CAR_Public/991028.MBX                 C L A S S   A C T I O N   R E P O R T E R

               Thursday, October 28, 1999, Vol. 1, No. 187

                                 Headlines

ABERCROMBIE & FITCH: Cohen, Milstein Files Securities Suit In Ohio
ACXIOM CORP: Milberg Weiss Files Securities Suit In Arkansas
ALGOMA STEEL: Discloses Intention Of Michipicoten To Sue Over Arsenic
AMERICAN HEALTH: Case Re Finance Charges Arbitrable, Ala. Sp Ct Rules
CA STATE: Violates ADA Re Disability Parking Placards Fee, 9th Cir Says

CHICAGO BOARD: Unmarried Heterosexual School Clerk Sues Over Policy
E TRADE: Faces CA Suit Over Issue Of IPO Shares To Customers
E TRADE: Faces CA Suit Over Problems Accessing Account & Placing Orders
E TRADE: Faces CA Suit Re Deceptive Business Practices; No Class Status
E TRADE: Faces CA Suits Over System Interruptions

E TRADE: Faces Ohio Suit Re Problems Accessing Account & Placing Orders
E TRADE: Faces N.Y. Suit Over Deceptive Business Practices
ICG HOLDINGS: Zycom Shareholders File Suit In TX; Class Status Denied
LIPSON: NY Ct Rules D&O Insurance Proceeds Not Bankruptcy Est. Property
RAYTHEON COMPANY: Berger & Montague File Securities Suit In MA

SMITH'S TRANSFER: Kent ERISA Case Dismissed For Failure To Prosecute
TOBACCO LITIGATION: BAT Accuses Judges; Calls On Wall Street For Reform
TOBACCO LITIGATION: NY Ap Ct Oks Dismissal Of Suit; No Money Back
TOBACCO LITIGATION: Papers Talk About Impact Of Lawsuit On BAT Shares
TRAVELERS INDEMNITY: Sued In LA Over Medical Claim; May Face Class Suit

U.S.: 9th Cir Ruling Clears Aliens For Second Amnesty Chance
WARREN GENERAL: Ohio Sp Ct Held Hospital Liable For Patient Record Leak

* SEC Proposes Audit Committees Tell Shareholders Of Misrepresentation

                             *********

ABERCROMBIE & FITCH: Cohen, Milstein Files Securities Suit In Ohio
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The following Notice is issued by the law firm of Cohen, Milstein,
Hausfeld & Toll, P.L.L.C. on behalf of its client, who on October 25,
1999, filed a lawsuit in the United States District Court for the
Southern District of Ohio on behalf of purchasers of the common stock of
Abercrombie & Fitch Co., (NYSE:ANF), during the period of October 8,
1999 through October 13, 1999.

The complaint alleges that A&F and certain of its officers and directors
violated the federal securities laws. According to the Complaint, by
October 7, 1999, A&F knew that, while it would reach earnings estimates
for the third quarter of 1999, the Company was experiencing slowing in
same-store growth, which was an important indicator of present and
future growth in revenues and earnings, and that the Company's
same-store sales would not reach 15%-17% estimates, but would instead be
only 12%. Although the defendants knew that the disclosure of this
information would have an adverse affect on A&F's stock price, rather
than timely disclose this material information, as required by the
federal securities laws, on or about October 7, 1999, A&F selectively
disclosed this information to an analyst at Lazard Freres. As a result
of this selective disclosure, Lazard's top clients were able to unload
significant holdings in A&F's stock prior to the subsequent public
disclosure of A&F's true financial condition on October 13, 1999.

The complaint also names Lazard as a defendant. As a result of
defendants' affirmative decision to selectively disclose material
information to a limited group, and not to the investing public, the
price of A&F stock was artificially inflated, and traded as high as $
38.9375 per share on October 8, 1999. Ultimately, on October 13, 1999,
when A&F finally publicly disclosed the same-store sales growth of only
12%, A&F stock dropped to $ 26.3125 per share.

Plaintiff's counsel in this action -- Cohen, Milstein, Hausfeld & Toll,
P.L.L.C. has significant experience in prosecuting investor class
actions and actions involving financial fraud. The firm has offices in
Washington D.C. and Seattle and is active in major litigation pending in
federal and state courts throughout the nation. The firm's reputation
for excellence has been recognized on repeated occasion by courts which
have appointed the firm to lead positions in complex multi-district or
consolidated litigation. Cohen, Milstein, Hausfeld & Toll, P.L.L.C. has
taken a lead role in numerous important cases on behalf of defrauded
investors, and has been responsible for a number of outstanding
recoveries which, in the aggregate, total hundreds of millions of
dollars, or more. Visit the firm's website at www.cmht.com.

If you are a member of the Class described above and desire to serve as
lead plaintiff for the Class, you have until sixty days from October 19,
1999 in which to move the Court. In order to serve as lead plaintiff you
must meet certain legal requirements. If you have any questions about
this Notice or the action, or with regard to your rights, please
contact: plaintiff's counsel, Cohen, Milstein, Hausfeld & Toll, P.L.L.C.
Daniel S. Sommers or Robert Smits, 888/240-0775 dsommers@cmht.com or
rsmits@cmht.com Fax - 202/408-4699 TICKERS: NYSE:ANF


ACXIOM CORP: Milberg Weiss Files Securities Suit In Arkansas
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Milberg Weiss announced that a class action has been commenced in the
United States District Court for the Eastern District of Arkansas on
behalf of purchasers of Acxiom Corporation (NASDAQ:ACXM) stock.

The complaint charges Acxiom and certain of its officers and directors
with violations of the Securities Act of 1933. The complaint alleges
that on July 23, 1999, Acxiom completed a secondary offering of stock
pursuant to a Registration Statement/Prospectus that was false and
misleading in that it contained false financial results and failed to
describe the significance of Acxiom's recent contract renewal with its
largest customer, Allstate.

On August 29, 1999, Acxiom announced it was reducing its work force by
5% and laying off 250 employees. Then, on August 30, 1999, it was
revealed that Acxiom was disseminating false financial results, was
suffering from stiff competition and was lowering prices which would
have a very negative impact on future earnings.

Acxiom's stock price reacted swiftly and negatively to these
revelations, falling to as low as $ 17-11/16 on huge volume of 5 million
shares, nearly $ 11 below the offering price just six weeks earlier.

Plaintiff is represented by several law firms, including Milberg Weiss
Bershad Hynes & Lerach LLP. If you are a member of the Class described
above and wish to serve as lead plaintiff, you must move the Court no
later than 60 days from Sept. 20, 1999. In order to serve as lead
plaintiff, however, you must meet certain legal requirements. If you
wish to discuss this action or have any questions concerning this notice
or your rights or interests, please contact plaintiff's counsel, William
Lerach or Darren Robbins of Milberg Weiss at 800/449-4900 or via e-mail
at wsl@mwbhl.com TICKERS: Nasdaq:ACXM


ALGOMA STEEL: Discloses Intention Of Michipicoten To Sue Over Arsenic
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The Township of Michipicoten has stated that it will initiate a class
action lawsuit against the Company in respect of arsenic in the soil in
the Wawa area. The Company has no reason to believe that the arsenic in
the soil represents a health risk. The Company plans to participate with
the Township and the Province in appropriate studies respecting this
issue. The Company intends to conduct a vigorous defence of any action
brought against it.


