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Legal     1 - Duke Energy Employee Advocate
Legal - Page Four

"I think that anyone choosing not to lower assumptions - CEOs, auditors,
and actuaries all - is risking litigation for misleading investors. - Warren Buffet

Supreme Court to Decide Age Discrimination

Reuters December 4, 2001

The Supreme Court said on Monday it would decide whether older workers fired during a corporate reorganization can prove age discrimination by showing it had a disproportionate impact on them.

The justices agreed to review a U.S. appeals court ruling that the 1967 federal civil rights law at issue does not under any circumstances permit the "disparate impact method" of proving age discrimination.

The justices agreed to resolve the issue after appeals courts around the nation issued conflicting rulings. The Supreme Court will hear arguments in the case next year, with a decision due by the end of June.

The case involved an appeal by 117 older former employees of Florida Power Corp. who were fired between 1992 and 1996 during a series of reorganizations the company says were adopted to maintain competitiveness in the newly deregulated market.

More than 70 percent of the employees who were fired were at least 40 years old. They claimed the layoffs fell disproportionately on older workers.

The company, a wholly owned subsidiary of Progress Energy Corp., denied any violations of the age bias law and said it had legitimate, nondiscriminatory reasons for firing the employees.

Disparate impact claims involve employment practices that appear neutral on their face in the treatment of different groups, but which in fact fall more harshly on one group than another and cannot be justified by business necessity. A federal judge ruled the disparate impact claims by the workers could not be brought under the age bias law and refused to allow a class-action lawsuit. The appeals court upheld the decision.

The Supreme Court in a 1993 ruling suggested the disparate impact method of proving discrimination, available under the 1964 civil rights law, might not be available to workers under the 1967 age discrimination law.

Ford Wants to Settle Age Discrimination Suits

Associated Press - by Ed Garsten December 3, 2001

(11/30/01) Ford Motor Co. plans to file motions next week with proposed settlement terms in a pair of age discrimination class actions lawsuits filed by current and former employees, a spokeswoman for the automaker said Friday.

Settlement talks began earlier this month between lawyers representing Ford, plaintiffs in the two class action suits and in seven individual suits.

Neither side would disclose proposed terms of the settlement.

Negotiations to settle the individual suits have been less fruitful, said James Fett, an attorney working on behalf on several plaintiffs.

``We are diligently attempting to resolve the individual suits, but no agreements have been reached at this time,'' Fett said.

Ford spokeswoman Anne Gattari said she didn't anticipate that failure to reach terms on the individual suits would delay the filing of motions in the class action suits.

Gattari said a fairness hearing would be conducted after the filing of the motions where plaintiffs could weigh in on the proposed settlement terms.

In another development, Ford has told employees who are plaintiffs in the class action suits and who also have been offered voluntary separation packages that a waiver would be lifted allowing them to receive any payout from a settlement in the cases.

A letter sent Thursday reads, ``We want to advise you that by accepting the package and signing the general release and waiver, you will not give up your right to receive a financial recovery under this proposed class action settlement, despite language to the contrary in the waiver.''

Gattari said this was an ``exception'' and not a change in any Ford policy ``because we want to be fair to everybody.'' Ford is attempting to reduce its salaried work force by 4,000 to 5,000 employees by the end of the year through the offer of voluntary separation packages and early retirements.

The employees suing Ford say a management performance evaluation system put into place last year unfairly discriminated against older, white males by giving a disproportionate number of them low grades depriving the managers of raises or promotions.

The evaluation system was promoted by Jacques Nasser, who resigned under pressure on Oct. 30 as Ford president and chief executive officer. He was succeeded as CEO by chairman William Clay Ford Jr.

That same day vice president of human resources, David Murphy, also resigned and was replaced by Joe Laymon.

Ford said he would make it a priority to attempt to settle the age discrimination suits in hopes of rebuilding the relationship between the company and its employees.

Flood of Lawsuits Puts Underwriters in Cross Hairs

The New York Times by Jonathan D. Glater December 3, 2001

For Christopher Lovell, a New York lawyer, the class-action lawsuit boom of 2001 began with an after-hours phone call in January from Howard Sirota, another lawyer.

