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/raid1/www/Hosts/bankrupt/CAR_Public/000915.MBX C L A S S A C T I O N R E P O R T E R Friday, September 15, 2000, Vol. 2, No. 180 Headlines BLOCKBUSTER INC: Customers Charge of Excessive Late Fees CARNIVAL CORP: Settles with Passengers Angered By Diversion of Cruise CASINO MAGIC: Case on Fraud Moved from FL to NV, Dismissed and Amended CASINO MAGIC: Defends Lawsuit over Deaths and Injuries in Bus Accident CENDANT CORP: Appeal Challenges Distribution of Settlement CITY OF BERWYN: Workplace Computer Porn May Create Hostile Environment CROSSROADS SYSTEMS: Milberg Weiss Extends Period for TX Securities Suit HOLLYWOOD: SC A.G. Suggests States File Suit on Violent Films to Teens HOLOCAUST VICTIMS: Survivors May Get Only $500 in Swissbank Pact ICG HOLDINGS: May Settle with Zycom Shareholders in Texas Suit IXL ENTERPRISES: Schiffrin & Barroway Files Securities Suit in Georgia LASON INC: Securities Suit Late Last Year Amended and Consolidated MENTAL HOSPITALS: Lawsuits Charge of Lack of Community Placement NEBRASKA STATE: Settlement Reached in Lawsuit over Disability Benefits PACIFIC GATEWAY: Securities Complaint in CA May Soon Be Consolidated PLAINS ALL: Agrees to Settle Securities Lawsuits RITALIN LITIGATION: Suits in CA and NJ Charge Conspiracy to Expand Use WAGON WHEEL: Ohio Ct of Appeals Declines Cert for Lack of Numerality * 3rd Circuit Approves Megan's Law Guidelines * SEC Director Suggests More Frequent Hospital Filings ********* BLOCKBUSTER INC: Customers Charge of Excessive Late Fees -------------------------------------------------------- SANTA MONICA, CALIF.'S O'Neill, Lysaght & Sun L.L.P. has launched a class action against Blockbuster Inc. on behalf of customers complaining that the nation's largest video rental chain is charging excessive late fees that are designed to boost revenue. Members Brain C. Lysaght and Robert L. Meylan are lead attorneys, and are assisted by associate Mitch Kamins. McKinney, Texas-based Blockbuster could not immediately comment on its counsel. The dispute is over Blockbuster's policy of charging late fees based on the period of the rental rather than on a per diem basis. If a customer rents a video for five days and returns it one minute late, the late fee should be prorated, not levied for another five days, Mr. Meylan argues. The suit, Rocha v. Blockbuster Inc., BC235610, is awaiting class action certification in Los Angeles Superior Court. (The National Law Journal, september 11, 2000) CARNIVAL CORP: Settles with Passengers Angered By Diversion of Cruise --------------------------------------------------------------------- Carnival Corp. has agreed to settle a class-action lawsuit filed in February by passengers angered that the cruise line ruined their plans to celebrate Christmas on Grand Cayman Island. The deal, which was signed off last week by Miami-Dade Circuit Court Judge Philip Bloom, requires Carnival to provide some 3,000 passengers of the Imagination and Tropicale with a fully transferable travel voucher that reduces future fares by 35 percent. For example, if a cruise cost $ 2,000, the voucher would be worth $ 700. Passengers also will be receiving a $ 35 credit for on-board expenses. Michael Campbell of Campbell & Denes in Miami, who represented the passengers, said the key to the agreement is the fact that the vouchers are fully transferable. The transferability aspect enhances the value of the coupon such that a class member could sell or give the coupon to someone else, who then could redeem it, Campbell said. Though Carnival doesnt admit wrongdoing, the cruise line agreed to pay attorney fees and costs up to $ 100,000. Carnival feels that it has very strong legal defenses to the lawsuit and would have prevailed on the merits, said Janet Humphreys of Kozyak Tropin & Throckmorton in Miami, who represented the cruise line. But, Carnival was aware that some of its passengers were unhappy, and making our passengers happy and making them return passengers is of paramount concern, she said. The cruise ships Imagination, which left from the Port of Miami, and Tropicale, which sailed out of Tampa, were to leave their respective ports on Dec. 23, 1999. The itinerary had passengers sailing to Grand Cayman, Playa del Carmen and Cozumel before returning Dec. 28. But just before leaving, passengers were told that instead of going to Grand Cayman, they would be stopping first in Key West, where the ship would be on Christmas Day. The suit claimed Carnival had known for months before that it would have to change ports of call because the Cayman Island Department of Tourism had told the company the government would no longer let cruise ships call on Sundays and holidays, including Easter and Christmas. Carnival, in its eternal quest for profits, made no effort whatsoever to advise the passengers of the change in itinerary, the suit reads. The suit went on to claim that Carnivals failure to advise passengers prior to cruising of known itinerary changes of the vessel can be considered not less than unconscionable, unfair and deceptive trade practices. If the deal gets final approval at a hearing in November, the suit will be dismissed with prejudice and class members will be prevented from bringing new claims. (Palm Beach Daily Business Review, September 14, 2000) CASINO MAGIC: Case on Fraud Moved from FL to NV, Dismissed and Amended ---------------------------------------------------------------------- Pinnacle Entertainment reveals in its report to the SEC that a class action lawsuit was filed on April 26, 1994, in the United States District Court, Middle District of Florida (the "Poulos Lawsuit"), naming as defendants 41 manufacturers, distributors and casino operators of video poker and electronic slot machines, including Casino Magic, which was Pinnacle acquired October 15, 1998. The lawsuit alleges that the defendants have engaged in a course of fraudulent and misleading conduct intended to induce people to play such games based on false beliefs concerning the operation of the gaming machines and the extent to which there is an opportunity to win. The suit alleges violations of the Racketeer Influenced and Corrupt Organization Act, as well as claims of common law fraud, unjust enrichment and negligent misrepresentation, and seeks damages in excess of $6 billion. On May 10, 1994, a second class action lawsuit was filed in the United States District Court, Middle District of Florida (the "Ahern Lawsuit"), naming as defendants the same defendants who were named in the Poulos Lawsuit and adding as defendants the owners of certain casino operations in Puerto Rico and the Bahamas, who were not named as defendants in the Poulos Lawsuit. The claims in the Ahern Lawsuit are identical to the claims in the Poulos Lawsuit. Because of the similarity of parties and claims, the Poulos Lawsuit and Ahern Lawsuit were consolidated into one case file in the United States District Court, Middle District of Florida. On December 9, 1994 a motion by the defendants for change