/raid1/www/Hosts/bankrupt/CAR_Public/001013.MBX
C L A S S A C T I O N R E P O R T E R
Friday, October 13, 2000, Vol. 2, No. 200
Headlines
ASPEON INC: Milberg Weiss Files Securities Suit in California
BRIDGESTONE/FIRESTONE INC: New Chief Executive's Deposition Postponed
BRIDGESTONE/FIRESTONE INC: S.C. State Suit Challenges 'Rolling Recall'
CREDIT CARDS: Judge Cancels Closing Argument in Antitrust Case
DATASTREAM SYSTEMS: SC Ct Preliminarily OKs Securities Suit Settlement
FORD MOTOR: Announces Models with Distributor-Mounted TFI-IV Modules
FORD MOTOR: Referee Appointed in CA; TFI Suits Pending in Other States
GART SPORTS: Former Employee of Acquired Sportmart File Wage Suit in CA
GATEWAY, INC: Milberg Weiss Files Securities Suit in California
HMOs: Health Plan Medical Directors Face Greater Scrutiny
HMOs: Texas Must Resolve Medicaid Program's Problems, Judge Denies Stay
INMATES LITIGATION: Female Inmates Ask for Better Health Care
LONZ WINERY: Lawsuits over Terrace Collapse Now Total 16
MICROSOFT CORP: Court Sets Appeal Date
MITEK SYSTEMS: Cauley & Geller Files Securities Suit in California
MITEK SYSTEMS: Milberg Weiss Files Securities Suit in California
NY CITY: Giuliani Proposes Rent Subsidies for Homeless Families
ORTHOLOGIC CORP: Settles Securities Suits in Arizona
OTTAWA: Vets Win $1.3B Suit for Interest Withheld from Disability Checks
OXFORD HEALTH: Milberg's Leading Role in Securities Suit Is Under Attack
SBC-AMERITECH: Alleged of Wrongfully Charging for Dirctory Assistance
SCB COMPUTER: Securities Suits in TN Consolidated
SECURE COMPUTING: Securities Suits Pending in California
* House Passed Tire Legislation to Prevent Repeat of Problem
*********
ASPEON INC: Milberg Weiss Files Securities Suit in California
-------------------------------------------------------------
Milberg Weiss (http://www.milberg.com/aspeon/)announced on October 12 that
a class action has been commenced in the United States District Court for
the Central District of California on behalf of purchasers of Aspeon Inc.
("Aspeon") (NASDAQ:ASPE) publicly traded securities during the period
between Oct. 28, 1999 and Sept. 28, 2000 (the "Class Period").
The complaint charges Aspeon and certain of its officers and directors with
violations of the Securities Exchange Act of 1934. Aspeon designs,
develops, markets, and sells open system touch screen point-of-sale
computers, which are sold primarily to the foodservice and retail
industries. The Company also offers information-systems outsourcing,
including industry-specific integrated application service provider ("ASP")
products and information technology management services.
On Sept. 29, 2000, Aspeon announced that the Company will restate its first
quarter 2000 financial statements as a result of accounting misstatements
that will require an extension of time to file its fiscal 2000 10-K:
"The extension is required so that the company can complete its analysis of
the timing of recording revenues," said Richard Stack, chairman and chief
executive officer. "The focus is on a portion of one domestic subsidiary's
sales where the company is obligated to provide installation services. ...
"The impact of revenue adjustments, if any, on any previously issued or
audited financial statements have not been determined at this time."
"The quarterly pre-tax impact of these adjustments approximates $99,000, $
160,000 and $237,000 for the first, second and third quarters of fiscal
2000, respectively," said (Tim) Feeney (chief financial officer, Aspeon
Inc.). "Finally, the company's net loss per common share will be impacted
by an additional $1.4 million non-cash charge to adjust the previously
recorded beneficial conversion feature associated with the Series A
preferred stock issued by the company in March 2000."
Contact: Milberg Weiss Bershad Hynes & Lerach LLP William Lerach,
800/449-4900 wsl@mwbhl.com
BRIDGESTONE/FIRESTONE INC: New Chief Executive's Deposition Postponed
---------------------------------------------------------------------
Bridgestone/Firestone Inc.'s new chief executive will not have to give a
deposition on Thursday about his involvement in the recall of 6.5 million
tires linked to wrecks that have killed more than 100 people in the United
States and at least 50 overseas.
Attorneys suing the company agreed to postpone John Lampe's testimony until
later this month, in part to let him ``settle in'' as chief executive,
chairman and president of the embattled tire maker, company spokeswoman
Christine Karbowiak said.
Lampe replaced Masatoshi Ono Tuesday as the top executive of Tokyo-based
Bridgestone Corp.'s U.S. subsidiary. Ono, 63, who cited health and age, not
the recall, returned home immediately to Japan.
Lampe's deposition became a little less urgent because a hearing scheduled
for next week on the case _ in which attorneys will ask an Illinois court
to expand the recall and administer it, rather than the company _ was
indefinitely postponed. Lampe has until Oct. 26 to give his deposition.
Lampe spent his first full day on the job getting to know some of his 850
Nashville employees and introducing himself to the American public via
network TVs' morning shows.
Bridgestone/Firestone executive vice president Gary Crigger did answer
questions as scheduled Wednesday from Knoxville attorney Gordon Ball.
Ball represents consumers seeking class action status for lawsuits claiming
the tire maker and Ford Motor Co., which used the tires as standard
equipment on some vehicles, breached their warranties and provided products
that were not fit for their intended use.
Crigger helped coordinate responses to the National Highway Traffic Safety
Administration's investigation into wrecks involving Firestone tires, most
on Ford Explorers.
He also announced the company's decision to recall ATX, ATX II and
Wilderness tires, and testified before Congress, but he told Ball that he
is no longer involved in the recall.
``I felt the stress of the situation and felt a need to back away,''
Crigger said, according to a transcript of the deposition provided by the
company to The Associated Press. He said it had nothing to do with his
congressional testimony and that he didn't have a philosophical difference
of opinion from company executives about the recall.
During most of the five-hour deposition, Crigger simply acknowledged the
veracity of congressional testimony that he and other Bridgestone/Firestone
executives had given.
Ball said he wanted to get that testimony into a court record and to make
it clear Lampe had repeatedly told Congress the company acknowledged there
was a defect in some tires. ``He's now shying away from that word and
calling it a safety problem.''
On Tuesday Lampe said that ``we acknowledge and accept responsibility that
we have some performance issues in a very small percentage of our tires.
Defects would indicate that you know what it is, that you can see it, that
you can touch it. ... We don't know at this point in time what the root
cause, or the combination of causes, is.'' (AP, October 12, 2000)
BRIDGESTONE/FIRESTONE INC: S.C. State Suit Challenges 'Rolling Recall'
----------------------------------------------------------------------
The attorney general of South Carolina has filed a state court suit against
Bridgestone/Firestone Inc. alleging the company's "rolling recall" of 6.5
million allegedly defective tires in different regions of the country
shortchanges South Carolina and violates the state's Unfair Trade Practices
Act. State of South Carolina v. Bridgestone/Firestone Inc., No. 00-CP-40,
complaint filed (S.C.C.P., Richland County, Aug. 14, 2000).
South Carolina Attorney General Charlie Condon maintains that the state has
the same climate as other regions which will be included in the recall
sooner. Failure of the ATX, ATX II and Wilderness AT tires involved have
been linked to high operating temperatures.
The recall is being conducted first in Arizona, California, Florida and
Texas. The second phase will include Alabama, Georgia, Louisiana,
Mississippi, Nevada, Oklahoma and Tennessee.
"South Carolina, although it has a climate similar to that of the states in
the first two phases, has been placed with the remaining thirty-nine states
in the third and final phase of the recall," Condon argues, "As a result
<> South Carolina consumers will not receive new tires until
sometime in 2001."
The suit notes that the recall plan was based on the number of incidents
reported to the National Highway Traffic Safety Administration, but that
this method was flawed because "the mere reporting of accident to NHTSA is
not necessarily a true reflection of the number of accidents caused by
these tires in a given state. In addition, it probably bears no relation at
all to the number of tires of the lines in question which are present in a
given state."
