The Jere Beasley Report Nov. 2004

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

THE

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

NOVEMBER 2004

A NATIONAL LAW FIRM LOCATED IN MONTGOMERY,ALABAMA

I.CAPITOLOBSERVATIONS

ALABAMA PENSION FUND GETS $111MILLION OVER WORLDCOM SUIT

A recent settlement involving theRetirement Systems of Alabama wasgood news for a number of reasons.First, it was a good result. It alsoavoided a lengthy legal battle. The RSAclaims, which arose out of the World-Com bankruptcy, were in the case filedin a Montgomery County Circuit Court.Alabama’s pension fund will receive$111 million from three securities firmsand an accounting firm in settlement ofthe claims. The defendants settlingwere J.P. Morgan Securities, CitigroupGlobal Markets, Banc of America Secu-rities, the parent companies of thefirms and Arthur Andersen, World-Com’s former auditor. Dr. DavidBronner, chief executive of the Retire-ment Systems of Alabama, made thefollowing observation concerning thesettlement: “It’s a huge win for publicpension funds, and it’s a huge win forinvestors as a whole.”

The key to the settlement was anAugust ruling by the U.S. Court ofAppeals for the Second Circuit thatallowed RSA to pursue a suit in statecourt rather than getting drawn intoconsolidated lawsuits in a federal courtover WorldCom’s accounting scandal.The settlement came just before juryselection was to start in Montgomeryon October 18th. Keeping the case instate court was extremely important.Clearly RSA will get more money thanwould have been possible had the casebeen a part of the consolidated case.

Even though the total amount paid ispublic, the settlement agreement pro-hibits RSA from disclosing how mucheach defendant paid. This was becausethe settling firms have other litigationpending. As you may recall, WorldComfiled for bankruptcy in July 2002.Massive accounting irregularities hadallowed the company to claim a profitwhen it was actually losing money.RSA, the pension fund for stateemployees and education workers in

Alabama, had sued two former World-Com executives and the named invest-ment firms. The orginal suit sought$275 million in compensatory damagesfor losses on WorldCom stocks andbonds and $825 million in punitivedamages.

Fortunately, the pension fund wasable to recover a fairly good percent-age of its actual losses. RSA still hasclaims pending against Bear Stearns &Co. and former WorldCom executivesBernie Ebbers and Scott Sullivan. Theportion of the suit against the formerexecutives is on hold, as is the suitagainst Bear Stearns. The refusal ofJudge Charles Price, who presided overthe state court case, to allow the caseto be transferred to the consolidatedcases was very important. As predicted,the decision by the state court judge,was approved by the federal appealscourt. This was a tremendous victoryfor RSA and its members.

MORE THAN TWO-THIRDS OF ALABAMIANSFAVOR LOTTERY

A recent poll tells us that more thantwo-thirds of Alabamians support astate lottery to benefit public educa-tion. In fact, an overwhelming majoritysaid a lottery is a high priority for them.The telephone poll, conducted by theCenter for Governmental Services atAuburn University, found that 55.1% ofrespondents “strongly support” an edu-cation lottery and an additional 13.8%“support” it. This means 68.9% of adultAlabama Citizens appear to be in favorof the lottery. About 24.6% of thosepolled either “strongly” or “mildly”oppose a lottery. Nearly 80% of therespondents said public educationshould be an “urgent” or “high priority”for local and state officials. Of thosewho said they were strong Republi-cans, 32% strongly opposed the lottery.Only 36% of those who said they werevery conservative, whatever that meansin today’s world, are in strong opposi-tion to a lottery.

Personally, I don’t believe a statelottery should be established inAlabama. I have never thought that anyform of gambling should be a funding

source for state or local governments.In my opinion a lottery is nothing morethan a tax, and the “something-for-nothing” philosophy encourages low-income citizens to spend theirpaychecks trying to hit the jackpot. Ihope that the results of this poll don’tput the lottery back into play in ourstate. However, if I were a bettingman, I wouldn’t bet on it.

THE PROSECUTION OF DON SIEGELMAN

I have avoided writing about thecriminal charges brought against

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IN THIS ISSUE

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

II. Legislative Happenings . . . . . . . . . . 5

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

IV. The National Scene . . . . . . . . . . . . . 9

V. The Corporate World . . . . . . . . . . 13

VI. Campaign Finance Reform . . . . . . 16

VII. Congressional Update . . . . . . . . . . 17

VIII. Product Liability Update . . . . . . . . 20

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

X. Business Litigation . . . . . . . . . . . . 28

XI. Insurance and Finance Update . . . 28

XII. Premises Liability Update . . . . . . . 30

XIII. Workplace Hazards. . . . . . . . . . . . 31

XIV. Transportation . . . . . . . . . . . . . . . 32

XV. Arbitration Update . . . . . . . . . . . . 34

XVI. Nursing Home Update. . . . . . . . . . 36

XVII. Healthcare Issues . . . . . . . . . . . . . 37

XVIII. Environmental Concerns . . . . . . . . 38

XIX. Tobacco Litigation Update. . . . . . . 40

XX. The Consumer Corner. . . . . . . . . . 41

XXI. Recalls Update . . . . . . . . . . . . . . . 45

XXII. Special Projects . . . . . . . . . . . . . . 47

XXIII. Firm Activities . . . . . . . . . . . . . . . . 47

XXIV. One Last Look At . . . . . . . . . . . . . 48

The National Election

XXV. My Perspective On State Politics . . 49

XXVI. Some Parting Words . . . . . . . . . . . 50

former Governor Don Siegelmanfor a number of reasons. But, nowthat the case out of Tuscaloosa isover, I will briefly discuss it. Fromthe outset, I thought the casebrought by the U.S. Attorney’s officewas pretty weak. I had assumedthat there was something that thegovernment prosecutors had, butwere holding back for the trial. Iwill have more to say on this below.As you might imagine, there havebeen a number of newspaper edito-rials concerning the outcome ofthis matter. Let’s take a look atwhat some of our state newspapershave written about this case. I willadd a few concluding remarks onthis chapter in a politician’s cat-like life after you have read whatsome smarter folks have had to say.

PROSECUTORS WASTED TAXPAYER MONEY

When a case falls apart suddenly,even before the first witness iscalled, as happened Tuesday in theMedicaid fraud trial of formerGovernor Don Siegelman, someonehas some explaining to do. The U.S.Attorney’s Office dropped thecharges against Siegelman and atop aide after U.S. District JudgeU.W. Clemon ruled that prosecutorsdid not have enough evidence forthe conspiracy charge. The ques-tion isn’t whether prosecutors mis-handled the case—they did—butwhere their error lies.

Source: Tuscaloosa News

SIEGELMAN CASE TOSSED BECAUSE IT WASWEAK

Federal prosecutors needed anddidn’t get a sympathetic judge tosustain their case against formerGovernor Don Siegelman and hisformer Chief of Staff Paul Hamrick.When U.S. District Judge U. W.Clemon told the U.S. Attorney’soffice it lacked enough evidence tosupport a conspiracy chargeagainst the pair, government prose-

cutors called it quits. Prosecutorsthen dropped even weaker fraudcharges against the pair after thejudge’s ruling. The ruling in thesecond day of trial Tuesday wasn’ta great surprise to people whowatched the proceedings leading upto the high-profile trial. The judgehad already dismissed one theftcharge and expressed doubt aboutthe others. That was why U.S. Attor-ney Alice Martin fought desperatelyto have the judge removed from thecase. Sure, the judge could haveallowed the trial to continue, butassuming sufficient evidence waslacking, he did the right thing.

With the judge so systematicallydismantling the case, the federalprosecutors appear overzealous orguilty of playing high-stakes politicswith the public trust. A differentjudge may have allowed the trial tocontinue, but the conclusionwould have been the same basedon evidence made public.

Source: Decatur Daily

DON SIEGELMAN’S DAY IN COURT

The trial of a former governor oncharges of conspiracy and healthcare fraud is no trifle matter. Afterall, as the state’s top elected official,a governor should be abovereproach and should set the stan-dard by which all other public offi-cials in Alabama are measured.Tuesday in Tuscaloosa, on just thesecond day of his trial in federalcourt on charges stemming from a1999 Medicaid contract bid,former Governor Don Siegelmansaw the case against him disappearin minutes, just after opening state-ments. Embattled U.S. DistrictJudge U.W. Clemon determinedthat the prosecution’s evidence onthe conspiracy charge againstSiegelman and his former aide,Paul Hamrick, did not stand up toscrutiny. And with the heart oftheir case deflated, prosecutorsmoved quickly to dismiss, saying“there is no point in going

forward.” Yet even as Siegelmanbreathed a sigh of relief, the politi-cal tension that had been palpablein this case from the beginningrose to the surface. U.S. AttorneyAlice Martin and state AttorneyGeneral Troy King were notbashful in their contempt forClemon’s ruling. King, who hasshown a propensity to pontificateon a long range of matters despitehis relatively short time in office,was particularly vocal. “The loserstoday are the people of Alabamawho have the right to have theirpublic officials serve them honor-ably,” King said. “These proceed-ings began on a dark day and theysadly conclude on an even darkerday, a day without justice.”

Maybe the attorney general shouldsave the rhetoric for the campaigntrail. Meantime, it’s easy to under-stand the prosecution’s bitterness.Martin and her team, after all, hadsought to have Clemon, a Carterappointee, removed from the caseentirely, alleging “bias.” Only the11th U.S. Circuit Court of Appeals inAtlanta didn’t buy the argument,and Clemon was allowed to remain.Despite all the hype, we shouldremember that the former governor,like anyone else, is innocent untilproven guilty, and entitled his dayin court. That Siegelman had hisday court in a highly partisanclimate is no excuse to rush to judg-ment, or to question the impartialityof a sitting U.S. judge. For when onegets past all the nasty pre-trial poli-ticking and posturing, what remainsis the evidence, or lack thereof. Inour system of justice, it is incumbentupon the prosecution to prove itscase. Judge Clemon didn’t think theevidence in this case met the stan-dard. To his credit, he was notcowed by the intimidation tactics ofthe prosecution. He ruled on thecase that was presented before him.And at least one juror who heardthe opening statements felt justicewas served, calling Clemon’s ruling“a wonderful decision.”

Anniston Star

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BRAINSTORMS WITH FERRIN COX

Former Governor Don Siegelmanwas apparently right when he con-tinued to say there was no basis forthe charges of conspiracy againsthim in the Tuscaloosa federal courtcase. The feds dropped the wholecase after the judge had thrownout one charge for lack of evidence.Boy did that make the blood boil insome Alabama citizens whowanted to see political blood! For aday or so it was almost as emo-tional an issue as Judge Roy Mooreand the Ten Commandants. Wehad thought earlier that somethingwas amiss in this case when thelawyers for the federal governmentkept getting in trouble with thejudge…antics like maybe they hadbeen watching too many TV court-room scenes and not enough reallife court. Now, as always, DonSiegelman is our friend, but wehave no idea what went onbetween those charged in this case.Yet we are now alarmed that thesefederal “for the people” prosecutorsfiled charges, talked for months ofall the terrible things the trio haddone, made “news” statements tothe public that prompted thefederal judge to hold them in con-tempt for unfounded commentsand then would drop all chargesagainst the former governor andhis chief of staff after one chargewas dismissed. Now since the twoare legally, morally and possiblyeven politically innocent of thosecharges, forever and ever, how canthe feds even think of trying toconvict Dr. Bobo (whom we havenever even seen) of conspiring?

Another friend, Elba native andAlabama Attorney General, TroyKing, needs some basics explainedto him. These were federal casesbut Troy jumped in someone else’sfight and wound up with politicalegg on his face. We are far fromsmart, but even we know that onepolitician is wise not to get intoanother politician’s fight. Yet Troyhelped carry the ball for the federal

prosecutors in the Don Siegelmancase. A ball that the feds laterturned loose like a hot potato. Troy,just as each of us, has a constitu-tional right to his opinion on thisand any other issue. Yet he is nowin a statewide leadership position,one which carries great respectand responsibility. He needs toremember this fact before he openshis mouth publicly. Of course hisposition of leadership and respectcould very well be why the U. S.Attorney pulled him before the TVcameras with her while the indict-ments against Don Siegelman,Paul Hamrick and Dr. Bobo werebeing announced. So be it, that isall done now, but we plan to offerAlabama Attorney General TroyKing some of the above advice andhe would do well politically to heedwhat we say.

Elba Clipper

These editorials pretty well cover thewaterfront. I agree with some of theobservations, but have definite viewsthat differ on others. Some of the post-trial comments by the lawyers involvedin the case on both sides have beenpretty interesting. As most folks inAlabama know, I wasn’t a supporter ofDon’s when he ran for Governor.Neither did I support him when he ranfor a second term. Frankly, I have noplans to ever support this politician inthe future, and that is not subject tochange. However, I do believe Donwill run for Governor in 2006, and thatis as certain as the sun coming up inthe East.

Having made it perfectly clear that Iam not a Siegelman fan, I do havesome personal thoughts about thefederal prosecution. Based on what Ihave read and heard about the case, Iam shocked that the case was everbrought by the U.S. Attorney’s office.For the life of me, I never could figureout what criminal offense hadoccurred. If Don Siegelman has vio-lated the criminal laws, he should beindicted and prosecuted to the fullestextent of the law. On the other hand,no person or their family should be

investigated and indicted for politicalreasons, and that includes a profes-sional politician. Hopefully, politicsplayed no part in the Tuscaloosa case.No family should have to endure a“political prosecution.” There havebeen all sorts of rumors floating aroundMontgomery concerning possibleindictments coming out of the federalMiddle District of Alabama, which sitsin Montgomery. Knowing many of thelawyers in the U.S. Attorney’s office inthe Middle District, I am convinced thatpolitics won’t play any part in what—ifanything—happens here. I mustconfess, however, I am not sure thatwas the case in the Birmingham office.

Finally, I want to comment on thefederal judge who handled the casethat was to be tried in Tuscaloosa.Judge U.W. Clemon is an outstandingjurist who enjoys an excellent reputa-tion. Lawyers who try cases in hiscourt—on all sides—will tell you thatthis judge is highly intelligent, com-pletely fair and a no-nonsense judge.Litigants get a fair trial in his court andtheir lawyers had better be prepared.The criticisms of Judge Clemon in theSiegelman case are not justified. Theoutcome in the case would have beenthe same regardless of who the judgemay have been. To blame this debacleon the judge is absolute nonsense.

AMSOUTH TO PAY $50 MILLION IN PENALTIESRELATED TO PONZI SCHEME

AmSouth Bank will pay $50 millionin penalties for failing to uncover aPonzi scheme that cheated investors infour states. The Birmingham-basedbank will forfeit $40 million in anagreement with the U.S. Attorney’soffice in Jackson, Mississippi. As aresult, AmSouth won’t be prosecutedfor one year to see whether thecompany has addressed problems inreporting suspicious activities.AmSouth also agreed to pay $10million in penalties announced by theFederal Reserve and Financial CrimesEnforcement Network, which is underthe Treasury Department. The activitiesin question were related to a Ponzischeme dating back to 2000. The Ponzi


scheme, in which early investors arepaid off with money from laterinvestors to create the illusion of prof-itability, resulted in 41 investors beingcheated out of $10.2 million.

Federal regulators accused AmSouthof failing to set up an adequate anti-money laundering program and failingto file accurate, complete and timelyreports involving suspicious financialtransactions. The federal investigation,which included the Internal RevenueService, “discovered that millions ofdollars of fraud proceeds have beenpassed through AmSouth over the lastseveral years.” This doesn’t sound verygood for the bank’s internal controls.AmSouth has branches in Alabama,Georgia, Florida, Louisiana, Mississippiand Tennessee.

Source: The Birmingham News

II.LEGISLATIVEHAPPENINGS

THE SPECIAL SESSION

The rumors are still pretty strong ona special session being called. I suspecta session will take place this month. Ihope it will be successful and limitedto only those issues that are criticallyimportant to our state. On secondthought, I don’t believe there is enoughtime to take up all of the critical issuesfacing our state that have been carriedover for years. So, I will leave it to theGovernor to decide which ones are themost critical. It appears that the sessionwill be limited to health benefits forpublic employees.

NATIONAL STUDY LOOKS AT ALABAMALEGISLATURE

Members of the Alabama Legislaturehave always been the subject of criti-cism, and that’s just a fact of politicallife in Alabama. A new national studyreleased last month, however, saysAlabama has one of the best public dis-closure laws for legislators in thecountry. That is good news and it’s

good to see the Legislature gettingsome favorable publicity. According tothe study, there is still room under thelaw for potential conflicts. The study bythe Washington, D.C.-based Center forPublic Integrity found that:

• One out of every six legislators drewtwo government paychecks — onefrom the Legislature and anotherfrom a government agency.

• One out of every four legislators saton a legislative committee withauthority over the legislator’s profes-sional or business interests.

• And one out of every ten legislatorshad financial ties with a business ororganization that lobbies the Legisla-ture.Interestingly, the Center rated

Alabama’s ethics law as the eighth bestin the nation for getting legislators todisclose financial information so voterscan see potential conflicts. The Center’sstudy, which looked at every legislativebody in America, said the lawmakerswere “often uniquely positioned toinfluence their personal financial for-tunes or those of their employers whilein office.” It was pointed out that, inAlabama, 16% of the Legislatureworked for some part of the federal,state or local governments, includingpublic schools or colleges. Thatnumber compares to 10% nationally.While this is all very interesting, I don’treally believe that it means our legisla-tors are bad or that they can’t do agood job.

Frankly, I am much more concernedabout the notoriously weak campaignfinance laws in Alabama. That weak-ness, combined with the failure to ade-quately regulate and control thepowerful lobby groups in Alabama, isthe real problem when it comes downto how effectively the Legislature oper-ates. The influence over the Legislatureby special interests will continue to bea problem until there is meaningfulcampaign finance reform enacted intolaw. I am hopeful things will change inMontgomery—for the better—one ofthese days. In the meanwhile, ifanybody really has a problem with leg-islators holding down a job with some

arm of government, the place to voicethat displeasure is in the voting booth.

III.COURT WATCH

BAR ASSOCIATION PRESIDENT APPOINTSCOMMITTEE ON STATE’S JUDICIAL SYSTEM

Douglas McElvy, President of theAlabama State Bar, has appointed acommittee entitled the Judicial LiaisonCommittee. This group of judges andlawyers has been given the responsibil-ity of coming up with ways of improv-ing the operation of the court system inour state. My good friend Sam Franklin,who is an excellent lawyer from Birm-ingham, and I were chosen to serve asco-chairs of the committee. We aremost fortunate to have 17 outstandingmen and women who will work withus on this committee. I take thisresponsibility most seriously and see itas an opportunity to do somethinggood for my state. Our first meetingwas held in Montgomery on October13th. The organizational meeting wasextremely productive and I believe wegot off to a very good start. I amhopeful we can all work together tomake sure that we have a court systemin Alabama that our citizens can beproud of.

BUSINESSES FILE MORE LAWSUITS THANPRIVATE CITIZENS

The tort reformers in this countryhave spent millions of dollars pushingthe myth of tort reform and of frivo-lous lawsuits. From a recent report,we now find out that American busi-nesses file four times as many lawsuitsas do individuals represented by triallawyers. Significantly, these companiesare being penalized by judges muchmore often for pursuing frivolous liti-gation, according to a report issued byPublic Citizen. The survey of casefilings in two states (Arkansas and Mis-sissippi) and two local jurisdictions(Cook County, Illinois, and Philadel-phia, Pennsylvania) in 2001 found that


businesses were 3.3 to 5.8 times morelikely to file lawsuits than were individ-uals. This comes as Corporate Americaand a few politicians are campaigningto limit citizens’ rights to sue.

By way of comparison, the numberof American consumers (281 million)outnumbers the number of businessesin America (7 million) by 40 times. Thereport also found that businesses andtheir lawyers were 69% more likelythan individual tort plaintiffs and theirlawyers to be sanctioned by federaljudges for filing frivolous claims ordefenses. Corporations say America istoo litigious, but that is only when theyare on the receiving end of a lawsuit.Our experience has been—and thePublic Citizen study confirms it—thatbusinesses are far more likely to taketheir complaints to court than areAmerican consumers. The four courtsystems surveyed by Public Citizen,which are geographically diverse andrepresent urban and rural areas of thenation, appear to be the only jurisdic-tions that require attorneys to providesufficient detail to distinguish business-initiated suits from trial attorney-initi-ated suits. State-specific findings for2001 include:

• Mississippi: In this state that theU.S. Chamber of Commerce haslabeled a “judicial hell hole,” busi-nesses were 5.8 times more likely tofile suit than were individuals. Therewere 45,891 business lawsuits filedthat year compared to 7,959 individ-ual lawsuits.

• Philadelphia, Pennsylvania: Busi-nesses there filed cases at a 3.3-to-1ratio compared to individuals; therewere 64,698 business lawsuits com-pared with 19,751 individual lawsuitsbrought by trial attorneys.

• Arkansas: Arkansas businesses filedmore than four lawsuits for everyone lawsuit filed by trial attorneys onbehalf of individuals—20,868 vs.4,786—a ratio of 4.4-to-1.

• Cook County, Illinois: Businesseswent to the courthouse 5.8 timesmore often than trial attorneys repre-senting individuals. The number of

business lawsuits filed was 137,890compared with just 26,938 filed byindividuals.

Public Citizen also found that federaljudges actually punish lawyers for busi-nesses far more often than trial lawyersrepresenting plaintiffs in tort claims fortying up the court with frivolous claimsor defenses. Under Rule 11 of theFederal Rules of Civil Procedure,federal judges can impose sanctionsthat range from reprimands and denialof fees to fines, dismissal of claims andinjunction from further litigation. In aseparate national survey of the 100most recent cases in which federaljudges imposed Rule 11 sanctions, 27were against businesses or theirlawyers, while only 16 were againstplaintiffs who brought tort cases ortheir lawyers. Only individuals repre-senting themselves, without being rep-resented by a lawyer, were sanctionedmore often than businesses. This hap-pened in 35 cases. The 100 sanctionsoccurred between 2001 and 2004.

Some of the loudest voices forrestricting the legal rights of consumersand patients also are the biggest usersof the court system. For example,claiming that it is inundated with classaction lawsuits, the insurance industryhas led the charge for federal legisla-tion that would restrict the rights ofconsumers to bring such cases. InCook County, Illinois, insurance com-panies filed about 8,000 lawsuits in2002—35 times the number of classactions filed there by individuals thatyear, Public Citizen found. In fact,insurers file so many suits -mostly “sub-rogation” suits designed to recover theexpense of covering their own policy-holders—that last year they asked to beexempted from a model lawsuit“reform” law that would limit citizenaccess to the courts and that they oth-erwise support. There is absolutelynothing wrong with anyone, whetheran individual or a corporation, taking agenuine dispute to court when it can’tbe settled outside between the parties.But, it is most hypocritical for corpora-tions to demonize a perfectly goodlegal system and then use it on aregular basis.

The huge corporate campaignagainst consumer access to the courtsis approaching its 25th year. This cam-paign has targeted trial lawyers whorepresent consumers in fraud, medicalnegligence, personal injury andproduct liability cases on a contingencybasis. These lawyers are paid only iftheir clients win their cases. In addi-tion, trial lawyers pay up front for allthe costs and expenses of litigation.This allows any consumer, poor orrich, to secure the services of a lawyerif they have a case with merit. Mostconsumers can’t afford to pay hourlyfees for lawyers; corporate clients can.

