/raid1/www/Hosts/bankrupt/CAR

/raid1/www/Hosts/bankrupt/CAR_Public/001129.MBX C L A S S A C T I O N R E P O R T E R Wednesday, November 29, 2000, Vol. 2, No. 232 Headlines AMERICAN PAD: Securities Suit Against Underwriters Dismissed in Dallas ANNTAYLOR STORES: High Court Won't Review Securities Suit Reinstatement AUTO INSURANCE: State Farm to Cut Rates for Big Cars, Trucks, Sport Car CHUBU ELECTRIC: Ct Orders Firm & Japanese Govt to Pay for Air Pollution CROWN CENTRAL: Announces Dismissal of Securities Suit in Texas DAIMLERCHRYSLER: CNN Coverage on Lawsuit over Merger GIANT FOOD: Employees Vow to Appeal Denial of discrimination suit Cert. HELIONETICS, INC: Milberg Weiss Files Securities Suit in California HELIONETICS, INC: Milberg Weiss Files Securities Suit in California INDIANAPOLIS POLICE: Court Strikes Down Random Drug Stops LABORATOIRE SERVIER: Decision Time Approaces In Action Over Isomeride LASON, INC: Names Ronald D. Risher Chief Financial Officer MAGELLAN HEALTH: Journal Reviews Lawsuits’ Focus on Contractor Role MICROSOFT CORP: Says Trial Judge in Antitrust Suit Made Series of Errors ODYSSEY PICTURES: Securities Suit in 1996 Dismissed; New Filings Pending PNC BANK: Check Cashing Charge on Non-Customer Does Not Violate PA Code POLYMEDICA CORP: Shapiro Haber Files Suit in MA on Behalf of Shareholder PRESIDENTIAL ELECTION: Judge n. Sanders Chosen for Fla. Recount Case SECURITY STORAGE: Sale at Merger Price Defeats Minority Shareholder Suit SOTHEBY'S, CHRISTIE'S: Art Sellers Look to Use Coupons in Settlement ZONOLITE LITIGATION: Suits against W.R. Grace, Sealed Air Merged in MA ********* AMERICAN PAD: Securities Suit Against Underwriters Dismissed in Dallas ---------------------------------------------------------------------- A federal judge in Dallas has dismissed a securities fraud complaint against the bankrupt American Pad & Paper Co., some of its officers and directors, the parent of the company's lender bank, and underwriters of its July 1996 initial public offering. Zishka et al. v. American Pad & Paper Company et al. , No. 3:98-CV-0660-M (N.D. Tex., Sept. 13, 2000). Under the heightened pleading standards of the Private Securities Litigation Reform Act of 1995, the class-action complaint contained undetailed, repetitive and conclusory allegations and is undifferentiated as to the various defen dants, said Judge Barbara M.G. Lynn of the Northern District of Texas. Even so, the court granted leave to replead the complaint and the investors have the option of stating actionable claims within a limited time period. The investors filed suit under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and under Rule 10b-5 for the period from July 2, 1996, through Dec. 17, 1997. The complaint fails to meet the heightened pleading requirements of the PSLRA, the judge ruled. In part, the plaintiffs alleged that the chief executive officer and chief operation officer knew that bad news was forthcoming and used that insider knowledge to sell shares not long before the stock price dropped substantially. Those allegations are sufficient to satisfy the motive of scienter as to those two officers, Judge Lynn said, and their key roles in the company provided an opportunity to defraud. However, the judge held that the complaint inadequately alleged scienter as to two directors who allegedly were motivated by the prospect of lucrative compensation and bonuses under their employment contracts. As to outside directors, she said scienter and motive were inadequately pleaded, and there were no individual allegations against the directors except for signing the 1966 10-K and registration statement. Moreover, there was no showing that a bank holding company committed any wrongdoing or that it controlled or conspired with either its underwriting subsidiary or its lender subsidiary, Judge Lynn said. Regarding the underwriters, the court also ruled that the complaint did not adequately plead motive. For example, it does not allege that they took part in the making of statements they knew or should have known to be false during or before the IPO. And a vague hope of future business and the existence of an indemnity do not provide an adequate motive, said the court. The facts are inconsistent with the purported profit motive of other defendants, and the court held that the compensation motive is legally insufficient to state a claim. In granting leave to replead, Judge Lynn cautioned that she will carefully scrutinize any amended complaint for allega tions that are directly at odds with clearly, accurately disclosed risks in the prospectus. She also directed the investors to make clear the basis for any primary liability allegations as to each defendant. (Corporate Officers and Directors Liability Litigation Reporter, October 23, 2000) ANNTAYLOR STORES: High Court Won't Review Securities Suit Reinstatement ----------------------------------------------------------------------- The U.S. Supreme Court won't review the reinstatement of a class-action securities suit pending against AnnTaylor Stores Corp., a decision that short-circuits for now the court's consideration of the burden shareholder lawsuits must meet to survive early stages of litigation. The high court's refusal to weigh in on the case means that AnnTaylor must continue to battle allegations the company and former executives fraudulently engaged in a scheme to inflate its stock price in 1994 by hiding excess inventory, described in the initial shareholder complaint as a "box and hold" strategy. The case stems from a 1996 lawsuit brought by shareholders Carol Novak and Robert Nieman on behalf of all purchasers of AnnTaylor stock between Feb. 3, 1994 and May 4, 1995. In November 1998, a federal judge dismissed the case, saying that the plaintiffs didn't allege facts in their complaint that would have strongly indicated AnnTaylor and its officials acted fraudulently. But in June of this year, the Second Circuit Court of Appeals vacated that decision and sent the case back for further proceedings, saying that the district judge erred in concluding that the "plaintiffs failed to plead sufficient facts to support a strong inference of fraudulent intent" and that the judge placed an "exceedingly onerous burden" on the shareholders to supply specifics, such as the names of their confidential sources. In broader terms, the decision means that lower federal courts will continue to interpret in their own way certain key provisions of the Private Securities