/raid1/www/Hosts/bankrupt/CAR_Public/990615.MBX              C L A S S   A C T I O N   R E P O R T E R

               Tuesday, June 15, 1999, Vol. 1, No. 93


* S. 353: Debate Continues Over Fees, Jurisdiction & Fairness
AUSTRALIAN IMMIGRATION: Minister Angry at Queue Jumpers' Delays
HITSGALORE.COM: Pomerantz Haudek Files Complaint in California
ISKCON: May Confront Additional Accusations of Child Abuse
ROYALTY-FREE PHOTOS: Models Unwilling to Share Memories

SELECT COMFORT: Berman DeValerio Files Complaint in Minnesota
SILICON VALLEY: It's "Fat City" for Unpaid Overtime Claims
SPRINT: Settlement Prompts Free Network Upgrade for Customers
TOBACCO LITIGATION: Supreme Ct. Won't Revive PA Smokers Suit
VICTORIAN ORPHANAGES: Wards Down Under Charge Violence and Abuse

WINDMERE-DURABLE: Judge Holds Auction to Choose Class Counsel
WYETH-AYERST: Confidential Settlement Reached in California


* S. 353: Debate Continues Over Fees, Jurisdiction & Fairness
The latest version of a federal class action reform bill has met
the usual reviews: Corporations and defense lawyers liked it,
the U.S. Justice Department and Public Citizen Litigation Group

Senate Bill 353, introduced Feb. 3, would:

* Make it far easier than now to remove a class action to
  federal court.

* Require that attorneys general be notified about class

* Extend the waiting period for settlement hearings.

* Require plain-English class notifications.

* Mandate opt-outs.

* Restrict class counsel attorney fees to a percentage or
  reasonable hourly rate.

* Require imposition of Rule 11 sanctions in all federal civil

At a hearing before the Administrative Oversight and the Courts
Subcommittee of the Senate Judiciary Committee, Sen. Chuck
Grassley, R-Iowa, said he co-sponsored the bill because class
actions are being abused to benefit lawyers through big fees at
the expense of class members. Grassley cited class settlements
in which members got coupons of little value while class counsel
got "millions" in fees.

Grassley said the bill also responds to the increasing use of
state courts for fast certification of class actions. He spoke
of lawyers "gaming" the system to avoid removal to federal
court. State attorneys general should be notified of proposed
settlements, Grassley said, so they can object to unfair ones.
Mandatory Rule 11 sanctions, he said, are needed to penalize
frivolous class actions. Grassley said the bill would discourage
exorbitant attorney fees by requiring them to be based on a
reasonable percentage of actual damages paid to class members or
hourly rates. He said the provision is similar to that used in
securities litigation.

Federal courts, Grassley said, "consistently give closer
scrutiny to class settlements and to whether it is fair for a
case to proceed as a class action." He said federal courts are
better equipped to deal with multistate issues, to consolidate
related cases and to "prevent a race to settlement between
competing cases."

Many class actions certified by state court "do not meet the
basic, generally accepted class action requirements," said
Stephen G. Morrison of Nelson, Mullins, Riley & Scarborough in
Columbia, S.C., general counsel for Policy Management Systems
Corp., chairman of Lawyers for Civil Justice and former
president of the Defense Research Institute. He said state
courts are less likely than federal courts to exercise rigorous
case management to ensure due process. "Having discovered an
open door in state courts, plaintiffs' counsel are filing class
action lawsuits that they would never have seriously considered
bringing a few years ago," he said.

Morrison said many class members are "forgotten participants" in
class actions, not being asked if they want their claims
asserted or litigated or how they want them settled.

Defendants in state class actions are being denied due process
by not being able to object to certifications, Morrison said,
referring to so-called "drive-by class certifications" cited in
a previous hearing on a class action bill. Some class counsel,
he said, take advantage of delayed service rules to get around
the one-year federal removal deadline, or wait until the
deadline has passed before amending complaints to include
federal claims.

The U.S. Justice Department "strongly opposes" the bill on
constitutional and policy grounds, Assistant U.S. Attorney
General Eleanor Acheson told the subcommittee.

"We do not believe that the case has been made that there are
abuses intrinsic in state court class actions that justify the
wholesale removal of these cases from state courts," Acheson

She said concerns have been raised about class actions from both
state and federal courts and said anecdotes about state cases
"seem to reflect problems with individual judges or particular
locales rather than systemic problems in states' handling of
class actions. Unless the claimed abuses of class actions are
peculiarly a state court or state law problem, federalization
would not address the problems."

"We should await evidence of clear necessity before the federal
government interferes with the authority of states to set their
own law and procedures in their courts," Acheson said, "and that
evidence should demonstrate that the states have broadly
overreached or are unable to address the problems themselves."

The notification of attorneys general would be unnecessary and
unduly burdensome to all parties, Acheson said.

The bill's 120-day waiting period before certifying a state or
federal class, Acheson said, could be challenged as an
impermissible challenge of state rights. In addition, she said
the bill's provision for giving all 50 state attorney generals
the names of state class members would preclude expedited
settlements even when all parties agree to terms.

Acheson said it is not clear why class counsel would be subject
to different fee rules than counsel in other cases. Why, she
asked, would Title VII actions involving federal employees have
different attorney fee rules than other Title VII claims? Court
have recognized, she continued, that some civil rights cases
seek equitable rather than monetary relief. Reasonable lodestar
calculation of fees, she said, is often the beginning rather
than the end of fee calculations in Title VII cases.

"Multipliers are available for particularly complicated cases or
for experienced plaintiffs' counsel," Acheson said. "The
interests of both plaintiffs, the courts and even defendants are
best served by not discouraging experienced and knowledgeable
counsel from taking on these cases."

Acheson said the bill's exceptions for removal are likely to
apply to few cases because many defendants are corporations with
diverse citizenship. Because of that, "the effect of this
statute wold be to grant defendants the option of state or
federal court in almost all state class actions." And since
cases not certified by federal courts would be stripped of class
allegations, "the bill would effectively federalize class action
standards," she said. Even if the remanded cases are amended to
include class claims, she said they could be removed again.

If state courts are "too ready to certify class actions,"
Acheson said those policy issues should be addressed by state
courts and legislatures.

