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            C L A S S   A C T I O N   R E P O R T E R

             Tuesday, January 9, 2001, Vol. 3, No. 6

                             Headlines

AUTO INSURANCE: Lawsuit over State Farm Cost Cutting Certified in WA
BECKER & POLIAKOFF: FL Ct OKs Recreational Property Members' FDCPA Suit
BRIDGESTONE CORPORATION: Charles J. Piven Announces Securities Suit
BUDGET RENT: AL Ct Says Car Fuel Overcharge Not a Common Issue for Cert.
CALIFORNIA: $665M for Vehicle Smog Impact Claims under Legislation

CALIFORNIA: Appeals against Counties' Test Claim over Property Tax Shift
CALIFORNIA: Citifunds SEC File Reports on Two Cases Re Interest Offset
CALIFORNIA: Corporate Taxpayers Challenge Code Re Insurance Dividends
CALIFORNIA: Defendant in Two Refund Actions in Tobacco Litigation
CALIFORNIA: Litigation Re Special Ed. State-Mandated Claims Goes on

CALIFORNIA: No Trial Date Yet for Lawsuit over 1986 Yuba River Flood
CALIFORNIA: Vigorously Defending Lawsuit over 1997 Flooding
CALIFORNIA: Vigorously Defends Cases over Medi-Cal Reimbursement Rates
CAPROCK COMMUNICATIONS: McLeodUSA Reports on Securities Suits in TX
CENDANT CORP: 3rd Cir Overrules Dist Ct for Excusable Tardiness in Claim

COCA-COLA: Black Truck Drivers Sue Bottling Employer in Fresno Super. Ct
DONNA KARAN: Immigrants' Suit over Wages Survives Dismissal
FLIR SYSTEMS: Reaches Agreement to Settle Securities Litigation for $6M
FORD MOTOR: Settles TX Paralyzed Woman's Rollover Lawsuit
M&A WEST: Milberg Weiss Files Securities Suit in California

NY CITY: Claims of Cops Retired under Provision Barred by Res Judicata
PAYDAY LENDERS: ACE Cash Escapes All State and Federal Small Loan Claims
TOBACCO LITIGATION: California Judge Denies Cert in Indian Tribes' Case
TOBACCO LITIGATION: Dispute over Ad To Be Used To Consider Speech Issues
TOBACCO LITIGATION: Sp Ct Rejects Northwest Airlines' Arguments

                             *********

AUTO INSURANCE: Lawsuit over State Farm Cost Cutting Certified in WA
--------------------------------------------------------------------
A Washington court has certified a class action that alleges State Farm
Mutual Automobile Insurance Co. wrongly underpaid or denied PIP benefits as
part of its secret policy to cut costs (Mindy Sitton, et al. v. State Farm
Mutual Automobile Insurance Co., No. 00 2 10013 2 SEA, Wash. Super., King
Co.).

Plaintiffs Mindy Sitton, Jesus Bancaco, Iris Salter, Joanne Roose and
Virgie Harris allege their personal injury protection (PIP) claims for
reasonable and necessary medical bills were denied, terminated or limited
by State Farm's "secret and undisclosed" policy and practice of subjecting
claims to utilization review, file review, billing review, computer program
or other unscientific methods not recognized in Washington with an
arbitrary and wrongful intent. PIP Benefits Denied

The class asserts its members paid premiums for PIP benefits, and State
Farm's failure to pay reasonable medical expenses placed its narrow
self-interest in profit maximization over its legal, contractual and
fiduciary duties to its insureds.

The action filed in the King County Superior Court asserts claims for
breach of contract, bad faith, breach of fiduciary duty and consumer
protection violations. It seeks medical expenses, refund of premiums,
declaratory judgment and exemplary or punitive damages.

In its Sept. 29 answer, State Farm denied engaging in conduct intended to
maximize profits. It also denied that the claimants submitted expenses that
were reasonable and necessary.

Among State Farm's 15 affirmative defenses are that the complaint fails to
state a claim upon which relief may be granted; the claims are barred by
the statute of limitations, waiver, estoppel, laches, the doctrine of
accord and satisfaction or by the doctrine of prior action pending; and the
plaintiffs released their claims.

State Farm seeks a take-nothing judgment and attorneys' fees.

Counsel to the class are Karen Greig of Lepley & Greig in Bellevue, Wash.,
and Brad J. Moore of Stritmatter Kessler Whelan Withey Coluccio in
Hoaquiam, Wash. Peter Danelo, Daniel J. Dunne, Kevin J. Craig and Maura
Scott Blank of Heller Ehrman White & McAuliffe in Seattle represent State
Farm. (Mealey's Litigation Report: Insurance Bad Faith, December 19, 2000)


BECKER & POLIAKOFF: FL Ct OKs Recreational Property Members' FDCPA Suit
-----------------------------------------------------------------------
The U.S. District Court for the Middle District of Florida granted class
certification to recreational property members alleging a letter sent to
collect delinquent dues violated the Fair Debt Collection Practices Act.
(Fuller, et al. v. Becker & Poliakoff P.A., et al., No. 8:00-CV-341-T-17B
(M.D. Fla. 11/9/00).)

Becker & Poliakoff P.A. sent letters to members of the Deer Creek Phase Two
Undivided Interest Property Owners' Association to collect delinquent
payment of membership dues. The property owners sued Becker & Poliakoff and
Chris Alan Draper, alleging that the debt collection letters violated the
FDCPA and the Florida Consumer Collection Practices Act by (1) failing to
state the amount of the debt; (2) contradicting and overshadowing the
validation notice; (3) falsely representing a remedy available to the
creditor; and (4) using false representation or deceptive means to collect
a debt. The property owners moved for class certification.

Standing

The court noted that the letter stated, "In the event that you do not
choose one of the two above options and communicate that acceptance to the
undersigned on or before thirty (30) days from the date this letter is
sent, we shall proceed to enforce through the filing of a lawsuit against
all delinquent owners. This will result in the incurrence of a substantial
amount of attorney's fees and costs, which you are personally liable for
and which can also constitute a judgment ... ."

The debt collector argued against class certification, claiming any
violations were only technical in nature. The District Court determined,
however, that the putative class members were threatened with legal action.
Therefore, the court found they had standing to sue.

Rule 23(a) requirements

The District Court noted that the debt collector admitted it sent
approximately 200 letters to property owners. As to the numerosity
requirement, the court found that joinder of 200 parties, located in
different areas, would be impracticable.

As to the commonality requirement, the property owners maintained that each
prospective class member received one of the two variations of a collection
letter. The court stated that "[a]ll members of the prospective class could
be affected from the issue regarding the letters sent." Therefore, the
court found the commonality requirement satisfied "because one common issue
is sufficient to meet the commonality requirement of Rule 23."

The property owners claimed, and the court agreed, that typicality was
satisfied because each of the prospective members received a variation of
the same collection letter received by the named plaintiffs. The District
Court also found the named plaintiffs adequate to represent the potential
class. As the court noted, the plaintiffs asserted an understanding of the
required responsibilities of a class representative.

Rule 23(b)

The debt collector argued that a class action was not the "superior method"
to resolve the controversy. The District Court stated, however, that "[t]he
essential common factual link between all of the prospective class members
[was] the letter sent by Defendants." Noting the property owners' basis for
the claim was the language and content of the letters, the court found a
class action to be "superior to other available methods for the fair and
efficient adjudication of the controversy."

Judge Elizabeth A. Kovachevich granted class certification.

Randolph Bragg of Horwitz, Horwitz & Associates Ltd. in Chicago, and
Christopher N. Guiliana in Dunedin, Fla., represented the plaintiffs.
Richard M. Zabak and Gary J. Rhoden of Shackleford, Farrior, Stallings &
Evans P.A. in Tampa, Fla. represented the debt collector. (Consumer
Financial Services Law Report, December 26, 2000)


BRIDGESTONE CORPORATION: Charles J. Piven Announces Securities Suit
-------------------------------------------------------------------
Law Offices Of Charles J. Piven, P.A. announced on January 8 that a private
securities action requesting class action status has been initiated on
behalf of purchasers of the following securities during the following
period:

All persons or entities who purchased Bridgestone common stock during the
period between March 31, 1998 and August 31, 2000.

No class has yet been certified in the above action. Until a class is
certified, you are not represented by counsel unless you retain one. If you
purchased the stock listed above during the class period, you have certain
rights.

Contact: Law Offices Of Charles J. Piven, P.A., Baltimore Charles J. Piven,
410/986-0036 pivenlaw@erols.com


BUDGET RENT: AL Ct Says Car Fuel Overcharge Not a Common Issue for Cert.
------------------------------------------------------------------------
The U.S. District Court for the Northern District of Alabama has denied a
customer's request for class certification on a claim of fuel overcharging
by a car rental company because individual claims are not connected by
common issues of fact. (Clopton v. Budget Rent A Car Corp., et al., No.
CV-00-BU-0196-S (N.D. Ala. 11/21/00).)

On Oct. 29, 1999, John Clopton leased a vehicle from Adamson Car & Truck
Rental Inc., a licensee of Budget Rent A Car Corp. Clopton had the option
of refueling the vehicle upon its return or permitting the lessor to refuel
it based on a refueling formula. Clopton permitted Adamson to refuel the
vehicle. Adamson charged Clopton 36.62 based on a 2.99 per gallon refueling
rate.

Clopton filed a class action against Budget and Adamson in the District
Court alleging breach of contract, fraudulent misrepresentation and
violations of the federal RICO Act and state law. He alleged wire and mail
fraud as his predicate acts of "racketeering activity." Clopton also sought
class certification for all of Budget's lessees in the last four years who
"used less than one full tank of fuel" [and] "returned the vehicle with
less fuel than when received, having not previously purchased the entire
tank of fuel."

Clopton argued that his action should be maintained as a class action under
Fed.R.Civ.P. 23(b)(2). He alleged that his amended complaint primarily
requested declaratory and injunctive relief and any request for monetary
damages was ancillary. The District Court disagreed. "It can hardly be
seriously argued that Clopton is predominantly seeking something other than
the legal remedy of money damages, not the equitable remedies specified by
Rule 23(b)(2)," the court said.

Clopton also argued that his class action was maintainable under
Fed.R.Civ.P. 23(b)(3). The District Court analyzed the following factors to
determine whether there was a predominance of questions of law or fact
common to the class justifying a class action:

1. Lack of showing that Budget and its licensees used a standard policy
    of calculating fuel usage.

2. The absence of showing that similar misrepresentations were made to
    lessees.

3. The absence of showing that class members detrimentally relied on
    similar misrepresentations.

The court held that Clopton failed to show that the claims raised issues
that predominated over individualized issues of law and fact. The District
Court also ruled that such a certification would require the application of
the laws from all 50 states.

The District Court stated that Clopton's complaint alleged a RICO claim
based on Budget's concealment of the fact that it utilized an "artificially
low" MPG rating on a fleet-wide basis to compute the amount of fuel used by
class members. However, the court ruled that Clopton's fraud-based claims
"would hinge on fact-specific inquiries into the conduct of individual
employees of Budget and its licensees with regard to whether a particular
class member was charged for gasoline not used." Thus, Clopton's RICO claim
was not appropriate for class action certification.

