/raid1/www/Hosts/bankrupt/CAR_Public/990928.MBX
C L A S S A C T I O N R E P O R T E R
Tuesday, September 28, 1999, Vol. 1, No. 165
Headlines
ASBESTOS: Legal Backgrounder Talks About Ruling In Fibreboard Case
DAY RUNNER: Schoengold & Sporn Announces Securities Suit Filed In CA
DETROIT EDISON: Livonia Councilman Wants To Sue Over Power Outage
FISH & WILDLIFE: Environmentalists Sue Over MSCP - Plan In San Diego
GLOBAL MINERALS: CFTC Sues Over Manipulation Of Prices Of Copper
H & R: Ill AP Ct Oks Dismissal Of Misrepresentation Of Finance Charges
H & R: Sp Ct To Decide Whether Tax Preparer Is An Agent
KNOLL INC: Sued Over Warburg's Proposed Acquisition Of Common Stock
MOMENTUM BUSINESS: CA Actions On Securities Fraud To Be Consolidated
NOVELL INC: Intends To Defend Vigorously Securities Suit
PETCO ANIMAL: Will Defend Vigorously Stockholders Suit Filed In CA
PETCO ANIMAL: Will Contest CA Suit Over Sex Bias In Wage Rates
RHONE-POULENC: 8th Cir Oks Dismissal Of RICO Suit Brought By Employees
RIDGEWOOD ENERGY: Settles With Limited Partnership Investors For $9.5M
SIDNEY DORSEY: Records Chief Testifies On Treatment of DeKalb Inmates
SIGMA DESIGNS: Contests Suit Over Misrepresentation Of Prospects
TAYLOR ANN: Contests Stockholders Suit Filed In New York
SMART MODULAR: Intends To Defend Vigorously Securities Suits In CA
TURBODYNE TECHNOLOGIES: Faces Shareholders Suit; SEC Makes Inquiries
VIDEOTRON LTD: Customers Win Canadian Suit On Cable TV Extra Charge
*********
ASBESTOS: Legal Backgrounder Talks About Ruling In Fibreboard Case
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On June 23, 1999, the U.S. Supreme Court reversed and remanded Ortiz v.
Fibreboard, 119 S. Ct. 2295 (1999). In doing so the Court provided a
revealing application of prevailing global mass tort, class action
certification principles, as they were articulated a year ago in Amchem
Products, Inc. v. Windsor, 521 U.S. 591 (1998). The Court, by a 7-2
vote, with an opinion delivered by Associate Justice Souter, set aside a
$1.5 billion settlement of Fibreboard's liability for asbestos-related
claims.
The Court held that the Fifth Circuit had affirmed class certification
on a record unsupportive of a mandatory, limited fund, class action
settlement. In the Court's view, the judge should have assessed the
amount of money for payment rather than rely upon the company's
agreement with plaintiffs, which had essentially resulted in a
negotiated settlement fund. The Court specifically warned of "the
serious constitutional concerns that come with any attempt to aggregate
individual tort claims on a limited fund rationale." It further
expressed concern that the fund be allocated to claimants belonging
within the class by a process addressing all conflicting interests of
class members.
Notwithstanding these and other big questions, Ortiz clearly does not
determine the fate of all mass tort class actions. This Legal
Backgrounder attempts to draw the crucial distinctions between the
factual predicates of the Ortiz decision and other mass tort, class
action settlements generally.
The Lower Court Rulings
U.S. District Judge Robert Parker had approved a "global" settlement of
about 186,000 potential future claims negotiated by Fibreboard, its
insurers and certain classes of plaintiffs. There were three groups of
plaintiffs: 1) claimants who had not yet sued Fibreboard; 2) those who
had dismissed such claims and retained the right to sue in the future;
and 3) relatives of class members. This class excluded claimants who had
actions pending against Fibreboard or who had filed and, for negotiated
value, dismissed such claims.
The District Court certified the class, ruling that Rule 23's threshold
requirements were satisfied. In rejecting the objections to the "limited
fund," the District Court held inter alia that (1) the value of
Fibreboard's disputed insurance assets, or alternatively, (2) the value
of Fibreboard plus its disputed insurance assets constituted an
appropriate limited fund.
The Fifth Circuit initially upheld the settlement. The U.S. Supreme
Court then told the Circuit to review its affirmance in light of the
Court's 1997 Amchem ruling, which held that a class action Rule 23
settlement is forbidden if the identical class could not be certified as
a class for trial. Revisiting its ruling in light of Amchem, the Fifth
Circuit, nonetheless, affirmed the District Court, and Ortiz
successfully petitioned the Court for review. The Class Action
The Ortiz opinion arrives in the wake of a generation of burgeoning mass
tort litigation. In some parts of the country, mass tort claims have
threatened to overwhelm the civil justice system, accounting for more
than one-quarter of the entire civil caseload in certain courts. See
Deborah Hensler, et al., Asbestos in the Courts: The Challenge of Mass
Toxic Torts, 25-27 (1985) (By 1990, asbestos litigation accounted for
three-quarters of all new federal product liability filings).
Ortiz must be viewed warily against this backdrop. The opinion has
precipitated an extraordinary rush to judgment but, as it is focused
primarily on "limited fund" issues and the non-opt out form of this
device, it clearly does not affect all class actions. In addition, this
class action involved a difficult group of "future claimants" not always
found in mass tort litigations. The main point is that Ortiz emerged
from the context of the national asbestos litigation, a mass tort crisis
like no other. Yet certain commentators have already predicted the end
of the class action settlement as we know it and focus has intensified
upon congressional hearings, which began on July 1, 1999, as explicitly
recommended by Justice Souter's opinion.
Even at its great length, the Ortiz opinion raises more questions about
the class action than it answers. Moreover, all of this occurs in a
historical context of long standing, deep ambivalence toward this
procedural device.
The class action settlement may seem desirable to large manufacturers
who find it their only alternative to the mass tort lottery. But the
number of instances in which plaintiffs have attempted to bring mass
tort cases as class actions and have had the courts reject class
certification have been legion. Even in the infrequent instances in
which classes have been certified, they have proven unwieldy for courts
to maintain and have led to inconsistent results in according justice to
litigants. Moreover, even when this mechanism is imposed by consent of
both sides of the aisle and ordered by the court for settlement
purposes, its deficiencies in attempting to provide aggregate justice in
a system historically attuned to individualized grievances and
restitution often outweigh whatever benefits ensue. Indeed, commentators
and courts now increasingly agree that other than the close-knit
community of plaintiff's lawyers who specialize in class action tort
litigation, it is unclear who the real winners are. N1 n1. In re GMC
Pick-Up Truck Fuel Tank Prods. Liab. Litig. As the Third Circuit held in
this case:
In particular, settlement classes create especially lucrative
opportunities for putative class attorneys to generate fees for
themselves without any effective monitoring by class members who have
not yet been apprised of the pendency of the action. Moreover, because
the court does not appoint a class counsel until the case is certified,
attorneys jockeying for position might attempt to cut a deal with the
defendants by underselling the plaintiffs' claims relative to other
attorneys.
1995 U.S. App. Lexis 8815, 12 (3d Cir. 1995)
As one commentator stated over two decades ago, "Litigation is organized
as a contest between two individuals or at least two unitary interests,
diametrically opposed, to be decided on a winner takes all basis."
