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Legal - Page One

“The important people don't wear suits. They wear uniforms or hard hats.” - Tommy Tomlinson

Trade Secrets Lose Out to Speech

The Recorder - Shannon Lafferty - November 5, 2001

The First Amendment trumps California's trade secrets protection law, the state's Sixth District Court of Appeal ruled Thursday in a dispute over an Internet link to code that unscrambles encrypted DVDs.

A three-judge panel overturned a preliminary injunction won by an industry group that licenses the technology used to encrypt DVDs, saying it was not a permissible prior restraint on pure speech.

[DVD Copy Control Association]'s statutory right to protect its economically valuable trade secret is not an interest that is 'more fundamental' than the First Amendment right to freedom of speech or even on equal footing with the national security interests and other vital governmental interests that have previously been found insufficient to justify a prior restraint,” Justice Eugene Premo wrote. "Our respect for the Legislature and its enactment of the [Uniform Trade Secrets Act] cannot displace our duty to safeguard the rights guaranteed by the First Amendment."

An attorney for the DVD Copy Control Association said the ruling makes it impossible for companies to prevent the theft of trade secrets.

"This case holds that the California Uniform Trade Secrets Act is unconstitutional to the extent that it allows preliminary relief," said Jeffrey Kessler, a partner with Weil, Gotshal & Manges in New York. "The whole point of the UTSA is if you have a trade secret and someone steals [it], you can get an injunction and prevent it from being spread. Because once it's spread, it has no value."

The ruling was praised by David Greene, the executive director of the First Amendment Project in Oakland, Calif., who argued on behalf of the Internet poster targeted by DVDCCA.

"They argued that the sky is falling on trade secrets. That's exactly the argument the Court of Appeal rejected. If they want to restrict people from publishing information, they have to meet the First Amendment test," said Greene.

The preliminary injunction turned over Thursday was issued by Santa Clara Superior Court Judge William Elfving in 1999. It ordered Andrew Bunner to remove an Internet link he'd posted that directed viewers to a computer code called DeCSS, which can help users of the Linux operating system unscramble encrypted DVDs.

Greene said the ruling wouldn't dramatically affect trade secrets law.

"It invalidated preliminary injunctions in trade secrets cases where they can't prove the publisher of the information is bound by any duty of confidentiality," Greene said. "Bunner was a stranger to the DVDCCA. He owed no duty to them. He disclosed this information that any Internet user could have discovered."

The justices also took pains to say their ruling in DVD Copy Control Association v. Bunner, 01 C.D.O.S. 9406, didn't foreclose all options for holders of trade secrets.

"DVDCCA may, of course, bring an action for damages or even injunctive relief against anyone who violates the Act by conduct rather than speech. In addition, a person who exposes the trade secret may be liable for damages if he or she was bound by a contractual obligation to safeguard the secret," wrote Premo, who was joined by Justices Franklin Elia and Nathan Mihara. "And anyone who infringes a copyright held by DVDCCA or by any DVD content provider may be subject to an action under the Copyright Act."

A similar dispute is pending before the New York-based 2nd U.S. Circuit Court of Appeals, which is reviewing an injunction issued by a federal judge that prohibits Eric Corley from posting codes that unscramble DVD encryption.

Kessler said his client plans to appeal Thursday's ruling to the California Supreme Court.

Discipline Possible in Indian Trust Case

Denver Post - by Bill McAllister - November 1, 2001

Wednesday, October 31, 2001 - WASHINGTON - A federal judge threatened Tuesday to hold Interior Secretary Gale Norton in contempt, saying her initial action over billions of dollars her department holds for American Indians was "so clearly contemptuous" he doubted she could be defended.

U.S. District Judge Royce C. Lamberth stopped short of disciplining Norton but made it clear that he considered her remarks on the thousands of trust accounts "contemptuous on their face.''

The judge, who previously held that the government had breached its trust responsibility to Indians, also hinted he was likely to impose sanctions on the chief of staff to former Interior Secretary Bruce Babbitt. Lamberth singled out Babbitt's top aide, Anne Shields, for not telling him about a crucial computer failure affecting the trust accounts.

