CAR_Public/000204.MBX                C L A S S   A C T I O N   R E P O R T E R

               Friday, February 4, 2000, Vol. 2, No. 25

                             Headlines

ANALYTICAL SURVEYS: Milberg Weiss Files Securities Lawsuit in IN
AOL: Charged of Monopolizing Access to the Internet; Customers Complain
ARIZONA STATE: Suit Re IDEA Compliance Does’t Need Joinder of Districts
CNA FINANCIAL: Retirees' Lifetime Health Benefits Suit Okayed in IL
CRITICAL THEORY: Boalt Hall Law Students Sue for Valuable Time Wasted

DOUBLECLICK INC: Online Privacy Dust-Up May Draw Regulators' Eye
FEN-PHEN: AHP Seeks to Block Chairman's Testimony
HMO: Aetna Is Restating Earnings for 7 Quarters at SEC’s Request
LOPEZ, BIZKIT: Sued by Middle-Aged Rockers for "Making Rock Suck"
MONARCH DENTAL: Announces Agreement to Settle Securities Lawsuit

QUALITY DINING: Emerges from Securities Lawsuit Filed in Indiana-------
RAVENSWOOD ELEMENTARY: Settlement Ends 3 Year ADA Case Re CA Students
SHIGELLA OUTBREAK: Marler Clark Sues Senior Felix Gourmet Mexican Foods
SYKES ENTERPRISES: Burt & Pucillo Files Securities Lawsuit in FL
SYKES ENTERPRISES: Cohen, Milstein Files Securities Lawsuit in FL

SYKES ENTERPRISES: Milberg Weiss Files Securities Lawsuit in FL
SYKES ENTERPRISES: Schiffrin & Barroway Files Securities Suit in FL
SYKES ENTERPRISES: Shepherd & Geller Files Securities Lawsuit in FL
THE LEVIGNES: Owners Of Mortuary Services To Face Trial Over Embalmings
TOBACCO LITIGATION: Industry to Continue Fight to Overturn FL Gag Order

TOBACCO LITIGATION: Smokers Testify Posthumously Wrapping up Case

* Consequences of Legal Actions: Tax and Attorney’s Fees
* Mortgage Insurance Industry Plans a PR Counterattack

                             *********

ANALYTICAL SURVEYS: Milberg Weiss Files Securities Lawsuit in IN
----------------------------------------------------------------
Milberg Weiss Bershad Hynes & Lerach LLP filed on February 2, 2000 a
class action lawsuit in the United States District Court for the
District of Indiana on behalf of all persons who purchased the common
stock of Analytical Surveys, Inc. between October 25, 1999, and January
31, 2000, inclusive.

The complaint charges Analytical Surveys and certain of its senior
officers with violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The
complaint alleges that defendants issued materially false and misleading
financial statements during the Class Period. In particular, the
complaint alleges that the Company's financial statements violated GAAP
and other financial reporting standards by materially overstating the
Company's revenues, income and earnings.

Contact: at Milberg Weiss Bershad Hynes & Lerach, Steven G. Schulman or
Samuel H. Rudman at One Pennsylvania Plaza, 49th Floor, New York, New
York 10119-0165, by telephone 1-800-320-5081 or via e-mail:
endfraud@mwbhlny.com or visit website at http://www.milberg.com


AOL: Charged of Monopolizing Access to the Internet; Customers Complain
-----------------------------------------------------------------------
According to The San Francisco Chronicle of February 3, 2000, legal
eagles on both coasts are taking aim at America Online, after scores of
frustrated customers complained that AOL's latest software blocked them
from accessing the Web through rival Internet service providers.

First, attorneys sued AOL in federal court in Alexandria, Va., near
AOL's Dulles, Va., headquarters, claiming the company violated both
state and federal laws and seeking as much as $8 billion in damages on
behalf of customers everywhere. AOL is the largest Internet service
provider with 21 million users.

Critics say the problem occurs if users select AOL 5.0 as their
"default" Internet program during installation. Then, some users
complain, they no longer can use their other Internet access programs.

AOL estimates 8 million users have installed the latest software,
Version 5.0, which was released in the fall. By some estimates, 1 in 12
AOL users also has another Internet account, and could potentially be
affected.

"It is an attempt to monopolize access to the Internet," charged Lloyd
Gathings, a Birmingham, Ala., lawyer involved in the suit. "It causes
tremendous technical problems (for AOL users)."

Now a San Francisco law firm, Girard & Green, is considering filing a
similar lawsuit in a California state court on behalf of a Berkeley
resident, who had to reformat his hard drive to use another Internet
service provider after installing the AOL program.

Attorney Dan Girard said the Berkeley resident is checking his system to
make sure the AOL software was responsible for the problem. But even if
it wasn't, Girard said his firm might sue AOL on behalf of other
Californians who have complained the program crippled their alternative
Internet accounts. Girard could then ask a judge to deem the suit a
class-action case, representing everyone affected. "It is likely there
will be multiple cases," Girard said, noting that consumer laws vary
from state to state.

But America Online spokesman Rich D'Amato said such lawsuits have "no
basis in merit or fact." D'Amato said America Online's latest software
explicitly asks customers if they want to make AOL their default
Internet software when they install the program. And he said it's easy
for customers to change the settings back. "We've had only an
infinitesimal amount of claims," D'Amato said, insisting that users
should still be able to use their other Net accounts after installing
AOL 5.0.

But dozens of angry users have complained about the program on online
message boards, including those on AOL's own service, said David Cassel,
an Oakland resident who publishes the AOL Watch newsletter. Windows
Magazine's Web site even posed the question: "AOL 5.0: The Upgrade of
Death?"

And Internet service providers, like Earthlink and Prodigy, have
publicly criticized AOL. Earthlink spokesman Kurt Rahn said his
company's customer support workers have fielded hundreds, if not
thousands, of calls from users who had trouble after installing the AOL
software. "It's a fairly wide variety of stuff," Rahn said, "not one
thing you can point to."

                    Avoiding Net Trouble

Some customers have reported having trouble using their other Internet
accounts after installing America Online's latest software, version 5.0.
Here's how to avoid problems:

If you're installing the upgrade, choose "no" when the program asks you
whether you want to make AOL your default software. (Critics say that if
you check "yes," the program will change the settings on your computer
in such a way that it may be more difficult to use other programs.
Whenever you try to access the Web, your PC will automatically start
running the AOL program.)

If you've already installed AOL 5.0, there is an easy way to change the
settings back, according to AOL spokesman Rich D'Amato. In Windows 95 or
98, go to the task bar, move your mouse over the settings option and
click on the control panel. Select Internet options, then programs.
Check the box next to the option "Internet Explorer should check to see
if it is the default browser." Then restart your PC. A box should pop up
asking whether to make Internet Explorer your default browser. Check
yes.

St. Louis Post-Dispatch reports on February 3 that online discussion
groups - including some on AOL's own service - show scores of complaints
by customers about problems they encountered after AOL's latest software
upgrade. According to the report, AOL has said previously that
complaints about interference by its software were overblown and the
result of customers not understanding that if they click "yes" during
installation to allow AOL to become their default Internet browser, AOL
largely takes over all the online functions.


BIShHOP ESTATE: 9th Cir Tosses Action Against Ex-Trustees In Hawaii
------------------------------------------------------------------
The Ninth Circuit U.S. Court of Appeals has thrown out a class action
against ousted trustees of Hawaii's $10 billion Bishop Estate.

Led by plaintiff Elizabeth Burgert -- a Hilo woman with two
grandchildren attending the Kamehameha School, which the trust runs for
native Hawaiians -- the suit alleged that the five trustees dissipated
fund assets in violation of the Native Hawaiian Education Act and the
Native Hawaiian Health Care Act.

A district court dismissed the suit on the ground that those acts do not
create a right of action for private plaintiffs.

The Ninth Circuit agreed in a Jan. 26 ruling: "There is no language in
the text of either statute expressing an intent to confer rights that
can be judicially enforced by individual Native Hawaiians," wrote Judge
William Fletcher in Burgert v. Bishop Trust, 98-16238. "We find no
support in these schemes for the idea that Congress intended private
rights of action against any recipients of the federal funds under these
statutes."

One of the world's richest charitable trusts, the Kamehameha
Schools-Bishop Trust was established by the last direct descendent of
King Kamehameha I, Princess Bernice Pauahi Bishop.

A major force in Hawaiian politics, the trust was rocked by a series of
expos s that led to the criminal indictments of two trustees as part of
a continuing investigation by the state attorney general.

