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/raid1/www/Hosts/bankrupt/CAR_Public/990901.MBX C L A S S A C T I O N R E P O R T E R Wednesday, September 1, 1999, Vol. 1, No. 147 Headlines ADVANCED TISSUE: Securities Suit In CA Voluntarily Dismissed ARKANSAS PSC: Ap. Ct. Says Adjudicating Class Cases Within PSC’s Realm BREAST IMPLANT: No Re-Balloting For Ch. 11; Witness Tampering Alleged CASTLE ENERGY: Suit Over Emissions From Powerine Refinery Quashed DYFS: Child Advocacy Group Launches Class Action In Different States CIPRIANI RESTAURANT: Accused Of Bias In Hiring Only Men As Waiters EXCESS INSURANCE: Fed. Judge Refuses To Create Diversity Jurisdiction F&M DISTRIBUTORS: Attorneys Get $6 Mil. In Junk Bond Related Settlement HCB BANCSHARES: Will Contest Vigorously Securities Suit HOLOCAUST VICTIMS: Cable News Network Coverage On Negotiations HOLOCAUST VICTIMS: Companies Urged To Compensate Slave Laborers ILM II: Proposed Settlement For Suit In N.Y. Over Fiduciary Breach MICH. U.: Has Spent $3.3M Defending Admissions' Policy; Trial In 2000 MICROSOFT NETWORK: Forum-Selection Clause In On-Line Contract Enforced PCC: Ap. Ct In Col. Holds Charges Of Employment Bias Re Citizenship PUBLISHERS CLEARING: Offers Refund To Settle Suit Claiming Deception SHERWOOD SECURITIES: 2nd Cir. N.Y. Will Hear Appeal Against Settlement SHERWOOD SECURITIES: Settles For SEC Proceedings Re Market-Making SHERWOOD SECURITIES: Violations Of Sherman Act Resolved Up To NY 2nd Cir SUN HEALTHCARE: Intends To Contest Securities Suit In New Mexico SUN HEALTHCARE: Subsidiaries Face Rico And Other Charges In Florida Y2K LITIGATION: Michigan Attorney Advocating Schools To Sue YBM: Deloitte Says There's No Evidence It Ignored Hints Of Fraud ********* ADVANCED TISSUE: Securities Suit In CA Voluntarily Dismissed ------------------------------------------------------------ During 1998, several lawsuits were filed in the United States District Court for the Southern District of California against Advanced Tissue Sciences Inc. and two of its officers. The lawsuits alleged violations of the federal securities laws arising out of alleged misstatements and alleged failures to disclose certain material facts concerning the clinical trials and obtaining United States Food and Drug Administration approval of Dermagraft for the treatment of diabetic foot ulcers. The lawsuits purported to seek damages on behalf of a class of shareholders who purchased Advanced Tissue Sciences, Inc. Common Stock during the period generally from January 13, 1997 through June 11, 1998. On May 3, 1999, the class action was voluntarily dismissed by lead plaintiffs' counsel. No payment was made by the Company and the voluntary dismissal terminates the action. ARKANSAS PSC: Ap. Ct. Says Adjudicating Class Cases Within PSC’s Realm ---------------------------------------------------------------------- The Arkansas Court of Appeals has ruled that the state Public Service Commission may adjudicate class actions on natural gas rates, but may not award attorney fees in such cases. Brandon et al. v. Arkansas Public Service Commission, No. CA-97-1177 (AR Ct. App., Divs. 1 & 2, June 23, 1999). Appellants Robert Brandon and Carl Brooks filed a complaint with the PSC on behalf of themselves and "all ratepayers similarly situated," requesting that the Commission order Arkansas Western Gas Co. (AWG) to refund money collected in alleged violations of the "least-cost gas purchasing" statute, which requires gas companies to buy from the lowest or most advantageous market. The PSC denied the appellants permission to act on behalf of other unnamed ratepayers, concluding that while it had the authority to adjudicate individual disputes between consumers and public utilities, it could not rule on class actions. The state appeals court disagreed, ruling that the legislature's grant of authority to the Commission was clearly broad enough to allow it to hear a complaint brought as a class action. "We are cognizant of the fact that this decision may to some degree be regarded as precedent, but the topic behind it is not novel. It comports with judicial economy and balances consumers' ability to seek review with the utilities' ability to alter rates," the panel said. "The legislative intent bolsters this idea and the economy of scale that is evident in utility rate-making is furthered by this decision." On the issue of attorney fees, the panel acknowledged the "logical and equitable reasons" in favor of payment set forth by the appellants. However, state law and the rulings of the Arkansas Supreme Court have made clear that attorney fees are only allowed in specific situations. While admitting that ratepayers will have a difficult task in funding legal challenges against utility companies, the panel said any broadening of the law was a legislative function. The appellants were represented by Marshall Dale Evans. The PSC was represented by Larry E. Crane. AWG was represented by Thomas A. Mars of Everett & Mars in Fayetteville, AR. (Utilities Industry Litigation Reporter August 1999) BREAST IMPLANT: No Re-Balloting For Ch. 11; Witness Tampering Alleged --------------------------------------------------------------------- Foreign breast implant claimants from Mexico and Vietnam have told the U.S. Bankruptcy Court for the Eastern District of Michigan that Dow Corning Corp. has resolved their objection to its $4.5 billion reorganization plan. In re Dow Corning Corp. P. 3. Plan Modification Renders Vote Change Motions Moot, Says Spector U.S. Bankruptcy Court Judge Arthur J. Spector has held that since modification of Dow Corning's Chapter 11 reorganization plan does not adversely change the treatment of the claim of any creditors within Class 6.2, made up of certain foreign claimants, no further re-balloting of the class will be ordered and the court will deem the class to have accepted the plan. In re Dow Corning Corp. P. 4. Breast implant claimants from Nevada have filed a motion against the joint proponents of Dow Corning Corp.'s Chapter 11 reorganization plan for sanctions for breach of applicable rules governing the plan's confirmation hearing, charging them with contacting one of the women's expert witnesses and "suggesting or at the very least implying that it might not be wise or prudent for said expert to testify in the bankruptcy proceeding." In re Dow Corning Corp. P. 5. (Breast Implant Litigation Reporter 8-10-1999) CASTLE ENERGY: Suit Over Emissions From Powerine Refinery Quashed ----------------------------------------------------------------- In July of 1996, Castle Energy Corp. was named a defendant in a class action lawsuit concerning emissions from the Powerine Refinery. In April of 1997, the court granted the Company's motion to quash the plaintiff's complaint based upon lack of jurisdiction and the Company is no longer involved in the case. As of August 13, 1999, neither of the refineries had restarted. The Powerine Refinery has been sold to an unrelated party, which, the Company has been informed, is seeking financing to restart that refinery. DYFS: Child Advocacy Group Launches Class Action In Different States -------------------------------------------------------------------- The Division of Youth and Family Services -- long criticized for being unresponsive to the needs of children under its charge is facing an unprecedented attack in court. A not-for-profit child advocacy group, Children's Rights, has filed a scathing class-action complaint, charging that DYFS doesn't adequately protect abused and neglected children. The organization has brought similar class-action suits in 11 other cities or states, including New York City, where it is headquartered. The suit, Charlie and Nadine H. v. Whitman, filed Aug. 4 in federal district court in Trenton, seeks to have a panel of experts appointed to oversee DYFS and other unspecified injunctive relief. Named as defendants are Gov. Christine Todd Whitman, Department of Human Services Commissioner Michelle Guhl and Division of Youth and Family Services director Charles Venti. "There are problems with virtually every aspect of the system at the moment," says Marcia Robinson Lowry, director of Children's Rights. She gives as examples unacceptably high caseloads, a shortage of foster homes and an abysmal lack of resources including, in at least one instance, office telephones. "You name it, that's what's wrong with it," says Lowry, who has collected information