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The 18 Cents LawsuitSeattle Times by Maureen O'Hagan September 27, 2002
(9/26/02) - After some friends helped Wendy Ehringer move into her new Seattle home in November, she said thanks by getting them some burgers at the Red Mill restaurant in Interbay in Seattle.
The bill was $15.02.
But months later, those burgers nearly cost Ehringer more than $300 and ruined her credit rating, thanks to a bounced check, an overzealous collection agency and a lawsuit that has to set some sort of record for pure measly-ness.
The amount: 18 cents.
Ehringer, a paralegal, is neither deadbeat nor dummy. She decided to fight. At a court hearing Monday, she turned the tables on the collection agency so that they now owe her money.
Paul Wasson, the attorney for Associated Credit Service (ACS), the collection agency, declined to comment, saying he had not received permission from his client.
As Ehringer describes it, the problem began when her original $15.02 check to Red Mill bounced. She then received a notice from ACS demanding the amount of the check plus $40 in fees.
"I thought I better take care of this," she said to herself.
She mailed a money order to the agency, and when it was cashed, she forgot about the burger business.
Until April, that is. That's when she received notice from ACS that she was being sued.
Though the collection agency's single-page lawsuit showed she owed "$0.00" for the bounced check, ACS now was claiming she owed 18 cents interest because the money order arrived a day or two past the deadline.
Not only that, the lawsuit said she owed $311.26 in attorney's fees and other charges.
"When I saw I was being sued for 18 cents, I was outraged," Ehringer said. "Then I realized they wanted an additional $311. I said, you've got to be kidding me. At that point, I knew there was no stopping this train."
She tried to fight the case on her own but quickly turned to friend Amanda Lee, a criminal defense lawyer who agreed to try to resolve the case.
Lee said she called Wasson, but got no response.
She wrote a letter suggesting the case be dropped. Still no response.
Then she filed a counterclaim, saying ACS was in the wrong and owed Ehringer money.
This time, Wasson responded, but ACS still didn't drop the lawsuit. Instead, a process server showed up at Ehringer's house over the July 4weekend and handed her another copy of the lawsuit.
"I said, they're not going to get away with this," Ehringer recalled. "If they weren't going to give up, I wasn't either."
The whole mess left attorney Lee scratching her head.
"I kept thinking, if they're not dropping the case, they must know something I don't," said Lee, who couldn't figure out how ACS could possibly be in the right.
"Once they cashed that check, they didn't have any basis" for a claim, Lee said. "You can't file a lawsuit if you're not actually owed the money."
Since 1995, Associated Credit Service has been the subject of 98 complaints to the state attorney general's consumer division, according to spokesman Chris Jarvis.
Still, said Jarvis, "I haven't heard of anything quite like this before."
At the Monday hearing, Seattle District Court Judge Eileen Kato found that ACS' practices violated the Consumer Protection Act and the Collection Agency Act.
The 18-cent lawsuit was dismissed. The same goes for the $311 in fees.
Kato then ruled that ACS owed Ehringer $500 in damages.
The judge also said ACS should be liable for Lee's fees which Lee says total $7,600 for 36 hours of work. A hearing on how much money ACS owes is scheduled for Monday.
"The $500 in damages might not get their attention," Lee said. "But if they have to pay attorney fees, it might."
Investor, Employee FuryNew York Times by Jonathan D. Glater September 16, 2002
(9/15/02) Corporate malfeasance and executive greed have undermined the stock market and fleeced investors, but they have also proved to be a boon for one sliver of the economy: securities lawyers.
Whether drawn by an improved image as champions of the little guy or by the prospect of tens of millions of dollars in fees, law firms and individual lawyers are jumping into the business of suing companies, their directors or officers on behalf of investors who feel lied to and cheated.
"You are seeing many, many, many more law firms coming into the field," said Mark C. Gardy, a partner at Abbey Gardy, a New York law firm that specializes in representing investors in securities lawsuits. "There's no barrier to entry. You're seeing people who in the past were referring lawyers, or who just happened to have a friend who lost some money."
The influx of new lawyers is evident from the increasing number of lawsuits filed against companies: Enron, or its executives, alone has been hit by 45 securities lawsuits, Adelphia by 56 and Tyco by 60.
Lawyers for companies and investors alike said the increased interest in shareholder lawsuits might have been inevitable. There have been too many enormous, well-publicized corporate scandals of late, it is easy to attract clients over the Internet, and the potential legal fees are staggering.
"We're in a relatively unique time," said Lawrence A. Sucharow, president of the National Association of Securities and Commercial Law Attorneys and a partner at Goodkind Labaton Rudoff & Sucharow, because the confluence of widespread scandal, the speculative bubble and a large pool of burned investors has created a unique opportunity. "The losses of any one of these cases may have equaled the market drop of all the cases in any other year, because the stocks were pumped up so much by the bubble," he said.
Established plaintiffs' lawyers the most famous being William S. Lerach of Milberg Weiss Bershad Hynes & Lerach say the new competitors are not a serious threat to them. But they concede that the new lawyers are changing legal tactics and sometimes setting off fierce battles to control big lawsuits. For now, lawyers say, there are plenty of targets to go around.
After all, millions of angry investors have lost billions of dollars, and there are many to blame: corporations, fat-cat executives, boards, lawyers, accountants and financial advisers, as well as the investment bankers who played games with stock offerings and the analysts who talked up the stock price of corporate lemons.
