/raid1/www/Hosts/bankrupt/CAR

/raid1/www/Hosts/bankrupt/CAR_Public/000119.MBX C L A S S A C T I O N R E P O R T E R Wednesday, January 19, 2000, Vol. 2, No. 13 Headlines 3COM CORPORATION: California Ct Dismisses Adler's Securities Complaint 3COM CORPORATION: Company Moves to Dismiss Amended Reiver Complaint 3COM CORPORATION: Discovery Continues in 1997 Hirsch & Kravitz Suits 3COM CORPORATION: Euredjian Suit Scheudled for Trial in October 2000 3COM CORPORATION: Motion to Dismiss Gaylinn Securities Suit Sub Judice 3COM CORPORATION: Shareholder Derivative Actions Die in Delaware Court BOARD OF ASSESSORS: Appel. Ct Oks Challenge to Tax Exemption for Temple CALIFORNIA AMPLIFIER: Will Defend Vigorously Securities Suits in CA CIRCUIT CITY: Arbitration Agreement Barring Class Actions Unenforceable DOJ: Appropriations Provision Blocks Future Liability for Overtime Pay FIRST NY STUCCO: Homeowners Sue over Defective Stucco Siding Material FIRST UNION: PA Ct Oks Settlement & Atty. Fees for Lawsuit under FDCPA LUCENT TECHNOLOGIES: Harvey Greenfield Files Securities Suit in NJ LUCENT TECHNOLOGIES: Journal Tells Investors 2 Ways to Profit from Woes MOBIL OIL: Australian Aviation Companies Sue over Fuel Contamination MOBIL OIL: Lawsuit Will Go Ahead Despite $15 Mil Support Program NAVIGANT CONSULTING: Pomerantz Haudek Alleges Improper Insider Trading READ RITE: Contests Vigorously Consolidated Securities Complaint in CA TOBACCO LITIGATION: U.S. Lawyer Says New Zealand Govt Should Sue MNCs TOYS”R”US: ECaveat.com Looks to Resolve Complaints Re Holiday Purchases * 5 Judges to Hear Big Cases Against New York City, Officials Propose * Supreme Court Orders Lower Courts to Restudy Rulings Re Equal Pay ********** 3COM CORPORATION: California Ct Dismisses Adler's Securities Complaint ---------------------------------------------------------------------- In October 1998, a securities class action lawsuit captioned ADLER V. 3COM CORPORATION, ET AL., Civil Action No. CV777368 (ADLER), was filed against 3Com and certain of its officers and directors in the California Superior Court, Santa Clara County, asserting the same class period and factual allegations as the REIVER action. The complaint alleges violations of Sections 25400 and 25500 of the California Corporations Code and seeks unspecified damages. The action is in discovery. No trial date has been set. 3COM CORPORATION: Company Moves to Dismiss Amended Reiver Complaint ------------------------------------------------------------------- In December 1997, a securities class action captioned REIVER V. 3COM CORPORATION, ET AL., Civil Action No. C-97-21083JW (REIVER), was filed in the United States District Court for the Northern District of California. Several similar actions have been consolidated into this action, including FLORIDA STATE BOARD OF ADMINISTRATION AND TEACHERS RETIREMENT SYSTEM OF LOUISIANA V. 3COM CORPORATION, ET AL., Civil Action No. C-98-1355. On August 17, 1998, the plaintiffs filed a consolidated amended complaint that alleges violations of the federal securities laws, specifically Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, and which seeks unspecified damages on behalf of a purported class of purchasers of 3Com common stock during the period from April 23, 1997 through November 5, 1997. In July 1999, the court dismissed the complaint and granted the plaintiffs the right to file an amended complaint. Plaintiffs have filed an amended complaint, and defendants have filed a motion to dismiss. 3COM CORPORATION: Discovery Continues in 1997 Hirsch & Kravitz Suits --------------------------------------------------------------------- Report by 3Com Corporation to the Securities and Exchange Commission filed as of January 10, 2000 discloses the following securities lawsuits in California: On March 24 and May 5, 1997, securities class action lawsuits, captioned HIRSCH V. 3COM CORPORATION, ET AL., Civil Action No. CV764977 (HIRSCH), and KRAVITZ V. 3COM CORPORATION, ET AL., Civil Action No. CV765962 (KRAVITZ), respectively, were filed against 3Com and certain of its officers and directors in the California Superior Court, Santa Clara County. The complaints allege violations of Sections 25400 and 25500 of the California Corporations Code and seek unspecified damages on behalf of a class of purchasers of 3Com common stock during the period from September 24, 1996 through February 10, 1997. The actions are in discovery. No trial date has been set. 3COM CORPORATION: Euredjian Suit Scheudled for Trial in October 2000 -------------------------------------------------------------------- On February 10, 1998, a securities class action captioned EUREDJIAN V. 3COM CORPORATION, ET AL., Civil Action No. C-98-00508CRB (EUREDJIAN), was filed against 3Com and several of its present and former officers and directors in United States District Court for the Northern District of California asserting the same class period and factual allegations as the HIRSCH and KRAVITZ actions. The complaint alleges violations of the federal securities laws, specifically Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and seeks unspecified damages. The plaintiffs have filed an amended complaint. 3Com has filed an answer to the amended complaint. The trial is scheduled for October 2000. 3COM CORPORATION: Motion to Dismiss Gaylinn Securities Suit Sub Judice ---------------------------------------------------------------------- On May 11, 1999, a securities class action captioned GAYLINN V. 3COM CORPORATION, ET AL., Civil Action No. C-99-2185 MMC (GAYLINN), was filed against 3Com and several of its present and former officers and directors in United States District Court for the Northern District of California. Several similar actions have been consolidated into the GAYLINN action. On September 10, 1999, the plaintiffs filed a consolidated complaint that alleges violations of the federal securities laws, specifically Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and seeks unspecified damages on behalf of a purported class of purchasers of 3Com common stock during the period from September 22, 1998 through March 2, 1999. 3Com has filed a motion to dismiss. 3COM CORPORATION: Shareholder Derivative Actions Die in Delaware Court ---------------------------------------------------------------------- In October 1998, two shareholder derivative actions purportedly on behalf of 3Com, captioned SHAEV V. BARKSDALE, ET AL., Civil Action No. 16721-NC, and BLUM V. BARKSDALE, ET AL., Civil Action No. 16733-NC, were filed in Delaware Chancery Court. The complaints allege that 3Com's directors breached their fiduciary duties to 3Com through the issuance of and disclosures concerning director stock options. 3Com is named solely as a nominal defendant, against whom the plaintiffs seek no recovery. 