Most recently, a state judge capped future trustees' annual salaries --
which were approaching $1 million apiece -- at $120,000.

The class action defense was mounted by lawyers at Honolulu's
McCorriston Miho Miller Mukai. The plaintiffs were represented by Joseph
Cotchett, at Burlingame's Cotchett, Pitre & Simon.

Initial reactions by the defendant trustees focused on Cotchett and his
firms' California address, dismissing the suit as an "opportunistic
ploy" by - - as then-trustee Lokelani Lindsey put it --
"publicity-hungry carpetbaggers."

The Jan. 26 opinion notes that the allegations of misconduct against the
trustees are being pursued in other forums. (The Recorder, February 3,
2000)


ARIZONA STATE: Suit Re IDEA Compliance Does’t Need Joinder of Districts
-----------------------------------------------------------------------
A class action against state entities arising from their alleged failure
to implement an IDEA-compliant complaint resolution procedure can
proceed without joinder of individual districts, a district court ruled.

The parents, representing a class of all school-aged students with known
or suspected disabilities and their parents, guardians and/or
representatives, alleged that the state of Arizona, through its
department of education, failed to implement an adequate complaint
resolution procedure in compliance with the IDEA. They charged that
while the DOE's complaint resolution procedure facially satisfied the
state and federal requirements, the system as implemented failed to meet
those requirements and assure FAPE. More specifically, they alleged that
complainants were not allowed the opportunity to submit additional
information before the DOE reached a final conclusion, failed to ensure
identified violations were corrected in a timely manner and failed to
award compensatory education to students against whom violations were
found to exist.

The DOE contended that the four individual school districts where the
named plaintiffs attended school were parties who should be joined under
Fed.R.Civ.P. 19(a) or, alternatively, that the parents should be made to
join the school districts as defendants. The DOE argued that under the
rule, complete relief could not be granted in the absence of the
individual districts, since any order directing them to force districts
to comply with the law would require an additional order requiring
compliance by the districts themselves. The parents asserted the
litigation challenged the DOE's supervisory authority over the LEAs,
regardless of any school district responsibility.

Because the named defendants bore ultimate responsibility for assuring
compliance with IDEA requirements, the district court ruled the
districts did not have to be joined in order to accord complete relief
among the existing parties. The court further found any interests held
by the districts would not be impaired or impeded by case adjudication
in their absence. The court rejected the DOE's argument that its
responsibilities under the IDEA were so intertwined with district
responsibilities that the court would be unable to provide a meaningful
remedy. Any relief granted would not alter the existing duties of the
various districts. The court did not reach the parents' alternate
argument that joinder was not proper because class actions are generally
exempt from the requirements of Rule 19(a). Dunajski by Dunajski v.
Keegan, 31 IDELR 76, 99-0353, [D. Ariz. 1999] (Special Education Law
Monthly, January 31, 2000)


CNA FINANCIAL: Retirees' Lifetime Health Benefits Suit Okayed in IL
-------------------------------------------------------------------
Early retirees have successfully blocked a motion to dismiss their
breach of contract suit against CNA Financial Corp. based on the
company's termination of a "lifetime" health benefit. Vallone et al. v.
CNA Financial Corp. et al., No. 98-CV-7108 (ND IL, Nov. 10, 1999).

CNA claimed the plaintiffs' failure to exhaust administrative remedies
was fatal to their action. However, in denying the company's motion to
dismiss, Chicago District Judge James B. Moran held that such exhaustion
would have been futile because CNA had inexorably decided to terminate
the benefit.

The CNA retirement plan required plan participants with benefits
disputes to exhaust administrative remedies, i.e., take all internal
appeals, before filing suit in the courts. Judge Moran noted that
appropriate Seventh Circuit U.S. Court of Appeals case law waives the
exhaustion requirements if such appeals are futile.

The plaintiffs, headed by Michael J. Vallone, were all employed by the
Continental Insurance Co. when they opted to take early retirement in
1991. One of the retirement incentives was a health benefit subsidy
known as the Retiree Health Care Allowance. The subsidy was used to
off-set the cost of the retirees' health care benefits, and the
plaintiffs say the benefit was offered for life.

Vallone asserted that he and more than 500 Continental employees took
the early retirement package based in large part on the health benefits
subsidy. In 1995, Continental merged with CNA and two years later the
companies' pension plans merged. In August 1998, the merged plan
informed the Continental retirees that the health benefit subsidy was
being terminated.

Vallone and numerous other early retirees complained either verbally or
in writing to the CNA benefits committee, which replied that the
benefits were terminated and that no appeal was possible. Vallone and
several others followed with the suit at bar, a proposed class action,
alleging that CNA breached the contract terms of the Continental early
retirement offering by cutting the subsidy.

CNA replied with a motion to dismiss the suit for all those who made
oral protests to the subsidy termination. The company asserted that
early retirement materials referred participants to the documents
governing the Continental pension plan. Those documents, the company
said, clearly outlined a written administrative appeals process for
disputed benefits.

Thus, CNA argued, the plaintiffs who made oral protests had failed to
exhaust the required administrative remedies under the pension plan.

Judge Moran disagreed, noting that plaintiffs who had filed written
protests were told that no appeal existed for early retirement benefits
disputes, effectively sealing the door to an appeals process and making
any such requests to be heard futile. (Pension Fund Litigation Reporter,
December 13, 1999)


CRITICAL THEORY: Boalt Hall Law Students Sue for Valuable Time Wasted
---------------------------------------------------------------------
The Boalt Hall Student Association announced on February 2 that it was
filing a class action on behalf of all law students nationwide against
critical theory and professors associated with the discredited legal
ideology on the grounds that the subject wasted valuable student time
which could have been better spent embellishing resumes, interviewing
with Palo Alto law firms and day trading Internet stocks.

"What a crock," said a Boalt student who asked to remain anonymous. "Why
should we deconstruct statutes and cases, when we could be comparing
firm investment pools and bonus structures online with Greedy
Associates?"

Dean Herma Hill Kay said in a prepared statement that while she
"understood" the frustrations many students felt in studying critical
theory, she was nonetheless dismayed at student demands that the law
school be renamed for Ayn Rand and was certain that it would cause
alumni objections. (The Recorder, February 2, 2000)


DOUBLECLICK INC: Online Privacy Dust-Up May Draw Regulators' Eye
----------------------------------------------------------------
Debates over online privacy have been rekindled with recent reports that
Internet ad company DoubleClick Inc. is tracking Web users as they surf.
That renewed interest may move the issue closer to resolution than it
was in November, when the Commerce Department and Federal Trade
Commission held an all-day workshop examining the legal and ethical
implications of online profiling.

Several public interest groups say they will file a complaint asking the
FTC to stop DoubleClick's new Abacus Online Alliance, a service that
tracks consumers not just by anonymous digital dog tags called
"cookies," but also by name, street address and purchasing habits. The
issue is expected to come up at the first meeting of the FTC's Advisory
Committee on Online Access and Security.

DoubleClick executives reacted swiftly to accusations that its marketing
techniques invade people's privacy. Senior vice president Jonathan
Shapiro says his company has only one goal in recording which Web pages
and Net ads consumers see. "This is about getting the right ad to the
right person at the right time," he says. "It's important for users to
understand that the only time DoubleClick will actually have personally
identifiable information attached to a browser is when the user has
volunteered (it) and been given notice and choice."

In fact, Shapiro adds, only "a dozen or so" sites out of the 11,500 to
which DoubleClick sends advertising are actually tracking users. At the
same time, DoubleClick executives acknowledge they hope that as many
clients as possible will sign up.

Says Privacy Journal publisher Robert Smith: "This is doublespeak from
DoubleClick." He objects to the company's definition of "notice and
choice."

Affiliate sites that help DoubleClick identify surfers by name must post
a written notice explaining how the tracking works, Shapiro says. They
also must explain that the information will be used to target ads to
them, based on their purchasing habits and visits to any of the other
DoubleClick sites, he says.

In most cases, Shapiro adds, advertisers will post that notice in the
very place people hand out their personal information -- at an online
order form or registration page, for instance. Shapiro points to
DoubleClick's NetDeals.com contest site as an example.

What irks DoubleClick's critics is that consumers may be tracked even if
they don't see the notices. "The policy has everything that's not of
interest to people and nothing that is," Smith says.

