/raid1/www/Hosts/bankrupt/CAR_Public/001220.MBX                C L A S S   A C T I O N   R E P O R T E R

             Wednesday, December 19, 2000, Vol. 2, No. 246


APPLE COMPUTER: Ct OKs Deal for 3 Suits over Technical Support Charges
APPLE COMPUTER: Mediation for Consumer Suit over iMac Expected in Jan.
APPLE COMPUTER: Purchasers of AirPort System Challenges Use on Internet
BURGER KING: Civil Rights Activist Set to File Racial Bias Suit
BURGER KING: Judge Dismisses $1.9B Black Franchisee La-Ven Hawkins Suit

BURGER KING: Sharpton Calls For Consumer Boycott on Behalf of Blacks
FLORIDA PROGRESS: Agrees to Pay Policyholders of Insolvent Mid-Continent
GENZYME CORP: Faces NJ Securities Suit over Synvisc Trademark
HMOs: California Kaiser Subscribers Sue Over Pill Splitting Policy

HMOs: Insurance Premiums Expected to Rise By An Average of 11.4%
HOLOCAUST VICTIMS: German Industry To Start Campaign For Fund
INFOSPACE: Hagens Berman Announces Suit over Denial of Employee Options
JOHN BLACK: Law Firm Pays $8 Million To Settle Investment Scandal Suit
MID-CONTINENT: Insurance Policies Transferred To American Fidelity

SOTHEBY'S HOLDINGS: Judge Faults Auction-Case Settlement
TICKETMASTER, TIME: Consumer Files FL Suit over Credit Card Data Sharing
TOBACCO LITIGATION: Smokers As Minors in Mid to Late '90s Can Sue in CA
WALTER CONTE: Secret Videotaping Excluded in State Farm Homeowner Policy

* CA Gov. Davis Has Settled Lawsuits to the Tune of $1.7 Bil
* Partner at Berman DeValerio Sees SEC's Fight Against Fraud At Risk


APPLE COMPUTER: Ct OKs Deal for 3 Suits over Technical Support Charges
In October 1997, Apple began charging all U.S. non-education customers
for live telephone technical support beyond 90 days after purchase of
Apple products. In late 1997, the Federal Trade Commission (FTC)
commenced an investigation into customer complaints that Apple's change
in technical support practices was either unfair or contrary to earlier
representations to certain customers. Four purported class action
lawsuits were filed against Apple related to this change. During the
fourth quarter of 1999, the regional and national offices of the FTC
approved a settlement with the Company, and a settlement was approved by
the Court in three of the class action suits. In November 1999, two
appeals were filed objecting to the settlement and the settlement is
stayed pending resolution of the appeals.

APPLE COMPUTER: Mediation for Consumer Suit over iMac Expected in Jan.
Plaintiff Sternberg filed this action against the Company on March 17,
2000 in the Santa Clara County Superior Court. The case is a purported
nationwide consumer class action brought on behalf of certain purchasers
of iMac DV and iMac DV SE computers. Plaintiff alleges that Apple engaged
in false advertising, unfair competition and breach of warranty, among
other causes of action, by marketing and selling a DVD player with iMac
DV and iMac DV SE computers where the playback was unacceptable. A
companion case,

Gordon Et Al. V. Apple Computer, Inc. was filed by largely the same
plaintiffs on June 14, 2000. This case is essentially the same as
Sternberg but with respect to a different computer model--the Power
Macintosh G4. The Company has answered both complaints, denying all
allegations and alleging numerous affirmative defenses. The Company has
responded to written discovery and has produced documents. The parties
have agreed to mediate the cases. The mediation is expected to occur at
the end of January 2001.

The case is Sternberg V. Apple Computer, Inc. And Gordon Et Al. V. Apple
Computer, Inc.

APPLE COMPUTER: Purchasers of AirPort System Challenges Use on Internet
Plaintiff Pierce filed this action on June 15, 2000 in Santa Clara County
Superior Court. This case is a purported nationwide consumer class action
brought on behalf of purchasers of the Company's AirPort Card and AirPort
Base Station ("AirPort System"). Plaintiffs allege that the Company
engaged in false advertising and unfair business practices (among other
causes of action) by advertising that the Airport System is
Internet-ready and failing to disclose that the Airport System is
incompatible with certain Internet service providers, primarily America
Online. The Company has answered the complaint, denying all allegations
and alleging numerous affirmative defenses. The Company has responded to
written discovery.

The case is Pierce Et Al. V. Apple Computer, Inc.

BURGER KING: Civil Rights Activist Set to File Racial Bias Suit
Burger King may have won its legal battle with Detroit franchisee La-Van
Hawkins over racial discrimination charges, but the Rev. Al Sharpton
isn't ready to quit fighting.

The New York civil rights activist Monday announced plans to file a
class-action suit against the Miami fast-food chain. He also said he will
expand his boycott against Burger King beyond New York City and stage
acts of "civil disobedience" if the chain attempts to take over Hawkins'

The announcement by Sharpton came after a federal court in Michigan last
week threw out Hawkins' suit accusing Burger King of racial
discrimination for not fulfilling an agreement allowing him to expand.
The court dismissed the suit by Hawkins because he had signed an
agreement in 1999 to release Burger King from any previous claims.

"We're not going to let them walk away from this on a technicality,"
Sharpton said. "There are clearly indications that our community was
violated. Only slaves are not allowed to question being abused."

Burger King declined Monday to address Sharpton's comments. The company
issued a brief statement saying the company "stands by its record in the
area of diversity," and highlighting some of its accomplishments in that

Sharpton said the suit, which he expects to file by mid-January, would
charge Burger King with racial discrimination. He gave no details of the
potential claim, but said it would focus on Burger King's failure to let
Hawkins open the restaurants it promised and what Sharpton views as a
lack of commitment to the African-American community.

Former Burger King Chief Executive Robert Lowes acknowledged in court
documents that under his leadership the company had sought out Hawkins to
help it gain a competitive advantage in urban markets and had committed
to helping him open 225 stores.

But legal experts were skeptical of Sharpton's standing to file a
class-action lawsuit against Burger King and the justification for a
potential claim.

"I don't understand how those kind of claims would become the basis of a
successful lawsuit," said Michael Masinter, a law professor at Nova
Southeastern University who specializes in civil rights and employment
discrimination. "The legal system is just not the most effective tool to
deal with these kind of allegations, even if they happen to be true."

Michael Rosman, general counsel for the Center for Individual Rights in
Washington D.C., said Sharpton's suit would have to show that Burger King
did something illegal.

"I don't think anybody has a cause of action, unless Burger King is
specifically denying franchises to people because they're black or if
they refuse to open franchises in black neighborhoods," Rosman said.

Hawkins, who had been out of town at the time of the ruling, said that he
was working on an appeal to the Michigan court's ruling. He downplayed
the significance of Burger King's victory.

"It's not a big deal," Hawkins said. "The bottom line is we will be

Despite the court ruling, Burger King continues to provide supplies to
Hawkins' 22 restaurants, as it negotiates with him to turn over his
stores. Burger King also is pursuing its own lawsuit in Miami federal
court, seeking repayment of almost $ 8 million the company claims Hawkins
owes in royalties, loans and other items.

Burger King is hoping Hawkins will voluntarily agree to turn over control
of his restaurants either to Burger King or another franchisee. If the
two sides cannot reach an agreement, then Burger King would seek a court
order that Hawkins cease using any Burger King trademarks.