All of these deep-pocketed potential defendants tarred by earnings restatements, accounting scandals and now, in some cases, by criminal indictments represent a potential gold mine for securities lawyers.
Restatements are confessions that the numbers were wrong, taking care of the first argument that a plaintiff would have to make, said Michael A. Perino, a law professor at the St. John's University School of Law in New York. "Now all you have to do is take the next step and say they were fraudulently wrong," he said. Indictments can make that argument easier, too.
White-shoe lawyers most of whom will not touch plaintiff-side work and corporate executives have always disdained people who file shareholder lawsuits, accusing them of pressing frivolous complaints every time a stock declines in value. Most of the suits involve accusations of accounting fraud, rather than of insider trading or another scheme, the kinds of allegations made more often in the past.
The increased number of lawsuits, and of lawyers bringing them, has executives fuming, but quietly. The executives don't want to draw attention to themselves or to their companies, said Michael L. Charlson, a securities litigator in New York at Heller Ehrman White & McAuliffe, which represents companies. "People who have spoken up about such things in the past have sometimes ended up regretting it," he said. "They end up getting sued."
Nonetheless, he added, it is clear that the lawsuits will discourage people from serving as company directors and will force executives to spend time and money defending themselves. "These lawsuits are a huge distraction when they hit," Mr. Charlson said. "They take a tremendous amount of time."
Defense lawyers also complain that plaintiffs' lawyers try to squeeze as much money out of companies as possible, without putting the defendant out of business. That will be trickier now, because so many targets Enron, WorldCom and Global Crossing among them have filed for bankruptcy protection.
Historically, big shareholder cases were brought by law firms that specialize in the field: Abbey Gardy, Wolf Haldenstein Adler Freeman & Herz of New York, Chimicles & Tikellis in Haverford, Pa., and Milberg Weiss, which built itself into the 800-pound gorilla of the plaintiffs' bar by filing and settling many suits for millions of dollars against dozens of corporations. As the fees and the fame have grown, outweighing the professional stigma of working on what was often seen as the shady side of corporate law, the field has attracted a generation of relative newcomer firms like the fast-growing Cauley Geller Bowman & Coates of Little Rock, Ark., and smaller firms like Brodsky & Smith of Bala Cynwyd, Pa.
The appeal of shareholder litigation is easy to see. Plaintiffs' lawyers can collect as much as one-third of any settlement with shareholders a potentially huge amount, when shareholders at Enron, for example, say they have lost billions of dollars.
Lawyers for shareholders who sued Rite Aid were paid nearly $50 million; lawyers who sued Sunbeam, nearly $36 million; and lawyers who sued 3Com, nearly $48 million, according to Joseph A. Grundfest, a law professor at Stanford and former member of the Securities and Exchange Commission who runs the university's Class Action Clearinghouse. Not one of these cases put lawyers to the trouble of a trial: since the passage in 1995 of a federal law that toughened standards for securities litigation, not a single securities suit has been decided by a jury.
Of the 1,523 cases filed since that law was enacted, 415 have been settled, 151 were dismissed, 20 were withdrawn by plaintiffs, and the rest are being pursued, said Bill Ballowe, an assistant vice president at Woodruff-Sawyer, an insurance brokerage firm in San Francisco.
Some of the new plaintiff lawyers have struck out on their own from big, established firms. Others have moved into the arena from other plaintiff-side litigation, like consumer fraud. And some relatively large firms are expanding into the area, taking advantage of its fast growth.
Shareholder lawsuits begin any number of ways, plaintiffs' lawyers say. When companies announce problems, they make it easy. Sometimes a disgruntled employee will tip off a lawyer to a potential problem that the lawyer will investigate. Sometimes a lawyer files a suit because he sees that another lawyer has filed a suit. (This has led some lawyers to copyright their complaints, to deter others from simply copying them when piling on.)
Sometimes clients who have lost money and are angry or suspicious will call lawyers and ask them to look into the matter. And sometimes lawyers file suit just because they see that a company's stock has plunged and assume that something must have gone wrong.
From a lawyer's perspective, the ideal client is a big institution that lost a lot of money. Under the terms of the 1995 law, the "lead client" in a class-action suit is likely to be one that has lost more money than other plaintiffs. The lead plaintiff picks the lead counsel to manage the suit and, crucially, decides how fees are allocated among law firms.
Some lawyers with no intention of being the lead counsel troll for individual investors by putting out news releases and setting up Web sites or buying space in newspapers to advertise lawsuits. The lawyers interview the investors who respond and see whether they would be appropriate plaintiffs.
Armed with a client and a claim, the lawyer can file a complaint on behalf of all shareholders who held the company's stock during a specified time period. Usually, several complaints are filed by different firms, and a judge will decide to consolidate them in one court. That makes settlement negotiations or a trial simpler.
In the end, companies hit with lawsuits often settle fast to avoid running up legal fees, even if they think shareholders' complaints have no merit. That is why corporate America hates these lawsuits.
Defense lawyers said they were not sure whether the number of frivolous lawsuits was rising or whether any increase could be attributed to newcomer firms.
"Plaintiffs' lawyers might be looking to stretch a bit," to bring more marginal lawsuits, said Mr. Charlson, the litigator who represents companies. "But I don't necessarily associate this with newcomers."
