/raid1/www/Hosts/bankrupt/CAR

/raid1/www/Hosts/bankrupt/CAR_Public/010411.MBX C L A S S A C T I O N R E P O R T E R Wednesday, April 11, 2001, Vol. 3, No. 71 Headlines BANKAMERICA: Investors Say Congress Intended Parallel State & Fd Actions BRISTOL-MEYERS: Maine Group Accuses Of Illegally Blocking Generic Drug CINGULAR WIRELESS: Girard & Green Files Lawsuit over Mobile Phone Rates COLUMBIA ENERGY: Fd Ct Remands Quinque Cases over Oil & Gas Leases to KS COLUMBIA GAS: Grynberg Cases re Royalty Transferred to Fd Ct in Wyoming COLUMBIA NATURAL: Fd Ct Remands Complaint By Royalty Owners to NY State HOLOCAUST VICTIMS: David Boies Will Represent Judge Kram in Dispute i2 TECHNOLOGIES: Shareholders Have Until May 1, 2001 To Seek Lead Role NAPSTER INC: Defends Compliance with Ct Order to block copyrighted Music NAPSTER: Judge Names High-tech Mediator for Dispute on Copyrighted Music RACIAL PROFILING: NJ Trooper Points to Continuing Bias on the Turnpike RIO TINTO: Landowners in Bougainville to Sue Aust. Mining Giant in U.S. RUBBER PRICE-FIXING: Malaysian Companies Defeat Claim of Conspiracy ST JUDE: Patients with Silzone(R)-coated Valves Implants Seek Monitoring STRIP SEARCHES: Accusations Against Anaconda Police Piling Up SUPERMARKETS: Ct OKs CA Store Janitors' Suit Re Hiring Thru Contractor TEXAS OFFICIALS: School Finance Law Challenged By School Districts TWA: Sale to AMR Completed; Judge Denies Israeli Workers’ Request U.S., MEXICO, Banks: Lieff, Cabraser Files Suit over Braceros Wages Held WIT CAPITAL: DE Ct Denies Class Status in Suit for Failure to Show Harm Professionals See Early Signs Of Success in Securities Litigation Reform ********* BANKAMERICA: Investors Say Congress Intended Parallel State & Fd Actions ------------------------------------------------------------------------ In oral arguments before the Eighth Circuit, shareholders suing BankAmerica Corp. under California state law argued their action should not be enjoined because a parallel suit alleging securities law violations is pending in St. Louis federal court. They contend that Congress always contemplated the possibility of dual securities-related litigation in state and federal courts. In re BankAmerica Corp. Securities Litigation, No. 00-2255, oral argument held (8th Cir., Feb. 12, 2001); see Securities Litigation & Regulation Reporter , Oct. 11, 2000, P. 3.) In 1998, BankAmerica and Nations Bank Corp. merged to form the new Bank of America Corp. Shortly thereafter, the bank announced a massive loss and numerous shareholders sued, alleging the financial institutions hid a $372 million loan to a hedge fund. The federal actions were consolidated and assigned to U.S. District Judge John F. Nagle of the Eastern District of Missouri. Citing the lead-plaintiff provisions of the Private Securities Litigation Reform Act of 1995, he then proceeded to enjoin the state court cases, which had been consolidated under Desmond v. BankAmerica Corp., No. 00-0169 (N.D. Cal., 2000). Judge Nagle said that the reform provisions gave certain investors, such as institutional investors, a right to control federal litigation, and that their rights would be denied their intended scope if competing state court plaintiffs could attempt to negotiate a settlement. He also ruled that the Securities Litigation Uniform Standards Act barred securities suits filed in state court, even though the legislation was passed after the class action was filed. In their appeal, the state court appellants argued that the SLUSA stay provisions are narrow and only apply to discovery proceedings. They also said that they should be allowed to seek recovery under California Corporations Code Sections 25400 and 25500 because state court proceedings offer numerous advantages over those in federal court. These include larger damage awards, less demanding scienter standards, joint and several liability, and aiding and abetting liability. In addition, federal law requires a unanimous jury verdict, while shareholder plaintiffs in California can prevail on a 9--3 verdict. They also contend that the injunction violates the Anti-Injunction Act, which prohibits the federal government from staying state court proceedings. In response, the federal court appellees countered that the PSLRA provides express authorization to enjoin state court proceedings. Moreover, they argued the All-Writs Act provides the federal court with the authority to enjoin any party that is frustrating the proper administration of justice. (Securities Litigation & Regulation Reporter, February 28, 2001) BRISTOL-MEYERS: Maine Group Accuses Of Illegally Blocking Generic Drug ---------------------------------------------------------------------- Consumers for Affordable Health Care is suing a pharmaceutical manufacturer that allegedly tried to keep a generic version of a brand-name drug off the market. The lawsuit filed in Cumberland County Superior Court mirrors actions taken in other states by groups who accuse Bristol-Meyers Squibb of illegally blocking the generic sale of Buspar. Buspar is a drug used to ease anxiety in elderly patients as well as many people with AIDS. Generic drugs typically cost 30 percent to 50 percent less than the brand-name version. The Maine group also has joined several others in a federal class-action lawsuit filed in New York, while separate state lawsuits also were filed in Florida and Massachusetts. The lawsuits center on the legality of Bristol-Meyers' decision to file for another patent in November, blocking the sale of the generic version just as Mylan Laboratories Inc. was loading trucks. The Maine lawsuit charges the company violated the state Unfair Trade Practices Act and seeks triple damages for Mainers who have paid the higher price for Buspar since November. Bristol-Meyers contends it did nothing wrong. "We believe the patents are valid and were properly listed according to the law," said Patrick Donohue, a company spokesman. (The Associated Press State & Local Wire, April 10, 2001) CINGULAR WIRELESS: Girard & Green Files Lawsuit over Mobile Phone Rates ----------------------------------------------------------------------- A class action suit has been filed against Cingular Wireless, Inc. in Prince George's County, Maryland on behalf of a proposed class of Cingular subscribers who paid a flat rate for a specified number of minutes of "talk time" per month. The suit alleges that Cingular double-bills subscribers by aggregating time used in earlier months and billing that time in a single month, depriving the subscribers of credit for the full number of minutes of "talk time" allotted to them per month. Plaintiff seeks damages, for violation of Maryland's Consumer Protection Act and breach of contract, and injunctive and declaratory relief on behalf of herself and all similarly situated Cingular subscribers. Cingular is a joint venture formed in April 2000 between SBC Communications, Inc. - parent company to Cellular One and Pacific Bell PCS - and Bell South. Cingular has approximately 19.7 million customers in the U.S., making it the nation's second largest provider of wireless phone service. The complaint charges that Cingular applied air time incurred in September 2000 through November 2000 to the plaintiff's December 2000/January 2001 billing cycle. By aggregating the subscriber's calls from prior months in a single month, Cingular triggered expensive ($.30 per minute) air time charges instead of allowing the subscriber and other customers in the proposed class to bill air time against the allowance of minutes already paid for in monthly service fees. The plaintiff is represented by Girard & Green, LLP of San Francisco, California. Girard & Green, LLP specializes in representing consumers in telecommunications litigation. The plaintiff is also represented by Kramon & Graham, P.A. of Baltimore. Accordjng to her attorneys, "Cingular's billing practice forces customers to pay costly per minute charges when they still have plenty of time left on the 'air time' meter," says Daniel C. Girard of Girard & Green, LLP. Girard observed, "Cingular is offering a heads I win, tails you lose deal. Our client stayed within her monthly block of talk time and still got charged for overtime minutes." Contact: Girard & Green, LLP, SF Daniel C. Girard or Charles F.A. Carbone, 415/981-4800 COLUMBIA ENERGY: Fd Ct Remands Quinque Cases over Oil & Gas Leases to KS ------------------------------------------------------------------------ Quinque Operating Co. et al v. Gas Pipelines et al., Case No. 99 C 30, Stevens County, Kansas Plaintiff filed an amended complaint in Stevens County, Kansas state court against over 