"We want to try to negotiate an orderly transition, so the restaurants
are not closed and the employees don't lose their jobs," said Kim Miller,
a Burger King spokeswoman. "If we can't get there, then we will be forced
to go through the legal process." (The Miami Herald, December 19, 2000)

BURGER KING: Judge Dismisses $1.9B Black Franchisee La-Ven Hawkins Suit
A Judge dismissed a $ 1.9 billion lawsuit against Burger King brought by
a black franchisee allied with activists pressuring the worlds No. 2
restaurant group, Reuters news service reported.

Miami-based Burger King, a unit of British conglomerate Diageo PLC, said
the ruling against La-Van Hawkins and his operating companies would allow
Burger Kings lawyers to seek a court injunction requiring the Detroit
businessman to divest his Burger King outlets.

Hawkins, who had the support of black activists who launched a U.S.
boycott against Burger King, claimed in his lawsuit that the company had
not lived up to a 1996 agreement to help him open as many as 225
hamburger outlets in U.S. cities.

       Diageo-Pernod bid set to be winner of Seagrams drink unit

Disgeo PLC, the British owner of Burger King, was set to sign a deal to
buy Seagrams drinks empire, reported Reuters news service. Diageo
submitted a joint $ 8.2 billion bid with French group Pernod Ricard S.A.

The group beat out Allied Domecq, which pulled out of the race last week,
and a joint bid by Bermuda- and Miami-based Bacardi Ltd., which bid below
$ 8 billion.

Seagram Ltd. is selling its drinks business after merging with French
conglomerate Vivendi. (Miami Daily Business Review, December 18, 2000)

BURGER KING: Sharpton Calls For Consumer Boycott on Behalf of Blacks
The Rev. Al Sharpton is calling for consumers to boycott Burger King for
what he says is a protest against unfair treatment of blacks who were
denied franchises of the world's No. 2 fast-food chain.

Sharpton announced the plan Monday in front of a Burger King restaurant,
following last week's federal court decision that cleared the fast-food
chain of a black Detroit businessman's claims that it reneged on a deal
to open 225 restaurants in urban areas. The decision was based in part
because of a franchise agreement preventing the businessman, La-Van
Hawkins, from suing Burger King.

Sharpton also said that he plans to file a class-action lawsuit on behalf
of minorities denied franchises, and stage sit-ins at Burger King
restaurants throughout New York City. "We will nonviolently come in and
take over," Sharpton said. "I'm prepared to go to jail before I allow
them to practice -- without any sense of outrage or any sense of recourse
-- discrimination based on a technicality."

Burger King spokeswoman Kim Miller said Monday, "Burger King Corp. stands
by its record in the area of diversity. Fifteen percent of U.S. Burger
King restaurants are owned and operated by minorities, and we have an
18-year relationship with the country's largest African-American
advertising agency. "Burger King also has processes in place through its
Diversity Action Council to address issues and opportunities around

U.S. District Judge Marianne Battani in Ann Arbor, Mich., ruled that
Hawkins and Burger King signed a "clear and unambiguous" agreement in
July 1999 barring him from suing the company for any problems that arose
before then.

Hawkins filed his lawsuit after the fast-food chain stopped franchise

Robert Lowes, Burger King's former chief executive, said in court papers
that while with the company, he signed off on a business plan and
confidential memo that called for the chain to work with Hawkins in
opening 225 restaurants in five years.

Burger King has challenged Lowes' claims.

Sharpton said he hopes his lawsuit will bring Burger King back to the
bargaining table when it comes to minority franchise owners. "We're not
looking for money," Sharpton said. "We're looking for fairness to repair
the damage they did."

Norman Yatooma, Hawkins' Detroit-area attorney, said he was unaware of
Sharpton's plans and would not say whether he welcomed them on his
client's behalf. Yatooma said by telephone from Mexico that "Sharpton is
his own person, and I suspect he is working to advance the interest of
African-Americans generally." (Sun-Sentinel (Fort Lauderdale, FL),
December 19, 2000)

CANADA: $ 1.2B Suit Filed Over Head Tax After 'Frutiless Negotiations'
After 16 years of fruitless negotiations for a settlement, victims of
Canada's infamous Chinese head tax and exclusionary immigration policy
are taking the federal government to court.

Shack Jang Mack, 93, Quen-ying Lee, 89, and her son Yew Lee, 50, have
launched a $ 1.2-billion class-action lawsuit on behalf of 4,000 Chinese

In the 14-page statement of claim filed at the Ontario Superior Court of
Justice, they demand the return of the equivalent of $ 23 million in head
taxes collected by the government between 1885 and 1923 from 81,000
Chinese immigrants.

The plaintiffs - including surviving taxpayers, spouses and first-
generation descendants - also claim damages for "pain and suffering" and
"injury to dignity" caused by the Chinese Exclusion Act, which kept
thousands of immigrant families apart until its repeal in 1947.

"The head tax and (the Act) were discriminatory on their face, directed
solely at members of one race," the claim stated. "The effect of this
discrimination on individuals and families and on the Chinese-Canadian
community has been profound and enduring."

Government lawyer Paul Vickery said he had yet to review the claim. "The
Charter of Rights, of course, guarantees equal protection and benefit of
the law without discrimination on an ongoing basis," Vickery said from
Ottawa. "But I believe it is fairly clear that the Charter is prospective
only. "It does not apply retrospectively to events in the past."

The Chinese community has lobbied for redress from the Canadian
government since 1984. In 1994, Sheila Finestone, then-secretary of state
for multiculturalism, announced in the House of Commons that no
compensation would be paid to Chinese Canadians over the head tax issue.

Thousands of Chinese, mostly men, were shipped to Canada in 1881 to help
build Canada's transcontinental railway, then were deemed unwelcome when
construction was finished in 1885.

Starting in 1886, all Chinese, with the exception of diplomats, tourists,
merchants, "men of science" and students, had to pay a $ 50 entry fee to
Canada. By 1903, the fee had risen to $ 500 - equivalent to two years'

The lawsuit is their last resort for compensation, said May Cheng,
president of the Chinese Canadian National Council, which is
co-ordinating the legal action. Fewer than 1,000 of the head taxpayers
are alive today and, Cheng said, most of them "would like to see justice
done during their lifetime." (The Edmonton Sun, December 19, 2000)

COLORADO: Denver Law Firms Working at No Charge Set to Restore Medicaid
A major victory for 40,000 Colorado citizens is closer to reality thanks
to attorneys from four major Denver law firms who worked together without
charge to restore Medicaid benefits denied the residents since 1997
because of a malfunctioning state computer program.

On December 12, U.S. District Court Judge Wiley Y. Daniel preliminarily
approved a settlement agreement in a class action alleging that tens of
thousands of low-income residents in Colorado had been cut off from
Medicaid when they were still eligible. The illegal terminations were due
to a change in federal welfare laws that the state's outdated computer
system could not handle.

The approval came after 10 months of negotiation with state officials and
the Colorado Attorney General's office. Under the terms of the settlement
agreement, the computer system has been fixed, and 40,000 people will
have their Medicaid benefits reinstated retroactively and prospectively.
In addition, the state will reimburse those illegally denied Medicaid for
their out-of-pocket expenses. The cost of the settlement is estimated at
$18 million. A hearing is set for February 8, 2001, to determine whether
the settlement agreement will be finally approved.

