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/raid1/www/Hosts/bankrupt/CAR_Public/990617.MBX C L A S S A C T I O N R E P O R T E R Thursday, June 17, 1999, Vol. 1, No. 95 Headlines AHT CORPORATION: Fingers Attorneys Over Litigation Manipulating Yahoo! Posts CANDIE'S, INC.: Special Investigative Committee Formed; New CFO Appointed CELLSTAR CORP.: Still Stull Files Complaint in Florida CENDANT CORPORATION: Commences Dutch Auction to Repurchase 50M Shares CEPHALON, INC.: Agrees to Pay $17 Mil. To Settle Shareholder Suits COOK COUNTY: ACLU Sues to Correct Juvenile Detention Conditions INDIAN TRUST: Plaintiffs Rest in BIA/Treasury Dept. Breach-of-Trust Case MARQUETTE TEACHERS: Union Charges Board of Education with Unfair Practices MTI TECHNOLOGY: Securities Cases Preliminarily Settled for $900,000 NEW YORK: New Jersey Files Commuter Tax Suit PRISON REALTY: Kantrowitz Goldhamer Files Complaint in New York PRUDENTIAL: Challenge to HMO's Guidelines On Giving Medical Care Survives SABRATEK CORPORATION: Decries Merits of Amended Shareholder Complaint SEARS ROEBUCK: Fraud Suit Seeks to Recapture Fees For Tires Never Balanced SELECT COMFORT: Kaplan Kilsheimer Files Complaint in Minnesota TAINTED BLOOD: 10,000 Canadians in Line for $1.2 Billion Settlement TOBACCO LITIGATION: Wisc. Judge Allows Conspiracy Claim to Proceed Y2K LITIGATION: Senate Okays Bill to Limit Y2K Suits; Veto Likely ********* AHT CORPORATION: Fingers Attorneys Over Litigation Manipulating Yahoo! Posts ---------------------------------------------------------------------------- AHT Corporation (Nasdaq: AHTC) announced yesterday it has received evidence as to the identities of individuals responsible for several hundred abusive and often sexually vulgar postings on the Yahoo! Message Board regarding the Company, its officers, directors, and stockholders. Information subpoenaed from Yahoo! appears to indicate that Ed Bukstel and David Bukstel, Esq., posing under numerous aliases, have been waging an ongoing campaign of misinformation in what appears to be an attempt on their part to influence the outcome of two court cases in their favor by suppressing the price of AHT's stock. Ed Bukstel and David Bukstel, Esq., are the Chairman and Secretary, respectively, of a shell corporation named Bukstel and Halfpenny, Incorporated (B&H). The subpoenaed Yahoo! records appear to indicate that in over 300 postings on the Yahoo! Message Board, both Ed Bukstel and his brother, David Bukstel, a licensed attorney, have engaged, under the guise of being concerned stockholders, in a systematic pattern of unethical and fraudulent postings. These records show that one of the tactics employed by the Bukstel brothers has been to post messages under one or more aliases and to respond to such postings using one or more different aliases. The Bukstel brothers are involved in two previously disclosed court actions against AHT: one, as the sole plaintiffs in a rescission action which seeks the reversal of AHT's 1997 acquisition of B&H's assets and, the other, as putative members of a proposed class action in connection with the Company's stock price decline in 1998. The Company has brought these postings to the attention of the Judge presiding over the rescission action. "Clearly, what we have uncovered is a manipulative, abusive and unethical use of the Internet medium. This is a high-tech method of utilizing low-rent tactics," said Eddy Friedfeld, Senior Vice President and General Counsel of AHT Corporation. "These virulent postings tend to depress the price of AHT's stock and to create an environment to dupe and mislead our stockholders. Some of the Yahoo! postings have engendered fear among certain employees and their families. No company or its employees and their families should be subjected to this type of abuse. We plan to take all steps legally available to us to stop those who resort to posting misinformation and threats on the Internet while hiding behind false identities." Jon Edelson, MD, Chairman, CEO and President of AHT Corporation, stressed, "These individuals are acting contrary to the best interests of our Company and our stockholders. We will not tolerate such actions from these or any other individuals. We are working hard to build a healthcare e- commerce business and do not intend to let individuals who propagate false information about our Company stand in the way of creating value for our customers and our stockholders." AHT Corporation participates in the growing healthcare e-commerce market. The Company provides information technology enabling the electronic management of laboratory and prescription transactions. AHT's goal is to be a leading provider of Internet-based clinical e-commerce among physicians and healthcare organizations. For more information, please visit AHT's website at http://www.ahtech.com.(Effective February 1, 1999, Advanced Health Corporation changed the name under which it is conducting business to AHT Corporation and changed its Nasdaq stock symbol from ADVH to AHTC.) CANDIE'S, INC.: Special Investigative Committee Formed; New CFO Appointed ------------------------------------------------------------------------- Candie's, Inc. (Nasdaq/NMS:CANDE) disclosed that a Special Committee of its Board of Directors has been appointed to investigate certain issues that have prevented completion of the audit of the Company's financial statements for the fiscal year ended January 31, 1999, and preparation of financial statements for subsequent periods. The Special Committee has retained an independent accounting firm and law firm to assist in its investigation. The Company is diligently working to provide the Special Committee and its experts with the information they request as part of the Company's goal of having its fiscal year 1999 audit completed as soon as possible. The Company also announced that the Company's Controller, Frank Marcinowski, has assumed the Chief Financial Officer's responsibilities on an interim basis until a successor to David Golden is appointed. The Company also noted that its inability to complete its fiscal