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/raid1/www/Hosts/bankrupt/CAR_Public/010307.MBX C L A S S A C T I O N R E P O R T E R Wednesday, March 7, 2001, Vol. 3, No. 46 Headlines BORIS: Class Certified in Dispute Over Money Market Sweeps BROADCOM CORP: Milberg Weiss Files Securities Suit in California BROADCOM CORP: Savett Frutkin Announces Securities Lawsuit in CA BROADCOM CORP: Shareholders File Fd Suit Re Accounting for Acquisitions DEPARTMENT 56: MN Suit Alleges of Violations of Fed Securities Law DEUTSCHE TELEKOM: tells VoiceStream Writedown Can help Resolve Probe FEN-PHEN: HMO Louisiana Must Proceed Individually In MDL Proceeding HMOs: MDL Ct Denies Provider Motion for Mediator in Case Vs. Humana HOLOCAUST VICTIMS: German Firms Suggests Govt Pay Now While They Wait IDENTITY THEFT: Justices To Clarify On Timing in Suits Vs. Credit Agency IPO UNDERWRITERS: Investors Lack Standing to Sue over Price-Fixing IXYS CORP: Settles Securities Suit in CA over Paradigm Merger MUNICIPAL COURTS: Suit Aimed at Fees For Appeals, Concealed-Gun Permits NAPSTER: Court Issues Injunction Ordering Block Of Copyright Songs PROPULSID LITIGATION: TN Judge Certifies Class for Medical Monitoring SAFETY COMPONENTS: Settles Securities Suit and Emerges from Chapter 11 TIME WARNER: Cable Customers Win Injunctive Relief Already Fulfilled USN: Judge Urges $10K Fine for Destroying Evidence for Securities Suit WORLDCOM, DIGEX: Def. Settlement Agreement Signed in Shareholder Suit ********* BORIS: Class Certified in Dispute Over Money Market Sweeps ---------------------------------------------------------- The Delaware Chancery Court has certified a class action against Everen Securities Inc. for allegedly breaching the duties of loyalty and disclosure to its investors. Everen is accused of transferring its clients' money market, mutual fund assets to Mentor Investment Group Inc. without revealing Everen was a cquiring an ownership interest in the firm. O'Malley et al. v. Boris et al., No. 15735 (Del. Ch., Jan. 11, 2001); see Delaware Corporate LR, Feb. 16, 1999, P. 6. Plaintiffs Patrick and Leatha O'Malley are Illinois residents who held a brokerage account with Everen. Prior to the fall of 1996, Everen had the cash balances in their customer accounts automatically transferred to money market accounts managed by Zurich Kemper Investments Inc. These "sweep accounts" are accounts in which dividends and proceeds from investment sales are swept into money market funds so that they can earn interest. In July 1996, Everen entered into a joint venture with Mentor, and Everen's parent company acquired a 20.2 percent ownership interest. The agreement also included a contingency that allowed Everen to acquire up to 50 percent of the venture depending on the amount of assets invested in it by Everen clients. Everen then notified its clients that it would automatically begin to transfer the cash balances that had previously been invested with Zurich-Kemper to three money market funds sponsored by Mentor. Everen customers had the option to not participate in the new program but then their cash balances would remain idle. The O'Malleys assert they would not have approved the transfer of their assets to the Mentor funds had they known that Everen was using the transfers to acquire its interest in the venture. The suit was originally dismissed by the chancery court in January 1999, but it was reinstated by the Delaware Supreme Court. The high court noted that neither the notification letter nor the Mentor prospectus adequately explained how Everen was acquiring its ownership interest in the venture. On remand, Chancellor William Chandler found that the suit is appropriate for a class action and that the O'Malleys qualify as class representatives. The court was not persuaded by the defendant's argument that the O'Malleys were subject to unique defenses that disqualified them from the position. William Prickett and Ronald A. Brown Jr. of Prickett, Jones, Elliott in Wilmington, Del., and Arthur T. Susman, Charles R. Watkins and John R. Wylie of Susman & Watkins in Chicago represent the plaintiffs. Kevin R. Shannon and Brian C. Ralston of Potter Anderson & Corroon in Wilmington and Paul Gonson, Jeffrey B. Maletta, Stavroula E. Lambrakopoulos and Christopher E. Dominguez of Kirkpatrick & Lockhart in Washington, D.C., represent the defendants. (Delaware Corporate Litigation Reporter, February 5, 2001) BROADCOM CORP: Milberg Weiss Files Securities Suit in California ---------------------------------------------------------------- Milberg Weiss (http://www.milberg.com/broadcom/)announced on March 5 that a class action has been commenced in the United States District Court for the Central District of California on behalf of purchasers of Broadcom Corp. (NASDAQ:BRCM) common stock during the period between Oct. 18, 2000 and Feb. 26, 2001 (the "Class Period"). The complaint charges Broadcom and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Broadcom is a provider of highly integrated silicon solutions that enable broadband digital transmission of voice, video and data to and throughout the home and within the business enterprise. The complaint alleges that during the Class Period, defendants made positive but false statements about Broadcom's results and business, while concealing material adverse information about agreements with certain companies it acquired, which essentially resulted in Broadcom buying its own revenues. As a result, Broadcom's stock traded at artificially inflated levels, permitting the three individual defendants to sell$45.8 million worth of their Broadcom stock. Then, on 2/27/01, The Wall Street Journal published an article on Broadcom entitled "Warrant Deals Raise Concerns on Broadcom," in which analysts and accounting experts questioned the "legitimacy" of the transactions and termed the agreements "troubling." Broadcom's stock immediately dropped, falling 16% to $53, before closing at $53.625 on 2/27/01, and falling to $49.25 on 2/28/01. Contact: Milberg Weiss Bershad Hynes & Lerach LLP William Lerach at 800/449-4900 wsl@mwbhl.com BROADCOM CORP: Savett Frutkin Announces Securities Lawsuit in CA ---------------------------------------------------------------- Savett Frutkin Podell & Ryan, P.C. gives notice that a class action complaint has been filed in the United States District Court for the Central District of California on behalf of a class of persons who purchased the common stock of Broadcom Corp. (NASDAQ:BRCM) during the period between October 18, 2000 and February 26, 2001 ("Class Period") and who were damaged thereby. The complaint charges Broadcom and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Broadcom is a provider of highly integrated silicon solutions that enable broadband digital transmission of voice, video and data to and throughout the home and within the business enterprise. The complaint alleges that during the Class Period, defendants made positive but false statements about Broadcom's results and business, while concealing information about agreements with certain companies it acquired, which essentially resulted in Broadcom buying its own revenues. As a result, Broadcom's stock traded at artificially inflated levels, permitting the three individual defendants to sell$45.8 million worth of their Broadcom stock. Then, on February 27, 2001, The Wall Street Journal published an article on Broadcom entitled "Warrant Deals Raise Concerns on Broadcom," in which analysts and accounting experts questioned the "legitimacy" of the transactions and termed the agreements "troubling." Broadcom's stock immediately dropped, falling 16% to $53, before closing at $53.625 on February 27, 2001, and falling to $ 49.25 on February 28, 2001. Contact: Savett Frutkin Podell & Ryan, P.C., Philadelphia Barbara A. Podell Robert P. Frutkin Renee C. Nixon 215/923-5400 or 800/993-3233 E-mail: mail@savettlaw.com BROADCOM CORP: Shareholders File Fd Suit Re Accounting for Acquisitions ----------------------------------------------------------------------- Shareholders filed a federal lawsuit Monday against Broadcom Corp., alleging that the Irvine communications chip maker deceived investors in accounting for five acquisitions last year. The lawsuit, which seeks status as a class action, contends that the company's accounting method amounted to a scheme to increase sales figures and to "keep the stock price high so as to make acquisitions less costly." The company denied any wrongdoing. "We believe the lawsuit is without merit," spokesman Bill Blanning said. "Broadcom will vigorously defend itself." The lawsuit was filed in U.S. District Court in Santa Ana on behalf of investors who bought Broadcom stock between Oct. 18 and Feb. 26. It names Broadcom co-founders Henry T. Nicholas III and Henry Samueli along with William Ruehle, the chief financial officer, as defendants. Broadcom has acknowledged that in the course of five of its 12 acquisitions last year, it arranged for warrants to be issued to customers to lock in future sales. Immediately before buying the privately held companies, Broadcom said it encouraged them to issue their customers warrants--promises to sell stock for less than a penny a share--in exchange for commitments to continue buying their products. Those warrants converted to warrants for Broadcom stock at the close of the acquisitions, and Broadcom accounted for them as so-called goodwill, the amount of the purchase price exceeding the value of the companies acquired. Goodwill is treated as an asset to be written off over time. But critics have charged that the arrangement enabled the customers to buy Broadcom products at a deep discount. The lawsuit contends that the costs of those warrants were not adequately reflected in Broadcom's financial statements, where they should have been used to reduce revenue. "Defendants knew that the actual purpose of the transactions was to grant discounts using its equity, but defendants used form over substance to keep the discounts off Broadcom's income statement," the lawsuit alleges. The complaint contends that the three executives sold some of their shares at allegedly inflated prices, a total of $ 45.8 million. The case was brought on behalf of plaintiffs Deborah and Stuart Kurtz and Sekuk Global Enterprises by Milberg Weiss Bershad Hynes & Lerach in San Diego, one of the nation's major securities litigation firms for plaintiffs. (Los Angeles Times, March 6, 2001) DEPARTMENT 56: MN Suit Alleges of Violations of Fed Securities Law ------------------------------------------------------------------ A class action complaint has been filed in the United States District Court for the District of Minnesota on behalf of all persons or entities who purchased Department 56, Inc. ("Department 56" of the "Company") common stock (NYSE:DFS) between February 24, 1999 and April 26, 2000, both dates inclusive (the "Class Period"). The complaint alleges that Department 56 and Susan Engel, chairwoman of the board of directors and chief executive officer of the Company, violated the Securities Exchange Act of 1934 by making a series of materially false and misleading statements concerning the Company's financial results during the Class Period. In particular, it is alleged that the Company's reported financial results during the Class Period were the product of information derived from the Company's failed enterprise-wide management information system and as such were materially false and misleading. The Company's failed management information system, among other things, was used to process orders, shipping, and billing. As a result of the failure of the system, the Company was forced to announce that it was experiencing a massive accounts receivables problem and that it had placed a "high-level" of orders on hold for customers with overdue bills. In addition, it was announced that the Company had depleted its $18 million bad debt and claims reserve and had to add $12 million thereto. The complaint alleges that as a result of these false and misleading statements the price of Department 56 common stock was artificially inflated throughout the Class Period causing plaintiff and the other members of the Class to suffer damages. Contact: Rabin & Peckel LLP, New York Rekha M. Carozza/Maurice Pesso, Tel: 800/497-8076 or 212/682-1818 E-mail: email@rabinlaw.com DEUTSCHE TELEKOM: tells VoiceStream Writedown Can help Resolve Probe -------------------------------------------------------------------- Deutsche Telekom AG has written to VoiceStream Wireless Corp and Powertel Inc stockholders informing them of its special writedown on part of its real estate portfolio, saying this could help resolve a probe by the Bonn Public Prosecutor. VoiceStream and Powertel stockholders are due to vote, at a special meeting on March 13, on whether to approve Deutsche Telekom's acquisition bid for the two companies. Deutsche Telekom is facing several hurdles in this quest. In Germany, the Bonn Public Prosecutor is investigating whether the book values recorded by the company for its real estate property portfolio have been improperly established and maintained. The company is also facing a separate class action law suit by U.S. investors in New York on the registration of its American Depository Shares. Deutsche Telekom said in its letter to VoiceStream and Powertel stockholders that it disputes the allegations of the Bonn prosecutor. It said it expects that a special write-down on the value of its real estate portfolio, announced on Feb 21, of 2.0 bln eur before tax in the fourth quarter of 2000 compared to a total real estate value of 17.2 bln eur could be "helpful in resolving the investigation." However, the company cautions that "the treatment of the adjustment under U.S. accounting principles remains to be seen." Although analysts said the recent appointment of Colin Powell as the new head of the U.S. Federal Communications Commission (FCC) tips regulatory approval in favor of Deutsche Telekom's bid for VoiceStream and Powertel, the company still needs to gain approval from the Committee on Foreign Investment in the U.S. Democratic Senator Ernest Hollings has also suggested he may seek to reintroduce a Congressional bill which would prevent the FCC from reviewing the merger under foreign government ownership laws. (AFX - Asia, March 6, 2001) FEN-PHEN: HMO Louisiana Must Proceed Individually In MDL Proceeding ------------------------------------------------------------------- U.S. District Court Judge Louis C. Bechtle has granted American Home Products' motion to strike all class-action allegations from the subrogation rights complaint filed by HMO Louisiana Inc. in its effort to secure recovery of benefits paid to HMO members who suffer diet-drug-related injuries. In re Diet Drugs (Phentermine, Fenfluramine, Dexfenfluramine) Products Liabiity Litigation, MDL No. 1203; HMO Louisiana Inc. v. American Home Products Corp. et al., No. 99-1086, motion granted, memorandum and Pre-trial Order No. 1628 issued (E.D. Pa., Jan. 11, 2001). Along with its Wyeth-Ayerst Laboratories division, AHP sought removal of the class-action allegations on the grounds that HMO Louisiana had failed to meet its duty under Local Rule 23.1 to file a timely motion for class certification. In a suit filed in June 1999 in the Western District of Louisiana, HMO Louisiana said it intended to represent a class of "all similarly situated health benefit providers" who have paid, or will pay for, health benefits provided to members who have "taken and ingested the diet drugs