/raid1/www/Hosts/bankrupt/CAR_Public/000203.MBX                C L A S S   A C T I O N   R E P O R T E R

               Thursday, February 3, 2000, Vol. 2, No. 24


AOL: CNN Coverage on Lawsuit over Deceptive Practice Re 5.0 Software
AOL: Users Sue in VA Alleging New 5.0 Software Hinders Access To ISPs
AVCO FINANCIAL: Fed Judge in RI Dismisses RICO & Bankruptcy Claims
BAKER HUGHES: Chairman and Chief Executive Officer Ousted
CANDIE’S INC: Announces Settlement Agreement

CHRISTIE’S, SOTHEBY’S: Rival Top Auctioneers Alleged of Fixing Prices
COMPUTER MAKERS: Former IBM Engineer Says Cos. Hide Problem from Govts.
DOWLING: Violation of FDCPA Is No Defense to Summary Proceeding
HOLOCAUST VICTIMS: Disputes Mark Second Day Of Compensation Talks
JAPANESE GOVT: Residents Near Expressway Win 11-Year Air Pollution Suit

LEGATO SYSTEMS: Gold Bennett Files Securities Suit in California
LUCENT TECHNOLOGIES: Weiss & Yourman Files Securities Suit in NJ
MICROFIELD GRAPHICS: Rabin & Peckel Files Securities Suit in NY
OIL COMPANIES: CA Appeals Ct Dismisses Lawsuit over Price-Fixing
ONLINE HARRASSMENT: Employers Face New Challenges in the New Millennium

SUPER-SOL: Supermarkets Face Suit with Meat Producer over Water in Meat
SURGUTNEFTEGAZ: Bernstein Liebhard Investigates Dividend Irregularities
SYKES ENTERPRISES: Berman, DeValerio Files Securities Suit in FL
TACO BELL: Workers to Get Back Pay & Maybe Compensation for Unpaid OT
TEXACO: Judge Says Ecuadoran Indians May Not Get Fair Trial at Home

TOBACCO LITIGATION: National Complaint Expanded; More Defendants Named
U.S. TRUST: Bank Pension Association Sues over Termination Fee
WRITERS GUILD: Sprenger & Lang Investigates Employment Age Bias at WGAW

* Courts Try to Have Test to Allow Dismissal of Bad Faith Ch 11 Filings


AOL: CNN Coverage on Lawsuit over Deceptive Practice Re 5.0 Software
Broadcast February 2, 2000 on Cable News Network

America Online faces a class action lawsuit today over a deceptive trade
practice in violation of computer tampering laws. At the heart of the
suit is the company's 5.0 software. The suit alleges the software makes
it harder for customers to use the services of other Internet providers.
It seeks damages up to $1,000 for each of the approximately-eight
million people who have downloaded that software.

    BILL HEMMER, CNN ANCHOR: America Online faces a class action lawsuit
today a deceptive trade practice in violation of computer tampering
laws. At the heart of the suit is the company's 5.0 software. The suit
alleges the software makes it harder for customers to use the services
of other Internet providers. It seeks damages up to $1,000 for each of
the approximately-eight million people who have downloaded that

As CNN's Marsha Walton reports, there are other complaints about AOL's
software as well.

    MARSHA WALTON, CNN CORRESPONDENT (voice-over): America Online is
encouraging users to install its latest Internet software, version 5.0.

    DAVID GANG, AMERICA ONLINE: There's new products, like "You've Got
Pictures," and there are many new additions that we did under the hood
to make it just easier for consumers to get connected.

    WALTON: But it's those changes "under the hood," changes to a user's
existing files and settings, that are causing some frustration.

that, it started crashing, started locking up, it started just having a
realm of unknown problems.

    WALTON: From chat rooms to computer repair shops, there are warnings
about how this upgrade can wreak havoc on unrelated computer programs.

AOL's David Gang responds by saying customers must agree to these
changes when they're installing this software.

    GANG: So AOL does ask you if you want us to be your default
connection to the Internet, and when you select "yes," we set up in
conjunction with what Windows software allows you to do, your default
online experience

    WALTON: Computer experts say what that really means is that AOL
takes over your machine. While experts agree that for customers who use
nothing but AOL services 5.0 can provide a more stable Internet ride.
Computer technicians says the upgrade can interfere with many other
programs, Internet-related or not, including e-mail, some games and
financial software. The biggest problems, troubleshooters say, affect
AOL users who have a second Internet service provider, or ISP. About
eight percent, or 1.6 million, of AOL's 20 million customers have a
second Internet account.

Bill Kirkner of competing ISP Prodigy is furious, saying: "they really
haven't told the user, I'm going to disable your other ISPs, I'm going
to delete information from your machine, and I'm going to make it
impossible for you to get back on without uninstalling software and
reinstalling software."

Analyst Doug Barney sees the possibility of customer resentment, similar
to that faced by Microsoft.

    DOUG BARNEY, COLUMNIST, NETWORKWORLD: Microsoft software oftentimes
will take over your computer and will interfere with some other vendors'
products, and Microsoft has had its reputation tarnished by these types
of reports. AOL is in danger of doing the exact same thing and having
the exact same harm done to its reputation.

    WALTON: AOL says it's constantly improving its Internet software but
for now has no plans to change its current 5.0 version.

AOL: Users Sue in VA Alleging New 5.0 Software Hinders Access To ISPs
When Kenneth Yates's home computer refused to access his Erols Internet
account last fall, he blamed his 11-year-old son for messing it up. Then
Yates heard that a glitch in the family's new America Online software
might really be to blame. So Yates teamed up with another AOL customer
and filed a class-action lawsuit alleging that the latest version of the
company's software--version 5.0--constitutes a deceptive trade practice
and violates consumer-protection and computer-tampering laws. The
lawsuit, filed on January 31 in federal court in Alexandria, seeks
damages of up to $ 1,000 for each of the 8 million people who installed
the software.

The central problem, lead plaintiff Farhad Khazai of Gaithersburg
contends, occurs when users install version 5.0 or upgrade from an
earlier version. When Khazai agreed to make version 5.0 his default
Internet provider, Yates says, the installing software changed his
settings so that he could no longer just click on another provider's
desktop icon to access a different account.

"AOL is making people use the Net the way they want it to be used. The
Internet is supposed to be like free speech, with open access," said
Yates, a Gaithersburg lawyer who specializes in Internet law. He said he
has teamed up with a Birmingham-based firm, Gathings, Kennedy and
Associates, which has experience with large-scale class-action suits.

AOL spokesman Rich D'Amato said the company could not comment on the
specific allegations of the lawsuit, but he said that technical
complaints to AOL have dropped 20 percent since the switch to 5.0.

Creating default settings on a customer's desktop that conform to
specific companies' software "is a common practice in the industry" that
makes the Internet connection more stable, D'Amato said. The potential
class is large--8 million AOL users have installed version 5.0, and
thousands of them have other Internet accounts. In addition, beta
testers of the software earlier told The Post that they complained to
AOL about the glitch months before the company created the millions of
5.0 CD-ROMs in circulation.

The lawsuit acknowledges that the damage to each consumer was not
especially large, making it impractical for customers to sue
individually. Many were able to reconnect with their other accounts
after calling their other Internet service provider. And the installing
software specifically asks whether the user wants 5.0 as a default,
rather than assuming that is what the user wants--another potential

Several lawyers suggested that the other Internet service
providers--which had to spend time and money helping their frazzled
customers--may have more significant damage claims, but they are not
included in the lawsuit.

AOL has settled class-action suits before: It paid off some shareholders
who complained about a controversial accounting practice, and it also
gave refunds to 128,000 customers who had trouble accessing the service
after the company switched to a flat-fee monthly plan.

"One of the key risks for a consumer products company like AOL is the
cost to its reputation," said Keith Shugarman, a D.C. lawyer who has
been involved in large-scale civil litigation. (The Washington Post,
February 2, 2000)

AVCO FINANCIAL: Fed Judge in RI Dismisses RICO & Bankruptcy Claims
A federal judge in Providence, RI, has dismissed a Racketeer Influenced
and Corrupt Organizations Act (RICO) and Bankruptcy Code uncertified
class action complaint, ruling in part that the debtors failed to
adequately allege the existence of an enterprise. Bessette et al . v.
AVCO Financial Services Inc. et al., No. 97-487L (D RI, Oct. 19, 1999).
All the defendants belong to the finance division of Textron, a global
conglomerate holding company, although Textron is not a named defendant.

Debtors in Rhode Island and California sued four corporations and a
number of unnamed John Doe individuals employed by those corporations,
seeking damages under RICO and for violations of the automatic stay and
discharge injunction provisions of the Bankruptcy Code. The complaint
also included a common law claim for unjust enrichment.

The complaint stems from allegations that the defendants used improper
methods to secure reaffirmation agreements for pre-petition debts and
fraudulently used the mails to obtain revenue from those reaffirmation

U.S. District Chief Judge Ronald R. Lagueux granted the defense motion
to dismiss the complaint, with leave to appeal only one count.

The RICO allegations cannot stand because the complaint did not allege
the existence of an enterprise separate from the corporate and
individual defendants, he said, noting that the distinctiveness rule
imposes two separate requirements when a Sec. 1962(c) violation is
alleged. First, because the "enterprise" cannot be liable under this
subsection, the defendant cannot also be the alleged "enterprise" named
in the complaint. Obviously, the unlawful enterprise itself cannot also
be the person the plaintiff charges with conducting it.

Second, when analyzing whether the distinctiveness requirement is
satisfied when the named "person" is a subsidiary of the alleged
"enterprise," the named enterprise must be sufficiently distinct from
the named person ( i.e., defendant) so that the two are not in reality
the same entity.

Applying the distinctiveness rule, he said the individual and corporate
defendants are all part of the parent Textron holding company. There was
no allegation they took any actions independent of Textron, that there
was a sharing of officers and directors among the corporations, and that
the employees were not distinct from their corporate employers when
acting at the employers' behest.

Two of the Bankruptcy Code-based counts cannot proceed because there is
no private right of action, he held, and the Code preempts the state law
claim for unjust enrichment. Only one claim, alleging the unauthorized
mailing of reaffirmation agreements, can be amended, he said, if the
plaintiffs adequately plead that the defendants used coercion or

Daniel A. Edelman of Edelman & Combs in Chicago and Christopher M.
Lefebvre of Pawtucket, RI, appeared for the plaintiffs.

Defense counsel were A. William Loeffler and Mary Grace Diehl of
Troutman Sanders in Atlanta and Deming E. Sherman, Patricia A. Sullivan,
and Marc A. Crisafulli of Edwards & Angell in Providence. (Civil RICO
Litigation Reporter, December 1999)

BAKER HUGHES: Chairman and Chief Executive Officer Ousted
Baker Hughes, Inc. (NYSE:BHI) announced on February 1 that it has ousted
its Chairman and Chief Executive Officer Max L. Lukens. Prior to the
ousting, Baker Hughes and two of the Company's senior officers allegedly
issued a series of materially false and misleading statements regarding
the Company's financial and operational health, by incorporating
materially overstated earnings of its INTEQ business unit into its
consolidated financial statements, according to allegations in a
complaint filed by Pomerantz Haudek Block Grossman & Gross LLP
(http://www.pomerantzlaw.com)and the Law Office of Klari Neuwelt. The
lawsuit is filed on behalf of all those persons or entities who
purchased the common stock of Baker Hughes during the period between May
3, 1999 and December 8, 1999, inclusive.

