/raid1/www/Hosts/bankrupt/CAR

/raid1/www/Hosts/bankrupt/CAR_Public/000801.MBX C L A S S A C T I O N R E P O R T E R Tuesday, August 1, 2000, Vol. 2, No. 148 Headlines AF 4590: Lawyers Advise Families of Victims to Get Together AVISTA CORPORATION: Milberg Weiss Files Securities Suit in Washington BANKAMERICA CORP: Shareholders Suing in CA Appeal against Fd Injunction BLUE WATER: Hedge Fund Investors Seek $100M for 'Illiquid' Investments BMC SOFTWARE: Announces Dismissal of Securities Lawsuit in Texas CHICAGO HEIGHTS: 13-Year-Old Voting Rights Case Sent Back to Judge CITIBANK: Delays Deadline for Credit Card Payments As Part of Settlement CROSSROADS SYSTEMS: Kirby McInerney Files Securities Suit in Texas DAIMLERCHRYSLER: Accuses of Frivolity; Law Firm Counterclaim to Proceed DRKOOP.COM: Web Co. MillenniumHealth Communications Calls off Merger FHP INTERNATIONAL: Shareholders Drop Effort to Revive Securities Suit IBM, NATIONAL SEMICONDUCTOR: Lawsuits Complain of Lab Environments MANUGISTICS GROUP: Settlement Reached for Securities Suit Remanded to MD MCGRATH RENTCORP: Defends Charges on Failure To Warn Indoor Air Quality NBTY, INC: Cauley & Geller Seeks Damages in NY on Behalf of Shareholders NBTY, INC: Milberg Weiss Files Securities Lawsuit in New York NSW GOVT: Aussi Families Sue for Nervous Shock from Thredbo Disaster OMEGA HEALTHCARE: Wechsler Harwood Files Securities Lawsuit in New York PERVASIVE SOFTWARE: Announces Dismissal of Shareholder Lawsuit in Texas PROFIT RECOVERY: Chitwood & Harley to Expand Securities Suit in Georgia SONUS PHARMACEUTICALS: Reaches Agreement to Settle Securities Lawsuit STAGE STORES: Former Employees Sue in TX Alleging RICO Act Violation STAGE STORES: Stockholder Appeals against Dismissal of Lawsuit in Texas TOBACCO LITIGATION: Monroe County, N.Y. 4th to Securitize Settlement TOBACCO LITIGATION: Smokers Reject Industry Move As Judge-Shopping UNCOVER: Freelance Authors Regain Copyright Control Through Settlement * PricewaterhouseCoopers Study Shows Fd Securities Actions Fall By 14% ********* AF 4590: Lawyers Advise Families of Victims to Get Together ----------------------------------------------------------- French accident investigators said they had found part of the fuel tank from flight AF4590 on the runway at Charles de Gaulle airport. The discovery adds considerable credence to the theory that the disaster was caused by a massive fuel leak rather than engine problems. According to the French Accident Investigation Bureau (BEA) this would mean that the flames seen coming from the plane were caused by leaking fuel and not a damaged engine. French officials believe last Tuesday's crash was caused by a burst tyre damaging the aircraft's structure, setting off a fire and causing engine failure. Air France has said bursting tyres have previously damaged Concorde fuel tanks and engines. Yesterday the BEA said: "The flames seen after take-off do not originate from an engine but, most likely, from an important fuel leak." The bureau revealed the find as British and French safety officials prepared to meet on July 31 to discuss safety measures for Concorde flights. Representatives from the Civil Aviation Authority will join officials from Air France and the French transport ministry to try to agree new safety checks to allow the airline to resume Concorde flights. BA is continuing to resist pressure to ground its aircraft despite Air France's decision to halt all supersonic services until the exact cause of the tragedy is known. Air France and the tour operator that booked German tourists on the flight are facingwhat may be the largest compensation suit in aviation history. The multi-million damages claim by the relatives of the German victims - with some claiming up to pounds 3m - could set a new precedent in air accident compensation. Lawyers said they were advising families of the victims to file a class action suit and present their interests collectively. "It's important that they get together and that not each individual struggle alone," said Burkhard Kotke, of the Leistikow law practice, which is representing a number of relatives of crash victims. Sven Leistikow said contracts signed by the victims would have to be examined to determine whether the "contractual" carrier, the tour operator Peter Deilmann, or the "actual carrier", Air France, is to be held liable. Normally the Deilmann company would be responsible if it offered a full tour, including a charter flight and a luxury cruise. But if victims booked the Concorde flight themselves, Air France would be liable. A second question of liability concerns the exact cause of the crash. Mr Leistikow said he believed the case would be settled out of court, as is typical in damages claims. "We are looking at an amount, which I wouldn't want to name, but it starts with pounds 83,000 and upwards," he said. Under the Warsaw Convention, the limit to liability claims is about pounds 18,000 in cases where no gross negligence can be proved. But EU guidelines on air accidents introduced in October 1998 have lifted that ceiling. Now relatives of victims can demand up to pounds 77,000 without having to show any blame on the part of the airline. (The Independent (London), July 31, 2000) AVISTA CORPORATION: Milberg Weiss Files Securities Suit in Washington --------------------------------------------------------------------- Milberg Weiss (http://www.milberg.com/avista/)announced that a class action has been commenced in the United States District Court for the Eastern District of Washington on behalf of purchasers of Avista Corporation (NYSE:AVA) common stock during the period between April 7, 2000 and June 21, 2000 (the "Class Period"). The complaint charges Avista and certain of its officers and directors with violations of the Securities Exchange Act of 1934. The complaint alleges that during the Class Period, despite assurances from Avista that it would only enter into derivative contracts as a means to "limit the exposure to market risk," the Company covertly entered into massive amounts of Forward Contracts in an undisclosed gamble that electricity prices would decrease in the future. Unfortunately for Avista's shareholders, the price of electricity skyrocketed, causing massive losses on these derivative Forward Contracts. Avista's share price declined dramatically when the news about these losses was finally disclosed on June 21, 2000. On the day prior to the Class Period, Avista shares closed trading at $ 37-11/16 per share. After Avista was finally forced to publicly acknowledge the extent of the losses related to this improper speculation on June 21, 2000, Avista's shares closed trading at $19.00 per share. Contact: Milberg Weiss William Lerach, 800/449-4900 wsl@mwbhl.com BANKAMERICA CORP: Shareholders Suing in CA Appeal against Fd Injunction ----------------------------------------------------------------------- The shareholder plaintiffs suing BankAmerica Corp. for securities fraud in California state court are appealing a St. Louis federal court order enjoining their suit from proceeding due to the parallel federal suit. They assert that U.S. District Judge John F. Nangle violated the Anti-Injunction Act, which prohib its the federal government from staying state court proceedings, except for a few narrowly defined exceptions. In re BankAmerica Corp. Securities Litigation, No. 00-2255, appellants' opening brief filed (8th Cir., July 3, 2000). The central question is whether the district court violated this important tenet of federalism by holding that Congress, when it enacted the Private Securities Litigation Reform Act in 1995, "expressly authorized" federal stays of state-court proceedings with its new provisions regarding the appointment of lead plaintiffs in certain federal class actions, assert the shareholders. In late 1998, the shareholders of San Francisco-based BankAmerica Corp. (Old BankAmerica) and NationsBank Corp., approved a merger of the two banks to form BankAmerica Corp. Two weeks after the merger was consummated, the new entity announced a massive loss and many shareholders sued, asserting that the financial institutions hid a $372 million loan to a hedge fund managed by D. E. Shaw & Co. Investors sued in California state court and federal district courts around the country. The California state-court actions, consolidated under Desmond v. BankAmerica Corp., No. 00-0169 (N.D. Cal., 2000), seek recovery under California Corp. Code @ @ 25400 and 25500. The federal actions were consolidated by the Judicial Panel for Multidistrict Litigation and subsequently assigned to the Eastern District of Missouri. Approximately 18 months later, Judge Nangle enjoined the California Superior Court from certifying a class in the Desmond action, and revoked an order directing the parties to enter mediation (see Securities Litigation & Regulation LR June 7, 2000, P. 5). In their appeal of the order, the shareholders assert the federal government cannot preclude their related action because Congress envisioned concurrent state and federal proceedings in its legislation. Suing in state court offers class members several advantages, argue the shareholders, and they have the choice of their forum. The state court advantages include: -- The estimated recoverable damages under state law are almost $6.5 billion as compared to below $1 billion in federal court. This difference is due to an Exchange Act provision that limits damages to the difference between a plaintiff's