CAR_Public/000726.MBX              C L A S S   A C T I O N   R E P O R T E R

              Wednesday, July 26, 2000, Vol. 2, No. 144

                            Headlines

AUTO INSURANCE: Association Investigates State Farm on Claims Denial
BIOMATRIX, INC: Milberg Weiss Files Securities Suit in New Jersey
BRANCH DAVIDIAN: Legal Times Says Report Clears Almost Everyone
CHARLES SCHWAB: Brokerage Firm to Settle Suit over Order Flow
DRUG PRICE-FIXING: Retailers in Brand Name Case Cannot Delay Discovery

FIRSTMARK CORP: Elderly Investors' Case Back in IN Trial Court
GIULIANI: Judge Rules against City on Welfare; OKs Civil Rights Case
H & R BLOCK: Judge Rejects $25M Pact for Tax Refund Anticipation Case
HMOs: County Union Wants Its Old Insurance Back
LATEX GLOVE: Oral Argument Heard in Smith & Nephew Case

MAN-BOY LOVE: The Washington Post Quotes Lawyer on Possbility of Class
NORWEST, BANCORP: 9th Cir Affirms Debtors Back on Hook Can Sue Companies
ONHEALTH NETWORK: Employees Granted Stock Options at Below Market Value
PHENOLIC FOAM: Gilman and Pastor Announces Pact with Two Makers
PHILIP SERVICES: Ontario Set to Charge a Dozen Former Personnel

REED: IN Ct of Ap. OKs Class But Refuses to Exempt Disabled Students
SARA LEE: Family Sues over Listeria Outbreak Traced to Tainted Turkey
TOBACCO LITIGATION: Dealers Look to Simplify Settlement Bond Structures
TOBACCO LITIGATION: Industry Moves Landmark FL Case  to Federal Court
ZALE CORP: Milberg Weiss Announces RICO Suit against Jewelry Retailer

                           *********

AUTO INSURANCE: Association Investigates State Farm on Claims Denial
--------------------------------------------------------------------
The National Association of Insurance Commissioners said on Monday that
it had begun investigating reports that State Farm, the largest auto
insurer, improperly denied claims for treatment of injuries in accidents
nationwide.

George Nichols III, the president of the association, which represents
insurance regulators in all 50 states, said it was not immediately clear
how widespread the practice might have been but that investigators
intended to study claims for treatment of injuries in all the states.

Mr. Nichols said the investigation would initially concentrate on
companies known as medical review utilization organizations that are
intended to provide independent judgments on whether claims for injuries
should be paid or rejected. But he said the precise scope of the
investigation would be worked out by a core group of regulators including
those from Illinois, where State Farm is based; Maryland; Colorado; and
Oregon.

State Farm acknowledged that some claims might have been improperly
handled and said that it welcomed the inquiry. Under insurance regulatory
practices, State Farm, as the subject of an inquiry, will have to pay for
the work of the investigators.

Investigations of this type, known formally as multistate market conduct
exams, have been rare, but they have resulted in fines of millions of
dollars for some companies.

In one of the biggest recent cases, the Prudential Insurance Company of
America, one of the largest life insurers, was fined $35 million in 1996
for misrepresenting the costs and terms of coverage to millions of
customers. It later paid more than $1 billion to settle class-action
suits arising from the investigation. Just last year, American Bankers
Insurance was fined $15 million for misleading customers and sometimes
refusing to pay claims for insurance on such things as credit card
balances, furniture and appliances.

Last Tuesday, Deborah Senn, the insurance commissioner in Washington
State, ordered her own investigation of State Farm and five other
insurers on similar grounds. The other companies are the Safeco Insurance
Company, Farmers Insurance Company of Washington, Pemco Insurance
Company, Mutual of Enumclaw and the Allstate Property and Casualty
Company.

Critics say some of the medical companies working with State Farm and
other insurers employ reviewers who lack medical training. Other critics
say these organizations are sham operations designed to help insurance
companies reject claims and keep down costs.

A State Farm spokesman, Philip Supple, said the insurer sent less than 5
percent of its injury claims to these companies and paid the others
"without any review at all."

He said that State Farm had begun its own investigation last May after
State Farm employees began to question information that was being
provided and some customers filed suits. State Farm contracts with about
75 of these companies, he said. In reviewing 4,900 claims, Mr. Supple
said, State Farm concluded that 500 might have been improperly reduced
and subsequently paid the claims with interest.

Mr. Supple said State Farm "wants to make sure the utilization review
process is fair and objective." He said that customers who had concerns
about their claims and wanted to take "a second look" could do so by
contacting their State Farm agent or claims representative.

Mr. Nichols said he and other regulators first became aware of questions
about State Farm's claims practices through a report broadcast on the NBC
magazine show "Dateline" in late June.

He said he called Edward Rust, the chief executive of State Farm, on July
15 to tell him that an investigation was being started. "He said he would
fully cooperate with our activities," Mr. Nichols said. The insurance
commissioner said that State Farm would be formally notified of the
investigation in a letter this week.

About 40 states have established regulatory review panels to deal with
challenges of claims payment for health insurance, but, in most states,
neither the panels nor any other regulatory body has oversight on auto
injury claims. That is likely to change, regulators said, as a result of
the State Farm investigation. (The New York Times, July 25, 2000)


BIOMATRIX, INC: Milberg Weiss Files Securities Suit in New Jersey
-----------------------------------------------------------------
The law firm of Milberg Weiss Bershad Hynes & Lerach LLP announces that a
class action lawsuit was filed on July 21, 2000, on behalf of purchasers
of the securities of Biomatrix, Inc. ("Biomatrix" or the "Company")
(NYSE:BXM) between July 20, 1999 and April 25, 2000, inclusive. 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/biomatrix/

The case is pending in the United States District Court for the District
of New Jersey, and has not yet been assigned to a judge. The address of
the Courthouse is Martin Luther King, Jr. Federal Building and U.S.
Courthouse, 50 Walnut Street, Newark, New Jersey 07101.

The Action seeks damages for violations of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. The defendants are: Biomatrix, Inc., Endres A. Balazs,
Biomatrix's Chief Executive Officer, Chief Scientific Officer and
Director; and Rory B. Riggs, Biomatrix's President and Director.

Plaintiffs allege that defendants knowingly or recklessly disseminated
materially false and misleading statements and omissions that
misrepresented the efficacy of its leading product, Synvisc, a gel-like
substance used in the treatment of osteoarthritis. Plaintiffs allege that
Biomatrix distributes Synvisc primarily through its trading partner,
Wyeth-Ayerst Laboratories, a division of Home Products ("Wyeth").
Plaintiffs allege that defendants exaggerated medical community
acceptance of Synvisc in the treatment of osteoarthritis and that
defendants artificially inflated reported sales of Synvisc by stuffing
the distribution pipeline with inventory. Plaintiffs allege that
misrepresentations and omissions by defendants influenced the views of
stock market analysts and fostered an unrealistically positive assessment
of Biomatrix and its business, prospects and operations. Plaintiffs
allege that, as a result of such misinformation, Biomatrix's stock traded
at artificially inflated prices throughout the proposed Class Period.

Plaintiffs allege that the following statements, among others, were
materially false and misleading:

During a conference call on July 20, 1999, Riggs told analysts that while
Biomatrix's strategy had been to build inventory, the Company was not
going to continue building inventory but rather "manage an even
production schedule."

In a Biomatrix press release, dated July 21, 1999, and issued in
conjunction with Biomatrix's second-quarter earnings announcement, Balazs
stated that demand for Synvisc was increasing in the United States and
Europe and that this increase in demand was evidence of the medical
community's growing acceptance of the use of Synvisc in the treatment for
osteoarthritis.

On October 19, 1999, defendants issued a press release over PR Newswire
announcing the Company's third-quarter results without disclosing the
effect the Synvisc inventory buildup was having and would have on product
sales, revenues and earnings. The Company announced total third-quarter
revenue of $18.3 million, and product sales of $18.1 million, compared to
third-quarter revenue of $11.6 million and product sales of $11.5 million
recorded during the third quarter of 1998.

On November 15, 1999, Biomatrix filed its Form 10-Q for the third-quarter
of 1999, the period ending September 30, 1999, in which it confirmed the
previously announced results and which was signed by Balazs.