The overstatement of earnings by Baker Hughes allegedly enabled the
Company to materially inflate the Company's reported earnings during the
Class Period in violation of Generally Accepted Accounting Principles
("GAAP"). As a result of the Company's actions, Baker Hughes' common
stock was artificially inflated during the Class Period. When the market
first learned of Baker Hughes' misrepresentations on December 8, 1999,
the price of Baker Hughes's common stock lost more than 50% of its

Contact: Andrew G. Tolan, Esq. of the Pomerantz firm at 888-476-6529 (or
(888) 4- POMLAW), toll free, or at agtolan@pomlaw.com by e-mail. Those
who inquire by e-mail are encouraged to include their mailing address
and telephone number.

CANDIE’S INC: Announces Settlement Agreement
Candie's, Inc. (Nasdaq NMS symbol: CAND) announced on February 2 that it
has reached a settlement agreement regarding the class action lawsuit
filed against the Company and certain of its officers, directors, and
former employees.

The structure of the settlement includes $4 million in cash and$6
million in common and convertible preferred stock. The Company will
apply insurance proceeds towards a part of the cash portion of the
settlement. The common stock, with the value of $2 million, will be
issued in May 2000. The $4 million of the preferred stock will convert
into common shares based on the price of the Company's stock on the
first and second anniversary dates of the court approval of the
settlement. The settlement agreement is subject to Court approval. The
court hearing on approval of the settlement is expected to be conducted
in or about May 2000.

Candie's is engaged primarily in the design, marketing, and distribution
of footwear and handbags under the Candie's and Bongo trademarks within
the United States to department, specialty, chain, and seven
company-owned Candie's stores and to specialty stores internationally.
Candie's also arranges for the manufacture of footwear products for mass
market and discount retailers under the private label brand of the
retailer or other trademarks owned or licensed by Candie's.

CHRISTIE’S, SOTHEBY’S: Rival Top Auctioneers Alleged of Fixing Prices
Christie's Inc., the New York subsidiary of the No. 1 auction house in
the world, and its rival Sotheby's Holdings, the world's No. 2 house,
conspired to fix the commissions that each company would charge their
customers, a class-action lawsuit says.

The suit came a few days after Christie's International, the
London-based parent of Christie's Inc., said it was cooperating with an
investigation by the Justice Department into commission fixing in the
international art market.

Christie's International reportedly provided the government with
information relating to an agreement with Sotheby's to limit competition
on commission charges.

In the civil suit filed on January 31 in Federal District Court in
Manhattan, the plaintiff, Herbert Black, is seeking class-action status
on behalf of those who bought and sold artwork, wine, furniture and
other items at the two auction houses in the 1990's.

As early as 1992, the two houses "agreed to cease competing with one
another on the basis of price," Mr. Black said. In particular, he said,
Christie's and Sotheby's agreed to shift from flat-fee commissions to
sliding-scale fees at roughly the same time. (The New York Times,
February 2, 2000)

COMPUTER MAKERS: Former IBM Engineer Says Cos. Hide Problem from Govts.
The state attorney general's office is investigating a whistle-blower's
claim that IBM Corp., Toshiba Corp. and other computer makers hid a
defect in personal computers sold to local governments, people familiar
with the case said. The probe was prompted by a whistle-blower lawsuit
by former IBM engineer Phillip Adams. The companies are accused of
concealing a problem in floppy disk controllers that can corrupt data,
the people said.

Toshiba on January 31 won a federal judge's approval of a $ 2.1-billion
settlement that ends a Texas class action over the same alleged defect.
Adams -- described by his attorneys as the person who discovered the
problem -- helped the plaintiffs in the Texas case. "What gives the suit
credibility is the fact that he was a consultant in a case resulting in
Toshiba's $ 2.1-billion settlement," said Eric Havian, a former federal
prosecutor who specializes in whistle-blower cases.

Adams' suit is broader than the Texas case. His suit targets component
makers, distributors, retailers and the world's leading software maker,
Microsoft Corp. It was filed in San Francisco County Superior Court.

About 500 cities, counties and other public agencies in California have
opted out of the Texas settlement, according to California Atty. Gen.
Bill Lockyer's office. That preserves their right to join Adams' case or
pursue other legal action against Toshiba.

People who have seen Adams' suit, which has been placed under seal while
the state decides whether to take control of the case, say it names more
than two dozen companies. Those firms are alleged to have either sold or
leased defective computer components or PCs, or software and devices
that contain or support the defect.

Under California's False Claims Act, the attorney general is required to
evaluate every claim filed by a whistle-blower. Before intervening and
taking responsibility for a case, the state must confirm that false
claims were made, and that people from within the companies knew or
should have known false claims were being made. Such investigations can
take years.

Senior Assistant Atty. Gen. Chris Ames, who supervises the state's false
claims unit, declined to comment on the existence of an investigation.
The attorney general's office in December sent state agencies a
confidential letter indicating it was investigating Adams' claim,
according to one person who has seen the letter. A second person
familiar with the case confirmed that the office is investigating the

Adams' lawyers say the alleged defect found in notebook and desktop PCs
can have "catastrophic" results. It could corrupt such data as that
which is used to administer radiation doses to cancer patients at state
or county hospitals and engineering data used to build dams or bridges,
they say.

Lockyer's office declined to comment on whether any public entities have
reported losing any data because of the defect. Toshiba said it has not
received any customer complaints about lost data.

The defendants in Adams' suit include at least 10 computer and component
makers: IBM, Intel, Gateway Inc., Hewlett-Packard, Iomega Corp., NEC
Corp., Samsung Electronics, Toshiba, Unisys Corp. and Winbond
Electronics Corp.; two distributors, Ingram Micro Inc. and Tech Data
Corp.; and one software company, Microsoft.

Seven retailers were named: Circuit City Stores Inc.; CompUSA Inc.;
Costco Wholesale Corp.; Office Depot Inc.; Sears, Roebuck & Co.; Staples
Inc.; and Wal-Mart Stores Inc. (Los Angeles Times, February 2, 2000)

DOWLING: Violation of FDCPA Is No Defense to Summary Proceeding
In a nonpayment proceeding, respondents moved for an order dismissing
the petition for landlord's failure to comply with the Fair Debt
Collection Practices Act. They argued that the petition was a
"communication" and should have contained a validation notice. The court
held that the petition was not a communication subject to the FDCPA
provisions. It said that if it were to take respondents' argument to its
logical conclusion, any summons and complaint filed in state and federal
courts and personally delivered to the debtor would invariably violate
the provisions of the FDCPA if no validation notice were contained.
Court also ruled that, even if the rent demand or petition violated the
FDCPA provisions, it might give rise to FDCPA liability but did not
serve as a defense to a summary proceeding. The preemption doctrine was
not applicable either.

Housing Part C

Judge Hagler

Missionary Sisters Of The Sacred Heart, Inc. V. Dowling QDS:26701873

In this nonpayment proceeding, respondents Robert and Jessica Dowling
("respondents" or "Dowling") move for an order "... dismissing the
petition for petitioner's failure to comply with the Fair Debt
Collections Practices Act, 15 U. S.C. @ 1692, et seq. ["FDCPA" or
"Act"]..." Specifically, respondents argue that the written Three Day
Demand dated June 30, 1999 ("Rent Demand") and the petition filed in
this proceeding violate the provisions of the FDCPA. Petitioner
Missionary Sisters of the Sacred Heart, Inc. ("petitioner" or
"Missionary") oppose the motion.


The Missionary commenced this proceeding to collect alleged rental
arrears of $ 3,804.90 for the months of June and July, 1999, at $
1,902.45 per month. Pursuant to RPAPL @ 711(2), petitioner demanded
payment of the above amount via a Rent Demand that was purportedly
signed by Sister Agnes Santomassimo, the Treasurer of the Missionary. On
the left side of the Rent Demand below the signature line, there is a
reference to a "Case Code: 6418 - 097." It is uncontroverted that the
Rent Demand was served on respondents by a licensed process server who
affixed a copy of the Rent Demand to the door of the subject premises
and then mailed an additional copy to them pursuant to RPAPL @ 735.

When full payment was not tendered, petitioner commenced this proceeding
by notice of petition and petition. The notice of petition contained a
reference to "Case Code 6418 - 104." Pursuant to RPAPL @ 741, the
petition was verified on July 15, 1999 by a member of petitioner's
counsel's firm on behalf of the Missionary.

Respondents vacated the subject premises on July 26, 1999. Three days
later on July 29, 1999, respondents interposed a succinct answer in
person alleging that "[Petitioner] refused to let movers in and
counterclaim [sic]." While respondents later retained counsel, the
answer was never amended.

Clearly, respondents failed to include a violation of the FDCPA as a
defense to this proceeding. It is arguable that respondents are
foreclosed from moving to dismiss on such a ground without first seeking
leave of court pursuant to CPLR @ 3025(b) to amend the complaint to add
the alleged violations of the FDCPA as a defense. In any event, since
issue has been joined by 'interposition of an answer, a motion for
summary judgment (CPLR @ 3212) seeking dismissal of the petition based
on such an enumerated defense or counterclaim would have been more

                         Motion to Dismiss

It is well settled that in determining a motion to dismiss pursuant to
CPLR @ 3211, the courts must liberally construe the pleadings, accept
the facts as alleged to be true and interpret them in the light most
favorable to the non-movant, the petitioner herein. See, Leon v.
Martinez, 84 N.Y.2d 83, 614 N.Y.S.2d 972 (1994).

                  Fair Debt Collection Practices Act

In 1977, the Congress enacted the FDCPA to regulate the manner in which
"debt collectors" may attempt to collect personal "debts." A "creditor"
is not included in the definition of a "debt collector". See, 15 U.S.C.
@ 1692a(6)(A). The purpose behind the FDCPA was to eliminate "the use of
abusive, deceptive, and unfair debt collection practices by debt
collectors." Id, at @ 1692(a).

In 1986, the Congress amended the FDCPA to delete the original exemption
which had excluded from the Act coverage of "any attorney-at-law
collecting a debt as an attorney on behalf of and in name of a client."
See, P.L. 99 - 361, 100 Stat. 768 (July 9, 1986).

The Act prohibits debt collectors from using "any false, deceptive, or
misleading representation or means in connection with the collection of
any debt." Id, at @ 1692e. The debt collector must inform the debtor
within five days of his/her initial "communication" of the amount of the
debt and the debtor's failure to dispute the debt within thirty days
"... the debt will be assumed to be valid by the debt collector." Id, at
@ 1692g(3). This is commonly known as a validation notice. The debt
collector is also required to disclose that he/she is "attempting to
collect a debt and that any information obtained will be used for that
purpose." Id, at @ 1692e(11).

The FDCPA specifically prescribes certain statutory penalties that a
debtor may recover due to the debt collector's failure to comply with
any of the Act's provisions. They include: "... any actual damage
sustained..." due to noncompliance; "... in case of any action by an
individual, such additional damages as the court may allow, but not
exceeding $ 1,000" and "the costs of the action, together with a
reasonable attorney's fee as determined by the court." Id, at @ 1692k.

For more than 20 years, the effects of this extremely powerful federal
law had little or no impact on summary nonpayment proceedings. This
changed in the aftermath of a tenant's federal lawsuit against a
landlord's firm in Romea v. Heiberger & Associates, 988 F. Supp. 712
(S.D.N.Y. 1997). In Romea, the tenant claimed that a rent demand signed
by the landlord's attorney violated the provisions of the FDCPA. The
District Court agreed with the tenant holding that rent was a "debt" and
a rent demand was a "communication" within the meaning of the FDCPA. The
District Court also certified an interlocutory appeal to the U.S. Court
of Appeals for the Second Circuit in Romea v. Heiberger & Associates,
988 F. Supp. 715 (S.D.N.Y. 1998) which affirmed the District Court's
determination in Romea v. Heiberger & Associates, 163 F. 3d 111 (2d Cir
1998). As a result, landlord's attorneys must be cognizant that
"sending" rent demands which do not comply with the strict requirements
of the FDCPA may subject them to statutory penalties.