The harshly negative corporate cam-paign includes the creation of newtrade associations representing corpo-rations, which push for state as well asfederal legislation to limit consumerrights and shut down the courthousesto consumers. Thousands of lobbyistsput tremendous pressure on Congressand state legislative bodies on a dailybasis. The creation of front groupsacross the country called CitizensAgainst Lawsuit Abuse (whosemembers come directly from CorporateAmerica), was designed to give theimpression that tort reform is a grass-roots movement. It has no connectionto the grass roots in any state. Newthink tanks, such as the ManhattanInstitute, hire authors to write booksand reports attacking the civil justicesystem. Strategic television and radioadvertising placed at the state andnational level carry the myth of tortreform out to the country. To combatall of this, American consumers have torely on groups such as Public Citizento fight their battles. Clearly, theplaying fields are very much uneven.The report, Frequent Filers: CorporateHypocrisy in Accessing the Courts, isavailable at http://www.citizen.org/congress/civjus/tort/myths/articles.cfm?ID=12369.

Source: Public Citizen

STUDY REVEALS THAT INSURERS CONTINUETO PRICE-GOUGE DOCTORS

The issue of medical malpractice and“tort reform” has been an issue during


this election year. Recently, Americansfor Insurance Reform (AIR) announcedthe release of a new study of medicalmalpractice insurance around thecountry, based on the insurance indus-try’s own data. First, contrary to whatthe insurance and medical lobbies havebeen selling to the public, the years2002 and 2003 saw no “explosion” inmedical malpractice insurer payouts tojustify skyrocketing rate hikes. In fact,inflation-adjusted payouts per doctor,rather than exploding, have droppedfor the last two years. Payouts (in con-stant dollars) have been essentially flator dropping since the mid-1980s.Second, medical malpractice insurancepremiums rose much faster in 2002 and2003 than was justified by insurancepayouts. These price hikes were notconnected to actual payouts, jury ver-dicts or the legal system. Rather, theyreflect dropping interest rates andlosses experienced by the insuranceindustry’s market investments.

According to Joanne Doroshow,executive director of the Center forJustice & Democracy and AIR co-founder, “these findings undermine oneof the central claims of interest groupswho seek to blame the legal system fordoctors’ insurance woes.” I totally agreewith Ms. Doroshow. She says the studyreveals clearly that the causes of, andsolutions to, this crisis lie not with thelegal system, but “with reforming regu-lation of the insurance industry, whichhas been unfairly charging doctorsexcessive rates to make up for theirown investment losses.”

The study by AIR, a coalition of morethan 100 consumer and public interestgroups representing more than 50million people, makes nearly identicalfindings to those reached in similar AIRstudies of national trends released in2001 and 2002. Specifically, the study,Stable Losses/Unstable Rates, report-edly shows that the real reasonsmedical malpractice insurance rateshave risen so dramatically in the lasttwo years are market forces and drop-ping interest rates—not, as the insur-ance industry claims, because of asudden massive increase in medicalmalpractice jury awards or payouts,which, in constant dollars, have been

decreasing for the last decade. J. RobertHunter, director of Insurance for theConsumer Federation of America,former Federal Insurance Administratorand Texas Insurance Commissioner,was the author of the study.

Dr. Hunter, who is well-respectedaround the country, stated: “Thecurrent jump in prices doctors pay is aresult of a combination of two insur-ance company practices: (1) the insur-ers’ aggressive under-pricing to gainmarket share when interest rates werehigh, coupled with (2) the insurers’classification plan that charges somehigh-risk doctors (such as OB/GYNsand neurosurgeons) for all of the costof the high-risk cases referred to themby all other doctors. What is crystalclear is that what did not cause thiscrisis was an increase in losses. Theresimply is no evidence of that. There isonly one way to solve this problem:reforming the insurance industry. Statelawmakers must strengthen state insur-ance laws in order to end the boomand bust swing from illegal overpric-ing, such as the rates doctors are beingasked to pay today, to illegal and inad-equate underpricing, which will beseen when the market softens later inthe cycle. Fortunately, the hard marketprice jump is behind us and we arenow entering the softer market so leg-islators have a decade or so to grapplewith how best to do this before thenext hard market hits the nation.” Formore information on the study, visitwww.insurance-reform.org. It is rathershocking that a candidate for Presidentwould put out bad information on tortreform and the court system whensurely his staff had access to this study.Could it be that the massive amount ofcampaign dollars furnished by the tortreformers has clouded the President’sjudgment?

U.S. SUPREME COURT TO HEAR TENCOMMANDMENTS CASE

I was very much surprised to learnthat the U.S. Supreme Court wouldtake up the constitutionality of TenCommandments displays on govern-ment land and buildings. The justices

have repeatedly refused to revisitissues raised by their 1980 decision thatbanned the posting of copies of theTen Commandments in public schoolclassrooms. In the meantime, lowercourts have not been very consistenton the cases. There have been rulingsthat allow displays in some instances,but not in others. The High Court willhear appeals early next year involvingdisplays in Kentucky and Texas. In theTexas case, the justices will decide if aTen Commandments monument on theState Capitol grounds is an unconstitu-tional attempt to establish state-spon-sored religion. The bid to get the 6-foottall red granite monument removedwas rejected at the lower court level.The Fraternal Order of Eagles, whichdonated the monument to the state in1961, had given scores of similar mon-uments to American towns during the1950s and 1960s. As expected, many ofthose have been the subject of multiplecourt fights.

Separately, the Court will considerwhether a lower court wrongly barredthe posting of the Ten Commandmentsin Kentucky courthouses. McCrearyand Pulaski County officials hungframed copies of the Ten Command-ments in their courthouses and lateradded other documents, such as theMagna Carta and Declaration of Inde-pendence, after the display was chal-lenged.

It is interesting to note that the Courtrefused to hear Judge Roy Moore’sappeal in what certainly appears to bea similar case. The Ten Command-ments contain both religious andsecular directives. A pastor friend ofmine reminded me that the command-ments are directives and not merelyrecommendations. The Bible says Godgave the list to Moses, and I believethat to be true. While the Constitutionbars any state “establishment” of reli-gion, I believe that means the govern-ment cannot promote religion ingeneral or favor one religion overanother. It will be interesting to seewhat the High Court does on this issue.

In the past decade, the justices haverefused to get involved in Ten Com-mandments disputes from around thecountry. Three justices complained in


2001, when the court declined to ruleon the constitutionality of a Ten Com-mandments display in front of theElkhart, Indiana Municipal Building.Chief Justice William H. Rehnquist,joined by Justices Antonin Scalia andClarence Thomas, said the city soughtto reflect the cultural, historical andlegal significance of the Command-ments. The Chief Justice noted that thejustices’ own chambers include acarving of Moses holding the Ten Com-mandments. That fact is something thepublic will eventually pick up on. Ihave been surprised that the mediahasn’t already jumped on this andmade an issue out of that display.

SUPREME COURT WON’T HEAR ALABAMA TENCOMMANDMENTS CASE

Clearly the case concerning JudgeRoy Moore is finally over. On October4th the U.S. Supreme Court rejectedJudge Moore’s request for review of hisremoval from office in his case involv-ing the Ten Commandments monu-ment. After the ruling, Judge Mooretold members of the media that hewasn’t surprised at the outcome. Itmight be well to review what all hap-pened in the Moore case. As we allknow, a well-respected and experi-enced federal judge originally ruledthat Judge Moore violated the U.S.Constitution’s ban on government pro-motion of religion when he placed themonument in the rotunda of the state’sjudicial building in 2001. The displaywas moved last year by the AlabamaSupreme Court, and Judge Moore wasremoved from office. The AlabamaCourt of the Judiciary ruled that Mooreviolated canons of judicial ethics whenhe refused to obey the federal court’sorder to move the monument.

Lawyers representing the formerChief Justice had called on the U.S.Supreme Court to remedy what theyreferred to as a “travesty of justice” andgive the judge his job back. The HighCourt declined to take the case, withoutcomment. Now, as stated above, thejustices have taken cases that presentthe constitutional issue squarely to theHigh Court for a decision. It has been

speculated that Judge Moore mayattempt to win back his seat on theAlabama Supreme Court in 2006. In themeanwhile, I understand efforts are stillunderway to take his license to practicelaw. Regardless of how you feel aboutJudge Moore or his stand on the TenCommandments, I believe taking hislicense is taking things too far. As far asa political future for the man, only timewill tell what direction that will take. Ihave seen some polls that are mostinteresting.

HIGH COURT WON’T HEAR DO-NOT-CALLCASE

Another case decided by the U.S.Supreme Court early in the new termdealt with telemarketing. The HighCourt turned away a challenge to thefederal do-not-call registry. This endsthe telemarketers’ bid to invoke free-speech arguments to get the popularban on unwanted phone solicitationsthrown out. The Court, withoutcomment, let stand a decision by theU.S. Court of Appeals for the TenthCircuit that upheld the registry of morethan 64 million phone numbers as areasonable government attempt to safe-guard personal privacy and reducetelemarketing abuse.

Under the 2003 federal law, busi-nesses face fines of up to $11,000 ifthey call people who sign up for theregistry, unless they have recently donebusiness with them. Charities, pollstersand callers on behalf of politicians,however, are exempt. Telemarketinggroups had filed the appeal, arguing inbriefs filed with the court that the reg-istry violated First Amendment rightsbecause it singled businesses out whileexempting other groups. They claimedthat 2 million of their 6.5 millionworkers will lose their jobs within twoyears if the do-not-call rules stand.

A federal judge in Denver hadagreed with the telemarketers, but thecircuit court (the intermediary court)upheld the registry in February 2004,after concluding there was no evidencesuggesting that charitable or politicalcallers were as intrusive to consumers’privacy. I believe the High Court made

the correct decision in this case. It is aclear victory for people. American citi-zens are sick and tired of the barrageof unsolicited marketing calls thatcome to them on a daily basis. Theyneeded some relief and they got it!

SUPREME COURT UPHOLDS JURY VERDICTFOR WORKER

The Alabama Supreme Court hasupheld a $1.3 million verdict for aGeorgia man who suffered braindamage from being struck by a 13-pound steel spacer that fell off a Birm-ingham company’s tractor and trailerrig. A Jefferson County jury awardedthe verdict last year to the Georgia resi-dent in a lawsuit that was filed againsta Birmingham construction company in2001. The verdict was to cover medicalbills, lost wages and the loss of futureearnings. The Georgia resident, whowas a contract escort driver, wasdriving behind a rig owned by the con-struction company on Interstate 20 inSt. Clair County back in October of1999 when the incident occurred. Thespacer, which is shaped like a brick,fell off the rig and crashed through theman’s windshield, resulting in somepretty bad injuries to his face. TheSupreme Court affirmed the verdictwith no opinion.

FEDERAL COURTS COME DOWN HARD ON E-DISCOVERY VIOLATIONS

Pretrial discovery in lawsuits hastaken on even greater importance inrecent years. There have been somemost significant changes over the past10 years. Perhaps, the greatest chal-lenges to come in the near future willinvolve computer-generated data andinformation. Discovery in lawsuits inthis high-tech era—like everythingelse—has to deal with e-mail messagesthat have been sent by parties to litiga-tion. Lawyers and their clients must bemore diligent in compliance with elec-tronic discovery requests in the future.There have been a number of recentcourt opinions that have really gottenthe attention of the trial bar. Harshsanctions for the deletion of e-mails


have been handed down by the courts.Our firm has had experience with e-discovery and I can tell you there havebeen a great number of major abuses.Efforts to make sure parties to litigationpreserve this type information havebeen a major problem. Many partiesfail to preserve their e-mail messagessimply because they don’t believe therewill be any real consequences if theyare caught. Enforcement of the duty topreserve electronic data has been allover the map. But, it really boils downto a question of integrity on the part ofthe lawyers involved. No lawyershould continue to represent a clientwho won’t respond honestly to discov-ery requests.

CLAIMS AGAINST ENRON MUST STAY IN NEWYORK BANKRUPTCY COURT

A federal bankruptcy judge in NewYork has barred California from pursu-ing its claims in a pending suit againstthe Enron Corp. arising from thatstate’s energy crisis a few years ago.Judge Arthur Gonzalez, who also pre-sides over the WorldCom bankruptcy,held that California, like most of theother Enron creditors and claimants,must adjudicate its claims in his South-ern District bankruptcy court. As youmay recall, from May 2000 to June2001, California’s residents sufferedfrom rolling blackouts and unusuallyhigh electricity prices. The State of Cali-fornia accused Enron of being the realcause of the crisis at the expense ofconsumers. California filed its claim,joining a long list of claimants, with thebankruptcy court in October 2002.Earlier this year, that state filed a sepa-rate action in a California state courtwhich were virtually identical to theclaims filed in the bankruptcy court.The bankruptcy judge ruled that thefiling of a bankruptcy petition operatesas a stay applicable to all entitiesregarding the commencement or con-tinuation of judicial proceedingsagainst Enron.

As you may know, the BankruptcyCode calls for a broad and mandatorystop to all pending and potential suitsagainst a debtor. The goal is to central-

ize all claims to allow one bankruptcycourt to fairly and efficiently distributethe assets among creditors, rather thanallowing competing suits to spring uparound the country. That is a tool thatis often used by corporations that havemultiple exposures in several states. Itwas my thinking that a state could filea separate action to protect consumersor police wrongdoing in its state. Suchan action would be a police powerexception to stop or prevent fraud in astate. The California attorney generalsued because he felt it appropriate forthat state’s judicial system to adjudicateits state laws. Unfortunately, the bank-ruptcy judge disagreed. I expect thisruling to be appealed. The bankruptcylaws are used all too often by corpora-tions facing big liability because oftheir wrongdoing. Quite often, thevictims of that wrongdoing are penal-ized and wind up holding the shortend of the stick.

IV.THE NATIONALSCENE

SIX NATIONAL CONSUMERS GROUPS JOINFORCES

As we know, consumer rights andprotections have been under unprece-dented assault during the past threeyears. We have an Administration inpower that is totally anti-consumer. Sixof the country’s leading public-interestgroups have now joined together todevelop a pro-consumer agenda.Leaders of the six groups, whichinclude Consumer Federation ofAmerica, Consumers Union, NationalAssociation of Consumer Advocates,National Consumer Law Center, PublicCitizen, and the U.S. Public InterestResearch Group, decided to unitebehind an agenda in response to theincreasing attacks on consumer rightsand protections. While these groupshave had different interests in the pastand generally each had a particularfield where its efforts were focused,there was a common bond and that

was to educate and protect consumers. We could write a long list of recent

attacks on consumer protections. Someof them include: mandatory, bindingarbitration; a ban on the federal gov-ernment negotiating lower prescriptiondrug prices for Medicare recipients; theinability of consumers to prevent thesharing of their personal financial infor-mation with potentially thousands ofcompanies; the failure of the govern-ment to adequately test for Mad CowDisease or require mandatory recall oftainted meat; the loss of patients’ rightsto sue their HMOs; and a number offederal legislative actions that undercutstronger state laws. As a result of theseanti-consumer policies, the coalitionhas developed a six-point agenda tohighlight some of the most criticalissues facing the American publictoday. This effort should elevate theconsumer voice and help educateAmerican citizens about what’s really atstake in the marketplace when itcomes to their health, their privacy,their pocketbooks, and their safety.The agenda is a key starting point forconsumers and journalists, who shouldbe asking their policymakers right nowabout how they intend to protect thepublic interest. The six organizationshope to reach as many as 50 millionconsumers with the new agenda. Thegroups want to build an influentialconsumer movement that will be apowerful force for change. The six-point agenda includes:

• Prohibit Oil and Gasoline PriceGouging and Increase AutomobileFuel Economy: Stop industry mergersthat increase oil and gas prices bydiminishing competition, and furthersave consumers money and reducepollution by raising fuel economystandards on cars, sport utility vehi-cles (SUVs) and other light trucks.

• Preserve Consumers’ Legal Remedies:Oppose efforts undermining con-sumers’ access to justice. Removelimits on HMO accountability topatients and do not impose restric-tions on victims of medical malprac-tice. Ban the use of mandatoryarbitration clauses in consumer con-


tracts and oppose limits on con-sumers’ ability to bring class actionlawsuits.

• Protect Consumers from Abusive andPredatory Lending: Limit unfair mort-gage, credit card and personal loanpractices that put vulnerable con-sumers at risk of default and bank-ruptcy.

• Make Health Care More Affordable:Immediately expand health coverageto all children and lower-incomeadults. Fix the new Medicare law toallow the government to negotiatelower drug prices, and the privatesector to import lower-cost drugsfrom abroad.

• Protect the Privacy of Sensitive Per-sonal Information: Require bothfinancial companies and Internetsites to protect our confidential infor-mation, while preserving the right ofstates to enact stronger laws.

• Ensure Our Food is Safe to Eat.Require USDA to set and enforcelimits on food-borne pathogens. GiveUSDA authority to mandate recall oftainted meat. Assure controls toprotect both human and animalhealth from “Mad Cow” Disease.

This agenda of essential consumerreforms is intended as a guide forfederal policymakers and others con-cerned about consumer issues. Theleaders of the six leading national con-sumer organizations produced the plat-form to underscore its importance.Getting these organizations on thesame page—with a common agenda—is very important. In my opinion,public officials will have to listen totheir views. The issues addressed arequite diverse. The groups are unani-mous in their support for pro-con-sumer action on the issues covered bythe agenda. Arbitration is on the listand it will be a major item of concern.This joining of forces by consumergroups is a positive step in the rightdirection. We should all give them oursupport.

BUSH’S BRAIN BACK BEFORE GRAND JURY

Karl Rove has now testified on threeseparate occasions before a federalgrand jury, which is investigating theleak of a CIA operative’s name by BushAdministration sources. The lastappearance by the man, who likes tobe referred to as “Bush’s Brain,” cameabout on October 15th. I understandRove was again questioned about hiscontacts with journalists. The JusticeDepartment is trying to find out wholeaked the identity of Valerie Plame, aCIA operative married to formerambassador Joe Wilson, to several jour-nalists in July 2003. Columnist RobertNovak was the first to disclose Plame’sname in print. In a July 14, 2003column in the Washington Post, Novaksaid that two unnamed Administrationsources had told him that Plame wasinvolved in the CIA’s decision to sendher husband to Africa in 2002 to inves-tigate a tip that Iraq had tried to pur-chase enriched uranium from Niger forits nuclear weapons program. In earlyJuly 2003, Wilson wrote an op-ed inthe New York Times accusing PresidentBush of relying on discredited intelli-gence when he cited the Niger-Iraqlink in making the case for invadingIraq and ousting Saddam Hussein.Novak, who is known to be a strongBush supporter, suggested in hiscolumn that Plame was trying to hurtthe President.

It is a crime under the 1982 Intelli-gence Identities Protection Act forsomeone with authorized access toclassified information to knowingly dis-close the identity of a covert agent. Sofar, nobody has admitted to being asource for Novak’s column. BesidesRove, a number of other White Houseaides, including counsel Alberto Gon-zales, have testified before the grandjury. The government is trying to getthe testimony of Time Magazine’sMatthew Cooper and Judith Miller ofthe New York Times, who have someinvolvement in the case. Three daysafter Novak’s column appeared,Cooper and two colleagues wrote anarticle for Time Magazine’s Websitesaying that “government officials” hadtold them that Wilson’s wife was a CIA

official. Miller was subpoenaed totestify about sources she spoke towhile reporting on Wilson. A U.S. Dis-trict Judge has found Cooper in con-tempt of court on two occasions forrefusing to testify. Miller has also beenfound in contempt for the same reason.She and Cooper, citing the need forjournalists to be able to protect theirsources, are appealing the rulings. But,no decision is expected from theappeals court until after the presiden-tial election. The journalists could eachface up to 18 months in jail if they losetheir appeal on the contempt citations.

Mr. Novak—who is usually quiteeager to talk—is laying low like “BrerRabbit” on this one. Neither he nor hislawyer will talk about their contactswith prosecutors, according to theAssociated Press. The Washington Postlast year, quoting an Administrationsource, said that two top White Houseofficials disclosed Plame’s identity to atleast six Washington journalists in retri-bution for Wilson’s comments. Asreported in the Post story, the officialallegedly said that the leak was “meantpurely and simply for revenge.” Wherehave we run into that sort of thingbefore? As I have said, however, Ireally don’t believe Rove is the sourceof this leak because he is much toosmart for that. If Rove was involved, itwill be next to impossible to catch him.But, it’s obvious that someone leakedthe story, and that sort of thing can’t betolerated in this country for obviousreasons—one being it violates thecriminal laws.

AMBASSADOR BREMER CRITICAL OF THE WAREFFORT

Ambassador Paul Bremer, who spent14 months as head of the U.S. provi-sional government in Iraq, believes theUnited States paid a price for nothaving enough troops in place tosecure the country following the briefwar. At least that’s what he told agroup a few weeks ago. He did saythat it was necessary to oust SaddamHussein, and I don’t believe manyAmericans would disagree on thatpoint. Bremer, delivering the keynote


address to the opening session of the91st annual Insurance LeadershipForum, said when he arrived inBaghdad on May 6, 2003, there was“horrid” looting going on. Bremer toldhis audience: “We paid a big price fornot stopping it because it establishedan atmosphere of lawlessness. Wenever had enough troops on theground.” The Greenbrier conferencewas sponsored by The Council ofInsurance Agents & Brokers. Bremersaid later he had thought the remarkswere “off the record.”

TAX CODE FAVORS CORPORATE AMERICA

Although U.S. corporations are tech-nically taxed at 35%, a new studyfound that corporations actually paidabout half that for the last two years.According to a report by Citizens forTax Justice, the 275 top U.S. corpora-tions paid an effective tax rate of just17.2% in 2002 and 2003. That’s downfrom 26.5% in 1988, 21.7% in 1998, and21.4% in 2001. Corporate taxes are nowat their lowest level in 20 years as com-pared with the size of the economy.According to the report in 2002 and2003, the 275 companies “shelteredmore than half of their profits fromtax.” These companies told their share-holders “they earned $739 billion inthose two years, but they told the IRSthey made less than half of that, only$363 billion.” Additionally, of the 275companies analyzed, 82 either paid notaxes or received a tax refund in atleast one of the last three years. Forty-six companies paid zero or less infederal income taxes in 2003. These 46companies—almost one out of six ofthe companies in the study—reportedU.S. pretax profits in 2003 of $42.6billion, yet received tax rebates totaling$5.4 billion.

Between 2001 and 2003, 28 compa-nies paid negative federal income taxrates over the entire three-year period.These companies, whose pretax U.S.profits totaled $44.9 billion over thethree years, included, among others:Pepco Holdings, Prudential Financial,ITT Industries, Boeing, Unisys, Fluorand CSX. Interestingly, one of the com-

panies was at one time headed bycurrent Treasury Secretary John Snow.Robert S. McIntyre, director of Citizensfor Tax Justice, had this to say:

The sharp increase in the numberof tax-avoiding companies reflectsthe results of aggressive corporatelobbying and a White House and aCongress eager to do the lobbyists’bidding. Most of the loopholes andtax dodges that corporations use toslash their taxes may be technically‘legal’ in the sense that the tax lawallows them. But remember thatthese subsidies got into the tax codebecause corporations lobbied to putthem there. Saying something is‘legal’ doesn’t mean that it’s right.