On February 22, 2000, the Company announced over the PR Newswire that
Biomatrix product sales in 1999 were $72.0 million, up 90% from 1998
product sales of $37.8 million. Defendants reported that product sales in
the fourth quarter of 1999 increased 53% to $19.3 million compared with
product sales of $ 12.6 million recorded during fourth quarter 1998 and
Balazs stated: "Biomatrix closed the century with its strongest showing
to date, proudly announcing its fourth consecutive year of
profitability."

On March 6, 2000, as alleged in the complaint, Balazs and Riggs announced
that Biomatrix had agreed to merge into Genzyme Biosurgery, a new entity
to be comprised of Biomatrix, Genzyme Tissue Repair and Genzyme Surgical
Products. Genzyme agreed to pay cash at $37 per share for up to 28.38 %
of the outstanding shares of Biomatrix common stock and to exchange
Genzyme Biosurgery stock on a one-to-one basis for the remaining 71.62 %
of the outstanding shares of Biomatrix stock. Under this agreement, as
the owners of 6,751,506 shares between them, Balazs and his wife
Denlinger stand to receive a minimum of $70 million in cash and 4.8
million shares of the new Company. As the owner of 1,746,000 Biomatrix
shares, Riggs stands to receive $18 million in cash and 1.2 million
shares of the new company. Balazs, Riggs and the Company's other
executive officers, who together own 37 % of Biomatrix's outstanding
shares, agreed to vote their shares in favor of the merger.

In announcing the merger, as alleged in the complaint, Riggs admitted
that the Company was "off end user sales," and that the data shows that
wholesalers are not purchasing as much in January but continued to
conceal the fact that the Company was experiencing reduced cash flow due
to Wyeth's refusal to continue to build its inventory of Synvisc.

On April 25, 2000, as alleged in the complaint, the Company announced
first-quarter revenues of $16.7 million and net income of$0.5 million or
$0.02 per diluted share. The Company claimed that "Biomatrix ended the
first quarter of 2000 with $33.3 million in cash and $78 million in
shareholders' equity." By this time as awareness of the Company's
practice of building inventory had spread, the Company's share price had
dropped to $19 15/16, down 85% from a Class Period high of $37 on March
1, 2000.

On May 15, 2000, as alleged in the complaint, the Company filed its form
10-Q with the SEC for the first quarter ending March 31, 2000 in which it
revealed that for the three months ended March 31, 2000, the Company had
negative cash flow from operations of $1.3 million related to an increase
in accounts receivable as a result of timing of shipments in the first
quarter.

Contact: Milberg Weiss Bershad Hynes & Lerach LLP Steven G. Schulman or
Samuel H. Rudman One Pennsylvania Plaza, 49th fl. New York, NY,
10119-0165 Phone number: (800) 320-5081 Website: http://www.milberg.com


BRANCH DAVIDIAN: Legal Times Says Report Clears Almost Everyone
---------------------------------------------------------------
You could almost hear the sighs of relief up and down Pennsylvania
Avenue. The report released last Friday on the 1993 FBI siege of the
Branch Davidian complex in Waco, Texas, seemed to be a clean sweep,
clearing everyone involved of wrongdoing. Almost everyone.

Still on the hook is W. Ray Jahn, an assistant U.S. attorney in San
Antonio. Jahn was on the team that prosecuted the 12 surviving Branch
Davidians.

The interim report prepared by former Sen. John Danforth (R-Mo.), the
special counsel investigating the Justice Department's actions in the
standoff, suggests that Jahn, along with his wife LeRoy-another
prosecutor on the trial team-may have covered up the Federal Bureau of
Investigation's use of military-style pyrotechnic tear gas shells during
its raid on the Davidian complex. Jahn, the report says, was told by FBI
agents after the raid that the shells had been fired, but failed to
disclose this information to congressional investigators or to the
Davidians' attorneys. The FBI did not reveal its use of the shells until
August 1999.

While the report concludes that the devices didn't play a role in the
fire that killed about 80 Davidians, it charges that "a criminal effort
to cover up the truth" about the devices may have occurred. The
investigation of a possible cover-up remains active. Jahn did not return
a call seeking comment on the report.

Jahn has spent a lot of time in the public eye. Following Waco, he joined
Kenneth Starr's Whitewater investigation team, successfully prosecuting
James and Susan McDougal and former Arkansas Gov. Jim Guy Tucker on fraud
charges in 1996. And he sent Susan McDougal to jail for her failure to
cooperate with Starr. McDougal claimed Jahn encouraged her to lie in
order to implicate Clinton in Whitewater, a charge Jahn strongly denied.

Jahn was also the prosecutor who convicted the father of actor Woody
Harrelson for the 1979 murder of Texas federal Judge John Wood. Last
month, in a bid for a new trial, Charles Harrelson accused Jahn of
eliciting false statements from witnesses and engaging in a conspiracy to
convict him.

Danforth hopes to have the probe of a possible Waco cover-up completed by
year's end. (Legal Times, July 24, 2000)


CHARLES SCHWAB: Brokerage Firm to Settle Suit over Order Flow
-------------------------------------------------------------
Charles Schwab Corp. will spend $20 million to settle a suit covering
millions of current and former customers of the discount brokerage.

U.S. District Judge Charles Schwartz Jr. approved a settlement under
which Schwab will educate investors and improve the way it processes buy
and sell orders. In return, investors will drop their class-action
lawsuit that accused the company of not always routing buy and sell
orders to market-makers with the best prices and failing to disclose
payments it received from such firms, which execute the trades.

The company admitted no wrongdoing, but said it agreed to changes that go
beyond regulatory requirements to end the litigation. ''We are glad that
it is over,'' said Tim Eagan, a New Orleans attorney who represented
Schwab. ''It is the end of a long, arduous bout of litigation.''

An attorney representing investors, Randall Smith, said he was pleased by
the settlement's approval. ''After five years of litigation, we've
finally been able to bring about fundamental improvements for Schwab
customers,'' he said.

Investors accused Schwab of violating its fiduciary responsibility by
sending orders to regional and third markets, which paid the company for
order flow. The arrangement set up a potential conflict of interest and
did not ensure customers got the best price, the suit contended.

Schwartz ruled the settlement was fair, even though it will neither
provide money for investors nor give them discounts on trades. The judge
said an analysis of trades of the named plaintiffs showed no price
disparities that cost them money.

The opinion was released Monday.

The plaintiffs include investors who were Schwab customers between 1985
and mid-1999. More than 6 million current Schwab customers received
notice of the suit this year in their monthly statements. (AP Online,
July 25, 2000)


DRUG PRICE-FIXING: Retailers in Brand Name Case Cannot Delay Discovery
----------------------------------------------------------------------
A litigant who attempts to reserve his rights to extend a deadline for
the mandatory disclosure of an expert witness report should proceed with
caution. Such a self-serving approach to the mandatory discovery
provisions found in Federal Rule of Civil Procedure 26 may backfire. (In
re Brand Name Prescription Drugs Antitrust Litigation, No. 94 C 897 (N.D.
Ill. June 5, 2000).)

Opt-out plaintiffs in a massive antitrust suit against all the leading
manufacturers and wholesalers of brand name prescription drugs found this
out the hard way after being challenged by the pharmaceutical companies
in the U.S. District Court for the Northern District of Illinois.

Judge Charles Kocoras ruled that the retailers could not extend their
discovery deadline just because language in a report they provided prior
to the close of Rule 26 discovery purported to reserve to them the right
to rely upon experts named by parties in the consolidated nationwide
class action aspect of the litigation.

The defendants had argued - and the court agreed - that the additional
discovery by the individual plaintiffs would be unduly prejudicial and
would force the companies to re-open their expert discovery in the case.
They also pointed out that the supplemental report contained information
and names that were readily available to the plaintiffs in 1995 - when
expert discovery terminated pursuant to the original discovery schedule.

Plaintiffs responded that the defendants had not been prejudiced. They
also maintained that the companies had cited no authority for the
proposition that a reservation of rights taken before a Rule 26 deadline
is necessarily improper.

                          Rule 37 Limits Use

The court noted that the mandatory disclosure requirements of Rule 26
must be read in conjunction with Rule 37(c)(1), which prohibits the use
at trial of belatedly disclosed information, unless a party can justify
his failure to meet a discovery deadline or show that his Rule 26
violation was harmless. A court is given broad discretion to decide this
issue, Judge Kocoras noted.