purchase price and the 90-day post class-period median trading price; -- The applicable California Corp. Code section does not require investors to plead and prove the same reliance as federal claims; -- The scienter standard for California claims is less demanding than for federal fraud claims, and negligence is enough to establish state law violations if a defendant either "knew or had reasonable ground to believe" his or her statements were false; -- Federal law precludes aiding-and-abetting liability; -- Federal law has more potential defenses to liability, including the safe harbor for forward-looking statements; -- Although federal law has effectively abolished joint and several liability for reckless violations of securities laws, California does not have such limitations; and -- Federal law requires a unanimous jury verdict while a plaintiff in California may prevail on a 9--3 jury verdict. The appellants also contend that the class notice ordered by Judge Nangle does not provide investors with enough information on state/federal differences for them to decide on whether to opt out of the suit at the federal level. The appellants argue that the district court erred by enjoining its action under the Anti-Injunction Act's provision , which says, "A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgment." Contrary to the court's ruling, Congress has not "expressly authorized" the enjoining of state proceedings under the Private Securities Litigation Reform Act, assert the appellants. According to the opening brief, Judge Nagle "jumped to the conclusion" that passage of the PSLRA created new federal rights for certain plaintiffs in securities class actions suit. The "new" right was based (in part) on the PSLRA's lead-plaintiff provisions, which gives certain investors, such as institutional investors, a right to control federal litigation. Judge Nangle concluded, "This federal right cannot be given its intended scope if competing state court plaintiffs, representing a significantly smaller number of shares, can institute premature settlement negotiations which threaten the orderly conduct of the federal case and which could result in the releases of the federal claims." The shareholders argue the lead plaintiff provisions only govern the selection of lead plaintiff for a federal action -- and are of a procedural rather than substantive nature. The appellants also disagree with the court's interpretation of the Securities Litigation Uniform Standards Act, passed after their class action was filed. While Judge Nangle wrote that the SLUSA bars securities suits filed in state court, the appellants argue the stay of related state-court proceedings is quite narrow and only applies to discovery proceedings. Congress has always contemplated the possibility of dual litigation in state and federal court, insist the shareholders. They argue the district court's order improperly interferes with California state interests and is contrary to the principles of equity, comity and federalism. The Desmond plaintiffs are represented by William S. Lerach, Leonard B. Simon and Eric A. Isaacson of Milberg Weiss Bershad Hynes & Lerach in San Diego; Reed R. Kathrein, John K. Grant and Christopher P. Seefer of Milberg Weiss' San Francisco office; Arthur R. Miller of Harvard University in Cambridge (of counsel); Paul F. Bennett and Steven O. Sidener of Gold Bennett Cera & Sidener in San Francisco; Jeffrey H. Squire, and Ira M. Press of Kirby, McInerney & Squire in New York; Robert J. Dyer III of Dyer & Shuman in Denver; Stephen R. Basser of Barrack, Rodos & Bacine in San Diego; David R. Scott of Scott & Scott in Colchester, Conn.; and Natalie A. Finkelman of Liebenberg & White in Jenkintown, Pa. (Securities Litigation & Regulation Reporter, July 19, 2000) BLUE WATER: Hedge Fund Investors Seek $100M for 'Illiquid' Investments ---------------------------------------------------------------------- A group of corporate investors, including a Bermudan insurer, have sued two New York hedge funds for $100 million, alleging that investment manager Jonathan D. Iseson damaged the funds' value with allegedly imprudent and illiquid investments. Tremont International Insurance Ltd. et al. v. Blue Water Fund Ltd. et al., No. 00-CV-3768, complaint filed (S.D.N.Y., June 26, 2000). The plaintiffs, headed by Tremont International Insurance Ltd. in Hamilton, Bermuda, allege in their Manhattan federal court proposed class action that the Locust Valley, N.Y.-based Blue Water hedge funds fraudulently induced investment by concealing allegedly reckless holdings in the "thinly-traded" stock of NetSol International Inc. The Blue Water Fund is a non-U.S. hedge fund and Blue Water L.P. is a U.S. hedge fund; both invested heavily in NetSol. California-based NetSol is an international information technology company and the parent of Network Solutions Group Ltd., NetSol U.K. and NetSol USA Inc. The company develops financial industry software systems. The Southern District of New York complaint alleges that Iseson, a Blue Water funds' principal and portfolio manager for the funds' investment manager, Blue Water Partners, artificially inflated the hedge funds' value by purchasing millions of dollars worth of NetSol stock. The purchases caused NetSol's stock to rise significantly and allowed Blue Water Partners to collect a $14 million investment manager fee. Tremont and the other plaintiffs -- Royalton Principal Protected Fund, ZCM Asset Holdings Co. Bermuda and Community Partners L.P. -- allege in their suit that the Blue Water funds' offering materials clearly stated the funds would hold no more than 10 percent of their portfolio in any one company's stock. The materials further stated the funds would not purchase over 10 percent of any one company's outstanding securities, according to the suit. The plaintiffs say they would not have invested had the Blue Water funds revealed NetSol stock comprised over 78 percent of the funds' assets or that the funds' NetSol holdings constituted 35 percent of the software developer's outstanding shares. According to the suit, the large block of NetSol triggered the short-swing profit rule under Section 16(b) of the Securities Exchange Act. The short-swing rule requires investors, who purchase more than 10 percent of a company's stock, to disgorge profits from sale of that stock if it is sold within six months of the purchase date. The plaintiffs say the Blue Water funds now hold 2.1 million NetSol shares, which cannot be sold for a profit until November 2000. "The disastrous consequences of such a strategy have been fully realized by Blue Water L.P. and Blue Water Fund since, by virtue of the size of their holdings of NetSol, they are not able to sell the stock, and even if they were permitted to do so, the investment manger of the Fund would not be able to recoup what they had paid for the stock because the stock is so thinly traded and sales of any volume would drive down the market price of the stock. "Consequently, the defendants' fraudulent conduct has caused direct and immediate losses to the plaintiffs and the Fund," the complaint asserts. The suit makes 26 claims for relief, including, alleged fraud violations of the Securities Exchange Act, the Investment Advisers Act, and for breach of fiduciary duty, breach of contract , and unjust enrichment. The complaint asks the court to appoint a receiver for the funds and to award the plaintiffs $80 million in compensatory damages and $20 million in punitive damages. (Derivatives Litigation Reporter, July 17, 2000) BMC SOFTWARE: Announces Dismissal of Securities Lawsuit in Texas ---------------------------------------------------------------- BMC Software, Inc. (Nasdaq:BMCS), announced that on July 27, 2000 the United States District Court for the Southern District of Texas entered a Final Judgement dismissing a class action securities case styled, In re BMC Software, Inc. Securities Litigation., Civil Action No. H-99-0715. The case named the Company and certain of its current and former officers as defendants. This Final Judgement terminates the action and BMC has been informed by plaintiffs' counsel that the judgement will not be appealed. This case was filed on March 9, 1999. The case alleged improprieties with BMC's accounting treatment in connection with BMC's acquisition of BGS, Inc. The complaint alleged a class of BMC stock purchasers between April 16, 1998 through February 25, 1999. A United States Magistrate Judge had previously recommended that the complaint be dismissed. CHICAGO HEIGHTS: 13-Year-Old Voting Rights Case Sent Back to Judge ------------------------------------------------------------------ While acknowledging a judge's understandable desire" to resolve a long-running voting rights case, a federal appeals court has rejected the system the judge established for electing members of the Chicago Heights City Council. A panel of the 7th U.S. Circuit Court of Appeals last Thursday July 27 held that the judge should have given more weight to Chicago Heights' wishes when crafting a way for choosing the city's aldermen. The panel did affirm the judge's finding that a system approved in a referendum -- the election of six aldermen from single-member districts -- would discriminate against minority voters. The panel said the system the judge ordered the city to establish -- the at-large election of alderman through cumulative voting -- would be permitted by Illinois law under certain