Litigation Reform Act, passed in 1995, to help companies fight off lawsuits claimed to be frivolous. In its petition for review, lawyers for AnnTaylor, a New York-based apparel retailer, argued that the reform act reflected Congress's attempt "to create a uniform pleading standard for securities fraud class actions more stringent" than previously applied. Instead, the lawyers said, the courts of appeals have interpreted the pleading requirements "in irreconcilably divergent manners, with the practical consequence that securities class action complaints that would be dismissed in one jurisdiction will be permitted to stand in others." (Dow Jones Business News, monday, November 27, 2000) AUTO INSURANCE: State Farm to Cut Rates for Big Cars, Trucks, Sport Car ----------------------------------------------------------------------- State Farm, the nation's biggest auto insurer, plans to announce a shift in its pricing policies that will cut rates for drivers of the biggest cars, trucks and sport utility vehicles, like the Chevrolet Suburban, based on claims data showing them to be the safest for their occupants. By disregarding the threat that bigger cars pose to smaller vehicles, the new pricing structure -- which will replace near-universal discounts for vehicles equipped with air bags -- drew criticism from consumer advocates. (The New York Times, November 28, 2000) CHUBU ELECTRIC: Ct Orders Firm & Japanese Govt to Pay for Air Pollution ----------------------------------------------------------------------- A Japanese court ordered the government and 10 firms Monday to pay some 307 million yen in damages to victims of air pollution in this central Japan city. Nagoya District Court ordered the government to make payments totaling 18.09 million yen to the plaintiffs, confirming its responsibility for air pollution caused by automobile exhaust fumes on national roads running nearby Nagoya port. The court said the 10 firms, including Nippon Steel Corp. and Chubu Electric Power Co., must pay 289.62 million yen for discharging toxic smokes at their plants around the port in the southern part of the city. The ruling thus admitted that suspended particulate matters, or SPMs, which are included in exhaust gases, and nitrogen oxide discharged from industrial plants, caused respiratory diseases that hit residents in the city in the 1960s and 1970s. A total of 145 citizens filed the damages suit in March 1989, including those who were officially identified by the government as victims of pollution-caused diseases, and the families of dead victims. The total damages imposed on the defendants were far less than the 4.2 billion yen as sought by the plaintiffs. The court, presided by Judge Akinori Kitazawa, also ordered the government to suspend SPM emissions in excess of 0.159 milligram per cubic meter on daily average, on National Route 23. The Nagoya case was the last pending suit filed by victims of hazardous smokes from industrial plants in Japan. Resolved suits include one concerning air pollution damage in Amagasaki, Hyogo Prefecture, western Japan, which resulted in defendant companies' compensation payments to victims in an out-of-court settlement in February 1999. Monday's court ruling also came as a fresh defeat for the government after it lost a series of past suits filed against its failure to stop emissions of harmful exhaust fumes on roads. The Nagoya case represented the second suit, in which the government was ordered to stop emissions of certain levels of SPMs after a similar pollution suit in Amagasaki, for which a ruling was handed down in January 2000. (Jiji Press Ticker Service, November 27, 2000) CROWN CENTRAL: Announces Dismissal of Securities Suit in Texas -------------------------------------------------------------- Crown Central Petroleum Corporation (Amex: CNP.A, CNP.B) announced on November 27 that in an opinion dated November 20, 2000, federal Judge Richard A. Schell, Chief Judge of the Eastern District of Texas, denied an attempt to certify a class in a discrimination case filed against Crown. The case was filed in 1997 by eight employees of Crown alleging various claims of racial and sexual discrimination. When the case was originally filed, the plaintiffs purported to represent a national class of all female and African-American employees throughout the Company. They initially alleged claims involving company-wide disciplinary and promotional policies as well as harassment. During the course of the litigation, the plaintiffs eventually dropped all of their claims on behalf of the alleged class regarding discipline and promotions as well as all claims relating to employees outside the state of Texas. In his ruling, Judge Schell refused to certify even that limited class, finding that a class action was an inappropriate method for handling the case. Crown continues to deny all of the allegations of discrimination. The case will now proceed on the various separate claims of the eight individual plaintiffs. Crown believes these individual cases are also without merit. Headquartered in Baltimore, Maryland since 1930, Crown advises that it operates two Texas refineries with a total capacity of 152,000 barrels per day, 329 Crown gasoline stations and convenience stores in the Mid-Atlantic and Southeastern U.S., and 13 product terminals along the Colonial, Plantation and Texas Eastern Products pipelines. DAIMLERCHRYSLER: CNN Coverage on Lawsuit over Merger ---------------------------------------------------- (Broadcast on the Cable News Network on November 28, 2000) HEADLINE: 'Financial Times': Kirk Kerkorian Sues DaimlerChrysler, Alleging Fraud BYLINE: David Haffenreffer, Deborah Marchini HIGHLIGHT: One of DaimlerChrysler's biggest shareholders, Kirk Kerkorian, is suing the company, alleging fraud. Kerkorian wants the merger dissolved, but this morning Daimler said it has no plans to cut Chrysler off. Lionel Barber, of the "Financial Times," discusses what Kerkorian wants and his chances for success. DAVID HAFFENREFFER, CNN ANCHOR: Well, one of DaimlerChrysler's biggest shareholders, Kirk Kerkorian, is suing the company, alleging fraud. DEBORAH MARCHINI, CNN ANCHOR: Kerkorian wants the merger dissolved, but this morning Daimler said it has no plans to cut Chrysler off. Lionel Barber, of the "Financial Times," joins us from the "FT"'s London newsroom. And what do you sense that Kirk Kerkorian wants? LIONEL BARBER, NEWS EDITOR, "FINANCIAL TIMES": I think he wants a lot of money. He has