3Com and the individual defendants filed a motion to dismiss, and on October 25, 1999, the Court issued an order dismissing these actions. BOARD OF ASSESSORS: Appel. Ct Oks Challenge to Tax Exemption for Temple ----------------------------------------------------------------------- The petitioners sought review of a determination by the Nassau County Board of Assessors (Board) that a "Temple" which had been chartered in the State of California was exempt from real estate taxes on its property located in Nassau County. The trial court granted the Temple's motion to dismiss, finding that the petitioners lacked standing to challenge the Board's determination and that the Board's determination was neither arbitrary nor capricious. The Appellate Division reversed. The court explained that "taxpayers in a community have standing to challenge an agency's determination that a property within the community's borders is exempted from the tax roles.... The decrease in the tax base that occurs when a property is improperly exempted from taxation has been found to constitute a cognizable injury to such taxpayers.... Thus, the Supreme Court erred when it found that the petitioners did not have standing to challenge the instant exemption." The court then explained that the Board's granting a tax exemption to the Temple was not "rationally supported by the evidence contained in the record." The Temple had been required to obtain a "special use permit" before the property could be used for any purpose other than a single-family residence. The Temple's application for a special use permit had been denied by the local Zoning Board of Appeals. Accordingly, its use of the property as a religious center was "illegal and acted as a complete bar to the granting of its application for a tax exemption...." The court further noted that the court could not rely on the "parsonage exception" embodied in Real Property Tax Law @ 462, since the Temple had not submitted an application for such exemption. Matter of Juliet Colella, et al. v. Board of Assessors of the County of Nassau, et al., New York Law Journal, Nov. 18, 1999, p. 31, col. 2, App.Div., 2nd Dep't, by Ritter, J.P.; Santucci, Thompson and Goldstein, JJ. (New York Law Journal, January 5, 2000) CALIFORNIA AMPLIFIER: Will Defend Vigorously Securities Suits in CA ------------------------------------------------------------------- In its report to the Securities and Exchange Commission filed as of January 11, 2000, California Amplifier Inc. discloses that on June 11, 1997, the Company and certain of its directors and officers had two legal actions filed against them, one in the United States District Court, Central District Of California, Entitled Yourish V. California Amplifier, Inc., Et Al., Case No. 97-4293 CBM (Mcx), and the other in the Superior Court for the State of California, County of Ventura, Entitled Yourish V. California Amplifier, Inc. Et Al., Case No. CIV 173569. On June 30, 1997, another legal action was filed against the same defendants in the Superior Court for the State of California, County Of Ventura, Entitled Burns, Et Al., V. California Amplifier, Inc., Et Al., Case No. CIV 173981. The above mentioned actions are purported class actions on behalf of purchasers of the common stock of the Company between September 12, 1995 and August 8, 1996. The actions claim that the defendants engaged in a scheme to make false and misleading statements and omit to disclose material adverse facts to the public concerning the Company, allegedly causing the Company's stock price to artificially rise, and thereby allegedly allowing the individual defendants to sell stock at inflated prices. Plaintiffs claim that the purported stockholder class was damaged when the price of the stock declined upon disclosure of the alleged adverse facts. On September 21, 1998, the Federal legal action was dismissed in the United States District Court. The U.S. COURT of Appeals upheld the dismissal for the Ninth Circuit on October 8, 1999. The State legal action remains in the Superior Court for the State of California. The current trial date is March 21, 2000. California Amplifier Inc. and its legal counsel are currently evaluating the aforementioned claims. Based upon the analysis performed to date, the Company, its directors and officers, plan to vigorously defend themselves against these claims in State court. CIRCUIT CITY: Arbitration Agreement Barring Class Actions Unenforceable ----------------------------------------------------------------------- A California court of appeal has refused to enforce a one-sided arbitration agreement that deprived the arbitrator of the power to hear class actions, finding the agreement to be "unconscionable," i.e., unfair or oppressive. Facts Robert Ramirez was employed by Circuit City Stores, Inc., in Fresno, California, where he installed equipment in automobiles. When he applied for the job, he was required to sign the "Circuit City Dispute Resolution Agreement," in which he agreed to resolve any claims he might have arising out of his application, his employment, or the end of his employment by final and binding arbitration before a neutral arbitrator and in accordance with the company's dispute resolution rules and procedures. Ramirez had no choice but to sign the arbitration agreement if he wished to apply for a job with Circuit City. The agreement also stated that unless he withdrew his application within three days, he would be bound by the agreement's terms. The rules and procedures were contained in a separate document consisting of nine single- spaced, typed pages. Among other things, the rules required employees to arbitrate any and all employment-related disputes they had against the company, including any claims arising from age discrimination or violations of civil rights or the Fair Labor Standards Act. Rule 9 deprived the arbitrator of the power to hear class actions, a provision that, according to the company, meant an individual employee could not seek relief against the company by participating in a class action, pursued through either the courts or arbitration. The rules and procedures also covered the filing and prosecution of claims. They limited "discovery," i.e., the exchange of information, and required claims to be filed within one year after the date the employee knew or should have known the facts underlying his claim. The rules put the burden of proof on the employee. To win, the employee had to prove by a majority of the evidence that Circuit City's conduct was in violation of applicable law. The rules described the relief available to an employee, which included (1) certain forms of injunctive (or court-ordered) relief, (2) reinstatement, (3) full or partial back pay and fringe benefits for up to one year from the point that the employee should have known the law was being violated, (4) up to 24 months of pay if reinstatement wasn't practical or reasonable under the circumstances, or (5) money damages in accordance with applicable law. Punitive damages were limited to an amount equal to any monetary award made under items or (4) or $ 5,000, whichever amount was greater. The rules stated that the parties would share the arbitration costs and that the employee would pay his own attorneys' fees. If the employee won, however, the arbitrator had the discretion to require the company to pay the employee's costs and award him reasonable attorneys' fees. Ramirez filed a class-action suit against Circuit City, claiming the company had violated the Labor Code and the California Code of Regulations and had committed unfair and unlawful business practices. Specifically, he alleged that the company: * had failed to pay its employees at least twice the minimum wage although it had required them to provide many of the tools used in the installation process; * had required its employees to work overtime but had not paid them overtime at the rate of