The Jere Beasely Report Jun. 2004

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

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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

JUNE 2004

A NATIONAL LAW FIRM LOCATED IN MONTGOMERY,ALABAMA

I.CAPITOLOBSERVATIONS

TEXAS SETTLES DRUG PRICING LAWSUIT

The State of Texas has settled itsMedicaid fraud battle against the phar-maceutical industry. Under the settle-ment, $27 million will be paid by a NewJersey-based pharmaceutical companyand its subsidiaries. Parent companyKenilworth-based Schering-PloughCorp., Schering Corp. and the compa-ny’s generic prescription drug makerWarrick Pharmaceuticals Corp. weresued by the State in a state court. Thepharmaceutical companies wereaccused of falsifying the wholesale priceof generic drugs for Medicaid patients toincrease company profits. TexasAttorney General Greg Abbott said:“Texas has taken the lead nationwide inpursuing this relatively new, but effec-tive, enforcement of our laws. Alongwith the Texas Health and HumanServices Commission, we conducted anextensive investigation with little or nocooperation from the companies.”

The settlement requires the Scheringcompanies to pay $27 million to Texasand the U.S. government to settle claimsthat the drug makers reported artificiallyinflated prices for prescription albuteroldrugs to the Texas Medicaid program.Albuterol is a class of drugs for peoplewith breathing difficulties. The TexasMedicaid program overpaid millions ofdollars to pharmacies that dispensed thealbuterol drugs to Medicaid patients. Itshould be noted that an $18.5 millionsettlement had been reached with DeyInc., a subsidiary of German pharmaceu-tical company Merck KgaA, anotherdefendant in the case. With these settle-ments, the State of Texas will recoverabout two times the damages sufferedby the Texas Medicaid program. Thewhistleblower that brought these prac-tices to the government’s attention wasFlorida-based Ven-a-Care of the FloridaKeys Inc., a specialized pharmacy partic-ipating in Florida’s Medicaid program.The state’s case against the remainingdefendant, Columbus, Ohio-basedRoxane Laboratories Inc., was moved tofederal court in Boston and remains

pending as a part of the multi-district lit-igation. The Texas Attorney Generalalso reports ongoing investigations intothe practices of numerous other drugmanufacturers. I am reasonably surethere will be other lawsuits filed.Alabama is no different than Texas andthat’s because our state was cheated tooand by more companies.

WEST VIRGINIA SETTLES ONE OF ITS DRUG

PRICING LAWSUITS

A drug maker has agreed to an$850,000 settlement in a West Virginiapricing lawsuit. The lawsuit allegedDey Inc., of Napa, California, submittedinflated average wholesale price datafor an inhalant used to treat asthma andother breathing problems. The settle-ment won’t affect similar litigationagainst several other drug makers that ispending. About $100,000 of the settle-ment will go to the Attorney General’sconsumer protection and educationfund, with the remainder to be splitamong the State’s Medicaid program,the Public Employees Insurance Agencyand the Workers’ Compensation pro-gram. No state can continue to payinflated prices for drugs that their citi-zens need. Obviously, West Virginia willbenefit from the settlement. The moneyreceived will relieve that state’s budget-ary burden with more yet to come. Ashas been reported, a number of stateshave filed similar lawsuits.

AG’S OFFICE OFFERS HELP TO TROOPS’FAMILIES

Regardless of political persuasion,the people of Alabama strongly sup-port our troops. As I have mentionedbefore, we also have an obligation tosupport the families left behind. Thatis why I was glad to see our newAttorney General doing his part.Attorney General Troy King has desig-nated a staff member and provided atoll-free hot line to help solve prob-lems for family members of Alabamianssent to war. Assistant Attorney GeneralPatrick Roberts, a master sergeant inthe Alabama National Guard, will helpfamilies with problems. He can bereached at 1-800-626-7676 or 334-242-7558. The Attorney General’s con-

sumer affairs office has been helpingtroops’ families with problems. Havinga designated person with a dedicatedphone number should make it easierfor families to find help.

State Adjutant General Mark Bowen,who heads up the Alabama NationalGuard, says the Guard has family readi-ness groups that try to solve problems.At present, 2,800 members of theAlabama National Guard are deployed.There are all sorts of problems that facefamilies left behind when a “part-timesoldier” is deployed for active duty andespecially when the duty station isoverseas. We must support our troopsand their families. The AttorneyGeneral and his staff are to be com-mended for recognizing the need forhelp and doing something about it.

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IN THIS ISSUE

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

II. Legislative Happenings . . . . . . . . . . 3

III. Court Watch . . . . . . . . . . . . . . . . . . 4

IV. The National Scene . . . . . . . . . . . . . 8

V. Congressional Update . . . . . . . . . . 10

VI. Campaign Finance Reform . . . . . . 10

VII. The Corporate World . . . . . . . . . . 11

VIII. Product Liability Update . . . . . . . . 15

IX. Mass Torts Update. . . . . . . . . . . . . 19

X. Business Litigation . . . . . . . . . . . . 20

XI. Insurance and Finance Update . . . 22

XII. Predatory Lending Update. . . . . . . 25

XIII. Premises Liability Update . . . . . . . 26

XIV. Workplace Hazards. . . . . . . . . . . . 27

XV. Transportation . . . . . . . . . . . . . . . 27

XVI. Arbitration Update . . . . . . . . . . . . 30

XVII. Nursing Home Update. . . . . . . . . . 30

XVIII. Healthcare Issues . . . . . . . . . . . . . 30

XIX. Environmental Concerns . . . . . . . . 31

XX. Tobacco Litigation Update. . . . . . . 33

XXI. The Consumer Corner. . . . . . . . . . 34

XXII. Recalls Update . . . . . . . . . . . . . . . 35

XXIII. Firm Activities . . . . . . . . . . . . . . . . 36

XXIV. Closing Remarks . . . . . . . . . . . . . . 39

MORE ON COMMON GOOD

In the coming weeks, you will bereading and hearing much more from thegroup “Common Good.” This group hasbeen assigned a primary role in the well-financed and highly organized attack onthe nation’s jury system. I am concernedthat the group effectively mixes truthfulinformation, half-truths, and outright falsestatements in its news releases and pub-lic statements. This makes it relativelyeasy for a group such as Common Goodto sell its bill of goods to the public. Ihope folks will take time to check out thevalidity of information put out by this“tort reform” group. The funding sourcesfor groups such as Common Goodshould be made public. When that hap-pens, I suspect it will show the fundingcomes from the same corporations nowsupplying money for other “tort reform”groups. A prime example is the U.S.Chamber of Commerce, which hasbecome a “lap dog” for the National TortReform Association.

II.LEGISLATIVEHAPPENINGS

THE SESSION IS OVER

The Alabama Legislature wound upthe regular session on May 17th. Bothbudgets were passed and signed by theGovernor. While the budgets are farfrom perfect, at least budgets werepassed. The Governor, LieutenantGovernor, Speaker of the House, andmost members of the Legislature shouldbe commended for getting the budgetsduring a very tough session of theLegislature. The heads of the budgetcommittees in both the House and Senateshould also be thanked. Even thoughthis major feat was accomplished, it is justanother case of putting a weak series ofpatches on the State’s fiscal operations.In fact, the State’s “old tire” won’t standanother round of patching.

GOVERNOR SIGNS EDUCATION BUDGET

The education budget was approvedby the Legislature on May 6th and

Governor Riley signed the $4.5 billionbudget on May 14th. One of the high-lights of this budget was funding toexpand the Alabama Reading Initiativestatewide within two years. The $40million for the Reading Initiative willallow education officials to place it inevery public school classroom fromkindergarten through the third grade.The Reading Initiative provides special-ized training to teachers to help themimprove students’ performance. In addi-tion, a school gets a reading specialist towork with teachers and with studentswho are having problems. Some schoolsalso can qualify for after-school andsummer programs to improve readingscores. Schools with the program reporthigher reading scores, more bookschecked out from their libraries, andfewer discipline problems. Interim StateSuperintendent of Education Joe Mortonsaid 370 of Alabama’s 923 schools withK-3 classes have the program now. TheState will add 271 schools in the summerof 2005 and the remainder in the sum-mer of 2006, if funding remains steady.

In addition to the Reading Initiativefunding, the budget includes extramoney for textbooks, school librariesand computers, as well as $11.7 millionfor legislators to hand out to projects oftheir choice in their districts. Thegrants allow legislators to help smallprograms that get overlooked in abudget that has to address educationneeds statewide. The Governor andAlabama Legislature must make publiceducation the top priority for our State.To really do this and mean it includesaddressing tax reform and accountabil-ity. I hope that will happen soon.

THE GENERAL FUND WAS A LARGER

PROBLEM

On the last day of the session, thelegislators accepted the conference com-mittee report, which reconciled the dif-ferences between the House and Senateversions of the general fund budget.Over $1.4 billion will be appropriated tothe non-education agencies of the state.This is an increase of $196 million overlast year’s funding levels. Medicaidreceived an increase of $140 million inthe budget, making next year’s appropri-

ation $36 million. No other agencyreceived any significant increases. Infact, some agencies were cut. A goodnumber of projects were cut from thebudget, meaning they get no funding.The general fund will receive additionalfunds – some taxes and some borrowingfrom one-time sources – to simply get byfor the next fiscal year. This “rob-Peter-to-pay-Paul” approach has to bestopped for the good of our citizens. Ihope once the truth of our State’s fiscalcrisis sinks in with the public, theGovernor and Legislature can sit downand work out a plan to totally reformstate government. Unless that is done inadvance, however, a special session willbe a big mistake.

THE BABY DOUGLAS BILL PASSES

House Bill 253, known as the “BabyDouglas Bill,” passed the Legislature onthe last day and has become law. Thebill was pushed hard by AlabamaWatch from the first day of the session.The bill centers on medication policiesin daycare centers, and will save younglives. It creates criminal penalties forday care workers who intentionallydrug children to change their behavioror recklessly administer medication.

Alabama Watch really got the ballrolling on this issue and worked hard toget the bill through the Legislature.However, the people who should getfull credit for making this happen are theparents of Douglas Hernandez, a 10-week-old child who died after beinggiven cold medication in a day care cen-ter. Robert and Mary Hernandez madethis a crusade and should be thanked byall of us for their dedication. Theyturned their personal loss into some-thing good! Mr. and Mrs. Hernandeztold the Associated Press they weregrateful to everyone who helped themnavigate through the legislative process,and put it this way: “The parents wontoday, and the children won today.”

The Alabama Department of HumanResources already mandates thatlicensed providers require a parent orguardian to sign weekly permissionforms detailing what medicines may begiven to their children. Violations, how-ever, carry no criminal penalties. Thebill applies to licensed day care facilities

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and those that are exempt from statelicensure. Passage of this bill was oneof the real highlights of the session.

SOME OF THE LEGISLATION THAT DIED

A number of bills died on the finalday of the legislative session. None ofthe bills set out below ever came to avote:

• The high-stakes electronic bingogames for all of Alabama’s dogtracks.

• The credit-scoring bill pushed byAlabama Watch.

• Restricting the transfer of cam-paign money between politicalaction committees.

• Rewriting the state constitution toban same-sex marriages.

• Allowing the Ten Commandmentsto be posted in state buildings.

• Permitting public schools to postthe national motto “In God WeTrust.”

• Requiring state agencies who signcontracts without competitivebids to report the action to thesecretary of state.

There were a number of “good” billsthat never really got moving and as aresult never got to the last day. One ofthem was the bill by Senator MyronPenn to require the Alabama SupremeCourt to be elected in districts. Ofcourse, lots of “bad” bills died too andone of the worst was Alfa’s hog bill.

III.COURT WATCH

THE COURTS WILL STAY OPEN

The House and Senate concurred infinal passage of House Bill 308, com-monly known as the “court fee bill,”and that will keep Alabama courthous-es open. In short, House Bill 308 rais-es roughly $20 million to help restorelost jury weeks and assist the court sys-tem to retain current staff. Withoutpassage of this emergency legislation,the courthouses would have been shutdown insofar as the justice system –

both civil and criminal – is concerned.For example, the bill raises the filingfee for civil cases in which the matterof controversy exceeds $50,000 in cir-cuit court to $299. District court civilcases, between $3,000 and $10,000, areincreased to $200. In the final versionof the bill, there are no increases of fil-ing fees in small claims matters of anysort, contested or non-contesteddivorces, child support enforcementmatters, civil cases where the matter ofcontroversy is $50,000 or less, andworkers’ compensation cases. Thiswas not a popular measure, but it wasnecessary to make sure our system ofjustice remains open to the people ofour state. When the courthouses close,the people are the losers!

LAWSUIT FILED AGAINST BRISTOL-MYERS

SQUIBB IN DEATH OF TEENAGER

Last month we reported on the trag-ic death of a teenager who died fromliver failure as a result of takingSerzone (nefazodone hydrochloride), acontroversial antidepressant. A lawsuitwas filed on May 17th against Bristol-Myers Squibb on behalf of the family inthe Supreme Court of the State of NewYork. Cassie Jo Geisenhof, aged 19,was prescribed Serzone by her doctorsin March 2000. She subsequently devel-oped Serzone-induced liver failure andwas ultimately required to undergo aliver transplant at Fairview UniversityMedical Center in Minneapolis, MN inAugust 2000. Ms. Geisenhof died inApril 2004. Serzone has been taken offthe market in Canada and Europe, andwill be banned in Australia and NewZealand in the coming months. ButSerzone still remains a threat to U.S.consumers. In fact, we learned a fewdays after filing the suit in New Yorkthat the company had taken steps thatwill help some. It halted delivery ofany new products. However, we don’tconsider their action to be enough. So,we requested a total recall on May19th. I am hopeful we will get someaction. If so, lives will be saved. Youcan see our letter to the company,which is posted on our website.

Instead of removing the drug here,the FDA in 2001 issued a “Black-Boxwarning,” the most serious warning the

government agency can make. The FDAalso is studying a possible link betweenchildren taking antidepressant drugslike Serzone and suicide attempts.Clearly, that is not enough. The onlyway to protect the public in the U.S. isto pull Serzone from the shelves. Thereis too much money being made fromsales of this dangerous drug and there-in lies the problem. The manufacturerwon’t voluntarily pull Serzone. I hopethe public reaction to the recent eventswill force the FDA to force a recall.

Our firm currently has about 35 casesfor clients involving Serzone. Webelieve these cases make up perhapsthe largest group of seriously injuredclients affected by the drug around theUnited States. It is apparent that Bristol-Myers Squibb will only take actionwhen forced to do so. Why else wouldSerzone be withdrawn in other parts ofthe world for safety reasons but contin-ue to be sold to Americans? There havebeen 21 Serzone-linked deaths in theUnited States so far, and that is 21 toomany. How many more have to diebefore this drug is banned?

Serzone was approved for use in theU.S. by the FDA for the treatment ofdepression in December 1994. Beforeapproval of the drug by the FDA,Bristol-Myers Squibb completed multi-ple pre-clinical studies to test the safe-ty and efficacy of Serzone. As stated inthe product label, only two of the eightpre-clinical trials demonstrated thatSerzone was effective in the treatmentof depression. In the pre-clinical stud-ies of Serzone, 16% of the 3,496patients who used Serzone had to dis-continue the use of Serzone because ofan adverse experience. In these samepre-clinical studies, abnormal liverfunction tests, which are indicative ofliver damage, occurred frequently – inat least one out of every 100 patients.Despite the frequency of abnormalliver function tests, Bristol-MyersSquibb failed to include any warning ofliver toxicity in the initial warnings.Once Serzone was introduced into themarket, Bristol-Myers Squibb began toreceive reports of liver necrosis andliver failure, sometimes leading to livertransplantation and/or death. On orabout June 1, 2000, the company wasrequired to change the safety label of


Serzone to include the statement thatthe post-introduction clinical experi-ence with Serzone showed “rarereports of liver necrosis and liver fail-ure, in some cases leading to livertransplantation and/or death.”

On or about January 23, 2001, theFDA again required Bristol-MyersSquibb to change the product safetylabel of Serzone to exclude the word“rare” from the statement in the prod-uct safety label to explain there hadbeen “reports of liver necrosis and liverfailure, in some cases leading to livertransplantation and/or death.” As ofJune 2001, 109 cases of serious adversehepatic events with a temporal rela-tionship to Serzone therapy werereported to either Bristol-Myers Squibbor the FDA. Of these 109 cases, therewere 23 cases of liver failure - 16 ofwhich led to transplantation and/ordeath. On or about June 21, 2001, as aresult of the high incidence of seriousadverse liver events, Health Canada,the Canadian equivalent of the FDA,required a letter to be sent to Canadianhealth care providers to inform them ofthe serious adverse hepatic eventsassociated with the drug. The CanadianMedical Association followed this let-ter, on or about June 27, 2001, with abulletin warning of “severe hepaticinjury,” “liver failure” and death associ-ated with the use of Serzone.

On or about December 4, 2001, theFDA required Bristol-Myers Squibb toinclude a “Black Box” warning on thesafety label of Serzone because of thedrug’s liver toxicity. This change wasnot made available to prescribingphysicians and patients who were cur-rently on, or had been on, Serzoneuntil on or about January 8, 2002. TheBlack Box warning informed the pub-lic that at least one in 250,000 to300,000 people who took Serzone forat least a year for the treatment ofdepression would either die or requireliver transplantation. The warningadded the fact that the actual numberof serious adverse liver events waslikely much greater than the reportednumber because of “underreporting.”The rate of underreporting in the U.S.has been estimated as high as 99%.Despite the possibility of adversehepatic events, liver toxicity, liver dam-

age and/or death associated with theuse of Serzone, Bristol-Myers Squibbhas not, at any time during the market-ing of the drug Serzone, recommendedthat patients using this drug be moni-tored for liver injury.

Andy Birchfield, Roger Smith, and Iwill handle this case in New York forthe family. We will be working withRoberta Ashkin, a very good lawyerfrom New York, who has had a greatdeal of experience with Serzone cases.Our goals are to see that the family isfully compensated and that Serzone betaken off the market.

THE ALABAMA SUPREME COURT RACES

This part of the current issue is beingwritten prior to the June 1st primaryvote, so the outcome of the vote wasnot known at this time. However, itappears that big bucks were spent inthe primary races for the three SupremeCourt seats by some of the Republicancandidates. Heavy television and radiobuys, as well as costly mail-outs bythese candidates, were quite evident.The interesting thing about this primarywas that Roy Moore was pretty muchthe sole issue in each of the races.Reading the brochures of two opposingcandidates made it difficult to deter-mine which of them was the strongerMoore supporter. The former ChiefJustice may have cleared that up beforeJune 1st – if so, it will be interesting tosee how that particular race turns out.There was one thing for certain, andthat is all of the Republican candidateswere conservative.

One thing that disturbed me in theRepublican primary was seeing a sittingjustice seeking reelection to the highcourt telling voters that she had themost “conservative” voting record onthe court. Frankly, I can’t see howbeing “conservative” – or “liberal” forthat matter – qualifies a person to be ajudge at any level. I suspect that state-ment was actually coined by a paidpolitical consultant who knows thatAlabama is basically a most conserva-tive state, going back to the day ofGovernor George Wallace and U.S.Senator Jim Allen. That conservatismhad nothing to do with “judicial poli-tics.” Interestingly, claiming to be a

“conservative” on the Supreme Courtcould mean different things to differentpeople: to African-American citizens, itcould have racial overtones; to con-sumers and victims of corporate abuse,it could mean that a justice consistentlyvoted against their interest in casesbefore the court; to the so-called “reli-gious right,” “conservative” could meanthat a justice making such a statementwas aligned with former Chief JusticeRoy Moore; or to most Alabama citizensit could simply mean that a person wasagainst increasing taxes and was foraccountability in government. In anyevent, I don’t believe that being a con-servative – and especially being the“best conservative” around – makesone a fair and impartial judge.

I guess the bottom line is that weneed to devise a better system of elect-ing judges that would take away theneed for any appeal to partisanship in ajudicial race. Non-partisan elections,combined with strong reform of cam-paign finance laws, would appear to bethe way to go. In any event, I am rea-sonably sure that a “conservative” candi-date won the Republican nomination foreach of the three Supreme Court seats. Iwill actually make that prediction!

HUNT PETROLEUM VERDICT OVERTURNED

The Alabama Supreme Court hasoverturned the $24.6 million verdict theState of Alabama won against HuntPetroleum in a natural gas royalty dis-pute. In 2001, a Mobile County juryreturned a verdict for the state of $4.6million in royalties and interest and $20million in punitive damages. TheSupreme Court reversed the fraudaspect of the case, saying the Statefailed to present evidence that it “reliedto its detriment” on the oil company’smonthly royalty reports for productionalong the Alabama coast. Hunt hadpaid the state $4 million on a breach ofcontract claim that was not involved inthe appeal. The majority opinion – tak-ing the verdict away from the State –was written by Justice Harold See.

Several media outlets reported thatthis ruling could adversely impact the$3.6 billion verdict that Alabama wonagainst ExxonMobil. Fortunately for theState, that assessment is totally incorrect.


The facts in the two cases are quite dif-ferent, and that is clear from the tran-scripts of evidence. Clearly, the Huntdecision will not control the outcome inthe ExxonMobil case. The evidence inthe Exxon case contained clear andconvincing proof of both fraudulent actsas well as reliance by the State. This isevident from the transcript of evidence.At the end of each day during the trial,we received a copy of the actual testi-mony taken that day from the courtreporter. This helped us make surenothing that had to be proved was leftout of the trial. The composition of thepresent court would have to affirm theExxon case if the justices follow estab-lished Alabama law relating to fraud. Iam confident that a majority of the courtwould do so. However, there will be afew new faces on the court when thisappeal is heard, including a new ChiefJustice. Justice Champ Lyons, who hadto recuse himself in Hunt, will be avail-able to hear the Exxon appeal. ActingChief Justice Gorman Houston, whosided with the oil company in the Huntappeal, will have to recuse in Exxonsince his brother-in-law’s firm repre-sents Exxon. Of course, the Exxonappeal will most likely be heard at atime after Houston leaves the court.

A RESULT IN THE CAMPBELL CASE ON

REMAND

The reversal by the U.S. SupremeCourt in the case of Campbell v. StateFarm Mutual Automobile InsuranceCompany a few months back has beenwidely debated in legal circles. Theissue in that case dealt with punitivedamages. The case has now goneback to the Utah Supreme Court onremand with an opinion from thatcourt having been issued on April 23rd.You will recall that the U.S. SupremeCourt held that the imposition of the$145 million punitive damages awardagainst State Farm was excessive andviolated the 14th Amendment. Thestate supreme court performed the taskassigned to them by the High Court,and on remand reduced the jury’saward to $9,018,780.75 in punitivedamages. This new number is 9 timesthe amount of compensatory damagesawarded to the Campbells.

The Utah Supreme Court did notaccept State Farm’s contentions that theU.S. Supreme Court had been overlyrestrictive and had tied the state court’shands. The state court said that theSupreme Court had entrusted to its judg-ment “the calculation of a punitiveaward which both achieves the legiti-mate objectives of punitive damages andmeets the demands of due process.”The state court then went through eachaspect of the Supreme Court opinion,discussing each in detail. All lawyerswho represent victims of corporateabuse should read this opinion carefully.

THE LAWSUIT EXPLOSION MYTH IS JUST

THAT

Much has been written about a so-called “litigation explosion” in the U.S.However, statistics released recently tellan entirely different story. It appearsthat fewer civil cases are going to trialthan a decade ago, and juries areawarding less in damages. This isaccording to a new Justice Departmentstudy of state courts in the nation’s 75largest counties. About 97% of all civilcases are settled or dismissed without atrial. The number actually tried in courtfell from 22,451 in 1992 to 11,908 in2001, according to the study. Plaintiffswon 55% of the cases and received $4.4billion in damages. The overall medianaward in jury trials fell from $65,000 in1992 to $37,000 in 2001. This appearsto result primarily from smaller awardsin automobile accident cases.

