The Jere Beasley Report Apr. 2005

H e l p i n g t h o s e w h o n e e d i t m o s t f o r o v e r t w e n t y - f i v e y e a r s

THE

www.BeasleyAllen.com

B e a s l e y , A l l e n , C r o w , M e t h v i n , P o r t i s & M i l e s , P . C . , A t t o r n e y s a t L a w

APRIL 2005

A NATIONAL LAW FIRM LOCATED IN MONTGOMERY,ALABAMA

I.CAPITOLOBSERVATIONS

BILL PRYOR SHOULD BE APPROVED

I don’t know a great deal about mostof the candidates that George Bush hasnominated for federal judgeshipsaround the country. But, I do know agreat deal about Bill Pryor. The formerAttorney General has been put upagain by the President for a slot on theU.S. Court of Appeals for the EleventhCircuit. Bill is currently serving on thatcourt, but not in a permanent position.He will leave the court at year’s end ifnot confirmed by the U.S. Senate. Inmy opinion, the Senate should confirmBill and allow him to serve on thecourt. I have certainly not agreed witheverything that the Mobile native hasdone in his legal career. In fact, I nevervoted for him for political office. But, Ido know that Bill is extremely wellqualified to serve on the bench. I hopethat our Democratic friends in theSenate will put politics aside andconfirm this nomination. Bill Pryor—ifallowed to serve—will be a fair andimpartial judge and will do an out-standing job on a most important court.In my opinion, it will be a big mistakefor the Senate not to confirm thisnominee.

JOE BORG NAMED AS MEMBER OF UNITEDNATIONS PANEL

Joseph P. Borg, Director of theAlabama Securities Commission, partic-ipated in an intergovernmental panelas part of the United Nations EleventhCongress on Crime Prevention andCriminal Justice. The U.S. delegationapproved Joe to attend the Congress.He participated in a study sponsoredby the United Nations Office on Drugsand Crime in conjunction with theUnited Nations Commission on Interna-tional Trade Law. Joe and other atten-dees convened as an Intergov-ernmental Expert Group to prepare a

study on International Fraud and theCriminal Misuse and Falsification ofIdentity in Vienna. This is quite anhonor for Joe and a tribute to hisstanding in his field of work. He isextremely well respected by his peers.It is also quite good for Alabama forJoe Borg to receive this recognition.

TERRY BUTTS TO RUN FOR LIEUTENANTGOVERNOR

Former Supreme Court Justice TerryButts, who has represented Judge RoyMoore, says that he will run for Lieu-tenant Governor next year. Interest-ingly, Terry says other personsassociated with Judge Moore will alsobe on the Republican ticket. But, Terrytold the Associated Press he didn’tbelieve that Justice Moore will have anannounced slate. According to Terry,every statewide office on the ballotnext year—including 11 seats on thestate appellate courts—will be con-tested in the Republican primary. Thathad been the “hot” rumor around thestate over the past few weeks.

I am sort of surprised that the racefor Lt. Governor is getting this muchattention. Now it appears there willmost likely be others—both Republicanand Democrat—who will seek thepost. Mo Brooks, a Madison Countycommissioner and former state legisla-tor, has already announced his candi-dacy. The talk around the State Housein Montgomery is that Perry Hooper, Jr.is a likely candidate. Several otherRepublicans and Democrats have saidthey are considering seeking the officebecause Lucy Baxley is definitelyrunning for governor.

For those who don’t know Terry, hebegan his political career as a Democ-rat, and was most successful. He servedseveral years as a circuit judge and thenas a state Supreme Court justice. Terryresigned from the Supreme Court in1998 to run for attorney general. As youmay recall, Terry lost a very close raceto Republican Bill Pryor. After that, theCrenshaw County native returned toprivate law practice. Terry represented

Governor Riley in the post-electiondispute after the 2002 general election.Then in 2003, he represented JudgeMoore when the Court of the Judiciaryremoved the chief justice from office.The Moore factor will make theRepublican primary a most interestingevent next year. It appears that Terry ison the Moore team!

STATE OF MISSISSIPPI MAKES CLAIM AGAINSTWORLDCOM AND KPMG

Our firm has been employed to helpthe State of Mississippi in litigation that

2 www.BeasleyAllen.com

IN THIS ISSUE

I. Capitol Observations . . . . . . . . . . . . 2

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

III. Court Watch . . . . . . . . . . . . . . . . . . 5

IV. The National Scene . . . . . . . . . . . . . 7

V. The Corporate World . . . . . . . . . . . 9

VI. Campaign Finance Reform . . . . . . 13

VII. Congressional Update . . . . . . . . . . 13

VIII. Product Liability Update . . . . . . . . 13

IX. Mass Torts Update. . . . . . . . . . . . . 17

X. Business Litigation . . . . . . . . . . . . 23

XI. Insurance and Finance Update . . . 24

XII. Predatory Lending. . . . . . . . . . . . . 27

XIII. Workplace Hazards. . . . . . . . . . . . 27

XIV. Transportation . . . . . . . . . . . . . . . 29

XV. Arbitration Update . . . . . . . . . . . . 32

XVI. Nursing Home Update. . . . . . . . . . 33

XVII. Healthcare Issues . . . . . . . . . . . . . 35

XVIII. Environmental Concerns . . . . . . . . 39

XIX. Tobacco Litigation Update. . . . . . . 42

XX. The Consumer Corner. . . . . . . . . . 42

XXI. Recalls Update . . . . . . . . . . . . . . . 44

XXII. Special Projects . . . . . . . . . . . . . . 45

XXIII. Firm Activities . . . . . . . . . . . . . . . . 46

XXIV. Some Parting Words . . . . . . . . . . . 46

hopefully will help that state’s treasury.As you know, in June 2002, news thatWorldCom had improperly booked$3.8 billion dollars over the past fivequarters led the Mississippi-basedcompany to file one of the largestbankruptcies in U.S. history. A reportby the Securities and Exchange Com-mission revealed that WorldCom hadcommitted “accounting improprieties ofunprecedented magnitude.” Clearly,stockholders took a real beating as thecompany’s stock took a nosedive.Several top-level WorldCom executiveshave already pleaded guilty to criminalfraud and conspiracy charges. But, thebig news was the guilty verdict in NewYork of Bernie Ebbers on all counts.This, in my opinion, was justified. Itwill be a strong message to other CEOswho betray the trust of their company.Employees and stockholders sufferedbecause of the greed that corruptedwhat could have been a great companyhad it been run by honest folks.

The State of Mississippi has now fileda $1 billion dollar tax claim againstWorldCom in the bankruptcy case,which is pending in New York. Missis-sippi Attorney General Jim Hood inves-tigated his state’s claim forapproximately one year and has built avery strong case. To assist in the investi-gation and potential prosecution of theclaim, the Attorney General retainedThe Langston Law Firm of Booneville,Mississippi and the Lundy & Davis LawFirm of Lake Charles, Louisiana andJackson, Mississippi. Our law firm wasthen asked to work on the case and wewill be part of the litigation team. AndyBirchfield, Frank Woodson, and I willwork with the other firms on this mostinteresting case.

Sixteen other states have filed claimsagainst Worldcom for unpaid taxes. Inaddition, all of the states, includingMississippi, are making claims againstKPMG, a giant accounting and auditingfirm, for its part in what the statescontend to be a large tax avoidancescheme. The state of Mississippi con-tends that WorldCom’s accountingscheme mischaracterized various pay-

ments made to WorldCom’s holdingcompany by various subsidiaries,reducing the tax liabilities of both. Onebasis for the Mississippi claim is the“Examiner’s Report” from the Bank-ruptcy Court. The court-appointedexaminer prepared an audit of World-Com and his conclusions fully supportthe Mississippi claims. The Examiner’sReport is critical of the “royaltyprogram” whereby certain intangibles(something the KPMG accountantsrefer to as “management foresight”)were transferred to the WorldComHolding Company and then licensed tovarious WorldCom subsidiaries. Thisscheme generated roughly $20 billiondollars in royalty payments since 1998.The subsidiaries deducted royalty pay-ments from subsidiary income, reduc-ing their taxable income to the states inwhich they are located. On the otherhand, WorldCom’s royalty income wasnot fully recognized because of certaintax rules in Mississippi related toroyalty payments that were in effect atthat time. Clearly, these paymentsweren’t royalties and both WorldComand the accounting firm knew it.

This is a most significant claim,which is critically important to the citi-zens of the State of Mississippi. Corpo-rate citizens have a duty andresponsibility to pay their fair share oftaxes. And, they can’t be allowed todevise schemes to avoid their legiti-mate tax obligations. Unfortunately, itappears that many in CorporateAmerica believe that there is reallynothing wrong with cheating govern-ments. I suspect they really believethey can get away with fraud with littlechance of ever being caught. In anyevent, it is good to see public officialswho will go after the corporatecheaters. We look forward to assistingAttorney General Hood and the otherlawyers in prosecuting this claim onbehalf of the State of Mississippi and itscitizens.

WE CAN’T ALLOW ALABAMA PUBLIC SCHOOLSTUDENTS TO REMAIN IN POVERTY

Education should be any state’s toppriority, but in reality that has neverbeen the case in Alabama. We are nowpaying for our past failures. A recentreport verifies the bad news. The per-centage of Alabama public school stu-dents living in poverty has crossed the50% mark for the first time in ourstate’s history, according to state educa-tion officials. The Alabama StateDepartment of Education releasedmore than 1,200 “report cards” ratingthe state’s 1,529 public schools. Thereports show that 50.7% of Alabama’sstudents live in poverty, which is inex-cusable. The majority of children in 71of the state’s 129 school districts arefrom poor families.

In many parts of our state—includingMontgomery County—we have built avery good private school system. Infact, some of the campuses look likecolleges. In most of those counties thepublic schools have suffered. If wewould simply wake up and reallymake education our state’s top priority,which means providing adequatefunding—as well as accountability—forpublic education, there is no tellingwhat our state could accomplish. Itgoes without saying that our vastpotential has largely gone untapped.It’s high time we got serious abouteducating our children. It’s not too lateto put education on the right track, butthe time clock is running down. Thecurrent session of the Legislature is agreat place to start. In fact, the billpassed by the House of Representa-tives on the property tax measure foreducation was a step in the right direc-tion. I am hopeful the Senate will passthis legislation, which is a constitu-tional amendment. I believe the peoplewill approve it in the referendum to bevoted on statewide.Source: Associated Press

www.BeasleyAllen.com 3

COMMISSIONER SPARKS IS DOING HISJOB WELL

Ron Sparks is doing an outstandingjob as Commissioner of Agriculture &Industries. The Commissioner has keptall of his “campaign promises” and thatis indeed rare. He has announced apilot program for Country of OriginLabeling in Alabama grocery stores incooperation with the Alabama GrocersAssociation. The Department and theAssociation have been working closelyin the last few months to implement aproject to test the feasibility of labelingproduce in grocery stores. The testingwill be conducted in eight grocerystores for up to 90 days in the Birming-ham area. The participants includeAssociated Grocery Stores, Bruno’sStores, Piggly Wiggly, and WesternSupermarkets. All of the participatingstores have voluntarily agreed to applycountry of origin labeling on all looseproduce in an effort to give consumersa choice. Commissioner Sparks, inannouncing the project, stated:

Alabama raises some of the safestand most economical food in theworld and farmers in other coun-tries may not have the same highstandards as we do here at home. Iwant to do anything I can toprotect our families and our foodsupply. I commend these businessesfor volunteering to be a part of thistest program.

I applaud the Commissioner fortaking the lead in this project. We needto do everything possible to promotethe well-being of Alabama farm fami-lies and Ron Sparks is working hard forthem. He should be commended forhis efforts. For more information on theparticipants in the country of originlabeling pilot program, please contactJim Smotherman at the AlabamaGrocers Association or Christy Rhodesin the Commissioner’s office at (334)240-7103.

II.LEGISLATIVEHAPPENINGS

AN OVERALL ASSESSMENT

The Alabama Legislature is at thehalfway mark of the regular sessionwith 15-legislative days left. As pre-dicted, very little of real significancehas happened so far. Also, as pre-dicted, most everything being done ispointed toward the 2006 election year.There is one thing for certain, however,the state needs additional revenues tooperate all of the functions of govern-ment adequately and to properly fundour public schools at all levels. Unfor-tunately, it is even more clear thatthere will be no new taxes passed bythe Legislature for the general fund thisyear. The only hope for any additionaleducational funding—and that islimited—will be discussed below. Thebest we can hope for is just anotherseries of patches being put on an oldtire that is wearing very thin. In myopinion, that’s not the right way to go,but it appears to be the route we willonce again take.

GOVERNOR SIGNS OPEN MEETINGS BILL INTOLAW

The Legislature should be com-mended for passing one piece of goodlegislation. Governor Bob Riley signedthe badly needed open meetings legis-lation into law on March 15th. This willreplace a 90-year-old law that had fartoo many “loopholes.” The new lawwill take effect on October 1st. SenatorZeb Little (D-Cullman) and Rep. BlaineGalliher (R-Gadsden) pushed the billthrough the Legislature without a dis-senting vote, which was quite anaccomplishment.

Alabama’s old open meetings law,enacted in 1915, was not working welland it badly needed replacing. Thenew law spells out when meetings ofgovernment bodies must be open and

how they must notify the public ofupcoming meetings. In my opinion, thechanges in the new law will greatlybenefit the people of Alabama and willactually improve the performance ofour political leaders. Clearly, the publicwill be the real beneficiary of the newlaw. The Governor, Attorney General,the legislative leadership in bothHouses, and the Alabama Press Associ-ation should be commended forworking hard to get this bill passed.Chief Deputy Attorney General KeithMiller will help local governments andschool boards with the changes. In myopinion, passage of this bill will be ahighlight of the session. Source: Associated Press

PROPERTY TAX BILL FOR SCHOOLS HEADS TOSENATE

Before the members took off for theannual spring break, the AlabamaHouse passed a proposed constitu-tional amendment that would requireresidents of 30 school districts to payhigher property taxes. The legislation,which passed the House by a 71-19vote, would require all city and countysystems to have at least 10 mills ofproperty tax dedicated to publicschools. Those without 10 mills wouldhave to raise their taxes or risk losingmuch of the state funding for theirpublic schools. The bill now goes tothe Senate. If passed there, the amend-ment will then have to be approved ina statewide referendum. Rep. RichardLindsey (D-Centre), who was the bill’ssponsor, says the change would raiseabout $17.8 million a year for educa-tion in the state. I am hopeful theSenate will pass this bill and put theissue to the voters.

THE CAMPAIGN FUND DISCLOSURE BILL

The Campaign Fund Disclosure Bill isnow before the full Senate. I amhopeful that this badly needed bill willpass and become law. If the Legislaturecan accomplish this to go along with the


open meetings law, I will consider thissession to have been a good one. Webadly need to reform our election laws,and the passage of the funding billwould be a step in the right director.

THE REST OF THE SESSION

Frankly, I don’t see much else of anyreal importance passing during the restof the session. There are a number ofimportant bills that should be passed.A prime example is Senator Penn’s billthat would require associate justices onthe Alabama Supreme Court to run indistricts. However, if reasonably goodbudgets can be passed, that will beabout all we can reasonably expect.But, those budgets—without adequatefunding—won’t be anything to writehome about!

III.COURT WATCH

THE PRESIDENT’S TORT REFORM CLAIMS AREUNFOUNDED

I won’t spend a great deal of timethis month discussing the ongoingefforts in Congress to pass more tortreform legislation. It’s very clear thatthe President has been “using” doctorsto sell his so-called medical malpracticereform in Congress. It doesn’t seem tomatter that the actual history of medicalmalpractice litigation doesn’t bolsterthe President’s claims. Simply put,there is no evidence of a lawsuit crisisin the U.S. involving medical doctors.The New York Times had an excellenteditorial on the reform issue. It clearlyrepudiates and undercuts the basis forthe President’s claims and is worthreading in my opinion. For that reason,we are setting out the Times’ editorialin its entirety for your edification.

FALSE DIAGNOSIS

Medical malpractice litigationreform is a high priority for Presi-dent Bush, who contends that juriesare running amok, multimillion-dollar settlements are on the riseand greedy trial lawyers are filingfrivolous suits. The results, Mr. Bushand others argue, include skyrock-eting insurance prices, abandonedmedical practices, defensive medi-cine and a crisis of access to care.Their proposed solution: caps onjury awards to patients and onlawyers’ contingent fees. No onedisputes that insurance premiumshave risen significantly. The ques-tion is whether a crisis in states’ tortsystems accounts for the increase.Consider Mr. Bush’s home state ofTexas, America’s second most pop-ulous state and the third largest interms of total health care spending.After studying a database main-tained by the Texas Department ofInsurance that contains all insuredmalpractice claims resolved between1988 and 2002, we saw no evi-dence of a tort crisis. Adjusting forinflation and rising population, wearrived at the following findings:

• Large claims (with payouts of atleast $25,000 in 1988 dollars)were roughly constant in fre-quency.

• The percentage of claims withpayments of more than $1million remained steady atabout 6% of all large claims.

• The number of total paid claimsper 100 practicing physicians peryear fell to fewer than five in2002 from greater than six in1990-92.

• Mean and median payouts perlarge paid claim were roughlyconstant.

• Jury verdicts in favor of plaintiffsshowed no trend over time.

• The total cost of large malprac-tice claims was both stable and asmall fraction (less than 1%) oftotal health care expenditures inTexas.

In short, as far as medical mal-practice cases are concerned, for15 years the Texas tort system hasbeen remarkably stable. Texas’s sit-uation is not unique. One study ofFlorida’s experience from 1990 to2003 also found declines in paidclaims per 100 practicing physi-cians as well as per 100,000 popu-lation. Over the same period inMissouri, the total number of mal-practice claims fell by about 40%and the number of paid claimsdropped almost by half. Malprac-tice premiums have risen sharplyin Texas and many other states.But, at least in Texas, the sharpspikes in insurance prices reflectforces operating outside the tortsystem. The medical malpracticesystem has many problems, but acrisis in claims, payouts and juryverdicts is not among them. Thus,the federal “solution” that Mr. Bushproposes is both overbroad anddirected at the wrong problem.

If you check the bills proposed bythe White House, you will find the realbeneficiaries are the insurance compa-nies, pharmaceutical companies, andthe manufacturers of medical products.There is nothing in any of the bills for“victims.” I have to wonder why thePresident has shown no interest ininsurance reform or upgrading con-sumer protection in Congress. If hereally wanted to do the right thing,President Bush could start his reformefforts by reforming the insuranceindustry. Of course, that would meangoing after some of his largest cam-paign contributors. Source: The New York Times


VERDICT AGAINST METABOLIFE THROWN OUT

An appeals court panel has over-turned the $4.1 million jury verdictagainst Metabolife International Inc.You will recall this case involvedclaims that four Alabama plaintiffs suf-fered health problems after taking thecompany’s herbal weight-loss supple-ment. The U.S. Court of Appeals for theEleventh Circuit ruled the plaintiffs’expert testimony should not have beenallowed at the trial because it did notpass scientific muster. The appealscourt stated: “The admission of theirtestimony on medical causation in thistoxic tort case substantially prejudicedMetabolife and authorizes reversal ofthe judgment.” The case in Birming-ham’s federal court was the first to goto trial against Metabolife. Jurorsreturned a verdict in favor of the plain-tiffs, finding that Metabolife Interna-tional sold the product Metabolife 356in a defective condition, unreasonablydangerous to the consumers, and thatthe plaintiffs were injured as a result.

U.S. SUPREME COURT CAN CLARIFY WHENSUITS SHOULD GO FEDERAL

The tort reform groups have success-fully sold their story that federal courtsare much better for Big Business thanare the state courts. This has causedmany trial lawyers to avoid the federalcourts for their clients’ claims. Frankly, Ithink that is a mistake. However, itshould be very clear what cases are tobe filed in the federal courts. A Floridarenters’ lawsuit claiming personal injuryfrom toxic mold in apartments couldgive the U.S. Supreme Court an opportu-nity to clarify—to some extent at least—when plaintiffs can sue in federal courtas opposed to state court. The questionhas clearly become a political issuelargely as a result of the tort reformefforts. Under current federal rules, adefendant has a right to “remove” a casethat is originally filed in a state court tofederal court when the two parties arecitizens of different states and theclaimed damages exceed $75,000. That

has been the accepted rule for years.While the present case before the HighCourt doesn’t involve a class action, itwould clarify what determines a corpo-ration’s “citizenship” in both individualand class action suits when a companyhas subsidiaries in multiple states. Theissue before the Court is whether Vir-ginia renters can sue their landlord inVirginia state court over exposure totoxic mold in their apartment. The land-lord is a Texas-based company with asubsidiary in Virginia.

The Richmond-based U.S. Court ofAppeals for the Fourth Circuit held thatthe suit in state court was permitted. Itfound that the landlord was a “citizen”of Virginia because its subsidiary con-ducted business in the state and as aresult had significant ties there. Thelandlord’s appeal of the lower court’sruling is supported by a good numberof big business groups. They all arguethat the Forth Circuit’s ruling wouldunfairly expose them to litigation instate court. In recent months justiceshave sought to clarify the scope offederal jurisdiction, including whetherlawsuits that allege harm of less than$75,000 may be heard in federal courtif the basic facts they allege are similarenough to be tacked onto other law-suits that do meet the minimumrequirement. That would really take amost liberal interpretation of thepresent rules of court to reach such aruling. It should be noted that the newclass action legislation would allowclass action suits seeking $5 million ormore to be heard in state court only ifthe primary defendant and more thanone-third of the plaintiffs are from thesame state. It will be interesting to seehow the Supreme Court rules in thepending case. It is also noteworthy tomention that the federal courts werealready significantly overloaded withcases long before the class action billbecame law. Now, the wheels ofjustice will really wind to a “crawl.”Sources: The Wall Street Journal and AssociatedPress

CELL PHONE COMPANIES SUED FOR ‘UNSAFELEVELS OF RADIATION’

There have been reports over the pastfew years concerning cell phone useand radiation dangers. Thus far, thesereports haven’t been able to sufficientlylink the phone use to cancer. However,a divided federal appeals court has rein-stated five lawsuits claiming that the cellphone industry has failed to protectconsumers from unsafe levels of radia-tion. The class action lawsuits areattempting to force cell phone manufac-turers to provide headsets for users. Thesuits allege that the headsets wouldreduce risks of brain tumors. The law-suits, which also seek punitive damages,originally were filed in state courts inMaryland, Pennsylvania, New York,Georgia and Louisiana, but were consol-idated and transferred to a federal courtin Baltimore. A federal district courtjudge dismissed the lawsuits last March,ruling that federal standards regulatingwireless phones—including uniformnational limits on radiation emissions—preempt the state law claims. A panel ofthe U.S. Court of Appeals for the FourthCircuit, however, reversed that ruling ina 2-1 decision on March 17th. Four of thecases were returned to state courts andone to the federal district court forfurther proceedings.

It should be noted that several studieshave found no adverse health effectsfrom cell phones. The appeals court, inits majority opinion, stated: “We havethoroughly examined the claims... andone thing is clear: the elements of eachof the claims depend only on the reso-lution of questions of state law.” Thedissenting opinion stated that the claimsrequire the courts to explore the ade-quacy of the Federal CommunicationsCommission’s radiation emission stan-dards and that “It is well-settled that asuit to invalidate a federal regulationarises under federal law.... This thinlydisguised attack on the validity of theFCC standards raises a substantialfederal question.” It will be most inter-esting to see how these cases develop. Source: Associated Press


IV.THE NATIONALSCENE

KICKING THE AARP MAY HAVE BEEN A BIGMISTAKE

The Bush White House has declaredwar on the AARP and it is using someof the same tactics that it has used inthe past in destroying political oppo-nents. This attack comes because ofthe AARP’s refusal to go along withPresident Bush on Social Security. Anorganization stirring controversy in thedebate over Social Security’s future,known as USA Next, is applying tech-niques learned through years offundraising for conservative causes.The group has been around for a whileunder the name United Seniors Associ-ation. USA Next claims it is “the conser-vative alternative to AARP,” accordingto a report in the USA Today. Takingon the AARP, however, may prove tobe a little tougher than John Kerry oreven John McCain. In my opinion, theAARP, which has a tremendous numberof members nationwide, will be atough nut to crack. I have always hadtremendous respect for the AARP andreally hate to see the organizationbeing defamed by the Rove politicalmachine.

The group USA Next has beenclosely aligned with the President inother battles. Direct-mail tactics andInternet-based fundraising were usedby the group to push President Bush’sMedicare prescription-drug program.Interestingly, USA Next used millionsof dollars received from the pharma-ceutical industry to fund that campaign.According to the USA Today report, thegroup plans an initial $10 million cam-paign accusing AARP of a “shamefulrecord of liberal activism,” includingbacking gay marriage. Its first step wasan Internet ad in late February thatspecifically claimed AARP supports“gay marriage.” It included a picture oftwo men kissing at what appeared tobe their wedding over the words, “The

real AARP agenda.” I have to wonderwho came up with that agenda.

In style and tactics, the USA Nextcampaign appears to be modeled onsome of Karl Rove’s past work. Manyof those involved in the USA Next cam-paign are some of the same folks whoran the misleading television ad cam-paign against Senator Kerry. To myknowledge AARP has taken no posi-tion on gay marriage. In fact, the groupis made up of folks who have alwaysbeen considered as being very conser-vative. I suspect most of the AARPmembers have traditionally votedRepublican. Financial support for USANext comes from the food industry,pharmaceuticals, health care, energy,and other industry groups and tradeassociations. I really believe this is acase where a single person withtremendous power—Karl Rove—hasgotten to the point where he believeshe can do anything to get anybodyalways and get with it. Rove has con-sistently used the “gay marriage” and“patriotism” issues—regardless of thefactual situation—to his advantage. Ifyou oppose the president, you willlikely be labeled as being immoral andunpatriotic, regardless of the issueinvolved. It will be most interesting tosee whether Rove and his troops canintimidate the AARP. Source: USA Today

THE COUNTRY MAY BE READY FOR AWOMAN PRESIDENT

A recent poll says that we are readyfor a female to be elected president inthe United States. It is most significantthat more than six in 10 voters believea female can now be elected president.The poll, conducted by the SienaCollege Research Institute and spon-sored by Hearst Newspapers, foundthat 81% of people surveyed wouldvote for a woman for president. Inter-estingly, 53% of the people believeNew York Senator Hillary RodhamClinton should make the race. On theRepublican side, 42% of voters saidSecretary of State Condoleezza Rice

should run for the White House, while33% named North Carolina SenatorElizabeth Dole.