seen his shareholding in DaimlerChrysler plunge since the merger by almost 50 percent, he has filed this $8 billion suit, we know he is not going to get $8 billion. But he is going to stoke up the pressure and he is basing his case partly on an interview which Juergen Schrempp, the DaimlerChrysler boss, gave to the "Financial Times" a few weeks ago, in which Mr. Schrempp made clear that there was always a bit of a plan B, that yes, he would cast this as a merger of equals between Daimler- Benz and Chrysler, but actually, after a few months, Chrysler would assume a more subsidiary role in that division, and then it would be a full-scale takeover. And that is actually what has happened recently. HAFFENREFFER: Do you think it is Mr. Kerkorian's hope that perhaps this turns into a class-action suit? BARBER: He may have that in the back of his mind, although what we are going to try and look at in tomorrow's paper is how serious he has a chance of succeeding and whether this is really serious or frivolous. I mean, after all, if you look at some of the great mergers recently, look at Citigroup and Travelers, somebody eventually -- they cast it as a merger of equals -- but somebody comes out on top and in Citigroup's case it was Sandy Weill. HAFFENREFFER: All right, Lionel Barber, at the "Financial Times," thanks for joining us. And we should note that the folks at DaimlerChrysler said -- they called the lawsuit "without merit." GIANT FOOD: Employees Vow to Appeal Denial of discrimination suit Cert. ----------------------------------------------------------------------- The attorney for plaintiffs in a discrimination suit against the Giant Food supermarket chain said she will appeal the denial of class-action status by a federal judge. "It's not over til it's over, til the fat lady sings. Isn't that what they say?" plaintiffs attorney JoAnn P. Miles said following the ruling. U.S. District Judge Frederick J. Motz granted the motion for summary judgment, in effect refusing class certification in a case filed by six black employees - Raquib A. Muhammad, Daniel E. Johnson III, Darnell Hart, Ronald A. Evans, Linda A. Jones and Myra B. Jones. Evans is the only employee still working for the supermarket chain. Miles said the ruling is far from the end of the case. "Class certification could be reinstated. We still have another case. The great thing about motions for class certification is that they can be reinstated two or three times," Miles said. The other case, Gregory Carson et al. v. Giant Food Inc., was filed against the company in 1996 on behalf of 11 black employees in Giant stores and its warehouse, Miles said. The Carson case is still pending before Motz. Barry F. Scher, Giant vice president for public affairs, said that the company would not comment on the case. In addition to granting Giant's motion for summary judgment, Motz ordered the case to be separated into six individual cases. Miles said she had never seen such a decision made before, and was not sure how it would affect her appeal to the 4th Circuit Court of Appeals. "We may end up having to ask the 4th to consolidate the cases," Miles said. "The point is, the class certification is not a dead issue." Last year, Giant executives pledged to work with NAACP officials in Prince George's County to assure that minorities have equal access to jobs and business opportunities with the retailer. The move, however, was immediately criticized by a plaintiffs attorney as a token effort to derail the multi-million dollar lawsuits. The company has entered into a similar fair employment practices pact in 1997 with the national office of the National Association for the Advancement of Colored People, based in Baltimore. The lawsuits allege management at the supermarket chain routinely used racial epithets to describe black workers; condoned the use of such terms by white employees; maintained segregated locker facilities at one site; and condoned the hanging of black dolls by nooses and offensive pictures in the work place. Black employees were also wrongly accused of theft and not given the same opportunities for full-time work and advancement, the suits contend. (The Associated Press State & Local Wire, November 28, 2000) HELIONETICS, INC: Milberg Weiss Files Securities Suit in California ------------------------------------------------------------------- Milberg Weiss (http://www.milberg.com)announced on November 27 that after 6 years of litigation, a federal jury in the United States District Court for the Central District of California returned a verdict in favor of a class of investors in the now bankrupt company, Helionetics, Inc. The jury found that investors were defrauded by certain of the company's senior officers and directors in a scheme that violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The jury awarded plaintiffs' aggregate class-wide damages of $15.4 million against those officers and directors and against the spouse of Company's Chairman for her control over the defendants. Lead trial counsel were Milberg Weiss partners Mark Solomon and Paul Howes. Commenting on the verdict, Mark Solomon stated: "This should serve as a warning to corporate executives who lie and try to hide behind the Company's assets -- ultimately their individual assets should be, and are, on the line." Contact: Milberg Weiss Bershad Hynes & Lerach LLP William Lerach, 800/449-4900 wsl@mwbhl.com HELIONETICS, INC: Milberg Weiss Files Securities Suit in California ------------------------------------------------------------------- Milberg Weiss (http://www.milberg.com)announced on November 27 that after 6 years of litigation, a federal jury in the United States District Court for the Central District of California returned a verdict in favor of a class of investors in the now bankrupt company, Helionetics, Inc. The jury found that investors were defrauded by certain of the company's senior officers and directors in a scheme that violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The jury awarded plaintiffs' aggregate class-wide damages of $15.4 million against those officers and directors and against the spouse of Company's Chairman for her control over the defendants. Lead trial counsel were Milberg Weiss partners Mark Solomon and Paul Howes. Commenting on the verdict, Mark Solomon stated: "This should serve as a warning to corporate executives who lie and try to hide behind the Company's assets -- ultimately their individual assets should be, and