Product liability and medical malprac-tice cases, however, did have increasesin damage awards by juries. The medianaward in product liability cases was$543,000 in 2001. This is not surprisingbecause the injuries in product liabilitycases are always severe, usually accom-panied with permanent disability andimpairments. Of course, many of thesecases involve wrongful death. There areno product liability cases filed withminor injuries as the basis for damages.Median medical malpractice damagesrose from $253,000 in 1992 to $431,000in 2001. It is significant, however, thatplaintiffs won less than one-third of allmedical malpractice trials in 2001. I sus-pect that the trend continued in 2002and 2003. The myth of a litigation

explosion is knocked down by theJustice Department.

DOCTOR HAD SOUGHT CAP ON AWARDS

One never knows when he or shewill become a victim of wrongdoingand need access to the courts. A recentcase in point involved a Connecticutmedical doctor who won a $6 millionjury award after a sledding accident ontown property left him severely injuredand impaired. Interestingly, this doctorhad lobbied for a cap on damages,including those for “pain and suffering”that juries can award to victims of med-ical malpractice. In 2000, the doctorwas sledding in a city park with hissons when he hit a drainage ditch, frac-turing his back and breaking his rightleg. The doctor, who has now returnedto work, incurred medical bills, sufferedlost wages and had his ability to workdiminished. He now fears he may havepermanent disability. It should benoted that of the $6.2 million in dam-ages the doctor received in his case,$1.5 million was for “pain and suffer-ing.” The doctor had claimed that thecity was negligent in its maintenance ofthe drainage catch basin. Interestingly,the $6 million verdict was one of thelargest negligence awards ever grantedby a jury in Connecticut against amunicipality.

Local papers reported the doctorhad attended a rally last year in sup-port of a $250,000 cap on the noneco-nomic damages – including pain andsuffering – that patients can collect inmalpractice cases. The award in thedoctor’s case would have probablyslipped by virtually unnoticed inConnecticut, except it came at a crucialtime in the medical malpractice reformdebate. Caps on damages are beingconsidered by Connecticut legislators.Because of the timing, the case hasbecome a favorite topic of conversa-tion at the State Capitol in Connecticut.The moral of this story is simply thatsome folks don’t like the court systemuntil they need it themselves.

TYSON VERDICT THROWN OUT

The $1.28 billion jury verdictreturned in a Montgomery federal court


against Tyson Fresh Meats for alleged-ly fixing cattle markets, was thrown outby the visiting federal judge who heardthe case. The Organization forCompetitive Markets said it wasextremely disappointed with thejudge’s decision to overturn the verdict,and said the order “was based on tech-nicalities, not the finding that captivesupplies harm price.” Lawyers for the30,000 cattlemen involved in the casewill appeal the ruling. Apparently, thejudge left intact the finding that captivesupplies harmed all cash sellers of fed-cattle to Tyson in the amount of nearly$1.3 billion. The court also left intactthe finding by the jury that the marketfor fed-cattle is national in scope. But,the judge found that there were “legit-imate business reasons for captive sup-ply.” It is difficult to understand howthe judge could have let the trial go onfor weeks if he believed that Tyson’sactions were “legitimate.” In anyevent, the bottom line is that it was abad day for the cattlemen. I hope theverdict will be reinstated on appeal.

STUDY FINDS SEALED SETTLEMENTS ARE

RARE IN FEDERAL COURTS

There has been a great deal of discus-sion around the country concerningconfidential settlements and sealed courtrecords. The Federal Judicial Center,after an exhaustive study, has now con-cluded that sealed civil settlements arerare in federal court. When they dooccur, it is usually in cases involving adeath or serious disability. The studyalso says the documents that remainopen to public scrutiny “almost never”included reasons for filing the settlementunder seal. There is a good reason whysecret settlements have receivedincreased attention in the past few years.Most safety advocates contend that thepublic is entitled to know about suchthings as defective cars that present haz-ards to people. Open-court advocateshold the secret agreements responsiblefor hiding safety hazards from the pub-lic. A prime example of how confiden-tial settlements and sealed records keptdefects with Firestone tires and the FordExplorer from being known earlier.

While the Center’s report takes noposition on filing settlements under seal,

researchers discovered that judgesapprove such measures for less than0.5% of civil cases. And of those cases,97% of the initial complaints are open tothe public. The report has yet to be con-sidered by the U.S. Judicial Conference,which sets policy for the federal courtsand commissioned the study through itsAdvisory Committee on Civil Rules. Thereport was presented to the committeeat its meeting in April. The report wasgiven to a subcommittee, which willreviewed the findings. Recom-menda-tions will be made at the full commit-tee’s meeting in October.

In addition to the federal districtcourt in South Carolina, only theEastern District of Michigan limits howlong sealed settlement agreements maybe sealed. The judicial center studyreviewed court rules in every districtand applicable case law. The studyinvolved 288,846 cases completed in2001 and 2002 in a selected sample 52districts. Researchers found 1,272 caseswith sealed settlement agreements,about 0.44% or one in every 227 cases.Three districts sealed settlements at arate of more than twice the nationalaverage, with Puerto Rico topping thelist at 3.3%, Hawaii coming in at 2.2%,and the eastern district of Pennsylvaniaat 0.94%. Personally, I believe that con-fidential settlements and sealed recordsshould be prohibited in both federaland state courts. The public is entitledto have access to knowledge of hazardsrelating to products. In addition, con-sumer fraud that is widespread and notjust an isolated incident should also bemade public. Many of the cases hiddenfrom the public are precisely the onesthe public should know about.

There have been efforts in Congressto pass a bill to prohibit hiding bad con-duct. At present, the Sunshine inLitigation Act, which would keep civilcases affecting health and safety open topublic scrutiny, is pending in Congress.The bill, last introduced on April 8,2003, was in the Senate JudiciaryCommittee when this issue went to theprinter. Joanne Doroshow, executivedirector of the Center for Justice &Democracy, tells us that efforts to limitthe use of secret settlements and protec-tive orders in state and federal courtshave stalled. In product liability cases,

the car companies never want the pub-lic to know how much was paid. Infact, most offers are made with a condi-tion of being kept confidential. I havecome to the conclusion that keeping theamount of the settlement confidential,in some circumstances, isn’t all that bad.The amount of the settlement isn’t theissue. Instead, it’s whether sealing thefile along with all of the documentshides a public health or safety threat. Ifit does, there can be no justification forsealing the file and putting documentsunder a protective order.

LAW DAY OBSERVATIONS

Since Law Day was celebratedaround the country last month, it mightbe good for all of us to reflect on theimportance of the rule of law. In 1961,Congress issued a joint resolution set-ting aside May 1st as Law Day. The res-olution said, in part: “It is set aside asa special day of celebration by theAmerican people in appreciation oftheir liberties and the reaffirmation oftheir loyalty to the United States ofAmerica; of their rededication to theideals of equality and justice under lawin their relations with each other as wellas with other nations; and for the culti-vation of that respect for law that is sovital to the democratic way of life.”Unfortunately, we have allowed thecelebration of what should be a mostimportant day to become almost lost inthe shuffle of our day-to-day activities.Our state bar association has done agood job of keeping the spirit of LawDay alive and well in Alabama. Localbar associations have also done theirjob. Without the rule of law – alive andwell – our country couldn’t survive. Itis what makes us different from mostother countries in the world.

JURY SERVICE IS A PRIVILEGE

I have always believed that serving ona jury was one of the basic and necessaryobligations of citizenship in this country.For most Americans, a chance to serveon a jury will be the closest they get totaking part in the justice system.Because of constant attacks over the pastseveral years on one of the cornerstonesof American justice – the jury system, the


privilege of serving a jury may soonbecome a thing of the past. Having dis-putes decided by a jury of your peers isa right guaranteed by the U.S.Constitution. Now, we see the use of thesystem at risk of becoming a rarity.

Jury trials have been on the declinein many states in the decades sinceCongress designated the first day of Mayas a day to celebrate the rule of law. Ina 2003 report, the National Center forState Courts pointed to decreasing num-bers of jury trials being used to decideboth civil and criminal cases. Examining10 states between 1993 and 2002, thereport found the number of civil jurytrial numbers had declined and 2002saw drops as large as 78%.

IV.THE NATIONALSCENE

THE HIGH PRICE OF GASOLINE

The American motoring public ispaying excessive prices at the pump forgasoline and it appears that the giant oilcompanies could care less. While theircustomers suffer, those companies aresimply rushing to their banks. Thesecorporations have manipulated themarkets for years, and the governmenthas allowed the practice to go virtuallyunchallenged. Now we have anAdministration in Washington that ismore than “friendly” with the oil giants,and that is bad news. I don’t believethe public will tolerate this sort of thingmuch longer. Working men andwomen, retirees, small business own-ers, and people on fixed incomes gen-erally can’t afford to pay excessiveprices for gas.

PROJECT FOR THE NEW AMERICAN

CENTURY

Until just a few weeks ago, I hadnever heard of a Washington-based net-work called The Project for the NewAmerican Century (PNAC). After doing alittle research, I now understand that thisgroup has been the biggest booster ofwar with Iraq at least as far back as 1998,

when it started a strong push for war. Infact, PNAC wrote a letter to PresidentClinton in 1998 insisting that he removethe regime of Sadaam Hussein frompower. This letter, which was signed bya group with few if any military back-grounds in their ranks, was very strongon the use of force in Iraq. Because ofits timing and content, the letter is quitesignificant. The letter can be viewed at:www.NewAmericanCentury.org. I en-courage you to read it carefully and drawyour own conclusions. The followingpersons signed the Clinton letter:

Elliott Abrams, Richard L. ArmitageWilliam J. Bennett, Jeffrey Bergner,

John Bolton, Paula Dobriansky, Francis Fukuyama, Robert Kagan,Zalmay Khalilzad, William Kristol,Richard Perle, Peter W. Rodman,

Donald Rumsfeld, William Schneider, Jr., Vin Weber,

Paul Wolfowitz, R. James Woolsey,Robert B. Zoellick

Interestingly, Vice-President Cheneywas a founder of PNAC, along withDonald Rumsfeld. It is significant thatmany of those signing the letter in 1998are now highly placed in the BushAdministration, including Mr. Rumsfeldwho is the current Secretary of Defense.It is not surprising that Rumsfeld (whohas never met a camera he didn’t like)has been one of the strong pushers forwar in Iraq for years. Unfortunately,none of his reasons for war proved tobe accurate. After winning a relativelyeasy war, we now find ourselvesbogged down in Iraq in what appearsto be a costly, but no-win situation.The rebuilding of a destroyed countryis now costing U.S. taxpayers about $5billion each month. The cost in lives,however, is the hardest thing to take. Itis clearly the toughest part of the occu-pation. However, we can’t let the falseor misleading reasons for the invasion,or the real motivations for destroyingand rebuilding the country, keep usfrom supporting our troops. We mustdo that! But, it is more than interestingto see who all actually pushed thePresident into the war. The question iswhy?

GOP STILL SETTING FUND-RAISING

RECORDS

The Republican National Committeeis raising more money than it canspend. The RNC raised at least $38.5million last month at an annual gala inWashington, D.C. featuring PresidentBush. This beat a Party record set whenbig corporate donations were stillallowed. The President delivered thekeynote address at the fund-raiser,attended by about 1,500 people. Themoney total tops the $30 million that thePresident helped raise at a Republicancongressional dinner and the RNC galain 2002. That was the last year nationalparty committees could collect “softmoney.” Now the national parties canraise only limited contributions fromindividuals and political action commit-tees, which are funded by people. Theycan accept up to $25,000 per year fromthose donors. The President, Vice-President Cheney, First Lady LauraBush, the President’s mother, and otherface cards are traveling across the coun-try raising money for the RNC and otherRepublican causes. Since February, thegroup has raised over $55 million. Atrip into Atlanta last month by thePresident saw about $3.4 million raisedin a few hours. The Bush campaign willhave over $200 million to spend, andthat’s another record.

TAKING CARE OF POLITICAL BUDDIES

If nothing else, the BushAdministration takes extremely goodcare of its friends and supporters. Aprime example can be found in relationto the Medicare Act passed by Congressand pushed by the Bush White House.A few weeks after the Bush Admini-stration named Medco to be one of thefirst Medicare drug card providers, acompany executive helped throw a$100,000 fund-raiser for the President.Interestingly, the event was headlinedby Health and Human ServicesSecretary Tommy Thompson. MedcoSpecialty Pharmacy Services presidentAlan Lotvin was a co-chairman of themid-April event in New Jersey. Theprescription drug card providers havebeen extremely active with Washingtonpoliticians over the last two years, and


apparently it has paid off handsomely.Companies that won approval from

Thompson’s department to be the firstMedicare drug discount card providersspent at least $35 million lobbying in2003. Their executives and lobbyistsdonated or raised hundreds of thou-sands of dollars more for Bush’s re-election, an Associated Press reviewfound. Companies that will benefit indealing with government agenciesshouldn’t be allowed to participate infund-raising activities when “business”is pending before the government.Wright Andrews, a former president ofthe American League of Lobbyists, toldthe Associated Press, “I think it is gen-erally recognized in Washington thatinvolvement in the campaign financeprocess certainly often can be veryhelpful to your legislative agenda. Itdoes tend to provide you better accessin that people logically are likely to atleast ensure that they hear you out.” Itwas no coincidence that Lotvin’s parentcompany, pharmaceutical-benefit man-ager Medco Health Solutions, and itsthen-owner, pharmaceutical giantMerck, together spent about $9 millionon lobbying in the capital last year.Merck spun off Medco as a separatecompany late last summer.

Dozens of companies have won HHSapproval since mid-March to offerMedicare drug discount cards.Consumers can begin using the cardsthis month. Some companies can offerthe cards nationwide, others only totheir own plan members. Even the abil-ity to provide them on a limited basis ispotentially lucrative, attracting a clientbase the companies hope to keep whenMedicare prescription drug coveragebegins in 2006. A handful of the win-ning companies make up the lion’sshare of the political spending. In addi-tion to Merck and Medco, others withseven-figure lobbying expenses in 2003included: Blue Cross & Blue ShieldAssociation ($9.5 million), Aetna ($3.7million), United Healthcare ($2 million),PacifiCare ($2.1 million) and WellpointHealth Networks ($1.7 million). Somelobbyists who helped the companiesmake their case in Washington last yearhave strong ties to the Bush campaign oradministration. For instance, PacifiCare’slobbyists last year included Tom Loeffler,

who raised at least $200,000 for Bush’s2004 campaign, and Jack Howard, a for-mer White House employee whoworked as deputy assistant to the presi-dent for legislative affairs.

Company executives also haveplayed a role in the Bush campaign.United Health Group’s chairman andchief executive, William McGuire,earned the label Bush “Pioneer” by rais-ing at least $100,000 for Bush’s cam-paign, as did Todd Farha, chairman andCEO of Wellcare Health Plans, andSamuel Skinner, a member of cardprovider Express Scripts’ board of direc-tors. Michael Hightower, who collectedat least $200,000 for the Bush campaignto become a Bush fund-raising “Ranger,”is vice-president of government relationsfor Blue Cross & Blue Shield of Florida.The political donations of companyemployees of companies that won theprescription cards overwhelminglyfavored Bush, with at least $280,000 oftheir contributions going to thePresident’s campaign. All of the aboveinformation comes from the FederalElection Commission.

Some of the companies whoseemployees gave to Bush’s campaigninclude United Healthcare, the KaiserFoundation Health Plan or its parent,Kaiser Permanente; WellCare, Aetna,and Medco or Merck. Under the BushAdministration, the cost of health insur-ance and prescription drugs has gonesky-high. It has to be difficult to takeso much money and then say “no”when the donors ask for favors. I sus-pect the buying of favors is the rootcause of many of our problems in thehealthcare system.

HELPING POLITICAL FRIENDS IN HIGH

PLACES PAYS OFF

Six weeks after Cintas Corp.Chairman Richard T. Farmer co-hosteda $1.7 million fundraiser for thePresident in Cincinnati, Bush’sEnvironmental Protection Agency pro-posed exempting industrial laundrieslike Cintas from rules that protect work-ers from handling poisonous materials.On November 20, 2003, the U.S.Environmental Protection Agencyreleased new draft regulations that, ifadopted, will weaken federal safe-

guards for employees who handle poi-son-soaked shop towels. The new rulewould exempt industrial laundries likeCintas from federal hazardous and solidwaste requirements for shop towelscontaminated with toxic chemicals. Weare not talking about a small exemp-tion. Each year, 3.8 billion industrialshop towels, which are used to cleanup toxic materials or spills in the workplace, or to wipe-down machinery, aresent to be cleaned.

According to reports, Cintas hasbeen found to have repeatedly violatedworker safety and environmental pro-tection standards. I understand thatworkers were never told about all thechemicals they were forced to handle.Clearly, they were never really warnedabout the toxic dangers from thesechemicals. Towels handled by Cintasemployees were often in plastic bagsdripping with solvent.

The EPA predicts this proposalwould save affected facilities over $30million per year. Cintas and Farmer arealready doing quite well. Cintas made$249.3 million in profits in fiscal year2003 and Farmer is ranked by Forbes asthe 140th wealthiest man in Americawith a net worth of $1.5 billion. Youshouldn’t be surprised to learn thatFarmer is a Bush Ranger, meaning thathe has personally raised more than$200,000 for the Presidents re-electioncampaign. In addition, Farmer wasquite instrumental in Bush’s 2000 cam-paign and has been a major contributorand fundraiser for the President and theRNC. Since the 2000 election cycle,Cintas and its employees have givenalmost $2.2 million to federal candi-dates and parties, with 100% of thatmoney going to Republicans. So far thiselection cycle, in addition to Farmer, 15Cintas executives have contributed toBush, with eight of them giving themaximum $2,000 contribution.

U.S. QUESTIONS MORE IRAQ MEAL BILLS

FROM HALLIBURTON

The U.S. military has suspended anadditional $159.5 million in mealcharges submitted by a unit ofHalliburton as the military continued toaudit bills for feeding soldiers in Iraqand Kuwait. The Defense Contract


Audit Agency said it was suspending theamount after incomplete files and billswere found to have been submitted bysubcontractors to Halliburton’s KelloggBrown and Root unit. It is now wellknown that the U.S. military’s biggestcontractor in Iraq is Halliburton and itssubsidiaries. The government hadalready suspended $35.8 million in con-tested charges, and auditors saidHalliburton had voluntarily deleted $141million from dining room billings inwhich costs exceeded the number ofmeals served.

Auditors are continuing to evaluateall 64 dining facilities run by KBR in Iraqand Kuwait. This work was expected tobe completed by the end of this month.So far, KBR has billed the governmentfor more than $1 billion for feeding ourtroops. About 20% of these costs nowhave been withheld. KBR’s work inIraq could mean up to $18 billion inbusiness for the Texas-based company,according to government estimates. Iam sure it is just a coincidence that thecompany was once run by Vice-President Dick Cheney, who was one ofthe men who apparently pushed thePresident into this war.

THE SPECIAL INTEREST SPOTLIGHT

It is extremely important to be ableto know where candidates and politicalparties get their money. The SpecialInterest Spotlight is a regular report onthe flow of money in politics. It is pub-lished by Campaign Money Watch, anonprofit campaign finance reformgroup that holds candidates account-able for the special favors they do fortheir contributors and for opposingcomprehensive reform. This is a goodsource of information and it tracks can-didates from both parties.

V.CONGRESSIONALUPDATE

A BAD ASBESTOS BILL HANGS AROUND

The “Asbestos Bailout bill,” S.2290,which we discussed last month, wasproperly stopped in the U.S. Senate.

Backers of the bill, such as PresidentBush and Senate Majority Leader, BillFrist, claimed that the bill would unclogfederal courts of asbestos suits andmake the claim process for asbestos vic-tims “fair.” In reality, the bill is anattempt to take away the right to a trialby jury for many injured people and tocap liability for decades of deadly mis-conduct by asbestos manufacturers anddistributors. The members of the Senatewere right in refusing to bring the billup for a vote. Many times, the politi-cians discuss bills of this sort withoutreally considering the impact the legisla-tion will have on individuals. If theSenate had passed S.2290, as proposed,it would have let off the hook compa-nies that were responsible for literallypoisoning workers with asbestos. Theright to file suit would have been takenfrom these workers and their families,and that’s just plain wrong.

It is important to note that paymentsfor the proposed trust fund would onlybe made over the next 27 years underthe bill. Many have rightly pointed outthat the trust fund would be severelyunderfunded, would deny individualsthe right to seek compensation incourts and would be a blatant bailoutfor thousands of companies rightfullytargeted by injured persons. TheEnvironmental Working Group releaseddata that show at least 43,000Americans died from asbestos-relatedcases from 1979 to 2001. Further esti-mates show that 10,000 persons annu-ally will die from asbestos-related can-cer. The number of persons being diag-nosed with cancers related to asbestosis increasing steadily, and a 27-yearpayout is not sufficient for those whohave not yet been diagnosed.

One part of the bill that went virtual-ly unnoticed dealt with people withsecond-hand asbestos exposure. Thebill would have taken away the right ofthose victims to file claims with the pro-posed trust fund. The claim of any per-son who could lawfully prove that hisor her asbestos-related cancer camefrom second-hand exposure wouldhave wiped out immediately upon thebill becoming law. It is difficult to com-prehend how Corporate America couldbe so indifferent as to those who aredying. Instead of protecting asbestos

workers, this bill as proposed protectsthe corporations who poisoned inno-cent victims. As we went to the print-er, another bad asbestos bill was beingcirculated by the Republican leadershipin the U.S. Senate. Considering thesource, you can rest assured victimsand their families will be short-changedif the new bill passes.

ASBESTOS FUND NEEDS

As stated above, the debate inCongress over asbestos appears to befar from over. Unfortunately, much ofthe discussion has centered around thewelfare of Corporate America – includ-ing the insurance industry – and notenough on the victims of asbestos dis-eases. The needs of victims and theirfamilies should be the top priority forthe Bush White House and to theRepublican leadership in Congress.Unfortunately, that hasn’t been thecase. Clearly, the needs of the pro-posed national asbestos victims fundwill be very high. An analysis by theAFL-CIO says that approximately one-half of the $124 billion proposed wouldactually be needed within 5 years. Thereport from the labor group, which rep-resents workers and their families,revealed that at least $60 billion wouldbe needed in the first 5 years of operat-ing an asbestos fund. Approximately$54 billion of that will be needed in thefirst 3 years to deal with the big num-ber of claims that may be filed.

VI.CAMPAIGNFINANCE REFORM

THE FEC FAILS TO DO ITS JOB

A proposed regulation that wouldhave banned so-called “Section 527”groups from using “soft money” in fed-eral campaigns, while not interferingwith the activities of non-profit organi-zations, should have been approved.The resolution, drafted by two FederalElection Commission commissioners,was a step in the right direction.Unfortunately, the FEC failed to do itsjob. The proposal would have subject-


ed Section 527 groups, named after aprovision of the Internal RevenueCode, and whose primary purpose is topromote the election or defeat of candi-dates, to a ban on raising and spendingmoney from corporations, unions andwealthy individuals. Appropriately,501(c) non-profit groups would havebeen explicitly excluded from the reachof the regulation.

After the McCain-Feingold CampaignFinance Reform Law took effect, numer-ous Section 527 groups pledged toreopen the soft money spigot in theplace of the national parties.Encouraged by party leadership, thesegroups planned to bring back $200 mil-lion to $300 million in special interestsoft money to influence the 2004 elec-tions. Joan Claybrook, President ofPublic Citizen, aptly stated: “Section527 groups have always been little morethan a loophole in the federal campaignfinance law. Hiding in the tax code,Section 527s have claimed immunityfrom the contribution limits of federalelection law, all the while raising andspending unlimited special interestmoney expressly for the purpose ofaffecting federal elections.” The FEC inthe 1980s revised the campaign financerules to allow money from corporations,unions and wealthy individuals inexcess of the contribution limits to flowto the parties for so-called party build-ing activities. Prior to McCain-Feingold,this soft money amounted to $500 mil-lion in the 2002 election cycle, buyingall kinds of favors for special interestgroups, from simple Lincoln bedroomsleepovers for members to more seriouscorruption of public policies.