The pollsters found about 60% ofvoters said they expect a woman to bethe Democrats’ nominee for presidentin 2008. In contrast, they found only18% expected the Republican ticket tobe headed by a woman. About 67% ofthose polled said a female presidentwould be better than a male on domes-tic issues, but only 24% said a womanpresident would do better on foreignpolicy issues. Personally, I would haveno problem voting for a woman to leadour nation as president. However,there are some potential female candi-dates who simply won’t get my vote—not because of their gender, butbecause of their positions on consumerissues. Come to think of it, there areseveral males who might be running in2006 who fall in that category and whoI could never vote for. Nevertheless, itis encouraging to see that the Americapublic has reached the point that afemale would be accepted as a candi-date for President. Source: USA Today

TAX AVOIDANCE SAVES BIG COMPANIESBILLIONS

Abusive tax shelters have been mostprominent in the news recently. Whatmay not have been as well publicized,however, is the extent to whichFortune 500 companies have takenadvantage of these tax shelters. TheGovernment Accountability Office(GAO) has reported that Fortune 500companies avoided $1.8 billion infederal taxes alone from 1988 through2003. During that same time period,the GAO has reported that sixty-oneFortune 500 companies avoided a totalof $3.5 billion in taxes through auditor-inspired tax schemes. Sometimes theseauditors would provide tax advice totop executives of the companies.Senator Carl Levin of Michigan says theGAO report highlights the need forstronger auditor-independence rules. Iam in total agreement with the senator


on that point. The obvious conflict thatarises when a firm is both consultantand auditor has caused a great deal ofproblems for companies and theirshareholders.

An example of the need for strongerauditor-independence rules can beseen in Ernst & Young’s work for Sprintand its top executives in 2000. Thatyear, the accounting firm earned $65million dollars in audit and consultingfees from Sprint. Part of this wasearned for lobbying the Securities &Exchange Commission (SEC) to permitseven company executives to rescindtheir exercise of company stockoptions after a steep drop in the stockprice left them with tens of millions ofdollars in tax liabilities. Under account-ing rules, a company is entitled to a taxbenefit on the difference between theshares option and exercise price, evenif the profit is short-lived. Ultimately,Sprint dropped the proposal foranother reason—it would have toaccount for the rescission as addedcompensation, dragging down its earn-ings. At the same time, however, Sprinttold the Federal Communications Com-mission (FCC) that it wanted to rescindthe executive stock awards becausetheir personal tax liabilities hadbecome a “distraction” that could“adversely affect the company.”

This sounds questionable if Ernst &Young was acting solely as Sprint’sauditor. Interestingly, the giantaccounting firm also worked on theexecutives’ personal tax strategies,leading to their participation in one ofthe firm’s now-discredited tax sheltersthat the Internal Revenue Service (IRS)is currently investigating. The PublicCompany Accounting Oversight Boardis proposing to prohibit audit firmsfrom providing tax services tocompany officers in financial oversightroles as part of tougher auditor-inde-pendence rules. This makes sense andshould be implemented.Source: USA Today

REPORT SAYS AVIATION SYSTEM VULNERABLETO ATTACKS

A recent confidential report by theHomeland Security Department andthe FBI shouldn’t make us feel realgood about where we are in thiscountry in our “war against terror.” Wenow learn from this report that thenation’s aviation system remains vul-nerable to attacks by al-Qaida andother terrorists who may be targetingnoncommercial aircraft and helicopters.The government’s report concludesthat commercial airlines also remainsusceptible to attack. Members of al-Qaida are believed to be examiningand testing U.S. security systems forweaknesses. The confidential report,dated February 25th, reveals that terror-ists will likely target the areas that havebeen put on a lower priority by thegovernment.

The report was first revealed by TheNew York Times on its Internet site andwas then picked up by AssociatedPress. More than $12 billion has beenspent on explosive detectors, armoredcockpit doors, screeners, air marshals,and other aviation security systemssince the attacks on September 11th.Clearly, some progress has been made.President Bush has proposed giving theTransportation Security Administration(TSA) $5.6 billion in 2006—$2 billion ofwhich is for airline passenger screeningand $1.45 billion for airline baggagescreening. But a report by congressionalinvestigators in December found thatTSA “has primarily focused on strength-ening the security of commercial avia-tion.” That report noted that TSA doesn’tunderstand the risks posed by smallprivate planes, fails to issue meaningfulthreat information to general aviationairports, and can’t make sure charter air-lines and flight schools comply withsecurity regulations. If that is true—which certainly appears to be thecase—we had best start looking at thoseareas immediately.

The thousands of general aviationairports—which host recreationalplanes, business jets, helicopters, and

other kinds of noncommercial air-craft—must all have security measuresthat are equivalent to TSA mandates atcommercial airports, according to gov-ernment officials. The Aircraft Ownersand Pilots Association, which repre-sents general aviation pilots, said thatcurrent TSA regulations allow grassairstrips in rural areas and large privateairports near a city to adopt securitymeasures that fit their individual needs.We don’t need to wait for another ter-rorist attack and then respond to someobvious needs. We must take the nec-essary steps to make our nation as safeas reasonably possible from terroristattacks. I hope the release of this confi-dential report will result in a broaden-ing of our government’s planning toinclude all phases of aviation. Toignore this problem area any longer isasking for trouble!Sources: The New York Times and Associated Press

MORE ON OUR RECORD TRADE DEFICIT

The United States is rapidly becom-ing heavily indebted to the rest of theworld, and that should be alarming toour most conservative readers. Ourcountry’s trade deficit was reported bythe Commerce Department at an all-time record high of $665.9 billion in2004. In my opinion, the soaring tradedeficit can’t be good for the futurewell-being of our nation. Many privateeconomists are extremely worried thatthe huge level of resources being trans-ferred into the hands of foreigners willeventually result in lower living stan-dards in this country. I worry abouteven more serious consequences.

Many knowledgeable persons arealso greatly concerned over the declinein the value of the U.S. dollar. Weknow that the dollar—against othercurrencies—has been declining for thepast 3 years. Fortunately, it has been—at least so far—an orderly decline. But,it is extremely dangerous for foreignersto have control over our economy. Forexample, if foreigners suddenly decideto diversify into other currencies and


began cashing in their holdings of U.S.stocks, bonds, and treasury securities, itwould have a drastic effect on thevalue of our dollar. Such a develop-ment could send stock prices in thiscountry plunging and interest ratessoaring, according to some economists.That would be a disaster in themaking. Investor Warren Buffet hadthis to say:

The United States could become a“shareholder society” by the contin-ued transfer of U.S. assets intoforeign hands.

Buffet estimates that the country’sdebt to foreigners could surge to $11trillion by 2015. Unless we take thesteps necessary to bring the tradedeficit into balance, I fear we are infor some tough economic times. Ihave to wonder why nobody in Wash-ington seems overly concerned. Cananybody explain the White House’slack of interest?

V.THE CORPORATEWORLD

CORPORATE FRAUD IS ON THE INCREASE

We all know that corporate fraud is atremendous problem in the UnitedStates, affecting millions of people, andthere doesn’t appear to be any slow-down. Currently, the Federal Bureau ofInvestigation (FBI) is pursuing 334 cor-porate fraud cases throughout thecountry. This represents more than a100% increase over last year. Eighteenof those cases involve losses to thepublic that exceed $1 billion. The FBIis currently opening 3-6 new caseseach month, with each case averaginga loss exceeding $100 million. Interest-ingly, Robert S. Mueller, III, the directorof the FBI, is making corporate andsecurities fraud only 10th on a list of 15priorities for his bureau. Obviously,tops on the priority list is counterterror-ism and counterintelligence, which is

understandable. But, it is difficult tounderstand why corporate fraud is solow on the list, considering its effect onour economy. The following points,given by Director Mueller to the SenateIntelligence Committee recently, giveus an idea of the magnitude of theproblem:

• Since the initiation of the FBI Corpo-rate Fraud Task Force in December2001, there have been 480 indict-ments and 305 convictions of corpo-rate executives and their associates.

• The FBI’s efforts have also resultedin over $2 billion in restitutions,recoveries and fines. This is in addi-tion to over $30 million in seizuresand forfeitures.

• In the Enron, HealthSouth, CendantCorporation, Credit Suisse FirstBoston, Computer Associates Inter-national, Worldcom, Imclone, RoyalAhold, Perigrine Systems, andAmerica On Line cases the FBIobtained 119 indictments or informa-tions and 79 convictions.

• Several high profile trials are antici-pated in the near future, includingthe trial of Ken Lay.

• During fiscal year 2004, the FBI had2,468 pending health care fraudinvestigations. The Bureau obtained693 indictments and informations,and 564 convictions or pretrial diver-sions. They also received $1.05billion in restitution, $543 million infines, $28.8 million in seizures, and$19.05 million in forfeitures, and dis-rupted 186 and dismantled 105 crimi-nal organizations.

Director Mueller made this observa-tion: “Corporate fraud can cost Ameri-cans their jobs and rob them ofhard-earned savings. It shakes thepublic’s confidence in corporateAmerica to its foundation.” I believethat the public will support making thefight on corporate fraud a high priority.Recent polls checked the pulse of theAmerican people on this issue and

found that confidence in the chiefexecutive officers who run the majorcorporations in the U.S. was at an alltime low. This is attributed to themassive fraud that has been reportedover the past few years. Folks simplydon’t trust the corporate bosses nowand with good reason. A major crackdown on corporate fraud is certainly inorder. The criminal conviction ofBernie Ebbers, in my opinion, willhave a very good effect on corporatefraud. This conviction—unlike that ofMartha Stewart—sends a strongmessage to the corporate world!Source: The Corporate Crime Reporter

DEMAND FOR FRAUD EXAMINERS INCREASES

With all of the reports of fraudulentconduct being uncovered in CorporateAmerica, I am not surprised to learnthat more fraud examiners are neededto keep track of all the cheating that isgoing on. The Association of CertifiedFraud Examiners announced recentlythat its membership had grown to arecord level. There are now 32,000members, representing an increase of4,000 members in the past year. Thisreflects a growing demand for trainedanti-fraud professionals to address con-tinuing concerns about fraud in busi-ness and government. ACFE PresidentToby J. F. Bishop stated:

Implementing Sarbanes-Oxley 404has demonstrated both the chal-lenge and the opportunity toreduce the risk and cost of fraud.Leading audit committees, boardsof directors, CEOs and CFOs arerealizing that fighting fraud effec-tively is not a one-time activity. Itrequires ongoing effort within theircompanies.

Bishop says that he believes thedemand for Certified Fraud Examinersis rising as organizations strengthentheir anti-fraud capabilities. Demandfor Certified Fraud Examiners, which iscurrently exceeding the supply, islikely to grow even stronger simply


because fraud is still on the increase.Had the politicians mandated strongregulation, and even stronger enforce-ment, things would be much bettertoday. Instead, they have pushed tortreform, which protects the cheatersand further penalizes their victims!

SETTLEMENTS TOTALED $5.4 BILLION FORSECURITIES CLASS ACTIONS IN 2004

Corporations paid a record $5.4billion to settle securities class actionsin 2004 and probably will pay more incoming years as the very large numberof fraud claims works its way throughthe legal system. The study was doneby Cornerstone Research, a consultingfirm based in Boston. The 118 claimssettled last year also was a record. Thiswas up from 96 settlements in 2003.While 80% of settlements last year werefor less than $25 million, there wereseven settlements in excess of $100million, the most in any year since thestudy began in 1997.

Last year, 212 suits were filed againstcompanies alleging securities-law viola-tions, up from 181 in 2003, according toa previous study by Cornerstone. Manyof those big losses are tied to claims offraud at mutual-fund companies andpharmaceutical firms that recalled keydrugs. As in past years, cases involvingallegations of accounting fraud, restate-ments, and regulatory enforcementactions resulted in shareholders receiv-ing a higher percentage of estimateddamages compared with cases thatdidn’t include those factors. Institutionalinvestors’ claims were involved in 35%of cases. The study reveals that defen-dants paid more in those cases. Source: The Wall Street Journal

WORLDCOM CLASS ACTION SETTLED

Two major players, along with somelesser lights, have settled class actionsecurities litigation involving World-Com. Bank of America got the ballrolling by agreeing to pay $460.5million to settle its part of the claim.

Then J.P. Morgan agreed to pay $2billion to settle. The case is pending inthe United States District Court for theSouthern District of New York. Ascheduled trial date had been reachedwhen J.P. Morgan elected to settle.Under the terms of the settlementagreement, which is subject to courtapproval, subsidiaries of Bank ofAmerica Corporation, which are namedas defendants in the litigation, will alsomake payments to the settlement class.The four investment banking firms thatparticipated as underwriters in World-Com’s May 2000 bond offering will paya total of $100.3 million to settle theclaims asserted against them. Thesedefendants with the amounts paid byeach are: Lehman Brothers Inc.($62,713,582); Credit Suisse FirstBoston, LP ($12,542,716); Goldman,Sachs & Co. ($12,542,716); and UBSWarburg LLC ($12,542,716).

A total of 16 banks involved in theunderwriting or sale of WorldCom bondshave now agreed to pay a total of $6billion. At press time, settlement negotia-tions with 11 former WorldCom directorsreportedly had also been successful. Ifthat is accurate, it will add another $55.2million to the total settlement. The onlydefendants left in the litigation are nowone former board member and ArthurAndersen. If they don’t settle, the casewill go to trial against them. Source: The Insurance Journal

HIH LIQUIDATOR WARNS BERKSHIRE

The liquidator of HIH Insurance Ltd,an Australian insurer, has warned sub-sidiaries of Warren Buffet’s investmentcompany, Berkshire Hathaway Inc.,they could face claims of deceptiveconduct leading to the Australianinsurer’s collapse. HIH became Aus-tralia’s biggest-ever corporate failure in2001. The demise of HIH was partlyattributed to its 1998 takeover of FAIInsurance Ltd, a heavily overvaluedrival. The company suffered massivelosses totaling about $5.3 billion. TheAustralian liquidator, Tony McGrath, of

McGrath Nicol & Partners, is attemptingto recover HIH’s lost $5.3 billion forcreditors. Berkshire Hathaway Inc’sannual report states that the liquidatorhad been in touch with two sub-sidiaries of its General Reinsurancecompany—General Reinsurance Aus-tralia (GRA) and Kolnische Ruckver-sicherungs-Gessellschaft (KR).

The Berkshire 2004 annual reportreveals the following: “The liquidatorcontends, among other things, that GRAand KR engaged in deceptive conductthat assisted FAI in improperly account-ing for such transactions as reinsurance,and that such deception was a causalfactor that led to the insolvency ofHIH.” The Australian Securities andInvestments Commission is pursingbreaches of the Corporations Act onbehalf of the Australian public. Severaltop officials at HIH have pleaded guiltyto criminal charges arising frombreaches of corporations law. Source:Yahoo Finance

FLORIDA ATTORNEY GENERAL GOES AFTERTENET HOSPITAL

Over the past year, state AttorneysGeneral have been very active in pur-suing corporations that have beencheating state governments. Recently,Florida Attorney General Charlie Cristfiled a lawsuit in Miami federal courtalleging that the Tenet Hospital chaininflated its Medicare charges andimproperly took more than $1 billionthat could have been used by publichospitals. The complaint charges thatTenet hospitals nationwide engaged ina racketeering scheme that removedfunds from the Outlier Pool that publichospitals could have used. GeneralCrist said in a Miami press conference:“The long and short of it is they lied,they cheated, and they stole from thepeople.” Among the plaintiffs in thelawsuit are the North and SouthBroward County hospital districts andthe Public Health Trust, which repre-sents the Jackson Memorial Hospitalsystem in Miami.Source: The Insurance Journal


TENET ANNOUNCES SETTLEMENT IN PRICINGCASES

On another front, Tenet HealthcareCorp. has agreed to settle some classaction lawsuits over prices that unin-sured and underinsured patients werecharged at hospitals owned by thechain’s subsidiaries. Originally filed inDecember 2002, the lawsuit claimedthat patients not covered by insuranceplans were charged excessive prices at114 hospitals owned and operated byTenet subsidiaries in 16 different states.The lawsuit claimed that as a result of ascheme to boost its Medicare outlierpayments, Tenet increased its “grosscharge.” The gross charge is thatcharged only to uninsured or underin-sured patients who do not have theeconomic leverage to negotiate lowerrates. The lawsuit charged that thisincrease in gross charges violated Cali-fornia’s consumer protection and unfaircompetition laws. The settlement,announced on March 10th, is subject tocourt approval and is not expected tobecome final for several months. TheDallas-based operator of acute-carehospitals said it has established areserve of $30 million that will coversettlement expenses. Class action law-suits are pending against Tenet hospi-tals in Alabama, California, Florida,Louisiana, Missouri, Pennsylvania,South Carolina, Tennessee and Texas.If a nationwide settlement is approvedby the California court, it will mostlikely cause a dismissal of those cases.

The settlement class includes anyuninsured patient who received med-ically necessary services at any of itshospitals between June 15, 1999 andDecember 31, 2004, and paid for serv-ices based on the hospital’s grosscharges. Under the terms of the pro-posed settlement, Tenet will refundamounts paid in excess of certainthresholds. During the class period,Tenet reportedly collected approxi-mately $400 million from uninsuredpatients. The specific percentage ofreimbursement varies depending onthe year the patient was treated. Tenant

must reimburse uninsured patientswho received medically necessary serv-ices at any of its hospitals betweenJune 15, 1999, and December 31, 2004,who were paid more than a certainpercentage of the hospital’s grosscharges. Tenet will make a $4 millioncontribution to a health care-relatedcharity chosen by the plaintiffs’lawyers.

The settlement will not only providerestitution to those who need it, but inthe future it guarantees that uninsuredpatients will receive significant dis-counts. The settlement was designed toprovide uninsured patients with adegree of market power that will allowthem to obtain the same rates insur-ance companies are able to obtain.Under the proposed settlement, Tenethas agreed to do the following for aperiod of four years:

• Provide financial counseling to alluninsured patients, including help inunderstanding and applying for gov-ernmental financial assistance andcharity care programs. Subject toapplicable legal requirements, Tenetwill also post information on theavailability of such financial assis-tance on hospital websites and atcertain locations in its hospitals.

• Treat uninsured patients fairly andwith respect during and after treat-ment, and regardless of their abilityto pay for the treatment they receive.

• Offer uninsured patients reasonablepayments and payment schedules,with no interest for the first 120 daysafter a patient is discharged. If apatient has applied for financialassistance, Tenet will not attempt tocollect fees from the patient while aneligibility determination on thepatient’s completed application ispending.

• Follow a uniform credit and collec-tion policy, including, among otherthings, a commitment not to pursuelegal action for nonpayment of billsagainst any patient who is unem-ployed or without other significant

assets or to place a lien on a patient’shome.

• Disclose to uninsured patients theestimated charges for anticipatedtreatment, subject to applicable legalrequirements.

• Offer uninsured patients discountedpricing at rates comparable to thehospital’s current managed carerates.

Sources: Associated Press and The Insurance Journal

PUTNAM TO PAY $83 MILLION MORE INRESTITUTION

Putnam Investments will pay $108.5million in restitution to customersbecause of improper share trading. Theamount was determined by an inde-pendent consultant appointed as partof a settlement of “market timing”charges leveled against Putnam by theMassachusetts Securities Division andthe Securities and Exchange Commis-sion. Under the settlement, firstannounced last April, the company hadagreed to pay $110 million in penalties,including as much as $25 million inrestitution. But Putnam, the seventh-largest mutual fund company, a unit ofMarsh & McLennan Cos., also agreed topay more if the consultant determinedthe damages to be larger. With the finalreport, whose preliminary findingswere previously reported, Putnam willnow pay an additional $83.5 million tocurrent and former shareholders. Thetotal sum that Putnam will pay in finesand restitution is now at $193.5 million.

Putnam was the first fund companyto face civil fraud charges in the tradingscandals that began in the fall of 2003.Numerous companies have sinceagreed to pay penalties totaling about$3 billion. Regulators and Putnam nowwill have to decide how to distributethe money to affected shareholders.Unfortunately, many of the restitutionchecks will be fairly small. Actuallymany investors were unaffected, andthose will receive nothing or very littlefrom the settlement. Larger investors in


the funds hardest hit by trading willreceive only payments in the $100 to$200 range. William Galvin, Massachu-setts Secretary of the Commonwealth,who oversees the state’s securities divi-sion stated: “This was the story of alittle money stolen from a lot ofpeople.” However, the consultant,Peter Tufano, a Harvard BusinessSchool professor, reported that cus-tomers lost a total of $4.4 million,including interest, because of impropertrading by portfolio managers andother Putnam employees. Customerslost a further $48.5 million in transac-tion costs related to billions of dollarsof withdrawals by customers after dis-closures about excessive trading.Clients lost another $55.6 millionbecause Putnam failed to stop exces-sive trading by customers in retirementaccounts. More than 90% of the losseswere generated by 56 retirement plans,less than 2% of the number adminis-tered by the company.

We had reported in prior issues that“market timing” had become a majorproblem. The improper trading atPutnam involved rapid in-and-outexchanges from funds that took advan-tage of out-of-date prices of securitiesportfolios. On occasion these containedforeign stocks trading on exchangesthat close earlier than in the U.S. Suchtrading skims profits from long-terminvestors and raises transaction costs.Trading was concentrated largely in fiveinternational funds. Hopefully WallStreet has cleaned up its act!Source: Wall Street Journal

MORE BROKERAGE HOUSES FINED FOR IPOPRACTICES

The Securities and Exchange Com-mission (SEC) has ordered Wall Streetfirms that worked to increase the pricesof new-stock offerings during the timeframe of 1999 and 2000 to pay $80million dollars to settle civil allegationsthat they improperly induced cus-tomers to bid up stock prices inexchange for hot allocations of newtechnology company shares. Goldman

Sachs and Morgan Stanley will pay $40million dollars each under the terms ofthe settlement. Orders will be enteredbarring these companies from futureviolations of stock underwriting rules.In my opinion, the companies cameout pretty well since they most cer-tainly will have paid less in fines thanthey made from the initial public offer-ings (IPOs). They also don’t have toadmit any wrongdoing under the settle-ment. As previously reported, theseinitial offerings often produced hun-dreds of millions of dollars in fees forthese Wall Street firms. Sadly, many ofthe companies that were introduced inthe public offerings no longer exist.Many investors were left holding thebag after suffering tremendous losses.

The companies were involved inpractices that have come to be knownas “laddering.” That’s where customersare induced to help drive IPO shareprices up by buying at increasinglyhigher rungs. It is very interesting tonote that Goldman and Morgan initiallymade the argument that they weremerely doing due diligence on IPOsthey were overseeing by checking whatthe market would be for the shares.They also claim it was to discourage thequick selling or “flipping” of the sharesfor short-term profit. While the SECstopped short of accusing Morgan andGoldman of actually manipulating themarket, it said that any conduct that hasa chance of artificially stimulatinghigher prices is illegal.

The SEC cited Morgan documentsthat said the firm deliberately sought to“create perception of scarcity” with anIPO, and marketed itself as consistentlyhaving “oversubscribed” interest frominvestors. Once Morgan created interestin a deal, the SEC alleged the firmwould then ask investors whether theyplanned to buy more stock after theIPO began trading. Morgan allegedlykept detailed files of customers’ statedcommitments and tracked whetherthey followed through with them. Youmay recall from earlier reports that J.P.Morgan Chase & Company agreed inlate 2003 to pay $25 million dollars to

resolve similar allegations. Also, theCredit Suisse First Boston Unit of CreditSuisse Group in 2002 paid $100 milliondollars to settle civil regulatory chargesover a variety of IPO allocation prac-tices. As usual, none of these firms everadmit any wrongdoing. In fact, theyconsistently deny that anything illegalor wrong ever occurred. They just paytheir fines and keep right on truckingin many cases. Source: Wall Street Journal

CHEATING DIDN’T SEEM TO HURT TITAN

Titan, the San Diego, California-based defense contractor, has won theright to do business with the U.S. gov-ernment despite the company’s convic-tion on bribery charges. Titan, amilitary intelligence and communica-tions company, pleaded guilty tomaking illegal payments to a presiden-tial election campaign in Benin, hopingto boost fees for a project there. Thecompany agreed to pay $28.5 millionto settle those and related charges. Inaddition, Titan allegedly violatedfederal tax laws by claiming the“bribes” as deductible expenses. Asyou may recall, Titan has lucrative con-tracts related to homeland security andthe war on terrorism.

It is difficult to comprehend how theU.S. government could continue to dobusiness with a company that is anadmitted cheater and defrauder!Maybe this simply confirms my beliefthat some in Corporate America don’tbelieve it is really “cheating” when theirvictim is the government. But, it doesconcern me that these “cheaters” cancontinue to do business with our gov-ernment. Cheating, paying a fine, andnever missing a beat on the govern-ment contract circuit just seems to be away of life for some large corporationsdoing business with the government. Ifthese corporations were banned frombidding on government contracts after aguilty verdict or plea, I suspect thecheating would grind to a halt.


TIME WARNER SETTLES SEC FRAUDCHARGES

Time Warner Inc., the world’s largestmedia company, will pay $300 millionto settle fraud charges by the Securitiesand Exchange Commission for over-stating online advertising revenues andthe number of its Internet subscribers.As part of the agreement, Time Warnerhas restated its financial results toreduce the amount of online advertis-ing revenues it reported by about $500million from the fourth quarter of 2000through 2002. The company also hasagreed to appoint an independentexaminer who will further review thecompany’s accounting for several pre-vious transactions. There could befurther restatements depending on howthe report comes out. Source: Associated Press

VI.CAMPAIGNFINANCE REFORM

ON THE NATIONAL SCENE

There isn’t much to report fromWashington on the campaign financereform front. The leadership of boththe House and Senate are too closelytied to Corporate America and the tortreformers for anything of consequenceto get through Congress this year. Itwill take a change in that leadershipfor Congress to ever clean up thefinancial mess that has plagued ournational elections for years. Hopefully,the American people can let their col-lective voices be heard in the nationalelections next year. All candidates forboth the U.S. House and Senate—andespecially incumbents—should beasked what they intend to do onreforming all election laws and bring-ing about tough campaign financereform. Until the public demands it,our politicians aren’t going to do any-thing of consequence. All nationalpolls on the subject reveal that the

public is heavily in favor of reform. Isuspect the consultants who run thepolitical campaigns are reading the pollresults. I hope things will eventuallychange for the better.