one and one-half times the minimum wage; and * had misreported the statements of its employees' gross and net earnings. Ramirez sought "restitution" (i.e., to be restored to the position he should have been in), money damages, injunctive relief, and attorneys' fees. Circuit City responded to Ramirez' complaint and then filed a petition to compel arbitration, relying on the alternative dispute resolution agreement. The trial court, however, denied the company's request, finding that the agreement was unconscionable and unenforceable. Appellate court's opinion The appellate court first explained the nature of unconscionable agreements. They typically involve contractual provisions that operate in a harsh and one-sided manner without any justification. They have both a procedural and a substantive element. The procedural element focuses on two factors: oppression and surprise. Oppression arises from the inequality of bargaining power that results in no real negotiation and an absence of meaningful choice. Surprise involves the extent to which the terms are hidden in a printed form drafted by a party in a superior bargaining position. The substantive element looks into whether the one- sidedness of an agreement is justified on the basis of objective factors. The court of appeal found that the agreement before it was an "adhesion contract," i.e., a standardized contract that, drafted and imposed by the party of superior bargaining strength, left to the other party only the opportunity to agree to it or reject it. The court pointed out that adhesion contracts are not, in and of themselves, unenforceable, but the manner in which their terms are drafted and the language and style in which they appear are subject to an unconscionability analysis. The contracts can satisfy the procedural element of unconscionability if the party with the weaker bargaining power has no ability to negotiate the terms, no meaningful choice other than to agree to the terms stated by the party in the stronger bargaining position, and may have no real ability to comprehend the terms to which he is agreeing. To be considered for a position with Circuit City, Ramirez had no choice but to sign the arbitration agreement, as the court found. There was no evidence that he had been given the choice to "opt out" of the agreement. The company contended that he had a choice in that he had been free to choose not to apply for a job. The court responded that such an argument ignored the realities of the marketplace and that persons such as Ramirez, applying for an entry-level job, presumably need a job and lack much in the way of salable skills. The company was in a position to provide the needed job. The court further commented that although persons familiar with employment rights and employment law probably could understand the nature of the rights they would be giving up by agreeing to the arbitration agreement, it was not realistic to presume that persons such as Ramirez -- seeking work and applying for positions not requiring specialized education -- would have the background to understand the significance of the rights they were giving up. The court stated: [A] meaningful choice requires more than the choice, for applicants such as Ramirez, between foregoing the possibility of employment or applying for a job but agreeing to what, superficially, appears to be a fair means of resolving employment disputes. The court concluded that the procedural element of unconscionability was present. The court of appeal further held that the terms of the agreement were not evenhanded. An agreement that requires the weaker party to arbitrate any claims he may have but permits the stronger party to seek remedies through the courts is presumed to be unconscionable, according to the court. Circuit City argued that its arbitration agreement wasn't one-sided but required both parties to arbitrate their claims. The court, however, pointed out that one of the procedural rules explained that the disputes that were subject to arbitration were any and all employment- related legal disputes, controversies, or claims of an employee and that nothing was said about the company's claims against employees. In addition to the arbitration agreement's unilateral nature, the court found it was suspect for other reasons. It limited or eliminated an employee's ability to obtain relief against the company by participating in a class action. Furthermore, the agreement's limitations on punitive damages tended to undermine the accepted purpose of those damages -- to punish wrongdoing and deter future misconduct, according to the court. The agreement discouraged the prosecution of employees' claims that were encouraged by law. The court noted that the agreement made discretionary awards of costs and attorneys' fees that by law were mandatory and also made a complaining employee potentially liable for the company's costs and attorneys' fees, a liability that wasn't authorized by law. The court of appeal therefore held that Circuit City's arbitration agreement was unconscionable and unenforceable. Ramirez v. Circuit City Stores, Inc., No. A085701, 1999 WL 1129013 (Cal. Ct. App., Dec. 10, 1999). Bottom line When employees have no meaningful choice about whether to sign an arbitration agreement that binds them but not the company, bars class claims, and limits punitive damages, it appears much more likely that a California court will refuse to compel arbitration of their claims under such an agreement. Copyright 2000 M. Lee Smith Publishers LLC (California Employment Law Monitor, January, 2000) DOJ: Appropriations Provision Blocks Future Liability for Overtime Pay ---------------------------------------------------------------------- On the heels of a 500 million class-action suit filed by Department of Justice attorneys claiming they are entitled to back overtime pay, the DOJ is taking action to prevent future liability for overtime hours. DOJ attorneys and some members of Congress condemned the action, claiming it violates federal wage laws. Deep within the Judiciary Appropriations Act for Fiscal Year 2000 is a provision that denies the use of appropriated funds for "premium pay" to any individual employed in the DOJ as an attorney, including the assistant United States attorney. The provision in the appropriations act effectively exempts all DOJ attorneys from statutes requiring overtime payment for hours in excess of the normal workweek. "What this legislation basically says is that from here forward, attorneys in the DOJ will be exempt from the overtime requirements that are associated with normal federal employment," according to Edward Lynch, a former senior researcher for the Civil Service Subcommittee of the House Committee on Government Reform. Lynch said the DOJ wanted this legislation put in the appropriations bill to protect itself against future liability for overtime pay in case the attorneys prevail in the class-action suit. The language was written in a specific format so that it would not have any effect on the pending case, Lynch told FEDHR in an interview. The agency's argument for denying overtime pay, Lynch said, is that attorneys in the private sector are regularly required to work more than 40 hours per week. "Some employees consider themselves professionals and have no qualms about working professional hours," he