/raid1/www/Hosts/bankrupt/CAR

/raid1/www/Hosts/bankrupt/CAR_Public/010124.MBX C L A S S A C T I O N R E P O R T E R Wednesday, January 24, 2001, Vol. 3, No. 17 Headlines ALABAMA: Judge Orders Franchise Tax Refunds; 100 Out-of-State Firms Sue ALLEGHENY: Suit Claims Tax Reassessment Violates Md Law BOY SCOUTS: Ohio Citizen Action Seeks to Halt Sales of Beryllium Rings CALIFORNIA: Lockyer, Lui Sue to Void Lawyers' Fee in Smog Charge Case CANADA: TB Case Prompts Audit of Overseas Doctors Screening Immigrants CENDANT CORP: Attorney Joins Witness's Law Firm; Dual Role Ruled out FOUNDRY NETWORKS: Wolf Haldenstein Announces Securities Case in CA HIP IMPLANT: Stray Lubricant Forces Recall; Patients Call It Med. Hell HMOs: Face Precedent-Setting Lawsuits Challenging Corporate Policies HOLOCAUST VICTIMS: Compensation Payments Could Begin In March HOLOCAUST VICTIMS: UBS AG Reports on Settlement and Dormant Accounts JAPANESE GOVT: 1st CJD Victim to Sue Has Died; 1029 Cases Filed MICROSOFT CORP: Employees' Bias Suit Claims Flat Hierarchy Causes Abuses NEW CERIDIAN: Settles Shareholders’ Suit Re CII Payroll Software System PRE-PAID LEGAL: Berger & Montague Files Securities Suit in Oklahoma PRE-PAID LEGAL: Cauley Geller Announces Securities Lawsuit in Oklahoma PRE-PAID LEGAL: Milberg Weiss Announces Securities Suit in Oklahoma QUINTUS CORPORATION: To File Restated Financial Statements by Feb. 14 RITE AID: AGs Look into Reimbursement Re Prescriptions Not Picked up RITE AID: Claims on Drug pricing Dismissed in AL, OR, NJ, PA RITE AID: Department of Labor Investigates on Employee Benefit Plans RITE AID: Reaches Settlement Agreement for Securities Suit in PA TORONTO GOVT: Lawsuit Alleges Mental Patients Were Drugged and Tortured U-M: Trial seeks to define diversity at Law School ********* ALABAMA: Judge Orders Franchise Tax Refunds; 100 Out-of-State Firms Sue ----------------------------------------------------------------------- Financial worries for state government are growing as franchise tax lawsuits pile up in court, creating the potential for as much as $680 million in tax refunds. One Montgomery judge has ordered tax refunds to two companies, and another Montgomery judge has scheduled a hearing that could lead to many more. But the state's top tax official expects years of litigation before any money changes hands. "Both sides are prepared to appeal until they can't appeal any more, which takes time," state Revenue Commissioner Michael Patterson said. The franchise tax lawsuits come as state officials cope with less-than-expected sales and income tax collections and consider whether to make across-the-board cuts in education spending. The U.S. Supreme Court ruled Alabama's franchise tax unconstitutional in March 1999 because it taxed out-of-state companies at a higher rate than Alabama-based companies. The state then reached settlements with the two companies that had challenged the tax, with BellSouth getting $40 million in tax credits and CSX Transportation getting $2.8 million in payments. The settlements avoided the possibility of court-ordered refunds in that case. Now about 100 out-of-state companies have filed lawsuits seeking refunds for franchise taxes they paid to the state before the Supreme Court ruling. Many more have applied to the state Revenue Department for refunds. Any refunds would affect the state General Fund budget, which finances non- education agencies of state government. Patterson puts the worst-case scenario at $680 million in refunds. Last month, Montgomery Circuit Judge Charles Price ordered the Revenue Department to pay a $1.2 million refund to Goodyear Dunlop Tires and a $10,485 refund to the Nissei Sangyo America electronics firm for franchise taxes the corporations paid in 1997, 1998 and 1999. The state Revenue Department has asked Price to reconsider, and he will hold a hearing Wednesday. The Revenue Department contends Price shouldn't have decided until a separate case pending before another Montgomery judge is decided. On Jan. 31, Montgomery Circuit Judge Sally Greenhaw will hold a hearing on whether to turn a franchise tax lawsuit filed by the Gladwin Corp. and two other corporations into a class-action lawsuit involving all out-of-state corporations that paid Alabama's unconstitutional franchise tax. Gladwin attorney Jack Drake of Birmingham said refunds are inevitable; the question is how many years the refunds cover and whether companies must have filed tax refunds claims at the Revenue Department before going into court. "The Alabama Supreme Court has held you don't have to file for a refund if the tax is unconstitutional," Drake said. Revenue Department attorney Susan Kennedy wants each case handled separately. She contends the issues are different in each case and they shouldn't be combined into class-action litigation. Kennedy and Patterson also acknowledge that if each case is handled individually, companies that paid small amounts of franchise taxes aren't likely to seek refunds because their legal fees would eat up any refund. In a favorable class-action case, they could get refunds without paying legal fees out of their pockets. The lawsuits aren't likely to have any impact on the current year's General Fund budget, which runs through Sept. 30. But if the courts should eventually order hundreds of millions in refunds, it could create havoc in future budgets. "If that came about, it would be a big budget problem because we don't have the money for that," said Norris Green of Legislative Fiscal Office. (The Associated Press State & Local Wire, January 23, 2001) ALLEGHENY: Suit Claims Tax Reassessment Violates Md Law ------------------------------------------------------- Four taxpayers, including the owners of Pittsburgh's tallest skyscraper, have accused the city, Allegheny County and the city school district of reaping "an improper and illegal tax windfall" from the countywide property reassessment. In a lawsuit filed in Common Pleas Court on January 22, they accused the three taxing bodies of violating a 1998 state law limiting them to 5 percent in increased revenue from the reassessment. The suit seeks to force the taxing bodies to reduce their millage rates and place any surplus collections into escrow accounts for possible future refunds to taxpayers. Plaintiffs are 600 Grant Street Associates, owners of USX Tower, Downtown; Duquesne Light Co.; Tippins International Inc., a manager of commercial and industrial property; and Rosalie Novak, a Bloomfield homeowner. They are seeking to have the suit declared a class action on behalf of all those who pay property taxes to the city, county and city school district. According to the suit, the 1998 Taxpayer Protection Statute says that taxing bodies, after a reassessment, cannot increase their total property tax revenue by more than 5 percent, except for increases generated by new construction and renovation. It said the city, county and city school district all have set 2001 tax rates that will "yield ... revenues significantly exceeding the 5 percent increase permitted in the year of a countywide reassessment." The school district will get a 46.9 percent revenue increase; the city a 15.3 percent increase; and the county an 11.25 percent increase under the rates adopted by those bodies, according to the suit. The school board last month approved a 20 percent property tax increase that was on top of the gain allowed from the reassessment. David R. Cohen, attorney for the plaintiffs in the suit, said the tax increase wasn't allowed under the 1998 law. "Otherwise, it doesn't seem like the statute would have any meaning at all," he said. Officials of all three taxing bodies, while saying they had not reviewed the lawsuit, said they believed their tax rates were legal. "Obviously, I disagree with their interpretation of the statute," said Ira Weiss, attorney for the school district, which has imposed a 13.92-mill tax rate for 2001. The county's 4.72-mill rate was determined in consultations with the Law Department, county budget office and county council and its budget staff and is the "appropriate and legal number," county Manager Bob Webb said. Craig Kwiecinski, spokesman for Mayor Murphy, said, "While I cannot comment on pending litigation, I can tell you our millage rate was set specifically to follow state law and fall within the [5 percent] cap. Any overages that may occur will be returned to the taxpayers." The city's rates are 31.37 mills on land and 5.44 mills on buildings. Cohen said the plaintiffs have asked for a hearing before Common Pleas Judge R. Stanton Wettick Jr., who ordered the countywide reassessment. The plaintiffs are seeking an emergency order forcing the taxing bodies to adjust their rates to keep them within the 5 percent cap. USX Tower is valued for tax purposes at $ 279.3 million. Its owners would face a combined city, county and school tax bill of nearly $ 7 million under the current rates. Novak, owner of a home on Milgate Street valued at $ 42,700, would have a combined tax bill of about $ 