on New Jersey's child welfare system for the last three years. The Children's Rights suit comes at a time when DYFS has been struggling to remake itself and to implement a number of reforms suggested by a state panel in February 1998. DYFS head Venti says the agency has recently hired additional caseworkers, recruited foster parents and streamlined procedures to shorten stays in foster care. "I think, potentially, the lawsuit can only distract our time and our attention from our efforts to follow through on our strategic plan," says Venti. "Already, with the media attention, it's starting to drain some of our focus." Lowry counters that the agency's reform plan is not nearly ambitious enough to remedy its defects. "The changes are not going to begin to address the depth of the problem," says Lowry. "Children have needs today." The named plaintiffs in the suit are 20 children either in foster care or under DYFS supervision, and the complaint paints a grim picture of how the state has bungled their lives. One boy, 13-year-old Ricardo O., was removed from his home in June 1997 and sent to live with an aunt because his mother's boyfriend sexually molested him. The suit charges that DYFS did not arrange necessary psychological treatment. While living with his aunt, Ricardo attempted suicide several times and was repeatedly hospitalized and then returned to his aunt's home. Finally, Ricardo was committed to the Arthur Brisbane Child Treatment Center in September 1998. Although the staff at Brisbane believed he was ready to be discharged to a live-in treatment center by October 1998, DYFS did not move him out of Brisbane until June 1999. In the interim, he was sexually assaulted. Another example involves the planned adoption of three siblings: 10-year-old Jason, 8-year-old Jennifer and 6-year-old Patti W. The complaint recites that the children are not currently living with foster parents who wish to adopt; in fact, their father is trying to reunite with them. DYFS told the father he couldn't have the children because he doesn't have enough room in his home, but they did send the children's cousin to live with him. Lowry says that the problems of the named plaintiffs are all too typical of those faced by the approximately 9,250 children in DYFS's care and estimated 50,000 children known to the agency, according to the suit. Other child welfare advocates worry that the suit will do more harm than good. "On the one hand, we think the issues they're raising and the named plaintiffs are compelling and representative of continuing problems," says Cecelia Zalkind, director of another not-for-profit advocacy group, Association for Children. However, Zalkind shares Venti's concern that the Children's Rights suit will divert DYFS from its efforts to improve. "We're worried about how distracting and time-consuming a lawsuit would be," she says. Zalkind says she helped Children's Rights gather data for the suit but tried to discourage litigation. DYFS officials met with Children's Rights in March, but the negotiations quickly fell apart when Lowry made clear that she believed a court order was necessary. "We were interested in their expertise, knowing that they had been involved in reform efforts across the country," says Venti. When he realized that "whatever they did with us had to involve them filing a suit," talks broke off. "We are committed to insuring that we maintain control of our system and our reforms and we don't need Children's Rights to do that for us," Venti adds. Lowry has a different view. "We believe the state is not going to act appropriately to protect children without a suit and without a court order," she says, adding that Children's Rights contacted at least 400 child welfare professionals, including caseworkers, foster parents, doctors, lawyers and judges before filing the case and that "almost no one was against this litigation." Children's Rights local counsel David Harris adds that if DYFS is concerned about wasting time with a suit, there is a simple solution. "All they have to do is agree to do what they're supposed to do and sign a consent order," says Harris, a partner with Roseland's Lowenstein Sandler. A Suspect Settlement Apart from whether the suit will end up distracting DYFS from getting on with reform, critics have also voiced concerns about Children's Rights' handling of the New York suit. That case was resolved this January with an agreement establishing a panel of experts that will have access to all records, make reports and monitor the agency's performance for the next two years. But child welfare advocates in New York are torn overnother provision of the settlement that purports to ban future class actions against the agency for the entire two years the panel is in existence. Lowry says the provision was necessary because the city would not have agreed to give the panel confidential material without some insurance against future class actions. But others say that the ability to bring a class action is too crucial to bargain away. "Suits are important check on big bureaucracies," says Doug Lasdon of the Urban Justice Center in New York. Lasdon's organization attempted to bring a class-action suit on behalf of lesbian and gay foster children shortly after the Children's Rights suit settled. Children's Rights and the city joined forces in that case, Joel A. v. Giuliani, to ask the court to dismiss the suit. A federal district judge agreed and dismissed Joel A., on the grounds that it was barred by the settlement negotiated by Children's Rights. That decision is now being appealed in the Second Circuit. Lowry says that it is premature to discuss whether a settlement here will also include a provision banning class actions. But, she notes, this type of clause might be less of a factor here, where there are comparatively fewer class actions brought against the child welfare authorities than in New YorkCity. "There aren't very many advocates in New Jersey, unfortunately," she says. That might be changing. Last Wednesday, in Ocean County, Lowenstein Sandler filed a motion to file a late tort claim in behalf of James Reele, a 19-year-old former foster child who is now homeless. The underlying claim is that DYFS failed to see to Reele's needs from the time he entered the agency's custody in 1990 until he was discharged last year at age 18. Katrina Wright, an associate at Lowenstein Sandler, alleges in an affidavit that Reele was shuffled through at least 24 different foster homes between 1990 and 1998, that he was not sent to school in that time and that he is now "lacking in basic life skills as well as general social skills." "It is tragic and he is really just one of so many," says Harris, who adds that cases like Reele's were one reason Lowenstein Sandler joined in the unrelated class-action suit. "The importance of the Children's Rights suit is that we have to prevent this from happening." (New Jersey Law Journal 8-16-1999) CIPRIANI RESTAURANT: Accused Of Bias In Hiring Only Men As Waiters ------------------------------------------------------------------ The New York Attorney General filed suit against the Cipriani restaurant family, accusing it of sexual discrimination by hiring only men as waiters, barring women from jobs that can pay as much as $90,000 a year. The Attorney General, Eliot L. Spitzer, said that the Cipriani suit was part of a larger investigation of sex discrimination in the restaurant industry and an effort to overturn longstanding practices that prevent women from obtaining lucrative jobs in many of the city's most expensive steakhouses and French and Italian restaurants. The lawsuit quoted Lucio Zanon, the manager of the family's Harry Cipriani restaurant on the Upper East Side and the Downtown restaurant in SoHo, as telling applicants, "We don't have any girls in any of our places." Mr. Spitzer said: "This type of invidious behavior creates a glass ceiling within the restaurant industry. Women are being denied lucrative jobs and a stepping stone to more prestigious positions. By targeting this and other restaurants, we intend to send a message that this behavior is unacceptable." Marshall E. Bernstein, a lawyer for the Ciprianis, said that the family had not seen the lawsuit. "As a policy," he said through a spokesman yesterday, "Cipriani International does not discriminate against anyone." He would not say if there are any waitresses at Harry Cipriani or Downtown. The lawsuit is