But it was Norton, the former Colorado attorney general, who received the brunt of the judge's ire during a 45-minute hearing on the case. He set another hearing for Nov. 30 and told government lawyers he was upset with Norton.

"I hope the government will tell me who is in charge of trust reform," Lamberth declared. "It's allegedly the secretary. She surely doesn't act like it."

If the judge makes good on his threat, Norton will become the first Bush Cabinet member disciplined by a federal court.

Her department later issued a brief statement declaring: "We take trust reform seriously. We are committing substantial resources to trust reform. We will be responding to the issues raised today through the court process."

Lamberth's pointed remarks and obvious frustration with the government seem certain to renew pressure on the Bush administration to quickly settle the 5 1/2-year-old lawsuit that challenged the accuracy of more than 300,000 trust accounts the government has maintained, in some cases for more than 100 years for Indian families. Congress repeatedly has urged that the case, involving accounts said to be worth more than $10 billion, be settled out of court.

For the past several months, lawyers representing the Indians and court-appointed specialists reviewing the case have been filing reports and motions with the judge, most of them harshly critical of the government's handling of the case.

The judge's anger at Norton was piqued by her first public statement on the case. On Feb. 28 she told the Senate Indian Affairs Committee she had ordered her department to conduct a "statistical sampling" of the agency's admittedly bungled trust accounts.

Lamberth noted that he had warned her Democratic predecessor not to take that step.

To have Norton follow the same course was infuriating and obviously in violation of his order, the judge said.

Lawyers for the Justice Department made no effort to defend Norton or any of the nearly 50 others who also could face contempt proceedings. Former Denver lawyer Dennis Gingold, the driving force behind the lawsuit, repeatedly urged the judge to press ahead with a contempt finding.

"Enough is enough is enough," he declared. "Nobody is doing anything here. It's got to stop."

Gingold argued that government lawyers had more than enough time to prepare their defenses, and delays would only hurt the Indians.

In chambers, government lawyers have suggested it could take 50 years to reconcile the accounts, he said. "Unless this court does something soon, more assets are going to be lost, more documents are going to be destroyed."

Big Money Attracts Deception

Company Cannot Silence Stockholder

Public Citizen - Press Release - October 27, 2001

WASHINGTON, D.C. -- A California judge has dismissed Hollis-Eden Pharaceuticals' second lawsuit against a stockholder who posted critical messages on an Internet message board. The judge agreed with Public Citizen Litigation Group's position that the suit was an improper SLAPP suit -- (Strategic Litigation Against Public Participation) -- a lawsuit designed to deter public participation.

In May 2001, Hollis-Eden, a drug research firm, sued Los Angeles area resident Greg Alcus, claiming that a message he had posted to Yahoo!'s "HEPH" message board in March defamed the company. Alcus, represented by Public Citizen, moved to strike the complaint pursuant to California's "anti-SLAPP" statute on the ground that the suit was an attempt to chill his right to speak freely about the publicly held company. Recognizing that First Amendment rights are threatened by the financial hardship and chilling effect of defending a frivolous lawsuit, the anti-SLAPP statute gives SLAPP defendants a mechanism for having meritless suits dismissed early in the litigation.

The judgment entered this week follows a Sept. 24 ruling by California Superior Court Judge Kevin A. Enright that the subject of Alcus' posting concerned a matter of "public interest" within the meaning of the SLAPP statute and that Hollis-Eden's claims against Alcus were meritless. In the March 21, 2001, posting, Alcus asked why the company was sitting on information about a drug research project. Alcus based his message on the company's public filings and answers given by a company official during a shareholders' meeting.

"Hollis-Eden's real gripe was not with any particular posting, but with the fact that Mr. Alcus was critical of the company," said Allison Zieve, an attorney with Public Citizen who represented Alcus. "Hollis-Eden's goal was to stifle Mr. Alcus. The judge clearly understood that."