There is no easy way to document the increase in the number of plaintiff lawyers. But there is indirect evidence in the form of data on shareholder lawsuits filed. It shows that any one company can expect to be hit with more lawsuits today than at any time in the last five years.
A company that would have been sued, on average, in 7 complaints in 1997 will now be hit by more than 12, according to James M. Newman, executive director of Securities Class Action Services in New York. "With cases like WorldCom and Enron, it's 40 or 50" lawsuits, he said, adding that the cases are usually consolidated in one court proceeding.
The overall number of securities suits continues to rise, too. So far this year, 181 securities class-action suits have been filed, versus 176 in all of last year excluding 312 suits over allocation of shares of public offerings, which were aimed primarily at financial companies like brokerage firms and 214 in the year before, according to the Securities Class Action Clearinghouse at Stanford.
Though the growing number of lawyers has not changed the behavior of defendants, it has made potential plaintiffs choosier. Institutional investors are often willing to let law firms compete for their business and to hire lawyers that are not established players, said Robert C. Finkel, a partner at Wolf Popper, a plaintiff firm in New York. Some lawyers said there soon could be auctions to choose the cheapest lead counsel, a process that would allow new entrants to underbid established firms.
Increased competition has "leveled the playing field," Mr. Finkel said. That does not mean that established firms have lost all their advantages, he added, because clients want their lawyers to have significant experience in securities litigation.
Most big firms that defend corporations from shareholder suits will not take on investors as clients, lawyers said; they fear alienating their traditional client base.
One exception is Patterson, Belknap, Webb & Tyler in New York, which represents both plaintiffs and corporations in securities lawsuits and whose securities lawyers have been busy of late on behalf of both sides, said Stephen P. Younger, a partner at the firm.
Most plaintiffs' lawyers would not openly criticize their new competitors, but many said they were frustrated that newcomer firms would send out news releases announcing that class-action lawsuits had been filed, then wait for clients to call them.
The new firms are taking advantage of the Internet to distribute news releases, a relatively new tactic to find clients. It is possible even to join a class-action lawsuit on the Web, using a law firm's site. "A firm with one lawyer, a guy out of law school, can issue a press release," Mr. Finkel said. The technology means lawyers have to worry more today about marketing, he added.
Sometimes the firm that puts out a release has not filed a case of its own but is seeking only to find potential clients it can refer to another firm that has filed a case. The referring firm then collects a fee.
That is quick money because putting a news release on the Internet is so easy, said one lawyer who would speak only on condition on anonymity. "That practice has resulted in the proliferation of claims by firms that traditionally have not been active in the plaintiffs' bar," the lawyer said.
Newcomer plaintiff firms can also make money by filing complaints as soon as they learn of filings by other firms. Then they do not need the financial resources to investigate potential fraud, let alone to go to trial.
That common practice frustrates those firms that invest in research in stock trading or that follow up on tips, said Mr. Gardy of Abbey Gardy. "A lot of times these cases start with a deep throat," he said, adding that figuring out whether a viable lawsuit can be filed takes time and money.
Settlements of securities suits last year averaged $16 million each, according to the Stanford clearinghouse. Analysts who have studied settlements said that there was no easy way to determine how much individual shareholders recovered for each share they owned or for each dollar invested.
Mr. Ballowe estimates that 75 percent of the cases filed against the likes of WorldCom and Enron will settle for a total of $17 billion. How much of the bill will be paid by insurers is unknown, he said, and some of the bankrupt companies singled out by current lawsuits may decide to go to trial because they have little to lose.
Insurers are already taking steps to protect themselves from future waves of shareholder litigation, Mr. Ballowe said. Insurance companies have doubled, tripled or even quadrupled the premiums for their policies covering corporations, directors and officers. As a result, the boards of many companies have chosen to buy less insurance, he said.
That may eventually lead some of the new plaintiff firms to pull out of the securities litigation business, Mr. Ballowe added.
"If you reduce the limits that are available and you reduce the amount of coverage in the marketplace, it should have a downward impact of some kind on settlements," he said. "The litigation industry is a business. The laws of economics apply to it just as well as they do to running another business."
Goodyear Age Bias SuitAssociated Press September 14, 2002
A group of Goodyear Tire & Rubber Co. employees sued the company Thursday, saying Goodyear's employee evaluation system discriminates against older workers.
Goodyear spokesman Keith Price said Thursday the company does not discriminate, but that it is revising the evaluation system to address workers' concerns.
Retiree-advocacy group AARP and lawyers representing eight Goodyear workers filed the lawsuit in Common Pleas Court. They plan to seek class action status.
The lawsuit says the Akron, Ohio-based company's evaluation system discriminated against older workers by giving a disproportionate number of them low grades, depriving them of raises or causing them to be fired.
Goodyear's evaluation effort is similar to a forced ranking system at Ford Motor Co. that provoked a lawsuit last year by about 500 workers. That suit was settled for $10.6 million, and Ford has since overhauled its system, abandoning grades.
Goodyear said Thursday it is dropping the most contentious part of its evaluation system, implemented in 2000, in which the top 10 percent of workers got an A, the middle 80 percent got a B, and the bottom 10 percent received a C. Workers who received a C were denied raises, and some were fired or demoted.
