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/raid1/www/Hosts/bankrupt/CAR_Public/010305.MBX C L A S S A C T I O N R E P O R T E R Monday, March 5, 2001, Vol. 3, No. 44 Headlines AVENTIS: Farmer Files Suit For Compensation For Losses Due To Starlink CONTINENTAL AIRLINES: Baker & McKenzie Wins Cert Vs. Pilots Association EEOC: Agency Officials Pressured Veteran Lawyers to Retire, Suit Says GEORGIA PACIFIC: Former Alabama Employees Sue Alleging Discrimination HIP IMPLANT: Sulzer Medica Vows Defense against Lawsuit over Recall HMOs: Cracks Show in Aetna's New Physician-Friendly Facade HOLOCAUST VICTIMS: Polish Restitution Bill Bogs Down Over Eligibility INTERSHOP COMMUNICATIONS: Shalov Stone Files Securities Suit in CA KROGER STORE: 14 Women Win $750,000 in Sexual Harassment and Bias Suit MEDIA ARTS: Vows Defense of Lawsuit Filed Oct 2000 over Purchase Offer MICROSOFT CORP: The Recorder Reports on Judge's Words in Public MISSOURI: Puts Construction off Until Ct Decision on Income Tax Refunds NAPSTER: Independent Musicians Divided Over Free Music on Internet NORTEL NETWORKS: Weiss & Yourman Announces Securities Suit Filed in NJ ONTARIO SCHOOL: Board Faces Suit Claiming Special Ed Supports Were Cut PHARMAPRINT INC: Intends to Vigorously Defend Securities Suits in NJ TRANSWORLD HEALTHCARE: Vows Defense of Shareholder Suit in DE Re Merger * S Korean Govt To Introduce Class Action Suit From 2002 * Texas Bill Drafted to Allow Strike Back in Medical Malpractice Suits ********* AVENTIS: Farmer Files Suit For Compensation For Losses Due To Starlink ---------------------------------------------------------------------- A Baltimore County farmer has filed suit seeking compensation for losses caused by concerns over genetically modified corn. Richard Smith claims the price for his 50-acre crop dropped because mishandling of StarLink corn caused global demand for U.S. corn to drop. The claims mishandling of StarLink by it developer, Aventis Cropscience USA Holding Inc., caused "rampant commingling" in silos and storage bins, "contaminating the supply of human consumption corn and consequently severely reducing the market value." Traces of StarLink corn found in the corn stockpiles destined for human consumption prompted nationwide food recalls last year. The suit seeks damages for thousands of farmers who, like Smith, who saw prices decline for their corn from 1998 to last year. Smith's lawyers said that it is difficult to estimate the losses to Maryland corn farmers. "Anything is possible. Nationally, the costs for this could be in the millions of dollars," said Charles J. Piven, a Baltimore attorney. The suit claims that there are "thousands" of corn farmers in Maryland and it seeks to have them join Smith as plaintiffs. Piven said he hopes to find other farmers to join Smith as plaintiffs through advertisements and notices placed with agricultural wholesale supply firms. No trial date has been set. U.S. Census figures show 3,554 Maryland farms grew 405,000 acres of corn in 1997, the latest year that figures were available, said Richard Dittman, a statistician for the Maryland Department of Agriculture. State agriculture officials said corn prices have been depressed for years, but it isn't clear whether StarLink was a factor. Corn sold about $1.80 a bushel after last November's harvest, down from $3.20 in 1996, when drought hurt production and drove up prices, said James Downs, a University of Maryland grain marketing analyst. Japan, the largest overseas market for U.S. corn, cut its purchases by 50 percent, and South Korea, the second-largest market, banned U.S. corn imports as a result of StarLink contamination, according to the suit. The two countries accounted for half of U.S. corn exports in 1999, the suit said. Aventis spokeswoman Rhonda Barnett said StarLink was taken off the market last fall. "As a company when you make a mistake, you do all the things you can to fix it, and that's what happened," said Barnett. No serious illnesses were reported and that the total amount of StarLink grown was less than 1 percent of the 80 million acres of corn planted in the U.S. last year. Aventis is also facing federal class-action suits filed in Iowa and Illinois by lawyers representing non-StarLink farmers. StarLink is one of several types of corn that have been genetically engineered to kill an insect pest, but it is the only one not allowed in food. StarLink corn contains a bacterium gene that makes it toxic to some insects, and there are fears it could cause allergic reactions in people. Aventis has withdrawn the corn from the market but insists it is safe for people. Aventis has asked the Environmental Protection Agency to approve the corn temporarily for food use to prevent further disruptions in grain handling. The EPA has not decided whether to do that, pending an investigation of complaints of people who think they may have had allergic reactions to the corn. (The Associated Press State & Local Wire, March 2, 2001) CONTINENTAL AIRLINES: Baker & McKenzie Wins Cert Vs. Pilots Association ----------------------------------------------------------------------- The U.S. Court of Appeals for the Fifth Circuit recently affirmed a lower court's certification of a class action suit filed on behalf of over 1,700 pilots of Continental Airlines against their union, the Independent Association of Continental Pilots, and Continental Airlines (NYSE: CAL). The pilot class is represented by Rick Hammett, Larry Stuart, and Charlene Tsang of the Houston office of Baker & McKenzie. The pilots filed the class action because their union elevated the seniority of 11 pilots who rescinded or forfeited their seniority at Continental Airlines after they chose not to return to work following a strike in 1983-1985. The suit claims that the union violated its duties under the Railway Labor Act, because the seniority action was arbitrary, discriminatory and in bad faith; and the Labor-Management Reporting and Disclosure Act, because the union denied the pilots their right to vote on the changes in seniority that the union convinced Continental Airlines to implement. The class members allege that the 11 pilots were moved up the Continental Seniority List to curry favor with the Air Line Pilots Association, the union that represented Continental's pilots during the 1983 strike. The IACP was voted in instead of ALPA in 1993. The seniority changes became an issue at the same time that some of the IACP officers were pushing to merge IACP into ALPA in 1996. In affirming the lower court's decision, the Fifth Circuit also confirmed that "a union may not juggle the seniority roster for no other reason than to advance one group of employees over another." The IACP and Continental had argued that moving only 11 pilots up on the list was not improper. The court recognized that even though the union and Continental elevated the seniority of only 11 pilots, elevating the seniority of even one pilot's seniority harms many other pilots. If one pilot is forced to accept her second-choice route, she may in turn displace from that route another, less senior pilot who in turn must take his second-choice route, and so on. A loss of preferred routes could thus cascade all the way down the seniority list ... Some class members have lost work assignments, pay and other benefits. "For a pilot, seniority is everything," Hammett said. "Here, more than 1,700 pilots lost seniority because a few union officials wanted for their own reasons to favor a small group of 11 pilots over the much larger