CAR_Public/001006.MBX               C L A S S   A C T I O N   R E P O R T E R

              Friday, October 6, 2000, Vol. 2, No. 195

                             Headlines

ARKANSAS: Lawyers Suggest Lake View Look to Its Own Spending Practices
ASPEN TECHNOLOGY: 3 MA Securities Suits Consolidate, Argued and Pending
AUTO FINANCE: Florida's Crackdown on Title Pawn Loans May Spur GA
BI INC: Lawsuit against Proposed Merger Withdrawn in About One Month
BRIDGESTONE/FIRESTON, FORD: Ford Unit Says Firestone Hid Defects

DRUG PRICE-FIXING: IL Ct OKs Settlement in Prescription Drug Price Case
eBANKER USA.COM: Guzov & Rella Files Securities Lawsuit in New York
ENERGY WEST: Gas Measurement Subject of DOJ Claim and Lawsuits
FORD MOTOR: Federal Judge Rejects Request to Halt W. Va. Tires Lawsuit
GRANT'S TRAIL: Area Owners Are Continuing with Lawsuit; Deadline Oct. 31

JLK DIRECT: Investors Seek Injunction on Proposed Kennametal Acquisition
LOCKHEED MARTIN: Still Faces a Slew of Claims over Health Problems
MICROSOFT CORP: Cohen, Milstein Announces Lawsuit on Race and Sex Bias
NABISCO GROUP: Named in Lawsuits for Former Tobacco Business
NY POLICE: Prosecutors in Talks with Officials to Avert Profiling Suit

OSI SYSTEMS: Named in CA Lawsuit by Inmates' Wives for Search Product
OSULLIVAN INDUSTRIES: Stockholders Sue to Enjoin Merger with BRS Firm
PRINCIPAL MUTUAL: Class Certified Lawsuit over Infertility Treatment
SOTHEBY'S HOLDINGS: Former Chief Ready to Plead Guilty

* New York Law Journal's Article on Directors' and Officers' Liability

                           *********

ARKANSAS: Lawyers Suggest Lake View Look to Its Own Spending Practices
----------------------------------------------------------------------
Lawyers claimed that the Lake View School District spent some of its
budget improperly and suggested the district should look to its own
practices rather than the state in its quest for more money.

The Lake View district is the lead plaintiff a lawsuit challenging the
state's $1.7 billion funding system for public schools. The district
claims poor districts do not have the money to give students the same
educational opportunity as students in wealthy districts.

Lake View School District Superintendent Leon Phillips Jr. told Pulaski
County Chancellor Collins Kilgore that the district is regularly short of
money.

Numerous districts have intervened in the case, many to claim the formula
is fair. Other districts asked to expand the hearing from fairness of
distribution of the money to adequacy, which Kilgore is also considering.

An attorney representing 26 intervening school districts, which claim
current funding is fair, called into question how Lake View spent some of
its money.

Attorney James "Mitch" Llewellyn Jr. of Fort Smith used examples from
state audits of the Lake View district to try to build an argument of
fiscal mismanagement. He cited several instances in which spending was
not properly documented, from 1996 through 1998.

He also said the district spent more than $1,000 on hotel rooms and food
during board retreats at Sam's Town Hotel and Gambling Hall in Tunica,
Miss., for April 22-24, 1999, and April 27-28, 2000. Auditors said the
retreat constituted a board meeting and said they could not find
documentation that the public had been notified in advance.

An audit report from 1998 cited "material weakness in fiscal management"
because bank reconciliations weren't prepared for all of fiscal year
1998.

Phillips said money was not undocumented and that retreats are common for
school boards.

"The only thing I want is money for our students, the same as in Fort
Smith, Rogers and other places," Phillips said. "The only difference is
that we're black and you're white."

State Sen. Bill Lewellen, D-Marianna, one of Lake View's attorneys, noted
the suit is a class action and said details of Lake View's budget were
not relevant.

Lawyers for the state supported the districts' line of questioning.

"There is a charge of inadequacy against the state," said Sammye Taylor,
a deputy attorney general who represents the state. "You can't just throw
money at a problem. You have to look at what the problem is. It does seem
appropriate to examine what's being done with the dollars."

The hearing began Sept. 18 and was to continue Thursday. (The Associated
Press State & Local Wire, October 5, 2000)


ASPEN TECHNOLOGY: 3 MA Securities Suits Consolidate, Argued and Pending
-----------------------------------------------------------------------
On October 5, 1998, a purported class action lawsuit was filed in the
United States District Court for the District of Massachusetts against
Aspen Technology Inc. and certain of the company's officers and
directors, on behalf of purchasers of our common stock between April 28,
1998 and October 2, 1998. This lawsuit is identified as the Van Ormer
Complaint. The lawsuit seeks an unspecified amount of damages and claims
violations of Sections 10(b) and 20(a) of the Securities Exchange Act,
alleging that we issued a series of materially false and misleading
statements concerning our financial condition, our operations and our
integration of several acquisitions.

On October 26, 1998, a second purported class action lawsuit was filed in
the United States District Court for the District of Massachusetts
against Aspen and certain of the company's officers and directors, on
behalf of purchasers of the company's common stock between April 28, 1998
and October 2, 1998. This second lawsuit was identical to the Van Ormer
Complaint except for the named plaintiff. This second lawsuit is
identified as the Clancey Complaint.

On November 20, 1998, a third purported class action lawsuit was filed in
the same court against the same defendants. This third lawsuit was
identical to the Van Ormer and Clancey Complaints except for the named
plaintiff, the expansion of the class action period to include purchasers
of our common stock from January 27, 1998 to October 2, 1998 and the
addition of references to statements made between January 27, 1998 and
April 28, 1998. This third lawsuit is identified as the Marucci
Complaint.

On January 27, 1999, in response to a motion to dismiss filed by the
company, the plaintiffs consolidated the three complaints and filed a
consolidated amended class action complaint.

On December 9, 1999, the Court heard oral arguments to review the
pleadings in the case; to date, there has been no decision rendered by
the Court. The company is currently unable to determine whether
resolution of these matters will have a material adverse effect on
operating results or financial position, or reasonably estimate the
amount of the loss, if any, that may result from resolution of these
matters.


AUTO FINANCE: Florida's Crackdown on Title Pawn Loans May Spur GA
-----------------------------------------------------------------
Quick cash for car titles. It's the bank of the desperate. The business
is booming in Florida, despite legal interest rates of 264 percent a
year. But on sullied coattails, the business is accused of dragging in
unsavory elements. One title lender is suspected of dealing with
mobsters; another has been charged with money laundering. Killings have
been linked to attempted auto repossessions.

Worries about the industry also are growing in Georgia, where at least
three homicides have occurred at title lending operations. Georgia has
some of the nation's highest title loan interest rates and is home to one
of the nation's largest title-lending companies.

In Florida, lawmakers have lowered the boom on the boom. They've drained
the profit by substantially reducing the interest rate.

Georgia consumer watchdogs hope Florida's regulations will resurrect
failed reform efforts in the Peach State. "We're hoping for the
groundswell that happened in Florida," said Atlanta attorney Gerard Lupa,
who unsuccessfully brought a class-action lawsuit against the title loan
industry. "I would hope it will draw attention to the situation here."

Beginning this week, title lenders in Florida can charge no more than 30
percent a year. Plus, businesses must pay a licensing fee of $ 1,200.
Several Florida counties already have capped rates at 18 percent a year
--- comparable to a high-rate credit card.

Nearly 800 auto title lenders have registered in the Sunshine State since
the Florida Legislature quietly legalized the loans in 1995.

Industry watchers estimate Georgia has at least 500 such lenders, perhaps
as many as 1,000. Atlanta's Yellow Pages are filled with dozens of
pawnbroker ads that boast they'll "LOAN THE MOST $ AND YOU KEEP THE
VEHICLE."

The proliferation includes Atlanta-based Title Loans of America Inc., one
of the nation's largest operations. The company is owned by a South
Florida attorney who has been accused of associating with mobsters ---
though he says he only represented a reputed crime boss in legal matters
and has never been convicted of a crime.

Households making less than $ 25,000 a year are the most likely income
group to seek high-rate, high-risk loans because they save little, pay
bills erratically and are denied bank or credit union loans, according to
a 1997 survey for the Center for Credit Union Research. Many are
minorities, people on fixed income or military personnel. When they need
quick cash, they turn to so-called "fringe lenders" --- pawnshops, payday
stores or auto title agents.

"People are not beating down our doors complaining," said Mike Coniglio,
president of the Consumer Lending Alliance, a title loan association in
Tallahassee. "It's the do-gooders complaining --- not the people taking
out the loans. "Does a pawnshop give you $ 300 to $ 400 for a VCR? No.
Say a guy brings in his VCR, TV, microwave and Nintendo. He might get $
200 for all of it. He's borrowed less (than with a title loan), and he
doesn't have use of the products. Now what's his wife going to say?"

In Florida, auto title pawnshops on average lend cash-strapped people $
275 if they agree to 22 percent interest a month --- high enough to make
interest payments exceed principal in four months --- and risk
repossession if they don't repay.

                      Spreading to Georgia

Consumer advocates call the practice "legalized loan sharking." They say
borrowers complain the rates aren't explained to them. Some never get out
from under the mammoth interest payments, default and lose their cars.
With no transportation, some lose their jobs.

The complaints led to a protracted debate over whether to regulate the
industry. Florida reforms will make title loans there "disappear as you
know it," Coniglio said.

Florida title lenders grant more than 500,000 loans a month worth more
than $ 25 million in principal alone, Coniglio said.

As title lending dries up in Florida, Georgia becomes a potentially
deeper well from which title lenders can draw. Since 1992, Georgia has
allowed an annual percentage rate of 300 percent for title loans --- more
than in Florida. Lenders say high operating costs and the credit risks of
borrowers justify the interest rate. "The welcome mat's out. There's no
pressure on them," said Melissa Burkholder, executive director of the
Atlanta-based Consumer Law Center of the South.

Georgia title lenders faced no interest rate caps before 1992. Some
agencies charged 600 percent to 700 percent APR. In 1992, state Rep.
Billy Randall (D-Macon) was approached by the pawn industry to legalize
300 percent APR. "It was an act of compromise --- not a great one --- but
it was a compromise that set some procedures in place and the (interest)
cap," said Randall, now a civil court judge in Bibb County. "I admit the
amount is pretty high, but before that it was worse. "Some people wanted
to do away with the industry altogether. The title lenders wanted to pass
something that would save them."

While she chaired the state Senate Judiciary Committee in 1997, Mary
Margaret Oliver (D-Decatur) introduced legislation to ban title lending.
Oliver ultimately pulled the bill, unable to get committee votes. "There
were some legislators with strong constituencies who had title pawn
loans," said Oliver, back in private law practice after an unsuccessful
1998 campaign for lieutenant governor. "They were reluctant to vote
against those constituencies, plus there was not a large consumer lobby
in Georgia" fighting the loans. Oliver said she was not swayed to the
other side, despite flying in 1997 to the funeral of a state senator ---
courtesy of the Georgia pawn lobby. "I didn't know whose plane it was at
the time," Oliver said.

                       Title store homicides

In South Georgia, title lending has taken off because of Florida's
crackdown. Last year, Jacksonville capped title loans at 18 percent a
year. Four miles away in the Georgia city of Kingsland (population
15,000), there were no title loan agencies before the Florida crackdown.
Two operate there today.

Kingsland's first homicides in three years took place Dec. 1 --- at Auto
Acceptance Corp. Title Pawn. The store recently had moved from
Jacksonville. A customer walked into the title store downtown about 1
p.m. He found two men shot dead in the head, police said.

Robbery may have been a motive, but investigators aren't sure. No
witnesses have stepped forward. No arrests have been made. "There were
hundreds of people's names in their files. Any one of them could have
been a suspect," said Kingsland police Lt. Joseph Knight. "Maybe it was
an irate customer. But so far, we can't determine if it was a robbery or
a target tied to it being a title pawnshop."

Kingsland City Manager Dayton Gillette --- who's also fighting massage
parlors and X-rated movie houses --- said the city council could zone
title businesses or cap their rates. But he's afraid that would invite
lawsuits, unless the General Assembly adopts legislation.

Gillette has turned to state Rep. Charlie Smith (D-St. Marys), one of
Gov. Roy Barnes' floor leaders. Smith supports title loan reform but says
change is next to impossible in the current climate, which lacks
widespread public and political outcry. "The title pawn business is a
significant problem," Smith said. "You can change it if you can get
significant statewide support from a big group like the state chamber of
commerce, but I don't see any statewide interest in that. "

In Florida, counties and cities faced with consumer complaints tired of
years of inaction by the state Legislature, so several local governments
capped the interest rate on their own. The pressure helped secure state
interest rate caps adopted this year.

Florida Attorney General Bob Butterworth galvanized the attack on title
lenders, saying "their rates would make the mob blush." "What he didn't
realize," said Burkholder, the Georgia consumer advocate, " is that in
some instances it could well be the mafia."

