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/raid1/www/Hosts/bankrupt/CAR_Public/991006.MBX C L A S S A C T I O N R E P O R T E R Wednesday, October 6, 1999, Vol. 1, No. 171 Headlines AUTO INSURANCE: State Farm Says Verdict Bad for Consumers; Plans Appeal BOEING CO: Ct Oks $ 15 Mil Settlement For Racial Discrimination Lawsuit CENTURY LOAN: CA Sp Ct Asked To Review On 2 Banks In Fraud Investment CHICAGO: Ap Ct Oks Maritime Claims For Loop Flood DEUTSCHE BANK: Jewish Organization Sues In N.Y. Over Nazi Financing ESCALON MEDICAL: Proposed Settlement For Securities Suit In New York FEN-PHEN: AHP Out-Of-Court Settlements Head Off 4 Separate Suits FEN-PHEN: Judge Dismisses Jury, Raising Expectation Of Settlement HMO: Cohen, Milstein Files Suit Against Humana In Miami HMO: Delays in Payments to Doctors Prompt New Jersey Suit Against Aetna HMO: Humana Issues Statement of Response to Class Suit Filed In Miami HMO: Humana Targetted For 'Substantial' Damages; Suit Filed In Miami HMO: Judge Dismisses Civil RICO Suit Against Aetna U.S. Healthcare HOLOCAUST VICTIMS: Child Slave Laborers Sue In N.Y. For Compensation HOLOCAUST VICTIMS: German Firms Offer To Pay $3.8 Bil. To Settle Claims HOLOCAUST VICTIMS: German Govt 'Cautiously Optimistic' About Talks ONAN CORP: Cash-Balance Pension Plans Of Minn Co. Face Tax Court Review PEOPLE'S BANK: Settles Shareholders' Suit When $7.7 Million Looks Cheap PVF CAPITAL: Faces Securities Suits In Ohio 1 Of Which Is Class Action REVLON INC: Finkelstein & Krinsk File Securities Suit In New York SOUTHWEST SECURITIES: Decries Merit Of TX Suit Over IPO & Other Suits SYMMETRICOM INC: Discovery Goes On For Securities Suit In CA TOBACCO LITIGATION: Data May Cast Doubt On Harm Of Secondhand Smoking ********* AUTO INSURANCE: State Farm Says Verdict Bad for Consumers; Plans Appeal ----------------------------------------------------------------------- The nation's largest auto insurer says a southern Illinois jury verdict could jeopardize its use of aftermarket parts to repair damaged cars and could lead to higher auto insurance rates for everyone. After six weeks of testimony in a national class-action suit filed in Marion, Ill., a jury today awarded nearly $456 million to some State Farm policyholders because aftermarket parts -- outer-shell body parts manufactured by companies other than the original carmaker -- were specified on many repair estimates. State Farm awaits further rulings from Williamson County, Ill., Associate Judge John Speroni. State Farm has already indicated it plans an appeal. "We are disappointed in this verdict," said Jack North, senior vice president State Farm Mutual Automobile Insurance Company. "Even the plaintiffs' own witnesses said some of these parts are as good as -- or even better than -- the originals. We believe only good parts have gone on State Farm-insured vehicles. We believe our procedures assure that. Those are the parts we have used and then guaranteed for as long as the policyholder owns the vehicle." North said if the verdict is allowed to stand, the parts industry could once again become monopolistic, leading to higher parts costs and higher auto insurance prices for everyone. North noted that at least seven other auto insurance companies face similar suits. "We're a mutual insurance company owned by our policyholder group," he said. "State Farm saved its policyholders almost $234 million in 1997 alone by specifying the use of aftermarket parts. In addition, when claims costs have been significantly less than expected, we have returned premium dollars to policyholders. In the past two years, we've returned more than $1.5 billion to them." North also noted that State Farm has reduced insurance rates more than $2 billion in the past two years. BOEING CO: Ct Oks $ 15 Mil Settlement For Racial Discrimination Lawsuit ----------------------------------------------------------------------- A federal judge on Thursday approved a $ 15 million settlement of a racial discrimination lawsuit brought against Boeing Co., saying it was the best way to encourage racial cooperation at the company. A group of black employees at the world's leading maker of commercial airplanes had argued before U.S. District Judge John Coughenour last week that the settlement was inadequate. ''This settlement has a greater chance of fostering a cooperative relationship between Boeing and its African-American employees than would a series of protracted individual disputes,'' Coughenour wrote in his opinion. ''This last point must be a crucial consideration for anyone who is primarily interested in future race relations within the company, as both the plaintiffs and the objectors maintain they are here.'' The settlement affecting about 13,000 past and present employees had been announced in January by Boeing's chairman, Philip M. Condit, and civil rights leader the Rev. Jesse Jackson. It covered lawsuits filed last year on behalf of black Boeing workers who alleged discrimination against blacks was common at Boeing plants, especially in selecting people for promotion. The lawsuits also alleged that blacks were harassed and faced retaliation when they complained. Boeing admitted no wrongdoing but agreed to spend $ 15 million to compensate the workers, pay their legal fees and set up programs to fight discrimination. ''Some people weren't happy with terms,'' Oscar Desper III, lead attorney for the plaintiffs in the class-action lawsuit, said Thursday. ''Some will benefit monetarily and some will not, but all will benefit from the changes we're going to make at the company.'' Some workers complained that the settlement failed to provide enough money and wouldn't do enough to prevent further bias. (The Atlanta Journal and Constitution 10-1-1999) CENTURY LOAN: CA Sp Ct Asked To Review On 2 Banks In Fraud Investment --------------------------------------------------------------------- The California Supreme Court has been asked to review a decision in favor of two banks, which class action plaintiffs assert aided and abetted a fraudulent investment scheme offering interests in nonexistent mortgages to investors. William Kaffer, Robert N. Greco, and Gertrude E. Saynor, on behalf of Themselves and All Others Similarly Situated v. Charles A. Herpick et al., No. SO81223 (CA Sup. Ct., petition for review filed Aug. 6, 1999). >From 1976 through 1994 Century Loan Corporation (Century) held itself out to investors as a successful mortgage broker. However, the company, which was run by Charles A. Herpick, James Herpick, and Richard J. Bauer (collectively the defendants), was a Ponzi scheme which purported to extend second mortgage loans to homeowners. The defendants would sell interests in nonexistent mortgages to investors, using fraudulent documents representative of deeds of trust. The defendants paid investors interest and principal, using funds gained from new investors. Eventually bank loans were necessary to fund the scheme, and Century later succumbed to a federal criminal investigation. A class action suit was commenced by a group of defrauded investors in California's Santa Clara County Superior Court. The suit was brought against Century, the defendants, a title company and two banks, which were alleged to have been instrumental in Century's ability to perpetuate the fraud. The banks, Pacific Western Bank (PWB) and San Jose National Bank (SJNB) were charged with aiding and abetting and conspiracy to defraud, aiding and abetting and conspiracy to commit negligent misrepresentation, aiding and abetting violations of the state Corporations Code and aiding and abetting and conspiracy to breach fiduciary duty. The trial court granted summary judgment to the banks on the grounds that the banks had no duty to the plaintiffs and because the plaintiffs failed to offer evidence sufficient to raise triable issues of fact. After the California Court of Appeal, Sixth Appellate District, affirmed, the plaintiffs filed a petition for review with the California Supreme Court on Aug. 6, 1999. In the petition the plaintiffs claim that the investment scam succeeded due to the assistance of the banks' employees. The plaintiffs allege that bank staff at PWB knew that Century was overdrawn on its accounts and shuttled funds between accounts to cover the problems. SJNB is asserted to have issued lines of credit to Century even though it knew the company had overdrafts on its accounts, and the plaintiffs assert that the bank failed to investigate the collateral for the loans. If SJNB had used due diligence, it would have known that the deeds of trust put up as collateral were nonexistent, the plaintiffs contend. The petition also argues that following their criminal convictions, the defendants offered declarations proving that the banks knew of and cooperated in the scheme. The declarations contradict statements given by bank employees wherein knowledge was denied, the petition states. The plaintiffs argue that the court of appeal improperly held that the cause of action of aiding and abetting and conspiracy had to proven by direct evidence. This ruling imposed a new requirement on the plaintiffs that is contrary to case law, the petition states. Circumstantial evidence is