year 1999 audit has prevented it from filing its Form 10-K for fiscal 1999 and Form 10-Q for the quarter ended April 30, 1999, which is part of the maintenance requirement for continued listing of its common stock on the Nasdaq Stock Market. The Company intends to ask Nasdaq for a temporary exception to this maintenance requirement. In addition, The Company announced that during the past several weeks, several class action complaints have been filed in the United States District Court for the Southern District of New York against the Company and certain of its current executive officers and directors and a former executive officer. The complaints, which the Company anticipates will be consolidated, allege, among other things, that the defendants misrepresented or omitted to state material facts concerning the Company's business and financial condition. Commenting on these issues, Neil Cole, the Company's Chief Executive Officer, stated "the Company has a strong balance sheet and sufficient capital to fund its operations for the foreseeable future. Our banks are very supportive and continue to provide our working capital requirements. We look forward to resolving the issues being investigated by the Special Committee as expeditiously as possible. Of course, the Company intends to defend vigorously all class action lawsuits." Neil Cole commented further, "We are very excited about the fall season, in which we will launch CANDIE'S fragrance supported by a $ 20 million advertising campaign funded by our licensee, Liz Claiborne, Inc., and CANDIE'S jeanswear through our joint venture with Azteca Production International, Inc. We are also very enthusiastic about the growth of the BONGO brand, which we believe has been enhanced by our fall 1998 acquisition of Michael Caruso & Co., Inc., owner of BONGO branded jeanswear and apparel," Neil Cole concluded. CELLSTAR CORP.: Still Stull Files Complaint in Florida ------------------------------------------------------ On June 14, 1999, in the United States District Court for the Southern District of Florida on behalf of all persons who purchased the common stock of CellStar Corp. (NASDAQ: CLST) between March 19, 1998, and Sept. 21, 1998, Stull, Stull & Brody filed a class action securities complaint. The complaint alleges that certain officers and directors of the company violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by, among other things, misrepresenting and/or omitting material information concerning the company's results of operations and the purported success of the company's entry into the pre-paid Cellular business primarily through an investment in Topp Telcom, Inc. In particular, the complaint alleges that during the relevant time period CellStar was making a material and substantial amount of sales to Topp for which it was not being paid nor did CellStar seek payment or expect to be paid. Ultimately, CellStar was forced by its auditors to change its accounting for its investment in Topp and its sales to Topp -- treating its receivables as an "investment" and changing from coast accounting to equity accounting -- and to recognize 100 percent of Topp's losses, thereby causing CellStar to report a significant loss in the third quarter of 1998. Following the announcement of the adverse facts described above the price of CellStar common stock dropped to $ 5.00 per share, a more than 72 percent reduction from its Class Period high of $ 17.875. Contact Tzivia Brody, Esq. at Stull, Stull & Brody by calling toll-free 1- 800-337-4983, or by e-mail at SSBNY@aol.com, or by fax at 212/490-2022, or by writing to Stull, Stull & Brody, 6 East 45th Street, New York, NY 10017. CENDANT CORPORATION: Commences Dutch Auction to Repurchase 50M Shares --------------------------------------------------------------------- Cendant Corporation (NYSE: CD) yesterday announced that its Board of Directors has authorized a "Dutch Auction" self-tender offer for 50 million shares of its common stock or approximately 7.0% of its shares outstanding through its wholly owned subsidiary, Cendant Stock Corporation. The offer will commence on June 16, 1999 and will expire at midnight, New York City time, on July 15, 1999, unless the offer is extended. Under the terms of the offer, the company will invite shareholders to tender shares at prices between $19.75 and $22.50 per share. Based upon the number of shares tendered and the prices specified by the tendering shareholders, the company will determine the single per share price within that price range that will allow the company to purchase 50 million shares or such lesser number of shares as are properly tendered. The company will not prorate shares tendered by any shareholder owning beneficially fewer than 100 shares in the aggregate as of June 15, 1999, who continues to beneficially own fewer than 100 shares at the expiration of the offer and who tenders all such shares in the offer. The company expects to fund the offer with proceeds from the divestiture of Cendant's fleet segment which is expected to close on or about June 30, 1999. Completion of the tender is conditioned upon the closing of the fleet segment transaction. Cendant's common stock price closed at $19.75 on the New York Stock Exchange on June 15, 1999, the last full trading day on the NYSE prior to the announcement of the offer. Cendant Chairman, President and CEO, Henry R. Silverman stated: "This action by our board is a strong vote of confidence in Cendant's long-term performance and strategic growth plan. The repurchase of our shares is clearly the best investment available to our company at this time and is consistent with our long-term goal of increasing shareholder value while maintaining a debt to total capitalization ratio of about 40 percent." Banc of America Securities LLC will act as dealer manager and Chase Mellon Shareholder Services LLC. will act as information agent and depositary for the offer. Any questions or requests for assistance or for additional copies of the Offer to Purchase, the Letter of Transmittal or the Notice of Guaranteed Delivery related