The report comes at a time when thefederal government continues to sinkdeeper and deeper into debt. The nextPresident and the new Congress mustreform our tax code and make sure thetax burden on ordinary citizens is cor-rected. The full report can be read bygoing to: http://www.ctj.org/corpfed04pr.pdf

U.S. CORPORATIONS MOVED $75 BILLION INPROFITS INTO TAX HAVENS

Over the past few months, we haveheard lots of campaign talk by the twocandidates for President about taxesand tax cuts. In fact, the Bush cam-paign sounds like a broken record onthe subject. Bush touts the tax cuts,which favored wealthy taxpayers, andtries to paint the Democratic candidateas a lover of taxes and tax increases.Frankly, I don’t believe the real prob-lems with our present system of taxa-tion have been adequately addressedby either candidate. For example, U.S.corporations shifted $75 billion of theirprofits into tax havens last year, depriv-ing the IRS of between $10 billion and$20 million in expected tax revenue.This information comes from a study inTax Notes, a tax trade journal, and ismost disturbing. Large corporationsexploit legal loopholes and tax creditsto avoid paying taxes by shiftingincome into subsidiaries located in no-tax or low-tax countries, such as

Bermuda. Martin A. Sullivan, a formerTreasury Department economist, didthe study, which was based on Com-merce Department data.

Meanwhile, a separate study pub-lished earlier by Tax Notes found thatthe profits U.S. multinational corpora-tions reported from their foreign sub-sidiaries have grown 68% since 1999,reaching $149 billion last year. But, thedata do not show any commensurategrowth of actual economic activity inthose tax havens. The implication isthat multinational corporations aremerely sheltering more income in taxhavens. A study by J.P. Morgan Chase,done in June 2003, estimated that U.S.corporations had $650 billion shelteredoffshore, more than 40% of which wasin the manufacturing sector.

There was another study released inSeptember that is also worthy of note.That study by Citizens for Tax Justice(CTJ) found that in 2002 and 2003, 275of the biggest U.S. corporations shel-tered more than half of their profitsfrom taxes. These corporationsreported $739 billion in profits toshareholders, but reported only $363billion in profits to the IRS. Accordingto CTJ, the 275 corporations paid aneffective tax rate of 17.2% in 2002 and2003, less than half of the effective cor-porate tax rate of 35%. That’s downfrom 26.5% in 1988, 21.7% in 1998, and21.4% in 2001. Individuals are bearingtoo much of the tax burden in thiscountry. The loopholes that exist in thetax code must be closed. CorporateAmerica—simply put—is not paying itsshare of taxes. I don’t believe we willget any relief so long as George Bushis President. You can get a list of theU.S. corporations with the most sub-sidiaries in tax havens by going tohttp://www.citizenworks.org/corp/tax/top25.php

OFFSHORE TAX SHELTERS AREGROWING FAST

I will say a little more on the sadstate of affairs relating to our currenttax system. Offshore tax shelters arebeing used and the tax system in theUnited States abused at a record pace.


An article in the UK Guardian looks athow offshore tax shelters are continu-ing to grow, siphoning off resourcesfrom governments around the world.As we have learned, U.S. corporationsare actively involved in the abuse.According to the article:

• Offshore companies are beingformed at the rate of about 150,000 ayear. While in the 1970s there werejust 25 tax havens, there are at least63 now, about half of them Britishprotectorates or former colonies. Taxavoidance in Britain alone is esti-mated at between £25bn and £85bn.

• In 1999, the Economist estimated thatAfrican leaders had $20bn in Swissbank accounts alone, twice theamount that sub-Saharan Africaspends on servicing debts.

• Tax havens contain only 1.2% of theworld’s population and 3% of theworld’s GDP, but 26% of assets and31% of the profits of US multination-als are held there.

•According to a recent Oxfam report,“the amount secreted in tax havenswas equivalent to six times the esti-mated annual cost of universalprimary education and almost threetimes the cost of universal primaryhealth.

John Christensen, a former economicadviser to the Jersey government, toldthe Guardian:

Many of the havens were nowlocked in a desperate competition.They like to suggest that they oil thewheels of global capital but there isno case for that. What has hap-pened is that tax havens transferthe burden of tax away fromcapital and towards labour andthe consumer.

Mr. Christensen is now working asthe London coordinator of an interna-tional secretariat for the Tax JusticeNetwork, which was formed last yearby tax experts and economists con-cerned about the trend of internationaltax havens. The group believes that taxevasion and tax avoidance on a large

scale hinder development in poorcountries. At the same time, it also hasa very bad effect in richer countries. Ifyou want more information, it can beobtained by reading “Havens that havebecome a tax on the world’s poor” byDuncan Campbell of The Guardian:http://www.guardian.co.uk/interna-tional/story/0,3604,1309079,00.html.You may also want to gohttp://www.taxjustice.net/e/about/index.php to obtain information about theTax Justice Network.

WE ARE BECOMING A GAMBLING NATION

We are rapidly becoming a gamblingnation and I don’t believe that’s goodfor our country or for its people. As weknow all too well, Indian casinos arepopping up in a great number ofstates. Presently, more than 20 statesallow tribes to run gambling busi-nesses, while private companies can’t.Many believe the Indians should nolonger have a monopoly on legalizedgambling in the U.S. Because Indiantribes are sovereigns, however, theycan’t be taxed in ordinary ways. Thismakes for a most interesting—but con-fusing—situation for the states thatpresently have Indian casinos. Theprivate sector and state governmentsthat are either in the gambling businessor want to get in say they are beingdiscriminated against.

The U.S. Supreme Court has side-stepped a dispute over tribal gamblingin California. The High Court refusedto consider whether states can let tribesoperate casinos while barring othersfrom this enterprise. This is a majorvictory for California Indian tribes andGovernor Arnold Schwarzenegger,their new high-profile supporter. Theappeal had been filed this past springby four San Francisco-area card clubsand some charity organizations. Theycontended that California tribes werewrongly given a monopoly on gam-bling, which is worth $6 billion annu-ally. Governor Schwarzenegger iscounting on an expansion in Indiangambling to help the state’s ailingfinances. In August, the California gov-ernor announced agreements with five

Indian tribes to add thousands of newslot machines statewide and create oneof the world’s largest casinos in theheart of the Bay Area.

In 2000, California voters agreed tochange the state’s constitution topermit tribes to operate casinos. Whilesome gambling is allowed by privatecompanies, American Indians have amonopoly on Las Vegas-style gaming,such as slot machines and blackjack.The San Francisco-based U.S. Court ofAppeals for the Ninth Circuit had ruledthat giving Indians special gamblingrights is not racial discrimination,saying tribes have special privilegesbecause they are regarded as sovereignnations under the law. Obviously, thestakes in the California case were veryhigh. The group challenging Indiangambling in California told justices thatGovernor Schwarzenegger’s compactswith the tribes would give them exclu-sive rights to unlimited slot machinesuntil the year 2030. The court wasasked to intervene “before tribalmonopolies become an entrenchedfeature of American life.”

Besides California, other states allow-ing limited gambling are my state ofAlabama, Alaska, Arizona, Connecticut,Florida, Idaho, Kansas, Maine, Min-nesota, Nebraska, New Mexico, NewYork, North Carolina, North Dakota,Oklahoma, Oregon, South Carolina,Texas, Washington, Wisconsin, andWyoming. The Justice Department hadurged the High Court to reject theappeal, arguing that Congress neversaid that states that allow tribal gam-bling must open gambling to others aswell. I have to wonder where RalphReed and the Christian Coalition werein this fight. I guess we will have tofollow the money trail to find out.

MINE INSPECTOR SETTLES CASEAGAINST MSHA

Jack Spadaro, who challenged theU.S. Mine Health and Safety Adminis-tration’s bidding and accident investi-gation practices after a coal sludgedisaster in Kentucky, is retiring fromfederal service. Spadaro, the formerhead of a federal mine safety academy,


stated that he has been fighting withthe Bush Administration for four years,and “didn’t want to fight with thisAdministration anymore.” The federalagency announced in February it wastransferring Spadaro from the Beckleyacademy to its Pittsburgh office, whichwas a demotion. Spadaro had beenengaged in a running battle with theagency. The veteran employee, who ishighly respected, appealed the demo-tion and transfer. He claimed it was inresponse to his August 2002 complaintabout training contracts MSHAawarded without following properbidding procedures to friends of MSHAchief Dave Lauriski and a Lauriski aide.

The settlement with MSHA will windup the battle. In 2001, Spadaroresigned from an MSHA team investi-gating the October 2000 release inInez, Kentucky, of 300 million gallonsof coal slurry when the bottom of acoal impoundment operated by MartinCounty Coal collapsed into an aban-doned underground mine. The Ken-tucky coal operator is a Massey Energysubsidiary. Spadaro said he left theteam because he felt MSHA was tryingto cover up its own role in overlookingprevious violations at the impound-ment. The agency later dropped six ofeight proposed citations against MasseyEnergy, the Department of Labor’sInspector General said following aninvestigation into Spadaro’s complaint.An MSHA internal review confirmedthe allegations at the heart of Spadaro’sconcerns about Martin County. Thatreview found that, after a 1994 spill atthe Massey impoundment, MSHAignored an agency engineer’s warningsthat more safety precautions wereneeded at the site.

The moral of this story is that underthe Bush Administration, if you don’tfollow the company line you will bedealt with harshly. It’s sort of like beingcalled unpatriotic if you criticize thePresident’s foul-ups in Iraq. In this casea dedicated public employee—whoknows the difference in right andwrong and cares about it—was forcedto leave his job. That’s a modern-daytragedy!

LNG SHIPS ARE BUILT WITH FLAMMABLEMATERIAL

Top federal Homeland Security offi-cials are now admitting that shipsdesigned to carry liquefied naturalgas—like those that would operate atterminals proposed for the Alabamacoast—are built using tons of highlyflammable insulation. The Mobile Reg-ister broke this story on October 12th.A letter from Homeland Security to aMassachusetts congressman in Maysaid polystyrene insulation “is not usedon LNG carriers precisely because it’ssusceptible to melting and deformationin a fire.” But after the letter turned upin congressional proceedings and regu-latory actions during the summer, afollow-up letter September 13th saidthe statement was incorrect. Poly-styrene is the primary insulation onLNG ships, which carry natural gas thathas been chilled to minus 260 degrees,turning it into a liquid that takes uponly a fraction of the space of the gas.

Some in the scientific communityhave expressed alarm that the seniorgovernment officials in charge of pro-tecting the nation’s ports did notappear to understand critical factsregarding construction of LNG ships. Itis most disturbing that officials haveapparently not considered what wouldhappen if all 30 million gallons onboard an LNG vessel were ignited. Ashas been reported, two LNG terminalshave been proposed for the Mobilearea and a third for federal waters 11miles off Dauphin Island. Hopefully,the government is doing more toprotect the ports than appears to bethe case. Clearly, a terrorist groupcould do great harm and damage—including a tremendous loss of life—ifthey converted an LNG ship into aweapon of mass destruction.

Source: Mobile Register and Associated Press

V.THE CORPORATEWORLD

FIRST ENRON CRIMINAL TRAIL IS UNDERWAY

As we went to the printer, the firstcriminal trial involving an Enron execu-tive was well underway in Houston,Texas. Federal prosecutors are accusingfour former Enron executives and twoformer Merrill Lynch executives of dis-guising a $7 million loan as a sale ofenergy-producing Nigerian barges inorder to help Enron artificially boost itsearnings. The government’s case isagainst both Enron, a company thatclaimed it made money on a transactionit did not make, and the company’sWall Street investment bankers whoallegedly helped make it all happen.Defense lawyers are claiming that theirclients were not aware that the transac-tions were illegal and that they weremerely following orders from above.The illegal transactions in this case arejust a small part of the immense web ofsham transactions that made up Enron’saccounting. Many of Enron’s transac-tions were loans that Enron improperlybooked as sales, thereby inflating itsrevenue. This case also highlights therole that large banks like Merrill Lynchplayed in both designing and executingthese complex transactions. It will bemost interesting to see how this crimi-nal case comes out.

LEHMAN BROTHERS TO PAY $222 MILLION TOSETTLE ENRON SUIT

Lehman Brothers Holdings Inc., thefifth-biggest U.S. securities firm, will pay$222.5 million to settle a suit filed byinvestors over the bank’s role as anunderwriter for Enron Corp., the bank-rupt energy trader. New York-basedLehman was accused of misleadinginvestors in Enron debt offerings all theway back to 1998. Lehman’s board andthe University of California Board ofRegents, the lead shareholder in thecase, must approve the settlement. Thesettlement—if approved—would be thelargest so far stemming from the 2002


investor suit, which named CitigroupInc., JPMorgan Chase & Co. and othersof Enron’s investment banks among thedefendants. The settlement amount isequal to about half of Lehman’s $505million net income for its third quarter,which ended August 31st. Lehmanissued debt offerings that contained mis-leading financial statements aboutEnron. Under the law, as I understand it,the firm’s potential liability is limited tothe securities it underwrote. Sharehold-ers and bondholders, who are seeking$30 billion in damages, have accusedother banks, including Citigroup andJPMorgan Chase, of helping Enroncommit a massive accounting fraud.

The Lehman settlement will bring to$334.5 million the amount of moneylawyers for the California regents havecollected to reimburse Enron investors.In July, Bank of America Corp., anotherunderwriter of Enron debt offerings,agreed to pay $69 million to settle theinvestor suit. The foreign affiliates ofArthur Andersen LLP, Enron’s formerauditor, also settled their part of thesuit for $40 million. A federal judge inHouston overseeing all Enron-relatedlitigation approved the agreement inNovember. But, the Andersen settle-ment doesn’t cover U.S.-based auditorsaccused of helping Enron executiveshide more than $1 billion in losses. InJune, a federal appeals court upheldAndersen’s criminal conviction forobstructing the government’s investiga-tion of Enron’s collapse. The entireEnron scandal is an example of whathappens when folks running majorcorporations have good friends inhigh places.

Source: Bloomberg News

GENERAL ELECTRIC GETS A SLAP ON ITSCORPORATE WRIST

After retiring from General Electric in2001, former CEO Jack Welch receiveda luxuriant retirement package. Fortu-nately for Welch—but not so good forGE stockholders—the retired executivereceived a luxury Manhattan apart-ment, access to a private aircraft, achauffeured limousine, court-side seatsto the New York Knicks and U.S.

Open, prime seating at Wimbledon,choice box seats at Red Sox andYankees baseball games, country clubfees, security services, payment ofrestaurant bills and other perks. Noneof this was disclosed to shareholders -at least until two years ago whendivorce papers filed by Welch’s ex-wife, Jane Beasley Welch (whohappens to be my cousin), made it allpublic. Jane, a native of Pratt’s Stationin Barbour County, trusted herhusband, who turned out to be a prettysorry fellow. She had to protect herselfin a divorce that she never expectedand the rest is history. When reportersgot wind of the information on Welch’sdeal that came from court documents,it stirred up considerable controversyabout stealth compensation in theform of retirement perks hidden fromshareholders. For some reason, it tookthe Federal Securities and ExchangeCommission (SEC) two years to takeany action, and when it did act, it camein the form of a cease-and-desist orderto GE. Unfortunately, the SEC neg-lected to levy any monetary fine. Itappears that all they did was give GE agentle slap on its corporate wrist.

Barbara Roper, investor advocate forthe Consumer Federation of America,told Reuters: “It certainly does seemlike a missed opportunity for the SECto make a strong statement about exec-utive pay and the right of shareholdersto know about it. The whole scandalsurrounding Welch’s retirementpackage exposed a flaw in SEC disclo-sure requirements on executives’ retire-ment benefits.” I agree with thatassessment and believe that the SECdropped the ball on this one.

Source: Reuters News Service

MISLEADING FINANCIAL STATEMENTS STILL APROBLEM

With all of the recent revelations ofcorporations committing massivefrauds relating to accounting practices,one would think that bad accountingwould no longer be a problem.Recently, there was an excellent reporton the state of corporate accounting inBusiness Week. Despite a number of

reforms, fuzzy accounting continues,according to the report. The followingare some of the highlights from thereport:

The problem with today’s fuzzyearnings…is that investors, ana-lysts, and money managers arehaving an increasingly hard timefiguring out what judgments com-panies make to come up with thoseaccruals, or estimates. The scan-dals at Enron, WorldCom, Adel-phia Communications (ADELQ),and other companies are forcefulreminders that investors could losebillions by not paying attention tohow companies arrive at theirearnings. The hazards wereunderscored again September22nd when mortgage-financegiant Fannie Mae said its primaryregulator had found that it hadmade accounting adjustments todress-up its earnings and, in atleast one case, achieve bonus com-pensation targets. The companysaid it is cooperating with govern-ment investigators. The broaderconcern is that corporate financialstatements are often incomplete,inconsistent, or just plain unclear,making it a nightmare to sort outfact from fantasy. Says Trevor S.Harris, chief accounting analyst atMorgan Stanley (MWD): “Thefinancial reporting system is com-pletely broken.”

“Indeed, today’s financial reportsare more difficult to understandthan ever. They’re riddled withjargon that’s hard to fathom andnumbers that don’t track. They’remuddled, with inconsistent cate-gories, vague entries, and hiddenadjustments that disguise howmuch various estimates change acompany’s earnings from quarterto quarter,” says Donn Vickrey, aformer accounting professor andco-founder of Camelback ResearchAlliance Inc., a Scottsdale (Arizona)firm hired by institutional investorsto detect inflated earnings.

Aware that executives havetremendous opportunity to manip-


ulate the numbers through theirestimates, the market is on alert,delving more vigorously than everinto the estimates that go into com-piling earnings. Over the past twoyears, investment banks havebeefed up their already complexcomputer programs to screen thou-sands of companies to find thecheerleaders who make veryaggressive estimates. As analystsand investors drill deeper into thesefinancials, they’re finding somenasty surprises. Accounting gamesare spreading beyond earningsreports as some companies start toplay fast and loose with the waythey account for cash flows.

In a Duke University survey of 401corporate financial executives inNovember 2003, two out of fivesaid they would use legal ways tobook revenues early if that wouldhelp them meet earnings targets.More than one in five would adjustcertain estimates or sell investmentsto book higher income. Faultyaccounting estimates by execscaused at least half of the 323restatements of financial reportslast year, according to Huron Con-sulting Group.

Despite the reforms, it appears thatcorporate profits are still, in large part,as distorted and confusing as ever. Ihope things will get better soon. Thepublic, and especially those who investtheir funds, expects Corporate Americato straighten up and fly right!

Source: Business Week

BAYER UNIT TO PAY $33 MILLION FINE ANDPLEAD TO PRICE FIXING

Bayer AG’s U.S. unit will plead guiltyand pay a $33 million fine for conspir-ing to fix prices of a chemical used tomake plastic grocery bags, shoe solesand other consumer products. Theguilty plea by Bayer Corp. would bethe first in a U.S. government investiga-tion into price fixing for the chemicaladditive used in a variety of products.In July, Bayer AG, which is based inGermany, agreed to pay a $66 million

fine to settle a U.S. charge it conspiredto fix the price of chemicals used tomake rubber products. The latestscheme took place between 1998 and2002 with another producer of aliphaticpolyester polyols made from adipicacid. The other chemicals are used tokeep plastic bags from sticking. Theyare used to make automotive coatings,filters, belts, seals, gaskets, textiles,adhesives and soundproofing material.

The investigation of the plastics-addi-tive cartel is apparently an outgrowthof Justice Department investigationsinto collusion by makers of otherchemicals. Besides Bayer AG’s plea-bargain, the Justice Department’srubber chemicals investigation hasreceived a guilty plea from CromptonCorp., which was fined $50 million.Both Bayer and Crompton are cooper-ating in the Justice Department’s inves-tigation of the global cartel to fix pricesof chemicals used to improve the dura-bility, elasticity and strength of tires,outdoor furniture, hoses, belts andshoes. The European Commission andauthorities in Canada are conductingseparate investigations.

The criminal probes have alsoexposed Bayer, Crompton and othercompanies to the threat of triple mone-tary damages sought by companies thatused the companies to make rubberproducts. U.S. antitrust law allows cus-tomers to collect three times theamount they were overcharged by aprice-fixing conspiracy. At least 13 suitsfiled in U.S. courts accuse BASF AG,the world’s largest chemical maker,Crompton and Bayer of fixing the priceof urethane, a component of plasticsand synthetic rubber. Goodyear Tire &Rubber Co., the largest North Americantire maker, accused Crompton, Bayerand other companies of conspiring toovercharge for synthetic rubber calledethylene propylene diene monomer, orEPDM. DuPont Dow Elastomers LLC, ajoint venture of DuPont Co. and DowChemical Co., the two largest U.S.chemical companies, agreed in June topay a $36 million fine to settle civilclaims it overcharged customers forneoprene, a synthetic rubber.

Source: Bloomberg News

STOCK OPTIONS STILL A PROBLEM

As time ran out on this year’s Con-gress, high-tech lobbyists were still des-perately trying to get the Senate to passa bill that would block a proposal bythe Financial Accounting StandardsBoard (FASB) to require companies tocount stock options as an expense. Thebill in question is The Stock OptionsAccounting Reform Act (S. 1890),which would do just that. A similar bill(HR 3574) passed in the House in Julyby a 312 to 111 vote. In an interviewwith National Journal’s TechnologyDaily, a former member of the House,Nick White (R-WA), and current presi-dent and CEO of Tech Net, said thatSenate supporters will try to add thebill to an omnibus appropriations billduring a lame-duck Congressionalsession expected later this month. SECChairman William Donaldson, who haspublicly expressed his opposition toCongress interfering on the optionsissue, and Federal Reserve ChairmanAlan Greenspan have urged Congressnot to interfere on the issue. Dr. BillFrist (R-TN), who does whatever Cor-porate America wants, may eventuallyfigure out a way to help his buddies.

Fortunately, Senator Richard Shelby(R-AL), who is Senate Banking Com-mittee Chairman, is opposed to the bill.He has called it “political interference”into accounting standards setting. Inaddition to Senator Shelby, SenatorPeter Fitzgerald (R-IL) is also a vocalopponent of the bill. The FinancialAccounting Standards Board has prom-ulgated a common-sense measure torequire publicly traded companies toexpense stock option compensation.Some high tech companies don’t likethe new FASB rule because it wouldlessen - and in some cases eliminate -those companies’ reported earnings.Senator Fitzgerald has joined other sen-ators, including John McCain (R-AZ),Carl Levin (D-MI) and Richard Durbin(D-IL), in sending a letter urging Presi-dent Bush to oppose any efforts toblock FASB from enacting a rule toexpense options. If the bill is notpassed this year, FASB is expected toenact a rule to require companies toexpense stock options early next year.


Hopefully, the heavy lobbying in theSenate will fail and take down with it avery bad bill.

SEC COMMISSIONER PUSHES FORCORPORATE GOVERNANCE REFORM

SEC Commissioner Harvey Gold-schmid is trying to push a corporategovernance reform proposal throughbefore the 2005 corporate proxyseason. He has criticized his colleaguesfor not acting on a proposal to giveshareholders more rights to nominateboard members. The Commissionhasn’t finalized the proxy access pro-posal that is still pending. Goldschmidmade these comments to a group:

The commission’s inaction to thispoint has made it a safer world fora small minority of lazy, ineffi-cient, grossly overpaid and wrong-headed CEOs. So far, in my view,the worst instincts of the CEO com-munity have triumphed.

The proposed rule would set up atwo-step process for gaining access tothe proxy statements. First, sharehold-ers representing one percent ofcompany stock would be able to callfor a shareholder vote on whether theycan nominate directors. Then, if amajority of shareholders agree, thenext year the shareholder group wouldbe allowed to nominate up to threedirectors, depending on the size of theboard. Alternately, if at least 35% ofshareholders withhold votes for one ormore directors, investors would beallowed to nominate directors.Although SEC Chairman William Don-aldson has been a strong supporter ofthe proposal to democratize share-holder elections by giving large minor-ity shareholders limited rights tonominate directors for the proxy state-ments, he has yet to schedule a voteon the issue. Corporate executives, ledby the Business Roundtable and theChamber of Commerce, have lobbiedheavily against the proposal, eventhreatening to file suit if the proposalgets enacted.