group of pilots that the union was supposed to also be representing. The Fifth Circuit properly sent this case back to the district court for trial as a class action." The Fifth Circuit rejected the union's and Continental's argument that the class of pilots suffered no injury as a result of the seniority elevations, stating that: [T]he injury to the class members is not merely loss of a specific work assignment or an identifiable sum of money; loss of seniority is itself a harm ... Loss of seniority is an injury within the commonsense understanding of the term, and one that is suffered by the plaintiffs themselves. It carries with it the possibility of several forms of concrete injury, such as slower promotion, greater likelihood of being laid off and lower benefits. Accordingly, the panel of three circuit judges ruled against the union's and Continental's appeal and affirmed the lower court's order certifying the class action. "The district court properly ruled that this case should be a class action," Hammett said. "The union appealed that determination. Now the Fifth Circuit has affirmed in no uncertain terms that not only is this case classically suited for class action treatment, but that the loss of seniority in and of itself is a harm sufficient to support the class action." Opened in 1997, the Houston office is one of the newest offices of Baker & McKenzie, the world's largest law firm with nearly 3,000 attorneys and 61 offices in 35 countries. The firm also has nine other offices in the United States and international offices throughout Latin America, Europe and Asia Pacific. The Houston office's Labor and Employment Practice Group specializes in all aspects of labor and employment law, representing management in both union and nonunion settings. Rick Hammett, Managing Partner, is Certified by the Texas Board of Legal Specialization in Labor and Employment Law, and represents clients in proceedings before the National Labor Relations Board, the National Mediation Board and both federal and state courts. Baker & McKenzie attorneys are some of the most experienced in their respective fields, with a strong grasp of relevant technologies and industry practices. In addition to Labor & Employment Law, the Houston office is comprised of attorneys who concentrate in Complex Commercial Litigation, Major Project development along with privatizations, mergers and acquisitions of infrastructures and resource assets, Corporate and Securities and International Tax. For more information on Baker & McKenzie and its services, contact the Houston office at (713) 427-5000 or visits its Web site at http://www.bakernet.com. Contact: Jane Powell, or Alicen Swift, both of Powell Public Relations, 713-974-9300, or powellpr@pdq.net, for Baker & McKenzie EEOC: Agency Officials Pressured Veteran Lawyers to Retire, Suit Says ---------------------------------------------------------------------One day in October 1998, William D. Snapp says his boss ordered him to take action that would make their agency's Atlanta legal staff more efficient. Get rid of at least two senior attorneys, Snapp says he was told. Older people lack motivation. Replacing them with younger people would improve the office's productivity and warn other senior staffers to pick up the pace, Snapp says he was told. Snapp was dumbfounded. As the regional attorney for the Equal Employment Opportunity Commission in Atlanta, his job was to police the workplace and ensure that workers weren't discriminated against because of their race, gender-or age. The orders to terminate the most senior members of his staff came from Ronald Arrington, the EEOC's assistant general counsel in Washington, according to the attorney. Arrington allegedly issued the directive after consulting with General Counsel C. Gregory Stewart, Snapp claimed in federal court filings in Atlanta. "I'm just very disturbed that you have a person who is charged with the responsibility of enforcing the law who has, himself, engaged in the kind of conduct" promoted by the EEOC's top legal executives, Snapp says. Eventually, two senior trial attorneys were forced into retirement-an assertion the EEOC denies-and Snapp says he was demoted when he wouldn't cooperate in their dismissals. As a result of the allegations, the EEOC now finds itself in the uncomfortable position of being sued for discrimination in U.S. District Court by the attorneys who shepherded through court the agency's civil actions against private employers throughout Georgia. Snapp v. Castro, No. 1:01-cv-367 (N.D. Ga. Feb. 6, 2001). The attorneys Snapp says he was told to target also have filed their own suits. They are 25-year agency veteran Maureen Malone, 56, and William M. Outlaw, 62. Malone v. Castro, No. 1-00-cv-0988 (N.D. Ga. Aug. 31, 2000); Outlaw v. Castro, No. 1-00-cv-1008 (N.D. Ga. April 19, 2000). Several months after Snapp refused to fire them, they claim, the general and assistant general counsels in Washington told them they would be terminated if they didn't accept transfers to offices in Los Angeles and Milwaukee. In court filings, the EEOC confirms that two other EEOC staff attorneys in Atlanta, ages 57 and 50, have filed internal harassment complaints alleging that they, too, have been discriminated against because of their age. Edward D. Buckley, a partner with Greene, Buckley, Jones & McQueen who is suing the EEOC on behalf of the three attorneys, says that allegations of age discrimination are not a problem unique to the EEOC's Atlanta office. "The direction to Mr. Snapp to eliminate some senior employees came from Washington from the general counsel," the attorney says. Mandatory transfers, according to Malone's claim, are routinely used to force older employees into accepting retirement. Buckley also says that the 53-year-old Snapp's race (he is white) was "an issue in his replacement." An African-American man who still hasn't passed the Georgia Bar exam, eventually replaced Snapp, Buckley says. "We think the evidence will bear out that race was an issue in the replacement of Mr. Snapp," Buckley. "Snapp is a highly qualified and respected lawyer. He taught the EEOC's trial practices program, and he was replaced by a lawyer who is not even licensed to practice law in the state of Georgia," Buckley says. Snapp is currently the chairman of the Labor and Employment Law section of the State Bar of Georgia and was this year named an Equal Employment Opportunity Fellow with the American Bar Association's Labor and Employment Law section. In answers to complaints filed by Malone and Outlaw, Assistant U.S. Attorney David Powell, who is defending the EEOC, claims in court filings that a review of the allegations in Outlaw's and Malone's complaints-which are similar to Snapp's-"are based on statements by a disgruntled EEOC employee, William Snapp, who made the recited allegations following notice of his demotion from the position of Regional Attorney of the EEOC's Atlanta district office." Instructions From Washington When Snapp was told to take disciplinary actions against his older lawyers that would lead to their ouster, he says, he instead gathered his staff and told them what he had been ordered to do. "They needed to know that some of them had been unlawfully targeted," Snapp explains. Malone says she was stunned that she had become a target but wasn't completely surprised that the EEOC would break its own rules. For years, she says, EEOC trial lawyers had shared an inside joke that the agency "would require us to hold an employer to the