In a footnote, the District Court observed that Clopton alleged that Budget
received over 17,000 nationwide complaints characterized as "Fuel
Misunderstanding," "Fuel Overbilling" and "Fuel Disputes." However, the
court stated that once the number of rental locations was divided into the
number of complaints, the complaints averaged out to approximately 5.8
yearly complaints per location. Thus, "the number of complaints hardly
seems so daunting," the court said.

Finally, the District Court denied Clopton's motion for class
certification.

Opinion by: Judge H. Dean Buttram Jr. (Civil RICO Report, January 5, 2001)


CALIFORNIA: $665M for Vehicle Smog Impact Claims under Legislation
------------------------------------------------------------------
Jordan, et al. v. Department of Motor Vehicles, et al., challenges the
validity of the Vehicle Smog Impact Fee, a $300 fee which is collected by
the Department of Motor Vehicles from vehicle registrants when a vehicle
without a California new-vehicle certification is first registered in
California. The plaintiffs contend that the fee violates the interstate
commerce and equal protection clauses of the United States Constitution as
well as Article XIX of the State Constitution. In October, 1999 the Court
of Appeal upheld a trial court judgment for the plaintiffs and the State
has declined to appeal further. Although refunds through the court actions
could be limited by a three-year statute of limitations, with a potential
liability of about $750 million, the Governor has proposed refunding fees
collected back to the initiation of these fees in 1990. Legislation has
been enacted, which the Governor is prepared to sign, providing a $665
million supplemental appropriation in 1999-2000 to pay these claims.


CALIFORNIA: Appeals against Counties' Test Claim over Property Tax Shift
------------------------------------------------------------------------
The following is revealed in the SEC filing submitted by the Citifunds Tax
Free Reserves:

     On December 24, 1997, lead claimant Sonoma County and a consortium of
California counties filed a test claim with the Commission on State
Mandates (the "Commission") asking the Commission to determine whether the
property tax shift from counties to school districts beginning in 1993-94,
is a reimbursable state mandated cost.

     The Commission denied the test claim on October 29, 1998, and the
claimants sought review in the Sonoma County Superior Court. On November
10, 1999, the superior court granted the counties' petition for writ of
mandate and reversed the Commission's decision. The State then appealed to
the court of appeal and briefing in that court will be completed by the end
of June 2000.

     Meanwhile, on April 19, 2000, the California Supreme Court denied the
counties' petition to transfer the State's appeal directly to the Supreme
Court. Should the final decision on this matter be in favor of the
counties, the impact to the State General Fund could be more than $10.0
billion. In addition, there would be an annual Proposition 98 General Fund
cost of at least $3.75 billion. This cost would grow in accordance with the
annual assessed value growth rate.


CALIFORNIA: Citifunds SEC File Reports on Two Cases Re Interest Offset
----------------------------------------------------------------------
The State is involved in two cases challenging the constitutionality of the
interest offset provisions of the Revenue and Taxation Code: Hunt-Wesson,
Inc., v. Franchise Tax Board and F.W. Woolworth Co. and Kinney Shoe
Corporation v. Franchise Tax Board. In both cases, the Franchise Tax Board
prevailed in the California Court of Appeal and the California Supreme
Court denied taxpayers' petitions for review.

In both cases, the United States Supreme Court granted certiorari. On
February 22, 2000, the United States Supreme Court reversed and remanded
the Hunt-Wesson case to the California Court of Appeal for further
proceedings.

Although the Court did not take similar action in the Woolworth Co. case,
it is anticipated that it will do so. The Franchise Tax Board recently
estimated that the adverse decisions in these cases will result in a
reduction in state revenues of approximately $15 million annually, with
past year collection and interest exposure of approximately $95 million.


CALIFORNIA: Corporate Taxpayers Challenge Code Re Insurance Dividends
---------------------------------------------------------------------
The State is a defendant in Ceridian Corporation v. Franchise Tax Board, a
suit which challenges the constitutionality of a Revenue & Taxation Code
section which limits deductions for insurance dividends to those dividends
paid from earnings previously subject to California taxation. On August 13,
1998, the trial court issued a judgment against the Franchise Tax Board.
The Franchise Tax Board has appealed the judgment. Briefing has been
completed. The State has taken the position that, if the challenged section
of the Revenue & Taxation Code is struck down, all deductions relating to
dividends would be eliminated and the result would be additional income to
the State. Plaintiffs, however, contend that if they prevail, the deduction
should be extended to all dividends which would result in a one-time
liability for open years of approximately $60 million, including interest,
and an annual revenue loss of approximately $10 million. No date has yet
been set for oral argument.

The State is also a defendant in First Credit Bank etc. v. Franchise Tax
Board which challenges a Revenue & Taxation Code section similar to the one
challenged in the Ceridian case, but applicable to a different group of
corporate taxpayers. The State's motion for summary judgment is currently
pending and a trial date has been set in September 2000. A decision in the
Ceridian case could impact the outcome of this case. The State has taken
the position that, if the challenged section of the Revenue & Taxation Code
is struck down, all deductions relating to dividends would be eliminated
and the result would be additional income to the State. Plaintiffs,
however, contend that if they prevail, the deduction should be extended to
all dividends which would result in a one-time liability for open years of
approximately $385 million, including interest, and an annual revenue loss
of approximately $60 million.


CALIFORNIA: Defendant in Two Refund Actions in Tobacco Litigation
-----------------------------------------------------------------
The State is involved in two refund actions, Cigarettes Cheaper!, et al. v.
Board of Equalization, et al. and California Assn. Of Retail Tobacconists
(CART), et al. v. Board of Equalization, et al., that challenge the
constitutionality of Proposition 10, approved by the voters in 1998.
Plaintiffs allege that Proposition 10, which increases the excise tax on
tobacco products, violates 11 sections of the California Constitution and
related provisions of law. Plaintiffs Cigarettes Cheaper! seek declaratory
and injunctive relief and a refund of over $4 million.

The CART case filed by retail tobacconists in San Diego seeks a refund of
$5 million. Plaintiffs McLane/Suneast seek a refund between $500,000 and $1
million. The State is vigorously contesting these cases. The State's motion
for judgment on the pleadings was granted but the court gave the three sets
of plaintiffs permission to amend their complaints. As a result, the
defendants' motion for summary judgment was taken off the calendar. A
hearing on the State's demurrer to the third amended complaint by CART, the
second amended complaint by Cigarettes Cheaper! and the first amended
complaint by McLane/Suneast is pending. The State has obtained several
protective orders and extensive discovery continues. If the statute is
declared unconstitutional, exposure may include the entire $750 million
collected annually with interest.


CALIFORNIA: Litigation Re Special Ed. State-Mandated Claims Goes on
-------------------------------------------------------------------
Citifunds Tax Free Reserves reveals in its report to the SEC that the State
is involved in ongoing litigation related to state-mandated claims,
initially filed in 1980 and 1981, concerning the costs of providing special
education programs and services to disabled children. The case, Thomas
Hayes v. Commission on State Mandates, related to State-mandated costs. The
action involved an appeal by the Director of Finance from a 1984 decision
by the State Board of Control (now succeeded by the Commission on State
Mandates) in favor of the local school districts' claims for reimbursement.

In the trial and appellate courts, the State successfully established that
federal special education requirements impose a "federal mandate" upon the
State. Accordingly, the courts reversed the Board of Control's decision and
remanded the case to the Commission to determine what remained of the
claim. On remand, the claimant identified several specific aspects of the
State's special education program that allegedly exceeded federal
requirements.

The Commission has since expanded the claim to include supplemental claims
filed by seven other educational institutions. To date, the Legislature has
not appropriated funds. The Commission issued a decision in December 1998
determining that a small number of components of the State's special
education program are state mandated local costs.

The administrative proceeding is in the "parameters and guidelines" stage
where the Commission is considering whether and to what extent the costs
associated with the state mandated components of the special education
program are offset by funds that the State already allocates to that
program.

The State's position is that all costs are offset by existing funding. The
State has the option to seek judicial review of the mandate finding.

Potential liability of the State, if all potentially eligible school
districts pursue timely claims, has been estimated by the Department of
Finance to be in excess of $1.5 billion, if the State is not credited for
its existing funding of the program.

The Commission was unable to resolve two other identified aspects of the
State's program due to tie votes. As such, the Commission referred these
matters to an administrative law judge for preparation of recommended
decisions. One of these matters encompasses all special education services
for students between the ages of 3 to 5 and 18 to 21, and thus represents
significant additional potential liability if the claim is ultimately
upheld and the State is denied credit for its existing funding.


CALIFORNIA: No Trial Date Yet for Lawsuit over 1986 Yuba River Flood
--------------------------------------------------------------------
The State is a defendant in Paterno v. State of California, a coordinated
action involving 3,000 plaintiffs seeking recovery of damages caused by the
Yuba River flood of February 1986. The trial court found liability in
inverse condemnation and awarded damages of $500,000 to a sample of the
plaintiffs. The State's potential liability to the remaining plaintiffs
ranges from $800 million to $1.5 billion. In 1992, the State and plaintiffs
filed appeals. In August 1999, the Court of Appeal issued a decision
reversing the trial court's judgment against the State and remanding the
case for retrial on the inverse condemnation cause of action. The
California Supreme Court denied plaintiffs' petition for review. No trial
date has been set although trial management issues, including whether
plaintiffs have the right to a jury trial on their inverse condemnation
claim and whether trial should be held in Yuba County, are presently being
considered by the trial court.


CALIFORNIA: Vigorously Defending Lawsuit over 1997 Flooding
-----------------------------------------------------------
In January of 1997, California experienced major flooding with preliminary
estimates of property damage of approximately $1.6 to $2.0 billion. In
McMahon v. State, a substantial number of plaintiffs have joined suit
against the State, local agencies, and private companies and contractors
seeking compensation for the damages they suffered as a result of the 1997
flooding. After various pre-trial proceedings, the State filed its answer
to the plaintiffs' complaint in January of 2000. No trial date has been
set. The State is vigorously defending the action.


CALIFORNIA: Vigorously Defends Cases over Medi-Cal Reimbursement Rates
----------------------------------------------------------------------
Plaintiffs in County of San Bernardino v. Barlow Respiratory Hospital and
related actions seek mandamus relief requiring the State to retroactively
increase out-patient Medi-Cal reimbursement rates. Plaintiffs have
estimated the damages to be several hundred million dollars. The State is
vigorously defending these cases, as well as related federal cases
addressing the calculation of Medi-Cal reimbursement rates in the future.
Trial was scheduled for September 2000. The SEC report does not give
details about the trial.

