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/raid1/www/Hosts/bankrupt/CAR_Public/000720.MBX C L A S S A C T I O N R E P O R T E R Thursday, July 20, 2000, Vol. 2, No. 140 Headlines BAUSCH-&-LOMB: Announces Settlement for Lawsuit on Sensitive Eyes Drops BMC SOFTWARE: Stull, Stull Files Securities Suit in Texas BOEING NORTH: Five Injury Cases Added to CA Plant Toxic Waste Suit CONTRA COSTA: African American Accuse of Destroying Files in Racism Suit COSTCO WHOLESALE: Sued over Touting Products With Expired Rebates FORMICA CORPORATION: Tells Investors of Lawsuit on Laminate Price-Fixing GT INTERACTIVE: 2nd Cir Reverses Dismissal of Securities Lawsuit HMOs: Harvard Pilgrim Answers Claim of Fraudulently Pocketing Copay Diff HMOs: LA Fd Ct Remands Case on Delayed Payments against Aetna to State INMATES LITIGATION: Chairman of Parole Board in NJ Plans to Resign INMATES LITIGATION: Group Urges Boycott on Collect Calls in Ohio Prison LABOR READY: Lawsuit Alleges of Siponing Money Illegally from Pay PACIFIC BELL: CA Consumers' Suit Alleges of Deceptive Practices in DSL PINNACLE SYSTEMS: Milberg Weiss Files Securities Suit in CA SAFETY COMPONENT: DOJ Investigates Subsidiary Valentec over Kickback SAFETY COMPONENTS: Tries to Settle Securities Suit in NJ; Ch 11 Pending TOBACCO LITIGATION: ABC News Coverage on $ 145 Bil Verdict TOBACCO LITIGATION: PM Reports Sales & Earnings Lift in Midst of Appeal TOBACCO LITIGATION: The Bond Buyer's Analysis of FL Verdict's Effect VANDERBILT U: 6th Cir Reverses Coverage Denial in Radioactive Iron Case * Independence Forum Decries FTC's Premature Action on the Internet * SEC May Propose Rule to End Fragmentation ********* BAUSCH-&-LOMB: Announces Settlement for Lawsuit on Sensitive Eyes Drops ----------------------------------------------------------------------- The following is a letter from BAUSCH-&-LOMB Supreme Court of the State of New York County of New York in Re Bausch & Lomb Solutions Litigation; Index No. 110972/95 Judge Ira Gammerman To: All Persons Who Have Purchased Bausch & Lomb Sensitive Eyes Drops, Boston Brand Rewetting Drops, ReNu Lens Rewetting Drops or Bausch & Lomb Eye Wash From May 1, 1989 Through April 30, 2000. A proposed settlement has been reached between representative plaintiffs and defendant Bausch & Lomb Incorporated ("B&L") regarding the above listed contact lens solutions ("the Contact Lens Solutions"). Your rights may be affected by this settlement. Plaintiffs Evelyn Kramer and Steve Malkin, on behalf of themselves and all persons similarly situated, filed this action in 1995 alleging that, among other things, B&L failed to disclose to consumers that the Contact Lens Solutions are chemically identical to other solutions which are sold by B&L with different names, for other uses and at less expensive prices. B&L denies any wrongdoing and has asserted various defenses to plaintiffs' claims. There has been no final ruling on the merits of the claims. The parties have reached a proposed settlement, under which B&L will: (a) make changes to the labels and packaging of the Contact Lens Solutions to make the description of the ingredients consistent with chemically identical solutions sold by B&L with different names, for other uses and at less expensive prices; (b) deliver a letter to B&L's database of eye care professionals advising of any chemical identicality of the Contact Lens Solutions with certain other solutions and detailing the Federal Food and Drug Administration's safety concerns and requirements pertaining to the sale and marketing of the Contact Lens Solutions; (c) place coupons totaling $12 million inside the packaging of the Contact Lens Solutions. Each coupon will entitle the recipient to $1.00 off a subsequent purchase of specified contact lens care products. The Court previously certified a class of individuals in the United States who purchased any of the Contact Lens Solutions from May 1, 1989 through June 30, 1995. Notice of this action was disseminated in the Spring of 1996. Class members were given until July 16, 1996 to exclude themselves from the class. Class members who did not do so, no longer have the right to exclude themselves from the class as to purchases of the Contact Lens Solutions from May 1, 1989 to June 30, 1995 and will be bound by the settlement, if it is finally approved by the Court, as to those purchases. On May 8, 2000, the Court granted preliminary approval of the proposed settlement, and extended the class period to include all purchases made from May 1, 1989 to April 30, 2000. If you purchased any of the Contact Lens Solutions from July 1, 1995 through April 30, 2000, you may exclude yourself from the class (as to those purchases only) by sending a written Request for Exclusion postmarked on or before August 31, 2000, to Class Counsel 527, Third Avenue, Suite 264, New York, New York 10016. By excluding yourself from the class as to those purchases, you may pursue your own claims at your own cost. If you do not exclude yourself from the class, you will be bound by the settlement if it is finally approved by the Court. A fairness hearing has been scheduled by the Court to take place on September 13, 2000, at 4 p.m., at the Courthouse located at 60 Centre Street, New York, New York. You do not need to attend. If you have any objections regarding the proposed settlement, or want to be heard orally at the hearing, you must submit a writing no later than August 28, 2000, which complies with the requirements contained in the complete notice. If you would like a copy of the complete notice, please write to Class Counsel 527 Third Avenue, Suite 264, New York, New York 10016. Court papers, including the complete notice, are available for inspection, during regular business hours, at the office of the Clerk of the Supreme Court of the State of New York, 60 Centre Street, New York, New York 10007. DO NOT WRITE OR CALL THE CLERK OF THE COURT OR THE JUDGE. BY ORDER OF THE COURT Dated: May 8, 2000 Ira Gammerman Justice, Supreme Court CONTACT: Bausch & Lomb Holly Houston, 716/338-8064 (office) 800/405-5314 (pager) 716/473-7104 (home) BMC SOFTWARE: Stull, Stull Files Securities Suit in Texas --------------------------------------------------------- Stull, Stull & Brody has filed a class action lawsuit in the United States District Court for the Southern District of Texas on behalf of purchasers of BMC Software, Inc.(NASDAQ: BMCS) securities between April 25, 2000 and July 5, 2000 inclusive (the "Class Period"), for violations of federal securities laws. Defendants include BMC Software, Inc. and certain of its officers and directors. The Complaint charges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10-b(5) by, among other things: misrepresenting the current and future financial condition of BMC Software, Inc. and by issuing false and misleading statements throughout the Class Period. Contact: Stull, Stull & Brody Timothy Burke, Esq., 888/388-4605. info@secfraud.com BOEING NORTH: Five Injury Cases Added to CA Plant Toxic Waste Suit ------------------------------------------------------------------ A U.S. District Court judge granted a motion last month to reconsider five personal injury claims against Boeing North American of Seattle, allowing those cases to go to trial. The cases stem from a lawsuit filed by a group of residents who claim that Boeing's Rocketdyne engine testing facility in Santa Susana, Calif., released toxic waste into the ground water, resulting in cancer cases (HWN, March 13, p. 83). U.S. District Court Judge Audrey Collins granted the plaintiff's motion for reconsideration of five cases that were previously thrown out, but denied their motion for summary judgment, according to court documents. At issue was the argument that the court incorrectly argued three of the plaintiffs with the knowledge of media coverage of the facility's contamination problem. The court agreed that it erred by failing to consider evidence that the residents could not have read newspapers as it previously ruled. The plaintiffs requested and received the right to immediately appeal after a summary judgment in the five cases, Kim Seafeld, attorney from Cappello & McCann for the residents, told HWN. The court is expected to rule on the plaintiff's motion to intervene additional class representatives, Seafeld said. A ruling also is expected on Boeing's motion to decertify the case's status as a class action. Collins had granted summary judgment on 68 of 71 lawsuits filed because the statute of limitations had expired before the plaintiffs filed suit (HWN, April 3, p. 107). Boeing continues to fight the court challenge over its site. "In view of the fact that the judge suggested the motion to decertify, we're a little more optimistic than we would otherwise be," said Gary Black, Boeing's chief counsel of litigation. Contacts: Kim Seafeld, Cappello and McCann, (805) 564-2444; Dan Beck, Boeing, (818) 586-4572. (Hazardous Waste News, July 10, 2000) CONTRA COSTA: African American Accuse of Destroying Files in Racism Suit ------------------------------------------------------------------------ African American civil rights leaders on July 18 accused Contra Costa County of deliberately destroying documents in a class-action suit alleging racism in county contracting, but also offered to sit down and negotiate a settlement before the case goes to trial. Local leaders of the NAACP made the statements before the Board of Supervisors but got little response. Phillip Lawson, president of the Hercules-Pinole-Rodeo chapter of the NAACP, said his group will submit a letter to the board inviting it to hold settlement talks. Lawson and Darnell Turner, of the Pittsburg chapter, expressed frustration with the county's handling of the 2-year-old case. "Who is responsible for continuing to