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/raid1/www/Hosts/bankrupt/CAR_Public/000724.MBX C L A S S A C T I O N R E P O R T E R Monday, July 24, 2000, Vol. 2, No. 142 Headlines ANICOM INC: Milberg Weiss Announces Securities Suit in Illinois AUDIO VISUAL: Reaches Agreement in Principle to Settle Shareholder Suit CENDANT CORP: 3rd Cir Says Shareholders of Failed Merger Target May Sue DR.KOOP.COM INC: Cauley & Geller Files Securities Lawsuit in Texas DRKOOP.COM: VA Medical Equipment and Health News Provider Offers Merger EYEGLASS WORLD: Customer Sues, Alleging UV Charge Is Fraudulent FEN-PHEN: $4.7B Not Enough to Settle AHP Claims; Drug Executive Promoted HOLOCAUST VICTIMS: Canadian Survivors Soon to Get Compensation JUNK FAXES: Class Certified for GA Action against Hooters of Augusta LAWRENCE BERKELEY: Minority Workers Accuse of Bias in Genetic Tests QUEBEC MEDICARE: Suit Launched for Rejection of Financed Sex Changes REXALL SUNDOWN: FTC Sues to Seek Full Redund for Cellulite Pills SPLASH TECHNOLOGY: Files 2nd Motion to Dismiss Securities Lawsuit TOBACCO LITIGATION: County to Challenge Measure H on Settlement Money VARI-L COMPANY: Milberg Weiss Extends Period for Securities Suit in CO VISUAL NETWORKS: Lionel Z. Glancy Files Securities Lawsuit in Maryland SOY MILK: Canadian Food Inspection Agency Warns on White Wave Product WOODFORD MEMORIAL: Seven Laid-off Workers Add Litigation to Hospital Y2K LITIGATION: Iowa Hospitals Denied Certification against Software Co ZIFF-DAVIS INC: Securities Suit Not Dismissed for Question of Fact * SEC Commissioner Sees Internet Trading Equality in Near Future ********* ANICOM INC: Milberg Weiss Announces Securities Suit in Illinois --------------------------------------------------------------- The law firm of Milberg Weiss Bershad Hynes & Lerach LLP announces that a class action lawsuit was filed on July 20, 2000, on behalf of purchasers of the securities of Anicom Inc. (NASDAQ: ANIC) between April 29, 1998, and July 18, 2000 (the "Class period"). A copy of the complaint filed in this action is available from the Court, or can be viewed on Milberg Weiss' website at: http://www.milberg.com/anicom/ The action, numbered 00C4402, is pending in the United States District Court for the Northern District of Illinois, Eastern Division, located at the Dirksen Bldg., 219 S. Dearborn, Chicago, IL, 60604, against defendants Anicom, Carl E. Putnam (Chief Executive Officer), Donald C. Welchko (Chief Financial Officer and Vice President), and Scott C. Anixter (Chairman Emeritus). The Honorable Matthew F. Kennelly is the Judge presiding over the case. The complaint charges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder by issuing a series of material misrepresentations to the market between April 29, 1998, and July 18, 2000. During the Class Period, defendants issued financial statements and press releases concerning Anicom's revenues, income, and earnings per share, which reflected favorably on the Company's past operations and future prospects. The statements and releases were materially false and misleading because they materially overstated Anicom's revenues, income, and earnings growth. On July, 18, 2000, the Company revealed that it is investigating possible "accounting irregularities" which could result in a revision of its 1998 and 1999 financial statements. Following the announcement, trading in Anicom common stock was halted and has not resumed trading. Contact: Milberg Weiss Bershad Hynes & Lerach LLP Steven G. Schulman or Samuel H. Rudman (800) 320-5081 anicomcase@milbergNY.com http://www.milberg.com AUDIO VISUAL: Reaches Agreement in Principle to Settle Shareholder Suit ----------------------------------------------------------------------- Audio Visual Services Corporation (formerly Caribiner International, Inc.) (NYSE: CWC) announced on July 20 that it has reached an agreement in principle to settle the purported shareholder class actions initially filed in March, 1999 and May, 1999 against the Company and certain of its former officers and one of its former directors in the U.S. District Court for the Southern District of New York. The actions, which were substantially identical to one another and were consolidated into a single action in November, 1999 (which resulted in a consolidated amended complaint being filed in January, 2000) alleged, among other things, that the Company and the individual defendants misrepresented the Company's ability to integrate various companies that it had acquired. Under a memorandum of understanding entered into with counsel for the plaintiffs, all claims against the Company and the individuals named as defendants in the actions will be dismissed without presumption or admission of any liability or wrongdoing. The principal terms of the agreement call for the payment to the plaintiff class of the sum of $15.0 million, which was paid into an account to be administered by counsel for the plaintiffs. The settlement amount was paid in its entirety by the Company's insurance carrier. The terms of the settlement are subject to, among other things, court approval and execution of definitive settlement documentation. CENDANT CORP: 3rd Cir Says Shareholders of Failed Merger Target May Sue ----------------------------------------------------------------------- The Third Circuit has ruled that the shareholder of American Bankers Insurance Group may sue Cendant Corp. and its officers and directors for allegedly making false statements regarding the prospects of a merger between the two companies. The court concluded that as long as the purported misrepresentations were material and publicly disseminated they could be considered "in connection with" the purchase of ABI stock. Semerenko v. Cendant Corp. SEC Files Charges Against Seven Former CUC and Cendant Officials The Securities and Exchange Commission has brought civil and administrative charges against seven former CUC International Inc. and Cendant Corp. officials involved in the massive scheme that caused billions of dollars in investor losses. The federal agency asserts that the executives repeated manipulated the company's financial statements so much over a 12-year period that they were divorced from reality. (Securities Litigation & Regulation Reporter, July 6, 2000) DR.KOOP.COM INC: Cauley & Geller Files Securities Lawsuit in Texas ------------------------------------------------------------------ The Law Firm of Cauley & Geller, LLP announced on July 20 that it has filed a class action in the United States District Court for the Western District of Texas, Austin Division on behalf of all individuals and institutional investors that purchased the common stock of Dr.koop.com Inc. (Nasdaq:KOOP) between June 8, 1999 and March 30, 2000, including all persons who purchased the common stock of Dr.koop.com pursuant to or traceable to the Company's initial public offering (the "IPO") on June 8, 1999, or subsequently in the open market (the "Class Period"). The complaint charges that the Company and certain of its officers and directors violated the federal securities laws. Specifically, the complaint alleges that the prospectus (the "Prospectus") issued in connection with the IPO was materially false and misleading for several reasons. For example, the complaint alleges that the Prospectus highlighted the purported benefits the Company would derive from its relationship with HealthMagic Inc., a provider of Internet technology to health related businesses and that HealthMagic would continue to develop the Company's Personal Medical Records ("PMR") product, among other technologies. This statement was materially false and misleading, as alleged in the complaint, because it failed to disclose that the PMR product was in early stages of development and required extensive reworking before it could be commercially deployed. On March 30, 2000, the Company filed its Form 10-K for fiscal 1999 which revealed that the Company's relationship with HealthMagic was unsatisfactory and would be terminated, and that the Company's independent auditors raised substantial doubt about Dr.koop.com's ability to continue as a going concern. In response to these revelations, the price of Dr.koop.com common stock plunged by 41%, falling from $6 1/4 per share to 3 11/16 per share. Contact: Cauley & Geller, LLP Sue