/raid1/www/Hosts/bankrupt/CAR_Public/991103.MBX
C L A S S A C T I O N R E P O R T E R
Wednesday, November 3, 1999, Vol. 1, No. 191
Headlines
COMPAQ, HP, EMACHINES, PACKARD: Sued In TX Re Laptop Defects As Toshiba
CONTIFINANCIAL CORP: Bernstein Liebhard Files Securities Suit In NY
DELTA FINANCIAL: Bernstein Liebhard Files Securities Suit In New York
DELTA FINANCIAL: Milberg Weiss Files Securities Suit In New York
DETROIT EDISON: Settles Suit Over Employee Discrimination In Reorgan.
E RADE GROUP: Wolf Haldenstein Files Securities Lawsuit In California
ENGINEERING ANIMATION: Rabin & Peckel Files Securities Suit In Iowa
GEORGIA GULF: Settles Some Louisiana Claims Over Chemical At Worksite
GIO AUSTRALIA: Securities Suit Could Hit Professional Liability Cover
GUN MANUFACTURER: Sued Nationwide, Davis Files Ch 11 & Proofs Of Claim
MICROSOFT: Appeals Case On Employee Benefits - Who Is Employee?
PONZI SCHEME: TX Receiver Of Forex Int'l Sue Lawyers Over Fraud
S. CA. EDISON: Debtor Sues - Use Of Trans Union's Name Violates FDCPA
SMITHKLINE BEECHAM: Case On Re-Used Needles Triggers New Law In CA
THOMSON CORP: Freelance Writers Receive Funding And Proceed With Suit
TOBACCO LITIGATION: Fla. Jury To Tag On Price; Lawyers Aim To Limit It
VALDEZ: 10th Cir Oks New Mexico Ct Ruling Re Children With Disabilities
WESTINGHOUSE ELEC: W Virginia Recognizes Medical Monitoring For Injury
YBM MAGNEX: Receiver Files Suit In Canada Alleging Insider Trading
* Bill For Leglislative Fix For Multidistrict Remand Problem
*********
COMPAQ, HP, EMACHINES, PACKARD: Sued In TX Re Laptop Defects As Toshiba
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The manufacturers are accused of selling defective portable computers,
ignoring NEC's warnings of potential problems with saving to floppy
disks. The same attorneys who wrested a $1-billion settlement from
laptop computer maker Toshiba Corp. filed a federal suit Monday over the
same alleged defect in computers made by Compaq Computer,
Hewlett-Packard, EMachines and Packard Bell NEC.
The new suit, also filed in U.S. District Court in Beaumont, Texas,
seeks class-action status, said George Shipley, a spokesman for
plaintiffs' attorney Wayne Reaud and the firms of Orgain, Bell & Tucker
and Binkenstaff & Oxford. "It's analogous litigation," Shipley said.
Like the suit against Toshiba, the new case accuses the manufacturers of
selling defective laptops and ignoring warnings by component maker NEC
that there were potential problems with saving data to floppy disks.
Toshiba conceded last Friday that it had ignored the NEC warning and
that data could be lost on the more than 5 million Toshiba laptops sold
in the U.S. since 1987 if the user is conducting intensive tasks on the
machine while simultaneously trying to save information.
The suit filed Monday names NEC as a defendant. An NEC spokesman said he
was unaware of the filing and couldn't comment. A Compaq spokesman
didn't immediately return a telephone call seeking comment, and the
other companies declined to discuss the case. "We're not permitted to
comment on those lawsuits," said EMachines spokeswoman Pattie Adams.
Under the settlement tentatively approved last week, Toshiba agreed to
provide at least a $ 100 coupon for its products to every Toshiba laptop
owner in the country. Those who bought machines since March 5, 1998, a
year before the suit was filed, will be eligible for an additional
amount of cash, as well as software and hardware upgrades.
The rebates will average about $ 330. The settlement has a face value of
$ 2.1 billion, and Toshiba pledged that at least $ 1 billion will be
spent, if not in cash and coupons, then through donations of equipment
to charity.
If the computer companies named in Monday's suit ultimately settle or
are held liable by the court, they would probably be on the hook for
less money than Toshiba because Toshiba has sold more laptops in the
U.S. and is the world's largest maker of laptops. (Los Angeles Times
11-2-1999)
CONTIFINANCIAL CORP: Bernstein Liebhard Files Securities Suit In NY
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A securities class action lawsuit was commenced on behalf of purchasers
of the common stock of ContiFinancial Corporation (NYSE: CFN), between
January 28, 1998 and July 21, 1999, inclusive, in the United States
District Court for the Eastern District of New York.
The complaint charges ContiFinancial and certain of its directors and
executive officers with violations of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder. The complaint alleges that
the defendants issued materially false and misleading statements about
the Company's business, finances and prospects and failed to disclose
material information throughout the Class Period in the Company's public
filings and public statements. The Company and a number of its insiders
took advantage of the inflated stock price to sell thousands of their
own shares and to acquire several other companies. As a result of these
misrepresentations and omissions, the price of ContiFinancial's common
stock was artificially inflated throughout the Class Period.
If you purchased or otherwise acquired ContiFinancial securities during
the Class Period, and either lost money on the transaction or still hold
the stock, you may wish to join in the action to serve as lead
plaintiff. In order to do so, you must meet certain requirements set
forth in the applicable law and file appropriate papers no later than 60
days from October 20, 1999.
Plaintiff has selected Bernstein Liebhard & Lifshitz, LLP to represent
the Class. If you would like to discuss this action or if you have any
questions concerning this Notice or your rights as a potential class
member or lead plaintiff, you may contact Ms. Nicole Meyer, Director of
Shareholder Relations at Bernstein Liebhard & Lifshitz, LLP, 10 East
40th Street, New York, New York 10016, 800-217-1522 or 212-779-1414 or
by e-mail at CFN@bernlieb.com. SOURCE Bernstein Liebhard & Lifshitz,
LLP. Contact: Nicole Meyer, Director of Shareholder Relations at
Bernstein Liebhard & Lifshitz, LLP, 800-217-1522, 212-779-1414, or
CFN@bernlieb.com
DELTA FINANCIAL: Bernstein Liebhard Files Securities Suit In New York
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A securities class action lawsuit was commenced on behalf of purchasers
of the common stock of Delta Financial Corporation (NYSE: DFC), between
October 31, 1996 and August 18, 1999, inclusive, in the United States
District Court for the Eastern District of New York.
The complaint charges Delta Financial and certain of its directors and
executive officers with violations of Sections 11, 12(a)(2) and 15 of
the Securities Act of 1933 and Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
The complaint alleges that the defendants issued materially false and
misleading statements about the Company's business, finances and
prospects in the Company's Registration Statement and Prospectus issued
in connection with its initial public offering on October 31, 1996 and
throughout the Class Period in the Company's other public filings and
public statements. As a result of these misrepresentations and
omissions, the price of Delta Financial's common stock was artificially
inflated throughout the Class Period.
If you purchased or otherwise acquired Delta Financial securities
pursuant to or traceable to the IPO or during the Class Period, and
either lost money on the transaction or still hold the stock, you may
wish to join in the action to serve as lead plaintiff. In order to do
so, you must meet certain requirements set forth in the applicable law
and file appropriate papers no later than 60 days from November 1, 1999.
Plaintiff has selected Bernstein Liebhard & Lifshitz, LLP to represent
the Class. The attorneys at Bernstein Liebhard & Lifshitz, LLP have
extensive experience in securities class action cases, and have played
lead roles in major cases resulting in the recovery of hundreds of
millions of dollars to investors.
If you would like to discuss this action or if you have any questions
concerning this Notice or your rights as a potential class member or
lead plaintiff, you may contact Mr. Mark Punzalan, Director of
Shareholder Relations at Bernstein Liebhard & Lifshitz, LLP, 10 East
40th Street, New York, New York 10016, 800-217-1522 or 212-779-1414 or
by e-mail at DFC@bernlieb.com. SOURCE Liebhard & Lifshitz, LLP. Contact:
Mr. Mark Punzalan, Director of Shareholder Relations of Bernstein
Liebhard & Lifshitz, LLP, 800-217-1522, 212-779-1414, DFC@bernlieb.com
DELTA FINANCIAL: Milberg Weiss Files Securities Suit In New York
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The Following is an Announcement by the Law Firm of Milberg Weiss
Bershad Hynes & Lerach LLP:
Notice is hereby given that a class action lawsuit was filed on Oct. 29,
1999, in the United States District Court for the Eastern District of
New York, on behalf of all persons who purchased the common stock of
Delta Financial Corporation. (NYSE:DFC) between Oct. 31, 1996, and Aug.
18, 1999, inclusive, including all persons who purchased the common
stock of Delta Financial pursuant or traceable to the Company's initial
public offering ("IPO") on Oct. 31, 1996, or subsequently in the open
market.
The complaint charges each of the defendants, including the principal
underwriters of Delta's IPO, Natwest Securities Limited, Prudential
Securities Incorporated and U.S. Bancorp Piper Jaffray, Inc., with
violations of Sections 11, 12(a)(2) and 15 of the Securities Act of
1933. Additionally, the complaint charges Delta Financial and certain of
its officers and directors with violations of Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. In particular, the complaint alleges that the Registration
Statement and Prospectus issued in connection with the Company's IPO
contained false and misleading statements concerning the Company's
questionable and improper sales practices, allowing the Company to raise
over $ 75,000,000 in proceeds from the IPO.
If you wish to discuss this action or have any questions concerning this
notice or your rights or interests with respect to these matters, please
contact, at Milberg Weiss Bershad Hynes & Lerach ("Milberg Weiss"),
Steven G. Schulman or Samuel H. Rudman at One Pennsylvania Plaza, 49th
Floor, New York, New York 10119-0165, by telephone 1-800-320-5081 or via
e-mail: endfraud@mwbhlny.com or visit our website at www.milberg.com.
Plaintiff is represented by the law firms of Milberg Weiss and Bernstein
Liebhard & Lifshitz. Milberg Weiss maintains offices in New York City,
San Diego, Los Angeles, San Francisco and Boca Raton and is active in
major litigations pending in federal and state courts throughout the
United States. If you are a member of the class described above you may,
not later than sixty days from Nov. 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:
Milberg Weiss Bershad Hynes & Lerach LLP, New York Shareholder Relations
Dept. E-Mail: endfraud@mwbhlny.com 800/320-5081 TICKERS: NYSE:DFC
DETROIT EDISON: Settles Suit Over Employee Discrimination In Reorgan.
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Detroit Edison was ordered to pay more than $45 million last Thursday to
settle three class-action lawsuits brought on behalf of current and
former employees who said they were discriminated against during
corporate reorganizations.
Three separate race and age discrimination complaints were filed against
Detroit Edison following corporate reorganizations between 1992 and
1995. The complaints were expanded to class action status and include
about 1,400 current and former employees.
As part of a settlement agreement reached in 1998, Detroit Edison had
agreed to pay between $17 million and $65 million to the plaintiffs.
