/raid1/www/Hosts/bankrupt/CAR

/raid1/www/Hosts/bankrupt/CAR_Public/990609.MBX C L A S S A C T I O N R E P O R T E R Wednesday, June 9, 1999, Vol. 1, No. 89 Headlines AMERICAN BANKNOTE: Misses Interest Payment On Senior Notes AMERICAN HOME: Asks for Experts to Provide Scientific Advice AMERICAN HOME: Plaintiffs Seek to Vacate MDL Transfer Order BANKRUPTCY REFORM: Committee Eliminates Senate's Class Limits CEPHALON INC.: Judge Approves Experimental Drug Settlement CHEVRON CORP.: Suit Charges Role in Death of Nigerian Activists COMPUTER GAMES: Retired Major Leaguers Balk at Video Images DANIEL INDUSTRIES: Settles Complaint About Emerson Electric Deal FIDELITY NATIONAL: Federal Suit Charges Misuse of Escrow Funds INTEK GLOBAL: Securicor's Acquisition Proposal Draws Complaint MATSUSHITA ELECTRIC: Shareholder Suit Over MCA Deal Dismissed NATIVE AMERICANS: Interior Dept. Can't Account for Trust Funds PRUDENTIAL INSURANCE: Pays $1 Billion for Churning Policies SAVINGS BANK: Insurer Asks for Ruling to Avoid Distributing Cash SECURITIES LITIGATION: Plaintiff Attys. Take Stock in Defendants UNITED STATES: Court Says Congress Failed to Reserve CBM Deposit USAID: Senior Agency Employees Complain of Age Discrimination VOLUSIA COUNTY: Unionized Officers Object to Missing Holiday Pay WALT DISNEY: Feather Fly in Battle Over Mighty Ducks' Bucks ********* AMERICAN BANKNOTE: Misses Interest Payment On Senior Notes ---------------------------------------------------------- On May 28, 1999, American Banknote Corporation announced that the semi-annual interest payment on its 10 3/8% senior notes due 2002 will be paid in full on June 1st. The company, however, will not make the June 1st interest payment on its 11 1/4% Senior subordinated notes due 2007. The indenture for these notes allows for a 30-day grace period to make this interest payment. The company's advisor, The Blackstone Group, has initiated discussions with holders of approximately 50% of the Senior subordinated notes to address a possible restructuring. The company states that there can be no assurance it will be possible to reach such an agreement with the holder of these notes. Morris Weissman, Chairman and Chief Executive Officer of American Banknote Corporation, commented, "We are taking steps toward a restructuring that is intended to result in a de- leveraging of the company and enhancement of its ability to operate and grow in the future. We are hopeful that such a financial restructuring can be reached rapidly by a mutually beneficial agreement with the bondholders." American Banknote Corporation is a leading global full-service provider of secure transaction solutions in carefully selected markets along three major product groups: Transaction Cards & Systems, Printing Services & Document Management, and Security Printing Solutions. A combined strategy of operating along product lines and constant expansion of transaction activities worldwide reflects the rapidly changing field of electronic commerce. AMERICAN HOME: Asks for Experts to Provide Scientific Advice ------------------------------------------------------------ American Home Products Corp. has asked the judge presiding over the coordinated New Jersey diet drug cases to appoint a panel of experts to advise the court and any future juries about the scientific research that has been done on diet drugs since they were withdrawn from the market 1997. The proposed science panel would be modeled on the panel appointed by U.S. District Judge Sam C. Pointer in the silicone gel breast implant MDL to advise him about the scientific evidence relating to implant injuries. Vadino et al. v. American Home Products Corp. et al. v. Century Pharmaceuticals Inc. et al. , Nos. MID-L-1356-99MT, L-1356-99MT and L-353-99MT (NJ Super. Ct., Middlesex Cty., motion filed April 23, 1999). American Home Products Corp., its defunct subsidiary A.H. Robins Co. Inc. and its division, Wyeth-Ayerst Laboratories (collectively the AHP defendants), are the lead defendants because it or its related companies were involved in manufacturing or promoting both of the recalled drugs, fenfluramine and dexfenfluramine. Those three companies have named more than two dozen manufacturers or distributors of phentermine as third party defendants because fenfluramine was popularly prescribed along with phentermine. Some research has indicated that phentermine is not implicated in the alleged injuries caused by fenfluramine, but the evidence is not conclusive. The AHP defendants requested that Middlesex County Superior Court Judge Marina Corodemus appoint a science panel as part of their response a trial plan submitted by the diet drug plaintiffs. The plaintiffs have asked that the class action (Vadino) be combined with two personal injury suits and that the liability issues in all three suits be tried to a judge rather than a jury. A jury would sit as a trier of fact on the issue of medical causation and, if the verdict warrants it, would assess damages. In one personal injury case, Deblau v. American Home Products Corp. et al., No. L-356-1356-99MT (NJ Super. Ct., Middlesex Cty.), plaintiff Ellen DeBlau alleges that after taking Pondimin (Wyeth-Ayerst brand of fenfluramine) for six months, she developed severe heart valve disease, resulting in valve replacement surgery. In the second case, McDonald v. American Home Products Corp., No. L-353-99MT (NJ Super. Ct., Middlesex Cty.), plaintiff Beverly McDonald alleges that Redux (AHP's brand of dexfenfluramine) caused her to develop mild to moderate heart valve disease. The plaintiffs in Vadino are seeking a medical monitoring fund to pay for periodic testing to determine if they are developing any disease attributable to their having taken diet drugs. The AHP defendants argue that the plaintiffs trial plan is fatally flawed because while the plaintiffs are waiving their demand for a jury trial as to liability, the defendants have demanded a jury trial on all issues. They have not waived that right and they do not intend to waive it, AHP's motion said. The plaintiffs' proposed consolidation of the trials of uninjured people with those of two people alleging serious personal injuries would be highly prejudicial to the defendants and would violate their Constitutional right of due process, AHP contends. Instead, the AHP defendants urged the court to adopt their two- phase plan. In the first phase, a jury would decide the scientific issues including the need, if any, for medical monitoring for the Vadino class. The court would appoint an unbiased scientific panel that would submit reports on the scientific issues to assist the jury in understanding the evidence. In the second phase, the jury would hear the liability issues. The defendants also proposed that the medical monitoring class suit be tried separately from the personal injury suits. In the