Brian Wolfman of Public Citizen Litigation Group said that while
his group works to improve the class action process, Senate Bill
353 would not further that goal. The bill "is an unwise and ill-
considered incursion by the federal government on the
jurisdiction of the state courts. It works a radical
transformation of judicial authority between the state and
federal judiciaries that is not justified by any alleged
'crisis' in state court class action litigation," he said.

As a practical matter, Wolfman said the bill would end most
state court involvement in class action. He said the bill's
exceptions are meaningless, making it "little more than a
'Corporate Defendant Choice of Forum Act' since it allows the
corporate defendants - not the plaintiffs - to select the court
system it prefers.

"The bill is a resounding vote of 'no confidence' in our state
courts," he said. "It is premised on a deep - and misplaced -
distrust in state courts' ability to uphold the law."

Rather than promoting efficiency, Wolfman said the bill would
create a roadblock by overburdening the federal judiciary at a
time of many vacancies. (Mealey's Litigation Report: Asbestos;
May 21, 1999)

AUSTRALIAN IMMIGRATION: Minister Angry at Queue Jumpers' Delays
From Canberra, AAP reports that Immigration Minister Philip
Ruddock said money-hungry lawyers were abusing the immigration
system by launching speculative class actions on behalf of
people trying to gain Australian residency. Mr Ruddock has
passed on information about the actions of one law firm to the
Law Society for investigation.

"When you think about the amounts of money that have been
involved in the class actions that have been brought there is in
my view, quite inappropriate behavior on the part of the legal
profession to see this as a growth area for legal practice," Mr
Ruddock told ABC radio. Lawyers were misrepresenting the chances
of success in such class actions, he said. "Quite clearly all of
the matters which have been pursued before the courts to date
have failed," he said. "I think they're highly speculative and
the vulnerability of the people involved leads to them being

Mr Ruddock said the fact that queue jumpers could delay their
departure from Australia by months or even years through such
court processes showed that the system was flawed. "I think in
relation to these matters the very appropriateness of class
actions for remedies in this area is something the government is
also going to have to look at," he said.

There was also evidence that Australians had been involved in
the foiled attempt to illegally ship 2,000 Somalis to Australia,
he said. "This is a situation in which you have a deliberate
attempt to engage for profit," he said. "People were going to be
charged $2,300 and 2,000 people paying that money gives a very
large amount of money."

"They intended that all of them would come to Australia and
there were Australian connections. I believe there was an
Australian over there, involved in the putting together of the

"And I understand from the information that we have received
that that also included them obtaining legal advice in relation
to the matter."

The government has legislation before parliament which seeks to
restrict judicial appeal of refugee decisions. Labor and the
Australian Democrats have said they will oppose the Judicial
Review Bill in the Senate because among other reasons, they say
it is unconstitutional. (AAP NEWSFEED; June 14, 1999)

HITSGALORE.COM: Pomerantz Haudek Files Complaint in California
Pomerantz Haudek Block Grossman & Gross LLP filed a class action
lawsuit in United States District Court for the Central District
of California, Western Division, against Hitsgalore.com, Inc.
(OTC Bulletin Board: HITT) for securities fraud on behalf of all
investors who acquired the Company's common stock during the
period February 17, 1999 through May 27, 1999.

The Complaint alleges that Hitsgalore and certain of its
officers and directors violated Sections 10(b) and/or 20(a) of
the Securities Exchange Act of 1934 as well as Rule 10b-5
promulgated thereunder by engaging in a scheme to defraud
investors by disseminating false and misleading information
about the Company's management and business condition. This
false and misleading information served to artificially inflate
the price of the Company's securities.

On May 11, 1999 it was disclosed that the Company's founder,
Dorian Reed, along with two other individuals, had been ordered
by a federal judge to pay $613,110 to 100 customers for "false
claims made by Internet Business Broadcasting, a failed online
advertising company they worked for." This disclosure caused the
market price of Hitsgalore.com to plummet over 50 percent in a
single day. Subsequently, the Company has announced that Dorian
Reed served 10 months in a federal prison for wire fraud in
1992. In addition, it has been discovered that the Company's
head of investor relations, Frank Pinizzito, also has a history
of investor fraud. All told, the full disclosure of the
Company's fraud has caused the stock to lose a staggering 75
percent from its pre-revelation price.

To learn more, contact Mildred C. Frazzitta, Esq. or Julian P.
Carr at 888-476-6529 or mcfrazzitta@pomlaw.com via email.

ISKCON: May Confront Additional Accusations of Child Abuse
The Toronto Sun reports that things seemed a little tense at the
Hare Krishna temple there. Word was just out that a big lawsuit
was coming down the pike, a class-action lawsuit that would put
ISKCON, the International Society for Krishna Consciousness, on
the hotseat once again. This time for alleged sexual and
physical abuse of children in their residential schools going
back 20 years -- "and even today," says the Dallas lawyer
preparing the case to be filed in the next couple of weeks.

Although the Toronto temple is unlikely to play much of a role
in the case, fuses were short when reporter JEAN SONMOR tried to
get information. Bhaktimarga, the spiritual leader who has run
the temple for 26 years, was away, but Keshava, the spokesman,
explained that they were ready for "these articles ... You
better not make any mistakes," he told JEAN SONMOR. "We have our
lawyers ready. I'll sue you."

It seemed a little extreme; the reporter was simply asking about
the school they'd run in the temple. "We never had a school," he
insisted. When the reporter persisted that they had not only had
a school but in 1981 had visited it and written a story about
it, he started talking wildly about lawsuits and counterstories.

Gradually through the 1990s, stories have begun to emerge about
the humiliations and abuse some children suffered. Anonymously
on Web sites like VOICE (Violations of ISKCON Children Exposed)
or in very public fashion -- when 10 former students confronted
the movement's leadership. According to a New York Times report,
they complained of being caned, denied medical attention and
sexually molested -- even raped at knifepoint.

The society commissioned a Middlebury College sociology
professor, E. Burke Rochford Jr., to report on the allegations.
The harshly critical report said it was impossible to quantify
the abuse but that a "sizeable number" of the hundreds of
children in the system had been abused, especially adolescent
boys sent to India for schooling.

But in an age where many religions and institutions are
struggling with how to react to similarly ugly stories, ISKCON
has taken the bold step of publishing Rochford's report in its
official journal.

"We're still shocked out of our minds that this went on," says
Padya Vali, Vancouver-based communications director for ISKCON
in Canada. She also ran a school in Seattle for 45 children and
claims they never had a single case of abuse.