"It's an invitation for discrimination," said Megan Bonanni, a Royal Oak, Mich., lawyer representing employees. "It's designed to rid the company of older workers."
Under the company's revised system, which will still have three ratings, there will not be a quota for low grades. Employees ranked in the lowest category must complete an improvement program, Price said.
Goodyear does employee evaluations each spring.
"We applaud Goodyear's action as a good first step to rectifying the situation," said Laurie McCann, an AARP attorney. "Unfortunately, a lot of people were already harmed by it, and we need to get remedies for them."
Lawyers for the workers say older employees are often targeted for dismissal because they earn higher wages.
"They gave the early retirement (incentives) mostly to older workers, and if you turned it down, which I did, it seems you were targeted," said Jack McGilvery, 59, who has received two C's and is now on disability leave with pancreatic cancer.
Fake-Burial CaseThe National Law Journal by Dee McAree September 14, 2002
(9/13/02) - A trial that began seven years ago against a California cemetery has wrapped up with a $5 million plaintiffs' verdict that took two days to read aloud in the courtroom.
The defendant, Angeles Abbey Memorial Park in Compton, Calif., was accused of defrauding families of the deceased by staging phony gravesites and then burying the dead in the roadway of the cemetery, in mass graves that held up to six bodies and were marked with a number on the curb. Barnes v. Angeles Abbey, No. TC-008819 (Sup. Ct. L.A.).
Unlike typical class actions where the members divide one lump-sum award equally, the court felt a more equitable remedy would be achieved if each plaintiff in the case received an individual damages award, said Santa Ana, Calif., solo practitioner Amador Corona, the plaintiffs' counsel.
With that in mind, the court certified the plaintiffs as a class during the liability phase, but allowed them to proceed to the damages phase as individuals. Corona put each member of the class of 250 plaintiffs on the stand to testify as to the emotional abuse they had suffered.
The jury took 30 days to deliberate and personalized its award to each plaintiff, from $1,000 to $125,000, for the total of $5 million. Angeles Abbey's attorney, Scott Cox, of Pasadena, Calif.'s Friedenthal, Cox & Herskovitz, did not return phone calls.
The case is one of several that are turning a spotlight on the murky area of death care industry litigation.
In March, the Georgia sheriff's department responded to a phone call from a woman who had been walking in a remote Georgia area, when she noticed that her dog had picked up a human hand. Investigators discovered 339 bodies that had been strewn around the vicinity of the Tri-State Crematory in Noble, Ga. The news triggered scores of lawsuits against Tri-State and associated funeral homes.
SUITS ON THE RISE?
The local attorney for the plaintiffs suing Tri-State, Robert Darroch of Atlanta's Mabry & McClelland, said he has seen an increase in death care industry litigation in the past 10 years, and estimates that his firm handles 25 to 30 such cases a year, most of them on the defense side. He attributes the surge to the trend toward nationalizing the funeral business.
"Ten to 20 years ago, most funeral homes were owned locally, and community standards and state regulations were all you needed," Darroch said. "Most have been bought up and put under big national corporations. And the only way to regulate big business is with federal regulation."
The Tri-State incident prompted calls for federal regulation, which was vehemently opposed by the International Cemetery and Funeral Association (ICFA) in its April testimony before the U.S. Senate. The ICFA is in favor of more uniform state statutes.
Corona agrees that the problems in California can be resolved at the state level. The state used to have more proactive investigations, he said, until the state cemetery board was swallowed up by the Department of Consumer Affairs.
In Re Tri-State Crematory, MDL 1467, includes three federal actions that have been consolidated in a U.S. district court in Rome, Ga. A total of 113 lawsuits were filed against funeral homes in Hamilton County Circuit Court in Chattanooga, Tenn., because 75 percent of the bodies recovered were from Tennessee. Several suits are also pending in counties throughout Georgia. The defendant funeral homes are accused of sending bodies to Tri-State without checking its license or facilities.
McCracken Poston, a solo practitioner in Ringgold, Ga., is defending the operator of Tri-State, Ray Brent Marsh. Poston says the funeral homes are the deep-pocket defendants. "There are not a lot of guidelines in Georgia," he said, "but the industry will be changed by this case, if it hasn't already."
Barry Davidson, of the Miami office of Hunton & Williams, defends Service Corp. International -- the largest burial outfit -- and said state courts should not grant individual damages awards as in Barnes.
"It is converse to the whole theory of a class," said Davidson. "The reason you have a class is for efficiency and to find a remedy that applies to the entire class."
Fraudulent Ads Attack Legal SystemPublic Citizen Press Release September 11, 2002
Ad Buy Worth Up to $15 Million Appears Designed to Help Chamber-Backed Candidates in Elections and Divert Voters' Attention from Corporate Fraud
WASHINGTON, D.C. - TV and newspaper ads being run by the U.S. Chamber of Commerce that attack the legal system are fraudulent, and appear designed to provide fodder for Chamber-supported candidates in competitive races and divert the attention of voters away from an unprecedented wave of corporate fraud, Public Citizen said today. The ad buy could cost as much as $15 million this fall, The Wall Street Journal has reported.
Since late August, the Chamber has been running a television ad in Alabama, Michigan, New Mexico, South Carolina and Texas that claims Americans pay a "lawsuit abuse tax" equal to 2 percent of the price of any goods they buy. In a print ad that began running Sept. 6, the Chamber asserts that class action lawyers have a "simple formula for splitting settlements" that leaves consumers with next to nothing in compensation.