all that is needed under California law, the plaintiffs argue, and high court review is necessary to resolve the problem. The appeals court also erred when it denied the plaintiffs' request for a new trial, the petition states. In doing so, the appellate court excluded the testimony of the defendants, who had agreed to cooperate after judgment was entered for the banks, the petition claims. The plaintiffs were previously prevented from obtaining this new evidence because the defendants refused to waive their privilege against self-incrimination, the petition continues. Plaintiffs argue that the newly discovered evidence puts the credibility of the banks' witnesses into question, and the motion for a new trial should not have been denied. The plaintiff class is represented by Frank M. Pitre and Nancy L. Fineman of Cotchett, Pitre & Simon, Burlingame, CA, and Ronald R. Rossi and Susan R. Reischl of Liccardo, Rossi, Sturges & McNeil, San Jose, CA. (Bank & Lender Liability Litigation Reporter 9-1-1999) CHICAGO: Ap Ct Oks Maritime Claims For Loop Flood ------------------------------------------------- More than 25 insurance companies and a class of more than 120 property owners seeking damages for the 1992 Loop flood can sue the city under principles of admiralty law, a state appeals court ruled, clearing the way for a potential recovery of at least $ 12 million. A panel of the 1st District Appellate Court reversed and remanded rulings by Cook County Circuit Judge Donald J. O'Brien Jr. that admiralty law was beyond the reach of actions brought by Commercial Union Assurance Co. and more than 25 other insurers of Great Lakes Dredge & Dock Co., the company whose work allegedly caused the flooding. "We conclude that, by allowing Commercial Union to sue the city and recover damages in accordance with long-standing admiralty principles, Commercial Union and the city will only be responsible for their own proportionate share of liability," Justice Thomas R. Rakowski wrote for the panel in a 22-page opinion. The appeals court also reversed O'Brien on another issue. The panel held that the property owners' assignment of damage claims to Great Lakes and their insurers are valid under admiralty law. The insurers paid 36 plaintiffs $ 12 million to settle their claims against Great Lakes. The decision returns the matter to the Circuit Court for trial to determine the city's share of liability for the flood, said Hugh C. Griffin, a Lord, Bissell & Brook partner representing the insurers. "We are at least allowed to seek recovery of the $ 12 million from the city based on their proportionate share of liability," Griffin added. The three-judge appellate panel also held that the city's defense based on the Local Governmental and Governmental Employees Tort Immunity Act is preempted. "For the class plaintiffs, this is a real plus because tort immunity doesn't apply," William J. Harte said of the ruling. "So, we're able to sue the city under maritime law," said the attorney for a class of at least 120 property owners. A spokeswoman for the city's Law Department said officials were disappointed by the decision and are contemplating an appeal to the Illinois Supreme Court. The city hired Great Lakes for a project to protect bridges across the Chicago River by driving pilings near each span. The pilings at the Kinzie Street bridge, however, allegedly were sunk too close to a freight tunnel that wall. A breach in the tunnel wall allowed water to flow through the tunnel system in April 1992, resulting in flooded basements and power outages throughout the Loop. Numerous lawsuits were filed by property owners against Great Lakes and the city based on flood. Great Lakes settled with 36 of the original plaintiffs for $ 12 million, with Commercial Union and other insurers funding the settlement. As part of the agreement, the original plaintiffs released Great Lakes from liability, assigning the company all of their rights, interests and claims against the city. Great Lakes then assigned to the insurers all of its claims against the city. The insurers then filed suit against the city seeking to hold it liable under admiralty law. The insurers maintained that the city failed to notify Great Lakes of the existence and location of the tunnel once the company was hired to drive the pilings. The plaintiffs in the case on appeal are Commercial Union and the other insurers for Great Lakes, maintaining claims as assignees, a class of plaintiffs who alleged property damage and Mary Sims, who suffered personal injuries. On Jan. 13, 1998, O'Brien denied with prejudice the insurers' motion to file an amended complaint. Five months later, the judge dismissed Commercial Union's original complaint with prejudice. O'Brien then dismissed with prejudice all of the admiralty claims the class asserted in its second amended complaint, as well as Sims' admiralty claims. O'Brien found that admiralty law did not apply because the city's alleged negligence and resulting damages occurred on land -- not on a navigable waterway and that the city's alleged negligence was unrelated to traditional maritime activity. The insurers then appealed to the 1st District. The appeals court panel said it disagreed with O'Brien's conclusions of law. First, we believe the fact that the city's alleged negligent acts and resulting damage occurred on land does not prevent application of admiralty law where a vessel that caused the damage on land and the city's alleged negligence took effect on navigable water," the panel said. We also believe the activity the city was engaged in at the time of the incident was substantially connected to traditional maritime activity. As such, we conclude that the alleged causes of actions are governed by admiralty law," the opinion continued. Accordingly, any state law that would interfere with the uniform application of admiralty law is preempted." Justices Joseph Gordon and Jill K. McNulty concurred in the decision. The case is In re Chicago Flood Litigation (Commercial Union, et al. v. City of Chicago), Nos. 1-98-0593, 1-98-2326, 1-98-2364, 1-98-2589 and 1-98-2664, consolidated. (Chicago Daily Law Bulletin 9-30-1999) DEUTSCHE BANK: Jewish Organization Sues In N.Y. Over Nazi Financing ------------------------------------------------------------------- The World Council of Orthodox Jewish Communities said Tuesday it has filed a class action lawsuit in Federal Court in New York against Deutsche Bank AG, charging that the bank financed the Auschwitz death camp in Poland and other Nazi projects. The organization said it is seeking damages from the bank stemming from its participation in, and profits from, the theft and destruction of religious and cultural property of Eastern European Jewish comunities by the Nazis during World War II. (United Press International 10-5-1999) ESCALON MEDICAL: Proposed Settlement For Securities Suit In New York -------------------------------------------------------------------- On or about June 8, 1995, a purported class action complaint captioned George Kozloski v. Intelligent Surgical Lasers, Inc., et al., 95 Civ. 4299, was filed in the U.S. District Court for the Southern District of New York as a "related action" to In Re Blech Securities Litigation (a litigation matter which the Company is no longer a party to). The plaintiff purports to represent a class of all purchasers of the Company's stock from November 17, 1993, to and including September 21, 1994. The complaint alleges that the Company, together with certain of its officers and directors, David Blech and D. Blech & Co., Inc., issued a false and misleading prospectus in November 1993 in violation of Sections 11, 12 and 15 of the Securities Act of 1933. The complaint also asserts claims under Section 10(b) of the Securities Exchange Act of 1934 and common law. Actual and punitive damages in an unspecified amount are sought, as well as a constructive trust over the proceeds from the sale of stock pursuant to the offering. On June 6, 1996, the court denied a motion by the Company and the named officers and directors to dismiss the Kozloski complaint and, on July 22, 1996, the Company Defendants filed an answer to the complaint denying all allegations of wrongdoing and asserting various affirmative defenses. In an effort to curtail its legal expenses related to this litigation, while continuing to deny any wrongdoing, the Company has reached an agreement, subject to final court approval, to settle this action on its behalf and on behalf of its former and present officers and directors, for $500,000. The Company's directors and officers insurance carrier has agreed to fund a significant portion of the settlement amount. Both the Company and their insurance carrier have deposited such funds in an escrow account. FEN-PHEN: AHP Out-Of-Court Settlements Head Off 4 Separate Suits ---------------------------------------------------------------- Out-of-court settlements have been reached with American Home Products over alleged effects of the diet drug combination fen-phen. The settlements headed off four separate suits that were to have gone to trial. Now that's according to a lawyer who is reprepresenting hundreds of other plaintiffs. The