/raid1/www/Hosts/bankrupt/CAR_Public/991005.MBX
C L A S S A C T I O N R E P O R T E R
Tuesday, October 5, 1999, Vol. 1, No. 170
Headlines
AUTO FINANCING: Ill. Ct Grants Lynch Ford Motion; 2 Consummations Occur
AUTO INSURANCE: 2 Insurers, Allstate And Progressive, Sued In Oregon
BESICORP LTD: Decries Merit Of Suits; Sues Stock Traders On Conspiracy
CHEVRON: Attorneys File Suit In CA Over Richmond Explosion & Fire
DELTA AIR: Settles For Suit In Georgia Over ASA Acquisition
GUN MANUFACTURERS: Maker Of Gun In Massacre To Be Tried, CA App Ct Says
HOLOCAUST VICTIMS: Victims In Poland Accuse Germany Of Waiting
LEASING SOLUTIONS: Faces Securities Suits In CA And Ch 11 Case In Del.
NY TIMES: Writers Win Appeal In Manhattan On Electronic Publication
OVERLAND DATA: Pretrial Conference Is Set For Securities Suit In CA
PROVIDENT MUTUAL: Phil. Ct Forbids Change Into Stock Life Insurance Co.
RCS FINANCIAL: Suit On Fraudulent Conversion Of Monies Pending In Ohio
RIDGEFIELD PARK: OT Must Be Paid On Time 3rd Cir Affirms In Police Case
RURAL METRO: Intends To Defend Vigorously Securities Suits In Arizona
TOBACCO LITIGATION: Business Groups Fear More Fed Suits Could Follow
TOBACCO LITIGATION: The Recorder Says The Fed Suit Didn't Come Easy
TOBACCO LITIGATION: TX Medicaid Recipients Seek Share of Settlement
WAR VICTIMS: British POW Considers Suing Japanese Captors
WAR VICTIMS: S. Korean Files Suit Against Two Japanese Companies
WAR VICTIMS: U.S. Former War Prisoners Sue Japanese Companies
* Some Employees Given New Pension Plans Seek Help In Legal System
* The Comprehensive Access And Responsibility In Health Care Act
*********
AUTO FINANCING: Ill. Ct Grants Lynch Ford Motion; 2 Consummations Occur
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Creditors engaged in "spot delivery" must make Truth in Lending Act
disclosures before consummation of each credit transaction and
consummation of each transaction occurs when the consumer becomes
contractually bound. Janikowski v. Lynch Ford Inc., et al., No. 98 C
8111 (N.D. Ill. 8/5/99).
Diane Janikowski purchased a car from Lynch Ford Inc. after signing a
retail installment contract, which provided for a 5.9 annual percentage
rate. The agreement read: "If financing cannot be obtained within [five]
business days for Purchaser according to the proposals in the retail
installment contract executed between Seller and Purchaser, either
Seller or Purchaser may cancel the Agreement shown on the face of this
Order and the retail installment contract." Janikowski drove her new car
home. The following day, the defendants contacted Janikowski and
requested that she execute another retail installment contract. The
second contract provided for an 11.9 percent APR.
Janikowski sued Lynch under the Truth in Lending Act and the Illinois
Consumer Fraud Act. She alleged in her class action that the defendants
fraudulently executed vehicle sales and financing and engaged in "spot
delivery." Janikowski also claimed that Lynch backdated the second
agreement to the date of the original contract.
"Spot delivery" is an automobile lending and leasing term which refers
to an automobile dealership's practice of encouraging consumers to sign
retail installment contracts to obtain immediate delivery of an
automobile. However, after the original contract is signed, the
dealership requires the consumers to execute a second retail installment
contract containing different terms, including a higher interest rate.
As part of the "spot delivery" practice, the automobile dealership then
assigns the second agreement to a finance company.
The U.S. District Court for the Northern District of Illinois denied the
defendants' motion to dismiss. The court held on March 12, 1999, that
consumers are bound to the terms of an automobile retail installment
contract at the time of downpayment, trade-in and taking possession of a
vehicle. The District Court also explained that dealerships who engage
in "spot delivery" must disclose the true nature of the financing terms
at the time of delivery of the car to comply with the TILA.
Offer of Judgment
After the District Court denied the defendants' motion to dismiss, Lynch
offered Janikowski 20,000 pursuant to Fed. R. Civ. P. 68. Janikowski
moved to strike Lynch's offer of judgment contending that it was
improper and unacceptable given her pending motion for class
certification. The court agreed with Janikowski, stating that she "was
not at liberty to accept the offer when it was made because she was then
lead plaintiff in a putative class action."
Writing for the District Court, Judge Suzanne B. Conlon explained, "A
potential conflict of interest arises if a class representative is
forced to consider a settlement offer made to her personally." The court
granted the plaintiff's motion to strike.
Consummation
The court next addressed the parties' cross motions for summary
judgment. Specifically, the parties disputed whether one or two
different consummations occurred.
Regulation Z governs the timing of required TILA disclosures. It
provides "The creditor shall make disclosures before consummation of the
[credit] transaction." Janikowski argued that only one consummation
occurred and it happened when she signed the first contract. Lynch, on
the other hand, contended two consummations occurred - the first when
Janikowski signed the contract for 5.9 percent and the second when she
executed the financing contract for 11.9 percent.
The District Court ruled that Lynch's position was the correct one. It
explained that the first contract with a 5.9 percent APR was binding on
the terms stated and that Lynch was obliged to disclose only those
terms. Using the five-day cancellation language in the contract, Lynch
voided the first retail installment contract and offered another at 11.9
percent APR. Judge Conlon stated Lynch was not required to disclose the
11.9 percent rate until it proposed the second contract to the customer.
The court added that Janikowski was not obligated to purchase the car at
the higher interest rate until she signed the second contract.
Janikowski contended that although she was not bound to the higher
interest rate until she signed the second contract, she was precluded
from obtaining more favorable financing elsewhere. The court found this
argument to be without merit. According to the court, Janikowski was
free to shop around upon cancellation of the first contract with Lynch.
The court granted the defendants' motion for summary judgment and
concluded the second contract was not altered after Janikowski signed
it.
Cathleen M. Combs, Daniel A. Edelman, James O. Latturner and Christopher
Russell Zink of Edelman, Combs & Latturner in Chicago represented the
plaintiff. Hall Adams III and Martin D. Synder of Williams & Montgomery
in Chicago and Joseph R. Marconi, Howard William Foster and Steve D.
Wellhouse of Johnson & Bell Ltd. in Chicago represented the defendants.
(Consumer Financial Services Law Report 9-7-1999)
AUTO INSURANCE: 2 Insurers, Allstate And Progressive, Sued In Oregon
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October 1, 1999, at the Law Firm of D'Amore and Associates 506 SW 6th,
7th floor, Portland, Oregon, customers of two giant insurance companies,
Allstate Insurance Company and Progressive Insurance Company, announce
they have filed class-action law suits against those companies, citing a
litany of consumer grievances -- including fraud.
The two lawsuits could affect tens of thousands of Oregonians who have
been similarly victimized in the past 6 years. Under Oregon law, all
drivers must be insured. The policies you buy must include Personal
Injury Protection (or, as this appears on your insurance cards, PIP
coverage). Should you be injured in an auto accident, your PIP coverage
is supposed to cover 100% of your necessary medical treatment, up to the
limits of the policy.
As victims Amy Matthews, Denise Cloe and Patricia Ball will tell
reporters at the press conference, Allstate Insurance Company and
Progressive Insurance Company refused to pay for the medical care needed
to make them well after being injured in their separate car crashes,
even though they had paid for the coverage. "It's bogus, and anyone
insured with Progressive is a potential victim," said Daniel J. Gatti,
Portland/Salem attorney who represents Amy Matthews in the class action
filed against Progressive. "If you incur an injury as a result of your
accident, your medical treatment for that injury should be covered.
However, Progressive literally plugs your injury into a computer and out
comes the amount they will pay for your treatment. It doesn't matter
what your doctor says. It doesn't matter if your coverage is cut off
before you are well. It's wrong. Progressive saves money at the
policyholder's expense at a time when the policyholder needs help the
most."
Portland attorneys Tom D'Amore and Christopher Hardman represent many
injured people who are at legal odds with their insurance companies.
According to D'Amore, "Some insurance companies take advantage of
vulnerable, injured people. Denying them medical coverage they need and
have paid for is wrong. Denying appropriate medical care to increase
their exorbitant corporate profits is particularly despicable." Hardman
agrees. "A deal is a deal. Progressive wrote the deal and they are
obligated to keep it. This is not a complicated concept." Not only are
customers left holding the bills, they often receive letters from these
insurance companies urging their policy holders not to pay their doctors
or medical providers! Copies of such letters will be provided to the
media at the conference.
