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DECEMBER 2004

A NATIONAL LAW FIRM LOCATED IN MONTGOMERY,ALABAMA

I.CAPITOLOBSERVATIONS

THE STATE’S CASE AGAINST EXXONMOBIL

Mediation is over in the $3.6 billionlegal dispute involving the State ofAlabama and ExxonMobil, without asettlement being reached. After weeksof negotiations, the case will now goback to the Alabama Supreme Court fora decision. The Supreme Court justiceshad ordered us to mediate the caseafter ExxonMobil appealed the juryverdict that we had won on behalf ofthe State against the giant oil company.In reaching its verdict, a MontgomeryCounty Circuit Court jury agreed thatthe oil company was guilty of fraud andhad intentionally underpaid royaltiesfrom natural gas wells drilled in state-owned waters along the Alabama coast.This was the second time that a juryhad found ExxonMobil guilty of fraud.The first verdict was reversed by theSupreme Court on a technicality andsent back for a second trial.

We proved at trial that ExxonMobilhad intentionally underpaid royaltiesfrom natural gas wells drilled in state-owned waters along the Alabamacoast. The jury returned a $11.9 billionverdict in November 2003, but CircuitJudge Tracy McCooey reduced theverdict to $3.6 billion. ExxonMobil thenappealed to the Alabama SupremeCourt and the mediation order fol-lowed. Legal scholars who have readthe trial transcript say that there willnever be a stronger case of fraud toever go to the Alabama Supreme Court.Having been involved in the trial, Itotally agree with their assessment. As Ihave written previously, the fraud inthis case was committed at the highestlevels of the company. This was not acase of mistake or even fraud commit-ted by a low level employee. This mis-conduct went all the way to the verytop and was carefully planned bycompany executives. The internal doc-uments from ExxonMobil prove thefraudulent conduct beyond a shadowof any doubt. The bottom line is thatExxonMobil believed that it wouldnever be caught because of the com-

plexity of its scheme and that if theywere caught, the company couldsimply pay the amount it had cheatedthe state out of plus 12% interest. Thatis all documented in the record of thetrial. In any event, we are confidentthat this case will now be affirmed bythe Alabama Supreme Court.

TOP ALABAMA DEMOCRATS WANTS TOREPLACE PARTY CHAIRMAN

Almost all of Alabama’s top Democ-ratic leaders have called on stateDemocratic Party Chairman ReddingPitt to step down. These leaders wantto replace their chairman withsomeone who would be a strongervoice for the party in the 2006 elec-tions. Lt. Governor Lucy Baxley, Agri-culture Commissioner Ron Sparks,House Speaker Seth Hammett andSenate President Pro Tem LowellBarron signed a joint statement callingfor the move. The content of the state-ment read in part: “As the Democraticelected officials who will place ournames on the ballot in two years, wedo not believe the current leadershipof the Alabama Democratic Partyserves our interests, and we call on theState Democratic Executive Committeeto call for an election in early Decem-ber for a new State Party Chair.” Subse-quently, all of the Democratic statesenators signed a similar letter callingfor Redding to step down. Court ofCriminal Appeals Judge Sue Bell Cobbhad been the first Democrat to call fora new chairman, having done so soonafter the general election. Reddingresponded to the requests by sayingthat he won’t step down and plans toserve out the remainder of his term,which runs through January 2007.Redding was elected state party chair-man in March 2001 with the activebacking of Don Siegelman, who wasGovernor at the time. He was re-elected to a four-year term in January2003 without opposition.

To say November 2nd was a bad dayfor Democrats in Alabama is an under-statement. It is felt by many observersthat Redding spent too much timefocusing on the Kerry presidential cam-paign this fall and too little helpingDemocratic candidates on the state and

local levels. Redding was a law schoolclassmate of Kerry’s and probably wasin line for a move to Washington if hehad won. Frankly, I don’t believe anyone person was responsible for whathappened this time to Democratic can-didates in Alabama. The national partywrote Alabama off as it did all of thesouthern states. As I have said onnumerous occasions, I don’t believe aparty can ignore the South and win thepresidency. I believe that now morethan ever. Our state candidates havesuffered in presidential election years asa result of this misguided strategy. Per-sonally, I would like to see a change in

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IN THIS ISSUE

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

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

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

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

V. The Corporate World . . . . . . . . . . 12

VI. Campaign Finance Reform . . . . . . 14

VII. Congressional Update . . . . . . . . . . 15

VIII. Product Liability Update . . . . . . . . 16

IX. Mass Torts Update. . . . . . . . . . . . . 24

X. Business Litigation . . . . . . . . . . . . 30

XI. Insurance and Finance Update . . . 32

XII. Premises Liability Update . . . . . . . 35

XIII. Workplace Hazards. . . . . . . . . . . . 36

XIV. Transportation . . . . . . . . . . . . . . . 36

XV. Arbitration Update . . . . . . . . . . . . 39

XVI. Nursing Home Update. . . . . . . . . . 40

XVII. Healthcare Issues . . . . . . . . . . . . . 40

XVIII. Environmental Concerns . . . . . . . . 42

XIX. Tobacco Litigation Update. . . . . . . 43

XX. The Consumer Corner. . . . . . . . . . 44

XXI. Recalls Update . . . . . . . . . . . . . . . 48

XXII. Special Projects . . . . . . . . . . . . . . 49

XXIII. Firm Activities . . . . . . . . . . . . . . . . 49

XXIV. My Last Observation . . . . . . . . . . . 50 on The Elections

XXV. Some Parting Words . . . . . . . . . . . 50

the state Democratic Party leadership.But, we need much more than that toregain the ground lost in recent years.Democrats need to go back to theirpolitical roots and become the party ofthe people once again. If that doesn’thappen, you may see a strong thirdparty emerge in our state.

Will Roger, the American humorist,who is one of my all-time favoritepeople, made this observation on polit-ical parties: “I’m not a member of anorganized public party, I am a Democ-rat.” While he obviously was nottalking about the Alabama DemocraticParty at that time, his wit and wisdomcertainly apply to our current situationin Alabama. If there has ever been anorganization that is totally unorganized,and also largely ineffective, it has to bethe Alabama Democratic Party. For thegood of our state, I sincerely hope thatwe can rescue and rebuild the Democ-ratic Party.

DEFEATING AMENDMENT TWO WAS A MISTAKE

Unofficial returns from the electionshow Amendment Two losing 690,241to 687,747—a margin of 2,494 votes outof more than 1.37 million cast. Amend-ment Two, if passed, would haveremoved segregation-era language fromAlabama’s constitution requiring sepa-rate schools, levying poll taxes, andsaying that there is no right to an educa-tion at public expense in Alabama. Ibelieve rejecting Amendment Two wasa major mistake. There is no way thatthis Amendment could have been usedto increase taxes. I have talked to anumber of tax lawyers about themeasure. None of them felt that taxesshould have been an issue on this vote.Our state badly needs to move forwardon the race issue and get away from thenegative image that has badly hurt ourstate. We made a mistake on this vote,and I feel that the voters were misled onthe tax implications.

It now appears, however, that therewill have to be a recount of the voteon Amendment Two. Alabama lawprovides for a recount when a constitu-tional amendment loses by one-halfpercent. In the case of AmendmentTwo, one-half percent of the vote is6,889 ballots. An attorney in the Secre-

tary of State’s office told the AssociatedPress that the 2003 recount law allowsa losing candidate to call off a recount,but there is no similar provision forcanceling a recount on a constitutionalamendment. This would mean that arecount is automatic where an amend-ment is involved. The recount lawmakes the state responsible for the costof a statewide recount. That is anexpense we don’t need because of themoney problems facing our state.Maybe John Giles and the ChristianCoalition will furnish some of the left-over gambling money to help the stateout of a bind.

ALABAMA SCORES HIGH IN ATTRACTINGSMALL BUSINESS

It may come as a shock to the tortreformers, who have tried their best tosell the story that our state is bad forbusiness, that Alabama is actually con-sidered to be one of the best states inthe nation for small business. As we allknow, this has been the case for yearsand it is good to see the truth beingtold nationally. There are many fea-tures that make the state attractive. Ourcolleges and universities, and espe-cially the research facilities at thesefacilities, an improving public schoolsystem in most counties, and theclimate and business atmosphere are afew of them. The State of Alabamaranked 8th in the Small Business Sur-vival Index for 2004. The Small Busi-ness & Entrepreneurship Council, anonpartisan Washington group, studiedhow public policy affected small busi-nesses and entrepreneurs in each state.Alabama did extremely well in all cate-gories that were evaluated. Alabama’sstrong showing wasn’t a surprise topublic officials in the state and to thosein government who have the job ofselling our state to industrial and busi-ness prospects. Actually, we should beselling Alabama to the world, and themedia attention given our state’s excel-lent business climate is certainly wel-comed.

ADEM DIRECTOR REMOVED

I am sure all of our readers areaware by now that the Alabama Envi-ronmental Management Commissionhas fired Jim Warr as Director of theAlabama Department of EnvironmentalManagement. While I hate to see anyperson lose a job, this presentsAlabama with a unique opportunity tomove ahead in some critical areas. Jimhas, either in fact or in name, directedADEM since it was formed in 1982.Many who are concerned about theenvironment have been critical of therole that ADEM has played in carryingout its duty to protect citizens from thepolluters. Being ranked dead last in thenation in environmental protection,Alabama desperately needs strongleadership in this area.

It appears that the Commission willbe able to conduct a nationwide andfully public search for the best possibleperson to lead ADEM. There will be a10-person committee appointed tocarry out the search. We definitelyneed a person who will put Alabama’senvironment and citizens on an equalfooting with corporate interests. In myopinion, we certainly don’t needsomeone who will pay lip service topublic health and then do whatever thelarge corporations and other polluterswant. It would actually be worse forAlabama to get someone who talks agood game, but still continues tofollow the failed policies of ADEM’spast. It is critical that we have a realpublic servant who is dedicated to pro-tecting the environment to lead ADEM.Responsible businesses, as well as ordi-nary citizens, should recognize andbenefit from that type of leadership

In an interesting development, twoformer state officials filed a lawsuit onOctober 16th to remove one of themembers of the Alabama Environmen-tal Management Commission whovoted to fire Warr. Dewey White ofBirmingham and Leigh Pegues ofMontgomery filed the suit against ScottPhillips of Birmingham in MontgomeryCounty Circuit Court. They contendPhillips was illegally appointed to aposition on the Commission. Phillipswas on the winning side of the vote bythe commission to fire the director. I

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have to wonder who all is financingthis lawsuit.

Finally, even if a good leader isselected to head ADEM, the Commis-sion and the Legislature have muchwork to do. ADEM currently operatesunder the weakest environmental lawsand rules in the nation, and, if myinformation is correct, has the smalleststate budget. Selecting the right leaderfor ADEM would be the first step in along journey to give Alabama thevision and direction it needs anddeserves. We must do a better job inour state of protecting the environ-ment. I am convinced that striking abalance between business needs andprotecting the environment is notimpossible. In any event, it’s certainlyworth a try.

ALABAMA IS THE WINNER ON THEEXXONMOBIL TERMINAL DECISION

ExxonMobil has withdrawn its planfor a liquefied natural gas terminal inMobile. This move comes after a $1.75million investment in the property bythe giant oil company and a great dealof local criticism and concern relatingto safety. Company officials notifiedthe Docks Director in late October thatthe company would not be renewingits extension on the state property.ExxonMobil says it has made progresson several other LNG terminal sites andno longer has any interest in theMobile site. Company officials havesaid that it was on a tight schedule tobuild Gulf Coast LNG terminals thatwill offload superchilled gas fromtankers, rewarm it and inject it into thenation’s pipeline system. Apparently,the company is considering putting itsnatural gas facilities on the Texas GulfCoast.

ExxonMobil had paid $1.75 million—a signing deposit and one optionpayment—on the $38 million purchaseof the old Navy base on Mobile Bay.The company had a three-year optionon the land, which now goes back tothe Port Authority. LNG safety becamea volatile issue, which I believebecame too much for ExxonMobil tohandle. Opponents claimed 2,000people living near Mobile Bay would

be at risk of an accident or terroristattack at the terminal. You may recallthat the $600 million terminal was pro-posed to be located near a residentialarea and an elementary school abouttwo miles south of Mobile’s city limits.In my opinion Texas’ gain is notAlabama’s loss. I just hope and praythat the safety concerns never becomea reality.

II.LEGISLATIVEHAPPENINGS

ALABAMA LEGISLATURE HAS A MOSTSUCCESSFUL SPECIAL SESSION

The Alabama Legislature should becommended for getting down to workand for passing the Governor’s bills inrecord time. The Legislature went intospecial session on Monday, November8th to consider a plan designed tocontrol rapidly rising health insurancecosts for public employees and passedthe bills on November 16th. The billshave now been signed by GovernorRiley and are law. Alabama’s costs forproviding health insurance coverage tostate workers and education employeeshave risen from $320 million to $970million in six years. The Governor firsttried to address the issue in the lastregular session of the Legislature, butfailed to get anything done. The newplan passed in this session with virtu-ally no opposition.

The special session will impact citizens in every county because340,000 public employees, retirees andfamily members—or nearly 8% ofAlabama’s population—are covered bythe state’s health insurance programs.The Governor’s five bills won’t imme-diately affect the pocketbooks of mostactive and retired public employees,but smokers and some future retireeswill pay more. Interestingly, the twoboards that oversee the health insur-ance programs for public employeeswill now have the authority to raiserates on all participants.

State health insurance experts predictthe changes will save $50 million in the

first year and $300 million over fiveyears. Public employees’ last cost-of-living raise was 3% in October 2002.Traditionally, the Legislature givespublic employees a cost-of-living raisein the second and fourth years of afour-year term, but the traditionalsecond-year raise didn’t happen thisyear because of the state’s financialconcerns. It will be interesting to seewhether state employees and publicschool teachers will receive badlyneeded pay increases in 2005. Hope-fully, there will be enough moneyavailable to get this done.

SILVER-HAIRED LEGISLATURE COMES TOTOWN

The Silver-Haired Legislature, whichincludes citizens over 60 elected fromsenior citizen centers around the state,held its annual session in Montgomeryin late October. This group alwaysworks hard to make some excellentsuggestions for our state. The organiza-tion recommended that the AlabamaLegislature pass a bill that would allowMedicaid to fund home health care forpatients who otherwise would have tobe in a nursing home. Bill Harrison ofHuntsville, speaker pro tem of theSilver Haired Legislature, told the Asso-ciated Press: “This would allow them toremain in familiar surroundings. Weshould give them that choice.” He saidthe cost of home health care would beabout one-third what it costs to keepan elderly patient in a nursing home.Silver-Haired Legislature leaders dis-cussed their priorities at a news confer-ence at the State House after meetingfor three days in the House chamber.The organization’s speaker, Bill Adamsof Ardmore, said the recommendationswould be presented to members of thereal Legislature to be considered duringnext year’s regular session. The Silver-Haired Legislature also:

• Recommended that the Legislaturecontinue to fund a program thatmakes free prescription drugs avail-able to some low-income senior citi-zens;

• Asked the Legislature to pass a billthat would prohibit nursing homes


from requiring families of patients tosign agreements promising to takeany grievances to arbitration insteadof going to court; and

• Urged lawmakers to remove the salestax on food and nonprescriptiondrugs from Alabama residents 65 orolder.

Our legislators would do well to con-sider these recommendations. It is mostsignificant that nursing homes and arbi-tration were considered major areas ofconcern. Maybe some of the group’smembers should run for the real Legis-lature. If so, they might just add a greatdeal to the legislative process. Perhaps,this group set a good example for theelected legislators to get the job donein the recently completed specialsession.

ALABAMA REPUBLICANS SET 2005 AGENDA

Republicans in the Alabama Legisla-ture have set a legislative agenda for2005 without waiting for the Governorto present his proposals for next year’slegislative session. In a well-attendednews conference, the House andSenate Republican Caucuses announcedtheir priorities for the Legislature’s 2005regular session, which starts on Febru-ary 1st. It is sort of unusual for the GOPcaucuses to be pushing their ownagendas rather than waiting to see whatGovernor Riley, a Republican, proposes.In any event, the bills on the Republicancaucuses’ agenda for 2005 are:

• Banning of same sex marriages;

• Stopping annual property reap-praisals;

• Combining the two boards thatoversee the health insurance pro-grams for state workers and educa-tion employees and no longerallowing active and retired employ-ees to control a majority of the seatson the board;

• Giving new power to the AlabamaCommission on Higher Education toclose colleges;

• Setting a cap on how much the Leg-islature can appropriate each year by

not letting it exceed the average ofthe revenue estimates by the Execu-tive Budget Office and the LegislativeFiscal Office;

• A ban on “pass-through pork” proj-ects;

• Banning the transfer of moneybetween political action committees;

• Strengthening the state’s open meet-ings law and increase the fines for aviolation; and

• Placing public school administratorsand assistant administrators on con-tracts rather than being given tenure.

While I support most all of the itemson the agenda, I wish my Republicanfriends had included a few more thingsfor ordinary people to their list. Forexample, I would like to have seenmore emphasis placed on public edu-cation’s needs, something for Alabamaconsumers, and a more comprehensiveand meaningful campaign financereform package. In any event, it isgood to see that legislators are “think-ing, planning and working.” Maybe thiswill spur the Democrats in the Legisla-ture to come up with their agenda inadvance of the session. We are knowthat the powerful special interests willhave their own agenda and that’s whatshould really concern all Alabama citi-zens. With the 2006 elections alreadybeing discussed, I predict the 2005regular session will be most interestingand entertaining.

III.COURT WATCH

CAPS ON DAMAGES HAVE NO EFFECT ONPREMIUMS

Putting caps on the amount ofdamages that juries can award hasbeen promoted very hard by the “tortreformers.” The “reformers” madepromises that with caps in place, insur-ance premiums would go down. Thatsimply isn’t true and must have knownit. The argument that capping damagesin medical malpractice cases will lowerpremiums for doctors and, in turn,

make health care more affordable forconsumers has just gotten a great dealweaker. GE Medical Protective, thenation’s largest medical malpracticeinsurer, recently was forced to admitthat medical malpractice caps wouldnot result in lower premiums for physi-cians. This admission from MedicalProtective was contained in a regula-tory filing with the Texas Departmentof Insurance. The company submitteda document to the department inOctober of 2003 explaining why theinsurer planned to increase physicianpremiums by 19%. The Medical Protec-tive rate increase requested was sub-mitted just six months after Texasenacted caps on medical malpracticeawards. Instead of reducing premiums,the insurance company asked for ahuge increase. That has been thehistory of caps and insurance premi-ums in all states in which tort reformhas been enacted.

Earlier in 2003, the Texas Legislaturepassed a $250,000 cap on non-eco-nomic damages for victims of medicalmalpractice, which was the result ofinsurance companies, includingMedical Protective, lobbying hard forthe change and spending a pile ofmoney. However, according to docu-ments that Medical Protective submit-ted to the Texas Department ofInsurance, “Non-economic damagesare a small percentage of total lossespaid.” Medical Protective further statedthat “Capping non-economic damageswill show loss savings of 1.0%.”Compare this with a paper datedMarch 2004 that was posted on MedicalProtective Company’s website, arguingthat capping non-economic damages isa “critical element of tort reformbecause in recent years we have seennon-economic damages spiraling out ofcontrol.”

As Douglas Heller, the executivedirector of the Foundation for Taxpayerand Consumer Rights (FTCR), stated,“When the largest malpractice insurerin the nation tells a regulator that capson damages don’t work, every legisla-tor, regulator and voter in the nationshould listen.” Heller further stated thatMedical Protective’s rate increaseshows that insurance companies obvi-ously can’t be trusted when it comes to


the issue of caps on medical malprac-tice. This isn’t the first time that MedicalProtective has sought rate increases ina state that also has caps on damages,nor is it the first admission by theinsurance industry that caps fail to alle-viate the problem of increasing premi-ums. In California, a state that also hascaps set at $250,000 for non-economicdamages, Medical Protective sought a29.2% rate increase. However, due tothe regulation system in place in Cali-fornia, the FTCR was successful in chal-lenging the rate increase and gettingthe increase reduced by 60% of whatMedical Protective was requesting.Unlike Texas, the California InsuranceCommissioner has the regulatoryauthority to block inappropriate insur-ance increases. As a result, the Califor-nia Department of Insurance and FTCRhave been able to stop $50 million inproposed rate hikes since 2003. It isclear that regulations such as this arethe key to keeping medical malpracticepremiums from increasing, not theabrogation of someone’s right torecover adequate damages for injuriessustained as a result of physician error.Incidentally, Medical Protective Co. isan arm of General Electric Co. Therecent revelations are compelling evi-dence that caps simply don’t work tolower insurance rates. This is a primeexample of what happens when thenews media buys the “tort reform”myth that caps will reduce insurancepremiums.

Source: The Wall Street Journal

JUDGE RELAXES GAG ORDER IN DEATH SUITAGAINST COAL GIANT

We wrote recently about the gagorder that had been entered in theDrummond case. Since that time thefederal judge in charge of the case hasrelaxed the gag order aimed at lawyersin the wrongful-death lawsuit againstAlabama’s largest coal company. U.S.District Judge Karon Bowdre ruled thather order “went further than neces-sary,” noting that the original order wasissued partly because of misconduct bythe plaintiffs’ lawyer. Two Tuscaloosaprofessors, who challenged the gagorder, called the recent court order a

victory for the First Amendment. Oneof the professors has covered theinvolvement of Drummond Co. inColombia for years. The effect of thechange in the court order is to allowpublic discussion about parts of thecase by others. Judge Bowdre’s ordernow applies only to the lawyers in thecase.

The 2002 civil suit against Birming-ham-based Drummond Co. stems fromthe shooting deaths of three unionorganizers in Drummond’s Colombiacoal mine. The suit alleges the Drum-mond Co. supported anti-union fighterswho pulled three union leaders from abus and shot them to death in 2001.The slain men had ties to a Colombianunion representing Drummondworkers. The company has denied anyinvolvement in killings or anti-unionactivities.

NEW STANDARD SET IN LIBEL SUITS

An Alabama Supreme Court ruling ina Brewton defamation suit has added anew element for determining malicewhen a falsehood about an individualappears in a newspaper report. TheSupreme Court, in a unanimous deci-sion, ruled that a jury must decide adefamation suit against a formerBrewton newspaper editor and theBrewton police chief over an erro-neous report in The Brewton Standardabout a drug arrest. A former candidatefor the Escambia County Commissionhad filed suit after the newspaper pub-lished an erroneous story in August2000, reporting that the candidate hadbeen arrested and charged with posses-sion of marijuana and drug parapher-nalia. In fact, the candidate had neverbeen arrested or charged. At issue waswhat was said during a telephone callbetween the chief and the editor. Thechief claims he told the editor that theperson arrested was “Clinton KeithWiggins.” The editor claimed, however,that the chief had said it was “RaymondWiggins.” Obviously, there was a mis-understanding. The court concludedthat the case includes “substantial evi-dence of a deliberate falsehood” byone of these defendants since both ofthem knew “Raymond Wiggins well.”

The lower court had thrown out the

case, saying both defendants had qual-ified immunity from such libel suits.But the Supreme Court in its ruling saidthe question is “whether evidence of adeliberate lie constitutes substantialevidence of common-law malice.” Thisprecise issue had never been directlyaddressed in prior cases by theAlabama court. Up until this case,plaintiffs in libel cases had to provethat published statements were false,that the false information was know-ingly published with malice, and thatthe plaintiff’s reputation was damagedas a result. This decision appears tochange that rule. It should now beeasier for persons to sue newspaperswhen there are errors made in informa-tion supplied to the papers.

Some public officials in certain situa-tions enjoy protection from being suedfor defamation. This is a defensereferred to as an absolute privilege.Newspapers have qualified privilege,a defense that can be lessened by howreporters present and research stories.The justices in the Brewton case ruledthat ordinarily a trial judge woulddecide whether a statement is “privi-leged.” The court ruled, however, thatapplication of privilege in this casehinged on the credibility of the defen-dants. The court stated: “If a jury wereto believe Chief Mallard, it must neces-sarily disbelieve Wallace (the editor).”In such a case, the court now says thenewspaper report will not be privi-leged. I must confess that this decisionappears to drastically change the libellaws in Alabama. I am not sure that thisis a good change in the law. It will cer-tainly make newspapers much morecareful in dealing with their sourceswhen the subject is a matter of contro-versy. It will also cause some goodstories—that should be written—not tomake the papers.

SUPREME COURT ISSUES STANDARD FORCLASS ACTION SETTLEMENTS

An order from a trial judge givingfinal approval to a class action settle-ment was reversed and remanded bythe Alabama Supreme Court recently.The issue before the court was whetherthe trial judge had conducted a suffi-cient “rigorous analysis” in determining


whether to certify the class. The highcourt concluded that the requirementfor conducting a “rigorous analysis” ofthe elements of certification, asrequired by Alabama law, extends toconditional certifications for settlementpurposes. The Alabama court declinedto follow language from older federalappellate decisions and Professor’sNewburg leading treatise on classactions suggesting that a “relaxed stan-dard” should apply to the elements ofcertification in a settlement context. Itshould also be noted that the UnitedStates Supreme Court held almostdirectly to the contrary in a 1997opinion. My assessment of this opinionis that our Supreme Court simplydoesn’t like class action lawsuits verymuch.

SUPREME COURT DECLINES TO HEAR DRUGMAKER’S APPEAL IN FEN-PHEN CASE

The U.S. Supreme Court has refusedto hear an appeal from a drug manu-facturer that sought to limit evidencethat fen-phen users want to present intheir lawsuits claiming heart valvedamage. This appears to have been adefeat for Wyeth, the maker of thedrug. The Court let stand a lowerruling that a federal judge went too farwhen he issued an order restricting theevidence. The lower court judge rea-soned that the diet drug users had vio-lated a $3.75 billion settlementagreement with the Madison, NewJersey-based company. Wyeth arguedthat former users of its Pondimin andRedux pills violated the agreement notto seek punitive damages when theychose to “opt out” of the federal classaction settlement to pursue their ownlawsuits. The company wanted to keepthe plaintiffs from using evidence instate court such as evidence suggestingWyeth placed marketing ahead ofhealth and safety concerns.

The U.S. Court of Appeals for theThird Circuit disagreed, ruling that thejudge’s order improperly limited evi-dence that could help plaintiffs provetheir injury. The intermediate appealscourt said the federal judge’s actionalso didn’t properly consider the rightsof state courts because the lawsuitswere being heard there. Wyeth pulled

Pondimin and Redux, the fenfluraminehalf of fen-phen, from the market inSeptember 1997. This came afterreports some users had heart valvedamage and a few had a deadly lungcondition. Fen-phen was never anFDA-approved combination. The phen-termine half is still being sold. TheSupreme Court’s action means thatplaintiffs will now be able to presentevidence previously barred, but theystill may not be able to use thosematters that are relevant only to a claimfor punitive damages.

SUPREME COURT WON’T REVIEW SECURITIES-RELATED CASES

The United States Supreme Court hasdeclined to hear four securities-relatedcases involving federal jurisdiction,arbitration, and timeliness issues. In thefirst case, the Supreme Court refused toreview the Alabama Supreme Court’sconclusion that certain notes issued byBruno’s, Inc. were “covered securities”under the 1998 Securities LitigationUniform Standards Act (SLUSA) at thetime they were sold, even though bythen, Bruno’s had been delisted fromthe NASDAQ stock market. The buyerhad argued that, while the notes wereonce covered securities, they were notat the time it bought them becauseBruno’s had been delisted from anational exchange. According to thestate high court, the relevant time forthe determination of whether a securityis a covered security is the time of thealleged wrongful conduct. If that is thecase, the court said the wrongfulconduct did not occur at the time ofpurchase, but on the date of the note’sprospectus, which contained thealleged misrepresentations.

The second case that the U.S.Supreme Court refused to hear alsoaddressed SLUSA retroactivity. The courtlet stand a ruling by the U.S. Court ofAppeals for the Fifth Circuit, whichaffirmed the dismissal of a state lawclass securities suit by Enron Corpora-tion investors. The decision wasreached even though the conduct com-plained of occurred before SLUSA wasenacted. The Fifth Circuit had saidretroactive application was permittedbecause SLUSA governs only secondary

conduct—procedural requirements forfiling certain state law securitiesclaims—and not the primary conductthat is the subject of those claims.Lawyers for the investors had arguedthat the Supreme Court should addressthe important question of whether astatute (SLUSA) that impairs a plaintiff’sability to recover for pre-enactmentconduct has an impermissible retroac-tive effect. The plaintiffs’ lawyers arguedthat applying SLUSA retroactively woulddeny her clients and similarly situatedinvestors of any meaningful opportunityto seek compensation for the fraud per-petrated by Enron officers, directors andaccountants.

The third case involved the settle-ment of a class securities fraud case.The High Court chose not to review aruling by the U.S. Court of Appeals forthe Third Circuit that affirmed a lowercourt’s approval of a $10 million dollarcash settlement of litigation againstNice Systems, Ltd. The appeals courthad ruled that the district court cor-rectly concluded that the settlementappeared fair, reasonable and adequatein light of the attendant risks of litiga-tion.

The fourth case involved an employ-ment dispute between a brokerage firmand two of its former stockbrokers.The Supreme Court let stand a rulingby the U.S. Court of Appeals for theSixth Circuit concerning the timeperiod for moving to vacate an arbitra-tion award. The defendants in the casemoved the district court to vacate anarbitration award almost seven monthsafter the award was filed. The lowercourt had denied their motion asuntimely because there was a three-month period set out in the FederalArbitration Act.

CHAMBER BRAGS ABOUT ITS SUCCESSFULCAMPAIGNS

The U.S. Chamber of Commerce isbragging to anybody who will listenabout their overwhelming wins in theNovember judicial races around thecountry. In 15 Supreme Court races ina dozen states—including the two mostvigorously contested races in Illinoisand West Virginia—the Chamber con-ducted what it referred to as “voter


education” programs at a tremendouscost. A Chamber spokesman said they“won every race in which they wereinvolved.” It now appears that theChamber spent millions of dollars in anumber of states and were up to theirnecks in politics. I have never believedthat Chambers of Commerce should beinvolved in partisan politics, but theyare now without a doubt.

Voters don’t even seem to care thatthe Chamber’s judicial campaigns arefunded by the insurance, tobacco, drugand chemical industries. These indus-tries have spent literally billions ofdollars over the past 30 years in a con-certed effort to take away the constitu-tional rights of American families. Theirgoal is to close the courthouse door toordinary citizens, and that is extremelydangerous to our nation’s future. Astrong court system is absolutely essen-tial for any country that claims to be arepublic. It is rather ironic that AdolphHitler’s cleverly planned take over inGermany required the absolutedestruction of that country’s judicialsystem. Lawyers became the target ofthe Nazi party and were labeled as the“bad guys” and placed on the “hit list.”

IV.THE NATIONALSCENE

9/11 VICTIMS RECEIVE $38.1 BILLION INPAYMENTS

A recent report sets out how thevictims of the September 11th terrorists’attacks have been compensated. Thisincludes individuals killed or seriouslyinjured and individuals and businessesimpacted by the strikes. Thus far, thevictims have received $38.1 billion incompensation, with insurance compa-nies picking up the largest portion ofthe tab, according to the study releasedlast month. The report by the RandInstitute for Social Justice found thatcivilians killed or injured have receivedan average of $3.1 million per personfrom the government, charities andinsurance companies.