As a result of the rejection by the FECcommissioners, new limits for politicalgroups pouring millions into ads andvoter drives in the presidential electionwent down the drain. Republicansquickly predicted the decision wouldprompt a surge in big donations fortheir side. The FEC’s decision literallytells major GOP contributors to “comeon in, the water’s fine.” Republicancandidates have always had access tobig bucks from Corporate America. Theresult of this action will allow “no-holds-barred spending” this election year. Pro-Republican groups, which have heldback on spending awaiting the FEC

decision, will quickly jump in and sur-pass the Democrats. Much of the softmoney that used to go to parties beforethe law went into effect in 2002 willflow to new tax-exempt groups thatdon’t have to disclose their fund raisingand spending. This is a practice thatmust be stopped.

SPENDING IN THE RACE FOR THE WHITE

HOUSE

The wild spending in the presiden-tial race this year, which is unprece-dented, should convince the Americanpeople that completing the campaignfinance reform efforts in Congress is anabsolute necessity. With the ElectionDay still months away, money is beingspent at a record pace by both candi-dates, who haven’t even gone throughthe nominating process. The recentFEC action, referred to above, will donothing but encourage special intereststo keep the “big bucks” flowing. Thepublic deserves better. If the wildspending we are experiencing isn’t agood enough reason to “fix” a “broken”and “corrupt” system, I don’t knowwhat more it will take.

VII.THE CORPORATEWORLD

STATUS OF HIGH-PROFILE CORPORATE

SCANDALS

We are so used to hearing of newcorporate scandals on the nightly newsthat they no longer make a big splash.In fact, the exception would be a nightwhen there was no such report. Thereused to be a book-of-the-month clubthat many families utilized in theirhomes. That club was generally a goodthing and actually benefited the familiesjoining up. Now there is a club that ismade up of a good many large corpo-rations operating in this country, and Ihave seen it labeled as the “scandal-of-the-week club.” Clearly, the conduct ofsome in Corporate America has been amajor shock. Most Americans trustedthe bosses who ran these companiesand believed that their trust was justi-

fied. It took the Enron scandal and allof the resulting media coverage towake up persons who had investedtheir money and never knew what wasgoing on. When the Enron debaclehappened, even the government finallybegan to take an interest. The massivescandals that were uncovered shockedthe public for a time. A look at someof the most high-profile recent corpo-rate scandals, and the status of pendinglegal action, follows.

• Enron Corp.Former chief executive Jeffrey

Skilling pleaded innocent in Februaryto fraud, conspiracy, insider tradingand other federal counts related tothe once-mighty energy giant’s col-lapse. Former chief financial officerAndrew Fastow has pleaded guilty totwo counts of conspiracy and agreedto cooperate with prosecutors.

• Adelphia Communications Corp.Founder John Rigas and his two

sons, as well as former assistanttreasurer Michael Mulcahey, are ontrial in federal court, accused of steal-ing tens of millions of dollars fromthe cable television giant’s investorsto support a lavish lifestyle.

• Credit Suisse First BostonThe company’s former investment

banking star Frank Quattrone wasconvicted May 3 on federal chargesof obstruction of justice. His first triallast year ended in a hung jury.Quattrone made a fortune takingInternet companies public duringthe dot-com stock craze.

• HealthSouth Corp.Fired CEO Richard Scrushy is

scheduled for trial in August on fed-eral charges of leading a multibil-lion-dollar scheme to overstateHealthSouth earnings to make itappear the company was meetingWall Street forecasts.

• Martha Stewart LivingOmnimedia

On March 5, a federal jury convict-ed company founder Martha Stewartof conspiracy, obstruction of justiceand making false statements related


to a personal sale of ImClone Systemsstock. Her request for a new trial,based on evidence that one juror liedabout his background, was denied.

• Qwest CommunicationsInternational Inc.

Federal prosecutors failed to wina conviction against any of four for-mer mid-level executives accused ofplotting to help the companyimproperly book $34 million in rev-enue. Each man faced 11 chargesincluding conspiracy and securitiesfraud. On April 16, a jury acquittedJohn Walker and Bryan Treadway ofall charges. The jury acquitted GrantGraham of three wire fraud charges,but deadlocked on the remainingcharges against him and on allcharges against Thomas Hall.

• Tyco International Ltd.A state court judge declared a

mistrial in the case involving formerCEO L. Dennis Kozlowski and for-mer CFO Mark Swartz, who wereaccused of stealing $600 millionfrom the company. The judge saidthere had been undue pressure onone juror. A retrial is probable.

• WorldCom Inc.Former CEO Bernard Ebbers has

pleaded innocent to federal fraudand conspiracy charges for allegedlydirecting a massive accounting fraudnow estimated at $11 billion. FormerCFO Scott Sullivan has pleadedguilty to conspiracy and securitiesfraud charges and agreed to testifyagainst Ebbers.

This list could be much longer, butsince my wife, Sara, tells me thereports are getting too long, I will stop– for now.

A CORRUPT CORPORATE MENTALITY

Doing business with the governmenthas always been lucrative, but the pub-lic was largely unaware of how thingsreally worked. Many large U.S. corpo-rations depended on large contractswith the U.S. government as a majorrevenue source. American citizenshave every right to expect these com-

panies to obey the law and be above-board in all of their dealings with thegovernment. Northrop GrummanCorp. is one of these corporations.Internal documents obtained by theWall Street Journal have revealed thatNorthrop Grumman covered up majoraccounting irregularities during the late1980s. This was done in an obviouseffort to stay in the good graces of thePentagon. According to the Journal,the documents were the basis for a U.S.government lawsuit against NorthropGrumman that could result in penaltiesof hundreds of millions of dollars. Thedocuments reveal questionable behav-ior going all the way back to the end ofthe Cold War and involve the compa-ny’s B-2 Stealth bomber and electronicsystems it built for military aircraft.

The Justice Department’s False ClaimsAct case against Northrop Grumman hasbeen pending for several years. It accus-es the company of defrauding the gov-ernment by overcharging for advancedradar-jamming devices and other protec-tive equipment installed on some of theadvanced jets, including the F-15 fightersand B-1 bombers. Managers workingfor the corporation’s Defense SystemsDivision in Rolling Meadows, Illinois,recognized the pervasive cost-account-ing and material-tracking problems andsought to conceal them from Pentagonauditors, according to the documents.One particular memo, dated February21, 1986, was distributed to 37 man-agers. This memo pretty well tells howthis corporation did business when itstated: “we can’t tell the truth.” It ispretty easy to see how corporations canjustify cheating the government when aphilosophy of this sort prevails, andthat’s a sad commentary on our times.

PUNISHED GOVERNMENT CONTRACTORS LIST

We have repeatedly reported on howsome in Corporate America, includingthe defense contractor mentionedabove, think it’s no big deal to cheatwhen the victim is the U.S. government.With all of the billions of dollars beingspent to “rebuild” Iraq, it might be inter-esting to see who all is getting the con-tracts. Ten companies with U.S. con-tracts or subcontracts in Iraq have paidmore than $300 million in penalties dur-

ing the past four years. Most folks I talkwith have a hard time understandingwhy the government continues to dobusiness with corporations that cheatthe government and are caught. Theten companies and their questionableactivities are set out below:

• Northrop Grumman Corp.Northrop Grumman Corp., whose

Vinnell Corp. subsidiary was award-ed a $48 million contract to train thenew Iraqi Army last year. NorthropGrumman has been penalized$191.7 million in the past four years,including: – $60 million last year to settle alle-

gations of improper charges onshipbuilding contracts.

– $20 million last year to settle alle-gations of selling defective equip-ment to the Navy.

– $111 million last year paid to thePentagon and NASA to settlealleged overcharges by its TRWsubsidiary.

– $750,000 to the Pentagon in 2000in a case involving allegations ofproviding faulty replacementparts for the JSTARS airborne sur-veillance system.

• Lockheed Martin Corp.Lockheed Martin Corp., awarded

a subcontract by Bechtel Corp. toprovide airport telecommunicationsin Iraq. Lockheed Martin has beenfined $85.5 million in the past fouryears, including: – $37.9 million last year in a case

alleging inflated prices on fourAir Force contracts.

– $7.1 million last year to settlecharges of defrauding the Penta-gon and NASA.

– $1.4 million last year to settle alle-gations of overcharging the AirForce.

– $3.1 million in 2002 to settle alle-gations of selling defective sen-sors for the F/A-18 Hornet jet.

– $2.1 million in 2002 to settlealleged fraud on Trident missileprograms.

– $1.3 million to the EnvironmentalProtection Agency in 2002 to settlealleged environmental violations.

– $530,000 to the Pentagon in 2002


to settle charges it used employ-ees who lacked the proper quali-fications.

– $10.5 million to the FederalAviation Administration in 2001to settle allegations of overcharg-ing rent on four buildings.

– $450,000 to the Pentagon in 2000to settle charges of using govern-ment equipment on commercialprojects.

– $1 million to the Energy Depart-ment in 2000 to settle charges ofviolating safety requirements.

– $13 million in 2000 to settlecharges of transferring technolo-gy to China that could have beenused for missiles.

– $4.2 million to the Pentagon in2000 to settle charges of misusingforeign military sales money.

– $3.5 million to the EPA in 2000for cleanup costs of a Superfundsite in Colorado.

• Great Lakes Dredge & Dock Co.Great Lakes Dredge & Dock Co.,

awarded a subcontract by Bechtel todredge the Iraqi port of Umm Qasr.A federal court ordered Great LakesDredge & Dock Co. to pay the gov-ernment $969,000 in 2002 for envi-ronmental damage caused by tug-boats in the Florida Keys NationalMarine Sanctuary.

• PanalpinaPanalpina, a Swiss freight-for-

warding company that has a Bechtelsubcontract in Iraq, paid a $150,000fine in 2001 for alleged misuse of itsU.S. freight-forwarding license.

• American InternationalContractors, Inc.

American International Contrac-tors, Inc. (AICI) is fifth on our list.This corporation has a $325 millioncontract to rebuild Iraqi transporta-tion systems in partnership with itsparent company, Swiss-basedArchirodon LLC, and two otherfirms. AICI, Archirodon and SyskaHennessy Group, Inc., also have a$500 million emergency militaryconstruction contract in the CentralCommand region, which includesIraq and Afghanistan. AICI paid

$4.7 million in fines after pleadingguilty in 2000 to bid rigging on awater project in Egypt funded by theU.S. Agency for InternationalDevelopment.

• Bechtel Corp.Bechtel Corp., awarded $1.03 bil-

lion for a prime reconstruction con-tract last year by USAID, followedby a $1.8 billion prime reconstruc-tion contract from USAID awardedin January, is another culprit.Bechtel’s penalties include: – $30,000 in 2001 to the EPA to set-

tle charges of violating emissionsrules.

– $82,000 in 2000 to the EnergyDepartment to settle charges ofexposing workers to unsafe lev-els of radiation.

• Computer Sciences Corp.Computer Sciences Corp., whose

DynCorp subsidiary has a $50 mil-lion State Department contract totrain Iraqi police and a $7.8 millionPentagon contract to make identifi-cation cards for all Americans inIraq, is next on the list. CSC’s penal-ties include: – $6.4 million in 2000 to settle

charges a subsidiary made falseclaims involving defaulted stu-dent loans.

– $9,000 to the Pentagon 2001 tosettle charges of billing theDefense Department for time CSCworkers spent taking classes.

• Fluor Corp.We also find Fluor Corp., which,

in partnership with AMEC Ltd., hasthree contracts worth a total of $1.7billion to rebuild Iraq’s electricity,water, sewer and waste systems, onthe list of prior offenders. Fluor’spenalties include: – $100,000 to the Energy Depart-

ment in 2000 to settle charges ofproviding defective pipes.

– $8.5 million in 2001 to settlecharges of improperly billing thePentagon for commercial costs.

• AMEC Ltd.AMEC Ltd., which, in partnership

with Fluor, has three contracts worth

a total of $1.7 billion to rebuildIraq’s electricity, water, sewer andwaste systems, is number 9 on thelist. AMEC’s penalties include: – $500,000 fine in 2000 in Missouri

after pleading guilty to fraudinvolving a federal building con-struction contract.

– $700,000 fine in 2002 inCalifornia after pleading guilty tofraud on two federal buildingcontracts.

– A ban on receiving federal con-tracts from February 2002 toFebruary 2003.

• Halliburton Co.You shouldn’t be surprised to find

Halliburton Co., which received $3.6billion under contracts to providemeals, laundry, housing and otherservices to troops in Iraq and torebuild Iraq’s oil industry, as a prioroffender. The Vice-President’s for-mer company also was awarded a$1.2 billion contract in January torebuild the oil industry in southernIraq. Halliburton paid $2 million in2002 to settle charges it inflatedcharges on a maintenance contract atnow-closed Fort Ord, California. It is shocking to read of all of the

bad things done to the American tax-payers by corporations doing “big busi-ness” with the U.S. government. Howcan these companies continue to getthese lucrative contracts? It wouldappear that at the very least, compa-nies that cheat should be banned bythe government after being caughtcheating on more than one occasion.Could it be that having friends in highplaces makes a difference?

JANUS SETTLES FOR $226.2 MILLION

Janus Capital Group Inc. has agreedto pay $226.2 million to settle state andfederal charges that the Denver-basedmutual fund manager helped favoredclients profit at the expense of averageinvestors. Janus will pay $50 million inrestitution, $50 million in civil penaltiesand will reduce fees by $125 millionover five years as part of the settlement.It will also turn over $1.2 million toColorado authorities to be used forinvestor education initiatives. The settle-


ment with New York Attorney GeneralEliot Spitzer, Colorado Attorney GeneralKen Salazar and Colorado SecuritiesCommissioner Fred Joseph is the latestin a series of setbacks for Janus, thenation’s ninth-biggest fund company,which controls about $145 billion inassets. Janus, which cultivated a reputa-tion in the 1990s as “a go-to, technology-savvy investment adviser,” suffereddeclines during the economic downturnand has lost investors as a result of themutual fund scandal.

As we have mentioned in previousissues, “market timing” involves quicktrading of mutual fund shares to exploitprice discrepancies. The practice is notillegal in itself, but it can hurt long-terminvestors by driving up costs and dilut-ing returns. Regulators said Janus failedto disclose to other investors that itallowed selected clients to benefit fromthe practice, despite prospectuses forsome Janus funds that said they were“not intended for market timing orexcessive trading.” The settlement con-tinues the efforts to level the playingfield for mutual fund investors. Markettimers should not be given specialaccess and permitted to profit at theexpense of long-term investors. TheSecurities and Exchange Commission istaking part in the settlement. However,the settlement is still subject to theapproval of the agency’s five commis-sioners. I have to wonder whether wewould be witnessing all of the reformwere it not for an extremely tough andaggressive prosecutor who happens tobe Attorney General in New York.

COCA-COLA MAY HAVE COOKED ITS BOOKS

A published report in The Wall StreetJournal last month said the federal gov-ernment is moving ahead with investi-gations involving Coca-Cola. The issueis whether the company cooked itsbooks. The Journal said a grand jurywas scheduled to hear from companyemployees. In this regard, securitiesregulators have issued subpoenas seek-ing relevant information. The Journalsaid both the U.S. Attorney’s office inAtlanta and the Securities and ExchangeCommission are zeroing in on allega-tions that Coke sent excessive amountsof beverage concentrate to bottlers and

other distributors in Japan and NorthAmerica to inflate its financial results inrecent years. The report said formerCoke finance officials told investigatorsthe company did engage in so-called“channel stuffing” to match or top quar-terly sales and profits goals.

PEPSI-COLA AND FRITO-LAY GET SECNOTIFICATION

Coca-Cola is not the only soft drinkgiant to find itself under the gun. ThePepsi-Cola and Frito-Lay divisions ofPepsiCo Inc. have been notified by thestaff of the Securities and ExchangeCommission that the agency will rec-ommend bringing a civil action againstthe units. The SEC is alleging that anon-executive employee at Pepsi-Colaand another at Frito-Lay signed docu-ments in early 2001 prepared by whatis now called Kmart Holding Corp.acknowledging payments of $3 millionfrom Pepsi-Cola and $2.8 million fromFrito-Lay. Kmart allegedly used thedocuments to improperly record thetiming of revenue from these business-es. Associated Press reports that Pepsi-Cola and Frito-Lay are cooperatingwith the investigation. Apparently, theinquiry doesn’t involve any allegationsregarding PepsiCo’s own accountingfor its transactions with Kmart orPepsiCo’s financial statements.

SEC CHARGES PIMCO’S CHAIRMAN OF

BOARDS WITH FRAUD

The Securities and ExchangeCommission has accused several unitsof PIMCO Funds, as well as theChairman of the Boards of more thantwo dozen of PIMCO’s mutual funds,of defrauding investors by allowing afavored client to engage in trading instock funds that violated the firm’sown rules and hurt long-terminvestors. Significant in these chargesis that this is the first time the SEC hastaken action against the chairman of afund’s board. These charges alsoinclude the first time a portfolio man-ager has been accused in playing arole in setting up improper agreementsto allow short-term trading. When themisconduct starts at the top, and notwith some low-level employee, the

“big boys” need to answer for theirwrongdoing. For many years, criticshave complained that chairmen offund boards shouldn’t have direct tiesto fund-management companies, as isthe case at PIMCO Funds. The SEChas now proposed a rule that wouldrequire an independent chairman.

NORTEL NOW FACES INVESTIGATIONS

The Securities and ExchangeCommission has opened a formalinvestigation into Nortel Corporation’saccounting problems. The Canadiantelecommunications-equipment makerhas been under SEC inquiry about itsfall 2003 restatement of its results andits recent plans to restate past results forthe second time. In April, Nortel sus-pended its chief financial officer and itscontroller, while admitting that anongoing examination would lead to arestatement of results for 2003 and oneor more earlier periods.

Now, a federal grand jury in Texashas subpoenaed the company’s recordsas part of a criminal investigation.Once again, it appears that the real los-ers in scandals like this one are thehardworking employees of the compa-ny and its shareholders who believedaccurate financial information wasbeing supplied.

SHELL EXECUTIVES HID THE TRUTH

We covered briefly the problems atRoyal Dutch/Shell Group in the Aprilissue. An internal investigation by thecompany had revealed disputes at theexecutive level over how the companyhandled evidence that Shell had greatlyexaggerated its oil and natural gasreserves. The former Chief ofExploration for Shell, Walter van deVijver, had asked that the truth be madepublic. His boss, Sir Phillip Watts,Shell’s then Chairman, however, refusedto do so. Excerpts of e-mails have nowbeen released revealing the subordi-nate’s anger over the situation he foundhimself in. Van de Vijver told his boss:“I am becoming sick and tired aboutlying about the extent of our reserves,issues and the downward revisions thatneed to be done because of far tooaggressive/optimistic bookings”.


Reserves are a very important indica-tor of an energy company’s financialhealth and are reported in financial fil-ings. As a result of these exaggeratedreserves, probes of Shell were started, asreported, by the Justice Department andthe Securities and ExchangeCommission. A summary of the docu-ments released indicates that Mr. van deVijver wanted to reveal the truth toinvestors as he repeatedly complainedabout the problems internally to his boss.He ultimately failed, however, by goingalong with Sir Phillip Watts and refusingto take his complaints outside the execu-tive inner circle. The scandal involvingShell and the reserve downgrade hasraised serious questions about how otheroil companies account for their assets,notably the reserves of oil and gas theyclaim to own in the ground.

The documents released are signifi-cant for several reasons. The documentsindicate that the company’s top manage-ment team and other top executiveswere completely aware of seriousreserve-accounting problems for years,but did not tell the truth to regulators,the public or their own boards.Interestingly, the documents reveal thatthe Shell executives failed to disclosetheir serious problems when they werelagging behind their closest competitors,ExxonMobil Corp. and BP. Many of thedocuments show Mr. van de Vijverpointing out the rapidly growing differ-ence between what the company exec-utives knew internally and what Shellwas disclosing to the investing public.In fact, Mr. van de Vijver warned otherexecutives in the company of the conse-quences that could occur if they kepttrying to keep the market “fooled.”

Unfortunately, many large companieshave shown repeatedly that they haveno conscience when it comes to lying totheir investors, to the public that buystheir product, and to the governmentalregulators. With the recent deception atHealthSouth, WorldCom, Enron, Tyco,and others, it is becoming more difficultfor investors to know how well a com-pany is really doing. Also, it is beingmade most clear that corporate frauddoes go on at the very highest levels ofmany large corporations – certainlymuch more often than people think.

INVESTMENT BANKER CONVICTED

It should never pay to obstruct jus-tice, regardless of the means used toobtain that end, or the setting in whichit occurs. Frank Quattrone, a starinvestment banker during the Internetstock bubble, was convicted last monthof obstructing justice by sending an e-mail message encouraging colleaguesto destroy files while a criminal probeof the bank was under way. Quattronehad been told by a high-ranking CreditSuisse First Boston lawyer that thebank was the subject of a criminalinvestigation. A federal jury in NewYork returned guilty verdicts on allthree counts against Quattrone —obstructing a grand jury, obstructingfederal regulators and witness tamper-ing. It now appears Quattrone will goto prison.

You may recall that Quattrone roseto stardom in the banking industry inthe late 1990s, while dot-com stocksboomed. He took technology compa-nies like Amazon.com and NetscapeCommunications Corp. public andmade $120 million at CSFB in 2000. Bylate 2000, the government was lookinginto whether some CSFB clients hadpaid excessive commissions — essen-tially kickbacks — in exchange for get-ting a piece of hot initial public offer-ings of stock. Quattrone claimed thatthe investigation was not on his mindwhen he sent the document-destruc-tion e-mail to his investment bankersbecause IPO allocations were handledby a different part of the bank. But,based on reports from his trial, it ishighly unlikely that he was innocent ofthe changes. It appears that destroying“bad documents” with no fear of get-ting caught had become the acceptedpractice in the industry.

VIII.PRODUCTLIABILITY UPDATE

FORD OVERRULED SAFETY ADVICE ON

RECALL REQUEST

Nothing that Ford Motor Co. doesconcerning safety really surprises me

any more. The carmaker has consis-tently placed profits over safety for thepast several years. We now learn thatFord actually overruled its own safetyengineers’ recommendations to recallup to 4.1 million pickups and sport util-ity vehicles after they had found sub-standard door latches. A Ford safetyengineering team determined in March2000 that door latches on certain 1997-2000 light trucks did not meet federalsafety standards. The trucks include thepopular F-150, F-250, Expedition, andLincoln Navigator models, according tointernal Ford memos made public aspart of civil lawsuits pending in courts.After the recommendations, Fordordered immediate design changes forfuture vehicles. But the automakerdecided against a recall, which couldhave cost up to $527 million. Instead,the company determined that the latch-es could pass a rarely-used alternativecompliance test. There have been agood number of lawsuits filed againstthe automaker contending that latchfailures led to fatal accidents involvingdoors that flew open. Many of thesecases have been settled by Ford, butothers are still pending.

Federal safety officials are reviewingallegations that Ford by-passed federallaws by failing to recall the 4.1 millionvehicles and alert the National HighwayTraffic Safety Administration of the latchissue. As expected, Ford maintains thedoor latches are safe and in compliancewith federal laws. It will be interestingto see what action – if any – NHTSAtakes. Failure to meet safety standardsthat are not only the bare minimumrequired, but oftentimes weak – shoulddemand a recall take place.

Internal company records producedin response to the lawsuits showed thatFord had ordered and installed substan-dard door handle springs on up to 4.1million F-Series trucks and Expeditionand Lincoln Navigator SUVs from themodel years 1997 to 2000, but decidedagainst ordering a recall or reporting itto the federal government. The springshave been cited in at least six liabilitylawsuits involving deaths and seriousinjuries. The National Highway TrafficSafety Administration reported that theissue had been brought to its attention.It certainly appears that this is a safety


defect that ford was required to reportto NHTSA. According to Ford docu-ments that emerged in various lawsuits,the issue goes back to 1997 whenTransport Canada, the Canadian vehiclesafety agency, informed Ford that a 20-mile-an-hour impact test on a Ford F-150 pickup produced an unexpectedresult. Their report to Ford was:“During the impact, the passenger’sdoor was flung open.”

