/raid1/www/Hosts/bankrupt/CAR_Public/990826.MBX
C L A S S A C T I O N R E P O R T E R
Thursday, August 26, 1999, Vol. 1, No. 144
Headlines
540 ACQUISITION: Case On Crumbled Wall To Go To New York Sp. Ct.
ATEC: Issues Statement Regarding Securities Suit Filed In New York
CMGI INC.: Compaq Anticipates Mediation For Securities Suit
DAHLBERG INC.: Insurer No Need To Pay Device Maker - Ap. Ct. Overruling
DANEK MEDICAL: No Cross-Jurisdictional Equitable Tolling In Virginia
DRUG FIRMS: Retailers Ask 7th Cir. To reinstate Suit Over Discounts
EINSTEIN NOAH: Settles For Securities Suit In Colorado
EVOLVING SYSTEMS: Proposed Settlement For Securities Suits In Colorado
FOODMAKER INC.: Will Contest Appeal Against Suit In CA Over Franchise
FOODMAKER INC.: Settles For Jack In The Box’s ADA Suit In California
GUN MANUFACTURERS: HUD Prepares To File Suit
INFOSEEK: Shareholders File 10 Separate Suits to Stop Disney Buyout
LYNN AND MALDEN: Targeted For Suits In Boston On Race-Based Assignments
MINISTRY OF EDUCATION: Teachers Union Will Sue On Late Payment To Fund
O'Quinn: Fires Back With Libel At Allegations Of Fiduciary Breach
STEWART ENTERPRISES: Abbey, Gardy Files Securities Suit In Louisiana
VALENCE TECHNOLOGY: Faces Appeal Against Securities Suits In California
WARNER-LAMBERT: Federal Judge Remands Head Lice Suit In California
WASTE MANAGEMENT: Sued By Louisiana School Employees' Retirement System
WASTE MANAGEMENT: Morris and Morris Announce Securities Suit In Texas
Y2K LITIGATION: First Y2K Class Certified In DBN Inc. V. Sage Software
*********
540 ACQUISITION: Case On Crumbled Wall To Go To New York Sp. Ct.
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Three weeks before Christmas in 1997, the south wall of 540 Madison Ave.
crumbled. Within hours, emergency crews stopped traffic, even to
pedestrians, and evacuated neighboring residents and businesses. The
closure, which persisted for nearly six weeks through Christmas and into
the new year, encompassed 15 blocks, from 42nd to 57th streets.
Also, last summer a construction accident occurred at the soon-to-be
finished Conde Nast building in Times Square, requiring the evacuation of
residents and businesses, and closing the busy Manhattan hub for weeks.
Are those responsible for these and similar disasters liable to
neighboring businesses for lost profits? Have these businesses suffered
injuries and damages different from the community at large? How far should
the duty of care to one's neighbors extend? Should recovery for lost
profits be permitted at all?
These questions may soon be answered by the Appellate Division, First
Department, in 5th Avenue Chocolatiere Ltd. et al. v. 540 Acquisition Co.
LLC, a putative class action brought by Madison Avenue merchants against
the owners and managers of 540 Madison Ave. Index No. 123813/97, New York
Supreme Court, Appellate Division, First Department (filed on Dec. 19,
1997).
In 5th Avenue, the Supreme Court of the State of New York held that these
merchants had no right to recover lost profits, holding that those
responsible owed no duty of care because "duty should not be defined so as
to create a [negligence] cause of action, independent of physical damage,
for purely economic loss." The court also held that the merchants could
not state a private claim for public nuisance, which requires damage
different from that of the "community at large" because "the injury
claimed [by these merchants] is the same kind that was suffered by all
merchants in that community." Although the lawsuit asserted six causes of
action, this article addresses only two: public nuisance and negligence.
Why The Wall Collapsed
Precipitating its collapse, the Madison Avenue defendants punched 94 holes
in the south wall to create windows where none previously existed, despite
the fact that litigation over the stability of the south wall was brought
in the mid-1970s. In that suit, the parties agreed that the south wall had
begun to "collapse, crack, spall and otherwise deteriorate" and that
attempted repairs had been, and would continue to be, futile. In sworn
responses to interrogatories, one party testified that "the entire
south... exterior wall[] of the Building shall have to be dismantled and
rebuilt due to [its] defects."
In addition, various inspection reports filed throughout the years with
the city of New York disclosed numerous problems. Rather than fully
correct these problems, the defendants instead failed to file future
inspection reports.
Public Nuisance
In support of the lower court's determination that the Madison Avenue
merchants suffered "the same kind [of injury] that was suffered by all
merchants in that community" -- and therefore failed to state a public
nuisance claim -- the court cited Burns Jackson Miller Summit & Spitzer v.
Lindner. In Burns Jackson, the New York Court of Appeals denied recovery
to two law firms for damages resulting from the shutdown of New York
City's mass transit system due to a labor strike. The court reasoned that
the strike was so "widespread" that "every person, firm and corporation
conducting his or its business or profession in the City of New York"
suffered the same type of damage as the plaintiffs.
In support of their argument that they suffered a different kind of damage
than the community at large, the Madison Avenue merchants cited Leo v.
General Electric Co. In Leo, the Appellate Division, Second Department,
distinguished itself from Burns Jackson and held that commercial fishermen
in New York stated a claim for public nuisance against General Electric
Co. for polluting fishing waters, which prevented them from fishing and
selling striped bass. The court noted that "the harm alleged is peculiar
to the individual plaintiffs in their capacity as commercial fishermen and
goes beyond the harm done them as members of the community at large."
Two key issues exist in analyzing a negligence claim: (1) whether
businesses can recover for purely economic damages; and (2) whether a duty
of care extends to neighboring businesses.
Economic Damages
In Schiavone Constr. Co. v. Mayo Corp., a products liability case, the New
York Court of Appeals held that damages resulting from the breakdown of a
product are properly characterized as "economic loss"' relegating a
plaintiff to contractual remedies. "This decision" according to one court,
"reflects the principle that defects related to the quality of the
product... go to the expectancy of the parties... and are not recoverable
in tort." Where there is no contractual remedy, however, this so-called
"economic loss rule" does not apply. For example, in Syracuse Cablesystems
Inc. v. Niagara Mohawk Pwr. Corp., n11 the plaintiffs -- tenants of a
building contaminated purportedly because of the defendants' negligence --
sought recovery of lost profits from the forced one-month evacuation of
their offices. The Fourth Department held that "the Schiavone rationale is
inapplicable here because the damages claimed do not relate to the
expectations of the parties and relegating those plaintiffs to contractual
remedies would be hollow and ineffectual."
Likewise, in Dunlop Tire and Rubber Corp. v. FMC Corp., the lack of a
contractual remedy permitted the recovery of lost profits resulting from
the closure of the plaintiff's factory when an explosion at defendant's
chemical plant damaged power lines that supplied power to the factory.
To support the dismissal of the negligence-based claims on the basis of
the economic loss rule, the lower court in the Madison Avenue case cited
Beck v. FMC Corp. In Beck, which arose out of the same explosion as Dunlop
Tire, the Fourth Department refused to extend a cause of action to the
employees of a different factory closed because of the power outage. Read
in conjunction, the Beck and Dunlop Tire decisions establish the
boundaries for permissible negligence claims for lost profits. They allow
claims against a tortfeasor by a business owner for lost profits -- Dunlop
Tire -- but not by employees of that business for lost wages -- Beck.
The effect of denying recovery in tort for purely economic damages is to
permit recovery for lost profits by businesses that sustained, say, a
broken window, while denying recovery to neighboring businesses that
sustained no such damage. There exists ample authority under New York law
to permit recovery for purely economic damages -- given that the economic
loss rule applies only where a breach of contract or products liability
claims exists -- as well as significant persuasive authority to abolish
the economic loss rule altogether.
The New Jersey Supreme Court offers a detailed and thorough analysis on
the elimination of the economic loss rule in People Express Airlines Inc.
v. Consolidated Rail Corp., 495 A2d 107 (N.J. 1985).