Abraham Chayes, The Role of the Judge in Public Law Litigation, 89
Harvard L. Rev. 1281, 1282 (1976). Mass tort claimants tend to be very
loosely connected with one another in terms of time, place, and
causation of injury. Consider the amount of time and attention the tort
system ordinarily lavishes on each claim and the detail in which it
tailors its remedy to the specific facts, the defendant's conduct, and
the plaintiff's injury -- not a good context for the class action
device. When separate, individual claims are aggregated, the possibility
always exists that any given litigant will lose autonomy and control
over the discrete merits of his case.
A Hobson's Choice
Clearly, there are too many examples of cases, many involving
pharmaceutical products, where the class action has produced ambivalent
results. Cases involving Benedictin, DES, the Dalkon Shield, and the
Shiley Heart Valve were all notorious for protracted, tortured outcomes.
In a broader context, Agent Orange and the asbestos litigation (the
earlier Center for Claims Resolution) also demonstrated that -- even
when the class action has the consent of the litigants -- hurdles
created by complex procedures, difficult administration, and dubious
equities can prove insurmountable.
Yet despite this backdrop, manufacturers and insurers have been willing
to participate in class action settlements on a "bird in the hand"
theory -- it offers some short term relief and feasibility while
industry clings to the hope of longer term solutions through appropriate
tort reform legislation. Today, however, in the wake of the Ortiz
application of Amchem's principles, the U.S. Supreme Court has made
certain class action settlements more difficult to achieve. Having
accepted the class action compromise as an expedient alternative to the
mass tort lottery, industry may now find itself between a rock and a
hard place.
The Asbestos Difference
Yet the broad implications being drawn between the difficulties of the
asbestos class action settlement and other existing and prospective mass
tort settlements are premature. In Ortiz, Justice David Souter wrote,
"The elephantine mass of asbestos cases . . . defies customary judicial
administration . . .." In his recent testimony supporting The Fairness
in Asbestos Corporation Act, Professor Christopher Edley, Jr. of Harvard
referred to an "asbestos tragedy with human, financial, and legal costs
that dwarf those created by other examples of medical and product
liability." He cited several unique burdens and inequities imposed upon
industry that separate Ortiz from other mass tort litigation. Asbestos
is simply different in the following six ways:
Huge Caseload
New asbestos cases are being filed at a rate we could not have imagined
just five years ago. For example, from 1994 into 1998, new claims
against the largest defendant company alone have averaged approximately
40,000 per year.
Unimpaired Consumer Resources
Overall, the resources that are devoted today to asbestos litigation
have sharply increased. In addition to the increase in the number of
pending cases to 200,000, the size of verdicts has increased,
particularly in cases of mild or no impairment. The prospect of huge
verdicts with lottery-like jury awards, based primarily upon exposure
rather than injury, distorts the settlement process, particularly for
claims involving the unimpaired.
Expensive Litigation Process
The fees of plaintiffs' attorneys remain as high as 33% to 40% on a
contingency basis, despite the fact that the risk of non- recovery no
longer justifies such high fees. Sixty cents of every dollar paid by
asbestos defendants goes to lawyers' fees. The costs to the court system
of resolving hundreds of thousands of asbestos claims -- in judicial
attention, salaries of court personnel, and lost or delayed
opportunities to adjudicate other cases -- are enormous.
Doubtful Compensation for Future Claimants
Ironically, if the burden becomes too much for the remaining solvent
defendants to bear, future "victims" may go uncompensated. Indeed, the
language in Justice Souter's opinion in Ortiz suggesting that the
"6(1)B" class not be used as a surrogate for receivership has worrisome
implications. At least twenty-five companies have been bankrupted, and
many other companies have faced potentially crippling awards.
Search For Deep Pockets
Plaintiffs' lawyers are continually searching for deep pockets among
peripheral defendants after the traditional defendants are driven into
bankruptcy. This process has accelerated with the new avalanche of
claims in the 1990s. Today, lawyers are searching far beyond
manufacturers of asbestos products to cast blame on any company with
even the most attenuated connection with asbestos.
Consolidations Exacerbate Problems
In desperation over the massive caseload and frustrating delays, some
state courts have turned to mass consolidations -- in which hundreds or
thousands of plaintiffs are grouped into a single case, with defendants
numbering possibly in the hundreds -- in order to process claims more
quickly. This strategy benefits unimpaired claimants and, of course,
generates substantial income for lawyers. Consolidations of this sort,
however, seriously dilute the quality of justice for everyone.
Prescriptive Value of Ortiz
What does Ortiz mean? Its extraordinary mass tort context -- asbestos
litigation -- makes its impact difficult to predict; but for sure, the
Supreme Court issued the decision on grounds specific to mandatory, non
opt-out, limited fund class action settlements. The concern evinced so
prominently in the Ortiz opinion about the rights of "future claimants"
will be of de minimus application in other contexts. In the prototypical
pharmaceutical case, for example, the plaintiff likely knows that he or
she has been exposed; there will likely be no future claimant
identification problem or emergence of an unknown injury creating
"futures" as extreme as the asbestos example. Hence, while we do not
know today exactly what an Ortiz- sufficient class action must look
like, we can at least take a fair guess at those contexts in which its
principles are unlikely to apply.
The most significant post-Ortiz class action settlement development thus
far occurred on July 22 in Alabama, when state court judge Robert
Kendall relied upon the ruling in refusing to approve settlement of a
national class action brought by smokers against Liggett Group, Inc.
Liggett's attorneys warned the judge that bankruptcy might, therefore,
be inevitable. As with Souter, he was unimpressed.
Three points resound loudly from Ortiz:
First, the holding is explicit on this issue: a mandatory settlement
class on a limited fund theory must have a fund limited by more than the
agreement of the parties; it must be allocated to claimants belonging
within the class by a process addressing the conflicting interests of
the class members. This does not make the limited fund settlement
impossible; it will however require greater attention to due process and
other concerns to legitimize its outcomes. The Supreme Court found the
lack of an independent assessment of the value of disputed insurance
funds particularly nettlesome.
Second, the Supreme Court bridled at exclusion of "myriad claimants with
causes of action, or foreseeable causes of action" arising out of
asbestos exposure. The Court admonished the District Court for
neglecting to appoint separate representation for various subclasses to
extirpate any conflicts of interest amongst counsel in the process.
Most troubling was the final rebuke in the Court's opinion, which
related to Fibreboard's retention of virtually its entire net worth in
the aftermath of the proposed settlement. Justice Souter's implicit
suggestion that the manufacturer should have borne additional financial
pain in the limited fund context is cause for great concern. (Legal
Backgrounder 9-17-1999)
DAY RUNNER: Schoengold & Sporn Announces Securities Suit Filed In CA
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Schoengold & Sporn, P.C. announced today that a securities class action
lawsuit was filed in the United States District Court for the Central
District of California on September 2, 1999 against Day Runner, Inc.
(Nasdaq: DAYR) and certain of the Company's key officers and directors
on behalf of purchasers of the common stock of Day Runner during the
period October 20, 1998 through and including August 31, 1999. While one
or more additional lawsuits have been commenced since that time, the
action commenced by Schoengold & Sporn was the first such case to have
been filed against the Company.
The securities class action complaint charges the defendants with
violations of the federal securities laws (Sections 10(b) and 20 of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder),
by, among other things, misrepresenting and/or omitting material
information concerning Day Runner's net revenues through accounting
"errors" in the treatment of manufacturing variances and certain other
costs in the first, second, and third quarters of fiscal year end June
30, 1999, resulting in the Company restating its earnings for said time
periods. The price of Day Runner shares were thereby artificially
inflating during the Class Period.
