JEREBEASLEYREPORT · Hospitals And Lawyers Sue Insurance Companies After filing the doctors’case,we filed two more lawsuits in the growing mal-practice insurance scandal that affects

I.CAPITOL OBSERVATIONS

Massive Fraud On WallStreet—The Alabama Connection

Under the terms of a $1.4 billion set-tlement announced on April 28thbetween securities regulators and WallStreet firms,Alabama stands to receiveover $5,000,000 upon final acceptanceof the terms of the agreement.The set-tlements result from allegations of con-flicts of interest at brokerage houseswhere analysts recommended stocksdue to improper influence from theirinvestment banking colleagues. Unfor-tunately,Wall Street has been rocked bya series of accounting scandals thathave taken a staggering toll on theeconomy and the pocketbooks ofAmerican citizens from all walks of life.Recent corporate wrongdoing has costAmericans more than $200 billion inlost investment savings, jobs, pensionfunds, and tax revenue.These losses, aslarge as they are, tell only part of thestory.The loss of trust, which certainlyis not easy to quantify at this point,could ultimately cause the U.S.economy billions of dollars in lost rev-enues,profits, exports, and jobs.

Hopefully, this settlement will get theattention of persons in high places,both in government and in the corpo-rate world.The message should be thatthe sort of conduct that gave rise to theinvestigation and ultimate settlement

won’t be tolerated. While the $1.4billion is large, it really may not be ade-quate fines for the 10 corporations. Forexample, the $300 million fine to Citi-group is less than 1% of the corpora-tion’s last year’s revenues, whichtopped $92 billion. I firmly believe thatin addition to the money paid, andhopefully to be paid in individualclaims, a number of offenders shouldspend time behind bars.We can’t treatstreet crime one way and white-collarcrime in a totally different manner.Investors should be able to pursuetheir individual claims and that shouldhave been preserved in the settlement.

Joseph P. Borg, Director of theAlabama Securities Commission, wasPresident of the North American Securi-ties Administrators Association (NASAA)when the states joined resources toundertake the investigation. He wasinstrumental in getting the massiveinvestigation underway. This sadchapter in the history of our financialmarkets will go down in history assome of the worst examples of greed,arrogance, and a total disregard by cor-porate employees for the folks theywere supposed to be working for. Manybelieve the industry reforms required inthe settlement will provide for moreobjective research and stronger protec-tions for investors. I don’t believeanybody had any idea that the large bro-kerage houses were operating in thisfashion. I suspect the truth is they neverthought they would be caught.While Iam afraid that some of the wrongdoersmay now enjoy immunity from criminalprosecution, I hope that my informationon that score is incorrect.

JEREBEASLEYREPORTJEREBEASLEYREPORTBeasley,Allen, Crow, Methvin, Portis, & Miles, P.C., Attorneys at Law MAY 2003

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T H E

Arbitration

IN THIS ISSUEI. Capitol Observations . . . . . . . . . . . . 1

II. Legislative Happenings . . . . . . . . . . 4

III. Nursing Home Update. . . . . . . . . . . 7

IV. Congressional Update . . . . . . . . . . 11

V. Court Watch . . . . . . . . . . . . . . . . . 12

VI. The National Scene . . . . . . . . . . . . 14

VII. Corporate Wrongdoing . . . . . . . . . . 18

VIII. Arbitration Update . . . . . . . . . . . . 20

IX. Product Liability Update . . . . . . . . 21

X. Mass Torts Update. . . . . . . . . . . . . 25

XI. Business Litigation Update . . . . . . 30

XII. Insurance and Finance Update . . . 33

XIII. Environmental Concerns . . . . . . . . 39

XIV. Monsanto Update . . . . . . . . . . . . . 41

XV. Premises Liability Update . . . . . . . 41

XVI. Tobacco Update . . . . . . . . . . . . . . 43

XVII. Workplace Hazards. . . . . . . . . . . . 43

XVIII. Transportation . . . . . . . . . . . . . . . 44

XIX. Healthcare Issues . . . . . . . . . . . . . 45

XX. The Consumer Corner. . . . . . . . . . 47

XXI. Recalls Update . . . . . . . . . . . . . . . 47

XXII. Firm Activities . . . . . . . . . . . . . . . . 49

XXIII. Closing Remarks . . . . . . . . . . . . . . 51

Under the terms of the settlementthe firms are required to distribute $30million over a period of five years tothe Investor Protection Trust (IPT).Themoney will be used to fund investoreducation initiatives on the state andnational levels.The IPT is an establishedcharitable organization with experi-ence handling settlement funds and ahistory of investor education suc-cesses.A designated amount from thisfund will be allotted for financial edu-cation programs in Alabama.

Current NASAA President ChristineBruenn, Securities and Exchange Com-mission Chairman William H. Donald-son, New York Attorney General EliotSpitzer, NASD Chairman and CEORobert Glauber, New York StockExchange Chairman and CEO DickGrasso, and the lead state securities reg-ulators announced the completion ofthe enforcement actions at a press con-ference at the SEC, implementing theglobal settlement in principle reachedand announced by regulators lastDecember. The Alabama SecuritiesCommission was one of the 10 leadstates investigating Wall Street withfederal co-regulators. That settlementfollowed joint investigations by the reg-ulators of allegations of undue influ-ence of investment banking interestson securities research at brokeragefirms, and the enforcement actionsannounced at the news conferencetrack the provisions of the Decemberglobal settlement in principle.

The ten firms against which enforce-ment actions were announced are: Bear,Stearns & Co.Inc.(“Bear Stearns”);CreditSuisse First Boston, LLC (“CSFB”);Goldman Sachs & Co. (“Goldman”);Lehman Brothers, Inc. (“Lehman”); J.P.Morgan Securities, Inc. (“J.P. Morgan”);Merrill Lynch, Pierce, Fenner & Smith,Incorporated (“Merrill Lynch”); MorganStanley & Co. Incorporated (“MorganStanley”); Citigroup Global Markets Inc.f/k/a Salomon Smith Barney, Inc.(“SSB”);UBS Warburg LLC (“UBS”); and U.S.Bancorp Piper Jaffray Inc.(“Piper Jaffray”).

I am thankful that we have a mansuch as Joe Borg looking out for theinterests of Alabama investors. Histenure on the national scene has givenhim a great deal of prominence thatbrings credit to the State of Alabama. Joeand all of his staff are to be commendedfor their work. I only wish that theAlabama team had been in total chargeof the entire affair. In any event, I guesswe should be satisfied that some gooddid result from the investigation thatthe Borg team helped to start.

Alabama Doctors File Lawsuit

Approximately 10,000 doctorsnationwide were left without medicalmalpractice insurance when theirinsurance company stopped payingclaims and went into receivership. Acivil lawsuit was filed by our firm onbehalf of approximately 10,000 doctorsnationwide. Approximately 800Alabama doctors who were insured byDoctors Insurance Reciprocal (DIR)and Reciprocal of America (ROA),which are now in receivership in Vir-ginia and Tennessee, respectively, are apart of the lawsuit. These insurancecompanies and their top officersdevised a fraudulent scheme to deceivethe doctors, hospitals, and nursinghomes who were insured against mal-practice claims.The insurance compa-nies also committed a fraud on stateregulators, including the Alabama Insur-ance Department. DIR and ROA insure46 hospitals, some 800 physicians, anda number of nursing homes in Alabama.Interestingly, the insurers generatemore premium dollars in Alabama thanin any other state. These out-of-stateinsurers funneled premium money toother insurance companies as “payoffs” to hide their declining profits andunstable financial condition.

DIR and ROA used these “pay offs,”totaling millions of dollars, to “rent” anappearance of solvency and keep stateregulators from discovering the direfinancial condition of DIR and ROA.

Many of the premiums paid by partici-pating doctors, hospitals, and nursinghomes were sent to offshore compa-nies to cover up the scheme. Whiledoctors, hospitals, and nursing homesthat have been covered by DIR andROA have millions of dollars in equitywith the insurers, they won’t recoupthose funds because of the fraud perpe-trated by the companies.These insur-ance companies made secretagreements to hide the true financialstability of DIR and ROA.As a result, theinsureds were badly misled. Eventually,regulators discovered the fraudulentconspiracy, downgraded the insurers’ratings, and took over their operations.Many patients of doctors who had cov-erage through DIR and ROA now findthemselves with a doctor who can’tpractice medicine without insurancecoverage.What these companies did ispretty much the same as the massivefrauds committed by Enron, Tyco,WorldCom, HealthSouth and manyother large corporations.The only realdifference here is that this fraudulentconduct involves insurance.The lawsuitwas filed in the U.S. District Court inMontgomery,Alabama. I will help DeeMiles and Jay Aughtman from our firm,along with Dennis Goldasich and ErbyFischer of Cross, Poole, Goldasich &Fischer of Birmingham, Alabama. Thedefendants in the lawsuit are: GeneralReinsurance Corporation, Reciprocal ofAmerica,Doctors Insurance Reciprocal,PricewaterhouseCoopers, MillimanU.S.A., John William Crews, Ken Patter-son, First Virginia Reinsurance, andGeneral Cologne Reinsurance,P.L.C.

Hospitals And Lawyers SueInsurance Companies

After filing the doctors’ case, we filedtwo more lawsuits in the growing mal-practice insurance scandal that affectsa number of states, including Alabama.These new lawsuits are against thesame companies and individuals whowere sued previously. One of these law-

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Jere Beasley 3ATTORNEY AT LAW

CONSUMERREPORTwww.beasleyallen.com

suits is on behalf of over 1,000 hospi-tals, located in 19 states.These hospi-tals, including 46 located in Alabama,have been victimized in connectionwith their malpractice insurance cov-erage. It is most significant that theAlabama hospitals responded to acapital call in 2002 and sent over $20million to the insurance companiesinvolved.The defendants knew at thattime the insurance companies makingthe request were in serious financialtrouble.This lawsuit was also filed inthe U.S. District Court in Montgomery,Alabama.

The last of the three lawsuits wasfiled in Memphis,Tennessee, on behalfof over 14,000 lawyers who have alsohad a similar experience with thesecompanies and now find themselveswithout malpractice insurance.We willseek class certification in each of thelawsuits. Our clients and members ofthe class will be entitled to both com-pensatory and punitive damages. Asstated above, the conduct of thesedefendants is comparable to what wehave seen in the other corporate scan-dals. It should make no difference thatthe conduct in this scandal involvesinsurance. Incidentally, we havelearned that there are currently 23major corporations in this country thatallegedly have committed acts thatjustify criminal and quasi-criminalinvestigations by the federal govern-ment. It is no wonder that the Ameri-can public has lost both respect for aswell as confidence in CorporateAmerica. Certainly, persons who takeout an insurance policy and pay theirpremiums should be able to trust thefolks who run the company.

Tennessee Asks Virginia ToSpeed Claims

In a related matter,Tennessee insur-ance regulators have asked their Vir-ginia counterparts to move morequickly on an appeal filed in Februaryin the case of Reciprocal of America,

the insolvent Richmond-based mal-practice insurance company. In therecent filing on April 24th with theState Corporation Commission, theTennessee Insurance Commissioner isseeking an “expedited review” of thestatus of three subsidiaries of Recipro-cal of America.Those subsidiaries arebased in Richmond, but chartered inTennessee.As previously reported, theparent company was taken over by theVirginia Bureau of Insurance inJanuary. The new filing may serve tomove Tennessee’s appeal a stepforward in the review process. Therewill be many more developments inthis matter over the upcomingmonths.

Round Two—A Retrial Of The State’s Case

The Alabama Supreme Court hasdeclined to reconsider its decisionstriking down a $3.5 billion verdictagainst Exxon Mobil, the largest civilcourt judgment in state history.Therewill be a new trial on the state’s claimsagainst the giant oil company. InDecember 2000, a MontgomeryCounty jury ruled that Exxon Mobilhad fraudulently underpaid the stateon royalties from natural gas wellsdrilled in state waters along theAlabama coast. The State of Alabamawas awarded $87.7 million in compen-satory damages and $3.42 billion inpunitive damages.Almost four monthsago, the Alabama Supreme Court threwout the verdict in a 6-3 decision.Themajority opinion held that the trialjudge had made a technical errorwhen jurors were allowed to see aninternal Exxon memo that outlinedthe company’s options on royaltydemands from Alabama’s conservationdepartment. While this memo wasextremely damaging to Exxon, the evi-dence remains extremely strongagainst Exxon. In my opinion, theresult would likely have been the samein the first trial had the memo not

been shown to the jury. Since theSupreme Court Justices refused torehear the case, it will now go back tothe state court for “round two.”

Exxon Mobil Wins $416 Million

It appears that Exxon Mobil Corp.doesn’t mind the court system somuch when it believes the corporategiant is the victim of wrongdoing. Afew weeks ago, a Delaware juryawarded Exxon Mobil $416 million ina lawsuit brought against Saudi BasicIndustries Corp. The defendant wasExxon Mobil’s partner in two plasticmanufacturing plants in Saudi Arabia.The jury in Delaware State SuperiorCourt returned the verdict finding thatthe Saudi company, known as Sabic,had overcharged Exxon for the priceof technology used to make polyethyl-ene plastic at the plant. The petro-chemical conglomerate is 70% ownedby the Saudi Arabian government.Exxon Mobil and Sabic have a 50-50partnership in two plants. One isExxon Chemical Arabia Inc., datingback to 1984.The other is Mobil YanbuPetrochemical Inc., acquired inExxon’s merger with Mobil. Theverdict included Exxon Mobil’s half of$184 million in overcharges billed tothe joint ventures, and another $324million of what Lender called “benefitdamages.” Under Saudi Arabian law,which governs the partnership con-tracts, the jury found that Sabic mustalso pay an amount equal to the profitsit had earned from the overcharges. Ihave to wonder if this case is what the“tort reformers” refer to as a frivolouslawsuit.

Amber Alert System To BeginJune 1st

A most important announcementoccurred last month that went prettymuch unnoticed because of war newsand legislative activity. Nevertheless, in


my opinion, implementation of theAmber Alert system is very important. Itwill quickly notify police and thepublic when a child is abducted. Theprogram will begin in Alabama on June1st. Law enforcement officers are cur-rently being trained to operate thesystem.The goal is to make sure every-body is involved statewide. Theannouncement concerning the AmberAlert System was made to a group oflaw enforcement officers and victimsservice officers at a conference inMontgomery.Whenever there is a con-firmed abduction of a child age 17 oryounger considered at risk of death orserious harm, the Department of PublicSafety will send out an alert that willupdate radio and television stationsperiodically.

The program is named after AmberHagerman, a 9-year-old girl abductedand found slain in Arlington, Texas in1996.The system, which involves radioalert tones and “crawl” messages at thebottom of television screens, will becoupled with the coordination of stateagencies to search for abducted young-sters. The messages will include suchinformation as the child’s age and adescription of the suspect if available.Under the system, a call to an emer-gency number involving abducted chil-dren will go directly to a person incharge of issuing the broadcast alerts.The Amber Alert system uses emer-gency alert system technology that theFederal Communications Commissionalready requires each station to have.Besides the radio and TV messages,electronic signs on interstate highwaysin the state will also include informa-tion about an abduction. This systemappears to work well when properlyutilized. Our young children must beprotected to the fullest extent possible.Hopefully, the Amber Alert System willgive us a badly needed tool in our state.We should give everybody involved inbringing the Amber Alert system toAlabama our thanks.

Neighboring States Agree OnDevelopment Project

Governor Bob Riley and Ronnie Mus-grove, Mississippi’s Chief Executive,have agreed to move forward with aplan to locate an industrial park on thestate line.The neighboring states willshare equally in the costs and benefits.The two governors said one purpose ofthe joint venture would be to createjobs in disadvantaged areas of south-west Alabama and southeast Missis-sippi.This appears to be a good way tomake the best use of the resources,property and location, of the twostates. Currently, attracting new jobsand industries has to be a top priorityfor each state. Governor Riley first sug-gested the plan as a way to providejobs for residents in the Black Beltregion of west and southwest Alabama.Since southwest Alabama and southeastMississippi share many of the same eco-nomic problems, it makes sense for thetwo states to work together to attractindustry. “Instead of bidding againsteach other for industry, we can partnerour resources and spend less money,”Riley said at a Capitol news confer-ence.The cost of developing the indus-trial site and offering incentives tobusiness prospects will be shared. Taxrevenue from new industry will beshared equally.

The Mississippi Legislature hasalready passed legislation that allowsGovernor Musgove to enter into thistype of project with other states.Similar legislation will have to bepassed for Alabama. Hopefully, thisagreement will open the door to otherAlabama-Mississippi joint projects thatcould be located anywhere along thestate line from Mobile to Florence.ADODirector, Neal Wade, played a key rolein putting this unique arrangementtogether. I predict that the appointmentof Neal Wade to head up our state’sindustrial development efforts will paybig dividends for Alabama citizens.

Jim Main Joins The Riley Team

Last month, Governor Bob Rileynamed Jim Main as Senior Counsel forhis Administration. Jim is experiencedin the working of state government,having served as Governor Fob James’Executive Secretary. During that time,Jim was responsible for overseeing theeveryday operations of the governor’soffice. Jim also served one year as LegalAdviser to Governor James. He previ-ously practiced law for 25 years inAnniston and Montgomery and was apartner in our law firm before joiningthe James Administration. Jim is also alicensed pharmacist and a past presi-dent of both the Alabama Pharmaceuti-cal Association and the AmericanPharmaceutical Association. Jim Main,an intelligent person with good peopleskills, is also a good family man. I sin-cerely believe he will be a real asset tothe Riley Administration.

II.LEGISLATIVEHAPPENINGS

The Alabama Senate Faces TheSelf-Inflicted Insurance Crisis

The Alabama Nursing Home Industryis engaged in one of the most extensivelobbying efforts in recent years, tryingto convince the State Senate that theworst bills you can imagine should beenacted into law. It is also one of themost expensive.The lobbying team, ledby former Siegelman advisor JoePerkins, includes some high-priced andexperienced talent.The nursing homelobby team includes the acknowledgedleader Joe Perkins, former LieutenantGovernor Steve Windom, former Presi-dent of the Senate Ryan deGraffenried,former Siegelman Chief of Staff PaulHamrick, former House member,TaylorHarper, and former Senator Joe Fine,who is said to be the highest paid lob-



byist in the State. Interestingly, thenursing home effort in the Senate isbeing pushed hard behind the scenesby President Pro Tem Lowell Barron.Anextensive advertising campaign startedweeks ago. The Perkins team hasalready spent a tremendous amount onsome slick TV advertising. Recently,Perkins put out a TV ad, which may godown in history as being one of theworst ever, ranking right down withthe infamous “skunk ad,”which inciden-tally was the work of Mr.Perkins.

I have not heard a single Senator saythat the four bills are good for the resi-dents in Alabama nursing homes. In fact,some of the sponsors have evenacknowledged that the bills should notbe passed without major changes. Apublic hearing was held on the packageof bills on April 9th.The nursing homebosses brought in four busloads of theiremployees who got a paid day-off fromwork.There were hundreds of personsfrom around the state who came tooppose the bills. Opposing the bills atthe hearing were the AARP, the NationalNursing Home Protection Coalition, theAFL-CIO, the Alabama Trial Lawyers Asso-ciation, and hundreds of families withloved ones in Alabama nursing homeswho have suffered losses.Alabama Ariseand the Alabama Democratic Confer-ence had previously made known theiropposition to the bills.The hearing wasconducted by Senator Bobby Denton,assisted by Senators Roger Smithermanand Larry Means. There appears to betremendous bipartisan opposition to thebills in the State Senate.There is almostuniversal opposition among peoplearound the state to giving Alabamanursing homes virtual immunity fromlawsuits. For example, I don’t believeany person really believes that limitsshould be placed on wrongful deathcases in Alabama.Neither could anybodyjustify passage of a bill that would noteven allow a lawsuit to be filed regard-less of how bad the conduct was.

The thing that really concerns me isthat the people who will be affected by

this legislation—the residents who areconfined to nursing homes throughoutthe state—have pretty much been leftout of the public debate.Were it not forthe AARP and Alabama Watch, whospeak publicly for them, this largenumber of people would have had littlevoice in what is being done to them inthe Senate. Fortunately, a number ofSenators have also worked hard toprotect the interests of the residents.Going into the hearing, most observersbelieved the Senate committees wouldwork hard to make the necessarychanges to the bills before passingthem out to the full Senate.That didn’thappen in at least one committee.

Committee Action On The Bills

Surprisingly, Senator Denton’s com-mittee put the so-called “Pool Bill”—which is nothing more than a “capsbill” in “pool clothing”—out to the fullSenate on April 15th. Most of the dis-cussion at the committee hearing wasover the tremendous number of callsreceived by the Senators from personsback home in their counties. Some ofthe Senators supporting the bill wereoffended because they had receivedthese phone calls at their homes.Votingagainst the bill in committee, whichwas a vote for the people, were Sena-tors Smitherman, Penn, and Enfinger.Hopefully, the six Senators who votedthe bill out of committee will take thetime to study this bill and others in thepackage. One of the Senators, who hadactually sponsored one of the bills,admitted that he had never even readhis bill.Without a doubt, these four billsare as bad as I have ever seen.

Senate Leaders Say Part OfReform Package Has BestChance

Democratic Senate leaders say theywill try to pass two of the five recom-mendations from the Governor Riley’sconstitution commission.Those provi-

sions are providing limited home ruleand recompiling the constitution toremove racist language. However, therest of the commission’s recommenda-tions, i.e., unearmarking tax revenue,giving line-item veto power to the gov-ernor, and requiring the Legislature topass new taxes by a certain vote—more than a simple majority, are not onthe Democratic leaders’ priority list forthe current legislative session.Accord-ing to media reports, Senator Jeff Enfin-ger, D-Huntsville, Senate floor leaderand chairman of the Legislature’s JointCommittee on Constitutional Reform,believes that limited home rule andrecompilation “have the most supportin the Legislature.” It is unfortunate thatconstitutional reform hasn’t been puton the fast track in the Legislature.Perhaps, it would work out better in aspecial session for that purpose, whichwould allow all five of the Governor’srecommendations to be considered.

House Bill To Limit PAC Transfers Starts Its Journey

An important bill has started itsjourney through the minefield knownas the legislative process in Alabama.Transfers of campaign contributionsthat can hide the true source of a candi-date’s support would be banned undera bill reported out of the House Consti-tution and Elections Committee. Thebill, if passed and signed into law,would ban transfers of money betweenpolitical action committees. Represen-tative Jeff McLaughlin, D-Guntersville,the sponsor of the bill, stated: “Thevoter needs to know where money iscoming from to support a candidate.It’s that simple.”The bill will now go tothe full House. PACs formed by lobby-ists, companies, political parties andother groups put well over $20 millioninto the campaigns of politiciansrunning for state offices in Alabama lastyear. PAC-to-PAC transfers have beenused widely by both Democrats andRepublicans and under the current


campaign law are completely legal.When PACs give money directly to

candidates, voters can know generallywhich company or interest group gavemoney through the PAC. Many times,however, one PAC will transfer moneyto a pass-through PAC that mixes con-tributions from a wide variety of PACsand then gives money to candidates.Such mixing of PAC money can make itvirtually impossible for voters to dis-cover the original contributor to a can-didate. PACs by law can funnel acontribution to a candidate throughtwo or three pass-through PACs. Manybelieve the practice is nothing morethan money laundering.

The McLaughlin bill would ban mostPAC-to-PAC transfers of campaignmoney. Exceptions would be allowedfor transfers between PACs of anational, regional, state and localbranch of the same organization, suchas a political party, union or chamber ofcommerce. I believe PACs of compa-nies, law firms, or other groups thattransfer money to the PAC of a non-profit association to which those com-panies, law firms, or other groupsbelong for principal purposes besidesinfluencing elections are alsoexempted. Passing the bill through the“legislative minefield” will be hardbecause the special interests like thecurrent system of hiding donors’ identi-ties. I would like to see the billamended to eliminate PAC-to-PAC trans-fers with no exceptions. If you agree,let your local legislators know.

A Compromise On Payday LoanBill In House

The Alabama House of Representa-tives has voted to “regulate” the paydayloan industry. Representative Mike Hill,R-Columbiana, was the bill’s sponsor.The bill has now gone to the Senate.Only one lawmaker voted against thebill, which in the opinion of manyobservers would legalize “loan-shark-ing.” In its present form, the legislationwould regulate payday loan and check-

cashing stores where customers seekshort-term loans. It would cap the inter-est rate at 16.5% over the period of theloan.This doesn’t mean, however, thatthe annual percentage rate is only16.5%. In fact, it will allow interest ratesof over 400%.The bill would also limitthe loans to the lesser of $500 or 50%of the customer’s net income for theloan term.The bill limits the borrowerto one “rollover” extension, which iscertainly a good feature.The House billwas said to be a compromise. Unfortu-nately, for the borrowers, the interestrate allowed is still much too high.

Representative Jeff McLaughlin, D-Guntersville, cast the sole vote againstthe bill. Several observers believe thatthis multi-billion dollar industry thathas exploited the poor with exorbitantinterest rates may have won the war.Under the bill, a person who borrows$500 for 10 days would owe $82.50 ininterest when the loan was due. Spon-sors of the bill, supported by the stateBanking Department, agreed to anamendment that creates a database ofpeople who have taken out the paydayloans. Supporters of the amendmentsaid it would prevent several compa-nies from lending to the same person.Another amendment sought by a con-sumer group to establish a statewidedatabase to track loans and limit themaximum amount one person canborrow to $500 was also added.A $10fee payday loan companies couldcharge customers to set up a plan torepay the loan was also eliminated.Thebill has failed in the Legislature for thepast four years. Each time the Senatewould pass the bill and it would bedefeated in the House. This time thelobbyists started the bill in the HouseThe opposition to the bill went awayafter supporters agreed to the amend-ments. Hopefully, this measure willkeep desperate people from loading upon multiple loans. Many lawmakersdescribed the bill as better thannothing. However, some insidersbelieve the Senate will strip some ofthe consumer-friendly amendments

added in the House. Here’s what theMontgomery Advertiser had to sayabout the effort to “regulate” paydayloans:

Payday Loan Bills Make Usury Legal

It probably will do no more goodthan shouting in the face of a hurri-cane, but we’ll say it again anyway:Any legislation that legalizes thepayday loan business is legalizingusury of biblical proportions. TheBible has numerous admonitionsagainst charging unfair interest to thepoor,cautioning those who would doso that they won’t find a place inheaven. We normally don’t cite theBible over legislative issues, assumingthat most lawmakers believe in a sep-aration of church and state. But con-sidering the fuss so many electedofficials, including many legislators,have made over government postingthe Ten Commandments, maybe it’snot too much to expect a little con-sistency from them. Despite the bibli-cal admonitions, two committees ofthe Alabama Legislature last weekapproved bills that could legalize thepayday loan industry and allow themto charge poor Alabamians interestrates that work out to more than400% on an annual percentage ratebasis.

If that’s not usury, what is? It appearsthe payday loan bills are on a fasttrack to pass the Legislature this year.Frankly, the payday loan industry hasbeen so unfettered by any laws thatthis legislation would actuallyimprove things a bit. (But not enoughthat those legislators worried abouttheir place in heaven should relax.)Isn’t it a shame that the debate hascome down to a completely unregu-lated industry that charges confisca-tory interest rates vs. a barelyregulated industry that chargesslightly less confiscatory rates? Whatthe state needs is to bring paydaylenders under the same rules as othersmall lenders. Since that seems lessand less likely, thanks to the clout of



the industry, at least the bills underconsideration need to be amended todo more to protect consumers.

One model is Florida’s. AlabamaArise, a group that lobbies on thebehalf of the state’s poor, wants someof that state’s protections writteninto the Alabama legislation. It callsfor loans that are not repaid on timeto automatically offer a repaymentplan spread over several months. Italso calls for the annual percentagerate for loans to be limited to just390%, as Florida does, instead of the429% allowed under these Alabamabills. Despite the whining of thepayday loan industry in Alabama thatthe Florida provisions would putthem out of business, the industry isactually thriving there. Alabamiansshould pay close attention to the rollcall votes when these payday loansreach the floors of each legislativechamber. It will be interesting tocompare them to the rhetoric ofthese same legislators on issues likeprayer in schools and posting the TenCommandments in government facil-ities. If the Legislature won’t do theright thing by bringing paydaylenders under existing small loan reg-ulations, at least it should amend theproposed bills to add those smallprotections for consumers thatFlorida requires.

The State Senate will ultimatelydecide whether Alabama consumers—especially those in the low-income cat-egory—get any more relief on thepayday loan issue. I hope that the so-called compromise bill passed by theHouse will be used as a vehicle to makethe legislation even more consumer-friendly. As it presently stands, evenwith the changes, I am not convincedthat the House-passed bill is a fair reso-lution of the matter. I really believe thelenders should be treated much thesame as the small loan industry. Theinterest rates allowed to that industryare high enough for the paydaylenders. Why should the payday

lenders receive preferential treatment?While the industry clearly should beregulated, there must be adequate safe-guards for those who have to deal withthe payday lenders.This must include arate of interest that gives the lenders afair return on their money, but is notunfair to the borrowers.When you con-sider that this is a multi-billion dollarindustry nationwide, it is fairly easy tounderstand how powerful they havebecome.