circumstances. But the judge failed to either submit his plan to Chicago Heights voters for their approval or explain why the plan was needed in order to comply with federal law, the panel said. The panel said the judge failed to respect Chicago Heights' desire to elect its City Council from single-member districts. In the absence of a finding that cumulative voting is the only legally viable remedy, the city should have an opportunity to consider the merits and deficiencies of cumulative voting before that system is imposed upon it," Judge Diane P. Wood wrote for the panel. The panel sent the case back to U.S. District Judge David H. Coar to work out another system of electing Chicago Heights aldermen. The panel issued its opinion in a legal battle that began in 1987 when four men -- Ron Harper, Kevin Perkins, William Elliot and Robert McCoy -- filed a class-action lawsuit against the city. The suit alleged that the at-large method then used to elect the City Council diluted the voting strength of blacks in violation of Section 2 of the Voting Rights Act of 1965, 42 U.S.C. sec1971. In 1988, the four men filed an almost identical suit against the Chicago Heights Park District that later was consolidated with the action against the city. The suits claimed that the non-partisan, at-large, district-wide elections for members of the City Council and the park district unlawfully reduced the opportunities for blacks to elect representatives of their choice. The parties ultimately negotiated a new election plan that called for the mayor and park board president to be elected at large and for the mayor to appoint the city clerk and treasurer. The new plan also called for one alderman and one park board commissioner to be elected from each of six single-member districts. Whites would be the majority in three of the districts, blacks in two and blacks and Hispanics of voting age in one. The system was based on the strong mayor" form of government authorized by the Illinois Municipal Code. But some of the system's provisions -- including the number of aldermen and the appointment rather than the election of certain officials -- departed from the code's requirements. The late U.S. District Judge Hubert L. Will approved the plan in a consent degree that was opposed by Perkins and McCoy. The 7th Circuit sided with Perkins and McCoy and vacated the decree in February 1995. The appeals court held that Will should not have approved a consent decree that overrode the Illinois Municipal Code without finding that the decree's provisions were required to remedy a violation of federal law. Without such a finding, a municipality was allowed to modify a statutorily prescribed form of government only through a referendum, according to the court. Perkins v. City of Chicago Heights, 47 F.3d 212 (1995). After the case was sent back to him, Will ordered that the consent decree be submitted to voters in a referendum. Voters approved the new form of city government in a November 1995 referendum, while the park district earlier had passed a resolution adopting the new method of electing its commissioners. Will died a short time later and the cases were reassigned to Coar. Coar reiterated that the at-large election method previously used in Chicago Heights violated Section 2, a finding that neither the city nor the park district challenged on appeal. Coar also found that the single-member district system approved in the referendum would not remedy the Section 2 violations created by the at-large system. But Coar rejected a plan proposed by Perkins and McCoy in which aldermen would be elected from seven single-member districts and the mayor, city clerk and treasurer would be elected at large. Instead, Coar ordered the city to establish an at-large election system in which cumulative voting would be used to elect seven aldermen -- a structure that none of the parties in the case had proposed. The 7th Circuit panel affirmed Coar's decision to reject the system approved in the referendum. But the panel reversed the judge's determination that the referendum plan would not remedy the Section 2 violations when it came to the park district. The panel also reversed Coar's order that Chicago Heights establish the cumulative voting system. The panel noted that while Coar found that the single-member district plan adopted in the referendum was inadequate, he did not find that any use of single-member districts violates federal law." And Chicago Heights has demonstrated a clear preference for single-member districts," the panel said. It proposed a remedial plan that relies on single-member districts and, in doing so, made a policy judgment about which electoral schemes are best suited for the locality," the panel said. We should defer to the city's plan to the extent possible as long as it does not violate federal law." Joining in the opinion written by Wood were Judges Michael S. Kanne and Terence T. Evans. Ron Harper, et al. v. City of Chicago Heights, et al., Nos. 98-2785, 98-2811, 98-2899, 98-3004, 98-3051, 98-3075, 99-2007, 99-2008, 00-1503 and 00-1515. (Chicago Daily Law Bulletin, July 28, 2000) CITIBANK: Delays Deadline for Credit Card Payments As Part of Settlement ------------------------------------------------------------------------ As part of a class-action settlement, Citibank has agreed to delay its deadline for receiving credit card payments from 10 a.m. on the day a bill is due to 1 p.m. These crazy, early morning deadlines have been a money maker for credit card issuers who were eager to charge more interest and slap on late fees. A 10 a.m. deadline? As if someone at Citibank could open all the mail by 10 a.m. in the first place. And what customer would even imagine that the check had to arrive before 10 a.m.? As part of its settlement, Citibank also agreed to offer additional disclosure. For the next two years, Citibank will print the 1 p.m. deadline on the front and back of its payment coupons. Even so, Citibank isn't printing the deadline everywhere. Maria Mendler, a spokeswoman for Citibank, said the 1 p.m. deadline will be made known to consumers when they're most likely to pay attention to it -- when they are paying their bills. "It's right in front of them as they're making a payment," she said. Citibank customers are being notified of the settlement agreement and the new 1 p.m. deadline in their July statements. The settlement also covers the AT&T Universal Card, now owned by Citibank. Citibank, the nation's largest credit card issuer with 42 million accounts, admitted no wrongdoing as part of its class-action settlement. Citibank said it will refrain from charging consumers late fees for payments received before midnight on the payment due date. Mendler said typically Citibank gave its consumers a one-day grace period before a late fee was charged. In the past, though, the extra interest began building if the payment wasn't received by the 10 a.m. deadline. Citibank will create a settlement fund of $ 18 million to pay certain cardholders. Cardholders can obtain a claim form by calling toll-free 877-469-7966. First USA has since changed its deadline from 8 a.m. to 10 a.m. (Detroit Free Press, July 31, 2000) CROSSROADS SYSTEMS: Kirby McInerney Files Securities Suit in Texas ------------------------------------------------------------------ A class action lawsuit has been commenced in the United States District Court for the Western District of Texas on behalf of all purchasers of Crossroads Systems, Inc. (NASDAQ: CRDS) common stock between July 13, 2000 and July 26, 2000 (the "Class Period"). The complaint alleges that Crossroads and its CEO issued materially false and misleading statements - in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 - regarding Crossroads' operations and financial results for its fiscal third quarter (ending July 31, 2000). Specifically, the complaint alleges that Crossroads and its CEO knew by July 13, 2000 - but did not disclose to investors until July 27, 2000 - that certain of its products were experiencing interoperability problems with network software. These problems were so severe that the company, by mid-July, had stopped shipping the products and has not yet resumed shipment of corrected devices. On July 27, 2000, the company disclosed that its revenues would decline from the previous quarter's revenues by a shocking 66% due to the product shipment halt as well as a cancellation of an order at the end of the quarter. When the truth about the company's operations and financial results was finally revealed to investors on July 27, 2000, investors saw their shares lose more than 50% of their value in one day, from $13 7/16 to $6 3/8 per share. Thus, as result of Crossroads' misrepresentations and omissions, the complaint alleges, the price of Crossroads' stock was artificially inflated during the class period, and investors who bought these securities were damaged thereby. Contact: Kirby McInerney & Squire, LLP Ira Press, Esq. Gretchen Becht, Paralegal 830 Third Avenue, 10th Floor New York, New York 10022 Telephone: (212) 317-2300 or Toll Free (888) 529-4787 E-Mail: gbecht@kmslaw.com DAIMLERCHRYSLER: Accuses of Frivolity; Law Firm Counterclaim to Proceed ----------------------------------------------------------------------- U.S. District Judge William S. Yohn of the Eastern District of Pennsylvania has denied the motion of DaimlerChrysler Corp. associate general counsel Lewis H. Goldfarb to dismiss counterclaims for defamation and