"The claims made in the Chamber's ads are about as accurate as WorldCom's accounting statement," said Joan Claybrook, president of Public Citizen. "They are as blatant as the lies told by so many corporations now under investigation for covering up illegal transactions. The real 'abuse tax' is the huge loss foisted on the public by Corporate America through an unprecedented wave of corporate fraud and abuse."
To illustrate what it has labeled the "corporate fraud and abuse tax," Public Citizen also released today an analysis of the stock loss experienced by 20 major corporations since government investigations of them became public or the companies admitted financial mismanagement through restatements or announcements of internal probes. Shareholder losses for those companies amounted to $236 billion, most of which occurred in the past year.
Public Citizen's critique of the Chamber's two ads follows. The ads, along with Public Citizen's critiques of them and the analysis of corporate fraud and abuse taxes, are available at http://www.citizen.org/congress/civjus/chamber/articles.cfm?ID=8244.
"Lawsuit Abuse Tax" Television Ad
The ad claims that a "Lawsuit Abuse Tax" caused by "phony lawsuits" costs the average family of four $1,900 a year in higher prices for consumer goods. The ad claims "phony lawsuits" add $500 to the cost of a car, $3.12 to a week's worth of groceries and 70 cents to a pair of blue jeans. These misleading calculations are based on an assumption that 2 percent of the price of any good is due to "phony lawsuits." According to the Chamber's Web site, the 2 percent figure is based on a recent White House Council of Economic Advisors study that "calculates" the intermediate cost of excessive litigation to be $136 billion a year. The Chamber's ad, which essentially suggests that all lawsuits are phony, is fraudulent because it is based on two absurd "assumptions":
§ The Council labels $40 billion of the $136 billion of injury costs as non-economic damages and says they are excessive because they are "random." In fact, these damages - compensation for pain and suffering, disfigurement, loss of fertility and more - are very real. By deeming them "excessive," the Council doesn't count more than half the compensation awarded by the tort system. Studies by Duke University, Ohio State University and McGeorge School of Law researchers have found that these damage awards are not random but are correlated with the severity of injuries.
§ The Council's second assumption is that the transaction costs of the civil justice system - attorney fees and administrative costs - should be at the same level as those of the workers' compensation system. As a no-fault system, workers' compensation determines payments by a schedule, so a certain amount of money, for example, will be awarded for a particular back injury. The workers' compensation system is a payment schedule, not an assessment of responsibility that addresses complex questions about product safety or corporate fraud and malfeasance, and sets minimum standards for consumer protection.
Class Action Print Ad
The ad suggests that in class action settlements, plaintiffs' lawyers make out like bandits while their clients get a coupon worth next to nothing. Public Citizen has challenged several dozen class action settlements, more than any other organization to ensure that consumers get a fair shake when defense and plaintiffs attorneys settle class actions. Unfortunately, the Chamber's ad is another example of false advertising and is part of a campaign designed to make it harder for consumers to prevail in class actions:
§ The Chamber ad suggests that it is wrong for attorneys' fees to exceed the monetary benefit that a class action award provides to any individual consumer. In fact, judges are required to fix reasonable attorneys' fees and do so by basing the fee on the entire sum of benefits provided to all class members, not the small amount that each class member receives as compensation for losses.
§ The Chamber ad suggests that it is common for consumers to have to "pay money out of their own pockets" to cover class counsel's fees. In fact, there is only one such case on record; in almost every class action, consumers receive refunds for overcharges, unauthorized fees and other scams.
§ The Chamber ad trumpets the "Bill of Rights" provisions of H.R. 2341, legislation in the U.S. House of Representatives requiring "judicial scrutiny of coupon settlements." The Chamber does not mention that a stronger version of the same provision is already due to take effect in 2003. Further, this legislation, which is opposed by leading national consumer groups, would give businesses a major advantage over consumers in class actions cases; the result will be that more corporate fraud and other wrongdoing will go unpunished.
"The Chamber appears to have two goals in mind with this ad campaign," said Frank Clemente, director of Public Citizen's Congress Watch. "It is providing a huge media buy in key state elections that will create a climate favorable to pro-business candidates who want to weaken the tort system, and it attempts to divert public attention away from corporate fraud and abuse that can be prevented with a strong tort system."
Georgia Power Refuses to Produce NoosesFulton County Daily Report by Trisha Renaud September 8, 2002
(9/9/02 Issue) - Georgia Power, the target of a suit over racist graffiti and nooses found at its plants, is refusing to let its employees be videotaped at a deposition with the offensive material.
Plaintiffs' lawyers in the Fulton County, Ga., State Court suit want the company to bring nooses and pictures of racial graffiti found at plants over the past 2 1/2 years to the depositions of two Georgia Power Co. employees. The company claims the request is nothing more than an effort to embarrass and harass its employees. Georgia Power lawyers have asked a Fulton State Court judge to issue a protective order for the upcoming depositions, which involve two employees who investigated the noose reports.
The depositions are part of discovery in a suit filed by four black employees of General Insulation Inc., a subcontractor that worked early this year at Georgia Power's Plant Wansley in Roopville, Ga. The four claim that General Insulation fired them after they complained to Georgia Power about the racially hostile work environment there. Their suit, which names Georgia Power and General Insulation as defendants, alleges intentional infliction of emotional distress, fraud and tortious interference with employment. Steadman v. Georgia Power, No. 02-VS-029354-A (Fult. St. filed Feb. 26, 2002).