                        Owner linked to mob

Based in Dunwoody, Title Loans of America is one of the giants in auto
title lending --- and its owner has been linked by the government to
associations with the mob. The company's ownership came into question
during a Fulton County civil suit. The action was brought by a woman
whose husband borrowed $ 150 against the title of his 1979 Toyota Celica.
He struggled with a repo man and was shot to death.

According to 1997 court documents, Title Loans of America --- which owns
hundreds of offices throughout the Southeast --- is owned by Alvin I.
Malnik, a South Florida attorney.

Malnik, 67, was a longtime associate of organized crime boss Meyer Lansky
and other reputed mob members, according to the New Jersey Casino Control
Commission. In 1980, the commission denied a casino permit to a company
because of its association with Malnik.

In 1993, New Jersey gaming authorities filed a complaint when Malnik and
his guests stayed free at an Atlantic City casino hotel. It reiterated
the 1980 conclusions.

"This commission," chairman Steve P. Perskie wrote in 1993, "finds Alvin
I. Malnik to be a person of unsuitable character and unsuitable
reputation. As to his character, the evidence establishes that Mr. Malnik
associated with persons engaged in organized criminal activities, and
that he himself participated in transactions that were clearly
illegitimate and illegal."

Lansky died in 1983 at age 81. After World War II, he opened gambling
operations in South Florida and controlled casinos in Las Vegas and Cuba.
Federal officials had long investigated his activities.

Malnik admits to being Lansky's attorney, nothing more. Never convicted
of a crime, Malnik helped develop the Atlantic City casino industry,
according to the New Jersey commission.

Title Loans of America officials did not return telephone calls
requesting comment.

Last year, however, as title loan opponents aggressively combed Florida,
Malnik granted a rare interview from his estate in Boca Raton with the
Palm Beach Post. He discussed lingering questions about his character.
"My representation of a man in some civil matters in the early '60s has
been converted by the media into relationships that never existed,"
Malnik told the newspaper. "It's the most preposterous, ridiculous,
indefensible situation to be in." Malnik said he owns 61 title loan
stores in Florida. He bought out his Atlanta partners in Title Loans of
America.

Malnik disclosed nothing else about the business --- except that
customers are happy to borrow quick cash, then repay the debt. Malnik has
denied government insinuations and is frustrated by decades of
speculation. "Frankly," he said, "I've given up. It's like fighting
ghosts." (The Atlanta Journal and Constitution, October 5, 2000)


BI INC: Lawsuit against Proposed Merger Withdrawn in About One Month
--------------------------------------------------------------------
On August 16, 2000, M. Dean Briggs filed suit in District Court, County
of Boulder, Colorado on behalf of himself and all other similarly
situated, against the Company and David J. Hunter, William E. Coleman,
Mckinley C. Edwards, Jr., Beverly J. Haddon, Jeremy N. Kendall, Perry M.
Johnson, Barry J. Nidorf and Byam K. Stevens, Jr., all of whom are
directors of the Company. Messrs. Hunter and Edwards are also officers of
the Company. The Company was served, through its registered agent, with a
copy of the Summons and Complaint on August 21, 2000.

The claim arises out of the proposed tender offer and merger transaction
with KBII Acquisition Company, Inc and its affiliates. The Complaint
states that the action is brought as a class action on behalf of the
holders of the Company's common stock (the "Class") against the Company,
its directors and certain officers, claiming that the defendants
"individually and as part of a common plan and scheme or in breach of
their fiduciary duties to plaintiff and the other members of the Class,
are attempting unfairly to deprive plaintiff and other members of the
Class of the true value of their investment in the Company by having the
Company enter into the Merger Agreement. Plaintiff Briggs claims that the
"merger consideration to be paid to Class members is unconscionable,
unfair and grossly inadequate." The suit seeks, among other things, an
injunction against the defendants from consummating the Merger,
rescission of the Merger Agreement, damages, and attorneys' fees. On
September 25, 2000, Plantiff Briggs voluntarily dismissed this action.


BRIDGESTONE/FIRESTON, FORD: Ford Unit Says Firestone Hid Defects
----------------------------------------------------------------
Ford Motor's Venezuelan unit accused Firestone of hiding manufacturing
defects in its tires and said Bridgestone/Firestone should take
responsibility for more than 100 road accidents in Venezuela.

Hector Rodriguez, Ford Venezuela's purchasing manager, told a meeting of
crash victims that Firestone had assured Ford there were no problems with
the tires in 1999, even as it was compiling information about
manufacturing faults.

Ford recommended independent arbitration in Venezuela to determine
responsibility for the failures and compensation for accident victims.
Some victims in Venezuela have already brought civil cases against both
companies in United States courts.

The meeting was organized by the consumer protection agency Indecu to
establish compensation for the accident victims.

"This is a tire problem," Mr. Rodriguez said. "It is time for Firestone
to accept its responsibility and compensate the victims."

Ron Iori, a spokesman for Ford, said it did not have plans to hold a
similar meeting with accident victims in the United States or make an
arbitration offer to them. Ford said last month that it faced almost 100
personal injury and class-action lawsuits -- a number that continues to
grow almost daily.

Firestone, a unit of the Bridgestone Corporation of Japan, did not send a
representative to the meeting. In a letter to the president of Indecu,
the company said that sending a representative "would imply a guilt which
we do not accept."

Firestone rejected any responsibility in the road accidents in Venezuela
and added that "the tires which were supplied to the assembler were made
according to the specifications of the car manufacturer."

Jorge Gonzalez, president of Bridgestone/Firestone Venezuela, said in a
separate letter that Firestone had recognized that it mislabeled some
tires but that had not affected their quality. In early September, it
recalled 62,000 Wilderness AT tires in Venezuela.

Indecu said in August that inadequate suspensions on Ford Explorers and
weak Firestone Wilderness AT tires were responsible for high-speed
blowouts associated with 46 deaths.

On Aug. 9, Bridgestone announced the recall of 6.5 million tires in the
United States that were mostly used on Ford sport utility vehicles. The
recall was in response to rising complaints about tread separation linked
to more than 100 road deaths and 400 injuries in the United States. (The
New York Times, October 5, 2000)


DRUG PRICE-FIXING: IL Ct OKs Settlement in Prescription Drug Price Case
-----------------------------------------------------------------------
Judge Elaine E. Bucklo of the U.S. District Court for the Northern
District of Illinois has issued an order approving a settlement in the
class-action lawsuit involving Synthroid, a prescription drug used for
hypothyroidism and other diseases of the thyroid. In re Synthroid
Marketing Litigation, No. 97 C 6017 MDL No. 1182, order issued (N.D.
Ill., Aug. 4, 2000). The order is not yet final, pending Judge Bucklo's
entry of judgment.

The class-action lawsuit alleges violation of antitrust, racketeering and
consumer fraud laws. The litigation asserts that the defendants,
manufacturers and marketers of Synthroid suppressed information known to
them concerning the effectiveness of the drug compared to other
available, lower-priced generic drugs.

Judge Bucklo issued her order following a hearing at which objectors to
the proposed settlement and plaintiffs' counsel presented argument. The
settlement is likely to allow for more than $87 million, plus interest,
to be paid to the plaintiffs. (Antitrust Litigation Reporter, September
2000)


Ebanker USA.COM: Guzov & Rella Files Securities Lawsuit in New York
-------------------------------------------------------------------
Guzov & Rella, LLC announces that a class action law suit was filed
against eBanker USA.COM, Inc., eVision USA.COM, Inc., American Fronteer
Financial Corporation, Fai Chan, Tong Wan Chan, Robert Trapp, Kwok Jen
Fong, David Chen, Gary Cook, Jeffrey Busch and Robert Jeffers on behalf
of purchasers of eBanker USA.COM and eVision USA.COM securities.

The class action was filed in the United States District Court for the
Southern District of New York on September 8, 2000 on behalf of persons
who purchased securities of eBanker USA.COM, Inc. and eVision USA. COM,
Inc. (EVIS) between April 1998 and August 2000 (the "Class Period").

The complaint alleges that Defendants violated Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934. The complaint charges that during
the Class Period defendants issued a series of materially false and
misleading public statements to induce investment of substantial monies
in the defendant companies without disclosing that such investments were
intended to generate funds for the personal benefit of the individual
defendants.

The complaint alleges that Confidential Private Offering Memoranda,
supplements thereto, documents, press releases, communications with
shareholders of eBanker and eVision, the public filings of eVision and
other statements, including written communications to shareholders,
disseminated to the investing public and the Companies' shareholders
during the Class Period misrepresented and/or failed to disclose material
facts about the business, management, services, sales obligations,
markets, financial condition, and future business prospects of the
Defendant Companies, including, among other things, failing to disclose
the existence of substantial impediments to the successful completion of
an initial public offering of eBanker securities, failing to disclose
that the registration of eBanker shares were dependent on the successful
completion of an eBanker initial public offering, and affirmatively
misrepresenting that certain defendants would not receive any
compensation, apart from an annual fee, but then secretly awarding them,
immediately after raising the offering monies, option compensation equal
to 30% of the equity of eBanker, thereby adding to an already
IPO-impairing overhang, potentially diluting the class members'
investments. Plaintiffs seek to recover damages on behalf of all
purchasers of eBanker and eVision securities during the Class Period. The
plaintiffs are represented by the law firm of Guzov & Rella, LLC, who
have expertise in prosecuting actions involving financial fraud.

Contact: Debra J. Guzov of Guzov & Rella, LLC, 212-371-8008


ENERGY WEST: Gas Measurement Subject of DOJ Claim and Lawsuits
--------------------------------------------------------------
On February 6, 1998 a judgement was entered against the Company in the
Federal District Court for Wyoming in favor of Randy and Melissa Hynes.
The Company was found to be 55% responsible resulting in a liability of
approximately $2,900,000 for which the Company is indemnified under the
policies described above. The action arose out of a natural gas explosion
involving a four-plex apartment building in Cody, Wyoming. The Company
appealed the judgement to the United States Court of Appeals for the
Tenth Circuit which ruled in favor of the plaintiff and upheld the
original decision of the Federal District Court of Wyoming on May 2,
2000.

Two lawsuits arising out of the same explosion as that in the "Hynes"
case but involving other plaintiffs have been recently settled. One
lawsuit filed by the building owner is still pending, and three
additional actions have been brought in state district court. The Company
tells investors it is indemnified under its insurance policies for the
defense of these claims and believes it will be completely indemnified
from any judgement on the remaining claim.

                             DOJ Claim

On September 4, 1998, the Company received correspondence from the
Department of Justice that a claim was being considered by the United
States of America (U.S.) against Energy West, Incorporated. The
correspondence indicated that a complaint has been prepared by Jack
Grynberg, acting as Relater on behalf of the U.S., alleging that the
Company had utilized improper measurement procedures in the measurement
of gas which was produced from wells owned by it, by its subsidiaries, or
from which the Company may have acted as operator.

The alleged improper measurement procedure purportedly understated the
amount of royalty revenue, which would have been paid to the U.S. The
complaint is substantially identical to the complaint being made against
seventy-seven other parties. The Company is alleged to have been
responsible for the measurement of over 150 wells during a five-year
period. The Company has investigated this allegation and believes it had
measurement responsibility for four wells. The quantity of production
from those wells is small enough that the Company does not expect its
potential liability to be material from any adverse decision in any
action actually pursued by the U.S. or Mr. Grynberg. Furthermore, the
Company believes that the allegations made by Mr. Grynberg are not
sustainable. In the spring of 1999 the United States declined to
intervene in the action. Mr. Grynberg has served the Company with the
Complaint and the matter is currently the subject of preliminary motions
in Federal Court. The Company intends to vigorously contest the claims
made in the Complaint. The costs to defend this action are impossible to
estimate at this time.

                        Class Action Lawsuit

In the fall of 1999, the Company was served with a complaint containing a
class action lawsuit. The named plaintiff in the matter is Quinque
Operating Company. This case is a companion case to the above referenced
matter. The distinction between the two is that the complaint in this
action applies to the measurement of gas wells located on private land.
The defendants are substantially the same as in the Grynberg case. The
case was brought in Kansas State, but a motion to remove this case to the
same Federal Court hearing the Grynberg matter was recently granted. The
Company believes that its liability in this matter is not likely to be
material, since it is only aware of one well on which the Company ever
performed gas measurement responsibilities. The Company also has
jurisdictional defenses not available to it in the Grynberg litigation.
The Company is participating in its defense in collaboration with the
other defendants. The company admits the costs of defending this matter
are impossible to approximate at this time.

The Company contracts for liability insurance through a primary insurance
carrier in the amount of $1,000,000 and an excess carrier, in the amount
of $30,000,000, in order to indemnify itself from such claims. In its
judgement, there is no legal proceeding, which could result in a material
adverse effect on the Company's results of operations, financial position
or liquidity. Significant legal proceedings, most of which are covered
under its liability insurance policies, are described below.