are, on the line." Contact: Milberg Weiss Bershad Hynes & Lerach LLP William Lerach, 800/449-4900 wsl@mwbhl.com INDIANAPOLIS POLICE: Court Strikes Down Random Drug Stops --------------------------------------------------------- The Supreme Court Tuesday declared random police drug stops unconstitutional. The 6-3 decision strikes down an Indianapolis policy in which police randomly stopped vehicles going into drug-infested neighborhoods for inspection by drug-sniffing dogs. Writing for the majority, Justice Sandra Day O'Connor said, "The Fourth Amendment requires that searches and seizures be reasonable. A search or seizure is ordinarily unreasonable in the absence of individualized suspicion of wrongdoing." O'Connor conceded that in the past the Supreme Court has upheld "brief, suspicionless seizures of motorists at a fixed Border Patrol checkpoint designed to intercept illegal aliensand at a sobriety checkpoint aimed at removing drunk drivers from the road." The high court has also upheld "a similar type of roadblock with the purpose of verifying drivers' licenses and vehicle registrations." She added, "In none of these cases, however, did we indicate approval of a checkpoint program whose primary purpose was to detect evidence of ordinary criminal wrongdoing." The Supreme Court's three consistent conservatives -- Chief Justice William Rehnquist and Justices Antonin Scalia and Clarence Thomas -- dissented. Rehnquist said the only difference between those random stops approved by the majority and those declared unconstitutional was the addition of a drug-sniffing dog. Scalia joined fully in the chief justice's dissent, but Thomas only partly agreed, and wrote separately in dissent. Thomas, in very surprising language for a traditional ally of Rehnquist and Scalia's, said he was unsure if the Supreme Court precedents allowing drunk-driving or drivers-license stops "were correctly decided. Indeed, I rather doubt that the Framers of the Fourth Amendment would have considered 'reasonable' a program of indiscriminate stops of individuals not suspected of wrongdoing." In other words, Thomas questioned the constitutionality of all such stops. But he added in his short dissent that the case before the Supreme Court did not address those precedents, and so he was forced to join Rehnquist in disagreeing with the majority. In the case decided Tuesday, law enforcement officers blocked a predetermined number of vehicles going into drug-infested neighborhoods in Indianapolis. One officer checked the licenses and registrations of those drivers stopped. At the same time another officer led a drug-sniffing dog around each stopped vehicle. If the dog signaled the presence of drugs, officers believed they had "probable cause" to search a vehicle without a warrant. Indianapolis conducted six such roadblocks between August 1998 and November of the same year, when the courts shut them down. Police stopped 1,161 vehicles, and arrested 55 people on narcotics offenses and another 49 for other crimes. Two drivers who were stopped at Indianapolis drug checkpoints in 1998 filed a class-action suit against the city and city officials in federal court. The men, James Edmond and Joell Palmer, were not charged with drug offenses, but they contended that the stops were unconstitutional. The Fourth Amendment to the Constitution bans "unreasonable searches and seizures," among other things. Though a federal judge ruled the drug roadblocks were constitutional -- citing those Supreme Court decisions that allowed stops to search for illegal aliens and to check for sobriety -- a divided federal appeals court eventually ruled for the men, saying that law enforcement must have some reason to believe criminal activity has taken place if officers are going to stop a vehicle for a criminal investigation. The city then asked the Supreme Court for review. Tuesday's decision "affirms" or upholds the appeals court decision. (United Press International, November 28, 2000) LABORATOIRE SERVIER: Decision Time Approaces In Action Over Isomeride --------------------------------------------------------------------- The final phase of legal proceedings against the French drugmaker Laboratoire Servier over its appetite suppressant Isomeride (dexfenfluramine) will take place in Paris on December 22, when a Nanterre tribunal is expected to deliver a judgement that will have a major impact on the company one way or another. The compound was also marketed by American Home Products as Redux, but was withdrawn from the US and European markets following the observance of side effects including pulmonary hypertension and deformation of the heart valves (Marketletters passim). The Servier action has been rumbling on for three years and concerns the case of Anna Paulos, who is terminally ill with pulmonary arterial hypertension which she attributes to use of dexfenfluramine, a belief given substantiation by drug experts. Servier has always denied any connection between dexfenfluramine and Ms Paulos' condition, and the company's lawyer is calling for the withdrawal of the expert report on the grounds that it fails to establish a certain cause of the disease in this case. Earlier this year, the firm stated that it wished to draw attention to the fact that, up to the present, "no direct and certain causal link" has ever been demonstrated between these drugs and cardiac valvulopathy or pulmonary arterial hypertension (Marketletter April 10). 7 million French patients in 10 years Around 7 million French patients used dexfenfluramine in the 10-year period from its launch in 1985 and, of this total, several hundred were affected by pulmonary arterial hypertension. Following an inquiry report published by Lucien Abenhaim in 1995 underlining the significant risk of the condition associated with dexfenfluramine use, the French regulatory authorities limited prescription of the agent to the hospital sector. Despite this, it was launched in the USA the following year by AHP but withdrawn from sale in both markets (Marketletter September 22, 1997). In contrast to France, legal actions mushroomed in the USA and, in order to escape a large-scale class action, AHP agreed at the end of 1999 to pay $ 3.75 billion in compensation to Redux patients (Marketletters passim). No class action procedure is available under French law and only one other woman is claiming compensation and damages from Servier. She filed her action in March 1997 and the total amount at issue is 7 million