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/raid1/www/Hosts/bankrupt/CAR_Public/001109.MBX C L A S S A C T I O N R E P O R T E R Thursday, November 9, 2000, Vol. 2, No. 219 Headlines 3COM CORP: LA School Pension Funds Announce $259M Settlement AMERICAN AIRLINES: Plans to Collect Half of Award from Pilots' Union ARIZONA: Attorney Wants Class-Action Status For Allegedly Abused Kids EICHEN: 9th Cir Allows Unnamed Objectors to Appeal Attorney Fee Awards ESSO: Australian Court Gives Longford Gas Plant Explosion Go-ahead FLEET BANK: Improperly Paid Itself First, Subcontractors Allege HEARTLAND HIGH-YIELD: Devalued Funds Prompt Third Suit; 2 More Expected HOLLYWOOD: Lawyers Take on $200M TV Writers' Case on Age Discimination HOME DEPOT: Employees File Suit in Oregon Alleging Age Discrimination MASB-SEG: Royal Oak School Denied Certification in Suit Against Insurers MCI WORLDCOM: Bernard M. Gross Files Securities Suit in Mississippi MCKESSON HBOC: DE Action Stayed for CA Action Before Certification MICROSOFT CORP: Legal Intelligencer Opins No Standing for Antitrust Suit MOTOROLA INC: IL Ct Says Economic Model Inadmissible in Securities Suit NETWORK ASSOCIATES: Lieff, Cabraser Announces Securities Lawsuit in CA PASMINCO LIMITED: Australian High Ct Reserves Decision on Smelter Suit P.I.E.: Auditor of Failed Insurer to Pay $ 10M in OH Commissioner’s Suit TOBACCO LITIGATION: Companies Post Bonds To Appeal Record Award U.S.: Tax Refund Claims Limitations Period Tolled and Expires WORLDCOM INC: Milberg Weiss Files Securities Lawsuit in Mississippi Y2K LITIGATION: Class Status Denied In Free Fix Active Voice Action ********* 3COM CORP: LA School Pension Funds Announce $259M Settlement ------------------------------------------------------------ The Louisiana School Employees' Retirement System and the Louisiana Municipal Police Employees' Retirement System (the "Louisiana Pension Funds") on November 8 announced that 3Com Corporation has agreed to pay $259 million in cash to settle a securities class action on behalf of 3Com shareholders. The Louisiana Pension Funds have served as the principal lead plaintiffs in this action and were appointed to that role by the United States District Court for the Northern District of California pursuant to the Private Securities Litigation Reform Act in March 1998. They have been represented in the action by the law firm of Bernstein Litowitz Berger & Grossmann LLP, which acted as one of the Court-appointed lead counsel. The settlement is the second largest settlement ever obtained from a corporate defendant in a securities class action and provides for a recovery of a substantial portion of the damages suffered by the Class. The Class consists of all persons who purchased the common stock of 3Com on the open market during the period April 23, 1997 through November 5, 1997, inclusive. According to R. Randall Roche, General Counsel for the Louisiana Pension Funds, "the PSLRA was enacted to encourage institutional investors to serve as lead plaintiff in these cases, and this settlement further demonstrates the positive impact that institutional investors can have by serving as lead plaintiffs in securities class action litigation." In the case that led to the Settlement, the Louisiana Pension Funds alleged that, in connection with 3Com's acquisition of U.S. Robotics Corporation in June 1997, the defendants made false and misleading statements regarding USR's modem business and issued false and misleading financial statements to the investing public. The lawsuit further alleged that certain former officers and directors of U.S. Robotics and 3Com sold more than 4 million shares of 3Com stock during the Class Period. The Louisiana Pension Funds collectively purchased more than 127,000 shares of 3Com common stock during the Class Period and expect to recover a significant portion of their losses through the Settlement. The settlement also includes certain corporate governance relief, including the appointment of a senior officer of 3Com who will be responsible for enforcing 3Com's trading and market communications policy and for developing a comprehensive program to ensure compliance with 3Com's trading policies, and the requirement that the Audit Committee of the Board of Directors of 3Com will be comprised of at least three directors, all of whom shall be independent and at least one of whom has accounting or financial management expertise. All inquiries regarding this press release should be directed to outside counsel for the Louisiana Pension Funds, Douglas M. McKeige, partner at Bernstein Litowitz Berger & Grossmann LLP, (212) 554-1481, e-mail address Doug@blbglaw.com. Contact: Bernstein Litowitz Berger & Grossmann LLP, New York Douglas M. McKeige, 212/554-1481 Doug@blbglaw.com AMERICAN AIRLINES: Plans to Collect Half of Award from Pilots' Union -------------------------------------------------------------------- Half of a $44.5 million federal court judgment against the union representing American Airlines pilots will be collected soon by the carrier, with executives saying they owe shareholders a duty to pursue collection following a sickout. Officials of the Allied Pilots Association said the judgment in favor of American Airlines Inc., which had to cancel almost 6,700 flights that cost the airline $225 million, threatened to bankrupt the union. The APA, which planned to appeal the award to the U.S. Supreme Court, said the airline had promised to work with the union on the judgment. The award was made by a Dallas federal judge who ordered pilots protesting American's purchase of Reno Air Inc. to return to work in February 1999. The judge ruled that the union and two of its top leaders failed to promptly obey his order. The Allied Pilots Association put $20 million into escrow in May 1999 with the U.S. District Court in Dallas - a sum that has since grown to $21,650,000 with interest. A telephone message from union leaders to American's nearly 10,000 pilots said the demand for the money in escrow is confusing since Donald Carty, Fort Worth-based American's chief executive, had assured them that he was willing to cooperate. "Management continues to express its desire for better employee relations and its willingness to meet with APA to discuss next steps relative to the fine, while simultaneously taking the steps necessary to collect $21,650,000 of your dues," Gregg Overman, director of communications, said in the message. "We are willing to sit down with them and discuss payments terms on the balance," American spokesman Karen Watson said in Wednesday's editions of The Dallas Morning News. "American has no interest in bankrupting the APA, but we have a fiduciary duty to our shareholders to collect the award." Late last month, the 5th U.S. Circuit Court of Appeals in New Orleans denied the union's motion to stay a Sept. 21 decision upholding the penalty. It was the latest blow to the APA where Richard LaVoy, union president, and two other top officers have announced their resignations in a deal reportedly brokered by union board members who wanted to avoid the embarrassment of a recall election. The APA is also defending itself against a class-action lawsuit filed by passengers inconvenienced by the sickout. That lawsuit, which is still pending, seeks compensatory damages of at least $50 million and unspecified punitive damages. (The Associated Press State & Local Wire, November 8, 2000) ARIZONA: Attorney Wants Class-Action Status For Allegedly Abused Kids --------------------------------------------------------------------- A seven-year battle between an Arizona attorney and state officials over allegedly sexually abused foster children has come to a head in a special petition seeking the state Supreme Court's grant of certiorari of a class action. The case before the Arizona Supreme Court is on behalf of four children and seeks class certification for about 300 more. They were allegedly sexually molested while in the state's foster care system, but their names aren't known to the plaintiffs' attorney or the guardian ad litem bringing the suit. The plaintiffs' attorney said that the number and identities of the children were discovered as a result of a court-ordered analysis of the state's foster care system. Bogutz v. Superior Court of State of Arizona, No. CV-00-0260-SA. An Unjust Sacrifice? Laurence Berlin, a Tucson-based solo practitioner who focuses on personal injury, represents the children and the guardian ad litem, attorney Allan Bogutz of Tucson's Bogutz & Gordon. Mr. Berlin said that a trial court's denial of certification of class action, and its refusal to provide notification to the children believed to be a part of the class, violate the court's responsibility toward the children under state and federal law concerning minors. He also contends that the ruling will result in the unjust sacrifice of the children's legal rights to sue as a result of the tolling of the statute of limitations. The case is one of first impression in its application