FORD MOTOR: Federal Judge Rejects Request to Halt W. Va. Tires Lawsuit
----------------------------------------------------------------------
A federal judge has rejected a request by Ford Motor Co. to halt a
class-action lawsuit filed in West Virginia against defective Firestone
tires. The automaker had asked U.S. District Judge Joseph R. Goodwin in
Charleston to suspend action. Goodwin denied the request.

The judge is considering a separate request by Ford to transfer the case
or allow it to be considered with other lawsuits from around the nation.

A group of West Virginia residents on Aug. 4 filed a lawsuit in Mason
County Circuit Court against Ford, Bridgestone/Firestone Inc. and its
related companies and car dealer Bert Wolfe Ford of Charleston.

The lawsuit alleges that a design defect in Firestone ATX, ATX II and
Wilderness tires causes blowouts or treads to separate. The tires were
sold with vehicles such as the Ford Explorer, Expedition and F-150 and
Ranger pickup trucks, the lawsuit says. The lawsuit accuses Ford,
Firestone and the car dealership of refusing to replace the tires
following news reports about their safety.

Tread separation, blowouts and rollover crashes involving vehicles with
Firestone tires have been linked to 101 deaths in the United States and
46 in Venezuela. In the United States, 6.5 million Firestone tires have
been recalled.

The lawsuit in West Virginia does not allege injury or death. The
plaintiffs instead say they fear the defective tires will fail.

Masters and Taylor, a Charleston law firm that filed the lawsuit, seeks
to represent anyone who bought the tires. Damages sought, if any, were
not immediately known. (The Associated Press State & Local Wire, October
5, 2000)


GRANT'S TRAIL: Area Owners Are Continuing with Lawsuit; Deadline Oct. 31
------------------------------------------------------------------------
A class-action suit by a group of property owners along Grant's Trail in
south St. Louis County is moving forward. About 250 property owners
potentially could be involved, said Mark F. "Thor" Hearne II, attorney
for the class-action litigants.

Property owners who live along the trail have until Oct. 31 to indicate
whether they want to be part of the suit, says Hearne. Hearne says he has
a telephone number, 314-613-2546, for property owners who have questions
about the class action.

The original suit seeking compensation for property owners along the
trail was filed in December 1998. In April, a judge certified it as a
class action. The property owners got a legal boost in January, when a
federal judge in Washington cleared the way for hundreds of property
owners who own land along the Katy Trail or Grant's Trail to be
compensated by the federal government for abandoned railroad easement
that was converted into recreational trails.

The U.S. Supreme Court previously decided the government had a right to
preserve unused railroad right of ways for future railroad use by
converting the railbeds to trails. But the federal judge in January ruled
the government owed the landowners compensation in a yet-to-be determined
amount.

Hearne said the class-action suit wouldn't stop Grant's Trail from being
expanded. "All it would do is compensate those property owners who live
along the trail, " he says.

Ted Curtis, executive director of Trailnet, a nonprofit group that helped
establish Grant's Trail, also said the suit wouldn't stop the trail's
progress. However, Curtis said he feared that the federal judge's ruling
might affect future rails-to-trails projects throughout the nation.
Trailnet is trying to expand Grant's Trail to Oakland, Crestwood and
Kirkwood.

The paved hiking and biking trail is about four miles long. An additional
two miles of paved trail are expected to be added this fall. If the trail
is expanded into Kirkwood, it will be about eight miles long.

Grantwood Village tried unsuccessfully to stop Grant's Trail. It filed
suit in 1994 and claimed that the municipality owned the property on
which the trail was being built. The courts ruled against Grantwood
Village, which later filed a similar suit in federal court. That case was
affected by the federal judge's decision in January.

Hearne said that within a year he hoped to have the class-action suit
resolved. The property owners who are eligible to take part are those who
owned property along the trail on Dec. 30, 1992, the day it was created,
says Hearne. (St. Louis Post-Dispatch, October 5, 2000)


JLK DIRECT: Investors Seek Injunction on Proposed Kennametal Acquisition
------------------------------------------------------------------------
In July 2000, JLK Direct Distribution Inc., its directors (including one
former director) and Kennametal were named as defendants in several
putative class action lawsuits. The lawsuits seek an injunction,
rescission, damages, costs and attorney fees in connection with
Kennametal's proposal to acquire the outstanding stock of the company not
owned by Kennametal. The company believes the actions lack merit and will
defend them vigorously. The amount of any ultimate exposure cannot be
determined with certainty at this time. Management believes that any
losses derived from the final outcome of these actions and proceedings
will not be material in the aggregate to the company's financial
condition.


LOCKHEED MARTIN: Still Faces a Slew of Claims over Health Problems
------------------------------------------------------------------
When Lockheed Martin Corp. closed its Burbank operations in the early
1990s, it left behind a plume of industrial pollution in underground
water that remains at the center of contentious court battles.

The contamination--one of the worst in the nation, stretching 13 square
miles across the east San Fernando Valley--was detected 20 years ago, a
toxic legacy of Lockheed's business of building fighter planes,
top-secret reconnaissance jets and other aircraft from the 1940s through
the Cold War.

But something akin to the Cold War is still being waged between Lockheed
and scores of current and former Burbank residents who are fighting over
the extent of the pollution, how many people--if any--were sickened by it
and Lockheed's responsibility in cleaning up the mess.

Sources in the case say the company has entered secret talks to settle
suits by scores of residents, although it has publicly vowed to fight all
the lawsuits it is facing. Lockheed has never admitted liability, even
while it pumps hundreds of millions of dollars into decontaminating the
soil and ground water underneath its old factories.

Over the last six months, Los Angeles County Superior Court Judge Carl J.
West has dismissed 140 plaintiffs with medical claims against Lockheed
for lack of evidence. Hundreds of others have voluntarily dropped
out--some at their lawyers' urging--amid concerns their cases would also
be rejected.

If settlement talks fail, West will consider in November whether to throw
out the rest of the cases. He is expected to rule on Lockheed's claim
that the residents not included in the first settlement waited too long
to sue the company.

But some residents say Lockheed is ducking its responsibility. Michael
Signorelli, who has a federal suit against Lockheed, believes that
Lockheed paid off some of his own family members living near him in a
secret 1996 settlement with nearly 1,400 people. Lockheed paid $ 93
million to Burbank residents and former company workers in the mid- and
early 1990s.

The company is challenging claims made later by Signorelli and others on
grounds there is no evidence anyone was harmed.

Signorelli doesn't buy it.

"If these contaminants are not harmful," he said, "then why are we
cleaning them up?"

Signorelli and others who lived in the shadow of Lockheed's factories say
their lingering health concerns have clouded the company's once-stellar
reputation in the community it helped build. From the time Lockheed
opened for business in 1928, it was a vital part of Burbank, helping to
build its economy, employing its residents and supporting its community
events.

It also was polluting the environment. Lockheed concedes that in its more
than 60 years of manufacturing aircraft in Burbank, dozens of underground
storage tanks on its sprawling 300-acre property leaked solvents and
other toxic chemicals into the ground water--helping turn much of the
east San Fernando Valley into a federal Superfund cleanup site. Since the
late 1980s, Lockheed has paid $ 265 million to clean up underground
drinking water supplies, and company officials say they could spend as
much as $ 100 million more on cleanup over the next two decades. The
company also has paid $ 60 million to residents and $ 33 million to
workers in confidential out-of-court settlements.

                   Pollution Lawsuits Still Pending

The pollution plays a central role in three current lawsuits:

  -- In Los Angeles County Superior Court, West is presiding over a
lawsuit filed four years ago by more than 2,400 people who live or once
lived near the former Lockheed factories and who were left out of the
earlier settlement. The case is down to about 200 plaintiffs and is
awaiting a judge's ruling on whether they will ever go to trial. So far,
Lockheed has won most of the major court victories.

  -- In U.S. District Court in Los Angeles, nine Burbank residents filed
a class-action lawsuit against Lockheed in 1996, alleging the aerospace
company was negligent in its release of toxins into the environment.
Judge Mariana R. Pfaelzer denied the request for class-action status, but
they and about 40 others are litigating their individual claims.

  -- In Santa Clara County Superior Court in San Jose, insurers are suing
Lockheed, saying they should not have to pay as much as $ 500 million to
decontaminate the soil and ground water in Burbank because the pollution
resulted from years of gradual chemical leaks and because a large portion
of the cleanup costs were paid by the Department of Defense and others.
The trial judge has ruled against Lockheed on key issues, but appeals are
expected.

Lockheed admits releasing two chlorinated volatile organic compounds,
perchloroethylene, or PCE, and trichloroethylene, or TCE, into the ground
over five decades. The Environmental Protection Agency classifies TCE as
a possible human carcinogen and PCE as a probable human carcinogen.

Lockheed began using TCE and PCE to degrease metal airplane parts in the
early 1940s. The company used so much of the solvents that they were
stored in more than 100 underground tanks, at least one of which could
hold up to 15,000 gallons of the cleaning solvents.

Over the decades, the cleaning solvents gradually leaked into the soil,
contaminating a ground-water basin that had supplied 20% of the drinking
water in Burbank and 15% in Los Angeles.

But independent legal and scientific experts say it may be impossible for
the residents to prove that Lockheed made them sick.

"You can almost never link a specific incident of disease to the exposure
caused by the company," said Jody Freeman, who teaches toxic litigation
at UCLA's law school. "There are a lot of possible explanations why
people get sick."

Residents contend their illnesses resulted from breathing contaminated
air and drinking tainted tap water in the years before the Superfund site
cleanup began and later when Lockheed began razing its scattered
manufacturing plants, allowing winds to blow dust from the contaminated
soil into neighborhoods.

But Lockheed officials say the residents, if exposed at all, could not
have gotten sick from the chemical releases because they were in low
concentrations and for too short a time period.

"If I was ill or my child was ill, I'd be out trying to find out why,"
said Lockheed spokeswoman Gail E. Rymer. "I don't blame people for
seeking out answers to questions like that. But I don't think it's fair
to go after a company that has the money to pay claims, and make claims
that can't be substantiated."

Brooke Ward, 41, dropped her suit but still blames Lockheed for a
miscarriage and other reproductive health problems.

"I've had illnesses that I truly believe with all my heart were from
Lockheed contamination," said Ward, who grew up on Pass Avenue with three
sisters.

Ward's mother, Sheila Henderson, 64, and 43-year-old sister, Erin Baker,
have Crohn's disease, and another sister, Lynnell Murray-Madrid, 44, has
Hodgkin's disease, pulmonary fibrosis and a heart condition. They are all
plaintiffs in the state case.

Signorelli, 47, said he suffers from headaches, bronchitis and swollen
lymph nodes and has had five kidney stones removed. The self-employed
contractor, who is a plaintiff in the federal case, said he bought his
Security Street house 20 years ago and used to watch black plumes rise
into the sky from Lockheed's Plant B-6.

He thought little of it--until learning that Lockheed had agreed to pay $
60 million to 1,357 of his neighbors in the 1996 settlement.

The agreement infuriated many who were left out of the deal. Signorelli
believes some of his own family members living nearby received
settlements, but does not know for sure because silence was a condition
of payment.

"Everyone trusted them," he said of Lockheed. "They built the fighter
planes that protected us during the war. They are American heroes. Why
should I not trust them? The question now is, 'Why should I trust them?'

                  Toxics Detected Two Decades Ago

In 1980, state officials detected the first signs of toxic pollution in
Burbank ground water. Six years later, the U.S. government declared much
of the east San Fernando Valley area around Lockheed a Superfund site,
putting it on a national priority list. Dozens of water wells operated by
the cities of Burbank, Glendale and Los Angeles were shut down.

Worker studies show that inhaling either PCE or TCE harms liver and
kidney function, and animal studies provide the link between those toxins
and cancer, said Sophia Serda, an EPA toxicologist. But less is known
about the specific health risks associated with drinking water containing
those compounds.

The EPA is reassessing the risks of TCE, according to V. James Cogliano,
who is leading the effort in Washington. But determining the health risks
from drinking contaminated water, he said, is difficult because exposure
levels differ depending on water use and other factors, and contamination
levels may vary over time.

Unlike asbestos exposure, widely believed to cause mesothelioma, a
specific and rare cancer of the chest lining, TCE and PCE are not closely
linked to specific diseases that would prove conclusively that they were
caused by exposure to those toxins.

"It is a very gray area," said Dr. Ashokkumar L. Jain, an expert in
industrial chemical exposures and an associate professor at USC's Keck
School of Medicine.

Lockheed's decision to settle with the first homeowners in 1996
represented part of its exit strategy, Rymer said.

The company had merged with Martin Marietta Corp. a year earlier and is
now based in Bethesda, Md. It had already announced its plans to leave
Burbank, cutting about 14,000 high-paying aerospace jobs from the local
economy.