(The Energy Report 11-1-1999)
E RADE GROUP: Wolf Haldenstein Files Securities Lawsuit In California
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The following is an announcement from Wolf Haldenstein Adler Freeman &
Herz LLP:
Notice to current and former customers of E rade Group, Inc.:
Wolf Haldenstein Adler Freeman & Herz LLP filed a complaint in Santa
Clara Superior Court, California against defendants E rade Group, Inc.
and E rade Securities, Inc. on March 11, 1999, and an amended complaint
on June 11, 1999, on behalf of all persons having accounts at E rade
Group, Inc. from February 1996 to the present who were charged
commissions by the defendants for trades which were not executed or
confirmed "within seconds" as advertised and promised by the defendants
or who were forced to incur commissions at brokers other than E rade as
the result of defendants' systems failures. A motion to compel
arbitration filed by the defendants was denied by court order dated
September 23, 1999.
If you hold or held an account with E rade Group, Inc. between February
1996 and the present, and have experienced problems with delayed trade
executions or confirmations, or if you wish to discuss the class action
against E rade or have any questions concerning this notice or your
rights or interests with respect to these matters, please contact WOLF
HALDENSTEIN ADLER FREEMAN & HERZ LLP, San Diego, Frank A. Bottini, Esq.,
(619)239-4599 or WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLP, New York,
Michael Miske, Daniel W. Krasner, Esq., (800)575-0735
classmember@whafh.com or whafh@aol.com or http://www.whafh.com
ENGINEERING ANIMATION: Rabin & Peckel Files Securities Suit In Iowa
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The following is an announcement by the law firm of Rabin & Peckel LLP:
A class action complaint has been filed in the United States District
Court for the Southern District of Iowa on behalf of all persons or
entities who purchased or otherwise acquired the common stock of
Engineering Animation, Inc. (Nasdaq: EAII) between July 29, 1999 and
October 1, 1999, inclusive.
The Complaint alleges that Engineering Animation and certain of its
officers violated the Securities Exchange Act of 1934 by making a series
of materially false and misleading statements concerning Engineering
Animation's reported financial results during the Class Period. In
particular, it is alleged that these reported financial results are not
presented in conformity with generally accepted accounting principles
and require restatement. The Complaint alleges that as a result of these
false and misleading statements the price of Engineering Animation's
securities were artificially inflated throughout the Class Period
causing plaintiff and the other members of the Class to suffer damages.
Plaintiff is represented by the law firm of Rabin & Peckel LLP and The
Law Office of Leo W. Desmond. If you purchased or otherwise acquired
Engineering Animation securities during the Class Period described
above, you may, no later than December 14, 1999, move the Court to serve
as lead plaintiff. 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 announcement, or your rights or interests,
please contact plaintiff's counsel, Elana M.B. Bourkoff, Rabin & Peckel
LLP, 275 Madison Avenue, New York, NY 10016, by telephone at (800)
497-8076 or (212) 682-1818, by facsimile at (212) 682-1892, or by e-mail
at email@rabinlaw.com or at the website at http://www.rabinlaw.comor
Leo W. Desmond, The Law Office of Leo W. Desmond, 2 Lethington Rd., Palm
Beach Gardens, FL 33418, by telephone at (888) 337-6663 or (561)
712-8000, by facsimile at (561) 712-8002, by e-mail at
Info@SecuritiesAttorney.com or at his website at
http://www.SecuritiesAttorney.comTICKERS: NASDAQ: EAII
GEORGIA GULF: Settles Some Louisiana Claims Over Chemical At Worksite
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Georgia Gulf is a party to numerous individual and several class-action
lawsuits filed against Georgia Gulf, among other parties, arising out of
an incident that occurred in September 1996 in which workers were
exposed to a chemical substance on Georgia Gulf's premises in
Plaquemine, Louisiana. The substance was later identified to be a form
of mustard agent, a chemical which is not manufactured as part of
Georgia Gulf's ordinary operations, but instead occurred as a result of
an unforeseen chemical reaction. Georgia Gulf presently believes there
are approximately 2,000 plaintiffs, of which approximately 650 are
workers claiming to have been on-site at the time of the incident. All
of the actions claim one or more forms of compensable damages, including
past and future wages, past and future physical and emotional pain and
suffering, and medical monitoring. The lawsuits were originally filed in
Louisiana State Court in Iberville Parish.
In September 1998, the plaintiffs filed amended petitions that added the
additional allegations that Georgia Gulf had engaged in intentional
conduct against the plaintiffs. These additional allegations raised a
coverage issue under Georgia Gulf's general liability insurance
policies. In December 1998, as required by the terms of the insurance
policies, the insurers demanded arbitration to determine whether
coverage is required for the alleged intentional conduct in addition to
the coverage applicable to the other allegations of the case. The date
for the arbitration has not yet been established.
As a result of the arbitration relating to the insurance issue, as
permitted by federal statute, the insurers removed the cases to United
States District Court in December 1998. By order entered March 2, 1999,
the federal court denied the plaintiff's motion to remand the cases back
to state court and retained federal jurisdiction.
Settlements have been reached with a majority of the original workers,
including those claimants believed to be the most severely injured. The
majority of cases have been dismissed or motions to dismiss are pending
before the court. Additionally, settlements have been reached or are
being negotiated with other parties named as defendants whereby such
parties have made, or are being requested to make, contributions to the
recoveries made by the plaintiffs. Negotiations for the resolution of
the remaining claims are continuing. Georgia Gulf is asserting and
pursuing defenses to the claims.
GIO AUSTRALIA: Securities Suit Could Hit Professional Liability Cover
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A judgement against the former directors of GIO Australia Holdings Ltd,
in the class action brought on by shareholders, would have a major
impact on professional liability cover in Australia, a senior insurance
executive said.
Royal & SunAlliance's newly appointed national marketing manager Bob Lee
told AAP that such a ruling would force companies to re-assess the
adequacy of their professional liability cover for directors and
officers. "We're talking hundreds of millions potentially in the (GIO)
law suit," Mr Lee said. "It's a massive claim on any dimension."
The class action against GIO, nine former directors and consultants
Grant Samuel, aims to recoup losses on behalf nearly 70,000 shareholders
who watched the value of their stock fall after being told their company
was in good financial health, when in fact it was heading for a record
loss.
The former directors advised GIO shareholders not to sell their shares
to AMP Ltd which was offering %5.35 per share during a takeover bid last
year on the basis that AMP's bid undervalued GIO.
Eight months after AMP won 57.5 per cent control, GIO revealed a massive
$743 million net loss which plunged the shares to a four year low of
$2.40. Under the class action, shareholders are seeking more than $600
million; a victory, Mr Lee said, would "highlight the need for adequate
cover, and that will come at a cost." "Typically, the larger
corporations in Australia have coverage from $50 million up to $300
million...that's total cover for the directors," he said. "The premiums
are still fairly attractive in Australia at the moment... the rating is
still fairly cheap, because there hasn't been too many actions like the
GIO case." "If this case is successful, the current carriers will be
paying out substantial sums of money, no doubt, out of what is not a
substantial pool in Australia... to cater for multiple claims of this
magnitude."
Mr Lee's appointment comes just as Royal & SunAlliance is cranking up
its professional liability business here and overseas.
"There is a small portfolio that Royal and SunAllaince have written
historically within Australia from about 10 years." "There's never been
a major push on it, but what has happened recently is that globally, the
group has had a look at specialty opportunities around the world and
it's been determined that what we call ProFin professional and financial
risks is an area of business that we want to do a lot more in."
Mr Lee said that the company was aiming to "triple the size of the
current business within two years," and was putting together "a lot of
high level business planning templates" at a conference. "There are
still a lot of smaller privately owned companies that don't have any
cover at all," Mr Lee said. "Everybody's got the same fiduciary
responsibility to their employees, their suppliers and customers and so
on," he said. (AAP Newsfeed 11-2-1999)
GUN MANUFACTURER: Sued Nationwide, Davis Files Ch 11 & Proofs Of Claim
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What is the appropriate forum for solving the problem of criminal misuse
of handguns in this country? That probably doesn't sound like a
bankruptcy problem to you. But that question is at the heart of the
Chapter 11 of Davis Industries Inc. - and debtor's counsel is waging a
particularly creative offensive against states and municipalities by
filing proofs of claim on their behalf. It's an action that has caught
the attention of many state and local prosecutors and even warranted the
appearance of Karen Cordry, counsel to the National Association of
Attorneys General.
Debtor's counsel was recently handed a defeat when Riverside, Calif.
Bankruptcy Judge Meredith Jury (C.D. Cal.) ruled that the stay did not
apply to the municipalities. However, at that same hearing, she granted
an immediate stay pending appeal. The very next day, a state court, in a
separate case, issued a ruling favorable to gun manufacturers. So,
clearly, the battle has only just begun.
What's It All About?
This small Chino Calif.-based handgun manufacturer filed Chapter 11 May
27 in response to no less than 17 separate lawsuits in courts
nationwide.
Debtor's counsel Michael D. Warner of Simon, Warner & Doby in Fort
Worth, Texas says these lawsuits, which now number in excess of 20, have
two purposes. The first is "death by litigation." "If a small company
like Davis has to hire counsel in 20 different jurisdictions - forget
the administrative time [involved in defending oneself against such
suits] - just look at the economics," Warner said. "They could be
spending millions in defense costs. If you're a small company, you can't
afford it. What's being done to you is death by litigation. The more
litigation, the more discovery, the more onerous the multiple
jurisdiction litigation is, the more likely you'll fold your table and
go home. That's what the states are hoping will happen."
The second is "legislation by litigation." Warner quotes Hon. David M.
Schacter, a judge of the Los Angeles Superior Court, who ruled May 4 in
Whitfield v. Matasareanu et. al, EC 023-122 that: "The use of the
judicial system to target firearms and solve the problem of their
criminal misuse is inappropriate. Legitimate firearms have a value to
society for sport, leisure, and self-defense. Since a solution to the
problem of criminal misuse of firearms would broadly affect society, in
our democracy crafting such a solution would require public hearings and
consideration of public opinion. This is the purpose of our
legislature."
What's A Debtor To Do?
Since his retainer has been exhausted, Warner has, at his own and his
firm's expense, kicked this case into high gear by proactively filing
proofs of claim on behalf of approximately 300 creditors!
Those creditors include the U.S. Government, the 50 states and the
various commonwealths of the U.S., every county in the country with a
population of 500,000 or more and every city with a population of
250,000 or more. At the same time these entities were served the proofs
of claim, they were served an objection to the claim and a procedures
motion.
How is this possible? As Warner notes, the Code allows the filing of a
proof of claim on behalf of a creditor by the debtor. But such proofs
are usually filed on behalf of debtors who want to get a tax claim
discharged. However, the '84 amendments made it clear that the debtor
can file a proof of claim on behalf of any creditor, Warner says. And so
he did. In the biggest way possible. To just under 300 entities.