AMERICAN HEALTH: Case Re Finance Charges Arbitrable, Ala. Sp Ct Rules
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Unless the parties to an arbitration clause clearly and unequivocally
provide that an arbitrator will decide preliminary issues of
arbitrability, a court must hear the dispute. Commercial Credit Corp.,
et al. v. Norma Leggett, et al., Nos. 197199, 1971844 (Ala. 10/1/99).

Norma Leggett borrowed 1,900 from Commercial Credit Corp. In conjunction
with her loan, Leggett purchased credit life insurance from American
Health and Life Insurance Co. and credit property insurance from
American Bankers Insurance Co. of Florida.

Although Leggett received a "Notice of Pendency of Class Action and
Proposed Settlement" on Jan. 7, 1997, apprising her she was a plaintiff
in the class action Frances Hughes v. American Health & Life Insurance
Co., et al., No. CV-96-615 (Calhoun Cty. Cir. Ct.), Leggett filed her
own action against Commercial, American Health and American Bankers.
She, like Frances Hughes, alleged she was fraudulently induced to
purchase credit life and credit property insurance in connection with
her loan. Leggett also contended that the excess premiums constituted
finance charges in addition to the finance charges listed on the
disclosure forms.

Commercial and American Health moved to compel arbitration based on the
arbitration provision in the disclosure statement signed by Leggett.
That provision read: "Any Claim, except those specified below in this
Provision shall be resolved by binding arbitration ... Examples of
Claims that are governed by this Agreement include those involving: the
Truth in Lending Act and Regulation Z; the Equal Credit Opportunity Act
and Regulation B; State insurance, usury, and lending laws; fraud or
misrepresentation, including claims for failing to disclose material
facts; [and] Any other federal or state consumer protection or
regulation ... ." The clause also contained a severability provision,
which read, "If the Arbitrator or the court determines that one or more
terms of this Provision or the arbitration rules are unenforceable, such
determination shall not impair ... the enforceability of the other
provisions ... ."

The trial court denied the motions to compel after finding that the
contract did not provide that an arbitrator would determine whether the
dispute was arbitrable. It also found Leggett raised questions of fact
concerning the formation of the agreement.

                       Issues of Arbitrability

The defendants appealed the Clarke County Circuit Court's holding that
the arbitration clause was unconscionable to the Alabama Supreme Court.
To answer the question of whether a court or an arbitrator should decide
the preliminary issues regarding the arbitrability of the dispute, the
Supreme Court first examined the severability provision in the parties'
arbitration agreement. The court explained that the severability clause
created an "ambiguity" as to how the claim was to be resolved.
Therefore, it applied the U.S. Supreme Court's reasoning in First
Options of Chicago Inc. v. Kaplan, 514 U.S. 938 (1995). In that case,
the Court stated that parties must present clear and unmistakable
evidence that they agreed to arbitrate arbitrability; otherwise, the
question of arbitrability was subject to independent review by a court.

Relying on First Options, the state Supreme Court concluded that
Leggett's disclosure statement was missing the required "clear and
unequivocal terms necessary to rebut the 'reversed' presumption that the
court will decide the initial question of arbitrability." The high court
ruled the trial court's decision that it should address the issues
regarding arbitrability was correct.

                         Agreement to Arbitrate

Leggett argued that the trial court appropriately ruled a question of
fact existed as to whether or not she agreed to arbitration. To support
her contention, Leggett claimed she did not read the arbitration clause
nor did Commercial explain it to her. She asserted that had she realized
that arbitration would require her to pay the arbitrator's fees, she
would not have signed the disclosure statement.

Justice Cook opined that Leggett's arguments were unpersuasive given
that the arbitration clause was conspicuously placed in the disclosure
statement, consisted of three pages, and prefaced with the words "READ
THE FOLLOWING ARBITRATION PROVISION CAREFULLY." The court held Leggett's
claims were insufficient to negate her signature on the contract.

                          Unconscionability

The trial court held that the arbitration clause in Leggett's agreement
was one-sided and thus unconscionable. On appeal, the defendants argued
that the lower court erred in its decision and failed to consider the
arbitration clause in its entirety. The court agreed with the defendants
that the terms of the arbitration provision did not unreasonably favor
them. The terms stated that the defendants could not compel the consumer
to arbitrate her claims if she sought no more than 20,000 in damages. It
also provided that the consumer initially had to pay 125 to commence the
arbitration process and that the defendants would pay the costs of
arbitration up to a maximum of one day of hearings. The non-prevailing
party paid costs exceeding one day of hearings.

The court failed to find any of these provisions to be one-sided or
disadvantageous to the consumer. The high court reversed the trial
court's order and remanded the case.

Joseph McCorquodale III of McCorquodale & McCorquodale in Jackson, Ala.,
Stephen B. Porterfield, John R. Chiles and Wilson Green of Sirote &
Permutt P.C. in Birmingham, Ala., and William Hairston and Nathan Norris
of Engel, Hairston & Johanson P.C. in Birmingham, Ala., represented the
plaintiffs. Spencer B. Walker in Grove Hill, Ala., represented the
defendants along with Michael Bell and Stephen Rowe of Lightfoot,
Franklin & White LLC in Birmingham, Ala. (Consumer Financial Services
Law Report 10-19-1999)


CA STATE: Violates ADA Re Disability Parking Placards Fee, 9th Cir Says
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Further strengthening its reputation as a relatively plaintiff-friendly
jurisdiction, the 9th U.S. Circuit Court of Appeals issued rulings
favoring ADA plaintiffs in mid-September. The decisions serve as an
especially good indicator of the circuit's relative receptiveness to ADA
claims, in light of the fact that they deal with very distinct issues
and factual scenarios.

Among the panel decisions was the ruling issued in Dare v. State of
California, No. 97-56065 (9th Cir. 9/16/99). It was in that case that
individuals with disabilities alleged that California's practice of
charging a 6 biennial fee for disability parking placards violated Title
II of the ADA. The fee, the plaintiffs alleged in the class action suit,
constituted an impermissible surcharge on individuals with disabilities.
After a federal District Court determined that the fee was an
impermissible surcharge and enjoined its imposition, the state appealed.

The three-judge appellate panel framed two issues for review: whether
the fee violated Title II and its implementing regulations, and, if so,
whether the enactment of Title II represented a valid exercise of
Congressional power to abrogate the state's 11th Amendment immunity from
suit.