"We weren't looking for it," she says. "Our philosophy is simple
living and high thinking ... We could be accused of naivete --
thinking we would escape this worldwide problem ... We didn't
know that some pedophiles had come into our system disguised as

The naivete continues. Vali says she's not too worried about the
lawsuit. "We're not turning a blind eye to the problem," she
explains. They've responded to the complaints by putting in a
number of checks and balances to codify their new "zero
tolerance" policy. They've pledged to spend $ 250,000 a year for
the next four years on their Child Protection Office, helping
victims and charging perpetrators. When the courts look closely
at how proactively they've gone after the problem, Vali believes
they will have significantly mitigated their damages.

But it's hardly likely the victims will agree. After all, they
sought out Dallas attorney Windle Turley, who won a $120-million
lawsuit against the Catholic church recently. (The Toronto Sun;
June 14, 1999)

ROYALTY-FREE PHOTOS: Models Unwilling to Share Memories
Eight years after Keith Simon, Victoria Newell-Simon and their
10-month-old daughter McKenzie posed in a San Diego park for a
family photograph, the image began showing up in the strangest,
and most public, of places: In a handout touting Rogaine and the
drug's hair-growing capabilities; In a San Diego Yellow Pages ad
for marriage, drug and alcohol counseling; On a Christian
Coalition calendar; and On a billboard in Bakersfield.

The Simons were appalled. It turned out their photo had been
included -- without their permission -- on a CD-ROM of so-called
"royalty-free" images used mainly for advertising. As a result,
their family scene in the park, which was supposed to be a
memento of McKenzie's childhood, had made its way into at least
10 percent of the households in the United States in uses that
the Simons say were embarrassing and humiliating. The Simons
were victims of what one company calls the royalty-free photo
industry's "dirty little secret."

What happened to them, said attorney Paul J. Wright, "could
happen to anyone." Wright represented Jaydee Locke, a part-time
model whose pose with a tennis racket at the Olympic Resort
Hotel & Spa in Carlsbad appeared without her permission on the
same disk as the Simons' photo.

Over the last decade, digital technology has made photos cheap
and available to almost anyone for almost any use. But the
digital revolution that spawned royalty-free photos on CD- ROMs
and the Internet also has spawned a wave of lawsuits, including
at least three in San Diego County:

* Locke settled last year with PhotoDisc, a subsidiary of Getty
Images Inc. based in Seattle, for $175,000. Her image had been
used to sell a weight-loss formula, breast implants and a
singles dating service, among other things.

* In an ongoing suit, San Diegan Karla Lyon alleges that Corel
Corp. included on a CD-ROM a photograph of her high dive into a
sparkling blue pool without her permission. The image ended up
in a promotion for a health and fitness exposition.

* Three Modesto police officers joined Lyon in her class-action
suit against Corel. They allege that the company did not get
permission to use eight photos of them in SWAT uniforms. Some of
the photos appeared in Guns Magazine and were used to promote
military and police gear in a BlackHawk Industries catalog.

But it was PhotoDisc's settlement in November with the Simons --
for $1.5 million -- that sounded what some say was a wake-up
call for the industry. "Something like that always raises
everybody's attention and gets them quivering," said Rick
Groman, president of one of the companies sued by the Simons.

Groman's Seattle company, West Stock, provided the Simons' image
to PhotoDisc for use on the CD-ROM. West Stock and two other
companies are still involved in what Groman calls a "rat's nest
of litigation" resulting from the Simons' case.

In 1989, when one of the owners of Zephyr Pictures, a
photography and stock photo firm in Solana Beach, snapped a
photo of the Simons sitting on the grass outdoors, they say they
had no inkling that the shot would someday be seen by millions
of people. Neither the Simons, PhotoDisc nor Zephyr Pictures
will talk publicly about the case. But the saga of the Simon
family photo is told in county court records. The Simons got
their portrait taken as payment from Zephyr for a one-time
modeling job Victoria Newell-Simon had done as a favor for a
friend. In 1995, the Simons moved from La Mesa to Albuquerque.

Two years later, a friend from Brawley called. She was one of
2.5 million people who had received a Rogaine ad distributed by
Costco warehouse stores that used the Simons' picture. Friends
began reporting sightings of the family's photograph all over
the country, from a billboard for Good Samaritan Hospital in
Bakersfield to a promotion for The San Diego Union-Tribune's
Possibilities personal ads. NurseWeek magazine used the picture
to illustrate a story about critically ill children. Macy's
department store used it in a magazine to sell picture frames.
One of Keith Simon's co-workers at his landscape architecture
firm recognized the Simons as the "June family" on a Christian
Coalition calendar hanging in a beauty salon.

Keith Simon went to his mailbox one day, only to see his family
being used to plug Quicken Family Lawyer software. His household
was among the 9 million that received that ad, according to
court records. "Unpleasant" and "horrible" is how the Simons
describe the ways their photo was used. Victoria Newell-Simon
said she was appalled to be associated with the Christian
Coalition, whose political beliefs she disagrees with. Keith
Simon was upset about the Rogaine ad. "Friends of mine that saw
this ad probably think I used Rogaine to `hide' my hair loss,"
he said in court documents.

The Simon case provides a glimpse into the emerging digital
photo industry. As the Simons learned, Zephyr Pictures in Solana
Beach had provided the family's photo to West Stock, which in
turn provided it to PhotoDisc. By the Simons' estimate,
PhotoDisc was taking in $50,000 a month from sales of the CD-ROM
that contained their image. Zephyr and West Stock were getting a
share of that.

The Simons accused all three companies of fraud and negligence.

In the photography business, people pictured in a photo used for
commercial purposes are supposed to sign a model release
authorizing that use. Henry Scanlon, chairman of Comstock, a New
York stock-photo firm that was not involved in the Simon case,
said he is a stickler about releases. He said he has long given
this advice to photographers who sell someone's photo for
commercial use without permission: "Wear athletic socks when you
go to court. That way, when the judge holds you by your ankles
to shake out every last dime, your ankles won't get chafed."