the latest blow to the Ciprianis, who have been locked in a bitter battle with the restaurant workers union that has forced celebrities and other diners to take sides. The fight began last December when the family took control of the Rainbow Room at Rockefeller Center and refused to hire any of the 250 longtime union employees who worked there. The resulting contretemps has hampered plans by the Ciprianis, who own the famed Harry's Bar in Venice, to expand their holdings in New York by taking over the Rainbow Room and opening two other catering halls. But after eight months of picketing and lawsuits, the two sides recently opened their first real negotiations, said Vincent Pitta, a lawyer for Hotel Employees and Restaurant Employees Local 6. And last week, in a move that may signal a more conciliatory approach, the family fired its labor lawyers and withdrew several complaints that they had filed with the National Labor Relations Board against the union. Whatever the outcome of the union negotiations, they will have no effect on the Attorney General's lawsuit, which highlights what some industry experts describe as a long and rarely challenged tradition of barring women from serving positions at many of the city's most elegant restaurants. "It's so blatant that the Attorney General could've filed that lawsuit against any number of other restaurants in New York," said Tim Zagat, publisher of the Zagat restaurant surveys. "Most of the traditional European restaurants have all men on the floor and a hat-check girl or greeter." Restaurant owners have offered several reasons for the practice. Some suggest that women are incapable of carrying heavy trays laden with dishes, or that waitresses often want part-time work rather than the full-time positions available at high-end restaurants. "We don't hire students and housewives who like to work part-time -- only professionals," said Daniel Boulud, owner of the French restaurant Daniel on the Upper East Side. "In a more casual restaurant it's a little bit easier to have flexible schedules." Mr. Boulud said that he had "maybe 8 or 10" female servers, though he was unsure how many actually worked in the main dining room as opposed to the lounge or private dining rooms. A year ago, one of the best-known caterers in New York, Glorious Food, agreed to pay $425,000 to settle a class-action lawsuit brought by waitresses who said they had been barred from working at lucrative private parties. The suit had charged that Glorious Food limited the number of waitresses at parties and excluded women from working at small private gatherings, in part because the company felt its corporate image was enhanced when its cuisine was served by men. As far back as the mid-1970's, the American Civil Liberties Union filed a class-action suit against eight of the city's most prominent restaurants, accusing them of discriminating against women in the hiring of servers. Waiters at many of these restaurants are not working for nickels and dimes. In a recent week, a server at Harry Cipriani, where dinner for two averages $120, earned more than $45 an hour, including tips, and $1,835 for a 40-hour week, according to the lawsuit -- a rate that could work out to more than $90,000 for the year. According to the state lawsuit, the jobs the Ciprianis offered to women were far less lucrative. Mr. Zanon, the Cipriani restaurant manager, is described as telling applicants that the family would hire women as cashiers or coat-checkers, jobs that pay about $13 an hour. (The New York Times 8-25-1999) EXCESS INSURANCE: Fed. Judge Refuses To Create Diversity Jurisdiction --------------------------------------------------------------------- Refusing to reconfigure a case to create diversity jurisdiction, a federal judge has dismissed a three-year old action that had already gone to trial. Southern District Judge Shira A. Scheindlin found that several options presented by the defendants to reconfigure the parties in Allendale Mutual Insurance Co. v. Excess Insurance Co. Ltd. 95 Civ 10970 would "strain the U.S. Supreme Court's guidelines on diversity jurisdiction." Allendale filed suit in 1995 against Excess and a group of 16 London Market Companies and 36 Lloyd's of London syndicates comprised of thousands of individual underwriters. The suit charged that the reinsurers wrongfully refused to pay a $ 7 million claim, failed to investigate the claim in good faith and brought suit in England despite a forum-selection clause in the contract requiring that any litigation be brought in New York. Following trial in 1997, Judge Scheindlin found that the reinsurers could rescind the contract and there was no breach of contract when they refused to pay the claim. But she also found that the reinsurers had breached the forum selection clause and that Allendale was entitled to recover $ 62,273. Both sides appealed and, in March of this year, the Second Circuit vacated Judge Scheindlin's ruling, directing her to "determine if subject matter jurisdiction over this case may be preserved in light of" E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co., 160 F.3d 925 (2d Cir. 1998). In Squibb, the Second Circuit said that "jurisdiction is not a game" and found that each and every named underwriter in a case involving Lloyd's Underwriters at Lloyd's of London must meet the complete diversity rule. On remand in Squibb, Judge John Martin nonetheless found that the parties satisfied the requirements of diversity jurisdiction. Judge Scheindlin noted that Judge Martin commented "on the absurdity of dismissing a case" that had been ongoing for 16 years based on the "jurisdictional amount rule which serves to ensure that the federal court's time is not spent on trivial matters." But Judge Scheindlin said the facts were different in the Allendale case. As currently configured, she said, diversity of citizenship was destroyed because 19 of the 36 syndicates included individual underwriters from the plaintiff's home state of Rhode Island. Moreover, she said, "it is unlikely that any of the underwriters" in the syndicates could satisfy the $ 50,000 amount in controversy requirement. The reinsurers presented three proposals for reconfiguring the suit to give the court subject matter jurisdiction, all of which, she said, "appear to extend, if not contort, the jurisdictional guidelines laid down by the Supreme Court and the Court of Appeals." The options were dismissal of some parties, realignment and supplemental jurisdiction; reconfiguration of the suit as a class action using aggregation to meet the minimum amount in controversy requirement; and dismissal of non-diverse defendants while maintaining jurisdiction over the defendants who are diverse - the London Market Companies. "Jurisdiction cannot be saved despite the various alternatives suggested by defendants" Judge Scheindlin wrote. "For the reasons set forth above, this court lacks subject matter jurisdiction over this dispute. One of the most fundamental tenets of our Constitution is that not all cases may be brought in federal court." Judge Scheindlin then closed the case. Neal Glazer and Jan Duffalo of D'Amato & Lynch represented the defendants. Daniel Levitt of New York and Bernard London, James Fischer and James WalshK of London Fischer represented Allendale. (New York Law Journal 8-13-1999) F&M DISTRIBUTORS: Attorneys Get $6 Mil. In Junk Bond Related Settlement ----------------------------------------------------------------------- Federal judge in Detroit has approved a $20.25 million settlement and awarded more than $6 million in attorneys' fees plus $585,000 in costs in a class action securities suit, finding that an award of 30% of the settlement fund is appropriate in light of the complexity of the junk bond-related litigation. In re F&M Distributors Inc. Securities Litigation, No. 95-CV-71778-DT (ED MI, June 29, 1999). The class action complaint in the Eastern District of Michigan alleged misrepresentations in the F&M Distributors prospectus and registration statement, failure to disclose material facts and violations of the Securities Exchange Act, Rule 10b, and the state securities statute. Judge Julian Abele Cook Jr. found the settlement to be fair, reasonable, adequate and in both public interest and the best interests of the class members. The defendants faced a maximum exposure of $5.6 to $61 million, according to conflicting expert testimony. The investors' attorneys petitioned for