No employee, Georgia Power attorneys argue in their motion, "should be videotaped with these offensive and inflammatory symbols, thereby subjecting them to further embarrassment, annoyance, harassment, and oppression." The company said it would, however, allow the plaintiffs to inspect the nooses at another time and place.
Plaintiffs' attorney Steven J. Rosenwasser said his clients need the Georgia Power employees to authenticate the nooses. That means having the real thing and not a photo, he said.
"No case [law] exists requiring us to use a picture when the real evidence exists," Rosenwasser said. The plaintiffs' aim isn't to embarrass witnesses but to conduct discovery, he said.
"In many ways," he added, the company's protests are "proving the merits of our case."
Georgia Power spokeswoman Lolita Browning said the company wants the protective order because the items the plaintiffs want produced at deposition have no relevance to the case. There were nooses found at Plant Wansley, Browning said, but they were in areas where contractors were working, and not in locations where the plaintiffs now claim they saw them.
She said the plaintiffs originally told Georgia Power security officials they never saw nooses at Wansley, but have changed their story.
The company believes the Fulton litigation is an extension of the federal case and the plaintiffs' lawyers' publicity strategy of putting pressure on Georgia Power, Browning said.
GEORGIA POWER EMPLOYEES' SUIT
Georgia Power is also the subject of a federal suit filed by seven of its employees, alleging that the company tolerated a racially hostile work environment and discriminated against minority employees. Cooper v. Georgia Power, No. 00-cv-2231 (N.D. Ga. Aug. 28, 2000). A federal judge denied class certification in that case, a ruling upheld by the 11th U.S. Circuit Court of Appeals.
Plaintiffs in both cases are represented by Rosenwasser, an associate with Atlanta-based Bondurant, Mixson & Elmore, who is handling the case with partners Michael B. Terry and Joshua F. Thorpe, and Johnnie L. Cochran Jr., Hezekiah Sistrunk Jr. and John K. Givens of Atlanta-based Cochran, Cherry, Givens, Smith & Sistrunk. Rosenwasser said that documents supplied by Georgia Power in the Fulton litigation indicate that nine nooses were found at Plant Wansley from September 2001 to February of this year.
The current discovery dispute, he said, "boils down to our right to use the evidence," not a depiction of the evidence. A jury, he added, needs to see "the evidence that caused our clients emotional distress." Rosenwasser said the plaintiffs' lawyers had offered to hold the nooses out to the side of the witness during the deposition and would not require the Georgia Power employees to hold them, but the company refused.
He added that it was "ironic that Georgia Power permits nooses to be hung in its facilities, yet it claims that it will be too embarrassing for Caucasians, whom the nooses were not directed at, to discuss or view the nooses in the controlled environment of a deposition."
Georgia Power previously told the Fulton County Daily Report that the federal plaintiffs' emphasis on nooses is misplaced because some of them were nothing more than knotted rope used by linemen in their jobs. Defense attorney Stephen W. Riddell of Atlanta-based Troutman Sanders said at the time that none of the nooses the company had found were ever used to harass or intimidate anyone.
Riddell, who is handling the Fulton case with Sheldon W. Snipe of the same firm and W. Ray Persons of Atlanta-based King & Spalding, didn't return a call for comment on the motion for a protective order.
In their brief, the defense lawyers argue that Georgia Power has supplied the plaintiffs with photographs of the graffiti and nooses and offered to produce the nooses at a mutually agreeable time, but the plaintiffs have refused and continue to make "unreasonable" demands.
Courts, the defense brief says, can take steps to protect parties or witnesses from harassment and embarrassment -- and harassment and embarrassment are the "only reason Plaintiffs could possibly have for making their request."
A decision on that motion, however, won't come right away. The judge assigned to the case, Fulton State Court Judge Brenda S. Hill Cole, recused herself last month. Neither side had asked for her to step down, and Cole gave no indication of her reason for doing so. The case has been reassigned to Judge Penny Brown Reynolds.
Chainsaw Al Takes a HitReuters September 5, 2002
WASHINGTON (Reuters) - Former Sunbeam Corp. Chief Executive Al Dunlap, known as ``chainsaw Al'' for cutting thousands of jobs in the 1990s before the appliance maker went bankrupt, will pay $500,000 to settle charges he used inappropriate accounting techniques that hid Sunbeam's financial problems, regulators said on Wednesday.
In addition, former Chief Financial Officer Russell Kersh will pay $200,000. They were also barred from ever serving as officers or directors of any public company, the Securities and Exchange Commission said.
They did not admit or deny the charges in settling the case and neither of them sold Sunbeam stock or received performance-related bonuses during the allegedly illegal accounting activity, the SEC said.
Dunlap has already paid $15 million and Kersh $250,000 to settle a class action lawsuit similar to the SEC's, which claimed that Dunlap, Kersh and others used improper accounting practices and undisclosed transactions to misrepresent Sunbeam's results of operations.
Dunlap's attorney, Frank Razzano, said his client has been living in retirement for the past four years and the agreement with the SEC ``will allow him to pursue his retirement and, therefore, is a welcome outcome.''
