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                C L A S S   A C T I O N   R E P O R T E R

               Thursday, September 2, 1999, Vol. 1, No. 148

                                 Headlines

A.G. FINANCIAL: Seeks Chap 11; Appealing MI Suit Over Satellite Systems
BRAUVIN CORPORATE: Liquidation After Settlement Approved By Illinois Ct
CA PRISONS: Lawyers Honored For Fight For Disabled Inmates And Parolees
CREDIT LYONNAIS: Ap. Ct. Vacates Judgment Against Venezuelan Firm
FEN-PHEN: Worried Dieter Takes Stand At Trial Of N.J. Drug Maker

FIRST UNION: Sued Over Fid Duty & ERISA When Pension Plans Change Hands
GMAC: 11th Cir. Holds Attorney Fees Don't Count Toward Diversity Min.
GUN MANUFACTURERS: 5th Cir Grants Glock Appeal Against Texas Class Cert
GUN MANUFACTURERS: Detroit Cops' Sale To Gun Dealers Undermines Lawsuit
GUN MANUFACTURERS: Gun-Show Promoter Mulls Legal Action Over LA Gun Ban

HOLOCAUST VICTIMS: German Fund Chief Impatient For Deal
ILM II: Settlement For Shareholders' Suit Awaits N.Y. Ct. Decision
JONES INTERCABLE: Sued By Investors In Cable TV Over Price For System
LUFKIN INDUSTRIES: Appeals In Lou. Employment Race Bias Suit In Texas
SMOKING GUN: Jurors’ Verdict Show Outrage at Industry

SS&C TECHNOLOGIES: Settles For Suit In Connecticut Over IPO
US LIQUIDS: Wolf Popper Files Securities Suit In Texas
WORKERS COMPENSATION: Ap Ct Agrees Decision Not Apply To Resolved Cases
YBM: Peterson, Mitchell Seek Exclusion From Shareholders' Suit In Phil.
ZILOG INC.: Plaintiffs Of Securities Suit Appeal To California 9th Cir.

                              *********

A.G. FINANCIAL: Seeks Chap 11; Appealing MI Suit Over Satellite Systems
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A consumer finance company ordered by a judge to pay $168 million in
damages has filed for Chapter 11 bankruptcy protection from about
240,000 people who financed home satellite systems through the company.
The filing allows A.G. Financial Service Center Inc., a subsidiary of
American General Finance Inc. of Evansville, Ind., to keep creditors at
bay while it reorganizes its finances.

All but about $2 million of the $170 million in debts A.G. Financial
listed in its bankruptcy petition result from the judgment pending in a
Mississippi state court. A.G. Financial reported about $7.2 million in
assets.

A.G. Financial has not been in operation since it sold much of its
assets in June, said chairman Bettina Whyte. She said 52 lawsuits are
pending against the company, many of which are related to loans it made
for consumers to purchase home satellite systems.

The company is appealing a May ruling that it must pay 29 plaintiffs a
total of $167.7 million in damages, most of them punitive. The
plaintiffs all purchased satellite systems that were financed through
A.G. Financial.

Kevin P. Dempsey, assistant U.S. trustee, said most of the 240,000
creditors A.G. Financial is seeking protection from are residents of
Southern states who purchased the satellite systems.

The court cited instances where plaintiffs paid hundreds of dollars on
the accounts, but their balances never decreased. The company's agents
had advertised a monthly financing rate without disclosing that it would
result in negative amortization, the court said.

Texas-based American General Corp., the parent company of A.G. Financial
and American General Finance Inc., has said A.G. Financial acted
properly in making credit available for the satellite systems.
(AP Online 8-27-1999)


BRAUVIN CORPORATE: Liquidation After Settlement Approved By Illinois Ct
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The following is the SEC filing in connection with Brauvin Corporate
Lease Program IV L P:

Two legal actions, as hereinafter described, against the General
Partners of the Partnership and affiliates of such General Partners, as
well as against the Partnership on a nominal basis in connection with
the sale, have been settled. On April 13, 1999, all the parties to the
litigation reached an agreement to settle the litigation, subject to the
approval by the United States District Court for the Northern District
of Illinois. This approval was obtained on June 18, 1999. Management
believes that the settlement will not have a material financial impact
on the Partnership. The terms of the settlement agreement, along with a
Notice to the Class, were forwarded to the Limited Partners in the
second quarter.

One additional legal action, which was dismissed on January 28, 1998 had
also been brought against the General Partners of the Partnership and
affiliates of such General Partners, as well as the Partnership on a
nominal basis in connection with the sale. With respect to these actions
the Partnership and the General Partners and their named affiliates
denied all allegations set forth in the complaints and vigorously
defended against such claims.

Unfortunately, however, the delay caused by the litigation has had an
adverse effect on the Partnership today as well as on future prospects.

On January 16, 1998, by agreement of the Partnership and the General
Partners and pursuant to a motion of the General Partners, the District
Court entered an order preventing the Partnership and the General
Partners from completing the Sale, or otherwise disposing of all or
substantially all of the Assets, until further order of the Court.

On January 28, 1998, the District Court entered an Order of Reference to
Special Master, designating a Special Master and vesting the Special
Master with authority to resolve certain aspects of the lawsuit subject
to the District Court's review and confirmation. The Special Master has
been empowered to determine how the assets of the Partnership should be
sold or disposed of in a manner which allows the Limited Partners to
maximize their financial return in the shortest practicable time frame.
In addition, early in the second quarter of 1998, the Special Master
retained a financial advisor (the "Financial Advisor"), at the expense
of the Partnership, to assist the Special Master. The Financial Advisor
was engaged to perform a valuation of the properties of the Partnership
as well as a valuation of the Partnership itself. The cost to the
Partnership for the services of the Financial Advisor was $70,000.

On November 4, 1998, the Special Master filed an additional Report and
Recommendation with the District Court, requesting that the Court
withdraw its Order of Reference to Special Master on the grounds it
would be impossible to effect the sale of the Partnership's properties
in a manner that maximizes the financial return to Limited Partners in a
short time frame, unless certain litigation issues are resolved. The
District Court has accepted this Report and Recommendation.

On January 21, 1999, plaintiffs filed another amended complaint, adding
additional claims against the General Partners and seeking class
certification under Federal Rule 23 as to the newly added claims, and as
to all other claims in plaintiffs' complaint which had not been
previously certified. The District Court granted plaintiffs' request for
class certification as to all of the claims not previously certified,
and certified all of the claims of the plaintiffs' complaint under Rule
23(b)(1), 23(b)(2)and 23(b)(3).

In addition, pursuant to the General Partners' motion, the District
Court dismissed as moot certain of plaintiffs' claims, including
plaintiffs' claim that the General Partners violated certain of the
rules of the Securities and Exchange Commission by allegedly making
false and misleading statements in the Proxy. The District Court
similarly dismissed as moot a counterclaim that had been made against
class plaintiffs and their counsel for violating the federal securities
laws.

On April 13, 1999, all of the parties reached a Settlement Agreement
encompassing all matters in the lawsuit. The Settlement Agreement is
subject to the approval by the District Court, and the Limited Partners
will be provided with a written notice concerning its terms. The
settlement will not have a material financial impact to the Partnership.

As a result of the settlement agreement that was approved by the United
States District Court for the Northern District of Illinois on June 18,
1999 the Partnership has begun the liquidation process. The settlement
agreement gave the Special Master authority to liquidate the assets of
the Partnership in an orderly manner, to this end the Special Master has
retained the services of the Financial Advisor who is actively marketing
the properties for sale.


CA PRISONS: Lawyers Honored For Fight For Disabled Inmates And Parolees
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The State Bar has rained accolades on a team of McCutchen, Doyle, Brown
& Enersen attorneys that waged a five-year battle on behalf of disabled
prison inmates and parolees. McCutchen partner Warren George and
associate Jennifer Jonak and counsel Frank Kennamer were among a dozen
firm attorneys who represented plaintiffs in Armstrong v. Davis,
94-2307, a class action filed in 1994. The State Bar announced that it
has bestowed one of its 1999 President's Pro Bono Service Awards upon
the McCutchen group for its work on the case.

The award follows closely on the heels of U.S. District Judge Claudia
Wilken's tentative ruling in Armstrong. After closing arguments were
presented last May, Wilken told the court that the evidence she had
heard was "shocking and appalling" and that "there has been,
essentially, no defense presented to what has happened here."

At trial, the plaintiffs' attorneys had presented evidence that
California's parole board, the Board of Prison Terms, had failed to
provide adequate accommodations at parole hearings to prisoners and
parolees with a range of physical and mental disabilities. They cited
examples of paraplegic inmates and parolees who had to crawl up  stairs,
hearing-impaired inmates who were denied sign language interpreters, and
mentally retarded inmates who were given no help in understanding
documents. Neither the parole board nor anyone else took responsibility
to provide accommodations for the disabled at the hearing sites,
according to McCutchen's  Jonak. "Imagine going to court for a traffic
ticket and not being able to read the documents used as evidence against
you," she says.

Jonak, who was the lead attorney for McCutchen on the case, says it was
"one of those instances in which you have the conviction that you're on
the right side."  After interviewing dozens of inmates at far-flung
California prisons -- an experience she called "an adventure in and of
itself" -- Jonak says she came away "believing much more strongly in
rehabilitation."  "I became very sympathetic to the problems inmates
face," she adds. "They're probably the most stigmatized group in society
and the one that least expects sympathy and pity from anyone else."

Jonak expects Wilken to issue a final ruling in September. If Wilken
sustains her decision -- and it is not overturned on appeal -- the
facilities where parole hearings are held will be surveyed and prisoners
and parolees interviewed to determine what types of accommodations are
needed. The plaintiffs also hope to recover attorneys fees.