INDICTMENTS IN PEREGRINE ACCOUNTINGFRAUD

Federal prosecutors have indicted 11people, including former CEO andchairman Stephen P. Gardner, for theirrole in an alleged accounting fraud atPeregrine, the software company. Theindictment charges these defendantswith a massive conspiracy that had atits core a most corrupt goal—to hit thenumbers quarter after quarter, nomatter what. The Securities andExchange Commission has also filed alawsuit of its own against the company,the fifth enforcement action it hastaken against Peregrine. This was a sig-nificant accounting fraud that perme-ated Peregrine and was carried out atthe highest levels of the company.Peregrine last year acknowledged thatit had overstated its revenue by $509million between 1999 and 2001. Itrestated losses as $4.1 billion, up from$1.3 billion. Shareholders lost an esti-mated $4 billion from the ensuingdecline in Peregrine’s stock. This is justanother example of corporate fraudthat has hurt lots of folks.

SEC INVESTIGATES HOLES IN KRISPYKREME’S ACCOUNTING

Surely, donut makers would nevercook their books. But, the Securitiesand Exchange Commission (SEC) hasopened a formal probe of accountingpractices at Krispy Kreme DoughnutsInc. At issue is how Krispy Kremebooked its franchise repurchases,which it has been doing a lot of lately.Some of those franchises were ownedby company executives and insiders,raising questions about whether theywere valued fairly. For example, KrispyKreme paid $33 million to buy backfranchises in Kansas and Missouri fromformer executive vice-president PhilipWaugh. The company also spent $67.5million to buy back franchises in Dallasand Shreveport, Louisiana that wereowned by Director Joseph McAleer andformer director Steven Smith. Someexperts say that Krispy Kreme did notproperly reduce the value of its repur-chased franchises over time.

CRIMINAL PROBE OPENED IN FANNIE MAECASE

Federal prosecutors have opened aprobe into alleged improprieties atmortgage giant Fannie Mae. This camejust days after the Office of FederalHousing Enterprise Oversight (OFHEO)—which regulates Fannie Mae—released a report that was extremelycritical of the company’s accountingpractices. The report suggests thatFannie Mae may have cooked its booksand abused its reserves in order to meetearnings targets so that executivescould receive $27 million in bonuses inthe late 1990s. The report also criticizedthe company for poor internal controlsand a corporate culture obsessed withkeeping earnings growth stable. FannieMae, with assets of $1 trillion, is thesecond largest financial institution inthe U.S., behind Citigroup.

Prosecutors are also looking intowhether company executives, includ-ing CEO Franklin D. Raines, knew ofthe accounting improprieties andwhether they intentionally misled regu-lators. Raines publicly defended thecompany’s accounting on repeatedoccasions, including last summer, whenmortgage competitor Freddie Macrevealed that it had understated profitsby $4.5 billion from 2000-2002 in orderto stabilize earnings. The Securities andExchange Commission and the HouseFinancial Services Subcommittee arealso investigating Fannie Mae’s allegedaccounting improprieties. An officialinquiry has been started by the SEC.

As private companies with a govern-ment charter, Fannie and Freddie havelong played a major role in the housingmarket. Both pump tremendous sumsof money into the housing industry bybuying mortgages from lenders. Thisgives the lenders fresh funds to makeadditional home loans. At present,Fannie and Freddie own or guaranteepayments on about half of the nation’s$7.9 trillion of residential mortgagesoutstanding. Holding such largeamounts of mortgages carries with ittremendous risk. Because the interest-rate risk concentrated at Fannie andFreddie is so large, their critics sayAmerican taxpayers actually carry a


giant “contingent liability.” The possi-bility that some day one of the compa-nies might go bust, resulting in thegovernment becoming obliged to bail itout rather than risk an internationalfinancial crisis, is a scary thought.

VI.CAMPAIGNFINANCE REFORM

FEC DOESN’T LIKE CAMPAIGN FINANCEDECISION

I wasn’t surprised to learn that federalelection officials asked a judge to staythe ruling striking down several govern-ment regulations on political fundraising. The Federal Election Commis-sion (SEC) contends that rules interpret-ing the nation’s campaign finance laware crucial as the election approaches.The FEC also asked U.S. District JudgeColleen Kollar-Kotelly to make it clearthat the rules she overturned willremain in effect while the FEC appealsher September decision. At issue areFEC rules spelling out how the Com-mission interprets a 2002 campaignfinance law that bars national partycommittees and federal candidates fromraising corporate, union and unlimiteddonations and broadly bans the use ofsuch “soft money” in federal elections.The Commission opened loopholes inthe law that Congress never intended tocreate. It is quite clear that the FECwants to overturn the new rules.

Campaign finance watchdogs sup-porting the Shays-Meehan lawsuitagainst the FEC argue that the law isclear and political consultants and cam-paign managers can simply look to itwhen planning their activities. TheCommission notified Judge Kollar-Kotelly that it would appeal her ruling,which directs the Commission to writenew rules interpreting key sections ofthe law, such as the extent of the softmoney ban and how far candidates andoutside groups can go in coordinatingpolitical activities. I hope the court willstand fast and not yield to the FEC.

Source: Associated Press

THERE MAY BE A SILVER LINING IN THISMESS

The wild spending that we have seenover the past year in the presidentialcampaign may be the final impetusneeded to get campaign finance reformthrough the Congress. I have to believethat the American people realize therecord amount of money spent in elec-tions has to be curbed. The candidates’official campaign spending is badenough, but when you consider thevast amounts spent by the 527 Commit-tees and groups such as the U.S.Chamber of Commerce are outside theexisting campaign spending laws, itmakes you realize that ordinary citizenshave little influence in elections. Thathas to be changed. Hopefully, folkswill be so turned off by what they haveseen during this lengthy campaign thatthey will demand action. If so, therewill have been a silver lining hiddensomewhere in the very dark cloudsthat threaten to spoil this election.

VII.CONGRESSIONALUPDATE

CONGRESS DIDN’T GET MUCH DONE FORORDINARY FOLKS

Congress has finished its work fornow—in a manner of speaking—andhas left much unfinished business.Democrats and Republicans disagreeon the accomplishments of the 108thCongress. Hundreds of good programs—from highway building to welfarereform—were virtually ignored. Tem-porary measures kept them alivebecause lawmakers failed to meet all ofthe deadlines for renewing them.Because they control both houses,Republican lawmakers want thisunproductive session to look good. Itdidn’t take long for them to get backhome so they could try to make thesession look good to their constituents.Democrats, on the other hand, arepointing out the many failures of thissession.

The GOP-led Congress failed to carry

out its most essential function, and thatis passing the spending bills that keepthe federal government running. TheSenate will have a lame-duck sessionlater this month to take up the spend-ing bills. Congress will have to recon-vene at some point after the November2nd elections to deal with legislationthat would create a post of nationalintelligence director. On one majorissue Congress did address, I find ithard to believe that the Republicanleadership believes the Medicare pre-scription drug measure enacted lastyear is good for folks in this countryand especially for seniors. Perhaps thebiggest failures were Congress’ inabilityto pass a six-year, $300 billion highwayand mass transit bill that could havecreated hundreds of thousands of jobs,an energy bill to make America lessdependent on foreign oil, and legisla-tion enabling Americans to buycheaper prescription drugs fromabroad.

The following are some of the billsthat did pass during the 108th Con-gress:

• Legislation making it a double crimeto injure a pregnant woman and herfetus;

• A $417.5 billion defense bill for the2005 budget year;

• A $5.6 billion bill for developing andstockpiling antidotes for chemicaland germ attacks;

• A pensions relief package that couldsave employers some $80 billion;

• A $146 billion package to extendthree popular middle-class taxbreaks;

• A popular do-not-call registry to barunwanted telemarketer contacts;

• A bill banning the so-called partialbirth abortion; and

•A $136 billion tax break passage.

$143 BILLION IN CORPORATE TAX BENEFITS

At the tail-end of the session, theHouse and the Senate passed a $143


billion in corporate tax cuts and give-aways over 10 years, including 276 dif-ferent special interest tax breaks, andsent the bill to the President for his sig-nature. The bill marks the biggest revi-sion to the tax code in almost 20 years.The passage came after House andSenate negotiators agreed on a com-promise between competing Houseand Senate corporate tax bills. KeithAshdown of Taxpayers for CommonSense, a watchdog group, made thisobservation:

The passage of this legislation isproof that fiscal conservatives arean endangered species in Congress.The bill is a bonanza of bailouts tothe nation’s biggest companies thatare already not paying their fairshare.

The bill began almost two years agoas an attempt to fix a $5 billion exporttax break for corporations that hadbeen declared illegal. Smelling themoney, it didn’t take the corporate lob-byists very long to go to work. Law-makers, eager as usual to pleasecorporations and special interests, didas requested and added billions to thegiveaways. According to Taxpayers forCommon Sense, the big winnersinclude Starbucks, Carnival CruiseLines, shipbuilders, Home Depot andnumerous other large corporations.Christmas came early for these corpo-rate “fat cats.” Some of the early giftsinclude:

• A $44 million tax break for importingceiling fans;

• A $27 million tax break for horse anddog racing establishments;

• $9 million for the archery industry;

• $11 million for manufacturers oftackle boxes; and

• A big write off for NASCAR trackowners (not for their fans).

The bill reduces the top tax rate forU.S. manufacturing companies from35% to 32%. The bill also includes a$10 billion buyout for tobacco farmers,which will help tobacco companies.But, the bill discards a provision in the

Senate version of the bill that wouldhave subjected cigarette companies toFood and Drug Administration regula-tion. Senator John McCain, a supporterof the FDA regulation, calling that adisgrace, stated: “They have removedthe linchpin in the passage of this legis-lation in a complete sellout to thetobacco companies.” Another boon tocorporations is a one-year tax holidayfor profits earned overseas and stillheld overseas. Instead of paying thenormal 35% on these earnings, corpo-rations would only have to pay 5.25%to bring this money back to the UnitedStates. This would save companies anestimated $20 billion. Big winnersinclude Hewlett Packard and Eli Lilly.

On the bright side, this bill doescontain a minor tightening of somerules regarding tax shelters. This is esti-mated to increase revenue by about$50 billion over ten years. Unfortu-nately, the version of the bill thatpassed rejects a group of provisions inthe Senate version of the bill thatwould have strengthened the ability ofthe IRS to crack down on tax shelters,which would have increased revenueby about another $40 billion. TheSenate version also would have closedthe loophole that allows corporationsto reincorporate in Bermuda to avoidpaying taxes, which would have gener-ated another $3.1 billion in revenue. Iguess we should never have expectedthat provision to make it through aBush–controlled Congress. I haven’tactually read the bill that passed, but Iwill predict that nobody outside ofWashington knows the extent of all thecorporate gifts that were included inthe final version. Ordinary folks willget little benefit from this legislation. Ihope that I am wrong, but seriouslydoubt it!

THE DRUG GIANTS HAVE A REAL FRIEND INWASHINGTON

It should come as no surprise thatDr. Bill Frist (R-TN), the Senate majorityleader, is a great friend of the pharma-ceutical industry. To say that he hasbeen working hard in Washington forhis buddies is a gross understatement.

Dr. Frist has been bottling up the drugreimportation bill for the benefit ofPresident Bush and the drug compa-nies. Most observers say the bill wouldeasily pass the Senate if it ever comesup for a vote. It is interesting that oldervoters, who have been clamoring forlower-priced Canadian drugs, areputting pressure on the Bush WhiteHouse to back off and let the bill pass.American consumers are increasinglyaware that their average drug pricesare 67% higher than what Canadianspay for comparable prescriptions.

Fortunately, it appears that bipartisanSenate pressure is growing on Dr. Frist.We may have the sort of floor rebellionthat saw the Republican House of Rep-resentatives rise up last year to pass adrug reimportation plan over PresidentBush’s strong opposition. It makes nosense for the people in this country tosubsidize the rest of the world in theprescription drug business. If the drugcompanies can make a profit inCanada, at the prices charged there,they can do so here at “Canadianprices.” If something isn’t done soon,in my opinion, we will witness a voterrebellion against members of Congress.The President’s backing of the pharma-ceutical industry should certainly hurthis reelection bid.

CONGRESS MUST INCREASE PROTECTIONSFOR WHISTLE-BLOWERS

In previous issues we have men-tioned the urgent need to protectwhistle-blowers. For the first time in adecade, Congress now appears readyto strengthen protections for federalemployees who risk their jobs whenthey blow the whistle on criminal activ-ities, gross mismanagement anddangers to public health and safety.The House Government Reform Com-mittee recently approved, on a voicevote, a bill sponsored by Representa-tive Todd R. Platts (R-PA) that wouldclarify congressional intent in caseswhere agencies take reprisals againstwhistle-blowers. A Senate version,sponsored by Senators Daniel K.Akaka (D-HI), Susan Collins (R-ME),Charles E. Grassley (R-IA) and others,


has been approved by the Governmen-tal Affairs Committee. Congress tight-ened whistle-blower protections in1994, but Platts and Akaka said thateffort has been undermined by loop-holes and exceptions created by theCourt of Appeals for the FederalCircuit, which has monopoly jurisdic-tion over whistle-blower appeals.

Since the 1994 amendments, 75whistle-blower cases have come beforethe Federal Circuit Court. But, only onewhistle-blower has prevailed. Thecourt, for example, has decided thatwhistle-blower protections do notapply if the federal employee brings anallegation of wrongdoing to the atten-tion of a co-worker, or discloses infor-mation in the course of ordinary jobduties, or raises issues already dis-closed by someone else. That makesabsolutely no sense. The court has alsoruled that federal employees mustcome up with “irrefragable proof” inorder to show the government hasengaged in waste, fraud or abuse. I amnot sure what this means, but I believeit means “impossible to refute.” Inother words, the agency pretty muchhas to admit to waste, fraud and abuse.The Platts bill would replace the“irrefragable” standard with a moresensible one that requires “substantialevidence” in cases where whistle-blowers must rebut the presumptionthat the government was acting inaccordance with law.

The Senate bill would provide moreexpansive protections to whistle-blowers. For instance, it would allowfederal employees to have their casesheard by courts other than the FederalCircuit, would clarify that federalemployees can bring classified infor-mation to Congress, and would make itmore difficult for agencies to get rid ofwhistle-blowers by yanking their secu-rity clearances. Senator Akaka wouldallow the Merit Systems ProtectionBoard, which handles federalemployee complaints about discipli-nary actions, to review cases in whichwhistle-blowers lost their clearancebecause of retaliation. If the govern-ment acted improperly, the MSPBcould call for a remedy, such as award-ing back pay, legal fees or other relief

to the employee who suffered reprisal.The Senate bill clearly appears to bethe better of the two pieces of legisla-tion. I hope it or a similar version willbe passed and signed into law.

HOUSE MAJORITY LEADER TOM DELAYSHOULD RESIGN

Public Citizen has called on Repre-sentative Tom DeLay (R-TX) to resignhis position as House Majority Leader.This request came following DeLay’sthird admonishment by the HouseEthics Committee for failing to conductofficial business in a forthright andethical manner. Several other ethicscomplaints against DeLay are stillpending before the House Ethics Com-mittee, the Department of Justice(DOJ), the Federal Election Commis-sion and an Austin, Texas, grand jury.The admonishments issued unani-mously by the Ethics Committee—made up equally of Republicans andDemocrats—of the House’s second-ranking Republican have been wordedsternly - chastising DeLay for offeringrewards to a colleague in exchange fora vote on the Medicare prescriptiondrug bill, using his position to divertFederal Aviation Administrationresources from monitoring safety in theskies to tracking Democratic state legis-lators who left Texas to prevent aquorum over a redistricting bill, andappearing to accept campaign contri-butions from Westar Energy Corp. inexchange for a legislative favor. But theCommittee shied away from conduct-ing a formal investigation that couldlead to harsher penalties. The EthicsCommittee did note that other agen-cies, particularly the Texas grand jury,may yet weigh in on additional ethicscharges against DeLay.

More than 15 months ago, PublicCitizen filed civil and criminal com-plaints against DeLay with both theHouse Ethics Committee and the DOJregarding the Westar scandal. The DOJcomplaint is still pending. In the com-plaints, internal e-mails among Westarexecutives suggested that DeLay andother House Republicans wanted aseries of campaign contributions from

the executives and the company itselfso they could win “a seat at the table”to secure legislation that Westarfavored. Central to this scheme washaving Westar contribute $25,000 in2002 to TRMPAC, DeLay’s leadershippolitical action committee, which heused to fund candidates for Texas statelegislative offices. Westar executivesgave an additional $2,400 directly toDeLay’s campaign and contributedthousands of dollars more to, as e-mails document, “a group of candi-dates associated with Tom DeLay.” Thecontributions were made and thefavored legislation—an exemption forKansas-based Westar from a regulation—was delivered in the energy bill bythe legislators in conference committeewith the Senate. The special interestprovision was later removed after thecompany became the focus of a grandjury investigation into federal securitiesviolations. The company’s e-mailsdescribed why a Kansas companywould give money to a Texas memberof the House: “DeLay is the HouseMajority Leader. His agreement is nec-essary before the House Conferees canpush the language we have in place inthe House bill.”

It does not appear that DeLay has theintegrity to lead the House of Represen-tatives. He has a record of extraordinaryadmonishments for unethical behavior.The powerful Republican congressmanis in the middle of ongoing civil andcriminal investigations for corruption. Itseems like wherever there is a scandalinvolving money in politics, the trailleads to Tom DeLay. Congress is tooheavily influenced by special interestgroups, large corporations and richfolks who donate to members’ cam-paigns. Lawmakers must assure theAmerican public that legislation cannotbe bought by wealthy special interests.DeLay’s reputation and behavior revealan attitude of dishonesty and lack ofintegrity. Public Citizen believes thatCongress and the Republican Partyshould end the taint of corruption thatcomes with having Tom DeLay as theirleader. I agree! DeLay should recognizethe damage he has brought to the insti-tution. He should immediately resignhis leadership post. If the powerful


Congressman doesn’t respect theintegrity of the House and step downon his own, his colleagues should forcehim to do so. I really believe that a manwho operates as DeLay has done hasno business in any public office andcertainly not in a leadership role.

VIII.PRODUCTLIABILITY UPDATE

OCCUPANT PROTECTION DURING ROLLOVEREVENTS

Several of our readers haverequested a little more detailed infor-mation on restraint system failures.Accordingly, I will discuss in this issuesome of the “real world” restraintsystem failures resulting in death andinjury during rollover crashes involvingthe Ford Ranger and Explorer. Foryears while marketing the Rangers andExplorers, Ford ignored the need totest its restraint system’s performanceduring a rollover crash. Automobilemanufacturers, such as Ford, should berequired to make safety their “job one.”All they would have to do is look atthe statistics that their management andengineers study. For example, 2002Alabama Traffic Crash Facts, publishedby the Alabama Department of PublicSafety, reveals that there were 140,437reported crashes in Alabama in 2001.One traffic crash was reported in ourstate every 224 seconds. These crashesresulted in 1,038 deaths and 44,414persons injured during that year. Oneperson was killed every 8 hours and 26minutes in a traffic crash. Approxi-mately 2,715 of the people injured orkilled in Alabama traffic accidents in2001 were not wearing their seat belts.But, the National Highway TrafficSafety Administration (NHTSA) reportsthat 20% of the 10,376 people in theUnited States killed last year in rollovercrashes were wearing seat belts.

Based on the 2002 statistics, if youare a typical driver in Alabama, there isa 54% probability that you will beinvolved in an injury or fatal crash

while driving a motor vehicle duringyour lifetime! Those odds are not goodand crashes are going to happen. Thevehicles we drive should be designedand manufactured with occupant safetyas the highest priority. The crashwor-thiness of our vehicles should be up tothe test in “real world” crashes. Con-sumers have a right to reasonablyexpect safety components that reallywork to protect them in the field wherelife-threatening crashes are foreseeableto manufacturers. While there can beno guarantee that all injuries anddeaths can be prevented, everythingreasonably practicable should be doneby the automakers to make their vehi-cles safe. Unfortunately, we know thatthe automobile industry has not donethis in the case of occupant safety inrollover crashes.

The most prevalent types of crashesinvolving all kinds of vehicles arefrontal, side and rear impacts. But, sta-tistics reveal that the popular SUVs arethree times more likely to be involvedin fatal rollover accidents than are pas-senger cars. This is because of SUVs’higher center of gravity and narrowtrack width. Many deaths and injurieshave been caused as a result of a failureof Ford’s restraint system to reasonablyprotect occupants from ejection, injuryand death during rollover crashes. Inthe broadest sense, the concept of arestraint system includes all compo-nents necessary to contain occupants inthe vehicle during any type of crash,including rollovers. The safe contain-ment of an occupant is dependantupon the integrated performance ofroof structure, windshield and windowglazing, seat belts, airbags, seatbacks,knee bolsters, the steering column andthe steering wheel. The object of therestraint system is to keep an occupantcontained in the vehicle during a crashand maintain the integrity of the occu-pant space to keep the occupant safefrom injury.

Over the past decade-and-a-half,automakers have saturated the marketwith SUVs. They are extremelypopular, and the Ford Explorer leadsthe pack. Complaints against theExplorer are that it is too high and toonarrow to provide for safe handling

and stability in emergency maneuversor during a tire failure at normalhighway speeds. The absence of safehandling and stability places thesevehicles at a much greater risk ofrollover crashes than passenger cars.Ford’s marketing efforts have resultedin millions of SUVs being received byconsumers as alternatives to passengercars. Most folks will tell you that theyfeel safer in SUVs. One might agreethat in frontal, side and rear collisions,the SUV does provide a margin ofsafety. Ford knows that SUVs, includ-ing the Explorer, are prone to rollovers.But in a vehicle prone to rollover, howsafe is the occupant from injury ordeath? What are some of the risks?What has Ford done about occupantsafety during a rollover?

Accident data reveals that the great-est risk of serious injury or deathoccurs when an occupant is ejectedfrom the vehicle. For decades, theindustry has broadly recognized thatvehicles should be designed toincrease the level of protectionafforded the occupants by maintainingpassenger compartment integrityduring collision conditions. As early as1968, Ford, in reports to NHTSA, notedthat safety improvements in the indus-try have evolved toward a focus onretaining occupants within the vehicleby improving the door hinges andlatching devices, improving the wind-shield resistance to penetration andproviding restraint systems.

Ford’s Advanced Safety TestingMethods Department acknowledged in1969, from available crash studies ofpassenger car rollovers without impact,that ejection is the major cause of fatal-ities. Before the age of the SUV, docu-ments at Ford reveal a “rolloverprotection plan” in their Car and BodySystems Engineering Department. Indocuments dated May 28, 1969, Fordrecognized that “The first requirementis to protect against ejection, the majorcause of fatalities, five times that ofnon-ejected passengers, in rolloveraccidents.” Ford observed the follow-ing objective of rollover testing to bedeveloped:


When excessive conditions do existand vehicle rollover occurs, thenour aim becomes one of occupantprotection. Road accident studieshave shown that occupant ejectionis the predominant cause of seriousinjuries and fatalities. If the occu-pant remains in the vehiclethroughout the roll cycle, he standsan excellent chance that anyinjuries that he sustains will be of aminor nature. Our testing tech-nique should demonstrate,therefore, that should a rolloveroccur an occupant would not beejected. (Emphasis added.)