line when we were the biggest violators of all." Snapp says he initially thought he could save the jobs of the older employees by making an all-out effort to improve the regional office's productivity. In 1997, the EEOC measured the success of regional offices by the number of civil cases they tried. That criterion made Atlanta one of the top offices in the nation, according to Snapp. But at the end of 1998, Snapp says he was told that the number of cases filed would instead be the measure of productivity. Snapp alleges he was instructed to increase the number of civil cases in litigation "without regard to the quality of the cases filed." One supervisor suggested to Snapp that his legal staff file "garbage" civil cases that had little or no merit, his complaint contends. "You can afford it," Snapp alleges he was told by an EEOC staff attorney in Washington. "The quality of your current cases is pretty good. You should see some of the 'garbage' that other offices have filed." Snapp says he didn't file "garbage," but his staff did increase their case filings. By November 1998, shortly after Snapp claims he was told to fire older employees, the Atlanta district office was number one in the nation in cases filed and number two in class action cases filed, he says. But Snapp says that wasn't enough to save him from retaliation after he refused to force out the older lawyers. In a meeting in Washington on Jan. 27, 1999, EEOC General Counsel Stewart informed Snapp that his performance was "unacceptable." As a result, he was being demoted. A short time later, Snapp accepted his current post as an EEOC arbitrator. Stewart, a presidential appointee, submitted his resignation when President George Bush took office but remains as Acting General Counsel. He did not return a telephone call to his office, which referred calls to EEOC spokesman Reginald A. Welch. Welch declined to comment on the case. Within six months of Snapp's demotion, Outlaw and Malone say, they were targeted for replacement. On July 20, 1999-a day after the EEOC posted vacancy announcements for two trial attorney positions in Atlanta-Outlaw was reassigned to Los Angeles. He was given 40 days to report to his new assignment or risk being fired for being "absent without leave," according to a letter signed by Stewart. Outlaw notes that the Atlanta office already was short two trial attorneys and had a bigger caseload than Los Angeles. And Outlaw wasn't licensed to practice law in California, a requirement of L.A.'s federal courts. "In my more than 20 years with the government," Outlaw continues, "I have never known of someone who is not a manager to be transferred without their request." Considering that he was over 60 years old and his wife had a good job in Atlanta, he says he "can't imagine that they really expected me to go to L.A." Outlaw says he learned later that his Los Angeles EEOC supervisor had never been informed of the transfer. When he elected to retire instead of move, he says he was replaced by a 27-year-old EEOC attorney from Miami who had never taken the Georgia Bar exam. Malone's story was similar. Less than a month after Outlaw received his transfer notice, the agency's assistant general counsel Arrington-in town to interview candidates for Snapp's former post, pulled Malone aside. "I'm afraid I have some bad news for you," her complaint alleges Arrington told her. With that, he handed her a memo signed by the general counsel reassigning her to Milwaukee. She was told she risked termination if she turned down the assignment, according to her suit. When she turned down the transfer, she was informed she must resign if she "wished to take advantage of an early retirement," according to a letter Stewart signed. When she filed a formal complaint alleging age discrimination, the EEOC denied her claim. Like Outlaw, Malone eventually learned that her new supervisor in Milwaukee had never been notified of the transfer. Rather than move, Malone also retired. Despite the litigation that he and his former colleagues have initiated, Snapp says he still believes in the principles the EEOC was designed to uphold. "I'm a true believer in equal employment and to the mission of the commission," he says. "I haven't lost loyalty to that mission. But corrective action needs to be taken." (Fulton County Daily Report, March 2, 2001) GEORGIA PACIFIC: Former Alabama Employees Sue Alleging Discrimination --------------------------------------------------------------------- Thirteen current and former workers at a Georgia-Pacific plywood plant in Peterman, Ala. have sued the Atlanta-based company charging discrimination against African-American employees. The plaintiffs allege that Georgia-Pacific management illegally denied comparable wages, promotions and working conditions to black employees, according to two related lawsuits filed in U.S. District Court in Mobile, Ala. The workers claim that supervisors routinely used racial slurs and placed offensive symbols around the plant, including nooses and swastikas, according to Daniel McCleav, a Mobile attorney representing the plaintiffs. In the first lawsuit, plaintiff Bobby Blount claims he was unjustly fired following a disagreement with a white co-worker. The complaint also charges discrimination in pay and treatment. That suit is set to go to trial in August, McCleave said. A related suit, which names 12 plaintiffs, was filed. The lead plaintiff in that case is Ronny Barrow, who began working at the Peterman plant as a utility person in 1996. The other plaintiffs are mill workers and a former receptionist, according to the suit. They are seeking compensatory and punitive damages. "Georgia-Pacific is taking these allegations seriously, and we will conduct our own investigation into the matter," said spokesman Ken Haldin. "We have policies that prohibit discrimination of any kind." (Atlanta Journal and Constitution, March 2, 2001) HIP IMPLANT: Sulzer Medica Vows Defense against Lawsuit over Recall ------------------------------------------------------------------- Swiss medical technology company Sulzer Medica said that it will defend itself against U.S. class action suits over faulty artificial hip joints. ''The company is convinced that patients are better served on a case-by-case basis,'' Sulzer Medica said in a statement. It issued a recall for its Inter-Op hip implants in December after discovering that lubricant residue on the artificial joints could prevent the implant from bonding properly with the bone, causing it to loosen. The implants were primarily sold in the United States. So far, 573 patients have undergone revision surgery, Sulzer Medica said. It added that it was too early to say what the total number of patients affected would be. Its U.S. subsidiary, Sulzer Orthopedics, ''has taken full responsibility and addresses each patient's needs and concerns on an individual basis, including reimbursement for expenses not covered by insurance or Medicare, such as lost wages and expenses related to surgery, and compensation for the patient's pain and suffering. A class action suit on behalf of more than 20 recipients of Sulzer hips was filed in Massachusetts. A number of other cases have already been started. Sulzer said it would be resisting requests for punitive damages because it believed it had acted ''responsibly and immediately'' when it learned of the problem. The company said it would not be financially affected by the recall because it is covered by product liability insurance. Any noninsured losses would be offset