The Duty of Care
In ruling that the defendants owed no duty to the plaintiffs in the
Madison Avenue case, the trial-level court relied principally on two
decisions: Strauss v. Belle Realty Co. and Petitions of Kinsman Transit
Co. In Strauss, a case involving claims against Consolidated Edison for a
1977 blackout in New York and Westchester counties, the Court of Appeals
held that only direct customers of the electric company could state
claims. To permit the opposite result, would create a "crushing exposure
to liability" by exposing Con Ed to liability for all of the tens of
millions of users of electricity -- unlike the limited, identifiable group
of merchants in the Madison Avenue case, all of whom are neighbors of the
building at issue.
In Kinsman, popularly called Kinsman II, the Second Circuit refused to
permit recovery to a grain company that sustained damage from the
inability to unload its cargo when two other vessels had became trapped
under a drawbridge, holding that "the connection between the defendants'
negligence and the claimants' damages [was] too tenuous and remote to
permit recovery." In Kinsman I, however, the Second Circuit permitted
claimants to recover under circumstances similar to those raised in the
Madison Avenue case and like disasters. There, the court noted that the
two vessels had caused "consequent damage [to riverside factories] as far
as the [original mooring of the vessels], nearly three miles upstream."
Thus, liability was imposed on the defendants for damage to numerous
claimants along three miles of riverfront.
Regarding the "too tenuous and remote" language, Professor Prosser
remarked, "Just what this may mean would appear to be anybody's guess." W.
Page Keeton, et al., Prosser & Keeton on the Law of Torts, @ 43, at 297
(5th ed. 1984).
With these facts, application of the Kinsman decisions becomes apparent.
The grain vessel in Kinsman II that attempted to navigate the river is
akin to a motorist attempting to navigate Madison Avenue during its
closure: each is denied relief because to extend liability that far would
extend it to "a faceless or unresolved class of persons." On the other
hand, the plaintiffs along the effected riverfront allowed recovery in
Kinsman I are akin to the Madison Avenue merchants: each is a narrowly
defined, permanent class.
Public policy also favors imposing a duty of care on the Madison Avenue
defendants and defendants in similar circumstances. The defendants are
typically large commercial real estate ventures, and the plaintiffs are
frequently small retail businesses. Imposing liability for negligently
caused damages will force building owners to take additional precautions
to prevent future catastrophes. They have the means to insure against the
risk of loss, a risk borne ultimately by smaller commercial ventures
through, perhaps, increased commercial rents.
Conclusion
The facts of the Madison Avenue case, and of similar disasters, indicate
that loss of profits is a different kind of damage than that suffered by
the community at large, thereby permitting recovery for public nuisance.
In addition, there exists ample authority under New York law to permit the
recovery for purely economic damages, and significant persuasive authority
for abolishing the "economic loss rule" altogether.
Finally, traditional tort principles and public policy analyses all point
to the conclusion that building owners owe their neighbors a duty to act
with reasonable care, at least at such minimal level as to allow the safe
flow of traffic over the thoroughfares of New York City. As such,
negligence claims should also be permitted. (New York Law Journal
8-9-1999)
ATEC: Issues Statement Regarding Securities Suit Filed In New York
------------------------------------------------------------------
ATEC Group, Inc. (NASDAQ:ATEC) issued a statement concerning the class
action lawsuit filed against the company yesterday in the United States
District Court for the Eastern District of New York.
Chairman and Chief executive Officer Surinder Rametra commented: "We
noticed the press release issued by Seeger Weiss LLP announcing the filing
of the class action lawsuit but ATEC Group Inc. has not yet been served
with the complaint. Since we don't yet know the specific details of the
complaint, we feel it would be inappropriate to comment at this time on
the very general allegations contained in the law firm's press release
other than to note that those general allegations appear to be without
merit or any basis in fact." "I would like at this time, however," Rametra
added, "to assure all ATEC stockholders that ATEC management and directors
remain committed to building shareholder value."
Based in Hauppauge, ATEC Group, Inc. is a PC manufacturer of Nexar XPA
technology, a leading system integrator, and a provider of a full line of
information technology products and services.
CMGI INC.: Compaq Anticipates Mediation For Securities Suit
-----------------------------------------------------------
During the six months ended July 31, 1998, various similar class action
lawsuits were filed against the Company, certain officers of the Company,
and the Market Maker on behalf of all persons who purchased shares of the
Company's Common Stock between November 25, 1997 and March 26, 1998
alleging violations of the various state and federal securities laws by
the Defendants.
The complaints charge that the Defendants participated in a scheme and
wrongful course of business to manipulate the price of the Company's
Common Stock, and the Defendants seek compensatory damages in unspecified
amounts. Compaq anticipates entering into a mediation where the damages
that may be awarded would be within a range between $2,400,000 and
$9,000,000. In addition, management believes that the Company's directors'
and officers' liability insurance carrier may reimburse a portion of any
amounts awarded.
In February 1999, a complaint was filed against the Company by a financial
advisor alleging that the Company owes $3,465,000 for breach of a warrant
agreement and an additional $2,886,000 as a transaction fee. The Company
filed an answer on April 9, 1999 denying the liability. Management is
unable to determine whether the outcome of this complaint will have a
material adverse effect on its financial position, results of operations
and cash flows.
During 1999, the Company allegedly entered into a one-year consulting
agreement (for the period from December 1998 to November 1999) with a firm
(the "Consulting Firm") whereby the Consulting Firm was to provide
investor and public relation services in exchange for 153,000 shares of
Common Stock. As of January 31, 1999, the shares of Common Stock have not
been issued. The Company recorded a liability of $1,555,000 based upon the
fair value of the Common Stock on the commencement of the agreement and
recorded approximately $260,000 in expense related to this agreement in
1999. In March 1999, the Consulting Firm filed a Demand for Arbitration
claiming that the Company owes approximately $3,000,000 of Common Stock
pursuant to the contract. Management is unable to determine whether the
outcome of this complaint will have a material adverse effect on its
financial position, results of operations and cash flows. An accrual has
not been recorded in the financial statements for any loss that may result
from the outcome of this litigation.
DAHLBERG INC.: Insurer No Need To Pay Device Maker - Ap. Ct. Overruling
-----------------------------------------------------------------------
After the maker of a hearing aid was sued in several states on false
advertising claims, the company's insurer refused to indemnify it.
Reversing, the Minnesota Court of Appeals allowed the refusal, partly
because the manufacturer failed to present extrinsic evidence in its
argument. St. Paul Mercury Ins. Co. v. Dahlberg Inc., No. C8-99-177 (MI
Ct. App., July 20, 1999).
Background
From 1988 to 1994, Dahlberg Inc. manufactured and distributed the
Miracle-Ear Clarifier hearing aid device in all 50 states. The company
claimed the device would improve hearing in crowded, noisy surroundings.
Dahlberg's sales activities allegedly misrepresented the hearing aid's
capabilities and class action suits were filed in California, Alabama and
Minnesota.
St. Paul Mercury Insurance Co. provided insurance coverage to Dahlberg
under three commercial general liability policies in effect from July 1,
1988, through July 1991. According to the policies, St. Paul Mercury
agreed to "defend claims or suits, or pay judgments, settlements or
medical expenses for covered injury or damage," for bodily injury,
property damage or fire damage. The policies defined bodily injury as "any
harm to the health of other persons, including physical harm, sickness,
disease and mental anguish, injury or illness."
Dahlberg refused to cover the legal expenses of the suits in Alabama and
Minnesota. In October 1994, St. Paul filed a declaratory judgment action
to determine the scope of its contractual obligation to defend and
indemnify Dahlberg in the Alabama and Minnesota suits. The Minnesota trial
court granted summary judgment in favor of Dahlberg. In January 1998,
judgment of $6.8 million was made against St. Paul Mercury.
Appellate Decision
The appellate court noted that if a complaint fails to establish a right
to coverage, an insurer still must cover the policyholder if the insurer
has knowledge of facts that may establish coverage, according to Garvis v.
Employers Mut. Cas. Co., 497 N.W. 2d 411 (MN, 1993). Citing the same case,
the court also held that if the policyholder fails to meet its burden of
presenting a covered claim through extrinsic evidence, an insurer is not
required to speculate about facts that may trigger its duty to defend.
With that in mind, the appellate court stated that it is undisputed that
St. Paul Mercury contractually agreed to defend Dahlberg against claims
involving "covered injury or damage." However, neither the Alabama nor the
Minnesota complaint against Dahlberg mention the words "bodily injury" or
"mental anguish." Despite this, Dahlberg argued that St. Paul Mercury had
actual knowledge of emotional distress in both complaints based on its
knowledge of the California complaint.
