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/raid1/www/Hosts/bankrupt/CAR_Public/991111.MBX C L A S S A C T I O N R E P O R T E R Thursday, November 11, 1999, Vol. 1, No. 197 Headlines AMTRAK: Black Employees Charge Intercity Unit Of Discrimination BALCOR PENSION: Faces Il Suit For Winding Up Of Affiliated Partnerships BELMONT NATIONAL: Ohio Suit Says Management Should Have Spotted Fraud BERGEN BRUNSWIG: Scott & Scott File Securities Suit In California COLUMBIA/HCA: Faces Lawsuits Over Medicaid/Medicare Violations CYLINK CORP: CA Judge Orders Bid For Lead Counsel In Securities Case DAIMLERCHRYSLER CORP: Phil Ct Dismisses Case On Seat; Co Sues Lawyers DELAWARE STATE: Waste Haulers To Get Settlement For Paying DSWA Fees DELTA FINANCIAL: Stull, Stull Files Securities Suit In New York EQUIS FINANCIAL: Faces Investors Suit; Settles With 1 Sub-Class FRANKLIN LIFE: 42 More Sue In Il. Over Misrepresentation Of Policies GAYLORD CONTAINER: Dela Oks Class In Shareholders Case With Power Shift MATTEL INC: Scott & Scott File Securities Suit MICROSOFT CORP: Prosecutors Seek to Break The Grip of Windows System RAYTHEON COMPANY: Lockridge Grindal Files Securities Suit In MA THERMO VISION: Stockholder Files Dela Suit Against Co. Going Private ********* AMTRAK: Black Employees Charge Intercity Unit Of Discrimination --------------------------------------------------------------- After working his way up the Amtrak ranks from baggage handler to ticket clerk, Donald Batts saw himself as a natural for a temporary customer supervisor vacancy at the railroad company. ''They wanted education and I had a four-year college degree,'' said Batts, who is black. ''They wanted experience with the company and I had been there nine years. They wanted managerial experience. I had three years with another company.'' Batts didn't get the job, losing out to a white Amtrak worker with less experience, education and seniority. His story is just one of many that make up a class action lawsuit filed Tuesday by black Amtrak employees who are suing the national railroad company, alleging discrimination in hiring, promotions and discipline. It's the third racial discrimination lawsuit filed against Amtrak in two years, and an attorney representing the 24 plaintiffs in the U.S. District Court suit said it probably won't be the last. ''Every time we file, we get a flood of calls from Amtrak workers. We keep finding the same things cropping up through the Amtrak system,'' said attorney Warren Kaplan of the Washington Lawyers' Committee for Civil Rights & Urban Affairs. ''This almost certainly will not be the last suit against them.'' In a statement, Amtrak said it hadn't reviewed the claims in Tuesday's lawsuit but is committed to diversity and has zero tolerance for discrimination of any kind in the workplace. ''Amtrak has also made significant changes to its policies and procedures in areas such as hiring, promotion, training, performance evaluation and complaint resolution to ensure fairness, respect and diversity throughout Amtrak,'' the statement reads. Batts said he later learned that before the job was posted, a white manager had said a white employee would be selected. ''I was angry. I was more qualified and they knew it too,'' Batts said. The 24 current and former Amtrak workers have charged the company's Intercity Strategic Business Unit, which operates in 29 states from Nevada to New York, with discriminating against black workers in hiring, advancement, transfer, training and discipline policies and practices. The suit covers several work categories including service attendants, train attendants, ticket clerks, conductors, engineers, electricians, machinists and foremen. No dollar amount is being sought, but plaintiffs are suing for back and future pay, compensatory and punitive damages and an order requiring Amtrak to begin programs to provide equal opportunities for black workers. A suit filed in August 1998 by seven black managers at Amtrak alleging discrimination was settled this summer when Amtrak agreed to an $8 million fund to provide economic relief for the employees who sued. The national railroad, while not admitting any wrongdoing, also agreed to changes in its human resources as well as extensive changes in corporate practices designed to prevent race discrimination. The deal must still be approved by a federal court. Still to be resolved is a suit filed in April 1998 by eight black Amtrak employees in the company's Northeast operations and their union accusing the railroad of racial harassment and discrimination. (AP Online 11-10-1999) BALCOR PENSION: Faces Il Suit For Winding Up Of Affiliated Partnerships ----------------------------------------------------------------------- Madison Partnership Liquidity Investors XX, et al. vs. The Balcor Company, et al. On May 7, 1999, a proposed class action complaint was filed, and on May 13, 1999 was served on the defendants, Madison Partnership Liquidity Investors XX, et al. vs. The Balcor Company, et al. (Circuit Court, Chancery Division, Cook County, Illinois, Docket No. 99CH 06972). The general partner of the Partnership, the general partners of twenty-one additional limited partnerships which were sponsored by The Balcor Company, The Balcor Company and one individual are named as defendants in this action. The Partnership and the twenty-one other limited partnerships are referred to herein as the "Affiliated Partnerships". Plaintiffs are entities that initiated tender offers to purchase units and, in fact, purchased units in eleven of the Affiliated Partnerships. The complaint alleges breach of fiduciary duties and breach of contract under the partnership agreements for each of the Affiliated Partnerships. The complaint seeks the winding up of the affairs of the Affiliated Partnerships, the establishment of a liquidating trust for each of the Affiliated Partnerships until a resolution of all contingencies occurs, the appointment of an independent trustee for each such liquidating trust and the distribution of a portion of the cash reserves to limited partners. The complaint also seeks compensatory damages, punitive and exemplary damages, and costs and expenses in pursuing the litigation. On July 14, 1999, the defendants filed a Motion to Dismiss the complaint. A hearing date on the motion has not yet been set. On September 20, 1999 the Sandra Dee case described below was consolidated with this case. Future reports to investors will report only the consolidated case. The defendants intend to vigorously contest this action. No class has been certified as of this date. The Partnership believes that it has meritorious defenses to contest the claims. It is not determinable at this time how the outcome of this action will impact the remaining cash reserves of the Partnership. Sandra Dee vs. The Balcor Company, et al. On June 1, 1999, a proposed class action complaint was filed, and on August 16, 1999 was served on the defendants, Sandra Dee vs. The Balcor Company, et al. (Circuit Court, Chancery Division, Cook County, Illinois, Docket No. 99CH 08123). The general partner of the Partnership, the general partners of twenty-one additional limited partnerships which were sponsored by The Balcor Company, The Balcor Company and one individual are named as defendants in this action. The Partnership and the twenty-one