of Arizona Civil Rule 17(g), Arizona's version of Federal Rule 17(c), Mr. Berlin said. The rule asserts that it is the duty of the courts to protect the rights of an injured child brought before them. "If the Supreme Court grants review, there will probably be a clear determination of whether their rights will be guarded or extinguished, and whether the state will succeed in just sweeping these children under the rug," said Mr. Berlin. Arizona Superior Court Judge Michael Brown denied certification for the class action earlier this year. The judge also denied notification of the allegedly abused children of the status of the suit. The denial of class certification removes the shield stopping the tolling of the statute of limitations, which means many of the children will lose their right to sue if they are not notified. But attorneys for the state assert that neither the number of allegedly sexually abused children nor their identities were ever determined. The attorney for the state, Daryl Manhart, a partner at Burch & Cracchiolo in Phoenix, called Mr. Berlin's suit a fishing expedition to drum up more clients. Mr. Manhart also asserted that Mr. Berlin "is attempting to use Rule 17(g) to allow unidentified parties in the case to take up special interests." As a result of court-ordered discovery into the state's records on sexually abused children in foster homes -- sparked by the suit filed by Mr. Berlin -- the plaintiffs allege that 92 abused children were specifically identified to the court by the National Child Welfare Resource Center. A special master appointed to the case identified 21 children who had been molested while in foster homes. Mr. Berlin said that 200 more children could be identified by the special master. But Flora Sotomayor, program administrator for Arizona child protective services, contended that the number of children sexually abused in state-provided foster homes is much lower. Prior Abuse Ms. Sotomayor said that state reports showing sexual abuse include abuse the children experienced in their foster-care home assignments. But the reports lumped abuse in foster homes with abuse that happened earlier and was reported during foster home stays, she said. The state's attorneys said in their brief, "The numbers reflect computer cullings of children who possibly may have been sexually abused while in foster care (Which does not mean it was due to any act or omission of the State) and speculation of the number of such children who might be found by an examination of the records of all of the children who have ever been in foster care." (The National Law Journal, November 6, 2000) EICHEN: 9th Cir Allows Unnamed Objectors to Appeal Attorney Fee Awards ---------------------------------------------------------------------- Judges who approved class-action attorney fee awards must clearly define their reasons should they depart from the benchmark, the U.S. Court of Appeals for the 9th Circuit has ruled in Powers v. Eichen, No. 00 C.D.O.S. 8486. The panel's ruling allows unnamed class-member objectors to appeal fee awards without going through the process of intervening as a named party. Berkeley, Calif., solo practitioner Lawrence Schonbrun represented the stockholder who challenged the fee. (The National Law Journal, November 6, 2000) ESSO: Australian Court Gives Longford Gas Plant Explosion Go-ahead ------------------------------------------------------------------ The decision by the full bench of the Federal Court on November 8 means Esso faces a major court action by insurance companies, joined by thousands of businesses, consumers and stood down workers seeking compensation. The explosion at the Longford gas plant, in south-west Victoria, on September 25, 1998 claimed two lives and deprived Victorian households and businesses of gas for two weeks. A royal commission into the disaster found Esso was largely to blame. Lawyers for the class action claimed the oil and gas giant faces a payout of more than $1 billion to more than one million people affected by the class action. Nicholas Styant-Browne, of Slater and Gordon, said Esso had tried three times already to have the matter struck out. "This is their third failure and the class action will go ahead," Mr Styant-Browne told reporters outside the court. "They sought to strike out the negligence claim and the full court of the Federal Court has upheld the negligence claim and says that it must go to trial." The decision, by Justices Beaumont, French and Finkelstein, did uphold a smaller part of the Esso appeal which effectively blocks a claim of misleading or deceptive conduct. Bernard Murphy, for Maurice, Blackburn, Cashman, hailed as "magnificent" the decision allowing to go ahead what might become Australia's biggest civil damages action". "It's a very good day for the stood down workers, it's a good day for the businesses, it's a good day for the consumers," he said. "It's a very big class action. If you recall Victoria's businesses were shut down for two weeks - we say as a result of the negligent conduct of the Longford gas plant by Esso." The two legal firms, which are conducting the class action together with the Insurance Council of Australia, are now looking to get a trial date by early next year. (AAP Newsfeed, November 8, 2000) FLEET BANK: Improperly Paid Itself First, Subcontractors Allege --------------------------------------------------------------- In a class action brought under Lien Law Article 3-A, plaintiff subcontractors sought to recover trust funds allegedly improperly diverted by defendant bank. Plaintiffs were owed money for work done on a construction project. When the New York City Housing Authority purchased the properties from the developer/mortgagor, the proceeds of the sale were paid directly to the bank. Rather than paying any of the subcontractors, the bank applied the proceeds to the mortgagor's debt to it and discharged the mortgages on the properties. The bank argued that its own claim was a trust claim that could be paid ahead of other claimants. The court rejected defendant's argument. It also said that defendant failed to protect itself by filing a notice of assignment or a notice of lending. Summary judgment was granted to plaintiffs on the issue of liability. IA PART 6 Justice Held ASPRO MECHANICAL CONTRACTING INC. v. FLEET BANK, N.A. QDS:42703369-Upon the foregoing papers in this class action brought under Lien Law article 3-A by plaintiffs to recover trust funds allegedly diverted by defendant Fleet Bank, N.A. ("defendant"), plaintiffs move for summary judgment in their favor as against defendant on the issue of liability and for an order setting this matter down for an assessment of damages. Defendant cross-moves for summary judgment dismissing plaintiffs' complaint as against it. On May 28, 1992, Norstar Bank ("Norstar") entered into a project loan mortgage and security agreement and a building loan mortgage and security agreement, as mortgagee, with Berry Street Corp. ("Berry"), as mortgagor. Said agreements, which were modified by agreements dated August 9, 1994 and were duly recorded in accordance with Lien Law @ 22, contained the language required by Lien Law @ 13(3) that they were subject to that section's trust fund provisions. Berry, on May 28, 1992, additionally assigned to Norstar all of its rights, title, and interest in a turnkey contract of sale dated January 19, 1989, pursuant to which Berry was to acquire title to certain real property located in Brooklyn, New York, construct certain appurtenances thereon, and convey title to each of three sites and improvements in three separate title closings to the New York City Housing Authority ("the NYCHA"). The contract between Berry and the NYCHA provided for periodic monetary advances to be made by the NYCHA to Berry as certain portions of the improvements were completed until the transfer of title. By letter agreement also dated May 28, 1992, the NYCHA agreed to make all payments of the purchase price becoming due pursuant to the contract directly to Norstar. No notice of assignment pursuant to Lien Law @ 15 or notice of lending pursuant to Lien Law @ 73(3) was ever filed by Norstar or defendant, which, pursuant to a tri-party agreement between the NYCHA and Berry, became the successor in interest to Norstar. In the early part of 1992, Berry entered into subcontracts with the plaintiff class members to have work, labor, and services performed and materials furnished in connection with the construction and improvement of the subject premises. Each class member alleges that it is owed sums of money from Berry for the work, labor, and services performed and/or materials furnished by it on the project. On December 20, 1993, November 21, 1994, and September 27, 1995, the NYCHA purchased the three sites with the improvements from Berry, and paid the proceeds of the sale directly to defendant. Rather than paying any of the plaintiff- subcontractors the monies owed to them by Berry, defendant applied these proceeds to Berry's