of venue was granted, transferring the case to the United States District Court for the District of Nevada, in Las Vegas. In an order dated April 17, 1996, the court granted motions to dismiss filed by Casino Magic and other defendants and dismissed the Complaint without prejudice. The plaintiffs then filed an amended Complaint on May 31, 1996 seeking damages against Casino Magic and other defendants in excess of $1 billion and punitive damages for violations of the Racketeer Influenced and Corrupt Organizations Act and for state common law claims for fraud, unjust enrichment and negligent misrepresentation. Casino Magic and other defendants have moved to dismiss the amended Complaint. The Company believes that the claims are without merit and does not expect that the lawsuit will have a materially adverse effect on the financial condition or results of operations of the Company. CASINO MAGIC: Defends Lawsuit over Deaths and Injuries in Bus Accident ---------------------------------------------------------------------- Bus Litigation On May 9, 1999, a bus owned and operated by Custom Bus Charters, Inc. was involved in an accident in New Orleans, Louisiana while en route to Casino Magic in Bay St. Louis, Mississippi. To date, multiple deaths and numerous injuries are attributed to this accident and the Company's subsidiaries, Casino Magic Corp. and/or Mardi Gras Casino Corp., together with several other defendants, have been named in thirty-eight (38) lawsuits, each seeking unspecified damages due to the deaths and injuries sustained in this accident. While the Company cannot predict the outcome of the litigation, the Company believes Casino Magic is not liable for any damages arising from this accident and the Company and its insurers intend to vigorously defend these actions. CENDANT CORP: Appeal Challenges Distribution of Settlement ---------------------------------------------------------- Cendant Corporation (NYSE: CD) on September 14 announced that, as anticipated, several appeals have been filed relating to the settlement of the Cendant shareholder class action lawsuit previously approved by the Honorable Judge William Walls, U.S. District Court in Newark, NJ on August 14, 2000. No appeals challenged the fairness of the amount that Cendant has agreed to pay in settlement of all claims. Rather, the appeals primarily focus on the right of certain shareholders to be excluded from the class and the allocation among class members of the amounts to be distributed in the $2.85 billion settlement between Cendant and the class members. Additionally, one of the appeals filed claims that the $335 million settlement between Ernst & Young and Cendant shareholders was too low. A final judgment relating to the $2.85 billion settlement will not occur until all rights of appeal have been exhausted. Accordingly, Cendant will not be required to fund the settlement for some time. Cendant Chairman, President and CEO, Henry R. Silverman stated: "This ends any uncertainty concerning the settlement amount to be paid by Cendant to the class." Cendant Corporation was formed following the merger between CUC International and HFS Incorporated in December 1997. On April 15, 1998, Cendant disclosed that there were accounting irregularities in the past financial statements of the former CUC which would require restated earnings for 1995-1997. Following that announcement, there were more than 70 class action lawsuits filed against numerous parties, including Cendant and the auditors for CUC in the affected years. In December 1999, the consolidated class action against Cendant was settled for $2.85 billion, and Ernst & Young, CUC's auditors, settled claims commenced by shareholders against it for $335 million. On June 14, 2000 three former officers of CUC pleaded guilty to falsifying the financial statements of the company, indicating that they did so at the direction of their corporate superiors, and the Securities and Exchange Commission filed complaints that state the fraud had been going on for more than a decade. CITY OF BERWYN: Workplace Computer Porn May Create Hostile Environment ---------------------------------------------------------------------- A city employee who complained that her supervisor's practice of viewing pornography on the Internet in full view of other employees created a sexually hostile work environment will be allowed to proceed with her claims under both Title VII and the 14th Amendment, U.S. District Judge George Lindberg has ruled. Coniglio v. City of Berwyn. (Employment Litigation Reporter, August 22, 2000) CROSSROADS SYSTEMS: Milberg Weiss Extends Period for TX Securities Suit ----------------------------------------------------------------------- Milberg Weiss (http://www.milberg.com/crossroads/)announced on September 13 that a class action has been commenced in the United States District Court for the Western District of Texas on behalf of purchasers of Crossroads Systems, Inc. (Nasdaq: CRDS) common stock during the period between January 25, 2000 and July 26, 2000 (the "Class Period"). The complaint charges Crossroads and certain of its officers and directors with violations of the federal securities laws by making misrepresentations about Crossroad's business and earnings growth and concealing the serious problems with its interoperable Fiber Channel storage routers. By issuing these allegedly false and misleading statements, defendants artificially inflated Crossroad's stock price allowing Crossroad's top insiders to sell 205,575 shares of their Crossroad's stock at as high as $52.93 per share, for $ 10.7 million, before the true facts about Crossroad's troubled operations, diminished profitability and stop order were revealed and Crossroad's stock collapsed to as low as $6-3/8 per share. Contact: James Baskin of Baskin, Bennett & Komkov, LLP, 512-322-9250; or William Lerach or Darren Robbins, both of Milberg Weiss, 800-449-4900, wsl@mwbhl.com HOLLYWOOD: SC A.G. Suggests States File Suit on Violent Films to Teens ---------------------------------------------------------------------- South Carolina Attorney General Charles Condon proposed on September 13 that the nation's attorneys general "hit Hollywood in the pocketbook" for marketing violent videos and movies to teen-agers the way it hit the cigarette industry. "Just as we did with Big Tobacco, we must impose a big price tag upon Hollywood's irresponsible behavior," Mr. Condon said, recalling the states' unprecedented $246 billion settlement with tobacco companies in a letter to Andrew Ketterer. Mr. Ketterer is president of the National Association of Attorneys General and Maine's attorney general. "Clearly, we have here a virtual replay of what the tobacco industry did to our children. Instead of Joe Camel, Hollywood uses Eminem, 'South Park,' Doom and Steven Segal to seduce children," Mr. Condon said. He sent copies to every attorney general, recounting key findings from Monday's Federal Trade Commission report. The report was a virtual indictment of the industry for