But the royalty-free photo industry's "dirty little secret,"
according to Comstock, is that some companies that obtain photos
aren't careful about getting permission for using them. "They
know that if there is a problem with the model release -- they,
the agency -- are not going to be first in line at the judge's
bench. You are," Comstock warns users of such photos on its Web

In the Simons' case, a model release was attached to their
photo, but their lawsuit describes it as an obvious forgery. It
bore someone else's name, and the words "and family" had been
added in a second handwriting. According to the lawsuit,
PhotoDisc never bothered to check the validity of the model
release before putting the family's photo on the CD-ROM. Zephyr
owner Melanie Carr, who took the Simons' photo, is quoted in
court papers as saying it was "an accident" that their picture
ended up in a file of stock photos sold for advertising
purposes. But according to court records, the Simons' photo
wasn't the only one Zephyr provided for the PhotoDisc CD-ROM
that didn't have a valid model release.

"Apparently, things were a real nightmare in Seattle, and there
were a lot of bad images," Robert Ottilie, the Simon's attorney,
said in court papers. In fact, he said, the problem became so
bad that PhotoDisc and West Stock entered into an agreement to
verify all of the model releases for thousands of photos on 33
CD-ROMs. Of the 408 photos on the "People and Lifestyles,"
volume 2, CD- ROM, PhotoDisc removed 11 when the disk was
remastered. Photos of the Simon family and Jaydee Locke were
among them. The others included a photo, taken by Zephyr, of an
unidentified couple in Yosemite.

Stopping distribution of a photo is one thing. Stopping its use
is another. PhotoDisc sold 12,633 CD-ROMs containing the Simons'
photo. Not all of the purchasers of the disk could be
identified, much less the uses. Eleven users of the photo,
including the Union-Tribune, were dragged into the lawsuit as
defendants along with the photo companies. When more users were
discovered, the Simons filed a second suit naming them. "This
could go on forever," the Simons' attorney wrote in court
papers. "The Simons will be finding end users as long as they
are alive."

The end users portrayed themselves as victims. They said they
relied on PhotoDisc's guarantee that the images could be used
for almost anything that wasn't pornographic or defamatory. "The
word `innocent' gets thrown around in lawsuits, but here it's
really true," said Costco attorney Patrick Callans. PhotoDisc's
$1.5 million payment to the Simons got the end users off the
hook. PhotoDisc also appeased the Simons, who now live in
Denver, by agreeing to spend $400,000 to tackle the nearly
impossible task of getting their photo off the market.

The company sent letters to its customers offering to replace
the CD-ROM. PhotoDisc even published an ad in USA Today
apologizing to the Simons and acknowledging that their photo did
not have a valid model release. "PhotoDisc was very aggressive
in resolving the problem for the Simons and in taking every
conceivable step to make sure their image would never be
utilized in the future," said Ottilie, the Simon's attorney.

But PhotoDisc's legal wrangling in San Diego Superior Court
continues as it tries to recoup some of the money it paid to the
Simons from West Stock, Zephyr and their insurance companies.
The settlement provided a harsh lesson for the digital photo
industry. "The chickens have come home to roost," said Les
Riess, president of the American Society of Media Photographers.
He condemns the royalty-free photo business as "morally and
ethically bankrupt."

But Groman, West Stock's president, defends the industry,
pointing out that although millions of royalty-free photos are
in circulation, cases such as the Simons' occur "on a percentage
basis that's tiny, tiny, tiny." Nonetheless, the Simons' case
prompted changes, Groman said. "People that were not being
careful are now being careful about obtaining the proper release
forms from models in photographs," he said. "People who were
being careful have redoubled their efforts." (San Diego Union
And Tribune; 06/13/99)

SELECT COMFORT: Berman DeValerio Files Complaint in Minnesota
Berman, DeValerio & Pease LLP, filed a class action lawsuit
against Select Comfort Corp. (Nasdaq: AIRB) in the United States
District Court for the District of Minnesota on June 11, 1999.
The lawsuit, which seeks class action status, is brought for
violations of sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 on behalf of all persons who purchased the
common stock of Select Comfort, Corp. during the period January
25, 1999 through June 7, 1999.

"The action charges that Select Comfort concealed from investors
that its sole source of consumer financing put in place much
stricter credit standards which had, and would continue to,
significantly curtail Select Comfort's revenues and earnings"
said Jeffrey C. Block, one of the partners at Berman, DeValerio
& Pease. According to the lawsuit, more than 50% of Select
Comfort's revenues are derived from consumer credit transactions
with this one source of consumer financing and the added credit
restrictions would severely cut revenues and earnings. Select
Comfort's common stock price plummeted 43% in reaction to the
disclosure of its poor 1999 second quarter results due, in part,
to the new tightened credit restrictions, falling from $13 1/8
per share to $7 17/16 per share after the information was fully
disclosed to the market.

For more information, contact Jennifer L. Finger, Esq. or
Jeffrey C. Block, Esq. at bdplaw@bermanesq.com or 800-516-9926.

SILICON VALLEY: It's "Fat City" for Unpaid Overtime Claims
For nearly 15 years, Jane was a model employee at a large
publicly held technology company in Silicon Valley. She got to
the office on time, worked diligently on every project she was
assigned and put in time off the clock to read training manuals.
Her company rewarded her efforts. Jane, who asked not to be
identified because she fears reprisals from her former employer,
received six promotions during her tenure and 10 percent pay
raises each year. Then, in 1989, she was moved into an
administrative position of such weighty responsibility that the
company claimed she was now exempt from overtime pay.

Among her duties: picking up customers at the airport, arranging
for hotel accommodations, scheduling technicians for training
classes and dropping off packages to Federal Express. Jane, who
suspected her job didn't meet California's legal requirements
for an exempt employee, kept track of the extra hours she worked
for no pay, on average 18 to 25 hours a week. "When you are
giving your best effort and feel that you are not being treated
fairly, you have to educate yourself," Jane said.

In 1997, after leaving her job, Jane enlisted the help of the
state labor commissioner to collect back overtime wages from her
employer. A three-year statute of limitations prevented Jane
from collecting all that she believed she was owed. And Jane
didn't want a protracted court battle. So she settled with her
former employer for $25,000, half of the overtime pay to which
the state Labor Commissioner believed she was entitled. "I was
not the first overtime case this company lost, and I certainly
won't be the last," Jane said.

Jane's case sheds light on a little-known but disturbing trend
in the high-tech industry -- one that state labor officials are
mounting a campaign to stamp out. Miles Locker, the chief legal
counsel to the state labor commissioner, said the number of
wage-and-hour claims involving high-tech companies in the San
Jose office of the state Division of Labor Standards Enforcement
shot up during the recession in the early 1990s and has averaged
about 20 percent a year ever since.