Donating their time to this case were Lawrence Theis and Tracy Ashmore of
Perkins Coie LLP, Lawrence Volmert from Holland & Hart, Lawrence Treece
from Sherman & Howard and Greg Parham from Parham & Associates.

The Denver office of Perkins Coie is well known for its litigation work,
in addition to its telecommunications, environmental and corporate
practices. Perkins Coie is a leading international law firm, with more
than 525 attorneys serving clients from 14 offices in North America and
Asia, including Anchorage, Bellevue, Boise, Denver, Los Angeles, Menlo
Park, Olympia, Portland, San Francisco, Seattle, Spokane, Washington,
D.C., Taipei and Hong Kong. The firm represents companies ranging in size
from Fortune 500 companies to startups and engaged in nearly every type
of business, from traditional enterprises such as manufacturing,
aerospace, banking and real estate to emerging fields such as electronic
commerce, life sciences, technology and telecommunications.

FLORIDA PROGRESS: Agrees to Pay Policyholders of Insolvent Mid-Continent
Florida Progress Corp. has agreed to pay $ 17.5 million to settle a class
action suit filed by policyholders of the insolvent Mid-Continent Life
Insurance Co. alleging the insurer's parent company knew about financial
problems with the "extra-life" policy yet continued to market it (Michael
Farrimond, et al. v. Florida Progress Corp., et al., No. CJ-99-130-65,
Okla. Dist., Oklahoma Co.; See 6/22/00, Page 5).

Florida Progress also agreed to pay reasonable attorneys' fees and
expenses to be set by the Oklahoma County District Court.

Also, on Sept. 28 the court approved the receiver's amended plan of
rehabilitation. The plan calls for American Fidelity Assurance Co. to
assume the Mid-Continent book of business. American Fidelity has promised
to freeze premiums and coverages for 17 years. After that, premiums could
only be raised if after-tax profits drop below 8 percent, according to
the insurance department.

                           The Settlement

The policyholders had claimed Florida Progress Corp. knew the extra-life
policies were "unsupportable" but continued marketing the product as
having premiums that would never rise. The complaint alleged
Mid-Continent agreed to set aside a sufficient portion of the extra-life
policyholders' money to pay cash surrender values and to pay death
benefits. But "as a result of the misconduct of Florida Progress,"
Mid-Continent became insolvent and was placed into receivership.

The policyholders further charged that the defendants marketed the
extra-life policy as being superior to their existing life insurance
policies, and that it provided guaranteed level premiums and death
benefits. These representations had the effect of "twisting" or
"churning" or persuading policyholders out of their other life insurance
policies, the class alleged.

Under the settlement agreement, American Fidelity Assurance Co. agreed to
place Mid-Continent's capital and surplus in a supplemental policyholder
reserve that will be used exclusively for the benefit of extra-life
policyholders until it is determined that extra-life premiums will not be
increased. The capital and surplus consists of $ 120 million, tax refunds
of $ 40 million and a $ 100 million letter of credit.

The receiver initially selected Life Investors Insurance Company of
America to assume the Mid-Continent book of business. However, after
examining an independent analysis of five new proposals, American
Fidelity Assurance Co. was chosen to assume the policies.

"This result is substantially better for policyholders than the plan we
stopped last year," said the policyholder's attorney, John W. Norman.
"Under last year's Life Investors plan, Life Investors (not the
policyholders) would receive Mid-Continent's capital and surplus and tax
refunds. Life Investors would guarantee premiums for only 10 years. Only
$ 10 million would be paid by Florida Progress to a premium subsidy trust
to offset premium increases after ten years, which our actuary testified
were actuarially certain to be necessary under the Life Investors plan."

                       Policyholders' Options

Extra-life policyholders have the option of remaining in the class. If
they leave the class, they may pursue their individual, direct claims
against the defendants.

Policyholders who opt to remain in the class will receive one of four
forms of settlement relief available, depending on their eligibility. If
their extra-life policy is in force, they will automatically receive the
general relief unless they elect an alternative relief for which they are
eligible. If their policy is lapsed, they must submit a claim form now to
be entitled to relief.

Final approval of the settlement is scheduled for Feb. 21.

The policyholders are represented by John W. Norman, Emmanuel E. Edem,
Alexander B. McNaughton, Thomas A. Wallace, John B. Norman and Charles F.
Moser of Norman, Edem, McNaughton & Wallace in Oklahoma City and Stratton
Taylor, Sean Burrage and Darrell W. Downs of Taylor, Burrage, Foster,
Singhal, Mallett & Downs in Claremore, Okla.

Counsel for the defendants are Robert H. Gilliland, Philip D. Hart and
Henry D. Hoss of McAfee & Taft; G. Blaine Schwabe III of Mock, Schwabe,
Waldo, Elder, Reeves & Bryant; Stephen P. Friot of Spralding, Alpern,
Friot & Gum; John Norman Goodman; and Jeff L. Hartmann of Kerr, Irvine,
Rhodes & Ables, all in Oklahoma City. (Mealey's Litigation Report:
Insurance Insolvency, December 7, 2000)

GENZYME CORP: Faces NJ Securities Suit over Synvisc Trademark
On July 21 and August 7, 15, and 30, 2000, class action lawsuits
requesting unspecified damages were filed in the United States District
Court for the District of New Jersey against Biomatrix and two of its
officers and directors, Endre A. Balazs and Rory B. Riggs. (Genzyme
completed its acquisition of Biomatrix, Inc. on December [19], 2000.) In
these actions, the plaintiffs seek to certify a class of all persons or
entities who purchased or otherwise acquired Biomatrix common stock
during the period between July 20, 1999 and April 25, 2000.

The plaintiffs allege, among other things, that the defendants failed to
accurately disclose information related to Synvisc during the period
between July 20, 1999 and April 25, 2000, and assert causes of action
under the Exchange Act and Rule 10b-5 promulgated under that Act.
(Synvisc-Registered Trademark- is a registered trademark of Genzyme
Biosurgery Corporation.) As part of Genzyme’s acquisition of Biomatrix,
Genzyme Biosurgery succeeded to these lawsuits.

Genzyme disagrees with these claims and believe that information related
to Synvisc was properly disclosed. The company intends to continue in the
defense against those actions. Under Biomatrix's charter, officers and
directors of Biomatrix were entitled to indemnification for these types
of claims from Biomatrix to the full extent permitted by Delaware law,
and as part of our acquisition of Biomatrix, Genzyme Biosurgery agreed to
honor these indemnification obligations of Biomatrix. [Mr. Riggs is
currently employed by Genzyme Biosurgery].

HMOs: California Kaiser Subscribers Sue Over Pill Splitting Policy
Kaiser Permanente subscribers have filed a class action against the HMO
for allegedly forcing them to split prescription pills to save the
insurer money. The class members charge that the pill splitting policy
endangers their health (Audrey Timmis, et al. v. Kaiser Permanente, et
al., No. N/A, Calif. Super., Alameda Co.).

The lawsuit, filed Dec. 6 in the California Superior Court for Alameda
County, names six patients who allege they were forced to split pills.
Also, the action names Dr. Charles Phillips, a physician, who witnessed
the effects of the policy while working in a Kaiser Permanente emergency
room in Fresno, Calif. The six patients are Audrey Timmis, Linda Gudino,
Winston Yarborough, Mary O'Donnell, Shirley Milligan and Mary Cargile.


The Timmis plaintiffs allege that Kaiser forces its outpatient members to
accept prescribed medication in dosages twice the amount necessary for a
single dose and requires them to split the pills in half in order to
obtain their prescribed dosages.