to the offer, may be directed to the information agent at 1-800-684-8823 or the dealer manager at 1-212-847-5355. Shareholders may also contact their broker, dealer, commercial bank or trust company for assistance concerning the offer. CEPHALON, INC.: Agrees to Pay $17 Mil. To Settle Shareholder Suits ------------------------------------------------------------------ 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 last week 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- 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. (The Legal Intelligencer 16-Jun-1999) COOK COUNTY: ACLU Sues to Correct Juvenile Detention Conditions --------------------------------------------------------------- The ACLU of Illinois yesterday sued Cook County on behalf of children at the Cook County Juvenile Temporary Detention Center (JTDC). The lawsuit, filed in U.S. District Court, would compel Cook County to remedy the systematic and long standing mistreatment of young persons held at JTDC, and make the facility safe and sanitary. The lawsuit results from the dreadful and barbarous conditions at JTDC, which holds children charged with delinquency or those facing criminal counts in adult court. The complaint also names Jesse Doyle, Superintendent of the JTDC, as defendant. The JTDC was the target of scathing criticism in a 1998 report prepared by a panel of experts from the prestigious John Howard Association. That report showed the JTDC was plagued by overcrowding and understaffing. Population at JTDC often exceeds 600 - and rises, at times, to 800 -- in a complex designed to hold fewer than 500. This overcrowding, combined with understaffing, a lack of professionalism by some staff members and neglect by the administration creates a frightening and dangerous environment for children at JTDC. Yesterday's lawsuit charges that the County has not implemented an effective strategy to address the serious deficiencies at the facility highlighted by a series of reports, studies and exposes over the past decade. Moreover, the suit charges that children held at the facility -- many as young as thirteen (13) -- are in jeopardy of serious illness and left unprotected from violence because of the unendurable conditions and gross mismanagement of JTDC. The lawsuit comes at a critical moment. The U.S. House of Representatives is preparing this week to debate new legislation affecting the juvenile justice system, legislation which may result in increased populations in juvenile corrections facilities. The ACLU opposes this legislation, in part, because of the condition of juvenile facilities such as JTDC, which fail to meet the minimal standards for a youth corrections facility. "The conditions at JTDC are absolutely heartbreaking," said Benjamin S. Wolf of the Illinois ACLU after filing the suit. "At JTDC, one sees forgotten children, denied adequate services, left unprotected from violent attacks by other youths, physically and verbally abused by cruel guards, locked in their rooms for days often for violating petty rules, and forced to live in overcrowded conditions complete with rats and cockroaches. No one can be expected to live in these conditions. However, to subject children to these circumstances is brutal and dehumanizing. They have not yet been tried, but they already are being harshly punished." Jean Maclean Snyder, an attorney at the MacArthur Justice Center at the University of Chicago Law School , co-counsel in the suit added: "It is simply unacceptable that the administration of Cook County and JTDC has failed to make basic, human services available to these children. JTDC administrators have promised for years to correct these problems. Little has changed. These children, many of whom are being held for non-violent offenses, continue to be forced to tolerate the most unsanitary, overcrowded and perilous conditions." Specifically, the suit delineates the following conditions: * Overcrowding -- The facility, designed for less than 500 children, regularly houses between 600 and 800. Children are forced to sleep in temporary quarters, mixing children of different ages, violent offenders with non-violent children. Because of overcrowding, the staff is not able to provide adequate oversight of the children, a circumstance that too often results in violent attacks on children. * Lack of Adequate Food -- Children at JTDC complain of inadequate food and report that the staff sometimes take what food is available for themselves. * Lack of Educational Services -- Many children receive little or no education at JTDC. This is especially acute in times of overcrowding when children are sent to an "overflow" school that provides almost no education. Additionally, few special services are provided to children with special education needs. * Lack of Medical Services -- Children at JTDC receive little medical attention. Medical record-keeping is poor, with records often in disarray. Youngsters do not receive prescribed medications. Children often are denied access to a doctor or a nurse when they complain of health problems. Untrained personnel often attempt to make medical decisions without consulting appropriate professionals. * Room Confinement -- Children are routinely subjected to punishment in the form of "room confinement" in which they are locked in their rooms alone for up to five days, and denied access to education classes and exercise. The length of such punishment bears little correlation to the alleged infraction, and there is no adequate appeals process for this punishment. * Understaffing -- JTDC is seriously understaffed. The John Howard report recommends adding more than 125 additional personnel for the complex. The union representing most of the JTDC employees also complains about serious understaffing at the facility. Mr. Doyle, JTDC Superintendent, has been cited in press reports saying the facility is adequately staffed. * Poor Management -- Staff at JTDC is poorly managed and badly trained. The John Howard team found that the staff at JTDC believe that up to 30% of the staff should not be retained. * Violence -- Children report that the facility is rife with violence, threats of violence and physical intimidation. Some staff abuse children and are not disciplined. Youth-on-youth violence is regularly reported, at times resulting in serious injury to children. * Unsanitary Conditions - Physical conditions at JTDC are squalid. Children complain of the presence of rodents, cockroaches and other pests throughout the facility. One named plaintiff reports finding a mouse in his bed. The suit on behalf of four named plaintiffs seeks certification as a class representing all children held at JTDC. For additional information, contact Edwin C. Yohnka, at the ACLU of Illinois at 312-201-9740, ext. 305, fax, 312-201-9760, or pager, 312 851- 2832 INDIAN TRUST: Plaintiffs Rest in BIA/Treasury Dept. Breach-of-Trust Case ------------------------------------------------------------------------ The plaintiffs in a class action lawsuit alleging that the federal government has made such a mess of the $ 2.5 billion Indian trust fund program that the court should take control said yesterday they will rest their case today, several weeks earlier than they had planned, because victory is a "a slam dunk." After hearing testimony from only five of the 30 witnesses they had intended to call to the stand, lawyers for the Native American Rights Fund said they will rest their case this morning after making some procedural motions. They said there is no need for additional evidence because the government has, in effect, admitted a breach of trust after mismanaging the trust accounts. "The government's stipulations and what our witnesses have testified [have] already established our case," said Keith Harper, attorney for the rights fund. "The documentary evidence is so overwhelming that it is unnecessary to bring in a whole slew of witnesses to say the same thing." U.S. District Judge Royce C. Lamberth began hearing testimony on Thursday contending that decades of mismanagement by the Interior Department, the Bureau of Indian Affairs and the Treasury Department has deprived Indians of billions of dollars that had accumulated in individual trust fund accounts created to compensate them for use of their land and to pass along royalties from the sale of oil, natural gas, timber and other natural resources. There are about 350,000 accounts held by individual Indians and 1,500 tribal accounts amounting to $ 2.5 billion, with more than $ 350 million going through the trusts each year. Independent audits have shown that Interior has been unable to document $ 2.4 billion in transactions over a 20-year period, and both sides agree that the record-keeping has been a shambles for at least 75 years. While it has not been ascertained that the money is missing, documents cannot be found to show where much of it came from or where it went. Officials concede that the documents are scattered in disarray in file cabinets in dozens of BIA offices around the country in a system that Assistant Secretary for Indian Affairs Kevin Gover has called "a logistical nightmare." However, they say the problems long preceded this administration and were ignored by Congress. Harper said a major turning point in the trial came last week when Gover and Interior Secretary Bruce Babbitt agreed to six stipulations, including admissions that Interior does not adequately control receipts and disbursements in all Indian trust accounts, does not provide all account holders with periodic statements of their accounts' performance, does not have written policies and procedures for all trust fund management and accounting functions, and does not provide adequate staffing, supervision and training for all aspects of trust fund management. "Their policy has been to deny, deny, deny," Harper said. "Now, they are admitting there is a breach of trust, but they're saying, 'Please don't have judicial oversight.' " Rex Hackler, BIA director of communications, said the trust program has been "broken" for over a century and that this is the first time the bureau has the funds to fix it. He denied that the outcome of the trial is a foregone conclusion. "We think the plan we're on is going to get it fixed, and that's what you're going to hear from us during the rest of the trial," he said. Earlier this year, Lamberth held Babbitt, Gover and Treasury Secretary Robert E. Rubin in contempt of court for failing to turn over records to the Indians' lawyers. The judge was so critical of the government lawyers working on the case that a new set of attorneys has taken over. Harper said that even without the testimony of the other plaintiffs' witnesses, the introduction of 10 General Accounting Office reports detailing trust fund mismanagement proved their case. One GAO report in May said Interior was spending $ 60 million on a new computer system to reconcile the accounts without even knowing if it will work. Harper said the BIA does not have enough reliable trust account information to put into the new computer system to straighten out the bookkeeping. "It will be garbage in, garbage out," Harper said, adding that allowing the government to try to fix the system now "will not make it any different." He said the only answer for the court now is to appoint a special master or receiver to oversee the reform of the trust program. Interior Department official Kevin Gover calls the fund's files "a logistical nightmare." (The Washington Post 16-Jun-1999) MARQUETTE TEACHERS: Union Charges Board of Education with Unfair Practices -------------------------------------------------------------------------- The Marquette teachers union plans to file a complaint against the local school board, contending the district did not consult the union on the issue of moving teachers after closing Parkview Elementary School, according to a report appearing in The Detroit News. The Marquette Area Education Association's executive board intends to file an unfair labor practice charge and a class-action grievance against the school board. Although the district disagrees, the union contends that the district must get its written