III.NURSING HOMEUPDATE

Nursing Home Wrongful Death Lawsuit Settled

According to a story in the TallahasseeDemocrat, the former owners of aFlorida nursing home agreed to pay $2.2million to the family of a patient whodeveloped infections and flesh rot sosevere that his genitals had to be ampu-tated.The former parent companies ofRiver Chase Care Center agreed to settlethe wrongful death suit last week withthe children of the 62-year-old Floridaresident who died in November 2001.The case was described as “ the worstcase of abuse” seen in a while.The resi-dent had been a construction workerwhen an on-the-job accident in the late1970s paralyzed his lower body. Subse-quently, his wife divorced him. In 1988,he was admitted to the nursing homewhere he was confined for 13 years.According to the report, his care beganto decline and he eventually sufferedfrom nearly three dozen bedsores, unex-plained burns, malnutrition, dehydra-tion, and gangrene of the genitals,whichrequired their removal. It was alleged inthe suit that nursing home workers“conspired to conceal”Oliver’s worsen-ing physical and mental condition—including an undiagnosed stroke—from

his family. The faculty’s staff “altered,defaced, or falsified” medical records tohide the wrong doing, according to thenewspaper’s report on allegations fromthe suit.

It is this sort of treatment of an inno-cent man who was apparently badlyneglected, abused, and mistreated thatshould be severely punished. Unfortu-nately, this sort of story is not uncom-mon. It is exactly the type thing thatthe Alabama Nursing Home Associationwants to protect in our state.

Some Interesting News

Some of the nursing home ownersfrom Alabama have formed an insur-ance company that is providing liabilityinsurance coverage to Alabama nursinghomes. I don’t know who all isinvolved, but I am told that NormanEstes, Billy Jones, and Frank Brown areowners of this insurance company.Each of these men is the owner of agood number of nursing homes in thestate. Owning the insurance companywouldn’t be so bad if there was govern-ment regulation of Associated LongTerm Care Insurance Company, whichis referred to as a captive company.Unfortunately, there is absolutely noregulation since it is an “off-shorecompany.”To add to this mystery, thenursing home owners picked theCayman Islands as the location of theircompany.This assured that no state reg-ulatory agency—including the AlabamaInsurance Department—would haveany control over the company. Thismeans that nobody has access to thecompany’s records or books. I suspectthat the offshore company gets sub-stantial tax breaks—in addition to thedesired secrecy—from landing in theCayman Islands.

The nursing home industry is claim-ing that it is experiencing increases intheir liability insurance coverage.Theyhave thrown out numbers and expecteverybody, including the Legislature, toaccept them as factual without further


inquiries. We don’t believe thesenumbers are anywhere close to beingaccurate. For that reason, I have chal-lenged the owners of this offshoreinsurance company to open all of theirbooks to the Alabama Insurance Depart-ment and to the Alabama Legislature sothat some light can be shed on thismystery company.Until that is done, theLegislature should put off any action onthe lawsuit immunity bills that are nowpending in the State Senate.

On April 25th, I made a request toSenate Pro Tem Lowell Barron to haveall of the bills carried over to the nextsession of the Legislature. A SpecialCommittee should be created to makea full and complete investigation of theso-called insurance crisis and the wellknown and documented long termhealthcare crisis that are causing prob-lems in our state.Appointments to theCommittee would be made by the Gov-ernor, Lieutenant Governor, SenatorBarron, and the Speaker of the House. Ibelieve that at least 40% of the commit-tee make-up should be consumers orrepresentatives of consumer groups.Atleast one person should be a memberof a family who has a loved one in anursing home. The owners of thenursing homes should also be repre-sented. I would also suggest that theInsurance Department have a represen-tative. This committee would have tobe given the ability to seek out thetruth and make a recommendation tothe Governor and Legislature so thatany needed changes in the law couldbe made.

An overwhelming majority ofAlabama citizens believe that the Legis-lature should not put caps or limita-tions on damages.This is especially truewhen death is involved. People defi-nitely don’t want the nursing homes tohave immunity from lawsuits.The lastGovernor and Legislature have alreadygiven the nursing home industry moreprotection in Alabama than it has in anyother state. That can’t be challengedand hasn’t been to this day. Before any

more damage is done to the rights ofvictims of abuse, neglect, and mistreat-ment, the members of the Legislatureshould have full and complete informa-tion relating to the nursing home insur-ance problems. The only entities thatstand to gain if the nursing home billsare passed are the large chain nursinghomes and the insurance industry. Ihave wondered why the large chainshave been kept in the backgroundwhen they have the most to gain of anynursing home owners.Those in govern-ment have an obligation to protect therights of two segments of our popula-tion, i.e., young children and theelderly. In this nursing home fight, thechoice is very clear and it affects thesecond group.The Legislature can favorthe owners of the nursing homes—including the large chains—or they canprotect the elderly by defeating thenursing home immunity bills.

Status Of The Immunity Bills

Thus far, the public debate over thenursing home immunity bills has beenfocused on two groups—nursing homeowners and trial lawyers.The nursinghome lobbyists, utilizing a multi-milliondollar advertising and lobby campaign,have skillfully made trial lawyers theirtarget. Unfortunately, the two groupsthat should have been at the negotiat-ing table have been almost totallyignored.The powerful insurance indus-try was not visible at any time, and Isuspect that was by design. Obviously,the industry would have had a difficulttime answering questions about theirown financial failures in the stockmarket. More importantly, the Alabamacitizens who have to be confined inAlabama nursing homes and their fami-lies were shut out of the public debateand the private negotiations. Theabsence of both the insurance industryas well as the potential victims ofnursing home abuse was most unfortu-nate. Hopefully, the fact that an “insur-ance crisis” exists that was not caused

by lawsuits or juries, will finally takecenter stage. Clearly, the insuranceindustry is finally being exposed as thereal culprit. More importantly, however,is the fact that the level of care, atten-tion, and medical treatment received bythe nursing home residents has beenon display, and that clearly must beimproved. That is something that theAlabama Legislature must address.Giving nursing homes immunity fromlawsuits is clearly not the answer.Neither is the placing of caps ondamages that can be awarded for badconduct resulting in severe injuries andeven death.There has not been a singleinstance in any state where caps ondamages have lowered insurance rates.

AARP Takes A Stand

The AARP, which has over 400,000Alabama members, has taken a standagainst caps on damages of any kind.This organization is a strong consumeradvocacy group and does great work.Their opposition to the nursing homebills mirrors the feelings of mostAlabama citizens. It will be difficult forpoliticians to support bills pushed onlyby the nursing home owners and theinsurance industry and to turn theirbacks on the victims of nursing homeabuse. I commend the AARP for gettinginvolved in this fight.

Alabama Democratic Conference Resolution

A few weeks ago, the Alabama Demo-cratic Conference took some verystrong action in the nursing homedebate that has been ignored by themedia.A resolution passed by the politi-cally powerful group is set out below.

Whereas,Alabama nursing home resi-dents are entitled to first class careand treatment and attention while inour state’s nursing homes;

Whereas, some nursing homes inAlabama have a bad record when it



comes to the abuse, neglect, andpoor treatment of residents in theirhomes;

Whereas, 4 bills have been intro-duced in the State Senate that arebad for people and good only for theowners of the nursing homes inAlabama, including the large chainoperations;

Whereas, the nursing homes alreadyhave unfair advantage over peoplewho are mistreated in some mannerwhile a resident in an Alabamanursing home;

Whereas, the nursing home ownersalso have a state-sponsored monop-oly which the ADC believes is grosslyunfair and hinders the competitionthat would come in an open market;

Whereas, the Alabama DemocraticConference opposes the legislationand also believes that some affirma-tive legislation should be passed toassist Alabama citizens who by neces-sity have to be placed in nursinghomes in our state.

NOW,THEREFORE, BE IT RESOLVEDAS FOLLOWS:

1. The Alabama Legislature is herebyrequested to defeat Senate Bills266,267,268, and 269;

2. The Alabama Legislature is herebyrequested to take nursing homesout of the Alabama Medical Liabil-ity Act;

3. The Alabama Legislature shouldpass a patients’bill of rights so as toprotect our citizens who are resi-dents in nursing homes in Alabama;

4. The Alabama Legislature shouldcreate a joint commission to studythe nursing home industry inAlabama to determine if any addi-tional protections for Alabama citi-zens should be enacted by theLegislature;

5. The Alabama Legislature shouldpass a bill to take Alabama nursing

homes out of the Certificate ofNeed Law in Alabama and therebyopen the market for needed com-petition.

Proposed Liability Limits WillHinder Nursing Home Care

The Tuscaloosa News wrote an edito-rial on the nursing home debate thatwas badly off the mark. Donna R.Lenhoff, the Executive Director of theNational Citizens’ Coalition for NursingHome Reform, answered the editorialand pointed out the real problems.Thefollowing is that response:

A recent Tuscaloosa News editorialurges Alabama legislators to restrictliability limits in cases allegingnursing home abuse and neglect,stating, “… on the whole, theAlabama nursing home industry hasan admirable record, with a level ofcare 20% better than the nationalaverage.”As the nation’s largest long-term care residents’ advocacy grouprepresenting more than 1.6 millionfrail elderly and disabled nursinghome residents and their families wewould like to set the record straight.NCCNHR recently conducted ananalysis of Alabama nursing homesusing databases compiled by theCenters for Medicare and MedicaidServices (CMS), and found that thereare serious deficiencies in mostnursing homes in Alabama.

In fact, the vast majority of nursinghomes in Alabama (92%) violatedfederal health and safety standardsduring recent state inspections. Only19 of the 229 nursing homes inAlabama (8%) were found by stateinspectors to be in full or substantialcompliance with federal health andsafety standards.The remaining 210nursing homes had at least one viola-tion that had the potential to causeharm to their residents. ManyAlabama nursing homes (26%) hadviolations that caused actual harm toresidents or placed them at risk of

death or serious injury. Commonactual harm violations include: failingto prevent physical or sexual abuseof residents; failure to prevent orproperly treat bedsores; and failure toprovide adequate nutrition andhydration to residents.And,accordingto self-reported data from thenursing homes, more than half ofAlabama nursing homes (55%) didnot provide adequate staffing. Recentfederal reports have found strongand compelling evidence that inade-quately staffed nursing homesprovide substandard care.These sta-tistics are shocking,but unfortunatelynot surprising. In Alabama and acrossAmerica, many of our nation’s homeresidents suffer terrible neglect andall-too-frequent abuse in facilities thatviolate laws designed to protectsome of society’s most vulnerableresidents. Now, the Alabama Legisla-ture is considering bills that wouldstrip nursing home residents of theirrights, safety and dignity. Limitingdamages awarded for pain and suffer-ing would eliminate one of the fewprotections shielding elderly and dis-abled nursing home residents inAlabama.This Legislature will deter-mine the fate of Alabama nursinghome residents.Will the nursing home industry be

forced to meet a higher standard ofcare, or will Alabama legislators passlaws that strip legal protections fromsome of our most vulnerable elderly?

Donna R. Lenhoff is executive direc-tor of the National Citizens’ Coalitionfor Nursing Home Reform in Washing-ton,D.C.

Montgomery Advertiser Poll

The Montgomery Advertiser con-ducted a poll recently that has receivedalmost no public attention. While thepolling was not scientifically carriedout, it is worth mentioning.The ques-tion was put:“Four bills are pending inthe state Senate that would reducenursing home liability in wrongful


death cases. Should the Legislature puta limit on damage awards in nursinghome cases?” Interestingly, 56.4% of thepersons responding said “no,” with42.9% answering “yes.” I am told thatthe powerful nursing home industryhas conducted its own poll and that itpretty much tracks the result of theAdvertiser polling. If it were differentand favorable to the nursing homeindustry, we would have heard about it.People all over the state oppose thenursing home industry’s package ofbills. No person who has investigatedthe issue could possibly back thesebills, which effectively would give theindustry immunity from lawsuits.

Truth In Advertising Needed

The expensive advertising campaignby the nursing home industry, includ-ing TV, radio, and newspaper, missedone important and badly neededelement, and that is the “truth.”The ads,put together by longtime Siegelmanconfidant and political advisor JoePerkins, are filled with untruths andhalf-truths.Typically, the ads attack triallawyers in an effort to sell the publicon the notion that it is fine to giveAlabama nursing homes virtual immu-nity from lawsuits.The advertising cam-paign should lead to a “truth-in-advertising bill” being passed by theLegislature. However, reports fromaround the state indicate one of thecurrent ads may have backfired on thenursing home bosses. Usually hitting“below the belt” doesn’t pay dividends,and I suspect that’s the way the latestTV ads were viewed by the public.Thefate of the nursing home bills may welldepend on which group has the truthon their side. Based on the content ofthe nursing home owners’ advertising,this isn’t a close call.

Nursing Home DeficienciesHave Increased Since 1998

The nursing home owners are claim-ing that nursing home care in Alabama

is in great shape. However, that assess-ment is far from factual. In March 2003,the Office of the Inspector General(OIG) of the U.S. Department of Healthand Human Services released a studyconfirming that nursing home deficien-cies have increased since 1998. Thestudy found that in 2001, 89% ofnursing homes received at least onedeficiency, an increase from 81% in1998.All nursing homes participatingin the Medicare and/or Medicaidprogram must meet certain federalrequirements in order to continue par-ticipation in the programs. Certificationis achieved through routine facilitysurveys conducted by state surveyors.When a nursing home fails to meet aspecific requirement with regard to thecare of its residents, the nursing homereceives a deficiency citation. Thus,increases in the number of deficienciesthat nursing homes accumulate are ofparticular concern because such anincrease could indicate a decline in thequality of care offered to residents inthose facilities.

In 2001, a total of 15,077 nursinghomes were surveyed; only 1,690nursing homes did not receive any defi-ciencies.The nursing homes surveyedreceived an average of 6.2 deficiencies,an increase from the average of 5.1deficiencies in 1998.The study foundthat 78% of nursing homes received adeficiency in one of the categoriesrelated to “substandard quality of care.”The proportion of nursing homes thatreceived a deficiency in “quality ofcare”categories increased by 8 percent-age points, from 70% in 1998 to 78% in2001.The study noted a considerableincrease in deficiencies related to resi-dent assessment, pharmacy and dietaryservices.The largest increase was in theproportion of nursing homes thatreceived a deficiency related to resi-dent assessment. Federal regulationsrequire that a nursing home must makea comprehensive assessment of a resi-dent’s needs within 14 days of that resi-dents admission to the facility, when

there is a significant change in the resi-dent’s physical or mental condition,and annually. Nursing facilities mustalso make a quarterly assessment of itsresidents.

The study also found a slight increasein the number of nursing homes receiv-ing immediate jeopardy deficiencies.Immediate jeopardy is when death orserious injury actually or potentiallyoccurs.According to the study, in 2001,the proportion of nursing facilitiesreceiving an immediate jeopardy defi-ciency increased from 1.4% to 2.3%.Thestudy also found a wide variationamong states in the number of deficien-cies that nursing homes received.According to the study, some stateswere more likely than others to citedeficiencies.The states with the highestdeficiency rates were California,Arizona,and Nevada.The states with thelowest deficiency rates were Vermont,Virginia, and Rhode Island. The studyidentified several factors that con-tributed to variability in citing deficien-cies across state agencies, including aninconsistent survey focus, unclearguidelines, the lack of a commonreview process for draft survey reportsand high surveyor staff turnover.

Perhaps most interesting is the differ-ing perceptions of nursing home carethat the study yielded. Fifty-one stateSurvey and Certification Directors, 32state surveyors and 32 nursing homeadministrators were surveyed regardingthe quality of care in nursing facilities.The majority of state directors and statesurveyors reported that quality of carehad stayed the same or declined overthe last 3 years. Nursing home adminis-trators were more positive; 59% ofnursing home administrators said thatcare had improved over the last 3 years.

Bedsores: Prevention CostCompared To Treatment Cost

One effect of the debate over thenursing home’s immunity bills is toeducate folks on the cause and effort of



bedsores, a most significant problem innursing homes. Most Alabama citizensdon’t know what a bedsore is or whatcauses it. Bedsores are known by manynames, such as decubiti, pressure sores,pressure ulcers, and dermal ulcers. Nomatter what one chooses to call them,they all achieve the same damagingeffects.A bedsore happens when thereis tissue damage stemming from theexternal application of intense pressurefor a short-term period or low pressurefor a long-term period. Bedsores usuallydevelop over bony prominences of thebody in such areas as the sacrum, hips,ankles, heels and toes. However, abedsore can manifest in other bodylocations too, if there are improperconditions present.A bedsore may formover the cartilage of the ear and/or thedorsum of the head in a resident wholies excessively in one position on amoist surface.A bedsore also can formover the bony part of the cheekbonewhere a feeding or nasogastric tube hasbeen too tightly secured without peri-odic repositioning. When a bedsoregets infected, it may lead to serioushealth problems, including death.Fortu-nately, bedsores can be prevented inmost every case. However, residents inmany Alabama nursing homes nonethe-less develop bedsores.

Bedsore development is often associ-ated with insufficient turning and poorbody alignment while the resident isconfined to a bed. Long periods ofsitting in one position while in a chairalso can cause such skin breakdown.Dehydration, malnutrition, continualskin wetting from lying in stool orurine, and skin abrasions from beingdragged across rough bed sheetsheighten the occurrence of bedsores.Proper nursing care is one of the funda-mental interventions for the preventionand restoration of bedsores.As could beexpected, the incident of bedsores in anursing home population is highly cor-related with low staffing levels. Formany nursing home residents, thedevelopment of this potentially life-

threatening condition is considered ashighly preventable, with propernursing and medical care. Conse-quently, failure to anticipate andprevent bedsore development in a resi-dent can reflect negligence by anursing home, its staff, and attendingphysicians.

The combination of large numbers ofnursing home residents who developbedsores, coupled with the staggeringcosts of their treatment, is why morenursing homes are being accused ofnegligence.For example, the Agency forHealth Care Policy and Research(AHCPR) reports that prevalence ofbedsores in nursing homes is as high as23%. In the National Long-Term Study,conducted by Bergstrom and Bradenand published in 1992, noted that 35%of residents in skilled care institutionsare reported to have developed bed-sores.Accurate expenditures for treat-ment of bedsores are difficult tocompute; however, all studies estimatethat these figures are high.At the upperend of the range, according to aNational Decubitus Foundation equa-tion, additional costs related to theextended hospital stay of the averagebedsore patient are $50,976.00. Nation-ally, this translates into an annualexpenditure of health funds amountingto over 55 billion dollars, and this is aconservative estimate according to theFoundation.The Merck Manual of Geri-atrics places the additional cost perpatient of bedsore care between$2,000 and $10,000. A 1996 study byXakellis & Frantz of thirty nursinghome patients revealed that treatmentcosts, including those of hospitaliza-tion, were almost $3,000 greater perbedsore.

The above-mentioned statistics areadditional costs to the care of a resi-dent, which if treated properly in thefirst place would not have occurred. Inorder to promote profitability, manynursing homes cut staffing levels,which leads to staffing deficiencies andcauses residents to suffer. Understaffing

in a facility results in an inability toproperly care for all of the nursinghome’s residents. This often leads toresidents lying or sitting for longperiods of time in one position. Asnoted above, this situation causesbedsore problems. When the meansnecessary to prevent bedsores are notprovided, the residents suffer. Conse-quently, the increased cost of treatingbedsores is directly related to the deci-sion by the owners of nursing homesto choose profits over resident care.

IV.CONGRESSIONALUPDATE

The War Effort

With the successful war effortwinding down, the Bush White Housecan now direct its attention to themassive economic problems in thiscountry that have been largely ignored.Hopefully, the President will shelve histax cut proposal due to the tremen-dous costs associated with the war andits aftermath. In the present climate, itsimply doesn’t make sense to give a taxcut to the rich and increase alreadyhigh deficits to even more shockinglevels. Our economy is “sick” and the“medicine” needed to cure it shouldnot include a tax cut at this time.Without question, we will be facingtremendous post-war costs in Iraq inaddition to what we have alreadyexpended on the war effort. Regardlessof why we fought this war, our troopsdid a superb job.The American peoplesupported the persons who fought thiswar and all of us should be very proudof their effort. Hopefully, our post-warpresence in Iraq will go smoothly.Prospects for that happening, however,don’t look overly promising at thisjuncture.


Tort Reform At A Most Inappropriate Time

The waging of war didn’t slow downthe efforts by the “tort reformers” tocontinue their assault on the courtsystem. Special interests continued tolobby members of the House andSenate, urging them to support all sortsof tort reform legislation. The majoreffort was in the medical malpracticearena. However, there is also a tremen-dous amount of other bad legislationpushed by the tort reformers that, ifpassed, would not be good for Ameri-can citizens.

Need For A Patients’ Bill OfRights

Instead of giving wrongdoers virtualimmunity from lawsuits, Congressshould pass the badly needed patients’bill of rights legislation. The hotlydebated “patients bill of rights,” whichremains stalled in Congress, wouldhave expanded patients’ right to sue indisputes with health insurers. Oppo-nents take the tort reform line and saythe proposal would raise premiumsand lead to lawsuits against employersover health care disputes.The issue hasnow moved into disability insurance.Disability policies offered throughemployers should come with awarning that certain constitutionalrights are being taken.Over 150 millionAmericans are being duped into buyingemployment-based health and disabilitypolicies that strip them of all protec-tions against fraudulent insurance prac-tices by virtue of federal law. Clearly,state insurance commissioners shouldrequire such warnings. However, theinsurance industry claims that verysame federal law (ERISA) prevents com-missioners from requiring a warning.A1995 memo obtained in pending law-suits clearly reveals that one large dis-ability insurer used this law to theiradvantage. “The advantage of ERISAcoverage in litigious situations are enor-

mous,” a Unum Provident memo says,citing 12 claims that settled for $7.8million in total.“If these 12 cases hadbeen covered by ERISA, our liabilitywould have been between zero and$0.5 million.” Most folks believe that aninsurance policy should pay off onlegitimate claims. A policy that won’tpay isn’t worth the paper it waswritten on. That’s not a very goodpolicy no matter what the price. Thedisability insurance companies are cur-rently hiding behind ERISA to avoidpaying legitimate claims. Hopefully, thecourts are beginning to recognize thisand will protect persons who are beingvictimized.Without a doubt, Congressshould step up to the plate and makeabsolutely sure that policyholders areprotected. Congress should pass theComprehensive Patients’ Bill of Rightsthat is being pushed by the AARP andother consumer groups. Any furtherdelay should not be tolerated. Weshould all urge our U.S. Senators andMembers of the House to pass thepatients’bill of rights.

V.COURT WATCH

At Least One Doctor NowBelieves Caps Are Wrong

There has been a great deal of activ-ity from the tort-reform camp pushingfor caps or limitations on damages thatcan be awarded in lawsuits. It appearsthat groups pushing caps or restrictivelimits on damages trust folks to do lotsof important things, such as electing aPresident, Governors, and members ofCongress, but don’t trust the very samefolks when they are asked to serve asjurors.A multi-billion dollar media andlobbying effort by Corporate Americaover the past 20 years had a single goal,and that was to destroy the civil justicesystem. During my time as a lawyer, Ihave found that most folks neverexpect to become a victim and have to

file a lawsuit. Once they do, however,their perspective always seems tochange, as does their attitude about thejury system.

A tragic case arising in North Carolinagives a prime example of how personswho never expect to be victims feelwhen it is their “ox that is being gored.”Dr. John Faulkner did not have the timeor the inclination to rally at the NorthCarolina legislature with his medical col-leagues last month. Unfortunately, thedoctor’s schedule was already full.Thefamily physician had household choresand a daily routine created by having todeal with his five children. School,homework, lessons of all sorts,practices,and the like can surely keep a parentbusy. In addition, as he has done for thepast 10 months, Dr. Faulkner had toprovide almost constant care for hiswife. Mrs. Faulkner was the main reasonhe was not marching with the doctorsto call for a cap on medical malpracticelawsuits. She was badly burned last Junewhen a cauterizing tool ignited oxygenthat was being pumped into her noseduring a routine procedure in an operat-ing room. Her upper lip was melted off,and her face, neck and chest sufferedsecond- and third-degree burns that willrequire numerous reconstructive surger-ies. After a three-week hospitalization,Mrs. Faulkner was released to begin anew life coping with constant pain,numbed by powerful medications. Herenergy and normal drive were almostnil.The suffering and mental pain andanguish that go along with burn injuriesto the face can be most difficult to dealwith. To make matters worse, thismother is no longer able to care for herchildren,and that is very hard for her.

The Faulkners filed a lawsuit againstFranklin Regional Medical Center, itscorporate owner and the doctors whoperformed the medical procedure. Mrs.Faulkner’s plight points out clearly whycaps on non-economic damages arejust plain wrong. Because she, at age44, stayed at home, this wife andmother is not eligible for economic



damages calculated on lost earnings.Under the bill supported by the NorthCarolina doctors, the value of her painand suffering would be $250,000 orless.Here’s what Dr.Faulkner had to sayabout putting caps on damages:“It’s aninsult. If you can cap my wife’s painand suffering, we’d be delighted. Butuntil you can cap my wife’s pain andsuffering, you shouldn’t cap what it’sworth.That’s for a jury to decide.” Hewas “dismayed that doctors havechosen to fight medical malpracticeinsurance rates by attacking the rightsof patients injured by neglect or error.”He further makes the point that themalpractice insurance industry standsto gain, while patients lose. In thisregard, this doctor, who now findshimself a victim, said:“It seems to us tobe thoughtless and cruel.This is not thekind of behavior you would expectfrom physicians who, by their verynature, should be the patient’s advo-cate.We know that the insurance com-panies don’t care about the patients.They answer to Wall Street.The ques-tion is, who is really behind this?”Thatis a question that requires an answerbefore caps on damages are imposedon people—whether they live in NorthCarolina or Alabama.

Judge Approves Unborn Child’sEstate As Plaintiff In Lawsuit

An Alabama judge has cleared theway for the estate of an unborn childkilled along with her mother in a trafficaccident to be a plaintiff in a wrongfuldeath lawsuit.The parents of the child’smother requested that the ProbateCourt in Baldwin County give them thelegal right to sue on behalf of bothvictims. Currently,Alabama law allowsthe father or mother of a deceasedfetus to file a lawsuit. However, in thiscase, the mother was killed and thefather is unknown. So the question waswhether another family member couldbe appointed legal representation forthe deceased fetus.The probate judge

appointed administrators of the twoestates, which opens the door for anovel lawsuit to be filed.The deceasedmother was only weeks away from herdue date when she was killed.

The Alabama Supreme Court recog-nized the right to collect damages onbehalf of an unborn child in a 1974case. In 1993, however, the state highcourt limited such civil actions tounborn children who had reached thepoint of viability.A statement from thedeceased woman’s doctor, saying thatthe pregnancy was proceeding nor-mally and had reached the time whenthe baby could live outside the womb,was presented to the Probate Court inthis new case from Baldwin County. Itis expected that the administrator ofthe estate will now file a wrongfuldeath lawsuit.A challenge to the rightof the administrator to file the case isexpected from the alleged wrongdoer’slawyers, who will claim the administra-tor lacks legal standing to sue.

Supreme Court Sets Limits OnSize Of Damage Awards

The U.S. Supreme Court has set newlimits on punitive damages in its latestruling in the long-running effort toshield corporate defendants from juryawards. The Court has wrestled withthe punitive damages issue for about20 years.While this decision in favor ofthe State Farm Insurance Companywent beyond recent rulings in thiscase, how far or how restrictive theCourt’s opinion will prove to be issubject to debate.The Court’s declara-tion that juries should generally not bepermitted to consider a defendant’swealth when setting a punitive damageaward was somewhat of a surprise.While the practice is common, theCourt had not previously addressed itin a majority opinion.“The wealth of adefendant cannot justify an otherwiseunconstitutional punitive damagesaward,’’ Justice Anthony M. Kennedywrote for the majority of the Court.

The Court overturned $145 millionin punitive damages that a Utah juryawarded against State Farm.The UtahSupreme Court has upheld the verdict.The jury had awarded only $1 millionin compensatory damages to a Utahcouple, State Farm policyholders, whosued the company for its refusal tosettle a claim and for exposing them topersonal liability beyond the limits oftheir policy for a car accident in whicha jury found the husband liable. StateFarm eventually paid the claim. Theratio of 145 to 1 resulted in a damageaward that was “neither reasonable norproportionate to the wrong commit-ted,’’ according to the Court. In a dis-senting opinion, Justice Ruth BaderGinsburg objected that the Court had“arrogated to itself a task best left tostate Courts and state legislatures.” Shecalled the Court “boldly out of order.’’

Justices Antonin Scalia and ClarenceThomas also dissented in separate opin-ions, citing their views expressed inearlier cases that the Constitution’s dueprocess guarantee simply does notapply in the context of punitivedamages.The three dissenters had alsodissented in the infamous BMW puni-tive damages ruling. Chief JusticeWilliam H. Rehnquist, who had dis-sented in the BMW case, changed sides,joining Justice Kennedy’s majorityopinion along with Justices John PaulStevens, Sandra Day O’Connor,David H.Souter and Stephen G.Breyer.