French francs ($ 909,300). However, the Paulos case is said by a number of observers to constitute a serious precedent for Servier because it is being followed by a large number of pulmonary arterial hypertension patients who have formed an association. AHP is also understood to be considering an action against Servier after losing billions of dollars through the drug. (Marketletter, November 27, 2000) LASON, INC: Names Ronald D. Risher Chief Financial Officer ---------------------------------------------------------- Lason, Inc. (OTCBB:LSON) announced that Ronald D. Risher will join the Company as Executive Vice President and Chief Financial Officer. Mr. Risher (age 44) was most recently a Principal of Franklin Advisors, LLC and previously served as Vice President, Corporate Controller, Treasurer and Secretary of Thorn Apply Valley, Inc. Commenting on the announcement, John Messinger, president and chief executive officer of Lason, stated, "Ron Risher joins Lason with a very diversified experience in financial management. He served in key financial and accounting roles for a $900 million public company, including banking and financial institution relationships, SEC reporting, acquisitions, budgeting and financial projection modeling. He will assume the CFO's role from John Stelter, Lason's interim CFO from the firm of Conway MacKenzie & Dunleavy. Mr. Risher will work closely with the Conway MacKenzie firm in transitioning the Lason financial management team to an in-house operation. "Ron Risher's experience with multi-divisional financial reporting will also be important in his role of directing the field accounting for Lason's four newly formed divisions. He has substantial experience in developing corporate wide accounting policies and treasury management functions including credit, collection and cash management. We look forward to Ron joining the senior management team at Lason and his leadership of the financial and accounting functions." Ronald D. Risher is a Certified Public Accountant and a Cum Laude graduate of Western Michigan University. Prior to joining Lason, Mr. Risher founded Franklin Advisors, LLC, a professional corporation providing a wide array of executive management and consulting services. He joined Thorn Apply Valley, Inc. in 1983 and most recently served as Vice President Corporate Controller, Treasurer and Secretary of the Company in 1999 prior to founding Franklin Advisers, LLC. Prior to joining Thorn Apple Valley, Mr. Risher was with Price Waterhouse & Co. since 1978. MAGELLAN HEALTH: Journal Reviews Lawsuits’ Focus on Contractor Role ------------------------------------------------------------------- Two major law firms have filed nationwide class-action lawsuits against Magellan Health Services Inc. and subsidiary Magellan Behavioral Health Inc., charging that the managed behavioral health care giant provides coverage of lesser market value than the coverage promised by health plans that use Magellan as a carve-out contractor. The lawsuits are a first for the behavioral health care industry. Previous suits have focused on denial of care or, in an unsuccessful suit brought by a group of New Jersey providers, on price-fixing by the industry's largest players. The issue at hand in the most recent action is Magellan's role as a carve-out contractor and the failure to disclose that role to health plan members. Filed Oct. 26 in U.S. District Court in Missouri by the Washington, D.C.-based Cohen, Milstein, Hausfeld & Toll and the Philadelphia-based Berger & Montague, the lawsuits are similar to a consolidated set of class-action suits filed against seven of the nation's largest health maintenance organizations (HMOs), charging that they have failed to disclose their managed care practices. The new lawsuits are not intended to change the way care is managed, but to require that companies tell the public what their practices are so that it can make an informed choice about whether it wants to do business with a particular company, Stephen D. Annand, an attorney with Cohen Milstein, told ADAW. "This lawsuit does not challenge the legality, or even the wisdom, of managed care in general," the complaint reads. "Rather, it is aimed at forcing Magellan to abide by its legal obligations, to refrain from fraud and other abuses, and to return to those persons damaged by its misconduct the unjust enrichment obtained by Magellan." The lawsuits contend that Magellan has: * Failed to fully identify and explain its participation in the provision of covered behavioral health benefits. * Failed to inform class members that in many circumstances, it has assumed the underlying insurance risk for their behavioral health care benefits. * Failed to disclose that it applied coverage criteria that are more restrictive than the definition or criteria of medical necessity used to describe coverage in health plan documents. * Failed to inform class members that it created financial incentives or exerted pressure on physician advisers and claims reviewers to deny claims regardless of the medical necessity of the services involved. * Failed to inform class members that it provided direct financial incentives to physicians, health care professionals and others through means such as capitated payment arrangements that are intended to reduce the amount of care provided to class members. * Failed to inform class members that it had not adopted guidelines for treatment of schizophrenia and other major psychiatric disorders. The lawsuits contend that Magellan, by means of material representations and omissions, provided class members with coverage of lesser market value than the coverage that had been described and presented to plan members. The case is an important one because it demonstrates that not only are HMOs liable to the public, but their subcontractors have independent liability as well. "No one has brought them before the judicial system to be answerable for their role in this," attorney Annand said of carve-out companies. The plaintiffs are seeking relief under two federal statutes: the Racketeer Influenced and Corrupt Organizations Act (RICO) and the Employee Retirement and Income Security Act (ERISA). The amount they are seeking remains to be determined. Roughly, it would be three times the difference in market value between the benefits described in health plan materials and the benefits actually delivered. About 50 million covered lives would be affected by the decision, including all but those