San Diego-based Hollis-Eden first sued Alcus on Dec. 14, 2000, claiming that two comments he posted in November were defamatory. Enright dismissed that case on March 28, 2001, saying that the comments were related to a matter of public interest and that the company had no likelihood of prevailing in the case. The judge ordered the company to pay approximately $72,000 for Alcus' attorney fees.

In the second suit, Hollis-Eden complained about the March 21 posting. The company again claimed that Alcus had defamed the company. In dismissing the suit, the judge again awarded attorney fees.

In a motion to strike filed on Alcus' behalf, Zieve argued that Alcus' March posting fell within the scope of a California statute that protects people from SLAPP suits and was not defamatory. The company is a publicly traded corporation that invites public comment, she argued. When the company's stock price falls, when its drug development stalls or when investors have trouble obtaining information about the company, the ensuing discussion is a matter of public interest.

Public Citizen worked on the case with local counsel Charles A. Bird of Luce, Forward, Hamilton & Scripps LLP, based in San Diego, Calif.

Electronic Surveillance in the Workplace - Eric J. Sinrod - October 16, 2001

Employees are becoming increasingly concerned about their privacy as their employers are monitoring them electronically more closely than ever before. At the same time, certain state efforts to prevent employee electronic monitoring are not succeeding. Still, employers have some valid reasons for employee monitoring. There is little doubt that this particular debate should rage on for quite some time.


A recent survey by the American Management Association shows that about 78 percent of companies in the U.S. monitor their employees in some way. Employee Internet use is monitored by 63 percent of employers; 47 percent store and review employee e-mail messages; 15 percent view employees by video; 12 percent review and record phone messages; and 8 percent review voice-mail messages.


Some states have attempted to protect employee privacy in the workplace. For example, the California State Assembly passed a bill, S.B. 147, in a 43-22 vote that would have prevented employers from monitoring employee email in many contexts. The bill would have extended some privacy protections afforded to employee telephone usage to e-mails. However, California Gov. Gray Davis vetoed the bill on Oct. 5.

While S.B. 147 was vetoed, Davis did just sign into law S.B. 168, which is designed to help prevent "identity theft." S.B. 168 requires companies to stop printing Social Security numbers on employee identification and health plan cards, as well as on other forms of identification. S.B. 168 also prospectively prohibits the printing of Social Security numbers on bank statements and other documents transmitted by mail, and it allows consumers to halt the access of others to their credit reports. Several pieces of federal legislation providing similar protections for Social Security numbers have been introduced by members of Congress this year, but at this juncture it is difficult to predict whether any will be made into law.

Internet Critics Have First Amendment Rights

Public Citizen - Press Release - October 12, 2001

WASHINGTON, D.C. -- When considering whether to allow Emerson, N.J. town officials to learn the identities of their anonymous Internet critics, a judge should determine whether the officials have made a sufficient argument to warrant such a privacy invasion -- regardless of whether the critics have retained attorneys, Public Citizen and the American Civil Liberties Union of New Jersey (ACLU- NJ) told a court today.

Also, the person who created the Web site that spawned the lawsuit should not be liable for comments posted on it, the organizations said.

In an amicus curiae (friend of the court) brief filed Thursday in the Superior Court of Bergen County, the two organizations argued that the First Amendment protects those who filed the comments on a site called "Eye on Emerson," regardless of whether they have found lawyers to protect their rights in court. Two council members, a council candidate and a council member's husband sued 60 John and Jane Does as well as the site's creator, claiming defamation. They also are seeking information from Internet service provider VantageNet that would identify those who posted the messages.

"This suit is a clear attempt to intimidate the townspeople so they stop making comments about their officials," said Paul Alan Levy, an attorney for Public Citizen, which is involved in the case because it has a history of defending First Amendment rights. "Not only is it preposterous, but it violates the First Amendment. Further, the judge should realize that the First Amendment protects the anonymity of these critics, regardless of whether they have an attorney. "

Courts have clearly established that the First Amendment protects the right to speak anonymously, and they have upheld that right when it applies to the Internet, the organizations wrote in the brief. Those seeking to identify anonymous sources bear a very heavy legal burden.

