/raid1/www/Hosts/bankrupt/CAR

/raid1/www/Hosts/bankrupt/CAR_Public/990610.MBX C L A S S A C T I O N R E P O R T E R Thursday, June 10, 1999, Vol. 1, No. 90 Headlines AMERICAN HOME: Accused of Destroying Fen-Phen Email AMSOUTH BANK: Court Denies Class Status in Account Posting Suit ARTHUR ANDERSEN: Jury Decides Firm Didn't Aid & Abet UDC Fraud BRE-X MINERALS: Class Status Denied due to Idiosyncratic Claims CARNEGIE INTERNATIONAL: Sues Surfers for Defamatory Cyber-Smears COCA-COLA: Judge Orders Company to Release Employee Database HUGHES AIRCRAFT: Employer Keeps Control of Excess Pension Funds PROTECTION ONE: Expects Process Server to Arrive Shortly PROVIDENT COMPANIES: Paul Revere Agents Sue Together & Alone ROGERS ATHOME: Users Unhappy with Canadian Internet Cable Speed SUMITOMO CORP.: Dealer Alleges International Copper Cartel Y2K LITIGATION: Canada Remains Cautious But Unconcerned Y2K LITIGATION: Silicon Valley Weighs in US Political Battle ********* AMERICAN HOME: Accused of Destroying Fen-Phen Email --------------------------------------------------- Lawyers for the family of a Massachusetts woman who died after taking the fen-phen diet drug combination are claiming that American Home Products (AHP) destroyed and withheld email potentially important to their case and hundreds of others. Linnen v. A.H. Robins Co., No 97-2307 (Super. Ct. Middlesex Co.). In a May 18 hearing in the pre-Civil War courthouse here, lawyers for the family of Mary J. Linnen asked for sanctions on AHP and the disqualification of its national counsel, Washington, D.C.'s Arnold & Porter, from the suit. AHP lawyers concede that some email back-up data were destroyed, but they say that the plaintiffs suffered no real harm. The case was filed in May 1997, after Mary Linnen died of primary pulmonary hypertension, an often fatal lung disease. The plaintiffs' lawyers got an ex parte order requiring AHP to preserve relevant documents, including emails and computer backups, having to do with fen-phen. Two weeks later, before Arnold & Porter came on the scene, Bingham Dana L.L.P. partner Francis Fox persuaded Judge Raymond Brassard to dissolve the order. What happened next is in dispute. Representing the Linnens, partner Alex H. MacDonald and associate Louise A. Leduc, of Robinson & Cole L.L.P., argued that the order was dissolved on the understanding that AHP agreed to preserve any such material. AHP lawyers say that once the order was dissolved, they were obligated only to take reasonable care to protect evidence. Both sides agree that AHP permitted the information on some backup tapes to be destroyed by failing to suspend normal tape recycling. In addition, AHP revealed the existence of more than 1,000 backup tapes only in February, after most depositions were completed. The plaintiffs' lawyers argued that AHP should pay to extract the information from the remaining backup tapes, which they said will cost as much as $ 1.35 million. They also sought $ 1 million in sanctions against AHP and asked Judge Brassard to revoke Arnold & Porter's right to represent AHP in his court. He gave no indication when he will rule. Defense lawyers argued that Robinson & Cole should be satisfied with AHP's agreement to retrieve information from some of the tapes in the federal diet-drugs multidistrict litigation. Emails are often a fertile source of embarrassing revelations about companies, says Michael R. Overly, an electronic discovery expert at Foley & Lardner in Los Angeles. "People will often express thoughts, opinions and emotions in an email that they wouldn't put in a formal memo," he says. The Linnen suit is one of several filed before the 1997 recall of fenfluramine and dexfenfluramine produced a flood of litigation. At least nine cases have been settled, for amounts reportedly between $ 500,000 and $ 4.6 million. Class actions have been certified in six states. On May 17, a Texas judge declared a mistrial in a fen-phen case after finding that a 62- member jury panel contained too few impartial members. (The National Law Journal; May 31, 1999) AMSOUTH BANK: Court Denies Class Status in Account Posting Suit --------------------------------------------------------------- Finding that individual circumstances controlled the disposition of account holders' claims that AmSouth Bank fraudulently concealed its transaction posting policy in violation of the Truth in Savings Act, the U.S. District Court for the Southern District of Alabama recommended that class certification be denied. This ruling will be of great help to the banking industry in defeating class certification in other order of posting cases. Shelley, et al. v. AmSouth, et al., No. 97-1170- RV-C (S.D. Ala. 4/29/99). AmSouth required consumers to sign a signature card in order to open a checking account. The signature card explained that by using the checking account, the customer was bound by AmSouth's rules, regulations, customer agreements and pricing schedules. The pricing schedule set forth the fee for an overdraft item or nonsufficient funds item as follows: If you make withdrawal requests which exceed the available funds in your account, we may honor any, all, or none of the amounts requested; and if we choose to honor any requests, we may pay the requests in any order we choose. Posting Order AmSouth posted credits and then debits to customers' demand deposit accounts based on a predetermined hierarchy of transaction codes called the "transaction posting order." Items in transaction codes with a higher priority post before items with a code representing a lower priority. AmSouth assigned codes to ATM withdrawals, teller cashed checks, debit card purchases and third-party checks. Prior to May 1, 1991, AmSouth posted items from the smallest item to the largest within each transaction code. This policy changed in May 1991 when the bank began posting items from the largest to the smallest. Because items were sorted and given priority based on their codes, often routine types of transaction were posted before others even if the others were larger in amount. According to AmSouth, it changed its posting procedure after customers who experienced overdrafts indicated that they wanted the bank to pay the largest items first, rather than paying the smaller first or paying items in a random order. Overdraft Protection AmSouth offered overdraft protection to its customers. In administering that service, the bank withdrew money in 50 increments for a customer's associated account to cover overdraft items. AmSouth charged 5 per transfer plus an annual overdraft protection fee. In 1995, AmSouth began utilizing certain factors to set individualized overdraft limits. The bank began marking the amount that it would initially automatically pay to cover