wage a battle against us on this issue?" Turner asked the board. "We're not asking for preferences. We've never asked for preferences. We want fairness." A coalition of civil rights groups and minority business owners sued the county in 1998 in U.S. District Court. The NAACP, the Northern California Latin Business Association, the Coalition for Economic Equity and five individuals were party to the suit. The plaintiffs argued that less than 1 percent of the county's contract dollars for goods and services went to minority- and women-owned businesses from 1994 to 1996. A trial date has not been set. Last week, Federal Magistrate James Larson found that a county employee "inadvertently destroyed boxes of files" related to the plaintiffs' document requests. The judge recommended that the county could be fined $5,000 for loss of the documents. But Turner and Lawson said they suspect the destruction of documents was no accident. They said county officials have dragged their feet and wasted $1 million fighting the suit even before it has gone to trial. "County supervisors have publicly stated that the county's contracting system needs to be fixed," Lawson told the board. "Now it appears county staff is responsible for attempting to subvert the legal process by destroying necessary documents." County counsel Victor Westman denied the charge that county staff deliberately destroyed documents. He said requests for hundreds of thousands of pages and having to deal with a squad of attorneys from the other side is forcing the county to spend large sums of money on the case. "They must have six, seven, eight attorneys working on this case," Westman said. "I suspect they've spent a lot more time on this case than we have." The offer to meet with supervisors to hash out a settlement plan was met with skepticism from Westman. Supervisors also seemed unimpressed by the offer to negotiate. "We have, I think, a fundamental disagreement in what would require settlement of this case," Supervisor Joe Canciamilla said after the meeting. (The San Francisco Chronicle, July 19, 2000) COSTCO WHOLESALE: Sued over Touting Products With Expired Rebates ----------------------------------------------------------------- A team of lawyers from across the country on July 18 filed a nationwide class-action lawsuit against Costco Wholesale Corporation (Nasdaq:COST), claiming the national chain knowingly tricked consumers into buying products, notably Tylenol, by touting expired rebates through in-store and online advertising. According to the complaint, consumers learned they were ineligible for the rebates only after purchasing the product and tearing off the rebate label from the packaging. The suit was filed in Washington's King County Superior Court by Kim D. Stephens, a partner of Seattle-based Tousley Brain PLLC, along with Robert G. Eisler of Lieff, Cabraser, Heimann & Bernstein, LLP of New York and San Francisco and David Landry of Nemier, Tolari, Landry, Mazzeo & Johnson, PC of Farmington Hills, Michigan. "At first glance, this might seem to be a small issue, but Costco sells million of products every day, including the products in question," said Kim Stephens. "We contend that the company knew full well about the expired rebates. For some people who were counting on a rebate of as much as 25 percent of the purchase price, this is a big issue. Besides, it is fundamentally unfair for Costco to profit from what we believe is deceptive advertising." The suit asserts that the Costco stores in Delray Beach and Pompano Beach, Florida sold several items, including Tylenol pain relief medicine with expired $1.50 mail-in rebate coupons. The suit also contends that Costco knowingly sold similar products throughout the country with expired rebate offers. The suit seeks damages for anyone who purchased products from Costco Wholesale Corporation with expired rebates from July 18, 1996 to the present. Contact: Lieff, Cabraser, Heimann & Bernstein, PC Robert G. Eisler, 212/355-9500 reisler@lchb.com or Tousley Brain, PLLC Kim D. Stephens or Beth E. Terrell 206/682-5600 classinfo@tousley.com or Nemier, Tolari, Landry Mazzeo & Johnson, PC David B. Landry, 248/476-6900 FORMICA CORPORATION: Tells Investors of Lawsuit on Laminate Price-Fixing ------------------------------------------------------------------------ Formica Corporation and other manufacturers of high-pressure laminate ("HPL") have recently been named as defendants in purported class action complaints filed in the United States District Courts for the District of New Jersey and the Southern District of New York, and in the Superior Court of California, Alameda and Marin Counties. The complaints, which all make similar allegations, allege that Formica and other HPL manufacturers in the United States have engaged in a contract, combination or conspiracy in restraint of trade in violation of state and federal antitrust laws and seek damages of an unspecified amount. The actions are in their earliest stages. Formica Corporation intends to vigorously defend against the allegations of the complaints. Lawsuits on laminate makers have recently been reported in the CAR. GT INTERACTIVE: 2nd Cir Reverses Dismissal of Securities Lawsuit ---------------------------------------------------------------- The United States Court of Appeals for the Second Circuit ruled that plaintiffs have adequately pleaded claims for violation of the anti-fraud provisions of the federal securities laws against GT Interactive Software Corporation ("GT"), now known as Infogrames, Inc. (NASDAQ: GTISD), Ronald Chaimowitz, Joseph J. Cayre and Andrew Gregor. Accordingly, plaintiffs may proceed with their claims against those defendants. This represents the first time that an appellate court reversed the dismissal of a securities fraud action governed by the 1995 Securities Reform Act. Plaintiffs, a group of GT investors, seek to maintain the lawsuit as a class action on behalf of all persons or entities who invested in GT securities during the period between December 15, 1995 and December 12, 1997 (the "class period"). The lawsuit, previously reported in the CAR, alleges that during the class period the defendants caused GT to report earnings that were artificially inflated, because GT, a software distributor, violated Generally Accepted Accounting Principles ("GAAP") by failing to charge to expense tens of millions of dollars of royalty advances which GT paid to software developers. GAAP and GT's own stated accounting policy required GT to charge the royalty advances to expense unless GT was likely to recoup the advances through sales of the software. The lawsuit alleges that GT failed to expense millions of dollars of royalty advances paid on account of software titles that had proven to be commercial failures or were not even fit for release. As a result, GT kept millions of dollars of expenditures off of its income statement, and reported artificially inflated earnings, which, in turn, caused GT's securities to trade at artificially inflated prices. In a unanimous order dated July 11, 2000, the Court of Appeals reversed the district court's dismissal of the claims against GT, Chaimowitz, Cayre and Gregor, and held that plaintiffs had satisfied the requirements of the Securities Reform Act for pleading securities fraud claims against those defendants. The Court of Appeals specifically held that plaintiffs adequately pleaded that the aforementioned defendants made material misrepresentations with the applicable culpable intent, thereby causing the plaintiffs and other members of the proposed class to suffer damages. The Court of Appeals, however, affirmed the district court's dismissal of plaintiffs' claims against Arthur Andersen LLP. Plaintiffs' appeal was argued by Ira M. Press, Esq. of the law firm of Kirby McInerney & Squire LLP. Kirby McInerney & Squire has decades of experience in the field of securities class action litigation. During that period, Kirby McInerney & Squire has repeatedly demonstrated its capabilities and expertise in the field, with the GT Interactive appeal representing the most current example. The firm's efforts on behalf of shareholders in securities litigation have resulted in recoveries totaling hundreds of millions of dollars. Recently, the firm was lead counsel for a class of investors in the Cendant PRIDES securities litigation, which settled for over $300 million; a recovery of nearly 100 cents on the dollar. The firm was also co-lead counsel in a class action against Waste Management Corporation that settled in 1999 for $220 million. According to Mr. Press, this was the first time that a Court of Appeals reversed the dismissal of a securities fraud action governed by the 1995 Securities Reform Act. Mr. Press remarked, "We are pleased with this landmark decision. It recognizes that the Securities Reform Act does not impose upon plaintiffs the impossible burden of proving their case at the preliminary stages of litigation when plaintiffs are not entitled to initiate discovery proceedings." Contact: Ira M. Press, Esq. KIRBY McINERNEY & SQUIRE, LLP Telephone: 212/371-6600 Toll Free: 888/529-4787 HMOs: Harvard Pilgrim Answers Claim of Fraudulently Pocketing Copay Diff ------------------------------------------------------------------------ In a tersely worded answer to a class action complaint by members of the Harvard Pilgrim Health Care HMO, the company has categorically denied that it fraudulently pockets the difference between the copay and the actual costs of certain low-cost prescription drugs that should go to enrollees. Alves et al. v. Harvard Pilgrim Health Care Inc. et al. , No. 99cv12559, answer filed (D. Mass., June 9, 2000). Harvard Pilgrim Health Care proffered only three affirmative defenses to the allegations that: -- The suit was