company isn't commenting. A new study revealed no evidence of increased heart disease among those who had taken fen-phen. (CNBC News Transcripts 10-1-1999) FEN-PHEN: Judge Dismisses Jury, Raising Expectation Of Settlement ----------------------------------------------------------------- A judge dismissed the jury in a class-action lawsuit against the maker of the fen-phen diet drug, raising expectations of a possible out-of-court settlement. In sending jurors home, Superior Court Judge Marina Corodemus said she would hear the case without a jury starting Oct. 12 if a settlement is not reached before then, plaintiffs' attorney Steven Sheller said. The jury had been hearing testimony intermittently since Aug. 11. Sheller said he thought the case would be settled. Officials with American Home Products, the drug company, declined to comment. The case pits the Madison-based company against millions of patients who used its diet pills, which were taken off the market two years ago after being linked to serious heart and lung damage in users. Plaintiffs want American Home Products to cover the cost of future medical checkups for people who used the drug. The company reportedly has offered to pay $1.2 billion for the examinations, and an additional $2.8 billion to settle individual suits over the drugs. More than 4,100 lawsuits have been filed in state and federal courts against American Home Products over fen-phen. Plaintiffs' attorneys claim the company hid information from doctors, patients and regulators about possible links to heart valve disease and an often fatal lung condition called primary pulmonary hypertension. The company denies hiding information, and says it acted properly in marketing the drugs. (AP Online 10-5-1999) HMO: Cohen, Milstein Files Suit Against Humana In Miami ------------------------------------------------------- The law firms of Cohen, Milstein, Hausfeld & Toll, PLLC and Boies & Schiller, LLP filed a national class action lawsuit against Humana, Inc., one of the nation's largest managed healthcare companies. "The case sets forth specific and detailed examples of how a managed healthcare company, in this case Humana, concealed from its subscribers the way it actually decides whether to approve treatment and pay claims," said Stephen Neuwirth, a partner in the law firm of Boies & Schiller "Humana subscribers were told these decisions would be based on the medical needs of patients. In fact, as detailed in the complaint filed, Humana instead used undisclosed criteria that were unrelated to patients' medical needs," said Joseph Sellers, a partner in the law firm of Cohen, Milstein, Hausfeld & Toll. Humana also established a set of undisclosed financial incentives, including direct cash bonuses to claim reviewers and financial arrangements with doctors that were clearly designed to reduce the number of patient claims that would be approved. Following more than one year of investigation by Boies & Schiller and Cohen, Milstein, Hausfeld & Toll, the lawsuit was filed in federal court in Miami, Fla., as a national class action. Copies of the complaint are available upon request. SOURCE Cohen, Milstein, Hausfeld & Toll, PLLC CONTACT: Stephen R. Neuwirth, Esq., of Boies & Schiller, LLP, 914-273-9800; or Joseph M. Sellers, Esq., of Cohen, Milstein, Hausfeld & Toll, PLLC, 202-408-4600 HMO: Delays in Payments to Doctors Prompt New Jersey Suit Against Aetna ----------------------------------------------------------------------- A Somers Point physician has filed a class action against Aetna U.S. Healthcare for compensation and interest, alleging that the HMO took advantage of its position by failing to pay doctors on time and, in some cases, failing to pay at all. The case, Courtney v. Aetna U.S. Healthcare, L-6648-99, argues that Dr. Robert Courtney and thousands of other health care providers in New Jersey have lost thousands of dollars in the past 11 years because the health maintenance organization did not reimburse them properly. The complaint, filed Sept. 16 in Camden County Superior Court, alleges that the HMO violated N.J.A.C. 8:38-16.1, which requires that HMOs pay physicians within 60 days after a claim is submitted. After that, the HMO must pay interest, according to N.J.A.C. 8:38-16.4. The plaintiffs allege that in addition to compensation, they also are entitled to punitive damages because the Blue Bell, Pa.- based HMO allegedly violated the New Jersey Unfair Trade Practices Act, N.J.S.A. 56:8-1 et seq. Under the statute, intentional failure to pay claims in a timely manner and intentional withholding of interest constitutes unconscionable commercial practices which entitles the health care providers to damages. Courtney's attorney, Harris Pogust, a partner with Pennsauken's Sherman Silverstein Kohl Rose & Podolsky, says that HMOs such as Aetna U.S. Healthcare believe they have doctors under their thumb since most physicians, like Courtney, are under contract with the organizations. Pogust says Courtney and the rest of the class were not reimbursed on time and did not receive interest. The HMOs are taking over like a bad disease and really they need to be reined in," Pogust says. "But the bigger they become the harder it becomes to sue them because doctors are afraid to step on any toes. The HMOs need to be held accountable." Betsy Sel, a spokeswoman for Aetna U.S. Healthcare, did not return telephone calls last week seeking comment. The case is not unique. New Jersey is the third state in which a class action has been filed on behalf of health care providers. Similar suits have been filed in Philadelphia and California. The Philadelphia case, Solomon v. Aetna U.S. Healthcare, 99- 1288, was filed in the Philadelphia County Court of Common Pleas in March. The suit alleges that Aetna U.S. Healthcare failed to reimburse a class of Pennsylvania doctors in a timely fashion and refused to pay doctors for certain agreed-upon procedures. Jonathan Shub, an associate with Philadelphia's Sheller, Ludwig & Badey who is representing the class of plaintiffs in Philadelphia, says Aetna U.S. Healthcare's decision not to reimburse the doctors cost them millions. "We certainly hope *HMOs* change their standards of practice," Shub says. "But until they do, the best means of achieving an equitable result is to file suit or join a class." Burt Rublin, a partner with Ballard Spahr Andrews & Ingersoll in Philadelphia, who is representing Aetna U.S. Healthcare in the Philadelphia case, declines to comment. Twenty-eight other states have laws to ensure that health plans pay providers in a timely fashion. In New York and Pennsylvania, HMOs have 30 days to make the payments before interest is assessed. And fines have been imposed. Oxford Health Plans of Norwalk, Conn., has paid $71,000 in fines this year to the New York Insurance Department for failing to pay doctors promptly. Oxford spokeswoman Francesca Trainer says the company had problems paying bills in New York and New Jersey, but because of fines in New York and the threat of fines in New Jersey, physicians are being paid promptly now. Nonetheless, doctors and hospital executives say fines generally have been too small to have any impact. "Getting fined $1,000, what's that do to a large corporation?" asks Sarah Smith, a spokeswoman for the Greater New York Hospital Association. Smith says class-action suits might give the problem the attention it deserves and punitive damages might push the HMOs to change. Pogust says he found out about the problem last December when he was representing Courtney in a Year 2000 compliance class action, Courtney v. Medical Manager Corp., 98-CV-3347. During the federal case -- which eventually settled for $30.5 million in free software upgrades -- Courtney told Pogust that computer compliance was only the tip of the iceberg when it came to legal problems involving New Jersey doctors. (New Jersey Law Journal 10-4-1999) HMO: Humana Issues Statement of Response to Class Suit Filed In Miami --------------------------------------------------------------------- The following is a statement from Humana Inc. (NYSE: HUM) in response to a class action lawsuit filed in U.S. District Court in Miami. "We have not been served with a copy of the lawsuit and therefore cannot respond to its specific allegations. However, we will vigorously defend ourselves on behalf of our 6.1 million health plan members and the thousands of doctors who care for our members. "More than 85 percent of our members routinely tell us they are satisfied with the coverage they receive through their Humana health plan. Humana has been recognized nationally for its disease management initiatives, notably in the areas of congestive heart failure, breast cancer and diabetes. "Humana has long supported an external review process by independent physicians with no connection to a health plan to determine whether a requested service is appropriate. That is a better approach to meeting the needs of members than costly, protracted litigation that may provide huge verdicts for a few people, and enormous fees for plaintiffs' attorneys, at the expense of the many who depend on affordable health insurance coverage for themselves and their families." Humana