THE STATE OF ALABAMA

In Alabama, the House of Represen-tative has passed and sent to theSenate a bill that deals with politicalaction committee (PACs). A Senatecommittee amended the House bill andmade it much stronger. The bill wasreported out of committee and was puton the special order calendar for theSenate on March 17th. I believe it willbe the pending order of business forthe senators when they return to Mont-gomery. I am hopeful this bill will bevoted on in the Senate and will pass inits amended form. If given the chance,I believe the House would accept theSenate changes and send the bill to thegovernor. In my opinion, this legisla-tion is badly needed in Alabama and islong overdue. It will be most interest-ing to see where the opposition to thebill comes from when the legislatorsreturn to work on March 29th.

VII.CONGRESSIONALUPDATE

WHITE HOUSE PUSHES HARD FOR PRO-BUSINESS REGULATION

The Bush Administration is workinghard to bring about more business-friendly regulation in Washington. Suchthings as streamlined and more flexiblepollution standards, chemical handlingrules, and workers’ medical leave pro-tections are on the horizon. It shouldbe remembered that U.S. manufactur-ing was hammered by recession andoverseas competition during much ofPresident Bush’s first term. Gary Bass,executive director of OMB Watch, apro-consumer group that monitors theWhite House Office of Management

and Budget (OMB), calls the latestefforts a new assault on anticompetitiverules that amounts to rewarding thePresident’s political supporters in thebusiness world. OMB is leading theeffort through its Office of Informationand Regulatory Affairs. The project isbeing coordinated by a former Harvardprofessor, John Graham, who hasturned OMB’s regulatory arm into avoice for the Administration’s pro-busi-ness views on regulation.

Clearly, Big Business interests havemade headway in Washington onseveral fronts, including passage inCongress of the so-called class actionreform. Passage of new consumerbankruptcy laws also points to thepower and influence of Big Business inBush II. The White House is nowputting forward a new priority list ofregulations for agencies. Some changescan be made administratively, withlittle or no input from Congress, whichsets a very dangerous precedent. Itappears that consumers will havealmost no voice in what comes out ofthe White House over the next 3 years.I hope and pray that the President,who claims to be a compassionateconservative, will develop a feelingand concern for little people who arereally hurting today!Source: Wall Street Journal

VIII.PRODUCTLIABILITY UPDATE

MANY SMALL CARS GET ‘POOR’ SIDE CRASHRATINGS

The vast majority of small cars soldin this country were rated “poor” inrecent side-impact tests conducted bythe Insurance Institute for HighwaySafety. Statistics reveal that side-impactcrashes are the second most commontype of fatal crash. Only the ChevroletCobalt and Toyota Corolla, bothequipped with optional side airbagswith head protection, performed well


enough to earn an “acceptable” rating,which is the institute’s second-highestrating. Without the optional airbags,both cars dropped to “poor.” Othersmall cars earning “poor” ratings werethe Ford Focus, Hyundai Elantra, KiaSpectra, Mazda Three, MitsubishiLancer, Nissan Sentra, Saturn ION,Suzuki Forenza, Suzuki Aerio and theVolkswagen New Beetle. Those resultsare certainly cause for concern.

The Dodge Neon was the worst per-former. The Institute called it “a disas-ter,” noting that because of a poorstructure, the crash test dummies’heads were hit by the barrier duringthe crash test. In previous testing, theCobalt also earned “good” ratings infront and rear tests. The Corollareached “good” in front, but was called“poor” for rear-crash protection. Thetesting group noted that although smallcars are affordable and efficient, theydon’t do a good job of protectingpeople. The Institute’s ratings differfrom government crash tests, whichsimulates a car hitting the side of a car.In the IIHS test, the barrier is the heightof the front end of an SUV. Three moresmall cars will be tested in side impactslater this year. Those are the modifiedMini Cooper and Subaru Impreza, andthe completely redesigned HondaCivic. Institute research shows that sideairbags with head protection are reduc-ing deaths by about 45% among driversof cars struck on the driver side.Source: Associated Press

NHTSA ANNOUNCES RATING ON MINIVANS

Two General Motors vehicles, theChevrolet Astro and the GMC Safari,fared the worst in government crashtests of minivans, according to resultsreleased by the National HighwayTraffic Safety Administration (NHTSA)last month. In rollover tests, the Ford E-150 van received the worst rating andwas the only vehicle among 13 modelstested to tip over. The Astro and Safarireceived three out of five stars fordriver’s frontal crash tests. Three stars

means there is a 21% to 35% chance ofserious injury in a similar real-worldcrash. As you may already know,NHTSA conducts the front-impact testat 35 mph.

Five models earned the top rating offive stars in both frontal and side-impact tests: Chrysler Town & Country,Dodge Grand Caravan, Kia Sedona,Mazda MPV and Nissan Quest. Accord-ing to the NHTSA scale, five stars meanthere is a 10% chance or less of seriousinjury. None of the models studiedscored less than four stars in side-impact tests, which are conducted at38.5 mph. Four stars translate to an11% to 20% chance of serious injury.

For rollover tests, NHTSA found theFord E-150 had a 29.5% chance ofrollover. This was much worse thanother vehicles tested in the same cate-gory. Among side-impact tests, theHonda Odyssey received five stars, butthe government noted that the driver’sdoor became unlatched during the sidecrash test, increasing the likelihood ofoccupant ejection. NHTSA releasedcrash test results for 32 minivans androllover ratings for 13 minivans. New2005 frontal impact tests were releasedfor the Buick Terraza, Chevrolet Uplan-der, Chrysler Town & Country, DodgeCaravan, Dodge Grand Caravan, FordFreestar, Honda Odyssey, PontiacMontana SV6, Saturn Relay and ToyotaSienna. The agency chooses vehicles totest based on popularity and otherfactors. You can get more informationon the test results by going to theNHTSA website: www.NHTSA.gov orwww.safercar.gov.

THE BLAZER RANKED AS THE DEADLIESTVEHICLE IN COUNTRY

The Insurance Institute for HighwaySafety had some bad news for GeneralMotors recently. The two-door Chevro-let Blazer from GM has the highestdriver death rate of any passengervehicle on U.S. roadways, according tothe Insurance Institute for HighwaySafety. An extensive study of passengervehicles from the 1999-2002 model

years focused on the rate of driverdeaths in various types of crashes,including both single- and multiple-vehicle accidents. The overall driverdeath rate, for 199 models studiedduring the 2000-2003 calendar years,was 87 per million registered vehiclesannually. Weighing in at more thanthree times the overall rate, the Insur-ance Institute reports that the two-door,two-wheel-drive Blazer—a mid-sizedSUV—had an average of 308 driverdeaths per million. The Blazer also hadthe highest rate of driver deaths inrollover accidents at 251 per million.

Highlighting a long-standing trend,the Insurance Institute says that “largecars and minivans dominate amongvehicle models with very low deathrates.” Models with the highest ratesare “mostly small cars and small andmid-sized SUVs.” However, the Insur-ance Institute said the small-sizedToyota RAV4 SUV from Toyota MotorCorp. ranked among vehicles with thelowest average driver death rate. Vehi-cles with the lowest overall rate ofdriver deaths were led by the largeMercedes E-Class luxury sedan fromDaimlerChrysler AG, at 10 per million,according to the Insurance Institute.That was followed by the Toyota4Runner mid-sized SUV, with anoverall driver death rate of 12, the four-door mid-sized Passat from Volkswa-gen, with 16 deaths, Toyota’s Lexus RX300 mid-sized SUV, at 17, and RAV4with 18. Following Blazer, vehicleswith the highest driver death rateswere the Mitsubishi Mirage, a two-door, small-sized car from MitsubishiMotors Corp., at 209; GM’s PontiacFirebird sports car at 205; the subcom-pact Kia Rio from Kia Motors Corp. at200; and the two-wheel-drive KiaSportage compact SUV at 197. GM hasalready halted full-scale production ofthe two-door Blazer. The vehicle is dueto be phased out later this month.


JURY FINDS AGAINST DAIMLERCHRYSLER

A jury in Shelby County, Tennessee,has awarded the family of a womankilled in a minivan crash $48 milliondollars in punitive damages. Theverdict against DaimlerChrysler camein the second phase of a lawsuit by thefamily against the carmaker. Twopersons, a daughter and her mother,were killed in a three vehicle crash thathappened in Arkansas back in July2002. In the first phase, the jurors hadawarded compensatory damages ofnearly $3.5 million on behalf of thedaughter and more than one milliondollars on behalf of the mother. Jurorsattributed the mother’s death to adefective seat belt. The daughter’sdeath was found to have been causedby the minivan’s lack of crashworthi-ness. The Dodge Caravan has scoredlow in the Insurance Institute forHighway Safety offset testing. The 17-year-old driver died as a result of pas-senger compartment intrusion. Thesecond phase, which considered puni-tive damages, was held because jurorsfound DaimlerChrysler guilty of inten-tional and/or reckless conduct.

$27 MILLION VERDICT AGAINST FORD MOTORCO. AND MAZDA

After a three-week trial, a jury inCook County, Illinois, returned a $27million verdict against Ford Motor Co.and Mazda Motor Corporation. The juryallocated 40% fault against the twocompanies, which were the co-design-ers of the Ford Escort. Sixty percentfault was allocated against the otherdriver. The case involved a seatbackfailure in a 1996 Ford Escort when thedriver of a 1994 Cadillac rear-ended theEscort at 55-60 mph. The belted driver’sseat bent back more than 60 degreesfrom vertical, resulting in a fatal headinjury from the driver’s head strikingthe rear seat seatback or header. Thedecedent’s daughter was seated in therear right seat and did not sustain sig-nificant injuries even though the pointof impact was directly behind her.

ANOTHER TENNESSEE VERDICT

In February of this year, another Ten-nessee jury returned a $10 millionverdict against Ford Motor Co. involv-ing the defective seatback design of theFord Escort. As we have pointed out,the Ford Escort was designed andtested by Mazda Motor Corporation,with Ford’s active involvement. Thedetailed seat design work was per-formed by Toyo, a Japanese company.Most consumers in this country aren’taware of the involvement of Mazda orToyo. The front bucket seats for theEscort were inadequately designed,allowing the seatbacks to collapseduring a rear impact, which results inthe occupant “ramping” up the seatand striking interior components of thevehicle. This causes severe injuries andeven death.

ANOTHER JURY FINDS AGAINST FORD

A jury in Jacksonville, Florida,returned a $10.2 million verdict againstFord Motor Co., finding defects in theand seat belt systems. After the four-week trial, the jury said the death of aJacksonville woman could have beenprevented if the roof had not col-lapsed. To my knowledge, the verdictis the first in the nation where a juryhas found the Explorer’s roof to bedefective. Clair S. Duncan was travelingon Interstate 95 in Virginia to watch herbrother graduate from the NavalAcademy in Annapolis, Md., when the2000 Explorer she was driving swervedto miss a Winnebago. The Explorerthen tipped and rolled five times. TheSUV’s roof collapsed resulting in Ms.Duncan’s death. Her husband andsister, who were in the vehicle, hadminor orthopedic injuries. All of theoccupants were wearing their seatbelts. Internal Ford documentsshowing Explorer to have the weakestroof of any SUV on the market wereput in evidence. The company’s engi-neers had actually recommended thatits roof be strengthened, which wementioned in the last issue.

Ford’s lawyers said the SUV metfederal regulations and that Ms.Duncan could not have survived theaccident in any car. Obviously, thejurors didn’t buy that claim. Fordshould make stronger roofs for theExplorer together with a seat beltsystem that will better hold occupantsin place. It is accepted by all safetyengineers that it is hazardous for occu-pants to be thrown around in a vehiclethat is rolling over. It is also acceptedthat roofs should be of adequatestrength to avoid crush.

FORD’S SEAT DESIGN IS TOTALLY INADEQUATE

Ford has taken the position for manyyears that it designs seats to “yield”during a rear impact to lessen thepotential for neck injuries in low speedrear impacts. The problem with Ford’sdesign concept is that in higher speedrear impacts, seatbacks collapse andallow belted front seat occupants toramp up the seat and impact rearoccupants or rear vehicle components,resulting in catastrophic injuries. Fordhas been aware of this design problemfor many years. Unfortunately, Ford hastaken the position that stronger seatswould increase the number of whiplashtype neck injuries in lower speed acci-dents. But, testing shown to the jury inat least one of the above-referencedcases revealed that Ford now includesmuch stronger seats in some vehicles.There has been no increased likelihoodof neck injuries in those vehicles.

Unfortunately, Ford does not informconsumers of the likelihood of severeinjury in the event of a rear impact.Other manufacturers have designedseats that absorb occupant energyduring a rear impact, but also aredesigned to retain the occupants in thefront seat. Also, a number of manufac-turers have included seats with inte-grated seat belts that retain anoccupant in the event of a seatbackcollapse. Ford has not seen fit tochange the design of its poorlydesigned seats, and that is most unfor-


tunate. The design flaw in the driver’sseat was exposed by CBS’ “60 Minutes’’TV show more than a decade ago. Stillno major changes have been made inits design. While most front seats invehicles are weak, the industry hasbeen exceptionally slow to deal withthis defect.

ANOTHER JURY VERDICT AGAINST FORD

A fatal rollover accident that occurredtwo years ago has resulted in a $31million verdict against Ford MotorCompany. The jury found Ford primarilyresponsible for the wreck, in which allfour occupants of a Ford Explorer wereejected from the vehicle. Two of theoccupants died and two others wereinjured. During trial, the plaintiffs’lawyers contended that had Ford used astronger type of laminated side windowglass, the deaths would have beenaverted. Ford claimed that the deathscame from the occupants’ failure to wearseat belts. However, the jury found Ford90% responsible, and by its verdict saidthat the company must pay $28 million.The driver of the Explorer, who was aco-defendant, was found to be 10%responsible and thus bound to pay theremaining $3 million of the jury verdict.Ford says it will appeal the result.

DEFECTIVE OVENS REVISITED

In the November 2001 issue of thisReport, we discussed a pending case inMississippi against a manufacturer of adefective range. Our client in that casewas an elderly female whose oventipped over on her. The weight of theoven held her down and suffocatedher. We eventually settled the caseagainst the oven manufacturer and theapartment complex in January of 2003.Within the last month, our firm hasbeen put on notice of two other inci-dents of range tipping. A female insouth Alabama was killed when heroven tipped over on top of her, and aminor child in the Midwest was alsokilled in the same manner. As we

reported back in 2001, these types ofincidents are common occurrences.But, the public is largely unaware of theproblem and the risk involved. Minorsand the elderly are most susceptible tooven-tipping injuries. Although ovenscan tip over with relatively little weightplaced on an open door, they are quiteheavy once tipped. Because of theirphysical conditions, minors and theelderly often times are not strongenough to extricate themselves fromunder a tipped oven. Small childrenwill commonly use an open oven dooras a step to reach up on the stove.Many people use an open oven door asa temporary place to rest food beforeplacing it into the oven. Either scenariocan result in the oven tipping over. Theinjuries associated with tipping ovensare burns caused by the oven itself,boiling food on top of the oven, anddeath (usually from suffocation).

Oven manufacturers have knownabout the hazard of oven tipping sincethe early 1970s. Even with this knowl-edge, the industry has done very littleto reduce or eliminate this solvableproblem. Numerous alternative designsare available. One alternative design isa breakaway door. When too muchweight is applied, the oven door willsimply fall to the ground preventing atip over. Another alternative design isthe side-opening or slide oven door. Aside-opening or slide oven door wouldeliminate the most common tippingmechanism, an open oven door. Themost simple and commonly usedmechanism to prevent oven tipping,however, is an anti-tipping device. Ananti-tipping device is a small metalmechanism attached to the wall behindthe oven. If used, it prevents the rangefrom tipping over even if enoughweight to cause the oven to tip isplaced on an open oven door. Anti-tipping devices are inexpensive andeffective. But, they can only preventtip-overs if they are installed properly.All too often, anti-tip devices are eithernot installed or are not properlyinstalled.

Oven tipping is a serious hazard

because virtually every home in theU.S. has an oven. Consumers shouldverify whether the risk of oven tippingexists in their homes. A simple test canverify whether the hazard exists.Simply open your oven door and placeyour foot on the door. If the oven tipsup, an anti-tip device is either notinstalled or is not properly installed. Asdemonstrated above, a tipping oven isdangerous to household members andcould lead to serious injury or evendeath. With the risk of injury and evendeath being great, eliminating the riskis very easy and relatively inexpensive.

MORE NEWS ON TASER STUN GUNS

As most folks who keep up with thedaily news already know, there is agreat deal of attention being paid to theuse of Taser stun guns by law enforce-ment personnel. Recently, a lawsuit wasfiled involving the September death ofa 21-year-old man who was allegedlyshocked with a stun gun. In that case,the manufacturer, Taser International, isaccused of knowingly marketing a dan-gerously defective weapon as being“safe and non-lethal.” The product lia-bility lawsuit, which was filed on behalfof the decedent’s infant son, adds to thegrowing controversy about Taser stunguns. According to Amnesty Interna-tional, 94 people have died in theUnited States and Canada after beingshocked with stun guns. Amnesty iscalling for a moratorium on Taser useuntil independent medical researchresolves safety concerns.

Tasers fire twin metal barbs that emita 50,000-volt charge into a suspect,causing him or her to collapse from lossof muscular control. The manufacturerhas maintained that the stun gun doesnot generate enough electrical currentto disrupt the heart. These guns haveproved to be very popular with lawenforcement personnel and appear tobe very effective in dealing with thecriminal population in this country. Nev-ertheless, the controversy over thesafety factor relating to Tasers continues.


SUIT OVER MICHIGAN-MADE SAFETY VESTSHEADED TO ARKANSAS COURT

A federal judge has ruled thatArkansas’ lawsuit against the manufac-turer of a material used in Michigan-made bulletproof vests will be heard inan Arkansas state court. U.S. DistrictJudge J. Leon Holmes ruled that,although the Central Lake, Michigan,company that made the vests is reor-ganizing its debt in federal bankruptcycourt, Arkansas’ claims against Toyoboof America and Toyobo Corp., cancontinue and should be heard in astate court. Second Chance BodyArmor produces body armor primarilyfor use by law enforcement agencies.Toyobo makes Zylon, a lightweight,ballistic-resistant fiber. Tests showedthat Zylon could deteriorate after expo-sure to natural elements. SecondChance discontinued a line of productsused with the material and offered awarranty program.

Arkansas Attorney General MikeBeebe sued Second Chance andToyobo in state court in 2003, allegingthe companies violated the stateDeceptive Trade Practices Act. SecondChance filed for bankruptcy protectionlast year. This stopped all court actionagainst the company. Toyobo peti-tioned to have the Arkansas case trans-ferred to the federal court for westernMichigan. General Beebe filed amotion seeking to have the case keptin Arkansas but said if the case were tobe sent to federal court, the statewould not object to having the casetransferred to Michigan. Toyobo saidthe decision should be left to theMichigan bankruptcy court. But JudgeHolmes said in his ruling that Toyobocannot make a claim under bankruptcylaw because it did not file for bank-ruptcy. While Second Chance’s bank-ruptcy might be related, the claims thatthe state of Arkansas made againstToyobo are solely state court claims.

Judge Holmes also said he wasbound under the law to send the caseback to Pulaski County, Arkansasbecause Toyobo’s action did not arise

in or under the bankruptcy case, andbecause the state court could addressthe case relatively quickly. Toyoboacknowledged that tests show Zylonloses 10% to 20% of its durabilitywithin two years of manufacture. Butthe company insisted the fiber workswell in body armor that is properlyconstructed. Lawsuits have also beenfiled in Arizona, Connecticut, Georgia,Illinois, Massachusetts, Minnesota,Pennsylvania, and Texas.Source: Associated Press

IX.MASS TORTSUPDATE

MASS TORTS SECTION

Our Mass Torts Section, headed byAndy Birchfield, has been extremelybusy over the past several months andit doesn’t appear that things will slowdown in the foreseeable future. TheSection continues to manage a largenumber of cases that are coming in asa result of the Vioxx withdrawal andthe bad news regarding Celebrex. TheSection’s lawyers and support staff arealso handling other claims involving anumber of well-known defectivemedical products or pharmaceuticals.The following will give our readers anoverview on some of the things thatthe Section is currently doing:

• Baycol: This medication was pre-scribed to treat high cholesterol.Baycol was removed from themarket in August of 2001 due toreported toxic, and sometimes fatal,adverse events relating to muscledeterioration, cell breakdown, andkidney failure. We are currentlyinvestigating, litigating, and/or set-tling claims involving serious injuryor death.

• Bextra: Bextra is one of many drugsknown as non-steroidal anti-inflam-matory drugs (NSAIDs). Bextra, Cele-brex, and Vioxx are all classified as

COX-2 inhibitors. COX-2 inhibitors,like older NSAID drugs such asibuprofen and naproxen, work todecrease swelling in affected joints.Bextra has been linked to the sameproblems as Celebrex and Vioxx—serious thrombotic cardiovascularadverse events, in addition to SJS, acondition described below. As withCelebrex and Vioxx, we are currentlyinvestigating claims involving seriousinjury or death.

• Celebrex: Celebrex, like Bextra andVioxx, is another popular andheavily advertised and prescribedarthritis drug. Based on an analysisof data from previous clinical trials,physicians/researchers from theCleveland Clinic identified anincrease in the risk of what the studyrefers to as “serious thrombotic car-diovascular adverse events,” includ-ing heart attack, stroke and suddenand unexplained death related toCelebrex and other NSAIDS. TheCleveland Clinic physicians that con-ducted the study state that they havetried unsuccessfully to have the man-ufacturers of these drugs look intothese concerns further. Despite thisalarming data, an FDA panel recentlyvoted to allow Celebrex to remain onthe market. Meanwhile consumersremain at risk of heart attack andstroke. Our firm is currently investi-gating and litigating claims involvingserious injury or death.

• Crestor: Crestor is a member of aclass of drugs commonly referred toas “statins” and is used to lower cho-lesterol. AstraZeneca originally filedits application with the Food andDrug Administration (FDA) in Juneof 2001. This application wasdelayed because of safety concernsrevealed during clinical trials, whichincluded reports of kidney damageand rhabdomyolysis, a potentiallylife-threatening condition that causesmuscle cells to breakdown. We areinvestigating cases involving theseinjuries.


• Ephedra: Based upon mounting evi-dence of its relationship to heartattack, heart arrythmias, strokes, anddeath, the FDA recently ordered theremoval of ephedra-containing prod-ucts from the market. We welcomethe opportunity to investigate andpursue claims for people who havesuffered serious injury or death as aresult of taking products containingephedra.

• Guidant Ancure Endograft System:This device was manufactured andintroduced by EndoVascular Tech-nologies (EVT), a subsidiary of theGuidant Corporation, and was usedto repair abdominal aorticaneurysms. EVT received approvalfrom the FDA for Ancure® in Sep-tember 1999 and first recalled theproduct in March 2001, severalmonths after seven anonymousemployees reported the failures andproblems with the Ancure® systemto the FDA. After pleading guilty to10 felony counts and paying morethan $90 million in federal penaltiessurrounding their failure to reportmore than 2,600 incidents of prob-lems with the device, includingdeaths and serious injuries, EVTreported last year that they would nolonger be manufacturing the device.We are currently investigating and lit-igating these cases.

• Hormone Therapy (HT): For years,women have taken hormone therapy(HT) to reduce the symptoms ofmenopause. Studies now show thatHT medications such as Prempro canincrease the risk of breast cancer,ovarian cancer, stroke, and heartdisease. We are currently investigat-ing and litigating these types of casesagainst the manufacturers of HTmedications.

• Phenylpropanolamine (PPA): PPAis an active ingredient that was foundin many over-the-counter cold,cough, allergy, and diet aids. It wasremoved from the market on Novem-ber 6, 2000, after an industry-funded

study performed at the Yale Univer-sity Medical School demonstratedthat products containing PPAincreased the users’ risk of sufferinghemorrhagic strokes. Earlier researchsupports claims of non-hemorrhagicstrokes being related to this activeingredient as well. We are currentlyinvestigating, litigating, and/or set-tling claims involving serious injuryor death.

• Serzone: Serzone is an anti-depres-sion drug. While this product stillremains on the market, the FDArecently instructed the manufacturerto include a black box warning on itslabel because of the side effectsinvolving the liver. A black box is thestrongest warning available to con-sumers short of removing theproduct from the market. We are cur-rently investigating and litigatingclaims involving liver injury or death.

• Smith & Nephew Knee Replace-ments: In September 2003, Smith &Nephew announced a voluntaryrecall of two of their knee replace-ments products. The productsincluded in the recall are the cementless versions of the Oxinium GenesisII and Profix II. The complicationsstem from the products not bodingproperly. We are investigating claimsinvolving these particular devices.

• Stevens-Johnson Syndrome (SJS):SJS is an immune complex reactionthat can be caused from an infectionor immune response to pharmaceuti-cals. It is a severe expression of asimple rash known as erythema mul-tiforme. It affects all ages andgenders. The most severe form of SJSis toxic epidermal necrolysis (TENS).We are currently investigating andsettling claims of SJS or TENS.

• Vioxx: While the recent withdrawalof Vioxx from the market may makeit seem like new litigation, our firmhas been working on these cases forover three years. In fact, we filed ourfirst Vioxx case in November 2001and, since then, have filed nearly

sixty cases. Furthermore, we are cur-rently preparing to file hundredsmore. Discovery efforts in our law-suits have allowed us to review hun-dreds of thousands of documentsand take approximately 30 deposi-tions. Moreover, we have retainedworld-renowned experts and are setfor the first Vioxx trial in the countryin May of this year. We are interestedin investigating and litigating claimsinvolving heart attack or stroke.

• Welding Rods: Not long ago, amedical journal study noted a possi-ble link between exposure towelding fumes and Parkinsonism. Wewelcome the opportunity to investi-gate and pursue claims of peoplewho have been exposed to weldingfumes and have tremors, troublewalking, loss of balance, slurredspeech, or stiff or weak muscles, orhave been diagnosed with Parkin-son’s Disease.

• Zyprexa: This is an atypical anti-psychotic drug used for the treatmentof schizophrenia and bipolar mania.In September of 2003, the FDAinstructed all manufactures of thistype of drug to add a warning to theproduct label due to a link betweenusage and the serious side effects ofdiabetes mellitus and blood sugardisorders such as hyperglycemia, dia-betic ketoacidosis and pancreatitis.We are currently investigating claimsinvolving serious injury or death.

We are working with a number oflaw firms in the litigation areas men-tioned above. We have establishedsome excellent working relationshipswith a number of very good law firmsaround the country and look forwardto working with many others in thecoming months. For additional infor-mation on any of these specific areasof litigation and others the firm is cur-rently working on, please visit ourwebsite at www.beasleyallen.com. Lotsof good information can be foundthere, all of which we believe can behelpful.