The state wants the court to order its inclusion in the recall and a fine
of $5,000 for each individual sale of the tires, as a violation of the
Unfair Trade Practices Act. (Tire Defect Report: Special Supplement to
Automotive Litigation Reporter, September 12, 2000)
CREDIT CARDS: Judge Cancels Closing Argument in Antitrust Case
--------------------------------------------------------------
Observers of the Justice Department's antitrust case against Visa and
MasterCard say that the judge's decision to cancel closing arguments may
mean simply that she has heard enough -- or it could mean that she has
already decided in favor of the credit card associations and merely wants
time to write up her opinion.
Though all theories are speculative, people who have been following the
trial say the judge, Barbara Jones of U.S. District Court for the Southern
District of New York, would probably be reluctant to slam the card
companies without giving them a final say.
As one lawyer close to the case put it, "One might think that if she were
going to restructure the industry she would create a record of having heard
all argument."
To be sure, Judge Jones still has all her options open. She could change
her mind and decide to hear closing arguments -- which had been scheduled
for Monday at a later date, or she could issue her decision any day.
Observers said that since the trial began in May, the judge has been speedy
and efficient in issuing rulings and moving the proceedings along so that
it would seem likely she would bring the case to some kind of conclusion
within a few weeks.
Even one lawyer whose sympathies tilt toward the government, Lloyd
Constantine, principal of the New York law firm Constantine & Partners,
reads the decision as bad news for the Justice Department.
"Generally, you would expect the judge to give Visa and MasterCard the
opportunity to present closing arguments if the judge were leaning in the
direction of ruling against them," said Mr. Constantine, who is lead
counsel in a civil lawsuit against Visa and MasterCard brought by the
nation's largest retailers. "She is leaning in favor of ruling for Visa and
MasterCard and against the government. I can't imagine any other spin."
On the other hand, Mr. Constantine said, the cancellation of closing
arguments may simply be an attempt on the judge's part to catch up with
reading the massive amounts of evidence presented in the case.
"She has got a lot to read, and the closing arguments would be less
valuable to her until she reads them," he said. "Then she would be in a
position where closing arguments would assist her."
If the government wins, Visa and MasterCard will be certain to appeal.
Lawyers interviewed Wednesday were divided over whether the cancellation of
final arguments would give the card associations any extra legal help in an
appeal.
Andrew Mohan, Judge Jones' deputy clerk, said he did not know if the judge
planned to reschedule the oral arguments. If she does not, the next
procedural move would be to issue her decision, which she could do in a
number of ways, he said: by faxing it ahead of time to all the parties
involved, by calling them to come pick it up, by convening court, or simply
by filing it with the clerk of the court, which would make it available to
everyone -- including the public -- at the same time.
Anita Boomstein, a partner in the Manhattan law firm of Hughes, Hubbard &
Reed who specializes in credit card law, said many judges routinely opt out
of final oral arguments unless there are particular questions they want to
ask.
"The consensus is, you can't draw any conclusions from it," Ms. Boomstein
said. "She may feel she has sufficient information based on the briefs
submitted, or it may be she is not ready to hear oral arguments. She did
not indicate whether she has canceled it forever. You can't say it favors
either side, because we don't know the reason for her decision to cancel
the oral argument."
Ms. Boomstein added that she has been "on record all along saying the
government's case is weak." She did not feel "their argument supported the
testimony finding in the government's favor."
Brian Smith, a partner at the Washington law firm of Mayer, Brown & Platt
who once was MasterCard International's general counsel, said he also
thought the government had failed to prove its case, but that Judge Jones'
move probably did not reflect that.
"While I think it's an indication that the court views that the facts are
clear, I don't think it indicates that she has made up her mind who has
won," Mr. Smith said.
"There is incredible competition among the credit card companies," he said.
"The consumer has been well-served by this competition. I think the Justice
Department's remedies are unresponsive to reality. I think it's just an
activist antitrust division not having a complete appreciation of the
history and operation of these systems."
Duncan McDonald, former general counsel of Citibank's card business for
Europe and North America, concurred with the view that enough was enough.
"She's gone through three months of the trial," he said. "She's read 5,000
pages of documents that are wildly repetitious. The word among the folks is
what a masterful job she has done. They all seem to agree they've never
seen a judge that has kept her opinion so close to the vest."
Representatives of the parties to the case -- the Justice Department, Visa
U.S.A., Visa International, MasterCard, American Express Co., and Discover
Financial Services -- were circumspect in their observations.
"This is not the time, when the judge is on the cusp of making a decision,
to predict with bravado how the judge is likely to rule," said one observer
familiar with the Justice Department's case. "We don't want to read tea
leaves."
Part of the hesitation to offer an opinion on the judge's likely next move
is the observation, made by many, that the judge does not readily
communicate her thinking on arguments, though she is an active, involved
questioner.
Noah Hanft, MasterCard's deputy general counsel, said in an interview:
"Insofar as the court's cancellation of the oral arguments, we don't think
that there's any basis to draw any inference from that either way. We
continue to be very confident in our legal position."
Visa U.S.A. also took a neutral stance in a statement it issued Tuesday. "I
simply don't know" what the judge's move means, said Mike Reilly, a Visa
spokesman.
After this trial is over Visa and MasterCard will defend themselves against
the class action brought by the retailers, who are protesting the prices
charged for debit card acceptance. Mr. Constantine, the lawyer spearheading
that case for the plaintiffs, said the result of the antitrust suit will
have little effect on the merchant lawsuit, except perhaps for a
psychological one.
Mr. Constantine said he would "prefer the government to win for the
emotional factor" of sending Visa and MasterCard to their next lawsuit with
a loss under their belts. "If the government wins that case, all the
problems we have are the same. It doesn't change our case." (The American
Banker, October 12, 2000)
DATASTREAM SYSTEMS: SC Ct Preliminarily OKs Securities Suit Settlement
----------------------------------------------------------------------
Datastream Systems, Inc. (Nasdaq: DSTM) announced that the United States
District Court for the District of South Carolina has preliminarily
approved an agreement reached to settle the consolidated securities class
action litigation filed against the Company in January 1999. Under the
agreement, which is subject to final approval by the court, all claims
against the Company and all of the individually named defendants will be
dismissed. In agreeing to the proposed settlement, the Company and the
individual defendants specifically deny any wrongdoing or liability
relating to the claims made in the litigation.
The principal financial terms of the agreement call for payment to the
plaintiffs, for the benefit of the class, of a total of $5 million in a
combination of $3.75 million in cash and $1.25 million in shares of the
Company's common stock. The Company's insurance carrier will fund $2.40
million of the settlement. The parties have taken steps to secure final
court approval of the settlement and the court has scheduled a hearing on
the proposed settlement of the action. The court has also approved the form
of notice to be mailed to the affected class members by the attorneys for
the plaintiffs.
In connection with the securities class action and SQL settlements, the
Company will record a combined pre-tax charge of approximately $4.4 million
in its third quarter results.
Founded in 1996, Datastream Systems, Inc. (Nasdaq: DSTM) helps more than
56,000 customers in 129 countries maximize the profitability of capital
assets throughout their lifecycle: from buying and tracking through
maintaining and selling.
FORD MOTOR: Announces Models with Distributor-Mounted TFI-IV Modules
--------------------------------------------------------------------
As reported in the CAR yesterday, California Judge Michael E. Ballachey of
Alameda County Superior Court ordered the firm to replace faulty ignition
devices or repay customers who fixed them themselves.
The decision by affects about 3.5 million California residents who own or
formerly owned Ford vehicles equipped with an electronic component known as
the thick film ignition module, or TFI. Ford installed the device on 29
models between 1983 and 1995, including the Taurus, LTD, Ranger, Bronco,
Mustang and Escort.
Models Affected
Ford Motor Co. says these models were equipped with distributor-mounted
TFI-IV modules. For details, contact Ford at (800) 392-3673.