Respondents seek to enlarge the long reach of Romea, supra, and its
progeny. Respondents argue that the Rent Demand which was allegedly
signed by an officer of petitioner, nevertheless violates the provisions
of the FDCPA because it was drafted by petitioner's attorneys. The only
proof adduced by respondents is that the Rent Demand contained a file
number which later appeared on the notice of petition and petition sent
out by petitioner's attorney. Respondents next contend that if the
petition is the initial "communication" (and not the Rent Demand), then
the petition violates @ 1692g as it does not contain a validation
notice. In either event, whether the Rent Demand or the petition
violates the Act, respondents conclude that the petition must be
dismissed as the provisions of the FDCPA preempt the conflicting
requirements of the RPAPL.

Rent Demand

The recent case of Goldstein v. Hutton, Ingram, Yuzek. Gainen, Carroll &
Bertolotti, 39 F. Supp. 2d 394 (S.D.N.Y. 1999) serves as the primary
basis underlying respondents' argument that the Rent Demand violates the
FDCPA. In Goldstein, a tenant brought a class action lawsuit against a
law firm alleging FDCPA violations. The rent demand was signed by the
managing agent, but it was printed on the law firm's letterhead and the
firm's name and address appeared on the mailing envelope and the
certified mail receipt. In such a situation, the District Court held
that it amounted to the law firm "sending" the rent demand.

Here, the facts are not so compelling. The only evidence that the Rent
Demand was sent by petitioner's counsel is a refuted allegation that it
was not signed by an officer of petitioner and a file number maintained
by petitioner's counsel which supposedly appears on both the Rent Demand
and the notice of petition and petition.

With regard to the alleged dubious signature, Sister Agnes Santomassimo
categorically denies the same and avers that her signature appears on
the Rent Demand which she recalls signing. (See, Santomassimo Aff. at P
15 - 6). The standard of review on a motion to dismiss requires this
Court to accept the facts as alleged by petitioner to be true.

Even more puzzling is the allegation of an identical file number on both
the Rent Demand and on the notice of petition and petition. They are not
the same. The Rent Demand has a file number of 6418 - 097 and the notice
of petition has a different file number of 6418 - 104. In any event, it
is hard to fathom that a "... least sophisticated consumer [respondents]
would have the false impression that a third party [petitioner's
counsel] was collecting the debt..." from viewing the file number on the
Rent Demand in isolation or even together with the file number on the
notice of petition. See, Franceschi v. Mautner-Glick Corp., 22 F. Supp.
2d 250, 255 (S.D.N.Y. 1998).

This Court also rejects respondents' fallback position that since the
Rent Demand was probably drafted by petitioner's counsel, it is a
"communication" that comes under the purview of @ 1692a(2) and does not
fall under the creditor exception of @ 1692a(6)(A). A landlord may seek
the advice of counsel and counsel may assist a client in drafting a rent
demand so long as it is not "sent" by counsel.


Respondents cleverly present a novel issue as to whether the petition is
a "communication" subject to the provisions of the FDCPA. This Court
holds it is not.

In at least two areas of disclosure, the courts have specifically held
that the Act exempts a formal pleading made in connection with a legal
action. In Romea, supra, the Court stated that @ 1692e(11) exempts "...
formal legal pleadings from the FDCPA's requirement that a debt
communication disclose that the debt collector is attempting to collect
a debt and that any information obtained will be used for that purpose."
Id, 163 F. 3d at 117. While Romea. supra. did not state when this
exemption applies, a fair reading of @ 1692e(l1) appears to encompass
initial and subsequent communications.

The second area of disclosure exempted by the Act is communications in
connection with debt collection pursuant to @ 1692c(c). Under this
section, a debt collector must cease communication with a debtor who
refuses to pay, except that the debt collector can state that he/she
"may invoke" or "intends to invoke a specified remedy" such as pursuing
legal remedies and notifying the debtor of such specific remedies (i.e.,
filing a lawsuit). Id, @ 1692c(c)(2)&(3).

In Heintz v. Jenkins, 514 U.S. 291, 115 S. Ct. 1489, 131 L. Ed 395
(1995), the Supreme Court held that "an ordinary court related document"
does not come within the ambit of the Act because it "does in fact
notify its recipient that the creditor may invoke a judicial remedy."
Id, 115 S. Ct. at 1491. Although the Supreme Court did not interpret the
Act to create a general exception for "all litigating attorneys", it
postulated "that it would be odd if the Act empowered a debt-owing
consumer to stop the 'communications' inherent in an ordinary lawsuit
and thereby cause an ordinary debt-collecting lawsuit to grind to a
halt." Id. Whether the validation notice required under @ 1692g applies
to formal pleadings is an open question. Unlike the prior sections, @
1692g does not have a specific exemption for formal pleadings.

In Travieso v. Gutman, Mintz, Baker & Sonnenfeldt, P.C., 1995 U.S. Dist.
Lexis 17804, WL 704778 (E.D.N.Y. 1995) tenants brought a declaratory
judgment action against a landlord's firm seeking damages for various
violations of the Act. The District Court opined that "the FDCPA is
intended to protect persons, such as plaintiffs, from abusive debt
collection practices at the earliest stage. Once the dispute reaches the
courts, the purposes behind the FDCPA are moot." Such a holding,
however, may be too pervasive in light of the holding in Heintz v.
Jenkins, supra.

It appears that District Court came to the above conclusion because the
commencement of a lawsuit by a formal pleading would not further the
Act's intended purpose of forestalling abusive debt collection
practices. The debtor is naturally protected and safeguarded when he or
she comes within the sphere of the court's influence. If any abusive
debt collection practices occur, the debtor may seek appropriate relief
from the court. Indeed, the power of the judiciary in such a situation
is broader than the narrow and specific civil liability contained in @
1692k of the Act.

If this Court were to take respondents' argument to its logical
conclusion, any summons and complaint filed in state and federal courts
that were personally delivered to the debtor would invariably violate
the provisions of the FDCPA if no validation notice was contained
therein. If such a substantial change was intended, the Act would have
so stated or the provisions of the Federal Rules of Civil Procedure
would have been amended. As implicitly stated by the Supreme Court in
Heintz, this Court cannot fathom that Congress intended such a narrow
reading so as "to cause an ordinary debt-collecting lawsuit to grind to
a halt." Id.

Under CPLR @ 308(l) and @ 320(a) and FRCP 12(a), if personal service of
a summons and complaint was made, then an answer would have to be
interposed within 20 days, which is 10 days less than the 30 - day
validation period called for in @ 1692k.

The Supreme Court's conclusion probably stems from @ 1692c(b), which
generally prohibits third-party communications with the collection of
any debt, but exempts from that prohibition any communication undertaken
with "the express permission of a court of competent jurisdiction."
Assuming, arguendo, that the petition is deemed a communication as
defined under the Act, the filing of the petition and prosecution of
this proceeding are subject to this exception.

While merely persuasive, the Federal Trade Commission, which is charged
with compliance of the Act, has also acknowledged that the filing of a
complaint is not a "communication" under the FDCPA. See, 53 Fed. Reg.
50097, 50100 (December 13, 1988) ("Filing or service of a complaint or
other legal paper... is not a communication covered by the FDCPA...)

         FDCPA Violation is not a Defense to a Summary Proceeding

Assuming, arguendo, that either the Rent Demand or the petition violates
the provisions of the FDCPA, it may give rise to FDCPA liability but it
does not serve as a defense to the underlying eviction proceeding. This
appears to be the holding of both the First and Second Departments of
the Appellate Term as well as the federal courts.

In the recent case of Wilson Han Assoc., Inc. v. Arthur, N.Y.L.J., July
6, 1999, p. 29, col. 4 (A.T. 2d and 11th Jud. Dists.), the Appellate
Term squarely rejected the tenant's argument that a nonpayment
proceeding must be dismissed where the rent demand violated the
provisions of the FDCPA. The Appellate Term in Arthur clearly held that
"... dismissal of a nonpayment proceeding brought by a
landlord-creditor, based on an alleged violation by his agent, is beyond
the scope of the FDCPA."

The First Department also implicitly dealt with this issue in Gerontis
v. Schwartz, N.Y.L.J., October 28, 1998, p. 28, col. 4 (A.T. 1st Dep't).
In Gerontis, a nonpayment proceeding, the parties entered into a
stipulation of settlement wherein the respondent agreed to pay $ 7,000
and petitioner agreed to repair certain conditions in the subject
premises by a date certain. In the event of a default under the terms of
the stipulation, the parties agreed that the proceeding could be
restored for appropriate relief. Petitioner moved for a final judgment
due to respondent's failure to make payment under the terms of the
stipulation. The court granted petitioner a final judgment in the
undisputed sum of $ 7,000. Respondent appealed the judgment and moved
the court to set an undertaking which it set in the amount of $ 10,000.
Instead of posting the undertaking, respondent filed for bankruptcy
protection. Ultimately, the Bankruptcy Court vacated the automatic stay
which respondent had obtained by virtue of her bankruptcy filing.
Respondent was then evicted from the subject premises.

Thereafter, respondent moved to vacate the judgment on the ground that
the written rent demand violated the provisions of the FDCPA. The court
denied respondent's motion finding that: the FDCPA does not pertain to
this proceeding because respondent charted her course in entering into
the stipulation. Even if this court were to find that an examination of
this proceeding in light of the FDCPA were required, the result would
not change. The FDCPA statute of limitations with regard to the
three-day notice issued here has long since passed in this 1996 summary
proceeding. 15 USC Sec. 1692(d).

The Appellate Term unanimously affirmed the above holding without
addressing the FDCPA claim. While this was a sub silencio rejection of
the respondent's FDCPA claims, it appears that the running of the FDCPA
statute of limitations would have been irrelevant because the mere
violation of the FDCPA should have been sufficient grounds to dismiss
the underlying nonpayment proceeding.

Respondent also appealed the Bankruptcy Court's decision. The District
Court affirmed the Bankruptcy Court's decision finding that "...
Schwartz has failed, both in state and federal court, to set forth any
precedent supporting the application of both the FDCPA as a defense in
an eviction proceeding, much less decisive precedent on this point that
would indicate that the state courts ignored applicable federal law."
See, Gerontis v. Schwartz, N.Y.L.J., April 14, 1999, p. 34, col. 3
(S.D.N.Y. 1999).

In Romea v. Heiberger & Associates, 988 F. Supp. 715 (S.D.N.Y. 1997),
while deferring to the New York State Courts on this issue, the District
Court also stated that a FDCPA violation is not a defense to a summary

In view of the Supreme Court's holding that violation of the federal
antitrust laws is not a defense to an action to recover the agreed price
for goods sold and delivered, except in the rarist of circumstances...
(citations omitted), such a result apparently would be unlikely.
(Emphasis added). 988 F. Supp. At 718, n.12.

There is also authority that the FDCPA cannot be affirmatively utilized
as a sword by [debtors] and not as the shield that Congress intended it
to be..." to attack the merits of the underlying action to recover a
debt. Young v. Citicorp Retail Services, Inc., 1997 WL 280508 (D.C. Conn
1997) aff'd 159 F. 3d 1349 (2d Cir. 1998). Notwithstanding other lower
court decisions to the contrary, this Court shall follow the
aforementioned burgeoning precedent in both state and federal court.
After this Court substantially completed this decision/order, the Hon.
Howard Malatzky, J.H.C. also held that an alleged violation of the FDCPA
concerning a rent demand is not a defense to a nonpayment proceeding.
See, East 77th Realty, LLC v. Alin, N.Y.L.J., November 24, 1999, p. 32,
col. 2 (Civ. Ct., N.Y. Co. 1999).