VIOXX MDL—LIAISON COUNSEL NAMED

As previously reported, the Vioxxmulti-district litigation (MDL) precedingwill be located in the U.S. District Courtfor the Eastern District of Louisiana inNew Orleans. U.S. District Court JudgeEldon Fallon will preside over all theVioxx cases filed in federal courtsacross the country. Judge Fallonrequested plaintiffs’ attorneys to recom-mend liaison counsel, and four nameswere submitted to the court for consid-eration. From that list, Judge Fallonappointed Russ Herman, an outstand-ing New Orleans lawyer, to serve asliaison counsel. Russ is a senior partnerwith Herman, Herman, Katz & Cotlar,L.L.P. He is also Chairman of the Boardof Directors of Herman, Mathis, Casey,Kitchens & Gerel, L.L.P., a national firmwith offices in Atlanta, Georgia. Russwas chosen “Outstanding Trial Lawyer”in 1977 by the Louisiana Trial Lawyer’sAssociation. He served as President ofATLA from 1989 to 1990. Russ hasreceived a number of national awardsand is extremely well-respected by hispeers. His many accomplishments andvast experience will certainly be assetsto the Court and to all of the partiesinvolved in this most important litiga-tion. I believe that the court’s appoint-ment of liaison counsel is a good one.We look forward to working with Russin this litigation.

FIRST VIOXX HEARINGS IN NEW ORLEANS

The first hearing was held in theMDL, which will involve all of thefederal court cases, on March 18th inNew Orleans. It was the first realhearing before Judge Fallon and wasmainly a planning session. All of thepretrial motions and discovery infederal liability cases involving Vioxxwill be before Judge Fallon. More thana thousand lawsuits have been filed sofar. The plaintiffs’ steering committeewill be appointed and will work withthe judge and Merck to facilitate thehandling of the cases. Things such asthe taking of depositions and gathering

of documents for evidence will becoordinated by this committee in theMDL. We expect more than 100lawyers to apply for selection on thecommittee. Judge Fallon is expected toselect between 8 and 14 attorneys.Judges customarily select lawyers withextensive experience in product liabil-ity, who represent a number of plain-tiffs in the case, and whose firms havethe financial ability to fund their partic-ipation in a complex case of this sort. Itis expected that two lawyers will beappointed as co-lead counsel by thecourt in the near future.

There were 1,357 product liabilitylawsuits filed against Merck as ofMarch 9, 2005, according to papers thecompany filed with the court. Of those,127 have been moved to Judge Fallonand more than 400 others are expectedto follow and wind up in his court.After all the pretrial activities, thefederal cases will be returned to theiroriginal jurisdictions for trial. Our firmwanted all of the cases to be placedunder one judge for pretrial motionsand the handling of complex discoveryissues. With cases of this magnitudeand complexity, it just makes goodsense to go that route. It is expectedthat the federal case will take longer toget to trial because of the number ofcases and lawyers involved. Two statecases are slated to begin trial in May.We have a May 23rd court date inAshland, Alabama, and a case sched-uled to begin May 31st in Angleton,Texas, involving a 59-year old manwho died of a cardiac arrhythmia whiletaking Vioxx.

FIRST VIOXX CASE TO BE TRIED IN ALABAMA

Our firm is scheduled to try the firstVioxx case in the United States. Thiswrongful death case will be tried inClay County, Alabama, starting on May23rd, before Judge John Rochester, aveteran circuit court judge. The caseinvolves the death of a 43-year-oldmarried man, with no known healthproblems, who died from a massive

heart attack after taking Vioxx for a rel-atively short period of time. We arelooking forward to this trial. The judge,who has the reputation of running avery “tight ship,” has told both sides toget ready and that the case won’t becontinued. We are working hard andwill be ready to go.

CONGRESS MUST CLEAN UP THE DRUGINDUSTRY

In my opinion, Congress must actpromptly to clean up the drug industry.To accomplish all that needs to bedone, a major reform of the Food andDrug Administration (FDA) must alsotake place. The FDA has operated foryears more as an extension of the pow-erful drug industry than it has as astrong regulator of the drug companiesand a defender of public safety. Thatmust be changed. Finally—because ofintense public pressure—the agency istaking some steps. Some of the thingsdone so far—even though late incoming—seem to be fairly good. Forexample, to help get information to thepublic more quickly when safety ques-tions arise for a new drug, the FDA isnow developing plans for a DrugWatch webpage. Side effects and prob-lems will be communicated directly tothe public and to doctors, bypassingthe kinds of negotiation delays thatoccurred with Merck over Vioxx. Thismay be more spin than substance, butat least it shows that the FDA is feelingthe heat from the public.

Clearly, the FDA must change themethods it uses to approve new drugsand oversee their safety. The public isaware that the pharmaceutical industryhas been beset by a series of mostserious safety questions. They rangefrom heart problems linked to theCOX-2 inhibitors, to the use of antide-pressants by adolescents. In fact, thereality of the problems actually readsmore like fiction. Unfortunately, theproblems and shortcomings are veryreal, with tragic consequences. Fewfolks had any idea things were so bad.

Congress is currently exploring a


range of legislation to address safety. Abill introduced by Senators ChuckGrassley (R-IA) and Christopher Dodd(D-CR), would force drug companies tomake information from their clinicaltrials public, including negative resultsthey often don’t want to publicize. TheFDA must be given authority to orderadditional clinical trials if safety ques-tions come to light once a drug is onthe market. The congressional hearingsheld recently on the Cox-2 inhibitorshas really helped focus attention onhow weak and ineffective the FDAreally is.

Part of the FDA’s problems arecaused by inadequate funding. Theagency has asked for $33.4 million—a$6.5 million increase—in the budgetfor its office of drug safety for nextyear. Sufficient funds must be appropri-ated so that the FDA can fully carry outplans to improve drug safety monitor-ing. The American people are demand-ing that the drug industry be cleanedup. This will require major reforms atthe FDA. Failure to take action in Con-gress may cost some politicians at thepolls next year.Source: USA Today

FDA’S WHISTLE-BLOWER CRITICIZES NEWDRUG SAFETY OVERSIGHT BOARD

You will recall that the U.S. Food andDrug Administration (FDA) announcedin February that it would create a newindependent Drug Safety OversightBoard. According to the FDA, the newBoard will oversee “the management ofdrug safety issues and provide emerg-ing information to health providers andpatients about the risks and benefits ofmedicines.” The creation of the Boardcame about in response to numerouscharges that the FDA has repeatedlyfailed to protect the public from dan-gerous drugs and their side effects. Theannouncement came on the eve of thethree-day meeting that discussed thesafety of Vioxx and several otherpainkillers.

The members, who will come fromthe FDA along with medical experts

from other HHS agencies and govern-ment departments, will be appointedby the FDA Commissioner. The Boardis expected to consult with othermedical experts and representatives ofpatient and consumer groups.

The jury is also out on how effectivethis new Board will be. Based on ourexperience with the FDA and the drugindustry, the lawyers in our Mass TortsSection are skeptical about this new“independent” Oversight Board. Ourfirm is not alone in this skepticism. Dr.Bruce M. Psaty, a professor of medi-cine at the University of Washington,said “the FDA lacks authority once adrug is approved and on the market todo some basic things that are necessaryto protect the public health.” Dr. Psatyco-authored an editorial about drugsafety that was posted online by TheNew England Journal of Medicine thesame day the FDA announced the newOversight Board. The editorial calls forCongress to give the FDA authority torequire drug manufacturers to com-plete post-marketing studies that areagreed upon at the time of approval.The editorial further states that “theFDA currently engages in protractednegotiations with manufacturers ratherthan mandating” that the companiestake certain actions after approval. Theeditorial writer concludes by sayingthat “provisional approval and regularrepeated review would provide oppor-tunities to reevaluate risk and benefit.”Dr. Psaty claims that the Board “ispotentially a part of a solution, but itisn’t a solution.” I totally agree withthat assessment.

Other detractors are even harsherand with good reason. Dr. SidneyWolfe, director of Public Citizen HealthResearch Group, stated that the drugsafety board “is doomed to fail.” Dr.Wolfe believes the problem is with theFDA’s Office of Drug Safety, whichmonitors drugs after they are on themarket. He believes that office mustwork too closely with the Office ofNew Drugs, which puts the drugs onthe market. Also, Dr. David Graham,the FDA whistle-blower who really

brought the issue of unsafe drugs andthe problems with the FDA to the fore-front of public opinion, doesn’t believethat the board will do much good. Dr.Graham observed:

It’s an important admission at thehighest levels that the FDA hasn’thandled drug safety up to now, butit won’t address the root causes ofthe problem. Until drug safetybecomes as important as approvingdrugs quickly, the fundamentalproblem will remain and unsafedrugs will continue to be approvedand will stay on the market.

Hopefully, creation of this Board willprove to be a step in the right direc-tion. At least, it will give the FDA theopportunity to break its ties with thepharmaceutical industry and have atrue independent panel monitoringdrugs once they are placed on themarket. However, given the currentmentality and make-up of the FDAwith former pharmaceutical companyinsiders, this happening is highlyunlikely. For example, Dr. Lester M.Crawford, the acting FDA commis-sioner, stated that the agency now“understands that the public expectsbetter and more prompt information.”While I respect Dr. Crawford, the FDAshould have understood this simplefact long before now. The FDA has anobligation to the public on drug safetyand it has largely failed to meet andlive up to its responsibilities. I firmlybelieve that it’s time for major changesin the structure and funding of thismost important agency.

FDA SEEKS DRUG-WARNING-LABELAUTHORITY

Prior to all of the recent revelationsconcerning the drug industry, I suspectthat most folks in this country believedthat the Food and Drug Administration(FDA) had the legal authority to decidewhat warnings are to be put on druglabels. But, the FDA has no suchauthority and that is absolutely impos-


sible to justify. This should come as ashock to anybody who is taking pre-scription medications. This simplypoints out how weak and ineffectivethe government’s sole regulatoryagency over drugs has been. Finally, atlong last, the government is askingCongress for authority to dictate labelchanges for drugs. Heretofore, the FDAhad to bargain with pharmaceuticalcompanies over the labeling for a drug.This includes both “wording” and“placement.” In a tragic case in point,this type of haggling delayed warningsto Vioxx users about potential heartproblems. Dr. Sandra L. Kweder, FDA’sdeputy director for new drugs, told theSenate Committee on Health, Educa-tion, Labor, and Pensions recently thatthe ability of the FDA to requirechanges in labels “would be helpful.”

It was disclosed that after the danger-ous side effects of Vioxx were known,negotiations between the FDA and itsmanufacturer, Merck & Co., over whata warning should say, delayed gettingthe information out to doctors and thepublic. Dr. Kweder admitted to theSenate panel: “The lapse from my per-spective was the delay that it took toget that information into the labeling.We had to negotiate with the companyhow the specific language should beworded.” If this doesn’t shock folkswho read this admission by a top FDAofficial, I will be greatly surprised. It isvery hard to believe that Congress hasnever given the FDA the authority todictate what warnings should beplaced on drugs sold in the U.S. It iseven more shocking to learn that theFDA has never even asked Congress togive it that authority. Nevertheless,there can be no excuse for Congressallowing this situation to exist. Con-gress is now considering legislation totighten rules on how the governmentkeeps track of the safety of drugs afterthe FDA approves them. It should alsogive the FDA authority to adequatelyregulate the drug industry and to dothis Congress must give them all of thetools necessary for the agency to dotheir job. The Bush Administration’s

announcement in February that it wassetting up an independent Drug SafetyOversight Board to monitor FDA-approved medicines once they’re onthe market and update physicians andpatients with emerging information onrisks and benefits was helpful. Unfortu-nately, not only was this very late incoming, it was also not nearly enough.The President should do the right thingand make reforming the FDA a top pri-ority in his congressional agenda. Thiswill require disappointing his bigdonors from the pharmaceutical indus-try that may prove to be a majorproblem.

The authority to dictate the labelinglanguage is badly needed by the FDA,and Congress should act immediatelyto cure this deficiency. The public isnow well aware of the serious prob-lems Vioxx and the other Cox-2inhibitors—Bextra and Celebrex –havecaused. It is inconceivable that theFood and Drug Administration, afterclaiming for months that it did nothingwrong in its oversight of Vioxx, cannow admit “lapses” in the agency’sactions. Most witnesses testifyingbefore the panel, the Senate Committeeon Health, Education, Labor and Pen-sions, said that the FDA should havethe authority to force label changesand make companies conduct tests ifsafety issues arose after a drug wasapproved. Dr. Steven Galson, the direc-tor of the new drug center, admittedafter the Senate hearing that the FDAhad never requested new authorityover labels. Clearly, the agency tooktoo long to get information aboutVioxx’s heart risks into the prescribinglabel that is provided to doctors. Notonly did Merck misled consumers, italso misled medical doctors whotrusted the company and also believedthe FDA was doing its job.

We have clients whose loved onesdied during the year while the FDAand Merck were negotiating behindclosed doors. Millions of people tookVioxx in the years after its risks to theheart became apparent to both themanufacturer and the FDA. As a result,

as many as 55,000 patients have diedfrom heart attacks and strokes inducedby the drug. In fact, I predict thenumber of deaths attributed to Vioxxwill be much greater once all of theinformation is in. I also predict that Dr.Kweder’s admission will cause greatdifficulties for Merck in litigationagainst the company. To date, thou-sands of patients have filed suitsagainst Merck.

FDA WARNING ON CRESTOR

Crestor (the cholesterol drug) isbeing relabeled to add a caution thatstarter doses should be reduced inAsian-Americans and some otherpatients. The Food and Drug Adminis-tration announced that Crestor, likeother statins, can have a rare side effectof serious muscle damage. A clinicaltrial found that levels of Crestor inAsian patients were double those ofCaucasians taking the same dose,increasing the chance of muscledamage. The new label urges medicaldoctors to start Asian patients, personswith severe kidney disease, andpatients taking cyclosporine at thelowest dose level. The lowest availabledose would be 5 milligrams, comparedwith a maximum dose of 40 milligrams.To date, there have been more than 4.3million Crestor prescriptions forpatients, according to manufacturerAstraZeneca.

The FDA’s stated intent is to notifythe public of “potentially significantemerging safety data so that they canmake more informed choices abouttheir medical care.” As previouslyreported, Crestor has drawn strong crit-icism for the reported muscle damage.Overall, the FDA said it believes thebenefits of statin drugs, when used asrecommended, outweigh their potentialrisks. Based on the knowledge wehave acquired in handling actual casesand the opinions of well-respectedexperts in the field, we believe that theFDA is on shaky grounds in makingthis decision.


DR. WOLFE ON CRESTOR

The FDA’s announcement of therevised label of Crestor does very littlefor folks who trust the FDA and whoneed help with cholesterol problems.While at first blush, the label changesappear to be a step in the right direc-tion, many consumer groups felt theyfell short and weren’t enough. Forexample, Dr. Sidney M. Wolfe, Directorof the Health Research Group at PublicCitizen, wasn’t overly impressed. Thefollowing is Dr. Wolf’s statement on thesubject in its entirety, which I believemakes the case against Crestor and theFDA very well:

Today’s announcement by the U.S.Food and Drug Administration(FDA) concerning revised labelingof the cholesterol-lowering drugCrestor is yet another example ofthe agency’s dangerous cowardicein failing to adequately protectpeople in this country fromuniquely dangerous prescriptiondrugs. Like statements fromAstraZeneca, the FDA’s statement isreplete with false and misleadinginformation. Rather than respond-ing in a public health-positivemanner to our March 2004 petitionand banning this drug, the FDAhas done exactly what AstraZenecawanted with minimal labelingchanges and surely has pleased oneof the drug companies contributingto the $150 million in drug indus-try funding that the FDA is receiv-ing this year for drug review.

Since the last supplement to ourpetition to ban Crestor (submittedin October 2004), which was basedon adverse reaction reports throughAugust 26 of last year, there havebeen an additional 52 U.S. cases oflife-threatening muscle damage(rhabdomyolysis) reported to theFDA and an additional 12 U.S.cases of kidney failure or impair-ment in people not having rhab-domyolysis reported to the agency

up to the end of January of thisyear. The total of such U.S. casesreported since the drug was firstmarketed in September 2003 is now117 cases of rhabdomyolysis and41 cases of kidney failure, bothhigher than seen with the other cur-rently marketed statins. Because of concerns about the safety ofCrestor, several countries, includ-ing Germany, Norway and Spain,have not approved the drug.

Although the increased rate ofrhabdomyolysis is not as high asthat of the now-banned Baycol, theFDA is well aware that the rate ishigher than that of the otherstatins, a fact it covers up by sayingthe rate is “similar.” The FDA state-ment also includes other “facts”that are extremely misleading ifnot false:

• FDA Statement: “Data available todate from controlled trials, as well aspost-marketing safety information,indicate that the risk of seriousmuscle damage is similar withCrestor compared to other marketedstatins.”

Response: Crestor was the onlystatin that caused rhabdomyolysis atany dose in clinical trials prior toapproval. (The cases occurred at 80mg, a dosage not approved, but mostof the post-marketing cases are occur-ring at 10 or 20 mg.)

• FDA Statement: “Mild, transientproteinuria (or protein in the urine,usually from the tubules), with andwithout microscopic hematuria(minute amounts of blood in theurine), occurred with Crestor, as ithas with other statins, in Crestor’spre-approval trials.”

Response: Although the FDA admitsthat with Crestor, “The frequency ofoccurrence of proteinuria appeareddose-related,” it fails to mention thatthis dose-related increase in protein-uria and hematuria (blood in the

urine) was seen only with Crestorand not with any other statin.

• FDA Statement: “In clinical trialswith doses from 5 to 40 mg daily, thiseffect was not associated with renalimpairment or renal failure (i.e.,damage to the kidneys).”

Response: (from FDA medicalofficer during the July 2003 FDAhearing on Crestor approval): “Thesethree cases of renal insufficiency ofunknown etiology are of concernbecause they present with a clinicalpattern, which is similar to the renaldisease seen with rosuvastatin inthese clinical trials.... Proteinuriaand hematuria could be potentiallymanaged with regular urinalysisscreening. However, if they are thesignals for the potential progression torenal failure in a small number ofpatients, this may represent an unac-ceptable risk since currently approvedstatins do not have similar renaleffects.” (emphasis added)

Rather than being a “Public HealthAdvisory,” as the announcement istitled, this FDA statement is morelike an AstraZeneca Health Advi-sory. In its inability to serve twomasters, the FDA has sided onceagain with its funders in the drugindustry.

Of course, the labeling issue men-tioned above shouldn’t even be on thetable for discussion. With all of theavailable information, the FDA shouldhave already banned Crestor. But, asstated above, the federal agency hasrejected Public Citizen’s petition toremove Crestor from the market, eventhough Dr. Wolfe had petitioned theagency to remove the drug from sale.He made a strong case citing reports ofmuscle toxicity and kidney damage.Obviously, the FDA doesn’t believe thatCrestor poses any greater risk of muscledamage than other cholesterol drugs,called statins, now on the market.Neither is the agency too worried aboutthe kidney problem area. Refusing toban Crestor will prove to have been a


major mistake, in my opinion.Sources: Associated Press and Public Citizen

WYETH PREMPRO USERS CAN SUE AS AGROUP

A Florida state court trial judge saysthat as many as 300,000 women cansue Wyeth as a group over claims thatthey were injured by Wyeth’s Premprohormone replacement therapy. JudgeLawrence Schwartz, based in Miami,ruled that the women may jointogether in the lawsuit that seeks toreceive court-supervised medical moni-toring for future injuries due to thedrug. In 2002, researchers linked thedrug to increased risks of heart diseaseand stroke. This was one of the firstfiled after the 2002 release of Women’sHealth Initiative Study. It was also thefirst lawsuit nationally to get classaction clearance. There are at least 20competing class action lawsuitspending that haven’t been certified.Wyeth wasted no time in appealing theconsolidation order. Source: Bloomberg News

BIOGEN AND ELAN SUSPEND MARKETING OFMS DRUG

Biogen Idec Inc. and Elan Corp. havevoluntarily withdrawn Tysabri, a drugused to treat multiple sclerosis, fromthe market. This came after one patientdied and another developed a seriousdisease of the central nervous systemafter taking the drug in combinationwith another drug. The companies saidin a news release that they have sus-pended supplying and marketing thedrug. They also advised doctors tosuspend prescribing the medicationand stopped using the drug in clinicaltrials. In total, about 3,000 patientshave been treated with Tysabri in clini-cal trials of multiple sclerosis, Crohn’sdisease, and rheumatoid arthritis. Sources: Wall Street Journal and Los Angeles Times

FDA VOWS TOUGH TREATMENT FORDRUG ADS

A Food and Drug Administration offi-cial who reviews prescription drug adsfor accuracy has told a marketing groupconference that the industry has ”gonetoo far” on its advertising. While that isgood to hear, I have to wonder why theFDA doesn’t actually do somethingabout it. Currently, the FDA is currentlyreviewing some 40,000 promotionalpieces a year. The official said the FDAwas concerned about the direction con-sumer advertising seems to be taking.”These comments were made at thedrug marketing industry’s DTC Nationalannual conference in Boston. I hopethe FDA will now take a tougher stanceon drug advertising. Dr. Lester Craw-ford, the new administrator, has prom-ised closer scrutiny of claims in drugads. Only time will tell how Dr. Craw-ford defines “tough” and how he willfollow up on his comments.

FDA officials have announced thatthe agency will draw up a new set ofvoluntary guidelines to help manufac-turers strike a “fair balance” betweenpromotion of benefits and explanationof risk. The new position by the FDAfollows years of criticism that theagency has not done enough to protectthe public from misleading marketingcampaigns about powerful medicationswith sometimes life-threatening sideeffects. This new position—eventhough pretty weak—does represents astronger regulatory stance from a yearago. At that time, a thorough review ofdrug advertising resulted in no changeto the status quo.

Because of the legal requirements, thedrug company advertisements do theminimum required—within a fewseconds they explain every possible riskunder the sun—and when it’s all overno one understands a thing about therisks. Frankly, I can see no justificationfor allowing a drug company to aggres-sively promote a drug with a massivetelevision ad campaign. Clearly, therisks associated with a drug should becommunicated to the ultimate user. The

companies should educate doctors andpharmacists as to the benefits and risksassociated with the drugs. This is doneusing written advisories and communi-cations by detail persons.Source: The Boston Globe

X.BUSINESSLITIGATION

MICROSOFT FINALLY WINS ITS CASE

A U.S. federal appeals court has over-turned a $521 million patent infringe-ment ruling against Microsoft andordered a retrial. The ruling is a secondblow to private firm Eolas Technologiesand the University of California, whichmaintain that Microsoft’s InternetExplorer Web browser infringed ontechnology they developed. As you willrecall, last year Microsoft won a rulingby the U.S. Patent and Trademark Officethat threw out a similar claim by theplaintiffs. The latest decision says two ofMicrosoft’s key arguments had beenignored by the court in the original trial.

CITIGROUP SETTLES LAWSUIT

Citigroup, the world’s largest finan-cial-services company, is paying $75million to settle a lawsuit brought byinvestors over its role in the collapse oftelecom network-provider GlobalCrossing. Citigroup, which was one ofGlobal Crossing’s bankers, was accusedof issuing inflated research reports andfailing to disclose conflicts of interest.Citigroup denied any wrongdoing, butwill pay out $75 million in the settle-ment. Last year, the company agreed topay $2.58 billion to settle a similar classaction lawsuit involving WorldCom.

AMAZON PAYS $27.5 MILLION TO SETTLESECURITIES SUIT

Amazon.com Inc. has agreed to pay$27.5 million to settle an investor


lawsuit alleging securities violations byits officers and directors. According toits annual report filed with the Securi-ties and Exchange Commission, theSeattle-based Internet retailer said itreached a settlement with plaintiffs’lawyers in March. It appears that most,if not all, of the settlement will fundedby the company’s liability insurers. Thelawsuit filed by stock and bond holdersin August 2003, alleges, among otherthings, that Amazon officers and direc-tors made false or misleading state-ments from October 29, 1998 throughOctober 23, 2001, about the company’sbusiness, financial condition and futureprospects. The settlement must beapproved by the court. It should benoted that the settlement, which mustbe approved by the court, does notresolve complaints filed in 2001 byAmazon investors alleging thecompany made false or misleadingstatements in connection with a Febru-ary 2000 offering of convertible bonds.The company says it hasn’t done any-thing wrong and denies all allegationsmade against it.Source: The Wall Street Journal

XI.INSURANCE ANDFINANCE UPDATE

FLORIDA LAWSUIT ACCUSES CHUBB ANDPRUDENTIAL OF BID-RIGGING AND PRICE-FIXING

Two dozen insurance companies orinsurance brokers that do business inFlorida have filed suit against severalinsurance companies, including theChubb Corp. and Prudential FinancialInc., accusing them of price-fixing andbid-rigging. The suit alleges that theinsurers paid independent agents asecond commission, or “contingentcommission,” to lock up more busi-ness. As I understand it, independentagents are supposed to work strictly fortheir clients and are bound to sell theinsurance policy that best fits their

client’s specific needs. The suit allegesthat this second commission causesagents to push the insurance line thatpays them what amounts to a “kick-back.” It accuses the insurers andbrokers of racketeering, bid riggingand anti-competitive behavior.

The suit alleges further that, as a con-sequence of the wrongful conduct, cus-tomers—all of them businesses—havebeen cheated out of “hundreds of mil-lions, if not billions, of dollars” since1994. These are the same allegationsthat New York Attorney General EliotSpitzer made four months ago, whenhe launched his investigation. As youknow, the New York AttorneyGeneral’s office has won guilty pleasfrom nine insurance company or insur-ance brokerage executives, includingthose associated with two of the com-panies named in the Florida suit.Shortly after General Spitzerannounced his investigation, FloridaAttorney General Charlie Crist beganone of his own. The Florida AttorneysGeneral office has issued subpoenas tonearly two-dozen insurance companiesand brokers. The Florida suit was filedin state court by Palm Tree ComputerSystems Inc., (a small Oviedo, Floridacompany that sells and services com-puters and provides Web page designand hosting) and Delta Research Insti-tute Inc., (a Longwood, Florida finan-cial-research company). Source: Insurance Journal

CONSECO POLICYHOLDERS HALT NON-OPTOUT CLASS ACTION

Last October, a state District Court inCameron County, Texas, preliminarilyapproved a class action settlement onbehalf of approximately 28,000Conseco Life Insurance Company poli-cyholders. This was in the class actionlawsuit against Conseco Life InsuranceCompany and Conseco Services, LLC.The original complaint in the casealleged that Conseco fraudulentlyexchanged older policies for a newConseco product, which Consecoclaimed, was a “better deal” for the pol-

icyholders. But, the class alleged thatthe policy exchange forced policyhold-ers to lose policy values and benefits.The class action included all UnitedStates residents who formerly ownedMassachusetts General Life InsuranceCompany or Philadelphia Life Insur-ance company flexible premiumadjustable life insurance policies andwhose polices were exchanged inConseco Life’s exchange program for aConseco Life flexible premium adjust-ment life insurance policy.