by dlrs 32 million it received from a litigation settlement, it said. Sulzer Medica is a unit of Swiss conglomerate Sulzer AG but is expected to gain independence soon. (AP Worldstream, March 2, 2001) HMOs: Cracks Show in Aetna's New Physician-Friendly Facade ---------------------------------------------------------- Saying they're "sick and tired" of unfair treatment from insurers, the medical society and a group of physicians have filed class-action lawsuits against all six major health insurers operating in Connecticut, including Aetna Inc., Cigna Corp., Oxford Health Plans, Inc., Health Net, Inc. subsidiary Physician Health Services, Anthem Blue Cross Blue Shield and ConnectiCare. The lawsuit is a particularly bitter pill for Aetna, since just eight months ago it chose the Connecticut State Medical Society to help it launch its new physician-friendly direction (MCW5/15/O0, p. 1). The group's house of delegates was the first physician group to host Aetna CEO William Donaldson in May 2000, when he promised substantive changes in order to "form a more respectful and collaborative partnership" with providers. "[Aetna] did reach out to the medical society," concedes Norbeck. "What they needed to do is reach out to the physicians. They needed to translate those words into actions, and it appears they have not done so." The lawsuit charged insurers with a laundry list of complaints ranging from arbitrary denials and downcoding to improper claims review. Not surprisingly, one flashpoint in the dispute between Aetna and Connecticut physicians is the deeply unpopular all-products clause. Physicians were greatly relieved to hear in May that the clause would be eliminated from physician contracts by Jan. 1, 2001. "We're not talking about thresholds or medical group size," Norbeck exulted shortly after the May meeting. "It's off the table." Or maybe not: "The all-products clause hasn't been dropped," he says now. "It's kind of a hybrid," in which physicians are still required to participate in all products in a group if they participate in one. Communication breakdown: Aetna says it's "surprised and disappointed" that the medical society turned to litigation rather than trying to work things out directly with the insurer. "As recently as a week ago, we had a discussion with the CSMS leadership, and absolutely nothing was said about the issues involved in this litigation," the company said in a written statement. The medical society received help from Connecticut Attorney General and industry gadfly Richard Blumenthal, who appeared at the group's press conference announcing the suits. Blumenthal is no stranger to managed care litigation, having filed suit against several of the same plans on behalf of enrollees (NICW 9/11/00, p. 3). (Managed Care Week, February 19, 2001) HOLOCAUST VICTIMS: Polish Restitution Bill Bogs Down Over Eligibility---------------------------------------------------------------------Poland's ill-fated plan to compensate people whose property was seized by the old communist regime was dealt another setback when a final vote was delayed five days because of legislative infighting. At issue is whether Polish emigres, including Jews who fled communist persecution, should be eligible for compensation. The Solidarity-led government and the Senate want them included, but some maverick Solidarity legislators and the ex-communist opposition in the Sejm, parliament's lower house, are balking. They want payment restricted to victims who were Polish citizens as of Dec. 31, 1999 a provision that has drawn sharp criticism from emigres, especially Jews who fled Poland in the decades after World War II. The dispute prevented a final vote scheduled for March 1. After the Sejm reconvened, Speaker Maciej Plazynski said the session was being suspended because of procedural issues. Whatever version legislators approve still could face trouble when it reaches President Alexander Kwasniewski, an ex-communist, who has hinted he might veto the bill if he believes it is too costly. The current version allows compensation equivalent to 50 percent of the value of property seized from 1944 to 1962. Poland is the only ex-communist state of Eastern Europe that still lacks such legislation. The Solidarity-led government's attempts to pass such a law have been mired in fights over eligibility and efforts to cap the cost. Poland is under pressure from the European Union, which it hopes to join in the next few years, to settle the issue. The government also hopes it will end the threat of U.S. class action lawsuits by Jews demanding the return of seized property. (AP Worldstream, March 2, 2001) INTERSHOP COMMUNICATIONS: Shalov Stone Files Securities Suit in CA------------------------------------------------------------------Shalov Stone & Bonner issued the following announcement March 1: A class action was commenced on behalf of all persons who purchased the common stock of Intershop Communications AG (Nasdaq: ISHP) in the period from May 2, 2000 to January 3, 2001. The complaint names Intershop, Stephan Schambach, Wilfried Beeck and Keith Costello as defendants. The complaint alleges that the defendants made material misrepresentations and omissions of material facts concerning the company's business performance. According to the complaint, throughout the relevant time period, defendants repeatedly assured investors that the company's United States operations were performing well; that the company was enjoying strong growth in the United States; and that the company's shares were undervalued. At the same time, however, the complaint alleges that the defendants knew or recklessly disregarded that Intershop was falling dramatically below the company's publicly stated business plan and that significant shortfalls in the sales of its software in the United States undermined the Company's stated expectations at all relevant times. The lawsuit was filed in the United States District Court for the Northern District of California (Case No. 01-0882). Contact: Mark J. Nemetz, Legal Assistant of Shalov Stone & Bonner, 212-686-8004 KROGER STORE: 14 Women Win $750,000 in Sexual Harassment and Bias Suit ---------------------------------------------------------------------- A sexual harassment and sexual discrimination lawsuit against a Kroger store in Marion has ended with a settlement that calls for the store's owners to pay a total of $750,000 to 14 women. The settlement was reached on the first day of trial in federal court in East St. Louis. After jury selection and opening statements, U.S. District Judge G. Patrick Murphy suggested the case should be settled out of court, if possible. Lori Vaughn of Herrin and Brenda Connell of Marion were the first former Kroger employees to sue the store in 1997 for harassment and discrimination. The Equal Employment Opportunity Commission in Chicago filed a class-action suit in 1999. The complaints centered on a male employee, whom Vaughn said regularly harassed women co-workers: "He kissed women on the cheeks. He touched their breasts." Vaughn said that she told the store manager about the harassment but that he did not take any action. The employee was suspended for six weeks, transferred, then fired three months ago. (Chicago Tribune, March 2, 2001) MEDIA ARTS: Vows Defense of Lawsuit Filed Oct 2000 over Purchase Offer ---------------------------------------------------------------------- A complaint was filed on October 24, 2000 in Santa Clara County Superior Court by James Boersma, on behalf of himself and all others