interference with prospective contractual relationships filed by the Philadelphia law firm Greitzer & Locks. DaimlerChrysler Corp. v. Askinazi et al., No. 99-CV-5581 (E.D. Pa., June 26, 2000); see Automotive LR, Feb. 15, 2000, P. 5; see also DaimlerChrysler Corp. v. Askinazi, P. 4.). Chrysler filed the original action charging that Greitzer & Locks violated state law by filing "frivolous" class actions on allegedly unsafe car seats. In addition to G&L, Chrysler sued attorney William Askinazi of Maryland and Brian Lipscomb, the named plaintiff in a 1999 class action against the automaker. G&L fired back with a counterclaim, maintaining that the Chrysler and Goldfarb's statements demonstrated their intention of preventing prospective litigants from signing on with the firm. G&L noted a Nov. 11, 1999, article in The Wall Street Journal , in which Goldfarb was quoted on his hopes that the Chrysler suit would "discourage prospective litigants from signing on" to the pending class actions. The firm also contends that Chrysler and Goldfarb's published statements were "defamatory in character" in that they disparaged the manner in which the firm conducts its practice of law. These statements referred to "unwarranted and baseless cases," "legalized blackmail" and class actions as a "rigged lottery." The Motion to Dismiss Goldfarb said G&L's counterclaims against him should be dismissed for lack of personal jurisdiction and improper venue. Judge Yohn ruled that Goldfarb's contacts with Pennsylvania were sufficient to give the court constitutionally proper, specific personal jurisdiction over him, and that a substantial part of the events giving rise to G&L's claims occurred in the district. The judge noted that the "corporate shield doctrine" protects officers and directors by limiting the extent to which their corporate actions may be used to exercise jurisdiction over them individually. However, courts in the Eastern District of Pennsylvania have held that the protections of the doctrine are not absolute, Judge Yohn observed. "Goldfarb should have been aware that his actions would be felt in Pennsylvania, and there is evidence suggesting that this was his intent," the opinion states. The nature and quality of Goldfarb's forum contacts and personal involvement in the allegedly tortious conduct, the judge held, weighed in favor of considering his corporate contacts with Pennsylvania. "Goldfarb should have known that his statements would both be reported in Pennsylvania and damage Greitzer & Locks' reputation there," Judge Yohn wrote. "There is evidence to suggest that Goldfarb directed his remarks to Pennsylvania. Therefore, the court concludes that it was reasonably foreseeable that Goldfarb would be haled into court in Pennsylvania a s a result of his conduct. Thus, Goldfarb had sufficient minimum contacts with Pennsylvania to allow the court to exercise specific personal jurisdiction." Requiring Goldfarb to defend himself in the district would not offend traditional notions of fair play and substantial justice, Judge Yohn ruled, and also held that "Venue is proper in a district in which the allegedly defamatory statement was published, particularly if injury was suffered in the same district." DaimlerChrysler is represented by Charles A. Newman, Kathy A. Wisniewski, Jerome H. Block and R. Jeffrey Harris of Bryan Cave in St. Louis, and Abraham C. Reich and Theodore H. Jobes of Fox, Rothschild, O'Brien & Frankel in Philadelphia. G&L is represented by John H. Lewis Jr. and David D. Langfitt of Montgomery, McCracken, Walker & Rhoads in Philadelphia. Askinazi is represented by Kristine M. Maciolek and H. Robert Fiebach of Cozen & O'Connor in Philadelphia. Lipscomb is represented by Peter F. Vaira of Vaira, Backstrom, Riley & Smith in Philadelphia. (Automotive Litigation Reporter, July 18, 2000) DRKOOP.COM: Web Co. MillenniumHealth Communications Calls off Merger -------------------------------------------------------------------- A Virginia-based Internet company called off its merger talks with ailing online health information provider drkoop.com. MillenniumHealth Communications Inc., of Reston, Va., released a statement early Monday that said negotiations between the two companies have ended. ''We regret to announce that after several serious discussions with drkoop.com's senior management, our companies did not agree on our proposal to merge,'' the statement said. The statement offered no further details and messages left Monday with both MillenniumHealth and Austin-based drkoop.com were not immediately returned. MillenniumHealth, which sells medical equipment and provides online news, announced two weeks ago that it wanted to merge drkoop.com. Drkoop officials said they would consider the offer, details of which were not disclosed. Undertherapy.com, a Beverly Hills Internet company that offers medical information for health care service providers, also offered publicly to buy drkoop.com, a proposal Koop officials reluctantly said they would consider. Drkoop.com, which provides online health information, has been in poor financial health for some time. The company has been seeking new financing since April, when it announced it only had enough cash to survive until August. The announcement came after the company disclosed in March that its auditors had cast doubt on its ability to remain in business. And several shareholders are seeking class-action status in a lawsuit claiming the company made false promises when it went public last July. Co-founded in 1997 by former Surgeon General C. Everett Koop, the stock sold as high as $45 shortly after the initial public offering. It's lingered in the $1 range for several months. In early trading Monday on the Nasdaq Stock Market, drkoop.com shares fell 16 percent, or 21.9 cents, to $1.156. (AP Online, July 31, 2000) FHP INTERNATIONAL: Shareholders Drop Effort to Revive Securities Suit --------------------------------------------------------------------- Disgruntled shareholders of FHP International Corp. first told a federal appeals court in San Francisco that the company's officers and directors sidestepped the arguments in the plaintiffs petition to revive their securities fraud suit; then, after briefing was complete, the plaintiffs dropped the appeal. Brady et al. v. Anderson et al., No. 98-56217, voluntary dismissal (9th Cir., June 6, 2000); see Corporate Officers & Directors LR, May 1, 2000, P. 12. The defendant officers and directors had asked the appellate panel to find that a federal judge was correct in dismissing charges that they undervalued a spin-off, so they could personally reap $35 million in profits from a subsequent sale of the HMO. However, the plaintiffs responded that that the opposition to their petition mischaracterized every argument they made and did a revisionist history treatment on the case. The central question was whether the investors met the heightened pleading standards under the Private Securities Litigation Reform Act of 1995 by alleging facts giving rise to a strong inference of scienter. In 1995, the defendants restructured FHP, and its physicians' practice management operation became a wholly owned subsidiary known as Talbert. They later sold FHP to HMO giant PacifiCare but did not include Talbert in the sale. Under the terms of the joint merger proxy statement, FHP shareholders received cash and PacifiCare stock worth $35 per share plus the right (in a post-merger offering) to acquire shares in Talbert for $21.50 each. According to the investors, the FHP defendants portrayed Talbert as a loss-riddled company worth only about $60 million and dissuaded shareholders from exercising their rights to purchase its stock. Due to FHP's warnings about the value of Talbert, many shareholders let their rights expire or sold them at a depressed price, the investors assert, while the defendants snapped up the unsubscribed shares for themselves. Three months after the Talbert offering, the FHP defendants announced they were selling Talbert to MedPartners Inc. for approximately $200 million. The plaintiffs assert the FHP defendants, along with investment banking firm Merrill Lynch Pierce, Fenner & Smith, knew Talbert was worth more than they had portrayed and intentionally misled investors. The FHP defendants counter that even if the allegations are true, the shareholders benefited from the sale to PacifiCare. If the joint proxy describing the proposed acquisition understated Talbert's value and overstated FHP's, argue the defendants, then the price PacifiCare paid to acquire FHP was more advantageous to the shareholders. PacifiCare has also been named as a defendant in the suit. The defendants also contended that the complaint failed to allege any facts showing how any particular officer or director knew Talbert was undervalued. The allegations are conclusionary , say the FHP defendants, and the district court was correct in dismissing the action with prejudice. In response, plaintiffs charged that in three long, overlapping briefs, the defendants never confronted their arguments and instead presented a warped, out-of-sequence version of the history of the case -- and the caselaw on this issue -- that supported their position. For instance, they said: -- Defendants claimed the U.S. Supreme Court has ruled that the requited mental state under Section 14 of the Securities Exchange Act of 1933 is "actual knowledge" when in fact, the high court has explicitly reserved that issue; -- The