Null, Jackie Addison or Sharon Jackson Toll Free: 1-888-551-9944 Email: cauleypa@aol.com DRKOOP.COM: VA Medical Equipment and Health News Provider Offers Merger ----------------------------------------------------------------------- A Virginia company that sells medical equipment and provides online health news said last Friday July 21 it has offered to merge with ailing drkoop.com Inc. MillenniumHealth Communications Inc., based in Reston, Va., would not disclose details of its offer, and calls to drkoop.com offices in Austin were not immediately returned. ''We are in negotiations,'' said MillenniumHealth spokeswoman Alina Mesenbourg. ''We think they have a great Web site. With restructured board and management, we can be a refreshing voice for their company. We think we can go in there and turn it around.'' Drkoop.com, a provider of online health information co-founded in 1997 by former Surgeon General C. Everett Koop, has been limping along financially. The stock, which sold as high as $45 shortly after its initial public offering last July, has lately fallen to the $1 range. Shares jumped 58 percent, or 59.4 cents, last Friday July 21 to $1.625. Analysts questioned whether the proposed merger would provide the necessary lifeline to keep drkoop.com alive. MilleniumHealth is a low-profile company and not the kind analysts expected to scoop up drkoop.com, said Rachel Terrace, health care analyst for the Internet research firm Jupiter Communications. ''It's a marriage of a content site and content site,'' Terrace said. ''It's not like they're getting a huge cash infusion from a company like AOL. It's an infusion of money, but whether it would work as a long-term strategy remains to be seen.'' The announcement came a day after a federal lawsuit, which seeks class-action status on behalf of shareholders, was filed in Austin alleging that drkoop.com issued a misleading prospectus before its initial public offering of stock. Drkoop.com has been seeking new financing since April, when it announced it only had enough cash to survive until August. That came after the company disclosed in March that its auditors had cast doubt on its ability to remain in business. Two top executives resigned as the company warned that it will post a larger-than-expected loss for the second quarter. (AP Online, July 21, 2000) EYEGLASS WORLD: Customer Sues, Alleging UV Charge Is Fraudulent --------------------------------------------------------------- Edmund E. Cole might call it an optical illusion. Hes definitely calling it fraud. In a law suit, the seasonal North Palm Beach resident says he visited Eyeglass Worlds store in Lake Worth in March to replace his high-index lenses, the thin kind people with really bad eyes buy to eliminate the unsightly Coke-bottle look of regular glasses. He paid $ 118 for the lenses, $ 18 for gray tinting and $ 20 for a coating to filter the suns ultraviolet rays. In the suit filed in Palm Beach Circuit Court, Cole alleges that Eyeglass World violated the states Unfair Trade Practices Act by charging him for UV protection the lenses already had. Cole says problems began when he returned to Eyeglass World for an adjustment a few days later and a manager broke the frames. Although Cole demanded replacement frames, the suit alleges he was told he must buy a new pair; he acquiesced because he couldnt see without his glasses. While buying the new frames, Cole says, he heard from a sales associate that high-index lenses come with built-in UV protection. He figured he had paid $ 20 for nothing. So Cole, who makes his home in Osterville, Mass., wrote the company in May demanding the $ 20 UV fee and $ 199.95 for the replacement frames. Eyeglass World, a nationwide chain of 19 stores headquartered in Lake Worth and operated by Musa Holdings Inc., ignored him. In his letter, Cole threatened a class-action suit, and he took a step toward making good on his promise by filing the claim against Eyeglass World and Musa Holdings. Hes seeking to have the suit certified as a class action and demands compensatory and punitive damages for himself and all other Eyeglass World customers who bought high-index lenses and paid extra for UV protection. Musa Holdings president Marco Musa said he has not seen the suit but if Cole paid $ 20 for UV protection, its a mistake and he should receive a refund. Im unaware that it happened; our people are not perfect, unfortunately, he added. But he denied any responsibility for replacing Coles frames since they were not purchased from his company. Musa said this policy is posted on a sign in their stores. I hope we can make Eyeglass World see the errors in their ways, said Lawrence M. Kopelman of Kopelman & Blankman of Fort Lauderdale, one of Coles attorneys. Kopelman and Douglas A. Blankman are teaming up with the consumer class-action firm Phillips & Garcia in North Dartmouth, Mass. This is not the first time Eyeglass World has run into trouble. When attorney Carlin Phillips began to investigate, he learned that Florida Attorney General Bob Butterworth fined Eyeglass World $ 500,000 in February following an examination of its sales practices. Butterworths office alleged that Eyeglass World pressured the optometrists who lease space at each store into pushing patients to buy new glasses. It also charged that Eyeglass World sold outdated, used and nonsterile contact lenses; sold diagnostic lenses and solution starter kits provided free by the manufacturer; misrepresented itself as an approved provider for a certain health insurance plan; intentionally misquoted prices over the phone; engaged in bait-and-switch tactics; and failed to have a licensed optician on premises with proper equipment to perform tests required by the Food and Drug Administration. Eyeglass World denied the claims but agreed to a civil penalty. The company also agreed to make restitution to consumers and to pay the costs of the investigation. Eyeglass World also said it would revise its leases with optometrists to ensure it does not exert improper influence over their medical practices. (Broward Daily Business Review, July 20, 2000) FEN-PHEN: $4.7B Not Enough to Settle AHP Claims; Drug Executive Promoted ------------------------------------------------------------------------ American Home Products Corp. promoted its top drug executive to president, but shares fell after the company said it would need more than the $ 4.7 billion it set aside to settle claims related to its its fen-phen diet drugs. American Home named Robert Essner president and chief operating officer of the company. Essner had been head of the company's global pharmaceutical business. Essner, 52, will now also oversee American Home's consumer products division, which markets Advil, Centrum vitamins and Robitussin cough syrup. American Home's chief executive, John Stafford, 62, gives up the title of president. Stafford, who has run American Home since 1986, underwent bypass surgery this year. Wall Street analysts said the move may be a sign that Essner is emerging as an heir apparent at the company, which has been a part of three failed merger attempts since 1998. But Daniel Hoffman, a West Chester pharmaceutical consultant, said it appears to be an attempt to raise morale at American Home's pharmaceutical subsidiary Wyeth-Ayerst Laboratories in St. Davids, where he said some executives were to have been passed over in the most recent proposed merger with Warner-Lambert Co. Warner-Lambert subsequently merged with Pfizer Inc. "It indicates the company's effort to show support for its current pharmaceutical managers," Hoffman said. American Home also said it would need to pay out more than the $ 4.7 billion it set aside in 1999 for patients who have suffered heart damage from its diet drugs. In 1997, Wyeth withdrew the drugs Redux and Pondimin, which were used in the so-called fen-phen combination. Shares in American Home closed down $ 1.69 on the New York Stock Exchange to $ 53.56. In a statement accompanying its second-quarter earnings report, American Home said it did not know how much more the company will need to pay out to settle legal claims. However, the company said the "substantial majority" of its final liability will be covered by the amount already put in reserve. It said $ 3.6 billion of the settlement reserve remains. A U.S. District Judge in Philadelphia