similarly situated, against Media Arts and its Board of Directors. Breach of fiduciary duty is alleged in this purported class action, stemming from the proposal by Thomas Kinkade to offer to acquire the outstanding shares of the Company not already owned by him. As of February 14, 2001, no offer has yet been made by Mr. Kinkade. The Company intends to defend against this lawsuit vigorously. MICROSOFT CORP: The Recorder Reports on Judge's Words in Public --------------------------------------------------------------- Judging from oral arguments before the D.C. Circuit U.S. Court of Appeals, Judge Thomas Penfield Jackson may well have sunk the U.S. v. Microsoft judgment with his public trashing of the company and its executives. In newspaper interviews following the trial, Jackson compared Gates to Napoleon and Microsoft executives to the violent D.C. street gang Newton Street Crew. Such public trashing of a party in a pending case represents an extreme for federal judges (although not, it should be noted, when it comes to Microsoft Judge Stanley Sporkin was booted from a similar case five years ago for publicly criticizing the company's conduct). Most judges won't utter word one about litigation anywhere remotely near their time zone. Unfortunately, even judges who make good faith efforts to educate the public about high-profile cases in their courts are being gagged by squeamish appellate judges. Last month a federal judge in New York was removed from a school desegregation case for telling a newspaper reporter that the case was "complex." In reply to: In re Boston's Children First, 10 families were arguing that their children had been denied their school choice due to race-based preferences. The school district argued that the plaintiffs lacked standing because they would have received the same assignments even without the district's preference system. U.S. District Judge Nancy Gertner's response seems fairly prudent: She determined that five of the 10 plaintiffs had no standing (because they had not applied to change schools), and she allowed the other five to conduct further discovery before she would make a decision. The plaintiffs also sought class certification, but Gertner - again, seemingly prudently - said she would put that aside until the standing issue was resolved. She also advised the plaintiffs to file a written motion. The plaintiff's lawyer responded by going to the Boston Herald, complaining that Gertner had certified a class in a prison rights case before ruling on standing. "If you get strip-searched in jail, you get more rights than a child who is of the wrong color," plaintiff's attorney Chester Darling was quoted as saying, adding that Gertner's conduct was "like something out of Dickens." The story stated repeatedly that Gertner had "refused to hear arguments to expand the school suit to a class action." But in the strip-search case, " Gertner held just the opposite opinion." These kinds of attacks are nothing new. Most judges ignore them, which is one of the reasons they happen so often. Gertner, however, responded by sending a letter to the Herald noting that she had not denied class certification, but merely postponed it until further discovery had occurred. She included a copy of her order providing for a hearing on certification following discovery. But then Gertner committed what in the eyes of the First Circuit appears to be a cardinal sin. She spoke with the reporter on the telephone, and he quoted her in a follow-up story: "In the prison rights case, there was no issue as to whether the plaintiffs were injured," she said. "It was absolutely clear every woman had a claim. This is a more complex case." That was enough for the First Circuit to throw her off the case. "By calling this case 'more complex,' " First Circuit Judge Juan Torruella wrote, "Judge Gertner arguably suggested that the petitioner's claims ... were less than meritorious; by comparing the case (less than favorably) to the prison rights case , Judge Gertner signaled that relief was unlikely to be forthcoming." Even with the "arguably" disclaimer, this is a huge stretch. "Complex" does not equal "non-meritorious." Saying that a case is not a gimme and that more facts need to be entered into the record before a decision can be made in no way suggests bias. Indeed, it suggests the opposite. But according to the First Circuit, given her three-sentence statement, it was "an abuse of discretion for the judge not to recuse herself based on an appearance of partiality." Make no mistake, judges should not go around comparing parties in pending cases to megomaniacal emperors and murderous street thugs without causing reasonable people to question their partiality. But if judges are allowed no public response whatsoever when unfairly attacked, it just smoothes the path for more judge bashing by interest groups and the other two branches of government. That's bad for our system in the long run. And it's happening already - witness the heavy-artillery election campaigns against sitting judges last year in Michigan, Ohio and Mississippi. Judges ought to follow the lead of big law firms and corporate legal departments, many of which have recently figured out that the blanket "no comment"approach is self-defeating. Yes, it may blow up in your face occasionally, but the bombs from your enemies do a lot more damage. - (By Scott Graham, published in The Recorder, March 2, 2001) MISSOURI: Puts Construction off Until Ct Decision on Income Tax Refunds ----------------------------------------------------------------------- A $ 5 million renovation of Benton-Stadler Halls at the University of Missouri at St. Louis is on hold. So is the construction of an Early Childhood/Parent Education Center at Harris-Stowe State College. Budget officials have frozen the state's capital-improvement budget because they fear the possible result of a case argued before the Missouri Supreme Court. Under the suit, Missouri taxpayers could get $ 528 million more in income tax refunds -- a big hit for an already tight budget. Brian Long, the state budget director, said that if the court orders the state to fork over a half a billion dollars in the current fiscal year, "it would be an extraordinary challenge to meet that court order. It would be exceptionally difficult." The closely watched case before the Supreme Court deals with how Missouri has calculated the state revenue lid known as the Hancock Amendment. Passed by voters in 1980, the Hancock Amendment ties increases in state revenue to the growth in Missourians' personal income. If tax collections exceed the lid, taxpayers get refunds based on the amount of income tax they pay. The class action suit has two branches. Business groups -- the Missouri Merchants and Manufacturers Association and the Missouri Chamber of Commerce -- argue that the state should include tax credits when calculating how much money it collects. The second branch of their case involves how the state has dealt with money from a conservation sales tax, passed by voters in 1976. Missouri grants tax credits for many reasons, such as making housing more affordable or creating jobs. Tax credits are more valuable than deductions or exemptions. They are a dollar-for-dollar reduction in an individual's or a business' tax liability. The business groups say that when the state gives a tax credit, it gets something back. Some tax credits, for example, help clean up blighted areas. They argue that the state should therefore count certain tax credits as part "total