debt to it and discharged the mortgages on the properties conveyed to the NYCHA. Consequently, the named plaintiffs, on behalf of themselves and other subcontractors similarly situated, brought this class action against defendant, alleging that it improperly diverted trust funds and seeking to enforce the trust under Lien Law article 3-A. In addressing plaintiffs' instant motion and defendant's cross motion, the court notes that Lien Law @ 70(l) defines trust assets as "funds... received by an owner for or in connection with an improvement of real property in this state." Thus, it is undisputed that when the NYCHA paid defendant for the purchase of the properties pursuant to the assignment dated May 28, 1992, the monies paid were and remained trust assets. The monies received by defendant would have been paid to and received by Berry but for the May 28, 1992 assignment to defendant. Therefore, the plaintiff-subcontractors' claims for payment for work performed in connection with the improvement of the subject real property constitute trust claims under Lien Law @ 71(3)(a), and such subcontractors are beneficiaries of the trust under Lien Law @ 71(4). It is noted that defendant, in a prior proceeding by plaintiffs against it (which was dismissed without prejudice due to a procedural defect in the form of such proceeding, and which was, in effect, reinstituted as the present action), raised similar arguments to those now raised by defendant in support of its cross motion herein, and that such arguments were rejected by this court (see, Matter of Aspro Mech. Contr. v. New York City Hous. Auth., 174 Misc 2d 244). "An improper diversion of [a] contractors trust assets occurs when any such trust asset is paid, transferred or applied for a nontrust purpose before all of the trust claims have been paid or discharged" (Cannon Corp. v. City of New York, 89 NY2d 147, 154; see also, Lien Law @ 72[l]). "A trust beneficiary may enforce its rights against any nonbeneficlary who receives trust assets with knowledge of their trust status" (Cannon Corp. v. City of New York, supra, 89 NY2d, at 154; see also, Lien Law @ 77[3][a][i], [vi]; Caristo Constr. Corp. v. Diners Fin. Corp, 21 NY2d 507, 512; Gerrity Co. v. Bonacquisti Constr. Corp., 156 AD2d 800, 802). Here, defendant received trust assets from the NYCHA with knowledge of their trust status. It argues, however, that, by paying itself, it did not apply the trust assets for a nontrust purpose. In support of this argument, it asserts that since the definition of a trust claim under Lien Law @ 71(3)(a) includes "any obligation of the owner incurred in connection with the improvement for a payment or expenditure defined as cost of improvement" and the definition of the term "cost of improvement" under Lien Law @ 2(5) encompasses sums paid to discharge building loan mortgages as well as interest on building loan mortgages accruing during the making of the improvement, the payment of the trust assets to itself were permitted as they were not a diversion of the trust assets but payments to it for a "cost of improvement." It claims that Lien Law @ 13 does not mandate that trust funds be applied first for the payment of contractors and materialmen, but merely requires that they be "applied first for the purpose of paying the cost of improvement," and that, under Lien Law @ 74(l), it, as the trustee, "is authorized to determine the order and manner of payment of any trust claims." It, therefore, contends that since its own claim was a trust claim, it was authorized to pay such claim ahead of other trust claims, including those of contractors and materialmen. The court rejects defendant's argument. Defendant's attempt to define its own claim as a trust claim which may be paid to itself ahead of the other claimants perverts and distorts the plain meaning and intent of the Lien Law and circumvents its salutary purpose, which is "to afford protection to those who furnish work, labor and services or provide materials for the improvement of real property" (West-Fair Elec. Contrs. v. Aetna Cas. & Sur. Co., 87 NY2d 148, 156, quoting Mem. of Senator Donovan, L 1975, ch 74, 1975 NY Legis Ann, at 341; see also, McKinney's Cons Laws of NY, Book 1, Statutes @@ 95, 96; Raisler Corp. v. Uris 55 Water St. Co., 91 Misc2d 217, 223). "New York's Lien Law is remedial in nature and intended to protect those who have directly expended labor and materials to improve real property at the direction of the owner or a general contractor" (West-Fair Elec. Contrs. v. Aetna Cas. & Sur. Co., supra, 87 NY2d, at 157). "The policy proclaimed by [the Lien Law] is to protect those whose skill, labor and materials made possible the performance of a construction contract and who, in fact, creating the improvement, actually gave rise to the owner's obligation to pay" (Aquilino v. United States, 10 NY2d 271, 278-279). The required covenant of Lien Law @ 13(3), which was contained in the subject mortgages, thus imposed an obligation on defendant to apply the trust funds to pay for those costs of improvement (i.e., to apply said trust funds for the purpose of paying "the cost of improvement" made by the contractors and materialmen) other than the cost of improvement created by these very mortgages. Indeed, to hold otherwise would render such covenant and the requirement of its inclusion in the mortgages meaningless and ineffective (see, McKinney's Cons Laws of NY, Book 1, Statutes @ 144). While pursuant to Lien Law @ 73, defendant, if it had filed a notice of lending, would have been able to raise as an affirmative defense in this action that it was entitled to a credit for the amount of repayment of advances made by it to Berry, defendant failed to file such a notice of lending. Additionally, defendant's failure to file a notice of assignment, pursuant to Lien Law @ 15, renders its claim to the trust funds subordinate to plaintiffs' claims, (see, 76 NY Jur 2d, Mechanics' Liens, @ 103). Defendant's contention that it was not required to file a notice of assignment because the assignment from Berry to it involved a contract for the sale of real property and the filing requirement of Lien Law @ 15 is inapplicable to contracts for the sale of real property, is devoid of merit. The assignment at issue did not constitute a sale of the real property, but was intended as security for monies advanced, making Lien Law @ 15 applicable herein. In fact, defendant concedes that by taking an assignment, it did not become an owner of the property. Thus, inasmuch as defendant had failed to protect itself by filing a notice of assignment pursuant to Lien Law @ 15 or a notice of lending pursuant to Lien Law @ 73, it must recognize the subordination of its own claim to those of plaintiffs, who are members of the statutorily protected class under the Lien Law (see, Eljam Mason Supply v. I.F. Assocs. Corp., 84 AD2d 720, 721; National Sur. Corp. v. Fishkill Nati. Bank, 61 Misc2d 579, 584, affd 37 AD2d 537). In National Surety Corporation v. Fishkill National Bank (supra, 61 Misc2d, at 586), it was expressly held that where, as here, a bank had failed to properly file a notice of lending or a notice of assessment and it received trust funds pursuant to a contract for a public improvement, the bank's application of the funds to its own use constituted a diversion of trust assets under the Lien Law. The court therein noted that "[the] law has stated expressly the purposes for which the trust funds are to be first applied and the repayment to the bank of its loan is certainly not one of those purposes" (id., at 584). Defendant's argument that the holding of National Surety Corporation v. Fishkill National Bank (supra, 61 Misc2d 579) and the requirements of Lien Law @@ 15 and 73 that a notice of assignment or a notice of lending, respectively, be filed are not applicable to it because it was a secured creditor and not an unsecured creditor, is unavailing. Neither National Surety Corporations Fishkill National Bank (supra) nor Lien Law @ 15 or @ 73 distinguish between secured and unsecured creditors, and to create and impose this distinction would contradict the plain, clear, and unambiguous language and intended purpose of these statutory provisions (see, McKinney's Cons Laws of NY, Book 1, Statutes @ 76, 96). Thus, contrary to defendant's contentions, in order for it to be afforded a defense to plaintiffs' action, it was required to file a notice of assignment or a notice of lending (see, Lien Law @@ 15, 73; Caristo Constr. Corp. v. Diners Fin. Corp., supra, 21 NY2d, at 514: Eljam Mason Supply v. I.F. Assocs. Corp., supra, 84 AD2d, at 721; Raisler Corp. v. Uris 55 Water St. Co., supra, 91 Misc2d, at 220; National Sur. Corp. v. Fishkill Natl. Bank, supra,, 61 Misc2d, at 586); its mere filing of its building loan mortgage and building' loan agreement was patently insufficient for this purpose. "Strict compliance with the statute is necessary" (76 NY Jur 2d, Mechanics' Liens, @ 103). The court therefore, finds that defendant's