barred by the statute of limitations; -- It does not state a claim for which relief can be granted; and -- The defendants acted in good faith in carrying out their obligations under the employee benefit plans in dispute. The plaintiffs allege that three Harvard Pilgrim health plans negotiated secret discounts and manufacturer rebates that pushed the actual cost of many prescription drugs below the $5 copayment that plan members are required to pay. Harvard Pilgrim then pocketed the difference, the plaintiffs claim. While other HMO prescription drug plans typically charge participants only the actual price of the prescription if it is less than the copay, Harvard Pilgram Health Care members always pay the full applicable copayment amount, whether or not the actual cost of the particular medication is greater or less than the copayment amount, the suit alleges. In effect, HPHC uses the copayments paid by members of the class to reduce its cost on higher-priced prescriptions, thus, collecting additional "premiums" from plaintiffs and the members of the class, the complaint said. The lawsuit asserts four causes of action under the Employee Retirement Income Security Act, including recovery of benefits due, breach of fiduciary duties, and injunctive and declaratory relief. In addition to the three Harvard Pilgrim HMOs, the suit names Harvard Vanguard Medical Associates, a group of health care providers employed by the HMOs. Vanguard operates its own in-house pharmacy that participates in Harvard Pilgrim's prescription plan. In their answer to the complaint, filed on June 12, the defendants deny that they engaged in "any fraudulent scheme" or "affirmative acts of concealment" in administering their prescription drug plan. Harvard Pilgram admitted that it negotiates discounts and rebates, as do other HMOs, and that the costs of certain drugs may be less than the copay under some plans, "but it denies that this cost differential is the result of any 'secret discounts' received by it upon the purchase of these drugs," the asnwer said. It further denied that any independent pharmacies honoring sit prescription drug plan collected the full copay where the retail value of the prescribed medication was less than the applicable copayment. The proceedings in this case were stayed for five months because Harvard Pilgrim was under state receivership but that receivership was lifted last month. Fredric L. Ellis, Edward D. Rapacki and Edward A. Broderick of Ellis and Rapacki in Boston represent the plaintiffs. Harvard Pilgrim is represented by Michael Arthur Walsh and Robert A. Kole of Choate, Hall & Stewart in Boston. (Managed Care Litigation Reporter, July 3, 2000) HMOs: LA Fd Ct Remands Case on Delayed Payments against Aetna to State ---------------------------------------------------------------------- A Louisiana federal judge has remanded a proposed class action accusing Aetna U.S. Healthcare Inc. of failing to make timely payments for services rendered under physician group agreements and other similar contracts. U.S. District Judge Morey L. Sear ruled that the allegations do not relate to benefit plans offered by Aetna to employers under the Employee Retirement Income Security Act and that the federal court, therefore, lacks jurisdiction over the case. Lakeland Anesthesia Inc. v. Aetna U.S. Healthcare Inc., No. 00-1061 Section: G(5) (E.D. La., June 15, 2000). In its complaint filed originally in the Civil District Court for the Parish of Orleans, plaintiff Lakeland Anesthesia Inc. alleges that Aetna adopted a routine practice of intentionally delaying payment of "complete, clean or otherwise valid claims" beyond 30, 45 and even 90 days. Lakeland further asserts that Aetna frequently classified complete and clean claims as "incomplete" and made arbitrary and immaterial changes to information required to process claims. Lakeland sued Aetna for breach of contract and abuse of its rights under the Louisiana Insurance Code. Aetna, however, removed the case to U.S. District Court for the Eastern District of Louisiana after contending that Lakeland's claims relate to benefits due under employee benefit plans offered by Aetna to employers within the meaning of the Employee Retirement Income Security Act. Remanding the case to state court, Judge Sear held that ERISA does not preempt Lakeland's state law claims. The plaintiff, he said, alleges only state law claims arising out of Aetna's alleged failure to pay Lakeland and other clinics and medical providers according to the terms of service provider contracts between the defendant and the proposed class of plaintiffs. "Aside from Aetna's unsupported and conclusory statements, there is nothing before this court that suggests that federal subject matter jurisdiction exists based on ERISA's complete preemption provision," Judge Sear wrote. "The defendant has not provided the court with a single employee benefit plan under which Lakeland allegedly seeks to recover assigned benefits of a plan participant or beneficiary." Even if Aetna had shown that a qualified employee benefit plan exists in this case, it fails to present any of the additional prerequisites to support a finding that Lakeland has "artfully pled a derivative action for benefits under an ERISA-governed health care plan," Judge Sear said. Paul A. Lea of Covington, La., argued for Lakeland. William Bernard Gaudet and Ronald J. Sholes of Adams & Reese in New Orleans represented Aetna. (Case: Health Plan Contracts: Lakeland Anesthesia v. Aetna U.S. Healthcare) (Health Law Litigation Reporter, July 2000) INMATES LITIGATION: Chairman of Parole Board in NJ Plans to Resign ------------------------------------------------------------------ The chairman of New Jersey's Parole Board, caught up in criticism of delays in parole hearings for hundreds of inmates and allegations of favorable treatment for a few others, said that he would resign by the end of the week. The chairman, Andrew B. Consovoy, who is 52 and has a history of heart trouble, said his doctor had advised him to stop working. "I have to listen to my doctor," he said in a telephone interview from his home, where he has been on sick leave for about a month. "It seems like an ideal time to take it easy. I just want to relax and enjoy my kids." Mr. Consovoy also acknowledged that a factor in his decision was a continuing investigation by the state attorney general, John J. Farmer Jr., of Mr. Consovoy's involvement in the parole of at least three inmates since 1993, including a judge's son and two men reputed to be members of organized crime. Last month, Gov. Christine Todd Whitman said she wanted explanations of allegations in news reports this spring that Mr. Consovoy had given favorable treatment to those inmates. In the past, he has denied any wrongdoing, and would not discuss the cases. Mr. Consovoy was appointed to the Parole Board in 1988, and Mrs. Whitman named him chairman in 1998. A spokesman for Mrs. Whitman, Pete McDonough, would not comment on Mr. Consovoy's decision to step down. "We haven't heard it from him," he said. But officials in the Whitman administration are known to be upset with Mr. Consovoy, and have criticized his underreporting of a backlog in parole hearings for prisoners eligible for release. In a report to the attorney general's office in May, the Parole Board said the backlog consisted of 303 cases. Mr. Farmer's office then reviewed the board's files and reported on July 10 that the actual figure was 2,201. It also said 469 other prisoners who had received hearings were still awaiting a decision on parole, and 145 others who had been granted parole were still awaiting release from prison. Mr. Consovoy would not discuss the discrepancies. In May, several inmates caught up in the backlog filed a class-action suit in federal court in Camden, N.J., contending that the state had violated their rights under New Jersey's parole law. In mid-June, Mrs. Whitman's chief of staff, Michael Torpey, summoned Mr. Consovoy to his office for what Mr. McDonough later called a "very serious and frank" discussion. Shortly afterward, Mr. Consovoy took a medical leave from his $92,750-a-year position. Mr. Consovoy said he would formally submit his resignation papers in a few days after finishing up details on his state pension and future medical benefits. He suggested that he was eager to placate his critics. "I don't want to offend anyone," he said. "I want to leave on real nice terms." (The New York Times, July 19, 2000) INMATES LITIGATION: Group Urges Boycott on Collect Calls in Ohio Prison ----------------------------------------------------------------------- Families and friends of Ohio inmates are being urged not to accept collect calls from prison next month to protest the state's pricing policies. A group of criminal justice advocacy groups hopes to call attention to the Ohio Department of Rehabilitation and Correction's policies on collect calls by inmates. Last year, the corrections department received more than $17 million from contracts with phone companies providing the service, the groups said. "Those who accept telephone calls from prisoners have no choice in carriers," the advocacy groups said in a release. "All calls from prisoners are collect, and therefore vastly more expensive than regular, long-distance calls." The phone companies and corrections department have defended the contracts. Class action lawsuits challenging the practice have been filed in Ohio and several states with similar policies. (The Associated Press State & Local Wire, July 19, 2000) LABOR READY: Lawsuit Alleges of Siponing Money Illegally from Pay ----------------------------------------------------------------- A class-action lawsuit filed in Fulton County Superior Court charges Labor Ready, Inc. (NYSE: LRW), one