said. "Normally that is what the DOJ counts on in getting its attorneys to work overtime hours." Many federal employees, he said, expect to work more than 40 hours per week and do not expect to be paid for the extra hours. "If political appointees, for example, started talking about suing for retroactive overtime pay, they would be out on the street tomorrow and there would be no issue there," Lynch said. He said there would probably be a "fair bit of rebellion if there were real cutbacks in overtime pay for some employees," though. Robert Van Kirk, lead counsel for the nearly 8,000 attorneys who have joined the class-action suit against the DOJ, called the agency's action "shameful." (Federal Human Resources Week, December 29, 1999) FIRST NY STUCCO: Homeowners Sue over Defective Stucco Siding Material --------------------------------------------------------------------- Homeowners in a Purchase, New York, subdivision have filed lawsuits alleging that the synthetic stucco siding material on their homes is defective and has caused substantial damage to their homes. The cases were filed against the homeowners', builders and the manufacturers of the siding material. These suits are believed to be the first filed in New York claiming damage caused by synthetic stucco. The complaints allege that the plaintiffs' homes were damaged by defectively designed synthetic stucco, also known as Exterior and Insulation Finishing Systems or EIFS. Because the materials were not properly installed and do not include a drainage system, they have allowed water to seep in and become trapped between the walls of the homes, causing significant damage. EIFS is a multi-layered exterior wall system consisting of a finish coat, a base coat, mesh and insulation board; all of which is mechanically (or with an adhesive) secured to plywood or another substrate. The product has been used in construction in the United States since 1969, but was rarely used in residential construction until the early 1990's. According to homeowner Marcie Klein, one of the New York plaintiffs, "If I had known that the siding material would result in such damage I would never have chosen to use it." Mrs. Klein's home has suffered significant damage due to water intrusion and water entrapment caused by the faulty EIFS siding. According to attorney Gary E. Mason, "These first cases represent the tip of the iceberg of synthetic stucco cases in New York and surrounding states. Despite the industry's early representations that this was a limited problem, it has proven to be a problem of national dimension." Indeed, several hundred individual cases and class actions have been filed across the country in recent years against EIFS manufacturers and builders. In North Carolina, a class action settlement with six EIFS manufacturers was recently announced. As a result of those settlements, many owners of EIFS homes in North Carolina will be able to recover as much as $6 dollars per square foot of synthetic stucco on their homes. The plaintiffs in the New York cases are represented by Stephen Harfenist of the law firm of Freidman & Harfenist in Lake Success, New York and by Gary E. Mason of Cohen, Milstein, Hausfeld & Toll in Washington, D.C. Contact: Gary E. Mason, Esq. at 202-408-4600 or by e-mail at gmason@cmht.com or Stephen Harfenist, Esq. at 516-775-5800 or by e-mail at sjhart@aol.com FIRST UNION: PA Ct Oks Settlement & Atty. Fees for Lawsuit under FDCPA ---------------------------------------------------------------------- Class action claimants who challenged First Union Mortgage Corp. under the Fair Debt Collection Practices Act will each receive approximately 900 under a settlement agreement recently approved by the U.S. District Court for the Eastern District of Pennsylvania. Class counsel will receive 200,000 for their successful efforts. Smith, et al. v. First Union Mortgage Corp., et al., No. 98-CV-5360 (E.D. Pa. 12/1/99). Believing that First Union Mortgage Corp. and Hutchens, McCalla, Raymer & Echevarria violated the FDCPA, Gene Christopher Smith filed a class action on behalf of himself and 288 First Union customers that received virtually identical debt collection notices. Smith raised numerous FDCPA claims in the complaint including flat-rating and failure to include the mandatory 30-day validation notice. Initially, the plaintiffs included claims for declaratory and injunctive relief. However, the parties reached a settlement and submitted it for preliminary approval to the court and sought provisional class certification. The District Court found that the class satisfied Fed. R. Civ. P. 23's requirements of numerosity, commonality, typicality and adequacy of representation but failed to fulfill the perquisites of Rule 23(b). The District Court questioned the settlement's treatment of the class of future debtors who received an improper letter from the defendants and the settlement's ceiling for attorney's fees. The court delayed ruling on the motions and ordered the parties to redefine the class. (See Consumer Financial Services Law Report, Aug. 20, 1999, p. 8). The plaintiffs followed the court's advice and Judge Jay C. Waldman preliminarily approved the parties' settlement agreement on Aug. 23, 1999. The plaintiffs then filed an unopposed motion for approval of class action settlement and award of incentives to the representative plaintiffs with the District Court. Upon final review, the court held that class certification was appropriate and that the proposed settlement was reasonable, fair and adequate. Settlement Terms The settlement provides that class counsel pay 10,000 from the settlement fund in administrative expenses to the settlement administrator and 7,500 to each of the two representative plaintiffs. Under the settlement agreement, each class member will receive approximately 900. Further, the agreement provides an award of 200,000 to co-lead counsel for attorney's fees and 18,435 for reimbursement of expenses incurred by counsel. The court opined, "Absent a settlement, this case would have entitled considerable motion practice involving reasonably complex issues resulting in significant time and expense. Any trial would almost certainly be lengthy and involve the expenditure of even greater resources." The District Court added that the action involved "open and fairly debatable legal questions and an appreciable risk in establishing legal liability particularly as to defendant First Union." Noting that only one class member opted out of the settlement, the District Court stated that the settlement was "within a reasonable range in view of the likelihood of any significantly better recovery and all of the attendant risks of litigation." Attorney's Fees After approving the award of incentives to the representative plaintiffs, the court reviewed the reasonableness of the attorney fees in the settlement. The District Court stated that had counsel prosecuted their meritorious FDCPA litigation until conclusion, they would have received an award calculated under the lodestar fee method. Under the settlement, however, the amount of attorney's fees sought was less than 70 percent of the lodestar figure. Thus, the court held the request for attorney's fees was reasonable and supported by appropriate documentation. The District Court approved the class settlement and awarded attorney's fees and then