If you are a member of the class described above, you may seek to join
in the above class action on or no later than sixty days from September
2, 1999, move the Court to serve as lead plaintiff.
Plaintiff is represented by the law firm of Schoengold & Sporn, P.C.,
233 Broadway, New York, New York 10279, Tel. 800-232-8092, Fax:
212-267-8137, E-Mail: SCHOENGOLD@AOL.COM website
http://WWW.SCHOENGOLDANDSPORN.COM
DETROIT EDISON: Livonia Councilman Wants To Sue Over Power Outage
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City Councilman Joe Laura wants to file a class action lawsuit against
Detroit Edison on behalf of Livonia residents. He says all residents in
the community of about 100,000 should be awarded money for the damaged
appliances, flooding, spoiled food and suffering they've endured due to
frequent power surges and outages.
The full council plans a Sept. 29 vote on whether to OK a lawsuit
against the power utility. The vote comes on the heels of a public
meeting between Detroit Edison and Livonia residents frustrated by what
they see as insufficient maintenance and frequent power problems. "This
proposal is the result of continuous power outages for unacceptable and
unexplained reasons," Laura said. "I would like to see damages go to the
citizens." Laura said that even if the council refuses to pay attorney
fees for the litigation, he plans to go ahead with other residents to
file the lawsuit. "I think there will be a groundswell," Laura said. "I
think there will be a lot of pressure from the community. This is a
terrible, terrible situation."
Detroit Edison spokesman Scott Simons said the utility would be
disappointed if Livonia chose to go that route. "We're in constant
communications with the city," Simons said. Company representatives have
met with Livonia residents twice this year to make sure the company
knows what power problems exist, Simons said. "Certainly we've made
progress on some of their concerns over the past couple of years, and we
have other projects planned."
Maureen Wakenell, a Livonia resident, said it's time to take the company
to court. "If this problem had lasted only a year or two, I might say
no,'" Wakenell said. "But it's been 20 years. You never know when you
are going to lose power or when it is going to come back on."
Some residents oppose a lawsuit, but support being reimbursed for any
damages they incurred. "At the present time, I don't think that is
necessary," said Manouk Derovakimian, of Livonia. "People who had
damages should be reimbursed, but hopefully that can happen without a
lawsuit. They are meeting with us. They heard our concerns. I think we
should give them an opportunity to make some progress and report back."
Laura said he wants to take talks up a notch with Detroit Edison. "I
think we need to up the bar to get things happening and if it comes to a
class action lawsuit, that's what we should do," Laura said.
Mayor Jack Kirksey said everyone is frustrated, but he doesn't think the
city should provide legal advice for a residential lawsuit. Also, he
said, legislative proposals may provide some other relief to residents
who experience non-storm-related power outages. "It's not that we don't
want to assist in whatever ways are appropriate. It's just that
sometimes that kind of involvement has very negative implications,"
Kirksey said. (The Detroit News 9-24-1999)
FEMCARE: Aussie AG Protects Class Actions On Sterilisation Device
The federal government moved to protect class actions after a company
facing a claim for negligence over a female sterilisation device moved
to have the case thrown out on the grounds that class actions were
unconstitutional.
British-based Femcare is arguing the act that allowed class actions in
the Federal Court violated fundamental rules of natural justice and was
in breach of the Australian constitution.
Femcare is being sued by New South Wales woman Kerrie Bright on behalf
of other women who used its Filshie Clips product to tie their fallopian
tubes.
Ms Bright had the clips attached in January last year and five months
later discovered she was pregnant. She had the pregnancy terminated and
as a result suffered medical complications, including infections.
Femcare said class actions denied natural justice, because it prevented
people from bringing separate actions. "One of the fundamental rules of
natural justice is that a person is entitled to be heard in (their) own
court case," it said in a statement. "As the law currently stands, class
actions could on a daily basis make binding determinations on persons
who have been made parties to court actions without their knowledge and
consent."
Class actions allow large numbers of people with a common cause to unite
their cases. If successful, the challenge would force the women, and
others fighting similar cases, to take out more costly and
time-consuming separate proceedings.
Attorney-General Daryl Williams said his intervention in the case did
not mean the government was taking sides in the case. "The case raises
important questions relating to the availability of representative
actions in the federal court, requiring my intervention," he said in a
statement.
Lawyers leading the class action, Maurice Blackburn Cashman, said
Femcare was trying to deny people's legal rights. "It seems they are
seeking to delay the proceedings in the hope of wearing our clients
down," Maurice Blackburn Cashman partner Vera Culkoff said in a
statement.
Femcare defended its Filshie Clips product, saying it was the most
effective form of tubal sterilisation available to women. Company
managing director Bernard Sweeney said the clips were effective 99.7 per
cent of the time when applied correctly. "However, we acknowledge that
it is very distressing for the very small number of women who may still
fall pregnant after sterilisation," Mr Sweeney said. (AAP Newsfeed
9-24-1999)
FISH & WILDLIFE: Environmentalists Sue Over MSCP - Plan In San Diego
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If you believe Interior Secretary Bruce Babbitt -- a former Arizona
attorney generally known for his consensus-building skills on
environmental issues -- so-called habitat conservation plans can take
environmentalists and developers alike to a promised land of harmony and
peaceful co-existence.
But a lawsuit involving such a plan in San Diego County -- formally
known as a multispecies conservation program (MSCP) -- suggests that the
days of pit-bull environmental litigation may still be with us.
The idea of an HCP is simple and straightforward: In exchange for
permission to build, developers agree to set aside or purchase
predetermined pieces of land that serve as habitat for rare and
not-yet-rare plants and animals. In theory, both sides get what they
want. Developers avoid getting tangled up in the federal Endangered
Species Act. And environmentalists get large wildlife preserves that may
help stop species from becoming endangered in the first place.
So much for theory. The real world, after all, is filled with
environmentalists who regard developers as felons and Babbitt as a
sellout, and builders assume environmentalists spend their time reading
the Daily Worker while Babbitt goes around hugging trees. At the moment
-- and despite the fact that many environmental groups have signed on to
the HCP concept in San Diego -- the litigation challenging the
conservation plan is being driven by the Babbitt-as-sellout view adopted
by harder-edged greens.
Having devoted much of his time in office to the notion that the
Endangered Species Act can work just fine without being amended by a
Republican- controlled Congress, Babbitt has touted the 1997 San Diego
MSCP as a "model for the nation."
The U.S. Fish & Wildlife Service approved the plan, which encompasses
900 square miles in western San Diego County. It calls for conservation
of 172, 000 acres of habitat in exchange for a streamlined development
process.
Ever since the plan's adoption, however, folks on either side of the
build vs. protect debate have remained uneasy. And it seems likely that
HCPs will come under increasing attack in the future -- as both sides
debate which developer actions are "locked in" as permissible under the
plan and which are still fair game for environmentalists to challenge.
Pooling Resources
When a San Diego developer late last year bulldozed about 65 vernal
pools -- small depressions that hold rainwater and often contain
endangered fairy shrimp and other protected species -- a collection of
environmental organizations filed suit against the Fish & Wildlife
Service in federal court.
The lawsuit's lead plaintiff is the Tucson-based Center for Biological
Diversity, formerly the Southwest Center for Biological Diversity -- one
of the most strident and aggressive litigation machines in the
environmental movement. "There is a total lack of information as to how
to protect those vernal pools and the species that rely on the vernal
pools," claims Neil Levine, one the center's attorneys, who's also the
director of the Earthlaw Clinic at the University of Denver College of
Law.
