/raid1/www/Hosts/bankrupt/CAR_Public/000627.MBX                  C L A S S   A C T I O N   R E P O R T E R

                  Tuesday, June 27, 2000, Vol. 2, No. 124


AOL: Faces Lawsuit in Florida over Pop-Up Advertisements
AUDI OF: Kimmel & Silverman Files PA Suit over Fuel Gauge Malfunctions
CAREMARK RX: Settlement of Securities Suit in AL Receives Final Approval

CHRYSLER CORP: To Pay Atty Fees for Removing Car Buyers’ Case to Fd Ct
COCA-COLA: Proposed Settlement Stretches COLAs Rules for Remote Regions
DRUGMAKERS: Pharmacies Will Soon Receive Checks for 1993 Rebate

HMO: Aetna Inc. in Discussions With ING to Sell Financial & Other Units
HMOs: Fight Back on Law Requiring Insurers to Bail out Failed Carriers
INDIAN TRUST: Campbell Proposes Independent Agency To Resolve Funds
LASER POWER: Intends to Defend Securities Suit Filed in CA in June
LAW FIRMS: Defaulting Homeowners Accuse of Unfair Debt Collection

MA MUTUAL: Supreme Ct Reverses Denial of Cert in Consumer Fraud Case
SUNTRUST BANKS: Mulls Payment for CA Suit over FL Branch Ponzi Scheme
TAINTED BLOOD: Lawyers in Canadian Hep C Case  Get $35 Million
TOBACCO LITIGATION: PM Buys Nabisco; Atty. Says Firms Loaded with Money
TOSHIBA: Chinese Ct to Hear Consumers Cases over Settlement

WHITMAN EDUCATION: Sandals Langer Announces $7M Settlement Of RICO Suit


AOL: Faces Lawsuit in Florida over Pop-Up Advertisements
A Florida judge has approved a class-action, multimillion-dollar lawsuit
against America Online Inc, on behalf of hourly subscribers affected by
AOL's blocking of customers' access to its services while so-called
"pop-up" advertisements are on the screen, CNN reported in its online
edition. "Plaintiffs have established that bringing this case as a
single class action is superior to requiring each class member to sue on
an individual basis," Miami-Dade County Circuit Court Judge Fredricka
Smith wrote in her order.

These are unsolicited advertisements programmed by websites to appear
unexpectedly on a viewer's screen, interrupting material a viewer may be
accessing at the time. Miami attorney Andrew Tramont said about 2.5 mln
AOL hourly plan subscribers since 1994 should not be forced to pay for
that time. He said he is likely to seek 15-20 mln usd in damages, along
with changes in AOL's business practices.

AOL spokeswoman Tricia Primrose said she is not familiar with the
lawsuit and cannot comment on it, but she did say that AOL in general
does not receive many complaints about pop-up ads.

When users sign on to the service, Primrose said, they are given
"choices of things like pop-ups," Primrose said. "AOL makes it very easy
for its subscribers to turn off pop-ups, so that they don't receive

Tramont, however, said customer ability to disable pop-ups is a recent
development at AOL. "That's a new thing," he said. "Our (lawsuit) period
goes back to 1994. That wasn't the case for the five-year period we're
covering." In addition, he said, the process of disabling the pop-ups is
complex. "And once it's disabled, it comes on automatically again after
a certain period of time," he said.

AOL charges hourly subscribers for each hour of use after they complete
their monthly allotment of three or five hours, depending on their
service plan, according to Primrose. Only after a customer reads through
a series of advertisements, or clicks the "No thanks" button, is the
pop-up removed from the screen and the user is able to resume using
AOL's services, such as e-mail or the internet. "If you have kids and
they read slowly, or they read each ad, that time adds up," said

"AOL gets money from advertisers, then money from subscribers, so
they're making double on the same time," he said. "AOL should put its
advertisements at the end of the session, and ask customers: 'Do you
want to look at our ads now?'" Tramont said. "'If so, you will be
charged for the time spent doing so.' Then those customers who aren't
willing can terminate their session, and those who are can continue."
(AFX.COM, June 26, 2000)

AUDI OF: Kimmel & Silverman Files PA Suit over Fuel Gauge Malfunctions
The law firms of Kimmel & Silverman, P.C. and Monheit, Monheit,
Silverman & Fodera, P.C. have filed a class action suit against Audi of
America, Inc. and its parent company, Volkswagen of America, Inc.,
alleging fuel gauge malfunctions in certain 1998, 1999, and 2000 Audi
Quattro models.

According to court papers filed in the Court of Common Pleas, Montgomery
County, many Audi Quattro owners have found their cars running out of
gas despite the fact that their fuel gauge reads at least half full.
According to an Audi corporate representative and certified mechanic,
the fuel tank sensors are the culprit and admittedly no repair has yet
been devised to effectively resolve the problem.

Montgomery County, Pennsylvania resident Andrew Fox is the lead class
representative; court documents show his vehicle has been subject to
repair several times, without resolution. It is estimated that the
problem affects several thousand people in Pennsylvania and many more
nationally. "I'm fed up," says Fox, a contractor from Villanova. "I hope
Volkswagen realizes how potentially dangerous this problem can be. The
gauge will go from full to empty and back to full within ten minutes."
Fox has had his gauge replaced four times in less than a year. "This is
completely unacceptable for a car worth over $40,000."

Court papers further allege that Audi officials have known about this
defect for years, by citing testimony taken under oath in a previous
case that "the amount of fuel in the tank is not actually reflected by
the position of the fuel gauge." Audi suggests drivers measure the
distance driven in their Quattros rather than rely on their gas gauge
until the problem can be corrected, a measure consumers are finding
unacceptable. Audi believes the problem is limited to Quattro vehicles
which have different fuel tank designs than other models, due to the
all-wheel drive powertrain configuration which takes up additional space
where the fuel tank normally resides. Audi has not however notified all
owners of the concern.

"This is a serious problem that has left unsuspecting people stranded on
the road, at all times of day and under frequently dangerous
circumstances," says consumer attorney and advocate Craig Thor Kimmel of
Kimmel & Silverman, P.C. "The fact that Audi officials have known about
the problem and have been unable to resolve it in over 20 months is
outrageous to anyone, let alone those who spend the money for a luxury
vehicle." "The fuel gauge defect in these automobiles threatens the
safety of all Audi Quattro drivers," says Peter Kohn, co-counsel from
the law firm of Monheit, Monheit, Silverman and Fodera, P.C. "That this
situation hasn't been solved or disclosed to consumers is ludicrous and

Owners and lessees of 1998, 1999, and 2000 Quattro models who have
experienced similar problems can participate in the class action by
contacting the plaintiff's counsel and can log onto www.lemonlaw.com or
call Craig Thor Kimmel at 1-800-Lemon-Law (800-536-6652) for more

Since 1991 the Ambler, PA and Haddonfield, NJ firm of Kimmel & Silverman
has grown to become the nation's largest lemon law firm, handling
approximately one in four cases filed across the nation. To date, Kimmel
& Silverman has represented more than 12,000 individual consumer claims,
exclusive of class actions, in Pennsylvania and New Jersey, making the
firm the largest practice of its sort in the United States. Each of the
nine attorneys employed at the firm share the partners' drive and
determination to achieve the best results for their clients and expand
the rights of consumers.

Contact: Michael Sacks of CramerSweeney PR, 856-793-4000, ext. 604, or
sacks@cramersweeney.com, for Kimmel & Silverman

CAREMARK RX: Settlement of Securities Suit in AL Receives Final Approval


The Circuit Court of Franklin County, Alabama entered a Final Approval
Order and Judgment earlier in the month approving the previously
announced class action settlement in the class action lawsuit entitled
James Taff et al. v. Caremark Rx, Inc., et al., Case No. 0072.

As previously reported in the CAR, Certain holders of the Company's
Threshold Appreciation Price Securities ("TAPS") filed suit on April 11,
2000 in the Supreme Court of the State of New York, County of New York,
entitled Aragon Investments, Ltd., et al. v. Caremark Rx, Inc., claiming
that a "Termination Event" had occurred with respect to the TAPS. The
Supreme Court of the State of New York previously postponed further
action in the Aragon litigation pending action by the Circuit Court of
Franklin County, Alabama.

The Alabama Settlement provides that on August 31, 2000, each class
member will be entitled to receive common stock for such class member's
TAPS at the rate provided for by the Purchase Contract Agreement related
to the TAPS. Each class member will also receive interest through this
date and a yield enhancement payment unless the class member decides to
settle the Purchase Contract Agreement earlier in accordance with the
Alabama Settlement terms. Additionally, the Company will issue 0.22
additional shares of common stock for each TAPS, subject to the terms of
the Alabama Settlement. The Alabama Settlement will not have a material
adverse effect on the continuing operations of the Company.

The company says that there can be no assurances that TAPS holders will
not pursue any appellate rights they may have in the Alabama Litigation
or the outcome of any such appeal. In addition, there can be no
assurances with respect to the outcome of the Aragon litigation.

CHRYSLER CORP: To Pay Atty Fees for Removing Car Buyers’ Case to Fd Ct
Trial court correctly ruled that defendant was required to pay
plaintiffs' attorney fees and costs for defendant's improper removal of
class action from state to federal court; trial court would have abused
its discretion had it denied plaintiffs' request for fees because
defendant behaved absurdly.' The 7th U.S. Circuit Court of Appeals has
affirmed a ruling by U.S. District Judge Robert W. Gettleman.

Six plaintiffs filed suit in Illinois seeking to represent a class of
auto buyers and lessees whose vehicles had not been painted properly.
Because some of the plaintiffs were from Illinois and some were from
Michigan, they sought damages under both Illinois and Michigan law.
Defendant Chrysler Corp. removed the action to federal court.

The trial judge remanded the proceedings to state court, ruling that
Chrysler had not established either complete diversity of citizenship or
the jurisdictional limit, which requires a minimum amount in controversy
of $ 75,000. The judge found that even with punitive damages added to
the loss caused by defective paint, no plaintiff could hope to recover
more than $ 30,000 without creating a ratio of punitive to actual
damages so high that it would become untenable.