Louis Bolduc et al. v. State of California et al. is a class action filed
on July 13, 1999 by six Medi-Cal beneficiaries who have received medical
treatment for smoking-related diseases. Plaintiffs allege the State owes
them an unspecified portion of the tobacco settlement monies under a
federal regulation that requires a state to turn over to an injured
Medicaid beneficiary any monies the state recovers from a third party
tortfeasor in excess of the costs of the care provided. The State moved to
dismiss the complaint on September 8, 1999. On February 29, 2000, the court
denied the State's motion to dismiss, but struck the Plaintiffs' class
action allegations. The State is seeking appellate review of that portion
of the court's order denying its motion to dismiss, and plaintiffs have
appealed the court's striking of their class action allegations. All
written briefs should be filed by August 2000.


CAPROCK COMMUNICATIONS: McLeodUSA Reports on Securities Suits in TX
-------------------------------------------------------------------
On December 7, 2000, McLeodUSA Inc. completed its acquisition of CapRock
Communications Corp., a Texas corporation, pursuant to an Agreement and
Plan of Merger dated as of October 2, 2000. CapRock is now a wholly-owned
subsidiary of McLeodUSA.

In its report to the SEC, McLeodUSA tells investors that several class
action complaints have been filed in the United States District Court for
the Northern District of Texas on behalf of all purchasers of CapRock
common stock during the period April 28, 2000 through July 6, 2000. (These
lawsuits have been previously reported in the CAR.)

The lawsuits principally allege that prior to the merger CapRock made
material misstatements or omissions of fact in violation of Section 10(b)
of the Securities Exchange Act. The named defendants in these lawsuits
include CapRock and certain of its officers and directors. The plaintiffs
in the lawsuits seek monetary damages. The defendants intend to file a
motion to dismiss at the appropriate time.

On October 6, 2000, a class action complaint was filed in the County Court
at Law of Dallas County, Texas on behalf of CapRock stockholders. This
complaint names as defendants CapRock and each member of its board of
directors prior to the merger and principally alleges that the directors
violated fiduciary duties owed to CapRock stockholders in connection with
entering into the merger agreement. The plaintiffs in the lawsuit seek
unspecified monetary damages. While plaintiffs also sought an injunction in
their pleadings, no application for such an injunction was brought to the
court.

On December 20, 2000, a class action complaint was filed in the United
States District Court for the Northern District of Texas on behalf of all
purchasers of CapRock common stock in CapRock's June 2000 public offering.
The complaint names as defendants CapRock, certain of its officers and
directors prior to the merger, and Salomon Smith Barney Inc. and Bear
Stearns & Co., Inc., as underwriters of the offering. The complaint
principally alleges that the registration statement for the offering
contained materially false and misleading statements and omitted certain
material information about CapRock in violation of Section 11 of the
Securities Act. The plaintiffs in the lawsuit seek rescission of their
purchase of CapRock common stock in the offering and/or monetary damages.
The defendants intend to file a motion to dismiss at the appropriate time.

                       Derivative Complaint

On October 6, 2000, a complaint in a derivative action was filed in the
United States District Court for the Northern District of Texas. The
complaint names as defendants certain directors of CapRock. The complaint
principally alleges that the directors prior to the merger negligently
and/or intentionally violated fiduciary duties owed to CapRock
stockholders, and that CapRock suffered damage, in connection with the
misstatements or omissions of fact alleged in the class action cases first
described above. The plaintiffs in the lawsuit principally seek unspecified
monetary damages. The defendants have filed a motion to dismiss this action
and that motion is pending.


CENDANT CORP: 3rd Cir Overrules Dist Ct for Excusable Tardiness in Claim
------------------------------------------------------------------------
In re Cendant Corporation PRIDES Litigation; Welch & Forbes, Inc. v.
Cendant Corporation,

No. 00-5198; Third Circuit; opinion by Mansmann, U.S.C.J.; filed December
13, 2000. Before Judges Becker, Mansmann and Fuentes. On appeal from the
District of New Jersey. (Sat below: Judge Walls.) DDS No. 50-8-5579

Where the reason for the delay in submitting a proof of claim within the
time limits was either unforeseeable sabotage by mail-room employees or a
mail room that did not operate as it should have in the ordinary course of
business, and in the absence of bad faith or prejudice to appellee, the
District Court's misapplication of the Pioneer factors in denying
appellant's Rule 60(b) motion was beyond the sound exercise of its
discretion, and any neglect by appellant in submitting its proof-of-claim
form late was " excusable neglect," justifying the allowance of its claim
to participate in the settlement; also, the three-day delay was trivial in
light of the one-year outer limit for bringing a Rule 60(b) motion imposed
by the Federal Rules of Civil Procedure.

Santander Merchant Bank Limited appeals the District Court's denial of its
Fed. R. Civ. P. 60(b) motion for reconsideration of the final judgment that
excluded Santander from the settlement of the underlying securities-fraud
action brought by investors against Cendant. Specifically, Santander claims
that the District Court erred in failing to apply correctly the standards
for determining "excusable neglect" in denying Santander's proof of claim
that was mailed three days late. *Held: The District Court's decision in
concluding that Santander did not demonstrate that excusable neglect caused
the delay was not consistent with the sound exercise of its discretion.

I.

In June 1999, the District Court approved a $340 million settlement of the
Cendant PRIDES class-action litigation. Under the terms of the stipulation
Cendant agreed to distribute one right, with a theoretical value of $11.71,
for each PRIDES owned as of the close of business on April 15, 1998. To
collect the rights, each PRIDES owner was required to submit a valid proof
of claim by June 18, 1999. Under the terms of the settlement hearing order,
a settlement administrator, Valley Forge Administrative Services, was to
verify the proofs of claim. The rights, which are publicly traded, expire
on February 14, 2001, when, in combination with the current PRIDES, they
will be exchanged for new PRIDES.

Class members who wished to participate in the settlement were asked to
submit a completed proof-of-claim form by prepaid first-class mail
postmarked on or before June 18, 1999, addressed to the administrator as
set forth in the notice. The class notice further provided that proofs of
claim would be deemed to have been filed when posted, if mailed by
first-class mail or air mail, postage prepaid, and addressed in accordance
with the instructions given; proofs of claim filed otherwise would be
deemed to have been filed when actually received by the administrator.

The record in this case shows that on June 16, 1999, two days before the
mailing deadline, Douglas Preston, the general counsel and chief compliance
officer of Santander Investment Securities, Inc., finalized a
proof-of-claim form on behalf of appellant Santander Merchant Bank for
301,400 PRIDES (worth approximately $3.5 million). Preston delivered the
proof-of-claim form to his assistant, Iris Figueroa, for mailing to the
administrator by postage prepaid first-class mail, certified with return
receipt requested. Preston saw Figueroa place the completed proof-of-claim
form in an envelope, address the envelope as provided in the claim-form
instructions and affix a certified mail sticker to the package. Figueroa
delivered the envelope to Santander's mail department and instructed the
mail-room staff to mail the envelope immediately by first-class certified
mail. A member of the mail-room staff informed Figueroa that he would take
the package to the post office that day, and Figueroa reported back to
Preston that the package had been mailed. Thus, Santander believed that its
proof-of-claim form had been mailed on June 16, 1999, two days before the
deadline.

Though unknown to Preston at the time, Santander's proof of claim
languished unattended in the mail room for a week. The undelivered mail was
discovered on June 23, 1999, and it was sent out that day. At this time,
apparently neither Preston nor the legal department knew that a mail-room
problem had occurred or had any knowledge or notice that Santander's claim
had not been mailed on June 16.

II.

This examination requires a two-part analysis: (1) for purposes of the Rule
60(b) motion: whether Santander's delay in bringing its "mail room
sabotage" theory to the District Court's attention was excusable; and (2)
on the "merits": whether the "mail room sabotage" theory provides a valid
reason for its late submission of its proof of claim. The first inquiry
regards the District Court's denial of Santander's Rule 60(b) motion for
reconsideration of the final judgment that excluded Santander from the
settlement. The District Court's denial of the Rule 60(b) motion will be
reviewed for abuse of discretion.

A. Santander's delay in bringing its "mail room sabotage" theory to the
District Court's attention was excusable.

Pioneer Investment Services v. Brunswick Assoc. Ltd. Ptrshp., 507 U.S. 380
(1993), delineated the analysis required for a finding of "excusable
neglect" (made applicable to Rule 60(b) though Pioneer was a bankruptcy
case) and held that courts are permitted, where appropriate, to accept late
filings even when caused by inadvertence, mistake or carelessness, as well
as by intervening circumstances beyond a party's control. In the wake of
Pioneer, the court has imposed a duty of explanation on District Courts
when they conduct an "excusable neglect" analysis.

Here, on Santander's Rule 60(b) motion, the District Court should properly
have entertained an analysis of the factors constituting "excusable
neglect" to determine whether Santander had met them. To fail to do so is a
failure on the part of the District Court to properly apply the law to the
facts of this case and provides grounds for reversal on the basis of abuse
of discretion. Here, the District Court did not apply the Supreme Court's
enunciated factors for "excusable neglect," even when Santander urged it to
do so at the oral argument.

B. The length of Santander's delays were insignificant as a matter of law.
Santander's "delay" in bringing the Rule 60(b) motion was three weeks: the
period between the time the District Court's decision disallowing its claim
became final, February 23, and the time it brought its Rule 60(b) motion,
March 16. This delay was trivial in light of the one-year outer limit for
bringing a Rule 60(b) motion imposed by the Federal Rules of Civil
Procedure.

Similarly trivial was Santander's delay in filing its initial proof of
claim, five days or three business days, as Santander prefers to
characterize it: the period between the original filing date, Friday, June
18, 1999, and the date the claim was postmarked, Wednesday, June 23, 1999.
These few days could not have had any real impact on the judicial
proceedings.

The reason for the delay here was either unforeseeable sabotage by
mail-room employees who purposefully misled Santander, or even more simply,
a mail room that did not operate as it should have in the ordinary course
of business. There is no evidence that Santander acted in bad faith, either
in bringing its Rule 60(b) motion or in filing its late claim. On the
contrary, there is abundant evidence that Santander acted with good faith
throughout.

Finally, in terms of prejudice to Cendant, the District Court found that
Cendant would not suffer any prejudice when the District Court extended the
deadline from June 18 to September 7, 1999, after Santander's claim had
been mailed and received.

Reversed and remanded.

For appellant -- Kathryn A. McDonald and Jayne S. Robinson, of the N.Y. bar
(Robinson, Murphy & McDonald) and Paul J. Dillon (Bloom, Rubinstein,
Karinja & Dillon). For appellees: Cendant Corporation -- Michael M.
Rosenbaum and Carl Greenberg (Budd Larner Gross Rosenbaum Greenberg & Sade)
and Samuel Kadet, of the N.Y. bar (Skadden, Arps, Slate, Meagher & Flom);
Welsch & Forbes, Inc. -- Roger W. Kirby, of the N.Y. bar (Kirby, McInerney
& Squire).

Digested by Steven P. Bann (New Jersey Law Journal, January 8, 2001)


COCA-COLA: Black Truck Drivers Sue Bottling Employer in Fresno Super. Ct
------------------------------------------------------------------------
Eleven current and former employees of the Coca-Coca Bottling Co. have
filed a civil lawsuit against the company. The Latino and black truck
drivers say they have been the victims of racial discrimination at the
Malaga plant in Fresno County. They are seeking more than $8 million in
damages, according to the lawsuit, filed last Friday January 5 in Fresno
County Superior Court.

