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/raid1/www/Hosts/bankrupt/CAR_Public/000502.MBX C L A S S A C T I O N R E P O R T E R Tuesday, May 2, 2000, Vol. 2, No. 85 Headlines ALLIED PRODUCTS: Motion to Dismiss Shareholders Suit in IL Granted AUTO INSURANCE: Liberty Mutual in Canada Joins Aftermarket Fray CONCENTRIC NETWORK: Faces NJ Suit over Unsolicited Faxes & AG Subpoena CREDIT CARDS: Some Cardholders Are Signing Away Right to Sue GENERAL INSTRUMENT: IL Ct OKs Fiduciary Duty Exception for Good Cause HARRIS SHERIFF: Govt Employers Can Dictate Time Off, TX Ct Rules HMO: Aetna Records 1Q Profit, Plans to Drop Medicare HMO: Colson Hicks Eidson Announces Lawsuit against Humana HMO: Herman Middleton Files Nationwide Lawsuit against Humana in FL HUGHES AIRCRAFT: CA Ct Throws out $17M Verdict for Workplace Race Bias INSO CORP: Plans Defense of Securities Lawsuit Filed Feb. 99 in MA INSO CORP: Shareholders Sue in Feb 2000 in MA KITTY HAWK: Air Cargo Service Stops Interisland Service KROGER CO: CA Suit over Egg Price-Fixing Continues MA STATE: Fd Ct Approves Settlement of ADA Claims by Mentally Retarded MP3 COM: Artists Sue in NY over Recording Companies' Claimed Copyright PUBLIC SCHOOLS: Settlement for Small Tax Bases May Affect Tax Cuts QUALCOMM INC: Yanks Settlement Offered to Former Employees for Opt-outs SAIPAN SWEATSHOP: Gymboree Corp Agrees to Settlement over RICO WISCONSIN ELECTRIC: Can't Recover Payment for Cyanide-Laced Wood Chips ********* ALLIED PRODUCTS: Motion to Dismiss Shareholders Suit in IL Granted ------------------------------------------------------------------ In May 1999 and June 1999, the Company was served with two complaints purporting to be class action lawsuits on behalf of shareholders who purchased the Company's common stock between February 6, 1997 and March 11, 1999. The complaints, which were filed in the United States District Court for the Northern District of Illinois, were virtually identical. They alleged various violations of the federal securities laws, including misrepresentations or failure to disclose material information about the Company's results of operations, financial condition, weakness in its financial internal controls, accounting for long-term construction contracts and employee stock option compensation expense. In August 1999, the District Court ordered that the two cases be consolidated for all purposes. A Consolidated Amended Complaint was filed on October 12, 1999. The Company filed a Motion to Dismiss on December 13, 1999. The action was dismissed, without prejudice, by order dated March 13, 2000, with leave to amend the complaint. BON TON: May Emerge from Antitrust Suit in NY with Nine West Settlement ----------------------------------------------------------------- Bon Ton Strores Inc. discloses in its report to the SEC that, The Bon-Ton has been named, together with other department stores and Nine West Group, Inc., a defendant in a number of antitrust class action lawsuits filed in February 1999, which have been consolidated in the United States District Court for the Southern District of New York. These lawsuits allege that the defendants engaged in conduct in violation of the antitrust laws relating to the sale of shoes manufactured by Nine West, and seek unspecified damages against all defendants. The Company intends to vigorously defend these lawsuits. Nine West recently announced it entered into a settlement with the Attorneys General of the states, territories and possessions of the United States and with the Federal Trade Commission. The agreement, which must be approved by the Court, settles price-fixing claims against Nine West and its alleged co-conspirators. Bon Ton and the company=92s counsel believe that the settlement agreement, if approved, may completely resolve and extinguish the claims asserted in the private class action against The Bon-Ton and the other department store defendants. AUTO INSURANCE: Liberty Mutual in Canada Joins Aftermarket Fray --------------------------------------------------------------- Liberty Mutual General Insurance in Canada is the latest victim of the aftermarkets parts legal fever sweeping North America. With its American parent having a class action suit filed against it previously in the US, Liberty Mutual Insurance, the 12th largest auto insurer in Ontario, was named in a notice of action filed with the Ontario Superior Court of Justice. Only days after class action suits were started in Quebec against insurers AXA Canada and ING Canada, Liberty Mutual General Insurance in Canada became the next victim of the aftermarkets parts legal fever sweeping North America. With its American parent having a class action suit filed against it previously in the U.S., Liberty Mutual Insurance, the twelfth largest auto insurer in Ontario, was named in a notice of action filed with the Ontario Superior Court of Justice. Liberty joins an array of insurance companies feeling the impact of the U.S. aftermarket parts class action trial that ended October 8 in Marion, Illinois with a US$1.18 billion award against State Farm Insurance. The plaintiffs had accused State Farm of failing to perform their obligations under its contract with insured motorists and violating the terms of its policies by using non-original equipment manufacturer (OEM) parts; or "aftermarkets" crash parts to repair their insured's vehicles instead of restoring vehicles to original "preloss" condition as promised by company policies. In the Toronto action, the plaintiff is requesting an order stopping Liberty Mutual from using or requiring the use of parts manufactured other than by the original equipment manufacturer, damages in the sum of $150 million, and punitive damages in the amount of $10 million. Plaintiff Terrance O'Brien claims his damaged car was repaired with inferior, replacement parts supplied by a source other than the original equipment manufacturer at the express direction of the insurer. (Canadian Underwriter, March, 2000) CONCENTRIC NETWORK: Faces NJ Suit over Unsolicited Faxes & AG Subpoena ----------------------------------------------------------------------- Concentric has been named as a defendant in a lawsuit filed in New Jersey state court on November 1, 1999. The complaint seeks statutory damages, treble damages, and injunctive relief under the Telephone Consumer Protection Act of 1991 and alleges that, in or about March and June 1999, 9Net Avenue, Inc. ("9Net Avenue") transmitted unsolicited facsimiles advertising