silicone breast implant MDL, the panel of experts appointed by Judge Pointer ultimately concluded that the medical and scientific evidence amassed so far does not support a causal connection between silicone breast implants and systemic diseases such as lupus or scleroderma. However, many of the studies analyzed by the panel that indicated that there may be some connection between the implants and various diseases were dismissed as statistically insignificant because the number of subjects were too small to extrapolate the results. Much of the existing diet drug research has indicated an association between the drugs and heart valve disease, but most of the studies have been performed on relatively small numbers of diet drug users. According to AHP, a scientific panel appointed to assist the fact-finders in state court diet drug trials would help answer such dispositive questions as: -- To what extent, if any, do fenfluramine and dexfenfluramine increase the prevalence of heart valve abnormalities and under what circumstances? -- What role did dosage, duration of use and combined use with phentermine or other drugs play in causing any injuries? -- What type and degree of abnormalities, if any, are associated with the mitral, aortic, tricuspid and pulmonic heart valves? -- What is the clinical significance, if any, of the abnormalities (do they require medical intervention and if so when and what kind)? -- What is the scientific evidence on the latency of any alleged risk? -- What is the scientific evidence of the progression or regression of any abnormalities alleged to be associated with the use of diet drugs? AHP's New Jersey counsel Anita Hotchkiss of Porzio, Bromberg & Newman in Morristown, NJ, said that the court has scheduled a hearing on May 28 to hear the motions on the plaintiffs' and defendants' proposed trial plans. (Diet Drugs Litigation Reporter; June 1999) AMERICAN HOME: Plaintiffs Seek to Vacate MDL Transfer Order ----------------------------------------------------------- In an unusual show of solidarity, a physician named as a defendant in a diet drug lawsuit filed in an Alabama state court and the plaintiffs in the case have asked the Judicial Panel on Multidistrict Litigation to vacate a conditional transfer order (CTO) sending the suit to the MDL court in Philadelphia. Curren et al. v. American Home Products et al., No. 99-RRA-0246-S (JPML, motion filed May 11, 1999). The plaintiffs in two other cases (Deramus et al. v. American Home Products et al. , No. ALN-99-TMP-585-E JPML, motion filed May 4, 1999 and Brightwell v. A.H. Robins Co. Inc. et al. , JPML 1203, motion filed May 14, 1999 ) are also moving to vacate the conditional transfers of their cases to the MDL court. In both cases, the plaintiffs maintain that the damages they are asking for will not amount to the $75,000 minimum required to establish federal subject matter jurisdiction. In April and May up to press time, the JPML had finalized the transfer of a total of 98 new cases to the MDL. CTO 34 included 27 actions from 19 federal districts, CTO 35 transferred 38 cases from 23 districts and CTO 36 involved the transfer of 33 suits from 18 districts. In Curren, Faith and Barry Curren filed a complaint in the Alabama Circuit Court for Jefferson County alleging product liability claims against several non-Alabama drug manufacturers and distributors and against Dr. Doyle L. Moore III, who had prescribed diet drugs to Lynn Curren. Defendant Qualitest Pharmaceuticals Inc. filed a third party complaint against Camall Co., a phentermine manufacturer, which subsequently filed for bankruptcy. Qualitest then removed the Currens' action to the Northern District of Alabama federal court on the grounds that the bankruptcy action confers federal jurisdiction. The Currens filed a motion to remand but while that motion was pending, the case was conditionally transferred to the MDL court in the Eastern District of Pennsylvania. Dr. Moore joined the Currens in a motion to vacate the transfer order to allow the Northern District of Alabama time to decide whether to remand the case to the state court. The Currens and Dr. Moore argue that the JPML lacks subject matter jurisdiction because the Currens did not sue Camall. Camall was brought into the case only because some of the defendants are seeking indemnification from the bankrupt company, the petitioners said. All of the Currens' asserted claims are predicated on state tort law and should be adjudicated in a state court. The Currens and Dr. Moore further argue that it will be inconvenient for them to have to retain local counsel and travel to Philadelphia to seek a remand there. Both parties want to try the suit in a state court. "The Currens and Dr. Moore should be allowed to 'fight that battle' in the forum most convenient to them," the motion stated. The Deramus Motion Darrie Deramus filed a class action lawsuit in the Alabama Circuit Court for Calhoun County in February, 1999, in which she seeks medical monitoring in the form of an echocardiogram for herself and each member of a proposed class of Alabama residents who took diet drugs but have not manifested any injury. She estimated that the cost of the echocardiogram would not exceed $3,000 per plaintiff. Defendant American Home Products Corp. (AHP) removed the suit to the Northern District of Alabama on the grounds that there is complete diversity between the parties and that the amount-in- controversy exceeds $75,000. Even though Deramus attempt to waive any claim for punitive damages and for compensatory damages in excess of $3,000 per plaintiff, that waiver is ineffective because she cannot waive away the rights of absent class members to collect damages. Deramus has not filed an affidavit attesting that she will not later seek to include punitive damages and without such an affidavit, her assertion that she does not claim punitive damages is "merely artful pleading" and a futile attempt to avoid diversity jurisdiction, AHP argued. Deramus filed a motion to remand but, like the Curren case, the JPML conditionally transferred the case to the MDL court while the motion was pending. In their motion to vacate, the plaintiffs again assert that the only damages they seek are the costs of the cardiac physical examination and that those costs will not exceed the $75,000 threshold. The Brightwell Motion Anita Brightwell and Diane Turner filed a class action complaint in the Arkansas Chancery Court for Benton County seeking medical screenings for all Arkansas residents who took the diet drugs but do not allege any current injuries. Like Deramus, the plaintiffs in this case argue that the damages they are seeking will not exceed $75,000 and therefore the federal courts do not have jurisdiction. AHP removed the case to the Western District of Arkansas and Brightwell moved to remand, but