/raid1/www/Hosts/bankrupt/CAR

/raid1/www/Hosts/bankrupt/CAR_Public/001220.MBX C L A S S A C T I O N R E P O R T E R Wednesday, December 19, 2000, Vol. 2, No. 246 Headlines APPLE COMPUTER: Ct OKs Deal for 3 Suits over Technical Support Charges APPLE COMPUTER: Mediation for Consumer Suit over iMac Expected in Jan. APPLE COMPUTER: Purchasers of AirPort System Challenges Use on Internet BURGER KING: Civil Rights Activist Set to File Racial Bias Suit BURGER KING: Judge Dismisses $1.9B Black Franchisee La-Ven Hawkins Suit BURGER KING: Sharpton Calls For Consumer Boycott on Behalf of Blacks CANADA: $ 1.2B SUIT FILED Over Head Tax AFTER 'FRUTILESS NEGOTIATIONS' FLORIDA PROGRESS: Agrees to Pay Policyholders of Insolvent Mid-Continent GENZYME CORP: Faces NJ Securities Suit over Synvisc Trademark HMOs: California Kaiser Subscribers Sue Over Pill Splitting Policy HMOs: Insurance Premiums Expected to Rise By An Average of 11.4% HOLOCAUST VICTIMS: German Industry To Start Campaign For Fund INFOSPACE: Hagens Berman Announces Suit over Denial of Employee Options JOHN BLACK: Law Firm Pays $8 Million To Settle Investment Scandal Suit MID-CONTINENT: Insurance Policies Transferred To American Fidelity SOTHEBY'S HOLDINGS: Judge Faults Auction-Case Settlement TICKETMASTER, TIME: Consumer Files FL Suit over Credit Card Data Sharing TOBACCO LITIGATION: Smokers As Minors in Mid to Late '90s Can Sue in CA WALTER CONTE: Secret Videotaping Excluded in State Farm Homeowner Policy * CA Gov. Davis Has Settled Lawsuits to the Tune of $1.7 Bil * Partner at Berman DeValerio Sees SEC's Fight Against Fraud At Risk ********* APPLE COMPUTER: Ct OKs Deal for 3 Suits over Technical Support Charges ---------------------------------------------------------------------- In October 1997, Apple began charging all U.S. non-education customers for live telephone technical support beyond 90 days after purchase of Apple products. In late 1997, the Federal Trade Commission (FTC) commenced an investigation into customer complaints that Apple's change in technical support practices was either unfair or contrary to earlier representations to certain customers. Four purported class action lawsuits were filed against Apple related to this change. During the fourth quarter of 1999, the regional and national offices of the FTC approved a settlement with the Company, and a settlement was approved by the Court in three of the class action suits. In November 1999, two appeals were filed objecting to the settlement and the settlement is stayed pending resolution of the appeals. APPLE COMPUTER: Mediation for Consumer Suit over iMac Expected in Jan. ---------------------------------------------------------------------- Plaintiff Sternberg filed this action against the Company on March 17, 2000 in the Santa Clara County Superior Court. The case is a purported nationwide consumer class action brought on behalf of certain purchasers of iMac DV and iMac DV SE computers. Plaintiff alleges that Apple engaged in false advertising, unfair competition and breach of warranty, among other causes of action, by marketing and selling a DVD player with iMac DV and iMac DV SE computers where the playback was unacceptable. A companion case, Gordon Et Al. V. Apple Computer, Inc. was filed by largely the same plaintiffs on June 14, 2000. This case is essentially the same as Sternberg but with respect to a different computer model--the Power Macintosh G4. The Company has answered both complaints, denying all allegations and alleging numerous affirmative defenses. The Company has responded to written discovery and has produced documents. The parties have agreed to mediate the cases. The mediation is expected to occur at the end of January 2001. The case is Sternberg V. Apple Computer, Inc. And Gordon Et Al. V. Apple Computer, Inc. APPLE COMPUTER: Purchasers of AirPort System Challenges Use on Internet ----------------------------------------------------------------------- Plaintiff Pierce filed this action on June 15, 2000 in Santa Clara County Superior Court. This case is a purported nationwide consumer class action brought on behalf of purchasers of the Company's AirPort Card and AirPort Base Station ("AirPort System"). Plaintiffs allege that the Company engaged in false advertising and unfair business practices (among other causes of action) by advertising that the Airport System is Internet-ready and failing to disclose that the Airport System is incompatible with certain Internet service providers, primarily America Online. The Company has answered the complaint, denying all allegations and alleging numerous affirmative defenses. The Company has responded to written discovery. The case is Pierce Et Al. V. Apple Computer, Inc. BURGER KING: Civil Rights Activist Set to File Racial Bias Suit --------------------------------------------------------------- Burger King may have won its legal battle with Detroit franchisee La-Van Hawkins over racial discrimination charges, but the Rev. Al Sharpton isn't ready to quit fighting. The New York civil rights activist Monday announced plans to file a class-action suit against the Miami fast-food chain. He also said he will expand his boycott against Burger King beyond New York City and stage acts of "civil disobedience" if the chain attempts to take over Hawkins' restaurants. The announcement by Sharpton came after a federal court in Michigan last week threw out Hawkins' suit accusing Burger King of racial discrimination for not fulfilling an agreement allowing him to expand. The court dismissed the suit by Hawkins because he had signed an agreement in 1999 to release Burger King from any previous claims. "We're not going to let them walk away from this on a technicality," Sharpton said. "There are clearly indications that our community was violated. Only slaves are not allowed to question being abused." Burger King declined Monday to address Sharpton's comments. The company issued a brief statement saying the company "stands by its record in the area of diversity," and highlighting some of its accomplishments in that area. Sharpton said the suit, which he expects to file by mid-January, would charge Burger King with racial discrimination. He gave no details of the potential claim, but said it would focus on Burger King's failure to let Hawkins open the restaurants it promised and what Sharpton views as a lack of commitment to the African-American community. Former Burger King Chief Executive Robert Lowes acknowledged in court documents that under his leadership the company had sought out Hawkins to help it gain a competitive advantage in urban markets and had committed to helping him open 225 stores. But legal experts were skeptical of Sharpton's standing to file a class-action lawsuit against Burger King and the justification for a potential claim. "I don't understand how those kind of claims would become the basis of a successful lawsuit," said Michael Masinter, a law professor at Nova Southeastern University who specializes in civil rights and employment discrimination. "The legal system is just not the most effective tool to deal with these kind of allegations, even if they happen to be true." Michael Rosman, general counsel for the Center for Individual Rights in Washington D.C., said Sharpton's suit would have to show that Burger King did something illegal. "I don't think anybody has a cause of action, unless Burger King is specifically denying franchises to people because they're black or if they refuse to open franchises in black neighborhoods," Rosman said. Hawkins, who had been out of town at the time of the ruling, said that he was working on an appeal to the Michigan court's ruling. He downplayed the significance of Burger King's victory. "It's not a big deal," Hawkins said. "The bottom line is we will be victorious." Despite the court ruling, Burger King continues to provide supplies to Hawkins' 22 restaurants, as it negotiates with him to turn over his stores. Burger King also is pursuing its own lawsuit in Miami federal court, seeking repayment of almost $ 8 million the company claims Hawkins owes in royalties, loans and other items. Burger King is hoping Hawkins will voluntarily agree to turn over control of his restaurants either to Burger King or another franchisee. If the two sides cannot reach an agreement, then Burger King would seek a court order that Hawkins cease using any Burger King trademarks. "We want to try to negotiate an orderly transition, so the restaurants are not closed and the employees don't lose their jobs," said Kim Miller, a Burger King spokeswoman. "If we can't get there, then we will be forced to go through the legal process." (The Miami Herald, December 