fenfluramine, phentermine and dexfenfluramine, individually or in combination." The case was transferred to the Philadelphia-based diet drug multidistrict litigation proceeding in February 2000, when the court also granted HMO Louisiana's separate motion to intervene in Brown v. American Home Products Corp., No. 99-20593 (E.D. Pa.). After the national class settlement was approved in Brown in August 2000, HMO Louisiana filed its notice of appeal Sept. 18, 2000. AHP moved to strike the class allegations from the HMO Louisiana action on Sept. 7, telling Judge Bechtle that the HMO failed to ask the court for a determination on the class-action motion within 90 days of the filing of the suit as allowed under Fed. R. Civ. P. 23(c)(1). In its motion to strike the class allegations, AHP argued that the HMO had not sought the class certification despite the fact that the suit had been transferred to the MDL court six months earlier and was originally filed some 15 months earlier in Louisiana. On Oct. 27, the HMO asked that Judge Bechtle modify Local Rule 23.1 and allow it to file the motion for class certification within 60 days following the conclusion of the appeal in Brown. A stay, it maintained, "would be in the best interest of judicial economy and avoid further appellate proceedings since the determination in Brown will directly impact the scope of its class certification request." One day after a Jan. 10 status conference addressing the class-certification issue, Judge Bechtle granted AHP's motion to strike and denied as moot HMO Louisiana's motion to stay the Local Rule 23.1 class-certification briefing rule. On the same day, AHP withdrew a motion it had filed on Sept. 7 seeking a protective order from interrogatories in which the HMO asked AHP to produce a list of detailed information about each diet drug class member including data related to their health insurance coverage. AHP argued that it deserved a protective order because the interrogatories were not pursued in the fashion prescribed in the nationwide AHP diet drug class-action settlement agreement. The company maintained that HMO Louisiana, if it felt compelled to do so, should bring such claims through that procedure. AHP's motion to strike was filed by Michael T. Scott and Paul B. Kerrigan of Reed Smith Shaw & McClay in Philadelphia and Peter L. Zimroth of Arnold & Porter in New York. HMO Louisiana is represented by Mark D. Fisher of Rawlings & Associates in Louisville, Ky., and Wendell H. Gauthier and James R. Dugan of Gauthier, Downing, LaBarre, Beiser & Dean in Metairie, La. (Medical Devices Litigation Reporter, January 26, 2001) HMOs: MDL Ct Denies Provider Motion for Mediator in Case Vs. Humana ------------------------------------------------------------------- The Multidistrict Litigation No. 1334 court on Feb. 9 denied a provider plaintiffs' motion to appoint a mediator (In re: Managed Care Litigation and Charles B. Shane, M.D., et al. v. Humana Inc., et al., No. MDL 1334, S.D. Fla., Miami Div.). U.S. Judge Federico Moreno, the overseer of the MDL docket in the U.S. District Court for the Southern District of Florida here, rejected the provider plaintiffs' motion to pursue settlement in an alternative setting. (Order available. Document # 31-010223-008. Shane motion available. Document # 31-010223-009. Defense response available. Document # 31-010223-010. Shane reply available. Document # 31-010223-011.) The provider plaintiffs, led by Charles B. Shane, M.D., offered numerous reasons for appointing a mediator, including the inefficiency of the informal settlement meetings and the lack of secrecy and leaks to the media. Complaint Of Leaks "Further compounding the problem created by these various meetings, is the apparent lack of secrecy by some of the participants, resulting in a series of national media articles revealing what otherwise should be confidential settlement discussions among the parties," the Shane plaintiffs said in their Feb. 6 motion. "Subsequent finger pointing to pin blame on the leakers, counter-leaking, and squabbles over the accuracy of the articles have caused both sides to lose focus on the purpose of these meetings - to settle the underlying claims." The Shane plaintiffs said that there have been clear expressions of willingness to settle the action, including statements from insurance company representatives that settlement is possible if all defendants settle. In the alternative, the Shane plaintiffs asked that Judge Moreno appoint former Chief Judge Edward B. Davis to serve as the mediator in this matter. In reply memorandum filed Feb. 8, the Shane plaintiffs clarified that they would be open to individual mediation sessions and are not intending to "coerce" any party to settle. Opposition In opposition, Aetna, Humana, CIGNA, Healthnet (formerly Foundation), Prudential and United Healthcare said that the appointment of a mediator will not advance the litigation and would not expedite settlement, even if there were an interest in exploring one. The Aetna defendants submitted their reply Feb. 7. "Because none of the undersigned defendants is currently involved in settlement discussions with plaintiffs, and none believes that mediation would be an efficient or productive use of court and party resources at this time, plaintiffs are incorrect in suggesting that Court ordered mediation is appropriate in order to ensure confidentiality or serve similar interests," the Aetna defendants said, adding that they are awaiting the MDL court's ruling on their motions to dismiss, as well as the provider plaintiffs' motion for class certification. "Even were there some reason to think that encouragement should be given to possible discussion of settlement at this time (and the undersigned defendants strongly believe that such is not the case here), the order proposed by plaintiffs is objectionable," the Aetna defendants argued. "For example, the order calls for all defendants in each track to attend a meeting with the plaintiffs' lawyers in that track. Given the widely divergent practices and circumstances of the various defendants and their desire to maintain confidentiality with regards to their individual business strategies, this type of meeting would be wholly unproductive and not likely to create an atmosphere for constructive discussion." The Shane plaintiffs' motion was submitted by Harley S. Tropin and Adam M. Moskowitz of Kozyak, Tropin & Throckmorton in Miami. The Aetna defendants' reply was submitted by Hilarie Bass and Mark P. Schnapp of Greenberg Traurig in Miami. (Mealey's Managed Care Liability Report, February 23, 2001) HOLOCAUST VICTIMS: German Firms Suggests Govt Pay Now While They Wait --------------------------------------------------------------------- The German industry foundation created to compensate Nazi-era forced laborers has suggested the government pay aging survivors now while the firms wait for U.S. lawsuits to be dismissed, a condition for companies to give out money. However, parliament members criticized the idea raised in a letter from the chairman of the industry foundation, DaimlerChrysler executive Manfred Gentz, to the German government's Nazi labor envoy, Otto Lambsdorff, obtained Tuesday by The Associated Press. Gentz wrote that the companies wouldn't transfer their promised half of the 10 billion mark (dlrs 4.8 billion) fund before at least 13 court cases in the United States are closed something not expected until at least this summer. The companies established the fund under pressure of U.S. class action suits and have demanded wide-ranging legal security backed by promises from the U.S. government in exchange for compensating more than 1 million victims. Industry ''doesn't agree that legal security can be established in the current state of the