While class counsel for the Plaintiffsand Defendants did reach a tentativesettlement, the agreement included aprovision that precluded class actionmembers from “opting out” of the set-tlement. Typically, a nationwide classaction involving damages from insur-ance fraud contains a provision thatallows class members, on their owninitiative, to exclude themselves fromthe class action and pursue their ownindividual case. In most circumstances,due process requires that classmembers be given the right to opt out.But here, the preliminary settlementdid not give Conseco class actionmembers this right. Over eightymembers of the class action contactedour firm and expressed dissatisfactionwith the inability to exclude themselvesfrom the settlement. Accordingly, ourfirm objected to the class action onbehalf of these policyholders. As aresult of these objections, the Courtentered a subsequent Order on January31, 2005, which included a provisionallowing class members to opt-out andpursue their own individual cases ifthey chose to do so. This was a hard-fought battle and resulted in a very sig-nificant victory for our clients.

AON SETTLES CORRUPTION INVESTIGATION

New York Attorney General EliotSpitzer and Acting New York StateInsurance Superintendent HowardMills, together with Connecticut Attor-ney General Richard Blumenthal, Illi-nois Attorney General Lisa Madigan,and Illinois Acting Director of Insur-


ance, Deirdre Manna, reached anagreement with the nation’s secondlargest insurance brokerage to resolveallegations of fraud and anti-competi-tive practices. Under the agreement,the Chicago-based Aon Corporation isproviding $190 million over a 30-month period for restitution to policy-holders and is adopting a new businessmodel designed to avoid conflicts ofinterest. In addition, Aon’s Chairmanand CEO, Patrick G. Ryan, will issue apublic statement apologizing for Aon’simproper conduct, according to thestatement issued by Spitzer’s office.General Spitzer, in announcing the set-tlement, stated:

The underlying complaint in thiscase shows that improper conductwas pervasive at Aon. To its credit,however, the company has acknowl-edged the problems, has agreed tocompensate policyholders, and hasadopted reforms that will providegreater accountability in the future.

The agreement with Aon wasmodeled after an earlier agreementreached on January 31st with Marsh &McLennan Companies, the nation’slargest insurance broker, for $850million. The Aon complaint cites theinvolvement of Ryan in efforts toincrease placements with an insurancecompany in exchange for thatcompany’s use of an Aon subsidiary(Aon Re) for reinsurance brokering.The complaint also alleges that Michael O’Halleran, Ryan’s second-in-command, personally negotiated “claw-back” arrangements in which Aon Rewould provide insurers with discountsor rebates on its reinsurance commis-sions on the condition that Aon couldrecover or “claw back” these discountsthrough retail placements made withthe same insurers. Among the reformsadopted by Aon is a new policy inwhich the company will accept onepayment only for an insurance contractat the time of placement, and that itspayments will be fully disclosed to andapproved by Aon’s customers.

The civil complaint filed last month

in State Supreme Court in Manhattanand the citation issued by the NewYork Insurance Department allege thatfor years Aon received special pay-ments from insurance companies thatwere above and beyond normal salescommissions. These payments—knownas “contingent commissions”—werecharacterized as compensation for“services to underwriters” but were, infact, rewards for the business that Aonsteered and allocated to the insurancecompanies. Spitzer’s office and theInsurance Department have said theyhave uncovered evidence showing thatthe “practice distorts and corrupts theinsurance marketplace and cheatsinsurance customers.” In addition topromising to send business to its insur-ance company partners in exchange forcash payments, Aon also promised toplace business with insurers inexchange for the insurers’ agreementuse Aon’s reinsurance brokerage serv-ices, according to the charges by thestate Attorney General. GeneralSpitzer’s complaint against thecompany cites internal communicationsin which top executives openly dis-cussed these efforts to maximize Aon’srevenue and insurance companies’ rev-enues—without regard to Aon’s clients’interests. Aon will—under the terms ofthis settlement—bring greater trans-parency to the insurance marketplaceby providing significant disclosure toclients and instituting substantive cor-porate governance reforms. It appearsthat consumers will be the winners inthis settlement. Persons buying insur-ance need assurances that they arereceiving appropriate insurance prod-ucts at the best price. In connectionwith the settlement, Connecticut Attor-ney General Blumenthal said:

This hidden “pay to play’ schemeseverely hit both public and privatepurses, including ordinary con-sumers, towns and cities, taxpayers,and major educational institutions.Aon demanded kickbacks frominsurers in exchange for business,even as it was paid by customers.

The scheme inflated prices andstifled competition. Today’s actioncompels Aon to cease this illegal,unethical practice immediatelyand pay restitution.

The investigation revealed that AonCorporation accepted secret paymentsfrom insurers for steering them busi-ness. Aon’s acceptance of these secretpayments was a direct conflict of inter-est that harmed Aon’s clients. Aon’sacceptance of kickbacks was not onlyunethical, but also illegal. This settle-ment will guard against future conflictsof interest and help to return integrityto this industry. General Spitzer’s officeand the New York State Department ofInsurance are continuing a broadinvestigation of the insurance industry.As this issue went to the printer, 10executives from four companies hadpleaded guilty to criminal chargesstemming from the probe. I don’tbelieve Elliot Spitzer will be invited tomany insurance company Christmasparties this year. Source: Insurance Journal

SOME INTERESTING DEVELOPMENTS RELATINGTO ROA

Our firm is hard at work on the casepending in federal court that arose outof the Reciprocal of America (ROA)demise. You will recall that our firmfiled a civil lawsuit in the U.S. DistrictCourt in Memphis, Tennessee onbehalf of insurance regulators in Ten-nessee and Maryland. We allege in thecase that General Reinsurance Corpora-tion, a wholly owned subsidiary ofGeneral Re Corporation (Gen Re), wasone of four “principal leaders” of aconspiracy that ultimately resulted inthe collapse of ROA. There have beensome interesting developments thatshould certainly affect our case in apositive manner. We understand thatfederal prosecutors are now investigat-ing whether General Reinsurance Cor-poration, which also is an indirectsubsidiary of Berkshire Hathaway Inc.,played a lead role in helping ROA hide


details of its deteriorating financial situ-ation. As you will recall, General Rein-surance Corporation provided variousreinsurance coverage to ROA from thelate 1970s through 2002.

Criminal investigators are probingwhether General Reinsurance Corpora-tion, for more than a decade, helpedexecutives of the now-defunct ROAdisguise loans as reinsurance. As wehave previously reported, insurers usereinsurance to spread out their ownrisk. Investigators want to knowwhether General Reinsurance Corpora-tion aided an alleged program todeceive state regulators and ROA poli-cyholders with transactions dating tothe early 1990s. Until now, the JusticeDepartment was concentrating on theactions of the executives of ROA,which collapsed in 2003. As previouslyreported, plea bargains with twoformer ROA executives tied to thealleged fraud were reached in Virginia.

Berkshire Hathaway, the holdingcompany of Warren Buffett, said in asecurities filing that Berkshire and GenRe were cooperating “with the U.S.Attorney’s investigation of Reciprocalof America.” Berkshire added in thefiling that General Reinsurance Corpo-ration and four of its current andformer employees, “including itsformer president,” had received sub-poenas in October 2003 in the matter.The filing also noted that the U.S.Attorney and Justice Department inWashington in December and “onseveral occasions since then” hadsought information concerning ROA aswell as information related to GeneralReinsurance Corporation’s transactionswith “other insurers.” In the filing, itwas said that General Reinsurance Cor-poration “cannot at this time predictthe outcome of this investigation, or ifthat outcome may have a materialadverse effect on the Corporation’sfinancial statements.” I am told that theJustice Department is now investigatinga much broader relationship betweenall of the parties related to ROA.

It should also be noted that thismatter also is part of an industry-wide

investigation by the SEC and New YorkAttorney General Eliot Spitzer’s officeinto certain types of nontraditionalinsurance. Our lawsuit is in the earlystages, but we are accumulating atremendous amount of informationrelating to the scheme to defraud theregulators and the doctors, lawyers,hospitals, and others who were insuredby ROA. This case has the potential fora tremendously large recovery. If weare successful, it will benefit a tremen-dously large number of victims. Sources: Wall Street Journal and USA Today

PENNSYLVANIA SETTLES WITH FORMERRELIANCE INSURANCE DIRECTORS

The Pennsylvania Insurance Depart-ment has finalized the negotiation ofan $85 million settlement with theformer directors and officers of theReliance Insurance Group. The Penn-sylvania Insurance Commissioner, asstatutory liquidator for Reliance Insur-ance Company, made the announce-ment. The goal of the settlement was tomaximize the recovery for Reliancepolicyholders. The Insurance Depart-ment set out to protect and recover theassets of the company for the benefitof all policyholders and to holdresponsible parties accountable fortheir actions. To accomplish thatrequired taking action againstReliance’s former officers and directors.Of the $85 million settlement, $34million will benefit the creditors ofReliance parent companies, RelianceGroup Holdings Inc. and RelianceFinancial Services Corporation. Theremaining settlement proceeds of morethan $51 will go to policyholders. This$51 million, when combined with the$45 million previously recovered fromReliance’s parent companies, results ina recovery of nearly $100 million forReliance’s policyholders from litigationbrought by the Insurance Department.

In addition to a substantial monetaryrecovery, the settlement provides non-economic benefits, which were negoti-ated by the department for the benefitof Pennsylvania policyholders and to

deter future misconduct by insurancecompany executives. These includeagreements from defendants Saul P.Steinberg and Robert M. Steinberg notto serve as officers or directors, or tohold a controlling interest, in any insur-ance company domiciled, licensed orconducting insurance business in theCommonwealth of Pennsylvania for thenext 15 years.

Reliance Insurance Company, whichis a Pennsylvania-based insurancecompany, was licensed to write insur-ance business in all 50 states. Itstopped writing most new or renewalbusiness in June 2000. The states withthe largest number of policyholdersincluded California, New York, Florida,Pennsylvania, Illinois, and Texas.Reliance Insurance Company’s insur-ance business consisted primarily ofworkers’ compensation, commercialauto, commercial liability and personalauto coverage. The Pennsylvania Insur-ance Department took statutory controlof the company on May 29, 2001,under an Order of Rehabilitation, fol-lowed by an Order of Liquidation inearly October of that same year. TheDepartment filed a civil action, whichresulted in this settlement, against theformer officers and directors ofReliance on June 24, 2002, in the Com-monwealth Court of Pennsylvania.Among other things, the complaintalleged claims for breach of fiduciaryduties, professional negligence, and therecovery of preferential transfers.

This settlement closed a largechapter in the story of the liquidationof the Reliance Insurance Company. Acopy of the settlement agreement canbe found at the Reliance Documentswebsite, www.reliancedocuments.com.Policyholders with questions concern-ing the Reliance liquidation estateshould call 215-864-4500.Source: The Insurance Journal

LLOYD’S SETTLES WITH CENTRAL FUNDINSURERS FOR $ 292 MILLION

Lloyd’s of London has reached a set-tlement agreement with the insurers


involved in the arbitration proceedingsrelating to an insurance policy support-ing its New Central Fund. The settle-ment amount is £152 million ($292.4million), which includes amounts previ-ously paid. In 1999, Lloyd’s negotiateda five-year policy to protect the CentralFund with six companies: Swiss Re; StPaul; Hannover Re; XL Re; FederalInsurance Company; and Employers Re.The policy was to reimburse the fundfor cash calls by members thatexceeded £100 million ($192.4 million)in any one year up to £385 million($740 million), with an upper limit of£500 million ($962 million). The policyexpired at the end of December 2003.Following the September 11th attacks,Lloyd’s made several cash calls andeventually filed claims for reimburse-ment of £477 million ($918 million).The insurers, led by Swiss Re, claimedthey weren’t obligated under the termsof the policy to pay. Arbitration pro-ceedings, as provided for in the policy,started in April of 2003. Except as dis-closed in the news release issued byLloyd’s, “the terms of the settlementagreement will remain confidentialbetween the parties.”

This is a prime example of whenarbitration is proper and should beused by parties engaged in a dispute.All of the parties to this dispute wererelatively equal in economic bargainingpower. This is the type dispute thatarbitration was originally intended for. Source: The Insurance Journal

XII.PREDATORYLENDING UPDATE

AMERIQUEST REACHES SETTLEMENT INFRAUD SUIT

We wrote last month on some of the“questionable” activities of AmeriquestCapitol Corp that have hurt lots of folksaround the country. Since that time,home loan lender Ameriquest Mort-gage Co., a subsidiary, has agreed to

settle a class action lawsuit that allegesit cheated thousands of borrowers infour states. The case is pending in aCalifornia state court. The OrangeCounty, California-based company hasalso been questioned by attorneysgeneral and regulators in 25 statesabout its lending practices. Theseinquirers include how loan terms areverbally described to borrowers.Ameriquest, which is one of the worstof the predatory lenders, has lawsuitspending in at least 20 states that accusethe company of fraud and falsificationof documents.

The settlement stems from a lawsuitthat accuses Ameriquest employees ofsurprising borrowers with fees andinterest rates that often were signifi-cantly higher than quotes in good-faithestimates of loan costs. A hearing hasbeen scheduled for June 24th for finalapproval of the settlement. Under theterms, Ameriquest would pay at least$15 million, but no more than $50million, in settlement. It would giverefunds to some California borrowerswho received loans from 1996 throughFebruary 2004. Customers in Texas,Alabama and Alaska who took outloans from 1998 through February 2004would also get refunds. To qualify,closing loan rates must have beenmore than .9 percentage points higherthan the rate in good-faith estimates.Class members also could be entitledto a 50% refund of prepayment penal-ties if preliminary disclosures did notindicate that the loan was subject tosuch a penalty. Reportedly, there are1,671 such customers.

Ameriquest first disclosed it had beenquestioned by attorneys general andregulators in a February 23rd Securitiesand Exchange Commission (SEC) filing(a prospectus for potential buyers ofinterest-paying bonds). ConnecticutAttorney General Richard Blumenthalsaid his state was concerned about thelender’s excessive fees to refinanceloans for existing customers. In addi-tion, he said Connecticut has receiveddozens of complaints about thecompany’s lending practices since the

state closed an Ameriquest investiga-tion last year with a settlement agree-ment. General Blumenthal says that:“Ameriquest has violated not only theletter of our law ... but also the spirit ofour agreement that gave them a secondchance.” The company, which hasrequested a hearing in its SEC filing todefend itself against Connecticutbanking regulators, blamed a computerglitch for the alleged violations. Asstated above, Ameriquest Mortgage, isa unit of privately held AmeriquestCapital Corp. I am not sure how goodthis settlement will turn out to be forthe victims of this very powerful andwell-connected corporation. Sources: Los Angeles Times and Associated Press

XIII.WORKPLACEHAZARDS

OSHA IDENTIFIES 14,000 WORKPLACESWITH HIGH INJURY AND ILLNESS RATES

Approximately 14,000 employershave been notified by the OccupationalSafety and Health Administration(OSHA) that injury and illness rates attheir worksites are higher than averageand that assistance is available to helpthem fix safety and health hazards.OSHA has explained to these employ-ers that the notification was a proactivestep to encourage employers to takesteps now to reduce those rates andimprove the safety and health environ-ment in their workplaces. The identifi-cation process by OSHA is meant toraise awareness that injuries and ill-nesses are high at these facilities.OSHA says its goal is to identify work-places where injury and illness ratesare high, and then to offer assistance toemployers so they can address thehazards and reduce occupationalinjuries and illnesses. Establishmentswith the nation’s high workplace injuryand illness rates were identified byOSHA through employer-reported datafrom a 2004 survey of 80,000 worksites.


The survey consisted of data from cal-endar year 2003.

Employers receiving the letters werealso provided copies of their injury andillness data, along with a list of the mostfrequently violated OSHA standard fortheir specific industry. The 14,000 sitesare listed alphabetically, by state, onOSHA’s website at: www.osha.gov. Thelist does not designate those earmarkedfor any future inspections. Anannouncement of targeted inspectionswill be made by OSHA later this year.The sites listed are establishments instates covered by federal OSHA. The listdoesn’t include employers in the 21states and one territory (Puerto Rico)that operate OSHA-approved state planscovering the private sector. OSHA’s datacollection initiative is conducted eachyear to provide the agency with aclearer picture of those establishmentswith higher-than-average injury andillness rates. Source: The Insurance Journal

OSHA CITES OKLAHOMA FACILITYFOLLOWING CHEMICAL SPILL

OSHA has issued citations to ValmontCoatings-Oklahoma Galvanizing, whichis located in Claremore, Oklahoma.Penalties were proposed totaling$126,000 for safety and health viola-tions. Eighteen employees were sent tothe hospital. Valmont Coatings-Okla-homa Galvanizing, a hot-dip galvaniz-ing business, is owned by ValmontIndustries Inc., headquartered inOmaha, Nebraska. The companyemploys more than 3000 workers, withabout 100 being located in Claremore.Following an inspection that beganAugust 31st, OSHA cited the companyfor one alleged willful and eightalleged serious violations for exposingemployees to sulfuric acid during aclean-up spill from the rupture of astorage tank. The alleged willful viola-tion was issued for failing to providepersonal protective equipment toemployees who responded to the acidspill. A willful citation is issued byOSHA when an employer either knew

that a condition constituted a violationor was aware that a hazardous condi-tion existed and made no reasonableeffort to correct it. The alleged seriouscitations included:

• Failing to ensure that the premiseswere free from hazardous conditionssuch as exposure to concentratedsulfuric acid or being struck bydebris caused by the leakage and/orrupture of a storage tank operatingunder pressure;

• Failing to develop and implement anemergency response plan;

• Failing to ensure the senior emer-gency response official took chargeof the situation at the site when thespill occurred; and

• Failing to train employees in emer-gency response operations. OSHA defines a serious violation as

one in which there is a substantialprobability that death or serious physi-cal harm could result from a hazardabout which the employer knew orshould have known. Valmont Indus-tries has reportedly had numerousinspections in past years. One of theseinspections resulted in proposed penal-ties of $20,000 when an employee diedin Valley, Nebraska, after being crushedby a stamper machine in July 1996.Violations involved machine guardingand control of hazardous energy. Source: The Insurance Journal

WAL-MART SETTLES CIVIL CASE AND AVOIDSCRIMINAL CHARGES

Wal-Mart Stores Inc., has agreed topay $11 million to settle the pendingcivil immigration case against the retail giant. Wal-Mart escaped criminalcharges and put an end to the federalprobe into its use of illegal immigrantsin 21 states. A dozen contractors, whohired the laborers for work inside thestores, have agreed to plead guilty tocriminal immigration charges and willpay an additional $4 million in fines.The civil immigration settlement is said

to be a record dollar amount for such cases. The settlement agreementrequires Wal-Mart to create an internalprogram to make sure it complies withimmigration laws. I suspect Wal-Martmade money on this settlement.

JURY RETURNS A $7.5 MILLION JURYVERDICT AGAINST WAL-MART

In another matter, a New York juryhas ordered Wal-Mart to pay $7.5million in damages to a disabled formeremployee in a class action lawsuit. Itwas claimed that the retailer unfairlyreassigned the worker to garbage dutyeven though he was hired to work inthe pharmacy department. The 21-year-old plaintiff, who suffers from cerebralpalsy, had applied for a position in thepharmacy unit of a Wal-Mart store inCentereach, New York, and was hiredin the summer of 2002. But the plaintiff,who worked for just four days beforequitting, claimed that after being hiredhe was soon reassigned to otherresponsibilities that included collectinggarbage and shopping carts in the Wal-Mart parking lot. The jury’s verdictincludes $5 million in punitivedamages. Wal-Mart claimed it was notguilty of discrimination of any kind, butthe jury didn’t buy that argument. Source: CNN

LOWE’S EMPLOYEE WINS DEFAMATIONLAWSUIT

Worker’s compensation benefits—when due to an employee who has suf-fered an injury on the job—shouldalways be paid by the employer or itsinsurance carrier. It now appears thatLowe’s, a national home improvementchain, fired one of its employees forseeking compensation for work-relatedinjuries. Last month, a jury in the UnitedStates District Court of the Western Dis-trict of Texas awarded a former assistantstore manager at Lowe’s $4.3 million fordefamation and punitive damages. Theemployee won an additional $312,000for lost pay and benefits. The lawyer


who represented this employee saysthat Lowe’s has “a pattern and practiceof discriminating against anyone filing aworker’s compensation claim.”

As the employee was closing theLowe’s Home Center store back in2003, she fell and injured her knee.The employee filed a worker’s com-pensation claim and worked throughthe pain until her surgery in June ofthat year. When she returned to work afew months later, the employee wasfired. She was also accused of improp-erly buying a $4,000 tractor from thestore, which was proved to be “a com-pletely false and manufactured allega-tion.” The company claimed that theemployee bought the tractor at a dis-count, damaged it and then returned it.The store’s upper management toldother employees the employee hadbeen fired for theft. Friends of theemployee who called the store lookingfor her were given the same story.Lowe’s has a history of pressuringrecovering employees to quit byplacing them in cashier’s positionsinstead of on light duty in their normalmanagerial roles. I understand thatthree other Lowe’s employees at thesame store were fired after makingworker’s compensation claims. Source: Gazette News Services

SILICA LITIGATION SETBACK

There have been a series of setbacksfor persons with Silica cases pending inthe multi-district litigation in Texas.U.S. District Judge Janice Graham Jackpresides over the multi-district litiga-tion, which is pending in the SouthernDistrict of Texas. In February, plaintiffs’lawyers and their experts appeared forDaubert hearings and in-court deposi-tions in these cases. It appears thatneither the hearings nor the deposi-tions went well for the plaintiffs. Infact, defense lawyers filed a motionseeking over a million dollars in sanc-tions from the plaintiffs’ lawyers for“knowingly submitting and advocatingbogus diagnoses.” These are obviously

extremely serious charges to be madeagainst a lawyer. The sanction hearingwas set for March 14th. At press time,we had not heard the results. Regard-less of how that hearing comes out, itappears that Judge Jack is inclined toremand all of the cases back to thestate courts. In that regard, the judgehas told the lawyers in very clear termsthat she will write a lengthy analysis ofher findings, which will be sent to thestate court judges.

Silicosis, while apparently on thedecline, is a most serious medical con-dition for those who actually have it.Our firm was not involved in the multi-district litigation and hasn’t handledany silica cases at this point. But, itappears that a good number of rep-utable law firms were involved for theplaintiffs in the Texas court. It will beinteresting to see how all of this pansout. If nothing else, it points out thenecessity for having good experts whoare highly qualified in cases thatrequire expert testimony.

XIV.TRANSPORTATION

SURVEY SHOWS THAT TRUCKERS AREWORKING LONGER HOURS

Our firm handles a very largenumber of wrongful death cases eachyear and many of them involve 18-wheeler accidents. A new InsuranceInstitute for Highway Safety surveyindicates that drivers of interstate trucksnow spend more time behind thewheel under a federal work rule thatwent into effect in 2004. This new rulelengthens the mandatory rest period bytwo hours, but lets drivers stay on theroad an extra hour every day. A work-week restart provision of the ruleincreases allowable driving hours in a7-day period from 60 to 77 hours. Aquarter of drivers who were surveyedsaid they drive more than the newdaily limit of 11 hours. Eight of 10drivers said they’re taking advantage of

the restart provision that allows themto drive 25% more in a week.

While the drivers said their sleeptime has increased under the new rule,they reported slightly more instancesthan the previous year (when the oldwork rule was in effect) of drivingdrowsy or falling asleep at the wheel.When drivers were asked about dozingat the wheel at least once in the pastmonth, the reported percentageincreased from 13% under the old ruleto 15% under the new rule. AnneMcCartt, Institute vice-president forresearch, stated:

Studies show that fatigue is a sig-nificant factor in truck crashes.The new rule was supposed toimprove safety, but our surveyshows the opposite. Truckers areusing the restart provision tosqueeze even more driving hoursinto the week.

A number of the wrongful deathcases we have handled over the yearsare where drivers of 18-wheelers dozedoff and literally ran over passenger carson interstate highways. Those casesseem to be on the increase. Several ofour cases involved drivers who wereover the hours time limit. Enforcementof work hours has reportedly longbeen a problem because written log-books are easily falsified and compa-nies push their drivers very hard. TheInstitute’s survey shows that none ofthis has changed. About a third ofdrivers said they either “sometimes” or“often” omit hours worked from theirlogbooks. A proposal to include elec-tronic onboard recorders, which aretamper-resistant devices that canmonitor driving hours, was droppedbefore the new rule went into effect.Without electronic recorders the rulecan’t be enforced effectively. The 2004rule should be amended to requirethese recorders.Source: The Insurance Journal


STUDY SHOWS RURAL ROADS ARE MOSTDEADLY

A recent study reveals that the deathrate for motorists on rural roads wasmore than 21⁄2 times the rate for drivingon all other roads in 2003. Correspond-ing to that statistic, safety improvementson rural, non-interstate routes have alsolagged behind. An analysis of federalhighway data by The Road InformationProgram (TRIP) is the basis for thecomparison. William Wilkins, executivedirector of the Washington-basedhighway information research organiza-tion, observed: “The nation’s ruralroads... are exposing rural residents andvisitors to an unacceptable level of risk.We know how to make rural roadssafer. What is missing is adequatefunding for road safety projects that willsave numerous lives.” The followingare some of the study’s findings:

• 52% of the 42,301 average annualtraffic deaths from 1999 through 2003occurred on rural, non-interstateroutes, although travel on thoseroads represents 28% of miles driven.

• The death rate on rural roads in 2003was 2.72 per 100 million milesdriven, compared with 0.99 on allother roads.

• From 1990 through 2003, the deathrate on all routes excluding ruralroads decreased 32%. The death rateon rural roads declined by 21%during the same period.

• Many rural areas, particularly in theWest and South, are gaining popula-tion, but roads in those areas aremore likely than urban roads to havefeatures that make driving hazardous.They include narrow lanes, limitedshoulders, sharp curves, steep slopesand pavement drop-offs.