19, 2000) BURGER KING: Judge Dismisses $1.9B Black Franchisee La-Ven Hawkins Suit ----------------------------------------------------------------------- A Judge dismissed a $ 1.9 billion lawsuit against Burger King brought by a black franchisee allied with activists pressuring the worlds No. 2 restaurant group, Reuters news service reported. Miami-based Burger King, a unit of British conglomerate Diageo PLC, said the ruling against La-Van Hawkins and his operating companies would allow Burger Kings lawyers to seek a court injunction requiring the Detroit businessman to divest his Burger King outlets. Hawkins, who had the support of black activists who launched a U.S. boycott against Burger King, claimed in his lawsuit that the company had not lived up to a 1996 agreement to help him open as many as 225 hamburger outlets in U.S. cities. Diageo-Pernod bid set to be winner of Seagrams drink unit Disgeo PLC, the British owner of Burger King, was set to sign a deal to buy Seagrams drinks empire, reported Reuters news service. Diageo submitted a joint $ 8.2 billion bid with French group Pernod Ricard S.A. The group beat out Allied Domecq, which pulled out of the race last week, and a joint bid by Bermuda- and Miami-based Bacardi Ltd., which bid below $ 8 billion. Seagram Ltd. is selling its drinks business after merging with French conglomerate Vivendi. (Miami Daily Business Review, December 18, 2000) BURGER KING: Sharpton Calls For Consumer Boycott on Behalf of Blacks -------------------------------------------------------------------- The Rev. Al Sharpton is calling for consumers to boycott Burger King for what he says is a protest against unfair treatment of blacks who were denied franchises of the world's No. 2 fast-food chain. Sharpton announced the plan Monday in front of a Burger King restaurant, following last week's federal court decision that cleared the fast-food chain of a black Detroit businessman's claims that it reneged on a deal to open 225 restaurants in urban areas. The decision was based in part because of a franchise agreement preventing the businessman, La-Van Hawkins, from suing Burger King. Sharpton also said that he plans to file a class-action lawsuit on behalf of minorities denied franchises, and stage sit-ins at Burger King restaurants throughout New York City. "We will nonviolently come in and take over," Sharpton said. "I'm prepared to go to jail before I allow them to practice -- without any sense of outrage or any sense of recourse -- discrimination based on a technicality." Burger King spokeswoman Kim Miller said Monday, "Burger King Corp. stands by its record in the area of diversity. Fifteen percent of U.S. Burger King restaurants are owned and operated by minorities, and we have an 18-year relationship with the country's largest African-American advertising agency. "Burger King also has processes in place through its Diversity Action Council to address issues and opportunities around diversity." U.S. District Judge Marianne Battani in Ann Arbor, Mich., ruled that Hawkins and Burger King signed a "clear and unambiguous" agreement in July 1999 barring him from suing the company for any problems that arose before then. Hawkins filed his lawsuit after the fast-food chain stopped franchise negotiations. Robert Lowes, Burger King's former chief executive, said in court papers that while with the company, he signed off on a business plan and confidential memo that called for the chain to work with Hawkins in opening 225 restaurants in five years. Burger King has challenged Lowes' claims. Sharpton said he hopes his lawsuit will bring Burger King back to the bargaining table when it comes to minority franchise owners. "We're not looking for money," Sharpton said. "We're looking for fairness to repair the damage they did." Norman Yatooma, Hawkins' Detroit-area attorney, said he was unaware of Sharpton's plans and would not say whether he welcomed them on his client's behalf. Yatooma said by telephone from Mexico that "Sharpton is his own person, and I suspect he is working to advance the interest of African-Americans generally." (Sun-Sentinel (Fort Lauderdale, FL), December 19, 2000) CANADA: $ 1.2B Suit Filed Over Head Tax After 'Frutiless Negotiations' ---------------------------------------------------------------------- After 16 years of fruitless negotiations for a settlement, victims of Canada's infamous Chinese head tax and exclusionary immigration policy are taking the federal government to court. Shack Jang Mack, 93, Quen-ying Lee, 89, and her son Yew Lee, 50, have launched a $ 1.2-billion class-action lawsuit on behalf of 4,000 Chinese Canadians. In the 14-page statement of claim filed at the Ontario Superior Court of Justice, they demand the return of the equivalent of $ 23 million in head taxes collected by the government between 1885 and 1923 from 81,000 Chinese immigrants. The plaintiffs - including surviving taxpayers, spouses and first- generation descendants - also claim damages for "pain and suffering" and "injury to dignity" caused by the Chinese Exclusion Act, which kept thousands of immigrant families apart until its repeal in 1947. "The head tax and (the Act) were discriminatory on their face, directed solely at members of one race," the claim stated. "The effect of this discrimination on individuals and families and on the Chinese-Canadian community has been profound and enduring." Government lawyer Paul Vickery said he had yet to review the claim. "The Charter of Rights, of course, guarantees equal protection and benefit of the law without discrimination on an ongoing basis," Vickery said from Ottawa. "But I believe it is fairly clear that the Charter is prospective only. "It does not apply retrospectively to events in the past." The Chinese community has lobbied for redress from the Canadian government since 1984. In 1994, Sheila Finestone, then-secretary of state for multiculturalism, announced in the House of Commons that no compensation would be paid to Chinese Canadians over the head tax issue. Thousands of Chinese, mostly men, were shipped to Canada in 1881 to help build Canada's transcontinental railway, then were deemed unwelcome when construction was finished in 1885. Starting in 1886, all Chinese, with the exception of diplomats, tourists, merchants, "men of science" and students, had to pay a $ 50 entry fee to Canada. By 1903, the fee had risen to $ 500 - equivalent to two years' wages. The lawsuit is their last resort for compensation, said May Cheng, president of the Chinese Canadian National Council, which is co-ordinating the legal action. Fewer than 1,000 of the head taxpayers are alive today and, Cheng said, most of them "would like to see justice done during their lifetime." (The Edmonton Sun, December 19, 2000) COLORADO: Denver Law Firms Working at No Charge Set to Restore Medicaid ----------------------------------------------------------------------- A major victory for 40,000 Colorado citizens is closer to reality thanks to attorneys from four major Denver law firms who worked together without charge to restore Medicaid benefits denied the residents since 1997 because of a malfunctioning state computer program. On December 12, U.S. District Court Judge Wiley Y. Daniel preliminarily approved a settlement agreement in a class action alleging that tens of thousands of low-income residents in Colorado had been cut off from Medicaid when they were still eligible. The illegal terminations were due to a change in federal welfare laws that the state's outdated computer system could not handle. The approval came after 10 months of negotiation with state officials and the Colorado Attorney General's office. Under the terms of the settlement agreement, the computer system has been fixed, and 40,000 people will have their Medicaid benefits reinstated retroactively and prospectively. In addition, the state will reimburse those illegally denied Medicaid for their out-of-pocket expenses. The cost of the settlement is estimated at $18 million. A hearing is set for February 8, 2001, to determine whether the settlement agreement will be finally approved. Donating their time to this case were Lawrence Theis and Tracy Ashmore of Perkins Coie LLP, Lawrence Volmert from Holland & Hart, Lawrence Treece from Sherman & Howard and Greg Parham from Parham & Associates. The Denver office of Perkins Coie is well known for its litigation work, in addition to its telecommunications, environmental and corporate practices. Perkins Coie is a leading international law firm, with more than 525 attorneys serving clients from 14 offices in North America and Asia, including Anchorage, Bellevue, Boise, Denver, Los Angeles, Menlo