The Labor Standards Enforcement Division has case files filled
with stories of companies that don't pay their workers overtime,
sales commissions and benefits. Some companies don't pay their
workers at all, instead granting them stock options that become
worthless when the firms go out of business. What is so alarming
is that these are the types of claims more commonly filed by
farm or garment workers, Locker said. In the industry, high-tech
companies are known in a half-joking way as white-collar
sweatshops. But the unsettling truth is that companies can --
and do -- save hundreds of thousands of dollars in unpaid wages.

Many industry lawyers, executives and workers believe the
problem is that labor laws don't reflect the working reality of
Silicon Valley, a modern-day Gold Rush that capitalizes on the
American enthusiasm for risk and speculation -- the same kind of
enthusiasm that gave birth to nearly every industry in the
nation's history.

Whether they are joining an Internet start-up or a more mature,
public company, high-tech workers say they like the social
contract they have established with their employers. They may
slave at an inhuman pace and sacrifice their personal lives, but
they have the opportunity to make a lot of money, are showered
with perks and may just be the lucky winners of the stock-
options sweepstakes.

But the threat of a government crackdown has executives and
lawyers reaching for their bottle of antacid. That's because the
threat holds more water than it would have just five months ago.

After years of anti-labor sentiment, department cutbacks and
staffing shortages, the state has a more labor-friendly
political administration and a new labor commissioner, Marcy
Saunders, a former flight attendant and house painter who rose
to head the San Mateo Building Trades Council. In Sacramento,
labor unions are no longer political outcasts and are making
inroads in the Legislature to reshape laws that affect working

"Employers in the past felt like they could skate," Locker said.
"Those days are over. Every industry in California is expected
to play by the same rules. There will be no special treatment
for the technology industry." Beefing up enforcement

To that end, the Labor Standards Enforcement Division plans to
beef up its enforcement ranks. In the new state budget, Locker
hopes to get approval to hire four more attorneys for a total of
23 statewide. He also hopes the division will add more
investigators. The state has 140, only 22 of whom work out of
the Bay Area.

Employment lawyers say Locker isn't the only one taking a harder
look at the industry's lax compliance with labor laws. A growing
number of class-action plaintiffs lawyers are ready to pounce.

"They see Silicon Valley as fat city for these kinds of claims,"
said one employment lawyer.

Locker views these lawyers quite differently -- as an extended
arm of his division to help enforce wage-and-hour laws. "The
reality is that there are more private attorneys out there than
there are of us," Locker said. "We are very dependent on the
private bar pulling its weight to enforce the law, too. It's a
joint effort."

Those are ominous words to lawyers who represent start-ups and
mature companies. They fear it's only a matter of time before
their clients awaken "a sleeping giant."

With good reason. Failure to pay overtime is one of the leading
causes of labor claims against employers, said Ethan A. Winning
of E.A. Winning Associates, a Walnut Creek-based employee
relations consulting firm. He should know. For 22 years, he has
helped local companies tackle employment problems.

Today, about 50 percent of his practice involves the high-tech
industry. "I'm an employer advocate, but too many of these high-
tech companies are taking advantage of their employees and
loopholes in the system," Winning said.

Unlawful employment practices are even more common in start-ups.
Russ Elmer, an employment attorney with Gray Cary Ware &
Freidenrich, says the statistics from his Palo Alto practice are
far more sobering than government figures: Ninety percent of
companies that have 10 or fewer employees and that seek out his
advice are engaged in at least one illegal practice. And those
are the ones who are smart enough to hire an employment lawyer.

"A lot of start-ups have very inexperienced management, which
leads to all kinds of different problems, inconsistent policies
and illegal practices," Elmer said.

This is one area where entrepreneurs cannot afford to take
risks, Winning said. "I don't care if you're the next Einstein,
if you're running a business, you had better know the labor
code," he said.

The Fair Labor Standards Act, a federal law passed in 1938 to
encourage hiring during the Great Depression and guard against
exploitation of adult and child laborers, regulates overtime.
California also has its own regulations: 15 Industrial Welfare
Commission wage orders. Every company is covered by a wage

In California, non-exempt workers must be paid overtime if they
work more than 40 hours a week. Exempt employees can be asked to
work as many hours as needed without overtime pay. Someone can
have a grandiose-sounding title but it's the substance of that
person's job duties that makes the difference.

Under state and federal law, exempt workers fall into three
categories: executives, administrative employees and
professionals. All three must meet one of the following
classifications: The employee performs work that is primarily
intellectual, managerial or creative that also requires him or
her to exercise discretion and independent judgment, and he or
she is paid a salary of at least $1,150 a month; The employee is
licensed or certified by the state and belongs to one of the
following professions: law, medicine, dentistry, pharmacy,
optometry, architecture, engineering, teaching or accounting, or
has a job in a learned or artistic profession.

While many companies have trouble classifying workers, when it
comes to computer professionals, "that difficulty seems to be
compounded," Winning said.

Lobbied by computer industry trade groups, the U.S. Department
of Labor in 1992 came out with new rules for non-union, highly
skilled tech professionals who earn more than $27.63 an hour as
computer systems analysts, programmers, software engineers,
software developers and others who have a "high degree of
theoretical knowledge." It marked the first time in the 61-year
history of the federal wage-and-hour law that anyone has become
exempt by the amount of money earned.

But that doesn't mean that a computer programmer who writes the
same lines of code day in day out or the troubleshooter who only
fixes computers are exempt workers, Winning said. "They sound
like very difficult, esoteric jobs but within the industry, they
are not," he said.

George Friday, the regional administrator for the wage-and-hour
division of the U.S. Department of Labor, said the perpetual-
motion creation of new types of jobs also muddies the exempt
issue. "In the high-tech industry, sometimes the line between
exempt and non-exempt just gets blurred," he said. Red flags

That blurring is sometimes market-driven. Competing in an
industry that requires companies to adapt to rapid-fire change,
sometimes on thin margins, high-tech companies, especially
start-ups, often try to cut labor costs any way they can.