Denise Cloe was in a terrible collision last Christmas Eve that received
statewide media attention. She was a passenger in a car that was struck
by a vehicle that lost control on an icy road. The driver of the other
car, a popular emergency room doctor from the Willamette Valley, was
killed. Denise sustained back and wrist injuries. "My three year old was
in a car seat in the back, and it was all so terrible. I was still
undergoing therapy recommended by my doctor when I received the word
that my insurance would no longer pay for my treatment. They did not
speak with my doctor or me to inquire about my treatment. I just opened
a letter one day and found out Allstate would not pay my medical bills,
and I still needed care."
Attorney James Nelson, Albany, represents Cloe and Patricia Ball. "Tens
of thousands of Oregonians have likely received similar treatment and
could be eligible to join the two law suits once the litigation becomes
certified." "Allstate uses the same computer program as Progressive. It
categorizes all neck injuries, all back injuries, all concussions, etc.,
as being comparable. That's ludicrous. The policyholder and the
doctor-patient relationship should not be compromised by a computer
program," Nelson added.
Progressive Insurance Company is headquartered in Ohio. Allstate
Insurance Company headquartered in Illinois. Denise and several other
Oregon victims treated similarly by Allstate and Progressive will answer
reporter questions at the press conference. Copies of the complaints,
photos of the accidents, and other information will be made available to
reporters who attend the press conference.
CONTACT: D'Amore and Associates, PC Thomas D'Amore, 503/222-6333 OR
Nelson & MacNeil, PC James Nelson, 541/928-9147 OR Gatti Gatti Maier
Krueger & Sayer Daniel J. Gatti, 503/363-3443 OR Law Office of CR
Hardman Christopher R. Hardman, 503/916-1787
BESICORP LTD: Decries Merit Of Suits; Sues Stock Traders On Conspiracy
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Besicorp Ltd., an alternative energy and cogeneration company based in
upstate New York, filed suit in New York State Supreme Court. The suit
is seeking to recover extensive damages which arose from alleged
violations of federal racketeering statutes and other wrongful acts
involving an illegal conspiracy to gain control of Besicorp Group Inc.
("BGI"), former parent of Besicorp Ltd.
The complaint alleges that beginning in the early 1990s, an organized
group of stock traders began prosecution of a series of meritless
lawsuits along with a campaign of malicious complaints directed to
government agencies, intended to foment civil and criminal
investigations. The complaint further alleges that the conspirators
engaged in a campaign of vilification in the press, to the financial
markets, and on the Internet and that certain named defendants have been
involved as plaintiffs in dozens of class action and derivative
shareholder lawsuits.
Besicorp CEO Michael F. Zinn, had the following comments: "Over 10
years, as the target of a malicious conspiracy, BGI was subjected to
wrongfully motivated litigation and vicious harassment." Mr. Zinn added,
"By filing this suit the Company is seeking legal reparations on behalf
of BGI's shareholders for unlawful acts by a group of predators who
engaged in egregious behavior designed to undermine BGI's ability to
stay in business. The Company's long-term opportunity as a business
specializing in development of environmentally sound energy generation
has been substantially damaged as a result."
The 38-page complaint enumerates the improper activities that were taken
by the conspirators in a pattern of corrupt activity and conspiracy
leading to the defendants' unlawful attempts to liquidate BGI.
Heading up Besicorp's legal team is Terrance G. Reed. Commenting on the
lawsuit, Reed, head of the Washington, D.C.-based law firm Reed &
Hostage, P.C., said, "This case is about the limits the law places upon
acceptable conduct in our business and legal systems. In this suit,
Besicorp is attempting to vindicate its interest, but it is also seeking
to reinforce the basic limits our legal system imposes upon what is fair
or foul in corporate America." Of counsel is A. Mitchell Greene, senior
partner of Robinson, Brog, Leinwand, Greene, Genovese and Gluck P.C.
The Company is alleging seven counts against the above named defendants.
The counts include: 1. Tortious Interference with Prospective Economic
Advantage 2. Tortious Interference with Contract 3. Business
Disparagement 4. Prima Facie Tort 5. Conspiracy 6. Violation of 18
U.S.C.ss.ss.1962(b), 1962(d) Violation of 18 U.S.C.ss.1962(c)
Besicorp Ltd. specializes in the development of independent power
projects and energy technologies.
CHEVRON: Attorneys File Suit In CA Over Richmond Explosion & Fire
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A committee of Bay Area plaintiffs' attorneys last Friday filed a class
action against Chevron over the March 25 explosion and fire at the
Richmond refinery. The suit in San Francisco County Superior Court
states that Chevron's failure to keep up with maintenance or correct
known safety problems caused the accident.
A thick plume of smoke hovered over the city for hours. Hundreds of
people rushed to emergency rooms with health complaints.
Several suits have been filed. In April, more than 700 people sued in
Contra Costa County. More suits are expected within the one-year filing
period. (The Contra Costa Newspapers 10-2-1999)
DELTA AIR: Settles For Suit In Georgia Over ASA Acquisition
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ASA Holdings Shareholder Litigation. On February 25, 1999, two
individual shareholders of ASA Holdings, Inc., on behalf of themselves
and other shareholders of ASA Holdings, filed a purported class action
complaint in the Superior Court of Fulton County in the state of Georgia
against ASA Holdings, its directors (collectively, the "ASA Holdings
Defendants") and Delta Air Lines Inc.
The complaint seeks (1) to enjoin Delta's acquisition of ASA Holdings or
to rescind the acquisition if consummated; (2) unspecified compensatory
and rescissory damages; and (3) costs and disbursements of the action.
The complaint alleges, among other things: (1) that the ASA Holdings
Defendants violated their fiduciary duties to shareholders of ASA
Holdings by entering into an acquisition agreement with Delta and by
recommending the acquisition; and (2) that Delta is a controlling
shareholder of ASA Holdings, violated its fiduciary duties to
shareholders of ASA Holdings because it "wrongfully used its superior
position and control to bring to bear pressure on the [Board of
Directors of ASA Holdings]," and caused the ASA Holdings Defendants to
accept an inadequate price for Delta's purchase of ASA Holdings.
On March 9, 1999, the parties entered into a memorandum of understanding
("Memorandum of Understanding") setting forth the terms of an
agreement-in-principle to settle this litigation. Under the Memorandum
of Understanding, which was agreed to by the ASA Holdings Defendants and
Delta solely to avoid the burden, expense and distraction of further
litigation, Delta and ASA Holdings amended the acquisition agreement to
eliminate the $5 million termination fee that would otherwise have been
payable to Delta if the acquisition agreement was terminated as a result
of ASA Holdings receiving and accepting a superior acquisition offer.
The proposed settlement is subject to certain conditions, including
completion by plaintiffs of appropriate discovery reasonably
satisfactory to plaintiffs' counsel; the preparation and execution of
definitive settlement documents; and final court approval of the
settlement, which would be binding upon a class consisting of all
shareholders of ASA Holdings from February 15, 1999 through May 11,
1999. ASA Holdings has agreed to pay the fees and expenses of
plaintiffs' counsel up to an aggregate amount of $400,000, subject to
final court approval of the settlement.
DELTA AIR: Will Contest Antitrust Suits In MI Over Air Passenger Prices
In June 1999, two purported class action antitrust lawsuits were filed
in the United States District Court for the Eastern District of Michigan
against Delta, US Airways, Inc., Northwest Airlines, Inc. and the
Airlines Reporting Corporation, an airline-owned company that operates a
centralized clearinghouse for travel agents to report and account for
airline ticket sales.
In the first case, the plaintiffs allege, among other things: (1) that
the defendants and certain other airlines conspired with Delta in
violation of Section 1 of the Sherman Act to restrain competition and
assist Delta in fixing and maintaining anti-competitive prices for air
passenger service to and from its Atlanta and Cincinnati hubs; and (2)
that Delta violated Section 2 of the Sherman Act by exercising monopoly
power to establish such prices in an anti-competitive or exclusionary
manner. The complaint asserts that, for purposes of plaintiffs' damages
claims, the purported plaintiff class consists of all persons who
purchased a Delta full fare ticket from June 11, 1995 to the present on
routes (1) that start or end at Delta's hubs in Atlanta or Cincinnati;
(2) on which Delta has over a 50% market share; (3) that are longer than
150 miles; and (4) that have total annual traffic of over 30,000
passengers.
In the second case, the plaintiffs assert similar allegations and claims
under Sections 1 and 2 of the Sherman Act with respect to US Airways'
pricing practices at its Pittsburgh and Charlotte hubs ("US Airways
Hubs"). The complaint asserts, among other things, that Delta, the other
defendants and certain other airlines conspired with US Airways to
restrain competition and assist US Airways in fixing and maintaining
prices for air passenger service to and from the US Airways Hubs.