In a 2-1 decision, the panel determined that the parking placard fee was
an impermissible surcharge for a measure that was required to provide
nondiscriminatory treatment. The court rejected the state's argument
that the placard fee was comparable to charges that nondisabled
individuals accrue at parking meters. There are many public places that
do not have parking meters, the majority decision noted, and people
without disabilities need not pay any fees at those locations. "Such a
distinction," the court said, "is unacceptable."

As to the constitutional issue, the panel noted that the 9th Circuit has
already held, in Clark v. California, 123 F.3d 1267, 10 NDLR 332 (9th
Cir. 1997), that Congress validly abrogated state sovereign immunity in
enacting Title II of the ADA. But it took the opportunity to reiterate
that finding, holding that "the ADA was a congruent and proportional
exercise of Congress's enforcement powers under 5 of the 14th Amendment
that abrogated 11th Amendment immunity."

The court rejected the state's position that the constitutionality of 28
CFR 35.130(f), which is the Title II regulation prohibiting surcharges,
should be analyzed separately. Declining the invitation to engage in
"piecemeal" analysis, the court held that the regulation was to be given
controlling weight because it was not arbitrary, capricious or contrary
to the ADA. (Disability Compliance Bulletin 10-11-1999)


CHICAGO BOARD: Unmarried Heterosexual School Clerk Sues Over Policy
-------------------------------------------------------------------
In what an attorney described as the first federal constitutional
challenge of its kind, a school clerk sued the Chicago Board of
Education for discriminating against her and her male partner of 27
years for not providing health and dental benefits to her partner,
though benefits are available to domestic partners in same-sex
relationships.

The class action lawsuit was filed by Lincoln Park High School clerk
Milagros Irizarry, a school system employee since 1987 who is not
married to her longtime partner and has two adult children by him. It is
the first challenge on U.S. constitutional grounds of a government's
policy of providing benefits to partners in same-sex couples, said
Richard Campbell, Irizarry's attorney. The suit says the policy violates
the 14th Amendment, which guarantees equal protection of the law to all
citizens.

Chicago school board general counsel Marilyn Johnson said she had not
seen the lawsuit and could not comment on it. But she said the school
board's policy was not discriminatory. "One key observation is that
different gender partners have the option of marrying and can be
covered," Johnson said.

To address the needs of same-sex couples who cannot marry under Illinois
law, the Chicago Board of Education, like the City of Chicago, began
offering health and dental benefits to the partners of employees in
same-sex relationships, said Campbell.

Irizarry's lawsuit, filed in U.S. District Court in Chicago, said the
board refused to offer benefits to her partner, and she contends that
the new board policy discriminates against them, Campbell said. The
school board policy went into effect July 1, Campbell said.

"It's a classic case of reverse discrimination, discriminating in favor
of same-sex couples and against heterosexual couples," Campbell said.
"We could find no other lawsuits that attacked this kind of policy,"
namely a governmental action that discriminates on the basis of marital
status, Campbell said.

There have been other lawsuits, however, against private employers
providing benefits to same-sex couples but not unmarried opposite-sex
couples, said Patricia Logue, supervising attorney of Lambda Legal
Defense and Education Fund, an advocacy group for the civil rights of
homosexuals.

Last June, for example, a federal court in New York upheld Nynex's
benefits policy for domestic partners in same-sex relationships and
ruled against an opposite-sex couple's claim that the policy was
discriminatory, Logue said.

In other board matters, school board president Gery Chico announced a
major initiative to improve teacher quality.

The school board is expected to adopt a new policy that would require
first-year teachers to undergo a second year of mentoring from a veteran
teacher and a second year of staff development calling for an additional
15 hours of training, Chico said. "The ultimate objective here is to
make for better teaching for the student," Chico said.

Currently, first-year teachers are required to receive one year of
mentoring in addition to 30 hours of training in effective teaching
strategies, classroom management and district policies and procedures,
officials said.

Under the new Mentoring and Induction of New Teachers program, the
mentoring teachers will be selected by principals and will receive a
$1,000 stipend to mentor one teacher several hours a week, $1,250 to
mentor two teachers in the same school and $1,500 to mentor three
teachers, a board official said.

Under another plan to improve teacher quality, the board will step up
its participation in the Museums and Public Schools program, which links
the city's nine Museums in the Park with new teachers.

The program will give new teachers free memberships to the nine museums.
The program's core is a six- to eight-week curriculum of
interdisciplinary classroom lessons that refers to the museums'
resources, officials said. The curriculum will prepare students for a
more informed field trip to the museums, Chico said.

"This is the first time anyone has undertaken an initiative to marry the
resources of Chicago Public Schools and the museums" since the 1930s
when the Field Museum's holdings were aligned with the school system's
standards, Chico said. (Chicago Tribune 10-27-1999)


E TRADE: Faces CA Suit Over Issue Of IPO Shares To Customers
------------------------------------------------------------
On April 14, 1999, a putative class action was filed in the Superior
Court of California, County of Los Angeles, by Matthew J. Rosenberg.
Plaintiff seeks injunctive relief based on alleged violations of the
California Unfair Business Practices Act regarding the extent to which
shares in IPO's are made available to the Company's customers. This
proceeding is currently at a very early stage and the Company is unable
to predict its ultimate outcome.


E TRADE: Faces CA Suit Over Problems Accessing Account & Placing Orders
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On March 11, 1999, a putative class action was filed in the Superior
Court of California, County of Santa Clara, by Elie Wurtman. The Wurtman
complaint seeks damages and injunctive relief arising out of, among
other things, plaintiff's alleged problems accessing her account and
placing orders. The complaint also makes allegations regarding access
problems relating to E TRADE customers residing or traveling outside of
the United States. Plaintiff brings causes of action for negligence and
violations of the Consumer Legal Remedies Act and California Unfair
Business Practices Act. This proceeding is currently at a very early
stage and the Company is unable to predict its ultimate outcome.


E TRADE: Faces CA Suit Re Deceptive Business Practices; No Class Status
-----------------------------------------------------------------------
On November 21, 1997, a putative class action was filed in the Superior
Court of California, County of Santa Clara, by Larry R. Cooper on behalf
of himself and other similarly situated individuals. The action alleges,
among other things, that the E Trade Group Inc.'s advertising, other
communications and business practices regarding the Company's commission
rates and its ability to timely execute and confirm transactions through
its online brokerage services were false and deceptive. The action seeks
injunctive relief enjoining the purported deceptive and unfair practices
alleged in the action and also seeks unspecified compensatory and
punitive damages, as well as attorney fees.

On June 1, 1999, the court entered an order denying plaintiffs' motion
for class certification. While the court declined to certify a class as
to any of plaintiffs' alleged claims, it did indicate that plaintiffs
may be able to pursue one of their claims (relating to the Company's
commission structure) on a representative basis. This proceeding is
currently in the discovery phase and the Company is unable to predict
its ultimate outcome.