a fee of one-third of the settlement fund or, in the alternative, a lodestar award on the basis of their customary hourly fees with a 1.35 multiplier. They also sought a pro rata share of the accumulated interest and an incentive award of $7,500 for each class representative. Judge Cook modified the request by awarding 30% rather than one-third of the settlement fund and interest. He said a higher-than-usual award was justified in light of the caliber of the investors' legal representation; the complexity of the case and of discovery; the need to litigate in U.S. District Court, Bankruptcy Court and state court; the investors' survival of several dismissal motions; and their success in achieving class certification. He also noted that the securities at issue were high-yield notes universally recognized as constituting a high-risk investment and that a large proportion of the buyers were institutional investors. In addition, the decision pointed to the intensity and length of the mediation sessions and the mediator's support of the fee award. The judge found the expense reimbursement request to be reasonable, as well as the $7,500 incentive award for each of the two class representatives. (Securities & Commodities Litigation Reporter 8-11-1999) HCB BANCSHARES: Will Contest Vigorously Securities Suit ------------------------------------------------------- In May, 1999, a shareholder filed a class action complaint against HCB Banshares Inc. and several current and former officers alleging that the defendants defrauded the plaintiff and other shareholder class members through various public statements and reports thereby artificially inflating the price of the Company's common stock and causing the plaintiff and other shareholder class members to purchase the Company's common stock at inflated prices. The Company and its counsel have reviewed the complaint and intend to contest the allegations vigorously. Management is unable to determine the likelihood of an unfavorable outcome of the suit or the amount of damages that the Company may have to pay, if any. The Company will incur costs through the payment of legal fees and the related costs of litigation. The extent of these costs is not determinable at this time. HOLOCAUST VICTIMS: Cable News Network Coverage On Negotiations -------------------------------------------------------------- Broadcast on August 30, 1999; Monday 7:42 am Eastern Time GUESTS: Stuart Eizenstat HIGHLIGHT: A Wednesday deadline for reaching agreement on paying those who worked as Germans during German slave labor in the second world war will be missed this week. Still, talks on the issue will resume in early October in the U.S. Deputy Treasury Secretary Stuart Eizenstat discusses negotiations for compensating those who were enslaved by the Nazis. THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED. BILL HEMMER, CNN ANCHOR: A Wednesday deadline for reaching agreement on paying those who worked as Germans during German slave labor in the second world war will be missed this week. Still, talks on the issue will resume in early October here in the U.S. Deputy Treasury Secretary Stuart Eizenstat is leading negotiations for compensating those who were slaved by the Nazis. Stuart Eizenstat is live this morning at the White House. Sir, good morning to you. STUART EIZENSTAT, DEPT. TREASURY SECRETARY: Good morning. HEMMER: This deadline, September 1 of Wednesday, self imposed, set up by German Chancellor Gerhard Schroeder, it will be missed. What's the hold up on this deal? EIZENSTAT: Well, they wanted September 1 because that was the 60th anniversary of the outbreak of World War II, but the issues are hugely complex. It's not only a question of money, and there's a tremendous gap between what the victims want and what the companies are willing to pay, but the question of eligibility. We're talking about perhaps a million and a half to two million people, many in central Europe, many Jewish, many non-Jewish. The issues are very complex. There are six government involved and there are 30 class-action lawsuits. So there are many complexities. The companies don't want to pay into a fund unless they know that the class-action suits will be dismissed because they don't want to pay twice. HEMMER: Yes, yes. Understanding those issues, let's take it one step deeper on the numbers. The companies have offered $1.7 billion. Lawyers representing those who were enslaved at $20 billion. There is a huge disparity there. How is that resolved? EIZENSTAT: It's really time for both sides to get serious or we'll have a biological solution to this problem. The average survivor is close to 80. One percent are dying each month, 10 percent a year. If we don't get more flexibility on both sides, then we're going to have a huge population that will never benefit from this. These are people who were treated in the most brutal ways during World War Some 12 million in total, now about a million and a half surviving, who worked under the most egregious circumstances. They were often deported from their homes. They were paid little or nothing. Some were worked to death. They deserve to be compensated in their lifetime. Already, most are deceased. We can't wait any longer. So both sides need to get serious. The companies need to pay more, the lawyers need to accept less, we need to have something on this... HEMMER: Find a middle ground, basically. Yes, the negotiations were in Berlin. The war took place in Europe. Why is the U.S. so actively involved in this? EIZENSTAT: Well, that's a good question. First, many of the survivors, the forced laborers, are American citizens; Holocaust survivors, Jewish and non-Jewish, Polish Americans, Jewish Americans. So we have an interest in seeing our own citizens have some justice even though it's deferred. And, second, because Germany is one of our most important allies. If these talks fail, we'll inevitably have increased tensions. We'll have threats of state and local sanctions against German companies. It will increase trans-Atlantic tensions and create the kind of problem we don't want with a principle ally. So it's a question of justice for our own citizens and having a foreign policy problem that we don't need if these talks don't succeed. So we dare not fail. HEMMER: OK. In the short time that we have left, let's get to the bottom line of this. You have said that the survival rate is decreasing at a rate of 10 percent per year. You also indicate that the German government wants to wipe the slate clean before the beginning of the new millennium and put all these issues behind. In the short time we have, what's the likely outcome, sir? EIZENSTAT: I believe that each side realizes the stakes. We all have a tremendous burden on our shoulders to do justice and to try to do it before this millennium ends so that we can look to the future with promise. I am hopeful that at the end of the day, despite the wide gap, we'll succeed. Again, I think we're, as my German counterpart has said, doomed to failure because we simply can't face the consequences of a defeat here. So I am cautiously optimistic, not withstanding the very large gap between the parties. HEMMER: Best of luck. Stuart Eizenstat live from the White House. October 6 reconvening in Washington. Thanks for your time, sir. EIZENSTAT: Thank you. HEMMER: All right. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com HOLOCAUST VICTIMS: Companies Urged To Compensate Slave Laborers --------------------------------------------------------------- Reuters reports from Bonn that Germany said it would press reluctant companies to contribute to a compensation fund for Nazi-era slave laborers. Count Otto Lambsdorff, Germany's negotiator in talks with the United States and victims' groups, also warned that a failure to reach an agreement on the Holocaust fund could damage bilateral relations and hurt German companies. If the talks due to resume in October were to fail, ''there would be boycotts and sanctions on German products across the United States and in individual states,'' Lambsdorff said. ''The entire climate even at the government level would take a turn for the worse.'' Lambsdorff told the Welt am Sonntag newspaper that too few of the German companies that used slave and forced labor during World War II have come forward to say they would contribute to the fund, which aims to compensate about 2 million survivors. Sixteen companies - including such blue chip firms as Allianz AG, Deutsche Bank AG and Volkswagen - have so far agreed to contribute. There were, however, thousands of German companies, many of which no longer exist, that used slave and forced laborers to keep Hitler's wartime economy running. ''More companies have to take part,'' Lambsdorff said. He repeated his view that the demand for $20 billion (U.S.) from some victims' lawyers was unrealistic, but said an amount proposed by Volkswagen could be used as a base. Volkswagen agreed to pay forced laborers about $5,300 each. ''That is an amount that was put forth as a basis by the industry,'' Lambsdorff said. Estimates of the number of surviving slave and forced laborers vary between 1.5 million and 2.3 million. In Canada, about 300 people are seeking compensation from Volkswagen, The Star's Lynda Hurst reported Saturday. In addition, some 200 non-Jewish Polish-Canadians have filed claim against German companies and are working through a German lawyer. Historians and other experts are expected to come up with a more precise figure as to the number of people involved by the start of the next round of talks in Washington on Oct. 6. Lambsdorff said he hoped smaller working groups would make more progress than a large gathering in Bonn last week. The talks between Germany and the United States in Bonn failed to produce an agreement. Survivors' lawyers and German companies were far apart on the size of a fund. Nazi Germany sent Jews and other concentration camp inmates to work in conditions under which they were expected to die. The regime also shipped other people from Nazi-occupied Europe to its factories and farms as unpaid labor. ''You were not human to them,'' said Philip Mendlowicz, a Polish Jew who worked as a slave laborer at Volkswagen during World War II. ''They wanted you to be an animal,'' Mendlowicz, now 75 and living in North York, told Hurst. ''They didn't care if you fell down sick. They sent you to the death camp. There were always more to take your place.'' U.S. Deputy Treasury Secretary Stuart Eizenstat said Friday that the United States supported a key German demand for German companies to be shielded from further lawsuits. Money was still the biggest hurdle, he said. It has been reported that German companies are willing to pay $1.7 billion into the fund in return for immunity from future class-action suits. ILM II: Proposed Settlement For Suit In N.Y. Over Fiduciary Breach ------------------------------------------------------------------ As previously reported by ILM II Senior Living, Inc., a Virginia finite-life corporation, Andrew A. Feldman & Jeri Feldman, as trustees for the Andrew A. & Jeri Feldman Revocable Trust dated September 18, 1990, commenced an action on May 8, 1998 on behalf of that trust and a putative class of all other shareholders of the Company and ILM Senior Living, Inc. a Virginia finite-life corporation and affiliate of the Company ("ILM I"), against the Company, ILM I and the directors of each of the Company and ILM I. On March 9, 1999, following the announcement of the execution of the Agreement and Plan of Merger dated February 7, 1999, among the Company, Capital Senior Living, Inc. a Delaware corporation, Capital Senior Living Acquisition, LLC, a Delaware limited liability company and wholly owned subsidiary of Capital ("Merger Sub"), and Capital Senior Living Trust I, a Delaware business trust and wholly owned subsidiary of Capital (the "Trust"), the plaintiffs filed a second amended complaint seeking to enjoin the transactions contemplated by the Merger Agreement and, in the alternative, seeking damages in an unspecified amount. In response to the Company's motion to dismiss the second amended complaint on June 7, 1999, which motion addressed only the pleadings, the United States District Court, the Southern District of New York issued an order dismissing the plaintiffs' federal securities law claims, but denying defendants' motion to dismiss plaintiffs' claims for breach of fiduciary duty and judicial dissolution. On June 21, 1999, the Company, ILM I and each of their directors answered the second amended complaint and denied any and all liability to plaintiffs or the putative class, and moved for reconsideration of the portion of the Court's June 7, 1999 order denying their motion to dismiss. In response to discovery requests, the Company, ILM I and other defendants produced documents to the plaintiffs and the depositions of current and former directors as well as others were taken. As of July 1, 1999, all discovery was completed in this action. On July 2, 1999, the parties to this action reached an agreement-in- principle to settle the action. On August 11, 1999, the parties entered into a Stipulation of Settlement and on August 13, 1999, the Court "so ordered" the Stipulation and provided for notice of the settlement to the putative settlement class, which notice was mailed on August 16, 1999. The Court scheduled a hearing for September 30, 1999 to determine whether the proposed settlement is fair, reasonable and adequate, whether a final judgment should be entered dismissing the action with prejudice to the plaintiffs and all members of the putative settlement class, and whether an application to be made by plaintiffs' counsel and the putative settlement class should be approved. There can be no assurance that the Court will approve the Stipulation. In the event that the Court does not approve the Stipulation, the Company intends to continue to contest the action vigorously. Pursuant to the Stipulation, among other matters, Capital has agreed to increase the aggregate amount and modify the form of consideration to be received by shareholders in the Merger Agreement by $872,000 to $74,982,000, and provide each shareholder with the right to elect to receive payment of the merger consideration in the form of all cash, or a combination of cash and Capital Trust convertible preferred securities (which securities will ultimately be convertible into shares of Capital's common stock); provided that the preferred securities elections may not, in the aggregate, exceed 35% of the total merger consideration. To facilitate consummation of the Merger, Capital has also agreed to amend the Merger Agreement to extend the previously scheduled March 31, 1999 outside termination date of the Merger to September 30, 2000. The Company also generally has agreed to apprise class counsel of certain material developments relating to extraordinary transactions involving the Company. Pursuant to the Stipulation, if the Company and ILM I consummate an extraordinary transaction with Capital, including, but not limited to, a transaction of the type contemplated by the Merger Agreement, Capital has agreed to pay the class action plaintiffs' attorneys fees awarded by the Court an amount not to exceed $1,500,000, as well as reimbursement of their out of pocket expenses. If the Company and ILM I consummate extraordinary transactions with a third party purchaser other than Capital, or the Company's and ILM I's Boards of Directors ultimately approve extraordinary transactions with a third party purchaser other than Capital, the Company and ILM I will, under the Stipulation, be required to pay attorneys' fees awarded by the Court an amount not to exceed $1,500,000, plus reimbursement of class counsel's out of pocket expenses. MICH. U.: Has Spent $3.3M Defending Admissions' Policy; Trial In 2000 --------------------------------------------------------------------- Two federal lawsuits attacking the use of affirmative action in University of Michigan's admissions policies won't go to trial until next summer. U.S. District Court Judge Patrick Duggan on Thursday set a trial date of July or August 2000 for the lawsuit against U-M's undergraduate college; Judge Bernard Friedman scheduled the trial for the lawsuit against the law school for Aug. 28, 2000. The class-action suits were delayed earlier this month after a coalition of minority students won the right to intervene as co-defendants. The delay was granted to give the group time to prepare, U-M associate general counsel Elizabeth Barry said. The University of Michigan already has spent more than $ 3.3 million in legal fees and expenses for two outside law firms. Barry would not speculate about how high the costs might go, but the amount will rise for several years as the lawsuits go to trial -- and possibly up to the U.S. Supreme Court. The