of the nation's largest temporary employment agencies, with illegally siphoning money from workers' pay in the state of Georgia. Labor Ready's practice of charging employees an average of $1.50 to withdraw their daily pay from the company's cash dispensing machines -- which nationwide in 1999 generated $7.7 million in revenue for the company -- violates state law, the lawsuit alleges. The lawsuit is expected to result in back pay awards for all current and former employees who used the cash machine in the past two years. "It's hard to believe a company as big as Labor Ready would do business this way," said Levoyd Williams, a plaintiff in the lawsuit. "Skimming money from the paychecks of everyday workers -- that's just plain wrong." Labor Ready's payroll deduction scheme was uncovered by building and construction trade unions participating in a national campaign to investigate and draw attention to abusive temp agency employment practices. The cash dispensing machines were installed by Labor Ready to pay workers in cash at the end of each workday. The machine charges workers a fee of $1.00 plus the change in their daily earnings. In Georgia, discounting a person's pay is illegal. If Labor Ready is found to have violated the law, the company will have to pay workers the lost wages plus $10 per person for each time the machine was used. Similar laws exist in other states, making further lawsuits a possibility. Labor Ready, which has attracted employees with its "Work Today, Paid Today" slogan, is one of the largest and fastest growing temporary employment agencies in the country. It operates 839 offices in 49 states, Puerto Rico, Canada, and the United Kingdom. Labor Ready is a leader in the national trend away from full-time, permanent jobs towards part-time, temporary, and contract staffing strategies. Today nearly three in ten working Americans are employed in contingent or non-standard employment. The lawsuit is supported by the "Temp Workers Deserve a Permanent Voice @ Work" campaign, launched by building and construction trades unions in April to shed light on the abuse of temporary agency workers in the construction industry. PACIFIC BELL: CA Consumers' Suit Alleges of Deceptive Practices in DSL ---------------------------------------------------------------------- A San Diego consumer group has sued Pacific Bell for deceptive trade practices over its heavily advertised high-speed Internet access service, accusing the phone company of flouting a state law governing installation and repair service in its zeal to sign up more customers. In the lawsuit, filed Monday in San Diego County Superior Court, the Utility Consumers' Action Network claims that PacBell has continued its aggressive push for new subscribers for its digital subscriber line, or DSL, service despite difficulties properly serving its DSL customers. DSL technology gives users high-speed Internet access without interfering with voice calls on the same copper connection. PacBell is one of the nation's leading DSL providers and has sharply cut prices to lure new customers. SBC Communications, PacBell's Texas-based parent, said it had more than 200,000 DSL customers at the end of March, with the majority of those in California. The consumer advocacy group cites a California law that requires utilities to provide customers with a four-hour appointment "window" for installation and repairs when the subscriber must be present. In the complaint, UCAN said PacBell gives DSL customers time windows in excess of four hours or no time window at all for service calls. UCAN contends the actions amount to unfair and deceptive business practices, false advertising and deception (for not notifying customers of the four-hour service appointments). The consumer group hopes to make the case a class-action complaint covering PacBell DSL customers statewide. A spokesman for Pacific Bell declined to comment on the lawsuit, saying the company had not yet reviewed it. The lawsuit comes amid mounting frustration among PacBell DSL customers, who have complained about long waits for installation, missed service appointments and being placed on hold with customer service for more than an hour before reaching a service representative. (Los Angeles Times, July 19, 2000) PINNACLE SYSTEMS: Milberg Weiss Files Securities Suit in CA ----------------------------------------------------------- Milberg Weiss (http://www.milberg.com/pinnacle/)announced on July 19 that a class action has been commenced in the United States District Court for the Northern District of California on behalf of purchasers of Pinnacle Systems, Inc. (Nasdaq:PCLE) common stock during the period between April 18, 2000 and July 10, 2000 (the "Class Period"). The complaint charges Pinnacle and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Pinnacle designs, manufactures, markets, and supports computer-based video post-production products to serve the broadcast, desktop and consumer markets. The complaint alleges that defendants' false and misleading statements concerning the revenues to be derived from its streaming media products, which would result in 4thQ and Fiscal 2000 (to end 6/30/00) EPS of $.17 and $.58, artificially inflated the price of Pinnacle stock to a Class Period high of $30-5/8. This upsurge in Pinnacle's stock caused by defendants' false and misleading statements allowed the insiders to sell 78,000 shares of their Pinnacle stock for proceeds of $2.1 million and enabled Pinnacle to complete the $24 million acquisition of the Avid Sports business. On 7/11/00, shortly after the acquisition was completed on 6/30/00, Pinnacle revealed that it was in fact suffering a huge drop in revenues and exposed the problems Pinnacle had been experiencing during the Class Period in successfully selling its products. This announcement caused its stock price to drop to as low as $8-13/16 on record volume of 23.7 million shares on 7/11/00 causing hundreds of millions of dollars in damages to members of the Class. Contact: Milberg Weiss Bershad Hynes & Lerach LLP William Lerach, 800/449-4900 wsl@mwbhl.com SAFETY COMPONENT: DOJ Investigates Subsidiary Valentec over Kickback -------------------------------------------------------------------- Valentec, which was acquired by Safety Component International Inc. in May 1997, has been the subject of an investigation by the Department of Justice regarding a bid-rigging and kickbacks scheme alleged to have occurred between 1988 and 1992. The Department of Justice Antitrust Division has contended that former subsidiaries or divisions of the former Valentec participated in such misconduct in part through the actions of a former marketing agent and former employees, in order to obtain certain government subcontracts awarded by Martin Marietta Ordnance Systems (the predecessor-in-interest to Lockheed Martin). The Government also contended that Valentec was liable for the acts of its predecessors on a theory of successor corporate criminal liability. The Government contended that the alleged kickbacks were made through the former Valentec Kisco and Valentec Galion operations while those operations were owned and operated by the former Valentec from the late 1980's through 1992, prior to the 1993 leveraged buy-out of Valentec by Robert A. Zummo, the President and Chief Executive Officer of the Company. No officer or director of the Company or its subsidiaries was alleged to have participated in, or known about, such conduct. The Company says it has no recourse against the entity which owned Valentec during the operative time period due to contractual restrictions in the purchase agreement between Mr. Zummo and such entity. The Company determined that it was in its best interest to settle such matter in order to avoid the costs and distractions associated with contesting the Department of Justice's legal theories on successor liability. Therefore, a plea agreement was negotiated with the Antitrust Division of the Department of Justice, pursuant to which Valentec entered a plea, as the successor to the former Valentec Galion division, to a one-count criminal information of participating in a combination and conspiracy to suppress competition in violation of the Sherman Antitrust Act, 15 U.S.C.ss.1, and agreed to pay a $500,000 fine, all of which was paid during fiscal year 1999. The Plea Agreement also includes an agreement by the Government not to further criminally prosecute the Company, its subsidiaries, or any of their respective officers, directors or employees as to the alleged bid-rigging and kickback scheme. The Plea Agreement does not release the Company or Valentec from potential civil claims that might be asserted by the United States Department of Justice Civil Division against Valentec arising out of the Government's investigation of conduct that is alleged to have occurred in the time frame prior to Mr. Zummo's 1993 leveraged buy-out of Valentec. The Company has had discussions with the Civil Division regarding the resolution of such potential civil claims but no understanding had been reached with the Civil Division as to such potential civil claims. The Company denies that it is liable for any such potential civil claims. SAFETY COMPONENTS: Tries to Settle Securities Suit in NJ; Ch 11 Pending ----------------------------------------------------------------------- Safety Components International Inc. reveals in its report filed with the SEC that after the Company's announcement of the restatements in November 1999, the Company and several of its present or former officers and directors were named defendants in a class action litigation commenced by shareholders of the Company in the United States District Court for the District of New Jersey. Eight separate lawsuits were filed, alleging violations of the