"We just wanted to get on with business and the science just wasn't
there" to disprove the residents' claims against Lockheed, Rymer said.

When more residents sued Lockheed in 1996, after the secret settlement
was disclosed, company officials changed their legal strategy to defend
against the charges.

For its defense, Lockheed spent $ 5 million on a worker mortality study
that shows no significant increase in cancer rates among Lockheed
workers. Lockheed presented two other epidemiology studies showing that
cancer rates are no higher in Burbank than in Los Angeles County overall.

But plaintiffs' lawyers say the results are skewed, pointing out that the
worker study looked only at deaths from cancer, excluding workers who may
have had cancer but died of other causes. They also dispute the two other
studies, saying many of the people who once lived near the Lockheed
factories moved away, making a study of cancer rates in Burbank versus
the county meaningless.

Even so, Judge West relied on Lockheed's three studies to throw out the
first 140 claims against the aerospace manufacturer, saying there was
insufficient evidence to prove the company's toxic releases caused those
plaintiffs' illnesses. The ruling is being appealed.

Meanwhile, the environmental cleanup continues. Lockheed and other
smaller polluters are paying to run separate water treatment plants in
Burbank and Glendale, though it is expected to take a decade or more to
remove all the TCE and PCE from the ground water basin. The company is
operating a system to remove the same toxins from soil under its former
Plant B-1 on Victory Boulevard, which is slated to become a giant retail
development.

"We're not out to hurt the folks here," Lockheed's Rymer said. "We want
to be remembered as doing the right thing, and I think we have done
that."

But until the water and soil are clean, some Burbank residents oppose any
development on the polluted land--even though experts say it is safe for
such use.

"Let's not forget," said resident Molly Hyman, "that it was Lockheed who
had been polluting Burbank's water wells and soil for 70 years and then
they abandoned us."

                         Plume of Pollution

Lockheed Martin and other smaller polluters are paying to clean up this
13-square-mile contamination plume in the San Fernando Valley's
ground-water basin. The area was declared a federal Superfund cleanup
site by the Environmental Protection Agency in 1986. (Source: EPA)
(Published in (Los Angeles Times, October 5, 2000)


MICROSOFT CORP: Cohen, Milstein Announces Lawsuit on Race and Sex Bias
----------------------------------------------------------------------
Race and Sex Discrimination Class Action Suit Filed Against Microsoft by
Cohen, Milstein, Hausfeld & Toll, P.L.L.C.

Cohen, Milstein, Hausfeld & Toll, P.L.L.C., has filed a class action
lawsuit in the United States District Court for the Western District of
Washington in Seattle against Microsoft Corp. alleging a pattern and
practice of race and sex discrimination against African Americans and
female salaried employees in violation of the federal civil rights laws.

According to Cohen Milstein's Managing Partner, Steven J. Toll, the
complaint alleges that, "Microsoft has allowed managers to make basic
personnel decisions based on individual bias rather than merit. These
practices are particularly troubling when they are found in a company
which has been a leader in an industry that has experienced such rapid
growth and which otherwise may hold great promise as a positive place of
employment for people of color and women. We have found that Microsoft
gives its supervisors nearly unbounded discretion to make decisions about
compensation and promotions."

Toll said that a number of attorneys at the firm would be involved in
this litigation, headed up by name partner, Michael D. Hausfeld, who was
instrumental in obtaining the $176 million settlement against Texaco and
who was in the forefront of engineering the unprecedented settlement with
the Swiss Banks, German Government and German Corporations in the
Holocaust litigations.

Contact: Cohen, Milstein, Hausfeld & Toll, P.L.L.C. Steven J. Toll,
206/521-0080 stoll@cmht.com or Michael D. Hausfeld, 202/408-4600
sbollen@cmht.com


NABISCO GROUP: Named in Lawsuits for Former Tobacco Business
------------------------------------------------------------
NGH's business is conducted by Nabisco Holdings Corp.'s wholly-owned
subsidiary Nabisco Inc. ("Nabisco"). The food business is conducted by
the operating subsidiaries of Nabisco Holdings. Nabisco's businesses in
the United States are comprised of Nabisco Biscuit Company and the
Nabisco Foods Company. Nabisco's businesses outside the United States are
conducted by Nabisco Ltd and Nabisco International, Inc. ("Nabisco
International" together with Nabisco Ltd, the "International Food
Group").

Discontinued operations represent the results from tobacco businesses and
RJR Nabisco, Inc.'s corporate headquarters' expenses prior to the sale in
1999 of the international tobacco business and subsequent spin-off to
shareholders of the domestic tobacco business.

NGH has been named as a defendant in a number of lawsuits (43 as of April
26, 2000) as a result of its now severed relationship with the tobacco
business conducted by Reynolds Tobacco or its subsidiaries. For
information about this litigation see Note 5 to the Consolidated
Condensed Financial Statements.

Some of the claims against NGH in the tobacco-related litigation noted
above seek recovery of hundreds of millions and possibly billions of
dollars. This is also true of litigation pending against Reynolds Tobacco
and RJR, former subsidiaries of NGH. Litigation is subject to many
uncertainties. While management believes it has strong defenses in the
litigation against NGH, management is unable to predict the outcome of
the litigation against NGH, or to derive a meaningful estimate of the
amount or range of any possible loss in any quarterly or annual period or
in the aggregate.

Nabisco Holdings and Nabisco, both subsidiaries of NGH, are defendants in
various lawsuits arising in the ordinary course of business. In the
opinion of management, resolution of these matters is not expected to
have a material adverse effect on those companies' or on NGH's financial
condition or results of operations.


NY POLICE: Prosecutors in Talks with Officials to Avert Profiling Suit
----------------------------------------------------------------------
A federal investigation of the New York Police Department's Street Crime
Unit has determined that its officers engaged in racial profiling in
recent years as they conducted their aggressive campaign of street
searches across the city, officials said.

Federal prosecutors in Manhattan, who began their investigation in the
weeks after the 1999 shooting death of Amadou Diallo, are now in talks
with the Giuliani administration to discuss their findings and perhaps to
negotiate a set of changes that would avert a lawsuit, the officials
said.

If the talks fail, prosecutors could seek authorization from the Justice
Department to go to court under civil rights law and ask a judge to order
broad changes in the operations of the Street Crime Unit and possible
oversight by a federal monitor.

Prosecutors have based their findings on a statistical analysis of the
Street Crime Unit's searches of people its officers had stopped because
they were suspected of committing crimes or carrying guns, one official
said. Prosecutors told the city that their analysis concluded that blacks
and Hispanics in the city were disproportionately singled out in the
searches, and that the imbalance could not be explained by the fact that
the city's minority neighborhoods typically had higher crime rates, the
official said.

Mary Jo White, the United States attorney for the Southern District of
New York, whose office has conducted the inquiry, would not comment other
than to say that her office's investigation was continuing. Officials
with the city corporation counsel's office also would not comment.

Mayor Rudolph W. Giuliani and police and city officials have in the past
adamantly rejected allegations that any officers engaged in racial
profiling. They did so, for example, when the New York State attorney
general, Eliot L. Spitzer, issued a report late last year saying that the
department's street search tactics unfairly singled out the city's black
and Hispanic residents.

The Street Crime Unit -- squads of elite undercover officers that were
sent into high-crime sections of the city -- was seen by the department
as one of its great successes, the unit's ability to get guns off the
street having played a large role in the broader reductions in violent
crime.

But the performance and conduct of the unit came under intense scrutiny
after Mr. Diallo, an unarmed African immigrant, was shot to death on a
Bronx street by four members of the unit. Although the four officers were
ultimately acquitted of any crime, the Police Department did
significantly reorganize the Street Crime Unit, and ordered many of its
officers into uniform.

Justice Department officials in Washington have yet to announce whether
they will seek criminal civil rights charges against the four officers
who shot Mr. Diallo.

The federal investigation into the Street Crime Unit is not the only
inquiry into problems within the department. Since 1997, after Abner
Louima was tortured in a Brooklyn station house, federal prosecutors for
the Eastern District of New York have been investigating patterns of
brutality within the department and deficiencies in disciplining problem
officers. Negotiations between the prosecutors and the city aimed at
avoiding a formal lawsuit have dragged on for months.

The full scope of Ms. White's investigation and its findings could not be
learned. When prosecutors first announced the inquiry, in March 1999,
they said the investigation would focus on whether officers with the
Street Crime Unit systematically deprived people of their rights through
their "stop and frisk" tactics and other practices.

But it is for the moment unclear what reforms Ms. White is seeking and
whether they would address only the Street Crime Unit or more generally
deal with the training and policies of officers throughout the department
who conduct stop-and-frisk operations.

The Justice Department has addressed concerns of racial profiling in
other cities. In one recent example, Los Angeles city officials
negotiated a series of reforms with the Justice Department to address
allegations of systemic abuse by the police. That tentative settlement
includes a requirement that the Los Angeles Police Department, in an
effort to assess the extent of racial profiling, collect data on the race
of people who are stopped by officers.

In another case, the New Jersey State Police entered into a consent
decree with the Justice Department barring police officers from using
race as a basis for making traffic stops. That settlement also requires
troopers to document the race, sex and ethnicity of all drivers who are
stopped, and provides oversight with a computer tracking system and a
federal monitor.

Ms. White's findings came after her office obtained thousands of forms
documenting stop-and-frisk searches conducted by New York City police
officers over the last several years. The forms, known as UF-250's, are
supposed to be filled out by officers when they stop and frisk someone on
the street, and are often used as an investigative tool.

The city spent about $1.5 million over many months to enter about 320,000
UF-250 reports into a computerized database, and then turned over the
database to prosecutors for analysis. Searches conducted by the Street
Crime Unit accounted for roughly 10 percent of the total reports.

Although it is not known what the city's response has been to the
findings of prosecutors, Mayor Giuliani and other city officials have
repeatedly dismissed previous allegations of racial profiling against the
department.

When Mr. Spitzer, the state attorney general, asserted last year that his
study of stop-and-frisk incidents had indicated a bias against the city's
minority citizens, the mayor and police officials attacked the findings
and the methodology behind them as flawed. They said Mr. Spitzer's report
failed to adequately take into account the fact that a disproportionate
number of the city's violent crimes took place in minority neighborhoods.

And when a group of blacks and Hispanics filed a class-action lawsuit
last year, asking a federal judge in Manhattan to halt the operations of
the Street Crime Unit because, the suit said, the unit was illegally
stopping and frisking people because of their race, the city's
corporation counsel, Michael D. Hess, said: "The plaintiffs are asking
the court to stop a practice that does not exist. Therefore, there is
nothing to stop."

Mayor Giuliani has also asserted that the Clinton Justice Department has
been responding to political pressure in its investigations, most
recently after the Rev. Al Sharpton met with Attorney General Janet Reno
in August, urging her to to seek federal oversight of the Police
Department.

It is possible, too, that city officials could argue that steps have
already been taken to improve the fairness of street searches. The Police
Department last summer began a pilot program in different commands across
the city that required officers to fill out much more detailed reports on
their searches, a step that department officials said would make it
easier for officers to explain and justify their actions.

Moreover, the Street Crime Unit today is structured very differently from
the way it was when Mr. Diallo was killed. Instead of an autonomous unit
that operated across the city under its own chain of command, the Street
Crime Unit has been divided into eight separate teams that report to the
police chiefs responsible for the eight patrol sectors in which the city
is divided.

Police officials who announced the change last year described it as a
redeployment. Officers, however, flew a white flag of surrender that day
outside their headquarters in the Bronx.

Officers still stop and frisk people they suspect of carrying guns, and
focus much of their attention on violent criminals, but the mission has
broadened.

Many of the officers are assigned to prevent crimes against livery-cab
drivers by patrolling in unmarked cars and stopping cabs when they
suspect a driver might be in trouble. Others are put in a variety of
settings in which the police need to expand their plainclothes presence,
like in the stands at Shea Stadium when John Rocker of the Atlanta Braves
takes the mound. (The New York Times, October 5, 2000)


OSI SYSTEMS: Named in CA Lawsuit by Inmates' Wives for Search Product
---------------------------------------------------------------------
On March 30, 2000, Gail Marie Harrington-Wisely and Joyce Garland filed a
class action suit, case number BC 227373, in the Superior Court of
California, County of Los Angeles, naming Rapiscan Security Products, a
subsidiary of OSI Systems Inc., and others as defendants. The plaintiffs
are the wives of men incarcerated in California prisons. The plaintiffs
allege that while attempting to visit their husbands in prison, as a
condition to such visits prison personnel have subjected them to scans by
the Company's Secure 1000, strip searches, and body cavity searches, all
of which plaintiffs allege to have been illegal searches and have caused
them emotional injuries. The other defendants in the action include the
State of California, the Governor of California, the California
Department of Corrections, its Director and other Department of
Corrections personnel.

