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C L A S S A C T I O N R E P O R T E R
Tuesday, June 8, 1999, Vol. 1, No. 88
Headlines
BOEING CO.: Race Discrimination Settlement Creates New Tensions
GUN MANUFACTURERS: Plaintiffs Lawyers Predict One Case a Week
IRIDIUM: Wolf Haldenstein Wants to Puncture Veil to get Bankers
N2K INC.: Stockholders Complain About Disclosures & CDnow Merger
SAGE SOFTWARE: Bernstein Litowitz Files Complaint in California
SALOMON SMITH: County Says Firms Conspired to Overcharge
Y2K LITIGATION: Florida Requires $50,000 Damages Per Plaintiff
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BOEING CO.: Race Discrimination Settlement Creates New Tensions
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The Associated Press reported on a racial discrimination lawsuit
that once united Boeing's black workers but now divides them,
due to a $15 million settlement labeled fair by one side, unjust
by the other. "The reason I gave up $30,000 is because it didn't
give me any remedy to what was going on," said Kevin Biglow, a
Boeing worker who opted out of the settlement. "And you can't
buy me off."
Racial discrimination concerns in 1996 led to a class action
lawsuit against Boeing, whose black workers claimed they were
passed over for promotions and were later threatened for
complaining about it.
In January, Boeing and attorneys for the plaintiffs reached
agreement on a consent decree which lays out how Boeing would
avoid racial discrimination in the future and the $15 million
settlement. But since then, accusations of greed and deception
have clouded what many thought was a triumph for Boeing's black
work force.
The controversy centers on a disagreement about the effect the
consent decree will have on workers facing discrimination at the
plants and the amount of money people will get from the
settlement. Advocates say the consent decree offers real change
for workers and that those fighting the agreement are only
trying to get more money out of Boeing. Opponents of the deal
say the decree is worthless and the settlement payments not
enough.
Some critics also accuse the Rev. Jesse Jackson, the civil
rights leader who helped broker the settlement, of accepting a
payoff from Boeing. Boeing Chairman Phil Condit is accused of
directing multimillion dollar contracts to two black-owned
businesses that may have ties to Jackson's Rainbow-PUSH
Coalition. Jackson's office has denied the allegations, and
Boeing has said the charges are based on hearsay.
Under the proposed deal, about 12,900 past and present Boeing
workers would share $7.3 million. The largest payments would go
to the more than 200 named plaintiffs. Attorneys representing
the workers would get $3.8 million, including $750,000 for
reviewing the claims and monitoring the conditions of the
proposed consent decree. The remainder would go to Boeing
diversity programs. The deal calls for Boeing to revamp its
Equal Employment Opportunity system, implement a
nondiscrimination layoff policy, address promotion practice
complaints and create a system to monitor problems.
A federal judge in Seattle has postponed until Sept. 23 a
hearing to determine if he will approve the settlement.
Boeing Wichita employee David Roberts, who supports the
settlement, said workers need to give the decree a chance to
work. "Some of these people out there that's in this lawsuit,
they want to basically say, 'We want a million dollars apiece.
Let's bring Boeing to their knees,"' Roberts said. "Let's think
about this. You bring Boeing to its knees, who have you hurt?
"Boeing's a big company. Boeing would look mighty stupid to put
anything in writing that they're not prepared to stand by." (AP
Online; 06/06/99)
GUN MANUFACTURERS: Plaintiffs Lawyers Predict One Case a Week
-------------------------------------------------------------
At least 12 more municipalities are planning to sue gun makers
this year, and the first class-action suit against the firearms
industry is expected to be filed in the next few months, lawyers
said during the weekend. Their comments were made at a major
gun-litigation conference sponsored by the American Bar
Association. Participants included representatives from the gun
and insurance industries and city and county governments.
Also involved were personal-injury attorneys, including the
lawyers who banded together in 1994 to bring a national class-
action suit against the tobacco industry. Although the case was
thrown out, the law firms - numbering about 60 - maintain an
association and now help municipalities sue the gun industry.