In both cases, plaintiffs have requested a jury trial, and are seeking
injunctive relief; costs and attorneys' fees; unspecified damages, to be
trebled under the antitrust laws; and such further relief as the Court
deems appropriate. Delta believes that the allegations and claims
asserted against it in these cases are without merit and it intends to
defend these lawsuits vigorously.
EXXON: Miami Jury Failed To Reach Decision On $1 Bil Damage Claim
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Miami jurors in a class-action case with a $ 1 billion damage claim
against Exxon failed to reach a decision, resulting in a mistrial.
Jurors were to decide whether the giant oil company cheated 10,000 Exxon
dealers when it failed to give them a reduction in oil prices tied to
retail discounts for customers. (Broward Daily Business Review
9-17-1999)
GUN MANUFACTURERS: Maker Of Gun In Massacre To Be Tried, CA App Ct Says
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The manufacturer of a gun used in a 1993 San Francisco massacre must
stand trial, a California appellate court ruled. The court reinstated a
civil suit against Navegar Inc., the maker of a semiautomatic pistol
used to slay eight people. The decision marks the first time a US court
has allowed a gunmaker to be sued in a criminal shooting. In ruling that
Navegar can be held liable for the weapon's misuse, the judges cited the
company's marketing practices and the weapon's lack of apparent
legitimate civilian uses.
A first test of a national missle defense system is scheduled for
tomorrow over the South Pacific. The plan calls for launching a dummy
warhead from Vandenberg Air Force Base, Calif., and shooting it down
with an interceptor missle fired from Meck Island in the Marshalls. The
system is designed to destroy missles from rogue nations or terrorists,
not to withstand all-out attacks.
The CIA announced plans to become a presence in California's Silicon
Valley. In an effort to stay abreast of developing computer technology,
the agency will set up a venture capital company, In-Q-It. Besides
sharing information with universities and investing in high-tech firms,
the company will form joint ventures to aid it in addressing computer
security issues and information gathering.
Motion picture director Steven Spielberg, singer Aretha Franklin,
humorist Garrison Keillor, and playwright August Wilson were among the
recipients of national arts and humanities medals, presented at a White
House dinner to individuals or institutions active in supporting the
growth and availability of arts and humanities to the public.
An Illinois jury began deliberations in the $ 5.4 billion class-action
lawsuit accusing State Farm, the nation's largest auto insurer, of fraud
and breach of contract for failing to restore customers' cars to
pre-accident condition. Policyholders claim the company pays only for
after-market auto parts, not ones that meet original factory
specifications. State Farm lawyers argued that the parts are good and
saved customers $ 233 million in premiums last year.
Thirty-six impovderished countries will be forgiven their debt to the US
so long as they use the money saved on basic human needs, Clinton told
the annual meeting of the International Monetary Fund and World Bank.
African nations are expected to be the main beneficiaries.
The Defense Department said it had no evidence that an alleged massacre
of civilians by US troops in the opening days of the Korean War
occurred. The denial came in response to an Associated Press story based
on interviews with numerous American veterans of the conflict. Pentagon
spokesman Kenneth Bacon called the allegations "obviously disturbing,"
but said they had been investigated "time and time again." The AP
reported claims by some veterans that "hundreds" of civilian refugees
trapped beneath a bridge near the town of No Gun Ri were shot. The South
Korean government has denied claims for compensation by survivors of the
alleged attack. (The Christian Science Monitor 10-1-1999)
HOLOCAUST VICTIMS: Victims In Poland Accuse Germany Of Waiting
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Eleven Nazi-era slave laborers from Poland accused German leaders and
industrialists of evading promised compensation payments and waiting for
ageing victims to die.
The victims, who sued for compensation in a U.S. court in January,
accused the German side of ''a clear lack of good will'' and a ''brutal
game'' of delaying compensation.
They accused the Germany of breaking the promise to start compensation
payments Sept. 1. The German government and industry had that day as a
target date for a settlement, but compensation negotiations are dragging
on.
The victims said they want their U.S. lawyer to cut off negotiations if
there is no visible progress by Dec. 31. ''Accounting for the Nazi past
is not only and act of justice toward the victims, it is a sign that the
German nation is truly attached to democratic values, that the elites
have completed the de-Nazification of Germany,'' the group's statement
said.
Jacek Turczynski, who represents victims from Poland, said he will bring
the group's message to the next round of slave labor compensation talks
in Washington on Oct. 6-7. The 11 Poles said Germany was rich enough to
pay compensation to slave laborers if it had recently spent 1 trillion
marks ($ 540 billion/511 billion euros) on aid to former communist East
Germany.
They called for an international conference to assess German profits
from the war and for publication of a list of all German and Austrian
firms that used slave labor.
Sixteen German firms have so far signed on to a planned compensation
fund. Their initial offer of less than $ 1.7 billion is far below the up
to $ 20 billion that class-action lawyers have demanded. (AP Worldstream
10-1-1999)
LEASING SOLUTIONS: Faces Securities Suits In CA And Ch 11 Case In Del.
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The Company and two of its former officers are defendants in securities
law class action lawsuits filed on behalf of a specified class of the
holders of the Company's common stock and its convertible subordinated
notes. The complaints seek unspecified monetary damages.
In the fourth quarter of 1998, Leasing Solutions Inc. was served with a
complaint filed as a class action in the United States District Court
for the Northern District of California, alleging violations of the
Securities Exchange Act of The class action was commenced on behalf of
persons who purchased the common stock of the Company during the period
between July 23, 1998 and November 9, 1998, inclusive. The Plaintiffs
seek unspecified monetary damages and their costs and expenses incurred
in the action. The action is in its very early stages, and the Company
has only recently begun the evaluation of the allegations and claims
made in the complaint. The Company has not yet answered or otherwise
responded to the complaint.
In the fourth quarter of 1998, the Company was also served with a
complaint filed as a class action in the United States District Court
for the Northern District of California on behalf of persons who
purchased the Company's 6.875% convertible notes due 2003 during the
period between July 23, 1998 and November 9, 1998, inclusive. The
complaint alleges violation of the Securities Exchange Act of 1934. The
Plaintiffs seek unspecified monetary damages and their costs and
expenses incurred in the action. The action is in its very early stages,
and the Company has only recently begun the evaluation of the
allegations and claims made in the complaint. The Company has not yet
answered or otherwise responded to the complaint.
Although the Company does have directors and officers liability
insurance coverage in the aggregate amount of $20,000,000, which may be
available to reimburse the Company for its expenses in defending and
settling such lawsuits and any damages that may be awarded to the
plaintiffs in such lawsuits, there can be no assurances that the Company
would not be obligated, as a result of a settlement or an unfavorable
court decision in either case, to pay amounts to the plaintiffs in
excess of such insurance coverage or in addition to any payments made by
the insurance companies.
In the first quarter of 1999, the Company was served a complaint, filed
in the United States Bankruptcy Court in Delaware, by Memorex Telex
Corporation ("MTC"), the debtor in a Chapter 11 proceeding. The
complaint alleges that the Company failed to pay MTC a portion of
residual payments to which the Company was entitled, relating to
residual sharing arrangements between the parties, arising out of
equipment leased by the Company (other than to the State of California)
that was purchased from MTC. The Complaint does not specify any amount
of damages. The Company has answered the complaint and filed a cross
complaint against MTC on related matters, the amount of claims under
which are, in the Company's judgment, likely to be in excess of the
amount of MTC's claims against the Company.
In the second quarter of 1999, CompUSA Inc. filed an action against the
Company in the state court located in Dallas, Texas, alleging that the
Company had failed to pay CompUSA for certain hardware and software
subject to leases entered into between the Company and H.J. Meyers &
Co., Inc., a broker-dealer now in liquidation. In the complaint, CompUSA
alleges that the Company is obligated to pay CompUSA approximately
$740,000 for such hardware and software. The Company has filed an answer
to the complaint, in which it denied owing any sums to CompUSA, and
intends to vigorously defend the action.
In the third quarter of 1999, the Company received in the mail a
complaint, filed in the U.S. District Court in the Eastern District of
North Carolina, alleging that the Company owed certain sums to MTX,
Inc., a company with which the Company has had business dealings. The
complaint alleges that the Company owes MTX approximately $1,235,000 for
maintenance payments with respect to equipment leased by the Company to
the State of California, $30,000 for remarketing fees, and $460,000
representing equipment purchased by the Company from Memorex Telex
Corporation, the right to payment of which was allegedly assigned to
MTX. The Company presently believes that it has claims against MTX, in
an amount in excess of any amounts it may owe MTX and expects to file a
cross-complaint against MTX for those amounts.
The Company's common stock is listed on the New York Stock Exchange
("NYSE"). The Company has been notified by the NYSE that it does not
comply with the proposed continued listing criteria of the NYSE and that
its common stock may face delisting from the NYSE. Although no assurance
can be given, the Company is working with the NYSE in an effort to
maintain the listing of its common stock on the NYSE. Failure to succeed
in regaining compliance with the proposed continued listing criteria
within any period set by the NYSE, or to meet any milestones within that
period required by the NYSE, will result in delisting.