federal securities laws, and all have been consolidated into one action. CAR previously reported on the litigation. The parties are currently negotiating a settlement of the litigation, which will require approval by the District Court, as well as the federal bankruptcy court in which the Company's Chapter 11 petition is currently pending. The Company says its management does not presently believe that a resolution consistent with present negotiations would have a material effect on the financial statements. TOBACCO LITIGATION: ABC News Coverage on $ 145 Bil Verdict ---------------------------------------------------------- Announcer: This is a NIGHTLINE FRIDAY NIGHT SPECIAL. Judge ROBERT KAYE: Have you reached a verdict in this case? TED KOPPEL, host: After two years, 157 witnesses and less than five hours of deliberation... Judge KAYE: Philip Morris Incorporated, 73 billion. RJR Reynolds, 36 billion. Brown & Williamson, 17 billion. Liggett Group Inc., $ 790 million. KOPPEL: One hundred and forty-five billion dollars in punitive damages, the largest jury award in history. Mr. STANLEY ROSENBLATT: And damn it, they did the right thing. Mr. DAN WEBB (Philip Morris Attorney): If there ever comes a day that this judgment does become final, every one of these five companies will be out of business. KOPPEL: Tonight, tobacco on trial. What if the verdict did put the companies out of business? Announcer: From ABC News, this is NIGHTLINE. Reporting from Washington, Ted Koppel. KOPPEL: It makes for some nifty headlines, and tomorrow's newspapers will, undoubtedly, have their own variations on 'Tobacco giants goes up in smoke,' or 'Cigarette companies get burned for 145 billion.' But a word of caution to those half a million Florida plaintiffs who won their big class-action suit in Miami today, don't start doing the math just yet. The appeals process alone could take another five to 10 years. And these days, the states, and all 50 of them, reached a $ 246 billion of their own with the tobacco companies three years ago. Those states, Florida among them, are worried about killing the goose that laid that particular golden egg. In other words, if anything were to happen that puts the tobacco companies in financial jeopardy, the states wouldn't get their payouts, which many of them have already allocated for schools and highways and other projects, not to mention the taxes. Bankrupt tobacco companies do not pay taxes. And most of those states and a lot of major cities have driven the price of cigarettes way up with layer upon layer of taxes. So, was today's punitive damage award by a Miami jury a big deal? You bet. If any of that money ever gets paid out, it will be the first time in history that punitive or compensatory damages were paid directly to the victims of smoking. But that's still a long way from happening. Here's more on today's story from ABC's Aaron Brown. Unidentified Bailiff: Bringing in the jury. AARON BROWN reporting: (VO) In a deliberation that lasted less than a day, the six-person jury determined the only suitable punishment for the tobacco industry was the financial death penalty. Even Judge Robert Kaye seemed taken aback. Judge KAYE: Wait a minute. Before we do that, let me think on this for just a second, please. BROWN: (VO) The punitive damages totaled nearly $ 145 billion, nearly 10 times what the industry said it could pay. Judge KAYE: A lot of zeros. BROWN: (VO) It was a stinging rebuke to the industry and a multimillion dollar legal team that could only promise to do better, and it would be hard to do worse on appeal. Mr. WEBB: The fact that the judge allowed a jury to award such an enormous amount of punitive damages to hundreds of thousands of unidentified and unknown smokers without hearing any evidence whatsoever about the validity of the claims has never happened before in American history and undoubtedly will never happen again. BROWN: Stanley Rosenblatt, who, along with his wife, Susan, tried the case, was his usual pugnacious self, suggesting that Jeff Bible, the CEO of Philip Morris, might want to give him a call, settle the case. Mr. ROSENBLATT: Jeffrey Bible, I'm available, pal. I'm available, Jeff. Mr. Bible, with all your shareholder meetings and all your stock and your $ 25 million bonuses, yeah, and all your tough talk, Mr. Bible, call me next week. Yeah, you want to call me? I'll take a payout, Mr. Bible. We can work something out. Mr. WEBB: My client is not settling this case, because to do so means we will not be able to vindicate our due process rights to show this should not happen in an American courtroom, period. BROWN: (VO) So much for a quick settlement. Unidentified Hospital Worker: You're used to this, right? BROWN: (VO) The hundreds of thousands of Florida smokers, some sick, some not, who are included in the class are unlikely to see any money soon, and may not ever when the appeals are over. This is certainly the view of Wall Street, where tobacco stocks dropped only slightly and where analysts were still bullish. Mr. MARC COHEN (Goldman Sachs): I don't think we're going to see the tobacco stocks move much in either direction on Monday. But over the course of the next three, six, 12 months, I--I believe that the stage is now set for tobacco stocks to move substantially higher. BROWN: (VO) But Wall Street saw something else in the case that doesn't bode so well for big tobacco. Whatever changes the industry has made in recent years, do not excuse the way it behaved for the better part of a century. Mr. MARTIN FELDMAN (Salomon Smith Barney): This jury was mad at the tobacco industry. The documents that Stanley Rosenblatt were--was effective, his testimony was effective, the industry put on an--an extremely strong and aggressive case, and essentially it counted for naut. BROWN: (VO) This is very dangerous for the industry, which used to be unbeatable in court but gets more vulnerable each year as plaintiffs' lawyers get smarter. Mr. DAN ZEGART (Author & Journalist): There is a learning curve. The plaintiffs' lawyers for first time in the history of this litigation are on that learning curve. They're finding out how to beat this industry. The--the industry has now lost four times since January of 1999. They had not lost a verdict prior to that, except for one verdict which was overturned on appeal. BROWN: Which is not to say the industry can't win or won't win. In just the last month, it's won two individual smoker cases, one in New York and one just this week in Mississippi. So it will win some and lose some. And that's part of the problem. It will never know when the next huge award is coming, when the next jury will hammer it the way the Florida jury did today. That is a tough way to do business even if you're as rich as big tobacco. Unidentified Lawyer: We have reached agreement. BROWN: (VO) Which is why almost exactly three years ago the industry agreed to an extraordinary settlement with the states. The deal would have capped the amount the industry would be required to pay in damages in any given year. But when the deal went to Congress and the costs grew to more than $ 500 billion, tobacco walked away. Mr. STEVEN GOLDSTONE (RJ Reynolds): I'm not kidding around when I say I'm done with this process. I am not going to spend time walking the halls of Congress in--in the context of a process that I see is completely broken. BROWN: (VO) Today's verdict increases the likelihood the industry will try again, getting some legal protection from Congress in exchange for some form of federal regulation. (OC) No new deal will happen until after the November elections, and the industry will do everything it can to elect Republicans who are traditionally more receptive to its arguments. Judge KAYE: Thank you, folks. You're discharged. BROWN: (VO) But if ever big tobacco needed a reminder that it must resolve its never-ending legal problems, it got one, actually, 145 billion reminders, from a Florida jury today. This is Aaron Brown in New York for NIGHTLINE. KOPPEL: So what's the message from today's verdict? When we come back, an executive of the tobacco company that took the biggest hit, a longtime tobacco opponent, and a legal analyst who has closely followed the trial. Announcer: This is ABC News NIGHTLINE, brought to you by... (Commercial break) KOPPEL: And joining us now from Philip Morris headquarters in New York, William Ohlemeyer. He's vice president and associate general counsel for the tobacco giant. Joining here in our Washington bureau, Matthew Myers. He's president of the Campaign for Tobacco-Free Kids, and Robert Levy, senior fellow in constitutional studies at the Cato Institute. Mr. Ohlemeyer, I don't want to take anything for granted, but I'm assuming that you don't think that that damage sum of 145 billion will stand. Mr. WILLIAM OHLEMEYER (Philip Morris): Well, this is certainly a verdict that will be appealed and we expect it to be reversed by the appellate court. This was a case in which the jury never got an opportunity to do the right thing. In a tobacco case, individual issues like knowledge and awareness of the risks of smoking are the kinds of issues that have to be considered to order to be able to determine liability. And that's why two dozen state and federal courts in 28 other cases have concluded you can't try a tobacco case as a class-action because these individual issues don't get the appropriate and necessary consideration that they deserve in order to establish liability in a case like this. KOPPEL: Mr. Myers, you think the judgment will stand? Mr. MATTHEW MYERS (Campaign for Tobacco-Free Kids): I think there's a very good chance that it will stand. The appellate courts in Florida have already ruled in a prior case involving flight attendants that a class-action is appropriate in these