Park, Olympia, Portland, San Francisco, Seattle, Spokane, Washington, D.C., Taipei and Hong Kong. The firm represents companies ranging in size from Fortune 500 companies to startups and engaged in nearly every type of business, from traditional enterprises such as manufacturing, aerospace, banking and real estate to emerging fields such as electronic commerce, life sciences, technology and telecommunications. FLORIDA PROGRESS: Agrees to Pay Policyholders of Insolvent Mid-Continent ------------------------------------------------------------------------ Florida Progress Corp. has agreed to pay $ 17.5 million to settle a class action suit filed by policyholders of the insolvent Mid-Continent Life Insurance Co. alleging the insurer's parent company knew about financial problems with the "extra-life" policy yet continued to market it (Michael Farrimond, et al. v. Florida Progress Corp., et al., No. CJ-99-130-65, Okla. Dist., Oklahoma Co.; See 6/22/00, Page 5). Florida Progress also agreed to pay reasonable attorneys' fees and expenses to be set by the Oklahoma County District Court. Also, on Sept. 28 the court approved the receiver's amended plan of rehabilitation. The plan calls for American Fidelity Assurance Co. to assume the Mid-Continent book of business. American Fidelity has promised to freeze premiums and coverages for 17 years. After that, premiums could only be raised if after-tax profits drop below 8 percent, according to the insurance department. The Settlement The policyholders had claimed Florida Progress Corp. knew the extra-life policies were "unsupportable" but continued marketing the product as having premiums that would never rise. The complaint alleged Mid-Continent agreed to set aside a sufficient portion of the extra-life policyholders' money to pay cash surrender values and to pay death benefits. But "as a result of the misconduct of Florida Progress," Mid-Continent became insolvent and was placed into receivership. The policyholders further charged that the defendants marketed the extra-life policy as being superior to their existing life insurance policies, and that it provided guaranteed level premiums and death benefits. These representations had the effect of "twisting" or "churning" or persuading policyholders out of their other life insurance policies, the class alleged. Under the settlement agreement, American Fidelity Assurance Co. agreed to place Mid-Continent's capital and surplus in a supplemental policyholder reserve that will be used exclusively for the benefit of extra-life policyholders until it is determined that extra-life premiums will not be increased. The capital and surplus consists of $ 120 million, tax refunds of $ 40 million and a $ 100 million letter of credit. The receiver initially selected Life Investors Insurance Company of America to assume the Mid-Continent book of business. However, after examining an independent analysis of five new proposals, American Fidelity Assurance Co. was chosen to assume the policies. "This result is substantially better for policyholders than the plan we stopped last year," said the policyholder's attorney, John W. Norman. "Under last year's Life Investors plan, Life Investors (not the policyholders) would receive Mid-Continent's capital and surplus and tax refunds. Life Investors would guarantee premiums for only 10 years. Only $ 10 million would be paid by Florida Progress to a premium subsidy trust to offset premium increases after ten years, which our actuary testified were actuarially certain to be necessary under the Life Investors plan." Policyholders' Options Extra-life policyholders have the option of remaining in the class. If they leave the class, they may pursue their individual, direct claims against the defendants. Policyholders who opt to remain in the class will receive one of four forms of settlement relief available, depending on their eligibility. If their extra-life policy is in force, they will automatically receive the general relief unless they elect an alternative relief for which they are eligible. If their policy is lapsed, they must submit a claim form now to be entitled to relief. Final approval of the settlement is scheduled for Feb. 21. The policyholders are represented by John W. Norman, Emmanuel E. Edem, Alexander B. McNaughton, Thomas A. Wallace, John B. Norman and Charles F. Moser of Norman, Edem, McNaughton & Wallace in Oklahoma City and Stratton Taylor, Sean Burrage and Darrell W. Downs of Taylor, Burrage, Foster, Singhal, Mallett & Downs in Claremore, Okla. Counsel for the defendants are Robert H. Gilliland, Philip D. Hart and Henry D. Hoss of McAfee & Taft; G. Blaine Schwabe III of Mock, Schwabe, Waldo, Elder, Reeves & Bryant; Stephen P. Friot of Spralding, Alpern, Friot & Gum; John Norman Goodman; and Jeff L. Hartmann of Kerr, Irvine, Rhodes & Ables, all in Oklahoma City. (Mealey's Litigation Report: Insurance Insolvency, December 7, 2000) GENZYME CORP: Faces NJ Securities Suit over Synvisc Trademark ------------------------------------------------------------- On July 21 and August 7, 15, and 30, 2000, class action lawsuits requesting unspecified damages were filed in the United States District Court for the District of New Jersey against Biomatrix and two of its officers and directors, Endre A. Balazs and Rory B. Riggs. (Genzyme completed its acquisition of Biomatrix, Inc. on December [19], 2000.) In these actions, the plaintiffs seek to certify a class of all persons or entities who purchased or otherwise acquired Biomatrix common stock during the period between July 20, 1999 and April 25, 2000. The plaintiffs allege, among other things, that the defendants failed to accurately disclose information related to Synvisc during the period between July 20, 1999 and April 25, 2000, and assert causes of action under the Exchange Act and Rule 10b-5 promulgated under that Act. (Synvisc-Registered Trademark- is a registered trademark of Genzyme Biosurgery Corporation.) As part of Genzyme�s acquisition of Biomatrix, Genzyme Biosurgery succeeded to these lawsuits. Genzyme disagrees with these claims and believe that information related to Synvisc was properly disclosed. The company intends to continue in the defense against those actions. Under Biomatrix's charter, officers and directors of Biomatrix were entitled to indemnification for these types of claims from Biomatrix to the full extent permitted by Delaware law, and as part of our acquisition of Biomatrix, Genzyme Biosurgery agreed to honor these indemnification obligations of Biomatrix. [Mr. Riggs is currently employed by Genzyme Biosurgery]. HMOs: California Kaiser Subscribers Sue Over Pill Splitting Policy ------------------------------------------------------------------ Kaiser Permanente subscribers have filed a class action against the HMO for allegedly forcing them to split prescription pills to save the insurer money. The class members charge that the pill splitting policy endangers their health (Audrey Timmis, et al. v. Kaiser Permanente, et al., No. N/A, Calif. Super., Alameda Co.). The lawsuit, filed Dec. 6 in the California Superior Court for Alameda County, names six patients who allege they were forced to split pills. Also, the action names Dr. Charles Phillips, a physician, who witnessed the effects of the policy while working in a Kaiser Permanente emergency room in Fresno, Calif. The six patients are Audrey Timmis, Linda Gudino, Winston Yarborough, Mary O'Donnell, Shirley Milligan and Mary Cargile. Allegations The Timmis plaintiffs allege that Kaiser forces its outpatient members to accept prescribed medication in dosages twice the amount necessary for a single dose and requires them to split the pills in half in order to obtain their prescribed dosages. "While Kaiser contends that its pill-splitting program is voluntary and only involves splitting of appropriate medications, the Kaiser reality is again different than represented," the Timmis plaintiffs said. "In fact, patients are not given a choice about whether they want to split their medications, but are simply provided the double-dose medications and a pill-splitter, often without direction or instruction. Even in the face of strenuous objections by the patient or the doctor, Kaiser's pharmacists and pharmacy managers oftentimes refuse to provide medication in single-dose form." The Timmis plaintiffs assert that studies have shown that pill splitting of scored and unscored pills results in uneven splits and can consequently result in dangerous over or under dosages of medication. "Kaiser patients required by Kaiser to engage in pill-splitting have suffered real and appreciable injuries as the result of Kaiser's policy," the