In the aftermath of Romea, supra, much has been said that the provisions
of RPAPL @ 711(2) are inconsistent with the FDCPA and the state law is,
therefore, preempted. See, @ 1692n and Eina Realty v. Calixte, 178 Misc
2d 80, 679 N.Y.S.2d 796 (Civ Ct, Kings Co., 1998).

The preemption doctrine requires state laws to defer to federal
legislation when any of these elements exists: (1) the scheme of federal
legislation is so complete and pervasive that no room is left for the
state to supplement it; (2) the federal interest is so dominant that
state laws on the same subject must yield; or (3) the enforcement of the
state statute presents a substantial conflict with the administration of
the federal program. See, City of New York v. Job-Lot Pushcart, 88
N.Y.2d 163, 643 N.Y.S.2d 944 (1996) cert denied 117 S. Ct. 186 (1996);
Marino v. Ramapo, 68 Misc 2d 44, 326 N.Y.S.2d 162 (Sup. Ct., Rockland
Co. 1971); 20 N.Y. Jur 2d Constitutional Law @ 104 (1982).

However, "local legislation survives when its conflict with federal law
is indirectly and not wholly repugnant to the federal statute, so that
in the end the two are reconciled." 20 N.Y. Jur 2d @ 104, at p. 181
citing to People v. Altman, 61 Misc 2d 4, 304 N.Y.S.2d 534 (Dist. Ct..
Nassau Co., 1969). "For a conflict between an act of Congress and a
state or local law to render the latter void, the repugnance or conflict
must be direct and positive so that the two acts cannot be reconciled or
consistently stand together. The mere existence of federal legislation
within a particular area does not prevent the state from dealing with
matters within the same area by means of statutes enacted under the
police power, where there is no doubt that the local law can be enforced
without clashing with the federal law and without in any way impairing
that law." 20 N.Y. Jur 2d @ 105 at p. 183 citing to People v. County
Transp. Co., 303 N.Y. 391 (1952) app dismd 343 U.S. 961, 96 L. Ed 1359
(1952); Recknagel v. Finkelstein, 275 A.D. 684 (2d Dep't 1949); Molnar
v. Curtin, 273 A.D. 322 (1st Dep't) aff'd 297 N.Y. 967 (1948).

The Supreme Court is also generally hesitant to construe a state law so
as to bring it into conflict with a federal law. See, Oil, Chemical &
Atomic Workers Int'l Union v. Missouri, 361 U.S. 363, 80 S. Ct. 391 4 L.
Ed. 2d 373 (1960). Absent either an explicit or implicit manifestation
of Congressional preemptive intent, the presumption is that in enacting
legislation, Congress did not intend to preempt the States' power to
regulate matters of local concern. Holtzman v Oliensis, 91 N.Y.2d 488,
673 N.Y.S.2d 23 (1998).

The Second Circuit in Romea explicitly stated in Footnote 10 that there
is no conflict between RPAPL @ 711(2) and the provisions of the FDCPA as

At times, Heiberger [the defendant landlord's firm] portrays the FDCPA
and Article 7 as actually conflicting. This is of course not true. An
attorney representing a landlord who chooses to send a @ 711 notice can
readily conform the notice to the requirement of the FDCPA without
violating any provisions of Article 7. (Emphasis added).

Although Romea further stated that if there was a conflict, "Article 7,
and not the FDCPA, would have to yield", this was a secondary argument
which cannot otherwise be construed to hold that there is a conflict
between the two.

As a condition precedent to a nonpayment proceeding, RPAPL @ 711(2)
provides that the demand for rent must be made on at least three days'
notice. It is clear that the landlord or its managing agent can comply
with the dictates of RPAPL @ 711(2) by demanding the rent personally
and/or in writing without violating any provisions of the FDCPA. As
such, there is no per se conflict between the RPAPL @ 711(2) and the
FDCPA. The two laws are easily reconciled and can consistently stand

Upon application, there may be a possible conflict when a landlord's
attorney "sends" the rent demand without regard to the FDCPA, as in
Romea, supra. Such an occurrence, however, would be an indirect conflict
with the federal law "but not wholly repugnant... so that in the end the
two are reconciled." People v. Altman, supra.

Given that the Supreme Court hesitates to construe a state law in
conflict with a federal law, this Court chooses to resolve any perceived
conflict between Article 7 and the FDCPA in favor of consistency and
propriety. See, Oil Chemical & Atomic Workers Int'l Union v. Missouri
and Holtzman v. Oliensis, supra.


For the foregoing reasons, this Court denies respondents' motion, in its

This proceeding shall be restored to the Part C calendar for trial on
December 13, 1999, at 9:30 A.M.

The foregoing constitutes the decision and order of this Court. Courtesy
copies of this decision and order have been mailed to counsel for the
parties. (New York Law Journal, December 15, 1999)

HOLOCAUST VICTIMS: Disputes Mark Second Day Of Compensation Talks
Disputes over compensation for Nazi- confiscated property and for slave
labor marked the second day of talks in Washington over the allocation
of a DM 10 billion fund that was intended to settle all remaining
Holocaust claims against Germany and German industry, sources said.

The disputes threatened to publicly pit Jewish survivors against
non-Jewish Nazi victims, and to snarl Germany's relations with the
Eastern European governments who are negotiating for their nationals.

The two groups of Nazi victims, with vastly different histories and
claims against Germany, were artificially thrown together by
class-action lawsuits, filed in the US, seeking compensation for slave
labor from German industry.

The talks, which were to conclude at the State Department last night,
included delegations from the German government and industry, who are
dividing the cost of the fund, and representatives from Israel, six
Eastern European countries, the Claims Conference, and lawyers for

Survivors' lawyers were expected to seek DM 20,000 for each former slave
laborer, while Germany and the Eastern Europeans proposed DM 15,000.

The agreement also includes payment for confiscation of property, German
bank claims, and insurance policies issued by German companies. A
proposal issued in the names of the six Eastern European governments
called for 90 percent of the German fund to be divided among the
victims. That would draw money away from educational programs and from
aryanized property.

The German proposal sets aside DM 1b. for property claims, which the
Claims Conference intended to use for social and humanitarian projects.

However, the Eastern European governments proposed that only half that
amount, DM 500 million, be set aside for property claims, and insist
that the funds be used to cover specific claims, not for communal

It is understood that without a commitment for DM 1b., the Claims
Conference will not support the agreement. That was due, in part, to the
fact that most Holocaust survivors would not qualify for the fund
because they were not in slave labor camps, and it was thought that a
significant amount of the total German fund must be designated for
"Jewish" purposes for the agreement to win Jewish support.

The German initiative also would set aside DM 1b. for the so-called
"future fund," which would be used for unspecified humanitarian and
educational purposes. The Eastern Europeans would limit that aspect to
DM 100m. "The future fund is a noble cause, but it should not be taken
from individuals," said a member of one of the Eastern European

The German initiative was proposed on January 28 after industry had been
sued in the US for profiting from slave and forced labor. This week's
meeting in Washington was the first set of negotiations since the DM
10b. agreement was announced in Berlin in December.

The first day of talks, which were attended by German parliamentarians,
was devoted to a review of the German legislation that would provide the
legal basis for the fund. Advocates for Jewish Nazi victims had been
incensed that draft legislation would "take into account" previous
German reparations. That would slash compensation to Jewish slave
laborers. Part of that so-called offset was to be dropped, sources said,
although previous compensation for slave labor would be taken into
account. However, there was not yet a commitment in writing that the
offset would be abandoned. (The Jerusalem Post, February 2, 2000)

JAPANESE GOVT: Residents Near Expressway Win 11-Year Air Pollution Suit
The Government is braced for a rash of air pollution lawsuits after
residents living near a national expressway won landmark compensation on
January 31 for illnesses caused by vehicle fumes.

The court battle dragged on for 11 years before the first ruling by a
judge that the Government had a responsibility to cut emissions and pay
cash to 50 victims of pollution. "The Government allowed excessive use
of the roads as a result of which excessive fumes from automobiles
caused residents to suffer from bronchial asthma. The state and the
expressway corporation have a duty to prevent air pollution," said Judge
Shogo Takenaka of Kobe District Court.

In a country with 126 million people crowded mainly along the coastline,
roads and expressways are the main form of transport. Trains account for
only 30 per cent of passenger trips taken while cars are used 60 per
cent of the time. Tokyo and Osaka's air is especially polluted by car
and truck emissions, which double when vehicles are driven at low speed.
In Tokyo the average speed during the morning rush hour is just 21km/h.

Sources say the Government fears more residents will launch lawsuits
over the expressways that were built as elevated roads over existing
national highways in and between Tokyo, Nagoya and Osaka.

While it is not uncommon for Japanese companies to be sued for air
pollution, with court-ordered settlements the usual outcome, the
penalties have invariably been small. But the residents of Amagasaki,
Hyogo prefecture involved in the court battle with the Government said
the US$ 3.3 million compensation had set an important precedent. Those
in the class action who won cash from the Government and expressway
company lived or worked within 50 metres of the Hanshin Expressway and
suffered ailments including asthma and pulmonary emphysema.

Aside from the payout, the Government must now also work to reduce
emissions by cutting the use of diesel traffic, according to the ruling.
This will be no easy task. Diesel-powered trucks have had preferential
treatment on Japanese roads with little effort to encourage them to
conform to the stricter environmental standards that cars must now
comply with. They have also had an easier run in the lower level of
taxation levied on diesel fuel than petrol. The Amagasaki case has shown
this will now change, despite the stiff opposition expected from the
powerful commercial transport lobby.

The Government recently announced a massive 4.5 thousand billion yen
injection for initiatives to cut air pollution at 125 locations where
people live along national expressways. It remains to be seen whether
the Government's move can beat the incoming flood of lawsuits. (South
China Morning Post, February 2, 2000)

LEGATO SYSTEMS: Gold Bennett Files Securities Suit in California
Gold Bennett Cera & Sidener LLP filed a class action in the United
States District Court for the Northern District of California on behalf
of purchasers of Legato Systems, Inc. common stock during the period
between October 21, 1999 and January 19, 2000, Case Number C-

The complaint charges Legato and certain of its officers and directors
(Louis C. Cole, Kent D. Smith, Stephen C. Wise, Nora M. Denzel, Phillip
E. White) with violations of the Securities Exchange Act of 1934 by
making material misrepresentations in Legato's financial statements and
other false statements regarding its earnings growth. During the Class
Period, certain of the individual defendants who controlled and were
senior officers of Legato are alleged to have engaged in the scheme to
conceal Legato's flagging growth to prevent the decline in the price of
Legato stock in order to: (i) use Legato's artificially inflated stock
as "currency" to fund the Company's acquisition of companies in
stock-for-stock transactions; and (ii) receive $12.1 million in insider
trading proceeds.

The Complaint alleges that, during the Class Period, Legato portrayed
itself as a highly successful company with a leading position in the
fast-growing enterprise storage and recovery software market. Because
Legato consistently reported revenues and earnings which exceeded Wall
Street estimates, its stock price rose dramatically, commensurate with
the optimistic expectations created by defendants' bullish statements to
analysts concerning Legato's prospects for continued high growth.

On January 19, 2000, however, Legato shocked the market by announcing
that it would restate its 1999 third quarter financial results.
Specifically, its auditors took issue with Legato's attempts to
accelerate the recognition of licensing revenues on certain long-term
contracts, forcing the Company instead to book the revenues over a
period of several quarters, as required by Generally Accepted Accounting
Principles. As a result of the changes to its revenue recognition
practices, Legato was forced to restate its third quarter results and to
revise downward its sales growth for 2000. The following day, the price
of Legato stock collapsed, dropping to $29.75 per share, a one-day
decline of more than 44.5%.