other limited partnerships are referred to herein as the "Affiliated Partnerships". This complaint is identical in all material respects to the Madison Partnership Liquidity Investors XX, et al. vs. The Balcor Company et al. complaint filed in May 1999. The complaint alleges breach of fiduciary duties and breach of contract under the partnership agreements for each of the Affiliated Partnerships. The complaint seeks the winding up of the affairs of the Affiliated Partnerships, the establishment of a liquidating trust for each of the Affiliated Partnerships until a resolution of all contingencies occurs, the appointment of an independent trustee for each such liquidating trust and the distribution of a portion of the cash reserves to limited partners. The complaint also seeks compensatory damages, punitive and exemplary damages, and costs and expenses in pursuing the litigation. The defendants filed on September 15, 1999 a motion to consolidate this case with the Madison Partnership case. On September 20, 1999, the motion was granted and this case was consolidated with the Madison Partnership case. Future reports to investors will report only the consolidated case. On September 15, 1999, the defendants also filed a Motion to Dismiss the complaint. The defendants intend to vigorously contest this action. No class has been certified as of this date. The defendants believe that they have meritorious defenses to contest the claims. It is not determinable at this time how the outcome of this action will impact the remaining cash reserves of the Partnership. BELMONT NATIONAL: Ohio Suit Says Management Should Have Spotted Fraud --------------------------------------------------------------------- An Ohio banking company that says it was the victim of a multimillion-dollar fraud has been sued by a shareholder who claims its management fell asleep at the wheel. Belmont National Bank in Bridgeport had said this summer that a three-year-old scheme perpetrated by a bank officer and a borrower had cost it $15 million. The parent Belmont Bancorp. posted a third-quarter net loss of $3.9 million, and its stock has fallen roughly 70% since January. It was trading at $7 at midday Tuesday. The $376 million-asset company has sued to recover some of the claimed loss. But in a suit filed late last month, shareholder James John Fleagane demanded unspecified punitive damages from the company's management, directors, and accounting firm. Mr. Fleagane claims they breached their fiduciary duty by failing to obtain proper collateral and properly monitor loans made to Steven D. Schwartz, who was president of the now-defunct Schwartz Homes Inc. of New Philadelphia, Ohio. The bank's accounting firm, S.R. Snodgrass of Wheeling, W.Va., is particularly accused of "carelessly failing" to uncover the fraud during audits. Belmont Bancorp. claims that Mr. Schwartz and William Wallace, a former executive vice president at Belmont National, misled the bank's board on the stability of Schwartz Homes and funneled money into bogus accounts. Class-action status has been sought for the shareholder suit, which was filed in Ohio County Circuit Court in Wheeling, W.Va. The plaintiff, could not be reached for comment. His attorney in the suit, Robert P. Fitzsimmons of Wheeling, said he could not discuss pending litigation. James F. Bauerle, Belmont's senior vice president and counsel, referred all questions about the suit to a statement released by W. Quay Mull 2d, the bank's chairman and acting chief executive. In his statement, Mr. Mull said the bank "welcomes this further opportunity to present the facts of the case" and is working with law enforcement authorities in hopes of recovering some of the lost funds. The 153-year-old bank added $5.8 million to its loan-loss provision in the third quarter. Mr. Bauerle said it now has $10 million of reserves against potential loan problems. (The American Banker 11-10-1999) BERGEN BRUNSWIG: Scott & Scott File Securities Suit In California ----------------------------------------------------------------- Scott & Scott, LLC or has filed a class action complaint for violations of federal securities laws against Bergen Brunswig Corp.(NYSE:BBC - news). A class action has been commenced in the United States District Court for the Central District of California on behalf of all persons who purchased or otherwise acquired Bergen Brunswig Corp. (NYSE:BBC - news) securities during the period between March 16, 1999 and October 14, 1999. The complaint charges Bergen and certain of its officers and directors with violations of the federal securities laws by making misrepresentations about Bergen's business, earnings growth and financial statements and its ability to continue to achieve profitable growth. By issuing these allegedly false and misleading statements, defendants caused Bergen's stock price to trade at artificially inflated levels during the Class Period at as high as $ 26 per share, allowing Bergen to complete the acquisition of PharMerica using Bergen stock to pay for PharMerica, before the true facts about Bergen's troubled operations, diminished profitability and its false financial statements arising from its Stadtlander acquisition were revealed, and Bergen's stock collapsed to as low as $ 7 per share. Plaintiff seeks to recover damages on behalf of all persons who purchased or otherwise acquired Bergen securities during the Class Period. If you acquired shares, options or bonds in Bergen Brunswig Corp. (NYSE:BBC-news) and would like to discuss the matters above with an attorney, please contact: Neil Rothstein, Esq. of Scott & Scott, LLC 800/449-4900, or 800/404-7770, or 619/338-3887. E-mail at nrothstein@scott-scott.com TICKERS: NYSE:BBC COLUMBIA/HCA: Faces Lawsuits Over Medicaid/Medicare Violations -------------------------------------------------------------- Triad Hospitals Inc. discloses the following in its quarterly report for the period ended September 30, 1999 filed with the SEC as of November 4, 1999: Columbia/HCA is currently the subject of several Federal investigations into certain of its business practices, as well as governmental investigations by various states. Columbia/HCA is cooperating in these investigations and understands that it is a target in these investigations. Given the breadth of the ongoing investigations, Columbia/HCA expects additional subpoenas and other investigative and prosecutorial activity to occur in these and other jurisdictions in the future. Columbia/HCA is a defendant in several qui tam actions brought by private parties on behalf of the United States of America, which have been unsealed and served on Columbia/HCA. The actions allege, in general, that Columbia/HCA and certain subsidiaries and/or affiliated partnerships violated the False Claims Act for improper claims submitted to the government for reimbursement. The TRIAD HOSPITALS INC suits seek damages of three times the amount of all Medicare or Medicaid claims (involving false claims) presented by the defendants to the Federal government, civil penalties of not less than $5,000 nor more than $10,000 for each such Medicare or Medicaid claim, attorneys' fees and costs. To the Company's knowledge, the government has intervened in at least seven qui tam actions against Columbia/HCA. Columbia/HCA is aware of additional qui tam actions that remain