Chrysler appealed, but the 7th Circuit dismissed the appeal. The case
was returned to state court. However, the federal judge awarded the
plaintiffs $ 7,500 as expenses caused by the wrongful removal, and
Chrysler appealed from that award.

Chrysler contended that because it removed the suit in good faith, it
should not have been ordered to pay the plaintiffs' legal expenses, even
if removal was improper.

The appeals court rejected that argument, saying that nothing in the
trial judge's approach smacks of an abuse of discretion." In fact, the
appeals court said, the judge would have abused his discretion had he
denied the plaintiffs' request for fees because Chrysler has behaved
absurdly -- not only throughout this case but also in other similar
suits, all of which Chrysler removed and all of which have been remanded
by federal judges across the nation."

The appeals court said removal of this case was unjustified under
federal law because none of the plaintiffs was apt to recover anything
close to $ 75,000 and Chrysler's contention that punitive damages should
be aggregated for purposes of determining the amount in controversy
clashes with established rules.

The court also rejected Chrysler's objections that the $ 7,500 fee award
was too high because it was not adequately documented. The appeals court
said $ 7,500 was not a particularly large sum in commercial litigation.

Craig Garbie, et al. v. DaimlerChrysler Corp., No. 99-3539. Judge Frank
H. Easterbrook wrote the court's opinion with Chief Judge Richard A.
Posner and Judge John L. Coffey concurring. Released May 1, 2000. 0077
(Chicago Daily Law Bulletin, June 23, 2000)

COCA-COLA: Proposed Settlement Stretches COLAs Rules for Remote Regions
Since the early 1980s, federal and postal employees in Alaska, Hawaii,
Guam, Puerto Rico and the Virgin Islands have complained that their
cost-of-living adjustments (COLAs) are not fairly calculated. These
employees have argued that their COLAs should go beyond consumer indexes
that compare the cost of a quart of milk in Fairbanks or San Juan with
the milk prices in Washington. Working for the government in remote
locations makes it more expensive to obtain quality medical care or go
on a visit to grandmother, they contend.

The COLA complaints led to three major class-action lawsuits and a
series of regulatory disputes between the employees and their
inside-the-Beltway bosses. But the legal wrangling appears to be at an
end, according to a notice of proposed settlement filed in the federal
district court of the Virgin Islands.

Under the proposed settlement, the government will set aside $ 201.5
million to be awarded in back pay to these employees, who number from
44,000 to more than 75,000, it is estimated. The proposed settlement was
reached through "safe harbor" negotiations that, if accepted by the
court, will give the government immunity from further litigation in this
dispute. In approving the safe harbor process, Congress also banned COLA
rate reductions in the states and territories until a deal was reached.
According to the proposed settlement, the government will agree to
expand the traditional definition of a COLA. For these geographic areas,
the government will calculate the COLA based on its market basket index
of goods and services, then add from five to nine percentage points for
"non-price" factors. These factors can include quality-of-life
considerations, such as limited access to colleges and health care.

New COLA surveys will be conducted in the Alaskan, Caribbean and Pacific
regions for the new methodology, which should be completed by 2003 or
2004. Given the dynamic nature of consumer prices, the settlement does
not indicate which regions might be winners or losers under the new

Since 1948, Congress has capped the allowance at 25 percent, which
continued during the settlement talks. The agreement would allow the
government to reduce COLA rates below that level, although any reduction
cannot exceed 1 percentage point per year.

Employees' attorneys will receive about $ 20 million as compensation for
their legal fees and case expenses. "This process really has worked as
it should have over the last four or five years," said Ben McConaughy, a
Seattle lawyer. He called it a meaningful example of a "partnership"
that involved the Office of Personnel Management, the employees seeking
redress and their attorneys. The federal court will consider the
proposed settlement for approval Aug. 17. (The Washington Post, June 26,

DRUGMAKERS: Pharmacies Will Soon Receive Checks for 1993 Rebate
This month, checks will be sent out for half the $ 535 million awarded
to settle the lawsuit filed by US pharmacies against drugmakers in 1993,
claiming that the latter discriminated against them by not giving them
rebates offered to large-volume buyers, reports The Indianapolis Star.
The rest will be paid either later this year or in early 2001. Some
38,000 pharmacies will receive checks, with an average per store of $

The settlement payouts are based on each pharmacy's prescription drug
purchases from fall 1989 to early 1995. Larger drugstore chains that did
not opt out of the lawsuit will do quite well, says The Star; 2,000 out
of Walgreen's 3,000 stores are eligible for the payout.

17 drugmakers decided to settle the class-action suit. Some, including
Eli Lilly, claimed that while their pricing systems were fair and legal,
the cost of litigation plus the time and attention of management would
have far exceeded the settlement. The total settlement came to over $
700 million, excluding interest, while the 64 law firms representing the
pharmacies split $ 175 million in fees, and a further $ 18 million was
used to establish a foundation to enhance the competitiveness of retail
pharmacies, reports The Star.

The report also notes that the drug companies agreed to extend discounts
to any buyer that could show it could affect a drug's market share, but
retail pharmacies were not much helped by that last clause, according to
retired Texas pharmacist Bob Gude, who initiated the lawsuit. This part
of the agreement had so many loopholes that it did not mean a thing, he
told the newspaper, adding that attorneys took control of the case after
it became a class-action suit and claiming that their primary aim was to
get a settlement so they could get paid.

Iowa pharmacist Robert Osterhaus also told the newspaper of his
disappointment that the price discrimination still occurs, with drug
companies continuing to rebate money to favored customers. Mr Osterhaus
will serve as a trustee of the foundation to be set up with the
settlement money.

Only four defendants remained when the case came up for trial in 1998.
It was then thrown out by the judge, who said that the plaintiffs had
failed to prove their allegations that pharmaceutical companies
conspired to overcharge for drugs. (Marketletter, June 26, 2000)

HMO: Aetna Inc. in Discussions With ING to Sell Financial & Other Units
Aetna Inc. says it's talking to ING Group again -- this time about a
possible sale of its Financial Services and International units. The
Dutch investment banker is back at the table three months after Aetna
rejected the $ 70 per share takeover offer it submitted with WellPoint
Health Networks, Inc. (MCW 3/6/00, p. 1).

The sale would be a departure from the firm's stated plan to spin off
its financial and health divisions into two separate, publicly traded
companies (MCW 3/20/00, p. 1). But it would free up the insurer to focus
on stabilizing its managed care division, which has been beset with
class-action lawsuits, troubled provider relationships and a
glacially-paced integration of PruCare.

And even if discussions come to nothing, they may be considered "a
validation of Aetna's intrinsic worth," said Credit Suisse First
Boston's Joe France. Aetna was slammed by Wall Street after rejecting
the WellPoint offer, which it dismissed as "totally inadequate." The
insurer has been under enormous pressure to boost its share price, which
has fallen from a high of almost $ 100 per share in May 1999 to $ 39 in
February 2000. But stronger first-quarter 2000 results have raised
prices in recent weeks, and it rose another 6% to close at $ 66.75 the
day news of the discussions broke. (Managed Care Week, June 12, 2000)

HMO: Ct Refuses to Certify Class over Denial of Pain Alleviation
Plaintiffs brought suit alleging that defendant, health insurance
carrier, had a policy of denying treatments for pain alleviation and
pain management in an arbitrary and capricious manner. Plaintiffs moved
to certify the case as a class action. The court noted that plaintiffs
broadly defined the putative class, but found that they failed to
proffer any evidence to permit a reasonable estimate of the number of
persons who fit within the proposed class. Plaintiffs stated in their
complaint that the precise number of potential plaintiffs was not known
with certainty, but was likely to exceed several hundred people. The
court stated that just as there was a "common sense assumption" to
support a finding of numerosity, it should follow that the court may
make a "common sense assumption" against it. Making that assumption, the
court denied plaintiff's motion.

Judge Glasser

action, plaintiffs Elizabeth Pecere ("Pecere") and Linda Prince
("Prince") allege that defendant Empire Blue Cross & Blue Shield
("Empire") has a specific policy of routinely denying treatments for
pain alleviation and pain management in an arbitrary and capricious
manner and without regard to medical necessity. Amended Class Action
Complaint ("Compl.") PP 27, 28, 29. Plaintiffs now move pursuant to Rule
23 of the Federal Rules of Civil Procedure for an order that this case
be maintained as a class action on behalf of all persons "who have been
unlawfully denied medical benefits relating to pain management or
alleviation" by Empire. Compl. P 20. The purported class is defined as
including all such individuals who have exhausted administrative
remedies and whose appeals have been denied by Empire within the statute
of limitations applicable to this action under the Employee Retirement
Income Security Act ("ERISA"), 29 U.S.C. @ 1001 et seq., and pursuant to
29 U.S.C. @ 1132(a)(1)(B). Id.

Under two separate policies of medical insurance, the defendant is
required to cover the "medically necessary" expenses of the plaintiffs
Pecere and Prince. Compl. PP 1, 6. Pecere injured her back in June 1993
while lifting some heavy boxes of files at her place of work. As a
result, she experiences lower back pain that radiates to her legs, and
has been diagnosed as suffering from fibromyalgia and other degenerative
medical conditions. Compl. P 2. Pecere has been unemployed since the
injury occurred.

To relieve her pain, physicians at the Pain Alleviation Center in
Jericho, New York prescribed a treatment program that included trigger
point injections. The Complaint alleges that since her treatment began
in August 1996, Pecere has made steady progress. Compl. PP 3, 4.

The Complaint alleges that starting in April 1995 and continuing
thereafter, Prince has suffered from a herniated disc which causes her
significant pain. It is alleged that she has been unable to work
steadily and her condition has required surgery and steroid injections.
Compl. P 7. To obtain relief from the pain caused by her condition,
plaintiff sought treatment at the Pain Alleviation Center from Dr. Paul
J. Sorell III ("Dr. Sorrell"). The treatment included physical therapy,
massage and trigger point injections.