Model Year(s)
----- -------
* Aerostar 1986-90
* Bronco 1984-91
* Bronco II 1984-90
* Capri 1983-86
* Continental 1984-87
* Cougar 1984-88
* Crown Victoria 1984-91
* E-Series 1984-91
* Escort 1983-90
* EXP 1983-88
* F-Series 1984-91
* F-Stripped Chassis 1989
* Grand Marquis 1984-91
* LN7 1983
* LTD 1984-86
* Lynx 1983-87
* Mark 1984-92
* Marquis 1984-86
* Merkur 1985-89
* Mustang 1983-93
* Probe 1990-92
* Ranger 1983-92
* Sable 1986-95
* Scorpio 1988-89
* Taurus 1986-95
* Tempo 1984-94
* Thunderbird 1983-88
* Topaz 1984-94
* Town Car 1984-90
(Table of Models Affected Published in Los Angeles Times, October 12, 2000)
FORD MOTOR: Referee Appointed in CA; TFI Suits Pending in Other States
----------------------------------------------------------------------
Nationwide, as many as 23 million vehicles are susceptible to stalling,
according to Ballachey. Similar class-action suits are pending in Alabama,
Maryland, Illinois, Tennessee and Washington.
At issue is an ignition device known as the TFI (thick film ignition)
module. The judge found that when the module is placed on the distributor,
which heats up quickly, rather than on a cooler part of the engine, the car
can stall without warning.
The plaintiffs said the module often failed at 257 degrees, resulting in
stalled engines. Ford decided to save $4 per vehicle by mounting the device
on the distributor instead of on a cooler place on the engine, their
attorneys said.
Sue Von Ritter, 48, of Fremont, who was among the named plaintiffs in the
suit, called yesterday's ruling "absolutely marvelous."
Four years ago, Von Ritter and her three children were driving south on
Interstate 880 in Fremont when her 1989 Ford Taurus station wagon stalled.
"All of a sudden, everything stopped," she said. "It was raining, the kids
were screaming -- it was horrible. We were really lucky there wasn't a car
right in back of me. If there was, I wouldn't be talking to you right now."
Von Ritter sold the car. "I couldn't stand it anymore," she said.
But Ford attorney Richard Warmer maintained that Ford vehicles are safe and
said there was no evidence presented during the trial that justified a
recall. Without admitting liability, however, Ford has settled out of court
about 15 injury or death claims alleging TFI failures.
David Cole, director of the University of Michigan's Office for the Study
of Automotive Transportation, said the court's recall order could increase
public concerns about Ford vehicles because of the tire recall. Firestone
tires have been linked to at least 101 deaths in the United States.
Referee Appointed
The judge appointed San Francisco attorney Jerome Falk Jr. to serve as a
referee. Falk, who declined to comment, could direct Ford to take the
module off the distributor and mount it elsewhere, replace it with a newer
model or order a vehicle buyback.
The trial began in May 1999 over whether Ford violated state consumer laws.
Paul Nelson, a plaintiffs attorney from San Francisco, said that the judge
did what regulatory agencies that were misled by Ford -- including the
Environmental Protection Agency and the National Highway Traffic Safety
Administration -- could not.
"This was a court of last resort," Nelson said. "You don't get to this
stage unless the system failed."
But some legal observers doubt the ruling will be upheld on appeal.
"This shows why Congress decided to have recalls be ordered by the federal
government," said Donald Garner, a product-liability legal expert at
Southern Illinois University law school.
"I think the chances of this ever being enforced would be remote."
What The Judge's Ruling Means
Q: Is it dangerous to drive a 1983-95 Ford model?
A: The judge ruled that some models from these years are susceptible to
stalling. Ford, which says the vehicles are safe, has settled out of court
dozens of wrongful-death and injury suits linked to stalling.
Q: What is the proposed fix?
A: Unless an appeals court halts the recall, a referee will study three
options: - having Ford move the ignition switch to a cooler location,
- replacing the module with a new model or
- requiring Ford to buy back the vehicles.
Q: Once a referee settles on a fix, who will pay for it?
A: Ford.
Q: Can I pay to get my car fixed immediately and get reimbursed later?
A: At the moment, plaintiffs lawyers are unsure how someone who has the
repairs done before the referee's decision would be reimbursed. If
you do pay for an immediate repair, lawyers advise keeping the
receipt. (The San Francisco Chronicle, October 12, 2000)
GART SPORTS: Former Employee of Acquired Sportmart File Wage Suit in CA
-----------------------------------------------------------------------
In June 2000, a former employee of Sportmart, which has been acquired by
Gart Sports Co. brought two class action complaints in California, against
Gart Sports Co., alleging certain wage and hour claims in violation of the
California Labor Code, California Business and Professional Code section
17200 and other related matters. Both complaints seek compensatory damages,
punitive damages and penalties. The amount of damages sought is
unspecified. The Company intends to vigorously defend these matters and at
this time, the Company has not ascertained the future liability, if any, as
a result of these complaints.
GATEWAY, INC: Milberg Weiss Files Securities Suit in California
---------------------------------------------------------------
Milberg Weiss Announces a Consumer Fraud Class Action Lawsuit Against
Gateway, Inc.
Computer maker Gateway, Inc., (NYSE: GTW) is accused of misleading its
customers by offering "free" Internet access without revealing that many
would be charged long-distance telephone rates, automatically issuing
credit cards charging an almost 27% interest rate, and refusing to accept
returns from clients who were upset at discovering these facts, according
to a class action lawsuit filed by a client represented by the law firms of
Milberg Weiss Bershad Hynes & Lerach LLP; and Almon, McAlister, Baccus Hall
& Kelley, LLC.
The complaint charges that Gateway violated the California Consumer Legal
Remedies Act and the California statute prohibiting fraudulent and unfair
business practices and false and misleading advertising. In addition to
these statutory causes of action, the complaint also alleges that Gateway
violated the California common law pertaining to fraud and deceit,
negligent misrepresentation, and intentional infliction of emotional
distress. The action is pending in the Superior Court of the State of
California, County of San Diego.
The complaint alleges that Gateway untruthfully advertised -- in written
sales brochures sent to consumers who expressed interest in purchasing
Gateway products -- that certain of its product packages included free
Internet access for the first year. The offer was deceptive and fraudulent,
the complaint alleges, because Gateway did not reveal that thousands of
people would be charged long-distance connection fees under Gateway's
purported "free" Internet access plan because Gateway did not provide
local-access numbers. The Complaint alleges that these customers were
deprived of the "free" Internet access advertised and offered by Gateway,
and subscribed at their own expense with an Internet service provider,
unwittingly paid long distance charges, or refrained from accessing the
Internet.
The complaint further alleges that Gateway defrauded a separate class of
consumers by automatically enrolling those who expressed interest in
financing their purchases through Gateway in Gateway's "Moola MasterCard"
plan which carried an Annual Percentage Rate of 26.99% (dubbed
"competitive" in the brochure). The interest rate, the complaint alleges,
was disclosed only after it was too late -- under Gateway's policy -- to
return the goods for a refund.
Contact: David Rosenstein 800/320-5081 or Almon, McAlister, Baccus Hall &
Kelley L.L.C. G. Rick Hall 256/383-4448
HMOs: Health Plan Medical Directors Face Greater Scrutiny
---------------------------------------------------------
Byline: By Keith J. Halleland And Shirley J. Qual, Special To The National
Law Journal; Mr. Halleland and Ms. Qual are shareholders at Minneapolis'
Halleland Lewis Nilan Sipkins & Johnson, specializing in health care and
insurance litigation and regulatory compliance.
Increased role in establishing policies that implicate coverage decisions
could lead to liability.
The past 12 months have seen a significant increase in class action
litigation that challenges not only health plan decisions but also the very
integrity of underlying managed care decision-making processes. This trend
is fueled by a perception that, in the case of coverage decisions, health
plans are choosing healthy financials over the health and welfare of
patients. Plaintiffs' attorneys, in an effort to press claims in the face
of protections under the Employee Retirement Income Security Act (ERISA),
are alleging a fraudulent disconnect in how health plans represent
themselves to the public and how they make actual coverage decisions. For
the first time, the role of the health plan's medical director in that
decision-making process is under the microscope.