overdrafts and beyond which officers would continue to scrutinize items individually for pay or return decisions. This policy allowed officers, who chose to return an item to the endorser, to pay one or more smaller checks presented without charging an overdraft fee when a positive balance was left in the drawer's account by the return. Class Action A group of depositors filed a class action challenging AmSouth's posting policy and its failure to disclose the appropriate fees and conditions associated with that policy. The consumers claimed that they incurred and paid overdraft fees they would not have otherwise incurred because of the bank's undisclosed policy of posting multiple debt transactions in a sequence of highest debit item to the lowest debit item within a certain transaction code. They raised claims for fraud, breach of contract and actual damages under TISA. The court examined the proposed class to determine if it complied with Rule 23. Because the court concluded that the plaintiffs' fraud, contract and TISA actual damages claims "hinge[d] on individualized proof regarding representations and omissions, reliance, causation, materiality, the parties' understandings, damages, defenses and counterclaims," it ruled that the class could not satisfy Rule 23's commonality. In support of Rule 23's typicality requirement, plaintiffs' counsel argued that customers preferred an alternative order of posting to the bank's practice of posting multiple transactions in a sequence of highest debit item to the lowest debit item. But this theory, said the court, did not coincide with the class representatives' testimony that larger, more important checks should be paid first so their rent, mortgage and car payments would not be jeopardized. The court found that this testimony along with the fact that the plaintiffs failed to show they were harmed by AmSouth's nondisclosure defeated typicality. The court further found that Rule 23's adequacy of representation requirement was not fulfilled by the plaintiffs. Not only did the court conclude that the named plaintiffs were subject to unique defenses, it determined that they had interests antagonistic to the class, lacked adequate resources and were unfamiliar with the case. Writing for the court, Judge William E. Cassady opined that class certification was inappropriate because individual issues predominated over those common to the class, particularly in the areas of suppression and actual damages. The court explained that the claims would require questioning each customer and AmSouth representative about the alleged misrepresentation, the reliance thereon and the injury involved. Lastly, the court concluded that a class action would not offer a fair and efficient adjudication of the controversy given the thousands of transactions, individual conversations, numerous counterclaims and the laws of different states. Judge Cassady stated that, "Discovery and resolution of dispositive motions as to each customer would be tortuous." For these reasons, the court recommended that the plaintiffs' motion for class certification be denied with respect to the claims for fraud, breach of contract and actual damages. However, it granted certification on the TISA statutory damage claim after AmSouth stipulated to certification on the issue of whether its disclosures complied with the statute. Barre Dumas, Kent McPhail, Ronald Herrington Jr. and Sarah Steward of Dumas & McPhail LLC in Mobile, Ala., represented the plaintiffs. Gregory Jordan, Perry Napolitano and Roy Arnold of Reed, Smith, Shaw & McClay in Pittsburgh and Broox Holmes, Edward Dean and William Steele Holman of Armbrecht, Jackson, DeMouy, Crowe, Holmes & Reeves in Mobile, Ala., represented AmSouth. (Consumer Financial Services Law Report; May 28, 1999) ARTHUR ANDERSEN: Jury Decides Firm Didn't Aid & Abet UDC Fraud -------------------------------------------------------------- A Phoenix jury on May 11 rejected a securities fraud class action filed against Arthur Andersen L.L.P. by shareholders in a failed home building company who sought $ 95 million in compensatory damages and $ 1.3 billion in punitives. The plaintiffs, several thousand shareholders in UDC Homes Inc., had accused Arthur Andersen, an accounting firm, of "aiding and abetting breach of fiduciary duty and fraud" by the directors and officers of UDC, said plaintiffs' attorney Robert S. Green, of San Francisco's Girard & Green. UDC stock had been selling at $ 10 a share at the beginning of 1994, but it plummeted to $ 1 per share at the end of the year and then became worthless when the company filed for bankruptcy in 1995, said defense counsel Marshall B. Grossman, of Los Angeles' Alschuler, Grossman, Stein & Kahan L.L.P. The Phoenix- based company was sold through bankruptcy to another home builder, he said. The stockholders "received nothing," he added. The shareholders filed securities fraud actions against the directors and officers of UDC, as well as Arthur Andersen and another accounting firm, Coopers & Lybrand. The officers settled in 1995 for $ 12.75 million; Coopers settled in early 1999 for $ 4 million, Mr. Grossman reported. The plaintiffs were certified as a class in October 1997. Isco v. Arthur Andersen L.L.P., CV No. 95-08941 (Super. Ct., Maricopa Co., Ariz.). The plaintiffs claimed that UDC had issued false and misleading financial statements for fiscal years 1992, 1993 and 1994 and that Arthur Andersen had signed off on these statements, said Mr. Grossman. Mr. Grossman tried the case with Michael Cypers and Gwyn Quillen, of Alschuler Grossman, and Francis J. Burke and Floyd Bienstock, of the Phoenix office of Washington, D.C.'s Steptoe & Johnson L.L.P. These statements painted a rosier picture of the financial status of UDC than was accurate, said Mr. Green, leading shareholders to buy and continue to hold stock in the company. The plaintiffs charged that Arthur Andersen certified $ 33.5 million in tax assets "that were worthless" and accepted UDC's inflation of the value of inventory, Mr. Green said. Coopers was the auditor for UDC until 1992, Mr. Green said. "Coopers refused to certify the financial statements the company wanted, so Coopers was fired. Andersen was hired and certified statements so UDC could raise $ 115 million in public bonds. This kept the company afloat until it tanked in May 1995," he said. "The shareholders lost $ 150 million." The primary losses to the shareholders came after Arthur Andersen took over, Mr. Green said. Arthur Andersen contended that neither the accounting firm nor the managers of UDC were responsible for the company's demise. "UDC was a victim of the increasing interest rates in 1994," said Mr. Grossman. "When interest rates were tightened, UDC suffered