One of those lawyers, Jack Maistros of Cleveland, told seminar
participants he expects at least a dozen more municipalities
will sue the gun industry this year. Two of those suits are
expected to be filed as soon as next week. In addition, Maistros
said he expects all types of litigation to increase against
firearms makers. "One gun case will be filed every week until
the end of the year," he predicted.
Maistros said the industry will eventually have to settle. He
said the gun industry would not survive lengthy court battles.
(THE ORLANDO SENTINEL; June 7, 1999)
IRIDIUM: Wolf Haldenstein Wants to Puncture Veil to get Bankers
---------------------------------------------------------------
Further attempts to "puncture [Iridium's] corporate veil," as
one attorney put it (Communications Daily June 3 p6) were
reflected in a class action lawsuit announced Fri. by Wolf
Haldenstein Adler Freeman & Herz law firm. The suit, in U.S.
Dist. Court, D.C., goes beyond naming Iridium and its key backer
Motorola as defendants, as other suits already have done.
The new suit goes after bankers that backed Iridium project. It
alleges that "certain officers and directors of Merrill Lynch,
Goldman Sachs, NationsBanc Montgomery Securities, Salomon Smith
Barney and SoundView Technology Group violated federal
securities laws" and alleges, among other things, that Iridium
share offerings have been tainted by "false and misleading
statements" about its "financial condition and business
prospects." (Communications Daily; June 7, 1999)
N2K INC.: Stockholders Complain About Disclosures & CDnow Merger
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N2K Inc. and its directors are defendants in a consolidated
purported class action in the U.S. District Court for the
Southern District of New York entitled In re N2K Inc. Securities
Litigation (Docket No. 98 CIV 3304 (HB)) (the "Consolidated
Action"). The Consolidated Action consolidates two purported
class actions, entitled Kuhn v. N2K Inc. et al. (Docket No. 98
CIV 4360 (HB)) and Bender v. Rosen et al. (Docket No. 98 CIV
3304 (HB)) that were filed in the United States Court for the
Southern District of New York in June 1998 and May 1998,
respectively. The Consolidated Action is a purported class
action on behalf of Common stockholders and seeks to recover
unspecified damages and other relief, as well as recovery of
costs and expenses, stemming from alleged violations of the
Securities Act of 1933 in connection with the public offering of
the shares of the Company's Common stock in April 1998.
The Consolidated Action alleges that, among other things, the
defendants failed to disclose N2K's first quarter financial
results in the registration statement for the April 1998 public
offering.
The Company believes that the claims in the Consolidated Action
are without merit and is vigorously defending the action. The
defendants moved to dismiss the complaint on August 31, 1998 for
failure to state a claim and/or for failure to plead fraud with
the requisite particularity. The motion to dismiss has been
fully briefed and is awaiting decision.
In October 1998, an action entitled Rubin v. Rosen et al.
(Docket No. 16743NC)(the "Rubin Action") was filed against the
Company, the Company's directors and CDnow, Inc. in the Chancery
Court of Delaware for the County of New Castle. The Rubin Action
is a purported class action on behalf of all Common stockholders
of N2K, alleging, that the consideration to be received by the
purported class in connection with the proposed merger between
the Company and CDnow, Inc. is unfair and grossly inadequate,
and that the individual defendants breached their fiduciary
duties in connection with the Merger.
The Company believes that the claims are without merit and
intends to defend the action vigorously.
SAGE SOFTWARE: Bernstein Litowitz Files Complaint in California
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A national class of users of Sage Software Inc.'s MAS 90
computer software program was certified on May 27, 1999 by the
Orange County Superior Court, according to the law firms of
Sherman, Silverstein, Kohl, Rose & Podolsky and Bernstein,
Litowitz, Berger & Grossmann LLP. The Class consists of MAS 90
users who purchased the software from 1990 through February of
1998. Sage estimates the size of the class to be in excess of
40,000 users nationwide.