In this case, the judge should be mindful that those seeking to identify their critics are public officials who have the power to reject zoning requests, withhold city services and even to use police power, the organizations wrote. Identifying the critics would have a chilling effect on the willingness of townspeople to speak out in the future.

Further, anonymous message posters who have not been able to hire a lawyer to argue their cases in court still are entitled to the same First Amendment protection, the groups said. For those message posters, the judge has an independent duty to review the plaintiffs' evidence to be sure there is enough to warrant enforcement of the subpoena to obtain identifying information.

Case law also indicates that the creator of the Web site, Stephen Moldow, is immune from liability for messages posted on his site. The Communications Decency Act says that no provider of an interactive computer service shall be treated as a publisher or speaker of any of the information provided by someone using the site. Congress passed the law because it was worried that companies running Internet sites in which millions of messages are posted would shut down if they could be liable for what people wrote.

"Moldow's site, which is devoted to topics relating to local government, represents a terrific gift to the community," Levy said. "If someone like Moldow has to face the prospect of ruinous litigation from any person who is criticized on the Web site, then very few citizens would ever set up such valuable sites."

Court Protects Anonymous Internet Critics

Higher Standard for ERISA Review

The Legal Intelligencer - Shannon P. Duffy - October 10, 2001

When an ERISA administrator's internal appeal process is designed to discourage overturning a denial of benefits, courts should review any denial with a "high degree of skepticism," a federal judge has ruled.

In Dorsey v. Provident Life and Accident Insurance Co., Senior U.S. District Judge Marvin Katz of the Eastern District of Pennsylvania handed down a pair of significant opinions that announce an evidentiary standard for proving that a conflict of interest exists, and, upon finding a conflict, reversing the denial of benefits under the Employee Retirement Income Security Act (ERISA) to a woman who suffers from a severe case of fibromyalgia.

In the first six-page opinion, Katz found that a plaintiff has the right to submit deposition testimony to prove that an ERISA administrator should be subjected to a heightened standard of review due to a conflict of interest.

Provident's lawyers, Richard L. McMonagle and Steven J. Schildt of Post & Schell, argued that courts should never consider evidence that goes beyond the record that was before the claims administrator at the time of the benefit determination.

But Katz found that the 3rd U.S. Circuit Court of Appeals recently endorsed a plaintiff's right to present additional evidence to show that a conflict of interest exists.

As a result, Katz said, "while a court may not look outside the administrative record when reviewing an administrator's decision, a court may consider evidence outside the record when evaluating the level of an administrator's conflict of interest and the appropriate standard of review."

In an 18-page second opinion, Katz considered deposition evidence about Provident's appeal process and decided that "anomalies" in the process revealed a conflict of interest that required the court to employ a heightened standard of review.

The plaintiff in the suit, Cheryl Dorsey, worked as director of sales and marketing at Zurich Payroll Solutions until she became ill in February 1999.

Katz's opinion outlines Dorsey's failed attempts to secure long-term disability benefits from Provident.

Although doctors consistently diagnosed Dorsey as suffering from fibromyalgia -- a rheumatological disorder characterized by muscular pain, stiffness and fatigue -- Provident's administrators repeatedly denied the request.

Katz found that his first task was to determine the appropriate level of court review.

Although Provident's plan did not include an "express grant of discretionary authority," Katz found that in practice it did because the policy stated that benefits would be awarded only when Provident is satisfied by the written evidence of "proof of loss."

As a result, Katz found that Provident was entitled to an "arbitrary or capricious" standard of review unless it suffered from a conflict of interest.

Provident's lawyers conceded that Provident was both the funder and administrator of the plan, but said Katz should move only slightly away from a deferential review because there was no evidence that the handling of Dorsey's claim was affected by the conflict of interest.