"My paralegal did a yeoman's job of sitting in front of the computer,"
he said. "You don't just send to the City of Fort Worth. You have to
send to the City Counsel of the City of Forth Worth and Governor's
office and the County Council or the City Council or the Parish Council.
We went through a massive process of creating a mailing list and served
them with a proof of claim filed on their behalf."
Still, how did they know what to claim? Not a problem, says Warner,
since all the entities are making the same complaints. In addition to
the claim, the package mailed to these entities contained an objection
to the claim, a procedures motion, and the bar date.
Because this is hardly your everyday case, Warner and his team suggested
that the court use a streamlined procedure to handle the claims. He and
his team picked out five complaints that made all (or more) of the
arguments. The allegations total 16 in number. (See pg. A5 for all 16
allegations.)
"We don't need 10 people making the same argument," he said. "We want
the judge to call these five entities the representative group. This
group will [make the argument for all the claimants]. It's the concept
of virtual representation. It's similar to the concept of a class action
but different in that in a class action you don't know who the parties
will be and you certify the class for that and other reasons. The Code
is very clear. It allows the judge to streamline the process."
Warner believes gun manufacturers are clearly a target. Of the 17
responses he had received from his mailing at the time we talked, Warner
said many were from state entities and eight or nine of them were
absolutely identical.
"It's as if some Attorney General in some state copied it and sent it to
every other state," he said. "That tells me you are organized from a
concerted effort standpoint. We hope the bankruptcy judge will make them
litigate in one forum. That way Davis has a fair opportunity to defend
itself against allegations that are common across the country."
If the court allows this, Warner said he may talk to other gun
manufacturers about joining the suit or at least helping fund the suit
since it has a direct impact on them.
The states are not pleased. Norris Rickey, a senior assistant county
attorney in the St. Petersburg/Clearwater, Fla. area said his boss, the
County Attorney, would be taking the issue to the county commission. "We
have been having discussions about possible regulation or ordinance
passage involving the issue of gun control," Rickey said. "We don't have
any active litigation going with these people, but Dade County (Miami)
does. Bridgeport, Conn. has a suit either going or completed against
them and I believe the Attorney General's office in the state of
Connecticut is being pretty proactive in responding to this notice of
creditors... We think [our] commission will be concerned they will be
blocked from legislation in the future."
Having just received the notice, Rickey said his office hadn't had a
chance to research the issues, but the U.S. Supreme Court's decision in
Seminole Tribe came immediately to mind.
"States enjoy sovereign immunity [thanks to] Seminole Tribe," Rickey
said. "That argument would certainly stand here because many of these
agencies, including my own, have made no claim. One of the criteria for
being able to say, 'You can't bring me into this action' is not having
filed a claim ourselves against the debtor.' That would be true here."
But Warner, who's had plenty of time to think about this, had this to
say:
"The Eleventh Amendment and sovereign immunity is only as to a state and
not as to a city or county except in very rare circumstances where they
may be a political division of the state. So Wayne County, Mich. or the
County of Cook or Miami/Dade are all municipal entities. They cannot
raise sovereign immunity. The 50 states and various territories are
raising sovereign immunity, but we're not sure it's applicable in this
case. We're not seeking monetary recovery. We're seeking a permanent
bar.
"And there are other ways around the Seminole Tribe decision. We're
proceeding under the theory of Ex Parte Young. The states have not named
us in lawsuits [although] New York is talking about it. If you go back
to a filed proof of claim and object to it, the party may withdraw the
claim, most likely with conditions imposed by the court and notice and a
hearing. We'll ask the court to impose a permanent restraint on their
suit at a later date. You can't have it both ways. You can't wait until
the case is over and sue me. We're suggesting they have to participate
in the case [if they want to sue]."
Warner was dealt a setback on Oct. 6 when Judge Jury ruled that the
automatic stay did not apply to three of the municipalities that sought
a lift stay. However, at that same hearing, the judge granted a stay
pending appeal. "By doing that, I think she is saying, 'I want to see if
I'm right. Take me up.' That's good and we will do that," Warner said.
As we said earlier, the case is getting some high level attention. The
NAAG's Cordry was present at that hearing, although she did not make an
appearance. "The ruling has no effect on the actions by the debtor
against the state because the states have not yet filed an action
against the debtor - all pending actions are by municipal entities other
than states," Warner continued. "We're having a partners meeting to
figure out our next moves. If they don't produce a claim by the bar
date, we can potentially reject the claim. By filing a claim, they have
waived their right to a jury trial."
While the bankruptcy court ruled against him, Warner is encouraged by an
Oct. 7 decision in which an Ohio state court dismissed a suit against
gun manufacturers brought by the City of Cincinnati. That came out one
day after the bankruptcy court's decision. "That [state court decision]
basically makes our case," Warner said. "One of our big arguments is
that these suits are assigned as punishment of the debtor and other
manufacturers."
In his case, Warner said the municipalities argued that a.) the state
court litigation is a police or regulatory power that is not stayed
under Section 362(b)(4) and b.) the judge must decide if the action is
pecuniary. Warner argued the opposite. He said, among other things, that
the court had to do a balancing test. The judge agreed, but Warner said
she found that the action "was more police and less pecuniary."
Warner thinks the judge is wrong for three reasons. If a police or
regulatory power were being violated, the municipality should be able to
say, "Here is the law that is being violated." But, Warner says, a.)
there is no law being violated here and b.) the courts are not designed
to create new law.
"The Northern California lawsuit says if the debtor had cared to make
its guns safer, it could have. That seems to me to be a wish list. It
doesn't say the law requires the gun to be safer than it is. The court
system is not designed to be a forum for the creation of laws. The court
system is designed to interpret and apply the laws and to punish the
violators.
"Do you take Sudafed if you get a cold? What if you took it and walked
by your arch enemy and dropped 12 in their Coke at a restaurant? They
could die. Does that mean the manufacturer of Sudafed is liable because
you used their product incorrectly? You can extend that to anything you
can use dangerously. Is Ford liable because you chose to run someone
over with the car? Should we stop making knives because you could stab
someone with it?
"The argument is that there is social utility to a car. But there is
also social utility to a gun. People use guns for hunting and protection
and host of other things. They're not saying the gun goes off when you
drop it on the floor. It's not a defective product. There's a big
difference between something being defective and the fact that you don't
like [the product]."
Finally, Warner believes that a municipality doesn't have to seek to
recover money from the estate in order for him to be able to prove that
pecuniary interest is at the heart of this case. "Chicago Mayor Richard
Daley issued a press release Nov. 12, 1998 saying the city had filed a
lawsuit against all gun manufacturers and was seeking 433 million in
damages from 38 retailers, distributors and manufacturers. He said,
''We're going to hit them where it hurts, in their bank accounts.' You
may say you're looking out for the health and safety of the public, but
we say the automatic stay should apply because what you're really trying
to do is put me out of business."
We'll let you know how the district court rules. Meanwhile, you can't
feel too sorry for Warner in his uphill battle. He appears to be having
a great time.
"This is one of those few cases in a bankruptcy attorney's lifetime that
allows you to be extremely creative," he said. "We're dealing in areas
that are way out there as far as the law. We're addressing issues of
sovereign immunity, which you don't see very often. We're addressing
laws that up until now have been considered to be constitutional. We're
addressing what we believe are fully disguised attempts to legislate
through litigation. If all goes well, the judge will say, 'I'm not going
to let this debtor be put to a slow death by a million cuts.'"
(BCD News and Comment 10-27-1999)
MICROSOFT: Appeals Case On Employee Benefits - Who Is Employee?
---------------------------------------------------------------
Business is going great, knock on wood, and you're thinking of hiring
some more people. But you're worried business might head south and
you'll get stuck with a bigger payroll. So maybe getting some temps
would be good, you think. Temporary worker. Contingent worker.
Independent contractor. Contract worker. Leased employee. Outsourced
employee.
What's the difference? You're hardly alone if you're confused with all
the new categories in today's alternative work force.
Software giant Microsoft has gone to the U.S. Supreme Court to resolve
the thorny legal issue of who's an employee and who's not.
Microsoft is appealing a court ruling that greatly expanded the number
of contract and temporary workers who can participate in a class-action
lawsuit against the Seattle company. An appeals court in May ruled that
many so-called contract workers at Microsoft were, in fact, regular
employees entitled to benefits and Microsoft's legendary stock program.
Microsoft could face up to 15,000 claims.
The mistake was treating temps, independents and full-time employees all
the same, said attorney Martha Thomas-Flynn, director of legal
compliance for Sunrise-based G.Neil, which develops human resources
products for companies nationwide.
"In the Microsoft case, it's a benefits issue. The court found that they
were really employees," said Thomas-Flynn. "Companies are now getting
smarter about the distinctions, though many are skittish about how to
make those distinctions.
"The first rule is that a temporary is not your employee; they are an
employee of the staffing company that you are paying." said
Thomas-Flynn. "Let the staffing company know what skills you're looking
for and what the specific project will be. Make the assignments clear
and project-based. A temp's tasks should differ from employees' tasks.
Avoid including temps in office parties. Do not have a temp in a
supervising role." Seeking flexibility with unemployment at a 29-year
low and companies scrambling to attract skilled workers, many technical
and professional workers are trading traditional full-time jobs for more
flexible work schedules as consultants or temps.
Temporary help companies are on pace to create 44,000 jobs this year,
which would be the largest annual gain since the Bureau of Labor
Statistics began tracking the category in 1982.
A third, or 34 percent, of all temporary workers said they prefer their
status over full-time employment last year, up from 26.6 percent in
1995, the Labor Department said.
Many took temporary work because they could not find a permanent job,
and labor unions often see temps as creating a two-tier work force.
Still, a whole cadre of American workers and employers relish the
flexibility.
Saving on benefits is one way companies that hire temporary workers cut
costs. They also don't have to pay to train employees or deal with
severance issues if they let go the temps go when the project is done or
business slows down.
Fort Lauderdale-based software maker Citrix Systems has found the use of
technical temps to be invaluable in certain projects, said Ward Young,
manager of recruiting.
While the fast-growing company hires up to 50 new employees every month,
there is still an occasional need for someone with a specific skill.
"Citrix works with a very limited number of technical temporary
workers," said Young -- perhaps five to seven people at any given time.
"The company does not use technical temporaries to cover for employees
on leave; rather, they are used for specific, project-based
opportunities." Citrix, for example, recently worked with a firm that
supplied a staff of product specialists while implementing new software.
The staffing industry is credited with reducing the national jobless
rate by providing temporary work and a bridge to permanent employment.
Staffing firms specialize in quickly matching individuals to needs in
the workplace, and 72 percent of temporary employees go on to permanent
jobs, said Timothy W. Brogan, public information manager with the
National Association of Temporary and Staffing Services.
From 1992 to 1995, temporary help employment grew at an annual rate of
17 percent, according to the industry trade group. Since 1995, growth
has slowed to a still-healthy gain of 9 percent. As the economic
expansion matured and the labor market tightened this year, temporary
help employment has flattened somewhat, but is still growing.