Decisions by the health plan and its medical director to deny coverage of a
particular treatment often result in legal claims. In most cases to date,
particularly those falling squarely within the parameters of ERISA,
however, health plans may only be liable for the cost of the denied
treatment. Even if a determination is proved wrong or inaccurate, courts
have generally not allowed plaintiffs to recover punitive, extracontractual
or personal-injury damages.
Such protection for health plans is at the heart of numerous debates taking
place in the courts and in Congress. Plaintiffs' attorneys are now
attempting to find ways around the limitations of ERISA's damages
provisions and are placing a new emphasis and direct scrutiny on
decision-making processes, including the role of medical directors.
Medical directors are involved in establishing medical policies that
dictate the fundamental care-management strategies that health plans look
for to improve quality and reduce costs. These activities include prior
authorizations, benefit determinations and disease-and utilization
management policies.
Medical directors are also often involved in such new areas as the evolving
ethical issues concerning limited financial resources, the onslaught of new
medical device technology and issues raised by the direct marketing of
pharmaceutical products to consumers. Although it is clear within this
construct that medical directors do not provide treatment to patients,
their direct involvement in these areas raises, in the eyes of the
consumer, significant questions about how medical directors are paid,
trained and motivated.
For example, in most health plans, a medical director is required to make
the decision about whether a particular treatment is "medically necessary"
within the meaning of the consumer's health coverage contract. It is normal
for medical directors under such circumstances to make an effort to have a
conversation or communication with the treating physician. These
communications are intended to relay to the treating physician that the
health plan is only attempting to make a decision about whether the service
at issue is "covered" by the patient's health plan -- not about whether the
patient should actually receive the treatment recommended by the treating
physician, which is a matter between the physician and the patient.
In this context, the consumer may interpret the medical directors'
involvement as actually influencing the care ultimately received by a
patient. Because it is the medical directors themselves who establish the
medical policies that dictate the interpretations of the benefit coverage
issues, an argument may be made that medical directors may be vulnerable to
liability in the same way that a treating physician may be in a medical
negligence claim. In addition, a medical director may also find him- or
herself in the firing line of a health plan/HMO fiduciary liability claim
based on the "financial incentives" involved.
Analyzing Internal Processes
To reduce litigation risks in this area, health plans must carefully
analyze their internal processes in four key areas:
Development of medical policy. Medical directors are involved in the
development of the medical policy of a health plan. They help to shape a
wide range of policies, including benefit determination and disease
management. Their role in assisting in this core internal function is
crucial to assuring that clinical priorities are not lost in the shuffle of
the business of running a health plan.
It is important for health plans to reassess the role a medical director
plays in this process to assure that it is appropriate and takes advantage
of a provider's unique point of view. Documentation of a policy committee
or task force process will serve both a valuable business and
risk-management purpose.
Policies should be reviewed and updated according to established procedures
at least annually.
In addition, procedures should be flexible enough to accommodate changes
that arise in light of advances in medical technology or shifts within the
population the health plan serves.
Consistency of benefit determinations. Health plans need a method to assure
that benefit determinations and appeals decisions are consistent. An
enrollee does not need a lawyer to get the message of unfairness when this
process does not work. An audit to verify that a benefit determination made
by one medical director would be made by his or her peer under similar
circumstances must be done routinely. Auditing is not enough, however.
Every detail of the benefit determination and appeals process should be
evaluated to find any weakness that may undermine an otherwise well-run
program. Well-drafted policies, the consistent interpretation and
application of those policies, and effective communication between medical
directors and other staff are essential.
Medical director financial incentives. A topic that has received
significant attention lately has been the argument that treating physicians
are making decisions that are not in the best interests of their patients
because they are influenced by inappropriate financial incentives. This
argument has spilled over to hold health plans liable for creating those
incentives by virtue of the contracts it has with providers. Medical
directors of health plans may also be the subject of further expansion of
this legal argument. It could be argued, for instance, that a medical
director may be influenced to make harmful decisions for the health plan's
enrollee population, due to inappropriate financial incentives incorporated
into his or her employment arrangement with the health plan.
Health plans should address this potential risk before it arises. An
assessment in this area could prevent serious defense problems in the
future. For instance, they can make sure that medical directors' salaries
are commensurate with others in like positions. They can also verify that
those who recruit medical directors are not engaging candidates in
inappropriate conversations about cost savings and how the medical director
will be expected to save the health plan a targeted amount of money.
If a medical director will be eligible for a bonus, the award of the bonus
should not be linked to financial or benefit-denial quotas. Health plans
should develop a written compensation plan for medical directors that
dissuades offending behavior and focuses instead on other tangible and
measurable components of duties expected of a medical director. Performance
reviews should be consistent with such a policy.
Train for The Role
Medical director training. Traditionally, medical directors have been hired
by health plans without knowing exactly what their role will be. Many
medical directors agree that training for the position is lacking. Health
plans need to reassess what they expect and what they need from physicians
within this unique business environment. Clearly, training on application
of existing policies and the director's role in updating and developing new
policies should be an integral part of a director's experience.
Health plans should also consider including communication skills and
leadership training in the program for medical directors. Often, directors
talk to treating physicians and the provider community about specific
decisions as well as general policies. An ability to communicate these
decisions with confidence can be a valuable risk-management tool. In
addition, a plan's medical director is often looked to by other sectors of
the greater community as a representative of the health plan and of managed
care in general. An ability to articulate the principles of managed care,
combined with medical theories and priorities, is invaluable. These skills
will become even more critical should a lawsuit be brought against the
health plan alleging any of these theories of managed care liability.
Health plans may not be able to stem the tide of public opinion in the
short term, but they can shore up their defenses should they be the subject
of managed care liability claims. Every managed care organization needs to
take a critical look at the role that its medical directors play in the
organization and those directors' own understanding of that role. The roles
of directors need to be articulated in well drafted and thoughtful
policies.
As the national debate over managed care continues to make headlines,
health plans will need to take a closer look at their processes and
policies in an effort to protect themselves from class actions. Challenges
to a health plan's integrity can be overcome with proof of consistent
determinations, current medical policies, adequate appeals processes, and
appropriate compensation for the increasingly visible medical director.
(The National Law Journal, October 2, 2000)
HMOs: Texas Must Resolve Medicaid Program's Problems, Judge Denies Stay
-----------------------------------------------------------------------
U.S. District Judge William Wayne Justice on Tuesday denied a motion to
temporarily set aside his Aug. 14 order that the state come up with a plan
to fix numerous problems with its Medicaid program. The state had asked for
the stay last month while it appealed Judge Justice's ruling that it has
failed to provide health and dental care to more than 1 million poor
children on Medicaid. The judge ruled Tuesday that a delay would hurt the
1.5 million children eligible for Texas Health Steps, a prevention and
treatment program serving young Medicaid recipients through age 20.
Any delay "in compliance with the Aug. 14 order will result in further
deterioration of the health and welfare of program-qualifying children,"
Judge Justice wrote Tuesday in a seven-page order denying the stay. "As
this court found, the state's violations have restricted child access to
care and caused numerous instances of otherwise preventable disease."
Attorney General John Cornyn said he was not surprised by the decision and
would ask the U.S. 5th Circuit Court of Appeals to stay Judge Justice's
order. Mr. Cornyn also said the judge had unfairly criticized the state's
efforts to improve the Medicaid program.
The judge "again ignores the fact that our request for a stay will in no
way impede ongoing efforts to improve and expand services," Mr. Cornyn said
in a statement. "As I have said before, appealing the judge's ruling and
continuing to improve services to the people of Texas is not an either/or
proposition. We can and will do both."
Susan Zinn, the lead attorney for the 1.5 million plaintiffs in the
7-year-old class action lawsuit, applauded Judge Justice's decision. "He's
very concerned about the harm that's going to come to these kids if this
program doesn't get fixed," Ms. Zinn said. "And he's got good cause to be
concerned. ... Things are getting worse."
In the Aug. 14 order, Judge Justice said Texas was not adequately providing
dental care, regular checkups, transportation to doctors or information
about what services are available to children in Medicaid, despite a 1996
agreement in which the state promised to make major improvements.