intentionally enticing teens and preteens to buy violent products they are too young to see under voluntary industry ratings. "The FTC has delivered to us the smoking gun and we must use that weapon in court against Hollywood," Mr. Condon said in a news release explaining his action. A spokeswoman for the Motion Picture Association of America, Phuong Yokitis, would not comment on the letter or the prospect of a nationwide legal assault on the film and video industry. "We're not aware of it," Ms. Yokitis said. She declined a reporter's offer to provide a copy of the letter and Mr. Condon's written statement. Meanwhile, Walt Disney companies announced the first responses to the FTC report. ABC said it would no longer show commercials for R-rated films before 9 p.m. The Disney Co. said that theaters could no longer display coming-attraction trailers for R-rated films before Disney movies, nor will it allow its Touchstone, Hollywood Pictures or Miramax labels to include youngsters in focus groups for R-rated films. As previously reported, lawyers for families of three children killed in the 1997 Paducah, Ky., school slaying might expand their case to a national class-action lawsuit. "I think that we have some very big bullets for our guns. The FTC report is just tailor-made for what we've been saying," said Michael Breen. His co-counsel, John B. Thompson, likened the situation to "the embryonic days of tobacco litigation." Mr. Ketterer said he would discuss the proposal with Mr. Condon, but that he wasn't sure the issues of tobacco and film violence were comparable. "Attorneys general do have a history of caring about marketing practices to minors, whether it's alcohol or tobacco or pornography or movies," he said, adding, "It may well be worth discussing this with the industry." "I certainly don't support that type of irresponsible marketing, but using the analogy to tobacco is tough. There is no constitutional right to use or possess tobacco products. There is a constitutional right to free expression, artistic expression," Mr. Ketterer said. The attorneys general and the NAAG have drawn much praise and some criticism as they became a major social force by taking on tobacco as well as publishing sweepstakes, schemes to defraud the elderly, and swindlers who steal from people trying to manage their credit-card debt. Last Friday the group asked Congress to change federal law so states could police airline practices that have stranded travelers, caused record delays and cancellations, and created havoc at airports this summer. If NAAG takes up entertainment issues, it could bring a great deal of legal power to bear on the movie, video and music recording industries. "If we sue nationwide, we can change Hollywood for the better industry-wide," Mr. Condon said in his letter to fellow attorneys general. He outlined legal tactics involving unfair trade practices employed against tobacco and added that state laws against harming minors could be used in a case involving entertainment media. (The Washington Times, September 14, 2000) HOLOCAUST VICTIMS: Survivors May Get Only $500 in Swissbank Pact ---------------------------------------------------------------- Holocaust survivors seeking damages against Swiss banks that held their assets seized by the Nazis could receive as little as $ 500 apiece in damages under terms of a $ 1.25 billion settlement submitted to a Brooklyn federal judge. But Jewish leaders in New Jersey and New York say the class-action suit on behalf of Holocaust survivors wasn't about money but about gaining justice more than 50 years after the fall of Nazi Germany. "You can't put a price tag on suffering,"said Elan Steinberg, executive 1 director of the World Jewish Congress in New York."This is simply a recognition of that suffering. It is a measure of justice, nothing more." The proposed settlement would set aside $ 800 million to repay Holocaust survivors or their heirs whose assets were seized by the Nazis and held in Swiss bank accounts. There are believed to be about 26,000 accounts. An additional $ 450 million would go to Nazi slave labor camp survivors, but not their heirs, as well as refugees who either were denied entrance to Switzerland or were detained there and suffered harsh treatment. About 200,000 people were believed to have worked in slave labor camps, and about 20,000 were refugees who fled to Switzerland. But it is not known how many survivors there are in either group. Damages for some refugees could be as low as $ 500. Another $ 100 million would be divided among organizations that would aid elderly and poor Holocaust survivors in the former Soviet Union. More than a source of monetary compensation, proponents of the settlement say, it amounts to a symbolic victory because it holds the Swiss banks accountable for their collaboration with the Nazis. David Mallach, executive director of the United Jewish Federation Metro-West in Whippany, said there are still deep divisions within the Jewish community over whether to accept the settlement. "I don't think there is any consensus among Holocaust survivors at all,"Mallach said. "This is far too complicated an issue to have a simple solution. But on the whole, the basic thrust of the settlement is that the survivors are owed money, and the Swiss are obliged to compensate. This provides a level of closure." Other Jewish leaders were wary of the proposed settlement, saying it sets a bad precedent of accepting monetary compensation for incalculable horror. And critics say the settlement comes too late, because most Holocaust survivors have died. "My biggest fear is that when this is all over, what people will remember is not the 6 million deaths, but the billions of dollars in payments,"said Rabbi Dr. Bernhard Rosenberg, a member of the New Jersey Holocaust Commission."I'm not into receiving blood money. The enduring memory of the Holocaust should not be the big payoff that came in 1 the end." Rosenberg also believes that the settlement largely ignores the pain and suffering endured by the children of Holocaust survivors. Other than heirs who will be able to reclaim the bank accounts of their deceased parents, the children of Holocaust survivors get nothing. "I have suffered because my parents suffered,"Rosenberg said."My biggest problem with this settlement is that they've left out the second generation." The settlement was submitted Tuesday to U.S. District Judge Edward R. Korman in Brooklyn. Korman, who has scheduled a public hearing for Nov. 20 at the federal courthouse in Brooklyn. (The Record (Bergen County, NJ), September 14, 2000) ICG HOLDINGS: May Settle with Zycom Shareholders in Texas Suit -------------------------------------------------------------- On April 4, 1997, certain shareholders of Zycom filed a shareholder derivative suit and class action complaint for unspecified damages, purportedly on behalf of all of the minority shareholders of Zycom, in the District Court of Harris County, Texas (Case No. 97-17777) against ICG Holdings Inc., Zycom and certain of