proceedings,'' Gentz wrote in the letter dated Monday. The victims, mostly non-Jews from eastern Europe, are elderly and more are dying each year putting pressure on Germany to make the payments soon. Gentz suggested the parliament alter its law requiring legal security and start payments, although he stressed companies wouldn't pay until all the lawsuits are dismissed. ''If payments to the victims have priority over legal security because of their age this point of view can naturally not simply be disregarded then one should say that clearly,'' he wrote. ''But you can't expect us to provide money to the foundation as long as we don't have sufficient legal security'' as laid out in the foundation treaty. The governing Social Democrats' legal expert in parliament, Dieter Wiefelsputz, said it was up to lawmakers to determine when sufficient legal security existed, a decision it would make in consultation with the foundation. ''Industry should keep its word,'' he said. Ulla Jelpke, a parliament member from the Party of Democrat Socialism, accused Gentz of trying to threaten lawmakers. But Greens lawmaker Volker Beck, heavily involved with the Nazi labor issue, said that in principle it could be a good idea to remove the condition of legal security before payments could begin. Without that, he said survivors used to keep Nazi industry running during World War II wouldn't see any money before at least June. The industry foundation has also had problems gathering its entire 5 billion mark (dlrs 2.4 billion) half of the fund, but has insisted that shortfall won't prevent payments from starting after legal security is established. (AP Worldstream, March 6, 2001) IDENTITY THEFT: Justices To Clarify On Timing in Suits Vs. Credit Agency ------------------------------------------------------------------------ The Supreme Court took up the issue of identity theft Monday, agreeing to decide whether victims can sue a credit reporting agency if they learn belatedly that an impostor stole their good credit history. An estimated 750,000 Americans per year fall victims to identity-theft schemes. A stolen Social Security number can help a thief obtain a credit card or a loan. If the fraud goes undetected by the credit reporting bureau, it can put money in the pocket of the thief and damage the victim's good credit. Some lawyers for identity-theft victims have sought to hold credit reporting agencies liable for wrongly approving credit for an impostor. They say those agencies must tighten their procedures to detect credit applications from impostors. But the fate of those lawsuits often turns on a matter of timing. The Fair Credit Reporting Act says that claims for damages must be brought "within two years from the date on which liability arises." If the high court follows that rule strictly--as the credit reporting industry wishes--the deadline could expire before victims even learn of a problem. "Consumers don't know their privacy has been breached. They don't learn they have a problem until they go for new credit. And that may be years later," Los Angeles lawyer Andrew Ryan Henderson said. He represented Adelaide Andrews, whose Social Security number allegedly was stolen in 1994 by a Santa Monica medical receptionist with the same last name. Using her real name but Adelaide Andrews' Social Security number, the impostor allegedly was able to obtain a credit card and an apartment in Nevada, based on a credit report from TRW. The impostor then failed to pay her bills on time. After the victim discovered the problem, she sued TRW in 1996. But her claims for breach of privacy were rejected as being too late. In October, however, the U.S. 9th Circuit Court of Appeals revived her claims. It ruled that the time limit begins to run only when the victim learns about the problem, not when the mistaken credit report was first issued. Lawyers for TRW Inc. appealed to the high court. They said that this open-ended, liberal standard conflicts with the strict language of the law. A ruling for the victim could also expose the credit reporting industry to a huge increase in legal claims, they said. The justices agreed to hear the industry's appeal this fall in the case of TRW vs. Andrews, 00-1045. The three major nationwide credit bureaus say they maintain data on 180 million Americans, or about 90% of adults. TRW left the credit reporting business in 1996 and sold its operation to Experian Information Solutions Inc., a division of Great Universal Stores. The other major firms are Equifax Inc. and Trans Union. In other business-related cases, the court: -- Agreed to decide whether privately run state prisons can be sued as if they were government institutions. Lower courts are split on the legal status of private prisons. In the last 10 years, the number of federal inmates in private prisons has soared from 15,476 to 141,361. (Correctional Services Corp. vs. Malesko, 00-860) -- Turned away a bid by United Airlines to block a second class-action lawsuit brought by female flight attendants. The attendants maintain that the airline's lower weight limits for women were unfair and discriminatory. This legal fight has gone on since the early 1970s. United dropped the policy in 1994, but the suits have continued. An earlier class-action suit was settled, but a U.S. appeals court said some flight attendants did not get a chance to join the earlier suit. (United Airlines vs. Frank, 00-948) -- Let stand a federal rule that requires Midwestern states to reduce air pollution, particularly from power plants. Utilities and industry groups had challenged the rule as exceeding the authority of the Environmental Protection Agency. But the court upheld the EPA's authority under the Clean Air Act, and the various pending challenges were dismissed. (Appalachian Power Co. vs. EPA, 00-445) (Los Angeles Times, March 6, 2001) IPO UNDERWRITERS: Investors Lack Standing to Sue over Price-Fixing ------------------------------------------------------------------ A class action brought by investors alleging that the country's leading underwriters of initial public offerings of common stock engaged in collusion and price-fixing was dismissed by a Southern District judge. U.S. District Judge Kevin Thomas Duffy ruled that the proposed class of investors did not have standing to bring their lawsuit against the investment firms, since they did not pay the allegedly inflated fees for the IPOs. In In re Public Offering Fee Antitrust Litigation, 98 Civ. 7890 (LMM), Judge Duffy also expressed skepticism that collusion could be proved, since the complaint refers to hearsay but no hard evidence that the underwriters acted together to preserve their fees at an artificially high level. But that question, Judge Duffy said, should be answered in a summary judgment motion, not in a motion for judgment on the pleadings. In his memorandum opinion, Judge Duffy said that the issue could be revisited in companion cases, in which corporate issuers of stock - who did pay the IPO fees - allege collusion and price fixing. At issue in the litigation is the standard fee of 7 percent charged by underwriters who aid corporations in floating initial public offerings of shares. The plaintiffs claimed that the fee is the product of a refusal by underwriters to compete on the basis of price. The defendants, the leading IPO underwriters in United States markets, said that the plaintiffs failed to state a valid claim, and asked the court for dismissal under Federal Rule of Civil Procedure 12(b)(6). But the plaintiffs, individual investors who sought to lead a class action challenge to the market behavior of the underwriters, did not plead an "antitrust injury" as required under the federal Clayton Act, which gives individuals the right to sue corporations for alleged antitrust