He had given the state until Oct. 13 to submit a plan to correct the
problems, a deadline that he extended Tuesday until Oct. 27.
Mr. Cornyn's office has argued that a corrective plan drawn up by state
Medicaid officials would limit the Legislature's ability to pass Medicaid
reforms when lawmakers convene this January in Austin.
In response, Judge Justice wrote that "the court remains befuddled as to
defendant's contention that only the Legislature is capable of preparing
and funding a remedial plan."
Ms. Zinn said Mr. Cornyn's argument had come a bit late. "This case has
been filed since 1993," she said. "Why haven't they been consulting with
the Legislature all along? Maybe we would have never gotten to the point
where we needed to have this corrective action."
The state and federal governments fund Medicaid, created in 1965 to cover
medical costs for low-income people. The annual tab for Medicaid in Texas
is $ 9.4 billion, including $ 3.6 billion in state funds. State officials
concede the Medicaid program could be improved, but they say Judge Justice
has ignored the progress made in the last seven years. For example, state
officials say 66 percent of Medicaid children had medical check-ups last
year, up from 29 percent in 1993. The number of staff members who inform
families of available services increased to 531 from 10 during the same
period, they say. And the state gave Medicaid children 2.7 million free
trips to health care providers in 1999, up from 743,000 seven years ago,
they say.
Judge Justice has said the way the state compiles data gives an inaccurate
picture of services delivered. State officials say the federal government
mandates the method. That is a subject of the state appeal.
Rep. Patricia Gray, D-Galveston, chairwoman of the House Public Health
Committee, said lawmakers would recommend measures to be included in the
state's corrective action plan and would consider further reforms during
the legislative session. "I can't say that I'm surprised," Ms. Gray said of
the decision. "His [Aug. 14] ruling sent a very clear message that the
state needed to move quickly." (The Dallas Morning News, October 11, 2000)
INMATES LITIGATION: Female Inmates Ask for Better Health Care
-------------------------------------------------------------
With tales of medical neglect, shoddy treatment and sexual abuse, inmates
from two of California's largest women's prisons pleaded with state
lawmakers for an overhaul of the Department of Corrections health care
system.
In a highly unusual hearing within the walls of Valley State Prison for
Women, state Sen. Richard Polanco, D-Los Angeles, presided over a
seven-hour session that included graphic and disturbing testimony from a
dozen women.
They painted a picture of a prison medical system that often ignored their
efforts to get health care, or provided substandard care when they received
it.
"What I heard today curdled my stomach," said state Sen. Cathie Wright,
R-Simi Valley, who sits with Polanco on the Joint Legislative Committee on
Prison Construction and Operations.
Joining the senators were Assemblyman Carl Washington, D-Paramount, and Dr.
Louis Vismara, cardiologist and consultant to Senate President Pro Tem John
Burton, D-San Francisco.
Charisse Shumate, who is serving 15 years to life for murder and is the
lead plaintiff in a class-action lawsuit against the Department of
Corrections, told the panel she lost sight in one eye because of delays in
treatment for a sickle-cell anemia-related disorder. Her detached retina
was treated by surgeons five days after she reported the problem -- too
late, she said, to save her vision.
The hearing comes as the Department of Corrections is attempting to track
down and retest female inmates who had previous blood work or Pap smears
performed by B.C.L. Clinical Labs. The laboratory was shut down four years
ago after state investigators found evidence it had been faking results on
test for AIDS, hepatitis, cancer and other serious diseases.
Marcia Bunney, incarcerated for 18 years, told lawmakers how she learned
only recently that the results of a Pap smear test she had taken four years
earlier could no longer be trusted.
"The first contact I had was when they gave me a form saying the results of
the test needed a follow-up," she said. "Four years is a little late to
follow up."
The most explosive testimony was delivered by inmate Debra Jones, who said
she was taking the opportunity afforded by the rare public forum to warn
lawmakers of widespread sexual abuse at the state women's prisons, alleging
that inmates are victimized by their guards.
"They cuss us out. They call us bitches. They prey on us. You've got nuts
working over us," she said.
Jones said that in 1989, she was raped by a prison staffer who watched over
the women during church services. Afterthe hearing, Department of
Corrections ombudsman Lucy Armendariz said Jones' allegations already have
been investigated and that her assailant was prosecuted.
Dr. Susann Steinberg, deputy director of the health care services division,
defended her department. She indicated that many of the women testifying
were not telling the truth.
"I find myself in an awkward situation," she said. "I'm put in a position
of saying the things we heard today are not accurate, but I don't want to
do that. These women have been victims most of their lives. They have been
in a tug-of-war, and I don't want to be tugging on the other side."
During the hearing, Polanco repeatedly warned that he would not tolerate
intimidation or reprisals by prison staff against the 12 women who
testified.
Dr. Corey Weinstein, a San Francisco-based consultant to prison rights
groups, told lawmakers they should put an end to a system that trains
prison guards as health care workers. (The San Francisco Chronicle, October
12, 2000)
LONZ WINERY: Lawsuits over Terrace Collapse Now Total 16
--------------------------------------------------------
The number of lawsuits has grown to 16 against the owners of a Lake Erie
island winery where a terrace collapsed. The collapse at Lonz Winery on
July 1 killed one person and injured 74. New lawsuits have been filed in
recent weeks in Ottawa County Common Pleas Court by people who claim they
were injured in the collapse on Middle Bass Island in Lake Erie.
These lawsuits follow a class-action lawsuit filed July 5 and another
lawsuit filed Aug. 11 in Cuyahoga County Common Pleas Court in Cleveland.
In the first lawsuit, Paramount Distillers Inc. and its subsidiary,
Mantey-Mon Ami-Lonz Wineries Inc. denied any responsibility. Paramount also
denied owning Lonz.
County records show Mantey-Mon Ami-Lonz owns the winery, but lawyers
dispute how much control Paramount has over Mantey-Mon Ami-Lonz. The
lawsuits say Paramount and Mantey-Mon Ami-Lonz knew of structural defects
in the terrace that led to the collapse.
The lawsuits filed in Ottawa County are scheduled for a March 2002 trial
date by visiting Judge Richard McQuade. (The Associated Press State & Local
Wire, October 12, 2000)
MICROSOFT CORP: Court Sets Appeal Date
--------------------------------------
A federal appellate court set oral arguments in the Microsoft antitrust
case for Feb. 26-27, splitting the difference between what the government
and the company proposed.
The computer software giant is appealing a District Court ruling that would
split it into two separate companies.
The U.S. Court of Appeals for the District of Columbia also ordered on
Wednesday that the company's first brief be filed by Nov. 27 with the
government's reply due Jan. 12. The company's rebuttal is due Jan. 29.
Seeking to speed up the case, the government had sought a Nov. 1 deadline
for the company's first brief, completion of all briefs by Dec. 22 and oral
arguments in January.
Microsoft had sought a much slower schedule than that. The company had
proposed its first brief be due two months after the court set a schedule,
which would have been Dec. 11. The company's proposed schedule had called
for final briefs to be filed five months after the order, which would be
March 11, with oral arguments later still.
The court limited the company's first brief to 150 pages, the federal
government's reply to 125 pages and the reply from state governments, which
also sued the company, to 25 pages. The company's final rebuttal was
limited to 75 pages.
The court advised the parties that it ``does not assume that length
necessarily equates with quality.''
The government and the company had also battled over brief size, and the
court may have split the difference there too.
Microsoft had wanted 56,000 words for its opening brief; the government had
proposed 24,000 words. The court's normal limit is 14,000 words.
Court Clerk Mark Langer could not say Wednesday how many words would fit on
a page under the font size and margin limits set by the court. But a legal
source, requesting anonymity, said the rules should produce about 250 words
per page, which would mean the opening brief would be 37,500 words.
Microsoft spokesman Jim Cullinan said the company was generally pleased
with the schedule set by the court.
``This is certainly reasonable,'' Cullinan said. ``We believe this is a
fair schedule and we look forward to presenting our arguments to the
court.''