under seal and believes that there are other sealed qui tam cases of which it is unaware. According to published reports, on July 2, 1999, a federal jury in Tampa, Florida found two Columbia/HCA employees guilty of conspiracy and making false statements on Medicare and Champus cost reports for years 1992 and 1993 and a Medicaid cost report for 1993. Both were found not guilty of obstructing a federal auditor. One other employee was acquitted of all counts for which he had been charged and the jury was unable to reach a verdict with respect to another employee. This employee agreed to a settlement of charges in September 1999. Columbia/HCA is a defendant in a number of other suits, which allege, in general, improper and fraudulent billing, overcharging, coding and physician referrals, as well as other violations of law. Certain of the suits have been conditionally certified as class actions. It is too early to predict the effect of outcome of any of the ongoing investigations or qui tam and other actions, or whether any additional investigations or litigations will be commenced. If Columbia/HCA is found to have violated Federal or state laws relating to Medicare, Medicaid or similar programs, Columbia/HCA could be subject to substantial monetary fines, civil and criminal penalties, and exclusion from participation in the Medicare and Medicaid programs. Similarly, the amounts claimed in the qui tam and other actions may be substantial, and Columbia/HCA could be subject to substantial costs resulting from an adverse outcome of one or more of such actions. On May 11, 1999, Columbia/HCA Healthcare Corporation ("Columbia/HCA") completed the spin-off of the Company to its shareholders (the "Spin-off") by a pro rata distribution of 29,898,688 shares of common stock. Columbia/HCA, the Company and LifePoint have entered into a distribution agreement providing for certain arrangements among Columbia/HCA, the Company and LifePoint subsequent to the date of the Spin-off. The distribution agreement generally provides that the Company will be financially responsible for liabilities arising out of or in connection with the assets and entities that constitute the Company. The distribution agreement provides, however, that Columbia/HCA will indemnify the Company for any losses, which it incurs arising from the pending governmental investigations of certain of Columbia/HCA's business practices. The distribution agreement further provides that Columbia/HCA will indemnify the Company for any losses which it may incur arising from stockholder actions and other legal proceedings related to the governmental investigations which are currently pending against Columbia/HCA, and from proceedings which may be commenced by governmental authorities or by private parties in the future that arise from acts, practices or omissions engaged in prior to the date of the Spin-off and related to such proceedings. Columbia/HCA has also agreed that, in the event that any hospital owned by the Company as of the date of the Spin-off is permanently excluded from participation in the Medicare and Medicaid programs as a result of the proceedings described above, then Columbia/HCA will make a cash payment to the Company in an amount (if positive) equal to five times the excluded hospital's 1998 income from continuing operations before depreciation and amortization, interest expense, management fees, impairment of long-lived assets, minority interests and income taxes less the net proceeds of the sale or other disposition of the excluded hospital. Columbia/HCA will not indemnify the Company for losses relating to any acts, practices and omissions engaged in by the Company after the date of the Spin-off, whether or not the Company is indemnified for similar acts, practices and omissions occurring prior to the date of the Spin-off. Columbia/HCA is negotiating one or more compliance agreements setting forth certain agreements to comply with applicable laws and regulations. Triad Hospitals Inc. is obligated to participate with Columbia/HCA in these negotiations. Columbia/HCA, the Company and LifePoint entered into a tax sharing and indemnification agreement, which allocates tax liabilities among Columbia/HCA, the Company and LifePoint, and addresses certain other tax matters such as responsibility for filing tax returns, control of and cooperation in tax litigation and qualification of the Spin-off as a tax-free transaction. Generally, Columbia/HCA will be responsible for taxes that are allocable to periods prior to the Spin-off, and Columbia/HCA, the Company and LifePoint will each be responsible for its own tax liabilities (including its allocable share of taxes shown on any consolidated, combined or other tax return filed by Columbia/HCA) for periods after the Spin-off. The tax sharing and indemnification agreement prohibits the Company from taking actions that could jeopardize the tax treatment of either the Spin-off or the internal restructuring of Columbia/HCA that preceded the Spin-off, and requires the Company to indemnify Columbia/HCA for any taxes or other losses that result from any such actions. Prior to the date of the Spin-off, Columbia/HCA maintained various insurance policies for the benefit of the Company and LifePoint. In connection with the Spin-off, Columbia/HCA, the Company and LifePoint entered into an agreement relating to insurance matters which provides that any claims against insurers outstanding at the Spin-off will be for the benefit of the party who will own the asset which is the basis for the claim, or, in the case of liability claim, which is the owner of the facility at which the activity which is the subject of the claim occurred. Columbia/HCA will pay the Company any portion of such a claim that is unpaid by an insurer to satisfy deductible, co- insurance or self-insurance amounts (unless such amounts were paid to or accounted for by the affected entity prior to the Spin-off). Columbia/HCA and the Company have ensured that all of the insurance policies in effect after the Spin-off provide the same coverage to the Company that were available prior to the Spin-off. The Company has purchased continuous coverage under extensions or renewals of existing, or new, policies issued by Health Care Indemnity, Inc., a subsidiary of Columbia/HCA. Any retroactive rate adjustments for periods ending on or before the Spin-off, in respect of such insurance policies, will be paid or received by Columbia/HCA. CYLINK CORP: CA Judge Orders Bid For Lead Counsel In Securities Case -------------------------------------------------------------------- In a class certification ruling that bucked the national trend, a federal judge in San Francisco ordered an auction to choose the lead plaintiff counsel for a securities class action against Cylink Corp., rather than giving the job to the law firm whose web site recruited the most class members, as is common in the post-securities reform world. In re Cylink Corp., No. 98-04292 (ND CA, Sept. 3, 1999). Judge Vaughn Walker had used the bid method before the Private Securities Litigation Reform Act of 1995 (PSLRA) tried to shift control of securities suits from the lawyers to the plaintiffs -- he turned to it again after finding that lead plaintiffs in this case lacked the resources to oversee the litigation, much less the lead attorneys. By