NY TIMES: Writers Win Appeal In Manhattan On Electronic Publication
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A federal appeals court in Manhattan has ruled that magazine and
newsapaper publishers have no right to enter the work of freelance
writers and illustrators into electronic databases without permission of
the creators. The ruling, which overturns a lower court decision, opens
the way for freelancers to demand additional compensation for electronic
rights.
The case was brought by a group of writers against the New York Times,
Newsday, Time Inc. Magazine Co., along with University Microfilms
International and Mead Data Central, former owner of the Lexis-Nexis
data bases.
The ruling comes as online publishing is exploding in the U.S. and
Canada.
Jonathan Tasini, president of the U.S. National Writers' Union and the
lead plaintiff in the case, told the New York Times: ''We could go into
court tomorrow and ask to shut down every data base.''
Instead, the Writers Union sent letters to 22 publishers urging them to
sign up with the Publications Rights Clearinghouse, which handles
collective licensing of freelance work.
In Canada, this is handled by The Electronic Rights Licencing Agency
(TERLA) . ''We are very encouraged by the decision that we are on the
right track,'' said Robert Labossiere, head of TERLA. (The Toronto Star
10-1-1999)
OVERLAND DATA: Pretrial Conference Is Set For Securities Suit In CA
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Overland Data Inc., its directors and certain of its officers were named
as defendants in two class action lawsuits filed on April 21, 1997 and
May 2, 1997 in the U.S. District Court for the Southern District of
California. In both cases, the plaintiffs purported to represent a class
of all persons who purchased the Company's Common Stock between February
21, 1997 and March 14, 1997. The complaints alleged that the defendants
violated various federal securities laws through material
misrepresentation and omissions in connection with the Company's initial
public offering and its Registration Statement on Form S-1, which the
Securities and Exchange Commission declared effective on February 21,
1997. The plaintiffs seek rescission of their share purchases or
rescissory damages if their shares have been sold, as well as attorneys'
fees and other costs and expenses.
On September 16, 1997, the court entered an order permitting the
voluntary dismissal of the first filed lawsuit without prejudice and
appointed the plaintiff in the second lawsuit as the lead plaintiff in
this litigation. That person then resigned as the lead plaintiff, and
the shareholder who had filed the first of the two lawsuits petitioned
the court for permission to intervene and serve as the lead plaintiff.
The petition was granted on September 29, 1998 and, on December 17,
1998, the court certified the shareholder class, allowing the litigation
to proceed as a class action.
The defendants have answered the second complaint, have denied the
material allegations and have disavowed any wrongdoing. Discovery is
complete, and the Company filed a Motion for Summary Judgment, which the
court denied on August 2, 1999. A pretrial conference has been scheduled
for November 1, 1999, but no trial date has been scheduled. Although the
outcome of the lawsuit cannot be determined, management believes that it
has meritorious defenses and intends to defend against the lawsuit
vigorously. The Company maintains directors' and officers' liability
insurance to provide coverage against suits of this nature and, other
than legal fees incurred to date, no amounts have been recorded in the
financial statements for any losses which may result from this
litigation.
PROVIDENT MUTUAL: Phil. Ct Forbids Change Into Stock Life Insurance Co.
-----------------------------------------------------------------------
A Philadelphia Common Pleas Court judge has put a stop to Provident
Mutual Life Insurance Co.'s plan to convert from a mutual insurance
company to a stock life insurance company, deciding the company's
policyholders could not make an informed vote based on the information
the company provided. The court's permanent injunction will remain in
effect unless Provident changes the factual statement it provided to its
policyholders outlining its conversion plan.
"We conclude that Provident's directors breached their duty of
disclosure because they disseminated a policyholder information
statement which unfairly described the Plan of Conversion, and therefore
prevented policyholders from making an informed vote on the plan," Judge
Stephen E. Levin wrote, siding with a class of policyholders. "The only
adequate remedy is to revise the Information Statement, redistribute the
Information Statement containing the disclosures explained in this
opinion and identified in the court's decree nisi, and to have the
policyholders vote again on the Plan of Conversion."
But the judge's order in Butler v. Provident Mutual Insurance Co., PICS
Case No. 99-1805, (C.P. Phila. Sept. 17, 1999) Levin, J. (20 pages),
said Provident does not have to provide policyholders with dissenters'
rights.
Levin allowed the parties 15 days to file post-trial motions.
The class action lawsuit was filed in January on behalf of more than
300,000 policyholders. Levin had issued a preliminary injunction in the
case in February of this year. An appeal of that decision was just heard
in Commonwealth Court on Sept. 15, according to attorney Kenneth A.
Jacobsen, who represents the policyholders.
According to the opinion, in 1995, Provident began to consider changing
the corporate structure of the company. By 1998, the board of directors
had approved a plan to convert the mutual holding company. Under the
company's conversion plan, Provident Mutual would convert from a single
mutual insurer corporation to three interrelated corporations a holding
company, a stock corporation and a stock life insurance company. The
plan of conversion provides in part that "the stock corporation,
Provfirst American Insurance Corp. will own all the voting stock of the
stock life insurance company, Provfirst American Life Insurance Co.,
thereby becoming a subsidiary of Provident Mutual Holding Co. The
Holding Co. will own at least a majority of the voting stock of the
stock corporation. The minority voting authority of the stock
corporation will be vested in the shareholders of Provfirst Life."
Provident provided an information statement to its policyholders
describing their rights under the conversion plan. The policyholders
argue that this statement did not allow them to make an informed vote on
the proposed conversion plan. After examining Provident's conversion
plan and information statement the company provided to its
policyholders, Levin came to the conclusion that participating
policyholders stand to lose under the conversion plan. "They forego the
right to have their dividends paid from and policies secured by profits
from non-participating lines of business, and they lose the priority
they once received under the mutual insurance structure," Levin wrote.
The court said that if the policyholders wish to make that decision,
they have every right to, but decided that Provident needs to fully
inform the policyholders of what exactly they will lose. Levin also
ruled that the policyholders should not be entitled to dissenters'
rights because after the conversion of the company, membership rights in
Provident Mutual Insurance would be converted solely into membership
rights in Provident Mutual Holding, and therefore fall under an
exception to dissenters' rights.
Laurence Z. Shiekman of Pepper Hamilton represents Provident and said
his client has not yet decided whether to file post-trial motions.
"We'll be studying the matter over the next 10 days and will be making a
decision within that period," Shiekman said in a phone interview last
week. (Pennsylvania Law Weekly 9-27-1999)
RCS FINANCIAL: Suit On Fraudulent Conversion Of Monies Pending In Ohio
----------------------------------------------------------------------
A class action suit arising from the allegedly fraudulent conversion of
monies invested in mutual funds has been removed from Ohio state court
to the U.S. District Court for the Northern District of Ohio. The
plaintiffs are investors who claim that their money was illegally
withdrawn from investment houses by a financial services company and
deposited in the company's bank accounts without their knowledge. Gary
A. Toth, Individually and as a Representative of all Similarly Situated
Persons v. RCS Financial Services Inc. et al., No. 1:99cv1876 (ND OH,
notice of removal filed Aug. 5, 1999).
On Aug. 5, 1999, the U.S. District Court for the Northern District of
Ohio became the new host for a class action complaint filed by numerous
investors who claim that they lost money when a financial planning
executive converted their funds to his own use. Prior to removal to
federal court, the suit was pending in the Court of Common Pleas of Lake
County, Ohio.
The complaint, which was filed by investor Gary Toth as class
representative, names as defendants RCS Financial Services Inc. (RCS);
the executrix of the estate of Gregory Shefchuk, RCS's former president
and shareholder; and a Florida business known as Money Concepts Capital
Corporation (Money Concepts), which sold securities in Ohio. Additional
defendants include Robert Shefchuk, who was a registered representative
with Money Concepts; Bank One NA; FirstMerit Bank NA; The Huntington
Bank; and Illinois Union Insurance Company, as well as Countrywide
Investments, Rydex Series Trust, American Skandia Life Insurance
Corporation, Franklin Group of Funds, and Zurich Kemper Funds.
In the complaint, Toth and fellow investors assert that they entrusted
their money to RCS and Gregory Shefchuk, who purported to invest the
funds in a variety of vehicles, including mutual funds operated by
Rydex, Skandia, Franklin, and Kemper. RCS and Gregory Stefchuk provided
the plaintiffs with quarterly statements falsely detailing the status of
the accounts, according to the suit. The plaintiffs did not receive
statements directly from the investment vehicles. The complaint alleges
that Gregory Stefchuk then used forged withdrawal authorizations to take
monies out of the mutual funds without the permission of the individual
investor plaintiffs. The withdrawal authorizations bore a seal signed by
Robert Stefchuk as an agent of Money Concepts, which allegedly
guaranteed authenticity.