dismissed the action with prejudice and without costs. Francis & Mailman P.C. of Philadelphia and Donovan Miller LLC of Philadelphia represented the plaintiffs. Fine, Kaplan and Black of Philadelphia represented HMRE. Stevens & Lee of Philadelphia and Pope & Hughes of Towson, Md., represented First Union. (Consumer Financial Services Law Report, December 29, 1999) LUCENT TECHNOLOGIES: Harvey Greenfield Files Securities Suit in NJ ------------------------------------------------------------------ The Law Firm of Harvey Greenfield announced that it has filed a class action lawsuit in the United States District Court for the District of New Jersey on behalf of purchasers of securities of Lucent Technologies, Inc. The said complaint alleges, among other things, that Lucent and certain of its senior officers violated the federal securities laws by issuing to the investing public false and misleading statements concerning the Company's deteriorating financial condition and its inability to control costs and maintain profit margins. Contact: Harvey Greenfield, Esq. at the Law Firm of Harvey Greenfield, 60 East 42nd Street, Suite 2001, New York, NY 10165, telephone 212-949-5500, or toll free 877-949-5500, facsimile 212-949-0049, or by e-mail at hgreenf@banet.net LUCENT TECHNOLOGIES: Journal Tells Investors 2 Ways to Profit from Woes ----------------------------------------------------------------------- A couple of weeks ago, Lucent Technologies Inc. (LU/NYSE) issued a warning that profits would come in well below analysts expectations. The company expects to report earnings for its fiscal first quarter, ended Dec. 31, in the range of 36 cents to 39 cents a share, compared with 48 cents a year ago and well below Wall Street's forecast of 54 cents a share. On the news, the stock dropped 22%. After the decline, many of Wall Street's biggest firms issued a downgrade on the stock. Is it just me, or were these analysts offering too little, too late? Lucent took the fifth, so to speak. On the news, investors shaved one-fifth of Lucent's market capitalization -- convincingly too, as 178 million shares changed hands on Jan. 7, a record for the most shares traded on a single company in a single day. The problem with Lucent is company specific, not industry specific. Lucent is having problems with manufacturing constraints and a failure to anticipate changes in customers' purchasing plans. According to news reports, the company 'failed to produce optical networking and fibre-optic products fast enough to keep up with soaring industry demand and failed to anticipate some shifts in its customers' buying habits. Lucent also failed to deliver its newest, more powerful optical networking product that would compete with one of Nortel Network Corp.'s products, giving Nortel a chance to create a sizable lead.' Given the size and speed at which change takes place in this market, the idea that Lucent's manufacturing time for its most sophisticated products would drag out, requiring more people to do more testing, did not play well on Wall Street. The company did say it expected stronger growth in the second half of 2000. But that assumes it can win back the customers that have moved to competitors. To make matters worse, a class action lawsuit was filed against Lucent, claiming the equipment maker previously made false statements about its financial condition. So company management stumbled. According to National Post (formerly The Financial Post) of January 18, 2000, that means Lucent will be more volatile over the near to medium term, which opens the door to some interesting option strategies for aggressive investors who like to bet on an underdog. The first strategy, the article says, is the 'falling for dollars' trade we have talked about with other companies. Step up to the plate with a company that has fallen on hard times. Given the short-term increase in volatility, you can expect to receive a higher premium for the options. The falling for dollars trade is really a covered call write, in which you buy the stock and sell an at-the-money or slightly out-of-the-money call. If premiums have expanded because of the increased volatility, then we would expect to earn a higher rate of return than would be available under normal circumstances. The falling for dollars trade assumes that Lucent options are trading with an implied volatility that overstates future volatility. Buying the stock and selling covered calls, then, should provide the investor with an excellent risk adjusted rate of return. That being said, a couple of questions need to be asked before any specific option trade is implemented. The first is one of full disclosure. Are you comfortable that all the bad news is out? Do you have some concern that there may be other company-specific issues that Lucent management has yet to make public? Often after such a dramatic sell-off the company will issue fresh news releases, with very negative commentary. This happens because management feels that with the stock already hammered, shareholders are best served if management can shed all the skeletons in the closet. The most recent dart was a rumour that the U.S. Securities & Exchange Commission would audit the company because of accounting irregularities. The rumour has been denied by the company. The second question relates to duration. Is this particular event a one-time factor, or can we expect the problems to linger over the long term? If Lucent competitors are able to gain market share and, more importantly, a technological advantage, is it possible that Lucent will end up being an also-ran in this industry? That's not the most likely scenario, but it is a risk. Assuming one can get comfortable with the answers to the aforementioned questions, then one can take a bullish position on Lucent, the article goes on. The covered call write makes sense as a low-risk alternative, with a better than average rate of return. The strategy would involve the purchase of the stock at, say, $54 per share against the sale of the July 60 calls at $5.875. The out-of-pocket cost for the stock is $48.125 ($54 less $5.875 per share in premium equals $48.125). The six-month return if called away at $60 per share is 24.6% ($60 per share divided by $48.125). If the stock remains the same, your return is 12.2%, and your downside breakeven is $48.125. The other strategy, according to the article, is the outright purchase of long-term Lucent call options (i.e. January 2002 LEAPS), especially if one believes this to be a blue-chip company that will survive and prosper in the second half of the year. With any call buying strategy one assumes that the options are understating future volatility. That may be the case, if the stock does make a full recovery. Only time will tell. With this position, the options of choice would be the Lucent January (2002) 60 calls trading at $15.25. The article says that option premiums are expected to fall slightly as the stock begins to settle into a trading range. Before a long call position, it would be nice to see the options trading with an implied volatility of 45%, closer to the historical norm for the stock. Lucent options are currently trading with an implied volatility of 59%. If premiums fall to that level a couple of weeks from now, that would be the ideal time to look at a long-term call buying strategy, the