuit filed on behalf of more than 100,000 retirees of Sears Roebuck and
Company seeking to compel the retailer to restore retirees' life insurance
benefits.
The U.S. District Court for the Northern District of Illinois has dismissed
a class action lawsuit filed on behalf of more than 100,000 retirees of
Sears Roebuck and Company seeking to compel the retailer to restore
retirees' life insurance benefits. The case is In re Sears Retiree Group
Life Insurance Litigation (No. 97 C 7453).
In 1997, Sears announced that it was drastically reducing life insurance
benefits for its current and future retirees. Under Sears' new policy,
current employees who retired after Dec. 31, 1997, did not receive any
companypaid life insurance. In addition, the more than 84,000 employees who
retired between Jan. 1, 1978, and Dec. 31, 1997, had the value of their
life insurance benefits gradually scaled back to $10,000. To maintain the
value of their benefits, those retirees were given the option of paying an
annual premium that increases each year.
A class of Sears retirees who retired after Jan. 1, 1978, sought
reinstatement of the original life insurance benefits and a restriction on
Sears from retroactively amending its benefits package for retirees. The
suit charged that Sears abrogated benefits that it was contractually
responsible for under ERISA, and that the company breached its fiduciary
duties under ERISA.
At trial, Sears argued that its summary plan description (SPD) included two
reservation-of rights clauses that indicated that the group life insurance
benefits did not vest upon retirement. One of those clauses specifically
applied to retiree life insurance benefits, while the second applied to all
of the plan's benefits. Sears also cited a section of the insurance policy
entitled " retiree section," which stated that the company had the right to
change or terminate the plan.
The retirees countered that the language in the SPD indicated that Sears
intended to provide lifetime insurance benefits to retirees. The retirees
further argued that Sears could not modify the benefits because they had
paid plan premiums for more than ten years while employed with the company.
RELY ON SPD
In dismissing the retirees' suit, the district court explained that the
retirees "themselves rely on SPD language in support of their argument that
Sears promised to provide lifelong insurance benefits to retirees," and
therefore that it was appropriate for Sears to rely on the SPD in arguing
that life insurance benefits did not vest upon retirement.
The court then rejected the retirees' argument that Sears' promise,
included in the SPD, to provide life insurance benefits "without further
cost" proved that the benefits vested at retirement.
The court also rejected the retirees' argument that paying life insurance
premiums for more than ten years constituted separate consideration that
required Sears to provide lifetime benefits to retirees. "Plaintiffs read
too much into the premium payment requirement. A better interpretation of
that contract term is a literal one-ten years of participation in the plan
simply was a prerequisite for receiving retiree life insurance benefits."
The court added that premiums were not additional consideration that
entitled the retirees to vested benefits. (Employee Benefit Plan Review,
June, 2000)
TOBACCO LITIGATION: CNN Coverage on Likely Changes Brought by Verdict
---------------------------------------------------------------------
(Broadcast on the Cable News Network on July 15, 2000)
MILES O'BRIEN, CNN ANCHOR: Florida jurors made history yesterday when
they issued the biggest jury verdict ever. The panel assessed punitive
damages totaling $145 billion against Big Tobacco. What's next for the
cigarette makers?
Richard Daynard, a professor at Northeastern University, joins us to offer
some legal perspective.
Professor Daynard, thanks for being with us.
PROF. RICHARD DAYNARD, NORTHEASTERN UNIVERSITY: A pleasure.
O'BRIEN: I just did the math this morning. There's a class of about
500,000 smokers down there, so it is estimated, and you divide that by
about $145 billion and that's about $300,000 per person. But it really
doesn't end there, does it?
DAYNARD: Well, that's right, because this is just the punitive damages.
This is not intended to compensate these plaintiffs for their injuries and
we have seen what at least this jury, which has now been disbanded, but
there will have to be other juries, what this jury thought each case was
worth and that was about $4 million per plaintiff. You multiply that thing
out, you've got a number that's an awful lot larger than $145 billion.
And that's the estimate of how much damage the industry has caused just in,
it was really for people in the 1990s who got tobacco- caused diseases just
in Florida.