In such a large-scale disaster, eventhe secondary assistance added up to

billions of dollars in compensation.About $3.5 billion was paid to dis-placed residents, workers who losttheir jobs, and those who sufferedemotional problems or were exposedto environmental dangers. Results ofthe study raise questions about thefuture role of insurance companies inthe response to any attack. A federalguarantee protecting companies againstmajor financial losses in the event ofanother attack is set to expire at theend of 2005. Some in Congress arealready pushing for an extension ofthat deadline. The report notes thatsome lawsuits, filed by individuals andcompanies, are still pending. The out-comes of these cases will change thefinal compensation figures. One suchcase is the ongoing court battlebetween World Trade Center lease-holder Larry Silverstein and his insur-ers. Researchers did not include thebillions in federal dollars allotted forrebuilding lower Manhattan’s infra-structure because their study focusedon payments made to people or com-panies.

The crashes of passenger planes intothe World Trade Center, the Pentagon,and a field in Pennsylvania togethermade up the largest terrorist strikes inU.S. history, killing 2,551 civilians andseriously injuring another 215. Theattacks also killed or seriously injured460 emergency responders. LloydDixon, a RAND senior economist andlead author of the report, stated: “Thecompensation paid to the victims of theattacks on the World Trade Center, thePentagon and in Pennsylvania wasunprecedented both in its scope and inthe mix of programs used to make pay-ments.” Questions about equity andfairness were raised, but have noobvious answers. By addressing theseissues, the nation might be better pre-pared for future terrorist attacks. It cer-tainly appears that a great deal of workwent into the study. Evidence camefrom many sources so that the amountof compensation paid out by insurancecompanies, government agencies andcharities following the attacks could beestimated. Some of the findingsinclude:

• Insurance companies expect to makeat least $19.6 billion in payments,

comprising 51% of the money paidin compensation.

• Government payments total nearly$15.8 billion (42% of the total). Thisincludes payments from local, stateand federal governments, plus pay-ments from the September 11th VictimCompensation Fund of 2001 that wasestablished by the federal govern-ment to compensate those killed orphysically injured in the attacks. Thetotal does not include payments toclean up the World Trade Center siteor rebuild public infrastructure inNew York City.

• Payments by charitable groups com-prise just 7% of the total, despite thefact that charities distributed anunprecedented $2.7 billion to victimsof the attacks. Because of concernsthat liability claims would clog thecourts and create further economicharm, the federal government limitedthe liability of airlines, airports andcertain government bodies. The gov-ernment established the Victim Com-pensation Fund to make payments tofamilies for the deaths and injuries ofvictims. In addition, the governmentfunded a major economic revitaliza-tion program for New York City.

RAND researchers found that busi-nesses hurt by the attacks havereceived most of the compensation thatthe study was able to quantify. Thefamilies of civilians killed and the civil-ians who were injured received thesecond-highest payments. The studyfound that:

• Businesses in New York City, particu-larly in lower Manhattan near theWorld Trade Center, have received$23.3 billion in compensation forproperty damage, disrupted opera-tions, and economic incentives.About 75% of that came from insur-ance companies. More than $4.9billion went to revitalize theeconomy of Lower Manhattan.

• Civilians killed or seriously injuredreceived a total of $8.7 billion, aver-aging about $3.1 million per recipi-ent. Most of this came from theVictim Compensation Fund, but pay-ments also came from insurance


companies, employers and charities.

• About $3.5 billion was paid to dis-placed residents, workers who losttheir jobs, or others who sufferedemotional trauma or were exposedto environmental hazards.

• Emergency responders killed orinjured received a total of $1.9billion, with most of that comingfrom the government. Paymentsaveraged about $1.1 million moreper person than for civilians withsimilar economic losses, with most ofthe higher amount due to paymentsfrom charities.

Clearly, while insurance companiesprovided the majority of compensation,according to the RAND researchers,there may be less insurance in futuredomestic terrorist attacks. Before the2001 attacks terrorism was automati-cally covered in insurance policies.Since 2001, however, insurance for ter-rorist attacks is being sold as a separatetype of coverage. Many businesseshave not purchased that coverage,according to the report. In addition,chemical, biological, and nuclearattacks are now typically excludedfrom the policies. Researchers say thatdeciding now what mechanisms shouldbe used to compensate terrorist victimsin the future could lead to better use ofresources and less duplication ofefforts. All of this is a learning process,and unfortunately the lessons camewith a very large price tag.

Source: The Insurance Journal and The Wall Street

Journal

AN AGGRESSIVE ATTORNEY GENERAL MAKESA VERY BIG DIFFERENCE

I really believed that corporate cor-ruption would be a major issue in thepresidential race this year—how wrongI was! All Americans should be fed upwith all of the corruption and fraudu-lent conduct that has been exposed inCorporate America over the past twoyears, and I really believe they are. Forsome reason, however, their feelingswere pretty much ignored by bothparties this fall. Corporate corruptionnever became an issue in the race even

though all opinion polls showed thatcorporate corruption was on the mindsof most potential voters. In myopinion, the Democratic Party missedthe boat on this issue and it may verywell have lost Kerry the election. The Democratic ticket—for reasonsunknown to me—never got into thisissue in any meaningful manner. Couldcorporate money put into the Kerrycampaign have played a role?

Now that the elections are over,however, we are seeing some changein how Corporate America operates in afew areas. All of the political talk aboutgovernment being too big has resultedin very poor regulation of corporateAmerica. We are now witnessing anational change in policy concerningfinancial regulation and it’s pretty clearwhy that is happening. Had not NewYork State Attorney General EliotSpitzer gotten involved, I doubt seri-ously that we would be witnessing thispolicy shift. Although the collapse ofEnron and succeeding scandals resultedin Congress passing some significantlegislation, the aggressive work of theNew York Attorney General has beenthe real key to what is happening.

We are finally witnessing a cleanupof some of the corporate corruption,and that’s good. For example, lawsuitsbrought recently by General Spitzerhave revealed conflicts of interest atthe investment banks that sell equitiesas well as massive cheating by mutualfund companies. I am convinced thatthe New York Attorney General’sattacks on conflicts of interest in theinsurance industry will bring also aboutneeded reforms in that sector. Unfortu-nately, I suspect you will see someserious attempts to put roadblocks toslow the progress that is being made.We can’t let that happen. I hope nowthat the elections are over, folks willhave time to get more involved. Weneed more politicians like Elliot Spitzerwho are not joined at the hip to the bigdonors representing Corporate Americaand who aren’t afraid to take on thebig boys.

A SHIFT COULD BE IN STORE AT THE SEC

Even with the pressure beingbrought by the New York Attorney

General, things may change drasticallyat the Securities and Exchange Com-mission (SEC) now that the electionsare over. With the reelection of Presi-dent Bush, we may see the aggressiverulemaking at the SEC over how com-panies should be governed come to adrastic halt. For months, business lob-byists have resisted the activist agendaof the SEC’s Chairman, William H.Donaldson, who by the way is a strongRepublican. Donaldson, who is now 73years old, will likely retire in the nextyear or two. Some observers say it maybe much sooner. President Bush isbeing urged to name a replacementmore clearly aligned with corporateAmerica. In my opinion, that willhappen, and if so it will be a cryingshame because we were finally seeingthe SEC take a stand.

For two years, the SEC had finallystarted to move in the right direction,pursuing an array of rules largelydesigned to prevent another wave ofEnron-style scandals. The agency hasmoved against conflicts of interestaffecting board members and auditors,and demanded broader financial dis-closures, greater accountability forsenior executives, and tougher report-ing requirements by corporations. Inthe process, Chairman Donaldson hasirritated business interests whilegaining the support of shareholderactivists. Although appointed by Presi-dent Bush, Donaldson has on severaloccasions voted with the commission’stwo Democrats, thereby tipping thebalance of power. That’s not to say thatthe SEC under Donaldson or Donald-son’s watch has given shareholders’rights groups everything they wanted.Most notably, a proposal to give share-holders a greater voice over whoserves on corporate boards has beenstalled.

A handful of matters pending beforethe SEC are being closely watched.These include recommendations ongovernance and disclosure require-ments for stock exchanges, clearer dis-closures to investors at the time theypurchase securities and new fees thatmight be imposed to discourageinvestors from abusive, rapid-firetrading in mutual funds. After theEnron debacle and the ensuring corpo-


rate scandals, I really thought that thecorporate scandals would be a majorissue in the presidential campaign.That didn’t happen, as pointed outabove. Hopefully, that won’t give thenew Bush Administration justificationto retreat on issues before the SEC.

COST OF BRIBERY PUT AT $400 BILLIONPER YEAR

We have all read the sordid tales ofhow bribery in many countries is a wayof political life. It is being said thatbribery in government procurementnow costs $400 billion per year world-wide. This is the amount estimated byTransparency International, the leadingnon-governmental organization fightingcorruption worldwide, and it mayprove to be most conservative. Trans-parency International Chairman PeterEigen recently stated:

Corruption in large-scale publicprojects is a daunting obstacle tosustainable development, andresults in a major loss of publicfunds needed for education,healthcare and poverty alleviation,both in developed and developingcountries. If we hope to halve thenumber of people living in extremepoverty by 2015, governments needto seriously tackle corruption inpublic contracting.

A total of 106 out of 146 countriesscore less than 5 against a clean scoreof 10, according to a new indexreleased by Transparency International.Sixty countries score less than 3 out of10, which indicates rampant corrup-tion. Corruption is perceived to bemost acute in Bangladesh, Haiti,Nigeria, Chad, Myanmar, Azerbaijanand Paraguay, all of which have ascore of less than 2. Clearly, corruptionrobs poor countries of their potential.Unfortunately, it’s not confined just tothose countries. Chairman Eigen alsohad this to say:

As the Corruption PerceptionsIndex 2004 shows, oil-rich Angola,Azerbaijan, Chad, Ecuador,Indonesia, Iran, Iraq, Kazakhstan,Libya, Nigeria, Russia, Sudan,Venezuela and Yeman all have

extremely low scores. In thesecountries, public contracting in theoil sector is plagued by revenuesvanishing into the pockets ofwestern oil executives, middlemenand local officials.

Strict anti-bribery measures must beenacted in countries worldwide.Western governments should requiretheir oil companies to publish whatthey pay in fees, royalties and otherpayments to host governments andstate oil companies. Access to this vitalinformation will minimize opportunitiesfor hiding the payment of kickbacks tosecure oil tenders, a practice that hasplagued the oil industry in transitionand post-war economies, according to arecent report. Many believe that thefuture of Iraq depends on “transparencyin the oil sector.” There will be billionsmade in postwar construction, whichmakes stringent transparency require-ments in all procurement contractseven more critical. Chairman Eigen,who is concerned about Iraq, stated:“Without strict anti-bribery measures,the reconstruction of Iraq will bewrecked by a wasteful diversion ofresources to corrupt elites.”

I believe that No-bribery clausesshould be included in all major proj-ects. This would be a positive step inthe right direction. Tough sanctions areneeded against companies caughtbribing. This should include forfeit ofthe contract and blacklisting fromfuture bidding. Tenders should includeobjective award criteria and public dis-closure of the entire process. Excep-tions to open competitive bidding mustbe kept to a minimum, and explainedand recorded, because limited biddingand direct contracting are particularlyprone to manipulation and corruption.Public contracting must be monitoredby independent oversight agencies andcivil society. Companies from OECD(Organization for Economic Coopera-tion and Development) countries mustfulfill their obligations under the OECDAnti-Bribery Convention and stoppaying bribes at home and abroad.With the spread of anti-bribery legislation, corporate governance andanti-corruption compliance codes,managers have no excuse for payingbribes. This sort of thing simply can’t

be tolerated.The Corruption Perceptions Index is

a poll of polls that reflects the percep-tions of business people and countryanalysts, both resident and non-resi-dent. This year’s Corruption Percep-tions Index draws on 18 surveysprovided to Transparency Internationalbetween 2002 and 2004, conducted by12 independent institutions. Countrieswith a score of higher than 9, with verylow levels of perceived corruption,included Bahrain, Belize, Cyprus,Dominican Republic, Jamaica, Kuwait,Luxembourg, Mauritius, Oman, Poland,Saudi Arabia, Senegal, and Trinidadand Tobago. On the same basis, a fallin corruption was perceived in Aus-tralia, Botswana, Czech Republic, ElSalvador, France, Gambia, Germany,Jordan, Switzerland, Tanzania, Thai-land, Uganda, United Arab Emiratesand Uruguay.

Source: Corporate Crime Reporter

HALLIBURTON SHOULDN’T BE ALLOWED TOKEEP FUNDS FROM DISPUTED BILLS

Apparently, the U.S. Army has beenlaying the groundwork to let Hallibur-ton Co. keep several billion dollarspaid for work in Iraq that Pentagonauditors say is questionable or isunsupported by proper documentation.Press reports of Pentagon documentsand internal memorandum are believedto provide the groundwork for an“equitable settlement” later this yearunder which the Pentagon could dropmany of the claims its auditors havemade against the company’s Kellogg,Brown & Root (KBR) Unit, which hasdone the company’s Iraq work. Somedisgruntled Pentagon officials describethis effort to broker a settlement withKBR as unusual in a contract of thismagnitude. The company continues totake heavy criticism from inside theDefense Department and from Con-gress for its accounting practices inIraq. However, I suspect that the elec-tion cured most of the Halliburtonproblems.

Records reveal that KBR has billedabout $12 billion dollars in Iraq, withabout $3 billion of that still in dispute.Pentagon records show that $650


million in Halliburton billings isdeemed “questionable,” a term govern-ment auditors use when they seestrong evidence of overcharges or con-tracting irregularities. According toreports, another $2 billion is consid-ered “unsupported,” meaning that KBRremains unable to provide sufficientpaperwork. KBR moved into Iraq inthe summer of 2003 to feed, house andlook after U.S. troops and to repairIraq’s infrastructure. Within months,Pentagon officials began tellingDefense Secretary Donald Rumsfeldthat the company was responsible forcost overruns and sloppy billing.

Army officials have repeatedlybacked down from their own threats towithhold up to 15% of KBR’s billingsfor its services to troops. Under federalrules, the government generallydemands such withholding to minimizeits exposure if costs are later deter-mined to be unjustified. To lead theeffort to reach a settlement, the Armyearly in October hired Resource Con-sulting, Inc. It has been reported thatthe Army has also assembled a “specialcost analysis team” made up of Armycontracting and financial officials towork with the consultants. It seemsthat the saga of Halliburton will con-tinue. This seems to be an unusual, tosay the least, way for the U.S. govern-ment to deal with a company that, upto this point, has not been able tojustify much of its billing in Iraq.


FBI INVESTIGATING HALLIBURTON CONTRACTS

The FBI is now investigating whetherU.S. officials improperly awarded Hal-liburton lucrative contract work withoutcompetition. The probe was the resultof a top Army contract officer raisingthe issue of favoritism. The investiga-tion expands an existing probe ofwhether Halliburton Co. overchargedfor fuel deliveries in Iraq. The probenow includes the no-bid work awardedthe company in Iraq, including restora-tion of the country’s oil industry at acost of $2.5 billion. The expandedinvestigation is converging with state-ments made last weekend by Bunna-tine Greenhouse, the chief contracting

officer for the U.S. Army Corps of Engi-neers. Ms. Greenhouse says her agencyunfairly awarded the Iraq work to KBR,a Halliburton subsidiary.

In a formal whistle-blower complaint,Ms. Greenhouse alleged the award ofcontracts without competition to KBRputs at risk “the integrity of the federalcontracting program as it relates to amajor defense contractor.” The con-tracts were to restore Iraq’s oil industry.The Army referred Ms. Greenhouse’sallegations to the Defense Department’sinspector general. It should be notedthat the federal government awardedthe Iraq business to KBR in February2003, a month before the war began.The work was then extended forseveral years. The oil restoration workwas given to KBR without competitivebidding through 10 separate workassignments called “task orders.” Theorders were issued under an existingcontract between Halliburton and theU.S. military that was awarded competi-tively in December 2001. While theCorps was authorized to spend up to $7billion for the oil restoration work, theactual cost so far has been $2.5 billion.Halliburton is still working on the oilfacilities, but I understand that it is nowoperating under a new, competitivelyawarded contract.

Source: Forbes News

EXXONMOBIL’S PROFIT INCREASES

I was not surprised to see whererising oil and natural gas prices hassent ExxonMobil Corp.’s third-quarterprofit soaring. The giant oil companyreports that its third-quarter net incomejumped 56% to $5.68 billion, or 88cents a share, from $3.65 billion, or 55cents a share from the same quarter theyear before. ExxonMobil took a $550million charge to cover its exposure ina lawsuit brought by thousands of gas-station operators. The company’s earn-ings—excluding the charge-off—wouldhave been $6.23 billion, or 96 cents ashare. Revenue jumped 28% to $76.38billion from $59.84 billion. ExxonMo-bil’s results reflected extremely goodtimes throughout the oil industry andthat shouldn’t be a surprise toanybody. For example, Royal

Dutch/Shell Group said its quarterlynet income more than doubled to $5.4billion. BP PLC said this week its third-quarter net income nearly doubled to$4.48 billion. While consumers are suf-fering with high gas prices, the oilindustry is making record profits.


THE TIGER GOES TO COURT

Even the super rich find it necessaryto use the courts on occasion. In fact,those folks file lawsuits at a prettygood pace. Tiger Woods has sued thebuilder of his luxury yacht, the Privacy,accusing the shipyard of using hisname and photograph for financial gainwithout permission. The suit was filedin federal court on October 29th, claim-ing Woods’ contract with ChristensenShipyards, Ltd., barred the boat manu-facturer from using the golfer topromote the company. Apparently, theydid so anyway. The lawsuit accuses theVancouver, Washington-based shipyardof starting a “widespread national cam-paign” using Woods’ name and photosof the 155-foot yacht. It also says thecompany used the golfer’s name andthe pictures in a display at the FortLauderdale Boat Show.

The lawsuit claims more than$75,000 in damages for Woods becausehe believes his privacy was violated.Because of the golfer’s celebrity statusand the tremendous clout he carries inthe advertising world, compensatorydamages could reach $50 million. Theyacht was intended to be a privaterespite for Woods and his family torelax and get away from the public,according to the lawsuit. Woods isasking a judge to stop the use of hisname and photo by Christensen. Inter-estingly, a jury trial is being sought. Aseverybody in the world knows, TigerWoods and Swedish model Elin Norde-gren were married October 5th at aluxury resort in Barbados and later setout on the Privacy for an extendedhoneymoon. I am sort of surprised thatthe shipyards didn’t make Tiger sign anarbitration agreement like all other“consumers” have to do when theydeal with large companies.

Source: Associated Press


V.THE CORPORATEWORLD

MARSH & MCLENNAN DROPS FEES

The lawsuits filed by New York’svery aggressive Attorney General arealready paying off in several areas. Forexample, Marsh & McLennan Cos. Inc.stopped accepting fees because of onelawsuit that accused the world’s largestinsurance broker of rigging prices andkickbacks. As previously reported,Marsh was accused of rigging bids andcolluding with American InternationalGroup Inc. and other insurers to fixprices. The decision on fees came afterthe board of the nation’s largest insur-ance brokerage accepted the resigna-tion of Jeffrey Greenberg from theposts of chairman and chief executive.Marsh announced the permanent elimi-nation of “any form of contingent com-pensation from insurers.” Contingentcommissions — also known as market-ing service agreements or placementservice agreements — are fees paid tobrokers by insurance companies inexchange for getting more business.General Spitzer called the incentivefees “kickbacks” and said they were afactor in businesses being forced topay more than necessary for propertyand casualty insurance. The AttorneyGeneral also accused Marsh of bidrigging and price fixing and announcedthat he wouldn’t deal with the currentmanagement, which resulted in Green-berg’s ouster.

Marsh also adopted other changes,including submission of quarterly “stateof compliance” reports to the audit com-mittee, annual compliance and ethicstraining for employees, and establish-ment of an internal compliance andethics hotline. Marsh said in itsannouncement that “all revenue streamswill be 100% transparent to clients.” Thecompany said it would outline for theclients all fees, retail commissions,wholesale commissions and premiumfinance compensation. It added that thecompany “will insist that insurance com-panies show commission rates on allpolicies.” Marsh also has formed aglobal compliance organization that will

report to Michael Cherkasky, formerlyheard of Marsh’s Kroll, Inc investiga-tions and crisis management division,who was elevated to positions asMarsh’s president and CEO. All Ameri-cans owe the New York AttorneyGeneral a tremendous debt of gratitude.He is truly a champion for consumersand that’s a rare commodity these days!

Source: USA Today

INSURANCE BROKER WILL FACE EXTENSIVELITIGATION

Marsh & McLennan Cos. Inc. facesanother serious threat, and that’s law-suits filed by unhappy customers andby the company’s own shareholders.Civil lawsuits against Marsh, some ofwhich seek class action status, havetaken numerous forms. Thus far a goodnumber of federal and state lawsuitshave been filed, with potential litigantsnumbering in the tens of thousands.Because lots of folks, including corpo-rations, were damaged as a result ofthe wrongdoing, there will be moresuits filed. We believe that what thepublic knows thus far is just the tip ofthe iceberg when it comes to the mag-nitude of what this company andothers such as AIG were doing.

FUND SET UP FOR POSSIBLE SETTLEMENTS

Marsh & McLennan Cos. Inc. islooking to collect about $230 million inincentive fees at the heart of the bid-rigging probe as a way to help fund apossible settlement over the ques-tioned fees. The company said in anews release that it will put the marketservice agreement fees into a separateaccount to be used as part of any resti-tution agreement it may reach with theNew York Attorney General. Marshsaid its clients owed about $230 millionin incentive fees as of September 30th.General Spitzer has accused Marsh &McLennan of bid rigging and using theincentive fees—also known as contin-gent commissions—to manipulate thesales of corporate property and casu-alty policies. As a result, businesseshave paid more than necessary fortheir coverage. There appears to havebeen a widespread kick-back scheme

involved, which I understand is a partof the probe.

A day after Spitzer’s civil suit wasfiled, Marsh & McLennan said it wouldstop collecting these fees. Marsh hassaid it collected about $1.2 billion infees since January 2003. The incentivefees are over and above ordinary com-missions and have prompted the insur-ance industry to commence awidespread reevaluation of their pro-priety, with several companies joiningMarsh in no longer collecting them.Several lawsuits have been filed onbehalf of insurance customers andshareholders. There is no telling howfar-reaching this sordid mess will reach.Clearly, there has been some lax regu-lation of this industry and the conse-quences are now becoming quiteevident.

ENRON CRIMINAL CONVICTIONS

A federal jury in Houston has con-victed four former Merrill Lynch execu-tives and one former Enron executivelast month for a 1999 fraud that helpedEnron improve the earnings picture itpresented to investors. It was the firstjury trial arising from the massive fraudthat led to Enron’s spectacular rise andultimate collapse. This case was anopportunity for U.S. prosecutors to tryout evidence and strategies that may beused in later Enron prosecutions. Someof the guilty parties in this case wereonce high-ranking executives at Merrill.Daniel Bayly was the former head ofglobal investment banking. James A.Brown was the former head of the firm’sproject and lease finance group. DanBoyle a former executive in Enron’sfinance division, was also convicted.

An Enron accountant, SheilaKahanek was acquitted, apparently onthe strength of evidence that she actu-ally questioned the legality of the trans-action, only to be ignored by herbosses. Those convicted join a growinglist of Enron felons, who have enteredguilty pleas. On March 1, 2005, juryselection will begin in the Enronbroadband unit conspiracy trial, whichwill be followed by the fraud prosecu-tions of ex-Enron chief executivesJeffrey Skilling and Kenneth Lay,assuming there are no guilty pleas


between now and then. If I were abetting man—which thankfully I amnot,—I would bet that “Kenny Boy” isnever tried.

A LOOK AT WHITE-COLLAR PROSECUTIONS

Even with the massive wave of cor-porate scandals, the general level ofwhite-collar criminal prosecutions issaid to be no higher than it was in2001, the year the Enron scandal cameto light. That really makes no sense atall. While certain high-profile criminalprosecutions have garnered a lot ofattention, and there have been somechanges in the laws governing financialdisclosure, statistics published by theAdministrative Office of U.S. Courtsindicate no real change in the rate ofcriminal prosecution of financial fraud.For fiscal year 2001, there were 7,677federal prosecutions for fraud of alltypes in the U.S. along with 99 prose-cutions for securities and exchangefraud, one of the least prosecuted vari-eties, according to AdministrativeOffice data. The total fell in 2002 androse in 2003. But for fiscal year 2004,which ended on March 31st, there were7,770 criminal fraud prosecutions and97 for securities and exchange viola-tions. At the same time, the totalnumber of federal criminal prosecu-tions increased from 62,870 to 70,132.

Interestingly, the biggest increase infederal prosecutions was in immigra-tion and weapons and firearms prose-cutions. Of course, it is impossible toknow the overall level of white-collaror corporate crime, so there is no wayto compare the number of prosecu-tions to the number of offenses. It isalso possible that the publicity attachedto a few cases will have a large deter-rent effect on would-be offenders. Butjudging from the number of cases actu-ally brought by the Justice Department,there is no more reason to fear criminalcharges now than there was threeyears ago when Enron fell.

Source: Forbes News

KPMG SETTLES LAWSUIT

The accounting firm KPMG and aBelgian affiliate will pay $115 million

to settle a shareholders suit claimingthat the companies failed in their auditof a company that later collapsed.During the 1990s, Lernout & Hauspiewas recognized as a world leader insoftware that recognizes human speechand turns it into computer text. TheBelgian company, with U.S. operationsin Burlington, Massachusetts, col-lapsed. The company admitted fraud,including fabrication of over 70% of thesales in its largest unit.

Source: The National Law Journal

SEC LOOKS AT STOCK PRICINGBY BIG BROKERS

The Securities and Exchange Com-mission is investigating about a dozenbrokerage firms, including MorganStanley, Merrill Lynch, Ameritrade,Charles Schwab and E*Trade Financial,on suspicion that they failed to securethe best available price for stocks theywere trading for their customers. Thisis according to a comprehensive reportin the New York Times. The investiga-tion centers on the way the companiesexecuted trades of NASDAQ-listedsecurities when the markets opened inthe morning. This is always a period ofintense trading activity resulting fromthe backlog of orders since themarkets’ close the previous day. Afterexamining trading data from the lastfour years, the SEC investigation foundevidence that trades were oftenprocessed in ways that favored thefirms over their clients, according tothe Times.

The investigation opens another pos-sible conflict of interest involving thebig firms on Wall Street. In the last fewyears, the financial industry has beenjolted by a series of scandals over prac-tices that rewarded company insiders atthe expense of ordinary investors.Brokers have a “best execution” obliga-tion, defined by a combination of thecommon law, fraud provisions of thesecurities acts, and market rules, to getthe best possible price for investors.The investigation—the first to look atthis aspect of trading—can be expectedto put executives and traders on noticethat regulators are monitoring best-exe-cution practices and could reignite the

debate over how trades should becarried out.

Source: The New York Times

SMALLER FIRMS WERE ALSO ENGAGED INMARKETING TIMING

R.S. Investment Management, L.P.(R.S.), a San Francisco Bay-basedinvestment advisor to ten mutual funds,and two of its officials, have agreed topay more than $30 million dollars tosettle charges by the Securities andExchange Commission (SEC) and NewYork Attorney General Elliott Spitzerover their alleged roles in allowing“market timing” by certain favoredmutual fund investors. It was allegedthat R.S. entered into secret agreementsthat permitted select investors to gener-ate millions of dollars in trading profitsat the potential expense of other share-holders. This allowed R.S. to reap sub-stantial advisory fees.

In the SEC action, R.S. agreed to pay$25 million dollars—$11.5 million indisgorgement and $13.5 million as acivil penalty,—all of which is to be dis-tributed to investors in the mutualfunds affected. RS is also to undertakecompliance reforms and can have nofuture violations. In the New York set-tlement, R.S. will reduce its fees by $5million over a five-year period. Themarket timing abuses apparentlyinvolved relatively small boutique firmslike R.S. The firm’s arrangements formarket timers were contrary to claimsmade in the R.S. prospectus and wereharmful to long-term investors. Despitethis knowledge, company officialsallowed and facilitated market timingof funds because it proved to be a verygood source of fee revenues.

Source: Securities Regulation & Law

HEALTHCARE PROVIDERS SETTLEFRAUD CLAIMS

Winter Park, Florida-based AdventistHealth System Sunbelt Healthcare Cor-poration, three affiliated hospitals anda management company that adminis-tered ambulance operations at thethree hospitals have agreed to pay theU.S. government $20.3 million to settle


allegations that they overchargedMedicare. The government alleged thatthe charges were for ambulance trans-ports for patients that were not med-ically necessary. The governmentfurther alleged that Regional Emer-gency Services and the hospitalscreated false physician certificationsregarding the medical necessity ofambulance transports operated by thehospitals and submitted or caused tobe submitted false claims to Medicare.

The suit alleges that the false claimswere submitted during 1993 through2000 in the case of Florida HospitalWaterman and Metroplex AdventistHospital, and 1993 through 1997 in thecase of Huguley Memorial MedicalCenter. The settlement resolves claimsbrought under the qui tam or whistle-blower provisions of the False ClaimsAct. It is hard to understand why anyhealthcare provider would cheatanybody and especially the federalgovernment. It appears that greed willovercome good intentions even in thehealthcare industry.


VI.CAMPAIGNFINANCE REFORM

NEED FOR REFORM IS CRITICALLYIMPORTANT NOW

Now that the most expensive elec-tion in our nation’s history is finallyover, the American people shoulddemand a total reform of our badlybroken system that is used in thefinancing of presidential campaigns. Ifthis isn’t done very soon, people in thiscountry will suffer greatly for years tocome. Because there will be a numberof newly elected senators andmembers of Congress, it may be thatmore meaningful reform in Congresscan finally be achieved. Perhaps, someof the new members will have heardthe complaints about all of the wildpolitical spending we have witnessedover the past year. If they haven’t, it’sbecause they simply haven’t been lis-tening. In any event, let your senator

and House members know how youfeel on this issue. I sincerely believeour country is worth saving and Ibelieve most of you agree. A goodplace to start is with our system offunding political campaigns, and thatwill include the wild and uncontrolledspending by the 527 Committees.

2004 ELECTIONS COST $4 BILLION ANDCOUNTING

Perhaps we should all take a look athow much this election actually costus. At last count, the price of democ-racy in 2004 was at $4 billion and stillclimbing. That’s doesn’t count the costsof all the ballots, poll workers andelection lawyers. You can also add theexpenses borne by states and localgovernments — to be determined later— and the price tag soars to somethingin the neighborhood of $5 billion. Evenwith our staggering national debt, $5billion is still a great deal of money.Congressional and presidential candi-dates alone spent at least $1.8 billionfor their primary and general electioncampaigns, with about one-third of thatspent by Bush and Kerry. As you mightsuspect, ad firms consumed much ofthe money. The Democratic andRepublican Parties, and their host com-mittees, spent about $162 million ontheir nominating convention. Thisincludes about $29 million in taxpayermoney. The cost of the conventionsalone is shocking. All told, the twopolitical parties spent at least $957million this election cycle and that isequally shocking.