application of the subject monies to its own use and benefit constituted a diversion of trust funds under the Lien Law (see, Lien Law @ 72[1]). Consequently, inasmuch as defendant, in response to plaintiffs' motion, has failed to raise any material and triable issue of fact with regard to its liability herein, summary judgment in plaintiffs' favor as against defendant on the issue of liability granted (see, CPLR 3212[b], [c]). Accordingly, plaintiffs' motion for summary judgment in their favor as against defendant on the issue of liability and for an order setting this matter down for an assessment of damages is granted, and defendant's cross motion for summary judgment dismissing plaintiffs' complaint as against it is denied. Upon the filing of a note of issue and the payment of the requisite fees, if any, plaintiffs shall thereupon present a copy of the note of issue to the Jury Coordinating Part, and the assessment of damages shall be scheduled for a date certain. (New York Law Journal, October 30, 2000) HALL, KINION: Announces Dismissal of Shareholder Complaint in CA ---------------------------------------------------------------- Hall, Kinion & Associates, Inc. (Nasdaq: HAKI), The Talent Source for the Internet Economy(R), announced that the U.S. Northern District Court of California has dismissed the class action shareholder lawsuit filed in June. The action was dismissed without leave to amend by order of the court, dated October 27, 2000. HEARTLAND HIGH-YIELD: Devalued Funds Prompt Third Suit; 2 More Expected ----------------------------------------------------------------------- The law firm of Schiffrin & Barroway filed a class action claim against Heartland Advisors Inc. and two of its high-yield municipal bond funds bringing the total of lawsuits filed against the mutual fund complex to three while two more law firms announced plans to bring their own suits. The suit by Pennsylvania-based Schiffrin was filed in United States District Court for the Eastern District of Wisconsin on behalf of shareholders in the two Heartland high-yield funds that saw their asset values drop significantly this fall. It seeks damages for what it claims was the issuance of false and misleading statements regarding the mutual funds' business and financial condition. The law firm would neither comment on the case nor disclose the claim that was filed. Meanwhile, a fourth suit against the mutual fund complex, which the New York law firm of Kirby McInerney & Squire is planning, is only being brought on behalf of shareholders in the Heartland Short Duration High-Yield Municipal Fund, and not the Heartland High-Yield Bond Fund. According to a statement prepared by the firm, the action will specifically allege that the fund's registration statement and prospectus stated that the fund's shares were being sold at net asset value calculated based upon "the value of the fund's assets," although the fund's shares were being sold at artificially inflated NAVs as a result of Heartland having assigned prices that did not reflect those assets' values. The complaint will allege that, accordingly, the fund's performance was materially overstated. A fifth firm, Cauley & Geller, announced Monday from its Boca Raton, Fla., office that it has been retained to file a class action suit on behalf of individual and institutional investors who purchased shares of both Heartland high-yield funds. (The Bond Buyer, November 8, 2000) HOLLYWOOD: Lawyers Take on $200M TV Writers' Case on Age Discimination ---------------------------------------------------------------------- Several lawyers are taking on Hollywood in a $ 200 million class action filed on behalf of television writers who claim that they have been blacklisted and discriminated against by networks and talent agencies because of their advanced ages. The lawyers bringing the suit are: Dolly M. Gee and William T. Payne, from Los Angeles' Schwartz, Steinsapir, Dohrmann & Sommers; Paul C. Sprenger, Michael D. Lieder and Daniel Wolf, from Washington, D.C.'s Sprenger & Lang; Maia Caplan, from Washington, D.C.'s Kator, Scott & Parks; and Steven M. Sprenger, from Sprenger & McCreight in Kansas City, Kan. The plaintiffs are a class of 28 writers above the age of 40. They claim that since the 1980s, Hollywood has engaged in systematic employment discrimination and federal civil rights violations that have driven older writers to financial ruin and even mental collapse. Their lawyers say that they hope the class will eventually include some 5,000 members. The 53 defendants include some of the most prominent companies in Hollywood: NBC, Paramount, Time Warner, Fox, Walt Disney, ABC. Dreamworks, William Morris and many others. Several that were called for comment said that they had just received the complaint and were not yet prepared to talk about it. Among the plaintiffs are: Jay Moriarty, who wrote for All in the Family and Cheers; Bob Shayne, a former writer for Good Times and The Tonight Show; and James Trombetta, whose credits include Miami Vice. The suit, Wynn v. National Broadcasting, No. 2:00-CV-11248, was filed on Oct. 23 in U.S. district court in Los Angeles. It has been assigned to Judge J. Spencer Letts. (The National Law Journal, November 6, 2000) HOME DEPOT: Employees File Suit in Oregon Alleging Age Discrimination --------------------------------------------------------------------- Six former and current employees of a Home Depot store in Oregon have sued the retailer, alleging age discrimination. The plaintiffs, aged 41 to 56 years old, said the discrimination began when new management took over a store last year in Tigard, according to a lawsuit filed in U.S. District Court in Portland last week. Sean Bahri, the lead plaintiff, said he and several other plaintiffs were harassed, discriminated against and fired because of their age. Two plaintiffs still work at the store, according to the lawsuit. Atlanta-based Home Depot said in a statement that it has not had time to investigate the allegations and that it "does not tolerate any form of discrimination." The lawsuit is the second involving a Portland-area store recently. In July, seven former and current female employees of Home Depot alleged gender discrimination at a store in Jantzen Beach. Some also complained of age discrimination. Portland law firm Steenson, Schumann, Tewksbury & Rose is representing plaintiffs in both cases. Home Depot, the nation's largest home improvement retailer, faces several suits in other parts of the country that involve multiple plaintiffs at a single store. The plaintiffs allege discrimination because of race, sex or age. (The Atlanta Journal and Constitution, November 8, 2000) MASB-SEG: Royal Oak School Denied Certification in Suit Against Insurers ------------------------------------------------------------------------ An Oakland County Circuit Court judge entered an order Oct. 2 denying a Michigan school district class certification in its lawsuit against an in-state insurance pool (The School District of Royal Oak v. MASB-SEG Property and Casualty Pool Inc., No. 99-019088-CK, Mich. Cir., Oakland Co.; See July 2000, Page 7). The decision came as a followup to an Aug. 30 bench ruling made by Judge Gene Schnelz, who said he failed to see the necessity of granting the plaintiffs class status. The School District of Royal Oak sought certification for itself and approximately 400 other districts in the state for reimbursement of Y2K remediation costs by their insurer. According to the plaintiffs, defendant MASB-SEG notified 300 of the districts that a retroactive Year 2000 exclusion had been applied to their policies so that the costs associated with upgrading their software to be compliant would not be covered. Judge Schnelz said his denial was based on the fact that no other potential class member had filed a suit against defendant MASB-SEG raising similar claims. "The ultimate issue in this matter would be specific to any school district and cannot be resolved on a state-wide basis. This is a claim of the Royal Oak School District and does not rise, in my opinion, to the level of a class action, as no other class actions have been filed. . . . In the event that more actions are filed and they want to compile their - join them together and perhaps a class action then, okay, but now, no," Judge Schnelz said from the bench. 