state revenue" -- a key component in the formula used to calculate Hancock refunds. The business groups argue that by adding certain tax credits to the formula, taxpayers should get $ 284 million more in refunds. Jim Owen, a Chesterfield lawyer for the business groups said if his side losses, the Hancock Amendment would be rendered useless The state disagrees. It argues that if Missouri offers a tax credit, no money goes into the state treasury. Therefore, it cannot be part of total state revenue. "We shouldn't have to include revenue that we never received," said Karen King Mitchell, deputy attorney general, after the hearing. "Tax credits are not revenue -- just the opposite." Cole County Circuit Judge Thomas J. Brown III ruled in favor of the state on the tax credit issue in November. The conservation-tax debate involves different issues. Citing a 1999 state Supreme Court decision, the business groups argue that the state should have to recalculate the base year of the Hancock formula -- 1980-81. They say if money from the conservation sales tax is properly excluded from all parts of the Hancock formula, taxpayers would get an estimated $ 244 million more in refunds. The state argues that the court's earlier decision on the conservation sales tax did not require this recalculation. On this point, Judge Brown agreed with the business groups in his November decision. (St. Louis Post-Dispatch, March 2, 2001) NAPSTER: Independent Musicians Divided Over Free Music on Internet ------------------------------------------------------------------ Some say it costs them sales, others welcome wider exposure. Bay Area musician Matthew Montfort says Napster is sapping his ability to earn a living from the profession he loves. "I hear people saying music should just be free," said Montfort, leader of the world fusion band Ancient Future. "And that would be fine with me, if houses would just be free. We are already having a hard enough time as it is." On the other hand, San Francisco musician Tim Quirk credits the Napster phenomenon with helping him reach a new musical nirvana. For Quirk, giving away his music on the Internet has brought him back to the reason he helped start the punk band Too Much Joy in the first place. "What Napster represents is great," Quirk said. "We didn't form the band to make money. We formed the band because it was fun to make some music." Napster and the world's biggest music companies will grab headlines all over the world when they square off in a San Francisco courtroom. But Montfort and Quirk are examples of another issue that doesn't get nearly the attention: the sharp division of opinion among independent artists regarding Napster. An argument can be made that unlike the better-known, wealthier recording stars that get the bulk of attention regarding Napster, grassroots musicians, who scrape by on the fringes of a $40 billion worldwide industry, have more at stake in the debate over free music on the Internet. And with more at stake, the opinions are understandably pointed. "It's downright un-American," said Preston Kirk, a Chicago musician and founder of a micro label called DivaNation Records. "It takes away my right to make a from my passion, my artistry, to say we all need to get used to the idea of free music." Montfort plans to be in the courtroom when U.S. District Court Judge Marilyn Hall Patel hears arguments on a preliminary injunction that could drastically curtail or shut down Napster. Back in Court The world's biggest record labels and music publishers are seeking the injunction against Napster, saying the free downloads by the program's 64 million registered users are costing the music industry billions of dollars in lost CD sales revenue. It's unclear whether Patel will issue a new, modified injunction. Montfort, a Kentfield resident, is heading a separate class-action lawsuit filed on behalf of independent artists not represented in the larger suit. His group, Ancient Future, plays a genre of music that doesn't have a large mainstream audience and doesn't have a record label to promote and sell CDs. Instead, the band hoped to sell 500 advance copies of its latest album, "Planet Passion," for $30 each just to raise enough funds to distribute the album more widely in record stores. But "Planet Passion" tracks are already available for free on Napster, Montfort said, and that is a major reason the group is only about one-third of the way toward its goal of selling 500 CDs. "At the current rate, I don't think we'll get the album out this year," he said. The group also promotes itself with free tracks from previous albums that are downloadable off its Web site and on MP3.com. But Montfort says out of every 900 hundred downloads, the group sells just one $15 CD. "Napster has been bad for music in that it promotes the idea that musicians should not be paid for their work," he said. Montfort is encouraged by Napster's plans to charge a membership fee, although he says the $50 million per year Napster plans to set aside for independent artists won't be enough. Montfort also doesn't want the big labels to shut Napster down because that could hand them control of Internet music distribution at the expense of independent artists. "It's not good for music to have fewer companies controlling things," he said. "Music is a cultural phenomenon; it's an artistic phenomenon. The best thing would be a clear path between fans and the artists." Sitting on the Fence Preston Kirk describes himself as both pro-Napster and anti-Napster. But he also says the artists have certain inalienable rights that must be defended. "I like that Napster allows people to be turned on to new music, but I want the artists to chose whether to put up their music (for downloading)," Kirk said. In 1996, Kirk founded a small record label called DivaNation, which sells about 1,000 CDs a year. Among the bands featured by DivaNation are three he founded, Scarlet Life, Karma Sutra and Pointy Teeth. The small label and his own musical career aren't enough -- Kirk also has a job delivering an alternative community newspaper. So far, the rise of Napster hasn't resulted in a direct drop in sales. What Kirk fears, however, is a future when dozens of CDs can be downloaded onto a single microchip and a whole generation of music fans will consider that music to be free. Kirk said he has one friend who used to be a musician and now makes $50,000 a year as a graphics designer, yet uses Napster to get all of his songs for free. "At one time, he understood the value of being compensated for your talent, and now he's willing to steal," Kirk said. "He said, 'Preston, get with it. It's free music now.' He will not fight the just fight. "I'm going to fight. Napster and downloading isn't a gray area to me at all. It's simply wrong." But Napster also has its supporters. A decade ago, Tim Quirk and Too Much Joy, which he describes as a "basic sarcastic punk band," had a major label contract. But they discovered the business of writing songs to sell records took the joy out of making music. Now, "All three of our albums are on Napster, and as a musician, I love that," Quirk said. "I never made a penny from them anyway." "Anyone who thinks of a few downloads from Napster as a lost sale is just fooling themselves," Quirk said. "What you are getting is a whole bunch of people sampling your music that would have never given it a chance otherwise." Too Much Joy for Free Quirk has taken the free music concept a step further. On Jan. 31, Quirk launched a Web site called