Mr. Sirota had evidence suggesting that investment banks had engaged in questionable practices taking companies public during the Internet stock frenzy of the 1990's like secretly agreeing to pump up the prices of new shares.

Mr. Sirota was sure that these activities had violated securities laws, but he wanted to argue that they had also violated antitrust laws. Mr. Lovell, who specializes in antitrust and securities law, had the expertise that Mr. Sirota needed. Their law firms soon filed the first of several antitrust suits against stock issuers and investment banks and joined an army of plaintiffs' lawyers filing securities class-action suits.

"The implications were staggering," because of the huge number of public offerings underwritten by major investment banks, Mr. Lovell said, recalling the conversations with Mr. Sirota. "I did think that it could be big. I didn't think it could be this big."

In the legal arena known as class-action litigation suits filed by lawyers on behalf of groups of people, or classes, seeking huge damage awards or settlements the demise of so many public offerings over the last few years is a potential gold mine.

More federal securities class-action lawsuits have been filed this year than in any other 407 so far, compared with 216 in all of last year and 209 in 1999, according to the Securities Class Action Clearinghouse, a Stanford University Web site that tracks class actions. Those numbers do not include the antitrust claims or hundreds of state law claims that have been filed.

Milberg Weiss Bershad Hynes & Lerach, a New York firm that is by far the leader in filing class-action lawsuits, was the first to file one accusing investment banks of fraud in a new securities offering. That suit has been followed by an avalanche of similar claims. Mr. Lovell's firm, Lovell & Stewart, filed the first antitrust claim in a securities class-action lawsuit, joined by Mr. Sirota's firm, Sirota & Sirota.

Melvyn I. Weiss, a Milberg Weiss partner, said he expected that as many as 1,000 suits would eventually be filed against as many as 300 issuers and about 50 underwriters in connection with public stock offerings. "Virtually every major investment bank is named," he said.

The flood of litigation partly reflects the growth in the number of equity investors during the bull market of the 1990's. While there is nothing new about lawsuits after stock market declines, the large number of cases and the novel legal approaches taken by some of the plaintiffs' lawyers are extraordinary.

Nearly 250 lawsuits have already taken aim at the way public stock offerings were conducted. Some contend that investment banks sold shares in hot technology companies at the offering price to clients who agreed to buy additional shares at a specified, higher price after the initial public offering, driving up prices and making the stocks look more popular. That practice is known as laddering, and while it may not be illegal by itself, Mr. Weiss and others contend that concealment of laddering is.

Other suits contend that banks sold shares at initial offering prices to clients who paid hefty commissions for other, unrelated transactions. Again, plaintiffs say that concealing these inflated fees violated disclosure requirements. The lawsuits focus on actions that plaintiffs claim were taken by underwriters, distinguishing them from lawsuits that have accused stock issuers of hiding or misstating financial information.

"This is a very different kind of allegation," said Michael A. Perino, a professor at St. John's University School of Law in New York. "In the typical class action involving an I.P.O., the allegation involves some sort of misrepresentation or omission of information. The allegations here go to the I.P.O. process itself."

Attacking the public offerings may allow plaintiffs' lawyers to avoid some of the stricter standards they must meet in other securities class actions, but the arguments are unproven, said Joseph Grundfest, a Stanford law professor and a former member of the Securities and Exchange Commission. "Even if their allegations are correct, the plaintiffs have serious issues demonstrating damages and liability," because stock prices probably would have changed independently of any deals between an underwriter and a particular investor, Professor Grundfest said.

Consider the suit arising out of the initial public offering of, a Web site that offers services like car insurance and financing. In 1999, Credit Suisse First Boston and other banks underwrote the offering; the offer price was $14 a share, the stock opened to the investing public at $21.63 and rose to $40, according to the complaint. later fell below $1 a share; it was acquired by Autobytel Inc. in August.

According to the complaint, the price in early trading was inflated because some of the banks' clients had agreed to buy shares at a certain price, after the initial offering, to prop up the stock. But even if such agreements can be proved, there is no easy way to determine what the price might have been in their absence, and that will make it hard to calculate damages.