Consumers concerned about privacy would like DoubleClick and its
NetDeals site to tell them that they won't pass that information to
others, Smith says. Indeed, DoubleClick's policy says the information
won't be shared. Yet the NetDeals site says nothing about how that
information might be shared in the future, Smith says.

He's further troubled by these words in NetDeals' privacy notice: "We
may change this Privacy Policy from time to time. If we do, we will post
any changes, so check back here periodically."

Smith says that is not enough. "They have undertaken a contract with the
customer. . . . They can't change it without actively notifying the
customer."

There are still more hurdles for the company. Staffers in the office of
Sen. Robert Torricelli, D-N.J., say their boss will introduce
legislation that would require companies that use cookies to get
consumers' explicit consent before tracking their movements.

As has been reported in the CAR, a California woman has filed suit
against DoubleClick on behalf of consumers who are now being tracked by
name and address. The suit charges that DoubleClick's previous
statements suggested the company would not track consumers.

DoubleClick's Shapiro declined to comment on the suit directly,
referring instead to his company's statement regarding the class action.
"DoubleClick is absolutely committed to protecting the privacy of all
Internet users, and to providing consumers with notice and choice,"
officials wrote after the suit was filed. (USA Today, February 2, 2000)


FEN-PHEN: AHP Seeks to Block Chairman's Testimony
-------------------------------------------------
(159 N.J.L.J. 389)
Buoyed by a Texas court precedent limiting the testimony that plaintiffs
can elicit from chairmen of a corporation they sue, American Home
Products is trying to close the door on the remaining litigation over
its diet drug fen-phen.

The Madison, N.J.-based company succeeded in blocking temporarily the
depositions of chairman and CEO Jack Stafford and Dr. Bruce Burlington,
AHP's Food and Drug Administration expert, which were scheduled for
January 25 in Kerr v. Wyeth-Ayerst Laboratories, 98-07-02570E, a suit on
behalf of two Houston women, Berle Dee Kerr and Dora Barton, who claim
to have developed valvular heart disorders from using the diet drug.
Trial has been set for March before District Court Judge Frederick
Edwards, in Conroe, Texas.

The depositions were to have taken place in Madison but on January 25,
an appellate court in Beaumont, Texas, stayed the depositions while it
reviewed a mandamus action filed by AHP's attorney, who argues that the
scope of the deposition of Stafford is too broad.

On Jan. 19, the Texas Supreme Court held, in In re Alcatel USA Inc., No.
98-1243, that depositions from a corporate chairman could not be taken
unless the chairman had "unique or superior knowledge that was
unavailable through less intrusive means." In that case, the plaintiff
sought to depose Samsung Electronics Co.'s present chairman and a former
chairman about Samsung's alleged attempt to steal trade secrets.

AHP's lawyer, Paul Stallings, a partner with Houston's Benson & Elkins,
argues that Stafford does not have the unique or superior knowledge that
Alcatel requires. "These attorneys have tried fen-phen cases before and
they have tried them in Houston. Mr. Stafford has never been called,"
Stallings says. "Suddenly now, they want to plow over old ground with
the CEO of the company."

But the plaintiffs' lawyer in Kerr, George Fleming, says that Stafford,
who has been the chairman of AHP since 1986, "has knowledge that is
important to getting to the truth of the case.

"Rather than try to hide the truth as to why he continued to sell a
dangerous drug when his company knew it was causing injury, we believe
Mr. Stafford should take responsibility and answer the questions of
fen-phen victims," says Fleming, a partner with Houston's Fleming &
Associates.

The pharmaceutical company manufactured Redux and Pondimin, half of the
diet drug combination fen-phen, which were removed from the market in
1997 when it was revealed they caused valvular heart disease and
pulmonary hypertension.

Last October, AHP agreed to a $4.85 billion national settlement of the
claims of 5.8 million former users of the diet drug. But some unhappy
plaintiffs opted out of the settlement and brought individual claims.

Peter Bleakley, a partner with Washington, D.C.'s Arnold & Porter who
represented AHP in the New Jersey class-action suit, Vadino v. American
Home Products, MID-L-425, says if judges allowed chairmen like Stafford
to be deposed in these situations, it could open them up to many
depositions down the road.

"It is a matter of deciding when the door has to be closed," Bleakley
says. "For attorneys to be permitted to depose chairmen in these cases
could really open the door for them to be questioned in every products
liability suit to find out if they put profits ahead of safety."

Stafford has never given testimony in a fen-phen case, but the company
lost two other recent suits in which he did testify. One was Perez v.
Wyeth Laboratories Inc., A-16-98, in which New Jersey's Supreme Court
held that Wyeth Laboratories, a division of AHP, can be sued because a
massive advertising campaign in the early 1990s failed to warn women of
any dangers or side effects associated with the Norplant contraceptive.

In October 1999 he testified in an age discrimination case, Jablonski v.
American Home Products, MRS-L-1916, in Morris County. There, a
70-year-old former AHP executive was awarded $1.91 million by a jury who
found he was fired because of his age.

The Madison company dealt with other fen-phen-related problems as a
former marketing partner, Interneuron Pharmaceuticals Inc. of Lexington,
Mass., sued AHP for withholding data on the potential health risks
linked to fen- phen.

Like AHP, Interneuron, which had licensed Redux to AHP before Pondimin
was recalled in 1997, has also been sued by former fen-phen users.
Interneuron's attorney is David Boies, a partner with Boies, Schiller &
Flexner of Armonk, N.Y., who represented the federal government in its
antitrust suit against Microsoft Corp. (New Jersey Law Journal January
31, 2000)


HMO: Aetna Is Restating Earnings for 7 Quarters at SEC’s Request
----------------------------------------------------------------
Aetna, the nation's biggest health insurer, said that it was restating
earnings for seven quarters of 1998 and 1999 at the request of the
Securities and Exchange Commission. But the commission evidently did not
object to accounting arrangements that softened the impact on earnings
after Aetna bought Prudential Healthcare last summer.

Analysts said the announcement lifted one of several clouds that had
depressed Aetna stock, which has declined almost 40 percent the last 12
months. On the New York Stock Exchange, Aetna rose $3.375, or more than
6 percent, to $56.625 on the day the announcement was made.

After reviewing a string of acquisitions and sales by Aetna since 1996,
the S.E.C. asked the company to change its accounting for the 1997 sale
of its mental health managed care unit to Magellan Health Services. The
change will reduce after-tax earnings this year by $39 million, or about
25 cents a share -- about 4 percent of projected earnings per share.
"This removes one cloud, but there are others," said Joseph A. France,
an analyst at Credit Suisse First Boston.

Analysts said they were still waiting for signs of a turnaround at the
Prudential Healthcare unit, which was expected to lose $175 million in
1999, according to a company projection last fall. Joyce Oberdorf, a
spokeswoman for Aetna, said she could not disclose the latest Prudential
results before the company reported fourth-quarter earnings on February
8.

Aetna is also facing uncertainty over the eventual outcome of several
dozen lawsuits that have been filed by customers, doctors and lawyers
who specialize in class-action suits.The company said it had agreed to
restate earnings for 1998 and the first three quarters of 1999 to
reflect a change in accounting for the sale of its Human Affairs
International unit to Magellan.

Magellan agreed to pay up to $60 million annually for five years to
Aetna, if additional customers were shifted to the Human Affairs unit at
Magellan. Aetna was booking the $300 million total as operating revenues
but government regulators said it should be recognized as a capital
gain.

Aetna said net income would be reduced by approximately $10 million, or
7 cents a share, in the first and second quarters of 1999, and increased
$30 million, or 20 cents a share, in the third quarter. "There was no
impact on total net income in 1998," the company said.

"The S.E.C. didn't find much of a problem in the way the Prudential deal
was being accounted for," said James A. Lane, an analyst at Salomon
Smith Barney. When the Prudential Insurance Company of America sold its
health care unit, the parent agreed to reinsure Aetna against certain
expected future losses. Prudential also paid Aetna $262 million in
administrative fees to compensate for money-losing contracts with a
number of self-insured employers. Aetna booked the premiums on the
reinsurance as expenses, rather than as a reduction in the $1 billion
purchase price for Prudential Healthcare. It reported the fees as
operating income.

The S.E.C. has required only minor changes in the accounting related to
Prudential, including an increase in some operating earnings in the
third quarter of 1999 and a decrease in the fourth quarter, the company
said. "These changes are not projected to be material to the company's
future results," it added.