Justice spokeswoman Chris Watney said, ``We're looking forward to
presenting our case to the Court of Appeals.'' (Associated Press, October
11, 2000)
MITEK SYSTEMS: Cauley & Geller Files Securities Suit in California
------------------------------------------------------------------
The Law Firm of Cauley & Geller, LLP announced that it has filed a class
action in the United States District Court for the Southern District of
California on behalf of all individuals and institutional investors that
purchased the securities of Mitek Systems, Inc. (Nasdaq: MITK) between July
18, 2000 and September 29, 2000, inclusive (the "Class Period").
The complaint charges that the Company and certain of its officers and
directors violated the federal securities laws by issuing false and
misleading financial statements. As a result of these false and misleading
statements the Company's stock traded at artificially inflated prices
during the class period. Mitek is involved in character recognition
technology, products, and services for the document imaging markets. The
Company's document imaging software engine and intelligent character
recognition products and services are used in mission-critical and high
volume data entry, data capture, and forms processing applications. On
9/29/00, Mitek announced that the Company will restate its third quarter
2000 financial statements as a result of accounting misstatements that will
require eliminating $1.4 million in revenue to be removed from the quarter
for failing to comply with AICPA Statement of Position 97-2.
Contact: Cauley & Geller, LLP Sue Null, Jackie Addison or Sharon Jackson
1-888-551-9944 Cauleypa@aol.com
MITEK SYSTEMS: Milberg Weiss Files Securities Suit in California
----------------------------------------------------------------
Milberg Weiss (http://www.milberg.com/mitek/)announced that a class action
has been commenced in the United States District Court for the Southern
District of California on behalf of purchasers of Mitek Systems, Inc.
(NASDAQ:MITK) publicly traded securities during the period between July 18,
2000 and September 29, 2000 (the "Class Period").
The complaint charges Mitek and certain of its officers and directors with
violations of the Securities Exchange Act of 1934. Mitek is involved in
character recognition technology, products, and services for the document
imaging markets. The Company's document imaging software engine and
intelligent character recognition products and services are used in
mission-critical and high volume data entry, data capture, and forms
processing applications. On 9/29/00, Mitek announced that the Company will
restate its third quarter 2000 financial statements as a result of
accounting misstatements that will require eliminating $1.4 million in
revenue to be removed from the quarter for failing to comply with AICPA
Statement of Position 97-2.
Contact: Milberg Weiss Bershad Hynes & Lerach LLP William Lerach,
800/449-4900 wsl@mwbhl.com
NY CITY: Giuliani Proposes Rent Subsidies for Homeless Families
---------------------------------------------------------------
In a striking departure from its previous policies, the Giuliani
administration is proposing rent subsidies for homeless families in an
effort to resolve bottlenecks in the city's emergency shelter system.
The proposed subsidies, which are part of a pilot project for more than 500
homeless families, were offered to comply with a court order. But they are
also a sign that in a booming economy with sharply rising rents, the city
is taking a fresh look at the problem of homeless families. And it
acknowledges that the people crowding the city's shelters increasingly
include the working poor.
Some rental supplements have been provided by the state since 1990, but
those are limited to certain welfare households facing eviction. The new
proposal, which would require state approval and is part of remedial plan
the city submitted in court last week, would be aimed at homeless people
who have jobs or are trying to move from welfare to work.
Mayor Rudolph W. Giuliani has opposed and even vetoed similar rental
assistance programs in the past, contending that they encourage dependency
on government and would make the city's emergency shelter system a magnet
for families seeking subsidized apartments. Earlier this year, the mayor
lost a bid to overturn the right to shelter established in the city through
class-action lawsuits two decades ago.
But Mr. Giuliani has been trying to burnish and perhaps soften his mayoral
legacy since he withdrew from the Senate race in May. And the
administration was confronted with a crisis this summer when more than 500
families were left to sleep on the floors and benches of the Emergency
Assistance Unit in the Bronx, the city's sole portal to shelters for
families with children. That practice, which violates a longstanding court
order, had been common until a year ago, when the City Council banned it
and the Department of Homeless Services made new efforts to comply.
"When the people started sleeping on the floor, we went and tried to get
additional relief," said Leonard Koerner, the city's chief assistant
corporation counsel, who is handling the case. "This will make more
permanent housing available."
At the same time, Mr. Koerner noted: "There is a fear that this is going to
create an additional problem, because there are more families than housing.
You have all these families out there doubled up."
He added, "I have no idea what the long-term solution is."
Debra Sproles, the spokeswoman for the city's Human Resources
Administration, said she did not expect the program to have a magnet
effect, but added that because the program would begin as a six-month pilot
project, "we have time to see what's going to happen."
Ms. Sproles stressed that the Human Resources Administration considered the
program consistent with, not a departure from, its efforts to move people
from welfare to self-sufficiency. Though details are still being worked
out, she added, the pilot would include about 550 families now in the
shelter system. Each family could get up to $600 a month in rental
assistance in a combination of state, city and possibly federal money. The
average subsidy, she said, is expected to be $300 to $400 and would last
for two years.
Apart from the administration's new proposal, four nonprofit groups are
also to begin offering rental assistance programs next month for about 200
households. Those programs would draw from $3 million in city money that
was budgeted by the City Council. In previous years, the administration
either vetoed or left unspent money appropriated by the Council for that
purpose.
City officials have said that they do not track how many parents applying
for shelter have jobs. But Barbara Cutler, the court-appointed special
master who oversees the city's operation of the family shelter system under
a longstanding court decree, said they were common. She added that the
court was now focusing on problems in the application process that make it
hard for working parents to keep their jobs and keep children in school.
"There are people that are real, live, hard-working citizens who still
operate every day from the E.A.U.," Ms. Cutler said, referring to the
Emergency Assistance Unit. "We have as a society to look at this again. We
have to look at what the elements of being homeless really are."
Families who have waited night after night recently for temporary shelter
in the Bronx unit office have included a nurse's aide employed for seven
years on the midnight shift at Coney Island Hospital in Brooklyn, and her
two children; and a public schoolteacher who said she moved back here from
Seattle with her 16-year-old son in response to the city's teacher
shortage.
On a weeknight last month, the teacher called a reporter at 11:32 p.m. from
the Bronx office and left a telephone message, describing her situation
after 11 days of bouncing between overnight or short-lived shelter
placements and the intake center, sometimes not getting a bed until after 3
a.m.
"I'm just letting you know how discouraged I am that at 5:30 I have to get
up, and at 8:21 I have to be fresh for 61 New York City public
schoolchildren," the teacher said. "It doesn't seem as though they
anticipated the time when working people would be homeless."
Mr. Koerner told Justice Helen E. Freedman of New York State Supreme Court
last month that the city planned an "aggressive program," including rent
subsidies, to help move families more swiftly from temporary shelters to
permanent housing.
Advocates for the homeless called the Giuliani administration's proposal a
step in the right direction. They and the mayor's opponents on the City
Council have long championed modest rent subsidies, combined with social
services, as a more cost-effective way to help homeless people than the
expansion of temporary shelter beds, which they say cost $3,000 a month for
a family.
"I have been preaching the gospel of rental assistance for nearly 12 years
now," said Mary Brosnahan, director of the Coalition for the Homeless,
which pioneered a similar rental subsidy program with money from law firms
and churches in the late 1980's. "It's a huge victory, practical and
moral."
Steven Banks, counsel to the coalition and to the Homeless Rights Project
of the Legal Aid Society, whose contempt motions last month prompted the
remedial plan, was more cautious.
"After seven years of resisting the notion that additional housing provided
by the city is part of the solution to homelessness, it's a welcome first
step," Mr. Banks said. "But it's not enough to make the current crisis,
which has built up over years, go away."
In its legal papers, the city in part blamed unexpected demand for the
recurrence of the old problem of families left in the Bronx office
overnight, saying that the number of families seeking shelter was 9 percent
higher between April 1 and Sept. 30 than during the same period last year.
But lawyers for the homeless dispute those figures, contending that the
problem is not more demand, but an increase in "churning" -- multiple
applications required of families who are wrongly found ineligible,
shuttled between one-night placements and forced to reapply.