E TRADE: Faces CA Suits Over System Interruptions
-------------------------------------------------
On February 8, 1999, a putative class action was filed in the Superior
Court of California, County of Santa Clara, by Coleen Divito, on behalf
of herself and other similarly situated individuals. Subsequently on
February 19, 1999, a putative class action was filed in the Superior
Court of California, County of Santa Clara, by Mario Cirignani, on
behalf of himself and other similarly situated individuals. Both
complaints allege damages and seek injunctive relief arising out of,
among other things, the February 3, 4 and 5, 1999, system interruptions
and allege a class of all E TRADE account holders from February 2, 1999.
Pursuant to a stipulation of counsel dated March 23, 1999, the Court
consolidated the Divito and Cirignani actions for all purposes. This
proceeding is currently at a very early stage and the Company is unable
to predict its ultimate outcome.

On March 10, 1999, a putative class action was filed in the Superior
Court of California, County of Santa Clara, by Raj Chadha. The Chadha
complaint seeks damages and injunctive relief arising out of, among
other things, the February 3, 4 and 5, 1999, system interruptions.
Plaintiff brings causes of action for breach of fiduciary duty and
violations of the Consumer Legal Remedies Act and California Unfair
Business Practices Act. This proceeding is currently at a very early
stage and the Company is unable to predict its ultimate outcome.


E TRADE: Faces Ohio Suit Re Problems Accessing Account & Placing Orders
-----------------------------------------------------------------------
On March 1, 1999, a putative class action was filed in the Court of
Common Pleas, Cuyahoga County, Ohio, by Truc Q. Hoang. The Hoang
complaint seeks damages and injunctive relief arising out of, among
other things, plaintiff's alleged problems accessing his account and
placing orders. Plaintiff alleges causes of action for breach of
contract, fiduciary duty and unjust enrichment, fraud, unfair and
deceptive trade practices, negligence/intentional tort and injunctive
relief. This proceeding is currently at a very early stage and the
Company is unable to predict its ultimate outcome.


E TRADE: Faces N.Y. Suit Over Deceptive Business Practices
----------------------------------------------------------
On February 11, 1999, a putative class action was filed in the Supreme
Court of New York, County of New York, by Evan Berger, on behalf of
himself and other similarly situated individuals. The action alleges,
among other things, that the Company's advertising, other communications
and business practices regarding its ability to timely execute and
confirm transactions through its online brokerage services were false
and deceptive. Plaintiff seeks damages based on causes of action for
breach of contract and violation of New York consumer protection
statutes. This proceeding is currently at a very early stage and the
Company is unable to predict its ultimate outcome.


ICG HOLDINGS: Zycom Shareholders File Suit In TX; Class Status Denied
---------------------------------------------------------------------
ICG Holdings Inc. owns a 70% interest in Zycom Corporation which,
through its wholly owned subsidiary, Zycom Network Services, Inc.,
operated an 800/888/900 number services bureau and a switch platform in
the United States and supplied information providers and commercial
accounts with audiotext and customer support services.

On April 4, 1997, certain shareholders of Zycom filed a shareholder
derivative suit and class action complaint for unspecified damages,
purportedly on behalf of all of the minority shareholders of Zycom, in
the District Court of Harris County, Texas (Cause No. 97-17777) against
the Company, Zycom and certain of their subsidiaries. This complaint
alleges that the Company and certain of its subsidiaries breached
certain duties owed to the plaintiffs. The plaintiffs were denied class
certification by the trial court and the Court of Appeals affirmed the
trial court's decision. Trial has been tentatively set for October 1999.
The Company is vigorously defending the claims. While it is not possible
to predict the outcome of this litigation, management believes these
proceedings will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.


LIPSON: NY Ct Rules D&O Insurance Proceeds Not Bankruptcy Est. Property
-----------------------------------------------------------------------
Although a debtor's insurance policy is property of the bankruptcy
estate, proceeds payable under that policy are not necessarily estate
assets. The proceeds of the directors and officers insurance policy in
the case at bar were not estate property, and hence not subject to the
automatic stay. (Ochs v. Lipson (In re First Central Financial Corp.),
No. 198-12848-353 (Bankr. E.D.N.Y., September 3, 1999).)

In addition, the court declined the trustee's invitation to characterize
the shareholders' lawsuit as an action against the debtor. As such, the
lawsuit was similarly unaffected by the stay. Finally, the trustee did
not make a sufficient showing to justify injunctive relief under Section
105(a) of the Bankruptcy Code.

The debtor was a holding company for an insurance company that was
undergoing liquidation by the New York Insurance Department under
allegations of mismanagement and fraud. After the debtor filed for
bankruptcy, certain shareholders brought a class action suit bringing
direct shareholder claims against the debtor's officers and directors
for damages under the Securities Exchange Act and for fraud.

The Chapter 7 trustee commenced an adversary proceeding seeking
declarative and/or injunctive relief to proscribe any potential
distribution of proceeds from the directors and officers insurance
policy, which had been purchased by the debtor. The policy provided
liability coverage to the debtor's officers and directors for loss when
the debtor did not or was not permitted to provide indemnification.

The policy also provided reimbursement insurance to the debtor. Total
monetary coverage for all claims was 2 million. The policy also had a
rider providing for "entity coverage" to the debtor, with a limited
sphere of liability protection in the event the corporate entity was
sued for violations of securities laws.

The Bankruptcy Court for the Eastern District of New York dismissed the
trustee's action.

The trustee argued that the policy was estate property and that the
commencement or continuation of any action, which might result in claims
to policy proceeds was subject to the automatic stay pursuant to Section
362(a)(3) of the Bankruptcy Code. However, while a majority of courts
consider a D&O insurance policy to be estate property, there is an
increasing view that a distinction should be drawn when considering
treatment of proceeds arising under such policies.

D&O policies are obtained for the protection of individual directors and
officers. Indemnification coverage does not change this fundamental
purpose. There is an important distinction between the individual
liability and the reimbursement portions of a D&O policy. The liability
portion of the policy provides coverage directly to the officers and
directors. Unlike an ordinary liability insurance policy, in which a
corporate purchaser obtains primary protection from lawsuits, a
corporation does not enjoy direct coverage under a D&O policy. It is
insured indirectly for its indemnification obligations to its officers
and directors.

In essence and at its core, a D&O policy remains a safeguard of officer
and director interests and not a vehicle for corporate protection.
Moreover, the entity coverage rider did not provide sufficient
predicate, per se, to metamorphose the proceeds into estate property.

The trustee also argued that the shareholders' lawsuit against the
officers and directors was actually an action against the debtor and was
stayed pursuant to Section 362(a)(1). The court disagreed.