Contact: Joseph M. Barton, Esq. of Gold Bennett Cera & Sidener LLP, 595
Market Street, Suite 2300, San Francisco, California 94105, by telephone
at 800-778-1822 or 415-777-2230, by facsimile at 415-777- 5189 or by
e-mail at legato@gbcsf.com

LUCENT TECHNOLOGIES: Weiss & Yourman Files Securities Suit in NJ
The Law Office of Weiss & Yourman filed a class action lawsuit in the
United States District Court for the District of New Jersey on behalf of
purchasers of Lucent shares between October 27, 1999 and January 6,

The complaint charges Lucent and certain of its executive officers with
violations of the Securities Exchange Act of 1934. The complaint alleges
that defendants misrepresented or omitted information regarding the
Company and its business operations. The misrepresentation and/or
omission of information caused the Company's stock price to be
artificially inflated. This action seeks to recover damages on behalf of
defrauded investors who purchased Lucent securities.

For more information regarding this lawsuit, please contact Moshe
Balsam, (888) 593-4771 or (212) 682-3025 or via Internet electronic mail
at wynyc@aol.com or by writing Weiss & Yourman, The French Building, 551
Fifth Avenue, Suite 1600, New York City 10176.

MICROFIELD GRAPHICS: Rabin & Peckel Files Securities Suit in NY
Rabin & Peckel LLP commenced a class action lawsuit in the United States
District Court for the Southern District of New York, on behalf of
purchasers of Microfield Graphics, Inc. common stock during the period
from July 23, 1998 through April 2, 1999, inclusive.

The complaint alleges that Microfield and John B. Conroy, President and
Chief Executive Officer of the Company, violated section 10(b) of the
Securities Exchange Act of 1934. In particular, it is alleged that
defendants issued a series of false and misleading statements
concerning, among other things, the purchase agreement with 3M which
caused a substantial increase in sales in late 1997 and early 1998 and
the Company's failure to disclose that 3M had placed virtually no orders
for the third and fourth fiscal quarter of 1998. The complaint alleges
that, as a result of these material misstatements and omissions,
Microfield's stock price was artificially inflated throughout the Class

For additional information concerning this lawsuit, please contact
Joseph V. McBride, Rabin & Peckel LLP, 275 Madison Avenue, New York, NY
10016, by telephone at (800) 497-8076 or (212) 682-1818, by facsimile at
(212) 682-1892, by e-mail at email@rabinlaw.com

OIL COMPANIES: CA Appeals Ct Dismisses Lawsuit over Price-Fixing
Nine major oil companies proved that they didn't agree to fix oil prices
in California, a state appeals court ruled in dismissing a class-action
lawsuit accusing the companies of violating antitrust laws. The 4th
District Court of Appeal on January 31 said the allegations of collusion
were based on ``inferences from circumstantial evidence.'' Two years
ago, Superior Court Judge David J. Danielsen allowed the trial to
proceed but the oil industry appealed.

Tim Cohelan, a lawyer from San Diego, who filed the lawsuit in 1996,
said he planned to appeal. The suit names as defendants: Atlantic
Richfield Co., Chevron Corp., Exxon Corp., Mobil Corp., Shell Oil Co.,
Texaco Inc. (NYSE:TX - news), Unocal Corp. (NYSE:UCL - news), Tosco
Corp. (NYSE:TOS - news) and Ultramar Diamond Shamrock Corp.

Chevron (NYSE:CHV - news) officials issued a brief statement on January
31, saying the company was pleased with the ruling. The company has
maintained that gasoline prices vary from region to region due to market
forces such as supply, demand and competition.

Unocal agreed to settle the lawsuit for $3 million last July. The
company admitted no wrongdoing.

Meantime, the Federal Trade Commission is continuing its investigation
into oil company pricing policies in California and elsewhere. According
to a weekly survey by a San Diego watchdog group, San Diego County
drivers continue to pay higher prices at the gas pump than their Los
Angeles County counterparts. The average price of a gallon of unleaded
regular in San Diego at the end of January was $1.457, up from $1.409 a
week earlier, according to Utility Consumer's Action Network. In Los
Angeles, gasoline prices climbed from $1.324 to $1.369, UCAN said.

ONLINE HARRASSMENT: Employers Face New Challenges in the New Millennium
In the new millennium, employers will be faced with new challenges and
obstacles when trying to prevent sexual harassment in the workplace.
Communication technology has become commonplace and vital in most work
environments, and easy access to sexually explicit and harassing
material via the Internet may affect the atmosphere on the job and
increase an employer's risk for sexual harassment and discrimination

Employee use of the Internet and other means of electronic communication
have expanded the manner in which an employee can be sexually harassed
at work. For example, an employee may be subjected to unwelcome sexual
advances through the exchange of messages on the Internet or via e-mail.
More commonly, the dissemination of sexually oriented material may form
the basis of a hostile work environment claim.

Hostile work environment sexual harassment exists when an employee is
subjected to unwelcome sexually harassing conduct that affects a term,
condition or privilege of employment or that creates an intimidating,
offensive or hostile working environment. See Faragher v. City of Boca
Raton, 524 U.S. 775 (1998); Burlington Indus. Inc. v. Ellerth, 524 U.S.
742 (1998).

Current sexual harassment and discrimination law is ill-prepared to deal
with certain issues that arise out of the use of the Internet and
e-mail. Electronic communications have unique characteristics that place
employers at risk for creating a hostile work environment. With one
keystroke, an employee can send offensive and harassing material,
leaving the employer's electronic fingerprint. Only a few states have
enacted laws that make any harassment through use of a computer a crime.
See, e.g., Calif. Penal @ 646.9(g) (West 1998); Conn. Gen. Stat. Ann. @@
53a-182b and 53a-183 (West 1995).

Certainly, communication on the Internet and through e-mail is more
informal and colloquial than formal, written letters. Employees often
include in computerized communications things that they would never
write in formal correspondence. Many employees also mistakenly believe
that a "deleted" e-mail or Internet message is destroyed forever. Due to
employer monitoring systems and backup programs, this is often not the
case. Most significantly, the ease and speed with which
computer-generated messages and images can be forwarded to large groups
of people mean that more employees can be affected at the press of a
single button.

The courts have thus begun to address the role of e-mail and Internet
use in connection with sexual harassment and discrimination claims. An
example is in Blakey v. Continental Airlines Inc., (Blakey v.
Continental Airlines Inc., No. ESX-L-15323-95 (N.J. Law Div. April 22,
1998), aff'd 322 N.J. Super. 187 (App. Div. 1999), cert. granted (Sept.
28, 1999).) In this case, the New Jersey court addressed whether an
Internet chatroom can be considered a "workplace" for purposes of a
hostile work environment claim under the New Jersey Law Against
Discrimination. The plaintiff claimedthat her co-workers had sexually
harassed her through statements made in a chatroom developed for
Continental Airlines pilots. Although the court did not rule out the
possibility that the Internet could be a workplace under certain
circumstances, it held that the chatroom in this case was not a

The court noted that "Continental had no control over the [chatroom],
did not make it a requirement to use the [chatroom], and employees had
to pay a service fee to CompuServe and have their own computers to
access it." Continental was therefore not liable for the messages and
had no duty to police the Internet to control its employees' conduct
outside of the workplace.

Although that decision was favorable to Continental, it left open the
possibility that an employer could be held liable for harassing conduct
on the Internet. In fact, Blakey's factual scenario was somewhat unusual
because a third party (CompuServe) provided the Internet service. In
many workplaces, the employer provides and maintains Internet and e-mail
systemsaccessed by employees from their desktops.

                     Evidence of Discrimination

Plaintiffs can use e-mails affirmatively against their employers because
stored computerized messages may remain long after witnesses' memories
fade. In fact, plaintiffs' attorneys are now seeking computerized
information as a regular part of their discovery requests, creating an
additional cost to employers.

Evidence in the form of sexually oriented or harassing computer messages
can bolster an employee's claim. These can take the form of printed
messages or messages still located on the employer's computer system.
Even e-mail and Internet messages that presumably have been deleted
often can be retrieved.

Employers may be required to furnish existing hard copies of
computerized messages, provide new printouts or produce information on
computer disks. Reviewing these communications, as well as copying and
printing these documents, increases the cost of litigation.

In Strauss v. Microsoft Corp., (Strauss v. Microsoft Corp., 814 F. Supp.
1186 (S.D.N.Y. 1993)), a New York federal district court sent to the
jury a gender discrimination claim based in part on sexually oriented
and offensive e-mails sent by a supervisor. The court found that the
plaintiff established a prima facie case of discrimination based on her
supervisor's refusal to promote her. After the employer articulated a
legitimate, nondiscriminatory reason for not promoting the plaintiff --
that she was not qualified for the promotion -- the court reviewed the
plaintiff's evidence of pretext. Denying the employer's motion for
summary judgment, the court found that a jury could find pretext for
gender discrimination based on the plaintiff's evidence, including
sexually oriented and offensive e-mails sent by her supervisor.

Likewise, in Knox v. State of Indiana, (93 F.3d 1327, 1332, 1337 (7th
Cir. 1996), the U.S. Court of Appeals for the 7th Circuit affirmed a
jury verdict in the employee's favor for claims of sexual harassment and
retaliation based on e-mails in which a co-worker requested to have sex
with the employee. Similarly, in Curtis v. Citibank, (No. 97-1065, 1998
WL 3354 (S.D.N.Y. Jan. 5, 1998)), New York's Southern District court
permitted employees to amend their complaint to include their employer
as a defendant in a sexual harassment and discrimination case based on
offensive e-mail messages sent among supervisory employees.

Most recently, in Coniglio v. City of Berwyn, (No. 99-4475, 1999 WL
1212190 (N.D. Ill. Dec. 16, 1999)), the Illinois court held that the
plaintiff stated a hostile work environment claim when the defendant's
comptroller used his work computer to access pornographic sites and
download and print pornographic images. The comptroller also called the
plaintiff into his office while the images were displayed on his screen
and attempted to elicit a reaction concerning the pornography. After
complaining about the conduct, the plaintiff began receiving unsolicited
e-mails from pornographic Internet sites.

Similarly, in Florida, a court permitted a plaintiff's claim of sexual
harassment to proceed, based in part on the fact that the plaintiff
found her supervisor and a customer looking at pornography. (Scott v.
Plaques Unlimited Inc., 46 F. Supp.2d 1287, 1289 (M.D. Fla. 1999)).

                         Employer Defenses

Employers, however, are not defenseless and may be protected by
instituting a preventive program, properly investigating claims and
formulating an electronic communications policy. As the Supreme Court
articulated in Faragher v. City of Boca Raton (524 U.S. 775 (1998)) and
Burlington Industries Inc. v. Ellerth, (524 U.S. 742 (1998)) if an
employer exercises reasonable care to prevent and correct sexually
harassing behavior and the employee fails to take advantage of the
preventive and corrective opportunities, the employer can sometimes
raise an affirmative defense to liability.

See, e.g., Schwenn v. Anheuser-Busch Inc., 1998 WL 166845 (N.D.N.Y.
April 7, 1998) (dismissing sexual discrimination claim based on
harassing e-mail because employer properly investigated claim).