Inc., headquartered in Louisville, Ky., is one of the nation's largest publicly traded managed health care companies with approximately 6.1 million medical members located primarily in 15 states and Puerto Rico. Humana offers coordinated health care through a variety of plans -- health maintenance organizations, preferred provider organizations, point-of-service plans, and administrative services products -- to employer groups, government- sponsored plans, and individuals. HMO: Humana Targetted For 'Substantial' Damages; Suit Filed In Miami -------------------------------------------------------------------- A class action lawsuit was filed in the District Court in Miami against Humana Inc claiming 'very substantial' damages for the company's widespread failure to disclose to participants that costs were the overwhelming factor behind decisions on claims rather than medical need, lawyers here said. "Humana has based its decision to provide coverage on secret criteria unrelated to the medical need of subsribers," said Joseph Sellers of law firm Cohen, Milstein, Hausfeld & Toll, PLLC. Lawyers would not make a specific estimate on the amount they are seeking in damages, however, Sellers noted, that the case covers "millions of subscribers over 4 years" which he said amounted to "very substantial damages." The lawyers said the case was filed after a year of investigation into Humana's practices between Oct 4 1995 to date. They claim that Humana gave direct finanacial incentives including cash bonuses to encourage claim reviewers within the company to deny claims. Lawyers said Humana's claim reviewers did not have appropiate medical training to make healthcare decisions. The case also states that Humana made undisclosed financial arrangements with physicians participating in their plans to limit care to individuals covered by Humana's health plans. In addition to monetary damages the plantiffs are seeking disclosure from Humana of the real basis on which medical treatment was provided. The suit was filed under the Racketeer-Influenced and Corrupt Organisations Act, RICO. The suit covers all health maintenance organisations (HMOs), preferred rovider organisations, (PPOs) and point of service plans, POS' run by Humana. (AFX News 10-4-1999) HMO: Judge Dismisses Civil RICO Suit Against Aetna U.S. Healthcare ------------------------------------------------------------------ A federal judge has dismissed a class-action civil RICO suit against Aetna U.S. Healthcare, brought by a group of consumers who say it lured them in with false promises of high-quality care while secretly pressuring doctors to cut costs and provide only minimum care. "A vague allegation that 'quality of care' may suffer in the future is too hypothetical an injury to confer standing," Senior U.S. District Judge John P. Fullam wrote in a tersely worded six-page memorandum and order in Maio v. Aetna Inc. To establish standing in federal court, Fullam said, a plaintiff must show an "injury in fact" that is "concrete and particularized" as well as "actual or imminent" as opposed to "conjectural or hypothetical." The Maio plaintiffs failed that test, Fullam said, because granting them standing "would require this court to assume that in every case, individual physicians and IPAs (independent physician associations) will be moved to put their own economic interests ahead of their patients' welfare. "Even if that assumption were correct, Fullam said, Aetna "would not be the proximate cause of the providers' ethical lapses." Although that ruling was enough to dispose of the case, Fullam said he also found that the Maio complaint suffers from other "fatal defects." "It is highly doubtful that advertising one's commitment to 'quality of care' can serve as a predicate for a fraud claim," Fullam wrote. "Such general assertions as to quality are puffery, and do not constitute a fraudulent inducement to membership in defendants' HMO plans, particularly where the complained-of cost containment provisions are disclosed to prospective members." Fullam said he also agreed with Aetna's argument that the plaintiffs had failed to plead a proper RICO enterprise. "An enterprise which consists of an association-in-fact of Aetna with its various plans i.e. a parent and its subsidiary corporations cannot be a valid RICO enterprise where the defendants are not distinct from the enterprise." And the plaintiffs' second theory for a RICO enterprise an association-in-fact of Aetna and its subsidiaries with the doctors and IPAs was equally flawed, Fullam said. "Plaintiffs have not alleged that the providers share any common purpose with defendants, instead citing numerous instances where the two groups are at odds." In dicta in his final paragraph, Fullam suggested that the courts are not the appropriate forum for the plaintiffs to wage their battle. "Plaintiffs' expression of dissatisfaction with defendants' plans indeed, with HMOs in general is more appropriately directed to the legislatures and regulatory bodies of the several states," Fullam wrote. The ruling is a major victory for Aetna and its lawyers, Michael M. Baylson, Michael M. Mustokoff, Teresa N. Cavenagh, Sandra A. Jeskie and Jonathan Swichar of Duane Morris & Heckscher. Plaintiffs attorney Jeffrey L. Kodroff of Spector & Roseman said he and the other lawyers on his team will be "studying all of our options," but would not comment further. The team of plaintiffs' lawyers also includes Eugene A. Spector of Spector & Roseman; sole practitioner James J. Binns; David J. Bershad, Edith M. Kallas, Anita B. Kartalopoulos, Joseph P. Guglielmo and Charles S. Hellman of Milberg Weiss Bershad Hynes & Lerach in New York; and Harvey Rosenfield and Edward P. Howard of the Foundation for Taxpayer and Consumer Rights. The suit, filed in U.S. District Court in Philadelphia, alleged that Aetna marketed its HMO with false promises that its "primary commitment" was to maintain and improve the quality of care. In reality, the suit alleged, Aetna is "primarily driven by fiscal and administrative considerations implemented through defendants' undisclosed systematic internal policies which result in the reduction of the quality of the healthcare services provided to plaintiffs and the class." According to the suit, Aetna has become the nation's biggest HMO with its purchase of Prudential Health Care. Aetna and U.S. Healthcare had about 16 million members after their $ 8.9 billion merger in July 1996. With its July 1998 acquisition of NYLCare for $ 1.05 billion, the company added another 2.3 million members. With the Prudential acquisition, the suit said, Aetna has about 22 million members, or 10 percent of the total U.S. population. About 50,000 doctors are currently in Aetna's network, accounting for about half of all licensed physicians. The suit alleged that Aetna's rapid increase of market share was part of a strategy to "force doctors to accept the unreasonable terms contained in their provider agreements. "At the same time, the suit said, Aetna engaged in a false advertising campaign designed to induce millions to enroll based on a series of claims about Aetna's commitment to quality care and physician independence. In its marketing, the suit said, Aetna represents that its members receive high-quality healthcare services from physicians who are solely responsible for providing medical care and maintaining a physician-patient relationship." In reality, however, Aetna's internal systematic fiscal and administrative policies severely intrude upon the physician-patient relationship and seriously restrict the ability of Aetna physicians to provide plaintiffs ... the high quality healthcare they have been promised," the suit alleged. Aetna and its affiliates "have gone so far," the suit alleged, as to claim that physicians are paid incentives based on the quality of care provided, when, in fact, Aetna's contracts with physicians provide "financial incentives to withhold medical services and reduce the quality of care given to HMO members." Motion to Dismiss But the Duane Morris lawyers argued that the racketeering and fraud claims were "based on one non-actionable hypothesis: participating physicians in Defendants' HMO plans might disregard their hippocratic oath, duties to their patients, and violate the law by limiting or refusing to treat patients covered under [Aetna's] Health Maintenance Organization plans due to [Aetna's] policies and contracts." But they said the plaintiffs "have not alleged a single instance in which a physician rendered inappropriate or inadequate care to any plaintiff. "Instead, they said, the plaintiffs "merely speculate this could occur." In their motion to dismiss, they argued that the suit was an "attempt to drag the judicial system into a scattershot attack on the concepts of managed care." But the "blunderbuss language" of the complaint, they said, "ignores the plain English of the HMO plan documents and widely available public information." The theory of the suit, they said, also "ignores the comprehensive and complex state and federal statutory and regulatory framework which regulates virtually every practice and policy about which plaintiffs complain. These statutes and regulations reflect a public policy that recognizes the great strides which HMOs have made in containing health care costs while providing coverage for quality care to patients and reasonable compensation to physicians." By suing under RICO, they said, the plaintiffs "seek to sidestep this complex regulatory framework and ask this court and a jury to referee the contractual relationships between an HMO and plan sponsors (employers), members and providers on trumped-up charges." But the courts are the wrong forum for such complaints, they said, because if the daily operations of Aetna U.S. Healthcare are the issue, "there are dozens of state and federal agencies which have the responsibility for that supervision." (The Legal Intelligencer 10-1-1999) HOLOCAUST VICTIMS: Child Slave Laborers Sue In N.Y. For Compensation -------------------------------------------------------------------- Israelis who toiled as child slave laborers for German and Austrian companies during the Nazi Holocaust filed a class action suit in the United States Monday demanding compensation for "deprivation of childhood." Their American attorney, Edward Fagan, announced the suit at a news conference in Israel, saying he wanted to put the claims of up to 50,000 Israelis on the table ahead of U.S.