With all of the budget problems—both in Congress and in state govern-ments—I fear that funds for ruralhighways won’t be a high prioritywhen transportation funds are allo-cated. Tools to improve safety include

rumble strips, better signs, lane mark-ings and lighting, guardrails, andremoval of obstacles along roadsides. Atransportation spending bill pending inCongress could increase funding forrural road improvements. But substan-tial improvements will actually dependmore on state and local funding, whichrepresent about three-quarters of U.S.spending on roads and highways,according to Frank Moretti, director ofpolicy and research for TRIP. It isimportant to note that TRIP is a non-profit group supported by insurancecompanies, labor unions and busi-nesses involved in highway construc-tion and engineering.Source: USA Today

ALCOHOL-RELATED DEATHS

More than 17,000 persons are goingto be killed in the United States bydrunk drivers in 2005, according toprojections by law enforcement agen-cies. They also project that another500,000 will be injured in motorvehicle accidents involving drunkdrivers. It is quite obvious that alcohol-related traffic deaths continue to be amajor problem in this country. Whenyou consider that about 3 in every 10American citizens will be involved inan alcohol-related crash at some timein their lives, it points out the magni-tude of this problem. That staggeringstatistic certainly should get our atten-tion, especially those of us who haveyoung children or grandchildren. It iscritically important that each of ussupport strong law enforcement in thisarea of concern. We can also supportgroups such as MADD who fight thebattle on a daily basis, with our finan-cial support. I have been a supporterof MADD for years and know first-hand how hard the group works.

RAILROAD TO PAY OVER VIOLATIONS ATCROSSINGS

CSX Transportation Inc. has agreedto pay one million dollars to settle state

charges in New York that it violatedsafety laws by failing to report andpromptly fix hundreds of warning-signal malfunctions at grade crossingsacross the state of New York. As part ofthe settlement, which is described asone of the largest enforcement actionsagainst a railroad, CSX also agreed toimprove the way it reports, inspects,and repairs broken warning signals.CSX will also set aside up to $500,000to pay for sending local police officersto direct traffic at crossings with brokensignals. It should be noted that the set-tlement resulted from action taken bythe New York Attorney General’soffice. The Federal Railroad Adminis-tration is the nation’s primary overseerof rail safety. It is highly unusual for astate government to take such sweep-ing action against a railroad. The NewYork Attorney General, who is one ofthe most aggressive state prosecutors inmodern times, was motivated to begina state inquiry of CSX after the death ofan elderly couple last year at aRochester-area crossing with a brokensignal. General Spitzer says federal reg-ulation of the railroad industry is “anabject failure.” Having dealt with thefederal government on crossing casesfor a number of years, I agree with hisassessment.

The New York Times reported last yearthat CSX had repeatedly failed to prop-erly report grade crossing accidents, thatfederal regulators were closely entwinedwith the rail industry, and that warning-signal malfunctions were more commonthan federal regulators had acknowl-edged. In recent weeks, signal problemshave continued at CSX. On February11th, a woman was killed when a CSXtrain struck her car in Fonda, New York.In that case, a CSX employee had man-ually raised the gates in error. And morerecently, a 37-year-old man diedinstantly when his truck was hit by anAmtrak train at a CSX crossing inPompano Beach, Florida.

A bipartisan bill in Washington ispending in the U.S. Senate, introducedby Senators Charles E. Schumer (D-NY)and Lindsey Graham (R-SC). This bill


would require for the first time that thefederal rail agency investigate each fatalgrade-crossing accident. It would alsoraise fines and increase the number offederal regulators assigned specificallyto grade crossings. Congress needs tomake a number of changes in the lawsthat deal with railroad safety and specif-ically with grade crossings. Source: The New York Times

A LOOK AT THE SAFETY OF SKYAMBULANCES

Most American citizens probablydon’t consider medical helicopters aspresenting any more of a safetyproblem than any other helicopters. Iwould surmise that they also believethat pilots who fly the helicopters areall well-trained and experienced. Youmay be surprised to learn that medicalhelicopters are involved in a greatnumber of accidents each year andoftentimes pilot error is a cause. In lessthan two months this year, four peoplehave died in four separate accidentsinvolving medical helicopters. Last yearwas a particularly deadly one for flightcrews and patients—with 18 peoplekilled in 11 accidents—and that isenough to get the attention of safetyadvocates. That was the highestnumber of deaths in a single year inmore than a decade, according tofederal regulators. The increase incrashes has put a spotlight on a little-regulated, but fast-growing sector ofhealth care, and that is the medical heli-copter industry. An excellent article onthis little known problem appearedrecently in the New York Times. Accord-ing to the Times, there are an estimated700 medical helicopters operatingnationally, which is about double thenumber flying a decade ago.

The Times article points out that atone time nearly all medical helicopterswere affiliated with hospitals. As aresult of more generous federal reim-bursements and changes in paymentmethods, more operators, includingpublicly traded corporations andsmaller companies, have entered this

field. In some cases, the companies setup outposts and market their servicesto rural emergency units and even tohomeowners. It is undisputed thatemergency medical helicopters do savelives by getting some patients to hospi-tals far faster than a ground ambulancecould and by reaching remote areas.But the industry’s rapid, competitivegrowth may also be exacting a toll.Federal regulators are concerned thatthe pool of skilled helicopter pilots hasbecome largely drained and that someof those now flying are making poordecisions. In addition, some companiesare flying older helicopters that lackthe instruments needed to help pilotsnavigate safely. According to the Times,of the 27 fatal medical helicopter acci-dents that occurred between 1998 and2004, 21 were at night and badweather contributed to the crashes insome cases.

In February of this year, the FederalAviation Administration (FAA) pro-posed steps to improve flight safety.The proposals included helping pilotsassess risks and providing them withup-to-date electronic equipment. Sepa-rately, the National TransportationSafety Board has been examiningmedical helicopter safety and plans toissue recommendations to the FAA.Reportedly, initial reviews by the avia-tion agency and the safety board indi-cate that pilot error was to blame inmany of the recent accidents. A reportin 1988 by the Board found thatmedical helicopters were crashing at arate three times higher than that ofother helicopters. At that time, thesafety board made a number of recom-mendations adopted by the aviationagency, including better pilot training,particularly for flying in bad weather.

There is a growing concern aboutmedical helicopter safety among safetyexperts. Because the number of acci-dents is increasing, there is a real needto be able to understand more aboutthe causes. According to the Timesarticle, there is a long-running debateover whether many of the flights areeven medically necessary. There are

about 350,000 medical helicopterflights annually, with about 30% involv-ing calls to accidents or other emergen-cies, according to the Association of AirMedical Services, a trade group inAlexandria, Virginia. Most other flightsinvolve the transfer of patients betweenhospitals.

Having an adequate supply oftrained and experienced pilots is anecessity. Clearly, the industry’s rapidgrowth may be outpacing the pool ofexperienced pilots and that is a mostserious problem. The FAA, citing theindustry’s rapid growth and an “unac-ceptable” number of accidents, sug-gested recently that operators increasethe use of technical aids like radaraltimeters, night-vision goggles, andterrain awareness warning systems,among other things. In addition, theFAA recommended that companiesemphasize a “safety culture” and alsoimprove systems that will give pilotsbetter information about changingweather conditions while they are inflight. Company officials told the Timesthat they were working with regulatorsto find solutions. I hope the FAA willstay on top of this growing problemand make sure that emergency flightson medical helicopters are as safe asreasonably possible. Source: New York Times

LEAKING RAIL CAR NOT DESIGNED TOHANDLE CONTENTS

A railroad tank car that leaked toxicfumes, forcing thousands of folks inUtah from their homes, was apparentlynot designed to hold the mixture ofhighly corrosive acids with which it hadbeen filled. Some 6,000 people wereallowed to return home and highwayswere reopened after crews pumped thehazardous waste out of the tank car.Tests showed the tank car had beenfilled with a mixture of acetic, hydroflu-oric, phosphoric and sulfuric acids,which easily corroded the car’s lining.The car was supposed to be used onlyfor hauling sulfuric acid. KennecottUtah Copper of Magna, Utah, a copper


mining company owned the car. PhilipServices, a hazardous waste handler,had leased it and was using the car tohaul waste belonging to its customers.The load was said to comply withfederal Transportation Departmentguidelines on the shipment of haz-ardous materials. About 6,000 gallons ofliquid were pumped out of the car. It isbelieved about 6,500 gallons more hadleaked and soaked into the ground.Contaminated soil will have to be neu-tralized with lime and removed. Theleak could lead to a criminal investiga-tion, according to officials investigatingthe incident. Source: CNN

XV.ARBITRATIONUPDATE

CAR DEALERS DON’T LIKE ARBITRATION INTHEIR OWN CONTRACTS

Over the past several years, the useof arbitration in consumer transactionshas spread across the land like kudzu.It has been abundantly clear that con-sumers have little—if any—chance ofprevailing when they take on large cor-porations in arbitration. More and moremedia outlets are beginning to paymore attention to the evils of manda-tory, binding arbitration clauses in con-sumer transactions. Over the pastseveral months there have been severalexcellent stories and reports on thesubject. For example, ABC News didan excellent series on consumer arbi-tration. The Wall Street Journal has alsohad articles—as has USA Today—dis-cussing the use of arbitration in con-sumer transactions. Automobile dealersin Alabama have been using arbitrationwhen it is in their interest for severalyears. In fact, it is virtually impossibleto buy a car or truck in Alabamawithout having to first sign an arbitra-tion agreement.

But, there are times when the auto-mobile dealers don’t like arbitration at

all. We reported back in 2000 that theNational Automobile Dealers Associa-tion was pushing a bill in Congresswould protect the dealers from theFederal Arbitration Act in their dealingswith automobile manufacturers. H.Thomas Green, chief operating officerof the NADA, stated the position of theautomobile dealers at that time in con-nection with the pending legislation.The bill pushed by the NADA hadsome interesting language concerningthe unfairness of “allowing one partyto dictate and condition bindingmandatory arbitration as the soledispute resolution mechanism.” Mr.Green stated at that time that:

The NADA does not support orencourage the use of mandatoryand binding arbitration in anycontract of adhesion whether amotor vehicle franchise contractbetween a manufacturer anddealer or a consumer contract. Infact, the NADA Board of Directorsadopted a resolution in 1999stating that NADA would notoppose other federal legislativeefforts to preclude mandatory andbinding arbitration as the soledispute resolution mechanism inany contract of adhesion.

The NADA’s contention that a con-tract between an automobile dealerand an automobile manufacturer con-taining a predispute arbitration agree-ment would be unfair to the dealer iscertainly hypocritical. When you con-sider that almost every automobiledealer in Alabama uses arbitration in itsdealings with customers, it is impossi-ble to justify NADA’s position in Wash-ington. The NADA said back then thatthe economic power of the automobilemanufacturers was so great that thedealers couldn’t get a fair shake in arbi-tration against the manufacturers.Assuming that to be an accurateappraisal, how can an ordinary citizenwho buys a car or truck on credit beforced to sign an arbitration agreementin order to have the right to buy thevehicle? Of course, NADA was able to

get their bill passed and arbitrationcan’t be used against the dealers by themanufacturers. The old adage, “what’ssauce for the goose is sauce for thegander” should certainly apply to con-sumer contracts and arbitration in myopinion!

ARBITRATION LEFT ID THEFT VICTIM WITH$27,000 BILL

The tort reformers, who tout arbitra-tion as being more efficient andcheaper, should check with BethPlowman, a Damascus internationalpublic health adviser. Ms. Plowmanwas shocked when she discovered thata $27,240 arbitration judgment hadbeen levied against her for credit cardcharges incurred by an identity thiefwho bought sporting goods all acrossEurope. Ms. Plowman had been in theUnited States at the time and had noknowledge of the charges. Someoneclaiming to be her sister had called thecredit card company and asked that allbills be sent to an address in England.When she found out about the charges,Ms. Plowman attempted to get themdismissed through the collectionagency. She didn’t realize her appear-ance was needed at the arbitrationhearing after the charges were illegallymade on her card by an identity theft.She lost the arbitration and had to hirea lawyer to persuade the collectionagency pursuing her for the debt todrop its claim. Ms. Plowman, whodoesn’t even have a sister, told theWashington Post: “The fact that peopleare being held to pay these debtsthrough an arbitration process is justfrightening.”

While Ms. Plowman’s experiencemay be unusual, consumer advocatessay this unfortunate lady is a classicexample of what can go wrong whenmandatory arbitration clauses arewritten into credit card agreements.Mandatory arbitration is being used asan “offensive weapon” by credit cardcompanies seeking speedy resolutionto disputes—sometimes without a con-sumer’s full knowledge. The arbitration


process may result in a consumerbeing left with debts that they didn’teven have anything to do with. Theywill also be hit with substantial arbitra-tion costs, including the credit cardcompany’s legal fees. The NationalConsumer Law Center has issued apaper on the arbitration problem, citingfour consumer cases including thePlowman arbitration. It shouldn’t comeas a surprise to learn that businessesare more likely to bring cases to arbi-tration than individuals. As we haverepeatedly reported, over the pastdecade mandatory arbitration clauseshave been appearing in the fine printof many consumer agreements, includ-ing those for credit cards, telephoneservice, car sales, exterminator services,and just about every consumer transac-tion. As American consumers havecome to know—all too well—theseclauses require consumers to agree inadvance to waive their rights to a courthearing and refer all disputes to so-called independent, third-party arbitra-tors who serve as judge and jury.

Businesses say arbitration is faster,more efficient and cheaper than litiga-tion. But, we know better. Mandatoryarbitration protects large corporations,and the deck is stacked against individ-ual consumers. Consumer groups willcontinue to fight arbitration in con-sumer contracts of all kinds. PaulBland, staff attorney for Trial Lawyersfor Public Justice, says it is unclear howmany consumers may have unknow-ingly had arbitration decisions issuedagainst them seeking repayment ofdebt. Paul stated that: “in the last sixmonths, we (TLPJ) have receivedscores of phone calls from consumerswho want us to represent them chal-lenging collection activities.”

Ms. Plowman says she may be oneof the luckier consumers. She declinedto participate in the arbitration pro-ceeding because she had been con-tacted by a debt collection agency andbelieved the problem would be cor-rected once the credit agency realizedshe was an identity theft victim.However, in August 2003, the arbitrator

issued a $27,240 award against her. Ms.Plowman subsequently hired an attor-ney, who ultimately convinced the col-lection agency that the charges werenot hers. The agency dropped itsclaim, but only after Ms. Plowman paid$2,200 in legal fees. I guess thingscould have been worse, but when youconsider that the lady had doneabsolutely nothing, was an identitytheft victim, and had to hire a lawyer toget help—that tells us something aboutthe credit card company involved, aswell as the arbitrator.Source: Washington Post

JAMS REVERSES CLASS ACTION POLICY

The arbitration service JAMS hasreversed its policy of refusing toenforce contract clauses that prohibitconsumer and employee class actions.This comes after nearly four months ofintense pressure by representativesfrom Corporate America. The arbitra-tion firm, as I understand it, stillbelieves that the clauses may be unfairto workers and consumers. I am toldthese are the feelings of JAMS’ GeneralCounsel John “Jay” Welsh. Neverthe-less, the service changed its policy tocounter the perception that JAMS wasfavoring the plaintiff bar. In fairness, Iwill say that to its credit JAMS hadbeen the only ADR provider to refuseto enforce exclusion clauses. It shouldbe noted that at least one large client,Citibank, wrote JAMS out of its con-tracts because of the policy. Othercompanies, including Discover Card,also wrote out JAMS, effectively takingthem out-of-the-loop for business, soto speak.

Class action arbitrations are a rela-tively new issue and have onlyreceived substantial debate over thepast two years. The whole idea of aclass action arbitration is pretty foreign.A U.S. Supreme Court decision, GreenTree Financial v Bazzle, 539 U.S. 444(2003), gave arbitrators authority todecide whether class actions wereallowed under particular contracts.

Since then, the debate over exclusionclauses has been “very difficult andvery divisive.” Lawyers on all sides ofthe arbitration debate say that moredefinitive court rulings are needed toaddress whether it’s legal for a contractto rule out class actions. Until thedebate is resolved, I understand thatJAMS will allow such clauses in juris-dictions where they’re legal.

I really had thought there was atleast one alternative dispute resolutioncompany that would be fair to con-sumers and not yield to economic pressure from Corporate America.Unfortunately, I was wrong! A companythat’s not capable of withstanding thepressure and doing what they think isright, shouldn’t be doing arbitrations. Tomy way of thinking, that’s pretty basic!

XVI.NURSING HOMEUPDATE

PENNSYLVANIA LATEST BATTLEGROUND OVERNURSING HOME ARBITRATION

The use of arbitration by nursinghomes has become very a hot issue inPennsylvania. That state has becomethe latest legal battleground overwhether the elderly should be forcedto agree to arbitration, signing awaytheir legal rights to a jury trial. TheAARP and the National Senior CitizensLaw Center have joined a 78-year-oldwoman in a legal challenge of agrowing trend in Pennsylvania nursinghomes of requiring would-be residentsto agree to binding arbitration for anydisputes. It should be noted that Penn-sylvania has the highest number ofnursing home residents outside ofFlorida. Dorothy Siemon, an attorneyfor AARP in Washington, D.C., told thePittsburgh Tribune-Review:

Our position is consistent. Weoppose arbitration agreements fornursing home residents. But it’shappening more and more. We’re


hearing about nursing homestrying to impose these agreementsall the time to avoid potential lia-bility if they do anything wrong.

In the Pennsylvania case, a 78-year-old lady filed suit against Beverly Health-care Center in Oakmont, claiming shewas injured by a worker at the nursinghome, where she was recovering fromhip replacement surgery. Her lawsuitwas dismissed in January by a state courtjudge because she had signed a contractstating that any complaints against thenursing home had to go through anarbitrator. The lady said she didn’tremember ever signing an arbitrationagreement. The case is now on appealto the state Superior Court. The lawyerrepresenting the resident says:

You can’t find a more vulnerablegroup of people, other than maybechildren, than nursing homepatients. They are asked to signthese documents, and we reallyhave no idea about how manypeople have been affected by theagreements.

Beverly has 372 nursing homes in 24states. The company claims that abouthalf of Beverly Healthcare’s residentssign arbitration agreements. I suspectthe percentage is much greater. Thereis no way that any right-thinkingperson can justify forcing persons tosign arbitration agreements in order togain admission to a nursing home. Ifanybody says the level of care atnursing homes requiring arbitrationwon’t go down in a hurry, I suspectthey might either have an interest in anursing home or are totally uninformedon the subject.

LITIGATION HAS A GOOD EFFECT ONNURSING HOMES

A recent article in the National Under-writer, an insurance industry publica-tion, seems to suggest that litigationagainst nursing homes is getting thedesired results in better staffing andcare. In some situations, sprinklers in

nursing homes are also the result oflawsuits after a fire. The article, titled“Insurers Returning to Nursing HomeMarket” indicates that jury verdicts sentmuch of the nursing home industry toalternative risk-transfer approachesseveral years ago. One insurer under-took a major re-underwriting effortthree years ago that required morefavorable nurse-patient staffing ratiosand the installment of sprinkler systemsin the homes. Significant jury verdictsagainst nursing homes sent a messageto the industry that something had tochange, according to industry observers.

According to the article, with thenursing home industry tightening poli-cies and procedures, the averagenursing home is better off today thanbefore. In addition to tightening poli-cies and procedures guidelines in thefacilities, more extensive backgroundchecks of new hires have been added.The president of one large health careinsurer indicated that certain carrierstoday would not take on the risk ofnursing homes unless staffing ratios areincreased and meet certain desiredtargets. The article also indicates thatinsurers are now doing a closer reviewof the circumstances underlying inci-dents that occur in nursing homes,such as falls, and they are puttingmuch more credence in the deficiencyreports received from state surveyors.Source: National Underwriter

ADVERSE DRUG EFFECTS IN NURSING HOMEARE MORE COMMON

Drug-related injuries in nursinghomes are more common than previ-ously documented and largely prevent-able, according to the findings of astudy published in the AmericanJournal of Medicine. A team of physi-cians reviewed records of two largeacademic long-term care facilities thathad a combined total of 1229 beds.Over an eight to nine-month period theresearchers identified 815 adverse drugevents that caused injury to a patient.The events were typically caused byerrors in drug prescribing and monitor-

ing, including wrong dosages of med-ication, drug interactions, and failing tomonitor drug side effects. Theresearchers concluded that 42% of allthe adverse drug events were preventa-ble. These rates of adverse events atthese facilities associated with aca-demic institutions is a great cause ofconcern to the researchers because, asthe researchers stated, the facilities “areexceptional…strongly committed toimproving patient care and safety, andwith many more resources than community nursing homes.” Theresearchers felt that because there wasa high rate of problems at these facili-ties, drug problems were likely occur-ring at a much higher rate at mostnursing homes in the United States.The researchers felt that engagement offamily members in care of their olderrelatives was extremely important.Families should be aware of the drugsthat are being prescribed for their rela-tives, the reasons for the use of thedrugs, and potential side effects, andthey should report any changes theynotice in their relative’s conditionimmediately.

STATE REPORT SHOWS INACTION ATKNOXVILLE NURSING HOME

State investigators in Tennesseereported that staff, department heads,and administrators knew of the allega-tions of sexual abuse at Hillcrest Health-care North in Knoxville, Tennessee, butdid nothing to remedy the situation.According to a report from the state,Hillcrest has more than 260 residents.Earlier in February, four female resi-dents reported multiple cases of sexualabuse to employees. The report saysthat one of the women, who had noserious mental problems, told at leastfour nursing assistants that she had beenthe victim of sexual abuse on more thanone occasion. According to the state’sinvestigation, two other women madesimilar allegations.

An administrator and two assistantdirectors of nursing at Hillcrest wereterminated and the director of nursing


at the facility resigned. As a result ofthe violations, the nursing home wasrequired to pay more than $23,000 infines. As a result of the investigation,the facility has implemented some newpolicies. Hillcrest North says now whena resident reports abuse, law agencieswill be called in to investigate. Also,employees will go through additionaltraining. The State of Tennessee hasdone a follow-up inspection of thefacility and found that Hillcrest North isnow in compliance.

JURY VERDICT FOR FAMILY IN ANT-BITEDEATH

The wife and children of a retiredpostal worker who died from hundredsof fire ant bites in a Florida nursinghome nearly four years ago will receivealmost $2 million for their loss. MarinerHealth Care, the nation’s third largestlong-term health care company, willpay the wife and children of thedescendent $1.875 million. Nursinghomes have a duty to follow federallaw requiring them to keep their facili-ties free of pests, including ants. This isthe second time in recent years anursing home company has settled awrongful death case stemming from afatal ant attack. In the other case,Quality Health Care settled with thefamily of a female resident for anundisclosed amount. The poor ladydied after she was bitten 1,625 times byfire ants in a North Port, Florida,nursing home. There have beennumerous accounts of nursing homeresidents severely injured or killed asresult of fire ant bites.

The resident in the latest Floridacase, who was 73 years old, had beenrecuperating from surgery at the Mel-bourne, Florida, facility for exactly amonth when ants swarmed his bed andbit him in the early hours of July 26,2001. The surgery had left the Rock-ledge, Florida, man partially paralyzed,unable to roll over or get out of bed onhis own. Forty hours later, the residentdied of shock from the amount of antpoison in his body, according to the

medical examiner’s report. His back,arms, chest, neck, head, and shoulderswere covered in ant bites. The familysued Mariner Health Care in 2002.Records and sworn depositionsshowed that the 120-bed AtlanticShores facility had a history of fire antinfestation for years. The pest controlcompany came out weekly to spray forfire ants in patient rooms. Duringlawsuit negotiations, Mariner Healthcare sold Atlantic Shores to SovereignHealthcare in 2003, which replaced themanagement.

Richard deShazo, a professor withthe University of Mississippi MedicalCenter, who specializes in allergic reac-tions to insect bites, says that fire antslike medical facilities because there’salways food around. Dr. deShazo hasbeen an expert witness in 10 ant bitecases, with most of them involvinghealth care facilities. Dr. deShazostated:

Many of us feel they (ants) seehumans as food sources, becausewe’ve seen them go for areas of thebody that are high in protein.Others feel that food products inthe rooms attract them. The peoplewho have died are old people whoare debilitated or demented andnot alert enough to withdraw whenthey get covered.

In another case, a 90-year-old womanwho survived a 2002 fire ant attack at aBradenton nursing home, won a $1.2million verdict last year. But thecompany that owned the home hadgone broke and had no insurance. It isunlikely that this unfortunate lady willever collect.

Nursing homes should be made tofollow federal law requiring the facili-ties to keep their facilities free of pests,and that certainly includes ants.Patients’ care and security and protec-tion must be placed ahead of profitsand making money. When you hear ofcases like those mentioned above, itmakes you wonder whether things inour nursing homes will ever get anybetter. Since the industry is now requir-

ing arbitration agreements as a shieldto liability, I don’t guess it ever will.

XVII.HEALTHCAREISSUES

REPORT SAYS MEDICAID OVERPAYS FORDRUGS

A report released last month by Con-gressional investigators should beshocking to taxpaying citizens. Federalhealth officials are not enforcing a lawthat requires drug companies to cuttheir prices on drugs bought for poorpeople under Medicaid, according tothe report. The Government Account-ability Office (GAO) investigators saidthe federal Medicaid agency rarely veri-fied the accuracy of price data reportedby drug manufacturers and used tocompute the discounts required bylaw. As a result, Medicaid, the nation’slargest health insurance program, withmore than 50 million beneficiaries, ispaying too much for prescriptiondrugs. The report says that even whenfederal officials detect errors and prob-lems in the data, they do not requiredrug companies to make corrections.The accountability office, an investiga-tive arm of Congress, said the Medicaidagency provided “minimal oversight”of the program.

Moreover, the report said the Medic-aid agency does little to “ensure theaccuracy of reported prices” and “dis-counts” provided by drug makers. Asyou know, Medicaid is financed jointlyby the federal government and thestates. Under a 1990 law, intended tohelp control costs, Medicaid pays forprescription medicines only if the man-ufacturer agrees to give certain dis-counts, in the form of rebates to thestates. In buying brand-name drugs,Medicaid is entitled to the “best price”charged to any buyer, with someexceptions. The accountability officefound that manufacturers sometimesconcealed the best prices. This was


done so they would not have to givethe same discounts to Medicaid. Drugspending has grown rapidly and nowaccounts for more than 10% of all Med-icaid spending, or about $37 billion of$300 billion in spending this year.Rebates and discounts total at least $6billion a year. The GAO said it couldn’tdetermine the amount of federal over-payments. In general, it said the federalMedicaid agency has allowed drugcompanies to use any “reasonableassumptions” they wanted in comput-ing discounts. In the case of one manu-facturer, congressional auditors foundthat proper accounting would haveincreased savings to Medicaid by 16%.