The mutual fund companies named in the suit then sent checks to RCS, and
RCS deposited them in the defendant banks in accounts maintained by
Money Concepts and RCS. The checks were accepted for deposit without
endorsement by the named payee investor plaintiffs, according to the
complaint. As a result of these actions, the plaintiffs contend that
they lost approximately $10 million dollars.
The suit contains counts grounded in negligence, breach of fiduciary
duty, fraud and misrepresentation, breach of contract, and conversion.
The plaintiffs also seek a declaratory judgment as to the responsibility
of Illinois Union Insurance Company to pay for their losses as
occasioned by RCS, Money Concepts and Gregory and Robert Stefchuk. (Bank
& Lender Liability Litigation Reporter 9-1-1999)
RIDGEFIELD PARK: OT Must Be Paid On Time 3rd Cir Affirms In Police Case
-----------------------------------------------------------------------
An employer must include an employee's overtime wages no later than the
employee's next paycheck after the extra hours are computed. However,
the employer must be given the opportunity to present a "good-faith"
defense to rebut a claim of delay by the employee.
A group of police officers brought a class action suit against a
municipality, claiming that being paid overtime wages only twice a year
violated the Fair Labor Standards Act. The district court agreed,
relying on a 1972 bulletin from the Department of Labor. Although the
bulletin notes that there is no FLSA requirement that overtime be paid
weekly, it states that "payment may not be delayed for a longer period
than is reasonably necessary for the employer to compute and arrange for
payment...and in no event may be delayed beyond the next pay day after
such computation be made." In awarding liquidated damages, the court
stated that to hold otherwise would permit employers "to withhold
overtime compensation for some undefined period of time without
incurring any legal liability and employers would be left with no
recourse during this delay."
On appeal, the Third Circuit found the DOJ bulletin to be "a reasonable
construction of the FLSA." While a DOJ bulletin does not rise to the
level of regulation and does not have the effect of law, the court
should still show some deference to this bulletin, because of the
persuasiveness of its interpretation of the law. The court found that,
"as a matter of logic and policy, the provision of the interpretative
bulletin embodies an important aspect of the FLSA and must be
sustained." The court, however, also overturned the award of liquidated
damages, sending the matter back to the trial court, because the
employer was not permitted to put on a good-faith defense. The court
observed that the employer should have been able to present its
good-faith defense that the idea of deferred overtime payment originated
with the police union during collective bargaining. Brooks v. Village of
Ridgefield Park, No. 98-6357 (July 21). (The Corporate Counsellor,
August 1999)
RURAL METRO: Intends To Defend Vigorously Securities Suits In Arizona
---------------------------------------------------------------------
Rural Metro Corp. and certain of its former and current directors ---
Warren S. Rustand, former Chairman of the Board and Chief Executive
Officer, James H. Bolin, Vice Chairman of the Board, and Robert E.
Ramsey, Jr., Executive Vice President and Director --- have been named
as defendants in two purported class action lawsuits: Haskell v.
Rural/Metro Corporation, et. al., Civil Action No. C-328448 filed on
August 25, 1998 in Pima County, Arizona Superior Court and Ruble v.
Rural/Metro Corporation, et al., CIV 98-413-TUC-JMR filed on September
2, 1998 in United States District Court for the District of Arizona.
The two lawsuits, which contain virtually identical allegations, were
brought on behalf of a class of persons who purchased the Company's
publicly traded securities including its common stock between April 28,
1997 and June 11, 1998. Haskell v. Rural/Metro seeks unspecified damages
under the Arizona Securities Act, the Arizona Consumer Fraud Act, and
under Arizona common law fraud, and also seeks punitive damages, a
constructive trust, and other injunctive relief. Ruble v. Rural/ Metro
seeks unspecified damages under Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934.
The complaints in both actions allege that between April 28, 1997 and
June 11, 1998 the defendants issued certain false and misleading
statements regarding certain aspects of the Company's financial status
and that these statements allegedly caused its common stock to be traded
at artificially inflated prices. The complaints also allege that Mr.
Bolin and Mr. Ramsey sold stock during this period allegedly taking
advantage of inside information that the stock prices were artificially
inflated.
On May 25, 1999 the Arizona state court granted the Company's request
for a stay of the Haskell action until the Ruble action is finally
resolved. The Company and the individual defendants have moved to
dismiss the Ruble action. This motion is currently pending. The Company
intends to defend the actions vigorously.
TOBACCO LITIGATION: Business Groups Fear More Fed Suits Could Follow
--------------------------------------------------------------------
Business groups fear that the federal government's suit against tobacco
companies to recover health care costs associated with smoking could be
only the first in a series of suits against unpopular industries.
The government last week sued 11 defendants in the tobacco case,
including all major U.S. cigarette makers. The suit holds that the
defendants are liable for hundreds of billions of dollars the federal
government has spent on smoking-related health care costs. Among other
things, the government charges that the tobacco companies violated the
Racketeer Influenced and Corrupt Organizations Act by conspiring since
the 1950s to conceal information about the hazards of smoking.
The government is not, however, seeking the treble damages allowed under
RICO.
The government also is basing its suit on the Medical Care Recovery Act
and the Medicare Secondary Payer Act.
''There's never been anything like this before. RICO has been used
against racketeers and the like-it hasn't been used against people who
make legal products,'' said Victor Schwartz, general counsel of the
American Tort Reform Assn.
''I think if the government is successful in any of these claims, other
industries are directly threatened,'' particularly if those industries
happen to be perceived as unpopular by a particular administration at a
particular time, he said. Future targets could include the makers of
lead paint, guns, alcoholic beverages and even automobiles, he said.
''We're (opposing this suit) on behalf of all industries that may fall
out of political favor,'' said Lawrence Fineran, assistant vp of the
National Assn. of Manufacturers in Washington. He stressed that the NAM
was not opposing the suit on behalf of the tobacco industry or tobacco
company members of NAM. (Business Insurance 9-27-1999)
TOBACCO LITIGATION: The Recorder Says The Fed Suit Didn't Come Easy
-------------------------------------------------------------------
At first, DOJ lawyers weren't sure whether to bring legal action at all.
Then they considered pursuing an antitrust claim. And for a while, the
lawyers in charge of crafting the federal government's legal attack
against the industry even considered invoking nuisance laws normally
used against polluters.
But after nearly a year of intense internal debate, the Justice
Department filed suit in Washington federal court last week, relying on
two relatively obscure federal health care statutes and a novel
application of racketeering laws as ammunition against Big Tobacco.
The suit, which has been met with some skepticism, was the culmination
of months-long, high-level brainstorming that weeded out a number of
weaker -- and potentially less lucrative -- legal avenues. That process,
during which DOJ lawyers wrangled with outside advisers, highlights the
department's struggle to craft a suit that was, at least, legally
defensible and, at best, a way to force reforms on and extract payback
from an industry the government now claims has cost taxpayers billions
of dollars.
"For the past 45 years, the companies that manufacture and sell tobacco
have waged an intentional and coordinated campaign of fraud and deceit,"
said Attorney General Janet Reno during a Sept. 22 press conference
announcing the suit. "It has been a campaign to preserve their enormous
profits, whatever the cost -- in human lives, human suffering, and
medical resources."
The tobacco industry shot back immediately.
"How Janet Reno made it through that press conference with a straight
face, I'll never know," says Michael York, a partner in Washington's
Wehner & York, which represents the Philip Morris Cos.
From the beginning, the Justice Department tobacco team looked to two
little- used health care statutes as a possible foundation for
litigation. The first, the Medical Care Recovery Act, allows the United
States to recoup money it spent on treating Medicare or military
patients injured by a third party. The second law, the Secondary Payer
Act, gives Medicare patients the right to sue the insurance companies of
those who caused them injury; any recovery would belong to the federal
government.
As applied to the tobacco industry, the theory under these two laws is
relatively simple: If the government is forced to use federal dollars to
treat sick smokers, then it should be able to recoup the medical costs
from the entities that caused the harm in the first place -- namely the
tobacco companies.
This line of thinking got a boost late last year. In November, 46 states
-- using similar legal theories to try to recover state dollars spent to
treat sick smokers -- entered into a landmark $206 billion settlement
with the tobacco industry. The following month, Justice Department
officials told the White House that they now believed there could be a
basis for filing a federal suit.
That was all President Bill Clinton, whose advisers had for years been
pressuring Justice for such a move, needed to hear. In his January State
of the Union address, Clinton announced that he had directed the
department to seriously explore suing the industry.
Anti-tobacco activists, flush from their victory at the state level,
also had been pushing Justice to pursue a federal suit and they were
ready when the president made his announcement.
Within days of Clinton's announcement, two separate proposals outlining
ways to legally attack Big Tobacco, drafted by anti-tobacco lawyers and
activists, were submitted to the administration.