1,180. (Pittsburgh Post-Gazette, January 23, 2001) BOY SCOUTS: Ohio Citizen Action Seeks to Halt Sales of Beryllium Rings ---------------------------------------------------------------------- Ohio Citizen Action on January 23 called on the Boy Scouts of America to halt the sales of their beryllium Eagle Scout ring and recall all beryllium-containing jewelry sold by their organization. "Beryllium is a deadly metal. It should not be used to manufacture jewelry," said Amy Ryder, Cleveland Director for Ohio Citizen Action. Beryllium is also used in military hardware, electronics, dental work, and automobiles. Beryllium is a hard, lightweight metal with an unusually high melting point. Brush Wellman, Inc., headquartered in Cleveland, is the largest producer of beryllium in the country. People exposed to beryllium dust or fumes can develop chronic beryllium disease, an incurable lung ailment. A recent report by the National Institute of Occupational Safety and Health found that nearly one-tenth of Brush Wellman's workforce at their Elmore, Ohio plant has beryllium disease or has blood test results indicating they risked for developing it. Ohio Citizen Action believes workers handling beryllium in other industries are unaware of the health dangers posed by the metal. "There are likely thousands of people out there working with beryllium whose lives are endangered because nobody is telling them that beryllium kills," said Ryder. In her letter to BSA President, Edward Whitacre, Ryder wrote -- "The Boy Scout catalog says 'beryllium rings cannot be resized.' Is this because the manufacturer knows of the dangers of beryllium? If so, what warning accompanies the ring when purchased by an Eagle Scout? What warnings do the ring manufacture workers receive prior to handling beryllium? "The workers who make the beryllium Eagle Scout ring are in danger of developing and dying from beryllium disease. While the ring manufacturer is ultimately responsible for the health and safety of its workers, we believe BSA can set a good example for its young members by discontinuing the sale of beryllium-containing jewelry." A Dallas law firm recently filed a national class action lawsuit against Brush Wellman for beryllium medical testing for all current and former employees of all current and former Brush Wellman customers. The employees of the Boy Scouts ring manufacturer could be covered under this lawsuit if the manufacturer purchases their beryllium directly from Brush Wellman. CALIFORNIA: Lockyer, Lui Sue to Void Lawyers' Fee in Smog Charge Case --------------------------------------------------------------------- California Attorney General Bill Lockyer petitioned the Sacramento Superior Court to overturn an arbitration panel's decision to award $ 88.5 million to five law firms that went to court to force the refund of special fees charged to motorists from out of state. Lockyer's suit was joined by former Court of Appeal Justice Elwood Lui, now an attorney in private practice. The action comes several weeks after a three-member panel headed by former Chief Justice Malcolm Lucas voted 2-1 in favor of the giant fee for lawyers who successfully defeated the $ 300 "smog impact" charge. The district court that originally ruled for the plaintiffs in 1998 had awarded the lawyers only $ 18 million. The much larger award, which Lucas opposed, outraged elected officials, including Gov. Gray Davis and Controller Kathleen Connell. Connell refused to cut the check, and the attorneys had threatened to go to court to force payment. But Lockyer filed first, in part at Davis' request. "The award is excessive and goes well beyond any notion of 'reasonable fee' for the attorneys' effort," Davis said in a statement. "The arbitration panel's decision constituted a windfall for the attorneys. At best they were entitled to $ 18 million. The court must now act to overturn this outrageous award." By Davis' calculation, the arbitrator's higher award would work out to an effective billing rate of $ 8,800 per hour for the lawyers on the case. Lockyer and Lui, representing the Department of Motor Vehicles, filed a petition in Sacramento Superior Court asserting that the arbitrators exceeded their statutory authority in granting an award that "plaintiffs' counsel could not have obtained had they prevailed through all appeals." Allowing the award to go forward would be to interpret the statute setting the arbitration panel's authority as allowing a gift of public funds, Lockyer and Lui said in their petition. On June 8, Davis signed legislation setting up a fund of $ 665 million to return the unlawful fees the DMV had collected from thousands of out-of-state motorists. The smog impact fee had been assessed thousands of out-of-state vehicles registered in California. The class action challenging the fee was filed in 1995. In October, the Third District Court of Appeal found the fee unconstitutional. Hundreds of thousands of car owners applied for refunds. Meanwhile, the fund set up by lawmakers to refund motorists was also to be the source of the fee payment to the lawyers, with the final figure being set by binding arbitration. The bulk of the fee is slated to be collected by the San Diego law firm of Milberg, Weiss, Bershad, Haynes & Lerach. Attorney Leonard B. Simon of Milbank, Weiss told the MetNews he had not yet seen the petition, but was surprised by it. He said he had expected his firm would be suing if the payment was not forthcoming. (Metropolitan News-Enterprise; Capitol News Service, January 18, 2001) CANADA: TB Case Prompts Audit of Overseas Doctors Screening Immigrants ---------------------------------------------------------------------- Citizenship and Immigration Minister Elinor Caplan has ordered an audit of the network of 1,700 doctors around the world responsible for medical screening of immigrants to Canada. The review follows revelations that a Dominican man living in Hamilton had been mistakenly allowed into Canada despite suffering from contagious tuberculosis. Caplan's decision to order an internal audit by the immigration department also comes nearly one year after she was first warned by Auditor-General Denis Desautels that there was a serious problem with overseas medical screening of immigrants. Caplan described the auditor-general's report of last April as a "wake-up call," and said the Hamilton case was further evidence of a need for further improvements to the system. "Whenever there is a case, it's an alert and we have to look at what we do and say, 'How do we respond to do it better?' " Caplan said in an interview. The audit will begin in April. Caplan is also proposing a series of measures to improve medical screening and the medical surveillance of immigrants in Canada. "We have a role to play and part of that is making sure we communicate better, share information and the technology let's us do that," she said. "We have to put in place better systems and use new technologies to give us the linkages," she said, calling for "faster transmission of vital information to our partners, while respecting privacy." Immigration officials admitted before Christmas that they failed to stop Gaspare Benjamin of the Dominican Republic from coming to Canada because a Canadian doctor in the Caribbean missed signs of contagious tuberculosis during routine medical screening. Benjamin, 37, came to Canada in December, 1999 to join his wife, Hilary Lomas. She has since been infected with TB, along with dozens of other people with whom Benjamin came into contact. The couple are being treated in quarantine at Toronto's West Park Hospital and are now suing the federal government for $1.5 million. There is also a $90 million class action suit by the others believed to have been infected. (The Toronto Star, January 23, 2001) CENDANT CORP: Attorney Joins Witness's Law Firm; Dual Role Ruled out -------------------------------------------------------------------- In Re Cendant Corp. Securities Litigation, U.S. District Court (DNJ), Master File No. CV 98-1664 (WHW), December 8, 2000. By Walls, U.S.D.J. (31 pages). Facts-on-Call Order Number 9424 An attorney who had been representing one party in an ongoing case could not continue to do so after he moved to a law firm that was representing a witness in the case and the witness would not consent to the dual representation. The law firm of Paul, Weiss, Rifkind, Wharton and Garrison has represented Amy N. Lipton since April 1998. Lipton was outside counsel for a company called CUC beginning in the early 1980s. She then became its Vice President and General Counsel. After CUC merged with HFS to form Cendant Corporation in 1997, she was General Counsel of the CUC Division and Deputy General Counsel and Executive Vice President for Cendant. Lipton was named a defendant in a lawsuit against Cendant, but she was dismissed because of a lack of personal jurisdiction. Nonetheless, Paul Weiss continued to represent her. She was subpoenaed to produce documents regarding alleged fraud. According to Cendant, the representation