The plaintiffs urged the court to consider that the defendants would not
be prejudiced since the same experts newly named in the supplemental
report had previously been deposed by the defendants in the collateral
litigation involving other parties.

The court disagreed. "While Defendants have had an opportunity to analyze
the information and expert reports prepared for other plaintiffs, the
intended use of the information and expert opinions has materially
changed," Judge Kocoras wrote. "Prior to Plaintiffs' supplement, the
thrust of the information and expert discovery was geared towards other
Plaintiffs, and was not directed towards the claims of these particular
Plaintiffs," he further explained.

Moreover, to allow an "eleventh hour" expansion upon plaintiffs' expert
evidence at trial after the close of discovery more than four years
earlier would necessitate giving an equal opportunity to the defendants
to respond in kind. This would amount to a re-opening of discovery -
something the court had previously considered and refused to allow.

Judge Kocoras, therefore, granted the defendants' motion to strike
plaintiffs' supplemental expert report and their reservation of rights
clause. (Federal Discovery News, July 17, 2000)


FIRSTMARK CORP: Elderly Investors' Case Back in IN Trial Court
--------------------------------------------------------------
It's been eight years since a group of elderly investors cried foul after
the Indianapolis-based Firstmark Corp. filed bankruptcy, but attorneys
for the group feel resolution of their claim is close.

U.S. District Court Judge S. Hugh Dillin is expected to reweigh motions
for dismissal and summary judgment by defendants Barnes & Thornburg and
Raffensperger Hughes and Co. following a February remand by the 7th
Circuit Court of Appeals.

The 7th Circuit ruled the law firm and investment house weren't exempt
from liability for their roles in the corrupted investment saga as a
matter of law, reversing two mid-1990s trial court rulings relieving the
parties from the suit. The U.S. Supreme Court decided in June not to
review the 7th Circuit decision, clearing the way for a trial before
Dillin.

The two defendants are what's left from nearly a dozen parties targeted
in the wake of the 1988 bankruptcy of Firstmark Corp. the former parent
company of a retirement fund that handled about 3,000 investment
accounts. Following a string of actions that plaintiffs alleged were in
violation of the federal Racketeer Influenced and Corrupt Organizations
Act (RICO), the $ 57 million in investments made with the company were
left to pennies on the dollar.

In the bankruptcy, investors recouped about 17.5 percent of the original
investment. A subsequent suit known as the "Hardin class action"
collected another $ 3 million.

The nine defendants seeking damages, under the lead plaintiff Virginia E.
Brouwer, have so far collected $ 5 million in settlements from parties
including former Firstmark heads Leonard and Jeffrey Rochwarger and law
firms Kavinoky & Cook, and Ancel & Dunlap.

The conspirators allegedly deceived the investors into rolling over their
investments, despite knowing the value of the notes was dwindling and
their fellow insiders were siphoning off the assets.

The two remaining defendants, Barnes & Thornburg and Raffensperger
Hughes, were each removed from the original suit in the mid-1990s. Dillin
granted Raffensperger's motion to dismiss Oct. 6, 1994, and granted
Barnes & Thornburg summary judgment on May 8, 1997.

Both defendant's motions were granted on grounds that they didn't meet
the standards of liability outlined in the RICO act. The plaintiffs hold
that the law firm and investment house are liable for "facilitating" the
enterprise by not acting to stop the illegal wrongdoing.

Barnes & Thornburg is alleged to have had three roles in the matter. The
plaintiffs allege the firm and lead attorney Catherine L. Bridge
concealed their knowledge of the illegal activity, failed to halt
issuance of some of the transactions they knew to be flawed, and
facilitated the sale of Firstmark's assets to an other firm, despite
knowing their value was inflated.

Both defendants have filed amended pre-trial motions based on the 7th
Circuit ruling. In its June 16 Brief in Support of Supplemental Motion
for Summary Judgment, Barnes & Thornburg attorney William P. Wooden, of
Wooden & McLaughlin, maintained the facts are the same and his client is
still eligible for summary judgment despite the new standard.

"Whether measured by participation or facilitation, the result is the
same when Barnes & Thornburg did not agree to engage in any activity in
relation to the RICO enterprise," Wooden wrote. "There is not evidence
that Barnes & Thornburg knowingly facilitated the operation or management
of the RICO enterprise."

The plaintiffs attorney Hugh Baker believes the revised motions won't
stand under the guidance made by the appeals court.

"They're the same motions in this respect: The facts are the same, even
with the new standard. They claim they're not liable for the RICO
conspiracy through what's a little spin on the old (motion)," Baker said.
"They claim that their actions don't constitute 'facilitating a racket'
that really is a different standard (than the earlier Dillin orders).

"If the affairs are illegal, and we contend they are it was a boiler room
operation, selling junk to elderly people and you look at Barnes &
Thornburg and Raffensperger, you can infer they knew over a two-year
period what those affairs were. By that rationale, they assisted in the
affairs," Baker said.

Baker said he will file his response to the motions for dismissal and
summary judgment by the first week in August. While he said his clients
are still open to a settlement offer, he believes his case will succeed
if sent to trial. (The Indiana Lawyer, July 19, 2000)


GIULIANI: Judge Rules against City on Welfare; OKs Civil Rights Case
--------------------------------------------------------------------
A federal judge has rejected the Giuliani administration's efforts to
move ahead with its sweeping welfare-to-work project, ruling that the
city cannot turn any more of its welfare centers into job centers, which
discourage the poor from seeking public assistance.

In the ruling, made public on Monday, the judge found no reliable
evidence that the city had stopped illegally denying emergency food
stamps, Medicaid and cash aid to eligible applicants -- like pregnant
women with young children and disabled, homeless adults -- and refused to
lift the temporary ban he imposed last year on the conversion of welfare
offices.

The judge, William H. Pauley III of Federal District Court in Lower
Manhattan, ruled that the audits the city gave the court to show
improvement in its practices were "hastily conceived" and "fundamentally
flawed" and that "the deck was stacked in favor of job centers."

The judge said he rejected the city's argument "that errors and
deficiencies at job centers were isolated problems." "On the contrary,
the evidence pointed to systemwide failures resulting from H.R.A.'s
hurried conversions," he added, referring to the Human Resources
Administration. The court, he said, "declines the city's invitation to
take a leap of faith" that its plan of correction is now working.

In a victory for the lawyers for the poor who brought the case, Reynolds
v. Giuliani, the judge granted class-action status to the plaintiffs.
That allows them to sue the city and the state for violations of their
civil rights under federal law on behalf of all poor New Yorkers who have
sought aid at job centers or may in the future.

The city had taken the unusual step of hiring a top Washington law firm,
Covington & Burling, to help lawyers for the city present its case that
it should be allowed to turn 12 remaining welfare centers into job
centers like the 16 converted since the program began in April 1998.

The city has made job centers the heart of an effort to discourage people
from seeking cash assistance, as allowed under the federal welfare
overhaul of 1996. Job centers require that applicants look for work or
prepare for jobs and pass rigorous eligibility tests before their
applications are accepted.

But in his decision last year, the judge found that in the process the
city was routinely delaying or denying applications for food stamps and
Medicaid in violation of federal law, and denying cash aid to many who
were eligible under state law. At welfare offices, all applications for
benefits are processed with fewer hurdles.

Mr. Giuliani belittled the judge's new ruling against the conversions,
calling it "irrational" and "rambling." He maintained that it would have
little or no effect, because the job centers operating now have already
worked.

"The city has been transformed," he said during a news conference at the
Seaport Job Center, pointing to a chart that showed welfare caseloads had
shrunk to 572,872 as of June from 1,160,593 in March 1995.

"This job center is part of that transformation," he said. "Now, when you
come in here and you want welfare, the first thing we try to do is try to
find you a job, because we really care about you, we really love you and
we really understand the human personality a lot better than the people
who brought us dependency."

But more than two years after the welfare commissioner, Jason Turner,
began the ambitious welfare overhaul, the judge's detailed and highly
critical assessment of the Human Resources Administration's auditing
methods renews questions about the city's welfare statistics.

"If the city's claiming success, I don't know what data they're relying
upon," Hwan Hui Helen Lee, a Legal Aid Society lawyer, said yesterday.
"The decision shows the city is not really taking a serious look at who
is being denied the opportunity to file an application for these
benefits.