-German talks in Washington this week on overall slave labor compensation. "There has never been a claim for deprivation of childhood," he said about litigation brought in the past several years by victims of the Holocaust in which six million Jews were killed. German and U.S. government officials, as well as representatives of major German companies and victims' lawyers are to discuss in Washington a compensation figure for slave laborers in general. U.S. lawyers for former slaves have demanded $20 billion for the victims. German sources said last week the companies were willing to offer a figure below $5 billion. In the class action suit, filed in U.S. District Court in New York, Fagan is demanding $75,000 per victim, separate from what they may receive in the overall slave labor settlement. He said Siemens AG, Volkswagen AG, BMW AG, DaimlerChrysler AG and several banks, which he did not name, were among companies listed in the suite. FORMER CHILD SLAVES DESCRIBE HOLOCAUST HORROR Efraim Reichenberg, whose vocal cords were destroyed in experiments he and his twin brother endured at the hands of Dr Josef Mengele at Auschwitz death camp, pleaded his case at the news conference through an electronic voice box. In 1945, when I was 18 years old, I was in the Auschwitz death march. We walked three days in the snow and then we were in trains for 10 days...until we got to Sachsenhausen concentration camp in Berlin," he said. "The next day I was taken to the Heinkel factory near Berlin where I made V-1 and V-2 rockets...We were willing to do any work for a scrap of bread or a spoon of soup -- and for that, we deserve proper compensation," Reichenberg said. Yossi Mor, a member of the Children and Orphan Holocaust Survivors advocacy group spearheading the legal action, said at the news conference no sum of money could compensate him for his loss. "What is a demand for my parents, my brother and my sister," he said about his family, which perished in the Holocaust. "There is no answer. What is their price? No one knows. And for the deprivation of my childhood? Who knows?" (REUTERS) One victim, Hana Bar-Yesha, said she lost her family at the notorious Auschwitz concentration camp in 1944 and was then moved to a labor camp near Leipzig and Dresden where she endured daily marches to an arms factory. "For me, as a 12-year-old girl, it was very difficult walking in the snow and the cold ... I was all skin and bones. The SS soldiers who guarded us shot every one who couldn't stand the pace," she said in a written testimony made available to AFP. Fagan said. "If the German proposal fails the test of even token acknowledgement of German industry's profitable business of systematically exploiting slave labor, stealing our children and violating our human rights, then it's a non-starter," said Avraham Velvart, founder of Yonah, or Children and Orphan Holocaust Survivors. Fagan said the suit represented the first time child survivors have taken legal action in their own right, as slave labour survivors and as heirs to parents who were slave laborers. (Agence France Presse 10-4-1999) HOLOCAUST VICTIMS: German Firms Offer To Pay $3.8 Bil. To Settle Claims ----------------------------------------------------------------------- After months of painstaking negotiations, a group of German corporations is set to offer as much as $3.8 billion (U.S.) to settle a spate of Holocaust-related legal claims, including those brought by slave labourers, according to lawyers familiar with the talks. The offer comes on the eve of a two-day conference, scheduled to start tomorrow at the State Department, to resolve the question of how to compensate as many as 2.4 million survivors who toiled against their will - often at gunpoint and without pay - to stoke the war machine of the Third Reich. Also at issue: how much German insurance and banking interests will pay for their alleged role in appropriating assets from Holocaust victims. But a swift end to this bitter and enormously convoluted dispute seems unlikely. Plaintiffs' lawyers, who have filed more than two dozen class- action lawsuits on behalf of survivors, yesterday denounced the German offer as inadequate. Under terms of the expected proposal, they said, each victim could end up with a lump sum of roughly $200. Calculated in 1940-era dollars, the lawyers said, that payment could work out to about $20 per victim for an average of two years of hard labour. ''If they present this number as their first and final number, I don't think anyone believes this will produce anything other than the end of the negotiations and a huge worldwide backlash at the arrogance of such a position,'' said one lawyer. ''If, however, this is a good-faith opening offer that has flexibility to become a reasonable number, there is hope that this could finally be resolved.'' A State Department official said it was premature to comment on any anticipated offers. ''We expect the German companies to live up to their moral commitment and make a presentation at this meeting,'' said James Bindenagel, the State Department's special envoy for Holocaust issues. 'There is hope this could finally be resolved' The conference will bring together representatives from countries where former victims reside, such as Poland, Russia, Ukraine and Israel, as well as leaders of Jewish groups and plaintiffs' lawyers. German participants, which include top government officials and executives from DaimlerChrysler AG and Volkswagen AG, hope the talks settle the forced-labour issue for good and lead to the voluntary dismissal of all related litigation. The lawyers have asked for as much as $30 billion to settle the cases, but they made those demands when their claims stood on sturdier legs. In September, a pair of federal judges dismissed five of the class actions, arguing U.S. courts are not the proper place to resolve this matter. (The Toronto Star 10-5-1999) HOLOCAUST VICTIMS: German Govt 'Cautiously Optimistic' About Talks ------------------------------------------------------------------ A year after announcing plans to create an industry-financed fund to compensate Nazi-era slave laborers, Chancellor Gerhard Schroeder is hoping for an agreement this week so that payments could begin next year, a government spokesman said. German envoy Otto Lambsdorff has said he would be bringing a final offer to Washington when the talks resume Wednesday. Government spokesman Uwe-Karsten Heye declined to give any details on Monday, saying only that Lambsdorff was ''well-prepared.'' Noting the advancing age of those affected, Heye said the government was ''cautiously optimistic'' enough progress could be made in Washington this week ''so that it can finally begin payments next year.'' Schroeder proposed the fund after his September 1998 election as a way to resolve wage claims from former forced laborers and protect German firms from the threat of lawsuits. While Germany has paid more than dlrs 60 billion in reparations to Nazi victims, it traditionally has refused to honor wage claims from slave laborers, who were technically working for private companies. Talks so far have been stalled over money; while some class-action lawyers have demanded up to dlrs 20 billion, German firms initially offered less than dlrs 1.7 billion. Participants in the talks include the German and U.S. governments, German industry, Jewish groups, attorneys for former slave laborers and several east European countries. (AP Worldstream 10-4-1999) ONAN CORP: Cash-Balance Pension Plans Of Minn Co. Face Tax Court Review ----------------------------------------------------------------------- A Minnesota company is trying to keep its pension plan in the face of two court challenges. The cases could provide the first rulings on the tax ramifications of converting a traditional pension plan to the increasingly popular, but controversial, cash balance plan. In August, the Internal Revenue Service asked the U.S. Tax Court to invalidate the pension plan of Fridley, Minn.