One proposal was put together by a few prominent law professors
including Laurence Tribe of Harvard University and G. Robert Blakey of
Notre Dame University. The second was drafted by Clifford Douglas, a
Chicago-based anti- tobacco activist. (The Justice Department also later
received an advisory opinion from Michael Ciresi and Roberta Walburn,
lawyers with the Minneapolis firm of Robins, Kaplan, Miller & Ciresi,
which successfully litigated Minnesota's case against the industry.)
Both plans of attack advocated similar strategies. They recommended
pursuing tobacco under the Medical Care Recovery Act -- one of the two
health care statutes already under consideration at the DOJ. Neither
proposal suggested the use of the Secondary Payer Act.
Both also strongly pushed creative interpretations of antitrust and
civil racketeering laws to make the case that the tobacco industry had
willfully defrauded the public and the government for decades about the
harmful effects of cigarette smoking.
First, both camps suggested that the government could press the tobacco
companies on violations of the Sherman Antitrust Act. The outside groups
claimed there was evidence that the companies conspired to prevent a
"safer" cigarette from entering the marketplace and undercutting the
demand for traditional brands. That collusion, according to the
argument, violated antitrust laws by artificially limiting choices to
the consumer. The groups argued that this could be a relatively easy
claim for the government to win, in part because the government did not
have to show that the companies perpetrated fraud.
DUAL EVALUATIONS
The arguments were evaluated by the two working groups that made up the
DOJ tobacco team. The first group was headed by Civil Division attorney
William Schultz, who in January had been brought on board, in part, to
oversee the DOJ's anti-tobacco effort. Schultz's group included about 20
attorneys from different Justice divisions, including Antitrust,
Environment and Natural Resources, Criminal and the Office of Legal
Counsel. These lawyers, who worked part time on the tobacco matter, were
charged with evaluating the merits of the different legal theories. (The
group has largely been disbanded since the filing of the federal suit.)
A second group, led by DOJ litigators J. Patrick Glynn and Sharon
Eubanks, was assigned to wade through the reams of material from the
state tobacco cases and craft a complaint, if one were warranted.
The Justice Department team ultimately rejected the antitrust approach
in early July, concluding that the department lacked legal footing to
bring such a case. "The absence of antitrust is striking," says Blakey
of Notre Dame. "I would've liked to have had four arrows in my quiver,
rather than three."
The DOJ lawyers were more intrigued by the racketeering claims proposed
by the two groups.
Normally, racketeering laws are applied to individual businesses or
companies accused of engaging in fraudulent activities. But the advisory
groups argued that since the tobacco companies allegedly operated in
unison to keep damaging information about the effects of smoking from
the public, they, in essence, acted like one corrupt organization.
"The claim that the entire industry is involved in a racketeering
conspiracy is absurd on its face," says York, the Philip Morris lawyer.
But that's not how Justice saw it. Justice Department lawyers ultimately
settled on filing suit under the so-called equity provisions of the
civil racketeering law that give extraordinary powers to the attorney
general to pursue corrupt organizations. Under that provision, the
attorney general is permitted to introduce decades-worth of evidence
that allegedly shows the tobacco companies conspired to keep vital
information from the public.
If the government is successful in pressing these claims, the law allows
the Justice Department to extract from the companies the amount of
profits they made as a result of the fraud. In addition, the department
also is entitled to demand that the industry spend its own money for
public education and smoking cessation campaigns. "It is a very strong
piece of the case," says one government lawyer who asked not to be
identified.
At the same time, DOJ consciously stayed away from filing under other
provisions of the civil racketeering laws that had already faced defeat
in several federal court cases across the country. For example, various
union- related health plans had sued the tobacco industry using the
general provisions of the racketeering law, only to be rebuffed by
judges who found they had no basis for suing.
INTERESTED PARTIES
Shortly after the two groups of lawyers and anti-tobacco activists
passed on their proposals, the Justice Department was approached by
another set of interested parties.
In late 1997, a couple of Texas residents filed a class action against
the tobacco industry. They used the Medical Care Recovery Act and the
Secondary Payer Act as the basis for their suit. The judge overseeing
the case, U.S. District Judge Joe Kendall, rejected an industry request
to throw the case out of court. In announcing his intention to allow the
suit to proceed, the judge suggested that the Justice Department might
want to join the case. Unbeknownst to the judge, lawyers for the Texas
plaintiffs had already approached the Justice Department, which had
summarily rejected the offer to intervene in the case. The plaintiffs
lawyers tried again this past spring, with a similar result.
According to one government lawyer, Justice wanted to go forward with
its own suit, through which it could address broader claims and make a
bigger splash than it would tagging on to an existing suit.
Although DOJ lawyers were excited by the possibilities afforded them by
the racketeering and health care recovery laws, they did not stop
searching for additional legal weapons. Tobacco task force lawyers also
studied certain environmental nuisance laws that prohibit air pollution.
If companies can be held liable for detrimental effects created by
industrial pollution, why couldn't cigarette manufacturers be held
accountable for the harmful effects of cigarette smoke?
By early summer, the government lawyers say, Justice scrapped these
claims as weak; some states had already brought similar claims without
much success.
It is way too early to tell whether the government's case will ever make
it to trial.
The 11 named tobacco defendants are almost certain to ask
Washington-based U. S. District Judge Gladys Kessler to throw the case
out; the Justice Department must convince the judge to allow the case to
proceed, despite its novel theories.
And more than usual, the tobacco industry has every reason to try to
delay this case for as long as possible -- or at least until after the
2000 election, when a new, possibly Republican president might take a
far different view of the DOJ's suit.
If the case does make it to trial, government sources say Ciresi, the
Minnesota lawyer, may very well be brought back on board as the lead
litigator. (The Recorder 9-28-1999)
TOBACCO LITIGATION: TX Medicaid Recipients Seek Share of Settlement
-------------------------------------------------------------------
A Texas smoker and Medicaid recipient has sued the state of Texas to
recover what he claims are "excess" funds the state will receive
pursuant to its settlement with tobacco companies. Watson v. State of
Texas, No. 5:99cv184 (ED TX, Aug. 7, 1999).
In a class action filed in federal court in Texarkana, Port Arthur
resident Bobby Watson contends that the federal Social Security Act
requires states that participate in the Medicaid program, like Texas, to
obtain assignments of rights from Medicaid recipients, and to take all
reasonable measures to recover Medicaid expenditures from potentially
liable third parties, like tobacco companies. If a state does recover
medical expenses from a third party on behalf of Medicaid recipients,
Watson says, the monies recovered are to be returned on a prorated basis
to the state and the federal government in accordance with their
relative contribution to those expenses.
Furthermore, he insists, all monies remaining after reimbursement of the
state and federal governments must be paid to the individual Medicaid
recipients.
"Under the Medicaid statute, sums exceeding the State of Texas' Medicaid
expenditures and its reimbursement to the federal government are
required to be distributed to the class of individual Medicaid
recipients," Watson maintains. For authority, he cites 42 U.S.C. Sec.
1396k(b).
Last year, Texas settled its health care cost recovery action against
tobacco companies. The settlement calls for the state to receive
approximately $17 billion over a 25-year period, and it has already
received payments totaling over $1.2 billion.
"The funds already received by the State of Texas from the settlement
fund, and funds to be received in the future, far exceed the sums the
State of Texas has paid to treat individual Medicaid recipients under
the Medicaid statute and the Texas Human Resources Code," Watson
contends in the suit.
To date, he maintains, Texas has not paid Medicaid recipients any of the
"excess" funds it has recovered pursuant to the settlement with tobacco
companies. Watson asks the court to certify a class of plaintiffs
consisting of all those persons who received Medicaid benefits from the
state as a result of smoking-related illnesses and/or diseases, and as
to whom the state acted as assignee or subrogee in bringing its suit
against tobacco companies.
For relief, the suit seeks a declaratory judgment that Watson and all
other members of the proposed class are entitled to share pro rata in
the tobacco lawsuit settlement fund, less amounts payable to the state
and the federal government. It also seeks an order enjoining the state
from disbursing the settlement monies except in accordance with the
Social Security Act, 42 U.S.C. Sec. 1396k.
Watson is represented by George M. Fleming, Christopher A. Kesler, Bruce
B. Kemp, and Sylvia Davidow with Fleming & Associates, L.L.P., of
Houston; Michael Campbell and Gregory L. Denes with Campbell &
Associates of Miami; and J. Thad Heartfield with Heartfield & McGinnis,
L.L.P., of Beaumont, TX. (See complaint, Document Section H.) (Tobacco
Industry Litigation Reporter, August 27, 1999)
WAR VICTIMS: British POW Considers Suing Japanese Captors
---------------------------------------------------------
A leading British campaigner for the rights of prisoners-of-war held by
the Japanese during World War II said he was considering suing for
compensation the company that once detained him.