State Farm’s appeal presented anumber of issues.The Court held thatthe punitive damage award failed tomeet any of the guidelines the Courtset in the 1996 case for evaluating suchawards.The BMW decision had not seta particular ratio between punitive andcompensatory damages that would beacceptable, but suggested that 4:1would be a reasonable maximum inmost cases. In this case, however, it isunclear exactly where the Court woulddraw the line. It appears that the higherthe compensatory damages, the smallerthe acceptable ratio will be.The part of


the opinion dealing with that issuedrew a sharp response from JusticeGinsburg, who felt that such linedrawing “could hardly be questioned’’ ifdone by a Legislature or a StateSupreme Court. However, she said itwas “boldly out of order’’when done bythe United States Supreme Court andimposed on the states. Her opinionincluded a discussion of State Farm’sbusiness practices that was muchworse and more unflattering than thedescription of the case history con-tained in the majority opinion. TheState Farm decision was undoubtedlynot the Court’s last word on punitivedamages. Several times, Justice Kennedynoted the Court was dealing with acase in which only economic, and notphysical, harm had occurred, suggest-ing the Court might make a more gen-erous allowance for punitive damagesin product liability cases involvinginjury or death.

A very good “commentary” on theeffort of this decision is found in theApril issue of Business Week. It waspointed out that “punitive damages arelevied only in about 2% of all cases. Inthe vast majority where they areapplied, they (punitive damages) don’teven approach the 9-1 guideline putforth in State Farm.” It was pointed outthat in personal injury cases and casesinvolving “reprehensible” conduct, theratio could be higher.

Another Interesting Development From the Court

The U.S. Supreme Court has deniedcertiorari in the Six Flags Over GeorgiaTheme Park case. Time Warner Enter-tainment Company will now have topay the Plaintiffs $257 million in puni-tive damages.The high court’s refusalto hear Time Warner’s appeal of thepunitive award will result in the largestcivil jury verdict in Georgia historybeing paid. The jury had originallyawarded $197 million in compensatorydamages in addition to the punitive

award. Investors had claimed in thecase that Time Warner short-changedthe park on capital investment, by low-ering the sale value.As a matter of inter-est, Ted Turner had testified for TimeWarner at trial. It is significant that addi-tional briefs were filed in the U.S.Supreme Court in this case after thehigh court handed down the StateFarm case referred to above.

Support For The AlabamaAttorney General

Attorney General Bill Pryor has beennominated by President Bush to fill avacancy on the U.S. Court of Appealsfor the Eleventh Circuit. On March 25thI wrote U.S. Senators Richard Shelbyand Jeff Sessions in support of theAttorney General’s nomination. I havebeen told that my support of the Attor-ney General came as a surprise to somepolitical observers in Montgomery.Whether that is true or not, I am con-vinced that my support is well-founded. While the Attorney Generaland I come from different politicalparties and have disagreed on anumber of issues, I have tremendousrespect for him personally and believethat he has served the state well asAttorney General. Certainly, I wouldhave done several things differently, butthat alone does not keep me from sup-porting his nomination. Bill Pryor isextremely bright and is widely recog-nized as a real student of the law. Moreimportantly, his character is beyondreproach and that is where a judgesearch should start. In my opinion, hewill be fair and judicious if he is con-firmed by the U.S. Senate. One of theprimary reasons for my support for BillPryor is the fact that he is a family manwho has strong moral beliefs. In myopinion, that is most important and is amajor plus for him. Hopefully, Senateconfirmation will not be a problem.Since I believe he will follow the law, Iam convinced that Bill Pryor will be agood judge if given the opportunity.

Actually, he has the ability and experi-ence to be outstanding if he will simplyfollow the law.

VI.THE NATIONALSCENE

Doing Business With TheEnemy

The Office of Foreign Assets Control(OFAC) has released a list of 54 settle-ments by corporations charged withviolating Trading With the Enemy laws.These companies include ChevronTex-aco trading with Iraq; Caterpillar,Wal-Mart, and ESPN dealing with Cuba;ExxonMobil and Wells Fargo Banktrading with Sudan; and Union Bank ofCalifornia and Fleet Bank with Iran.Because OFAC chose not to release theenforcement memoranda, the details ofthe settlements were not available atpress time. Interestingly, there was nosettlement date or summary explana-tion of the alleged violations containedin the OFAC release. Hopefully, we willhave more information for the Juneissue.

Reality TV

Commercial television is so bad thatit is dangerous to allow small childrento watch many of the shows.There is anew type of programming that isattracting a great number of viewers. Ihaven’t watched the first show of whatis being referred to as “Reality TV,” andthat obviously puts me in a very smallminority of American citizens. Obvi-ously, the television networks believethey have hit on a winning formula in“Reality TV.” Many observers believethis new format crosses the line fromentertainment to abuse. It is fairly inex-pensive to produce these shows, andthe more shocking and gross they are,the better. I understand that the pro-ducers of the shows quite often do



some pretty “sorry” things of a shock-ing nature in order to sell theirproduct. For example, when a “reality”television show places a bloody corpsein a couple’s hotel bathroom, theninterrogates them as if they’re suspectsin a murder, that is going much too far.Another incident involved a fake secu-rity guard at a busy airport forcing apassenger through an airport luggageX-ray machine, leaving him batteredand bleeding.A third “sick” episode waswhen a “performer” on stage actuallydefecated on a front-row audiencemember. These are just a sampling ofincidents that have resulted in lawsuitsin recent months.As “Reality TV” showsgrow in number, more lawsuits will befiled. Increased competition will alsomake it tougher to attract viewers.Theeconomics of “Reality TV” makes itsgrowing presence virtually inevitable.No professional actors or writers arerequired. Some of the shows involvecontestants who push themselves toextremes for viewers on the outsidechance they might win a cash prize.Oftentimes, it is a competitive sort ofsetting. I predict there will be a markedincrease of lawsuits.There are severalpossible causes of action, includingintentional infliction of emotional dis-tress, negligence, wantonness, and falseimprisonment.

In my opinion, the producers areengaging in behavior of a most disgust-ing nature. As “Reality TV” showscompete for viewers, these producerswill create even more extreme situa-tions. This will result in more peoplewho will be willing to sue. In fact, thecontent of these shows pretty muchguarantees that there will be lawsuits.Atrend has started that is pretty bad.Whatthe producers of the shows try to do issomething that almost, but not quite,gets them into legal problems. Based onratings, the shows that will be most suc-cessful are the ones that push the enve-lope and are the most outrageous ones.These are lawsuits waiting to happen.Simply put,TV shows that are designed

to humiliate people, make them lookhorrible in some way,or hurt them phys-ically or emotionally, are asking for law-suits. Frankly, the American people—andespecially our children and grandchil-dren—would be better off if TV setswere restricted to G-rated shows. If thatwere possible, it would certainly doaway with “Reality TV”shows.

Oftentimes, the people who arebeing victimized have no idea they arebeing filmed.These people are placedin embarrassing or outrageous situa-tions without their consent.As “RealityTV” continues to push the envelope ofacceptable behavior, victims are beingforced to file lawsuits. It’s the outra-geous nature of these setups that distin-guish current reality TV from theoriginal version of shows such as“Candid Camera” that originally airedmore than 40 years ago.There’s anothertroubling aspect to these programs—and one that does not portend well forpeople hoping to kill them off, and thatis TV producers may actually want thepublicity generated by a lawsuit. Ironi-cally, lawsuits can actually be beneficialto the promotional departments ofthese shows. I would encouragepersons who watch TV on a regularbasis to do three things: (1) don’twatch the shows; (2) write the TV net-works and express your opposition tothe shows; and (3) don’t buy productsfrom companies that advertise on theshows.

A Look At How Some CEOs Are Doing

With the sick economy and the esca-lating corporate scandals that haverocked our country, one would expectthat the CEOs of the major corporationswould be feeling some of the hurt.Tothe contrary, the compensation of theseCEOs hasn’t slowed down a bit. SECChairman William Donaldson, whoearned $18.7 million three years ago asChairman of Aetna Inc., is now callingfor corporate boards to rein in pay

packages and perks for top executives.The new SEC chief became Chairmanof Aetna, the biggest U.S. health insurer,in February 2000. He was given $1million in salary in 2000 along with a $6million bonus, $5.6 million in restrictedstock, $50,000 in other compensation,and stock options that the companyvalued at $6 million at the time of thegrant. This can be documented bylooking at Aetna’s SEC filings.

So now let’s take a look at how someof the current corporate bosses aredoing. It is rather shocking that those atthe top of the corporate world havenot shared in the losses that theirinvestors and employees suffered.Instead, those at the top have contin-ued to enjoy massive salaries, bonusesand perks unrelated to performance. Itis difficult to justify how companiesthat are doing so “poorly” can pay theirtop officers so well. It is even more dif-ficult to understand where corporateexecutives have been guilty of grosswrongdoing. In any event, while moststockholders have suffered tremendouseconomic losses, the good times stillroll for many corporate bosses. Nobodycan dispute that Corporate America hasbeen tarnished by high-profile scan-dals, fraud, and executive wrongdoing.Unfortunately, the incidences of wrong-doing continue to mount.The nationaleconomy is sputtering with diminishedcorporate profits.

However, when it came to pain andsuffering — at least pay-wise — mostCEOs barely felt the country’s eco-nomic pain last year. CEOs running 100of the biggest companies in thecountry pulled in median 2002 com-pensation of $33.4 million, essentiallyunchanged from 2001, based on anexclusive database analysis by USATODAY and the Investor ResponsibilityResearch Center, a corporate-gover-nance watchdog.The analysis includessalaries, bonuses, incentive pay, stockawards, gains from exercising stockoptions and the potential value ofstock-option grants.Based on this study,


CEO salaries and bonuses surged 15%in a year when salaries for rank-and-fileworkers suffered.There is also a verygood article on executive pay in theApril issue of Business Week.

The following are some examples ofhow some of the CEOs fared. MBNA,the credit card giant, reported thatAlfred Lerner had pulled in compensa-tion valued at more than $250 millionlast year. Oracle’s Larry Ellison reapedstock-option gains of $706 million in2001. I wonder how this company’sshareholders feel about this? TenetHealthcare’s Jeff Barbakow pulled innearly $190 million. Dwight Schar ofhomebuilder NVR had a compensationpackage of $219 million. Of course,Alabamians know about HealthSouthand its now infamous CEO, RichardScrushy. Mr. Scrushy will pay taxes ofbetween $12 million and $20 millionthis year, which indicates that he wasdoing pretty well living at the corpo-rate trough.

Stockholders at most companieswhere CEOs exercised options gener-ally suffered.While Sun Microsystems’stock sank 68%, Scott McNealy’s stockholdings realized a $25 million gainfrom exercise of options.Wireless com-munications marketer Qualcomm’sstock was down about 40%, but IrwinJacobs gained $61.4 million by exercis-ing options. He also received a 33%increase in his bonus. Additionally,options worth up to $36 million “inconsideration of his leadership,” weregranted by the company. While WaltDisney shares lost 19% in fiscal 2002and are off 60% since 2000, MichaelEisner received a $5 million bonus.Thisbonus was granted, according to theentertainment giant’s board, because of“the effectiveness and quality of leader-ship in a difficult economic environ-ment that challenged all of thecompany’s major businesses.”Too badfor Disney’s stockholders who havelost money. Semiconductor makerTexas Instruments shares have slumped80% since early 2000—about 40% in

2002 alone. Yet during the past threeyears, its board has granted CEO TomEngibous stock options worth about$142 million.This total includes a 2002grant valued at $44 million. The factthat Apple Computer shares plungedover 80% during its fiscal year, didn’tkeep Apple directors from agreeing toswap Steven Jobs’ 27.5 million worth-less options for 5 million restrictedshares, valued at about $75 million.Until the award, Mr. Jobs held just twoshares of company stock.The restrictedshares come under a new board-approved “retention and incentiveprogram.”

This list of corporations that havetaken good care of the big bosses whiletheir stockholders suffered could bemuch larger. I suggest you take a look atthe list set out in Business Week.Youwill find several CEOs listed whosecompanies include Tyco International,Sun Microsystems, and Tenant Health-care. Even in good economic times, thecompensation of the CEOs would beexcessive. Suffice it to say—this sort ofthing “smells to high heaven”when youconsider that we have a bad economycoupled with the massive corporatescandals.

A Little Known Board WithGreat Influence

Most American citizens have nevereven heard of the Defense PolicyBoard. I would be less than candid if Ididn’t confess that I first learned of theBoard’s existence during the Iraq War.There are 30 members of this board,which is the government-appointedgroup that advises the Pentagon. Atleast nine of the 30 have ties to compa-nies that have won more than $76billion in defense contracts in 2001 and2002. Four members are registered lob-byists, one of whom represents two ofthe three largest defense contractors.Richard Perle, the board’s chairman,resigned on March 27, 2003, amid alle-gations of conflicts of interest for his

representation of companies with busi-ness before the Defense Department.However, Mr. Perle hasn’t completelylost his influence since he will remain amember of the board. Eight of Perle’scolleagues on the board have ties tocompanies with significant contractsfrom the Pentagon.While members ofthe board disclose their business inter-ests annually to the Pentagon, the dis-closures are not made available to thepublic. The forms are filed with theStandards of Conduct Office, which issupposed to review the filings to makesure they are in compliance with gov-ernment ethics. For some reason, thatdoesn’t do much for me.

The companies with ties to DefensePolicy Board members include promi-nent firms like Boeing,TRW, NorthropGrumman, Lockheed Martin and BoozAllen Hamilton.There are also smallerplayers like Symantec Corp.,TechnologyStrategies and Alliance Corp., andPolycom Inc. Most citizens have verylittle information or knowledge aboutdefense contracts. Defense companiesare awarded contracts for numerousreasons. Clearly, there is nothing to indi-cate that simply serving on the DefensePolicy Board confers a decisive advan-tage to firms with which a member isassociated.According to its charter, theBoard was set up in 1985 to provide theSecretary of Defense “with independent,informed advice and opinion concern-ing major matters of defense policy.”Themembers are selected by and report tothe Under Secretary of Defense forPolicy.All members are approved by theSecretary of Defense.The Board’s quar-terly meetings—normally held over atwo-day period—are classified, and eachsession’s proceedings are summarizedfor the Defense Secretary. The boarddoes not write reports or vote on issues.Notices of the meetings are filed at least15 days before they are held in theFederal Register.

The current list of Board membersreads like a who’s who of former high-level government and military officials.



The Board focuses on long-term policyissues such as the strategic implicationsof defense policies and tactical consid-erations, including what types ofweapons the military should develop.Some observers believe the Board isjust another public relations shop forSecretary of Defense, Donald Rumsfeld.The character of the Board is said tohave changed under Rumsfeld. Previ-ously, the Board was felt to be morebipartisan. Under Rumsfeld, however, ithas become more interested in policychanges, even though the Board has noofficial role in policy decisions.

If nothing else, it is very clear thatDefense Policy Board members with tiesto companies that do business with theDefense Department are great innumber. For example, the Board nowincludes a former chairman of the JointChiefs of Staff who served over 38 yearsin the Navy (a director or advisor of atleast five corporations that receivedmore than $10 billion in Pentagon con-tracts in 2002); a retired Air ForceGeneral (sits on the board of directors ofcompanies that received more than$900 million in contracts in 2002); aretired General who served 35 years inthe U.S. Marine Corp. (joined Bechtel in1998); a former CIA director (a principalin the Paladin Capital Group, a venture-capital firm that is soliciting investmentfor homeland security firms); a formerhigh-level military officer who served asvice chairman of the Joint Chiefs of Staff(sits on boards of five companies thatreceived more than $60 million indefense contracts last year); a formerSecretary of Defense; and a former CIAdirector, who also served as energy sec-retary in two separate Administrations(ties to defense contractors).There arealso four registered lobbyists who serveon the Board. Unfortunately, there isnothing unusual about this sort of thingin our nation’s capitol and that may wellbe part of our country’s problems. Iguess it is better that the average citizennot know how our national governmentreally “operates.”

Halliburton Subsidiary Awarded $7 Billion Iraq Contract

A government contract awardedwithout competition to a HalliburtonCo. subsidiary to fight oil well fires inIraq will be worth at least $7 billionover two years. I guess that is what wewould refer to as a “no bid contract” inAlabama.The contract will also allowHalliburton subsidiary KBR, a politi-cally-connected engineering and con-struction company, to earn another 7%in profit, valued at $490 million. TheCorps of Engineers released the detailsin response to a congressional inquiry.A Congressional investigation has beenrequested into how the Bush Adminis-tration is awarding contracts for thereconstruction of Iraq.These contractsare conservatively estimated to cost asmuch as $100 billion. The GeneralAccounting Office, the investigativearm of Congress, is being asked todetermine whether Vice President DickCheney’s former company may havereceived favorable treatment in theirPentagon contracts. Surely, it was just acoincidence that Cheney’s companywas picked to help rebuild Iraq evenbefore the shooting started.

Lieutenant General Robert B.Flowers, the Corps of Engineers com-mander, said in a letter that KBR wasasked to develop plans to restore Iraq’soil infrastructure based on an existingcontract with the company that wasawarded in December 2001. I suspectthere are other companies capable ofperforming this project that could passrequisite security clearances if giventhe opportunity. Surely, the BushAdministration had valid reasons forgranting a contract of this sort withoutcompetition. However, I have towonder what the rationale was for a“sole-source contract” that has a “multi-year duration” and a “multibillion dollarprice tag.” Details on how the cost ofthe work was determined and whenthe Army would replace the contract

with one awarded through competitionare things that should be made avail-able to members of Congress. Federalprocurement data reveals the govern-ment has awarded KBR work worthmore than $624 million from October2000 through March 2002.

There had been previous problemswith KBR, including overcharges. Forexample, the GAO found in 1997 thatthe company billed the Army for ques-tionable expenses for work in theBalkans. This included charges of$85.98 per sheet of plywood that cost$14.06. I know lots of lumber dealersin Alabama who would sure like to selltop grade plywood for $85.98 persheet.Another example involves morework in the same Balkans’ project. Ayear 2000 follow-up report on theBalkans work that found inflated costs.For example, there were charges forcleaning some offices up to four timesa day. There were $2 million in finespaid by KBR in February of 2002 toresolve fraud claims involving work atFort Ord, California. The DefenseDepartment inspector general and afederal grand jury had investigated alle-gations by a former employee that KBRdefrauded the government to the tuneof millions of dollars by inflating pricesfor repairs and maintenance. As youmay recall, the Securities and ExchangeCommission began a formal investiga-tion in December into Halliburton’saccounting practices. An accountingchange made in 1998, during Cheney’stenure as CEO, was the focus of thisinvestigation.To avoid the appearanceof favoritism, the Vice President’scompany should back off and allowthis contract to be opened up for com-petition.


VII.CORPORATEWRONGDOING

HealthSouth Lawsuit

Less than a week after The Securitiesand Exchange Commission temporarilysuspended trading in the securities ofHealthSouth Corporation, our firm filedthe first of several securities fraud law-suits against the Birmingham-basedcompany and CEO Richard Scrushy.Thefirst complaint alleges numerousserious violations of federal securitieslaws, including the issuing of false finan-cial statements. Both the company andScrushy are accused of civil fraud.HealthSouth is accused of intentionallyand falsely inflating its financial positionon orders from Scrushy to make itappear the company was meeting orexceeding Wall Street expectations.Thisis another case where a giant corpora-tion appears to have lied to both theGovernment and the public. WhileScrushy and others profited, investorssuffered tremendous financial losses asa result of the numerous acts of fraudu-lent conduct. Mr. Scrushy has personallyprofited from the fraudulent scheme heallegedly put in place to artificiallyinflate both the earnings and assets ofthe company.The CEO is said to haveknown that HealthSouth’s financialstatements were false and greatly over-stated the company’s operating results.Our clients were victims of this corpo-rate giant and its greedy CEO.

This case is just another example ofhow some in Corporate Americaappear to believe they can lie, cheat,and steal and not have to pay the con-sequences. In every such case innocentpeople are victimized. HealthSouth isthe one of the nation’s largest health-care providers, operating 1,700 facili-ties in the United States, Britain,Australia, Canada, Puerto Rico andSaudi Arabia.The lawsuit, only the firstof what likely will be thousands of civil

cases, was filed in the Circuit Court inMontgomery County, Alabama. RhonJones, who heads up our Business Liti-gation Section, will be the lead lawyerfor the firm. In addition, other lawsuitswill be filed very soon. Other individu-als and companies will be added asdefendants as our investigation of thismatter goes forward.

Congress Gets Into The Act

Congress has now gotten into theHealthSouth debacle by launching itsown investigation. Late last month,thousands of documents wererequested of the company and itsformer auditor, Ernest & Young. Hear-ings are expected this summer before aHouse Committee.This does not bodewell for the corporation, Mr. Scrushy,and perhaps other potential defen-dants.

HealthSouth Cases Test ForNew Business Rules

For years, corporate executives havesworn their company’s books are accu-rate and complete.With all of the cor-porate scandals, however, things havechanged. Shouldn’t the big bosses beheld responsible when the numbersdon’t add up? The accounting fraudinvestigation of HealthSouth is the firsttime the government has used false-cer-tification criminal charges. The newrules were adopted last summer andthe outcome of the Scrushy case couldsignify whether the law has real teeth.While regulators have already gotten anumber of HealthSouth executives toadmit to the fraud, they now mustprove Richard Scrushy, founder andchief executive, knowingly lied underoath when he signed off on thecompany’s finances.The company hassubsequently fired Scrushy as his fellowofficers line up to enter guilty pleas.Atlast count, 10 top officers have admit-ted to their part in the corporatewrongdoing.

A Look At The New Law

Making executives certify theircompany’s finances started lastsummer after the rash of accountingscandals rocked the business world. Bymaking them personally accountable, itwas believed that the bosses no longercould blame the company’s auditors orplead unfamiliarity with its finances.Allthe executive misbehavior has clearlycaused a great deal of mistrust in Cor-porate America. The Securities andExchange Commission ordered CEOsand CFOs from 947 of the nation’slargest public companies to sign swornstatements that their earnings for theprevious two quarters of 2002 andtheir annual reports for their mostrecent fiscal year were accurate andcomplete.The Sarbanes-Oxley Corpo-rate Reform Act, passed by Congress,provided steep fines and penalties - upto $5 million and 20 years in prison -for executives who knowingly certifiedfraudulent financial statements.The Actalso extended certification to all publiccompanies going forward.While a fewexecutives held off on certifying lastsummer because they had identifiedsome problems with their company’sfinances, most leaders apparentlysigned off on the statements.The certi-fications that the executives had to signrequired them to swear that thefinances were legitimate “to the best ofmy knowledge.” Surely, their friends inCongress didn’t leave the CEOs a loop-hole in the law by including this lan-guage.

Scrushy, HealthSouth Get SpotOn Scandal Site

Richard Scrushy now finds his nameon a corporate scandal Web page.TheCorporate Library, a research group,recently added Scrushy and Health-South to its corporate scandal quicksheet at www.thecorporatelibrary.com.The online list features fallen leaderssuch as former Kmart CEO Charles

Conaway, former Tyco CEO DennisKozlowski, former Worldcom CEOBernard Ebbers and former Enron CEOKenneth Lay. Each listing includes asummary of the company’s downfall,regardless of the reason, and includes amemorable quote from the CEO.Scrushy’s quote, appearing from thecompany’s 2001 annual report, says:“In2001,we set new records as we pushedour revenues well over $4.3 billion andcelebrated another year of fulfillingWall Street expectations, maintainingour record as the Fortune 500company with the second-longeststreak for meeting or exceeding ana-lysts’ expectations.” Scrushy’s downfallcan be tied directly to plain old greedand arrogance. However, I have towonder why the government is treat-ing Scrushy differently from KennethLay—could it be that Mr. Lay has politi-cal friends in high places?

Where Are The Enron Big Bosses Now?

Kenneth Lay, or “Kenny Boy” as hewas referred to by a former Texas Gov-ernor, was once called a most brilliantman. In the fall of 2001, Fortune maga-zine had planned a cover story withthe former Enron chairman in a groupphoto touting “the smartest people weknow.” When the Enron scandalerupted, Lay was quickly pulled fromthe cover. Since that time,“Kenny Boy”has been Enron’s invisible man. Foranyone concerned with restoring credi-bility to corporate governance reforms,the lack of news about Mr. Lay’s role inEnron’s collapse is troubling to say theleast. Last year, former Enron chieffinancial officer Andy Fastow wasindicted on 78 counts of fraud, moneylaundering and obstruction of justice.Afew weeks earlier, former Enron execu-tive Michael Kopper pleaded guilty toconspiracy to commit wire fraud andmoney laundering in connection withself-dealing transactions. The formerhead of Enron’s California energy

trading operation, Timothy Belden,pleaded guilty to conspiracy to submitfalse information to California powerauthorities. Last month, two moremidlevel Enron employees, KevinHoward and Michael Krautz, werecharged with securities fraud, wirefraud and lying to investigators stem-ming from activities of Enron’s broad-band unit.

While there has been a great deal saidabout prosecuting corporate criminals,the high-ranking executives whobecame the public faces of the Enrondebacle, former CEO Jeffrey Skilling andMr. Lay, haven’t been called before acriminal court judge,to my knowledge.Itmay be that federal investigators arehaving difficulty connecting the dots todetermine whether either man engagedin criminal activities. Admittedly, theEnron scandal was a most complicated“house of cards.”What these men knewand when they knew it are among anumber of unanswered questions thatcontinue to hang like a dark cloud overthe credibility of corporate reform.Whileit is important that investors, the Securi-ties and Exchange Commission, andothers pursue civil actions against Enronand offending officers, it appears to becritical that federal authorities pursuelegitimate criminal cases. President Bushpromised last year that corporate wrong-doers would be swiftly punished. Unfor-tunately, that promise will ring hollow aslong as a legal void fosters a perception,rightly or wrongly, that Enron’s top man-agement is getting a pass.

Settlement Of Lucent Technologies Securities Class Action Litigation

In late March, an agreement wasreached to settle the Lucent Technolo-gies Inc. securities class action lawsuitpending in U.S. District Court for theDistrict of New Jersey.At the same time,Lucent settled related ERISA, bond-holder, derivative and state securitiescases. Under the global agreement,

Lucent will pay $315 million incommon stock, cash or a combinationof both, at the company’s option.Lucentwill also pay up to $5 million for thecost of settlement administration.Addi-tionally, Lucent will issue 200 millionwarrants to purchase shares of commonstock based on a valuation using a strikeprice of $2.75 with a 3 year expirationterm. In addition to the cash, stock andwarrants that Lucent will contribute,certain of Lucent’s insurance carriershave agreed to pay $148 million in cashinto the total settlement fund. Lucentspinoff Avaya will also contribute $26.5million in cash or stock plus a percent-age of the valuation of the warrants thatwill be issued.

The vast majority of this global settle-ment fund will be used to compensatepersons who purchased Lucent stockduring the class period of October 26,1999 to December 20,2000.The balancewill be paid to claimants in the variousrelated cases.The Parnassus Fund,whichis a mutual fund, was selected by theDistrict Court in 2001 to be a co-leadplaintiff in this lawsuit. It is most signifi-cant that, even with the substantialamount of the settlement fund, Lucentinvestors will only recover a portion oftheir losses. The settlement endscomplex litigation that has beenongoing for a number of years,but it willleave persons who lost heavily in theirinvestments with little to show for theirefforts. In my opinion, this company, itsofficers, directors, and accounting firmshould be totally responsible for alllosses. Brokerage houses should alsohave reason to be concerned as a resultof their continuing to push purchases ofLucent stock by their customers longafter warning signs were on thehorizon. It is quite obvious that unin-formed investors were put into thisstock, and I suspect the brokeragehouses failed to check this company outadequately or to follow up on leads.Many of the brokers were riding thecrest of a wave that had to fall dramati-cally and failed to take that into account.




Multi-Million Dollar SettlementBy Drugmakers On MedicaidOvercharges

Drugmakers Bayer® AG and Glaxo-SmithKline have each agreed to pay amulti-million dollar Medicaid abuse set-tlement to resolve allegations theyovercharged the government insuranceprogram for the poor. According tomedia reports, Bayer® will pay the gov-ernment $251 million and Glaxo willpay about $87 million for failing to giveMedicaid the lowest price charged toany consumer. Bayer® has confirmedthe settlement. The U.S. Attorney’soffice in Boston and Medicaid fraudinvestigators around the countryhandled this case. Bayer® has set aside$257 million to cover the costs of thesettlement. The settlement wasannounced by prosecutors in Boston.In addition, Bayer will pay a criminalviolation fine of $5.5 million.

The Boston Globe reported thatBayer® was pleading guilty to violatingthe Federal Prescription Drug Market-ing Act for overcharges involving Cipro(antibiotic) and Adalat (high bloodpressure drug). Glaxo, which was notaccused of criminal wrongdoing, ispaying a civil fine for overchargesinvolving Paxil (anti-depressant) andFlonase (nasal allergy spray).The inves-tigation focused on allegations that thecompanies hid their lowest prices fromMedicaid by repackaging or relabelingtheir drugs under a middleman’s name.The middleman then sold the drug at adeep discount not reported to the gov-ernment. By law, the companies arerequired to report all their prices andthen pay Medicaid a rebate if theycharge anyone less than the govern-ment. Glaxo agreed to an $87.6 millionsettlement on these charges.