the JPML conditionally transferred the action before the remand motion could be decided. Curren is represented by Michael C. Bradley of Pittman, Hooks, Dutton & Hollis in Birmingham, AL, and by Laura H. Peck of Starnes & Atchison, also in Birmingham. Representing Deramus is Thomas J. Knight of Hubbard & Knight in Anniston, AL. Bobby Lee Odom and Russell B. Winburn of Odom & Elliott in Fayetteville, AR, represent Brightwell and Turner. (Diet Drugs Litigation Reporter; June 1999) BANKRUPTCY REFORM: Committee Eliminates Senate's Class Limits ------------------------------------------------------------- Bankruptcy reform in 1999 moved closer to reality on May 11 when an amended version of S. 625 was reported out of committee by Sen. Orrin Hatch, R-Utah, chair of the Senate Judiciary Committee. The following day, the House version of the Bankruptcy Reform Act of 1999, H.R. 625, which passed that body on May 5, was reported to the Senate. The Senate is not expected to consider either bill until after the Memorial Day recess. Although both bills cleared their respective Judiciary Committees during the last week of April, the House bill was quickly moved for floor consideration while the Senate bill was held back for consideration of further modification and the preparation of a report. Now, with the House on record strongly in favor of its measure, the Senate will take up a bill that is less creditor friendly than either the House bill or the original version of the Senate bill as introduced by Sen. Charles E. Grassley, R-Iowa. And, if the Democrats on the Judiciary Committee have their way, it will be an even more balanced bill when the Senate debate is concluded. Of the eight Democrats on the Judiciary Committee, four voted against reporting the bill out of committee and all but Sen. Joseph Biden, D-Del., contributed to a 47-page section of the committee's report detailing their views that were not incorporated into the bill. The work of crafting S. 625 into a bankruptcy bill that would receive bipartisan support continued after the Judiciary Committee approved sending the bill to the floor. Among the more notable changes for consumer bankruptcy practitioners was the preservation of a debtor's ability to bring class action suits in cases of reaffirmation abuse and the elimination of various reporting requirements placed on debtors' attorneys. As reported out of committee, S. 625 provided that debtors injured by creditors who willfully failed to comply with the reaffirmation requirements of Section 524 could receive compensation equal to the greater of their actual damages or 1,000. However, they could not bring their complaints against the creditors in the form of a class action. In other words, S. 625 would have prevented litigation such as was brought against Sears. This change, which was part of Section 422 in the bill, was deleted. (Consumer Bankruptcy News; June 3, 1999) CEPHALON INC.: Judge Approves Experimental Drug Settlement ---------------------------------------------------------- Cephalon Inc. has agreed to pay $17 million to settle a spate of class-action shareholder suits filed in 1996 that said top corporate officers hid the truth about the prospects of an experimental drug to treat Lou Gehrig's disease. Senior U.S. District Judge Clifford Scott Green yesterday granted preliminary approval of the settlement, clearing the way for notices of it to be published in the Wall Street Journal and mailed to potential class members. Under the settlement, Cephalon's insurers will pay $7.5 million and the remaining $9.5 million will come from sales of Cephalon stock. The settlement required Cephalon to give the plaintiffs' attorneys enough stock to raise the full $9.5 million. The plaintiffs' lawyers who worked on the case for the past three years will be entitled to petition for a fee of up to $5.1 million, or 30 percent of the fund, according to court papers. The co-lead plaintiffs' counsel are Sherrie R. Savett and Carole A. Broderick of Berger & Montague; Mark C. Rifkin of Rifkin & Associates; and Marian P. Rosner of Wolf Popper Ross Wolf & Jones in New York. Cephalon was represented by John G. Harkins, Eleanor Morris Illoway and David G. Creagan of Harkins Cunningham. If the settlement wins Judge Green's approval at a fairness hearing on July 29, it will mark the end of three years of court battles the West Chester, Pa.-based biopharmaceutical company has fought over its development of Myotrophin, an experimental drug, it had touted as a possible treatment for Lou Gehrig's disease or "amyotrophic lateral sclerosis," a fatal, degenerative disorder of the central nervous system. Developed in a joint venture with Chiron Corp, Myotrophin is a synthetic form of a natural hormone that the two companies said could cause the nervous system to sprout new nerves and to strengthen nerve-muscle connections. The investing public heard good news about Myotrophin in June 1995 when Cephalon announced the results of Phase III clinical studies at eight medical centers. The New York Times reported that the drug slowed the advance of ALS by 25 percent. The company's press conference and the statements it made including that Myotrophin was well tolerated by patients in the Phase III study led to a dramatic rise in the price of Cephalon stock. It nearly doubled in price, rising from $10.75 to $18.375 in a single day with 6 million shares traded. When the stock hit $30, the company made a new public offering of 3.9 million shares and raised $84 million. As the suit describes it, Cephalon "effectively recovered the entire $84.2 million in losses since the company was created in 1987. "Good news and positive statements continued through the end of 1995. But in January 1996, the FDA raised concerns about Myotrophin and it was reported that regulators were disturbed by data that showed that in European tests, patients taking the drug had died at about twice the rate of patients taking a placebo. Industry analysts expressed criticism of the company's testing methods, which allegedly skewed results by removing any patient who deteriorated beyond a certain point. Patients removed from the test group who later died were not included in the group's overall mortality rate. On the bad news, the stock lost 40 percent of its value in one day, according to the investors' suits. Attorney Broderick said yesterday that Myotrophin is a "dead" drug for purposes of treating ALS, but that Cephalon may still be planning to test it for other uses. But Broderick said Cephalon may have a very lucrative drug on the horizon since it has garnered the license to market Provigil, a possible treatment for narcolepsy, in the United States. In September 1997, with the shareholder suits pending, the Securities and Exchange Commission filed an insider trading suit that said seven Cephalon insiders