their subsidiaries. In this action, the plaintiffs alleged that the Company and certain of its subsidiaries breached certain fiduciary duties owed to the plaintiffs. The Company denied all such allegations. In April 2000, the Company reached a tentative arrangement to settle all claims asserted in this litigation. The trial court is currently reviewing the proposed settlement agreement. The Company anticipates that the settlement will not be finalized until the fourth quarter of 2000, if at all. ICG Holdings owns a 70% interest in Zycom Corporation ("Zycom") which, through its wholly owned subsidiary, Zycom Network Services, Inc. ("ZNSI"), operated an 800/888/900 number services bureau and a switch platform in the United States and supplied information providers and commercial accounts with audiotext and customer support services. In June 1998, Zycom was notified by its largest customer of the customer's intent to transfer its call traffic to another service bureau. Accordingly, effective October 1, 1998, Zycom assigned the majority of its revenue and the related volume purchase agreements to ICN Limited. Zycom's board of directors approved a plan to wind down and ultimately discontinue Zycom's operations on August 25, 1998. On October 22, 1998, Zycom completed the transfer of all customer traffic to other providers. On January 4, 1999, the Company completed the sale of the remainder of Zycom's long-lived operating assets to an unrelated third party for total proceeds of $0.2 million. As Zycom's assets were recorded at estimated fair market value at December 31, 1998, no gain or loss was recorded on the sale during the year ended December 31, 1999. The Company's consolidated financial statements reflect the operations of Zycom as discontinued for all periods presented. The Company has accrued for all expected future net losses of Zycom. IXL ENTERPRISES: Schiffrin & Barroway Files Securities Suit in Georgia ---------------------------------------------------------------------- The law firm of Schiffrin & Barroway, LLP notified on September 14, 2000 that a class action lawsuit was filed in the United States District Court for the Northern District of Georgia, Atlanta Division, on behalf of all purchasers of the common stock of IXL Enterprises, Inc. (Nasdaq: IIXL) from February 2, 2000 through September 1, 2000 inclusive (the "Class Period"). The complaint charges IXL Enterprises and certain of its officers and directors with issuing false and misleading statements concerning the Company's business and financial condition. Contact: Schiffrin & Barroway, LLP Marc A. Topaz, Esq. Robert B. Weiser, Esq. 888/299-7706 (toll free) or 610/667-7706 Or by e-mail at info@sbclasslaw.com LASON INC: Securities Suit Late Last Year Amended and Consolidated ------------------------------------------------------------------ As previously reported in the CAR, on December 21, 1999 and various dates thereafter, several individuals filed complaints against the Company and certain officers in various United States District Courts. The complaints purport to be brought as class actions on behalf of purchasers of shares of the Company's common stock during periods ranging from August 14, 1998, through December 17, 1999. These actions were consolidated in the United States District Court for the Eastern District of Michigan into a single action (the "consolidated action"). On June 30, 2000, the plaintiffs filed an amended complaint in the consolidated action. The amended complaint purports to be brought as a class action on behalf of purchasers of the Company's common stock between February 17, 1998 and December 17, 1999, inclusive. The amended complaint alleges violations of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and violations of the Securities Act of 1933. Plaintiffs allege that the Company and certain of its officers made public statements containing material omissions and misrepresentations that allegedly created a misleading impression concerning the Company's revenues and earnings, the adequacy of due diligence relating to certain acquired companies and the effectiveness of efforts to integrate certain acquired companies. Plaintiffs also allege that the Company's financial statements reflected improper accounting methods. In their amended complaint, plaintiffs also have sued various underwriters involved in an August, 1998 offering of shares. The amended complaint seeks unspecified damages allegedly incurred as a result of the decline in the market price of shares of the Company's common stock after their purchase by the plaintiffs. The consolidated action is in a preliminary stage. However, the Company believes, based on the advice of outside legal counsel, that it and the named officers have substantial defenses to the plaintiffs' claims, and the Company intends to vigorously defend these claims. The Company's officers that are named in this litigation are covered by liability insurance policies paid for by the Company. While the final resolution of this litigation cannot be presently determined, management does not believe it will have a material adverse effect on the Company's business, or the future consolidated financial statements, although such adverse effects could be possible. MENTAL HOSPITALS: Lawsuits Charge of Lack of Community Placement ---------------------------------------------------------------- Targeting two of Pennsylvania's mental institutions where residents allegedly languish for years with no hope of community placement, lawyers from the Disabilities Law Projects in Philadelphia and Pittsburgh filed a pair of lawsuits in federal court last week. Norristown State Hospital is the target in Frederick L. v. Department of Public Welfare, filed in the Eastern District of Pennsylvania by attorneys Robert W. Meek and Ilene W. Shane. The suit says NSH currently has about 400 "non-forensic'' residents, but that DPW has announced plans to move only about 60 to community settings by the end of fiscal year 2001-02. The other 340 residents are to be "institutionalized indefinitely at NSH,'' the suit says, "even though they are appropriate for discharge to the community.'' The second suit, Pennsylvania Protection and Advocacy Inc. v. DPW, was filed in the Middle District of Pennsylvania by Meek and fellow Philadelphia project attorney Robin Resnick, along with attorneys Mark J. Murphy and Carol A. Horowitz of the Disabilities Law Project in Pittsburgh. The suit challenges conditions at the South Mountain Restoration Center, a state-operated nursing facility located in rural Franklin County. "Conditions at SMRC are unacceptable,'' the suit alleges. "On warm days, the temperature inside the non-air-conditioned facility hovers in the 80s. The smell of urine and feces permeates many rooms and wards. Excessive noise is a constant.'' According to the suit, SMRC is where virtually all of Pennsylvania's institutionalized mental patients who require nursing home care are placed even though it's far from most of their friends and families. Pennsylvania