"These are hungry people who are coming to job centers as a last resort,
as a safety net, because they have not been able to take advantage of
this economic revival that's happening in New York City."

One problem cited by Judge Pauley was that a city computer system
automatically purged the record of welfare applications withdrawn the
same day they were filed, and wiped out any evidence of multiple
applications made by people who had been wrongly rejected the first time.

Judge Pauley also cited affidavits filed by the plaintiffs' lawyers, who
interviewed applicants at job centers in October, November and December
and outlined probable violations in 61 out of 225 cases.

Those cases included a 24-year-old woman in her ninth month of pregnancy
who was told she was ineligible for food stamps because she was not a
citizen, and a 17-year-old woman who had no milk or pampers for her
10-month-old baby and was turned away after waiting all day to apply for
emergency aid because "the worker told her she was in the wrong center
for her zip code."

According to federal regulations, both women should have received
assistance. Instead, the women withdrew their applications.

Experts for the plaintiffs said such cases were unlikely to show up in
the city's sample of 1,893 cases, drawn from about 168,000 public
assistance applications filed last year, because the sample excluded all
but a dozen cases that had been withdrawn.

One method the city now uses to monitor welfare workers is sending
"spot-checkers" who pose as poor people and ask for an application form.
But the judge said the program's effectiveness had been tempered by "the
failure of spot-checkers to adequately vary the scenario they present,"
suggesting that workers learn to recognize the testers. Also, he said,
since checkers do not turn in those forms, the city never finds out
whether such applications would have been accepted.

The city said the job centers were performing better than traditional
welfare centers, and had improved their practices.

But the judge ruled that because of the array of problems in the audit,
"it is difficult to trust any of the extrapolations made by the city
defendants comparing the performance of job and income support centers,
or assessing the performance of job centers over time." "It is safe to
conclude only that the centers' true performance figures are probably
much different than those presented by the city," he said. (The New York
Times, July 25, 2000)


H & R BLOCK: Judge Rejects $25M Pact for Tax Refund Anticipation Case
---------------------------------------------------------------------
A federal judge has rejected a proposed $25 million settlement in a
class-action lawsuit that accuses H & R Block and a lender of being
unfair to customers who received tax refund anticipation loans.

United States District Judge James Zagel said in a 25-page opinion,
however, that he would reconsider if the settlement was redrawn to make
sure that eligible loan customers received the entire $25 million.

Under the rejected settlement proposal, any portion of the $25 million
left over after all claims were in would have reverted to Block and its
co-defendant, Beneficial National Bank.

Judge Zagel's opinion was issued on Friday, a week after hearings in
which a group of lawyers with suits pending against Block and Beneficial
in various states contended that $25 million was not enough. He said the
amount "is a fair, adequate and reasonable one -- with one important
caveat."

"The total $25 million recovery is adequate as long as that is the true
recovery," Judge Zagel said.

"I decline to approve the settlement in its current form," he said. "If
the parties can agree on a settlement that distributes the entire $25
million to claimants, I will reconsider."

Besides paying each eligible customer $15, the proposed settlement
reserved $4.25 million for lawyers' fees.

Electronic filing procedures allow customers to receive tax refunds in as
little as two weeks. Refund anticipation loans provide the money in a few
days for a fee.

Block and Beneficial have been fighting class-action lawsuits over refund
anticipation loans for a decade and had hoped the global settlement would
put an end to the litigation. Block has been sued no fewer than 22 times;
Beneficial has also been a defendant because it provided many of the
loans.

As refined over the years, the main accusations are that lenders were
mistreated when they were not told that Block has a 49.999 percent
interest in the loans and receives a fee for each loan Beneficial makes.
(The New York Times, July 25, 2000)


HMOs: County Union Wants Its Old Insurance Back
-----------------------------------------------
Will County employees who grumbled but went along with a decision to
switch health insurance plans at the beginning of the year now say that
the decision has been disastrous--and they want their old insurance back.

The American Federation of State, County and Municipal Employees (AFSCME)
Local 1028, which represents more than 900 Will County employees, is
pursuing arbitration in a class-action grievance with the county over the
decision to switch to United Healthcare in January. In April, County
Executive Charles Adelman rejected their claims in a response to the
grievance, which was originally filed in February. An arbitrator has not
yet been assigned to handle the case.

The move from Blue Cross/Blue Shield is expected to save the county $2
million a year, but union President Sherry Williams said she knows where
the savings is coming from: workers' pockets.

Confusion over prescription drug rules and whether the doctors that
employees have been going to for years are in United Healthcare's network
have left many patients stuck with the lion's share of their medical
bills, Williams said. "From Day 1, we've had nothing but problems,"
Williams said.

County officials who stand by their arrangement with United Healthcare
dismissed the complaints, saying that any problems with the new plan were
typical mistakes and misunderstandings that are to be expected when a new
health insurance plan takes over coverage of a large number of employees.
"This is the changing face of health care in the country, and change is
difficult," said Greg Pike, the county's human resources director.

Insurance and Personnel Committee Chairman James Moustis (R-Frankfort)
acknowledged that there were some rough spots in the transition but said
the problems mostly have been ironed out.

But union officials said the problems have been going on too long to be
called transitional mishaps. When the switch to United Healthcare was
announced, "I said, Let's be team players," Will County Sheriff's
Deputies' Union President Mike Homberg said. "But there's got to be a
point at which we say, 'Hey, guys, this isn't working.'"

More than 50 employees have had serious problems either getting medical
treatments approved or bills paid, Williams said. However, the union
decided to file the grievance on behalf of all of its members because,
she said, leaders expect that everyone will have similar problems as they
begin to use the health plan.

The county had the right to switch plans as long as the negotiated level
of service in the union contract was not compromised. Williams said the
level of service has dropped precipitously.

Moustis said the benefits in the two plans were identical, but that some
people are paying more for health care because they are choosing to stay
with their own out-of-network doctors rather than choosing new doctors in
the United Healthcare plan. "If you choose to stay with an out-of-network
doctor, that's your choice," he said. Moustis said the change was
necessary in order to save the county money. Last year, the county's cost
for the Blue Cross/Blue Shield plan was about $9.5 million. Blue
Cross/Blue Shield wanted to raise the cost to about $11 million for this
year, he said. "I think we had a duty to go out to the marketplace to see
whether the increase was justified," Moustis said.

United Healthcare came in with a plan that is costing the county $9
million, a $500,000 savings over last year.

Williams and Homberg said the county is saving money because employees,
who contribute 1 to 2 percent of their paychecks toward the premium, are
paying for a bigger portion of the doctors' and prescription bills. Most
of the people with problems are those with the most serious health needs,
Homberg said. "I haven't had a problem yet," Homberg said. "But the guys
with chronic illnesses or with wives who have chronic illnesses, they're
the ones who are having problems with the plan."

The deputies union has not filed a grievance, and Homberg said he is
doubtful about whether AFSCME will be able to prove that the insurance
problems constitute a breach of the union contract. Although it is
already too late to consider switching insurers next year, Homberg said
he wants county officials to begin looking for a new insurance company
for 2002. (Chicago Tribune, July 20, 2000)


LATEX GLOVE: Oral Argument Heard in Smith & Nephew Case
-------------------------------------------------------
In the only latex allergy litigation in which a jury awarded a plaintiff
$1 million, Smith & Nephew's presented oral arguments on July 7, 2000, in
support of its appeal of Linda M. Green's claim of strict liability.
Green v. Smith & Nephew AHP Inc., No. 98-2162 oral argument scheduled
(Wis. Ct. App., July 7, 2000).

Green, a former hospital employee who tested positive for latex
sensitivity in 1991, filed suit against Smith & Nephew in 1994. Her case
was one of 35 latex allergy cases consolidated before Judge Charles F.
Kahn of the Milwaukee County, Wis., Circuit Court. Green's case, selected
as the bellwether case in the consolidated litigation, was tried before a
jury from Feb. 3 through Feb. 25, 1998. The jury found that Smith &
Nephew's latex gloves were defective and unreasonably dangerous. Green
was awarded $34,000 for past medical expenses; $42,000 for future medical
expenses; $90,000 for loss of past earnings; $250,000 for loss of future
earnings; and $584,000 for pain and suffering, for a total award of $1
million.

