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              Wednesday, April 11, 2001, Vol. 3, No. 71


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

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

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

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

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

"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.

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 &

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

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

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

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

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

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

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

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

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

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

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

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.


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
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