According to the lawsuit, Coca-Cola Enterprises Inc. created a hostile and
discriminatory work environment for the plaintiffs, not only by unlawful
employment practices but by also allowing "derogatory and deprecating"
remarks against them.

The suit is not connected to the class-action discrimination lawsuit filed
against Coca-Cola in April 1999 by four then-current and former black
employees.

The 1999 lawsuit was filed in Atlanta, where Coca-Cola is based, and
covered a total of 2,000 other workers across the country. In June 2000,
Coca-Cola agreed to a $192 million settlement. (The Associated Press State
& Local Wire, January 8, 2001)


DONNA KARAN: Immigrants' Suit over Wages Survives Dismissal
-----------------------------------------------------------
A federal judge has denied a motion filed by garment manufacturer Donna
Karan to dismiss a class-action suit brought by Chinese immigrant workers
who were denied minimum wages and overtime pay while working at two New
York factories that manufacture the designer's clothing line. Senior
District Court Judge Whitman Knapp held that the workers presented triable
evidence to show that Donna Karan International Inc. acted as a joint
employer with Jen Chu Apparel, Inc. and Jen Jen of New York Inc., the
factories contracted by Ms. Karan's company to manufacture her product.
Judge Knapp ruled that it must be determined at trial whether Donna Karan
International Inc. was an employer under the federal Fair Labor Standards
Act, which defines an employer as "any person acting directly or indirectly
in the interest of an employer in relation to an employee." (New York Law
Journal, December 27, 2000)


FLIR SYSTEMS: Reaches Agreement to Settle Securities Litigation for $6M
-----------------------------------------------------------------------
FLIR Systems, Inc. (Nasdaq:FLIR) announced on January 8 that it has reached
an agreement to settle the class action securities litigation pending
against it and three of its former officers and directors.

The settlement amount is for $6.0 million, $5.5 million of which will be
paid by the Company's insurance carrier and $500,000 of which will be paid
by the Company. The settlement, which is subject to formal documentation
and final court approval, will fully and finally settle the claims of all
parties named in the consolidated actions.

"We're very pleased to have settled this litigation," commented Earl Lewis,
President and CEO of FLIR. "The resolution of this matter represents
another significant step in the recovery of FLIR and will enable us to
better focus our energies on improving the growth of our business going
forward."

                           About FLIR Systems

FLIR Systems, Inc. is a world leader in the design, manufacture and
marketing of thermal imaging and broadcast camera systems for a wide
variety of commercial and government applications including condition
monitoring, research and development, manufacturing process control,
airborne observation and broadcast, search and rescue, drug interdiction,
surveillance and reconnaissance, navigation safety, border and maritime
patrol, environmental monitoring and ground-based security. Visit the
company's Web site at www.FLIR.com.


FORD MOTOR: Settles TX Paralyzed Woman's Rollover Lawsuit
---------------------------------------------------------
A settlement has been reached in a paralyzed woman's lawsuit that would
have been the first case against Ford Motor Co. to go to trial since
millions of tires were recalled, the company said.  The statement did not
say whether the settlement also involved tire maker Bridgestone/Firestone
Inc., which was also a defendant in the lawsuit seeking more than $100
million.  Financial terms of the settlement in Donna Bailey's lawsuit were
not disclosed. The case had been scheduled for jury selection Tuesday.

``We are pleased to have resolved this case with Donna Bailey and we extend
our sympathies to her and her family,'' said Susan Krusel, a spokeswoman
for Ford in Dearborn, Mich. She said a Ford representative flew to Houston
to visit with Bailey at a clinic on Sunday night.

The 44-year-old Portland, Texas, woman was paralyzed from the neck down in
the March 10 crash. Bailey was a passenger in a friend's Ford Explorer
during a rock climbing trip when the vehicle rolled over after treads on a
Firestone tire separated. But Ford and Firestone representatives had denied
the companies were to blame for the crash.

Bailey's lawsuit would have been the first involving the highly publicized
allegations against Ford Explorers and Firestone to proceed to trial since
a recall of 6.5 million tires. Bailey and her two children, an 18-year-old
daughter and 15-year-old son, had sued the companies in a Corpus Christi
state district court for more than $100 million.

The August tire recall followed a string of rollover accidents, more than
200 of them fatal, in the United States and several other countries.  As
many as 200 lawsuits have been filed against Ford and Firestone over
tire-related crashes. Last month, Ford resolved six claims in a single day,
and Bruce Kaster, a leading lawyer in defective tire suits, said the
company appeared to be moving quickly to resolve the cases.

Bailey, who was a rock climber and weightlifter before her injuries landed
her in the rehabilitation center, had said recently that a trial was needed
because she wanted ``everything to come out.''

Court officials had summoned 100 Nueces County residents to be prospective
jurors in the civil trial. Bailey's attorneys had contended that
defectively manufactured tires and bad vehicle design were to blame for the
wreck.

``The Ford Explorer, on these tires, has rolled over and killed more people
than any product in the nation,'' Watts said. ``It is the largest vehicular
product liability crisis in the history of this country. There are hundreds
of other similarly situated plaintiffs, government safety officials and
members of Congress all watching this trial.''  (AP Online, January 8,
2001)


M&A WEST: Milberg Weiss Files Securities Suit in California
-----------------------------------------------------------
Milberg Weiss (http://www.milberg.com/mawest/)announced on January 5 that
a class action has been commenced in the United States District Court for
the Northern District of California on behalf of purchasers of M&A West,
Inc. (NASDAQ:MAWI)(MAWI.OB) publicly traded securities during the period
between August 17, 2000 and December 28, 2000 (the "Class Period").

The complaint charges M&A and certain of its officers and directors with
violations of the Securities Exchange Act of 1934. M&A operates and
develops Internet and technology related companies. The complaint alleges
that to portray the Company as a financially viable Internet play, during
the Class Period the individual defendants caused M&A to issue false
financial results and make false statements about its results, causing its
stock to trade at artificially inflated levels. By the spring of 2000, the
individual defendants were anxious to see M&A participate in the Internet
stock boom and to finish their audit, the consummation of which would
assist the defendants in obtaining approval for the Boston Stock Exchange
and NASDAQ Small Cap Market listing. To do this, defendants determined it
was essential they report favorable financial results to be seen as a
financially viable Internet play. As a result of the defendants' alleged
false statements, M&A's stock price traded at inflated levels during the
Class Period, increasing to as high as $8 in August 2000.

Then on December 28, 2000, M&A admitted that its results for its quarter
ended August 31, 2000 and year ended May 31, 2000, had been false. In fact,
its previously reported revenues/EPS had been improperly recognized and
were the result of fraudulent accounting entries. M&A shares now trade for
just pennies per share.

Contact: Milberg Weiss Bershad Hynes & Lerach LLP William Lerach,
800/449-4900 wsl@mwbhl.com


NY CITY: Claims of Cops Retired under Provision Barred by Res Judicata
----------------------------------------------------------------------
Members OF the New York City Police Department Pension Fund who retired
from the NYPD because of disability or under a vested pension retirement
provision, sued municipal and police union defendants. Plaintiffs argued
that they do not receive benefits from police Variable Supplement Funds,
which are only distributed to individuals who retired from the NYPD for
reasons other than disability. Defendants moved for summary judgment,
arguing that the claims are barred by res judicata since plaintiffs raised
or could have raised them in four prior federal and state lawsuits. The
court agreed and granted defendants' motion, finding that several of
plaintiffs' claims were already considered and rejected by the Appellate
Division. Plaintiffs' added claims are also barred by res judicata since
they have an identical factual predicate as the prior claims.

Judge Koeltl

MCDONOUGH ET AL. v. THE CITY OF NEW YORK, ET AL. QDS:02763319 - The
plaintiffs are members of the New York City Police Department ("NYCPD")
Pension Fund ("the Fund") who retired from the NYCPD because of disability
or under a vested pension retirement provision. They do not receive certain
benefits known as "variable supplements," from two police Variable
Supplement Funds ("VSFs"). Under New York State law, VSF benefits are only
distributed to "service retirees" of the NYCPD, that is, individuals who
retired from the NYCPD after 20 years of service for reasons other than
disability.

The plaintiffs have sued two groups of defendants referred to in the
amended complaint as "Municipal" and "Police Union" defendants. n1 They
allege that the defendants have violated their rights under the Equal
Protection Clause and the Due Process Clause of the Fourteenth Amendment to
the United States Constitution, under the First Amendment to the United
States Constitution, and under the Internal Revenue Code. They assert their
claims under 42 U.S.C. @ 1983. n2 The plaintiffs also allege state law
claims arising under Article V, Section 7 of the New York State
Constitution, which protects pension or retirement benefits in a state or
local system from being diminished or impaired. n3

n1 The Municipal defendants are the City of New York ("NYC"), Rudolph
Giuliani, the Mayor of NYC, Howard Safir, the Police Commissioner of NYC,
Alan Hevesi, the Comptroller of NYC, and the Board of Trustees of the NYC
Police Pension Fund. The Police Union defendants are the NYC Police
Benevolent Association ("PBA"), the NYC Police Sergeants Benevolent
Association ("SBA"), the NYCPD, the NYC Police Superior Officers' Council
("SOA"), and the NYC Police Detective Endowment Association ("DEA").

n2 42 U.S.C. @ 1983 provides: "Every person who, under color of any
statute, ordinance, regulation, custom, or usage, of any State ...
subjects, or causes to be subjected, any citizen of the United States or
other person within the jurisdiction thereof to the deprivation of any
rights, privileges, or immunities secured by the Constitution and laws,
shall be liable to the person injured...."

n3 Article V, Section 7 of the New York State Constitution provides: "After
July first, nineteen hundred forty, membership in any pension or retirement
system of the state or of a civil division thereof shall be a contractual
relationship, the benefits of which shall not be diminished or impaired."
N.Y. Const. Art. V., @ 7.

The plaintiffs assert five causes of action. More specifically, the first
three causes of action argue that the Municipal Defendants violated the
Equal Protection Clause and Article V, Section 7 of the New York State
Constitution by reducing their contribution to the Fund and in effect
transferring part of the Fund to the City of New York. The plaintiffs ask
for injunctive relief enjoining these reductions and ordering a refund of
the funds allegedly transferred. The fourth cause of action alleges that
the reduction in the Municipal Defendants' contribution violates the
exclusive benefit rule of the Internal Revenue Code and places the Fund in
danger of losing certain tax benefits. The fifth cause of action asks this
Court to remedy what the plaintiffs characterize as a manifest injustice by
issuing a declaration that the plaintiffs are entitled to VSF benefits.