Analysts said the company was also relieved that the S.E.C. had not
required it to shorten the amortization period for good will it had
booked after its $8.9 billion purchase of U.S. Healthcare in 1996. Doing
so would have reduced annual earnings. "It is disquieting to have a
company restate numbers, but this was by no means the worst-case
scenario," said Roberta Walter Goodman, an analyst at Merrill Lynch. She
added that it would be difficult to assess any progress in turning
around Prudential Healthcare before the first quarter of next year after
Aetna's special arrangements with Prudential Life end on Dec. 31.

Even then, analysts will lack solid comparisons with the earlier
performance of the Prudential unit. Its results were buried in the
reporting of its parent, Prudential Life, a mutual insurance company
that is not bound by the same rules as publicly traded companies. (The
New York Times, February 2, 2000)


LOPEZ, BIZKIT: Sued by Middle-Aged Rockers for "Making Rock Suck"
-----------------------------------------------------------------
Keith Richards, Chrissie Hynde and surviving original members of the Red
Hot Chili Peppers announced on February 2 that they were filing a class
action on behalf of all middle-aged rockers against Jennifer Lopez and
Limp Bizkit for "making rock suck."

Rumors of the lawsuit had circulated for months since Limp Bizkit's
performance at Woodstock III, which was widely blamed for the riot
following the music festival. The group was later involved in a staged
brawl between Extreme Championship Wrestler Axl Rotten and his nemesis
Steve Corino, after Corino expressed a musical preference for Carly
Simon and the Bee Gees.

"Phony rock bad boys are giving us real bad boys a bad name," said
Richards before nodding off.

The addition of Jennifer Lopez as a defendant was unexpected and led to
a tumultuous impromptu press conference late in the day. "This is just
more ageist drivel from jealous, over-the-hill, boomer losers," screamed
the actress/chanteuse to reporters shortly before her boyfriend and
producer Sean "Puffy" Combs shot a process server who was attempting to
serve the action. (The Recorder, February 2, 2000)


MONARCH DENTAL: Announces Agreement to Settle Securities Lawsuit
----------------------------------------------------------------
Monarch Dental Corporation (Nasdaq: MDDS) announced on February 2 that
it has reached an agreement to settle the securities action brought
against the Company by a proposed class of shareholders relating to
certain alleged acts and omissions in The settlement, which is subject
to final documentation and Court approval, does not reflect any
admission of liability by the Company and there has been no finding of
any violation of the federal securities laws.

Monarch has agreed to pay an aggregate of $3.5 million in settlement of
all claims in the litigation. The settlement will be fully funded by the
Company's insurance policies. As a result, the Company does not expect
the settlement to have an adverse impact on the Company's cash flow.

Monarch Dental currently manages 193 dental offices serving 20 markets
in 14 states. The Company seeks to build geographically dense networks
of dental providers primarily by expanding within its existing markets,
but also by selectively entering new markets through acquisitions.


QUALITY DINING: Emerges from Securities Lawsuit Filed in Indiana-------
---------------------------------------------------------
Quality Dining Inc. reports that certain of its executive officers were
defendants with the Company in a class action lawsuit filed in the
United States District Court for the Northern District of Indiana. The
complaint alleged, among other things, that the defendants violated
Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as
amended, and Rule 10b-5 thereunder by failing to disclose various
matters in connection with the Company's acquisition, development,
financing and disposition of its bagel-related businesses. The putative
class period in such action was from June 7, 1996 to May 13, 1997 on
which dates the price of the Company's common stock closed at $34.25 and
$6.56, respectively. The plaintiffs were seeking, among other things, an
award of unspecified compensatory damages, interest, costs and
attorney's fees. The Company filed a motion to dismiss the complaint
which was granted by the Court on September 28, 1999. The plaintiffs
have not filed an appeal and the period for filing an appeal has
expired.


RAVENSWOOD ELEMENTARY: Settlement Ends 3 Year ADA Case Re CA Students
---------------------------------------------------------------------
A federal judge ended a three-year class action suit filed in 1996
against the Ravenswood Elementary School District on behalf of the
district's students with disabilities.

"This settlement offers the district an unequalled opportunity to create
a state-of-the-art service delivery system that can be a model for other
districts in California and the country," said Diane Lipton, attorney
with the Disability Rights Education and Defense Fund. "There are
hundreds, if not thousands of East Palo Altos around the country.
Hopefully they are taking notice of this case. Monitoring compliance is
extremely lax throughout this state and elsewhere."

Lipton, along with Bill Koski of the East Palo Alto Community Law
Project and Rony Sagy of Sagy Law Associates filed the case in 1996 on
behalf of eight students and others similarly situated charging
Ravenswood with violations under IDEA and other federal statutes. (See
Emma C. v. Delaine Eastin, et al, 27 IDELR 141, (N.D. Calif. 1997).)

The settlement calls for:

* A court-appointed monitor to oversee implementation of Ravens-wood's
  detailed corrective action plan.
* Building a coordinated special and regular education system.
* Substantial funds for consultation with national experts in literacy.
* Bilingual assessments.
* Instructional strategies.
* Inclusion.
* Unlimited funds for compensatory education for students previously
  denied services.
* The district serves the predominately poor African-American, Latino
  and Pacific-Islander communities of East Palo Alto and Eastern Menlo
  Park.

                          Settlement with CDE

The settlement terms with the California Department of Education has
"significant ramifications nationally," according to a statement
released by DREDF.

In response to this case and pressure from the U.S. Department of
Education, CDE is revising its monitoring and enforcement system. "We
hope that this case will raise the standard for statewide monitoring of
school districts as legally require," said Sagy. "Hopefully this
settlement will encourage cooperation between the district, parents and
the entire educational community, a crucial step in developing an
effective educational system for all children in East Palo Alto."
(California Special Education Alert, January 25, 2000)


SHIGELLA OUTBREAK: Marler Clark Sues Senior Felix Gourmet Mexican Foods
-----------------------------------------------------------------------
A class action lawsuit was filed on February 3 in King County Superior
Court against Senor Felix Gourmet Mexican Foods, a California
Corporation implicated in the recent Shigella outbreak. The named
plaintiffs are Larissa Spafford, Robert B. Spafford, and their
two-year-old son, Jasper, of Port Townsend, Washington. Ms. Spafford
purchased the dip at a Port Townsend QFC. Both she and her son became
ill. According to William Marler, a partner at Marler Clark, the
attorneys for the class action, "Ms. Spafford's and her son's symptoms
were relatively mild, although they included diarrhea, fever, and
stomach cramps. They were very fortunate not to have suffered more
severe injury."

The Washington State Department of Health has confirmed that at least 30
people in Washington have shown symptoms of shigellosis. Dozens more
were sickened in Oregon and California. This number is expected to rise
over the next few weeks. Marcia Goldloft, Medical Epidemiologist with
the Washington State Department of Health, said, "Shigellosis can be
very serious and is highly contagious. People who think they might have
been infected should pay close attention to hygiene. Carefully washing
your hands could prevent getting a family member sick."

This dip was sold under several names, including the above, Trader Joe's
5 Layer Fiesta Dip, and Delicioso 5 Layer Fiesta Dip. It was sold in
jars and on seven-inch trays, with a distinctly layered appearance. The
list of retailers that carried this product includes the following:
Costco, Trader Joe's, Puget Consumers Co-op (PCC), and SAM'S Club. It
was also distributed to QFC, Thriftway, Red Apple Markets, Zupan's, and
Homegrocer.com, as well as other individual retailers.

                           What is Shigella?

The Shigella germ is a family of enteric bacteria that can cause
diarrhea in humans. They are microscopic living organisms that thrive in
human intestines and are spread through person to person contact.
Shigella were discovered over 100 years ago by Japanese scientist
Kiyoshi Shiga, for whom they are named.

Shigellosis, also known as bacillary dysentery, is the infectious
disease caused by the Shigella bacteria. Most who are infected with
Shigella develop diarrhea, fever, and stomach cramps starting a day or
two after exposure. The diarrhea is often bloody. Shigellosis usually
resolves in 5 to 7 days. In some persons, especially young children and
the elderly, the diarrhea can be so severe that the patient needs to be
hospitalized. A severe infection with high fever may also be associated
with seizures in children less than 2 years old. Some persons who are
infected may have no symptoms at all, but may be carriers, and still
pass the Shigella bacteria to others.

                   Where Does Shigella Come from?

The organism is frequently found in water polluted with human feces.
Salads (potato, tuna, shrimp, macaroni, and chicken), raw vegetables,
dairy products, and poultry are foods commonly listed as sources of
Shigella. Contamination of these foods is usually through the fecal-oral
route. Therefore, water polluted with human feces and unsanitary
handling by food handlers are the most common causes of contamination.