article says, assuming one likes the long-term outlook for the stock. Even with some patience, the long call position will produce decent profits only if Lucent stages a recovery in the second half of 2000. Going into 2001, according to the article, one will begin to see the value of one’s options erode as time becomes a more critical factor, and if the stock hasn't seen improvement by the end of September, 2000, better to exit any long call position and take a loss. (National Post (formerly The Financial Post), January 18, 2000) MOBIL OIL: Australian Aviation Companies Sue over Fuel Contamination -------------------------------------------------------------------- Agence France Presse reports that aircraft operators have launched a class action against Mobil Oil Australia Ltd. over a fuel contamination crisis which has grounded two thirds of the country's light aviation industry. The action was initiated by lawyers for two aircraft operators -- with many more expected to join -- after the Australian government this week ordered the world's biggest oil company to prepare a compensation plan for the businesses affected. Their aircraft are among 5,000 piston-driven planes grounded by a Civil Aviation Safety Authority (CASA) directive issued on January 10 because of contaminated Mobil avgas which blocks their fuel systems. Search and rescue aircraft, firefighting support services, flying doctors, regional charter services, flying schools, freight companies and crop dusting companies have all been affected. Even some RAAF transport aircraft were grounded. Amid growing anger in the industry and in regional Australia over Mobil's perceived failure to respond, acting Prime Minister John Anderson gave it until close of business on January 18 to indicate how it will assist businesses. "I have indicated clearly to Mobil that I think they need to address not just the cost of rectifying the problem, but clearly the economic cost to individual businesses," Anderson said on January 17. The aviation industry puts the mounting bill for the worst ever fuel crisis at more than 33 million USD a month. According to the report, Mobil has refused to say how it will respond to demands by the government or industry, but said compensation for aviation companies affected by the crisis may take years to resolve. But it has agreed to deploy engineers to test grounded aircraft once CASA approves a test currently under review by an independent chemist, and the industry was hoping to discover if it works. Mobil corporate affairs manager Alan Bailey said while the company was seriously considering the claims for compensation it was a very complex issue which could drag on for years. "It's going to take some time to resolve and there may well be questions of the commercial impacts on various stakeholders in the aviation industry that will take a long time to sort out in entirety," he said. Lawyer Simon Liddy of Ebsworth and Ebsworth partners, which initiated the class action in the Federal Court, said the case would allow a number of similar claims to be resolved simultaneously. "It is a far more efficient and constructive process for the many people seeking compensation," Liddy said in a statement. The case will begin in the Federal Court on January 21. (Agence France Presse, January 18, 2000) MOBIL OIL: Lawsuit Will Go Ahead Despite $15 Mil Support Program ---------------------------------------------------------------- According to AAP Newsfeed of January 18, a class action by aircraft operators affected by Australia's worst fuel contamination crisis will proceed against Mobil Australia, despite the oil giant's promise on January 18 of a $15 million aid package. The class action was launched in the Federal Court by Sydney commercial law firm Ebsworth and Ebsworth, on behalf of a New South Wales flying school. More aviators are expected to join the action when it goes to court on January 21. The aircraft operators are suing Mobil for an undisclosed amount of compensation over the fuel crisis, which has grounded 5,000 aircraft across Australia. The lawsuit will cover the cost of cleaning and repairs to engines and income and wages lost because of the crisis. The Civil Aviation Safety Authority (CASA) issued a directive to ground all affected aircraft on January 10, a move which operators believe could cost the aviation industry up to $50 million. The package, while welcomed by the federal government, opposition and aircraft owners and operators, will not stop a class action in the Federal Court against Mobil. Ebsworth and Ebsworth solicitor Rebekah Gay said the class action would proceed, even though Mobil announced a program to give affected customers up to $10,000 per aircraft. The company plans to establish a further program to address business losses resulting from the crisis. "At this stage we don't have any details about the $15 million package," Ms Gay said. "We don't know whether it will cover all the costs people have suffered. "Until we know the details about the package and the compensation package, we will proceed with the action." Ms Gay said while all the operators which had shown an interest in joining the class action had been from NSW, the lawsuit had the potential to cover Australia. Lawyers had not yet decided how much compensation to seek, she said. "We haven't quantified the losses. "It will not be easy to do that. It is a complicated process." Ms Gay said bringing the lawsuit could be a lengthy process. "It depends largely on what approach Mobil takes," she said. "Obviously it is in the interests of the industry to resolve it as soon as possible. "We plan to speak to Mobil to try and resolve it quickly." AAP Newsfeed reports that Mobil Oil Australia unveiled on January 18 the first plank in its program to tackle the Avgas contamination crisis, announcing a $15 million assistance scheme for customers suffering financial hardship due to the fuel problem. However, the company strenuously denied the program in any way amounted to an acknowledgement of liability. Announcing the program in Melbourne, Mobil fuels marketing director Paul Wherry said the company was in the process of establishing a further scheme to address the business losses resulting from the contamination issue, which has grounded planes across the country. The program is being finalised, with details expected to be released next week. The company would not put a figure on the size of the second package. The scheme is available to Mobil Avgas customers and their employees facing immediate financial hardship as a result of the fuel crisis, Mobil said. Mobil will manage the program with the assistance of a company with experience in claims administration. Mr Wherry said claims for the financial hardship support program will be limited to $10,000 per aircraft and will be considered to meet customers' urgent financial needs. He said while the safety of Mobil customers was paramount, and the company was working with CASA and the federal government to resolve the problem, it was apparent that the process would take some time. "And our immediate priority is to handle the urgent hardship needs of our aviation customers and their employees," he said. The announcement of the assistance package came just hours before the expiry of a federal government deadline for the company to come up with a compensation