O'BRIEN: Well, you know, Judge Kaye remarked that there were a lot of
zeroes yesterday. You're right, when you start multiplying that out, you
really do get into the realm where you're talking about taking an industry
down. Is that appropriate no matter whatever the industry is doing? Is it
appropriate for juries to be in a position where they could bankrupt an
entire industry?
DAYNARD: Well, this particular jury can't and won't bankrupt this
industry because Florida law prevents a punitive damage award from
bankrupting an industry. Other states don't have that restriction. But the
compensatory damages are a different story. If this industry can't pay for
the harm it causes, it shouldn't be out there and there are ways that it
can change. So even if they were forced into bankruptcy court by some later
proceeding in this or another case, they would be allowed, presumably, to
continue to operate in bankruptcy reorganization, but only if they sold
less toxic, less lethal products, which they have on the shelves. They know
how to make them and only if they sold them through totally different
marketing techniques, through actually telling the truth about the product
rather than continuing this disinformation campaign they've been running so
successfully for the last 50 years.
O'BRIEN: All right, let's take a look ahead. There are cases in
Louisiana and Arizona. There are the Blue Cross and the Blue Shield are
suing. There's just a whole series of cases ahead for the tobacco industry.
Is this sort of crying out for some sort of legislation to come up with a
point where you just say enough already or will this just go on and on?
DAYNARD: Well, it may go on and on. It's going to have to stop at some
point because at some point the dollars exceed the industry's ability to
pay and it can stop in two ways. One way would be through a bankruptcy
reorganization which, you know, I think would have positive public health
consequences because the companies would be forced to change the way they
do business if they were allowed to continue.
Or there could be another effort, might or might not be successful, in
Congress like the one three years ago to try to negotiate what they called
a global settlement.
The industry torpedoed the last one. They would have to come, actually,
with a lot more to the table before public health groups and the people in
Congress who care about the public health will begin to listen to their
pleas.
O'BRIEN: Professor Richard Daynard, who's been in the forefront of the
efforts to make tobacco companies pay for the health effects of their
products. Thanks for being with us on CNN's SATURDAY MORNING.
TOBACCO LITIGATION: Fitch Comments On Rating Implications Of Engle Case
-----------------------------------------------------------------------
According to rating agency Fitch, the ratings of Philip Morris Companies
Inc. (MO), R.J. Reynolds Tobacco Holdings, Inc. (RJR) and Loews Corp. (LTR)
remain unchanged following the decision by a Florida jury in the Engle case
to assess against the industry punitive damages totaling $145 billion. The
Outlook for the industry remains Stable.
The imposition of a substantial punitive damage award was anticipated. The
practical effect of the assessment will be minimal as it may take decades
to complete individual compensatory trials and to enter a final judgment
against the punitive damage award. Moreover, the Florida legislature
recently passed into law a limit of $100 million on the amount a defendant
must bond in order to appeal a punitive damage award. Each of the tobacco
companies noted above has the financial flexibility to post a bond in that
amount. Given the preponderance of judicial decisions in other state and
federal courts in favor of the industry, the Engle case has been highly
controversial. Fitch expects that the tobacco companies will appeal
multiple aspects of the Engle case, including the class certification.
Currently, MO's senior unsecured debt and commercial paper are rated A' and
F1', respectively. Commercial paper issued by Philip Morris Finance (Cayman
Islands) Ltd., with a guarantee by MO, is rated F1', and commercial paper
issued by Philip Morris Capital Corp. is rated F1+'.
RJR's senior guaranteed notes and bank credit facility are rated BBB'.
RJR's senior unsecured notes are rated BBB-'.
Loews Corp. senior debt is rated AA' and subordinated notes rated AA-'.
Nonetheless, litigation, including the federal lawsuit brought by the
Justice Department, and the potential for significant additional excise
taxes remain concerns.
TOBACCO LITIGATION: FL Jury Awards $ 145 Bil in Punitives to Smokers
--------------------------------------------------------------------
Miami A jury ordered the tobacco industry to pay $ 145 billion in punitive
damages to sick Florida smokers, a record-shattering verdict that the
cigarette companies had claimed would amount to a "death warrant."
Smokers' attorney Stanley Rosenblatt hugged several clients after the
verdict, which took the jury less than five hours to reach following a
two-year trial. "It was a day of reckoning," Rosenblatt said. "This was
never about money. This was about showing these companies up for what they
are." The companies plan to appeal the verdict.