Employers have prevailed in some instances at the summary judgment stage
because courts have recognized their use of reasonable care -- for
example, by taking prompt remedial measures such as disciplining
employees who used the Internet and e-mail for inappropriate purposes
and implementing a policy to curb the use of company computers for
dissemination of inappropriate material. Spencer v. Commonwealth Edison
Co., No. 97-7718, 1999 WL 14486 (N.D. Ill. Jan. 6, 1999). See also
Daniels v. Worldcom Corp., No. A.3:97-CV-0721-P, 1998 WL 91261 (N.D.
Texas Feb. 23, 1998); Rudas v. Nationwide Mutual Ins. Co., No. 96-5987,
1997 WL 634501 (E.D. Pa. Sept. 26, 1997).

But even if they are successfully defended or settled, sexual harassment
claims are costly to employers. Chevron, for example, paid more than $ 2
million to settle a sexual harassment claim by female employees, based
on sexually offensive e-mails, including "25 reasons beer is better than
women." Smith Barney recently attempted, unsuccessfully, to settle a
hostile work environment class action based on its failure to regulate
employee access to sexually explicit materials on the Internet. See
"When E-Mail is Ooops-Mail," Newsweek, Oct. 16, 1995, at 82.S; and
Martens. v. Smith Barney Inc., 181 F.R.D. 243 (S.D.N.Y. 1998).

                         Preventive Measures

While courts struggle to mold the law around this growing problem,
employers can take steps to prevent or limit liability. Employers should
decide which employees need access to the Internet and balance this need
against the potential loss in productivity and efficiency. Employers
should provide employees with passwords in order to limit Internet
access and identify users.

In addition, employers should develop a formal electronic communications
policy that regulates employee Internet and e-mail use. It should
reference and incorporate the employer's sexual harassment and
anti-discrimination policies. Employers should make employees aware that
sexual harassment over the Internet or e-mail violates company policy
and will not be tolerated, and that it will result in discipline up to
and including termination.

The electronic communications policy must clarify that the Internet and
e-mail are company property and that employees should have no
expectation of privacy in their use. Courts have found that employees
have no reasonable expectation of privacy when the employer's policy
provides for monitoring for unauthorized use. (U.S. v. Simons, 29 F.
Supp.2d 324 (E.D. Va. 1998). But see Berry v. Funk, 146 F.3d 1003 (D.C.
Cir. 1998) (holding that if covert monitoring is to take place, it must
be justified by a valid business purpose or at least be shown to be
undertaken normally)).

Employers should specifically reserve the right to monitor employee use
of the Internet and e-mail and periodically monitor employee
communications. Employers may choose to install programs that block
employee access to undesirable and discriminatory Internet sites or warn
employees that a site is inappropriate for the office.

Employers can also track and monitor which sites are accessed and how
much time is spent at each site. Prodigy, for example, monitors Internet
use through human censors and software that detects offensive words.
Simple Technology Inc. employs a computer technician who reviews a daily
log of every Internet site visited by employees and sends warning
letters to employees who improperly use the system. See Greg Miller,
"Working: Fear of Abuse Leads Some Employers to Deny, Monitor Internet
Access," The News Tribune, Aug. 4, 1996.

Unocal Corp. has installed a program that flashes a warning on
employees' computer screens if they attempt to search seamier Internet
sites. See id.

Unsuspecting employers have been surprised by the results of Internet
monitoring. For example, a Nielsen Media Research Survey revealed that
employees at IBM, AT&T, Apple, NASA and Hewlett-Packard visited the
Penthouse site at work thousands of times a month. See Cheryl Currid,
"Be Careful What You and Your Users Say and Do on the Net -- It Could
Come Back to You," Windows Magazine, Sept. 1, 1996.

In order to prevent the use of such materials in litigation, employers
should adopt a policy concerning the retention and destruction of
computerized communications. Employers should be careful, however, not
to destroy computerized information once it becomes subject to actual or
potential litigation. Willful destruction of such records can result in
severe sanctions. See, e.g., In re Prudential Ins. Co. Sales Practices
Litig., 169 F.R.D. 598 (D.N.J. 1997); Wm. T. Thompson. Co. v. General
Nutrition Corp., 593 F. Supp. 1443, 1446-47 (C.D. Calif. 1984).

Regardless of what preventive measures employers implement, companies
must be aware that cyberspace has expanded the workplace as they know
it. Employers must plan for what is sure to be a litigious future. (The
National Law Journal, January 24, 2000)

SUPER-SOL: Supermarkets Face Suit with Meat Producer over Water in Meat
Super-Sol Ltd. (NYSE: SAE), Israel's leading supermarket chain,
announced on February 1 that it had received a complaint in a purported
class action against a meat producer, Super-Sol, other major supermarket
chains and others. The complaint alleges that excess water was
unlawfully used in frozen meat products of the meat producer, which were
retailed by Super-Sol and such other major supermarket chains. Super-Sol
indicated that it was studying the complaint and that it intended to
defend itself vigorously in such litigation, which claims damages in the
amount of approximately NIS 198 million as estimated by the plaintiffs.

In the US, Super-Sol's American Depositary Receipts, each equivalent to
five ordinary shares, trade on the New York Stock Exchange under the
symbol "SAE". Prices may be accessed on Reuters with the symbol SAE.N,
and the Reuters Equities 2000 Services, Quotron and Bloomberg under the
symbol SAE.

SURGUTNEFTEGAZ: Bernstein Liebhard Investigates Dividend Irregularities
The law firm of Bernstein Liebhard & Lifshitz, LLP has been consulted by
stockholders of Surgutneftegaz (OTC Bulletin Board: SGTZY) (formerly
SGUZY and ASGTY), one of the largest Russian natural gas companies, to
investigate possible irregularities by Surgutneftegaz in connection with
the calculation and payment of dividends on its stock. Common and
preferred shares of Surgutneftegaz are traded in the United States as
American Depositary Receipts (ADRs).

Contact: Stanley D.Bernstein, Esq. at Bernstein Liebhard & Lifshitz,
LLP, 10 East 40th Street, New York, New York 10016, 800-217-1522 or
212-779-1414, or by e-mail at Surgut@BernLieb.com

SYKES ENTERPRISES: Berman, DeValerio Files Securities Suit in FL
Berman, DeValerio & Pease LLP filed a class action lawsuit in the United
States District Court for the Middle District of Florida on behalf of
investors who purchased Sykes Enterprises common stock during the period
April 26, 1999 through January 31, 2000 for violations of sections 10(b)
and 20(a) of the Securities Exchange Act of 1934.

The action charges that Sykes Enterprises and certain individual
defendants misled investors concerning Sykes' expected 1999 fourth
quarter results and that Sykes' financial statements were not prepared
in accordance with Generally Accepted Accounting Principles. Sykes
Enterprises common stock price plummeted approximately 60% since
announcing it would not meet fourth quarter results and that it would
delay the release of its financial results for 1999.

For more details regarding this lawsuit, please contact Leslie R Stern,
Esq., Michael G. Lange, Esq., Jeffrey C. Block, Esq. of Berman,
DeValerio & Pease LLP, One Liberty Square, Boston, MA 02109 E-Mail at
bdplaw@bermanesq.com or call at (800) 516-9926.

TACO BELL: Workers to Get Back Pay & Maybe Compensation for Unpaid OT
A Notice of Press Conference on Tuesday, February 1st 522 SW 5th,
Portland 11th Floor Conference Room 11:00 AM says that more than 14,000
current or former employees who worked for Taco Bell in the State of
Oregon after July of 1991 may have a lot of money coming to them, but
only if they fill out a form that they may receive in the mail in the
next few weeks.

Taco Bell is under fire in a statewide, class-action lawsuit that claims
workers were not paid for "off the clock" work that they did. After many
months of court hearings and motions, Circuit Court Judge Henry Kantor
has ordered one last claims process -- the questionnaire forms that
could begin showing up in mailboxes from February 1. Workers who have
not yet come forward are urged to do so soon if they are to receive back
pay due them from Taco Bell. In addition to back pay, Taco Bell may be
forced to pay a cash penalty of around $1100 each to some of the wronged

Portland attorney Paul Breed is one of the attorneys representing the
workers. He is concerned that, "The forms are somewhat long, and
employees may be intimidated at first. But they should fill in what they
can to the best of their ability, and then they should call the toll
free number we have set up to give them all the assistance they need."
The assistance is given to the workers at no charge. Many of the
victimized workers speak little English, and the forms are written in
English. But, Breed notes that, "If they call that toll free number,
they can reach a bilingual person able to assist them." The toll free
number is 888/897-7913.

The Court ruled last December that "it is probable that a substantial
number of class members will prevail on one or more parts of the wage
claims," and ordered the claim forms mailed to thousands of Taco Bell
employees who worked for the corporate stores between 1991 and 1997 when
the law suit was originally filed. Of the more than 14 thousand workers
potentially affected by this class action law suit, some 225 have
received compensation from Taco Bell. One Grants Pass worker received
$65,000 in unpaid back wages. About a dozen others received between
$15,000 and $59,000 each.

The point that attorney Breed wants clearly made is if workers do not
turn in their forms, they could be disqualified from receiving any
compensation. The forms will be sent to the workers' last known address,
so it is likely many employees will never receive a form. Employees can
request a form be sent to them by calling the same toll-free number set
up for assistance.

Taco Bell is not in charge of determining the compensation due each
worker. Judge Kantor appointed former Circuit Judge Stephen Walker as an
independent referee. He will look at each individual claim and determine
fair compensation. "Judge Walker is an experienced member of the court,
and we feel that Taco Bell workers will be treated fairly by having him
-- and not Taco Bell -- determine compensation," stated attorney Paul

In a 1998 survey conducted by the Oregon Survey Research Lab at the
University of Oregon, 51% of current and former Taco Bell workers polled
said they had worked off the clock. Examples of off the clock work
employees have reported doing include: preparing food and cleaning
before clocking in, waiting after the start of their shift to clock in
because business was slow, continuing to work after clocking out to
finish cleaning and other chores, and/or waiting for the manager to
count the til after clocking out. Employees also reported such off the
clock work as errands, cleaning parties, attending meetings, and reading
training manuals, all without pay. Shift managers and crew leaders also
report off the clock work, such as putting away PFS orders, scheduling,
working on their day off to fill-in, and miscellaneous required paper
work, again without pay. In addition, employees may be entitled to
compensation if they did not receive uninterrupted meal breaks, as
required by law.

A similar class action lawsuit in the state of Washington was settled
shortly before the trial was to begin in 1997. An estimated 2.7 million
dollars has been paid to compensate workers performing similar
off-the-clock work in Washington. Attorney Rebecca Roe from the Seattle
law firm Schroeter Goldmark and Bender was one of the attorneys
representing the Washington workers, and is co-counsel for the Oregon
class action suit.

Contact: Law Offices of Paul Breed Attorney Paul Breed, 503/226-3664

TEXACO: Judge Says Ecuadoran Indians May Not Get Fair Trial at Home
A federal judge here said on February 1 he was unsure that a group of
indigenous people from Ecuador would receive a fair hearing in their
home country of a lawsuit they have filed against Texaco, according to
lawyers for the group. In the light of Ecuador's coup on January 21,
Judge Jed Rakoff said that country's courts might not now be able to
provide a fair decision, according to a statement from the Kohn and
Bonifaz law firm.

Before ruling on whether the case should be tried in the United States,
the judge asked both sides to provide more information to support their
arguments, the lawyers said.

The Indians filed a class action suit in U.S. against the giant oil
corporation, in November 1993, because of environmental damage wreaked
in the Amazon river basin during their drilling.

The case was taken up in US federal court in New York last February, and
Texaco, which had argued that the case should be heard in an Ecuadoran
court, has offered to settle the case out of court, the lawyers said two
weeks ago.

Texaco drilled for oil in eastern Ecuador between 1971 and 1992. The oil
fields are now owned by the state-run PetroEcuador. (Agence France
Presse, February 2, 2000)

TOBACCO LITIGATION: National Complaint Expanded; More Defendants Named
The multibillion-dollar complaint against the big five tobacco companies
has been expanded in a new First Amended Complaint, filed February 1 in
the U.S. District Court, Central District of California.