arrangement. Federal Transport Minister John Anderson said Mobil had recognised its moral obligation to compensate the aviation industry for the contaminated fuel. He had given Mobil until the close of business on January 18 to come up with a compensation package. Many general aviation companies were having financial difficulties as a result of Avgas contamination with employees stood down or on reduced hours. Mobil said information on how to file and progress the claims will be provided through its aviation agents and distributors, on its website at http://www.mobil.com.auand through the Mobil Aviation Customer Helpline. Chief Pilot at NationWide Air Charter, Peter Allen (Allen), said he was pleased to be getting some financial assistance. "I just hope it comes through quick smart because I'm thinking 'How am I going to pay the rent and electricity?'" he said. Meanwhile the Civil Aviation Safety Authority (CASA) is expected to announce details of a test that should determine whether planes can fly again. (AAP Newsfeed, January 18, 2000) NAVIGANT CONSULTING: Pomerantz Haudek Alleges Improper Insider Trading ---------------------------------------------------------------------- Pomerantz Haudek Block Grossman & Gross LLP announced last January 14, 2000 that it has filed a class action suit against Navigant Consulting, Inc., formerly known as Metzler Group, Inc. and several of the Company's senior officers on behalf of all those who purchased Navigant common stock during the period between May 6, 1999 and November 19, 1999, inclusive. According to the lawsuit, Navigant issued a series of false and misleading statements during the Class Period in order to give the appearance that the Company was growing at a materially faster rate than it actually was. To achieve this appearance, defendants allegedly undertook a scheme to acquire smaller companies and improperly account for these business combinations when they failed to restate Navigant's interim 1998 financial statements to give effect to the acquired company's contributions to Navigant's financials. In addition, it was revealed on December 17, 1999 that Navigant's ousted Chief Executive Robert P. Maher had sold 605,684 shares of Navigant common stock (approximately 80% of his entire holdings) from November 5, 1999, through November 21, 1999. Maher's sale occurred immediately prior to the disclosure that several of Navigant's top officers had partook in $17 million of improper loans, including a $10 million personal loan to Maher, which caused Navigant's stock price to decline dramatically. On November 22, 1999, Navigant's price per share closed at $14.25 per share, a 45% drop from the prior day's close of $26.00 per share. For more details on this announcement, you may contact Pomerantz Haudek Block Grossman & Gross LLP, New York Andrew G. Tolan, Esq. Phone: (888) 476-6529 or (888) 4-POMLAW or via e-mail: agtolan@pomlaw.com READ RITE: Contests Vigorously Consolidated Securities Complaint in CA ---------------------------------------------------------------------- In December 1996, a purported class action complaint was filed in the Superior Court of the State of California, Santa Clara County, by Joan D. Ferrari and Mark S. Goldman against the Company and certain of its officers and directors. The complaint in the Ferrari State Action alleges that during a purported class period of April 19, 1995 January 22, 1996, defendants made materially false and misleading statements concerning the Company's business condition and prospects, in violation of the California Corporations Law, the California Civil Code (those sections prohibiting fraud), and the California Business and Professions Code. The plaintiffs in the Ferrari State Action seek damages of an unspecified amount. In May 1997, the Superior Court entered an order sustaining the demurrers of certain defendants to the California Corporations Code cause of action and overruling the demurrers of Read-Rite Corporation and certain other defendants to that same cause of action; and (2) sustaining the demurrers of all defendants as to the remaining causes of action. In January 1997, a purported class action complaint was filed in the United States District Court for the Northern District of California by Ferrari and Goldman against the Company and certain of its officers and directors (the "Ferrari Federal Action"). In May 1997, a purported class action complaint was filed in the United States District Court for the Northern District of California by James C. Nevius and William Molair against the Company and certain of its officers and directors (the "Nevius Federal Action"). The court consolidated the Ferrari Federal Action and the Nevius Federal Action into one action, In re Read-Rite Corp. Securities Litigation (the "Consolidated Action"), and plaintiffs thereafter filed a consolidated complaint. The consolidated complaint alleges that from April 19, 1995 to January 22, 1996 (the "Ferrari Class Period") and from March 2, 1996 to June 19, 1996 (the "Nevius Class Period"), defendants made false and misleading statements about the Company's business condition and prospects. The consolidated complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, and seeks damages of an unspecified amount. In August 1998, the court in the Consolidated Action granted defendants motion to dismiss but granted plaintiffs leave to file an amended complaint. In January 1999, plaintiffs filed their amended complaint. In March 1999 defendants moved to dismiss that amended complaint with prejudice. In June 1999 the court heard oral argument on defendants' motion to dismiss. That motion is currently under judicial consideration. Read Rite Corp. claims that there has been no discovery to date in the federal actions and no trial is scheduled in any of these actions. Accordingly, both on its own behalf and pursuant to indemnification agreements between the Company and the named individual defendants, the Company intends to continue to defend each of these actions vigorously. TOBACCO LITIGATION: U.S. Lawyer Says New Zealand Govt Should Sue MNCs --------------------------------------------------------------------- The New Zealand government should take legal action against multinational tobacco companies, according to a United States-based Whakatane lawyer, Richard Akel. Last year, most American states, not including Florida, settled for S206 billion (Z402.42 billion) in compensation from the tobacco companies instead of continuing their legal battle to recover medical costs caused by tobacco smoking. Mr Akel said the US Federal government had filed a lawsuit and other countries were hurrying to follow suit. "I think the question is: has the government, in paying for health costs, actually been subsidising the tobacco industry?" he asked. Mr Akel, in New Zealand for a holiday, works for a New York firm which is currently co-counsel in a class action against tobacco companies. (AAP Newsfeed, January 18, 2000) TOYS”R”US: ECaveat.com Looks to Resolve Complaints Re Holiday Purchases ----------------------------------------------------------------------- Austin, Texas-based ECaveat.com announced its free unbiased complaint resolution services will place high priority on all complaints against Toys "R" Us resulting from holiday purchases. ECaveat.com will work on behalf of consumers for free, attempting