"Our industry is the forerunner of the economy," said Holly Lewis,
president of the Florida Staff Services Association and who runs Budget
Quality Staffing in Miami. "Companies use temporary help as they expand.
And the first to go during tighter times is temps." (Sun-Sentinel (Fort
Lauderdale, FL) 11-1-1999)
PONZI SCHEME: TX Receiver Of Forex Int'l Sue Lawyers Over Fraud
---------------------------------------------------------------
When Houston attorney Janet Mortenson was named permanent receiver for
Russell Erxleben's failed Austin Forex International one year ago she
became privy to the work product from the lawyers who had advised the
former University of Texas star kicker.
Mortenson's lawyers, from Austin's Bickerstaff, Heath, Smiley, Pollan,
Kever & McDaniel, allege she found notes and memos indicating that
Erxleben's lawyers aided him in defrauding investors in his currency
trading company.
Now Mortenson and investors who lost at least $ 33 million have joined
in a suit against two prominent law firms, four individual lawyers, an
accounting giant and a California currency trading company.
"We think we can prove what happened basically through the writings of
the lawyers themselves," says Bickerstaff partner Michael Shaunessy.
"[Mortenson] has the unique advantage of having certain privileged
information that investors wouldn't have on their own."
The suit, filed Oct. 13 in Travis County, names Locke Liddell & Sapp and
Sheinfeld, Maley & Kay, along with four lawyers who work or formerly
worked for those firms. They are Locke Liddell partner Curtis Ashmos of
Austin, former partners Daniel N. Matheson III and Jane Matheson, and
Sheinfeld, Maley shareholder Lee Polson.
Harriet Miers, co-managing partner of Locke Liddell & Sapp, says the
firm stands by its representation of Erxleben. "Locke Liddell has done
nothing improper and in our judgment never should have been named as a
defendant," says Miers. She declines to respond to specific allegations.
Miers says Austin's Minton, Burton, Foster & Collins and Houston's Gibbs
& Bruns are being considered to represent the firm and Ashmos.
Sheinfeld, Maley and Polson are being represented by Austin's Scott,
Douglass & McConnico. Partner Stephen McConnico says the law firm and
Polson did nothing wrong. "Polson had a factual and legal basis for
every representation he made," says McConnico. "The firm and Polson are
being sued simply because they represented Mr. Erxleben, who is now
judgment-proof."
Also named as defendants are PricewaterhouseCoopers and one of its
Austin accountants; San Francisco-based E-Forex Inc. and two of its
principals; and an Austin businessman.
"These persons and entities aided and assisted Erxleben and Austin Forex
in making various misrepresentations to potential and actual investors
regarding such material facts as the nature of the investment, the risk
associated with the investment, and the returns being realized by AFI
clients," the petition alleges.
The petition alleges the lawyers allowed AFI to sell unregistered
securities, signed off on brochures and promotional materials that
contained misrepresentations and knew about the company's growing losses
for months before state securities regulators began investigating.
Shaunessy and Bickerstaff partner J. Stephen Ravel filed the purported
class action suit with R. James George Jr., a partner in Austin's George
& Donaldson, who represents the investors. They attached 45 exhibits to
the petition, including a number of handwritten notes and attorney
memos.
Ravel claims the lawyers had an ethical obligation to either get
Erxleben to change his alleged business practices or notify investors
they were being misled.
The suit seeks $ 33 million in lost investments, prejudgment and
postjudgment interest, punitive damages and the return of fees paid by
AFI to the attorneys.
The suit is similar to ones filed during the savings and loan crisis of
the late 1980s. Regulators who took over the failed thrifts used the
work product of attorneys who had advised the S&Ls to sue the lawyers
and accountants.
The case also could prove a test of the Texas Supreme Court's April
ruling that a lawyer can be sued by a nonclient for negligent
misrepresentation. In McCamish, Martin, Brown & Loeffler v. Appling
Interests, the defendant law firm represented a savings and loan that
was involved in a lender liability suit with a real estate developer.
However, the court made it clear that a lawyer will be liable only when
the lawyer invites the nonclient to rely upon the lawyer's opinions and
representations.
Erxleben Not Named
Regulators allege Erxleben was operating a Ponzi scheme using money from
new investors to pay older investors. He is being investigated for
possible criminal charges. Austin's Stephen Orr, Erxleben's lawyer, did
not return a call seeking comment.
Missing from the list of defendants is Erxleben, an All-American kicker
for the University of Texas in the late 1970s. Eleven investors who sued
Erxleben and won a $ 4.7 million judgment against him last May said at
the time they had little hope of collecting any money from the Lakeway
resident.
Erxleben told the Austin American-Statesman last August that he never
operated a Ponzi scheme. But he did admit that he didn't properly
disclose trading losses to customers. According to the Statesman,
Erxleben blamed his company's troubles on poor timing and regulators who
let clients know they were investigating his company. He said that two
weeks after Austin Forex closed, Japanese currency markets rebounded.
Shaunessy says the Mathesons are represented by John J. "Mike" McKetta,
a partner in Austin's Graves, Dougherty, Hearon & Moody. McKetta did not
return a phone call.
Austin's Dan Bishop, who represents E-Forex and its principals, declines
to comment on the suit, which alleges that the online trading firm made
misrepresentations that caused Erxleben to be overconfident and
contributed to AFI's downfall.
Jerry Lewis, a PricewaterhouseCoopers accountant named in the suit, says
he has no comment.
The Losses Mount
Erxleben founded AFI in September 1996. Two years later AFI shut its
Congress Avenue office, and four days later Texas securities regulators
seized its accounts and put the company into receivership.
Mortenson has recovered about $ 300,000 in cash, four cars and a $
75,000 skybox for UT football games.
According to the petition, Erxleben traded on his football reputation to
solicit investors in his foreign currency trading company. He allegedly
represented that each investor's account was maintained separately and
that trading profits were allocated appropriately.
But Shaunessy claims the funds were placed into a single account,
commingled with the funds of other investors and traded together as one
large pool of money. The suit alleges that Erxleben sometimes
misappropriated funds for his personal use and would allocate profits to
individual investor accounts at his own discretion, often favoring some
investors over others.
The weekly statements rarely reflected any of the mounting losses, and
investors were encouraged and sometimes paid commissions to bring in new
investors, Shaunessy alleges.
In April 1997, AFI hired Locke Purnell Rain Harrell, today know as Locke
Liddell & Sapp. That month, the petition alleges, Dan Matheson wrote
after meeting Erxleben: "Funds not segregated but pooled w/ the funds of
others . . . & allocated on basis deemed to be fair and reasonable by
AFI, but solely at AFI's discretion."
That, the petition alleges, shows the lawyers knew or should have known
that AFI was an issuer of securities. An October 1997 letter from Ashmos
to Erxleben confirmed that registration was not necessary. The petition
claims that the letter was used to assure investors that AFI was not
selling securities.
That same month, according to the petition, Jane Matheson learned of
AFI's substantial losses as she was working on a life insurance trust
for Erxleben.
"Jane Matheson was told that AFI had 100 investors who had invested $ 5
million with the company. She was told that of this amount $ 1 million
was in negative positions," the suit alleges, referring to a memo in the
exhibits.
Despite this knowledge, Locke Purnell lawyers signed off on a brochure
that touted annual returns of 100 percent, the petition alleges.
Investments in AFI grew after a PricewaterhouseCoopers accountant
concluded in a November 1997 memo that investors could place their IRA
funds with AFI, the petition claims.
Sheinfeld, Maley & Kay and securities specialist Polson were hired in
the late fall of 1997 after the Texas State Securities Board became
aware of AFI's operations. The suit alleges Polson tried to "stave off
and frustrate inquiries from the State Securities Board."
"Polson's first set of notes reflects that he was told that while AFI
was supposed to have $ 16 million under management, its account balance
at E-Forex was $ 9,900,000. Thus, Polson knew AFI had lost more than $ 6
million of investor funds," the suit alleges.
An exhibit attached to the petition purports to be a note taken by an
unnamed Locke Purnell lawyer during a discussion in February 1998. The
note states, "Omnibus account - shall I say what it is? 'Tell the truth'
'pooling'?"
In March 1998, Polson and Dan Matheson knew the losses were getting
worse, "that AFI had sustained actual losses of approximately $ 7
million and had open positions constituting unrealized losses of between
$ 5 million and $ 7 million," the suit states. Throughout this time, AFI
was still sending its false and misleading brochures and taking in about
$ 1 million a week in new investor funds, the petition alleges.
The suit alleges that although Polson had said in a meeting with Dan
Matheson that AFI was selling securities, he continued to sign letters
to regulatory authorities stating that AFI was not selling securities.
The stonewalling meant that the securities board never learned of AFI's
huge trading losses until it received E-Forex's trading records in late
August 1998, the petition alleges.
The suit alleges that in March 1998, Dan Matheson helped AFI obtain an $
8 million loan from an offshore bank. The suit claims that in June 1998,
the lawyers were told that AFI's actual losses had mounted to $ 18
million.
"With this realization, some of the lawyers suddenly voiced the
conclusion that was obvious all along: AFI was operating a fraudulent
Ponzi or pyramid scheme, selling unregistered securities, and lying to
its own clients," the petition alleges. "Four days later, on June 22,
1998, the lawyers first advised AFI that it must stop taking in new
money and that it must report trading." (Texas Lawyer 10-18-1999)
S. CA. EDISON: Debtor Sues - Use Of Trans Union's Name Violates FDCPA
---------------------------------------------------------------------
Frank v. Southern California Edison Co., et al., No. 99-02182 ABC AIJx
(C.D. Calif. filed 5/7/99).
Laura Frank, a resident of Colorado, filed a class action in the U.S.
District Court for the Central District of California against Southern
California Edison, a corporation based in Rosemead, Calif., and Trans
Union Corp., a corporation based in Chicago. The complaint alleges that
the defendants violated Section 1692 of the Fair Debt Collection
Practices Act and Section 17200 of the California Business and
Professions Code.
In the complaint, a copy of which was recently obtained by Consumer
Financial Services Law Report, Frank specifically alleges that Edison
was collecting its own debts under the name Trans Union for the purpose
of using Trans Union's "national reputation as a credit bureau to scare
consumers into paying Edison's alleged accounts." She claims that
although Trans Union is a debt collector, Edison hired Trans Union
merely as a "letter writing" service to its debtors because Edison did
not give Trans Union authority to handle its accounts or take any
collection action. This relationship, Frank charges, made Edison a debt
collector under the FDCPA's definition that "a debt collector includes
any creditor who in the process of collecting his own debts, uses any
name other than his own which would indicate that a third party is
collecting or attempting to collect such debts."
Frank received a letter purportedly from Trans Union, which read: "This
account has been assigned to our agency and we have been authorized to
pursue collection. We are committed to make whatever efforts are
necessary to effect collection of this claim." The letter, which was
enclosed in a Trans Union envelope and written on Trans Union
letterhead, directed that all payments be sent to Edison and listed only
Edison's address and telephone numbers.