permission when such changes are made, MAEA President Stuart Skauge said. MTI TECHNOLOGY: Securities Cases Preliminarily Settled for $900,000 ------------------------------------------------------------------- On June 1, 1999, Weiss & Yourman announced the settlement of a class action lawsuit filed in the United States District Court, Central District of California on behalf of all purchasers of MTI common stock during the period May 21, 1998 through and including June 9, 1998. The lawsuit, entitled "In re: MTI Technology Corp. Securities Litigation" under Master File No. CV 98- 6975 JSL (RCx), has been certified as a class action for purposes of the Settlement only, and the Settlement for $ 900,000 has been preliminarily approved by the Court. A hearing will be held before the Honorable J. Spencer Letts in Courtroom No. 4 (or such other courtroom as may be posted) at the United States Courthouse, 312 No. Spring Street, 2nd Floor, Los Angeles, California 90012 at 9:00 a.m. on July 22, 1999 to determine whether the proposed Settlement is fair, reasonable and adequate and to consider the application of Plaintiffs' Counsel for an award of attorneys' fees and reimbursement of costs and expenses. David Berdon & Co. LLP, has been designated to handle claim processing. Plaintiffs' Counsel is Peter A. Pease, Esq., Berman, DeValerio & Pease LLP, One Liberty Square, Boston, MA 02109; Kevin J. Yourman, Esq., Jordan L. Lurie, Esq., Weiss & Yourman, 10940 Wilshire Blvd., 24th Floor, Los Angeles, CA 90024. NEW YORK: New Jersey Files Commuter Tax Suit -------------------------------------------- Vowing to garner equal justice for some 240,000 Garden State commuters, New Jersey Governor Christie Whitman announced yesterday that the state has filed a class action challenging the constitutionality of a New York law that repeals a commuter tax only for suburban New Yorkers. The suit, filed in Manhattan Supreme Court by Acting Attorney General Paul Zoubek, argues that the limited repeal is a violation of interstate commerce and travel and of equal protection and due process. It names Charles Quinn, a Morristown, N.J. resident who is a senior attorney at Fish & Neave, as a plaintiff. New Jersey's lawsuit is not the first to be filed in connection with the new law, nor is it likely to be the last. Two lawyers at Thelen Reid & Priest, Thomas J. Igoe Jr. of Darien, Conn. and Richard P. Swanson of Ridgewood, N.J., filed a class action on Friday in Manhattan Supreme Court accusing New York of discriminating against out-of-state commuters. Officials from Connecticut and Pennsylvania also are expected to file legal challenges. And Jersey City Mayor Bret Schundler, Bergen County Freeholder chairman Anthony Cassano and Essex County Executive Jim Treffinger announced that they plan to file a lawsuit in federal court. (New York Law Journal 02-Jun-1999) PRISON REALTY: Kantrowitz Goldhamer Files Complaint in New York --------------------------------------------------------------- Kantrowitz, Goldhamer & Graifman, P.C., commenced a class action suit against Prison Realty Trust, Inc. (NYSE: PZN) in the United States District Court for the Eastern District of New York on behalf of two Plaintiffs and a proposed class of persons who exchanged shares of CORRECTIONS CORPORATION OF AMERICA and/or CAA PRISON REALTY TRUST for common stock of PRISON REALTY TRUST, INC. in the merger which took place on or about December 31, 1998. The suit alleges claims against PRISON REALTY and certain of its officers and directors based upon the payments of substantial fees by PRISON REALTY to affiliated companies and individuals which were undisclosed in (or at variance with) the merger documents, including the proxy and prospectus. Because of these material misrepresentations in the merger documents, the claims asserted by plaintiffs on behalf of themselves and the Class are brought pursuant to Sections 11 and 12(2) of the Securities Act of 1933, and Section 10(b) of The Securities Exchange Act of 1934. Upon revelation of the retroactive management fees paid by PRISON REALTY, on May 14, 1999, the stock price of PRISON REALTY shares plummeted from a closing price of $ 21.125 on May 13, 1999 to $ 13.375 on May 18, 1999. For more information on the suit, see the "Investor Hotline" at http://WWW.KGGLAW.COM/hotl.htmlon the Firm's Web site. Contact Gary S. Graifman at Kantrowitz, Goldhamer & Graifman, P.C. toll-free at 800/660-7843 or via internet e-mail at KGLAW1@aol.com or by writing, Kantrowitz, Goldhamer & Graifman, P.C., 747 Chestnut Ridge Road, Chestnut Ridge, New York 10977, for additional information. PRUDENTIAL: Challenge to HMO's Guidelines On Giving Medical Care Survives ------------------------------------------------------------------------- A Manhattan judge has given the go-ahead to a class action alleging that a leading health maintenance organization committed fraud and breach of contract by letting personnel other than doctors decide what length of hospital stay will be covered. In denying the Prudential Insurance Company's bid to have the case dismissed in its entirety, Supreme Court Justice Herman Cahn said the suit can proceed even though the plaintiffs had failed to exhaust their remedies under the insurance contract. Justice Cahn also rejected Prudential's argument that the suit was rendered moot because of recent changes in New York's Public Health Law, which set up tighter standards for "medical necessity" determinations. The judge, however, refused to declare certain sections of Prudential's insurance contracts void on public policy grounds. The suit was brought by Musette Baras and Nancy T. Vogel, on behalf of themselves and all other subscribers to health care plans offered through Prudential or its subsidiary, Prudential Health Care Plan of New York Inc. (PruCare). In 1997, the women sued Prudential and PruCare in Manhattan Supreme Court alleging that the carriers' handling of the "medical necessity" determinations amounted to breach of contract, fraud, breach of fidiuciary duty and interference with contract. Specifically, they contended