Sept. 30, he will open sealed bids from four competing firms listing their experience and what percentage of any award or settlement they would expect to charge the plaintiffs. He agreed to consolidate seven class action suits, which were filed when Cylink announced that it would revise its financial statements and the stock price dropped. The suits by shareholders Nancy Wenderhold and others alleged that the officers and directors knew of serious financial problems, but still made rosy projections about the continued growth and prosperity of the network security software maker. Cylink and its officers opposed plaintiffs' motion for class certification on several grounds, but the court focused first on the adequacy of the notice given to shareholders on web sites established by seven plaintiff attorneys. He decided that although most of them gave investors insufficient information, it was sufficient that the notice given by attorneys for Wenderhold, the original plaintiff, was adequate. Concerning the lead counsel role, the court noted, "In enacting the PSLRA, Congress expressed its belief that lawyers had seized control of class action suits and were bringing frivolous actions on behalf of only nominally interested plaintiffs in the hope of obtaining quick settlements." The PSLRA said the lead plaintiff role should go to the plaintiff with the greatest financial interest -- rather than the one whose attorney filed suit first, as was usually the case in the pre-Reform Act world. However, in practice, what had been a race to the courthouse became a race to the internet, because the courts generally gave the lead counsel role to the firm that had recruited the most plaintiffs -- who would have the greatest combined interest in the company. Judge Walker found this "aggregation" method inadequate here. "Aggregation solely for the purpose of creating a group that would have the largest financial interest in the relief sought by the class would seem to contravene the PSLRA's purpose of shifting control of the litigation from the lawyers to the investors," the court wrote. The judge said there are two instances where aggregation is the right thing to do: * where there are numerous sub-classes generated by a series of allegedly damaging or mitigating events during the class period that purportedly made the damage to shareholders who bought after the date of each event greater or lesser (therefore, no one plaintiff could adequately represent those sub-classes); and * where no one plaintiff would have sufficient resources and expertise to exercise effective control over the litigation. Here, additional litigants would not increase representation by covering the sub-class periods, nor do the litigants claims to possess any unique expertise that would enable them to fulfill the PSLRA's goal of a shift in control, the court pointed out. Therefore, competitive bidding is necessary to protect the class members, it decided. The judge decreed that the four firms that have expressed an interest in becoming lead counsel, and any other firms that wish to participate should submit sealed bid by Sept. 30 detailing their expertise in this type of litigation, the amount of malpractice insurance they carry, the adequacy of their resources to prosecute the case, and the percentage of any recovery the firm will charge. He noted that local counsel would enjoy no advantage. Plaintiffs are represented by James Seirmarco of Abbey, Grady & Squitieri in San Francisco; Mark Gardy and Stephen Fearson of that firm's New York City office; Sherrie Savett and Jeanne Markey of Berger & Montage in Philadelphia; Kevin Yourman and James Tullman of Weiss & Yourman; Michael Braun of Stull, Stull & Brody in Los Angeles; Jules Brody of that firm's New York City office; and Thomas Shapiro of Shapiro Haber & Urmy in Boston. Defendants are represented by Boris Feldman, Leo Cunningham, Peri Erlanger, and Steve Nikkhou of Wilson, Sonsini, Goodrich & Rosati in Palo Alto, CA. (Corporate Officers and Directors Liability Litigation Reporter 9-27-1999) DAIMLERCHRYSLER CORP: Phil Ct Dismisses Case On Seat; Co Sues Lawyers --------------------------------------------------------------------- DaimlerChrysler Corporation (NYSE: DCX) turned the tables on the plaintiffs' lawyers November 10, 1999, filing a lawsuit against the Philadelphia law firm of Greitzer & Locks, Maryland lawyer William Askinazi, and their client who had sued the company in a case that was thrown out by a Philadelphia judge. The company stated that this step was needed to recover the costs of defending this frivolous class action and to deter abuses by law firms that file unwarranted and baseless cases. "For too long, trial lawyers have been exploiting class actions, turning these lawsuits into a form of legalized blackmail," said DaimlerChrysler Vice President and Associate General Counsel Lew Goldfarb. "They launch frivolous cases because they believe that just the threat of massive class actions filed in many states can coerce a company into settlement. It's time they started paying for some of the costs of abusing our legal system." In June 1999, Greitzer & Locks and Mr. Askinazi filed a class action suit in Philadelphia against DaimlerChrysler and three other automakers alleging that the seat design in their vehicles was unsafe, even though the seats had the stamp of approval of the National Highway Traffic Safety Administration, and the plaintiff had never owned a DaimlerChrysler vehicle. The lawyers filed copycat cases in four other states and threatened to bring identical cases in 30 more states. On October 20, 1999, the law firm dropped the claims against DaimlerChrysler after being warned that it had no case. "This lawsuit belongs in the class action hall of shame," said Goldfarb. "Not only was the plaintiff never injured in a DaimlerChrysler vehicle, he never even owned any DaimlerChrysler vehicle that he claimed was defective." DaimlerChrysler Corporation has taken an increasingly hard line against abusive class action cases in recent years. Just last month, the company won a major trial against the class action lawyers when an Illinois state judge tossed out a class action suit involving 1.2 million owners of Jeep(R) Cherokees. Class action attorneys had demanded more than $500 million for what they called "excessive" noise in Jeep engines. Goldfarb praised the verdict, but complained that, "millions of dollars in legal fees had been spent to prove the obvious: It's OK for engines to make noise." In September 1998, DaimlerChrysler Corporation won an $850,000 judgment against two St. Louis lawyers who had illegally taken confidential information while employed at one of the company's outside law firms. The attorneys then used the information to file class action lawsuits against the company. The appellate court upheld this verdict in all respects this fall. "Class action lawsuits should be used to resolve legitimate claims and not serve as a rigged lottery for trial lawyers," said Goldfarb. "Our goal in filing this case is to seek compensation for the harm caused to DaimlerChrysler and to make these plaintiffs' attorneys think twice before filing a frivolous case against the company. The irony of frivolous class actions is that they dupe the very people they are supposed to serve consumers. Not only do consumers rarely