However, much of the money pouredinto partisan politics this election cyclecame from outside groups. I reallythought this had been fixed by thecampaign reform measure passed byCongress—was I ever wrong! Organiza-tions collecting the unlimited donationsthe national parties are now barredfrom raising spent at least $436 millionin 2003 and ‘04, figures compiled bythe Political Money Line campaignfinance tracking service show. Taxpay-ers are kicking in hundreds of millionsof dollars more. The National Associa-tion of Secretaries of State estimates theelections will cost an average of $33million per state. The costliest is Califor-

nia, which stands at roughly $66million. The least expensive isWyoming, at about $500,000. All of thecost figures are not yet in. The JusticeDepartment sent out more than 1,000election observers and poll monitors.That cost will add to the total. The esti-mated $4 billion that candidates, partycommittees and interest groups devotedto the congressional and presidentialraces is about $1 billion more than inthe 1999-2000 cycle, according to theCenter for Responsive Politics, a non-partisan campaign finance watchdoggroup. If all of this doesn’t spur theaverage citizen in this country todemand some real reform, nothing will.


A LOOK AT 527 GROUPS’ SPENDING

In the final three weeks of the cam-paign, independent “527” groupsbacking President Bush bought nearly$30 million worth of television andradio ads, three times what theirDemocratic counterparts spent, accord-ing to a study by the Center for PublicIntegrity. At the end, Republican 527sreversed an earlier trend and jumpedwell ahead of the Democrats. This defi-nitely appears to have made a differ-ence for Bush, particularly in Ohio. Inaddition, two Republican 527 groups,the Swift Boat Veterans for Truth andProgress for America, ran ads that,according to all surveys, made thestrongest impressions on voters in keystates. Other than the moral issues, Ibelieve that Kerry’s losing the VietnamWar issue was the major factor in hisloss. In my opinion, this took about 6weeks away from the campaign and Idon’t believe Kerry ever recoveredfrom the damage inflicted by the mis-leading ad campaign.

INSURANCE INDUSTRY POLITICAL GIVINGFAVORS REPUBLICAN CANDIDATES

As we know—all too well, moneyspeaks loudly in our nation’s capitol.Records reveal that large national insur-ance companies and insurance PACsare among the leaders in furnishingthis political money each year. In fact,for an industry that is largely regulated


at the state rather than federal level, theinsurance industry pumps a substantialamount of money into national politics—consistently ranking within the top 10in industries giving to federal races forpresident and Congress. As of August2, 2004, total insurance industry givinghad already reached $25 million forthis year. This is the combined insur-ance PAC and individual giving tofederal candidates for president, Houseand Senate, according to the Center forResponsive Politics (CPR), which ana-lyzes the federal reports. Individual andPAC monies for the property/casualty,life and health segments combined areincluded in CPR’s tallies. That $25million is enough to rank the insuranceindustry seventh out of 80 industriesstudied by CPR. The final reports willshow that the insurance industrypumped a great deal more into thefederal campaigns in the time frameafter August 3rd. The final tally will cer-tainly be an all time record.

The partisan preference of industrygiving for 2004 is already clear. Not toolong ago, the insurance industrydonated about evenly to “Blue”Democrats and “Red” Republicans infederal races, but the current trend isclearly more in favor of the reds. For2004, Republicans ($16.8 million) havealready received more than twice theamount sent to Democrats ($8.2million). In 1990, the insurance indus-try actually favored Democrats in itsfederal contributions, 51 to 49 percent.In 1992, the strategy was still mostlybipartisan, with 54% going to Republi-cans and 46% to Democrats. Since theRepublicans took control of Congressin 1994, there has been a big swingtowards the GOP. In 1996, the industryfavored Republicans over Democrats68% to 32%, and that party pattern hasbecome the norm. In 1998, the givingwas 70 to 30 percent in favor ofRepublicans; in 2000, 65 to 34 percent;and in 2002, 69 to 31 percent. The con-ventional wisdom has been that votesfollow the money, and I see nothing tochange that.

In addition to weighing votingrecords, insurance interests are morelikely to donate to politicians who siton key committees for insurance legis-lation such as the House Financial Ser-

vices or Senate Banking panels,whether they are Republicans orDemocrats, over politicians on commit-tees without insurance jurisdiction.Some observers contend that the indus-try’s sizable political purse reflects itsgrowing interest in federal issues,including terrorism insurance renewal,class action and tort reform, andstreamlining how the industry is regu-lated. On the health side, one of thelarger issues for insurance companieshas been Medicare legislation, passedby Congress last year, and the drive topermit small businesses to form associ-ation health plans. The PAC and indi-vidual contributions are not the entirestory of what the industry spends toinfluence Washington politics. Thesefunds are in addition to the $87 millionthat CPR estimates insurance compa-nies and groups spend annually onlobbying in Washington, D.C. More onpolitical contributions can be found atwww.opensecrets.org.

Source: The Insurance Journal

VII.CONGRESSIONALUPDATE

HIGH-FLYING EXECUTIVES GROUNDED

When writing about the mammothcorporate welfare bill passed by Con-gress last month, I didn’t realize that“high flying corporate executives” hadfinally been grounded. A little-noticedprovision in the bill severely limits thededuction a business can claim when acompany plane is used by officers,directors or owners (10% or more) forpersonal travel. Reportedly, the restric-tion will save the U.S. Treasury $2.2billion over the next decade, accordingto estimates by Congress’ Joint TaxCommittee, and that may be conserva-tive. Simply put, a company won’t beallowed to deduct any more inexpenses than it reports as income tothese vacation travelers. Before thenew law, a business could legallydeduct the full cost of operating an air-plane, even one used primarily forexecutives’ vacations, so long as it

reported a much smaller amount,known as the Standard Industry FareLevel (SIFL), as income to the junke-teers. As you may know already, theSIFL is about the cost of a first-classticket on a commercial flight.

For years the IRS had asserted thatcompanies could only deduct theamount that was included in an execu-tive’s income when he or she used acompany plan for personal jaunts. Thecongressional crackdown apparentlycame as a surprise to the General Avia-tion Manufacturers Association, whosemembers include Boeing, Raytheon,Honeywell, the Cessna unit ofTextron, and the Gulfstream Aero-space unit of General Dynamics. TheHouse-passed version of the bill hadn’tincluded any such provision. TheSenate version applied the restrictiononly to publicly traded companies andonly until the end of 2005, raising just$190 million. The final version, pro-duced by a House-Senate conferencecommittee, however, applies to privatecompanies too and isn’t temporary.The General Aviation ManufacturersAssociation tried to persuade Congressto allow an exception if a plane wasused only 5% or 10% of the time forpersonal trips by executives. But withexecutive-compensation excessesunder attack, and Congress on the huntfor loophole closers to make the taxbill “revenue neutral,” it was a lostcause for the lobby groups and that’sabout as rare as “hen’s teeth!”

GAMA didn’t totally strike out since itwas able to get its top priority into thenew tax law. Congress agreed thatbusinesses could claim “bonus depreci-ation” for new planes they order thisyear but don’t receive or place inservice until 2005. The break wouldotherwise have applied only to planesdelivered before the end of 2004.GAMA credits bonus depreciation,which allows a company to immedi-ately write off up to 50% of a newplane’s cost in the first year (in additionto the normal first-year depreciationwrite-off), with helping to revive itsindustry. The moral of this story is thatit helps to have high-powered lobbygroups working for you. Unfortunately,ordinary folks don’t enjoy that luxury.

Source: Forbes News


CONGRESS SHOULD TAKE A LOOKAT TAX SHELTERS

The U.S. government has lost a seriesof important tax shelter cases lately. Inone, a federal judge concluded that adeal that saved a company large sumsof taxes had a legitimate businesspurpose and as a result, was not anillegal tax shelter. In two of the multi-million-dollar cases, the judges specifi-cally told the Internal Revenue Servicethat if it has a problem with the out-comes in the cases, the solution lieswith Congress, not the courts.

In the most recent case, a U.S. districtjudge in Connecticut determined lastmonth that an arrangement by whichGeneral Electric Co., through sub-sidiaries and partnerships, shifted $310million in income to two Dutch banksthat don’t pay U.S. taxes was not asham and, as a result, GE was entitledto a $62 million tax refund. GE, whichthrough its GE Capital subsidiaryowned a large number of commercialairplanes that it leased to airlines, con-tributed those planes, along with somecash, to a partnership in which theDutch banks participated. The banksgot a large share of the rental incomethat would have been taxable to GE,and GE, the judge noted, got to “re-depreciate” the planes for tax pur-poses. However, the judge held thatthe arrangement was a real businessdeal, since it helped GE accelerateincome from the leases on the planes,as well as save on taxes. The judge inthe GE case wrote: “In short, the trans-action, though it sheltered a great dealof income from taxes, was legally per-missible. Under such circumstances,the IRS should address its concerns tothose who write the laws.”

The G.E. case came on the heels ofan $82 million defeat for the IRS in theU.S. Court of Federal Claims. In thatcase, a federal judge ruled valid anarrangement under which a companycalled Coltec Industries Inc. transferredcontingent liabilities associated withasbestos claims against a subsidiary toan entity it created and then sold at aloss. The judge in that case wrote: “Thecourt has determined that where a tax-payer has satisfied all the statutoryrequirements established by Congress,as Coltec did in this case, the use of the

‘economic substance’ doctrine to trump‘mere compliance with the code’ wouldviolate the separation of powers.”

A U.S. district judge in Maryland hadawarded Black & Decker Corp. a $57million refund in a case in which theIRS accused the company of a shamtransaction involving transfer of itsemployee health insurance claims to anew entity. This was the third case inthe series of setbacks for the IRS. Mostobservers seemed to have been mostsurprised at the outcome in this case.

The IRS can appeal these cases.However, Congress should make it atop priority to clear up any questionsabout tax shelters. All of us should payour fair share of taxes and that cer-tainly includes large and powerful cor-porations. The time has come forCongress to reform our tax code, andany reform would have to deal withtax shelters. Most citizens believe thewealthy get tax breaks from provisionsin the tax code that only apply to them.

Source: The Washington Post

VIII.PRODUCTLIABILITY UPDATE

THE SMART CARS ARE COMING

The new technology that is nowavailable for new car systems is gettinglots of media attention. For example,Continental’s new Electronic BrakeSystems (EBS) for model year 2005vehicles is said to mark a milestone inthe organization’s movement toward acompletely integrated active vehiclesafety system. The system known as thesmart car helps anticipate crashes andmitigate injuries. Many believe thatactive safety systems are increasinglymore important in today’s vehicles. Ihope technologies available today andthose anticipated in the near future willmake vehicles much safer. It is believedby many safety experts that this newtechnology will help prevent crashesand will reduce the risk of injury.

I understand that the new systemsare smaller, lighter, more powerful andmore cost-effective to produce than

their predecessors. First launched byContinental Teves in 1984, electronicbrake systems have achieved 80%weight reduction and nearly 90% costreduction over the past two decades.They build upon antilock brakesystems (ABS) and electronic stabilitycontrol (ESC), and contain newlydesigned, integrated circuits for higherlevels of integration. This allows addi-tional functions to be incorporated intothe vehicle, providing a platform forthe integration of both active andpassive safety systems to create an“anticipatory” vehicle. New EBS gener-ations also include valves with analogcontrol that are infinitely variable,replacing digital hydraulic valves. Thisallows shorter stopping distances, mini-mized pedal vibrations and finelytuned pressure build-up for the adap-tive cruise control (ACC) braking func-tion.

In combination with the analogvalves, the ABS hydraulic systemsbrake booster function also helps whenthe engine fails to generate enoughvacuum to ensure reliable brake boost-ing. This is most important after a coldstart, as well as with direct-injectionengines optimized for high efficiency.Further potential for improving stop-ping distances and stability is createdby adding brake pressure sensors onall wheels. Some additional highlightsof increased functionality of Continen-tal’s new EBS systems include:

• Active Rollover Protection (ARP).Excessive lateral force, generated byaggressive maneuvers, may result ina rollover in a high-center-of-gravityvehicle. ARP automatically respondswhenever it detects a potentialrollover, and rapidly applies thebrakes with a high burst of pressureto the appropriate wheels to helpavoid a rollover. ARP counteractscritical body roll before it starts tocause the kind of dynamic changesin wheel load that lead to rollover.

• Brake Assist recognizes a driver’sintent to perform a sudden stop bymonitoring the rate of the brakeapplication and initiates full brakingwithin a fraction of a second, reduc-ing the car’s braking distance by asmuch as 20%.


• Electronic Stability Control II(ESC II) combines the brake controlunit with Electric Steer Assisted Steer-ing (ESAS). ESC II automatically opti-mizes the driver’s steering inputs tofurther stabilize the vehicle whenESC is activated. When braking onsurfaces with different grip on eitherside of the vehicle, ESC II also makesfor much shorter stopping distanceswith minimum steering interventionand optimized directional stability.

• The Electric Parking Brake can beactivated either automatically or atthe touch of a button, reliablyholding the vehicle in position whenparked. The system prevents rollingback on hill starts, and also acts as atheft-deterrent device because it is ahighly efficient immobilizer.

• Hill Start Assist keeps the vehiclestationary, with no drift-back, on anuphill grade, when the driver shiftsthe car into gear.

• Trailer Stability Assist recognizeswhen a trailer being towed starts tooscillate, or move from side to side.Trailer Stability Assist engages tohelp keep the trailer on its intendedcourse and in line with the vehicle.

• The Rain Brake Support (RBS) rec-ognizes when the brake componentsare wet, and induces just enoughbrake drag to slightly heat the brakesto dry them off.

Additional innovations in develop-ment that many safety advocatesbelieve will revolutionize active vehiclesafety include:

• Adaptive Cruise Control (ACC)uses either a radar sensor or aninfrared laser (LIDAR) on the front ofthe vehicle to measure the distanceand the relative velocity from thevehicle ahead and, using that infor-mation, automatically adapts thespeed set by the driver to ensure asafe distance between the vehicles. Ifnecessary, a feature called Stop andGo is enabled, which causes the ACCto slow the vehicle to a standstill.After coming to a standstill—inwhich a brake system will beengaged, if necessary, to hold thevehicle on a hill—this new system

will also detect any movement by thevehicle ahead, and will give thedriver an acoustic signal. After thedriver acknowledges the signal bypressing a button, the ACC will accel-erate the vehicle automatically to thespeed set by the driver, or to themaximum speed possible under theactual traffic conditions ahead.

• Brake Assist Plus helps reducestopping distance by building brakepressure faster.

• Ready Alert Brakes (RAB) pre-charges the brake system to improvethe responsiveness of the brakes.The Ready Alert function uses theACC sensors to reduce stopping dis-tances even if the ACC itself isswitched off. As soon as the sensorsdetect a vehicle at a critical distanceahead, the system prepares the brakesystem by reducing the air gapbetween the brake pads and disk sothat full braking power can be devel-oped much faster, when required.This function may serve to preventan accident or at least reduce theimpact energy if a collision isunavoidable.

• Traffic Sign Recognition usescameras in the front of the vehicle torecognize and read road signs, suchas stop signs and speed limit signs,and then alerts the driver to any dan-gerous situations.

• The Lane Departure Warning(LDW) uses a camera to detect unin-tentional deviation from the selectedlane. The system warns the driver bymeans of an audible alarm or steer-ing wheel vibrations.

• The Lane Keeping Support (LKS)system incorporates the IntelligentPower Assisted Steering to includesteering wheel vibrations, and atugging force on the steering wheelto issue a clear recommendation tothe driver to steer back into his lane.

• Smart Airbag - Preconditioning ofnon-reversible restraint systems.

According to information furnishedby the company, Continental’s goal isto apply technology to help preventcrashes from happening and to miti-

gate injuries when they do. This is saidto be part of an integrated, comprehen-sive assistance and occupant protectionsystem that will provide drivers andoccupants with the best possiblesupport. As you may know, Continen-tal AG is a major supplier of brakesystems, chassis components, vehicleelectronics, tires and technical rubberproducts. Nothing written here isintended as an endorsement of Continental AG, but is included to let our readers know what is available tocar manufacturers. For additional information, visit these websites:http://www.conti-online.com andhttp://www.contitevesna.com.

STUDY LAUDS DRIVER STABILITY SYSTEMS

Rollover accidents continue to be asource of concern to citizens in theU.S. For years consumers who havepurchased SUVs have been exposed toan unreasonable risk of severe injuryor death in single-vehicle rollovercrashes. Despite ever-increasing knowl-edge of how to design a reasonablysafe SUV, the automotive industry hasrefused to make simple and technolog-ically available advances in theirdesigns to protect these consumers.

Electronic Stability Control (ESC)systems appear to be effective inreducing the number of single-vehiclecrashes, including rollovers, accordingto a preliminary study by the NationalHighway Traffic Safety Administration(NHTSA). The study found that thetechnology has proved particularlyeffective for sport utility vehicles. In2003, 7.4% of the light vehicle fleet wassold with some form of ESC. Thesystems can improve a vehicle’s stabil-ity by electronically assisting drivers indangerous situations. In most vehicles,the ESC system improves the vehicle’slateral stability and, at the same time,electronically combines the attributesof anti-lock brakes and traction controlsystems to help a driver avoid a poten-tially dangerous situation.

Among vehicles in the NHTSA study,ESC reduced single vehicle crashes inpassenger cars by 35% when comparedto the same models sold in prior yearswithout the technology. The prelimi-nary results were even more dramatic


for the much smaller sample of SUVs inthe study. Single vehicle crashes werereduced by 67% in models with ESC.Evaluating fatal crashes only, ESC wasassociated with a 30% reduction forpassenger cars, 63% for SUVs. Thestudy concluded that “This technologyappears to provide safety benefits byreducing the number of crashes due todriver error and loss of control becauseit has the potential to anticipate situa-tions leading up to some crashesbefore they occur and automaticallyintervene to assist the driver.” NHTSAevaluated the technology by studyingfatal and non-fatal crashes from 1997 to2003. The study examined crash statis-tics only for vehicles equipped withESC as standard equipment. Theagency emphasized that the results arepreliminary and that it will have moreconfidence in the effectiveness of ESCwhen studies can evaluate a largercross-section of the vehicle fleet. In2003, 15,621 people died in singlevehicle passenger crashes on thenation’s highways. Summaries of thestudy are available on the NHTSAwebsite at: http://www.nhtsa.dot.gov/cars/rules/regrev/evaluate/809790.html

A recent study performed by theInsurance Institute for Highway Safety,a group funded by the insurance indus-try and dedicated to automobile safety,shows that SUVs equipped with Elec-tronic Stability Control (ESC) arecapable of reducing the risk of involve-ment in fatal crashes by 50%. The studyhas also found that all single vehiclecrashes including fatal and non-fatalcrashes can be reduced by up to 40%with ESC. Electronic Stability Controlhelps a driver maintain control of thevehicle by using sensors to independ-ently activate braking for each wheel.Additional sensors also monitor thedrivers steering input and how thevehicle is responding to those inputs.These sensors can determine if thevehicle is straying from the driversintended line of travel, which usuallyoccurs in evasive emergency maneu-vers or maneuvers made on slipperyroads. The sensors not only monitortire rotation and a drivers steeringinputs but also brake pressure. If thecomputer determines that the driver islosing control, it will apply brake pres-

sure to individual wheels to restorecontrol of the vehicle. In someinstances, the computer can alsoreduce the power being provided tothe wheels by the engine.

Studies have shown that SUVs typi-cally have very high single-vehiclerollover rates and very high single-vehicle fatality rates resulting fromrollovers. Despite this knowledge, theautomotive industry had been slow toimplement designs that could reducethe fatality and injury rate associatedwith SUV rollovers. ESC technology hasbeen available for a number of years;however, very few vehicles includeElectronic Stability Control. Even moreegregious is the fact that many manu-facturers offer ESC as optional equip-ment on vehicles such as SUVs. SinceESC is a safety device, which is likelyto substantially reduce a known hazardassociated with SUVs, manufacturershave a duty to make the equipmentavailable on all models as standardequipment rather than optional equip-ment. The only reason a manufacturerwould choose not to make such equip-ment standard on their vehicles wouldbe to maintain a competitive edge inthe SUV market. A manufacturer’sfailure to equip SUVs with ESC as stan-dard equipment is best described aschoosing profits over human safety.Hopefully, the Insurance Institute’srecent study showing the effectivenessof ESC in reducing single-vehicle acci-dents and rollovers as well as the fatal-ity rate will force manufacturers tobegin providing such technology asstandard equipment on vehicles thatare known to have a high rollover rate.

Currently, luxury models such asPorsche, BMW, Mercedes and Infinitiinclude the technology as standardequipment. Domestic manufacturerslike General Motors and Ford includethe equipment as a standard option intheir higher end vehicles such as Cadil-lac and Lincoln SUVs. Ford providesESC as optional equipment on the 2005Expedition but now includes it as stan-dard equipment on the Explorer, oneof the most litigated SUVs in history.However, General Motors only offersESC as optional equipment on thepopular Suburban and Tahoe SUVs andthe Uplander minivan.

FORD ROLLOVER VERDICTS REVERSED ONAPPEAL

A federal appeals court has reverseda 2003 jury verdict that found FordMotor Co. not legally responsible forthe death of a mother and daughter inan Explorer rollover accident. Thefederal appeals court ordered a newtrial for the family of the two personskilled. The case arose out of an acci-dent in 2000 involving a Ford Explorer.The appellate court ruled that the trialjudge shouldn’t have let Ford introduceevidence on other rollover accidents.This is a most significant ruling andone that is absolutely correct from alegal perspective.

The reversal is the second by afederal appellate court of a Ford trialwin in an Explorer case. The appellatedecisions were both over statisticalevidence about other accidents. Fordwill now have to defend the Explorers,rather than putting into evidence hun-dreds of statistics to say basically thatall SUVs are bad. Hopefully, the daywhere statistics can be used tosupport a bad design of an SUV is over.If so, it will be good for safety and forpeople who drive or ride in SUVs.

A 35-year-old mother was killedwhen her Explorer rolled over after sheswerved to avoid hitting a deer. One 5-year-old was also killed in the accidentand two other children were injured.The family sued Ford, alleging designdefects left the Explorer unstable andprone to rolling over during evasivedriving maneuvers. In March 2003, aTacoma, Washington, jury rejected thefamily’s claim, finding no defects.During the trial, Ford’s lawyers wereallowed to admit statistical evidence onthousands of rollover accidents involv-ing passenger cars, trucks and sportutility vehicles. The data came fromrollovers involving all sorts of vehiclesand all sorts of crashes. The appealscourt correctly said in its decision thatthe evidence of rollovers of other vehi-cles was irrelevant and prejudicial tothe family. The issue should relate tohow the Explorers have performed andnot how they compare to other vehi-cles. It is difficult to compare theExplorer to other SUVs. It is impossibleto compare an SUV to pickup and pas-senger cars.


The theory in the case was that theExplorer was not reasonably safe asdesigned because the vehicle had ahigh center of gravity and a narrowwheel base that caused it to roll over onsmooth, dry pavement. To be relevant,Ford’s comparative accident statisticswould have to be based on accidentsthat occurred under circumstancessimilar to this specific accident. Thecourt agreed and held that Ford experts’rollover statistics “were irrelevant to thedesign defect at issue in this case.” Theevidence “may have unduly prejudicedthe jury’s view of whether the Explorerwas not reasonably safe as designed.”This is a most important victory forvictims and for safety generally.

A second Ford defense win in anExplorer case was reversed in August,when a panel of the 11th Circuitordered a new trial for the family of awoman who was killed in a January2000 rollover. In June 2003, an Atlantajury rejected the claim brought by thefamily of Denise Hockensmith. Theappellate court reversed the decision,finding that the trial judge improperlyadmitted statistical evidence of otherrollover accidents. No new trial datehas been set for the Washington case.The reputation of the Explorer, thebest-selling sport-utility vehicle, washurt by a U.S. government investigationinto at least 271 highway deaths involv-ing tread separation by BridgestoneCorp.’s Firestone tires, mostly onExplorers. Ford settled hundreds oflawsuits over rollovers related to tirefailures.

Source: Bloomberg News

FOCUS AND RANGER HAVE ROLLOVER RISK

Ford Motor Co. didn’t fare very wellin new government crash and rollovertests. Two 2005 Ford vehicles, the two-door Focus and the Ranger 4x4 pickup,were the worst performers in the tests,according to results released by theNational Highway Traffic Safety Admin-istration. The rear passenger was at riskof serious head injury when the Focuswas hit in the side in a 38.5 mph test. Itshould be noted that the Focus wastested without side airbags, which aFord Motor Co. website lists as a $350

option on the vehicle. NHTSA gave theFocus three out of five stars for driver’sside protection and four out of fivestars for rear passenger protection. Thiswas the lowest rating among carstested. Those ratings didn’t reflect thepotential for head injury becauseNHTSA’s side-impact ratings consideronly chest injuries. A five-star ratingmeans the likelihood of serious injuryin a similar crash is 5% or less. Forthree stars the likelihood is 11 to 20percent. The Ranger 4x4 and theMazda B-Series 4x4 (its corporatetwins), earned two stars in NHTSA’srollover ratings, the lowest of the ten2005 pickups tested. According toNHTSA, the Ranger and the B-Serieshave a 30.6% chance of rolling over ina crash. The ratings consider thevehicle’s height and weight and its per-formance in a 35 to 50 mph test with asharp turn.

NHTSA released crash test results forseven passenger cars, one pickup andone sport utility vehicle, and rolloverratings for one crossover vehicle andten pickups. The agency chooses vehi-cles to test based on popularity andother factors. The 2005 SubaruOutback, which NHTSA classifies as anSUV, was the only vehicle that earnedfive stars on all front and side-impacttests. The Outback was tested with itsside airbags since they are standard.The 2005 Chrysler 300 and its corpo-rate twin, the Dodge Magnum, alsowere high performers, earning fivestars on the 35 mph frontal crash testand the rear passenger side-impact test.Neither vehicle was tested with sideairbags. The side airbags are a $590option on the Chrysler 300 and a $390option on the Dodge Magnum. Two-wheel and four-wheel-drive versions ofthe Chevrolet Colorado, GMC Canyonand Dodge Ram pickups each earnedfour stars in the rollover tests. NHTSAsaid their percent chance of rolloverwas between 17.9 and 19.8 percent.The Ford Ranger 4x2 and Mazda B-Series 4x2 fared better than the four-wheel-drive version, earning three starsand a 21.9% chance of rolling over.The Ford Freestar crossover earnedfour stars and has a 14.7% chance ofrolling over.

As expected, Ford tries to “spin”

away the effect of the bad test results.Ford contends that NHTSA is usingfaulty methods to predict chance ofrollover and is based on a model thatincludes “outdated information” and isnot capable of “producing real-worldresults.” I strongly disagree with Ford’sassessment of what NHTSA is doingand hope the agency will continue topush for safer cars.


MISTRIAL IN ACURA AIRBAG LAWSUIT

A mistrial was declared in a civillawsuit filed by a Miami family againstHonda Motor Co. The mistrial cameafter the judge learned that one of thejurors had conducted her own Internetresearch on the case. In 1998, 7-year-old Ashley Moore suffered spinal cordinjuries after a front-passenger-sideairbag went off inside the family’s 1996Acura during a low-speed car accidentin Tallahassee. The child, now a quad-riplegic, lost all feeling below her ears.It was contended by the family thatHonda failed to adequately warn con-sumers of the dangers of airbags forchildren “even though Honda very wellknew since 1980 that an airbag couldkill them.” The Moores leased the carin June 1995, before the federal gov-ernment ordered automobile manufac-turers to issue warning labels sayingthat children 12 and under should notsit in the front seat of a vehicleequipped with an airbag.

Honda denied that the car was toblame for the child’s injuries. In atypical statement, the companyspokesman stated: “Honda has alwayshad a relentless commitment to safety,and is extremely proud of the safety ofits products, and the integrity of theengineering behind them. If this caseneeds to be re-tried, Honda is againprepared to defend the integrity anddesign of our occupant restraintsystem.” A jury of four women and twomen had deadlocked on the case andthe judge ordered them to resumedeliberations. The judge learned of ajuror’s independent research. That jurorhad argued against awarding anydamages in the case. The court cor-rectly declared a mistrial. We are told


that the jurors were leaning in favor ofthe family when the mistrial occurred.

NHTSA CRACKDOWN ON ILLEGAL LIGHTINGEQUIPMENT

Continuing its crackdown againstmanufacturers and suppliers of illegallighting equipment, the NationalHighway Traffic Safety Administration(NHTSA) recently announced its deci-sion that high intensity discharge (HID)conversion kits produced by a Texascompany don’t comply with federalsafety standards. The owner of ASTEXUSA, a supplier of aftermarket HIDkits, was ordered to conduct a recallcampaign and provide a no-cost solu-tion to the customer. When installed ina motor vehicle, the HID kits “can beexpected to produce excessive glare tooncoming motorists and others,”NHTSA said in its decision. To date,NHTSA has investigated 24 HID con-version kit suppliers. Each of the inves-tigations has resulted in recalls ortermination of sales. Obviously, theseillegal lights are a potential hazard tothose who share the road. Companiesthat sell, import or manufacture non-compliant equipment could face sub-stantial civil penalties.

NHTSA LOOKS AT SEAT BELTS

Ford Motor Co. faces a U.S. safetyreview of front-seat-belt failures on F-series pickups and other models thatwere part of a 2001 recall of 1.4 millionvehicles. The National Highway TrafficSafety Administration (NHTSA) hasasked Ford for more information afterreceiving 20 complaints since therecall, including reports of two crasheswith injuries. In 11 cases, the beltsfailed after Ford dealers followed recallprocedures and found no defects. Ninecomplaints didn’t indicate whetherrecall steps were followed. The beltswere made by the former TRW Inc.,whose automotive safety unit is nowTRW Automotive Holdings Corp. ofLivonia. In addition to the 2001 F-series, the review includes 2001 FordCrown Victoria sedans, Ford Windstarminivans, and Ford Expedition andLincoln Navigator sport-utility vehicles.

NHTSA’s request could lead to asecond recall. The regulatory agencyhas asked automakers for more infor-mation to follow an earlier recall on 11separate occasions this year.

CHRYSLER BEING SUED OVER BABY’S VANDEATH

As this issue went to the printer thismonth, an important trial involving thewrongful death of a baby had started inNashville, Tennessee. An eight-month-old infant died after a driver rear-endedhis grandparents’ minivan three yearsago. The family contends that the van’sautomaker, DaimlerChrysler, is toblame for the infant’s death because ofa faulty seat design. DaimlerChryslerhad to know that the seats in its vanswere prone to collapse during rear-impact accidents. While the companyknew the seat design had killed andhurt a good number of other peoplearound the country, it never warnedanyone, especially parents of smallchildren. The line of minivans put outby the company from 1984 to 2000—the Dodge Grand Caravan, PlymouthVoyager and the Chrysler Town andCountry—all have the “collapsing’’seats.