more than most because of its highly leveraged capital structure. The company's failure had nothing to do with the audits or the financial statements. The company's failure was related to market conditions, increased interest rates and the financial structure of the company." (The National Law Journal; May 31, 1999) BRE-X MINERALS: Class Status Denied due to Idiosyncratic Claims --------------------------------------------------------------- In refusing to certify Bre-X shareholders' class action against various stock brokerages, Justice Warren Winkler of Ontario's Superior Court observed that the relationship between each shareholder and his or her investment adviser is "individual in nature" and even "idiosyncratic." On finding insufficient commonality among the shareholders, he disallowed them from banding together in a class action against the brokerages, who they claim gave bad advice to invest in what turned out to be a bogus gold mine. "The standard of care owed by an investment adviser to a particular client," said Justice Winkler, "is concordant with the services that the adviser undertook to provide the client, that is, whether the client was to be provided with advice as opposed to mere information or whether the adviser was given discretion to trade on behalf of the client." Moreover, he noted that different investors have different goals and different ways of achieving them. To illustrate the potential variation, he noted that one plaintiff's adviser was deliberately seeking volatile stocks to invest in, while another's was trying to find low-risk stocks. Because of this diversity, Justice Winkler found no common issues among the shareholders in their claim that the brokerages breached their "duty to warn" about Bre-X. With respect to their claims of fraudulent and negligent misrepresentation and breach of the Competition Act (s. 52 of which forbids making "false or misleading representations" about products or making guarantees "not based on an adequate or proper test"), Justice Winkler said there are common issues among the shareholders. However, he ruled that a class action would not be the "preferable procedure" to resolve them. He said that even if the common issues (e.g. duty of care, standard of care, etc.) were resolved in a class trial, each class member -having a particular relationship with his or her brokerage - would still require an individual trial to determine individual issues of reliance, causation and damages. These would be "complex, lengthy, individualistic inquiries" Justice Winkler said. Having a multitude of complex individual trials would defeat the goals of class actions, namely: "judicial economy, access to justice and behavior modification of wrongdoers." For similar reasons, Justice Winkler also denied class certification of the shareholders' action against engineering firm SNC-Lavelin and related companies who conducted an independent analysis of gold resources for Bre-X. He found no common issues among the plaintiffs, and said that even if he had found common issues, a class action would not be the preferable procedure. However, he did certify a class proceeding against Bre-X itself and its insiders. Counsel for the plaintiffs, Harvey Strosberg, told reporters he will appeal Justice Winkler's ruling. (THE LAWYERS WEEKLY; June 11, 1999) CARNEGIE INTERNATIONAL: Sues Surfers for Defamatory Cyber-Smears ---------------------------------------------------------------- Carnegie International, a telecommunications holding company, has accused Internet users of posting defamatory messages about its executives to drive down the company's stock price and spark a lawsuit by shareholders. A Carnegie lawsuit said the messages -- by a Texas businessman, a Maine lawyer and a California Internet user identified only as "Indianhead" -- claimed company officials engaged in insider trading with shares awarded under a bonus program. The messages also exhorted shareholders to consider "a major class-action lawsuit," Carnegie alleged. The Carnegie suit, which was filed in federal court in Baltimore and seeks more than $1.1 billion in damages, is one of the first in which a company has struck back at Internet surfers who use the World Wide Web to question executives' actions. Securities and Exchange Commission officials wouldn't comment on Carnegie's suit, although regulators are looking into similar allegations of stock manipulation through Internet chat rooms and message groups, said John Reed Stark, head of the SEC's Internet enforcement unit. "We haven't brought a pure 'cyber-smear' case as of yet, but we are very concerned about the issue," Stark said. Complaints of false Internet messages have increased in the last year, Stark added. Last month, M.H. Meyerson & Co. filed a nearly identical suit against Internet users who sent out messages accusing the brokerage's chief executive of stock manipulation, insider trading and money laundering. (Los Angeles Times; June 9, 1999) COCA-COLA: Judge Orders Company to Release Employee Database ------------------------------------------------------------ A federal judge in Atlanta has given Coca-Cola until July 1 to turn over to plaintiffs in a racial bias case a detailed database on its work force. An order issued by U.S. District Judge Richard Story appears to expedite the process of deciding whether the lawsuit, filed by three current African- American employees and one former staffer, can be expanded into class-action status and include another 1,500 black, salaried employees who work for the beverage giant. The lawsuit accuses Coca-Cola of engaging in a companywide practice of discriminating against African-American employees. The company has strongly denied the accusations and late last month asked Story to dismiss the suit. Story's scheduling order, issued Friday, did not address the company's motion. "It's a well-thought-out, no-nonsense order that puts the class- certification issue on as fast a track as is practical," Cyrus Mehri, the Washington lawyer representing the plaintiffs, said Tuesday. Coca-Cola spokesman Ben Deutsch said the company declined to comment. So long as Coca-Cola hands over by July 1 its computerized employee database -- and provided it is in "complete, readable and useable form" -- plaintiffs then have 90 days to file their motion for class-action certification of their lawsuit, Story said. The database must include basic employee information, including the names of employees; their race; dates of service at Coca- Cola; educational background; the date they left the company and the reason they gave for leaving; job evaluations; any disciplinary actions they received; and each position they held during employment, the order said. The database should include