An estimated 300,000 cases of shigellosis occur annually in the U.S. and
Shigella infections cause an estimated 600,000 deaths per year
worldwide. The number of infections attributable to contaminated food is
unknown, but as it takes very little Shigella to cause infection, it's
probably substantial. Most of these deaths occur in developing countries
with poor hygiene and unsafe water supplies.

               What Are the Typical Symptoms of Shigella?

Symptoms include abdominal pain, cramps, diarrhea, fever, vomiting,
blood, pus, or mucus in stools, and painful rectal spasms. These
symptoms normally manifest one to two days after ingestion.

Persons with diarrhea usually recover completely, although it may be
several months before their bowel habits are entirely normal. About 3%
of persons who are infected with one type of Shigella, Shigella
flexneri, will later develop pains in their joints, irritation of the
eyes, and painful urination. This is called Reiter's Syndrome. It can
last for months or years, and can lead to chronic arthritis and is
difficult to treat. Reiter's Syndrome is caused by a reaction to
Shigella infection that happens only in people who are genetically
predisposed to it. Other long-term health risks include reactive
arthritis and hemolytic uremic syndrome (HUS).

Infants, the elderly, and those with weakened immune systems are
susceptible to the severest symptoms of disease, but all humans are
susceptible to some degree. Shigellosis is a very common illness
suffered by those with acquired immune deficiency syndrome (AIDS) and
other immuno-compromised individuals.

               How Can a Shigella Infection Be Prevented?

Basic food safety precautions prevents shigellosis. Shigella organisms
are generally considered fragile and can be killed by heat used in
processing or cooking. They do not survive well in acidic foods. People
who have shigellosis should not prepare food or pour water for others
until they have been shown to no longer be carrying the bacterium.

The spread of Shigella from an infected person can be stopped by
frequent and careful hand washing with soap and warm water.
Additionally, supervised hand washing of all children should be followed
in day care centers and in homes with children who are not completely
toilet-trained, including children in diapers. When possible, young
children with a Shigella infection who are still in diapers should not
be in contact with uninfected children. If a child in diapers has
shigellosis, everyone who changes the child's diapers should be sure the
diapers are disposed of properly in a closed-lid garbage can, and should
wash his or her hands carefully with soap and warm water immediately
after changing the diapers. After use, the diaper changing area should
be wiped down with disinfectant, such as household bleach or
bactericidal wipes.

Marler Clark has been involved in hundreds of cases involving food-borne
illness. These have included the 1993 Jack in the Box E. coli outbreak;
the 1996 Odwalla E. coli outbreak; the 1998 Malt-O-Meal Salmonella
outbreak; the 1998 Finley School District E. coli outbreak in the
Tri-cities, Washington; the 1999 Golden Corral E. coli outbreak in
Kearney, Nebraska; the 1999 Sun Orchard Orange Juice Salmonella outbreak
in several Western states; and, the 1999 Subway Hepatitis A outbreak in
King County.

For information and/or a copy of the complaint, please call Julie
Stormes at 206/346-1888. Contact: Marler Clark Julie Stormes,
206/346-1888 (The Toronto Star, February 3, 2000)


SYKES ENTERPRISES: Burt & Pucillo Files Securities Lawsuit in FL
----------------------------------------------------------------
Burt & Pucillo, LLP filed a securities class action lawsuit on February
1, 2000 in the United States District Court for the Middle District of
Florida on behalf of a class of persons who purchased the common stock
of Sykes Enterprises, Inc. during the period from April 26, 1999 through
January 31, 2000.

The complaint alleges that Sykes and key members of management violated
the Securities Exchange Act of 1934 and Rule 10(b)(5) by issuing
materially false and misleading information concerning Sykes' reported
results of operations during 1999. The complaint alleges that Sykes has
failed to comply with GAAP with respect to 1999 financial reporting. The
Company's stock price fell to a 52- week low of $18.56 after the
disclosure that year end results will be delayed due to questions raised
by the Company's auditors.

For more information on the above mentioned lawsuit, please contact
plaintiff's counsel, Michael J. Pucillo at Burt & Pucillo, at
561/835-9400 or 800/349-4612 or law@burt-pucillo.com via e-mail.


SYKES ENTERPRISES: Cohen, Milstein Files Securities Lawsuit in FL
-----------------------------------------------------------------
Cohen, Milstein, Hausfeld & Toll, P.L.L.C filed a class action lawsuit
on February 2, 2000 in the United States District Court for the Middle
District of Florida on behalf of all persons who purchased the common
stock of Sykes Enterprises, Inc. during the period of April 26, 1999 and
Jan. 31, 2000, inclusive.

The complaint charges Sykes and certain of its senior officers and
directors with violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by, among
other things, misrepresenting and/or omitting material information. The
Complaint charges that Sykes misled investors concerning its expected
fourth quarter 1999 and year end results and that Sykes' financial
statements were not prepared in accordance with Generally Accepted
Accounting Principles.

Contact: Daniel S. Sommers by e-mail at dsommers@cmht.com or Robert
Smits at rsmits@cmht.com both of Cohen, Milstein, Hausfeld & Toll,
P.L.L.C 1100 New York Avenue, N.W., Suite 500 - West Tower, Washington,
D.C. 20005, telepheone: 888/240-0775 or 202/408-4600.


SYKES ENTERPRISES: Milberg Weiss Files Securities Lawsuit in FL
---------------------------------------------------------------
Milberg Weiss Bershad Hynes & Lerach LLP commenced a class action
lawsuit in the United States District Court for the Middle District of
Florida, Tampa Division, on behalf of all persons who purchased the
common stock of Sykes Enterprises, Inc. between October 25, 1999, and
January 31, 2000, inclusive.

The complaint charges Sykes and certain of its senior officers and
directors with violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The
complaint alleges that defendants issued a series of materially false
and misleading statements concerning the Company's financial condition,
revenues and earnings. The complaint further alleges that on February 1,
2000, the Company announced that it would be forced to delay the release
of fourth quarter earnings because its audit was "incomplete." In
response, the stock fell nearly 33% on unusually large trading volumes
of over 11,000,000.

For additional information on this matter, please contact, Milberg Weiss
Bershad Hynes & Lerach in Boca Raton: Kenneth Vianale or Maya Saxena at
5355 Town Center Road, Suite 900, Boca Raton, Florida 33486, by
telephone (561) 361-500, or in New York: Steven G. Schulman or Samuel H.
Rudman at One Pennsylvania Plaza, 49th Floor, New York, New York
10119-0165, by telephone 1-800-320-5081 or via e- mail:
endfraud@mwbhlny.com or visit website at http://www.milberg.com


SYKES ENTERPRISES: Schiffrin & Barroway Files Securities Suit in FL
-------------------------------------------------------------------
Schiffrin & Barroway, LLP filed a class action lawsuit in the United
States District Court for the Middle District of Florida on behalf of
all purchasers of the common stock of Sykes Enterprises from April 26,
1999 through January 31, 2000, inclusive.

The complaint charges Sykes Enterprise and certain of its officers and
directors with issuing false and misleading financial statements
concerning the Company's revenues and earnings.

For additional information concerning this lawsuit, please contact
Schiffrin & Barroway, LLP (Stuart L. Berman, Esq.) toll free at 1-
888-299-7706 or 1-610-667-7706, or via e-mail at info@sbclasslaw.com


SYKES ENTERPRISES: Shepherd & Geller Files Securities Lawsuit in FL
-------------------------------------------------------------------
The Law Firm of Shepherd & Geller, LLC filed a class action lawsuit in
the United States District Court for the Middle District of Florida on
behalf of all individuals and institutional investors that purchased the
common stock of Sykes Enterprises, Inc. between April 26, 1999 and
January 31, 2000, inclusive.

The complaint charges that the Company and certain of its officers
violated the federal securities laws by providing materially false and
misleading information about the Company's financial condition. As a
result of these false and misleading statements the Company's stock
traded at artificially inflated prices during the class period. When the
truth about the Company was revealed, the price of the stock dropped
significantly.