"While Kaiser contends that its pill-splitting program is voluntary and
only involves splitting of appropriate medications, the Kaiser reality is
again different than represented," the Timmis plaintiffs said. "In fact,
patients are not given a choice about whether they want to split their
medications, but are simply provided the double-dose medications and a
pill-splitter, often without direction or instruction. Even in the face
of strenuous objections by the patient or the doctor, Kaiser's
pharmacists and pharmacy managers oftentimes refuse to provide medication
in single-dose form."

The Timmis plaintiffs assert that studies have shown that pill splitting
of scored and unscored pills results in uneven splits and can
consequently result in dangerous over or under dosages of medication.
"Kaiser patients required by Kaiser to engage in pill-splitting have
suffered real and appreciable injuries as the result of Kaiser's policy,"
the plaintiffs said.

                          Increased Profits

They add that the program does not provide any therapeutic benefit to
patients and that its only purpose is to increase Kaiser's operating
profits. For example, according to the complaint, the cost of 100 of the
20-milligram tablets of Prinivil, a blood pressure medication, is $
100.25. The cost for 100 of the 40-milligram tablets is $ 143.53.

"Thus, by dispensing 100 40-milligram tablets to a member, and requiring
the member to split the tablets in order to obtain 200 20-milligram
doses, Kaiser increases its profits by $ 56.72, while causing
inconvenience and potential medical problems to its member," the
complaint says.

The Timmis plaintiffs charge Kaiser with violations of California
Business and Professions Code Section 17200, which bars unfair business
practices; Section 17500, which bars false advertising; and the state
Consumer Legal Remedies Act. They seek an injunction against further
practice of the pill splitting program, as well as disgorgement of
illegally gained profits. They also seek equitable relief, penalties
under California Civil Code 1780(b), punitive damages and costs and
attorneys' fees.

The action was filed by Mark P. Robinson and Sharon J. Arkin of Robinson,
Calcagnie and Robinson in Newport Beach, Calif., and Arthur Bryant with
the Trial Lawyers for Public Justice in Oakland, Calif. (Mealey's Managed
Care Liability Report, December 8, 2000)

HMOs: Insurance Premiums Expected to Rise By An Average of 11.4%
HMOs, once the nation's most popular form of managed care used to control
healthcare costs, are raising insurance premiums for the third straight
year, but this time by an average of 11.4% in 2001--the highest rate
increase since 1990, according to several year-end surveys that report on
the HMO industry. The increase follows annual rate hikes of between 5%
and 10% the two previous years. Yet, despite these increases, HMO
profitability as a percentage of premium revenue remained negative for
the fourth straight year. Higher costs for new technology and new drugs
should be pushing HMOs to reinvent themselves and deliver value.


HMOs nationwide are expected to increase insurance premiums by an average
of 11.4% in 2001 to cover an anticipated 8.8% rise in their payments for
medical care, according to Sherlock Company's Sixth Annual HMO Pricing
Survey. In last year's survey, HMOs expected a 10.6% increase in premium
rates, compared to an 8.3% premium rate increase in 1999. Yet, despite
these increases, HMO profitability as a percentage of premium revenue was
negative for the fourth straight year. In a survey of more than one-third
of the nation's HMOs by Milliman & Robertson, HMOs reported an average
loss in net income equal to 1.4% of premium revenue in 1999; nearly the
same was expected to occur in 2000.

The survey attributed the major cost drivers for HMOs to higher consumer
demand for health services, a slowing of the improved efficiencies in
delivery hospital inpatient services, higher provider unit costs and the
use of more prescription drugs for treatments. And while the number of
hospital days per 1,000 insured members--a measure of the single largest
HMO expense--dropped 4.2% to 230 days in 2000, the average hospital
charges per day rose by 10%.

Several managed care companies are expecting to report average earnings
gains of 20% or more in 2000, including UnitedHealth Group, CIGNA Corp.,
WellPoint Health Networks and Oxford Health Plans. But other companies
such as U.S. industry leader Aetna U.S. Healthcare, Humana Inc. and
PacifiCare Health Systems are predicting lower earnings, according to
financial analysts in the health insurance business.


The HMO industry is depending heavily on another year of double-digit
premium increases to balance out increasing costs and provide bigger
profit margins in 2001. Premium pricing has been rising at a faster rate
than administrative and medical cost increases, helping fuel growth at
most HMOs, but one-time expenses and years of payment cuts to physicians
and hospitals are threatening to force managed care companies to reinvent
themselves again if they hold any hope of surviving over the next decade.

For the second straight year, HMOs were forced to upgrade their computer
systems--first for Y2K, and then in 2000 with the Health Insurance
Portability and Accountability Act (HIPAA), which are the new federal
regulations covering standardized codes and privacy and security measures
to protect patients. Now, many insurers are installing high-technology
equipment to keep pace with growth of the Internet and the needs of their
membership, who want to simplify the healthcare processes.

Managed care organizations have allocated hundreds of millions of dollars
for technology enhancements in 2001, but raising premiums and
consolidating services is one of the few options available to gain the
capital needed for such improvements. Still, don't expect companies to
cut back on spending anytime soon.

"It is going to cost more money and it is going to lead to more spending
in total. That is clear from historical records," David Cutler, professor
of economics at Harvard University, told MDI. "It's going to be different
in the future. I mean, if we just wanted to limit spending, then we would
spend nothing. The real issue is, is it providing value? Is it something
that people want and are willing to pay for? I think it is."

Consumers are more willing to pay extra for more choices of doctors,
hospitals and plan options, which has meant big business and a healthier
bottom line for many HMOs, particularly regional ones that have a better
handle on their medical costs. Most of the nation's Blue Cross and Blue
Shield plans, for instance, have rebounded from losing nearly $1 billion
collectively in 1998 to enjoying a tidy profit in 2000--thanks mainly to
higher premiums paid by employers and workers for larger provider

Health insurers also are facing rebellious hospitals and physicians who
are fed up with what they consider inadequate reimbursements by HMOs. In
several states, hospitals or health systems refused to accept the low
rates offered by HMOs for 2001, and threatened to stop treating members
unless they got a new contract. More times than not, providers ended up
with close to their asking price.

While HMO stocks took advantage of a good economy and tight labor market
to rebound in 2000 following an abysmal 1999, many of these high-profile
companies also were forced to defend themselves from a raft of lawsuits
filed by individuals and lawyers seeking class-action status, all of whom
claimed the HMO did not deliver the quality of care it had promised.
Consumers and legislators strongly support a patient's bill of rights,
which would enable patients to sue an HMO in civil court for medical
malpractice or denial of care. Yet, it also could force insurers to raise
premiums just to pay for any anticipated court costs.

In addition, there is the rising expense of prescription drugs, which is
lowering inpatient hospital days per 1,000 members but is contributing
heavily to new drug costs; the growing needs of aging baby-boomers, who
are going to require new, more expensive services to prolong life; and
the reluctance of employers to cover growing healthcare costs or pass
them along to their workers. As a result, it is easy to see why more HMOs
may find it difficult to increase their revenues using the same business
model from 10 years earlier.

                             Looking Ahead

The buzzword for 2001 will be "defined contribution," in which the
employer sets aside a set amount of money for the worker to purchase
their own health benefits. The move toward self-insurance has begun to
pick up momentum in the past year, and some experts are predicting that
as many as 20% of employers are exploring different versions of the
defined contribution model rather than continue to pay more of the cost.