likely will continue in connection with federal investigations. Lipton asserted that she had disclosed privileged and confidential matters of CUC and Cendant to Paul Weiss. She also stated that she had discussed activities of Ernst & Young, LLP and communications between Ernst & Young and Cendant with Paul Weiss in confidence. Ernst & Young was a party in the case. Lowenstein Sandler, PC represented it. In January 2000, Theodore Wells left Lowenstein Sandler for Paul Weiss. According to Ernst & Young, Wells had played an "integral role in all facets of E&Y's representation, including the development of E&Y's claims, defenses, and theories of the case." Because Wells was its "long-standing trial counsel of choice" and "irreplaceable," Ernst & Young asked Lipton to consent to Wells' continued representation of Ernst & Young. She declined. Ernst & Young then moved in the U.S. District Court for the District of New Jersey for a declaratory judgment that Wells could continue to represent it. Ernst & Young asserted that Paul Weiss had instituted "ethical protections" immediately upon Wells' arrival. The protections included prohibitions (1) of communications between Wells and anyone else at Paul Weiss about the "substance" of the firm's representation of Lipton, (2) of Wells' sharing of information about Ernst & Young with Lipton's attorneys, and (3) of access by Wells to files about Lipton. In addition, Paul Weiss required that Wells be "disassociated" from any aspect of the case that directly involved Lipton. Furthermore, co-counsel for Ernst & Young would conduct any future discovery and cross-examination about Lipton. Cendant and Lipton opposed the motion. Cendant observed that Ernst & Young also was represented by the firm of Mayer, Brown & Platt. There was disagreement about how important Lipton's testimony was and how "adverse" it would be to Ernst & Young. The court denied the motion. The court based its decision on New Jersey Rules of Professional Conduct 7(a) to (c) and 1.10. RPC 1.7(a) covers conflicts of interest when clients have "directly adverse" interests. RPC 1.7(b) applies if representation of one client may "materially limit" the ability to represent another client. RPC 7(c) covers cases involving an "appearance of impropriety rather than an actual conflict" of interest. Under RPC 1.10, an attorney's conflict of interest is imputed to the attorney's entire firm. The court reviewed court decisions and ethics opinions. Finding that Lipton's testimony was "likely to be 'adverse' to E&Y," the court held that RPC 1.7(a) barred Paul Weiss from representing Ernst & Young without her consent. The court did not doubt "the integrity and sincerity of purpose" of Wells and Paul Weiss. The court indicated concern about possible breaches, not actual breaches. The court held that the dual representation would also violate RPC 1.7(b). The court noted that Ernst & Young seemingly "dismisses the issue of loyalty under Rules 1.7(a) and (b) without any real analysis." The court added that the ethical safeguards "do not eliminate the conflict itself," regardless of whether "Paul Weiss' zeal" in representing Lipton actually would be "compromised." As to RPC 1.7(c), the court noted that the inquiry must be from the perspective of "informed and concerned citizens." The goal is not to "prevent any actual conflicts" but rather to "bolster" public confidence in the integrity of the legal profession. According to the New Jersey Supreme Court, "only in extraordinary cases should a client's right to counsel of his or her choice outweigh the need to maintain the highest standards of the profession." Here, the court declared that the dual representation "cannot possibly avoid the creation of an appearance of impropriety because it creates serious questions about Paul Weiss' ability to serve loyally two clients in the same case with conflicting interests." The court added that the issue was not whether Paul Weiss' zeal actually would be impaired but whether the average citizen would "believe that Paul Weiss' zeal could be impaired by such a situation." The court concluded that the facts of the case compelled a finding that there was an appearance of impropriety. The court considered the facts of Greig v. Macy's Northeast, Inc., 1 F. Supp. 2d 397 (D.N.J. 1998), to be "virtually identical to ours." The Greig court cited the appearance of impropriety when it barred a firm from representing in the same action both the defendant and the plaintiff's former lawyer. In addition, the court in this case declared that Paul Weiss' measures would not "establish the absence of a conflict but would merely be a remedy and, in any event," are not "permitted by New Jersey law." After reviewing the case law, the court observed that New Jersey has allowed "ethical screens or walls" in some circumstances but that "None of these cases involved insulating attorneys at the same firm who simultaneously represented two different clients with conflicting interests in the same litigation." The court added that the cases in other jurisdictions that allowed "screens" did not involve "simultaneous representation of two clients where a violation of any subsection of Rule 1.7 is present." The court conceded that disqualifying an entire firm could decrease the mobility of attorneys among firms. Nevertheless, the court cited the "public's and parties' requirements that courts uphold the rules of professional responsibility." The court observed that imputation is "the rule in New Jersey and most other jurisdictions." Finally, the court balanced the hardships in this case. The court cited the competing interests of the need to maintain the highest professional standards and the client's right to freely choose counsel. Although the party seeking to disqualify an attorney has a "heavy burden," case law indicates that there is "no right to demand to be represented by an attorney disqualified because of an ethical requirement." The court determined that the "weight of authority suggests" that, where an ethical violation is found under RPC 1.7, disqualification is avoidable only in "extraordinary cases." The court also noted the possibility of delay in the case. Nonetheless, the court observed that the Cendant-Ernst & Young dispute had "been on hold" while class-action claims were resolved. Even though wells may be a "brilliant trial lawyer," the court observed that other courts have disqualified attorneys who have spent two or three years working for a client. Furthermore, the case was "not anywhere near the 'eve of trial.'" Noting that Ernst & Young had "eminent attorneys at both Lowenstein and Mayer, Brown and Platt," the court expressed confidence that Ernst & Young would not be unfairly prejudiced by the court's ruling. The court was sympathetic to Wells' desire to move to a new law firm, but it quoted the New Jersey Supreme Court on the greater weight that must be given to upholding rules of professional behavior. The court declared that Lipton "has a right to have faith that her attorneys are keeping their vow not to share her confidences." The court added that "the public's perception of Paul Weiss and the legal profession would suffer if the dual representation were allowed." (New Jersey Lawyer, January 8, 2001) FOUNDRY NETWORKS: Wolf Haldenstein Announces Securities Case in CA ------------------------------------------------------------------ Wolf Haldenstein Adler Freeman & Herz LLP announces that it filed a class action lawsuit in the United States District Court for the Northern District of California on behalf of purchasers of the securities of Foundry Networks, Inc. (Nasdaq: FDRY) between October 18, 2000 and December 19, 2000, inclusive (the "Class Period"), against defendants Foundry Networks, Inc., Bobby R. Johnson, Jr., Lee Chen, Robert W. Shackleton, Ken K. Cheng, H. Earl Ferguson and Timothy D. Heffner. A copy of the complaint filed in this action is available from the Court, or can be viewed on the Wolf Haldenstein website at http://www.whafh.com. The complaint alleges that Foundry and certain of its officers and directors violated the Securities Exchange Act of 1934. Foundry designs, develops, manufactures and markets an end-to-end suite of high performance networking products for web-hosting and other companies and Internet Service Providers. The complaint alleges that Foundry concealed and misrepresented the problems it was experiencing due to the problems many of its customers were having raising money and the impact this was causing and would cause on Foundry's future revenue growth. The complaint alleges Foundry concealed this information so that the individual defendants could sell additional shares of their Foundry stock before the bottom fell out of Foundry's stock price. Thus, defendants made positive but false statements about Foundry's business and future revenues during October and November 2000. The complaint further alleges that in addition to having actual knowledge of the falsity of their statements, each of the defendants had the