The original complaint, filed Aug. 13, 1999, challenges the Nov. 23,
1998, Master Settlement Agreement (MSA) for antitrust and constitutional
violations, in one of the largest lawsuits ever filed. The Amended
Complaint now asserts violations of the First Amendment, and the
Import/Export Clause of the U.S. Constitution.

In addition to corporate defendants Philip Morris, R.J. Reynolds, Brown
& Williamson, Lorrilard and Liggett Group, and politician defendants as
the Attorneys General for 47 states, lawyers from Bennett & Fairshter,
of Pasadena, Calif., named an additional 47 defendants who represent the
state agencies charged with the enforcement of the terms of the MSA and
Model Act. The complaint is filed on behalf of national and
international discount cigarette distributors.

This lawsuit will attempt to overturn the Qualifying Statute, Model Act,
and make important modifications to the MSA, and mandate that any
settlement proceeds be deposited into a national trust to pay for
health-care costs of persons who are suffering smoking-related

It will also address how the state agencies, Attorneys General, National
Association of Attorneys General, and the tobacco companies are engaging
in a collusive, monopolistic practice to limit and exclude competition
from the plaintiffs, in violation of the First Amendment, Import/Export
Clause, antitrust laws and the U.S. Constitution.

"There are several specific points about the agreement that should be
particularly disturbing to the public, and for competitors in this
market, besides acting above the law. First, the agreement does not have
any safeguards in place to prevent the tobacco companies from gouging
the public with higher prices and racking in huge additional profits at
their expense.

"The day after the November settlement, the tobacco companies increased
the price per pack an additional 45 cents, which they justified as cost
increases to pay for the settlement. But the settlement cost to them,
per pack, was only 18.8 cents! On Aug. 30, 1999, they increased prices
again by 18 cents per pack, using the same justification!

"Their profits in the past year are already up more than 100 percent.
And, there are no safeguards to prevent the tobacco companies from
increasing prices even further," said Matthew Fairshter, lead trial
attorney for the plaintiffs.

"The MSA is nothing more than a sweetheart deal between the states and
the tobacco companies to facilitate raising prices, the elimination of
price competition offered by plaintiffs, and the reaping of lucrative
monopolistic profits by the tobacco companies with little return to the
public to pay for the costs of smoking-related illnesses," said

To interview Fairshter, or for a copy of the complaint, e-mail
hoodv@get-serious.com or call 904/220-1915.

U.S. TRUST: Bank Pension Association Sues over Termination Fee
The Savings Banks Employees Retirement Association (SBERA) has sued
Boston-based United States Trust Corp. over an $82,478 administrative
termination fee related to a bank merger and the consequent withdrawal
of three retirement plans from SBERA. SBERA v. United States Trust Corp.
P.3. (Pension Fund Litigation Reporter, November 30, 1999)

WRITERS GUILD: Sprenger & Lang Investigates Employment Age Bias at WGAW
A law firm specializing in employment discrimination class-action suits
has begun investigating age-discrimination allegations made by Writers
Guild of America West members over 40.

WGAW members have recently received written requests from Washington,
D.C.-based Sprenger & Lang for information to determine whether a
class-action suit is viable, with the firm emphasizing that it has made
no decision yet. "We underscore the preliminary character of the
investigation," the letter said.

The investigation, according to attorney Maia Caplan, resulted from a
"considerable" number of writers contacting the firm following the 1998
publication of a WGA-commissioned report showing sharply decreased
employment opportunities for scribes over 40 compared with younger
writers. "The report showed that this might be something requiring some
attention," Caplan said.

The letter asks for information about discrimination in hiring for
writers over 40 during the last five years, adding that the forms
chiefly under examination are rejected and deterred applications for
employment by networks, studios and production companies, as well as
rejected and deterred requests for representation by talent agencies.

Sprenger & Lang said it would take the case on a contingency basis if it
decides to move ahead. The firm won settlements worth nearly $ 100
million in 1997 in age-discrimination class-action suits against First
Union Corp. and Ceridian Corp.

The WGAW is not involved in the investigation beyond assisting the firm
in obtaining anecdotal information, according to Larry DiTillio,
chairman of the guild's age awareness committee. "They need to get as
many stories as they can because they're looking for a pattern of
discrimination," he said.

DeTillio said networks, studios and production companies may be shifting
some of their focus from TV shows aimed at the 18-34 demographic due to
poor performance by many of those shows, but he added that
discrimination against hiring older writers has not abated. "In my
opinion, they don't want to work with someone who looks like their
father," he added.

The WGAW's board approved use of its membership list for the mailing but
stressed that it has not been asked to participate in or fund the effort
to gather evidence and added that it had not given the firm names and
addresses. "The only way that Sprenger & Lang can learn your name or
address as a result of this mailing is for you to contact the firm," the
guild said in an introduction to the letter. (Daily Variety, February
02, 2000)

* Courts Try to Have Test to Allow Dismissal of Bad Faith Ch 11 Filings
Troubled by the perception that certain debtors have sought Chapter 11
relief for purposes not consonant with general bankruptcy policy (for
example, as a litigation tactic in a two-party dispute), courts have
struggled to fashion a test to permit dismissal of a Chapter 11 case
because of the debtor's purported "bad faith" - even though under the
Bankruptcy Code, "good faith" is not an express precondition to a
debtor's eligibility for Chapter 11 relief. In adopting this approach,
the courts have reasoned that a debtor ought not be able to avail itself
of the equitable protections and remedies of Chapter 11 to achieve an
improper purpose. Rather, Chapter 11 should be reserved for those
debtors that are legitimately seeking to reorganize their business

Recently, in In re SGL Carbon Corp., 1999 WL 1268082, 3d Cir. Dec. 29,
1999, the Third Circuit addressed the issue of whether a Chapter 11
bankruptcy petition filed by a financially healthy company in the face
of potentially significant civil antitrust liability complies with the
requirements of the Bankruptcy Code. The Third Circuit held that based
on the facts and circumstances of this case, the debtor lacked a valid
reorganization purpose and, therefore, lacked good faith, making it
subject to dismissal.


The concept of "good faith" has permeated bankruptcy since its earliest
days. At different times, good faith has been relevant in myriad
contexts including, among others, the filing of a petition, confirmation
of a plan of reorganization, post-petition financing and the sale of
assets. In certain contexts, Congress has clearly and explicitly evinced
an intent to have a good faith requirement. In other situations some
courts have implicitly found such a requirement to exist even where
Congress has not explicitly required it. The Bankruptcy Code does not
explicitly require good faith for the filing of a voluntary petition
under a Chapter 11. It explicitly states how such a case may be filed,
who may file it and on what grounds a court may dismiss a Chapter 11
case, but in so doing the Bankruptcy Code does not mention good faith.

Section 1112(b) sets forth the circumstances under which a court may
convert a case filed under Chapter 11 to a case under Chapter 7, or may
dismiss the case for "cause" shown. Although bad faith in filing a
Chapter 11 petition is not included among the circumstances that
constitute cause for dismissal under @ 1112(b), there are myriad cases
that under different factual scenarios have held that a debtor's lack of
good faith in filing a Chapter 11 case can constitute cause for

A case often referred to as the seminal piece on the requirement of good
faith as a precondition to the filing of a petition under Chapter 11 is
found In re Victory Construction Co., Inc, 9 B.R. 549 (Bankr. C.D. Cal.
1981), vacated on other grounds, 37 B.R. 222 (B.A.P. 9th Cir. 1984). In
that case, the court reviewed the history of good faith under precursors
to the Bankruptcy Code and noted that at various times and in various
ways, good faith has been required as a prerequisite to filing and/or
confirmation of a plan. The court concluded that the concept of a good
faith requirement for Chapter 11 had its roots in equity. As a result,
given that bankruptcy courts are viewed to be courts of equity, a good
faith requirement for Chapter 11 filing should be "viewed as an implicit
prerequisite to the filing or continuation of a proceeding under Chapter
11 of the Code."

In In re Johns-Manville Corp., 36 B.R. 727 (Bankr. S.D.N.Y. 1984), the
debtor was subject to thousands of asbestos related lawsuits and sought
Chapter 11 relief. In determining whether the case should be dismissed
under @ 1112(b) the bankruptcy court observed:

A "principal goal" of the Bankruptcy Code is to provide "open access" to
the "bankruptcy process."... The rationale behind this "open access"
policy is to provide access to bankruptcy relief which is as "open" as
"access to the credit economy."... Thus, Congress intended that "there
should be no legal barrier to voluntary petitions." Id. at 736.

The court found that "Manville [was] a financially besieged enterprise
in desperate need of reorganization of its crushing real debt, both
present and future" and that the evidence did not indicate that Manville
abused the "jurisdictional integrity" of the court. Id. at 741.

The United States Court of Appeals for the Fourth, Sixth, Ninth and
Eleventh Circuits have implicitly followed the logic espoused in Victory
that Chapter 11 contains an implicit good faith filing requirement and,
in each instance, have upheld the dismissal of a Chapter 11 petition as
a bad faith filing. For example, in In re Marsch, the Ninth Circuit
upheld an individual's Chapter 11 petition as a bad faith filing where
the petition was filed to prevent entry of a judgment against a debtor
who had sufficient assets to satisfy the judgment or to post an
appellate bond. Although the Bankruptcy Code does not require cases be
filed in good faith, in the view of the Ninth Circuit, the "robust
showing of improper purpose" in this case constituted cause for
dismissal of the case as a bad faith filing and justified the imposition
of sanctions against the debtor.

(See Trident Assocs. Ltd. Partnership v. Metropolitan Life Ins. Co. (In
re Trident Assocs. Ltd. Partnership), 52 F3d 127, 130 (6th Cir. 1995);
Marsch v. Marsch (In re Marsch), 36 F3d 825, 828 (9th Cir. 1994);
Carolin Corp. v. Miller, 886 F2d 693, 698 (4th Cir. 1989); Phoenix
Piccadilly Ltd. v. Life Ins. Co. (In re Phoenix Piccadilly Ltd.), 849
F2d 1393, 1394 (11th Cir. 1988). Also see Marsch v. Marsch (In re
Marsch), 36 F3d 825, 828-29 (9th Cir. 1994).

                             SGL Carbon

SGL Carbon Corp., produced graphite electrodes used by steel
manufacturers to generate heat to melt steel in electric arc furnaces.
After the federal government began an investigation into alleged
price-fixing by manufacturers of graphite electrodes, various steel
producers filed class action suits against the debtor and several other
graphite electrode manufacturers. Purchasers of graphite electrodes
filed additional suits, and a separate action was brought in Canada for
violation of Canadian antitrust laws. The antitrust plaintiffs sought
hundreds of millions of dollars in damages, subject to trebling.

After the debtor filed a Chapter 11 petition in Dec. 1998, a creditors'
committee was formed consisting of eight plaintiffs in the pending
antitrust litigation and one trade creditor. The committee filed a
motion to dismiss the debtor's Chapter 11 petition, contending that the
debtor was financially sound and did not need Chapter 11 protection. In
the committee's view, the filing was made in bad faith and was merely a
litigation tactic.

The committee argued that the debtor was not experiencing financial
difficulty and was neither in default nor overdue on any of its
financial obligations. It contended that a debtor "may not file a
Chapter 11 petition in response to litigation, unless the debtor is
currently facing 'actual financial distress, as opposed to only the
speculative possibility of an eventual large judgment.'" In other words,
the committee argued that a debtor may only file for Chapter 11 if a
judgment has been entered that renders it insolvent or unable to pay its
debts as they come due.