By omitting Trans Union's address, Frank claims consumers were prevented
from exercising their right to validate a debt as provided by the FDCPA.
Frank further contends that recipients of the letter could reasonably
believe from the letterhead and the authorization language that the
notice was sent from a person other than the creditor.
Additionally, Frank argues that Trans Union and Edison engaged in
unlawful business practices in violation of Section 17200 of the
California Business and Professions Code by misrepresenting the extent
of Trans Union's active participation in the collection of Edison's
accounts. Frank, who filed the claims as a private attorney general to
enforce the Code, claims that Section 17200 is applicable to the case
because the underlying consumer debts were incurred in California and
Edison is headquartered in California.
The complaint estimates the size of the class to be between 300 and 500
consumers who owed debts to Edison and received the allegedly misleading
form letter from Trans Union. Frank requests that the District Court
grant her and the class statutory damages, attorney's fees and costs and
injunctive relief to restrain the defendants from sending collection
letters to California consumers and from misrepresenting Trans Union's
involvement in the collection of Edison's accounts.
Stephen Gardner of Dallas, Aurora Dawn Harris of Orange, Calif., and
Gary E. Merenstein of Boulder, Colo., represent the plaintiff. David R.
Garcia of O'Melveny & Myers in Los Angeles and Catherine Burkhardt of
Rudnick & Wolfe in Chicago represent the defendants. (Consumer Financial
Services Law Report 9-7-1999)
SMITHKLINE BEECHAM: Case On Re-Used Needles Triggers New Law In CA
------------------------------------------------------------------
A health-care worker who reused needles at blood-drawing stations has
triggered a new California law requiring the certification of
phlebotomists.
The case of Elaine Giorgi, who was observed by a co-worker reusing
needles after washing them in a dilute solution of hydrogen peroxide and
water, cast doubt about the quality of training currently being given to
blood technicians.
Nearly 12,000 people in the San Francisco Bay area had to be notified
earlier this year to get HIV and hepatitis tests because of the
possibility that one of those needles might have been used earlier on
someone with an infectious disease.
The legislation, sponsored by Assemblywoman Carole Migden, D-San
Francisco, and signed by Gov. Gray Davis on Oct. 7, upgrades state
training standards that have been in place for 25 years, before the HIV
epidemic surfaced.
A.B. 1557 imposes standards similar to those recommended by the American
Society of Phlebotomy Technicians, an industry group. The bill provides
that a "certified phlebotomy technician" undergo 40 hours of classroom
work and 40 hours of hands-on practice, and complete 50 successful blood
draws.
The legislation contains a "grandfather clause" for technicians already
licensed and at work. They have three years to obtain their
certification. Unlicensed individuals entering the field must be
certified by Jan. 1, 2001.
Giorgi said she did not know how many times she reused needles in the
five years that SmithKline Beecham Clinical Laboratories employed her to
draw blood for diagnostic purposes at 25 different sites in the Bay
area. The 52-year-old technician told investigators that she followed
the forbidden procedure only occasionally, with patients whose veins
were difficult to penetrate.
SmithKline was fined 102,000 by the state health director, who
apologized because existing law prevented her from imposing an even
stiffer penalty. The company said the fine was excessive, because it
removed Giorgi once it learned of the situation and notified state
health officials immediately.
The pharmaceutical company faces individual and class-action suits,
including one by a Santa Clara County woman who claims that she became
infected with hepatitis C after having her blood drawn by Giorgi. (AIDS
Policy and Law 10-29-1999 State legislation; Vol. 14, No. 20)
THOMSON CORP: Freelance Writers Receive Funding And Proceed With Suit
---------------------------------------------------------------------
A $100-million class action lawsuit against the Thomson Corp., Thomson
Canada Ltd. and Information Access Co. has received funding from the Law
Foundation of Ontario's Class Proceedings Fund.
Plaintiff Heather Robertson said the funding of disbursements and
adverse costs awards clears the way for the class action to proceed on
behalf of freelance writers and others who own the copyright to works
originally published in print media but which were later placed in
electronic databases without permission.
The suit was certified as a class action after a contested hearing
before Superior Court Justice Robert Sharpe. (The Lawyers Weekly
11-5-1999)
TOBACCO LITIGATION: Fla. Jury To Tag On Price; Lawyers Aim To Limit It
----------------------------------------------------------------------
Mary Farnan started smoking when she was 11 years old. The nurse and
mother of three smoked for 30 years before doctors found the lung cancer
that has since spread to her brain.
Frank Amodeo started smoking when he was 14 and continued for about 33
years before he was diagnosed with throat cancer. Because of his
illness, Amodeo hasn't been able to eat or drink anything for the past
12 years. He survives on nourishment fed through a hole in his stomach.
Theirs are the faces representing the half-million Florida cigarette
smokers who want the jury here in Miami-Dade Circuit Court to find Big
Tobacco responsible for their illnesses, said Stanley Rosenblatt, a
lawyer representing the smokers. In a courtroom loaded with lawyers and
ailing smokers on Nov 1, Rosenblatt began the second phase of the
landmark trial, hoping to convince the jury that the tobacco companies
should pay billions of dollars in damages to compensate the smokers for
their illnesses.
This is the first time in the nation that a statewide class action
lawsuit against the tobacco industry has gone before a jury.
And it is no secret how this jury feels about the tobacco industry.
In July, at the end of the first, year-long phase of this trial, the
same jury decided that cigarettes are a "defective product'' that causes
cancer and other diseases. The tobacco industry had engaged in "extreme
and outrageous conduct'' in selling and marketing their product while
concealing its health hazards, the jury found. The seven defendants
include the five biggest tobacco companies and two industry groups.
"Ladies and gentlemen, Mary Farnan and Frank Amodeo are the specific
human cases as to what cigarettes do to real people," Rosenblatt said.
"In phase one, you found cigarettes were addictive. Proof positive are
Mary Farnan and Frank Amodeo."
Farnan, now 44, began smoking in 1966, long before warning labels were
required on cigarettes, Rosenblatt said. "She'd smoke anything with
nicotine in it," he said. "Sometimes she would buy a brand because of a
coupon for a free pack. By the time she was 15 or 16, she was a
pack-a-day smoker." Farnan, a nurse, is a life-long resident of Inglis,
a tiny northern Florida town about 100 miles from Gainesville. She
worked in a hospital for more than a decade. She realized smoking
couldn't be good for her, but she saw doctors and other nurses smoking,
Rosenblatt said.
She tried to quit many times, but nothing worked, Rosenblatt said. She
could never go more than one day without smoking, he said. "So then her
solution became the non-solution," Rosenblatt said.
Like many smokers, she switched to lower tar cigarettes, thinking she
was helping herself, he said. But soon she was smoking up to 3 packs a
day, he said.
In March 1996, doctors found a tumor in her left lung. Part of her lung
was removed in June 1996. But a year later, doctors found a tumor in her
right lung. She had a section of that lung removed in May 1997.
"Everyone was hoping for the best. But then Mrs. Farnan began to
experience a very dangerous symptom. She had persistent headaches,"
Rosenblatt said. That is when the doctors found the cancer had spread to
her brain, he said. "Farnan was undergoing radiation and chemotherapy
and still she was smoking," he said. "She knew rationally and
intellectually it was crazy, but that's what addiction is."
Amodeo, who began smoking in 1955, was only able to quit smoking once,
for about a year, Rosenblatt said. Now an Orlando resident, Amodeo grew
up in Detroit. An aspiring singer, he admired Frank Sinatra, Sammy Davis
and Dean Martin -- all heavy smokers.
"When (Amodeo and Farnan) were growing up smoking was everything,"
Rosenblatt said. "They heard over and over again the blandishments of
the tobacco industry science has not proven that cigarette smoking
causes any diseases whatsoever," Rosenblatt said. "Frank Amodeo didn't
believe, in this country, that a big powerful corporation could make
these statements if it wasn't true."
In late 1986, Amodeo was having difficulty swallowing. His voice was
hoarse. A doctor told him he had laryngitis, Rosenblatt said. On June
11, 1987, Amodeo began spitting up blood. He was hospitalized, and
doctors found the mass in his throat. On Nov. 12, 1987, his 48th
birthday, Amodeo's son cajoled him into trying a couple bites of
birthday cake, even though he really didn't feel like eating it. Then he
spit it up. "That was the last time he attempted to eat any actual
food," Rosenblatt said.
"The tobacco lawyers will try to tell you their cancer was not caused by
cigarette smoking, it was caused by something else," he told the jury.
"They'll present a series of maybes: Maybe it was this and maybe it was
that." "What caused Mary Farnan's cancer?" he asked the jury. " Day
after day, week after week, month after month, puff, puff,
puffcigarettes, those caused her lung damage."
Tobacco company lawyers, who have said they fear an industry-crippling
verdict of $ 300 billion, were scheduled to make their opening
statements Nov 2. (Sun-Sentinel (Fort Lauderdale, FL) 11-2-1999)
Information from AP Online says that attorneys trying to save the
tobacco industry from a potentially crippling damage verdict turned to a
familiar line of defense: that smokers knew the dangers and could have
quit, and that smoking may not have caused their cancer. Attorney Dan
Reid told jurors that Mary Farnan, whose case history was presented as
representative of a class of smokers, ''had a great deal of information
about the risks of smoking ... but chose to continue to smoke.'' Reid
told the jury that the specific cancers of the two representatives Ms.
Farnan and Frank Amodeo may have been caused by something other than
tobacco smoke.
Reid, representing the R.J. Reynolds Tobacco Co., was the first of the
defense lawyers to make an opening statement to the six-member jury that
will decide how much the industry should pay in damages for its
products. Lawyers from Philip Morris Inc., Lorillard Tobacco Co., Brown
& Williamson Tobacco Corp. and Liggett Group Inc. also will tell the
jury why their clients should not be forced to pay damages to ill
Florida smokers.
The jurors must now put a price tag on actual damages for Ms. Farnan and
Amodeo. If the jurors award the pair damages, they will then consider
whether to award punitive damages to all ill smokers in Florida.
Predictions of potential damages have been as high as $300 billion.
On Nov 1, Stanley Rosenblatt, attorney for the smokers, said the tobacco
companies lied and misled the public for years by glamorizing smoking
and playing down its dangers. A lawyer tried to persuade the Florida
Supreme Court to reinstate a $750,000 judgment for a former smoker
against Brown & Williamson. When a jury handed down the award for Grady
Carter in August 1996, it was just the second time in 40 years of
anti-smoking litigation that a cigarette-maker was ordered to pay
damages. But the 1st District Court of Appeal reversed the award almost
two years later. The appeals court ruled that Carter, a retired air
traffic controller, had waited too long to go to court. (AP Online
11-2-1999)
VALDEZ: 10th Cir Oks New Mexico Ct Ruling Re Children With Disabilities
----------------------------------------------------------------------
A federal District Court in New Mexico properly determined that the 11th
Amendment did not bar a suit filed on behalf of children with
disabilities in state custody, the 10th U.S. Circuit Court of Appeals
ruled. It was also proper for the district court to deny class
certification and abstain from hearing individual claims. J.B. v.