is considering whether to approve a class action settlement. But even if that case is settled, American Home could be open to other costs in cases filed by people who opted not to be part of the settlement. Last month, American Home lost a jury trial in Oregon and was ordered to pay $ 29.2 million in compensatory and punitive damages to a man and his mother who said they suffered heart damage because of the drugs. American Home said worldwide pharmaceutical sales rose 17 percent in the second quarter, due primarily to higher sales of its Effexor XR antidepressant, Meningitec, a meningitis vaccine introduced in the United Kingdom late last year, and Enbrel an arthritis medication Wyeth co-markets with Immunex Corp. of Seattle. (The Philadelphia Inquirer, July 21, 2000) A press release says that American Home Products Corporation reports strong sales and earnings from continuing operations for the 2000 second quarter and first half. Significant highlights for the 2000 second quarter and first half: -- Income from continuing operations rose 19% and 18%, respectively; -- Worldwide net sales increased 14% for both periods; -- Diluted earnings per share from continuing operations increased 19% and 20%, respectively; -- Liquidity strengthened as the Company received $3.8 billion from the sale of its Cyanamid Agricultural Products business and a $1.8 billion merger termination fee during the 2000 first half; -- Three FDA approvals broaden the pharmaceutical product base, including new drug approvals for acute myeloid leukemia and gastric acid reflux disease, and enhanced labeling in rheumatoid arthritis. HOLOCAUST VICTIMS: Canadian Survivors Soon to Get Compensation -------------------------------------------------------------- Canadian survivors of Nazi slave-labour camps will find out within 60 days how to apply for compensation from a $7.5 billion German government fund, the Canadian Jewish Congress says. Details are being finalized, CJC President Moshe Ronen said. Compensation will be about $11,000 for ex-slave labourers and $3,700 for forced labourers. (The Toronto Star, July 21, 2000) JUNK FAXES: Class Certified for GA Action against Hooters of Augusta -------------------------------------------------------------------- Georgia residents and businesses got the green light to bring claims against advertisers who send unsolicited faxes. The Court of Appeals of Georgia upheld class certification of the state's first class action involving junk faxes. An Augusta sole practitioner brought the case against the restaurant chain Hooters of Augusta Inc. In a broader sweep, the court established that a federal statute regulating faxed ads and other telemarketing efforts creates a private right of action and confers jurisdiction on state courts in Georgia. Hooters of Augusta Inc. v. Nicholson No. A00A0429 (Ct. App. Ga. July 14, 2000). Marc B. Hershovitz is an Atlanta attorney who represents plaintiffs in a similar suit against Susquehanna Radio Corp., the owner of radio station 99X. "Hooters was a resounding affirmation that these cases can go forward in Georgia," he says. Hershovitz was waiting to proceed in his suit until Hooters resolved the key issue of whether Georgia courts may hear cases under the Telephone Consumer Protection Act. Unsolicited Fax Ads Barred TCPA (47 U.S.C. 227) is a 1991 law that prohibits advertisers from sending unsolicited ads by fax. The law defines unsolicited as without prior express invitation or permission. It allows plaintiffs to sue in state court and imposes fines of $500 to $1,500 per violation. Hooters is the first TCPA case in the nation to advance through an appeal with class certification intact, say plaintiffs lawyers. It also is the only reported TCPA case in Georgia. The class is expected to comprise 2,500 to 3,000 people and businesses that received unsolicited fax advertisements, according to Harry D. Revell of Augusta's Burnside, Wall, Daniel, Ellison & Revell. Revell represents plaintiff Sam Nicholson, who sued in Richmond County in 1995 after receiving an unsolicited fax containing a Hooters' lunch coupon at his law office. The flyer was faxed by Value-Fax of Augusta. Value-Fax was hired by Hooters and other businesses to distribute advertisements to Augusta-area fax machines. Hooters' appellate attorney Frank M. Lowrey IV of Atlanta's Bondurant, Mixson & Elmore points out that the flyer contained six to eight ads from other businesses. "It's fairly clear that they are not trying to stop transmissions. They are trying to collect money from a solvent defendant," Lowrey says. No Private Right of Action? A Richmond County judge certified the class in 1998. Hooters appealed, arguing that the recipient of the fax had no private right of action in Georgia and that TCPA cannot reach purely intrastate communications. Hooters is not liable for the conduct of an independent contractor and the class was improperly certified, the company argued. The appeals court held in favor of the recipient on each issue. Judge John J. Ellington delivered the majority opinion. Judges John H. Ruffin Jr., Frank M. Eldridge, Anne E. Barnes and Charles B. Mikell Jr. concurred. Presiding Judges Gary B. Andrews and G. Alan Blackburn dissented. The parties had presented arguments in January to a three-judge panel, which included Andrews and Ruffin and Ellington. "We think it's significant that it's a full-court opinion. It's significant that five of seven people who settled this en banc case agreed right down the line with our position ," says Revell. More Appeals Expected Lowrey says Hooters will seek reconsideration in the appeals court, and, if necessary, will seek certiorari from the Supreme Court of Georgia. "The Georgia Supreme Court should and will take this case on certiorari to consider the issues of first impression involving the interpretation of the TCPA," says Lowrey. The main issue Lowrey says Hooters will raise on appeal is whether a TCPA cause of action exists in Georgia. Hooters argues TCPA is intended to merely supplement state laws that restrict unsolicited telemarketing within the state but cannot reach interstate marketing. Because Georgia does not have a state law that explicitly provides a private right of action for intrastate unsolicited fax ads, the recipient of the fax cannot rely upon TCPA, Hooters contends. Differences Over Interpretation The recipient, however, argued that the statute's language-a person may bring an action "if otherwise permitted by the laws of a state"-means state courts may hear TCPA actions unless the state "opts out" by enacting a law that expressly prohibits such private actions. The trial court applied the opt-out analysis, and concluded that the provision allows states to prohibit private TCPA actions, but does not require "explicit enabling legislation," according to the opinion. The Georgia appeals court upheld the trial court. The dissent, however, interpreted the statute's language to require states to opt in by explicitly providing for a private right of action in state law. "The purpose of the statute was not to go beyond what the state was already doing to regulate the telemarketers, but rather to allow the states to reach those telemarketers who were evading state jurisdiction by operating interstate," the dissent states. Hooters' lawyer Lowrey agrees: "The statute reads 'if otherwise permitted by state law.' It's our position that 'otherwise permitted' does not mean 'unless prohibited.' " Lowrey says he is encouraged by the dissent in an unsettled area of law. But others contend the decision is in accordance with most jurisdictions and should withstand appeal. "Georgia is joining an overwhelming majority of courts nationwide," says Hershovitz. Most courts have allowed recipients of faxed advertisements to sue under federal law without a state law that expressly gives them a private right of action, Hershovitz says. He adds that, while Hooters is the first TCPA class action to go forward in litigation, classes have settled. Additionally, individuals have settled claims and won awards at trial. (Fulton County Daily Report, July 21, 2000) LAWRENCE BERKELEY: Minority Workers Accuse of Bias in Genetic Tests ------------------------------------------------------------------- Genetic tests have delivered bad news to many, but Marya Norman-Bloodsaw has