The complaint, in essence, asserts that these types of searches are
illegal and intrusive and have caused emotional injury to the plaintiffs.
In addition to alleging the Company is somehow responsible for illegal
searches conducted by prison personnel, with respect to Rapiscan Security
Products, the complaint alleges that the Company was negligent because it
knew or should have known that the Secure 1000 would be used by prison
personnel to conduct illegal searches of prison visitors, that the Secure
1000 is defective in design and manufacture because of alleged
inconsistent and false-positive results, that the Company has failed to
properly train the prison personnel using the Secure 1000 as to how to
interpret the scans, and that the Company has failed to warn subjects
that they might be subjected to illegal searches using the Secure 1000
and that the scans are more intrusive than frisk searches. Plaintiffs
have prayed for general, special and punitive damages in unspecified
amounts and declaratory relief against illegal searches. We believe that
these claims against the Company have no merit and we intend to
vigorously defend this suit. However, due to the inherent uncertainties
of all litigation, we can make no prediction about the outcome of this
litigation.


OSULLIVAN INDUSTRIES: Stockholders Sue to Enjoin Merger with BRS Firm
---------------------------------------------------------------------
On May 17, 1999, O'Sullivan Holdings entered into an agreement and plan
of merger with OSI Acquisition, Inc., a company formed by principals of
Bruckmann, Rosser, Sherrill & Co., LLC ("BRS"), a private equity firm.
Under the merger agreement, as amended, OSI was merged with and into
O'Sullivan Holdings on November 30, 1999, with O'Sullivan Holdings as the
surviving corporation. OSI did not survive the merger. Thirty-four
members of our management and an affiliate of a former director
participated with BRS in the recapitalization and merger of O'Sullivan
Holdings. Management and the affiliate of a former director owned a total
of 27.1% of the outstanding common stock of O'Sullivan Holdings at June
30, 2000. Affiliates of BRS own the balance.

Each share of outstanding common stock of O'Sullivan Holdings was
exchanged for $16.75 in cash and one share of senior preferred stock with
an initial liquidation value of $1.50 per share. Some of the shares of
O'Sullivan common stock, options and cash held by the management
participants in the recapitalization and merger were exchanged for
371,400 shares of common stock, 72,748 shares of Series B junior
preferred stock and options to acquire 60,319 shares of Series A junior
preferred stock of the surviving company.

                  Five Class Action Suits Filed

On May 18, 1999, five lawsuits were filed as class actions by
stockholders in the Delaware Court of Chancery seeking to enjoin the
recapitalization and merger or, in the alternative, to rescind the
recapitalization and merger and recover monetary damages. The complaints
named as defendants O'Sullivan, all of its directors and, in some cases,
BRS. The complaints allege that our directors breached their fiduciary
duties by approving the recapitalization and merger. The complaints also
alleged that the price terms of the merger were inadequate and unfair to
O'Sullivan's stockholders. In addition, the complaints alleged that the
management participants in the recapitalization and merger had conflicts
of interest that prevented them from acting in the best interests of
O'Sullivan's stockholders and that made it inherently unfair for BRS and
the management participants in the buyout to acquire 100% of the
O'Sullivan stock. In the cases naming BRS as a defendant, BRS was alleged
to have aided and abetted the alleged breaches of fiduciary duties. These
lawsuits were dismissed without prejudice in March 2000.


PRINCIPAL MUTUAL: Class Certified Lawsuit over Infertility Treatment
--------------------------------------------------------------------
Plaintiffs filed suit, challenging defendant insurance company's
interpretation of its infertility treatment exclusion. Plaintiffs have
now moved to certify three plaintiff classes. One of the classes
contended that defendant's "on-line" review only considered a
first-listed diagnosis, if more than one diagnosis was listed as a basis
for treatment. Defendant argued that this class should not be certified
because it would require the court to inquire into the merits of
potential class members' claims, in order to determine whether they were
members of the class. The court disagreed, finding that it could identify
class members based on determinations already made and contained in
defendant's computer and microfilm files. After applying the requirements
in Rule 23 of the Federal Rules of Civil Procedure to the class, the
court granted the motion to certify that class.

Judge Carter

[Edited for Publication and Footnotes Deleted for Publication]

SELBY v. PRINCIPAL MUTUAL LIFE INSURANCE COMPANY QDS:02762995 -Plaintiffs
Adrian W. Selby and Jill Selby ("the Selbys") allege that Principal Life
Insurance Company f/k/a Principal Mutual Life Insurance Company
("Principal") committed various errors when processing their insurance
claims for health benefits, and now move pursuant to Rule 23, F.R. Civ.
P., to certify three plaintiff classes challenging Principal's
interpretation of its infertility treatment exclusion, and challenging
whether Principal's claims review and appeal procedures satisfy the
Employment Retirement Income Security Act (ERISA) provisions governing
the administration of health benefit plans.

II. DISCUSSION

On review of a motion for class certification under Rule 23, F.R. Civ.
P., the court assumes that the allegations raised in the plaintiff's
complaint are true, and plaintiff bears the burden of establishing that
the class meets the Rule 23 requirements. See Medicare Beneficiaries'
Defense Fund v. Empire Blue Cross Blue Shield, 938 F. Supp. 1131, 1139
(E.D.N.Y. 1996) ("Medicare Beneficiaries"). In specific, plaintiff must
establish that the class meets all of the requirements of Rule 23(a),
F.R. Civ. P., and show that the class meets the requirements of one of
the subsections of Rule 23(b), F.R. Civ. P. Id. at 1140. A court may
certify a class only if it is satisfied after a "rigorous analysis" that
the Rule 23 requisites have been satisfied; however, it will not consider
the merits of the plaintiff's claims in its analysis. See Koppel v. 4987
Corp., 191 F.R.D. 360, 364 (S.D.N.Y. 2000) (Carter, J.). Moreover, "the
law in the Second Circuit favors the liberal construction of Rule 23, and
[therefore] courts may exercise broad discretion when they determine
whether to certify a class." See Perece v. Empire Blue Cross Blue Shield,
194 F.R.D. 66, 69 (E.D.N.Y. 2000).

A. Class I

Count I, brought on behalf of Class I, alleges that Principal's "on-line"
review violates 29 C.F.R. @ 2560.503-(1)(b)(1)(iii) because the on-line
review is administered in a manner which "unduly inhibits or hampers the
... processing of claims." Specifically, plaintiffs allege that the
claims workers at Principal that conduct the on-line review disregard the
diagnoses listed in an insured's claim for benefits when the insured's
doctor lists several diagnoses as a basis for a treatment, and instead
only consider the first listed diagnosis, and this policy creates an
unreasonable barrier to the insured's ability to access his health
benefits. (Pl. Reply Mem. at 20). The class raising this claim is defined
as: all plan participants and beneficiaries in ERISA covered medical
benefit plans insured or administered by Principal throughout the United
States who have been denied benefits for reasons related to the diagnosis
submitted by their physician where a single diagnosis was input by
Principal into its computer system even though the submitting physician
submitted more than one diagnosis as the basis for payment of the claim.

Principal argues that Class I should not be certified because the class's
definition is unworkable: it requires the court to inquire into the
merits of the potential class members' claims in order to determine
whether they are members of the class. (Def. Mem. at 12). See also 7A
Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice
and Procedure @ 1759-61 (1986) (explaining that the court must determine
whether a class's definition is workable prior to the Rule 23, F.R. Civ.
P., analysis). As a general rule, a class's definition is workable if it
is clear and precise, and "makes it administratively feasible for the
court to determine whether a particular individual is a member." See Rios
v. Marshall, 100 F.R.D. 395, 403 (S.D.N.Y. 1983) (Gagliardi, J.). A
class's definition will be rejected when it "requires addressing the
central issue of liability in a case" and therefore the inquiry into
whether a person is a class member "essentially [requires] a mini-hearing
on the merits of each [plaintiff's] case." See Forman v. Data Transfer,
Inc., 164 F.R.D. 400, 403 (E.D. Pa. 1995).

On review, defendant's objection must be rejected, as Class I's
definition does not require adjudication of the central issue that will
make defendant liable to the class, namely, whether the on-line review is
administered in a way that "unduly inhibits or hampers ... the processing
of claims" in violation of 29 C.F.R. @ 2560.503-(1)(b)(1)(iii). Rather,
the class's definition allows the court to identify class members based
on fact determinations already made and contained in defendant's computer
and microfilm files. Class I's members will be identified by: (1) running
a search on defendant's computer system for the names of persons who were
sent claim denial letters which stated that their claims were being
denied because they concerned non-covered conditions; (2) generating a
list of the diagnoses that were assigned to these persons' claims during
on-line review; and (3) comparing this list against defendant's
microfilmed files to identify persons whose original claims listed
multiple diagnoses. (Pl. Reply Mem. at 14). The resulting group of
persons will be insureds who were denied insurance benefits for "reasons
related to the diagnosis" that was assigned to their claims during
on-line review, on the basis of one diagnosis, despite the fact that
their claims originally contained multiple diagnoses.

The court, however, agrees with defendant that the class's definition
must refer to a specific and bounded time frame in order to be workable,
and at present plaintiffs have failed to identify what period Class I's
claims cover. (Def. Mem. at 12). The court, however, has the discretion
to revise an overly broad class definition. See Robidoux v. Celani, 987
F.2d 931, 937 (2d Cir. 1993). Since plaintiffs have only presented proof
that they were injured by Principal's on-line review during the three
years between 1995 and 1997, and therefore can only litigate the facts
concerning how on-line review was conducted during this time period, the
court amends Class I's definition so that its members include only those
persons injured by on-line review during this three year period. Once
this limit is incorporated into the class's definition, the process of
identifying Class I's members proves administratively feasible, as there
are only a few facts to be considered in determining whether a person is
a member of the class, only three resources need to be consulted for the
determination, and much of the determination can be accomplished by a
properly structured computer search of defendant's on-line files. Of
course, if the size of the class poses significant manageability
problems, the court retains the discretion to further amend the class's
definition to address these problems. See Rule 23(c), F.R. Civ. P.

Principal next asserts that the Selbys do not have standing to represent
Class I because they have not suffered the injury raised on behalf of
Class I's members. (Def. Mem. at 13). Indeed, "a predicate to [a
plaintiff's] right to represent a class is his eligibility to sue in his
own right;" therefore, the inquiry into a named plaintiff's standing
precedes the Rule 23, F.R. Civ. P., analysis. See Akerman v. Oryx
Communications Inc., 609 F. Supp. 363, 376-77 (S.D.N.Y. 1984)(Sofaer,
J.). In order to have standing to raise a claim on behalf of a class, the
plaintiff must "share the same injury and the same interest" as the class
members and be a member of the class. See East Texas Motor Freight
System, Inc. v. Rodriguez, 431 U.S. 395, 403 (1977). The Selbys' pleading
established that they suffered the injury raised on behalf of the class
members. Specifically, their pleading showed that: (1) several of their
doctors submitted claims for on-line review which listed multiple
diagnoses as the bases for the treatments they offered; (2) when
Principal's claims reviewers examined these claims, they altered each
claim so that it listed a single diagnosis; (3) and these claims were
subsequently denied. See, e.g., (Rainbow)(Ex. 19) and (Rodman)(Ex. 20).
The Selbys' pleading also established that they share the same interest
as the class members: they seek an injunction requiring that their claims
be reprocessed and they seek restitution - that Principal be required to
pay all claims that were wrongly denied as a consequence of on-line
review. In light of the above described evidence, the Selbys have
established that they have sufficient standing to challenge defendant's
on-line review policies on behalf of Class I's members.

Having addressed these preliminary challenges, the court turns to
Principal's allegations that Class I fails to satisfy the Rule 23(a)
requirements. A plaintiff satisfies the numerosity requirement under Rule
23(a)(1), F.R. Civ. P., by showing that the "class is so numerous that
joinder of all members is 'impracticable.' " See Perece, 194 F.R.D. at 70
(discussing Rule 23 (a)(1), F.R. Civ. P.). Although plaintiffs bear the
burden of proof on this issue, affidavits defendant submitted established
that Class I satisfies the numerosity requirement. Specifically,
defendant submitted an affidavit from Lisa Keller, a senior actuarial
associate at Principal, which established that during the first seven
months of 1997 Principal provided insurance for 1,240,940 persons under
its group medical policies and covered 642,011 persons under its
self-insured plans. (Keller Aff. at 2). Also the affidavit defendant
submitted from Naylene Crispin, an information technology analyst at
Principal, established that on-line review was used for all of the claims
that were submitted to Principal during 1995-1997, and established that a
claim could be automatically denied during on-line review when the claim
was submitted with a diagnosis code and a procedure code that were
categorized as not covered under the insured's plan. (Crisp. Aff. at 2).