In response, the debtor admitted that it was financially healthy when it
commenced its Chapter 11 case, but argued that the pending antitrust
litigation threatened its continued business in several ways. Not only
did the debtor lack the means to pay the hundreds of millions of dollars
in damage claims, but the litigation had already resulted in the loss of
customers, the deterioration of employee morale and the diversion of
management from the debtor's daily business operations. Although the
debtor contended that the Bankruptcy Code does not require the
establishment of good faith for the filing of a Chapter 11 petition, it
asserted that its petition was filed in good faith nonetheless and
should not be dismissed, even if the court found that good faith is a
prerequisite for filing a Chapter 11 petition.

                        Good Faith Filing

The district court assumed, for purposes of its decision, that @ 1112(b)
implies a good faith requirement for filing a Chapter 11 case. The
district court stated that "a Chapter 11 petition is filed in good faith
if there is 'an arguable relation between the proposed reorganization
and the purposes of Chapter 11.'" The district court observed that the
purpose of Chapter 11, as expressed by Congress, is "to restructure a
business's finances so that it may continue to operate, provide its
employees with jobs, pay its creditors and produce a return for its
stockholders." Id.

(See In re SGL Carbon Corp, 233 B.R. 285, 288 (D. Del. 1999) (quoting In
re The Bible Speaks, 65 B.R. 415, 425 (Bankr. D. Mass. 1986)), rev'd
1999 WL 1268082 (3d Cir. Dec. 29, 1999)).

Applying this standard to examine the debtor's good faith, the district
court rejected the committee's argument that good faith in filing can be
found only if the debtor is experiencing financial difficulty. The court
pointed out that although a debtor's insolvency or the inability to pay
its debts as they mature was required to commence a bankruptcy case
under the former Bankruptcy Act, the current Bankruptcy Code omits
financial standards for filing a voluntary petition for relief.

This change, the court observed, was intended to promote successful
reorganizations by encouraging debtors to file before they are beyond
rescue. Indeed, the district court stated that it could find no support
in the law for the committee's contention that insolvency is a
prerequisite for a good faith filing. Similarly, the court rejected the
committee's argument that a Chapter 11 filing is in good faith only if
the debtor is experiencing financial difficulty.

The district court distinguished SGL from debtors in cases that were
properly dismissed. In those cases, the district court noted that the
debtors had no realistic possibility for reorganization because they
were one-person businesses with no legitimate assets or self-sufficient
operations, or they had filed their petitions solely to frustrate a
litigation deadline or avoid jurisdiction. In SGL's case, the district
court found that SGL was a viable and legitimate company with
significant assets, substantial operations and revenue and numerous
employees and creditors who were threatened by the disruptions and
potential liability of the antitrust litigation.

Observing that the potential liability facing the debtor could force it
out of business, the district court stated that the policies and
purposes of Chapter 11 encourage early filing in order to increase the
likelihood of successful reorganization. Thus, the district court
refused to "allow the Debtor to wait idly by for impending financial and
operational ruin, when the Debtor can take action now to avoid such a
consequence." Id. at 291.

The district court concluded that the debtor did not file its Chapter 11
case to avoid resolution of the pending litigation while allowing the
debtor to maintain its business operations. Thus, the court found that
the debtor's Chapter 11 filing was consistent with, rather than an abuse
of, the purposes of the Bankruptcy Code. Accordingly, the court
concluded that the Chapter 11 filing was not in bad faith and should not
be dismissed.

                          Financial Health

The Third Circuit noted as an initial matter that @ 1112(b) imposes a
good faith requirement on Chapter 11 petitions. The court acknowledged
that such a legal standard required a fact intensive inquiry to
determine whether SGL's Chapter 11 petition fell along "the spectrum
ranging from the clearly acceptable to the patently abusive."

The Third Circuit rejected the district court's factual finding that the
antitrust litigation against the debtor posed a serious threat to the
debtor's continued operations. To the contrary, the court found that
"all the evidence shows that management repeatedly asserted the company
was financially healthy at the time of the filing." In the court's view,
any fear on the company's part that the antitrust litigation would cause
financial and operational ruin was premature. (See In re SGL Corp, 1999
WL 1268082 (3d Cir. Dec. 29, 1999) at 7).

Critical to the Third Circuit's holding was the testimony of one of
SGL's officers and its chairman that the antitrust litigation would not
have a material negative impact on SGL's operations nor would such
litigation cause a distraction to the company as a whole. Indeed, the
court observed that one of the company's officers had testified at his
deposition that the sole reason for filing Chapter 11 was to increase
pressure on the plaintiffs to settle.

Moreover, the Third Circuit found that there was no evidence that a
significant antitrust judgment could force SGL out of business. The
Third Circuit found that SGL's parent entity had already booked a
substantial reserve to cover any potential liability arising out of the
antitrust litigation.

The Third Circuit stated that while the debtor correctly argued that the
Bankruptcy Code does not require specific evidence of insolvency for a
voluntary Chapter 11 filing, it did not cite any case that held that
financially healthy companies could not be subject to dismissal for
"cause." The Third Circuit explicitly pointed out that it was not
holding "that a company cannot file a valid Chapter 11 petition until
after a massive judgment has been entered against it." Id. at *8.
However, the attenuated possibility of a future threat to a company
arising out of litigation was "not sufficient to establish the good
faith of its [Chapter 11] petition." Id. at *9.

The court also found that there was no evidence that SGL had difficulty
meeting its debts as they matured, that it had any defaulted debts or
that it had difficulty raising money. Moreover, press releases issued by
the company after the Chapter 11 filing indicated SGL was experiencing
healthy and growing success and denied that the antitrust litigation was
materially interfering with SGL's operations or customer relationships.

Additionally, the court noted that the SGL plan of reorganization
provided for payment in full in cash to all unsecured creditors other
than the antitrust judgment creditors. As the court noted, antitrust
judgment creditors would be required to accept limited time credits to
purchase SGL products. This tactic suggested to the Third Circuit that
the SGL Chapter 11 petition "was not filed to reorganize the company but
rather to put pressure on [the] antitrust plaintiffs to accept the
company's settlement terms." Id. at *11. In support of this finding, the
court referred to repeated company acknowledgments that the Chapter 11
petition "was filed solely to gain tactical litigation advantages." Id.
at *11.

Further, the Third Circuit distinguished this case from other cases
where debtor's were allowed to file Chapter 11 petitions when faced with
the prospect of a significant litigation judgment. The court noted,
however, that in other properly filed Chapter 11 cases the debtor was
already experiencing significant adverse effects from the litigation.
The court also noted that in the Johns-Manville case the bankruptcy
court observed that there were "strategical motivations" underlying the
creditors' committee's motion to dismiss that case, i.e., the committee
in that case waited 16 months after the Chapter 11 filing to file their
dismissal motion when it became apparent the committee could not
negotiate a consensual plan with the debtor.

In the SGL case, the Third Circuit noted that committee was not
seemingly acting out of "strategic motivations" given the committee
filed its motion soon after the SGL Chapter 11 filing.

                          Big Suits Hard to Settle

Finally, the Third Circuit acknowledged that it is "increasingly
difficult to settle large scale litigation" and that companies facing
massive potential liability and litigation costs are forced to consider
and seek ways to shortcut such litigation. As pointed out by the Third
Circuit, SGL's action in filing its Chapter 11 petition grew out of the
understandable desire to rapidly conclude the significant antitrust
litigation that it faced.

Nevertheless, the Third Circuit noted the temptation to use Chapter 11
to shortcut litigation as a tactical matter created an abuse that "must
be guarded against to protect the integrity of the bankruptcy system and
the rights of all involved in such proceedings." Id. at *14. As a
result, the Third Circuit concluded that the SGL Chapter 11 petition did
not serve a valid reorganization purpose and, therefore, remanded the
case to the district court to dismiss SGL's Chapter 11 petition.


The decisions of the district court and the Third Circuit present
radically different views of the facts of this case. The district court
viewed the antitrust litigation to be a significant potential threat to
the company's long term viability. Conversely, the Third Circuit found
the record to be completely devoid of any evidence that the antitrust
litigation had or could threaten the company's financial stability or
its operations within the near future.

The difference in views of the district court and Third Circuit
demonstrates the elusive and difficult task in determining whether the
jurisdictional integrity of the bankruptcy court has been compromised
through a truly "bad faith" filing. Unfortunately, the manner in which
the Third Circuit posited and addressed the issue before it has created
great uncertainty for those considering Chapter 11 relief. That is, the
Third Circuit identified the issue for review as whether a "financially
healthy company" could file for Chapter 11 in the face of potentially
significant antitrust litigation. Left unanswered by the court is what
constitutes a "financially healthy company" and at what moment it would
have been appropriate for SGL to have commenced a Chapter 11 case.

Despite its statements to the contrary, the Third Circuit's reference to
"financially healthy company" seemingly imposes a solvency test on
entities that are seeking to avail themselves of Chapter 11 protection.
The decision also raises the issue as to whether under any circumstance
a "financially healthy" entity can avail itself of Chapter 11 protection
for the stated purpose of taking advantage of a particular Bankruptcy
Code provision.

Under the Third Circuit's rationale, it is possible that the Third
Circuit would have reversed a recent Delaware bankruptcy court decision
rendered in In re PPI Enterprises where the bankruptcy court refused to
dismiss that case as a bad faith Chapter 11 filing. In PPI, the debtor
had no ongoing business, only one "so-called" employee, few creditors,
and a single asset. Its landlord asserted that PPI's Chapter 11 petition
should be dismissed as a bad faith filing because the debtor did not
intend to reorganize; instead, its sole purpose for filing was to cap
the landlord's damages claim by using @ 502(b)(6) of the Bankruptcy
Code. (See In re PPI Enterprises (U.S.) Inc, 228 B.R. 339, 345 (Bankr.
D. Del. 1998).

Rejecting this argument, the Bankruptcy Court held that even if the case
was filed for the sole purpose of limiting the landlord's lease
rejection damages claim, it did not constitute a bad faith filing, nor
was the plan proposed in bad faith, because the debtor used the relevant
Bankruptcy Code provision for its intended purpose - to limit the
landlord's claims. See 11 USC @ 502(b)(6).

Some may criticize the SGL decision as yet another example of
impermissible judicial legislation - that is, the court imposed a good
faith and insolvency test under the Bankruptcy Code where Congress
plainly saw no need for such a requirement. Indeed, one could
legitimately argue that the Third Circuit should have upheld the
District Court's decision to deny the committee's motion to dismiss the
SGL Chapter 11 case, since Congress had already built in explicit
protective features into the Bankruptcy Code as to which the
committee/litigants had full and proper recourse.

For example, the committee/litigants could have obtained relief from the
automatic stay under @ 362 of the Bankruptcy Code to proceed with the
antitrust litigation. Moreover, the committee/litigants could have
attacked the debtor's Chapter 11 plan as having been filed in bad faith
and, therefore, such a plan would not have been confirmed. SEE 11 USC @

Those counseling debtors based on facts similar to SGL should be mindful
of the impact that the pending litigation has on the company's financial
viability and operations and how that information is conveyed in press
releases and statements made by the company's officers and
representatives. Clearly, statements by the debtor either shortly before
the Chapter 11 filing or after it that the litigation at issue will have
no impact on the company's viability and that the filing is meant to
pressure the debtor's adversaries into settling the litigation at issue
may weigh heavily in the court's decision whether to grant a motion to
dismiss the debtor's Chapter 11 petition. The moral being: Pre- and
post-Chapter 11 overly optimistic hype about the viability of one's
business and the impact of significant litigation against the company
may come back to haunt you. (New York Law Journal, January 20, 2000)


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