U.S. employees who worked since Jan. 1, 1993, for Coca-Cola corporate, Coca-Cola USA, Coca-Cola International or Minute Maid, the judge said. The plaintiffs will hire a statistical expert to analyze the database. Once he or she has completed the evaluation, the plaintiffs must make this person available to Coca-Cola attorneys for sworn testimony, Story said. Story noted that a "dispute" has arisen about alleged attempts by Coca-Cola to "correct errors" in its database before turning it over to the plaintiffs. Coca-Cola has contended that it introduced a new computer system in 1996 that may cause some of its data to be confusing. Plaintiffs express concern the company may manipulate some of the data, the order said. To preserve the evidence, Story said, Coca-Cola must provide a copy of the database as it existed at the time the lawsuit was filed or as it existed no later than when his order was issued Friday. Story also directed Coca-Cola to turn over to the plaintiffs by June 16 any computerized data or documents concerning efforts by the company to analyze human resources practices that refer to the race of employees. This should include, if available, information about salaries, transfers, promotions, demotions and firings. Story said pretrial discovery can now begin, provided it is limited to addressing the class-action allegations in the lawsuit. During the discovery process, both sides turn over documents to each other and take sworn testimony from witnesses. (The Atlanta Journal and Constitution; June 9, 1999) HUGHES AIRCRAFT: Employer Keeps Control of Excess Pension Funds --------------------------------------------------------------- Judge Kenneth Starr recently quarterbacked a high-stakes, billion-dollar legal drama with repercussions for millions of Americans -- and it had nothing to do with Whitewater, Monica Lewinsky, or President Clinton. In this high-profile case, Judge Starr represented an employer before the U.S. Supreme Court in a feud waged over the management of employee pension plan funds. The Supreme Court's January decision may affect every American worker and retiree who participates in defined pension plans -- a total of about 33 million, according to the Associated Press. The crux of the Supreme Court's decision is that it is the employer that manages a pension fund -- not the employees who contribute to it -- that retains control over any surpluses the plan accrues. As the stock market continues to churn at its staggering pace, this decision will place billions of dollars back into employers' hands. The law under which this case was brought, the Employee Retirement Income Security Act of 1974 (ERISA), is relatively complicated. For our purposes, it is enough to understand that ERISA is the federal law governing the management of all employee benefits plans. It provides a plan management framework and requires employers to provide certain documents and annual reports to participants and/or the federal government. In addition, ERISA imposes a fiduciary duty on those who exercise discretionary control over the plan's management, administration, or assets or who render investment advice about the plan. If a participant believes the fiduciary mismanaged the plan or committed fraud, he may sue, either on behalf of himself or on behalf of the plan, for breach of fiduciary duty. It is generally only after a benefits plan is terminated that a fiduciary duty may be imposed on an employer. In fact, a 1996 Supreme Court decision held that employers that alter the terms of a plan are, without exception, not considered fiduciaries. The distinction between amending and terminating a pension plan was a pivotal issue in this case. Like many employers, Hughes Aircraft Company sponsored a pension plan guaranteeing participants a fixed level of benefits at retirement, regardless of the plan's success or failure. Until 1991, the plan was funded by both the employer's contributions and mandatory contributions by the employees who participated in it. Because the plan guaranteed a prespecified level of benefits, Hughes was required to make contributions to the plan as necessary to ensure that return. It had the right to suspend its contributions at any time, so long as doing so did not create a fund deficiency. By all accounts, the pension plan was quite successful. Employee/employer contributions and remarkable investment growth resulted in a plan surplus of nearly $ 1 billion by 1986. In light of the surplus, the employer decided to suspend its contributions, which it did not resume. After about five years of continued growth and prosperity, the employer decided to change the pension plan: *First, an early retirement program was established to provide significant additional benefits to certain key employees. *Second, Hughes switched to a two-tiered pension system under which new participants would no longer make any contributions to the plan and would be entitled to lesser benefits upon retirement. Under the two-tiered system, employees who retired before 1991 continued to receive the previously higher level of benefits, and current employees who were with the company before 1991 could choose between the contributory and noncontributory options. The revised pension plan wasn't met with resounding employee approval, to say the least. Employees who had contributed to the plan objected heatedly that they had a right to benefit from the surplus and that Hughes had, in essence, stolen the surplus from them to fund a separate pension plan for noncontributing employees. The employees claimed that as a result of the changes, the original pension plan had ceased to exist altogether. Litigious leprechauns? The contributing employees filed a class-action lawsuit against Hughes, claiming that: *the changes had terminated the original plan; *ERISA prevented the employer from using the terminated plan's funds to support a second, separate fund; *the employer had breached its fiduciary duty to plan participants; and *the contributing employees were entitled to their "cut" of the plan's considerable surplus. The district court dismissed the case, but the Ninth U.S. Circuit Court of Appeals reversed the decision, concluding that the 1991 amendments may have in fact terminated the existing plan and created two plans: one consisting of preexisting members and the other consisting of new participants. Judge Starr and his private law firm appealed the decision to the Supreme Court. Judge Starr accused the employees of pursuing "a 'single pot of gold' to which they [weren't] entitled." The contributing employees countered that the employer's argument was "similar to the 'folklore of leprechauns' who broke into other people's houses at night and took their money to put a crock of