that Prudential, through its subscriber contracts and its promotional materials, had represented that its "medical necessity" decisions were to be made by trained doctors in the relevant specialty based on prevailing medical opinion in the field. While Justice Cahn agreed with Prudential that the claims of breach of fiduciary duty and interference with contract must be dismissed, he found that the contract and fraud claims were viable. Although conceding that Prudential's plan provided for a grievance procedure for denied claims, the judge said that the class claims did not fall within the scope of that process. The plaintiffs, he noted, base their cause of action on allegations that procedures employed by Prudential in making the medical necessity decsions were "not as promised." Such claims, he added, would not be barred by subsequent legislation concerning claims review procedures. As for the fraud claims, the judge found that it was too early in discovery to rule on the possibility that Prudential may have "misrepresented the terms and conditions of the benefits offered." Stanley M. Grossman, D. Brian Hufford and Robert J. Axelrod, of Pomerantz, Haudek, Block & Gossman represented the class. Peter L. Altieri, Claudia M. Cohen and Jeremy I. Bohrer, of Epstein Becker & Green represented Prudential. (New York Law Journal 2-Jun-1999) SABRATEK CORPORATION: Decries Merits of Amended Shareholder Complaint --------------------------------------------------------------------- Sabratek Corporation (Nasdaq: SBTK) yesterday announced that an amended complaint has been filed in the United States District Court for the Northern District of Illinois against Sabratek and certain officers and directors. The complaint is an amendment to the complaint that was originally filed on January 27, 1999 as a purported class action on behalf of all persons who purchased Sabratek common stock between January 13, 1998 and November 24, 1998. Sabratek intends to vigorously defend against these charges and believes the amended complaint is without merit. Sabratek Corporation's family of companies and alliances provide a Virtual Hospital Room(TM) -- a seamless system that is designed to surround the patient at any point of care with the technology required to clinically manage the patient's condition. The Sabratek Division develops, produces and markets technologically advanced, easy-to-use, smart, interactive medical devices that work seamlessly together to allow health care providers to lower health care costs, expand access, and maintain quality across the continuum of care. The ROCAP Division manufactures ready-to-use saline flush syringes that reduce error and waste while saving time and money for enhanced safety, compliance and patient care. GDS develops and manufactures advanced point-of-care blood diagnostics for multiple tests with a single device capable of fast, simple, accurate and economical results anywhere on the continuum of care. MOON Communications is the health care industry's first Internet-based, vertically integrated communications portal, which will enable real-time monitoring and reporting of a patient's clinical information from any site, including the patient's home. HEALTHMAGIC is a developer of innovative healthcare information management tools, which feature intranet/internet technology. These tools enable health care providers to realize significant operational and clinical management efficiencies as well as providing patients and their families the ability to monitor and manage their own health. The CMS subsidiary offers managed care and provider services to health care payors -- including utilization review, provider credentialing and network development -- that enable delivery systems to be managed more efficiency and with higher quality. The LifeWatch division utilizes smart devices to monitor patients transtelephonically in alternate site settings. LifeWatch offers these services to healthcare providers and is the market leader in arrhythmia monitoring. SEARS ROEBUCK: Fraud Suit Seeks to Recapture Fees For Tires Never Balanced -------------------------------------------------------------------------- Sears, Roebuck & Co. collected up to $400 million for tire balancing services it never performed, then paid millions to keep it quiet, according to a class-action lawsuit filed Tuesday in Madison County Circuit Court, also claims managers destroyed the tire-balancing machines with sledgehammers to cover up the fraud. Up to 30 million people could be included in the suit if a judge certifies it as a class action about the number of tires Sears sold from 1989-1994 to customers who also purchased its AccuBalance service, the lawsuit estimates. The suit says balancing machines were supposed to be used to shave off a tiny layer of rubber to make sure the tires were round. Sears workers typically charged $12.50 to process each tire but often skipped the procedure, which was impossible for the buyer to detect, the suit claims. It also claims Sears management knew that most of the balancing services never were performed, but pressured employees to sell the services anyway. Stephen Katz, the lawyer who filed the suit, said his allegations match those in an unrelated Florida claim, which he said was stalled in federal court. A federal appeals court last fall reinstated the $100 million class-action Florida lawsuit, which had been dismissed on grounds the claims were covered by a nationwide settlement reached in California in 1992. The appeals court said the language of the notice didn't sufficiently notify the Florida plaintiff that claims like his were being litigated. The settlement was reached after a California state agency reported in 1992 that Sears Tire and Auto Centers routinely overcharged customers for repairs, recommended unnecessary repairs and charged for work that was never done. Sears spokeswoman Jan Drummond yesterday morning said the retailer had no immediate comment on the lawsuit. The company is based in the Chicago suburb of Hoffman Estates. The lawsuit accuses Sears of paying almost $30 million