had purchased stock in 1995 just prior to the good news about Myotrophin. The suit said Dr. Dale J. Lange, a Columbia University neurologist who had access to the preliminary test results for the drug, purchased 3,000 shares of the stock. Dr. Philip Portoghese, a Minnesota doctor on Cephalon's scientific advisory board, also allegedly gave the information to his two sons, Stuart and Stephen, who purchased a total of 815 shares within 90 minutes of having a conference call with their dad. A Cephalon scientist, Timothy Garner of Lancaster, Pa., purchased 100 shares of the stock soon after learning of the upcoming public announcement despite never having purchased securities before, the suit said. And finally, Frank and Mark Lepore, two New Jersey men who were hired to produce charts, graphs and slides for Cephalon's presentation of the Myotrophin clinical trials, purchased a total of 600 shares of Cephalon stock and 75 call options, the suit alleged. At the time the suit was filed, the SEC said the Lepores and Garner had already agreed to settle the case by disgorging all profits without admitting or denying the charges. Frank Lepore paid $51,474 and Mark Lepore paid $30,168 figures that represent double their profits to include a civil penalty while Garner paid just $4,656 to give up his profits plus interest. (The Legal Intelligencer; June 8, 1999) CHEVRON CORP.: Suit Charges Role in Death of Nigerian Activists --------------------------------------------------------------- Human rights groups plan to file a suit against Chevron Corp. alleging that the oil company played a role in the deaths of two protesters during a demonstration in Nigeria last year. Lawyers for the activists said the class action would be filed at the U.S. District Court in San Francisco, the city where the oil company is based. The case centers around a demonstration at the Chevron-operated Parabe oil rig offshore the southern Niger Delta, a region that accounts for much of the 2 million barrels/day of oil that Nigeria produces. Two people died when soldiers and police confronted some 100 demonstrators who had occupied the rig in May 1998 to protest against oil company environmental practices. Chevron has denied the allegations. (Energy Alert; June 1, 1999) COMPUTER GAMES: Retired Major Leaguers Balk at Video Images ----------------------------------------------------------- With a click of a mouse, the former Braves infielder Darrel Chaney can bat against the $105 million arm of Kevin Brown or the great Cy Young. But unlike current players, who are paid through their union when computer-game designers use their names and images, retired players like Chaney do not get a dime. And unlike Babe Ruth, Joe DiMaggio and Ted Williams, many former players do not have high-paid lawyers or estates to demand money from game designers. Chaney, a .217 career hitter who had more strikeouts than hits, played 10 seasons for the Cincinnati Reds and Atlanta Braves before retiring in 1979. He is leading a group of former major leaguers suing 10 computer-game makers to try to get deals similar to those of current players -- from 8.5 percent to 9 percent of a game's net sales. Chaney, who is the chairman of the Major League Baseball Alumni Association committee that is pursuing the lawsuit, said the payments would be a big help to many retired players. "There are some guys that are old and don't have much of a pension," said Chaney, who now works for a corporate-relocation service in Atlanta. "They have no voice for them out there." A similar complaint is pending in Los Angeles against Warner Communications' "Hardball 5" and the company that distributed it. The suit was filed two years ago by a group that includes Don Newcombe and several members of the 1955 Brooklyn Dodgers. The former pitcher Phil Niekro, outfielder Mike Lum and catcher Johnny Bench are the other plaintiffs in Chaney's suit. The players want to designate the lawsuit as a class-action, meaning thousands of former players could sign on. Lawyers say they have talked to nearly 1,700 players interested in the lawsuit. Pete Rose, the sport's career-hit leader, batted .370 for the Reds in the 1975 World Series, while Chaney was without a hit in two at-bats. But Chaney says they both are entitled to the same compensation from any company that wants to include the Big Red Machine in a computer game. "My World Series winning check was the same as Pete Rose's, not a penny's difference," he said. The game makers, who oppose class-action status, argue the suit amounts to little more than a cash grab by players trying to profit from statistics. Timothy Leyh, a Seattle lawyer for Sierra Online, said that the company used only the players' names and statistics, "historical facts that appear in any number of commercially available textbooks." Leyh added: "It's an interesting case, but I think it's got more fluff than substance. The plaintiffs have made huge demands, which we think are way out of line." Lawyers for the game makers say many of the companies cannot afford the players' demands. Rex Heinke, who represents Warner in the California suit, argues that the players' identities are incidental to game sales. The players say even long-forgotten bench warmers are important to the accuracy of the game. (The New York Times; June 8, 1999) DANIEL INDUSTRIES: Settles Complaint About Emerson Electric Deal ---------------------------------------------------------------- Emerson Electric Co., the world's No. 1 maker of electric motors, and Daniel Industries Inc., which it is buying, agreed Monday to settle a suit filed by a Daniel shareholder who said stock owners weren't given adequate details about the $460 million transaction. St. Louis-based Emerson said May 13 it would buy Houston-based Daniel, which makes flow-control instruments for the oil and gas industry, for $21.25 per share. Daniel shareholder Charles Miller filed suit seeking class-action status in Delaware and accusing Daniel of concealing information about possible alternative offers for the company. The companies said Daniel will amend statements provided to the Securities and Exchange Commission about the acquisition as part of the settlement, which is subject to approval by a judge. (St. Louis Post-Dispatch; June 8, 1999) FIDELITY NATIONAL: Federal Suit Charges Misuse of Escrow Funds -------------------------------------------------------------- Fidelity National Financial Inc., which was hit last month with a class-action lawsuit filed by the state of California, is facing a similar federal suit. Both actions allege that the Irvine title insurer overcharged home buyers for services and illegally kept interest earned on escrow funds. The federal suit was filed Thursday by the San Francisco law firm Lieff, Cabraser, Heimann & Bernstein on behalf of Betty P. Lopez-Jurado, a Fidelity