the dubious distinction of being one of the first Americans to feel truly and utterly violated by an analysis of her DNA. Her employer, you see, screened her DNA for syphilis, pregnancy and sickle-cell traits without her consent. When Norman-Bloodsaw, 45, started work as an accounting administrator at the Lawrence Berkeley National Laboratory in California, she received a physical exam and gave a blood sample. In 1995, while looking at her medical records, her mother, a nurse, saw that she had been tested for "RPR," syphilis. After Norman-Bloodsaw shared her tale, some of her colleagues requested their records. She and seven other workers eventually filed a class action, alleging that blacks and Hispanics had been disproportionately tested. Lab overseers explained that the tests had been ordered by the Department of Energy to maintain employee health. Doctors did tell plaintiff Mark Covington that he had high blood pressure-but neglected to say that he had tested positive for sickle-cell traits, as well. "It was just hurtful," says Norman-Bloodsaw. "My mother, my brothers and sisters-all of them-it's an intrusion into all of their lives, too." In Norman-Bloodsaw v. Lawrence Berkeley Laboratory, 35 F.3d 1260, the 9th U.S. Circuit Court of Appeals stingingly rebuked the lab last year, and at a July 13 hearing, the lab said that it had agreed to restrictive consent rules for use of genetic information, to the imposition of a monitor and to a $4,050 payout to each plaintiff. Senate Explores Issue A complex and likely wrenching public debate about such cases is coming. In the wake of the celebrated transcription of the human genome, lawmakers are aiming to tackle the gene's cloudy side. First up: The Senate's health committee held a hearing into genetics-based discrimination. Gene testing is not just new and sexy. It's a fast-moving gold rush, and hospitals, managed care companies, researchers, patients, tissue banks, employers and a supply chain's worth of wide-eyed entrepreneurs are all seeking roles. Concerns about genetic privacy come on the heels of public worries about another privacy issue: strangers' access to a person's "cookies"-a computer record of which Web sites an Internet surfer has visited. People are asking: Who will have information about me? With whom can they share it? Will I be able to stop them from sharing it, selling it or using it against me? These aren't theoretical concerns. Already, Boston University health law professor George Annas has met a woman who says that she was diagnosed with diabetes and, three days later, received marketing materials for a diabetics service in the mail. Georgetown health law professor Lawrence Gostin has interviewed people who have had sensitive data about their genetically caused diseases shared with insurers and landlords. A North Carolina woman claims her self-insured employer-an insurance broker-fired her last year after reviewing a genetic test showing she might contract lung and liver disease. Three questions are likely to frame the debate: Can existing laws suffice, or will we need new laws? If potential victims need new laws, will people be better served with a broad health information privacy statute or one that addresses unique concerns about genetic data? If people want genetics-specific legislation, what will it look like? Federal protection against genetics-based bias already exists. In 1995, the Equal Employment Opportunity Commission issued a guidance barring the practice among employers. In 1996, the Health Insurance Portability and Accountability Act outlawed it among insurers. At the upcoming Senate hearing, EEOC Commissioner Paul Miller is expected to testify that, although his agency can punish gene-based discriminators under the Americans With Disabilities Act, it would welcome further protection. Courts' increasingly narrow readings of the ADA are leaving gaps in coverage. Motley Assortment of Laws Thirty-two states have laws purporting to provide such protection. Some guard against misuse of the knowledge, some seek to manage dissemination of the knowledge before it's misused, and a few grant the right to object before a technician spins out a genetic profile in the first place. A new federal law could simplify matters. The best approach, argues Gostin, is to protect all medical records, not just genetics-related ones. Why, he asks, should the records of a woman who developed a breast cancer of genetic origin be given more protection than those of a woman whose breast cancer arose from smoking? Should Norman-Bloodsaw's files be protected if she has sickle-cell traits but not if she has syphilis? Isn't the nongenetic condition the more stigmatizing? Gostin and his colleagues have drafted a model privacy act. They would grant individuals the right to access, inspect and amend their health information, learn how such information is used and disclosed, and request a record of disclosures. The act would punish any data holder who failed to de-identify personal data when possible or who disclosed unnecessary information. 'Public Purpose' Rule Gostin's approach would allow government agencies, investigators, health authorities or others to acquire, analyze and divulge data if a careful showing were made of a "substantial public health purpose." But the data could not be released to employers, insurers, landlords, family or friends without the person's permission. Gostin acknowledges that a broad medical privacy plan like his isn't likely to be approved: "Legislators want to be associated with the genetics revolution," he says. At the same time, vote-sensitive lawmakers are likely to want to respond to people's privacy fears. Politicians have heard warnings that stray pieces of a person's virtual, coded identity could be judged out of context, that direct marketers want to parse people's inclinations and most soul-shaking vulnerabilities. And they've heard that a genetic test's result can have a lifelong impact or alter reproductive decisions, that it can reverberate throughout a family, echoing around a history of racialist tracking, eugenic sorting and forced sterilization. DNA Awareness Critical Citizen and consumer advocates say the first realistic legislative goal is DNA awareness. Norman-Bloodsaw has been traveling to community health fairs around the San Francisco Bay Area, talking up the notion that a person should have full ownership of her DNA. Three states-Florida, Georgia and Colorado-give people exclusive property interests in their DNA samples. But biotech lobbyists have fought this, and have won, elsewhere. "We would give support and protection to the notion that a second person could own this and that they have rights and protections, but we won't recognize a property interest in the person who gave the sample," says Patricia Roche, a public health professor at Boston University. "The person should donate it to research, but once the researchers begin to work with it, then we're going to protect and enforce researchers' economic interest in it." In February, the U.S. Health and Human Services Department proposed new privacy regulations to balance the social good of research against the personal expectation of privacy. Under those rules, each hospital or health plan would have to intensify its review of data releases. The biotechnology and research representatives immediately warned that hospitals would grind to a halt, research would be chilled and treatment progress would stagnate as doctors shied away from mass databases. Industry Wants Disclosure Industry, ironically, is pushing not for data hoarding, but for data sharing. "I think reality has shown that you cannot protect the privacy of information," said Craig Venter, the president of Celera, the genomics company, recently on "Meet the Press." Sen. Pete Domenici, R-N.M., offered his colleagues a broad genetic privacy act in 1997 and 1998. In the House, Rep. Louise Slaughter, D-N.Y., pushed a medical records privacy bill, too. "It hadn't even been marked up before a whole list of interests descended on the committee. Before we ended up dropping it altogether, we scheduled 100 meetings," recalls one of Slaughter's staff. For now, the half-dozen congressional bills on offer, including Slaughter's, focus on expanding genetic discrimination laws for the workplace and insurers. Discrimination