For more details on the above mentioned lawsuit, please contact Jonathan
M. Stein of SHEPHERD & GELLER, LLC 7200 West Camino Real, Suite 203 Boca
Raton, FL 33433 (561) 750-3000, Toll Free: 1-888-262- 3131, E-mail:
jstein@classactioncounsel.com or visit website at
http://www.classactioncounsel.com


THE LEVIGNES: Owners Of Mortuary Services To Face Trial Over Embalmings
-----------------------------------------------------------------------
A Texas appeals court ruled the owners of Mortuary Services Company,
Mary Levigne and the estate of Robert Levigne, should face a civil trial
on charges of improperly embalming human remains. They're charged with
transferring remains without authorization to the Pierce Mortuary
Colleges Inc., also doing business as the Dallas Institute of Funeral
Service. The remains were taken there to be embalmed for training
purposes.

In 1991, Frederick Bjerke filed a class action suit on behalf of the
survivors of loved ones improperly embalmed from 1985 to 1991. He
originally sued Pierce, the Lavignes, Dudley Hughes, the Dudley M.
Hughes Funeral Company Inc. and subsidiaries. Everyone but the Lavignes
filed for bankruptcy and were dismissed from the lawsuit. A lower court
dismissed Bjerke's claims and he appealed.

The Lavignes were accused of transporting bodies to the Dallas Institute
without the families' permission. But the Lavignes said they didn't have
any record of transporting the remains of any of the families in this
case, so they should not be liable.

The Institute acknowledged its records indicate some remains might have
been transferred to them by the Lavignes' company. Mary Lavigne admitted
as much, but said there was no proof they were the remains of the
plaintiffs' family members.

The court said Mary Lavigne failed to prove they were not and further
ruled that the claims of one set of wronged persons in a class action
suit represent all wronged persons, even if they are not present in the
specific case.

Mary Lavigne said the court abused its discretion by including the
remains of any decedent, named or unnamed, in the class action. The
court disagreed, saying the matter should be settled at trial.

(Frederick Bjerke et al. v. Dudley M. Hughes et al., Texas Ct. App., No.
05-96-00613-CV, 12/30/99.) (Death Care Business Advisor, January 31,
2000)


TOBACCO LITIGATION: Industry to Continue Fight to Overturn FL Gag Order
-----------------------------------------------------------------------
Facing an upcoming verdict for damages that could reach hundreds of
billions of dollars, Big Tobacco wants to assure it can speak out --
before Wall Street does.

Industry attorneys and executives, battling a class action suit brought
by three sick Floridians, have been muzzled by a gag order that prevents
them from talking to anyone -- including their own stockholders -- about
the case.

If they don't get their message out, they told Circuit Judge Robert Kaye
in Miami, the decision could affect stock prices, interest rates on
loans and hiring. "We're going to be ... at an enormous disadvantage
with some enormous legal problems,'"' Dan Webb, attorney for Philip
Morris, argued Tuesday, February 1. "These are publicly held companies.
Any, for example, erroneous or misleading reporting that could affect
the stock price, we are supposed to have an obligation to go out and
correct that immediately. "The impact -- it can be incredible.'"'

Kaye turned them down, and attorneys for Big Tobacco, which also argued
the gag order is too broad and unconstitutional, said they plan to
appeal.

The plaintiffs' lawyers want the order to stay in place. The judge
imposed it after being concerned a pretrial news conference could affect
the fairness of the trial.

One defendant, Philip Morris, already has found a way to spread its
message and persuade jurors -- through a Web site that debuted in
October, plaintiffs' attorney Stanley Rosenblatt argued on February 1.
He asked to have the Web site shut down this fall, arguing the company
tried to influence the case via the Internet by openly admitting that
smoking causes fatal diseases so the jury wouldn't punish tobacco
companies as harshly for past lies.

Lifting the gag order would encourage "professional spin doctors'"' to
distort the verdict, Rosenblatt said. "There's just all kinds of
opportunity for mischief,'"' Rosenblatt told the court on February 1.

The attorney is suing on behalf of ill smokers around the state, asking
for $ 200 billion in damages that could ultimately be dispersed among
500,000 Floridians. The jury is now deciding compensatory damages for
the three named plaintiffs. If jurors award damages, they will go on to
decide punitive damages for the entire class.

The defendants are: R.J. Reynolds Tobacco, Philip Morris, Brown &
Williamson Tobacco, Lorillard Tobacco, Liggett Group, the Council for
Tobacco Research and the Tobacco Institute.

Some Wall Street analysts said that even though they believe the
companies will win on appeal, Big Tobacco has reason to worry about the
upcoming judgment. "This specific case has had a major impact on all the
tobacco stocks,'"' said Bonnie Herzog, tobacco analyst at Credit Suisse
First Boston.

Though tobacco stocks barely flinched the day the verdict was announced,
they declined after an appeals court ruled in September that punitive
damages would be distributed in a lump sum. That means the companies, if
the jury rules against them, would have to pay all at once, or post a
bond at the end of the trial -- which worries investors, Herzog said.
Philip Morris, the world's top cigarette maker, was selling shares at
about $ 37 each in September, she said. The gag order, however, may have
little effect, she said. "The market is going to do what it's going to
do,'"' she said.

David Adelman, a tobacco analyst with Morgan Stanley Dean Witter
disagrees. "I don't think the stock prices would be as depressed as they
are now if they weren't under a gag order,'"' Adelman said. "If they
could communicate freely there would be more balance to the public
perception of the case. You can talk to antitobacco activists if you
want, and they make themselves very available. But there is no one out
there backing the industry. It's an unbalanced assessment.'"'

In these cases, the court must decide whether publicity would corrupt
jurors, said Clark Freshman, University of Miami law professor. "The
courts usually err on their own side, even if it hurts stock prices,'"'
Freshman said. "It's more important to have justice than to have stock
prices be protected.'"' (The Miami Herald, February 3, 2000)


TOBACCO LITIGATION: Smokers Testify Posthumously Wrapping up Case
-----------------------------------------------------------------
Surgery for lung cancer and radiation on a brain tumor left Angie Della
Vecchia constantly tired and sick, but she was optimistic she would
rally. "I'm mostly in bed all day. I'm tired and vomiting, but I'm
hoping that when the treatment is way behind me that I might come back,"
the New Port Richey housewife testified on Nov. 9, 1998, when she was
deposed for a massive lawsuit against Big Tobacco. Seven months later
she was dead.

On Wednesday, February 2, as the deposition was played in Miami-Dade
Circuit Court to the jurors hearing the statewide class action lawsuit
against cigarette makers, Della Vecchia's husband, daughter and son wept
as they saw her face and heard her voice one more time.

When her two-hour video deposition ended, so did the testimony and
evidence presented by Stanley Rosenblatt, the lawyer representing more
than 500,000 sick Florida smokers and their families. Della Vecchia is
the third and final smoker whose life story is being used to represent
all class members in the unprecedented trial.

On February 7, lawyers for five tobacco companies and two industry
organizations could begin calling witnesses and trying to persuade the
jury that the nation's five biggest cigarette makers should not be
punished for the illness and suffering of the class members.

The same jury decided last year that Big Tobacco produces an addictive
product that causes emphysema, lung cancer and other illnesses, and lied
to the public about its risk.

And lawyers for tobacco interests have said they are worried that a
lump-sum award for the smokers could be as much as $ 300 billion,
potentially crippling the industry.

In a calm and steady voice and often smiling, Della Vecchia testified
that she started smoking when she was 11, after other children at her
bus stop offered her cigarettes. By the time she was 12, she was smoking
about 10 cigarettes a day, she said. She would practice in the mirror,
blowing perfect smoke rings. "When I started smoking I didn't know
anything. I didn't know they were bad for you, that's for sure," she
said. "I just saw everyone doing it, and they seemed to be enjoying it,
so I did it, too."

She recalled television advertisements and how people in them appeared
glamorous and seemed to like the taste. In the late 1970s, Della Vecchia
and her husband discussed how smoking was bad for their health and
decided to quit. Only her husband, Ralph, was successful. A February
1997 visit to the doctor for a sore throat and hoarseness led to her
diagnosis of lung cancer. She underwent surgery the following month. But
by May of that year, she was smoking again.

A tobacco company attorney asked her why she once said her attempts at
quitting were "a joke." "It's a figure of speech," she said. "I tried
maybe for a couple of hours, and then I lit up." Della Vecchia said she
tried the nicotine patch but would take it off at the end of the day and
have a cigarette. She tried drugs but had an allergic reaction. "Every
day the desire to smoke, it's just there," she said. "It's always on
your mind when you smoked as long as I did." By August 1998, she was
back up to two packs a day. Then she had a seizure while driving and was
diagnosed with a brain tumor.