But the city of San Diego, the real party in interest in the litigation,
contends that the MSCP does not even address vernal pools, which are
normally regulated under the wetlands regulations of the federal Clean
Water Act. "We think in large part this lawsuit is misdirected at the
MSCP," says Deputy City Attorney John Mullen, who notes that the
developer followed the wetlands process overseen by the U.S. Army Corps
of Engineers.
City officials are hoping for a victory on summary judgment,
particularly in the wake of refusals by San Diego Superior Court Judge
Judith McConnell, who often sides with environmentalists, and U.S.
District Judge Irma Gonzalez to issue temporary restraining orders to
halt the earth-moving. But environmentalists almost certainly will
continue to fight the MSCP. In fact, the Center for Biological Diversity
filed a second suit in July regarding the Otay tarplant, a threatened
species of sunflower. "Conceptually, it could work," Levine says of the
MSCP. "But as they always say, the devil is in the details, and that's
where we are having the trouble."
Environmentalists argue that HCPs are based more on politics than
science and aren't flexible enough to change if and when later
information becomes available. No one knows what developments San Diego
might eventually approve under the MSCP, says Levine, so how can their
effect on endangered species have been properly studied?
For its part, the Fish & Wildlife Service defends the plans, which
usually take years to prepare. And San Diego officials say their plan is
plenty adequate. "Certainly we think the MSCP comprehensively covers all
85 species that are included in this plan," says Mullen.
Builders, meanwhile, are looking to avoid surprises that might arise
because of new endangered species listings down the line. However,
Gonzalez ruled in late August that the National Association of
Homebuilders, the California Building Industry Association and other
development interests could not participate in defending the San Diego
plan. That was a blow because it means developers cannot defend a plan
they funded, says Hugh Hewitt, a partner in Irvine's Hewitt & McGuire
who represents development interests involved in the San Diego plan.
Hewitt contends the HCP process ultimately is doomed partly because
environmental groups are still suing over what should be regarded as
done deals. And the feds, he adds, are doing nothing to prevent such
litigation. From his side of the fence, Levine says many
environmentalists themselves have not bought into the HCP process. He
cites San Diego as a chief case in evidence. (The Recorder 9-24-1999)
GLOBAL MINERALS: CFTC Sues Over Manipulation Of Prices Of Copper
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CFTC v. Global Minerals, Merrill Lynch
A penny saved is a penny earned. But according to a suit filed by the
Commodity Futures Trading Commission, hoarding too much copper can be a
crime.
Filed May 20 in administrative court, the CFTC suit claims that
Manhattan-based commodities merchant Global Minerals and Metals
Corporation and investment firm Merrill Lynch & Co., Inc., illegally
schemed to corner the market on copper. The complaint alleges that
between October and December 1995, Global president and CEO R. David
Campbell and chief trader Carl Alm conspired with Sumitomo Corporation
of Japan to manipulate the prices of copper and copper futures. Merrill
Lynch employees, the CFTC claims, knowingly aided the manipulation by
providing Global and Sumitomo with a joint trading account and more than
$500 million in financing.
In May 1998 Sumitomo agreed to pay $150 million in fines and restitution
after the CFTC brought charges against the company. Sumitomo settled
without admitting to or denying the charges. If found liable, the
respondents could face fines triple the amount gained from any illegal
transactions and be forced to pay restitution to companies injured by
their actions. H. Peter Haveles, Jr., an attorney for Global and
Campbell, says that the " complaint is based on an Alice-in-Wonderland
view of the facts."
In a written statement, Merrill Lynch says it had "no knowledge that the
conduct of Sumitomo . . . was unlawful, and Merrill Lynch had no
intention to render assistance to any conduct that was improper." For
Commodity Futures Trading Commission Division of Enforcement
(Washington, D.C.) Assistant director of enforcement Dennis O'Keefe and
trial attorney Vincent McGonagle.
For Global Minerals and Metals Corporation (New York), and Global
President and CEO R. David Campbell Cadwalader, Wickersham & Taft (New
York): Raymond Banoun, H. Peter Haveles, Jr., Edmund Schroeder, and
associates Skye Gabel, Matthew Kliegmun, Patrick McGurik, and Richard
McGurik. Cadwalader has represented Global Minerals in the past.
For Global chief copper trader Carl Alm Kramer Levin Naftalis & Frankel
(New York): David Frankel, Gary Naftalis, and special counsel Ronald
Greenberg. This is the first time Kramer Levin has represented Alm.
For Merrill Lynch & Co., Inc. (New York) In-house: Merrill Lynch would
not disclose the names of in-house attorneys working on the suit.
Rogers & Wells (New York): John Carroll and associates John Nathanson
and Herbert Washer. Rogers & Wells is regular outside counsel for
Merrill Lynch. Sullivan & Cromwell (New York): Kenneth Raisler and
Michael Tomaino, Jr. Outlook Global Minerals has filed a motion
requesting the CFTC to provide a more definite statement of facts. The
response to the request is due by July 12.
H & R: Ill AP Ct Oks Dismissal Of Misrepresentation Of Finance Charges
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Financing charge disclosures, which comply with the Truth In Lending
Act, equally comply with the Illinois Consumer Fraud and Deceptive
Business Practices Act in situations where both statutes apply, held the
Illinois Court of Appeals in Beckett, et al. v. H & R Block Inc., et
al., No. 1-98-0064 (Ill. Ct. App. 6/30/99). This is true even when
borrowers file claims under the CFA that the disclosures misrepresented
that the finance charges were paid only to the lenders.
H & R Block Inc. offers taxpayers "refund anticipation loan[s]." The
RALs are short-term loans from banks, which must be repaid by the
taxpayers' anticipated federal income tax refunds. To obtain such a
loan, consumers must file their tax return electronically with Block and
complete a loan application, which Block forwards to a bank. If the bank
accepts the application, it advances the loan against the borrower's tax
refund within five days. When the government issues the refund, the
lender places it into an account used to pay off the loan.
The plaintiffs applied for and received RALs from either Mellon Bank or
Bank One. In conjunction with their RALs, they received TILA disclosures
attached to their check stubs. The checks contained the terms of the
loan.
Class Action
The plaintiffs filed a class action under the TILA and the CFA in the
U.S. District Court for the Northern District of Illinois contending
that the RAL application concealed the loan's true costs by failing to
itemize the finance charge and that Block misrepresented that the
finance charge was paid entirely to the bank. The District Court
dismissed the TILA claim under Fed. R. Civ. P. 12(b)(6) holding that
Block and the lenders complied with the TILA.
The plaintiffs then filed a class action in state court alleging
violations of the CFA. When the banks moved to dismiss arguing that
their disclosures were consistent with the TILA in that they were not
required to itemize the finance charge and, therefore, they did not
violate the CFA, the court granted their motion. However, it gave the
plaintiffs leave to amend their complaint, which they did.
In the amended complaint filed against Block only, the consumers
contended that Block engaged in a "bait and switch" scheme. The
plaintiffs alleged the scheme worked as follows: Block used the low
finance charges, disclosed on the RAL applications, to lure taxpayers to
take out RALs then replaced the low charges with higher finance fees
through the loan checks.
Block moved to dismiss. It argued that the allegedly deceptive forms at
issue complied with the TILA and such compliance barred all claims under
the CFA. The trial court agreed and granted the motion, dismissing all
remaining claims with prejudice. The consumers appealed.