Although the State Bar singled out the McCutchen attorneys for the
award, they were but one of four groups working on behalf of the
plaintiffs. Donald Specter and Sara Norman of the nonprofit, San
Quentin-based Prison Law Office; Michael Bien, William Fernholz and
Shana Margolis of S.F.'s Rosen, Bien & Asaro; and Caroline Mitchell of
Pillsbury Madison & Sutro were also members of the trial team arguing
the case. (The Recorder 8-30-1999)


CREDIT LYONNAIS: Ap. Ct. Vacates Judgment Against Venezuelan Firm
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SUMMARY U.S. Court of Appeals: 2d Cir. CIVIL PRACTICE

Plaintiff New York-based securities firm contracted with defendant
Venezuelan securities firm and its chief executive officer to sell
plaintiff specified shares of stock, which plaintiff then contracted to
sell to third parties. When defendants failed to deliver the securities,
plaintiff paid to cover the "short positions," and debited defendants'
account for the difference in price. Defendants failed to make payment,
and plaintiff sued. Defendants failed to file an answer, and plaintiff
moved for a default judgment. Opposing, defendants cross-moved to
dismiss, claiming that during the period in issue, their offices were
closed and their assets were frozen. The district court entered judgment
for plaintiff. Defendants appealed. Vacating, the panel held that the
required factual inquiry as to whether the court had personal
jurisdiction over defendants was not conducted.

By Leval, Pooler and Heaney, C.JJ.

The Honorable Gerald W. Heaney, Senior Circuit Judge of the United
States Court of Appeals for the Eighth Circuit, sitting by designation.

CREDIT LYONNAIS SECURITIES (USA), INC., v. ALCANTARA
QDS:04109334 -- Leval C.J.

Defendants appeal from a default judgment of the United States District
Court for the Southern District of New York (Schwartz, J.), sitting in
diversity and applying New York law, in an action to recover amounts
allegedly owed by defendants as a result of certain securities
transactions. The district court denied defendants' motion to dismiss
for lack of personal jurisdiction under Fed. R. Civ. P. 12(b)(2),
finding that the facts alleged in the complaint, if true, were
sufficient to confer personal jurisdiction over the Venezuelan
defendants under New York's long-arm statute. Without making findings as
to the truth or falsity of plaintiff's jurisdictional allegations, the
district court went on to grant plaintiff's motion for a default
judgment in the amount of $ 378,993 pursuant to Fed. R. Civ. P. 55(a).
Because the court failed to determine whether the defendants had in fact
done what was alleged in the complaint -- thereby subjecting themselves
to the jurisdiction of the New York courts -- we vacate the judgment and
remand.

                             Background

Plaintiff Credit Lyonnais Securities USA, Inc., is a New York-based
securities and investment banking firm. Defendant Cavelba S.A. is a
Venezuelan securities firm based in Caracas, Venezuela. Defendant Rafael
Alcantara, a resident of Caracas and a Venezuelan national, is Cavelba's
Chief Executive Officer and principal stockholder.

On August 9, 1996, plaintiff filed the instant suit in the district
court. The complaint alleged the following. Since 1991 the defendants
had engaged in numerous securities and arbitrage transactions with
plaintiff, and had maintained an account with plaintiff for that
purpose. Between approximately December 14, 1993 and February 4, 1994,
defendants contracted to sell plaintiff specified shares of stock at an
aggregate price of $ 449,656.50. Plaintiff then contracted to sell these
securities to third parties. Defendants failed to deliver the
securities.

The market for the securities defendants had failed to deliver
increased. To cover the short positions in defendants' account,
plaintiff paid $ 714,072.29. It debited defendants' account in the
amount of $ 264,415.79 -- the difference between the buy-in price and
the contract price. After defendants failed to comply with plaintiff's
numerous demands for payment, plaintiff brought suit.

When defendants failed to file an answer, plaintiff moved for a default
judgment pursuant to Fed. R. Civ. P. 55, and the court signed an order
to show cause as to why default should not be entered. Defendants
opposed the motion for a default judgment and cross-moved to dismiss for
lack of personal jurisdiction under Fed. R. Civ. P. 12(b)(2). In their
moving papers, defendants asserted that for the entire time period
during which plaintiff claimed the transactions took place, beginning on
November 5, 1993, Cavelba was enjoined by the Venezuelan courts from
doing business, its offices were closed, its membership on the Caracas
stock exchange suspended, and its assets frozen. Alcantara asserted that
he was in jail from December 17, 1993 until May 2, 1994, when the
charges against him were found to be without merit and his assets
returned to him. An affidavit of defense counsel asserted that while
defendants had sold securities to plaintiff in the preceding years,
between November 5, 1993 and June 22, 1994, defendants "did not sell any
securities to the plaintiffs or any other person or entity anywhere in
the world."

By written opinion dated April 28, 1998, the court denied defendants'
motion to dismiss and granted plaintiff's motion for a default judgment.
The court awarded damages in the amount of $ 378,993 -- the amount of
plaintiff's claim plus interest and costs. This appeal followed.

                              Discussion

Because the court failed to conduct the necessary factual inquiry as to
whether it had personal jurisdiction over defendants, we vacate the
judgment and remand for further proceedings.

Motions to dismiss under Rule 12(b)(2) may, in part, test plaintiff's
theory of jurisdiction and, in part, test the facts supporting the
jurisdictional theory. District courts are afforded "considerable
procedural leeway" in deciding them. Marine Midland Bank, N.A. v.
Miller, 664 F.2d 899, 904 (2d Cir. 1981). In ruling on the theory of
jurisdictional allegations, the court may provisionally accept disputed
factual allegations as true. In making such a ruling, the court need
only determine whether the facts alleged by the plaintiff, if true, are
sufficient to establish jurisdiction; no evidentiary hearing or factual
determination is necessary for that purpose. See id.

We find no error in Judge Schwartz's conclusion that plaintiff's
allegations, if true, satisfy the jurisdictional requirements of New
York's long-arm statute, N.Y.C.P.L.R. @ 302(a)(1). The statute permits a
court to exercise jurisdiction over a non-domiciliary defendant if 1)
the defendant "transact[s] business" in New York, and 2) the cause of
action arises out of that business activity, such that an "articulable
nexus" exists between them. See CutCo Indus., Inc. v. McNaughton, 806
F.2d 361, 365 (2d Cir. 1986) (citing McGowan v. Smith, 52 N.Y.2d 268,
272 (1981)). A defendant transacts business in New York when he
"purposefully avails" himself of the privilege of conducting business
there, thus invoking the benefits and protections of New York law. See
McKee Elec. Co. v. Rauland-Borg. Corp., 20 N.Y.2d 377, 382 (1967).
Plaintiff alleged that defendants held an "active account" with
plaintiff's firm in New York beginning in 1991, and that they agreed to
sell plaintiff various securities through that account in a series of
transactions in 1993 and 1994 that are the basis of the suit. We agree
with the district court that these facts, if true, would be sufficient
to establish personal jurisdiction over defendants under @ 302(a)(1).See
Picard v. Elbaum, 707 F. Supp. 144, 147 (S.D.N.Y. 1989) (citing
Ehrlich-Bober & Co. v. Univ. of Houston, 49 N.Y.2d 574 (1980)); L. F.
Rothschild v. Thompson, 433 N.Y.S.2d 6 (1st Dep't 1980).

Although the allegations of the complaint may be deemed true to test the
jurisdictional theory of the complaint, defendants here challenged not
only the theory but also the facts on which jurisdiction was predicated.
While a court may initially deny such a motion to the extent it attacks
the plaintiff's theory of jurisdiction without conducting inquiry into
the disputed jurisdictional facts, eventually it must determine whether
the defendant in fact subjected itself to the court's jurisdiction. The
plaintiff still must prove the jurisdictional facts by a preponderance
of the evidence, either at an evidentiary hearing or at trial. See
CutCo, 806 F.2d at 366; Marine Midland, 664 F.2d at 904. Because the
court never determined whether plaintiff could establish the facts upon
which jurisdiction depended, judgment should not have been entered.

Defendants further contend that the district court lacked personal
jurisdiction over them because the summons and complaint were not served
in accordance with the requirements of Fed. R. Civ. P. 4, New York's
Civil Practice Law and Rules, and the Venezuelan Civil Code. Defendants
did not, however, provide the district court with the specific
allegations they now raise as to why service was defective; in their
pleadings below, defendants made only conclusory assertions that service
did not comply with the applicable rules. The claim is therefore waived.

Defendants also contend that the district court abused its discretion in
refusing to relieve them of their default. Because we are remanding for
further proceedings on the issue of personal jurisdiction, we need not
rule on this question. Defendants will have the opportunity to renew
their application for relief from the default. We note, however, that
where, as here, a defendant opposes a plaintiff's motion for a default
judgment (or moves to set aside a default judgment under Fed. R. Civ. P.
55(c)), the district court should consider three factors: 1) whether,
and to what extent, the default was willful; 2) whether defendants have
a meritorious defense; and 3) whether vacating the judgment would cause
prejudice to the plaintiff. See SEC v. McNulty, 137 F.3d 732, 738 (2d
Cir. 1998); Commercial Bank of Kuwait v. Rafidain Bank, 15 F.3d 238, 243
(2d Cir. 1994).

Finally, defendants claim the district court erred in awarding damages
in the amount demanded by plaintiff without conducting an inquest into
the proper measure of damages. We agree that the court did not have
sufficient evidence to make a damages award. Rule 55(b)(2) provides that
when granting a default judgment, if "it is necessary to take account or
to determine the amount of damages or to establish the truth of any
averment by evidence the court may conduct such hearings or order such
references as it deems necessary and proper." At the time judgment was
entered, the court had before it only the allegations in the complaint
and the affidavit of plaintiff's counsel, who did not purport to have
personal knowledge of the facts, asserting an amount of damages
sustained by plaintiff as a result of defendant's failure to deliver the
securities. This was insufficient evidence upon which to enter the
amount of the judgment. Even when a default judgment is warranted based
on a party's failure to defend, the allegations in the complaint with
respect to the amount of the damages are not deemed true. See Au Bon
Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981); Geddes v.
United Financial Corp., 559 F.2d 557, 560 (9th Cir. 1977). The district
court must instead conduct an inquiry in order to ascertain the amount
of damages with reasonable certainty. See Transatlantic Marine Claims
Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir. 1997).

If the district court finds on remand both that it has jurisdiction over
the defendants and that judgement should be entered against them, it
nevertheless must determine the appropriate amount of damages, which
involves two tasks: determining the proper rule for calculating damages
on such a claim, and assessing plaintiff's evidence supporting the
damages to be determined under this rule. Depending on the state of the
record on remand, the latter task may require a hearing. See id.
Plaintiff contends that no further inquiry was required because the
amount defendants owe is "readily ascertainable through simple
arithmetic." We reject plaintiff's argument because it assumes both the
appropriateness of its theory or rule for calculating damages and the
correctness of the figures upon which the calculations were made.