Some hire permanent temporary workers or categorize nearly
everyone as a consultant, contractor or independent contractor.
That usually means they don't have to pay payroll taxes,
overtime premiums or health insurance, and they have no
liability for discrimination, harassment or workers

But if a worker should have been classified differently, the
employer can be liable for all of that and more, including
penalties for failure to provide workers' compensation coverage
and exposure to personal injury lawsuits if an employee is hurt
on the job.

Companies also could be subjected to an audit to determine how
much they owe all of their employees during that time for unpaid
overtime. Worse yet, the legal fees for defending an unpaid
wages claim can go through the roof and into the stratosphere.

The potential for legal snarls is not going unnoticed. "Big and
small companies are very worried about this," said an employment
lawyer who represents a who's who of high-tech companies.

That's because these companies have spotted some red flags. The
much ballyhooed Silicon Valley work culture recently has come
under fire for the same types of problems more commonly found in
old-line corporate America.

For example, the U.S. Department of Labor is scrutinizing the
employment practices of high-tech companies when it comes to
racial discrimination, lack of diversity and immigration issues,
department officials say.

Another rude awakening came last month in the form of a San
Francisco federal appeals court ruling that may forever change
the high-tech industry's growing use of temporary workers.
Thousands of "permatemp" workers Microsoft Corp. has employed
through staffing agencies since 1986 are entitled to stock
options, the court decided.

The ruling highlights the industry's attempt to evade laws
designed to protect employees so they can avoid the costs of
paying benefits to workers, said Mark Thierman, a San Francisco
lawyer who represents a group of 360 temporary employees who are
suing Pacific Bell for back benefits.

Overtime, he says, is just the next employment frontier. And the
worst may be yet to come.

Industry observers say if the booming economy and the technology
sector weaken, widespread industry layoffs could trigger a rash
of employee claims for unpaid wages. "When the sales go away,"
said one East Bay high-tech company executive ruefully, "the
knives come out."

Whether they are acting out of ignorance or opportunism, Locker
warns he has no sympathy for high-tech companies who underpay
their workers.

"We're talking minimum labor standards here. These are basic
standards that cover workers throughout the state," Locker said.
"When you're out there and enforcing the law against what I
think of as the most marginal kinds of employers such as small
garment manufacturers and then you face someone with a Ph.D. in
engineering and all kinds of financial backing from various
investors, the excuses don't ring true."

What really gets Locker fired up is that some of those his
division sees are lower-level, less "sophisticated" workers who
are at the opposite end of the socioeconomic spectrum from the
high-paid, BMW-driving set who knowingly take risks in Silicon
Valley in hopes of striking it rich.

"The workers who make millions of dollars in stock options are
not coming into our offices," Locker said. "We see workers who
performed their part of the bargain, who went to work faithfully
and tried to make their company profitable, but for whatever
reason, the company didn't take off. These workers should not be
ensuring their employers' business success. Companies need to
find investors, not employees, to back their businesses."
Silicon Valley lottery

Yet, it's the money, the excitement and the possibility of
getting in on the ground floor of an eBay or a Yahoo! that
energizes many -- if not most -- high-tech workers. The penny
shares they acquire in the early days of the company are the
industry's coin of the realm.

That they may end up working for a PointCast or a SyQuest does
not deter them. There's always the next start-up on the horizon
or plenty of other jobs to be had in the industry. If Netscape
co-founder Jim Clark's secretary can make a million bucks, why
can't they?

Besides, the perks are good. High-tech companies tend to have
democratic, casual workplaces where you're more likely to find a
fun-and-games room than an executive washroom. For their hard
work, employees cash in on quarterly bonuses and weekends in the
wine country. High-tech companies also offer all kinds of
incentives on a daily basis -- on-site dry cleaning, take-home
meals, fitness programs -- to ramp up productivity and keep
employees at work.

As a result, the office becomes a second home -- or even the
main home -- for employees, and their co-workers become their
family and friends.

An East Bay software engineer, who asked that his name not be
used or his company identified, said with few exceptions all
employees are classified as exempt workers -- from the customer-
service workers to low-level technical staff. These workers
often put in long hours when the company is preparing to launch
a product but are not paid overtime.

"Working these hours is never mandated," the software engineer
said. "But there are things that need to be done so people
volunteer to do them." Old laws, new workplace

High-tech workers get their ticket to the Silicon Valley
lottery, companies get a turbo-charged work force. What could be
wrong with that?

Besides, high-tech companies are not the only wage-and-hour
offenders -- not by a long shot. Companies in every industry
inadvertently misclassify workers -- and have for years. An
alert from the California Chamber of Commerce reports: "Many
California employers are unaware of the existence of exempt and
non-exempt employees."

Industry lawyers ask whether what they believe are antediluvian
labor laws should even apply to such a new and dynamic industry.
The Fair Labors Standards Act does not reflect the new work
culture evolving in Silicon Valley and high-tech hubs across the
country, they say. Nowadays, laws designed to protect blue-
collar line workers encumber well-paid, white-collar employees.
This is a new generation of workers who want to take on -- not
run from -- risk.

"I'm not saying workers don't need protection, not at all," said
Fred Alvarez, a prominent Silicon Valley employment lawyer who
from 1987 to 1989 served as U.S. assistant secretary of labor,
directing the Wage and Hour Division. "But wage-and-hour laws
are for people who work in a different world, on the plant
floor, punching the clock, working the swing or graveyard shift.
(In the high-tech industry), everyone works hard to build a
company and take it public so they can get stock options and
don't have work anymore. You just can't change the world to make
it look like the Wage and Hour Standards Act."

Michael Lotito, vice chairman of the Society for Human Resources
Management and a San Francisco employment lawyer who is
defending a high-tech company against an unpaid wages claim,
laments the government's efforts to make old laws fit the new

"In the past when there were problems, employees used to get
together to form a union," Lotito said. "Now they go to the
government and consult the 'how to sue the company for free'
bulletin board." (Contra Costa Newspapers; June 13, 1999)

SPRINT: Settlement Prompts Free Network Upgrade for Customers
When Sprint first announced earlier this month that it will
begin upgrading its Sprint Spectrum customers in the Washington-
Baltimore area to its PCS network free of charge, it did not
mention the main impetus for this move -- a class-action lawsuit
settlement. The Washington Post reports that in a letter that
Spectrum customers began receiving last week, Sprint disclosed a
court notice, notifying the customers of a class-action suit
against the company over deceptive advertising and
misrepresentation of services.