Philip Morris Inc.'s attorney, Dan Webb, called the ruling "an unfair
procedure, unheard-of in American history" but predicted its actual effect
on the company would be minimal. "This is a verdict in favor of no one,"
said Webb, whose company was ordered to pay $ 73.96 billion, or about half
of the total.
The jury also ordered R.J. Reynolds to pay $ 36.28 billion; Brown &
Williamson $ 17.59 billion; Lorillard Tobacco $ 16.25 billion; and Liggett
Group Inc. $ 790 million.
"Lot of zeros," Circuit Judge Robert Kaye said after reading the breakdown.
Stock prices of the five companies were down following the ruling, but not
sharply.
The six jurors, who heard testimony from 157 witnesses, began deliberating
the punitive damages question. It was the third time the jury has
deliberated in the case, the first smokers' class action lawsuit to go to
trial. The panel decided in July 1999 that the industry makes a deadly
product. In April, the jury ordered the industry to pay $ 12.7 million in
compensatory damages to three smokers representing the class.
The smokers wanted the tobacco companies to pay $ 196 billion as punishment
for making a product that kills 430,000 Americans a year and for misleading
the public since the 1950s, when internal research concluded smoking causes
cancer.
Top executives from all five defendants made unusual appearances to testify
they didn't deserve to be punished because they have changed their ways and
are already committed to paying billions of dollars to settle the lawsuits
brought by the states.
The ruling was the largest jury damage award ever, far surpassing the $ 22
billion awarded in Hawaii in 1996 to a treasure hunter who sued former
Philippines president Ferdinand Marcos for the alleged theft of gold
bullion. That verdict was later overturned. The largest previous
punitive-damage award was $ 5 billion against ExxonMobil for the Exxon
Valdez oil spill in Alaska. The company is appealing. The previous record
for punitive damages in a product-liability case was $ 4.8 billion against
General Motors last year in a California car fire. A judge slashed the
award to $ 1.09 billion.
The industry filed a mistrial motion earlier last Friday based on closing
arguments by Rosenblatt, charging improper commentary and inflammatory
remarks "preclude the jury's rational consideration" of the case. The judge
has delayed deciding dozens of mistrial requests. As the case wound down
this week, lawyers for both sides spoke of death the death of Big Tobacco
and the deaths of millions of smokers. Philip Morris' Webb said the
awarding of up to $ 196 billion would be a "death warrant" for the
industry. Rosenblatt turned the phrase around last Thursday, saying it was
the cigarette industry that had issued death warrants to millions of
consumers.
Lawyers for the companies said the companies could afford to pay only $ 150
million to $ 375 million and that they would be put out of business if the
award went much higher. Under Florida law, a punitive verdict cannot
bankrupt a defendant. The range offered by the industry, which has never
paid any damages to smokers, amounts to 1 percent to 3 percent of its $
15.3 billion audited net worth or one to four days in wholesale cigarette
sales. "You either destroy them or you don't," Brown & Williamson attorney
Gordon Smith told jurors. "Your verdict must reflect the current ability to
pay. It must reflect reality, not fantasy." Rosenblatt told jurors this was
"no time for timidity" and asked them to "wipe out 50 years of treachery"
by the industry. He told panelists to send a message to the world. Lowering
the $ 196 billion request "in any substantial way would be a crushing blow
to public health in this country," he said in closing remarks. "We ask you
to speak for all those silent, anonymous victims of tobacco grieved by
their loved ones but unknown to a callous and deceitful industry,"
Rosenblatt said.
The key tobacco defense is that the industry has changed its ways since
states began suing in 1994 and that the $ 257 billion national settlement
with the states is enough to pay. The Florida case was the most serious
financial threat to the industry since the national settlement. Any verdict
will be appealed and could take at least two years to move through
Florida's courts. Brown & Williamson was the last cigarette maker to offer
closing arguments, asking the jury to make it pay the smallest amount based
on the company's lowest rank by profits among the defendants. Smith said
7,000 employees are working to make Brown & Williamson a responsible
company, and pleaded: "I ask that you don't kill that dream. Don't stop a
better future." (The Legal Intelligencer, July 17, 2000)
TOBACCO LITIGATION: Fund Manager Says Mega-Award Won't Be Paid
--------------------------------------------------------------
Investors are likely to respond with a collective shrug to the $ 145
billion verdict against the major tobacco companies in the Florida smokers
case, industry analysts say. The verdict is by far the largest punitive
damages award in the history of American jurisprudence. But analysts say
the companies are unlikely to pay it.