Katz disagreed, saying Dorsey had shown that "procedural anomalies" in Provident's appeal process had affected the decision to deny her claim.

While different divisions within Provident handled her initial claim and her appeal, Katz found that the same doctor had conducted both reviews.

When the doctor reviewed her own work, Katz said, "not surprisingly [she] came to the same conclusion both times."

Katz also found that the appeals consultant on Dorsey's case did not have the power to reverse the denial of benefits.

"These procedural anomalies indicate a less-than-impartial appeal process designed to make it more difficult for an appellant to succeed," Katz wrote.

"With fewer successful appeals, Provident's profits are greater. Because these anomalies are evidence of a significant conflict of interest, this court places the arbitrary and capricious standard at the far end of the sliding scale and will review Provident's decision with a high degree of skepticism," Katz wrote.

But Katz found that, even without the more skeptical review, Provident's denial of benefits was arbitrary and capricious.

"Provident's staff ignored the fact that Dorsey exhibited classic symptoms of fibromyalgia," Katz wrote.

And the review by Provident's doctor was "unreasonable," Katz found, because she never examined Dorsey personally and failed to address the evidence that she was disabled.

The doctor's "cursory report," Katz said, "did not discuss the significance of plaintiff's irritable bowel syndrome, migraine headaches and major depression -- all symptoms that support a diagnosis of fibromyalgia."

Although Provident had no duty to obtain an independent medical exam, Katz found that "the fact that five doctors diagnosed Dorsey with a severe case of fibromyalgia and three concluded she was permanently disabled suggests that Provident's medical review needed to be more than a half-page summary of selective information."

Katz said he was also skeptical of the conclusions reached by Provident's vocational rehabilitation consultant because she had concluded that Dorsey had the physical capacity to return to her job, but had never reviewed Dorsey's actual job description.

"Even though Provident was aware that Dorsey's job required traveling, the vocational consultant never addressed this issue," Katz wrote.

Katz also found that Provident unreasonably relied on a surveillance video that "only captures Dorsey driving her children to school on one occasion and slowly walking across a parking lot."

When viewing all the evidence, Katz found that "every individual or organization that examined or reviewed the plaintiff's medical information found the plaintiff to be disabled -- everyone except those individuals employed by Provident."

As a result, Katz concluded that "Provident's denial of plaintiff's benefits is not supported by reason."

Dorsey was represented by attorney John C. Lyons of Lancaster, Pa.

Five Are Awarded $40 Million

The National Law Journal - Alan Fisk - October 9, 2001

A federal judge orders an insurer to pay up

Almost a decade after a Florida tanker truck explosion ignited a legal battle, a federal judge has ordered an insurer to pay more than $40 million to five people injured in the blast.

The recent ruling by U.S. District Judge Harvey Schlesinger in Jacksonville, Fla., follows a number of turns. In 1998, a state court jury awarded $40.1 million in a personal injury suit against the truck's owner, a pollution disposal firm that by then had gone out of business. When the plaintiffs tried to collect from the defunct firm's insurance company in state court, the insurer successfully moved the case to the federal bench.

"This is a case where an insurance company tried to deny coverage and the courts wouldn't stand for it," said plaintiffs' attorney Bobby Farnell of Jacksonville's Bedell, Dittmar, DeVault, Pillans & Coxe.

Attorneys for the insurer, Atlantic Insurance, argued that its policy with the truck's owner, Federal Environmental Services, did not include accidents involving pollutants. But Schlesinger found otherwise. >[? John DeVault, who tried the case for Bedell Dittmar, said he believed the key to the federal case was evidence that Atlantic had tried to escape liability by paying Federal Environmental $175,000. DeVault said he expected Atlantic, a subsidiary of Travelers, to appeal.

Keith Anderson, a spokesman for Travelers, declined to comment on the case, as did Atlantic's lawyer, David Atkinson of Atlanta's Magill & Atkinson. But in a post-trial legal memorandum, Atlantic said there was no basis in law to support the plaintiffs' case.