Much of the movement toward defined contribution will depend on whether
the U.S. economy begins to slow down, as some have predicted. If it does,
employers will have a greater incentive to cut their costs.

With employer-sponsored benefit costs rising, more employers are expected
to begin shifting more of the cost to their workers, either through
raised deductibles, co-payments or out-of-pocket maximums. And an even
greater number of employers could begin pulling retiree coverage plans as
a way to curb expenses.

However, despite the cost increases of 2000 and 2001, HMOs will remain
part of the healthcare landscape until another model of care can be
developed that satisfies both state and federal laws regarding separate
sets of regulations and different tax implications. A new model also must
bring long-term value--and not necessarily lower cost--to insurers,
providers and consumers. (Medical Industry Today, December 19, 2000)

HOLOCAUST VICTIMS: German Industry To Start Campaign For Fund
The German fund for former laborers enslaved under the Third Reich said
Tuesday that German industry planned to start a publicity campaign to
urge every company in the country to pay its share to victims.

Agreement was reached this summer after months of difficult negotiations
to create a 10-billion marks (five billion euros, 4.5 billion dollars)
fund for victims of the Nazis' forced labor program. Half of this is to
come from German government funds, the other half from German business
and industry. However German firms have so far only raised 3.4 billion of
their five billion marks share.

The industry fund said that the chairmen of the Federation of German
Industry (BDI), the German Employers Association (BDA) and the German
Chambers of Industry and Trade (DIHT) would launch an advertising
campaign in German newspapers to pressure companies who have held out to

The three business leaders said in the statement from the fund that
German industry had an obligation to live up to its "historic and moral
responsibility" by signing on to the compensation initiative and that
even companies founded after the end of the war should participate. They
said the fund was important to Germany's international image and in the
interest of protecting German industry from suits from former laborers.
"Let us send a signal together for reconciliation and strengthen the
standing of German industry around the world," the three groups said in
the statement.

Under an agreement with US negotiators, Germany will provide the
10-billion-mark fund on condition that officials in the US encourage the
judiciary to dismiss class action suits by victims.

The fund has said it hopes to begin compensation payments in March if US
courts continue to reject suits on behalf of former laborers. (Agence
France Presse, December 19, 2000)

INFOSPACE: Hagens Berman Announces Suit over Denial of Employee Options
In a suit filed December 18 in U.S. District Court, an InfoSpace employee
alleges InfoSpace (Nasdaq:INSP) chairman Naveen Jain illegally denied him
promised stock options.

According to the suit, filed against both Jain and InfoSpace, Jain used
plaintiff John Richards to develop integral aspects of InfoSpace and then
failed to keep his promise of lucrative stock options.

The lawsuit charges Jain, in the process of building InfoSpace into a
leading Internet company, frequently hired key executives by promising a
specified award of options or stock. According to the suit, Jain obtained
what he needed from these executives and then refused to reward them with
the options he had promised.

The lawsuit charges Jain with violating the Racketeer Influence and
Corrupt Organization Act (RICO) by engaging in a pattern of fraudulent
conduct. According to Richards' attorney, Steve Berman, the pattern
includes at least seven other executives who have alleged that Jain made
promises of compensation and then reneged on those promises. According to
the suit, InfoSpace's outside counsel, after its own investigation, found
that a "pattern" had emerged of Jain denying he had made such promises to
employees when he in fact appeared to have done so.

After outside counsel's finding, the InfoSpace board of Directors
concluded on December 11 1998, that InfoSpace's granting practices were
"careless" and that Jain had not exercised "appropriate discretion or
judgment" in the process of hiring employees.

The complaint notes that three of these cases were settled, and InfoSpace
admitted in filings with the Securities and Exchange Commission (SEC)
that "its procedures with respect to the manner of granting options to
new employees were not clearly documented," and that there could be no
assurance that claims "would not be filed in the future by employees
claiming they have been denied compensation."

According to Berman, the lawsuit states Jain has a pattern of using his
employees and those around him. "Naveen Jain is one of the world's
richest men, yet the complaint alleges that some of his key people, who
relied on his promises, came up empty handed," Berman said. "The suit
states that John Richards worked diligently to make InfoSpace successful,
but has not received the promised options to share in that success," he

The lawsuit alleges that Jain was able to hire Richards by repeatedly
promising that Richards would receive the highest stock award options of
any InfoSpace employee, even if the employee was hired at a later time.

However, several employees have received stock options larger than
Richards, proving Jain has not complied with his agreements and
representations, according to the complaint. The complaint alleges that
even at the time Jain made these promises he had granted other employees
more options. The suit further charges that Jain attempted to cover up
his trail of broken promises by instructing employees not to discuss the
amount of options they had been promised with each other and by
instructing them not to put his promises in writing.

Before joining InfoSpace, Richards successfully launched Yellow Pages on
the Internet, the first-ever print yellow pages product to place its data
and advertisers online. The lawsuit also states Jain hired Richards on
January 8, 1998 to make yellow pages advertising a cornerstone of
InfoSpace's business platform.

According to the suit filed by Berman, InfoSpace's success is based on a
pattern of illegal fraudulent conduct by Jain. "Our theory is that he
identified executives that could assist him in building up InfoSpace and
then wooed them with lucrative stock options," Berman said. "We intend to
prove that later, when these employees were no longer of immediate use to
him, those options were denied," Berman added.

The complaint also relies on factual allegations made by five other
executives in lawsuits against Jain in which they made charges similar to
those of Richards.

The complaint describes InfoSpace as a provider of Internet applications
and information services, powering private-labeled information and
applications services across the Internet to wireless devices and Web
sites. InfoSpace recently acquired Go2Net.com, a Seattle company that
delivered similar services to the broadband marketplace.

The lawsuit seeks damages as well as enforcement of the agreement to
provide Richards the largest number of stock options of any staff, as
well as attorneys' fees.

Steve Berman is managing partner of Hagens Berman in Seattle. Recently
cited as one of the nation's top 100 attorneys by The National Law
Journal, Berman is a nationally recognized expert in class action
litigation. Berman represented Washington State, 12 other states and
Puerto Rico in lawsuits against the tobacco industry that resulted in the
largest settlement in the history of litigation. Berman also served as
counsel in several other high-profile cases including the Washington
Public Power Supply litigation, which resulted in a settlement exceeding
$850 million. Other cases include litigation involving the Exxon Valdez
oil spill; Louisiana Pacific Siding; The Boeing Company; Morrison
Knudsen; Piper Jaffray; Nordstrom; Boston Chicken; and Noah's Bagels.

Contact: Hagens Berman Steve Berman, 206/623-7292 or Firmani & Associates
Mark Firmani, 206/443-9357

JOHN BLACK: Law Firm Pays $8 Million To Settle Investment Scandal Suit
A Blair County judge approved a settlement allowing a law firm to divide
an $ 8 million settlement among 50 Pennsylvania school districts that
accused it of helping a money manager pull off a massive investment scam.

Money manager John Gardner Black was convicted of persuading the
districts in Pennsylvania and one in Maryland to invest school
construction money into risky mortgage-backed securities in the
mid-1990s. Black is serving 41 months in a federal prison.

The school districts alleged that the national law firm Kutak Rock Inc.
helped Black by knowingly or recklessly suggesting in investment
agreements that there were no problems with the investments.