The defendants now move for summary judgment pursuant to Fed. R. Civ. P.
56. They also move for sanctions against the plaintiffs and their counsel
under Fed. R. Civ. P. 11. The plaintiffs represented by the same counsel
have brought four prior lawsuits seeking to establish their right to VSF
benefits. n4 They have been unsuccessful in each of these lawsuits. For the
reasons explained below, the plaintiffs also cannot recover in this, their
fifth lawsuit.

n4 The plaintiffs do not dispute the PBA's assertion in its Local Rule 56.1
statement that all or substantially all of the plaintiffs were plaintiffs
in the four prior lawsuits. See PBA's Rule 56.1 Statement at P1. At the
argument of the current motions, counsel for the plaintiffs acknowledged
that the plaintiffs in this case are bound by the judgments in the four
prior cases, but he argues that some of those judgments should be opened up
or set aside.

I. A.

The defendants argue that this Court should grant summary judgment because
the plaintiffs' claims are barred by the doctrine of res judicata and by
the Rooker-Feldman doctrine, which generally deprives this Court of subject
matter jurisdiction to review a state court judgment.

The standard for granting summary judgment is well established. Summary
judgment may not be granted unless "the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law." Fed. R.
Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986);
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Gallo v.
Prudential Residential Servs., Ltd. Partnership, 22 F.3d 1219, 1223 (2d
Cir. 1994). In determining whether summary judgment is appropriate, a court
must resolve all ambiguities and draw all reasonable inferences against the
moving party. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986) (citing United States v. Diebold, Inc., 369 U.S.
654, 655 (1962)); see also Gallo, 22 F.3d at 1223. Summary judgment is
improper if there is any evidence in the record from any source from which
a reasonable inference could be drawn in favor of the nonmoving party. See
Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994). "In
considering the motion, the court's responsibility is not to resolve
disputed issues of fact but to assess whether there are factual issues to
be tried." Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986).

On a motion for summary judgment, once the moving party meets its initial
burden of demonstrating the absence of a genuine issue of material fact,
the nonmoving party must come forward with specific facts to show there is
a factual question that must be resolved at trial. See Fed. R. Civ. P.
56(e). The non-moving party must produce evidence in the record and "may
not rely simply on conclusory statements or on contentions that the
affidavits supporting the motion are not credible." Ying Jing Gan v. City
of New York, 996 F.2d 522, 532 (2d Cir. 1993); accord Scotto v. Almenas,
143 F.3d 105, 114-15 (2d Cir. 1998) (collecting cases); Wyler v. Unites
States, 725 F.2d 156, 160 (2d Cir. 1983).

B. The basic facts of this case have been recounted many times and are not
in dispute except where noted. In 1968, the PBA and New York City
negotiated a collective bargaining agreement ("the CBA") that authorized
the Fund to invest in assets other than fixed income securities. (Amended
Complaint P10; Castellano v. Board of Trustees of the Police Officers'
Variable Supplements Fund, 937 F.2d 752, 754 (2d Cir. 1991) ("Castellano
I").) If the annual gain from those investments was greater than the
hypothetical return on fixed income obligations, the excess gain was to be
transferred from the Fund to a VSF administered by a separate board of
trustees. (Amended Complaint P12; Castellano I, 937 F.2d at 754.) The CBA
did not exclude any subsequently retired members of the NYCPD from
entitlement to benefits from the VSF. (Amended Complaint P11; Castellano I,
937 F.2d at 757.) However, the New York State Legislature, which passed
enabling legislation that gave effect to the CBA, specified that the VSF
benefits would only be distributed to "for service" retirees, that is,
individuals who retired from the NYCPD after 20 years of service for
reasons other than disability. (N.Y.C. Admin. Code @@ 13-268(5),
13-271(a)(1), 13-278(5), 13-281(a)(1); Castellano I, 937 F.2d at 755.)

Chapter 247 of the Laws of 1988, which was also passed after collective
bargaining, changed the VSF benefit from a variable, discretionary benefit
to a fixed benefit. (Amended Complaint P20; Municipal Defendants' Local
Rule 56.1 Statement P3; Plaintiffs' Counter 56.1 Statement P3.) The
legislation also provided for a $ 75 million transfer of Fund money to New
York City. (Amended Complaint P20; Affidavit of Susan Sanders sworn to June
7, 2000 ("Sanders Aff.") P34.) The plaintiffs allege that at various times
since 1988, the Municipal Defendants have reduced their employer
contribution to the Fund by taking a credit against income retained in the
Fund. (Amended Complaint P25.) The plaintiffs allege that the Municipal
Defendants have in effect transferred assets of the Fund to the City of New
York. (Amended Complaint P26.)

C. In the last decade, the plaintiffs represented by the same counsel have
filed four lawsuits in both federal and state court challenging various
aspects of the statutory scheme governing the VSF. In their first federal
lawsuit, the plaintiffs challenged the constitutionality of the VSF scheme
under both the United States Constitution and the New York State
Constitution. See Castellano They argued that the statutory scheme, which
authorized payments to "for service" retirees and denied VSF benefits to
all other retirees violated the United States Constitution's Equal
Protection Clause, Due Process Clause, and Contracts Clause, as well as
Article V, Section 7 of the New York State Constitution. See Castellano I,
932 F.2d at 755.

The district court denied all the plaintiffs' federal claims and declined
to exercise supplemental jurisdiction over their state law claims. See id.
The United States Court of Appeals for the Second Circuit affirmed the
district court's denial of the federal Equal Protection claim, reasoning
that the New York State legislature's judgment to limit VSF benefits to
"for service" retirees was rationally related to legitimate governmental
objectives. See Castellano I, 932 F.2d at 755-57. The Court of Appeals also
affirmed the district court's denial of the plaintiffs' Contract Clause
claim, which argued that the statute's exclusion of the plaintiffs from VSF
benefits impaired contractual obligations established by the CBA. The Court
of Appeals reasoned that there was no conflict between the CBA and statute
because "the collective bargaining agreement created a fund; it did not
establish the beneficiaries of that fund. The beneficiaries were determined
by the legislature in its implementing statute." Id. at 757. The Court of
Appeals affirmed the district court's denial of the plaintiffs' Due Process
claim because the plaintiffs had no property right in receiving VSF
benefits. See id. at 757-58. Finally, the Court of Appeals affirmed the
district court's dismissal of the plaintiffs' pendent state law claim. See
id. at 758.

In Bergamine v. Patrolmen's Benevolent Ass'n of the City of New York, Inc.,
608 N.Y.S.2d 431 (App. Div. 1994), motion for leave to appeal denied, 639
N.E.2d 417 (N.Y. 1994), the plaintiffs brought an Article 78 petition in
New York state court arguing that the PBA had violated its duty of fair
representation to them by not taking steps to ensure they would receive VSF
benefits. The New York State Supreme Court dismissed the petition. In its
opinion affirming the dismissal, the Appellate Division noted that the
constitutionality of the VSF scheme had been upheld in Castellano I. See
Bergamine, 608 N.Y.S.2d at 432. The Appellate Division also reasoned that
it was not the collective bargaining agreement but the "legislation which
implemented the collective bargaining agreement that set restrictions on
the payment of such benefits." Id. Given the constitutionality of the VSF
scheme and the absence of "any facts to show either arbitrariness,
discrimination or bad faith conduct on the part of respondents in
discharging their duties," the plaintiffs had not shown that the PBA
violated its duty of fair representation. See id.

In their second federal action, the plaintiffs alleged that the statutory
scheme discriminated against them on the basis of disability by denying
them VSF benefits. See Castellano v. City of New York, 142 F.3d 58 (2d
Cir.), cert. denied. 525 U.S. 820 (1998)("Castellano II"). In Castellano
II, the Second Circuit Court of Appeals consolidated the plaintiffs' appeal
with a number of other actions and held that the denial of VSF benefits did
not violate the Americans with Disabilities Act of 1990, 42 U.S.C. @ 12101
et seq., the Rehabilitation Act, 29 U.S.C. @ 791 et seq., or the Age
Discrimination in Employment Act of 1967, 29 U.S.C. @ 621 et seq. See
Castellano II, 142 F.3d at 70-72. In the course of its decision, the Court
of Appeals reiterated that it had denied an Equal Protection Clause
challenge to the denial of benefits for non-"for service" retirees in
Castellano I, and it rejected the plaintiffs' First Amendment and Due
Process claims as "frivolous." See id. at 74.

In its decision, the Court of Appeals rejected an argument that all
retirees are entitled to VSF benefits because the benefits are deferred
compensation. The Court noted that some appellants had supported their
argument by citing Gagliardo v. Dinkins, 674 N.E.2d 298 (N.Y. 1996), a case
which involved VSFs for New York City Transit Police and New York City
Housing Police. In Gagliardo, the New York Court of Appeals wrote that
"[the] [VSFs] were created through collective bargaining as additional
future compensation for services actually rendered ... ." Gagliardo, 674
N.E.2d at 303. The Second Circuit Court of Appeals replied to this argument
by noting that in a later passage in Gagliardo, the New York Court of
Appeals characterized the VSFs as an inducement to remain in active service
rather than deferred compensation. See Castellano II, 142 F.3d at 71. The
Second Circuit Court of Appeals also noted that "[the] fact that the level
of VSF benefits does not vary by years served is a further indication that
the VSF is not bargained-for compensation for services rendered." Id.

Finally, the plaintiffs brought a fourth action in New York state court in
Castellano v. City of New York, No. 9200/92, slip op. (N.Y. Sup. Ct. Nov.
12, 1996), affirmed 674 N.Y.S.2d 364 (App. Div.), motion for leave to
appeal denied, 707 N.E.2d 444 (N.Y. 1998), cert. denied 526 U.S. 1131
(1999)("Castellano III"). In that case, the plaintiffs again sought a
declaration that they were entitled to VSF benefits. They also argued that
Chapter 247 of the Laws of 1988, which authorized a transfer of $ 75
million from the Fund to New York City, was unconstitutional under Article
V, Section 7 of the New York State Constitution and violated General
Construction Law @ 93. n5 See Castellano III, No. 9200/92, slip. op. at
1-2. The New York State Supreme Court granted summary judgment dismissing
the claims. It reasoned that the plaintiffs could not relitigate their
claim that they were entitled to VSF benefits and that the plaintiffs had
no standing to challenge Chapter 247 because they were not entitled to VSF
benefits. See id. at 4-5. It also held that Chapter 247 did not violate
Article V, Section 7 or Article VIII, Section 1 of the New York State
Constitution. n6 See id. at 5-6. Finally, the Court found that the $ 75
million transfer authorized by Chapter 247 did not violate General
Construction Law @ 93. In its opinion affirming the judgment of dismissal,
the Appellate Division explained that the claims arose out of the same
transaction that gave rise to the plaintiffs' prior lawsuits and "[while]
plaintiffs could have raised additional claims in one or more of the
foregoing actions, they opted not to do so, and they are barred by res
judicata from doing so now." Castellano III, 674 N.Y.S.2d at 365. The Court
also noted that, in any event, there was no merit to any of the plaintiffs'
claims. See id.

n5 General Construction Law @ 93 provides: "The repeal of a statute or part
thereof shall not affect or impair any act done, offense committed or right
accruing, accrued or acquired, or liability, penalty, forfeiture or
punishment incurred prior to the time such repeal takes effect, but the
same may be enjoyed, asserted, enforced, prosecuted or inflicted, as fully
and to the same extent as if such repeal had not been effected." N.Y. Gen.
Constr. @ 93.

n6 Article VIII, Section 1 of the New York State Constitution prohibits
gifts or loans of property by localities. See N.Y. Const. Art. 8, @ 1.