The trustee contended that the lawsuit might give rise to
indemnification claims against the debtor and findings made in this suit
might be binding on the debtor by way of collateral estoppel. But the
unusual circumstances necessary to support the trustee's contentions
were nonexistent. There was no mass tort litigation. There was no
reorganization effort which would require participation of the directors
and officers, and no discernible harm could be ascribed to the debtor if
the directors and officers were to ultimately file claims for
indemnification in this Chapter 7 case.

Although claims for indemnification might lessen the overall percentage
of a pro rata distribution, such distributive adjustment would not
damage the estate. As for collateral estoppel, it was unclear how the
trustee, in his mismanagement lawsuit, could be bound by findings in the
shareholders' lawsuit, when that suit forwarded different claims and
alleged different duties.

Alternatively, relying on the court's equitable powers under Section
105(a), the trustee sought to enjoin any action that could lead to
non-trustee recovery of policy proceeds. Balancing the trustee's
unsupported perception that the estate would be injured against the
demonstrable harm to others that an injunction would inflict weighed
heavily against the trustee.

The Chapter 7 trustee was represented by Norman N. Kinel and Hollace
Cohen of Whitman, Breed, Abbott & Morgan, in New York City. The
directors and officers were represented by Harry Frischer, Emily Stern
and Melissa Zelen Neier of Solomon, Zauderer, Ellenborn, Frischer &
Sharp in New York City. The Great American Insurance Companies was
represented by Ivan J. Dolowich of Peterson & Ross in New York City. Sam
Lipson was represented by J. James Carriero of East Elmhurst, N.Y.
(Lender Liability News 10-1-1999)


RAYTHEON COMPANY: Berger & Montague File Securities Suit In MA
--------------------------------------------------------------
Berger & Montague P.C. (http://home.bm.net)announced that on October
26, 1999, it filed a class action lawsuit for violations of the federal
securities laws in the United States District Court for the District of
Massachusetts against Raytheon (NYSE:RTNA and RTNB) and its two highest
officers, on behalf of all persons who purchased Raytheon common stock
between August 18, 1999, and October 11, 1999.

The Complaint charges that Raytheon and two of its highest officers
violated Sections 10(b) and 20(a) of the Securities Exchange Act of
1934. The Complaint alleges that defendants issued materially misleading
statements in Securities Exchange Commission filings and press releases
purporting to describe an ongoing cost reduction program, while
concealing from investors the facts that it was experiencing serious
cost overruns and would be required to take hundreds of millions of
dollars of charges against current income. The Complaint further alleges
that when the extent of Raytheon's problems was finally revealed at the
close of the Class Period, Raytheon common stock lost 40% of its value
in one day.

If you purchased Raytheon Class A or Class B common stock during the
August 18, 1999, through October 11, 1999 time period, you may wish to
join the action. You may move the court to serve as a lead plaintiff on
or before December 13, 1999. If you wish to discuss this action or have
any questions concerning this notice or your rights with respect to this
matter, you may call or write to: Sherrie R. Savett, Esq. Arthur Stock,
Esq. Susan Kutcher, Investor Relations Manager Berger & Montague, P.C.
1622 Locust Street Philadelphia, PA 19103 Phone: 888/891-2289 or
215/875-3000 Fax: 215/875-4604 Website: http://home.bm.nete-mail:
InvestorProtect@bm.net TICKERS: NYSE:RTNA NYSE:RTNB


SMITH'S TRANSFER: Kent ERISA Case Dismissed For Failure To Prosecute
--------------------------------------------------------------------
While refusing to fault a client for his attorney's discovery
misconduct, the 6th U.S. Circuit Court of Appeals nonetheless found no
abuse of discretion by the U.S. District Court for the Western District
of Kentucky in dismissing a class action case under Federal Rule of
Civil Procedure 41(b) for the plaintiffs' failure to prosecute. (Hood,
et al. v. Smith's Transfer Corp., et al., No. 98-5917 (6th Cir. Aug. 26,
1999).)

In so ruling, the appellate court was able to avoid deciding whether the
lower court's ruling to deny class certification as a Rule 37 sanction
in the case constituted an abuse of discretion by the district judge.

In August 1987, the plaintiffs sued their employer, Smith's Transfer
Corp., and its parent company, Aramark Services Inc., seeking monetary
and injunctive relief under the Employee Retirement Income Security Act
and the Securities Regulations Act of 1934 after Smith's Transfer
terminated its employee stock ownership plan because of financial
difficulties the company encountered beginning in the mid-1980s. On
behalf of more than 5000 employees who participated in the plan, the
plaintiffs filed a motion for class certification.

In the ensuing years, the District Court extended discovery, but - by
stipulation - the court conditioned further discovery deadlines on
plaintiffs' compliance with defendants' discovery requests. Eventually,
in April 1992, the court ordered that all outstanding discovery requests
be answered within 30 days. When the plaintiffs failed to respond to the
defendants' outstanding discovery on a timely basis, the defendants
moved for sanctions and to compel answers.

Five years later, after the plaintiffs repeatedly agreed but failed to
respond to the defendants' discovery, the defendants filed a second
motion for discovery sanctions. By stipulation, the parties extended the
discovery time once again, but the plaintiffs continued their failure to
respond to the pending discovery requests.

Finally, in March 1998 the court granted the defendants' motion for
sanctions under Rule 37(b) by declining to certify the class, and -
three months later - granted defendants' separate motion to dismiss the
action for failure to prosecute under Rule 41(b).

On appeal of both rulings, the 6th Circuit first considered the District
Court's ruling to dismiss the case for failure to prosecute. In doing
so, the appellate court considered four factors in reviewing the
"appropriateness" of the district judge's ruling: 1) the willfulness,
bad faith or fault of the plaintiffs; 2) prejudice to the defendants
resulting from the plaintiffs' failure to respond to discovery; 3) the
court's prior warning of the possibility of dismissal; and 4) the
court's consideration of less drastic sanctions.

In its analysis the 6th Circuit suggested that the plaintiffs argued on
appeal that their own attorneys might have been primarily responsible
for creating the discovery dispute leading to dismissal of the case. If
that were the case, the court quickly reasoned that the plaintiffs'
failure to comply with multiple discovery orders and a continuing delay
of more than ten years provided sufficiently egregious conduct to
support the district judge's Rule 41-based ruling.

In considering each of the four factors necessary to evaluate the issue,
the 6th Circuit concluded that the lower court did not abuse its
discretion in dismissing the lawsuit outright. This conclusion then
rendered "moot" the issue of erroneous denial of class certification as
sanctioned under Rule 37(b) by the District Court. (Federal Discovery
News 10-11-1999)


TOBACCO LITIGATION: BAT Accuses Judges; Calls On Wall Street For Reform
-----------------------------------------------------------------------
British American Tobacco accused US judges of "outrageous behavior" in
aiming to force tobacco companies to settle claims and called on Wall
Street to lobby for reform of the justice system.

Martin Broughton, BAT chairman, said the civil claim launched last month
by Janet Reno, US attorney-general, to recover the administration's
costs of treating smoking-related illnesses was misguided and
politically driven. The onslaught on the industry was destroying
shareholder value.