kinds of cases. How they'll rule on the punitive damages we don't know, but they had an opportunity to stop this case at an earlier stage and decided not to. I think this is a situation where both parties have a great deal of risk and the ultimate outcome is uncertain. KOPPEL: Mr. Levy: Mr. BOB LEVY (Cato Institute): There's no chance, in my view, that this verdict will hold up on appeal. Twenty-five out of 27 states have denied the tobacco class-actions could be litigated. and the federal government has denied it as well. To litigate a class-action at a minimum, you have to have a common set of facts and common injuries. Here we have smokers, maybe upwards of 800,000 of them, who've smoked different brands of cigarettes for different periods of time with a different level of intensity, coming down with diseases, everything from a hacking cough to lung cancer. They have different medical histories, they have different exposure to workplace carcinogens, different lifestyle, recreation, different nutrition and diet. So it is preposterous to certify this as a class-action. And the Florida Supreme Court, perhaps even the appellate court, will decertify this class and we're back at square one. KOPPEL: Let me try a somewhat different approach on you, and Mr. Myers, I'd like to begin this time with you. Mr. MYERS: Sure. KOPPEL: The amount is so extraordinary, $ 145 billion, that in some respects I'm going to suggest to you that the amount alone works to the advantage of the tobacco companies, if only because the states, which are so eager to get their own money, are going to be reluctant to see the tobacco companies either put out of business or have their business so severely reduced they may not get their cash. Mr. MYERS: There's really two questions there. Is the amount out of proportion to the injury? And what will the state attorneys general do? You know, they--in this case, the amount is stunning, but so is the harm caused by the tobacco industry. This jury was obviously convinced that the tobacco industry for decades has consciously engaged in the most wholesale wrongdoing that we've ever seen in this nation. And with results that caused harm to more people. The number is high, but we've never seen a harm like the tobacco industry has caused. As to the states, you know, the states filed suit with the goal of reducing tobacco use, particularly among children. I'm hoping that the lust for money won't overtake them in their search for what they were all about in the first place. If the states are concerned about the flow of money, all they need do is actually increase the tax on tobacco products and then continue with whatever public health programs they funded with this money. KOPPEL: I--I like the phrase "lust for money." Mr. Levy, what do you think the states are going to do in their lust for money, because a lot of these states, if they haven't spent it yet, they've certainly allocated that money. Mr. LEVY: Well, I think we have some preliminary indication of what they're going to do. There was a rule in Florida that said if the industry wanted to appeal this case after the verdict, in this case, $ 145 billion verdict, they would have to post a bond equal to 120 percent of the awarded damages. Now, 120 percent of $ 145 billion is something on the order of $ 170 billion. KOPPEL: But the legislature changed that, though, didn't they? Mr. LEVY: The legislature changed it and capped the damage--the appeal at $ 100 million. Why? Because the legislature didn't want to run any risk at all that the industry wouldn't be able to appeal, that the damage award would hold, and that the states take out of the Medicare--the Medicaid recoupment suits would be jeopardized. KOPPEL: Mr. Ohlemeyer, do you find yourselves now in a sort of strange partnership with those--with those same attorneys general who came after you only three years ago? Mr. OHLEMEYER: Well, I think we're in a partnership in the sense that we're each a part of an agreement that was an attempt to find some common ground on some issues and--and to incorporate some change in the way these companies do business. And to monitor those changes. And... KOPPEL: Yeah, but that's not what I mean. That's--that's--that's not what I mean, Mr. Ohlemeyer, and you know what I was driving at. In other words, is--is their lust for money at this point actually working to your advantage? I'm actually asking you a somewhat--somewhat deeper question than that, and that is, were you guys so smart that you knew that with that $ 246 billion payment or promise of payment, you would actually bring the states on to your side? Mr. OHLEMEYER: No, I don't think so. I think it's fair to say, though, that nobody believes, whether it's Philip Morris or a state, the state of Florida, that one jury should have the power to legislate or to regulate or to tax a legal product like cigarettes. So, to that extent, yes, I think we all share some common ground and we all are interested in seeing that--that the law be applied fairly to Philip Morris or any other company that finds itself in a courtroom in Florida, and that juries not be allowed to bankrupt or cripple an industry. And the law in Florida is very clear on that issue and--that litigation not be used as a surrogate for legislation. KOPPEL: The law, Mr. Myers, is clear that--that no judgment can, in fact, bankrupt a company. But would $ 146 billion payment--I--I assume it could be spread out over a period of years--would that bankrupt the tobacco industry, in your view? Mr. MYERS: Well, you know, the tobacco company has tried to claim that they would go bankrupt at a $ 15 billion payment. But the reality is right now they're paying the states about $ 8 billion a year and had record profits last year. I don't think we know what the right number is. What we do know that given the wrongdoing that the tobacco industry engaged in, this judgment made sense in terms of a punitive damage judgment larger than anything we've seen, because obviously this jury, after two years of hearing testimony, had concluded that the tobacco industry's behavior was so severe, and they obviously didn't believe the testimony they heard over the last several weeks that the tobacco industry had changed. KOPPEL: I'm sorry to interrupt you, but we've got to take a short break. We'll be back with all of our guests in just a moment. (Commercial break) KOPPEL: And we're back with William Ohlemeyer of Philip Morris, Matthew Myers of the Campaign for Tobacco-Free Kids and the Cato Institute's Robert Levy. Mr. Levy, in--in New York City, I believe, these days, the price of a pack of cigarettes is about $ 5. How much of that is--is actually the expense of producing the pack, and how much is taxes? Mr. LEVY: A dollar nineteen a pack is the state tax and--and federal tax in New York City. By contrast, by the way, it's about two and a half cents a pack in Virginia. So what we have is vans loaded with 4500 cartons of cigarettes making trips regularly between Virginia and New York. Each van brings $ 50,000 worth of profit. So if a lazy guy who only wants to work three days a week makes three trips and draws $ 150,000 in profit, that's about $ 8 million a year. Or to put it in--in the broader perspective, we sell 23 billion packs of cigarettes in this country. If you allow for a $ 2 price increase to pay for all of these various damage awards, you're talking about $ 46 billion in potentially illicit profits in a black market. And to put that in perspective, that's about eight times the size of Microsoft. So it doesn't take a rocket scientist to know that what you're going to get is illegal dealings dominated by criminal gangs that are hooking under-aged smokers on an adulterated product without any constraints on quality that ordinarily are afforded by a competitive marketplace. Mr. MYERS: You know, I... KOPPEL: Mr. Myers, I can see you leaning into the camera, you can barely restrain yourself. Go ahead. Mr. MYERS: Well--well, you know, it's a preposterous argument. The tobacco companies can raise much of this money by increasing the price. And if they're required to do so across the board, across the nation, you're not going to see the type of across border smuggling that Mr. Levy alludes to. The reality is smuggling in this country is a very small problem. The availability of the tobacco companies to raise the price will have two advantages. First and foremost, an increased price will reduce the number of people who smoke, particularly kids. And that may be the major public health benefit of this verdict if it's upheld. And second, a substantially increased price, particularly if some of this money is used for public health good, could help bring about the type of fundamental change that the jury in Florida obviously doesn't believe, that the tobacco company did on its own previously or will do voluntarily. KOPPEL: Mr. Ohlemeyer, is there any chance, and--and--and let me state at the outset, I know you can't--you can't make any kind of offer or even a even a hint or a suggestion as to what is going to happen, but do you think there's any chance that this kind of a judgment is, at least, going to lead to the possibility of a negotiated settlement here? Mr. OHLEMEYER: No, not at all. This is a case that was--that shouldn't have--this is a case that should not have been tried and the company didn't have an opportunity to present the kind of defense it is entitled to present, and it intends to appeal the case. A settlement would prevent it from appealing the case. It intends to appeal the case so that it can have the verdict reviewed, and we think reversed, consistent with what two dozen other state and federal courts have done with these 28 other previous attempts to do the same kind of thing. KOPPEL: Was my estimate at the--at the