Credit Suisse First Boston, like other investment banks, has denied accusations of wrongdoing. (In a bit of good news for Credit Suisse and, by extension, other investment banks, the United States attorney's office in Manhattan said on Wednesday that it would not pursue criminal charges against Credit Suisse in connection with public stock offerings that it underwrote.)

Another novel legal claim was aimed at analysts at investment banks, arguing that they gave overly positive commentary in order to arouse interest in stocks whose sale the banks were underwriting.

One of these complaints was filed against Morgan Stanley Dean Witter & Company and its star analyst, Mary Meeker, on behalf of shareholders. The filing used public statements by analysts praising stocks, as well as newspaper articles, to make an argument that Ms. Meeker had misled investors to artificially inflate Amazon shares and to keep Amazon's investment banking business. This was a conflict of interest and should have been disclosed, the complaint asserted.

But in a setback to the plaintiffs' lawyers, United States District Judge Milton Pollack dismissed the complaint in August as lacking merit. The lawyers who filed the complaint said they would not try again. The dismissal does not bode well for other lawsuits making the same arguments.

The antitrust suits against underwriters, which have yet to be tested in court, were largely Mr. Lovell's contribution. He and Mr. Sirota said they were convinced that if the different investment banks, which worked together to underwrite public offerings, colluded to inflate the post-offering stock prices, then antitrust laws were broken. "Under the antitrust laws, it's O.K. if each competitor individually decides to try to inflate its price or inflate its charges," Mr. Lovell said. "They cannot do it jointly."

The first antitrust suit was filed in March. Mr. Weiss's firm soon followed with its own antitrust claims. "We filed a little bit later," Mr. Weiss said. "There came a time when I was satisfied that I had enough evidence to support that kind of allegation." He would not discuss what kind of evidence.

Milberg Weiss is now essentially the lead law firm for all of the antitrust suits and public offering securities suits which makes sense, Mr. Weiss said, because his firm is much bigger than many others that represent plaintiffs in such cases, and so has more resources.

"The bottom line is that we're all working together now," Mr. Weiss said. But Milberg Weiss's leadership position is good for the firm, other lawyers said, because it may give it more influence over the allocation of legal fees. The issue of who will be lead lawyer is often hotly contested, and in this group of class-action lawsuits a federal judge served as mediator among the different law firms. Milberg Weiss won.

The other cases piling up in federal courts are more traditional securities fraud lawsuits, in which shareholders contend that companies concealed or misrepresented financial information. There are 164 federal suits that do not contain claims about public stock offerings and 243 that do, according to the Securities Class Action Clearinghouse. The high number of suits stems in part from the rising number of restatements of earnings by publicly held companies. A restatement may indicate that something is wrong at a company, and it will often attract lawyers' attention. The number of such restatements has risen steadily over the last four years, to 233 last year from 216 in 1999 and 158 in 1998, according to a study by Arthur Andersen, the accounting firm, which has itself been named as a defendant in some cases.

The surge in restatements has led to more claims against accounting firms, which are named as defendants in more than half of securities class-action suits filed in recent years, according to National Economic Research Associates, a consulting firm.

"The accounting environment has changed," Professor Grundfest said, such that restatements are more common, sometimes because of straightforward changes in accounting practices but sometimes not. It makes sense for plaintiffs, whose lawyers are usually paid a fraction of any settlement amount and nearly all securities fraud suits are settled to try to name defendants who have deep pockets.

The number of shareholder suits will indeed rise, and not just because Mr. Weiss says he has more claims left to file. The collapse last week of Enron, the energy trading company, has already led to several lawsuits including one filed by Milberg Weiss.

Workers' Suits Over Wages on the Rise

The National Law Journal - David Hechler November 30, 2001

Plaintiffs' lawyers have breathed new life into the Fair Labor Standards Act, the Depression-era law designed to ensure that even those with menial jobs are paid a minimum wage. Proof of the law's renewed vigor can be found in federal court dockets, where the number of lawsuits claiming violations of the act jumped by nearly a quarter from 1998 to 2000.

What may be equally important, employment lawyers said, is that many plaintiffs have begun to litigate similar claims under wage and hour laws in state courts, where it is often easier to bring class actions. Although state court statistics are not available, the lawyers agreed that there has been a surge recently, highlighted by a California jury's verdict in July ordering Farmers Insurance Exchange to pay its claims adjusters $90 million in underpaid wages. The judgment, which could exceed $130 million with interest and attorney fees, commanded the attention of lawyers and industry analysts.