plaintiffs said. Increased Profits They add that the program does not provide any therapeutic benefit to patients and that its only purpose is to increase Kaiser's operating profits. For example, according to the complaint, the cost of 100 of the 20-milligram tablets of Prinivil, a blood pressure medication, is $ 100.25. The cost for 100 of the 40-milligram tablets is $ 143.53. "Thus, by dispensing 100 40-milligram tablets to a member, and requiring the member to split the tablets in order to obtain 200 20-milligram doses, Kaiser increases its profits by $ 56.72, while causing inconvenience and potential medical problems to its member," the complaint says. The Timmis plaintiffs charge Kaiser with violations of California Business and Professions Code Section 17200, which bars unfair business practices; Section 17500, which bars false advertising; and the state Consumer Legal Remedies Act. They seek an injunction against further practice of the pill splitting program, as well as disgorgement of illegally gained profits. They also seek equitable relief, penalties under California Civil Code 1780(b), punitive damages and costs and attorneys' fees. The action was filed by Mark P. Robinson and Sharon J. Arkin of Robinson, Calcagnie and Robinson in Newport Beach, Calif., and Arthur Bryant with the Trial Lawyers for Public Justice in Oakland, Calif. (Mealey's Managed Care Liability Report, December 8, 2000) HMOs: Insurance Premiums Expected to Rise By An Average of 11.4% ---------------------------------------------------------------- HMOs, once the nation's most popular form of managed care used to control healthcare costs, are raising insurance premiums for the third straight year, but this time by an average of 11.4% in 2001--the highest rate increase since 1990, according to several year-end surveys that report on the HMO industry. The increase follows annual rate hikes of between 5% and 10% the two previous years. Yet, despite these increases, HMO profitability as a percentage of premium revenue remained negative for the fourth straight year. Higher costs for new technology and new drugs should be pushing HMOs to reinvent themselves and deliver value. Situation HMOs nationwide are expected to increase insurance premiums by an average of 11.4% in 2001 to cover an anticipated 8.8% rise in their payments for medical care, according to Sherlock Company's Sixth Annual HMO Pricing Survey. In last year's survey, HMOs expected a 10.6% increase in premium rates, compared to an 8.3% premium rate increase in 1999. Yet, despite these increases, HMO profitability as a percentage of premium revenue was negative for the fourth straight year. In a survey of more than one-third of the nation's HMOs by Milliman & Robertson, HMOs reported an average loss in net income equal to 1.4% of premium revenue in 1999; nearly the same was expected to occur in 2000. The survey attributed the major cost drivers for HMOs to higher consumer demand for health services, a slowing of the improved efficiencies in delivery hospital inpatient services, higher provider unit costs and the use of more prescription drugs for treatments. And while the number of hospital days per 1,000 insured members--a measure of the single largest HMO expense--dropped 4.2% to 230 days in 2000, the average hospital charges per day rose by 10%. Several managed care companies are expecting to report average earnings gains of 20% or more in 2000, including UnitedHealth Group, CIGNA Corp., WellPoint Health Networks and Oxford Health Plans. But other companies such as U.S. industry leader Aetna U.S. Healthcare, Humana Inc. and PacifiCare Health Systems are predicting lower earnings, according to financial analysts in the health insurance business. Analysis The HMO industry is depending heavily on another year of double-digit premium increases to balance out increasing costs and provide bigger profit margins in 2001. Premium pricing has been rising at a faster rate than administrative and medical cost increases, helping fuel growth at most HMOs, but one-time expenses and years of payment cuts to physicians and hospitals are threatening to force managed care companies to reinvent themselves again if they hold any hope of surviving over the next decade. For the second straight year, HMOs were forced to upgrade their computer systems--first for Y2K, and then in 2000 with the Health Insurance Portability and Accountability Act (HIPAA), which are the new federal regulations covering standardized codes and privacy and security measures to protect patients. Now, many insurers are installing high-technology equipment to keep pace with growth of the Internet and the needs of their membership, who want to simplify the healthcare processes. Managed care organizations have allocated hundreds of millions of dollars for technology enhancements in 2001, but raising premiums and consolidating services is one of the few options available to gain the capital needed for such improvements. Still, don't expect companies to cut back on spending anytime soon. "It is going to cost more money and it is going to lead to more spending in total. That is clear from historical records," David Cutler, professor of economics at Harvard University, told MDI. "It's going to be different in the future. I mean, if we just wanted to limit spending, then we would spend nothing. The real issue is, is it providing value? Is it something that people want and are willing to pay for? I think it is." Consumers are more willing to pay extra for more choices of doctors, hospitals and plan options, which has meant big business and a healthier bottom line for many HMOs, particularly regional ones that have a better handle on their medical costs. Most of the nation's Blue Cross and Blue Shield plans, for instance, have rebounded from losing nearly $1 billion collectively in 1998 to enjoying a tidy profit in 2000--thanks mainly to higher premiums paid by employers and workers for larger provider networks. Health insurers also are facing rebellious hospitals and physicians who are fed up with what they consider inadequate reimbursements by HMOs. In several states, hospitals or health systems refused to accept the low rates offered by HMOs for 2001, and threatened to stop treating members unless they got a new contract. More times than not, providers ended up with close to their asking price. While HMO stocks took advantage of a good economy and tight labor market to rebound in 2000 following an abysmal 1999, many of these high-profile companies also were forced to defend themselves from a raft of lawsuits filed by individuals and lawyers seeking class-action status, all of whom claimed the HMO did not deliver the quality of care it had promised. Consumers and legislators strongly support a patient's bill of rights, which would enable patients to sue an HMO in civil court for medical malpractice or denial of care. Yet, it also could force insurers to raise premiums just to pay for any anticipated court costs. In addition, there is the rising expense of prescription drugs, which is lowering inpatient hospital days per 1,000 members but is contributing heavily to new drug costs; the growing needs of aging baby-boomers, who are going to require new, more expensive services to prolong life; and the reluctance of employers to cover growing healthcare costs or pass them along to their workers. As a result, it is easy to see why more HMOs may find it difficult to increase their revenues using the same business model from 10 years earlier. Looking Ahead The buzzword for 2001 will be "defined contribution," in which the employer sets aside a set amount of money for the worker to purchase their own health benefits. The move toward self-insurance has begun to pick up momentum in the past year, and some experts are predicting that as many as 20% of employers are exploring different versions of the defined contribution model rather than continue to pay more of the cost. Much of the movement toward defined contribution will depend on whether the U.S. economy begins to slow down, as some have predicted. If it does, employers will have a greater incentive to cut their costs. With employer-sponsored benefit costs rising, more employers are expected to begin shifting more of the cost to their workers, either through raised deductibles, co-payments or out-of-pocket maximums. And an even greater number of employers could begin pulling retiree coverage plans as a way to curb expenses. However, despite the cost increases of 2000 and 2001, HMOs will remain part of the healthcare landscape until another model of care can be developed that satisfies both state and federal laws regarding separate sets