its services. The suit has been brought as a purported class action on behalf of all recipients of the allegedly unsolicited faxes. Concentric purchased the assets of 9Net Avenue in October 1999 and plaintiff contends that Concentric has succeeded to any liability 9Net Avenue incurred in connection with the alleged faxes. Concentric intends to vigorously defend the claims against it. In addition, Concentric has received a subpoena from the New Jersey Attorney General seeking information concerning the alleged transmission of unsolicited facsimile advertising by 9Net Avenue and additional marketing materials distributed by 9Net Avenue. CREDIT CARDS: Some Cardholders Are Signing Away Right to Sue ------------------------------------------------------------ Card issuers are aware of growing consumer unrest and the tendency to sue. Some are responding by improving customer service. Others are moving to protect their shareholders. Increasingly, credit card applications include contract provisions that require card holders to submit their disputes to informal arbitration proceedings, rather than go to court. By accepting the card offer, consumers effectively sign away their rights to have a judge and jury decide their complaints. Paul Bland, staff attorney for Trial Lawyers for Public Justice, said card issuers are "rushing to amend credit card contracts" to include arbitration clauses. "Banks are putting themselves above the law and the vast majority of Americans aren't even aware of it," he said. Bland said card issuers have stuffed the new provisions into envelopes, along with product advertisements, where consumers often overlook them. "These clauses, written in mind-numbing legalese and in minuscule print, are taking away consumers' constitutional rights," Bland said. Credit card industry spokesmen say the arbitration clauses are needed to fend off plaintiffs' lawyers who are ganging up with class-action cases that can result in huge damage awards and bad publicity. Alan S. Kaplinsky and Mark J. Levin, financial law experts and arbitration advocates in New York, say the less formal proceedings are the best way to keep costs from escalating because of frivolous lawsuits. "Arbitration is a powerful deterrent to class-action lawsuits against lenders," Kaplinsky and Levin wrote in the trade journal Business Law. "Stripped of the threat of a class action, plaintiffs' lawyers have much less incentive to sue." The idea of resolving disputes in private sounds practical. But there are downsides. Consumers must pay up-front costs to cover, among other things, the salaries of arbitrators. And that can far exceed the amount of the complaint. The arbitrators' decisions are final and can't be appealed. And most decisions seem to favor the companies. For example, statistics disclosed in February in a lawsuit against First USA in Montgomery, Ala., showed that the card issuer won 99.6 percent of the 19,705 consumer disputes that it sent to an arbitrator over the past two years. Consumer groups told Congress this year that it can cost a consumer $49 to file a case to dispute a $29 late fee. Consumer attorneys also say the National Arbitration Forum has become financially dependent on the banking industry. Bland points to marketing letters from the Arbitration Forum that promise banks "a positive impact on the bottom line." Industry and forum spokesmen insist that cases are handled impartially. Arbitration agreements have made it tough to win big bucks for consumers and contingency fees for attorneys. A Maryland federal court last fall dismissed a consumer lawsuit against Chevy Chase Bank that objected to arbitration clauses. The case is being appealed with support from a coalition of groups, including AARP. Recently, First USA cited its arbitration agreements as a defense in a lawsuit filed against it in Dallas. Similar defenses to consumer complaints have been cited in cases filed against Best Buy Co. and National Bank USA. "The arbitration issue is the 900-pound gorilla right now," Bland said. "The field is so tilted toward the banks that consumers can't win." GENERAL INSTRUMENT: IL Ct OKs Fiduciary Duty Exception for Good Cause --------------------------------------------------------------------- The U.S. District Court for the Northern District of Illinois did not hesitate to recognize a fiduciary duty exception to the attorney-client privilege, after first finding that the party seeking discovery invoked the exception with "good cause." (In re General Instrument Corp. Securities Litigation, No. 96 C 1129 (N.D. Ill. Jan. 7, 2000).) U.S. Magistrate Judge Edward Bobrick considered the issue in ruling on plaintiffs' motion to compel production of documents that General Instrument Corp. identified as privileged in the company's defense of three consolidated actions - two stockholders' derivative suits and a related class action complaint alleging securities fraud. The shareholders sought to recover for the devaluation of General Instrument's stock resulting from the alleged unlawful actions - including breach of fiduciary duty - of certain of the company's officers and directors. During protracted discovery, the plaintiffs eventually found it necessary to compel production of some 400 documents that General Instrument claimed should enjoy the protection of the attorney-client privilege. In support of their motion, the plaintiffs relied on the fiduciary duty exception - an exception to the doctrine of attorney-client privilege not yet addressed by the 7th U.S. Circuit Court of Appeals. The Garner case In ruling in favor of the plaintiffs' position, Magistrate Judge Bobrick turned to the leading case dealing with the exception - Garner v. Wolfinbarger, 430 F.2d 1093, decided by the 5th U.S. Circuit Court of Appeals in 1970. Garner recognized that when a corporation is accused by its stockholders of acting against the their interests, the availability of the attorney-client privilege on behalf of the corporation should be subject to the right of the stockholders to show cause why the privilege should not apply. This "show cause" requirement, Magistrate Judge Bobrick said, translates to a showing of "good cause" for overcoming the attorney-client privilege. The elements of "good cause," in turn, require the court to consider several factors: 1) whether the party seeking the discovery has a colorable claim; 2) whether the information sought is not otherwise available; 3) whether the information sought is related to past actions