"It's going to be overturned. This kind of class action has never lasted,"
says David Dreman, manager of the Kemper-Dreman High Return Fund, which
owns Philip Morris stock. Dreman summed up the view of many money managers:
"The judge and the jury are out of a John Grisham novel."
Appeals are expected.
Philip Morris, the world's biggest tobacco firm, was socked by the jury for
$ 74 billion, nearly half the total award. The sum nearly matches Philip
Morris' total sales over the past 12 months of $ 79 billion for all its
products: tobacco, beer and food. "There's probably not a company in the
world that can withstand a verdict of this size," Philip Morris lawyer Dan
Webb said.
The verdict was announced last Friday afternoon before U.S. markets closed.
The stocks of all five defendants in the case -- Philip Morris, R.J.
Reynolds, British American Tobacco (Brown & Williamson), Loews Corp.
(Lorillard) and Vector Group (Liggett)-- closed down for the day but not
dramatically.
Reynolds lost the most last Friday, closing at $ 26.19, off 3.5%. Philip
Morris closed at $ 24.50, down 1.5%. British American Tobacco closed at $
12.50, down 2%. Loews closed at $ 63.16, down 0.7%. Vector finished at $
14.44, down 2.9%.
Jack Cunningham, a portfolio manager and tobacco analyst at Salomon
Brothers Asset Management, says most investors had been expecting a large
verdict and that minimized the shock to share prices.
Looking ahead, Cunningham says he's comfortable holding his tobacco stocks
at current prices. "If they were to fall further, that would be a good
buying opportunity."
Yields on tobacco company bonds rose last Friday on news of the verdict.
"It's certainly not positive for bondholders, but I don't expect anyone to
bail out or panic," John Atkins, a corporate bond analyst at
IDEAglobal.com, told Reuters. (Published in USA Today, July 17, 2000)
TOBACCO LITIGATION: Professor Says Engle Verdict Unlikely to Be Reversed
---------------------------------------------------------------------
Repudiating the tobacco industry's long history of fraud and deception, a
Miami jury delivered an historic verdict, awarding plaintiffs in the Engle
case a record $144 billion in punitive damages. Richard A. Daynard,
Chairman of the Tobacco Products Liability Project at Northeastern
University School of Law and a professor of law there, called the jury's
verdict "an affirmation of the millions of lives of Americans devastated by
the tobacco industry's outrageous and illegal conduct over the past half
century."
Prof. Daynard also commended the jury for holding each of the major tobacco
companies financially accountable for their long history of misconduct. The
breakdown by company is as follows: $73.9 billion to be paid by Philip
Morris, Inc.; $36.2 billion by R.J. Reynolds Tobacco Co.; $17.5 billion by
Brown & Williamson Tobacco Co.; $16.2 billion by Lorillard Tobacco Co.; and
$790 million by Liggett Group.
Throughout the course of this lengthy trial, pro-tobacco stock analysts
have downplayed the importance of the Engle trial and this jury's previous
verdicts in July 1999 and April 2000. Shortly before closing arguments,
which began on July 10, analysts predicted that the jury award in the
punitive damages phase would not exceed $20 billion. Not surprisingly, they
now are predicting - if not outright guaranteeing - that the jury's verdict
will be overturned on appeal.