Between August 16, 1996, and July 14, 1999 (the date that this case was
filed), plaintiffs Pecere and Prince submitted approximately 150 claims
to Empire for treatments administered to them by doctors at the Center.
Labianca P 8. Pecere sought a total of approximately $ 69,375 in
payments from Empire for treatments that she claims to have received at
the Center. Id. P 9. Empire made payments to Pecere for $ 18,202 worth
of these claims, over a period of approximately 2 years. Id. Empire made
its last payment to Pecere on or about October 26, 1998, and denied
payment for claims relating to physical therapy at the Center after that
date. Id. Prince sought a total of $ 11,610 in payment for similar
treatments allegedly received at the Center and has received payment of
approximately $ 665 from Empire for that therapy. Id. P 10.

Empire's policy regarding the provision of reimbursement benefits for
pain management is set out in its "Pain Management Guidelines."
McCallion Aff. Ex. A. It states that "multidisciplinary in-patient Pain
Management 'programs' are not covered under our hospital contracts.
Services may be allowed based on individual coverage." Id. at 1. The
Guidelines also provide: "out-patient pain management 'programs' - We do
not recognize a global fee or make a global payment on surgical/medical
contracts. Eligible services are reimbursed according to medical
necessity and contractual coverage." Plaintiffs argue that these
provisions, along with several others, indicate that Empire considers as
medically necessary only those pain management/alleviation treatments
that are directly connected to or arising out of surgical procedures.
Pl. Mem. 2-4. Plaintiffs view these provisions as evidence of an
arbitrary and capricious policy of denial for payments of medically
necessary pain management programs.

According to plaintiffs, "even if ... non-surgical pain alleviation
treatments were medically necessary and/or prescribed by a licensed
physician, Empire would simply have no procedures, guidelines or even
administrative coding system by which to process such claims for
reimbursement and determine whether or not they were 'medically
necessary' treatments."

Empire denies that it acts arbitrarily when deciding whether to cover a
particular course of pain therapy. Def. Mem. at 14 n.11. At oral
argument, in response to the Court's inquiry concerning plaintiffs'
assertion that benefits were denied without explanation, defendant
advised that its medical experts had determined that treatment was no
longer medically necessary. Moreover, Empire argues that plaintiffs'
doctors engage in questionable treatments and billing practices.

According to Empire, at least two of the doctors at the Pain Alleviation
Center who were treating plaintiffs, Dr. Paul J. Sorrell and Dr. Richard
M. Linchitz, have been the subject of "pre-payment review flags."
Labianca Aff. PP 2, 4. This means that, because these Pain Alleviation
Center's doctors were found by Empire to have questionable billing
practices, Empire's Professional Services Review Department reviews each
and every claim submitted by them, together with the actual medical
records of the patient. Id. P 3. According to Empire, in 1999 its Fraud
Investigation and Detection Division began a formal fraud investigation
into the Pain Alleviation Center and its doctors. Labianca Aff. P 6.
Both Dr. Sorrell and Dr. Linchitz claim that they did not know of these
actions allegedly taken by Empire and that such measures are simply a
retaliation for their association with plaintiffs' lawsuit. Linchitz
Aff. PP 4-7; Sorrell Aff. PP 4-6.

Plaintiffs Pecere, Prince, and Nancy Shanlin commenced this action on
July 14, 1999. On or about August 26, 1999, plaintiffs filed an amended
complaint withdrawing plaintiff Nancy Shanlin and on March 31, 2000,
plaintiffs filed this motion for class certification.


Rule 23 of the Federal Rules of Civil Procedure governs class
certification. It provides in part: Prerequisites to a Class Action. One
or more members of a class may sue or be sued as representative parties
on behalf of all only if (1) the class is so numerous that joinder of
all members is impracticable, (2) there are questions of law or fact
common to the class, (3) the claims or defenses of the representative
parties are typical of the claims or defenses of the class, and (4) the
representative parties will fairly and adequately protect the interests
of the class.

Additionally, a potential class action must qualify under one of the
alternatives set forth in Rule 23(b). Plaintiffs here rely on Rule
23(b)(3), under which a class action may be maintained if "the court
finds that the questions of law or fact common to the members of the
class predominate over any questions affecting only individual members,
and that a class action is superior to other available methods for the
fair and efficient adjudication of the controversy."

Although a class certification motion "may involve some considerations
related to the factual and legal issues that comprise the plaintiff's
cause of action," D'Alauro v. GC Servs. Ltd. Partnership, 168 F.R.D.
451, 454 (E.D.N.Y. 1996), a court considering a motion for class
certification must accept the allegations in the complaint as true and
should not conduct a preliminary inquiry into the merits of the action.
See Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177, 94 S.Ct. 2140,
2152-53, 40 L.Ed.2d 732 (1974) (Rule 23 does not " give a court
authority to conduct a preliminary inquiry into the merits of a suit to
determine whether it may be maintained as a class action"). A court
should only grant a motion to certify a proposed class if it "is
satisfied, after a rigorous analysis, that the prerequisites of Rule
23(a) have been satisfied." Gen. Tel. Co. of the Southwest v. Falcon,
457 U.S. 147, 161 (1982). However, the law in the Second Circuit favors
the liberal construction of Rule 23 and courts may exercise broad
discretion when they determine whether to certify a class. See D'Alauro,
168 F.R.D. at 454-5; Gary Plastic Packaging Corp. v. Merrill Lynch, 903
F.2d 176, 179 (2d Cir.1990), cert. denied, 498 U.S. 1025, 111 S.Ct. 675,
112 L.Ed.2d 667 (1991) (citing Green v. Wolf Corp., 406 F.2d 291, 298
(2d Cir.1968), cert. denied, 395 U.S. 977, 89 S.Ct. 2131, 23 L.Ed.2d 766

Plaintiffs bear the burden of establishing each requirement under Rule
23 for class certification, and their failure to meet any one of Rule
23's requirements destroys the alleged class action. See Ansari v. New
York Univ., 179 F.R.D. 112, 114 (S.D.N.Y. 1998); Green v. Wolf Corp.,
406 F.2d at 298. "Certification ... is dependent on [plaintiff's] proof
that each of the requirements of Rule 23(a) ... has been met." Lloyd v.
Industrial Bio-Test Lab., Inc., 454 F. Supp. 807, 811-12 (S.D.N.Y.
1978). "In attempting to meet these requirements plaintiffs may not rely
solely on the allegations of the complaint, but must provide information
sufficient for the court to make a reasonable judgment." Colburn v.
Roto-Rooter Corp., 78 F.R.D. 679, 681 (N.D. Cal. 1978); see also
Feinstein v. Firestone Tire and Rubber Co., 535 F.Supp. 595, 601
(S.D.N.Y. 1982).

                              A. Numerosity

For a court to certify a class, Rule 23(a) requires a finding that the
numerosity of injured persons makes joinder of all class members
"impracticable." Robidoux v. Celani, 987 F.2d 931, 935 (2d Cir.1993).
Impracticable does not mean impossible, but simply difficult or
inconvenient. See id.; Primavera Familienstiftung v. Askin, 178 F.R.D.
405, 409 (S.D.N.Y.1998); 7A Charles Alan Wright et al., Federal Practice
and Procedure @ 1762 (2d ed.1997). "Moreover, plaintiffs need not
provide a precise quantification of their class, since a court may make
'common sense assumptions' to support a finding of numerosity." Legrand
v. New York City Transit Auth., No. 95-CV-0333, 1999 WL 342286, 3
(E.D.N.Y. May 26, 1999) DeFlumer v. Overton, 176 F.R.D. 55, 58
(N.D.N.Y.1997); see also German v. Federal Home Loan Mortgage Corp., 885
F.Supp. 537, 552 (S.D.N.Y.1995). Nevertheless, "as the bearers of the
burden to show joinder is impracticable, plaintiffs must show some
evidence of or reasonably estimate the number of class members."

Plaintiffs broadly define the putative class as those "who have been
unlawfully denied medical benefits relating to pain management or
alleviation in violation of to [sic] 29 U.S.C. @ 1132(a)(1)(B) and in
violation of the provisions of their group health plan with Defendant
Empire." Am. Compl. P 20. Yet, plaintiffs have failed to proffer any
evidence to permit a reasonable estimate of the number of persons who
fit within the proposed class. All plaintiffs allege in their complaint
regarding numerosity is the bald assertion that the "class represented
by plaintiffs is so numerous that joinder of all members is
impracticable," and that the "precise number of [Empire's] policyholders
who are potential plaintiffs is not presently known with certainty, but
it is likely that the class exceeds several hundred persons." Am. Compl.
P 21. Affidavits of plaintiffs' doctors, submitted along with
plaintiffs' reply brief, simply allege that their estimate of the number
of Empire policyholders in New York who have been unlawfully denied pain
treatment coverage numbers in the hundreds. Sorrell Aff. P 5; Linchitz
Aff. P 8. No information is provided as to the methodology used to reach
this conclusion, and therefore, it will not suffice to establish a
reasonable estimate of the number of persons who fit within the proposed

Furthermore, in determining whether a proposed class is so numerous that
joinder of all members is impracticable, courts examine the following
factors: judicial economy, (2) the geographic dispersion of class
members, (3) class members' financial resources, (4) the ability of
claimants to institute individual lawsuits, (5) knowledge of the names
and existence of the potential class members, and (6) requests for
prospective injunctive relief that would involve future class members.
See Legrand, 1999 WL 342286, at 4 (citing Robidoux, 987 F.2d at 935).
Plaintiffs have failed to address these issues with respect to the class
that they purport to represent.

Just as there is a "common sense assumption" to support a finding of
numerosity, it should follow that the Court may make a "common sense
assumption" against numerosity. In that regard, common sense would
dictate that patients are not fungible and that the medical necessity of
pain alleviation is not universal. The conclusion must be, therefore,
that any assertion that the "class represented by plaintiffs is so
numerous that joinder of all is impracticable" is sheer sophistry.