200 natural gas measurers, mostly natural gas pipelines, including Columbia and fourteen affiliated entities. The allegations in Quinque are similar to those made in Grynbeg; however, Quinque broadens the claims to cover all oil and gas leases (other than the Federal and Indian leases that are the subject of Grynberg). Qunique asserts a breach of contract claim, negligent or intentional misrepresentation, civil conspiracy, common carrier liability, conversion, violation of a variety of Kansas statutes and other common law causes of action. Quinque purports to be a nationwide class action filed on behalf of all similarly situated gas producers, royalty owners, overriding royalty owners, working interest owners and certain state taxing authorities. The defendant had previously remanded the case to Federal court. On January 12, 2001, the Federal court remanded the case to state court. COLUMBIA GAS: Grynberg Cases re Royalty Transferred to Fd Ct in Wyoming ----------------------------------------------------------------------- United States of America ex rel. Jack J. Grynberg v Columbia Gas Transmission Corp. et. al., CA No. 97-2091-K, E.D. La. The plaintiff filed a complaint under the False Claims Act, on behalf of the United States of America, against approximately seventy pipelines including Columbia Gulf. The plaintiff claimed that the defendants had submitted false royalty reports to the government (or caused others to do so) by mismeasuring the volume and heating content of natural gas produced on Federal land and Indian lands. Plaintiff's original complaint was dismissed without prejudice for misjoinder of parties and for failing to plead fraud with specificity. The plaintiff then filed over sixty-five new False Claims Act complaints against over 330 defendants in numerous Federal courts. One of those complaints was filed in the Federal District Court for the Eastern District of Louisiana against Columbia and thirteen affiliated entities. Plaintiff's second complaint repeats the mismeasurement claims previously made and adds valuation claims alleging that the defendants have undervalued natural gas for royalty purposes in various ways, including sales to affiliated entities at artificially low prices. Most of the Grynberg cases were transferred to Federal court in Wyoming, in 1999. In December, 1999, the Columbia defendants filed a motion to dismiss plaintiff's second complaint primarily based on a failure to plead fraud with specificity. A hearing was held on the motion in March, 2000 but the court has not yet ruled on. COLUMBIA NATURAL: Fd Ct Remands Complaint By Royalty Owners to NY State ----------------------------------------------------------------------- Vivian K. Kershaw et al. v. Columbia Natural Resources, Inc., et al., CA No. 00-CV-246C(H), W.D.N.Y. In February, 2000, plaintiff filed a complaint in New York state court against Columbia Natural Resources (CNR) and Columbia Transmission. The complaint alleges that Kershaw owns an interest in an oil and gas lease in New York and that the defendants have underpaid royalties on those leases by, among other things, failing to base royalties on the price at which natural gas is sold to the end user and by improperly deducting post-production costs. The complaint also seeks class action status on behalf of all royalty owners in oil and gas leases operated by CNR. Plaintiff seeks the alleged royalty underpayments and punitive damages. Columbia removed the case to Federal court in March, 2000. The Federal court has now remanded Kershaw back to New York State court. HOLOCAUST VICTIMS: David Boies Will Represent Judge Kram in Dispute ------------------------------------------------------------------- Star attorney David Boies will represent a federal judge involved in a dispute over compensation payments to a million Nazi victims, the judge's law clerk said. U.S. District Judge Shirley Wohl Kram has refused to dismiss a class-action lawsuit that opponents claim is blocking the distribution of funds from German government and industry to people who were forced to work as slave laborers for the Nazis. Kram's refusal stems from her concern that lawyers have not resolved how those victims not yet identified could be protected if they decided to make claims. Boies was Al Gore's chief lawyer in the presidential recount battle. (The Record (Bergen County, NJ), April 10, 2001) i2 TECHNOLOGIES: Shareholders Have Until May 1, 2001 To Seek Lead Role ---------------------------------------------------------------------- According to Pomerantz Haudek Block Grossman & Gross LLP (http://www.pomerantzlaw.com),which filed a class action lawsuit against i2 Technologies, Inc. (Nasdaq: ITWO), the Company's Founder, Chairman and Chief Executive Officer, and the Company's Chief Financial Officer, on behalf of all those persons or entities who purchased the securities of i2 during the period between January 18, 2001 through February 26, 2001, inclusive (the "Class Period"), securities holders have until May 1, 2001 to seek appointment by the Court as one of the lead plaintiffs in this action. The lawsuit, which was filed on March 23, 2001 in the United States District Court for the Northern District of Texas (Dallas Division) under Civil Action 3-01CV0561-M, charges that i2 Technologies allegedly issued a series of false and misleading statements during the Class Period about the Company's business operations and financial condition. It is further alleged that these actions taken by i2 Technologies caused the price of the Company's stock to be artificially inflated during the Class Period. Contact: Andrew G. Tolan, Esq. of Pomerantz Haudek Block Grossman & Gross LLP, 888-476-6529 ((888) 4-POMLAW) or agtolan@pomlaw.com. NAPSTER INC: Defends Compliance with Ct Order to block copyrighted Music ------------------------------------------------------------------------ Napster Inc. is heading back to court Tuesday to defend its compliance with a court order that it block copyright songs from its users. The Recording Industry Association of America has complained to U.S. District Judge Marilyn Hall Patel that the online music-swapping service hasn't gone far enough to screen out song files to which it doesn't have rights. But Napster says it's doing all it can with limited resources. The Redwood City-based company claims it has hired an additional 15 people to help the company weed out unauthorized music, and has adopted a policy to kick out users of the service who sought to continue trading music by modifying the file names of songs. In total, Napster says it has excluded from its index about 311,000 unique artist-song title pairs as well as 1.7 million file names corresponding to those artist-title pairs. The court ordered Napster to begin blocking songs last month. The company has pointed to a sharp drop in usage as evidence of its compliance. A mediator has been appointed to help smooth ongoing disagreements about how the court order should be handled. Napster confirmed Tuesday that A.J. "Nick" Nichols, who served as a neutral court expert in a Sun Microsystems Inc. suit against Microsoft Corp., was appointed about two weeks ago. The court hearing comes amid a slew of deals in the ever-changing online music industry. The latest occurred last week, when Internet giant Yahoo! Inc. struck an alliance with Duet, the online music distribution company backed by Sony Corp. and French media conglomerate Vivendi Universal, letting users pay a fee to gain online access to thousands of songs. Duet will face competition from MusicNet, a subscription-based music streaming and download service also scheduled to debut this year. That service, also announced last week, is a venture between Seattle-based RealNetworks Inc. and record label owners AOL Time Warner Inc., Bertelsmann AG and EMI Group. Napster is itself expected to move to a subscription-based model soon, with the help of Bertelsmann, one of its investors. Also Tuesday, a group of music publishers and songwriters were expected to ask the court to certify several suits against Napster as class-action suits, allowing thousands of additional people to join. (The Associated Press, April 10, 2001) NAPSTER: Judge Names High-tech Mediator for Dispute on Copyrighted Music ------------------------------------------------------------------------ Mediator selected for Napster dispute San Francisco --- An experienced high-tech mediator has been named by a federal judge to help the two sides in the Napster dispute sort out the technical issues presented in the case, The Wall Street Journal reported. A.J. "Nick" Nichols, who has worked in Silicon Valley since