The memorandum recommended arecall, noting that the problem was“100%” attributable to the single com-ponent. But instead, it said, “invento-ries of springs at Donnelly were bentbefore installing them in the handles toincrease installed handle torque above360Nmm,” or newtons per millimeter.Permanent corrective action, it said,would involve “a redesign of the out-side door handle spring.” Yet twoyears later, on March 25, 2002, anotherFord memorandum said shockingly nodefects had been found and that “it isBody Engineering’s recommendationthat this issue be closed.” Ford hasdenied any violation of federal stan-dards that require doors to withstand aforce of 30 times gravity. Ford saystheir latches complied with an alterna-tive method for measuring vehiclecompliance: a brief impact test called“approved crash pulse.” NHTSAdeclined to recognize that test as farback as 1975.

As I stated at the outset, I am nolonger surprised that Ford places a verylow priority on safety as opposed toprofits. I wish I could say that Ford isthe only carmaker that has this philoso-phy; unfortunately, that is not the case.I also wish I could say that ignoring theadvice of design engineers by thesecompanies was the exception, ratherthan the rule. However, running intothat sort of thing in our cases makes merealize it happens all too often.

NHTSA REPORT DOCUMENTS NEED FOR

ACTION ON AUTO SAFETY BILL

The report released last month bythe National Highway Traffic SafetyAdministration on “non-traffic motorvehicle-related deaths” further rein-forces the need for Congress to enactthe strong safety provisions contained

in the Senate version of the pendingfederal highway bill (S. 1072). Thereport- Data Collection Study: Deathsand Injuries Resulting from CertainNon-Traffic and Non-Crash Events -documents about 350 deaths per year,many of them children, from carbonmonoxide poisoning, vehicle back-overs, exposure to excessive heatcaused by entrapment in a passengercompartment or trunk, and strangula-tion from power windows. These areall events occurring in non-crash hap-penings. Although under the lawNHTSA has responsibility for protectingthe public from such events, the agencydoes not routinely collect these data.This special report came about becauseof requests being made by consumeradvocates and members of Congress.Many of these deaths are preventablewith available and cost-effective designor technology changes. Two of the fourmajor causes of fatalities documentedin the report - backovers and powerwindow strangulation - are addressedby safety provisions in S.1072, which islabeled as the Safe, Accountable,Flexible and Efficient TransportationEquity Act. The Senate version is nowbeing reconciled with the House ver-sion, which has no auto safety provi-sions. This legislation is expected to becompleted before July 1st and I hope itwill include the safety measures.

NHTSA should continue to collectand analyze these data, which comeprimarily from death certificates, newsreports and literature reviews. Congressshould move swiftly to pass the pend-ing legislation to prevent the deaths ofmore children and adults in these trau-matic accidents. Public Citizen and Kidsand Cars are to be commended forbringing public attention to these trag-ic, preventable deaths.

NHTSA PROPOSES TOUGHER CRASH-SAFETY TESTS

Federal regulators have proposed amajor overhaul of side-impact crashtests on cars and trucks. The new testprocedures announced last monthwould require the industry, by the endof the decade, to equip almost all newvehicles with inflatable curtains andother side airbags that protect people’s

heads. The proposals include usingcrash-test dummies that, for the firsttime in government tests, would beequipped to measure injuries to thehead, the most vulnerable part of thebody in side-impact collisions. Inanother first, they also include usingdummies to represent women and chil-dren of small size, who are at dispro-portionate risk in side-impact accidents.Additionally, a new test design wouldbetter reflect the risks that people incars face from the growing number ofsport utility vehicles and large pickuptrucks on the road.

NHTSA estimates that adding sideairbags would save 700 to 1,000 lives ayear and cost the auto industry $1.6 bil-lion to $3.6 billion. In the test nowused, a 3,000-pound barrier meant tosimulate a passenger car is rammed at33.5 miles an hour into the sides of carsand trucks weighing up to 6,000pounds. NHTSA proposed adding a testthat would ram vehicles sideways into afixed pole at 18 to 20 miles an hour.The test would reflect the effects ofcrashes with taller vehicles, trees or util-ity poles, and be conducted on vehiclesup to 10,000 pounds. The plans will notbe made final until late next year after acomment period from the industry andthe public. They have already passedthrough a review by the Office ofManagement and Budget. If adopted,they will force automakers to do some-thing they should have done long ago,and that is to install side airbags thatoffer head protection in most vehicles.The industry will have to reevaluatewhether the airbags now in use canmeet the proposed standards. Researchby the traffic safety agency showed thatsome vehicles offer poor levels of pro-tection to shorter drivers and passen-gers, even with airbags.

The current test uses an impact at aright angle to the vehicle, representingwhat would happen when, say, some-one runs a red light and hits another carbroadside. In the proposed pole test,the collision occurs at a 75-degree angleinstead, more like a skidding sideimpact. One problem with side impactsis that there is far less room in the sideof a vehicle to engineer protection thanthere is up front. The proliferation ofSUVs and large pickup trucks has made


the problem worse because these vehi-cles ride higher than most cars andwould tend to strike a car in the weak-er upper portions of its body rather thanhit the bumper or frame first.

Recently, the Insurance Institute forHighway Safety, a research groupfinanced by auto insurers, released thefirst crash test results for specific carmodels struck in the side by a truck-sizemetal barrier. Ten of the 13 midsize carstested received the worst rating on afour-level scale representing likelihoodof death or injury to occupants. Lastyear, 43,320 people died in traffic acci-dents, the most since 1990. SUVs andlarge pickup trucks are an important fac-tor in this, both because these vehiclespose a greater peril to cars they hit andbecause they tend to roll over more thancars do, making them more dangerousto their own occupants. NHTSA’s actionis helpful, but there’s a lot more to do.Consumer advocates still favor legisla-tion sponsored by Senator John McCain(R-Az.) that would direct NHTSA to acton a number of safety issues. Dr. JeffreyRunge, Administrator of NHTSA, says,however, that he preferred to set hisown agenda. Unfortunately, that maynot be enough.

THERE IS MUCH MORE TO BE DONE

NHTSA’s announcement, discussedabove, is obviously a much-neededstep in the right direction, but it clearlyisn’t enough. We have seen repeatedlythat voluntary standards don’t work.Instead, the requirements contained inpending highway safety legislation arethe best way to reduce deaths andshould be enacted. NHTSA’s plan ispositive because it will likely result inthe installation of side head airbags,which are highly effective in savinglives. This protection is critical in crash-es involving high-riding SUVs or pickuptrucks and in rollover crashes, becauseside airbags help prevent people frombeing ejected. They also help protectagainst vehicle mismatch – that is,when an SUV or pickup truck crashesinto a car.

This announced standard by NHTSAis long overdue. In 1999, NHTSA’sadministrator asked automakers todevelop voluntary standards for side

airbags. But what happened next illus-trates why voluntary standards werethen – and are now – inadequate.Consumers and the public were shutout of the process, and few automakersinstalled side airbags. Others chargedlarge mark-ups or made side airbagsavailable only in luxury models or as anexpensive extra. Voluntary standardswon’t work. They are created withoutpublic involvement and can’t beenforced. There is no way for con-sumers to know whether a companyhas complied. Clearly, the solution ispassage of S.1072, the auto safety legis-lation that is part of the pending high-way bill. This bill requires NHTSA toupgrade the side-impact protectionstandard and issue a final rule by theend of 2007, which incidentally is thesame deadline proposed by NHTSA.

S.1072 also takes a comprehensive,multi-pronged approach to reducingharm from ejection, rollovers and vehi-cle mismatch. Passage would ensurethat standards are upgraded on a pub-lic – and certain – timetable, regardlessof possible changes in the leadership ofthe agency. Consumers demand safetybecause they know that it is feasible.They shouldn’t have to buy a luxuryvehicle to obtain safety features thatprotect them in side crashes androllovers. Nor should they have to relyon the whims of the auto industry,which under a voluntary program mayor may not install side crash protectionsin all vehicles. The public needsmandatory side impact crash protec-tions, and they need them now.

2004 SPORT UTILITY VEHICLES CRASH

TEST RESULTS

Test results for model year 2004 sportutility vehicles are now posted on thewebsite of The National Highway TrafficSafety Administration. To get this infor-mation, go to: www.safercar.gov. TheInfiniti FX35, Saturn VUE and ToyotaHighlander received the government’stop rating in both the frontal and side-impact crash tests. New 2004 frontalimpact ratings for SUVs are provided forthe Cadillac SRX 4x4 sport utility, DodgeDurango 4x4 sport utility, GMC EnvoyXUV 4x4 sport utility, Infiniti FX35/454x4 sport utility, Saturn VUE 4x4 sport

utility, Toyota Highlander 4x4 sport util-ity, and the Toyota Rav4 4x4 sport utili-ty. New 2004 side impact ratings forSUVs are provided for the Buick Rainier4x4 sport utility, Cadillac SRX 4x4 sportutility, Chevrolet Trailblazer 4x4 sportutility, GMC Envoy 4x4 sport utility,Infiniti FX35 4x4 sport utility, IsuzuAscender 4x4 sport utility, OldsmobileBravada 4x4 sport utility, ToyotaHighlander 4x4 sport utility, and theVolkswagen Touareg 4x4 sport utility.

A fact sheet containing explanatoryinformation and tables showing NewCar Assessment Program (NCAP) crashtest results for recently released modelyear 2004 vehicles can be obtained bycalling the NHTSA Auto Safety Hotline,1-888-327-4236. You can also write toNHTSA Consumer Information, Room5320, 400 Seventh St., S.W., Washington,DC 20590. Crash test information isavailable at NHTSA’s website by clickingon “Crash Tests” under “PopularInformation” in the index on the left sideof the screen. If you want more infor-mation on cars and safety, you can go toour website: www.BeasleyAllen.com.

REPORT OF A CARBON MONOXIDE

POISONING DEATH

The widow and son of a Floridaman, who died of carbon monoxidepoisoning while he slept in his semi-trailer, have been awarded about $4.4million by a federal jury. The widowsued three companies in U.S. DistrictCourt in Orlando. The truck driver diedback in 2000, as he slept in his semi-trailer while in Kentucky on a trip. Thetruck with the sleeper cab had been inservice for only one month. It wasadvertised that this model of the truckwas supposed to allow for drivers tosleep in the cab while the truck wasrunning. A medical examiner inKentucky said the victim died as aresult of carbon monoxide poisoning.The jury award to the family was forloss of support and services, loss ofcompanionship, loss of parental com-panionship, and mental pain and suf-fering. Incidentally, under Alabamalaw, none of this could have beenrecovered, because only punitive dam-ages are allowed in wrongful deathcases filed in our state. Freightliner


LLC, Interstate Equipment Leasing Inc.and Swift Transportation were the threedefendants in the suit.

ELECTRONIC STABILITY CONTROLS

For the first time ever, ConsumerReports Magazine, premier publisher ofcar rankings and automotive authoritysince 1936, added a “Stability Control”check box next to every car it ranked inthis year’s annual automotive issue.Electronic Stability Control (ESC) is anactive safety technology that incorpo-rates antilock brake system (ABS) andtraction control system (TCS) technolo-gies – two other auto safety featureslisted in Consumer Reports. ESC alsoimproves a vehicle’s lateral stability,classifying it as the most advanced driv-ing safety system of its kind. The AprilConsumer Reports issue highlightedESC as one of the “10 Safety Checks toMake Before You Buy,” and cited it asa feature that “improved handling inour tests.” The spotlight by ConsumerReports on ESC is unprecedented. Itrepresents the most solid public affir-mation to date that cars containing ESCmake American highways safer.

If ESC works as intended, it will defi-nitely help prevent car crashes. I hopeESC will prove to be a lifesaving tech-nology that will significantly improvehighway safety for all of us. Presently,ESC comes as a standard feature in allvehicles from Audi, BMW and Mercedes,and select models from Acura, Chrysler,Ford Motor Company (including Volvo),General Motors Corporation (includingSaab), Infiniti, Lexus, Nissan, Porsche,Subaru, Toyota and Volkswagen. It isalso available as an option in other mod-els. I believe that consumers should askfor ESC when purchasing a new vehicle.ESC works by comparing a driver’sintended course with the vehicle’s actu-al movement. When instability is detect-ed, it applies brakes to individual wheelsand can also reduce engine torque. ESCis a revolutionary active safety technolo-gy that uses advances in microelectron-ics to help drivers maintain control oftheir vehicle and prevent crashes beforethey occur. The system detects when adriver is about to lose control of a vehi-cle and automatically intervenes to pro-vide stability and help the driver stay on

course. ESC is marketed under varioustrade names.

THE ESC COALITION PROMOTES THE

SYSTEM

The Electronic Stability ControlCoalition was established in 2003 toinform consumers and other key audi-ences about the benefits of ESC systems.It is a joint effort of two of the largestautomotive technology suppliers,Robert Bosch Corporation andContinental Teves. Touted as leaders inthe development and manufacture ofESC systems, these companies areworking together to increase the gener-al awareness of this lifesaving technolo-gy, which appears to have great poten-tial. The Coalition’s stated mission is toeducate consumers about the revolu-tionary active safety technology.Members of the Coalition believe thatthe widespread installation of ESC sys-tems can play a significant role in help-ing to prevent crashes on America’sroads. The Coalition seeks to increasethe public’s general awareness of thismilestone in automotive safety. Througha national education campaign, it aimsto provide consumers with comprehen-sive information on ESC, including edu-cational materials, technical data, videodemonstrations, industry studies, andnews about ESC. For additional infor-mation on the ESC Coalition, please visitwww.esceducation.org. You can alsoget the trade names referred to abovefrom this website.

LAWSUITS INVOLVING POLICE ARMOR

A law enforcement coalition has suedthe manufacturers of bulletproof veststhat many police agencies believe loseeffectiveness over time, and as a result,fail to protect the user as promised. TheNational Association of PoliceOrganizations seeks as much as $310million and class action status in twoseparate lawsuits filed in April in Floridaand Michigan. The lawsuits came 5months after the Justice Departmentannounced an investigation into thevests, which were sold to as many as100,000 law enforcement officers.Named as defendants are Jacksonville-based Armor Holdings, Second Chance

Body Armor Inc., based in Central Lake,Michigan; Toyobo America Inc. andToyobo Co. Ltd (the Japanese manufac-turer of Zylon). One lawsuit blamesSecond Chance armor in the June 2003death of a California police officer.According to the suit, 3 bullets penetrat-ed the officer’s Zylon vest. Zylon wasmarketed as a lighter-weight alternativeto other materials used to make bullet-proof vests. Police agencies have saidthey suspect the material degrades andweakens with wear.

Men and women who risk their liveseveryday in an effort to make our livessafer, shouldn’t have been misled andgiven a false sense of security bydepending on a vest that is ineffective.Toyobo has acknowledged that Zylonloses 10% to 20% of its durability with-in two years of manufacture, but con-tends the material works well in prop-erly constructed body armor. It hasblamed some of the vests’ failure onsome of the other defendants. TheWashington-based National Associationof Police Organizations representsalmost half of the sworn law enforce-ment officers in the country, in addi-tion to 11,000 retired officers.

AIRBAG INJURIES ARE ON THE RISE

The National Highway Traffic SafetyAdministration reports that since 1990,airbag deployment has killed 227 peo-ple in low-severity crashes, including 76drivers, 10 adult passengers, 119 chil-dren between the ages of 1 and 11, and22 infants. Of the 76 adult driverskilled, 28 were women under 5 feet 2inches tall, and 4 of the 10 adult passen-gers killed were females smaller thanthat height. Airbag systems were origi-nally developed for the 5 foot, 8 inch,180 lb. male, and only tested to be surethe systems met their specific needs.Unfortunately, this original design crite-rion did not help shorter people whohave to sit closer than 10 or 12 inchesfrom the steering wheel. Nor did therequirements consider children or thosewho have medical reasons why they arein danger from the explosive force of adetonating airbag.

For years, experts have stated thatairbags have been too “aggressive,”meaning that they deploy too forceful-


ly, resulting in injuries. Additionally,most airbags are not selective anddeploy at the same potentially devastat-ing level of force regardless of theseverity of the crash. For that reason,Joan Claybrook of Public Citizen testi-fied before the Airbag TransportationSubcommittee in the U.S. House ofRepresentatives in 1996 and stated:

One of the most important ele-ments in airbag design that deter-mines the level of protection as wellas the likelihood of inadvertentinjury is the inflation flow rate. Mostcurrent vehicles on the highwayhave a single inflation level. Thismeans that whether the crash is at15 mph or 35 mph, the airbaginflates with the same force. But asfar back as the mid-1970s, GeneralMotors installed dual stage inflationairbags in 10,000 1973-1976 vehi-cles sold to the public. We currently represent the husband

of a young woman who was killedwhen her airbag deployed in a relative-ly low speed crash. Although everyonein the vehicle survived the crash, ourclient’s wife died later from brain injuriescaused by the airbag. Clearly, a less vio-lent airbag or an airbag with dual stagedeployment would more likely than nothave saved her life. But, manufacturershave refused to use such injury-reducingtechnology, citing excessive costsinvolved. We are working to developthis important case and will keep youupdated as we move forward.

MORE STRINGENT STANDARDS ARE

NEEDED CONCERNING DOOR LATCH

STRENGTH

The Federal Motor Vehicle SafetyStandard for door latch strength (FMVSS206) was established in 1968. It wasextended to back door latches in 1995.The 1968 standard was based on SAErequirements with increased loads onthe door latches. A 1989 evaluationconcluded that FMVSS 206 had only a15% effectiveness in reducing ejectionfatality risk. While automobile technol-ogy has taken a giant leap forward inthe last 20 years in many areas, require-ments for door latch strength have notimproved. Door latch strength isimportant because the door is the main

component that keeps occupants invehicles involved in crashes.

Common sense tells us that an occu-pant has a much greater chance ofbeing seriously injured or killed if theyare ejected, fully or partially, from avehicle. Statistics from real worldcrashes and industry crash tests backup that assessment. Even a beltedoccupant can be partially ejected if thedoor opens. In a rollover, for example,the result of even a partial ejection canbe death or a very serious injury. Morethan 2,500 people are killed each yearafter being thrown out through dooropenings. About half result from thedoor’s structure failing and the otherhalf involve the latch failing. We havehandled a number of these cases, and Iwonder why NHTSA doesn’t come upwith a stronger standard. Well, on sec-ond thought, I do know why – thepowerful automobile industry is satis-fied with a weak standard.

ARMORED-TRUCK WORKER CRUSHED BY

COINS

We have handled a number of caseswhere shifting loads on trucks haulingcargo resulted in deaths or seriousinjuries to occupants. Recently, aFlorida jury awarded nearly $34 millionto the plaintiff, a passenger in anarmored truck whose spinal cord wasfractured when boxes of coins crushedhim during a 1998 traffic crash. The juryordered the truck’s manufacturer, GriffinInc., to pay $33,890,000 in damages tothe 56-year-old, who was left paralyzedfrom the chest down. The manufactur-er has agreed to pay a “substantialamount,” much of it through insurance,in settlement, and will not be requiredto pay the entire award.

There are ways in which injuries ofthis sort can be prevented. In theFlorida case, a protective shield, costingonly $300, could have been installedthat could have prevented the coins inthe cargo hold from surging forwardonto the plaintiff when the truckcrashed. Unfortunately, all too often,these safety measures are ignored bythe manufacturers. The plaintiff wasworking as an armed messenger forWells Fargo when the accident occurredon October 31, 1998. The truck came

over a bridge in heavy fog and collidedwith a tractor-trailer. The plaintiff’s seatbelt broke away and boxes of coinscame down on top of him. This case isa classic example of how the manufac-turers of trucks could – by using avail-able safety devices – avoid injury to per-sons riding in their trucks.

IX.MASS TORTSUPDATE

TENTATIVE SETTLEMENT AGREEMENT

REACHED IN PROPULSID MDL

A tentative agreement has beenreached in the Propulsid Multi-DistrictLitigation to settle numerous cases pend-ing against Janssen Pharmaceutica, themanufacturer of Propulsid. The tentativeagreement provides for the creation of aglobal resolution and mediation programthrough which individuals who sufferedPropulsid-related injuries are compensat-ed. Claims of all individuals electing toparticipate in the Program will be sub-mitted to a medical review panelappointed by the MDL court. Claimsdeemed compensable by the medicalreview panel will be forwarded to acourt-appointed special master for evalu-ation. Only individuals suffering seriousheart injury or death will be compensat-ed. The findings of the medical reviewpanel and special master will be final andcannot be appealed. The settlement pro-gram is in lieu of any further litigation bythose who agree to participate regardingtheir acquisition and use of Propulsid.The tentative agreement will be finalizedonly after a predetermined percentage ofclaimants agree to its terms.

COURT THROWS OUT PROPULSID DAMAGE

AWARD

On another front, the makers ofPropulsid had a major victory. TheMississippi Supreme Court on May 13ththrew out a $48.5 million damageaward against the makers of the heart-burn drug. The justices, in the 6-1 deci-sion, said it was improper to group the10 plaintiffs together when their claimsdid not arise out of the same incident,


and ordered that new separate trials beheld for each of 10 plaintiffs. The courtwrote: “Because each plaintiff has hisor her own very unique set of facts andcircumstances to be presented at trial ...this case is remanded for severance,transfer to appropriate venue and newtrial of the claims of all 10 plaintiffs.”Janssen Pharmaceutica Inc., and its par-ent company Johnson & Johnson, hadasked the state’s high court to dismissthe case or to order separate trials foreach of the plaintiffs. The plaintiffs saidtaking the heartburn drug caused theirheart problems, anxiety attacks andother conditions. The U.S. Food andDrug Administration has linked theheartburn drug to 80 deaths nationally.In 2000, the FDA issued a warning thatPropulsid could cause irregular heart-beats and sudden death and shouldonly be used as a last resort for patientsafter being given heart tests to ensurethey are at a low risk for the sideeffects.

X.BUSINESSLITIGATION

CITIGROUP TO PAY $2.65 BILLION INWORLDCOM CASE

Financial services giant Citigroup hasagreed to pay $2.65 billion to settleclass action suits brought by investorswho bought WorldCom Inc. securitiesbefore the telecommunications compa-ny’s bankruptcy filing in 2002. As youmay recall, Citigroup’s brokerage divi-sion was a key backer of WorldComsecurities before it filed for the biggestbankruptcy in history in July 2002. Thiscame about as accounting irregularitiescame to light. The settlement cameabout as the world’s biggest financialservices company set aside another$6.7 billion for potential claims againstit related to the collapse of Enron Corp.and its April 2003 settlement of federalinquiries into its investment researchactivities and its involvement in initialpublic stock offerings.

In the WorldCom settlement, Citi-group agreed to settle federal classaction suits brought on behalf of those

who had purchased WorldCom stockand other securities during the periodfrom April 29, 1999 through and includ-ing June 25, 2002. The company’s CEOtold the Associated Press that the settle-ment was part of an effort “to put anunfortunate chapter behind us so wecan focus on our continuing prospectsfor growth.”

BOND RESEARCH CONFLICTS GETTING

ATTENTION

Federal regulators have launchedinvestigations into whether Wall Streetfirms are cheating and misleading bondinvestors with research that either isslanted or has been leaked ahead oftime to the firms’ own traders. CertainWall Street firms are now physicallyseparating their bond analysts from thebond traders. Also, the Bond MarketAssociation, a trade group, is about tomake final a new set of guidelinesaimed at preventing conflicts. TheSecurities and Exchange Commissioninformed the Bond Market Associationduring a meeting in February that theSEC had started reviewing potentialconflicts of interest between bond-research analysts and Wall Street bro-kers and traders. Potential conflictsinvolving bond-research are similar tothe earlier regulatory focus on stock-research conflicts.

One question being asked iswhether bond traders or bankers getadvance looks at research before it ispublished (giving them a chance totrade ahead of the public or clients whopay for the reports). Another iswhether bankers or traders have influ-ence over what analysts say in theirresearch reports. While bond under-writing and trading has always been amajor profit source for Wall Street firms,it has become more so since the stock-market peak in 2000.