motive and the opportunity to perpetrate the fraudulent scheme and course of business described herein, in order to sell $113 million worth of their own Foundry shares at prices as high as $89 per share or 580% higher than the price to which Foundry shares dropped at the end of the Class Period, as Foundry's true prospects began to reach the market. In mid-November 2000, after defendants had completed the bulk of their sales, Foundry issued a Form 10-Q which contained many new disclosures about the problems many of its customers might experience in raising money and that Foundry had provided vendor financing to fuel some of its growth. However, Foundry's stock continued to trade at artificially inflated levels as defendants continued to make public statements that demand was strong and that Foundry's biggest problem was keeping up with demand. At least two defendants took advantage of this continued inflation and either sold or filed to sell additional shares of their Foundry stock. On December 19, 2000, after the market closed, Foundry announced that in the fourth quarter 2000 it would post revenue and EPS declines from the prior quarter. The complaint alleges that this was directly contrary to what Foundry's CEO had told The Wall Street Transcript just weeks before. This disclosure stunned the market, causing Foundry's stock to decline to less than $12-1/8 per share before closing at $13 per share on December 20, 2000. Contact: Fred Taylor Isquith, Esq., Gregory M. Nespole, Esq., or George Peters, classmember@whafh.com, whafh@aol.com, nespole@whafh.com, Gnespole@aol.com, 800-575-0735 HIP IMPLANT: Stray Lubricant Forces Recall; Patients Call It Med. Hell ---------------------------------------------------------------------- Orthopedic doctors are calling it their "worst nightmare come true." Patients are calling it the "Firestone version of medical hell." The reaction is to the voluntary recall of 17,500 Inter-Op titanium joints sold by Sulzer Orthopedics, a subsidiary of Swiss-based Sulzer Medica. The devices have been surgically implanted around the country since October 1999, with some sold as early as July 1997. The U.S. Food and Drug Administration, which oversees the safety of medical implants, is monitoring the recall. According to FDA records, other prosthesis and joint manufacturers have issued voluntary recalls in the past decade because of design flaws. The problem with the Sulzer hip lies in the manufacturing, not the design. A small amount of residue from a machine lubricant was accidentally left on top of the metal socket that fuses over time to the pelvic bone. The lubricant prevents proper bone growth, so the joint can loosen and slip out of place. Problems usually occur within six to eight weeks after surgery, and symptoms include severe groin pain and inability to bear weight. "It hurts three times as bad as before the surgery. It's unbelievable pain," said Keith Kirkwood, 52, of Woodstock, who received the Sulzer device in his right hip on Oct. 30 at Northside Hospital. He's among a handful of Georgians and 129 patients nationwide known to be affected. Kirkwood has osteoarthritis in both hips and was scheduled to have his left one done Dec 11. Instead, his surgeon, Dr. David Covall of Peachtree Orthopaedic Clinic, is planning to redo the right hip. Sulzer Orthopedics has an excellent reputation for its innovations and unmarred safety record. " A lot of companies have changed their products to be more like Sulzer," Covall said. He said there was no way surgeons could have noticed the flaw, because they couldn't see or feel the excess lubricant. The residue consists of five mineral-oil based Mobil lubricants, which are not considered toxic. Sulzer is taking full responsibility and promising to pay all out-of-pocket medical expenses not covered by insurance or Medicare. Numerous individual and class- action product liability lawsuits have been filed nationwide. Covall said he has done second surgeries on two patients who received the devices and anticipates two or three more. The only other medical practice in metro Atlanta known to be using Sulzer products is Pinnacle Orthopaedics & Sports Medicine Specialists, with nine offices in the area. "We do a lot of Sulzer hips, but so far, so good," said Dr. Stan Dysart of Pinnacle. "But we don't know if there's going to be a second wave of patients affected." (The Atlanta Journal and Constitution, January 23, 2001) HMOs: Face Precedent-Setting Lawsuits Challenging Corporate Policies -------------------------------------------------------------------- Recent lawsuits against HMOs are challenging decisions based on corporate policies. In Detroit, Michigan, Blue Care Network settled a lawsuit based on negligent corporate policies. According to the lawsuit, 12-year-old Kimmietta Branch suffered permanent brain damage after being denied medical treatment by a Blue Care Network pediatrician because of an outstanding $ 40 bill. She died four years later. Although Kimmietta Branch's mother, Cassandra Branch, offered to pay the bill, she was told she could not pay and could not see a physician. Two days later the child became disoriented and was admitted to a hospital, where she was diagnosed with viral encephalitis. According to the lawsuit, Blue Care Network had a bad-debt policy that prohibited patients from seeing a physician if there was an outstanding bill. In another case, the parents of a two-day-old girl who died a day after she went home in 1995 are suing Aetna U.S. Healthcare, Blue Bell, Pennsylvania, for damages caused by the insurer's former policy of discharging newborns from hospitals after 24 hours. The, previous testimony of the parents, Steve and Michelle Bauman, to Congress and the New Jersey legislature led to a Federal law and many state laws requiring a minimum 48-hour stay for newborns and their mothers. The U.S. Supreme Court set a precedent in June 2000 when it upheld a Federal appeals court ruling that the couple could sue the HMO for malpractice in state court. A lawsuit has been filed, and the trial is expected to take place next summer. Previously, state malpractice lawsuits against HMOs were moved to Federal courts, where plaintiffs could recover only the cost of care denied them. Now HMOs face pending Federal class-action lawsuits challenging how HMOs manage care and potential Federal and state laws giving patients the right to sue their HMOs. (Healthcare Financial Management, January 1, 2001) HOLOCAUST VICTIMS: Compensation Payments Could Begin In March ------------------------------------------------------------- Germany could begin compensation payments to former Nazi slaves in March with US courts expected to finish dismissing in February the last lawsuits against German firms over Nazi use of forced labor, a German industry spokesman said. Spokesman Wolfgang Gibowski told reporters that the March date should hold, barring surprises. He said payments could begin even though German industry has failed to pledge the full five billion marks (2.5 billion euros, 2.3 billion dollars) for a 10 billion mark (five billion euros, 4.4 billion dollars) compensation package. Gibowski said the 3.6 billion marks so far pledged by industry, added to five billion marks from the German government, was enough to start with and should keep the fund going for about a year. New York judge Shirley Kram is to hear suits against German banks Commerzbank, Deutsche Bank and Dresdner Bank. She is expected to dismiss them as the US government has requested. A series of isolated suits against German firms are then to be heard in the United States in February. The US government agreed in July to oppose the then 55 remaining class action suits in the United States as well as other possible future claims against German companies and their subsidiaries filed in the United States by Holocaust-era victims. US negotiator Deputy Treasury Secretary Stuart Eizenstat has said the matter is urgent since the former slave and forced laborers are mostly in their 80s and dying off at the rate of one percent a month. The forced laborers, mainly from five East European countries -- Belarus, the Czech Republic, Poland, Russia and Ukraine -- number from 750,000 to one million, depending if agricultural workers were counted, and will get an average of 5,000 marks each. The number of former slave laborers, almost all Jewish, is up to about 200,000 and should get about 15,000 marks each, Eizenstat has said. Gibowksi said the German parliament can only grant legal closure "when all the cases have been dismissed." "We had already expected in October that the cases would be dismissed and that we could start payments at the end of last year," Gibowski said. He said the delay was due to the fact that "the hearing of the cases started so late in American courts." Legal closure is a requirement of German industry for joining the "Remembrance, Responsibility and Future" foundation set up last July to direct the reparations program. The managing board of the foundation is to meet in