disclosure that defendants claim made the transaction's value clear was not made until after the original complaint was filed; and -- The proxy statement that is a the core of the fraud complaint occurred before the complaint was filed, not after the amended complaint. However, on June 6, the plaintiffs voluntarily dismissed the appeal with the agreement of each of the defendants. The U.S. Court of Appeals for the Ninth Circuit panel approved the dismissal the next day. The plaintiff-appellants are represented by Leonard B. Simon, Blake M. Harper, Eric A. Isaacson, Laura M. Andracchio and Joseph D. Daley of Milberg Weiss Bershad Hynes & Lerach in San Diego, and by Clifford W. Roberts Jr. of Roberts & Associates in Tustin, Calif. The FHP defendants-appellees are represented by John W. Spiegel, Kristin Linsley Myles and Robert L. Dell Angelo of Munger, Tolles & Olson in Los Angeles. Merrill Lynch is represented by Phillip L. Bosl and William E. Thomson of Gibson, Dunn & Crutcher in Los Angeles. (Corporate Officers and Directors Liability Litigation Reporter, July 17, 2000) IBM, NATIONAL SEMICONDUCTOR: Lawsuits Complain of Lab Environments ------------------------------------------------------------------ Over the past decade, periodic reports of health problems in semiconductor manufacturing plants have tarred the high-tech industry's image. There are two ongoing class-action lawsuits against IBM and National Semiconductor alleging the lab environments were responsible for birth defects and cancer among workers. Most semiconductor companies say they have eliminated from use chemicals that have caused health problems in the past. But Dr. Joseph LaDou, an occupational health specialist with the University of California at San Francisco, has called for a comprehensive study of the effects of semiconductor manufacturing environment on worker health for the past two years. The industry has refused so far. "In California, the semiconductor industry has two times [higher] illness incidence rate than the national average," LaDou said. "The problem is in semiconductor manufacturing facilities, they recycle the air and filter out the dust and other particles, not the chemical fumes and vapor ... those chemicals react with one another to create new compounds. We have no way of knowing what the health impacts are." Strenuous efforts are taken to protect workers in the Cronos clean room, said Steven Brooks, operations manager for Cronos. Workers typically go through 80 to 100 hours of safety and operations training, take tests to make sure they know the safety requirements and must recertify their safety status annually, he said. That instruction includes proper handling of chemicals to prevent violent reactions, safe operation of the tools in the clean room, drilling with evacuations, and knowing how to rinse off chemicals if they get splashed. Exposure to the mixture of fumes that LaDou warns against is a moot point, he said, because the air in the Cronos clean room is completely cycled through 400 times each hour, diluting the fumes that escape. (The News and Observer (Raleigh, NC), July 31, 2000) MANUGISTICS GROUP: Settlement Reached for Securities Suit Remanded to MD ------------------------------------------------------------------------ Manugistics Group Inc. reached an agreement for the settlement of the class action federal securities litigation in which the Company, the Company's Chairman of the Board of Directors and former Chief Financial Officer were defendants. The United States District Court for the District of Maryland had issued an order dismissing the consolidated class action complaint against the Defendants. The plaintiffs then filed an appeal of the ruling. During the pendency of the appeal, the parties reached a settlement in principle to resolve the matter. By Order dated June 1, 2000, the Fourth Circuit remanded the action to the District Court for settlement proceedings. The parties subsequently entered into a definitive settlement agreement subject to the approval of the Distrcit Court. A hearing date for the District Court's consideration of settlement approval has not yet been set. The amounts to be paid by Defendants pursuant to the settlement are being funded by Manugistics' insurer. MCGRATH RENTCORP: Defends Charges on Failure To Warn Indoor Air Quality ----------------------------------------------------------------------- McGrath RentCorp has been named along with a number of other companies as a defendant in a lawsuit alleging a failure to warn about certain chemicals associated with building materials used in portable classrooms in California. The lawsuit was filed by As You Sow, a corporation that has served as a plaintiff in numerous lawsuits alleging similar failures to warn. The Company and its subsidiary Enviroplex, Inc. are two of nineteen named defendants, all of whom are involved in the portable classroom industry in the State of California. While the plaintiff alleges that materials used to construct portable classrooms require certain warnings, there is no allegation that any individual has suffered any injury or harm. The plaintiff does not allege that any particular classroom leased, sold or manufactured by the Company or Enviroplex has exposed anyone to any such chemicals; and the Company believes that in fact none of the portable classrooms it leases or sells and none of the portable classrooms manufactured by Enviroplex pose any health risk. The Company believes the lawsuit is without merit and it intends to defend against the suit vigorously. The lawsuit was filed in the Superior Court of the State of California for the County of San Francisco on July 7, 2000. The complaint seeks a court injunction ordering the defendants to post warning signs in portable classrooms, recovery of a fine of $2,500 for each failure to post a warning sign where required, and recovery of monies the defendants may have made by selling or leasing classrooms without appropriate warnings. Plaintiff also asks for payment of attorneys' fees. NBTY, INC: Cauley & Geller Seeks Damages in NY on Behalf of Shareholders ------------------------------------------------------------------------ The Law Firm of Cauley & Geller, LLP has filed a class action in the United States District Court for the Eastern District of New York on behalf of all individuals and institutional investors that purchased the securities of NBTY, Inc. (Nasdaq: NBTY) between January 27, 2000 and June 15, 2000, inclusive. The complaint charges that the Company and certain of its officers and directors violated the federal securities laws by providing materially false and misleading information about the Company's financial condition and future growth potential. Specifically, the complaint alleges that the defendants failed to disclose several adverse factors which signaled a dramatic slowing of its growth and, as a result, a decline in its same store sales. According to the complaint, the defendants failed to disclose (1) that sales at the Company's Vitamin World stores were declining as demand for nutritional supplements was weakening; (2) that the Company's financial results were being negatively impacted by fluctuations in the value of the British Pound -- as a result of the Company's Holland & Barrett stores which operate primarily in the U.K.; and (3) that the Company did not derive any meaningful benefit from its "vertical integration" efforts -- acquisitions of nutritional supplement companies in different segments of the supplemental business. As a result of these false and misleading statements the Company's stock traded at artificially inflated prices during the class period. Prior to the disclosure of the above mentioned adverse facts, certain insiders took advantage of the inflated stock price by selling millions of dollars worth of their stock to the investing public, reaping enormous insider profits. When the truth about the Company was revealed, the price of the stock dropped significantly. Contact: Sue Null, or Jackie Addison, or Sharon Jackson, all of Cauley & Geller, LLP, 888-551-9944, or e-mail, Cauleypa@aol.com NBTY, INC: Milberg Weiss Files Securities Lawsuit in New York ------------------------------------------------------------- A class action lawsuit was filed on July 28, 2000, on behalf of purchasers of the securities of NBTY, Inc. (NASDAQ:NBTY) between January 27, 2000, and June 15, 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/nbty/ The action, numbered 00-CIV-4402, is pending in the United States District Court for the Eastern District of New York, located at Two Uniondale Avenue, Uniondale, NY 11553, against defendants NBTY, Scott A. Rudolph (Chairman, President and Chief Executive Officer), William Shanahan (Vice President), Glenn Cohen (Director), Harvey Kamil (Executive Vice President, Chief Financial Officer and Secretary) and Arthur Rudolph (Director). The Honorable Arthur D. Spatt 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 failing to disclose certain known adverse factors to the market between January 27, 2000 and June 15, 2000. For example, as alleged in the complaint, by the start of the Class Period, NBTY was being adversely affected by several undisclosed adverse factors including: (i) that sales at the Company's Vitamin World stores were declining as demand for nutritional supplements was weakening. Contrary to defendants' Class Period representations, the Company was not immune to negative industry- wide