violations, the judge said. The fee for underwriting an initial public offering, Judge Duffy observed, is taken as a percentage of the price of securities to be offered. In fashioning the price, the issuer and the lead underwriter, or the investment bank that hires other investment banks and brokerage houses to act as additional underwriters, determine the price that the investing public is likely to be willing to pay. The fee is a percentage of what the issuer and lead underwriter ascertain as the market price for the securities. "Taking this process into account, it becomes clear that Plaintiffs have not suffered antitrust injury," Judge Duffy wrote. "No matter what the fee may be, the purchasers pay the same price. Thus the purchasers have not directly paid the IPO Fee. These fees are more accurately described as the discount from the overall purchase price which underwriters take from the overall purchase price when proceeds are turned over to the issuer." Judge Duffy called "specious" the argument that artificially high IPO fees cause investors to pay higher prices for securities. Companion Cases Judge Duffy said that two companion cases brought by issuers do not "suffer this standing defect," suggesting that those suits would survive an early challenge. In dicta, Judge Duffy said that the defendants were not entitled to dismissal on the grounds that there are not sufficient facts to support a claim of collusion against the underwriters. But he added that he was "troubled by the allegations in the complaint," and that without more concrete facts in evidence, the companion cases may not survive a motion for summary judgment. Judge Duffy said that the only evidence alluded to in the complaints consisted of "conclusory statements of parallel conduct" in the setting of IPO fees, and assertions made in the business press that the underwriters would be foolish to compete on the basis of price. "It is quite clear to anyone familiar with the business of underwriting IPO Securities that there may be many reasonable explanations for setting IPO Fees at 7 percent," Judge Duffy said. "Without a record such as one would have in a summary judgment motion..., a court cannot rule on such matters." The two companion cases, which are brought by the issuers of stock who actually paid the 7 percent fee, have not yet been answered by the defendant underwriters. But Judge Duffy said that the cases "appear to suffer from the same substantive problems as the [investors' class action]." Lead counsel for plaintiffs and the proposed class are Alice McInerney and Randall K. Berger, of Kirby McInerney & Squire of Manhattan. New York lawyers serving as defense counsel in the case are: Gandolfo V. DiBlasi, David H. Braff and Fraser L. Hunter of Sullivan & Cromwell for Goldman, Sachs & Co.; Hannah Berkowitz and Jacqueline LiCalzi, in-house counsel for PaineWebber Inc.; Robert F. Wise Jr. and John J. Clarke Jr. of Davis Polk & Wardwell for Morgan Stanley Dean Witter, Donaldson, Lufkin & Jenrette Inc., and J.P. Morgan Securities Inc.; Martin Glenn, Louis B. Kimmelman and Dana MacGrath of the Manhattan office of O'Melveny & Myers for Warburg Dillon Read; James B. Weidner of Rogers & Wells for Merrill Lynch & Co.; Jeremy Epstein and Kenneth M. Kramer of Shearman & Sterling for Credit Suisse First Boston Corp.; Charles Koob and Hillel I. Parness of Simpson Thacher & Bartlett for Lehman Brothers Inc.; Gregory Markel and Ronit Setton of the Manhattan office of Brobeck, Phleger & Harrison for BancBoston Robertson, Stephens Inc. and Nationsbanc Montgomery Securities; Douglas Rappaport of the Manhattan office of Piper & Marbury for BT Alex. Brown Inc.; Jay Kasner and Shepard Goldfein of Skadden, Arps, Slate, Meagher & Flom for CIBC Oppenheimer Corp. and ING Baring Furman Selz; A. Robert Pietrzak of Brown & Wood for Bear Stearns & Co.; Stephen Greiner of Willkie Farr & Gallagher for Cowen & Co.; Catherine A. Ludden and Bernard J. Garbutt III from the Manhattan office of Morgan, Lewis & Bockius for Jeffries & Co.; and Thomas J. Kavaler of Cahill Gordon & Reindel for Prudential Securities Inc. Other defendants in the case were Salomon Smith Barney Inc.; A.G. Edwards & Sons; Everen Securities Inc.; J.C. Bradford & Co.; U.S. Bancorp Piper Jaffray Inc.; Legg Mason Wood Walker Inc.; and Hambrecht & Quist. (New York Law Journal, February 16, 2001) IXYS CORP: Settles Securities Suit in CA over Paradigm Merger ------------------------------------------------------------- On August 12, 1996, IXYS and Robert McClelland, Richard A. Veldhouse and Chiang Lam (the "Paradigm Defendants") were named (along with others subsequently dismissed from the case) as defendants in a purported class action (entitled Bulwa et al. v. Paradigm Technology, Inc. et al., Santa Clara County Superior Court Case No. CV759991) brought on behalf of stockholders who purchased IXYS' common stock between November 20, 1995 and March 22, 1996 (the "Class Period"), prior to the Paradigm merger. The complaint asserted violations of California Corporations Code sections 25400 and 25500 ("Sections 25400 and 25500") along with other causes of action that have been dismissed. On February 9, 1998 the Court certified a class consisting only of California purchasers of IXYS' stock during the Class Period. Following the California Supreme Court decision in Diamond Multimedia Systems, Inc. v. Superior Court, 19 Cal. 4th 1036 (1999), plaintiffs moved to modify the prior class certification ruling to include also non-California purchasers. The Court granted this motion on April 28, 1999. On May 19, 1998, the law firm that filed the Bulwa, et al. action described above filed an additional securities class action lawsuit against IXYS, Michael Gulett, Robert McClelland, Richard A. Veldhouse and Chiang Lam, this time in the United States District Court for the Northern District of California. The complaint alleged violations of section 10(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Commission Rule 10b-5 and section 20(a) of the Exchange Act. Plaintiff alleged the same class and the same substantive factual allegations that are contained in the Bulwa, et al. action as amended. Defendants responded to the complaint on July 27, 1998 by filing a motion to dismiss the complaint for failure to state claims upon which relief can be granted and for various pleading inadequacies. In lieu of opposing the motion, plaintiff filed a first amended complaint. Defendants renewed their motion to dismiss, and on January 20, 1999 the Court issued an order granting the motion and dismissing plaintiff's action and entered judgment thereon. On February 3, 1999, the Court entered an amended judgment clarifying that the judgment is with prejudice. On March 12, 1999, plaintiff filed a notice of appeal. Plaintiff then agreed to dismiss the appeal in exchange for defendants' agreement not to seek to recover defendants' costs incurred in responding to the appeal and agreement not to pursue any action against the plaintiff for having filed the action. The appeal was dismissed with prejudice on October 25, 1999. On September 20, 2000, IXYS counsel and counsel for the plaintiffs reached a tentative agreement to settle the class action lawsuit in exchange for the payment of $900,000, which amount is fully covered by insurance. Accordingly, this contemplated settlement agreement would have no impact on IXYS' operating results. The Company's insurance carrier has deposited the payment into escrow, pending final approval. The settlement is subject to the preparation and execution of definitive settlement agreements acceptable to all parties and submission of the documents to the court for its preliminary approval. If preliminary approval is granted, the settlement would be further subject to