in ''hush money'' to buy the silence of the machine's manufacturer, Assix International Inc., of Tampa, Fla., after that company's workers reported significant discrepancies between the services Sears sold and the work recorded by mechanical counters on the machines. Assix leased about 1,300 machines to Sears for $300 per month each, plus a royalty of 15 cents on every tire shaved, according to court documents. Sears paid Assix based on cash register receipts and not the counters, the suit said. The lawsuit alleges that Sears, based in the Chicago suburb of Hoffman Estates, distributed a ''secret video tape'' telling workers to destroy the machines and the counters with sledgehammers, then sell the remains for scrap. It claims Sears also acquired all Assix paperwork regarding its AccuBalance machines as part of ''massive cover-up efforts.'' (Associated Press 16-Jun-1999) SELECT COMFORT: Kaplan Kilsheimer Files Complaint in Minnesota -------------------------------------------------------------- Kaplan, Kilsheimer & Fox LLP has filed a Class Action lawsuit against SELECT COMFORT CORPORATION (Nasdaq: AIRB) and certain of its officers and directors in the United States District Court of Minnesota. The suit is brought on behalf of all persons or entities who purchased or otherwise acquired the common stock of Select between January 25, 1999 and June 7, 1999, inclusive. The complaint charges Select and certain officers and directors with violations of the securities laws and regulations of the United States. The complaint alleges, among other things, that during the Class Period, defendants falsely reported Select's financial condition, operation, and liquidity causing Select's common stock to trade at artificially inflated prices. Contact Frederic S. Fox, Esq., Brigid Kavanaugh, Esq., Donald R. Hall, Esq. at Kaplan, Kilsheimer & Fox LLP (800-290-1952 or info@kkf-law.com or fax: 212-687-7714) for further information. TAINTED BLOOD: 10,000 Canadians in Line for $1.2 Billion Settlement ------------------------------------------------------------------- Lawyers announced a $ 1.2-billion compensation deal Tuesday for 10,000 Canadians who contracted hepatitis C through tainted blood. The package will see claimants infected between 1986 and 1990 awarded anywhere from $ 10,000 to $ 225,000, depending on how sick they are, and includes compensation for loss of income, funeral expenses, and for dependents. But no amount of money will satisfy Calgarian Rick Nykoluk, who said his life has been "hell" since he was infected more than 10 years ago. "It's not a bit of good for me -- you can't go out and buy a pill that will cure you," said Nykoluk, who contracted the disease from blood transfusions during an operation for two brain aneurysms in 1988. "It's been hell, it's been honestly hell," Nykoluk said of the fatigue, headaches and abdominal pain that have plagued him since -- and stand to get worse with time. "If I walk at a good pace for a block, I'm finished," he said. The settlement -- which was agreed to by the federal government as well as provinces and territories -- ends class-action lawsuits launched in B.C., Ontario and Quebec. "In some cases, the compensation might actually exceed what the individual would get at trial," said Calgary lawyer Clint Docken, who represents 200 claimants in Alberta. Compensation will be indexed to inflation and claimants will have the option of seeking more money in the future if their illness gets worse, said Docken. The package goes before the courts in August, and claimants should receive compensation a few weeks later. (The Calgary Sun 16-Jun-1999) TOBACCO LITIGATION: Wisc. Judge Allows Conspiracy Claim to Proceed ------------------------------------------------------------------ U.S. District Judge Barbara A. Crabb in Madison, WI, has gutted a product liability action brought by three smokers and their spouses against tobacco companies, dismissing all claims from their consolidated action except for one alleging a conspiracy among the companies to manipulate the nicotine content of cigarettes and to conceal the manipulation. Insolia et al. v. Philip Morris Inc. et al., No. 97-C-0347-C (SD WI, May 19, 1999); see Tobacco Industry LR, April 23, 1999, P. 13. With a 32-page opinion, the judge granted summary judgment for tobacco company defendants on the smokers' claims of strict liability, negligent manufacture and negligent marketing. She said that these claims all hinge on proof that cigarettes are unreasonably dangerous and defective and that the smokers "had failed to come forward with sufficient proof to create a genuine dispute of fact on this issue." She awarded summary judgment for the tobacco companies on the smokers' claims that the companies conspired to suppress research, intentionally misrepresented the health hazards of smoking and fraudulently concealed the health hazards. These claims must be dismissed because the smokers offered no proof that they relied on any statements made by tobacco companies nor any proof that any information allegedly concealed by the companies played a material role in their decisions to continue smoking, she said. The companies are entitled to summary judgment on the smokers' failure-to-warn claims, the judge continued, because they "cannot establish that a causal connection exists between their decisions to continue smoking and defendants' alleged failure to disclose information about the risks associated with smoking when there is no evidence that any type of warning would have made a difference." Finally, the judge ruled that the tobacco companies are entitled to summary judgment on the smokers' claims that the companies had intentionally exposed them to a hazardous substance. No such cause of action exists in Wisconsin, the judge said. She ordered the tobacco company defendants to inform her by June 3 whether they intend to seek summary judgment on the smokers' remaining claim of conspiracy to manipulate the nicotine content of cigarettes and to conceal the manipulation. The plaintiffs in the suit are Vincent and Karen Insolia, Billy