trends; (ii) that the Company's financial results were being negatively impacted by fluctuations in the value of the British Pound as a result of the Company's Holland & Barrett stores which operate primarily in the United Kingdom; and (iii) that the Company did not derive any meaningful benefit from its "vertical integration" efforts - acquisitions of nutritional supplement companies in different segments of the supplement business. On June 15, 2000, the Company announced that while it was too early to assess total sales for its Vitamin World operations for the full third quarter of June 30, 2000, same-store sales for the two months of April and May were up 2% - as compared to 11% for the same period in the prior year. The Company also noted that "the weakness in the pound sterling is currently expected to have a negative impact upon (its) financial statement arising out of the operation of its Holland & Barrett stores in the United Kingdom." In response to these announcement, the price of NBTY common stock declined, precipitously falling 36% from $11.06125 per share to $7.06125 per share. Contact: Milberg Weiss Bershad Hynes & Lerach LLP, New York Steven G. Schulman or Samuel H. Rudman Phone number: (800) 320-5081 Email: nbtycase@milbergNY.com Website: http://www.milberg.com NSW GOVT: Aussi Families Sue for Nervous Shock from Thredbo Disaster -------------------------------------------------------------------- News from Sydney says that compensation claims launched in the wake of the 1997 Thredbo disaster had the potential to change Australia's legal culture, a lawyer for families of the victims said on July 31. Canberra-based lawyer Bernard Collaery said the shocking nature of the tragedy could turn around Australia's traditional reluctance to award damages for emotional injury. "If ever there was a case that would bring about reform in this area, this is it," Mr Collaery said. Legal sources confirmed Stuart Diver, the sole survivor of the deadly July landslide, was suing the New South Wales Government for its role in the tragedy. At least 23 parties, mainly families of the 18 people who died in the landslide, were already participating in a class action led by Mr Collaery. It is understood separate claims had been filed with other lawyers. The original class action, presently before the New South Wales Supreme Court, centres around the relatives' nervous shock resulting from the tragedy. Mr Collaery said the action against the NSW Government, representing the National Parks and Wildlife Service and Roads and Traffic Authority, and Lend Lease and Kosciuszko Thredbo Pty Ltd, could change Australia's legal culture. "Nervous shock laws in this country are not generous," Mr Collaery said. "There is a reluctance to award full compensation for purely mental injuries. "But we're hoping the shocking background to this will assist the courts to give greater recognition to the long-term disabling impact of psychological injuries." Mr Collaery said last month's coronial report confirmed what the families had always known - that the tragedy was preventable. He said the case centred on his argument that the cause of the disaster was a burst pipe under the road. The case is back in court for directions. The deadline for joining the legal action ended this afternoon. (AAP Newsfeed, July 31, 2000) OMEGA HEALTHCARE: Wechsler Harwood Files Securities Lawsuit in New York ----------------------------------------------------------------------- A class action against Omega Healthcare Investors, Inc. (NYSE: OHI) and certain of its officers and directors has been commenced in the United States District Court For The Southern District Of New York by Wechsler Harwood Halebian & Feffer LLP www.whhf.com. The suit is on behalf of shareholders who purchased the common stock of Omega between April 13, 1999 and May 11, 2000 (the "Class Period"). The complaint alleges that Omega and certain of its directors and executive officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint alleges that the defendants issued materially false and misleading financial statements contained in filings with the Securities and Exchange Commission (the "SEC") and press releases, that, inter alia, overstated the Company's assets, revenues, income and earnings per share during the Class Period and further misrepresented the likelihood of continuing the payment of its existing dividend. On May 11, 2000, the Company finally announced that it had negotiated a cash infusion to stave off bankruptcy and would nonetheless cut its dividend. On this news, Omega's stock fell to between $4.00 and $5.00 per share. The Company's common stock had traded as high as $26.00 per share on the NYSE during the Class Period. However, the individual defendants and certain insiders fared better. During the Class Period, and shortly before, the individual defendants sold over thousands of shares of the Company's common stock at a price almost four times higher that Omega's stock was worth at the end of the Class Period. Contact: Wechsler Harwood Halebian & Feffer LLP, New York Telephone: 877-935-7400 (toll free) Ramon Pinon, IV, Shareholder Relations Department: clowther@whhf.com PERVASIVE SOFTWARE: Announces Dismissal of Shareholder Lawsuit in Texas ----------------------------------------------------------------------- Pervasive Software Inc. (Nasdaq:PVSW) on July 31 announced that the shareholder lawsuit filed against the Company last November was dismissed on July 20 by the United States District Court, Western District of Texas, Austin Division. The lawsuit was a class action that had been filed under federal securities law following a decline in the Company's stock price. Based in Austin, Texas, Pervasive has offices in Canada, Europe, Japan, and Asia, as well as 70 distributors covering 80 countries. PROFIT RECOVERY: Chitwood & Harley to Expand Securities Suit in Georgia ----------------------------------------------------------------------- Chitwood & Harley plans to expand the class period in the class action lawsuit that is pending in the United States District Court for the Northern District of Georgia against Profit Recovery Group International, Inc. (NASDAQ: "PRGX") and certain officers and directors. The expanded class period will include those who purchased shares of PRGX between February 16, 2000 and July 26, 2000 (the "Class Period"). The complaint charges PRGX and certain of its officers and directors with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint alleges that defendants issued a series of materially false and misleading statements concerning the Company's publicly-reported revenues and earnings that artificially inflated PRGX's stock price throughout the Class Period. A recent press release by the Company revealed that PRGX had continued the course of conduct challenged in the complaint until July 26, 2000. Contact: Chitwood & Harley Martin D. Chitwood or David Bain 888/873-3999 or 404/873-3900 dab@classlaw.com SONUS PHARMACEUTICALS: Reaches Agreement to Settle Securities Lawsuit ---------------------------------------------------------------------Sonus Pharmaceuticals, Inc. (Nasdaq: SNUS) announced on July 31 that the Company entered into a Memorandum of Understanding with plaintiffs to settle all claims in the securities class action lawsuit pending against SONUS in federal court in Seattle. The settlement, which will be funded by the Company's insurance carrier, is subject to court approval after notice and an opportunity to object is provided to the shareholder class. SONUS Pharmaceuticals, Inc., located in Bothell, Washington, is a developer of proprietary ultrasound contrast agents and drug delivery systems for the diagnosis and treatment of heart disease, cancer and other debilitating conditions. The Company is also engaged in the research and development of oxygen delivery products. STAGE STORES: Former Employees Sue in TX Alleging RICO Act Violation -------------------------------------------------------------------- In March 2000, eleven former employees of SRI d/b/a Palais Royal, filed two separate suits in the United States District Court for the Southern District of Texas against the Company, SRI and Mary Elizabeth Pena, arising out of alleged conduct occurring over an unspecified time while the plaintiffs were working at one or more Palais Royal stores in the Houston, Texas area. The plaintiffs allege that on separate occasions they were falsely accused of stealing merchandise and other company property and giving discounts for purchases against company policy. The suits accuse the defendants of defamation, false imprisonment, intentional infliction of mental distress, assault and violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act. The claims seek unspecified damages for mental anguish, lost earnings, exemplary damages, treble damages, interest, attorneys' fees and costs. The Company denies the allegations and intends to vigorously defend against the claims. STAGE STORES: Stockholder Appeals against Dismissal of Lawsuit in Texas ----------------------------------------------------------------------- On March 30, 1999, a class action lawsuit was filed against the Company and certain of its officers, directors and stockholders in the United States District Court for the Southern District of Texas by John C. Weld, Jr., a stockholder who purchased 125 shares of the Company's common stock on August 3, 1998, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder (the "Weld