Kersh's lawyer, Jeffrey Tew, pointed to the SEC statement that said his client did not sell Sunbeam stock, which ``differentiates him from some other executives we've been reading about. I think it's an important distinction.''
The allegedly illegal conduct began toward the end of 1996 when Kersh and others created inappropriate ``cookie jar'' accounting reserves that increased Sunbeam's reported loss for 1996.
The reserves were then used to inflate income in 1997, thus contributing to the false picture of a rapid turnaround in Sunbeam's financial health, according to the complaint filed in Miami.
For fiscal 1997, ``at least $60 million of Sunbeam's reported $189 million in earnings from continuing operations before income taxes came from accounting fraud,'' it added.
Dunlap and Kersh also failed to disclose that Sunbeam's 1997 revenue growth was partly achieved at the expense of future results.
The company had offered discounts and other incentives to customers in order to sell merchandise immediately that otherwise would have been sold later, a practice known as ``channel stuffing,'' the SEC said.
The improper accounting and channel stuffing in 1997 created the prospect of diminished results in 1998, when Dunlap, Kersh and others took ``increasingly desperate measures to conceal the company's mounting financial problems,'' regulators added.
Sunbeam shares were currently trading for 9 cents on the Pink Sheets.
The SEC's suit against three other former Sunbeam officers, Robert Gluck, Donald Uzzi and Lee Griffith, is still pending, as is the case against Phillip Harlow, the Arthur Andersen audit partner responsible for Sunbeam's 1996, 1997, 1998 financial statements.
Trial is scheduled for January 2003.
SC Judges Seek to Ban Secret SettlementsNew York Times by Adam Liptak September 3, 2002
(9/2/02) - South Carolina's 10 active federal trial judges have unanimously voted to ban secret legal settlements, saying such agreements have made the courts complicit in hiding the truth about hazardous products, inept doctors and sexually abusive priests.
"Here is a rare opportunity for our court to do the right thing," Chief Judge Joseph F. Anderson Jr. of United States District Court wrote to his colleagues, "and take the lead nationally in a time when the Arthur Andersen/Enron/Catholic priest controversies are undermining public confidence in our institutions and causing a growing suspicion of things that are kept secret by public bodies."
If the court formally adopts the rule, after a public comment period that ends Sept. 30, it will be the strictest ban on secrecy in settlements in the federal courts. Mary Squiers, who tracks individual federal courts' rules for the United States Judicial Conference, said only Michigan had a similar rule, which unseals secret settlements after two years. The conference is the administrative body for federal courts.
Judge Anderson said the new rule might save lives.
"Some of the early Firestone tire cases were settled with court-ordered secrecy agreements that kept the Firestone tire problem from coming to light until many years later," he wrote. "Arguably, some lives were lost because judges signed secrecy agreements regarding Firestone tire problems."
Lawyers say the proposal, which was widely discussed at the American Bar Association's conference in Washington last month, is likely to be influential in other federal courts and in state courts, which often follow federal practice in procedural matters. In South Carolina, the state's chief justice has expressed great interest in the proposal.
The Catholic Church scandals are one reason for a renewed interest in the topic of secrecy in the courts, legal experts say.
"All reactions are going to be affected by the bureaucratic cover-your-cassock responses of the church hierarchy," said Edward H. Cooper, a law professor at the University of Michigan.
But some legal experts and industry groups say the blanket rule is unwise.
"The judges of South Carolina, God bless them, have not evaluated the costs of what they are proposing," said Arthur Miller, a law professor at Harvard and an expert in civil procedure. He said the ban on secret settlements would discourage people from filing suits and settling them, and threaten personal privacy and trade secrets.
Joyce E. Kraeger, a staff lawyer at the Alliance of American Insurers, said the current system, in which judges have discretion to approve sealed settlements or not, worked fine. "There shouldn't be a one-size-fits-all approach," Ms. Kraeger said.
Jeffrey A. Newman, a lawyer in Massachusetts who represents people who say they were abused by Catholic priests, praised the South Carolina proposal. Mr. Newman said he regretted having participated in secret settlements in some early abuse cases. "It was a terrible mistake," he said, "and I think people were harmed by it."
Mr. Newman said a rule banning secret settlements, combined with the Internet, would create a powerful tool for lawyers seeking information on patterns of wrongful conduct.
The impact of such a ban could be limited, however, if adopted only by federal courts. Most personal injury and product liability cases, and almost all claims of sexual abuse by clergy, are litigated in state courts.
Several states have laws and rules that limit secret settlements, typically in cases involving public safety. Florida, for instance, forbids court orders that have the effect of "concealing a public hazard."
Experts say many of those limits are difficult to enforce, particularly when every party to a case is urging the judge to approve a settlement. Indeed, Judge Anderson's colleagues rejected his proposal, which was limited to matters of public health and safety, in favor of a blanket ban.
The federal proposal in South Carolina has caught the attention of Jean Toal, the chief justice of the South Carolina Supreme Court. Chief Justice Toal said that she would await the formal adoption of the rule before making her own proposal, but that the issue was important and timely.
"I'm very intrigued about this," she said, noting that some of her interest arose from "recent claims involving pedophilia and sealed cases." Judge Anderson and Chief Justice Toal noted that a Columbia, S.C., newspaper, The State, had spurred their interest in the issue by publishing a series of articles on secret settlements by doctors repeatedly accused of medical malpractice.