that are the subject of the suit; and 4) whether production of the information does not reveal trade secrets or other business confidences. The court ordered production of the sought-after documents, after concluding that the plaintiffs satisfied each of these "good faith" factors. Magistrate Bobrick remarked that General Instrument's opposition to the application of the fiduciary duty exception "ring[s] hollow" in that the company's main argument is that the exception has never been applied by the 7th Circuit, even though district courts within the circuit have recognized the exception. "[I]t is ironic that a party like the defendant, demanding appellate court sanctification before the exception is applied yet again can only cite district court cases, from outside this jurisdiction, against the application of the exception," the court wrote. Attorney for Plaintiff: Dawn M. Canty, Katten, Muchin & Zavis, Chicago. Attorney for Defendant: Michael I. Behn, Chicago. (Federal Discovery News, April 17, 2000) HARRIS SHERIFF: Govt Employers Can Dictate Time Off, TX Ct Rules ---------------------------------------------------------------- Public employees who agree to take extra time off instead of collecting overtime pay can be forced to use the time off at their employer's convenience, the Supreme Court ruled yesterday May 1. The justices, voting 6-3 in a case from Houston, said governmental employers have the authority to control when such time-off credits are used if no pre-existing labor agreement says otherwise. The decision, an interpretation of the federal Fair Labor Standards Act of 1938, is a setback for 127 sheriff's deputies in Harris County, Texas, and the AFL-CIO, which had supported their legal argument. ''Nothing in the FLSA or its implementing regulations prohibits an employer from compelling the use of compensatory time,'' Justice Clarence Thomas wrote for the court. The deputies filed a class-action lawsuit in 1994, accusing the county sheriff's department of violating the federal labor law by forcing them to use the compensatory time-off credits when they did not want to use them. A federal judge had ruled for the deputies but a federal appeals court ruled for the sheriff's department, saying public employers can use workplace rules as long as they do not conflict with a negotiated agreement. On May 1, the Supreme Court said the appeals court was right. Thomas said that although the law ''imposes a restriction upon an employer's efforts to prohibit the use of compensatory time when employees request to do so, that provision says nothing about restricting an employer's efforts to require employees to use compensatory time.'' Justices John Paul Stevens, Ruth Bader Ginsburg and Stephen G. Breyer dissented. The FLSA generally requires that public and private employee be paid time-and-one-half if they work more than 40 hours. After the Supreme Court ruled in 1985 that Congress did not act unlawfully when extending the overtime requirement to state, city and county employers, Congress attempted to soften the financial blow by allowing public employers to agree with employees to award compensatory time instead of overtime pay. The law was amended to let public safety workers accumulate up to 480 hours of time off before employers have to pay them for any additional overtime work. At the Harris County sheriff's department, employees nearing the maximum amount of accumulated hours are asked to take time off, and if they do not they are ordered to do so. The department also can require an employee to use the hours at a time that serves its personnel needs if the two sides cannot agree. Lawyers for the deputies argued that Congress never intended to let public employers have such authority a view shared by the Clinton administration. But Harris County's lawyers contended that letting deputies ''bank'' their compensatory time to the maximum limit and then return to receiving overtime does not yield the financial savings Congress intended to provide. The deputies who collect and keep such comp-time hours can, when retiring or resigning, cash them out at then-current salary rates. Nothing in the law or Labor Department regulations ''supports the notion that employees have an employee-owned savings account of compensatory time,'' the county's lawyers said. That argument won out. (AP Online, May 1, 2000) HMO: Aetna Records 1Q Profit, Plans to Drop Medicare ---------------------------------------------------- Operating profit for AETNA (Hartford, CT) climbed 28 percent in the first quarter largely on higher premiums and slightly lower medical costs. The results topped Wall Street expectations tracked by First Call/Thomson Financial by $.17 per share. Despite the improved position, Aetna announced it will drop Medicare coverage in several of its markets. Aetna recorded earnings of $184 million, or $1.29 per share, compared to $ 158.4 million, or $1.10 per share, in the year-ago first quarter. Revenues rose 39 percent to $7.9 billion from $5.7 billion. The company attributed its improved performance to its purchase of Prudential Health Care, last year. "Things are more optimistic," analyst David Shove of Prudential Securities told reporters. "The company is in a rebuilding process operationally and with its credibility, and these numbers were the first step in that process," he said in an Associated Press report. But Aetna is not without other problems plaguing its investors. The company was named as a defendant in several class action suits last fall by a group of attorneys who successfully beat tobacco companies in the fight for expense reimbursement for tobacco-related illness. Aetna said it has also poured money into turning around the troubled Prudential healthcare business, and has been engaged in softening its public image in attempts to quell accusations by providers and consumer groups that the company skimps on care. Aetna rejected a $10 billion takeover offer from Wellpoint Health Networks and ING Group and has announced it is splitting into to public companies for health insurance and financial services, and is selling off its international holdings, analysts said. Aetna's U.S. Healthcare business provided much of the first quarter earnings growth. The managed care division saw operating earnings rise 24 percent to $131.8 million from $106 million, according to financial statements released. The company stated its medical loss ratio at 83.8 cents per premium in its commercial health maintenance