The appellate court noted that in insurance law, the policyholder is
favored, but policyholders still must meet a minimum threshold for
establishing coverage. This threshold must be proven in the complaint, or
through extrinsic evidence. The complaints against Dahlberg did not meet
this threshold, the court found. Both complaints mentioned only monetary
damages rather than physical injuries. Dahlberg also failed to present any
extrinsic evidence, the court ruled. The manufacturer failed to provide
evidence of physical injury until two years after it tendered its defense
in both actions.
Finally, the appellate court ruled that the California suit was
substantially different from the other two suits and therefore could not
be used to prove St. Paul Mercury had actual knowledge of the emotional
distress suffered by the other plaintiffs.
Appearing on behalf of St. Paul Mercury Insurance Co. was Jeffrey J.
Bouslog of Morice, Oppenheimer, Wolff & Donnelly in Minneapolis. Gary J.
Haugen of Maslon Edelman, Borman & Brand in Minneapolis represented
Dahlberg. (Medical Devices Litigation Reporter 8-5-1999)
DANEK MEDICAL: No Cross-Jurisdictional Equitable Tolling In Virginia
--------------------------------------------------------------------
A state court in Virginia cannot engage in equitable tolling during the
pendency of a class action case in a federal court in another
jurisdiction, according to an affirming ruling by the Fourth Circuit U.S.
Court of Appeals. The court rejected the argument that a product liability
action statute of limitations had been tolled by two similar class action
suits in other jurisdictions. Wade v. Danek Medical Inc., No. 98-2036 (4th
Cir., July 2, 1999).
The ruling represents the first time the matter has been decided in
Virginia courts.
Background
In 1995, Jeanette Wade sued Danek Medical Inc. for personal injuries she
allegedly suffered as a result of her use of the company's pedicle screw
system. Wade began experiencing back pain in 1985 and underwent fusion
surgery on Oct. 26, 1992, with Danek's Texas Scottish Rite Hospital (TSRH)
pedicle screw fixation device. Wade alleged the device was not approved by
the federal Food and Drug Administration for pedicular use. Therefore,
such use was a violation of the Federal Food, Drug and Cosmetic Act and
the Medical Device Amendments of that act.
After the surgery, Wade's pain worsened, and she was forced to undergo an
explant operation in 1995. Over a period of time, Wade contends, the
device caused her various injuries including increased back and leg pain,
arachnoiditis and loss of bowel and bladder control.
Almost three years after her surgery, Wade filed her complaint in this
action on Oct. 23, 1995. The U.S. District Court for the Eastern District
of Virginia dismissed the claim as untimely, stating Wade should have
known about her cause for action not later than April of 1993.
Class Actions
In her appellate brief, Wade contended that on Dec. 30, 1993, plaintiffs
in Zampirri v. AcroMed, C.A. No. 93-7074 (ED PA), filed a class action
complaint against various pedicle screw manufacturers, including Sofamor,
seeking certification of a nationwide class, and this complaint made
"substantially the same allegation" as her suit.
Also, on April 14, 1994, plaintiffs in Brown v. AcroMed, No. 94-1236 (ED
LA), filed a class action complaint against various pedicle screw makers,
including Danek Medical Inc. This complaint also sought nationwide class
and made allegations similar to those in Wade's complaint.
Thus, the brief concluded, Brown was pending against Danek Medical for 15
months, between April 14, 1994, and July 13, 1995. Also, Zampirri was
pending against Sofamor for 14 months, between Dec. 30, 1993, and Feb. 22,
1995. The brief noted that if Virginia's two-year statute of limitations
was tolled during the pendency of the class action claims in these two
cases, then Wade's claims were timely.
Tolling Caselaw
In American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974), and Crown,
Cork & Seal Co. v. Parker, 462 U.S. 345 (1983), the U.S. Supreme Court
held that in cases where federal law is applicable, the filing of a class
action which gives defendants adequate notice of plaintiffs' claims will
toll relevant statutes of limitation until the motion for class
certification is denied.
Virginia courts have never ruled on this issue, according to Wade's brief,
but courts in other states have held this rationale is equally appropriate
in cases where state law is applicable. Wade cites Adams Pub. Sch. Dist.
v. Asbestos Corp., 7 F. 3d (8th Cir., 1993), among others.
Therefore, Wade concluded, the two class actions suits tolled the statute
of limitations on her claims.
Appellate Decision
The Fourth Circuit disagreed. First, because Wade's case is a diversity
action, the court sought to determine whether to look to federal or state
law as a source for any equitable tolling rule. Federal case law allows
for equitable tolling, while Virginia has no statute requiring equitable
tolling. Wade had argued that conflict between federal and state rules was
illusory because the Virginia Supreme Court would apply an equitable
tolling rule if presented with the issue.
In the absence of relevant Virginia law, the appellate court looked to the
practices of other states, finding that a number of states have adopted
equitable tolling rules. By and large, equitable tolling rules are
beneficial, the court found, because they promote efficiency.
However, this case presents a different question. Wade is asking for
equitable tolling during the pendency of a class action suit in another
court, in this case a federal court in another jurisdiction. A number of
states have allowed equitable tolling for class actions in their own
courts, but very few have addressed the question of "cross-jurisdictional"
equitable tolling.
Having studied the relevant cases, the appellate court decided the
Virginia Supreme Court would not have adopted a cross-jurisdictional
equitable tolling rule if presented with the question. Most importantly,
the court found Virginia has no interest in adopting such a rule. The
state would be flooded with claims from forum-shopping plaintiffs from
across the country seeking to take advantage of its cross-jurisdictional
tolling rule, the appellate court held.
Dabney J. Carr IV, of Mays & Valentine, in Richmond, VA, argued on behalf
of Danek. William C. Lane of Masselli of Masselli & Lane, in Arlington,
VA, represented Wade. (Pharmaceutical Litigation Reporter August 1999)
DRUG FIRMS: Retailers Ask 7th Cir. To reinstate Suit Over Discounts
-------------------------------------------------------------------
Attorneys representing the nation's 40,000 retail pharmacies are set to
ask the 7th U.S. Circuit Court of Appeals to reinstate a class-action
lawsuit contending that drug companies conspired to deny them discounts
offered to health maintenance organizations, hospitals and mail-order drug
firms.
In oral arguments, the pharmacies will argue that U.S. District Judge
Charles P. Kocoras erred in granting summary judgment to the drug
companies in November. Kocoras failed to consider how the conspiracy
spread throughout the industry, how the conspiracy led to a system of
economic price discrimination that has prevailed throughout the market for
more than a decade, and how the members of the conspiracy joined together
to create an industry-wide chargeback system to prevent destruction of
their system of economic price discrimination," the pharmacies said in
their appeals court brief.
The appeal stems from a handful of class-action lawsuits filed more than
five years ago that eventually were consolidated for trial in the Northern
District of Illinois last year. The plaintiffs, which include corner
drugstores and large chains such as Deerfield-based Walgreens Co., alleged
the drug companies' actions primarily constituted a violation of the
Sherman Act. The defendants, which include six drug wholesalers and five
drug manufacturers, deny any wrongdoing.
In their appeals brief, the pharmacies argued that Kocoras erred in
barring testimony from a drug company executive alleging that private
meetings took place in which the companies agreed to offer lower prices to
the hospitals and health care companies, but not the pharmacies. The
pharmacies also challenged Kocoras' decision to ignore expert testimony
they said showed the drug companies' motives for giving discounts to some,
but not all, vendors.
The economic evidence from the record -- evidence that defendants engaged
in nominal pricing to hospital patients in order to capture the
supra-competitive profits being generated as a result of the conspiracy on
sales to the same patients after they leave the hospital, evidence of the
pattern of price increases in the market, and evidence of the prices
charged for these same drugs in foreign markets -- all would have
supported the same conclusion," the brief said. There was no proper basis
for excluding any of this evidence."