"The families that are caught up in these desperate circumstances now are
including increasing numbers of working families and families fleeing from
domestic violence," Mr. Banks said.
Both sides agree that since the court began examining the problem last
month, crowding has eased, but Ms. Cutler said churning remained a concern.
In the last fiscal year, through June 30, there were 20,841 applications
and reapplications made by families seeking shelter, according to the
mayor's management report. The shelter system now houses 5,337 families,
including 9,563 children. (The New York Times, October 12, 2000)
ORTHOLOGIC CORP: Settles Securities Suits in Arizona
----------------------------------------------------
OrthoLogic Corp. (Nasdaq:OLGC) on October 12 announced that the company has
entered into a memorandum of understanding regarding the settlement of
securities class actions filed against it and several of its current and
former officers and directors.
As described in more detail in OrthoLogic's SEC filings, including its Form
10-K for 1996, the lawsuits were originally filed between June and August
1996 in the United States District Court for the District of Arizona and in
the Superior Court of the State of Arizona for Maricopa County.
The settlement consists of $1 million in cash and one million shares of
newly issued OrthoLogic common stock. The company anticipates that a
significant portion of the $1 million cash payment will be funded from its
directors and officers (D&O) liability insurance policy. The settlement is
subject to approval by the lead plaintiffs and the defendants; the
preparation, execution and filing of a formal Stipulation of Settlement;
notice to settlement class members; and final approval of the settlement by
the courts at a hearing.
In conjunction with this agreement, OrthoLogic expects to record a pre-tax
charge in the third quarter ended Sept. 30, 2000.
OrthoLogic's agreement to the memorandum of understanding does not
constitute, and should not be construed as, an admission that the
defendants have any liability to or acted wrongfully in any way with
respect to the plaintiffs or any other person.
OrthoLogic develops, manufactures and markets proprietary, technologically
advanced orthopedic devices designed to promote the healing of
musculoskeletal tissue. Founded in 1987, the company is located in Tempe,
Ariz.
OTTAWA: Vets Win $1.3B Suit for Interest Withheld from Disability Checks
------------------------------------------------------------------------
Veterans have won a billion-dollar class action suit against the federal
government over disability payments. In a ruling released October 11,
Superior Court Justice John Brockenshire agreed with the veterans' argument
that Ottawa knowingly withheld interest payments from their disability
cheques. Lawyers for the veterans estimate the class action could cost
taxpayers $ 1. 3 billion, making it the second largest court-ordered
federal government payout ever.
Documents from the Department of Veterans' Affairs show that officials were
questioning the failure to pay interest on money it administered for
disabled vets as early as 1975.
When the 1986 report of Auditor General Kenneth Dye made it clear Veterans'
Affairs was "vulnerable to legal action by veterans" to recover the
interest, the department studied the issue. But it wasn't until 1990 that
the minister announced interest would be paid on such accounts. Then the
government quietly passed legislation barring veterans from claiming
interest prior to 1990.
"The government ... has known that they really should have been paying
interest since the early 1970s," veterans' lawyer Ray Colautti said. "They
studied it to death and did nothing."
The veterans' lawyers don't know how many people are involved because
Veterans Affairs wouldn't tell them. The dollar amount is still to be
determined. (The Calgary Sun, October 12, 2000)
OXFORD HEALTH: Milberg's Leading Role in Securities Suit Is Under Attack
------------------------------------------------------------------------
How far was Milberg Weiss Bershad Hynes & Lerach willing to go to become
lead counsel, with its promise of a bonanza in legal fees, in the mammoth
securities class action against Oxford Health Plans Inc.?
Very far, according to a brief filed by Oxford's counsel, New York's
Sullivan & Cromwell.
According to the brief, Milberg Weiss clients filed "misleading" affidavits
to "create the appearance that they had suffered substantial losses" from
trading in Oxford stock. In fact, one of Milberg's two clients reaped a
huge profit from his trading, while the other suffered much smaller losses
than others vying to become "lead plaintiff" and seize control of the
litigation under the Private Securities Litigation Reform Act of 1995, the
brief alleges.
These affidavits were also an effort "to conceal" the fact that Milberg
Weiss' clients were market makers in Oxford options who each engaged in
more than 4,000 transactions in Oxford options, the brief alleges. One of
the two men also "created the misleading impression" that he owned the
stock, when he split the profits and losses with a company and two
individuals, the brief says.
Sullivan & Cromwell is opposing the appointment of these investors as class
representatives. If it succeeds, Milberg Weiss would be left without a
client, not to mention the fees. The firm withdrew Gary Weber, the first
investor it proposed as a class representative, after S&C informed the
court that Mr. Weber had lied about his criminal record, his history as a
defendant in a civil case and his trading in Oxford securities. [NLJ, Jan.
31.]
The brief was placed on the public record on Sept. 25, after The National
Law Journal requested that it be unsealed. U.S. District Judge Charles L.
Brieant of White Plains, N.Y., gave the parties until Sept. 5 to "explain
to the court why the documents should be sealed." When a reporter checked
the docket on Sept. 7, it was still under seal. That day, after the
reporter checked the status of the unsealing with Judge Brieant's chambers,
the court told the parties that they had until Sept. 11, to explain why the
document should be kept secret. Milberg Weiss opposed the unsealing but
relented after the document was apparently leaked to Fortune.
Milberg Weiss' response, also filed on Sept. 25, contends that S&C
"distorted the facts and ignored the law all the while peppering their
papers with outrageous and unfounded allegations."
The Accusations
The Sullivan & Cromwell brief attacks an affidavit that Patricia M. Hynes
of Milberg Weiss filed on May 14, 1998, when 10 law firms were vying to
control the Oxford case. The affidavit claimed that Daniel J. Hurley
sustained a $ 3.4 million loss from trading in Oxford common stock, and
that Michael Sabbia sustained a $ 2.01 million loss. When they were deposed
by Sullivan & Cromwell's Robert J. Giuffra Jr., both investors admitted
that they had not reviewed the affidavit before it was filed with the
court. Mr. Hurley said he had "no clue" what his losses were from trading
Oxford securities or how his attorneys calculated the figures, according to
deposition testimony that Sullivan & Cromwell filed with its brief.
Mr. Hurley "made huge profits," Sullivan & Cromwell's brief asserts: He
reaped $ 444,770 from trading in Oxford common stock alone and $ 700,747
from his trading in stock and options. Mr. Sabbia made a $ 7.4 million
profit from trading in common stock and suffered a loss of $ 315,000 from
his combined trading in stock and options, the brief says.
That loss lags far behind the $ 19 million hit suffered by the Public
Retirement Association of Colorado, a pension fund that sought to be the
sole lead plaintiff. Mr. Sabbia's loss also pales by comparison to the $ 1
million in losses sustained by North River Trading Co. Its counsel, Arthur
N. Abbey of New York's Abbey, Gardy & Squitieri, was denied a leadership
role in July 1998, when Judge Brieant issued an unusual order requiring the
pension fund to work with Milberg Weiss' clients.
Mr. Abbey renewed his bid in January, after the withdrawal of Mr. Weber,
the Milberg Weiss client who allegedly lied about his criminal past. Judge
Brieant denied his request, calling it "an unduly drastic remedy." But he
said that Mr. Abbey could renew his motion, should Messrs. Hurley and
Sabbia "fail to qualify" as representatives for the class.
In a new motion, Mr. Abbey suggests that designating his client as lead
plaintiff "would not be unduly drastic if the allegations about Messrs.
Hurley and Sabbia's conduct prove to be true."
Milberg Weiss, in its reply papers, accuses Sullivan & Cromwell of
employing "three alternative ways" to calculate the plaintiffs' losses that
"yield vastly different results" because they are "desperate to disqualify"
its clients.
Milberg Weiss does not dispute that its clients failed to disclose their
trading in options to the court. The clients signed statements attesting to
their transactions in "equity securities" of Oxford. Sullivan & Cromwell
contends that with this "carefully chosen phrase," Messrs. Hurley and
Sabbia submitted "materially misleading" filings.