On appeal, the plaintiffs claimed that the defendants violated the CFA
by failing to include the electronic filing fee in the finance charge,
by using deceptive business forms and by luring customers with
"unrealistically low APRs." Regarding the TILA, the consumer argued that
the disclosures on the check stub did not comply with the act and were
untimely made. The plaintiffs contended that the disclosures should have
been made when they signed the RAL application because that was when
they became contractually obligated.
Writing for the court, Justice Cousins opined that the TILA only
requires disclosures to be given prior to the "consummation of the
agreement." The court found that a contract was not created until the
borrowers endorsed the loan checks. Like the lower court, the Court of
Appeals concluded that because the defendants provided the disclosures
to the borrowers on the check stubs before endorsement, the disclosures
were timely made.
Next, the court examined whether the disclosures were sufficient under
the TILA because if they were, Lanier v. Associates Finance Inc., 499
N.E.2d 440 (1986), held that they were also sufficient under the CFA.
Sufficiency Of Disclosures
The borrowers initially argued that the disclosures were insufficient
because the electronic filing fee should have been included in the
finance charge. The court, however, disagreed. Explaining that Section
1605(a) of the TILA specifically excludes "charges of a type payable in
a comparable cash transaction," the court examined the finance fee. It
concluded, after reviewing Basile v. H & R Block, 897 F.Supp. 194 (E.D.
Pa. 1995), that the fee was comparable to a charge paid in a cash
transaction and that its exclusion from the finance charge was proper.
Justice Cousins added, "In fact, it would have been a violation of TILA
if they had" included the fee in the finance charge.
In a final attempt to persuade the court that the trial court's ruling
was incorrect, the borrowers asserted that the defendants made an
affirmative misrepresentation when they disclosed that the entire
finance charge would be paid to the lenders.
The court responded that under Lanier the CFA does not require more
extensive disclosures than the TILA. Here, said the court, the
defendants failed to disclose a fact - that Block receive a portion of
the finance charge. A misrepresentation would have occurred if the banks
did not receive any of the finance charge listed in the TILA disclosure.
Because the disclosures conformed to the TILA, the plaintiffs'
misrepresentation claim also failed.
George Platz of Lovell, White, Durrant and Theodore Scarborough of
Sidley & Austin in Chicago represented Mellon. Craig Varga of Varga,
Berger, Ledsky, Hayes & Casey in Chicago and Jeffrey Saltz of the Law
Offices of Jeffrey Saltz in Philadelphia represented Bank One. Louise
Ellingsworth and Mark Brennan of Bryan Cave in Kansas City, Mo.,
represented Block. Howard Prosnitz of the Law Offices of Howard Prosnitz
and Francine Schwartz of Francine Schwartz in Chicago represented the
plaintiffs and Dom Rizzi of Miller, Faucher, Cafferty & Wexler in
Chicago argued for the plaintiffs on appeal. (Consumer Financial
Services Law Report 8-12-1999)
H & R: Sp Ct To Decide Whether Tax Preparer Is An Agent
-------------------------------------------------------
National tax preparation firm H & R Block Inc. is headed to the state's
highest court to try to prevent a recent Superior Court decision from
becoming precedential.
In March, the Superior Court overturned a Philadelphia Common Pleas
Court decision denying class status in a suit alleging that H & R Block
fails to disclose that its "Rapid Refund" program is really a high
interest loan. The class represents as many as 600,000 customers. That
decision from the lower appeals court also established a "control over
the result" doctrine, ruling that a tax preparer has an agency
relationship with its customers and therefore a fiduciary duty to those
using its services. The court's broad test ruled that a service provider
is the agent of its customer whenever the customer controls the result
of the work performed even if the service provider has discretion over
the means by which the result is achieved.
Petitioner James C. Schwartzman of James C. Schwartzman & Associates
said the Superior Court ignored case law by establishing the "control
over the result" test. "If allowed to stand as an expression of the law
in this commonwealth, the rule applied by the Superior Court would
render every service provider in Pennsylvania an 'agent' of each of its
customers with all of the extraordinary duties and obligations inherent
in a fiduciary relationship," Schwartzman wrote. "This is an
ill-conceived and dangerous abrogation of agency law and is contrary to
the prior decisions of the Pennsylvania Supreme Court, as well as those
of the Superior Court, with respect to the showing required to establish
agency." The Supreme Court granted allocatur to decide "whether the
Superior Court erred as a matter of law in finding that an agency
relationship with all the extraordinary obligations of a fiduciary
relationship could be established under the 'control over the result
test' without any showing that the purported agent was acting for the
benefit of, and with the ability to bind, the purported principal."
Background
H & R Block prepares income tax returns for its customers. In addition
to the preparation, Block can electronically file the tax return with
the IRS. Through this electronic filing, Block provides its customers
with a service commonly called the "Rapid Refund" program. Block says it
will turn the return into cash by applying for a "Refund Anticipation
Loan." Anyone interested in the service must agree to the loan and sign
a check.
The lawsuit alleges that Block does not adequately inform its customers
that the "Rapid Refund" service is in fact a loan, complete with
interest rates. The initial lawsuit filed in common pleas court and then
transferred to federal court alleged six counts: violation of the
Federal Truth-In-Lending Act; common law fraud; common law negligent
misrepresentation; breach of fiduciary duty; violation of the
Pennsylvania Unfair Trade Practices and Consumer Protection Law; and
violation of Delaware legal right of interest law. Mellon Bank, which is
located in Delaware, was an initial defendant in the case. Mellon was
eventually dismissed as a party to the suit.
The federal court disposed of several issues, finding foremost that the
interest rate charged to the customers was lawful. The federal court
remanded the case to common pleas court on the remaining issues.
Administrative Judge John W. Herron threw out the class action on all
claims but one the breach of fiduciary duty. The case was then
transferred to Judge Stephen E. Levin, who disagreed with Herron's
decision. Levin entered summary judgment to Block in February 1998,
ruling that the class-action vehicle was not right for litigating the
claims. Levin said that H & R Block had not entered a fiduciary
relationship or acted as an agent for Block patrons who sought
tax-preparation services. He preserved any separate individual claims
under the state Consumer Protection Law, however.
The Superior Court opinion, written by Judge Justin M. Johnson,
disagreed with Levin's analysis, saying that Pennsylvania agency law
does establish a possible agency relationship between Block and the
class members. Since federal tax law makes each filer ultimately
responsible, on pain of perjury, for the veracity of information on the
return, each filer is vested as a matter of law "with the ultimate right
of control over the compilation and filing of his or her return,"
Johnson reasoned. "Because plaintiffs engaged Block to file their
returns subject to plaintiffs' right of control and because Block
accepted the task accordingly, we conclude that all elements of an
agency relationship have been established," he wrote. Within the agency
relationship, Johnson then concluded, there was a fiduciary duty flowing
from Block's tax preparers and the filers. If the plaintiffs can show
that Block personnel failed to disclose the true nature of the "Rapid
Refund" service, they may be able to establish a breach of duty on a
class-wide scale, Johnson suggested in remanding the case to
Philadelphia court for resolution of the issue. Joining Johnson in the
decision were Senior Justice Frank J. Montemuro Jr. and Senior Judge
Vincent Cirillo.