George L. Saunders Jr. of Saunders & Monroe in Chicago will argue on
behalf of the pharmacies Wednesday. J. Thomas Rosch of Latham & Watkins
LLP in San Francisco and William F. Cavanaugh Jr. of Patterson, Belknap,
Webb & Tyler in New York will split time for the drug companies. Among the
defendants in the original suit were Skokie-based G.D. Searle & Co. and
North Chicago-based Abbott Laboratories, but Abbott and a handful of other
drug companies settled with the pharmacies in July for more than $ 700
million. The 7th Circuit case is In re Brand Name Prescription Drugs
Antitrust Litigation, No. 99-1167. (Chicago Daily Law Bulletin 6-8-1999)
EINSTEIN NOAH: Settles For Securities Suit In Colorado
------------------------------------------------------
Einstein Noah Bagel Corp. and certain of its former officers and directors
have settled a class action lawsuit brought against them in the United
States District Court for the District of Colorado and in state court in
Jefferson County, Colorado.
The complaints alleged, among other things, that the Company and the other
defendants violated Sections 11, 12(2) and 15 of the Securities Act of
1933, as amended, and Section 10(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Rule 10b-5 thereunder, as well
as certain similar provisions of Colorado state law.
The settlement of the litigation was funded with proceeds of director and
officer liability insurance policies. Final court approval of the
settlement was obtained in June 1999. The settlement did not include the
claims pending in the lawsuit against the underwriters in the Company's
public offerings of common stock in August 1996 and November 1996 (the
"Underwriters") and against the Company's independent public accountants.
The Company has also entered into an agreement to pay $0.6 million and to
reimburse a portion of certain expenses of the Underwriters as part of the
settlement of the related litigation against the Underwriters. The
settlement is subject to customary conditions, including final court
approval.
EVOLVING SYSTEMS: Proposed Settlement For Securities Suits In Colorado
----------------------------------------------------------------------
In June, 1998, four class action lawsuits were filed in the U.S. District
Court for the District of Colorado against the Company and certain of its
officers and directors and, in one case, the Company's Underwriters on
behalf of purchasers of the Company's common stock between May 12, 1998
and July 23, 1998. The parties reached a settlement, subject to court
approval, on April 12, 1999. Settlement is subject to court approval,
scheduled in October of 1999. The Company is, from time to time, subject
to certain other claims, assertions or litigation by outside parties as
part of its ongoing business operations. The outcome of any such
contingencies are not expected to have a material adverse effect on the
financial condition, operations or cash flows of the Company.
FOODMAKER INC.: Will Contest Appeal Against Suit In CA Over Franchise
---------------------------------------------------------------------
On November 6, 1996, an action was filed by the National JIB Franchisee
Association, Inc. and several of the Company's franchisees in the Superior
Court of California, County of San Diego in San Diego, California against
the Company and others. The lawsuit alleged that certain Company policies
are unfair business practices and violate sections of the California
Corporations Code regarding material modifications of franchise agreements
and interfere with franchisees' right of association. It sought injunctive
relief, a declaration of the rights and duties of the parties, unspecified
damages and rescission of alleged material modifications of plaintiffs'
franchise agreements. The complaint contained allegations of fraud, breach
of fiduciary duty and breach of a third-party beneficiary contract in
connection with certain payments that the Company received from suppliers
and sought unspecified damages, interest, punitive damages and an
accounting.
However, on August 31, 1998, the Court granted the Company's request for
summary judgment on all claims regarding an accounting, conversion, fraud,
breach of fiduciary duty and breach of third-party beneficiary contracts.
On March 10,1999, the court granted motions by the Company, ruling, in
essence, that the franchisees would be unable to prove their remaining
claims. On April 22, 1999,the Court entered an order granting the
Company's motion to enforce a settlement with the Franchisee Association
covering various aspects of the franchise relationship, but involving no
cash payments by the Company. In accordance with that order, the Franchise
Association's claims were dismissed with prejudice. On June 10, a final
judgment was entered, in favor of Foodmaker, and against those plaintiffs
with whom Foodmaker did not settle. The Franchise Assciation and certain
individual plaintiffs filed an appeal on August 13, 1999. Management
intends to vigorously defend the appeal.
FOODMAKER INC.: Settles For Jack In The Box’s ADA Suit In California
--------------------------------------------------------------------
On February 2, 1995, an action by Concetta Jorgensen was filed against the
Company in the U.S. District Court in San Francisco, California alleging
that restrooms at a Jack in the Box restaurant failed to comply with laws
regarding disabled persons and seeking damages in unspecified amounts,
punitive damages, injunctive relief, attorneys' fees and prejudgment
interest. In an amended complaint, damages were also sought on behalf of
all physically disabled persons who were allegedly denied access to
restrooms at the restaurant.
In February 1997, the court ordered that the action for injunctive relief
proceed as a nationwide class action on behalf of all persons in the
United States with mobility disabilities.
The Company has reached agreement on settlement terms both as to the
individual plaintiff Concetta Jorgensen and the claims for injunctive
relief, and the settlement agreement has been approved by the U.S.
District Court. The settlement requires the Company to make access
improvements at Company-operated restaurants to comply with the standards
set forth in the Americans with Disabilities Act Access Guidelines. The
settlement requires compliance at 85% of the Company-operated restaurants
by April 2001 and for the balance of Company-operated restaurants by
October 2005. The Company has agreed to make modifications to its
restaurants to improve accessibility and anticipates investing an
estimated $19 million in capital improvements in connection with these
modifications, including amounts previously spent.
Similar claims have been made against Jack in the Box franchisees and
Foodmaker relating to franchised locations which may not be in compliance
with the Americans with Disabilities Act (ADA). The relief sought is
injunctive relief to bring these additional restaurants into compliance
with the ADA and attorneys' fees.
GUN MANUFACTURERS: HUD Prepares To File Suit
--------------------------------------------
On July 28, the Wall Street Journal ran a lengthy story about the steps
that Andrew Cuomo and his Department of Housing and Urban Development
(HUD) were taking in preparation for filing a legal action against gun
manufacturers. In congressional testimony before a House Government Reform
subcommittee, HUD officials detailed contacts between trail lawyers and
HUD legal counsel.
Apparently, Mr. Cuomo and officials at the Department of Justice believe
gun manufacturers can be held liable for the violence that has gripped
many of the housing authorities that receive federal funding. (The
Washington Times 8-24-1999)
INFOSEEK: Shareholders File 10 Separate Suits to Stop Disney Buyout
-------------------------------------------------------------------
Infoseek Corp. shareholders have filed 10 suits against Infoseek and Walt
Disney Co. seeking to block Disney's acquisition of the internet company
and to award the shareholders unspecified damages. Kotrin v. Infoseek
Corp. et al., No. 17285NC (DE Ch. Ct., July 12, 1999).
Marvin Kotrin's suit was filed as a proposed class action on behalf of all
Infoseek shareholders "who are or will be threatened with injury arising
from defendants' actions."
Kotrin's suit alleges that on July 12, 1999, Disney announced it will
purchase the 57% of Infoseek stock it does not already own to combine it
with Disney's other internet business, offering shares of the merged unit
(go.com) to the public. In addition, Disney announced it will offer 1.15
shares of the merged unit for each share of Infoseek, although a value for
go.com shares has not been established.
Kotrin claims the defendants breached their duty of loyalty to the
shareholders by "using their control of Infoseek to force Kotrin and the
Class to exchange their equity interest in Infoseek, and deprive
Infoseek's public shareholders of the fair proportionate value to which
they are entitled." Kotrin also claimed the defendants breached their duty
of loyalty by failing to ensure the shareholders were protected from
overreaching.
Kotrin claims Disney breached its duties by using its control of Infoseek
to its benefit. The suit seeks a preliminary and permanent injunction
barring Disney's acquisition of Infoseek and unspecified damages.
The other shareholder suits filed in the chancery court were:
* Ellis Investments Ltd. v. No. 17286 Infoseek Corp. et al.