Therefore, one would expect theFord Safety Laboratories Department tohave developed such a testing tech-nique to demonstrate that should arollover occur, an occupant would notbe ejected. But, it doesn’t appear thatsuch a test was ever developed. A Fordcorporate representative, who was aformer safety engineer in the SafetyLaboratories Department at Ford MotorCompany, testified under oath recentlythat no rollover testing was ever doneat Ford. The only rollover testing hewas aware of was outsourced during2000-2001 time frame to Autoliv,related to development of the sidecanopy and seat belt improvements onthe new generation 2002 Explorer.When confronted with the issue, Fordexplains that a rollover event is a seriesof unpredictable crashes and that thereis no repeatable test technique suitablefor vehicle design. Thus, no rollovertesting was done on millions ofRangers and Explorers to determinereal world crash performance of therestraint systems during a rollover.From a safety perspective, that is unac-ceptable.

In fact, nothing was done by Fordduring design and development ofthese rollover-prone SUVs in the 1980sor 1990s to demonstrate that should arollover occur the occupant would notbe ejected. Ford’s corporate representa-tive summed up the testing like this:

We did for the development of thisvehicle, the subject vehicle (Ranger),and its restraint system, we didfrontal testing, crash testing, we did

offset crash testing, we did sidecrash testing, we did rear crashtesting; but we did not do anyrollover testing of the subject vehicle.

The sole reason for Ford not doingany rollover testing was simply that thefederal government didn’t make themdo it. That is a very bad reason whenyou consider the consequences.

The Detroit News reported onOctober 8, 2004, that NHTSA is nowunder pressure to reduce deaths andinjuries during rollover accidents. Theagency believes that improving vehicleroof strength and seat belts will helpmake occupants safer and reducedeath and injuries from rollovers. It isfinally pledging to update a 33-year-oldvehicle roof standard this year. Seatbelt improvement is needed because—as pointed out—about 20% of the10,376 people killed last year inrollover crashes were wearing seatbelts. Some of the improvements underconsideration include:

• Pretensioners that activate within amillisecond of the beginning of arollover, eliminating slack andholding occupants more securely inthe seat.

• Seat belts that are integrated into theseat, rather than anchored to the sideor pillar behind the seat.

• Designs akin to what a racecar driverwould wear, such as “four-point”belts that cover and secure bothshoulders and hips.

• Retractors with enough force to pullpassengers back to the seat but notso much force as to cause chest orneck injuries.

NHTSA has recently done somecrash tests to determine seat belt per-formance in rollover events. The studyshowed test dummies shifted out ofseats as the cab of a truck was turned.The agency is in the process of build-ing a new rollover-testing device usingrecent research on the kinds of forcesthat occur during a crash. The govern-ment is now learning what product lia-bility lawyers have known for years: isseat belts are failing to prevent ejec-

tions during rollovers, and roofs arecrushing and killing many of thosewho do remain in the vehicles duringrollover. These risks have been wellknown to Ford and other manufactur-ers, with little effort directed toward asolution until recently. So, literally mil-lions of early model Rangers, Explorersand other vehicles are on the highwaywith untested and inadequate restraintsystems for a foreseeable rolloverevent. Ford corporate representativestell us in lawsuits that:

A rollover event, whether it’s in alaboratory setting or in a realworld setting is a very unpre-dictable series of different types ofimpacts and events. The restraintsystem, which includes the seat belt,is designed to keep the occupantcontained in the vehicle during animpact event, which would includethose impact events experiencing arollover. The entire vehicle, includ-ing the restraint system, is designedto minimize the risk of ejection ofan occupant during a rollovercrash event, which again is not aspecific crash. It is an unpre-dictable series of events. That’s whythere are no specific test to test thevehicle in a rollover situationbecause that test could not berepeatable or reproducible.

Ironically, engineers for Volvo, whichis now owned by Ford, utilized “unre-peatable” rollover testing in developingthe Volvo XC90 SUV. The designapproach met objectives of occupantsafety by maintaining the integrity ofthe occupant space and providing arestraint system that was tested to workduring a rollover event to prevent ejec-tion. Many of the design options, suchas strengthening the roof structure, useof seat belt pretensioners, and installa-tion of roll sensors, were implemetedto make the vehicle safer duringrollover. This technology used byVolvo has been available for sometime, but it has simply been left on theshelf by a resistant industry. Unfortu-nately, it has taken way too manydeaths, brain injuries and persons leftparalyzed to get the attention of thepublic and federal regulators. Hope-


fully, the government has finally beenpressured to act. Reasonable designattention must be paid to these impor-tant and needed safety concerns. Webelieve that our work in product liabil-ity cases, and that of other law firms,has helped to bring about this pressureon NHTSA. Improvement to safety isthe thing that makes us proud of ourfirm’s motto, which is “Helping thosewho need it most for over twenty-fiveyears.”

COURTS TO DETERMINE RELEASE OF VEHICLESAFETY DATA

The National Highway Traffic SafetyAdministration (NHTSA), which we allknow is the government’s so-called autosafety agency, has backed off a plan tomake public information on vehicle-related deaths and injuries, pending acourt ruling on exactly what data shouldbe disclosed. NHTSA had said it wouldcomplete its early warning system byOctober 1st and release much of thedata to the public. The system,demanded by Congress following the2000 recall of Firestone tires, requiresautomakers and others to submit dataon deaths, injuries, consumer com-plaints, property damage and warrantyclaims. NHTSA agreed to keep warrantyclaims and consumer complaints confi-dential after automakers said releasingthat data could harm competition.Public Citizen filed suit in March to getaccess to that information. The RubberManufacturers Association, which repre-sents tire makers, asked to intervene inthe case because it wants to keep infor-mation on deaths, injuries and propertydamage confidential. A judge agreedand has ordered the U.S. Department ofTransportation to respond to the RubberManufacturers’ claims.

A NHTSA spokesman says theagency, which is currently collectingthe data, will wait until the courtsdecide what information should bepublic. You will recall that the systemled to a recall of 490,000 Bridgestone/Firestone tires earlier this year. SallyGreenberg, senior product safetycounsel for Consumers Union, whichpublishes Consumer Reports, believes

NHTSA is going too far. She said in anews release: “I think it’s hard tounderstand why the government isholding back information. The spirit ofthe (law) was really to get informationout there so that both the governmentand individuals can have access tosafety information to keep them safer.”It makes no sense to keep safety infor-mation from the public, and NHTSAshould be required to release the infor-mation it has compiled.

NEW SAFETY REGULATIONS BADLY NEEDED

The National Highway Traffic SafetyAdministration is considering rules toupdate the 33-year-old roof strengthstandard. NHTSA is under tremendouspressure from safety groups because ofthe large number of severe injuries anddeaths that are occurring in rollover acci-dents involving SUVs. The agency is alsolooking at updating seat belt require-ments because in SUV rollovers, boththe roof collapse and seat belt slack con-tribute to severe neck and head injuries.Also, in rollovers occupants tend to bethrown out of the vehicle window bycentrifugal forces, which are madeworse by slack in the seat belts.

Part of the possible new designoptions include requiring seat belt pre-tensioners that activate during arollover. Pretensioners take the slackout of the seat belt when the forces onthe person’s chest hit a certain level ina frontal crash. The seat belts could bedesigned to have a similar function inrollover crashes. Another possibleredesign is to require that seat belts beimbedded in the seat, which allows abetter fit and requires a stronger seat-back. Another design that is being con-sidered is the design akin to whatracecar drivers use in their cars, andthat is a 4-point seat belt to secure boththe shoulders and the hips. That reallymakes good sense both from a designand cost perspective.

The current seat belt designs aregrossly inadequate. About 20% of the10,376 people killed last year inrollover crashes were wearing theirseat belts. Many deaths result from“partial” ejection. For example, in many

cases, only the victim’s head wasoutside the vehicle when a rolloveroccurred. Because car manufacturershave been reluctant to design theirSUVs to prevent rollover, it is necessaryfor the government to intervene andrequire that these rollover-prone vehi-cles at the very least be designed toprovide a greater level of safety whenthe vehicle does roll over. I suspectthat the car manufacturers will use theirbest efforts to resist the passage of thenew rules. If you agree that there aretoo many rollovers involving top heavyand too narrow SUVs, with too manyresulting in deaths and disablinginjuries, contact your U.S. Senator andHouse member while they are homeon recess and ask them to get involvedon the side of consumers.

FORD PENALIZES LAW ENFORCEMENTAGENCIES

A Florida judge has ruled that FordMotor Co. can refuse to sell police carsto Florida law enforcement agenciesthat join a lawsuit against the automakerover fuel tank fires. Circuit Judge G.Robert Barron denied Okaloosa CountySheriff Charlie Morris’ request that thecourt order Ford to resume selling carsto his department. Ford had refused tosell any more Crown Victoria PoliceInterceptors to Morris since July 2003, ayear after he filed suit against thecompany. The suit claims the full-size,V-8 powered, four-door sedans haveexploded in flames when struck frombehind at high speed because of poordesign. There have been a number ofpolice officers killed in the fires. Therehave been 14 accidents nationwide inwhich Police Interceptors caught fireafter being rear-ended. Class actionstatus had been granted in the lawsuit,permitting hundreds of Florida lawenforcement agencies to join thelawsuit. No deadline for potential plain-tiffs to join or opt-out has been set. Fordsays it will refuse to sell the cars to anyother agency that participates in the suit.Judge Barron ruled that a company hasthe right to refuse to do business withany customer.

Source: Associated Press


PROTECTING CHILDREN FROM DEFECTIVEMACHINERY

Thousands of children sustaininjuries each year within the confinesof their own homes. Most of theseinjuries result from normal adolescentactivities like running and jumping.But, a large number of reported injuriesto children occur from interaction withdefective machinery. Most parentswould be surprised that commonhousehold machines can pose aserious threat to their children. Therehave been numerous reported cases ofsmall children sustaining seriousinjuries after their hands got stuck inthe belts of treadmills. Hundreds ofchildren have either died or sustainedserious burn injuries from tippingranges. Other household machinesresponsible for injuring children aredishwashers, washing machines andtrampolines. More often that not, law-suits are the only incentive for productmanufacturers to adop safer designs.

Pursuing a lawsuit against a productmanufacturer for injuries sustained by achild is a very difficult undertaking.Product manufacturers defend theirdefectively designed machine byblaming the parent for lack of supervi-sion. It is accepted that parents areresponsible for supervising their chil-dren. However, a parent’s responsibil-ity for supervising his or her childrendoes not excuse a product manufac-turer from putting a safe product intothe stream of commerce. The “blamethe parents defense” is the samedefense product manufacturers utilizewhen defending claims against adultsin the workplace. In workplace injuryscenarios involving adults, manufactur-ers always claim the employee causedtheir own injury, even in the face ofoverwhelming evidence that theirmachine failed to meet minimum safetystandards.

Our firm is currently pursuing a caseon behalf of a family suffering throughan injury to a small child. The machin-ery involved in this case is a meatgrinder. While using the meat grinder,the child sustained a debilitating injuryto her hand. As expected, the productmanufacturer’s primary defense is to

blame the incident on the parents.During the exchange of evidence, wediscovered that this particular manufac-turer sold a similar meat grinder with aguard that would have eliminated anychild’s exposure to injury. As in mostguarding cases, the safety device wasreadily available, but the manufacturerfailed to use it. We expect this case togo to trial next year.

It is difficult to prevent injuries tochildren, but, it is very easy to protectchildren from defective machinery.More often than not, simple guardingtechniques can eliminate all hazardsposed by household machinery. It isnot the parent’s duty to identify thesehazards. That is the duty of the productmanufacturers. Parents should closelyscrutinize the products they buy for thehome and question the manufacturerwhen suspected hazards are found. Ofcourse, while any product purchasedfor the home should be safe for adults,children have to be protected evenmore because of their age and lack ofmaturity.

HONDA CR-VS ARE STILL CATCHING FIRE

There have been reports of at least60 new Honda CR-V sport utility vehi-cles catching fire nationwide. The vehi-cles catch fire suddenly while on theroad. In most cases, it is reported thatthe vehicles had just been serviced fortheir first oil changes. While no injurieshave been reported to date, theNational Highway Traffic Safety Admin-istration (NHTSA) has reopened andupgraded an investigation into the CR-V to determine what is making some ofthem suddenly burst into flames, inmany cases destroying the vehicles.The expanded inquiry covers about280,000 CR-V’s in the 2003 and 2004model years. So far, during the investi-gation Honda has blamed dealershipsfor mishandling oil changes. Consumergroups, on the other hand, claim thatthe automaker is dodging its responsi-bility. Improper installation of the oilfilter was thought to be the problem.NHTSA is now looking beyond the oilfilter to see what other factors could becontributing to the CR-V fires. Both

NHTSA and Honda initially thought itwas merely a problem with not execut-ing the oil change properly. The manu-facturing and design of the CR-V aretwo of several subjects investigators arenow studying.

NHTSA and Honda thought they hadresolved the CR-V fires problem thissummer. In July, the agency closed apreliminary investigation into firesinvolving 2003 model CR-V’s afterHonda said the problem was a result offaulty oil changes. According to docu-ments from NHTSA, Honda said that inmany of the vehicles that caught fire,mechanics had either not properlyinstalled a new oil filter seal or hadfailed to remove the factory-installedseal before putting in the new one.With the two seals in place at one time,the new oil filter could not createenough suction to prevent oil fromleaking out and spilling onto the car’shot exhaust system. With an improp-erly installed seal, oil could also seepout onto the exhaust system and causea fire. The documents show that theagency agreed that the problem origi-nated at dealerships and service sta-tions and had nothing to do with theCR-V’s design. Honda then sent lettersto its dealers warning them of thepotential fire hazard, and the agencystopped its inquiry. But, the fires didnot stop.

From July 1st to September 9th, thedate NHTSA reopened its investigationinto the CR-V, the agency receivedreports of 18 more fires. The newinvestigation, known as an engineeringanalysis, is the most exhaustive of theagency’s safety inquiries. It is alsolooking at model year 2004 CR-Vbecause drivers have begun reportingfires in those models as well. Theinvestigation could have several out-comes, ranging from no action to arecall. Honda still insists the fires arethe fault of mechanics and says it is notconsidering a voluntary recall.

The question is why are the firesoccurring only in 2003 and 2004models. Apparently, there were no fun-damental changes in the vehicle designfrom 2002 to 2003. The last significantredesign to the CR-V was in 2001. Fireshave now become a problem. Some


experts have argued that if the fault lieswith mechanics, as Honda contends,any vehicle would be prone to thesame problems as the CR-V. ClarenceDitlow, executive director of the Centerfor Auto Safety says: “There’s some-thing Honda isn’t telling the govern-ment about this vehicle. This is anopen-and-shut case, so the only ques-tion for us is, why haven’t they done asafety recall?” Mr. Ditlow said the safetyagency should order a recall if Hondarefused to do one voluntarily. The CR-V problem appears to be a result ofHonda’s design. The CR-V’s oil filter,like those in models from many otherautomakers, is near the exhaust system,which increases the likelihood of a fireif the filter leaks.

NISSAN BEING SUED FOR BRAKE DEFECT

A nationwide class action suit hasbeen filed in California against NissanNorth America, Inc. over a brake defectin the Infinity G35. According to thelawsuit, the defect devalues the vehicleon resale. The lawsuit asks that Infinityreimburse owners for the cost ofrepairing the defect, which causes thebrake pads and rotors to wear outmuch faster than normal. I understandthat on some of the vehicles the brakeshave required annual replacement.

FORD AND GOODYEAR SETTLE LAWSUIT

Shortly before a scheduled trial wasready to start, Goodyear and FordMotor Co. settled a lawsuit that aroseout of a 2001 accident that killed twoU.S. Marines and injured 11 others.Terms of the settlement are confidentialand cannot be disclosed. The casearose out of an accident involving aFord E-350 15-passenger van. The suitclaimed the 1996 van rolled over afterthe tread came off a rear tire. The tirewas Goodyear’s Load Range E tire. Thisis a very bad combination—a danger-ous van and a bad tire—and as aresult, the event leading up to the acci-dent was predictable.

IX.MASS TORTSUPDATE

MERCK HALTS WORLDWIDE SALES OF VIOXX

The pharmaceutical giant Merck &Co. shocked the nation when it pulledthe arthritis drug Vioxx from themarket. However, in my opinion hadthe FDA done its job, this drug wouldhave been pulled months ago. Ourfirm has a number of lawsuits pendingagainst Merck that involve Vioxx. Thefirst case was filed in 2001. Merck hashalted worldwide sales of Vioxx, andthe reason for pulling the drug is verysimple. There is an increased risk ofheart attack and stroke associated withthe use of Vioxx. Merck announced onSeptember 30th that data from a clini-cal trial showed the increased risk ofheart attack and other cardiovascularcomplications began 18 months afterpatients started taking Vioxx. It isbelieved that about 2 million peopleworldwide are currently taking Vioxx.A total of 84 million have taken thedrug since it came on the world marketin 1999. The three-year study referredto was trying to show that the drug at a25-milligram dose would prevent recur-rence of polyps in the colon andrectum. The trial was stopped afterMerck discovered study participantshad double the risk of a heart attackcompared to other participants takingdummy pills. Vioxx was pulled on Sep-tember 30th.

Vioxx is one of Merck’s most impor-tant drugs, with $2.5 billion in sales in2003 —about 11% of the company’s$22.49 billion in revenue that year.Sales dipped 18% in the second quarterof this year to $653 million, partlybecause of to increasing concernsabout the drug’s safety. The FDAadmits now that there were early signsof potential problems with Vioxx. AMerck study had led to warnings aboutheart risks being placed on the drug’slabel in 2001. The FDA has been moni-toring problems reported to the agencysince that time. The FDA should havetaken action a long time ago and therecan be no excuse for its inaction. There

is no way that the serious problemswith Vioxx could have come as a sur-prise to the FDA. Our lawyers in theMass Torts Section have known forseveral years that Vioxx was causingheart and cardiovascular problems,with our first lawsuit being filed in2001. The FDA had the same informa-tion that we had and probably had iteven sooner. If we knew Vioxx causedheart attacks and strokes in 2001, whydid it take the FDA so long to figurethis one out?

Vioxx and a successor drug calledArcoxia, approved in some foreigncountries and awaiting FDA approvalin this country, are part of a class ofanti-inflammatory drugs heavily toutedby the pharmaceutical industry asbeing more effective and having fewerside effects, particularly on the gas-trointestinal system, than older drugs.Drugs in this class are called COX-2inhibitors. All COX-2 inhibitors canraise blood pressure, but Vioxxappears to be the only one that’s beenlinked to higher risk of heart attacksand strokes.

SOME BACKGROUND ON THE OVERALLPROBLEM

Merck withdrew Vioxx globally fol-lowing indications from a colon cancertrial that confirmed long-standing con-cerns the drug raises the risk of heartattack and stroke. A recent study bythe U.S. Food and Drug Administrationsuggested patients taking Vioxx faced a50% greater risk of heart attacks andsudden cardiac death than those takingPfizer Inc.’s rival Celebrex treatment.The announcement by Merck is thelatest evidence that this family of drugs,the COX-2 inhibitors, once referred toas “super aspirins,” are turning out tobe more like super disasters. As dis-cussed below, there are safety prob-lems with Celebrex as well as Bextra,the two other big-selling COX-2inhibitors that are the most-prescribedalternatives to Vioxx. Merck has had acheckered history with Vioxx. After anearlier randomized trial, the VIGORstudy, published almost four years ago(November 2000), that found Vioxx


caused a four- to five-fold increase inheart attacks, Merck received awarning letter, dated September 17,2001, from the U.S. Food and DrugAdministration because the company’sads for the drug failed to mention thisincreased risk of heart attacks. In theeight-page warning letter addressed toMerck President and CEO Raymond V.Gilmartin, the FDA stated:

You have engaged in a promo-tional campaign for Vioxx thatminimizes the potentially seriouscardiovascular findings that wereobserved in the Vioxx Gastrointesti-nal Outcomes Research (VIGOR)study, and thus, misrepresents thesafety profile for Vioxx. Specifically,your promotional campaign dis-counts the fact that in the VIGORstudy, patients on Vioxx wereobserved to have a four to five foldincrease in myocardial infarctions(MIs) compared to patients on thecomparator nonsteroidal anti-inflammatory drug (NSAID),Naprosyn (naproxen).

In Merck’s VIGOR study, comparingrofecoxib to naproxen, there was ahighly statistically significant five-foldincrease in heart attacks in the overallrofecoxib group (0.5%) compared tothe naproxen group (0.1%). Thisamounted to 20 heart attacks with rofe-coxib compared with four withnaproxen. This increased number ofheart attacks was also accompanied byan increase in other thrombotic (bloodclotting) adverse effects such as strokesand blood clots in the legs, as well asproblems with hypertension in therofecoxib group compared with thenaproxen group. Clearly, both the FDAand Merck knew over four years agothat there were significant problemswith Vioxx.

THE FDA WAS WARNED SEVERALYEARS AGO

In an article published three and ahalf years ago in its monthly newslet-ter, Worst Pills, Best Pills News, PublicCitizen warned readers that both Vioxxand Celebrex were DO NOT USE drugs

—the consumer group’s designation fordrugs that are not safe and effectiveenough to use. Although Merck’s with-drawal of Vioxx “solves” the serioussafety problems with this drug, themost-prescribed alternatives, Celebrexand Bextra, also have some concernsabout their cardiac toxicity. In a studypublished in the August 29, 2000, Pro-ceedings of the National Academy ofSciences, the ability of rabbits to with-stand temporary experimental coronaryartery occlusion (experimental heartattack) was significantly impaired bytreatment with celecoxib (Celebrex),which completely blocked the cardio-protective effects of the COX-2enzyme. The authors of that study con-cluded that COX-2 enzyme is a “cardio-protective protein.” Drugs that blockthis cardioprotective enzyme, such asCOX-2 inhibitors, may neutralize itsprotective effects.

Although a CLASS study involvingCelebrex did not find a significantlyelevated number of heart attacks inthose using celecoxib compared tothose using the older NSAIDs (ibupro-fen or diclofenac), there was also causefor concern about heart toxicity withcelecoxib. An expert from the FDA’sDivision of Cardio-Renal Drug Prod-ucts, Dr. Douglas Throckmorton, foundthat “the incidence of adverse eventsrelated to cardiac ischemia (decreasedblood flow to the heart) was higher inthe celecoxib [Celebrex] group ... andwas most pronounced in the group ofpatients not taking ASA (aspirin)” as acardiovascular protective drug. In thesepatients, the rate of heart attack wasalso highest in the celecoxib group(0.2%) compared with users of theother two drugs (0.1%). For all patients,on and off aspirin, there was a higherincidence of atrial fibrillation, a type ofheart rhythm disturbance, in the cele-coxib group compared to those takingibuprofen or diclofenac. Again this wasmore pronounced in the group nottaking aspirin. Dr. Throckmorton con-cluded by stating that “the data do notexclude a less apparent pro-thrombotic[blood clot-forming] effect of celecoxib,reflected in the relative rates of cardiacadverse events related to ischemia.”

Readers of Worst Pills, Best Pills News

were also warned by Public Citizen notto use Bextra. Because the FDA andBextra’s manufacturer, Pfizer, refusedto give Public Citizen unpublished dataconcerning the drug, the consumergroup filed suit against the agency. TheFDA had originally redacted all infor-mation in its reviews concerning valde-coxib and acute pain. In the course ofthe litigation, Public Citizen receivedmost of what they had requested in thelawsuit, including the unredacted FDAMedical Officer’s conclusions and rec-ommendations about the use of thedrug for acute pain. In the unredactedreview the Medical Officer recom-mended:

Nonapproval [for the treatment] ofthe acute pain, including opioid-sparing and prevention of operativepain. The only substantial multidosesafety database is found in the Coro-nary Artery Bypass Graft (CABG)Surgery study 035. This studydemonstrated an excess of seriousadverse events including death inassociation with the use of paracoxiband valdecoxib 40 mg bid [twicedaily] when added to ad lib [asneeded] parenteral [injectable] nar-cotic analgesia…These finding[s]warrants further investigation beforevaldecoxib can be considered safeand effective for the treatment ofpain, particularly multidose therapyin the perioperative setting.