                      B. Commonality and Typicality

If common sense would dictate that patients are not fungible and that
the medical necessity of pain alleviation is not universal and must be
determined by an individual professional evaluation, to assert that
typicality and commonality are satisfied would similarly be sheer

Typicality, a matter closely related to commonality, is satisfied when
each class member's claim arises from the same course of events and each
class member makes similar legal arguments to prove the defendants'
liability ... While the commonality inquiry establishes the existence of
a certifiable class, the typicality inquiry focuses on whether the
claims of the putative class representatives are typical of the class
sharing common questions.

In re Frontier Ins. Group, Inc. Securities Litigation, 172 F.R.D. 31, 40
(E.D.N.Y. 1997).

The general purpose of both the commonality and typicality requirements
of Rule 23(a) is to ensure that maintenance of a class action is
"economical and whether the named plaintiff's claim and the class claims
are so interrelated that the interests of the class members will be
fairly and adequately protected in their absence." General Tel., 457
U.S. at 157 n.13; 3004 Albany Crescent Tenants' Ass'n v. City of New
York, No. 95 Civ. 10662, 1999 WL 1067891, at *3 (S.D.N.Y. Nov. 24,
1999). "Those requirements therefore also tend to merge with the
adequacy-of-representation requirement, although the latter requirement
also raises concerns about the competency of class counsel and conflicts
of interest." General Tel., 457 U.S. at 157 n.13.

In this case, plaintiffs' claims are not common to or typical of those
of the putative class, and questions of law or fact common to the
members of the class do not predominate over any questions affecting
only the named plaintiffs. The class that plaintiffs purportedly
represent includes everyone who has been unlawfully denied benefits for
pain treatment by Empire in violation of the provisions of their group
health plan. Am. Compl. P 20. Plaintiffs do not specify why, when, where
or how the coverage of the class was denied.

This case is ill-suited for class status because plaintiffs' claims
hinge on whether or not the treatment for each of their individual
conditions was "medically necessary." Compare, e.g., Am. Compl. P 5
(seeking payment for Pecere's trigger point injections) and Am. Compl. P
8 (seeking payment for Prince's ice packs and massages). Thus,
plaintiffs' claims require a "highly individualistic determination,"
militating against class certification. Klein v. Empire Blue Cross and
Blue Shield, No. 93 Civ. 5187, 1998 WL 336633, at *4 (S.D.N.Y. June 23,
1998) (denying class certification because, inter alia, whether
treatment was experimental as to a specific plaintiff's medical
condition was not common to class members and would require "highly
individualistic determination"). This is especially so because some of
plaintiffs' claims for pain treatment administered by the Pain
Alleviation Center were in fact paid.

Although plaintiffs claim that the defendant arbitrarily and
capriciously denied payment for medically necessary treatment for pain,
that assertion is belied by the undisputed fact that Pecere and Prince
did receive payments from Empire for more than $ 18,000 worth of
physical therapy. Moreover, the purported class members have differing
levels of contractual coverage. Thus, plaintiffs' claims are not typical
of, or common to, those of members of the class who were treated by
other physicians, have different contractual coverage, or were denied
all benefits.

                       C. Adequacy of Representation

Plaintiffs are also unable to satisfy their burden regarding the
adequacy of their representation under Rule 23(a)(4). A court should not
certify a class representative who "is subject to unique defenses which
threaten to become the focus of the litigation." Gary Plastic Packaging
v. Merrill Lynch, 903 F.2d 176, 180 (2d Cir. 1990), cert. denied, 498
U.S. 1025 (1991). Plaintiffs in this case are subject to such defenses.

Two of their treating physicians, Drs. Richard M. Linchitz and Paul J.
Sorrell III, have been under investigation by Empire for fraudulent
billing practices. Absent class members would suffer if plaintiffs were
their representatives because plaintiffs' conduct of the case would be
preoccupied with defenses unique to them. Id. (noting that unique
defenses go to either the typicality or adequacy of representation

                          D. Superiority Requirement

Rule 23(b)(3) requires plaintiffs to demonstrate "that a class action is
superior to other available methods for the fair and efficient
adjudication of the controversy." Fed. R. Civ. P. 23(b)(3). Plaintiffs
cannot show that a class action is the superior means of adjudicating
this case, in which their own personal dispute with Empire is at issue.
Furthermore, where, as here, individual factual issues - such as whether
certain treatments were "medically necessary" - predominate over common
issues of fact, a class action is "not a superior method for fair and
efficient adjudication." Kaczmarek v. International Bus. Machs. Corp.,
186 F.R.D. 307, 312 (S.D.N.Y. 1999).


This case is clearly not appropriate for class action certification.
Rather, plaintiffs Pecere and Prince have personal disputes with Empire,
their health insurance carrier, over the amount of reimbursement that
they may receive for pain therapy administered by one particular medical
establishment - the Pain Alleviation Center in Jericho, New York, which
the defendant has determined to be medically unnecessary.

Plaintiffs have failed to meet their burden under Rule 23. Their motion
is founded on affidavits from persons other than plaintiffs, which
provide little details of the purported class, and almost no information
concerning numerosity, commonality, typicality, adequacy, predominance,
or superiority. See Sheehan v. Purolator, Inc., 103 F.R.D. 641, 648
(E.D.N.Y. 1984) (denying class certification motion, because, inter
alia, plaintiffs seeking class certification failed to submit affidavits
from purported class members or other evidence that established the
existence of an aggrieved class), aff'd, 839 F.2d 99 (2d Cir. 1988). For
all of the foregoing reasons, this Court denies plaintiffs' motion for
class certification. (New York Law Journal, June 14, 2000)

HMOs: Fight Back on Law Requiring Insurers to Bail out Failed Carriers
Under attack by doctors and hospitals, the health insurers of New Jersey
are fighting back. The state Association of Health Plans, whose nine
members provide most of the medical insurance in New Jersey, is expected
to file a state court suit to overturn a law requiring insurers to fund
up to $50 million of the bailout of two failed health carriers,
including HIP Health Plan of New Jersey.

Paul Langevin, the director of the association, said last Thursday June
22 that an out-of-state firm, which he would not identify, has been
called in to write the complaint and serve as lead counsel. Lawyers who
might become involved with the litigation say the association had
difficulty finding a New Jersey firm free of conflicts with past or
present clients.

On another front, insurers are lobbying the state Department of Banking
and Insurance to jettison the toughest sections of regulations
implementing a 1999 law aimed at slow and venal behavior by health

During a hearing, Langevin and Bruce Silverman, a vice president with
Delta Dental Plan of New Jersey, complained to state insurance officials
that the proposed regulations went far beyond the Legislature's intent.
Implicit in their remarks was the hint of yet more litigation if
carriers don't like the final regulations. "The proposed regulations
actually run counter to the goal of rapid reimbursement," Langevin said.

As in most states, the health maintenance organizations' chief
antagonists in New Jersey are doctors and hospitals, who say insurers
are making too many medical decisions. The health professionals also say
that they are being pushed around by health plans when it comes to
contractual relationships and payments. It's a sign of the times that
Medical Economics - the Oradell-based magazine whose ATLA-hating doctor
subscribers have long been accustomed to such headlines as "I did
nothing wrong but got sued anyway!" - gave star treatment on its May 8
cover to two plaintiffs' attorneys. Their accomplishment: winning a $13
million verdict against Humana Corp. of Louisville, Ky., for denying
coverage to a gynecological patient.

"There's tremendous animosity between doctors and HMOs," says Michael
Kalison of the Liberty Corner health law boutique Kalison, McBride &

Steven Kern, whose Bridgewater firm, Kern Augustine Conroy & Schoppmann,
represents the New Jersey Medical Society, suggests that the HIP bailout
legislation and the prompt-payment regulations are good examples of how
the antagonism between insurers and doctors is playing out in New

In testimony before staff members of the Department of Banking and
Insurance, executives of the state Medical Society and other doctor and
hospital groups praised the department's draft of regulations
implementing the so-called HINT law. The health information electronic
data interchange technology act, adopted on July 1, 1999, amends Title
17 to establish prompt-payment procedures for health claims. HMO
representatives condemned many of the provisions of the draft.

Under the law, insurers must pay electronically filed claims within 30
days and paper claims within 40 days, or pay interest at an annual rate
of 10 percent. The interest would be due at the same time as the paid
claim. In addition, mere receipt of a claim must be acknowledged within
two days. For disputed claims, insurers would be required to establish
internal and external appeals processes that used alternate dispute

In a typical attack on the proposals, Silverman, whose Delta Dental plan
covers 1.1 million patients in New Jersey and Connecticut, said the
regulations would drive up the cost of health care without solving any
of the perceived problems. He said at the hearing, for example, that:
    His company processes 2,800 paper claims a day. Requiring notice of
receipt of a claim within two days would cost his plan more than
$500,000 a year with little benefit. Right now, he said, his company
already is processing most claims itself within 10 days; why add another
    Requiring immediate payment of interest would be a silly waste of
money because the average claim submitted to his company is $130. If the
proposed rules had been in effect last year, his company would have had
to set up an elaborate accounting system for what would have amounted to
$750 in interest payments.
    External alternate dispute resolution shouldn't kick in unless the
claim is for $500 or more. And any ADR should be accompanied by a
"loser-pays-the costs" rule, to prevent frivolous appeals of coverage

                     English Rule' Is Common Ground

Ironically, the "loser pays" concept appeared to be the only point of
agreement between health plan advocates and medical groups during a
two-hour hearing. Valerie Sellers, vice president for health policy and
planning at the New Jersey Hospital Association, also championed the
notion that the prevailing party in ADR should pay the costs. "You
shouldn't have to pay to get the money," Sellers told the hearing
officers. That the "English rule" - loser pays - would find favor with
opposing representatives is perhaps a measure of each side's confidence
in the righteousness of its positions on whether claims are being
routinely denied for monetary rather than medical reasons.

In a brief interview after the hearing, Sellers cautioned that her
support for the English rule reflected her sense of how many hospitals
feel about the ADR process and might not be the last word on the subject
by her group. For the most part though, Sellers and other
representatives of medical groups praised the proposed regulations.
While HMOs say they pay more than 95 percent of their claims on a timely
basis, Sellers told the hearing that a survey of hospital claims records
in New Jersey shows that if the law had been in effect during the past
six months, carriers would have been noncompliant on 80 percent of the
claims submitted to them.