lawyers' fees range from $ 70 to $ 230 an hour, Barry said. The costs are covered by Veritas Insurance Corp., U-M's self-funded insurance company. About $ 5 million has been allocated for each case. "The amount we have spent is reasonable," Barry said. "We have made great efforts to control the costs of this litigation while at the same time doing the best job of defending the important principles at stake." Almost two years ago, the Washington-based Center for Individual Rights filed the suits against U-M on behalf of three white students who were not admitted. The center charges that U-M unfairly uses race as a determining factor in admissions. They claim, white applicants are denied admission while less academically qualified minority students are admitted. The school says it legally promotes diversity by considering race as one of many factors in admissions decisions. (The Detroit News 8-27-1999) MICROSOFT NETWORK: Forum-Selection Clause In On-Line Contract Enforced ---------------------------------------------------------------------- CASPI v. MICROSOFT NETWORK, L.L.C., Appellate Division, A-2182-97T5, July 2, 1999. Appealed from Fitzpatrick, J., Law Division, Bergen County. Facts-on-Call Order Number 5131 The forum-selection clause included in the Microsoft Network on-line subscriber agreement was properly enforced against the subscribers in a class action alleging "unilateral negative option billing." In 1997, Steven J. Caspi, Ronald W. Jonas, Arden Jeffrey Cone III, and Laurel Barrie, members of the Microsoft Network online service, filed an 18-count amended class action complaint against The Microsoft Network, L.L.C. and Microsoft Corporation in the Law Division. Among other things, the plaintiffs accused Microsoft of engaging in "unilateral negative option billing," a practice condemned by the attorneys general of 21 states, including New Jersey. Specifically, the plaintiffs alleged that, without notice to members, Microsoft "rolled over" MSN membership into more expensive plans. In May 1997, the plaintiffs moved for multi-state class action certification, claiming that they represented a nationwide class of 1.5 million similarly situated MSN members. Thereafter, Microsoft moved to dismiss the amended complaint for lack of jurisdiction and improper venue based on the forum-selection clause in the MSN membership agreement. The forum-selection clause provided that "you consent to the exclusive jurisdiction and venue of the courts of King County, Washington in all disputes arising out of or relating to your use of MSN or your MSN membership." Microsoft maintained that the forum-selection clause bound the named plaintiffs and all members of the purported class. The Law Division dismissed the complaint on the ground that the forum-selection clause required the plaintiffs' claims to be litigated in Washington. In a written opinion, the Law Division outlined the method of becoming an MSN member. The MSN membership agreement appears on the computer screen in scrollable fashion. Prospective members have the opportunity to view the entire membership agreement, including the forum-selection clause. Prospective members have the option of clicking "I Agree" or "I Don't Agree" at any point while scrolling through the agreement. Registration is completed and charges are incurred only after the prospective member has reviewed the entire agreement and has clicked on "I Agree." The Law Division observed that forum-selection clauses generally are "prima facie valid and enforceable in New Jersey." The Law Division explained that a forum-selection clause will be enforced unless the party challenging the clause shows (1) that the clause is the result of fraud or "overweening" bargaining power, (2) that enforcement would violate a "strong public policy," or (3) that enforcement would "seriously inconvenience" a trial. Following the logic of Carnival Cruise Lines v. Shute, 499 U.S. 585 (1991), the Law Division concluded that the MSN forum-selection clause "is reasonable, clear and contains no material misrepresentation." Further, the Law Division ruled that the plaintiffs were not subjected to "overweening" bargaining power in dealing with Microsoft. The Law Division noted that, to invalidate a forum-selection clause, "something more than merely size difference must be shown." In this case, the Law Division found it "impossible to perceive an overwhelming bargaining situation." The Law Division noted that there is competition in the on-line service industry and that consumers are not forced to choose MSN as their service provider. In addition, the plaintiffs and the other class members had "ample opportunity" to agree to the forum-selection clause. The Law Division ruled that enforcement of the forum-selection clause would not contravene public policy or inconvenience the trial. Noting that the named plaintiffs resided in different jurisdictions and that the proposed class was nation-wide, the Law Division remarked that "the inconvenience to all parties is no greater in Washington than anywhere else in the country." The plaintiffs appealed, and the Appellate Division affirmed, substantially for the reasons articulated by the Law Division. On appeal, the plaintiffs argued that the forum-selection clause did not prevent a suit against Microsoft outside of Washington. Alternatively, the plaintiffs maintained that the clause lacked "adequate clarity." The appeals court characterized both arguments as "meritless," remarking that the "meaning of the clause is plain and its effect as a limiting provision is clear." Furthermore, the appeals court concluded that New Jersey's interest in protecting against consumer fraud would not be frustrated by requiring the plaintiffs to litigate in Washington, as "none of the inherent characteristics of forum-selection clauses implicate consumer fraud concepts in any special way." In addition, the plaintiffs did not demonstrate that the nature and scope of consumer fraud protection afforded in Washington is "materially different" than that available in New Jersey. Next, the appeals court addressed the only "viable issue" remaining: whether the plaintiffs had adequate notice of the forum-selection clause. The appeals court detected no "significant distinction" between the electronic medium used in this case and the print medium used in Carnival. The appeals court pointed out that the plaintiffs were free to scroll through the membership agreement before indicating their agreement. In addition, it seemed clear to the appeals court that there was "nothing extraordinary" about the size of text or placement of the clause; it was presented in the exact same format as every other provision of the agreement. Although the clause was presented in lower case type near the end of the contract, the appeals court found no basis to conclude that the clause was "proffered unfairly or with a design to conceal or de-emphasize its provisions." The appeals court added that the plaintiffs "must be taken to have known that they were entering into a contract." Finally, the appeals court ruled that whether the plaintiffs had reasonable notice of the forum-selection clause was a question of law. The appeals court agreed with the Law Division's conclusion that the plaintiff's had "adequate notice" of the clause. For appellants: Steven L. Wittels and Jeremy Heisler of the New York bar, admitted pro hac vice. For respondents: Charles B. Casper (Montgomery, McCracken, Walker & Rhoads and Connell, Foley & Geiser, attorneys; Stacy Alison Fols and Richard D. Catenacci on the brief). (New Jersey Lawyer July 12, 1999) PCC: Ap. Ct In Col. Holds Charges Of Employment Bias Re Citizenship ------------------------------------------------------------------- Although Title VII of the Civil Rights Act of 1964 does not protect workers from discrimination on the basis of citizenship, workers may sue on the theory that citizenship discrimination is a pretext for other, prohibited forms of discrimination, the U.S. Court of Appeals for the District of Columbia Circuit has ruled. Reversing the district court, Judge Merrick B. Garland wrote, "A reasonable factfinder could...conclude that only one remaining line divides [white non-Panamanians] from the plaintiffs: they are not of Panamanian national origin. That, however, is precisely the line the law forbids the [Panama Canal Commission] to draw." Thirteen black workers, U.S. citizens of Panamanian or Hispanic