-based Onan Corp. The IRS request came after the company's employees sued the agency in tax court in January, alleging that benefits under the plan accrue too steeply as employees gain seniority, in violation of the Internal Revenue Code's "backloading" provision. Seidlitz v. Commissioner, No. 334-99. At the time the workers filed the suit, the IRS had yet to decide whether Onan's cash balance plan, which replaced the company's prior defined benefit plan, could receive tax-exempt status. According to the suit, the IRS, after more than three years, had not resolved the issue. Onan workers also sued the company in a class action in federal court in Indiana, charging that the company's cash balance plan discriminated against older workers and violated the Employee Retirement Income Security Act. Eaton v. Onan Corp., IP 97-814-C-H/G. Age discrimination is the most common criticism leveled against these plans. Traditional defined benefit plans base benefits on years of service and final pay, which tend to favor older employees. But benefits in cash balance plans generally accumulate evenly each year, which younger workers like. Many Democrats in Congress believe that the tax code empowers the IRS to disqualify cash balance plans based on age discrimination. But the agency has not done so largely because of a misplaced sentence in a preamble to a 1991 IRS regulation, according to Representative Bernard Sanders, I-Vt. He and 39 House Democrats are pressing the agency, as well as the Department of Labor and the Equal Employment Opportunity Commission, to issue final regulations implementing pension discrimination laws. The lawmakers also want the IRS to stop issuing tax-qualified determination letters for cash balance plans until the agencies have investigated complaints against the plans. Last month, Mr. Sanders released a September 1998 letter from the IRS district director in Cincinnati, who suggested that a company's conversion to a cash-balance plan violates the tax code. Although the company is not identified, it is widely thought to be Onan. Congressional Republicans also have stepped into the fray. Their tax-cut bill would require companies to provide more disclosure when cash balance plans replace traditional ones. The Clinton administration is also seeking more stringent disclosure requirements. Although the IRS' apparent move against Onan marks a turning point for the agency on cash balance plans, it can't be assumed that all such plans will be targets. The Onan cash balance plan is an anomaly, lawyers argue, because it consists of three different benefit formulas that, taken together, violate the tax code. The plan credits the accounts of former workers with a lower rate of interest than it does those of active workers, uses the company profit-sharing plan to offset pension benefits and provides special benefits to workers with 30 years of service, says Mark Lofgren, of Washington, D.C.'s Groom Law Group, a firm that specializes in employee benefits. "If you have a number of different benefit formulas, you should carefully consider how they act in combination to satisfy the backloading rules," he says. (The National Law Journal 9-27-1999) PEOPLE'S BANK: Settles Shareholders' Suit When $7.7 Million Looks Cheap ----------------------------------------------------------------------- It took New York class-action maverick Harvey Greenfield nine years to get his shareholder suit against People's Bank to trial. Seven days after the trial began, largely due to U.S. District Court Judge Alfred V. Covello's efforts, the long-running case settled for $7.7 million. In it, lead plaintiff Herbert Silverberg, of Queens, N.Y., claimed that his purchase of 100 shares of $7 stock in 1990 was based on fraudulently inadequate disclosure. He claims People's hid its true loan picture, starting in 1988, when it converted from a mutual company to a stock corporation. The class covers shareholders from July 6, 1988, to Nov. 29, 1990. The bank's bad loans increased during the 1990-1991 recession, and the plaintiffs contend disclosure came too slowly. The trial had gone from Aug. 9 to Aug. 16 when Covello finally prevailed on the parties to strike the compromise. The deal is expected to have a public hearing in November. "The bank wanted to fight this -- we thought we had a very good case," says James F. Stapleton, of the Stamford office of Day, Berry & Howard, which is headquartered in Hartford. During trial, Greenfield's expert set damages at $54 million. Prejudgment interest raised the potential risk to more than $100 million, Stapleton says in an interview. While unpalatable, settling was "the better course of valor," says Stapleton, who contends the bank deserved to prevail. People's general counsel, William T. Kosturko, says in a statement that People's admitted no liability, and that the payout would result in a one- time charge of $250,000 to the bank, because of insurance coverage. Ironically, the very fact that People's was worth suing is an indirect testament to its strength. Dozens of other banks caught in the deadly real estate undertow of the early 1990s have vanished, been absorbed by out-of-state institutions or shut down by regulators. By contrast, People's is now the largest Connecticut-based bank. The '90s crash triggered multiple class actions similar to the People's case. Day, Berry lawyers have prevailed before trial in other class actions, such as those against Aetna Corp. and Union Trust Bank, notes Stapleton. Today Silverberg's 1990 stock is worth six times his cost, says Stapleton, asking "where's the actual damage here?" On a more visceral level, the Greenfield-Stapleton match is a dramatic clash of style and personalities. Stapleton is competitive yet courtly, and regards Greenfield's antic feistiness as beyond the pale. Greenfield, 70, can be so abrasive with office staff and secretaries that some refuse to take his calls, says Stapleton. In the People's trial, Greenfield referred to a trial colleague as an "underling." In interviews, Greenfield alternately snaps and giggles. He can be excitable, impatient and almost childishly gleeful. His financial success since graduating from Harvard Law School 48 years ago is substantial -- a string of multimillion-dollar shareholder settlements racked up during a singleminded solo career. (His next target is $25.9 million from Berlin-based Northeast Utilities.) "Stapleton could have settled this years ago," Greenfield contends. "He really drove us to the wall making endless motions in connection with the trial idiotic nonsense, frankly -- most of which Covello rejected. "The case got settled," Greenfield concludes, "because they were fearful of what the jury verdict would be." (The Connecticut Law Tribune 9-20-1999) PVF CAPITAL: Faces Securities Suits In Ohio 1 Of Which Is Class Action ---------------------------------------------------------------------- Various subsidiaries of PVF Capital Corp. are parties to lawsuits related to the Company's efforts, which have since been suspended, to develop a business offering financial planning advice and the sale of mutual funds and insurance products on any agency basis. The entities named in the lawsuits are the Bank and two other entities, PVF Financial Planning Inc.("PVFFP") and Emissary Financial Group, Inc.("Emissary"), which are majority-owned subsidiaries of the Company's wholly owned subsidiary, PVF Holdings, Inc. The Company's proposed business plan called for PVFFP to establish offices in certain of the Bank's locations, from which offices PVFFP would provide financial planning advice to customers and sell insurance and mutual fund products to those customers on an agency basis. Emissary was proposed to act as a broker dealer that would execute any trades directed by PVFFP and by entities unrelated to PVFFP or the Company. Through PVF Holdings, Inc., the Company invested a total of $300,000 in PVFFP and Emissary, virtually all of which was invested in Emissary. The other investor in PVFFP and Emissary was to be an individual named Gregory Shefchuk. Mr. Shefchuk owned a financial planning service that traded through Money Concepts Capital Corp., a broker dealer based in Chicago, Illinois. Mr. Shefchuk intended to utilize Emissary as the broker dealer for his proposed activities with PVFFP. Shortly after PVFFP and Emissary commenced operations, officers of the Bank learned of alleged improprieties regarding other businesses operated by Mr. Shefchuk, including allegations that his other business entities misappropriated funds. Several days later, Mr. Shefchuk committed suicide, and it was determined to cease all activities of Emissary and PVFFP. Since that time, PVFFP and Emissary have not resumed operations and have determined to permanently cease operations and liquidate as expeditiously as possible. PVFFP and Emissary have been named as defendants in two lawsuits pending in the Court of Common Pleas in Lake County, Ohio. One suit was filed April 14, 1998 by Gary Toth and the Gary A. Toth Trust, and the second suit was filed on May 22, 1998 by Ashtabula County Residential Services Corp. Both plaintiffs