gold together." The U.S. Supreme Court agreed to settle the debate. The Supreme Court agreed with Hughes that the employees were seeking funds to which they were simply not entitled. The Court held that an amendment to a preexisting plan that did not affect the availability of the plan's pool of assets for funding preexisting obligations could not be characterized as a "termination" of the plan. The Court reiterated its 1996 decision that only the termination of a plan -- not the act of amending a plan -- creates a fiduciary duty for an employer. Based on its finding that Hughes was not a fiduciary, the Court dismissed the counts that alleged breach of fiduciary duty. The Court also concluded that contributing participants to a defined benefits plan do not have an interest in that plan's surplus -- so long as the employer provides the amount of benefits guaranteed to participants under the plan. To clarify its decision, the court compared a defined contribution plan to the defined benefits plan at issue in this case. In a defined contribution plan, both the employee and the employer contribute, and each employee receives whatever level of benefits the investments from the amount contributed on his or her behalf actually provide. This type of plan provides an individual account for each participant, and the benefits received are dependent on the amount contributed. By definition, there can never be a shortfall of funds in this type of plan to cover the promised benefits. A defined benefits plan, on the other hand, consists of a general pool of assets rather than individual accounts. Under this type of plan, an employee is guaranteed a fixed level of benefits upon retirement. Although the plan may be funded by both employer and employee contributions, the employer bears the entire risk and must cover any shortfalls in the fund because of poor investments. Regardless of the fund's success or failure, the employee receives the same benefits. The Court concluded that since the contributing employees received the full, fixed amount guaranteed under the plan, Hughes could not have violated ERISA by using assets from the surplus for other plan participants. Further, the Court held that since the surplus was used for the sole purpose of paying pension benefits to plan participants, it did not "inure to the benefit" of the employer and thus was not a violation of the law's provisions against inurement. Interestingly, the Court found that the use of the surplus did not inure to Hughes's benefit even though the two-tiered system spared it from having to fund the noncontributing participants' portion of the plan. Although Hughes had changed the plan to offset its own obligations as well as those of noncontributing participants, the Court found that the original plan had not been terminated and reversed the Ninth Circuit's decision. Hughes Aircraft Co., et al. v. Jackson, et al. (97-1287) (Jan. 25, 1999). At a time when it seems like U.S. Supreme Court decisions favoring employers are rare, this decision is a welcome relief. The ruling preserves your managerial control to amend your defined employee pension plans without entitling your employees to funds to which they would not otherwise be entitled. Simply put, the Court's decision recognizes that defined benefits plans that guarantee a predetermined level of benefits can be dangerous business for employers. Based on the high court's ruling, an employer that assumes the risk that it may have to cover a deficiency in its fund because of poor investment returns may also enjoy an eased future burden in the event the plan's investments do well. Please keep in mind that the Supreme Court's decision does not mean you can simply pocket the plan's surplus (that would "inure to the employer's benefit"). However, it does permit you to retain your plan's surplus to offset your own contributions to the fund. Since every dollar you do not have to contribute to an employee pension fund is a dollar working for your company's bottom line, this decision is worth literally billions of dollars to American employers. When it comes right down to it, maybe Ken Starr hasn't had such a bad year after all! This article was written by Jennifer L. Hamilton of Pepe & Hazard, LLP. (NEW HAMPSHIRE EMPLOYMENT LAW LETTER; JUNE, 1999) PROTECTION ONE: Expects Process Server to Arrive Shortly -------------------------------------------------------- Based on public releases, PROTECTION ONE INC. announced that it understands that purported class action lawsuits have been filed against it and certain of its officers and directors alleging violations of federal securities laws arising from the Company's announcement to restate financial statements for the year ended December 31, 1997 and each of the first three quarters of 1998. The Company has not been served with process and, therefore, cannot provide more details with respect to these or any other claims alleged in these actions. PROVIDENT COMPANIES: Paul Revere Agents Sue Together & Alone ------------------------------------------------------------ Two alleged class action lawsuits have been filed in Superior Court in Worcester, Massachusetts against PROVIDENT COMPANIES INC. -- one purporting to represent all career agents of Paul Revere whose employment relationships ended on June 30, 1997 and were offered contracts to sell insurance policies as independent producers, and the other purporting to represent independent brokers who sold certain Paul Revere individual disability income policies with benefit riders. Motions filed by the Company to dismiss most of the counts in the complaints, which allege various breach of contract and statutory claims, have been denied, but the cases remain at a preliminary stage. To date, no class has been certified in either lawsuit. The Company has filed a conditional counterclaim in each action which requests a substantial return of commissions should the Court agree with the plaintiff's interpretation of the contract. The Company has strong defenses to both lawsuits and will vigorously defend its position and resist certification of the classes. In addition, the same plaintiff's attorney who has filed the purported class action lawsuits has filed 42 individual lawsuits on behalf of current and former Paul Revere sales managers alleging various breach of contract claims. The Company has filed a motion in federal court to compel arbitration for 16 of the plaintiffs who are licensed by the National Association of Securities Dealers and have executed the Uniform Application for Registration or Transfer in the Securities Industry (Form U-4). The Company has strong defenses and will vigorously defend its position in these cases as well. ROGERS ATHOME: Users Unhappy with