Documents released as a part ofEnron Corporation’s chapter 11 bank-ruptcy clearly show the sort of conflictsthat can arise in bond research. Shortlybefore Enron fell apart in late 2001, ananalyst at one of the energy company’sleading investment banks, Credit SuisseFirst Boston, had planned to downgradeEnron’s bonds to a “hold” from a “buy.”Credit Suisse First Boston officials, how-

ever, pressured the analyst to continuerecommending that investors buy Enronbonds, suggesting that the bank officialswere motivated by the revenue Enron’sbusiness generated. The analyst did notchange her public “buy” recommenda-tions, but privately relayed her negativeassessment of Enron’s bonds to CreditSuisse First Boston traders in Londonand New York, prompting them to sellsome of their Enron-related debt.Unfortunately, it appears that regulatorsare going to have to clean up the bondmarket because Wall Street clearly isn’tprepared to deal with the problem.

MUTUAL FUND INDICTMENTS AGAINST

BROKER

A few weeks ago, the New YorkAttorney General unsealed a criminalindictment against a former Bank ofAmerica Corporation broker, whichincluded some recordings of phoneconversations that are shocking. Therecordings clearly show the broker anda New Jersey hedge fund scheming tomake illegal mutual fund trades.Evidence in this and other cases in theworks will show that market-timersand late-traders were fully aware thatwhat they were doing was wrong, ifnot illegal. The phone conversationsreveal that the broker and a represen-tative of a hedge fund, Canary CapitalPartners, LLC, negotiated the timing ofthe hedge funds trading for after theclose of trading, but then submitted asif it were made before trading closed.The conversations also indicate thattentative trades were to be madebefore the market closed with the planthat they would not be processed untilafter the market closed, if Canary (thehedge fund) approved the trades. Ifthe hedge fund did not approve thetrades, then the broker was to “putthem in the garbage.” The phone con-versations are extremely damaging tothe participants.

A software system allowed Canaryto trade funds until 5:30 – well after thenormal 4:00 p.m. close for mutual fundtrades. This unsealed indictment andtape recordings show a new level ofintentional fraud taking place betweenBank of America and the Canary hedgefunds that is shocking. We have


allowed a corporate culture to developthat made “lying, cheating, and steal-ing” a way of life on Wall Street, andthat is shameful.

UPS TO SETTLE CLASS ACTION OVER

PACKAGE INSURANCE

United Parcel Service, Inc., has set-tled a class action lawsuit alleging thatthe company overcharged for packageinsurance over the past two decades.UPS, based in Atlanta, is offering cus-tomers vouchers for UPS service (somewith a value of $8,000.00) if they canprove they bought “excess value” pack-age insurance from UPS. Several mil-lion customers from forty-nine statesare eligible for vouchers under thenationwide settlement, which was filedin U.S. District Court in New York. UPSsettled a similar lawsuit in Illinois 3years ago after the company agreed togive a maximum of $38.5 million dol-lars worth of UPS vouchers to as manyas 90,000 consumers who had boughtthe package insurance.

The dispute over the package insur-ance arose in the late 1990s when theInternal Revenue Service sued UPS intax court. The IRS wanted UPS to paytaxes on billions of dollars in insuranceincome that the company had routedthrough an offshore entity dating backto 1984. UPS collected at least $2 billiondollars in insurance premiums from1984 to 1999, according to tax courtrecords. During those years, UPS onaverage kept 60 to 70% of the insurancemoney as profit, according to docu-ments UPS produced for the tax court.

After certain insurance rules werederegulated in the 1980s, UPS spun offits entire package insurance business toa Bermuda based company, allowingUPS to avoid more consumer-friendlyinsurance licensing procedures in theUnited States. In the summer of 1999,the tax court found in favor of the IRSand determined that UPS owed backtaxes and penalties on its insurancebusiness in the amount of $1.8 billiondollars. The tax court found that theUPS offshore restructuring of the pack-age insurance business was “a shamtransaction lacking in economic sub-stance.” However, the U.S. Court ofAppeals for the Eleventh Circuit

reversed the decision and found infavor of UPS.

While the case was pending, numer-ous consumer lawsuits were filedagainst UPS related to the packageinsurance. As a result of the lawsuit,UPS has now been licensed in all fiftystates to be an insurance broker. Thecompany is now required to submit tostate regulations and oversight. UPSdoes not break out revenue figures forits insurance business, but UPS has beenquoted as saying it is profitable. UPSearned over $2.9 billion in 2003. This isanother example of consumers standingup and making a difference in the busi-ness world. As a result of the lawsuits,UPS has changed the way that it han-dles its package insurance business forthe better.

L.L. BEAN DOESN’T LIKE POP-UP ADS

L.L. Bean has filed a lawsuit over apractice that most of us would like toabolish. People all over the countryare fed up with pop-up ads on theInternet. For Bean, however, the adscreated more than just an annoyance.These nuisance ads are costing theFreeport retailer business, and that ledto the lawsuit. Bean sued Gator.comCorp., a California company that man-ufactures adware - programs that aredesigned to provide Internet users withpop-up advertising about products andservices that might interest them, basedon the websites they visit. In Bean’scase, Gator.com’s adware caused somecustomers who called up llbean.com tobe greeted by a pop-up ad offering adiscount at eddiebauer.com, a directcompetitor. That sounds like a “dirtytrick,” to say the least. Bean calls itpoaching and considers it to be para-sitic behavior.

Two years ago, Bean sent a letterasking the company, a subsidiary ofClaria Corp., to stop using the pop-upads when computer users went to theBean site. Gator.com responded byasking a federal court to rule that thecompany is within its rights to providethe ads to customers who use itsEwallet software, which automaticallyfills out Web order forms and savespassword and credit card informationfor consumers in return for generating

pop-up ads from time to time. Thecourt fight is tied up in a jurisdictionaldispute which, by itself, raises thornyquestions for Bean. A three-judge panelof the U.S. Court of Appeals for theNinth Circuit said Bean can be sued ina California federal court, even thoughthe company has no physical facilitiesin the state.

That ruling could open up Bean andother Internet retailers to suits in courtsaround the country for the first time.The ruling, which will be reviewed bythe full appeals court, said Bean doessubstantial business in Californiathrough its website, a decision thatexpands jurisdiction to include Internetactivity in deciding whether a companyis actively engaging in commerce in aparticular geographic area. Bean isfighting the jurisdiction ruling, butappears to be more interested in curtail-ing Claria’s and Gator.com’s activities.A company spokesperson says Beanwas alerted to the pop-up ads threeyears ago when a customer told thecompany it found the offers offensive.Bean mailed the letter asking Claria andGator.com to stop the pop-up ads, say-ing they “appropriated the goodwillassociated with L.L. Bean’s famoustrademark,” created confusion for con-sumers, and suggested that there was aconnection between Bean, Bauer andGator.com. Bean also contacted Bauer,which told Gator.com to remove theads. Gator.com, however, went to courtseeking a ruling that none of Bean’sallegations were true.

Bean believes in principle there is atrademark infringement, which if leftunchecked, poses a considerable threatto the value of the company’s brandand how people feel about the brand.Bean is concerned about the damage tothe image of L.L. Bean as well as lostsales. It takes a number of years forcustomers to feel that there are retailersout there that respect their privacy andbuild a secure website. The pop-upsthat aren’t authorized by the site are notonly a bother, but can be hurtful tocompanies. For example, the adwarepop-up ads could erase years of workby Bean to assure consumers that itswebsites are secure and safe.


JUSTICE DEPARTMENT INVESTIGATION FINDS

RACIAL DISCRIMINATION IN CRACKER

BARREL RESTAURANTS

In a lawsuit filed and settled in theUnited States District Court for theNorthern District of Georgia, the JusticeDepartment accused Cracker BarrelOld Country Store, Inc., of violating the1964 Civil Rights Act by engaging in apattern of discrimination againstAfrican-American customers. The law-suit followed a Justice Departmentinvestigation that revealed evidence ofracial discrimination against African-American customers in approximately50 Cracker Barrel restaurants in sevenstates: Alabama, Georgia, Louisiana,Mississippi, North Carolina, Tennessee,and Virginia. During the investigation,Justice Department officials inter-viewed approximately 50 persons,mostly former Cracker Barrel employ-ees, of whom 80% stated that theyexperienced or witnessed discriminato-ry treatment of customers at a CrackerBarrel restaurant. The investigationalso revealed that managers oftendirected, participated in, or condonedthe discriminatory behavior.

Specifically, the Justice Department’scomplaint alleged that Cracker Barrelallowed white servers to refuse to waiton African-American customers; segre-gated customer seating by race; seatedwhite customers before African-American customers who arrived earli-er; provided inferior service to African-American customers after they wereseated; and treated African-Americanswho complained about the quality ofCracker Barrel’s food or service lessfavorably than white customers wholodged similar complaints. CrackerBarrel settled the lawsuit, admitting nowrongdoing, but agreeing to a numberof operational changes. Under the set-tlement agreement Cracker Barrel mustadopt and implement effective nondis-crimination policies and procedures;implement new and enhanced trainingprograms to ensure compliance withTitle II of the Act and the consent order;develop and implement an improvedsystem for investigating, tracking, andresolving discrimination complaints;retain an outside contractor to test thecompliance of Cracker Barrel restau-

rants with Title II and the order; andpublicize the company’s nondiscrimina-tion policies. The agreement will lastfor five years.

XI.INSURANCE ANDFINANCE UPDATE

RECENT ALABAMA SUPREME COURT

DECISION

The Alabama Supreme Court issuedan opinion last month in an insurancefraud case that is worth mentioning.The case involved a fraud and contractaction arising from purchase of a “paid-up” insurance policy, which is very sim-ilar to a vanishing premium product. Attrial, the jury had returned a verdict forthe policyholders and against Alfa LifeInsurance Company. The trial courthad reduced a larger jury verdict onpost-trial motions to $500,000 compen-satory and $1.5 million punitive dam-ages. Interestingly, a portion of thepunitive damages was allocated to bepaid to the Alabama Civil JusticeFoundation. The Supreme Courtreversed the case on the “allocation”issue, but affirmed the fraud verdict oncondition that plaintiffs accept a remit-titur of $100,000 compensatory and$300,000 punitive damages.

The high court held that the claimwas ripe for adjudication, even thoughthe 15-year period of time in which pre-miums were expected to be paid hadnot passed. The Court said this wasbecause the case was not a “vanishingpremium case” (under which it wouldbe theoretically possible, given certainchanges in interest rates, to have premi-ums vanish in the contractual time).Instead, the Court found this to be aclaim based on a representation that thepolicy would be “paid up” so that nofurther premiums would contractuallybe required by that date. Frankly, I havedifficulty with that distinction, but thecourt doesn’t and that is what counts.

The court did note that the plaintiffswere not sophisticated and had come totrust the company’s agent because of 11years of prior dealings. The SupremeCourt held that the mental anguish dam-

ages of almost $500,000 were excessivein light of actual economic damages of$2,350, particularly since one plaintifftestified that her mental distress wascaused in part by her loss of employ-ment and other factors. The courtaccordingly reduced the compensatorydamages award to $100,000. On areview of the punitive damages award,the court concluded that punitive dam-ages of $300,000 was proper, which inthat case was a 3 to 1 ratio.

ACT OF WAR EXCLUSIONS IN INSURANCE

POLICIES

It will be interesting to see how theinsurance industry handles the lossessuffered by our troops in both Iraq andAfghanistan as it relates to “act of war”exclusions typically found in accidentaldeath and dismemberment insurancepolicies, as well as disability insurancepolicies. Many of the troops presentlydeployed are National Guard members– many from Alabama – who were alsoemployed by civilian employers. Manyhave insurance policies that are unrelat-ed to their military service in theNational Guard. The typical “act ofwar” exclusion (which means no cover-age) is as follows:

• War and Military Action– War, including undeclared or civil

war;– Warlike action by a military force,

including action in hindering ordefending against an actual orexpected attack, by any govern-ment, sovereign or other authori-ty using military personnel orother agents; or

– Insurrection, rebellion, revolu-tion, usurped power, or actiontaken by governmental authorityin hindering or defending againstany of these.

The first subpart merely excludescoverage for damage caused by war.“War” is defined in Pan American WorldAirways v. Aetna Casualty and SuretyCo., 505 F.2d 989 (2d Cir.1974), the lead-ing case on this issue, as “hostilities car-ried on by entities that constitute gov-ernments at least de facto in character.”A spokesman for the American Council


of Life Insurers, a trade association withapproximately 400 member companies,has also been quoted as stating that “anact of war . . . has normally been held tobe an act that occurs in a conflictbetween two sovereign states.” Thecombat in Iraq and Afghanistan does notfit within the definition of “war” in thetraditional sense because it is not beingwaged against armed “military person-nel” directed by a particular governmen-tal authority. Instead, the combat isbeing waged against small groups ofextremists that have declared “jihad” or“holy war” on the entire Western world.Many of these extremists have evenmade pilgrimages from their respectivenations of citizenship to join in the“jihad.” Their method of fighting is tocommit random acts of terrorism that areintended to frighten or discourage theWestern world, and perhaps to influencepublic opinion, rather than to gain con-trol of a particular government.Therefore, the first subpart should beinapplicable to damage resulting fromthe fighting in Iraq and Afghanistan.

The second subpart simply excludesdamage caused by “warlike action by amilitary force . . . by any government,sovereign or other authority using mili-tary personnel or other agents.” As men-tioned above, the attacks on our troopsare isolated attacks taken carried out bya few individuals, rather than a militaryattack by an army or military force. As aresult, this subpart is also inapplicable.

The last subpart is an exclusion ofdamage in connection with rebellion,revolution or civil war. Rebellion, revo-lution and civil war are actions taken byarmed groups of citizens in order totake control of the government awayfrom those currently in power. Whileterrorist acts can certainly be committedby a nation’s own citizens, they arecommitted by a few individuals, ratherthan by a large armed force.Consequently, this last exclusion shouldalso not apply.

I hope the insurance industry will takea similar position to the one it took afterthe World Trade Center attack ofSeptember 11, 2001. Immediately afterlearning of the World Trade Centertragedy, President Bush called the events“apparent acts of terrorism.” Shortly there-after, he stated that “the deliberate and

deadly attacks which were carried out . .. against our country were more than actsof terror. They were acts of war.”Secretary of State Colin Powell repeatedthese words during subsequent inter-views. But, both the National Associationof Independent Insurers (NAII) and theNational Association of Mutual InsuranceCompanies (NAMIC) confirmed that theinsurance industry did not intend toinvoke the “act of war” exclusion, and theinsurance industry paid the claims of itsinsureds. We’ll have to wait and seewhether the insurance industry will take asimilar position in regards to Iraq andAfghanistan. I hope they will do the rightthing and pay all valid claims and not relyon the exclusions mentioned above.

WAL-MART SUED FOR PROFITING FROM

“DEAD PEASANTS”

The nation’s leading retail corpora-tion, Wal-Mart, has been sued in Texasfor purchasing life insurance policiesinsuring the lives of their low-levelemployees. While it is common prac-tice for many companies to buy lifeinsurance insuring their key officers, so-called “dead peasant” policies are differ-ent because the deaths of low-levelemployees do not directly affect thecompany’s financial health. To makematters worse, it appears that Wal-Martdid not apprise the employees of thefact that the company had purchasedlife insurance policies on their employ-ees’ lives. Additionally, Wal-Mart didnot provide their deceased employees’families with the death benefits from theinsurance policies. Instead, the compa-ny profited directly from the deaths, andthat shouldn’t be tolerated.

The Hartford Life InsuranceCompany estimates that at least one-fourth of the Fortune 500 companiesuse this type of what is referred to as“peasant insurance.” It appears bothProctor & Gamble and AT&T used thepractice. Even Camelot Music Companyhas also been sued for this sort of thing,which is really shameful.

Apparently, this type of profiteeringinitially occurred when major corpora-tions found a way to avail themselvesof a tax loophole that would allowthem to borrow money from the insur-ance companies to pay the premiums

and then take a “write off” as a busi-ness expense on the company’s feder-al taxes. In determining whether eachstate allows for such a practice, the keyissue is whether or not the insuringparty (in this case, the corporations)had an “insurable interest” on theirlow-level employee. Many statesexpressly disallow such a practice andmany states are silent on the issue. Aninsurable interest has been defined as“one having a reasonable expectationof pecuniary benefit or advantage fromthe continued life of another.” It ishard to believe that a death of a greeterat a local Wal-Mart would have a pecu-niary impact on a global corporationsuch as Wal-Mart. This appears to beanother shining example of how majorcorporations profit from their employ-ees “even at the time of their death”and how they are able to avoid tax lia-bilities by finding elaborate ways tododge their fair share of taxes.

AMERICAN MEDICAL SECURITY GROUP

SETTLES CLASS ACTION LAWSUIT

American Medical Security Group,Inc., a health benefits provider based inGreen Bay, Wisconsin, has reached anagreement to certify and settle anAlabama class action lawsuit. AmericanMedical, through its operating sub-sidiaries, markets health-care benefitsand insurance products to small busi-nesses, families and individuals. Thecompany serves customers nationwidethrough partnerships with professional,independent agents and quality healthcare providers.

The lawsuit, filed in 2001, is presentlypending in a Montgomery Circuit Court,and involves issues relating to the ratingmethodology formerly used by the com-pany on group health benefit plans mar-keted to individuals in Alabama andGeorgia. The company has been underfire in recent years for some of its ratingand business practices. Reportedly,under the company’s tier rating system,people in poor health pay more forhealth insurance, and premiums couldrise once a serious medical condition isestablished. American Medical says it hasnot used the disputed rating methodolo-gy in Alabama since 1999 and in Georgiasince 2002. In 2001, the Florida


Department of Insurance challengedsome of the company’s rating practicesin a case that ultimately led to a rulingthat would have suspended the compa-ny’s license to sell new business in thestate for one year. That penalty wasreversed on appeal in April of last year.

Under the terms of the settlementagreement, which is valued at approxi-mately $9 million, all claims will be dis-missed and the litigation terminated.The settlement between AmericanMedical and the class plaintiffs, whichwould preclude future lawsuits relatedto this issue by participating class mem-bers in both Alabama and Georgia, willbe presented to the court for prelimi-nary approval in the near future.

INSURANCE INVESTIGATIONS UNDER WAY

OVER FEES

Two new investigations have beenopened into the insurance industry,focusing on incentives and other feespaid by insurance companies to com-mercial insurance brokers. In NewYork, the office of the Attorney Generalhas issued subpoenas to the country’sthree biggest insurance brokers: MarshInc., the world’s largest broker and aunit of the Marsh & McLennanCompanies, which is based in NewYork; Willis Group Holdings, also inNew York; and Aon, a Chicago compa-ny that ranks immediately behindMarsh in size. The three companiesaccount for most of the commercialinsurance brokerage business. TheCalifornia Insurance Commissioner islooking into potential conflicts of inter-est in several insurance brokerage com-panies across the country.

At issue in the investigations arepayments made by insurance compa-nies to brokers for exceeding targetson the sale of policies and for provid-ing consulting services. The paymentshave been a routine practice for manyyears in the industry. Regulators andindustry analysts say the costs of thebonuses are passed on to customers.In addition, customers may not be get-ting appropriate insurance. TheWashington Legal Foundation, a non-profit research organization, broughtthe situation to the attention of investi-gators. The group says that the actions

raise questions about whether a bro-ker’s recommendations are honest andunbiased. In a letter, the foundationnoted a statement by the New YorkState Department of Insurance to bro-kers and insurance companies in 1998saying that a failure of a broker to dis-close the payments from insurancecompanies may be a violation of NewYork state insurance law “as a dishon-est or untrustworthy practice.’’ Overthe years, the risk managers who buyinsurance for major corporations haveexpressed concerns about the insur-ance company payments. But neitherregulators nor investigators have takenaction until now. Brokers are pre-sumed to work on behalf of the cus-tomer, and the bonuses or commis-sions for volume sales can be a conflictin that they may cause the broker todivert business to an insurance compa-ny that may not provide the best dealfor the insurance customer. Brokersacting as their customer’s representa-tives operate in contrast to insuranceagents who work for insurance compa-nies and are legally obligated to theinsurance companies. In another con-trast, brokers deal in commercial insur-ance, and agents sell policies to indi-viduals for things like cars and homes.Agents also sell life insurance andother personal coverage.

Earlier this year, Attorney GeneralSpitizer’s office began investigating lifeinsurance companies and securitiesbrokerage firms for abusive trading ofstocks in variable annuities, a type ofinvestment that combines insuranceand mutual funds and is intended forretirement savings. The AttorneyGeneral then turned to the insuranceindustry after several months of uncov-ering activities by investment banks,mutual funds and brokerage housesthat were harmful to investors and ille-gal in many cases. Thus far, thoseinvestigations have resulted in settle-ment payments of $1.4 billion fromcompanies such as Citigroup, MerrillLynch, and others. The investigation of44 mutual funds has resulted in 80mutual fund executives losing their jobsand settlement payments by the fundsof $1.8 billion. Many aspects of theinvestigations have been widely report-ed in the national media and has gotten

the attention of Corporate America likenothing has in years – if ever.

SPITZER PROBE INCLUDES INSURANCE-BROKERAGE INDUSTRY

The New York Attorney General’sinvestigation of the insurance broker-age industry may well be much biggerthan was previously reported. A memorecently uncovered by the media,which was sent by the General Counselof AON Corp. (one of the nation’sthree biggest insurance brokerages) toChicago employees is most revealing.According to the Wall Street Journal,the memo makes clear that theAttorney General’s office is lookinginto various kinds of payments thatinsurance carriers make to brokers.One of the simple forms involves pay-ments for directing volume business toa carrier. These payments range fromcorporate property casualty insurancepolicies to employee benefit programs.Many have contended that these pay-ments can give brokers incentives toplace business for reasons other thantheir clients’ benefit. As agents of theinsurance buyer, brokers and consult-ants are supposed to represent theclients’ best interest. It will be interest-ing to see how this investigation devel-ops, and we plan on watching it veryclosely.

ALLSTATE WINS CLASS ACTION SUIT ON

DIMINISHED VALUE

After a three-week trial, a jury inIllinois returned a defense verdict infavor of Allstate Insurance Company ina 30-state class action involving dimin-ished value claims in auto insurance.The plaintiffs in the case had chargedthat Allstate should have paid for thediminished value of automobilesinvolved in accidents. They allegedthat the insurer should be responsiblefor paying the amount a vehicle losesin value after full repairs have beenmade. The plaintiffs sought nearly$400 million in damages. The case wasunusual in that it is one of the fewmulti-state class actions that has evergone to trial. It covered some 387,000Allstate policyholders from 29 statesand the District of Columbia. The


insurance industry considers this to bea major victory.

THE INSURANCE INDUSTRY EXPRESSES

CONCERNS ON STATES’ CREDIT SCORING

STUDY

The Property Casualty InsurersAssociation of America (PCI) hasissued a bulletin expressing seriouslegal and public policy concerns abouta multi-state study being conducted byinsurance regulators on the “impact ofcredit-based insurance scoring on cer-tain groups of consumers.” The PCInoted that a data call, the first step inthe process of conducting the study,was sent to major personal lines insur-ers by several insurance departmentsrecently. The insurance industry con-siders the use of insurance scores to bean important and valid underwritingand rating tool.

Consumer groups – such asAlabama Watch – have stronglyopposed using credit scoring by theinsurance industry in setting premiumrates. States including Alabama,Indiana, Kansas, Louisiana, Maryland,Michigan, Missouri, Montana, Nevada,Oregon, Washington, and West Virginiahave issued data calls. The MissouriInsurance Department is coordinatingthe study. Insurers collect informationon race, ethnicity, and income andplug that information into their risk fac-tors. PCI says that individual con-sumers in any given geographic areawill have a wide range of credit-basedinsurance scores. The use of credit his-tories, according to PCI, allows compa-nies to charge lower premiums to con-sumers within a rating territory whomanage their assets responsibly. PCIcontends insurance scores distributethe cost of coverage more equitablywithin a community where losses areincurred.

A study on the impact of creditscores on consumers will be conductedby the Federal Trade Commission overthe next 17 months. The FTC study isrequired by the Fair and AccurateCredit Transactions Act, the law passedby Congress earlier this year that reau-thorizes the federal Fair CreditReporting Act. The FCRA has allowedinsurers to use credit history to under-

write and rate automobile and home-owners policies since 1970. All con-sumer groups should get involved inthis study. The FTC study is supposedto look into the impact – both positiveand negative – of credit reports on con-sumers, not just in insurance pricing,but also in financial services, housingand employment. But, the insuranceindustry will have its own special inter-est and will attempt to influence theoutcome of this study and conclusionsreached. Consumers have a muchbroader interest, but it should certainlyinclude insurance.