In a further demonstration of the warm relationship between the state
and medical groups on HMO issues, Betsy Ryan, counsel to the Hospital
Association, says the group would probably seek to intervene on the
state's behalf against a suit by the carriers against the HIP bailout.

Under the statute adopted on April 6, the hospitals would waive $50
million of their claims against the two affected insolvent carriers, HIP
and American Preferred Provider Plan. The state would apply $50 million
of what it gets from cigarette companies in the nationwide settlement of
tobacco class-action litigation, and 14 insurers would contribute up to
$50 million to claimants of the failed carriers.

The suit being readied by the carriers is expected to claim that their
share of the bailout is an unconstitutional taking because the law bars
HMOs from raising premiums to fund their contribution.

In a separate action, Horizon Blue Cross Blue Shield of New Jersey is
defending itself against a claim by Somerset Orthopedic Associates of

An amended class action filed by Franklin Park solo practitioner David
Barmak alleges that Horizon dishonors patients' assignments of benefits
to physicians who are not in Horizon's network, requiring out-of-network
physicians to spend time and money chasing the patients to collect
money. Horizon, represented by the Newark office of New York's Epstein,
Becker & Green, has said the charges are false and that it will defend
itself vigorously. On the main issue -- the legality of state statutes
allowing patients to sue HMOs for medical malpractice -- New Jersey is
still in the watchful mode. Six states have such statutes, and similar
legislation is being considered in New Jersey. In the first federal
appellate ruling on such a law in Texas, the Fifth U.S. Circuit Court of
Appeals ruled in Corporate Health Insurance Inc. v. Texas Department of
Insurance, 98-20940, that an HMO can be sued for providing substandard
care, but not for denying care altogether on grounds the benefit is not
covered. (New Jersey Law Journal, June 26, 2000)

INDIAN TRUST: Campbell Proposes Independent Agency To Resolve Funds
Sen. Ben Nighthorse Campbell, R-Colo., has called for creation of a
government corporation to untangle billions of dollars in unresolved
trust accounts held by the Bureau of Indian Affairs for American

Campbell, chairman of the Senate Indian Affairs Committee, said at a
committee meeting that Congress should establish an "Indian Trust
Resolution Corp.," an independent federal agency that would be empowered
to resolve disputes much like the Resolution Trust Corp., which sorted
out the savings and loan collapse of the 1980s.

Eloise P. Cobell, a member of Montana's Blackfeet tribe and the lead
plaintiff in a lawsuit challenging the government's handling of the
funds, also backed the legislation. "I believe we need a fresh start in
a new entity," Cobell said.

The trust accounts hold money the government has collected for Indians
from oil leases, timber sales and mineral rights on Indian properties.
The accounts could hold as much as $10 billion but much of it cannot be
accounted for.

"I've reached the conclusion that in this instance the doctor cannot
heal himself and that real independence is needed if the United States
is going to live up to its responsibilities to Indian people," Campbell
said as he opened a sparsely attended hearing on his proposal.

The Clinton administration declined to appear because the proposal
remains in draft form, said a spokesman for Campbell, who is part
American Indian.

The Intertribal Monitoring Association, a group of 40 tribes based in
Albuquerque, N.M., that monitors the issue, endorsed Campbell's plan.
(The Associated Press State & Local Wire, June 23, 2000)

LASER POWER: Intends to Defend Securities Suit Filed in CA in June
In its report to the SEC, Laser Power Corp. discloses that on June 13,
2000, a complaint naming Laser Power Corporation and certain current and
former directors of the company as defendants was served on the
Corporation. The Complaint seeks to assert a breach of fiduciary duty
claim, and requests class action relief. It is styled C. OLIVER BURT,
III V. LASER POWER CORP., et al., Case No. GIC 749273 (San Diego
Superior Court). The Corporation believes that the Complaint lacks
merit, and intends to vigorously defend the action.

LAW FIRMS: Defaulting Homeowners Accuse of Unfair Debt Collection
The states largest mortgage foreclosure law firms, including Broward
County-based David Stern, are being accused of overcharging for fees and
are facing legal challenges to how they do their work.

As a result, a move is afoot to change the states debt-collection laws
to protect foreclosure attorneys.

At least four lawsuits have been filed against major firms and more are
expected to be filed by current or former homeowners who have had their
homes foreclosed. The suits allege the firms have violated state and, in
some instances, federal laws that protect consumers against unfair debt
collection practices.

This is a unique batch of suits, says Warren Husband, the
Tallahassee-based counsel for the Association of Florida Foreclosure
Attorneys. Prior to these lawsuits, I dont believe the [fair debt
collection] law had been used in this fashion, Husband says.

Besides the Law Office of David Stern, a firm that is considered the
largest to handle foreclosures statewide, the suits target Echevarria
McCalla Raymer Barrett & Frappier of Tampa; Codilis & Stawiarski of
Tampa; and Butler & Hosch of Orlando.

The cases are being heard in Leon Circuit Court and U.S. District Court
in Tallahassee. Because the firms handle mortgages statewide, and the
complaints either already are certified as class-action suits or are
seeking that status, they collectively could affect tens of thousands of
homeowners throughout Florida. The Stern and Codilis suits alone could
involve 60,000 homeowners, attorneys estimate.

The complaints contend that the law firms overcharged by hundreds of
dollars for property title searches and exams -- a common procedure that
establishes who, besides a mortgage lender, might have liens or claims
against a property, such as credit card companies.

Those costs generally are paid by the homeowners, even though the
foreclosure attorneys usually are hired by the lenders. When a home is
foreclosed and auctioned off, any money collected first goes to repay
the loan and fees associated with the foreclosure. If any money remains,
it then goes to the homeowners, though that is rare, says a South
Florida lender who spoke on condition of anonymity.

When a homeowner reinstates or refinances a loan through another lender,
the borrower pays the attorneys fees. You have to pay any collection
fees there are in paying off that first loan, and thats where the
attorneys charge much higher fees, the lender says.

Indeed, the suits allege the firms also charged homeowners for attorneys
costs for work that actually was done by nonlawyers, falsified
affidavits and bills to substantiate those costs, and added hundreds of
dollars to fees the lenders were paying the attorneys to handle the

Further, one South Florida attorney familiar with the foreclosure
process says attorneys often make fee arrangements with lenders,
depending on how the property is disposed. Theyll tell the [lender],
Look, I cant do this for $ 1,200, but let me put in a fee affidavit for
closer to what my time is and if the property is sold to a third-party
bidder, I get the higher fee. Or if the [homeowner] refinances or
reinstates the mortgage, I get the higher fee. But if the lender has to
take the house back, I get the lower fee, says the attorney.

That’s the reality of the whole thing. These mills used to juice the
fees by a few hundred dollars but its become $ 1,000 to $ 1,500 and when
you get into the bigger numbers, the class-action guys get involved, he

Husband, of the foreclosure attorneys group, believes the actions began
because of competitive pressures facing Claude Walker of Huey Guilday &
Tucker in Tallahassee, who represents the homeowners in the Stern and
Echevarria suits.

The story as it was told to me is that [Walker] had a foreclosure
practice and ... through consolidation in the mortgage industry, other
firms ended up with the [foreclosure] work and Walkers did not, Husband
said. I suppose with knowledge of how foreclosures work, he developed
the notion of these class-action suits. Walker had complained about
Sterns practices to the Florida Bar in 1997 and to the Broward state
attorneys office in 1998. The Bar dismissed Walkers complaint, saying it
found no ethics violations by Stern. But the complaint was reopened
after Stern was sued in the foreclosure case. The Bars evaluation is on
hold until the suit is resolved.

A $ 2.1 million settlement in the Stern foreclosure suit is awaiting a
judges approval in late September.

The state attorneys office took no action against Stern and closed its
investigation earlier this year. In a memo, assistant state attorney
John Hanlon Jr. said he did not believe his office could prove criminal

Neither Stern nor his attorney, W. Wyndham Geyer Jr. of Ruden McClosky
in Fort Lauderdale, would comment about the suit or proposed settlement.

But, in a written statement to the Daily Business Review, Stern denied
any liability or wrongdoing. Rather, the settlement was reached solely
for business reasons with consideration given to available professional
liability insurance coverage, and to avoid the immense burdens, waste of
time and expense of continued litigation and possible trial of the

Walker referred calls from the Daily Business Review to his partner, Tom
Guilday. Guilday, who is widely known for a landmark title insurance
case against the state Department of Insurance that is now before the
Florida Supreme Court, said that while Walker began questioning fees and
costs after seeing them in foreclosure cases, hes hardly alone in his

Based on the calls Ive gotten from attorneys around the state, if youre
successful [in foreclosures], you can make a lot of money, and there is
a lot of interest in changing the way these firms are conducting

But Michael McGirney, managing shareholder of Marshall Dennehey Warner
Coleman & Goggin in Tampa, who represents Echevarria, finds the suits

The fees and costs that Mike [Echevarria] and his lawyers assert are
owed in foreclosure proceedings are fees and costs agreed to in advance
by the client who has hired them. We believe this is a groundless suit
and that the fees and costs attempted to be collected were lawful, he

Foreclosure attorneys, though, are attempting another defense tactic.

The trade group attempted to change two state laws -- Chapter 702, which
regulates mortgage foreclosures, and Chapter 559, the states fair debt
collection law -- during this years legislative session.

The proposal to change the foreclosure law was dropped after members of
the Real Property and Probate Committee questioned whether it created a
trial within a trial for homeowners, says committee chairman Rep. J.
Dudley Goodlette, R-Naples.

Thats because homeowners would have faced 15 days in which to contest
foreclosure fees and costs. Failure to do that would have been
tantamount to accepting all fees, says Lynn Drysdale, staff attorney for
Florida Legal Services Inc. in Tallahassee.