In its opening brief filed in the Wisconsin Court of Appeals, Smith &
Nephew contended that the first jury verdict ever awarded in a U.S. latex
allergy case was based upon an unprecedented claim that strict liability
can be imposed on a manufacturer of a non-defective product that caused
an allergy. Green responded in her answering brief that her $1 million
award should stand because she proved that Smith & Nephew's latex gloves
were defective. According to Green, the gloves contained an unreasonably
dangerous defect -- unacceptably high protein levels -- which caused an
allergy.

Green's statement of the case, said the company in its reply brief,
merely changed the phrasing of the question posed to the circuit court,
not the substance. Although Green presented her question in terms of a
product defect, the alleged defect is the product's propensity to cause
allergy, asserted the company.

"No matter how plaintiff reformulates her theory, the ultimate question
is the same: can a product be held defective and unreasonably dangerous
because it is allegedly not safe for the minority of consumers who are
allergic to one of its components" That threshold question, says Smith &
Nephew, must be answered in the negative.

Smith & Nephew's reply brief reiterated its charges of judicial error
regarding the admission of certain evidence and the circuit court's jury
instructions, and its argument in favor of a remittitur or new trial in
light of an excessive damage award.

Counsel for Smith & Nephew, Donald R. Peterson of Peterson, Johnson &
Murray in Milwaukee said, "While oral argument is seldom requested or
granted, it is impossible to know the significance of this development.
It is also impossible to anticipate when the court will render its
decision."

Peterson also said the court requested counsel to provide any information
on cases dealing with products that were unreasonably dangerous to some,
but not all, consumers. (Breast Implant Litigation Reporter, July 10,
2000)


MAN-BOY LOVE: The Washington Post Quotes Lawyer on Possbility of Class
----------------------------------------------------------------------
A wrongful-death lawsuit filed this spring against a national "man-boy
love" organization may be expanded into a class-action suit, says the
lawyer for a family whose son was murdered by men involved with the
group.

Based on other child-rape cases being gathered, "it is anticipated that a
class-action lawsuit will eventually be added to this litigation on
behalf of the thousands of children who are raped each year by NAMBLA
members," said Lawrence W. Frisoli, an attorney for the family of Jeffrey
Curley of East Cambridge, Mass.

NAMBLA refers to the North American Man-Boy Love Association. The
secretive group, which has addresses in New York and San Francisco, says
it "speaks out against societal repression and celebrates the joys of men
and boys in love."

NAMBLA spokesmen could not be reached, and its Web site (www.nambla.org)
was not operating last week.

Anti-pornography experts said the legal efforts against NAMBLA are
unprecedented and will be closely watched.

The civil lawsuit was filed by the family of 10-year-old Jeffrey Curley,
whose body was found in October 1997 floating in a tub of cement in a
river. The fifth-grader had vanished a few days earlier.

Two college-age neighbors, Salvatore Sicari and Charles Jaynes, were
later convicted of kidnapping and murdering the boy.

Sicari confessed that he and Jaynes had lured Jeffrey into their car by
promising to buy him a bike. When Jeffrey resisted Jaynes' sexual
advances, Jaynes suffocated him with a gasoline-soaked rag and sexually
abused him.

The men put Jeffrey's body in a tub with concrete and threw it in a
river.

In May, Jeffrey's family filed wrongful death charges against NAMBLA,
seven of its leaders and an unidentified Internet service provider
because, Mr. Frisoli said, the murderers had a clear "tie-in" to them.

"Very frequently, children are raped by NAMBLA members, but the question
is, is there a causal connection to the organization itself?" he asked.

In the Curley case, "Charles Jaynes maintained a diary," said Mr.
Frisoli. "And in his own handwriting, he says that reading the NAMBLA
Bulletin and his exposure to NAMBLA helped him come to terms,
psychologically and emotionally, with his urge to rape children."

Mr. Frisoli said he is collecting similar evidence in other cases for a
potential class-action suit.

Robert Peters, president of Morality in Media in New York, said that
recent legal victories over the Ku Klux Klan may set the stage for a
victory against NAMBLA.

The Southern Law Poverty Center successfully sued KKK leaders, not for
their personal acts of violence, but "by holding them responsible for
what their members are doing - for the acts of their followers," said Mr.
Peters, a veteran opponent of obscenity.

"If it can be done against the Klan, it seems to me that . . . it should
be possible to win against NAMBLA," said Mr. Peters.

"I think it's about time someone tried" to get a class-action lawsuit
against NAMBLA, said Bruce A. Taylor, president of the National Law
Center for Children and Families and a leading prosecutor of obscenity
cases.

A lawsuit against NAMBLA has a legal advantage in that child pornography
is unprotected speech and therefore illegal, he said. (The Washington
Times, July 24, 2000)


NORWEST, BANCORP: 9th Cir Affirms Debtors Back on Hook Can Sue Companies
------------------------------------------------------------------------
The Ninth Circuit U.S. Court of Appeals has declined to hear a ruling
that could open up an avenue of class litigation that courts have
previously frowned upon.

In twin rulings in Malone v. Norwest Financial California, 99-692, and
Malone v. U.S. Bancorp, 99-693, U.S. District Judge Lawrence Karlton said
that people who have gone through bankruptcy proceedings but who have
since reaffirmed their debt with creditors -- allegedly outside of the
strict rules governing such agreements -- can sue the companies.

The Ninth Circuit last week left Karlton's decision intact.

Reaffirmation agreements are contracts wherein debtors agree to put
themselves back on the hook for debts erased by the bankruptcy.

In the face of a record number of bankruptcy filings, many creditors have
sought them as a way to recoup losses.

Previously, most courts said that reaffirmation agreements that didn't
follow the rules simply violated the bankruptcy discharge, and the cases
were sent back to a bankruptcy judge for a contempt hearing.

In that context, a class action could not be brought.

But Gold Bennett Cera & Sidener, representing the plaintiffs in a case
against two creditors, argued for a jury trial, and Karlton agreed. It
was believed to be one of the first such rulings in the country.

Major creditors, including Sears Roebuck & Co. and GE Capital Corp., have
paid hundreds of millions of dollars for their flawed handling of
post-bankruptcy reaffirmation agreements. But the majority of cases were
settled in the face of regulatory actions.  (The Recorder, July 25, 2000)



ONHEALTH NETWORK: Employees Granted Stock Options at Below Market Value
-----------------------------------------------------------------------
In October 1999, the Division of Enforcement, Pacific Regional Office of
the Securities and Exchange Commission, notified the Company that it was
initiating an investigation of the Company's policies and procedures
concerning the granting of stock options. The Company provided
information to the SEC. In addition, the Company's Board of Directors
hired independent legal counsel to conduct its own special investigation.

On February 16, 2000 the Company received a report from independent legal
counsel indicating that there were certain instances where stock options
were granted to new employees with exercise prices that were below fair
market value as of the measurement date for determining stock based
compensation under Accounting Principles Board Opinion No. 25. As a
result, the Company recorded $1.8 million of deferred stock-based
compensation in 1999 and was  recognizing  amortization of the deferred
compensation over the vesting period of the underlying options as a
stock-based compensation charge. The SEC has been given a copy of the
report of the special investigation and has taken deposition of various
members of management and Company employees.

Based upon additional inquiries by the SEC, the independent legal counsel
investigation continued with a review of stock option grants to existing
employees. On April 8, 2000, the Company received a preliminary report
from independent counsel indicating that there were instances where stock
options were granted in 1999 to existing employees and directors with
exercise prices that were below fair market value as of the measurement
date for determining stock based compensation under APB Opinion No. 25.
The Company subsequently hired another independent legal counsel to
review all stock option grants (both new hire and existing employees) for
1999 and 1998 to determine whether there were additional stock-based
compensation charges to be recorded. On May 31, 2000 the Company received
a final report from the new independent legal counsel. As a result, the
Company has recorded $7.9 million of additional deferred stock-based
compensation for 1999 and $1.1 million of additional deferred stock-based
compensation for 1998. These additional deferred stock-based compensation
amounts will be amortized to expense over the vesting periods of the
underlying options as stock-based compensation charges. The Company has
restated their 1998 and 1999 financial statements in their amended Form
10-K for 1999. The SEC has been given a copy of the report of new
independent legal counsel.