"Rather than heeding the predictions of stock analysts who are not lawyers
and who rely on sources inside the tobacco industry, people should keep in
mind that the Florida's Courts of Appeal, as well as the Florida Supreme
Court, have had ample opportunity to derail the Engle case, if they had
been so inclined. Instead, these courts have quite properly refused to do
so and have let the case proceed as a class action. The fact that other
courts in other states and under other circumstances have decertified class
actions against the tobacco companies is irrelevant to the Engle case,"
Daynard said. He also commended the jury for its patience and perseverance
as it has served for over two full years and for its ability to see through
the industry's "bogus claims that it has fundamentally changed" the way it
behaves. "As Stanley Rosenblatt quite eloquently put it in his closing
arguments, the Day of Reckoning has come for Big Tobacco. At long last, the
tobacco companies are being held accountable for their despicable and
illegal behavior over the past half century," Daynard concluded. (Source:
Tobacco Products Liability Project)
TOBACCO LITIGATION: Statement of Tri-Agency Coalition on $145B Verdict
----------------------------------------------------------------------
The following was released on July 14 by Tri-Agency Coalition on Smoking OR
Health:
"Today is a great day for Florida. For too many years the tobacco industry
has profited by killing off our friends and relatives. Health advocates
have called for justice and today they received it. As a result of today's
ruling, tobacco companies will be forced to pay for the sickness and death
their product causes." John S. Curran, M.D., President, American Lung
Association of Florida
"This is a win for the generations of families who have lost mothers and
fathers, sisters and brothers, husbands and wives because of Big Tobacco's
deadly product. This verdict sends a clear signal to the tobacco industry
that the days of deceiving Americans about the dangers of tobacco are over.
There is a price to pay for lies and deceit." Brian R. Gilpin, Vice
President, Public Advocacy, American Heart Association, Florida/Puerto Rico
Affiliate
"Big Tobacco has claimed throughout the trial that these damages would be
the death of their industry. And yet, their first statement following the
verdict was to assure their stockholders there is no cause for alarm.
Whether they were lying then or they are lying now, one thing is certain,
you can't trust Big Tobacco." Brian R. Gilpin, Vice President, Public
Advocacy, American Heart Association Florida/Puerto Rico Affiliate
"The magnitude of this verdict cries out for the political leaders of this
country to take steps toward the regulation of tobacco products." Byron
Hodge, M.D., President, American Cancer Society, Florida Division
On behalf of all of the volunteers and health advocates that comprise the
Tri-Agency Coalition, we applaud the courage of the Miami jury for taking a
strong stand against this kind of deception.
Source: Tri-Agency Coalition on Smoking OR Health
TOBACCO LITIGATION: Statement of Tri-Agency Coalition on $145B Verdict
----------------------------------------------------------------------
The following was released on July 14 by Tri-Agency Coalition on Smoking OR
Health:
"Today is a great day for Florida. For too many years the tobacco industry
has profited by killing off our friends and relatives. Health advocates
have called for justice and today they received it. As a result of today's
ruling, tobacco companies will be forced to pay for the sickness and death
their product causes." John S. Curran, M.D., President, American Lung
Association of Florida
"This is a win for the generations of families who have lost mothers and
fathers, sisters and brothers, husbands and wives because of Big Tobacco's
deadly product. This verdict sends a clear signal to the tobacco industry
that the days of deceiving Americans about the dangers of tobacco are over.
There is a price to pay for lies and deceit." Brian R. Gilpin, Vice
President, Public Advocacy, American Heart Association, Florida/Puerto Rico
Affiliate
"Big Tobacco has claimed throughout the trial that these damages would be
the death of their industry. And yet, their first statement following the
verdict was to assure their stockholders there is no cause for alarm.
Whether they were lying then or they are lying now, one thing is certain,
you can't trust Big Tobacco." Brian R. Gilpin, Vice President, Public
Advocacy, American Heart Association Florida/Puerto Rico Affiliate
"The magnitude of this verdict cries out for the political leaders of this
country to take steps toward the regulation of tobacco products." Byron
Hodge, M.D., President, American Cancer Society, Florida Division
On behalf of all of the volunteers and health advocates that comprise the
Tri-Agency Coalition, we applaud the courage of the Miami jury for taking a
strong stand against this kind of deception.
Source: Tri-Agency Coalition on Smoking OR Health
Contact: Ralph DeVitto of the American Cancer Society, 813-785-3767; or
Brian Gilpin of the American Heart Association, 727-570-8809; or Brenda
Olsen, of the American Lung Association, 850-386-2065, all for Tri-Agency
Coalition on Smoking OR Health
UTAH SCHOOL: Officials Say Tests for Diplomas May Face Court Challenge
----------------------------------------------------------------------
Some Utah education officials are apprehensive about the
Legislature-mandated plan to require students pass an exit test before
receiving high school diplomas. Starting in 2003, 10th graders will take a
three-part test of basic skills that are to be mastered before students
graduate. The 2005 graduating class will be the first to be affected.