Suit"). The Company believed that the allegations of the Weld Suit are without merit, and on July 23, 1999, the Company filed a motion to dismiss. United States District Judge Kenneth Hoyt entered an order on December 8, 1999 dismissing the Weld Suit. The order has been appealed by Mr. Weld. TOBACCO LITIGATION: Monroe County, N.Y. 4th to Securitize Settlement -------------------------------------------------------------------- Monroe County, N.Y. will become the fourth municipality in the nation to securitize its share of the national tobacco settlement, in a deal that will represent the first time the rating agencies have assigned the same rating to all maturities of an issue. The $160 million deal will be sold by the Monroe Tobacco Securitization Corp., a separate, bankruptcy-remote entity established expressly for this purpose. In the three earlier deals, Moody s Investors Service and Standard & Poor s assigned as many as three different ratings to different maturities, reflecting the fact that the risk that the settlement payment stream funded by the major tobacco companies could be disrupted by a greater than expected decline in cigarette consumption, adverse legal developments, or even bankruptcy grows with time. This time around, the terms of the deal include a clause requiring that, in the event of a default, any available cash will be divided among holders of all of the outstanding maturities, rather than exclusively being applied to repay holders of the earliest maturity. This provides all maturities with equal access to any available assets, allowing for a uniform credit rating across the entire scale of due dates. Moody�s said that it plans to rate the entire Monroe deal A1, and Standard & Poor s expects to rate it A. Fitch, which assigned a single rating to the previous issues, said that it expects to continue that practice and rate the new deal A-plus. In accordance with structured finance market practices, the ratings will not be formally assigned until the deal prices. While all of the tobacco securitizations rest on structured finance techniques and practices, all of the deals issued thus far -- and everything still on the drawing board -- have been sold on a tax-exempt basis, making their target market traditional municipal bond investors. Ned Flynn, a senior vice president at First Albany Corp., the deal s senior manager, said the deal, which is scheduled to price, owes a large debt to the pioneering work done by the three earlier issuers and their underwriter, Salomon Smith Barney Inc. However, he said he is hopeful that some of the structural innovations the Monroe deal will include will help expand the market for the bonds. Drawing Investors Eyes Underwriters of this second wave of tobacco securitizations being led by Monroe and expected to include deals from Erie County, N.Y., and the Alaska Housing Finance Corp. have said they are seeking ways to broaden the sector s appeal to those investors, in part by adjusting the deals structures to make them more like traditional public finance issues. In that vein, possibly the most dramatic departure in the Monroe issue compared to the earlier deals sold for New York City and Nassau County, N.Y., and Westchester County, N.Y., is the decision by the issuer to use traditional fixed amortization maturities in the early part of the loan. That approach, which covers the 2002 through 2015 serial maturities and the 2019 term bond -- about 13% of the deal s total par value, is the municipal market standard. On the later maturities, the Monroe deal will use a flexible amortization schedule, in which the issuer will publicize both the planned maturity -- which represents when it expects to repay the bonds if its expectations about settlement cash flows are satisfied -- and a longer, rated maturity, when the bonds will be repaid if settlement payments come in more slowly. A default will only occur if the issuer fails to redeem the bonds on the rated maturity date. However, while providing more certainty about repayment schedules could help the deal, especially among the retail investors who are more likely to buy the early maturities, rating agency analysts said that from their perspective, the most important structural development relates to the default clause requiring that any available cash be divided among holders of all of the outstanding maturities. Analysts said the Monroe deal s structure is common in the nonmunicipal securitization markets. However, the three previous tobacco securitizations used the alternative sequential subordination structure. Since all of the bonds will have an equal shot at any money available to repay investors after a default, there was less reason for higher ratings on the short-term maturities, as took place in the earlier deals. Still Familiar Paul Brennan, who manages a total of nine New York municipal bond funds with about $3 billion in assets for Nuveen Investments, said that despite the structural tweaks, from his perspective the Monroe deal looks much like the earlier issues, and that his decision on whether to buy the issue will depend mainly on the yields it carries. Brennan said he is comfortable with the expected debt service coverage ratios Monroe expects to post even though they are lower than those included in the documents for New York City s securitization. He noted that Monroe s projections of cigarette consumption -- and thus the payments it will receive under the settlement -- are smaller than New York s, so it will be easier for the deal to meet, or exceed its targets. First Albany s Flynn said it was important to note the factors at work behind both the coverage levels and the consumption estimates. He said the WEFA Group which provided the consumption projections for both the earlier deals and the Monroe deal -- has cut its estimate for cigarette consumption over the short term due to the larger than expected jump in per-pack prices. But over the long term, the group has actually raised its estimates, citing stronger than expected growth in personal income, which it believes is closely correlated with smoking rates. The more money people have, the more able they are to spend it on cigarettes, Flynn said. On the coverage side, Flynn pointed out that the lower ratios were largely due to the faster amortization of the bonds.Two concerns that do factor into Brennan s thinking are the relative lack of secondary market liquidity for tobacco securitizations thus far, and the risk that supply will soar as scores of other governments around the nation seek to roll out similar deals in the future. Since all tobacco securitizations are backed by the same settlement, analysts generally consider them to be the same credit, and so portfolio managers will be limited in how much they can buy from the sector, raising the risk that a flood of deals could quickly outstrip demand, and yields could soar. At that point, market participants and issuers would likely structure new deals on taxable basis to attract new investors, but the owners of existing tobacco bonds could still see their secondary market value plunge. Flynn said Monroe hopes to answer those concerns by stressing its efforts to broaden the base of buyers, improving both secondary market liquidity and debt capacity. Outside Issues One challenge the underwriters acknowledge they will face is overcoming the blizzard of negative publicity regarding the tobacco industry s long-term viability that was unleashed in the wake of the $145 billion punitive damage award granted in the so-called Engle class action case in Florida last month. That award, if upheld, could result in a slew of similar cases that would likely force the entire industry into bankruptcy. Company officials said they are confident that the judgment will be overturned. And the rating agencies and market participants generally agree that even if a tobacco company declared bankruptcy, other competitors would step forward to meet smokers demand and continue to make their settlement payments. The impact of a reduction in payments caused by a rejection of the Master Settlement Agreement by one of the participating manufacturers may be limited by the reduction in market share a manufacturer would likely experience as it approaches bankruptcy, Moody s wrote in its report. Standard & Poor�s affirmed its ratings on all of the outstanding tobacco settlement bonds in the wake of the Engle decision. Bern Fischer, an analyst in the structured finance group at Standard & Poor s, said that since the case was already well-known to the industry at the time of the original deals, the possibility of a mammoth judgment was already accounted for in their ratings. Another issue hanging over the sector is the fact that the Internal Revenue Service has said it is studying the deals. However, officials representing the issuers who have been in contact with the federal agency said they have been told the audits are for informational purposes, and market participants said they are confident that there is nothing inherently taxable about the use of tobacco settlement proceeds to back bonds. They said they believe issuers have complied with all of the limitations on the use of tax-exempt bond proceeds. Monroe County, which encompasses Rochester, decided to pursue the transaction last spring to help shore up its finances by reducing the need for other general obligation borrowing and to refund $83 million of outstanding GOs -- a recognized public purpose. (The