This settlement, pending final approval by the Baltimore Circuit
Court, requires Sprint to convert all 100,000 of its Spectrum
customers to its PCS network, replacing their current phones and
accessories at no cost. Sprint officials stress that the switch
from Spectrum to the PCS network is an initiative to provide
better service to its Spectrum customers, but Sprint spokesman
Larry McDonnell said, taking advantage of a double-negative,
"I'm not going to say that the lawsuit is not related" to the
company's decision to convert customers free of charge.

Filed in July 1997, the suit asserted that Sprint falsely
advertised the Spectrum features when it initially marketed its
Spectrum network in November 1995, according to Baltimore-based
class counsel Charles Piven. As a result, the suit alleged
Sprint misled customers to believe that they would be able to
use these phones nationwide as well as globally.

While Sprint Spectrum offers international roaming and some
nationwide roaming services nationwide, most domestic cities are
out of Spectrum range. The lawsuit claimed that the company
misrepresented the capabilities of this system.

Sprint Spectrum was one of the nation's first all-digital
"personal communications services" and has been successful since
its introduction in this market four years ago. Spectrum uses a
technology known as Global System for Mobile Communications
(GSM), which is widely used in Europe and around the world.

The lawsuit alleged that Sprint "never intended to develop a GSM
service to cover the United States," Piven said. Sprint's
intention, the suit further claimed, was to eventually phase out
Spectrum once the PCS network was up and running.

Sprint officials still deny these charges of deception and
misrepresentation in marketing and development strategies,
presenting the conversion to the PCS network as an upgrade for
Spectrum customers. "We needed to make sure that we can position
our customers with an upgrade. It is at that point in time that
we decided that PCS was the right product for all our
customers," Sprint Regional Vice President Brian McIntee said.

But the company has been backing away from heavy promotion of
the Spectrum service since March 1998. The marketing of Sprint
Spectrum phones had been sharply curtailed since Sprint
introduced the PCS network to the Washington-Baltimore area 15
months ago.

A similar class-action suit, filed in the District of Columbia
federal district court last May, has been postponed until this
settlement's final approval is decided in a fairness hearing in
early August.

According to McIntee, Sprint's move to phase out Spectrum in
favor of the PCS network is largely due to costs. "It's not easy
to operate two digital networks in one market," he said. The
Washington and Baltimore areas are the last Sprint markets in
the country that have not been moved entirely to the PCS
network. The transition from Spectrum to PCS will take six
months, McIntee estimated, after which Spectrum will no longer
be in operation. While McIntee would not say how much it would
cost Sprint to phase out the Spectrum system, he described it as
a "sizable investment, but well worth it."

PCS provides a rate plan that would bundle all local and long
distance calling charges into one flat rate. The caller only
pays for the minutes without accruing long-distance charges or
interconnection fees, the fee wireless owners pay for receiving
phone calls in the Spectrum system.

Sprint must convert Spectrum customers to the PCS network. (The
Washington Post; June 14, 1999)

TOBACCO LITIGATION: Supreme Ct. Won't Revive PA Smokers Suit
The U.S. Supreme Court unanimously rejected further appeal by
Pennsylvania plaintiffs whose bid for medical monitoring costs
from the tobacco industry ended in an adverse summary judgment
(William Barnes, et al. v. The American Tobacco Co., et al., No.
98-1489, U.S. Sup.).

The Supreme Court's unanimous denial of William Barnes' petition
for a writ of certiorari came on May 17. Barnes appealed the
Third Circuit U.S. Court of Appeals' Nov. 12 opinion affirming
summary judgment. The full Third Circuit denied Barnes' request
for an en banc hearing on Dec. 16.

Judge Clarence Newcomer of the Eastern District of Pennsylvania
initially certified the Barnes class of smokers, but he reversed
that order on Oct. 17, 1997, concluding that individual issues
precluded continuing the case as a class action.

He then dismissed five of the plaintiffs on statute of
limitations grounds and a sixth on failure to link smoking to
her request for tests not specifically directed at smokers, and
granted summary judgment to the defendants.

The Third Circuit panel agreed with Judge Newcomer "that
addiction, causation, the defenses of comparative and
contributory negligence, the need for medical monitoring and the
statute of limitations present too many individual issues to
permit certification."

The panel rejected Barnes' argument that nicotine addiction was
not a prerequisite to class membership or a barrier to class
certification. Addiction, the panel found, is an essential
component of each plaintiff's claim because plaintiffs must show
"that defendants caused their exposure to tobacco."

The panel also concluded that each plaintiff's need for
monitoring, and how that program would differ from a monitoring
program for the general public, argues against class

Among its rulings, the panel also affirmed that defendants could
raise defenses of contributory negligence, assumption of risk
and consent to exposure, all of which would require inquiry into
individual smoking histories.

Barnes and other plaintiffs were represented by Ryan, Brown,
McDonnell, Berger & Gibbons in Philadelphia; Levin, Fishbein,
Sedran & Berman in Philadelphia; Roda & Nast in Lancaster, Pa.;
Coale, Cooley, Leitz, McInerny & Broadus in Washington, D.C.;
Rodham & Fine in Fort Lauderdale, Fla.; Mellon, Webster & Mellon
in Doylestown, Pa.; and Sheller, Ludwig & Badey in Philadelphia.

Counsel for the tobacco companies included Jones, Day, Reavis &
Pogue in Cleveland; Daller, Greenberg & Dietrich in Fort
Washington, Pa.; Davis, Polk & Wardwell in New York; Klett,
Lieber, Rooney & Schorling in Philadelphia; Wolf, Block, Schorr
& Solis-Cohen in Philadelphia; Shook, Hardy & Bacon in Kansas
City, Mo.; Dechert, Price & Rhoads in Philadelphia; Conrad,
O'Brien, Gellman & Rohn in Philadelphia; Kittredge, Donley,
Elson, Fullem & Embick in Philadelphia; and Obermayer, Rebmann,
Maxwell & Hippel in Philadelphia. (Mealey's Litigation Report:
Asbestos; May 21, 1999)

VICTORIAN ORPHANAGES: Wards Down Under Charge Violence and Abuse
From Melbourne, Australia, AAP reports that orphans abused in
the 50s and 60s and left with broken bones, perforated eardrums
and bruises have launched a Court action against orphanages and
the Victorian government. Melbourne lawyer Vivienne Waller,
acting for the wards of state, said she had found evidence of
physical and sexual abuse among 200 histories of children who
lived in certain Victorian orphanages between 1955 and 1965.