Hinging a diploma on a single test could bring a variety of problems, said
Reed Spencer, coordinator of curriculum assessment and early childhood
education for the Ogden School District. "From a professional standpoint,
it isn't now nor has it ever been accepted. I think we're going to see
class-action lawsuits left and right," Spencer said.
Lynn Wood, Ogden School Board member, agrees that test scores don't tell
the whole story but believes students must demonstrate basic skills. "They
have to be ready for life in terms of either their careers or higher
education."
The state School Board voted to pay Measured Success of Dover, N.H., $6,000
to develop the Utah Basic Skills Competency Test as mandated by the
Legislature.
Lawmakers passed HB 177 this year implementing the Utah Performance
Assessment System for Students - a combination of assessment instruments to
look at statewide student achievement.
Students will have several opportunities to pass each test section
measuring skills in reading, language arts and mathematics. Students who
fail the test but fulfill other graduation standards will receive a
certificate of completion instead of a diploma. So far, the state has not
clarified what the certificate's practical applications would be.
Gary Carlston, state deputy superintendent for public instruction, said the
ultimate goal is for all students to pass but admitted that was unlikely in
the test's first administration. Students with disabilities or special
needs will be accommodated in accordance with their individual educational
plans, Carlston said.
The tests have found critics in other states with a number of surveys
indicating that, nationwide, two-thirds of parents feel it's wrong to
withhold a diploma based on one test, Spencer said.
In Texas, a federal judge rejected claims the state's exit test
discriminates against blacks and Latinos. "(States) are trying to respond
to the call for accountability, but they're having a hard time doing it in
ways that aren't patently unfair," Spencer said.
Christine Wahlquist, research and assessment director for the Davis School
District, said more time is needed to make sure different populations of
students have a reasonable opportunity to understand the test questions.
Students at selected schools will take the exit test for the first time as
part of a pilot program in spring 2001 and then again, statewide in 2002,
said Barbara Lawrence, state director for evaluation and assessment. (The
Associated Press State & Local Wire, July 17, 2000)
* Hatch Takes Firm Stand on Class Action Removal Bill
-----------------------------------------------------
On June 22, the U.S. Senate Judiciary Committee began consideration of S.
353, the class action removal bill. The legislation, now supported by
virtually all Republican Senate Judiciary Committee members, is expected to
be reported favorably for consideration by the full U.S. Senate following
the conclusion of Committee deliberations. Before a packed hearing room
with representatives from both sides of the class action issue, Senate
Judiciary Chairman Orrin Hatch described the legislation as being
"extremely important" and indicated that other legislation coming before
the Committee would have to wait until the Committee takes action on S.
353. This was an important symbolic gesture for Lawyers for Civil Justice
and other business trade and defense bar organizations supporting the class
action removal bill as a first step in class action reform. Just days prior
to the Committee meeting, proponents of the legislation were encouraged by
the support of Senate Judiciary Committee member Senator Arlen Specter
(R-PA) for the bill and remained hopeful of getting New York Senator
Charles Schumer (D- NY) and Senator Diane Feinstein (D-CA) on board.
It is anticipated that the sponsors of the class action removal bill will
offer a substitute amendment which is closer to the House passed bill, H.R.
1875, which will then become the basis of the Committee's deliberations.
The thrust of the bill is its diversity provisions which grant original
jurisdiction of any civil action where the value of the case exceeds $
75,000 and where any member of the class of plaintiffs is citizen of a
state different from any defendant. Under current law, plaintiffs'
attorneys are able to prevent cases from being removed by defendants to
federal courts under the "complete diversity" requirements which now exist.
The effect of the changes would be to provide defendants with the option of
removing cases to the more fair and neutral forum of federal courts for
disposing of class action cases. In recent years, the number of class
actions has skyrocketed and defendant deep pocket corporations now face a
barrage of class actions in state courts which are often ill equipped to
try these cases and sometimes biased against out-of-state defendants.
LCJ, a coalition of defense and corporate counsel has testified in Congress
in support of S. 353. Corporations and their outside counsel are being
urged to support S. 353 as part of an overall initiative on class action
reform. (The Metropolitan Corporate Counsel, July, 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.
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