When read together, the affidavits that were submitted indicate that
approximately two million people were insured under Principal's insurance
programs during each year at issue in this claim, and all were subjected
to on-line review. See Medicare Beneficiaries, 938 F. Supp. at 1140
(explaining that the court may estimate the number of persons in a class
based on reasonable inferences it makes from the evidence submitted).
Even if the court concluded that only 10 percent of Principal's insureds
were affected by its practice of eliminating diagnoses from its insureds'
claims during on-line review, since the plaintiff class covers the years
1995-1997, there are potentially 600,000 persons nationwide who could be
members of the class. This showing is more than sufficient to satisfy the
numerosity requirement. See Trief v. Dun & Bradstreet Corp., 144 F.R.D.
193, 198 (S.D.N.Y. 1992) (Edelstein, J.)(stating that classes with more
than 100 members satisfy the numerosity requirement).

Plaintiffs also have satisfied their burden under Rule 23(a)(2), as they
have shown that a common question of law unites the class. See In
Sumitomo Copper Litigation, 194 F.R.D 480, 482 (S.D.N.Y. 2000) (Pollack,
J.) ("In Sumitomo"). All the class members' claims will turn on one legal
question: whether Principal's on-line review policies, which allow it to
consider only the first listed diagnosis in a claim that lists multiple
diagnoses, violate ERISA's prohibition on claims review practices that
"inhibit[] or hamper[]" the processing of claims. 29 C.F.R. @
2560.503-(1)(b)(iii). Additionally, plaintiffs have satisfied their
burden under Rule 23(a)(3), by showing that their claims arise from the
"same course of events" and by showing "that each class member makes
similar legal arguments to prove the defendant's liability." In Sumitomo,
194 F.R.D. at 482. The defendant's practice of eliminating diagnoses from
claims during on-line review is a "pattern [of behavior] that commonly
affects all the proposed class members." Id. The class members' common
theory of liability is as follows: that defendant violated 29 C.F.R. @
2650.503-(1)(b)(1)(iii) when it willfully or negligently allowed material
information to be omitted from its insureds' claims and then denied its
insureds benefits with the knowledge that it did not have sufficient
information to make a fair assessment of their claims.

The final Rule 23(a), F.R. Civ. P., requirement, adequacy, has two parts:
plaintiffs must show (1) that there is an absence of conflict and
antagonistic interests between them and the class members, and (2) that
plaintiffs' counsel is qualified, experienced and capable. See Koppel,
191 F.R.D. at 367. In their pleading, the Selbys indicate that they seek
a declaration that Principal's on-line review policies violate ERISA, an
injunction requiring the defendant to reprocess their claims that were
submitted to on-line review, and payment of all claims that were
improperly denied as a result of on-line review. All of Class I's members
share these interests. Additionally plaintiffs' counsel is an established
firm with substantial litigation experience, (Doyle Aff. Ex. 18), and no
evidence has been presented that creates doubt regarding its ability to
competently represent the class members. On these facts, the court finds
that the adequacy requirement is satisfied.

Last, the court finds that Class I may be certified under Rule 23(b)(3),
F.R. Civ. P. A class will be certified under this section when common
questions of law or fact predominate over any questions affecting only
individual members, and when the plaintiff shows that a class action is
superior to other available methods for fair and efficient adjudication
of the class members' claims. See Eisen v. Carlisle & Jacquelin, 391 F.2d
555, 568 (2d Cir. 1968), vacated on other grounds, 417 U.S. 156
(1974)(discussing F.R. Civ. P. 23(b)(3)). The shared legal question in
this case is whether Principal's practice of eliminating and disregarding
the diagnoses in an insured's claim during on-line review violates the
ERISA provision which prohibits an insurer from administering its claims
review process in a manner that inhibits or hampers the processing of
claims. This question predominates over the particular issues associated
with each plaintiff's claim, namely: the specifics of the insured's
policy, the illnesses his claims concerned, the potential amount of
benefits each insured is due, and any defense of fraud that might be
raised against a class member. All of these issues are relevant to the
question of the amount of benefits each class member is due, and as
explained below, the need for these inquiries may be obviated by the
injunctive relief in this case.

Last, plaintiffs showed that the class action is a superior method for
fair and efficient adjudication of Class I's claim; if the court finds
that Principal's on-line review violates ERISA's requirements for claims
review procedures, this decision will trigger an injunction requiring the
reprocessing of all the class members' claims, and would result in the
payment of many improperly denied claims without further court action.
Indeed, the injunctive relief requested will require that Principal
review all the fact-specific information necessary to determine if claims
were improperly denied, and make the initial determination as to whether
plaintiffs are entitled to formerly denied benefits. After this
determination is made, the court can review Principal's actions and also
make any award of prejudgment interest that may be required.

The court's decision to certify this action under Rule 23(b)(3), F.R.
Civ. P., requires that provisions be made for giving notice to absent
class members. See F.R. Civ. P. 23(c)(2). The notice given must be
"reasonably calculated, under all the circumstances, to apprise
interested parties of the pendency of the action and afford them [an]
opportunity to present their objections." Eisen, 391 F.2d at 568
(internal citations and quotations omitted). Because plaintiffs
anticipated that the court would certify Class I under Rule 23(b)(1) or
(b)(2), F. R. Civ. P., they have not provided any information regarding
what kind of notice should be given to Class I's members. The court will
not make this determination in the absence of a well developed fact
record. See id. Therefore, the parties are directed to submit papers
detailing the kind of notice they believe is best suited for Class I, and
these submissions must specifically consider the factors required by Rule
23(c)(2), F. R. Civ. P.

B. Class II

Count II, raised on behalf of Class II, alleges that Principal violated
ERISA, 29 U.S.C. @ 1102 & 1022 by over-expansively interpreting the
infertility treatment exclusion in its plans to prohibit reimbursement
for treatments designed to assist women in maintaining their pregnancies.
(Am. Class Cmplt. at 21). Similarly, Class II is defined as:

all plan participants and beneficiaries in ERISA covered medical benefit
plans insured or administered by Principal throughout the United States
who were denied benefits for medically necessary care under its overbroad
interpretation of its ambiguous exclusion "related to the restoration of
fertility or promotion of conception."

Defendant argues that Class II should not be certified because any class
which raises the claim that an insurer denied the class "medically
necessary" treatment must fail, as inquiry into whether a treatment was
"medically necessary" is claim specific and presents insufficient common
issues for class-wide adjudication. (Def. Mem. at 25-26) (discussing Rule
23(a), F.R. Civ. P.). Defendant's contention is strongly supported by
case law in this circuit and other jurisdictions. In Perece v. Empire
Blue Cross Blue Shield, a court in the Eastern District of New York
declined to certify a class of persons denied "medically necessary"
treatment for pain management on the grounds the class did not satisfy
the numerosity, commonality and typicality requirements. See Perece, 194
F.R.D. at 71. The court explained that there was no proof showing that a
large number of persons had been denied treatment for the pain syndrome
that was the basis for the named plaintiff's complaint, and there was no
evidence which established that the pain syndrome plaintiff suffered from
was typical of that suffered by other class members or representative of
the conditions they suffered. See id.

Similarly in Doe I v. Guardian Life Insurance Company of America, 145
F.R.D. 466, 475-77 (N.D. Ill. 1992), another district court refused to
certify a class under Rule 23(b)(3) which raised an ERISA claim on behalf
of all persons denied medically required treatment for manic depression
under a "mental illness" exclusion in an insurer's policies. The court
explained that individual issues about each patient's treatment and
policy coverage threatened to overshadow any common legal issues raised
by the class members, and therefore the class would not be certified. See
also, Paciello v. Unum Life Ins. Co. of Am., 188 F.R.D. 201, 204
(S.D.N.Y. 1999) (McMahon, J.)(recognizing same in dicta).

Plaintiffs failed to address Perece and Doe I in their submissions, and
the evidence they presented reflected the same problems raised in these
cases. Specifically, plaintiff failed to show that a large number of
persons sought treatment to maintain their pregnancies and were denied
reimbursement for this treatment under Principal's infertility treatment
exclusion. Also plaintiffs' physician, Dr. Sami, listed a vast array of
treatments that could be used to assist in maintaining a pregnancy.
(Sami. Dep. at 262-26, 282-85). Therefore, plaintiffs would not be able
to establish that persons receiving pregnancy maintenance treatment
received the same bundle of services, and thereby show that these cases
present common fact scenarios. Relatedly, plaintiffs could not show that
a common theory of liability could be advanced for the class as each
bundle of services used to maintain a pregnancy would likely be treated
differently under Principal's infertility treatment exclusion. Since
plaintiffs cannot satisfy the Rule 23(a) requirements for Class II, the
court declines to certify the class, and dismisses Count II from the
class complaint. Plaintiffs may, however, proceed on this claim on an
individual basis.

C. Class III In Count III, plaintiffs assert that Principal violated N.Y.
Ins. L. @ 3221(k)(6)(A) & (B) in three ways: (1) because it failed to
program its computers to include codes that would sort out claims
eligible for coverage under the terms of the statute which had been
improperly rejected for payment under its infertility treatment exclusion
(Am. Cmplt 17-18); (2) because it failed to publish information about the
statute and the effect the statute had on Principal's infertility
treatment exclusion in its plan information for insurance policies that
were subject to the statute's conditions (Am. Cmplt. 22-23); and (3)
because Principal failed to provide insureds who were eligible under the
statute with treatment for medically correctable conditions otherwise
covered under their policies, and instead denied them treatment for
conditions solely because these conditions were associated with
infertility. Only the third claim is reflected in Class III's definition.
Specifically, Class III is defined as: "all covered insureds whose group
insurance polices were 'issued or delivered' in the State of New York,
but who were denied hospital, surgical and/or medical coverage by
Principal for correctable medical conditions because the conditions
resulted in infertility even though the services were otherwise covered
by the policy."

Defendant's arguments focus on the third claim plaintiffs advance for
Class III. In short, defendant argues that Class III should not be
certified because the claim raised on behalf of the class requires
inquiry into fact-specific issues on each potential class member's
claims, and therefore the class raises insufficient common issues for
class wide adjudication.

The court agrees. An inquiry into whether Principal denied a class of
persons treatment for a "medically correctable" condition that resulted
in infertility would require fact-intensive inquiry into issues about
each class member's illnesses. Additionally, an inquiry into whether the
"medically correctable" condition that the insured suffered from was
"otherwise covered" under the insured's policy would require review of
specific conditions, and whether they were covered under each insured's
particular insurance plan. See Perece, 194 F.R.D. at 71 (explaining that
the specific and individualized facts regarding each class member's
medical condition and course of treatment would prevent plaintiffs from
satisfying the commonality requirement); cf. Doe I, 145 F.R.D. 466
(declining to certify a class of insureds because the different kinds of
coverage under each class member's plan and the specifics of each class
member's course of treatment made it unlikely that common issues of law
and fact would predominate over the individual issues presented by each
claim).

Given these precedents, the court declines to certify Class III and
dismisses plaintiffs' third claim under this Count. Plaintiffs may,
however, proceed on this claim on an individual basis.

The two additional claims that were raised on behalf of Class III could
provide a basis for reforming the class's definition; however, these
claims are not supported by sufficient authority to be allowed to
survive. For example, plaintiffs offered no authority to support their
claim that Principal is liable under N. Y. Ins. L. @ 3221(k)(6)(A) & (B)
for not changing the computer coding procedure it uses during on-line
review to screen for claims that were required to be paid under the New
York statute. This theory of liability is not supported by a plain
reading of @ 3221(k)(6)(A) & (B), and has not been recognized by any
state court interpreting the statute.

Similarly, plaintiff's second claim under the statute - that Principal
violated N. Y. Ins. L. @ 3221(k)(6)(A) & (B) when it failed to provide
its insureds with plan information about how the statute affected its
infertility treatment exclusion - is based on the assumption that @
3221(k)(6)(A) & (B) imposes an affirmative duty on an insurer to make its
insureds aware of how the statute might alter the insurer's
interpretation of its policies. However, once again, the statute on its
face does not support this reading, and plaintiffs have identified no
authority which establishes this proposition.

Plaintiffs will argue that the absence of precedent weighs in their
favor, as there is no case which establishes that its theories of
liability are not actionable under the statute. However, federal courts
are advised that "needless decisions of state law should be avoided both
as a matter of comity and to promote justice between the parties, by
procuring for them a surer-footed reading of the applicable law." See
Rovira v. A T & T, 760 F. Supp. 376, 381 (S.D.N.Y. 1991)(Patterson, J.).
Based on this ground, the court will not amend Class III's definition to
reflect plaintiffs' novel interpretations of N.Y. Ins. L. @ 3221(k)(6)
(A) & (B).

The court's judgment, however, should not be interpreted to mean that
plaintiffs are entirely barred from pursuing their novel claims of
liability under the statute, as this decision is best left to a state
court. See id. at 380. Rather, the court merely declines to exercise
pendant jurisdiction over plaintiffs' claims concerning these novel
interpretations of the statute, and dismisses these allegations without
prejudice, and plaintiffs may file claims in state court raising these
theories of liability.