the 1960s, will confer with Napster Inc. and the recording industry. The two sides have disagreed in recent weeks about how an injunction involving Napster should be implemented. The recording industry maintains that Napster is not taking advantage of all available technology to keep copyrighted music off its site, while Napster says it is doing everything it can. (The Atlanta Journal and Constitution, April 10, 2001) RACIAL PROFILING: NJ Trooper Points to Continuing Bias on the Turnpike ---------------------------------------------------------------------- A New Jersey state trooper told a State Senate committee that racism pervades the upper ranks of the state police and persists in troopers' conduct on the road despite years of federal oversight and new operating procedures. "There are a lot who feel that people of color or Hispanics are the ones likely to be carrying drugs," said Sgt. Vincent Bellaran, who won a bias suit against the agency and is pursuing another case charging that superiors then retaliated against him. Testifying that many stops and searches are simply not reported, Sergeant Bellaran told the Senate Judiciary Committee, "Not one person has been brought to this table to answer for any of this." The sergeant's testimony and several accounts from motorists who said that they were mistreated by state troopers signaled a turn in the committee's hearings as they entered a fourth week. The committee, which is investigating discriminatory law enforcement patterns in traffic stops and searches, focused until April 10 on the state's former attorney general, Peter G. Verniero, and on the events up to the time he acknowledged the problem in 1999. And until now, discussion of the findings of discrimination had been overtaken by calls for Mr. Verniero's resignation as a State Supreme Court justice -- a position his adversaries say he won on the basis of misleading testimony about his response to racial profiling when he was the state's top law enforcement officer. Justice Verniero has turned aside all requests to step down, including calls from the entire Judiciary Committee and from Acting Gov. Donald T. DiFrancesco. Sergeant Bellaran, who identified himself as Puerto Rican and Filipino, said that minority troopers were effectively closed out of the force's upper ranks. "You are not allowed to live together in this organization," he said. "You are separated. You are humiliated and belittled. You are not one of them." Sergeant Bellaran, a trooper for 24 years, with all but eight months of that time on road duty, filed a discrimination lawsuit in his own behalf in 1991, also complaining that white officers who had made racist remarks were never disciplined. In his testimony, the sergeant recalled one white trooper's wielding a Bible "and explaining his job was to teach black people a lesson." He said the state police superintendent, Col. Carson Dunbar, who is black, had done little toward solving racial problems within the agency or in its treatment of minority motorists. Colonel Dunbar is scheduled to testify on Tuesday. He appeared before the committee last week but was asked to return. Sergeant Bellaran was followed by two lawyers, one of whom is black, who had been pulled over by state troopers on the New Jersey Turnpike, and by the brother of a man fighting marijuana possession charges brought after he was stopped and searched. The two lawyers, Lalia Maher and Felix Morka, said they were driving to New York after a professional conference in 1996 and were pulled from their car, shaken and verbally abused. Ms. Maher said an officer pointed a gun at her head. "They didn't tell us at any point why we were stopped," she said, although Mr. Morka was given a speeding ticket. When they filed a complaint, Ms. Maher and Mr. Morka said, they were told that it could not be substantiated. They filed a lawsuit in State Superior Court in Trenton that they are now trying to have certified as a class action. The Judiciary Committee heard testimony tonight from two lawyers from the Garden State Bar Association, a black lawyers group. Ronald Thompson, the organization's president, and Regina Waynes Joseph urged more legislative attention to what Mr. Thompson called "this racial tax." The latest figures on turnpike stops and searches, released by Attorney General John J. Farmer Jr. in his appearance before the committee last week, show that disparate patterns -- almost three in four people searched by troopers are black or Hispanic -- continue with little improvement from the time Mr. Verniero issued his report on racial profiling two years ago. (The New York Times, April 10, 2001) RIO TINTO: Landowners in Bougainville to Sue Aust. Mining Giant in U.S. ----------------------------------------------------------------------- Landowners in Papua New Guinea's secessionist Bougainville Province will launch a class action suit in the United States against mining giant Rio Tinto, claiming genocide and environmental damage on the island, according to a report Tuesday. Citing unnamed sources, the Australian Associated Press said the legal action headed by Bougainville secessionist leader Francis Ona was finalized in Sydney on Monday. The case will be submitted in the Los Angeles Federal District Court on April 23, AAP reported. The suit will seek unspecified damages from Rio Tinto on 13 counts, including genocide, murder and environmental damage flowing from an Australian mining operation in Bougainville from the late 1970s until it was shut down in 1988. The Australian CRA Bougainville Copper Ltd. mine was taken over by Rio Tinto two years ago. The justification for the charges against Rio Tinto, including the claim of genocide, was not explained. Bougainville forces fought a nine-year war to shut down the CRA mine and to win independence from Papua New Guinea until 1998, when a cease-fire was declared by both sides and negotiations on the mineral rich province's political future began. Up to 20,000 people perished during the conflict, mainly from diseases. (AP Worldstream, April 10, 2001) RUBBER PRICE-FIXING: Malaysian Companies Defeat Claim of Conspiracy ------------------------------------------------------------------- CASE: Dee-K Enterprises Inc. v. Heveafil Sdn. Bhd., No. 3:98-CV-10 MU (W.D. N.C.) PLAINTIFFS' ATTORNEYS: Joel Davidow, Michael Brady and Mitchell Dale of Washington, D.C.'s Ablondi, Foster, Sobin & Davidow DEFENSE ATTORNEYS: Christopher M. Curran, Jaime M. Crowe, Eric Grannon and J. Mark Gidley of the Washington, D.C., office of New York's White & Case JURY VERDICT: for the defense PLAINTIFFS DEE-K ENTERPRISES INC. and Asheboro Elastics Corp. accused three Malaysian manufacturers of extruded rubber thread of conspiring in the 1990s to fix the price of their product throughout the world, including in the United States. The net effect, said plaintiffs' attorney Joel Davidow, was to drive up the price of extruded rubber thread -- which, he pointed out, is the elastic "stuff that keeps your underpants up." The plaintiffs filed an antitrust action against the Malaysian companies and their U.S. subsidiaries, claiming that the defendants established and operated an international price-fixing conspiracy. U.S. District Judge Graham C. Mullen denied them class certification. The defendants contended that there was no price-fixing conspiracy. The prices went up, said defense attorney Jaime M. Crowe, because of trade duties imposed by the U.S. government, as well as an increase in the price of raw materials, particularly latex. At trial, the defendants focused their attention on countering the plaintiffs' claims of effects on prices in the United States, Mr. Crowe said, because the U.S. Supreme Court previously had ruled that a foreign price-fixing conspiracy violated U.S. law only if it produced a substantial effect in the United States. To that end, the defendants produced current and former employees of their U.S. subsidiaries "to show that at the time of the alleged conspiracy, there was extensive competition in the United States. Each company was going after each other's customers," Mr. Crowe said. The defendants also called their customers to the stand, "to testify that there was competition and price-cutting," he said. On March 14, a Charlotte, N.C., jury found that there had been a price-fixing conspiracy, but that it had insufficient effect in the United States to be actionable. A plaintiffs' attorney said that his clients will appeal. (The National Law Journal, April 9, 2001) ST JUDE: Patients with Silzone(R)-coated Valves Implants Seek Monitoring ------------------------------------------------------------------------ St Jude Medical Inc has been sued by patients alleging defects in the Company's mechanical heart valves with a Silzone(R) coating. The Company recalled products with a Silzone(R) coating on January 21, 2000, and sent a Recall notice and Advisory concerning the recall to physicians and others. Some of these cases are seeking monitoring of patients implanted with Silzone(R)-coated valves who allege no injury to date. Some of these cases are seeking class action status. The Company intends to vigorously defend these cases. STRIP SEARCHES: Accusations Against Anaconda Police Piling Up ------------------------------------------------------------- Seven more people have joined a class-action lawsuit accusing Anaconda police of making unnecessary and inappropriate strip searches, and an Anaconda woman has filed a new suit over their use of pepper spray. One of the seven who added their names to the class-action suit, Dan Jovanovich, lost a civil lawsuit against the Anaconda police last week. Another of the five was one of the primary witnesses in his case, Nancy Newlin. The lawsuit claims that the plaintiffs, including women, were searched in view of male inmates and that the searches were videotaped and passed around by department employees. Sixteen people are now plaintiffs in the strip-search complaint, which was filed in federal court in January by Missoula lawyers Alan Blakley and Mark Jones. Anaconda-Deer Lodge County officials have said the lawsuit contains blatant falsehoods. The new lawsuit was filed last week by Blakley and Jones for Francesca Trisdale, who said she was soaked with pepper spray and refused decontamination by three police officers and a dispatcher who knew she suffered from asthma and a heart condition. Her suit asks for $1 million in compensation. Trisdale pleaded guilty to four misdemeanor charges stemming from the arrest and was ordered to write a letter to police apologizing for resisting them. A federal court jury ruled against Jovanovich last week in his suit against four Anaconda officers. He claimed one officer permanently damaged the rotator cuff of his right shoulder when he removed Jovanovich from an Anaconda bar two years ago. He said the officer slammed him into a brick wall while the others stood by passively. In the strip-search case, Jovanovich charges that he was arrested on a bench warrant in March 2000 and taken to the Anaconda police station. In the short time it took his father to fill out release forms and pay his bond, he was subjected to a visual body-cavity search, he said. Newlin alleges she was arrested in October 1998 after a search of her house, was taken to the police station and strip-searched. (The Associated Press State & Local Wire, April 10, 2001) SUPERMARKETS: Ct OKs CA Store Janitors' Suit Re Hiring Thru Contractor ---------------------------------------------------------------------- From Bloomberg News: California grocery store janitors won class-action certification for their lawsuit against the three largest U.S. supermarkets for allegedly breaking labor laws by hiring workers through a janitorial-services contractor. Albertson's Inc., Safeway Inc.'s Vons and Kroger Co.'s Ralphs markets face a suit from as many as 1,500 California janitors, represented by the Mexican American Legal Defense and Educational Fund and the Service Employees International Union. Janitorial-services provider Encompass Services Corp. is also a defendant. U.S. District Judge Carlos Moreno in Los Angeles said for now he will bar the class-action plaintiffs from winning monetary damages. Moreno said he may revisit the issue after both sides conduct discovery to gather evidence. Eight janitorial workers filed suit in November, saying the supermarkets "pretended" to hire janitors indirectly using a contractor, making them non-employees, ineligible for overtime and other wages. The janitors allegedly often work seven days a week and are paid in cash or by personal check, without deductions for payroll taxes, they say. The janitors are seeking monetary damages and an injunction banning the stores from violating California wage and labor laws. (Los Angeles Times, April 10, 2001) TEXAS OFFICIALS: School Finance Law Challenged By School Districts ------------------------------------------------------------------ The state's school finance law known as "Robin Hood" punishes wealthy school districts while providing poor districts with money the state should be obligated to pay, according to a lawsuit filed by four property-rich districts. The districts sued state officials Monday, arguing that Robin Hood is unconstitutional and limits opportunities for their students. The lawsuit was filed in 250th state district court in Austin by West Orange-Cove Consolidated and Port Neches-Groves independent school districts in southeast Texas; Coppell ISD in Dallas County; and La Porte ISD near Houston. The districts are among dozens in the state that must share their tax revenue with poorer districts. Nearly three dozen more districts were expected to file documents in support of the four lead plaintiffs. Coppell Superintendent Wilburn Echols Jr. said sharing property tax revenue with the Quinlan and Forney schools districts has forced his district to eliminate elementary Spanish programs, reduce literacy programs and cut staff. "It's the constitutional responsibility of the state to fund public education. More and more of the cost has been placed on the shoulders of taxpayers in local districts," Echols said at a news conference. Education Commissioner Jim Nelson, Comptroller Carole Keeton Rylander and the Texas Board of Education are named as defendants. Plaintiffs want legislators to increase state funding of public education with an emergency infusion of dollars, while studying a long-term solution to school finance. They said the state's share has plunged from about 80 percent 50 years ago to 40 percent of total funding now. Acting Lt. Gov. Bill Ratliff has said he and House Speaker Pete Laney are considering appointing an interim commission after this legislative session to look at possible changes in the state's school finance system. But he warned in January that a lawsuit could slow legislative action because Texas lawmakers might want to wait to see what a court orders. The superintendent of the west Texas independent school district of Tulia, which receives money from other districts, said the state would have to find alternative funding, like a state tax, or make cuts to all school districts to make up for the Robin Hood resources. "I would hate to see that happen," said Mike Vinyard. "The state is in a position of having to provide a free and appropriate education for all students." "The funds have to come from somewhere," he said. "You either equalize wealth within the districts or you supplant that money with state taxes. I don't know that you can make (property-rich districts) understand the value of (Robin Hood). I would hope that they would understand that the students in the property poor districts are just as important as students in their districts." The school financing system limits districts to $295,000 of property wealth per student. Any additional funds are collected by the state and redistributed to property-poor districts. In the 2000-01 school year, 84 property-wealthy school districts statewide are expected to share $522 million of their property-tax revenues with other districts. Plaintiffs said they shared as much as 50 percent of local tax collections with other districts. Texas has neither income tax nor a state property tax. By law, school districts can collect no more than $1.50 per $100 property valuation to run and maintain their schools. But about a fifth of the state's 1,000 districts have reached the tax ceiling. With Texas seizing a chunk for poor schools, wealthy areas are frustrated by their inability to raise more money. School board chairwoman Grace Shore said she did not know why her board was named as a plaintiff when it is the Legislature that must make changes. But, she said, she understands the plaintiffs' concerns. "Robin Hood was always intended to be a temporary measure to keep the schools out of the courts. It fulfilled that purpose." Last week, four Dallas County taxpayers filed a lawsuit challenging Robin Hood. That lawsuit, filed in Dallas, seeks to prevent Dallas and Highland Park independent school districts from redistributing the taxes. Dallas does not share its tax revenue. (The Associated Press State & Local Wire, April 10, 2001) TWA: Sale to AMR Completed; Judge Denies Israeli Workers’ Request ----------------------------------------------------------------- American Airlines became the world's largest air carrier after acquiring the assets of bankrupt Trans World Airlines. The deal was completed after a federal appeals court denied a last-minute bid by a group of Israeli TWA workers to stop financially troubled TWA from selling its assets to American Airlines' parent company, AMR. AMR's deal to pay $ 742 million for the airline, plus the assumption of $ 3.5 billion in debt, does not include funds for TWA's unsecured creditors. The Israeli workers are unsecured creditors owed about $ 18 million in salaries and benefits, their attorney said. American Airlines, meanwhile, said it will charge passengers $ 10 each for paper tickets if a customer qualifies for an electronic ticket, as the carrier tries to reduce costs. The fee will be levied for tickets on American and American Eagle bought at the AA.com Web site; American's reservations centers; its Travel Centers, which are outside airports; and airports. American wouldn't say how it decides who qualifies for an e-ticket. (The Washington Post, April 10, 2001) U.S., MEXICO, Banks: Lieff, Cabraser Files Suit over Braceros Wages Held ------------------------------------------------------------------------ San Francisco, Calif. (April 9, 2001) - Mexican workers contracted to work in U.S. farms and rail yards from 1942 to 1949 filed a class action suit last week to recover wages withheld for placement in savings funds that were not returned to them, according to the filing. The suit seeks recovery of the forced savings accounts to the workers, who worked in the U.S. under a bilateral agreement between the United States and the Government of Mexico. The lawsuit was filed April 5, 2001 in the Eastern District of California against the United States government, the Mexican government, Wells Fargo Bank, and three Mexican banks, alleging breach of fiduciary duty, breach of contract, and unjust enrichment, among other causes of action. These defendant entities were responsible for the administration and effective transfer and distribution of the savings funds to the workers when they returned to Mexico. Thousands of these contract workers (called "braceros", a Spanish reference to those who work with brazos or "arms") were secured beginning in 1942 to help cover a depleting U.S. workforce during World War II and these forced savings accounts were established in the bilateral agreement to help ensure that workers would return home to Mexico upon termination of their contracts. Many braceros are still alive and according to the suit, have received none of the withheld monies despite the decades passed since they worked orange and lemon groves, railroad yard "Time does not absolve the defendants of their duty to maintain their part of the agreement," said Tom Sobol, the Lieff Cabraser partner overseeing the class action suit. "The Bracero workers' contributions to this country were significant and must be recognized. Braceros are entitled to their hard-earned monies that rightfully belong to them and which continue to be unlawfully withheld by the defendants." The plaintiff class requests an accounting for all the sums withheld for the purported Savings Fund and for all sums owed to Plaintiffs, including any interest accrued thereon, as well as the creation of a constructive trust and disgorgement of the wrongfully withheld assets. Source: Lieff, Cabraser, Heimann & Bernstein, LLP Contact: attorney Enrique Martinez at (415) 956-1000 or visit at http://www.lchb.com WIT CAPITAL: DE Ct Denies Class Status in Suit for Failure to Show Harm ----------------------------------------------------------------------- Investors who filed a class action against Wit Capital Group have failed to show the online broker-dealer's alleged breach of contract and negligence actually harmed its customers, the Delaware Superior Court said in denying the investors' motion for class certification. Benning et al. v. Wit Capital Group Inc. et al., No. 99-CV-06-157 (Del. Super. Ct., Jan. 10, 2001). The court said the investor plaintiffs headed by Arthur E. Benning Sr. had failed the class-typicality test under Federal Rule of Civil Procedure 23(a)(3) by not showing how their "laundry list of shortcomings" had affected the 41,000-member class they intended to represent. Benning and four other online investors sued Wit Capital alleging the broker-dealer breached its account agreements with customers by failing to offer initial public offering investments as advertised. The plaintiffs further charged the company with not executing Internet trades in a timely manner. According to the Benning plaintiffs, Wit Capital did not tell customers the IPO investments were on a first-come, first-serve basis, or that only customers who agreed to hold IPO shares for at least 60 days would be allowed to purchase them. In addition to denying the plaintiffs' class certification for lack of typicality, the court said their class-action claims for common-law fraud and negligent misrepresentation could not be maintained in the Delaware state courts. "It has been held that such causes of action require plaintiffs to plead justifiable reliance for which ' a purported class action is not the appropriate vehicle to advance such individually unique claims,'" the court said. The court also dismissed the Benning plaintiffs' claim for deceptive business practices under the Delaware Consumer Fraud Act, finding no evidence that any Delaware resident had been harmed. (Securities Litigation & Regulation Reporter, February 28, 2001) Professionals See Early Signs Of Success in Securities Litigation Reform ------------------------------------------------------------------------ (By Mark H. Gitenstein And Charles A. Rothfeld; Mark Gitenstein is a partner in the Washington, D.C., office of Mayer, Brown & Platt. Charles Rothfeld is counsel in the Washington, D.C., office of Mayer, Brown & Platt. Both represented coalitions of the accounting profession and the technology community in developing and implementing the strategy that led to the enactment of the PSLRA and the SLUSA. They played similar roles in the development of federal Y2K liability reform legislation enacted in 1998 and 1999. The authors wish to thank Todd Foster, consultant at National Economic Research Associates, for his invaluable assistance in developing the data relied upon in Part II of this article. The authors would also like to thank Jeffrey H. Lewis and Derrick E. Brown of Mayer, Brown & Platt for their assistance in preparing this article.) The federal securities litigation reform movement began in 1991 with a joint effort by the then six largest accounting firms, clients of Mayer, Brown & Platt. The first victory was the enactment of the Private Securities Litigation Reform Act, P.L. 104-67, 15 U.S.C. @ 77(a) et seq., over President Bill Clinton's veto in 1995. Within two years the same firms realized that the plaintiffs' bar was seeking to circumvent the PSLRA by filing national securities fraud class actions in state courts, especially in California. In response, the accounting profession and the technology community created the Uniform Standards Coalition, with the goal of closing the so-called "state loophole." That ffort resulted in the enactment of the Securities Litigation Uniform Standards Act of 1998, P.L. 105-353, 15 U.S.C. @ 77(a) et seq. Although those statutes were enacted with great fanfare, there has been some question whether either or both of them have lived up to their promise. We believe that there is emerging evidence of success. We begin with an analysis of court decisions under the PSLRA. The PSLRA in the Courts The PSLRA is a complex statute containing a series of interrelated provisions, virtually all of which are aimed at reducing or screening out insubstantial securities litigation. Among its most important elements are provisions designed to end abuses in the selection of lead plaintiffs; to improve the settlement process; to establish a safe harbor for "forward-looking statements"; to make proportionate, rather than joint and several, liability the usual rule in securities suits; to eliminate securities fraud as a predicate offense under the Racketeer Influenced and Corrupt Organizations Act; and to heighten the standard necessary to plead securities fraud. Five years after enactment of the PSLRA, it is possible to report that most of these provisions have not been the source of significant disagreement in the courts. In fact, some of the most important elements of the PSLRA, such as the provisions addressing proportionate liability, have not been tested in the courts