II. A.

The defendants first argue that this action is barred by res judicata
because the plaintiffs have raised all of their current claims or could
have raised them in their four prior federal and state lawsuits. Res
judicata bars "subsequent litigation of any ground of recovery that was
available in the prior action, whether or not it was actually litigated or
determined." Balderman v. United States Veterans Admin., 870 F.2d 57, 62
(2d Cir. 1989); accord Burgos v. Hopkins, 14 F.3d 787, 789 (2d Cir. 1994);
Greenberg v. Board of Governors of the Fed. Reserve Sys., 968 F.2d 164, 168
(2d Cir. 1992). It acts to protect "litigants from the burden of
relitigating an identical issue with the same party or his privy and [to
promote] judicial economy by preventing needless litigation." Parklane
Hosiery Co. v. Shore, Inc., 439 U.S. 322, 326 (1977). Res judicata ensures
the conclusiveness of judgments and thus "[secures] the peace and repose of
society by the settlement of matters capable of judicial determination."
Nevada v. United States, 463 U.S. 110, 129 (1983)(internal quotation
omitted).

A federal court must give the same preclusive effect to a state court
decision as a state court would give it. See Brooks v. Giuliani, 84 F.3d
1454, 1463 (2d Cir. 1996); Schulz v. Williams, 44 F.3d 48, 53 (2d Cir.
1994)(citing Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81
(1984)); Hennessy v. Cement and Concrete Worker's Union Local 18A, 963 F.
Supp. 334, 337-38 (S.D.N.Y. 1997). Thus, the binding effect on this Court
of the judgments in the plaintiffs' prior New York actions is governed by
New York res judicata doctrine. Under New York law, the transactional
approach to res judicata prevents parties "from raising in a subsequent
proceeding any claim they could have raised in the prior one, where all of
the claims arise from the same underlying transaction." Schulz, 44 F.3d at
53 (citing Reilly v. Reid, 379 N.E.2d 172 (N.Y. 1978)); accord Ferris v.
Cuevas, 118 F.3d 122, 126 (2d Cir. 1997)(collecting New York cases);
Brooks, 84 F.3d at 1463 (citing O'Brien v. City of Syracuse, 429 N.E.2d
1158, 1159 (N.Y. 1981); Hennessy, 963 F. Supp. at 338; Smith v. Russell
Sage College, 429 N.E.2d 746, 749 (N.Y. 1981); Castellano III, 674 N.Y.S.2d
at 365. Under New York law, "[the] policy against relitigation of
adjudicated disputes is strong enough generally to bar a second action even
where further investigation of the law or facts indicates that the
controversy has been erroneously decided, whether due to oversight by the
parties or error by the courts." Reilly, 379 N.E.2d at 175.

B. The defendants correctly argue that all of the plaintiffs' claims are
precluded under the doctrine of res judicata by the New York state court
judgment in Castellano III. In its dispositive opinion, the Appellate
Division began by recounting the "long series of challenges to the validity
of the Police Officers' Variable Supplements Fund and the Police Superior
Officers' Variable Supplements Fund, all of which matters were previously
resolved unfavorably to plaintiffs... ." See Castellano III, 674 N.Y.S.2d
at 365. It then held that the plaintiffs' claims were all barred by res
judicata as well as on the merits. See id. ("While plaintiffs could have
raised additional claims in one or more of the following actions, they
opted not to do so, and they are barred by res judicata from doing so
now.").

In Castellano III, as well as in this case, the plaintiffs argued that the
practice by New York City of crediting Fund assets against its employer
contribution to the Fund is unconstitutional under Article V, Section 7 of
the New York State Constitution. Specifically, in their reply brief to the
Appellate Division in Castellano III, the plaintiffs argued:

This taking of credit by the city against its contributions to the PPF
[Police Pension Fund] by reducing that contribution to the extent that
excess earnings of the PPF beyond that needed to fund the defined benefit
successor to the variable supplement benefit is doing by indirection that
which is specifically illegal under Art. V, Sec. 7 of the New York State
Constitution. Such a state of affairs was and is an obvious raid on PPF
assets, and all of the plaintiffs are members of the PPF.

(Sanders Aff. P45, quoting Plaintiffs-Appellants' Reply Brief attached to
Sanders Sanctions Aff. sworn to April 20, 2000 ("Sanders Sanctions Aff."),
at 3); see also (Sanders Aff. P45, citing Plaintiffs-Appellants' Brief
attached to Sanders Sanctions Aff., at 16.) The Appellate Division
considered and rejected this argument along with the plaintiffs' other
arguments on the merits. See Castellano III, 674 N.Y.S.2d at 365 ("We have
considered plaintiffs' other arguments and find them to be without
merit."). The argument the Appellate Division dismissed in Castellano III
is identical to the Article V, Section 7 argument that the plaintiffs
allege in their first three causes of action.

The plaintiffs have added claims based on the federal Equal Protection
Clause in their first cause of action, a claim based on the alleged
noncompliance with the Internal Revenue Code exclusive benefits rule in
their fourth cause of action, and a claim of "manifest injustice" in their
fifth cause of action. However, all of these claims must also be dismissed
under the doctrine of res judicata because they have an identical factual
predicate as the state law claims rejected in Castellano III. See, e.g.,
Brooks, 84 F.3d at 1463 (citing Schulz v. Williams, 44 F.3d 48, 55 (2d Cir.
1994))(dismissing federal claims because underlying facts were
substantially the same as allegations previously dismissed in state court);
see also Reilly, 379 N.E.2d at 176.

It is significant that the Appellate Division rejected the plaintiffs'
claims not just on the merits, but because they were barred by res
judicata. This is not a typical case of res judicata where the plaintiffs
advance claims that were raised or should have been raised in one prior
proceeding. Instead, the plaintiffs attempt to raise claims that have
already been barred by res judicata in Castellano III because they had
already been raised and rejected or could have been raised in multiple
other proceedings. This is, in short, a case of res judicata all over
again. All of the plaintiffs' claims are barred just as they were in
Castellano III.

III.

The plaintiffs' fifth cause of action asks this Court to determine that the
deprivation of VSF benefits for the plaintiffs and the prior administrative
and judicial determinations authorizing those actions constitute "manifest
injustice" that this Court should exercise its equitable jurisdiction to
remedy. As developed in their papers on the current motions, the plaintiffs
ask this Court to overrule the previous four federal and state decisions
against them by holding that they are entitled to VSF benefits. The
plaintiffs invoke what they claim is a general equitable power under Fed.
R. Civ. P. 60(b)(6) to remedy a manifest injustice. n7 The argument is
completely meritless.

n7 Rule 60(b) allows the Court to "relieve a party ...from a final
judgment, order, or proceeding...." Fed. R. Civ. P. 60(b). There are five
specific grounds for granting such relief:

mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered
evidence which by due diligence could not have been discovered in time to
move for a new trial under Rule 59(b); (3) fraud ..., misrepresentation, or
other misconduct of an adverse party; (4) the judgment is void; (5) the
judgment has been satisfied, released, or discharged, or a prior judgment
upon which it is based has been reversed or otherwise vacated, or it is no
longer equitable that the judgment should have prospective application....

Fed. R. Civ. P. 60(b). Rule 60(b)(6) contains a general catch-all
provision, which permits relief for "any other reason justifying relief
from the operation of the judgment." Fed. R. Civ. P. 60(b)(6).

A. As the defendants correctly point out, this Court cannot review state
court decisions such as Bergamine or Castellano III, both of which upheld
the current statutory scheme that denies the plaintiffs VSF benefits. Under
the Rooker-Feldman doctrine, a federal district court does not have
jurisdiction over a case that seeks to review a state court decision. Such
federal review may only be obtained in the Supreme Court. See District of
Columbia Court of Appeals v. Feldman, 460 U.S. 462, 476 (1983); Rooker v.
Fidelity Trust Co., 263 U.S. 413, 416 (1923); Moccio v. New York State
Office of Court Admin., 95 F.3d 195, 197 (2d Cir. 1996); Bal v. New York
City Loft Board, No. 00 Civ. 1112, 2000 WL 890199, at *3 (S.D.N.Y. July 5,
2000).

Even if this Court could reconsider state court decisions, the plaintiffs'
challenge to Castellano III is without merit. The plaintiffs contend that
Castellano III failed to take into account comments by the New York Court
of Appeals in Gagliardo that VSF benefits were "additional future
compensation for services actually rendered," and that under certain
statutory arrangements, grave constitutional concerns would be created.
Gagliardo, 674 N.E.2d at 373, 375. The plaintiffs contend that these
comments supported their claim to VSF benefits. However, the plaintiffs
concede that they were able to amend their briefs in Castellano II and
Castellano III to make an argument based on the Gagliardo decision.
(Plaintiffs' Memo. at 6.) The Appellate Division thus considered the
plaintiffs' current argument and found it to be meritless. See Castellano
III, 674 N.Y.S.2d at 365. Moreover, in Castellano II, the Second Circuit
Court of Appeals also explicitly rejected the plaintiffs' argument that
they were entitled to VSF benefits as "deferred compensation," and
concluded that the holding in Gagliardo did not support the plaintiffs'
argument. See Castellano II, 142 F.3d at 71. Furthermore, the "grave
constitutional concerns" cited in Gagliardo referred to a hypothetical
statutory scheme that would simultaneously establish a VSF fund with
pension funds and then transfer a portion of them to the City. See
Gagliardo, 674 N.E.2d at 305. That hypothetical is not analogous to the VSF
statutory scheme where there was a twenty year gap between the
establishment of the VSFs and the transfer of funds in 1988, and the
Gagliardo court explicitly found that it was not faced with a situation
that raised such concerns.

Thus, the plaintiffs' fifth cause of action must be dismissed insofar as it
asks this Court to overrule state court decisions in their prior actions.

B. The defendants are also correct that the plaintiffs' Rule 60(b)(6)
argument has no merit insofar as the plaintiffs ask this Court to
reconsider prior federal court decisions. The plaintiffs essentially argue
that despite the previous decisions in Castellano I and Castellano II
upholding the validity of the VSF scheme, this Court should overrule those
decisions and declare that the plaintiffs are entitled to VSF benefits. The
plaintiffs' argument is baseless and presumptuous.

There is an initial procedural problem with the plaintiffs' argument
because they have never brought a Rule 60(b)(6) motion in the Castellano
cases in an effort to reopen the judgments in those cases. Rather they
instituted a new lawsuit and have not even referred to Rule 60(b)(6) in
their complaint or brought any semblance of a Rule 60(b)(6) motion.