organization business, down one percentage point from the fourth quarter. Premiums rose 10 percent during the year in the U.S. Healthcare business, and went up as much as 16 percent in its Prudential business. The company is working on controlling costs in its Medicare HMO business, where 94 cents were spent per premium dollar on health costs, down a point from the fourth quarter. These reasons, Aetna said, provide the basis for exiting Medicare HMO businesses in several markets next year. The cities affected are to be announced July 1. Aetna has about 676,000 Medicare HMO members nationwide. A "substantial" number of its 670,000 Medicare health maintenance organization members will be affected, Aetna said in its financial statement. The members are located mainly in the Northeast, California and Texas, wire reports revealed. In 1999, about 62,000 Aetna Medicare HMO members had to find a new health plan or return to the traditional Medicare program after the company left several major markets. Another 1,700 Aetna members were displaced this year. An estimated 4 million HMO members joined the Aetna umbrella from Prudential. But Aetna reported a 1.6 percent drop in membership for the quarter to an estimated 9.7 million. That loss was attributed to members lost due to premium increases. Aetna's financial services division saw operating earnings rise 27 percent to $60 million from $47.3 million a year ago. Since 1999, the exodus of health plans from Medicare has affected more than 700,000 Medicare beneficiaries, according to an Associated Press report. Foundation Health, Pacificare and United Healthcare reporters they were still deciding whether to leave any Medicare markets next year. Nationally, about 16 percent of Medicare beneficiaries, or 6.2 million seniors, are enrolled in HMOs. (Medical Industry Today, May 1, 2000) HMO: Colson Hicks Eidson Announces Lawsuit against Humana --------------------------------------------------------- The national consumer law firm of Herman, Middleton, Casey & Kitchens announced that it has filed a nationwide class action against Humana charging that the HMO paid incentives to doctors, hospitals and other medical providers to minimize the quality and cost of the treatment they provide to their patients. The lawsuit, pending before Judge Fred Moreno of the Southern District of Florida, joins dozens of others filed throughout the United States and transferred to Miami by the Federal Judicial Panel on Multi-district Litigation. The lawsuit, brought on behalf of Humana subscribers across the US, charges that Humana rewarded health care providers who chose cheaper methods of treatment and diagnosis and who failed to disclose to patients other more costly and often more appropriate - methods of treatment. The complaint also states that Humana failed to pass the discounts it obtained for itself on to its subscribers. "Humana rewarded doctors who did not refer their patients to specialists and who did not require expensive diagnostic tests," said Mike Eidson of Colson Hicks Eidson of Miami, who filed the class action with the Herman Middleton firm. "Humana contracts also include gag clauses' prohibiting medical providers from discussing alternative treatments with the patients." Contact: Colson Hicks Eidson, Miami Karen M. Guggenheim Director of Communications & Public Affairs 305/373-5400 ext 228 HMO: Herman Middleton Files Nationwide Lawsuit against Humana in FL ------------------------------------------------------------------- The national consumer law firm of Herman, Middleton, Casey & Kitchens filed a nationwide class action on April 20, 2000, against Humana Inc., Humana Insurance Co., Inc. and Humana Medical Plans, Inc., pursuant to the Federal Racketeering Influence and Corrupt Organization Act (RICO) arising out of Humana's pattern and practice of generating profits at their members' expense through undisclosed discounts and incentives with doctors, hospitals and other medical providers and for other breaches of contract. (Patricia Freyre v. Humana, Inc. et al., United Stated District Court for the Southern District of Florida, Miami Division, No. 01429, Miami, Florida). The complaint was filed in the United States District Court for the Southern District of Florida in the Miami Division by Lewis S. Eidson of Colson, Hicks, Eidson, Colson, Matthews, Martinez & Mendoza in conjunction with the Herman Middleton firm which is comprised of law firms with offices in New Orleans, Louisiana; Atlanta and Savannah, Georgia; San Diego, California; and Jackson, Mississippi. Kirk Wagar of Coconut Grove, Florida, is also a co-counsel. The complaint alleges that Humana entered into agreements with medical providers which included, among other things, financial incentives, such as bonuses and fee withhelds which rewarded medical providers for the denial of diagnostic tests, referrals to specialists, hospitalizations, and other necessary medical care and treatment nationwide. Also, the complaint asserts that Humana entered into agreements with medical providers that had "gag clauses", prohibiting medical providers from informing patients about alternative medical treatment. Finally, plaintiffs allege that Humana adopted arbitrary claims adjusting and benefit approval guidelines for the determination of "medical necessity" which resulted in the denial of reasonable and necessary medical care to which patients were entitled. The plaintiffs seek disgorgement of profits; treble damages; litigation costs; and other general and equitable relief under the circumstances. This is the seventeenth HMO class action filed by Herman Middleton and it is expected that some, if not all, of the class actions will become part of the Multi-District Litigation pending in the Southern District of Florida. Contact: Herman Middleton Casey Kitchens, LLP Russ M. Herman, 504/581 HUGHES AIRCRAFT: CA Ct Throws out $17M Verdict for Workplace Race Bias ---------------------------------------------------------------------- The California Supreme Court has ruled that a race discrimination case, which initially resulted in an $89.5 million damages award against Hughes Aircraft Co., must be retried, finding that the trial judge's decision to order a new trial was entitled to deference by the state appellate court. Lane et al. v. Hughes Aircraft Co., No. S059064 (Cal., Mar. 6, 2000); see Employment LR, Jan. 10, 1995, P. 17.825. Noting that a trial judge enjoys the right to act as a "13th juror" with respect to deciding whether a