"This verdict is a wake-up call for all California employers," opined the California Employment Law Letter, a newsletter that advises employers of current trends. "Studies have shown that the majority of U.S. employers are out of compliance with the wage and hour laws."

The newsletter also reported that in June, Rite Aid Corp. paid $25 million to settle another class action.

Last year, Albertson's paid $37 million to settle a suit brought by thousands of employees who claimed they were forced to work "off the clock." In October, BCI Coca-Cola Bottling Co. and Bank of America settled similar class actions in California courts for $20.2 million and $22 million, respectively.

Employment attorneys around the country also report these pending cases:

A New York lawyer is litigating cases on behalf of deliverymen for A&P and Gristede's grocery stores and Duane Reade drug stores; garment workers employed by Donna Karan; and employees of New York Apple Tours and Wal-Mart.

A Texas attorney has brought claims against 11 offshore drilling companies and the Aon Insurance Co.

A California lawyer sued, under state law, OfficeMax, Food4Less and AAA Automobile Club of Southern California.

A Washington, D.C., lawyer is defending claims against Ameritech, Wal-Mart, and the May Department Store Co.

According to the Administrative Office of the U.S. Courts, the number of suits under the Fair Labor Standards Act increased from 1,562 to 1,935 between 1998 and 2000.

"To some extent, it has been a new frontier," said David Borgen, a plaintiffs' lawyer at Oakland, Calif.'s Saperstein, Goldstein, Demchak & Baller and co-chair of the American Bar Association's Fair Labor Standards Act Subcommittee. Most workers know they can't be discriminated against, he said, but they have been slow to learn that it is also illegal for a company to call them managers, when they don't manage, in order to avoid paying overtime.

The plaintiffs' bar has also been slow to grasp the opportunity, although the federal law has existed since 1938 and many state laws also are well-established. Plaintiffs' lawyers said individual cases are rarely economically feasible. Taken together, they may be lucrative indeed, but the federal law doesn't allow class actions. Whereas in class actions all parties of the certified class are included in the suit unless they opt out, the labor act provides for only "collective actions" in which each plaintiff must opt in. Few lawyers were willing to embrace what they perceived as labor-intensive propositions with uncertain returns.


What changed? The Clinton administration championed increased enforcement of labor laws, Borgen said, which raised awareness among employees and their advocates. The U.S. Department of Labor also released regular reports assessing compliance with the wage laws, and the rates in many industries were very low.

The opportunity for litigation was facilitated by provisions in the federal statute that encourage courts to assist plaintiffs in joining claims of co-workers.

In recent years, plaintiffs' lawyers have been further aided by labor unions. Joseph Tilson, a defense lawyer at Chicago's Meckler Bulger & Tilson, cited the United Food and Commercial Workers Union as particularly effective in this area, organizing workers and referring them to lawyers. Spokesman Greg Denier acknowledged that his union, with 1.4 million members, has taken an active role in lawsuits against companies including Albertson's, Tyson Foods, Perdue Farms and Nordstrom.

Once lawyers began suing and companies began settling for substantial amounts, word spread rapidly through news coverage and seminars organized by the ABA and the National Employment Lawyers Association.

It wasn't long before lawyers in some states recognized the advantage of bringing class actions under state wage and hour laws. One of the first lawyers to do so was Steven Zieff, who won the $90 million verdict against Farmers. A partner at San Francisco's Rudy, Exelrod & Zieff, he wasn't aware of other class actions when he filed his first case, in 1992, but it seemed only natural.

"Employers treat the employees as a class," Zieff said, "so these cases scream for class actions."

For Robert Davis, a lawyer in the Washington, D.C., office of Chicago's Mayer, Brown & Platt who is defending companies in about 30 wage cases around the country, most in state courts, class certification is where the battle begins.

"Plaintiffs are making assertions about what happened to them individually, such as whether they were required by a particular manager to work off the clock," Davis said. "Many courts have ruled that a multiplicity of claims like this cannot pass muster for a class action." Over the past two years, he has prevented plaintiffs from achieving certification in three cases and negotiated settlements in another seven after persuading plaintiffs their classes were unlikely to be certified, he added.