at all. But given the complexity and importance of the PSLRA, it is not surprising that questions about the meaning of a number of the act's provisions have prompted continuing divisions in the courts. This article addresses the most significant of these issues, which concerns the statute's attempt to heighten the standard for pleading securities fraud. A. The Statutory Background In enacting the PSLRA, Congress was concerned that it was too easy for plaintiffs' lawyers to file insubstantial "strike" suits alleging securities fraud that would survive a motion to dismiss, a practice that often forced defendants to settle even insubstantial claims rather than absorb large litigation costs. Although Rule 9(b) of the Federal Rules of Civil Procedure requires plaintiffs to plead fraud with "particularity," Congress explained in the conference report on the PSLRA that " t he Rule has not prevented abuse of the securities laws by private litigants. Moreover, the courts of appeals have interpreted Rule 9(b)'s requirement in conflicting ways, creating distinctly different standards among the circuits." H.R. Conf. Rep. No. 104-369, 104th Cong., 1st Sess. 41 (1995) (footnotes omitted). Congress responded to this problem by creating a uniform, heightened pleading standard, providing: In any private action arising under this title in which the plaintiff may recover money damages only on proof that the defendant acted with a particular state of mind, the complaint shall, with respect to each act or omission alleged to violate this title, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind. 15 U.S.C. 78u-4(b)(2). This standard was designed to force plaintiffs to articulate a detailed factual basis for their claims at the time the complaint is filed, allowing courts to dismiss insubstantial claims at an early stage of the litigation. Unfortunately, although there was broad agreement in Congress on this goal, both the statutory language and the explanatory legislative history of the pleading standard are imprecise. To begin with, rather than explicitly identifying the state of mind, or scienter, that would give rise to liability on the part of a securities-fraud defendant, the statute provided that application of the pleading standard would be triggered whenever the cause of action required proof that the defendant acted "with a particular state of mind." The statute did not, however, spell out just what that "state of mind" might be. In addition, as to the pleading standard itself, some members of Congress, particularly in the Senate, wanted to codify the approach then prevailing in the Second Circuit, which was generally regarded at that time as the most stringent standard applied by the courts of appeals. Under that standard, a plaintiff's complaint, to survive a motion to dismiss, had to: allege facts that give rise to a strong inference of fraudulent intent. "The requisite 'strong inference' of fraud could be established either (a) by alleging facts to show that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness." Acito v. IMCERA Group Inc., 47 F.3d 47, 52 (2d Cir. 1995) (citation omitted). Other members of Congress, however, particularly in the House of Representatives, wanted the PSLRA both to go beyond even the Second Circuit pleading standard and to heighten the scienter standard that must be satisfied by all securities fraud plaintiffs. In the end, Congress did not directly resolve this disagreement, stating ambiguously that " t he Conference Committee language is based in part on the pleading standard of the Second Circuit" and that, " b ecause the Conference Committee intends to strengthen existing pleading requirements, it does not intend to codify the Second Circuit's case law interpreting this pleading standard." H.R. Conf. Rep., supra, at 41 (emphasis added). The legislative history went on to add, with less than complete clarity, that " f or this reason, the Conference Report chose not to include in the pleading standard certain language relating to motive, opportunity, and recklessness" -- presumably, a reference to the "motive and opportunity" prong of the Second Circuit standard. Id. at 48 n.23. B. Confusion in the Courts The perhaps inevitable result of this ambiguity has been a continuing conflict among the federal courts of appeals about both the proper pleading standard under the PSLRA and the nature of the scienter that must be established to make out a case of securities fraud. The courts have now adopted three general approaches. The Second Circuit, understandably enough, has taken the position that Congress meant to endorse that court's pre-PSLRA approach. Citing its pre-statute decisions, the Second Circuit's first post-PSLRA holding reaffirmed that, under the PSLRA, "a plaintiff must either (a) allege facts to show that 'defendants had both motive and opportunity to commit fraud' or (b) allege facts that 'constitute strong circumstantial evidence of conscious misbehavior or recklessness.'" Press v. Chemical Inv. Servs. Corp., 166 F.3d 529, 538 (2d Cir. 1999) (quoting Shields v. Citytrust Bancorp Inc., 25 F.3d 1124, 1128 2d Cir. 1994 ). The court thus continues to offer a plaintiff two methods to plead the relevant state of mind, specifically permitting a case to go forward when the plaintiff offers only allegations regarding the defendant's motive and opportunity to commit fraud. At the same time, the Second Circuit reaffirmed its pre-PSLRA position on the governing scienter standard. The court therefore left in place a rule that "has been lenient in allowing scienter issues to withstand summary judgment based on fairly tenuous inferences" of recklessness. Id. In its most recent treatment of the issue, the Second Circuit backtracked a little -- but only a little -- from its position on the pleading standard. After reviewing decisions of other courts of appeals that took a different approach to the PSLRA, the Second Circuit concluded: The PSLRA effectively raised the nationwide pleading standard to that previously existing in this circuit and no higher (with the requirement of the "with particularity" requirement). At the same time, however, we believe Congress's failure to include language about motive and opportunity suggests that we need not be wedded to these concepts in articulating the prevailing standard. Novak v. Kasaks, 216 F.3d 300, 310 (2d Cir. 2000) (emphasis added), cert. denied, 2000 WL 1376966 (Nov. 22, 2000). The Second Circuit therefore remains of the view that, even though Congress did not codify all of that court's pre-PSLRA case law, " w hen all is said and done FIXIT the PSLRA did not change the basic pleading standard for scienter in this circuit." Id. at 311. The Third Circuit has adopted a very similar approach, endorsing the motive and opportunity test and concluding that the PSLRA did not intend to change the substantive scienter standard. In re Advanta Corp. Sec. Litig., 180 F.3d 525, 530-535 (3d Cir. 1999). In addition, dictum in the Fifth Circuit agrees. Williams v. WMX Techs. Inc., 112 F.3d 175, 178 (5th Cir. 1997). The Ninth Circuit has taken the opposite tack, endorsing both a pleading and a scienter standard that is much stricter than those in the Second Circuit. In In re Silicon Graphics Securities Litigation, 183 F.3d 970 (9th Cir. 1999), a divided panel of the Ninth Circuit, without reference to the PSLRA, elevated the required scienter standard in securities fraud suits. Rather than "normal" recklessness -- that is, indifference on the defendant's part to the likely consequences of its actions -- the court concluded that "recklessness only satisfies scienter requirements under Section 10(b) to the extent that it reflects some degree of intentional or conscious misconduct." Id. at 977 (emphasis added). In light of this substantive scienter requirement, the Ninth Circuit held that a plaintiff pleading securities fraud under the PSLRA must assert facts giving rise to a "'strong inference FIXIT' of, at a minimum, ' deliberate recklessness.'" Id. (emphasis added). Although this "deliberate recklessness" formulation appears to be something of an oxymoron, the court, given its insistence on intentional misconduct, evidently had in mind that the defendant must be consciously aware of the unacceptable risk of harm created by its actions. The court then addressed the question of how, consistent with the PSLRA's pleading requirements, a plaintiff could establish the requisite strong inference of scienter. After examining the act's legislative history, the court rejected the Second Circuit's approach: The legislative history supports our conclusion that the PSLRA pleading