jury's verdict is reliable, the California justices unanimously agreed that an appellate court cannot overturn a decision to grant a new trial, unless it can be shown that no reasonable juror would have agreed with the judge. Plaintiff Jeffrey Lane filed suit against his employer Hughes Aircraft, alleging that Hughes failed to promote him to various management positions because he is African-American. His complaint alleged breach of contract, fraud, race dis crimination and retaliation in violation of the Fair Employment and Housing Act (FEHA). A second plaintiff, David Villalpando, sued Hughes for breach of contract, intentional infliction of emotional distress and retaliation in violation of the FEHA. He claimed that Hughes demoted him and constructively discharged him because he refused to write a poor job evaluation for Lane. The jury returned verdicts for both plaintiffs and also decided that punitive damages of $40 million per plaintiff were warranted. Lane's award consisted of $295,000 for lost wages, $2.3 million in future wage loss and $3.5 million for emotional distress. The award for Villalpando was $125,000 for back pay, $1.3 million for future wage loss and $2 million for emotional distress. The trial judge then granted Hughes' motion for judgment notwithstanding the verdict. In the alternative, the court granted a new trial, finding insufficient evidence of discrimination and retaliation, insufficient evidence to support the damages award, and evidence that the jury verdict was based on prejudice and passion. The court of appeal found sufficient evidence to support the jury's findings on liability and compensatory damages, and reversed the judgment notwithstanding the verdict. The court of appeal also found the punitive damages excessive. The panel noted that the punitive damages were "far greater" than the compensatory damages, and that the jury did not differentiate between the two plaintiffs. The court reasoned that because Lane was the direct victim of race discrimina tion, he was entitled to a greater award than was Villalpando. The punitives were reduced from $40 million to $5 million in Lane's case, and from $40 million to $2.8 million in Villalpando's case. Hughes petitioned for review, arguing that the court of appeal improperly used the same standard when reviewing the new trial order as when reviewing the judgment notwithstanding the verdict. The supreme court granted review and then transferred the case back to the court of appeal, with instructions to reconsider under a "highly deferential" standard. The court of appeal reached the same conclusions. The supreme court once again granted Hughes' petition for review, and reversed its ruling. A trial court, when ruling on a motion for a new trial, sits as an independent trier of fact, Justice Janice Rodgers Brown said, who delivered the majority opinion. The state legislature has granted broad discretion to trial courts to order new trials, because those courts are far closer to the evidence than are appellate courts and is, therefore, in the best position to assess the reliability of a jury's verdict, Justice Brown said. In this case, the trial judge properly stated specific reasons for granting a new trial, and there was evidence in the record to support those reasons. Justice Brown explained that as long as the outcome is uncertain at the close of trial, a "properly constructed new trial order is not subject to reversal on appeal." Justice Stanley Mosk concurred, writing separately to state his disagreement with the "brand of judicial lawmaking" involved in Justice Brown's declaration that punitive damages must not, absent some special showing, exceed actual damages by more than three times. Because the purpose of punitive damages is quite different from that of compensatory damages, there is no reason that punitive damages should be limited by some fixed ratio to actual damages, he stated. Justice Brown also wrote a concurring opinion "to address the punitive damages issue in greater detail. Our role as final interpreter of state law obligates us to give meaning to the term 'excessive' in relation to punitive damages." She observed that, although juries have broad discretion to determine damages, "punitive damages should rarely exceed compensatory damages by more than a factor of three, and then only in the most egregious circumstances clearly evidence in the record." The plaintiffs are represented by Ian Herzog, Evan Marshall and Amy Ardell of the Law Offices of Ian Herzog in Santa Monica, Calif. Counsel for Hughes are Paul Grossman, Dennis Vaughn, George Abele, Paul Cane and Barbara Reeves of Paul, Hastings, Janofsky & Walker in Los Angeles. (Employment Litigation Reporter, March 28, 2000) INSO CORP: Plans Defense of Securities Lawsuit Filed Feb. 99 in MA ------------------------------------------------------------------ During February 1999, certain shareholders of Inso filed seven putative class action lawsuits against Inso and certain of Inso's officers and employees in the United States District Court for the District of Massachusetts. The lawsuits were captioned as follows: Michael Abramsky v. Inso Corporation, et al., Civ. Action No. 99-10193; Richard B. Dannenberg v. Inso Corporation, et al., Civ. Action No. 99-10195; Jack Smith v. Inso Corporation et al., Civ. Action No. 99-10208; Chavy Weisz v. Inso Corporation, et al., Civ. Action No. 99-10200; Robert C. Krauser v. Inso Corporation, et al., Civ. Action No. 99- 10366; Jean-Marie Larcheveque v. Inso Corporation, et al., Civ. Action No. 99- 10299; and Thomas C. McGrath v. Inso Corporation, et al., Civ. Action No. 99- 10389. These lawsuits were filed following Inso=92s announcement on February 1, 1999 that the Company planned to restate revenues for the first three quarters of 1998. Each of the complaints asserted claims for violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission, as well as a claim for violation of Section 20(a) of the Exchange Act. On April 5, 1999, the seven class action lawsuits that were filed against the company were consolidated into one lawsuit entitled In Re Inso Corporation, Civil Action No. 99-10193-WGY. The plaintiffs allege that the defendants prepared and issued deceptive and materially false and misleading statements to the investing public. They seek unspecified damages. The company plans to assert that the claims are subject to meritorious defenses. INSO CORP: Shareholders Sue in Feb 2000 in MA --------------------------------------------- During