customer in San Francisco who said she lost interest on escrow funds, and others like her. An attorney for Fidelity denied any wrongdoing and said the company hopes to settle the state's lawsuit soon. Fidelity was sued May 19 by state Controller Kathleen Connell. (Los Angeles Times; June 8, 1999) INTEK GLOBAL: Securicor's Acquisition Proposal Draws Complaint -------------------------------------------------------------- Robert J. Shiver, chairman and chief executive officer of Intek Global Corporation (NASDAQ:IGLC), announced the filing of a class action complaint against the Company, Securicor plc and the Board of Directors of Intek Global, seeking injunctive and other relief relating to a proposal by Securicor Communications Limited. Intek Global had announced Securicor's proposal, which provides for a business combination transaction pursuant to which Intek Global would become a wholly owned subsidiary and Intek Global stockholders would receive $ 2.75 in cash per share for Intek Global stock. Intek Global develops, manufactures, distributes and licenses wireless communications technology, products and services for the global wireless communications marketplace. Securicor plc is a major U.K.-based international organization with core businesses in security services, parcel and freight distribution, and fixed and mobile telecommunications. Its telecommunications interests include approximately 40 percent ownership in Cellnet, a U.K. cellular operator which currently has in excess of 2 million subscribers. Securicor's shares are traded on the London Stock Exchange (Symbol: "Securicor") MATSUSHITA ELECTRIC: Shareholder Suit Over MCA Deal Dismissed ------------------------------------------------------------- A Federal appeals court dismissed a shareholder class-action suit yesterday against the Matsushita Electric Industrial Company. The case involved the $6.6 billion purchase of MCA Inc. in 1990 by Matsushita, which made a side deal with Lew Wasserman, then the chairman of MCA. Mr. Wasserman got a tax- free arrangement in which he received preferred stock with an 8.25 percent dividend for his MCA shares; other shareholders received cash payments, which were subject to tax. In 1990 a class-action suit was filed in United States District Court in Los Angeles contending that the arrangement made Mr. Wasserman's shares more valuable than those of the other shareholders. The court dismissed the case, and the shareholders took the suit to the United States Court of Appeals for the Ninth Circuit. While the Federal case was pending, Matsushita settled a related action in Delaware Chancery Court. The appeals court refused to recognize the dismissal even though the United States Supreme Court held that the Delaware judgment was binding. But yesterday the appeals court reversed its position and dismissed the case. Matsushita was represented by Simpson Thacher & Bartlett; Kaufman & Kirby represented the plaintiffs. (The New York Times; June 8, 1999) NATIVE AMERICANS: Interior Dept. Can't Account for Trust Funds -------------------------------------------------------------- The Wall Street Journal (June 7) reported US District Judge Royce Lamberth, "sweeping aside the Federal government's claims that the common law of trusts doesn't apply to a banking system it keeps on behalf of about 300,000 Indians, ordered that a trial on Indian allegations of abuse and mismanagement begin on Thursday." The class-action case "could cost the Treasury hundreds of millions of dollars in loss claims from Indians going back to the 1880s." Lamberth "noted in an opinion that after five years, the Interior Department is still unable to provide five main Indian plaintiffs in the case with an accounting of their money." The records for the five are intermingled with thousands of other records. A special master appointed by the judge reported Monday that the records are sometimes kept in a "haphazard manner." (The Bulletin's Frontrunner; June 8, 1999) PRUDENTIAL INSURANCE: Pays $1 Billion for Churning Policies ----------------------------------------------------------- Prudential Insurance Co. of America has paid about $ 1 billion to 250,000 policyholders in a class-action lawsuit that claimed the company's agents misled customers, a Prudential spokesman said. Prudential has contacted 649,000 claimants with details of the settlement. Prudential in 1997 settled allegations its agents persuaded customers to buy life insurance policies using questionable methods. Claimants charged Prudential agents engaged in a number of questionable sales practices, including "churning," in which agents persuade policyholders to buy new coverage using existing policies to pay for the purchase. (The Detroit News; June 8, 1999) According to the New York Times, about 20 percent of the claimants qualified for the highest level of relief, a full refund with interest, or a paid-up policy. The bulk, 64 percent, are to get partial refunds or adjustments to their policy. Nearly 81,000 claimants, or more than 12 percent, were told they probably will not get anything because they failed to prove that they were misled or that they were victims of the types of abuse the settlement was intended to remedy, Prudential said. The remainder, about 3 percent, bought policies during years not covered by the settlement or products not covered in the deal. The settlement was approved in March 1997 by a Federal judge in Newark, where Prudential is based. The payout could be among the largest ever in class-action litigation. In addition to the class-action compensation, Prudential has paid about $70 million in penalties to the 50 states and Washington, D.C. (The New York Times; June 8, 1999) SAVINGS BANK: Insurer Asks for Ruling to Avoid Distributing Cash ---------------------------------------------------------------- The Boston Globe reports that Savings Bank Life Insurance Co. is asking state regulators to issue a ruling that could mean the company won't have to distribute millions of dollars to its policyholders. Woburn-based SBLI is requesting the ruling from Insurance Commissioner Linda Ruthardt, even while it's entangled in a lawsuit with policyholders who argue the company should distribute $60 million to them because it is excess cash. Jason Adkins, an attorney representing 350,000 to 400,000 policyholders in a class-action suit against the company, said Savings Bank "would like to take the matter out of the hands of the court." Adkins said policyholders are arguing in the suit filed last year in Suffolk Superior Court that the company has too much money socked away from premiums paid in and from returns on its investments. Thomas Maffei, the attorney representing Savings Bank, said the company believes it needs the money - and it wants Ruthardt to rule that way. Insurance Division spokesman Chris Goetcheus said the