Berlin Wednesday and Thursday to discuss beginning payments. Gibowski said two-thirds of German industry has signed on to the fund with large companies such as Volkswagen and Daimler-Chrysler accounting for about half of the money so far pleged. "We want the Mittelstand (smaller companies) to take part," Gibowski said. German President Johannes Rau, major industry groups and other public officials have urged companies to contribute, even if they were founded after the end of World War II, as a gesture of reconciliation and an international signal of Germany's good will. Some 5,600 companies have heeded the call. Rau sent a personal letter in December to 1,000 small and mid-sized firms calling on them to participate. Gibowski said that other means than simply asking companies to participate could be used to raise money, but he refused to say what this meant. A number of German newspapers and a Jewish organization have published lists of companies founded before World War II that have declined to lend support to compensation efforts. (Agence France Presse, January 23, 2001) HOLOCAUST VICTIMS: UBS AG Reports on Settlement and Dormant Accounts -------------------------------------------------------------------- In its report to the SEC, UBS AG tells that, several class action lawsuits, in relation to the Holocaust affair, have been brought against UBS, as legal successor to Swiss Bank Corporation and Union Bank of Switzerland, in the United States District Court for the Eastern District of New York (Brooklyn). These lawsuits were initially filed in October 1996. Credit Suisse Group has been designated as a defendant alongside UBS. On 12 August 1998, a settlement was reached between the parties. This settlement provides for a payment by the defendant banks to the plaintiffs, under certain terms and conditions, of an aggregate amount of $1.25 billion. UBS agreed to contribute up to two-thirds of this amount. To the extent that other Swiss companies agreed to participate in this fund, and to the extent of applicable payments to beneficiaries of eligible dormant accounts, UBS's share was to be reduced. According to UBS, for these purposes, dormant accounts are defined as accounts with banks and other financial institutions prior to 9 May 1945 which are part of the settlement agreement. In Switzerland, dormant or abandoned accounts remain on the books of the bank in perpetuity, until claimed or settled. Therefore, if such dormant or abandoned accounts are identified as balances that should be used to fund the settlement, the payment of cash to claimants causes the account to be liquidated from the company's records, thereby reducing cash and reducing the dormant account liability, as well as the remaining settlement amount liability. Accordingly, to the extent that such accounts are identified at institutions other than UBS, UBS's exposure to this matter will be reduced. Based on UBS's estimate of such expected contributions, UBS provided a reserve of $610 million (CHF 842 million) in 1998 and an additional $95 million (CHF 154 million) in 1999. During the second quarter of 2000, as part of the continuing review of this matter, UBS recognized that the amounts in dormant accounts attributable to Holocaust victims at UBS as well as at other Swiss banks are vastly below the initially expected level, and that UBS needed to adjust its reserve. In addition, on 26 July 2000, Judge Korman, the presiding judge in this matter, approved the settlement agreement. The final settlement approved by the judge describes a new mechanism to include Holocaust-related insurance claims for insurance companies. As a consequence, contributions by insurance companies will not serve to offset the banks' liabilities, contrary to UBS's previous understanding. As a result, in the second quarter of 2000, UBS provided an additional reserve of $122 million (CHF 200 million), bringing the total provision to $827 million (CHF 1,196 million). The difference between the amount accrued and the maximum potential liability of $833 million represents amounts specifically identified in UBS's customer accounts that are eligible for offset. JAPANESE GOVT: 1st CJD Victim to Sue Has Died; 1029 Cases Filed --------------------------------------------------------------- The first Japanese to sue the government for contracting Creutzfeldt-Jakob Disease (CJD), the incurable brain-wasting ailment similar to mad cow disease, died Tuesday after four years in a coma. Takako Tani had been followed by 19 other CJD patients in seeking damages from the government for failing to stop the import of dura mater which was implanted in them through brain surgery and was blamed for their infection. Only two of the plantiffs are still alive but their bereaved families are carrying on their court battles claiming damages totalling 1.7 billion yen (14.5 million dollars). There have been 1,029 CJD cases in Japan but "none of them could be directly linked to mad cow disease," said Teruo Ohtake, of the health ministry's disease control division. Of the total, 70 victims contracted the disease after receiving dura mater. "Quite a few of them are dead," the official said. "We presume that there have been no cases of madcow disease in Japan," Ohtake said. "The CJD victims received dura mater before the 1996 outbreak of madcow disease," he said. "But we cannot totally rule out the possibility as mad cow disease might have occurred before 1996." Dried dura mater, a fibrous membrane surrounding the brain and spinal cord, had been imported from Germany to Japan since 1973 and transplanted into Japanese patients with conditions affecting the brain or spinal cord. The government waited until March 1997 to ban the import of dura mater, a year after an outbreak of madcow disease made the headlines in Britain. Tani, a 46, succumbed to pneumonia at a sanatorium in Kosei near Kyoto, western Japan. It was also learned that another plaintiff Takumi Hayashi, 32, also died of CJD three days earlier at a hospital in Otsu, near Kosei. Tani, a housewife, received dura mater in 1989 when she was treated for a disease affecting the spinal cord. In 1996, her vision started to dim and she lost consciousness and was diagnosed with CJD. Her family filed a 770,000-dollar damage suit in late 1996 with the Otsu District Court against the government, a dura mater importer and the Otsu city government which runs a hospital where she was treated. Hayashi underwent brain tumour surgery to receive dura mater when he was 14. He was diagnosed with CJD in 1999 and was joined to the Otsu suit. The CJD plantiffs have been grouped in two class actions at the Tokyo and Otsu district courts. Lawsuits accused the government of negligence over the delay in stopping the import of dura mater as in the spread of AIDS through the import of HIV-tainted blood products for haemophiliacs. An internal probe has revealed that the health and welfare ministry was warned in 1988 of a link between imported dura mater and CJD based on a 1987 US report, the Kyodo news agency said. CJD and mad cow disease are both believed to be caused by a protein particle, known as a prion, which leads to the brain becoming spongy, causing symptoms such as severe dementia and spasms. (Agence France Presse, January 23, 2001) MICROSOFT CORP: Employees' Bias Suit Claims Flat Hierarchy Causes Abuses ------------------------------------------------------------------------ The lawyer who brought Jackson v. Microsoft Corporation, which is thought to be the first class action alleging employment discrimination by a New Economy company, may face a tough road ahead, according to employment lawyers on both sides of the table. The lawsuit, which was filed by plaintiffs' lawyer Willie E. Gary, accuses Microsoft of racial discrimination in its promotions and compensation. It seeks class-action status on behalf of all former and current black Microsoft employees, estimated to include at least 400 members. The complaint seeks $ 5 billion in compensatory and punitive damages, as well as lost wages and injunctive relief. The case is one in a series of recent class-action suits addressing the lack of African Americans at large corporations, said Adam T. Klein, a partner at the plaintiffs' firm Outten & Golden LLP. As examples, he cited cases against Mitsubishi Corporation, Texaco Inc. and Coca-Cola Co. (Mr. Gary, of Gary, Williams, Parenti, Finney, Lewis, McManus, Watson & Sperando in Stuart, Fla., has also been involved in the Coca-Cola litigation.) However, the Microsoft case differs from these suits and many others coming before it in that it takes issue with some of the most popular features of a New Economy workplace. These features include merit pay and promotions that are not tied to seniority, and a "flat" or "egalitarian" hierarchy where workers are encouraged to interact with senior managers as a way to foster initiative and tear down barriers. Philip M. Berkowitz, head of the employment group at Salan's New York office, described the suit as "loaded with ironies," because