In summary, since none of the claims raised for Class III present issues
appropriate for class-wide treatment, the court declines to certify Class
III.

D. Class IV

In Count IV plaintiffs allege that defendant's claim denial letters and
its claims appeal procedures do not meet the minimum statutory
requirements enumerated in ERISA, 29 U.S.C. @ 1133(1) & (2), and
Department of Labor regulations 29 C.F.R. @ 2560.503-1(f) & (h). Although
plaintiffs sought to bring Count IV on behalf of Class I, the court
agrees with defendant that the claim is not sufficiently related to the
claim raised for Class I to be maintained on this basis. (Def. Surreply
Let. at 1). Stated simply, there will be insureds who have claims
concerning Principal's allegedly confusing claim denial letters who have
never been subjected to the practice challenged by Class I, Principal's
policy of eliminating diagnoses during on-line review. The Selbys have
suffered both injuries, and can represent persons with claims under
either count. However, to ensure that the facts and legal issues for each
count are clearly framed, the court will certify a separate class for
each count. See Wolfson v. Solomon, 54 F.R.D. 584, 588 (S.D.N.Y. 1972)
(Gurfein, J.) (separating a class raising two distinct securities fraud
claims into two independent classes and allowing plaintiff who suffered
both injuries to serve as a representative for both classes).

Based on these findings, the court offers a proposed definition for Class
IV based on Count IV, and considers whether the Selbys have presented
sufficient information to satisfy the Rule 23 requisites for this class.
See 2 Newberg on Class Actions @ 7.37 (3d ed. 1992). Plaintiffs may, if
necessary, seek leave to amend the class's definition.

Class IV is defined as: all plan participants and beneficiaries in ERISA
covered medical benefit plans insured or administered by Principal
throughout the United States who were sent computer generated Explanation
of Benefits letters during 1997 stating "[we've] excluded the non-covered
charges under your plan" or "[these] conditions are not covered under
your plan" and whose letters did not identify any specific plan exclusion
or coverage area as the basis for the decision to deny the insured's
claims.

The court's definition for Class IV reflects only one of the theories of
liability plaintiffs raised under Count IV: plaintiffs' claim alleging
that defendant's claim denial letters contain insufficient information to
permit an insured to appeal a denied claim, in violation of 29 U.S.C. @
1133, and 29 C.F.R. @ 2560.503-1 (f). Plaintiffs' claim challenging the
sufficiency of Principal's claims appeal procedures is dismissed from the
class complaint, as this claim does not present any common questions of
law or fact that could be adjudicated on a class wide basis. See Rule
23(a)(2), F.R. Civ. P.

Indeed, the evidence plaintiffs submitted in support of this claim was a
series of fact-intensive letters discussing whether Ms. Selby's claims
for her pregnancy maintenance treatments were required to be paid under
New York state insurance law. A decision adjudicating whether Principal's
communications with the Selbys constituted a "full and fair" appeal would
not establish any general rule benefitting other persons who attempted to
negotiate the appeals procedure. 29 U.S.C. @ 1133(2).

Additionally, the proposed definition for Class IV includes a time limit.
Since plaintiffs' pleading and supporting exhibits only demonstrate what
Principal's claim denial letters stated during 1997, the court limited
the class definition to cover only persons injured by these form letters
during that period.

Once limited in this manner, Class IV meets the first three Rule 23(a),
F.R. Civ. P. requirements. Specifically, Class IV meets the numerosity
requirement as Principal's submissions indicate that it insured
approximately two million people in 1997. (Keller Aff. at 2). Plaintiffs'
pleading indicates that insureds automatically receive the challenged
claim denial letters as a consequence of on-line processing, (Am. Cmplt.
at 12-13), and no proof was offered to refute this finding. Therefore,
even if the challenged letters were only sent to 10 percent of
Principal's insureds, approximately 200,000 persons received these
letters nationwide.

Defendant asserts that plaintiffs cannot satisfy the Rule 23(a)
commonality and typicality requirements because courts conduct fact
specific and claim specific inquiries when determining whether an insurer
has violated 29 U.S.C. @ 1133, and 29 C.F.R. @ 2560.503-1(f), and
therefore these kinds of claims present insufficient issues for class
wide adjudication. (Def. Surreply Let. at 2). Indeed, when courts
consider whether an insurer has violated these provisions they do not
focus on a single letter, but rather look at all the communications the
insurer has sent to the insured about the claim in order to determine
whether the insured was provided with adequate notice as to why his claim
was rejected. See, e.g., Lidoshore v. Health Fund 917, 994 F. Supp. 229,
236 (S.D.N.Y. 1998) (Baer, J.) (examining the letters that an insurer
sent to the insured over a three month period together to determine
whether the insured was given sufficient information about why her claim
had been denied).

Defendant's argument, however, defies logic, as it would prevent the
court from adjudicating whether an insurer's form letters are so
ambiguous and misleading that they violate the ERISA requirements,
because the insurer would always be able to argue that his efforts to
cure the defects in the letter negated any injury an insured suffered.

Indeed, in Sutton v. Medical Service Association of Pennsylvania, 1993 WL
273429, *3-*5 (E.D. Pa. 1993), the court held that a class challenging an
insurer's boilerplate claim denial letter could be certified. The Sutton
case concerned an claim denial letter that allegedly buried information
about other potential sources of coverage an insured had under his health
benefit plan, at the same time that the letter announced that the costs
of the claim had been partially denied. The court found that the class
shared the following common question: "whether the procedure used by the
"defendant[] [to provide notice of the denial of a claim] is misleading
and/or inadequate, and therefore, under ERISA, must be enjoined." Id.

In this case, the class's members are similarly united by a clear cut
legal question, namely, whether the generic messages in Principal's claim
denial letters: "we have denied the non-covered charges" or some similar
statement, when used without reference to the plan provisions at issue,
fails to provide the minimum basic information required to appeal the
denial of one's claim, as required by ERISA and the Department of Labor's
guidelines. Resolution of this question does not require fact-specific
inquiries into plaintiffs' reliance on the letters or the scope of their
plans' coverage, as defendant's liability will be based solely upon
whether the letters contain sufficient information to allow an insured to
determine whether he can and should appeal his claim.

The court however, agrees with defendant that the Selbys will not
adequately represent Class IV's members because they lack standing to
seek the injunctive relief they have requested for the class. (Def. Mem.
at 19, 22). See also, Medicare Beneficiaries, 938 F. Supp. at 1145
(discussing this issue as part of the adequacy requirement). The relief
plaintiffs have requested for Class IV is an injunction prohibiting
Principal from using the boilerplate claim denial letters referred to in
Class IV's definition. However, since plaintiffs are no longer enrolled
in a Principal insurance plan, they do not stand to benefit from this
remedy, and therefore cannot seek this relief on behalf of the class
members. This point bears further discussion.

Article III provides that "[for] a plaintiff to have standing to request
injunctive or declaratory relief, the injury alleged must be capable of
being redressed through injunctive relief at that moment." Robidoux, 987
F.2d at 937 (internal quotations and citations omitted). Therefore
"[courts] have declined to find standing where, by the time the Complaint
has been filed, the injury has already occurred and is unlikely to
reoccur." Marisol A. v. Giuliani, 1998 WL 274472, *8 (S.D.N.Y. May 27,
1998) (Ward, J.).

The Selbys were no longer enrolled in a Principal insurance program after
July 31, 1997, and the complaint in this action was filed more than a
year later, on July 24, 1998. Plaintiffs have not presented any evidence
indicating that the claim denial letters that they challenge under this
claim concerned bills that were still pending when their complaint was
filed in July, 1998. Plaintiffs also are unlikely to re-enroll in a
Principal insurance plan, and therefore it is unlikely that they will
receive the complained of claim denial letters in the future. Taken
together, these facts establish that the Selbys stand to gain no benefit
from the injunctive relief requested in this case, and therefore cannot
seek this relief on behalf of the class members.

The court, however, recognizes that "the fact that a named plaintiff is
no longer entitled to future relief is an impermissible basis on which to
deny a motion to certify the class." Medicare Beneficiaries, 938 F. Supp.
at 1145 (collecting cases). In such circumstances, the court may allow
plaintiffs to identify a new named plaintiff with sufficient standing to
seek injunctive relief on behalf of the class members. See 1 Newberg on
Class Actions @ 3.35. The court, therefore, in this case, declines to
certify Class IV, but grants plaintiffs thirty days in which to identify
a new named plaintiff for the class. Cf. Kenavan v. Empire Blue Cross
Blue Shield, 1996 WL 14446, *4 (S.D.N.Y. April 16, 1996) (Wood, J.)
(dismissing class's allegations without prejudice and granting leave to
re-certify the class if a new named plaintiff was presented within thirty
days). If plaintiffs fail to identify a new named plaintiff, Count IV
will be dismissed from the class complaint.

III. Conclusion

In summary, the court certifies Class I under Rule 23(b)(3), F.R. Civ.
P., and directs plaintiffs and defendant to submit papers discussing the
notice required for absent class members. Also Class IV may be certified
upon plaintiffs' motion as long as the plaintiffs identify a proper named
plaintiff with standing to seek injunctive relief. The court declines,
however, to certify Classes II and III, but plaintiffs may proceed on
Counts II and III on an individual basis. Furthermore, in their actions
before this court, plaintiffs are limited on Counts II & III to the
theories of liability sanctioned earlier in this opinion. (New York Law
Journal, September 25, 2000)


SOTHEBY'S HOLDINGS: Former Chief Ready to Plead Guilty
------------------------------------------------------
After a three-year investigation into the multibillion-dollar auction
business, Diana D. Brooks, the former president and chief executive of
Sotheby's, has agreed to plead guilty to conspiring to violate antitrust
laws in collusion with Sotheby's archrival, Christie's, people close to
Ms. Brooks and the government said.

The felony plea would leave Ms. Brooks, 50, once seen as the most
powerful woman in the art world, facing a possible three-year federal
prison sentence and a large fine.

The hard-fought deal with the Justice Department sets the stage for a
high-stakes courtroom drama, turning Ms. Brooks into a witness against
her longtime boss, Sotheby's former chairman, A. Alfred Taubman, 75, the
multimillionaire Detroit shopping center developer, people involved in
the case said. Both resigned under fire in February.

In a related deal revealed, Sotheby's also agreed to plead guilty to
violations of antitrust law and pay a fine of $45 million -- above a huge
settlement two weeks ago in a civil case stemming from the same
investigation.

People involved in the case confirmed the plea agreements after the case
was listed on the federal court calendar.

The investigation centered on the issue of whether Sotheby's colluded
with Christie's in a host of business practices, including fixing fees
and commissions charged at auctions. In January, Christie's turned over
documents and other evidence to the Justice Department, winning amnesty
by, in effect, admitting collusion.

Ever since, the case has transfixed the rarefied, gossipy and
money-driven worlds of art and auction, where every year $4 billion of
art and antiques flow through the two houses.

As part of her agreement with the Justice Department, Ms. Brooks will
provide details about the fixing of fees and other practices that may
have stifled competition going back at least eight years. In particular,
she will be asked to provide information under oath about Mr. Taubman.

John Scanlon, a spokesman for Mr. Taubman, declined to comment. Mr.
Taubman, who bought Sotheby's in 1983, has previously denied wrongdoing.
Ralph T. Giordano, chief of the federal antitrust office in New York,
also declined to comment.

Stephen E. Kaufman, a lawyer for Ms. Brooks, said the case was on the
calendar for October 5 but declined to discuss the proceeding. A lawyer
involved in the case said that under the arrangement, Ms. Brooks would
waive indictment and admit to a single count in what is called an
information -- tantamount to an indictment -- that is devised for the
plea. Ms. Brooks will have to tell a judge in her own words what crime
she committed and is now admitting to.

In Sotheby's coordinated but separate plea, the fine of $45 million will
be spread out over five years, people close to the case said.

This fine comes on top of a $256 million payment Sotheby's agreed to pay
to auction buyers and sellers last month in a settlement of a civil
class-action lawsuit. Christie's also agreed to pay $256 million to
customers but faces no federal criminal charges because it came forward
first with evidence of collusion and won conditional amnesty.

Ms. Brooks's plea, aimed at building a full-blown prosecution of Mr.
Taubman, whose fortune is put at more than $700 million, caps weeks of
intensive talks between lawyers for Ms. Brooks and prosecutors for the
Justice Department, people involved in the case said.

Matthew Weigman, a spokesman for Sotheby's, declined to comment on any
aspect of the case.

The pleading before a federal judge, who will be selected by lottery, is
set to take place at the Pearl Street courthouse in Manhattan after an
appearance before a magistrate at 10 a.m. The judge could take the plea
then and there but could reschedule it for the next day or another time.

Whether Ms. Brooks will serve time in prison will not be decided until
her sentencing after her cooperation with the government. Her lawyers had
sought a commitment from the Justice Department that it would ask the
sentencing judge to spare her prison. But no agreement was reached,
people close to the case said.