covered under Magellan's federal and Medicaid contracts. Magellan's initial response is that the case is without merit. "We believe that our operations are in full compliance with the law," spokeswoman Erin Somers told ADAW. Attorneys for Magellan are in the process of preparing a written response for the court, which will be filed around the end of the year. Magellan can either file a response or submit a motion to dismiss the lawsuit, or both. Plaintiff experiences Three plaintiffs are named in the Cohen Milstein lawsuit. One had claims denied for detoxification and substance abuse treatment. The other two are a mother and son. The son, as a minor, was denied inpatient psychiatric care despite a referral by his psychiatrist, according to the suit. All three plaintiffs were plan members of Alliance Blue Cross Blue Shield of Missouri. Magellan has a sizeable operation in Missouri at its St. Louis center. Annand said that Magellan is taking advantage of plan members it serves by applying rigid criteria for judging the validity of proposed care. Magellan doesn't disclose its criteria to the public, he said, nor does it disclose its involvement as a contractor to the health plan. The most egregious aspect of Magellan's business practice, according to Annand, is that in many instances it assumes financial risk for paying claims, in effect becoming an insurance company for the behavioral health benefit, without the plan member ever knowing it. "We find that to be particularly inappropriate," he said. "I think it's important that the public know who they're dealing with." The case boils down to the issue of coverage and the market value of that coverage, Cohen Milstein attorney Margaret G. Farrell told ADAW. Magellan sold a policy promising one set of benefits but delivered a more restrictive package, she said. The case, if successful, hopefully would make Magellan more accountable to the people it serves, Farrell said. The company would have to describe the actual level of coverage it provides, and in the process perhaps rethink the consequences of its criteria. The current dynamic in the private sector ultimately harms the public system, Farrell said. The denial of coverage for mental health and substance abuse services can lead to unemployment, jail time and Medicaid enrollment, she said. (Alcoholism & Drug Abuse Weekly, November 13, 2000) MICROSOFT CORP: Says Trial Judge in Antitrust Suit Made Series of Errors ------------------------------------------------------------------------ Microsoft filed a brief with the appeals court that will review its antitrust case, contending that the judge who ordered the company's breakup committed a host of procedural and substantive errors during the trial. The company said Judge Thomas Penfield Jackson, who ruled in favor of the government on virtually every claim it brought, committed a series of mistakes in his handling of the trial and his interpretation of antitrust law. And it said that in commenting publicly on the case, the judge had shown bias and violated the judicial code of conduct. (The New York Times, November 28, 2000) ODYSSEY PICTURES: Securities Suit in 1996 Dismissed; New Filings Pending ------------------------------------------------------------------------ In March, 1996, a class action complaint was filed against the Company entitled Dennis Blewitt v. Norman Muller, Jerry Minsky, Dorian Industries, Inc. and Communications and Entertainment Corp. The complaint seeks damages in connection with the Company's treatment in its financial statements of the disposition of its subsidiary, Double Helix Films, Inc. in June, 1991. The complaint seeks unspecified damages on behalf of all persons who purchased shares of the Company's common stock from and after June, 1992. A second action, alleging substantially similar grounds, was filed in December 1996 in Federal Court in the United States District Court for the Southern District of California under the caption heading "Diane Pfannebecker v. Norman Muller, Communications and Entertainment Corp., Jay Behling, Jeffrey S. Konvitz, Tom Smith, Jerry Silva, David Mortman, Price Waterhouse & Co., Todman & Co., and Tenato Tomacruz." Following the filing of the second action, the first action was dismissed by stipulation in May 1997. The Company filed a motion to dismiss the complaint in the second action and after a hearing on the motion in July, 1997, the Court dismissed the federal securities law claims as being time-barred by the applicable statute of limitations, and dismissed the state securities law claims for lack of subject matter jurisdiction. The lower court's dismissal of this action was upheld on appeal by the Ninth Circuit. The case was refiled in California state court in August 1998. The Court granted motions to dismiss two of the complaints filed by the Plaintiff, whereupon a third complaint was filed. More recently, a fourth amended complaint has been filed adding claims that the defendants, including the Company, violated provisions of the California Securities Laws. There is no trial date set in this matter. In a related action, Thomas Smith and Norman Muller, former directors of the Company and co-defendants in the Pfannebecker matter, filed an action against the Company in the Los Angeles Superior Court seeking indemnification from the Company in connection with their status as defendants in the Pfannebecker matter. The Company intends to defend this action on the grounds that Messrs. Smith and Muller committed wrongful acts as directors of the Company and failed to comply with various obligations to the Company. PNC BANK: Check Cashing Charge on Non-Customer Does Not Violate PA Code ----------------------------------------------------------------------- Sexton v. PNC Bank, N.A., PICS Case No. 00-2126 (C.P. Philadelphia Oct. 23, 2000) Levin, J. (5 pages). Because a fee the defendant bank charged to non-customers who cashed checks drawn on its commercial accounts at the teller's window neither altered the payable-on-demand character of checks nor constituted an undertaking or instruction by the drawer over and above the promise to pay, the fee did not impair the negotiability of those checks. Preliminary objections sustained. In October 1999, defendant began to charge non-customers a $ 3.00-per-item fee to cash checks presented at the teller's window and drawn on its commercial accounts. Plaintiff brought a proposed class action challenging this practice under 13 P.S. @ 3104. Plaintiff