'Perfectly Suited' In a motion for reconsideration of the order to deny, attorneys for Royal Oak rejected Judge Schnelz's reasoning as "erroneous," and assert that the claims put forth by the school district are ideal for class status. "It is perfectly suited for treatment as a class action, particularly in this case where all 400 school districts had the same boilerplate insurance policies, 300 of them received late notice of an exclusion for these claims, as well as many other common issues," the motion read. An affidavit submitted by the defendants misled Judge Schnelz into thinking that only Royal Oak had reason to file suit against MASB-SEG, the plaintiffs said. As evidence to the contrary, Royal Oak pointed to the results of a survey conducted by the insurer which showed that "every single school that performed a cost analysis for Defendant concluded that there would be a significant financial impact (from remediation)." In the motion, the plaintiffs explain the lack of similar filings against MASB-SEG by pointing to the exclusion notification by the defendants. "Having told them (in violation of the Michigan Insurance Code and in breach of the contract of the insurance) that they cannot file claims for their losses, it is no wonder that there have not been any other lawsuits filed against this particular Defendant in Michigan," the motion read. A better solution than denying Royal Oak class status would be to decertify if no other school districts joined the lawsuit, the plaintiffs argued. 'Doomed to a Remand' Because Judge Schnelz's ruling did not address the elements required for class certification - neither those present or those lacking in the Royal Oak case - the decision was "doomed to a remand," according to Royal Oak. "Any appeal of the Court's order would be doomed to a remand from the appellate court directing that these elements be addressed, before appellate review could take place," the motion for reconsideration states. Furthermore, the jurists' failure to adequately articulate his reasons for the denial amounts to reversible error, attorneys for Royal Oak state. Judge Schnelz, in his ruling, should be made to address how, or why, Royal Oak failed to meet specific requirements of class certification like numerosity and typicality. Judge Schnelz's reasoning - that no other lawsuits had been filed by school districts against their insurer - is not an acceptable criterion for the denial of class certification, the plaintiffs contend. "It is mere speculation to conclude that the absence of other lawsuits or class actions on the issue necessarily implies a lack of interest or apathy by putative class members. Other Michigan school districts who received Defendant's Y2K exclusion certainly may have taken no action to date in reliance upon the assumed expertise of their insurance agent telling them that such claims could not be bought." "In the mystical world of insurance policy jargon, complicated by coverage and exclusion language crafted by Defendant and its excess insurance carriers, it cannot be presumed that the failure to challenge the Y2K exclusion sent by Defendant has been a conscious, informed decision by any putative class member," the motion states. The School District of Royal Oak is represented by Philip J. Goodman of Birmingham, Mich., and Dale R. Burmeister of Harvey Kruse in Troy, Mich. MASB-SEG is represented by Timothy J. Mullins and Stephen J. Hitchcock of Cox, Hodgman & Giarmarco in Troy. (Mealey's Year 2000 Report, October, 2000) MCI WORLDCOM: Bernard M. Gross Files Securities Suit in Mississippi ------------------------------------------------------------------- Law Offices Bernard M. Gross, P.C. gives notice that a class action lawsuit has been filed in the United States District Court for the Southern District of Mississippi on behalf of all persons who purchased or otherwise acquired the common stock of Worldcom Corporation (NASDAQ:WCOM)) between April 13, 2000 and November 1, 2000( the "Class Period"). The complaint charges MCI WORLDCOM as well as its Chief Executive Office and Chief Financial Officer, with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder arising from material misstatements and omissions made during the Class Period. Specifically, the complaint alleges that defendants knew during the Class Period - but did not disclose to investors- that its third quarter 2000 results would be lower than expected. On October 26, 2000, defendants' revealed that the growth of Worldcom's Internet division, UUNet experienced a 14% decrease in growth from the 40% growth in the second quarter 2000 to 26% in the third quarter. Defendants also disclosed for the first time that due to bankruptcies by 17 of its wholesale customers, the Company wrote down $405 million in receivables. Defendants also revealed that they would announce a restructuring on November 1, 2000. The Complaint alleges that, as a result of what defendants said and what they failed to say during the class Period, Worldcom securities traded at artificially inflated prices during the Class Period. Also, during the class period, the individual defendants, Bernard J. Ebbers and Scott D. Sullivan sold thousands of Worldcom shares while privy to the truth before disclosing it to the public of the negative impact of its acquisition spree on the Company's financial results and the slowing growth in the company's profitability. Contact: Law Offices Bernard M. Gross, P.C. Susan Gross, Esq. Deborah R. Gross, Esq. 800/849-3120 or 215/561-3600 MCKESSON HBOC: DE Action Stayed for CA Action Before Certification ------------------------------------------------------------------ In a case in which plaintiffs filed a class action in Delaware after other shareholders had filed a similar action against the same defendants in a California federal court, the defendants were entitled to stay the Delaware action, even though neither case had been certified as a class action, the Delaware Superior Court held on Sept. 7. Caravetta v. McKesson HBOC Inc., No. D00637. (The National Law Journal, October 30, 2000) MICROSOFT CORP: Legal Intelligencer Opins No Standing for Antitrust Suit ------------------------------------------------------------------------ Individual Was Not Direct Purchaser of Software, an article in the Legal Intelligencer says. A Wallingford, Conn., consumer who bought a computer from Staples containing Microsoft Windows does not have standing to sue Microsoft for antitrust violations, a trial judge concluded. Anthony Vacco will seek an appeal, his lawyers said. He sought to recover the "monopoly pricing" cost of the Windows 98 software that came on his computer, in an antitrust and unfair trade case similar to scores of suits around the nation.But Judge Robert F. McWeeny of Waterbury Superior Court ruled that Vacco lacks standing to sue because he did not buy the software directly from Microsoft. The underlying doctrine stems from the 1977 U.S. Supreme Court case of Illinois Brick v. Illinois. It holds that when a monopolistic supplier's costs are passed down through layers of distribution, it would be unfair to subject the defendant to repetitive litigation, and it is too difficult to ascertain at which level the cost increase was absorbed. Vacco, represented by New Haven-based Tyler Cooper & Alcorn, contended that his software license was purchased directly from Microsoft, but McWeeny said the license was simply a function of copyright law that did not change the applicability of Illinois Brick. Furthermore, the fact that Connecticut's legislature had five opportunities to repeal the effect of Illinois Brick, and declined to do so, is evidence that Connecticut antitrust law still follows the federal rule. Benjamin Solnit, of Tyler Cooper, said in an interview that Connecticut's antitrust statute differs from federal law, and Illinois Brick does not apply. "We respectfully disagree with the learned judge's opinion," he said. "The consumer is going to be your paradigmatically indirect purchaser." Microsoft was defended by New York-based Sullivan & Cromwell and by James Sicilian, of Hartford, Conn.-based Day Berry & Howard. The software giant contended that two additional counts of unfair trade practices could only be based on antitrust violations, and if Vacco had no antitrust case, he had no claim under the Connecticut Unfair Trade Practices Act.In the case of Bristol Technology v. Microsoft, tried before U.S. District Judge Janet C. Hall of the District of Connecticut, a jury found Microsoft was not a monopolist, but awarded a nominal $ 1 for violating CUTPA. Hall imposed punitive damages against Microsoft under CUTPA for $ 1 million, independent of any finding of antitrust violation.Solnit said even without an antitrust violation, his client should have a valid CUTPA action. Vacco's state case is the sole remaining antitrust litigation pending in state courts against Microsoft, Sicilian confirmed.Several other cases have been consolidated in a federal court claim, Moscowitz v. Microsoft, which is part of a nationwide group of individual antitrust cases. In his complaint, Vacco contended that Microsoft's practice of including its own Internet browser, developed at a cost of hundreds of millions of dollars, "would only make sense to a predatory monopolist." The complaint quoted a Microsoft vice president telling industry executives that Microsoft's browser, Internet Explorer, would prevail over competitor Netscape: "We're going to cut off [Netscape's] air supply. Everything they're selling, we're going to give away for free."McWeeny, in a footnote, said this is a "counterbalance to the alleged monopolistic countercharge." Nationally, Microsoft