The accident happened in Nashvilleback in June of 2001, as the infant’sgrandfather pulled his 1998 DodgeGrand Caravan out of a driveway. Thedriver of a 1969 Ford F-100 pickupstruck the minivan from behind. Thevan’s seats collapsed on impact,causing a front-seat passenger in thevan to go backward. The passenger’shead struck the infant’s, causing amassive head injury and brain damage.Significantly, everyone else in the acci-dent walked away from the crash. Theinfant, who had been restrained in acar seat, died the next day. The familyis seeking compensatory and punitivedamages. DaimlerChrysler knew it hadproblems with the seats, but marketedthe vans to people with children andfailed to warn the public. This is a casethat should be won based on the lawand facts. The history of the seats andthe string of deaths and injuries thathave been caused by the bad designwill be heard by the jury.

SAFETY ADVOCATES WARN OF COLLAPSINGFRONT CAR SEATS

I believe it will be helpful to take acloser look at the seatback problems. Anumber of people are killed each yearby faulty front car seats that give wayin car accidents. Front seat occupantsare thrown into the rear and strikepersons who are sitting in the backseats. Young children, who are placedin back seats, are oftentimes thevictims. Automakers have long knownabout the issue. A decade ago, one GMengineer estimated stronger seats in allU.S. vehicles could save more than 400lives a year. That memo prompted GMto begin designing safer seats. Safetyadvocates say automakers and the gov-ernment need to strengthen automo-bile seatbacks. As we have pointed outin prior issues, the federal standard ismore than 30 years old. However,back seat occupants are not the onlyones at risk. Those in the collapsingseats can slide out of their seat belt.The injuries can be most severe. Manydie and a good number have been leftparalyzed as a result. Automakers insistseats must yield to help absorb thecrash energy. They say a stiffer seatwould lead to more injuries for thosein front. But safety engineers point toseat designs such as those used byVolvo, which flex to absorb energy butdon’t collapse backwards. Mark Pozziof Sandia Safety Sciences, a notedsafety advocate, says: “There’s nodownside to having the strong, crash-worthy seats, and there’s no advantageto having the weak collapsing seats.”

Clarence Ditlow, executive directorof the Center for Auto Safety, a mosteffective consumer group, says “Thegovernment standard for seatbacks is“woefully out of date” and “far tooweak.” It is impossible to justify thegovernement’s inaction. An emptypromise was made to upgrade the stan-dard 12 years ago. But the governmentnow says any solution must involvehead-rest and seat belt improvements.Most consumers don’t even realize thatseatback strength is a serious problem.Lots of folks have heard of explodinggas tanks and SUV rollovers by now,but most American’s don’t know aboutthe problem with seats. Safety advo-cates say it may take a major court


verdict to force more automakers toinstall safer seats. In the meantime, thebest consumers can do is try to buyvehicles with the stronger seats. Seatswith seat belts installed right on theseat, not on the car frame, are usuallystronger. Some safety advocates urgeparents to put children behind anempty passenger seat, if possible. Forobvious reasons, there is less chance ofa seat collapsing if it is unoccupied.

SAFETY GROUP SEEKS TIRE EXPIRATION DATE

A consumer safety group has askedthe National Highway Traffic SafetyAdministration (NHTSA) to require“born-on” dates for car and truck tires.SRS Inc., a Massachusetts auto-safetyresearch firm, sent a petition to NHTSAand provided an analysis from 50crashes resulting in 37 deaths thatinvolved different makes of tires bymost leading manufacturers. Accordingto Sean Kane, president of SRS, tire per-formance can begin to degrade after sixyears because of the rubber’s age, evenif the tires have not been used. Kane,calling this an invisible hazard, stated:“The industry knows a lot about it, andthey have recommendations that they’vehidden from the public for years. Justabout every other product, from food topaint, has an expiration date on it.”

There have been a tremendousnumber of fatal crashes linked to oldertires with little wear and tear. The tireindustry is studying tire aging, accord-ing to Donald Shea, president of theRubber Manufacturers Association, aWashington lobbying group. Sheaclaims there is no data to suggest anyspecific age makes a tire less strong.Kane urged NHTSA administratorJeffrey Runge to issue an advisory toconsumers as the agency considers theSRS petition. Frankly, I don’t expectNHTSA to take any immediate actionon the petition. By law, NHTSA has120 days to reject or accept it. Histori-cal performance by the governmentregulatory agency on similar requestsdoesn’t give us any reason to believean advisory will be issued. Perhaps thepublicity generated by the petition andtire problems generally, however, willresult in public awareness and theneed for action on the petition.

SOME TIPS ON TIRE SAFETY

Most folks don’t realize that tires onour vehicles need to be checked on aregular schedule. We should allperform a routine inspection of thetires on our cars and trucks eachmonth. Protection against avoidablebreakdowns and crashes, improvedvehicle handling, better fuel economyand increased tire life are just a few ofthe reasons to take five minutes everymonth to check your tires. The check-list below is simple and easy to use:

SAFETY CHECKLIST

• Check tire pressure regularly (at leastonce a month), including the spare.

• Check tire pressure before going ona long trip.

• Inspect tires for uneven wear pat-terns on the tread, cracks, foreignobjects, or other signs of wear ortrauma. Remove bits of glass andother foreign objects wedged in thetread.

• Make sure your tire valves havevalve caps.

• Do not overload your vehicle. Checkthe tire information placard orowner’s manual for the maximumrecommended load for the vehicle.

• If you are towing a trailer, rememberthat some of the weight of theloaded trailer is transferred to thetowing vehicle.

You can find the numbers for recom-mended tire pressure and vehicle loadlimit on the tire information placardand in the vehicle owner’s manual. Tireplacards are permanent labels attachedto the vehicle door edge, doorpost,glovebox door, or inside of the trunklid. Once you’ve located this informa-tion, use it to check your tire pressureand to make sure your vehicle is notoverloaded, especially when you headout on a trip or for vacation.

Because tires may naturally lose airover time, it is important to check yourtire pressure at least once a month. Forconvenience, purchase a tire pressuregauge to keep in your vehicle. Gaugescan be purchased at tire dealerships,

auto supply stores, and other retailoutlets. Remember, the tire inflationnumber that vehicle manufacturersprovide reflects the proper pounds persquare inch (psi) when a tire is cold.To get an accurate tire pressurereading, measure tire pressure whenthe car has been unused for at leastthree hours. The following is a goodand simple way to check pressure foryour tires:

• Locate the correct tire pressure onthe tire information placard or in theowner’s manual.

• Record the tire pressure of all tires.

• If the tire pressure is too high in anyof the tires, slowly release air bygently pressing on the tire valve withthe edge of your tire gauge until youget to the correct pressure.

• If the tire pressure is too low, notethe difference between the measuredtire pressure and the correct tirepressure. These “missing” pounds ofpressure are what you will need toadd.

• At a service station, add the missingpounds of air pressure to each tirethat is underinflated.

• Check all the tires to make sure theyhave the same air pressure (except incases in which the front and reartires are supposed to have differentamounts of pressure).

Tires have built-in treadwear indica-tors that let you know when it is timeto replace them. These indicators areraised sections spaced intermittently inthe bottom of the tread grooves. Whenthey appear even with the outside ofthe tread, it is time to replace yourtires. You can also test your tread witha Lincoln penny. Simply turn thepenny so Lincoln’s head is pointingdown and insert it into the tread. If thetread doesn’t cover Lincoln’s head, it’stime to replace your tires. For a freebrochure visit www.nhtsa.dot.gov orcall 1-888-327-4236.


NEW DYNAMIC TESTS OF SEATS & HEADRESTRAINTS IN CARS

Using a new dynamic test and adummy designed especially for rearimpact testing, the Insurance Institutefor Highway Safety has rated 73seat/head restraint combinations avail-able in 63 car models sold in the U.S.market. The ratings of good, accept-able, marginal, or poor indicate therange of occupant protection fromwhiplash injury in rear-end crashes atlow to moderate speeds. Starting pointsfor the ratings are the evaluations ofhead restraint geometry the Institutehas been conducting since 1995. Nowseats with head restraints that havegood or acceptable geometry are beingtested dynamically to compare theirprotection against neck injury in rearimpacts. These seat/head restraint com-binations earn overall ratings based onboth geometry and dynamic testresults. The Institute isn’t testing seatswith head restraints rated marginal orpoor for geometry because such seatswon’t protect taller people. Theseseat/head restraint combinations arerated poor overall, based on geometry.

Only 8 of the 73 seat/head restraintsthat were dynamically tested earnedoverall ratings of good. Sixteen areacceptable, and 19 are rated marginal.The other 30 seat/head restraint combi-nations that were tested are rated poor,as are 24 seats that weren’t testedbecause of inadequate geometry. Theseat/head restraints that were dynami-cally tested together with those thatweren’t represent available seats incurrent car models the Institute hasevaluated in its high-speed frontaloffset crash test program. The Insti-tute’s ratings of seats and headrestraints in cars sold in the U.S. marketare part of an international programthat includes ratings of additionalseat/head restraints sold in the Cana-dian, Australian, and Europeanmarkets. Results of these ratings werealso released. Adrian Lund, the Insti-tute’s chief operating officer, stated:“Consumers in markets worldwide canuse the new ratings to buy cars thatprovide better protection in rear-endcrashes.” The following will give ourreaders a pretty good overview of theproblem and what is being done to

make things better from a safety per-spective.

• Winners and losers: Among theseat/head restraints that were testeddynamically, the winners are theones in Volvos (all models) and Saab9-2X and 9-3 models. These are ratedgood. So are the seat/head restraintsin the Jaguar S-Type, SubaruImpreza, and some Volkswagen NewBeetles. The dynamic test perform-ance of the 2004 Toyota Corolla’sseat/head restraint also was good,but this car’s overall rating is accept-able because the head restraint’sgeometry is rated acceptable. A totalof 54 seat/head restraint combina-tions are rated poor overall. “It’sobvious that some automakers aredoing a better job than others ofdesigning seats and head restraints toprotect their customers’ necks in rearcrashes,” Lund says. “Especially dis-appointing is that so many carmodels still have head restraints withpoor or marginal geometry. Goodgeometry is a simple and necessaryfirst step toward adequate protection,and seats with bad geometry cannotbegin to protect many taller occu-pants.” Neck injuries sustained inrear-end crashes seldom are lifethreatening, but they can be painful.They occur frequently and areexpensive. In the United Statesalone, they cost at least $7 billion ininsurance claims per year.

• Importance of a good seat/headrestraint: When a vehicle is struckin the rear and driven forward, thevehicle seats accelerate occupants’torsos forward. Unsupported, theoccupants’ heads will lag behind theforward movement of their torsos.This differential motion causes theneck to bend back and stretch. Thehigher the torso acceleration themore sudden the motion, the higherthe forces on the neck, and the morelikely a neck injury is to occur. “Thekey to reducing whiplash injury riskis to keep the head and torso movingtogether,” Lund explains. “To ensurethey move together, a seat and headrestraint have to work in concert tosupport an occupant’s neck andhead, accelerating them with the

torso as the vehicle is driven forwardfollowing a rear impact. To accom-plish this, the geometry of the headrestraint has to be adequate, and sodo the stiffness characteristics of thevehicle seat.” A head restraint shouldextend at least as high as the centerof gravity of the head of the tallestexpected occupant. A restraint alsoshould be positioned close to theback of an occupant’s head so it cancontact the head and support it earlyin a rear-end crash. “If a headrestraint isn’t positioned behind anoccupant’s head, it cannot supportthe head in a rear impact,” Lundadds. “But good head restraint geom-etry by itself isn’t sufficient. A seatalso has to be designed so it doesn’trotate backward in a rear impactbecause this would move the headrestraint away from the head. At thesame time, a vehicle seat cannot betoo stiff. It has to ‘give’ so an occu-pant will sink into it, moving thehead closer to the restraint. The newevaluation criteria take into accountboth static restraint geometry and thedynamic performance of seats andhead restraints together in tests.”

• New seat/head restraint ratingsdiffer from previous ratings ofrestraint geometry: Since 1995 theInstitute has been rating the geome-try of head restraints in passengervehicles based on how close therestraints are to the back of the headof an average-size man. In publish-ing the first ratings, the Instituteexplained that “good geometry isnecessary but not sufficient for goodprotection. The relative stiffness ofthe seatbacks also helps determineeffectiveness.” Assessing seatbackstiffness and other characteristics ofwhiplash injury prevention requirescrash testing or other dynamicassessments that weren’t practical inthe mid- to late-1990s. Very few headrestraints back then had geometrysufficient to warrant dynamic testing.The geometry of most head restraintswas marginal or poor. Such restraintscannot provide adequate protectionbecause they cannot be positioned tosupport many people’s heads duringcrashes. Another reason dynamictests weren’t conducted is that there


wasn’t a test dummy with a realisticspine and neck configurationdesigned for testing in rear-endcrashes at low to moderate speeds.Existing dummies in the mid- to late-1990s had rigid spines and necks thatweren’t designed to produce human-like responses to rear crash forces.Since then a new test dummy(BioRID) has been developed that’sdesigned specifically for rear crashtesting. This dummy, representing anaverage-size man, is beginning to bewidely used. Plus automakers haveimproved head restraint geometry.The Institute’s first evaluations (1995models) found only 5 seats withgood geometry. In contrast, 80% ofthe head restraints in 2004 modelshave good or acceptable geometry.Some models also are beingequipped with new head restraintsthat are designed to move closer tothe backs of people’s heads duringrear impacts. Dynamic testing isrequired to evaluate these “active”restraints and seatbacks that are spe-cially designed to reduce accelera-tion forces.

• International release of seat/headrestraint ratings: Recognizing theimprovements in head restraintgeometry and the need to movebeyond ratings based solely ongeometry, the Institute joined withother whiplash injury preventionexperts in late 2000 to organize theInternational Insurance WhiplashPrevention Group (IIWPG). In addi-tion to the Institute, IIWPG membersinclude the following research organ-izations supported by automobileinsurers: Thatcham in the UnitedKingdom; Allianz Centre for Technol-ogy in Germany and the GermanInsurance Institute for Traffic Engi-neering; Folksam Insurance inSweden; ICBC in Canada; InsuranceAustralia Group; and CESVIMap inSpain. IIWPG conducted extensiveresearch and testing to develop theprocedures for the dynamic test andevaluation criteria that have beenused by member research groups,including the Institute, to rate theperformance of more than 200seat/head restraint combinations invehicles sold in a number of world

markets. These ratings are beingreleased simultaneously by IIWPGpartners in Australia, Canada,Germany, and the United Kingdom,as well as by the Institute in theUnited States.

• IIWPG procedures for ratingseat/head restraints: Overall seat/head restraint ratings are based on atwo-step evaluation. In the first steprestraint geometry is rated, using thesame procedures as before. Seatswith good or acceptable geometricratings then are subjected to adynamic test conducted on a sledthat simulates the forces in a station-ary vehicle that’s rear-ended byanother vehicle of the same weightgoing 20 mph. The dynamic testratings of good, acceptable, marginal,or poor are derived from two seatdesign parameters (peak accelerationof the dummy’s torso and time fromimpact initiation to head restraintcontact with the dummy’s head) plusneck tension and shear forcesrecorded on BioRID during the test.The sooner a restraint contacts thedummy’s head and the lower theacceleration of the torso and theforces on the neck, the better thedynamic rating. A seat/headrestraint’s dynamic rating is com-bined with its geometric rating toproduce an overall rating. The 73overall ratings represent moreseat/head restraint combinations thanare listed. When the ratings for a carmodel’s seat options are the same,these ratings are combined. Proce-dures for rating seat/head restraintsprovide a more detailed descriptionof how head restraint geometry ismeasured, how seat/head restraintsare tested dynamically, the crash testdummy BioRID, and the crash simu-lation sled (including photos) onwhich the dynamic tests are con-ducted.

• Sled test sets tougher standard toearn good or acceptable rating:Nine seat/head restraints rated goodfor geometry and another 21 withacceptable geometry turned in poorperformances in the dynamic test.“The principal reason for the failingdynamic performances of these seats

was that the seatbacks rotated back-ward in the test,” Lund says. “Thismoved the head restraint farther fromthe dummy’s head, so initial contactwith the head restraint took longer.The result was that the dummy’shead wasn’t supported in time toreduce the differential motion of thehead and torso that leads to neckinjury. So, although the auto manu-facturers have been improving thegeometry of the head restraints intheir cars, in many cases they needto make further improvements totheir seats and head restraints.”

• Saabs and Volvos are winners:The seat/head restraint combinationsin two Saab models and three Volvosare rated good, but the designs ofthese systems aren’t the same. As anoccupant’s torso sinks into a Saabseat during a rear crash, a mecha-nism in the seatback is designed topush the head restraint up andtoward the back of the head. Volvotook a different approach, designingseatbacks with a special hinge toreduce the forward acceleration of anoccupant’s torso. “The designs aredifferent, but the result is the same,”Lund points out. “Both Volvo andSaab have found a way to reduce thedifferential motion of an occupant’shead and torso that causes neckinjury in rear crashes. This is whatwe want every automaker to do.”Institute research released in 2002indicated that fewer neck injuryclaims are filed for Volvos and Saabswith the advanced seat/head restraintsystems, compared with oldermodels of the same cars withoutsuch systems.

Source: NHTSA News Release

GLOBAL AUTO-SAFETY STANDARDS ON WAY

Auto regulators from the UnitedStates and other nations met onNovember 18th in Geneva to sign off onthe first-ever global safety standard forvehicles. This first standard coversdoor-latch safety at a time of height-ened interest in preventing deaths andinjuries in rollover crashes. As we havereported on numerous occasions,keeping people inside vehicles in all


crashes has been a top priority ofsafety engineers. The global standardwill lead to stronger car door latchesand require a secondary latch forsliding minivan doors and a warning ifthey’re open. Based on the standard,it’s my understanding that NHTSA willpropose stricter U.S. rules on latcheswithin a month. As we have learnedover the years, the current door-latchstandard is more than 30 years old andis extremely weak.

The new standard is the first byprod-uct of a 1998 accord among 22 nationsto create uniform auto-safety standards.Rules will be proposed by the 22nations that mirror the global standard.But, countries can modify the rulesbased on their individual needs. Thisjoint effort should raise the safety barin most nations, including in thiscountry. A prime example is a badlyneeded change for the door-latch stan-dard in the U.S. I hope the new stan-dard won’t weaken rules in somesafety areas. Steve Oesch of the Insur-ance Institute for Highway Safety toldthe USA Today that global standardswill lead to “some improvements andsome setbacks.” He complains that thetests of auto latches will still not simu-late what really happens in a crash. Itwill be interesting to see what devel-ops on the international stage. I under-stand that the next issues to beconsidered are lighting, such as whereto place interior lights in cars, andbraking, including how to test and ratebrake systems. Hopefully, this will leadto safer cars on our highways.

Source: USA Today

IX.MASS TORTSUPDATE

MASS TORT CASES CURRENTLY UNDERINVESTIGATION OR IN LITIGATION

The lawyers and other employees inour Mass Torts Section have been verybusy. We are representing a tremen-dous number of people against compa-nies that manufacture and marketdefective pharmaceutical products and

defective medical devices. Much activ-ity has from the recent influx of casesresulting from Merck’s withdrawal ofVioxx from the market. Much more willbe written on the Vioxx problems sep-arately because of its magnitude andseriousness. However, the Section isalso investigating and litigating claimsinvolving other defective drugs andproducts, including:

ARAVAThis drug is prescribed to treat

rheumatoid arthritis. A consumer grouprecently asked that this arthritis drug bewithdrawn from the market due toreported adverse reactions, such asliver problems, skin diseases, lym-phoma, blood disorders and death.

BAYCOLThis cholesterol-lowering prescrip-

tion drug was pulled off the market onAugust 8, 2001. It has been linked tothe sometimes fatal condition of rhab-domyolysis, a painful disorder thatdestroys muscle tissue and can lead tokidney failure.

CRESTORCrestor is a member of a class of

drugs commonly referred to as “statins”and is used to lower cholesterol.AstraZeneca originally filed its applica-tion for Crestor with the Food andDrug Administration (FDA) in June of2001. This application was delayedbecause of safety concerns revealedduring clinical trials, which includedreports of kidney damage and rhab-domyolysis.

EPHEDRAEphedra is an extremely popular and

common “herbal” element that, untilrecently, was found in many items mar-keted as diet and sports enhancingproducts in vitamin shops, health foodstores and gyms. The FDA recentlyordered the removal of Ephedra-con-taining products from the market,based upon mounting evidence of itsrelationship to heart attacks, heart arry-thmias, strokes and death.

GUIDANT ANCURE ENDOGRAFTSYSTEM

This device was manufactured andintroduced by EndoVascular Technolo-gies (EVT), a subsidiary of the Guidant

Corporation, and was used to repairabdominal aortic aneurysms. EVTreceived approval by the FDA forAncure® in September 1999 and firstrecalled the product in March 2001,several months after seven anonymousemployees reported the failures andproblems with the Ancure® system tothe FDA. EVT reported last year thatthey would no longer be manufactur-ing the device after pleading guilty to10 felony counts and paying more than$90 million in federal penalties sur-rounding their failure to report morethan 2,600 incidents of problems withthe device, including deaths andserious injuries.

HORMONE REPLACEMENTTHERAPY (HRT)

For years, women have takenHormone Replacement Therapy (HRT)to reduce the symptoms of menopause.Studies now show that HRT medica-tions can increase the risk of breastcancer, ovarian cancer, stroke and heartdisease.

NEURONTINNeurontin was approved by the FDA

in 1993 as an anti-seizure treatmentused in epilepsy patients. But, recentstatistics have shown that the vastmajority of Neurontin prescriptions arefor off-label uses. We are currentlyinvestigating claims on behalf ofpatients who have taken Neurontin andattempted suicide or have committedsuicide.

PHENYLPROPANOLAMINE (PPA)PPA is an active ingredient that was

found in many over-the-counter cold,cough, allergy and diet aids. PPA wasremoved from the market on Novem-ber 6, 2000, after an industry-fundedstudy performed at the Yale UniversityMedical School demonstrated thatproducts containing PPA increased theuser’s risk of suffering hemorrhagicstrokes. Prior research supports claimsof non-hemorrhagic strokes beingrelated to this active ingredient as well.

SERZONESerzone is an anti-depressant drug

manufactured by Bristol-Myers SquibbCompany. This drug was approved bythe Food and Drug Administration foruse in the United States in December


1994. The FDA had instructed the man-ufacturer to include a black-box on itslabel because of serious adverse eventsrelated to the liver. Bristol-Myers dis-continued sales of Serzone in theUnited States earlier this year.

SMITH & NEPHEW KNEE REPLACEMENTS

In September 2003, Smith & Nephewannounced a voluntary recall from theU.S. market of two of their knee replace-ments products. The products includedin the recall are the cement-less versionsof the Oxinium Genesis II and Profix II.The complications stem from the prod-ucts not bonding properly.

VIOXXWhile the recent withdrawal of this

drug from the market may make itseem like new litigation, our firm hasbeen working on these cases for overthree years. In fact, we filed our firstVioxx case in November 2001. Sincethen, we have filed about sixty othercases. Discovery efforts in our lawsuitshave allowed us to review hundreds ofthousands of documents and takeapproximately 30 depositions. More-over, we have retained leading Vioxxexperts and are set for the first Vioxxtrial in the country later this month. Weare interested in investigating and liti-gating claims involving heart attacks,strokes and temporary ischemic attacks(TIAs). We will set out the Vioxx storyin more detail below.

WELDING RODSA recent study suggests that indus-

trial exposure to welding fumes maybe associated with the early onset ofParkinson’s disease. Welding rods,electrodes and wire contain numeroussubstances including manganese,copper, lead and cadmium that releasetoxic fumes when used duringwelding. We are currently investigatingpotential claims against the manufac-turers of welding for damages causedby exposure to manganese fumes.

ZYPREXAZyprexa is a prescription drug

designed to manage symptoms ofschizophrenia and other psychotic con-ditions. In September of 2003, the FDAinstructed all manufacturers of this typeof drug to add a warning to the

product label due to a link betweenusage and the serious side effects ofdiabetes mellitus and blood sugar dis-orders such as hyperglycemia, diabeticketoacidosis and pancreatitis.

For additional information on any ofthese areas of litigation, please visit ourwebsite at www.beasleyallen.com. Wehave attempted to provide some goodinformation for our readers. I hope itwill prove to be helpful. Our MassTorts Section will be very busy over thenext several months. We sincerelybelieve that litigation against the pow-erful pharmaceutical industry is someof the most important service thatlawyers can perform.

MERCK KNEW VIOXX WAS DANGEROUS

When Merck pulled Vioxx from themarket on September 30th, thecompany attempted to convince folksthat the drug was pulled as soon as thecompany discovered informationtending to indicate a potential connec-tion between an increase in patientheart attacks and strokes among Vioxxusers. That is simply not true andMerck knew it. Merck officialsannounced that a clinical study, whichhad been ongoing for nearly threeyears, showed an increase in Vioxxuser rates of heart attacks and strokesafter an 18-month usage duration.Merck also announced that the studyhad been concluded early because ofthis significant finding and that the datawould not be available for some time.

The study, which Merck referred toin its initial press conference, was theAPPROVe study. This is an acronym forAdenomatous Polyp Prevention onVioxx study. This study, which lastedover 3 years, was an attempt by Merckto show that Vioxx would have a bene-ficial affect on the prevention of colonpolyps. Unfortunately, however, thestudy merely reinforced informationthat had been available to Merck forseveral years, about the deadly tenden-cies of Vioxx. On September 18, 2004,the initial results of the APPROVe studywere released to the public at theAmerican College of Rheumatologyconvention in San Antonio, Texas. Inthis press conference, Dr. Alise Reicin,

a Merck representative, representedthat the APPROVe study was the firstindication by Merck that there was anyproblem with Vioxx or specifically thatVioxx increased the rates of heartattacks and strokes among users. More-over, Dr. Reicin reported to the doctorsand news media representatives inattendance that, according to theAPPROVe study, Vioxx increased therates of heart attack and stroke amongusers by approximately 250%. PaulSizemore, a lawyer in our firm,attended this press conference and wasshocked by the representation made byMerck. I will set out our reasons for notbuying Merck’s spin on Vioxx:

• Those of us who have been litigatingagainst Merck on Vioxx cases forsome time know that the representa-tion that Merck first discovered thedeadly tendencies of Vioxx in Sep-tember 2004 is absolutely false.

• We have received documentation indiscovery in actual cases that showsunequivocally that Merck knew thatVioxx would increase the rates ofheart attacks and strokes amongusers back in the mid 1990s.

• In depositions, Merck doctors incharge of the development of Vioxx,have admitted that Merck was awareof the possibility of Vioxx increasingthe rates of heart attacks and strokesback in the mid 1990s.

• Merck conducted a clinical study(called VIGOR) that revealed to thecompany as early as 1999 that Vioxxdid in fact increase the rates of heartattack and stroke among users.

• Depositions of internal Merckdoctors associated with both Vioxxand the VIGOR trial reveal thatMerck was well aware of theincreased incidents of heart attacksand strokes among Vioxx users afterthe VIGOR results were released inearly 2001.

Paul tells me he was infuriated as hesat in the audience and listened tothese misrepresentations from Merckrepresentatives, clearly designed toportray Merck as a professionallyresponsible corporation. Paul knew theinformation put out was absolutely


false. All of the lawyers in our firm whohave been involved with this litigationfor the past three years are well awarethat Merck was more concerned withmaking profits than with patient safety.We have a room full of documents thatclearly show Merck was fully aware ofthe dangers associated with Vioxx, yetdecided to ignore the hazards associ-ated with the drug in an effort toincrease the company’s profits. We areworking diligently in all of our pendingcases to remove confidentiality provi-sions that bar us from revealing thesedocuments to the public. It is simplyincomprehensible that Merck claims tobe a responsible corporation, while atthe same time, battling endlessly incourt proceedings to hide the truthfrom the public. We are confident thatonce the public has an opportunity tohear the truth, Merck’s true nature willbe revealed and it won’t be a prettypicture. This is a classic example of alarge corporation putting its profits overthe health and safety of the consumerswho trust tem and buy their drugs.

The inappropriate actions of Merckhave spurred a congressional investiga-tion by a committee headed by SenatorCharles Grassley (R-IA). Simply put—the committee is investigating whatMerck knew and when the companyknew it. They will also be investigatingwhether Merck withheld informationfrom the Food and Drug Administra-tion FDA and the public in an effort tohide the dangers of Vioxx. Because wefully support Senator Grassley’s effortsand recognize how important themission is, we have cooperated fullywith the committee. We sincerely hopeand pray that Senator Grassley will besuccessful in revealing to the public thetrue nature of Merck’s actions and thecompany’s efforts to hide the long-known dangers associated with Vioxxfrom the public.

You may have seen Dr. Eric Topol ofthe Cleveland Clinic on 60 Minutes.According to Dr. Topol, as many as160,000 heart attacks have been causedby Vioxx since its introduction into themarket in 1999. It is shocking to hearMerck contend that it had no knowl-edge of the dangerous nature of Vioxxuntil late September 2004. All of usassociated with this massive litigation

know that this is absolutely false andwe are looking forward to the daywhen the public will have access to theinformation we have had available to usbecause of the lawsuits we have filed.

LESSONS LEARNED FROM VIOXX

The withdrawal of Vioxx from themarket came as a real surprise for mostAmericans. This is because the vastmajority of folks expect the FDA toprotect them from bad drugs. However,the pulling of Vioxx came as no sur-prise to Public Citizen and folks whosubscribed to the organization’s WorstPills, Best Pills newsletter. Their readerswere warned of the hazards relating toVioxx long before any action wastaken. In fact, Public Citizen hadwarned consumers in 2001 not to takethe drug because of adverse effectsand evidence of a higher risk of heartattack among users.

Public Citizen has been after the FDAto do a better job for years. Vioxx isthe ninth prescription drug to be takenoff the market in the past seven yearsthat Public Citizen warned Worst Pillssubscribers not to use. In some cases,Public Citizen listed the drugs as “donot use” drugs months or years beforethe drugs were finally pulled from themarket because of safety concerns.Unfortunately, the average timebetween Public Citizen’s warning and adrug’s removal from the market wasone year and eight months. For four ofthe drugs—Vioxx, Baycol, Rezulin andSerzone—Public Citizen issued warn-ings more than two years before thedrugs’ removal from the market. So theobvious question is, “where was theFDA during those times?” It would cer-tainly appear that a government agencywith the responsibility of protecting thepublic would have had knowledge atleast equal to that of Public Citizen.Could it be that the FDA is overly pro-tective of the drug companies?

I encourage all of our readers to takeadvantage of Worst Pills, Best Pills, themonthly newsletter available electroni-cally through Public Citizen’s website,www.worstpills.org. The site also hassearchable information about the uses, risks and adverse effects associ-ated with prescription medications.

Folks can subscribe to the website,www.worstpills.org for a modest $15fee, which includes a monthly newslet-ter with additional electronic updatesand news on dangerous prescriptiondrugs. A subscription could save yourlife or that of a loved one!