Since the start of September, $ 5.8 billion has been wiped off the
market capitalisation of BAT's Brown & Williamson, the third largest US
tobacco company and $ 33.5 billion off market leader Philip Morris. "If
ever there was a case for active shareholders, this is it," Mr Broughton
said. "If Ms Reno gets away with this, which investment will be next? It
won't stop at tobacco."

Mr Broughton, speaking at the announcement in London of BAT's
third-quarter results, said the US tobacco industry was confident of
success in the Engle trial, a Florida lawsuit that is the first
class-action case to come to trial.

In the first stage of the trial, the industry was found liable in July
of making a defective and addictive product and conspiring to hide the
dangers of smoking. In the second phase, next month, the jury will
determine compensatory and punitive damages for the three smokers
involved before a third phase extends the award to 50,000 sick or dead
members of the same class.

In September, the Florida appeals court ruled that damages could be
awarded only on a smoker-by-smoker basis, a decision seen as a victory
for the industry. Last week's decision by the same court against
imposing its ruling on the trial judge led to sharp falls in tobacco
share prices, but Mr Broughton said it did not change the original
ruling.

He added that if the industry gave in and settled in the Engle case,
other class actions would follow. Earlier settlements agreed by the
tobacco companies had encouraged judges and lawyers to raise the stakes.
"If they can force a settlement, they can take any action they like," he
said. (Financial Times (London) 10-27-1999)


TOBACCO LITIGATION: NY Ap Ct Oks Dismissal Of Suit; No Money Back
-----------------------------------------------------------------
The New York Court of Appeals upheld a 1988 lower court dismissal of a
class action lawsuit brought by a group of plaintiffs against British
American Tobacco Co unit Brown & Williamson, Lorillard Co, American
Tobacco Co, Philip Morris Cos, and RJ Reynolds Inc.

The claimants, who described themselves as "addicted smokers," sought to
recover only their costs of purchasing cigarettes. The New York Court of
Appeals also upheld the July 1998 dismissal by the lower appellate court
of the right of the claimants to bring individual cases, seeking to
recover cigarette purchase costs. Brown & Williamson issued a statement
stating: "This appellate opinion reflects Brown & Williamson's position
that the facts underlying each individual's decision to purchase
cigarettes and subsequent use is uniquely individual and should be
treated as such."

The case alleged that a group of claimants were individually and
collectively deceived by the companies about the health risks of
cigarettes and fraudulently induced to smoke them.

However, the New York Court of Appeals affirmed the lower appellate
division's finding that "the dangers of smoking had been well documented
and were generally known to the public." "According to the (lower
appellate) court, this widely-available information foreclosed any
presumption of reliance and required individualised inquiry into whether
each class member was unaware of that information with regard to their
causes of causes of action for false advertising."

The higher court also affirmed the lower court conclusion "that the
proposed class actions would be unmanageable because of the individual
issues of damages with respect to each of the 5 mln plaintiffs."
(Extel Examiner 10-27-1999)


TOBACCO LITIGATION: Papers Talk About Impact Of Lawsuit On BAT Shares
---------------------------------------------------------------------
The Times (London) says that shares of British American Tobacco are in
intensive care, suffering from one of the most feared of stock market
diseases - uncertainty.

Last month's court ruling in Florida, which obliges BAT to face the next
phase of a class action against it, is being blamed for the 28 per cent
drop in its share price in the past four weeks. But the big issue here
is that the case leaves large, potentially crippling, question marks
hovering over the company. Moreover, BAT seems destined to remain
immersed in uncertainty.

Few people in the UK market know much about the legal process in which
BAT has become embroiled - and few appear to have the appetite to try to
understand, or learn about, the complex US litigation. No one can
estimate the potential cost with any confidence or accuracy. But blind
fear, rather than reason, is driving the stock just now. The upside
offered if BAT escapes legal Armageddon - as it has so often in the past
- is completely obscured.

The litigation threat also overshadows BAT's improving trading figures.
Results for the nine months to September 30 showed operating profits
down 6 per cent before allowing for the merger with Rothmans. But the
fall was stemmed to 1 per cent in the third quarter, reflecting more
buoyant conditions in parts of Asia and Europe.

The brighter outlook sparked a 3 per cent jump in BAT shares to 383
1/2p. This leaves the stock trading at just eight times this year's
forecast earnings. The 15 per cent yield could be destroyed by
litigation costs. But it is more likely that tobacco's cash-generating
abilities will protect the payment. Buy. (The Times (London) 10-27-1999)

According to the Daily Telegraph(London), lawyers seem to be the only
ones making any money out of the tobacco industry at the moment. The
litigation nightmare engulfing the industry shows scant sign of letting
up and shareholders are beginning to despair, despite the company's
rallying call. Threat number one is a class action in Florida,
potentially worth hundreds of billions of dollars in punitive damages
for smoking-related illnesses. Threat number two (dubiously based but
indicative of the depth of feeling against the industry) is a US
government action drawing parallels between tobacco companies and
organised crime. All bad news, and enough to trigger a collapse in BAT's
shares over the past few months.

Assume the Florida class actions succeeds, unleashing a flood of similar
suits and bankrupting BAT's American operations, erasing their
contribution to profits next year. Even then, the shares are on a rating
of just 10 times forward earnings.

But the market does not appear interested in fundamentals. More
important are fears that American-style class-action litigation will
eventually spread overseas, that the US government is openly attacking
big tobacco, that advertising restrictions continually get tighter and
that sales taxes progressively grind higher.

Shareholders may as well hang on to see how the Florida lawsuit is
panning out early next year. Otherwise tobacco is a headache most
private investors can do without.

British American Tobacco, the world's second-largest cigarette
manufacturer, urged its shareholders to rally to the support of the
tobacco industry to protect their investments. The move comes as BAT's
share price remains under intense pressure from litigation in the United
States, including an unprecedented Department of Justice lawsuit
comparing tobacco companies to the mafia.

Martin Broughton, the company's chairman, said pounds 5.8 billion had
been cut from BAT's market capitalisation by the fresh bout of
litigation. He said: "Where is Wall Street's voice? If there ever was a
case for active shareholders here it is. That's your money as
shareholders. . . If [US attorney-general Janet] Reno gets away with
this, which of your investments is going to be next?"

BAT posted a 45pc rise in third-quarter profits to pounds 556m pre-tax,
boosted by the inclusion of a four-month contribution from its merger
with Rothmans. The group said pre-merger profits were down 1pc as
volumes were affected by big price increases in the United States and
new taxes in Brazil.

BAT stepped up its defences to the recent spate of lawsuits that has
forced its share price some 40pc weaker over the past few months. Mr
Broughton said the action from the Department of Justice, which relies
in part on racketeering laws originally designed to fight organised
crime, was based on "decidedly thin legal grounds".