and lawyers for antitrust plaintiffs around the country sought to consolidate federal and state class action claims in a Maryland federal court. According to The Industry Standard, Stamford University economist Robert Hall has placed the potential damages Microsoft faces at $ 7 billion. Vacco's lawyers at Tyler Cooper are Solnit and Richard W. Bowerman in its New Haven offices, and William Champlin in Hartford. This article previously appeared in The Connecticut Law Tribune, an American Lawyer Media publication. (The Legal Intelligencer, November 6, 2000) MOTOROLA INC: IL Ct Says Economic Model Inadmissible in Securities Suit ----------------------------------------------------------------------- An economic model used to determine aggregate damages does not meet the Daubert standards and is therefore inadmissible in a securities fraud class action, a federal judge has ruled (Richard Kaufman, et al. v. Motorola Inc., et al., No. 95 C 1069, N.D. Ill.). U.S. Judge Robert W. Gettleman of the Northern District of Illinois granted a motion by Motorola Inc. to exclude testimony by Dr. Gregg A. Jarrell in a suit brought by shareholders alleging fraudulent failure to disclose relevant information. Jarrell sought to use a proportional trading model to determine damages to the class by multiplying the alleged per share differential by the aggregate number of shares "damaged" by the alleged fraud. Because the number of shares purchased for actual investment by shareholders could not be determined empirically, Jarrell used the model to produce an estimated number. Motorola moved to exclude Jarrell's testimony, arguing that the model is not reliable. 'Never Been Accepted' Granting the motion, Judge Gettleman said that the proportional trading model "has never been accepted by professional economists. It seems to be a theory developed more for securities litigation than anything else. Although it may be correct to conclude that some type of model is needed in order to compute aggregate damages to this class, this does not mean that absent such a computation, any alleged securities law violation would go unremedied. Indeed, under the case law governing @ 10(b)(5) securities actions such as this, only 'actual damages' may be awarded to each shareholder. Therefore, assuming liability, an adequate remedy may be fashioned by having the jury determine a per share damage loss and requiring the filing of claims by each shareholder who claims that he, she or it has been damaged." The judge acknowledged Jarrell's testimony that there is no way to test the reliability of the model, but said, "Whether this is correct or not, in absence of such testing and in absence of any acceptance by the professional economists of the theory, it simply does not pass Daubert muster." The class plaintiffs are represented by Perry M. Berke and Burton I. Weinstein of Baskin, Server, Berke & Weinstein in Chicago; Robert S. Kitchenoff and Paul J. Scarlato of Weinstein, Kitchenoff, Scarlato & Goldman Ltd. in Philadelphia; Michael J. Freed and Carol V. Gilden of Much, Shelist, Freed, Denenberg, Ament & Rubenstein in Chicago; and Keith M. Fleischman, Joshua H. Vinik and Daniel J. Dolcetti of Milberg, Weiss, Bershad, Hynes & Lerach in New York. Motorola is represented by Garrett B. Johnson, Jeffrey L. Willian, Debra L. Beinstein, Wendy Lynn Bloom, Douglas Maynard Poland, Kristina Marie Hoy and Jane Soyeon Park of Kirkland & Ellis in Chicago. (Mealey's Daubert Report, October, 2000) NETWORK ASSOCIATES: Lieff, Cabraser Announces Securities Lawsuit in CA ---------------------------------------------------------------------- The following notice is being issued pursuant to an order of the United States District Court, Northern District of California: IN RE NETWORK ASSOCIATES, INC. SECURITIES LITIGATION AND CONSOLIDATED CASES CASE NO. C-99-01729-WHA NOTICE OF PENDENCY OF CLASS ACTION TO: ALL PERSONS WHO PURCHASED OR OTHERWISE ACQUIRED NETWORK ASSOCIATES, INC. SECURITIES BETWEEN JANUARY 20, 1998 AND APRIL 6, 1999, INCLUSIVE: Please read this notice carefully. This notice contains information about your legal rights. 1. YOU ARE HEREBY NOTIFIED, that a number of class action lawsuits have been brought by shareholders of Network Associates, Inc. in the United States District Court for the Northern District of California (San Francisco division). These lawsuits were consolidated, and are now pending before the Honorable William H. Alsup, United States District Judge for the Northern District of California. The Consolidated Amended Class Action Complaint in these lawsuits alleges that Network Associates, Inc., its Chairman of the Board and Chief Executive Officer, William L. Larson, and its Chief Financial Officer, Prabhat K. Goyal, violated the securities laws during the period January 20, 1998 through April 6, 1999 (the "Class Period") by making false and misleading statements about the Company's financial results. Defendants deny plaintiffs' allegations. The court has not yet ruled, one way or the other, on the merits of plaintiffs' claims and charges, or on the denials and other defenses made by the defendants. The sending of this Notice is not an expression by the Court of any opinion as to the likelihood of recovery by plaintiffs or as to the merits of any defenses asserted by any defendant. CLASS ACTION RULING 2. YOU ARE FURTHER NOTIFIED that on September 14, 2000, Judge Alsup certified a class in the lawsuit consisting of: All persons who purchased or otherwise acquired securities of Network Associates, Inc. between January 20, 1998 and April 6, 1999, inclusive. Excluded from the Class are defendants, the officers and directors of Network Associates and members of their immediate families and entities in which they had a controlling interest. 3. The Court designated Robert A. Vatuone as representative of the Class. The Court designated Lieff, Cabraser, Heimann, & Bernstein, LLP as counsel for the Class. 4. The class certification order of the Court does not mean that plaintiffs will necessarily prevail in this lawsuit, or that any money will be obtained for Class members. These are contested issues which have not yet been decided. Rather, the class certification ruling means that the ultimate outcome of this lawsuit will apply in like manner to all Class members. ELECTION BY CLASS MEMBERS 5. If you fit the above description in paragraph 2 of a Class member, you have a choice whether or not to remain a member of the class on whose behalf this lawsuit is being maintained. Either choice will have its consequences, which you should understand before making your decision. If you want to remain a member of the Class, you do not need to take any affirmative action. If you do nothing, you will be a member of the Class. (b) If you want to be excluded from the Class, you are required to mail a request for exclusion to Class Counsel, at the below address, postmarked no later than December 8, 2000 to: Lieff, Cabraser, Heimann & Bernstein, LLP Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, CA 94111 Attn: James M. Finberg 6. If you request exclusion, you must (a) set forth (i) the title of this case; (ii) your name; (iii) current address; and (iv) the number of shares of Network Associates, Inc. stock you purchased during the class period; (b) expressly request exclusion from the class; and (c) personally sign your request for exclusion. NO REQUEST FOR EXCLUSION WILL BE CONSIDERED VALID UNLESS ALL OF THE INFORMATION DESCRIBED ABOVE IS INCLUDED IN ANY SUCH REQUEST AND YOUR REQUEST FOR EXCLUSION IS POSTMARKED BY DECEMBER 8, 2000. 7. By making the election to be excluded, (i) you will not share in any recovery that might be paid to Class members as a result of the trial or settlement of this lawsuit; (ii) you will not be bound by the outcome of this action; and (iii) you may present any claims you have against the defendants by filing your own lawsuit. 