* Chiu v. Infoseek Corp. et al. No. 17291
* Finkelstein v. Infoseek Corp. et al. No. 17290
* Freberg v. Infoseek Corp. et al. No. 17289
* Leone v. Infoseek Corp. et al. No. 17287
* Nattress v. Infoseek Corp. et al. No. 17288
* Simonetti v. Infoseek Corp. et al. No. 17297
* Smith v. Infoseek Corp. et al. No. 17303
* Witkin v. Infoseek Corp. et al. No. 17295
Kotrin's complaint was filed by Rosenthal, Monhait, Gross & Goddess in
Wilmington, DE. The firm also filed the Ellis Investments Ltd., Leone,
Freberg, Finkelstein, Witkin and Simonetti suits. The Smith, Nattress and
Chiu suits were filed by Chimicles & Tikellis LLP in Wilmington. (Delaware
Corporate Litigation Reporter 8-2-1999)
LYNN AND MALDEN: Targeted For Suits In Boston On Race-Based Assignments
-----------------------------------------------------------------------
A group that helped force Boston public schools to stop using race-based
student assignments is now taking aim at a state civil rights-era statute
requiring racially balanced public schools.
Chester Darling, an attorney and leader of Citizens for the Preservation
of Constitutional Rights, said he plans to file federal suits in US
District Court in Boston as early as this week against Lynn and Malden,
and is mulling legal action against several other communities, including
Methuen and Holyoke.
Darling alleges that white students have been denied access to schools in
some towns that are required by a 1965 state statue to avoid racial
imbalance, defined as more than 50 percent minority students in any
school. Darling calls the state statute unconstitutional. "This is
old-fashioned discrimination," he said. "Close your eyes. If I was arguing
this case, and these kids were black, what would you say? This isn't
reverse discrimination. It's discrimination."
State Education Department Chairman David Driscoll said there is a good
possibility that the suit could lead to the state statute being struck
down given the current judicial climate. "If there's a challenge, there's
a real chance this could be reversed," he said.
Around the country, similar suits are asking federal courts to throw out
any public student-assignment policy that uses race as a criterion. The
courts have largely been sympathetic to such suits, and in some cases have
ordered entire desegregation orders lifted.
The mood of the courts is one of the reasons the Boston School Committee
decided to stop using race when assigning students to schools.
Earlier this summer, the School Committee agreed to change its assignment
policy for the 2000 academic year after an advocacy group called Boston's
Children First and a group of white parents sued Boston public schools,
alleging that white students were unfairly denied access to schools based
on race.
Darling helped the two groups file the suit, which is still pending.
Boston public schools' decision to end race-based student assignment in
2000 simply does not go far enough, Darling said.
On Aug. 10, US District Judge Nancy Gertner refused a request to force
Boston public schools to implement the change this year instead of in
2000.
Darling said the communities that will be targeted in the planned suits
will attempt to attack the statute, which was enacted in 1965. He said he
has several potential plaintiffs and will select a few students and their
parents from each district who say they were hurt as a result of the
policy. He will file the suit in their names as a class action. "These are
people that have a school within sight of their home, but they are kept
out because of their color," Darling said.
All towns in Massachusetts must file racial enrollment reports for all of
its schools each year, according to several superintendents. If districts
meet the requirements, they receive more funding and priority for funding
to construct new schools, Driscoll said. "There's a lot of concern there
will be changes made if it becomes a court issue," he said.
The state is funding 90 percent of the construction costs for five schools
in Malden, Superintendent George Holland said. If his schools did not meet
the racial balance requirements, they would have received only about 70
percent of the funding, he said.
Holland said that when 3,000 Malden students were reassigned this fall,
not one was denied access to a school based on race. "You might have lost
in the lottery because of a shortage of seats, but it wasn't because of
race," he said, adding that 95 percent of the reassigned students received
their first choice.
Methuen Superintendent Charles Littlefield said he is unfamiliar with the
potential suit, and that his district determines what school students
attend based on geography, never on race.
Officials for Lynn and Holyoke schools could not be reached for comment.
Holland said the state's policies promote racial balancing to prevent a
recurrence of segregation. "If you stopped it and said 'OK, we've done
that, it's over,' the risk is that you return to separate but unequal
facilities," he said. (The Boston Globe 8-24-1999)
MINISTRY OF EDUCATION: Teachers Union Will Sue On Late Payment To Fund
----------------------------------------------------------------------
Both of the national trade unions which represent teachers, the Union of
Polish Teachers (ZNP), which has close ties to the left-wing opposition,
and Solidarity, which often supports the ruling Solidarity Elections
Action (AWS), are protesting against the Ministry of Education's policies.
ZNP has declared that it will ask the Supreme Board of Inspection (NIK) to
verify whether the minister of education adhered to this year's budget
plan and has also signalled that it will initiate a class-action suit
against the government over the payment of PLN 120 million in overdue fees
to the teachers' social fund.
Solidarity warns that it will hold a two-day protest on August 31 and
September 1. Teachers will display the national banner and read a
statement to their students listing the main threats to the new education
system reform. The threats mainly include the poor financial status of
teachers and the increased working hours and additional responsibilities
that are required to launch the education reform. Solidarity hopes that
the two-day protest will encourage the government, the parliament, and
local authorities dealing with education matters to begin meaningful
talks. A high-ranking representative of the teachers' Solidarity union,
Stefan Klubowicz, has made it clear that the union is protesting against
the whole government and not just the minister of education. (Based on the
24 August 1999 issue of Gazeta Wyborcza, No. 197, p. 5) (Polish News
Bulletin 8-24-1999)
O'Quinn: Fires Back With Libel At Allegations Of Fiduciary Breach
-----------------------------------------------------------------
In a sharp retort to a class action lawsuit charging him with breach of
contract and fiduciary duty, breast implant plaintiff attorney John
O'Quinn has filed a suit for libel, slander and business disparagement
against the class representatives' attorneys, Terry Scarborough and Fred
Hagans, and the law firms of Hance, Scarborough & Wright and Hagans &
Bobb. O'Quinn & Laminack v. Terry Scarborough et al., No. 1999-29198 (TX
Dist. Ct., 125th Jud. Dist., July 7, 1999).
On June 4, 1999, three former clients of John O'Quinn's law firm filed a
class action lawsuit alleging that "excessive and inappropriate" costs and
expenses were deducted from their settlement disbursements at the close of
their breast implant cases (see Wood v. O'Quinn, P. 5). On June 7, O'Quinn
filed suit accusing the women's lawyers of libeling him.
O'Quinn's libel suit calls the allegations against him a "sneak attack"
that could harm present and former breast implant clients because each of
his clients' settlements contained strict confidentiality provisions. He
alleges that the class action plaintiffs' attorneys have been
disseminating information to the press that put his clients' settlements
at risk of being undone or that could cause delay in future settlements.
"This would be disastrous to the clients and courts," claims O'Quinn.
The class action lawsuit alleges that O'Quinn's firm netted an estimated
$580 million in fees which are subject to forfeiture due to the alleged
breach of fiduciary duty. The lawsuit also claims O'Quinn's firm
improperly deducted $23 million to pay general expenses and $47 million to
pay for services and expenses provided for the common benefit of
plaintiffs by the Plaintiffs' Steering Committee in the breast implant
multidistrict litigation.
O'Quinn's partner Richard Laminack filed an affidavit with the court
stating that the amounts cited in the class action lawsuit have "no basis
in reality." Furthermore, the three plaintiffs in the class action lawsuit
were happy with their settlements and raised no questions or objections at
the time they received their disbursements, the O'Quinn firm says. The
libel complaint states that the class action attorneys, competitors of the
O'Quinn firm, filed the suit to spread lies that the O'Quinn firm
mistreats its clients in an effort to disparage the reputation and good
will of the O'Quinn firm and to gain a business advantage.
O'Quinn's suit sought a temporary restraining order (TRO) to prevent the
class action plaintiffs' attorneys from conducting a scheduled news
conference. The libel suit charges that the press conference is an attempt
to "hustle business" by reaching out to potential class members in
violation of the Texas Disciplinary Rules of Professional Conduct Canons
of Ethics. Before the judge could hold a hearing on the on the TRO, the
two sides reached an agreement to try to resolve their differences out of
court and not talk to the media or any other of O'Quinn's breast implant
clients. The agreement also dissolves a TRO entered by the court in the
class action lawsuit which precluded O'Quinn from contacting the putative
class members and from continuing to deduct the disputed general expenses
and MDL assessment. (Professional Liability Litigation Reporter August
1999)
STEWART ENTERPRISES: Abbey, Gardy Files Securities Suit In Louisiana
--------------------------------------------------------------------
The following statement was issued by the law firm of Abbey, Gardy &
Squitieri, LLP:
YOU ARE HEREBY NOTIFIED that a Class Action has been commenced in the
United States District Court for the Eastern District of Louisiana, on
behalf of all purchasers of Stewart Enterprises, Inc. (Nasdaq: STEI)
common stock during the period December 15, 1998 through August 12, 1999.