More important, he predicted the Florida class action against BAT's
subsidiary Brown & Williamson, as well as Philip Morris and RJR Tobacco,
would also fail. He said a recent ruling had not overturned the
principle that damages in smoking cases were best decided on an
individual-by-individual basis.

Mr Broughton also stepped up the attack on the judge in the Brown &
Williamson case, who is an ex-smoker. "The judge is a potential member
of the class and he can get away even with that if we settle. The
question is, will Brown & Williamson settle? The answer is no," he said.
(The Daily Telegraph(London) 10-27-1999)


TRAVELERS INDEMNITY: Sued In LA Over Medical Claim; May Face Class Suit
-----------------------------------------------------------------------
In what could be a forerunner of a series of class actions against
Travelers Indemnity Company of Illinois, a lawsuit has been filed in Los
Angeles, alleging that Travelers failed to properly deal with a claim
for medical payments under a premises general liability policy it had
issued.

The plaintiffs in the lawsuit were injured at the Walker & Zanger
showroom in Costa Mesa, Calif., when two slabs of marble fell on them.
Walker & Zanger was insured by Travelers and the lawsuit contends that
Travelers did not notify the plaintiffs of their possible rights under
the policy and refused to pay any of the medical bills. Prior to
learning of the medical payments provision in the policy, plaintiffs
filed a lawsuit against Walker & Zanger, alleging that the company was
at fault for the accident and, therefore, liable for all of their
medical expenses. After obtaining a copy of the insurance policy and
learning of the provision -- which the lawsuit contends provides for
payment or reimbursement of medical expenses regardless of fault,
plaintiffs filed a second lawsuit against Travelers. After this second
lawsuit was filed, Travelers -- 16 months after the accident -- paid
lightly more than half of the $ 10,000 in medical expenses plaintiffs
believe are due under the policy.

Plaintiffs believe there are potentially thousands of injured people who
may have similar claims against Travelers and there may also be numerous
policy holders who have been sued as a result of Travelers' handling of
claims under the medical payments provisions. In 1998, Travelers
Indemnity Company was ordered to pay $ 26.4 million in compensatory and
punitive damages as a result of what a California Court of Appeal
described as "a recalcitrance to honor contractual obligations and the
rule of law" and "highly reprehensible" conduct. Plaintiffs have
contended in letters to the chairman of the board and general counsel of
CITIGROUP, Travelers' parent company, and to others in Travelers
management that their case is another example of such conduct by
Travelers. While no class action has yet been filed on behalf of either
injured parties or policy holders, plaintiffs believe it is likely that
one or more will be.


U.S.: 9th Cir Ruling Clears Aliens For Second Amnesty Chance
------------------------------------------------------------
Thousands of undocumented aliens who were denied amnesty under the 1986
immigration law are entitled to press their claims that the government
prevented them from completing their applications by denying access to
files of their prior deportation cases, the Ninth U.S. Circuit Court of
Appeals ruled.

While the ruling came solely on a jurisdictional issue in a 10-year-old
class action, it is significant for those affected, the plaintiffs'
attorney told the MetNews. "They will have a second chance to get a fair
decision rendered in their cases," Seattle lawyer Robert Pauw said. "It
doesn't mean they will automatically be approved but they can get
evidence to support their applications and a large number of
them...probably will be approved."

A spokeswoman for the Immigration and Naturalization Service said the
agency had not reviewed the ruling and had no comment.

                           Procedural Claims

In an opinion by Senior Judge Betty B. Fletcher, the appeals panel ruled
that provisions of the Immigration Reform and Control Act of 1986
barring judicial review of amnesty denials except by the courts of
appeals following final deportation orders do not apply to procedural
claims like those raised by the plaintiffs.

The plaintiff class consists of several thousand amnesty-seeking aliens.
Pauw said the exact number has never been determined within the INS
northern and western regions, which cover most of the western United
States, excluding Texas and Oklahoma.

IRCA generally requires that an alien seeking amnesty have applied for
that status during a specified period in 1987 and 1988, have lived in
this country as an undocumented person since Jan. 1, 1982, have a
continuous physical presence in the United States since Nov. 6, 1986,
and be otherwise eligible for admission to the country.

Each of the class members in the action considered by the court was
turned down for amnesty, however, under a provision of IRCA mandating
denial when INS records show that the person was deported on or after
Jan. 1, 1982.

                         Due Process Rights

The government argued that the aliens' due process rights were protected
by the Freedom of Information Act, under which they could have obtained
access to the deportation files. But Fletcher called FOIA an inadequate
remedy in the plaintiffs' circumstances, noting that INS doesn't notify
applicants of their rights under the act and that even if a FOIA request
is made, the information is of no benefit if it is obtained after the
INS invokes the automatic-denial provision because it won't be part of
the administrative record on appeal.

In their August 1989 complaint, the plaintiffs14 immigrants and the
Tucson, Ariz.-based Proyecto San Pablo claimed that the INS was
unlawfully implementing the automatic-denial provision by applying it to
persons who had been deported illegally or who hadn't actually been
deported.

They further claimed that they could not challenge those erroneous
applications of the law without access to their files, and that the
agency was violating IRCA by not accepting applications for waivers of
the automatic-denial provisions.

U.S. District Judge William Browning of the District of Arizona
dismissed the suit in 1997, saying federal courts had no authority to
rule on amnesty decisions until an immigrant faced an actual deportation
order. He also said the plaintiffs eventually received copies of their
deportation files and showed no need for earlier review.

But Fletcher said the district judge erred in reaching the merits of the
access issue in order to determine the jurisdictional question. Now that
jurisdiction has been established, she said, the judge may determine
whether the aliens had adequate access to their records prior to being
denied amnesty.

She also said it would be up to the district judge to decide whether the
INS was required to accept applications for waivers, but that only the
court of appeals has authority to decide whether a waiver was wrongly
denied.

Chief Judge Procter Hug and Judge Stephen Trott joined in the opinion.
The case is Proyecto San Pablo v. INS, 99 S.O.S. 7299.


WARREN GENERAL: Ohio Sp Ct Held Hospital Liable For Patient Record Leak
-----------------------------------------------------------------------
A ruling by the Ohio Supreme Court gives HIV-positive medical patients
better ammunition to use against health-care providers who disclose
confidential medical information to third parties without the patient's
consent.

For some time, Ohio courts have allowed plaintiffs to sue health-care
providers for breach of confidentiality, but there was no specific legal
theory as to how such a case should be approached. Some plaintiffs
claimed invasion of privacy. Others alleged an implied breach of
contract. Still other theories included defamation, negligence and
medical malpractice.

In its ruling in Biddle v. Warren General Hospital, the Supreme Court
clarified the right of action by recognizing the existence of an
independent common-law tort for the unauthorized, unprivileged
disclosure of nonpublic medical information to a third party.