alleged causes of action premised on breach of fiduciary duty, fraud and misrepresentation, negligence, breach of contract, accounting, conversion and constructive trust against the defendants, which also include Mr. Shefchuk, various entities that he controlled and Money Concepts. The plaintiffs claim generally that certain monies they invested through Mr. Shefchuk, or an organization controlled by him or PVFFP, were misappropriated. Mr. Toth seeks compensatory damages and punitive damages in excess of $2 million, and Ashtabula seeks $80,000 in compensatory damages and $1 million in punitive damages. Neither of these plaintiffs, however, had established an account with PVFFP. The Toth suit against PVFFP and Emissary has been dismissed without prejudice. In the Ashtabula suit, a notice of automatic stay was filed in August 1998 in connection with the bankruptcy of one of the parties controlled by Schefchuk, and the case has been largely inactive since that time. A total of nine additional cases have been filed against some combination of PVFFP, Emissary, the Company and/or the Bank. Five of these cases are arbitration proceedings with the NASD, two were filed in the Court of Common Pleas in Lake and Cuyahoga Counties in Ohio, and two were filed in the United States District Court for the Northern District of Ohio, Eastern Division. The plaintiffs in these cases alleged causes of action premised on breach of fiduciary duty, fraud and misrepresentation, negligence, breach of contract, accounting, conversion and constructive trust against the defendants, which also include Mr. Schefchuk, various entities that he controlled and Money Concepts. The plaintiffs claim generally that certain monies they allegedly invested through Mr. Schefchuk, or an organization controlled by him or PVFFP, were misappropriated. Where the damages sought have been specified, the plaintiffs seek compensatory damages ranging from $25,000 to $1.5 million and punitive damages of up to $1.0 million. One case filed in the United States District Court is a putative class action suit. None of these plaintiffs, however, had established an account with PVFFP. In five of these cases, the lawsuit either has been dismissed against PVFFP, Emissary, the Company and/or the Bank without prejudice or the plaintiff has agreed to dismiss the suit without prejudice. The remaining four cases, including the putative class action claim, are still pending. In two other lawsuits, one filed against Emissary, Shefchuk and others in an arbitration proceeding with the NASD, and the other filed against the Bank in the United States District Court for the Northern District of Ohio, Eastern Division, Money Concepts claims that the defendants damaged Money Concepts by inducing registered representatives of Money Concepts to leave their positions to affiliate with Emissary. In the arbitration proceeding, Money Concepts alleged causes of action premised on breach of contract, conversion, intentional interference with contract and unfair competition/raiding against Emissary. That case has been settled with no material adverse consequence to the Company. In the proceeding in the United States District Court, Money Concepts alleged causes of action premised on interference with contract and business relationships, misappropriation of trade secrets and confidential business information, conversion, unfair competition and civil conspiracy. That case has been dismissed. In addition, on May 5, 1998, the Securities and Exchange Commission ("SEC") sued Mr. Shefchuk and entities affiliated with him, as well as Emissary, in the United States District Court, Northern District of Ohio. The SEC alleged causes of action premised on the Securities Act of 1933, the Securities Exchange Act of 1934 and regulations promulgated thereunder, contending that it is entitled to injunctive relief and civil and criminal penalties as a result of the defendants' misappropriation of funds of clients an entity affiliated with Shefchuk. The entity alleged to have misappropriated funds was not affiliated with the Company, the Bank, PVFFP or Emissary. The court entered a preliminary injunction requiring Emissary not to violate certain provisions of the securities laws. Emissary had already ceased operations and determined to liquidate its business, and as a result the Company does not consider this ruling to be material. The SEC has moved for an order dismissing the case and dissolving the preliminary injunction. REVLON INC: Finkelstein & Krinsk File Securities Suit In New York ----------------------------------------------------------------- News from Finkelstein & Krinsk: Finkelstein & Krinsk announced that a class action has been commenced in the United States District Court for the Southern District of New York on behalf of purchasers of Revlon, Inc. (NYSE:REV) securities during the period between October 29, 1997 and October 2, 1998. The complaint charges Revlon and certain of its officers and directors with violations of the Securities Exchange Act of 1934 by misleading the investing public and artificially inflating the value of Revlon stock during the Class Period. Specifically, the complaint alleges that in 1986, defendant Ronald O. Perelman, Revlon's Chairman, acquired Revlon in one of the most hotly contested takeovers of that era through a leveraged buy-out that saddled the Company with huge amounts of debt and debt service. In 1998 an opportunity presented itself to refinance a large portion of that debt at favorable interest rates over a further extended time provided that Revlon could be made to appear to have ever increasing revenues and to be generating profits, despite the crushing debt load. Accordingly, Perelman along with other Revlon insiders, concocted a scheme to defraud the investing public by recognizing revenue in violation of Generally Accepted Accounting Principles (GAAP) by, among other things, deliberately shipping excessive amounts of Revlon products and improperly recognizing revenues on such shipments without booking sufficient reserves and by acquiring The Cosmetic Center, Inc. to merge with Revlon's Prestige Fragrance & Cosmetics, Inc. retail store operation to hold excess and overvalued inventory before disposing of the combined operation and taking charges against income after the end of the Class Period. As a result, the Complaint alleges that on February 2, 1998, during the Class Period, Revlon was able to issue and sell $ 900 million in senior notes at 8 5/8 percent and 8 1/8 percent interest to redeem $ 815 million in senior notes at 10 1/2 percent and 9 3/8 percent interest and to extend by five years the maturity date on both sets of notes. As alleged in the complaint, the scheme collapsed at the end of the third quarter of 1998 when Revlon disclosed on October 2, 1998 that it would miss its expected quarterly sales figure by almost $ 100 million and its expected earnings per share by 90 percent. The price of Revlon's stock plunged 44 percent from $ 27 13/16 to $ 15 7/16 per share on volume of 2,322,100 shares that day, causing substantial injury to Class members. Plaintiff seeks to recover damages on behalf of all purchasers of Revlon Securities during the Class Period. The plaintiff is represented by the law firm of Finkelstein & Krinsk. If you are a member of the Class described above, you may, no later than 60 days from October 1, 1999, move the Court to serve as lead plaintiff of the Class, if you so choose. In order to serve as lead plaintiff, however, you must meet certain legal requirements. Contact plaintiff's counsel, Jeffrey R. Krinsk, Esq., of Finkelstein & Krinsk toll free at 877/493-5366 or via e-mail at fk@class-action-law.com TICKERS: NYSE:REV SOUTHWEST SECURITIES: Decries Merit Of TX Suit Over IPO & Other Suits --------------------------------------------------------------------- On May 22, 1998, a class action claim was filed in the United States District Court for the Northern District of Texas against Southwest Securities Group Inc. and ViaGraphix Corporation alleging that material misrepresentations were made in the registration statement and prospectus that was filed with the SEC and distributed to investors in connection with the initial public offering of stock of ViaGraphix, which was managed and underwritten by us. The Company believes that it has meritorious defenses to the allegations of the lawsuit. In the general course of its brokerage business and the business of clearing for other brokerage firms, the Company has been named as defendant in various pending lawsuits and arbitration proceedings. These claims allege violation of Federal and state securities laws. SYMMETRICOM INC: Discovery Goes On For Securities Suit In CA ------------------------------------------------------------ In January 1994, a securities class action complaint was filed against the Company and certain of its present or former officers or directors in the United States District Court, Northern District of California. The action was filed on behalf of a putative class of purchasers of the Company's stock during the period April 6, 1993 through November 10, 1993. The complaint seeks unspecified money damages and alleges that the