Bond Buyer, July 31, 2000) TOBACCO LITIGATION: Smokers Reject Industry Move As Judge-Shopping ------------------------------------------------------------------ Attorneys for sick Florida smokers scorned a move by the tobacco industry putting the case in federal court as a desperate attempt to find a friendly judge after losing a record $145 billion verdict. In their first formal response to the industry's notice shifting the case to federal court, smokers' attorneys asked the judge to send it back to state court without any discussion. The move by tobacco "is a final desperate attempt by defendants to forum shop after seven years of litigation, a two-year trial, three jury verdicts and multiple state court appellate opinions and decisions" against the industry, smokers' attorney said in a court filing. They called the industry's tactic unorthodox and based on a "frivolous" and "tenuous" motion by a union to intervene in the case moments before the verdict was read July 14. By filing a notice of removal, the industry automatically moved the case to federal court. Smokers must file a motion to send the case back to the trial judge in state court. To get there, about 300,000 to 700,000 sick Florida smokers covered by the lawsuit must persuade U.S. District Judge Ursula Ungaro-Benages to discard the case. She has set her first hearing Aug. 8. The jury in the first smokers' class-action to go to trial decided the nation's five biggest cigarette makers made deadly, defective products, awarded $12.7 million in compensatory damages to three representative smokers and set a U.S. record for punitive damages. The defendants are Philip Morris Inc., R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., Lorillard Tobacco Co., Liggett Group Inc. and the industry's defunct Council for Tobacco Research and Tobacco Institute. (The Associated Press State & Local Wire, July 31, 2000) UNCOVER: Freelance Authors Regain Copyright Control Through Settlement ---------------------------------------------------------------------- The settlement, believed to be the first class action lawsuit of its kind in the nation, instructs commercial document delivery services to obtain permission from authors before their creative works can be sold electronically via the Internet. The case involved a group of individual authors who challenged UnCover, an online document delivery service that sold copyrighted magazine and journal articles over the Internet without the author's permission. UnCover pursued royalty contracts with many periodical publishers and paid copyright fees to publishers, but not to individual authors. The $7.25 million settlement, preliminarily approved by the federal court in Oakland, California, requires UnCover to expand its copyright permission and royalty payment system to include individual authors as well as publishers, and to obtain certain specified forms of permission before delivery of such articles. UnCover will now also offer a icensing agreement with any author who requests it, paying royalties semi-annually. The settlement fund will come from other settling parties. The settlement also uniquely initiates a search for thousands of authors, poets and other academic and creative writers who may have had their works sold by UnCover in the past. Any authors who retained their copyright in any article delivered by UnCover between October 22, 1994 and July 12, 2000 may be eligible to participate in the settlement. Anyone whose written work has been published in a magazine or periodical is strongly encouraged to visit the special Web site ( http://www.uncoversettlement.com) where a potential class member can get complete information and submit their claim for a share of the settlement via the Internet. The Web site will be launched on Monday, July 31, 2000. "Selling individual articles electronically without author permission has been an industry-wide practice. We believe the law does not allow the practice, and this settlement should go a long way to changing it," said the authors' attorney John Shuff of the national law firm of Robins, Kaplan, Miller & Ciresi L.L.P. ( http://www.rkmc.com), known for its broad experience in complex litigation. "We hope the industry will take notice and adopt the same permission procedures as UnCover." The representative plaintiffs, a group of freelance and academic writers, and poets, were Joan Ryan, Jim Tunney, Arlie Russell Hochschild, Lyn Hejinian and Ronald Silliman. "The intellectual property owned by authors is no different than music owned by songwriters or images owned by photographers," said copyright attorney Dan Reidy of the Law Offices of Daniel A. Reidy of Sausalito, California, co-counsel with Robins, Kaplan, Miller & Ciresi L.L.P., referring to recent legal challenges to the electronic downloading and distribution of music and photos on CDs or via the Internet. "Authors have not only regained control of their work, but perhaps more importantly, they have regained control of their value," said Reidy. UnCover's founder, Ward Shaw, said that UnCover has long worked with publishers and rights organizations such as the Copyright Clearance Center and the National Writers Union's Publication Rights Clearinghouse to pay copyright for delivery of the articles researchers and others need. "We are happy to work with individual authors directly as well," said Shaw. UnCover ( http://www.uncweb.carl.org) maintains a database of approximately eight million articles -- increasing by approximately 5,000 per day -- from more than 17,000 periodicals, and specializes in supplying copies of articles from often hard-to-find scientific, medical and technical journals and other publications. Contact: Daniel A. Reidy of the Law Offices of Daniel A. Reidy, 415-331-7500, Janette L. Ferguson of Robins, Kaplan, Miller & Ciresi L.L.P., 415-235-6649, cell 650-579-2709, or Michael Traynor, 415-693-2110, or Robert L. Eisenbach, 415-693-2094, both of Cooley Godward LLP. * PricewaterhouseCoopers Study Shows Fd Securities Actions Fall By 14% ---------------------------------------------------------------------- Federal securities fraud class action filings fell by 14 percent, to 205, reversing a three year trend of annual increases, according to the PricewaterhouseCoopers 1999 Securities Litigation Study. This drop occurred despite the 1998 enactment of the Securities Litigation Uniform Standards Act which made federal court the exclusive jurisdiction for most significant securities class action litigation. The legislation was intended to eliminate frivolous securities class actions brought in state courts. The PricewaterhouseCoopers study also shows that for the first time since the enactment of the 1995 Private Securities Litigation Reform Act the number of cases filed alleging violations of Generally Accepted Accounting Principles ("GAAP") exceeded the number of those that did not. Prior to the PSLRA, accounting cases comprised about 25 percent of all cases filed in 1995 while in 1999 the number of such cases amounted to 53 percent of federal securities class action lawsuits. "The tactic by class action plaintiffs and their counsel to allege GAAP violations has clearly become an established and pronounced trend," says Harvey Kelly, New York-based partner within PricewaterhouseCoopers' Securities Litigation practice. See the PricewaterhouseCoopers 1999 Securities Litigation Study on our website at www.10b5.com. Other significant findings include: Finding: In 1999, the high technology sector continued to experience the most securities litigation. The computer services, computer hardware/electronics and telecommunications industries accounted for a combined 37 percent of new cases filed. Finding: The banking and brokerage industries experienced a decline in securities litigation down to less than 10 percent in 1999 from nearly 25 percent in 1998. Finding: Of new securities litigation cases involving accounting issues, 55 percent alleged that companies employed improper revenue recognition techniques, down from 73 percent in 1998. Of the cases filed in 1999, 40 percent asserted asset overstatements. PricewaterhouseCoopers Securities Litigation website (www.10b5.com) also includes information about litigants, date and court of filing, class period, and industry and SIC Code of the company sued. With a worldwide network of 7000 professionals, PricewaterhouseCoopers' Financial Advisory Services ("FAS") practice provides creative solutions and ideas that increase value to clients during critical periods and when they are making important decisions that define their future. The FAS business is organized along five product lines. The Business Recovery Services, Dispute Analysis & Investigations, and Corporate Value Consulting product lines are the largest in the world. Our Dispute Analysis & Investigations product line was ranked number one in the US by readers of Euromoney's International Commercial Litigation. The Project Finance & Privatization product line rated second in Privatisation International's global league table by number of privatization financial advisory assignments and number one in Project Finance International's global ranking by number of project finance advisory mandates. The Mergers & Acquisitions product line was second in the world in number of deals completed, according to Securities Data Company. ********* 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. 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