Valdez, 16 NDLR 81 (10th Cir. 1999) (No. 96-2278).
Background
Children with mental and developmental disabilities in the custody of
the state filed suit through their next friends alleging violations
under the Rehabilitation Act, ADA, Medicaid Act, the Alcohol, Drug Abuse
and Mental Health Reorganization Act, the Individuals with Disabilities
Education Act and the 14th Amendment. Specifically, the plaintiffs
alleged that the state failed to provide them with services, benefits
and protections guaranteed under federal statutory law and
constitutional law. The District Court denied the plaintiffs' motion for
class certification. Upon reconsideration, the District Court found
abstention appropriate. The plaintiffs appealed from the denial of class
certification and from the decision to abstain. For the first time on
appeal, the defendants raised the issue of 11th Amendment immunity.
No Special Sovereignty Interests
The court determined that the defendants could raise the 11th Amendment
immunity defense for the first time on appeal because of the
jurisdictional nature of the defense. When a suit is filed against a
state official in federal court and the plaintiff is seeking only
prospective injunctive relief the 11th Amendment will generally not
serve as a bar to the litigation. However, 11th Amendment immunity may
be available where the relief sought is as much an intrusion on state
sovereignty as an award of monetary damages. Upon review of the
plaintiffs' claims, the court found no special sovereignty interests at
stake. Further, the court concluded that a challenge to the
administration of a welfare program was not equivalent to a suit for
monetary damages. Therefore, the 11th Amendment did not bar the court's
review of the case.
In addition, it was not an abuse of discretion for the district court to
deny class certification. The district court properly found that the
proposed class failed to meet the requirements for commonality since
there was no question of fact or law common to the members of the
proposed class. The court declined to find, as a matter of law, that the
allegation of a system-wide violation of various laws was sufficient to
satisfy the commonality requirement. Moreover, the court was unable to
find a common violation as to any of the statutory or constitutional
claims raised in the complaint. Having determined that the plaintiffs
failed to satisfy the commonality requirement, the court did not review
the District Court's finding that the plaintiffs failed to meet the
typicality requirement as well.
Finally, the court found that the District Court did not err in granting
the state's motion for abstention as to three viable remaining
individual claims. Since the plaintiffs failed to prove that they could
not bring the action during periodic review hearings - proceedings the
court determined were judicial in nature - the court affirmed the
District Court's decision to abstain from hearing the individual claims.
Therefore, the judgment of the District Court was affirmed.
Documents by Fax #401990586. Pages: 13. Price: 15 subscribers, 30
nonsubscribers. (Disability Compliance Bulletin 10-25-1999)
WESTINGHOUSE ELEC: W Virginia Recognizes Medical Monitoring For Injury
----------------------------------------------------------------------
West Virginia has joined the small but gradually increasing number of
jurisdictions that recognize medical monitoring as a cause of action. In
Bower v. Westinghouse Elec. Corp., n1 the Supreme Court of Appeals of
West Virginia held that a plaintiff who does not allege a present
physical injury may nevertheless recover future medical-monitoring costs
where those costs are proximately caused by a defendant's tortious
conduct. Bower's significance, however, goes beyond the addition of
another jurisdiction to the still relatively short list. Bower expands
the availability of relief by relaxing the proof necessary to state a
medical-monitoring claim and by allowing for lump-sum awards.
Although the reasonable cost of future medical expenses has
traditionally been a recoverable element of damages when an underlying
physical injury has been proven, n2 mere exposure to a hazardous
substance, without more, has generally been adjudged insufficient to
support recovery. n3 The requirement of physical injury has acted as a
dividing line between those who may recover and those who may not.
Courts that have abrogated that requirement have been motivated by the
perceived injustice it inflicts in particular fact situations. In Ayers
v. Jackson Township, n4 for example, the defendant had operated a
landfill in a "palpably unreasonable" manner, failed to monitor the
waste that was dumped there, and ignored the relevant permit conditions.
When this recklessness resulted in the contamination of plaintiffs'
drinking water with carcinogens, the New Jersey Supreme Court relaxed
traditional requirements so that the defendant bore the cost of future
testing. One court has posed a hypothetical in which a pedestrian is run
down by a motorbike that runs a red light. The pedestrian lands on his
head and thereafter receives a battery of tests recommended by doctors
to determine whether there are internal head injuries. Even if the tests
are negative, the court reasonably suggested, the motorbike driver, not
the pedestrian, should pay for them. n5 The physical-injury requirement
sometimes leaves deserving plaintiffs without a remedy. Once the
dividing line is erased, or at least becomes permeable in certain
situations, courts must articulate new standards that allow the truly
deserving to recover without inviting a torrent of litigation. Advances
in science and industrial hygiene have resulted in an explosion of
information about potentially harmful exposures, inhalations, ingestions
and absorptions. According to the United States Environmental Protection
Agency, billions of pounds of hazardous chemicals are released into the
air each year. n6 How are the courts to define which asymptomatic but
exposed individuals may recover medical monitoring costs and which may
not?
The Bower decision does not clearly answer this question. It provides
virtually no factual background regarding the plaintiffs. It employs
imprecise and sometimes contradictory concepts. It appears to expand the
universe of potential claimants and, at the same time, to invite a form
of relief that encourages claims. Bower goes several steps beyond
previous medical-monitoring cases.
The Bower Decision
The plaintiffs in Bower allege that they have been exposed to toxic
substances as a result of a cullet pile maintained by the defendants for
disposal of debris from the manufacturing of light bulbs. They allege no
injuries or symptoms resulting from the exposure. Tests performed in
1994 identified the presence of 30 potentially hazardous substances. n7
Suit was filed in state court, but the defendants removed it to the
Northern District of West Virginia. The causes of action asserted are:
(1) negligent maintenance and operation of the refuse pile; (2)
nuisance; (3) trespass; (4) negligent infliction of emotional distress;
and (5) intentional disregard for the health and safety of plaintiffs.
The complaint seeks medical-monitoring costs as damages. The opinion
provides no description of how or to what extent plaintiffs were
allegedly exposed to the hazardous substances.
When the defendants moved to dismiss the claim for medical monitoring,
the plaintiffs moved to certify to the West Virginia Supreme Court the
question of whether medical-monitoring damages are recognized by West
Virginia law. The district court granted the motion, and the supreme
court agreed to decide the issue. The question posed by the district
court was:
In a case for negligent infliction of emotional distress absent physical
injury, may a party assert a claim for expenses related to future
medical monitoring necessitated solely by fear of contracting a disease
from exposure to toxic chemicals?
The supreme court, relying on its statutory authority to reformulate
certified questions, posed the issue as follows:
Whether, under West Virginia law, a plaintiff who does not allege a
present physical injury can assert a claim for the recovery of future
medical monitoring costs where such damages are the proximate result of
the defendant's tortious conduct?
Answering the reformulated question in the affirmative, the supreme
court rejected "the contention that a claim for future medical expenses
must rely upon the existence of present physical harm." n8 Instead,
quoting extensively from Potter v. Firestone Tire and Rubber Co., n9 the
court identified four policy considerations favoring recognition of
medical monitoring claims: (1) the public health interest in fostering
access to medical testing for those exposed to toxic chemicals; (2) the
desire to deter irresponsible disposal of toxic chemicals by defendants;
(3) the value of early detection to treatment and prevention of disease;
and (4) societal notions of fairness that are offended by imposing the
cost of monitoring upon an individual who has been wrongfully exposed to
toxic substances. West Virginia law allows recovery for medical
monitoring "where it can be proven that such expenses are necessary and
reasonably certain to be incurred as a proximate result of a defendant's
tortious conduct," Bower states. n10
Bower identifies six elements to a claim for medical monitoring. The
plaintiff must prove that:
* he or she has been significantly exposed;
* to a proven hazardous substance;
* through the tortious conduct of the defendant;
* as a proximate result of the exposure, the plaintiff has suffered
an increased risk of contracting a serious latent disease
relative to the general population;
* the increased risk of disease makes it reasonably necessary for
the plaintiff to undergo periodic diagnostic medical examinations
different from what would be prescribed in the absence of
exposure; and
* monitoring procedures exist that make the early detection of a
disease possible. n11
Bower's criteria for maintaining a claim are more liberal than those
enumerated in previous decisions. First, although Bower refers to a
"proven hazardous substance," it states that plaintiff must produce
evidence demonstrating a "probable link" between exposure and human
disease. This language suggests that exposure to a probably hazardous
substance suffices. Second, Bower requires "tortious conduct," not
negligence, by the defendant and cites strict liability, trespass, and
intentional conduct as examples of other types of conduct that can form
the predicate for a medical-monitoring claim. Third, in describing the
diagnostic testing that is "reasonably necessary," Bower states that
"financial cost" and "frequency of testing" are factors not to be
considered but that a plaintiff's subjective desire for information
about his or her health can form the basis for fulfillment of this
criterion. Finally, the Bower court rejected the defendants' argument
that any recovery should be limited to a court-administered fund, rather
than lump-sum payments, leaving it to the trial courts to fashion the
form of remedy.
Exposure To A Proven Hazardous Substance
Exposure to a hazardous substance is, of course, the crux of any
medical-monitoring claim. Several courts, including Bower, have used the
phrase "proven hazardous substance" in describing the plaintiff's
burden. n12 Other courts have referred to "toxic" substances. n13 The
Utah Supreme Court explicitly stated that "the substance must be toxic
to humans rather than to other forms of life." n14 In Ayers, there was
evidence that four of the chemicals that had infiltrated the plaintiffs'
drinking water were known carcinogens. The decisions are consistent in
requiring exposure to a "proven" or "known" hazardous substance.
Bower uses fairly standard language to describe the necessary exposure:
the plaintiff must have been "significantly exposed to a proven
hazardous substance." In discussing this requirement, however, Bower
states that the plaintiff need only demonstrate a "probable link"
between the substance in question and human disease. This language
appears to be a relaxation of the traditional requirement that a
toxic-tort plaintiff prove general causation, that is, that the
substance in question causes the disease afflicting the plaintiff. The
evidence on that issue may, of course, be disputed, but it is still
required that general causation be established by a preponderance of the
evidence. Bower, without explanation, reduces the necessary proof to "a
probable link" and thereby suggests that testimony from a toxicologist
or other expert that Substance A probably causes Disease B in humans is
sufficient. This formulation of the "proven hazardous substance" element
is unique and greatly expands the number of substances that are
potential bases for medical-monitoring claims.
By apparently reducing the plaintiff's traditional causation burden and
by expanding the number of substances that can form the basis for
medical-monitoring claims, Bower expands the boundaries for such claims
without a reasonably clear statement of where those boundaries have been
re-drawn.
The Nature Of The Defendant's Conduct
Recent decisions recognizing medical-monitoring claims have required
proof that the exposure was caused by the defendant's negligence. n15
The Bower holding expands the conduct that may lead to liability by
requiring only that the exposure result from "the tortious conduct of
the defendant." "Fault is established through application of existing
theories of tort liability." n16 Although the Bower plaintiffs did not
plead strict liability in their complaint, Bower appears to allow for
strict liability as the underlying tortious activity. This is true even
though strict liability is generally viewed as a no-fault concept.