INSURER’S INCOME UP 150%

It was reported last month in theBirmingham News that ProAssuranceCorp., a medical malpractice insurerlocated in Alabama, had first quarternet income of $16 million.Interestingly, this is an increase of150% from the same period of time in2003. This company insures most doc-tors in Alabama along with a goodnumber of other medical providers,including hospitals. Because our firmdoes not handle medical malpracticecases against doctors in Alabama, I wasnot aware that their liability insurancecarrier was making so much money. Iwonder how the rank-and-file doctorin our state feels about the companydoing so well while at the same time ittells them how tort reform measuresare still badly needed. Anybody whofollows the court system will tell you itis extremely difficult to sue a doctor inAlabama and even tougher to get a juryverdict.

ALABAMA’S INSURANCE COMMISSIONER

SPEAKS OUT

Last month, Walter Bell, theCommissioner of the Alabama StateInsurance Department, took a strongstand against passage of the federallegislation proposed last month thatwould take the regulation of insuranceaway from the states and place it underfederal authority. It is good to seeAlabama getting involved in this battle.

XII.PREDATORYLENDING UPDATE

GEORGIA PAYDAY LENDING ISSUE GOES TO

FEDERAL COURT

The legal battle over payday loansin Georgia found its way into federalcourt in Atlanta. U.S. District JudgeMarvin Shoob considered four lawsuitsclaiming the State of Georgia’s latesteffort to stop payday lending wasunconstitutional. The judge saidGeorgia’s new payday lending law wasconstitutional and refused to enjoinenforcement of the statute. While pay-day lending has been illegal inGeorgia, the Legislature passed what isbelieved to be the nation’s toughestlaw prohibiting payday lending. Thelaw makes the otherwise unenforcedmisdemeanor a felony. Among otherthings, the law also prevents banksfrom hiding their partnerships withbanks based in states such as NorthDakota and Delaware that have nointerest rate caps. The lending compa-nies didn’t want to be restricted byGeorgia’s interest cap, claiming theywere doing the business of out-of-statebanks governed by the Federal DepositInsurance Act. The lenders wanted tobe immune from state usury laws.

Similar lawsuits have been filed inother states, but those cases are in thestate courts. Since the Georgia lawsuitswere in federal court, the outcome willbe expanded beyond the state’s bor-ders. The Consumer Federation ofAmerica is one of the groups that hasfiled arguments in the lawsuits uphold-ing the Georgia law. A spokespersonfor CFA stated: “There’s been a lot ofdiscussion about whether state banks,because they are federally insured, havethe right to export their interest rates.”Clearly, the judge felt that the Georgialaw was a good one and legal andupheld it in spite of harsh attacks by theindustry and their political friends.

During the legislative session inGeorgia, advocates for the workingpoor and the elderly appeared beforelegislative committees with stories ofhow a loan of just a few hundred dol-lars to cover an unexpected car repair


or medical expense quickly became adebt of thousands, and, sometimes,tens of thousands, of dollars. TheConsumer Finance Services Associationof America, which represents some ofthe larger payday lenders, was leadingthe fight to hold Georgia’s new lawunconstitutional. They claimed the lawdeprives the working poor, includingthose in the lower ranks of the military,of a needed service. While they arecorrect on one hand – there is a needfor “credit” for the “working poor” inour country, there can be no justifica-tion for many of the practices employedby the payday lenders, including charg-ing interest rates as high as 1200% APRin some instances. The ruling in theGeorgia case is extremely importantand comes at a very good time.

ALABAMA’S PROBLEM CONTINUES

I hope there will be a push to followGeorgia’s lead and pass a tough law inAlabama regulating the payday loanindustry. Unfortunately, most low-income citizens have little voice in whathappens in Montgomery. That’s why itis critical that consumer advocacygroups take this project on and make ita top priority.

XIII.PREMISESLIABILITY UPDATE

JUDGMENT UPHELD IN CHILD’S DROWNING

Recently, the Michigan Court ofAppeals upheld an $8.3 million judg-ment against the Fraternal Order ofEagles in a Michigan lawsuit involvingthe death of a 2-year-old boy whodrowned in a septic tank at a picnic.The child fell into a 3-foot septic tankopening while he and his mother wereat a fund-raiser picnic at the lodge. The7-foot-deep tank was uncovered andunguarded when the child fell in. Theappeals court affirmed the lower court’sjudgment for the child’s parents. Thenational organization took the positionthat it shouldn’t be held liable for theactions of the local chapter. Obviously,the appeals court disagreed.

PORTABLE GENERATORS CAN CREATE

HAZARDS

Most of us don’t recognize a com-mon hazard that exists relating to theuse of portable generators. There havebeen a number of deaths caused by car-bon monoxide poisoning. TheConsumer Product Safety Commissionhas conducted follow-up in-depthinvestigations of 70 generator incidentsthat resulted in 97 fatalities. Between1990 and 2002, CPSC received reports of179 carbon monoxide (CO) poisoningdeaths associated with portable genera-tors. These products use fuel-burningengines that emit poisonous CO gas intheir exhaust. Adults 25 years and olderaccounted for 78% of the deaths. Mostof the victims were male. The main rea-sons reported for using a portable gen-erator were to provide electricity to alocation because of a temporary poweroutage or to provide power to a tempo-rary location.

It is important to note that 67 of theinvestigated deaths took place at home.Twenty-five of these deaths occurredwhen the generator was in the home’sbasement or crawl space. In another 22deaths, the generator was reported asbeing inside the home. Seventeendeaths occurred when the generatorwas placed in a garage or enclosed car-port of the home.

The CPSC staff planned a forum toaddress the CO poisoning hazardposed by portable generators. Themeeting was scheduled for May 20th,but we don’t have any news from themeeting. The following are some safe-ty tips from the CPSC:

• Never use a generator indoors,including in homes, garages,basements, crawl spaces, andother enclosed or partially-enclosed areas.

• Follow the instructions that comewith your generator.

• Locate the generator outdoorsand away from doors, windows,and vents that could allow CO tocome indoors.

• Plug appliances directly into thegenerator or use a heavy duty,outdoor-rated extension cord.The cord should be rated at least

equal to the sum of the connect-ed appliance loads.

• Install battery-operated COalarms in your home.

For more information aboutportable generators, you can visit theCPSC website: www.CPSC.gov.

FIRE LOSSES AT HOME TAKE A TOLL

Residential fires take a tremendoustoll each year in this country. The CPSChas compiled a great deal of informa-tion relating to residential fires. An esti-mated 337,300 unintentional residentialstructure fires occurred in 1999, accord-ing to a CPSC staff report. There are nodata available for any of the years after1999. According to the report, the resi-dential fires resulted in an estimated2,390 civilian deaths, 14,550 civilianinjuries, and $4.24 billion in propertylosses. A major revision to the NationalFire Incident Reporting System (NFIRS)data coding system took effect with1999 data. For that reason, CPSC staffdiscourages comparisons of 1999 esti-mates with estimates from earlier years.A further explanation is included in theMethodology section of the full report.I would encourage our readers to readthe report. There doesn’t appear tohave been a downward turn in thenumber of deaths or property loss dam-ages in the years 2000 through 2003.Homeowners should take every feasiblestep possible to eliminate the cause ofresidential fires and to have safety plansin place for those that can’t be prevent-ed. For a complete copy of the CPSCreport, you can go to: www.CPSC.gov.

MORE ON CCA-TREATED WOOD

We have received a number ofinquiries concerning an earlier issue inwhich we wrote about problems withCCA-treated wood. You will recall thatthis is wood treated with CCA, which isa chemical preservative. It is used toprotect the wood from rotting by insectsand microbial agents. CCA stands forchromated copper arsenate. Exposure tothe arsenate in CCA-treated wood mayincrease a person’s risk of developinglung or bladder cancer over a lifetime.The CPSC believes there is a risk to


young children who play on CCA-treatedplayground equipment and pick up arse-nate residue on their hands. For anexcellent report on CCA-treated woodand the hazards associated with it, go tothe CPSC website: www.CPSC.gov. Youcan also contact the EPA (www.EPA.gov)or your state or local solid waste man-agement office to receive instructions onhow to dispose of CCA-treated wood. InAlabama, you should contact theAlabama Department of EnvironmentalManagement and the State HealthDepartment for more information on thismatter.

XIV.WORKPLACEHAZARDS

OSHA FINALLY ACTS ON BERYLLIUM

Several months ago, we reported onthe health problems relating to berylli-um. The Occupational Safety andHealth Administration (OSHA) hasreversed a long-standing policy con-cerning beryllium. OSHA is now offer-ing blood tests to hundreds of itsinspectors who have been exposed toberyllium, according to documentsreleased by Public Employees forEnvironmental Responsibility. Thishazard has been well known to OSHAfor years. Beryllium is an extremelytoxic metal that can carry a high risk ofdisease following even very low expo-sure. Hundreds have already died ofchronic beryllium disease (CBD), a fast-progressing and potentially fatal lungdisease. Interestingly, the only knowncause of CBD is exposure to berylliumdust. For some reasons, OSHA failed totake needed action in this area.

Dr. Adam Finkel was removed from ahigh position with OSHA for going pub-lic on beryllium, discussing the hazardand its health-related consequences. Infact, OSHA had put out what appears tobe false information concerning the dan-ger to its own employees. Finally,OSHA is admitting that Dr. Finkel wascorrect with his concerns and has takenaction that should have been taken along time ago. Unfortunately, even withthis decision to test, OSHA’s program

does not target those with the highestrisk. Instead, it offers testing to nearly allof the people who likely had the lowestexposure without providing key infor-mation about the severity of exposure. Iunderstand that CBD can be a fast-mov-ing disease. I hope inexcusable delaysby OSHA have not put people who havebeen exposed at a greater risk thanabsolutely necessary. It appears that thedelays could have been avoided.

WORKPLACE INJURIES

In this country, if you kill, cripple ordismember someone, you shouldexpect to go to jail. That is, unless thatperson works for you. Unlike the lawsthat govern ordinary people, the lawsregarding workplace safety offer unfairprotections to businesses that exposeemployees to unnecessary and prevent-able dangers. The International LaborOffice (ILO) estimates that about 2 mil-lion people are killed by their workeach year - a staggering figure thatprompted the ILO SafeWork ProgramDirector to comment, “if terrorism tooksuch a toll, just imagine what would besaid and done.” But, workers compen-sation laws (originally enacted to pro-vide financial protection for injuredworkers) often act to restrict the types oflawsuits that can be brought for work-place injury, and in many cases preventthe injured employee or his family frombeing able to sue at all. In addition tothe risks associated with mismanagedand poorly supervised worksites, all toooften a defective product also plays arole in a workplace injury or death.

Unfortunately, workplace injuries anddeaths are not uncommon in Alabama.Laws which were originally enacted toprovide protection for injured workershave been perverted into shields fornegligent employers. Manufacturerswho are aware of hazards created bytheir products point fingers at otherswhen workers are maimed, crippled orkilled. Third parties who undertake tooversee and control jobsites are the firstto take credit for a job well done but thelast to accept proper responsibility forplain negligence. In short, it’s the sameold story – pass the buck.

Mike Andrews and Cole Portis of ourfirm recently settled another products

case arising out of a workplace injury.Their client was severely and perma-nently injured when an unstable boringmachine overturned during operationand repeatedly crushed him. During thecourse of the lawsuit, the manufactureradmitted that incidents of this type haveoccurred before. They also admitted tohaving been sued for similar incidentsinvolving injury or death. More impor-tantly, the manufacturer admitted thatthe machine can produce sufficient forceto cause it to overturn while in opera-tion. Clearly they failed to design thatknown hazard out of the machine. Ihope the manufacturer will now takesteps to correct this hazard and preventother needless injuries.

Additionally, we currently representanother construction worker who wascrushed in a worksite trench when anexcavator bucket released from a largeexcavator and fell on him. He wastrapped and then suffered through alengthy extrication and extended hospi-tal stay. Because of his crushing injuries,his leg was amputated at the knee andhe continues to suffer with other internalinjuries. Although this case is in its veryearly stages, we have already learnedthat these incidents are far from uncom-mon. In fact, one OSHA inspector stat-ed that nationwide there have been 15such tragedies in the past 5 years – 13involving deaths. We expect that themanufacturer will claim operator error,as they have in each case before. But,simple design changes could completelyprevent this type failure from occurring.In fact, we have learned that severalcompetitors have already recognized thehazard and implemented such changesin their products. We expect a toughfight from this manufacturer, but we arecommitted to our work to help thosewho need it most.

XV.TRANSPORTATION

HIGHWAY DEATHS HIT 13-YEAR HIGH IN

2003

The number of U.S. traffic deathsrose nearly 1% in 2003 and reached a13-year high at 43,220, according to the


National Highway Traffic SafetyAdministration. It was the fifth straightyear road deaths were on the increase,although passenger car fatalities wentdown. It is significant that sport utilityvehicle deaths went up roughly 10%over 2002, with more than half of thevictims in those crashes killed inrollovers. Motorcycle deaths alsojumped. Preliminary figures fromNHTSA showed 405 more highwaydeaths overall in 2003 than the previousyear and the most since 1990 when44,509 people were killed. Despite theincrease in the annual death count, thefatality rate per 100 million vehicle milestraveled remained constant at 1.5deaths. Clearly, this was because morepeople were on the road.

Reportedly, Jeffrey Runge, Admini-strator of NHTSA, wants the death rateto drop measurably and soon. I hopeDr. Runge will help make it happen. Ifthe current trend continues, it is pre-dicted that the country could return to50,000 deaths a year by the end of thedecade. Forty percent of all fatalities,or 17,401 deaths, were alcohol-related.This was essentially unchanged from2002. All states need to adopt standardsafety-belt enforcement laws and to gettougher on drunken drivers. It will alsohelp solve this problem if Congresswould pass the measures needed togive NHTSA the tools and mandate nec-essary to properly regulate the automo-bile industry. Runge, an emergencyroom physician, has also raised thepotential dangers of light trucks sharingthe road with smaller passenger carsand has addressed the propensity ofSUVs to roll. Since sport utility deathswent up by 456, the rollover propensi-ty of SUVs is finally being addressed.Even though some manufacturersappear to be working on the problem,Runge wants more safety changes. Forinstance, NHTSA is proposing a stan-dard to improve the strength of vehicleroofs to reduce rollover deaths.

Cars have a slight edge in sales overlight trucks, which include SUVs, pick-ups and minivans. But, SUV sales rosemore than 10% last year. Consumerand safety groups have long targetedSUVs as unsafe, and are pressuring thegovernment to mandate tougher designchanges. SUV safety and other provi-

sions are included in highway legisla-tion awaiting final consideration inCongress. Joan Claybrook, presidentof Public Citizen, says that “affordable,feasible safety improvements couldhelp prevent the rising death toll inSUVs.” I totally agree with her assess-ment. NHTSA’s Fatality AnalysisReporting System (FARS) showed somemore disturbing trends in 2003.Fatalities from large truck crashesincreased from 4,897 in 2002 to 4,942in 2003, a 0.9% rise. Deaths of children7 or younger remained near historiclow levels, with 972 children seven andunder killed, compared with 968 in2002. NHTSA said the relatively lowlevel of child deaths is the result of anincrease in the use of safety seats. Thenumber of fatal crashes involvingyoung drivers, who fall in the 16 to 20age group, declined by 3.7% (from7,738 in 2002 to 7,452). In 2003, vehi-cle miles traveled increased slightly to2.88 trillion, up from 2.86 trillion in2002, according to the DOT’s FederalHighway Administration. There werelarger than normal increases in vehiclemiles traveled in the last half of theyear, consistent with improvements inthe economy. The number of regis-tered vehicles increased from 225.7million in 2002 to 230.2 million in 2003.NHTSA annually collects crash statisticsfrom 50 states and the District ofColumbia to produce the annual reporton traffic fatality trends.

The number of fatal crashes involv-ing drivers 16 to 20 declined by 3.7%, to7,452. The figures released last monthare preliminary. NHTSA plans to releasefinal 2003 fatality figures in August.NHTSA collects its data from policereports in all 50 states. NHTSA has esti-mated that highway crashes cost society$230.6 billion a year, about $820 perperson. Traffic crashes are the leadingcause of death in American children andyoung adults. Pedestrian deathsdeclined 2.8% from 4,808 in 2002 to4,672 in 2003.

The final 2003 report, pending com-pletion of data collection and qualitycontrol verification, will be available inAugust. Summaries of the preliminaryreport are available on the NHTSA web-site at: www-nrd.nhtsa.dot.gov/pdf/nrd-30/NCSA/PPT/2003EARelease.pdf.

2001 TRACTOR-TRAILER ACCIDENT

STATISTICS

The mission of the Federal MotorCarrier Safety Administration (FMCSA)is to promote the safe operation ofcommercial vehicles on our nation’shighways. Of all the people killed inmotor vehicle crashes in 2001, 5,082, or12% of the total number killed, died incrashes that involved a large truck.Another 131,000 people were injured incrashes involving large trucks. Onlyabout 14% of those killed and 23% ofthose injured were occupants of largetrucks. From 1991 to 2001, the numberof large trucks involved in fatal crashesincreased from 4,347 to 4,793. This wasup by 10%. The number of large trucksin fatal crashes per 100 million vehiclemiles traveled declined in these yearsfrom 2.9 to 2.3. This was down 21%.The same rate for passenger vehiclesfell from 2.3 to 1.9 or down 17%. From1991 to 2001, the number of largetrucks involved in injury crashes per100 million vehicle miles traveleddeclined by 17%, while the rate for pas-senger vehicles dropped by 19%. Thefollowing are some pertinent facts:

• In 2001, large trucks drove 7% ofall vehicle miles traveled andmade up 3% of all registered vehi-cles in the United States. In motorvehicle crashes, large trucks rep-resented 8% of vehicles in fatalcrashes, 2% of vehicles in injurycrashes, and 4% of vehicles inproperty-damage-only crashes.

• Truck tractors pulling semi-trail-ers accounted for 62% of thetrucks involved in fatal crashesand more than 50% of the trucksinvolved in nonfatal crashes.

• Doubles (truck tractors pulling asemi-trailer and a full trailer)were only 3% of trucks involvedin both fatal and nonfatal crashes,and triples (tractors pulling threetrailers) accounted for less than0.5% of all trucks involved.

• Only 4% of trucks involved infatal crashes and 2% of trucksinvolved in nonfatal crashes werecarrying hazardous materials(HM). HM was released from thecargo compartment in about one-sixth of these crashes (16%).


• Only 1% of the drivers of largetrucks involved in fatal crashes in2001 were legally intoxicated(blood alcohol content of 0.08grams per deciliter or higher), ascompared with 23% of passengercar and light truck drivers in fatalcrashes. Only 2% of the drivers oflarge trucks involved in fatalcrashes had any alcohol.

• 74% of the drivers of large trucksinvolved in fatal crashes werereported by police as wearingtheir safety belts, compared with57% of passenger vehicle driversinvolved in fatal crashes.

• In fatal crashes involving largetrucks, crash-related factors werecited for 37% of the truck drivers.In comparison, crash-related fac-tors were noted for 65% of pas-senger vehicle drivers involved infatal crashes. Some of the mostcommon factors cited for driversof large trucks and drivers of pas-senger vehicles were the same:driving too fast, running off theroad or out of the traffic lane, andfailure to yield the right of way.

• Speeding (exceeding the speedlimit or driving too fast for condi-tions) was a factor in 21% of thefatal crashes involving a largetruck, compared with 30% of allfatal crashes.

• 21% of injury crashes involving alarge truck and 19% of all injurycrashes were speed related.

• No adverse weather conditionswere reported for 86% of the fatalcrashes and for 88% of the nonfa-tal crashes involving large trucksin 2001. Rain was the most com-mon adverse weather condition.

• Two-thirds (68%) of the fatalcrashes involving large trucks andfour-fifths (80%) of the nonfatalcrashes occurred during the day.

• The vast majority of the fatalcrashes (85%) and of the nonfatalcrashes (88%) involving largetrucks occurred on Mondaythrough Friday.

• For 77% of the fatal crashes andfor 71% of the nonfatal crashesinvolving large trucks, the firstharmful event was a collisionwith another vehicle in transport.

• Rollover was the first harmfulevent for only 4% of the fatalcrashes and only 3% of the non-fatal crashes involving largetrucks.

• More than one-fifth (22%) of fatalcrashes that took place in workzones areas of construction,maintenance, or utility activityinvolved a large truck.

REGULATIONS FOR 18-WHEELERS

Our firm has handled a number ofcases involving deaths and seriousinjuries arising out of motor vehicleaccidents on interstate highways. Manyof the cases were the result of driverfatigue on the part of the over-the-road-truckers. Driver fatigue is an importantand frequently identified risk factor inmotor vehicle accidents involving largetrucks. Unfortunately, when an acci-dent does involve a large truck, the con-sequences are most often catastrophic,involving death or serious injury. Thetrucking industry and the federal gov-ernment understand full well the riskassociated with driver fatigue. As aresult, by way of the Federal MotorCarrier Safety Regulations, the govern-ment has promulgated mandatory regu-lations that limit driving time, requiremandatory off-duty time, and set otherlimits to help protect the traveling pub-lic. During the past year, we have seena tremendous increase in the number ofserious interstate accidents involving 18-wheelers and driver fatigue. We haveseveral cases pending now where driv-ers went to sleep and rear-ended unsus-pecting drivers on a busy interstatehighway.

Beginning January of 2004, theDepartment of Transportation (DOT)began enforcing the new regulationdealing with hours of service for truckdrivers. The new regulation changesthe required rest and duty time forcommercial truck drivers and how theycalculate their time “on duty.” Thepurpose of this revision is to improvehighway safety and help reduce thenumber of truck crashes, deaths andinjuries caused by fatigue on the partof drivers of commercial trucks.

The new rules increase the time thattruck drivers must set aside to rest in a

24-hour duty period from 8 to 10hours. The total time a driver can be“on duty” is reduced from 15 hours to14 hours. The new regulation allowsthe driver to spend 11 hours “on duty,”which is an additional hour more thancurrently allowed. Drivers may notdrive after being on duty for 60 hoursin a 7 consecutive day period or 70hours in an 8 consecutive day period.This “on duty” cycle may be restartedwhenever a driver is off duty for atleast 34 consecutive hours. The newregulation requires drivers to includeas time “on duty” any time spent wait-ing at loading docks or refueling. Thismeans the clock is running even if thetruck is not. This appears to be theprovision most widely opposed by thetrucking industry today.

Many private carriers, including Wal-Mart Stores, are requesting the FederalMotor Carrier Safety Administration todelete the requirement that a driver stopdriving 14 hours after coming “on duty.”According to reports, Wal-Mart and acoalition of more than 20 trade groupsargues this restriction creates an unrea-sonable burden – they claim it’s a “safe-ty hazard.” Wal-Mart argues the newrule will reduce driver productivity by6% and projects each driver will lose 48minutes a day of productive time, whichis approximately 296,000 fewer milesper day for the company. According tothe Federal Motor Carrier SafetyAdministration, all states exceptCalifornia and Alaska are currently cit-ing those truck drivers who violate thenew hours of service regulation. Iunderstand that Alaska currently relieson FMCSA to cite and will begin citingin June of 2004, and California plans tocite drivers under the old regulations. Ithas been reported that California planson adopting the new regulations.

ATV DEATHS AND INJURIES ON THE RISE

Children are being hurt in all-terrainvehicle (ATV) crashes in increasingnumbers. Across the state and nation,the number of people killed andinjured on ATVs continues to rise.There were 123 injuries in 2002 in all-terrain vehicle crashes on state publicroads, according to the AlabamaDepartment of Public Safety. Alabama


ranks 21st in the nation for the numberof deaths and wrecks involving all-ter-rain vehicles. From 1982 through 2002,there were 110 people killed on all-ter-rain vehicles in Alabama, according tothe U.S. Consumer Product SafetyCommission. Alabama is one of fivestates that does not regulate the use ofATVs or set a minimum age for theirdrivers. Alabama also does not requiresafety equipment such as helmets forATV drivers or riders. The CPSC esti-mates that while children under age 16comprise 17% of ATV drivers, theyaccount for one-third of all injuries anddeaths involving the vehicles. TheAmerican Academy of Pediatrics hasrecommended that children youngerthan 16 be banned from the vehicles,which can exceed 70 mph. That cer-tainly makes sense and the state leg-islative bodies should listen and takeaction. CBS News had an excellentseries on ATV use by young childrenlast month, and I hope that segmentwill help alert the public – and espe-cially parents – to the dangers. Myadvice for parents and other adults:keep children off ATVs and don’t waitfor legislative bodies to act.