top of this program about right that the appeals process is likely to take somewhere between five to 10 years? Mr. OHLEMEYER: No. I think--I think that's on the long side. It--it certainly isn't quick. There are some proceedings in the trial court that have to occur, and then there are a variety of different procedures that have to be determined before we get to the appellate court, but I think something on the order of two to four years is more realistic. KOPPEL: Mr. Myers, I--I--I know you're not an economics specialist or a market specialist, necessarily, but how do you explain that the--the market doesn't see--I mean, the market barely winced today. Tobacco stocks were, as Aaron Brown indicated, barely took a--barely took a dip at all, and are expected to go up. Mr. MYERS: You know, Wall Street's funny. The tobacco industry, including Philip Morris, has spent a lot of time trying to convince Wall Street that they'll be able to beat this on appeal. We just heard Mr. Ohlemeyer repeat that. What he's ignoring, I think, is the fact there's no clear-cut winner on appeal yet, that the class-action issues and punitive damage issues have been considered in one form or another by the Florida Court of Appeals. And while they haven't ruled on the merits, they have also indicated that Judge Kaye clearly wasn't totally wrong. You know, I think Wall Street here is trying to prop up the--the stocks, even while we know that this verdict, particularly with the size of the verdict, is likely to lead to more people to file suit and more people to move on. You know, one of the lessons of today's verdict is that the more juries have learned from the tobacco industry's own documents about the nature of the wrongdoing, the angrier they've gotten, and we've seen this increasing trend. There's no reason to believe that the trend is going to end today. KOPPEL: Let me just get a last thought... Mr. OHLEMEYER: Can I add to that? KOPPEL: Well, let me just get a last thought, if I may, from Mr. Levy, because we're just about out of time. Your--your--your thoughts on why it is that the market, which is notoriously unsentimental about things like this, seems unimpressed? Mr. LEVY: The market understands that this verdict is going to be overturned on appeal, that we've already had classes rejected in virtually every other state that's tried to certify classes. The only state that's left that's accepted this is Louisiana. Matt Myers tells us that all of this dollar value of 145 billion is justified by the harm, but Wall Street knows that we don't even know what the harm is. How could you possibly determine the harm if you don't even know how many people are in the class or what their names are or whether they knew about smoking, whether they assumed the risk, whether they were injured, how much they were injured. This is preposterous not to think Wall Street understands it. This is lunacy. KOPPEL: Gentlemen, we are out of time. Mr. Ohlemeyer, Mr. Levy, Mr. Myers, thank you all very much for joining us. Mr. MYERS: Thanks, Ted. Mr. OHLEMEYER: Thank you. Mr. LEVY: Thank you. KOPPEL: And I'll be back in a moment. (Commercial break) KOPPEL: Sunday, "This Week" with Sam Donaldson and Cokie Roberts from the governor's mansion in Austin, Texas, an exclusive interview with the Republican presidential candidate, George W. Bush. And that's our report for tonight. I'm Ted Koppel in Washington. For all of us here at ABC News, good night. (ABC NEWS, July 14, 2000) TOBACCO LITIGATION: PM Reports Sales & Earnings Lift in Midst of Appeal ------------------------------------------------------------------------ Philip Morris, which is in the midst of an appeal against last week's $ 145 billion damages award against cigarette manufacturers, gave further evidence on July 18 that the industry is able to increase profits in the face of legal threats. The world's largest tobacco manufacturer reported a 5.5 per cent rise in underlying net earnings for the second quarter to Dollars 2.2bn and a 13.1 per cent jump in reported earnings per share to 95 cents. The results were in line with expectations. The figures gave a slight boost to Philip Morris's stock, which had fallen more than 10 per cent since last Friday's verdict in the Florida class action. By lunchtime the shares were up Dollars 9/16 at Dollars 24 1/8. Geoffrey Bible, chairman, said the figures demonstrated "the continued strength of our business fundamentals". Although US cigarette prices have risen by 31 cents per pack in the last year, the group's domestic tobacco volumes rose 3.6 per cent, above the industry average of 1.5 per cent growth. The increase in sales volumes was driven largely by wholesalers' continued restocking, which analysts said was in preparation for further price rises. Analysts expect Philip Morris to increase pack prices by 12 to 13 cents in September. Group revenues rose 5.2 per cent to Dollars 20.8bn in the quarter, as a 20.5 per cent leap in domestic tobacco revenues offset slight falls in the international tobacco and the international food divisions. Underlying operating income from international tobacco increased by 4.6 per cent to Dollars 1.3bn, however, thanks to volume increases in western Europe, Russia and Japan. This was offset partially by volume declines in parts of central and eastern Europe, negative currency movements, and lower duty-free shipments. Kraft Foods, which announced a Dollars 14.9bn bid for Nabisco during the quarter, increased operating income by 5.3 per cent in the US and by 6.3 per cent internationally. Earnings-per-share growth was helped by Philip Morris's buy-back of a further Dollars 900m of its stock, which has been depressed by legal concerns. (Financial Times (London), July 19, 2000) TOBACCO LITIGATION: The Bond Buyer's Analysis of FL Verdict's Effect -------------------------------------------------------------------- It might seem likely that the $145 billion punitive-damages award issued last week by a Florida jury against tobacco companies would have a negative effect on the municipal bonds they back, but experts say that's not necessarily the case Rating agencies Monday planned to affirm their original predictions about cigarette makers' fates, which had already accounted for the risk of punitive damages Trading of bonds backed by the national tobacco settlement had not taken place in response to the announcement, either. "To some degree the damage award is irrelevant, in the sense that the jury verdict is the beginning of a process," said Christoph Razaire, a senior analyst at Moody's Investors Service, which Monday confirmed its ratings and its stable outlooks for the tobacco companies In its report, Moody's cited four factors on which it based its decision to maintain an unchanging view of tobacco credits First, based on the trial structure defined by the trial court judge, the companies would not have to pay the damages before the end of a possibly decades-long process of individual trials; second, the judge could reduce the awards before entering the verdict; third, the probability of class-action decertification on appeal of the Florida case is high; and finally, the companies have significant protection against the risk of having to post an overwhelming bond against the judgment Nevertheless, the unusual structure of the Florida trial -- known as the Engle case after the lead plaintiff -- will remain a source of uncertainty as the proceedings continue A Moody's municipal credit analyst, Michael Kanef, said that if cigarette makers face no immediate credit quality deterioration, neither will the bonds they back Tobacco bond investors seemed unfazed by the jury's decision, at least in the first few working days afterwards, since none had yet sold any of their holdings by press time A trader at a large firm said he doubted that any tobacco bondholders would jump at the sound of the jury's damage-award gunshot. The debt -- sold last year to securitize the settlement payments going to New York City, Nassau County, and Westchester County, NY -- haven't been placed in the kind of accounts "that would be willing to get out" at the current prices, the trader said. But since spreads widened in corporate tobacco debt immediately after last Friday's verdict, John Hallacy, managing director of municipal bond research at Merrill Lynch & Co, expects to see similar behavior in the municipal counterparts, although to a lesser degree Tobacco bonds aren't trading now, so their new levels won't be evident until the next scheduled deal -- by Monroe County, NY -- takes place in early August, Hallacy said In a report this week, Hallacy wrote that "one of the ironies" of the Florida judgment may be that some issuers who were contemplating securitizing their tobacco settlement payment may now actually accelerate their plans Although most observers were surprised about the amount of punitive damages awarded to the Florida smokers by the jury, they didn't think the staggering $145 billion penalty necessarily meant as much as it appeared to. "I don't see this Engle verdict as being a significant risk to tobacco bonds," said Cadmus Hicks, an analyst at Nuveen Advisory Corp "If it's reversed on appeal, it'll just be a footnote in the law books" Cigarette makers have been doing "pretty well" for the most part, Hicks said. Other verdicts that haven't made newspaper headlines, although smaller, say more altogether about the legal environment to which tobacco suits are being brought, he said. "If the Engle verdict were approved on appeal that would be a different matter," Hicks added. Hicks and most other analysts said they didn't expect tobacco companies to be completely bankrupted as the case plays out in the legal system. "As a practical matter, if you want these companies that are guilty to provide some