By expanding the types of conduct that may support a medical-monitoring
claim, Bower expands the pool of potential claimants and the
circumstances in which liability may attach. Many toxic exposure
situations do not lend themselves to strict liability claims. Landfill
cases, for example, do not involve exposure caused by a defect in a
product but by allegedly poor practices in the supervision and
maintenance of the landfill. However, one can envision exposures that
are product-generated -- in a workplace, for example -- and Bower allows
for the possibility of medical-monitoring claims based on strict
liability.
The Increased Risk
To properly balance the desire to provide appropriate medical follow-up
to exposed but asymptomatic individuals against the risk of inviting a
torrent of unmeritorious litigation, courts must carefully describe the
type of increased risk that is necessary to sustain a medical-monitoring
claim. Bower, like several other decisions, fails to clearly articulate
this key element. Bower states the element as follows: "as a proximate
result of the exposure, the plaintiff has suffered an increased risk of
contracting a serious latent disease relative to the general
population." n17 This formulation of the "increased risk" element is
problematic in several ways.
A mere "increased risk" may be insignificant. If, as the result of an
exposure, an individual's risk of contracting a latent disease increases
from one in six million to one in three million, the actual risk is
still so remote that it should not concern the tort system. This is true
even though the increase in risk could be described as significant.
After all, the risk doubled. Moreover, allowing for the possibility of
recovery where the increase in risk is insignificant, say, from one in a
million to one in 990,000, strains abilities of courts, lawyers, expert
witnesses and juries. Any number of exposures and factors may slightly
increase risk, and to ask the legal system to accommodate such claims is
asking too much. Use of the "general population" as the measuring stick
is not appropriate. To be fair, one should be comparing the risk that
the pre-exposure plaintiff had to the one the post-exposure plaintiff
has. That comparison would allow for consideration of all the risk
factors that are independent of the exposure and, therefore, not
attributable to the defendant's conduct. If a two-pack-per-day,
life-long New York City resident suffers some exposure that increases
his risk of lung cancer, it is not fair to the defendant to compare the
post-exposure risk to that of the "general population." Bower's
articulation of the risk element is imprecise and not logically related
to the risk increase caused by the exposure.
"Reasonably Necessary" Medical Procedures
While describing the diagnostic testing for which a plaintiff would
recover as "something that a qualified physician would prescribe based
upon the demonstrated exposure," Bower injects confusion, and
considerable subjectivity, into the analysis with the following
statement:
While there obviously must be some reasonable medical basis for
undergoing diagnostic monitoring, factors such as financial cost and the
frequency of testing should not be given significant weight. Moreover,
the requirement that diagnostic testing be medically advisable does not
necessarily preclude the situation where a determination is based, at
least in part, upon the subjective desires of a plaintiff for
information concerning the state of his or her health. n18
The statement suggests that the cost and frequency of testing should not
be factored into the "reasonably necessary" equation. The cost of a
procedure, however, is invariably a relevant factor in medical
decision-making, particularly where one is considering procedures that
will be performed periodically for years. A medically unjustified
monitoring regimen does not become medically justified because a
defendant is paying for it. Moreover, adding the subjective desires of a
plaintiff for information garbles the equation. A particular procedure
may not be medically necessary and may provide little useful
information, but a plaintiff desiring to know more about his or her
situation may want the test performed anyway. Bower suggests that in
this situation a plaintiff's subjective desires may prevail over
informed-decision making.
The Possibility Of Lump-Sum Damage Awards
The courts that have recognized medical-monitoring claims have generally
specified that the relief should take the form of a court-supervised
fund that reimburses actual costs, not lump-sum damage awards for the
anticipated costs. The Utah Supreme Court, for example, stated that: any
award must provide for the defendant's payment of only the costs of
medical monitoring services that will actually be provided to the
plaintiff. The trial court should not order payment to the plaintiff in
a lump sum or otherwise, of damages representing the costs of future
monitoring. n19
Because the recognition of a cause of action is largely justified by
notions of fairness -- that the exposed but asymptomatic individual
should not have to assume the cost of reasonable medical expenses
necessitated by a defendant's conduct -- the preference for
reimbursement of actual costs incurred over lump-sum damages makes
sense. The cause of action is designed to insulate the innocent
plaintiff from these additional costs, not provide him or her with a
check for the cost of future expenses. There is a real possibility that
the plaintiff who receives a lump-sum award will not follow through with
the anticipated testing that formed the basis for the award, especially
where the actual risk is still relatively small.
The United States Supreme Court expressed disfavor for lump-sum damage
awards in Metro-North Commuter Railroad Co. v. Buckley. n20 Michael
Buckley, a pipefitter for Metro-North, was heavily exposed to asbestos
in the mid-1980's while removing asbestos insulation in tunnels under
Grand Central Station in New York City. Though asymptomatic, Buckley
sued Metro-North under the Federal Employers Liability Act (FELA) for
the cost of medical monitoring. The Southern District of New York
dismissed his claims at the conclusion of plaintiff's case on the basis
that there was no evidence of an injury compensable under FELA. The
Second Circuit reversed, holding that the plaintiff had made out a claim
for medical monitoring. Justice Stephen Breyer, writing for seven
members of the Court, concluded "that the [state court] cases
authorizing recovery for medical monitoring do not endorse a full-blown,
traditional tort law cause of action for lump-sum damages - of the sort
that the Court of Appeals seems to have endorsed here." n21 Justice
Breyer then summarized the policy considerations disfavoring lump-sum
awards. First, he noted that such claims are widely speculative.
Since, for example, the particular, say cancer-related costs, are the
extra monitoring costs, over and above those otherwise recommended,
their identification will pose special 'difficulties for judges and
juries.'... Those difficulties in part reflect uncertainty among medical
professionals about just which tests are most usefully administered and
when... And in part those difficulties can reflect the fact that
scientists will not always see a medical need to provide systematic
scientific answers to the relevant legal question, namely whether an
exposure calls for extra monitoring. n22
Second, Justice Breyer expressed concern that lump-sum awards could
result in a "flood" of less important claims and the "systemic harms"
that can accompany 'unlimited and unpredictable liability'..." Third,
lump-sum payments create potential windfalls for plaintiffs whose
monitoring expenses will be assumed by others.
Finally, a traditional, full-blown ordinary tort liability rule would
ignore the presence of existing alternative sources of payment, thereby
leaving a court uncertain about how much of the potentially large
recoveries would pay for otherwise unavailable medical testing and how
much would accrue to plaintiffs for whom employers or other sources
(say, insurance now or in the future) might provide monitoring in any
event. Cf. 29 CFR @ 1910.1001(1) (1996) (requiring employers to provide
medical monitoring for workers exposed to asbestos). n23
While acknowledging that a court-administered fund may be appropriate
under certain circumstances, the Bower court declined to address the
issue, because it saw no reason "to constrain the discretion of the
trial courts to fashion an appropriate remedy... ." Bower's avoidance of
the form-of-remedy issue will provide plaintiffs with the foundation
from which to seek lump-sum damage awards, with all the attendant
dangers outlined by the Supreme Court in Metro-North. Plaintiffs will
offer evidence about what medical-monitoring costs will be over the
plaintiff's life expectancy, a wildly speculative endeavor, particularly
in cases where the plaintiff's life expectancy is 20 years or more.
Recognition of lump-sum awards will be an economic incentive to the
pursuit of such lawsuits and will invite a series of claims and class
actions. These claims will likely be brought on behalf of individuals
for whom some, or perhaps all, of the costs will be assumed by third
parties.
Conclusion
The Supreme Court of West Virginia's decision in Bower goes well beyond
the parameters for medical-monitoring claims established by other state
courts and the Supreme Court's decision in Metro North. For more than a
decade now, a relatively small number of courts have tried to design a
cause of action that would allow recovery in the appropriate situations
without opening the courthouse doors to every person residing within a
one-mile radius of a manufacturing facility or a landfill. They have
done so by articulating certain standards for maintenance of claims and
by restricting relief to court-supervised funds. Bower has opened West
Virginia's courthouse doors considerably wider than anywhere else.
(Mealey's Litigation Report: Emerging Toxic Torts 9-22-1999)
YBM MAGNEX: Receiver Files Suit In Canada Alleging Insider Trading
------------------------------------------------------------------
The receiver for YBM Magnex International Inc. has filed a lawsuit
alleging 10 former officers and directors made millions of dollars
through trading on insider information, and demanding they return the
profits to the company's legitimate shareholders.
The suit names Jacob Bogatin, YBM's former president; Igor Fisherman,
its longtime chief operating operator; Harry Antes, YBM's former
chairman; Kenneth Davies, Michael Schmidt, Robert Ventresca and Frank
Greenwald, all former directors; Daniel Gatti, its chief financial
officer; Guy Scala, vice-president of sales; and James Held, former
director of investor relations.
David Peterson, the former Ontario premier, and Owen Mitchell,
vice-president of First Marathon Securities Ltd., the two best-known
figures on YBM's board, are not listed as defendants.
The statement of claim also says Messrs. Bogatin and Fisherman tipped an
'unincorporated syndicate called Poseidon Investment Club, the members
of which included many defendants,' about developments that were not
made public -- raising the possibility the receiver has uncovered proof
company outsiders were secretly involved in YBM with the blessing of at
least some of the board.
The lawsuit, which could set legal precedent in Canada, combined with
the move by the Ontario Securities Commission on Nov 1, is a clear
indication the saga of the industrial magnet manufacturer is continuing
to send ripples through the country's legal, financial and regulatory
institutions nearly 18 months after its collapse on allegations the firm
was a front for money laundering and Russian organized crime.
It is not the only YBM lawsuit expected to earn a place in Canadian
legal history. In another suit, the province of British Columbia has
joined Royal Trust Co. and Connor Clark & Lunn Investment Management
Ltd. in a class action demanding the Bay Street brokerage houses that
sponsored a new issue of YBM shares on the Toronto Stock Exchange in
1997 return the fees they made from underwriting the stock. That lawsuit
alleges misrepresentation in the prospectus.
'This is huge,' said a source who asked not to be named. 'This is the
first time in this country that institutions have turned on insiders and
other institutions, the first time a province has joined in this type of
class-action lawsuit, and it is the first time the financial community
has stepped up to the plate. They didn't do it with Bre-X. This is very,
very big.'
Experts say the lawsuits -- both filed under rarely used provisions of
the Ontario Securities Act -- are big for another reason: They herald
the dawn of a new era of accountability and a new world of insurance
issues for the large institutions that promote securities to the
investing public.
The lawsuit filed by the major institutions does not name Mr. Ventresca,
but does name Messrs. Peterson and Mitchell. It also names the syndicate
of underwriters that sponsored a new issue of YBM common shares on the
TSE in 1997: First Marathon, Griffiths McBurney & Partners, ScotiaMcLeod
Inc., Canaccord Capital Corp. and HSBC James Capel Canada Inc., formerly
Gordon Capital Corp.