commissioner was "taking the matter under review." (The Boston Globe; June 8, 1999) SECURITIES LITIGATION: Plaintiff Attys. Take Stock in Defendants ---------------------------------------------------------------- William Lerach and his brethren in the plaintiffs securities bar have long complained about the way public companies are run. They go so far as to charge that financial fraud and chicanery is rampant on Wall Street and in Silicon Valley. That's why it's a little bit funny that these lawyers are heavily invested in the very firms they have sued. Increasingly, instead of taking cash for their fees, class action lawyers are accepting stock as payment. The practice is becoming more popular as targeted companies look for alternatives to simply paying out cash to settle stock fraud suits, and as plaintiffs attorneys try to shed the controversy of appearing to get more out of cases than their clients. More and more, securities frauds suits are settled with a combination of cash and stock, with plaintiffs attorneys receiving the same ratio of cash and stock for their fees as do class members. For instance, if U.S. District Judge Charles Breyer signs off on the $142 million cash and stock settlement recently proposed in the class action against database software maker Informix Corp, the plaintiffs firms led by Milberg Weiss Bershad Hynes & Lerach stand to come away with some $23 million in stock. In Newark, N.J., meanwhile, New York's Kirby, McInerney & Squire and the other plaintiffs firms working the massive fraud suit against real estate giant Cendant Corp. have proposed an all- stock settlement of about $340 million. The lawyers are set to take $34 million worth of stock for their fees if a judge approves that settlement. "We are putting our fees where are mouths are," lead plaintiffs attorney Roger Kirby said in a court filing. The stock deals aren't limited to giant class actions either. In March, Milberg settled a case with San Diego-based Altris Software for $2.5 million in insurance money and $1.7 million in stock. The plaintiffs attorney take on that will be roughly 25 percent, or about $625,000 in cash and $425,000 in stock. The reason more of these deals are getting done, at least as far as one plaintiffs attorney is concerned, is coupon settlements. Coupon settlements, which mostly occur in product defect cases, are constantly coming under fire from a wide variety of critics, including judges, because the plaintiffs end with virtually useless "coupons" that give discounts on future product purchases while their lawyers end up with oodles of cash. Dozens of such cases have gotten attention, with one of the more notorious being the 1997 San Francisco Superior Court computer monitor action in which each class member got a $13 discount on a computer purchase as part of the settlement. The attorneys walked away with $6.1 million in cash. "As a pattern developed with these kinds of settlements, everyone wanted to throw up," New York plaintiffs attorney Howard Sirota said of the plaintiff bar's image. "The coupon cases were at rock bottom." So with critics blasting away and judges increasingly skeptical, plaintiffs attorneys started taking what their clients got. If the class receives half its settlement in cash and half in stock, then the attorneys take the same ratio. It's an arrangement that most ethics experts find palatable. "The class can rest comfortably knowing the lawyers aren't being treated any differently," said Columbia law professor Samuel Isacharoff. Isacharoff, an attorneys fee expert, made some waves last year when he criticized fee agreements contained in the global tobacco settlement. Isacharoff said he sees no conflict, either, in the plaintiffs attorneys taking stock in companies that they have sued. If anything, Isacharoff said, it probably motivates the lawyers to cut the best deal possible for the class. At the same time, the arrangement also appeals to cash-strapped defendants who are looking to get out from under a class action without going into bankruptcy. They'll max out their director and officer insurance policies, which generally pay out $1 million to $2 million, and then try to float some more stock to settle the litigation. In _In re Informix Corp. Securities Litigation_, 97-1289, the company faced tremendous exposure -- one attorney believes as much as $1 billion -- because it acknowledged in 1997 that it had overstated income by nearly $250 million and had to restate earnings reports for a 31/2 year period. A straight cash settlement of the dozens of cases brought against the company would have forced it into bankruptcy -- a prospect that neither side wanted. The $91 million offered in stock allows the company to live -- and perhaps prosper -- another day, and gives alleged victims something more than a coupon. Still, the arrangement has its critics. "You're diluting the interests of current shareholders to compensate the class," said Stanford law professor Joseph Grundfest, former head of the Securities and Exchange Commission. The new stock issued to settle such suits usually comes with a fail-safe proviso that normal stock holders don't get. Last year, for instance, Lieff, Cabraser, Heimann & Bernstein helped settle cases against California Micro Devices for $6 million in cash and $7 million in stock. The class members in _In re California Micro Devices_, 94-2817, and the lawyers receiving the stock, were promised that each California Micro share will be worth at least $11.50. If the stock doesn't reach that price during the next three years, then Cal Micro will have to pay the difference between the average high of its stock and $11.50. Cal Micro has not traded higher than $9 a share since the settlement. It closed at $2 Friday, and it appears likely that the company will have to fork over more cash than it hoped. Should that happen, it would almost certainly drive the stock price down even farther. But attorneys on both sides of the aisle point out that, either way, the companies have to pay. "Cash or stock, it has the same effect on the income statement," said Wilson Sonsini Goodrich & Rosati partner Boris Feldman. "Either way the company has to book it as a hit." Defense attorneys such as Feldman say that settling with stock helps their clients, and that the concerns about dilution are overblown. In the case of Cendant, for example, the settlement would require the company to issue 19 million new shares, or about 2 percent of all its stock. The Cendant settlement proposal comes with another noteworthy twist. Plaintiffs attorneys have proposed not only to take their fees out in stock, but in stock from the unclaimed class fund. Sirota complains that this proposal will discourage lawyers from putting on a serious effort to notify all qualified class members. But lead plaintiffs attorney Kirby points