Petition
The petition seeking allocatur does not squarely address the issue of
class certification, but rather focuses on the agent issue. Schwartzman
said the Superior Court failed to recognize Block as an independent
contractor and erred by finding that agency could be established under
master/servant guidelines, even if Block were found to be an independent
contractor." Thus, the Superior Court ignored the very important
distinctions between independent contractors who are agents and those
who are not," Schwartzman contends. "The relationship must be examined
to determine whether the hallmarks of an agency exist. If they do not,
then a fiduciary relationship, with the incumbent duties, does not
arise. "To support its finding that Block had an agency relationship
with its customers, the court said that Block did not have the power to
bind the customers to the "Rapid Return" program. The court ruled that
the customer had control over the final decision, adopting the "control
over the result" determination. Schwartzman said that such a ruling was
erroneous. "The Superior Court erred in holding that an agency
[fiduciary] relationship could be established merely by showing that the
purported principal exercised 'control over the result' of a service
contract, even though the service provider [the purported 'agent']
tendered its performance to achieve that result by means within its own
discretion," Schwartzman wrote in his petition. "If this were true, then
agency would be established whenever customer 'controls the result' by
purchasing a service, and every service provider would become an agent
and a fiduciary. "Schwartzman said the lower appeals court "erred
grievously" by ruling that all that was needed to define an agency
relationship was a person's control over the final result. Michael A.
Riccardi contributed to this report. (The Legal Intelligencer 9-24-1999)
KNOLL INC: Sued Over Warburg's Proposed Acquisition Of Common Stock
-------------------------------------------------------------------
On March 23, 1999, the Company received a proposal from Warburg, Pincus
Ventures, L.P. and certain members of Knoll management to acquire all of
the outstanding shares of the Company's common stock owned by public
stockholders at a price of $25.00 per share. The Board of Directors has
authorized the appointment of a special committee, consisting of
independent members of the Board of Directors, to consider the proposal.
Consummation of the acquisition would be subject to approval by the
Board of Directors and stockholders of Knoll, as well as to the receipt
of financing, the execution of a definitive merger agreement and other
conditions customary in a transaction of this type. Five class action
complaints relating to the proposal were filed on or about March 24,
1999. The Company is among the defendants. The Company is unable to
predict what impact, if any, such litigation may have on the Company or
the proposed transaction.
MOMENTUM BUSINESS: CA Actions On Securities Fraud To Be Consolidated
--------------------------------------------------------------------
On February 1, 1999, Momentum Business Applications Inc. was first named
as an additional defendant in a series of class action lawsuits brought
against PeopleSoft, Inc. and certain of its officers and directors,
alleging securities fraud in connection with, inter alia, PeopleSoft's
spin off of Momentum to PeopleSoft shareholders. Out of nineteen such
class actions filed to date, only one names Momentum as a defendant. The
class period in all such actions is from February 1997 to January 28,
1999, the date when PeopleSoft first announced that the Securities and
Exchange Commission was reviewing PeopleSoft's accounting treatment for
certain transactions in prior periods.
The actions are pending in the United States District Court for the
Northern District of California, under the lead case name Suttovia v.
Duffield, et al, No. C 99-0472 MJJ. It is expected that all actions will
be consolidated into a single action within the next 45 days, and an
amended complaint will be filed at that time. It is uncertain whether
certain of the claims and allegations in the current complaint will be
included in the amended complaint, or whether Momentum will remain a
defendant in the consolidated case.
NOVELL INC: Intends To Defend Vigorously Securities Suit
--------------------------------------------------------
In February 1998, a suit was filed against Novell and certain of its
officers and directors, alleging violation of federal securities laws.
The lawsuit was brought as a purported class action on behalf of
purchasers of Novell common stock from November 1, 1996 through April
22, 1997. The case is in its preliminary stages. Novell believes that
the case is without merit, and intends to vigorously defend against the
allegations. While there can be no assurance as to the ultimate
disposition of the case,
PETCO ANIMAL: Will Defend Vigorously Stockholders Suit Filed In CA
------------------------------------------------------------------
Petco Animal Supplies Inc. and certain of its officers have been named
as defendants in several virtually identical class action lawsuits filed
in the United States District Court for the Southern District of
California between August and November, 1998. These cases have been
consolidated and will be administered as one case. The plaintiffs
purport to represent a class of all persons who purchased the Company's
common stock between January 30, 1997 and July 10, 1998.
The complaints allege that the defendants violated various federal
securities laws through material misrepresentations and omissions during
the class period, and seek unspecified monetary damages. These matters
have been tendered to the Company's insurance carrier. While the Company
believes the allegations contained in these lawsuits are without merit,
the claims have not progressed sufficiently for the Company to estimate
a range of possible exposure, if any. The Company and its officers
intend to defend themselves vigorously.
PETCO ANIMAL: Will Contest CA Suit Over Sex Bias In Wage Rates
--------------------------------------------------------------
The Company has been named as a defendant in a lawsuit filed by the
United States Equal Employment Opportunity Commission in the United
States District Court for the Northern District of California on June 2,
1999. The complaint alleges that the Company violated Title VII of the
Civil Rights Act of 1964, as amended, and the Equal Pay Act, by payment
of wages to employees of one sex at rates less than the rates paid to
employees of the opposite sex. The complaint seeks unspecified monetary
damages for the named employees and any other similarly-situated
employees. While the Company believes the allegations contained in this
lawsuit are without merit, the claim has not progressed sufficiently for
the Company to estimate a range of possible exposure, if any. The
Company intends to defend itself vigorously.
RHONE-POULENC: 8th Cir Oks Dismissal Of RICO Suit Brought By Employees
----------------------------------------------------------------------
The 8th U.S. Circuit Court of Appeals affirmed the dismissal for lack of
standing of a decision based on a class action brought by the employees
of Rhone-Poulenc Rorer Pharmaceutical Co. who alleged injury as a result
of failing to participate in a RICO scheme. The U.S. District Court for
the District of Minnesota granted summary judgment stating that the
employees did not have direct injury in the alleged scheme by the
pharmaceutical company to provide information to physicians for the
illegal off-label uses of their products. Hamm v. Rhone-Poulenc Rorer
Pharmaceutical Co., No. 98-1063 (8th Cir. 8/11/99).
The Class
The class action against Rhone-Poulenc Rorer was brought on behalf of
the former and current employees of the company who alleged that they
were victims of the purported scheme because they refused to promote the
off-brand use of the products.
The employees alleged that the company through its sales
representatives, conferences and literature encouraged physicians to use
their products in ways not approved by the FDA. The employees stated
that the company allegedly encouraged the sales representatives to
solicit those off-label uses, set sales quota that included the
off-label use, set up paid speaking engagements for the physicians that
used the products off-label and destroyed promotional literature that
depicted the off-label uses.
According to the complaint, when the former employees failed to
participate in the alleged scheme they were terminated, denied
promotion, not compensated and lost stock options. The employees did not
claim any direct injury to themselves but stated instead the alleged
fraudulent activities injured hospitals, physicians and other medical
personnel.
Motion To Dismiss
Relying on a report and recommendation of Magistrate Judge John M.
Mason, the District Court dismissed the action on a motion that was
converted from a motion to dismiss into a motion for summary judgment
because the District Court stated that it was necessary to hear matters
outside the pleading to determine the validity of the claims. The 8th
Circuit agreed stating that the summary judgment was appropriate since
statements of counsel in oral argument were necessary in determining the
case, and that those statements were "outside the pleadings" and not
merely reiteration of the pleadings since the arguments presented new
facts.
The employees argued that the District Court did not give constructive
notice of the conversion of the motion to dismiss. However, the 8th
Circuit stated that it was the employees that submitted the "new" facts,
not the pharmaceutical company. Thus, the District Court's failure to
give formal notice was not necessary.