of regulations and different tax implications. A new model also must bring long-term value--and not necessarily lower cost--to insurers, providers and consumers. (Medical Industry Today, December 19, 2000) HOLOCAUST VICTIMS: German Industry To Start Campaign For Fund ------------------------------------------------------------- The German fund for former laborers enslaved under the Third Reich said Tuesday that German industry planned to start a publicity campaign to urge every company in the country to pay its share to victims. Agreement was reached this summer after months of difficult negotiations to create a 10-billion marks (five billion euros, 4.5 billion dollars) fund for victims of the Nazis' forced labor program. Half of this is to come from German government funds, the other half from German business and industry. However German firms have so far only raised 3.4 billion of their five billion marks share. The industry fund said that the chairmen of the Federation of German Industry (BDI), the German Employers Association (BDA) and the German Chambers of Industry and Trade (DIHT) would launch an advertising campaign in German newspapers to pressure companies who have held out to join. The three business leaders said in the statement from the fund that German industry had an obligation to live up to its "historic and moral responsibility" by signing on to the compensation initiative and that even companies founded after the end of the war should participate. They said the fund was important to Germany's international image and in the interest of protecting German industry from suits from former laborers. "Let us send a signal together for reconciliation and strengthen the standing of German industry around the world," the three groups said in the statement. Under an agreement with US negotiators, Germany will provide the 10-billion-mark fund on condition that officials in the US encourage the judiciary to dismiss class action suits by victims. The fund has said it hopes to begin compensation payments in March if US courts continue to reject suits on behalf of former laborers. (Agence France Presse, December 19, 2000) INFOSPACE: Hagens Berman Announces Suit over Denial of Employee Options ----------------------------------------------------------------------- In a suit filed December 18 in U.S. District Court, an InfoSpace employee alleges InfoSpace (Nasdaq:INSP) chairman Naveen Jain illegally denied him promised stock options. According to the suit, filed against both Jain and InfoSpace, Jain used plaintiff John Richards to develop integral aspects of InfoSpace and then failed to keep his promise of lucrative stock options. The lawsuit charges Jain, in the process of building InfoSpace into a leading Internet company, frequently hired key executives by promising a specified award of options or stock. According to the suit, Jain obtained what he needed from these executives and then refused to reward them with the options he had promised. The lawsuit charges Jain with violating the Racketeer Influence and Corrupt Organization Act (RICO) by engaging in a pattern of fraudulent conduct. According to Richards' attorney, Steve Berman, the pattern includes at least seven other executives who have alleged that Jain made promises of compensation and then reneged on those promises. According to the suit, InfoSpace's outside counsel, after its own investigation, found that a "pattern" had emerged of Jain denying he had made such promises to employees when he in fact appeared to have done so. After outside counsel's finding, the InfoSpace board of Directors concluded on December 11 1998, that InfoSpace's granting practices were "careless" and that Jain had not exercised "appropriate discretion or judgment" in the process of hiring employees. The complaint notes that three of these cases were settled, and InfoSpace admitted in filings with the Securities and Exchange Commission (SEC) that "its procedures with respect to the manner of granting options to new employees were not clearly documented," and that there could be no assurance that claims "would not be filed in the future by employees claiming they have been denied compensation." According to Berman, the lawsuit states Jain has a pattern of using his employees and those around him. "Naveen Jain is one of the world's richest men, yet the complaint alleges that some of his key people, who relied on his promises, came up empty handed," Berman said. "The suit states that John Richards worked diligently to make InfoSpace successful, but has not received the promised options to share in that success," he added. The lawsuit alleges that Jain was able to hire Richards by repeatedly promising that Richards would receive the highest stock award options of any InfoSpace employee, even if the employee was hired at a later time. However, several employees have received stock options larger than Richards, proving Jain has not complied with his agreements and representations, according to the complaint. The complaint alleges that even at the time Jain made these promises he had granted other employees more options. The suit further charges that Jain attempted to cover up his trail of broken promises by instructing employees not to discuss the amount of options they had been promised with each other and by instructing them not to put his promises in writing. Before joining InfoSpace, Richards successfully launched Yellow Pages on the Internet, the first-ever print yellow pages product to place its data and advertisers online. The lawsuit also states Jain hired Richards on January 8, 1998 to make yellow pages advertising a cornerstone of InfoSpace's business platform. According to the suit filed by Berman, InfoSpace's success is based on a pattern of illegal fraudulent conduct by Jain. "Our theory is that he identified executives that could assist him in building up InfoSpace and then wooed them with lucrative stock options," Berman said. "We intend to prove that later, when these employees were no longer of immediate use to him, those options were denied," Berman added. The complaint also relies on factual allegations made by five other executives in lawsuits against Jain in which they made charges similar to those of Richards. The complaint describes InfoSpace as a provider of Internet applications and information services, powering private-labeled information and applications services across the Internet to wireless devices and Web sites. InfoSpace recently acquired Go2Net.com, a Seattle company that delivered similar services to the broadband marketplace. The lawsuit seeks damages as well as enforcement of the agreement to provide Richards the largest number of stock options of any staff, as well as attorneys' fees. Steve Berman is managing partner of Hagens Berman in Seattle. Recently cited as one of the nation's top 100 attorneys by The National Law Journal, Berman is a nationally recognized expert in class action litigation. Berman represented Washington State, 12 other states and Puerto Rico in lawsuits against the tobacco industry that resulted in the largest settlement in the history of litigation. Berman also served as counsel in several other high-profile cases including the Washington Public Power Supply litigation, which resulted in a settlement exceeding $850 million. Other cases include litigation involving the Exxon Valdez oil spill; Louisiana Pacific Siding; The Boeing Company; Morrison Knudsen; Piper Jaffray; Nordstrom; Boston Chicken; and Noah's Bagels. Contact: Hagens Berman Steve Berman, 206/623-7292 or Firmani & Associates Mark Firmani, 206/443-9357 JOHN BLACK: Law Firm Pays $8 Million To Settle Investment Scandal Suit ---------------------------------------------------------------------- A Blair County judge approved a settlement allowing a law firm to divide an $ 8 million settlement among 50 Pennsylvania school districts that accused it of helping a money manager pull off a massive investment scam. Money manager John Gardner Black was convicted of persuading the districts in Pennsylvania and one in Maryland to invest school construction money into risky mortgage-backed securities in the mid-1990s. Black is serving 41 months in a federal prison. The school districts alleged that the national law firm Kutak Rock Inc. helped Black by knowingly or recklessly suggesting in investment agreements that there were no problems with the investments. The firm denies any role in the scam. Defense lawyer Andrew Tulumello told Judge Hiram Carpenter III the firm was settling to avoid "costs, delays and distractions." William Miller, superintendent of northern Blair County's Tyrone Area School District, said he did not care whether the law firm took the blame as long as it paid. Miller's district lost about half of the $26 million it invested with Black, and will collect half of the Kutak Rock payout. The settlement resolves one of the last issues raised when the federal government seized of Black's investment companies in 1997. Black lost an estimated $69.5 million in failed investments, then tried to cover the losses by drawing in more investors. The Tyrone Area district will receive $4 million because of claims that Kutak Rock hurt the district both when it worked as Black's lawyer and when it worked as the school district's bond counsel. Another $3.5 million will be shared by 49 other school districts linked by a class action suit. Richard Finberg, a Pittsburgh attorney representing the plaintiffs in the suit, said Black's victims might have paid "hundreds of thousands of dollars a month" in legal fees if the case had gone to court. "This is perhaps the best I could ever do," he told Carpenter. The largest settlement in the case came when banker Keystone Financial Inc. of Harrisburg agreed to pay $51 million to settle claims that it mishandled money. Keystone is now part of Buffalo, N.Y.