February 2000, certain shareholders of Inso filed two putative class action lawsuits against Inso and certain of Inso's officers and employees in the United States District Court for the District of Massachusetts. The lawsuits are captioned as follows: Liz Lindawati, et al. v. Inso Corp., et al., Civil Action No. 00-CV-10305GAO; Group One Limited, et al. v. Inso Corp., et al., Civil Action No. 00-CV-10318GAO. These lawsuits were filed following the company=92s preliminary disclosur= e of revenues for the fiscal year 2000 fourth quarter on February 1, 2000. Both complaints assert claims for violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission, as well as a claim for violation of Section 20(a) of the Exchange Act. The plaintiffs allege that the defendants prepared and issued deceptive and materially false and misleading statements to the investing public. They seek unspecified damages. KITTY HAWK: Air Cargo Service Stops Interisland Service ------------------------------------------------------- Seventy-five Hawaii employees of the Kitty Hawk air cargo carrier have lost their jobs with the company's decision to permanently shut down its operations in the state. The move came after the Dallas-based parent company, Kitty Hawk Inc., announced it was suspending its overseas air freight service, which includes the $90 million-a-year Hawaii operation. In all, 129 Hawaii Kitty Hawk Cargo and Kitty Hawk International employees are affected. Pete Sanderlin, senior vice president and general manager of Kitty Hawk International, issued the termination notice Sunday, saying the decision was "due to our faltering business situation and unforeseen business circumstances." Kitty Hawk had gained cargo business as passenger airlines switched to narrower jets that reduced their cargo capacity. It began air cargo operations in Hawaii in November 1997 when it acquired American International Airways. The company was handling up to 230,000 pounds of cargo a day in each of two Boeing 747 flights to Hawaii. In addition, interisland cargo was transferred to a Boeing 727-200 for flights to Hilo and Keahole on the Big Island and Kahului, Maui. But Kitty Hawk's chief financial officer resigned in April after a spate of financial problems came to light. The company said its cash reserves had been depleted by unexpected costs for aircraft maintenance, high fuel costs and a weaker-than-expected demand for air freight service. Several investor groups later filed class-action lawsuits, accusing Kitty Hawk of violating securities laws by issuing false statements about its financial condition. The lawsuits also claimed certain company executives sold thousands of shares for several million dollars just before the company's financial condition was made public. The legal actions helped drive down the price of the company's stock by more than 90 percent. (The Associated Press, May 1, 2000) KROGER CO: CA Suit over Egg Price-Fixing Continues -------------------------------------------------- On September 13, 1996, a class action lawsuit titled McCampbell, et al. v. Ralphs Grocery Company, et al, as filed in the Superior Court of the State of California, County of San Diego, against Ralphs Grocery Company ("Ralphs/Food 4 Less") and two other grocery store chains operating in the Southern California area. The complaint alleged, among other things, that Ralphs/Food 4 Less and others conspired to fix the retail price of eggs in Southern California. The plaintiffs claimed that the defendants' actions violated provisions of the California Cartwright Act and constituted unfair competition. The plaintiffs sought damages they purported to have sustained as a result of the defendants' alleged actions, which damages were subject to trebling under the applicable statute, and an injunction from future actions in restraint of trade and unfair competition. A class was certified consisting of all retail purchasers of white chicken eggs sold by the dozen in Los Angeles, Riverside, San Diego, San Bernardino, Imperial and Orange counties from September 13, 1992. The case proceeded to trial before a jury in July and August 1999. On September 2, 1999, the jury returned a verdict in favor of Ralphs/Food 4 Less and against the plaintiffs. Judgment was entered in favor of Ralphs/Food 4 Less on November 1, 1999. Plaintiffs have appealed the judgment. MA STATE: Fd Ct Approves Settlement of ADA Claims by Mentally Retarded ---------------------------------------------------------------------- A federal District Court in Massachusetts approved a settlement agreement in a class action suit involving allegations that the defendants violated the ADA's integration mandate by providing services in an institutional rather than an integrated setting. Rolland v. Cellucci, 17 NDLR 161 (D. Mass. 2000) (No. Civ.A. 98-3-208-KPN). The plaintiffs filed a class action suit against the state and state officials seeking broad systematic relief on behalf of all individuals with mental retardation and other developmental disabilities who were, had been, or would be residents of nursing facilities within the state. The plaintiffs sought relief under the ADA, Nursing Home Reform Amendments and the Medicaid provisions of the Social Security Act. The court denied the defendants' motion to dismiss. The defendants then filed a motion for summary judgment. After the plaintiffs obtained an extension to file a response, the parties engaged in a settlement discussion and subsequently entered into a settlement agreement. The court approved the settlement agreement on a preliminary basis. Following a fairness hearing, the court indicated that it intended to approve the settlement agreement. First, the court determined that the case warranted a strong initial presumption that the compromise was fair and reasonable. The issues were vigorously contested, the parties entered into mediated discussions after extensive discovery, the settlement was reached after arms-length negotiations, the parties' attorneys had experience litigating claims in this area of the law, reasonable notice was provided to class members and there was no real opposition to the settlement. Further, the settlement established a presumption in favor of community placement. In considering whether the settlement agreement was fair, adequate and reasonable under the circumstances, the court determined that it was "somewhat doubtful" that the plaintiffs would have obtained the relief at trial that they would have