Arthur Titherington, president of the Japanese Labor Camps Survivors
Association, responded to news from the United States, where a
class-action compensation suit has been launched against five Japanese
companies by people they held prisoner, by announcing the next stage of
his own legal wrangles to settle the issue.
"I have instructed my lawyer to look at suing various Japanese companies
for compensation for the suffering I endured when I was forced to work
in a Taiwan mine for more than two years during the war," he told Kyodo.
The campaigner will appear in Tokyo's court of appeal at the end of this
month to appeal a decision earlier this year that the Japanese
government cannot compensate him because the matter was supposedly
settled in a treaty in 1956 and cannot be reexamined.
He is not confident of winning the appeal, but is prepared to pursue his
cause to Japan's supreme court if necessary.
Titherington has also failed to convince his own government to make ex
gratia payments to himself and other members of his organization.
Turning his attention to the Japanese government, Titherington said,
"The government always protects the companies. They say 'well it is a
different company now,' when all they have done is change the name."
(Japan Policy & Politics 9-20-1999)
WAR VICTIMS: S. Korean Files Suit Against Two Japanese Companies
----------------------------------------------------------------
A former South Korean laborer filed a federal class-action suit Tuesday
against Nippon Steel Corp. and Mitsubishi Heavy Industries Ltd. for work
performed against his will in Japan during World War II.
In his affidavit filed at the U.S. district court in Tacoma, Washington,
the plaintiff, Choe Jae Sik, 76, says at the age of 20 he was deceived
into working in Japan by Imperial Japanese Army officials who promised
him good wages and conditions for his work.
Instead, he was forced to work at a steel mill in Kyushu, southwestern
Japan, and then transported onto Hiroshima and Okayama, where he worked
digging tunnels.
It was only last month that Choe realized he could file a suit against
the Japanese corporations for being forced into slave labor. This case
is a follow-up to an earlier class-action suit filed by American
prisoners of war against Japanese companies in April.
This seems to be the first time that a South Korean residing in the U.S.
has filed a damages suit against Japanese companies.
According to Choe's attorney, Eddie Yoon, Nippon Steel and Mitsubishi
acted in direct violation of International Labor Organization Convention
No. 29, which prohibits slave labor. In his affidavit, Choe complained
of suffering mental and physical abuse, as well as a lack of appropriate
compensation for his labor. "Those years I was forced into slave labor
can be described as pure hell and torture. I lost an exceptional amount
of weight, and it has taken me many years to recover from this
horrifying event," he said. (Asian Political News 9-13-1999)
WAR VICTIMS: U.S. Former War Prisoners Sue Japanese Companies
-------------------------------------------------------------
On August 26, 1999, the United Nations Subcommission on Human Rights
rejected Japan's reasons for denying government compensation to women
pressed into service as sex slaves for the Japanese military during
World War II. (fn. 1) Meanwhile, on September 14, 1999, a class action
was brought by former U.S. prisoners of war against Japanese companies
for slave labor practices.
------------------------------Start of Footnote------------------------
(fn. 1)U.N. Panel Says Japan Must Pay Sex Slaves , Wash. Post , Aug. 28,
1999, at A14, col. 1.
-------------------------------End of Footnote-------------------------
U.N. Order
In a 15 to 2 vote, the U.N. Subcommission on Human Rights emphasized
that international law makes governments responsible for war crimes and
other rights violations their soldiers commit.
Until now, Japan has refused demands that it compensate victims on the
bases that the treaties it has concluded since World War II have settled
all claims.
At stake is the ability of international organizations, particularly
international human rights tribunals, to be able to enforce their
decisions. Unless states carry out their decisions, the decisions of the
international organizations will have limited value.
U.S. Former War Prisoners Sue Japanese Companies over Forced Labor
On September 14, 1999, a group of former U.S. prisoners of war from
World War II filed a class action suit against five major Japanese
corporations, alleging that the prisoners were beaten and forced to work
in Japanese factories, mines and shipyards after they were captured on
the battlefield. Filed in Albuquerque, New Mexico, the suit has eleven
plaintiffs although approximately 500 other persons have agreed to join
in the suit. (fn. 2)
------------------------------Start of Footnote------------------------
(fn. 2)Garry Pierre-Pierre, Ex-P.O.W's Sue 5 Big Japanese Companies Over
Forced Labor , N.Y. Times , Sept. 15, 1999, website.
-------------------------------End of Footnote-------------------------
The defendants are: Kawasaki Heavy Industries, Mitsubishi International
Corp., Mitsui & Co., Nippon Steel and Showa Denko KK.
According to Eli Warach, plaintiffs' counsel, recently declassified
documents facilitated the corroboration of some allegations about
torture and other abuses. Some plaintiffs said they had waited to come
forward because, soon after their release, U.S. intelligence officials
forced them to sign documents that forbade them to discuss their
treatment by the Japanese.
Fifty Chinese have brought a similar suit against Japanese corporations
in Japan. (fn. 3)
------------------------------Start of Footnote------------------------
(fn. 3)Id.
-------------------------------End of Footnote-------------------------
(International Enforcement Law Reporter, October, 1999)
* Some Employees Given New Pension Plans Seek Help In Legal System
------------------------------------------------------------------
Many companies recently have replaced their traditional pension plans
with "cash balance" plans. Some veteran employees at firms including
Onan and IBM are finding their benefits have been cut by 20 percent or
more. And they've gone to the courts and the Congress to get their
retirement income restored.
By Mike Hughlett STAFF WRITER For much of the 1990s, Chisago City
resident Stephen Langlie has been fighting, mostly in obscurity, to
prove that a new pension plan is costing older workers like himself
thousands of dollars in lost retirement benefits.
Now, the proliferation of the new "cash balance" plans, as they are
called, has captured Congress' interest and has become one of the
nation's hottest retirement benefit issues, thanks partly to Langlie and
hundreds of other workers at two major Minnesota employers, Onan Corp.
and International Business Machines Corp.
Langlie led workers at Fridley-based Onan to challenge the adoption of a
cash balance plan there, saying it cheated them out benefits, a claim
the company denies. The workers sued Onan for age discrimination, and in
August the Internal Revenue Service agreed with them that Onan's cash
balance pension plan should be disqualified, at least on certain tax
grounds.
Meanwhile, workers at IBM's big Rochester complex have been on the
forefront of a national rebellion against that firm's imposition of a
cash balance plan this summer. Worker opposition forced IBM two weeks
ago to reduce the scale of the plan.
But the issue is still festering at IBM and other companies, as well as
in Washington. Legislation is pending. The IRS said last month it will
drastically slow the approval process for cash balance pensions to
ensure they comply with federal law. And the Equal Employment
Opportunity Commission has made a priority of grappling with a key
question: Are cash balance plans potentially discriminatory to older
workers?
To begin to understand the question, a quick primer in pensions is in
order.
In a traditional "final average pay" pension plan, the kind that both
Onan and IBM workers once had, the bulk of an employee's benefits are
accumulated during the last five to ten years on the job. Such plans
particularly reward employees who remain with a single company for
decades.
Cash balance plans, on the other hand, particularly reward workers who
don't intend to stick with just one or two employers. Such plans accrue
benefits at a steady rate and resemble a 401(k) account.
In a cash balance plan, employers annually set aside a pension sum for
each employee, usually equal to 3 percent to 7 percent of a worker's
salary. Employers then bestow that sum with an annual "investment
credit," essentially a guaranteed annual interest rate of 5 percent on
average.
Exactly why cash balance pension plans have spread during the past few
years is a matter of hot debate. Critics claim they're simply a way for
companies to save money on pension expenses. Many companies, including
Onan, say cost cutting hasn't driven the switch. Rather, they say cash
balance plans are a better incentive for the 1990s' more mobile work
force. They're generally easier to understand than final average pay
pensions. And they're more portable. When workers quit, they can simply
take their "cash balance" with them via a lump sum distribution. That's
not as easy to do in traditional pension plans. Even critics of cash
balance plans agree that starting from ground zero, such a plan isn't
any worse than a traditional pension and is indeed better for mobile
workers. The problem is that most existing companies aren't starting
from the ground zero; they're converting from one plan to another.
In the process, some veteran employees are finding their benefits have
been cut by 20 percent or more. They've found that the opening balances
in their new cash balance plans are sometimes substantially less than
the value of their benefits in their old plans. And to make matters
worse, some have found they have to work several additional years just
to return to their old benefit level -- something known as "wear-away."
Such twists and turns occur because of the complicated interest rate
assumptions companies make when they convert plans. Many companies have
tried to mitigate such issues for older employees through various
options and sweeteners.
Onan, a generator manufacturer, said it provided mitigation for its
workers, too. But Stephen Langlie and scores of other veteran employees
didn't think it was good enough.
IRS concurs Langlie, a mechanical engineer, started working full time at
Onan in 1960. By 1979, he was getting projections from the company that
his pension benefit would be $1,723 per month on average if he stayed
until age 65. But in 1989, not long after being purchased by
Indiana-based Cummins Engine Co., Onan switched to a cash balance plan.