Plaintiffs' lawyer Borgen sees the battle line differently. For him, it's the use of the administrative exemption: "That's where the rubber meets the road. That's where you're going to see litigation."

His firm filed its first wage case in 1997, the firm's only one that year. Now the firm handles a half-dozen or more annually, with settlements ranging from $1 million to $12 million.

"The law has been available for decades, but it had been dormant," he said.

It is dormant no longer.

Justice, 200 Years Later

The New York Times by Bob Herbert November 29, 2001

Perseverance. Fortitude.

The Cayuga Indians are a tiny, poverty-stricken, widely scattered tribe that lost its ancestral home in western New York more than 200 years ago.

Most of the Cayugas' 64,000 acres of land (in what are now the counties of Cayuga and Seneca) were ceded to the State of New York in a decidedly shady deal known as the Cayuga Ferry Treaty in July 1795. Another three square miles, the last of the tribe's land, was ceded in 1807.

Although the Cayugas were paid a small sum for the land, there were problems. The deal was illegal. It did not have the required approval of the federal government. George Washington, who was president at the time of the initial transfer, expressed unease with what the state was doing, but the federal government did not intervene.

The Cayugas endured extreme hardship. Many drifted away some to Canada, others to various parts of the American West. Over many decades the tribe was reduced in number to only a few hundred families. But as one struggling generation followed another, there remained a dream among the Cayugas that they would someday reclaim the land lost in New York. Or, at least, its fair value.

New York State has always been vulnerable to the Cayugas' claims because of the patent illegality of the land transfers. The U.S. Constitution, ratified in 1789, specifically and unequivocally forbade the type of treaties under which the state obtained the Cayugas' land.

Sporadic efforts to settle the Cayugas' continuing claims failed, and in 1980 the tribe filed a federal lawsuit against the State of New York. Four years later a special panel recommended that the tribe be given 8,000 acres in Cayuga and Seneca Counties for a reservation, and a cash settlement of $15 million. Most of the land was publicly owned, and no private owners would have been required to give up their property against their will.

The bitterness provoked by that proposal was stunning. As The Times's Michael Winerip reported in an article in August 1984, local residents threatened to use guns to keep Indians off the land. People complained at public meetings that they did not want their children going to school with "dirty" Indians suffering from dysentery and infected with lice.

The opposition was led by a retired Tufts University professor named Wisner Kinne, who said, "People have no conception how frightening it was fighting them when the country was new." Pointing to a visitor, he remarked, "It was nothing for them to pick up someone like you, and put you in a fire, slowly, a couple of inches at a time until you'd be dead."

The lawsuit was not settled and the Cayugas pressed on. In 1992 the federal government joined the suit on the side of the Cayugas. In 1994 Judge Neal McCurn ruled that the tribe had a valid claim to the 64,000 acres because the acquisition by the state was never ratified by Congress, as required by federal law.

The case dragged on. In 1999 a court-appointed mediator proposed a settlement in the range of $125 million, to be split between the federal and state governments. The Cayugas accepted. But the state would not go along.

Whether it realized it or not, the state was in a bind. The Cayugas had the law and the weight of history on their side. On Feb. 17, 2000, a federal jury in Syracuse returned a verdict in favor of the Cayugas, awarding them $36.9 million for the loss of their ancestral lands. But that did not include the interest that had accrued. Last month, in a ruling that got very little press coverage, Judge McCurn ordered the state to pay the Cayugas a total of $247.9 million, which is believed to be the largest resolution of an Indian land claim in U.S. history.

This was a case that was based on bad faith from the very beginning and the shame is that it should have taken more than two centuries to correct the wrong.

In the period immediately following the Revolutionary War, New York disagreed with the notion, embodied in the Constitution, that the federal government and not the individual states would have ultimate legal jurisdiction over the Indians.

When the Cayuga land issue arose, the state simply ignored the law, said Martin Gold, a Manhattan attorney who represented the Cayugas in their lawsuit. "The state went out on its own," he said, "and did what it wanted to do, which was take the Indians' land for a song."

Legal - Page Three