She said at one orphanage it was alleged there were two or three
pedophiles on the staff.

Ms Waller said the court action sought compensation from
particular orphanages and the Victorian government. "Firstly,
there's sustained and repeated physical violence," Ms Waller
said. "Some children's homes provided excellent care but others
were operating in a culture of violence and abuse. I have
reports of children being punched in the face or head, knocked
to the ground, being kicked, being pushed down stairs, being
swiped with a coathanger."

"I have reports of children suffering broken bones, perforated
eardrums, bruising and other physical injuries," Ms Waller told
ABC radio. She said there also was a range of allegations of
sexual abuse. "Certainly, having taken so many histories it
becomes clear that particular orphanages were worse than
others," she said. She had collected a large number of
allegations from one particular orphanage, where it appeared
that there were two or three pedophiles on the staff.

Ms Waller said it was common for emotional problems caused by
such treatment to manifest themselves later in life possibly
when some event triggered memories or when the victims had
children of their own. She said many developed emotional and
psychological problems, with common symptoms including panic
attacks, depression, insomnia and nightmares.

Yesterday, the State Opposition released details of a Children's
Welfare Association report to the state government in which two-
thirds of the welfare agencies working with neglected children
in Victoria claimed their charges were becoming more damaged
while under state care.

According to 76 per cent of the agencies, there had been an
increase in the number of suicide attempts, mental health
problems, as well as violent and aggressive behavior, verbal and
physical abuse of staff, drug and alcohol abuse, and sexual
misbehavior towards younger wards over the past two years.

State Opposition community services spokeswoman Christine
Campbell said the children were currently housed in agency-run
community residential care units, which had replaced state-run
units after they were closed down.

"We have a funneling effect where the most damaged children are
all being concentrated together in less houses and being managed
by welfare agencies, not the Department of Human Services."

She said the welfare agencies were not getting full funding from
the government and had to raise money themselves. "The staff in
these agencies experience levels of abuse and threat that are
clearly unacceptable," Ms Campbell said. (AAP NEWSFEED; June 14,

WINDMERE-DURABLE: Judge Holds Auction to Choose Class Counsel
In an attempt to ensure the best quality legal representation at
the lowest price, U.S. District Judge Joan A. Lenard has decided
to choose class counsel in a securities fraud case through a
sealed-bid auction among contending law firms. Sherleigh
Associates LLC et al. v. Windmere-Durable Holdings Inc. et al.,
No. 98-2273-CIV-LENARD (SD FL, March 9, 1999).

In July 1998, Windmere-Durable Holdings Inc., a manufacturer and
distributor of various products and appliances, issued stock in
two public offerings in connection with its acquisition of the
Household Products Group of Black & Decker Inc. Shortly
thereafter, the company announced that anticipated sales volume
and earnings per share would be $30 million to $40 million less
than previous estimates. Windmere s tock promptly plummeted in
price and this proposed securities class action complaint was
filed on Sept. 29, 1998.

Numerous other putative class action complaints were later filed
in New York and Florida, all alleging similar claims of
misrepresentation and failure to disclose material information.

After consolidating the cases and provisionally certifying the
class, Judge Lenard selected Sherleigh Associates LLC and
Sherleigh Associates Inc. Profit Sharing Plan, which owned
22,000 shares of Windmere stock during the class period, as lead
plaintiff. Under the Private Securities Litigation Reform Act of
1995 (PSLRA), the court is to "presume the largest stakeholder
is best able to represent the class," she explained.

Judge Lenard provisionally certified Sherleigh as lead
plaintiff, giving the other parties 20 days to rebut the

Turning to the competing claims for designation as lead counsel,
Judge Lenard asked "What deference should be paid to the class
representative's choice of counsel, as balanced against the
court's obligation to the class to ensure such representation is
of high quality and is provided at a fair price?" Her answer: a
sealed-bid auction.

"Forging into this little-traveled ground requires some
caution," she added, setting forth several minimum requirements.
First, she rejected a proposal by the contending law firms to
form a "steering committee" and ruled that she would not accept
any "joint proposals." Second, she found that "a contingency fee
arrangement best aligns interests of the class and the

Third, she outlined specific criteria for bid submissions. To be
considered in the auction, each bid, to be filed ex parte and
under seal, shall provide:

-- a statement of the firm's experience and bona fide
    qualifications, including its willingness to post a
    completion bond;

-- the firm's malpractice insurance coverage;

-- evidence that the firm has fully evaluated the probability
    of success in the case;

-- a description of the firm's contingency fee arrangement and
    how it will account for costs and expenses;

-- "a defense of the bid that describes how the fees and costs
    charges will motivate the firm to adequately represent the
    class"; and

-- a certification that the bid was prepared independently and
    without disclosure or consultation with any other contending
    law firm. (International Reinsurance Dispute Reporter; May
    28, 1999)

WYETH-AYERST: Confidential Settlement Reached in California
Parties to a class action filed a year ago in California have
agreed to settle the case for an undisclosed amount, sources
told Mealey Publications (Paul E. McGloin, et al. v. Wyeth-
Ayerst Laboratories Inc., No. 98-2596, N.D. Calif.). The
settlement, which sources would only say is "very reasonable,"
was reached in early April.

Paul McGloin filed the class complaint in June 1998, shortly
after Duract brand bromfenac sodium was withdrawn from the

McGloin and several others alleged that Duract maker Wyeth-
Ayerst Laboratories Inc. failed to warn doctors and patients
that Duract could be toxic to the liver if used for more than 10
days. They had noted that Wyeth added such warnings to Duract
labels before withdrawing the drug altogether.

The McGloin plaintiffs had asked that Wyeth-Ayerst be ordered to
fund a nationwide medical monitoring program under which
patients would get liver enzyme tests to check for possible
liver damage. They asked that the court require updated patient
warnings and emergency class notification, in addition to
funding for studies on the long-term effect of Duract and
possible cures for detrimental effects.

McGloin was represented by Donald S. Edgar of the Law Offices of
Donald S. Edgar in Santa Rosa, Calif. Stuart M. Gordon and James
R. Reilly of Gordon & Rees in San Francisco represented Wyeth.
(Mealey's Emerging Drugs & Devices; May 21, 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
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Mannis, Project Editor.

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

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