Within a few years, Langlie's pension projection had dropped to about
$870 per month. Since leaving Onan four years ago at age 62, he has
ended up drawing a pension of $424 per month, which would equate to $565
if he'd chosen not to transfer his benefits to his wife if he dies
first.
Onan claims Langlie's pension under the cash balance plan is higher than
it would've been under Onan's prior plan. The company says it adopted
the plan to improve retirement benefits, as well as to better comply
with provisions of the 1986 federal tax act. It concedes, though, that
some employees may have found the cash balance plan less beneficial.
Langlie said he and other veteran employees became suspicious of the new
plan soon after it was adopted. More than 200 of them met at an American
Legion hall near the plant, and eventually hired a lawyer, Jeffrey
Cairns of the now defunct Popham Haik firm.
Cairns spotted some tax code and age discrimination issues, though his
law firm handed the case off in 1996 because it didn't have the
resources to pursue it. Meanwhile, a committee of veteran Onan workers
kept busy, with Langlie spearheading the effort. He wrote to the IRS
personally, and at one point, traveled to Washington D.C. to deliver
petitions signed by several hundred Onan workers to Sen. Paul
Wellstone's office. The petitions were passed on the U.S. Labor
Department.
"Langlie was really the one who kept it alive and was not bullied by the
company," said Cairns, now at the Minneapolis law firm of Leonard Street
and Deinard. "He was just exercising his right to know. He kept asking
for information, and to the company's credit, at least locally, they
responded and provided pounds and pounds of paper."
The Onan workers' suit, which could set precedents for other cash
balance-related suits, has received status as a class action and is
slated for trial next spring.
The workers got some leverage for a possible settlement in August. In a
filing in U.S. Tax Court, the IRS said Onan's plan was deficient in
several areas and should be disqualified. The Tax Court hasn't ruled on
the matter yet. Disqualifications are rare, but they can be very costly,
creating big tax liabilities for an employer and possibly for employees,
too.
"We came to a really important milestone in having the IRS decide this
plan did not meet the tax code," Langlie said. Becoming personal For
Langlie, the ruling is particularly gratifying because the dispute with
Onan has become personal.
He sued the company in 1997, saying he'd been forced out of his job, a
victim of age discrimination and retribution for pressing pension
issues. Langlie's engineering job was eliminated in 1995, and he was
offered a nonengineering job in another part of the company.
But Langlie claimed he didn't have the accounting and customer service
experience for the new post. Plus, he said he was affronted that after
more than 30 years at Onan, he would have to undergo a three-month
probation period for the new job. He was terminated.
Last year, a U.S. District Court jury decided Langlie wasn't a victim of
age discrimination. But it also concluded he was "constructively
discharged," meaning his work environment was so unbearable he was
forced to quit. The jury wasn't allowed to rule on Langlie's claim of
retaliation for his pension rights advocacy.
So, Langlie has taken his case to the Eighth Circuit Court of Appeals,
where he's found support from the U.S. Department of Labor. Langlie
provided enough evidence to raise legitimate questions before a jury
that he was fired as an act of retaliation, the Labor Deparment wrote in
a friend-of-the-court brief.
That evidence included a copy of an e-mail from one of Langlie's
supervisors, referring to Langlie as "litigiously inclined," and
suggesting he be given "help" in choosing early retirement, the Labor
Department's brief said.
A revolt at IBM Onan was among the first wave of companies that
installed cash balance plans in the 1980s. Many of the earliest plans
were adopted by banks, including Minneapolis-based First Bank System as
it was then known. In the 1990s, the plans have spread to hundreds of
employers. But when cash balance landed this summer at IBM -- a firm
still stocked with a lot of long-term career workers -- a revolt broke
out.
IBM employees, including roughly 5,500 in Rochester, began receiving
brochures about the pension conversion in June. "It was all nice and
glossy, but in very tiny print it said `this brochure constitutes formal
notice, as required by law, that the rate of future benefit accruals in
the IBM retirement plan will be reduced,"' said Janet Krueger, who went
to work at IBM 23 years ago, straight out of college.
She started asking questions, and "the more I found out about this plan,
the madder I got." Krueger figured that after the conversion her opening
cash balance in the new plan would be about 44 percent less than the
value of the benefits she'd accumulated in the old plan. She was so
miffed by the new plan she quit and found another job. But that didn't
stop her activism. She and hundreds of others took to the Internet,
lighting up IBM message boards. Their protests led IBM to retreat on the
cash balance issue two weeks ago, allowing any worker 40 or older with
at least 10 years of service to remain in the old plan.
As with any cutoff, though, some people are bound to fall just short,
such as software engineer Daryl Spartz.
He's worked at IBM in Rochester for 17 years, but only turned 40 last
weekend, about 12 weeks after the eligibility cut-off for the old plan.
He must take the cash balance plan, a move he says will cost him
thousands of dollars and force him to work longer to make up for lost
benefits. "It isn't fair," Spartz said. "I've got to work longer in an
industry that essentially favors younger people already."
Spartz, Krueger and about 150 other present and former IBMers packed a
town meeting with Rep. Gil Gutknecht last weekend in Rochester, where
IBM is a major employer. Gutknecht, a Republican, was sympathetic to
their complaints, and has criticized IBM for failing to properly inform
workers of pension changes.
But Spartz and Krueger said when Gutknecht was asked at the town meeting
whether he supported cash balance legislation pending in the house,
Gutknecht hesitated because of the political leanings of the bill's main
sponsor, Rep. Bernie Sanders, an Independent from Vermont, where IBM is
a huge employer.
"Gil's response was, `You know, Bernie is a socialist, and I can't
support socialist legislation,' " said Krueger, who recently testified
at Senate hearings on cash balance plans. "Several people then pointed
out that he needs to look at the bill and its merits, not who sponsored
it."
Gutknecht disputes the account, and says he generally supports key
aspects of Sanders' bill. But the liberal Sanders isn't the most
credible sponsor for a pension bill to get a hearing in a Republican
Congress, he said. "Ultimately, I believe Congress is going to take some
action," he said.
Minnesota Sen. Paul Wellstone has introduced a similar bill in the
Senate. It would beef up disclosure requirements, and allow all
employees to choose between traditional plans and cash balance plans.
Plans offering such a choice are rare, but they do exist, including one
at Minneapolis-based Northern States Power.
Wellstone's bill would also prevent an employee's opening balance in a
new cash balance plan from being lower than the benefit level already
accrued under the old pension plan.
David Sirota, a spokesman for Rep. Sanders, said getting any cash
balance legislation passed will be an uphill fight, but one that will
put a lot of pressure on the mostly Republican opposition.
That's because conservative congressmen are normally aligned with major
business lobbies, whose members are the very companies switching to cash
balance plans, Sirota said. Yet constituents back home are pressuring
them about those plans. "It puts conservatives in a very difficult
position," he said. (Newshound 10-3-1999)
The Comprehensive Access And Responsibility In Health Care Act
--------------------------------------------------------------
Some business groups are welcoming a managed care reform bill that would
not expand the liability of managed care plans and employers.
The Comprehensive Access and Responsibility in Health Care Act,
introduced by Rep. John Boehner, R-Ohio, would guarantee managed care
plan enrollees in plans governed by the Employee Retirement Income
Security Act the right to have coverage disputes reviewed by independent
physicians. The decision of the external review board would be binding
upon the plan, and any plan that did not comply with the review panel's
decision would be subject to fines of up to $5,000 a day.
Among other things, the measure also would require all plans to offer
direct access to obstetrician/gynecologists and improved access to
emergency medical care; provide a point-of-service option giving
patients the right to use a non-HMO doctor; and allow parents to choose
a pediatrician as a child's primary care physician.
But the Boehner bill would not expose health plans or employers to new
tort liability damages in coverage disputes. That stands in contrast to
two bills already introduced in the House: one by Reps. Charlie Norwood,
R-Ga., and John Dingell, D-Mich.; the other by Reps. Tom Coburn,
R-Okla., and John Shadegg, R-Ariz. In fact, the Boehner bill also would
place limits on non-economic damages and punitive damages awarded in
medical malpractice cases.
M. Anthony Burns, chairman of the Washington-based Business Roundtable's
Health and Retirement task force, told Rep. Boehner in a letter that,
''we greatly appreciate your commitment to passing health care reform
legislation that will not punish employers who voluntarily offer health
care benefits by subjecting them to new categories of legal liability.''
House Speaker J. Dennis Hastert, R-Ill., has promised votes on all three
managed care reform bills early next month (BI, Sept. 20).
(Business Insurance 9-27-1999)
*********
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
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Washington, DC. Theresa Cheuk and Peter A. Chapman, editors.
Copyright 1999. All rights reserved. ISSN 1525-2272.
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