There is a possibility that options to purchase approximately 2.3 million
shares were issued outside of the scope of the Company's existing stock
option plans because they were determined to be granted below fair market
value on the measurement date. Accordingly, option holders who were
granted ISOs will be given the opportunity to elect to either retain
their original grant (which will be treated as a non qualified options
for federal income tax purposes)or to receive a replacement ISO grant
under the Company's 1997 Stock Option Plan. To the extent any options are
determined to have been granted outside the scope of the 1997 Stock
Option Plan, the corresponding number of shares subject to such options
would be available for future grants by the Company under such Plan. All
replacement options will re-issued with the same vesting, exercise price
and quantity.

The SEC investigation is still in process and has not been finalized. The
Company indicates willingness to cooperate with this investigation.
However, until the SEC investigation is completed, the Company could,
among other things, be required to record additional stock-based
compensation charges and could be required to pay a fine. The Company is
unable to assess the likely outcome of this matter.


PHENOLIC FOAM: Gilman and Pastor Announces Pact with Two Makers
---------------------------------------------------------------
A proposed nationwide class action settlement has been reached with two
makers of phenolic foam roof insulation ("PFRI"). Installed between 1980
and 1992 in thousands of high occupancy buildings, PFRI insulation is
alleged to release acids, which can corrode steel roof decks.

The settlement in this lawsuit, Sebago, Inc., et al. v. Beazer East,
Inc., et al, affects thousands of potentially "unaware" building owners
in the United States whose roofs contain PFRI manufactured by Koppers
Company(1) and Johns Manville Corporation of Denver, Colorado. The
lawsuit is pending in the United States District Court for the District
of Massachusetts. While the two settlements are subject to final Court
approval, preliminary approval was granted June 30, 2000.

The Court ordered that notice to the class be given commencing July 21,
Notice of the settlement will be mailed to several thousand building
owners that have already been identified. Plaintiff attorney Kenneth
Gilman states, "We are particularly concerned with this situation
because, according to our investigation, many building inspectors are not
aware of the alleged problems caused by the product. PFRI was installed
in thousands of high-occupancy and commercial buildings, including
schools, office buildings, condominiums and apartment buildings,
manufacturing facilities, restaurants, shopping plazas and malls. To
ensure that we get the message out, we will also be publishing notice in
newspapers, trade journals, television and at a web site we've
established -- www.pfriclaims.com."

Building owners may be able to determine whether they have PFRI in their
roofs by examining their roofing system warranties or the original roof
specifications. PFRI was sold in the United States under the brand names
"Exceltherm Xtra," "Rx," "Ultraguard Premier," "InsulBase Premier," and
"Fesco-Foam Board." It was also incorporated in some roofing systems
under the brand names "Genstar," "Pittsburgh-Corning," and "Loadmaster."
Building owners may also be able to determine if they have PFRI by taking
a test cut of their roof insulation and comparing it to the samples shown
in the web site.

Plaintiffs' lead counsel in the case is the law firm of Gilman and
Pastor, LLP of Saugus, Massachusetts. Contact: Kenneth G. Gilman, Esq.,
877-917-7374, or Douglas M. Brooks, Esq., 877-917-7374, both of Gilman
and Pastor, LLP; or media, A. Doreen Olsen, 503-350-5872, or Cameron
Azari, Esq., 503-350-5822, both of Huntington Legal Advertising, for
Gilman and Pastor, LLP


PHILIP SERVICES: Ontario Set to Charge a Dozen Former Personnel
---------------------------------------------------------------
Fresh off victories in the RT Capital Management Inc. and Golden Rule
Resources Ltd. cases, the Ontario Securities Commission is set to
announce charges against almost a dozen people in connection with Philip
Services Corp., the Financial Post has learned.

Enforcement officials with the country's leading securities regulator
sent letters to former directors, officers and senior accounting
personnel this month advising them that OSC staff will be recommending a
hearing take place.

Among those put on notice of pending administrative charges for their
role in the Philip debacle are Howard Beck, the former chairman; Allen
Fracassi, co-founder and former executive vice-chairman; Philip Fracassi,
co-founder and a former director; Robert Waxman, former president of the
dominant metals division; and Marvin Boughton, former chief financial
officer, according to sources close to the company.

It was not clear whether Deloitte & Touche, Philip's auditors, have been
named by the OSC and received a letter as well. All the named parties
were invited by the commission to make comment, if they wished, before
the hearing is announced.

The charges will be announced within the next two weeks.

The letters outline, in broad terms, the allegations on which the
commission's case is based.

The OSC is alleging that Philip failed to disclose the company's true
financial status in a prospectus filed to raise US $330-million in
November, 1997, through a new share issue. It also claims the prospectus
did not disclose that Mr. Waxman, whose division accounted for 60% of
Philip revenue, had been quietly relieved of his duties.

Two months later, in January 1998, Philip publicly disclosed an inventory
shortfall in its copper operation. The company's value suffered a sharp
collapse amid allegations of fraud.

The OSC is preparing to attempt disciplinary charges in connection with
statements made following the revelation of the shortfall, in the first
part of 1998, which allegedly misrepresented revenues and contingent
liabilities. And the OSC is questioning several restructuring charges.

Frank Switzer, an OSC spokesman, said that the commission is 'in the
final stages' of its investigation, but declined to comment beyond that.

The U.S. Securities and Exchange Commission is also conducting an active
investigation into Philip, which posted a US$1.6-billion loss in 1998,
one of the largest annual deficits in Canadian corporate history. One
source said the U.S. regulator had investigators in Hamilton for several
weeks this spring.

Philip, once a leading scrap metal and waste disposal firm, has been hit
with a police investigation, several cross-claiming lawsuits, including
two shareholder class actions, and several management changes.

The company fled into court protection from its creditors in June, 1999,
struggling under US$1.1-billion in debt. It emerged last April with a
restructuring plan that saw 91% of the company's shares transferred to
its secured lenders. (National Post (formerly The Financial Post), July
25, 2000)


REED: IN Ct of Ap. OKs Class But Refuses to Exempt Disabled Students
-------------------------------------------------------------------
The Indiana Superior Court denied a preliminary injunction that would
have exempted a group of over 1,000 students from fulfilling the state's
graduation examination requirement. Rene v. Reed, 32 IDELR 196 (Ind.
Super. Ct. 2000).

The class action charged that the state's requirement that they take and
pass Indiana's graduation qualifying examination in order to receive a
diploma violated the Individuals with Disabilities Education Act, and
their due process rights. The class contended that prior to 1995, when
the GQE requirement was implemented, the law exempted students with
disabilities from taking standardized tests. As a result, the students
alleged that they were denied sufficient time to master the skills tested
by the GQE. The class further asserted that the GQE tested subjects not
included or required in their IEPs. Beginning in 1997, the GQE required
that all students demonstrate ninth-grade proficiencies in mathematics
and English/language arts. Students who did not pass the GQE received a
certificate of completion instead of a diploma, but were allowed to
participate in graduation ceremonies.

The Superior Court judge concluded that the exam requirement violated
neither the IDEA nor the group's due process rights. Stating that
injunctive relief would negate the efforts of class members with
disabilities who had passed the GQE, the court emphasized that granting
an injunction would "disserve the public interest in ensuring that an
Indiana high school diploma is worth more than the paper it is written
on." The ruling, while not a final decision on the merits of the suit,
signaled a strong judicial reluctance to bend graduation requirements for
students with disabilities. (Section 504 Compliance Advisor, July 21,
2000)

       Class Action Okayed in Graduation Qualifying Exam Case

The Indiana Court of Appeals held that the parents of a group of students
with disability could proceed with their class action, which alleged due
process and IDEA violations. The classes satisfied the state class action
statute and they were properly defined. Rene by Rene v. Reed, 32 IDELR 92
(Ind. Ct. App. 2000).

The parents sought to bring a class action, claiming that the state's
requirement that the students take and pass the graduation qualifying
examination to receive a diploma violated their due process and IDEA
rights. The action comprised two classes. Class A was exempted from
standardized testing or not taught the material on the GQE. Class B was
required to take the GQE without their IEP accommodations. The trial
court denied the parents' motion to certify class A and narrowed the
definition of class B. The parents appealed.

The Appeals Court reversed and remanded the trial court's decision, and
certified both classes. The alleged classes satisfied the state class
action statute, for they met the requirements of numerosity, commonality,
typicality, and adequacy. Further, the actions of the state, in terms of
the GQE, were similar toward all members of the classes.