                             Conclusion

The judgment is vacated. The case is remanded for further proceedings,
as outlined above. (New York Law Journal 8-12-1999)


FEN-PHEN: Worried Dieter Takes Stand At Trial Of N.J. Drug Maker
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By the time she went to her doctor for help in 1996, Lynn Vadino was a
veteran of the weight loss wars. She had shed pounds with both Jenny
Craig and Nutri-System, only to watch the scale rebound later. So when
her doctor suggested the popular diet drug combination known as
fen-phen, Vadino didn't hesitate. She filled the prescription quickly,
and didn't think to inquire about possible health risks. "I guess I just
trusted him," Vadino testified in state Superior Court. "He was my
doctor for a long time. I didn't think I had to ask him." And although
the drugs worked, helping her to drop about 30 pounds, from 167 to 140
pounds, in three months, it is uncertainty over what other effects they
might have that has made Vadino, 35, of Sewell, an Everywoman of sorts
in a class-action lawsuit against a New  Jersey-based diet drug maker.

Vadino and two other women are representing an estimated 94,000 people
who remain healthy, but want American Home Products Corp. to pay for
years of medical tests and monitoring.

The Madison-based company made Pondimin, half of the fen-phen
combination, and Redux, a chemically similar pill. Both drugs were
pulled from the market in September 1997 after they were linked to heart
valve damage and a rare, but often fatal, lung disorder.    Phentermine,
the second half of fen-phen, is not part of the suit  and remains on the
market.

Lawyers for American Home Products say there is no evidence that the
plaintiffs, none of whom has taken the drugs for two years, face an
increased risk of developing heart or lung problems. They also deny
allegations that the company was slow to disclose evidence of heart
valve damage, and misled doctors and patients about possible side
effects.

Vadino, a homemaker with two children, was the first of the three  women
named in the suit to testify. She described taking fen-phen for  weeks
or months at a time in the spring and summer of 1996, in November  1996
and from March to June 1997. She testified that she had never heard of
the drugs before her doctor suggested them. Nor had she seen ads or read
about them. Under cross-examination by defense attorney Anita Hotchkiss,
Vadino acknowledged that she sometimes skipped taking the pills before
meals or on weekends, and that she slacked off on her diet and exercise
regimen while off the pills. Vadino, who is 5 feet 4 inches, now weighs
about 160. When Hotchkiss asked Vadino if she thought the pills would
offer a magic, effort-free path to weight loss, she replied: "I didn't
think the diet drugs were going to hurt me, either." Vadino testified
that she stopped taking the pills in August 1997 after reading news
accounts of the heart and lung problems. She also consulted her doctor
and underwent an echocardiogram, an ultrasound exam of the heart, which
showed that "that I was OK, everything was OK," she  said.

The testimony was marked by delays and objections from attorneys on both
sides. Vadino was halted from answering questions about what she hoped
to achieve through the lawsuit, and whether she fears she will develop
heart or lung ailments.

The New Jersey class-action suit is the first to go to trial in the
United States, though American Home Products faces more than 4,000
claims from individuals who allege Pondimin and Redux injured them.
Similar class-action suits by people who remain healthy are pending in
several other states, and last week a federal judge in Philadelphia gave
a green light to a nationwide suit seeking medical monitoring.    The
trial is scheduled to resume today.


FIRST UNION: Sued Over Fid Duty & ERISA When Pension Plans Change Hands
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Nine former employees OF Signet Banking Corp. are testing the limits of
laws and regulations designed to protect plan sponsors from litigation
as fiduciaries. Their class-action lawsuit on behalf of 5,000 former
Signet workers was filed in May against First Union Corp. of Charlotte,
North Carolina, which acquired Signet Banking in 1997.

As the first prominent court battle since the Department of Labor
adopted 404(c) regulations in 1992, the court's decision may set
guidelines for handling pension assets in the wake of mergers and
acquisitions. Particulars are confined to First Union and perhaps
financial institutions that offer proprietary options in 401(k) plans,
but ramifications could set a broader precedent. "It's an important
case," says Alan Lebowitz, deputy assistant secretary of the Pension and
Welfare Benefits Administration. At issue are critical questions about
the nature of fiduciary status, the scope of the Employee Retirement
Income Security Act (ERISA) regulation, and the trade-off between
consolidating pension assets and keeping new workers happy and
productive.

The nine plaintiffs charge First Union with violating its fiduciary duty
when it liquidated assets in the Signet plan and transferred them to
proprietary funds at First Union. At Signet, a big portion of
plaintiffs' 401(k) assets had been invested in Capital One, a
high-flying spinoff whose stock price has more than tripled since First
Union transferred the stake to its handful of mutual funds. Adding
insult to injury, plaintiffs complain, First Union tacked on
administrative fees it does not require some of its corporate clients to
pay.

When First Union announced its intention to replace former Signet
employees' stake in Capital One with shares of its own stable value
fund, the plaintiffs bristled--not least because, after helping to build
Capital One's lucrative credit card business from scratch, they felt
they deserved to participate in its roaring success.

"We all got on the phone and tried to learn the reasoning behind the
decision," remembers Sue B. Franklin, one of the plaintiffs. The bank's
alleged reply: "We don't feel it's wise for you to have so much invested
ma single stock."

Some ERISA attorneys believe the case may clarify key aspects of pension
regulation. It may define the extent to which employers are sheltered
from fiduciary liability when they design pension plans, when they are
seen to be acting as employers, not fiduciaries. It may also define the
extent of an employer's protection from fiduciary liability under
Section 404(c) regulations, which govern participant-directed defined
contribution plans.

                       Two Important Protections

To David Wray, president of the Profit Sharing/401(k) Council of
America, the potential seems somewhat more limited. "It is unlikely to
clarify any murky areas of the law," he says. The facts in this case are
unique to First Union, he says, and the final ruling likely limited in
its impact only to First Union. Its impact on financial institutions, if
any, would depend on what the court states in its final opinion, Wray
says.

The case should nevertheless remind all plan sponsors that it is
necessary to: (1) design a process to make fiduciary decisions on behalf
of pension beneficiaries and (2) be able to prove adherence to that
process. Wray's advice, meanwhile, for plan sponsors when they act as
fiduciaries on any matter, including mergers and acquisitions: "Sit down
and think about it and put a note in your file." In other words, create
a paper trail.

The most obvious implications are for financial institutions that
provide proprietary funds in their 401(k) plans for their own employees.
The First Union case could become a cautionary tale in this regard.
"Financial institutions have to exercise the same level of prudence as
managers to select investments for employees as they do when they manage
other pension plans," says Steve Saxon, an ERISA attorney and a partner
with Groom Law Group, in Washington, D.C. "They still have to evaluate
the fund and have a diversified selection of investments that are
performing reasonably well," he says.

Following its standard practice after mergers, First Union liquidated $
250 million in investments by 5,000 Signet plan participants invested in
eight different options. It shifted them to four of the seven investment
options available in the First Union plan. (After a brief transition
period, former Signet workers were able to invest in all seven First
Union options.) In doing so, plaintiffs contend, First Union deprived
them of collective gains that would have exceeded $ 150 million.

The plaintiffs' charge in the First Union lawsuit identifies the lion's
share of the $ 150 million as foregone returns on a $ 50 million stake
in the shares of Capital One Financial. Between December 1997, when
First Union liquidated the pension assets, and the date the lawsuit was
filed this past May, Capital One's shares more than tripled--to $ 170
million, a $ 120 million gain. Additional lost returns stem allegedly
from $ 50 million that had been invested, premerger, in two of Signet's
nonproprietary funds-the Vanguard Index Trust 500 Portfolio and the
American Century/Twentieth Century Ultra Investors Fund. These two funds
combined grew in value to $ 67 million by May 1999. This represents
respective gains of 37 percent and 33 percent. During the same period,
First Union's Stable Value Fund supplied modest returns consistent with
similar funds.

The $ 150 million claim also includes unspecified "millions of dollars"
that First Union allegedly has earned in administrative and other fees
for managing its 401(k) plan, as well as the funds that are investment
options under the plan. Subtracting those lost returns on Capitol One,
Vanguard, and Ultra, it appears the suit has allocated $ 13 million to
cover fees the plaintiffs believe should not have been charged to
employees.

If the former Signet fund options continue to outperform First Union
plan options, it could eventually raise the amount of the claim beyond $
150 million, says Michael D. Lieder, of Washington, D.C.-based Sprenger
& Lang, which is representing the plaintiffs, along with Richmond,
Virginia's Hirschler, Fleischer, Weinberg, Cox and Allen. On past
occasions, Sprenger & Lang has tangled successfully with First Union. In
1997, it obtained a $ 58.5 million settlement in a race- and age-bias
class-action suit brought against First Union by former employees after
their companies were acquired by First Union.

The lawsuit also faults First Union for failing to waive the
administrative fee for managing the company pension plan. First Union is
"forced" to waive 401(k) fees for larger plans it administers because
other plan sponsors will simply go elsewhere for those services if they
do not, says Lieder. "First Union doesn't waive its 401(k) fees for its
own plan, even though its plan, I believe, is by far the biggest [the
firm] administers."

In First Union's defense, integrating the Signet 401(k) plan and
transferring assets conforms to common practice. U.S. Office Products,
in Washington, D.C., for example, has made about 200 acquisitions during
the past three years. In the process, it has folded approximately 55
plans into its own 401(k) plan, boosting assets from $ 4 million to $ 95
million. "Our standard practice in each case has been to map the company
funds from the acquired company into a similar fund in our own plan,"
says benefits manager Scott Maynard.

Rare instances may call for different practices. "In some situations,
where there is a merger of equals, some will reevaluate what kind of
plan they need for the union of the companies, and they may come up with
a new plan," says Bill Quinn, president of AMR Investment Services, in
Dallas/Fort Worth, which has $ 20 billion under management, including $
3.2 million in American Airlines's 401(k) plan.

                             Legal Refuge

A tough battle lies ahead, to judge from entrenched positions on both
sides. In response to the lawsuit, First Union has denied the
allegations, as well as assertions that its actions were those of a
fiduciary.