see a benefit, but in the end they also pay higher product costs from the millions companies spend in defense or settlement." DaimlerChrysler is seeking a multi-million dollar damage award to recover the cost of defending the frivolous case, the harm unfairly inflicted on the company's reputation, and for punitive damages. (St. Louis Post-Dispatch 11-10-1999) DELAWARE STATE: Waste Haulers To Get Settlement For Paying DSWA Fees -------------------------------------------------------------------- Waste haulers and others in Delaware that paid to dispose of waste at state-run facilities could share in a $ 3.9 million settlement the state has reached with the National Solid Waste Management Association (NSWMA). The settlement, if approved by a federal court in Wilmington, would compensate eligible haulers for tipping fees they were required to pay at Delaware Solid Waste Authority (DSWA) facilities between May 21, 1995, and April 30, 1999. State law until recently required Delaware haulers to dispose of solid waste at designated DSWA facilities for a fee of $ 58.50 per ton. Several Delaware haulers initially filed a class action lawsuit against the state authority in May 1998 (SWR, June 11, 1998, p. 185). The suit charged the agency's flow-control regulations violated the Constitution by restricting interstate commerce by barring disposal of garbage generated in Delaware at facilities in other states, where prices often were 25 percent to 50 percent cheaper. DSWA, which modified its regulations to eliminate the flow-control requirement earlier this year, will compensate eligible waste haulers and others for requiring them to dispose of waste at DSWA facilities during the four-year period covered in the lawsuit. NSWMA and the state authority jointly submitted a settlement agreement to the federal court Nov. 1. The court is expected to consider the proposed agreement soon and hold a settlement conference in January 2000. The proposed agreement includes a system for advising haulers and others that they may be eligible for compensation. DSWA also will post a notice on the settlement at its facilities and on its Web site. If the court approves the settlement, eligible claimants could receive payments by August 2000. Mike Parkowski, who served as legal counsel to the authority, told SWR he could not discuss the agreement until the court acts. Contact: David Biderman, NSWMA, (202) 364-3743. Mike Parkowski, (302) 678-3262. (Solid Waste Report 11-4-1999) DELTA FINANCIAL: Stull, Stull Files Securities Suit In New York --------------------------------------------------------------- The following was announced November 10, 1999 by Stull, Stull & Brody: Notice is hereby given that a class action lawsuit was filed on November 10, 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 October 31, 1996, and August 18, 1999. 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. Plaintiff is represented by, among others, the law firm of Stull, Stull & Brody. If you are a member of the class described above, you may, not later than sixty days from November 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. 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 Tzivia Brody, Esq. at Stull, Stull and Brody by calling toll-free 1-800-337-4983, or by e-mail at SSBNY@aol.com, or by fax at 212/490-2022, or by writing to Stull, Stull and Brody, 6 East 45th Street, New York, NY 10017. TICKERS: NYSE: DFC EQUIS FINANCIAL: Faces Investors Suit; Settles With 1 Sub-Class --------------------------------------------------------------- The following is disclosed in the quarterly report of AFG INVESTMENT TRUST C for the period ended September 30, 1999 filed with the SEC as of November 4, 1999: On or about January 15, 1998, certain plaintiffs filed a class and derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in the United States District Court for the Southern District of Florida on behalf of a proposed class of investors in 28 equipment leasing programs sponsored by EFG, including the Trust, against EFG and a number of its affiliates, including the Managing Trustee, as defendants. Certain of the Plaintiffs, on or about June 24, 1997, had filed an earlier derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in the Superior Court of the Commonwealth of Massachusetts on behalf of the Nominal Defendants against the Defendants. Both actions are referred to herein collectively as the "Class Action Lawsuit." The Class Action Lawsuit was divided into two sub-classes on March 22, 1999. On May 26, 1999, the Court issued its Order and Final Judgment approving settlement of the Class Action Lawsuit with respect to claims asserted by the Plaintiffs on behalf of the sub-class that includes the Trust. Claims involving the second sub-class, not including the Trust, remain pending. FRANKLIN LIFE: 42 More Sue In Il. Over Misrepresentation Of Policies -------------------------------------------------------------------- Forty-two plaintiffs were added Tuesday to a case that accuses Franklin Life Insurance Co. of Springfield, Ill., of misrepresenting the cost and benefits of its life insurance policies. Lawyers Neil J. Maune and J. Scott Kessinger of Granite City sued Franklin Life in June and April on behalf of 33 policyholders. The new suits bring the minimum sought from Franklin Life to $ 2.9 million. The suits, filed in circuit court in Edwardsville, allege that Franklin Life agents: * Were encouraged to market life insurance as an investment that provided a benefit better than that guaranteed by the policy's cash value. * Falsely told clients they could obtain new policies and not have to pay premiums after a time because of accumulation of cash value. * Did not tell clients that benefits would decrease - but premiums would remain the same - if interest rates decreased. G. Keith Phoenix, a St. Louis lawyer who represents Franklin Life, could not be reached. In the earlier suits, Franklin Life responded that the alleged misrepresentations were contradicted by the language in policies. Any recovery of money must be reduced by the clients' "own contributory negligence," the company said. Franklin Life also contends that claims by Illinoisans are at least partly barred by a $ 246 million settlement reached in December by American General, the parent company of Franklin Life. The settlement ended class-action suits in four states. Maune said he found his Illinois clients by conducting seminars throughout the state about the class-action suit. In the Madison County suit filed in April, one agent was accused of "churning," which Maune described as using the value from an existing whole life policy to pay for premiums on a new policy without the policyholder understanding the transaction. "But what happens is the cash value of a whole life policy is eaten up, and loans are taken out against that policy," Maune said. "And if the loans are not paid off, the policy could be lost - or is lost." GAYLORD CONTAINER: Dela Oks Class In Shareholders Case With Power Shift ----------------------------------------------------------------------- A new Delaware Chancery Court judge took a fresh look at the way in which shareholder suits are classified as either "individual" or "derivative" and found that entrenchment charges could be called individual if the complained of actions allegedly shifted