This fraud involved the “MedicaidBest Price Statute.” In substance, thecompanies failed to give the Medicaidprogram the lowest price charged toany customer, as required by law.“Thegovernment and the Medicaid program

depends upon the honesty of the com-panies in truly offering the lowerprices, and here two companies havebeen found wanting,” according to Dr.Peter Lurie, deputy director of PublicCitizen’s Health Research Group inWashington D.C. In this regard, Dr.Lurie added:“It’s a very significant fine,and I do think [it] sends a message thathopefully will be heard by other com-panies that these kinds of practices areunacceptable. If Medicaid can’t get adecent price, who can?” he added.“It’san enormous payer with tens of mil-lions of subscribers.”

This is one of the largest Medicaidabuse settlements in US history. Thetwo drug companies clearly over-charged the government insuranceprogram, and that can’t be allowed.All50 states will share the settlementmoney.This was a whistleblower case.Federal officials were alerted to thealleged fraud by Bayer®.The whistle-blower will get a portion of the settle-ment.The Medicaid program is a sharedfederal and state program to providehealth insurance to the poor.The settle-ment comes as state and federal prose-cutors nationwide are investigatingdrug pricing and sales tactics bydozens of pharmaceutical companiesthat they allege have defrauded thepublic to the tune of billions of dollarsand who have driven up the nation’sMedicare and Medicaid bills.

In the fall of 2001, federal prosecu-tors in Boston won a record $885million settlement from TAP Pharma-ceutical Products in a combined crimi-nal and civil case that alleged thecompany inflated the price of Lupron,the top-selling drug for prostate cancer.TAP officials were indicted and areawaiting trial on charges of giving kick-backs to doctors to induce them to pre-scribe Lupron. Some 20 lawsuits filedagainst two dozen pharmaceuticalcompanies by citizens and states acrossthe country have been consolidatedinto one case before a federal judge inBoston.The suit alleges that the compa-

nies inflated the prices the governmentpaid for prescriptions for the elderlyand disabled through the Medicare andMedicaid programs.

VIII.ARBITRATIONUPDATE

Very Little New To Report

There have been few significantchanges in the arbitration fight over thepast month.Alabama courts continue tostruggle with the issue. Nationally,people have been awakened to the evilsof arbitration. Thus far, however, fewpoliticians have come to their rescue.Anyone who doubts that mandatory,binding arbitration isn’t a part of thetort reform master plan has been onanother planet for the past few years.Never in the history of Americanjurisprudence has a federal law been soabused and used for purposes neverintended by Congress. For those whohave never read the U.S. Constitution,this is what our forefathers had to sayabout the sacred right to a jury trial:

AMENDMENT VIIIn suits at common law, where thevalue in controversy shall exceedtwenty dollars, the right of trial byjury shall be preserved, and no facttried by a jury, shall be otherwisereexamined in any court of theUnited States, than according to therules of the common law.

I don’t know how the Constitutioncould be any clearer. No citizen shouldbe forced to give up a constitutionalright. Prisoners certainly don’t.We goto extreme lengths to make sure that acriminal’s rights are protected. I have towonder why in a civil action some feeldifferently about the Constitution.



A Good Ruling From TheAlabama State Bar

There was one development,however, that is certainly worth men-tioning. An extremely importantopinion was released by the AlabamaOffice of General Counsel regardingthe use of arbitration agreements inlawyer-client fee contracts. In resolvingthe issue, the Office of General Counselreferred to the Alabama Rules of Profes-sional Conduct, Rule 1-8(h). Theopinion went on to say, however, thatby signing an arbitration agreement, aclient would be giving up constitution-ally guaranteed rights, stating:

“The fact that binding arbitrationdenies the client adjudicatory rightsafforded by the United States Consti-tution, the Alabama Constitution, andstate law, constitutes, in the opinionof the Disciplinary Commission, alimitation on the lawyer’s liability toa client for malpractice.”

In my opinion, this is an outstandingruling on a most sensitive subject. Icommend the State Bar for taking theproper action. I do not believe that alawyer should ever attempt to put anarbitration agreement in a contractwith a client. The above referencedopinion now makes it quite clear that itcannot be done.

IX.PRODUCT LIABILITY UPDATE

Fraud Suit Revived AgainstFord Motor Company

The South Carolina Supreme Courthas revived a lawsuit that charges FordMotor Company with fraud in itsdefense of Ford Bronco II rolloverclaims. The Environmental WorkingGroup, a Washington-based environ-

mental research group, says it will askthe U.S. Justice Department to open acriminal probe of Ford’s actions indefending rollover claims against theBronco II and the Econoline 350 van.The lawsuit alleges that Ford commit-ted “fraud upon the court” in a 1993trial by having company lawyersconceal damaging documents and bypaying a former Ford engineer anddesigner to give false testimony as anexpert witness about the Bronco II.Wehave previously reported on this situa-tion several months ago.The complaintalso alleges that Ford’s lawyer con-cealed a company memo “acknowledg-ing jacking, stability, and designproblems with the Bronco II.”This casewill be watched closely as it goes backto the trial court.

Car Safety Groups ChallengeNHTSA

A quintet of automotive safety groupsaccused the National Highway TrafficSafety Administration of becoming a“toothless tiger” that was unwilling toproperly perform its enforcement rolein automotive safety investigations. Ledby the Washington-based Center forAuto Safety, the groups complained toNHTSA Administrator Jeffrey Runge thathis agency recently stopped publishingits monthly list of “defect investiga-tions,” which told consumers about carand truck models that were being inves-tigated and for what reasons. NHTSAstill orders vehicle recalls, but thegroups want the investigation list rein-stituted.

Sweeping Civil Justice Legislation Is Anti-Consumer

As this issue of the Report goes tothe printer, it is quite clear that therights of consumers are being attackedboth in Congress and in state legisla-tures throughout the country at analarming rate. Enormous handouts to

corporations, including product manu-facturers, are being doled out.The “tortreform”efforts are anti-consumer and, ifsuccessful, will dramatically underminethe legal landscape in this country.Unfortunately, the suggestions of busi-ness lobbyists are being accepted bymany in the media without any attemptto balance the concerns of businesswith the safety and health interests ofconsumers. The influence of industrylobbyists in Washington and in the statelegislatures is as strong as “old snuff.”

Change are being proposed inseveral states’ product liability laws thatwould limit manufacturers’ liability forproducts that injure or kill people ifthose products comply with federalsafety standards. It should be note thatthese are nothing more than minimumstandards. Clearly, regulatory standardsalone are not sufficient to guaranteethe manufacture of safe products.Thesefederal safety rules, setting minimumthresholds in many instances, remainunchanged for long periods of time.These standards don’t reflect the capa-bility of a manufacturer to make aproduct safer because they apply indus-try-wide.

Consider the Ford-Firestone debacle,which involved defective Firestonetires that were prone to tread separa-tions, leading to catastrophic crashes,many of them rollovers. More than 200people were killed and 700 peopleinjured seriously in crashes involvingthe tires.The Firestone tires passed theantiquated 30-year-old federal tire safetystandard. Nevertheless, the U.S. Depart-ment of Transportation found them tobe defective and required them to berecalled. If complying with federal stan-dards gave manufacturers immunity,Firestone wouldn’t be liable for injuriesor deaths caused by the defect becausethe tires met the federal safety stan-dards. That would be criminal.

Consider also that numerous people,particularly police officers, have beenkilled or burned by explosions of the


gas tanks of Ford Crown Victoriaswhen the vehicle is rear-ended athighway speeds. The car meets thefederal gas tank standard, which hasnot kept up with technology improve-ments since it was set in 1974. Themanufacturer wouldn’t be liable forthose killed and injured in Crown Vic-toria gas tank explosions even if thegovernment were to rule that thevehicle is unreasonably dangerous.

Making manufacturers liable forharmful products is important, not onlybecause consumers deserve to be com-pensated for injuries caused by theproducts, but because manufacturersneed incentives to incorporate state-of-the-art safety elements into productdesigns. Liability also provides incen-tive for victims, survivors and theirattorneys to investigate whether aproduct is unreasonably dangerous.Weall know that lawsuits have exposeddangerous products, forced manufac-turers to make them safer, compen-sated injured victims, and alerted thepublic and federal agencies to safetydefects and hazards. Consumer groupsmust continue to oppose the changesin product liability laws that wouldresult in dangerous and hazardousproducts being placed on the market.Putting profits over safety and allowingmarketing to override design engineerson safety issues can’t be tolerated.Rather than punishing victims of cor-porate wrongdoing in product liabilityfraud, the government should do abetter job of regulating and settingsafety standards.

$5 Million Verdict Against BIC

A child who was severely burnedwhen her younger brother dropped alighter on her dress, was awarded $5million by a Texas jury.The lawsuit wasagainst the BIC Pen Corp., the maker ofthe lighter. The child was 6 years oldwhen she suffered third-degree burnsover 60% of her body. The 1998 acci-dent occurred in her family’s apart-ment in Bay City, Texas. The personal

injury and defective product suitalleged that the lighter was made withan inadequate child-resistant mecha-nism.The child has horrific disfigure-ment and will have to have moresurgery for the scarring.The jury’s deci-sion was based on the lack of safetytesting of BIC lighters and the severityof the child’s burns.

The child and her 5-year-old brotherwere alone in a bedroom meltingcrayons when the brother dropped thelighter on his sister.Her dress burst intoflame and she ran about the apartmentand was badly burned before an adultcould put the fire out. An expertwitness testified at trial that BIClighters weren’t child-proofed to speci-fications set forth by the ConsumerProduct Safety Commission. BIC testsevery lighter it manufactures for flameheight and flame color, but only tests50 out of every 4.5 million lightersmade to see if they are child-proof.Thejury awarded $1 million for past andfuture physical and mental anguish, $1million for past and future physical dis-figurement, $1 million for past andfuture physical impairment and $2million in punitive damages. Prior tothis case, BIC had been successful in agood number of cases.

First Jury Verdict AgainstBridgestone For Recalled Tires

There have been a good number ofcivil actions settled by Ford and Bridge-stone where the Firestone tires were atissue. Finally, a jury was allowed to heara case and make a finding. In the firstjury verdict involving recalled Bridge-stone/Firestone tires, a Florida juryfound that the company’s ATX tireswere defective and partly responsiblefor injuries to a family whose FordExplorer rolled over after the tread onthe rear tire separated from the rest ofthe tire. It was a case with relativelyminor injuries, which resulted in only$55,400 in damages. The verdict wassignificant, however, and may result in

more and perhaps quicker settlementsin similar cases pending around thecountry. While the verdict was verysmall, it should serve as a boost forother cases. Significantly, it was provedin a court of law that the tire was defec-tive. Bridgestone/Firestone recalled thetires in August 2000, and has sincefaced a federal investigation over theissue. About 500 federal cases havebeen consolidated in multi-district liti-gation in the Southern District ofIndiana. Other cases are pending instate courts around the country.According to our information, thecompany has settled more than 800cases to date.

The Florida case was brought by thedriver of a Ford Explorer who was on I-75 in Miami with her two childrenwhen the tread on one of the rear tiresseparated. The vehicle veered to theleft. The driver tried turning to theright, and the car rolled over onto itsroof.Both children were unharmed,buttheir mother suffered a cut on her handand a severed tendon. The tires wereATX II steel-belted tires, one of threetypes of Bridgestone/Firestone tiresthat were recalled. Interestingly, whenthe jury panel was asked in voir dire ifthey would put Firestone tires on theircars, almost everyone said they wouldnot.Although the tread that tore off theplaintiffs’ tire was never found, the restof the tire was brought to court. Thejury was able to see the tire in thecourtroom with the tread being totallygone.

John Lampe, Firestone’s CEO, gave adeposition in the multi-district litiga-tion that was used at this trial. Lampeadmitted in the deposition and in Con-gressional hearings that his companymade a “mistake” in the way it evalu-ated the performance of the tires.Specifically, when the company evalu-ated its tires, it only considered infor-mation about customer dissatisfactionfrom its dealers, such as returns andwarranty claims, but it ignored per-sonal injury and property damage com-



plaints.The company closed its eyes tolawsuits over rollover claims and prop-erty damage claims. People around thecountry were reporting problems toFirestone. Firestone ignored these com-plaints. Ford began to question the tiresafter it received numerous complaintsabout their performance in SaudiArabia and Venezuela. Firestoneclaimed drivers were underinflatingthe tires. Ford made Firestone produceall personal injury claims, propertydamage claims and warranty claims.Ford fed them into a computer, and theresults showed that tires made in theDecatur, Ill., plant were totally out ofline in terms of accidents. Forddemanded a recall and, based on pres-sure from Ford, Firestone made its firstrecall in August 2000. Lampe, the CEO,admitted in his testimony that, whenFirestone did its own “root cause inves-tigation,” it identified a problem with arubber compound used in the Decaturplant to glue the belts together. Therubber compound holding together thelayers of the tire lost its adhesionability, particularly in warmer climatesand on heavier cars like sports-utilityvehicles.

Ford And Firestone End Their Partnership

The business relationship betweenFord and Firestone had its start whenHenry Ford and Harvey Firestone madea deal about 100 years ago withnothing more than a handshake. Thepartnership ended with little fanfare.Amatter-of-fact memo marked the end ofthe relationship. Bridgestone/Firestonesales executive John Behr said in a noteto Ford’s purchasing department,“Thatshipment (represents) the end of thebusiness relationship between Fordand Bridgestone/Firestone in the U.S.and Canada. I therefore assume thattoday,April 1, 2003, represents the firstday in about 97 years that Ford andBridgestone/Firestone are not doingbusiness in these markets.”This corpo-

rate break-up has been nearly two yearsin the making. John Lampe, chairman,chief executive officer and president ofBridgestone/Firestone Americas,announced in May 2001 that he wassevering ties with the automaker.Therelationship between the longtimefriends unraveled in 2000 with therecall of millions of tires amid reportsthat they were prone to losing theirtread while traveling at highwayspeeds.The tires were standard equip-ment on the Ford Explorer. As we allknow now, the tires have been linkedto at least 271 U.S. traffic deaths.As aresult, there have been hundreds ofwrongful death and personal injurylawsuits. Most of these lawsuits are stillpending.Officials from both companieshave exchanged blame for the tire fail-ures since they came to light. SinceLampe’s announcement, the companyhas continued shipping tires to Fordwhile the automaker lined up new sup-pliers. It still will supply tires to someFord operations outside the UnitedStates.

Ford And Firestone SettleVenezuelan Cases Filed In U.S. District Court

For many years before the August2000 recall of Firestone Wilderness ATand ATX tires, Ford and Firestone wereaware of tire detread and rollover acci-dents of the Ford Explorer in foreigncountries. Countries that were report-ing serious injuries and deaths fromsuch accidents included Saudi Arabia,Malaysia, Venezuela, Columbia, CostaRica and Argentina. In most instances,those countries did not have a govern-ment regulatory agency with authorityto cause a recall of defective products.In fact, evidence discovered during themulti-district litigation suggests thatFord and Firestone attempted to quietthe news of such foreign accidents inorder to avoid reporting requirementsof NHTSA in the United States.

Eventually, public scrutiny and daily

news reports served to kindle publicanger over the injuries and deaths,which led Bridgestone/Firestone torecall its tires in August 2000. It was thesecond largest tire recall in U.S. history.Hundreds of lawsuits have been filedbecause of the alleged tread separa-tions on the Bridgestone/Firestone tiresand design defects in the Ford Explor-ers. Many of these lawsuits concernedforeign nationals who had accidents inSouth American countries of Venezuela,Columbia, Costa Rica and Argentina.These foreign cases were filed in theUnited States. Ford and Firestone vigor-ously resisted the foreign plaintiffsobtaining jurisdiction in the UnitedStates and consistently denied liabilitythroughout the course of this litigation.

In a recent turn of events, Ford andFirestone have both moved aggres-sively to settle over 120 cases involvingdeaths and physical injury in SouthAmerican accidents.There has been nodisclosure of settlement amounts norhave any details been disclosed aboutthe specific numbers of cases involvedin the current settlement effort. Plain-tiffs’ counsel for the Venezuelan plain-tiffs have indicated that they are in theprocess of presenting settlement offersto their clients in Caracas, Venezuela.There are many other pending casesremaining in the multi-district litigationagainst Ford and Firestone.

A Bridgestone/Firestone representa-tive recently declined to comment tothe media on whether the tirecompany has started to offer these set-tlement deals. In recent news coverage,the Firestone representative stated:“There has been, and will continue tobe, ongoing communications withplaintiff lawyers.We have always takenthe position that, when we can reachan agreement that is acceptable to bothsides and avoid a long, protracted legalprocess, we will try to do that.” Manyfamilies who have suffered deaths andserious physical injuries to their lovedones believe that Ford and Firestonehave prolonged and protracted the liti-


gation derived from foreign accidents,while taking a more aggressiveapproach at settlements for accidentsoccurring within the United States. Ourfirm is currently handling severalVenezuelan accident cases involvingdeath and personal injury against Fordand Firestone, as well as domestic caseswhere the accidents occurred in theUnited States.

DaimlerChrysler Seat BeltBuckle Said To Be Defective

Two Texas families have sued Daimler-Chrysler claiming that two women diedand three children were hurt becausefaulty seat belts came unlatched, result-ing in these persons being ejected fromtheir minivan. The lawsuit is among agrowing number of similar claims onbehalf of owners of Chrysler,Dodge andJeep vehicles that have what is referredto as a Gen 3 buckle on seat belts.Thebuckle is prone to unlatching duringwrecks or from around child safety seatsduring sharp turns or sudden stops.Thebuckle is patently unsafe and should berecalled immediately. The Decemberwreck giving rise to the lawsuit referredto above involved a 1996 Chrysler Town& Country minivan. The vehicle hit aculvert and flipped over. The lawsuitsays that even though the 5 occupantsof the minivan were wearing seat belts,all five were ejected from the minivanwhen the seat belt buckles unlatched.The Gen 3 buckle has a button that pro-trudes from its cover enough so that afalling object or flailing arms canunlatch it easily. Other buckles havebuttons more in line with the rest of thebuckle that must be pushed below thecover to unlatch. Clarence Ditlow, headof the Washington D.C.-based Center forAuto Safety, points out the problem isn’tobvious after a crash and it can appearthe occupant wasn’t wearing a seat belt.Last year the safety group asked Daim-lerChrysler to recall all Gen 3 bucklesand replace them with a safer model.

New Side Impact Crash TestResults

Most vehicles are failing or scoringpoorly in a new test that the insuranceindustry hopes will better measure thedanger of being hit in the side, espe-cially by a pickup or sport-utilityvehicle.The test was demonstrated pub-licly for the first time last month by theInsurance Institute for Highway Safety(IIHS) at its crash-test site in Virginia.AsI understand it, the test was supposedto deal with the question whether SUVsare dangerous to other vehicles.However, an unexpected result devel-oped.Vehicles with side air bags didn’tfare well, because the bags didn’talways inflate.According to IIHS, theyare getting very “poor performance”from the first batch of vehicles tested,which were small SUVs. IIHS will soontest cars. Significantly, the organizationpredicts the cars will score even worsethan the SUVs.

For a number of years, IIHS has con-ducted front crashes.The results of theirtesting are widely regarded when deter-mining whether a design is safe or not.This is the trade group’s first side-crashtest.A barrier simulating the oncomingtruck hits the side of the vehicle beingtested 12 inches higher than the impactpoint used in government tests.That’sto simulate higher bumpers and framesof SUVs and pickups, a height that’smore likely to threaten the heads of pas-sengers in the other vehicle.The IIHSimpact barrier is also shaped somewhatlike a truck bumper. The governmentuses a flat barrier to help predict headinjuries. As previously reported, headinjuries are blamed in more than halfthe nearly 10,000 side-crash deaths thatoccur each year.

Pickups and SUVs may be more dan-gerous than previously portrayed. If theIIHS test better duplicates actualwrecks, and most vehicles fail or scorepoorly, it will answer that question.Thegovernment’s side-crash scores, inwhich side air bags do usually inflate,

and the more dire results expectedfrom IIHS may well clash. It will beinteresting to get the auto industry’sassessment of the IIHS test. The testsshow that some side air bags did notinflate even when the test vehicle wasslammed at a speed of 31.5 miles perhour.While IIHS has long been an advo-cate for side bags, the safety group isn’tready to say the side bags are failures.Additional testing will give us a betterreading on this safety issue. If you needmore information, you can reviewresults from the tests at the IIHSWebsite at www.iihs.org.

Newly-Designed Cars Do Better In Crashes

Five newly designed cars and SUVsperformed well in high-speed crashtests by the insurance industry. TheInsurance Institute for Highway Safetytested three SUVs and three luxurysedans by crashing each vehicle into abarrier at 40 miles per hour.The vehi-cles were angled so the driver’s sidegot the brunt of the force. Five vehiclesthat were newly designed for the 2003model year received the highest rating.Those were the midsize Volvo XC90SUV, the smaller Honda Element andMitsubishi Outlander SUVs and theCadillac CTS and Infiniti Q45 cars.Thesixth vehicle tested - the 2002 AcuraRL, which was designed several yearsago - received the second-highest ratingof “acceptable.”According to IIHS, thefront of the Acura collapsed too far intothe vehicle, damaging the legs of thecrash-test dummy. The dummy’s headalso hit the side of the car with toomuch force.

The Cadillac CTS also earned an“acceptable” rating in an earlier test,after the Institute determined that theair bag deployed too late to offer thebest head protection. Cadillac changedthe air bag crash sensors in modelsmade after October 2002, and earnedthe highest rating when it was testedthis second time. It’s uncommon to test



a vehicle twice because manufacturersdon’t always make design changes aftergetting test results. In this instance,Cadillac made the change.While someautomakers are responding to crash-test results and building safer vehicles,there are still problems. On the positiveside, for example, the 1997 Infiniti Q45got the third-highest rating, or “mar-ginal,” when it was tested several yearsago.The air bag deployed too late andthe legs of the crash-test dummy wereinjured.Those problems were solved inthe 2003 Infiniti Q45, according to IIHSofficials. The Insurance Institute hassuggested that design changes are stillneeded in SUVs and luxury cars.

Jury Awards $25 Million In SuitOver Cabin Cruiser Deaths

A jury has ordered Kohler Co. to pay$25 million in punitive damages to thesurvivors of a couple who died when aKohler generator on their boat leakedcarbon monoxide. A jury in St. Louisreached its verdict on punitivedamages a day after it ordered Kohlerand another defendant in the case topay about $525,000 in damages tocompensate the family for its loss.Theoccupants were killed on a cabincruiser in 1999 when they were over-come by carbon monoxide. It wasproved that Kohler, based in Wisconsin,had used inferior metal to make theexhaust tube, which leaked, and hadfailed to recall the part even thoughfour other people had died in similarincidents, in 1986 and 1995. Instead ofusing a material that would have lastedthe life of the generator, they used acheap material. During the trial, Kohlerannounced it would recall the part. Ofthe punitive damages awarded, half willgo to Missouri’s tort victims’ fund.

X.MASS TORTSUPDATE

Government Report ConfirmsInadequacies Of FDA DrugApproval Process

In March of 2003, The U.S. Depart-ment of Health and Human Services(HHS) issued a new report, “FDA’sReview Process For New Drug Applica-tions;A Management Review.” In a pressrelease on March 31, 2003, PublicCitizen commented that the HHSreport,“confirms that the federal gov-ernment’s current drug review processdoes not adequately protect consumersfrom harmful prescription medica-tions.”All new drugs must be reviewedfor safety and efficacy before being puton the U.S. market. From its origins in1906 until 1992, the FDA had been apurely government-funded agency.Then in 1992, The Prescription DrugUser Fee Act (PDUFA) was passed.Thislegislation authorized the FDA tocollect user fees from the pharmaceuti-cal industry to help speed up thereview of New Drug Applications(NDAs). It also established time goalsfor FDA review of the NDAs. In 1997,the FDA Modernization Act reautho-rized user fees for another 5 years.Thetime goals were shortened, and thisnew legislation called for the FDA towork more collaboratively with theindustry. In June 2002, the PublicHealth Security and Bioterrorism Pre-paredness Act of 2002 once again reau-thorized user fees.The part of this 2002legislation addressing user fees isreferred to as “PDUFA III.”

The purpose of the HHS report was“[t]o assess how well the Food andDrug Administration manages its newdrug application review process.”TheHHS surveyed the FDA’s Center forDrug Evaluation and Research(“CDER”) reviewers, officials, and man-agers who review the NDAs. Forty

percent of long-term reviewers whoresponded to the survey said that thedrug review process had worsenedsince they were first employed withthe FDA. Fifty-eight percent said thatthe allotted 6-month review period forpriority NDAs was inadequate; twentyfive percent felt similarly about the 10-month review period for most standardapplications. Eighteen percent of thephysicians and scientists surveyed feltpressure to recommend approval fordrugs despite their reservations aboutthe drug’s safety, efficacy or quality.Those surveyed did not disclose thespecific source of the pressure.

The report concludes that FDA“reviewers face workload pressuresthat increasingly challenge the effec-tiveness of the process. Beyond thesepressures, three other factors threatenthe effectiveness of the process: therushed review of drug labels that takesplace toward the end of the reviewprocess, the limited guidance availableto reviewers in determining the extentand type of post marketing commit-ments to request of sponsors, and thelimited information that FDA makesavailable to the public on the basis forits decisions concerning NDAs. Overall,these findings present a significantwarning signal, one, that if not fullyaddressed, could jeopardize the gainsthat FDA has made in recent years.”

In December 1998, Public Citizenconducted a similar study with consis-tent findings. In that study, nineteenFDA medical officers identified twenty-seven new drugs that they hadreviewed in the previous 3 years thatthey thought should not be approvedbut the agency approved anyway. Sev-enteen Medical Officers described thecurrent [1998] standards of the FDAreview for safety and efficacy as“lower” or “much lower” compared tothose in existence prior to 1995. Andseveral Medical Officers said they hadbeen instructed by their superiors tocensor their reports or presentations.The following are some comments


made by those FDA Medical Officerssurveyed in 1998:

• “We are shifting the burden of proofon safety onto ourselves. Instead ofasking the drug companies to provethe drug safe, we are trying to provethe drug dangerous. If we cannotshow that the drug is dangerous,then it is assumed safe.”

• “We are told that approvability is ourgoal with ‘problems’ to be addressedin labeling.”

• “So often, we identify a problem pre-approval, and it is simply insertedinto the label with everything elsethe practitioner has no time to read.”

• “Rapid approval often means insuffi-cient time to examine carefully origi-nal data, accepting ‘on faith’ validityof randomization, screening, use andmisuses of inclusion and exclusioncriteria.There is insufficient time todiscuss outlying observations.”

• “What are the options; everythingmust now be ‘approved’ or approv-able.”

• “This is a formula for disaster. Thepatient does not benefit.”

• “I think it is abused by companies formarketing reasons, when the benefitto public health (or some smallsubset) will be minimal at best.”

• “Superiors will try to get reviewersto change his/her mind so that theywill not need to take the heat ifsomething goes wrong.”

Public Citizen concluded in 1998that “[t]hese findings should raise a redflag that the very integrity of the drugapproval process in the U.S., long anexample to the rest of the world, isbeing seriously eroded. It is inexcus-able to, in effect, override the opinionof the person most familiar with adrug’s safety and efficacy data in manycases and approve the drug.”The con-sumer watchdog group also found thatinappropriate pressure from Congress,the drug companies and senior FDAofficials creates an atmosphere inwhich the likelihood of drug approvalis maximized. The pressure takes the

form of inappropriate phone calls,pres-sure to withhold data or personal opin-ions unfavorable to the drug from FDAAdvisory Committees, and pressurefrom supervisors on Medical Officersto change their opinion in the directionof approving the drug…Together, theseforms of coercion threaten to under-mine the scientific credibility of FDAreviews and to reduce the public’s trustin the agency.

Moreover, the organization expressedthe following disturbing revelations:“Three additional areas of concernwere identified by the Medical Offi-cers.The first is the apparently growinguse of the label to address safety con-cerns and facilitate approval, instead ofdenying approval. One Medical Officerquoted a high-ranking FDA official assaying ‘everything is approvable. Wecan use the label creatively to lowerthe problems.’ This represents a com-plete abdication of responsibility bythe agency, particularly because it iswell known that few physicians actu-ally read the label. Second, at least somedrugs have received approval by defer-ring unresolved questions to a post-marketing study to be done by the drugcompany. But, as the Medical Officersmade clear, these studies are often ofpoor quality or not carried out at all.The result is drugs coming onto themarket with unresolved questions,usually safety issues. Finally, it is clearthat many Medical Officers feel thattheir opinions are being overlooked,even though they are most familiarwith the data on the particular drugsthey are reviewing. As one MedicalOfficer put it,‘The Advisory Committee(or anybody) don’t pay much attentionto what the primary reviewers say.’ Saidanother:‘in the last two years, I recom-mended that two drugs not beapproved. They were both approvedwithout consulting me.This never hap-pened before. In one case, the drug didnot meet the standards set up by thedivision, so they nullified the stan-dards.”