-based M&T Bank Inc. (The Associated Press State & Local Wire, December 19, 2000) MID-CONTINENT: Insurance Policies Transferred To American Fidelity ------------------------------------------------------------------ Months after it decided to, the state Insurance Department on Tuesday transferred the policies of troubled Mid-Continent Life Insurance Co. to Oklahoma-based American Fidelity Assurance Co. Mid-Continent has been in receivership, similar to bankruptcy, since April 1997. State Insurance Commissioner Carroll Fisher, who acts as a trustee in the matter, in June selected Oklahoma City-based American Fidelity to take over Mid-Continent's 138,000 life insurance policies. Tuesday morning, Fisher finally signed the paperwork making the transfer official. "I think this is quite a historic moment for Oklahoma, to have the oldest Oklahoma domestic concern put into receivership be now taken over in solid financial hands again," Fisher said. Mid-Continent has policyholders in 38 states, about a third of them in Texas. The company's uncertain future was forged in April 1997 when former State Insurance Commissioner John P. Crawford deemed the company insolvent and took it over. He then sued its parent, Florida Progress Corp. of St. Petersburg, Fla., to recover insufficient reserves. Estimates placed that figure at about $337 million. The company has since become the target of a class-action lawsuit filed by policyholders who claimed they were told their premiums would never increase. Meanwhile, rival insurance companies have initiated bidding battles with Mid-Continent. Fisher inherited the matter when he took office in January 1999, though he contended the company was financially sound and should have been put under supervision instead of receivership. "But that was the choice of the previous administration, and we had to inherit a bad situation," he said. Fisher's decision to transfer the policies to American Fidelity was approved earlier this year by Oklahoma County District Judge Noma Gurich. Fisher said policyholders will not see a change in the way their accounts are handled. American Fidelity is promising to freeze its insurance premiums and coverages for 17 years. After that, premiums could only be raised if after-tax profits drop below 8 percent. (The Associated Press State & Local Wire, December 19, 2000) SOTHEBY'S HOLDINGS: Judge Faults Auction-Case Settlement -------------------------------------------------------- The judge presiding over a price-fixing lawsuit against Sotheby's Holdings and Christie's International said that he was not happy with an important element of a proposed $512 million settlement. In his strongest remarks on the subject to date, Judge Lewis Kaplan of United States District Court said he did not know whether he would allow the auctioneers to pay part of the settlement with $100 million in coupons. The coupons would go to buyers and sellers suing the two houses, though only sellers could use them to pay consignment fees; buyers would have to sell them to third parties. "I've said it privately; now I'm saying it publicly," Judge Kaplan told lawyers in court . "I'm very skeptical about the value of the certificates." Christie's, based in London, and Sotheby's, based in Bloomfield Hills, Mich., have agreed to pay $256 million each to settle a class-action suit accusing them of conspiring to fix auction fees. Each wants to pay part of the settlement with coupons redeemable for up to five years rather than cash. Saying he had received a great deal of unfavorable mail from members of the plaintiff class, the judge said he would hold a hearing in January on the value of the coupons and other aspects of the settlement. The lawyer for the plaintiffs, David Boies, has said he thinks the settlement is generous, and that he would be willing to have one-fifth of his fee paid in coupons rather than cash, the same ratio as the plaintiffs would receive. (The New York Times, December 19, 2000) TICKETMASTER, TIME: Consumer Files FL Suit over Credit Card Data Sharing ------------------------------------------------------------------------ The CAR yesterday reported on Florida Attorney General's investigation into consumer complaints about unwanted subscriptions suggesting credit card data sharing. According to St. Petersburg Times, a Tampa law firm on Monday filed a class-action suit against Ticketmaster and Time, Inc., charging that the two companies shared credit card information to start magazine subscriptions that customers did not order. The lead plantiff in the case is Valrico resident Victoria McLean, whose credit card was billed for nearly $ 400 in merchandise and subscriptions without her permission after she used it to order concert tickets from Ticketmaster earlier this year. McLean was one of 20 people who complained to the Florida Attorney General's office about Ticketmaster and Time Inc. On a national level, the suit alleges, many more people have been victimized by the companies' practices. The suit, filed in Hillsborugh Circuit Court by the firm of James, Hoyer, Newcomer and Smiljanich, charges that Ticketmaster and Time Inc. violated the Florida Deceptive and Unfair Trade Practices Act and that plantiffs have suffered damages since they have to go through the time-consuming process of canceling the subscriptions. Responding last week for a story about the complaints, a Ticketmaster spokesman said the company only offers a way for customers to set up subscriptions, and denied the company is "giving" away credit card information. (St. Petersburg Times, December 19, 2000) TOBACCO LITIGATION: Smokers As Minors in Mid to Late '90s Can Sue in CA ----------------------------------------------------------------------- Any Californian who smoked a cigarette as a minor in the mid- to late-1990s can join in a lawsuit accusing the tobacco industry of illegally marketing its products to teen-agers, a San Diego judge ruled. Superior Court Judge Ronald Prager granted class-action status to a lawsuit accusing the tobacco industry of illegally inducing minors to buy cigarettes through targeted advertising campaigns. The lawsuit seeks $650 million to $700 million, the profits plaintiffs lawyer David Markham said the tobacco industry has reaped as a result of illegal sales to minors from April 1994 to December 1999. The suit also seeks a court order preventing the tobacco companies from continuing to induce minors to smoke. About 1.5 million California teen-agers illegally smoked cigarettes during that period, and all are eligible to join the lawsuit, Markham said. The 1994 date is the cut-off for claims to be filed under the state statute of limitations. The defendants in the case are the tobacco companies Philip Morris, R.J. Reynolds, Brown & Williamson and Lorillard Tobacco Company. Judge Prager said that certifying the case as a class-action would ensure that the tobacco companies suffer suitable financial penalties if the allegations turn out to be true. "If these allegations are correct, we're dealing with a problem of a great magnitude," Prager said, citing studies that tobacco consumption is "the number one health problem in the United States." A lawyer for Philip Morris denied the company targeted minors with its advertising during that time period. Los Angeles attorney Gregory Stone also told the judge that a statewide settlement in 1998 already created restrictions on tobacco advertising, including eliminating all tobacco-related billboards. If the tobacco