the Susquehanna Hat Co., posting free Too Much Joy tracks that are now out of print and otherwise unavailable. The site, www.sayhername.com, also has new songs Quirk and Too Much Joy guitarist Jay Blumenfield have recorded as a new group called Wonderlick. Within 24 hours, the site generated enough money from donations and T-shirt sales to pay for itself. Quirk and Blumenfield have made enough to pay for new recording sessions. "This is the best stuff we've ever done in our lives, solely because there are no internal censors telling us that this is not going to get on the radio," said Quirk, who also works for online music site Listen.com. New Distribution Channel Sam Rosenthal, founder of a small indie label called Projekt Records on Long Island in New York, said Napster is part of a market shift away from record stores and to the Internet. While record store sales are flat, Rosenthal said his company's Internet sales are up. And an e-mail list Projekt Records uses to tell fans about new CDs and concerts has about 5,000 subscribers. "This is the way people are discovering music," said Rosenthal, whose own band, Black Tape for a Blue Girl, plays to a niche audience that likes gothic ambient music. "As an unknown band, the whole goal is to get people to find out about your music," he said. Five years ago, he said, a band or an indie might send out dozens of demo CDs hoping for one review and a little radio airplay. But Napster and other sources of music on the Internet allow fans to bypass the radio, chain stores, newspapers and other traditional sources of information and go right to the source, Rosenthal said. "I see Napster (and MP3.com) as amazing promotional tools for indie artists, and these tools work. I have been contacted by hundreds of fans who first heard my music on Napster," he said. Rosenthal doesn't buy the RIAA's argument that it's fighting to protect the copyrights of all artists. "It's not about the independent labels; it's about the big five," Rosenthal said. "I don't agree with the whole concept that people will steal music from you and never buy music again."E-mail Benny Evangelista at bevangelista@sfchronicle.com. (The San Francisco Chronicle, March 2, 2001) NORTEL NETWORKS: Weiss & Yourman Announces Securities Suit Filed in NJ ---------------------------------------------------------------------- The following is an announcement by the law firm of Weiss & Yourman released March 2:A class action lawsuit against Nortel Networks Corporation (NYSE:NT) and its senior executives was commenced in the United States District Court for the District of New Jersey, seeking to recover damages on behalf of defrauded investors who purchased Nortel securities. If you purchased Nortel securities between November 1, 2000 and February 15, 2001 (the "Class Period"), your rights may be affected. The complaint charges defendants with violations of the antifraud provisions of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint alleges that defendants issued a series of materially false and misleading statements which artificially inflated the price of Nortel securities during the Class Period. Contact: Weiss & Yourman, New York David C. Katz, James E. Tullman, Mark D. Smilow 888/593-4771 or 212/682-3025 wynyc@aol.com ONTARIO SCHOOL: Board Faces Suit Claiming Special Ed Supports Were Cut ---------------------------------------------------------------------- A Central Ontario school board faces a $6.5 million class-action suit which claims supports were cut for special-needs students. The Simcoe County District School Board and one of its school principals have been served with a 27-page statement of claim filed on behalf of a child who attended a special education class at Andrew Hunter Public School in Barrie. Ryan Nieberg, now 12, and his father Leonard Nieberg, launched the class- action suit as a result of incidents at Andrew Hunter in the 1999/2000 school year. Their suit claims the board and school principal James Gabel violated Ontario's Education Act and the Canadian Charter of Rights and Freedoms. The violations came by reducing classroom supports, limiting opportunities for integration to only higher-functioning children, and compromising student safety during construction of an addition, the suit claims. 'There are concerns about resources being an issue and how the board has chosen to use the resources.' "There is a declaration that things are not as they should be," said lawyer David Baker, who is representing Ryan and his father. "There are concerns about resources being an issue and how the board has chosen to use the resources." In September, 1999, parents picketed the school and withdrew their children until construction was finished. Others later opted to transfer their children to the Simcoe Muskoka Catholic District School Board. That board provides supports so that special-needs children can be integrated. The school board has 30 days to file a response. Simcoe County District School Board communications officer Debbie Clarke confirmed the board had been served and is consulting with its lawyers. Once the 30-day response time elapses, the courts must determine whether the class defined in the suit - those 25 to 30 children attending the special- education program at Andrew Hunter in the 1999/2000 school year - can be certified as a class for the purposes of the litigation. Depending on the judge's timetable, that hearing would likely take place this fall in Toronto where both the Niebergs' lawyers and the boards' lawyers are located, Baker added. (The Toronto Star, March 2, 2001) PHARMAPRINT INC: Intends to Vigorously Defend Securities Suits in NJ -------------------------------------------------------------------- On February 3, 2000, the company was served with a class action complaint filed January 5, 2000, as amended January 27, 2000. This action is purportedly on behalf of all persons who acquired the common stock of PharmaPrint between July 1, 1999 and November 15, 1999. The company was also served with a separate class action complaint filed January 20, 2000. These actions were purportedly filed on behalf of all persons who purchased the common stock of PharmaPrint from April 1, 1999 through November 17, 1999. The plaintiffs are seeking compensatory damages, and other costs and expenses, including legal fees. These two matters were recently consolidated before the Honorable Judge John W. Bissell in the Federal District Court of New Jersey, Newark, enabling more efficient resolution of the dispute. No class has been certified. Pharmaprint and its officers intend to vigorously defend the merits of the lawsuits. TRANSWORLD HEALTHCARE: Under Commission' Investigation Re '96 Statements ------------------------------------------------------------------------ The enforcement division of the Commission has issued a formal order of investigation relating to matters arising out of HMI's public announcement on February 27, 1996 that HMI would have to restate its financial statements for prior periods as a result of certain accounting irregularities. HMI is fully cooperating with this investigation and has responded to the requests of the Commission for documentary evidence. TRANSWORLD HEALTHCARE: Vows Defense of Shareholder Suit in DE Re Merger ----------------------------------------------------------------------- On July 2, 1998, a former shareholder of HMI purporting to sue on behalf of a class of shareholders of HMI as of June 6, 1997, commenced a suit in the Delaware Chancery Court, New Castle County, entitled