The drama began at a highway truck stop near Jacksonville in January 1992. The tanker was on its way north to dump a load of hazardous waste, including solvents and other chemicals used to clean airplanes.

DeVault said the truck's load was overheating and the driver tried to vent the heat. But the tanker exploded with such force that pieces were thrown 800 feet through the air. The driver was not hurt. But four people who were in the area were injured, said DeVault. They sued Federal Environmental in state court. A fifth person claimed loss of consortium.

Four of the plaintiffs were each awarded $10 million in the 1998 trial in Columbia County 3rd Circuit Court in Lake City, Fla. The loss-of-consortium claimant was awarded $150,000. After the verdict, by which time Federal Environmental was out of business, attorneys for the plaintiffs in the state case contacted Atlantic Insurance and offered a settlement. Atlantic had a million-dollar limit on claims that the plaintiffs agreed to accept, if a settlement could be reached within 30 days, DeVault said.

When Atlantic refused the deal, the plaintiffs again sued in state circuit court, charging bad faith on insurance claims, DeVault said. Atlantic sought to move the matter to federal court and Schlesinger got the case.

The federal trial -- Grace v. Atlantic Insurance Co., No. 99-CV-11-J-20 (M.D. Fla.) -- lasted a week. The judge's award matched the jury award in the state case.

DeVault said one defense raised by Atlantic Insurance was what he called the "absolute pollution exclusion." The exclusion excuses coverage for events caused by pollution.

"Our contention was that the exclusion didn't apply because what happened in this case was a sudden explosion," DeVault said. "The exclusion was meant to apply to pollution damage over a long period, like seepage from a landfill."

First Amendment Right to Establish Web Site

Public Citizen - Press Release – October 2, 2001

A Pennsylvania man who created an angry parody of a developer's Web site had a First Amendment right to do so and is not violating the company's trademark, Public Citizen said today in a court filing.

Carl Silverstein, an information technologies director at a computer company, says he was duped by developer Gene Percudani, who runs Raintree Homes Inc., into paying $143,000 for a $90,000 home. Furious, Silverstein created a Web site and registered it under the domain names "" and "" -- a takeoff of "," Raintree's Web site. On the parody site, which can be accessed by either domain name, Silverstein mimics Raintree's Web site format, replacing Raintree's promotional phrases with such things as "We Will Suck You Dry" and "We-Screw-You."

Raintree, a Pennsylvania company that is facing a class action lawsuit alleging consumer fraud and federal racketeering violations, sued Silverstein and demanded he dismantle his Web site. The developer has alleged that Silverstein is violating trademark law and has defamed the company.

But in a motion filed Monday in the U.S. District Court for the Middle District of Pennsylvania, Public Citizen argued that Silverstein's Web site is protected by the First Amendment and that it neither violates trademark law nor defames Raintree. Public Citizen, a nonprofit consumer advocacy organization, got involved in the case because of its history of championing First Amendment rights.

To establish a trademark infringement, Raintree must show that Silverstein used Raintree's name in a misleading way to profit from consumer confusion. However, that has not occurred in this case, said Paul Alan Levy, a Public Citizen attorney. Silverstein's site is non-commercial, has no advertising and sells no goods. It would be impossible for anyone visiting the site to believe it was created by Raintree, Levy said.

Further, numerous cases indicate that the site is protected under the First Amendment.

"The law is quite clear that consumer commentary is protected under the First Amendment," Levy said. "Anyone can take out a full-page ad about a company or post criticism on the Web. In fact, the law specifically protects the kind of speech Mr. Silverstein posted."

Finally, Raintree's defamation claims ring hollow because the company must show that Silverstein acted with malice and reckless disregard for the truth. (This is what is necessary to prove defamation of a public figure, which Raintree has become after media coverage of consumer complaints about the company.) Raintree's lawsuit fails to prove defamation, Public Citizen's brief said.