can result in economic harm too, of course. But that seems a no-brainer policy goal for the future. Even so, to create a genetics bill that satisfies everyone likely will require a dazzling feat of compromise-almost as dazzling as managing to crack the DNA code. (Fulton County Daily Report, July 21, 2000) QUEBEC MEDICARE: Suit Launched for Rejection of Financed Sex Changes -------------------------------------------------------------------- Nurse Michelle Gauthier says she's launching a class-action lawsuit against Quebec medicare for the cost of sex-change operations. Gauthier said the suit is on behalf of one thousand Quebecers whose plans for publicly financed sex-change operations were rejected by medicare. They went instead to private clinics, where costs can run from $ 120,000 to $ 450,000, compared with $ 950 paid to a surgical team working in a hospital. Gauthier, a transsexual, said the Quebec Health Insurance Board paid the cost of only five sex-change operations performed since last January in hospitals. Gauthier said the difference between the five accepted and those who were refused lies in "the outside pressure applied to the board to get satisfaction." She said some people went through all the therapeutical stages only to be refused an operation "on the pretext that the board had no doctor available or that it doesn't pay for this kind of operation." Under a board directive, sex-change operations are insured provided that they're recommended by a department head who is in charge of transsexual medical services at two Montreal hospitals. (The Edmonton Sun, July 21, 2000) REXALL SUNDOWN: FTC Sues to Seek Full Redund for Cellulite Pills ---------------------------------------------------------------- The U.S. Federal Trade Commission said last Thursday July 20 it will seek full refunds for women in America who bought Cellasene to remove cellulite from their thighs and buttocks -- and that could amount to $ 75 million or more. The FTC filed suit against Cellasene distributor Rexall Sundown, accusing the Boca Raton company of making false advertising claims that the product works. The agency cited ads in newspapers, magazines and on the Internet. Rexall Sundown, now a subsidiary of Royal Numico N.V. of The Netherlands, denied the charges. The FTC's suit, filed in U.S. District Court for the Southern District of Florida, seeks an injunction to halt the advertising claims and asks the court to order refunds to consumers. "Rexall made unsubstantiated claims that Cellasene eliminates or substantially reduces cellulite," said attorney Darren Bowie, assistant director of the FTC's division of advertising practices. "The company also falsely represented that it had clinical evidence showing the product worked." Rexall Sundown pledged to "vigorously defend the suit," which could cost the company $ 75 million or more based on sales and projected sales through the end of this year. The dietary supplement was introduced nationally in March 1999. The case, assigned to U.S. District Judge Wilkie Ferguson in Fort Lauderdale, promises to be a battle of expert witnesses if it goes to trial. "We have an outside expert prepared to testify, and it's likely we will have more by the time we go to trial," Bowie said. He also said the FTC plans to interview and possibly depose Dr. Brian Berman, a dermatologist at the University of Miami whose recent clinical trial on Cellasene produced no results because the participants did not comply with study guidelines. Rexall Sundown is expected to parade out its experts, including Dr. Enzo Berardesca, an Italian researcher whose work with the supplement provided an early foundation for efficacy claims. Cellasene is made by an Italian company, Medestea International. Another probable witness is Debbie DeSantis, a registered pharmacist, daughter of Rexall Sundown founder Carl DeSantis and the company's senior vice president for product development. Debbie DeSantis said in a statement, "The commission's action completely ignores the sound scientific research into the effectiveness of Cellasene," which "was designed and formulated by one of the world's leading herbal-pharmaceutical extract companies with foremost experience in cellulite research." DeSantis said the FTC rebuffed efforts to have Rexall Sundown experts meet with investigators to answer questions and address the issues involved. FTC attorney Bowie said he did not know of any such overtures. According to the FTC and Rexall Sundown, women were advised to take three Cellasene geltabs a day for eight weeks and then a maintenance dose of one a day for the next eight weeks. The initial eight-week regimen cost between $ 180 and $ 240, the FTC said. If the FTC wins and the judge orders refunds, Bowie said, the FTC probably would accept affidavits from women who did not keep packages of Cellasene or proof of purchase. The product is formulated from extract of grape seed, fish oil, soya lecithin, sweet clover, borage seed oil and bladderwrack extract. It also contains iodine, which can cause problems for those with thyroid conditions and those taking blood thinners. The geltabs are supposed to increase the body's metabolic rate and improve blood circulation, thereby helping to eliminate fluids and trapped fat. Rexall Sundown has said many women were not repeat customers because they did not see results right away. The FTC claims many of them never would. In another court filing, Dorothy Greenfield of Boca Raton filed suit against Rexall Sundown in Palm Beach County Circuit Court on Thursday, July 20, claiming the company deceived consumers by misrepresenting Cellasene's ability to reduce cellulite. Greenfield is seeking class-action status in the case. (Sun-Sentinel (Fort Lauderdale, FL), July 21, 2000) SPLASH TECHNOLOGY: Files 2nd Motion to Dismiss Securities Lawsuit ----------------------------------------------------------------- Media 100 Inc. relates in its report to the SEC that on January 13, 1999 and January 28, 1999, Digital Origin and one of its former directors, Charles Berger, were named as defendants in two shareholder class action lawsuits against Splash Technology Holdings, Inc., various directors and executives of Splash and certain selling shareholders of Splash, as previously reported in the CAR. The lawsuit alleges, among other things, that the defendants made or were responsible for material misstatements, and failed to disclose information concerning Splash's business, finances and future business prospects in order to artificially inflate the price of Splash common stock. The complaint does not identify any statements alleged to have been made by Charles Berger or the Company. The complaint further alleges that the Company engaged in a scheme to artificially inflate the price of Splash common stock to reap an artificially large return on the sale of the common stock in order to pay off its debt. Digital Origin and the former director vigorously deny all allegations of wrongdoing and intend to aggressively defend themselves in these matters. Defendant's initial motion to dismiss the action was granted with leave to amend, and plaintiffs have amended the complaint. Defendants have filed their second motion to dismiss. TOBACCO LITIGATION: County to Challenge Measure H on Settlement Money --------------------------------------------------------------------- The initiative seeks to reserve 80% of the county's share of the cigarette industry settlement for health care. A controversial initiative that would award the lion's share of money from a major tobacco settlement to local health care concerns was placed on the November ballot by a unanimous but reluctant Orange County Board of Supervisors last Thursday July 20. At the same time, though, supervisors revealed that the county plans to file a lawsuit challenging the constitutionality of the initiative, dubbed Measure H. "Our legal experts think it's unconstitutional on the basis that it uses the initiative referendum procedure to determine how the county government spends money from the general fund," board Chairman Chuck Smith said. "That's never been done before." Under the initiative process, however, the supervisors--despite their opposition--have no alternative legally but to place the measure on the ballot. The initiative, sponsored by a group of physicians