the final approval of the court following a period for comments by class members. There can be no assurance that IXYS will be successful in the defense of the remaining state court lawsuit should the tentative settlement not be finalized. MUNICIPAL COURTS: Suit Aimed at Fees For Appeals, Concealed-Gun Permits ----------------------------------------------------------------------- A Greenbrier lawyer takes aim at two different kinds of fees in a suit he's filed in Pulaski County Circuit Court. Attorney William J. Velek claims in the suit that fees charged for appealing municipal court convictions to circuit court are unconstitutional. His suit makes the same claim about fees charged to get concealed-weapons permits. The suit was filed on behalf of three people involved in municipal court cases - none of them apparently involving concealed-weapons permits. Velek's suit claims a fee required to appeal a municipal court conviction to circuit court amounts to an unconstitutional tax on a constitutional right - a fair hearing in court. In Pulaski County, the fee for filing an appeal from municipal court to circuit court - where a jury trial is available - is $100. The suit says the concealed-weapons permit fee violates the right to bear arms guaranteed in the U.S. Constitution. "Requiring payment for a constitutional right is an unconstitutional tax on a constitutional right, and is an unconstitutional taking of property and an illegal exaction recoverable by law," the suit says. According to the suit, fees that have been collected should be returned to the people who paid them. The suit seeks class-action status on behalf of all those who paid such fees. Defendants named in the suit are Gov. Mike Huckabee, all municipal courts and state Treasurer Jimmie Lou Fisher. It was unclear why Fisher was named as a defendant, since her office collects neither court fees nor fees for concealed-weapons permits. Fees for filing appeals of municipal court convictions to circuit courts are paid to court clerks; fees for the concealed-weapons permits are paid to state police. Those seeking a concealed-weapon permit pay two fees - $115 that state police keep for costs of running criminal-background checks, and another $24 fee that goes to the FBI for running fingerprint checks on applicants. (The Associated Press State & Local Wire, March 6, 2001) NAPSTER: Court Issues Injunction Ordering Block Of Copyright Songs ------------------------------------------------------------------ A federal judge told the music industry to catalog the copyright songs it wants removed from Napster Inc. and said the highly popular file-swapping service then has 72 hours to block free sharing of that music. The order, dated Monday and posted on a Web site Tuesday, effectively gave the recording industry control over the immediate fate of the Internet-based clearinghouse that has turned music distribution on its head and cultivated a following of millions. Napster is fighting to stay online and retain its popularity while promising to shift over to a subscription-based service. For that, it depends on the cooperation of the very music labels that sued the company to stop song swapping. The order by U.S. District Judge Marilyn Hall Patel did not specify what would happen if Napster was unable to comply, except to say another hearing could be held. Napster officials had no immediate comment. Patel, in issuing an injunction she reworked on the order of an appeals court, said the record labels must notify Napster of the title of the song, the name of the artist and the name of the Napster file containing the infringing material. She said all parties should take ``reasonable measures'' to identify the copyright-infringing music. Napster, which began a screening system this weekend in an effort to weed out such copyright music, then would have three business days to implement a system of blocking access to that file. Patel acknowledged that it might be difficult to identify all variations of a copyrighted song, given that Napster users could use code words or shorthand to identify different pieces of music. ``This difficulty, however, does not relieve Napster of its duty,'' she wrote. Patel's ruling does not mean Redwood City-based Napster has to shut down or turn itself off, stressed Eric Sheirer, an analyst with Forrester Research. ``What it does is give the record labels a great deal of power over exactly what songs are going to show up on Napster, how long they're going to be there, and how usable Napster will be for the vast number of consumers that are on there now,'' Sheirer said. ``The record industry has the advantage now of being able to get these songs off Napster any time they choose,'' Sheirer added.'' But if they do it now, consumers will flee to all these other alternative services where they won't be able to control them.'' All parties are due to meet with a mediator Friday. Hilary Rosen, president of the Recording Industry Association of America, said the labels would comply fully with the court's order. ``We intend to provide the notifications prescribed by the court expeditiously, and look forward to the end of Napster's infringing activity,'' Rosen said. A lawyer representing heavy metal band Metallica and rapper/producer Dr. Dre in their $10 million suits against Napster praised the ruling and said his clients have been eager to get their songs off Napster for a long time. ``If Napster complies with what this injunction says, it will be to our satisfaction,'' said attorney Howard King. ``It's technologically doable. The question is, is Napster going to go to the necessary steps to do it?'' The 9th U.S. Circuit Court of Appeals ruled last month that an original injunction against Napster issued by Patel was overly broad because it placed the entire burden on Napster of ensuring that no ``copying, downloading, uploading, transmitting or distributing'' of works occur. At a hearing last Friday, attorneys for Napster and the music industry argued before Patel about their concerns on sharing the burden of detecting the infringing files and adapting the service to weed them out. Music industry attorney Russell Frackman told Patel that Napster should start blocking access to songs listed on Billboard's Top 100 singles and Top 200 albums charts, and by policing its system to keep those lists current. Napster attorney David Boies said the burden should be on the record labels to find infringing MP3 files on Napster and then make notice of those files to the company. Napster, which claims it has 50 million users, tried to deploy a system over the weekend to screen its system for 1 million song filenames that include various permutations and spelling of titles from Metallica and Dr. Dre. Meanwhile, Napster's attempted crackdown prompted fresh frenzies of free-music downloads at clone Web sites that use Napster software but are beyond the easy reach of recording industry lawsuits. For example, the Napigator program Monday showed more than 96 million music files being traded by almost half a million people through computer servers located as far away as Italy, New Zealand and Russia numbers that rivaled Napster itself even as downloads peaked this weekend. (The Associated Press, March 7, 2001) PROPULSID LITIGATION: TN Judge Certifies Class for Medical Monitoring --------------------------------------------------------------------- In what attorneys are calling a first in state legal history and what is apparently a first in Propulsid litigation, a class has been certified in Tennessee for medical monitoring of people who took the drug (J.C. Jackson, et al. v. Johnson & Johnson, et al., No. CT-004628-00 D4, Tenn. Cir., 30th Jud. Dist., Shelby Co.). Shelby County Circuit Court Judge Rita L. Stotts on Feb. 9 certified