Canadian Internet Cable Speed --------------------------------------------------------------- After months of waiting for his high-speed Internet service to actually reach high speeds, Chris Weisdorf got a case of Net rage. The 23-year-old Toronto computer consultant and Rogers AtHome Internet subscriber is leading a campaign aimed at getting executives at the cable giant to fix what he calls nagging problems with the service's speed, stability and support. "I've been angry about this for some time," said Weisdorf, who signed on with Rogers last year. "Tech support is disgustingly bad and there is a chronic speed problem that has to be addressed." Weisdorf said he has spent hours waiting on hold for Rogers technicians to help him invigorate his plodding Net connection, all to no avail. Then he shared his frustration with other disgruntled subscribers on the Rogers AtHome Users Association Web site (www.rhua.org), an online forum for Net surfers who say they're paying a high-end price for a low-end service. That's when Rogers Communications Inc. officials paid attention, he said. Last week, Weisdorf carried the torch for about 300 members of the online association, meeting with management to get some answers on why the service continues to sputter despite company advertisements promising transmission speeds 100 times faster than a dial-up Internet connection. "The only time the service is 100 faster is maybe at 3 a.m.," said Weisdorf, who first met with Rogers officials three months ago. "They've been co-operative, they've listened to me when I presented the issues and were in accordance with many things I said they should change. But there is still a lot of improvements needed." The AtHome service costs about $40 a month, about double the price of telephone dial-up Net access, along with an initial installation fee of between $50 and $200. Still, hundreds of thousands of Canadian Net surfers weary of slow transmission rates have been willing to pay it. Rogers has more than 90,000 subscribers on its AtHome service, up 14,000 from March, said Taanta Gupta, a company spokesperson. "This whole industry is in such a growth mode, there are always technical issues. But we've done a lot of work on them and we think we've made a lot of progress this spring." But Rob Mitzel, a Rogers AtHome subscriber in Langley, B.C., who launched the Rogers AtHome Users Association Web site six months ago, said his expectations of high-speed Net access have turned into teeth grinding. "There's a lack of speed and people are fed up. They're talking about class- action lawsuits and cancellations." But even Mitzel acknowledged that at least some of the problems are beyond Rogers' control. 'There's a lack of speed and people are fed up' Rogers, like a host of other cable companies across North America, relies on AtHome Corp., a California-based Internet firm, to provide packaged online content, including news, weather, sports, multimedia, video and audio. And with stunning subscriber growth across the continent, insiders say, the traffic jam in Rogers' high-speed network has been partly rooted in California. "There's been issues with the AtHome aspect of service with Email servers that were overloaded," said Brad Davies, president of Cancable Inc., a Burlington company that hooks up new AtHome subscribers for Rogers. "But from what we see, those issues have been resolved." Still, a steady chorus of subscribers say they continue to tap their fingers waiting for Internet content to squeeze through AtHome cable wires. "I laugh when I see the Rogers commercials on television saying they offer high-speed service," said David Wilson, an 18-year- old AtHome subscriber in Cambridge. "It's not there. For every two weeks of relative normalcy, I get two weeks of inadequate service where the connection is slow or non-existent. " (The Toronto Star; June 9, 1999) SUMITOMO CORP.: Dealer Alleges International Copper Cartel ---------------------------------------------------------- The Associated Press reports that a Wisconsin metal dealer sued a Japanese company Tuesday, claiming it formed a cartel with other companies to inflate copper prices worldwide. Watertown- based Loeb Industries, along with a Los Angeles Scrap Iron & Metal Corp, filed the lawsuit against Tokyo-based Sumitomo Corp., claiming it engaged in price-fixing. The class-action lawsuit also names New York-based Global Minerals and Metals Corp., a copper merchant firm that entered into a series of contracts with Sumitomo from 1994-1996. "The cartel drove up copper prices by hoarding supplies of physical copper and entering into paper transactions among the members of the group designed to appear as trading activity and to provide price support for the spot copper market," the lawsuit said. Physical copper includes primary and scrap copper. Loeb and Los Angeles Scrap Iron & Metal, who both purchase physical copper, claim they were harmed by the increase in prices. The plaintiffs also said the lawsuit should cover all U.S. copper or metals dealers who purchased copper from June 1994 to June 15, 1996. A message left with an attorney for Loeb was not immediately returned Tuesday. Peter Haveles, an attorney for Global Minerals and Metals, said the price increase in physical copper had nothing to do with the company's actions. "The company believes that the allegations made against it have no merit and wholly ignore that the price of copper rose during the mid-1990s solely as a result of the well-recognized substantial deficit of physical copper due solely to a dramatic increase in worldwide economic activity and copper consumption during that time period," Haveles said. In September 1996, Sumitomo said it lost $2.6 billion from the unauthorized trading by one of its traders, Yasuo Hamanaka. It has since paid millions of dollars in class action lawsuits filed by copper traders and others over trading in Japan and abroad. Hamanaka was sentenced to eight years in prison in March 1998 by the Tokyo District Court on forgery and fraud convictions. Sumitomo has filed a separate civil lawsuit against Hamanaka. A spokesman for Sumitomo Corp. refused to comment on the lawsuit. "We have not seen the details of the complaint and can't make any comments until we do," Sumitomo spokesman Masahito Teramoto said. (AP Online; 06/08/99) Y2K LITIGATION: Canada Remains Cautious But Unconcerned ------------------------------------------------------- Paul Douglas knows all about the Pandora's box of liability the Y2K computer glitch could open for the Canadian construction industry. "If you've built an air-traffic control tower, what are the implications if that's not working right?" says Douglas, president of PCL Constructors Canada Ltd. in Edmonton. "If you've built