and health care concerns, came after a settlement of a class-action lawsuit by the federal government against the tobacco industry. Orange County's share is expected to be $ 30 million to $ 38 million annually over 25 years. The controversial ballot initiative would allocate 80% of that money to local health care and 20% to law enforcement. "The tobacco money was intended to assist counties with health-related issues, and this money needs to be invested in the community," said Supervisor Todd Spitzer who, along with Supervisor Tom Wilson, has said he favors Measure H and intends to campaign on its behalf. "We all win when the residents of the county are in good health." Smith is critical of the initiative, however, because it undermines what he and some other board members consider a higher priority: paying off remaining debt from the county's 1994 bankruptcy, which is costing a huge amount in interest payments annually. "This money would be ideal to pay off the bonds" from that debt, Smith said. "It's a travesty for the money to go to doctors and hospitals with a very minimum, if any, of new health programs. I will speak against it." The vote came after supporters gathered 115,000 signatures, far more than the 71,000 required, to put the measure on the ballot. Supervisors earlier had failed to agree on various formulas that would have awarded smaller portions of the money to health care. Spitzer said he intends to work vigorously for Measure H. "I'm going to campaign for this just as hard as I did for Measure F," he said, referring to the March measure requiring two-thirds voter approval of an El Toro airport. "I'm prepared. We're going to win. We're going to convince the court of public opinion that this money should be spent on health care." (Los Angeles Times, July 21, 2000) VARI-L COMPANY: Milberg Weiss Extends Period for Securities Suit in CO ---------------------------------------------------------------------- Milberg Weiss (http://www.milberg.com/vari/)announced on July 20 that a class action has been commenced in the District Court of Colorado on behalf of purchasers of VARI-L Company Inc. (NASDAQ:VARLE) publicly traded securities during the period between December 17, 1997 and July 6, 2000 (the "Class Period"). The complaint charges VARI-L and certain of its officers and directors with violations of the federal securities laws by making misrepresentations about VARI-L's business, earnings growth and financial statements and its ability to continue to achieve profitable growth. By issuing these allegedly false and misleading statements, defendants artificially inflated VARI-L's stock price from just $5 in 1998 to a Class Period high of $36-7/16 on December 23, 1999, allowing VARI-L's top insiders to sell or otherwise distribute 583,000 shares of their VARI-L stock at as high as $27 per share, for over $10 million, before the true facts about VARI-L's troubled operations, diminished profitability and false financial statements were revealed and VARI-L's stock collapsed to as low as $9-1/4 per share. Contact: Milberg Weiss William Lerach 800/449-4900 wsl@mwbhl.com VISUAL NETWORKS: Lionel Z. Glancy Files Securities Lawsuit in Maryland ---------------------------------------------------------------------- Pursuant to Section 21(D)(A)(3)(a)(i) of the Securities Exchange Act of 1934, a Class Action has been commenced in the United States District Court for the District of Maryland on behalf of a class consisting of all persons who purchased the common stock of Visual Networks Inc. (NASDAQ:VNWK) between Feb. 7, 2000, and July 5, 2000, inclusive (the "Class Period"). The Complaint charges Visual Networks and its chief executive officer with violations of federal securities laws. Among other things, plaintiff claims that defendants' material omissions and the dissemination of materially false and misleading statements regarding the integration of the Avesta acquisition damaged Plaintiff and Class members. Contact: The Law Offices of Lionel Z. Glancy, Los Angeles Michael Goldberg, 310/201-9150 or 888/773-9224 info@glancylaw.com SOY MILK: Canadian Food Inspection Agency Warns on White Wave Product --------------------------------------------------------------------- SOY MILK ALLERGY ALERT The Canadian Food Inspection Agency is warning people with allergies to milk not to drink White Wave Silk brand chocolate soy beverage in 946-millilitre boxes, dated July 26, because it may contain milk that's not declared on the label. As of last Wednesday night, July 19, there had been one reported illness. (The Toronto Star, July 21, 2000) WOODFORD MEMORIAL: Seven Laid-off Workers Add Litigation to Hospital -------------------------------------------------------------------- Seven former workers at the Woodford Memorial Hospital have filed a lawsuit on behalf of 300 former employees, who allege they were not given the federally mandated 60 days' notice before they were laid off. The suit, filed last Wednesday July 19 in U.S. District Court, is the latest in a string of litigation filed against the hospital. More than a dozen lawsuits claim the hospital owes more than $1.6 million for unpaid goods and services. The suit filed doesn't contain a specific damages figure. The employees have petitioned the court to consider the 300 former employees as part of a class-action suit. Nearly 200 employees lost their jobs in February when Woodford Hospital closed because of growing financial problems. The federal Worker Adjustment and Retraining Notification Act, or "plant-closing act," as it is known, requires companies with 100 or more employees to give workers 60 days' notice of plant closings. The law forces violators to pay affected employees for each day for which adequate notice was not given. Damages can amount to a maximum of 60 days' worth of pay and benefits. "These employees have claims to which they are due legal relief in the courts," said Lexington attorney Don Cetrulo. "I believe they have legitimate claims." The suit seeks 60 days' pay and benefits, including the cost of medical expenses that would have been covered under the employee benefits plan. It also seeks life insurance that would have been paid and severance pay, as well as other costs connected to the employee benefits plan. The suit also says the hospital violated the Employee Retirement Income Security Act of 1974. The hospital "failed to appropriately and timely deposit employee wage withholdings" for the employees' health services retirement and thrift plan, the lawsuit says. The suit claims the hospital permitted certain insurance coverage to lapse, and employees suffered loss and denial of benefits, financial injury and great emotional distress as a result. The hospital also didn't notify employees of its failure to deposit the employer's promised employer match to the retirement and thrift plan, the suit says. Only seven former employees are named as plaintiffs but the suit says the size of the class numbers about 300 because it includes employees from as far back as 1997 who were covered by the retirement and thrift plan. The plaintiffs named in the suit are Wendy Wilhoit, Mary Ann Schentrup, Rose Ann Wilson, Pearlene Eler, Gayle M. Foley and Ida R. Johnson, all of Woodford County, and Dr. Paul Skinner of Lexington. Most of the lawsuits against the hospital have not gotten far because its records were seized by the state attorney general's office and the U.S. Department of Labor, who are investigating the facility's financial woes. Meanwhile, negotiations continue for the possible lease of the Woodford Hospital to Georgetown Community Hospital, said Tom Samuel of the hospital taxing district board. Georgetown officials said earlier this year that they probably wouldn't reopen a full-scale hospital but would operate the emergency room, some support services and outpatient surgery services. (The Associated Press State & Local Wire, July 21, 2000) Y2K LITIGATION: Iowa Hospitals Denied Certification against Software Co ----------------------------------------------------------------------- Ruling that the plaintiffs were attempting to evade the provisions of the Y2K Act by asserting jurisdiction through another federal statute, Judge Michael J. Melloy of the U.S. District Court for the Northern District of Iowa denied class certification to several hospitals in