The ruling arose from a scheme by a law firm that offered to help
determine whether patients who were unable to pay their medical bills
might be eligible for Supplemental Security Income benefits. By putting
the patient on the SSI rolls, the hospital could collect the bills and
the law firm would pocket a contingency fee.

For more than two years, the hospital released all patient registration
forms to the law firm of Elliott, Heller, Maas, Moro & Magill without
obtaining any prior authorization from the patients. The form listed the
patient's medical condition, including such sensitive matters as mental
illness, drug and alcohol abuse, and sexually transmitted diseases. The
law firm used the information to identify which patients were potential
candidates for SSI eligibility.

In 1994, the scheme unraveled. A law firm employee in charge of
screening the patient records took her story to the local television
station. A few months later, Cheryl A. Biddle and other former patients
filed a class-action lawsuit against the hospital, the law firm and
others.

Having recognized the tort of authorized disclosure, the Supreme Court
held that the hospital could be held liable for giving confidential
patient information to the law firm.

Patients entering the hospital signed a statement authorizing the
release of medical information to insurers or other third-party payors,
but "only as may be necessary" to document the hospitalization claims.
The release was not so broad as to enable a third party such as a law
firm to evaluate the patient for SSI eligibility.

The law firm was not protected by attorney-client privilege in examining
patient records, because it was operating on behalf of the hospital, not
the patients.

The case now returns to the trial court for further proceedings.
Biddle v. Warren General Hospital, No. 98-952 (Ohio, 9/15/99).
(AIDS Policy and Law 10-15-1999)


* SEC Proposes Audit Committees Tell Shareholders Of Misrepresentation
----------------------------------------------------------------------
Attorneys handling securities and financial reporting matters are
buzzing about a Securities and Exchange Commission proposal that would
require audit committees to inform shareholders of any untrue or
misleading statements in a company's annual report.

Defense attorneys say the plan is misguided and creates significant
liability for board members who serve on audit committees. Plaintiffs
attorneys say the move will ensure that audit committees do more than
rubber-stamp a company's audited financial statements.

On Oct. 6, the SEC proposed new rules on audit committee disclosure,
Release No. 34-41987. The most controversial part of the proposal aims
to encourage board members who sit on corporate audit committees to ask
outside auditors or management tough questions about the company's
financial statements.

                           Shareholder Report

The proposed rule would require audit committees, which are subsets of
the board of directors, to prepare a report for shareholders outlining
whether they had reviewed and discussed the company's audited financial
statements with management and outside auditors and whether, in their
belief, the annual report includes an untrue statement or an omission
that would make the report misleading.

"Improving the function and practice of audit committees are areas that
cry out for level-headed thinking and practical solutions," said Arthur
Levitt, chairman of the SEC, when the commission released the rules. "If
we don't give boards and audit committees a realistic and effective
roadmap of how to instill a process that reinforces oversight . . . the
notion of meaningful, active and effective corporate governance will
forever be just that -- a notion."

Members of the plaintiffs bar echo his sentiment. "The purpose of having
an audit committee of the board of directors is to make sure that the
company's financial statements are prepared properly and to oversee the
relationship between the overseers the auditors and management," said
Daniel Berger, a partner with Bernstein Litowitz Berger & Grossman. Yet,
in practice, he said, " most audit committees meet two or three times a
year and are really rubber stamp-type bodies." The SEC's proposed
disclosure requirement will make them take their jobs a lot more
seriously, he said.

That would be welcome news for investors who rely on the quality of a
company's financial reports, added Joseph Sternberg, a partner with
Goodkind Labaton Rudoff & Sucharow. "If the audit committees are held to
a higher standard, they will take a much firmer line with management in
insisting that the company's books and records are scrupulously kept and
carefully reviewed."

                              Safe Harbor

While defense attorneys applaud efforts by the commission to improve the
quality of corporate financial reporting, they worry about the liability
audit committees will face if this disclosure rule is passed.

Levitt said that the proposal, which would create safe harbors for such
disclosures, strikes a fair balance between director liability and the
need for strong audit committees. "Our proposals do not require audit
committees to make any certification about the technical rules of
accounting. But they do increase the level of disclosure about the
interaction between auditors, board members and management."

Defense attorneys counter that any safe harbors offered will still not
prevent litigation. "There is no entirely safe harbor from the
plaintiffs class action bar," said Michael Young, a partner with Willkie
Farr & Gallagher.

The potential liability could make directors think twice about accepting
a position on an audit committee, added Richard Rowe, chairman of the
American Bar Association's committee on law and accounting, and a
partner with Proskauer Rose.

Berger, who represents plaintiffs, disagrees. Despite the fact that
officers and directors have been held liable in financial reporting
cases, there is no shortage of people who want to serve on boards, he
said. Further, while companies charged with financial misreporting worry
that insurance companies will not continue to provide them with officer
and director liability insurance, that has not been the case, he said.

Aside from the liability issues, the disclosure requirement also could
put the audit committee in an awkward position with shareholders,
attorneys said. "As a practical matter, no audit committee is going to
want to say in a proxy statement, 'yes we found financial reporting
problems that cause us to question the integrity of our financial
statements,'" said Young, who represents accountants, officers,
directors and companies in financial reporting litigation. Since such a
move would undoubtedly cause a decline in the company's stock price,
this disclosure requirement could ultimately discourage the audit
committee from asking outside auditors tough questions, he said.

As such, the SEC will not succeed in fostering an open dialogue between
the audit committee and the company's outside auditors, he said.

                        Accounting Expertise

Other defense attorneys question the legal authority and wisdom of
requiring audit committee members to vouch for the financial statements.
Audit committees can play a valuable role monitoring the company's
controls, but they should not be guarantors of the financial statements,
said John Olson, a partner with the Washington, D.C., office of Gibson,
Dunn & Crutcher, who represents audit committees.

Dan Goldwasser, a partner with Vedder, Price, Kaufman & Kammholz,
questioned the legal authority of the SEC to impose the disclosure rule,
noting that state accountancy laws preclude anyone other than corporate
employees, officers or licensed accountants from certifying financial
statements.

He also disputes the value of the reports the commission is directing
audit committees to prepare, noting that directors who serve on audit
committees are not typically accountants. "A statement by the audit
committee who has not completed the audit is meaningless compared to the
audit report itself," he said.

While auditors spend hundreds of hours reviewing financial statements in
conformity with generally accepted accounting principles, members of the
audit committee simply ask questions of auditors and management, he
explained.

That issue may be easier to resolve if rule changes proposed by the New
York Stock Exchange, National Association of Securities Dealers and the
American Stock Exchange on audit committees are passed by the SEC. All
three proposals would require audit committees to include at least one
person who has accounting or related financial management expertise.

The AMEX and NASD plans also would require these committees to include
at least three other people who can understand financial statements. The
NYSE rule would require all members of the committee to be financially
literate. (The Recorder 10-25-1999)


                               *********


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.

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