This lawsuit was filed against Sage Software, Inc. in the Orange
County Superior Court in September, 1998, alleging that Sage
violated the California Business & Professions Code ss. 17200,
et seq., and breached certain express warranties when the
company marketed non-Year 2000 compliant computer software
versions of the MAS 90 software, without disclosing that the
software was unable to process dates after December 31, 1999.
MAS 90 is a computer software program used by tens of thousands
of businesses throughout the United States. The MAS 90 software
is an integrated accounting system consisting of more than 28
separate application modules which form a comprehensive
accounting system. MAS 90 software is used to plan budgets,
track inventory, and manage accounts payable and receivable.
Sage advertises MAS 90 as the most comprehensive character-based
internal accounting and management information system in the
business software industry.
According to the Complaint, Sage sold non-Year 2000 compliant
software programs to these businesses even though the company
knew, or should have known, that the software would not be able
to process Year 2000. Since the filing of the Complaint, Sage
filed a Demurrer to the Complaint which was overruled by the
trial judge. "In marketing MAS 90, Sage touted its software as
being able to handle the needs of your business through the 90s
and beyond" said Harris L. Pogust, a partner with Sherman,
Silverstein, Kohl, Rose & Podolsky, "The product, however, was
unable to live up to those representations."
"The agreement of the parties to certify a national class marks
the first such agreement in an ongoing Y2K litigation,"
according to Jeffrey A. Klafter, a partner with Bernstein
Litowitz Berger & Grossmann LLP. "The case can now proceed to
trial for the benefit of all the members of the Class."
To learn more, call Jeffrey A. Klafter or Seth R. Lesser at 212-
554-1400 or 800-380-8496 or call Harris L. Pogust at 609-662-
0700.
SALOMON SMITH: County Says Firms Conspired to Overcharge
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While 17 Wall Street and regional dealers insist the yield-
burning suit filed against them by the clerk of Collier County,
Fla., will be dismissed, they nevertheless recently agreed they
might hold informal settlement talks if the litigation proceeds.
The firms, which include Salomon Smith Barney Inc., Merrill
Lynch & Co., Goldman, Sachs & Co., and others, filed a motion to
dismiss the suit, for which class action status might be sought,
with the U.S. District Court for the Middle District of Florida
on April 30. "The substantive, standing and jurisdictional
hurdles facing (the suit) are insurmountable," they warned.
However, in a joint report on the case filed with the court a
week and a half ago, the firms and county clerk said: "The
parties anticipate that informal settlement negotiations may
occur from time to time through the litigation." The clerk
offered to provide the court with a list of mediators, but the
firms said mediation "would be premature" before the court
decides on the motion to dismiss.
The court will not rule on the matter until after the county
clerk replies next week on the firms' motion to dismiss.
Dwight Brock, the county clerk represented by the firm of
Goodkind, Labaton, Rudoff & Sucharow, filed the suit late last
year and then amended it in March. The suit alleges the firms
violated federal securities and investment advisory laws, as
well as Florida laws, by engaging in an industry-wide conspiracy
to charge excessive markups on the escrow securities they sold
to Collier County and other municipal issuers in advance
refunding transactions.
But in their motion to dismiss, the firms said: Brock has no
right to file a suit on behalf of the county; the suit's
securities law claims runs counter to several Supreme Court
decisions; and the charges in the case cannot be brought under
federal and state statutes of limitation.
"As a matter of Florida law, the clerk of the Circuit Court of
Collier County simply does not have standing to bring any claim
on the county's behalf, much less on behalf of 'thousands of
counties, cities, and state and municipal corporations through
the U.S.,' " the firms said. "Dismissal on that basis alone is
appropriate."
"An action on behalf of Collier County can be brought only by
the county's commissioners," the securities firms said. The
commissioners' power to sue "is nondelegable," they said.
"Furthermore, even if (Brock) had authority to sue on the
county's behalf, as a matter of constitutional law (he) cannot
assert claims against sixteen of the seventeen defendants since
the county has not engaged in a relevant transaction with any of
those defendants," the firms said.