The emergence of pharmacy benefitmanagers (PBMs) has also had a badeffect. The PBMs act as middlemen foremployer-sponsored health plans andother health insurers. PBMs, such asMedco and Express Scripts, oftensecure large discounts for their clients.But the report said the Bush Adminis-tration hadn’t given drug companiesany guidance on how to account forsuch concessions in calculating the dis-counts for Medicaid. The federal gov-ernment may face similar challenges intrying to audit drug spending under thenew Medicare drug benefit, whichbecomes available to the elderly anddisabled next year. In his budgetrequest to Congress last month, Presi-dent Bush proposed to cut Medicaidpayments to pharmacies. Governors ofboth parties have asked the presidentto extract savings from drug companiesas well as pharmacists.

The accountability office’s report wasrequested by Senator Charles E. Grass-ley (R-IA) and Representative Henry A.Waxman (D-CA) in a bipartisan move.Senator Grassley, the chairman of theSenate Finance Committee, which hasauthority over Medicaid, said:

The drug program has been badlymismanaged. The Centers forMedicare and Medicaid Services,which administers the program,has been negligent. For 15 years,drug companies have been profit-

ing from a system that costs tax-payers untold hundreds of millions,if not billions, of dollars annually.

Drug companies told investigatorsthat they had never received clearguidance from the government on howto define or calculate “best price.” In awritten response to the report, federalMedicaid officials agreed that it wouldbe helpful for them to provide “clearguidance” on how to perform such cal-culations. Predictably, the Bush Admin-istration denied that it was providing“inadequate oversight.” The BushWhite House suggested that the gov-ernment lacked the resources to verifydata used for hundreds of drugs.Clearly, huge amounts of money are atstake. In one case, Schering-Ploughagreed last year to pay $345 million tothe federal government and 50 stateMedicaid programs to resolve civil andcriminal charges of fraud in the pricingof Claritin, the popular allergy drug.The government said Schering hadconcealed its best price. As a result,Medicaid had paid far more than twomanaged care companies. The govern-ment learned of the case through acomplaint filed by three former Scher-ing employees.Source: The New York Times

PUBLIC CITIZEN SAYS IRESSA SHOULD BEREMOVED FROM MARKET

Public Citizen believes that Iressa, adrug approved to treat non-small celllung cancer, should be pulled from themarket because it does not improvesurvival rates and has been linked todeaths in Japan and the United States.Public Citizen has filed a petition withthe U.S. Food and Drug Administration(FDA) to have the drug pulled from themarket. In testimony delivered to theFDA’s Advisory Committee on Onco-logic Drugs, Public Citizen said thatIressa should be reclassified as anexperimental drug.

Iressa was approved in May 2003under an accelerated approvalprogram. Because it had been demon-

strated only to reduce tumor size, itsapproval was conditioned on the man-ufacturer, AstraZeneca, studying thedrug further to determine whether itprolonged survival. That study hasbeen done and it shows that patientstaking Iressa didn’t live any longer thanpatients taking a placebo. The FDA hasthe authority to pull the drug under theaccelerated approval process. Instead,the agency merely advised patients toconsider taking one of two other drugsthat—unlike Iressa—have been proveneffective in prolonging survival.

Even more significant is the fact thatIressa has been linked to deaths. InJanuary, Japanese scientists linkedIressa to a total of 1,473 adverse eventsand 588 deaths in that country. In addi-tion, according to a Public Citizenanalysis of the FDA’s adverse eventreactions database, there have been144 reports of acute interstitial pneu-monia in patients taking Iressabetween May 2003 and September2004, including 87 deaths for which thedrug was suspected to be the cause.Dr. Peter Lurie, deputy director ofPublic Citizen’s Health ResearchGroup, said:

The continued use of Iressa puts allpatients at risk for a serious andpotentially fatal lung disease that isoccurring with a relatively highincidence. Leaving Iressa on themarket increases the likelihood thatpatients will be diverted from aneffective therapy to an ineffectivetherapy, endangering their lives.Keeping a drug on the marketwhile effectively telling people toavoid taking it is not an adequatepublic health response.

Considering the excellent and mostimpressive track record of PublicCitizen when it comes to protecting thepublic from unsafe drugs, I believe thatthe FDA should take a long look atIressa. In fact, the public would bemuch better off if Dr. Wolfe (director ofPublic Citizen’s Health ResearchGroup) had been the boss at the FDAfor the last 10 years. In any event, I


believe that the sale of the drug shouldat least be suspended—if not banned—by the FDA until such time as furtherstudies are concluded.Source: Public Citizen

FDA CAUTIONS DOCTORS ON ECZEMATREATMENT

The Food and Drug Administration(FDA) has issued an advisory todoctors urging caution in prescribingtwo drugs for eczema because theymay cause cancer. The drugs Elidel andProtopic will receive new “black box”warnings pointing out that anincreased risk of cancer may be associ-ated with their use. Elidel and Protopicare applied to the skin to controleczema by suppressing the immunesystem. It is reported that animal testshave shown an increase in cancer asso-ciated with the drugs. Additionally, asmall number of cancers have beenreported in children and adults treatedwith the drugs, according to the FDA.The manufacturers of the productshave agreed to do further tests todetermine the actual risk. But, bothcompanies contend strongly that theirproducts have not been tied to cancer.The FDA is developing a medicationguide for patients, and urges physiciansconsidering prescribing the drugs toconsider the following:

• Elidel and Protopic are approvedonly for short-term and intermittenttreatment of eczema in patients whodon’t respond to or cannot tolerateother treatments.

• These drugs are not approved foruse in children younger than 2 yearsold because the long-term effect onthe developing immune system is notknown. In clinical trials, infants andchildren younger than 2 years of agetreated with Elidel had a higher rateof upper respiratory infections thanthose treated with placebo cream.

• These drugs should not be used con-tinuously. The long-term safety ofthese products is unknown.

• Children and adults with a weakenedor compromised immune systemshould not use Elidel or Protopic.

• Use the minimum amount needed tocontrol symptoms. The animal datasuggest that the risk of cancerincreases with increased exposure.

As you know, the black box warningrequirement is most significant. A blackbox is the strictest warning the FDAcan require a company to place on itslabel. The FDA will now begin negoti-ating the exact wording of the boxwith Novartis and Fujisawa. Both com-panies said they would work with theFDA. Novartis and Fujisawa have beenrequired to report on any cancers seenamong Elidel and Protopic users. Therehave been 29 reports of cancer, includ-ing about a dozen of skin cancer andlymphoma. But, the FDA said it wouldtake 10 or more years of human studiesto determine whether there really is alink between use of the products andcancer, and noted that both companieshave agreed to conduct such research.Novartis said the number of cancers inquestion was below the number nor-mally seen in the general population.Sources: USA Today, Associated Press and The WallStreet Journal

NEW RULES WILL COST DOCTORS ANDOTHER EMPLOYEES AT NIH

A group of senior government scien-tists have announced their oppositionto new and restrictive conflict-of-inter-est rules at the National Institutes ofHealth. These scientists complainedthat the agency’s mission was indanger of being irreparably compro-mised. They said the new rules, whichban NIH employees from acceptingconsulting fees or stock options frombiomedical companies, would victimizeeven food handlers and elevator opera-tors. However, I doubt if many of theNIH employees in those two jobdescriptions have been receiving much“financial help” from biomedical com-panies or the pharmaceutical industry.Interestingly, according to a report in

the Los Angeles Times, six of the 18-member executive committee leadingthe dissidents have accepted consultingfees or stock options from biomedicalcompanies in recent years. The feestotaled more than $400,000. One com-mittee member received stock optionsfor 500,000 shares as compensationfrom a company. The committee waselected by colleagues to “address” thecurrent “situation” and “the new rules,”according to the Internet site of theprotesting NIH employees, named theAssembly of Scientists.

Scientists at the NIH also are beingordered to divest ownership of stock inany pharmaceutical, biotechnology orrelated company. Other NIH employ-ees must divest holdings exceeding$15,000 in value in any individualcompany in the biomedical field. Thetighter restrictions were scheduled totake effect on March 5th. Allowing NIHstaff scientists to receive consulting feesfrom drug companies clearly under-mines confidence in the agency’sresearch. Reports published in theTimes that became the focus of fourcongressional hearings last fall are saidto have caused NIH to act. Citing inter-views and agency and companyrecords, the Times reported that seniorNIH researchers and laboratory chiefswho helped design or oversee clinicaltrials had accepted industry compensa-tion. The directors of two major NIHinstitutes—whose duties included over-seeing clinical trials—accepted hun-dreds of thousands of dollars in fees orstock options, according to the Times.

At least 530 agency scientistsaccepted fees, stock or stock optionsfrom the biomedical companiesbetween 1999 and 2003, according tothe NIH and company documents.Other records, submitted to Congresslast year by 20 biomedical companieshave identified about 50 NIH scientistswho accepted industry payments buteither failed to get required approvalsfrom the agency or did not report theincome internally. The compensationfrom the companies to the scientistswas allowed because many restrictions


were lifted in November 1995 by Dr.Harold E. Varmus, a former NIH direc-tor. The statement issued by the groupof NIH scientists was the latest sign ofresistance to tighter ethics rules amongsome staff members at the agency. Ifanything, the ethics rules governingpotential conflicts of interest should bemade tougher.Source: Los Angeles Times

ANTIDEPRESSANT LABELS START THIS MONTH

“Black box” labels warning that anti-depressants can increase suicidalbehavior in children were to have beenon the drugs most widely prescribed tochildren by mid-March. This is fivemonths after the Food and DrugAdministration (FDA) ordered that thewarnings be on the drugs. Joel Gurin,executive vice president of ConsumersUnion, a consumer advocacy group,stated: “It’s unfortunate that it’s takenthis long. It was really important forparents to have had this information.Getting it out quickly was important fortransparency and trust.” The FDA sentletters telling the 14 companies thatmake antidepressants to add the boxesand produce “medication guides” aboutproven risks and benefits. The guideswill be given to everyone picking upantidepressant prescriptions. The com-panies then had to submit applicationsfor the label changes. The FDAapproved the changes and set a 30-daydeadline for action.

Approval letters went out in mid-Feb-ruary to the makers of Prozac, Zoloftand Celexa. The same letter had goneout to GlaxoSmithKline, maker of Paxiland Wellbutrin, in January. These fiveantidepressants are the most widelyprescribed to children, according to IMSHealth, which tracks prescription drugs.The warnings say that about 2 in 100children taking antidepressants aremore likely to think about or try suicidebecause they’re on the pills. There wereno suicides among the more than 4,400children involved in the studiesreviewed by the FDA. Only Prozac has

been approved to treat childhooddepression, but the other drugs can beprescribed legally as an off-label use.But, even Prozac causes a 50% higherrisk of suicidal behavior in children,according to an FDA analysis releasedlast fall. The October decision by theFDA to order black boxes, which is thestrongest possible warning now avail-able, and medication guides came onlyafter eight months of mounting pres-sure by Congress. Dozens of parentstestified at two FDA hearings that anti-depressants had caused their children’ssuicides and this added to the pressureon the FDA. An FDA scientific advisorypanel recommended the black boxes,which are reserved for the most dan-gerous drugs, after a hearing in Septem-ber. I hope the strong warnings will beenough to curb the prescribing of anti-depressants for children. Source: USA Today

EPA CRACKS DOWN ON LEAD IN DRINKINGWATER

As our readers already know, lead isa highly toxic metal that was used foryears in many household products. Ithas become widely accepted that leadcan cause kidney and brain damageand, in some cases, death. Pregnantwomen and infants are the most vul-nerable to lead. Even at low levels, itcan cause behavioral problems andlearning disabilities in children, whoare most at risk at ages six and underwhen the brain is developing. Since1991, the Environmental ProtectionAgency has required drinking waterutilities to reduce contamination if leadconcentrations exceed 15 parts perbillion in more than 10% of tapssampled. There are about 54,000 com-munity water systems supplying 268million Americans, or about 90% of theU.S. population, according to TheAmerican Water Works Association, atrade group. The EPA said its reviewshows the current regulations are ade-quately protecting more than 96% ofwater systems that serve 3,300 peopleor more. The agency told the Associ-

ated Press that in the past three yearsthere have been only four large watersystems (Washington, D.C.; St. Paul,Minnesota; Port St. Lucie, Florida; andRidgewood, New Jersey) that hadunsafe lead levels.

The EPA plan is designed to “increasethe accuracy and consistency of moni-toring and reporting.” Their aim is todeal with lead problems “quickly andproperly.” Notification of persons in thearea to be affected is critically impor-tant. The chief concern of the EPA issaid to be “protection of public health.”EPA’s regulations, which affect bothlead and copper in drinking water, alsoare intended to improve management oflead service lines and customer aware-ness of any problems. President Bushhas proposed cutting EPA spending bynearly a half-billion dollars next year,most of that from clean water programs.The President wants to reduce by one-third the low-interest loans to states forwater quality protection and decreaseby 83% spending on replacing agingwater treatment facilities and pipes. In arather inconsistent statement, PresidentBush said that one of the chief tasksfacing the next EPA chief would be to“lead federal efforts to ensure the safetyof our drinking water supply,” whichwould also play “an important role inthe war on terror.” Cutting the EPA’sbudget doesn’t make much sense, andreally can’t be justified. I hope the cutsto the EPA’s budget will be replaced asthe budget goes through the Congres-sional process. Source: Associated Press

AUTISM LINK TO MERCURY POLLUTION FOUND

Mercury released primarily from coal-fired power plants may be contributingto an increase in the number of cases ofautism, according to Texas researchers.A study released on March 17th in thejournal “Health and Place” found thatautism increased in Texas counties asmercury emissions rose. The study wasdone at the University of Texas HealthScience Center in San Antonio. “The


main finding is that for every thousandpounds of environmentally releasedmercury, we saw a 17% increase inautism rates,” according to Dr. ClaudiaMiller, who participated in the study.About 48 tons of mercury are releasedinto the air annually in the United Statesfrom hundreds of coal-burning plants.The study looked at Texas county-by-county levels of mercury emissionsrecorded by the government and com-pared them to the rates of autism andspecial education services in 1,200Texas school districts. One of theresearchers involved in the study saysthe study shows that there may be “avery important connection betweenenvironmental exposure to mercuryand the development of autism.” TheU.S. Centers for Disease Control hassaid it does not know how many casesof autism there are in the country orwhether the number has increased, butthat the issue is under study.

Some experts estimate there are 1.5million people in the United States withautism, most of them children, and saythe number of cases has risen rapidly inrecent years. Autism has increased dra-matically over the last decade or so.Thus far, the reasons for that increasehave really stumped the medical com-munity. It is now believed that therising exposures in pollutants likemercury may be at the root of some ofthese cases. Dr. Raymond Palmer, anautism expert, states: “This research hasimplications for toxic substance regula-tion and prevention policies. Policiesregarding toxic release of mercury andthe incidence of developmental disor-ders should be investigated.” If in factmercury and other pollutants are causesof autism, our elected officials and theregulatory agencies in governmentmust do all within their power to curbthe polluters. Source: Reuters News

XVIII.ENVIRONMENTALCONCERNS

THE CHEMICAL INDUSTRY PLAYS HARD BALL

Around the first of the year, twentyof the largest chemical companies inthe United States launched a veryquiet, but effective campaign to attackthe credibility of two historians whohave studied the industry’s efforts toconceal links between their productsand cancer. For the first time thatanyone can remember, lawyers forDow, Monsanto, Goodrich, Goodyear,Union Carbide, and several others sub-poenaed and deposed five academicswho recommended that the Universityof California Press publish a book titledDeceit and Denial: The Deadly Politicsof Industrial Pollution. Also, in whatseems to be a growing trend amongsome in Corporate America today, their“own” historian contends that theauthors of this book have engaged inunethical conduct. The authors, GeraldMarkowitz and David Rosner, are Pro-fessor of History at the CUNY GradCenter and Professor of History andPublic Health at Columbia University,and Director of the Center for theHistory and Ethics of Public Health atColumbia’s School of Public Health,respectively.

It does not take very long to figureout why these companies are takingthis punitive action. They face potentialliability on a very large scale if canceris linked to their products. One of thebest ways to stop both publishers andauthors is to charge them with ethicalviolations and then subpoena theirpublishers and manuscript readers.This is of the utmost concern for thepublic at large, because the center ofthis dispute is access to informationabout cancer-causing chemicals in con-sumer products.

The scheme contrived by these com-panies is fairly simple. Dr. Markowitz isa key expert witness for the plaintiffs ina case that claims chemical companies

are liable for liver cancer through expo-sure to vinyl chloride monomer on thejob. These corporate defendants aretrying every method possible to dis-credit these witnesses. In court filings,they have told federal judges that theresearch done by Markowitz and Rosneris “not valid,” and that the publisher’sreview process was “subverted.” Theyhave even stated that Rosner andMarkowitz have “frequently and fla-grantly violated” the American HistoricalAssociation’s Code of Ethics. Obviously,these are extremely serious charges.

Who would have the motivation todiscredit these men? It doesn’t take a“Philadelphia lawyer” to figure that out.The rebuttal to the opinions Rosner andMarkowitz are stating is coming directlyfrom chemical companies. PhillipScranton of Rutgers University wrote a41-page critique of the book, Deceitand Denial, and of the ethics of the his-torians who wrote it. Scranton teachesbusiness history at Rutgers-Camdenwhere he is University Board of Gover-nors Professor of the History of Indus-try and Technology. He also works atthe Hagley Museum, a museum ofearly-American business history at theancestral home of none other than theDupont family. Scranton also finds timeto testify for the asbestos companies intheir liability litigation. It is interestingto note that, although Scranton isserving in the vinyl chloride cases as anexpert witness for chemical companies,he is not an expert on cancer-causingchemicals. In the case, he doesn’t claimto be an expert on the post-war chemi-cal industry; instead, he offers himselfas an expert on Markowitz’ ethics.Markowitz, in contrast, is a legitimateexpert on the central issue in the case:the question of what the chemical com-panies knew, and when they knew it.

Fifteen or sixteen lawyers deposedMarkowitz for five and a half days.Obviously, Markowitz and Rosner arepart of a larger trend in which histori-ans are appearing in court more oftenas expert witnesses. One reason is thegrowing number of cases in whichcompanies are being accused of wrong-


doing based on evidence that workersand consumers are suffering illness anddisability because they were exposed toasbestos, lead, silica, or other chemi-cals. In every case, the exposure begandecades ago, and thus in every case, acentral legal question is a historical one:When did the companies first learn ofthe health dangers posed by their prod-ucts? At what point in the past can theybe held responsible? Because the gov-ernmental regulatory agencies havelargely failed to act, more and morelawsuits have had to be filed to protectthe health of workers and the public.Clearly, the Occupational Safety andHealth Administration, as well as theEnvironmental Protection Agency have,over the years, increasingly becomemuch more industry-dominated. As triallawyers, it is our job to continue tobring cases such as the one mentionedin this article to a jury so that the truthcan be exposed. Apparently, big chemi-cal companies will continue to do any-thing and everything to keep all of thehistorical facts from being brought tolight. It should make one wonder whatthey have to hide.Source: The Nation

EPA CONSIDERING AIR POLLUTION CUTS FORCOAL-FIRED POWER PLANTS

Coal-fired power plants in Alabamaand 12 other eastern and southernstates may be forced to reduceunhealthy air pollution at their plantsbecause of a proposed settlementbetween the EPA and the state of NorthCarolina. In a filing by North Carolina’sAttorney General Roy Cooper in Marchof last year, the state asked the EPA tofind that pollution coming from coal-fired power plants outside of NorthCarolina was preventing the state frommeeting federal health-based standardsfor smog and soot in metropolitanareas. The state of North Carolina alsocontends that pollution from these out-of-state plants is harming people’shealth, damaging farmers’ crops, anddetracting from mountain resort views.

The proposed settlement with EPA

was filed last month in U. S. DistrictCourt in Raleigh, North Carolina. If theCourt approves the proposed timeta-bles under the settlement, the EPAwould have to make specific decisionson an overall plan to reduce air pollu-tion emissions from these coal-burningpower plants within a three-yearperiod. A federal appeals court hastwice upheld the EPA’s authority toclean up pollution from power plantsunder the “good neighbor” provisionsof the Clean Air Act. But, EPA spokes-woman Cynthia Bergman has said that,“It’s an absolute certainty” that the casewill drag on for years because somepower plants will inevitably challengethe EPA’s decision. Still, Michael Shore,a senior policy expert for the Environ-mental Defense Fund in Asheville,North Carolina, said that the settlementwould put pressure on the EPA to fulfillits promise to achieve many of thesuit’s goals. He says that the “EPAwould have to repudiate all ofits…analysis to find anything but thatthe sources in upwind states are con-tributing to air pollution in North Car-olina.” I predict that if the courtapproves this settlement, North Car-olina can expect several coal-firedpower plant operators in Alabama tostrenuously object to any EPA planinvolving air pollution reductions.

THE IMPACT OF AIR-POLLUTIONDESIGNATIONS ON BUSINESS GROWTH

Approximately 509 counties nation-wide have been cited over the last yearas “non-attainment zones” by the Envi-ronmental Protection Agency. Thefederal Clean Air Act requires states todevelop a plan for reducing air pollu-tion in those areas. A growing numberof businesses are refusing to expand oropen new plants in areas cited by thefederal government as having toomuch smog-causing ozone or very fineparticles in the air. Businesses that dogo forward with plans to expand oropen new plants in non-attainmentzones usually face a number of permit-ting challenges and additional costs to

operate in those places that have notachieved acceptable pollution levels.

In Alabama, automotive companiessuch as Mercedes in Vance, Honda inLincoln, and Hyundai in Montgomeryopted to put their plants in those loca-tions because the cities had alreadycomplied with air-pollution standards.Other cities in Alabama, such as Birm-ingham, have a very difficult timeattracting new industry because of Jef-ferson County’s designation as a non-attainment zone. The conflict betweenjobs and clean air has gained attentionas lawmakers consider President Bush’sair pollution plan, which has failed topass Congress for three years. TheSenate Environment and Public WorksCommittee is currently trying to advancethe White House plan, despite opposi-tion by senators from both parties.

Under President Bush’s plan, manu-facturers would reduce emissions ofsulfur dioxide, nitrogen oxide andmercury by 70% by the year 2018. TheBush proposal claims that it wouldbring non-attainment regions into com-pliance through a trading plan in whichcompanies with emissions under thefederal limit could sell credits to com-panies over the limit. A number ofcritics have noted, however, that actualemission levels are not lowered by thisexchange at all. Democrats and envi-ronmental groups argue that Congressinstead should pass a stronger bill thatalso would regulate carbon dioxide, thechief “greenhouse” gas blamed forglobal warming, and require fasteremission reductions. In my opinion, theBush plan does not even come close toaddressing the serious air-pollutionproblems we face in this country. If wemove aggressively to clean up the air,not only will people in these non-attainment cities, like Birmingham, haveclean air, but also businesses will be ina better position to locate there andprovide new jobs to the community. Itmakes sense to get serious about airpollution and start attacking theproblem. We can’t afford to let the pol-luters call the shots any longer.


SETTLEMENT OF DUPONT CLASS ACTIONAPPROVED

A West Virginia state trial judge hasapproved the settlement of the classaction lawsuit involving DuPont Co.’sTeflon. It was alleged a chemical usedin making the nonstick substanceTeflon contaminated water suppliesnear DuPont’s Washington Works plantin West Virginia. The settlement—inwhich DuPont agreed to pay at least$107.6 million—was approved by thejudge. He called the company’s pro-posal an “unprecedented action by ahuge corporate defendant.” The courtnoted that the settlement was finalizedwithout any evidence that perfluorooc-tanoic acid, also known as PFOA orC8, caused any disease. The lawsuitwas filed in August 2001 on behalf ofresidents living near the plant, locatedon the Ohio River about 7 miles south-west of Parkersburg, West Virginia,who said their drinking supply wascontaminated by PFOA.

DuPont gave the usual corporatespin to the settlement. The companydenied any wrongdoing and said itdecided to enter into the agreementbecause of the time and expense of liti-gation. That is usually the reason givenfor a settlement by a corporate defen-dant, although DuPont clearly was notfacing $108 million or more in“expense of litigation” alone. Under theagreement, blood tests will be con-ducted on tens of thousands of currentcustomers of six area water districts,former customers of those suppliers,and residents with private wells. Theagreement also calls for DuPont, basedin Wilmington, Delaware, to providethe six drinking water utilities with newtreatment equipment to reduce PFOAin water supplies at an estimated costof $10 million. The company will alsofund a $5 million independent studyto determine whether PFOA makespeople sick. If PFOA is found to proba-bly be linked to adverse health effects,ultimately DuPont could be forced tospend another $235 million on aprogram to monitor the health of resi-

dents who were exposed to the chemi-cal, according to the agreement. Partici-pation in the lawsuit does not rule outfuture personal injury litigation againstDuPont. I suspect the make-up of thescientific panel, whose members wereselected by agreement of both sides,will determine whether it finds C8harmful. There are certainly strongindications that the chemical is harmfuland I would have to believe thatDuPont knows it. Source: Associated Press

EPA ISSUES RULES CUTTING MERCURYPOLLUTION

Last month the Environmental Pro-tection Agency (EPA) ordered a nearly50% cut in mercury pollution frompower plants over the next 15 years,adopting a market-based strategy thatwould raise electricity prices, but helpprotect fetuses and young childrenfrom nerve damage. Jeffrey Holmstead,the EPA’s top air pollution official, toldthe Associated Press: “The UnitedStates is the first nation to take a lead-ership role in addressing the problemof mercury from power plants.” TheEPA estimates the current 48 tons ayear of mercury pollution from thenation’s 600 coal-burning power plantswill decrease to 31.3 tons in 2010, 27.9tons in 2015 and 24.3 tons in 2020. Noteverybody is happy with the EPA’s reg-ulations. The new rules faced immedi-ate political and legal opposition fromsenators, environmentalists and publichealth advocates. Opponents saidEPA’s approach, favored by the utilityindustry, fails to do all the Clean AirAct requires by not making deeper cutsnationwide in harmful mercury emittedby coal-burning power plants. Whilethe new rules are an improvement inthe current situation, it appears thatthey still are not enough. I hope therewill be enough pressures on the WhiteHouse to bring about some neededchanges in the rules. Source: Associated Press

A REPORT ON MERCURY PROBLEMS INSOUTH ALABAMA

A new round of laboratory testingsponsored by the Mobile Register pro-vides new evidence that contaminatedmaterials found scattered throughoutthe community of Macintosh, which islocated in Washington County, arelikely to contain droplets of pure “ele-mental mercury,” a potent form of theheavy metal in terms of danger tohumans and the environment.