Even under the South Carolina proposal, the settlement amount and the requirement that parties keep quiet could be placed in a private contract not filed with the court. If the contract were violated, a new lawsuit would be required to seek redress. A court-approved settlement, on the other hand, can be enforced by returning to the original judge for a contempt order.
"If they don't want the might and majesty of the court system to enforce their settlement, that's one thing," Chief Justice Toal said. "Sealing the economic terms of the settlement is only one part of it. We're often talking about sealing the entire public record of the case."
Opponents of the proposal argue that secrecy encourages settlements, which they say are desirable given limited court resources.
Judge Anderson told his colleagues that their court, at least, had available capacity. He wrote that the court had disposed of 3,856 civil cases in the previous 12 months, which included only 35 cases tried to a verdict.
"If the rule change I propose were enacted and it did result in two or three more jury trials per judge per year (which is far from certain)," Judge Anderson wrote, "I think we could handle the increased workload with little problem."
Robert A. Clifford, a Chicago lawyer who typically represents plaintiffs, scoffed at the notion that defendants would not settle without secrecy provisions, saying the alternative to a public settlement was a far more public trial.
"The undeniable fact is that the reason they want secrecy is so victim No. 2 does not find out what victim No. 1 got," Mr. Clifford said.
Ms. Kraeger, of the insurers alliance, did not dispute that. "Making that information widely known could have the effect of driving up litigation costs," she said.
Professor Miller emphasized that plaintiffs might not want to have their new wealth made public.
"There is a right not to enable every neighbor and business associate to know what you got," he said. "Would you want to receive calls from telemarketers who discover that you just got $1 million?"
In a forthcoming article in The Hofstra Law Review prompted by settlements in sexual abuse cases involving clergy, Stephen Gillers, a law professor at New York University, argues that confidentiality provisions that forbid victims to talk about their experiences amount to obstruction of justice and violate ethical rules governing lawyers.
Professor Gillers, though, would exclude settlement amounts, trade secrets and private information from any requirement that settlements be made public.
Judge Anderson was most concerned with the selling of secrecy as a commodity, he said in an interview. He recalled being told by a plaintiff's lawyer that the lawyer had obtained additional money for his client in exchange for the promise of secrecy.
"That's what really lit my fuse," the judge said. "It meant that secrecy was something bought and sold right under a judge's nose."
A Reasonable LawsuitAssociated Press by Brian Bergstein - August 23, 2002
SAN JOSE, Calif. - Fed up with unwanted ads for phone accessories, credit services and stock tips on his fax machine, a Silicon Valley executive sued a company that sends bulk faxes on Thursday, demanding an attention-getting $2.2 trillion in damages.
Yes, that's $2.2 trillion - or about $100 billion more than this year's total federal budget.
It may seem wildly inflated, but technology entrepreneur Steve Kirsch believes that's the total amount consumers should get if the proper penalty is assessed for each and every junk fax, and the damages are tripled as federal law allows. The suits seek class-action status.
Kirsch decided to pursue a class action against junk faxes last fall, after he got a torrent of ads with no phone number he could call to get his fax number removed. An unwanted fax wastes 10 cents, he estimates, if you factor in the cost of paper, ink, wear and tear on the fax machine and the time lost in sorting through all the incoming.
"This has been going on for years," said Kirsch, founder and chief executive of Propel Software Corp. in San Jose. "But lately it's become more of a science, and both spam e-mails and spam faxes have begun to be more of a problem."
Kirsch filed the suits simultaneously in Santa Clara County Superior Court and U.S. District Court in San Francisco.
Both target Fax.com, an Aliso Viejo, Calif.-based company that sends bulk fax advertisements, and as many as 10,000 advertisers. The state suit also names Cox Business Services, a subsidiary of Atlanta-based Cox Communications Inc., because Fax.com uses network equipment it bought from Cox.
Fax.com's CEO, Kevin Katz, did not return messages seeking comment. Cox spokesman Bobby Amirshahi declined to comment on the litigation.
Kirsch's lawsuits are by no means the first attacks on bulk-fax advertisers, who have millions of fax numbers on file and have been known to ring recipients at all hours of the day.
In 1991, Congress passed the Telephone Consumer Protection Act, which restricted telemarketers' activities but also lets junk fax recipients sue their senders for up to $1,500 per fax. To qualify as illegal, a fax must be unsolicited and advertise some product or service for sale.
Earlier this month, the Federal Communications Commission proposed a $5.38 million fine against Fax.com, the largest ever by the commission for violations of the act. The FCC claims Fax.com "engaged in a pattern of deception to conceal its involvement in sending the prohibited faxes, and that the company has not been forthcoming in its dealings with the agency."
At the time, Fax.com lawyer Mary Ann Wymore said the company feels the rules on unsolicited advertising are an unconstitutional restriction of its freedom of speech.
The law has seen mixed results in court.
In some cases, courts have awarded damages to junk-fax recipients. A federal judge in Texas last August ordered American Blast Fax Inc. to pay the state nearly $500,000 for sending unsolicited faxes. The Texas Attorney General's office, which brought that case, had itself received more than 200 unsolicited fax ads from the company.
But in a lawsuit in Missouri against Fax.com, a federal judge ruled in March that unsolicited fax ads amount to constitutionally protected free speech.