Taking refuge behind standard legal boilerplate, the bank officially
professed ignorance of some of the charges. First Union lacks "knowledge
or information sufficient to form a belief as to the truth" of the
allegations, according to court papers. First Union and its outside
counsel have declined to discuss the lawsuit outside of court. "I'm not
authorized to discuss the case," explains Greg Braden of lead counsel
Alston & Bird, in Atlanta.

A prepared statement after the complaint was filed gave few hints of
First Union's legal strategy. "First Union takes its responsibility with
respect to its 401(k) seriously, according to the statement. "To provide
our employees [with] a uniform benefit, we maintain a single 401(k)
plan. Our plan provides participants with a broad range of investment
options. We have [administered] and will continue to administer our plan
for the benefit of the participants."

Addressing the question of fiduciary duty comes first, says Lebowitz of
the Pension and Welfare Benefits Administration. The plaintiffs claim
that First Union breached its fiduciary duty. Proving this "is the most
significant hurdle for the plaintiffs," says Lebowitz. The court must
decide "whether the allegations are governed by ERISA, or whether they
are those of an employer acting as an employer," in which case they are
not governed by ERISA, according to Lebowitz. The difference amounts to
much more than splitting hairs. "ERISA [leaves] a great deal to plan
sponsors. It allows complete discretion in the design of a plan,
including whether or not the plan will continue to offer a particular
investment," Lebowitz explains.

Courts have not yet sorted out how employers should map investments to
their own pension plans from funds formerly managed by an acquired
company. Absent such rules, First Union can argue that there was no
option in its plan identical to Capital One. Thus, in its role as an
employer designing a pension plan, First Union was free to map the
Capital One assets to the stable value fund that it will describe, says
one expert, as "a valid and prudent investment option."

Only if the court decides these issues fall within ERISA's scope will
the issues surrounding the choice of options in the plan come into play,
says Lebowitz. These include any fiduciary liability under Section
404(c), which governs participant-directed plans. That section provides
a haven for plan sponsors, so long as plans offer a minimum number of
options that participants can change in a timely manner. These rules
state, however, that plan sponsors are acting as fiduciaries when they
select the investment options in their plans.

                           Burden Of Proof

The outcome of the case might ultimately turn on whether it can be shown
that First Union was driven by self-interest "to feather its own nest,"
claims Michael S. Gordon, a Washington, D.C., ERISA attorney who helped
write the legislation more than 25 years ago. If this can be
demonstrated, then the actions would come under ERISA, he contends.

First Union's motivation in liquidating the nonproprietary Signet funds
could decide the verdict, according to an ERISA attorney who represents
plan sponsors. The burden of proving First Union's motive will fall on
the plaintiffs' attorneys, who will have to convince the court that the
bank did not fulfill its role as fiduciary. (There are no juries in
EBISA cases.) The outcome might depend, then, on "whether the court
believes your version or someone else's version" of what transpired,
says an attorney familiar with the case.

"The question will arise whether First Union can demonstrate that it
went through a prudent process to select the funds in its plan," says
one seasoned ERISA attorney who represents employers. "If First Union's
procedure was simply to conform Signet Banking to First Union's
investment options," he says, "that might not be a sufficient defense."

His advice to any employer that either offers proprietary funds or
acquires another company with a 401(k) plan and merges that plan into
its own: "Make sure you can demonstrate that you have a basis for
selecting the particular funds in a particular plan."

All this legal wrangling points to at least one unequivocal observation:
"For all employers," says Groom Law Group's Steve Saxon, "the suit
demonstrates how important it is to prudently select investment options
under a 401(k) plan."

As mergers and acquisitions streak to record levels, more pension assets
than ever are subject to changes of control. Although no one keeps tabs
on the exact number, billions of dollars fall subject to murky areas of
the law governing how these assets are treated in the wake of mergers.

But controversy may not end with a court decision. Should First Union
prevail, attorney Gordon suggests that the outcome could trigger new
legislation or regulation to protect workers who find themselves in a
situation similar to that of the Signet Banking employees. Gordon
suggests that there may be a need for a rule that would allow workers to
keep prior investments when companies are taken over, and that employers
can require only that new employee contributions to a 401(k) plan be put
into the acquiring company's proprietary funds.

                         An Ounce of Prevention

Merger negotiations seldom attach a high priority to workers' nest eggs.
Thus, details of pension programs often get short shrift. This invites
trouble, as First Union Corp. learned in the wake of its merger with
Signet Banking Corp. Due diligence can't avert or solve every problem,
but it can improve the odds of smoother transitions. A few guidelines
can help to avoid disgruntled workers and legal imbroglios, says
attorney Paul Lang of Dow, Lohnes & Albertson, general counsel for the
Profit Sharing/401(k) Council of America:

* Use the need to communicate to win new employees over. Nothing grabs
  workers' attention like information about their personal investments.
  Use this to demonstrate that they matter to their new employer.

* Determine timing of contributions. Did the seller make contributions
  annually? Quarterly? With each paycheck? Workers pay attention to
  this. If frequency is going to change, they'll notice. Absent an
  explanation, human resources will hear about it.

* Investigate recordkeeping practices and quality. Managing thousands
  of individual pension selections complicates recordkeeping.
  Terminating a plan often uncovers discrepancies that don't show up in
  routine accounting. Even the best intentions and the most up-to-date
  technology do not exempt plans from questions concerning the
  disposition of some pension assets.

* Find out who is making contributions. This is critical when sellers
  remain in business after parting with units. Who takes responsibility
  for pension payments? During extended negotiations, these obligations
  can fall behind, leaving the buyer with dissatisfied workers, if not
  an added expense.

* Prepare to transfer outstanding loans to plan participants. If new
  plans can't absorb loans right away, employers will have to develop
  backup plans. The process should be seamless and, preferably,
  invisible to employees.

* Determine allocations. How much do profit-sharing plans contribute
  versus matching plans or other types of contributions?

* Check out the exit clause in the seller's pension programs. Will
  employees have to surrender back-end loads? Will it cost new
  employers a penalty? (CFO 8-1-1999)


GMAC: 11th Cir. Holds Attorney Fees Don't Count Toward Diversity Min.
---------------------------------------------------------------------
Potential attorney fees awarded out of a common fund in a class action
don't count toward the minimum amount necessary to establish diversity
jurisdiction, the U.S. Court of Appeals for the 11th Circuit held on
July 26. Davis v. Carl Cannon Chevrolet-Olds Inc., No. 98-6567.

Geneva Davis and Michael H. Roberts filed a class action to represent
purchasers of extended service contracts on General Motors vehicles. The
complaint alleged that General Motors Acceptance Corp. (GMAC)
fraudulently concealed that the dealerships make a profit on such
contracts.

The contracts contained a clause stating that purchasers waived any
claims for damages over $ 75,000. GMAC nonetheless removed the action to
federal court. The district court denied the plaintiffs' motion to
remand on the ground that the complaint alleged the requisite amount in
controversy because the plaintiffs' lawyers did not disclaim a fee
exceeding that amount.

Vacating and remanding, Judge Emmett R. Cox said, "We cannot deem the
attorneys' fee to be a collective benefit for the plaintiffs....Rather,
the fees directly compensate the lawyers who have acted independently as
'private attorneys general.'" (The National Law Journal 8-16-1999)


GUN MANUFACTURERS: 5th Cir Grants Glock Appeal Against Texas Class Cert
-----------------------------------------------------------------------
Spence v. Glock, Ges. M.B.H.

The Fifth Circuit U.S. Court has granted a petition by Glock Inc. for
permission to appeal a trial court order certifying a nationwide class
of people who own allegedly defective handguns made by the company.
Spence et al. v. Glock, Ges. M.B.H., No. 5:97cv157 (ED TX, May 6, 1999,
proceedings stayed); Spence et al. v. Glock, Ges. M.B.H., No. 99-30 (5th
Cir., order granting petition for leave to appeal May 6, 1999).

The class action was filed in June 1997 in the Eastern District of Texas
by three owners of Glock semiautomatic handguns, Stan Spence, William
Hatfield and John Johnson. The suit alleges that over one million Glock
semi-automatic handguns have defects that cause accidental discharges or
stoppages and that a number of Glock handgun owners and users, including
police officers, have been severely injured as a result of the defects.
Two of the three plaintiffs are police officers. As defendants, the suit
names Glock Ges. M.B.H. (an Austrian limited liability company) and
Glock Inc., a Georgia corporation.

The diversity-based suit asked the court to certify a nationwide class
of Glock semi-automatic handgun owners and users and to order a recall
of the handguns.

According to the suit, Glock has known of the defect in its handguns for
a long time, conducting a "silent recall" of the guns by supplying a
parts kit to police departments that it calls an upgrade kit, but which,
according to the suit, is really a repair kit. The owners also contend
that the upgrade kit does not warn of the seriousness of the problem it
is intended to correct, nor does it address all of the defects in the
guns.

Glock opposed certification of the class by arguing that a nationwide
class would require the court to apply the substantive law of 50
different jurisdictions, a complicating factor that would override any
efficiencies obtained in a class proceeding.

However, U.S. Magistrate Caroline Malone rejected Glock's argument in a
report and recommendation issued in January. She applied Texas
choice-of-law rules and determined that they point to the application of
the substantive law of only one state: Georgia. Georgia law applies, she
concluded, because it has a more significant relationship with the
plaintiffs' tort claims than the other 50 states.

To support this conclusion, the magistrate judge noted that: (1) Glock
has its principal place of business in Georgia; (2) parts of Glock
handguns are imported, assembled and distributed in Georgia; (3) Glock
is regulated by the Georgia Department of Treasury; (4) Glock handguns
are sent to Georgia to have defects corrected; and (5) Glock handguns
sold in the United States are packaged for sale in Georgia with an
instruction manual including a Georgia forum selection clause and choice
of law provision.

U.S. District Judge David Folsom adopted the magistrate's report and
recommendation in March and the Fifth Circuit granted Glock's petition
for leave to appeal the class certification ruling in May. The Fifth
Circuit also stayed further proceedings in the case pending the outcome
of the appeal.