The Complaint charges Stewart Enterprises and certain of its officers and
directors with violations of the federal securities laws. Among other
things, plaintiff claims that defendants issued a series of materially
false and misleading statements regarding the impact that negative trends
in the death care industry was having on Stewart. As a result of these
false and misleading statements, plaintiff alleges that the price of
Stewart's common stock was inflated during the Class Period, allowing the
Chairman of the Board of Directors of Stewart to sell over 700,00 shares
of his personal holdings of Stewart common stock at artificially inflated
prices.
If you are a member of the class described above, you may, not later than
60 days from today, August 24, 1999, move the court to serve as a lead
plaintiff of the class, if you so choose. In order to serve as a lead
plaintiff, however, you must meet certain legal requirements.
Plaintiff is represented by Abbey, Gardy & Squitieri, LLP. Contact
Mark C. Gardy, Esq. Stephen J. Fearon, Esq. Karin E. Fisch, Esq. Abbey,
Gardy & Squitieri, LLP 212 East 39th Street New York, New York 10016
Telephone: 800-889-3701 or 212-889-3700 or by e-mail at kfisch@a-g-s.com
(The Record (Bergen County, NJ) 8-24-1999)
VALENCE TECHNOLOGY: Faces Appeal Against Securities Suits In California
-----------------------------------------------------------------------
In May 1994, a series of class action lawsuits were filed in the United
States District Court for the Northern District of California against the
Company and certain of its present and former officers and directors.
These lawsuits were consolidated, and in September 1994 the plaintiffs
filed a consolidated and amended class action complaint.
Following the Court's Orders on motions to dismiss the complaint, which
were granted in part and denied in part, the plaintiffs filed an amended
complaint in October 1995. The Complaint alleges violations of the federal
securities laws against the Company, certain of its present and former
officers and directors, and the underwriters of the Company's public stock
offerings, claiming that the defendants issued a series of false and
misleading statements, including filings with the Securities and Exchange
Commission, with regard to the Company's business and future prospects.
The plaintiffs seek to represent a class of persons who purchased the
Company's common stock between May 7, 1992 and August 10, 1994. The
Complaint seeks unspecified compensatory and punitive damages, attorney's
fees and costs.
On January 23, 1996, the Court dismissed, with prejudice, all claims
against the underwriters of the Company's public stock offerings, and one
claim against the Company and its present and former officers and
directors. On April 29, 1996, the Court dismissed with prejudice all
remaining claims against a present director and limited claims against a
former officer and director to the period when that person was an officer.
In December 1996, the Company and the individual defendants filed motions
for summary judgment, which the plaintiffs opposed. In November 1997, the
Court granted the Company's motion for summary judgment and entered a
judgment in favor of all defendants. Plaintiffs appealed to the Ninth
Circuit Court of Appeals, which heard argument in December 1998. In April
1999, the Ninth Circuit issued an opinion reversing the District Court's
order with respect to the grant of summary judgment in favor of the
Company and remanded the case back to the District Court. Although the
Company continues to believe that it has a meritorious defense in this
lawsuit, an unfavorable resolution of the lawsuit could have a material
adverse effect on the Company's financial condition and results of
operation.
WARNER-LAMBERT: Federal Judge Remands Head Lice Suit In California
------------------------------------------------------------------
A federal judge remanded a class action over allegedly defective head lice
treatments last month, after finding that the amount of damages sought by
the plaintiffs does not warrant federal subject matter jurisdiction.
Kanter et al. v. Warner- Lambert Co. et al., No. C99-1154 (FMS) (ND CA,
July 9, 1999).
The defendants in the suit, added U.S. District Judge Fern M. Smith, also
failed to meet their burden of proving that the parties are of diverse
citizenship.
Defendants Warner-Lambert Co., Pfizer Inc., Care Technologies Inc. and
Hogil Pharmaceutical Corp. manufacture and sell over-the-counter head lice
remedies. According to the lawsuit, which was originally filed in San
Francisco Superior Court by plaintiffs Susan Kanter and Sharlon Plunk, the
defendant manufacturers have continued to sell their products even though
they are aware that head lice have developed resistance to their active
ingredients, rendering the products useless. The plaintiffs seek to
represent a class of all California residents who have purchased the
allegedly offending products as well as an injunction prohibiting the
defendants from selling the treatments.
Pfizer removed the case to U.S. District Court for the Northern District
of California on the basis of diversity of citizenship and the amount in
controversy. Judge Smith granted the plaintiffs' motion to remand,
however, after finding that the proposed damages would not exceed $75,000.
While the defendants claimed that the cost of complying with the
plaintiffs' proposed injunction would exceed the jurisdictional amount,
Judge Smith stated that their argument neglects the fact that the Ninth
Circuit U.S. Court of Appeals rejected the "defendant's-viewpoint"
approach in Snow v. Ford Motor Co., 561 F.2d 787, 789-791 (9th Cir.,
1977). "The right asserted by the plaintiffs in this case is the right of
individual future consumers to be protected from purchasing the
defendants' allegedly defective products," she wrote. "Such a purchase is
said to injure consumers in an amount between $9 and $17 each."
Pfizer, Judge Smith continued, "misses the mark" when arguing what the
defendants' cost will be in determining the amount in controversy.
Moreover, Judge Smith rejected the defendants' contention that the
plaintiffs' punitive damages claims may be aggregated to satisfy the
jurisdictional minimum. If each plaintiff can pursue a claim individually,
he said, then the interests are separate and distinct and may not be
aggregated.
Judge Smith, on a separate issue, added that removal was improper in the
case because the plaintiffs' complaint does not contain sufficient factual
allegations to determine the citizenship of any of the defendants.
(Consumer Product Litigation Reporter August 1999)
WASTE MANAGEMENT: Sued By Louisiana School Employees' Retirement System
-----------------------------------------------------------------------
The following was released by the law firm of Bernstein, Litowitz, Berger
& Grossmann LLP:
The Louisiana School Employees' Retirement System (the "Fund") has filed a
class action lawsuit against Waste Management, Inc. (NYSE: WMI), and
certain of its officers and directors, according to its counsel Bernstein
Litowitz Berger & Grossmann LLP. The Fund expects to seek a lead plaintiff
role in the class action, which is brought on behalf of all persons who
purchased WMI common stock between February 25, 1999 and August 2, 1999
inclusive.
The Fund alleges that WMI overstated its publicly reported financial
results during the Class Period, and made numerous materially false and
misleading statements concerning the Company's operating condition. The
Complaint alleges that WMI improperly boosted its reported operating
results by including in its net income tens of millions of dollars of
one-time gains from non-operating items and retroactive accounting changes
that should have been segregated and excluded from the Company's reported
operating results.
Indeed, on August 16, 1999, WMI admitted that it would restate its
previously reported financial results for its first quarter ended March
31, 1999 to reduce operating income before taxes by more than $ 30 million
to correct the misstatements contained in the Company's Form 10-Q filed
for the quarter. The Company further revealed that it also would revise
its publicly reported results for its second quarter ended June 30, 1999,
to eliminate millions of dollars that had been improperly included in
WMI's net income before taxes, as alleged in the Complaint.
The Complaint further alleges that defendants engaged in this unlawful
activity for the purpose of inflating the price of WMI common stock, so
that they could profit from the sale of a substantial portion of their
equity stake in the Company at artificially inflated prices. As detailed
in the Fund's Complaint, certain of WMI's top officers and directors,
including the individual defendants, sold over 1.3 million shares of WMI
common stock during the Class Period, before the disclosure of the
misstatements detailed above, in return for proceeds of nearly $ 72
million.
The Louisiana School Employees' Retirement System is a pension fund and
institutional investor with assets of approximately $ 1.4 billion that
exists for the benefit of the employees of the State of Louisiana public
schools. The Fund is represented by the law firm of Bernstein Litowitz
Berger & Grossmann LLP. The Fund encourages institutional and individual
investors who suffered significant losses on purchases of WMI common stock
during the Class Period to join with it in this important litigation. Any
motion to be appointed lead plaintiff in this action must be filed no
later than September 7, 1999. Contact Douglas M. McKeige or Robert S.