The proposed bill also sought to make the lenders attorney, the
attorneys law firm and the firms employees exempt from the states
debt-collection law after a foreclosure complaint has been filed. When
that effort failed, the bill was amended to target changes to the
debt-collection law only. Largely, that meant making it more like the
federal act, which addresses class-action suits, caps on class damages
and a statute of limitations, says Husband. The legislative proposal
will be renewed for next years session, he says. (Broward Daily Business
Review, June 26, 2000)

MA MUTUAL: Supreme Ct Reverses Denial of Cert in Consumer Fraud Case
Varacallo v. Massachusetts Mutual Life Ins. Co., A-1257-99T5; opinion by
Keefe, J.A.D.; decided and approved for publication June 14, 2000.
Before Judges Havey, Keefe and Rodriguez. On appeal from the Law
Division, Essex County. Sat below: Judge Brown. DDS No. 23-2-4040

In this action alleging common-law fraud and a violation of the Consumer
Fraud Act, based on defendant's alleged intentional withholding of
material information concerning its vanishing-premium policies, where
plaintiff met the four requirements of Rule 4:32-1(a), the Law Division
judge erred in refusing to grant plaintiff's motion to certify a class
of all New Jersey residents who purchased such policies between 1985 and
1989, on the ground that:

  -- individualized issues of causation and reliance predominated over
      common issues of law and fact;

  -- if plaintiff prevails on the issue of liability, demonstrating that

      defendant knowingly made a material misrepresentation intending
      consumers would rely on it, the purchase of a policy by a person
      had been shown defendant's literature would be sufficient to
      establish prima facie proof of causation under the Consumer Fraud
      and on his common-law claim, plaintiff will be entitled to a
      rebuttable presumption of reliance, which will have a significant
      bearing on the number of separate mini-trials that might have to

  -- class actions should be liberally allowed where, as here, consumers

      are attempting to redress a common grievance under circumstances
      would make individual actions uneconomical, and are generally
      considered the superior form of disposing of such cases,
      where, as here, there is a common nucleus of law and fact that
      decide an essential element of liability.

Plaintiff Paul Varacallo sought to certify a class of all New Jersey
residents who purchased so-called vanishing premium whole life insurance
policies from defendant Massachusetts Mutual Life Insurance Company from
1985 to 1989. He alleges that Mass Mutual was liable for common-law
fraud and violation of the Consumer Fraud Act. N.J.S.A. 56:8-1 to -48.
The motion judge denied class certification, finding that, while
plaintiff met the requirements of Rule 4:32-1(a), he failed to meet the
predominance requirement of Rule 4:32-1(b).

Mass Mutual refers to its product as an "N-Pay" policy. The concept is
described in its literature: N-Pay is a strategy for shortening the
number of years you have to pay out-of- pocket premiums to complete your
permanent plan of life insurance protection.. .. The objective is to
allow you to pay premiums out of pocket for a limited number of years
only (until such time as dividends* can completely fund your plan)....
(T)he "N" in "N-Pay" stands for the earliest possible year after which
the dividends and paid-up additions (based on our current dividend
scale, which is not guaranteed) will pay future premiums while
maintaining the full original face amount of the policy.

"Dividends are based on current dividend schedule, not guaranteed....
Changes in current experience can subject dividends to significant
fluctuations." Plaintiff purchased Mass Mutual "N-Pay" life insurance
policies in 1983, insuring his life and the lives of his wife and
daughter Christine. In 1989, he purchased another "N-Pay" policy for his
daughter Lisa. Under the 1989 policy, it was projected that he would
have to pay an annual premium for 13 years. The "Hypothetical Policy
Illustration" issued by Mass Mutual cautioned that "A dividend change
may increase the number of cash premium payments."

On the last page, the illustration explained: All dividends ... are
based on current dividend schedule, which is not guaranteed. Subsequent
transfer of ownership to a qualified pension or profit sharing plan may
result in a change in dividends.... (C)hanges on current experience can
subject dividends to significant fluctuations.

The language in the May 1989 illustration is the same as that in the
illustrations issued by Mass Mutual for its authorized agents' use from
1985 through 1988.

In March 1996, Varacallo requested and received from Mass Mutual an
illustration for Lisa's policy. It showed that the annual premium
obligation would not be extinguished until the 18th year. It contained
the same language that "a dividend change may increase the number of
cash premium payments" but it also contained the following language that
was not present in the illustrations for 1985 through 1989:

     Illustrated dividends are neither estimates nor guarantees, but are

     based on our 1996 dividend scale. Dividends in future years may be
     lower or higher, depending on the company's actual experience. Due
     this fact, we strongly recommend you look at a lower scale

Plaintiff's claim is rather straightforward. He alleges that Mass Mutual
withheld material information from its printed literature during the
relevant period. Essentially, he contends that Mass Mutual knowingly and
intentionally inflated its dividend rates to support the sale of its
N-Pay policies, knowing "that there was a substantial probability (it)
couldn't be maintained even for two years." Further, he claims that Mass
Mutual concealed "its plan to reduce dividends that it knew were
insupportable even as it sold insurance policies based on illustrations
... that showed illustrated rates remaining constant for 20 or more
years...." Policyholders were induced to purchase the N-Pay policies
while Mass Mutual knew to a virtual certainty that the forecasted
returns would not come to pass. Plaintiff also asserts that this
information was not revealed to its agents who used Mass Mutual's
prepared illustrations in selling the N-Pay policies. Plaintiffs'
proposed class includes all New Jersey residents who purchased N-Pay
policies between 1985 and 1989 from agents who used Mass Mutual's
written sales illustrations. The certification of a class is governed by
the requirements of Rule 4:32-1. Here, the motion judge found that
plaintiff met the four initial requirements of 4:32-1(a): numerosity,
commonality, typicality and adequacy of representation. Neither party
disputes the judge's findings or conclusions of law with regard to those

In addition to meeting the requirements of 4:32-1(a), the party seeking
to certify the class must also satisfy one of the three criteria in
4:32-1(b). Plaintiffs maintain that they have satisfied (b)(3): ... that
the questions of law or fact common to the members of the class
predominate over any questions affecting only individual members, and
that a class action is superior to other available methods for the fair
and efficient adjudication of the controversy.

The motion judge was required to give plaintiff "every favorable view"
of his complaint and the record. Riley v. New Rapids Carpet Ctr., 61
N.J. 218, 223 (1972). When considering predominance, the movant's
underlying theories of liability, the proofs necessary to establish them
and the predictable defenses to the legal claims must be analyzed.
Where, as here, "a 'common nucleus of operative facts' is present,
predominance may be found." In re Cadillac V-8-6- 4 Class Action, 93
N.J. 412, 431 (1983). Plaintiff has alleged two theories of liability,
common-law fraud and a violation of the Consumer Fraud Act. To establish
a cause of action under common-law fraud, he must demonstrate that (1)
defendant made a material misrepresentation or omission of fact; (2)
knowing the misrepresentation to be false or the omission to be
material, and intending the other party to rely on it; and (3) the other
party relied on the misrepresentation or omission to its detriment. To
establish a cause of action for consumer fraud here, plaintiff must
establish that Mass Mutual concealed, suppressed or omitted a material
fact, knowingly and with intent that others rely on the omission. In
that respect, the consumer fraud action and the first two elements of
common-law fraud are identical. Further, the actions are similar in that
common-law fraud requires proof of damages by way of "detriment," while
a consumer fraud plaintiff must prove an "ascertainable loss of moneys
or property, real or personal." Meshinsky v. Nichols Yacht Sales, Inc.,
110 N.J. 464, 473 (1988). The causes of action differ, however, in that
common-law fraud requires proof of reliance while consumer fraud
requires only proof of a causal nexus between the concealment of the
material fact and the loss.

The motion judge found a lack of predominance, finding that
individualized consideration of each policyholder's interaction with the
agent who sold the policy would be required. The judge reasoned: (E)ach
plaintiff may have had a different interaction with the defendant's
agents and brokers and the ability to establish reliance on a common law
fraud and causation and an ascertainable loss under the Consumer Frauds
(sic) Act which would vary from each plaintiff.

The majority of jurisdictions addressing the issue of class
certification in vanishing premium litigation have rejected
certification on the predominance question. However, it is more
appropriate to identify and apply principles established in New Jersey
on the issue. New Jersey's highest court has instructed trial courts to
liberally allow class actions involving allegations of consumer fraud.
That principle has been reiterated and reinforced even where the claim
involved theories of common-law fraud as well as consumer fraud.
Irrespective of whether the trial court may be required to deal with
individual claims of reliance, causation and/or damages, the
predominance factor has been met and class actions have been approved in
this State where the court has found a common core of operative facts
and the plaintiffs are seeking "to redress a 'common legal grievance.'"
In re Cadillac, 93 N.J. at 435.

There appears to be an overarching principle of equity to consider in
the application of the class certification rule. The principle is that
class actions should be liberally allowed where consumers are attempting
to redress a common grievance under circumstances that would make
individual actions uneconomical to pursue. Should plaintiff succeed here
on liability, the relatively small amount of damages incurred by each of
the policyholders and the shared common grievance based on the
withholding of material facts brings this case within that equitable
principle. The additional benefits of such litigation is that it
promotes "efficient judicial administration ... save(s) time and money
for the parties and the public(,) and () promote(s) consistent decisions
for people with similar claims." In re Cadillac, 93 N.J. at 430. Class
actions can be used for the wrong reasons as well. "(A)ttorneys may
solicit claims more to generate fees for themselves than to vindicate
the rights of claimants." Id. at 424.

There is, however, seen no indication of that here. In any class-action
determination, there must be a careful analysis of the plaintiff's claim
to determine whether the defendant's argument against certification is
realistic. This analysis is necessary because the court must understand
why a defendant would resist it. It should be readily appreciated that,
regardless of the merits of the underlying theory of liability, a
defendant may be willing to withstand a small verdict against it and
make subsequent adjustments with respect to other claims, whereas a
judgment against it that includes many small, but trebled claims, as
well as attorneys' fees, can be costly in money and reputation.