remuneration to those who have suffered from their products, the companies are more valuable alive than dead," he said If the Engle verdict creates a growing belief that greater-than-expected stress could affect tobacco bond cash flows, accelerated defeasance will probably then have more appeal to investors, Hallacy said So far, most analysts seemed to be taking a wait-and-see attitude. "You can't know what will happen," said Steve Murphy, a director at Standard & Poor's "Even with the jury's decision, you don't know whether it'll be thrown out or reduced" (The Bond Buyer, July 19, 2000) VANDERBILT U: 6th Cir Reverses Coverage Denial in Radioactive Iron Case ----------------------------------------------------------------------- Case: United States Fire Insurance Co. v. Vanderbilt University, et al., Nos. 00-5239 and 00-5301, 6th Cir.; See Insurance 2/14/00, Page 13. Appellants' Proof Brief Filed May 25 by Vanderbilt University and Vanderbilt University Medical Center. Brief in Section D. Document # 25-0006607-104. Background In 1994, a class action suit was filed against Vanderbilt University and others by plaintiffs alleging the defendants conducted the Tennessee Vanderbilt Nutrition Project (TVNP), in which more than 800 pregnant women were given a liquid containing radioactive iron from 1945 to 1947 without their consent (Craft v. Vanderbilt University, 174 R.F.D. 396 [M.D. Tenn. 1996]). Based on results of its follow-up study in the 1960s, Vanderbilt reported a possible relationship between fetal exposure to radioactive iron and the incidence of childhood cancers. The Craft action settled for $ 10 million in 1998 with Vanderbilt being responsible for approximately $ 9.1 million. Excess carrier United States Fire Insurance Co. filed this action in January 1999 against Vanderbilt and its primary carrier, St. Paul Fire & Marine Insurance Co., for a declaration that is has no duty to indemnify Vanderbilt for the settlement. U.S. Fire and Vanderbilt cross-moved for summary judgment on whether Vanderbilt's 1994 notice to the insurer was timely. U.S. Fire argued that it should have been notified in 1969 when Vanderbilt published its findings from the follow-up study because it identified the increased incidence of cancer in the exposed children. Vanderbilt countered that U.S. Fire waived its argument when it refused to defend or indemnify Vanderbilt in the Craft action, U.S. Fire was not entitled to notice to 1969, and U.S. Fire has not shown any prejudice from the 1994 notice. Vanderbilt also moved for summary judgment arguing that U.S. Fire is responsible for the remainder of the Craft settlement - approximately $ 6.6 million - because the insurer provided excess insurance during the follow-up study period which was a concurrent cause of the damages to the Craft plaintiffs. Vanderbilt also contends U.S. Fire is liable for the remainder of the settlement under the policies' all sums doctrine pursuant to J.H. France Refractories Co. v. Allstate Insurance Co. (626 A.2d 502 [Pa. 1993]; See Insurance 6/8/93, Page 3). The U.S. District Court for the Middle District of Tennessee held Jan. 27 that Vanderbilt University did not provide timely notice and is not entitled to seek indemnification from U.S. Fire for the underlying class action settlement. The court found that after the underlying settlement was entered, the entire settlement money was allocated to the battery claims of the 1940s and wrongful death claims of the 1950s. No money was assigned to liability for the 1960s follow-up study when U.S. Fire's policies were in effect. Arguments The District Court improperly assumed the role of a jury in granting summary judgment to U.S. Fire and erred in denying Vanderbilt's cross-motion for summary judgment regarding notice. Vanderbilt's notice of claim in 1994 was timely. U.S. Fire incorrectly argues that Vanderbilt was required to notify U.S. Fire of its awareness of certain deaths of children of several participants of the 1940s study because the law does not require notice of death. Moreover, Vanderbilt sought coverage for the claims in connection with the 1960s follow-up study, not wrongful death claims. U.S. Fire failed to show that Vanderbilt was aware of any claims stemming from the follow-up study prior to 1994. As an excess insurer, U.S. Fire was entitled to notice only if Vanderbilt became aware that a liability might exceed the limits of St. Paul's policy and no such claim had been made. The court's decision that U.S. Fire was prejudiced by Vanderbilt's alleged untimely notice must be reversed because Vanderbilt provided sufficient evidence to show that U.S. Fire was not prejudiced and U.S. Fire presented no such evidence. The court erred in denying Vanderbilt's motion for summary judgment regarding coverage and indemnity because the court misconstrued the definition of "occurrence" under the U.S. Fire policies; misapplied the "concurrent causation" doctrine; violated Vanderbilt's due process rights and misapplied applicable law in holding that Vanderbilt was bound by an order of distribution entered after Vanderbilt was dismissed with prejudice as a defendant in the class action; and misapplied controlling law in permitting an insurer to avoid coverage for an entire loss despite the absence of a policy provision permitting it to allocate the loss to policy years outsides it own policy periods. The 1960s study constitutes an "occurrence" under the policy, thus the court erroneously denied coverage to Vanderbilt. The court erred in finding that the Craft claims from the 1960s study were separate from those related to the 1940s study and, thus erred in concluding that U.S. Fire was not obligated to pay the balance of the Craft settlement. The court erred in determining that Vanderbilt did not suffer a covered loss and that it was bound by the distribution order. The attorney for Vanderbilt is Greg Mackuse of Miller, Alfano & Raspanti of Philadelphia. U.S. Fire is represented by Robert A. Shults, Brian S. Martin and Janis H. Detloff of Sheinfeld, Maley & Kay of Houston. (Mealey's Insurance Supplement, June 7, 2000) * Independence Forum Decries FTC's Premature Action on the Internet ------------------------------------------------------------------- The following statement is being issued by Independence Forum: Last week's lawsuit against Toysmart.com was the latest offense in an ongoing initiative of the Federal Trade Commission against the best interests of the people, and outside of the FTC's mandate of service. This suit belies the FTC's preference for aggressive attacks against minor problems that could be resolved under existing law and regulatory structures, in what seems to be a land-grab for power in the still-evolving field of Internet commerce. "The government is out of line to interfere with something that is already illegal under existing laws; it often does so in order to set up a new regulatory structure without the direction of Congress. It is not the executive branch's job, but Congress' job, to determine legislative frameworks for emerging concerns such as the Internet," according to Danielle Bujnak, president of Independence Forum. Toysmart.com has decided to break an explicit agreement with its customers. That is already illegal. Individuals who submitted personal information to Toysmart.com have a clear opportunity for a class action suit to get an injunction preventing the sale of their information to a third party, which would be a violation of the agreement stated in Toysmart.com's posted privacy policy. The FTC is attempting to stake out a claim in Internet regulation that is inappropriate at this time. "There is no need to jump into a frenzy over a very simple breach of contract situation. While the medium involved is relatively new, the case at hand is a broken contract and an attempt to sell identifying information about children to the highest bidder. Anyone would agree the potential dangers there provide a substantial basis for parents involved to seek an injunction against the sale," says Ms. Bujnak. Independence Forum is a non-profit public policy research organization based in Philadelphia and Washington DC, dedicated to educating the general public about issues relating to freedom the Internet. Danielle Bujnak is available for interviews on issues that relate to Internet privacy, regulation, and taxation efforts. In addition to radio and television appearances, Ms. Bujnak's views have been featured in national and regional magazines and newspapers, including "Business 2.0," "Investor's Business Daily," and the San Jose (CA) "Business Journal." Source: Independence Forum * SEC May Propose Rule to End Fragmentation ------------------------------------------- The SEC said it will consider proposing a rule next week that would require brokers to disclose when they use their own stock to fill customer orders or route the orders to other brokers for execution. It also plans to decide whether to order the U.S. options markets to form electronic links as a way to boost competition. Both plans stem from SEC Chairman Arthur Levitt Jr.'s push to have the U.S. securities markets end what he has called "fragmentation," in which the isolation of certain markets can prevent investors from getting the best possible price. (The Washington Post, July 19, 2000) ********* S U B S C R I P T I O N I N F O R M A T I O N Class Action Reporter is a daily newsletter, co-published by Bankruptcy Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc., Washington, DC. Theresa Cheuk, Managing Editor. Copyright 1999. All rights reserved. ISSN 1525-2272. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The CAR subscription rate is $575 for six months delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 301/951-6400. * * * End of Transmission * * *