the class for "screening, testing, and/or monitoring of any and citizens of the State of Tennessee who were either prescribed, purchased and/or ingested the drug Propulsid." (Order Certifying Class in Section D. Document # 41-010222-105.) Sources told Mealey Publications that the case, which names in-state defendant Fred's Inc., had earlier been removed to federal court and remanded and that they expect Johnson & Johnson to attempt another removal. Fred's Inc. allegedly sold the drug. Screening Has Been Allowed Although Tennessee had not previously certified a monitoring class, the plaintiffs' memorandum in support of their motion for a medical monitoring class action says the courts have not been hostile to the idea of awarding expenses for medical screening. In Laxton v. Orkin Exterminating (639 S.W. 2nd 431, Tenn. 1982), the plaintiffs say, the court allowed an award for out-of-pocket medical testing expenses of a person who had ingested a harmful substance. Nor is it necessary to show that they are likely to prevail, the memorandum states, and goes on to assert that the basics for class certification have been met: the class is so numerous that joinder of all members is impracticable, there are questions of law or fact common to the class, the claims or defenses of the representative parties are typical of the claims or defenses of the class and the representative party will fairly and adequately protect the interest of the class. "No individual, as a practical matter, could litigate claims such as these without the class action vehicle," the plaintiffs memorandum states. "Without class certification, few, if any, consumers would ever recover payment for their injuries." 'Common Nucleus' Of Facts The "common nucleus of operative facts" includes: * Whether defendants designed, manufactured, marketed or sold a dangerously defective product. * Whether defendants conducted appropriate testing of Propulsid. * Whether defendants designed, manufactured, marketed or sold a drug which they knew or should have known presented severe health risks for persons ingesting the drug. * Whether defendants adequately warned consumers of the adverse effects of Propulsid. * Whether use of Propulsid causes harm as alleged. * Whether the defendants are guilty of fault proximately causing injury to plaintiffs. * Whether medical monitoring is appropriate. The claims of the representative plaintiff are typical of the claims of the proposed class, the memorandum states, and the companies are likely to assert defenses that are common to all class members. Common questions will predominate in the litigation, the memorandum says, rendering class action the superior means for resolving the controversy. The plaintiffs are represented by Berry Cooper of Deal, Cooper & Holton in Memphis, Tenn. (Mealey's Litigation Report: Propulsid, February 2001) SAFETY COMPONENTS: Settles Securities Suit and Emerges from Chapter 11 ---------------------------------------------------------------------- After the Company's announcement in November 1999 of the restatement of its financial statements, the Company and several of its present or former officers and directors were named defendants in a class action litigation commenced by shareholders of the Company in the United States District Court for the District of New Jersey. Eight separate lawsuits were filed, alleging violations of the federal securities laws, and were consolidated into one action. The parties executed a Memorandum of Understanding to settle the consolidated class action litigation for $4 million. The principal terms of the settlement were approved by the Court on September 11, 2000. The Company expects that its directors' and officers' insurance carrier will, subject to Court approval, satisfy the settlement obligations. Management does not presently believe that a resolution consistent with the Memorandum of Understanding would have a material effect on the financial statements. Further, the Company received a release of these potential obligations in its Plan as of the Emergence Date. On April 10, 2000 (the "Petition Date"), the Company and certain of its U.S. subsidiaries (including Safety Components Fabric Technologies, Inc. and Automotive Safety Components International, Inc., but excluding Valentec Wells LLC (fka Valentec International Corporation, LLC), Valentec Systems Inc. and Galion, Inc. (collectively, "Safety Filing Group")), filed a voluntary petition under Chapter 11 of the Bankruptcy Code ("Chapter 11") with the United States Bankruptcy Court for the District of Delaware (Case Nos. 00-1644(JJF) through 00-1650(JJF)). On October 11, 2000 (the "Emergence Date"), the Company emerged from Chapter 11. TIME WARNER: Cable Customers Win Injunctive Relief Already Fulfilled -------------------------------------------------------------------- Two New York customers of Time Warner Cable have won certification of a plaintiff class numbering 12 million in an invasion-of-privacy case, but only to seek injunctive relief that Time Warner has already voluntarily fulfilled. The two representative plaintiffs may seek monetary damages only for themselves, according to a ruling by a federal judge in Brooklyn. Parker et al. v. Time Warner Entertainment Co., No. 98 CV 4265(ILG) (E.D.N.Y., Jan. 9, 2001). Andrew Parker and Eric DeBrauwere filed a class- action suit against Time Warner Cable, a division of Time Warner Entertainment Co., alleging a violation of the privacy provisions of the federal Cable Communications Policy Act of 1984 as well as violations of various state consumer protection laws. According to the complaint, Time Warner sold personally identifiable information about its subscribers to third parties without warning subscribers that it was disclosing such information. The information, consisting of subscribers' programming selections, was sold to third parties for marketing purposes along with other information obtained directly from subscribers. The suit seeks statutory damages and actual damages resulting from Time Warner's alleged unjust enrichment, a declaratory judgment and an injunction restraining Time Warner from further violations of Section 551(f) of the Cable Act. The suit was filed in U.S. District Court for the Eastern District of New York and assigned to Senior Judge I. Leo Glasser. The plaintiffs moved for certification of a class comprised of 12 million Time Warner cable subscribers in 23 states, whose privacy interests were allegedly violated by the defendants' disclosure and sale of the information. In October 2000, Magistrate Judge Joan M. Azrack recommended that Judge Glasser grant class certification for plaintiffs seeking injunctive relief under Rule 23(a) of the Federal Rules of Civil Procedure, but deny it as the p laintiffs seeking monetary damages under Rules 23(b)(2) and (3) . She found that the plaintiffs failed to demonstrate the superiority of a class action over individual actions because the plaintiffs' requests for monetary relief predominated over their requests for injunctive relief. Time Warner argued against class certification on the ground that the plaintiffs' request for injunctive relief is moot because the company has already changed its policy to meet the relief requested. Time Warner said it now gives subscribers the opportunity to opt out before selling information to any third party. Judge Glasser adopted the magistrate judge's recommendations and granted class certification only on the claim for injunctive relief. Citing to Wilson v. American Cablevision of Kansas City, 133 F.R.D. 573 (W.D. Mo., 1990) -- the only case that has considered whether class action is the superior mechanism to address a violation of Section 551(f) of the Cable Act -- the judge said the court in Wilson denied certification