Protection and Advocacy Inc. is designated by the state as the agency with the responsibility under two federal laws the Protection and Advocacy for Individuals with Mental Illness Act and the Developmental Disabilities Assistance and Bill of Rights Act to advocate for and protect the rights of individuals with mental illness and developmental disabilities who are institutionalized. Both laws grant PP&A the right to pursue legal remedies, according to the suit. The 40-page complaint outlines the observations of PP&A members who visited SMRC in recent months, often by providing detailed anecdotes that describe how the 231 residents there are ignored or abused by staff. During one visit, the suit says, PP&A staff observed four areas of feces on the floor of a dayroom. An SMRC staff member cleaned the area only when it was pointed out to her, but did not use gloves and, after she was finished, returned to dispense medications to residents without first washing her hands. Residents' privacy is almost never respected, the suit alleges, noting that men enter the women's bathrooms unannounced, even when there are women using them. Some SMRC staff members "are verbally abusive to residents,'' the suit says, and most residents receive a bath or a shower only once each week. Without any legal authority, the suit says, some SMRC residents' charts have "do not resuscitate,'' or DNR orders, that instruct staff that life-sustaining measures or treatments should not be provided. "At least some DNR orders were issued for SMRC residents who did not authorize them and who do not have terminal illnesses,'' the suit alleges, including some that were "authorized by DPW staff and/or by family members who had not been appointed as the individuals' guardians or who are not close relatives.'' Until this year, the suit says, SMRC did not have a psychologist on staff for several years and relied on a retired state employee to provide psychiatric services on a part-time basis. "The only consistent form of mental health treatment provided to SMRC residents is the use of psychiatric medications,'' the suit says. Many of SMRC's residents could be placed in nursing homes nearer to their families since the Pennsylvania's Medical Assistance Program provides funding to hundreds of nursing facilities throughout the state for services to Medical Assistance-eligible residents. But with few exceptions, residents from state psychiatric hospitals throughout Pennsylvania are automatically admitted to SMRC when they are deemed to need the care of a nursing facility. (The Legal Intelligencer Suburban Edition, September 13, 2000) NEBRASKA STATE: Settlement Reached in Lawsuit over Disability Benefits ---------------------------------------------------------------------- Settlement of a class-action lawsuit against the state of Nebraska could mean millions of dollars worth of benefits being paid to residents with disability claims, an attorney said. One of the plaintiff's attorneys, Tim Cuddigan, said it would be difficult to estimate the amount of benefits denied, but it could be several million dollars. The lawsuit filed in November 1997 claimed Nebraska Disability Determination Services did not follow federal law in evaluating disability claims because it failed to use proper standards to evaluate pain and subjective complaints. The lawsuit also said the state did not provide explanations for denying claims nor did it obtain proper medical exams and reports. Chief U.S. District Judge Richard Kopf of Lincoln signed an order for the settlement of the case in March. Cuddigan said that 5,000 notices were mailed in late August to the last known addresses of people denied benefits between September 1997 and January 2000. The state agreed in the settlement to re-evaluate claims that were denied. (The Associated Press State & Local Wire, September 13, 2000) PACIFIC GATEWAY: Securities Complaint in CA May Soon Be Consolidated -------------------------------------------------------------------- On April 7, 2000, a complaint entitled Jeffrey Winick, on Behalf of Himself and All Others Similarly Situated v. Pacific Gateway Exchange, Inc., et al., was filed in the United States District Court, Northern District of California (Case No. C 00-1211). The complaint also names certain officers of the Company. The complaint purports to be a securities class action on behalf of persons who purchased publicly traded securities of the Company between May 13, 1999, and March 31, 2000. The complaint alleges that between May 13, 1999, and March 31, 2000, material false and misleading statements were made about the Company's financial results and condition in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated there under. The complaint seeks monetary damages, interest, and costs, as well as other relief that may be proper. After the filing of this complaint, other complaints were filed in the United States District Court for the Northern District of California, making similar allegations. One of these complaints purported to be on behalf of persons who purchased the publicly traded securities of the Company between April 13, 1999 and March 31, 2000. It is anticipated that all of these actions will be consolidated into a single action. Responsive Pleading to Derivative Suit Not Past Deadline In addition, Stepak v. Neckowitz, et al., case no. 413473, a shareholder derivative complaint against certain of the Company's officers and directors, was filed in state court in California. It alleges, among other things, breach of fiduciary duty in connection with the conduct alleged in the aforesaid federal court class actions. The deadline for filing a responsive pleading has not yet run out. PLAINS ALL: Agrees to Settle Securities Lawsuits ------------------------------------------------ Plains All American Pipeline, L.P. (NYSE: PAA) and Plains Resources Inc. (Amex: PLX) announced they had reached an agreement in principle for the settlement of class action securities suits related to the unauthorized trading loss disclosed in November 1999. For purposes of the settlement, the two classes include all persons who purchased the common limited partnership units of Plains All American Pipeline, L.P. from November 17, 1998, through November 26, 1999, and all persons who purchased the common stock and call options of Plains Resources Inc. from October 29, 1998, through November 26, 1999, in both cases excluding defendants and their affiliates. Aggregate amounts to be paid under the agreement in principle total approximately $29.5 million plus interest through the date actual proceeds are remitted to representatives for the plaintiffs. Taking into account applicable insurance proceeds and existing reserves, it is estimated that the settlement and associated expenses will reduce current quarter net income by up to $0.14 per unit for the Partnership and $0.06 to $0.17 per share for the Company, depending on the final allocation between the Partnership and the Company of the settlement amount and related costs. Plains All