corporate power from public stockholders to management insiders. In re Gaylord Container Corp. Shareholders Litigation, No. 14616 (DE Ch. Ct., Aug. 10, 1999); see Delaware Corporate LR, Jan. 6, 1997, P. 19,615. Vice Chancellor Leo Strine, in one of his first major corporate law opinions since his recent appointment, agreed to certify as a class action a group of shareholder suits that accused Gaylord Container Corp. (GCC) officers and directors of manipulating the corporate bylaws so that they could retain control even after they gave up their majority interest in the struggling company. Previous chancery court rulings automatically put such entrenchment claims into the category of derivative suits -- that is, a claim on behalf of the company that alleged a wrong that affected all stockholders equally. Only individual actions -- suits that claimed a wrong to a specific shareholder or group of shareholders rather than all stockholders -- would thus qualify to be consolidated into a class action. Vice Chancellor Strine found that distinction too arbitrary -- particularly where as here, a series of defensive actions by management and/or insider shareholders allegedly restricted the voting right or stock sale power of non-management shareholders. Defendant Marvin Pomerantz, GCC's chairman and CEO, had controlled 62 percent of the voting power until a bankruptcy reorganization that reduced the combined stake of Pomerantz and the board to 20 percent. Just before that change was due to go into effect, the board adopted a shareholder rights plan and made the following changes in the charter and bylaws: * Stockholders may only act at a stockholder meeting -- not by written consent; * A special shareholder meeting may be called only by the board; * A two-thirds supermajority is required to amend the bylaws; and * The company will opt into Delaware's merger law, 8 Del.C. Sec. 203.(Delaware's anti-takeover law). Numerous shareholders filed breach of duty suits, alleging that entrenchment was a main motivation for the defensive measures. The board responded that there was no specific takeover threat at the time the measures were taken, so they need not be examined under the enhanced scrutiny doctrine. Vice Chancellor Bernard Balick (who has since left the court) disagreed in an earlier opinion on a motion to dismiss. Moran v. Household International Inc., DE Sup., 500 A.2d 1346 (1985) (see Delaware Corporate LR, Nov. 5, 1986, P. 25), does not support the proposition that the business judgment presumption applies to the precautionary adoption of a shareholder rights plan, he said. A redeemable rights plan alone would not necessarily state a claim, but here, the adoption of the pill is alleged to be only part of a draconian scheme to retain power without a majority interest. In his opinion on the defendants' opposition to class certification, vice chancellor Strine noted at the outset the "quite torpid" pace at which this issue had been pursed from the time the class certification motion was made in 1997 until he prodded counsel at a recent scheduling conference. Since everyone agreed that all the other prerequisites were present, the decision on whether to grant certification turned on the question of whether the claims were individual or derivative, the court said. Vice Chancellor Strine said that the application of the test developed from the Moran ruling has produced less that predictable results. "Some of these results seem to flow from whether the plaintiff cited the correct magic words, rather than from any real distinction between the relief sought or the injury suffered," the court wrote. "Nor is it clear to me why a board's action to interpose itself between stockholders who are ordinarily free to sell their shares, and purchasers who are ordinarily free to buy those shares if improper -- works an injury on the corporation as an entity (and thus makes the suit derivative)." The court found that any action alleging that a shareholder was prevented from selling stock would be an "individual" injury suit -- even though Moran has been interpreted as requiring a "special injury" for inclusion in the individual category. Here, the allegation is that the defensive measures of the defendants hurt only the non-management shareholders when the directors used corporate bylaw changes to insulate themselves. He emphasized that this ruling was in the context of a decision on class certification. "When a corporate board undertakes related actions that diminish the ability of non-management stockholders to elect a new slate of directors, entertain sales proposals, and to amend the corporation's charter and bylaws, the resulting injury to the non-management stockholders is independent of and distinct from any injury to the corporation," the court concluded. Plaintiffs are represented by Joseph Rosenthal, Norman Monhait, and John Day of Rosenthal, Monhait, Gross & Goddess in Wilmington, DE; Steven Schulman and Edith Kallas of Milberg, Weiss, Bershad, Hynes & Lerach in New York; and Sherrie Savett and Stephen Ramos of Berger & Montague in Philadelphia. Individual defendants are represented by William LaMotte III and Karen Pascale of Morris, Nichols, Arsht & Tunnell in Wilmington, and by Thomas Kuhuns and Timothy Duffy of Kirkland & Ellis in Chicago. GCC is represented by Lewis Lazarus of Morris, James, Hitchens & Williams in Wilmington. (See Document Section C for the opinion.) (Delaware Corporate Litigation Reporter 9-20-1999) MATTEL INC: Scott & Scott File Securities Suit ---------------------------------------------- Scott & Scott, LLC has filed class action complaints for violations of federal securities laws against Mattel, Inc. (NYSE:MAT - news). These are class actions on behalf of purchasers of the common stock of Mattel, Inc. between 2/1/99 and 10/1/99 and holder of the stock as of March 26, 1999. Mattel designs, manufacturers and markets family products, including toys. These actions arise out of an alleged scheme to enable Mattel to acquire The Learning Company - a seller and maker of educational software including "Reader Rabbit" and "Carmen San Diego." This alleged scheme enabled defendants to get approval of the acquisition by The Learning Company's shareholders, defendants to get approval of the acquisition by Mattel shareholders and the top two officers of The Learning Company to pocket over $ 11 million due to the sale of The Learning Company to Mattel. Defendants' alleged false statements artificially inflated Mattel stock during the Class Period to as high as $ 30-5/16 per share during the critical acquisition pricing period between 4/99-5/99 by falsifying The Learning Company's and Mattel's reported revenues, net income and EPS and by falsely representing that The Learning Company represented an excellent strategic fit with Mattel's business and that its acquisition would be immediately "accretive" to Mattel's 1999 and 2000 results. However, in late 9/99, rumors circulated as news leaked from Mattel that 3rdQ 99 results would be disappointed causing Mattel's stock price to decline from $ 22-9/16 to 16-7/8. Then, on 10/4/99, just a few months after The Learning Company acquisition closed, Mattel disclosed that The Learning Company had incurred millions in product returns and bad debt write-offs and that The Learning Company would incur a $ 50 to $ 