out that any money not claimed by qualified class members would only revert back to Cendant. U.S. District Judge William Walls of Newark has taken the proposed Cendant settlement under submission. (The Recorder; June 8, 1999) UNITED STATES: Court Says Congress Failed to Reserve CBM Deposit ---------------------------------------------------------------- The Supreme Court ruled yesterday that Western landowners own and may sell vast storehouses of methane gas in coal beds under their property. By reversing the 10th U.S. Circuit Court of Appeals, the court lifted a cloud over title to hundreds of billions of dollars in coal-bed methane gas (CBM) deposits. "Congress does not appear to have given consideration to the possibility that CBM gas would one day be a profitable energy source developed on a large scale," Justice Anthony M. Kennedy wrote in a 7-1 decision for gas and oil companies in a class- action case pitting the Amoco Production Co. against the Southern Ute Indian tribe and the federal government. The immediate issue involved $200 million worth of methane in La Plata County, Colo., and affects what the Gas Research Institute estimates is a 250 trillion-cubic-foot storehouse of CBM in New Mexico, Wyoming, Montana, Colorado and Utah worth between $375 billion and $500 billion. "It is a very important decision. It cost a lot of landowners and lessees a great deal of anxiety. Once the court ruled, it was going to affect somebody a lot," said district lawyer L. Poe Leggette of Fulbright & Jaworski, who represents Wyoming gas interests in the case. His clients, two dozen gas producers and 150 landowners, control interests in much of Wyoming's 70 trillion cubic feet of coal-bed methane, which he valued at $50 billion to $100 billion. Justice Kennedy said 1909 and 1910 laws reserving coal rights for the government did not include CBM, which was then viewed solely as a dangerous explosive nuisance known as "firedamp." He rejected the Interior Department's January decision to support the tribe's claim to gas in coal deposits under the reservation. Along with Justice Kennedy, those in the majority were Chief Justice William H. Rehnquist, Justices John Paul Stevens, Sandra Day O'Connor, Antonin Scalia, David H. Souter and Clarence Thomas. Justice Ruth Bader Ginsburg dissented, saying vagueness in the old laws should be resolved for the government. "Ambiguities in land grants are construed in favor of the sovereign," she wrote. Justice Stephen G. Breyer did not participate, apparently because his wife owns stock in BP Amoco. Justice Kennedy pointed out that several bills seeking to reserve gas rights to the government, along with coal rights, failed to pass. He also said Congress passed laws 20 years earlier setting safety standards for handling mine gas, and so was aware of it, if not of its potential as an asset instead of a liability. In another decision, the court rejected claims for overtime pay by 14,122 current and former federal law enforcement officers who sought four years of overtime pay in addition to two years of pay won in a settlement. USAID: Senior Agency Employees Complain of Age Discrimination ------------------------------------------------------------- A group of former senior-level federal employees who worked for the U.S. Agency for International Development will be allowed to show, after a district court ruling, that they were targeted in a reduction in force because of their age. In their class action suit, the plaintiffs, who are all over 40, claim that top management at the USAID, including its administrator, J. Brian Atwood, conducted an RIF with the motive to scale back the number of older foreign service employees and to bring in new, younger employees to eventually take their place. The USAID had moved for summary judgement, but a district court in Washington, D.C., found that the plaintiffs submitted evidence from which a jury could "reasonably" find that the RIF disadvantaged older workers in favor of younger employees. In September 1996, the USAID terminated 91 employees as the culmination of an RIF effort. The plaintiffs, 37 of the terminated employees, filed suit in district court. With one exception, the RIF affected only employees over 40. The USAID asserted that the RIF took place because of budget cuts expected in 1996 and 1997. The agency needed to reduce the number of direct hire employees by at least 320. Foreign service officers at the senior levels were targeted not because they were older, but because the agency had a high concentration of them. In one part of their claim, the plaintiffs attempted to show that the RIF had a "disparate impact" on older workers. Under the disparate impact theory, an employer can be liable for discrimination if it has a policy or practice that adversely affects a particular group of people. But the court ruled that older workers are exempted, citing a decision from the U.S. Supreme Court. In Hazen Paper Co. v. Biggins, the high court held that when an employer acts on the basis of a factor empirically correlated with age, such as pension status or seniority, the employer is not guilty of discrimination. In further support for its decision, the district court noted that other courts have ruled against disparate impact claims alleged under the Age Discrimination in Employment Act after finding that they are not supported by statutory language or by policy considerations. Nonetheless, the court still found reason to believe that the plaintiffs were targeted in the RIF. They presented several comments from Atwood that reflected his intention to replace older employees. Specifically, Atwood told The Washington Post that he planned to "move out" 50 senior foreign service officers to fill their slot with "younger people." Also, Atwood testified before Congress that the USAID needed "young blood." The plaintiffs also submitted the testimony of Dennis Chandler, a former USAID foreign service officer who had reached the position of deputy assistant administrator for the Near East - the most senior career position in the bureau. Chandler was among 50 senior foreign service officials terminated in 1993 when the agency decided not to grant him a "limited career extension." Chandler stated that Atwood called him in for a one-on-one conversation at the time of the dismissals. During the conversation, Atwood allegedly said the USAID would "have to make room for young people." The plaintiffs also pointed to the statements of key USAID officials as an indication of their "obsession" with the desire to attract younger employees for the International Development Intern Program. The USAID denied Chandler's allegations. The agency also argued that Atwood's testimony to Congress and the comments about the IDI program did not relate to the RIF decision itself. But the court found that Atwood's