American and Plains Resources denied the claims in the lawsuits and stated they are entering into this settlement arrangement to eliminate the significant burden and expense of further litigation. The settlement is subject to a number of conditions, including negotiation and finalization of a stipulation and agreement of settlement and related documentation, and approval of the United States District Court. "After taking into account the estimated insurance proceeds, we believe that the settlement arrangement is in the best interests of Plains All American and Plains Resources, as it enables us to avoid a protracted and expensive litigation process," said Greg L. Armstrong, Chief Executive Officer. "Moreover, upon satisfying the conditions of the settlement, we can devote 100% of our attention to continuing the profitable operation and growth of our base businesses." Armstrong noted that upon satisfaction of the conditions of the agreement in principle, the settlement arrangement would dispose of all class action securities claims made following the announcement of the unauthorized trading loss in November 1999. The settlement arrangement does not resolve two outstanding derivative lawsuits filed in Delaware Chancery Court and in Texas which named Plains All American's general partner, its directors and certain of its officers as defendants alleging they breached their fiduciary duties owed to Plains All American and its unitholders. Plains All American is a nominal defendant in these derivative complaints. Plains Resources is an independent energy company engaged in the exploration, acquisition, development and exploitation of crude oil and natural gas. Plains All American Pipeline, L.P. is engaged in interstate and intrastate crude oil transportation, terminalling and storage, as well as crude oil gathering and marketing activities, primarily in California, Texas, Oklahoma, Louisiana and the Gulf of Mexico. Plains All American Inc., a wholly owned subsidiary of Plains Resources Inc., holds an effective 54% interest in the Partnership and serves as its General Partner. The Partnership's common units are traded on the New York Stock Exchange under the symbol "PAA". Plains Resources Inc.'s common shares are traded on the American Stock Exchange under the symbol "PLX". Both the Partnership and the Company are headquartered in Houston, Texas. (Canada NewsWire, September 14, 2000) RITALIN LITIGATION: Suits in CA and NJ Charge Conspiracy to Expand Use ---------------------------------------------------------------------- Lawyers involved in class-action lawsuits against the tobacco industry, gun makers and health maintenance organizations filed two lawsuits on September 13, 2000 against another target, the widely used drug Ritalin. The lawsuits, filed in federal courts in California and New Jersey, say the Novartis Pharmaceuticals Corporation, the drug's manufacturer, and the American Psychiatric Association, a professional group, conspired to create a market for Ritalin and expand its use. For more than a decade, Ritalin has been increasingly prescribed for children in whom attention deficit disorder or attention deficit hyperactivity disorder has been diagnosed. That has prompted debate among scientists, psychiatrists and government officials over whether children are receiving too much medication or their behavioral disorders are being diagnosed incorrectly. Representatives of Officials of Novartis Pharmaceuticals, a unit of Novartis AG, and the American Psychiatric Association said the accusations in the new lawsuits sounded similar to those in a class-action lawsuit brought against them earlier this year in Texas. At that time, Novartis said Ritalin, which is also known by its chemical name methylphenidate, had been used safely and effectively in thousands of children for more than 40 years and that it was the most studied drug used for attention deficit hyperactive disorder. The psychiatric association called the accusations in the Texas suit "groundless" and an "opportunistic attack on the scientific process that underlies this effort." The new lawsuits seek to halt what they call unlawful practices and ask that profits from sales of the drug be returned to consumers. One of those bringing the latest lawsuits is Richard Scruggs, a lawyer from Pascagoula, Miss., who represented dozens of states in actions brought in recent years against cigarette makers. Earlier this year, Mr. Scruggs also filed lawsuits against several health maintenance organizations charging that they had defrauded consumers by failing to provide them with treatments. John Coale, a Washington lawyer who is also involved in the Ritalin lawsuits, said the litigation was brought because Novartis and the psychiatric group promoted the idea that many children had attention deficit order and attention deficit hyperactivity disorder as a way of expanding the market for the drug. "They were giving this stuff away like candy," Mr. Coale said. In March, the White House announced an effort to reverse a sharp increase in the number of preschool children using Ritalin, Prozac and other psychiatric drugs. (The New York Times, September 14, 2000) WAGON WHEEL: Ohio Ct of Appeals Declines Cert for Lack of Numerality -------------------------------------------------------------------- In an action against a car dealership for violating various consumer protection statutes, the Ohio Court of Appeals refused to certify a class because the purchaser failed to show that the potential class was so numerous that joinder would be impracticable. (Arroyo v. Wagon Wheel Auto Sales Inc., et al., No. 18235 (Ohio Ct. App. 8/11/00).) Jimmy Arroyo bought a used 1987 Nissan Sentra from Wagon Wheel Auto Sales Inc. for 1,844. Arroyo paid 450 in cash and agreed to pay the remaining balance in weekly installments. After the car developed mechanical problems, Arroyo returned it to Wagon Wheel. Arroyo sued Wagon Wheel and its owner, Jack Tudor, alleging Wagon Wheel and Tudor violated the Ohio Retail Installment Sales Act, the Truth in Lending Act, the Ohio Consumer Sales Practices Act and common law. Arroyo claimed that Wagon Wheel and Tudor failed to disclose information required for financing installment sales; used documents that impermissibly gave them the right to accelerate collateral; imposed hidden finance charges; and committed other deceptive acts. Arroyo attached to the complaint preprinted or typewritten forms used in connection with the sale. Wagon Wheel opposed Arroyo's subsequent motion for class certification. The trial court found that Arroyo failed to satisfy Fed. R. Civ. P. 23's numerosity requirement and denied Arroyo's motion for class certification. Arroyo appealed. Class Numbers Arroyo claimed that the trial court "failed to apply established legal standards, which do not require precise class numbers to be shown." Arroyo also claimed that the trial court ignored the preprinted forms, which gave rise to an inference that the forms were given to large numbers of people. Wagon Wheel