Kathleen S. O'Reilly v. Transworld HealthCare, Inc., W. James Nicol, Andre C. Dimitriadis, Dr. Timothy J. Triche and D. Mark Weinberg, Civil Action No. 16507-NC. Plaintiff alleged that the Company, as majority shareholder of HMI, and the then directors of HMI, breached fiduciary duties to the minority shareholders of HMI by approving a merger between HMI and a subsidiary of the Company for inadequate consideration. Plaintiff demands an accounting, damages, attorneys' fees and other payment for other expenses for unspecified amounts. The defendants filed a motion to dismiss this action on September 18, 1998. The Court denied defendants' motion in part and granted the motion in part, leaving intact certain claims. Plaintiff has propounded discovery requests. The Company's insurer disclaims coverage as to the Company. However, the insurer for the Company's HMI subsidiary has accepted coverage for the individual defendant former HMI directors. The Company believes that it does not have liability and will vigorously defend this action. As such, the Company cannot predict whether the outcome of these actions will have a material adverse effect on the Company's consolidated financial position, cash flows or results of operations. * S Korean Govt To Introduce Class Action Suit From 2002 --------------------------------------------------------The Ministry of Finance and Economy plans to gradually allow class action suits against management and owners of listed firms with a total asset of 2 trillion won US$ 1.6 billion or more starting in 2002, the ministry said. The ministry notified the Ministry of Justice of the plan earlier in the day. The plan calls for the expansion of class action suits related to securities transactions to all disclosures and illegal practices. It also puts trading based on undisclosed information and manipulation of prices under the scope of class action suits, regardless of the size of a company concerned. The government plans to enact a law for class action suits next year. In a class action suit, all shareholders receive compensation whenever one of them wins a suit against the firm or its board for any irregularities, such as falsified accounts or misleading reports to shareholders. (Asia Pulse, March 2, 2001) * Texas Bill Drafted to Allow Strike Back in Medical Malpractice Suits ---------------------------------------------------------------------- Hospitals and doctors who believe they've been targets of medical-malpractice suits filed in bad faith could strike back at their accusers under legislation being drafted by a South Texas lawmaker. Rep. Juan Hinojosa, D-McAllen and a shareholder in Hinojosa & Powell, wants to create a cause of action against lawyers and patients who file health care liability claims that are groundless. His bill would enable health care providers to sue for damages to compensate for the time and money they spend defending themselves and the harm done to their reputations by such claims. Mike Ramsey, president of the Texas Trial Lawyers Association, says his group is willing to talk with Hinojosa about the proposal but questions whether the legislation is needed. "Conceptually, I don't believe there is a need for legislation to protect the doctors more than we have," says Ramsey, a partner in ProvostHUmphrey in Beaumont. Michael Caddell, a partner in Houston's Caddell & Chapman, says doctors already have more protections than other Texas citizens. Caddell says a $ 5,000 bond must be put up if an affidavit from a medical expert isn't filed when a claim is brought. If the plaintiff's lawyer later fails to file the affidavit stating that there are grounds to sue, the bond will be lost, he says. "Why should doctors be elevated above every other citizen of the state of Texas?" asks Caddell, whose firm has filed numerous class-action suits against hospitals and physicians in South Texas. The Texas Medical Association is backing Hinojosa's bill to curb what leaders of the association claim is a surge in medical-malpractice claims. "We're having an absolute unconscionable increase in the number of claims filed," says Dr. Bruce Malone, an orthopedic surgeon in Austin and a member of the TMA board of directors. A study done by TMA in July 2000 shows 3,656 medical liability suits were filed in 1999, up from 3,016 in 1998 and 2,596 in 1997. Malpractice claims have exploded in the Rio Grande Valley, where, on average, every doctor has had 1.7 claims filed against him in the past two years, according to the Texas Medical Liability Trust, the leading writer of physician malpractice coverage in the state. In 1997, one in four Valley doctors was hit by a medical-malpractice claim, says Jon Opelt, executive director of Citizens Against Lawsuit Abuse. According to Hinojosa, the proposed legislation is based on a similar bill that the Legislature passed in 1977. But the 1977 statute included language that said the statute would go into effect only if the State Bar of Texas did not certify to the Texas Supreme Court that it had adopted rules for disciplining attorneys who filed claims in bad faith. The Bar certified to the court that it had rules in place to deter such suits. Needs Teeth A law passed as part of the 1995 tort reforms allows a lawyer to file a motion for sanctions against opposing counsel for pursuing a groundless claim. But Hinojosa says the law "doesn't have any teeth" because most judges won't sanction lawyers who abuse the system. When sanctions are imposed, the penalty is paying the attorneys' fees for the opposing party, Opelt says. "We need to make sure that we provide a mechanism by which lawyers who file frivolous lawsuits at least face some sanctions with teeth," Hinojosa says. "By the same token, if a doctor or a hospital puts up a frivolous defense that the only purpose is to hurt the patient's lawsuit, [the patient] ought to have a cause of action." Kevin Oncken, a defense lawyer and partner in Uzick & Oncken in San Antonio, says the bill will require a burden of proof greater than establishing negligence on the part of the patient or his lawyer. To win, a doctor would have to show that a groundless suit was pursued with "reckless disregard" of the harm it would do to him, Oncken says. Oncken says a doctor may have to be away from his office for a week or more while defending himself in court. The doctor isn't getting paid during that time, Oncken says, and may have to hire another physician to take care of his patients. "So it's a double hit," he says. Malone says a doctor isn't likely to settle nuisance suits, as he might have in the past, because he would show up as a "bad doctor" in the national practitioner database. Health maintenance organizations can refuse to credential doctors based on information in the database, Malone says. A doctor then can be cut off from serving thousands of patients in an HMO's network, he says. "I'm certainly not going to settle a case that has no merit for any reason," Malone adds. Caddell says Texas citizens, including doctors, already have the ability to file a suit if they believe they have been sued maliciously. By urging the passage of this bill, he says, doctors appear to be trying to insulate themselves from liability for negligence in treating patients. (Texas Lawyer, February 19, 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. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The CAR subscription rate is $575 for six months delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 301/951-6400. * * * End of Transmission * * *