100 million loss rather than the large profit forecast for 3rdQ 1999. As a result, Mattel's 1999 earnings will be less than $ 1.20 rather than the forecasted $ 1.50, which just weeks before this announcement Mattel's CEO had stated she was firmly committed to. Mattel stock collapsed upon these revelations, falling to $ 11-7/8 on 10/4/99 on huge volume of 29/96 million shares - the largest one-day stock trading volume in the 39 years Mattel has been listed on the New York Stock Exchange ("NYSE"). This collapse wiped out $ 3 billion in Mattel shareholder value in one day. If you acquired shares, options or bonds in Mattel, Inc. (NYSE:MAT - news) and would like to discuss the matters above with an attorney, please contact: Neil Rothstein, Esq. of Scott & Scott, LLC 800/449-4900, or 800/404-7770, or 619/338-3887. E-mail at nrothstein@scott-scott.com TICKERS: NYSE:BBC MICROSOFT CORP: Prosecutors Seek to Break The Grip of Windows System -------------------------------------------------------------------- The state and federal officials prosecuting the Microsoft antitrust case now say that their goal in any settlement, or court-imposed remedy, will be to break the company's monopoly in personal computer operating systems, or limit its ability to wield such monopoly power. The Justice Department officials and state attorneys general have not decided how that should be done. Several proposals are on the table, from forcing the Microsoft Corporation to publish the proprietary code for the Windows operating system to breaking up the company. In the end, Federal District Judge Thomas Penfield Jackson, who oversaw the trial, will be the one to approve a settlement or select a remedy, after receiving recommendations from the plaintiffs. But even before a final verdict, which is expected in February, the plaintiffs have been emboldened by the judge's findings last Friday that Microsoft used its operating-system monopoly to stifle innovation, reduce competition and harm consumers. The officials say that their goal is to create competition in the operating-system market -- or to put sharp limits on Microsoft's ability to exercise monopoly power. "We are now in a position to get a rather dramatic remedy," said Eliot L. Spitzer, the Attorney General of New York, the lead plaintiff of the 19 states in the case. "It's an overwhelming opinion now that it has to address their monopoly in operating systems." In the 18 months since the Justice Department and the states filed suit against Microsoft, much of the talk about the case has involved Internet browsers and Microsoft's decision to build its browser into Windows. But Judge Jackson's findings made explicit what was implicit before: The case is really about the operating-system monopoly and Microsoft's use of it to promote other products. "When we started this case, we had nowhere near as specific and clear an idea how serious and far-reaching the evidence of this abuse of their monopoly would be," said Richard Blumenthal, the Attorney General of Connecticut. He added: "The case showed that Microsoft's abuse of its power in the operating-system market is endemic to its conduct, and any remedy has to deal with that." James E. Doyle, the Attorney General of Wisconsin, agreed, saying, "Any remedy has to talk about the operating system monopoly." Pre-eminent among the judge's findings was Microsoft's abuse of its monopoly, a finding that swept some of the softer remedies -- like forcing it to revise some contracts with other companies -- from consideration. When Judge Jackson released his preliminary verdict last Friday, Joel Klein, the assistant United States attorney general who heads the antitrust division, said that any settlement or remedy would have to "fully and properly address" the problems cited by the judge, though he has not elaborated on how he hopes to accomplish that. Before that, the state attorneys general seemed to take a tougher line than the Justice Department. For months, they have called for restructuring Microsoft or its products, though they were not necessarily focused on the operating system. Now they are unified in the position that the problem is the Windows monopoly, and they say that the Justice Department has joined them in that view. "The judge's findings have moved the states from rabid hawks to mainstream," said Wayne Klein, head of the antitrust division in the Utah attorney general's office. Mark Murray, a spokesman for Microsoft, said, "We believe it is premature for anyone to be talking about regulatory steps before the court actually issues a ruling." Herbert Hovenkamp, a professor at the University of Iowa College of Law who is advising the states, said: "If the findings show significant abuse of monopoly power, then the appropriate remedy is to break up the monopoly -- not to hobble the company or try to regulate it." He noted that "breaking up" a company is not such an extreme concept for the federal government. Quite often recently, the government has required companies to spin off units to win approval for a merger. But splitting up Microsoft is hardly the only proposal under discussion. Mr. Lockyer said he believed it was possible to compel Microsoft to live within the law with its current structure, though he said he worried about the effectiveness of any agreements that were limited to changing the company's conduct, like Microsoft's 1995 consent decree with the Justice Department to end an earlier antitrust investigation. "It may be that we could devise conduct guarantees that are more enforceable than in the past," he said. Some other state attorneys general disagree, saying that such guarantees would not be effective. Among the conduct guarantees under discussion are proposals to force Microsoft to charge every computer maker the same price for Windows, so that it could not impose higher prices to punish rivals or those that do business with them. Such a proposal would also have to include clear guidelines on what Microsoft products and services it could build into Windows, government officials say. But those ideas would require constant regulatory scrutiny that many government officials oppose. The Justice Department and the states have not said how they will resolve these issues. The officials say four other remedies are under discussion, though each could be applied in a variety of ways and might be combined with elements of others. Not surprisingly, Microsoft said it opposed all of them. One idea would be to force Microsoft to publish the secret, proprietary source code that makes up the Windows operating system. The goal would be to let other software developers design competing operating systems that are compatible with Windows and the many thousands of programs that are written for it. In the early 1990's, when I.B.M. was trying to sell OS/2, its operating system, the company said it was stymied because software companies were unwilling to rewrite their programs for OS/2. Without access to the Windows source code, I.B.M. could not make OS/2 compatible with the existing library of programs written for Windows. Another idea long favored by the states would be to force Microsoft to auction the Windows source code so that two or three other companies could sell competing systems. In that case, Mr. Hovenkamp noted, the competing companies would have to set up a "joint venture for compatibility standards" so that computers and software would work equally well with each system. In addition, the officials are reviewing two proposals for breaking up Microsoft. One would split it into several equal parts; each new company would hold all the software code and intellectual property from Microsoft products. But they would begin competing with each other. A final alternative is breaking Microsoft into three companies, one controlling its operating system; one its applications programs, like Word and Excel; and the third its Internet and related businesses. The problem with this idea is that one company would retain an operating system monopoly. And even if this company's business were limited to selling operating systems, it could still bundle other products with the operating system -- the very problem that initiated Microsoft's current problems with the government. Monitoring that would also require continuing government involvement, something no one in state or federal governments want. Should the judge find Microsoft guilty and impose a remedy, the company will certainly appeal. But the plaintiffs -- the states and the federal government -- also have to right to appeal, should they be unhappy with the judge's decision. (The New York Times 11-10-1999) The Chicago Tribune of November 10, 1999 says that whatever the score in federal court, Bill Gates and his Microsoft Corp. are winning in the court of public opinion. A Gallup poll suggests Americans hardly feel victimized, in stark contrast to the judge's characterization of Microsoft last week as a monopolist to blame for higher prices and stifled innovation in the computer industry. Consumers side with the software giant over the government, oppose a possible court-ordered breakup and respect the famous billionaire more than ever. The article cites the filing by Seastrom Associates Ltd. in New York's state Supreme Court in Lower Manhattan as the first to follow the federal judge's harsh finding against Microsoft last Friday, which seeks class-action status to represent many thousands of New York state customers. According to the article, such legal threats, which ultimately could seek billions of dollars in damages, are likely to increase pressure on Microsoft to reach a settlement. RAYTHEON COMPANY: Lockridge Grindal Files Securities Suit In MA --------------------------------------------------------------- Pursuant to Section 21D(a)(3)(A)(i) of the Securities Exchange Act of 1934, Lockridge Grindal Nauen P.L.L.P. hereby gives notice that a class action complaint has been filed against Raytheon Company (NYSE:RTNA)(NYSE:RTNB) in the United States District Court for the District of Massachusetts. The lawsuit was filed on behalf of all persons who purchased Raytheon securities from August 18, 1999 through October 11, 1999. The Complaint charges that defendants issued materially false and misleading statements in violation of the federal securities laws as follows. On September 16, 1999, defendants represented to the investing public that Raytheon expected to take a pretax $ 350 to $ 450 million restructuring charge in the third quarter "related to further cost reduction opportunities," but led the market to believe that its fundamental business was operating well and that Raytheon was not experiencing contract performance problems. This was not the case. In fact, the Complaint alleges that as a result of a meeting the Company had with the Pentagon on September 11, 1999, defendants knew that they were experiencing problems with its programs. On October 12, 1999, Raytheon announced, among other things, that it would be taking a $ 668 million third quarter charge - with $ 320 million of the charge relating to write-offs due to problems the Company denied having with its programs. As a result, Raytheon's Class A shares fell $ 19-1/2, or approximately 46 percent, from $ 42 to $ 22-1/2. Additionally, Raytheon's Class B shares plunged from $ 43 on October 11, 1999, to close at $ 24-1/4 on October 12, 1999, a drop of $ 18-3/4, or 44 percent, erasing almost $ 4.5 billion in market value. Plaintiffs are represented by the law firm of Lockridge Grindal Nauen P.L.L.P. Any member of the proposed Class who desires to be appointed lead plaintiff in this action must file a motion with the Court no later than sixty (60) days from October 14, 1999. If you have questions or information regarding this action, or if you are interested in serving as a lead plaintiff in this action, you may call or write: Karen M. Hanson Lockridge Grindal Nauen P.L.L.P. 100 Washington Avenue South Suite 2200 Minneapolis, MN 55401 (612) 339-6900 kmhanson@locklaw.com TICKERS: NYSE:RTNA NYSE:RTNB THERMO VISION: Stockholder Files Dela Suit Against Co. Going Private -------------------------------------------------------------------- On July 13, 1999, Thermal Vision Corp. entered into a definitive agreement and plan of merger with its parent, Thermo Instrument Systems Inc., under which Thermo Instrument would acquire all of the outstanding Thermo Vision common stock (other than shares held by Thermo Electron and Thermo Instrument, shares held by the Company in treasury, and shares held by stockholders exercising dissenters' rights) for $7 per share in cash, without interest. Following the merger, the Company would become a wholly owned subsidiary of Thermo Instrument and the Company's common stock would cease to be publicly traded. For the transaction to be completed, the Securities and Exchange Commission must complete its review of documents regarding the proposed transaction, holders of a majority of outstanding Thermo Vision shares (excluding Thermo Electron, Thermo Instrument, and the officers and directors of the Company, Thermo Electron, and Thermo Instrument) must vote at a special stockholders' meeting to be held to approve the proposed merger, and certain customary conditions must be met. The stockholders' meeting is expected to be held in the first quarter of 2000. On July 15, 1999, a lawsuit styled as a class action was filed by a stockholder of the Company against the Company, Thermo Instrument, and certain directors of the Company in the Chancery Court of the State of Delaware. The complaint alleges that the proposed Thermo Vision going private transaction would deprive the Company's stockholders of the fair value of their shares of the Company's common stock. The plaintiff is seeking injunctive and other appropriate relief, although no specific amount of monetary damages were claimed. The Company, Thermo Instrument, and the individual defendants filed an answer to the complaint on September 8, 1999, in which they deny that there has been any violation of law or breach of any duty to the plaintiff or the purported class set forth in the complaint. The parties are currently conducting discovery. ********* S U B S C R I P T I O N I N F O R M A T I O N Class Action Reporter is a daily newsletter, co-published by Bankruptcy Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc., Washington, DC. Theresa Cheuk and Peter A. Chapman, editors. Copyright 1999. All rights reserved. ISSN 1525-2272. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The CAR subscription rate is $575 for six months delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 301/951-6400. * * * End of Transmission * * *