companies violate the terms of this settlement, the state Attorney General's Office has the power to seek penalties in court, Stone said. Lawyers for the plaintiffs say tobacco companies continue to run ads in magazines with a high percentage of teen-age readers. They cited studies saying that 80 to 90 percent of smokers began when they were teen-agers. "It's a pipeline, and the idea is to get as many new smokers as possible at the front end," Markham said. (The San Diego Union-Tribune, December 14, 2000) WALTER CONTE: Secret Videotaping Excluded in State Farm Homeowner Policy ------------------------------------------------------------------------ The intentional acts exclusion in a homeowners policy bars coverage for a high school principal who allegedly engaged in voyeuristic activities in his home, a state appeals court ruled Nov. 22 (Sandra Geraci, et al. v. Walter Conte, et al., No. 77420, Ohio App., 8th Dist.). Sandra Geraci filed a proposed class action against Walter Conte, his wife and the South Euclind-Lyndhurst Board of Education, alleging claims of violation of privacy and reckless disregard for student safety. Geraci alleged Conte, while serving as principal of Charles F. Bush High School, and his wife videotaped students changing clothes in their home. The Contes hosted swimming parties for students at their home. The complaint alleges Conte installed a peephole using a one-way mirror and a video camera in the room of his home where party guests changed clothes. Geraci alleged claims of emotional distress and negligence against Conte and his wife. The Board of Education was later dismissed from the suit. Geraci amended the complaint to include Conte's homeowners insurer, State Farm Fire and Casualty Co., seeking a declaration the insurer had a duty to defend and indemnify the Contes. The trial court granted State Farm summary judgment, finding coverage barred under the intentional acts exclusion. Geraci appealed. Gearing Controlling Geraci argued that coverage should be available under the policy because Conte did not intend to injure his victims, relying on the holding in Physicians Ins. Co. v. Swanson ([1991] 58 Ohio St.3d 189, 569 N.E.2d 906). The Swanson court ruled an insurer had a duty to defend its insured who shot a gun from 100 feet away injuring another, finding the insurer failed to prove the injury was intended or expected. The insured in Swanson testified he intended to aim elsewhere. The Eighth District Ohio Court of Appeals, however, found the holding in Gearing v. Nationwide Ins. Co. ([1996] 76 Ohio St.3d 34, 665 N.E. 2d 1115) controlling. The court in Gearing held no duty to defend or indemnify by a homeowners insurer in a case alleging sexual molestation of neighborhood girls by its insured. The Ohio Supreme Court affirmed the finding in Gearing and ruled Swanson was distinguishable, finding the state has long "recognized that Ohio public policy generally prohibits obtaining insurance to cover damages caused by intentional torts." The appeals court said in this case "there was nothing 'accidental' about the voyeuristic activities conducted by Walter Conte, a high school principal, who carried out a plan to view students while they were undressing in a peeping room which he installed in his home. As in Gearing, we find that 'the harm which resulted from these activities is the result of the deliberate exercise of free will upon innocent and vulnerable victims.' Therefore, we find that Walter Conte's intentional acts do not constitute 'occurrences' for purposes of determining liability insurance coverage." Additionally, the appeals court said Geraci's claims for mental anguish and emotional distress are not covered injuries under the policy. "Appellant's physical 'sickness,' which occurred as a result of her emotional distress, is excluded by the unambiguous terms of the policy. Therefore, we find that appellant has suffered no 'bodily injury' as that term is defined in the policy," the appeals court held. Geraci is represented by Patrick J. Perotti and Amy Trejbal of Dworken & Bernstein in Painesville, Ohio. State Farm is represented by Albert J. Purola in Mentor, Ohio. (Mealey's Litigation Report: Emerging Insurance Disputes, December 6, 2000) * CA Gov. Davis Has Settled Lawsuits to the Tune of $1.7 Bil ------------------------------------------------------------ For plaintiffs lawyers locked in long legal battles with the state, the arrival of Gov. Gray Davis and the end of 16 years of Republican rule in California may seem for now like the legal equivalent of winning the lottery. Since taking office two years ago, Davis has settled lawsuits against the state to the tune of $1.7 billion and wiped out more than 35 years of ongoing litigation. He has provided $665 million to reimburse California motorists charged illegal smog fees and has agreed to reimburse California's schools $520 million in special education funding. He most recently announced spending $175 million in state money to pay increased Medi-Cal reimbursement rates for California hospitals. And just last August the governor agreed to pay the federal government $240 million over five years in back employee retirement benefits the state had spent. To add to that list, Davis is also looking to settle a suit brought over a $3 charge for disabled parking placards, says a spokeswoman in his office -- a settlement that could set the state back millions more. All of which means big fees for the lawyers who have waited patiently, sometimes as long as 20 years, to see their cases get settled. Of course, that doesn't mean they have a smooth ride getting their money. Sometimes politics can cause delays -- even for good friends of the governor. Lawyers who have brought some of the biggest suits against the state say the main factor behind the slew of recent large settlements is the state's bulging wallet. That has allowed Davis to spend some of the state's projected $10.3 billion budget surplus cleaning up after his predecessors. While some attorneys will tell you that Davis has been more open to closing the books than previous governors, they are also quick not to label him a pushover. In fact, of the suits the governor has settled recently, two were between 10 and 20 years old, on the eve of trial, and likely to cost the state much more than the $1 billion or so the state settled for. And even then the lawyers involved characterize Davis as a tough negotiator. Also, they warn that attorneys filing suit against the state on Davis' watch will likely meet the same resistance they would have under Pete Wilson or George Deukmejian -- if not much more. "Is it easier to settle with Davis? I think so," says Lloyd Bookman, the Los Angeles attorney who led the 10-year Medi-Cal suit against the state. "Prior administrations avoided dealing with these issues." The Hooper Handy & Bookman partner adds that even though he won his case against the state in federal court, and the U.S. Supreme Court refused to grant review of the state's appeal in 1997, Wilson simply delayed the settlement process to avoid payment. "Davis wants to clean up the mess he inherited," Bookman says. The governor's office contends that Davis has made getting rid of old lawsuits a top priority. "He has been making a real effort to dispose of these expensive, outstanding lawsuits," says Davis spokeswoman Hillary McLean. Timothy Gage, director of the state Department of Finance, adds that money has been the single biggest factor in allowing the Davis administration to move forward on some of these cases. "Just having the resources gets the liability behind us," says Gage, whose office is in charge of paying out the funds. "So if the revenue picture changes" the state won't be stuck. Gage also says each case has been carefully evaluated on its chance of success. Those that appear to be losers are often settled. "If there are good reasons to reach a middle ground, those are the cases we go after," he says. Robert Leventhal, a partner in the Los Angeles office of Foley & Lardner and the attorney who pursued the Medi-Cal reimbursements in state court, also gives Davis credit for playing a lead role in resolving his case. "We've been waiting a long time for someone in government to show some serious interest," Leventhal says. But both Leventhal and Bookman characterize the negotiation process as anything but easy. "It's not that he's an easier negotiator," Bookman says. " It's that he's trying to deal with the issues." Still, Davis has not gone without criticism in his efforts to resolve litigation. When San Diego's Milberg Weiss Bershad Hynes & Lerach and four other firms were awarded $88.5 million in attorneys' fees by an