Thus, it is unlikely that a court will encounter a defendant who
embraces a plaintiff's effort to obtain class certification. Mass
Mutual's argument against certification on the predominance issue is
that individualized "mini-trials" will have to take place as to each
policyholder. The argument necessarily presupposes a finding of
liability against Mass Mutual on the first two elements of either
common-law fraud, consumer fraud or both. Consequently, it is assumed
that Mass Mutual knowingly omitted from its literature, and withheld
from its agents, material information, i.e., while the literature said
that dividends "may" go down, there was a substantial probability that
they would go down. It is further assumed that Mass Mutual withheld the
information knowing that consumers probably would not purchase its
vanishing premium policy if they knew with certainty that the
projections based on current dividends would not hold. Plaintiffs
contends the agents of Mass Mutual had no knowledge as to these material
facts. There is no evidence that the agents made sales pitches that went
beyond the literature produced by Mass Mutual, or that any of them knew
Mass Mutual could not support the projected dividends and intended to
ratchet them down as a certainty, but failed to tell prospective
policyholders. Even if some of the policyholders relied on the agents'
sales pitch, the reliance element in a common-law fraud claim may be
satisfied by proof of indirect reliance where a party deliberately makes
"false representations ... with the intent that they be communicated to
others ... (to) induc(e) the others to rely upon them." Metric
Investment, Inc. v. Patterson, 101 N.J. Super. 301, 306 (App. Div.

It is inconceivable, considering the assumption that Mass Mutual's
liability is premised on a knowing omission of material information,
that discovery will reveal more than a very small number of
policyholders who would have purchased an N-Pay policy if the literature
stated that the illustrated dividends "probably will" decrease and that
the payout period "probably will" be longer than projected. Plaintiffs
are required to prove only that defendant's conduct was a cause of
damages. They need not prove that Mass Mutual's conduct was the sole
cause of loss. It may be that some extraordinary sales agent could
overcome such negative information thereby becoming the superseding
cause of a policyholder's loss, but it is a small possibility. Indeed,
if liability is found under the Consumer Fraud Act, it requires only a
causal nexus between the "method, act, or practice declared unlawful"
and the consumer's "ascertainable loss." 56:8-19.

The Supreme Court has pointed out that this element is a significant
distinction from the requirement of reliance in a common-law fraud
claim. A defendant who violates the Act because of an unlawful "method,
act, or practice" that results from an omission of a material fact with
the "intent that others rely upon such concealment, suppression or
omission," 56:8-2, is "liable for (such) misrepresentations whether 'any
person has in fact been misled, deceived or damaged thereby.'" Gennari
v. Weichert Co. Realtors, 148 N.J. 582, 607-08 (1997). The distinction
between proof of reliance and proof of causation can be best explained
in the context of this case. If plaintiffs succeed in proving that Mass
Mutual withheld material information intending that consumers would rely
on it in purchasing its policy, the purchase by a person who was shown
the literature would be sufficient to establish prima facie proof of
causation. Where the theory of recovery is common-law fraud, in which
reliance is required, the analysis of the predominance issue requires
resolution of whether, to certify a class, plaintiff must offer direct
proof that the entire class relied on defendant's representation that
omitted material facts, where he has established that defendant withheld
the material facts to induce the very action he pursued. It is thought

Affiliated UTE Citizens of Utah v. United States, 406 U.S. 128, 153
(1972), held that plaintiffs alleging securities fraud in violation of
federal law " involving primarily a failure to disclose," do not have to
provide "positive proof of reliance" to recover. All that is required is
that the information " withheld be material in the sense that a
reasonable investor might have considered them important in the making
of (the) decision." Id. at 153-54, at 1472, at 761. Further, the
"obligation to disclose and (the) withholding of a material fact
establish the requisite element of causation in fact." Id. at 154, at
1472, at 761-62. As a practical matter, the burden then shifts to the
defendant to prove "that even if the information were disclosed(,) the
(plaintiff) would not have acted differently." Zobrist v. Coal-X, Inc.,
708 F. 2d 1511, 1520 (10th Cir. 1983). The presumption or inference of
reliance and causation, where omissions of material fact are common to
the class, has been extended in the context of both common-law and
statutory fraud. Vasquez v. Superior Court of San Joaquin County
broadened this concept to include all material misrepresentations,
whether facts are not disclosed or falsely represented. It held that "an
inference of reliance would arise as to the entire class ... if the
trial court finds material misrepresentations were made to the class
members." 484 P.2d 964, 973 (Cal. 1971). Of course, the inference may be
rebutted, but defendant must come forward with sufficient evidence to do

Held: Accordingly, if plaintiff establishes the core issue of liability,
he will be entitled to a presumption of reliance and/or causation. The
presumption shall be governed by the operation of N.J.R.E. 301. It is
expected that the resolution of this issue will have significant bearing
on the management of this matter with respect to the number of separate
trials that may have to be conducted. Finally, as to the issue of
superiority, class actions are generally considered the superior form of
disposing of cases involving claims of consumer fraud, especially where,
as here, there is a common nucleus of law and fact that will decide an
essential element of liability, and the amount of money at stake for
each potential member of the class is too small to warrant prosecution
of separated actions. Mass Mutual's claim that individual lawsuits are
superior in the context of this type of claim is rejected, as is its
suggestion that individual complaints could be filed and disposed of by
its Customer Service Department or by the New Jersey Department of
Banking and Insurance.

Reversed and remanded to the Law Division to enter an order certifying
the class as defined herein. The trial court is not stripped of its
discretion to create subclasses should the need develop or to decertify
the class in the future should the litigation become unmanageable for
reasons not anticipated here. (New Jersey Law Journal, June 26, 2000)

SUNTRUST BANKS: Mulls Payment for CA Suit over FL Branch Ponzi Scheme
SunTrust Banks Inc. is preparing to pay $6 million to $8 million to
settle a lawsuit in California that contends its Florida subsidiary
provided trust services for an investment scheme that ultimately proved

The lawsuit named SunTrust in Florida and Bank One Corp.'s Texas
subsidiary as defendants. A proposed settlement filed in Los Angeles
Superior Court in May said SunTrust would pay investor-plaintiffs in the
class action $6.25 million, plus attorney's fees. In addition, SunTrust
would set aside $5 million of the $18.2 million collateral for the
securities to be paid to registered investors.

In the proposed settlement SunTrust denied any wrongdoing, and said it
has no liability to the investors. A final settlement could be reached
soon. Lawyers for SunTrust and Bank One did not return phone calls
seeking comment.

The lawsuit is the latest example of a financial institution being held
partly responsible for the actions of a business partner or affiliate.
Last August Bear, Stearns & Co. agreed to fork over $38.5 million to
settle criminal and civil charges that it had facilitated improper
trading in customer accounts that were managed by a client of its
clearing operations, A.R. Baron & Co.

The dispute with SunTrust and Bank One arose three years ago after 1,800
people were left holding worthless securities sold to them from 1994 to
1997 by First Lenders Indemnity Corp., a now-defunct company that was
backed by a man who had served prison time for federal bank fraud. This
man was operating under an assumed name, Jonathan Pierpont Boston.

First Lenders sold about $73 million of securities. Most of the
investors, court documents said, were elderly or lower-income people
living in California, Texas, and Florida. Court documents said about 475
investors bought the securities that had SunTrust named as the trustee.
The bulk of the investors bought their securities earlier, when Bank One
Texas was trustee. The lawsuit said Mr. Boston and his company were
operating a Ponzi scheme, using money from later investors to pay off
earlier ones and diverting funds to their personal use. The suit also
said the securities were illegal because they were not registered with
the Securities and Exchange Commission.

SunTrust and Bank One got pulled into the problem by agreeing to act as
trustees for the securities, court documents said. The investors have
alleged that by acting as trustees for the notes despite being aware of
Mr. Boston's past links to crime, the two banking companies gave a
patina of respectability to what turned out to be worthless investments.
(The American Banker, June 23, 2000)

TAINTED BLOOD: Lawyers in Canadian Hep C Case  Get $35 Million
Lawyers who negotiated a record-setting $1.5 billion settlement package
for many of Canada's tainted blood victims deserve every penny of the
$35 million they claimed in legal fees, superior courts in two provinces
have ruled. The fees are both fair and reasonable given the phenomenal
risk assumed by the lawyers and the "excellent" results obtained for the
victims, judges in Ontario and British Columbia said on June 23. The
long-awaited decisions mean lawyers representing tainted blood victims
in Ontario will collect $20 million and B.C. lawyers will receive $15
million. A ruling from a Quebec judge on $17.5 million sought by lawyers
for blood victims in that province is pending.

Ottawa and the provinces went to court in all three provinces earlier
this year arguing that the $52.5 million in total fees claimed was
excessive and asked that the amount be reduced to a maximum of about $11

The governments maintained the lawyers were virtually guaranteed some
form of recovery for their clients - who were infected with Hepatitis C
between 1986 and 1990 - because Health Minister Allan Rock had promised
them financial assistance as far back as 1998. The lawyers therefore
assumed very little risk in bringing a class action lawsuit on behalf of
victims, the federal and provincial governments said.

But Mr. Justice Warren Winkler of the Ontario Superior Court made short
work of their arguments in his decision on June 23, saying the
litigation "epitomized risk." "The FPT (federal, provincial and
territorial) governments did not make any overtures toward compensating
defendants until class proceedings had been certified in British
Columbia and Quebec and there was a potential for certification of a
national class," Winkler said. With every victim's case different and
every government taking different positions, the case was one of almost
mind-boggling complexity, he added.

The lawyers' billing records show they spent 16,309.35 hours on the
case, the equivalent of eight years if done by a single lawyer. "It was
a monumental task. You don't put together a settlement worth $1.5
billion overnight," said Harvey Strosberg, lead counsel for an
Ontario-based legal team representing blood transfusion victims. "I'm
grateful he thought what we asked for was reasonable. I always thought
it was. If we were in the United States, we would be talking about a lot
more money," said Strosberg, whose team will be paid $15 million.

Another Toronto-based team headed by lawyer Bonnie Tough, representing
hemophiliacs, will receive $5 million.

The judge noted that the fees will not affect the settlement package,
which will pay each victim compensation of up to $159,000. "My real
concern would be the sufficiency of the fund and . . I think he's
right," said James Kreppner, a hemophiliac and lead plaintiff in one of
the lawsuits.