their lawsuit against software company Keane Inc. Mineral Area Osteopathic Hospital et al. v. Keane Inc., No. C99-50 MJM (N.D. Iowa, Cedar Rapids Div., May 25, 2000); see Computer & Online Industry LR, May 4, 1999, P. 8. The plaintiffs --Mineral Area Osteopathic Hospital Inc. d/b/a Mineral Area Regional Medical Center, Community Memorial Healthcare Inc. and North Country Hospital Inc. --filed a complaint against Keane Inc. in March 1999 and moved for class certification, alleging breach of contract as a result of Keane's refusal to repair a defect in the MEDNET software sold to the hospitals by its predecessor, Source Data Systems. The Y2K Act, 15 U.S.C. @ 6601 et seq., was enacted several months after the hospitals filed their lawsuit. As Judge Melloy explained, the purpose of the Y2K Act was to curb insubstantial litigation and encourage parties to resolve their disputes. He cited an express provision in the act, 15 U.S.C. @ 6614(c)(2)(D), which requires that not only must parties seeking class certification comply with the Federal Rules of Civil Procedure, but they must also be a class of at least 100 members. In the hospitals' putative class action, the class numbered at most 81, which, in the judge's words, was a "generous estimate." The hospitals nonetheless argued that the class action requirement of the Y2K Act was not applicable to them because it only had to be met when the act was being used as the means of asserting jurisdiction in federal court. They were not relying on the Y2K Act, the plaintiffs asserted, but were claiming diversity jurisdiction pursuant to 28 U.S.C. @ 1332. Judge Melloy rejected their argument that the purpose of the Y2K Act was to expand jurisdiction for Y2K actions, reasoning that it would allow many plaintiffs to circumvent the statute altogether. The hospitals' logic, he said, meant that if plaintiffs were allowed to establish some other form of federal jurisdiction, they would not have to respect the requirements of the Y2K Act, which would be contrary to its stated purposes. Rejecting the hospitals' legal argument, and finding that they failed to meet the numerosity requirement of the Y2K Act, Judge Melloy denied their motion for class certification. The plaintiffs are represented by Roger T. Stetson and Michael R. Reck of Belin Lamson McCormick Zumbach Flynnin Des Moines, Iowa. The defendants are represented by Scott E. McLeod of Lynch, Dallas, Smith & Harman in Cedar Rapids, Iowa. (Computer & Online Industry Litigation Reporter, July 5, 2000) ZIFF-DAVIS INC: Securities Suit Not Dismissed for Question of Fact ------------------------------------------------------------------ Plaintiffs brought a securities fraud class action against defendants. Plaintiffs asserted that defendants' prospectus was materially false and misleading because defendant company falsely attributed the decline in its revenues, and failed to disclose the actual cause of revenue decline. Plaintiffs alleged that the decline in revenue was a result of increased competition and defendant company's loss of market share to those competitors. Defendants moved to dismiss the action, contending that the risk disclosures contained in the prospectus fully informed investors of the effects of competition on defendant company's revenues. The court disagreed with defendants, finding that whether these risk disclosures fully informed investors of competition risks, was a question of fact that could not be properly resolved in a motion to dismiss. Judge Kram Decision of Interest In Re Ziff-Davis Inc. QDS:02762646 In this consolidated class action alleging a violation of Section 11 of the Securities Act of 1933 (the "Securities Act"), defendants Ziff-Davis, Inc. ("Ziff-Davis"), Eric Hippeau, Timothy O'Brien and Masayoshi Son (collectively, the "Defendants") move, pursuant to Federal Rule of Civil Procedure 12(b)(6), to dismiss the consolidated class action complaint (the "Complaint"). For the reasons set forth below, Defendants' motion is denied. On or about April 29, 1998, defendant Ziff-Davis, a Delaware corporation in the business of providing integrated media and marketing services, sold 25,800,000 shares of its common stock at a price of $ 15.50 per share pursuant to a registration statement and a Prospectus contained therein. Among other things, the Prospectus noted that Ziff-Davis suffered a decline in advertising revenues for the first quarter of 1998 and attributed that decline to factors affecting the computer technology industry generally. Between April 29, 1998 and October 8, 1998, plaintiffs Ignatius Napoli, Davis Abrams, Herbert Glotzer, Aldo Gomez, James J. Jorgensen and Lissette Jorgensen, Neeraj Mkukhi, William J. O'Keefe, Mary Stawski and Valarie E. Weinstein and Sheila R. London purchased Ziff-Davis stock. On October 8, 1998, Ziff-Davis announced that "in light of continuing pressure in the technology market," it would be conducting a "company-wide restructuring" that would result in a one-time charge of $ 50-60 million in the fourth quarter of 1998. Complaint P 29. On October 9, 1998, the price of Ziff-Davis common stock declined to $ 3 15/16. On October 9, 1999, Ingatius Napoli v. Ziff-Davis Inc., et al., 98 Civ. 7158 (SWK), the first class action against Defendants in connection with the April 29, 1998 stock offering was filed. Seven similar class actions were filed subsequently. On January 28, 1999, pursuant to Federal Rule of Civil Procedure 42(a), the Court ordered the eight class actions consolidated. Order, dated Jan. 28, 1999. By the same Order, the Court appointed the law firms of Stull, Stull & Brody and Milberg Weiss Bershad Hynes & Lerach LLP as co-lead counsel for plaintiffs and the putative class. Id. On March 15, 1999, plaintiffs filed a consolidated class action complaint alleging that Defendants violated Section 11 of the Securities Act by misrepresenting in the Prospectus the cause of the decline in advertising revenues for the first quarter of 1998 and omitting from the Prospectus the true cause of that decline. On May 21, 1999, Defendants moved, pursuant to Federal Rule of Civil Procedure 12(b)(6), to dismiss the Complaint. Standard of Law On a motion to dismiss, brought pursuant to Rule 12(b)(6), the Court must accept the allegations in the complaint as true and construe them in the light most favorable to the plaintiff. Easton v. Sundram, 947 F.2d 1011, 1014-15 (2d. Cir. 1991), cert. denied, 504 U.S. 911 (1992). A complaint should not be dismissed "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99 (1957). Section 11 of the Securities Act Section 11 requires proof of "untrue or misleading statements or omissions of material fact." In re Donald J. Trump Casino Sec. Litig.-Taj Mahal Litig., 7 F.3d 357, 368 (3d Cir. 1993), cert. denied, 510 U.S. 1178 (1994). A misrepresentation of fact is material under Section 11 when an investor would attach importance to it in making an investment decision. Basic Inc. v. Levinson, 485 U.S. 224, 231, 108 S. Ct. 978, 983 (1988); Kronfeld v. Trans World Airlines, Inc., 832 F.2d 726, 731 (2d Cir. 1987), cert. denied, 485 U.S. 1007 (1988). An omission is material if there is substantial likelihood that the "disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of the information made available." TSC Indus. v. Northway, Inc., 426 U.S. 438, 449, 96 S. Ct. 2126, 2132; Fisher v. Ross, No. 93 Civ. 0275, 1996 WL 586345, at 89 (S.D.N.Y. Oct. 11, 1996). A court should determine whether a statement was "material" by adopting the perspective of an investor on the date the registration containing the prospectus at issue became effective. Nelson v. Paramount Communications, Inc., 872 F. Supp. 1242, 1246 (S.D.N.Y. 1994). However, whether a statement or omission is material is usually a question for the fact finder. Mendell v. Greenberg, 927 F.2d 667, 673 (2d Cir. 1990). The Misrepresentation and Omission Plaintiffs assert that the Prospectus was materially false and misleading because Ziff-Davis (1) falsely attributed the decline in revenues for the first quarter of 1998 to factors affecting the computer technology industry generally and (2) failed to disclose the actual cause of the revenue decline. Plaintiffs' Memorandum of Law In Opposition to Motion To Dismiss the Consolidated Amended Class Action Complaint ("Pl.'s Memo.") at 3-4; Complaint PP 26, 27. Plaintiffs