In any event, the plaintiffs have not established the existence of
"extraordinary circumstances" that would be necessary to grant relief from
a judgment under Rule 60(b)(6). See Transaero, Inc. v. La Fuerza Area
Boliviana, 24 F.3d 457, 461 (2d Cir. 1994); DeWeerth v. Baldinger, 38 F.3d
1266, 1272 (2d Cir. 1994); Mendell v. Gollust, 909 F.2d 724, 731 (2d Cir.
1990). This is not a case like Agostino v. Felton, 521 U.S. 203 (1997), on
which the plaintiffs primarily rely. Agostino dealt with a Rule 60(b)(5)
motion to reopen a judgment to relieve the plaintiffs in that case from the
effect of a prospective injunction because of a significant change in the
law as announced by the Supreme Court. It does not stand for the remarkable
proposition that district courts have broad equitable powers to overturn
Court of Appeals decisions. The Supreme Court in Agostino was careful to
note that the holding was "intimately tied to the context in which it
arose." Agostino, 521 U.S. at 238. It further emphasized that the "decision
will have no effect outside the context of ordinary civil litigation where
the propriety of continuing prospective relief is at issue." Id. at 239. In
Agostino there was a significant change in Supreme Court doctrine while an
injunction was in effect. See id. at 237. In this case, there is no
injunction and there is no change in the law. n8 Indeed, the Court of
Appeals specifically considered the plaintiffs' arguments concerning
Gagliardo when it issued its decision in Castellano II. The Court of
Appeals rejected the plaintiffs' arguments and the plaintiffs are simply
attempting to relitigate the argument the Court of Appeals found to have no
merit. That is not a proper basis for a Rule 60(b)(6) motion. Thus, the
plaintiffs' fifth cause of action must be dismissed insofar as it asks this
Court to reconsider the decisions in the prior federal lawsuits brought by
these plaintiffs.

n8 The Second Circuit Court of Appeals has held that an intervening change
in state law does not mean that a district court has the power under Rule
60(b)(6) to reconsider a final judgment. See DeWeerth, 38 F.3d at 1272-73
(2d Cir. 1994). A rule that would allow a Rule 60(b)(6) motion to
reconsider a judgment upon a change in state law "is simply an improvident
course that would encourage countless attacks on federal judgments long
since closed." Id. at 1274.

IV.

The defendants move pursuant to Fed. R. Civ. P. 11 for sanctions against
the plaintiffs and their counsel on the grounds that the plaintiffs' action
is frivolous. For an argument to warrant Rule 11 sanctions, "it must be
clear under existing precedents that there is no chance of success." Shafii
v. British Airways, PLC, 83 F.3d 566, 570 (2d Cir. 1996)(quoting Mareno v.
Rowe, 910 F.2d 1043, 1047 (2d Cir. 1990)). To determine if Rule 11
sanctions are appropriate, the Court must apply an objective standard of
reasonableness to determine if the subject of the motion has conducted a
"reasonable inquiry" into the basis of the argument. See MacDraw, Inc. v.
The Cit Group Equip. Fin., 73 F.3d 1253, 1257 (2d Cir. 1996). The
imposition of Rule 11 sanctions is discretionary and should be done with
caution, see Knipe v. Skinner, 19 F.3d 72, 78 (2d Cir. 1994), "and all
doubts should be resolved in favor of the signing attorney." K.M.B.
Warehouse Distrib., Inc. v. Walker Mfg. Co., 61 F.3d 123, 131 (2d Cir.
1995)(citation omitted).

The Court exercises its discretion to decline to award sanctions. The
significant number of actions commenced with respect to the VSF funds
reflects the importance of the litigation to the plaintiffs and the
arguments in this case indicate the creative but thoroughly unsuccessful
effort to find any way to avoid the prior decisions denying relief to the
plaintiffs. However, the Court cautions the plaintiffs and their counsel
that the numerous lawsuits filed concerning the VSFs are on the brink of
making any further cause of action frivolous, particularly in light of two
successive findings that the claims are barred by res judicata. See, e.g.,
Jacobson v. Fireman's Fund Ins. Co., No. 95 Civ. 9380, 1996 WL 204468, at
*7 (S.D.N.Y. April 26, 1996). n9

n9 The plaintiffs' counsel represented to the Court at the oral argument on
these motions that, if this lawsuit is unsuccessful, no further lawsuits
will be brought. This lawsuit is truly the end of the line.

Conclusion For the foregoing reasons, the defendants' motion for summary
judgment is granted. The Amended Complaint is dismissed with prejudice. The
Clerk of the Court is directed to enter judgment dismissing the Amended
Complaint with prejudice and closing the case. (New York Law Journal,
December 27, 2000)


PAYDAY LENDERS: ACE Cash Escapes All State and Federal Small Loan Claims
------------------------------------------------------------------------
The United States District Court for the Eastern District of Louisiana
recently dismissed all state and federal claims in a class action against a
lender who made small, short-term consumer loans, commonly referred to as
"payday loans." In Porter v. ACE Cash Express Inc., No. 00586 (E.D. La.
Oct. 26, 2000), the plaintiffs brought a class action against ACE Cash
Express Inc. alleging that ACE violated the Louisiana Small Loan Act
(repealed effective Jan. 1, 2000); the Louisiana Deferred Presentment and
Small Loan Act (effective Jan. 1, 2000); the Louisiana Consumer Credit Law;
and the federal Racketeer Influenced and Corrupt Organizations Act.

The plaintiffs in ACE entered into a series of single-payment loans with
ACE, each in an amount less than 300 and payable within 35 days. For each
loan, the plaintiffs gave ACE a personal check for the total amount
financed, which was to be held by ACE until the single installment of the
loan was due. The plaintiffs allege that, at the end of the 35-day period,
instead of closing out the loan and collecting the full principal, fees and
interest due, ACE "rolled over" the loan by collecting the fees and
interest, and extending the loan for an additional 35-day period, resulting
in fees and interest doubling or tripling the original loan amount.

The plaintiffs allege that the fees charged by ACE exceeded the amounts
permitted by the LSLA and the LDPA. The plaintiffs also asserted that, in
an attempt to circumvent the LSLA, ACE crafted the "payday" loans so that
the terms of the loans were longer than 30 days, which is the maximum term
for a small loan under the LSLA. The District Court rejected the
plaintiffs' arguments, concluding that the loans did not satisfy the
definition of "small loan" under the LSLA because each loan had a term of
35 days, which fell outside the scope of the statute. The court also
concluded that the LDPA was inapplicable because all of the plaintiffs'
loans were executed in 1998 and 1999, before the effective date of the
LDPA.

In the alternative, the plaintiffs argued that the loan transactions were
"revolving loan accounts" under the LCCL, and that the origination fees,
documentation fees, and finance charges assessed by ACE exceeded the
maximum amounts permitted for revolving loan accounts under the LCCL. The
court disagreed, concluding that because the plaintiffs executed a new loan
every 35 days, the finance charges, origination fees and documentation fees
assessed on each of the loans were within the lawful limits set by the
LCCL. The District Court also rejected the plaintiffs' argument that the
loans were "revolving loan accounts" under the LCCL. The court emphasized
that each of the promissory notes executed by the plaintiffs was a separate
loan, to be repaid in a single payment due 35 days after the note was
signed. According to the court, the loans did not satisfy the LCCL's
definition of a "revolving loan account" because there was no language in
the notes suggesting that preauthorized loan advances were permitted, that
the plaintiffs reasonably contemplated repeated transactions, or that ACE
agreed to make credit available to the extent the plaintiffs repaid each
loan.

The plaintiffs also alleged that ACE's practice of charging and collecting
finance charges, origination fees and documentation fees on each short-term
loan constituted "rollover" transactions that were unconscionable under the
LCCL. The court disagreed, concluding that, under the provisions of the
LCCL, an agreement, clause, charge, or practice that is expressly permitted
by the LCCL is not unconscionable as a matter of law.

Finally, the plaintiffs alleged that ACE and "unknown defendants" violated
RICO by collecting "unlawful debts" in the form of fees and interest that
exceeded more than twice the amount permitted under Louisiana law. The
court also rejected this argument, stating that because the fees and
charges were in accordance with applicable state law, the loans did not
constitute an "unlawful debt" under RICO.

*Anthony Rollo is a partner in the New Orleans office of McGlinchey
Stafford, specializing in the defense of consumer financial services and
class action litigation, and Internet consumer law. He can be reached at
(504) 596-2743 or arollo@mcglinchey.com. Lisa Munyon, an associate in
McGlinchey's New Orleans office, also specializes in the defense of
consumer financial services litigation. Munyon and New Orleans partner
Stephen Rider, with the assistance of New Orleans partners David Willenzik
and Bennet Koren, represented the defendant in Porter. (Civil RICO Report,
January 5, 2001)


TOBACCO LITIGATION: California Judge Denies Cert in Indian Tribes' Case
-----------------------------------------------------------------------
Citing inadequate class representatives, a California trial judge on Dec. 8
denied class certification in an action involving California Indian tribes
who were allegedly deceived about the harmful effects of tobacco products,
a case previously reported in the CAR. (In re: Tobacco Cases II and
Pechanga Band of Luiseno Mission Indians, et al. v. Philip Morris Inc., et
al., Nos. JCCP 4042 and 725419, Calif. Super., San Diego Co.; See 12/11/00,
Page 6).

The Utu Utu Gwaitu Pauite Tribe and the Redwood Valley Little River Band of
Pomo Indians bring this action on behalf of federally recognized California
Indian tribes to recover money spent on tobacco products. The tribes seek
disgorgement of money earned by tobacco defendants from tribal members as a
result of wrongful conduct, and appropriate injunctive relief against the
tobacco companies.

                           107 Tribes Involved

The proposed class action includes approximately 107 different California
Indian tribes.

Named defendants include Philip Morris Inc., R.J. Reynolds Tobacco Co.,
Brown & Williamson Tobacco Corp., The American Tobacco Co., Lorillard
Tobacco Co., The Tobacco Institute Inc., The Council for Tobacco Research -
USA Inc., British American Tobacco Ltd., United States Tobacco Co., The
Smokeless Tobacco Council Inc. and Hill and Knowlton Inc. (collectively,
RJR).

In a class certification motion, the tribes maintained that joinder is
impracticable and that predominant issues are common to all tribes. The
tribes further averred that the proposed class representatives will
adequately represent the class and that proceeding as a class action is
superior to trying individual claims. However, RJR countered that
plaintiffs' purported class of representatives who seek remedies on behalf
of non-class members is unprecedented and inappropriate.

                           Class Cert Denied

In a Dec. 8 telephonic ruling, San Diego California Superior Court Judge
Ronald S. Prager said that because the tribes sued in such a representative
capacity solely on behalf of its tribe members, premised upon their
individual tribe members expending funds to purchase tobacco products, they
are therefore limited in terms of monetary relief.

"Even assuming arguendo that Plaintiffs despite the foregoing limitation of
monetary remedy to that of restitution still sought class certification,
such would remain improvidently granted due to the unique dual or
two-tiered representative capacity of the class and the potential for harm
that would emanate therefrom," the judge said.

The judge continued that the named plaintiffs are inadequate class
representatives, noting that the undisputed evidence reveals that one of
the proposed class representatives is actively engaged in the sale of
tobacco products, apparently without compliance with the statutory warning
provisions.