Della Vecchia's husband signed her up as a member of the class-action
lawsuit, she said. However, she agreed with a tobacco attorney that
people should be held accountable for their own actions.

Rosenblatt said her medical treatment cost about $ 162,000; her funeral
cost another $ 7,000. And in documents presented to the jury, Rosenblatt
showed that Mary Farnan, another of the smoker representatives, has
racked up $ 239,000 in medical bills battling lung and brain cancer.

Frank Amodeo, the third smoker representative, has accumulated more than
$ 43,000 in bills for throat cancer treatment.

The six-member jury must award compensatory damages to Della Vecchia,
Farnan or Amodeo before it can get to the question of punitive damages.

The industry was expected to argue motions for directed verdicts in
favor of the defense on Friday, February 4 and to begin its case Monday,
February 7, if the judge rules against them.

The defendants are: R.J. Reynolds Tobacco Co., Philip Morris Inc., Brown
& Williamson Tobacco Corp., Lorillard Tobacco Co., Liggett Group Inc.,
the Council for Tobacco Research and the Tobacco Institute. Terri Somers
can be reached at tsomers@sun-sentinel.com or 954-356-4849.
(Sun-Sentinel (Fort Lauderdale, FL), February 3, 2000)


z Consequences of Legal Actions: Tax and Attorney’s Fees
--------------------------------------------------------
Taxpayers who commence legal actions do so to redress wrongs. Tax
consequences of recoveries and the payment of attorney's fees are only
secondary considerations. However, these tax aspects cannot be ignored.
Certain recent developments relate to the tax aspects of legal actions.
There has also been an important development affecting the reporting of
payments to attorneys.

                    Ordinary Income Treatment

When a taxpayer successfully concludes an action by decision or
settlement, the tax treatment of the recovery affects the after-tax
amount to be realized. In one recent case, a taxpayer tried
unsuccessfully to classify the recovery as a capital gain that would
have been taxable at more favorable tax rates than ordinary income
(Nahey, CA-7, Nov. 17, 1999).

In the case, one corporation sued another corporation for fraud, breach
of contract and lost profits that resulted when the computer system it
purchased failed to satisfy its data processing requirements. The
plaintiff sought damages of more than $ 5 million.

During the pendency of the action, the majority shareholder sold his
shares to another shareholder. In the allocation of the purchase price
to various assets, no value was assigned to the suit because its value
was just too speculative.

More than six years after the sale, the suit was settled for $ 6
million. If the original plaintiff had recovered the settlement, it
would have been taxed as ordinary income because the settlement replaced
the corporation's lost income. However, the taxpayer who bought the
shares from the majority stockholder to acquire the company argued that
capital- gain treatment should result. He reasoned that the origin of
the claim was the acquisition of the business.

The court rejected the taxpayer's argument. In its view, the sale of the
business was only an intermediary step and not the origin of the claim
of the suit that gave rise to the recovery.

The court distinguished the situation from one in which a legal claim is
sold. In such a case, a recovery can be treated as a capital gain. Here,
however, the taxpayer saw the case through to settlement. There was
simply no logical reason why a mere change in ownership should transform
the tax treatment of the recovery in this case.

                    Recovering Attorneys' Fees

Taxpayers who prevail against the Internal Revenue Service can recover
attorneys' fees if the government's position was not substantially
justified and certain other requirements are met. Under the IRS
Restructuring and Reform Act of 1998, the authority to award attorneys'
fees in tax actions has been expanded.

The time from which fees can be awarded has been moved up to the
earliest of (1) the date the taxpayer receives the notice of decision
from the IRS Appeals Division, (2) the date of the notice of deficiency,
or (3) the date of the first letter of proposed deficiency that allows
an opportunity for administrative review.

The hourly award has been increased to $ 125 an hour (indexed for
inflation). For 2000, this has been adjusted to $ 140 an hour.

In determining whether the IRS position was substantially justified, the
court can take into account whether the government won or lost in an
appellate court on a similar issue.

Fees can be awarded where a taxpayer makes a qualified offer following
administrative review that the IRS rejects, if the government obtains a
judgment that is equal to or less than the taxpayer's offer.

                 Delay in Attorney Reporting Rules

The Taxpayer Relief Act of 1997 included a new rule requiring businesses
to report payments made to attorneys for legal services as well as
amounts paid to attorneys for nonlegal services as long as those
services are attorney-supervised.

Thus, reporting can apply to payments to attorneys with respect to
accounting, financial, or property management. Proposed regulations had
been set to take effect after Dec. 31, 1999 (Prop. Reg. P 1.6045-5).
However, the IRS has delayed the effective date of the regulations for
one year (Notice 99-53, IRB 1999-46, 574).

The proposed regulations require that all payments to attorneys made in
the course of a trade or business must be reported on Form 1099-MISC.
There is no dollar threshold. Thus, while payments to independent
contractors need only be reported if they total $ 600 or more, any
payments to attorneys - independent contractors or otherwise - must be
reported.

Reporting must be made by the payor of fees. In many cases, this will be
insurance companies who pay attorneys' fees as part of settlements or
awards. Payors must report payments to attorneys even if legal services
were not provided to them.

Insurance companies would also have to report payments to attorneys that
are then disbursed to clients. In other words, the reporting of payments
to attorneys may not necessarily represent income to the attorneys.

Since there is computer matching by the IRS of amounts reported on Form
1099 with amounts reported on taxpayer returns, attorneys should use
care to avoid triggering an audit. In settlement or award situations,
consider requesting two separate checks from payors (one for attorneys'
fees and the other payable to the client). This will limit the 1099
reporting of attorneys' fees to amounts retained by the attorney.

Where it is not possible to obtain a separate check, attorneys should
report the gross amount appearing on the 1099 as income on their return
with a subtraction for disbursements to clients or others. An
explanation of the subtraction should be attached to the return. (New
York Law Journal, December 20, 1999)


z Mortgage Insurance Industry Plans a PR Counterattack
------------------------------------------------------
A newspaper columnist calls their service "one of the crummiest deals
around." Lawyers accuse more than half of the industry of making
kickbacks. A U.S. senator describes its practices as "unethical."

Finally, private mortgage insurers are preparing to fight back.

Executives at the top mortgage insurers will not say exactly what they
plan to do, but late last year their trade group, the Mortgage Insurance
Companies of America, retained Porter Novelli, a prominent consumer
public relations firm known for its work with Gillette Co., Procter &
Gamble, and anti-tobacco activists.

You would think the industry has plenty to brag about. It has played a
crucial role in the housing finance system. Without its service, many
homeowners would have been unable to buy and the nation's financial
institutions -- and arguably the government -- would be at greater risk.

Private mortgage insurance protects the holder of a loan in case the
homeowner defaults. It is usually required when a homebuyer cannot put
down 20%. According to the Mortgage Insurance Companies of America, last
year the industry insured $189 billion of new mortgages for about 1.45
million homeowners.

Indeed, decades ago the media touted private mortgage insurance as a
less expensive and simpler alternative to the government's FHA program
and hailed Max Karl, founder of Mortgage Guaranty Insurance Corp. and
inventor of modern private mortgage insurance, as a housing hero. Mr.
Karl died in 1995.

A crucial turning point came in the late 1990s, when it was revealed
that some borrowers had been paying monthly insurance premiums long
after they had built substantial equity in their homes. An uproar led to
legislation mandating automatic cancellation once a borrower's equity
reaches a certain level and disclosure to the borrower when and how
coverage can be canceled. "The mail would pour in from furious people"
who tried to get their policies canceled but couldn't, recalled Jane
Bryant Quinn, the well-known personal finance columnist.

Critics say the insurers dropped the ball. "They were, for many years,
collecting premiums from consumers whom they had every reason to know
were not real economic dangers," said Kenneth Harney, a syndicated
writer who chronicled the battle over the cancellation bill in The
Washington Post. "For years they knew about it and did nothing about it.
When it became a public matter, they were very slow to come to the
reform party." The insurers "did not step to the fore, grab the problem
by the horns, and say, 'Let us straighten this out,' " Mr. Harney said.
"Instead, they were content to say: 'We are passive players. We are told
by our insured customers when they want to cancel.' "

However, he added, after being "dragged to the table" the insurers "were
ultimately involved in the final fine-tuning" of the cancellation bill,
which was passed in 1998 and took effect last year. Ms. Quinn agrees.
"When the uproar did start and the issue was in Congress, the insurers
were not taking a pro-consumer position. They were very tough on the
side of 'We don't need anything,' " she said. "During that period, you
didn't get an awful lot of sympathy from the (mortgage insurance) people
for what was bothering the consumer."