contended that the collection of this fee, which was expressly authorized by the terms of the account agreement between defendant and the drawer of the check, violated the duty of a drawee to pay checks as drawn when presented against good funds and bearing an authorized signature. Defendant filed preliminary objections to plaintiff's complaint. The court found that the fee charged by defendant was not assessed upon the negotiation of a check. Rather, it was a charge collected by defendant in exchange for the service of turning a check into cash, the court determined. The court further noted that the fee neither altered the payable-on-demand character of checks presented for cashing nor constituted an undertaking or instruction by the drawer over and above the promise to pay. Consequently, the court ruled that the fee did not impair the negotiability of those checks and that it did not violate Section 3-104 of the Pennsylvania Uniform Commercial Code, 13 P.S. @ 3104. Consequently, the court granted defendant's preliminary objections and dismissed plaintiff's complaint with prejudice. (Pennsylvania Law Weekly, November 13, 2000) POLYMEDICA CORP: Shapiro Haber Files Suit in MA on Behalf of Shareholder ------------------------------------------------------------------------ A class action suit alleging securities fraud has been filed in the United States District Court for the District of Massachusetts against PolyMedica Corp. (Nasdaq: PLMD) and its chief executive officer by the Boston law firm Shapiro Haber & Urmy LLP. The case, entitled Richard Bowe SEP-IRA v. PolyMedica Corp., et al., was filed on behalf of all persons who purchased the common stock of PolyMedica during the period September 3, 1999 through November 17, 2000, inclusive (the "Class Period"). The complaint alleges that the defendants violated section 10(b) of the Securities Exchange Act of 1934 ("the Exchange Act"), and Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act, by issuing materially false or misleading statements concerning PolyMedica's billing and marketing practices. The complaint alleges that these statements were false and misleading because defendants knew, or recklessly disregarded, that PolyMedica, through its Liberty Medical Supply division, was engaging in billing and marketing practices that do not comply with federal Medicare reimbursement regulations, including shipping diabetes testing supplies to customers without prior authorization or proper supporting documentation, in direct contradiction of a 1998 regulation banning such practices. The complaint further alleges that defendants' actions artificially inflated the price of PolyMedica common stock during the Class Period. Contact: Thomas G. Shapiro, Esq. or Lisa Palin, paralegal, of Shapiro Haber & Urmy LLP, 800-287-8119, or cases@shulaw.com PRESIDENTIAL ELECTION: Judge n. Sanders Chosen for Fla. Recount Case -------------------------------------------------------------------- The judge hearing the court fight over Florida's presidential election speaks with a thick Southern drawl and likes to drink with friends in a downtown pub. Most of all, he keeps his politics to himself. Leon Circuit Court Judge N. Sanders Sauls is officially a registered Democrat and was appointed to the bench by a Republican governor. But even to his closest acquaintances, Sauls' political preferences are a mystery. ``He's his own man, always has been and always will be,'' said Mallory Horne, a former Senate president and House speaker in Florida. ``Any elected judge would prefer that this thing go away. But having said that, Sandy Sauls will never duck it. He'll never find a way to recuse himself.'' Sauls, the 59-year-old son of a court clerk who grew up in courthouses with a dream of becoming a judge, was picked Monday in a random computer selection of the four trial judges in the state's 2nd Judicial Circuit. Four hours later, he was holding court with attorneys for Vice President Al Gore and Texas Gov. George Bush, living up to his reputation as a folksy jurist who likes to keep things moving. ``I think we all know what the deadline is here,'' he told the lawyers. ``We need to get something going. ... They need to file their responses, is four days too long? Can you do it in three? At one point, he thanked a lawyer by drawling: ``Bless you.'' Circuit judges run in nonpartisan elections, with all the judicial candidates on a single ballot without reference to party affiliation. According to computerized state records, Sauls did not contribute to any federal or state candidates at least since 1996. Horne, an ardent Democrat, suspected Sauls was a Republican, but former state Republican Party general counsel Richard McFarlain correctly believed the judge was a Democrat. McFarlain, who is now general counsel at Florida State University, laughed when he recalls Sauls ruling against him on more than one occasion. ``He calls 'em like he sees 'em,'' McFarlain said. ``He keeps the lawyers in line. There won't be a lot of arm-waving or jaw-flapping.'' McFarlain said Sauls won't dally either after the attorneys finish. ``He'll study it hard and rule quickly.'' Sauls grew up in neighboring Jefferson County where his mother was tax collector and his father a clerk of the circuit court. He went on to get his law degree from the University of Florida and served as a federal bankruptcy judge for eight years before being appointed to the circuit bench in 1989 by then-Gov. Bob Martinez, a Republican. Sauls, who won election in the six-county circuit in 1990 and then was re-elected in 1996, spent some of his free time, especially on Fridays, at a popular local sports bar, the 4th Quarter, Sauls resigned as chief judge in November 1998 after a controversy over his decision to fire a longtime court administrator. Sauls, who remained on the bench as a trial judge, had urged other circuit judges to fire longtime Court Administrator Tom Long, a liaison between the 2nd Circuit and Leon County government. Long had questioned Sauls' decision to hire his own hand-picked director for the circuit's Guardian Ad Litem program rather than accept a search committee's choice. Sauls called Long ``disloyal.'' ``He was openly insubordinate,'' Horne said, ``and Sandy fired his butt.'' (AP, November 27, 2000) SECURITY STORAGE: Sale at Merger Price Defeats Minority Shareholder Suit ------------------------------------------------------------------------ A shareholder who sued the corporation and its majority