8. If you want to remain a member of the Class, you should not file a request for exclusion. You are not required to do anything at this time. By remaining a member of the Class, any of your claims against the defendants for damages arising from your investment will be determined in this case and cannot be presented in any other lawsuit. RIGHTS AND OBLIGATIONS OF CLASS MEMBERS 9. If you remain a member of the Class: Lead Plaintiff Robert A. Vatuone and his attorneys Richard M. Heimann, James M. Finberg, Melanie M. Piech, and Joy A. Kruse of Lieff, Cabraser, Heimann & Bernstein, LLP will serve as your representative and counsel for the presentation of this case against defendants; (b) Your participation in any recovery which may be obtained from the defendants through trial or settlement will depend upon the results of this lawsuit. If no recovery is obtained for the Class, you will be bound by that result also; (c) You may be required, as a condition for participating in any recovery through settlement or trial, to present evidence or documentation respecting your Network Associates investment(s). You should, therefore, preserve your records reflecting these investments; (d) You will be entitled to notice of, and an opportunity to be heard respecting, any proposed settlement of the Class claims; (e) As a Class member, you are not obligated to pay any attorneys' fees or costs arising out of this litigation. Class Counsel will apply to the Court for an award of attorneys' fees and for reimbursement and of costs out of the recovery, if any, obtained on behalf of the class. FURTHER PROCEEDINGS 10. The parties are in the process of exchanging documents and will soon be conducting deposition discovery. The trial is scheduled to commence on June 4, 2001. NOTICE TO BANKS, BROKERS AND OTHER NOMINEES 11. Banks, brokerage firms, institutions, and other persons who are nominees who purchased the common stock of Network Associates for the benefit of other persons during the Class Period are requested within ten (10) days of receipt of this Notice to provide Class Counsel with the names and addresses of such beneficial owners; or forward copies of this Notice and the Proof of Claim and Release to each such beneficial purchaser and provide Class Counsel with written confirmation that notice has been so forwarded. Class Counsel offer to prepay your reasonable expenses of complying with this request upon submission of appropriate documentation. Additional postage prepaid copies of this Notice may be obtained from Class Counsel for forwarding to such beneficial owners. ADDITIONAL INFORMATION 12. If you decide to remain a member of the Class and wish to communicate with Class Counsel as your attorney in this lawsuit, you may do so by writing or calling Class Counsel as listed below: Lieff, Cabraser, Heimann & Bernstein, LLP Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 Telephone: (415) 956-1000 Website: www.lchb.com Attn: Richard M. Heimann James M. Finberg Melanie M. Piech Joy A. Kruse 13. The foregoing is only a summary of the claims and defenses asserted and the matters related thereto. You may seek the advice and guidance of your own attorney, if you desire. For more detailed information you may inspect the pleadings, records and other papers on file in this litigation during regular business hours at the Office of the Clerk of the Court, United States District Court, Northern District of California, 450 Golden Gate Avenue, San Francisco, CA 94102 or examine filings from this case at the Stanford Securities Class Action Clearinghouse website: http://securities.stanford.edu. 14. PLEASE DO NOT TELEPHONE THE COURT REGARDING THIS NOTICE. DATED: October 2, 2000 /s/ William Alsup THE HONORABLE WILLIAM ALSUP United States District Court Judge Contact: Lieff, Cabraser, Heimann & Bernstein, LLP Joy A. Kruse, 415/956-1000 ext. 336 jakruse@lchb.com PASMINCO LIMITED: Australian High Ct Reserves Decision on Smelter Suit ---------------------------------------------------------------------- The Victorian Supreme Court reserved its decision on an application from Pasminco to dismiss the group proceeding against it relating to claims of pollution, nuisance and negligence allegedly caused by its smelters at Cockle Creek in NSW and Port Pirie in South Australia. The hearing began last Thursday 2 November and was adjourned to allow for the completion of submissions from both sides. Pasminco believes that the matter should be dismissed because: The Victorian Supreme Court should not be adjudicating on matters that arise wholly outside Victoria The threshold requirements for launching a group proceeding have not been satisfied. The claims of class action group members must arise out of the same or similar circumstances and the plaintiffs must have a claim against each defendant. For example, it is not possible for residents in Cockle Creek to bring claims against the Port Pirie smelter and vice versa The statement of claim is unclear and inconsistent Pasminco has owned the companies that operate the Port Pirie and Cockle Creek smelters since 1988. Both of these sites have been producing lead and zinc for more than 100 years. Pasminco believes that a group proceeding, or class action, is an inappropriate way of dealing with diverse individual issues. The company continues to encourage people who have concerns about its operations to raise these directly with the company. The company has always worked within strict regulatory guidelines in relation to the environmental performance of all of its sites, and consults regularly with communities to discuss expectations. (AAP Newsfeed, November 8, 2000) P.I.E.: Auditor of Failed Insurer to Pay $ 10M in OH Commissioner’s Suit ------------------------------------------------------------------------ Cleveland Benesch Friedlander Coplan & Aronoff has agreed to pay $ 8.75 million to settle negligence allegations involving its role as corporate counsel to Ohio's largest medical malpractice insurer, whose collapse triggered an $ 800 million claims avalanche and criminal investigations. As part of the settlement, accounting firm KPMG Peat Marwick, which was sued separately as the auditor of the failed insurer, agreed to pay $ 10 million. Both cases were filed by the Ohio insurance commissioner, which in 1998 seized P.I.E. Mutual Insurance Co. of Cleveland. At its height, P.I.E. insured thousands of doctors in nine states, including a third of Ohio's licensed practitioners. Since the shutdown, the state has liquidated P.I.E.'s assets and has litigated against former employees and others to collect money to pay claims, said Mark I. Wallach, a partner at Cleveland's Calfee Halter & Griswold who is handling litigation for the Ohio P.I.E. liquidation. Thousands in limbo To date, $ 239 million has been collected, far short of the estimated $ 800 million representing the more than 28,000 claims pending, according to Robert Denhard, spokesman for the Ohio Department of Insurance. The crash of P.I.E. frustrated thousands of plaintiffs in medical malpractice cases first by putting their cases in limbo, then ultimately undermining the hope of collecting judgments. The company's failure also exposed alleged bribery, the alleged looting of $ 12 million by the company's top three officials and allegations of $ 58 million in insurance fraud. Moreover, in its negligence suit, the state alleged that the Benesch Friedlander law firm knew about the alleged looting and fraud but did nothing. Under the settlement terms, 62-year-old Benesch Friedlander stipulated that it was "liable in tort," although the firm denies all liability. Benesch Friedlander's lawyer, John W. Zeiger, a partner at Zeiger & Carpenter in Columbus, Ohio, explained that the settlement language is a technical requirement to block a joint tort-feasor from bringing the firm back into court. He said that the firm's malpractice carrier made the call about settling the case, which was still in discovery. "We believe very strongly the firm acted responsibly and appropriately" while representing P.I.E., Zeiger said. KPMG's co-lead counsel, John W. Frazier IV, a partner at Montgomery McCracken Walker & Rhoads in Philadelphia, declined to comment. KPMG spokesman Alec Houston said that the firm stands behind its work and that it settled to avoid the cost of trial. Though the controversy surrounding the professional firms' conduct amounted only to allegations, the accusation of bribery involving P.I.E. has resulted in criminal convictions. Former Ohio Deputy Insurance Director David J. Randall pleaded guilty and served a 75-day sentence for taking a bribe from P.I.E. President and Chief Executive Officer Larry E. Rogers, among others. In return, the insurance official wrote a letter declaring P.I.E. to be financially sound when it was failing, Wallach said. Rogers faces trial next year on state criminal charges, and a federal criminal investigation into P.I.E. is ongoing, said William J. Edwards, first assistant U.S. attorney in Cleveland.As part of its negligence claim, the state alleged that Benesch Friedlander prepared the papers for, then failed to tell the board of directors about Rogers, the general counsel and the chief financial officer cashing in $ 12 million in employment contracts from the soon-to-be-insolvent insurer. Two of the three have repaid some money as part of settlement agreements, said Wallach, the lawyer representing the insurance commissioner. The complaint also alleged that Benesch Friedlander was told about an alleged fraud in which P.I.E. officials purportedly invented a $ 58 million reinsurance asset to pad the company's 1996 balance sheet, but it did nothing as directed by the company's general counsel. The firm also represented Rogers personally, said Wallach.A Benesch Friedlander lawyer investigated the fraud claim, after P.I.E.'s chief accountant quit and blew the whistle, Wallach said. "In his notes, they were instructed to 'sit on it,' so they did," Wallach said. The firms' settlement funds will help pay claims of injured patients whose doctors were covered by P.I.E. Plaintiffs may recover up to $ 300,000 