The review process at the FDA hasnot changed since 1998. If anything,things have gotten worse. New legisla-tion continues to weaken the reviewprocess, erode the power of the FDA,and give more control to the pharma-ceutical industry. As Peter Lurie, MD,MPH, deputy director of PublicCitizen’s Health Research Group stated,“[t]he FDA is supposed to rigorouslyscreen all new drugs and ensure thatthey are safe and effective before theyare sold to millions of people. Unlessthe agency gets out of the snug bed it iscurrently sharing with the industry,unsafe drugs will continue to slipthrough the safety net.” In 1998, PublicCitizen quoted one Medical Officer atthe FDA who stated,“[m]y feeling aftermore than twenty years at FDA is thatunless drugs can not be shown to ‘killpatients’ outright then they will beapproved with revised labeling andbox warning.” Based on the new infor-mation, it appears that consumers con-tinue to take a back seat in an FDAvehicle being driven wherever BigPharma wants to go.

Pfizer Ordered To Pay $2 Million In Rezulin® Trial

A New York jury has ordered Warner-Lambert to pay $2 million in compensa-tory damages to a woman who allegedshe was injured by taking the diabetesdrug Rezulin®.As previously reported,Warner-Lambert withdrew Rezulin®from the market in March 2000 after aseries of liver-related deaths werelinked to the drug. Pfizer Inc. acquiredWarner-Lambert in June 2000. Interest-ingly, the jury ruled that the plaintiffwas injured by misrepresentations byWarner-Lambert, but also found thatWarner-Lambert’s warnings about therisks of Rezulin® were adequate.Thedefendant will claim that the jury ren-dered an inconsistent verdict.The juryfound that Warner-Lambert misrepre-sented or omitted material informationabout Rezulin® and this was a substan-



tial factor in causing the plaintiff’sinjury.The jury failed to award punitivedamages in this case.

Fraud Suit Over Rezulin®

Revived

A civil fraud suit brought by healthinsurance companies over the contro-versial anti-diabetes drug Rezulin® hasbeen revived or brought back to life bythe U.S.Court of Appeals for the SecondCircuit. Reversing a trial court victoryfor Warner-Lambert Co., the appealscourt said that major health insurershad adequately stated a claim they werethe “direct victims of defendants’ fraud-ulent marketing.”The lower court ruledthe plaintiffs had failed to allege therequired “causal connection” betweenthe “marketing” of the drug and their“financial injury.” The FDA later hadaccused Warner-Lambert Co. of making“false and misleading claims” about thedrug’s effectiveness. After the FDAbegan hearing reports of liver failureand liver injury in some patients whotook the drug, the National Institutes ofHealth in 1998 stopped a clinical studyof the drug out of concern for the safetyof patients.

The health service providers chargedin this case that Warner-Lambert contin-ued to represent the drug as safe eventhough the company had reported tothe FDA that 31 users had died during asix-month period in 1998. It was furthercontended that the company continuedto lie about the drug even as evidenceof liver failure in patients mounted.Aspreviously reported, the company ulti-mately removed Rezulin® from themarket in March 2000.The plaintiffs hadalleged “an injury directly to them-selves; an injury, moreover, that is unaf-fected by whether any given patientwho ingested Rezulin® became ill.”Theplaintiffs’ alleged injuries could not beconsidered derivative because theywere compelled to pay for a drug thatcost three times as much as the cheaperalternatives, according to the appeals

court. It was Warner-Lambert’s allegedmisrepresentations that caused thehealth care providers to overpay forRezulin®. In effect, the court was allow-ing health insurers to “recover fromdrug companies amounts that wereoverpaid due to illegal or deceptivemarketing practices.”We believe this is amost significant appellate decision.

FDA Approval Is Still PendingFor A Drug In Use Since 1964

Lately, there has been a great deal ofcontroversy over the taking ofhormone-replacement therapy bywomen. Estratest is one of the drugsinvolved in the on-going debate. Asmany of you know, American womenhave been taking Estratest for nearlyfour decades. During the past 12 years,doctors have written nearly 35 millionprescriptions for this drug. Over $178million a year in sales were generatedfor its maker, Solvay SA in Brussels.Interestingly, the drug has never beenapproved by the Food and Drug Admin-istration.When an application for Estrat-est was submitted in 1979 to the FDA,the agency refused to grant it, citing“insufficient data.”The company submit-ted a second application in 1981. Sincethat time, however, the drug has beenunder review by the agency.The FDAtold Solvay in a 1999 letter that it wouldcontact the company “shortly” andassured the company it didn’t plan any“precipitous action” requiring that theproduct be withdrawn from the marketat that time. You should be surprisedand maybe shocked to learn that Solvayis still marketing the drug as though itwere approved. For example, when itfilled out a form required to sell thedrug to the Defense Department, Solvaychecked off that Estratest was “FDA-approved.”The company has even beento court to protect the drug from whatit said were unfair trade practices. In1999, a federal appeals court in Atlantasaid it was “baffled” by the agency’ssluggishness. “It is incomprehensible

that Estratest has been allowed on themarket without approval for 35 years,”the judges wrote in a case involvingEstratest. It was added:“We are accus-tomed to hearing arguments in situa-tions like this bemoaning scarcegovernmental resources and the like,but there can be no good excuse forallowing a company to violate the lawfor 35 years.”

The FDA began reviewing drugs forsafety in 1938 and began reviewing forboth safety and efficacy in 1962. It issignificant that Estratest came tomarket in 1964—some 2 years later.There are plenty of other drugs on themarket that have never been approvedby the FDA. It is shocking that the FDAhas only a handful of people workingtoward getting these drugs removed orapproved.The regulatory agency saysthat the Estratest file is under “activereview” and that Estratest “has been aconcern for some time.” It is inexcus-able that this drug has been underreview for more than two decades. Sig-nificantly, there are questions ofwhether Estratest is effective for itsstated use of treating symptoms ofmenopause, or for low libido, for whichit is often prescribed.

Estratest came on the market to helpwomen with the symptoms ofmenopause, including hot flashes andvaginal dryness.A combination of estro-gen and methyltestosterone, the drugwas developed for women whoweren’t helped by estrogen alone.Thedrug company depends on this drugsince it is a big money maker. Clearly, itplays an important and growing role inthe company’s finances. In 2001, thelast year for which complete figures areavailable, Estratest’s $178 million insales were 11% of the company’s totaldrug sales and were growing at a rapidrate — up 38% from the year before.

The FDA says it is working to getunapproved drugs off the market. Onerecent high-profile case involving Syn-throid, a widely prescribed thyroiddrug that slipped onto the market more


than 40 years ago without approval.After being threatened with removalfrom the market,Abbott Laboratories,which had picked up the drug in anacquisition, applied for approval, andlast year received it. But other drugs areyet to be approved — sometimesdespite safety concerns—and that isdifficult to understand. The FDA saysthat it has concerns about Estratest’seffectiveness and that it is likely to startan administrative proceeding on thedrug “very soon.” In the meantime, thedrug continues to be sold. How can theFDA operate in this manner? Could itbe the power and influence of thepharmaceutical industry?

Heart Association Urges Federal Ban On Ephedra

The American Heart Association hasjoined the ranks of those wanting a banon ephedra. It has urged the federalgovernment to ban sales of the herbalsupplement. The Association says thedangers of using it far outweigh anypossible benefits it could have as aweight loss aid or workout enhancer.“Ephedra has been associated with aremarkable risk profile,” the Associationsaid in a formal statement submitted tothe Food and Drug Administration. Itcited “growing literature” linking use ofephedra to a variety of serious sideeffects, including hypertension, irregu-lar heartbeat, seizure, heart attack,stroke and death.“The potential healthhazards associated with ephedrine aretoo serious to permit the drug to besold on the open market,” the state-ment said. The association urged theFDA to “strongly consider removingdietary supplements that containephedra from the open market.”

The Heart Association, a nonprofitorganization of 4 million volunteersand health professionals, is the latest inthe growing list of critics of ephedra.Association President Robert O.Bonow,Chief of Cardiology for NorthwesternUniversity Hospital, said the organiza-

tion has long opposed open sales ofherbal ephedra and had submitted itsstatement as a “comment” in responseto a new FDA initiative to seek regula-tion of the supplement. The Associa-tion’s spokesman said the evidence isstronger than ever. As we all know,ephedra has been linked in studies bythe FDA and other organizations tohundreds of adverse events. Under theDietary Supplement Health and Educa-tion Act of 1994, ephedra and otherherbal supplements, unlike drugs, arenot subject to pre-market testing. Nordo manufacturers have to report theincidence of harmful side effects.A pre-vious FDA effort to regulate ephedrafoundered in 1997.Recently,Health andHuman Services Secretary Tommy G.Thompson reopened debate on regulat-ing ephedra dosage and perhapsbanning the supplement. I have towonder how long innocent people aregoing to be subjected to the dangersassociated with ephedra.

Military Study Of Heat-RelatedInjuries At Military Base

A recent study should put anothernail in the ephedra coffin.Although justa small percentage of Marines at CampPendleton, Calif., reported using theherbal supplement ephedra dailyduring 2000, half the heat-relatedinjuries reported that year were amongthe Marines who had used ephedra,according to an unpublished study.Thisis just another confirmation thatserious health risks are associated withephedra use.A summary of the study,posted on a military Web site, wasbased on a survey and medical datafrom the First Marine Division at CampPendleton, Calif. It found that although7% of Marines reported daily use ofephedrine dietary supplements duringthe year 2000, “half of all [Marineswith] heat related injuries in 2000 in1MARDIV (First Marine Division) hadused ephedra.” The information alsodocumented specific cases of ephedra-

related injuries in military personnel,including a death from Cybertrim (asupplement containing ephedra) atMarine Corps Logistic Base in Barstow,California, and a cerebral hemorrhagein an active duty person at Point LomaNaval Submarine Base in San Diego.That Marine was using UltimateOrange, another ephedra supplement.

Previous reports indicate that therehave been about 30 deaths of activeduty military personnel who wereusing ephedrine dietary supplementproducts.The Camp Pendleton informa-tion came out at the same time as thepublication of an article by Sidney M.Wolfe, M.D., director of Public Citizen’sHealth Research Group, about ephedrain the April 18 edition of Science Maga-zine. Dr. Wolfe traces the history ofinjuries and deaths linked to ephedraand the influence of money and poli-tics on the U.S. Food and Drug Adminis-tration’s refusal to ban it. He noted thatalthough some manufacturers are nolonger selling supplements containingephedra, the government should notrely on the marketplace to protect thepublic’s health. “Regulation is nowcoming from the marketplace, operat-ing in the vacuum created by FDA inac-tion,” Wolfe wrote. “This is not anacceptable way to safeguard publichealth, and product labeling is notenough.We call on the FDA to stop theoccurrence of further preventabledeaths and injuries by banning ephedraproducts.” Data show that productscontaining ephedra increase the risk ofhypertension, stroke, heart attacks,arrhythmia and seizures. While morethan 100 reported deaths in the UnitedStates have been linked to ephedra, therecent death of Baltimore Oriolespitcher Steve Bechler focused publicattention on the dangerous supplementingredient at a much higher level.

Because of these serious problems,Public Citizen in 2001 petitioned theFDA to ban ephedra.While a number ofmanufacturers have announced theywill stop selling supplements contain-



ing ephedra, the government has yet toact. “It would appear that the FDA ispart of the ‘Ephedra Industry SurvivalService,’ not part of the public healthservice,Wolfe said.“The government istalking about putting warning labels onephedra products, but that is notenough. These products can kill, andthey shouldn’t be on the shelves.”

Both the Army and the Air Force havestopped selling ephedra products intheir commissaries.The National Foot-ball League, the National Collegiate Ath-letic Association and the InternationalOlympic Committee have prohibitedthe use of ephedra among athletes.Toobtain a copy of the Science Magazinearticle,call the American Association forthe Advancement of Science Office of Public Programs at (202) 326-6440.Copies can also be obtained fromPublic Citizen. To read a chronology of ephedra—including a new citationto a Website promoting ephedra use to military personnel—go towww.citizen.org/publications/release.cfm?ID=7241.

Jury Finds For Bayer® InAnother Lawsuit

Bayer® has won another courtbattle—this one in Mississippi. InMarch, a Mississippi jury gave Bayer®Corp. its second victory.The jury foundthat Bayer® was not liable for injuries awoman claimed she suffered aftertaking Baycol.The female plaintiff hadsought $50,000 in a lawsuit in statecourt, claiming she suffered musclepain from taking the cholesterol-lower-ing drug. Bayer® has acknowledgedthe link between Baycol and a sideeffect called rhabdomyolysis — a life-threatening condition in which musclecells are destroyed. As previouslyreported, Baycol was linked to at least52 deaths worldwide before it waspulled from the market in August 2001.This was the first lawsuit to go to trialagainst the company in Mississippi andthe second tried in the nation. Asreported last month, Bayer®® was

cleared of liability in a Corpus Christi,Texas, case that sought $560 million indamages.The pharmaceutical giant wasaccused to have ignored researchlinking the cholesterol-lowering drugto dozens of deaths.

There are an estimated 8,000 casesnow pending against Bayer® nation-wide. According to the most recentnews reports, the company has paid$219 million to settle about 750 casesthus far. In the Mississippi trial, Bayer®maintained that nothing in the lady’smedical records suggested she wasinjured by taking Baycol. From allaccounts, the plaintiff in that case hadgreat difficulty in connecting her rela-tively minor medical problems to thetaking of Baycol. Lawyers representingclients in Baycol cases should learnfrom the 2 defense verdicts.These twocases are clear indications that onlycases with real merit should bepursued. The cases must have bothwrongdoing and a serious injury ordeath caused by taking the drug.Bayer® was smart in picking two casesto try that it felt could be won.

Bayer® Settles Baycol Case InFort Worth

Bayer® settled a Texas lawsuit involv-ing Baycol for an undisclosed sum lessthan two weeks before the case was togo to trial in Fort Worth.At press time,we didn’t have any more informationon this case. Bayer® said recently thatit had paid $219 million to settle 740cases related to Baycol, which has beenlinked to more than 100 deaths andcases of muscle weakening. Someindustry analysts originally estimatedthat damage payments could be asmuch as $10 billion. Bayer® obviouslyunderstands that it has legal responsi-bilities that it must accept and resolve.Hopefully, all remaining cases can besettled within the next few months.

EPA Investigates Teflon

The Environmental ProtectionAgency has stepped up its investigationof potential health risks posed by twogroups of chemicals used in the manu-facture products in a multibillion-dollarindustry. One of the chemicals isDuPont Co.’s Teflon, which is perhapsthe best known.According to the EPA,many “scientific uncertainties” remainabout the potential health hazards bothto company employees and the publicat large. However, the agency hasn’ttaken action to stop the public fromusing the products.The chemicals areused in products including non-stickcoatings for pans, grease-resistant coat-ings on carpets and clothing, and flame-resistant parts in jet engines. Twostudies escalated concerns about thechemicals. Blood samples from threepopulation groups selected at randomshowed low-level residues of per-flourooctanoic acid, or PFOA, that lin-gered in their blood for as many as fouryears.The second study involving largerdoses of the chemical, fed to rats,showed delays in sexual maturationand an accelerated death rate.

The EPA is also concerned about asecond group of chemicals, calledflourinated telomers, which are used insuch things as firefighting foams, clean-ing products and stain-repellent coat-ings on carpets, textiles, popcorn bagsand paper plates. The EPA suspectsthat,while these products are not madewith PFOA, they may release the chemi-cal as they break down in the environ-ment.The presence of PFOA starts withthe use of the chemical called ammo-nium perflourooctanoate (APFO),which is used in the manufacture ofproducts such as Teflon. In the environ-ment, APFO, which has been used inmanufacturing for more than half acentury, converts into PFOA.The Envi-ronmental Working Group, a Washing-ton research group that has beeninvestigating the chemicals, hasclaimed that DuPont has withheld sci-entific data on potential health risks


from the EPA.The EPA is investigatingthe assertions. It should be noted thatPFOA has been unregulated during themore than 50 years of its use. DuPont isthe leading U.S. maker of both APFOand flourinated telomers.

XI.BUSINESS LITIGATIONUPDATE

Rite Aid Settlements

The Rite Aid Corp. owns a goodnumber of drug stores around thecountry, including stores in Alabama. Iam convinced that these stores arepoorly managed and often utilize non-professional employees to fill prescrip-tions. However, the company is alsohaving other problems. Rite Aid Corp.and KPMG have reached a settlementin the stockholder lawsuit that waspending in a Pennsylvania federal dis-trict court. Litigation over the account-ing scandal that caused Rite Aid Corp.’sstock price to drop sharply in March1999 resulted in $318 million in settle-ments to shareholders.The last settle-ment came when the KPMGaccounting firm agreed to pay $125million. In a related case, a federal judgeapproved a settlement worth almost$68 million in a class action ERISA suitbrought by Rite Aid workers.The plain-tiffs in that case complained that thecompany imprudently allowed theirpension plans to invest in Rite Aidcommon stock when it was not aproper or suitable investment. In thefirst of the three settlements, Rite Aidagreed to pay a total of $193 million.Initially, the settlement was structuredso that Rite Aid would pay $43.5million in cash, which would haveexhausted all of its available insurance,as well as at least 20 million shares ofRite Aid common stock promised to beworth at least $149.5 million.

In the suit, investors alleged thatbetween May 1997 and March 1999,Rite Aid portrayed itself as a companywith “very strong” profitability and saidit was in the midst of a major programto expand and modernize its opera-tions. In fact, the suit alleged, the mod-ernization and expansion programswere “encountering significant prob-lems.”This not only caused shareholderproblems, but also contributed tomajor problems in the company’s pre-scription departments.

The suit alleged that instead of pub-licly disclosing the problems, Rite Aidengaged in a variety of improperaccounting methods designed to hideits true financial picture by both artifi-cially inflating its earnings and deflatingits expenses. Over a three-year period,the suit alleged, Rite Aid succeeded inartificially inflating its after-tax earningsby more than $1.6 billion.The suit alsoalleged that KPMG was “aware of” and“recklessly disregarded” Rite Aid’simproper accounting practices. In eachof the three years, the suit said, KPMGissued “unqualified auditor’s opinions”that said Rite Aid’s financial statementsconformed with generally acceptedaccounting principles.

The public first learned of the prob-lems in March 1999 when Rite Aidannounced that its fourth-quarter earn-ings would be less than expected.Thenews caused stock prices to drop from$37 per share to $22.56. Soon after,investors learned that the SEC wasinvestigating Rite Aid’s accountingpractices.The company responded byrestating its financial results for the pre-vious three years. The true extent ofRite Aid’s problems wasn’t revealed,however, until November 1999, when aseries of disclosures rocked thecompany and caused its stock price tofall to just $5.38 per share.The courtentered an order last month grantingpreliminary approval of the KPMG set-tlement, clearing the way for notifica-tion to the class. In a separate suit, RiteAid workers claimed that the company

breached its fiduciary duty underERISA by allowing their pension plansto invest in Rite Aid stock during theperiod that the company was inflatingits earnings.

MasterCard And Visa SettleDebit Card Suit

Just before we went to the printer,welearned that both MasterCard Interna-tional and Visa USA settled theirpending case with thousands of retail-ers. This development occurred justbefore their multibillion-dollar lawsuitover debit card practices was set to goto trial. MasterCard settled first on April28th, the date set for the trial to begin,leaving Visa USA as the sole defendantto battle it out in court with the retail-ers, including retail giants Wal-Mart,Sears and Circuit City.The retailers saidVisa and MasterCard trapped them intopaying high fees by demanding thatstores accept their debit cards alongwith their credit cards.They also say thecard companies were stifling competi-tion.Visa and MasterCard claimed theirhonor-all-cards policy actually increasedcustomer choice. Each side claimedthey were fighting for the best interestof consumers. However, this settlementpretty well leaves it up for consumersto decide who, if anybody, was lookingout for consumers’ interests.

After MasterCard settled,Visa and theretailers settled on a jury and openingstatements were scheduled to be made.At that point,Visa joined in the settle-ment. The 1996 suit alleged that Visaand MasterCard unfairly require mer-chants to accept their debit cards,which require a customer’s signature toverify a transaction. The plaintiffs saythe process ultimately costs consumersmore money. Many retailers wouldrather use less expensive, independentnetworks that clear debit-card transac-tions using a personal identificationnumber, or PIN.The case was going totrial at a time when debit cards —which deduct cash from an existing



bank account rather than building updebt in a credit account — enjoytremendous popularity. This case is aprime example of how CorporateAmerica operates. As most Americansnow know, the consumer has very littleprotection outside the judicial system.

When Visa followed MasterCard’slead and settled the remaining part ofthe lawsuit, a full blown trial wasavoided. The two card issuers haveagreed to pay $3 billion and lowertransaction fees.The deal was hailed bythe retailers’ lawyer as a major victoryfor merchants and their customers.TheVisa deal calls for the company to payroughly $2 billion to the retailers andreduce debit card fees. MasterCardInternational will pay $1 billion andalso reduce fees. According to esti-mates, the two card companies couldhave faced billions of dollars indamages if they lost at trial.

The judge must approve the deals,which include immediate $25 millionpayments.Visa will modify its “honor allcards”policy. Beginning in January, mer-chants can decide whether to continueto accept Visa’s debit cards.The debitcards use a customer’s signature toverify a transaction. Many merchantswould rather use less expensive, inde-pendent networks that clear debit-cardtransactions using a personal identifica-tion number, or PIN.After MasterCardsettled, it was pretty obvious that Visawould settle the case rather than face atrial with MasterCard having left themhigh and dry. I have to wonder whatreal and lasting benefit consumers willactually see from the settlement. Hope-fully, it will result in lower prices,greater choices, and safer debit cardproducts.We will know more about theimmediate and long-term effects thesettlement will have on consumers ifthe judge approves the settlement,which is expected to happen.

Judge Orders $800 Million InCredit Card Refunds

A Superior Court Judge in Californiaordered credit card giants Visa and Mas-terCard to refund an estimated $800million to U.S. customers who paid ahidden fee on purchases made inforeign countries.The decision finalizeda tentative ruling that had been undercourt seal since February. The casecenters on a 1% surcharge Visa andMasterCard add to the transactionamount of credit card charges requir-ing foreign currency to be convertedinto U.S. dollars. Concluding Visa andMasterCard have been concealing theconversion fee, the Judge orderedrefunds dating back to 1996.Attorneysrepresenting consumer interests in thethree-year-old case described the deci-sion as vindication for millions of card-holders who had been misled for yearsabout the costs of their foreigncharges.Visa, based in Foster City, Cali-fornia, and New York-based MasterCardsay they will appeal. Because it’s basedin California, Visa is more deeplyaffected by the decision than Master-Card. Visa must issue refunds to card-holders throughout the country. On theother hand, the decision applies only toMasterCard’s California customers.Based on estimates drawn from evi-dence in the trial, Visa faces $740million in refunds while MasterCardwill have to refund about $60 million.

The judge noted in the ruling thatVisa collected $817 million from itsU.S. cardholders making purchases inforeign countries from 1996 throughMarch 2002.That figure includes feesfor debit card transactions. MasterCardcollected $195.5 million nationwidefrom foreign currency conversion feesfrom February 1996 through Decem-ber 2000.A May 23rd court hearing hasbeen scheduled to discuss how therebates are to be made.While the cur-rency conversion fee is disclosed in theinitial agreements distributed to Visaand MasterCard customers, the sur-charge fails to appear in billing state-

ments documenting the transactions.Instead, the fee is lumped into the totaltransaction price covering the itempurchased in a foreign country. Con-sumer attorneys argued that the prac-tice violated California’s unfaircompetition laws requiring clear disclo-sures.The court obviously agreed.

The court ruled that the credit cardconversion fees appear “reasonable.”However, the surcharges “underminedthe free market because most con-sumers aren’t aware of them,”accordingto the court. If consumers knew aboutthe fees, they might look for currencyconversion alternatives — discriminat-ing behavior that could pressure thecredit card companies to lower theirfees.“In short, where there is no infor-mation, there is no competition,” thecourt wrote. “And where there is nocompetition, we are on the road toserfdom.”As part of his ruling, the judgeordered Visa and MasterCard to betterdisclose the conversion fees in thefuture. Interestingly, the credit card com-panies contended that the banks issuingtheir cards ultimately should be heldresponsible for explaining the currencyconversion fees to their customers.

The separate federal lawsuit in NewYork referred to above also targetedVisa and MasterCard for their conver-sion fees.That suit also names severalmajor banks that issue Visa cards andMasterCards. The credit card compa-nies said there’s nothing wrong withbundling the conversion fees into thetransaction prices that appear on cus-tomer bills. Consumer advocatescontend cardholders have a right toknow when financial servicesproviders tack on extra fees to theprice of the goods and services sold byanother party. Most believe the Califor-nia case is going to be a great decisionfor consumers.There are a lot of fees inthe credit card industry that aren’t ade-quately disclosed to customers.As wehave learned, the companies also sliparbitration agreements into theirmonthly bills, which few folks catchuntil it is too late.


British Reinsurer Covers SuitsFrom Two Businesses AgainstHoneywell

Equitas, a British ReinsuranceCompany, will pay $472 million to Hon-eywell International to settle thecompany’s claims arising fromasbestos-related liabilities at two busi-nesses. The deal, called a policy-buyback settlement, would coverasbestos claims at North AmericanRefractories Co., which Honeywell soldin 1986, and the Bendix business,which Honeywell has agreed in princi-ple to sell to Federal-Mogul Corp.Thiswill pay all current and all futureclaims.The cash payment will cover allof Honeywell’s claims against Lloyd’s ofLondon investors who had reinsuredtheir liabilities with Equitas. Lloyd’s isan insurance market comprised of cor-porate and individual investors, orNames. Hundreds of Lloyd’s Names suf-fered tremendous losses because ofclaims stemming from asbestos-relatedillnesses in the 1970s and ‘80s. Lloyd’slost $12.6 billion from 1988 to 1992,and many Names faced financial ruinbecause of their unlimited liability.Tolimit its exposure to these claims,Lloyd’s set up London-based Equitas toreinsure its insurance liabilities for1992 and all previous years.This settle-ment provides finality for the reinsuredNames who were at risk from claims byHoneywell and its related businesses.

“For Honeywell, it provides certaintyas to the amount of claims that willeventually be covered by Lloyd’s ofLondon Names,”according to an Equitasspokesman. Honeywell’s generalcounsel called the deal another step inHoneywell’s efforts to resolve issuesrelated to the North American Refracto-ries and Bendix asbestos cases. Honey-well, a high-tech manufacturer based inMorris Township, New Jersey, has had alarge number of asbestos-related liabili-ties. It took a one-time, pretax charge of$1.55 billion in the fourth quarter forasbestos claims not covered by insur-

ance. Federal-Mogul, an automotivecomponents supplier, has agreed toacquire most of Honeywell’s Bendixfriction materials business. Bendixmakes brakes and brake linings thatonce included asbestos. Honeywellowned former North American Refrac-tories from 1979 to 1986.The division,known as NARCO, currently is inChapter 11 bankruptcy proceedings.

Thimerosal Vaccine Update

We are involved in a number ofclaims for parents and children whoare claiming that Thimerosal (whichcontains mercury) has caused autism intheir children.These families have beendeeply affected by their children’sautism and we are grateful to have theopportunity to try to help them. Unfor-tunately, a bill that is now being consid-ered by a United States Senatecommittee would throw more than200 lawsuits filed by families whobelieve their children were injured byvaccines out of court and into a specialfederal fund.You may have read aboutthis legislation late last year whenRepublicans in the Senate quietlyslipped the change in at the last minuteto the unrelated Homeland SecurityLegislation.After public outcry, the law-makers did undo the move in later leg-islation, but Senate Republicans havevowed to try again through the bill thatis currently in committee.

Under current law, injured familiesmust file claims first with the SpecialFederal Compensation Fund, wherecases are independently evaluated,before going to court. Many feel thatthe independent evaluation is not trulyindependent and that this is yetanother way to prevent injured familiesfrom having their claims heard by ajury. Some families with injured chil-dren have bypassed the CompensationFund and gone directly to court withclaims that their children were harmedby a vaccine’s ingredients (such asThimerosal), rather than by the vaccine

itself. Specifically, many families haveclaimed that their children’s autism iscaused by a preservative calledThimerosal, which contains mercuryand is now very much in the publiceye. One would hope that even thosestaunchly opposed to these claimswould realize that this is yet anotherexample of unwarranted federal pre-emption of the States and the rights offamilies who believe their childrenwere injured by vaccines. It is interest-ing to note that many of the lawmakerswho normally staunchly defend theState’s rights to protect its citizens andoppose federal intervention or “BigGovernment” are rallying to federalizethis issue. At best, lawmakers whosupport this kind of federalization andpreemption of States rights and jurytrials are inconsistent with their beliefs.It appears that they are attempting tofavor corporate backers over familieswho have suffered radical changes intheir lifestyles because of their chil-dren’s autism.