to resolve their complaints within 48-72 hours. ECaveat.com claims that it is attempting to create a win-win for consumers and the toy giant by helping consumers resolve complaints against Toys "R" Us. Although ECaveat.com does not currently have any formal agreements with Toys "R" Us, the company has dedicated portions of its staff to deal specifically with complaints directed at the toy company. The Company says it has refused several offers from other class action firms seeking to partner with it; it believes that few, if any, class action lawsuits actually benefit businesses or their respective consumers. Founded in December of 1998, ECaveat.com is a customer service organization offering free services for consumers to resolve complaints against any e-business. Based in Austin, Texas, the Internet property is located on the World Wide Web at http://www.ecaveat.com * 5 Judges to Hear Big Cases Against New York City, Officials Propose --------------------------------------------------------------------- To streamline the city's overburdened courts, administrators are starting a pilot program in Manhattan that will assign all major lawsuits filed against the city and state to a select group of five judges. The cases are among the most politically divisive and far-reaching in the state, covering matters like welfare, homelessness, treatment of the mentally ill, foster care and the environment, among others. Court officials said the pilot project would allow the small group of underused judges, known as appellate term judges, to focus their time and energy on this handful of time-consuming cases. Other Supreme Court justices, the officials said, would then be freed to focus on quickly resolving the thousands of routine civil cases that now move at a snail's pace through the state's clogged courts. But more than 20 State Supreme Court justices met in a Manhattan courtroom to organize opposition to the proposal. One judge who attended the unusual meeting said the new system was a clear attempt to control which judges decided politically important cases. Three other judges who attended the meeting said they opposed the plan, but they would not speculate on what had motivated it. Under the pilot program, the five appellate term judges -- who now handle low-level appeals cases -- will be randomly assigned to major lawsuits filed against the state and city governments. Those appellate judges are chosen by two senior judges appointed by Gov. George E. Pataki -- Jonathan Lippman, the state's chief administrative judge, and Betty Weinberg Ellerin, the presiding judge of the State Supreme Court's Appellate Division in Manhattan. Under the old system, those cases were randomly assigned among the roughly 45 Supreme Court justices in Manhattan. Lawyers and advocacy groups for the poor warned that the new system would result in politically important cases being given to judges who are more favorable to the state and possibly the city. "This is reverse judicial shopping making sure that these cases will go to the judges least likely to be sympathetic," said Doug Lasdon, a lawyer who successfully filed class-action lawsuits against the city that resulted in judges overturning policies toward the homeless and foster children. But Judge Lippman dismissed that argument as "silly," and said the governor's office and political consideration had nothing to do with the proposal. The judge, a registered Democrat from Westchester County, said the cases would still be randomly assigned among the five judges, a group that he called anything but conservative. The four justices now serving as appellate term judges are Stanley Parness, William P. McCooe, William Davis and Phyllis Gangel-Jacob. All are Democrats who were elected in Manhattan. Although the pilot program took effect on Dec. 6, no new cases have been assigned under it. Appellate term judges have no set term and serve as long as the chief administrative judge wishes. They are chosen from the ranks of Supreme Court justices, who typically serve 10-year terms. There is one vacant appellate position that Judge Lippman said he planned to fill quickly. The judges who opposed the plan did not dispute that the four appellate term judges now serving include liberals. But they said those judges could be far more sympathetic toward the state's and city's arguments in divisive cases than Manhattan judges have been in the past. For the last several years, rulings by Manhattan State Supreme Court justices have repeatedly frustrated efforts by the Pataki and Giuliani administrations to implement initiatives on welfare, homelessness and sex shops. For example, Justices Elliott Wilk and Helen E. Freedman in December 1999 delayed Mayor Rudolph W. Giuliani's plan to make homeless families work in exchange for shelter. They said the plan threatened foster care for children whose parents failed to meet workfare and other welfare requirements. Steven Banks, deputy director of the Legal Aid Society's civil division, said that Governor Pataki's proposed 1997 welfare changes included a measure requiring all legal challenges to be heard in Albany County, an area with more Republican judges. The Legislature refused to enact it, he said. Mr. Banks questioned why the new system was being put in place in New York City at a time of mounting challenges against how city agencies provide services to the poor. Judge Lippman said the proposal had nothing to do with recent decisions and was part of a series of streamlining efforts announced a year ago. Similar changes have already been implemented in courts handling matrimonial, business and other cases, he said. Court administrators who spoke on the condition of anonymity said that the pool of Manhattan judges was already so skewed -- only 2 of the roughly 45 judges are Republicans -- that it would be largely impossible to pack the panel with conservatives at the governor's behest. They also said that the real issue was that some judges were upset because under the plan they would no longer handle high-profile, precedent-setting cases. But other senior court officials said that while the proposal was probably not politically motivated, it should die anyway. From an appearance perspective, they said, the move could be seen as judges that are less establishment being excluded from the process. (The New York Times, January 4, 2000) * Supreme Court Orders Lower Courts to Restudy Rulings Re Equal Pay ------------------------------------------------------------------- The Supreme Court on January 18 surprisingly ordered lower courts to restudy rulings that said states and their agencies must abide by a 1963 federal law requiring employers to give men and women equal pay for equal work. The court said those rulings should be reconsidered in light of its decision that said state employees are not protected by a federal law banning age bias. The issue involves a case at Illinois State University, where female professors alleged in a 1995 class-action suit that the school pays them less than their male colleagues. (Washington (AP), January 18, 2000) ********* 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 publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The CAR subscription rate is $575 for six months delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 301/951-6400. * * * End of Transmission * * *