Gans, partners of Bernstein Litowitz Berger & Grossmann LLP at (800)
380-8496 or (212) 554-1400 or by e-mail at Robert@blbglaw.com or visit
website http://www.blbglaw.com
TICKER: NYSE:WMI
WASTE MANAGEMENT: Morris and Morris Announce Securities Suit In Texas
---------------------------------------------------------------------
The following is an announcement issued by Morris and Morris:
A class action lawsuit was filed on August 18, 1999 in the U.S. District
Court for the Southern District of Texas, Houston Division, seeking to
pursue remedies under the Securities Exchange Act of 1934 on behalf of all
persons who purchased securities of Waste Management, Inc. ("WMI") between
May 6, 1999 and July 6, 1999 inclusive.
The class action complaint alleges a fraudulent scheme and deceptive
course of conduct by certain individuals, officers and/or directors of
WMI, who disseminated materially misleading statements during the Class
Period. Specifically, these Defendants caused WMI to report revenues and
earnings for the first quarter of fiscal 1999, and to project revenues and
earnings for WMI's fiscal second quarter 1999, knowing or recklessly
disregarding that WMI's reported results were materially inflated by the
improper inclusion of nonrecurring items in operating revenues, and that
the Defendants' second quarter projections were founded upon highly
unreasonable assumptions contrary to the facts known to the Defendants
when they issued these projections. These false and misleading reports
caused the price of WMI stock to be artificially inflated throughout the
Class Period, injuring the Class and enabling the Defendants to reap
millions of dollars in insider trading profits for themselves.
Plaintiff is represented by, among others, the law firm of Morris and
Morris. If you are a member of the Class described above, you may move the
Court to serve as lead plaintiff to the Class on or before September 6,
1999. Contact Patrick F. Morris, Esq. or James A. McShane, Esq. at Morris
and Morris by calling toll free 1-800-296-0410 or by e-mail at
morrisandmorris@compuserve.com or by fax at 302/426-0406 or by writing
Morris and Morris at 1105 North Market Street, Suite 1600, Wilmington, DE
19801.
Y2K LITIGATION: First Y2K Class Certified In DBN Inc. V. Sage Software
----------------------------------------------------------------------
On May 27, 1999, DBN Inc. v. Sage Software Inc. became the first Year
2000 class action lawsuit to be certified by a court. The lawsuit, filed
with the Superior Court for Orange County, CA, charges Sage with, among
other things, fraudulent business practices and breach of an express
warranty. Sage had advertised that its "M*A*S 90" accounting software
would "handle the needs of your business through the 90's and beyond."
The plaintiffs, who purchased the M*A*S 90 software, allege in their
complaint that all versions sold prior to 1998 are not Year 2000
compliant, and that the user manuals provided with the software falsely
suggested that the software was capable of handling four-digit year
fields. Sage has purportedly made compliant M*A*S 90 software available,
but only for an upgrade fee of $7,000. The plaintiffs request, among
other things, that the upgrades be provided free to all purchasers of the
software. The class of plaintiffs in DBN Inc. v. Sage Software Inc. is
made up of over 40,000 nationwide users that purchased the M*A*S 90
accounting software package from January 1990 through February 1998.
Over 75 Year 2000 lawsuits have been filed since 1997, of which at least
25 are class action lawsuits. This is the first instance, however, in
which a judge has deemed a Year 2000 class action to be worthy of
certification. As a general rule, once a class is certified, the value of
the lawsuit is presumptively enhanced. In this regard, to be certified as
a class, plaintiffs must meet certain requirements. One or more members
of a class may sue or be sued as representative parties on behalf of all
parties only if: (1) the class is so numerous that joining all members is
impracticable; (2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are typical of
the claims or defenses of the class; and (4) the representative parties
will fairly and adequately protect the interests of the class.
In addition to satisfying these conditions, plaintiffs must show that one
of the following will occur to maintain a class action:
1. The prosecution of separate actions by or against individual
members of the class would create a risk of inconsistent or varying
decisions with respect to individual members of the class which
would establish incompatible standards of conduct for the party
opposing the class, or decisions with respect to individual members
of the class that would, as a practical matter, be dispositive of
the interests of the other members not parties to the case or
substantially impair or impede their ability to protect their
interests;
2. The party opposing the class has acted or refused to act on grounds
generally applicable to the class, thereby making appropriate final
injunctive relief or corresponding declaratory relief with respect
to the class as a whole; or
3. The court finds that the questions of law or fact common to the
members of the class predominate over any questions affecting only
individual members, and that a class action is superior to other
available methods for the fair and efficient review of the
controversy.
Among the matters to be considered when deciding whether a class action is
superior to other available methods in terms of fairness and efficiency
are the interest of members of the class in individually controlling the
prosecution or defense of separate actions, the extent and nature of any
litigation concerning the controversy already commenced by or against
members of the class, the desirability or undesirability of concentrating
the litigation of the claims in the particular forum, and/or the
difficulties likely to be encountered in the management of a class action.
Of the approximately 25 Year 2000 class action suits that have been filed,
at least 10 have already been dismissed. The court's decision to certify
the class of DBN Inc. v. Sage Software Inc. marks the first instance in
which a court has found that the plaintiffs in a Year 2000 class action
lawsuit have sufficiently satisfied the criteria for class certification
to enable the cause of action to move forward as a class. This is
significant because it is likely that that a significant amount of the
Year 2000 litigation in the new millennium will be class actions filed by
shareholders against public corporations alleging that the company did not
adequately address its Year 2000 problems.
Although it is unclear whether the certification of the class of
plaintiffs in DBN Inc. v. Sage Software Inc. will set a trend favoring
class certification, the threshold of certifying the first class in a Year
2000 lawsuit has now been crossed, and may provide a template for future
class actions in Year 2000 litigation.
Y2K Liability Law
On July 20, 1999, President Clinton signed the Y2K Act 1 into law. The Y2K
Act's stated purposes are: (1) "to establish uniform legal standards that
give all businesses and users of technology products reasonable incentives
to solve year 2000 computer date-change problems before they develop"; 2
(2) "to encourage continued remediation and testing efforts to solve such
problems by providers, suppliers, customers, and other contracting
partners"; 3 (3) "to encourage private and public parties alike to resolve
disputes relating to year 2000 computer date-change problems by
alternative dispute mechanisms in order to avoid costly and time-consuming
litigation"; 4 and (4) "to lessen the burdens on interstate commerce by
discouraging insubstantial lawsuits while preserving the ability of
individuals and businesses that have suffered real injury to obtain
complete relief."
The Y2K Act does not create any new causes of action. 6 Rather, it
modifies existing state or federal law remedies7 for non-personal injury
liability arising from Y2K failures,8 whether sounding in contract9 or
tort,10 by requiring that notice be given before any Y2K failure lawsuit
is filed, 11 by imposing heightened pleading requirements12 and by placing
caps and limits on awards of punitive damages. 13 It lessens the specter
of vicarious liability by eliminating joint and several liability in many
cases. Instead, it favors individual apportionment of damages to
defendants, so long as there is no finding that the defendants acted with
specific intent to injure the plaintiff or knowingly committed fraud. 14
The Y2K Act bars liability arising solely from a defendant's control over
the system, product or facility where a Y2K failure occurred 15 and grants
the federal courts non-exclusive original jurisdiction over Y2K class
actions in some instances. 16 The Y2K Act operates only for a limited
window of time, covering only failures or potential failures that could
occur or allegedly cause injury prior to Jan. 1, 2003.
Stated Purposes v. Actual Effects
The Y2K Act's stated findings and purposes assert that the specter of
frivolous and opportunistic Y2K liability litigation may impede companies
from the preparation and cooperation necessary to avert Y2K-related
business disruptions. 18 Similar concerns were voiced as the justification
for Congress's prior piece of Y2K legislation, the Year 2000 Information
and Readiness Disclosure Act (IRDA), passed in October 1998. 19 Yet while
Congress took the position in connection with the IRDA that "it would be
counterproductive to relieve companies o f liability for building bad
products, doing sloppy work, or being careless with the truth," 20 the new
Y2K Act in many respects seems to do just that. Its provisions are not
limited to liability arising from current Y2K remediation efforts. In
fact, it lessens the liability exposure for actions that may have been
taken years ago -- and indeed for actions that were not undertaken as Y2K
remediation at all, but rather which were the very source of the Y2K
problem to begin with. The Y2K Act thus appears to represent a significant
transformation in Congress's thinking on basic Y2K policy issues in a very
short period of time.