Pricewaterhouse Sued Over Accounting

During the past year,Amerco Inc., theparent of truck-rental company U-HaulInternational, has been on the brink ofbankruptcy for a number of reasons.The company is now claiming itsauditor, PricewaterhouseCoopers LLP, isto blame for the company’s financialproblems. Amerco has now filed suitagainst the accounting firm in anArizona federal district court, claimingits economic problems are a directresult of the accounting giant’s badadvice.The suit seeks more than $600million in lost profits and compensa-tory damages.An additional $2 billion isbeing sought for punitive damages.Douglas Carmichael, an accountingprofessor at Baruch College in NewYork, was hired by Amerco as a consult-ant. Mr. Carmichael was scathing in hisfindings, according to a declarationfiled late last year in which he said PwC



“violated each and every duty” owed toAmerco. This is the same Mr.Carmichael who was appointed lastweek to be the first chief auditor of theSEC’s Public Company AccountingOversight Board.

Mr. Carmichael told the Wall StreetJournal that he stands by his reportsfor Amerco. However, he declined todiscuss specifics of the case. Over thepast two decades, he has testified as anexpert witness for private litigants andthe SEC in numerous lawsuits againstall of the major accounting firms. Healso testified periodically as an expertwitness for Coopers & Lybrand beforeits merger with Price Waterhouse toform PwC.This should be a most inter-esting case to watch, especially sinceCorporate America doesn’t like puni-tive damages very much. It is ratherinteresting to see a CEO’s perspectivechange when his company is thevictim.

XII.INSURANCE ANDFINANCE UPDATE

UnumProvident Hit With $84.5 Million Verdict

A federal jury in Arizona has returnedan $84.5 million verdict againstUnumProvident Corp.The jury orderedthe award, including $79 million inpunitive damages, after concluding thattwo UnumProvident subsidiaries andanother insurer, General American,acted in bad faith in its handling of aclaim by a cardiologist, Joanne Ceimo,in Scottsdale, Arizona. Thus far, theverdict is the largest amount awardedagainst the disability insurancecompany.As previously reported, thereare large numbers of similar casespending against this company. Underher policy, Dr. Ceimo was entitled to amonthly benefit of $12,000 for the restof her life if she became permanently

disabled. She had to curtail her activi-ties as a cardiologist after a neck injurycaused her hand to shake, preventingher from performing delicate proce-dures such as angioplasty. If the verdictin her case withstands appeal, Dr.Ceimo plans to donate half the amountto students who need economic aid.“This was never about the money,” shesaid. “It was always about stoppingthese insurance companies from inten-tionally hurting people.”

More Suits Against The Disabil-ity Insurer

Not all of the cases against Unumhave been filed by doctors and otherprofessionals. In February 2002, a ladywon a hard-fought $7.7 million juryverdict against Unum.The case is nowon appeal. When Joan Hangarterbecame disabled, she was sure shecould count on her insurance companyto protect her. She had bought a disabil-ity policy in 1990 from UnumProvi-dent.After becoming disabled, she andher children ended up on welfarewhen her insurer cut off her benefits.“The person who sold me this policysaid it would keep a roof over my headshould I ever be unable to work,” saysHangarter, 54.“I lost the roof over myhead.”Ms. Hangarter is one of hundredsof policyholders who have filed civillawsuits against the nation’s largest dis-ability insurer. All of the cases allegethat the company unfairly cut off theirbenefits by targeting certain policiesfor cancellation, particularly high-costcases and policies offered throughemployers, which come with fewerlegal protections.The lawsuits againstUnum have heightened scrutiny of thedisability insurance industry. Debatehas been renewed about a federal lawthat limits policyholders’ legal recoursein such disputes.

A Closer Look At Unum

Unum insures about 25 millionpeople. The company, which made

Fortune magazine’s “most admiredcompanies” list for the third year, isnow under investigation in severalstates, including Georgia, Florida andCalifornia.There are thousands of casespending against the company. Georgiaofficials announced what they describeas a “significant” disciplinary actionagainst Unum, culminating an 18-month investigation of the company.A$1 million fine was levied against thecompany by the Georgia InsuranceDepartment. California is also conduct-ing a “market conduct study” of the dis-ability insurer. “Unum, for the lastseveral years, has had an internal policyof canceling insurance policies that arealready in place,” California InsuranceCommissioner John Garamendi said ina media interview.A U.S. District Judgeupheld Hangarter’s verdict, stating thatUnum created “a comprehensivesystem for targeting and terminatingexpensive claims.”

In two recent cases, policyholdershad claims denied after a few monthsof receiving benefits. One involvedformer eye surgeon John Tedesco ofFlorida, who developed a hand tremor.Dr. Tedsco filed a claim with Unum,which paid his benefits for fourmonths, then stopped payments. Hewas later diagnosed with Parkinson’sdisease, a degenerative disorder. Dr.Tedesco sued Unum and won a $36.7million jury verdict in 2001. Unumappealed, then settled with the doctorfor a confidential amount.

A California eye surgeon, RandallChapman, sued Unum after it cut offhis payments three months after hefiled a claim saying he could not workbecause of phobia-caused handtremors. A jury found in favor of Dr.Chapman and ordered Unum to pay$31.7 million. In her decision to lowerthe amount due the injured eyesurgeon to $6.1 million, Judge LynnO’Malley Taylor still scolded UnumProv-ident for setting up a system thatappears to put more emphasis oncompany profits than policyholder


claims.“There is clear and convincingevidence that (UnumProvident’s) badfaith was part of a conscious course ofconduct firmly grounded in establishedcompany policy,” O’Malley Taylorwrote.

UnumProvident Fires Top Executive

With all of its self-inflicted lawsuitproblems, UnumProvident Corp. ismaking some internal moves. In lateMarch, it fired Harold Chandler asChairman, Chief Executive Officer, andPresident. Interestingly, Chandler willreceive a severance package of approx-imately $8.5 million and pension bene-fits of approximately $8.5 million.Thiscompany had a corporate mentality of”looking for every technical legal wayto avoid paying a claim.’’ It is not sur-prising that the company “dumped”Chandler.

Holocaust Survivors’ InsuranceOrdeal

There have been many sad storieswritten about the horrors of the Holo-caust, which was one of the worstperiods in history.When Jack Weiss gotout of the concentration camp atMuldorf at the end of World War II, hereturned to Vrable, Czechoslovakia, tofind his family home in ruins.Exhausted and weak, he moved into anabandoned house with other refugees.Scraping by on relief agency handouts,Mr.Weiss, his sister and three brothers,who had also survived concentrationcamps, remembered that their father,who was killed at Auschwitz, had takenout a life insurance policy from Assicu-razioni Generali, a big Italian company.In the late summer of 1945, they con-tacted the insurance company. Butwhen they could not produce a deathcertificate or policy, they were turnedaway. Obviously, it was difficult to get adeath certificate from Auschwitz. Mr.Weiss is now 75 and lives in Los

Angeles.The insurance policy had beentaken from the family when the Nazistook them away.The company gave Mr.Weiss the runaround.After a while, thefamily just gave up.

Now, nearly 60 years later, Mr.Weiss, aretired watchmaker, is again trying tohave Generali pay the old claim. He andseven other Holocaust survivors havefiled a suit against Generali for thevalue of their policies. It is estimatedthat each policy is worth hundreds ofthousands of dollars. Some will be formillions of dollars. It is probable thatpunitive damages will be allowed.Thenew lawsuits, which were filed in astate court in Los Angeles, represent anescalation in a long-running battle.Some insurance experts predict thatthe cases could eventually involve tensof thousands of plaintiffs and billions ofdollars in payments. If so, they wouldfar exceed the $1.25 billion settlementwith the Swiss banks in 1998 on behalfof Holocaust survivors.

Generali, one of the world’s largestinsurance companies, is heavilyinvolved in the battles over Holocaust-era insurance. Founded by Jewish mer-chants in 1831 in Trieste, the companyhad a thriving business in Jewish com-munities in Europe before the Holo-caust. During those troubling times,insurance policies and annuities wereutilized by many persons in Europe.Tens of thousands of people turned tothese investments, trusting in compa-nies like Generali to pay claims iftrouble broke out in their home coun-tries.

The lawsuits started in 1997 againstmore than 20 European insurers whowere sued for failing to pay claims onthese policies. Interestingly, most of thesuits have been settled or dismissed.The German insurers were exemptedas a result of a $5.1 billion settlementon Holocaust issues by the UnitedStates and Germany in 2000, leavingGenerali as the main defendant. Arecent decision by a federal districtjudge in New York has allowed the new

lawsuits against Generali to go forward.Generali and another insurer, ZurichLife Insurance, a unit of Zurich Finan-cial Services that is named in one of thelawsuits, tried to get the lawsuits dis-missed, which would have forced theplaintiffs to try to resolve their claimsthrough the International Commissionfor Holocaust-Era Insurance Claims, aninternational commission that was setup to guarantee payments. Instead, thefederal judge said the Commission,financed by the insurance companiesand without judicial oversight, couldnot be relied upon for fair treatment,calling the Commission in a sense “thecompany store.”

The persistent dodging and stallingof the insurance companies, particu-larly Generali, and the woeful perform-ance of the international commissionhave kept the plaintiffs going in theirbattle. Generali has said that legally itowes nothing to its old policyholdersand their heirs, but that it has madeefforts for what it calls “humanitarianreasons” to find policyholders and tooffer compensation. It has paid claimsover the last several years through theCommission, which was set up withthe participation of three large Jewishorganizations, including the WorldJewish Congress, and sanctioned by theUnited States government.The idea wasthat, by adopting a nonadversarialprocess, the Commission would be ableto get compensation to claimantsquicker than could the courts.

Generali contributed $100 million ofthe Commission’s $400 million — byfar the biggest contribution by a singleinsurance company — and, like the fiveother insurers that joined, was prom-ised that regulators would drop threatsto suspend the licenses of the insurers’subsidiaries in the United States and tryto discourage potentially embarrassinglawsuits.The Commission has been crit-icized by survivors and insuranceexperts as favoring the insurers, pro-cessing claims slowly, and offeringpaltry payments. Since its inception,



the Commission has offered paymentson about 2,900 claims for a total of$36.9 million. Interestingly, the Com-mission’s expenses as of 17 months agohad already climbed to $40 million.Theoffers average about $12,500 each withsome being as low as $500. Generalihas paid some claims for severalhundred thousand dollars each, includ-ing one for nearly $600,000.Accordingto reports, Generali has paid about $35million, mainly through the Commis-sion, to 2,200 claimants.A former insur-ance commissioner for WashingtonState, who reportedly had high hopesfor the Commission, now says it hasbeen a huge disappointment.

Even Major League BaseballTeams Go To Court

The Los Angeles Dodgers baseballclub has sued an insurance companyfor $4 million in a dispute over a dis-ability insurance policy that didn’t payoff.The suit claims that the insurer didnot fully honor a policy coveringinjured starting pitcher Kevin Brown.As most sports fans know, Brownsigned a seven-year, $105 million con-tract in December 1998. Injurieslimited him to a total of 29 starts and13 wins over the past two seasons. Heinitially injured his right elbow on July16, 2001, and was out for the rest ofthat season. The pitcher returned in2002, but was placed on the disabledlist on May 27th with a sprained elbow.He was scheduled to return to theDodgers’ roster on June 11th butinjured his back on May 29th when,according to news reports, he lungedto keep his son from falling off a bed.The once all-star ended the year with a3-4 record and 4.81 ERA, and under-went surgeries on both his elbow andback.

The Hartford (Conn.) Financial Ser-vices Group Inc. maintains that theteam’s policy covered the 38-year-oldright-hander’s elbow injury and not hisback problems. In the lawsuit filed in a

federal district court, the team claimsHartford Financial has reimbursed theteam for only $2 million of the $6million policy from May 27th throughAugust 15th of last year.According tocourt documents, Hartford Financialsays it won’t pay the rest because theteam has failed to prove that Brownsuffers a “continuing disability fromelbow problems” that are separate fromhis back injury. Brown, who has said hebelieves he’s recovered now, is back onthe mound, taking his regular turns as astarting pitcher. In fact, Brown startedthe Dodgers’home opener.

Anthem Will Pay $41 MillionSettlement

Anthem Inc. has agreed to pay $41million to end a five-year wrongfuldenial-of-claim lawsuit in Ohio.Accord-ing to an Anthem spokesman, thehealth insurer has adequately preparedfor the financial impact of this case bysetting money aside in prior years.Theoriginal $49 million judgment in thecase in 1999 was the largest denial-of-claim damage award against a healthinsurer in Ohio history. In fact, it isbelieved to be one of the largest in thecountry.The Ohio Supreme Court laterreduced the jury award against Anthemto $30 million, plus interest.The inter-est has now accrued to about $11million. It was expected that Anthemwould go through with an appeal thecase, in an attempt to delay payment oroverturn the judgment, but it electednot to do so.

The case was filed by the widower ofEsther Dardinger of Johnstown, Ohio,who died in 1997 at age 49.An AnthemBlue Cross-Blue Shield policyholder,she was being treated for brain cancerusing a new chemotherapy technique.Anthem deemed this to be experimen-tal and refused to pay for the treatmentunder Dardinger’s policy. She couldn’tpay the high cost of the treatmentsherself, so her husband, Robert Dard-inger, opted for a different and covered

treatment for his wife. In the mean-while, there was an appeal of Anthem’sdenial.Anthem’s final notice of denialwas received by her husband, on theday of her funeral. A suit was failedagainst Anthem in 1998.

In an unusual ruling, the OhioSupreme Court ordered part of theaward ($14 million) to be given to theColumbus cancer hospital, whichtreated Esther Dardinger. Robert Dard-inger, 54, of Johnstown, a retired highschool teacher, has set up a charitabletrust and intends to put one-third, or $3million, of the Anthem payment intothe trust.The hospital also will put itsAnthem proceeds into a trust, namedfor Esther Dardinger, to benefit neuro-oncology research.Anthem had earlierpaid out $2.5 million in compensatorydamages in the case.

An Alabama County TakesAction

The Henry County Board of Educa-tion voted at their March 13th meetingto authorize the Superintendent of Edu-cation and Board Attorney Mary F.Gunter to take the necessary action tofile suit concerning the tornado-damaged Abbeville High School. Theboard authorized Mrs. Gunter to hireour firm to represent the County Boardand assist her with the case.We wereinstructed to proceed with litigation, ifnecessary, to obtain a fair settlement ofthe Board’s insurance claims.The insur-ance problem arose after a tornadoseverely damaged school buildings.Damage estimates submitted by theBoard were very conservative.However, the insurance company madeoffers that were very low. In addition,the engineering firm hired by theBoard believes that it will not be costeffective to repair all the damagedbuildings, and that all but three build-ings on the Abbeville High campus—the Cultural Arts, Science, andMain—must be torn down. It is hard tobelieve that the insurance company


offered only $2.1 million to settle theclaim when replacement estimates arewell over $4 million. A letter from abuilding systems manufacturer wassubmitted to the Board that indicatedthey would not repair trusses to bereused in the buildings.The insurancecompany had proposed repairing thetrusses and continuing to use them,which would be extremely dangerous.

This insurance company refused tohonor valid and legitimate claims madeby the Board, which never had anyintention of having to file suit to get avalid claim paid. However, the insur-ance companies gave them no choice.Estimates to rebuild the school on siteare $4.5 million, to rebuild at anotherlocation in Abbeville $6.8 million, andto build a consolidated school $8.5million. These figures do not reflectroadwork and utilities that may have tobe constructed.While the School Boardwanted to proceed with the repair onsome of the buildings, the insurancecompany stopped that work.

Normally, this matter would beheaded directly to court. However, ourlegal research has found this dispute tobe governed by mandatory arbitration.Alabama Code Section 41-15-8 statesthat the decision regarding the value ofthe claim made by the Henry CountySchool Board is ultimately made by theAlabama Department of Finance, notthe insurance company. Furthermore,this law dictates that if “a disagreementarises between the Department ofFinance and any person or persons incharge of any insured property [HenryCounty School Board], . . . the matter indisagreement shall be determined by athird person.” In other words, the casegoes to arbitration. It is very hard tounderstand how our legislature couldtake away a County School Board’sright to a jury trial, especially underthese circumstances. This law waspassed in 1990 and must admit that Iwas totally unaware of its existence. Iwonder if many other folks knew aboutit at the time. The Department of

Finance has yet to make its final deci-sion on the Henry County claim. Hope-fully, they will pay this valid claim.

New York Passes State’s FirstPredatory Lending Law

New York is the fourth state to pass apredatory lending law, following NorthCarolina, California and Georgia.About25 other states have introduced or areconsidering similar bills. A number ofcities, including New York, Los Angelesand Chicago, have passed predatorylending ordinances as well. Many of thelaws restrict the terms of high-costloans, which typically feature both highfees and interest rates, and subjectlenders who violate the rules to liabil-ity. New York and Georgia are unique inthat their laws put on the hook notonly the lenders, but also the WallStreet firms that trade these loans aswell.

New York’s new law covers loanswith closing costs greater than 5% ofthe total loan or interest rates greaterthan 8% over the prevailing Treasurybond rate.Brokers and lenders who sellthese high-cost loans to New Yorkerswill be subject to a laundry list ofbanned practices. For example, theymay no longer finance more than 3% ofthe borrower’s closing costs over thecourse of the loan or include balloonpayments less than 15 years out. Butthe heart of the new law—and whathas the investment community up inarms—is a provision permitting bor-rowers to sue assignees, typically biginvestment firms who buy the loansand consolidate them in mortgagepools for sale in the secondary market.

The industry is backed by a powerfulgroup of Washington lawmakers whorecently introduced a bill that wouldpre-empt state and local laws withwhat consumer advocates say is aneven weaker federal law than what isalready in place. Consumer groups sayassignee liability is critical in the fightagainst predatory lending because

many of the loan originators are shadyindividuals who flip the loans and dis-appear.They also point out that, underthe New York law, assignee liability islimited to instances in which the bor-rower faces foreclosure and thedamages are capped at the amount theborrower is being sued for.

But the investment community fretsthat the law is unclear on assignee liabil-ity. By including incidental and conse-quential damages, which “could beanything, since they are open to thecourt’s discretion,you might as well takethe cap off,” said Michael Williams, vicepresident for legislative affairs for theBond Market Associates, a Washington,D.C.-based trade group.William Farris, alobbyist with AARP,said “the law withoutassignee liability is not a bill because atthe end of the day, if you cannot raise aclaim against a person holding the note,you have no defense.” Joshua Zinner,coordinator of the Foreclosure Preven-tion Project at South Brooklyn Legal Ser-vices, concurred. “The industry is justtrying to create alarm bells aroundassignee liability,”he said.

The issue is critical to the success ofthe New York law. Georgia’s predatorylending law, which went into effect onOctober 1, 2002, had to be hastilyamended because the rating agenciesrefused to rate the creditworthiness ofGeorgia’s mortgage pools, saying theywere too risky. Faced with the prospectof a shrunken subprime market and theexodus of subprime lenders from thestate, Georgia Legislators rewrote thelaw to cap punitive damages.The ratingagencies have since announced thatthey will resume rating the mortgagepools.The rating agencies have yet toannounce whether they will continueto rate New York mortgage pools afterits law goes in to effect, but consumeradvocates did not seem overly con-cerned. “ Based on the position theytook in Georgia, they should be able torate the mortgages,” Zinner said.Whilethe New York law is indisputably anenormous victory for the consumer



groups combating predatory lending,the fight is far from over.

Premiums Boost Allstate Earnings

Allstate Corp., the number two carand home insurer in this country, hasreported sharply higher quarterlyprofit, helped by increases in premiumrates and lower claims, and it raised itsfull-year profit forecast.The company,second only to industry leader StateFarm, said first-quarter profit rose to$665 million, up from $95 million, ayear earlier. This is rather interestingwhen we read and hear so much abouthow the insurance industry is suffer-ing.Allstate has spent the last year or soraising rates and cutting unprofitablepolicies from its books.Total propertyand liability premiums rose 5% to $6billion, and overall revenue rose 8% to$7.9 billion.Allstate paid out 93.1 centsin claims and costs for every $1received in premium, compared with99.2 cents in the year-ago quarter.Thecompany says it had lower mold claimsand put less money aside to cover oldclaims. Large claims from damagecaused by bad storms — referred to ascatastrophe losses—rose 20% to $133million. I wonder if Allstate is reportingthis “good” information to all stateinsurance regulators.

Insurance Most People Can Do Without

The following is a listing of insurancecompiled by an insurance watchdoggroup that most folks under normalconditions simply don’t need. Ofcourse, there will be individuals whowill find a need for some of the cover-ages. I generally agree with the conclu-sions reached, but perhaps for differentreasons in some instances. In any event,here are the recommendations that arefound at www.moneycentral.msn.com,if you would like to look further.

Private mortgage insurance—This is

something that hits about a quarter ofall homebuyers.When you buy a house,the mortgage company wants to makesure it won’t be hurt too badly if youskip town without paying off the loan.Unless you can put down at least 20%of the home’s value, you may have toget PMI.The policy benefits nobody butthe lender and can be so expensivethat a year’s worth of premiums canadd up to a 13th mortgage payment.Once the outstanding balance on yourmortgage drops below 80% of the origi-nal value of the home, federal law saysyour lender must notify you that youcan cancel the insurance. If your homehas appreciated rapidly, you can alsoapply to cancel it, but you’ll probablyhave to pay for an appraisal ($300 to$400) to prove your point.

Service contracts – These “extendedwarranties” are usually worth skipping.A service contract is simply a promiseto perform or pay for certain repairs orservices. Service contracts often dupli-cate what’s provided in the standardwarranty you get with a car or an appli-ance. Read your regular warranty care-fully and then compare it to the servicecontract. You can usually purchaseservice contracts later after the originalwarranty expires.

Separate policies vs. riders – Buyingseparate policies to cover things likeboats or RVs may not be your bestchoice. While some policies provideadded liability coverage and other fea-tures, check out if supplemental cover-age is already available through yourexisting homeowners policy. A majorreason is cost.Think of it as buying inbulk.When you add a “rider” to an exist-ing policy, it usually costs less thantrying to buy a whole new policy.Also,many of these “things that move” arealready covered by your home insur-ance, albeit at less-than-ideal levels.

Flight insurance – This coverage ispretty cheap.According to some statis-ticians, you could fly on a major airlineevery day for 26,000 years before you’dbe involved in a plane crash.This is a

big moneymaker for the insurancecompany.American Express offers card-holders $1 million in coverage for just$14. If every passenger who flew on ascheduled U.S. commercial flight in1995 paid $14 for a $1 million flightinsurance policy, and the insurancecompany paid $1 million for everyperson who died in a plane crash thatyear, the company still would havemade $7.4 billion. If you purchasedyour plane ticket with a credit card,you should check to see if you alreadyhave flight insurance. Some credit cardcompanies give you $100,000 in cover-age just for charging your ticket ontheir card.

Credit insurance – Quite often, thisinsurance is pushed on consumers.Themost important thing to rememberabout credit insurance is that a lendercannot make you buy it. However,many people pay for this coveragewithout even knowing they have it.While there are several variations(including credit life insurance, credithealth or disability insurance and creditunemployment insurance), they all dothe same thing:They pay the lender ifyou can’t. So why would you want topass on credit insurance? One goodreason is that you might have enoughlife insurance, disability insurance orassets to cover your debts.Additionally,you can buy a term life insurancepolicy for less, and the payout wouldbe higher. For example, if a 30-year-oldwoman in good health takes out a five-year, $5,000 loan, credit insurancewould cost $112.50. The cost of thecredit insurance is added to the totalloan amount. If this same womanalready had a $50,000 term life insur-ance policy, and tacked on another$5,000 to cover the loan, it would addless than $15 to what she already paysfor the life insurance policy over thefive-year loan period. Even if she buys anew term life policy, it would cost herabout $500 for five years of at least$50,000 in coverage (that’s usually theminimum coverage available). And

remember, the credit insurance policywould only pay the lender whatever isowed. Credit insurance is also a bigmoneymaker for insurance companies.In some states, for example, insurersand lenders keep 79 cents of everydollar that consumers pay in premi-ums. Even in the best states (such asMaine and New York), the insurancecompanies keep about 40 cents ofevery dollar.

Short-term, cash value life insurance—If you don’t hold onto them longenough, cash-value life insurance poli-cies are a waste of money. Cash-valuelife insurance theoretically offers both adeath benefit (the money paid to yourheirs when you die) and a return oninvestment.Your equity in the policy—the cash value—builds up over theyears, and you can borrow against it orsimply stop paying on a policy and letthe annual dividends keep the policy inforce.While your survivors will still getthe death benefit, these policies costyou money in big chunks in the firstfew years.According to a study by theConsumer Federation of America, ittakes five years before one of thesepolicies shows a positive return. Andeven then, that return is extremelysmall. Even after 10 years, the averagereturn is only about 2%.All this is dueto brokers’ commissions and other feespaid in the beginning of the policy’slife. If you’re looking for life insurancecoverage for a short period, term life isyour best bet.The premiums are muchlower, and your heirs will still get thedeath benefit.

Life insurance for children – Thisinsurance offers a big death benefit, butchildren don’t have debts or depend-ents. If you’re thinking that a cash-valuechild’s life insurance policy would be agood way to save for his or her collegeeducation,you can do better elsewhere.

Mortgage insurance—It’s moreexpensive than it’s worth.You could domuch better with another policy—onethat you might already have.These poli-cies are designed to make your mort-

gage payments if you die or becomedisabled. If you’re worried about bur-dening your heirs with mortgage pay-ments, you’d be better off buyingstraight life insurance. Adding ontoyour existing life insurance policy isless expensive than mortgage life.

Cancer insurance – In 1994, about 10million Americans were covered by a“disease specific” insurance policy forcancer, heart disease or stroke. But ifyou look closely at what you get, you’llrealize there’s a better way and that’shealth insurance. Some cancer insur-ance policies promise to refund yourpremiums every 10 years if you’ve hadno cancer. That is not a bad deal—ifyou’re the insurance company.A studydone by the federal General AccountingOffice in 1994 found that the largestcompanies selling plans — that coveronly hospital stays or diseases likecancer—paid out as little as 35% of thepremiums they took in. Some states setpayout targets of 75% or more for otherpolicies. While $400 a year may notseem like too much to spend for peaceof mind, it’s the narrow coverage pro-vided by cancer insurance that makes ita bad deal.They’ll cover you if you getcancer, but some policies won’t pay forcancer treatments until several yearsafter you’ve bought the policy. Othersrequire confirmation of the cancer by apathologist,which sometimes is imprac-tical or even impossible. And skincancer, probably the most commonform of cancer, is often excluded.

Short-term medical coverage – Therewill be arguments a-plenty here. Often,this coverage is offered to those wholeave one job for another. Under thefederal COBRA law, your old insurancepolicy can “follow” you for about 18months after you leave, but you have topay the whole premium. (Here’s whereyou find out just how much youremployer’s been kicking in for yourinsurance coverage.) You don’t have topay the premiums until 100 days afteryour last day on the payroll.But let’s sayyou’re single, run three miles a day,

don’t smoke and are terrifically healthy.You may decide that the cost ofCOBRA coverage is too high for thelow risk of developing a medicalproblem before you take your next job.So, don’t take the coverage. But, if youhave a family, you may conclude thatthe risk of not having any coverage istoo great.

Aetna Is Collecting Racial DataTo Monitor Medical Disparities

Aetna Inc. has quietly begun collect-ing data on the racial and ethnic back-grounds of its 14 million health-planmembers — a move that raises sensi-tive issues of patient privacy and racialprofiling for the big insurer.The strat-egy — now focused primarily on newinsurance applicants — is part of anascent initiative at the large managed-health-care company to tackle one ofthe most intractable problems in medi-cine: minority patients fare significantlyworse than white patients in a widerange of medical conditions.Aetna saysit plans to use the data to better under-stand differences in how white andminority patients get medical care, andto develop prevention, education andtreatment programs to narrow the gap.The big concern is that insurance com-panies could use such information forunderwriting decisions and make it dif-ficult for the people who need cover-age to get coverage. Profiling for healthcircumstances is wrong and shouldn’tbe tolerated.

According to recent studies,African-Americans, Hispanics,Asians, and otherstend to get worse care for conditionsranging from heart disease and diabetesto cancer, asthma and low birth-weight.This is confirmed by a large body of evi-dence developed during the pastdecade. While such differences arestrongly linked to education, incomeand insurance status, an influentialreport by the Washington-based Insti-tute of Medicine, which advises Con-gress on medical issues, last year said




that the problem often persists afteraccounting for such factors. Evenminority patients who are well-insured,well-educated and relatively well-to-doare more likely to receive lower-qualitycare, and that is just plain wrong. Inmany diseases, these differences areassociated with higher death rates.