It is seeking an accounting of how much money each defendant made from
the sale of YBM shares as well as an order requiring them to 'disgorge
the proceeds received by them from the sale of shares of YBM.'
The entry of a provincial government into a civil suit for compensation
in the wake of a stock market fiasco is also believed to be
precedent-setting in Canada. Connor Clark was by far the largest
shareholder in YBM, controlling 6.3 million of the company's shares. The
B.C. government held 591,200 shares of YBM in an employee pension fund
managed by Connor Clark, while Royal Trust was the trustee that actually
bought the stock and held it in custody.
Whether or not it is successful, the suit's very existence appears to
signal that Canadian institutional investors are abandoning the
tradition of closing ranks in the face of financial scandal in favour of
U.S.-style shareholder activism.
Two years ago, YBM appeared to be more of a candidate for making money
than making precedent.
Incorporated in Alberta and based in suburban Philadelphia, the small
company had attracted big-name directors such as Mr. Peterson and Mr.
Mitchell to its board. It shares were popular among professional money
managers, and had found their way into some of the country's best-known
mutual and pension fund portfolios.
The stock had a market value of almost $1-billion and a spot on the
TSE's benchmark index of 300 leading companies when disaster struck on
May 13, 1998, after about 60 U.S. federal officers led by the FBI
swooped on its headquarters in a raid ordered by the Organized Crime
Strike Force of the U.S. Attorney's Office.
YBM -- the corporate entity -- pleaded guilty in U.S. federal court in
June to one count of securities fraud. In the indictment, the U.S.
Attorney said the company was set up by an Eastern European crime figure
in the early 1990s and that he had even floated the money to take the
firm public. Court documents also said the same crime boss and his
associates controlled over 50% of YBM stock and, with the help of some
members of the company's board, had secretly been running YBM while
making millions of dollars trading in its shares.
The lawsuit filed by receiver Ernst & Young YBM Inc. in Ontario's
Superior Court of Justice lists millions of dollars in individual YBM
trades allegedly made by 10 former directors and officers using
information that was kept from the investing public.
The statement of claim says they failed to disclose that the company was
being investigated by the U.S. Attorney's Office, even though the board
was informed in August, 1996, as first reported over a year ago in the
National Post. The suit says they also failed to disclose concerns of
auditors Deloitte & Touche LLP in the final weeks of trading, or the
news that the board formed a special committee to conduct an in-depth
forensic audit of troubling transactions in the eastern European
division.
One former director insisted the board disclosed nothing to markets
because it had no evidence anything was seriously amiss, despite knowing
about the existence of the U.S. federal investigation.
'It was my understanding that all U.S.-based companies that deal outside
the U.S. borders are automatically investigated, and as far as I was
concerned it was nothing to be alarmed about,' Kenneth Davies said from
his home in White Rock, B.C. 'From our own internal investigation, until
we got a final result, we saw no reason to be concerned.' 'I had
absolutely nothing to hide and the fact that I filed all my trades with
regulators proves it.'
Another defendant, who spoke on condition of anonymity, said
shareholders are already going after the money officers and directors
made from trading in YBM through class-action lawsuits in Canada and the
United States. The firm's disintegration left investors holding
$635-million in worthless stock. He questioned why the receiver has
filed a suit to recover essentially the same money. 'This is just a
money grab by the receiver,' he said. 'It's a way for the lawyers to
hang on longer and make a lot of money.'
Brian Denega, the court-appointed receiver, did not return a phone call
asking for comment. But William Scott of Stikeman Elliott, which is
doing the legal work on the case, said the receiver has an obligation to
do whatever it can to recover money for all shareholders. 'Further, any
actions taken by the receiver on behalf of shareholders are subject to
appropriate cost-benefit analysis,' said Mr. Scott.
He also said the lawsuit filed by the receiver is different because it
stems from a specific provision of the Securities Act, while
shareholders' claims are tied to common law.
Philip Anisman, a noted Toronto securities lawyer, said the suit is
based on a rarely used provision of the Ontario Securities Act that says
an insider is liable for any improperly obtained profits. The section
was used once in 1969-70, and once in the 1980s, but there has never
been a decision on the merits in either case. (National Post (formerly
The Financial Post) 11-2-1999)
* Bill For Leglislative Fix For Multidistrict Remand Problem
-------------------------------------------------------------
Multidistrict litigation (MDL), which is governed by 28 U.S.C. Section
1407, involves actions pending in different federal courts that have
identical or similar issues, typically securities, antitrust or
mass-tort litigation.
Under these circumstances, a party may make a motion to the
Multidistrict Litigation Panel to transfer the cases to a single court
for "pretrial proceedings." Although section 1407 does not expressly
provide that these transferred cases may be tried before the transferee
court, it has been common judicial practice for the transferee court to
retain jurisdiction over these MDL cases for trial. In many instances,
the parties simply agreed to that retention of jurisdiction. In Lexecon
Inc., et al. v. Milberg Weiss Bershad Hynes & Lerach, et al., 523 U.S.
26 (1998), the U.S. Supreme Court determined that 28 U.S.C. Section 1407
explicitly requires a transferee court to remand all cases for trial
back to the respective courts from which they were referred. With
Lexecon, the Supreme Court effectively put an end to the decades-long
judicial practice of a MDL transferee courts retaining jurisdiction for
trial over all transferred cases.
For years MDL transferee judges, instead of remanding cases to the
transferor courts, would "self-transfer" the actions and retain
jurisdiction for trial. This practice of "self-transfer" was
accomplished by invoking 28 U.S.C. Section 1404, which, prior to
Lexecon, permitted a transferee court to retain jurisdiction for trial
over MDL cases "in the interest of justice and for the convenience of
the parties and witnesses." For many lawyers and judges who handle MDL
actions, "self-transfer" was a desired option, and the Lexecon decision
ran contrary not only to judicial practice, but to common sense.
Apparently, Congress has taken the same view.
Representative F. James Sensenbrenner Jr., R-Wis., has introduced the
Multidistrict Trial Jurisdiction Act of 1999, H.R. 2112 (June 9, 1999),
a bill which directly "overrules" Lexecon and would allow MDL courts to
retain jurisdiction over all transferred suits for trial. The bill would
amend Section 1407 and explicitly allow a transferee court the option of
retaining jurisdiction over transferred cases for trial or remanding
them to other districts. This amendment would apply to any civil action
pending on or brought after the date of enactment of the amendment.
Sensenbrenner has apparently introduced the bill at the request of the
Administrative Office of the United States Courts, which expressed
"concern" over the ramifications of the Lexecon decision. These
ramifications are obvious. When MDL cases are consolidated and
transferred to a transferee judge, that transferee judge manages and
handles these cases for months, if not years. The judge becomes educated
as to the facts of the case, the particular laws involved and most
importantly, the key players who will either settle or try the cases.
This knowledge is not transferable. It enables the transferee judge to
develop a capability to resolve the dispute efficiently whether by
settlement or by trial. Under Lexecon, that can no longer happen.
The practical need for the Sensenbrenner bill to remedy the situation
created by Lexecon and the common-sense necessity for an MDL transferee
court to be able to retain jurisdiction for trial over MDL cases can be
illustrated by the MDL action presently before Judge Kocoras in the
Northern District of Illinois, In Re Brand Name Prescription Drugs
Antitrust Litigation (BNPD Litigation).In the BNPD litigation, thousands
of retail pharmacists, ranging from independent "mom and pop" stores to
large chains like Rite Aid, sued the major pharmaceutical manufacturers
and wholesalers of brand name prescription drugs, alleging violations of
the Sherman Act and the Robinson-Patman Act. In 1993, these retail
pharmacy plaintiffs filed actions in federal courts all over the country
alleging a conspiracy among drug manufacturers and wholesalers to fix
and maintain the price of brand name prescription drugs and to deny to
retail pharmacies discounts that are given to what they call "favored
purchasers," such as hospitals and health maintenance organizations.
These retail plaintiffs, who allege the exact same conspiracy, fell into
two categories: a class and individuals who opted out of the class.
The Judicial Panel on Multidistrict Litigation (which consists of seven
circuit and district judges designated by the Chief Justice of the
United States Supreme Court) consolidated the individual cases for
pretrial purposes and transferred them, along with the class action, to
Judge Kocoras in the Northern District of Illinois. For the past 6 1/2
years, Judge Kocoras handled these cases and ruled on everything from
discovery motions to motions for summary judgement to the fairness of
settlements. As a result, he developed an understanding of the legal
issues implicated by the case, as well as myriads of complicated facts
and functions of the pharmaceutical manufacturing, wholesaling and
retailing industry. Last fall, with the agreement of the class
plaintiffs and nonsettled defendants, Judge Kocoras presided over the
nine-week class trial in Chicago, granted the defendants a directed
verdict and dismissed the class plaintiffs' claims.
The 7th Circuit Court of Appeals recently affirmed this decision. With
resolution of the class case came the renewed focus on the individual
cases. Judge Kocoras has continued to handle and manage these individual
cases through supplementary discovery disputes and has invited motions
for summary judgment. These "opt-out" cases are almost indistinguishable
from the case tried before the judge and jury last fall. Under Lexecon,
if the individual cases are not resolved prior to trial by either
settlement or summary judgment, these cases will be sent back to their
transferor courts, all over the country. That means that a federal judge
who sits in Beaumont, Texas, Little Rock, Ark., Harrisburg, Pa., or any
one of many other states who probably has never even heard of these
cases and knows nothing about them will be presiding over the individual
trials. The knowledge accumulated by Judge Kocoras over the past 6 1/2
years will mean nothing, and the parties will be forced to educate
dozens of judges about an extraordinarily complex set of legal and
factual issues at the trial stage. Any possibility of a settlement en
masse will be lost once the transfer back occurs. In addition, multiple
trials will take place all over the country. This will create a
logistical nightmare for counsel, who will be faced with, among other
things, a different set of evidentiary concerns and rulings depending on
the forum and ruling by a particular judge, and a particular judge's
ability or inability to quickly and deftly grasp the subtleties of an
enormous number of facts and issues.
It is therefore conceivable that, in a forum where the judge does not
fully understand the issues, a witness who is unavailable under the
Federal Rules of Evidence may have her testimony read into the record at
one trial, where, in another forum, that same testimony was ruled
inadmissible. The Sensenbrenner bill will afford a remedy for this
situation. If the bill passes while the BNPD Litigation is still before
Judge Kocoras, he will have the option of retaining jurisdiction for
trial over the individual cases. This result clearly makes sense and
would further the goals of judicial economy and convenience to the
parties, witnesses and counsel involved in these cases. (The Legal
Intelligencer 11-1-1999)
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S U B S C R I P T I O N I N F O R M A T I O N
Class Action Reporter is a daily newsletter, co-published by Bankruptcy
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Copyright 1999. All rights reserved. ISSN 1525-2272.
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