standard is higher than the standard of the Second Circuit. We find that because the conference committee expressly rejected the "motive and opportunity" and "recklessness" tests when raising the standard, Congress must have intended a test that lies beyond the Second Circuit standard. Had Congress merely sought to adopt the Second Circuit standard, it easily could have done so. It did not do so. Instead, Congress adopted a standard more stringent than the Second Circuit standard. It follows that plaintiffs proceeding under the PSLRA can no longer aver intent in general terms of mere "motive and opportunity" or "recklessness," but rather, must state specific facts indicating no less than a degree of recklessness that strongly suggests actual intent. Silicon Graphics, 183 F.3d at 979. As a consequence, establishing the defendant's motive and opportunity to commit fraud is not sufficient to survive a motion to dismiss in the Ninth Circuit. Instead, the plaintiff must point to specific facts creating a strong inference that the defendant was consciously aware that it was acting wrongfully. Finally, the First, Sixth and 11th Circuits have taken a middle ground between the more liberal Second and the more conservative Ninth Circuit approaches. These courts have, however, differed somewhat among themselves on the nuances of their tests. The First Circuit acknowledges that the PSLRA heightened the pre-existing pleading standard: "The most salient feature of the PSLRA is that whatever the characteristic pattern of the facts alleged, those facts must now present a strong inference of scienter." Greebel v. FTP Software Inc., 194 F.3d 185, 196 (1st Cir. 1999). But in contrast to the Ninth Circuit, the court declined to hold that proof of motive and opportunity to commit fraud "can never be enough to permit the drawing of a strong inference of scienter." Id. at 197. The First Circuit also rejected the conclusion that the PSLRA elevated the substantive scienter standard in securities fraud suits, finding that Congress "should not be taken as implicitly having eliminated recklessness as a basis for any liability." Id. at 200. The Sixth Circuit takes a somewhat stricter approach. On the one hand, that court agreed that the PSLRA did not modify the securities fraud scienter standard, so that "under the PSLRA, a plaintiff may survive a motion to dismiss by pleading facts that give rise to a 'strong inference' of recklessness." In re Comshare Inc. Sec. Litig., 183 F.3d 542, 550 (6th Cir. 1999). On the other hand, the court concluded that the PSLRA meant to go beyond the Second Circuit pleading standard: " P laintiffs may meet PSLRA pleading requirements by alleging facts that give rise to a strong inference of reckless behavior but not by alleging facts that illustrate nothing more than a defendant's motive and opportunity to commit fraud." Id. at 551 (emphasis added). The 11th Circuit's approach closely follows that of the Sixth Circuit. The court agreed that the PSLRA "does not prohibit the practice of alleging scienter by pleading facts that denote severe recklessness." Bryant v. Avado Brands Inc., 187 F.3d 1271, 1283 (11th Cir. 1999). At the same time, however, the court held that, " w hile allegations of motive and opportunity may be relevant to a showing of severe recklessness, FIXIT such allegations, without more, are not sufficient to demonstrate the requisite scienter in our Circuit." Id. at 1285-1286 (emphasis added). The law thus stands in a state of some confusion. Of course, the articulated disagreements among the circuits on the pleading standard may not be quite as great in practice as they appear to be on the surface, since the inquiry in all cases is a highly fact-intensive one. But having said that, the issue surely will have to be resolved by the Supreme Court in the near future. The courts of appeals are closer to a consensus on scienter, with all but the Ninth Circuit and its "deliberate recklessness" standard holding that proof of ordinary recklessness is sufficient to establish liability. The Fourth Circuit appears to have left the issue open. Phillips v. LCI Int'l Inc., 190 F.3d 609, 620 (4th Cir. 1999) ("to establish scienter, a plaintiff still must prove that the defendant acted intentionally, which may perhaps be shown by recklessness"). But if the Ninth Circuit's approach proves to make a difference in the outcome of litigated cases, the scienter standard also will have to be settled by the Supreme Court. This disagreement in the courts, however, should not obscure the fundamental success of the PSLRA. Prior to enactment of the statute, the Second Circuit's requirement that plaintiffs plead securities fraud with particularity, and that the facts alleged give rise to a "strong inference" of fraudulent intent, was the most stringent standard applied by the courts of appeals. Most other courts, such as the Ninth Circuit, allowed claims to survive a motion to dismiss so long as they supported only a "reasonable inference" of fraud. E.g., Provenz Miller, 102 F.3d 1478, 1490 (9th Cir. 1996). However the conflict in the courts ultimately is resolved, the PSLRA will have, at a minimum, converted the pre-statute pleading ceiling into a floor for successful claims. The result will be the dismissal, at an early stage, of the most insubstantial securities fraud suits. The Practical Impact of the PSLRA The securities litigation reform movement was motivated primarily by concerns about coercive settlement of meritless cases. When we were retained by the six largest accounting firms, we immediately undertook an extensive analysis of all of their federal securities claims. We found abundant evidence to justify these concerns. Among the conclusions, and apparently most disturbing to Congress, was evidence that a very high percentage of the cases (approximately 60 percent) for the period of the study (1991-1992) were settled essentially for attorneys' fees. Of 97 cases surveyed, 58 settled for token amounts, with less than $1.5 million going to plaintiffs, yet many times that amount going to plaintiffs' and defendants counsels. To advocates of reform these were meritless cases, the only beneficiaries of which were attorneys on both sides of the litigation. Private Litigation under the Federal Securities Laws: Hearings before the Subcommittee on Securities of the Committee on Banking, Housing, and Urban Affairs, United States Senate , S. Hrg. 103-431, 662-673 (1993). Our interviews and analysis of the cases suggested that most were brought in the hopes of settlement with a large accounting firm as a "deep pockets" co-defendant. Our findings coincided with the work of professor Janet Cooper Alexander of Stanford University Law School. In a 1991 article in the Stanford Law Journal, Alexander studied Section 10b-5 cases growing out of 20 initial public offerings. Janet Cooper Alexander, Do the Merits Matter A Study of Settlements in Securities Class Actions , 43 Stan. L. Rev. 497. She discovered that all of the actions, regardless of the merits, settled for approximately 25 percent of potential damages, suggesting the answer to the question posed in the title of her article: Because suits were filed against every company in the industry whose stock declined signifi cantly in the months following its initial stock offering, it is likely that the cases included a range of strength on the merits. Nevertheless, the cases settled for approximately one quarter of the potential damages according to the allegations of the complaint. This was true even in one case where the court had granted partial summary judgment reducing the recoverable damages by 70 percent. Though a few cases departed from the going rate, these variances can be accounted for by non-merits-related factors. The strength of the plaintiffs' case on the merits thus did not appear to be a significant factor in determining the outcome of these cases. Id. at 500. Other studies by Vince O'Brien, director at the Law and Economics Consulting Group, and Zoe-Vonna Palmrose, PricewaterhouseCoopers professor of auditing at the University of Southern California's Marshall School of Business, agreed that settlements were driven more by the availability of insurance or a "deep pockets" co-defendant than by the merits. Vincent E. O'Brien, A Study of Class Action Securities Fraud Cases, unpublished (1991); University of Southern California School of Accounting working paper by Zoe-Vonna Palmrose, unpublished (January 1993). These concerns became the rationale for enactment of the PSLRA. The House-Senate Conference Report on the PSLRA concludes that the reasons for the legislation, among