maintained that Arroyo must do more than speculate about the potential class size. To certify a class action, the Court of Appeals noted that the class must be "so numerous that joinder of all members is impracticable." The court stated that although numerosity decisions are made on a case-by-case basis, the Ohio Supreme Court indicated in Warner v. Waste Management Inc., 521 N.E.2d 1091 (1988), that "if the class has more than forty people in it, numerosity is satisfied; if the class has less than twenty-five people in it, numerosity probably is lacking; if the class has between twenty-five and forty, there is no automatic rule ... ." Although agreeing with Arroyo that precise numbers do not have to be shown for class certification, the Court of Appeals stated, "decisions about class members have to be based on something more than speculation." Arroyo claimed that no factual evidence was required to show numerosity and that the court could make reasonable assumptions based on the allegations in the complaint. The Court of Appeals stated that Arroyo could have conducted discovery to help support the certification motion and declared "[b]y failing to file a motion to compel, and by urging the trial court to rely on the pleadings, Arroyo invited the error about which he now complains." Standardized Forms Arroyo maintained that the use of standardized forms was "in and of itself" sufficient evidence to show enough members of a class. The Court of Appeals rejected this argument because "the record contains not a shred of evidence indicating how many customers may have received the forms." Judge James A. Brogan concluded that if a defendant admitted the potential class size, the court did not need further information in order to find that numerosity was satisfied but where the class size was disputed, the court required more information before making a decision. Because Arroyo did not make the information available, the Court of Appeals held that the trial court correctly refused to speculate about class size and affirmed the decision denying class certification. Randal S. Knight in Dayton, Ohio, represented Arroyo. Vincent P. Popp in Dayton, Ohio, represented Wagon Wheel. (Consumer Financial Services Law Report, September 5, 2000) * 3rd Circuit Approves Megan's Law Guidelines --------------------------------------------- New Jersey Attorney General John J. Farmer's new guidelines for the release of Megan's Law information are sufficient to ensure that private information about convicted sex offenders doesn't fall into the wrong hands, the 3rd Circuit Court of Appeals ruled. The court's opinion, written by Circuit Judge Marion Trump Barry, calls the ruling an end to years of litigation concerning the constitutionality of New Jersey's Megan's Law, which instructs law-enforcement officers to notify the public of the whereabouts of released sex offenders. The appeal addressed two narrow issues all that remained of a class action filed in 1997. The suit, Paul P. v. Farmer, alleged that the law's community notification provisions violated released prisoners' constitutional right to privacy. The first time the challenge reached the 3rd Circuit, the appeals court held that registrants had a privacy interest in only one bit of information police could release about them under the law their home addresses. The court also ruled, however, that the public interest in "knowing where sex offenders live so that susceptible individuals can be appropriately cautioned" was compelling enough to overwhelm the plaintiffs' privacy interest. But the appeals court noted that "the fact that protected information must be disclosed to a party who has a particular need for it ... does not strip the information of its protection against disclosure to those who have no similar need." The case was remanded to the district court of New Jersey for a determination of whether the state's procedures for releasing the information adequately guarded against unauthorized release. On remand, U.S. District Judge Joseph E. Irenas pointed out that the plaintiffs had "summarized forty-five incidents where confidential information released under Megan's Law was distributed to unauthorized persons." No system could be perfectly leak-proof, Irenas said, but there should be a uniform system that was at least reasonably calculated to prevent unauthorized disclosure. The guidelines as written failed to meet that standard, he held, and he ordered that they be redrafted. The current set of guidelines, issued on March 23, are Farmer's response to that order. Under the new guidelines, two forms are used to notify the community of a sex offender's presence an "unredacted notice" and a "redacted notice." The first form contains all the information a registrant's name, photograph, description, exact street address, exact business or school address, vehicle number and license number, and a description of the offense. Such unredacted notices are provided only to those who sign a "Megan's Law Receipt Form" in which they agree to be bound by the "Megan's Law Rules of Conduct," which bar any unauthorized sharing of the information with others who were not notified by law enforcement authorities. The redacted notice contains all the same information except that the exact home and work addresses are replaced by street names and block numbers. The plaintiffs raised only two challenges to the new guidelines. They argued that they were deficient because they did not raise the threat of contempt-of-court sanctions for unauthorized disclosures. Second, they argued that the redacted notices were still too revealing because "a person's block of residence is constitutionally protected information." Irenas rejected both arguments, and the plaintiffs appealed. Their case was argued by Edward L. Barocas of the New Jersey Office of the Public Defender. Attorney General Farmer argued for the state. The appeals court agreed with Irenas. Noting that it had already found the state's interest in disclosing where prior sex offenders live "compelling," Barry pointed out that "Megan's Law's fundamental purpose ... is public disclosure." "For example, with a Tier 3 offender [one who has been deemed likely to commit a sex offense again], every parent of a child attending a school within the court-authorized notification zone is entitled to receive an Unredacted Notice," Barry wrote. "In light of all these authorized public disclosures," Barry said, "all that remains is the potential that a minimal burden ... will be placed on appellants' nontrivial privacy interest if there are subsequent, unauthorized disclosures with respect to a single piece of information, an offender's address." "Moreover," the court found, "the notification order itself and the accompanying Rules of Conduct rigorously stress the confidentiality of the information being provided, comprehensively explain how the information can and cannot be used, and firmly warn against unauthorized disclosures." Although the threat of contempt sanctions might further reduce the