statements to Chandler, "if true, reflect an intent to replace older USAID employees with much younger workers." The court also found that Atwood's comments may have had a "trickle down" impact on the agency's culture. The "evidence, when considered as a whole, could lead a reasonable jury to conclude that USAID top management, including defendant Atwood, had a concern about the older age of much of its foreign service staff, as well as an interest in replacing these workers with new, younger employees," the court said. (Federal Human Resources Week; May 31, 1999) VOLUSIA COUNTY: Unionized Officers Object to Missing Holiday Pay ---------------------------------------------------------------- Corrections officers at Volusia County Branch Jail and Volusia County Correctional Institution in Florida intend to file a second class-action lawsuit over working conditions. A total of 70 officers said the county owes them about 2,500 each for shortchanging their holiday pay for more than three years. Nearly 90 percent of Volusia County corrections officers voted to join the International Brotherhood of Teamsters Local-385 three days before the announcement. (Corrections Professional; June 4, 1999) WALT DISNEY: Feather Fly in Battle Over Mighty Ducks' Bucks ----------------------------------------------------------- To most people, the Mighty Ducks conjures up images of a commercially successful trilogy of Disney movies about a rag-tag bunch of hockey-playing kids that spawned a real-life NHL hockey club owned by the mouse-eared studio. But, according to a story in The Recorder, the feel-good films and their genuine ice- skating progeny have also spawned a frosty lawsuit that's come to be known in entertainment law circles as "the mighty bucks." And that's precisely what screenwriter Steven Brill -- along with a number of his Hollywood colleagues -- is hoping to get out of it. Brill, who wrote the original _Mighty Ducks_ film and two sequels, has aimed a legal hockey puck right at Disney's padded pocketbook. At the moment, depositions are being taken in Brill's Los Angeles federal suit, which claims Disney profited immensely from his labors without sharing any of the profits. In particular, Brill alleges that the studio owes him 5 percent of revenues from the NHL Ducks' merchandise sales, box office receipts and TV broadcasting rights, which all adds up to one heckuva hat trick. Disney, for example, has already reaped an estimated $1 billion in team-related profits. And according to Brill's complaint, _Brill v. Walt Disney Pictures_, 98-10083, Mighty Ducks key chains, T-shirts and other trinkets have consistently out- sold the combined merchandise offered by all other NHL teams. Question is, can Brill break some new legal ice in behalf of screenwriters, who have long claimed they've been routinely cheated out of profits from movie-related theme parks and other cash-generating endeavors derived from their big-screen scripts? "In the Disney world, life imitates art. And Steven Brill created the art," says Pierce O'Donnell, a partner at L.A.'s O'Donnell & Shaeffer who represents the screenwriter. Others around town think the lawyer and his client are onto something. "I think Brill's going to win something, and I think it's going to be something big," predicts Jay Cooper, an entertainment partner at Manatt, Phelps & Phillips. Though it was filed in federal court in December, the Ducks case has attracted renewed attention of late because of parallels to ex-Disney executive Jeffrey Katzenberg's ongoing case against the studio. Katzenberg, of course, is seeking more than $500 million worth of unpaid bonuses and other profits he claims to have helped generate before leaving Disney in 1996. Cooper and others see the Mighty Ducks case as an offshoot of the Katzenberg dispute in that both represent claims against Disney for downstream profits. Katzenberg, it's worth mentioning, is also seeking a share of merchandising and other profits from films he had a hand in producing -- including _The Mighty Ducks_. Unlike Katzenberg, however, Brill's case is governed by the basic Writers Guild contract, which provides that screenwriters are entitled to 5 percent of the "absolute gross that the studio receives from exploiting unique objects and things." Which means the outcome of Brill's suit could well hinge on the definition of a "thing." In Hollywood, of course, the money's always the thing, which nobody knows better than Disney. In his autobiography, _Work in Progress_, Disney chief Michael Eisner acknowledged that the studio decided to name its NHL team the Mighty Ducks because doing so "gave us instant national awareness and an opportunity to cross-promote with our _Mighty Ducks_ movie franchise." And at a press conference held to announce the formation of the team, Eisner surrounded himself with actors from the movie and led everyone in a "team quack," which came straight out of the flick. The Brill case will be decided by U.S. District Judge Edward Rafeedie, who has presided over a recent spate of key studio cases, among them the battle between Sony and MGM over the rights to the James Bond film franchise. O'Donnell represented MGM in that case. Brill originally sued Disney over the Ducks in 1995 in state court. Disney removed the case to federal court where, in April, the studio lost a motion to dismiss. Meanwhile, the case has captured the interest of other lawyers who represent screenwriters. There's even been talk of a possible merchandise- related class action against the studios. Disney, is keeping its bill shut, as are its outside counsel at Mitchell, Silberberg & Knupp. The firm has formed a team of its own to handle the case: entertainment department head William Cole and litigator Daniel Petrocelli, who scored plenty of goals while representing Fred Goldman and his family in their civil suit against O.J. Simpson. It is a curious and potentially effective combo -- the respected but Clark Kent-ish Cole alongside the bombastic (some might say slick) Petrocelli. The legal ego factor is equally matched on Brill's side. O'Donnell has captured more than his share of media attention since his successful net-profits case against Paramount over Art Buchwald's stake in _Coming to America_. Still, when it comes to Disney-related litigation, mum is almost always the word. Several top-flight L.A. entertainment lawyers who represent Disney on other matters firmly declined comment on the Mighty Ducks matchup. After being reminded that Disney was a defendant in the case, one attorney took the usual no-comment response a step further: "Oh my god, we didn't even have this conversation." (The Recorder; June 8, 1999) ********* 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 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. 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