national origin, sued the Panama Canal Commission (PCC), alleging that they were paid substantially less in salary and benefits than were other American citizens working at the same jobs. The district court granted summary judgment to the PCC, finding that the plaintiffs failed to establish a prima facie case of discrimination under Title VII. The appeals court found that the plaintiffs did establish a prima facie case by showing that they received a 15 percent lower salary than their white, non-Panamanian counterparts. Judge Garland wrote that the district court incorrectly relied on a 1973 Supreme Court decision which found that Title VII does not offer protection from discrimination on the basis of citizenship. Judge Garland held that the trial court failed to consider that the high court in that case also recognized that an employer might use a citizenship test as a pretext to disguise national origin discrimination. Anderson v. Zubieta, No. 97-5247 (July 2). (The Corporate Counsellor July 1999) PUBLISHERS CLEARING: Offers Refund To Settle Suit Claiming Deception -------------------------------------------------------------------- Publishers Clearing House is revising its sweepstakes mailings and offering millions of dollars in refunds to settle a national class-action suit filed in Belleville last year by a law firm in Swansea. Terms of the settlement require Publishers Clearing House to send notices of the settlement to everyone who received a sweepstakes solicitation from Feb. 3, 1992, to June 30 of this year, according to court documents filed Wednesday. More than 40 million households will receive notices in the mail. Those who sent in entries will be offered at least three automatic entries in future sweepstakes until the sum of prizes awarded to all winners reaches $ 30 million or more. Those who subscribed to magazines through Publishers Clearing House will be offered a chance to cancel their subscription and get a refund. Those who bought merchandise through Publishers Clearing House will be offered a chance to return the goods and get a refund. Anyone unable to return a purchase or whose magazine subscription has expired can still apply for a refund by providing a notarized sworn statement that he or she believed that ordering the magazine would increase the likelihood of winning a sweepstakes prize. Payout including postage is capped at $ 10 million. The suit was filed by Judy L. Cates and Steven A. Katz, lawyers who are brother and sister. It was filed in circuit court in Belleville, then transferred to U.S. District Court in East St. Louis. Similar suits have been filed around the country, including one by the Florida attorney general that accused Publishers Clearing House of trying to dupe people into believing they had won millions. Cates and Katz took a different tack. They said the company duped people into buying magazines and books by falsely leading them to believe that they would increase their chances of winning. The company has denied any wrongdoing. But Bill Low, its general counsel, said settling the case would avoid the burdens of extended litigation. It requires Publishers Clearing House to revise future sweepstakes solicitations to include: * An "ironclad guarantee" to consumers that no purchase is necessary to enter; * A statement in its solicitations telling consumers that they are not a winner yet; * An estimate of the average entrant's odds of winning each prize offered; * A statement that consumers can cancel magazine subscriptions and get a refund; * An address where a list of prizes over $ 25 may be requested through the mail. Terms of the agreement also prohibit Publishers Clearing House from telling consumers that they are eligible for extra prizes if they enter early, unless a system is in place to keep the early entries separate. The company also is prohibited from including a simulated check in any solicitation unless it states clearly on its face, "This is not a check." In addition, Publishers Clearing House must set up a toll-free "sweepstakes assistance line," where family members or friends may seek help for a loved one who may be responding inappropriately to sweepstakes solicitations. It must also maintain a Web site with tips on how to avoid sweepstakes scams, and a database to record reports of sweepstakes frauds received from consumers. Senior vice president Deborah Holland said the company will do more than the settlement requires. "In addition to these measures, we are voluntarily adopting a number of improvements to our mailings and programs with the goal of establishing new standards for the industry and restoring the public's confidence in legitimate, free-by-mail sweepstakes like ours," she said. The settlement was approved on June 30 by U.S. District Judge G. Patrick Murphy, but details were not available until recently when they were posted on the Internet. At a "final fairness hearing" scheduled for Dec. 20, Cates and Katz plan to submit a request for up to $ 3 million in fees and to cover their expenses. Katz declined to comment on the settlement. (St. Louis Post-Dispatch 8-26-1999) SHERWOOD SECURITIES: 2nd Cir. N.Y. Will Hear Appeal Against Settlement ---------------------------------------------------------------------- On April 9, 1997, Sherwood Securities entered into a settlement agreement with Plaintiffs' co-lead counsel on behalf of the class plaintiffs in the case In Re: NASDAQ Market-Makers Antitrust Litigation, 94 Civ. 3996(RWS) currently pending in the United States District Court for the Southern District of New York. The Settlement Agreement provided for payment by Sherwood Securities of $4,375,000 per percentage point of its market share of the "Defendants' Market" which was defined as the 35 Nasdaq market-maker defendants' total number of shares traded as market-makers in the Class Securities (a designated list of Nasdaq securities) during the period from May 1, 1989 to May 27, 1994. Sherwood Securities' agreed market share of the Defendants' Market was estimated in the Settlement Agreement, as amended, at 2.10%, which resulted in a total principal payment obligation of $9,187,500. The Settlement Agreement provided for the payment of the verified amount in two installments. On April 23, 1997, Sherwood Securities made an installment payment in the amount of $4,593,750. The remaining balance of $4,926,797, including $333,047 of interest, was paid on April 9, 1998. The Settlement Agreement provided for a release by "Class Members" of "Released Claims" against Sherwood Securities and certain related persons and affiliates as such terms are defined in the Settlement Agreement. On November 9, 1998, Judge Sweet of the United States District Court for the Southern District of New York approved the Settlement Agreement and entered a Final Judgment and Order of Dismissal. The Court's Final Judgment has been appealed to the United States Court of Appeals for the Second Circuit by certain class members, and such appeals are pending. SHERWOOD SECURITIES: Settles For SEC Proceedings Re Market-Making ----------------------------------------------------------------- As part of a global settlement involving more than 25 Nasdaq market-making firms, Sherwood Securities has settled proceedings brought against it in connection with the investigation by the Securities and Exchange Commission, captioned In the Matter of Certain Market-Making Activities on NASDAQ, HO-2974. In connection with the settlement, Sherwood Securities consented to the entry of certain Orders by the SEC instituting proceedings, making findings and imposing sanctions. Sherwood Securities neither admitted nor denied the substantive allegations set forth in the Orders. The Orders state that Sherwood Securities, aided and abetted by certain traders employed by Sherwood Securities during the relevant time, engaged in or caused certain violations of Section 15(c)(1) and (2) and Section 17(a) of the Securities Exchange Act of 1934 and Rules 15c1-2, 15c2-7 and 17a-3 thereunder, and orders Sherwood Securities and certain of its traders to cease and desist from committing or causing future violations of these provisions. In addition, the Orders also stated that Sherwood Securities had failed to reasonably supervise its market-making activities, in violation of Section 15(b)(4)(E) of the Exchange Act. As part of the settlement, Sherwood Securities paid a civil penalty of $1,000,000 to the SEC and the sum of $8,138 in disgorgement. Sherwood Securities previously fully reserved for the penalty payment, which was made January 22, 1999. Sherwood Securities also agreed to a review by an independent consultant appointed by the SEC of its policies, procedures and practices relating to prevention and detection of those types of conduct described in the Orders which relate to Sherwood Securities. Finally, three present and one former trader employed by Sherwood Securities also consented, neither admitting nor denying the allegations, to the entry of the Orders and to individual suspensions ranging from 7 to 12 weeks and individual penalties ranging from $25,000 to $50,000 each. SHERWOOD SECURITIES: Violations Of Sherman Act Resolved Up To NY 2nd Cir ------------------------------------------------------------------------ On July 16, 1996, Sherwood Securities entered into a Stipulation and Order resolving a civil complaint filed in the United States District Court for the Southern District of New York by the United States Department of Justice ("DOJ") alleging that Sherwood Securities and 23 other Nasdaq market makers violated Section 1 of the Sherman Act in connection with certain market making practices. The Complaint alleges, among other things, that Nasdaq market makers reached a common understanding to adhere to a "quoting convention" relating to the manner in which bids and asks would be displayed on Nasdaq. The relief sought in the Complaint was a declaration that the defendants have violated Section 1 of the Sherman Act, as well as injunctive relief and such other relief as the court deemed appropriate. In entering into the Stipulation and Order, Sherwood Securities did not admit that the DOJ's allegations were correct, but that it would not engage in certain types of activities in connection with its Nasdaq market making and it undertook specified steps to assure compliance with the agreement. The Stipulation and Order was approved by the United States District Court of the Southern District of New York following a public hearing and that approval was affirmed on appeal by the United States Court of Appeals for the Second Circuit. No timely petition for review by the United States Supreme Court has been filed. SUN HEALTHCARE: Intends To Contest Securities Suit In New Mexico ---------------------------------------------------------------- In March, April and May, 1999, class action lawsuits were filed against Sun Healthcare Group Inc. and three officers of the Company in the United States District Court for the District of New Mexico on behalf of purchasers of the Company's common stock during the class period. These actions have been consolidated as IN RE SUN HEALTHCARE GROUP, INC. SECURITIES AND LITIGATION MASTER FILE NO. CIV99-269. The lawsuits allege, among other things, that the Company did not disclose material facts concerning the impact that PPS would have on the Company's results of operations. The lawsuits seek compensatory damages and other relief. Although the Company intends to vigorously defend itself in this matter, there can be no assurance that the outcome of this matter will not have a material adverse effect on the results of operations and financial condition of the Company. SUN HEALTHCARE: Subsidiaries Face Rico And Other Charges In Florida ------------------------------------------------------------------- In January 1999, the state of Florida filed criminal charges in the Circuit Court of the Eighth Judicial Circuit for Alachua County, Florida against three subsidiaries which were acquired by the Company on June 30, 1998: RCA, Capitol Care Management Co., Inc. and Gainesville Health Care Center, Inc. All of the allegations of wrongdoing relate to activities prior to June 30, 1998, the date of the RCA acquisition. Florida's allegations include violations of certain RICO laws, abuse or neglect of elderly or disabled persons, grand theft and Medicaid fraud at a nursing home facility in Florida. Also named as defendants were five individuals who were involved in the operation of the facility in their capacities as officers, directors or employees of the defendant entities. If the defendant entities are convicted, they could be banned from participating in the Florida Medicaid program. Although the Company's subsidiaries will defend themselves vigorously in this matter, there can be no assurance that the outcome of this matter will not have a material adverse effect on the results of operations and financial condition of the Company. Y2K LITIGATION: Michigan Attorney Advocating Schools To Sue ----------------------------------------------------------- If you haven't heard enough about Y2K, here's one more word: sue. One Michigan attorneys' office is actively advocating that school districts should file suit in order to recover costs associated with becoming Y2K compliant. The firm recently held a luncheon encouraging cities and school districts to file a class-action suit against computer companies. Participants were not entirely convinced, but declared they were gathering information to make informed decisions. (Your School and the Law July 19, 1999) YBM: Deloitte Says There's No Evidence It Ignored Hints Of Fraud ---------------------------------------------------------------- Deloitte & Touche LLP should not be blamed for failing to detect money laundering at YBM Magnex International Inc. because it was a 'carefully orchestrated and well-financed fraud which deceived not only Deloitte but many others,' the firm says in a motion to dismiss a U.S. shareholder lawsuit. It is the first time the auditor has spoken in any depth about its role in the stock market fiasco. Deloitte said it should be credited with being the first to sound the alarm on the Canadian magnet manufacturer that collapsed on May 13, 1998, after its Philadelphia-area head office was raided by the FBI in an organized-crime probe. Angry shareholders, who lost $635-million on YBM stock, have filed lawsuits to try to recover some of the money, naming the auditors as well as the company's officers and directors. The U.S. class action 'does not present one shred of evidence that anyone at Deloitte was faced with evidence of fraud and intentionally or recklessly disregarded it, or faked their audit work,' the motion says. 'Nor do they even suggest a reason why someone at Deloitte would conceivably be motivated to do so.' Deloitte was hired to reaudit YBM's 1996 results after the Ontario Securities Commission refused to clear a new share issue in 1997, saying it had concerns whether YBM had real customers. The huge auditing firm scoured YBM's books for 13 weeks and then signed YBM's 1996 financial statements, but not before ordering two 'significant' changes. Deloitte disallowed most of $13.6-million (US) in North American sales, determining the magnets were really going to Eastern Europe. And it forced YBM to rebook a $5-million (US) oil transaction. It pointed to the ordered changes as evidence it was doing its job. 'Clearly Deloitte's 1996 reaudit of YBM turned up substantial financial disclosure violations which Deloitte required YBM to correct,' the motion said. 'This is clear evidence of good faith.' Within five months of signing the 1996 reaudit, Deloitte privately told YBM's board it was concerned about possible money-laundering, and the entities with which the firm did business. It subsequently refused to sign the 1997 audit, even though YBM complained it was doing business with the same people as in 1996, when Deloitte took such a close look at its business. In the 40-page motion to dismiss, Deloitte says that far from being part of the fraud, it helped bring about YBM's downfall. 'Deloitte ultimately and unambiguously sounded the alarm concerning possible wrongdoing at YBM and was instrumental in bringing an end to this fraud.' Paul Yetter, one of the lawyers for shareholders, said the auditors are simply trying to put the best face on a bad situation. 'After more than a year of thinking about this scandal, it is not surprising that Deloitte is trying to present the best spin it can,' Mr. Yetter said from Houston. 'It doesn't change the reality one bit. This was no garden-variety audit: Deloitte was charged by regulators to do an extraordinary high-risk scrutiny of YBM.' (National Post (formerly The Financial Post) 8-27-1999) ********* 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. 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