from Ohio Insurance Guaranty Association, a state fund that pays claims for insolvent insurance companies. This article previously appeared in National Law Journal, an American Lawyer Media publication. (Published in The Legal Intelligencer, November 8, 2000) TOBACCO LITIGATION: Companies Post Bonds To Appeal Record Award --------------------------------------------------------------- Industry-leading Philip Morris Inc. posted a $100 million appeal bond to contest a record $145 billion award won by Florida smokers against the nation's leading cigarette makers. The bond underwritten by Kemper Insurance Cos. was filed Tuesday, less than a day after Miami-Dade Circuit Judge Robert Kaye resisted industry attempts to undermine the punitive damage award by signing a final order in the case. R.J. Reynolds Tobacco Co. followed with a bond in the same amount posted through Travelers Casualty & Surety Co., and both bonds were accompanied by one-page notices of appeal. Evelyn Guedes, who supervises the court's appeal bonds, said the other defendants were expected to file their bonds soon as well. The bond amount was set by a state law passed during the two-year trial specifically for the class-action case to replace a standard requirement equal to 120 percent of the award. Otherwise, bonds worth a total of $174 billion would have been needed. Smokers' attorney Stanley Rosenblatt calls the law unconstitutional, but said he was still considering whether to contest it. "We have to evaluate the total picture as to whether we're going to challenge that," he said. The law capped the bonds at $100 million or 10 percent of a company's net worth, whichever is less. Liggett Group, the smallest of the defendants with 1 percent of the U.S. cigarette market, said during trial that the bond requirement alone could cause financial trouble. Philip Morris filed a six-page document saying Lumbermens Mutual Casualty Co., Kemper's lead company, wrote the bond. "This is as good as cash," Guedes said with the papers in hand. A standard bond premium is 10 percent, but the premium and collateral requirements for bonds of this size depend on a company's commercial relationship with the underwriter. With $60 billion in assets, including $4.2 billion in cash, Philip Morris' parent had no trouble covering the bond. The other defendants are: Brown & Williamson, Lorillard and the industry's defunct Council for Tobacco Research and Tobacco Institute. (The Associated Press, November 8, 2000) U.S.: Tax Refund Claims Limitations Period Tolled and Expires ------------------------------------------------------------- The two-year limitations period for refund claims seeking recovery of Harbor Maintenance Tax payments was tolled by the filing of a class action, but the tolling period expired when the class action was dismissed, the U.S. Court of Appeals for the Federal Circuit held on Oct. 12. Stone Container Corp. v. U.S., Nos. 99-1333 and 99-1334. (The National Law Journal, October 30, 2000) WORLDCOM INC: Milberg Weiss Files Securities Lawsuit in Mississippi ------------------------------------------------------------------- The law firm of Milberg Weiss Bershad Hynes & Lerach LLP announces that a class action lawsuit was filed on November 7, 2000, on behalf of purchasers of the securities of Worldcom Inc. (NASDAQ: WCOM), formerly known as MCI Worldcom, Inc., between April 13, 2000 and November 1, 2000, inclusive. A copy of the complaint filed in this action is available from the Court, or can be viewed on Milberg Weiss' website at: http://www.milberg.com/worldcom/ The action, numbered 3:00-CV-833 BN, is pending in the United States District Court, Southern District of Mississippi, located at 245 E. Capitol Street, Suite 316, Jackson, MS 39201, against defendants Worldcom, Bernard J. Ebbers and Scott D. Sullivan. The Honorable William H. Barbour, Jr. is the Judge presiding over the case. The complaint alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market between April 13, 2000 and November 1, 2000, thereby artificially inflating the price of Worldcom securities. The statements issued by defendants were materially false and misleading, because defendants knew or recklessly disregarded the following material, adverse facts regarding Worldcom's operating and financial condition: the highly touted, multi-billion acquisition of MCI, acquired only two years ago, was not, as previously represented, making Worldcom an all-inclusive shop for telecommunications, data and Internet services. To the contrary, the combined companies could not function cohesively as one entity and the deal was not yielding the anticipated cost savings or revenue increases as revealed by Worldcom's creation of a separate "tracking stock" for MCI; (b) despite emphasizing the Company's renewed focus on Internet-based services, defendants counted on the anticipated revenue stream from the Sprint Merger to hide the Company's decreasing growth rates; (c) contrary to defendants' statements that the Company could "grow revenues and profitability" despite intense pricing pressure, Worldcom was experiencing declining growth - - especially on the area it characterized as the Company's renewed focus - - Internet services; and (d) defendants' financial statements throughout the Class Period were artificially inflated due to their failure to timely write down$405 million in receivables, representing accounts which defendants knew or recklessly disregarded were uncollectible. Contact: Milberg Weiss Bershad Hynes & Lerach LLP Steven G. Schulman or Samuel H. Rudman 800/320-5081 worldcomcase@milbergNY.com Y2K LITIGATION: Class Status Denied In Free Fix Active Voice Action ------------------------------------------------------------------- A law firm that sued its telecommunications provider for installing Y2K-defective products and then refused a "free fix" was denied class certification Sept. 20. Both sides subsequently announced a settlement in the case, according to court documents (Garrison & Sumrall P.C. v. Active Voice Corp., No. 99-005179, Ala. Cir., Jefferson Co.; See April 1999, Page 12). Jefferson County (Ala.) Circuit Court Judge Arthur J. Hanes ruled that plaintiff Garrison & Sumrall failed to meet the typicality requirement of certification. The lawsuit sought compensatory damages along with declaratory and injunctive relief for Alabama users of noncompliant versions of the "Active Voice Replay" system. The products, manufactured by defendant Active Voice Corp., were purchased by the firm in 1995. The settlement announced in court has only been tentatively approved by Judge Hanes. Final approval is expected in several weeks, attorneys said, at which time exact terms will be announced. Garrison & Sumrall is represented by Andy Birchfield of Beasley, Allen, Crow, Methvin, Portis & Miles in Montgomery, Ala. John D. Watson III of Bradley, Arant, Rose & White in Birmingham, Ala. and Paul Gupta and Scott Schafer of Sullivan & Worcester in Boston represent Active Voice Corp. Multiple Complaints Plaintiffs in a similar lawsuit filed in Massachusetts against Active Voice in July 1998 were denied class status in June for failure to meet the typicality and numerosity requirements of certification (H. Levenbaum Insurance Agency Inc. v. Active Voice Corp., No. 98-3864H, Mass Super., Suffolk Co.; See July 2000, Page 20). H. Levenbaum Insurance Agency sought to include 500 consumers allegedly harmed in Massachusetts by the defective products, but Suffolk County Superior Court Associate Justice Nonnie S. Burnes denied its motion without prejudice, saying that the court could not tell from argument and briefs if the insurer's claims were typical of other potential plaintiffs. Judge Burnes told plaintiffs' attorneys that they could refile their motion upon further discovery, but a certification request has not yet been put forth. H. Levenbaum Insurance Agency is represented by Gary R. Greenberg, Lawrence R. Kulig and Karen Deeley of Goldstein & Manello in Boston. Michael C. Spencer and Salvatore J. Graziano of Milberg Weiss Bershad Hynes & Lerach in New York are of counsel. In yet more litigation, a decision on class certification in Leed Selling Tools Corp. v. Active Voice Corp. (No. 8D03-9906-CP, Ind. Super., Vanderburgh Co.; See November 1999, Page 8) is expected at any time, following a hearing on the matter in June. Leed Selling Tools Corp. sued in June 1999 seeking damages on behalf of users who were offered upgrades for the faulty equipment. Active Voice engaged in unjust enrichment, breach of warranties, fraud and negligence, plaintiffs allege. (Mealey's Year 2000 Report, October, 2000) ********* S U B S C R I P T I O N I N F O R M A T I O N Class Action Reporter is a daily newsletter, co-published by Bankruptcy Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc., Washington, DC. Theresa Cheuk, Managing Editor. Copyright 1999. All rights reserved. ISSN 1525-2272. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. 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