XVI.ARBITRATIONUPDATE

ARBITRATION HURTS PEOPLE

The United States Constitution isperhaps the second most sacrosanctdocument in the American culture.Only the Bible surpasses theConstitution in terms of the passionthat we Americans exercise in itsdefense. Our soldiers and our citizenshave died on countless battlefieldsaround the world in defense of thebeliefs and principles outlined in thisdocument. Scholars have written innu-merable treatises about the importanceand uniqueness of our Constitution.Political pundits have extolled thevirtues of the democratic ideals so elo-quently condensed into this document.More importantly, the citizens of thiscountry have made the Constitution thevery foundation upon which they exer-

cise their rights and operate their gov-ernment. I would encourage ourappellate courts around the country –including the U.S. Supreme Court – totake a few minutes and read exactlywhat the U.S. Constitution says aboutthe right to trial by jury.

In suits at common law, wherethe value and controversy shallexceed twenty dollars, the right oftrial by jury shall be preserved. . . .”Amendment VII to the United StatesConstitution. [Emphasis supplied.]

I wonder how much clearer this lan-guage could be. It sure looks like thewriters intended to “preserve” the rightto trial by jury. We have allowed thecourts to do away with the rights thatAmericans have so fervently defendedand fought for over the last 230 years.I hope that everyone who reads thiscommentary will recognize that therights guaranteed the citizens of thiscountry are being eroded on a dailybasis. It is time for our citizens to bothtake notice and, more importantly, totake a stand. If the people don’t standup and defend their rights against thedaily barrage of arbitration and “tortreform,” we will soon wake up to findout that the sacrifices of those beforeus have been for naught. The pream-ble to our now Constitution reads “Wethe people. . . .” If we don’t quickly dosomething to defend the rights guaran-teed us by our Constitution, the pream-ble will soon read: “We the rich andpowerful. . . .” In fact, many of ourappellate judges already read the con-stitution in that manner, and that’s bad!

XVII.NURSING HOMEUPDATE

PUBLIC CONCERN IS WIDESPREAD

It is significant that on our weeklyradio programs, segments dealing withthe nursing home industry always seemto attract a great deal of comment fromour listeners. The overwhelmingmajority of our callers are upset overconditions in our nursing homes. The

bottom line is that people are prettywell fed up with the poor record of thenursing home industry in Alabama.Callers are generally irate and expectsomething to be done about how resi-dents are treated. One thing is certainand that is people don’t want arbitra-tion in nursing home admission con-tracts. I have talked with consumergroups in other states, and they are allshocked that any state would allowmandatory, binding arbitration in anursing home admission form. Myresponse to them was – get ready, theyare coming to your state and soon.

AWAITING ALABAMA SUPREME COURT

ACTION

As of this writing, we had not heardfrom the Alabama Supreme Court onour rehearing applications in the twocases dealing with arbitration and nurs-ing homes in Alabama. I hope thecourt will rethink its position on thismost important issue. Groups such asthe AARP and Alabama Watch andnumerous consumer advocacy groupshave joined in the appeal.

XVIII.HEALTHCAREISSUES

MORE MEDICARE TROUBLES FOR THE

BUSH WHITE HOUSE

The Congressional Research Service(CRS) has issued a report that says BushAdministration officials appear to haveviolated federal law by preventingMedicare’s Chief Actuary from sharingthe cost estimates with lawmakersdebating prescription drug legislationlast year. The CRS report is especiallytroubling for the Bush Administration,which had previously cited legal opin-ions by CRS to justify theAdministration’s stand on another mat-ter related to Congress. The reportstates that Congress’ right to receivetruthful information from federal agen-cies to assist in its legislative functionsis clear and unassailable. Further, CRSnoted that political gamesmanship mustyield to the clear public interest of pro-


viding elected representatives inCongress with accurate and truthfulinformation upon which to effectivelyfashion the laws for the nation.

Many politicians – both Democratsand Republicans – appear to be upsetover the new report. You may recall thatwhen the Medicare Prescription Druglaw cleared Congress last year by thenarrowest of margins, much arm-twist-ing by the Republican leadership in theHouse was necessary. Many conserva-tives were awfully upset and feltbetrayed when it was finally revealedthat Medicare’s Chief Actuary had pre-dicted months before that the cost of thenew benefit could far exceed the $400billion, ten-year estimate. TheAdministration waited until early thisyear before releasing the actual $535 bil-lion dollar figure. Several Senators,including those drafting the final bill,have said they were frustrated about get-ting false Medicare information from theAdministration. Medicare’s ChiefActuary has said publicly that heendured a pattern of pressure from hispolitically appointed superiors to dis-courage him from sharing his costsanalysis with Congress. In one face-to-face meeting, the Chief Actuary states heactually gave the Medicare Administratorthe updated cost estimates well abovethe $400 billion dollar figure and wastold, “We can’t let that get out.” That sortof conduct has become commonplace inthe Bush White House, and that is a sadcommentary.

REPORT ANALYZES LONG-TERM CARE

COVERAGE, COSTS

The benefits of expanding Medicareand Medicaid benefits for long-term carerecipients – covering more people –may not outweigh the heightened finan-cial burdens on the programs, accordingto a new Congressional Budget Officereport. The report, “Financing Long-Term Care for the Elderly,” was pre-pared for the House Budget Committeeto address the growing fiscal pressure onlong-term care spending and the agingdemographics. The CBO estimated that$135 billion will be spent on long-termcare services in 2004 from a variety ofsources, including Medicare, Medicaid,personal savings and private insurance.

Medicare will spend $16 billion in 2004for skilled nursing care and $17 billionon home health care, while the privatemarket will account for $6 billion.

The CBO looked at possibly offeringindividual tax credits and increasing eli-gibility requirements for Medicaid andMedicare. While a tax credit might bemore attractive to potential long-termcare users than expanding Medicare orMedicaid benefits, it would alsoincrease costs to the federal budget, saidthe report, which was released Monday.A way to increase Medicaid eligibilitywould be to raise the program’s limitson income and assets. Applying stricterstandards on individuals’ transferring ofassets to qualify may offset the costs ofthis. But, more Medicaid beneficiariesmay depress sales of private coverageby strengthening Medicaid’s “distor-tionary” impact. Medicare coveragecould be expanded by dropping thethree-day prior hospitalization rule fornursing home care, the CBO said.

ANOTHER MISFILLED PRESCRIPTION CASE

A federal jury in Colorado has award-ed more than $1.1 million to a 63- year-old man whose lower right leg wasamputated after Walgreen Co. mistaken-ly doubled his dosage of thyroidreplacement hormone. Walgreen Co.admitted the mistake, but contendedthat the customer lost his leg because ofperipheral vascular disease (a circulato-ry problem caused by hardening of thearteries). The company contended thatits customer, the plaintiff in the lawsuit,failed to follow doctors’ advice aboutproper diet, exercise and medication forthe condition, which had affected himfor several years. The wife of the victimwas awarded $50,000 for damages shesuffered as a result of her husband’shealth problems.

Before losing his leg, the plaintiff inthe Colorado case played racquetballseveral times a week, hiked and bikedwith his wife and rappelled down moun-tains as training for his Larimer CountySearch and Rescue work. The plaintiff’sright leg was removed below the knee in1997 when he was 56, after Walgreen Co.filled his prescription with the wrongpills in November 1996. Although thelabel on the bottle showed the correct

amount of medication prescribed, thepills actually were double the dose ofthyroid replacement medication that theplaintiff was supposed to take. We havepreviously reported on the large numberof incidents that occur each year aroundthe country where prescriptions are mis-filled. Most of the problems involve thelarge chain drug stores.

XIX.ENVIRONMENTALCONCERNS

TOP U.S. AIR POLLUTERS ARE CLOSELY

TIED TO BUSH FUNDRAISING

The results of a new study from twononprofit and nonpartisan groups, theEnvironmental Integrity Project (EIP)and Public Citizen, have now beenreleased. According to the report, thenations’ top polluters, as measured interms of mercury, sulfur dioxide (SO2)and carbon dioxide (CO2) emissions,are power plants owned by corpora-tions that are tightly allied with theBush Administration in terms of bothcampaign contributions and pollutionpolicymaking. The report finds thatsulfur dioxide and carbon dioxide pol-lution both rose from 2002 to 2003.These increases posed higher risks toAmericans in terms of asthma attacks,lung ailments, premature death and, inthe case of mercury, heightened risk ofneurological damage to children. Thereport, America’s Dirtiest Power Plants:Plugged into the Bush Administration,ranks the top 50 polluting powerplants for three pollutants. While thepower plants represent only about 5%of the more than 1,000 such facilitiesin the United States, the worst offend-ers dominate the industry’s problememissions: 43% of sulfur dioxide pollu-tion, 31% of CO2 pollution and 43% ofmercury pollution.

Since 1999, the 30 biggest utility com-panies owning the majority of the 89dirtiest power plants examined in thestudy have poured $6.6 million into thecoffers of the Bush presidential cam-paigns and the Republican NationalCommittee. The companies and one oftheir trade associations, the Edison


Electric Institute, have produced 10“Rangers” and “Pioneers,” the Bush cam-paign super-fundraisers who collect atleast $200,000 or $100,000, respectively,in earmarked contributions. The 30companies hired at least 16 lobbying orlaw firms with 23 Rangers or Pioneersbetween them who have raised at least$3.4 million for the Bush campaigns.These firms, together with the privateutility industry’s trade association, metwith Vice-President Cheney’s energytask force at least 17 times to help for-mulate the country’s energy and pollu-tion policies. Environmental IntegrityProject Director Eric Schaeffer stated in anews release:

It is no coincidence that a whole-sale assault on the Clean Air Act istaking place today. This attack ispart of a campaign by a White Housethat understands what the industrywants and is willing to do whatever ittakes to make that happen. No oneshould have any illusions about whatis happening: This is a well-con-nected industry that is absolutelyintent on preserving its ‘right’ to foulthe air regardless of the conse-quences for the American public.

My friend Frank Clemente, who isPublic Citizen’s Congress WatchDirector and a tireless worker in theconsumer advocacy vineyards, added:

This is a classic Washington ‘fol-low the money’ story. When the elec-tric utility industry faced strong gov-ernment attempts to clean up manyof its aging coal-fired power plants,an action that could cost the utilitiesbillions, a few dozen corporationsand their trade association beganan intensive campaign to derail theeffort. Their strategy: help elect anindustry-friendly president, fill fed-eral regulatory posts with formerutility executives and lobbyists, andhire a small army of lobbyists andlawyers connected to the new presi-dent to engineer regulatory changesthat would undermine theEnvironmental Protection Agency’s(EPA) Clean Air Act enforcementcases and weaken rules that alreadywere in the pipeline.

Other highlights of the new reportinclude the following:

• Top polluters identified. Thestudy ranks the top 50 powerplants for each of three pollutantcategories – mercury, sulfur diox-ide and carbon dioxide. Accordingto the report, the three worst pol-luters in terms of SO2 are: Bowen(Georgia); W.H. Sammis (Ohio);and Keystone (Pennsylvania).Thethree worst polluters in terms ofCO2 are: Martin Lake (Texas);Scherer (Georgia); and Bowen(Georgia). The three worst pol-luters for mercury are: Keystone(Pennsylvania); Mount Storm (WestVirginia); and Monticello (Texas).Of this group, only one – MountStorm, operated by DominionElectric – has agreed to a compre-hensive clean-up of its pollution,particularly sulfur dioxide.

• Key pollution indicators are up.The EPA’s recently released 2003emissions data show that powerplant SO2 emissions increased bymore than 400,000 tons between2002 and 2003, rising from 10.19million tons to 10.59 million tons,or 3.9%. Carbon dioxide emissionsincreased by roughly 47 milliontons during the same period, from2.425 billion tons in 2002 to 2.472billion tons in 2003, a 2% increase.Nitrogen oxide emissions frompower plants declined 5.6%, drop-ping from 4.36 million to 4.12 mil-lion tons.

• Over half of major pollutershave been in hot water. Of the89 plants that made it onto one ormore of the dirtiest plant lists, 47 –well over half – either have beensued or placed under investigationby the EPA for violating the CleanAir Act’s New Source Reviewrequirement. Of the top 50 SO2emitters, 18 plants have beenbrought to court and another 11were placed under investigationby the government. In August2003, the EPA relaxed the rules forNew Source Review – exemptingmany facilities from the law’s per-

mit and pollution control require-ments – only to have a court staythe rules. Nonetheless, the result ofthe administration’s policy, cou-pled with the program’s currentlegal limbo, is that many of thesecompanies have either had thecases against them undermined orsimply dropped by the BushAdministration.

• Major harm inflicted by pollu-tion. In addition to causing majorenvironmental and property dam-age from acid rain, sulfur dioxideinflicts a serious health toll interms of asthma attacks and lungailments. According to EPA studies,pollution from power plants islinked to heart and lung diseases,which contribute to more than20,000 premature deaths a year.Mercury is a highly toxic metalthat, once released into the atmos-phere, settles in lakes and rivers,where it moves up the food chainto humans. In 2003, the Centers forDisease Control and Prevention(CDC) found that roughly 10% ofAmerican women carry mercuryconcentrations at levels consideredto put a fetus at risk to neurologi-cal damage.

• Influence inside the adminis-tration. After raising millions ofdollars for his election in 2000,many of Bush’s biggest utility con-tributors were invited to join vari-ous transition teams, the commit-tees that nominated officials toserve in the new Administration.The 30 big utilities on the threedirtiest plants lists had four offi-cials appointed to the EnergyDepartment transition team. Thenew Administration contained fiveof the industry’s former executivesor lobbyists, who were given sen-ior positions where they wereresponsible for formulating orenforcing clean air policies. Andonce a controversial rewrite of airpolicy was finalized in late 2003,two officials left the EPA and wereimmediately hired by electric utili-ties or lobbying firms that repre-sented them.


The complete report is available at:www.environmentalintegrity.org andwww.WhiteHouseForSale.org. I encour-age all of our readers to take the time toread this report. It will open your eyes!

XX.TOBACCOLITIGATIONUPDATE

JUDGE REFUSES TO DISMISS TOBACCO

LAWSUIT

A federal judge has denied the tobac-co industry’s bid to toss out the JusticeDepartment’s $280 billion lawsuitagainst the nation’s top cigarette mak-ers. The tobacco industry argued in amotion that the case should not bebrought to trial this fall, claiming theJustice Department has so far failed toshow that the companies were likely tocommit fraud in the future. “To answerthat question, the court must hear andweigh the evidence, which is properlydone at trial,” U.S. District Court JudgeGladys Kessler said in a written ruling.This means the case will go to trial.Anti-smoking groups applauded thatdecision. The Justice Department filedthe civil racketeering case against theindustry for allegedly conspiring todeceive the public about the dangers oftobacco and the addictive nature ofnicotine. The government also claimsthe companies targeted childrenthrough advertising and then lied aboutit. The suit was filed under the ClintonAdministration. The Justice Department,under the Bush Administration, initiallysought to settle the case, but has pur-sued it since those talks failed. I mustconfess that the Bush action has comeas a pleasant surprise.

In her ruling, Judge Kessler rejectedan argument by the tobacco companiesthat the case should be tossed outbecause a 1998 legal settlement with 46states restricted the industry’s ability tocommit future wrongdoing. The compa-nies cited the numerous restrictions thesettlement imposes on them, such as aban on cartoon characters and ads onpublic transportation or billboards. Thejudge said the companies were asking

her to assume that the industry hascomplied with the settlement and willcontinue to comply with it, assumptionsshe said she would not make at thisstage in the case. Judge Kessler alsonoted that the government is seekingremedies not provided under the settle-ment with the states. That includes newmarketing restrictions, funding of nico-tine replacement therapy for smokers,and recovery of the $280 billion alleged-ly earned through fraud. The defen-dants in the government case are PhilipMorris USA Inc. and its parent, AltriaGroup Inc.; R.J. Reynolds Tobacco Co.;Brown & Williamson Tobacco Co.;British American Tobacco Ltd.; LorillardTobacco Co.; Liggett Group Inc.;Counsel for Tobacco Research-USA; andThe Tobacco Institute.

CRUCIAL MEMO IN A TOBACCO SUIT

A document that appears to beextremely damaging to the tobaccoindustry is being sought in the tobaccolitigation mentioned above brought bythe United States. A special masterappointed by a federal court has orderedan Australian company to turn over thememo written by a lawyer that allegedlyserves as a blueprint for destroying dis-coverable documents under the guise ofdocument preservation. The Australiancompany, British American Tobacco Ltd.(BAT) —a defendant in the litigationbrought by the U.S. Department ofJustice—claims that the document isprotected by attorney-client privilegeand the work-product doctrine. The1990 memo, known as the “FoyleMemorandum,” had been central inAustralia’s own tobacco litigation.

In March 2002, in a products liabilitysuit brought by a smoker and his fami-ly, commonly known as the “Eamescase,” an Australian trial judge struckthe defenses of BAT, in part because ofthe Foyle memo. Subsequently, a juryawarded 700,000 Australian dollars(about U.S. $500,000) in damages. Thatdecision was overturned in December2002 by the Supreme Appeal Court ofVictoria, which said that the memoappeared fully and frankly to set outthe difficulties facing tobacco compa-nies in the wave of expected litigation.A unit of BAT, Brown and Williamson,

is one of five defendants named by theUnited States in the civil suit broughtunder the Racketeer Influenced andCorrupt Organizations Act. The suitalleges that the tobacco companiesconspired to hide the dangers of smok-ing, and destroyed and concealed doc-uments to further that common enter-prise. The government seeks $289 bil-lion in damages. Judge Kessler hasbeen ordering production of the Foylememo for almost two years. Accordingto court documents, BAT had onceclaimed that it did not know where thedocument was or if it ever existed. Thecompany now asserts that its claim ofprivilege is covered by a more generalprivilege claim, and that comity oughtto be accorded to Australia’s appealscourt decision.

BAT has twice appealed districtcourt orders to produce the memo tothe U.S. Court of Appeals for theDistrict of Columbia Circuit. In its lastopinion, the D.C. Circuit sent the mat-ter back to the district court to deter-mine, among other things, whetherBAT’s more general objections shouldcover the memo. Among its otherarguments, the U.S. government assert-ed that the defendant should beestopped from asserting its privilegeunder the crime-fraud exceptionbecause the memo allegedly proposedthe commission of fraudulent acts.The Special Master, in a finding issuedmonth, dismissed each of defendant’sobjections. In dealing with the sanc-tion issue, the Special Master said thatBAT’s conduct was “inexcusable.”

MORE TOBACCO TROUBLES

A money-laundering suit has alsobeen filed against R. J. ReynoldsTobacco Holdings, Inc., (RJR) byEuropean Union regulators. The law-suit accused the maker of Camel andWinston cigarettes of working withorganized crime and terrorist organiza-tions in laundering the profits throughNew York banks. The smuggling casewas dismissed originally, but theEuropean Union has been given per-mission and has refilled its suit againstRJR under money-laundering laws. Itwill be interesting to see how thisclaim progresses.


SECOND-HAND SMOKE POSES HEART

ATTACK RISK

For the very first time, the Centers forDisease Control and Prevention is warn-ing people at risk of heart disease toavoid all buildings and gathering placesthat allow indoor smoking. The CDCdisclosed its new advisory in a com-mentary to a study published in theBritish Medical Journal in April, sayingdoctors need to warn people with heartproblems that second-hand smoke cansignificantly increase their risk of a heartattack. The agency said that as little as30 minutes’ exposure can have a seriousand even lethal effect. In his commen-tary, Terry Pechacek, associate directorof science at CDC’s Office on Smokingand Health, wrote that the researchunderscores evidence that second-handsmoke rapidly increases the tendency ofblood to clot, which can restrict flow tothe heart. The new study strengthensthe growing body of research pointingto potentially fast and acute reactions tosecond-hand smoke, in addition to thelong-term damage done to nonsmokerswho live with smokers. The CDC hasestimated that second-hand smokecauses 35,000 heart disease deaths ayear in the United States, but that esti-mate is likely to be revised upward.

APPEALS COURT AFFIRMS DECISION INFLORIDA CASE

A Florida appellate court last monthaffirmed a jury’s 2003 decision thatordered Philip Morris USA and Brown &Williamson Tobacco Corp. to pay dam-ages to a former smoker with lung dis-ease. The jury awarded about $6.54 mil-lion to John Eastman, but foundEastman, a former smoker with a respira-tory illness, to be 50% at fault. It foundPhilip Morris USA, the largest U.S. ciga-rette maker, liable for 40% of the dam-ages, or about $2.6 million, and foundBrown & Williamson liable for 10% ofthe damages, or approximately $654,000.The jury did not award punitive dam-ages. A three-judge panel of Florida’s2nd Circuit Court of Appeal rejectedPhilip Morris USA’s argument that thejury was given improper legal instruc-tions when it concluded that Eastman,now 75, was entitled to damages.

OTHER FLORIDA HIGH COURT ACTION

COULD BE MAJOR BLOW FOR TOBACCO

INDUSTRY

The bosses at the Altria Group Inc.,R.J. Reynolds Tobacco Holdings Inc.,British American Tobacco PLC’s Brown& Williamson Tobacco Corp., andLoews Corp.’s Lorillard Tobacco Co.had to be concerned last month afterthe Florida Supreme Court agreed toreview a lower court’s voiding of a $145billion punitive damage award againstU.S. cigarette makers. The court willreview an appellate ruling last year thatthe lawsuit had been improperly filedas a class action and that the amount ofpunitive damages was excessive to thepoint of bankrupting the companies.The Florida case was the first tobaccolawsuit in the nation to be granted classaction status and resulted in the largestpunitive damage award in U.S. history.The Florida Supreme Court’s decisioncame as a surprise since class actionlawsuits by smokers generally have notbeen successful in the courts. This casewill be watched with great interest.

XXI.THE CONSUMERCORNER

ATTORNEY GENERAL FIGHTS HOME

BUILDING AND REPAIR FRAUD

Attorney General Troy King hastaken an active role in the annual cam-paign to protect Alabama citizensagainst home repair fraud. TheAttorney General joined the AlabamaLicensure Board, the Home Builder’sAssociation of Alabama and the BetterBusiness Bureau in an effort to makeconsumers, especially senior citizens,more aware of repair scams duringRemodeling Consumer ProtectionMonth. I understand the AttorneyGeneral’s office received about 195complaints related to home repair fraudlast year. Some 48 complaints havealready been submitted this year. Manyof the complaints involved workerswho accepted money for unfinishedrepair jobs, improperly performed workor failure to honor warranties.

Alabama’s new Attorney General toldthe Associated Press that,“Unscrupulous trade practices on thepart of a few may have a negativeimpact on how the public views anentire industry. Honest builders andbusinesses take seriously their responsi-bility to serve you with integrity and towork with my office to stop fraudulentacts that prey upon elderly and otherunsuspecting consumers.” It is good tosee public officials taking their respon-sibilities to protect consumers seriously.The Attorney General’s office shouldtake a lesson from New York’s AttorneyGeneral and take its role in consumerprotection seriously. I hope this is nowbeing done.

REBUILT WRECKS CAUSE ROAD HAZARDS

A recent report on CBS News dis-cussed a problem that has gone prettymuch undetected throughout the coun-try. Mark Strassmann, a CBS NewsCorrespondent from Atlanta, who is anoutstanding investigative reporter, didan excellent job in bringing the problemto the public’s attention. Many peoplebuy used cars rather than paying theprice of a new vehicle by choice.Others go to the used car market foreconomic reasons. This year, it is esti-mated that 45 million used cars will besold in the U.S. Selling “rebuilt wrecks”is a practice that has become all tooprevalent in the used car industry. It isestimated that 400,000 of these cars aresold every year to consumers who arenot given any disclosure as to the priorproblems with the vehicle. Oftentimes,rebuilt vehicles are sold at a dealer’sauction with full disclosure about priordamage. Quite often, the vehicles withprior damage are sold at a second auc-tion with no mention of the earlierproblems. The CBS News report indi-cated that cars that should go to a junk-yard are instead being rebuilt and resoldto unsuspecting consumers.