a hospital, with all the high-tech operating equipment and those types of things? As you start to dream about these types of things, water treatment plants, anything with elevating devices in them, all these places with embedded chips, you can dream up a pretty scary story." According to The Edmonton Sun, it's a scary story with a $ 1- trillion punch line, say analysts at the Gartner Group of Stamford, Conn., who have tried to calculate the potential for lawsuits. THINGS GO AWRY It's not surprising that the construction industry and others are starting to stop worrying about their in-house accounting programs and focusing instead on their legal exposure should things go awry. "The focus has somewhat shifted from the technical fix to looking at your legal liability," agrees Libby Gillman with the Toronto law firm of Donahue and Partners. As chairman of a national task force created by his industry to examine the problem, Douglas says he was relieved to learn worst-case scenarios are unlikely. "We were able to feel fairly comfortable that everything that we were able to investigate so far and do testing on across the country seems to indicate that if there is failure it's been designed to fail safe. "We haven't yet uncovered what would be considered a life- threatening situation, which is comforting, I guess." Very comforting if you're boarding an elevator on the 25th floor at 12:01 a.m. on Jan. 1. But how well businesses prepare for the crunch and how well they document that work are critical factors in measuring liability should something go wrong, says Gillman. "Obviously, fix that which you can fix and do some triage," she suggests. "Secondly, do some effective contingency planning so you can keep your business running and ensure some continuity and thirdly, make some preparations in the unhappy event that you are party to some litigation. "Part of that would be proving that you did your due diligence and you did all the things that you should have done as a reasonable thing in the circumstances." It's a particular concern for the directors of a corporation who hold the ultimate responsibility, she says. A law that would limit liability in the United States has been drafted although it is still hanging under the cloud of a possible presidential veto. The White House is concerned it may make companies feel less pressure to prepare thoroughly. No such law is even planned in Canada. The executive director of the Canadian Bar Association says Industry Canada asked for their opinion on the need for a so- called good-Samaritan law. "A good-Samaritan bill did not make sense in Canada for several reasons," says John Hoyles. First, he says, there were the usual constitutional and possible Charter problems so many pieces of legislation can run into when jurisdiction is not clearly federal. But there was also the different legal framework in Canada as compared with the more litigious United States, with its greater potential for class action suits and huge damage awards. "There was really a belief that there was no need to (pass such a law.) The law as it currently stood was just fine." But that doesn't mean Canadian companies should not be concerned and do all they can to minimize their exposure, he adds. EXPOSURE RISKS In a presentation she made to CIBC recently, Gillman cited research from the Organization for Economic Co-operation and Development that ranked businesses according to their Y2K exposure risks. Douglas might be happy to know the OECD placed the construction industry at the bottom with a low exposure rating, below agriculture. The bad news is that just about everyone else was given a high risk rating. The list was topped by the financial and banking sectors. Douglas says all the testing in the world can't catch all the possible systems failures that could be caused by the Y2K problem. "The fact is, no matter how much testing you do, it is the belief of the industry there will still be failures. "Readiness is, do all the testing you can do and have a contingency plan in place to deal with the failures as quickly and as responsibly as possible." (The Edmonton Sun; June 9, 1999) Y2K LITIGATION: Silicon Valley Weighs in US Political Battle ------------------------------------------------------------ A coveted ally of both political parties, Silicon Valley looked ready to steamroll its way through just about any battle on Capitol Hill this year. Democrats have been working overtime to court the titans of high tech. Not only are Silicon Valley wallets flush with campaign cash, but Democrats are desperate to burnish their image as friends of the New Economy. Republicans, for their part, are aghast at the inroads Democrats have made into the GOP's pro-business constituency and are determined to reverse the trend. But despite what appear to be ideal circumstances, Silicon Valley has been stymied on its No. 1 priority: protection from lawsuits stemming from the Y2K problem, a programming error that could cause computers to misread 2000 as 1900 in computations involving dates. Today, supporters of such protection will try for a third time to break South Carolina Democrat Fritz Hollings' Senate filibuster on a Y2K bill. With the help of California Senator Dianne Feinstein and 12 other Democrats, they may succeed, but the outlook for final passage remains murky, with the White House continuing to threaten a veto. The battle over Y2K liability pins Democrats between their historic alliance with trial lawyers and their newfound desire to woo the high-tech industry. With Democratic presidential contender Al Gore claiming to be the Father of the Internet, it's an uncomfortable spot, and one that Republicans are in no hurry to relieve. Now, instead of scoring an easy legislative victory, the high- tech industry is trapped in no-man's land between two of Washington's oldest, bitterest and most powerful enemies: the U.S. Chamber of Commerce and the American Trial Lawyers Association. It's war. The chamber "wants to hurt trial lawyers and advance a right- wing Republican agenda," charged trial lawyer association president Mark Mandell. "This is a complete political machination to save money for some businesses at the expense of other businesses and individuals just to mutate an already fragile system of justice, which they are constantly assaulting. They don't want justice in this country, except and unless it's for them." Chief chamber lobbyist Lonnie Taylor retorted that frivolous litigation is how trial lawyers "make their money. They're using the White House, they're using a number of their friends in the Senate, they're pulling out all the stops" to stop the Y2K bill. The stakes are high. No one knows how severe a Y2K breakdown -- which could affect everything from