Thereafter, the employees attempted to voluntarily dismiss the action
after the court had rendered the decision on the summary judgment. The
District Court overruled the motion stating that the employees could not
dismiss without a court order.
The employees argued that the District Court abused its discretion, but
the 8th Circuit did not agree. The 8th Circuit stated that since the
action was a class action it required court approval to dismiss and that
the only reason for the motion for dismissal. It added was an attempt to
avoid getting an adverse decision in the case so that they could sue in
another forum.
Standing
The District Court dismissed the action on the grounds that the
employees did not have sufficient standing to bring a RICO action as
there was no direct injury to them. The employees appealed stating that
the injury to their business reputations was sufficient injury under the
"injury to business or property" requirement of the statute.
The employees stated further that their standing was irrelevant because
they were not the targets of the alleged scheme but rather a resulting
effect.
However, the 8th Circuit was not convinced stating that it had rejected
similar claims in Bowman v. Western Auto Supply Co., 985 F.2d 383 (8th
Cir.), cert. denied, 508 U.S. 957 (1993).
The 8th Circuit held that like in Bowman, the alleged retaliatory
conduct for the employees' failure to participate was not proximately
caused by the alleged racketeering activity. "Thus, [the employees] were
not the intended targets of the fraudulent scheme. Their injuries were
derivative and incidental, not direct."
Even though the injuries were sufficient under the "but for" test, that
was not enough for the 8th Circuit to make a finding of sufficient
standing. Opinion by: Circuit Judge McMillian. (Civil RICO Report
9-15-1999)
RIDGEWOOD ENERGY: Settles With Limited Partnership Investors For $9.5M
----------------------------------------------------------------------
A federal judge approved a $9.5 million settlement on Sept. 9 for 800
investors who bought limited partnership interests in 23 oil and gas
companies sponsored by Ridgewood Energy Corp.
Ridgewood Energy will pay each investor 50 percent to 75 percent of the
losses of his or her investment principal. The settlement involves an
initial payment of $4 million by Ridgewood Energy and additional
payments of $5.5 million during the next four years. The settlement was
approved by U.S. District Judge William Walls.
The complaint was filed in January 1995. According to the plaintiffs'
attorney, G. Martin Meyers, a partner with Denville's Goodkin, Labatan
Rudoff & Sucharow, Ridgewood Energy projected a 3-1 return on all
investments.
Meyers says this projection "had no reasonable basis." Actual returns
ranged from 20 percent to 70 percent of funds invested. On average,
Meyers says, investors lost 10 percent to 50 percent of funds invested.
The plaintiffs sued Ridgewood Energy and the company's CEO, Robert
Swanson, alleging violations of the federal Racketeer Influenced and
Corrupt Organizations Act and federal securities laws.
Ridgewood Energy's attorney, Douglas Eakeley, a partner with Roseland's
Lowenstein Sandler, declines to comment on the case. (New Jersey Law
Journal 9-20-1999)
SIDNEY DORSEY: Records Chief Testifies On Treatment of DeKalb Inmates
---------------------------------------------------------------------
Surprise testimony in a medical mistreatment and abuse suit against the
DeKalb County Jail cast doubt on the accuracy of medical records
provided to the plaintiff.
Lisa M. Brewer, director of medical records at the jail and an employee
of the private company that provides medical care there, testified she
had been instructed to provide affidavits attesting to the accuracy of
copies of files she hadn't checked. Brewer also said that at least one
inmate's medical file had been altered by adding information and
backdating.
Her testimony came at the beginning of what is expected to be a two-day
hearing before DeKalb Superior Court Judge Hilton M. Fuller Jr. At least
a dozen inmates are expected to testify in the suit, which seeks class
action status to address alleged inadequate medical care and brutality
against prisoners at the jail, which houses about 2,900.
The suit alleges inmates regularly are denied basic medical care and
have been beaten by a band of guards dubbed the "goon squad." Adams v.
Dorsey, No. 98CV11747-5 (DeKalb Super. Sept. 7, 1999).
DeKalb Sheriff Sidney Dorsey, who is in charge of the jail, has denied
the claims.
The hearing began, but before inmates testified, Fuller closed the
courtroom to the public and the press. A protest of the judge's action
by the Atlanta Journal-Constitution led to the proceedings being halted
and eventually opened.
Plaintiffs' lawyer Robert L. McGlasson of Decatur called Brewer as his
first witness, telling Fuller he had just spoken to her the night
before. Brewer's testimony, McGlasson said, could "change the complexion
of the litigation in this case."
Objection to Testimony
Before Brewer could begin, the lawyer representing her employer, Wexford
Health Services, objected.
McGlasson had no right to speak with Brewer, argued William T. Mitchell
of Drew, Eckl & Farnham, without going through Wexford's attorneys.
Mitchell said doing so was unethical and added that the defense in the
case only had 15 minutes' notice that Brewer would be testifying.
Fuller, however, chose to hear what she had to say.
Brewer said she had supervised the jail's medical records for 14 months
at the time the suit was filed Sept. 7. She testified that she spent all
night at a Kinko's copy center copying the files at issue in the case
for the sheriff's department. She said she gave that copy to an officer
in the sheriff's department and purchased, with her own money, a locking
file cabinet in which to keep the originals since there was no place in
the medical offices to keep them secure. Brewer insisted protocol in
maintaining medical records required her to do so.
'Trying to Protect the Jail'
"I was trying to protect them. I was trying to protect the jail," she
told McGlasson. "My name and my notary is going to be on them. I don't
want to notarize anything that's incorrect."
Brewer also testified that when she was out sick her supervisors
obtained one of the two file cabinet keys from her, then refused to
return it when she came back to work. "I was very upset," she said,
adding that doctors and lawyers involved in the litigation were "going
in and out of the files" and many copies of the records were being made
by other people. She said she was told "You have to cooperate with them.
They're going to fire you."
She also said she was certain one particular inmate's medical file had
been altered. Material had been added, she said, and one date changed to
say the inmate had been seen by a physician on a particular day when she
knew from examining other medical services logs that he had not been.
On cross-examination, Mitchell asked Brewer whether she had certified
all the medical records given to the plaintiff. "I certified them
because my boss told me to," Brewer said.
Mitchell asked Brewer how she knew, out of the thousands of files she
handled, that the one particular file she testified about had been
altered. "Can you honestly say one page of a document was added?" he
asked with a tone of skepticism. "Yes," Brewer insisted, explaining that
it was a small file and she had looked at it Sept. 14 while trying to
obtain that particular inmate's medical records from Florida.
Brewer acknowledged that she recently had been convicted of shoplifting.
The lawyer for Dorsey, David F. Walbert, however, got Brewer to concede
that her job with Wexford had been in jeopardy almost as long as Brewer
had worked at the jail and that her supervisor had been concerned that
doctors didn't get to review certain information before it was filed.
Brewer insisted she had done "a great job" as director of medical
records and that her job was only in jeopardy "because I speak the
truth."
Walbert also got Brewer to concede that there was nothing "underhanded"
in her superiors getting the file cabinet key so they could see the
files while she was out sick.
Nor, Brewer also admitted, was it unusual in hospitals for recordkeepers
to certify copies of medical records when they didn't personally make
the copies.
In a brief interview, DeKalb County Attorney Jonathan Weintraub says the
surprise witness clearly knew little of the medical records process. The
allegations brought against the jail are unfounded, he says.