Company and certain of its present or former officers or directors violated federal securities laws in connection with various public statements made during the putative class period. The Court dismissed the first and second amended complaints with leave to amend. The plaintiff filed a third amended corrected complaint in August 1997. The Company filed a motion to dismiss this third amended complaint, which was denied in January 1998. Discovery is proceeding. The trial is scheduled to begin on July 10, 2000. The Company and its officers believe that the complaint is entirely without merit, and intend to continue to defend the action vigorously. TOBACCO LITIGATION: Data May Cast Doubt On Harm Of Secondhand Smoking --------------------------------------------------------------------- Mobilizing against smoking bans and lawsuits that could cost them billions, tobacco companies are engaged in a far-reaching campaign to discredit evidence that secondhand smoke is harmful to human health. Nowhere is the strategy more evident than in a legal battle over the evidence that has occupied at least 10 courts, including U.S. District Court in Los Angeles, where it appears likely to be resolved in the industry's favor. In the latest phase of the discovery battle, Philip Morris is fighting USC researchers to get access to a single computer disk containing raw data from an influential five-city study, known as the Fontham study, that found a causal link between lung cancer and secondhand smoke. The company wants to scrutinize the data in hopes of casting doubt on the evidence, which is weaker for secondhand smoke than for some other environmental hazards. Fontham and similar studies have provided the scientific bedrock for a small but growing wave of secondhand smoke litigation that the industry aims to head off. At the same time, cigarette makers are determined to slow the spread of California-style smoking bans to less-regulated areas of the United States and to foreign markets where smokers still light up wherever they choose. Research suggests that smoking restrictions reduce cigarette sales by inducing many smokers to cut down or even quit. Researchers from USC and other institutions involved in the Fontham study say the industry's relentless pursuit of the data could have a chilling effect on future health research. Citing promises of confidentiality to subjects in the study, they have resisted demands to hand over the data, which cigarette makers say they need to defend themselves in court. The industry has been largely thwarted in this long-running game of cat and mouse, obtaining but a sliver of the data. But its five-year quest may be about to pay off. In Los Angeles, U.S. District Judge Richard A. Paez will decide if USC must honor an industry subpoena, and he has already ruled for the industry once. Although tobacco companies have their hands full with litigation over primary smoking--such as the huge case filed last month by the Justice Department--secondhand smoke is an emerging threat, in part because the industry's standard defense that victims accepted the risk is not applicable. Cigarette makers won the only two secondhand smoke cases to be decided by juries, but in 1997 they agreed to settle a class action by airline flight attendants for $ 349 million. The money was for health research and legal costs, not damages, but the agreement gave flight attendants a one-year window in which to sue once the settlement was final. It became final last month, when lawyers opposed to the deal withdrew their challenge. As a result, a flurry of suits by flight attendants is expected over the next 12 months. A few secondhand smoke cases are pending, including class actions on behalf of casino workers. The industry counterattack produced a big victory last year when a federal judge in North Carolina ruled that the Environmental Protection Agency had made procedural and substantive errors in a landmark report in January 1993 that concluded that secondhand smoke is a significant cause of lung cancer in nonsmokers. Federal officials have appealed the ruling. In fighting to secure the Fontham data, the industry is taking aim at a major piece of research that helped persuade the EPA and other health organizations to declare secondhand smoke a significant hazard. Named for Elizabeth Fontham, a principal investigator and lead author, the project teamed researchers from Louisiana State University, Emory University, the University of Texas and the California Department of Health Services, along with USC, in a study of nearly 2,000 nonsmoking women in Los Angeles, San Francisco, Houston, New Orleans and Atlanta--including 1,253 subjects who were healthy and 653 with lung cancer. Their conclusion: Exposure to secondhand smoke raised the lung cancer risk about 30%. The data sought by cigarette makers include medical records and personal information on study subjects, such as work and marital histories, dietary habits and exposure to other toxic substances. But the researchers say that they promised never to divulge that information, and that it will be hard to gain cooperation in future studies if they go back on their word. "We have to be able to make promises we can keep, and to me that's really the essence of the litigation over this," said Peggy Reynolds, chief environmental epidemiologist for the state health department and one of the Fontham investigators. Tobacco critics such as Stanton Glantz of UC San Francisco medical school maintain that the industry effort amounts to harassment of the researchers. But tobacco lawyers say it's perfectly natural that they would want to examine the data. The Fontham study is "the No. 1 piece of evidence against us in any secondhand smoke lung cancer case," said Barry Davidson, a lawyer for Philip Morris. Davidson called the confidentiality issue "a total red herring," noting that Philip Morris has sought a redacted copy of the data, with names, addresses and phone numbers deleted. "Methinks," said Davidson, "they researchers doth protest too much." Patricia Buffler, one of the Fontham researchers, acknowledged some anxiety over the industry's intent to discredit the study. "If you know anything about statistics," she said, "adjustments can be made to produce conflicting results." Indeed, secondhand smoke research may be uniquely vulnerable to the kind of test the industry would like to apply to the Fontham data. The reason is that even in the most incriminating studies, although the impact of secondhand smoke across the whole population may be substantial, the risk for each exposed person is low. For a toxic agent to be deemed a proven risk to health, researchers typically insist that the rate of illness at least double, or increase 100%, for those who are exposed. Otherwise, other environmental factors or errors in classifying data might explain the difference. The Fontham study, typical of research indicting secondhand smoke, found an added cancer risk of about 30%, well below the traditional threshold. By comparison, longtime smokers face a roughly twentyfold, or 2,000%, greater lung cancer risk than nonsmokers. Lifetime smokers have about one chance in eight of dying of lung cancer, compared with a risk of one in 200 for those who never smoked. The industry's quest for the Fontham data began in 1994, when cigarette makers subpoenaed it from Louisiana State University as part of their defense of a secondhand smoke case in Texas. But Louisiana law provides sweeping protections against disclosure of confidential data in health studies, and the industry was turned down by three different state and federal judges when it tried to enforce its subpoenas. Tobacco lawyers made two trips to state court in Georgia and finally got data from Emory University, but only for the Atlanta portion of the study. In California, the first industry subpoena was quashed in 1997 by a San Francisco Superior Court judge. In Los Angeles, cigarette makers also subpoenaed the data from USC, first for defense of the flight attendants' class action, and then in the secondhand smoke case of a Florida woman named Roselyn Wolpin. In September 1998, a U.S. magistrate in Los Angeles ruled that the university must honor the subpoena. That ruling was upheld by Judge Paez earlier this year. Then the researchers won a temporary reprieve when the Wolpin case was dismissed. The industry immediately subpoenaed the data in the case of Robert Murphy, a former Nevada casino worker with lung cancer. Now USC is fighting the Murphy subpoena. The dispute will go back to Paez after a ruling by the magistrate later this year. Davidson, the Philip Morris lawyer, said he's taken part in other protracted discovery battles, but has "never seen anything to approach this. . . . This has almost become a legend in its time." (Los Angeles Times 10-4-1999) ********* 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. Theresa Cheuk and Peter A. Chapman, editors. Copyright 1999. All rights reserved. ISSN 1525-2272. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The CAR subscription rate is $575 for six months delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 301/951-6400. * * * End of Transmission * * *