and Phyllis Mays, Maureen and Lee Lovejoy, and Charles Caldwell, representative of the estate of Charles Caldwell Sr. They assert tort claims for lung cancers allegedly caused by cigarette smoking against eight defendants: Philip Morris Inc.; R.J. Reynolds Tobacco Co.; Brown & Williamson Tobacco Corp.; B.A.T. Industries plc.; Lorillard Tobacco Co.; Liggett Group Inc.; The Council for Tobacco Research-U.S.A. Inc.; and The Tobacco Institute Inc. As originally filed, the suit asked the court to certify a nationwide class of people who began smoking before 1964, have smoked at least one pack of cigarettes per day for 20 years and have been diagnosed with lung cancer. Judge Crabb denied the class certification motion last December. She ruled that the proposed class proposed would be unmanageable because any attempt to try the class members' claims would "degenerate into an interminable series of mini-trials that would bear little if any resemblance to a class- action lawsuit" (see Tobacco Industry LR, Dec. 28, 1998, P. 8). The judge noted that individual issues raised in the lawsuit overwhelm the single issue common to members of the class. "Individual issues such as medical causation, reliance and comparative negligence predominate over the lone question common to the entire class: whether defendants conspired to misrepresent the addictive nature and adverse health effects associated with tobacco use," she wrote. The judge also emphasized the lack of commonality among the plaintiffs. "Aside from general causation, issues such as reliance, addiction and contributory negligence all depend to some extent on facts specific to individual plaintiffs, not the entire class," she noted. Last month, Judge Crabb handed the plaintiffs another setback when she granted a tobacco company motion to sever the claims of three couples; she ruled that their claims are not sufficiently similar to warrant joining them in a single proceeding for trial. The plaintiffs are represented by James A. Olson with Lawton & Cates, S.C., of Madison, WI, and by Kenneth B. McClain and Gregory Leyh with Humphrey, Farrington & McClain of Independence, MO. (Tobacco Industry Litigation Reporter 28-May-1999) Y2K LITIGATION: Senate Okays Bill to Limit Y2K Suits; Veto Likely ----------------------------------------------------------------- Supporters of legislation to curb Y2K-related lawsuits, encouraged by a strong Senate vote, say the U.S. economy is at stake and that the White House should reconsider its veto threat. "I hope that the president would not veto" the bill, said Sen. Diane Feinstein, D-Calif., who joined 11 other Democrats and 50 Republicans Tuesday in the 62-37 vote to pass the bill. "I can't tell you the depth of passion that the high tech industry feels about this bill." The legislation, passed in a different version by the House and now heading for a House-Senate conference, has been avidly backed by the high tech and business community, which say it can help prevent billions of dollars in lawsuits arising from computers that could produce a variety of problems by misreading the year 2000 as 1900. But the administration, backed by consumer groups and trial lawyers, has threatened a veto, saying the bill undercuts legal rights to seek damages and would discourage companies from fixing computers. Tuesday's vote was five short of the two-thirds needed to override a presidential veto, but Sen. John McCain, R-Ariz, the chief sponsor, said he would work to prevent that veto. "We are now at the moment of truth in this struggle between those who would restrain the engine of our economic growth and those who would protect it," he said. "All the momentum has shifted in our direction. The president is going to have to cooperate," said National Association of Manufacturers president Jerry Jasinowski. "It's a simple choice. It's time for the White House to do the right thing," said U.S. Chamber of Commerce president and CEO Thomas J. Donohue. But it won't be simple for the White House to choose between the arguments of the high tech industry, which has been a strong financial supporter of both President Clinton and Vice President Al Gore, and the trial lawyers and consumer groups, also political allies, who strongly oppose the legislation. Joan Claybrook, president of the advocacy group Public Citizen, said the bill was a "disincentive for the industry to behave." She said the bill might "boomerang" on senators who supported it if the new millennium dawns with major disruptions because businesses unconcerned about getting sued don't fix computers. Supporters insisted that won't happen and that wrongdoers will still be held liable. The bill does provide a 90-day cooling off period to allow businesses to fix computers before they can be sued and encourages mediation. It discourages the practice of looking for deep-pocketed companies to sue by stating that in most cases a company would be held liable for only that portion of damages it causes, limits class action lawsuits and sets punitive damage caps for small companies. "Without the Y2K act, we run the risk of starting a gold rush for prospecting lawyers in search of Y2K gold," said Sen. Christopher Dodd, D-Conn., who worked with Sen. Ron Wyden, D-Ore., to make the legislation more consumer-friendly and acceptable to the administration. The final product, while still unacceptable to the White House, was generally more moderate than a version passed by the House last month in a more partisan vote. Rep. Tom Davis, R-Va., a chief sponsor of that bill, said they were ready to start negotiations immediately with the Senate and said the strong Senate vote would be a factor in coming up with a compromise. But he added that "we're not going to let the trial lawyers right the bill." The House bill offers punitive damage caps to all defendants who make a good faith effort to correct problems, extends proportionate liability to more defendants and includes a loser-pay provision. (Associated Press 16-Jun- 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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