obtained under the terms of the settlement agreement. Further, extensive discovery made it possible for the attorneys to assess the merits of the case and negotiate a principled compromise. In addition, the parties' attorneys were sufficiently experienced and knowledgeable enough to represent to the court that the settlement provided fair, reasonable and adequate relief to class members. Also, absent the settlement, the parties would have expended considerable resources. Moreover, there had been no formal objections to the substantive provisions of the settlement agreement. The court also determined that the parties reached the agreement in good faith and in the absence of collusion and that the interests of third parties were not at stake in any adverse manner. Therefore, the court approved the settlement agreement. (Disability Compliance Bulletin, April 24, 2000) MP3 COM: Artists Sue in NY over Recording Companies' Claimed Copyright ---------------------------------------------------------------------- On January 21, 2000, ten major recording companies filed a copyright infringement lawsuit against MP3.com in the United States District Court for the Southern District of New York. The complaint alleges that MP3.com, in connection with its recently-introduced My.MP3.com service, made unauthorized copies of approximately 45,000 audio CDs in violation of the Copyright Act. The complaint further alleges that offering the new My.MP3.com service, which allows a user to listen, via the Internet, to the tracks of certain commercial audio CDs of his or her choosing, constitutes unauthorized copying and willful infringement of plaintiffs' copyrighted sound recordings. Plaintiffs seek damages (including statutory damages of up to $150,000 per violation) and injunctive relief prohibiting MP3.com from operating its My.MP3.com service or any other service that uses reproductions of plaintiffs=92 copyrighted sound recordings. In February 2000, MP3.com filed an answer to the complaint denying each of the substantive allegations therein, and the plaintiffs moved for summary judgement. In March 2000, MP3.com filed materials in opposition to the plaintiffs=92 motion for summary judgement, and a hearing on the motion was held by the court on April 14, 2000. The court is expected to provide a ruling on the motion on April 28, 2000. On March 14, 2000, two large music publishing companies filed a copyright infringement lawsuit against MP3.com in the United States District Court for the Southern District of New York. The complaint alleges that MP3.com, in connection with its recently-introduced My.MP3.com service, made unauthorized copies of approximately 45,000 audio CDs in violation of the Copyright Act, and that MP3.com, in connection with the streaming of audio content to users of the My.MP3.com service, continues to make unauthorized digital phonorecords in violation of the Copyright Act. The complaint further alleges that MP3.com=92s actions constitute unauthorized copying and willful infringement of plaintiffs=92 copyrights. Plaintiffs seek damages (including statutory damages of up to $150,000 per violation) and injunctive relief prohibiting MP3.com from operating its My.MP3.com service or any other service that uses unauthorized reproductions of plaintiffs=92 copyrighted works. On April 12, 2000, several artists filed a class action lawsuit in the United States District Court for the Southern District of New York against MP3.com and several major recording companies that claimed to own copyrights in sound recordings featuring the artists. The complaint alleges that the recording company defendants are claiming their separate lawsuit against MP3.com, filed on January 21, 2000, rights in plaintiffs' recordings that they do not possess. In particular, the complaint alleges that the recording company defendants do not possess any copyright protections with respect to plaintiffs' pre-1972 published and pre-1978 unpublished recordings, do not possess the right to digitally transmit plaintiffs' pre-1996 recordings over the Internet, and do not possess the right to control the conversion of plaintiffs' recordings into mp3 files. The complaint further alleges that MP3.com has used the names and likenesses of plaintiffs without their consent or authorization and in a deceptive manner, in violation of the federal Lanham Act, the New York Civil Rights Law, and unspecified unfair competition and misappropriation laws. In their prayer for relief, plaintiffs ask to have their class action certified, to be awarded unspecified damages and attorneys' fees, to have the defendants enjoined from using plaintiffs' names and likenesses to promote downloading music over the Internet, and to receive declaratory relief regarding plaintiffs' rights in their pre- and post-1972 recordings. MP3.com believes that it has meritorious defenses to the plaintiffs=92 claims based in part on the belief that these services augment the market for music and music CDs, and intends to vigorously defend against such claims. PUBLIC SCHOOLS: Settlement for Small Tax Bases May Affect Tax Cuts ------------------------------------------------------------------ The $190 million school settlement approved last Friday April 28 by the Senate may mean fewer tax cuts than legislators had anticipated. The Senate passed the school compromise, reached earlier in the week by attorneys for all sides, on a 32-2 vote and sent the measure to Gov. Bill Owens to be signed into law. The class-action lawsuit was filed on behalf of more than 20,000 students in districts with tax bases too small to build and repair public schools. In exchange for dropping the suit, schools will receive $190 million in grants and low-interest loans spread over 11 years in years when the state's budget reserve is at least $80 million. But while lawmakers were in accord on the agreement, they were split on how it will affect plans for tax cuts. Lawmakers are debating two kinds of tax cuts, temporary and permanent. The temporary cuts are allowed when there is a surplus. Those proposed this year increase child-care credits and lower motor-vehicle registration costs. Permanent taxes reduce the amount of surplus coming in and can only be increased by a vote of the people. Permanent tax cuts proposed this year include broad-based sales and income taxes, and special-interest proposals, such as tax breaks for the trucking and greyhound racing industries, low-income housing developments and the military. Permanent