financial markets to cash registers -- might be. Some predict a global meltdown, others dismiss such dire forecasts as consultant-generated hype. But with computers embedded in everything from elevators to airplanes, the potential clearly exists for mass Y2K product liability and a trial lawyer bonanza. By some estimates, even if only 5 percent of computer systems fail, liability costs could reach a staggering $1 trillion. Lawsuits could ripple through the economy: A supplier's system malfunctions, disrupting distributors, who disrupt retailers, on down the line, with each suing the other for treble damages. Computer and software manufacturers would be at ground zero in such lawsuits. Little surprise then, that huge Palo Alto chipmaker Intel, whose semiconductors run millions of computers, has been pushing hard for the bill, including personal emails and calls to lawmakers from chairman Andy Grove. LITIGATION COULD BE BIGGEST YET An American Bar Association panel predicted last August that Y2K litigation could be the biggest mass tort ever, exceeding the combined cost of tobacco, asbestos, breast implant and Superfund litigation. Trial attorney fees usually come to one-third of successful lawsuits, making for some big numbers. "There at least is the potential for widespread failures -- everything from billing software to transportation," said Rob Atkinson, director of the Technology and New Economy Project for the Progressive Policy Institute, the "New Democrat" policy arm. "This could be a fairly widespread and systematic phenomenon where everybody starts suing everybody, and while we're at it, why not ask for $5 million in damages." So when high-tech lobbyists turned to Congress to limit their legal exposure, Republicans, long-standing enemies of the trial bar, were happy to oblige. But the GOP also spotted an even sweeter benefit: the perfect "wedge" issue to split Democrats between their desire to align themselves with Silicon Valley and preserve their relationship with trial attorneys. "You have to choose between friends," Representative Tom Davis, sponsor of the House Y2K bill and chairman of the Republican Congressional Campaign Committee, openly gloated to reporters last month. "This one wedges them." Democrats are as close to the trial bar as Republicans are to the Chamber of Commerce. Nearly 90 percent of the $2.8 million in campaign contributions from the trial lawyers association during the last election went to Democrats, according to the nonpartisan Center for Responsive Politics. The computer industry gave more than $8.8 million, the center reported, but 57 percent went to Republicans. BILL WOULD CAP LAWYER'S FEES Davis eventually pushed a very business-friendly Y2K bill through the House on May 12, backed by the chamber and the National Association of Manufacturers. The business lobby has been pushing tort reform unsuccessfully for more than a decade, and saw Y2K as an opening. The high-tech industry, eager to get protection, joined the coalition. Portions of the House bill come straight from the chamber's tort reform wish list. It would cap attorney's fees at $1,000 an hour and require plaintiffs seeking punitive damages to prove that a company willfully intended to do harm, rather than just acted negligently. The House bill also includes a broad $250,000 cap on Y2K punitive damages and requires all Y2K class action suits over $1 million to go to federal court, making sure they don't wind up in state courts, such as Alabama's, that have proven very friendly to plaintiffs in class-action product liability suits. House Republicans rebuffed efforts by tech-friendly moderates such as California's Anna Eshoo, D-Atherton, to make the bill more palatable to Democrats. President Clinton, a trial bar ally, promised a veto. The Senate responded with a compromise backed by 13 Democrats, and one that Eshoo said would win House support as well. But South Carolina's Hollings, a former trial lawyer, is filibustering the bill. The White House has signaled some willingness to bend but maintains its veto threat. "Hollings is putting a lot of his colleagues in a very, very difficult situation with high tech," said William Morley, the chamber's director of congressional affairs. In regions such as Northern California and northern Virginia, Morley said, "high tech is the engine driving growth. This legislation is absolutely needed, and we can't wait until January 1." GOP ENJOYING DEMOCRATIC DILEMMA Republicans, meanwhile, are in no mood to let Democrats off the hook. Democrats have "got to make a choice," said Eric Ueland, a top GOP leadership aide. "Either they stand with Silicon Valley or they stand with trial lawyers, and that's a hard decision for them to make." Eshoo countered that it is "more than obvious that (the House bill) was used as a fund-raising tool and as political tool." The biggest stake for Silicon Valley is the provision, still alive in the Senate compromise, that would restrict "joint and several liability" in Y2K lawsuits. Right now, a company responsible for only 1 percent of damages can be held 100 percent liable. That exposes large "deep pocket" companies like Intel to huge damages even if their responsibility is tangential. Intel's Grove told Congress that any Y2K bill must contain a "proportional liability" provision that would hold a company liable only for the losses it caused, not for damages caused by suppliers or others. The Senate compromise keeps proportionate liability, but it limits the punitive damage caps to businesses with fewer than 50 employees. It also retains less controversial provisions, including a 90-day cooling off period before a suit can be filed that gives defendants time to remedy the problem. Feinstein called the bill "a significant compromise." Whether that compromise will hold is another question. Even if Hollings is beaten back, the bill still has to go to a House- Senate conference committee. Moderate Democrats fear that House Republicans may push the bill too far in favor of defendants, dare the White House to veto it, and then blame Democrats for skewering high tech. Final passage is still a long way off. The legislation "needs be targeted and focused on this issue and this only," Eshoo said. "It won't serve anyone if it's put into place in the year 2000. That's not good enough." (The San Francisco Chronicle; JUNE 9, 1999) ********* 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. Peter A. Chapman, Editor. Kent L. Mannis, Project Editor. Copyright 1999. All rights reserved. ISSN 1525-2272. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The CAR subscription rate is $575 for six months delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. 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