THE LITIGATION PICTURE FOR MERCK

Things have been breaking very faston the Vioxx front. There have alreadybeen hundreds of lawsuits filed aroundthe country against Merck & Co. Ourfirm was filing claims against thecompany long before Merck pulledVioxx from the market on September30th. In fact, our first cases were filed in2001. We knew then Vioxx was dan-gerous for use. A new analysis byMerrill Lynch concludes Merck’s liabil-ity could be as high as $18 billion overthe next decade or so. In my opinion,that may prove to be a most conserva-tive estimate. We know that there havebeen at least 1,000 Vioxx-related law-suits filed against Merck so far. Ourfirm has filed about 100 cases at lastcount. Currently we are investigatingand evaluating around 10,000 individ-ual claims. We will file all that meet ourcriteria and we find to have merit.

Victims suing Merck must prove twoprimary assertions: (1) the companyunderstood Vioxx’s risks and down-played them; and, (2) that the drugplayed a role in causing heart attacksor strokes. A new analysis publishedonline last month by the British journalThe Lancet will be a real benefit to ourfirm in representing the Vioxx victims.Swiss researchers led by Dr. Peter Juniof the University of Bern pooled resultsfrom 29 studies of Vioxx and foundthat people who took it had more thandouble the risk of heart attack thanthose given dummy pills or otherpainkillers.

The researchers have concluded thatthe drug “should have been withdrawnfrom the market several years earlier.The unacceptable cardiovascular risksof Vioxx were evident as early as2000,” Lancet editor Dr. Richard Hortonwrote in a commentary. He faultedMerck for “astonishing failures” inmonitoring the safety of its drugs andthe U.S. Food and Drug Administration


for “lethal weaknesses” in oversight.This study backs up what we haveknown for over three years. We will beable to prove that Merck knew Vioxxcould cause heart attacks and strokes,but minimized the drug’s side effectswhile aggressively marketing it. We cansupport our clients’ cases from Merck’sown internal documents. Documents inour possession prove that Merck knewabout Vioxx’s problems long beforethey became public and that thecompany engaged in a carefullyplanned campaign to mute the risksonce they began emerging. Documentsobtained through discovery in ourcases show that Merck understoodVioxx’s dangers at an early stage. Forexample, in an e-mail dated February25, 1997, Merck official Briggs Morrisonsaid patients taking Vioxx in a clinicaltrial should also take aspirin, which hascardioprotective powers, because oth-erwise “you will get more thromboticevents,” i.e., blood clots. In another e-mail, Merck’s research chief EdwardSchonick wrote to colleagues on March9, 2000, saying the cardiovascularevents “are clearly there.”

Another key piece of evidence is a2001 warning letter the FDA wrote toMerck, which said a promotional cam-paign for Vioxx “minimizes the poten-tially serious cardiovascular findings”observed in the VIGOR study and thatit “misrepresents the safety profile forVioxx.” The letter said Merck failed todisclose that its explanation aboutnaproxen was a hypothesis with noadequate studies to support it and thatanother reasonable explanation for theincreased heart attacks is that Vioxxmay help cause blood clots. The FDAhas released another study that saidVioxx may have contributed to anadditional 27,785 heart attacks ordeaths from 1999 to 2003 that mighthave been avoided if patients weretaking Pfizer Inc.’s Celebrex. The studyanalyzed medical records of 1.4 millionadult members of Kaiser Permanente,the nation’s largest HMO. Preliminaryfindings were released in August. Thereport also found that naproxen had nocardioprotective effects, disputingMerck’s contention.

SOME TYPICAL CASES INVOLVING VIOXX

We have a client who is a retiredmortgage banker, married with twochildren and who had been in goodhealth generally. Incidentally, hisdaughter is a nurse practitioner. In Feb-ruary 2004, our client suffered a heartattack and underwent CABG (coronaryartery bypass grafting) for 5 vessels. Hesuffered another heart attack, describedas minor, in March 2004. Our clientwas found to have elevated cholesteroland triglycerides and started takingmedication during this time. He tookVioxx, beginning in 1999 and contin-ued to take the drug until August 30,2004, when he stopped taking Vioxx.This was approximately 7 to 10 daysprior to having total knee replacementsurgery on August 26th. He was putback on Vioxx while in the hospital.Our client received daily doses ofVioxx from August 26th to August 30th.Following surgery, on August 27, 2004,the unfortunate victim, who had noidea that Vioxx was dangerous, suf-fered an acute stroke and is now totallydisabled. This man’s ordeal is typical ofwhat we are seeing in other victims. Itis indeed a sad state of affairs. None ofour clients had any idea that Vioxx wasdangerous and took the drug as pre-scribed for pain.

For those of you who saw the CBS’60 Minutes report already know aboutthe second case, I will briefly discuss.That case involves a young lady whodied after taking Vioxx. Her husband,who is our client, appeared along withAndy Birchfield, on 60 Minutes. Thislady was healthy, with no history ofheart attacks or cardiovascular prob-lems and was very active and happy.Our client’s wife would be alive todayif she had not taken Vioxx. Her deathwas a tragic event that leaves a griev-ing family who want Merck to answerfor what it has done. The facts of thiscase, which we have filed in Ten-nessee, are typical of what we areseeing—healthy people who tookVioxx to deal with pain—and whodied or suffered a disabling stroke as aresult. .

THE 60 MINUTES REPORT

Andy Birchfield, head of our MassTorts Section, was the only lawyer fea-tured on the excellent report on Vioxxthat aired on CBS’ 60 Minutes onNovember 14th. One of our clients wasinterviewed and told the tragic story ofhow Vioxx killed his 39-year-old wifewho had been healthy and quite active.Merck’s problems—as set out by 60Minutes—are just beginning. Thiscompany has caused tens of thousandsof deaths by its actions. It is estimatedthat more than 160,000 persons suf-fered heart attacks after taking Vioxx.The company’s explanations for itsactions are very weak and simplywon’t sell to the public. Any of ourreaders who didn’t see the 60 Minutesshow can watch it by going to ourwebsite, www.beasleyallen.com.

DOCTORS WERE VICTIMS TOO

Doctors all over the country are com-plaining that Merck tried to squelchnegative opinions on Vioxx’s safetyand downplayed the drug’s healthrisks. Stanford University medical pro-fessor Dr. James Fries said a high-ranking Merck official, Dr. LouisSherwood, tried to intimidate severaldoctors who expressed concerns aboutVioxx’s safety. Dr. Fries said Sherwoodmade charges to these doctors’ superi-ors that the physicians were biasedagainst the drug. Dr. Fries said hereceived such a call about one of hisdoctors and learned it was part of apattern. He wrote Merck chairmanRaymond Gilmartin protesting thecompany’s attempt to suppress aca-demic discussions. Dr. Fries said: “Ithink Merck went over the line. Theirapproach was to try to get people firedfor saying things they (Merck) didn’tagree with.” The calls to Dr. Friesstopped after his letter, which was sentin 2000 or 2001. Physicians, includingDr. Eric Matteson of the Mayo Clinic,said Merck should have acted moreswiftly to determine Vioxx’s cardiovas-cular safety profile after VIGOR.

Vioxx’s label was changed in 2002 toreflect the VIGOR study, but it wasn’tstrong enough; Merck continued todownplay the drug’s risks. Merck had


at least three programs to train salesrepresentatives “to misstate and mis-represent the truly dangerous nature ofVioxx to prescribing physicians.” Thesematerials were under a protective orderand a court-ordered seal, but now arefree to be viewed by the public. Wewere able to get the stay lifted by afederal judge in Tampa, Florida, onNovember 2nd. Merck’s sales forceclearly downplayed the risks of Vioxx.Salespeople would discuss Vioxx’sother side effects such as high bloodpressure, but when it came to heartattack risks, they would switch totalking about how the 2000 data wereanalyzed. It was a carefully structuredplan to misled doctors who trustedMerck.

MERCK AND FDA TAKE CONGRESSIONALHEAT OVER VIOXX SAFETY

Senator Grassley’s committee took afull day of testimony on the Vioxxdebacle on November 18th. The Ameri-can public is “virtually defenseless” ifanother medication such as Vioxxproves to be unsafe after it is approvedfor sale, a government drug safetyreviewer told the committee during thetestimony. “I would argue that the FDAas currently configured is incapable ofprotecting America against anotherVioxx,” said Dr. David Graham, whowarned that the arthritis drug had beenlinked to an increased risk of heartattack and stroke. All consumersshould be shocked to learn that Dr.Graham told the Senate Finance Com-mittee there are at least five otherdrugs on the market today that shouldbe looked at seriously to see whetherthey should remain there. The Foodand Drug Administration has defendedits actions regarding Vioxx. In a writtenstatement issued on the eve of theSenate committee hearing, the agencycited its “well-documented and long-standing commitment to openness andtransparency in its review of marketeddrugs.”

Senator Grassley, who chaired thecommittee hearing, suggested that anindependent board of drug safetymight be needed to ensure the safetyof medications after they’re approvedfor the market. He made this astute

observation: “Consumers should nothave to second-guess the safety ofwhat’s in their medicine cabinet.” Dr.Graham told the committee thatresearch indicated that Vioxx causedup to 160,000 heart attacks and strokes.Dr. Graham, who said his researchhelped to coax the FDA to withdraw anumber of drugs including Fen-phen, aweight loss drug, Lotronex, Baycol andRezulin, told the committee: “Duringmy career I have recommended themarket withdrawal of 12 drugs. Onlytwo of these remain on the markettoday.” Dr. Graham questioned theFDA’s commitment to removing unsafedrugs from the market, since it wouldcall into question their earlier approval.

The FDA, simply put, hasn’t done avery good job of protecting the publicfrom unsafe drugs. The agency hasdropped the ball on too many drugapprovals and has left unsafe drugs onthe market after receiving informationon their being dangerous. Andy Birch-field, who has been cooperating withSenator Grassley’s committee, attendedthe November 18th hearing. Andy,who was interview by several mediaoutlets while in Washington, stated:“How can they see that type ofproblem and look back and say ‘Wedid everything right’? When they’re notwilling to recognize mistakes, we haveno hope for them voluntarily takingmeasures to correct the situation.”

Dr. Graham was lead author on aresearch project that studied therecords of almost 1.4 million KaiserPermanente patients, including 40,405treated with Pfizer’s Celebrex and26,748 treated with Vioxx. The studyfound that high doses of Vioxx tripledrisks of heart attacks and suddencardiac death. Vioxx was responsiblefor an additional 27,785 deaths fromheart ailments from 1999 to 2003, Dr.Graham concluded. We were shockedto learn that his superiors pressured Dr.Graham to soften his conclusions onseveral drugs.

NEW STUDY LINKS PFIZER’S BEXTRA TOHEART ATTACKS

The Pfizer painkiller Bextra appearsto be linked to problems similar tothose caused by Vioxx. The incidence

of heart attacks and strokes amongpatients given Bextra was more thandouble that of those given placebos,according to preliminary results of astudy presented in October at theAmerican Heart Association meeting inNew Orleans. The study, which pooleddata from 5,930 patients taking part in12 trials, found 2.19 times the numberof heart attacks or strokes amongpatients given Bextra, compared withthose given placebos. Bextra is a drugsimilar to Vioxx. Dr. Garret A. FitzGer-ald, a cardiologist and pharmacologistat the University of Pennsylvania,stated in an interview with the NewYork Times: “The magnitude of thesignal with Bextra is even higher thanwhat we saw in Vioxx. This is a timebomb waiting to go off.” Dr. FitzGeraldis one of the world’s leading experts inCOX-2 drugs, a class of medicine thatincludes Vioxx, Bextra and Celebrex,which is also made by Pfizer.

For comparison, Vioxx had sales of$2.5 billion last year, while Celebrexhad sales of $1.8 billion and Bextra$687 million. Celebrex and Bextra havebeen on their way to larger sales thisyear. In previous studies, Dr. FitzGeraldwas among the first to explain whyCOX-2 inhibitor drugs, which weredeveloped to cure pain withoutcausing ulcers, might create heart trou-bles. Dr. Curt Furberg, professor ofpublic health sciences at Wake ForestUniversity School of Medicine, helpedconduct the study that Dr. FitzGeraldannounced at the meeting. Dr. Furbergsays that “Bextra is no different thanVioxx, and Pfizer is trying to suppressthat information.”

Pfizer Inc. is currently in talks with theFDA over a likely change to Bextra’slabel to carry a strict warning alertingdoctors of the risk of a potentiallydeadly skin reaction. This is accordingto statements in a regulatory filing bythe company. The warning on Bextra,which we have reported is in the sameclass of drugs as Celebrex and Merck’sVioxx, suggests the commercial futureof Bextra is at risk. Pfizer is talking tothe FDA about carrying a “black box”warning that Bextra might result in arare but sometimes fatal skin disordercalled Stevens-Johnson syndrome.

Source: The New York Times and Reuters News


CELEBREX HAS BEEN LINKED TO 14 DEATHS

Documents from Canadian healthauthorities show that Pfizer Inc.’spainkiller Celebrex is suspected of con-tributing to at least 14 deaths and otherheart and brain side effects, accordingto the National Post newspaper inToronto. Celebrex has been touted as asafer alternative to Vioxx. New York-based Pfizer will now conduct a long-term study of Celebrex to see if itactually helps the heart. But, questionsremain about the safety of the wholeclass of Cox-2 inhibitors drugs, whichalso includes the drug Bextra, which isalso manufactured and sold by Pfizer.The documents include more than 100adverse-reaction reports on Celebrexover the past five years, including fivestrokes and 19 cases of heart attack,cardiac arrest or heart failure, accord-ing to the National Post.

Canadian pharmacists filled about 3million prescriptions for Celebrex lastyear. Dr. Patrice Roy, Pfizer Canada’sDirector of Scientific Affairs, told theNational Post that the Health Canadaadverse reaction information is impor-tant, but far from conclusive. Dr. Roydid say, however, that Celebrex hasn’tposed a threat to cardiovascular safetyin clinical studies. In this regard, hestated: “You have to look at the dataaccumulated over time. This drug hasbeen studied in 30,000 patients, hasbeen prescribed to over 40 millionpatients worldwide, there are studiesactually sponsored by the FDA... andbasically we haven’t seen anything.”Health Canada collects adverse reac-tion reports from doctors, drug manu-facturers and others as a sort of earlywarning system for safety problems.


FDA WILL BE MORE CAREFUL ON NEWMERCK DRUG

Merck is now attempting to marketArcoxia as a successor drug to Vioxx.The Food and Drug Administration(FDA) has now informed Merck that itneeds further safety and efficacy databefore it will approve this drug. TheFDA’s actions really shouldn’t havecome as a surprise to the company.Most analysts and doctors were expect-

ing the FDA to seek additional informa-tion before approving Arcoxia becauseof Merck’s problems with Vioxx. Asmost folks now know, the two productsare in the same class of drugs known asCox-2 inhibitors. Clearly, the FDAshould require more tests. To do other-wise is unthinkable. Arcoxia shouldn’tbe put on the U.S. market until the drugcan be proven to be safe. But, Arcoxiais already being sold in 48 countriesthroughout the world.

Merck had released positive studyresults for the Arcoxia, which foundthat there was no statistical differencein adverse cardiovascular eventsbetween it and diclofenac, an olderpain reliever. But, the average length oftime a patient was in the trial was onlynine months. As everybody nowknows, Vioxx’s dangers didn’t manifestthemselves until 18 months into thetrial. Merck is scheduled to finish a23,500 patient study in early 2006 thatwas designed to study cardiovascularsafety. Many analysts and doctorsbelieve Arcoxia would only beapproved after that study is completedand it demonstrates the drug doesn’tincrease the risk of heart attacks andstrokes. We expect the FDA to take amuch slower approach on the newdrug because of the very bad publicityit has received on Vioxx.

CRESTOR MAY HARM KIDNEYS

Consumer advocate Dr. Sidney Wolfeof Public Citizen has renewed his effortsto get the anti-cholesterol drug Crestorremoved from the market. Dr. Wolfesent a letter to the Food and DrugAdministration (FDA) citing 29 cases ofserious kidney problems—18 of kidneyfailure and 11 of kidney insufficiency—out of some 4.5 million prescriptions forthe drug between January 1, 2001 andSeptember 30, 2003. According to Dr.Wolfe, that is more kidney problemsthan reported by all other statin-typeanti-cholesterol drugs. Data provided byAstraZeneca indicates that kidney failuremade up 3.5% of adverse events forCrestor— known by the generic namerosuvastatin—compared to 5.7% forlovastatin, 4.0% for simvastatin and flu-vastatin, 3.0% for pravastatin and 2.2%for atorvastatin.

The rate of reports of kidney failureor damage among patients takingCrestor is 75 times higher than in allpatients taking all other statins, accord-ing to a Public Citizen analysis of gov-ernment data. Public Citizen sent thisinformation to the U.S. Food and DrugAdministration when it renewed its callfor the drug to be taken off the market.Dr. Wolfe, director of Public Citizen’sHealth Research Group stated in hisletter to the FDA: “It becomes clearerby the day that this drug is uniquelytoxic but offers no unique benefit, andmust be removed from the market.”The FDA had evidence before approv-ing Crestor that it caused an increasedincidence of rhabdomyolysis (severemuscle deterioration), yet the agencyapproved it anyway, erroneouslybelieving that this toxicity was limitedto an 80-milligram dose that was notultimately approved. The drug went onthe market in September 2003.

In March 2004, Public Citizen peti-tioned the FDA to remove Crestor fromthe market because it had been linkedto muscle damage and kidney failure.There have been 29 reported U.S. casesof acute renal failure or renal insuffi-ciency out of 4.5 million Crestor pre-scriptions filled between September2003 and the end of August 2004. Forall other statins, including Lipitor,Zocor, Lescol, Pravachol and Mevacor,there have been 27 cases of acute renalfailure or renal insufficiency reportedfrom January 1, 2001, through Septem-ber 30, 2003, out of 316 million pre-scriptions filled. This is a rate of .085cases reported per million prescriptionsfilled. Thus, the rate of reports of acuterenal failure or renal insufficiency forCrestor is 6.4/.085, or 75 times higherthan that of all of the other statins com-bined. In addition, as of August 26,2004, there had been 65 reports ofrhabdomyolysis among U.S. patientstaking Crestor, a rate of reportsapproaching that of Baycol, a choles-terol drug that was taken off themarket because of rhabdomyolysis. To read Dr. Wolfe’s letter, go tohttp://www.worstpills.org.

Source: Public Citizen


REPORT FAULTS BAYER ON BAYCOLWITHDRAWAL

New reports accuse another majordrug company of being too slow topull a dangerous medication from themarket and question the ability of thefederal Food and Drug Administrationto protect the public from such risks.The drug in question is Baycol, thecholesterol-lowering statin withdrawnby Bayer AG in 2001. A new study hasfound that the risks were far greaterthan had been believed. The studyconcludes that today’s top-sellingstatins are very safe, but could be riskywhen taken with other drugs calledfibrates by older people with diabetes.It also reveals that fibrates alone can bedangerous. These drugs lower triglyc-erides and often are taken by diabetics.Six papers on the issue were releasedlate last month and were published thismonth in the Journal of the AmericanMedical Association. Its editors calledfor a new, independent office separatefrom the FDA to monitor drugs afterthey’re on the market. The editorsmade this observation: “It is unreason-able to expect that the same agencythat was responsible for approval ofdrug licensing and labeling would alsobe committed to actively seek evidenceto prove itself wrong.”

The FDA has been accused ofmoving too slowly to stop sales ofVioxx. The new study that Graham andnine other government and private sci-entists published because the drug wasonly approved in August 2003 andtheir study started in 2001, just afterBayer withdrew Baycol. They checkedrecords from 11 large health insurancecompanies on more than 250,000statin-users from 1998 to 2001. Statinslower LDL or “bad” cholesterol, andfibrates lower a different kind of fat inthe blood, triglycerides. People oftenare prescribed both. Those taking thetop-selling statins Lipitor, Pravacholand Zocor had an extremely low riskof the muscle disorder. But it was fivetimes more common in people taking afibrate, and an additional two-foldgreater in people taking both types ofdrugs. The risk with Baycol was 10times higher than for other statins, andastronomical when it was combinedwith a fibrate: one out of 10 patients

taking these for a year would havedeveloped the dangerous side effect.Dr. Graham told the Associated Press:“I can’t think of another drug safetycombination where the level of risk isthis high.”

Some popular brand names offibrates are Abitrate, Atromid, Lopidand TriCor. As for Crestor, the neweststatin on the market, its label alreadywarns that people over 65 and thosewith diabetes or kidney problems areat greater risk of the muscle disorder.Bayer added a similar warning toBaycol’s label but not for more than ayear and a half after it had evidence ofthe risk, Dr. Bruce Psaty of the Univer-sity of Washington in Seattle and threeother drug safety experts write inanother article in the medical journal.As proof, they cited published studieson Baycol and internal company docu-ments that have become public as partof a lawsuit in Texas against Bayer overthe drug. These experts stated thatthere is a “striking asymmetry” betweenwhat the company knew within threemonths of putting Baycol on themarket and what it told the public andphysicians. They also wrote that com-panies have financial motives to keepsuch damaging information quiet, andshould not be in charge of monitoringthe safety of their own drugs. Instead,an independent group needs to do this,they write.


X.BUSINESSLITIGATION

U.S. JUDGE APPROVES CITIGROUPSETTLEMENT

A federal judge has approved Citi-group Inc.’s $2.6 billion settlement withWorldCom Inc. investors who lost bil-lions when an accounting scandal sentthe telecommunications company intobankruptcy protection. The settlementresolved one of the largest class actionlawsuits resulting from the string of cor-porate scandals over recent years. Citi-group, the world’s largest financial

services company, had set aside ade-quate reserves for the settlement. Thesettlement initially called for Citigroupto pay $2.65 billion to WorldCom stock-holders and bondholders, but theamount was later cut to $2.575 billion.This was equal to just less than half ofCitigroup’s profit in the third quarter.Investors will also receive $51 million ininterest. This is an excellent settlement.

While the settlement is the secondlargest ever in a securities class actioncase, litigation by WorldCom investorsis far from over. WorldCom, whichemerged from bankruptcy protectionearlier this year, is now known as MCI.The class action lawsuit, whichincludes hundreds of thousands ofinvestors, accused Citigroup and otherinvestment banks that underwroteWorldCom bonds of failing to conductdue diligence before bringing the secu-rities to market. The lawsuit also con-centrated on the role played by JackGrubman, once a star telecommunica-tions analyst at Citigroup’s SalomonSmith Barney unit. Investors accusedGrubman of touting WorldCom pub-licly while knowing his statementswere inaccurate. U.S. District JudgeDenise Cote hailed the Citigroup settle-ment as “historic,” but noted that “thislitigation is far from over.” Indeed,more than a dozen other banksinvolved in the litigation—including J.P.Morgan Chase & Co and DeutscheBank AG—have not settled and are setto begin trial in February.

Source: Reuters News

BAYER/BAYCOL SECURITIES LITIGATION

Investors in Bayer, AG and its U.S.subsidiary, Bayer Co., are precedingwith their securities claims in a NewYork court against these companies,which allegedly made fraudulent mis-statements about the introduction, mar-keting and eventual withdrawal ofBaycol, the cholesterol-lowering drugmentioned in a preceding section. Thejudge in the New York case noted thatthe plaintiffs had adequately pleadedmost of the alleged misstatements asmaterial, and that all but two of thedefendants recklessly disregardedinformation concerning problems with


the drug. Allegedly, in early August2000, senior Bayer executives met withWolfgang Plischke, then an executivevice-president of Bayer Co. and presi-dent of its North America pharmaceuti-cal division, to discuss theaccumulation of adverse event reports.A consensus emerged that the dataconcerning Baycol’s dangers “wasputting the brand at risk.” When thatconclusion was communicated to aBayer executive the reservations of thesafety experts were allegedly dis-missed. This executive told his market-ing team to “promote the hell out ofthis product,” according to the lawsuit.

The court noted that by the fall of2000, Bayer had received 482 adverseevent reports of rhabdomyolosisamong Baycol users, including somedeaths. In April 2001, the FDA againtold Bayer to amend its warning labels.In response, the company reiterated itswarning about the danger of takingBaycol and another drug, Gemfibrozil,together. The FDA had urged Bayer towithdraw Baycol from the market andBayer did so on August 8, 2001. Thestock price fell by 17%. However, theinvesting public was reassured byBayer, which said certain product lia-bility litigation concerning Baycol was“unfounded.” The company concludedthere was no need to establish reservesfor potential losses. Nevertheless, fourmonths later, Bayer disclosed in an SECfiling that if the product liability litiga-tion were successful, the damageswould be material to its results of oper-ation and cash flows.

The complaint in the securities lawsuitessentially contends that the defendant’spre-withdrawal statements aboutBaycol’s safety were materially mislead-ing because they did not disclose thefollowing adverse event reports:

• Smith Kline Beecham’s warningabout adverse drug interactions;

• Evidence suggesting that Baycolcaused rhabdomyolosis at higherrates than other statins; and

• Internal concerns over the safety ofBaycol and the adequacy of its riskwarnings.

In addition, earning reports in otherstatements regarding Baycol’s growth

were materially misleading because ofsuch safety concerns, and because ofthe lack of reserves for potential lossesassociated with Baycol. Finally, it isalleged that several press releases,Securities and Exchange Commissionregistration statements, and annualreports did not take into accountreserves for loss contingencies and didnot disclose the defendant’s knowledgeof the risks associated with the drug.

The New York court ruled that onAugust 2, 2000, when Bayer’s globaldrug safety executives met to address“mounting concerns” over Baycol, aconsensus emerged with respect to theadverse event reports “that the poten-tial dangers were putting the brand atrisk.” At this point, the court found thatthe defendants were under a duty todisclose the adverse event data, andtheir failure to do so after August 2000gives a legal cause of action underSection 10(b) of the Securities andExchange Act of 1934. For similarreasons, the court said that defendantswere under a duty to update their pre-withdrawal statements that Baycolwould produce a sustained increase inBaycol’s operating margin and “providestrong potential for future growth.” ByAugust 2000, the court noted, thedefendants believed the brand was atrisk, but failed to disclose the informa-tion that led them to that conclusion.As such, the court found that the plain-tiffs adequately alleged in their lawsuitthat Bayer’s forward-looking statementsneeded to be updated.

Regarding the defendants’ allegedmisrepresentations following the with-drawal of Baycol from the market, thecourt concluded that the statementsBayer acted in the interest of patients’safety constituted non-actionablepuffery. The court did, however, findthat a post-withdrawal statement by acompany executive that Bayer tookaction as soon as it had anomalousaccumulation of negative data aboutBaycol, was specific and fact-basedand thus was actionable. Similarly, thecourt allowed the plaintiffs to proceedwith claims based on the defendant’sassertion regarding the merits ofpending product liability litigation, aswell as their statements that there wasno need to establish litigation reserves

because the lawsuits were groundless.The court also concluded that for morethan one year, Plischke and DavidEbsworth, then head of Bayer’s world-wide pharmaceutical business group,knew of data that Bayer executivesbelieved was significant enough tothreaten Baycol’s viability. That knowl-edge, according to the court, rendersdefendants’ post-August 2000 silenceactionable. It will be very interesting tosee how this case unfolds.

Source: Securities Regulation & Law

MEDTRONIC ORDERED TO PAY PUNITIVEDAMAGES

A federal court jury in Memphis, Ten-nessee has awarded $400 million inpunitive damages to Dr. Gary Michel-son, a spinal surgeon, in a patentinfringement lawsuit against MedtronicInc. The doctor had accused themedical technology company ofinfringing on his patents for a surgicaldevice to treat spinal injuries. Thepunitive damages awarded against thecompany are in addition to the $110million in compensatory damages thatthe jury awarded to the doctor.

CLASS ACTION LAWSUITS AGAINST WINN-DIXIE CONSOLIDATED

Several class action lawsuits allegingthat Winn-Dixie Stores Inc. manage-ment made “false and misleading state-ments” about its financial andcompetitive status have been consoli-dated into one complaint. The civillawsuits were consolidated August 31st

in the U.S. District Court for the MiddleDistrict of Florida, Jacksonville division.The complaints began with a February3rd lawsuit, which alleges that Winn-Dixie executives failed to manage cashproperly, develop a strategic plan orhave adequate self-insurance reserves.Other lawsuits filed in the comingmonths included similar accusations,with two filed in March that allegeWinn-Dixie’s management did notfulfill its duties to the employee profit-sharing plan, whose participants andbeneficiaries hold Winn-Dixie stockshares. The lawsuits came after thegrocery chain’s $79.5 million loss last


year in its second fiscal quarter, andthe subsequent announcement of newstrategic plans, including a $100 millioncost-cutting effort.

AGREEMENT REACHED IN JIFFY LUBE CLASSACTION SUIT

An agreement has been reached inclass action lawsuits by drivers claim-ing they were cheated when Jiffy LubeInternational tacked on environmentalsurcharges to their oil-change bills. Ifan Oklahoma judge approves the set-tlement, it would close at least ninepending cases in several states fromCalifornia to New Jersey. A similaraccord has been reached in a NewYork case. Some customers will get $5off their next oil change, which doesn’tsound like much relief. There is a gooddeal of opposition to the settlementand there is a chance it won’t beapproved. Critics say Jiffy Lube calledthe fee an environmental surcharge tomake customers believe it was a tax.The fee, which ranged from 80 cents to$1.25, was added to the price of an oilchange at 400 company-owned storesfrom late 1999 until April of this year.Some of the 1,800 Jiffy Lubes ownedby franchisees, rather than thecompany, also charged fees. Jiffy Lubeclaimed this is a pretty common feethat was being charged by most of thecompanies in the quick-lube industryand had been for a long time. But,under the settlement the company willhave to stop charging this fee. Thisyear, only about one-third of thenation’s oil-change garages add anenvironmental charge. The average is$1.62, according to trade publicationNational Oil & Lube News.

AMERICAN EXPRESS IS SUING VISA ANDMASTERCARD

American Express Co., the travel andfinancial services giant, has filed suitagainst Visa and MasterCard over anti-competitive business practices. TheU.S. Supreme Court had issued a rulingback in October in an antitrust casebrought by the Justice Department thatgave legal standing for the suit. Thetwo biggest card associations in

America, Visa USA Inc. and MasterCardInternational Inc., had been accused bythe government of restraining competi-tion. The High Court’s decision letstand a lower court ruling requiringVisa and MasterCard to allow theirmember banks to issue competingcards. That cleared the way for Ameri-can Express of New York and DiscoverFinancial Services Inc., a division of theNew York-based Morgan Stanley, tobegin partnering with U.S. financialinstitutions. Immediately after theSupreme Court ruling was announced,Discover Financial Services filed anantitrust suit against MasterCard andVisa in U.S. District Court in New Yorkseeking unspecified damages foralleged anticompetitive behavior thatkept it out of the lucrative bankmarket. Triple damages can be recov-ered in suits filed under antitrust law.