The plaintiffs are represented by John B. Baldwin with Baldwin & Baldwin
in Marshall, TX; William W. Camp with Howie & Sweeney, L.L.P. in Dallas;
James B. Gunther with Hare Wynn Newell & Newton in Birmingham, AL; and
Damon Young with Young & Picket in Texarkana, TX.

The Glock defendants are represented by Victor F. Hlavink, John R. Mercy
and Jeffery Carl Lewis with Atchley Russell Waldrop & Hlavinka of
Texarkana and by John P. Renzulli with Renzulli Gainey & Rutherford of
New York. (Mass Tort Litigation Reporter August 1999)


GUN MANUFACTURERS: Detroit Cops' Sale To Gun Dealers Undermines Lawsuit
-----------------------------------------------------------------------
A few months after the city of Detroit filed a class-action lawsuit
against gun manufacturers and several area gun dealers, the city's in a
pickle.

Over the past seven years, the Detroit Police Department sold $ 800,000
worth of old service revolvers, most of them .38-caliber pistols, to an
East Coast gun dealer, while police officers switched to Glock
semiautomatic guns. The guns weren't confiscated from criminals and were
sold to a reputable gun wholesaler.

But gun sales have become a hot issue -- and no hotter than in the past
few weeks, after police traced the Glock pistol Buford O. Furrow Jr.
allegedly used in Los Angeles to a small town Washington state police
department.

Now it seems that some of the charges the city has leveled in its
complaint against gun manufacturers and dealers might very well be
equally applied to the Detroit Police Department.

The crux of the lawsuit is that gun laws are routinely circumvented --
by fraud or a variety of scams or reselling practices that let criminals
buy guns easily.

The suit alleges that the regulated gun distribution network is a giant
wink: The dealers and gun makers know perfectly well the guns are moving
onto the street, and do nothing to stop the shoddy practices.

Only a few months ago, the lawsuit seemed a bold legal experiment: a
full-frontal attack on the powerful gun industry, with little precedent
and an outside chance for success in court. No similar lawsuit has ever
been fought or won in Michigan, whose courts have not looked kindly upon
suits seeking to blame gun manufacturers for crime.

So after news reports about the department's gun sales, Benny Napoleon,
the city's dapper police chief, convened a press conference to explain.
He argued that the climate and state of knowledge about gun dealers was
very different in 1992, when the city signed a multiyear contract to
sell used guns. "The information we have available today may not have
been available to us in 1992," Napoleon said. "Now we know some of these
dealers may have been unethical."

Even so, the force's behavior puts the city in an awkward position. How
can you sue manufacturers and dealers of a product when you, too, have
been supplying that same product into a suspect network?

If the lawsuit argues that "defendants know, or reasonably should know,
that there is an absence of meaningful regulation of firearm
distributors and dealers," shouldn't the police department have known
that, too? "It sounds like the left hand not knowing what the right hand
is doing," said Carolynne Jarvis, executive director of the Michigan
Coalition to Prevent Gun Violence. "Our members generally don't want to
put additional guns on the street." She and a representative for Handgun
Control in Washington, D.C., argue that police departments are strapped
for cash and can't afford to melt down $ 800,000 worth of guns.

Gun advocates are tap-dancing on this one; Napoleon is dodging questions
about future sales. But the gun sales weaken the city's position as a
principled body fighting merchants of greed -- and raise another
question: Who is the greedy one here? (The Detroit News 8-26-1999)


GUN MANUFACTURERS: Gun-Show Promoter Mulls Legal Action Over LA Gun Ban
-----------------------------------------------------------------------
The Los Angeles County Board of Supervisors' decision to ban gun and
ammunition sales on county-owned property will likely trigger a volley
of legal action by the organizer of large gun shows held at the Fairplex
in Pomona.

Great Western Shows Inc., the Irvine-based promoter of four annual gun
shows at the Los Angeles County fairgrounds, is considering seeking an
injunction to try to prevent the county from enforcing the supervisors'
3-2 decision on Aug. 24 to ban firearm sales on county land.

The ordinance, which goes before the board for a required second reading
on Aug. 31, would go into effect 30 days later. The prohibition would
affect two of the three shows remaining on Great Western Shows' contract
with Fairplex, which runs through March 2000.

In addition to the injunction request, Great Western Shows may also file
a lawsuit in civil court against the county and Fairplex for violating
its contract, said Jean Houston, a legal analyst for Supervisor Michael
Antonovich, who voted with Supervisor Don Knabe against the ban. "Great
Western has a contract with Fairplex. This ban could easily result in
costly breach-of-contract litigation," said Cameron Currier,
Antonovich's press secretary.

Great Western Shows is meeting with its lawyers to decide which legal
course to pursue, if not both, said Chad Seger, Great Western's gun show
manager.

His company is considering a class-action lawsuit filed on behalf of the
gun show's 2,200 exhibitors for inhibiting their commercial free speech,
Seger said.

County lawyers insist the county is protected from any lawsuits. Breach
of contract claims would be dismissed, because the agreement between
Great Western Shows and Fairplex has a provision requiring all parties
to comply with current and future laws governing the property, said
Larry Hafetz, the senior deputy county counsel who wrote the ordinance.

Also, the ordinance does not ban gun shows outright, but only the sale
or ordering of firearms and ammunition on county property. Great Western
could continue to put on shows with historic firearms exhibits, but no
gun sales, Hafetz said.

Only 10 percent of the tables at the show exhibit modern firearms, but
the ban and the attention it has drawn may drive enough exhibitors and
customers away to kill the show, Seger said. He added that the ordinance
does not inhibit commercial free speech because the courts don't
consider sales free speech.

Houston and Hafetz disagreed on this point, each citing different court
decisions. "This is not a constitutional rights issue here at all," said
Joel Bellman, press secretary for Supervisor Zev Yaroslavsky, who led
the effort to ban gun sales. "This is a zoning and use issue governing
whether any entity has the right to control the commercial use of their
property."

Not surprisingly, Yaroslavsky has also been the focus of Great Western
Show's ire. "He's a dangerous man to give a political office," said
Seger, who believes that Yaroslavsky is grandstanding on the gun shows
ban in an effort to raise his profile for an upcoming mayoral bid. "This
ban serves as a warning to any business that may be deemed politically
incorrect: He'll put you on the front pages of the newspaper next,"
Seger said of Yaroslavsky.

Politics aside, the ordinance does carry an economic impact. Great
Western hosts four shows a year at the Pomona fairgrounds. Fairplex
could lose 33 percent of its total annual net income if it loses the gun
shows, said Sid Robinson, communications director for the Los Angeles
County Fair Association, the nonprofit organization that leases the
Pomona fairgrounds from the county. In 1998, that would have been $
600,000 of annual net income of $ 1.8 million. "We're not sure what
we're going to do," Robinson said. "The problem is not losing the show
itself, but revenue from an event that's been here for 20 years. That's
a major hit to take all at once." Robinson added that the county is
aware of the association's situation, and is working with Fairplex
operators to find an economic solution. Pomona area merchants may also
take a financial hit.

Gun show officials said roughly 100,000 patrons attend their shows
annually, and spend millions of dollars each year at local stores,
hotels and restaurants.

Ironically, on the same day the Board of Supervisors passed the gun show
ban, a federal grand jury indicted James Michael Swain of Newport Beach
for allegedly selling illegal firearms to undercover agents he met at
the Great Western Show in July. (Business Press 8-30-1999)


HOLOCAUST VICTIMS: German Fund Chief Impatient For Deal
-------------------------------------------------------
Reuters reports from Bonn that the Berlin government official mediating
between German industry and lawyers on a fund to compensate Holocaust
survivors said on time was running out to reach a deal. "We must hurry,
the people involved are getting older and older," said Otto Graf
Lambsdorff. "The average age of the victims is now between 70 and 80."

Lambsdorff was speaking on the 60th anniversary of the German invasion
of Poland that set off World War Two, the date on which the fund
proposed by 16 of Germany's largest companies to compensate Nazi-era
slave workers and other victims was to be launched.

Survivors' lawyers and industry representatives who met in Bonn last
week remained far apart, however, on the size of the fund, which
historians estimate could be drawn on by anything between 1.5 million
and 2.3 million surviving victims.

Their mainly U.S. lawyers have cited a figure of $20 billion, more than
10 times that on offer by the companies in the fund, which include blue
chips like Deutsche bank, Volkswagen and Allianz.

Many German companies have acknowledged that by using slave labourers
who were worked to death, or by benefiting from Nazi confiscation of
Jewish assets, they share a degree of moral responsibility for the
Holocaust.

In return for setting up the fund, the firms want a guarantee of
protection from any further lawsuits against them, effectively capping
any future legal responsibility for the Holocaust.

Lambsdorff, a former German economics minister, repeated his insistence
that more German firms should join the fund, saying the current group
could not be expected to raise an amount of cash that would be
acceptable to victims' lawyers.

He also called on government officials in the United States, the most
likely venue for any class action suits against German firms and from
where most pressure for compensation is coming, to help clarify how the
issue of legal protection could be resolved.


ILM II: Settlement For Shareholders' Suit Awaits N.Y. Ct. Decision
------------------------------------------------------------------
As previously reported by ILM Senior Living, Inc., a Virginia
finite-life corporation, Andrew A. Feldman & Jeri Feldman, as trustees
for the Andrew A. & Jeri Feldman Revocable Trust dated September 18,
1990, commenced an action on May 8, 1998 on behalf of that trust and a
putative class of all other shareholders of the Company and ILM II
Senior Living, Inc., a Virginia finite-life corporation and affiliate of
the Company ("ILM II"), against the Company, ILM II and the directors of
each of the Company and ILM II.

On March 9, 1999, following the announcement of the execution of the
Agreement and Plan of Merger dated February 7, 1999, among the Company,
Capital Senior Living, Inc., a Delaware corporation, Capital Senior
Living Acquisition, LLC, a Delaware limited liability company and wholly
owned subsidiary of Capital ("Merger Sub"), and Capital Senior Living
Trust I, a Delaware business trust and wholly owned subsidiary of
Capital (the "Trust"), the plaintiffs filed a second amended complaint
seeking to enjoin the transactions contemplated by the Merger Agreement
and, in the alternative, seeking damages in an unspecified amount. In
response to the Company's motion to dismiss the second amended complaint
on June 7, 1999, which motion addressed only the pleadings, the United
States District Court, the Southern District of New York issued an order
dismissing the plaintiffs' federal securities law claims, but denying
defendants' motion to dismiss plaintiffs' claims for breach of fiduciary
duty and judicial dissolution.