stockholder for cashing him out in a merger defeated his own legal claim when he sold his stock to the majority holder for the $120 merger price, said a Delaware state court judge. Norberg v. Security Storage Co. of Washington et al., No. 12885 (Del. Ch., Sept. 19, 2000). Myron Steele, a Delaware Supreme Court appointee designated to decide the case as a vice chancellor, entered summary judgment for the defendants because plaintiff John Norberg waived his right to challenge the merger when he accepted the majority's offer to buy his stock in Security Storage Co., a shipping and storage company based in Washington, D.C., but incorporated in Delaware. The directors on Security's board owned 82 percent of the company's stock. So when they decided to cash out the other shareholders in early 1993, they had the votes to do it. The experts that the board hired said $120 per share was a fair price to pay the minority stockholders because it reflected 25 percent more than they appraised the company to be worth. However, some of the minority shareholders sued to get a court determination of the share value instead of accepting the $120 per share. In March 1993 Norberg filed this class action on behalf of the minority holders. He then waited until June 1998 to ask the court to certify the class. In February 1993, Security's directors asked the court to dismiss Norberg's complaint because he had voluntarily sold his shares to them for $120 in August 1994. Vice Chancellor Steele agreed with the directors that Norberg had waived his right to complain by accepting the merger price, and he dismissed Norberg's complaint. But he also said he would not address the merits of Norberg's unfairness claim, thus implying that a minority stockholder who had not accepted the merger price could still raise this issue on behalf of the class. Norberg is represented by R. Bruce McNew of Taylor & McNew in Greenville, Del., and Robert J. Kriner Jr. of Chimicles & Tikellis in Wilmington, Del. Defendants are represented by Thomas A. Beck of Richards, Layton & Finger in Wilmington and by Alfred W. Putnam Jr. and Mary Catherine Roper of Drinker Biddle & Reath in Philadelphia. (Corporate Officers and Directors Liability Litigation Reporter, October 23, 2000) SOTHEBY'S, CHRISTIE'S: Art Sellers Look to Use Coupons in Settlement -------------------------------------------------------------------- Embroiled in a scandal over price-fixing and collusion, Sotheby's and Christie's asked a federal judge to approve a plan to offer discount certificates to auction customers as part of a $512 million settlement of a class-action civil suit. The certificates, which could be used by people who wanted to sell at future auctions, are part of a settlement that the auction houses agreed to last month. The agreement received preliminary approval this month by Judge Lewis A. Kaplan of Federal District Court in Manhattan. As part of Sotheby's and Christie's obligation to buyers and sellers, the companies said, they would pay $50 million each in certificates. But Judge Kaplan has questioned the suitability of substituting $100 million in coupons for cash. The auction houses made their cases for the coupon plan. Sellers, they said, could have up to five years to use their coupons and could transfer them through a jointly appointed certificate administrator, which they said would create a secondary market. The proposal for administering the certificates was filed in the Federal District Court. It specifies that the certificates would be redeemable by customers who were overcharged as far back as seven years for buyers and five years for sellers in either the United States or Britain, where 80 percent of Christie's and Sotheby's worldwide sales take place. Auction house customers who were entitled to certificates but who did not want to use them would be able to go to the certificate administrator, who would find a party who wanted to buy them. In their papers, the auction houses asserted that this arrangement would create premium sales prices for the certificates by establishing a concentrated marketplace for those most interested in buying them. Judge Kaplan has scheduled a hearing on the final settlement for Feb. 2. (The New York Times, November 28, 2000) ZONOLITE LITIGATION: Suits against W.R. Grace, Sealed Air Merged in MA ---------------------------------------------------------------------- W.R. Grace & Co. and Sealed Air Corp., defendants in two separate class action suits, have agreed to consolidate the suits in a single class action in response to the requests of plaintiffs filed in U.S. District Court for the District of Massachusetts (Lindholm et.al. v. W.R. Grace & Co., No.00CV 10323; and Goldstein et.al. v. W. R. Grace & Co. et.al. No. 00CV 10873) Both suits allege the defendants' product, Zonolite, which is used in building insulation, contained tremolite asbestos, which the defendants knew was hazardous. According to the memorandum backing consolidation of the suits, the allegations are similar and share common legal and factual questions. Both complaints make claims for fraud, negligence, breach of warranties, deceptive trade practices, nuisance, strict liability for ultra-hazardous activity and unjust enrichment. In addition to equitable damages, the Lindholm complaint seeks compensatory and punitive damages. The plaintiffs in the case have asked the court to remove and abate Zonolite from all residences containing the insulation. The complaint says that Washington state health officials urged Grace in 1973 to put a warning label on Zonolite, but the company refused. The complaint also says the company decided not to remove the insulation from the market in 1977 due to worries about the risks connected with Zonolite and the danger of liability; however, the company secretly discussed stopping the sale of the product. Contact: Clerk, U.S. District Court, District of Massachusetts, (617) 748-9087. (Asbestos & Lead Abatement Report, November 1, 2000) ********* S U B S C R I P T I O N I N F O R M A T I O N Class Action Reporter is a daily newsletter, co-published by Bankruptcy Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc., Washington, DC. Theresa Cheuk, Managing Editor. Copyright 1999. All rights reserved. ISSN 1525-2272. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The CAR subscription rate is $575 for six months delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. 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