But Mike McCarthy, past vice-president of the Canadian Hemophilia
Society, said the $52.5 million would be enough to compensate all blood
victims east of Quebec who, like him, were excluded from the settlement
because they weren't infected at the right time.

The court battle over fees focused not only on how much lawyers should
be paid, but how payment should be calculated. Lawyers work on a
contingency basis, which means they get paid only if they win, with fees
calculated as a lump sum or by the hour. The fee structure allowed
victims to attract the best lawyers, who achieved a result that likely
was better than individual suits, Winkler said.

Before joining class actions, B.C. and Quebec victims negotiated
individual arrangements that would have paid their lawyers between 20
and 33 per cent, Winkler noted. In Ontario, Strosberg and Tough's fees
amount to less than 2 per cent of the settlement. 'I'm grateful (the
judge) thought what we asked for was reasonable. I always thought it
was. If we were in the United States, we would be talking about a lot
more money.' (The Toronto Star, June 24, 2000)

TOBACCO LITIGATION: PM Buys Nabisco; Atty. Says Firms Loaded with Money
A little more than a year after getting out of the cigarette business,
the nation's No. 1 cookie and cracker maker is back with Big Tobacco.
Philip Morris Companies Inc., the world's largest tobacco company and
parent of Kraft Foods, said Sunday it has reached an agreement to
purchase Nabisco Holdings Corp. for $14.9 billion plus the assumption of
$4 billion in debt.

Philip Morris chairman and chief executive Geoffrey C. Bible said in a
statement that the purchase at $55 a share will greatly expand the
company's food offerings. "The combination of Kraft and Nabisco will
create the most dynamic company in the food industry, both in terms of
absolute earnings levels and revenue and earnings growth rates." Kraft
and Nabisco together produced revenue of $34.9 billion last year, Philip
Morris said. The combined food company is expected to be second in the
world only to Nestle of Switzerland, which has annual sales in excess of
$35 billion.

The purchase comes as Philip Morris' domestic tobacco business is facing
a potentially huge punitive damages in the tens of billions of dollars
judgment in a class-action suit in Florida. Smokers' attorney Stanley
Rosenblatt said that the purchase shows the tobacco companies are
"loaded with money." But Bible said in an interview that the parent
company's purchase of Nabisco and the tobacco litigation against the
tobacco unit are separate issues. "I don' t think it is at all relevant
because the suit down there is with our domestic cigarette company and
that's what they (the Florida jurors) have to focus on in their
deliberations," he said.

Nabisco Holdings, which makes Ritz crackers, Snackwell's snacks, Oreo
cookies and Life Savers candy, is 80.6 percent owned by Nabisco Group of
Parsippany, N.J. Nabisco Group said Sunday that after shedding the
Nabisco Holdings unit, it would sell itself and its proceeds from the
Nabisco sale to R.J. Reynolds Tobacco Co. for $9.8 billion.

Ironically, R.J. Reynolds Tobacco had been a subsidiary of the group -
previously known as RJR Nabisco - before it was spun off in March 1999
as a separate publicly traded entity. It makes Winston and Camel brand

Philip Morris, which produces Marlboro, Benson & Hedges and Parliament
brand cigarettes, also owns Miller Brewing Co. and such brands as
Jell-O, Maxwell House, Oscar Mayer and Post cereals. The purchase fills
a gap in its food portfolio, which had not included cookies and
crackers. The deal will add 18 brands to its existing 55 brands.

At a news conference, Bible said the combination should yield $400
million in cost savings by 2002 and $600 million by 2003.

The announcement of the sale ended a bidding war that had involved
financier Carl Icahn as well as a venture of France's Danone SA and
Britain's Cadbury Schweppes PLC. The Danone-Cadbury offer reportedly was
for about $50 a share. Danone, a leading manufacturer of cookies and
crackers, had hoped for an American foothold with the deal, while
Cadbury was more interested in Nabisco's candy holdings.

The IPO was expected in early 2001, with proceeds used to retire some of
the debt incurred in the Nabisco purchase.

Icahn, the biggest individual shareholder in Nabisco Group at 9.6
percent, disclosed in a federal filing that he had offered $28 a share
for the whole company, or $8.3 billion. Icahn, who had made three failed
efforts to replace the Nabisco Group board over the past few years,
goaded the board to put Nabisco Group on the market when he suggested in
late March that he wanted to increase his stake in the company to 40
percent through a $13-a-share offer.

On April 3, the Nabisco Group board said it had authorized management to
explore the sale of the company or its stake in Nabisco Holdings. (The
Associated Press, June 26, 2000)

TOSHIBA: Chinese Ct to Hear Consumers Cases over Settlement
A Chinese court is to hear three cases filed by consumers against
Toshiba in a move that underscores the perils faced by foreign companies
from an increasingly litigious population.

The Toshiba action comes after awards to Chinese consumers against
foreign groups that were high-profile and bizarre. One involved a man
who found an insect in a French fry, another concerned a woman who was
forced to unzip her trousers by security guards, and there was a third
award for a man who walked into a department store's glass wall.

Xu Jiali, an attorney at Beijing's L&A law firm - which is acting for
the three plaintiffs in the Toshiba action - said the Number 1
Intermediate People's Court had agreed to hear the cases against
Toshiba. The plaintiffs charge that the Japanese computer giant
infringed their lawful rights because it knew that the floppy disc
controls in some of its computers were faulty but failed to warn
consumers. "Therefore the plaintiffs are asking for compensation, and
they are demanding Toshiba of Japan to apologise for its unfair
treatment to Chinese users," the L&A law firm said. Toshiba agreed this
year to pay Dollars 1.05bn (Pounds 695m) to US customers in an out of
court settlement that ended a lawsuit over the same potential
malfunction of the floppy disc drive.

Toshiba executives have explained to Chinese customers that the
out-of-court settlement did not amount to acknowledgement of legal
responsibility for any fault. But this explanation merely fanned the
fire. China's increasingly assertive consumers and the state media
castigated the Japanese company for what it saw as two-faced

Newspaper cartoons showed Toshiba executives fawning over US customers
but ignoring Chinese. Other media remembered humiliations during the
Sino-Japanese war and shops removed Toshiba products from their shelves.

"This is a milestone," said Mr Xu. "Now that the court has accepted
this, it is a clear signal to foreign companies that Chinese courts are
willing and able to rule upon disputes of this kind." Chinese courts,
experimenting with new powers and deluged by consumer litigation, have
made handsome awards of late. A woman who was forced to unzip her
trousers by security guards at Watsons, a pharmacy in Shanghai, was
awarded Rmb250,000 (Pounds 19,900) - equivalent to 20 years' pay for the
average worker. This was later reduced on appeal.

Another plaintiff in Shanghai secured Rmb130,000 in compensation after
he walked into a glass wall at a department store in which foreign
companies had invested.

Big brands such as McDonald's and KFC are obvious targets for
opportunists. One man in Jinan, a city in the north of China, sought
compensation of nearly Rmb10,000 from McDonald's after he discovered
three white feathers on a cooked chicken wing. McDonald's was also the
defendant in another celebrated case when a Mr Wang sued the fast food
chain after finding an insect in his fry.

Publicity seems to encourage the litigious. Mr Xu said that now the
three cases against Toshiba had been accepted, action against the
company could snowball. He said his firm had received more than 2,000
letters from consumers requesting inclusion in a class action suit. A
culture of consumer litigation is regarded by the government as
necessary, partly to help impose standards on Chinese manufacturers. It
has also help boost China's legal profession. Lawyers in China now total
about 100,000 compared with just 212 in 1979. (Financial Times (London),
June 23, 2000)

WHITMAN EDUCATION: Sandals Langer Announces $7M Settlement Of RICO Suit
Class counsel, Sandals Langer & Taylor, LLP and Golomb & Honik announced
a settlement of $7.3 million had been reached in a class action suit
brought under the Racketeering Act (RICO) by former students of the
Ultrasound Diagnostic Schools owned by Whitman Education Group Inc.
(Amex: WIX). The settlement was preliminary approved in federal court in
Philadelphia by The Honorable Anita B. Brody.

The recovery is believed to be the largest ever against a vocational
school. Whitman operates fifteen schools under the name "Ultrasound
Diagnostic Schools." Schools are located in New York City, Philadelphia,
Dallas, Houston, Pittsburgh, Cleveland, Miami, Jacksonville, Tampa,
Atlanta, Silver Spring, Md., Springfield, Mass.

The suit alleged that Whitman ran the schools as a complete sham to
secure funds through the federal government's guaranteed student loan
programs. In its 1999 class action opinion the Court described
plaintiffs claims:

The heart of [plaintiffs'] theory is that UDS failed to meet even the
most minimal and basic standards for an ultrasound program.

Plaintiffs claim that the UDS administrators were unqualified, the
teachers were unqualified, the school lacked meaningful admissions
requirements, students were permitted to graduate without proving
proficiency, externships were unsupervised, and training was inadequate.
By holding themselves out as an ultrasound vocational school, plaintiffs
argue, defendants were committing fraud.

The settlement provides for a Court appointed ombudsman to oversee the
schools' admissions practices over the next four years.

"Whitman represented to the Court that it paid the maximum it could
without running afoul the Department of Education's solvency
requirements," said Howard Langer, co-counsel for the class. "I think
that says it all. Fortunately, Judge Brody's management of the suit made
it clear that the students would ultimately have their day in court."

His co-counsel, Ruben Honik explained that, "by providing for a
federally guaranteed student loan and financial aid program, while not
providing adequate oversight of the schools authorized to receive the
federally guaranteed loans and financial aid, the federal government
provides the funds for those who would otherwise lack the means to
enroll in the deficient -- and what we alleged here to be sham --
programs. Absent the federally guaranteed loans, the scheme we alleged
in the suit could never have been undertaken."

Contact: Howard Langer of Sandals Langer & Taylor, LLP, 215-419-6504, or
Ruben Honik of Golomb & Honik, 215-985-9177


S U B S C R I P T I O N  I N F O R M A T I O N

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Copyright 1999.  All rights reserved.  ISSN 1525-2272.

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