The insurers say they were not to blame, that before the legislation was
passed it was the investor's prerogative to decide when a policy could
be cancelled and the servicer's job to terminate it. They insist that
they supported the cancellation bill from its inception, that they had
problems with details of the early drafts but always backed the
pro-consumer principles behind it.

And they say the publicized estimates of how many homebuyers were
overcharged hundreds of thousands, according to some news reports --
were grossly exaggerated. "Out of all that we were portrayed as trying
to block the legislation," Mr. Reid said. "in the process the negative
impressions occurred with consumers, maybe some Realtors, and the press
in general."

Frank P. Filipps, chairman of Radian Guaranty in Philadelphia, goes as
far to say that the legislation was unnecessary and that Fannie Mae and
Freddie Mac, the two largest mortgage investors, could easily have
accomplished the same goals without an act of Congress by simply
changing their cancellation guidelines.

The push for legislation was "a political football," Mr. Filipps said.
"It's something that was undertaken in an election year to get press
coverage." Indeed, Alfonse D'Amato, who introduced the cancellation bill
in the Senate when he was the Banking Committee chairman, attacked the
mortgage insurers in the papers.

But the cancellation controversy was not the only cause of the mortgage
insurers' image woes. Part of the problem stems from the way the service
is structured: The consumer pays for it but is not the one covered by
the insurance. And the lender, not the consumer, chooses the mortgage
insurer.

This contrasts sharply with other types of insurance, noted David
Graifman, an analyst at Keefe, Bruyette & Woods Inc. For such products
as life and auto insurance, the consumer decides whether and how much
coverage to buy and can shop around for the best price.

But with mortgage insurance, "a lot of people don't realize they need it
before they go to the closing table," Mr. Graifman said. "There's no
decision to purchase it, no decision about how much to buy." Homebuyers,
he said, "probably feel strong-armed by lenders" into buying coverage.

The industry enjoyed much more favorable publicity and consumer
sentiment in its early days, in part because the companies were forced
to be proactive. When Mr. Karl founded MGIC in 1957, mortgage insurance
was banned in a dozen states, the legacy of the Great Depression, when
collapsing real estate values decimated an earlier generation of
mortgage insurers.

Mr. Karl traveled around the country, promoting his vision of a more
soundly regulated mortgage insurance company and lobbying the states to
legalize it. "We had almost a missionary zeal about trying to explain
this concept," recalled Leon T. Kendall, who was an officer of MGIC in
the 1970s and 1980s.

Gerald Friedman, Mr. Karl's nephew and himself a longtime veteran of the
mortgage insurance industry, said his uncle and other early leaders were
"outspoken advocates of the industry, were on podiums all the time, and
were well known."

Over the years some mortgage insurers were sold to huge conglomerates
like General Electric and American International Group Inc. (United
Guaranty's parent), and the industry's focus on promoting the virtues of
their product "may have been diminished," Mr. Friedman said.

Mr. Reid of United Guaranty insists that he and his contemporaries are
just as vigorous about promoting mortgage insurance as their
predecessors. He noted that most of the companies have affordable
housing initiatives and work with community groups, state housing
agencies, or Fannie and Freddie to help low-income families buy homes.

"The CEOs dedicate a lot of personal time to doing things that Max Karl
did," Mr. Reid said. "If anything, they're even more active." But Mr.
Karl's audiences were thrift executives, Realtors, and homebuilders.
What the industry arguably lacks today are passionate advocates that
speak directly to the consumer.

Mr. Kendall, now a finance professor at Northwestern University, said
that in Mr. Karl's day the insurers' public image was aided by the
savings and loans, which were the chief beneficiaries of the coverage
before the rise of the secondary market. The thrifts' loan officers
explained and promoted mortgage insurance to the home-buying public, Mr.
Kendall said.

But the agents that now originate most home loans --mortgage bankers and
brokers -- do not hold the loans and therefore have less incentive to
endorse it, Mr. Kendall suggested. "When we lost (the S&Ls) we lost our
direct line to the consumer."

Ironically, the economic boom is another contributing factor to the
mortgage insurers' image problem. Though it means the insurers have paid
fewer claims than they have in 20 years, it also means that the public
has forgotten why it can be worth it to pay premiums.

The zeitgeist was expressed in a Philadelphia Inquirer column last year
that questioned the need for mortgage insurance: "Foreclosures aren't
all that common. And most homes appreciate, so lenders' chances of
unloading a foreclosed property for more than the remaining debt are
usually pretty good."

With such a rosy outlook, it is difficult to imagine that private
mortgage insurers paid more than $7 billion of claims in the recession
of the late 1980s. The companies absorbed losses that otherwise would
have been suffered by banks' and thrifts' insurance funds -- not to
mention Fannie and Freddie.

"When times are good, everybody thinks these companies are stealing
candy from a baby," said Mr. Graifman at Keefe Bruyette. "They forget
than in the '80s they were losing loads of money."

Perceptions do matter. In recent years the industry has had to contend
with competing forms of credit enhancement. There's the "piggyback," or
"80/10/10" loan, which combines an 80% first mortgage, with a 10% second
mortgage and a 10% down payment. Ms. Quinn said some banks have been
marketing piggyback loans to consumers as a better deal than mortgage
insurance. "I suspect some of the bad words (about the insurers) are
being spread by banks," she said.

And a year ago Fannie and Freddie came out with alternative insurance
arrangements that allow the homebuyer to purchase less coverage, in
exchange for an up-front fee or a higher interest rate -- which the
insurers viewed as an incursion on their turf.

Mr. Friedman, Max Karl's nephew, is now chairman of FM Watch, a
coalition of financial services trade groups formed last year to fight
expansion by Fannie and Freddie into business other than buying
mortgages -- such as insuring them. When FM Watch made its debut last
year, Fannie and Freddie initially depicted the coalition as simply a
lobbying group for the mortgage insurers, even though its membership
included many other types of companies -- indicating just how
unsympathetic consumers have become to mortgage insurers.

Kenneth Posner, an analyst at Morgan Stanley Dean Witter & Co., has long
argued that consumers' negative dispositions, combined with the threat
of competing products, portend slower growth for the mortgage insurance
industry.

Mr. Posner is not as bearish as he was two years ago, largely because
the stocks have become cheaper. "Some of the competitive threats are
materializing more slowly than we had expected," he added, noting that
Fannie and Freddie's "lowest-cost MI" plans haven't caught on. But the
insurers' lack of direct connection to the consumer remains a
"challenge" for them, he said.

Public sentiment also matters because Congress could pass burdensome
legislation, Mr. Friedman said. And a bad-guy image makes the mortgage
insurers an easy target for trial lawyers. In December four of the seven
companies were served with class actions accusing them of making
kickbacks to lenders at the expense of consumers. While legal experts
question the merit of these suits, they are at the very least a drain on
management time and resources.

Sympathetic observers say the Mortgage Insurance Companies of America
has kept too low a profile and focused on lobbying rather than on
communicating its message to the press and the general public. "In
hindsight, Mica probably should have had a national ad campaign or
something like that," Mr. Kendall said. The insurers' image problems
"started with a couple Congressmen and reporters, and nobody put the
fires out."

Suzanne Hutchinson, the trade group's executive vice president, noted
that last year it sponsored a speaking tour by John Witty, a
personal-finance commentator. The group last year also launched a Web
site, privateMI.com, which explains the product in clear language. And
noting that Fannie Mae's famous television ads cost tens of millions of
dollars, Ms. Hutchinson said, "most private corporations don't have the
budget to do that."

Mortgage insurance companies themselves are reluctant to embark on
consumer branding campaigns. "The fact of the matter is that the lender
and the investor are our customers," said Curt S. Culver, chairman and
chief executive of MGIC.

Critics say that line of thinking is at the core of mortgage insurers'
public relations problem. "Anyone who does not recognize the centrality
of the consumer in today's marketplace will be dead in the water," said
David Jeffers, a spokesman for Fannie Mae.

Though insurers might protest that theirs is a business-to-business
industry, Mr. Jeffers said: "That's irrelevant. Technically speaking,
we're a business-to-business enterprise -- probably even more so,
because we'll never have any contact directly with the consumer in a
transaction. That doesn't preclude us from having to focus, laser-like,
on what the consumer wants." (The American Banker, February 2, 2000)


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