number of unauthorized disclosures, the court found, it isn't necessary to make the process constitutional. Responding to the plaintiff's criticism of the unredacted notices that specifying what block a registrant lives on is a violation of a constitutionally protected privacy interest the court again found the plaintiffs' privacy interest was trumped by the state's interest in disclosing Megan's Law information to the "relevant public." Jeff Beach, a spokesperson for the New Jersey Office of the Public Defender, said that the appellate ruling was "a disappointment for our clients." The plaintiffs haven't yet determined what their next step will be, he said, although he noted that a request for an en banc rehearing was possible. He pointed to a footnote in the appeals court's opinion, which he called an invitation to "start over again at square one" if the new guidelines are ineffective that is, he said, if there are more unauthorized disclosures, particularly ones that result in vigilante actions against his clients. "If the safeguards prove to be inadequate," the footnote says, "we do not preclude an application to the District Court for relief." (The Legal Intelligencer Suburban Edition, September 13, 2000) * SEC Director Suggests More Frequent Hospital Filings ------------------------------------------------------ Hospitals and other health care borrowers should consider disclosing financial information to the secondary market more than once a year, Paul Maco, the director of the SEC's Office of Municipal Securities, told health facility authority officials meeting in Boise, Idaho. The remarks by the Securities and Exchange Commission official come just one month after the National Federation of Municipal Analysts issued best disclosure practices for hospitals, recommending they disclose unaudited financial statements on a quarterly basis. The quarterly disclosures would be in addition to annual disclosures of audited financial statements. In his speech, Maco also seemed sympathetic to the stance the analysts group initially took on Regulation FD, a rule designed to prevent corporate issuers from disclosing material information to a few favored analysts or institutional investors before it is publicly available. Stressing that the rule does not apply to the municipal market, Maco nevertheless said that in some cases, it "might be a useful source of guidance for municipal securities issuers and practitioners" that can actually ease issuers' concerns about talking to analysts. Turning to the controversial issue of republication -- whether the financial disclosures that an issuer posts on its Web site are considered republished every time someone accesses the site -- Maco said the SEC has not taken a position and is just seeking public comments at this point. However, he pointed out that some commentators in the legal community have noted that parties to several private class action suits have claimed there is legal liability for republishing. He also stressed that the securities fraud laws apply to municipal issuers' secondary market disclosures as well as to the disclosures they make in the official statements for their offerings. Maco made these remarks in a speech to the National Council of Health Facilities Finance Authorities and the National Association of Higher Educational Facilities Authorities, which were holding a joint meeting in Boise. In suggesting health care organizations consider more frequent secondary market disclosures, Maco conceded that -- under the SEC's Rule 15c2-12 amendments on secondary disclosure -- issuers and major borrowers must only contract to disclose financial information annually in order for dealers to be able to underwrite their bonds. But he said: "Health care issuers may wish to consider whether they should report publicly on a more frequent basis" as a "good practice. ... This would be entirely consistent with Rule 15c2-12 -- as the housing sector has shown, nothing in the rule stands in its way." The SEC left open the door for market participants to disclose information more frequently in an interpretative release issued in March 1994, Maco said. The release said: " F or some conduit entities, annual information may not be sufficient, and investors may need more frequent periodic financial information." State housing finance agencies have already begun disclosing their financial information on a quarterly basis. "A consistent complaint of the NFMA since the early days of the rule has been the tardiness with which information is provided to the secondary market under 15c2-12 by health care conduits in particular," Maco said. Maco stressed the need for issuers to ensure that their security market disclosures are complete and accurate to avoid running afoul of the securities fraud laws after describing the SEC enforcement actions against the Allegheny, Pa., Health, Education and Research Foundation and several former officials. AHERF is one of two recent muni cases the SEC has brought over alleged fraudulent secondary market disclosures. The other case involves Miami. The SEC charged that AHERF and four former officials materially misrepresented their net income in the financial statements and secondary market disclosures filed with repositories between late 1996 and early 1998. All of the defendants have settled except one. "The message to issuers and to those who assist them in preparing information to be disclosed in the secondary market," Maco said, "is that the antifraud provisions apply to the trading of outstanding as well as new issues of municipal securities. Beyond this point, each instance is considered within the facts and circumstances presented. Searching for safe harbors that do not exist may be far less practical and far more risky than rigorous understanding and strict adherence to the antifraud provisions themselves." Regulation FD, which was adopted by the SEC last month but will not take effect for another four weeks, requires issuers to disclose material information publicly and not selectively. However, the rule says, if such information is inadvertently disclosed to a few investors, issuers can remedy the situation by disclosing it publicly soon afterward. "If you want to 'speak to the market' because you are concerned that information may have been revealed to a few, but not all, investors, why not promptly send a notice to the nationally recognized municipal securities information repositories and take a cue from Reg. FD by issuing a press release," Maco said. (The Bond Buyer, September 14, 2000) ********* S U B S C R I P T I O N I N F O R M A T I O N Class Action Reporter is a daily newsletter, co-published by Bankruptcy Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc., Washington, DC. Theresa Cheuk, Managing Editor. Copyright 1999. All rights reserved. ISSN 1525-2272. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The CAR subscription rate is $575 for six months delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 301/951-6400. * * * End of Transmission * * *