the "flat" hierarchy being challenged was developed in large part to address concerns of women and minorities that the traditional corporate hierarchy impeded their advancement the so-called "glass ceiling" effect. "Merit-based pay systems and the ability to interact with senior managers were designed to permit people to get around the old white boy network," he said. "Having said that," Mr. Berkowitz added, "in eliminating the traditional hierarchy, companies should not permit a free-for-all. There should be general guidelines and standards designed to ensure that people are treated fairly." Merit-Based Programs Discrimination can creep into a merit-based system, in which managers give their employees grades that determine promotions and pay increases, because of the subjective nature of the evaluations, lawyers said. However, weighing in Microsoft's favor is "fairly good law of recent vintage which condones the use of subjective criteria where they can be backed up by objective facts," said Paul Salvatore, a partner at Proskauer Rose LLP who represents management. As an example, an employee can legitimately be denied a promotion on the basis of something as amorphous as "leadership style," as long as supporting facts are provided, he said. The suit also highlights the potential problems of a more informal workplace. One of the representative plaintiffs, Rahn Jackson, a former account executive in Microsoft's Washington, D.C., office, has alleged that his authority was undermined when his white superior permitted white subordinates to bypass him in the chain of command and defy and challenge him. The plaintiffs are entitled to compensatory and punitive damages only if they can establish that Microsoft intentionally discriminated against blacks. Intent is usually shown through an "accumulation of circumstantial evidence," said Janice Goodman, of the plaintiffs' firm Goodman & Zuchlewski. Such evidence can include statistics as well as racist anecdotes, she explained. Although the complaint lacks allegations of overtly racist comments or behavior, it does presents employment statistics to back up its claims. In 1999, it alleges, only 2.6 percent of Microsoft employees were black. At the management level, that figure drops to just 1.6 percent. But Microsoft's low numbers are probably not atypical of a sector dominated by engineers and other high-tech workers, lawyers said. "Diversity in this industry is a difficult row to hoe," said Proskauer's Mr. Salvatore. There really does appear to be a dearth" of blacks and Hispanics in this field, he added. In its defense, Microsoft has publicly stated that since 1997, it has seen an 81 percent increase in the number of black employees. In the same period, the percentage of all minority employees at Microsoft has risen from 16.8 percent to about 22 percent today. The case amends an existing action filed on behalf of Mr. Jackson, who "aggressively pursued" Mr. Gary's firm to represent him, according to partner Tricia "CK" Hoffler. It is pending before Judge Thomas Penfield Jackson of the U.S. District Court of the District of Columbia, who was randomly selected to hear Mr. Jackson's case prior to Mr. Gary's involvement. One lawyer speculated that choosing to amend Mr. Jackson's complaint rather than file a new action was a strategic move to ensure that the class-action suit would be heard by Judge Jackson, who presided over the government's antitrust case against Microsoft and ordered the company split in two. Microsoft has argued that Judge Jackson is biased against the company. In recently published remarks, Judge Jackson compared Bill Gates to Napoleon, said that company officials acted like children, and questioned the intelligence of Microsoft general counsel William Neukom. Certifying the Class Several lawyers speculated that recent U.S. Supreme Court case law may make it tougher for Mr. Gary to convince the court to certify the class. In two decisions invalidating class-action settlements, Amchem Products Inc. v. Windsor, 521 U.S. 597 (1997) and Ortiz v. Fibreboard Corp., 527 U.S. 815, (1999), the justices underscored the need to show that the representative parties "fairly and adequately protect the interests of the class." The plaintiffs still have the option to amend the complaint with the court's approval, although Ms. Hoffler stated that any amended version will be "pretty much close to what it is today." She added that since filing the suit, the firm "had received countless calls" from people interested in participating in the case. The lawsuit may act as a wake-up call for other big high-technology companies, lawyers said. "Microsoft is a bellwether" for the industry, said Ira Rosenstein, a partner at the New York office of Orrick, Herrington & Sutcliffe LLP. "It's the most obvious choice if you're trying to make a point," he added. "If this case gets a fair amount of publicity, you will see a lot of companies cleaning up their act on the diversity front," said Daniel A. Weisberg, a partner at the New York office of Brobeck Phleger & Harrison LLP. Mr. Weisberg likened the situation to the "perma-temp" suits that accused Microsoft of unfairly excluding employees categorized as independent contractors from a discounted stock purchase plan. Those suits, which settled in December for $ 97 million, have spurred other technology companies into revamping their own policies toward independent contractors, he said. But the recent dot-com meltdown has many New Economy firms focused on more immediate concerns. "A lot of companies have their own survival to worry about," Mr. Salvatore said. "In the next week or two we're going to see a tremendous number of announcements of reduction in force," he added.Photographs of Philip M. Berkowitz, Daniel A. Weisberg, and Paul Salvatore. (New York Law Journal, January 11, 2001) NEW CERIDIAN: Settles Shareholders’ Suit Re CII Payroll Software System ----------------------------------------------------------------------- Ceridian and ten of its current and former executive officers were named as defendants in the consolidated class action complaint filed by five Ceridian shareholders in U.S. District Court in Minnesota. The lawsuit arose out of Ceridian's announcement, on August 26, 1997, that it had decided to terminate further development of its CII payroll processing software system. The named plaintiffs, who purport to act on behalf of a class of purchasers of Ceridian common stock during the period from January 23, 1996 to August 26, 1997, alleged in their consolidated complaint that the defendants provided false and misleading information regarding the development of the CII system and the impact that system would have on Ceridian's future operations, concealed problems with the development of the CII system and improperly capitalized the costs of the CII development effort, thereby overstating Ceridian's financial results during the development period. On March 31, 1999, the U.S. District Court dismissed the suit, but permitted the plaintiffs to file an amended complaint. The plaintiffs filed an amended consolidated complaint dated May 28, 1999. On January 3, 2000, the U.S. District Court preliminarily approved a settlement of this litigation. A hearing with the U.S. District Court to finalize the settlement is scheduled for March 21, 2000. Ceridian and the individual defendants deny any wrongdoing or liability related to the lawsuit, but have concluded that further conduct of the litigation would be expensive and protracted. It is the opinion of management that the proposed settlement of $5.2 inclusive of administrative costs, a portion of which will be covered by insurance, will not have a material adverse effect on Ceridian's financial position or results of operations. PRE-PAID LEGAL: Berger & Montague Files Securities Suit in Oklahoma ------------------------------------------------------------------- The law firm of Berger & Montague, P.C. (http://www.investorprotect.com), filed a class action on January 22 in the United States District Court for the Western District of Oklahoma on behalf of all persons or entities who purchased Pre-Paid Legal Services, Inc. ("Pre-Paid Legal") (NYSE: PPD) securities during the period from April 19, 1999 through January 16, 2001, inclusive. Pre-Paid Legal develops, underwrites and markets legal expense plans. During the Class Period, Pre-Paid Legal engaged in wrongful practices, including its accounting for commissions, which caused Pre-Paid Legal's earnings, income and stock price to be artificially inflated. The complaint charges Pre-Paid Legal and two of its highest officers with violations of Sections 10 and 20(a) of the Securities and Exchange Act of l934 for improper accounting practices and materially false and misleading statements in its public statements and filings with the SEC. Contact: Sherrie R. Savett, Esquire, or Karen S. Orman, Esquire, or Kimberly A. Walker, Investor Relations Manager, all of Berger & Montague, 888-891-2289 or 215-875-3000, or fax, 215-875-5715, or