allege that the decline in revenue was a result of increased competition and Ziff-Davis's loss of market share to those competitors. Pl.'s Memo. at 4; Complaint P 27. Plaintiffs point to the following passage of the Prospectus specifically: For the first quarter of 1998, the Company [Ziff-Davis] will report revenue of $ 228.1 million compared to $ 224.9 million for the first quarter of 1997. Revenue from publishing operations will decline approximately 4.1% primarily due to the absence of $ 14.8 million of revenue from Macuser and MacWeek magazines, which were transferred in October 1997 to a 50/50 joint venture with another publishing company and are no longer consolidated in the Company's results. The publishing segment will also report lower advertising revenues from its business publications principally as a result of factors affecting the computer technology industry generally, including slowing demand for computer products, fewer new product launches, pricing pressures, vendor market share shifts and excess PC inventories in distribution channels. Defendants argue, inter alia, that the risk disclosures contained in the Prospectus fully informed investors of "the effects of competition on the Company's advertising revenues." Ziff-Davis's Memo. at 13. [The Prospectus] disclosed to prospective investors that: (a) advertising revenues were a significant factor in Ziff-Davis's overall performance, (b) advertising revenues could fluctuate from period to period for various reasons including competition, (c) competition was significant and likely to increase, (d) Ziff-Davis had suffered advertising revenue declines during the first quarter, and (e) there were no assurances that such declines would not continue. Defendants contend that in light of these risk disclosures, plaintiffs cannot sustain a claim under Section 11 of the Securities Act. Whether the decline in advertising revenues that Ziff-Davis admittedly suffered during the first quarter of 1998 was the result of increased competition and a loss of market share as opposed to factors affecting the computer technology industry generally is not a distinction "so obviously unimportant to a reasonable investor" that it is immaterial as a matter of law. Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). In other words, whether the alleged misrepresentation and omission are material is a question of fact not properly resolved in a motion to dismiss. Likewise, whether the risk disclosures fully informed investors of "the effects of competition on the Company's advertising revenues[,]" Ziff-Davis's Memo. at 13, is a question of fact. See, e.g., Schnell v. Abedon-Butwin Oil Co., No. 89 Civ. 8435, 1993 WL 437766, *1 (S.D.N.Y. Oct. 22, 1993). Indeed, it is reasonable to read the risk disclosures as not addressing at all plaintiffs' allegations of misrepresentation and omission. Accordingly, the Court declines to find that plaintiffs' allegations are immaterial as a matter of law. Federal Rule of Civil Procedure 9(b) Defendants also argue that the pleading requirements of Federal Rule of Civil Procedure 9(b) apply to plaintiffs' claims in this case. Rule 9(b) requires that "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally." Fed. R. Civ. P. 9(b). The Second Circuit has not addressed whether the pleading standards of Rule 9(b) apply to claims brought pursuant to Section 11 of the Securities Act and there is some disagreement within the Southern District about this issue. See, e.g., Griffin v. Painwebber, Inc., 84 F. Supp.2d 508, 513 (S.D.N.Y. 2000) ("Griffin") (collecting cases). However, the Griffin court pointed out that "the courts which have held that 9(b) can be applicable,... have so held in cases where there were actual allegations of fraud in the complaint." Id. (citations omitted). In the instant case, plaintiffs have not alleged fraud. Indeed, fraud need not be proven for plaintiffs to succeed on their Section 11 claim. Therefore, the Court finds that the heightened pleading requirements Rule 9(b) are not applicable in this case and that the Complaint complies with the "short and plain statement" requirement of Rule 8(a). Accordingly, Defendants' motion to dismiss is denied. Conclusion For the reasons set forth above, Defendants' motion, pursuant to Federal Rule of Civil Procedure 12(b)(6), to dismiss the complaint is denied. The parties shall appear on July 19, 2000 at 10:30 a.m. in Room 906, 40 Centre Street, New York, New York for a pre-trial conference. (New York Law Journal, July 10, 2000) * SEC Commissioner Sees Internet Trading Equality in Near Future ---------------------------------------------------------------- Securities and Exchange Commissioner Laura Unger sees a securities trading future in which all investors have equal access to information along with equal opportunity to profit from it and she believes that the SEC's proposed Regulation FD can help the future get here sooner . Internet Securities Regulation Seminar (New York, June 27-28, 2000). Unger told attendees at the American Conference Institute's Internet Securities Regulation seminar in New York that it is her job, as the commission's Internet trading specialist, to see that Regulation FD levels the e-trading playing field by, among other things, giving small investors live access to the once exclusive analysts' "road shows" and research. Unger said the end of "selective disclosure" by companies is high on the commission's to-do list and the SEC has been routinely checking the accuracy of corporate Web sites any time stock is offered for sale. The SEC also keeps a wary eye on company Web sites that lead investors to third-party sites -- such as analysts' reports -- via a one-click hyperlink, without telling them that the information there does not have the company's blessing, warned Mark Borges, an attorney advisor to the SEC's Division of Corporate Finance. Although the SEC is still fine-tuning its position on the issue, even a non-active Web address embedded in a corporate document could get a company in trouble if it led investors to information that appeared to be part of the company's presentation, he noted. Joseph McLaughlin, an Internet trading specialist attorney for Brown & Wood LLP in New York, responded that in light of the common use of hyperlinks to very marginally related sites, the SEC's rule may not be realistic. "The SEC site links to the Milberg Weiss site Milberg Weiss Bershad Hynes & Lerach, a well known securities class action plaintiff attorney firm and I don't think the SEC is endorsing all the information there," he quipped. Borges said hyperlinks do not automatically mean adoption of the third party's information; instead, the commission looks at whether the link: -- leads the investor to assume the issuer company endorses the material; -- includes disclaimers to minimize confusion; and -- is representative of the company, i.e., is the link only active when it leads to good news. The faculty examined some of the ways in which the Internet continues to revolutionize securities trading: -- The now-famous SEC Wit Capital no-action letter made it possible to sign up customers to buy into a conditional offer for stocks without running afoul of the commission's ban on "general solicitation," explained Robert Mendelson, Wit's co-general counsel. -- The direct public offering -- the "do-it-yourself securities sale" that needs no underwriter -- has allowed fledgling companies to use Internet solicitations to gather financing from worldwide "affinity groups" of special interest investors, noted Aegis Frumento, the managing partner of Singer Frumento in New York. -- A program developed by Yahoo! enables small investors to instantly view the text and graphics of the corporate "road shows" directed at analysts and institutional investors, said the Atlanta company's managing director, Brad Hammond. Although the SEC's position on "continuous republication" ( i.e., when Web site information is deemed to be republished each day it stays on a Web site) is still in flux, officers and directors who want to avoid class action securities fraud suits will act as their own Web site police, advised Lisa Wager, a partner of Moran, Lewis & Bockius in New York. (Securities Litigation & Regulation Reporter, July 6, 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 * * *