The offense she is set to plead guilty to, a violation of the Sherman
Antitrust Act's prohibition against conspiracies in restraint of trade,
also gives the judge discretion in levying the fine. He could, in theory,
choose the higher of three amounts: $350,000; or the illicit financial
gain to her; or twice the loss by victims. Since the settlement in the
civil case acknowledged claims of close to $500 million (less unspecified
legal fees) a doubling of losses could technically mean a fine of close
to $1 billion.

Ms. Brooks and her husband, Michael, a venture capitalist, have homes in
Manhattan, Long Island and Florida, and have been financial benefactors
of their alma mater, Yale. But their wealth has never been equated with
that of Mr. Taubman and other superrich collectors. Her last salary at
Sotheby's was $600,000 a year, which came to more than $1 million with
bonuses.

The inquiry that led to the pleas was based in large part on documents
provided by a former chief executive of Christie's, Christopher M.
Davidge, who resigned on Christmas Eve. As part of a $7.5 million
departure settlement he got from Christie's, Mr. Davidge turned over to
Christie's lawyers more than 100 pages of notes and other records said to
document meetings and conversations he had with the chairman of
Christie's, Sir Anthony Tennant, and counterparts at Sotheby's, Ms.
Brooks and Mr. Taubman.

Christie's will receive conditional amnesty from prosecution as long as
it continues to cooperate.

The Davidge documents, which were given to the lead lawyers, Boies,
Schiller & Flexner, in the civil class-action antitrust case as part of
the recently concluded settlement discussions, were put under seal by
Judge Lewis A. Kaplan of Federal District Court in Manhattan, who is
presiding over the civil case. But the documents would presumably be
presented as evidence in any trial of Mr. Taubman or other defendants.

Mr. Davidge could be called upon to testify; his financial settlement
with Christie's and his amnesty from prosecution require him to cooperate
with the investigation. Ms. Brooks is also likely to be called to testify
about the documents.

Sir Anthony, who is based in England, has refused to comment as has his
lawyer, Richard Taylor. People close to the case said it was doubtful
that he could be extradited to the United States were he to be charged.

Mr. Taubman, clearly the target of the government's move to turn Ms.
Brooks into a prosecution witness, has already incurred major financial
losses. Of the $512 million civil settlement that Sotheby's and
Christie's recently agreed to pay auction customers, in equal shares of
$256 million, Mr. Taubman agreed to pay $156 million of Sotheby's
portion. He also agreed to pay $30 million to settle a suit by Sotheby's
stockholders who argued that their holdings were devalued by the
company's wrongdoing. In return, Sotheby's agreed not to seek other
financial redress from Mr. Taubman.

Of the remaining $100 million that Sotheby's must pay under the civil
settlement, $50 million can be in the form of coupons to future sellers,
so the company need only come up with $50 million cash. Christie's, which
is privately held, must come up with the entire $256 million. (The New
York Times, October 5, 2000)


* New York Law Journal's Article on Directors' and Officers' Liability
----------------------------------------------------------------------
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
prohibit misstatements or omissions of material fact made with scienter
"in connection with" the purchase or sale of a security. The cases
interpreting the "in connection with" requirement illustrate the
difficulty of extracting substantive principles from a prepositional
phrase.

Because "in connection with" suggests no fixed and precise meaning,
courts have sought to define the requisite nexus between alleged
misrepresentations and the decision to purchase or sell a security in a
manner that provides certainty, yet preserves flexibility to meet unusual
circumstances. (See, e.g., Superintendent of Ins. v. Bankers Life & Cas.
Co., 404 U.S. 6, 11-12 (1971).)

In Semerenko v. Cendant Corp., (216 F.3d 315 (3d Cir. 2000), the U.S.
Court of Appeals for the Third Circuit recently dispelled much of the
confusion in its jurisdiction, but other courts continue to employ
varying approaches in evaluating whether the nexus between alleged
fraudulent conduct and the trading of securities is sufficient to trigger
liability. This column reviews the expansive interpretation of Rule 10b-5
adopted by the Third Circuit, and compares it with the approaches of
other federal courts.

In Semerenko, a purported class of purchasers of American Bankers
Insurance Group, Inc. (ABI) common stock alleged securities fraud against
Cendant Corporation, certain of Cendant's former directors and officers
and its outside accountant. Plaintiffs had not purchased Cendant stock,
and did not allege that any of the defendants made a material
misstatemement or omission about the value of any ABI security. Rather,
plaintiffs contended that during the pendency of a tender offer by
Cendant for the outstanding shares of ABI, defendants made material
misrepresentations concerning Cendant's financial condition and its
willingness to complete the proposed tender offer and subsequent merger.
The alleged misrepresentations were contained in public statements by
Cendant and its directors and officers after the announcement of the ABI
tender offer, and concerned the nature and extent of accounting
irregularities that prompted multiple restatements of Cendant's earnings.
Amid its disclosures concerning the accounting irregularities, Cendant
issued several public statements affirming its commitment to the tender
offer. The successive disclosures about Cendant's accounting problems
eroded the price boost ABI's stock enjoyed after announcement of the
merger agreement with Cendant, culminating in a precipitous decline when
Cendant and ABI announced the termination of the merger agreement. Id. at
319-22.

The district court dismissed plaintiffs' securities fraud claims on
multiple grounds, including that the alleged misrepresentations were not
made "in connection with" any purported class member's purchase of ABI
stock. The Third Circuit reversed. Citing a "plethora of intermediate
steps" between Cendant's alleged misrepresentations about its financial
condition and plaintiffs' purchase of allegedly inflated ABI stock,
including the effect on the price of ABI stock of an earlier, competing
offer to purchase ABI and the conditional nature of the Cendant merger
agreement, the district court deemed the connection between the alleged
misrepresentations and the plaintiffs' investment too tenuous to support
a claim. P. Schoenfeld Assset M'gt LLC v. Cendant Corp., 47 F. Supp.2d
546, 554 (D.N.J. 1999), rev'd, 216 F.3d 315 (2000).

Reviewing its prior cases addressing the "in connection with"
requirement, the Third Circuit distilled two principles: (1) the phrase
requires a causal connection between the alleged fraud and the relevant
securities transaction, and (2) the misrepresentations need not refer to
a particular security. Positing a need for a standard that recognizes the
"realistic causal effect that material misrepresentations, which raise
the public's interest in particular securities, tend to have on the
investment decisions of market participants who trade in those
securities" the court held that if the alleged misrepresentations are
material, "the 'in connection with' requirement may be satisfied simply
by showing that they were publicly disseminated in a medium upon which
investors tend to rely." It is irrelevant, according to the Third
Circuit, that the alleged misrepresentations were not intended to
influence the investment decisions of market participants. The court
remanded the case to the district court for further proceedings
concerning materiality and public dissemination, cautioning that
materiality (which in a fraud on the market case generally equates with
information that alters a stock's price) typically poses a mixed question
of law and fact seldom suitable for summary disposition.

The Third Circuit's expansive interpretation of "in connection with"
contrasts with the "investment value" approach adopted by many courts,
including the U.S. Courts of Appeals for the Fourth and Seventh Circuits
(and the Second Circuit in non fraud on the market cases). (See Gurwara
v. Lyphomod, Inc., 937 F.2d 380 (7th Cir. 1991); Head v. Head, 759 F.2d
1172 (4th Cir. 1985).)

The investment value approach precludes liability unless a misleading
statement relates to the value of the relevant security or the
consideration offered for the security. Requiring a meaningful connection
between a securities transaction and allegedly fraudulent conduct, this
standard ensures that liability will not attach merely because securities
are incidentally involved in an allegedly fraudulent transaction. For
example, regardless of available state law claims, it would not be
securities fraud if a company's executives induced someone to accept
employment by promising, with no intention of performing, that the
employee would receive stock in the company.

Rather, the "investment value" approach captures statements addressing
the perceived value of the security, including the investment
characteristics of the security itself, the viability or quality of the
issuer and its goods or services, and other attributes of ownership that
would induce a reasonable investor to buy or sell the security. (See
Miller v. Asensio, 101 F. Supp.2d 395, 400-01 (D.S.C 2000); Production
Resource Group, L.L.C. v. Stonebridge Partners Equity Fund, L.P., 6 F.
Supp.2d 236, 240 (S.D.N.Y. 1998); Alex, Brown & Sons Inc. v. Marine
Midland Banks, Inc., 1997 WL 97837, *5 (S.D.N.Y. 1997); Press v. Chemical
Inv. Servs. Corp., 988 F. Supp. 375, 389 (S.D.N.Y. 1997).)

This approach reflects the purpose of Rule 10b-5: "to make sure that
buyers of securities get what they think they are getting and that
sellers of securities are not tricked into parting with something for a
price known to the buyer to be inadequate or for a consideration known to
the buyer not to be what it purports to be."  Chemical Bank v. Arthur
Andersen & Co., 726 F.2d 930 (2d Cir.), cert. denied, 469 U.S. 884
(1984).

A South Carolina federal court recently canvassing Second Circuit law
suggested that the district courts in the circuit are inconsistently
interpreting "in connection with." (Miller, 101 F. Supp.2d at 400 n.6.)
The confusion stems from the different approaches the Second Circuit has
endorsed in cases involving (a) face-to-face representations and (b)
public statements allegedly absorbed into an efficient market for
actively traded securities.

Courts in the Second Circuit generally have enforced the "investment
value" approach in cases alleging securities fraud arising out of
essentially face-to-face transactions. For example, courts have dismissed
for failure to allege sufficient nexus between misrepresentation and
securities transaction Rule 10b-5 claims alleging that (a) a brokerage
house fraudulently induced its customer to liquidate his stock portfolio
for reinvestment purposes; (b) defendant failed to convey the proceeds of
a securities transaction when due; and (c) defendant's directors
negotiated for the sale of all their company's shares with no intention
of concluding an agreement. (See Saxe v. E.F. Hutton & Co., Inc., 789
F.2d 105 (2d Cir. 1986); Press, 988 F. Supp. at 388-89; Production
Resource Group, 6 F. Supp.2d at 239 40). While misrepresentations were
alleged in each of these face-to-face transactions, they did not pertain
to the merit or value of the security at issue and thus were not
actionable under Rule 10b-5.

In fraud on the market cases, the Second Circuit interprets "in
connection with" more expansively. If open market purchases or sales are
made allegedly in reliance on public misstatements or omissions that
could affect the company's stock price, the Second Circuit subsumes the
"in connection with" inquiry into the materiality standard. Accordingly,
if the alleged misleading information is of a sort that a reasonable
investor would rely on in deciding to buy or sell a security, the
requisite connection between the alleged fraud and the securities
transaction is present. See, e.g., In re Ames Dep't Stores Inc. Stock
Litig., 991 F.2d 953 (2d Cir. 1993); In re The Leslie Fay Co's, Inc. 871
F. Supp. 686 (S.D.N.Y. 1995).

This "effect on the market" test casts a wide net, particularly at the
pleading stage. Courts in the Second Circuit have sustained claims in
fraud on the market cases if a reasonable investor might have considered
the statement in evaluating a company's prospects, even if the statement
was not directed at investors. Thus, class action claims have proceeded
based on an array of publicly available information, from statements
directed at shareholders contained in quarterly and annual public filings
and press releases, to purely technical product information published in
a trade journal, because of the breadth of information consulted by
financial analysts. (See id.; see also In re Carter-Wallace, Inc. Sec.
Litig., 150 F.3d 153, 156-57 (2d Cir. 1998).) After the pleading stage,
in order to avoid dismissal plaintiffs must present credible evidence
that any allegedly misleading statement was actually consulted and used
by market professionals in evaluating the stock of the company.

                             Conclusion

Asserting a successful threshold challenge to a class action complaint's
"in connection with" allegations will be difficult under Semerenko's
materiality plus public dissemination in a reliable medium standard, or
the Second Circuit's subtantially similar approach in fraud on the market
cases. The growing number of cases sustaining claims based on alleged
misstatments connected to a securities transaction only by assumption
propped up by inference warrants judicial reconsideration of the
Semerenko standard. Moreover, the textual basis of the standard is
questionable, as it essentially subsumes an element of the 10b-5 claim
into the distinct materiality inquiry. In contrast, the investment value
approach has the virtue of reasonably distinct landmarks fixing the
boundaries of liability - the requisite connection is only present when
plaintiff alleges and proves it purchased or sold a security in reliance
on a misrepresentation as to its value or merit.

(See id.; see also In re Carter-Wallace, Inc. Sec. Litig., 150 F.3d 153,
156-57 (2d Cir. 1998).) In the meantime, the minimal nexus required in
fraud on the market cases underscores the importance of meticulous care
and investigation attending the preparation and issuance of any public
statements made by directors and officers, whether in press releases,
letters to shareholders, quarterly and annual reports or any other public
medium. (New York Law Journal, September 26, 2000)


                             *********


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