InvestorProtect@bm.net PRE-PAID LEGAL: Cauley Geller Announces Securities Lawsuit in Oklahoma ---------------------------------------------------------------------- The Law Firm of Cauley Geller Bowman & Coates, LLP announced that it has been retained to file a class action lawsuit in the United States District Court for the Western District of Oklahoma on behalf of purchasers of Pre-Paid Legal Services, Inc. (NYSE: PPD) common stock during the period between April 19, 1999 and January 16, 2001 (the "Class Period"). Pre-Paid underwrites and markets legal service plans which provide for or reimburse a portion of legal fees incurred by members in connection with specified matters. The Company's legal expense plans provide for or reimburse a portion of the legal fees associated with a variety of legal services in a manner similar to medical reimbursement plans. Pre-Paid utilizes a multi-level marketing system to sell its policies. The complaint will charge Pre-Paid and certain of its officers and directors with violations of the federal securities laws by issuing materially false and misleading information about the Company's publicly reported earnings and expenses. The complaint alleges that as a result of the false and misleading statements the price of Pre-Paid stock was artificially inflated during the Class Period. Contact: Sue Null or Charlie Gastineau, both of Cauley Geller Bowman & Coates, LLP, 888-551-9944, or info@classlawyer.com PRE-PAID LEGAL: Milberg Weiss Announces Securities Suit in Oklahoma ------------------------------------------------------------------- Milberg Weiss (www.milberg.com/prepaid/) announced on January 23 that a class action has been commenced in the United States District Court for the Eastern District of Oklahoma on behalf of purchasers of Pre-Paid Legal Services Inc. (NYSE:PPD) common stock during the period between Feb. 7, 2000 and Jan. 16, 2001 (the "Class Period"). The complaint charges Pre-Paid and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Pre-Paid underwrites and markets legal service plans which provide for or reimburse a portion of legal fees incurred by members in connection with specified matters. The Company's legal expense plans provide for or reimburse a portion of the legal fees associated with a variety of legal services in a manner similar to medical reimbursement plans. Pre-Paid utilized a multi-level marketing system to sell its policies. The complaint alleges that during the Class Period, Pre-Paid continually announced favorable earnings and growth in the number of "associates" who sold its policies, when, in fact, many of its associates were no longer generating new business and were not repaying advances from the Company and the Company's earnings were manipulated and overstated by improperly capitalizing commission expenses and failing to write off uncollectible advances. As a result, Pre-Paid's stock traded at inflated levels during the Class Period, increasing to as high as $48.75 per share. Then on 1/17/01, The Wall Street Journal published a story on Pre-Paid's accounting which began to expose the scheme. Upon these disclosures, Pre-Paid stock dropped to $20 per share. Contact: Milberg Weiss Bershad Hynes & Lerach LLP William Lerach, 800/449-4900 wsl@mwbhl.com QUINTUS CORPORATION: To File Restated Financial Statements by Feb. 14 --------------------------------------------------------------------- Quintus Corporation (Nasdaq:QNTSE) announced on January 23 that it has completed its internal financial review. As part of this effort, the company has prepared revised financial information for review by its independent auditors for the quarters ended December 31, 1999, March 31, 2000, June 30, 2000, and September 30, 2000, and for the fiscal year ended March 31, 2000. "We realize that our constituents share our impatience for the restatement of our financial results, but Quintus and its auditors want to ensure that our statements have been fully reviewed," stated Jim Coriston, Quintus' interim chief financial officer. "While we cannot share the details of our financial review until the audit is complete, we expect to complete the audit and file all our outstanding financial statements with the SEC by mid-February." On November 22, 2000, Quintus announced that, following an investigation by Davis Polk & Wardwell, assisted by PriceWaterhouseCoopers, the audit committee of its board of directors found three transactions in the company's previously announced financial results that were based upon falsified documentation and therefore that previous SEC financial filings would require restatement. Quintus stated that, after an extensive internal review under the leadership of Jim Coriston, the falsified documentation was limited to the three cases announced on November 22. During the internal review, Quintus identified an additional $3 million of revenue from a software development license, reported and recognized in the quarter ended June 30, 2000, that will be removed from Quintus' financial statements. While Quintus had a valid order and received payment, the deal will now be accounted for as a non-monetary "barter" transaction for which revenue will not be recognized. Quintus will also change the timing of revenue recognition for one smaller transaction of approximately $500,000, with all the revenue for that transaction expected to be recognized. These five changes - the three transactions identified on November 22 and the two changes described here will be reflected in the restated financial statements that will be filed with the SEC and published as soon as the independent audit process is complete. Following the filing of Quintus' restatements, Quintus plans to file its 10-Q for its third fiscal quarter ended December 31, 2000 to meet the SEC deadline of February 14. Following this filing, the company plans to issue a press release and hold an investor conference call to discuss the restatements and results for the December quarter. Quintus has been in regular communication with Nasdaq, providing it with the steps the company is taking to complete its SEC filings and the improvements to its financial control procedures that have been put in place. The Nasdaq listings qualification panel is currently considering the information provided by Quintus in order to make a decision with regard to listing and continued trading. The company believes that completing its SEC filings is an important step in this process. With respect to the shareholder litigation in Federal Court in the Northern District of California, Quintus stated that all plaintiff law firms involved have agreed to consolidation of their cases into a single class action lawsuit. The consolidation order is now awaiting judicial approval. Quintus is represented in these matters by the law firm of Wilson Sonsini Goodrich & Rosati. Finally, Quintus announced the departure of Susan Salvesen, former Chief Financial Officer and current Chief Administrative Officer. About Quintus Corporation Quintus Corporation (Nasdaq:QNTSE) provides a comprehensive electronic customer relationship management (eCRM) solution that enables companies to increase revenue potential by improving customer satisfaction and loyalty. RITE AID: AGs Look into Reimbursement Re Prescriptions Not Picked up -------------------------------------------------------------------- The Company is being investigated by multiple state attorneys general for its reimbursement practices relating to partially-filled prescriptions and fully-filled prescriptions that are not picked up by ordering customers. The Company is supplying similar information with respect to these matters to the Department of Justice. The Company believes that these investigations are similar to investigations that were, and are being, undertaken with respect to the practices of others in the retail drug industry. RITE AID: Claims on Drug pricing Dismissed in AL, OR, NJ, PA ------------------------------------------------------------ Purported federal class actions lawsuits have been filed against the Company in Alabama and California and purported state class actions have been filed against the Company in New Jersey, New York, Oregon, and Pennsylvania. In all of the class actions the plaintiffs allege that the Company's former practice of allowing its pharmacists the discretion to charge non-uniform prices through the use of positive overrides for cash purchases of prescription drugs was unlawful and none of those class actions specify damages. The Company has asserted in court filings that its imposition of positive overrides was a legitimate utilization of non-uniform pricing similarly engaged in by many other sectors of retail commerce. The Company filed motions to dismiss each of the uncertified class action complaints for failure to state a claim for which relief could be granted. The Company's arguments have prevailed in each of the cases in which a court decision has been rendered thus far, other than the California case. As previously reported in the CAR, on