On June 21, 1999, the Company, ILM II and each of their directors
answered the second amended complaint and denied any and all liability
to plaintiffs or the putative class, and moved for reconsideration of
the portion of the Court's June 7, 1999 order denying their motion to
dismiss. In response to discovery requests, the Company, ILM II and
other defendants produced documents to the plaintiffs and the
depositions of current and former directors as well as others were
taken. As of July 1, 1999, all discovery was completed in this action.

On July 2, 1999, the parties to this action reached an agreement-in-
principle to settle the action. On August 11, 1999, the parties entered
into a Stipulation of Settlement (the "Stipulation") and on August 13,
1999, the Court "so ordered" the Stipulation and provided for notice of
the settlement to the putative settlement class, which notice was mailed
on August 16, 1999. The Court scheduled a hearing for September 30, 1999
to determine whether the proposed settlement is fair, reasonable and
adequate, whether a final judgment should be entered dismissing the
action with prejudice to the plaintiffs and all members of the putative
settlement class, and whether an application to be made by plaintiffs'
counsel and the putative settlement class should be approved.

There can be no assurance that the Court will approve the Stipulation.
In the event that the Court does not approve the Stipulation, the
Company intends to continue to contest the action vigorously.

Pursuant to the Stipulation, among other matters, Capital has agreed to
increase the aggregate amount and modify the form of consideration to be
received by shareholders in the Merger Agreement by $1,128,000 to
$97,018,000 and provide each shareholder with the right to elect to
receive payment of the merger consideration in the form of all cash, or
a combination of cash and Capital Trust convertible preferred
securities, (which securities will ultimately be convertible into shares
of Capital's common stock); provided, that the preferred securities
elections may not, in the aggregate, exceed 35% of the total merger
consideration.

To facilitate consummation of the Merger, Capital has also agreed to
amend the Merger Agreement to extend the previously scheduled October
31, 1999 outside termination date of the Merger to September 30, 2000.
The Company also generally has agreed to apprise class counsel of
certain material developments relating to extraordinary transactions
involving the Company.

Pursuant to the Stipulation, if the Company and ILM II consummate an
extraordinary transaction with Capital, including, but not limited to, a
transaction of the type contemplated by the Merger Agreement, Capital
has agreed to pay the class action plaintiffs' attorneys' fees awarded
by the Court an amount not to exceed $1,500,000, as well as
reimbursement of their out of pocket expenses. If the Company and ILM II
consummate extraordinary transactions with a third party purchaser other
than Capital, or the Company's and ILM II's Boards of Directors
ultimately approve extraordinary transactions with a third party
purchaser other than Capital, the Company and ILM II will, under the
Stipulation, be required to pay attorneys' fees awarded by the Court an
amount not to exceed $1,500,000, plus reimbursement of class counsel's
out of pocket expenses.

The foregoing description is qualified in its entirety by the full text
of the Stipulation filed as Exhibit 99. hereto and incorporated herein
by reference.


JONES INTERCABLE: Sued By Investors In Cable TV Over Price For System
---------------------------------------------------------------------
Jones Intercable was sued by investors in Cable TV Fund 14-B over
latter's sale to Jones of Little Rock cable system in Dec. Complaint,
filed in U.S. Dist. Court, Denver, seeks class action status for other
investors. Plaintiffs' lawyer Andrew Friedman said Jones had failed to
disclose that price was "inadequate" because value of system had changed
so much since last appraisal. He said Jones also failed to disclose that
system was worth much more to MSO because it already had option
agreement with Comcast. (Communications Daily 8-30-1999)


LUFKIN INDUSTRIES: Appeals In Lou. Employment Race Bias Suit In Texas
---------------------------------------------------------------------
A class action complaint was filed against Lufkin Industries Inc. in the
United States District Court for the Eastern District of Texas on March
7, 1997 by an employee and a former employee which alleged race
discrimination in employment. Certification hearings were conducted in
Beaumont, Texas in February of 1998 and in Lufkin, Texas in August of
1998. The District Court in April of 1999 issued a decision which
certified a class for this case which includes all persons of a certain
minority employed by the company from March 6, 1994 to the present.

This decision by the District Court has been appealed by the Company to
the 5th Circuit United States Court of Appeals in New Orleans,
Louisiana. The Company is defending this action vigorously. Furthermore,
the Company believes that the facts and the law in this action support
its position and is confident that it will prevail if this case is tried
on the merits.

The net loss reported by the Company for the first six months of 1999
includes an unusual charge of $630,000 (net of income tax effects), for
legal expenses related to this legal action.


SMOKING GUN: Jurors’ Verdict Show Outrage at Industry
-----------------------------------------------------
Tony Vaccaro thought it was time for "the little people" to send a
message -- the "average citizens," as he put it, "who usually don't have
a voice." The message was this: Tobacco companies have spent decades
deceiving the public about the effects of their cigarettes, and they
should be made to pay for it.

But the message wasn't just from Vaccaro, a 28-year-old financial
services worker in San Francisco. It was the verdict of a 12-person jury
on which he served in February. Its $ 51 million judgment against Philip
Morris -- one of four verdicts against tobacco since last summer -- was
part of a populist trend of jurors around the country exacting
punishment on disfavored industries.

Tobacco hasn't been the only business newly buffeted by this wave of
juror outrage. In February, for the first time, a jury decided to hold
gun manufacturers responsible for the criminal use of their products.
Again, some jurors said the industry had it coming.

Lawsuits condemning cigarettes and guns are nothing new. Advocacy groups
have campaigned for years against the tobacco and firearms industries,
using the courts as a weapon. What is new is that juries are listening.

These verdicts coincide with a national trend of juries assessing
harsher and harsher damages against corporate defendants, such as the $
4.9 billion verdict returned last month against General Motors Corp. for
six people whose car exploded -- and reduced on appeal last week to
about $ 1 billion. But they add a new element.

Jurors in these cases were staking out new territory in American law,
asserting their interest in issues broader than the behavior of a single
corporate defendant. Unlike past product liability verdicts, such as
those against the Ford Pinto or the Dalkon shield, where a single
company was targeted, juries are focusing on broad social problems --
smoking-related disease, gun violence -- that traditionally have been
addressed through legislation.

"Jurors are ready to believe that they are the public avengers. Because
the governor won't do it, the state legislature won't do it, the jurors
are the only ones who will do it," said Victor Schwartz, a liability law
expert who opposes the trend.

The recent verdicts are part of a pattern of juror activism across the
country that also includes so-called juror nullification, in which
juries have let criminal defendants go free, despite the weight of the
evidence against them, in protest of particular laws. In the current
product liability disputes, jurors say their verdicts are based on the
evidence in the case. But, as with nullification, they also appear to be
giving freer rein to their own sense of justice.

"There is a lot of anger out there," said Stanford University law
professor Robert Rabin, "and it's getting translated into jury
verdicts."

This increased willingness to find against the tobacco and gun
industries has released a torrent of new litigation and could have wide
repercussions for other businesses and people who claim they have been
hurt by their products. Smokers and their families have filed hundreds
of individual lawsuits across the country; numerous class action efforts
are also pending. And since the groundbreaking Brooklyn gun verdict in
February, the firearms industry has faced an onslaught of lawsuits. A
total of 27 cities and the NAACP are now suing firearms companies.

"All these cases have a snowball effect," Rabin added, "as potential
jurors read . . . about an industry that appears to have been involved
in some coverup and then gets nailed. They feel empowered to act
likewise."

Some lawyers argue that these verdicts poach on the government's role in
regulating tobacco and guns, determining, for example, what constitutes
deceptive cigarette advertising or the negligent marketing of firearms.

This trend of jury verdicts -- in essence, steering national policy on
tobacco and guns -- raises important questions. Can a single corporate
defendant in a court case receive a fair trial if the jury seeks to
punish an entire industry? Can a scattered set of verdicts add up to a
coherent national policy? And if this tendency continues, what other
unpopular industries might feel themselves targeted by jurors: Health
maintenance organizations? The entertainment industry? The media?

                        Expanding Public Scorn

It may have been inevitable that public scorn for cigarette and gun
manufacturers ultimately would find its way into the jury box. A new
Washington Post survey found that 59 percent of Americans think the
tobacco industry has not behaved responsibly in selling its products and
about half feel that way about gun manufacturers. But at the same time,
the public has watched state legislatures and Congress struggle with how
to regulate these controversial but legal industries.

Last year a proposed settlement that would have further regulated the
sale of cigarettes collapsed in Congress after the tobacco companies
withdrew their support and lobbied hard against it. (A subsequent
settlement between the states and companies involved smaller sums and
little regulation.)

And despite a series of high-profile shootings that have strengthened
public support for gun control, Congress remains at an impasse.
Competing Senate and House versions of a juvenile justice bill -- one
with modest gun control measures, one with none -- are expected to be
debated in conference when Congress returns from its recess.

The legislative vacuum on tobacco and guns is increasingly being filled
by litigation brought by individuals, organizations, states and the
federal government. And that litigation is increasingly finding
sympathetic juries.

"In the jury room generally, it is now seen as very acceptable to take a
stand against an industry," said David S. Davis, senior vice president
of the national jury research firm DecisionQuest. "It used to be that
jurors who spoke about individual responsibility would get the
applause."

The Post poll shows that a majority of those questioned -- 55 percent --
are suspicious of jurors' taking on a more important role in punishing
companies for their legal but dangerous products.

But a substantial minority -- 35 percent -- believe it's a good thing if
juries take the lead against harmful products when legislatures have
failed to act. Experts found this percentage significant, given that
juries traditionally have confined themselves to deciding the facts of a
single case. They also noted the potential importance of this minority,
because one or two forceful opinions on a jury can affect the outcome of
a case.

"The growing body of evidence suggests some jurors are turning mass tort
litigation into a vehicle for the moral condemnation of corporate
behavior thought to be irresponsible or malevolent," said University of
Georgia law professor Richard Nagareda.