In summarizing the safety of valde-coxib, the FDA Medical Officer stated:

With two notable exceptions—edema [swelling] and hypertension—valdecoxib (Bextra) was compa-rable to the standard non-steroidalagents [ibuprofen, naproxen,diclofenac] used as active controlsin the trials. ... The finding of agreater incidence of edema andhypertension at doses above 20mg/day, almost uniformly in thedatabases and clearly whenprospectively addressed in formalsafety Trials 47 and 62, is ofconcern....The excess of seriouscardiovascular thromboem-bolic [blood clots] in the valde-coxib arm of the CABG


[Coronary Artery Bypass Graft]trial is of note as the entirestudy population received pro-phylactic low dose aspirin aspart of the standard of care inthis setting to minimize justsuch events. Given the emerg-ing concern over a possiblepro-thrombotic action ofcertain agents in the COX2class, these data are ofconcern. (Emphasis added.)

Public Citizen has advised thatpeople should not use any of these“super aspirin” COX-2 inhibitors.Instead, the consumer group believesfolks should rely on the older drugs inthe NSAID family such as ibuprofenand naproxen. This appears to be verygood advice. I would recommend thatany persons taking one of the COX-2inhibitors consult with their personalphysician immediately and get a pro-fessional opinion. It is a sad state ofaffairs in this country when folks can’ttrust the drug companies and the FDAto protect them from bad drugs.

THE FDA DROPPED THE BALL

It now appears that The Food andDrug Administration silenced one of itsdrug experts who raised safety concernsweeks before Merck & Co. pulled Vioxxfrom the market. Dr. David J. Graham,associate director for science in the FDADrug Center’s Office of Drug Safety, toldSenate investigators that he faced stiffresistance within the regulatory agencyto his findings. Senator Chuck Grassley,(R-IA), chairman of the Senate FinanceCommittee, said in a statement afterCommittee investigators interviewed theresearcher: “Dr. Graham described anenvironment where he was ‘ostracized,’‘subjected to veiled threats’ and ‘intimi-dation.”’ Dr. Graham told the AssociatedPress that the Iowa Senator’s characteri-zation was accurate. It was shocking tolearn that raising safety concerns withinthe FDA is “extremely difficult.” At least,that’s how the 20-year employeedescribed his experience to the Associ-ated Press.

Dr. Graham was lead author on aresearch project that studied the records

of 1,390,000 Kaiser Permanentepatients, including 40,405 treated withPfizer’s Celebrex and 26,748 treatedwith Vioxx. The study found that highdoses of Vioxx tripled risks of heartattacks and sudden cardiac death. Theresearch team’s original conclusion saidthat high doses of Vioxx should not beprescribed or used. Dr. Graham, whowas scheduled to present those findingsin late August during an epidemiologyconference in France, said he ran intoresistance when the FDA reviewed hisabstract. An internal FDA e-mailexchange, released by Senator Grassley,is extremely damaging to the federalagency. The deputy director of theFDA’s Office of Drug Safety suggestedthat Dr. Graham defer his presentationin favor of a journal article so dissentingscientists—including those within theFDA—could comment. It also saidMerck should be alerted before thefindings became public “so they can beprepared for extensive media attentionthat this will likely provoke.” It appearsthat the FDA was more concerned withhelping Merck than it was in doing itsduty to protect the public.

As we reported last month, the Gov-ernment Accountability Office, an inves-tigative arm of Congress, has been askedto look into whether the FDA muzzledanother staffer who linked antidepres-sants to raising the odds of children suf-fering suicidal tendencies. When Merckvoluntarily pulled Vioxx from the marketon September 30th, the GAO was askedto include the FDA’s handling of thatcontroversy in its inquiry. But, thatreport is not expected for months.Senator Grassley’s committee is one ofthree in Congress presently scrutinizingthe regulatory agency’s actions. The FDAhas a duty to act as a public watchdog,and I don’t believe it has done that jobvery well. Frankly, I don’t believe theFDA can justify its actions. We will seehow Congress and the Presidentrespond to this most serious problem.

NEW RULES LIMIT MEDICAL INDUSTRY’SINFLUENCE

On September 28, 2004, the Accredi-tation Council for Continuing Medical

Education (ACCME) issued new rulesthat limit what doctors who receivedrug company funding can teach otherphysicians. The Council’s sevenmembers, including the AmericanMedical Association, endorsed thesenew changes. The Chicago-basedACCME gives its stamp of approval forcontinuing medical education courses.American doctors are required to par-ticipate in thousands of continuingeducation activities per year. In thepast, a presenting doctor would dis-close his/her financial relationship witha drug company, and then could giveany anecdotal experience with thatcompany’s drugs.

Pharmaceutical companies are pro-hibited by law from promoting “off-label” uses for their drugs. Doctors,however, are not under the samerestrictions. Dr. Norm Fost, a memberof the Food and Drug Administration’sPediatric Ethics Subcommittee, is of theopinion that many doctors are learningabout off-label prescription uses duringcontinuing medical education activities.A Pharmaceutical Research and Manu-facturers of America (PhRMA) attorneydismissed this notion of “stealth mar-keting” by drug companies. Thatshouldn’t come as a big surprise sincePhRMA has a vested interest in off-label drug sales. Under the new rules,an impartial third party tells the pre-senting doctor what kind of recom-mendations he/she can make duringtheir presentation. Clinical trial resultswill replace anecdotal observations.Any review of journal literature wouldhave to include both positive as well asnegative studies. Any doctor who doesnot agree with the new ACCME ruleswill be barred from presenting orteaching at continuing medical educa-tion conferences. This clearly appearsto be a step in the right direction.

REMICADE MAKER WARNS OF BLOODCANCER RISK

Johnson & Johnson has warnedmedical doctors that patients taking itsrheumatoid arthritis drug Remicademay have a higher risk of lymphoma, ablood cancer. As you may know, Remi-


cade is not related to the arthritis drugVioxx. Remicade’s label will be revisedto warn of a three-fold increase in therisk of lymphoma for rheumatoidarthritis patients taking the drug. Thechange means the drug’s safety profilewill be more closely aligned with thatof rival drugs in the same class: AmgenInc.’s Enbrel and Abbott LaboratoriesInc.’s Humira. All three drugs block aninflammation-causing protein calledtumor necrosis factor, or TNF. TheTNF-blockers have been very success-ful, from a financial perspective, withcombined sales of $4.1 billion in 2003.Some analysts say the revised label forRemicade casts an additional shadowover a class that is already attracting asmall, but growing amount of concern.We will watch this drug closely andwill monitor how folks taking it areaffected.

MERIDIA UPDATE

Earlier this year, I reported thatPublic Citizen had supplemented itspetition to the Food and Drug Adminis-tration (FDA) to ban the diet drugMeridia. This renewed effort came as aresult of new adverse event data thatbolster its original petition filed onMarch 19, 2002. While acutely aware ofthe ever-increasing number of cardio-vascular deaths in people using thisdrug, the FDA has nevertheless failedto set a hearing or otherwise respond.After the original Public Citizen petitionwas filed, the FDA began an additionalreview comparing adverse eventreports for Meridia and for Xenical,another major weight-loss drug thatdoesn’t have amphetamine-like compo-nents. So far, the FDA has not pub-lished results. Abbott Laboratories, themanufacturer of Meridia, claims thedrug is safe. To the contrary, Dr. SidneyWolfe of Public Citizen believes thisdrug increases the risk of death. Basedon recent history, I would believe Dr.Wolfe and trust his opinions on drugissues. Moreover, Public Citizen’s peti-tion says the average weight lossannounced at the drug’s approval wasonly 6-1/2 pounds after a year oftaking 10 milligrams daily. This would

hardly be an effective drug, certainlynot effective enough to justify the riskof death.

Shortly after the original petition, theFDA reprimanded Abbott for not prop-erly reporting the details of patientstaking Meridia. The agency said infor-mation about seven deaths was notreported properly. One death was notreported at all and reports on threeother deaths were incomplete. Abbotthas acknowledged this, but said theproblems occurred before it owned thedrug, which was developed by KnollPharmaceuticals. This, in my opinion,is no excuse for Abbott not reportingthese events to the FDA as soon asthey learned about them.

Since the filing of the original PublicCitizen petition, a number of lawyershave been litigating on behalf ofinjured Meridia users. Recently, afederal judge in Ohio dismissed anumber of cases on grounds that theyfailed to present adequate scientificproof that Meridia causes injury. Iunderstand this result is beingappealed. Nevertheless, I am surethose victims and their lawyers wouldhave appreciated the FDA revealing theresults of the Xenical study or at leasthaving a public hearing relating to thepetition filed by Public Citizen, whichis now two and a half years old. Suchinformation would have likely beenhelpful to them in avoiding their casesbeing dismissed.

In the meantime, our firm is prepar-ing for what is expected to be the firstMeridia trial in the country. We filedthat lawsuit in Corpus Christi, Texas,on behalf of a woman who is para-lyzed as a result of a stroke thatoccurred while she was taking Meridia.Her case will go to trial in February of2005. We also have another case thatwas filed on behalf of the daughter of awoman who died of a heart attackwhile taking Meridia. That case is setfor trial in May of 2005 in Birmingham,Alabama. We are also involved inanother case involving death resultingfrom a heart attack, which is set fortrial in Illinois in July of 2005. Thesefilings have allowed us to gather andanalyze internal corporate informationrevealing what has gone on behind the

scenes between the FDA and the drugcompany, Abbott. Even before itapproved the drug, the FDA was con-cerned about the safety of Meridia. AnFDA advisory committee in 1997 voted5-4 that the benefits of the drug did notoutweigh its risks. I have previouslywritten of my concern regarding thecozy relationship between the currentFDA and the powerful pharmaceuticalindustry. Because the Bush Administra-tion has no interest in protecting thepublic, the importance of watchdoggroups like Public Citizen takes ongreater significance. Furthermore, thecivil jury system is absolutely critical inforcing pharmaceutical companies todo the right thing and to hold themaccountable when they don’t. This iswhy the drug companies are pumpingso much money into the Bush cam-paign and in the campaign coffers ofkey Senators and members of Con-gress. I am hopeful the voters willfigure this out by Election Day.

THE FDA FINALLY REQUIRES A BLACK BOXWARNIN G FOR ANTI-DEPRESSANTS

In a most significant move, the Foodand Drug Administration is now requir-ing all antidepressants to carry the gov-ernment’s “black box” warning. Thissafety alert is to warn that the drugs arelinked to increased suicidal thoughtsand behavior among children andteens. This will mean Pfizer’s Zoloft,GlaxoSmithKline’s Paxil, Wellbutrin andZyban, Forest Laboratories’ Celexa andLexapro, Eli Lilly’s Prozac and Cym-balta, Wyeth’s Effexor, Bristol-MyersSquibb’s Serzone and a host of otherantidepressants, even those in some-what different chemical classes, willcome under this new regulation. Thelabels will also have to include detailsof pediatric studies relating to the anti-depressants. The mandated warning isparticularly bad news for Glaxo, themanufacturer of Paxil. You will recallthat New York State Attorney GeneralEliot Spitzer filed a lawsuit this summeragainst that company over unpublisheddata on Paxil. In any event, the FDAdid the right thing on the antidepres-sants and should be commended for


their belated action. But, I have to ask:why did it take them so long?

X.BUSINESSLITIGATION

THE U.S. CHAMBER OF COMMERCE LIKESTHE COURTS WHEN IT HELPS THEM

In September, the U.S. Chamber ofCommerce filed a lawsuit in the U.S.District Court for the District of Colum-bia seeking to overturn the new Securi-ties and Exchange Commission (SEC)rule requiring that 75% of a mutualfund’s directors be independent of thefund’s management company and thatits chairman be independent. After filingthe lawsuit, the SEC’s General Counselrejected the U.S. Chamber’s request fora stay of the effective date of the rulepending completion of the litigation.The new rules became effective Sep-tember 7th. Funds will have to complywith this new rule by January 16, 2006.

In what surely will be an interesting“spin job,” given their recent argumentsto federalize tort reform, the Chamberin this complaint argues that each ofthe new governance requirementsexceeds the SEC’s federal statutorymandate and infringes on state law. Inparticular, the complaint alleges thateach requirement “upsets the balance”in the 1940 Investment Company Actfor the governance of mutual fundsand “improperly usurps” the state’s roleas the primary authority on matters ofcorporate governance.

It is extremely difficult for me tounderstand how the U.S. Chamber ofCommerce, which has consistentlyclaimed that lawyers are to blame formost everything and that the courtsshould be shut down for consumers,could run to the courts for relief. Theynow argue that a rule requiring that75% of a mutual fund’s directors beindependent of the fund’s managementcompany and that its chairman beindependent, would “usurp” theauthority of the states. I have towonder if the Chamber officials have

been reading about the same mutualfund scandals the public knows about.You would think that the U.S. Chamberwould welcome any rule that makes itmore fair for investors and that makesmutual fund directors more independ-ent from the fund’s managementcompany. It seems clear that a mutualfund chairman who is also the chiefexecutive officer or other officer of thefund’s management company is caughtin a conflict of interest that could onlybe cured by the “independent chair-man rule.” It is most interesting to notethat all seven living former SEC chair-men expressed support for the inde-pendent chairman proposal before itwas adopted. Once again, it seems theU.S. Chamber of Commerce is lookingout for “big business” and ignoringinvestors, who should be able tobelieve the chairmen and directorsrunning the mutual funds are trulyindependent and trust them to do theright thing.

INVESCO AND AIM SETTLE MARKET-TIMINGCHARGES

Invesco Funds Group, Inc. and itssister company, AIM Advisors, Inc.,have recently agreed to pay $451million to resolve charges they permit-ted excess market-timing activity in anumber of their mutual funds. Underthe terms of the agreement, Invescowill pay $325 million to settle allega-tions it violated Colorado’s consumerprotection laws by failing to disclosethe extent of market-timing activities inthe funds, which included trading ininternational and foreign securities. Ofthe $325 million, $215 million is forrestitution and disgorgement to injuredinvestors and $110 million is assessedas civil penalties. AIM, the investmentsdistributor of Invesco’s mutual funds,will pay $20 million in restitution anddisgorgement and $30 million in civilpenalties.

The companies also will be responsi-ble for bringing about $75 million inreduced fees charged to investors overa five-year period. The companies willalso pay Colorado $1.5 million to beheld in trust for reimbursement of

attorney’s fees and costs, consumerand investor education, and futureenforcement activities. Ken Salazar, theAttorney General of Colorado, who dida great job for Colorado investors, says,

This case represents one of thelargest settlements with a mutualfund company over this market-timing scandal. I believe this sendsthe strongest message yet thatmutual fund companies will beheld accountable for behavior thatharms consumers and averageshareholders.

XI.INSURANCE ANDFINANCE UPDATE

NON-PROFIT HOSPITAL LITIGATION

A group of lawyers from around thecountry have filed 51 lawsuits inseveral states accusing over 370 non-profit hospitals of overcharging unin-sured patients. A well-known lawyerfrom Mississippi, Richard Scruggs,heads up the effort. Not only do thesuits allege overcharging uninsuredpatients for care, medicine, and othermaterials, the non-profit hospitals areaccused of overly aggressive collectionmethods on poor patients. The casesare filed as class actions for the unin-sured patients. The suits allege viola-tions of the Internal Revenue ServiceCode, which requires non-profit hospi-tals to meet certain conditions andstandards in order to receive tax-exempt treatment. If the non-profithospitals are not living up to IRSrequirements, then their tax-exemptstatus can be revoked.

The suits allege there is a type ofbrutality contest going on betweenvarious hospitals in the same commu-nities. In other words, hospitals attemptto see who can be the more brutal incollection efforts against uninsuredpatients so the next time that a poorpatient has to visit the hospital, theywill go to another emergency room.This allows the hospital to avoid thehassle of a collection agency in the


event of non-payment. It is alleged thatthe hospitals spend much more moneyon collection efforts than they actuallycollect from the uninsured patients.The suits also claim that non-profithospitals routinely report bad debt ascharity care. The hospitals try all meas-ures to collect on the uninsured debt,and when it cannot be collected, it isconsidered charity care and written offthe hospitals’ books.

There is a striking difference in theprices listed by a hospital’s “chargemas-ter” and the prices paid by hugeprivate insurers and/or Medicare.These hospitals provide Medicare andlarge insurers discounts for their policy-holders and members, while the unin-sured are charged the prices normallylisted in the hospital’s chargemaster,which are inflated. For example, aMedicare patient may be charged$5,000.00 for a particular surgery, whilean uninsured patient at the same hospi-tal may be charged $20,000.00 for theexact same procedure.

The primary goal of the litigation isto protect low-income citizens whohave no insurance. It will prevent lienson uninsured patients’ homes, stop thegarnishing of their wages, and in par-ticular prevent the collection of morethan 10% of an uninsured’s annualincome in a given year. It should benoted that the suits don’t seek toprovide free care for all persons whoare uninsured, but rather it seeks toestablish more reasonable models forproviding and charging the uninsuredpopulation for medical care.

INSURERS DID A BAD THING TO FOLKS FOR ALONG TIME

For a century, it was standard prac-tice at many American insurance com-panies to charge black folks more thanwhites for the same coverage on burialinsurance policies. The policies weresmall, paying out just enough for amodest funeral, but millions of themwere sold, many to poor black familiesin the South. Now, the industry isbeing called to account. Insurance reg-ulators in many states have filed com-plaints. Many companies, unwilling to

defend what is now viewed by societyas indefensible racial discrimination,are settling cases out of court.

Between 2000 and 2004, 16 majorcases were settled, involving about14.8 million policies sold by 90 insur-ance companies between 1900 and the1980s. Together, the settlements requirethe companies to pay more than $556million - most of it in restitution to poli-cyholders or their survivors. A portionof the total will go to fines, legal costsand charitable contributions. The twobiggest settlements involved AmericanGeneral Life and Accident InsuranceCo. and Metropolitan Life InsuranceCo. of New York. American Generalagreed in 2000 to pay $250 million in acase involving 9.1 million policies. In2002, Metropolitan Life agreed to pay$157 million for 1.9 million policies.

ALLSTATE WINS TEXAS LAWSUIT

A Dallas jury has ruled that Texas’largest chiropractic chain, Accident &Injury Pain Center Inc., reportedly con-spired in a statewide scheme designedto defraud Allstate Insurance Companyand Encompass Insurance, a subsidiaryof Allstate. Accident & Injury PainCenter Inc., its related entities andvarious chiropractors, osteopaths, andmedical doctors were found to haveconspired to commit common lawfraud by over treatment and unneces-sary referrals. The Texas jury orderedthe defendants to pay $2.8 million inactual damages and $3 million in puni-tive damages. Allstate says it was takinga stand to fight insurance fraud and topunish the defrauders. A spokesman forAllstate says the company is “exposinginsurance fraud and putting fraudulententerprises out of business.”

Allstate and Encompass had allegedthat the vast majority of X-rays for autoaccident patients of Accident & InjuryPain Center were referred to “Lone StarRadiology,” located within Accident &Injury Pain Center’s corporate office inDallas. Patients were routinely referredfor MRIs on their first visit to one offour facilities that were owned byRobert Smith, the owner of Accident &Injury Pain Center. The medical doctors

to whom patients were referred con-ducted the “second opinion examina-tions” at Accident & Injury PainCenters. They reportedly had anarrangement with Receivable FinanceCompany to sell or kick back toReceivable Finance their medical billsfor the examinations for a small per-centage or flat fee. Receivable FinanceCompany, which is also owned byRobert Smith, is located within theAccident & Injury Pain Center corpo-rate office. Further, Allstate and Encom-pass had reportedly developedevidence that the wife of one of themedical doctor defendants was receiv-ing up to $10,000 a month for “market-ing services” from a pharmacy wherethe vast majority of the Accident &Injury patients were receiving prescrip-tions. If all of this is true, it surelysounds like fraud and Allstate did theright thing. We can’t tolerate fraud thathurts others and this is true regardlesswho the guilty party happens to be.

HURRICANE VICTIMS LOSE INSURANCE

After going through four hurricanes,it appears that some Florida residentsnow are being dropped by their insur-ance company. Under Florida law,before an insurance company can dropor change a person’s policy, there arelegal steps the company must take. It’snot against the law in Florida for aninsurance company to drop someoneor change their homeowner’s policy,but there must be a valid written reasonfor the cancellation. The reason has tobe more than just extensive hurricanedamage from multiple storms. Someinsurance companies are reportedlytrying to cancel or change policies forpeople who live in what they considerhigh-risk areas. The companies can’t dothat unless they have a clearly statedand valid reason. Florida law states thatclaims on property insurance that arethe result of an act of God may not beused as a cause for cancellation or non-renewal. All insurance companies inFlorida must also give individuals 45days written notice in order to cancelany policy that is 90 days or older.

Source: The Insurance Journal


IMPACT OF SPITZER BROKER FRAUD CHARGESFELT AT MARSH AND BEYOND

New York Attorney General EliotSpitzer filed charges against giant insur-ance broker Marsh and McLennan Cos.,the world’s largest insurance broker,last month for alleged commercialaccount steering and bid rigging. Thisaction by America’s real AttorneyGeneral, which alleges a massive price-fixing scheme, has already had a signif-icant impact on Marsh and is expectedto reach into the insurance brokeragecommunity at large. Many observersexpect the impact to deepen asGeneral Spitzer expands his probe toother companies and lines of insuranceand as other courts and states getinvolved. AIG, ACE and HartfordFinancial Services Group are three ofthe carriers cited in the bid-riggingaspect of the complaint. The chargeshave already brought about severalinternal changes at Marsh. In someinteresting moves:

• The brokerage firm named a formertrial lawyer, Michael G. Cherkasky, asits new chief executive;

• Its board of directors ordered anindependent internal investigation;and

• It suspended all contingency con-tracts of the type that have gotten itin trouble.

A class action lawsuit on behalf ofshareholders has also been filedagainst Marsh. The complaint allegesthat the defendants violated federalsecurities laws by failing to disclosethat hundreds of millions of dollars ofthe company’s profits derive fromillegal activities, namely “contingentcommissions.” Marsh is not alone inbeing targeted in a class action suit. AChicago judge in late July approved aclass action lawsuit against Aon Corp.alleging that the insurance brokeragebreached its fiduciary duty by takingcontingent commissions from insurerswithout disclosing them to policyhold-ers. Observers are predicting that therewill be additional lawsuits againstbrokers on behalf of shareholders andcustomers. According to industry insid-

ers and security analysts who followinsurance, the charges initiated byGeneral Spitzer are expected to affectthe revenue and profitability structureof the broker sector over the long-term.Cochran, Caronia Securities LLC, out ofChicago, notes that contingent commis-sions comprise 5% of revenues and15% of earnings for publicly tradedbrokers. The analysts noted in a reportthat: “Reduction or elimination of rev-enues related to these arrangementswould have an obvious negative effecton profitability.”

J.P. Morgan Chase & Co. analysts pre-dicted the Spitzer effort would produceto a “seismic shift” in property casualtybusiness practices. It is predicted byindustry insiders that the lawsuit couldlead to changes in the way brokers arepaid. We have learned that AIG willstop agreeing to brokers’ contingentcommissions. The impact was also feltbeyond property and casualty lines.MetLife says that it received four sub-poenas from the Attorney General’soffice, including ones pertaining topossible inflated bids. National Finan-cial Partners Corp., which sells invest-ments and insurance, also has receivedsubpoenas.