They complained that while the suit focuses on a $64.55 million
refunding done for the Collier County Water and Sewer District
in 1994, none of the firms named in the suit were involved in
that transaction except Smith Barney Inc., now Salomon Smith
Barney, which was a co-underwriter. The two firms that played
key roles with regard to the escrow securities - Raymond James &
Associates Inc. and William R. Hough & Co. - were not named in
this suit, the firms said.
Brock sued Raymond James and William R. Hough in another suit
filed in a Florida circuit court in March. The firms' recently
obtained an extension in that case to file a response to the
complaint in July.
In the suit against Salomon Smith Barney and other firms, the
clerk is alleging federal securities law violations and seeking
damages under the Investment Advisers Act of 1940. But the firms
said this "flies in the face" of the Supreme Court's ruling in
Transamerica Mortgage Advisers Inc. v. Lewis 20 years ago that
stated private parties can not sue for damages under the act.
The amended complaint seeks recovery of losses, fees, and
expenses. But the firms said, "The only right to relief that a
private party may seek under the advisers act is a limited right
of rescission of an unlawful investment advisory contract," and
in this case, no such contract exists.
The courts have held that this section of the act "can be
applied only to void an advisory contract and cannot be used to
void or rescind other contracts or purchases of securities made
through an adviser," the firms said. The act "cannot be used as
a 'back-door' mechanism for seeking damages," they said.
The suit charges that the firms aided and abetted each other's
violations under the act runs counter to the Supreme Court's
decision four years ago in Central Bank of Denver v. First
Interstate Bank of Denver, the firms said. In that case, the
High Court ruled that private parties cannot sue firms or
individuals for aiding and abetting violations of the federal
securities laws, they said. The courts have applied that
reasoning to the Advisers Act.
"Even if (Brock's) federal securities law claims were otherwise
viable, they would be time barred under the Supreme Court's 1991
decision in Lampf, Pleva, Lipkind, Prupis & Petigrow v.
Gilbertson," the firms said. In that case, the High Court ruled
that private parties must bring charges under the antifraud
provisions of the federal securities laws no later than three
years after the date of the alleged violation. This reasoning
has also been applied to the advisers act, they said.
In addition, the firms said, Brock's charges of state law
violations cannot be brought because of Florida statutes of
limitation.
The suit, even in its amended form, "is fatally defective on
numerous grounds" and should be dismissed without any
opportunity for further amendment, the firms said. (The Bond
Buyer; June 7, 1999)
Y2K LITIGATION: Florida Requires $50,000 Damages Per Plaintiff
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The Associated Press reports that Gov. Jeb Bush signed a bill
into law Friday meant to prevent an explosion of court cases
should computers fail because of the so-called "Y2K" problem.
The bill, called the "Commerce Protection Act," limits
companies' liability in the event of crashes caused by the
computer bug, in which some computers and software recognize
only two-digit years. If not corrected, those systems wouldn't
work properly in 2000, when they would assume "00" is 1900.
Importantly, the bill (SB 80) says class action suits against
companies that aren't Y2K compliant are prohibited by the law,
unless each member of the class suffered more than $50,000 worth
of damage. And, unless a contract says otherwise, companies may
only be liable for "direct economic damage" from problems caused
by computers that aren't Y2K compliant. That excludes punitive
damages. The bill also spells out that damages shouldn't be
awarded if the plaintiff could have avoided the Y2K problem by
doing something within reason that the defendant recommended
they do to avoid the problem.
The bill, which takes effect immediately, also says any company
that has had its computers checked by Y2K experts and has a
"reasonable good-faith belief" that its systems are Y2K
compliant isn't liable for damage caused by failures of its
computers. In a further effort to keep the courts from getting
bogged down with Y2K suits, the bill says judges should send
disputes over Y2K failure to mediation before they go into the
full court system.
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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. Peter A. Chapman, Editor. Kent L.
Mannis, Project Editor.
Copyright 1999. All rights reserved. ISSN 1525-2272.
This material is copyrighted and any commercial use, resale or
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