The firm denies any role in the scam. Defense lawyer Andrew Tulumello
told Judge Hiram Carpenter III the firm was settling to avoid "costs,
delays and distractions."

William Miller, superintendent of northern Blair County's Tyrone Area
School District, said he did not care whether the law firm took the blame
as long as it paid. Miller's district lost about half of the $26 million
it invested with Black, and will collect half of the Kutak Rock payout.

The settlement resolves one of the last issues raised when the federal
government seized of Black's investment companies in 1997. Black lost an
estimated $69.5 million in failed investments, then tried to cover the
losses by drawing in more investors.

The Tyrone Area district will receive $4 million because of claims that
Kutak Rock hurt the district both when it worked as Black's lawyer and
when it worked as the school district's bond counsel.

Another $3.5 million will be shared by 49 other school districts linked
by a class action suit.

Richard Finberg, a Pittsburgh attorney representing the plaintiffs in the
suit, said Black's victims might have paid "hundreds of thousands of
dollars a month" in legal fees if the case had gone to court. "This is
perhaps the best I could ever do," he told Carpenter.

The largest settlement in the case came when banker Keystone Financial
Inc. of Harrisburg agreed to pay $51 million to settle claims that it
mishandled money. Keystone is now part of Buffalo, N.Y.-based M&T Bank
Inc. (The Associated Press State & Local Wire, December 19, 2000)

MID-CONTINENT: Insurance Policies Transferred To American Fidelity
Months after it decided to, the state Insurance Department on Tuesday
transferred the policies of troubled Mid-Continent Life Insurance Co. to
Oklahoma-based American Fidelity Assurance Co.

Mid-Continent has been in receivership, similar to bankruptcy, since
April 1997. State Insurance Commissioner Carroll Fisher, who acts as a
trustee in the matter, in June selected Oklahoma City-based American
Fidelity to take over Mid-Continent's 138,000 life insurance policies.

Tuesday morning, Fisher finally signed the paperwork making the transfer
official. "I think this is quite a historic moment for Oklahoma, to have
the oldest Oklahoma domestic concern put into receivership be now taken
over in solid financial hands again," Fisher said.

Mid-Continent has policyholders in 38 states, about a third of them in

The company's uncertain future was forged in April 1997 when former State
Insurance Commissioner John P. Crawford deemed the company insolvent and
took it over. He then sued its parent, Florida Progress Corp. of St.
Petersburg, Fla., to recover insufficient reserves. Estimates placed that
figure at about $337 million.

The company has since become the target of a class-action lawsuit filed
by policyholders who claimed they were told their premiums would never
increase. Meanwhile, rival insurance companies have initiated bidding
battles with Mid-Continent.

Fisher inherited the matter when he took office in January 1999, though
he contended the company was financially sound and should have been put
under supervision instead of receivership. "But that was the choice of
the previous administration, and we had to inherit a bad situation," he

Fisher's decision to transfer the policies to American Fidelity was
approved earlier this year by Oklahoma County District Judge Noma Gurich.
Fisher said policyholders will not see a change in the way their accounts
are handled.

American Fidelity is promising to freeze its insurance premiums and
coverages for 17 years. After that, premiums could only be raised if
after-tax profits drop below 8 percent. (The Associated Press State &
Local Wire, December 19, 2000)

SOTHEBY'S HOLDINGS: Judge Faults Auction-Case Settlement
The judge presiding over a price-fixing lawsuit against Sotheby's
Holdings and Christie's International said that he was not happy with an
important element of a proposed $512 million settlement.

In his strongest remarks on the subject to date, Judge Lewis Kaplan of
United States District Court said he did not know whether he would allow
the auctioneers to pay part of the settlement with $100 million in
coupons. The coupons would go to buyers and sellers suing the two houses,
though only sellers could use them to pay consignment fees; buyers would
have to sell them to third parties. "I've said it privately; now I'm
saying it publicly," Judge Kaplan told lawyers in court . "I'm very
skeptical about the value of the certificates."

Christie's, based in London, and Sotheby's, based in Bloomfield Hills,
Mich., have agreed to pay $256 million each to settle a class-action suit
accusing them of conspiring to fix auction fees. Each wants to pay part
of the settlement with coupons redeemable for up to five years rather
than cash. Saying he had received a great deal of unfavorable mail from
members of the plaintiff class, the judge said he would hold a hearing in
January on the value of the coupons and other aspects of the settlement.

The lawyer for the plaintiffs, David Boies, has said he thinks the
settlement is generous, and that he would be willing to have one-fifth of
his fee paid in coupons rather than cash, the same ratio as the
plaintiffs would receive. (The New York Times, December 19, 2000)

TICKETMASTER, TIME: Consumer Files FL Suit over Credit Card Data Sharing
The CAR yesterday reported on Florida Attorney General's investigation
into consumer complaints about unwanted subscriptions suggesting credit
card data sharing.

According to St. Petersburg Times, a Tampa law firm on Monday filed a
class-action suit against Ticketmaster and Time, Inc., charging that the
two companies shared credit card information to start magazine
subscriptions that customers did not order.

The lead plantiff in the case is Valrico resident Victoria McLean, whose
credit card was billed for nearly $ 400 in merchandise and subscriptions
without her permission after she used it to order concert tickets from
Ticketmaster earlier this year. McLean was one of 20 people who
complained to the Florida Attorney General's office about Ticketmaster
and Time Inc. On a national level, the suit alleges, many more people
have been victimized by the companies' practices.

The suit, filed in Hillsborugh Circuit Court by the firm of James, Hoyer,
Newcomer and Smiljanich, charges that Ticketmaster and Time Inc. violated
the Florida Deceptive and Unfair Trade Practices Act and that plantiffs
have suffered damages since they have to go through the time-consuming
process of canceling the subscriptions.

Responding last week for a story about the complaints, a Ticketmaster
spokesman said the company only offers a way for customers to set up
subscriptions, and denied the company is "giving" away credit card
information. (St. Petersburg Times, December 19, 2000)

TOBACCO LITIGATION: Smokers As Minors in Mid to Late '90s Can Sue in CA
Any Californian who smoked a cigarette as a minor in the mid- to
late-1990s can join in a lawsuit accusing the tobacco industry of
illegally marketing its products to teen-agers, a San Diego judge ruled.

Superior Court Judge Ronald Prager granted class-action status to a
lawsuit accusing the tobacco industry of illegally inducing minors to buy
cigarettes through targeted advertising campaigns.

The lawsuit seeks $650 million to $700 million, the profits plaintiffs
lawyer David Markham said the tobacco industry has reaped as a result of
illegal sales to minors from April 1994 to December 1999. The suit also
seeks a court order preventing the tobacco companies from continuing to
induce minors to smoke.

About 1.5 million California teen-agers illegally smoked cigarettes
during that period, and all are eligible to join the lawsuit, Markham
said. The 1994 date is the cut-off for claims to be filed under the state
statute of limitations.

The defendants in the case are the tobacco companies Philip Morris, R.J.
Reynolds, Brown & Williamson and Lorillard Tobacco Company.

Judge Prager said that certifying the case as a class-action would ensure
that the tobacco companies suffer suitable financial penalties if the
allegations turn out to be true. "If these allegations are correct, we're
dealing with a problem of a great magnitude," Prager said, citing studies
that tobacco consumption is "the number one health problem in the United

A lawyer for Philip Morris denied the company targeted minors with its
advertising during that time period. Los Angeles attorney Gregory Stone
also told the judge that a statewide settlement in 1998 already created
restrictions on tobacco advertising, including eliminating all
tobacco-related billboards.