tax cuts affect the budget reserve, which affects how much money is available for building and road construction and repairs. Rep. Gary McPherson, R-Aurora, said if lawmakers pass all the surviving permanent tax-cut bills, without changing the amount of the tax break, the state wouldn't have enough money to make its lawsuit payments to schools in 2001-2002. "They knew that was the risk they took, but we should make a good-faith effort," he said. Even so, House Republicans were divided over which tax bills should survive. The attorneys representing the 10 families from the six districts that filed the suit met with school officials to discuss the settlement and to convince them that the legislation was in their best interests, even though there was no guarantee their schools would get any of the money. The class-action lawsuit was filed on behalf of Pueblo 60, Centennial, Lake County, Sanford, Aguilar and Las Animas school Tdistricts. troy Eid, the governor's chief attorney, said he was confident that all of the plaintiffs eventually would sign off. (Denver Rocky Mountain News, April 29, 2000) QUALCOMM INC: Yanks Settlement Offered to Former Employees for Opt-outs ----------------------------------------------------------------------- Qualcomm Inc. has scuttled an $8.9 million lawsuit settlement with former workers, saying too many opted out of the deal. The decision last Friday April 28 leaves the telecommunications company open to further lawsuits by ex-workers whose division was sold before they could use their stock options. A San Diego County judge gave parties to the current lawsuit until May 15 to mediate another deal. Qualcomm's offer was open to more than 1,000 employees of an infrastructure division that was sold to Swedish-based Ericsson last year. Former workers filed a class-action suit claiming the switch would cost them millions of dollars in unvested stock options. Under the settlement, 35 workers who had refused to sign a waiver restoring some unvested stock rights would share about $5 million, or more than $100,000 each. Others who signed the waiver would receive about $1,000 on average. The settlement also called for class-action lawyers to share about $2.7 million. "The nonsigners thought the signers were getting too much," said Superior Court Judge John S. Meyer. "The signers thought the nonsigners were getting too much, and everyone thought the lawyers were getting too much." The stakes are high because Qualcomm's stoke rose 2,600 percent after the Ericsson deal. (The Associated Press, May 1, 2000) SAIPAN SWEATSHOP: Gymboree Corp Agrees to Settlement over RICO -------------------------------------------------------------- Gymboree has been named as a defendant in a lawsuit relating to sourcing of products from Saipan (Commonwealth of Northern Mariana Islands). A complaint was filed on January 13, 1999 in Federal District Court, Central District of California, by various unidentified worker plaintiffs against Gymboree and 25 other parties. Those unidentified worker plaintiffs seek class-action status and allege, among other things, that Gymboree (and other defendants) violated the Racketeer Influenced and Corrupt Organizations Act in connection with the labor practices and treatment of workers of factories in Saipan that make product for us. The plaintiffs seek injunctive relief as well as actual and punitive damages. The case has now been transferred to Federal District Court, District of Hawaii. Gymboree has agreed to a Settlement with the plaintiffs that would require the company to pay approximately $200,000; the Settlement does not take effect until it is approved by the court. The Motion for Preliminary Approval by the court is scheduled for June 20. WISCONSIN ELECTRIC: Can't Recover Payment for Cyanide-Laced Wood Chips ---------------------------------------------------------------------- Wisconsin Electric Power Co. cannot recover from insurance companies the $ 104.5 million judgment it recently paid for dumping cyanide-laced wood chips in two landfills, a judge ruled. Milwaukee County Circuit Judge Patricia McMahon also said that, if an appeals court overturns the earlier judgment, she will impose a $104.5 million sanction on WEPCO for falsely claiming during the trial it had no insurance to cover punitive damages. "This is an extraordinary case which calls for an extraordinary sanction," McMahon said. "WEPCO, by deliberately misleading this court...engaged in egregious misconduct and flagrant disregard of its obligation to be truthful." Giddings & Lewis Inc. and the city of West Allis filed suit in 1996 against WEPCO, accusing it of intentionally contaminating property in the suburb with cyanide. A jury decided against the utility last July, calling for payment of $4.5 million in cleanup costs and $100 million in punitive damages, roughly half of its 1999 profit. The utility returned to court in November and said it mistakenly stipulated during the trial that it did not have insurance to cover punitive damages. The utility said it notified the court as soon as its executives realized they erred by flatly stating the company had no coverage for punitive damages. WEPCO lawyers said the mistake was unintentional, occurring because they had little time to research the insurance question. But the judge rejected that argument last Thursday April 27. The day after the July verdict, McMahon noted, WEPCO officials hired a Washington, D.C., law firm to submit dozens of claims for coverage of the punitive damages. Had jurors known that the firm may have been covered, the award could have run as high as $200 million, the plaintiffs' lawyers argued. "Making a misleading stipulation strikes at the heart of the proper functioning of the judicial process and the court's indispensable role in the search for the truth," McMahon said. Furthermore, McMahon said, WEPCO attorneys told state regulators two weeks after the verdict that the firm may be covered by insurance after all. (The Associated Press, April 28, 2000) ********* S U B S C R I P T I O N I N F O R M A T I O N Class Action Reporter is a daily newsletter, co-published by Bankruptcy Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc., Washington, DC. Theresa Cheuk, Managing Editor. Copyright 1999. All rights reserved. ISSN 1525-2272. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The CAR subscription rate is $575 for six months delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 301/951-6400. * * * End of Transmission * * *