XIII.ENVIRONMENTALCONCERNS

Protecting Alabama Rivers

Federal fish and wildlife officials wantto protect about 1,000 miles of Alabamarivers and streams deemed critical habi-tats for a host of endangered musselspecies. If the federal agency’s proposedrule is approved, the protected status ofwater bodies such as the Black Warriorand Cahaba rivers would be good forwater quality, but could threaten con-struction projects, such as a proposeddam officials say would provide drink-ing water for Birmingham.The U.S. Fishand Wildlife Service has a year to com-plete the rule, which officials saidwould protect eight endangered andthree threatened mussels.The processincludes hearings for public input. Isuspect this proposed rule will be hotlydebated for a time.

Alabama has many aquatic animals,making it one of the most biologicallydiverse states in the country. At thesame time, we also lead the continentalUnited States in extinctions. The pro-posal came about after Fish and WildlifeService officials concluded that dams,water diversion, dredging, and pollu-tion in Alabama threaten 1,093 miles ofrivers and streams.According to envi-ronmental groups, the mussels areimportant to the ecology of the rivers.Since mussels are filter feeders, theyspend their whole life sucking in waterand filtering it. In effect, these animalsact as kidneys of the river, a functionwhich is critical to the life of the river.

However, at present, the mussels areonly at one-tenth the level they were inthe past.

According to media reports, industryleaders have not decided whether tofight the listing. Federal law requires aneconomic analysis of the rule. Thefederal agency could write a rule thatwill be flexible enough to allowdamming of Locust Fork, a tributary ofthe Black Warrior. Birmingham WaterWorks officials say that would providewater for the city.There has to be anequitable balance between environ-mental concerns and economic needs.This balance must be achieved whenpossible. Unfortunately, protecting theenvironment has come out a distantsecond in all too many instances.

Two Companies Settle ClaimsOf Clean Air Act Violations

Two companies have agreed to settlefederal pollution charges by spendingnearly $680 million to reduce industrialair pollution in 16 states and retrofitschool buses with cleaner-burningengines. First,Archer Daniels MidlandCo. (ADM), the nation’s biggest ethanolproducer, agreed to a $350.9 millionsettlement.The next was Alcoa, Inc., theworld’s largest aluminum producer,which agreed to a $334.75 million set-tlement.The Environmental ProtectionAgency and Justice Department issueda joint statement announcing the settle-ment.ADM will spend $340 million toimprove pollution controls at 52 plantsin 16 states and $6.3 million to retrofitdiesel engines in school buses. Thecompany also will pay a $4.6 millioncivil penalty. Alcoa agreed to spend$330 million for a new coal-fired powerplant with state-of-the-art pollutioncontrols in Rockdale, Texas, $2.5million to buy conservation easementsaround the plant, and $750,000 toretrofit school buses in Austin, Texas.There was also a $1.5 million civilpenalty required to be paid by thecompany. Both of the settlements are

subject to 30 days of public commentand court approval. The enforcementactions were initiated under provisionsof the Clean Air Act that affect the wayolder industrial plants have to deal withair pollution when they expand, makemajor repairs or modify operations toincrease efficiency.

The Bush Administration issued ruleslast year making it easier for industrialplants and refineries to modernize andexpand without having to buy expen-sive pollution controls. This immedi-ately resulted in lawsuits by statescharging that the changes wouldundermine public health.The Adminis-tration is now saying that its newapproach removes barriers to produc-tion and innovation.On the other hand,opponents argue it is a giveaway toindustry.As we know, industry lobbiedheavily for easing the rules. In myopinion, the new rules may well under-mine more than three decades of estab-lished law.The Bush Administration hasalso been promoting a “Clear Skies” billto impose nationwide caps on powerplant, refinery and factory emissions.These emissions are three majorsources of dirty air: mercury, nitrogenoxides and sulfur dioxide. Opponentsargue for a broader approach toinclude industrial emissions of carbondioxide, widely blamed for globalwarming. How anybody could ignorethe dangers of global warnings isbeyond my comprehension.

Alabama Power Company’sHydro-Dams Must FollowWater Quality Rules

Last month, the Alabama RiversAlliance, Lake Watch of Lake Martin andAmerican Rivers obtained a ruling fromthe U. S. Court of Appeals for the Dis-trict of Columbia requiring AlabamaPower Company’s hydroelectric damsto be held to the same water-qualityrules as the rest of the State.The rulingin favor of these environmental organi-zations stemmed from an appeal of a

decision by the Federal Energy Regula-tory Commission to re-license MartinDam without consulting the AlabamaDepartment of Environmental Manage-ment (ADEM). Most of the currentlicenses for Alabama’s dams allow thewater passing over the dams to be 20per cent lower in oxygen than theminimum required under State waterquality standards. The lower oxygenlevels in this water wreaks havoc onthe health of lake fish, which dependupon the oxygen supply in the water.In their appeal, the FERC asserted thatthe water from these dams was notsubject to the same Clean Water Actprovisions as businesses who dischargeplant facility wastes into Alabamawaterways. However, the U. S. Court ofAppeals did not accept this argument.

In 2000,Alabama Power applied for alicense to install three new turbines atMartin Dam.The new turbines wouldeffectively increase the flow over thedam and increase the generator’scapacity by 20 to 30 per cent. TheFERC argued that this increase in waterflow did not amount to a new dis-charge that would be subject to theprovisions of the Clean Water Act.TheCourt’s ruling rejected this argumentand vacated the federal permit AlabamaPower had received. Although thecompany recanted and replaced theexisting turbine while the case waspending, this ruling may now forceAlabama Power to install devices toincrease the quality of water releasedfrom the dam. For residents of Alabamawho are interested in maintaininghealthy fish in their lakes, I certainlyhope that ADEM will now requireAlabama Power to install this badlyneeded equipment.

Even Snails Know Rock Quarries Should Be Regulated

Last month’s report addressedAlabama’s lack of regulation of its rockquarries. Many communities are unableto control the location of the quarries

because the state requires no zoningapproval for mining companies - onlywater and air pollution permits are nec-essary.Aware of this problem, SenatorMyron Penn (D-Union Springs) hasintroduced a bill that could empowerresidents to stop rock quarry operationsin their neighborhoods.The bill wouldrequire the prior approval of the gov-erning bodies of municipalities andcounties affected by proposed miningoperations before operations begin.

Until Senator Penn’s bill movesforward, the residents of a northElmore County community have a newbest friend. The tulotoma magnifica, asnail the size of an Easter egg, may bethe county’s most powerful weapon inits fight against a proposed 77-acregranite quarry site. In an effort to pre-serve the endangered species, miningcompany North Montgomery Materialswill have to present a plan to protectthe snail, in order to have its permitapplication approved. The tulotomamagnifica makes its home in the sandybed of Weoka Creek in Elmore County.Don Graham, a Buick resident whoopposes the mining operation near hishome, said, “I don’t think the snail,itself, will keep the quarry out, but it’scertainly another reason to keep thequarry out.”

The snail is found only on CoosaRiver tributaries and a small stretch ofthe Coosa. In 1990, the U.S. Depart-ment of Interior’s Fish and WildlifeService listed the species as “endan-gered”.The label was given because itsnumbers had lowered, mainly becausethe construction of hydroelectric damshad caused a slowing of the rivers’ flow.“I don’t know what the ultimate impactof the rock quarry will be on the tulo-toma snail in Weoka Creek,but I can saythat particles washing into the creekfrom the quarry would not be good forthe snail,” said Dennis DeVries, azoology professor at Auburn University.In addition to worrying about the snail’sfate, Elmore County residents are con-cerned about their local roads and

water supply.A quarry pit could pene-trate their underground water source.Noise and dust from the quarry are alsoa major issue to the local citizens.Regardless of whether David can whipGoliath again, it is refreshing to see aState Senator stand up for peopleagainst a powerful special interest. Ipredict that Myron Penn, the Democratfrom Bullock County,will be a real forcein Alabama politics for a long time.

XIV.MONSANTOUPDATE

More Jury Awards In Solutia Case

The Etowah County jury continuesto award damages to the individualplaintiffs in the state court case againstSolutia.The awards have been both rea-sonable and consistent as the jurydecides the individual cases, which arebeing heard in small groupings. Solutiawas found liable earlier for PCB pollu-tion caused by the company’s chemicalplant. The property claims for about900 more plaintiffs who didn’t testifyhave yet to be decided. The plaintiffshave been seeking money for cleanupcosts – which can exceed the value ofthe land, mental anguish, and reim-bursement for the decrease in theproperty’s market value from the con-tamination.After jurors finish awardingproperty damages, they are expected toconsider personal injury and punitivedamages. As expected, St. Louis-basedSolutia, a spin-off of Monsanto, main-tains the verdicts are unfair. Thecompany contends it has alreadyagreed to clean up the properties and,once it does, their value will not havebeen decreased. United States DistrictJudge U.W. Clemon has yet to rule onwhether the cleanup agreement withfederal regulators can take effect.

The jury is deciding the state court


claims against Monsanto and Solutiaalleging a factory that produced poly-chlorinated biphenyls — once acommon electrical insulator — con-taminated property around Anniston,increasing health risks and devaluingreal estate. Jurors in February 2002found the companies liable for prop-erty damage and emotional distressclaims, and outrageous conduct, butthat trial did not determine how muchresidents should receive.Two previouslawsuits over PCB contamination in theAnniston area were settled for morethan $40 million each. Our case involv-ing 16,000 plaintiffs is set for trial infederal court in October.

The decisions bring the total awardsagainst Monsanto and its spin-off,Solutia, to more than $6 million to date,and complete the awards for the 17plaintiffs selected as representativecases in the lawsuit. The propertyclaims for about 900 plaintiffs have yetto be decided. Defense attorneysrequested that the court certify thecompleted verdicts, which wouldenable the company to begin anappeals process. The request wasdenied by the trial judge. From the1930s to the 1970s,Monsanto made thechemicals at its western Anniston plant,now owned by Solutia. PCBs werewidely used to insulate electrical equip-ment, and have been linked to a rangeof health effects, from learning disor-ders to liver disease to cancer.

The Federal Court Cases

We have mediation ordered by thecourt in over 17,000 claims that arepending in federal court.The mediationwill commence on May 14th in Atlanta,Georgia. Hopefully, these cases can besettled so that our clients can get onwith their lives. Of course, this willdepend on how the corporate defen-dants view the litigation climate andwhether or not they want to right thewrongs they have done. Obviously, lia-bility has been established in the state

court trial. This should leave theamount of damages to be determinedand agreed to by the parties duringmediation. Our obligation is to see thatour clients are fully compensated andthat all future needs are met. I alsobelieve that the defendants should bepunished severely for their wrongfulconduct, which reaches the highestlevels recognized under the law.

XV.PREMISES LIABILITY UPDATE

New York Jury Awards $47 Million

A New York jury recently awardedmore than $47 million to a 54-year-oldman diagnosed with cancer caused byexposure to asbestos. The plaintiff, aboilermaker who worked as a contrac-tor for two New York utilities, Consoli-dated Edison Inc. and KeySpan Corp.unit Long Island Lighting Co. (LILCO),was diagnosed with mesothelioma inMay of 2001.The jury found both ConEdison and LILCO negligent and “reck-less in their actions and for failing towarn workers of the dangers ofasbestos.” While asbestos was widelyused for its fire retardant and insulationproperties, scientists found in the1960s and 1970s that the inhalation ofits fibers could cause lung cancer andother diseases. This was certainlyknown to the companies that manufac-tured asbestos as well as to the compa-nies that used it. Unfortunately, thisknowledge was not made known tothe public.A five-week trial ended withthe jury’s announcing its findings thatthe electrical companies had not pro-vided the plaintiff with a safe place towork.The plaintiff had been told thathe has mesothelioma and has abouttwo years to live. For many years theowners of these plants and the contrac-tors who controlled them have known

about the asbestos exposure and thefatal diseases caused by that exposure.They knew how dangerous asbestoswas and exposed men like the plaintiffto it regardless of the consequences.

Corning Settles Asbestos Suit

According to the Wall Street Journal,Corning Inc. will take a $200 millioncharge in its first quarter to settleasbestos litigation against it and part-owned insulation maker PittsburghCorning Corp. The company reachedan agreement with the representativesof asbestos claimants for all current andfuture asbestos claims that might arisefrom Pittsburgh Corning products oroperations. Corning had earlier pre-dicted that the costs to settle the litiga-tion would be between $100 millionand $150 million. Corning owns half ofPittsburgh Corning. In May, PPG Indus-tries Inc., which owns the other half,settled all current and future personal-injury claims against it and PittsburghCorning with a payment of $2.7 billion.

Arsenic-Treated Wood Cases

There are a significant number oflawsuits involving arsenic-treated woodpending in our nation’s courts. Whilethe product has been on the marketsince 1938, lawsuits were first filed inthe 1980s.According to reports, about35 cases have been tried or settled.Chromated copper arsenate, known asCCA, is a chemical preservative thatprotects wood from insects and rot.After it’s processed with the chemical,the lumber is sometimes called greenor salt-treated or pressure-treatedwood. It’s used in everything fromdecks to picnic tables to swing sets.Last year, sales reached almost 7 billionboard feet worth about $4 billion. Allagree chromated copper arsenate is aneffective preservative. The dispute isover the danger in its chemicals, espe-cially arsenic. Many people have devel-oped symptoms of arsenic poisoning



through contact with treated wood.The federal Environmental ProtectionAgency (EPA) has found that arsenicgets into the soil.

The Consumer Products Safety Com-mission released a report last monthsaying that children face increased riskof bladder and lung cancer throughcontact with wooden playgroundequipment. A year earlier, the EPAannounced that the industry was vol-untarily withdrawing chromatedcopper arsenate from the consumermarket and that in 2004 the agencywould no longer permit new residen-tial use. Consumer groups were disap-pointed, however, that the agency didnot conclude the wood poses “unrea-sonable risk” to the public or the envi-ronment and did not recommendreplacing products already in use. Classactions are pending in Alabama andLouisiana. There are also what isreferred to as “mass torts” cases in Mis-sissippi. Frankly, I am not sure wherethis litigation is headed.

Jury Awards Cherry Hill Couple$5 Million Over Beating

Attorneys for the Trump organizationare deciding whether to appeal a jury’sdecision awarding a Cherry Hill, NJcouple close to $5 million for failing toprovide them adequate security at theTrump Marina Casino-Hotel in AtlanticCity. It was three years ago that Feli-cisimo Fuentes, now 64, was walkingfrom Harrah’s to Trump Marina alongthe bay walkway when he was attackedand beaten into a coma. Today’s he’sconfined to a wheelchair and canhardly speak. The couple’s attorney,Gregg Shivers, says the jury concludedTrump knew that area was dangerousand should have provided better secu-rity: “The only security they had in thisarea of the property was one youngman on a bike who came by a coupleof times a day. They knew there hadbeen three robberies along thatwalkway between Trump and Harrah’s

in the 11 months prior to this.” Shiverspoints out just three weeks prior tothis attack, a woman was robbed atgunpoint along the same walkway: “Ithink the message it sends is if you’re acasino and you are spending lots ofmoney to market and entice people tocome down and spend money at yourcasino, you have a responsibility toprotect those people.”The attack hap-pened at noontime, as Felicisimo waswalking to meet his wife for lunch atTrump Marina, where she worked parttime as a blackjack dealer.

Parents Of Florida WomanSlain In Chicago Hotel WinsCase

The parents of a North Miami Beach,Florida, woman who was beaten todeath in a Crestwood hotel have settledtheir lawsuit against the property’sowners for $4.6 million.The victim, a33-year-old female, was in the Chicagoarea training to be a floral companysalesperson when she was killed in1996.A jury had convicted the hotel’smaintenance manager of murder inNovember.This man had used a key tobreak into the lady’s room, strangledher with pantyhose, and then beat herover the head to make sure she wasdead. He is serving a life sentence forhis crime.The defendants in the lawsuitfiled by the victim’s parents include theCrestwood Hotel Partners Limited Part-nerships, the owners of the hotel, andthe Hampton Inn franchiser, PromusHotels of Memphis.

The lawsuit alleged the hotel ownersshould have done a background checkon the maintenance manager. It alsoalleged the owners were negligent fornot monitoring the actions of theiremployees. The hotel industry as awhole has done a very good job offooling their own customers. Folkshave assumed that hotels are safe.Nobody running a hotel should give agrand master key, which would openanybody’s door, to employees who

work at the hotel.This is especially truewhen the hotel owners fail to monitorthe employees.A portion of the settle-ment money will be used by theparents to raise awareness about hotelsafety around the country.

XVI.TOBACCOUPDATE

Judge’s Ruling Allows PhilipMorris To Pay Alabama AndOther States

Concerns that cigarette maker PhilipMorris USA could miss a payment dead-line last month for a $2.6 billionpayment to 46 states, including $42million to Alabama, have been satisfied.The giant cigarette maker had warnedall of the states that the court’s demandthat it post a $12.1 billion cash appealbond would place it on the edge ofbankruptcy, thus making it unable tomake the required payments.The Illi-nois judge cut the bond in half after ahearing. He ordered Philip Morris toplace $6 billion in escrow to begin itsappeal.The appeal bond was requiredby Illinois law before the company canappeal the court’s order last month thatPhilip Morris pay $10.1 billion for mis-leading smokers into believing “light”cigarettes are less harmful than regularbrands. The $12 billion bond wasmeant to cover the judgment plusinterest and costs from the class actionverdict. The Illinois law is meant toensure parties appealing lawsuits canpay the judgment if the decision is ulti-mately upheld. But the maker of top-selling Marlboros said it couldn’t payboth the bond and the states. Many ofthe states had concerns since all werecounting on the tobacco money whendue. Of about $84 million due Alabamanow due from tobacco companies, alittle more than half is to come fromPhilip Morris.The case is being closely


monitored by the National Associationof Attorneys General, of which theoffice of Alabama’s Attorney General isa member.This is a most dangerous sit-uation for the states to be in. I have towonder how the bondholders feelabout future prospects for paymentsbeing made.

“Many smokers switched to thesebrands in a false belief they were reduc-ing their health risk,” said Matthew L.Myers, president of the group Cam-paign for Tobacco-Free Kids, one ofmany anti-tobacco groups, which sup-ported the verdict. Altria Group Inc.’sPhilip Morris USA was the sole defen-dant in the case. This was the first“lights” class action to go to trial.Similar cases are pending against othercompanies. The lawsuit was filed onbehalf of one million Illinois smokersof the two light cigarette brands. It wasthe first class-action lawsuit in thenation to come to trial alleging atobacco company committed con-sumer fraud in its advertising of lightcigarettes. Unlike many other high-profile cigarette-related lawsuits, theplaintiffs didn’t claim that smokingmade them sick. They accused PhilipMorris of wrongly leading customers tobelieve the “light” brands are lessharmful than regular cigarettes. Theybased their claims on evidence theysaid showed the tobacco maker con-cealed crucial research data revealingthe detrimental effects of light ciga-rettes for more than 30 years. PhilipMorris had maintained that the lightbrands show less of the toxins whentested, although individual smokerstend to get more or less toxins depend-ing on how they inhale.The companysays it used the word “light” to refer totaste, not content. There will be anappeal of this verdict.

R.J. Reynolds And Lorillard SueCalifornia

R.J. Reynolds Tobacco Co. and Loril-lard Tobacco Co. are suing the state ofCalifornia for state-sponsored ads the

cigarette makers claim vilify thetobacco industry.The suit was filed inU.S. District Court in Sacramento,seeking an injunction halting some ofCalifornia’s Prop 99 advertising. Thelawsuit alleges that a substantialnumber of California’s ads are a misuseof taxpayer funds, violate the compa-nies’ constitutional rights, and have aprejudicial effect on potential jurorswho might be impaneled in lawsuitsrelated to smoking.The lawsuit allegesmisuse of tax dollars collected underthe California Tobacco Tax and HealthPromotion Act (Prop 99) passed in1988. Prop 99 imposes a 25-cent tax oneach pack of cigarettes sold in thestate.The companies said Prop 99 taxproceeds are to be used primarily fortobacco-related health education pro-grams and medical care for indigent cit-izens.The plaintiffs claim that, instead,California inappropriately began aseries of radio,TV, billboard and printads that California officials openlyacknowledge are intended to vilify thetobacco industry.The suit follows Loril-lard’s recent legal battle with AmericanLegacy Foundation, whose anti-tobaccoads have accused Lorillard of addingdog urine to cigarettes.That matter isstill before a court.

XVII.WORKPLACE HAZARDS

$164 Million Jury Verdict In Texas

Last month, a Texas jury returned averdict of $164 million in a wrongfuldeath lawsuit. The jury awarded thesum to the family of Brad Johnson Sr.,who was killed in 1999 when a tire onthe vehicle he was working onexploded. The vehicle, a B30 Euclidearthmover, was owned by TrinityMaterials, Inc. and Transit Mix Concreteand Materials Co. Each of these compa-nies had business locations in Jefferson

County,Texas.The jury found the twobusinesses negligent in Johnson’s deathat the end of a seven-day trial. It wasconcluded that the two businesses hadcreated a dangerous work environmentby directing the decedent to use aheating tool to remove the tire.The 35-year-old man was attempting to repairthe brakes on the earthmover whenthe left rear tire exploded, according tothe lawsuit.The explosion occurred ata gravel mine in Waco, Texas. Theemployee died of his injuries 14 dayslater. The plaintiffs contended thatTrinity had control over Johnson whileat Plant 174 and that the companyshould have trained him to know thatthe Mining Safety and Health Adminis-tration had warned all mine operatorsnever to apply heat to a tire.The plain-tiffs further claimed that Trinity alsoshould have trained its employees tointervene when they used the torch.Attrial,Trinity claimed that Johnson wasan “independent contractor” who actedon his own and was contributorily neg-ligent. At trial, the plaintiffs asked foronly $39 million.

The suit was filed by Mr. Johnson’swife, who is left with three children.The total award was $163,822,685.83. Ibelieve this is the largest award to datein a Texas wrongful death case. Theemployee was using a heating torch toremove the tire, which caused therubber to explode. Defense lawyersargued that the use of the heating toolcaused the accident.A request will bemade for the judge to reduce theaward. If that doesn’t happen, the caseis sure to be appealed.

XVIII.TRANSPORTATION

Truck Driver Fatigue Leads To Crashes

There have been many studies andarticles on the subject of driver fatigue.Commercial truck drivers aren’t



allowed to drive more than 10 hours orwork more than 15 hours at a timewithout taking an 8-hour break. In addi-tion, drivers may not drive more than60 hours during a 7-day period,depending on whether the companyoperates 6 or 7 days a week. Manystudies have shown that driver fatigueis related to the absolute number ofhours driven, no matter what time ofday. For example, the American Associa-tions’Trucking Institute found Washing-ton state truck drivers who had drivenmore than 8 hours had a twofoldincrease in crash risk.

Research indicates that FederalHighway Administration shouldincrease mandatory rest periods forinterstate truck drivers from 8 hours to12-14 hours. This recommendationalone, however, will not guaranteelonger rest time if the industry contin-ues to allow drivers to falsify logbooks.Drivers are required by law to docu-ment their driving time, rest time, andon duty time. Inaccurate or false entriesin driver logbooks are common prac-tice in fatigued driver cases. A 1992Institute survey of 1,249 truck driversreported fewer than 20% thoughtwritten logbooks reflected the actualhours most drivers work. (see StatusReport,Vol. 27,no.2,Feb.8,1992).

Some have suggested that on-boardcomputers help reduce logbook viola-tions. However, these computers arenot required and not installed by allcompanies. Other devices being usedby some carriers warn the driver if thetruck is within certain distance ofanother vehicle and begins to alarm thedriver. The problem of driver fatigueand falsification of logbooks is real andcauses a great danger to motorists onour highways. Many people have lostloved ones in collisions caused bydriver fatigue or a driver who fallsasleep at the wheel. This type ofconduct is unacceptable, preventableand usually leads to tragic results.TheFederal Highway Administration andthe trucking industry must continue to

find better ways to monitor driverfatigue and reduce the risk of danger toother motorists.

Police Officer To Get $10 Mil-lion In Hearse Crash

A Texas police officer who survived ahorrific Friday the 13th traffic collisionhas settled his case with the hearsedriver who struck him and the man’sfuneral home employer. The $10million settlement will help the officerpay a $600,000 medical bill and takecare of his children’s education.“Thebest gift to me is not the settlement,but getting up and seeing my kidsevery morning.That sounds corny, butit’s the truth,” the officer told mediarepresentatives at a news conference.“It’s not really going to change who Iam. It’s going to help my kids. … Itreally protects their future, which ismore important to me than myself,” headded.The out-of-court agreement wasreached just two weeks before the civillawsuit was set to go to trial.

The officer, 39, was on patrol themorning of Oct. 13, 2000, when aspeeding hearse struck his squad carbroadside. The collision wedged himinto an 8-inch-wide space from whichhe was extracted by firefighters. He suf-fered nine major fractures, internalorgan bruises and bleeding.The officerlay in a coma for 26 days, was threat-ened by a staph infection and enduredthree bouts of pneumonia. He hoverednear to death for days and had 19 sur-geries.This man can no longer work asa police officer. The hearse driverpleaded guilty to running a red light,but insisted he had blacked out beforethe collision and remembered nothing.

United To Pay $3.2 Million To Settle Safety Allegations

United Airlines has agreed to pay theU.S. Government and a whistle-blower$3.2 million to settle allegations of sub-standard maintenance work on military

transport planes for the Air Force.Under the proposed settlement agree-ment, United denies all allegationsbrought by the whistle-blower, a formerUnited mechanic who worked on theC-17 planes. The settlement must beapproved by the federal judge whoheard the case in South Carolina as wellas by the judge in United’s bankruptcyreorganization case. The allegationswere brought by a former mechanic.United helps maintain the engines on C-17 planes at Charleston Air Force Baseunder a federal contract. The lawsuitwas brought under the federal FalseClaims Act. It had been investigated bythe U.S.Attorney’s office in South Car-olina and by the Air Force.The mainte-nance allegations had delayed United’sreceipt of a $388 million federal taxrefund. In March, United sued the gov-ernment to recoup the refund.The gov-ernment agreed to release $360 millionbut withheld the rest partly because ofthis pending matter.

The 43-year-old mechanic allegedUnited fired him in 2001 after he resis-ted and then reported what he consid-ered unsafe maintenance practices onthe engines. He was also fired by hisnew employer at the base. Theemployee claims that since he hasn’tbeen able to return to aircraft mainte-nance, he has lost a career over this. Ina court complaint made public, allega-tions were that the airline refused toprovide mechanics with necessarytools and equipment, attempted to hideoil or fuel leaks in engines, and pres-sured mechanics to falsify reports.


XIX.HEALTHCAREISSUES

Believe It Or Not, Public Citizen Gets The GovernmentTo Follow Law

Agreeing to the terms of a lawsuitfiled by the public interest groupPublic Citizen in February of this year,the U.S. Department of Health andHuman Services (HHS) signed a settle-ment last month under which it willopen for public comment a processintended to provide patients withuseful information with all new andrefill prescriptions.The department hadbeen relying on a faulty, voluntary,private-sector program that did notmeet the requirements of a 1996 lawpassed by Congress, and the agencyhad not allowed the public tocomment, prompting Public Citizen’slawsuit. The U.S. Food and Drug Admin-istration (FDA) has committed toholding a public meeting and solicitingcomments on the program and alterna-tives to the current system, such as anFDA-regulated patient informationprogram. Currently, the government isnot regulating the quality or quantity ofinformation patients receive from phar-macies. The companies providing theinformation have failed to meet theexpectations of Congress.

In 1995, the FDA proposed a rulerequiring the distribution of scientifi-cally accurate and useful written infor-mation with all new and refillprescriptions.This would include infor-mation about adverse effects and guid-ance on how to best use the drugs.TheFDA set a goal: By 2000, 75% of patientswould be receiving patient informationleaflets, and by 2006, 95% would bereceiving them.The law passed by Con-gress in 1996 adopted that timetableand required the private sector todesign and implement the program.The

law said that if the private sector’sprogram failed to meet certain qualityand quantity standards by 2001, theFDA must then take public comment onalternative methods for providing accu-rate and useful leaflets to prescriptiondrug consumers. Although the FDAacknowledged in June 2002 that theprivate sector failed to meet the 2001goals, the agency refused to take com-ments on alternative methods ofimproving the leaflets.This was in viola-tion of the 1996 law.“We’re pleased thatthe FDA is finally agreeing to open thisprocess to the public, but it is frustrat-ing that it has taken a lawsuit to compelit to do so,” said Larry Sasich, Pharm. D.,a research analyst with Public Citizen’sHealth Research Group. “The privateindustry first said it would institute avoluntary program in 1982, but con-sumers still are taking home prescrip-tions every day without useful andunderstandable safety information. It isridiculous that this process has nowdragged on for more than 20 years.” Infact, the FDA found in a 2001 study thatthe private sector’s most recent infor-mation campaign was ineffective.While89% of patients were receiving informa-tion leaflets, the leaflets on average hadjust half the information consideredessential for a patient to take a drugsafely. None of the leaflets met theseven quality criteria of the proposedrule. I believe that doctors and pharma-cists around the country will benefit bythe law now being followed. Certainly,consumers will!