The 1995 law requires lead plaintiffs to disclose "all of the transactions"
in "the security that is the subject of the complaint." Sullivan & Cromwell
cites the statute's definition of security, which includes "any put, call,
straddle, option." Milberg Weiss counters that its complaint sought claims
on behalf of purchasers of "Oxford common stock." To support its argument,
Milberg Weiss cites a district court case from 1977, almost two decades
before the 1995 act.
The public airing of this dispute follows months of private posturing.
Sullivan & Cromwell has attempted to use revelations from its extensive
investigation of Milberg Weiss' clients as leverage to settle, according to
sources familiar with the case. The parties agreed to several postponements
after Mr. Giuffra's depositions of Milberg Weiss clients in April.
These proved to be testy affairs. "It's endless with you, isn't it?" Ms.
Hynes snapped at Mr. Giuffra toward the end of his questioning of Mr.
Hurley. The witness said he relied on the "integrity" of the market in
making his options investments. "But didn't you make a lot of money on Oct.
27 when the [Oxford] stock dropped?" Mr. Giuffra pressed. Mr. Hurley
answered, "I did make money, yes." With that, Mr. Giuffra said he had no
further questions. (The National Law Journal, October 9, 2000)
SBC-AMERITECH: Alleged of Wrongfully Charging for Dirctory Assistance
-----------------------------------------------------------------
An Alton man is suing Ameritech and its parent corporation, alleging that
he was charged for directory assistance when he should not have been.
Amos Melvin filed the class-action suit Wednesday in Madison County Circuit
Court.
His attorneys, T. Evan Schaeffer and Andrea B. Lamere of Godfrey, contend
that Ameritech and SBC Communications Inc. engaged in slamming - an
unauthorized and illegal switching of his local toll service - when he
dialed 411 and pressed 1 to be connected at no extra charge.
Schaeffer and Lamere seek to include in the suit anyone who alleges the
same experience and indicate they want the class to be nationwide. (St.
Louis Post-Dispatch, October 12, 2000)
SCB COMPUTER: Securities Suits in TN Consolidated
-------------------------------------------------
In April and May 2000, six shareholders of the Company filed separate
purported class action lawsuits in the United States District Court for the
Western District of Tennessee against SCM Computer Technology Inc. and
certain of its executive officers. The litigation has been previously
reported in the CAR.
On June 1, 2000, the court ordered the consolidation of each lawsuit into a
single matter designated as the In re SCB Computer Technology, Inc.
Securities Litigation.
On September 12, 2000, the plaintiffs filed a consolidated amended
complaint in the matter, naming as defendants the Company, Ben C. Bryant,
Jr. (who resigned from the Company as of September 1, 2000), Gary E.
McCarter (who resigned from the Company as of June 30, 2000), T. Scott
Cobb, and Ernst & Young LLP (which resigned as the Company's independent
auditor on April 10, 2000).
The plaintiffs seek certification of a plaintiff class consisting of all
persons who purchased the Company's common stock during the period between
November 19, 1997, and April 14, 2000, other than the Company's directors
and officers and related persons. The suit generally alleges that the
defendants violated federal securities laws by making false and misleading
statements regarding the Company's financial results and financial
statements, which artificially inflated the market price of the Company's
common stock and caused the plaintiffs and other class members to purchase
the Company's common stock at such inflated prices. The plaintiffs seek
unspecified monetary damages. The Company is reviewing the consolidated
amended complaint and intends to respond in a timely manner. As of the date
hereof, the Company is unable to predict the outcome of the litigation and
its ultimate effect, if any, on the Company's consolidated financial
condition and results of operations.
SECURE COMPUTING: Securities Suits Pending in California
--------------------------------------------------------
On April 2, 9, 12, 14 and 20, 1999, purported class action complaints were
filed in the United States District Court for the Northern District of
California by Myron Goldstein, Herbert Silverberg, William Preiner, Charles
McInnis, and George H. Rosenquist and Melvin Freedenberg, respectively,
against Secure Computing Corporation, and its present or former officers
Jeffrey Waxman, Timothy McGurran, Patrick Regester, Gary Taggart, Howard
Smith and Christine Hughes. Each complaint alleges that defendants made
false and misleading statements about our business condition and prospects
during a purported class period of November 10, 1998 to March 31, 1999, and
asserts claims for violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and SEC Rule 10b-5. Each complaint seeks damages of an
unspecified amount.
By stipulated Order dated August 19, 1999, the Court consolidated these
actions, appointed lead plaintiffs, and approved the retention of lead
counsel. On January 7, 2000, plaintiffs served a consolidated corrected
compliant. On February 14, 2000, defendants filed a motion to dismiss the
complaint. On June 14, 2000, plaintiffs' complaint was dismissed with leave
to amend.
There has been no discovery to date and no trial is scheduled in any of
these actions.
* House Passed Tire Legislation to Prevent Repeat of Problem
------------------------------------------------------------
The U.S. House of Representatives passed legislation on Wednesday to
bolster auto regulation in an effort to prevent a repeat of problems like
the Firestone tire failures blamed for 101 U.S. highway deaths.
On a voice vote, in the early hours of the morning, lawmakers backed the
measure that aims to give regulators early warning about defective
automotive products and stiffen penalties for companies and individuals who
break recall rules.
Firestone, owned by Japan's Bridgestone Corp. (5108.T), announced Aug. 9
the recall of 6.5 million tires, mostly fitted to light trucks and sport
utility vehicles made by Ford Motor Co.(F.N)
A congressional investigation into the tread separations blamed for deadly
rollover crashes has led to allegations that both companies knew of the
problems years before the U.S. recall and that the National Highway Traffic
Safety Administration (NHTSA) failed to act quickly enough.
Similar legislation has so far been stalled in the Senate but House sponsor
Rep. Fred Upton said negotiations were taking place in an effort to craft a
final bill that can go to President Clinton for signature by the time
lawmakers leave to campaign for Nov. 7 elections.
``Shame on us, shame on this Congress, if we can't get this bill done in
the last couple of days,'' the Michigan Republican said.
The House bill would require automakers and tire manufacturers to regularly
report information on death and injury claims for their products and any
foreign safety recalls. NHTSA currently relies heavily on consumer
complaints lodged with the agency.
Internal documents released by congressional investigators have shown both
Ford and Firestone discussed problems seen in similar tires in foreign
countries years before the U.S. recall.
To encourage production of the information, the legislation increases civil
penalties to $15 million from the current $925,000 maximum.
Executives could also go to prison for 15 years, up from five years under
general federal law, for deliberately misleading NHTSA about products that
cause death or serious injury.
Other provisions included in the House bill would:
* prohibit recalled tires being resold to consumers,
* direct NHTSA to update its 32-year-old tire standard, and
* require NHTSA to develop a real-world rollover test rating system.
A spokeswoman for Senate Commerce Committee Chairman John McCain said
Tuesday that the Arizona Republican was still trying to bring his tire
legislation to the floor but Senate rules allow members to place anonymous
``holds'' on legislation.
Automakers and business groups have lobbied hard against McCain's bill
saying its criminal provisions are badly framed and could discourage
companies from monitoring their products as firms seek to avoid
``knowingly'' selling a defective tire or vehicle.
Meanwhile, consumer groups say the House bill's criminal provisions are too
weak because they can be waived where the information is provided or
corrected ``within a reasonable time.''
Transportation Secretary Rodney Slater said the administration was working
with Congress to try to get legislation passed.
``I would be disappointed if we ended this session of Congress without a
bill that would protect the American public,'' Slater told reporters at a
transport conference. (Reuters)
*********
S U B S C R I P T I O N I N F O R M A T I O N
Class Action Reporter is a daily newsletter, co-published by Bankruptcy
Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc.,
Washington, DC. Theresa Cheuk, Managing Editor.
Copyright 1999. All rights reserved. ISSN 1525-2272.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to be
reliable, but is not guaranteed.
The CAR subscription rate is $575 for six months delivered via e-mail.
Additional e-mail subscriptions for members of the same firm for the
term of the initial subscription or balance thereof are $25 each. For
subscription information, contact Christopher Beard at 301/951-6400.
* * * End of Transmission * * *