December 27, 1999, the United States District Court for the Northern District of Alabama dismissed the federal RICO claims against the Company with prejudice and the plaintiffs later filed an appeal with the Eleventh Circuit. On November 2, 2000, the United States Court of Appeals for the Eleventh Circuit affirmed the action of the United States District Court for Northern District of Alabama dismissing the federal RICO claims asserted in a purported class action lawsuit alleging that certain of the Company's non-uniform pricing practices for cash prescription purchases were unlawful. Update On May 21, 2000, an Oregon State court judge granted the Company's motion to dismiss the purported class action there with prejudice. On June 27, 2000, a New Jersey State court dismissed that class action there. On August 16, 2000, a Pennsylvania State court dismissed that class action with prejudice. A motion to dismiss the state class action in New York is currently pending. On October 5, 2000, the Company settled, for an immaterial amount, and without admitting any violation of law, the allegation by the Attorney General of Florida that its non-uniform pricing policy for cash prescription purchases was unlawful under Florida law. RITE AID: Department of Labor Investigates on Employee Benefit Plans -------------------------------------------------------------------- The U.S. Department of Labor has commenced an investigation of matters relating to the Company's employee benefit plans, including its principal 401(k) plan, which permitted employees to purchase the Company's common stock. Purchases of the Company's common stock under the plan were suspended in October 1999. The Company is cooperating fully with the Department of Labor. These federal investigations are ongoing and the Company cannot predict their outcomes. If the Company were convicted of any crime, certain contracts and licenses that are material to its operations may be revoked, which would have a material adverse effect on results of operations and financial condition. In addition, substantial penalties, damages or other monetary remedies assessed against the Company could also have a material adverse effect on the Company's results of operations, financial condition and cash flows. RITE AID: Reaches Settlement Agreement for Securities Suit in PA ---------------------------------------------------------------- As previously reported in the CAR, the Company, its former chief executive officer Martin Grass, its former president Timothy Noonan, its former chief financial officer Frank Bergonzi, and its former auditor KPMG LLP, have been sued in a number of actions, most of which purport to be class actions, brought on behalf of stockholders who purchased the Company's securities on the open market between May 2, 1997 and November 10, 1999. All of these cases have been consolidated in the U.S. District Court for the Eastern District of Pennsylvania. On November 9, 2000, the Company announced that it has reached an agreement to settle the consolidated securities class action lawsuits pending against it in the U.S. District Court for the Eastern District of Pennsylvania and the derivative lawsuits pending there and in the U.S. District Court of Delaware. Under the agreement, which must be approved by the courts, the Company will pay $45 million in cash, which will be fully funded by its officers' and directors' liability insurance, and issue shares of common stock in 2002. The shares will be valued over a 10 day trading period in January 2002. If the value determined is at least $7.75 per share, the Company will issue 20 million shares, which could result in the Company recording additional expense related to the settlement. If the value determined is less than $7.75 per share, the Company has the option to deliver any combination of common stock, cash and short-term notes, with a total value of $155 million. As additional consideration for the settlement, the Company will assign to the plaintiffs all of its claims against the above named executives and KPMG LLP. TORONTO GOVT: Lawsuit Alleges Mental Patients Were Drugged and Tortured ----------------------------------------------------------------------- Criminally insane patients were routinely drugged and tortured at a provincial psychiatric facility while the government looked the other way, documents in a lawsuit allege. The allegations are contained in a $ 150-million class-action lawsuit filed against the Ontario government and a Midland psychiatrist by a patient at the Mental Health Centre in Penetanguishene. The lawsuit alleges patients in three treatment programs between 1965 and 1982 were subjected to mental and physical abuse and mind-altering LSD experiments without consent in an effort to reconstruct their personalities. Instead, they became drug addicts, more violent and frequently reoffended, according to the statement of claim. The experiments included what was known as the "capsule program," in which four or more patients were stripped naked and confined for up to two weeks in a small room while being fed liquids through straws placed through holes in the wall, the claim alleges. "There was no scientifically proven value to these experiments," the claim asserts, alleging they were carried on "for years, and even decades, without the Crown questioning the value" or effect on patients. Teresa Walsh, a Toronto lawyer representing Dr. Elliott Barker, a former Penetang staff psychiatrist named in the lawsuit, said a statement of defence hasn't yet been filed but her client will deny the programs amounted to experimentation. "This particular therapeutic community was open to the media at all times," Walsh said. One can't forget the treatment programs were initiated 30 years ago, she said. Brendan Crawley, a spokesperson for the Attorney General's Ministry -- the government department named in the suit -- said the ministry is "not in a position to comment at the moment" because it's awaiting an amended version of the claim. (The London Free Press, January 23, 2001) U-M: Trial seeks to define diversity at Law School -------------------------------------------------- Law classes with racially diverse students are typically more educational than homogenous classes, two university law deans testified Monday. Yet neither University of Michigan dean Jeffrey Lehman nor Vanderbilt dean Kent Syverud could tell U.S. District Judge Bernard Friedman at what point a class is sufficiently diverse, according to their testimony in a lawsuit challenging U-M's law school admissions policy. The debate is central to the judge's decision in the two-week-old trial over whether the U-M Law School discriminates against whites by admitting some minority students with lower grades and test scores. The plaintiffs call the policy unconstitutionally vague. U-M witnesses maintain it is legal because it does not set aside seats for minority applicants and considers race among many factors. If Judge Friedman determines that U-M can consider race, the school will win only if he also decides the Law School policy infringes as little as possible on the rights of other prospective students. Lehman said there is no number of students that equals "critical mass" at which the student body is sufficiently diverse. If U-M witnesses cited a particular number, it could amount to an illegal quota system. Syverud, a former U-M faculty member and the current dean at Vanderbilt University Law School in Nashville, told Friedman that even a good law professor cannot substitute for a lack of diversity in the classroom. "The dynamic in the law school classroom is different depending on the degree to which there are meaningful numbers of minority students in the classes that I teach," said Syverud, who is editor of the Journal of Legal Education. The purpose of a law school class, Syverud said, is for students to challenge each other's viewpoints and perspectives. That only happens if there is a mix of students, including racial and ethnic diversity. When there are a token number of minorities, those students tend not to feel comfortable sharing their views, he said. Plaintiff attorneys said the critical mass concept is legally unacceptable. "It's an inherently vague and subjective measure of what the racial mix should be," said Terry Pell, executive director of the Center for Individual Rights, the Washington, D.C. law firm that brought the lawsuit. Attorneys for a coalition of 41 students, who will argue that affirmative action is necessary to offset cultural bias in grades and test scores begin to present their case this week. (The Detroit News, January 23, 2001) ********* S U B S C R I P T I O N I N F O R M A T I O N Class Action Reporter is a daily newsletter, co-published by Bankruptcy Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc., Washington, DC. Theresa Cheuk, Managing Editor. Copyright 1999. All rights reserved. ISSN 1525-2272. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. 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