If the tobacco companies violate the terms of this settlement, the state
Attorney General's Office has the power to seek penalties in court, Stone

Lawyers for the plaintiffs say tobacco companies continue to run ads in
magazines with a high percentage of teen-age readers. They cited studies
saying that 80 to 90 percent of smokers began when they were teen-agers.
"It's a pipeline, and the idea is to get as many new smokers as possible
at the front end," Markham said. (The San Diego Union-Tribune, December
14, 2000)

WALTER CONTE: Secret Videotaping Excluded in State Farm Homeowner Policy
The intentional acts exclusion in a homeowners policy bars coverage for a
high school principal who allegedly engaged in voyeuristic activities in
his home, a state appeals court ruled Nov. 22 (Sandra Geraci, et al. v.
Walter Conte, et al., No. 77420, Ohio App., 8th Dist.).

Sandra Geraci filed a proposed class action against Walter Conte, his
wife and the South Euclind-Lyndhurst Board of Education, alleging claims
of violation of privacy and reckless disregard for student safety. Geraci
alleged Conte, while serving as principal of Charles F. Bush High School,
and his wife videotaped students changing clothes in their home.

The Contes hosted swimming parties for students at their home. The
complaint alleges Conte installed a peephole using a one-way mirror and a
video camera in the room of his home where party guests changed clothes.
Geraci alleged claims of emotional distress and negligence against Conte
and his wife. The Board of Education was later dismissed from the suit.
Geraci amended the complaint to include Conte's homeowners insurer, State
Farm Fire and Casualty Co., seeking a declaration the insurer had a duty
to defend and indemnify the Contes.

The trial court granted State Farm summary judgment, finding coverage
barred under the intentional acts exclusion. Geraci appealed.

                          Gearing Controlling

Geraci argued that coverage should be available under the policy because
Conte did not intend to injure his victims, relying on the holding in
Physicians Ins. Co. v. Swanson ([1991] 58 Ohio St.3d 189, 569 N.E.2d
906). The Swanson court ruled an insurer had a duty to defend its insured
who shot a gun from 100 feet away injuring another, finding the insurer
failed to prove the injury was intended or expected. The insured in
Swanson testified he intended to aim elsewhere.

The Eighth District Ohio Court of Appeals, however, found the holding in
Gearing v. Nationwide Ins. Co. ([1996] 76 Ohio St.3d 34, 665 N.E. 2d
1115) controlling. The court in Gearing held no duty to defend or
indemnify by a homeowners insurer in a case alleging sexual molestation
of neighborhood girls by its insured. The Ohio Supreme Court affirmed the
finding in Gearing and ruled Swanson was distinguishable, finding the
state has long "recognized that Ohio public policy generally prohibits
obtaining insurance to cover damages caused by intentional torts."

The appeals court said in this case "there was nothing 'accidental' about
the voyeuristic activities conducted by Walter Conte, a high school
principal, who carried out a plan to view students while they were
undressing in a peeping room which he installed in his home. As in
Gearing, we find that 'the harm which resulted from these activities is
the result of the deliberate exercise of free will upon innocent and
vulnerable victims.' Therefore, we find that Walter Conte's intentional
acts do not constitute 'occurrences' for purposes of determining
liability insurance coverage."

Additionally, the appeals court said Geraci's claims for mental anguish
and emotional distress are not covered injuries under the policy.

"Appellant's physical 'sickness,' which occurred as a result of her
emotional distress, is excluded by the unambiguous terms of the policy.
Therefore, we find that appellant has suffered no 'bodily injury' as that
term is defined in the policy," the appeals court held.

Geraci is represented by Patrick J. Perotti and Amy Trejbal of Dworken &
Bernstein in Painesville, Ohio. State Farm is represented by Albert J.
Purola in Mentor, Ohio. (Mealey's Litigation Report: Emerging Insurance
Disputes, December 6, 2000)

* CA Gov. Davis Has Settled Lawsuits to the Tune of $1.7 Bil
For plaintiffs lawyers locked in long legal battles with the state, the
arrival of Gov. Gray Davis and the end of 16 years of Republican rule in
California may seem for now like the legal equivalent of winning the

Since taking office two years ago, Davis has settled lawsuits against the
state to the tune of $1.7 billion and wiped out more than 35 years of
ongoing litigation.

He has provided $665 million to reimburse California motorists charged
illegal smog fees and has agreed to reimburse California's schools $520
million in special education funding. He most recently announced spending
$175 million in state money to pay increased Medi-Cal reimbursement rates
for California hospitals. And just last August the governor agreed to pay
the federal government $240 million over five years in back employee
retirement benefits the state had spent.

To add to that list, Davis is also looking to settle a suit brought over
a $3 charge for disabled parking placards, says a spokeswoman in his
office -- a settlement that could set the state back millions more.

All of which means big fees for the lawyers who have waited patiently,
sometimes as long as 20 years, to see their cases get settled. Of course,
that doesn't mean they have a smooth ride getting their money. Sometimes
politics can cause delays -- even for good friends of the governor.

Lawyers who have brought some of the biggest suits against the state say
the main factor behind the slew of recent large settlements is the
state's bulging wallet. That has allowed Davis to spend some of the
state's projected $10.3 billion budget surplus cleaning up after his

While some attorneys will tell you that Davis has been more open to
closing the books than previous governors, they are also quick not to
label him a pushover.

In fact, of the suits the governor has settled recently, two were between
10 and 20 years old, on the eve of trial, and likely to cost the state
much more than the $1 billion or so the state settled for. And even then
the lawyers involved characterize Davis as a tough negotiator. Also, they
warn that attorneys filing suit against the state on Davis' watch will
likely meet the same resistance they would have under Pete Wilson or
George Deukmejian -- if not much more.

"Is it easier to settle with Davis? I think so," says Lloyd Bookman, the
Los Angeles attorney who led the 10-year Medi-Cal suit against the state.
"Prior administrations avoided dealing with these issues."

The Hooper Handy & Bookman partner adds that even though he won his case
against the state in federal court, and the U.S. Supreme Court refused to
grant review of the state's appeal in 1997, Wilson simply delayed the
settlement process to avoid payment. "Davis wants to clean up the mess he
inherited," Bookman says.

The governor's office contends that Davis has made getting rid of old
lawsuits a top priority. "He has been making a real effort to dispose of
these expensive, outstanding lawsuits," says Davis spokeswoman Hillary

Timothy Gage, director of the state Department of Finance, adds that
money has been the single biggest factor in allowing the Davis
administration to move forward on some of these cases. "Just having the
resources gets the liability behind us," says Gage, whose office is in
charge of paying out the funds. "So if the revenue picture changes" the
state won't be stuck. Gage also says each case has been carefully
evaluated on its chance of success. Those that appear to be losers are
often settled. "If there are good reasons to reach a middle ground, those
are the cases we go after," he says.

Robert Leventhal, a partner in the Los Angeles office of Foley & Lardner
and the attorney who pursued the Medi-Cal reimbursements in state court,
also gives Davis credit for playing a lead role in resolving his case.
"We've been waiting a long time for someone in government to show some
serious interest," Leventhal says.

But both Leventhal and Bookman characterize the negotiation process as
anything but easy. "It's not that he's an easier negotiator," Bookman
says. " It's that he's trying to deal with the issues."