                         Jurors' New Confidence

To be sure, some of the recent cigarette and gun liability lawsuits have
ended in the industries' favor, including a verdict against the family
of a longtime smoker in Baton Rouge, La., last month. But even in cases
where the industry ultimately wins, juries are conscious of appearing
pro-tobacco. "People said we weren't sending the right message," said
Rodney Marchand, foreman of a Memphis jury that returned verdicts for
three cigarette companies in May. "They said we are 'letting the tobacco
companies off.' "

This attitude on the part of jurors is a recent development. In four
decades of litigation by smokers and their survivors against cigarette
companies, there were only two verdicts ordering companies to pay
damages to smokers before last summer. The earliest victory for a smoker
came in 1988, when a divided jury said Liggett Group was responsible for
the death of Rose Cipollone, a New Jersey woman who smoked Chesterfields
and died of lung cancer in 1984.

But the second thoughts of the Cipollone jurors were revealing. Many of
them told reporters at the time that they were worried that they had
done the wrong thing. Some cried about having given in to more dominant
jurors. Not until 1996 did a jury again decide in favor of a smoker, and
this verdict, like the Cipollone case, was overturned.

Today, after years of allegations of the industry manipulating nicotine
levels and concealing the health risks associated with smoking, jurors
express no such tentativeness. In recent interviews, juror after juror
spoke confidently about the desire to punish the industry, citing its
alleged history of misbehaviors and its perceived ability to use large
profits to beat the system.

"It was the whole lay of the land," said April Dewees, a 30-year-old
schoolteacher on the Portland, Ore., jury that awarded a record $ 80
million to the family of a man who used to smoke three packs of
Marlboros a day. "All the ways they played down the dangers of it.
Someone said to me afterward, 'Well, all businesses lie.' Well, they
shouldn't lie. There are repercussions. They profited from their
misrepresentations. They did need to be punished."

John Bowman, a 53-year-old businessman who was on a 1998 Jacksonville,
Fla., jury that ordered Brown & Williamson to pay $ 1 million for the
death of a Lucky Strike smoker, including the first punitive damages
ever in such a case, said that verdict was an indictment of the whole
industry: "We felt that all tobacco products are dangerous." Fellow
juror Nicole Boyer, 36, a homemaker, said she believed "all the
companies were in on it together, trying to get people hooked on
nicotine."

Tony Vaccaro, of the San Francisco jury, added, "We thought it was
important to send a message because of the stonewalling they had done
for all those decades."

Gary Doski, a 49-year-old electronics technician and the foreman on the
1998 Jacksonville jury, summed up the contrast between his jury and the
1988 Cipollone panel: "Afterward, the lawyers were all surprised at how
happy all of us seemed."

                         Discord on Gun Verdict

In contrast, the watershed verdict in February against gun makers was
marked by the kind of discord and angst that the Cipollone jurors felt a
decade ago. At one point, the Brooklyn jurors sent the judge a note
asking for help: "We are all very upset. We are starting to fight. We
cannot reach a decision. . . . Please, please, give us more direction!"

One juror expressed some reservations, saying a verdict against the gun
manufacturers would "open the floodgate of lawsuits across the country."
Other jurors wept. At one point, a note pleaded, "One of the jurors
doesn't feel well. Is there any way we can get some Pepto Bismol?"

The Brooklyn jury's discomfort reflected a broader public ambivalence.
The Post poll found that 70 percent of those questioned said they
disapproved of holding gun manufacturers responsible for shooting deaths
and other illegal uses of their weapons. But the respondents were evenly
divided -- 46 percent to 45 percent -- on the question of whether gun
manufacturers have behaved irresponsibly or responsibly in advertising
and selling their products.

Even this ambivalence represents a change in the social and legal
context of firearms violence. Shooting victims have been suing gun
manufacturers for putting the weapons on the streets for years. But no
such lawsuit had ever reached trial until last year when a jury decided,
also in a Brooklyn case, in favor of a gun company after about six hours
of deliberation.

This year's Brooklyn jury deliberated for six days before ultimately
deciding to hold 15 manufacturers responsible for the negligent
marketing of handguns in three of the seven shootings covered by the
lawsuits. But they awarded damages in only one of the cases, to
19-year-old Steven Fox of Queens, who survived a bullet to the brain.

"The Rubicon has been crossed," said Elisa Barnes, a lawyer for the
victims.
                      A Corrective or Bad Policy?

Some legal experts argue that juries' increased willingness to take on
controversial industries is a necessary, democratic corrective to
unchecked corporate power.

"What is happening now is that jurors are more angry and aware," said
John Banzhaf, a George Washington University law professor active in
anti-tobacco litigation. "For years, tobacco companies could say
addiction and deaths weren't their responsibility. But the social
climate has changed. And this is why we have juries."

"Jurors feel empowered within the system and against an industry that
has flagrantly not done the right thing," added Stephanie Hartley, a
Florida lawyer who represents smokers.

But defense lawyers argue that juries are unsuited to the broader role
they are beginning to embrace. They say jurors who are eager to use
their position to send a message to an industry may find it hard to
render a fair verdict on whether a specific defendant caused a single
victim's cancer or other injury.

Critics also point out the uneven policy likely to result from a
patchwork of verdicts that inevitably depend on the predilections of the
jurors and the quality of the case mounted by each side's attorneys.
Unlike legislators, who typically hold hearings on a subject and seek
out information from a multitude of competing interests, jurors are told
only what the two sides of a case want them to know.

"Juries aren't equipped to decide social policy," said Anne Kimball, a
Chicago lawyer who represented gun makers in the recent Brooklyn case.
"To the extent that we give a jury the power to effectively legislate .
. . we are doing damage to the underlying principles of our government."

Meanwhile, industry analysts worry that the negative revelations from
the recent cases will only produce more lawsuits, and say unpopular
industries must change the way they handle litigation. Corporate defense
lawyers say they are now warier about letting cases get to trial, more
careful in choosing jurors and, if a trial is inevitable, intent on
communicating their own message about the limits of a company's
responsibility.

And those on both sides of the debate wonder what industries might be
next. Some believe they already have seen signs of incipient jury
backlash against media excesses in a verdict against the "Jenny Jones
Show" in May.

The talk show was on trial over a killing that arose from a 1995 episode
called "Secret Same-Sex Crushes." On the program, Scott Amedure told his
friend Jonathan Schmitz that he had a crush on him; three days later,
Schmitz gunned down Amedure. The victim's family lodged a wrongful death
suit against the show for "ambushing" Schmitz with news of the crush.
The jury deliberated about six hours before finding against the "Jenny
Jones Show" and awarding the Amedure family $ 25 million in damages.

Geoffrey Fieger, the lawyer for the victim's family, said the jury was
sending a message to the talk show industry: "That type of human
exploitation needs to be corralled."

"In the future, defendants that make products that create perceived
social costs could all be at risk," said lawyer Schwartz, suggesting as
possibilities chemical manufacturers, pharmaceutical companies and
liquor producers. "I have never bought the idea that tobacco is unique.
I say: No way. This is the beginning."

Claudia Deane, assistant director of polling, and Madonna Lebling, staff
researcher, contributed to this report. (The Washington Post 8-30-1999)


SS&C TECHNOLOGIES: Settles For Suit In Connecticut Over IPO
-----------------------------------------------------------
On March 18, 1997 and April 8, 1997, two separate purported class action
lawsuits were filed against SS&C Technologies Inc., certain of its
officers and the two leading managers of the Company's initial public
offering. On July 8, 1997, a Consolidated Amended Class Action Complaint
was filed in the United States District Court for the District of
Connecticut in which the Complaints were consolidated and amended.

The Consolidated Complaint claims that the Prospectus for the Company's
initial public offering allegedly made material misrepresentations in
violation of Sections 11 and 12(2) of the Securities Act of 1933. The
plaintiffs in the suit are seeking an undetermined amount of damages,
and costs and expenses of the litigation.

On May 7, 1999, the Company announced that it had entered into an
agreement that provides for the settlement of the consolidated
securities class action lawsuit pending against the Company. The
settlement provides that all claims against the Company, certain of its
officers and directors and underwriters will be dismissed. Under the
terms of the settlement, in exchange for the dismissal and release of
all claims, the Company will pay to the class $7.5 million in cash,
together with shares of Common Stock of the Company valued at $1.3
million. The Company will record a charge of approximately $9.3 million,
including legal fees, in the quarter ended June 30, 1999. The settlement
is subject to certain customary conditions, including notice to the
class and approval by the Court.


US LIQUIDS: Wolf Popper Files Securities Suit In Texas
------------------------------------------------------
Notice is given that a class action lawsuit has been filed against US
Liquids, Inc. (Amex: USL) in the United States District Court for the
Southern  District of Texas. The lawsuit was filed by the law firm Wolf
Popper LLP on  behalf of persons who purchased USL securities in the
open market during the  period May 28, 1998 through August 25, 1999.

The Complaint charges that defendants violated the U.S. securities laws
by issuing materially false and misleading statements and by omitting
to  disclose material facts, required to be disclosed, in order to make
the  statements issued not materially false and misleading throughout
the Class  Period. In particular, the Complaint alleges that defendants
falsely  represented that the Company was in material compliance with
applicable  environmental laws when defendants knew, or were reckless in
not knowing, that  certain of the Company's employees, including the
Vice President in charge of  the Company's Detroit, Michigan facility,
had ordered and supervised an illegal  hazardous waste disposal program
involving the discharge of untreated toxic  liquid waste directly into
the Detroit sewer systems.

Any member of the proposed class who desires to be appointed lead
plaintiff  in this action must file a motion with the Court no later
than sixty (60) days  from August 31, 1999. Class members must meet
certain legal requirements to  serve as a lead plaintiff. Contact Paul
0. Paradis, Esq. or  Peter Safirstein, Esq. or  Catherine E. Anderson,
Esq.  WOLF POPPER LLP  845 Third Avenue  New York, NY 10022-6689
Telephone: 212-451-9676  212-451-9626  212-451-9623  Toll Free:
877-370-7703  Facsimile: 212-486-2093  E-Mail: pparadis@wolfpopper.com
or psafirst@wolfpopper.com or canderso@wolfpopper.com  or visit website
http://www.wolfpopper.com


WORKERS COMPENSATION: Ap Ct Agrees Decision Not Apply To Resolved Cases
-----------------------------------------------------------------------
The Chancery Division appropriately determined that its judgments that a
workers' compensation lien under N.J.S.A. 34:15-40 does not include
certain expenses and fees would be retroactive only for the cases being
decided and for other matters which had not been concluded when the
Chancery Division issued its opinion.