Additionally, it would have been futile for class A to exhaust its
remedies, as an administrative agency did not have authority to declare a
state statute unconstitutional. Similarly, class B met the futility
requirement with respect to all of their requested IEP accommodations,
not just the reading accommodation, as the trial court erroneously held.
Both classes also had standing and their claims were ripe. If the alleged
violations occurred, they did so when the classes were required to take
the GQE. Thus, the students were not required to wait until they were
denied a diploma to bring an action.

Finally, class A was not overly broad, as it was specific enough for a
court to determine whether a student was a member. Accordingly, the court
held that both classes were appropriate as originally defined. (Special
Education Law Monthly, July 19, 2000)


SARA LEE: Family Sues over Listeria Outbreak Traced to Tainted Turkey
---------------------------------------------------------------------
The children of Rita Khouri, who died one month after eating tainted
turkey, are suing Sara Lee, the company they say produced the
bacteria-filled bird.

The suit on behalf of the 87-year-old Westwood woman was filed Monday in
U.S. District Court against Sara Lee. The suit asks for unspecified money
damages for wrongful death, and punitive damages for alleged gross
negligence.

The lawsuit claims that Khouri bought the turkey under the assumption
that it was "fit for human consumption."

After she ate the turkey, the lawsuit alleges, she contracted a
debilitating infection and was ill for more than a month before she died.

Sara Lee spokeswoman Julie Ketay declined comment on the suit, saying the
company hadn't seen it yet.

Khouri was one of 15 people killed in the 1998 listeria outbreak that was
traced to meat processed at a Sara Lee plant in Zeeland, Mich. Another
100 people became ill after eating the meat.

The company recalled 15 million pounds of hot dogs and lunch meats as a
result of the listeria outbreak.

In May, Sara Lee agreed to settle a class action suit in Chicago by
people who had gotten sick from the tainted meat. At the time, company
officials said they were not admitting wrongdoing, but that they settled
to avoid a lengthy legal process.

Khouri's family opted out of the class-action suit because it had been
filed mostly by consumers with less serious claims. (The Associated Press
State & Local Wire, July 25, 2000)


TOBACCO LITIGATION: Dealers Look to Simplify Settlement Bond Structures
-----------------------------------------------------------------------
Underwriters and issuers planning the next wave of tobacco settlement
bonds want to simplify the deals' structures to attract more investors
and achieve better yields.

Officials at Bear, Stearns & Co, who in the last two weeks landed two
appointments as senior manager for the complex securities, said they
believe eliminating the "flexible amortization" structure that created
separate "planned" and "rated" maturities in the first deals will make
the new transactions more understandable to traditional municipal
investors -- expanding the initial base of buyers and ultimately
improving their secondary market liquidity.

While the first three deals, by New York City's Tobacco Settlement Asset
Securitization Corp, the Nassau County Tobacco Settlement Corp, and the
Westchester Tobacco Asset Securitization Corp, were all successfully
placed with investors last fall, the yields they carried were above those
on comparable maturities of other, similarly rated municipals.

Now, as Monroe County, NY, prepares to sell a $160 million issue next
week with First Albany Corp as senior manager, and Bear Stearns works on
structuring and marketing deals for Erie County, NY, and the Alaska
Housing Finance Corp that are expected to price in September, many market
participants are watching closely to see if new structures can shrink
those spreads.

The disparity in the initial deals was enough of a concern for New York
City officials that they have been exploring other ways to leverage the
settlement payments, including applying for a direct loan from the
federal government under the Transportation Infrastructure Financing and
Innovation Act program In addition to hoping that Uncle Sam will offer
comparable or better borrowing rates than the public markets, city
officials believe that by making the federal loan subordinate to the
TSASC bonds, they can reduce the leverage on the TSASC portion and earn
better yields there as well.

But the Bear Stearns bankers assembling the new deals say they believe
that a simpler structure and the market's increasing familiarity with the
underlying credit securing the bonds can lead to better rates this time
around.

"The key is to use this credit in a market-friendly structure," said
Daniel Keating, senior managing director and head of municipals at Bear
Stearns, in an interview late last week.

                         Maturity Certainty

In the most notable departure from the earlier deals, the Bear Stearns
bankers say they do not expect to draw a distinction between planned
maturities and rated maturities That structure took into account the
uncertainty on annual payment size created because the settlement
payments by the tobacco companies depend to some extent on cigarette
consumption in each state.

Under the rated maturity-planned maturity structure, bonds were marketed
based on the year in which the issuer expected to have the money
available to repay them However, they also carried longer, rated
maturities, which represented when the bonds would be repaid if
settlement payments fell below expectations, or go into default if the
payments were not made.

Although such flexible amortization cushions are common in the
asset-backed securities market, they were a new concept for the municipal
market And while the structure resulted in relatively high ratings --
mainly because rated maturities' coverage ratios were higher, as the
settlement payments added up over time -- several market participants
said they believed any gain the issuers received from the higher ratings
was outweighed by the penalty they suffered because investors were not
comfortable with the structure.

"What was happening was that the investors were really becoming very
confused," said Joseph Passafiume, the director of investments and cash
management for Erie County, which hopes to raise more than $200 million
from its upcoming issue "It was an ambitious way to structure the debt to
receive the best ratings possible, but the value generated by that
structure did not reflect those ratings."

"We're going to try and do our best to make this look as much like a
municipal bond as possible, because we're selling to municipal buyers,"
said Steven Kantor of Arimax Financial Advisors Inc, financial adviser to
the AHFC, which hopes to raise $93 million in its deal.

Nonetheless, not everyone is abandoning the structure altogether Edward V
Flynn, the senior vice president at First Albany working on the Monroe
County issue, said that deal would include both fixed- and
flexible-amortization components.

The Bear Stearns bankers said a simplified structure would be especially
important for attracting retail interest in the issues Individuals have
been the most active buyers of municipals so far this year, but New York
City attracted only $50 million of retail orders during a special order
period for its $709 million debut issue of tobacco bonds last fall Since
retail investors are common holders of the tobacco companies' stocks, the
bankers said they should be open to the securitizations' credit. "There's
no reason they should be eliminated automatically," said senior managing
director Kym Arnone.

While the planned-rated maturities structure may be discarded, other
signature facets of the tobacco bond structures that were drawn from the
asset-backed market are likely to be retained, although Arnone said it
was too soon to say exactly how they would be employed.

For instance, the legal covenants on the first deals all included
"trapping events," in which the issuers agreed to fund additional reserve
funds if there are suggestions that the settlement payments will fall
below expectations Arnone said the firm and issuer officials are
reviewing all of the covenants from the first deals to see if they can be
"refined," although she said most will be retained.

                  Acceptance Questions Remain

Despite the deal sponsors' confidence in their ability to improve on the
initial tobacco deals, it remains to be seen whether investors' other
concerns can be answered One of these regards whether investors will be
disturbed by the disclosure last spring that the Internal Revenue Service
has begun auditing all three of the outstanding tobacco bond deals.

The underwriters said they do not believe the audits will be an issue,
since the initial underwriters and their bond teams have passed along
indications from IRS agents that the audits are merely for "educational
purposes," as the agency seeks to learn about the new structure.

They also point to the strong legal opinions regarding the deals'
tax-exempt status, and the fact that the bond proceeds will be devoted to
recognized public purposes Erie County plans to use the securitization
proceeds to establish a trust fund that will invest in tax-exempt
municipal bonds, using the income to pay for ongoing expenses like
Medicaid costs Alaska's securitization will raise funds for capital
projects at the state's schools.

Another important concern about tobacco settlement-backed bonds among
institutional investors has been the almost nonexistent secondary market
for the securities.

And while there can be no guarantee of secondary-market liquidity at the
time of a new-issue pricing, Arnone said that if her firm is successful
in attracting a broader range of buyers, it should be able to head off
some of those concerns, and benefit right away. "If investors see a
broader base of buyers at the initial pricing -- if they're not getting
the full allotments they're requesting -- then they'll know there is more
demand out there, and that should reassure them that there will continue
to be demand in the secondary market," she said.