"Second and further demonstrative of the inadequacy of the proposed class
representative is the undisputed evidence that substantially raises the
potential of a time bar to the claims of the proposed class
representatives," the judge said. "Although the court recognizes that from
a review of the operative second amended complaint and application of
common sense that generally it is claimed that Defendants actively
concealed the true state of facts for many years to the public at large,
such does not eradicate the frank admission by the named class
representative's specific knowledge of the very facts giving rise to this
action 'at least 10 years ago.'"

                             No Predominance

Further, the judge found that central issues do not predominate.

"The putative class as defined and proposed herein consists of all Indian
tribes in California which in turn seek recovery on behalf of all their
tribe members, regardless of their states of residence and without
limitation to those tribe members who were subjected to the alleged
wrongful conduct of Defendants within this state. Adduced by Defendants is
evidence, apparently undisputed, that the tribal members of the named
Plaintiffs are widely geographically dispersed inclusive of
extra-territorial forums," the judge said.

Defense counsel includes Curtis M. Canton, Christopher F. Stoll and Robb C.
Adkins of Heller Ehrman White & McAuliffe in San Francisco and John W.
Phillips of Heller Ehrman White & McAuliffe in Seattle.

The tribes are represented by Jonah H. Goldstein, William S. Lerach, Frank
J. Janecek Jr., Michael J. Dowd, Jonathan E. Behar and Denise M. Douglas of
Milberg Weiss Bershad Hynes & Lerach in San Diego, Patrick J. Coughlin of
Milberg Weiss in San Francisco, Michael S. Pfeffer, Stephen V. Quesenberry
and John A. Maier of California Indian Legal Services in Oakland, Calif.,
and Lawrence R. Stidham and Lisa C. Oshiro of California Indian Legal
Services in Escondido, Calif. (Mealey's Litigation Report: Tobacco,
December 22, 2000)


TOBACCO LITIGATION: Dispute over Ad To Be Used To Consider Speech Issues
------------------------------------------------------------------------
The Supreme Court agreed Monday to use a dispute over state limits on
cigarette advertising to possibly consider giving commercial speech broader
protection against government regulation.

The court said it will hear tobacco companies' argument that limits on
cigarette and cigar advertising at retail stores in Massachusetts violate
constitutional free-speech protections. In recent years, the justices have
edged toward giving commercial speech the same constitutional protection as
political or artistic expression.

The tobacco companies also say the limits are pre-empted by federal
standards on cigarette ads.

In 1998, the tobacco industry agreed to pay the states almost $250 billion
and to stop advertising on billboards or on signs posted in shopping malls,
arenas and stadiums. The agreement allowed stores that sell cigarettes to
display outdoor signs of no more than 14 square feet.

Last year the Massachusetts attorney general adopted a rule banning all
outdoor advertising within 1,000 feet of any elementary or secondary school
or public playground. Inside retail stores, cigarette ads must be placed
higher than children's eye level - at least 5 feet above the floor - and
tobacco products must be placed out of customers' reach.

A group of cigarette- and cigar-makers challenged the rules, saying they
amounted to a virtual ban on outdoor advertising because most populated
areas are within 1,000 feet of a school or playground.

The companies said the rules were pre-empted by the Federal Cigarette
Labeling and Advertising Act, which sets uniform labeling requirements and
bans broadcast advertising. And, they said the advertising limits violated
the Constitution's First Amendment protection of free speech.

A federal judge upheld the outdoor advertising ban but threw out the limits
on advertising inside retail stores.

The 1st U.S. Circuit Court of Appeals upheld all of the advertising limits.
The federal cigarette advertising law does not prohibit local restrictions
on the location of tobacco advertising, the court said. In addition, it
said the state could try to reduce underage smoking by barring advertising
in ``areas where children are more likely to be.''

The Supreme Court for two decades has allowed governments to limit truthful
and nonmisleading commercial speech if such limits directly advance some
asserted government interest and are no more extensive than necessary.

In the appeal acted on Monday, the tobacco companies said that standard
does not provide enough protection for some commercial speech, contending
it ``permits a virtual ban on the advertising of any product, such as
tobacco, that is lawful for adults but not for children.''

The companies also said the federal tobacco-advertising law pre-empts
limits such as those adopted in Massachusetts.

State Attorney General Thomas Reilly said the state rule was a ``targeted
restriction on commercial speech that leaves ample room for advertising to
adults.''

The cigarette companies involved in the case are Lorillard Tobacco Co.,
Brown & Williamson Tobacco Corp., R.J. Reynolds Tobacco Co. and U.S.
Tobacco Co.

The cases are Lorillard Tobacco v. Reilly, 00-596, and Altadis U.S.A. v.
Reilly, 00-597. (The Associated Press, January 8, 2001)


TOBACCO LITIGATION: Sp Ct Rejects Northwest Airlines' Arguments
---------------------------------------------------------------
In a 6-3 vote, the U.S. Supreme Court on Dec. 11 rejected arguments by
Northwest Airlines Inc. that injury claims asserted by flight attendants
exposed to secondhand smoke are preempted (Northwest Airlines Inc. v. Julie
Duncan, No. 404, U.S. Sup.; See 5/4/00, Page 20, and next story).

Flight attendant Julie Duncan filed a proposed class action suit against
Northwest Airlines on behalf of nonsmoking flight attendants who served on
the airline's smoking flights to and from Asia. At the time the action was
filed, Northwest did not allow smoking on domestic flights or on many
international flights, but did allow smoking on some Asia flights.

Northwest moved for dismissal, saying that the action was preempted by the
Airline Deregulation Act (ADA); the trial court granted the motion.

However, the Ninth Circuit U.S. Court of Appeals held that the flight
attendants can sue over secondhand smoke after finding that in enacting the
ADA, Congress did not intend to preempt passengers' personal injury claims.
The appeals court further held that in the context in which it was used in
the act, the word "service" was not intended to include an airline's
provision of in-flight beverages, personal assistance to passengers, the
handling of luggage and similar amenities.

                            Petition Filed

Northwest Airlines filed a petition for writ of certiorari to the high
court on Sept. 13, arguing that the Ninth Circuit created a bright-line
rule that state law personal injury actions can never have sufficient
impact on an airline's operations to justify preemption.

"The evident confusion in the lower courts would be reason enough to
justify a grant of review even if both of the competing rules were arguably
defensible. But the problem is even more serious because, as this case
illustrates, the Ninth Circuit has adopted such a narrow interpretation of
the ADA preemption provision that statutory goals of Congress are being
frustrated," Northwest argued.

Northwest further argued that the appeal court's decision exposes airlines
to forms of state regulation Congress intended to preempt.

"Perhaps most striking of all is the Ninth Circuit's refusal to allow
preemption of any tort claim even if it would have the indirect effect of
forcing the airline to alter the routes it chooses to fly," Northwest said.
"This unyielding interpretation is patently inconsistent with this Court's
repeated emphasis that state enforcement actions are preempted even if
their effect on airline's rates, routes or services is indirect."

                                   Response

However, Duncan responded that this case presents no question of
fundamental importance.

"While there has been a disagreement among the Fifth and Ninth Circuits as
to the proper definition of the word 'service' in the ADA, there has been
harmony among the courts as to the intent of the ADA. This harmony produces
a consistent result despite the different definitions of the term
'service.' Simply put, while the Fifth and the Ninth Circuits have defined
'service' in different ways, both Circuits have found that regardless of
the definition, a tort award in a case involving personal injury is simply
too tenuously related to any 'service,'" Duncan maintained.

Duncan added that the purpose of the ADA is to encourage competition - not
shield airlines from liability for the physical injury they cause.
According to Duncan, exposing airlines to liability for personal injury
claims does not run afoul of congressional intent and is not of such
importance that review is warranted.

                                  Amicus

Subsequently, Air Transport Association of America (ATA) filed an amicus
curiae brief, noting that it is a certified air carrier and works closely
with various federal agencies that regulate the airline industry.

"Smoking on commercial air carriers has been regulated by the federal
government for decades," ATA noted. "The regime constructed by the court
below, however, places these matter simultaneously within the jurisdiction
of these federal agencies and every community in which an ATA member
operates. This result is simply unacceptable, and complicates the efforts
of the ATA member airlines to deliver on the promise of 'an air transport
system relying on actual and potential competition - (A) to provide
efficiency, innovation and low prices and (B) to decide on the variety and
quality of . . . air transportation services.'"

                                   Reply

In an Oct. 31 reply, Northwest Airlines countered that Duncan's entire
opposition brief can be reduced to a single proposition: no court of
appeals has held that a run-of-the-mill personal injury claim is preempted
under the ADA.

"But this is not a run-of-the-mill personal injury case. Although
respondent's alleged injuries are of a physical nature, she is not merely
claiming that she was victimized by some isolated negligent acts. In fact,
she sought injunctive relief on behalf of a class composed of flight
attendants who have flown on Northwest flights where smoking was allowed.
She has thus mounted a direct state-law challenge to the legality of an
airline policy regarding the rendition of a particular service. As a
result, the case presents squarely the acknowledged Circuit split over the
proper definition of the term 'service' in the ADA," Northwest maintained.

Northwest continued that there is no agreement among the circuits over the
application of the ADA's preemption clause to a safety-related tort claim,
like the one here, that directly challenges an airline policy adopted for
the purpose of competing in the marketplace.

"The effect of the Ninth Circuit's rigid and unprincipled rule would be to
allow adoption of plenary state laws regulating many aspects of airline
operations down to the last detail - as long as they did not affect the
prices an airline charges or the routes it flies. That is precisely what
the ADA was intended to prevent. This case presents this court with the
perfect opportunity to resolve the circuits' interpretive impasse and to
restore the uniform deregulation that the ADA was designed to promote,"
Northwest concluded.

                                 Order

The U.S. Supreme Court on Dec. 11 rejected Northwest's petition.

Justice Sandra Day O'Connor, joined by Chief Justice William H. Renquist
and Justice Clarence Thomas, wrote in a dissent that Northwest's petition
presents an important issue that has divided the courts of appeals: the
meaning of the term "service" in the portion of the ADA that preempts any
state law related to a price, route, or service of an air carrier.

"Resolution of this question would provide needed certainty to airline
companies. While this case involves the potential pre-emption of a state
law personal injury claim based on an airlines' smoking policy, the legal
principle at stake has ramifications for a host of other tort actions
against airlines," Justice O'Connor said. "Because airline companies
operate across state lines, the divergent pre-emption rule formulated by
the Courts of Appeals currently operate to expose the airlines to
inconsistent state regulations."

Duncan is represented by Steve W. Berman and Stephanie B. Levin of Hagens
Berman in Seattle. Northwest is represented by Tom Tinkham of Dorsey &
Whitney in Minneapolis, Paul M. Smith and Michael B. DeSanctis of Jenner &
Block in Washington, D.C., and David P. Sanders of Jenner & Block in
Chicago. The ATA is represented by Robert S. Span and Neal D. Mollen of
Paul, Hastings, Janofsky & Walker in Los Angeles. (Mealey's Litigation
Report: Tobacco, December 22, 2000)


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