arbitration panel in November it was Davis who felt the political heat. Although the firms successfully sued the state to get rid of its $300 smog impact fee and prompted Davis to set aside $665 million to reimburse California drivers, the size of the award put Davis under heavy political scrutiny in the press and around the Capitol. That's because Davis had proposed that the award be determined in arbitration, which resulted in an award which far exceeded the $18 million determined by a trial judge and the $1 million in fees the state's Board of Equalization had estimated. Also the lead benefactor was Milberg Weiss, a firm that has contributed $440,000 to Davis since 1998 and has given another $1.2 million in soft money to Democratic causes since 1996. Davis has since asked the panel to reconsider its decision, and the state has opted not to pay the firms until a new ruling on the fees is handed down by either the arbitrators or the courts. While the arbitrators are unlikely to reverse their decision, Davis has still managed to position himself as the defender of the state's purse. But not all suits against the state get settled, especially if they were filed after Davis took office. A prime example some say is Williams v. State of California, 312236, a battle currently being waged in San Francisco Superior Court. Filed by the American Civil Liberties Union, the class action accuses the state of not doing enough to provide California's students with an adequate education. The suit, filed on behalf of 18 public schools, seeks an injunction ordering the state to repair and maintain all facilities and to provide textbooks and a sufficient number of credentialed teachers. Lawyers on the plaintiffs' side had thought Davis, who has approved $750 million in education spending this year, would and should be able to foster a political solution to the problem. Instead, they say, Davis has responded with guns blazing, hiring a top litigator from O'Melveny & Myers, John Daum, to defend him. Michael Jacobs, a Morrison & Foerster partner who is representing the schools pro bono, says he has since given up hope that Davis will be open to negotiating a settlement. "We're very much open to trying to settle it," Jacobs says. "Nothing has come of it on that front." Jacobs says the governor has instead fired back. Davis, who will reportedly pay O'Melveny between $11 million and $18 million to defend him, filed a Dec. 11 cross-complaint, which accuses local school districts -- not the state -- of failing to maintain adequate learning facilities. So why is Davis playing hardball? "He has his plan, and we're interfering with his plan," Jacobs says. McLean, the governor's spokeswoman, says Davis has made funding for improved education a hallmark of his administration and blames the plaintiffs for instigating the suit instead of allowing improvements to proceed. She adds that the governor would prefer to spend money on classrooms instead of lawyers. "Gov. Davis has made improving education part of his administration," she says. "In spite of his efforts, he has been named in a lawsuit." Yet some lawyers can't help but think what would happen if Davis had inherited the case. One lawyer close to the case said there is an obvious difference between the Williams case and the special education settlement, for instance. The difference: This time it's personal. "That was someone else's problem," the lawyer said about the special education class action. "This case attacks him." (The Recorder, December 19, 2000) * Partner at Berman DeValerio Sees SEC's Fight Against Fraud At Risk -------------------------------------------------------------------- As the stock markets lurch toward the New Year, investors should offer a wistful holiday toast to Arthur Levitt of the Securities and Exchange Commission. For the past two years, SEC chairman Levitt has crusaded against eroding accounting standards at publicly traded US companies, assailing a corporate culture too often willing to blur ethical lines to boost the bottom line. But the presidential election of George W. Bush means Levitt's tenure is most likely nearing an end and with it, the SEC's vigorous campaign against fraud. The thought of a Bush appointee in Levitt's seat is troubling to anyone who believes that the US financial markets are the world's most successful because of their unrivaled reputation for fairness, liquidity, and transparency. Over the years, Bush and other prominent Republicans have done everything within their power to curtail the rights of investors and other consumers hurt by corporate misdeeds. As governor of Texas, for example, President-elect Bush led the fight to limit the amount of punitive damages juries there can award in civil cases. His stated purpose: to protect companies against greedy lawyers. The result: to make fraud more attractive by removing the threat of financial consequences. The effects of Bush's tort reform can already be felt. The Wall Street Journal recently wrote that while Texas has one of the largest shares of deaths and injuries related to Firestone tires, the state's laws restrict victims' ability to get compensation. Republican lawmakers and the Washington business lobby have pledged to step up attacks on class actions, lawsuits that allow fraud victims to band together to seek damages against corporations. The same Republicans who discourage consumers from bringing civil suits against corporate wrongdoers also have worked hard to hamstring regulatory agencies like the SEC by slashing their budgets. Whether dealing with fallout from faulty tires or inflated stocks, federal regulators cannot do the job alone. Private litigation has become an important adjunct for chronically overworked and understaffed agencies. The SEC must carefully pick and choose its battles, deploying its limited resources on a small number of high-profile cases designed to send a message to would-be corporate wrongdoers. The government simply cannot afford to prosecute most suspected stock fraud. And make no mistake: Stock fraud is a booming business in America. Soaring share prices, demanding investors, and a generation of corporate leaders whose fortunes are tied to stock options have led to a dramatic increase in accounting gimmickry at publicly traded companies. Since 1997, the SEC says nearly 400 companies have restated financial results, approximately 1 percent of those making public filings. Accounting and financial fraud cases made up one-fifth of the agency's caseload in fiscal 2000. That number is rising in part because the penalties for falling short of Wall Streets expectations can seem worse to company management than the potential threat of a fraud prosecution. If a company misses analyst projections, even by a few pennies, its stock price takes a beating. Faced with a quarterly shortfall, some corporate managers choose to manipulate the numbers. In addition to being wrong, succumbing to such temptations can backfire if the maneuver is discovered down the road. But even if the fraud goes undetected, each cooked book burns the credibility of the entire stock market. Today, American markets enjoy the confidence of the world, Levitt said in 1998. Since then, Levitt has done much to restore a shining faith in US markets. He beefed up the SEC's enforcement division. He enacted regulations ending selective disclosure of information that can move stock prices. He established rules to reduce conflicts of interest for the auditors charged with examining a company's books. Perhaps most importantly, his staff issued guidelines that make it tougher to use what Bush might call fuzzy accounting to pad revenues. With Republicans knocking on the White House door and the stock markets continuing their wild ride, Levitt's legacy should not be squandered. Corporate America needs to step back from the quarterly numbers game and support stricter accounting standards and greater accountability for fraud, especially those related to revenue recognition. The public, meanwhile, must resist efforts to pass ill-conceived laws that discourage citizens from using private litigation to recover damages caused by fraud. (The Boston Globe, December 19, 2000) ********* S U B S C R I P T I O N I N F O R M A T I O N Class Action Reporter is a daily newsletter, co-published by Bankruptcy Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc., Washington, DC. Theresa Cheuk, Managing Editor. Copyright 1999. All rights reserved. ISSN 1525-2272. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The CAR subscription rate is $575 for six months delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 301/951-6400. * * * End of Transmission * * *