Finally, the issuers marketing the new deals will have to respond to the
intense media attention stemming from the massive punitive damage award
in the ongoing Engle sick smoker case in Florida However, Arnone said she
is confident that most investors will agree with legal analysts who
predict that the award will be overturned on appeal, and that the
underwriters' efforts to publicize a spate of recent legal wins by the
tobacco industry in other liability cases will overcome any lingering
concerns.

"There's been a lot of favorable news, but unless somebody's out there in
a marketing phase, no one's going to hear about it," Arnone said,
pointing specifically to the US Supreme Court's decision to reject a
federal Food and Drug Administration effort to regulate tobacco as a
drug, and the decertification of a class-action lawsuit in Maryland that
could have implications for the Engle case.

Overall, the Bear Stearns bankers said the performance of the new issues
will owe a debt to the pioneering work the industry accomplished on the
initial round of issues Those deals went a long way to educate investors
about the terms of the Master Settlement Agreement that defines the
tobacco companies' payments to the issuers, as well as the risks that
could interrupt those payments.

Salomon Smith Barney Inc was the senior manager on all of the earlier
deals Bear Stearns is a rotating senior manager in the New York City
issuer's underwriting syndicate.."This is an evolutionary process, and at
this point, everybody is further up the learning curve," Keating said "On
the first deals, you had to explain so much, so fast Because of these
deals, we as municipal professionals are now well-versed in the MSA, and
we know the consumption issues." "Using the first deals as an educational
process, we now have to decide what worked and what didn't," he said.
(The Bond Buyer, July 25, 2000)


TOBACCO LITIGATION: Industry Moves Landmark FL Case  to Federal Court
---------------------------------------------------------------------
It took six years for a landmark case by sick Florida smokers to get from
court filing to the all-time record jury award of $145 billion in a state
civil trial. It took a clerk a few punches of a stamp to move the case to
federal court.

The tobacco industry filed a notice of removal late Monday, automatically
switching the entire case to U.S. District Judge Ursula Ungaro-Benages
based on a union's attempt to get involved in the trial on the day of the
verdict July 14.

The industry's intent was to get a more favorable hearing on the
underlying legal issue of class certification, which let smokers group
themselves together for the first time to fight Big Tobacco, said a
source close to the case who spoke on condition of anonymity.

But anti-tobacco activists attacked the industry's push into federal
court as a tactic worthy of fines.

"They get a lot of credit for imagination on this one," Northeastern
University law professor Richard Daynard said Tuesday. "I'm sure
literally hundreds of lawyers were scratching their heads trying to
figure out some way to get themselves out of this mess, so somebody
somewhere gets a bonus for having thought this one up."

Said tobacco litigation analyst Mary Aronson: "This does not surprise me.
This industry does whatever it can to stay afloat."

Smokers' attorney Stanley Rosenblatt promised to fight and called the
industry action "just another desperate attempt to manipulate the
system."

Technically, the move to federal court means Ungaro-Benages would
consider a 200-page motion also filed Monday to challenge the punitive
damage award, the three jury verdicts against tobacco, the trial judge's
handling of the case and class certification.

But Rosenblatt was expected to file a motion with Ungaro-Benages, who was
assigned the case in a random selection method used by federal court
clerk, to send the case back to Florida Circuit Judge Robert Kaye.

"In the normal course of events this would be tossed back with a nasty
comment from the bench by the federal judge, but when the tobacco
companies are involved sometimes weird things happen," said Daynard, who
has advised attorneys suing the industry.

The nation's five biggest cigarette makers transferred the case based on
a motion to intervene submitted in state court by the Southeastern Iron
Workers health care plan.

The union argued some of its members were covered by the lawsuit and it
should be allowed to join the case. Kaye rejected similar motions earlier
this year. Attorneys in Houston and Miami who filed the union motion
planned a conference call to discuss the development later Tuesday and
had no immediate comment.

"As a result of the union motion, there were new federal issues injected
into the case," said Mike York, an attorney for industry-leading Philip
Morris Inc. "That motion allowed us to seek to have those claims as well
as other issues adjudicated by a federal court. Procedurally, it's in
federal court subject to any orders of that court."

The jury decided in July 1999 that the industry makes a deadly product,
ordered the industry in April to pay $12.7 million in compensatory
damages to three smokers representing the class and deliberated five
hours before setting a record for a civil trial award.

The industry immediately expressed confidence that the entire case would
be thrown out on appeal.

Some state officials worry that the verdict could endanger an industry
commitment to pay them about $10 billion a year under tobacco lawsuit
settlements reached in 1997 and 1998 with all 50 states.

The other defendants are R.J. Reynolds, Brown & Williamson, Lorillard,
Liggett and the industry's defunct Council for Tobacco Research and
Tobacco Institute. (The Associated Press State & Local Wire, July 25,
2000)


ZALE CORP: Milberg Weiss Announces RICO Suit against Jewelry Retailer
---------------------------------------------------------------------
A class action lawsuit was filed on July 21, 2000, against Irving,
Texas-based Zale Corp. (NYSE:ZLC), several of its affiliates, and certain
individual defendants, by a client represented by the law firms of
Milberg Weiss Bershad Hynes & Lerach LLP; Almon, McAlister, Baccus &
Hall, LLC, and The Law Offices Of Young & Pickett.

Zale sells jewelry and related merchandise to consumers under the brand
names of Zales Jewelers, Gordon's Jewelers, Bailey Banks & Biddle Fine
Jewelers, and Peoples Jewelers. The complaint charges that defendants
violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"),
as well as the common laws of the States of Texas and Arizona concerning
fraud, breach of contract, and Arizona's Consumer Protection Act. The
named Class includes all people to whom defendants sold unemployment,
leave of absence and/or disability credit insurance, notwithstanding
their ineligibility for such insurance, for whom the alleged claims
accrued and/or were discovered within four years of today. The complaint
alleges, among other things, that Zale fraudulently lured people who
purchased Zale merchandise using a Zale credit card into also buying
various types of credit insurance. The sale of credit insurance was
fraudulent because, as alleged in the complaint, Zale misrepresented,
among other things, that there were no eligibility requirements and that
issuance was guaranteed. As the complaint alleges, however, many of the
credit insurance purchasers were ineligible for coverage under the
offered plans, and many have had their claims denied by Zale after filing
their claims, despite signing up for and paying premiums for the credit
insurance.

The complaint further alleges that, beginning in 1993, Zale adopted and
implemented a policy which fraudulently induced people into buying credit
insurance whenever they bought Zale merchandise using a Zale credit card.
Credit insurance is supposed to pay the monthly balances due on credit
balances used in purchasing the merchandise, when the holder of the
credit card is unable to do so. Thus, credit disability is supposed to
pay the minimum balance due when the consumer is disabled; credit
unemployment is supposed to pay when the consumer is unemployed; and
credit leave of absence is supposed to pay when the consumer is on leave
of absence. The insurance was sold under various plans, such as "The
Platinum Plan" and the "Gold Plan."

The complaint alleges that Zale sold credit insurance to customers who
Zale knew, or were reckless in not knowing, were disabled, unemployed,
and/or on leave of absence, and then denied the claims of those people
when they tried to make a claim, on grounds of ineligibility, despite
their payment of premiums. Sales associates, the complaint says, were
instructed to sell the insurance to everyone, and to tell customers that
issuance was guaranteed, and that the plan will be effective immediately,
representations which the complaint alleges were not true. Customers were
then sent monthly statements which listed the amount due on the Zale
credit cards, and segregated the amounts due on the so-called
"insurance." The fraudulent scheme is alleged to have been implemented by
an enterprise formed through complex entanglements and arrangements
between Zale, several of its retail and insurance subsidiaries, and other
persons and entities.

Individuals who were sold credit insurance by Zale, and believe that they
were ineligible for such insurance coverage at the time of the purchase
because they were disabled, on leave of absence, or unemployed at the
time, may be a part of the class that this lawsuit seeks to represent.

Contact: Milberg Weiss Bershad Hynes & Lerach LLP, New York Steven G.
Schulman or Ariana J. Tadler Phone number: (800) 320-5081 Email:
zalecase@milbergny.com or Almon, McAlister, Baccus & Hall, L.L.C.,
Tuscumbia, AL G. Rick Hall Tel: 256/383-4448 or Law Offices of Young &
Pickett, Texarkana, TX Lance Lee Tel: 903/794-1303


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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
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Washington, DC. Theresa Cheuk, Managing Editor.

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

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