Basic Scope of the Y2K Act
The Y2K Act applies to any "Y2K action" brought after Jan. 1, 1999, for an
actual or potential "Y2K failure" occurring before Jan. 1, 2003. 21 A "Y2K
Action" is defined as "a civil action commenced in any Federal or State
court ... in which the plaintiff's alleged harm or injury arises from or
is related to an actual or potential Y2K failure, or a claim or defense
that arises from or is related to an actual or potential Y2K failure." 22
The definition of a Y2K Action includes actions brought by a government
entity acting "in a commercial or contracting capacity," 23 but does not
include actions brought by a government entity acting "in a regulatory,
supervisory, or enforcement capacity." 24
A "Y2K failure" is defined in the Y2K Act as a failure by "any device or
system ... or any software ... to process, to calculate, to compare, to
sequence, to display, to store, to transmit, or to receive year-2000
date-related data." 25 Included in this definition are failures: (1) "to
deal with or account for transitions or comparisons from, into, and
between the years 1999 and 2000 accurately"; 26 (2) "to recognize or
accurately to process any specific date in 1999, 2000, or 2001"; 27 or (3)
"accurately to account for the year 2000's status as a leap year,
including recognition and processing of the correct date on February 29,
2000." 28
Notably, the Y2K Act does not apply to claims for personal injury or
wrongful death. 29 Additionally, in any Y2K action where the underlying
claim arises under the securities laws, only Section 13(b) of the Y2K Act
(dealing with limitation of bystander liability) will apply; all other
sections of the law will be inapplicable. 30
Credit Protection Provisions
Although most of the Y2K Act's provisions are focused on the litigation
process, the law does contain some more general protections. The Y2K Act
offers protection for homeowners who may otherwise face harsh penalties in
the wake of a Y2K crisis that injures the country's payment systems. In
essence, a consumer/homeowner who is unable to "accurately or timely
process any mortgage payment transaction" 31 due to an actual Y2K failure
is protected from adverse action, i.e., foreclosure. 32 To take advantage
of this protection, consumers/homeowners who are affected by a Y2K failure
must notify, in writing, within seven business days from the time they
become aware of the problem, the servicer of the mortgage. 33 This
provision, however, only delays but does not forever prevent the
enforcement of financial obligations. 34 An action to foreclose may be
instituted against a consumer/homeowner whose mortgage payments have not
been paid by the later of "four weeks after January 1, 2000" 35 or "four
weeks after notification is made to the servicer of the mortgage , except
that any notification made on or after March 15, 2000, shall not be
effective for purposes of this subsection." 36 To avoid this harsh result
and prevent foreclosure, a homeowner can seek to obtain an extension from
the servicer of the mortgage in writing.
The Pre-Filing Notice Requirement
The new law addresses many of the stages of the litigation process,
including the stage before litigation is even commenced. The Y2K Act
provides that prior to the commencement of a Y2K Action, other than a
claim for injunctive relief, a prospective plaintiff shall send "written
notice by certified mail ... to each prospective defendant in that
action." 38 Included in this notice should be specific information
concerning: the (1) "manifestations of any material defect alleged";39 (2)
the nature of the "harm or loss allegedly suffered"; 40 (3) "how the
prospective plaintiff would like the prospective defendant to remedy the
problem"; 41 (4) "the basis upon which the prospective plaintiff seeks
that remedy"; 42 and (5) the name and other such identifying information
of "any individual who has authority to negotiate a resolution of the
dispute on behalf of the prospective plaintiff."
The prospective defendant is given 30 days after receipt of the notice to
provide each plaintiff (via certified mail, return receipt requested) with
"a written statement acknowledging receipt of the notice, and describing
the actions it has taken or will take to address the problem identified by
the prospective plaintiff." 44 The statutory language does not suggest
that this approach is mandatory in all cases, but rather that it is simply
an option the defendant may or may not elect to pursue. If the prospective
defendant responds and proposes a course of action to remediate, the
prospective plaintiff must allow the prospective defendant "an additional
60 days from the end of the 30-day notice period to complete the proposed
remedial action" prior to bringing suit. 45 In the absence of an agreement
between the parties,46 a defendant is limited to one 30-day response
period and one 60-day remediation period. 47 All applicable statutes of
limitations in a Y2K action are tolled during the notice and remediation
periods. 48
Defendants need not worry about potential evidentiary implications of
responding in writing to plaintiff's notice. Pursuant to the Y2K Act, the
responsive statement and remediation plan provided by a defendant are not
admissible to prove liability under Rule 408 of the Federal Rules of
Evidence or under any comparable state rule of evidence. 49
The purpose of the 90-day pre-filing notice requirement is to create a
procedure that might facilitate the parties' resolution of the problem
through voluntary efforts or through alternative dispute resolution. 50
The Y2K Act provides that if a lawsuit is filed without giving prior
notice, or without awaiting expiration of the 30-day waiting period, the
defendant "may" treat plaintiff's complaint as such notice, which will
then stay all proceedings in the litigation for 90 days and likewise toll
the time for filing responsive pleadings.
An issue created by the pre-filing notice requirement is what happens if
the party giving the notice does not immediately file suit after the
90-day period has expired, but rather takes a "wait and see" approach
regarding the success or failure of the remedial course of action proposed
by the defendant in response to the notice. 52 Will such a response by the
original notifying party be deemed to constitute an accord and
satisfaction that will bar future litigation between the parties The Act
is silent on this subject. Should it matter if the delay between the
defendant's completion of the specified remedial response and the
institution of the lawsuit is, say, over two years as opposed to a mere 30
days Will potential Y2K defendants really be inclined to offer pre-suit
remediation that involves any significant level of expense if they cannot
thereby obtain sufficient assurances of certainty and finality with regard
to potential future litigation activity
Matters such as these may need to be explicitly addressed in the
defendant's response to the pre-filing notice in order to make offering
pre-filing remediation efforts a viable approach toward avoiding actual
Y2K litigation. Alternatively , a defendant might insist upon only taking
pre-suit remedial action in the context of an alternative dispute
resolution process that can address and rule upon these issues.
Class Actions
The new law affects the structure of Y2K litigation by adopting special
rules for class action litigation. With regard to class actions, the Y2K
Act imposes a "material defect" requirement 53 which states that a Y2K
action asserting that a product or service is defective can only be
maintained as a class action if, in addition to satisfying all other
federal and state law prerequisites, "the court finds that the defect in a
product or service as alleged would be a material defect for the majority
of the members of the class." 54 The Y2K Act defines a "material defect"
as "a defect in any item, whether tangible or intangible, or in the
provision of a service, that substantially prevents the item or service
from operating or functioning as designed or according to its
specifications." 55 The Y2K Act also requires detailed notice of the class
action to be directed to each of the class members.
Additionally, the Y2K Act provides for Y2K class actions to be brought in
or removed to federal district courts, subject to numerous restrictions.
57 A Y2K action may not be brought as a federal class action if: (1) it is
essentially a single-state action, i.e., a substantial majority of the
class members are from the same state; 58 (2) the primary defendants are
from that state;59 and (3) the claims will be governed by the law of that
state. 60 Also, the federal courts will not have original jurisdiction
over a Y2K action if: (1) the plaintiff class does not seek punitive
damages and the amount in controversy is less than $10,000,000 or the
proposed class contains less than 100 members; 61or (2) the defendants are
government entities.
A possible "sticking point" is the multi-state jurisdictional requirement
for class actions. The requirement that a substantial majority of the
proposed plaintiffs' class not be citizens of the same state will surely
lead to endless litigation in and of itself -- a result that is clearly
antithetical to the stated purposes of the Y2K Act. (Computer & Online
Industry Litigation Reporter 8-3-1999)
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S U B S C R I P T I O N I N F O R M A T I O N
Class Action Reporter is a daily newsletter, co-published by Bankruptcy
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Washington, DC. Theresa Cheuk and Peter A. Chapman, editors.
Copyright 1999. All rights reserved. ISSN 1525-2272.
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