Source: Yahoo News and Associated Press

XI.INSURANCE ANDFINANCE UPDATE

HIDDEN LOANS ARE A PROBLEM IN THEINSURANCE INDUSTRY

For years, insurance companies havebeen buying insurance policies forthemselves that are akin to the productat the center of a criminal investigationinto whether American InternationalGroup Inc. (AIG) helped a cell phonedistributor manipulate its earnings.Critics say the policies are sometimesinsurance in name only. That isbecause the premiums or other pay-ments are so large that the sellerassumes little or no risk. This makesthem like loans that help buyerssmooth their earnings and shore uptheir stock price. The reason is thatinsurance proceeds count as incomeand offset losses, while a loan must becounted as a liability—a debt that mustbe paid off over time. In the AIG case,securities regulators claim that cellphone company Brightpoint Inc.agreed in 1999 to pay $15 million inpremiums to AIG in monthly install-ments in return for an upfront payment

of policy proceeds from AIG of $11.9million. That helped the companyoffset a higher-than-expected loss in atrading unit.

New York-based AIG, one of theworld’s biggest financial-services com-panies, is the target of a criminal grandjury probe focused on the Brightpointpolicy and similar products. The inves-tigation concerns products “that wouldappear to be insurance and accountedfor as insurance, but did not involveany actual risk transfer.” AIG is tryingto settle with authorities and says thatthe one-of-a-kind policy earned it lessthan $100,000. This investigation is thelatest example of the government tar-geting financial-services firms that aidcorporations in manipulating earningsor balance sheets. Last year, AIG hadsettled Securities and Exchange Com-mission civil charges over Brightpoint.

While this appears to be a compli-cated matter, it is really rather simple.Normally, an insurer is paid a specificamount of premiums to take on a riskof uncertain size and timing. With poli-cies like that involving Brightpoint, andmore complex variations that insurancecompanies themselves have bought fornearly two decades, the risk of a loss islimited, and sometimes even elimi-nated all together. That transforms an“insurance” transaction into one moreresembling “financing.” The policiesbought by insurers are sold by reinsur-ance companies, which historicallyhave contracted with insurers to takeon some of the risk for policies cover-ing lawsuits of all sorts. To somedegree, reinsurance is by nature anearnings-smoothing product. Simplyput, insurers buy it to cap their expo-sure to claims.

Over the past three years, insuranceregulators have raised serious concernsabout policies that seem to do littlemore than dress up the policyholder’sfinancial statements. Only if the rein-surer issuing the policy faces the risk ofa significant loss under the arrange-ment can the policyholder use themore-favorable accounting treatment ofreinsurance. Certain of the reinsurancepolicies, known as finite-risk or finan-cial reinsurance, “are more likewindow-dressing transactions” forinsurers. In those cases, “the econom-


ics over time favor the reinsurer.”However, while the concept is simple,a loan carrying future payment obliga-tions that is wrongly labeled as insur-ance proceeds isn’t always easy tospot. It sometimes takes a financialmeltdown for the most questionablepolicies to ultimately surface.

A good example is a case we arenow involved in that is currentlypending in a Memphis federal court.Virginia and Tennessee regulators aresuing General Reinsurance Corp., aunit of Berkshire Hathaway Inc. andone of the world’s biggest reinsurers,for selling “sham” policies to a profes-sional-liability insurer in Richmond,Virginia, that is in insolvency proceed-ings. The suit alleges the policies weredesigned to fool regulators into believ-ing the carrier was financially soundwhen it wasn’t. For years, starting inthe early 1990s, insurer Reciprocal ofAmerica reassured regulators that itsunits had access to millions of dollarsin reinsurance through General Re. Infact those assets were debilitatingloans, thanks to secret side agreementsthat required Reciprocal to repay thelosses General Re incurred, with inter-est. Regulators are seeking recovery ofthose payments and rightfully so.

Separately, an Australian judicialpanel last year labeled the use of rein-surance contracts by HIH Insurance,whose collapse in March 2001 was thatcountry’s biggest-ever bankruptcy, as“audacious.” The contracts “were struc-tured in such a way as to give theappearance of a transfer of risk whenin fact there was none,” the HIH RoyalCommission concluded. Some docu-ments were backdated, while sideagreements were used to negate risktransfer, the panel said in its finalreport. Interestingly, the reinsurersincluded General Re.


NAIC TASK FORCE TO LEAD BROKERINVESTIGATIONS

The National Association of Insur-ance Commissioners (NAIC) hasrecently formed the NAIC ExecutiveTask Force on Broker Activities togather facts and coordinate activities to

address alleged criminal misconductand violations of existing insurancelaws involving insurance companiesand insurance brokers. The task forceis comprised of 13 member states: Cali-fornia, Connecticut, Georgia, Illinois,Maine, Missouri, Montana, New Jersey,New York, Oregon, Pennsylvania,South Carolina and Texas. The Execu-tive Task Force on Broker Activities is“working to develop the facts andcoordinate the efforts of state regula-tors on this critical issue,” according toDiane Koken, the Pennsylvania Insur-ance Commissioner who serves asNAIC President. The new Task Forcewill pursue a three-pronged actionplan designed to coordinate multi-stateinterest and inquiries, leverage stateexpertise and resources, and engageconsumers. The NAIC membersadopted the following plan:

• Greater Transparency on BrokerCompensation: The Task Force willdevelop a model act for brokers’ dis-closure of compensation.

• Full Inquiry and Coordination:The Task Force will develop andcoordinate implementation of auniform inquiry “template” for statesto use to query their significantdomestic insurers and top brokersdoing business in their respectivestate. Relying on market analysistools, NAIC members will gather thefacts in standardized fashion, analyzethe issues, and determine next steps,which could include a variety of reg-ulatory intervention techniques frominsurer and broker interviews to tar-geted on-site examinations.

• Fraud Reporting: As an immediatemeans to empower consumers, theNAIC will launch an online fraudreporting mechanism that will allowfor the anonymous reporting of “tips”of unscrupulous business practicesfor investigation by the states.

Commissioner Koken stated: “Theidea that any insurance consumer,whether corporate or personal, wasmisled, defrauded, or abused simplyreinforces the need for a strong systemof coordinated state insurance regula-tion. This Task Force and three-pronged approach is evidence of our

commitment, and it’s just one step inan ongoing process to ensure a safermarketplace where consumers at alllevels are protected.” I hope this taskforce will take its work seriously andtackle a most serious problem. I’m surethere is a good reason for Alabama notbeing involved in this effort.

Source: The Insurance Journal

ALABAMA MAY TAKE SOME ACTION

The Alabama Department of Insur-ance has become involved in probingbid-rigging and price-fixing problemsin commercial insurance. The Depart-ment says it will interview brokers andcompanies that are connected to enti-ties that have garnered the attention ofprosecutors in New York and otherstates. Reportedly, several companiesand brokerage firms that specialize incommercial insurance are believed tohave engaged in bid rigging and price-fixing. I understand that the states’insurance commissioners met by wayof conference call to formulate strate-gies to deal with the situation, whichprimarily involves commercial insur-ance lines. Alabama Insurance Com-missioner Walter A. Bell, in announcingthe state’s move, said:

There have been serious allegationsof criminal conduct involvingsome of the nation’s largest insur-ance companies and brokeragefirms. We are engaging in a fact-finding mission to see if similarbehavior has been conducted inAlabama. To that end, we havecoordinated with the Governor’soffice, Attorney General Troy King,and other state insurance depart-ments. We have no evidence at thispoint of any wrongdoing inAlabama. But if any company orbroker has abused the system forpersonal gain, rest assured we willpursue appropriate charges…thecoordination between the states isan important one because we canshare information. Our first prior-ity at the Department is consumerprotection. No one—an individual,a family, a small business or alarge company—should be takenadvantage of. We will investigate to


what extent, if any, these practiceshave occurred in Alabama, andwe will determine the proper courseof action

It is good to hear that CommissionerBell considers consumer protectionto be his department’s top priority. Ihope those words will carry over intosome real action by the department.Over the years the Alabama InsuranceDepartment has been underfunded andunderstaffed and consumers have suf-fered as a result. If consumer protec-tion is really a top priority, all of thatwill change. If so, Alabama citizens willbe the beneficiaries.

HURRICANE IVAN WASN’T ONLY PROBLEMSFOR MANY HOME OWNER’S

In the wake of Hurricane Ivan, manypeople with damage to their homeshave contacted our firm with com-plaints about how their homeowner’sinsurance companies were handlingtheir valid claims for benefits. Not sur-prisingly, many of the complaints werevery similar. Most involved the insur-ance companies sending out their ownadjusters to provide “low ball” repairestimates, which were nowhere nearthe amount necessary to properlyrepair the damages to the homes.Then, the insurance companies wouldonly offer the insureds, on a “take it orleave it” basis, the amount stated in the“low ball” repair estimates, even if theinsureds provided two or three esti-mates that were substantially higher. Inother words, the only options left theinsureds were to either take the “lowball” offers and pay the difference inthe repair estimates themselves, takenothing and pay for all of the repairsthemselves, or contact an attorney andseek redress with the court system.

The insurance companies’ conduct istotally inexcusable and improper. If aninsured submits a claim to their insur-ance company for damages caused totheir home, then the insurancecompany has an obligation to pay theamount necessary to properly repairthe damage. I hope insurance compa-nies will begin to do the right thingand pay to properly repair the damagesto their insureds’ homes. After all, this

is the reason we all buy homeowner’sinsurance. The Alabama InsuranceDepartment should get activelyinvolved in this matter. If they fail to doso, it will be left to the courts to cometo the rescue of some very unhappypolicyholders.

DOCTORS WHO WON’T JOIN NETWORK ARESUED

BlueCross BlueShield of Montana hasfiled a lawsuit against a physiciangroup that has the medical communitygreatly upset. Organized medicine hascontended for months that health plansexert an overwhelming amount ofmarket power over physicians. Thefederal antitrust lawsuit brought againstthe physician group claims that doctorsare actually the real problem. Thedoctors say the action by Blue Cross ismore evidence of plans’ willingness tobully doctors to accept their meagerterms. Antitrust lawyers around thecountry are watching the progress ofthe lawsuit by Blue Cross against Mis-soula Radiology, the only radiologypractice in Missoula, Montana. TheBlue Cross plan says the suit, whichseeks to break up a 12-physician groupit calls a “predatory monopoly,” isabout market competition, not thegroup’s refusal to be part of the plan’snetwork.

But many doctors say if the Bluesplan is successful in its case, it couldresult in other plans suing doctors whorefuse to sign a contract. In fact, afterthe lawsuit was filed September 14th, aseven-physician neurology group and asix-physician surgery group announcedthey would drop their Blues contracts,in part to show solidarity with MissoulaRadiology. The Blues is by far thelargest managed care plan in the state,with about 93% of Montana doctors inits networks. It also has roughly two-thirds of the state’s patients, accordingto Competition in Health Insurance: AComprehensive Study of U.S. Markets,published by the AMA. Under guide-lines set by the U.S. Dept. of Justice,the state’s health insurance marketeasily qualifies as highly concentrated,thanks to the Blues’ dominance.

But the plan is arguing that it’s theradiology group, which dropped out of

the Blues network in June 2003, that iswielding too much power. BlueCross,along with four employers and fiveindividuals, argue in their suit that Mis-soula Radiology exerts monopolypower by, for example, having exclu-sive contracts to provide radiologyservices at both of Missoula’s hospitals.The plaintiffs also argue that the radiol-ogists’ establishment of AdvancedImaging, a scanning center ownedjointly by the doctors and CommunityMedical Center in Missoula, has facili-tated price fixing. Advanced Imagingalso is a defendant in the lawsuit, filedin U.S. District Court in Butte, Montana.The suit alleges that Blues membershave paid $1.3 million in out-of-pocketrates as a result of Missoula Radiologynot being in the Blues network.

Antitrust lawyers say the case proba-bly won’t hinge on Missoula Radiol-ogy’s status as the only such group intown. A group is not an unlawfulmonopoly just because it has all theradiologists. The outcome will likelyturn on how courts interpret thegroup’s hospital contracts. The casecould be an important step in attempt-ing to draw lines on exclusive doctor-hospital contracts. I have to wonderhow much longer it will take doctors inthis country to realize that insurancecompanies aren’t their friends. Becauseof the suit’s uniqueness, doctors andhealth plans—and antitrust lawyers—will be watching this case very closely.

Source: American Medical News

IRS CRACKS DOWN ON NON-PROFITHOSPITALS

As we reported previously, our firmis currently involved in litigationinvolving non-profit hospitals. TheInternal Revenue Service has nowlaunched an investigation into whetherexecutives at various non-profits,including hospitals, are being paid toomuch in violation of the nonprofits’tax-exempt status. The lawsuits thathave been filed allege that non-profithospitals have overcharged their unin-sured patients. It will be interesting tosee what the IRS does in this area.


UNUMPROVIDENT REACHES SETTLEMENTS

UnumProvident Corp., the giant dis-ability insurer, has reached settlementagreements with state and federal regu-lators. Under the settlement, thecompany agreed to reassess 215,000past cases and pay $15 million in fines.The company will set aside $85 millionto pay benefits in reassessed cases. Theagreement was reached with a groupof state regulators led by Maine, Massa-chusetts and Tennessee. The pactrequires approval by two-thirds of theregulators in 47 states and in the Dis-trict of Columbia and American Samoa,which all coordinated their inquiries.The U.S. Labor Department, also aparty to the settlement, and the NewYork attorney general’s office andinsurance commissioner endorsed thesettlement, which would close theirown Unum probes. The fines will bedivided among the states.

The regulators were investigatingallegations that Unum, the largest U.S.disability-income insurer, and five sub-sidiaries improperly denied claims forgroup and individual long-term disabil-ity policies, which typically pay policy-holders a regular sum if they areunable to work for protracted periods.The policies were sold to individualsand to employers as part of theiremployee benefit programs. The sub-sidiaries are Provident Life & CasualtyInsurance Co., Provident Life & Acci-dent Insurance Co., Unum Life Insur-ance Co., Paul Revere Life InsuranceCo. and First Unum Life Insurance Co.Unum has agreed to review 215,000long-term disability claims that weredenied or closed since the beginning of2000. Unum is also required to restruc-ture its claims-handling procedures. IfUnum doesn’t reverse its past decisionon enough claims to satisfy regulators,it will be subject to up to $145 millionin additional penalties, regulators said.

The following will outline the keyfeatures of the settlement:

• reassess the claims of approximately200,000 individuals whose claims forgroup or individual long-term dis-ability benefits were denied;

• restructure their claim handling pro-cedures to ensure that all future

claims are reviewed in a fair andobjective manner, including anagreement to:

•• select medical examiners basedsolely on merit, and ensure thatthose examiners review all rele-vant records before reaching adetermination;

•• require personnel making impair-ment determinations to certifythat their determinations werebased upon a review of all therelevant evidence;

•• prohibit company personnel fromtrying to influence the outcomeof disability claim appeals; and

•• grant significant weight to find-ings of disability by the UnitedStates Social Security Administra-tion;

• improve employee training;

• create a new Regulatory ComplianceUnit to monitor the companies’ com-pliance with applicable laws and reg-ulations;

• conduct periodic audits of the newclaim reassessment process, toensure compliance with the terms ofthe settlement;

• create a toll-free confidential hotlinethrough which company employeescan report concerns about claimshandling processes;

• appoint three new independentmembers to the Board of Directors ofUnumProvident, add one new inde-pendent member to the Audit Com-mittee, and create a new RegulatoryCompliance Committee of the board;

• permit enhanced monitoring andexaminations by state insurance reg-ulators, paid for by the companies;and

• pay a $15 million fine to be dividedamong participating states.

Source: News Release from New York AttorneyGeneral and Wall Street Journal

XII.PREMISESLIABILITY UPDATE

BONFIRE LAWSUIT SETTLED

A partial settlement of the TexasA&M University bonfire lawsuit hasbeen reached between the families of 7victims and 25 of the student leaderswho oversaw the construction of themassive stack of logs that collapsedfive years ago, killing 12 and injuring27. The families, four of whom hadchildren die in the collapse and threeothers whose children were injured,will receive a total of $4.25 million.This is the first settlement of any of theclaims that came out of the 1999 acci-dent. The lawsuit still has 36 otherdefendants, including 10 other bonfireleaders, known as “red pots,” as wellas a former Texas A&M President, theTexas Aggie Bonfire Committee andZachry Construction Corp., which pro-vided cranes and crane operators tohelp build the bonfire. Texas A&M isno longer a defendant in the lawsuit.Current mediation is ongoing betweenthose not named in the settlement. Ifthe remaining defendants don’t settle,the case will be tried on March 28th inTexas.

The “red pots,” who wore redhelmets, were student leaders whooversaw construction of the bonfire,which was staged before A&M’s annualfootball game against the University ofTexas. The $4.25 million settlementcame from the homeowner’s insurancepolicies of the defendants’ parents.Homeowners’ policies in someinstances cover negligence outside ofthe home if the wrongful act or omis-sion didn’t occur on the job or in anautomobile. Since the defendants wereall students, they were still covered bytheir parents’ insurance policies eventhough they weren’t living at home atthe time of the accident.

There have been no bonfires atTexas A&M since this tragedy. Thefamilies of the victims have filed arequest for a permanent injunction“that requires TAMU to design, con-struct and burn any future bonfirestructures and related activities on the


TAMU campus and/or TAMU propertiesin such a way to prevent errors,promote safety and protect all persons,including TAMU students.” It should benoted that there had been a safe designfor the bonfire available for about adecade. The lack of any real oversightand the failure to use a professionaldesign were part of the overallproblem. A structural engineering pro-fessor from the University of Wiscon-sin, who served as an expert for thefamilies, gave an affidavit saying that“the absence of a written design, theabsence of professional oversight andthe absence of appropriate construc-tion methods and techniques” werecauses of the collapse.

XIII.WORKPLACEHAZARDS

SOUTHERN CALIFORNIA EDISON SAFETYTESTS RIGGED

Southern California Edison Co. usedfaulty workplace safety data—and insome cases may have suppressedreports of on-the-job injuries—over thelast seven years to win performance-related bonuses from the state, accord-ing to a report by the Los AngelesTimes. Edison told the California PublicUtilities Commission staff that it wouldforego or return to the agency $35million in payments that the companysaid were based on flawed safetyratings. Many of the ratings were dis-torted by inadvertent omissions, andothers by what Edison called “inappro-priate” efforts by managers to hidereportable incidents. In some cases,Edison found evidence that supervisorscontacted outside medical personnel toinfluence treatment, change medicalrecords or downgrade the seriousnessof an injury. Other times, Edison said,its managers encouraged employees tododge safety reporting requirements byundergoing physical therapy or usingvacation days during recovery. Thisappears to be an incentive to underre-port injuries.

The injury statistics are part of a 1997PUC program that rewards—or fines—

utilities based on customer satisfaction,employee safety, service reliability andfinancial results. The information is col-lected and submitted by the utilities,the Times reported. The admission byEdison, a subsidiary of Rosemead, Cali-fornia-based Edison International,marks the second time this year thatthe utility has found problems withdata it gave regulators to winratepayer-funded bonuses. In June,Edison pledged to return $14.4 millionbecause employees and managersrigged customer satisfaction surveys. Inthat episode, managers and lower-levelemployees in Edison’s service planningdepartment systematically erased orchanged the phone numbers ofunhappy customers to make sure thatthey couldn’t be reached for thesurveys.

Some employees substituted theirown phone numbers or those offriends and relatives to assure them-selves of high ratings, the Timesreported. Edison said the glitches in itssafety reporting stemmed mostly fromits failure to record or report minorfirst-aid matters, such as requests forbandages or ice packs. It described themore egregious behavior involvingsupervisors as limited to about 50“random instances.” The $35 millionincludes $20 million in safety awardsalready paid to Edison, plus $15million pending for 2001 through 2003.Regulators are likely to return themoney to Edison customers by offset-ting other utility charges rather thanthrough direct funds.

Edison said it has found evidencethat company incentives to rewardgood safety practices—including finan-cial compensation and recognitionlunches—“may have discouraged thereporting of some incidents” and mayhave produced “pressure to not reportinjuries.” In some instances, employeesdelayed reporting injuries to keep themout of year-end results, Edison told thePUC. It appears that a number of inci-dents should have been reported to theCalifornia Division of OccupationalSafety and Health, but were not. Thecompany is filing amended logs withthe agency.


JURY VERDICT IN WRONGFUL DEATH LAWSUIT

A California jury awarded the familyof a 35-year-old concrete laborer killedin an accident $6.8 million. The worker,who was employed by Casey Fogli Con-crete Contractors, was killed in 2001 atan apartment development project. Anoutrigger stabilizing a 100,000-poundconcrete-pumping truck sank into theground, causing the truck’s boom to fallforward and strike the worker in thehead. The decedent was controlling thehose and directing a concrete pour onthe main floor of one of the apartmentbuildings when the boom, a four-piecesteel arm, hit him with 60,000 pounds offorce. Jurors divided responsibility forthe accident under that state’s lawamong three defendants as follows: RJS& Associates, the concrete contractor,was determined to be 70% at fault forthe accident; JPI West Coast Construc-tion, the general contractor, was deter-mined to be 20% at fault; and CF&TAvailable Concrete Pumping, thepumping-truck provider, was deter-mined to be 10% at fault.

The award included the worker’sestimated lifetime wage loss and $5million in general damages. It shouldbe noted that under Alabama law thedamages would have been totally puni-tive since our Legislature has said thatcompensatory damages can’t be recov-ered in a wrongful death case inAlabama. The widow stated after theverdict: “I know that the money willnever replace my husband, but it willallow me the opportunity to providemy daughters the education he wouldhave wanted them to have.”

XIV.TRANSPORTATION

FAA FALLS SHORT ON SAFETY

According to a recent GovernmentalAccountability Office (GAO) report, thefederal government provides weakoversight of 13,000 private contractorsit uses to inspect and certify airlines,planes and aircraft repairs. The reportrecommends that the Federal AviationAdministration (FAA) evaluate all certi-


fication programs involving its contrac-tors or “designees.” It also recommendsthat management be improved. As wepreviously reported, the FAA relies oncontractors perform about 90% of itscertification work. The GAO reportpoints out a number of weaknesses ofthe FAA’s oversight of contractors,including:

• Inadequate surveillance and inconsis-tent interpretations of safety rules;

• Lack of computer databases thatreveal whether FAA staff are carryingout their oversight responsibilities;

• Lack of refresher training for FAAstaff; and

• Failure to quickly remove inactive,unqualified or poorly performingdesignees.

One of the most shocking revelationsfrom the GAO report is that some avia-tion experts say contractors werechosen on the basis of connections toFAA officials. An FAA spokespersontold the USA Today that it “will care-fully examine the expert opinions citedby the GAO.” The agency also said thatit was taking steps to improve over-sight and provide more training.

Source: USA Today

PILOT ERROR BLAMED FOR FLIGHT 587CRASH

The co-pilot of American AirlinesFlight 587 caused the November 2001crash that claimed the lives of 265people, the staff of the nation’s airlinesafety agency reported recently. Inves-tigator Robert Benzon of the NationalTransportation Safety Board (NTSB)said the copilot’s response to turbu-lence, just seconds after the AirbusA300-600 plane took off from NewYork’s John F. Kennedy InternationalAirport, was “unnecessary and aggres-sive.” Benzon also said that investiga-tors found that American Airlinesimproperly trained its pilots to use theaircraft’s rudder while recovering fromupsets and said the problem couldhave been exacerbated by the airline’ssimulator training. Benzon also saidthat the rudder control system on the

aircraft is sensitive at higher air speeds,which is potentially hazardous. Thesafety board itself was expected to rulelater on the staff’s findings.

On November 12, 2001, First OfficerSten Molin, the co-pilot, moved theplane’s rudder back and forth aftertakeoff, trying to control the climbingaircraft, not realizing he was sealing thegrim fate of those on board. Molin wasat the controls when the plane hit tur-bulence almost immediately aftertaking off for the Dominican Republic.“Hang onto it, hang onto it,” Capt.Edward States implored. “Let’s go forpower, please,” Molin said. A secondlater came a loud bang, which investi-gators believe was the tail breaking off.Then came the roar of air rushingagainst the aircraft and alarms sound-ing in the cockpit. “What the hell arewe into (inaudible)?” Molin said. “We’restuck in it.” States’ last recorded wordscame five seconds later: “Get out of it!Get out of it!”

Both Airbus Industrie, which manu-factured the jetliner, and American Air-lines, which trained Molin, agree that ifhe had taken his foot off the rudderpedal, the tail wouldn’t have broken offand the plane wouldn’t have plungedinto a New York City neighborhood. Itwas the second deadliest plane crashon U.S. soil. But Molin didn’t know hewas putting more pressure on the tailthan it could bear. Why he didn’t—andwho’s to blame for that—is the subjectof a bitter fight between Airbus andAmerican. According to investigators,Molin tried to steady the aircraft usingpedals that control the rudder, a largeflap on a plane’s tail. When his initialmovement failed, Molin tried again andagain. His actions placed enormousstress on the tail.

American, the only U.S. airline to usethat type of Airbus plane for passengerservice, claims Airbus didn’t alert it tothe danger of sharp rudder movementsuntil after the crash. The airline alsocontends the Airbus A300-600 hasuniquely sensitive flight controls thatcan cause more severe rudder move-ments than the pilot intends. “Airbushad the ability to truly red-flag theissue,” American spokesman BruceHicks said. Airbus says it told Americana number of times and in a number of

ways that the airline was improperlytraining pilots about how to use therudder. An Airbus spokesman declinedto comment on the investigation beforethe hearing. However, the companyhas provided the NTSB with a numberof documents to support its claim. Forexample, a letter dated August 20,1997, warned American chief pilotCecil Ewing that rudders should not bemoved abruptly to right a jetliner orwhen a plane is flown at a sharp angle.The letter was signed by representa-tives from the Boeing Co., the FederalAviation Administration and Airbus.

Airbus contends that even peoplewithin American Airlines were con-cerned about how the airline was train-ing its pilots. A letter to Airbus datedMay 22, 1997, from American technicalpilot David Tribout expressed concernabout the airline’s then-new trainingcourse on advanced maneuvers. “I amvery concerned that one aspect of thecourse is inaccurate and potentiallyhazardous,” Tribout wrote. Hisconcern: Pilots were being taught thatthe rudder should be used to control aplane’s rolling motion. Hicks counteredthat Airbus didn’t share importantsafety information about the rudderafter a problem with American Flight903 in May 1997. During that incident,pilots used the rudder to steady anAirbus A300-600 plane on approach toWest Palm Beach airport. The planenearly crashed and one person wasseriously injured. Afterward, Airbustold the NTSB that it included awarning that abrupt rudder movementin some circumstances “can lead torapid loss of controlled flight,” and, inothers, could break off the tail. Hickssaid Airbus’ comments didn’t specifi-cally say the rudder movements onFlight 903 had exposed the tail to somuch pressure that it could have beenripped off.

Immediately after the Flight 903 inci-dent, an inspection found no damageto the tail. But five years later, theplane was inspected more closelybecause of concerns aroused by thecrash of Flight 587. Cracks were foundand the tail was replaced. According toJohn David, a spokesman for AmericanAirlines’ pilots union involved in theinvestigation of Flight 587’s crash,


pilots had always thought that theycould use rudders to the full extentwithout hurting the airplane. Davidalso believes Airbus didn’t properlycommunicate what it knew. Americannow gives its pilots specialized trainingon the rudder control system based oninformation learned during the currentinvestigation.


PLANE LACKED COCKPIT SAFETY DEVICE

A commuter plane that crashed inunfavorable weather conditions in Mis-souri recently, killing 13 people, wasnot equipped with a cockpit safetydevice that could have warned thepilots they were flying dangerouslylow. In 2001, Federal Aviation Adminis-tration (FAA) officials required that“terrain avoidance warning systems” beinstalled by March of next year on allairline planes with six or more seats. Itappears that Corporate Airlines, theoperator of the Jetstream 32 plane inthe Missouri crash, had not completedinstalling the warning devices on itsfleet. The warning system has a com-puterized map of the world’s terrainthat lists every hill, radio tower andskyscraper. If pilots stray too low, acomputerized voice automatically callsout: “Terrain! Terrain!” If pilots don’trespond, it orders: “Pull up! Pull up!”Officials with the National Transporta-tion Safety Board (NTSB) have not yetsaid why the Corporate Airlines planecrashed into a wooded area about twomiles from the airport. Informationreleased by investigators, however, isconsistent with dozens of other crashesaround the world in which pilots flyingin poor visibility accidentally get toolow as they approach an airport and hitthe ground. A crash of that type hasnever occurred on a plane equippedwith the terrain warning system, whichcosts $25,000-$35,000 on small aircraft.The devices are considered to be realbreakthroughs in aviation safety, andall airplanes carrying passengers aresupposed to have them.

Corporate Airlines leased 17 of the19-seat Jetstream 32 planes and flewunder contract with American Airlines.The airline planned to install the

devices on all its planes before theMarch 29th deadline set by the FAA.Preliminary information from theplane’s black box recorders indicatesthat nothing was wrong with the plane.The pilots descended as if they had noidea how close they were to crashing,according to the NTSB. Flying a planeinto the ground during low-visibilityconditions is the single biggest killer inaviation, according to accident statis-tics. An older version of the terrainwarning system, which was installedon the Corporate plane, switches offwhen a pilot readies the plane forlanding.

The pilots in this accident apparentlyreceived no warning. Thirteen secondsbefore impact, the pilot who was flyingthe plane, said “field in sight” to indi-cate he could see the runway. Then thecockpit recorder captured the soundsof the plane hitting treetops. The tapestopped three seconds later. The pilotand co-pilot had been on duty for 14hours and 41 minutes. The investiga-tion will examine whether fatigue con-tributed to the accident. Low cloudshovering 300 feet above the airportwould have made it difficult to land theplane. The pilots were required to stayat least 356 feet above the ground untilthey could see the runway.

Source: USA Today

A NEEDED CRACKDOWN ON SPEEDERS

Alabama State Troopers will soonbegin another statewide crackdown onspeeders. A campaign that started inlate August was suspended because anumber of troopers were deployed forthree weeks in south Alabama whenHurricane Ivan struck the Alabamacoast. Troopers also spent several daysproviding additional security at the Tal-ladega Superspeedway in October.Public Safety Director Colonel MikeCoppage has been studying the latestdata on wrecks to determine wheretroopers should concentrate theirenforcement blitz. The crackdowncomes after a federal study found thatspeeding surpassed driving under theinfluence as the leading killer onAlabama’s highways. Last year, troop-ers gave out 17,403 speeding tickets

from August 26th to October 18th,according to statistics compiled by theAlabama Department of Public Safety.This year, state troopers gave out 7,527in the same period during the crack-down on speeders.

Alabama ranks fifth nationally, at47%, in deaths where speed was theleading cause of a highway wreck,according to the National HighwayTraffic Safety Administration. That ismore than twice the percentage in 2003for neighboring states Georgia, 20%;Florida, 17%; Mississippi, 20%; andTennessee, 23%. It is quite obvious thatwe have a most serious problem inAlabama. During blitzes, groups oftroopers and local law enforcementagents focus on a stretch of highwaywhere there have been a high numberof fatalities. Our state is on its way tosetting a record this year for thenumber of highway fatalities. Theblitzes, which include personnel fromsome police and sheriff’s departments,will continue until the size of the statetrooper force doubles. Unfortunately,that could take two years. Presently800 troopers are needed, but the stateonly has 360 state troopers on theroads. We must take all steps necessaryto make our highways as safe as possi-ble. With automobiles capable oftremendous speeds, it isn’t too surpris-ing that speeding has become a majorproblem. The Governor and Legislaturemust make the required funds availableso that an adequate number of troop-ers can be hired. This is an absolutenecessity.