Weintraub also says the plaintiffs want Fuller to appoint an auditor and
to approve funds to pay McGlasson as class counsel, a step which he
added is not authorized under Georgia law. (Fulton County Daily Report
9-24-1999)
SIGMA DESIGNS: Contests Suit Over Misrepresentation Of Prospects
----------------------------------------------------------------
In February 1998, two putative class action complaints were filed
against Sigma Designs Inc. in the United States District Court, Northern
District of California, Romine et al. v. Sigma Designs, Inc., et al., No
C-98-0537-TEC (N.D.Cal.) and Shah, et al. v. Sigma Designs, Inc. et al.,
No. C-98-0582-MHP (N.D.Cal.). The federal court complaints allege that
Sigma Designs, Inc. and certain of its current and former officers
and/or directors issued false or misleading statements regarding the
Company's business prospects during the period October 24, 1995 through
February 13, The complaints do not specify the amount of damages sought
by the plaintiffs. The plaintiffs have filed a consolidated complaint.
The Company believes that it has meritorious defenses to the allegations
made in the complaints and intends to conduct a vigorous defense. The
Company expects to file a motion to dismiss the complaint. The court has
set a hearing on that motion for December 13, 1999.
TAYLOR ANN: Contests Stockholders Suit Filed In New York
--------------------------------------------------------
Taylor Ann Stores Corp, Ann Taylor, certain current and former officers
and directors of the Company and Ann Taylor, and Merrill Lynch & Co. and
certain of its affiliates, are defendants in a purported class action
lawsuit, originally filed on April 26, 1996, by certain alleged
stockholders of the Company in the United States District Court for the
Southern District of New York. (Novak v. Kasaks, et al., No. 96 CIV 3073
(S.D.N.Y. 1996)).
On or about December 15, 1998, the plaintiffs filed a notice of appeal
to the United States Court of Appeals for the Second Circuit, seeking
review of the District Court's November 9, 1998 order granting the
defendants' motions to dismiss the amended complaint with prejudice for
its failure to state a claim upon which relief may be granted and its
failure to plead fraud with particularity.
It is the Company's understanding that Merrill Lynch, its affiliates and
the two directors who previously served on the Company's Board of
Directors as representative of certain affiliates of Merrill Lynch, have
reached a settlement with the plaintiffs, and the action as against
these defendants has been remanded by the Court of Appeals to the
District Court for proceedings in connection with that settlement. The
appeal as against the remaining defendants, including the Company, has
been fully briefed and is scheduled for oral argument before the Court
of Appeals on September 15, 1999.
SMART MODULAR: Intends To Defend Vigorously Securities Suits In CA
------------------------------------------------------------------
Smart Modular Technologies Inc. and certain of its officers and
directors have been named as defendants in six securities class action
lawsuits filed in the United States District Court for the Northern
District of California,
*Boren v. SMART Modular Technologies, Inc., et al., No. C 98 20692 JW
(PVT) (filed July 1, 1998), *Woszczak v. SMART Modular Technologies,
Inc., et al., No. C 98 2617 JL (filed July 2, 1998), *Bisson v. SMART
Modular Technologies, Inc., et al., No. C 98 20714 JF (filed July 8,
1998), *D'Amato v. SMART Modular Technologies, Inc., et al., No. C 98
2804 PJH (filed July 16, 1998), *Cha v. SMART Modular Technologies,
Inc., et al., No. C 98 2833 BZ (filed July 17, 1998) and *Chang v. SMART
Modular Technologies, Inc., et al., No. C 98 3151 SI (filed August 13,
1998) (collectively, the "Federal Actions").
The plaintiffs in the Federal Actions allege that defendants made
material misrepresentations and omissions during the period from July 1,
1997 through May 21, 1998 in violation of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
The Federal Actions were consolidated on October 9, 1998, and a
consolidated complaint was filed on November 30, 1998 (the "Federal
Complaint").
On October 22, 1998, a putative securities class action lawsuit,
captioned Reagan v. SMART Modular Technologies, Inc., et al., Case No.
H204162-5 (the "State Complaint"), was filed against the Company and
certain of its officers and directors in the Superior Court of the State
of California, County of Alameda (the "Superior Court"). The State
Complaint alleges violations of Sections 25400 and 25500 of the
California Corporations Code and seeks unspecified damages on behalf of
a purported class of purchasers of SMART common stock during the period
from July 1, 1997 through May 21, 1998. The factual allegations of the
State Complaint are nearly identical to the factual allegations
contained within the Federal Complaint. On February 22, 1999, the
Superior Court granted the Company's motion to stay the state action
pending the resolution of the federal action.
The Company believes that all claims related to the state and federal
securities actions are without merit and intends to defend itself
vigorously against these actions.
TURBODYNE TECHNOLOGIES: Faces Shareholders Suit; SEC Makes Inquiries
--------------------------------------------------------------------
The Securities and Exchange Commission is making inquiries about
Woodland Hills-based Turbodyne Technologies Inc., a company that was
delisted from the Nasdaq Stock Market earlier this year, an SEC lawyer
confirmed Tuesday. The SEC refused to confirm or deny that a formal
investigation is underway, but the lawyer confirmed that he was seeking
information about the company, which claims to have invented an
innovative turbine technology.
An attorney involved in a lawsuit against the company received a letter
from the SEC in July that denied a Freedom of Information Act request
for records. The letter cited an exemption that "protects from
disclosure records or information compiled for law enforcement
purposes."
Peter Weichselbraun, Turbodyne's director of corporate communications,
said Tuesday that the SEC had made routine inquiries about the company
after the stock was delisted from Nasdaq on April 1, but he said he
believes there is no ongoing probe. "If anything disturbing would have
come up, they other company officials would have informed me. But as it
is, I believe we are sailing very smoothly."
Over the last year, however, the company's path has been anything but
smooth. The firm, which also has international headquarters in
Carpinteria, created a stir with what it described as a commercially
viable turbine technology that reduces pollution and improves
performance in internal combustion engines. But critics charge that the
company vastly overstated both the capabilities and marketability of its
products. It was delisted from Nasdaq for issuing allegedly misleading
and incomplete news releases, an action the company is appealing.
At least six class-action shareholder lawsuits were filed against the
firm. They have since been combined into one.
Lionel Z. Glancy, one of the lead attorneys for the shareholders, said
investors poured hundreds of thousands of dollars into the firm, which
reported a $ 6.8-million net loss for the first half of 1999. He said
the suit, scheduled for a November hearing in U.S. District Court in Los
Angeles, is seeking damages "in the millions of dollars." (Los Angeles
Times 9-22-1999)
VIDEOTRON LTD: Customers Win Canadian Suit On Cable TV Extra Charge
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Quebec cable TV customers hit with an extra $4 charge in 1997 when
Videotron Ltd. reorganized should get a refund. Videotron and the
consumer group, Option consommateurs, said they have reached an
agreement on a $450,000 class-action suit, which is subject to approval
by Quebec Superior Court. Videotron said the deal will mean a credit of
about $4 when customers -- who are charged on an annual or semi-annual
basis -- get their bills at the start of next year. When Videotron
introduced its TeleMax package in the fall of 1997, it affected more
than 73,000 customers who had to pay extra to keep basic channels they
had already prepaid. The package was created after the Canadian
Radio-Television and Telecommunciations Comission authorized the launch
of French-language speciality services. (National Post (formerly The
Financial Post) 9-24-1999)
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S U B S C R I P T I O N I N F O R M A T I O N
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