in which violations of Section 551(f) were technical in nature and no evidence was presented to indicate that actual damages were suffered by any class member as a result of the defendant's alleged violations. The Wilson court also denied class certification because it found that the damages sought would have been disproportionate to the harm actually suffered. This case, Judge Glasser said, is virtually identical to Wilson, and in fact, the plaintiffs here essentially conceded that the subscribers suffered no actual harm . He noted that the Cable Act specifically provides recourse to any individuals who feel that their privacy interests have been violated and it even compensates them for the costs of proving such a violation if they prevail. A class action therefore is not the only means of ensuring that defendants can be held accountable for their violations, Judge Glasser said. He also observed that no other suit has been filed against Time Warner by any of the other 12 million subscribers, an indication that no one else feels aggrieved by its actions. (Electronic Privacy Litigation Reporter, February 5, 2001) USN: Judge Urges $10K Fine for Destroying Evidence for Securities Suit ---------------------------------------------------------------------- A Chicago magistrate judge has recommended to the Northern District of Illinois the dismissal, in part, of a motion for sanctions against USN Communications officers and directors for intentionally destroying virtually all evidence of an alleged securities fraud. However, the magistrate judge did say that a $10,000 fine should be imposed on the sole insider director defendant for failure to establish a program to preserve the documents. Danis v. USN Communications Inc. et al., No. 98 C 7482 (N.D. Ill., Oct. 20, 2000). USN shareholders brought a proposed class action against 11 officers and directors, three companies that managed the underwriting of USN's initial public offering, and the accounting firm that audited USN's financial statements. USN is currently in bankruptcy proceedings. After extensive discovery, the plaintiffs subsequently moved for sanctions and a default judgment against six of the 11 officers, alleging that USN employees, acting under the direction of those officers, destroyed almost all evidence of the "massive" fraud alleged in the complaint. In his report, U.S. Magistrate Judge Sidney I. Schenkier said that both parties engaged in "discovery with a vengeance," pointing to the more than one million pages of documents that have exchanged hands. The judge also found that while defendants had supplied certain documents the plaintiffs claimed not to have, the converse was also true -- that defendants claimed to have provided documents that they actually had not. While finding that the plaintiffs cannot be faulted for criticizing USN's program of preserving its documents, Judge Schenkier held that they seriously overstated the amount of missing evidence and its significance, and "unreasonably upped the stakes of their sanctions motion." Judge Schenkier recommended that the request for judgment be denied and that no monetary sanctions be imposed on either party for their discovery missteps. He also said that pursuant to Fed. R. Civ. P. 37(b), the district court should inform the jury that any gaps in the production of documents are the result of USN's failure to produce those documents to the plaintiffs. Lastly, the judge suggested the imposition of a $10,000 fine against CEO and insider director J. Thomas Elliott for failing to adequately institute a program to preserve financial and sales hard copy and electronically stored documentation. Although concluding that the plaintiffs were not prejudiced by the lack of this program, Judge Schenkier said "this fine is appropriate as a sanction to impress upon Mr. Elliott the seriousness of the duty of preservation, and to deter others from failing to properly discharge that duty." The plaintiff shareholders are represented by Marvin Alan Miller of Miller Faucher & Cafferty in Chicago; Kenneth A. Wexler of Kenneth A. Wexler & Associates in Chicago; Paul O. Paradis and Marian P. Rosner of Wolf Popper, LLP in New York; Samuel P. Sporn and Christopher Lometti of Schoengold and Sporn, P.C. in New York; and Steven J. Toll of Cohen, Milstein, Hausfeld & Toll in Seattle. CEO Elliott is represented by Michele L. Birkmeier, Frances P. Kao and Melinda Zachar of Skadden, Arps, Slate, Meagher & Flom in Chicago. (Sports & Entertainment Litigation Reporter, January 4, 2001) WORLDCOM, DIGEX: Def. Settlement Agreement Signed in Shareholder Suit --------------------------------------------------------------------- Digex, Incorporated (Nasdaq: DIGX), announced on March 5 that a definitive Stipulation of Settlement was signed by all relevant parties to settle all claims related to a consolidated class action suit pending in the Court of Chancery of the State of Delaware arising out of WorldCom, Inc.'s planned acquisition of a controlling interest in Digex through a merger with Intermedia Communications, Inc. The court has entered its order directing that notice of the settlement be sent to members of the class and has scheduled a settlement hearing to be held on April 6, 2001, at 2:00 PM in the Delaware Court of Chancery in Wilmington, Delaware. The final settlement of the suit is subject to the satisfaction of certain conditions as well as final court approval. As previously announced on February 15, 2001, the principal terms of the settlement involve, among other things, WorldCom and Digex entering into a series of commercial agreements and the creation of a settlement fund of $165 million in WorldCom common stock, based upon WorldCom stock's trading price for a period preceding the WorldCom-Intermedia merger, for payment to Digex stockholders (other than Intermedia) and to cover plaintiffs' counsel fees. Net of plaintiffs' counsel fees, created to cover expenses, one-half of the settlement fund will be distributed to holders of Digex Class A common stock as of the record date September 1, 2000 and the balance will be distributed to such holders as of a future record date to be determined and expected to be on or about the date of the WorldCom-Intermedia merger. Digex has filed a Form 8-K with the Securities and Exchange Commission which will contain as exhibits the notice being sent to Digex stockholders, the Stipulation of Settlement, the scheduling order of the Delaware Chancery Court and the proposed Order and Final Judgment. About Digex Digex (Nasdaq: DIGX) is the leading provider of high-end managed Web and application hosting services for some of the world's leading companies that rely on the Internet as a critical business tool. Digex customers, from mainstream enterprise corporations, Internet-based businesses and Application Service Providers (ASPs), leverage Digex's services to deploy secure, scaleable, high performance business solutions, including electronic retailing, online financial services, online procurement and customer self- service applications. Digex also offers value-added enterprise and professional services, including performance and security testing, monitoring, reporting and networking services. Additional information on Digex is available at http://www.digex.com. ********* S U B S C R I P T I O N I N F O R M A T I O N Class Action Reporter is a daily newsletter, co-published by Bankruptcy Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc., Washington, DC. Theresa Cheuk, Managing Editor. Copyright 1999. All rights reserved. ISSN 1525-2272. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The CAR subscription rate is $575 for six months delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. 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