Still, Davis has not gone without criticism in his efforts to resolve
litigation. When San Diego's Milberg Weiss Bershad Hynes & Lerach and
four other firms were awarded $88.5 million in attorneys' fees by an
arbitration panel in November it was Davis who felt the political heat.

Although the firms successfully sued the state to get rid of its $300
smog impact fee and prompted Davis to set aside $665 million to reimburse
California drivers, the size of the award put Davis under heavy political
scrutiny in the press and around the Capitol.

That's because Davis had proposed that the award be determined in
arbitration, which resulted in an award which far exceeded the $18
million determined by a trial judge and the $1 million in fees the
state's Board of Equalization had estimated. Also the lead benefactor was
Milberg Weiss, a firm that has contributed $440,000 to Davis since 1998
and has given another $1.2 million in soft money to Democratic causes
since 1996.

Davis has since asked the panel to reconsider its decision, and the state
has opted not to pay the firms until a new ruling on the fees is handed
down by either the arbitrators or the courts. While the arbitrators are
unlikely to reverse their decision, Davis has still managed to position
himself as the defender of the state's purse.

But not all suits against the state get settled, especially if they were
filed after Davis took office.

A prime example some say is Williams v. State of California, 312236, a
battle currently being waged in San Francisco Superior Court. Filed by
the American Civil Liberties Union, the class action accuses the state of
not doing enough to provide California's students with an adequate
education. The suit, filed on behalf of 18 public schools, seeks an
injunction ordering the state to repair and maintain all facilities and
to provide textbooks and a sufficient number of credentialed teachers.

Lawyers on the plaintiffs' side had thought Davis, who has approved $750
million in education spending this year, would and should be able to
foster a political solution to the problem. Instead, they say, Davis has
responded with guns blazing, hiring a top litigator from O'Melveny &
Myers, John Daum, to defend him.

Michael Jacobs, a Morrison & Foerster partner who is representing the
schools pro bono, says he has since given up hope that Davis will be open
to negotiating a settlement. "We're very much open to trying to settle
it," Jacobs says. "Nothing has come of it on that front." Jacobs says the
governor has instead fired back. Davis, who will reportedly pay O'Melveny
between $11 million and $18 million to defend him, filed a Dec. 11
cross-complaint, which accuses local school districts -- not the state --
of failing to maintain adequate learning facilities.

So why is Davis playing hardball? "He has his plan, and we're interfering
with his plan," Jacobs says.

McLean, the governor's spokeswoman, says Davis has made funding for
improved education a hallmark of his administration and blames the
plaintiffs for instigating the suit instead of allowing improvements to
proceed. She adds that the governor would prefer to spend money on
classrooms instead of lawyers. "Gov. Davis has made improving education
part of his administration," she says. "In spite of his efforts, he has
been named in a lawsuit."

Yet some lawyers can't help but think what would happen if Davis had
inherited the case. One lawyer close to the case said there is an obvious
difference between the Williams case and the special education
settlement, for instance.

The difference: This time it's personal. "That was someone else's
problem," the lawyer said about the special education class action. "This
case attacks him." (The Recorder, December 19, 2000)

* Partner at Berman DeValerio Sees SEC's Fight Against Fraud At Risk
As the stock markets lurch toward the New Year, investors should offer a
wistful holiday toast to Arthur Levitt of the Securities and Exchange
Commission. For the past two years, SEC chairman Levitt has crusaded
against eroding accounting standards at publicly traded US companies,
assailing a corporate culture too often willing to blur ethical lines to
boost the bottom line.

But the presidential election of George W. Bush means Levitt's tenure is
most likely nearing an end and with it, the SEC's vigorous campaign
against fraud. The thought of a Bush appointee in Levitt's seat is
troubling to anyone who believes that the US financial markets are the
world's most successful because of their unrivaled reputation for
fairness, liquidity, and transparency.

Over the years, Bush and other prominent Republicans have done everything
within their power to curtail the rights of investors and other consumers
hurt by corporate misdeeds.

As governor of Texas, for example, President-elect Bush led the fight to
limit the amount of punitive damages juries there can award in civil
cases. His stated purpose: to protect companies against greedy lawyers.
The result: to make fraud more attractive by removing the threat of
financial consequences. The effects of Bush's tort reform can already be
felt. The Wall Street Journal recently wrote that while Texas has one of
the largest shares of deaths and injuries related to Firestone tires, the
state's laws restrict victims' ability to get compensation.

Republican lawmakers and the Washington business lobby have pledged to
step up attacks on class actions, lawsuits that allow fraud victims to
band together to seek damages against corporations. The same Republicans
who discourage consumers from bringing civil suits against corporate
wrongdoers also have worked hard to hamstring regulatory agencies like
the SEC by slashing their budgets.

Whether dealing with fallout from faulty tires or inflated stocks,
federal regulators cannot do the job alone. Private litigation has become
an important adjunct for chronically overworked and understaffed

The SEC must carefully pick and choose its battles, deploying its limited
resources on a small number of high-profile cases designed to send a
message to would-be corporate wrongdoers. The government simply cannot
afford to prosecute most suspected stock fraud.

And make no mistake: Stock fraud is a booming business in America.
Soaring share prices, demanding investors, and a generation of corporate
leaders whose fortunes are tied to stock options have led to a dramatic
increase in accounting gimmickry at publicly traded companies.

Since 1997, the SEC says nearly 400 companies have restated financial
results, approximately 1 percent of those making public filings.
Accounting and financial fraud cases made up one-fifth of the agency's
caseload in fiscal 2000.

That number is rising in part because the penalties for falling short of
Wall Streets expectations can seem worse to company management than the
potential threat of a fraud prosecution. If a company misses analyst
projections, even by a few pennies, its stock price takes a beating.

Faced with a quarterly shortfall, some corporate managers choose to
manipulate the numbers.

In addition to being wrong, succumbing to such temptations can backfire
if the maneuver is discovered down the road. But even if the fraud goes
undetected, each cooked book burns the credibility of the entire stock

Today, American markets enjoy the confidence of the world, Levitt said in

Since then, Levitt has done much to restore a shining faith in US
markets. He beefed up the SEC's enforcement division. He enacted
regulations ending selective disclosure of information that can move
stock prices. He established rules to reduce conflicts of interest for
the auditors charged with examining a company's books.

Perhaps most importantly, his staff issued guidelines that make it
tougher to use what Bush might call fuzzy accounting to pad revenues.

With Republicans knocking on the White House door and the stock markets
continuing their wild ride, Levitt's legacy should not be squandered.

Corporate America needs to step back from the quarterly numbers game and
support stricter accounting standards and greater accountability for
fraud, especially those related to revenue recognition. The public,
meanwhile, must resist efforts to pass ill-conceived laws that discourage
citizens from using private litigation to recover damages caused by
fraud. (The Boston Globe, December 19, 2000)


S U B S C R I P T I O N  I N F O R M A T I O N

Class Action Reporter is a daily newsletter, co-published by Bankruptcy
Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc.,
Washington, DC. Theresa Cheuk, Managing Editor.

Copyright 1999.  All rights reserved.  ISSN 1525-2272.

This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.

Information contained herein is obtained from sources believed to be
reliable, but is not guaranteed.

The CAR subscription rate is $575 for six months delivered via e-mail.
Additional e-mail subscriptions for members of the same firm for the
term of the initial subscription or balance thereof are $25 each.  For
subscription information, contact Christopher Beard at 301/951-6400.

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