Source: Insurance Journal

XII.PREMISESLIABILITY UPDATE

CHEVRON PHILLIPS LIABLE FOR PLANTEXPLOSIOONS

Chevron Phillips Chemical Co. hasagreed to pay a $1.8 million civilpenalty for Clean Air Act violations thatled to releases of chemicals from amanufacturing plant in Pasadena in1999 and 2000, resulting in two explo-sions and three deaths. The penalty,the largest ever assessed for such acase, was announced last month afterthe Houston-based company reachedthe agreement with the Justice Depart-ment and the Environmental ProtectionAgency. Federal officials accusedChevron Phillips and its predecessor,

Phillips Chemical Co., of failing to doenough to prevent accidental chemicalreleases at the plastic resin and spe-cialty chemical manufacturing facility inthe Houston suburb of Pasadena. Thisresulted in two accidental explosions,in June 1999 and March 2000, thatreleased 1,3-butadiene, a carcinogen,and other chemicals into the air,caused three deaths and injured almost100 workers.

Chevron Phillips acquired the facilityfrom Phillips Chemical Co. shortly afterthe second explosion. Thomas San-sonetti, assistant attorney general forthe Justice Department’s Environmentand Natural Resources Division stated:“This is a great result for public health,the environment and worker safety.”Chevron Phillips had denied the allega-tions made by the federal government.The settlement, filed in Houstonfederal court, requires Chevron Phillipsto follow extensive work practicerequirements designed to ensure thatthe facility is operated in a manner thatprevents accidental releases of chemi-cals. In 2002, Phillips Chemical Co.agreed to pay more than $2.1 million infederal penalties for safety and healthviolations discovered at the complex.Chevron Phillips will also perform twoenvironmental projects in the commu-nity that will cost at least $1.2 million.

DISNEYLAND ACCIDENT RESULTS IN DEATH

The parents of a 22-year-old mankilled in a Disneyland roller coasteraccident have filed a wrongful deathlawsuit against The Walt Disney Co.The young man suffered severe bluntforce trauma and died of extensiveinternal bleeding in the 2003 accidentthat also injured 10 others. The inci-dent occurred when the Big ThunderMountain Railroad roller coaster’s loco-motive struck a tunnel roof. The ride’sfirst car then ran under the locomotive.The body of the decedent had to beextricated by paramedics. The lawsuitnamed Walt Disney World and TheWalt Disney Co. as defendants, seeksunspecified compensatory and punitivedamages.

Lawsuits were also filed on behalf of


the others who were injured and whoalleged physical and emotional injuriessuffered in the accident. The BigThunder Mountain Railroad reopenedin March, but was closed for severalweeks following another incident inJuly that sent three members of a Cana-dian family to the hospital. Since mid-2001, more than 24 people haveclaimed injuries from the ride. Thepopular ride simulates a runawaymining train in the Old West. Obvi-ously, there must be better regulationof amusement park rides—includingmore inspections—and stiff penaltiesfor repeat violators.

WARNINGS ON AMUSEMENT PARK RIDES

The federal government has advisedowners and operators of spinningamusement park rides to stop usingthem until further inspections are done.This came following an accident thatkilled a 38-year-old man in Massachu-setts. The Consumer Product SafetyCommission said it is investigating theSeptember 19th accident that occurredat a church fair in Shrewsbury, Massa-chusetts, on a ride called the Sizzler.The Sizzler and Deluxe Sizzler rides,made by Wisdom Industries Ltd. ofSterling, Colorado, rotate clockwisewhile three four-seat sections turncounterclockwise. Hopefully, the CPSCwill clamp down on the owners andoperators of these and similar “rides.”Many of them can be very dangerous,especially if inspections aren’t done ona regular basis.

XIII.WORKPLACEHAZARDS

PROPOSED RULES FOR HEXAVALENTCHROMIUM EXPOSURE DON’T GO FARENOUGH

The Occupational Safety and HealthAdministration has published in theFederal Register three proposed rulesdesigned to reduce worker exposure tohexavalent chromium. This is the car-

cinogenic chemical featured in the filmErin Brockovich. The proposed newPermissible Exposure Limit (PEL) is 50times lower than the existing standard,but is still four times higher thanrequested in 1993 in a petition filed byPublic Citizen. OSHA’s years of delayin tightening its standard led to alawsuit by Public Citizen and thePaper, Allied-Industrial, Chemical andEnergy Workers International Union(PACE), which resulted in a court orderrequiring OSHA to move forward witha new rule. Peter Lurie, deputy directorof Public Citizen’s Health ResearchGroup, stated:

Hundreds of thousands of workershave been exposed to inordinatelyhigh levels of hexavalent chromiumwhile the agency continued on itspath of reckless inaction. Even thenew proposal will not adequatelyprotect American workers fromlung cancer and the other healthrisks of this toxic chemical.

OSHA has estimated that approxi-mately 1 million workers are exposedto hexavalent chromium, which is usedin chrome plating, stainless steelwelding and the production of chro-mate pigments and dyes. In 1994,OSHA acknowledged that hexavalentchromium causes lung cancer andpromised to commence rulemaking toreduce exposure in 1995. The agencydidn’t keep that promise. As a result,Public Citizen and PACE had to filesuit. They sued OSHA in the U.S. Courtof Appeals for the Third Circuit inPhiladelphia in 1997, but lost becausethe agency promised to issue a pro-posed rule by 1999. When that didn’thappen, the two organizations suedagain in 2002, seeking to compel theagency to act. In December 2002, thecourt, decrying OSHA’s “indefinitedelay and recalcitrance in the face ofan admittedly grave risk to publichealth,” held that “OSHA’s delay inpromulgating a lower permissibleexposure limit for hexavalentchromium has exceeded the bounds ofreasonableness.” The court set a sched-ule for OSHA to come up with a newstandard, and the proposed rulesreferred to above are the result.

The agency is now proposing threerules, one for general industry, one forconstruction and one for shipyards. Allthree would lower the PEL from 52micrograms per cubic meter ofchromium (100 micrograms per cubicmeter of chromic acid) to 1 microgramper cubic meter of chromium (2 micro-grams per cubic meter of chromicacid). Public Citizen’s 1993 petition hadsought a PEL of .5 micrograms percubic meter of chromic acid. OSHA’sproposal is four times weaker than thePEL sought by Public Citizen. OSHA isgoing to require exposure monitoringonly in its proposed “general industry”standard for hexavalent chromium.Exposure monitoring won’t be requiredunder the proposal shipyard or con-struction standards. Engineering andwork practice controls—as opposed tothe less-desirable approach of personalprotective equipment—would berequired for all three industries if thePEL were exceeded for more than 30days a year, but because exposuremonitoring would not be required inshipyards or construction, it wouldn’tbe known if this threshold was met.Personal protective equipment wouldbe required in most cases if the PELwere exceeded at all in the threeindustries. However, exposure wouldnot be measured in two of them.Public Citizen considers this to beOSHA’s equivalent of a “don’t ask,don’t tell policy.” It appears that theagency would rather not know aboutexposures than have to compel a recal-citrant industry to take action to protectits workers.

OSHA also has succumbed to theentreaties of industry to exempt Port-land cement (a widely used type ofcement) from regulation entirely. Thisis true even though skin exposures tohexavalent chromium, which are likelyto result from handling cement, havebeen clearly shown to cause skin irrita-tion. Whatever its inadequacies, thenew standard for hexavalentchromium, which by court order mustbe complete by January 2006, wouldbe the first improvement in workerprotection against a specific industrialchemical that OSHA has proposed inmore than a decade. It should be noted


that the agency acknowledged in theearly 1990s that dozens of its standardswere out of date. Had Public Citizennot sued OSHA, these proposed ruleswould never have been promulgated atall in my opinion. OSHA has a duty tomodify its proposal to protect workersmore comprehensively. I hope that willbe the end result of the litigation. Inany event, Public Citizen must beapplauded for its diligence in pursuingthis matter.

Source: Public Citizen

JURY RULES AGAINST CSX

A jury in North Carolina has returneda $7.5 million verdict for a retired rail-road worker suffering from a rare formof asbestos cancer. The verdict returnedwas one of the largest single mesothe-lioma verdicts in North Carolina. CSXsays it will review the decision and con-sider its appellate options. Theemployee had been with CSX for 38years. He retired in 1999 after holdingseveral different positions such as utilityclerk, freight clerk and train master.

The jury saw documents from the1930s that demonstrated CSX knewasbestos was toxic and hazardous toemployees. The documents alsoshowed that CSX knew precautionscould be taken to protect railroadworkers exposed to asbestos dust inboilers, pipes and construction materi-als. The jury hearing the case alsolearned how in the 1950s CSX knewasbestos could cause lung cancer, andhow in the 1960s, the railroad companylearned that asbestos could causemesothelioma. But, CSX didn’t takemeasures to protect or warn its employ-ees about asbestos until the late 1980s.

In 2002, the employee was diag-nosed with malignant pleural mesothe-lioma, an illness commonly caused byoccupational asbestos exposure. Heunderwent surgery to remove his entireleft lung and his stomach, which hadmigrated into his chest cavity after hiscancerous lung was removed. Despitethree separate courses of chemother-apy, the cancer metastasized into hislymph nodes. The employee had beena loyal employee, loved working at the

railroad and was dedicated to his job.He now feels betrayed by his employerof 38 years.

XIV.TRANSPORTATION

1997 MEMO CITED IN 2001 QUEENSAIRLINER CRASH

Perhaps, you will recall the Novem-ber 2001 crash of an American Airlinesplane in Belle Harbor, Queens. Nowwe have learned that an airplane man-ufacturer’s memo written in June 1997,explicitly describes the hazards of themaneuver that caused the crash. But,the memo was kept within thecompany. The pilot was never warnedabout the procedure. American Airlinesobtained the memo a few months agofrom the manufacturer, Airbus, as partof its suit over how the companies willshare the payments to the families ofthe 265 people killed in the crash ofFlight 587. The memo is now beingcited by American and the pilots’ unionin an effort to put part of the blame onAirbus. The maneuver involved swing-ing the rudder from side to side, andthe memo, written after a 1997 episodewith a different American Airlines flightin the same kind of plane, an A300,warns that it could cause the tail tobreak off. That is what happened toFlight 587.

The memo, from a German memberof the Airbus consortium, Daimler-Benz Aerospace, said that “ruddermovements from left limit to right limitwill produce loads on the fin/rear fuse-lage above ultimate design load” - theamount of force that a part is designedto handle without breaking. After thecrash, the National TransportationSafety Board issued a recommendationagainst the maneuver. Airbus clearlyshould have shown the memo to theBoard before the crash. Instead, Airbusconcealed it from the Board. Airbusclaims that at the time the memo waswritten, the company was not a partyto the investigation, and that when itdid join, it was involved with crew per-formance, not structural issues.

The memo’s main point was that thetail of the plane in the 1997 eventshould be inspected. That was done,but no damage was found. But it wasreinspected more thoroughly after the2001 crash. At that time, some prob-lems were found. In the Flight 587crash, the co-pilot, flying the plane,moved the rudder back and forth whenit encountered the wake of a plane thathad taken off 140 seconds earlier fromKennedy International Airport. Pilotsare warned not to use the rudderabove a certain speed, which varies byairplane, but Flight 587 was still belowthat speed. They were not warned untilafter the crash never to use the rudderin alternating directions. The SafetyBoard warning went to all jet airlinerpilots, and some experts say that theA300 is no more vulnerable to thismaneuver than many other planes.Separately, however, the airline isarguing that a system called the“rudder limiter,” which keeps a pilotfrom moving the rudder farther than issafe at the airplane’s speed, does notwork well on the A300.

The Safety Board had a meeting onOctober 26th to establish the probablecause of the crash. Under its charterfrom Congress, the Board finds proba-ble cause, not fault. But, its findings arerelevant in the litigation between theairline and the plane manufacturer. Theunion and the airline are contendingthat in an era of very few passengerairline crashes, reducing the accidentrate further will require that all ele-ments of the industry volunteer anyinformation they have on any potentialsafety problem.

In the 1997 episode, the crew of anAmerican airlines plane near West PalmBeach, Florida, mismanaged the con-trols and allowed airspeed to fall toolow. When the plane slowed down tothe point that it could not stay in theair, the crew performed a sloppyrecovery but averted a crash. It is sig-nificant that the investigation focusedon the initial error and the poor recov-ery and not the rudder issue. Airbusclaims it had stressed to American afterthe 1997 event that pilots should notuse the rudder in recovering stability.


SETTLEMENT REACHED IN BUS CRASH THATKILLED FOUR STUDENTS

The families of four schoolchildrenkilled in a 2001 bus crash during aband trip to Canada have settled theirwrongful death lawsuit for $15 million.The families had sued two Bostoncompanies, Crystal Transport and Kris-tine Travel and Tour, and the busdrivers. The settlement came on theeve of trial. Van Hool, the Belgian man-ufacturer of the bus, also contributed tothe settlement. The families of five sur-vivors had also filed suit and two ofthem had already settled their lawsuits—one for $275,000 and another for$130,000. The other two cases arepending.

I believe that a comment after thesettlement by the mother of one of thevictims (a 12-year-old son) is wellworth repeating. The mother said “thetrial would have been traumatic for thefamilies. I don’t think people realizethe pain of losing a loved one doesn’tgo away and doesn’t become a victoryin a lawsuit.” The tour bus was carry-ing 42 children from a school in Massa-chusetts to a band concert in Halifax,Nova Scotia, when it flipped on its sidewhile trying to negotiate a turn beforedawn on April 27, 2001. The driver lostcontrol on a highway exit after he spedinto a hairpin turn, according to inves-tigators who investigated the crash.

DRIVER IN ARKANSAS BUS CRASH DROVEALL NIGHT

A federal investigation reveals thatthe driver of a tour bus involved in adeadly crash on an Arkansas interstateapparently had been driving all nightwithout backup. An investigator withthe National Transportation SafetyBoard (NTSB) stated: “We need to lookat hours of service. What he did duringthe daytime hours would be of greatinterest to us so we could evaluate anypossible fatigue that he might havehad.” The crash killed the driver and 13Chicago-area passengers who were ontheir semiannual trek to a Mississippicasino. The wreck occurred just beforedawn in a light mist. The bus failed tofollow a left-hand curve, left the

roadway and flipped over. Sixteen ofthe occupants survived the crash. Thefederal investigators are examining thebus to ascertain if there were anydefects or mechanical problems.Reconstruction of the accident couldtake as long as three months. Theinvestigators are trying to determinewhether the 67-year-old driver lostcontrol of the vehicle or whether somemechanical failure caused it to go offthe road, because there were no signsof skidding or braking.

The NTSB said the roof of the bus,which came off during the accident, isan area of concern. Past NTSB investi-gations of bus accidents have raisedquestions about bus integrity. Designdocuments reveal that roof supportsare getting smaller as bus windows getlarger. Other motorists on the highwayput the speed of the bus at about 70mph. The Federal Motor Coach SafetyAdministration also is looking at thecompany, the driver’s history andwhether the driver had ever submittedto a required random drug test. Theinvestigations are concerned with bussafety as well as the record of thedriver and bus company. Similarprobes of past crashes have yieldedsafety recommendations that ended upignored or rejected. The NTSB recom-mended seat belts on buses severaltimes, as far back as 1968, but theNational Highway Traffic Safety Admin-istration and the Federal HighwayAdministration have decided repeat-edly not to implement the recommen-dations. The Safety Board contendsthat most fatalities in rollovers haveoccurred when the passenger wasejected from a seat or out of a window.But studies also found lap belts alonecould cause internal injuries. Bus struc-tures don’t easily lend themselves tothe shoulder strap models nowrequired in cars and trucks. There wereno seat belts for the passengers on thetour bus that resulted in this accident.The only seat belt that’s currentlyrequired is for the driver.

ILLINOIS HIGHWAY BUS CRASH INJURESDONENS

We are currently seeing a greatnumber of accidents involving tourbuses. Recently, a tour bus takingpeople home from a charity event inChicago ran off a highway and over-turned, injuring dozens of passengers.The bus, with 42 people on board, wasen route from Chicago to a small townin Mississippi, when it ran off the pave-ment of an Interstate highway andoverturned. The bus passengers wereresidents of Tennessee and Mississippiwho were returning home after partici-pating in a prostate cancer fund-raiserin Chicago. State troopers hadn’t com-pleted their investigation of the acci-dent at press time. An accidentreconstruction team is currentlyworking on the investigation. Itappears that about 40 folks wereinjured in the crash. A similar accidentinvolving a Chicago-based charter buskilled 14 people and injured 16 otherslast month. That bus overturned on anInterstate highway in northeasternArkansas. It was heading to the casinosof Tunica, Mississippi.

MOST IN ALABAMA FAVOR SAFETYINSPECTIONS

A recent survey conducted by theMobile Register—University of SouthAlabama revealed that three-quarters ofAlabamians believe the state shouldrequire yearly safety inspections for allvehicles. Nearly an equal percentagesupport emissions testing for vehicles.A law requiring vehicle inspections hasbeen discussed for years, but thus farno bill has made it through the Legisla-ture. I don’t see that changing any timesoon.

During the last decade, Alabama’sannual traffic fatality total has hoveredaround a thousand. According to infor-mation from the state Department ofPublic Safety, as of late September, 568lives have been lost in traffic accidentsthis year. At that pace 2004 will recorda five-year high. In the last decade,traffic fatalities in Alabama hit theirlowest point in 2000. A total of 986people died on state roadways that


year. There is some question as towhether safety inspections are the bestapproach to reducing the number offolks dying on our roadways. Accord-ing to information from the AutomotiveService Association, 18 states, plus theDistrict of Columbia, require vehiclesafety inspections annually or bienni-ally. The Texas-based association is atrade group for collision, mechanicaland transmission automotive repairshops

States are under pressure from thefederal government to reduce trafficfatalities. As a result, Alabama officialsare developing a plan to address theproblem. It doesn’t appear mandatoryinspections of passenger vehicles areon the agenda. Waymon Benifield,safety administrator for the AlabamaDepartment of Transportation, confirmsthat fact. Benifield, who is heading upa committee focusing on legislativeissues, told the Register that proposalshaving a chance of getting passed aregetting top priority. That makes sensefrom a pragmatic perspective.

David Brown, a University ofAlabama computer science professorwith the Critical Analysis ReportingEnvironment Research and Develop-ment Laboratory, is a leading analyst ofAlabama’s highway safety system.According to Brown, vehicle defectswere involved in 36 traffic fatalities inAlabama last year, which amounted to4% of total deaths. Some of thosecrashes involved out-of-state vehicles,which would not be screened under anAlabama inspection law. It doesn’tappear that vehicle defects are a majorcause of Alabama’s traffic fatalities.Clearly, no inspection program couldeliminate all defects. Factors linked tofar greater numbers of deaths includelack of seat belt usage, speeding, anddriving under the influence of alcohol.Obviously, spending money on evenone of these problems could save farmore lives than would vehicle inspec-tions. While vehicle inspections wouldbe a good thing, I believe other safetyprograms are the way to go at thistime. Our practice involves handling agood number of motor vehicle acci-dents, and we find that speeding isperhaps the one area where progress

can be made. Of course, it will requiremore police and state trooperspatrolling our streets and highways.

Source: Mobile Register

XV.ARBITRATIONUPDATE

ARBITRATION IN NURSING HOME ADMISSIONSUNFAIR TO FOLKS

We are seeing more and more dis-putes with nursing homes being sent toarbitration. A growing number ofnursing home patients and relatives arebeing made to sign arbitration clausesas part of admission to a nursing home.This practice is spreading like kudzu.Many people have no understanding ofwhat they’re signing. It is typical forrelatives to learn only after the fact thatthey have unwittingly waived theirright to litigate for negligent care ordeath of a loved one. Elder lawlawyers and consumer groups criticizethe arbitration agreements as self-serving industry weapons that striphapless nursing home residents andtheir families of their constitutionalright to a jury trial. Nevertheless,nursing home arbitration agreementsare on the rise.

Admitting someone to a nursinghome is an emotionally difficult event,and patients and as a general rule rela-tives aren’t aware of the legal ramifica-tions of signing an arbitration clause. Insome cases, the person signing thearbitration provision may not evenhave legal standing to make such deci-sions on behalf of a patient. Manytimes, because of the conditionscausing the need for a nursing home,families are distraught. Many don’tunderstand what they’re signing. Inmost cases a family member has noauthority to sign away a person’s con-stitutional rights. There’s no rationalreason why any individual entering anursing home would ever sign such anagreement at the time of admission.There is no way that a future dispute iseven considered. Patients and family

members shouldn’t be required—oreven asked—to sign an arbitrationagreement until a problem hasoccurred. Then both sides can agreethat arbitration is the best way toresolve that particular dispute if that’smutually agreeable. What we areseeing is a method designed specifi-cally by the nursing facilities to takeoptions away from residents and theirfamily members and in the process totake away a valuable constitutionalright.

Arbitrators who are chosen bypeople who drive the medical industryshouldn’t be allowed to sit in judgmenton a nursing home and a resident.Arbitration takes away a constitutionalright—the right to a jury trial—and thatcan never be justified. Arbitrators arebiased in favor of the industry thathires them, resulting in a no-win situa-tion for residents. There have beencourt decisions in a number of statesrejecting nursing home arbitrationagreements. The majority of challengesto arbitration in nursing home litigationhave centered on disputes over:

• How the agreement was presented tothe resident or family member;

• Whether the nursing home adminis-trator or other representative clearlyexplained the agreement;

• Whether the patient signed the arbi-tration agreement;

• Whether the arbitration agreementwas buried deep within the admis-sion packet; and

• Whether a family member couldproperly sign for the resident.

Many of the challenges to arbitrationagreements have been based on twolegal arguments, claiming that theagreement is either:

• A contract of adhesion, which isessentially a standardized contractform offered to a consumer on atake-it-or-leave-it basis, so that theconsumer doesn’t have a choice toaccept or refuse it.

• Unconscionable under state contractlaw. Elder law attorneys cite the


unequal bargaining power of theparties or the inability of the personwho signs it to understand the termsof the agreement.

Arbitration clauses are not only beingused as prerequisites to admission, butas a thinly veiled attack on the civiljustice system. Arbitration is really themost effective form of tort reform,designed to eliminate or limit accounta-bility for harm caused by a wrongdoer.It’s a blatant assault on the civil justicesystem. It is especially unfair in thenursing home setting.

Source: Lawyers Weekly

CITIGROUP SHOULD END MANDATORYARBITRATION

Citigroup Corp. has recentlyannounced that from now on it isgoing to be much more consumer-friendly. While that was welcomenews, some groups believe thecompany needs to go lots further. Afterthe pronouncement a few weeks ago,a broad coalition of civil rights andconsumer groups called on Citigroupto end the abusive practice of requiringborrowers to submit complaints onhome loans to mandatory arbitration.Citigroup is just one of many corpora-tions that loan money and that usearbitration against their borrowers. Webelieve that arbitration being forced onconsumers is wrong and can’t be justi-fied in loan transactions. The groupscalling on Citigroup to eliminatemandatory arbitration in subprimemortgage loans include:

• AARP

• Leadership Conference on CivilRights

• NAACP

• `Consumer Federation of America

• National Association of ConsumerAdvocates

• National Consumer Law Center

• Consumers Union

• US Public Interest Research Group

• Center for Responsible Lending

Homeownership represents a largepercentage of the wealth held byminority families in the United States.There will be disputes arising betweenlenders and borrowers from time-to-time. No lender should be allowed toprohibit borrowers from protectingtheir homes and family wealth in anopen and accessible court of law. ChrisHansen, associate executive director ofAARP, stated:

Access to the courts has been essen-tial to securing civil rights in thiscountry and mortgage contractsthat force homeowners into asecond-class justice system areunacceptable. Mandatory arbitra-tion clauses undermine hard wonconsumer protections by barringhomeowners from obtaining judi-cial scrutiny of their loans.