Buying any used car involves a cer-tain element of risk. The vehicle couldhave hidden damage – especially if ithas been in a prior accident – that couldput a driver’s life at risk and endangerothers on the highways. It appears thatan unknown number of frame-damagedcars with serious safety defects are


resold to consumers with no warning ofthe car’s accident history.

ALABAMA WATCH NEEDS YOUR HELP

As most of you know, AlabamaWatch is a nonprofit organization work-ing for Alabama consumers on a broadrange of issues. In my opinion, this“consumer watchdog” group does agreat job. As you might expect, thegroup is dependent on contributionsfrom individuals, because it doesn’t getany big corporate money. Neither isfoundation or grant money much of anoption because of where this moneyoriginates. Alabama Watch takes onCorporate America, which means thegroup must depend on consumers,small businesses, and law firms whounderstand their mission for its funding.If you agree that Alabama Watch is per-forming a valuable service to our stateand consumers specifically, considermaking a monthly pledge for a regulardonation to the group. You can alsosend a check now, which would be abig help to Barbara Evans and hersmall, but dedicated staff. You cansend your checks, payable to AlabamaWatch, to: 412 North Hull Street,Montgomery, Alabama 36104. If youwant more information, call AlabamaWatch at 334-263-3022 or 1-800-449-7515. The group also has a website atwww.alabamawatch.org.

XXII.RECALLS UPDATE

ISUZU RECALLS TROOPERS TO FIX

ACCELERATORS

Japan’s Isuzu Motors Ltd. is recalling72,905 Trooper sport utility vehiclesbecause their accelerators can get stuckfor several seconds after the gas pedal isreleased. An advisory on the website ofthe National Highway Traffic SafetyAdministration said Troopers from the1992-1995 model years were affected bythe recall. NHTSA reports: “The accel-erator cable can stick so that the enginespeed will not immediately decreaseupon release of the accelerator pedal.This can cause the accelerator throttle

cable to delay RPM and vehicle speedreduction for several seconds after theaccelerator pedal is released, which inturn, can lead to a crash.” WhileNHTSA didn’t say whether any actualaccidents or injuries had been linked tothe problem, it said dealers would fix itby replacing the throttle cable rubberboot on the SUVs. As you probablyknow, Isuzu is 12% owned by GeneralMotors Corp.

VW RECALLS 870,000 CARS TO CHECK

AXLES

Volkswagen is recalling 870,000vehicles worldwide to check front axlesfor a potential problem. The vehiclesaffected under the German automaker’srecall include VW Passats and Audi A4s,A6s and A8s, all built in the late 1990s.Volkswagen said the recall is to exam-ine rubber boots, which can get dam-aged and in some cases cause failure ofthe bearing arm. The company expectsthat about 1% of the affected vehicleswill need repairs. For more informa-tion, contact your VW dealer.

CHRYSLER RECALLS MORE THAN 320,000PICKUPS, SUVS

DaimlerChrysler’s Chrysler Group isrecalling 320,188 Dodge Durango sportutility vehicles and Dakota pickupsbecause of a potential safety hazardinvolving the windshield wipers. TheNational Highway Traffic SafetyAdministration reported that watercould get into the windshield wipermotor on some vehicles, causing corro-sion and malfunctions of the wipers.Vehicles involved are 2002-2003Durangos and 2002-2004 Dakotas,NHTSA said. Dealers will replace thefront windshield wiper module.Owners should contact DaimlerChryslerat 1-800-853-1403.

ANOTHER RECALL BY DAIMLERCHRYSLER

DaimlerChrysler’s Mercedes unit isrecalling around 680,000 passengercars worldwide due to suspected prob-lems with the braking systems in somecars. Daimler said it is offering freeinspections to customers of its E-classsaloon (sedan) built after March 2002,

SL-class sports cars built after October2001 and T-models built after March2003. A company spokesman said thatprior inspections showed that of all themodels of these classes and years,roughly two out of every thousandproved to have problems with theSensotronic Brake Control system. Ifthe same percentage applied, thiswould translate in this case to about1,360 units affected out of the 680,000vehicles. The carmaker said the defectin the system’s braking hydraulicsmeant drivers need to brake earlier andwith greater force to bring the car to astop. According to the company, high-mileage vehicles where the brakeshave been used more than average —such as taxis — have mainly been hitby the problem.

CPSC RECALLS WATER HEATER

CONTROLS

The U.S. Consumer Product SafetyCommission has announced the recallof 88,000 liquid propane and convert-ible gas water heater temperature con-trols. The CPSC said the gas waterheater controls made by White-Rodgers, a division of Emerson ElectricCo., can gradually open instead ofsnapping open to full flow, which cancause soot to build up on the waterheater burner, presenting a fire hazard.White-Rodgers has received 12 reportsinvolving soot build-up. Eight of thesereports included minor fire damage.The temperature control is a smallmetal box located above the accesspanel door of the gas water heater. Awhite label with red lettering locatedon the right side of the control con-tains one of the following model num-bers: 37C55U 658, 3757C72U 602,37C72U 520, 37C72U 546, 37C72U 547,or 37C72U 548, and 37C72U 676.There should be a four-digit metalstamped date code located below thelabel on the right side of the control.Recalled controls will have date codes0240 to 0329 (40th week of 2002 to29th week of 2003). Potentially affect-ed gas water heaters include: AOSmith, Apollo, Crosley, Energysense,Freedom, Interthrem, Kenmore,Maytag, Mission, Myers, Penfield,President, Reliance, Sentry, and State.


Beginning serial numbers on these gaswater heaters can be checked at thecompany website: www.regcen.com.Retail distributors and independentservicers have sold and/or installedwater heaters with the controls fromOctober 2002 through March 2004.Contact White-Rodgers to arrange for aqualified service technician to replacethe recalled control free of charge. CallWhite-Rodgers Special Project Office at(800) 426-3579.

RECALL TO REPAIR BUNK BEDS

Approximately 22,476 “Trails End,”“Cottage Retreat,” and “Stages” bunkbeds manufactured by Ashley FurnitureIndustries, Inc., of Arcadia, Wisconsin,have been recalled. There are gapsbetween parts of the bunk bed thatviolate federal safety standards and canbe entrapment or strangulation hazardsto children. For model B383, the gapbetween the end rails on the upperbunk is too large. For models B213 andB233, the gap between the guardrailsof the upper bunk can be widenedwith pressure, presenting an entrap-ment hazard. Federal standards forbunk beds are designed to protect chil-dren against entrapment and strangula-tion. These bunk bed models arerecalled for repairs: B383-58T, B383-57T, B213-58, and B233-58. The B383models are sold under the group name“Trails End.” The B213 is sold underthe group name “Cottage Retreat.” TheB233 is sold under the group name“Stages.” The model numbers are onproduct stickers on each bunk bed. Onthe B383 model, the product sticker ison the inside of the lower rail on thetop bunk end panel. On the B213 andB233 models, the product sticker is onthe inside of the lower panel on thebottom bunk.

The bunk beds being recalled forrepair were sold at furniture storesnationwide. Model B383 was soldbeginning in December 2000. ModelB213 was sold beginning in May 2003.Model B233 was sold beginning inJune 2003. All sales of the recalledbunk beds ended in February 2004.Model B383-57T sold for around $299,model B383-58T sold for around $699,and Models B213 and B233 sold for

around $599. Consumers should stopusing the recalled bunk beds and get afree repair kit from the retailer to coverand close up the entrapment gaps.Consumers can install the repair kiteasily at home. To get a free repair kit,contact the dealer who sold the bunkbed. Although repair kits are not avail-able on-line, consumers can callAshley Furniture Industries at (800)999-2936. Additional information isavailable on Ashley’s website atwww.ashleyfurniture.com.

HAMILTON BEACH ESPRESSO MACHINES

RECALLED

Hamilton Beach Proctor-Silex, Inc.,of Glen Allen, Va., is recalling itsHamilton Beach Cappuccino PlusEspresso and Cappuccino Makers. Thesteam tube inside the espresso/cappuc-cino maker can burst under pressure,causing a risk of injury. This can occurif the frothing nozzle becomes cloggedand the espresso button is pushedwhile attempting to froth milk. Tenincidents have been reported, one ofwhich caused a minor burn. The recallis for model 40714, coming in bothblack plastic and stainless steel. Themodel number is printed on the bot-tom of the machine. Consumers areurged to contact Hamilton Beach toll-free at (800) 672-5872 for a freereplacement.

XXIII.FIRM ACTIVITIES

NEW AND IMPROVED FIRM WEBPAGE

Over the past several months, our in-house web department, led by JaymeYarroch, has been in the process ofredesigning our firm web page. Wehave added a number of new featuresas well as streamlined the navigation ofthe site. I hope this will allow folks tofind more of what interests them.There have been some excitingchanges incorporated into the new site.We have added up-to-date legal news,the Jere Beasley Report in .PDF format,and a Consumer Resource Section. Webelieve these will prove to be beneficial

to our visitors. The Recent Additionssection on the right side of the Homepage will have things recently added tothe site. If you have friends or familywho want to receive the Report on aregular basis, they can sign up on-linefrom our website. Please visit us atwww.BeasleyAllen.com to see all that ishappening with our firm.

LAWYERS SPEAK TO JUNIOR HIGH SCHOOL

STUDENTS

Kendall Dunson, who is one of ourproduct liability lawyers, serves on theBoard of Cornerstone CommunityFoundation (CCF), a community-basedservice organization. One of thegroup’s projects this quarter includedspeaking to the students at BellingrathJunior High School. Kendall wrote askit involving a violation of theschool’s zero tolerance policy againstweapons on school grounds. He, alongwith several other lawyers and staffmembers from the firm, played outparts in the skit. The skit involved astudent who innocently picked up hisbrother’s jacket on his way to school.His brother was a policeman and hisjacket had his department-issued hand-gun in a pocket. While at school, thegun fell out and a teacher found it.The principal of the school and theschool board’s lawyer filed a suit tohave the student expelled for a fullyear for violating the zero tolerancepolicy. The student’s lawyer arguedthe student was innocent because hedid not intend to bring the gun ontoschool property and further that thezero tolerance policy was too harshunder these circumstances.

The judge in this presentation ruledin favor of the school board andagainst the student. After the skit, thestudents were allowed to ask questionsand act as a jury. Additionally, theBeasley Allen lawyers spoke to the stu-dents about being a lawyer and what isrequired of lawyers. Interestingly, 35students signed up for a shadow pro-gram and will have the opportunity tofollow a lawyer around for part of aday to see what we do on a day-to-daybasis. We are proud of the communi-ty work our lawyers do.


FIRM EMPLOYEES SUPPORT AMERICAN

HEART ASSOCIATION FUNDRAISER

On Saturday, May 1st, a small – butcommitted – team of Beasley Allenemployees and family members gath-ered at Union Station to participate inthe American Heart Association HeartWalk 2004. Together, our team raisedover $2800 to support the work of theAssociation in combating heart diseaseand stroke. Following opening cere-monies, a large and enthusiastic groupof walkers, led by heart attack/heartsurgery and stroke survivors (includingJill Cawley, our team captain), set offon the three-mile trek from UnionStation to the State Capitol and back.After completing the walk, participantswere treated to refreshments courtesyof Heart Walk 2004 sponsors. Theevent was a huge success, and we arepleased to have played a part.

OUR RADIO SHOWS ARE QUITE LIVELY

We are still doing our two radioshows each week. The live call-inshows are carried each Thursday at5:00 p.m. on 1170 AM and 93.7 FM andeach Friday at 7:00 a.m. on 1440 AM.The two shows cover most of centraland south Alabama. While we attemptto keep the programs on specific topicsrelating to legal issues, callers alwaysdictate the direction taken for theshows. To say that this firm activity isinteresting, is perhaps a gross under-statement. We get some tough calls onoccasion. Nevertheless, we learn agreat deal from our callers and hope wein turn put out some good information.

EMPLOYEE SPOTLIGHTS

• Roger SmithRoger Smith is a lawyer in our Mass

Torts section. He is responsible foroverseeing all aspects of litigationinvolving Rezulin, Phenylproponola-mine (PPA), Ephedra, and Serzone. Hecurrently has cases filed throughout theUnited States. Recently, the CBSEvening News and the Wall StreetJournal featured one of Roger’sSerzone clients while reporting thedangers of the prescription drugSerzone. Before he cam to our firm,

Roger served as Legal Counsel andDirector of Regulatory Compliance fora publicly-traded corporation. Rogerwas responsible for a 48-state corpo-rate expansion project involving bothcorporate and insurance regulatoryissues. Roger received his Bachelor ofArts degree, with honors, from theUniversity of Tennessee and his JurisDoctor degree, cum laude, from theUniversity of Alabama School of Law.Roger is admitted to the Alabama,Arizona, Tennessee, Minnesota, andMississippi Bars. He is currently serv-ing on the Alabama State Bar TaskForce on multi-jurisdictional practicewhich is studying the rules governingthe unauthorized practice of law,admission by motion, and bar admis-sion reciprocity. Roger is married tothe former Claudia C. Kennedy, ofVestavia Hills. The couple, who havetwo children, Sarah Kennedy andCaroline Cecilia, attend St. PetersCatholic Church. Roger is a most valu-able member of the firm and does out-standing work.

• Rosemary MullinRosemary Mullin is one of our veter-

ans, having been with our firm fortwelve years. She is currently a legalsecretary for Dana Taunton andGraham Esdale in our PersonalInjury/Products Liability Section.Rosemary came to the firm as a wordprocessor and database entry clerkbefore moving up to her current legalsecretary position. She has two daugh-ters, Jessica and Lindsay, and one son,Patrick. Rosemary is anxiously await-ing the birth of her first grandchildren– one in September and one inDecember of this year. She is a dedi-cated and hard-working employeewho does excellent work and sets agood example for her co-workers.

• Serena MitchellSerena Mitchell, who has been with

the firm for over four years, currentlyworks as a legal assistant to MikeAndrews in our Personal Injury/Products Liability Section. She mainlyworks on product liability cases involv-ing products such as machinery, motorvehicles, construction equipment andconsumer products. Serena is respon-

sible for drafting pleadings, doingresearch, and trial preparation work,including preparing and helping withtrial presentations. She received herparalegal degree from AUM in 1997. Inher spare time, Serena enjoys billiardsand spending time with her 12-year-olddaughter, Shayla. Serena is a verygood employee and is most valuable tothe firm.

• Robyn ShortRobyn Short, who has been with our

firm for over three years, works in ourConsumer Fraud Section as a legalassistant to John Tomlinson. She worksmainly on finance fraud cases. At pres-ent, her largest case involves clientssuing City Finance. Robyn started outas a clerical assistant in Fraud beforemoving up to legal assistant. Her sis-ter, Pam, also works in our Toxic TortsSection. Robyn received her Bachelorof Science Degree in History fromFaulkner University. From there, shewent on to AUM and completed herMaster’s Degree in History in May of2003. Robyn is involved in severalchurch activities and programs, cur-rently serving as an education supervi-sor for the 2 and 3-year-old classes atUniversity Church of Christ. She devel-ops and writes Bible school curriculumand materials and works with aChristian youth training program calledLads to Leaders. Robyn has beeninvolved in mission work in Panamaand hopes to go on other mission cam-paigns in the future. We are fortunateto have Robyn with us. She does verygood work and is an extremely loyalemployee.

• Kristi SmithKristi Smith was hired in November

of 1999 as a legal assistant workingwith Steve Drinkard and ScarletteTuley. She now works solely withScarlette in the Toxic Torts Section. Inthis position, Kristi assists with clientwork, including filing initial pleadingsand discovery items, reviewing docu-ments, and organizing and managingdocument databases. She received herbachelor’s degree in Criminal Justicefrom Auburn University Montgomeryin 1999. Kristi also holds a LegalAssistant Certificate. Kristi is married


to Patrick Smith, a Montgomery fire-fighter, and they reside in Montgomery.

• Richard IyobebeRichard Iyobebe, who works as a

mail clerk and a runner, spends most ofhis time sorting and delivering the vastamounts of mail that our office receivesdaily. When not in the mailroom,Richard helps out our two runners bydoing some of the outside work. He ismarried to Rita, one of the receptionistswith the firm. They have two children.Micah is two years old and Mason is fivemonths. The family attends ChristianLife Church, where Richard serves as aChildren’s Pastor. He also participates inthe Street Ministry Team and preaches atthe prisons. In his spare time, Richardperforms karate demonstrations forchurches and other functions. Richardis one of our most popular employees,does very good work, and is most valu-able to the firm.

• Katrina OwensKatrina Owens came to the firm in

April of 2001, after serving 11 years asa court specialist and bookkeeper forthe State of Alabama. She worked in theMontgomery County Circuit Court andButler County Circuit Court. Katrina iscurrently a legal assistant for NavanWard in our Nursing Home Section. Shehad previously worked in our MassTorts and Business Litigation Sections.Katrina was born and raised inCrenshaw County, lived in Greenvillemost of her life, and recently moved toMillbrook. She is currently pursuing adegree in Biology from AUM and planson furthering her studies in forensicpathology. Katrina is an outstandingemployee and we are happy to haveher with us.

A SPECIAL APPEAL FOR CHILDREN

The end of the school year has comeand that means our young people willbe headed to the beaches and lakes. Wemust all take steps to make our high-ways safer for teenage drivers. Recently,I received a letter from Wendy J.Hamilton, National President of MothersAgainst Drunk Driving, that remindedme that drunk drivers are still a problemin this country. Innocent victims are

being killed each day as the result of amotor vehicle accident involving adrunk driver. Many of these victims areteenagers and young children.

MADD is making a special effort atthis time of year to step up their effortsin a good number of areas. One areais in the promoting of the designateddriver program. MADD advocates:

• Mandatory penalties for bars andrestaurants that serve alcohol todrivers who are already intoxicat-ed.

• Calling for the increased use ofsobriety checkpoints and satura-tion patrols that can stop drunkdrivers before it is too late.

• Continuing education to alertevery American citizen to whathappens when a person drivesafter drinking alcohol.

Although it is too late to save inno-cent victims who have been lost, it isnot too late to save other children andadults from suffering a similar tragicfate. It is important that persons in posi-tions of leadership speak up and takeaction against drunk driving. Let yourpolitical leaders know how you feel. Inthe meanwhile, we can all do some-thing to help by supporting MADDfinancially. Please send an end-of-the-school-year check to MADD and mail itto P.O. Box 10165, Des Moines, Iowa50340-0165. Your contribution is tax-deductible to the extent allowed by law.

A MOST WORTHY CAUSE

My longtime friend Fred Gray cameby the office recently for a social visit.We had the opportunity during his visitto discuss a special project that is underway in Fred’s hometown of Tuskegee,Alabama. The project – The TuskegeeHuman and Civil Rights MulticulturalCenter – is being developed and will bea welcome addition to our state. TheCenter will recognize the contributionsover the years of Native Americans,European Americans, and African-Americans. These are the three majorpeoples who have figured into the fasci-nating and complex history of our state.It is quite appropriate for the center tobe located in Tuskegee, a small Alabamatown, which has played a huge role inour nation’s rich history. The mission of

the Center is to show through exhibitsand educational programs how Indians,Europeans, and Africans made theirmarks on the area and interacted witheach other. The Center, a non-profitorganization with a tax-exempt status,will have a primary emphasis on educa-tion and activities related to humanrights, civil rights, historic preservation,and cultural preservation.

All of our Alabama readers willalready be well aware of all the contri-butions and achievements connected tothe Tuskegee area. For those who areout-of-state and may not be familiar withTuskegee’s rich history, I will give a fewexamples: Dr. Booker T. Washingtondeveloped Tuskegee Institute (nowTuskegee University); GeorgeWashington Carver performed his scien-tific and agricultural experiments atTuskegee; the Tuskegee Airmen wereorganized and trained at Moten Field; aVA hospital to serve African-Americanveterans was established outside thecity; and significant voting rights legalcases were litigated originating inTuskegee beginning in the 1940s. Thismuseum and exhibit will be a tremen-dous tool for teaching future generationspowerful lessons of the evils andtragedies of history. At the same time, itwill reveal the triumph of the humanspirit, which – by way of God’s grace –has overcome all of the bad.

The Center is in need of funding tocomplete its mission. Your financialsupport would be most helpful to com-plete the Center and make it a reality.With your monetary assistance and thatof others, the Center would be able tobuild museum exhibits, record historywhile it is still fresh on the minds of thehistory-makers, create and present pub-lic programs, and incorporate technolo-gy to stimulate young people to learnmore and have a greater appreciationfor our state’s history and specificallythat portion directly or indirectly relatedto Tuskegee. Please make a tax-deductible contribution to TuskegeeHuman and Civil Rights MulticulturalCenter, P.O. Box 830768, Tuskegee,Alabama 36083-0768. It will greatly beappreciated. If you want more informa-tion, contact Fred Gray at P.O. Box830239, Tuskegee, Alabama 36083-0239.His telephone number is: 334-727-4830.


XXIV.CLOSINGREMARKS

I want to thank all of the people fromaround the state who have contactedour firm concerning Ron Canty’s death.I have talked to Ron’s parents on sever-al occasions since the funeral and I canreport that they are doing extremelywell. They wanted me to pass on to ourreaders that they are deeply apprecia-tive of all of the prayers, words ofencouragement and support they havereceived from people they don’t evenknow. We are still trying to get accus-tomed around the firm to not seeingRon’s smiling face every day. That hasbeen quite an adjustment for the folkswho worked closely with him. Hisdeath left a real void in our ranks.

On another subject, most everybodyI talk to is extremely happy that theAlabama Legislature has completed itsregular session and returned home.However, that has always been thereaction at the close of a session. Idoubt that many people in Alabamafully understand how difficult the jobwas for the legislators during this partic-ular session. They were dealing withan impossible financial situation and, inspite of all of the problems, were able

to pass both budgets. Unfortunately,their toughest challenge lies ahead.Dealing with the real problem –a lackof money and direction – can’t be putoff any longer.

Clearly, nobody in state governmentcan claim to have solved the fiscalproblems facing state government dur-ing the just-completed session.Looking ahead. I sincerely hope thatthe Governor and the legislative leader-ship in both the House and Senate willcome up with a workable plan not onlyto solve our current fiscal problems, butalso to develop our state’s vast talentsand resources. A long-range plan forthe running of state government is longoverdue. We have too much to offer asa state to continuously lag behind oursister states in so many categories.Until we put politics aside (to the extentpossible), shelve all of the partisan pos-turing and bickering, and work to limitthe tremendous influence of the specialinterest lobby groups, we will neverreach our full potential or even comeclose to doing so. My prayer is that ourpolitical leaders will take charge andmove our state forward for the good ofall Alabamians. While it can be done,it certainly won’t be easy.

Finally, I have to remind myself dailythat I have an obligation and actually a

duty to pray for those who have beenplaced in leadership roles in govern-ment at every level. I must confess,however, that I have a difficult timepraying for our current President. Isimply don’t believe that he has done avery good job and don’t believe he hasfull control of the White House. Thereare too many folks such as Karl Rovewho are making policy decisions on apurely political basis, and that makesme real uneasy. In spite of my person-al feelings, I do know that I have nochoice in this matter. I must pray – notonly for the President, but for all of ourpolitical leaders in Washington,Republicans and Democrats alike. Infact, we must all do this on a dailybasis. It is our moral and spiritual obli-gation and it is critical for the survivalof this country. So, I do pray daily forPresident Bush and ask God to givehim the wisdom, courage, and discern-ment required to perform his dutiesand responsibilities. Clearly, he has avery tough job and that is not subject todebate. My prayer is also that God willbless our nation. In order for Him todo this, we must do our part and returnto the moral values upon which ournation was founded. We have fallenshort in so many ways that we all havelots of catching up to do.


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

please visit our Website: www.BeasleyAllen.com

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