The Register-sponsored testingrevealed high levels of total mercury inmaterials spread on several roads andscattered near schools, parks, andwoods and around houses in the Mac-intosh community. It appears that theconcentrations of mercury wereextremely high and hazardous. Accord-ing to scientists, the presence of ele-mental mercury multiplies the numberof ways that mercury can enter theenvironment and become a danger tohumans. Ben Raines and Bill Finch,who are staff reporters at the Register,did an excellent job and I would rec-ommend that you read the entirearticle, which appeared in the Registeron March 16th. You can go to thepaper’s website: www.al.com/mobileto get the article in its entirely. Source: Mobile Register

DIESEL EXHAUST POSES A HEALTH HAZARD

It has been reported that more than20,000 Americans die each year frombreathing toxic diesel fumes. Thesedeaths occur even though there arefederal standards for new dieselengines. A report released recentlyfound that many of the deaths couldeasily have been prevented by apply-ing available technology that can cutdiesel soot emissions by 90% or morefrom existing engines. The report,Diesel And Health in America: The Lin-gering Threat, was released by theClean Air Task Force and the Allianceof Regional State and Local Environ-mental and Public Health Groups fromaround the country. The report esti-


mates that thousands of diesel-relateddeaths could be avoided each year iffederal and state authorities would takeaggressive action to clean up existingsources of diesel soot, including buses,trucks, ships, and construction andfarm equipment. Diesel exhaust alsoposes a cancer risk that, on a nationalbasis, is 350 times higher than theEPA’s acceptable risk level.

The report notes that EPA’s recently-issued emission standards for newdiesel engines will take more than aquarter century to become fully effec-tive. Those standards don’t apply toany of the 13 million diesel engines inuse today. Conrad Schneider, whoserves as Clean Air Task Force’s advo-cacy director and who was a co-authorof the report, stated:

Diesel exhaust may be the singlemost severe air pollution threat topeople’s health in heavily-popu-lated urban areas across thecountry. Scores of medical studiesshow that microscopic particlesand toxins in diesel exhaust areassociated with cardiovasculardeath and lung cancer, and theytrigger asthma attacks—especiallyin children, the elderly and peoplewho live and work near buses,trucks and other diesel vehicles.

XIX.TOBACCOLITIGATIONUPDATE

SECONDHAND SMOKE MAY CAUSE BREASTCANCER

Scientists at an influential Californiaagency have concluded that second-hand smoke causes breast cancer. Thisis a finding that could have broadimpact on cancer research and hope-fully will lead to even tougher anti-smoking regulations. Although recentstudies have linked smoking to breastcancer, no major public health group,

including the American Cancer Society,the Centers for Disease Control andPrevention, and the National CancerInstitute, has declared it a cause of thedisease that kills 40,000 women eachyear in the USA. The finding by scien-tists for the Air Resources Board—whose early efforts to regulate autoemissions were a model for the rest ofthe country—could fuel workplacesmoking bans in more states. And it islikely to refocus the scientific debateover the link between smoking andbreast cancer. Terry Pechacek, associ-ate director for science in the CDC’soffice on smoking and health, told theUSA Today: “I have to say withoutreservation it will stimulate continuedand accelerated scientific evaluation ofthe smoking and breast cancer issue.”

A scientific review panel approved thereport and forwarded it to the AirResources Board. This board has broadstate authority to regulate air pollution.The report analyzes new data on theextent of Californians’ exposure tosecond-hand smoke and more than1,000 studies of health effects fromsecond-hand smoke. The conclusionthat second-hand smoke causes breastcancer, particularly in younger women,challenges conventional scientific think-ing because most studies, until recently,had found no connection betweenfemale smokers and breast cancer. ButCalifornia scientists based their conclu-sion on recent human studies that theydetermined had more careful assess-ments of long-term exposure to tobaccosmoke. The report also gave moreweight to toxicology evidence fromanimal studies than previous studies bythe surgeon general and others. It’s well-documented that chemicals from ciga-rettes cause breast cancer in lab animals.

The report says that women exposedto second-hand smoke have up to a 90%greater risk of breast cancer. Accordingto the report, second-hand smoke killsas many as 73,400 a year in the USA.The report did not estimate the numberof additional new breast cancer casesannually. Scientists didn’t calculate risklevels based on doses of second-hand

smoke. Tobacco companies don’tappear to think much of the report.They say it gives little weight to studiesthat found no breast cancer connection.A new surgeon general’s report onsecond-hand smoke is expected thisyear. If it is proved conclusively thatpassive smoke causes breast cancer, itwill have strong implications for tobaccocontrol and breast cancer control.Source: USA Today

U.S. SUPREME COURT TURNS AWAY PHILIPMORRIS

The U.S. Supreme Court has rejectedan appeal by Philip Morris that was wel-comed news. This means that thetobacco giant will have to pay morethan $16 million to a California womanwho contracted lung cancer. It wouldbe the largest payment ever paid to anindividual smoker. It is also the firstpunitive damages award to actually bepaid. The tobacco company had beenfighting for six years to overturn thedamages award to the plaintiff, whowas diagnosed with lung cancer in1998, after more than 30 years as a Marl-boro smoker. In February 1999, a juryfound that the company had lied aboutthe risks and addictiveness of smokingand was responsible for the plaintiff’scancer. The jurors awarded $51.5million, but the award was later reducedafter a series of hearings and appeals to$10.5 million. The 58-year-old plaintiffsays she will give most of the money toa foundation to teach children about theills of smoking and treat kids with respi-ratory ailments and cancer.

XX.THE CONSUMERCORNER

FORD’S LENDING PRACTICES CHALLENGED INA LAWSUIT

In a recent issue, we wrote on theclass action lawsuit filed against FordMotor Credit, the division of Ford


Motor Company that makes car loans.The complaint in that case contendedthat the company’s lending practicesallow dealers to discriminate againstminorities. Through a practice knownas markups, auto dealers charge aninterest rate higher than a lending insti-tution would offer and either pocketthe difference or split it with thelender. A federal judge has now foundthat Ford Motor Credit has been dis-criminating against its minority cus-tomers. At the conclusion of atwo-week bench trial in Nashville, Ten-nessee, U.S. District Judge AletaTrauger told all of the lawyers that sheintended to rule in favor of the African-American plaintiffs. The judge thenordered the parties to start negotiatinga settlement that will resolve the plain-tiffs’ claims. A 30-day window for set-tlement negotiations was given to theparties by the judge.Sources: New York Times and The Tennessean

BANK OF AMERICA IS MISSING TAPES WITHCARD DATA

There have been a series of incidentsrecently relating to identity fraud thatshould cause all consumers a great dealof concern. For a start, Bank of AmericaCorp. has admitted that it lost computerbackup tapes containing personal infor-mation, such as names and Social Secu-rity numbers, on about 1.2 millionfederal government charge cards, backin December. Apparently, Bank ofAmerica doesn’t plan to close theaffected accounts or issue new cardsunless asked to do so by customers.The missing tapes hold information onVisa charge cards issued to employeesat federal agencies. Bank of Americahas refused to disclose the agencieswith charge card data on the tapes. But,the Defense Department told the WallStreet Journal that 900,000 of itsworkers may be affected. Bank ofAmerica and four other U.S. banksprovide charge cards to federal agen-cies through contracts with the GeneralServices Administration, which is thegovernment’s centralized procurement

arm. The program’s current contractperiod ends in November. Interestingly,personal information on more than halfof the 100 U.S. Senators also is on thetapes, according to the Journal.

This incident also could add fuel tothe growing regulatory and politicalscrutiny of data clearinghouses andother companies with mountains ofpersonal information on nearly everyAmerican. This is a most serious matterand I hope Bank of America has takenthe steps necessary to protect all of thepersons whose personal informationwas compromised—if that is possible.It is difficult—with all of the availabletechnology—to understand how thisbreakdown occurred in the first place. Ifear we haven’t heard the last from this episode. The unfortunate thing,however, is the fact that this isn’t theonly company having problems. Source: Wall Street Journal

CHOICEPOINT ALSO HAVING PROBLEMS

In another major debacle, Georgia-based ChoicePoint Inc., one of thelargest sellers of private consumer data,has acknowledged that criminals usedfake documentation to open fraudulentaccounts, compromising 145,000records in the company’s databases.Unfortunately, this wasn’t the firstproblem of this sort that ChoicePointhas had. In 2002, two Nigerian-bornscam artists were arrested in LosAngeles in 2002 on charges of usingChoicePoint Inc. to tap into its vastdatabase of personal information. Inthe 2002 incident, the two individualsgained access to at least 7,000 peopleand used their identities to buy at least$1 million in merchandise, the LosAngeles Times reported. This scamwent pretty well under the radar screenat that time. Now we are learning ofother similar problems with Choice-Point and other companies.

ChoicePoint has 19 billion publicrecords that include motor vehicle reg-istrations, license and deed transfers,military records, addresses, and Social

Security numbers. The company hasacknowledged that thieves used previ-ously stolen identities to create whatappeared to be legitimate businessesseeking personal records. The scamartists, who operated undetected formore than a year, then opened up 50accounts and received vast amounts ofdata on consumers, including theircredit reports. The latest case becamepublic as a result of a California lawthat requires credit agencies to notifyvictims of identity theft. ChoicePointsaid the latest breach affected nearly145,000 people nationwide, includingmore than 34,000 in California.

Consumer advocates are calling forfederal oversight of the loosely-regu-lated data-brokering business. TheFederal Trade Commission estimatesthat identity theft cost U.S. businesses$50 billion in 2002 and consumers $5billion. The SEC and the FTC havelaunched investigations of ChoicePointin the wake of the scandal. I hope ourelected leaders in Washington fullyunderstand the serious nature of iden-tity theft and how easy it appears forcriminals to steal personal information.The U.S. Senate Judiciary Committeeplans to hold hearings on the Choice-Point security breach. Senator PatrickLeahy (D-VT) told the Wall StreetJournal that the missing Bank ofAmerica computer tapes suggest “theneed for greater care and accountabil-ity on the part of the businesses thathave access to Americans’ personalinformation.” If the same effort hadbeen put forth in dealing with identitytheft that we have seen from the Presi-dent and Congress on tort reform, ourprivate and personal informationwould be much safer and more secure. Sources: The Los Angeles Times, Wall Street Journal,Houston Chronicle, and Associated Press


XXI.RECALLS UPDATE

DODGE DURANGO AND DODGE DAKOTARECALL

DaimlerChrysler has been required torecall nearly 600,000 vehicles related to apotential safety defect. The automakerhas recalled Dodge Dakota Sport UtilityVehicles and Dodge Dakota PickupTrucks for model years 2000-2003. Aftera sixteen-month investigation into poten-tial safety defects related to the front sus-pension upper ball joint assembly of theDaimlerChrysler vehicles, the NationalHighway Traffic Safety Administration(NHTSA) recommended a recall. NHTSA’sstudy revealed that water buildup in theupper ball joint assembly, of these vehi-cles could wear down the upper balljoint assembly and if failure occurs, thefront suspension could collapse and thewheels could fall off. NHTSA investiga-tors have received nearly 800 complaintsrelated to the upper ball joint assemblieson the Dodge Durango vehicles. In con-trast, NHTSA has only received approxi-mately 12 complaints for the FordExplorer and approximately 11 for theChevy Blazer.

According to NHTSA, if water ormoisture leaks into the upper ball jointassembly, evacuation of the lubricantcan occur and corrosion of the jointcan cause excessive wear, which canresult in failure of the ball joint assem-bly. A failure of the upper ball jointcould result in separation of the tirefrom the suspension. There have beennumerous reports of wheels falling offduring operation due to faulty ball joint assemblies. Some persons havereported that a clunking sound washeard in the front suspension, indicat-ing that the upper ball joint assemblywas suffering from this safety problem.But, other persons have reported nowarning signs before a front wheel felloff their vehicle. According to NHTSA,the safety improvement campaignrelated to the upper ball joint assemblyof the Dodge Durango model years

2000-2003 began on December 21,2004. Owners who believe they havean affected vehicle can contact Daim-lerChrysler at 1-800-853-1403.

MITSUBISHI RECALL

Mitsubishi Motors Corp. is recalling65,436 Endeavor sport utility vehiclesbecause the parking brake may notwork correctly. The recall affectsEndeavors from the 2004 and 2005model years. NHTSA reports that a nutin the braking system may not be tight-ened properly. As a result, the vehiclecould roll if it is parked on a slope andthe transmission isn’t in “park.” Mit-subishi will notify owners starting thismonth. Dealers will inspect vehiclesand tighten the nut if necessary.

CHRYSLER PACIFICA RECALLED

DaimlerChrysler AG is recalling43,180 Chrysler Pacifica SUVs equippedwith halogen headlights because theheadlights may stop working. Therecall, announced by NHTSA, affectsPacificas from the 2005 model year.Dealers will inspect the headlights andreplace them for free.

GM RECALLS

General Motors has recalled 25,766Chevrolet Uplanders, Saturn Relays,and Pontiac Montanas. These recallscame after manufacturer side-impacttesting of an earlier version of theUplander showed the release handle ofthe second-row bucket seat maybecome unlatched, increasing thepotential for injury. The company hasplaced a cap where the handle waslocated in an effort to fix the problem.Owners should be notified of the recallduring this month.

YAMAHA RECALLS 190,000 MOTORCYCLES

Yamaha Motor Corp. is recallingaround 190,000 motorcycles because

the passenger seat can fall off the rearfender, federal safety regulators and thecompany said Friday. The recall affectsXV250, XVS11, and XVS65 motorcyclesfrom the 1988-2005 model years. Themounting hardware that connects theseat to the fender can loosen whenpassengers shift their weight, whicheventually can cause the seat to fall off.The company says it knows of twominor injuries caused by the defect.Yamaha decided to recall the vehiclesafter reviewing quality control reportson the motorcycles in Japan. Yamahawill notify owners about the recall thisspring. Dealers will replace the seat’smounting hardware for free.

CHARMS RECALLED TO GET LEAD OUT

A New Jersey company has recalledabout 2.8 million metal charms sold atMichael’s stores and other arts andcrafts retailers because they containhigh levels of lead. The recall wasprompted by reports that a 6-year-oldgirl from San Jose, California, appar-ently suffered lead poisoning inDecember after placing in her mouth acharm she wore as a necklace, accord-ing to the Consumer Product SafetyCommission (CPSC). In February theagency set acceptable lead levels forthe millions of pieces of children’smetal jewelry sold at dollar stores andin vending machines. The recalledcharms—sold as decorations for greet-ing cards and gift bags, but also used tomake necklaces and bracelets—do notnecessarily fall under the new policy.According to CPSC, the lead poisoningincident was enough to prompt thecompany, Hirschberg Schutz & Co. Inc.of Warren, New Jersey, to recall theproduct. Studies have found that evensmall amounts of lead ingested by chil-dren can cause neurological damage orbehavior and learning problems.

Opponents of CPSC’s lead policy ontoy jewelry argue it falls short, in partbecause it does not require the indus-try to test for lead. “Until they have anenforceable policy out there, we’re


concerned that kids are going to con-tinue to be exposed to lead in jewelry,and these chaotic recalls are going tocontinue,” said Charles Margulis, aspokesman for the Center for Environ-mental Health in Oakland, California.The Center has sued more than adozen retailers for allegedly failing towarn customers of lead in jewelry. Leg-islation that would ban lead in all prod-ucts for young children has beenintroduced in Congress. The mostlysilver-color charms, made in China,were sold in packages of two to 12pieces for $3 to $4 at Michael’s storesfrom July 2002 to February 2005; atReCollections from October 2004 toFebruary 2005; and at Hancock Fabricsfrom January 2004 to January 2005.Consumers are urged to take thecharms from children and contact thecompany at 800-873-5506 or [email protected] toreceive a refund.

PACIFIERS RECALLED OVER CHOKINGCONCERNS

The Consumer Product Safety Com-mission has recalled 34,000 SootherBaby Pacifiers because of worriesabout their safety. The pacifiers failedsafety tests and they could come apart,creating a choking hazard for infants.The pacifiers are blue, green, yellow,and pink. The name Soother BabyPacifiers is printed on the back of thebubble packaging. For more informa-tion about this recall, go tohttp://www.cpsc.gov/cpscpub/prerel/prhtml05/05125.html.

XXII.SPECIALPROJECTS

PARENTS TELEVISION COUNCIL

I sincerely believe that programmingon commercial television has reached anew low. We are witnessing a philoso-phy based on “anything goes” and “how

bad and gross can we make it” takingover in this powerful industry. Both theactual programming and the commer-cials that accompany them are very badmost all of the time these days. Whenyou consider that most folks spendmore time watching TV than they doworking in a given week, it becomesabsolutely imperative that we clean upthe television industry. Children in manyhomes spend countless hours watchingTV on a daily basis. Much of that time—I fear—involves watching MTV. Thischannel is a prime example of what iswrong with the commercial televisionindustry. I encourage all of ourreaders—and especially parents—to geta copy of “MTV Smut Peddlers: Target-ing Kids with Sex, Drugs and Alcohol,”which can be obtained from the ParentsTelevision Council. This is one of aseries of special reports that I believe allparents should read. The Council isdoing a good job of trying to clean up the television industry. You can goto their website: www.parentstv.org toget more information on this group’sactivities.

I don’t shock easily, but I admit thatMTV is much worse than I ever imag-ined and I am totally shocked overwhat I have learned. I didn’t knowanything about MTV and suspect manyadults are in the same boat. But I guar-antee you that most children who haveaccess to cable TV know a great dealabout MTV. How bad is the content ofMTV? The Parents Television Councilexamined 117 hours of programmingfrom one week last year. Here are justa few highlights of what they found:

• Sex: They noted a staggering 1,548sexual scenes containing 3,056depictions of sex or various forms ofnudity and 2,881 verbal sexual refer-ences.

• Profanity: There were 1,518 uses ofunedited foul language and an addi-tional 3,127 “bleeped” profanities onMTV—nearly three times as muchprofane content as adult-targetedprograms on network televisionduring prime time.

• Violence: There were 1,068 violentincidents during this time, with manyof the incidents being extreme actsof violence.

MTV is bundled with basic cablepackaging in most instances. Familiesare forced to subscribe to MTV in orderto watch what little wholesome enter-tainment programming may be foundon commercial cable channels. Fami-lies find themselves being victimizedby the smut peddlers who distributethe harmful content that we find onMTV. If you agree that MTV is bad forchildren—and they are targeting the 12to 16 age group—you should joingroups such as the Parents Televisioncouncil. The only way to combat the“smut peddlers”—including MTV—is tohit them where it hurts—and that’s inthe pocket book. In that regard, a suc-cessful boycott, in my opinion, wouldwork wonders!

ALABAMA PUBLIC TELEVISION

Most folks in the United States arefinding it extremely difficult to findanything good or worthwhile to watchon any of the commercial, cable, orsatellite television channels. In fact,there are very few what I would con-sider family shows on commercial tele-vision these days. Fortunately, there isan alternative for TV viewing and onethat is “family-friendly.” That alternativefor folks in my state is Alabama PublicTelevision (APT). In my opinion, APTis extremely important to people in ourstate. It is one of the nation’s mostrespected public television networksand we are blessed to have them onthe air. The programming by APT isoutstanding and it offers programmingthat the entire family can watch andenjoy. Each evening when the com-mercial and cable channels fill your TVscreen with lots of junk, trash and purefilth, you can always turn to APT forthe finest in theatre, journalism,science, and children’s programming.Two of my favorite programs are Forthe Record and Antiques Roadshow,


and I try not to miss them each week. I sincerely believe that we should all

support APT and keep its programsreadily available for our families. Asyou might expect, APT is in need offinancial assistance. In my opinion, afinancial contribution to APT would beone of the best investments—insofar aspromoting real family values is con-cerned—that you could make. You canget more information concerning APTby going to www.aptv.org. If youwould like to make a financial dona-tion, send it to APT, 2112 11th AvenueSouth, Suite 400, Birmingham, AL35205-2884. For our out-of-state readers,I suggest that they support the publictelevision stations in their state.

XXIII.FIRM ACTIVITIES

AUBURN UNIVERSITY’S EXECUTIVE INRESIDENCE PROGRAM

On March 8th, I had the high honorof being selected to participate in theExecutive in Residence Program at theAuburn University College of Business.We started the morning in Auburn withan early roundtable discussion with theExecutive Committee from the College.I went from there to talk to anadvanced accounting class. An inter-view for the Shareholder Magazine fol-lowed. At noon, I had lunch with Dr.Ed Richardson, Dean Paul Bobrowski,Reverend Chette Williams, and severalother distinguished persons. Afterlunch I talked to a very large businesslaw class, and that was followed by astudent roundtable discussion. I endedthe day in a late afternoon meetingwith my friend Jay Jacobs, who is nowDirector of Athletics at Auburn Univer-sity, and who I believe will do a greatjob in that position.

I must say that I really enjoyed myday back on the campus at Auburn. Iwas most impressed with my meetingswith the faculty members and students.I don’t know whether I contributed

very much to the learning experienceof the students in the College of Busi-ness, but I certainly enjoyed myself. Infact, I learned a great deal from them.It was a most interesting experience.Perhaps the thing that impressed methe most was the knowledge andunderstanding of the students concern-ing current events. I left Auburn withthe sincere belief that my alma mater isnow in good hands. I am firmly con-vinced that Dr. Richardson now hasAuburn University on the right track. Iwas also very much impressed with Dr.Paul Bobrowski, the new Dean of theCollege of Business, and with all of thefaculty members I encountered.

THE RACING SEASON BEGINS

Our firm has been the primarysponsor of a racecar for the past fewyears and it has been quite an experi-ence. Grant Enfinger, a native ofBaldwin County, will be racing theBeasleyAllen.com Super Late Modelstock car during 2005. Grant will raceprimarily in Montgomery, Pensacola,and Mobile. The racecar’s paint andlogo scheme was designed by JaymeYarroch and his staff in our firm’s Infor-mation Technology office. Lots ofattention has been directed to NASCARfans lately by political advisers who aretrying to help their clients. I suspectmost of these fans have been votingRepublican in presidential electionsover the past several years. In gettinginvolved, we want to let the fans of thenation’s most watched sport know thatwe support them.

The pro-Big Business, anti-consumerorganizations realized years ago thatthis segment of the population wasfertile ground for their campaigns ofmisinformation. As a result, thosegroups have been most successful intargeting the racing fans with their mis-leading propaganda barrage. We aredetermined to get the truth out to allconsumers and voters and decided toactually get involved on the groundfloor. We have found that our racecar

has received a tremendous responseand has given us an opportunity to tellour side of the “tort reform” story. Italso gives us the chance to promotesomething that is lots of fun andenjoyed by a tremendous number ofpeople. Greg Allen and BobbyMozingo, who are our “racing experts,”have been our technical advisors onthis project. Grant’s father, Floyd Enfin-ger, in an old friend who keeps us allon our toes. He is our direct contactwith Tom Methvin, our ManagingShareholder.

The racecar features the firm’s web-sites—www.BeasleyAllen.com, www.vioxx-legal.com, and www.CrashSafety.com. Photo cards given out by Grantat the racetrack and in personalappearances provide information onthe websites. As I have mentioned inprevious issues of the Report, theCrashSafety.com website providesmuch needed consumer information,including vehicle safety ratings andrecall notices. The vioxx-legal.com sitecontains the latest information on ourfirm’s continuing fight on behalf ofVioxx victims.

As part of the sponsorship agree-ment, Grant and his race team arecommitted to making appearances withthe car at civic, church or social gather-ings, and fundraisers. If your firm,church, or organization are interestedin scheduling Grant and the racecar,contact Bobby Mozingo at the firm. Ifyou want photo cards of the racecar, e-mail Grant at [email protected] he will be happy to sign and mailthem. I predict that Grant and his teamwill move up the ladder rapidly andwill one of these days—I hope soon—be racing in places like Daytona andTalladega. You can keep up with theprogress of the firm’s race team bygoing to the firm’s website,www.BeasleyAllenRacing.com.


XIV.SOME PARTINGWORDS

Easter Sunday, a very special day forall of us, came early this year. Ourchurch—as did many others—had anumber of special programs relating tothe life, death, and resurrection ofJesus Christ during the weeks leadingup to Easter. Having seen The Passion,I believe that Easter had more spiritualmeaning for most Christians this year. Itis a sobering reality that God lovedeach of us so much that He was willingto sacrifice His only Son for us. Life in

our strife-filled world could be mostdifficult if we didn’t have the promisesof God to rely on. God’s plan of salva-tion offers us two things that arecertain. The first is peace on this earthand the second is eternal life. Con-sider these words and I believe it willmake a difference in your life:

For God so loved the world that Hegave His only begotten Son, thatwhoever believes in Him should notperish but have everlasting life. ForGod did not send His Son into theworld to condemn the world, butthat the world through Him mightbe saved. He who believes in Him isnot condemned; but he who does

not believe is condemned already,because he has not believed in thename of the only begotten Son ofGod. And this is the condemnation,that the light has come into theworld, and men loved darknessrather than light, because theirdeeds were evil. For everyone prac-ticing evil hates the light and doesnot come to the light, lest his deedsshould be exposed. But he who doesthe truth comes to the light, that hisdeeds may be clearly seen, thatthey have been done in God.

John 3: 16-21


To view this publication on-line, add or change an address,or contact us about this publication,

please visit our Website: www.BeasleyAllen.com

PR

ESOR

TED

STA

ND

AR

D

U.S.P

OSTA

GE

PA

IDM

ON

TG

OM

ERY,A

LP

ERM

ITN

O.275

RET

UR

N SER

VIC

E REQ

UEST

ED

218 CO

MM

ERC

E STR

EET (36104)

PO

ST O

FFICE B

OX

4160

MO

NT

GO

MER

Y,ALA

BA

MA

36103-4160

(334) 269-2343

TO

LL FREE

(800) 898-2034

TELEC

OP

IER

(334) 954-7555

WEB

PAG

E

ww

w.B

easleyAllen

.com

No representation is made that the quality of legal services to be performed is greater than the quality of legal services performed by other lawyers.

www.BeasleyAllen.com