Diane Kuhnel was injured in 1990. In 1993, the Division of Workers'
Compensation approved a settlement. Kuhnel received more than $ 14,600
in temporary disability benefits, and she was found to be 70 percent
totally and permanently disabled. Her compensation, after a Social
Security offset, was approximately $ 58,000. Attorney's fees were
divided between the employer and Kuhnel, with the employer being
assessed almost $ 6,000. Other fees and costs were likewise divided
between them.

Kuhnel also brought a third-party action, which settled for $ 420,000 in
CNA Insurance Companies claimed a lien of more than $ 72,000 under
N.J.S.A. 34:15-40. The lien allegedly included the employer's share of
attorney's fees and other fees and costs.

In another matter, James Streeper was injured in 1989. Aetna Insurance
Company provided him with certain workers' compensation benefits. After
Streeper recovered in a third-party action, Aetna claimed a @ 34:15-40
lien of more than $ 25,000 for "medical payments" and "indemnity." The
medical payments included charges for a medical examination that was
allegedly for the workers' compensation claim. Aetna also contended that
the lien included charges for rehabilitative nursing services.

In a third matter, Anthony Gaitanos was injured in 1991. Aetna provided
him with workers' compensation benefits. When he recovered in a
third-party action, Aetna asserted a lien of almost $ 48,000, which
included "medical payments" and "indemnity." Aetna included the costs of
medical examinations that it allegedly had conducted for its defense of
the workers' compensation claim.

Kuhnel filed a class action complaint against CNA. Among other things,
she alleged violations of @ 34:15-40. Streeper filed a class action
complaint against Aetna. Gaitanos also was a plaintiff in the action.
Streeper included a claim that Aetna had violated @ 34:15-40. The counts
in both complaints concerning @ 34:15-40 were remanded to the Division
of Workers' Compensation, which determined that CNA's portions of the
attorney's and expert's fees were not properly part of the lien. The
Division also ruled that Aetna's costs for the medical examination and
the costs of rehabilitative nursing services were not lienable.

The Chancery Division then entered appropriate orders based on the
Division's rulings. The judge also disposed of the other counts. In
Kuhnel's case, the judge stated that the judgment would apply
retroactively only to Kuhnel and to class members who, as of the date of
the judge's opinion, had not "reached an agreement incorporated by a
writing or release of any workers' compensation lien asserted" by CNA.
As to Streeper, the judge indicated that his decision applied
retroactively only to Streeper and to others similarly situated for whom
a lien was an open question on the date of the judge's decision "by
reason of the lien's not having been resolved by judgment or by an
agreement."

The plaintiffs appealed, and Aetna cross-appealed. The Appellate
Division affirmed.

The appeals court noted that the plaintiffs argued that the decisions
should have complete retroactivity; the plaintiffs reasoned that the
decisions did not present a new rule of law, that the insurers had not
shown any reasonable basis for relying on their interpretations of @
34:15-40, and that complete retroactivity "would not be unjust."

The Appellate Division observed that how much, if any, retroactivity a
decision receives depends on "the court's view of what is just and
consonant with public policy." However, "retroactivity is the
traditional rule," although it is "not unlimited." Citing State v.
Brimage, 153 N.J. 1 (1998), the appeals court pointed out that "sound
policy reasons" may convince a court to limit the retroactive
application of a decision. The Brimage reasons are (1) justifiable
reliance on prior decisions, (2) "a determination that the purpose of
the new rule will not be advanced by retroactive application," and (3)
potential adverse effects on the administration of justice.

The Appellate Division indicated that the Chancery Division "relied
heavily" on the third Brimage factor. The appeals court agreed with the
Chancery Division's analysis and suggested that "the impact of such an
application 'on the administration of justice' is dispositive."

The appeals court observed that lien recoveries generally involve
matters in which litigation was threatened, commenced, or completed. In
"the overwhelming majority of these cases, plaintiffs were represented
by counsel who either accepted the liens without question or negotiated
the liens." The Appellate Division declared that the suggestion that
"these matters can or should be ' undone' suggests a process that, on
balance, will be more disruptive than productive."

The appeals court stated that it did not "disregard" or "minimize
plaintiffs' argument that this result allows the carriers to retain
'ill-gotten' funds." Nonetheless, the appeals court was "not persuaded
that this argument prevails over the imposition on the court and
litigants of the reopening of potentially thousands of proceedings that
have long since been resolved." The appeals court was concerned that
reopening proceedings "invites chaos, a result that we are not willing
to sanction." Instead, the Appellate Division's choice of limited
retroactivity "represents an appropriate balance of the competing
interests." For appellants: Robert S. Kitchenoff (Westmoreland, Vesper &
Schwartz and Weinstein Kitchenoff Scarlato & Goldman; R.C. Westmoreland
on the briefs). For respondent CNA: Richard V. Jones (Bressler, Amery &
Ross). For respondent/cross-appellant Aetna: Kevin T. Coughlin (McElroy,
Deutsch & Mulvaney; Vincent E. Reilly on the brief).

(Kuhnel V. Cna Insurance Cos., Appellate Division, A-4349-97T3 and
A-4689-97T5, June 30, 1999.  Facts-on-Call Order Number 5123) (New
Jersey Lawyer 7-12-1999)


YBM: Peterson, Mitchell Seek Exclusion From Shareholders' Suit In Phil.
-----------------------------------------------------------------------
David Peterson, the former premier of Ontario, should be dropped from a
class-action lawsuit brought following the collapse of YBM Magnex
International  Inc. because it does not show that he personally did
anything wrong, according  to a motion to dismiss filed late last week.

Mr. Peterson and Owen Mitchell, a director of corporate finance at
First  Marathon Securities Ltd., were the two marquee names on YBM's
board. Both were named in shareholder lawsuits after the industrial
magnet  manufacturer, which was based outside Philadelphia, collapsed on
allegations it  was a money laundering vehicle for the Russian mafia.

The U.S. Attorney revealed in June that YBM was not just controlled, but
actually created by Russian organized crime -- which even put up the
money to first take the Canadian company public on the Alberta Stock
Exchange.

Investors lost $635-million when the fraud was revealed and YBM shares
were kicked off the Toronto Stock Exchange. It had been a member of the
prestigious TSE 300 index.

Mr. Peterson and Mr. Mitchell filed motions to try to have themselves
dropped from a shareholder lawsuit filed in Philadelphia. Mr. Peterson's
lawyers say the suit is 'nothing more than a broad-brushed,
insufficient attempt to suggest guilt by association.' They claim the
pleading fails to show that the former politician, now working as a Bay
Street lawyer, knew anything was wrong, much less took part in the
massive fraud. 'Plaintiffs never identify what particular information,
statements, internal reports or personal contact Mr. Peterson had that
supposedly provided him with the knowledge of the alleged fraud,'
according to the 19-page filing, 'and the complaint is devoid of facts
which would support an inference that Mr. Peterson had either a motive
or opportunity to commit fraud. 'Plaintiffs rely exclusively on Mr.
Peterson's status as a director in order to suggest by association that
he was responsible for various alleged material omissions.'

The former premier has said almost nothing since YBM's collapse other
than to tell Macleans magazine the company made a legitimate product.
'This was no Bre-X,' he said. 'This was a very hot, very serious,
high-tech company.'

Mr. Peterson and Mr. Mitchell both played a key role in helping to
promote YBM to shareholders by lending their names when the company was
still an unknown entity. Mr. Mitchell was on the company's audit
committee, and headed several special committees, including one struck
after the board discovered in August, 1996, that YBM was being
investigated by the U.S. Attorney. First Marathon was also YBM's co-lead
underwriter.

But in Mr. Mitchell's  motion to dismiss, his lawyers say he was a
'classic outside director in as much as he was a non-employee,
non-trader who was a prestigious member of the Toronto  financial
community. 'To plaintiffs credit, they never even imply that Mitchell
orchestrated, counseled, participated in, or even knew about the alleged
shenanigans which apparently pulled down YBM. 'Rather, it is . . . that
Mitchell should have been more diligent and skeptical as a director and
more prescient and more dogged in his role as chairman of the special
committee.' Yet, Mr. Mitchell's lawyers say, when 'rumors surfaced' of
an investigation of ties to Russian organized crime, it was Mr.
Mitchell, as head of the special committee, who recommended contacting
anti-crime agencies in Russia and compiling more information on the
history and early ownership of the company.' That committee does not
appear to have unearthed any problems, even though Russian crime boss
Semion Mogilevitch and family members and known business  associates
made up almost a third of YBM's original shareholders.

Mr. Mitchell's lawyers go on to point to the 'perfectly clean report'
issued  by Deloitte & Touche LLP, hired to reaudit YBM's 1996 results at
the insistence of the Ontario Securities Commission -- which was highly
suspicious of YBM -- as further reassurance nothing was wrong.    'In
sum, plaintiffs have alleged the lamentable story of a company which was
covertly infested by foreign criminal elements. The story includes no
hint that Mitchell, or the other defendant, knew of the infestation or
intentionally misstated anything.' (National Post (formerly The
Financial Post) August 30, 1999 )


ZILOG INC.: Plaintiffs Of Securities Suit Appeal To California 9th Cir.
----------------------------------------------------------------------
The Company has been named as a defendant in a purported class action
lawsuit that was filed on January 23, 1998 in the U.S. District Court
for the Northern District of California. Certain executive officers of
the Company are also named as defendants. The plaintiff purports to
represent a class of all persons who purchased the Company's Common
Stock between June 30, 1997 and November 20, 1997.

The complaint alleges that the Company and certain of its executive
officers made false and misleading statements regarding the Company that
caused the market price of its Common Stock to be "artificially
inflated" during the Class Period. The complaint does not specify the
amount of damages sought. On March 24, 1999, the district court granted
ZiLOG's motion to dismiss and entered judgment in favor of all
defendants. On April 16, 1999, the plaintiffs filed their notice of
appeal to the Ninth Circuit Court of Appeals.


                               *********


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.  Theresa Cheuk and Peter A. Chapman, editors.

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

This material is copyrighted and any commercial use, resale or
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