Public Citizen has an interest in thesuccess of the program because itsmembers, one of whom was named asa co-plaintiff in the lawsuit, are notreceiving sufficient information abouttheir prescription drugs as Congressintended. Since the FDA had not estab-lished a public comment period, PublicCitizen was being denied its right toparticipate in the process. A copy ofthe settlement is available on the Webat www.citizen.org/documents/Settle-ment.PDF. Public Citizen does great

things on behalf of American con-sumers. This is another example oftheir excellent work.

Costs Of Medical Care AndDrugs Remain Challenges For Elderly

The latest Wall Street JournalOnline/Harris Interactive Health-CarePoll, conducted in March of this year,sampled the public’s views on the mostserious challenges facing care for theelderly.This poll was conducted onlinebetween March 11 and 13, 2003. Thepoll results were not surprising. Thepoll revealed that older adults consid-ered the cost of prescription drugs andthe cost of doctors and medical care tobe the most significant problems facingthem. Finding quality medical care andfinding the time and resources to carefor elderly family members also scoredhighly in the poll.

Significantly, the cost of nursinghome care and home care for elderlypatients should be paid by the govern-ment and not the families, according tothe poll.The poll found that most olderadults want the government to do anumber of things in the future for theelderly. Leading the poll were the fol-lowing:

• Provide a good prescription drugbenefit;

• Increase Medicare or Medicaidfunding for nursing home care;

• Give the public tax credits formedical assistance programs thatwould allow them to help theirelderly family members;

• Increase funding for home care serv-ices; and

• Increase funding for preventivemedical programs to reduce diseaseand disability.

The costs of prescription drugs anddoctors are the most serious problemsfacing the country in caring for its



elderly population. The governmentlikewise should cover more of thosecosts, according to the poll results.“Thepublic is looking to the government tospend more money than it’s currentlydoing,” said Humphrey Taylor, chairmanof Harris Interactive, despite the threatof government spending deficits.Nothing in this poll should come as asurprise. Congressional leaders and theBush White House have access to thepoll results.

PacifiCare Health Systems, Inc.– U.S. Supreme Court CompelsArbitration

As previously reported, a group ofdoctors filed suit alleging thatmanaged-health-care organizations vio-lated the Racketeer Influenced andCorrupt Organizations Act (RICO) byfailing to reimburse them for health-care services that they had provided topatients covered by the organizations’plans. The HMOs moved to compelarbitration, which was refused by afederal district court. At issue waswhether the agreements could prohibitawards of “punitive damages.”Accord-ingly, the lower court deemed the arbi-tration agreements unenforceable withrespect to those claims.The EleventhCircuit affirmed.

On further review, the U.S. SupremeCourt reversed the lower courts andcompelled arbitration. The courtasserted it is unclear whether theagreements actually prevent an arbitra-tor from awarding treble damagesunder RICO. In reviewing its earlierdecisions, the Court noted it had differ-ent statutory treble damages provisionson different points along the spectrumbetween purely compensatory andstrictly punitive awards. In particular,RICO’s treble-damages provision hadrepeatedly been construed by theCourt as remedial in nature.The Courtstated that it was not clear that theparties intended the term “punitive” inthe arbitration provision to encompass

claims for treble damages under RICO.Since the Court was unable to knowhow the arbitrator would construe theremedial limitations, and whether thearbitration provision would bar anaward of treble damages under RICO,the Court believed the questionswhether the remedial limitations on“punitive” damages render the parties’agreement unenforceable and whetherit is for courts or arbitrators to decideenforceability in the first instance areunusually abstract. The Court felt itwould be premature for the Justices toaddress those questions. As a result,they apparently felt the proper coursewas to compel arbitration.

Pharmacy Mistakes PromptRise In Lawsuits

Mistakes by pharmacies haveresulted in dangerous and sometimeslethal consequences across thecountry.A lawsuit was filed against RiteAid in Michigan by a mother after herson was hospitalized after he over-dosed on medication in March 2001.The fourth-grader’s prescription wasincorrectly filled by a Rite Aid storewith twice the needed dose of Tegretol,his panic disorder medication. In filingthe suit, the distraught mother stated:“You put so much trust in your phar-macist.You hope that they are payingattention. You hope that they won’tmake a mistake.” Having handled othercases against the chain drug stores, Irealize that there are major problemswith misfilled prescriptions.

Rite Aid has denied any wrongdoingin the case, which is pending.At leastseven other Detroit area families alsohave filed pharmaceutical malpracticelawsuits since 1999, some of whichallege the mistakes have left somevictims severely incapacitated andothers dead.As errors mount, lawsuitsincrease exponentially.The pressure onpharmacists keeps growing, partlybecause the number of prescriptionsthey are filling annually has jumped

50%, from 2 billion a decade ago tomore than 3 billion now. My advice isto deal with pharmacists that youknow and trust. I am afraid that thelarge chains are depending too muchon non-professionals to fill prescrip-tions—even though a registered phar-macist is supposed to be supervisingtheir work.

XX.THE CONSUMERCORNER

Alabama Joins In NationalInvestor Education Initiative

Joseph Borg, Director of the AlabamaSecurities Commission, continues to doan outstanding job for Alabama citi-zens. He announced on April 3rd thatrepresentatives from the SecuritiesCommission are taking part in anational grass-roots investor educationcampaign to help provide investorswith the information they need tomake wise financial decisions andprotect themselves from financialfraud. “With interest rates at 40-yearlows, a volatile stock market, longer lifeexpectancies and the uncertain futureof Social Security, smart planning forretirement is more vital than ever,”Borgsaid in a news release. He added,“weare now a nation of 85 millioninvestors. Financial education has neverbeen more important. Investors needto understand the basics of saving andinvesting, know how to check out aninvestment or salesperson and how toprotect themselves against possiblefraud.”

“It is never too early, or too late, tostart saving and investing for yourfuture,” said Borg, whose staff will bevisiting high schools, making presenta-tions to all types of organizations repre-senting a wide cross-section of Alabamacitizens, and conducting news mediainterviews.All of these activities occur


year round to educate Alabamiansabout investing, credit and about fraudprevention. “Making smart financialchoices—from using credit wisely tosaving for retirement and avoidingfraud—is the best way to ensure youcan meet your financial goals.” Theinvestor education campaign was to becompleted during April. The Facts onSaving and Investing Campaign is ajoint effort of state and Canadianprovincial securities regulators. Thecampaign is now in its sixth year.

Borg said, “One of the newest andmost exciting initiatives taking place inAlabama is the formulation of anAlabama Jump$tart Coalition. Business,government, various organizations andvolunteers will pool their resources towork for the common goal of promot-ing financial education to all citizens.The Alabama Securities Commission isproud to participate in the newJump$tart Coalition along with repre-sentatives from the banking industry,Department of Education, the AlabamaCooperative Extension, the AlabamaCouncil on Economic Education andmany more dedicated and highly tal-ented people.” For more informationabout the Jump$tart Coalition contactthe Commission’s Education and PublicAffairs Division or visit the ASC Websiteat www.asc.state.al.us and check outthe Jump$tart site through the “HelpfulWebsites for Investors” section. TheAlabama Securities Commissionenforces Alabama securities laws,licenses/registers brokers, firms, andsecurities products, provides back-ground reports on financial profession-als and promotes grass-roots investoreducation programs.We should all bethankful that Alabama has a dedicatedpublic servant such as Joe Borgworking for us. Maybe one of thesedays he might decide to run for anelected public office. He has a capablelawyer by the name of Randy McNeillin the office who would be a very goodreplacement in the event Joe everdecides to leave for another challenge.

Appeals Court Upholds Unsolicited Fax Advertising Ban

A federal appeals court has upheld anationwide ban on unsolicited faxadvertising. On March 21st, a three-judge panel of the U.S.Court of Appealsfor the Eighth Circuit overturned lastyear’s ruling by a U.S. District Courtjudge that declared unconstitutionalthe Federal Communications Commis-sion’s ban on unsolicited commercialfaxes.The Missouri Attorney General’soffice initially sued Fax.com, a broad-cast fax provider, along with the nowdefunct American Blast Fax, on chargesof violating the Telephone ConsumerProtection Act’s prohibition on junkfaxing. The FCC joined the suit afterFax.com challenged the prohibition’sconstitutionality.

XXI.RECALLS UPDATE

S. Rothschild Has RecalledGirls’ Hooded Winter Jackets

S. Rothschild & Co. Inc. has recalledabout 37,000 girls’ iridescent, hoodedwinter jackets. The rubber petal andmetal snap can break off from thejacket, posing a choking hazard toyoung children. The company hasreceived two reports of the rubberpetal coming off the jacket, includingone child who reportedly put the petalin her mouth.The snaps have come offin subsequent testing. The recalledjackets are blue, lilac, pink, raspberryand magenta and include sizes XS/2T -L4T, 2/4 - M/5-6 - L/6X, 3/6 - 6/9 - 12M -18M 24M, and S/2T - M/3T - L/4T -XL/5T.The style numbers,which can befound on a tag attached to the leftsleeve, are 52913, 52813J, 12913K,B2913, 32813, 12816C, 3281J, 82819D,82816D, and 32816C.The jacket labelsinclude the words,“Little Impressions,”“Rothschild,” “Izzi’s Kids,” or “Clock-

wise.”The recalled jackets were madein India. Major retail stores nationwidesold the jackets from May 2002through December 2002 for about $25to $45. Consumers should stop usingthese jackets immediately and contactS. Rothschild and Co. at (800) 301-3411between 8 a.m. and 3:30 p.m. ETMonday through Friday to arrange forthe jacket to be repaired and returnedfree of charge.

Walt Disney Parks And ResortsHas Recalled Woody Dolls

Walt Disney Parks and Resorts hasrecalled about 40,000 Woody dolls soldat the WALT DISNEY WORLD® Resortin Lake Buena Vista, Florida, DISNEY’SVERO BEACH Resort, Magic of Disneyand Flight Fantastic shops located atthe Orlando International Airport andDisney’s Worldport shop located atPointe Orlando.The Woody doll’s cloth-ing has buttons that can detach, posinga choking hazard for young children.Walt Disney Parks and Resorts hasreceived one report of a child remov-ing a button from the Woody doll. Noinjuries have been reported. Therecalled doll is a cowboy namedWoody, a character in the animatedfilms Toy Story and Toy Story II. TheWoody doll is a soft- bodied doll withsoft plastic head, hands, boots and hat;wearing blue jeans, a red/yellow-checked shirt, a black/white-spottedvest with a sheriff’s badge, and a red-patterned bandana, and is 13 inchestall.A label sewn into the left side seamof the doll reads, “WALT DISNEYWORLD®” on one side and “©DISNEY,ALL NEW MATERIALS, POLYESTERFIBERS,” several State license numbers,and “WALT DISNEY ATTRACTIONS,LAKE BUENA VISTA, FL, PRODUCT OFCHINA” on the other side. Only theWoody dolls described above areincluded in the recall. These recalledsoft dolls were sold from January 2000through January 2003 for about $12.Consumers should immediately take



the doll away from children andcontact Walt Disney Parks and Resortsat (866) 228-3664 to receive a fullrefund. For more information, pleasevisit the company’s Website atwww.waltdisneyworld.com.This recalldoes not involve items sold at the DIS-NEYLAND® Resort, through theDisney Store, the Disney Catalog, Dis-neyStore.com or at other retail outlets.Additionally, the talking versions of theWoody doll are not part of this recall.

Maytag Has Recalled GeminiGas Ranges

Maytag Corp. has recalled about23,000 Gemini gas ranges. The rangecan experience a delayed ignition flash-back fire in the upper oven, whichposes a fire and burn hazard to con-sumers. Maytag has received ninereports of flashback fires, includingthree minor burn injuries and incidentswhere consumers suffered singed hairor clothing. The recall involves allMaytag Gemini Gas Ranges.The Geminiranges are free standing, have separateupper and lower ovens, and come inwhite, black, bisque and a stainlessfinish.The “Maytag”and “Gemini”namesand logos appear on the control panel.The recalled ranges have a modelnumber of MGR6772 and a serialnumber with the alpha characters AJthrough AX or CA through CC, both ofwhich are located on a flip-up serial tagbehind the upper left corner of thecontrol panel.The ranges were manu-factured in the United States.

Retail appliance stores nationwidesold the ranges from July 2002 throughFebruary 2003 for between $1,300 and$1,500. Consumers should immediatelystop using the upper oven self-cleanand broil features, and consumersshould not use the upper oven simulta-neously with the lower oven. Con-sumers should contact Maytag at (866)580-9177 to arrange for a free, in-homerepair by an authorized Maytag Cus-tomer Service contractor. For more

information, consumers can visitMaytag’s Website at www.maytag.com.The company reports that use of thelower oven is not affected by this repairand may be used in normal operation.

OWT And Sears Roebuck HaveRecalled Electric Routers

OWT Industries, Inc., of Pickens,South Carolina and Sears Roebuck andCo. (Sears), of Hoffman Estates, Ill., haverecalled about 5,200 electric routersused in woodworking. The on-offswitch on the routers could stick in the“on” position, posing a risk of seriouslacerations to the operator andbystanders. Sears says it has notreceived any reports of injuries or inci-dents.This recall is being conducted toprevent the possibility of injury. Thisrecall involves Craftsman® routers,model number 315.17510 with datecodes of A3025 or lower. The modelnumbers and date codes are printed ona black data label located on the elec-tric motor’s housing.The routers havean aluminum base with black handlesand a black motor.All affected routerswere packaged with a cloth carry bagunder the stock number 17518.Routers sold without the bag are notinvolved in the recall. Sears sold theserouters nationwide from November2002 through January 2003 for about$60. Consumers should stop usingthese routers immediately and returnthem to their nearest Sears store for aproduct exchange. For more informa-tion, consumers can call toll-free at(800) 932-3188, or visit the firm’sWebsite at www.sears.com.

Hitachi Has Recalled CircularSaws

Hitachi Koki U.S.A.has recalled about14,300 circular saws.The lower bladeguards on these saws can stick in theopen position, exposing the blade andposing a serious laceration hazard.Hitachi has not received any reports of

injuries, but has received two reportsfrom consumers of the lower guardssticking.The recall involves 7 1/4-inchcircular saws with model numbersC7SB2 or C7BD2 and serial numbersthat begin with C62, C72, C82, C92,C02 or CN2. The model number islocated on the green nameplate on themotor housing below the name“Hitachi.”The serial number is stampedat the lower right of the nameplate.Thesaw’s housing is green and the name“Hitachi” also is written on the metalblade guard.

Home centers, hardware stores andindustrial suppliers nationwide soldthese circular saws from August 2002through March 2003 for between $90and $100. Consumers should stopusing these circular saws immediatelyand return them to Hitachi for a freerepair. For more information, contactHitachi at (800) 706-7337 or visit thefirm’s Website at www.hitachi.com.Hitachi circular saws with a circlestamped on the UPC label on the boxare not included in this recall. Saws thathave a light gray plastic stop betweenthe upper and lower blade guardswhere they overlap also are notincluded in this recall.

General Motors Has RecalledThe 2003 Cadillac CTS

The National Highway Traffic SafetyAdministration (NHTSA) hasannounced that General Motors hasrecalled 2003 Cadillac CTS vehicles.The NHTSA campaign ID number is:03V115000. Approximately 47,835units are affected. Some passenger vehi-cles have a condition in which theintermediate steering shaft bolt may beloose. An improperly tightened boltcould loosen, resulting in separation ofthe upper and lower steering shaftscausing a loss of vehicle control. If thishappens while the vehicle is moving, acrash could result without priorwarning. Dealers will inspect for thepresence of the intermediate steering


shaft bolt and ensure that it is tight-ened to the proper specification.Owner notification began March 20,2003. Owners who take their vehiclesto an authorized dealer on an agreedupon service date and do not receivethe free remedy within a reasonabletime should contact Cadillac at 1-800-458-8006.

General Motors Has Recalledthe 2003 Buick RendezvousAnd Pontiac Aztek

The National Highway Traffic SafetyAdministration (NHTSA) hasannounced that the 2003 Buick Ren-dezvous and 2003 Pontiac Aztek, manu-factured between January and February2003, have been recalled by GeneralMotors. There are potentially 4,512vehicles involved. In some of thesesport utility vehicles, the diameter ofthe steering column intermediate shaftis too small.This condition could allowthe intermediate shaft to spin insidethe steering column coupling, resultingin loss of steering control of thevehicle. If this were to happen whilethe vehicle is moving, a crash couldresult. Dealers will inspect, and replaceif necessary, the steering column inter-mediate shaft. The manufacturer hasreported that owners were notified bytelephone on February 7, 2003, with afollow-up letter on February 11, 2003.Owners may contact Buick at 1-800-521-7300 or Pontiac at 1-800-762-2737.

General Motors CorporationHas Recalled The 2003 Chevrolet Express And GMC Savana

Information received from theNational Highway Traffic Safety Admin-istration (NHTSA) reveals that the 2003Chevrolet Express and 2003 GMCSavana vehicles have been recalled.Approximately 18,327 vehicles manu-factured from April 2002 throughJanuary 2003 are involved. On certain

vans with a gross vehicle weight of lessthan 8,500 pounds, during a crash suffi-cient to deploy the safety belt preten-sioner, the front safety belt buckles maynot release after a crash, or may causethe buckle to unlatch in a crash, result-ing in an increased risk of personalinjury. Dealers will replace the frontdriver and passenger side safety beltbuckle.The manufacturer has reportedthat owner notification began lastmonth. Owners may contact Chevroletat 1-800-222-1020, or GMC at 1-800-462-8782.

Nissan Has Recalled The 2002Xterra And Altima

The National Highway Traffic SafetyAdministration (NHTSA) hasannounced that 2002 Nissan Xterra and2002 Nissan Altima vehicles manufac-tured between June and November2001 have been recalled by Nissan.Approximately 64,562 vehicles may beinvolved. On certain passenger andsport utility vehicles, the clock springelectrical connector may not be fullysecured to the driver air bag modulesquib pin connector. If the connectorcomes loose, the driver air bag will notdeploy in a crash, increasing the risk ofinjury. Dealers will install a retainingclip on the clock spring electrical con-nector.The manufacturer has reportedthat owner notification began lastmonth. Owners may contact Nissan at1-800-647-7261.

XXII.FIRM ACTIVITIES

Beasley Allen Radio Shows

In addition to our Saturday radioshow, we now have the Jere BeasleyHour every Friday at 7:00 a.m.on WLWINews Radio 1440-AM.This station has avery large audience in Central Alabama.We are pleased to have this opportu-nity.The call-in show will be hosted by

Kevin Elkins, a well-known radio per-sonality.We will continue to do our Sat-urday show, which has a very goodlistening audience covering central andsouth Alabama.We are still interested ina radio hook-up in the Birminghamarea. Hopefully, that can be worked outwithin the next few weeks.

PraiseFest At Jubilee CityFest

Last year, our firm was honored tosponsor Jubilee PraiseFest. This eventwas an opportunity for our Montgomerycommunity to hear positive music thatproclaimed the name of Christ. Theattendance at PraiseFest was staggeringand the Montgomery communityencouraged our firm to support thisevent again.We enthusiastically agreed todo so.Recently, the Jubilee CityFest com-mittee announced that the Newsboyswill be the headline act for PraiseFest2003.This band, scheduled to performon Saturday night, May 24th, is wellknown for their pop music of faith andencouragement.Throughout the News-boys’ fourteen years of success, theyhave produced 17 number one songs,including “Shine”,“It is You” and “Enter-taining Angels.” The talented band hasalso received seven Dove awards, whichhonor the very best in Christian music.Currently, the Newsboys have highexpectations for the success of Thrive, anew album they recently released.Theyare currently working on another album,Adoration: The Worship Album. Pleasemark your calendars to see Newsboysand other Christian bands during theMemorial Day weekend festival. JubileeCityFest will be held May 23-25, 2003. Ihope that you enjoy PraiseFest 2003!Mayor Bobby Bright and others wereresponsible for putting Christian musicon the agenda for Jubilee.

Beasley Allen Hosts Semi-Annual Blood Drive

Beasley Allen held its semi-annualBlood Drive on March 28th with Life-



South Community Blood Center. Life-South brought out two buses for theevent, which attracted a good numberof donors from the firm. Donorsreceived a free T-shirt and cholesterolscreening. LifeSouth is a primary bloodsupplier for Montgomery, Autauga,Elmore and Crenshaw Counties. Ourfirm had a very good turnout for thisimportant happening. Several of my co-workers waited around, hoping to seeme “pass out” when they drew theblood.But, I escaped one more time.

Shareholder LaBarron BooneReceives Distinguished AlumniAward

Shareholder LaBarron Boone hasreceived the University of Alabama BlackLaw Students Association DistinguishedAlumni Award for Outstanding Achieve-ments in the Field of Law. LaBarron waspresented the award at the Black LawStudents Luncheon on Friday, March28th.All of us at the firm are proud ofLaBarron’s many accomplishments.He isan outstanding lawyer and a goodperson—a hard combination to beat.

Profile Of Another Beasley,Allen Shareholder

Mike Crow joined our firm 20 yearsago. He graduated from Jones School ofLaw in 1986 and was admitted to thepractice of law in 1987. Mike was bornin Naples, Italy. His father was in the AirForce at the time. Mike is in our Per-sonal Injury Section and mainly handlescar and truck litigation, and premisesliability cases, and has special interestin brain injury cases.He is the author of“The Nuts and Bolts of a Car Wreckcase” and “The Use of Accident Recon-struction in a Car Wreck Case.” Mikehas been highly successful in litigatingagainst the “Big Box Stores”such as Wal-Mart, Home Depot, and others. As aresult, he has a wealth of knowledge oftheir practices and procedures.

Mike is married to the former Marla

Taylor of Hope Hull,Alabama, and theyhave two children. They attend FrazerMemorial Methodist Church in Mont-gomery.He is also on the Board of Direc-tors for the Central Alabama Chapter ofthe Alabama Lung Association.While incollege, Mike played varsity basketballand has continued his interest in sports.He also raises Labrador Retrievers,which means he has to be a good fellow.Mike is a very good lawyer and is a valu-able member of our firm.We are fortu-nate to have him here.

Profile Of A Good Employee

Libby Rayborn, who serves as myExecutive Assistant, has the difficult jobof putting this Report together eachmonth. Libby, a native of Georgia, hasworked with me for over 14 years. Shehas a rare talent for dealing withpeople and making them all feel impor-tant,which they are.This is most impor-tant in this office. Libby is anoutstanding employee who is totallydedicated to her work. Some sayworking for me entitles her to the“purple heart!” I would say a specialaward—more in keeping with hervalue to the firm—would be moreappropriate. I certainly depend on herto run my part of the firm. She does agreat deal of the work in putting outthis Report each month.

Libby grew up in Douglasville,Georgia, where her dad was the minis-ter of First Presbyterian Church until hisretirement. Libby is married to BillRayborn. Her daughter,Ally, is enteringthe 6th grade at Alabama ChristianAcademy. Most of Libby’s time awayfrom work is spent transporting Allyfrom one cheerleading event toanother.When she is not a spectator ofAlly’s cheerleading, Libby enjoys goingto movies, traveling, and college football(especially Auburn). Libby, Bill, and Allyenjoy spending time together and withtheir 4 very special “rescued”dogs.

S.T.E.P. Foundation

While our thoughts and prayers arewith our military personnel in Iraq,keep in mind that there is a war ragingright here in our backyard.That is thewar against poverty. Fortunately, thereis a faith-based group in Montgomeryfighting the local battle on a daily basis.The S.T.E.P. (Strategies to ElevatePeople) Foundation is working hard tohelp people help themselves out ofpoverty by giving them basic educationthrough programs such as sexual andalcohol abstinence training in areaschools, a fatherhood initiative thathelps non-custodial fathers bettersupport their families, and violence pre-vention. S.T.E.P. is also active in present-ing the Gospel to public housing unitresidents through weekly Bible studies.Relying strictly on the financial gifts ofothers to keep their programs goingand growing, I strongly support theS.T.E.P. Foundation and encourage all ofour readers to do the same.While I amsure there are similar groups through-out the country, I am personally famil-iar with the work of S.T.E.P. Judge JoePhelps, who was my longtime friendand advisor, introduced me to theS.T.E.P. folks several years before hedied at a much too young age. Duringmuch of his life, Joe worked tirelesslyand without fanfare for Lee Baugh andothers at S.T.E.P.That was an inspirationto lots of folks—including me. I knowthat tough economic times are hurtingfund-raising efforts by charities. Iencourage you to help S.T.E.P. finan-cially. Contributions may be made tothe S.T.E.P. Foundation at P.O. Box241347, Montgomery, AL 36124. Youmay get additional information bycalling them at 334-262-3141 or visitingtheir Website (online June 1st) atwww.montgomerystep.org.


XXIII.CLOSINGREMARKS

Perhaps the most disappointing thingabout how the Alabama Legislatureoperates is the undue influence exer-cised by the special interest groups onsome of the members. The 500-pluslobbyists who work day and night toinfluence what happens in the StateHouse are really a fourth branch of gov-ernment. I don’t believe that is the wayfolks back home want govern-ment to work.A prime example ofthe tremendous influence overthe process is the nursing homelegislation that is pending in theSenate. All polls have indicatedthat the public favors the resi-dents over the nursing homebosses in this fight. However, thatcertainly hasn’t affected a few inthe Senate.When only a handfulof Senators indicate publicsupport for the bills, one has towonder how the bills have gottenas far as they have. If the billspass, the plight of the nursinghome residents will go from badto worse.Alabama nursing homesalready have more legal protec-tions than do nursing homes inany other state in this country.There have been relatively fewlawsuits riled each year againstnursing homes in Alabama, and nofrivolous lawsuits can be filed. So,I again have to wonder what isgoing in the Senate and why someare so interested in helpingnursing home owners, especiallythe large out-of-state chains. It isespecially troubling that hurtingthe folks who have to be confinedto the facilities, many of whichare obviously under-staffed andsubstandard, doesn’t seem tobother the small number of Sena-tors who are really pushing thesebills.

We are facing a special session of theLegislature, which probably will havebeen called by the time this report isreceived.This session will be to “fix”thefiscal mess the State of Alabama faces.The regular session will have to go intorecess so that the special session canstart up. Hopefully, the Legislature willput aside party politics and help theGovernor with this Herculean task. Ourprayers must be with all concernedthat they find long-term answers to ourfiscal problems.

Finally, we must continue to pray forour leaders—both on the national leveland here in Alabama—on a daily basis.This is not an option—but is anabsolute necessity for all of us. Thisdoesn’t mean you have to agree “politi-cally” with all of the public officials. Infact, healthy opposition and debate is anecessary part of our political processin this Country.Our obligation is to praythat God will give our leaders wisdom,insight,courage, strength,and the abilityto do the job required of them.



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The Jere Beasley Report

May 2003

J E R E L O C K E B E A S L E YJ . G R E G A L L E N

M I C H A E L J . C R O WT H O M A S J . M E T H V I N

J . C O L E P O R T I SW. D A N I E L M I L E S , I I I

S T E P H E N W. D R I N K A R DR . G R A H A M E S D A L E , J R .

J U L I A A N N E B E A S L E YR H O N E . J O N E S

R O B E R T L . P I T T M A NL A B A R R O N N . B O O N E

A N D Y D . B I R C H F I E L D , J R .R I C H A R D D . M O R R I S O N *

C . G I B S O N VA N C EJ . P. S AW Y E R * µ

C . L A N C E G O U L D J O S E P H H . A U G H T M A N

D A N A G . TA U N T O NJ . M A R K E N G L E H A R T #

C L I N T O N C . C A R T E R Ω † *B E N J A M I N E . B A K E R , J R . ∆ ∑ Θ Φ †

D AV I D B . B Y R N E , I I IT E D G . M E A D O W S *

G E R A L D B . TAY L O R , J R . ∇ † # *D AV I D F. M I C E L I ∇ ∆

F R A N K W O O D S O NK E N D A L L C . D U N S O N ∆

( O F C O U N S E L )J . PA U L S I Z E M O R E ∆ †

A . L E S H AY E S , I I I

S C A R L E T T E M . T U L E YC H R I S T O P H E R E . S A N S P R E E *R O M A N A S H L E Y S H A U L Ω * κ

L A R R Y A . G O L S T O N , J R . ∇ ∑

D . M I C H A E L A N D R E W SR O N A L D A U S T I N C A N T Y

M E L I S S A A . P R I C K E T TW. R O G E R S M I T H , I I I † Ψ ϖ *

J O H N E . T O M L I N S O NK I M B E R LY R . WA R DN AVA N WA R D , J R . *

Ψ ALSO ADMITTED IN ARIZONAΩ ALSO ADMITTED IN ARKANSAS∆ ALSO ADMITTED IN GEORGIA∇ ALSO ADMITTED IN FLORIDA

ϖ ALSO ADMITTED IN MINNESOTA

* ALSO ADMITTED IN MISSISSIPPIΦ ALSO ADMITTED IN NEW YORK

µ ADMITTED IN OHIOΘ ALSO ADMITTED IN OKLAHOMA

κ ALSO ADMITTED IN SOUTH CAROLINA† ALSO ADMITTED IN TENNESSEE

# ALSO ADMITTED IN TEXAS∑ ALSO ADMITTED IN WASHINGTON, D.C.

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Documents

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