HIGHWAY FATALITIES ON THE INCREASE

The number of fatalities and acci-dents in Alabama for 2004 has alreadypassed the number for all of last year,according to a report from the Depart-ment of Public Safety. The number ofhighway deaths in Alabama last yearwas 576, which was a very largenumber. But, as of November 8th, thenumber for this year is 657. Most of the fatalities—275 deaths—occurred on county roads rather than state orfederal highways. Because the monthof December is historically a bad timefor highway accidents, this year’s fatal-ity rate is likely to increase greatly.


FEDERAL JURY AWARDS $15.5 MILLION INTRUCK-CRASH INJURY CASE

After hearing testimony about a truckdriver’s lengthy accident record, afederal court jury in Tuscaloosa,Alabama, awarded $15.5 million to anAtlanta teacher who suffered a leginjury in a head-on collision on aninterstate highway. The verdict wasagainst Yellow Roadway Corp., ofOverland Park, Kansas, in a suit filed byfirst-grade teacher Olivia Nix, who washospitalized as a result of the collisionthat occurred in 2002. The jury awarded$500,000 in compensatory damages and$15 million in punitive damages to theplaintiff. The trucking company isexpected to appeal the ruling.

The truck driver’s accident record,while working for Roadway Express,which became part of Yellow Roadwaylast year, was very bad. He had beeninvolved in nine wrecks while drivingfor Roadway and had received fourmotorist complaints. In the accident,giving rise to the suit in Tuscaloosa, atractor-trailer driven by the bad driverwent off the northbound lanes, acrossthe median, and struck the NissanAltima driven by the plaintiff head-on.Interestingly, Roadway had a lawyer,insurance adjuster and accident investi-gator at the accident scene withinhours of the crash. It is also most inter-esting that this driver still works forRoadway.

This was a good result and pointsout how some trucking companies putbad drivers on the road and how inno-cent victims are injured and damagedas a result. These companies have aduty to the public to make sure driverswith bad records aren’t put behind thewheels of their trucks. This case washandled by the Tuscaloosa law firmheaded by my good friend Bob Prince,who is a very good lawyer. Bob wasably assisted in the trial by Josh Wright.They did an excellent job for the familyof the victim.

ATV DEATHS ON THE INCREASE

Adult-sized All-Terrain Vehicles(ATVs) can be very dangerous for chil-dren. The Consumer Products SafetyCommission (CPSC) should take action

to protect children from the dangersposed by adult-sized all-train vehicles(ATVs). Unfortunately, the CPSC hasfailed to take action that is badlyneeded. In August of 2002, a numberof safety groups submitted a petition toCPSC requesting that it initiate a rule-making process to develop and issuenational safety standards that wouldbar the sale of adult-sized ATVs for useby children under 16 years of age. TheCommission has held three separatefield hearings on the issue. However, ithas failed to move aggressively toaddress this most serious problem or torespond to the petition in a substantialmatter.

Tragically, children continue to bekilled by ATVs in large numbers. TheCPSC has not released fatality informa-tion for the last two years. In 2002, atleast 99 children under 16 years of agewere killed by ATVs, according to thelast CPSC report. It should also benoted that children under 16 suffered28% of all ATV-related fatalities thatyear. The CPSC data indicated that thesafety crisis concerning ATVs hasbecome increasingly severe over thepast decade. Currently, ATV manufac-turers voluntarily agree to followcertain guidelines. Primarily, theseguidelines rely on warnings against thesale of adult-size ATVs for use by chil-dren, warning labels and offers oftraining to purchasers of new ATVs.But, both CPSC’s own analysis andinvestigations by safety groups andothers, demonstrate that “this approachis failing” in almost every respect.Rachel Weintraub, who is AssistantGeneral Counsel for the ConsumerFederation of America, has beenactively involved in the movement tobring about some needed changes inthe regulation of ATVs. Ms. Weintraubrecently stated:

Children being killed and injuredby ATVs is a serious public healthcrisis with a solution. However, thegovernment agency with theauthority to solve the problem haslet America’s children and adoles-cent’s down. The CPSC has neg-lected to take action to implement asolution that will save children’slives.

I hope the CPSC will take the actionneeded to help reduce the number ofdeaths and injuries involving childrenand ATVs. I don’t believe any furtherdelay can be justified. It would help ifyou would take the time to contactyour U.S. Senators and members ofCongress and ask them to urge theCPSC to take the steps necessary toprotect our children.

XV.ARBITRATIONUPDATE

JAMS OPPOSES BANS ON CLASS ACTIONS

One national alternative dispute res-olution provider now says it will nolonger enforce clauses in arbitrationagreements that restrict class actionoptions. Others are reviewing theirown policies and anticipating moreguidance from courts as litigation overthe issue mounts. California-basedJAMS on November 12th announcedthat it will not administer cases underarbitration clauses that bar class actionsunless the prohibition is waived, citingamong other things a number of courtrulings against class action limitations.Many courts are “consistently holdingthat class action preclusion clauses areunenforceable.” JAMS decided it was“appropriate to take this action to addto other standards to enhance the fair-ness of consumer arbitration.” Thecompany hopes that in most individualcases, plaintiffs will agree to a waiverin order to get their case heard in arbi-tration, according to a companyspokesperson.

JAMS is winning strong praise fromconsumer advocates and lawyers whohave campaigned for more consumerrights under arbitration clauses. PaulBland, staff attorney at Trial Lawyersfor Public Justice, who has workedhard on the arbitration issue, saidJAMS’ move is a “terrific principleddecision and they deserve a lot ofcredit for making it.” Bland said “a lotof consumer and employment lawyersadmire what they have done,” notingthat the company “did not have to takethis position.” In my opinion, the deci-


sion by JAMS was the right one and isa good sign for consumers.

XVI.NURSING HOMEUPDATE

ARKANSAS AUDITORS FIND STAFFING ERRORS

Auditors for the Arkansas Office ofLong-Term Care, which licenses andinspects the states 239 nursing facilities,have found that 90% of 299 staffingrecords that were reported by thenursing homes from October 2000 toSeptember 2004, are inaccurate.Nursing homes in the State of Arkansasare required by state law to have acertain number of nurses and aidesworking each shift, depending on thenumber of residents in the facility.These standards were put into place inan effort to ensure that nursing homeresidents receive adequate care. Thenursing homes themselves must submita report each month on staffing so thestate may determine whether they aremeeting these standards. If a facilityfalls below the mandated standards,they are fined by the state. CarolShockley, Director of the Office ofLong-Term Care, says: “We’re depend-ent upon the facilities to provide uswith accurate information…someone’scare is being compromised for theamount of time [the facility is] notmeeting the minimum.”

Charlene Harrington, professor ofnursing at the University of Californiaat San Francisco and the co-author ofan annual national report that compilesstate nursing home data, stated “all thefacilities have been paid the Medicaidrate based on what their staffing is sup-posed to be….facilities save money bynot staffing properly.” Unfortunately,this may be a widespread problem.Janet Wells, director of public policyfor the National Citizens Coalition forNursing Home Reform, a non-profitconsumer/advocacy organization fornursing home residents, stated: “Somuch of the self-reported data bynursing homes is never audited.Neither government agencies, nor con-sumers, know how many nursing staff

a facility actually has if the data isreported incorrectly. One of the mostimportant factors in choosing a nursinghome is the level of staffing.” Withoutquestion, staffing continues to be amajor problem in the nursing homeindustry.

NURSING HOMES HAVE NO BUSINESS BEINGUNDER TORT REFORM

A recent study reported in TheGerontologist makes the case thatnursing home litigation should betreated differently than medical mal-practice litigation in the wave of tortreform that has been sweeping thecountry. One of the authors of thisstudy, David Stevenson of HarvardUniversity, had previously authored anarticle that alleged that lawsuits wereone of the things taking money awayfrom quality care. But, in this mostrecent study, “Nursing Home Litigationand Tort Reform: A Case For Excep-tionalism”, Mr. Stevenson and his co-author argue that nursing homelitigation should be carved out of thetort reform movement. The articlestates “nursing home litigation has anumber of distinctive features that raiseserious questions about the wisdom ofimplementing a generic set of reformsacross the care continuum.” Theauthors note that nursing home claimsare different from typical medical mal-practice claims.

Personal injury claims against nursinghomes are rarely initiated by theinjured residents themselves. Almost65% of these claims are initiated by theresident’s children. Another 20% arebrought by residents’ spouses. Theallegations in most cases tend to centeron abuse and neglect, rather than pro-cedural mistakes and errors. Theauthors state that most awards innursing home cases are for non-eco-nomic damages (approximately 80%).These types of damages are usuallycapped in the typical tort reform legis-lation, which makes it very difficult toobtain an adequate recovery in anursing home case alleging abuse andneglect. Punitive damages are rarelyawarded in medical malpractice cases,but in the nursing home arena one infive cases involve an award of punitive

damages. The authors correctly notethat punitive awards serve the purposeof punishing the wrongdoers and alsoto deter repetition of the conduct inquestion. Likewise, the study notes thatmore than half of nursing home casesinvolve deaths, compared to less thanone-fifth of malpractice claims. For allof these reasons, Mr. Stevensonbelieves nursing homes should not beincluded in generic medical malprac-tice legislation. I wholeheartedly agree!

XVII.HEALTHCAREISSUES

FDA’S DRUG SAFETY SYSTEM WILL GETOUTSIDE REVIEW

The Food and Drug Administration(FDA) has found itself under fire from anumber of sources over the past fewmonths, and for good reason. Obvi-ously, critics of the FDA have lots to talkabout. Amid intense criticism that it isslow to raise the alarm about unsafemedicines, the FDA is hiring the nation’stop scientific review body to figure outwhether the drug safety system is ade-quate. Had the FDA bosses asked, wecould have saved the government lotsof money because it is well known inour firm that the system in place at theFDA hasn’t worked very well.

Dr. Steve Galson, director of theagency’s Center for Drug Evaluationand Research ,made this rather shock-ing statement: “Our current drugapproval system has demonstrated thatwe don’t always understand the fullmagnitude of drug risks prior toapproval of drug products.” While, Ibelieve the statement is true, I am verymuch surprised that Dr. Galson wouldadmit it. If the FDA doesn’t have theability to understand the drugsapproved for the market, consumersare in worse shape than we all thoughtthey actually were.

In another step, after the shockingdisclosures that the views of its owndrug safety officials had been sup-pressed, the FDA now says it will setup an internal appeals process. Ifsomeone inside the agency feels that


superiors have made a mistake byapproving a drug or, after approval,refusing to order its recall, that personwill be able to make a case before acommittee of experts, from inside andoutside the agency, who were notinvolved in the decision.

The two moves follow the FDA’shandling of safety issues in two highlypublicized cases. After receiving studiesindicating that antidepressants couldcause children and teenagers tobecome suicidal, the FDA took nearly ayear to decide to require the strongestpossible warning to that effect in thosedrugs’ packaging. The delay, whichagency officials said they had neededto be sure of the data, upset patientadvocates to no end. The FDA’s prob-lems heightened when The San Fran-cisco Chronicle reported that theagency’s own safety reviewer had con-cluded that there was a risk, but thathis views had been suppressed by topFDA officials. That further enragedpatient advocates and the medicalcommunity generally. and rightfully so.

In one of the moves announced, theagency will hire the Institute of Medi-cine—a part of the congressionally-chartered National Academy ofSciences, the government’s top scien-tific reviewer—to study how well theFDA assesses the dangers of unex-pected side effects of marketed drugs.In a third step, the FDA will accelerateits search for a new director of itsOffice of Drug Safety. The post hasbeen vacant since October 2003. Oneproblem in finding someone qualifiedto fill it has apparently been competi-tion from pharmaceutical companies,which can afford to pay far more thanthe salary that comes with the govern-ment job, which I believe is in the$125,000 range. In yet another initia-tive, the FDA plans, by the end of theyear, to publish guidelines to help drugcompanies manage the risks inherentin their products.

After Vioxx was pulled from themarket by Merck & Co, folks began towonder how that drug ever made it tothe market. After the recall, it wasrevealed that one of the agency’s safetyreviewers had decided well beforehandthat Vioxx created a health risk. Thestinging editorial in The Lancet, a

British medical journal, condemned theFDA’s entire system of drug safetyreview and said the agency had actedout of “ruthless, shortsighted and irre-sponsible self-interest” in failing todemand the removal of Vioxx earlier.

Source: The New York Times

A GOOD RECOMMENDATION THATMAY JUST WORK

One physician who has long been anobserver of the FDA, Dr. RaymondWoosley, vice-president of the Univer-sity of Arizona, wants the experts fromthe Institute of Medicine to consider anidea that he has pushed for some time.Dr. Woosley recommends a permanent,independent review group that wouldplay a role in pharmaceutical casessimilar to the role the National Trans-portation Safety Board plays in planecrashes. Dr. Woosley said, “Any timethere is a significant event with a drug,there should be an independent panelthat looks to see if the right decisionswere made and what should happen inthe future.’’ Obviously an independentagency of this sort would be expensiveto create. But, I believe that the costwould be well worth it if such a moveresulted in helping to clean up thepharmaceutical industry.

Source: The Washington Post

AMERICANS NOT SATISFIED WITH QUALITYOF HEALTH CARE

A new survey gives us some insightinto how American Citizens feel aboutproblems in our healthcare system.Five years after the release of a land-mark report revealing the human tollthat medical errors exact at U.S. hospi-tals, American citizens don’t believe thenation’s quality of health care hasimproved. According to the recentsurvey, forty percent said health-carequality has gotten worse, while only17% said it has improved. That nega-tive sentiment exists despite public andprivate efforts to reduce medical mis-takes since the Institute of Medicine(IOM) first focused attention on theproblem. Overall, 55% are dissatisfiedwith the quality of care in this country,

the survey revealed. When a similarquestion was posed in a 2000 Galluppoll, only 44% said they felt that way.Forty-eight percent of people in thenew survey said they were somewhator very worried about the safety ofmedical care they and their familyreceive, whether from hospitals or anyhealth care provider. A majority (74%)cited health care providers’ workloads,stress and fatigue as a very importantcause of medical errors.

The survey is the first broad assess-ment of public perceptions of qualitysince the IOM, the nation’s independ-ent scientific adviser on health matters,issued its watershed 1999 report, To Erris Human: Building a Safer HealthSystem. That report concluded that hos-pital-based medical errors, if consid-ered a cause of death in America,would rank as the nation’s eighthleading killer overall. At least 44,000people and as many as 98,000 die inhospitals each year due to preventablemedical errors, the report concluded.The IOM’s stunning assessment sentshock waves through the U.S. health-care system, prompting the ClintonAdministration to convene an advisorypanel on health quality. The panel’srecommendations led to the establish-ment of a task force charged with coor-dinating quality improvement activitiesin federal health programs. There wasa concerted effort to correct things.Providers, payers and insurers, reactingto the IOM’s wake-up call, beganputting in systems and strategies toavoid harmful or deadly mistakes.

Overall, 34% of adults said they or afamily member have experienced apreventable medical error. Of thosepeople, 70% said their provider did nottell them a mistake was made. It isinteresting to note that a vast majorityagreed providers should let them knowwhat happened. In fact, 88% said itshould be a requirement. Hospital anddoctor groups oppose a mandatoryreporting system, saying it would fostera punitive environment in whichproviders would be loathe to admittheir mistakes. That could well be true,but the public’s desire for greater dis-closure could sway the debate.

Source: Forbes News


LAWSUITS AGAINST HEALTH PLANS SUFFERBECAUSE OF SUPREME COURT RULING

When the U.S. Supreme Court ruledthat patients couldn’t sue their HMO’s,many believed that at the time it wouldhurt doctors too. The concerns that theruling would undermine patients’ability to sue their health plans arestarting to become reality. Two federalappeals courts recently reversed deci-sions that originally gave subscribersthe right to go forward with their cases.Each of those rulings take into consid-eration the high court’s decision thatTexas patients couldn’t proceed withtheir HMO lawsuits. You will recall thatthe Supreme Court in Aetna Health Inc.v. Davila said the federal EmployeeRetirement Income Security Act of 1974pre-empted the Texas law allowinghealth plan liability cases.

Now, as expected, lower courts arefollowing suit. It should be noted thatten other states have laws similar tothat in Texas. Donald J. Palmisano,MD, American Medical Associationimmediate past president stated: “Thefallout is that patients only have limitedremedies when these companies makenegligent decisions to deny necessarycare. It’s a loss for patients.” I have towonder why the AMA has allowed theinsurance industry and HMO’s to makedoctors the stalking horse in the tortreform movement and especially inCongress. The result of the SupremeCourt’s decision is a prime example ofwho tort reform actually helps andwho all it really hurts. It puts doctorsand their patients in the same boat.

XVIII.ENVIRONMENTALCONCERNS

CHEMICAL INDUSTRY FUNDS EPA STUDY

The Environmental Protection Agencyhas agreed to accept $2 million fromthe American Chemistry Council tohelp fund a study exploring the impactof pesticides and household chemicalson young children. To be expected,this prompted an outcry from environ-mentalists. The Children’s Environ-

mental Exposure Research Study—known by its acronym CHEERS—is thesubject of the controversy. This isn’tthe first time the agency has acceptedchemical industry money to conductresearch, but it does represent the mostmoney the chemical trade group hasgiven the EPA. The chemical industrycouncil represents about 135 manufac-turers and spends $20 million a year onresearch. The study will do work onhow chemicals are absorbed by infantsand children as old as three. That’s aworthy cause, but the fact that chemi-cal companies will fund the projectcreates a potential conflict.

Environmental Working Group Presi-dent Kenneth A. Cook questioned whyan agency with a $572 million researchbudget needed to accept industry con-tributions to conduct scientificresearch. Mr. Cook observed: “It simplyis not credible that a $7.8 billionagency that employs almost 18,000people has to go to the chemicalindustry to get $2 million for a crucialstudy to see if chemicals hurt kids. Thisis a government function; we shouldbe investing government funds to beabsolutely sure it’s independent.” Iguess that makes too much commonsense to be understood in our nation’scapitol.

The study will survey 60 childrenover the next two years in DuvalCounty, Florida, and collect informa-tion on their exposure to pesticidesand household chemicals, such asflame-retardants and perfluorinatedchemicals, a family of substances inproducts such as Teflon and Scotch-gard. Some of these chemicals havecome under scrutiny for possible linksto health problems. This type study isgood because children at young agesare rarely the subject of studies. Whilethe information that can be obtainedwill be most valuable, it doesn’t seemwise to accept money from the affectedindustry to do the work.

Linda Sheldon, acting director for theEPA’s human exposure and atmos-pheric sciences division, says theagency has “very little informationabout how children may be exposed tochemicals in household products,whether it’s through the air theybreathe, food they eat or the surfaces

they touch.” Although true, that missesthe point that’s causing the flap. WhileI understand that the chemical manu-facturers say they imposed no condi-tions on their contribution, I mustadmit those type statements are diffi-cult to believe given industry’s trackrecord. Mr. Cook, who is concernedthat industry officials could still influ-ence the study that could lay thegroundwork for future regulation, said:“To have industry sponsoring the gov-ernment to do it, to us, doesn’t seemlike a good idea, to say the least.” Itend to agree with that assessment.

TEXAS LEADS THE NATIONIN MERCURY EMISSIONS

The state of Texas leads the nation inmercury emissions, according to areport issued in October by the U.S.Public Interest Research Group (U.S.PIRG). The report found that powerplants were the largest source ofmercury emissions in the country,accounting for more than 41% of allU.S. man-made emissions. According tothe study, coal-fired power plantsemitted 48 tons of mercury in 1999.Reportedly, thirty-three percent of themercury deposited in U.S. waterways isfrom U.S. power plants. U.S. PIRGfound that in 2002, the most recentyear for which data was available forthe study, Texas led the nation inmercury emissions from power plants,with 9,815 pounds. The report alsofound that five of the top 10 mercury-emitting plants nationwide are inTexas.

When power plants or other facilitiesburn coal that contains mercury, themercury is emitted from smokestacksinto the air. The mercury deposits insoil and in waterways, where it thenbioaccumulates in fish. Mercury expo-sure to humans typically occurs as aresult of eating fish caught in contami-nated waters. Exposure to mercury canimpact the nervous system and lead tobrain damage and learning disabilities,especially in fetuses and young chil-dren. In 2004, the EPA indicated that asmany as one in six U.S. women haslevels of mercury in her blood suffi-ciently high to pose a risk to a devel-oping fetus. In addition, mercury


exposure in adults can adversely affectfertility and blood pressure regulationand contribute to heart-rate changesand cardiovascular disease.

Coal-fired power plants have longbeen the nation’s largest unregulatedsource of mercury emissions. The BushAdministration and environmentalgroups have been battling for fouryears over how to control mercuryfrom power plants. In December 2003,the EPA was set to issue a rule thatwould have required power plants toinstall equipment that would achievethe maximum possible reduction ofmercury emissions. However, a newplan, which has been called the “cap-and-trade” approach, was substitutedinstead. The new plan would allowplants to buy mercury pollution creditsfrom facilities located far away, insteadof reducing their own emissions. Criticsof the plan say that it will increase therisk of creating and exacerbating “toxichotspots,” or areas with high levels ofmercury deposition, and take 15 yearsor more to reach the same clean airstandards achievable under maximumachievable control technology.

WISCONSIN COURT REINSTATESLEAD PAINT SUIT

A Wisconsin appeals court has rein-stated the City of Milwaukee’s lawsuitagainst two paint companies fordamages from lead paint. The cityappealed after a lower court judge dis-missed the case in July 2003. Milwau-kee officials want Mautz Paint and NLIndustries to pay for the removal orabatement of lead paint they say haspoisoned about 19,000 children since1995. “There are disputed material factsconcerning the extent of both defen-dants’ sales in Milwaukee and whetherthose sales were a substantial cause ofthe alleged nuisance,” the 1st DistrictCourt of Appeals said. The appealscourt, which did not judge the meritsof the city’s claim, said a jury shoulddecide those facts, ordering the lawsuitto trial.

The city sued in 2001, arguing thefirms created a public nuisance by pro-ducing and selling the lead pigmentand lead-based paint. The city isseeking $85 million. Lawyers for the

paint companies have argued the cityfailed to prove paint specifically pro-duced or sold by the defendantscaused any harm. Lead poisoning hasbeen associated with many healthproblems, including learning disabili-ties. Lead paint was banned from inte-riors in 1978, but many homes stillhave it.

NORTH CAROLINA ATTORNEY GENERALPLANS TO SUE TVA

By the time you receive this issue,the North Carolina Attorney Generalwill probably have filed suit against theTennessee Valley Authority (TVA)unless TVA reduces pollutants thatenter the state from the public utility’scoal-fired power plants. AttorneyGeneral Roy Cooper has told themedia, “It is critical that we all do whatwe can to make sure that our air isclean. What we’ve done now is put theTVA on notice that they need to do thesame thing.”

The pollution that Attorney GeneralCooper is complaining of comes fromnine coal-fired plants in Tennessee,Alabama and Kentucky. In addition tohealth issues, Cooper says that the pol-lution affects the view in the moun-tains, where tourism is a multi-billiondollar industry. Cooper alleges that theTVA violated the Clean Air Act by mod-ifying several of its coal-fired powerplants without determining whetheradditional emission controls are neces-sary or installing the best availabletechnology to control dirty air. The U.S.Environmental Protection Agency hasbeen trying since 1999 to require TVAto meet tougher emission standards onnine of its eleven plants. The EPA con-tends the plants, many built in the1950s, were so extensively modifiedbetween 1982 and 1996 that theyshould be treated as new plants.

XIX.TOBACCOLITIGATIONUPDATE

SUPREME COURT ISSUES STAY IN TOBACCOSUIT

The U.S. Supreme Court has issued astay that allows Philip Morris USA todelay paying $10.5 million in damagesto a former smoker in California. Thestay will be in effect while the tobaccocompany contests the amount of theverdict. The company had been suedby Patricia Henley, who startedsmoking at age 15, smoked for 35years and in 1997 was diagnosed withlung cancer. In September, the Califor-nia Supreme Court refused to reducethe $10.5 million award, which PhilipMorris claimed was excessive. TheRichmond, Virginia-based unit of AltriaGroup Inc. of New York is appealingto the U.S. Supreme Court. The HighCourt’s order, which prevents Ms.Henley from collecting any moneyuntil the matter is resolved by the jus-tices, wasn’t a surprise. Most observersexpected the stay to be entered. Allnine court members participated in theorder, including Chief Justice WilliamH. Rehnquist, who had been hospital-ized with thyroid cancer. The case willbe watched with interest.

GOVERNMENT’S CASE CREEPS FORWARD

The federal government’s lawsuitagainst the tobacco industry is stillbeing tried. There’s not much new toreport on that front. The case isexpected to be long and drawn out.The government’s lawyers appear to behaving difficulty getting some key doc-uments into evidence. I hope thoseproblems can be resolved. But, Iwouldn’t be at all surprised to see thegovernment losing interest in this casenow that the elections are over. It willbe a shame, if that happens, resultingin a tremendous political victory for thebad guys.


XX.THE CONSUMERCORNER

BB GUNS INJURE THOUSANDS EACH YEAR

Many of us grow up owning a BBgun and spent lots of time “hunting”with these “toys.” Unfortunately, BBguns and other nonpowder guns canbe lethal, injuring as many as 21,000Americans annually. Nonpowder gunskill an average of four Americansyearly. From 1990 to 2000, there were39 such deaths — 32 of childrenyounger than 15, according to a reportin November’s issue of Pediatrics. Thereport came just two weeks after theBB gun death of an 8-year-old SouthCarolina boy accidentally killed by a13-year-old friend. A pellet from the BBgun pierced the boy’s heart. Lots ofadults don’t know that today’s BB gunsare extremely high-powered. Some canshoot with a velocity nearly matching a.22 caliber rifle. Most folks still think ofBB guns as “toys” and that’s part of theproblem.

These new BB guns are not the samekind that many of us older folks grewup with. These guns include powerfulair rifles introduced in the 1970s andpaintball pistols used in war games.They are sometimes described as fakeguns and often given to children asgifts. The Pediatrics report says theycan cause internal injuries similar tothose from bullets. The gun involved inthe October 18th shooting in SouthCarolina was a present from the olderboy’s parents. “They’re being given astoys without recognition that there maybe a serious injury risk,” said reportauthor Dr. Danielle Laraque, a NewYork pediatrician.

Nationally, an estimated 21,840injuries related to nonpowder gunswere treated in emergency depart-ments in 2000 — most in children aged5 to 14, according to the report pre-pared by the American Academy ofPediatrics’ Committee on Injury, Vio-lence and Prevention. Centers forDisease Control and Prevention datashow there were 19,163 nonpowdergun injuries last year. Most states havelaws or regulations governing nonpow-

der guns. According to the Pediatricsreport, New York’s is one of thestrictest, prohibiting the purchase orunsupervised use by someone youngerthan 16 years. While some models ofair guns and BB guns are marketedspecifically to youngsters, manufactur-ers and sellers claim they stress thatthey should be handled like legitimatefirearms. Daisy Outdoor Products, aleading maker of BB guns and airrifles, lists safety instructions on itswebsite and notes the risk of injury ordeath if the rules aren’t followed. Thatis a step in the right direction, butdoesn’t go far enough. Warnings mustgo directly to the adult purchasers atthe time of purchase.


FIRST FELONY SPAM TRIAL IN VIRGINIA ISSUCCESSFUL

The nation’s first felony spam trial,which was tried in a Virginia court,could be a watershed in the crusadeagainst spam. Criminal convictionswere obtained by the prosecutors inthe case. This could result in a series ofindictments against spammers withoperations in Virginia, the epicenter ofInternet traffic and home to thecountry’s toughest anti-spam law.Jeremy Jaynes, Richard Rutowski andJessica DeGroot were accused ofpumping thousands of spam e-mailsthrough false return e-mail addressesand false Internet routing informationlast year. Jaynes, once rated one of thetop 10 spammers by watchdog groupSpamhaus Project, worked with hissister, DeGroot, and an accomplice,Rutowski. All three face up to 15 yearsin jail and fines of up to $10,000. Vir-ginia officials pushed hard in their casebecause several Internet serviceproviders, including No. 1 AmericaOnline (AOL), have e-mail servers inthe state. About 80% of Internet trafficflows through Virginia. AOL assisted inthe investigation that led to the prose-cutions.

I hope this case will deter some mar-keters from clogging computer in-boxes with billions of illegally sente-mail messages. The case was triedunder Virginia’s tough anti-spam law.

The federal law, which took effect thisyear, does not apply to the case and isconsidered watered down. Virginia’santi-spam law is one of the nation’stoughest. It prohibits falsifying informa-tion to mask a bulk mailer’s identity. Aviolation becomes a felony if thevolume of spam exceeds 10,000 mes-sages in 24 hours, 100,000 in 30 daysor 1 million in a year. The federal Can-Spam law bars individuals and compa-nies from disguising their identities andcollecting e-mail addresses from theWeb. Commercial messages mustinclude opt-out options. It imposesfines of $250 per e-mail and includes aprovision that lets states, such as Vir-ginia, also pursue criminal chargesagainst spammers.

Bail was set at $1 million for Jaynes,who is considered too great a flightrisk to be allowed bail. The govern-ment says Jaynes has been squirrelingaway parts of his $24 million fortune inforeign bank accounts and faces up tonine years in prison. The 30-year-oldJaynes, who was jailed following hisconviction. Prosecutors have saidJaynes was among the top 10 spam-mers in the world at the time of hisarrest, using the name “Gaven Stubber-field” and other aliases to peddle junkproducts and pornography.

Under Virginia’s law, sending unso-licited bulk e-mail itself is not a crimeunless the sender masks his identity. Ajury recommended that Jaynes get nineyears in prison, a term the judge caneither leave in place or reduce at theFebruary 3rd sentencing. Jaynes’s sister,Jessica DeGroot, was also convicted,but received only a $7,500 fine. Thethird defendant, Richard Rutkowski,was acquitted of all charges. The Vir-ginia law will be challenged on consti-tutional grounds. Hopefully, the lawwill be upheld.

Source: USA Today

INTERNET USERS AT HOME AREN’T ALWAYSSAFE ONLINE

Internet users at home are not nearlyas safe online as they believe they are,according to a nationwide inspectionby researchers. They found most con-sumers have no firewall protection,


outdated antivirus software and dozensof spyware programs secretly runningon their computers. In fact, some of thefindings were rather shocking. Forexample, one home user in the govern-ment-backed study had more than1,000 spyware programs running onhis computer when researchers exam-ined it. Another 3-year-old Dell com-puter used by a Virginia family wasfound infected with viruses and morethan 600 pieces of spyware surrepti-tiously monitoring his online activities.The Internet, with increasingly sophisti-cated threats from hackers, viruses,spam e-mails and spyware, has itsshare of trouble. Computer users athome are finding that out.