Public Citizen has successfully defended numerous people who have been sued by companies to dismantle Web sites critical of those companies. The organization also has successfully defended the right of people to anonymously post in chat rooms criticisms of companies. For more information about Public Citizen's work on Internet privacy, visit

In the Silverstein case, Public Citizen is working with Harrisburg, Pa., attorneys Robert E. Kelly Jr. and Marc A. Moyer of Duane, Morris & Heckscher LLP…

Court Says Some Veterans Owed Lifetime Medical Care
New York Times - By ROBERT PEAR - February 21, 2001

A federal appeals court has ruled that the government owes free lifetime medical care to certain veterans of World War II and the Korean War because recruiters promised them such care if they served in the armed forces for a minimum of 20 years.

The decision, by the United States Court of Appeals for the Federal Circuit, said the government had broken a contractual obligation to the military retirees. The case involved two men from Fort Walton Beach, Fla.: William O. Schism, who served in the Navy and the Air Force from 1943 to 1979, and Robert L. Reinlie, who served in the Army and the Air Force from 1942 to 1968.

"We're ecstatic that we got a favorable ruling," Mr. Schism said today in an interview. "We feel that we've been vindicated a little bit."

Mr. Schism said he was enrolled in Medicare, but had to pay tens of thousands of dollars in drug costs and other expenses not covered by that program.

The court's ruling involved only Mr. Schism and Mr. Reinlie, but their lawyer, George E. Day, said he was trying to have the case certified as a class action. Mr. Day said the reasoning of the court's decision could then provide free care for three million people.

Half of them are elderly veterans who served at least 20 years in the armed forces. The other half are spouses of veterans. The government's liability could total billions of dollars.

In an opinion for the court issued earlier this month, the chief judge, H. Robert Mayer, said, "The government made an unambiguous offer of free lifetime health care, and the retirees accepted that offer by their performance of career military service."

The Army was making similar commitments as recently as 1992, Judge Mayer said. A recruiting brochure issued in that year said, "Health care is provided to you and your family members while you are in the Army, and for the rest of your life if you serve a minimum of 20 years of active federal service to earn your retirement."

The court said the government must not repudiate its contracts.

"The retirees entered active duty in the armed forces and completed at least 20 years' service on the good faith belief that the government would fulfill its promises," Judge Mayer declared. "The terms of the contract were set when the retirees entered the service and fulfilled their obligation. The government cannot unilaterally amend the contract terms now."

Charles S. Miller, a Justice Department spokesman, said the government had not decided whether to appeal the ruling. The government acknowledged that military recruiters had promised free lifetime health care, but argued that the promises were unenforceable because the recruiters did not have the authority to bind the government.

Mr. Schism said it was urgent for the government and the veterans to settle the case because the eligible veterans were dying in substantial numbers each day.

"If the government drags its feet for another five years, it will be moot." Mr. Schism said. "There won't be many people alive to get the benefits."

The federal government reduced veterans' eligibility for free care in 1956 and further restricted it in 1966. Under a 1966 law, retired members of the armed forces and their dependents had to rely on health care benefits provided through Medicare, which now charges a premium of $50 a month and generally does not cover prescription drugs outside hospitals.

Mr. Schism lives near Eglin Air Force Base, but in the 22 years he has been retired, he said, "I have never been able to get an appointment with a physician at Eglin."

The Federal Circuit Court of Appeals, created in 1982, has jurisdiction over certain subject areas including patents, international trade and government contract claims.

Mr. Schism and Mr. Reinlie filed their claims under a statute known as the Little Tucker Act, which authorizes federal courts to handle claims against the federal government for breach of contract. Claims under this law may not exceed $10,000 apiece.

The court decision may add momentum to Congressional efforts to guarantee health care to military retirees.

Representative Ronnie Shows of Mississippi and Senator Tim Johnson of South Dakota, both Democrats, have introduced bills that would let people like Mr. Schism obtain care through the Federal Employees Health Benefits Program. The government would pay the full cost of such coverage for people who entered the service before June 1956.

"For too many military retirees," Mr. Shows said, "there is no health care, or the health care that is available is doled out like table scraps for the family dog."

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