other things, were "the filing of lawsuits FIXIT without regard to any underlying culpability," the "targeting of deep pocket defendants," and the "abuse of the discovery process. H.R. Conf. Rep. No. 104-369, at 31 (1995). At the time, there was rhetoric heard from some advo cates of securities reform about ending frivolous filings altogether, while critics expressed concern that the legislation would "close the courthouse door." Neither camp was right. Most of us who worked on the legislation did not believe it would have a significant impact on the number of cases filed. Indeed, the only provi sions that might have had such an impact, amendments to Rule 11 of the Federal Rules of Civil Procedure, were, for the most part, toothless. We also recognized that the decision by proponents of the legislation, especially Senator Chris Dodd (D--Conn.), to abandon the so-called "English Rule" on attorneys' fees, while appropriate from a policy perspective, eliminated the only reform that might have had a substantial impact on the number of filings. Thus, analyses since the enactment of the PSLRA criticizing the legislation for not affecting the number of filings are off the mark. In fact, a report issued by National Economic Research Associates Inc. indicates that a factor likely to affect the number of filings is the performance (monthly return) of a stock. NERA also observes that this pattern has been unaffected by the PSLRA. Todd S. Foster et al., Trends in Securities Litigation and the Impact of the PSLRA ("Trends"), at 4 (1999). When there are precipitous drops in the market there is often a corresponding increase in filings by disappointed investors. Id. The Securities Litigation Uniform Standards Act, on the other hand, was designed to affect filings by preventing plaintiffs' attorneys from circumventing the PSLRA through the tactic of bringing securities fraud suits in state courts. It has largely achieved its goals, as Foster et al. point out in their recent piece. Trends at 5. Prior to the PSLRA, national securities class actions in state courts were almost unheard of. The general pattern was that the securities cases that were brought in state court tended to be concentrated in Delaware (more than half of state class actions involving securities were brought in that state, mostly merger-and-acquisition- related cases under the Delaware Corporate Code), with only approximately 10 percent of such filings in California. In the two years after the enactment of the PSLRA that ratio reversed itself. According to NERA, the SLUSA effectively closed the state court loophole, and the state litigation profile has returned to the pre-PSLRA pattern. Id. at 6. While there is significant evidence that the SLUSA is working and the state litigation "loophole" has been closed by the 1998 act, it is still too early to tell if the significant reforms in the underlying PSLRA have worked. There are three areas where there is some early, tentative but encouraging data: (1) the so-called "race to the courthouse" that existed, pre-PSLRA; (2) the dismissal rate of claims brought under Rule 10b-5; and (3) the settlement rate and the settlement value of claims. The race to the courthouse appears to have subsided . In April 1997, responding to a request from President Clinton following enactment of the PSLRA, the Securities and Exchange Commission provided a report to Congress and the President advising them of the statute's impact on the effectiveness of securities laws and investor protection, and on the extent and nature of securities litigation. In summarizing its conclusions, the SEC stated: Although it is too soon to draw any definitive conclusions about the impact of the Reform Act on the effectiveness of the securities laws and on investor protection, some preliminary observations can be madeFIXIT. The race to the courthouse has slowed somewhat. Although a few cases were filed within days of the release of negative news by the issuer, most were filed after at least several weeks had passed. Office of the General Counsel, U.S. Securities and Exchange Commission, Report to the President and the Congress on the First Year of Practice under the Private Securities Litigation Reform Act of 1995 (April 1997). There is some recent anecdotal evidence relayed to us by NERA that the time between filing and stock drop has begun to decrease again because of a rush by plaintiffs' attorneys to position their clients to be selected as lead plaintiffs. At the same time, according to NERA, the speed with which defendants settle has slowed significantly. Our discussion with practitioners suggest that both trends may be temporary and a function of uncertainty about the pleading standard. There seems to be little doubt that the complaints themselves are much more specific since enactment of the PSLRA. Should the pleading standard continue to be heightened by the courts, and the pre-filing investigations thereby required of plaintiffs be increased, the rush to the courthouse might further subside. Settlements may be delayed as plaintiffs contemplate whether to replead a dismissal or because defendants now feel the PSLRA gives them more tools to fight settlement of cases with little merit. With one important caveat, there is significant evidence that the dismissal rate of claims has increased. NERA found in its report "a marked increase in the percentage of cases dismissed as a percentage of dispositions. Dismissals as a percentage of dispositions have more than doubled from 12 % to 25%, with PSLRA's heightened requirement to plead with particularity a likely contributing factor." Trends at 6. Further, NERA's most current information on dismissals puts the rate even higher, at 28 percent. However, it is not clear whether all of these dismissals are with prejudice. A University of Michigan study noted a similar trend. David M. Levine and Adam C. Pritchard, The Securities Litigation Uniform Standards Act of 1998: The Sun Sets on California's Blue Sky Laws, 54 Bus. Law 1 (1998). There is an emerging trend reflected in the settlement data suggesting that the PSLRA is beginning to accomplish its most important goal -- preventing the coercive settlement of frivolous cases, and correlating the size of a settlement with the merits of the underlying claim. This may be the most important new data we gathered with the help of NERA. We asked NERA to provide data on two cohorts of cases at a date settled between one and two years after filing -- a set of cases filed in 1991 (23 cases) and set of cases filed in 1997 (22 cases). The average settlement value of the post-PSLRA cases was more than three times the value of the pre-PSLRA cases -- $17,486,136 post-PSLRA versus $5,658,152 pre-PSLRA ($7,842,619 post-PSLRA, excluding the $220 million Waste Management settlement). NERA also has indicated that it has preliminary evidence that there may be fewer cases settling for a nuisance value, i.e., $2 million or less, post-PSLRA. At the same time, the dismissal rate of cases filed post-PSLRA versus pre-PSLRA was higher as a percentage of dispositions. For those cases that are dismissed and not refiled the settlement value would be zero. Therefore, we believe this data suggests that the PSLRA is allowing dismissal of the truly meritless cases. Yet the cases that remain in the system actually increase in settlement value -- reversing the pre-PSLRA pattern identified by Alexander, O'Brien and Palmrose. This is the goal that most in the Congress had hoped for -- tilting the judicial process in favor of cases with real merit and away from cases without merit. Conclusion While it is too early to label securities litigation law reform a success, the primary goal that Congress set for the legislation may be realized. The "race to the courthouse" phenomenon appears to be subsiding; frivolous cases apparently are being dismissed; coercive settlement of meritless cases seems to be subsiding, while the settlement value of cases of real merit is increasing. As the courts refine the pleading standard, especially if they tighten it, we could see even more progress. Unfortunately, there is little or no evidence that the "forward looking information" safe harbor, the "lead plaintiff" provision, or other important aspects of the PSLRA are having much effect. Nevertheless, this is rather remarkable progress for the one and only effort by Congress to create some order and rationality in this most unruly form of litigation. (Securities Litigation & Regulation Reporter, January 31, 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. 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