The technology industry is alsofeeling the pain. Spurred by the highcosts of support calls from irritated cus-tomers—and fearful that frustrated con-sumers will stop buying newproducts—Internet providers, softwarecompanies and computer-makers aremaking efforts to increase awareness ofthreats and provide customers withnew tools to protect themselves. Manycomputer users are unprepared tocope with the dangers they face. Astudy released by America Online andthe National Cyber Security Alliancefound that to be true and that a smallpercentage were safe from onlinethreats.


THE LATEST ONLINE SCAM

Over the past several months, wehave written a great deal on identitytheft. The reason for this is simply thatit is a subject where the public badlyneeds to be informed. The public isslowly learning that identity theft is thefastest growing crime in the nation.But, we find that many people simplydon’t grasp the magnitude of theproblem and don’t take it very seri-ously. Almost 10 million people hadtheir identities stolen in 2003. Most willprobably be shocked to learn that evenbabies and children are having theiridentities hijacked. Thieves have real-ized that their crime can go undetectedfor a long time if they choose very oldor very young victims because these

people are not regularly getting orchecking credit reports or credit cardand other financial statements. Fewnew parents are going to assume thattheir newborn is a potential target foridentity theft. The crime may not bediscovered until the child applies forstudent loans or a first credit card.While “dumpster diving”—thievesgoing through the trash and pulling outdocuments that contained personalinformation—is still a risk, identitythieves have become much moresophisticated. Online “phishing” is thenew weapon in the identity thieves’arsenals.

Phishing means sending cleverlycreated e-mails to large volumes of e-mail addresses, designed to fool recipi-ents to reply with personal financialdata, account numbers, user namesand passwords. According to the Anti-Phishing Working Group, phishers areable to get up to 5% of recipients torespond to them. They do so usingcleverly designed e-mails and websitesthat contain messages that appear to befrom large and familiar businessesrequesting that a consumer reply withpersonal data about their existingaccounts.

Phishers’ e-mails notify consumersabout bogus “changes to accounts” and“request to reply to protect youraccount from cyber scams.” Whenreplying to the e-mails, consumers areled to official looking, but bogus, web-sites, where logins to the sites arerequested. According to the APWG,recent phishing scams were aimed atcustomers of eBay, Wells Fargo,Citibank, SunTrust and EarthLink. Thescary thing about phishing is that the e-mails look really legitimate. A recent e-mail to Citibank customers said thecompany was updating its online secu-rity. Readers were warned that if theydid not resubmit their personal infor-mation, they would no longer be ableto use the company’s online services.Citibank and other financial serviceshave their names hijacked most often.The Anti-Phishing Working Group listson its website the latest scams. Keep inmind that all of these are scams—the e-mails are not actually from the compa-nies they say they are from. Thefollowing are examples of the scams:

• Earthlink and MSN – This e-mail saysyour billing information is out ofdate and your membership will becancelled if you don’t update yourinfo immediately.

• eBay – This e-mail claims to havediscovered that your account hasbeen “compromised by outsideparties” and that you won’t be ableto use your account until you updateyour information. Part of the fakeeBay e-mail reads: “We have noticedsome activities pertaining to youraccount indicating that other partiesmay have had access and/or controlof information in your account.These parties have in the past beeninvolved with money laundering,illegal drugs, terrorism and variousFederal Title 18 violations. In orderthat you may access your account,verify your identity by clicking here.”

These scammers try to scare you intogiving up your information. They alsomake it seem as if the e-mail senderhas your best interest in mind. TheAnti-Phishing Working Group saysthese phishing expeditions are success-ful about 5% of the time. This is a lowpercentage, but all they have to do ishit a few times to “strike it rich.” Thereis one simple way to make sure youdon’t become a victim of these scam-mers: ever respond to any e-mail thatrequires you to provide a social secu-rity number, credit card number, bankrouting number or other personal info.If you think the e-mail may actually bevalid, contact the institution directly.While you can prevent falling victim tothese online scams, it is almost impos-sible to prevent all identity theft thesedays. However, we must all learn asmuch as we can and then be extremelycareful with sensitive information.

Many times, the theft of personalrecords is an inside job where employ-ees in a business with access to cus-tomer data are tempted to steal largevolumes of customer’s records. Thetemptation can be real: Stolen personaldata can bring anywhere from $10 toas much as $60 per record or creditreport. The crooks that purchase theserecords turn them into profits by usingthe personal information to obtainloans and open credit cards, which are


used to purchase large quantities ofgoods, which are then fenced for cash.These inside jobs are getting harder toprevent, as the outsourcing of callcenter service jobs overseas puts Amer-icans’ personal information abroad,where it can be used fraudulently. Thefederal government reports thatincreasing numbers of ID theft schemesthat started abroad are now spreadingin the United States.

Just as there are new methods ofstealing your identity today, there arenew services you can use to helpprotect yourself. Farmers Group, Ameri-can International Group, Travelers,Chubb, Encompass and several creditcard issuers now offer identity theftinsurance. The cost of this insuranceruns from $25 to $50 a year. It is myunderstanding that Consumer Reportsdoesn’t recommend this type insurance.There are also other products availablethat you may want to check out, partic-ularly if you’ve been a victim in thepast. For example, the McAfee PrivacyService software ($34.99 per year)includes special protections on per-sonal computers that warn users beforethey send their PINs and passwordsover the Internet. Other services, suchas the myFICO Identity Theft Security($19.95 per year), include a service thatmonitors a subscriber’s credit reports,sending e-mails when suspiciouschanges occurs, and also includes iden-tity theft insurance protection.

The single best defense against iden-tity theft is reviewing your creditreports frequently. If you discover thatyour ID has been stolen, take the fol-lowing steps at once:

• Call credit bureaus;

• Close fraudulently-opened accounts;

• File a police report;

• Call the Fedferal Trade CommissionID Theft Hotline (877-ID THEFT /438-4338); and

• Alert all other financial accounts thatthe theft has occurred.

Sources: CBS News and Associated Press

CITIZENS MUST BEWARE OFINTERNET OFFERS

The Alabama Securities Commission,the State of Louisiana Office of Finan-cial Institutions Securities Division, andMississippi Secretary of State’s Office,Business Regulation and EnforcementDivision, have warned potentialinvestors to watch out for offers fromLiberty Assets, Inc. (LAI) and ForeignShareholder Protection Department(FSPD). Joe Borg, Director of theAlabama Securities Commission, in ajoint statement with officials fromLouisiana and Mississippi, advised:

We have recently received com-plaints from residents of the UnitedKingdom, Singapore, Australiaand New Zealand who have beensolicited by agents of LAI. The com-plainants state that LAI offered topurchase shares of old stock andshares issued by defunct companieson behalf of groups of investors foras much as four times of themarket prices for the securities.However, prior to purchasing thesecurities LAI requires its partici-pants to deposit what LAI calls a “penalty restriction bond” for 10%of the total purchase price with oneof its affiliated companies. Poten-tial investors need to beware of thiscompany. You can easily avoidbeing a victim of this type of fraudby checking to see if a company isregistered to sell securities and theproduct being offered is registeredin your state of residence.

LAI maintains an Internet website,which is http://www.libertyassets.com.LAI describes itself as a “VentureCapital” company that has been inbusiness since 1999. The four primaryLAI officers have “profile” pages on theLAI website. There are no records thatindicate that Liberty Assets Incorpo-rated is registered to conduct businessin the state of Alabama. Present evi-dence supports a reasonable suspicionthat LAI and its affiliates are engaged inan international securities fraud usingthe Internet. All available informationindicates that LAI is attempting toentice previous victims of “pennystock” and/or “pump and dump” scams

into selling their worthless shares for asmuch as 10 times the market value.The potential victims are told that theymust first pay what amounts to anadvance fee, which is represented as apenalty restriction bond, allegedlyrequired by the U. S. government.None of the individuals or entitiesidentified in this report are registeredto conduct securities transactions. Inaddition, none of the addresses for thecompanies can be verified, and theyappear to be nothing more than frontsused to give the appearance of a legiti-mate business in a represented loca-tion.

Alabama, Louisiana, and Mississippistate securities regulators cautionpotential investors to thoroughly checkout any investment opportunity.Contact your state regulators forinquiries regarding securities broker-dealers, agents, investment advisors,investment advisor representatives,financial planners, the registrationstatus of securities, to report suspectedfraud, or obtain consumer information.If you have questions or require moreinformation, contact: www.asc.state.al.us.

RECORDING INDUSTRY SUES COMPUTERUSERS

The recording industry has filedanother round of copyright infringe-ment lawsuits against people who wereallegedly distributing songs illegallyover the Internet. This latest wave offederal litigation targeted 750 computerusers across the nation, including 25students at 13 universities, according tothe Recording Industry Association ofAmerica (RIAA), the trade group for thelargest music companies. The RIAAclaims the defendants used universitycomputer networks to distribute copy-righted recordings on unauthorizedpeer-to-peer services, including eDonkey,Kazaa, LimeWire and Grokster. Sepa-rately, the RIAA also sued 213 peoplein 34 states and Washington, D.C., whohad already been identified in earlierlitigation but failed to settle their cases.

Among the universities attended bystudents named in the lawsuits wereIndiana State, Iowa State, Ohio Stateand Southern Mississippi. But the indi-


vidual colleges and universities werenot named as defendants. As in previ-ous cases, the new lawsuits were filedagainst “John Doe” defendants—identi-fied only by their numeric Internet pro-tocol addresses. Music companylawyers must obtain the identity ofdefendants by issuing subpoenas toInternet access providers. In all, record-ing companies have sued 6,191 musicfans since September 2003, when theindustry began waging its legal cam-paign against online sharing of musicfiles. To date, 1,207 defendants havesettled their cases out of court, accord-ing to the RIAA. Settlements in previ-ous cases have averaged $3,000 each.

While some surveys have shown thenumber of people engaging in file-sharing has declined since the RIAAbegan its legal assault, other data showmillions continue to share music,movies and software online. A recentstudy by researchers at the University ofCalifornia, Riverside, concluded thattraffic on peer-to-peer networks hasnever declined and is at least compara-ble to the same levels it was a year ago.


CONSUMER FRAUD AWARENESS CAMPAIGNTARGETS HISPANICS

A good number of people in theUnited States speak Spanish as theirprimary language. That has causedthem obvious problems, including onebeing the receipt and understanding ofwarnings and consumer alerts of allsorts. In a positive move, the FederalTrade Commission launched a Spanishlanguage consumer fraud awarenesscampaign, Mantente alerta contra elfraude. Informate con la FTC (“Be onthe alert against fraud. Stay informedwith the FTC”). The campaign goal isto encourage Spanish speakers to iden-tify fraudulent and deceptive businesspractices and to tell the FTC aboutthem when they occur. The outreachcampaign complements the agency’senforcement initiative against fraudstargeting Hispanic consumers.

The campaign includes a series ofradio public service announcementsand banner ads on websites that aregeared to Latino audiences. A recentsurvey found that Hispanics are twice

as likely to be victims of consumerfraud as non-Hispanic whites. FTCChairman Deborah Platt Majoras says:“Many consumers do not know whereto seek help when they have beendefrauded. This campaign lets Spanishspeakers know that the FTC is not onlya great source of information aboutspotting a fraud, but also an importantplace to report it.”

The FTC has information about anumber of consumer frauds in Englishand Spanish at www.ftc.gov/bcp/conline/edcams/ojo/s-index.htm. Inaddition, the agency maintains a toll-free help line at 1-877-FTC-HELP wherecounselors take complaints in bothEnglish and Spanish. Mantente alertacontra el fraude, Informate con la FTCwill be a pilot program in 11 cities: NewYork, Washington, D.C., Atlanta, Miami,Raleigh, Chicago, Phoenix, Dallas,Houston, San Antonio, and Los Angeles.

PURDUE PHARMA TO PAY $10 MILLION OVEROXYCONTIN

Purdue Pharma LP has agreed to pay$10 million to the State of West Virginiato settle a lawsuit that accused thecompany of dishonestly marketing thepainkiller OxyContin in that state. Thesettlement funds will be used to payfor programs to educate doctors, lawenforcement and communities aboutthe use, abuse and diversion of pre-scription drugs. Purdue Pharma willmake four annual payments of $2.5million to the Attorney General’s con-sumer education fund. A state courtjudge approved the settlement lastmonth just before jury selection in thecase was scheduled to begin. It wasalleged in the 2001 lawsuit that Stam-ford, Connecticut-based Purdue Pharmadid not tell doctors, pharmacists andpatients about the morphine-like drug’saddictive qualities because it wanted tosell more pills, according to courtfilings and hearing transcripts.

A NEW BOOK FROM CITIZEN WORKS

Citizen Works has announced therelease of a new book that gets right atthe heart of fighting corporate domi-nance. The People’s Business exam-

ines the very nature of corporatepower, presenting a range of strategiesto curtail it, and explains how ordinarypeople can restore citizen control.Bringing together the recommenda-tions of the Citizen Works CorporateReform Commission—a coalition ofleading authors, activists, scholars, andprofessionals,—The People’s Businessis a plan for “strengthening individualrights, transforming corporations intoengines of public prosperity, and creat-ing a sustainable, life-respecting societywhere the people have the power,”according to the announcement. Inorder to restore true citizen democracyin America, we will need to challengecorporate power effectively anddirectly—to frame the debate aroundquestions of economic justice and cor-porate accountability. The challengesare great and complex, but ThePeople’s Business may help us beginthinking about and planning for thefundamental challenges that lie ahead.

SEARS TO PAY $500,000 FOR NOTREPORTING MOWER DEFECTS

Sears, Roebuck and Company hasagreed to pay $500,000 to resolvefederal allegations that it failed to reportknown defects on riding lawnmowersmade by a Brentwood, Tennesseecompany. The Craftsman mowers aremanufactured by Murray Inc. Accordingto federal safety officials, Sears learnedof about 1,600 instances of fuel leakageand fuel tank cracking on some modelsof Craftsman lawnmowers from April1999 to September 2001. The companyfailed to report the problems asrequired by federal law. About 36,000of the Craftsman rear-engine ridinglawnmowers were recalled in 2003. Themanufacturer later paid a $375,000 civilpenalty to settle allegations of belatedlynotifying the Consumer Product SafetyCommission.


XXI.RECALLS UPDATE

GM RECALLS 1.5 MILLION CARS

General Motors is recalling about 1.5million cars in four separate recalls.The first involves the 2004 BuickRainier and the 2002 to 2004 ChevroletTrailBlazer, GMC Envoy and Oldsmo-bile Bravada. A National HighwayTraffic Safety Administration (NHTSA)spokesman said taillights could mal-function. The second involves the2003-model Chevrolet Cavalier andPontiac Sunfire for taillight and turnsignal malfunctions. The 2003-modelChevrolet Malibu, Pontiac Grand Amand Oldsmobile Alero are also beingrecalled because their acceleratorscould stick and not return to idle. Thelast involves the 2004 to 2005 CadillacXLR and 2005 Chevrolet Corvette. Fieldtests suggest a possible brake-fluidleak. This brings the yearly number ofrecalls to a national record of 24.8million cars. NHTSA says that GM hasrecalled almost 10.5 million vehicles inNorth America this year.

POLARIS UTILITY VEHICLES RECALLED

Polaris Industries, along with the U.S.Consumer Product Safety Commission,have recalled the Polaris “Ranger” 4x4utility vehicle. The lower steering shaftassembly may have a missing or mis-placed weld that connects the steeringwheel to the steering gear box assembly.If a weld is missing or misplaced, thelower steering shaft assembly could fail,causing the operator to lose control ofthe vehicle. There have been 2 reportsof the lower steering shaft assemblyfailing. To date, no injuries have beenreported. All model year 2005 “RANGER4x4” Utility Vehicles with model numberR05RD50AA are part of this recall. Themodel number is located on the upperright frame tube directly under the rightside of the seat. The RANGER 4x4 UtilityVehicles have black seats with a greenchassis. “RANGER 4x4” is prominentlydisplayed on the right and left side ofthe rear cargo box. Polaris Industries,Inc., of Medina, Minnesota, manufac-

tured these vehicles. Polaris dealers soldthese Utility Vehicles nationwide fromJune 2004 to September 2004 for about$8,899.

WAL-MART RECALLS LAWN CHAIRS

Wal-Mart has recalled thousands oflawn chairs that were sold at its storesnationwide this year. The plastic arm-rests on the folding chairs can breakoff. Wal-Mart says it had received twodozen reports of broken wrists, backinjuries, and bruises. The recallinvolves nearly 21,000 “Rio” brandfolding chairs with green or blueplastic arm rests. The chairs were soldbetween January and March for about$8. Wal-Mart also sold “Rio” lawnchairs with white or beige arm rests,but those chairs are not a part of thisrecall. People with faulty lawn chairscan return them to Wal-Mart for arefund or call the manufacturer at 1-800-866-8520.

THERMAL SAFETY VALVES RECALLED

Robertshaw Controls Co. has recalled123,544 gas valves and 37,350 magnetheads used in commercial cookingequipment because of the potential forgas explosions and fires. The U.S. Con-sumer Product Safety Commission(CPSC) says the gas valve can stickopen if the pilot light goes out, allow-ing gas to continue to flow and posingthe risk of fire or explosion. Accordingto the CPSC, there have been 12reports of flash fires, including ninereports of people being burned. TheRobertshaw TS-11 Thermal SafetyControl Gas Valves are used in com-mercial cooking equipment with pilotlights, including fryers and warmingtrays. The valves and the magnet headswere assembled in Mexico and sold byfood service equipment dealersbetween February 2003 and August2004 to commercial food serviceproviders, such as restaurants. Therecalled products carry date codes 0306through and including 0432. Con-sumers should have the applianceexamined by the gas company or aqualified technician. The company will arrange for free repair or replace-

ment of the recalled gas valves. Consumers can call Robertshaw at(800) 232-9389 or visit the company’swebsite (http://www.robertshaw.com/)for more recall information.

GOVERNMENT RECALLS RADIANT HEATERS

A Texas company is recalling about30,000 radiant heaters sold at Wal-Martstores nationwide. Aloha HousewaresInc. says the heater’s thermal protectormay cause a fire hazard if the heater iscovered with a blanket or similar item.These electric radiant heaters areModel 02931. The model number isprinted on a silver UL label on thebottom of the heater. The heater isgray, and the name Airtech is printedon the heater. The recalled heaterswere sold at Wal-Mart stores nation-wide from mid-September 2002through April 2003 for about $16. Con-sumers should stop using theserecalled heaters and call Aloha Cus-tomer Service at (800) 295-4448 toarrange for a free replacement.

BOWFLEX RECALLS NEARLY 800,000MACHINES

Anybody who watches any commer-cial TV knows about the popularBowflex fitness machine. The makersof these machines are recalling nearly800,000 units after dozens of peoplereported injuries from mechanicalproblems. This marks the second largerecall of Bowflex equipment this year.In January, the machine’s manufacturerissued a voluntary recall of about420,000 units after reports of similarmechanical problems. The latest recallaffects 680,000 Bowflex Power Prosystems and 102,000 Bowflex UltimateFitness Machines, manufactured by TheNautilus Group, of Vancouver, Wash-ington. The Consumer Product SafetyCommission says the machine’s seatcan unexpectedly break on the Ulti-mate model and Power Pro with “LatTower.” There were 46 reports of suchincidents, two of which resulted inserious injuries requiring stitches to thehead. Another failure involves themachine’s backboard bench unexpect-edly collapsing when it is in the incline


position on Power Pro models withoutthe “Lat Tower.” There were 42 reportsof this failure, causing injuries to theback, neck and head, none of whichwere serious.

The company issued its recall inJanuary after reports of more than 70injuries because of the backboardbench failure and problems with the“Lat Tower.” That piece, used tostrengthen the upper body, canweaken over time and collapse, injur-ing the user’s back, head and shoulder.The recalled machines were sold atfitness stores and through infomercialsand direct mail around the nationbetween 1995 and April of this year.The systems cost between $1,200 and$1,600, depending on the model. Con-sumers are advised to stop using thebackboard bench in the incline posi-tion and contact the company toreceive a free repair kit. Customerswho participated in the recall inJanuary and owners of the Ultimatesystems will automatically receive a kit,according to the company. I under-stand that where owners’ names areknown for any model, the companywill contact them as well. Consumerscan call Bowflex at 1-800-820-8604 toreceive the repair kit.

XXII.SPECIALPROJECTS

LEGAL SERVICES OF ALABAMA

I have always felt that Legal Servicesof Alabama (LSA) does a tremendousservice for low-income citizens in ourstate who quite often find themselvesin need of legal advice and help. Asyou may know, LSA is an independent,non-profit organization that providesqualifying low-income families withlegal aid and assistance in civil matters.LSA is a statewide program serving all67 counties in Alabama. LSA provides afull range of services, including:

• Counsel and advice

• Mediation

• Administrative representation

• Representation in court

• Appeals in appropriate cases

• Legal self-help materials and forms

It is the goal of LSA to help people,families as well as individuals, movetoward self-sufficiency by assistingthem with their legal needs. Our firmbelieves that helping this group helpsothers is a good thing for us to do.Therefore, we are funding the BeasleyAllen Consumer Law Fellowship.Hopefully, this gift will allow LSA toreceive a badly needed National Con-sumer Law Fellowship from theNational Consumer Law Center. As youmay know, LSA has survived years oflow pay, layoffs, and office closingswhile remaining steadfastly committedto the needs of their clients. The low-income communities in Alabamadepend heavily on LSA in a number ofsituations. Access to civil justice forlow-income Alabamians is badlyneeded and we are happy to supportefforts of LSA to provide free legalassistance to these deserving Alabami-ans. I hope many people in need willreceive legal services that would other-wise not been available to them. LSAdoes a tremendous job and we arepleased to be able to help them out.

A SPECIAL REQUEST FOR HELP

Shannon Britt, who is now 27 yearsold, became ill at age of 17 and by theage of 19 was diagnosed with the mostprogressive case of Crohn’s diseasedocumented in the southeastern UnitedStates. The treatments she has under-gone have left her with a host of com-plications and secondary illnesses.Obviously, this has further complicatedher condition. Shannon has nowexhausted all traditional and experi-mental treatments the medical field hasto offer. Her only option is a transplantbeing offered through NorthwesternUniversity in Chicago. Shannon hasbeen approved for the transplant, butneeds to raise $100,000 before Marchof 2005. Sadly, Shannon is now unin-surable and is left without hope unlessthe needed funding can be raised.

If you would like to help Shannon,you can make a financial contribution

to the Shannon Britt Medical Accountat any SouthTrust bank (nowWachovia). In addition—and this isstrictly for Auburn University fans—a1930 model-A Ford has been donatedfor the benefit of Shannon by a 2-timecancer survivor—and will be availableto the lucky winner of a raffle. Thevintage automobile will be raffled off at$50 per chance, with only 1,000 ticketsin print. If you would like to buy a fewraffle tickets, make a check to TheShannon Britt Medical Fund and send itto P.O. Box 307, Smith Station, AL36877. Your name will go in the boxand you will receive a receipt stub. Ifthe raffle does not raise at least thevalue of the car, which I understand isestimated in the $16,000 range, theraffle will be cancelled and all dona-tions will be refunded. This is a goodcause and you can feel good abouthelping a person in need during theChristmas season. My friend Dr. BobStory of Tuskegee brought this to myattention, which I very much appreci-ate. Your prayers and financial supportwill be appreciated by Shannon andher family.

XXIII.FIRM ACTIVITIES

EMPLOYEE SPOTLIGHTS

Our Newest AssociateChad Cook, who recently became an

associate in the firm, is a member ofour Mass Torts Section and is currentlyworking primarily on Welding Rod liti-gation. Chad had previously workedfor the firm in a number of administra-tive capacities. He received a bache-lor’s degree in Criminal Justice fromAuburn University at Montgomery in1998 and graduated from ThomasGoode Jones School of Law in 2002.Since graduation, Chad has also taughtevening classes in the Legal Studiesprogram for Faulkner University. Chadand his wife, Sharon, attend FirstBaptist Church in Montgomery. Chad isa very hardworking lawyer and doesexcellent work. He is a definite asset tothe firm.


Sandra WaltersSandra Walters, who has been with

the firm for almost thirteen years, is theSection Head Administrator of ourToxic Torts Section. In this position,she assists Rhon Jones with the day-to-day activities of managing that section.Sandra is the mother of three children:Melanie Sullins, who is currently pursu-ing her Bachelor of Science Degree atAUM; Holly Stroh, who also works forthe firm in our Fraud Section; and 13-year-old Hunter Walters. Sandra is alsothe proud grandmother of Taylor andDrew Stroh. This dedicated and loyalemployee is an avid collector of primi-tive antiques and restores furniture inher spare time. We are most fortunateto have Sandra, who does excellentwork, with the firm.

LITIGATOR OF THE YEAR

We are pleased to announce thatDavid B. Byrne, III, has been selectedas our “Litigator of the Year” for 2004.We are most fortunate to have David,who is one of our most diligent andhardworking lawyers, as a member ofour firm. David began his legal careeras a Deputy Attorney General for theState of Alabama. He later served as alaw clerk to U.S. District Judge RobertVarner. David then clerked for AlabamaCourt of Criminal Appeals Judge JohnM. Patterson. After serving thosejudges, David entered the private prac-tice of law in Montgomery, as amember of the firm of Beck & Byrne.Practicing law with George Beck, aveteran and well-respected lawyer, hadto be a great experience. David joinedour firm in March 2001, and has prac-ticed in our Toxic Torts Section, withhis primary focus on commercial/busi-ness matters and environmental/toxictort litigation.

In 2003, David was involved in thelargest toxic tort settlement in U.S.history involving the PCB contamina-tion in Anniston, Alabama, againstSolutia, Monsanto and Pharmacia.David was a primary lawyer for ourfirm in this landmark settlement. Hisvery good work on that case has con-tinued over into 2004. David was alsoone of the lead trial attorneys in a $20million dollar verdict in federal court

this year for the City of Columbus andother Georgia businesses, which wereaffected by carbon black fallout from anearby plant in Phenix City.

David has been married to his wife,Betty Bobbitt, for eight years and theyhave two children. He and his familyattend Young Meadows PresbyterianChurch in Montgomery, where heserves as a deacon. David also serveson the Board of Directors for the Mont-gomery County Trial Lawyers Associa-tion, and is a member of the Board ofGovernors for the Alabama TrialLawyers Association. He is a finelawyer, and a better person. We aremost pleased to have David with ourfirm. He is most deserving of thisaward, which is given annually. Theselection is made by our Board ofDirectors and Section Heads. I mustadd that David had some very stiffcompetition this year. He will be recog-nized at our annual Christmas Partythis month.

XXIV.MY LASTOBSERVATION ONTHE ELECTIONS

Now that the elections are over, lotsof so-called experts are making all sortsof analysis and conclusions. All I cansay is that I voted for the Kerry-Edwards ticket and don’t plan on apol-ogizing for that vote. I sincerely believethat was the best choice for America.But, my views were in the minoritynationwide and I must accept that asfinal. In Alabama, the Bush victory waseven wider than anticipated. I sincerelyhope and pray that George W. Bushwill be the President of all citizens inthis country and not just for the privi-leged elite. I will pray daily for thePresident to be successful. We havetremendous problems facing ourcountry, and we all have an obligationto support this Administration whenthey are right. Opposition when theyare wrong is equally appropriate, andthat’s what separates our governmentfrom most of the world. But, this oppo-sition must be well founded and

carried out in the proper manner.In retrospect, John Kerry never had

much of a chance to win. He came outof a state that was labeled the mostliberal in the nation. The Massachusettssenator had a voting record that wasvery easy to cherry-pick and thenattack the bad votes, ignoring the manygood ones. His very good Vietnamrecord became a liability, which wastotally unjustified and perhaps was theirony of ironies, when you consider theservice record of his opponent. HadKarl Rove not been involved, SenatorKerry may have had a fighting chance.While I have no use for his kind, Roveis a political genius and his 3-G’s strat-egy was carried out skillfully to theletter. I didn’t vote for George W. Bush,but he is my President and I wish himand my country well.

XXV.SOME PARTINGWORDS

We are rapidly approaching theChristmas season, which should be ahappy time for all of us, and I find thatit’s a good time to reflect on things.Thanksgiving has come and gone, andwhile that holiday is a family time, andis a time when we should be thankfulfor our many blessings, the Christmasseason is a most special time of year.Actually, it has been said that theChristmas season is actually a glorioustime of year! I totally agree with thatassessment. During the Christmasseason, God brings us face-to-faceonce again with His design for andredemption of mankind. God’s inten-tions toward us are for life lived abun-dantly. His plans for the Kingdom aretotal victory! Unfortunately for manypeople in our country, the holidays canbe filled with unrealistic expectations.Old hurts are sometimes revisited andnew ones are quite often inflicted. Inmany instances, our hope can fade andwe are left with a heavy heart. Thisyear we also have the war in Iraq andthe constant threat of possible terroristattacks in this country on our minds. Inthe midst of all the commercialization


of the season and the fears that grip alltoo many, we should all rememberwhat the Christmas season is reallyabout! A good start is to pray for thereal spirit of Christmas for your familyand friends during the holidays. Dailyprayer will help all of us enjoy Christ-mas this year in a special way. The fol-lowing are some simple prayersthat—when prayed earnestly and withconviction—will help us enjoy the truespirit of Christmas this year.

• Love – Lord, help us follow the wayof love—allow the love of Christ toenter our hearts and compel us (1Cor. 14:1; 2 Cor. 5:14).

• Joy – Restore the joy of Your salva-tion to us and let us experience thejoy of Your presence in our dailylives (Ps. 51:12; 16:11).

• Peace – Let Your peace rule andguard our hearts. Give us more of

You since You are our peace (Col.3:15; Phil. 4:7; Eph. 2:14).

• Hope – Enlighten the eyes of ourheart so that we may know andenjoy the hope You called us to(Eph. 1:18).

• Favor – Let Your favor rest on usand sustain us daily (Lk. 2:52).

• Life – Shine Your light of life on usand help us to walk in that light (Job33:30; Ps. 56:13).

• Salvation – Help us to fear You sothat we can unlock the treasure ofYour salvation (Is. 33:6).

• Selflessness – Keep us humble andguard us from self-seeking attitudesthat reject truth (Rom. 2:8).

• Generosity – Make us rich in waysthat result in generosity on our partso You will be honored and praised(2 Cor. 9:11).

• Receiving – Help us to receive thefullness of Your Kingdom, YourSpirit, and Your Grace (Dan. 7:18; Jn.20:22; Rom. 5:17).

• Seeking – Encourage us to seekYour face with all our hearts and todo your will (Dt. 4:29; Ps. 27:8).

• Praise – We ascribe glory to Yourname, Lord. We come before You inworship for You are holy and true (1Chron. 16:28-29).

I wish for each of our readers andtheir families a joyous and blessedChristmas. It is my prayer that thisholiday season will be the best ever foreach of you and your families. Taketime to enjoy your family and friends,and reach out to those who are hurtingand lonely during what should be ahappy time. May God bless each ofyou during a very special time of year.


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