Hilary Shelton, director of the Wash-ington Bureau of the NAACP, said,

If predatory terms like discrimina-tory prepayment penalties andunnecessary fees are the bricks ofthe predatory lender’s house,mandatory arbitration is thecement that holds it together. Weask that Citigroup show realcourage as it has done in the pastin standing up for the rights ofAfrican-Americans and all bor-rowers in demanding this practicebe stopped.

In the American justice system, com-panies such as Citigroup can’t beallowed to deny consumers the abilityto enforce the promises made by thecorporations. Neither should thesecompanies be allowed to hide theirfraudulent practices behind the wall ofarbitration. Lenders must be heldaccountable for their wrongful acts.Travis Plunkett, legislative director ofConsumer Federation of America madethis observation: “From mortgage loans,to mobile homes to managed care,mandatory arbitration has become anever-present and unfortunate fact of lifefor American consumers.” He is cer-tainly right and all consumers arefinding that out to their dismay when a

dispute that arbitration is grossly unfairarises in any type consumer transaction.

Citigroup’s failure to stop requiringmandatory arbitration in its subprimeloans is wrong and is very much anti-consumer. Many of the largest mort-gage lenders in the country, includingAmeriquest, New Century, Option One,Washington Mutual, and Bank ofAmerica have backed off arbitration. Sohave Freddie Mac and Fannie Mae, thelargest buyers of home loans in thecountry. Citigroup purchased TheAssociates, one of the nation’s worstpredatory mortgage lenders, in 1999.Citigroup has greatly reduced thenumber of abusive home loans thatwere being generated by unscrupulousmortgage brokers. Citigroup announcedthat it will not charge borrowers morethan 3% in upfront fees and will limitprepayment penalties. But, Citigroup’sfailure to end forced arbitration in itssubprime mortgage loans makes this arather hollow move. Margot Saundersof the National Consumer Law Centerstated: “If Citigroup wants to be consid-ered a responsible lender, it cannotcontinue to insist on a private justicesystem that renders legal protectionsmeaningless.”

Each day, Americans unknowinglysign loan contracts containing manda-tory arbitration clauses that deny themaccess to justice, and that can’t be tol-erated. The following are some of theresults of forcing consumers to signarbitration agreements:

• Imposing high costs on the con-sumer, in terms of filing fees and theadditional expense of arbitration pro-ceedings;

• Allowing arbitrators, who may nothave proper training and are oftenselected by or have repeated finan-cial connections with the lender, todecide complicated financial caseswithout allowing the borrower aright to appeal;

• Limiting the availability of legalcounsel and other traditional proce-dural protections; and

• Benefiting unscrupulous lenders thathave used arbitration to handle dis-


putes in secret, avoiding an openand public day in court that wouldexpose unfair lending practices tothe public at large.

Inclusion of mandatory arbitrationclauses in subprime home loans hasbeen especially pernicious where it dis-proportionately puts homes at risk forelderly, low-income, and minority fam-ilies. Homeowners who are in the sub-prime market must be protected. Solong as arbitration is part of the equa-tion, there will be no real protectionavailable to these homeowners.

FEDERAL COURT BACKS ARBITRATOR

A federal Appeals Court has upheldan arbitrator’s decision to make EMCMortgage Corp. pay $6 million in puni-tive damages for subjecting a family to“outrageous” debt collection practices.The Irving, Texas, mortgage companyinsisted on arbitration and EMC “gotexactly what it bargained for,” the 8thCircuit of Appeals said in the August26th opinion. EMC argued that the $6million is excessive and violated thecompany’s constitutional right to dueprocess. However, the circuit judgespointed out that companies and con-sumers give up most of their rights todue process and judicial review whenthey enter arbitration. The court statedin its opinion: “In the arbitrationsetting, we have almost none of theprotections that fundamental fairnessand due process require for the imposi-tion of this form of punishment.” Inaddition, the courts have to a show an“extraordinary level of deference” tothe award so long as the arbitrator is“acting within his scope of authority,”the opinion said.

Bear Stearns & Co. owns EMC. Somebelieve the punitive damages awardand the circuit court’s decision demon-strate how unfair the arbitration processcan be. No person or company shouldhave to put our cases in the hands of asystem where decision makers canevade the law in favor of either party,with little legal recourse. Arbitrators canset their own rules and standards,ignore the facts, and ignore the law—that is wrong and can’t be tolerated.

The arbitrator found in this case thatEMC’s representatives violated the FairDebt Collection Practices Act in tryingto foreclose on the home of Mr. andMrs. Stanley Stark. Even though theStark’s were represented by a lawyer,EMC collectors repeatedly made contactwith them at home and at work in vio-lation of the FDCPA. At one point theyeven broke into the family’s house. Thearbitrator found EMC’s forcible entry“reprehensible and outrageous” andawarded $6 million in punitivedamages. A U.S. District Court vacatedthe award. But the 8th Circuit Court inSt. Louis reversed the lower court andconfirmed the arbitrator’s award.

XVI.NURSING HOMEUPDATE

VIOLENCE IN OUR NURSING HOMES REMAINSA PROBLEM

A growing problem at nursing homesacross the country involves violenceamong residents. While the debate onconditions in nursing homes has tradi-tionally focused on complaints of staffabuse, resident-on-resident violence issparking a growing number of com-plaints, studies and conferences.Nationwide, more than 3,700 com-plaints about such abuse were lodgedwith state ombudsman programs in2002, up from about 2,500 in 1997.Janet Wells, director of public policyfor the National Citizens Coalition forNursing Home Reform states: “There’sso many situations occurring nowwhere there is resident-on-residentabuse, including cases where peopleare killed occasionally.”

One major reason given for the vio-lence is that nursing homes are caringfor greater numbers of older patientssuffering from Alzheimer’s and otherforms of dementia. Such patients canbe both aggressors and victims. It iswell known that people with dementiacan be more prone to aggressivebehavior. Also, such patients are likelyto wander around the place or berate

others—behavior that can scare fellowresidents and cause them to respondwith violence, according to experts. Inrecent years there have been reports inseveral states of patients at nursinghomes being killed by fellow residentssuffering from dementia. More staff andbetter training would allow nursinghomes to recognize the warning signsand defuse dangerous situations. Betterscreening of patients for mental illnessor criminal backgrounds also is needed,according to patients’ rights advocates.

According to the Alzheimer’s Associ-ation, patients often become agitatedby change—a new caregiver, forexample, or new living arrangements.The group recommends avoiding con-frontations and instead redirecting theperson’s attention, creating a calmenvironment, and being sensitive tofears, misperceived threats and frustra-tion. Records reveal that nursinghomes, in an attempt to fill beds, haveadmitted criminals, including sexoffenders. In some states violent crimi-nals and sex offenders are being ware-housed in nursing homes. Many of thenursing homes don’t have staff trainedto take care of the residents. There is aproblem with violence in the nursinghomes and that must be addressed.

NURSING HOME POLITICAL COALITIONINDICTED IN TEXAS

The Alliance for Quality NursingHome Care, a coalition of the fourteenlargest national nursing home chains,has been indicted in Texas on chargesthat it illegally contributed money toU.S. House Majority Leader TomDeLay’s political action committee toinfluence the 2002 Texas State Legisla-tive elections. Newspaper reports indi-cate that a chief executive for one ofTexas’ largest nursing home chainspassed a $100,000.00 corporate checkto State House Speaker candidate TomCraddick just days before the 2002election. The check from the Alliancewas made out to “Texans for a Republi-can Majority”, which is a politicalaction committee that is at the center ofseveral felony indictments in TravisCounty, Texas.


Among other activities, the Alliancefor Quality Nursing Home Care runstelevision ads in Washington, D.C. andads in the Capitol Hill publication, RollCall, opposing cuts in Medicare aid fornursing homes and other types offunding. Reportedly the topic of con-versation at the time the $100,000check was passed was limiting lawsuitsagainst nursing homes. Steve Guillard,the Chairman of the Alliance, has saidthat the $100,000.00 contribution wasmade less than three weeks before theelection because of interest in apending legislative debate in Texasover limiting the legal liability of com-panies, including nursing homes.

The indictments focus on how theDeLay-founded Texans for a Republi-can Majority political action committeeraised corporate money to help Repub-licans take control of the Texas Housefor the first time since reconstruction.Travis County District Attorney RonnieEarle said this of his investigation:“What has emerged is the outline of aneffort to use corporate contributions tocontrol representative democracy inTexas.” The nursing home industry isconstantly complaining that they donot have enough money to take care ofthe residents, but it appears there isplenty for politicians.

TORT REFORM DRIVES SENATE COMMITTEEHEARING

On July 15th, the U.S. Senate SpecialCommittee on Aging held a hearing onthe subject of Nursing Home TortReform. Testimony was offered bynumerous nursing home industry wit-nesses. But, as previously reported, nota single witness was allowed to testifyon behalf of the nursing home resi-dents. The National Consumer Coali-tion for Nursing Home Reform, aWashington based advocacy group,asked to be allowed to present wit-nesses, but their request was refused. Itwas to be a day of testimony thatappears to have been “bought andpaid for” by the nursing home owners.

Norman Estes, who owns a largeAlabama-based chain of nursing homesand also has a number of homes in

other states, testified on behalf of theAmerican Health Care Association,which is the professional associationfor nursing home owners. Estes, whowas a big backer of the recent unsuc-cessful attempts to enact nursing hometort reform in Alabama, made somevery interesting comments to the com-mittee. He based his testimony oninformation provided by AON RiskConsultants, the same company thatprovided information for the AlabamaNursing Home Association in the leg-islative battles in Alabama. AON RiskConsultants is a consulting firm that foryears has done extensive work for thenursing home industry. When thenursing home industry needs informa-tion to help them claim that nursinghome litigation is out of control, theycan count on AON Risk Consultants tocome to their aid.

Mr. Estes told the committee that“elder patients are being victimized bythe crowding-out and diversion offunds away from improved patient careto pay for the higher cost of lawsuits.”This is an interesting way to view thebad situation faced by many nursinghome residents. In our experience, the“victimization” of nursing home resi-dents has never come from lawsuits.Instead, it results from inadequate andinappropriate care and treatment. Mr.Estes failed to address the problemsthat have been extensively docu-mented by the Government AccountingOffice and others relating to theneglect and abuse of nursing home res-idents throughout the country. To hearMr. Estes and his industry cohorts tellit, every lawsuit is frivolous. Thenursing home industry should stoppointing fingers and blaming others forthe problems, and take a good hardlook at how the industry operates. Is itso difficult to realize that if good carewere being provided, and nursinghome residents not being injured andkilled because of neglect and abuse,that the need for lawsuits would dimin-ish proportionately?

XVII.HEALTHCAREISSUES

DRUG COMPANY ADVERTISING CAN’T BEJUSTIFIED

The pharmaceutical companies arespending over $3.8 billion each year ontelevision and other mass-media adver-tising aimed at American consumers.The issue of drug advertising directlyaimed at consumers was thrust into thenews recently when Merck withdrewits top-selling arthritis painkiller Vioxxfrom the market. As everybody in theU.S. now knows, this was because ofthe significant risk of heart attacks orstrokes caused by taking Vioxx. Criticsnoted the role that advertising andmarketing played in the drug’s beingwidely prescribed to patients whomight have done just as well withibuprofen or other inexpensive over-the-counter remedies. Vioxx washardly unique as a prescription drugthat became a best seller on thestrength of advertising aimed directly atconsumers. In the seven years sincethe FDA lifted long-standing stricturesagainst such ads, prescription drugadvertising has grown into a multi-billion dollar a year business. Shock-ingly, the FDA still says that, despitethe controversy accompanying thewithdrawal of Vioxx, it has no plans toplace new curbs on advertising by thedrug companies.

During the debate between the vice-presidential candidates, Senator JohnEdwards, the Democratic nominee, re-emphasized his criticism of drug adver-tising. Senator Edwards said that if heand John Kerry were elected, theywould “do something about thesedrug-company ads on television, whichare out of control.” The Kerry-Edwardscampaign blames the ad-drivendemand for pushing up spending onpricey drugs, which contributes todouble-digit inflation in the nation’shealth care costs. There can be no jus-tification for allowing any advertisingto the public relating to prescriptiondrugs. The decision of what medicinesto prescribe should be left to doctors.


The multi-billion per year ad cam-paigns and the fast-track approachused by the FDA to approve new drugsis a deadly combination. The next Pres-ident and the new Congress must getinvolved and correct this bad situation.

THE FLU SHOT SHORTAGE IS A NATIONALDISGRACE

The major flu shot shortages in thiscountry resulting when British healthofficials pulled the license of the makerof half the U.S. vaccine supply is anational disgrace. The United States isfacing “a significant shortage,” accord-ing to Dr. Anthony Fauci, the NationalInstitutes of Health’s infectious diseasechief. The long lines of elderly citizenswaiting for a chance at the limitedsupply available is sad indeed. We arealready experiencing the shortageaccording to news reports. Britishauthorities suspended the license ofChiron Corp. for three months becauseof problems at its vaccine manufactur-ing plant in Liverpool, England. Theaction means the company can’t supplyany flu vaccines to any market duringthat time. Chiron says it would provideno vaccine this year.

Chiron had planned to ship 46million to 48 million doses, but thatalready had been delayed by a contam-ination problem discovered in Augustin the English factory where thevaccine is made. At the time, thecompany said only 4 million doseswere tainted, but the entire supplywould be held up and re-tested.According to reports, in an averageyear, flu kills 36,000 people and hospi-talizes another 114,000, mostly theelderly. In late September, top U.S.health officials assured the public thatclose FDA monitoring of the rest ofChiron’s supply suggested it was fineand that there would be plenty of sup-plies. It appears the FDA has droppedthe ball again.

FDA RED-FLAGGED FACTORY BUT FAILED TOFOLLOW UP

In June of 2003, the FDA foundquality-control problems at the flu

vaccine factory in Liverpool, England,but did not begin a full inspection untilfive days after British authorities hadpulled the company’s license becauseof tainted vaccines. The FDA had donean inspection of the plant in 2003 andfound batches of flu vaccine thatcontain bacteria and had beenreprocessed. The company’s licensedid not allow reprocessing. Thecompany told the FDA that it wasfixing the problem and apparently theFDA took them at their word. But, inAugust, Chiron notified the FDA that ithad found bacteria in another batch ofvaccines. Congressional representativesare right to question how the FDAcould be so inept. From all accounts,the U.S. government was taken com-pletely by surprise on a most criticalmatter. That is hard to understand andimpossible to justify. How in the worldcould the federal government dependon a foreign country to furnish flu vac-cines for our citizens? It is also difficultto understand how President Bushcould say, let’s go to Canada and see ifthey will sell us a vaccine supply. Ithought the President really believedCanadian drugs were not safe when hemade that claim earlier. In any event,the FDA clearly dropped the ball againand millions of U.S. citizens are now atrisk as a result.

RELEASE OF PRESCRIPTION INFORMATIONTRIGGERS LAWSUIT

A lawsuit filed against the Albertsonsfood and drug chain in California hasbrought to the public’s attention aserious problem. Consumers who buyprescription drugs at some chain drug-stores, may wonder at mailings solicit-ing them to try a different brand ofmedicine. Personal medical informationshould never be shared or sold withoutpermission. The Privacy Rights Clear-inghouse, a national consumer groupbased in California, says that somepharmacies that fill consumers’ pre-scriptions make this information avail-able to pharmaceutical companies forprofitable marketing purposes. Thepharmacies share this informationbecause they can make more money

selling the expensive drugs the phar-maceutical companies recommend.

In the Albertsons lawsuit, the con-sumer group contends this type ofchain-store practice “violates the lawsof many states where medical informa-tion is supposed to be held in confi-dence and not used for marketingpurposes.” Albertsons denies that eitherthe company or any of its subsidiarieshave breached any customer’s privacy.I don’t believe any person wants ahealthcare provider or pharmacy to selltheir medical history or other personalinformation to a drug company. Itshouldn’t be tolerated. Informationabout the lawsuit is available atwww.privacyrights.org/ar/Pharma-cyAlert.htm.

COALITION SAYS A SECOND LOOK AT STATINUSE NEEDED

A consumer group and 35 doctorsand scientists have asked the NationalInstitutes of Health to oversee an inde-pendent review of the science that ledto new guidelines urging wider use ofcholesterol-lowering statin drugs. TheCenter for Science in the Public Interestand the doctors and scientists said in aletter to NIH that there wasn’t enoughevidence to justify the recommenda-tions, especially for women, olderpeople and diabetics. The guidelineswere issued in July by a panel con-vened by the American Heart Associa-tion, the American College ofCardiology and the government. About36 million Americans are presentlybeing prescribed statins.

XVIII.ENVIRONMENTALCONCERNS

HIGH COURT DEBATES POLLUTION LAWSUITS

The U.S. Supreme Court consideredlast month whether companies thatvoluntarily seek to clean up their pol-luted land can sue former owners toget help with the costs. The case couldhave important ramifications for com-


munities with abandoned toxic plants,landfills and mines. Federal law allowsthe Environmental Protection Agency(EPA) to designate as “Superfund’’ sitesareas that are highly polluted. Officialscan seek money from current andformer owners for the cleanup costs.The case before the High Court askswhether the Superfund law can beused by the owners of the many thou-sands of properties in which the gov-ernment has not gotten involved anddemanded cleanup. During oral argu-ment, Justice Ruth Bader Ginsburg,who was the only justice whoappeared troubled about preventingsuch lawsuits, stated in open court:“You might be sitting around waitingforever until EPA comes after you. Itseems like EPA has higher priorities.’’

The case has pitted the Bush Admin-istration against 23 states that argue theSuperfund law, passed in 1980, allowslawsuits when companies on their owninitiative seek to clean their properties.Those efforts often are very expensive,and can involve multiple formerowners. The Bush Administration saysthat companies can still purge land, butthey have to work with the govern-ment in advance to make sure it’s doneproperly. Major corporations areclosely watching the case. With all oftheir well-documented power andinfluence, these corporations simplydon’t want to be the responsible corpo-rate citizen and clean up their proper-ties. Many communities have sites thathave been designated as polluted orpotentially contaminated by the gov-ernment.

Justice Sandra Day O’Connor saidthat the part of the law at issue in thecase didn’t seem to allow such law-suits. The other justices appeared to bein agreement. Nevertheless, this fightmight be far from over, becauseanother part of the Superfund lawcould be interpreted to allow lawsuits.The states that asked the High Court touphold the lower court decision were:Arizona, California, Colorado, Con-necticut, Delaware, Illinois, Louisiana,Massachusetts, Michigan, Missouri,Montana, Nevada, North Dakota, NewYork, Ohio, Oklahoma, Pennsylvania,Rhode Island, South Carolina, Ten-

nessee, Washington, Wisconsin andWyoming. The U.S. Court of Appealsfor the Fifth Circuit in New Orleans hadruled that Aviall could sue. The courtpointed out that “reasonable minds candiffer over’’ the Superfund law becauseof its inexact grammar.

Source: The Insurance Journal

REPORT SAYS LEAD CONTAMINATION APROBLEM

A report by the Washington Postreveals that there may be serious prob-lems with some of the nation’s publicwater supplies. According to the Post,dozens of the nation’s largest drinkingwater utilities have tried to hide leadcontamination and have failed tocorrect problems. An examination of 65of the 3,000 largest utilities found citiessuch as Philadelphia, Boston, NewYork City, Providence, Rhode Island,and Portland, Oregon, are “manipulat-ing the results of tests used to detectlead in water, violating federal law andputting millions of Americans at risk.”Apparently, state and federal regulatorshelped utilities avoid expensive waysof reducing lead in drinking water.Pregnant women and infants are themost vulnerable to lead, which cancause kidney and brain damage. Insome cases it can cause death. TheEnvironmental Protection Agency hasrequired drinking water utilities since1991 to reduce contamination if leadconcentrations exceed 15 parts perbillion in more than 10% of tapssampled.

About 54,000 community watersystems supply water to 268 millionAmericans, or about 90% of the U.S.population, according to AmericanWater Works Association, a tradegroup. The Post said its analysis of EPAdata identified 274 water systems,serving 11.5 million people, that hadreported unsafe lead levels since 2000.Problems with lead in drinking watersurfaced in 2002 for thousands of resi-dents in Washington, D.C., but onlygained widespread attention this year.Residents complained that the Districtof Columbia Water and Sewer Author-ity did little to alert them. The EPA said

only four large water systems, Wash-ington, D.C.; St. Paul, Minnesota; PortSt. Lucie, Florida, and Ridgewood, NewJersey, that serve 1.1 million peoplehad unsafe lead levels in the past threeyears.

Source: Washington Post

CITGO SETTLES POLLUTION CLAIMS

Citgo Petroleum Corp. will installpollution controls at six refineries tosettle federal claims alleging Clean AirAct violations. Citgo has reached an$8.5 million settlement with the U.S.Environmental Protection Agency andfour states over charges that it violatedclean air laws at refineries in thosestates. The Justice Department, repre-senting the EPA along with the states ofGeorgia, Illinois, Louisiana and NewJersey, had filed a lawsuit in Houstonfederal court accusing Citgo of failingto obtain permits for improvements atrefineries in those states and Texas,and surpassing the legally allowedamount of pollution emissions. Aconsent agreement was announcedshortly after the suit was filed. Citgoagreed to pay $3.5 million in fines andspend $5 million on a supplementalundetermined environmental project.Citgo will also be required to spendabout $320 million to install state-of-the-art pollution control technology.

The Citgo refineries included in thissettlement are in Corpus Christi, Texas,Lemont, Illinois, Lake Charles,Louisiana, Paulsboro, New Jersey andSavannah, Georgia. As usual, Citgo didnot admit to Clean Air Act violations inthe agreement, but the company isimplementing pollution controls begin-ning next year. The settlement alsorequires Citgo, the nation’s numberfour gas retailer, to reduce yearly emis-sions of nitrogen oxide by 7,184 tonsand sulfur dioxide by 23,250 tons. Bothcan cause serious respiratory ailmentsand worsen cases of childhood asthma.

U.S. REFUSES TO RATIFY KYOTO PROTOCOL

The Bush Administration has a poorenvironmental record and it’s getting


worse. Last month, Russia joined theUnited Kingdom, Germany, Italy, Japanand the European Union in ratifyingthe Kyoto Protocol. Under the terms ofthis agreement, participating industrial-ized countries will have until the year2012 to cut their collective emissions ofsix key greenhouse gases to 5.2%below their 1990 level. However, theUnited States, which accounted for 36%of the world’s carbon dioxide emis-sions in 1990, has flatly rejected thetreaty. The Bush Administration hasgiven no indication that it intends tochange its mind regarding the KyotoProtocol and its plan for a worldwidereduction in dangerous greenhouse gasemissions anytime soon. GermanaCanzi, a Climate Policy expert with theWorldwide Fund for Nature observed:

The Kyoto Protocol undoubtedlysets very low targets compared towhat scientists say is necessary inorder to keep climate change undercontrol. However, it has alwaysbeen considered a first step ratherthan the solution to the problem.

One of the more striking features ofthe Kyoto Protocol is that it providessubstantial incentives to countries thatare willing to modernize their tech-nologies. Countries that miss theiremission targets, however, would beexcluded from “emission trading”(buying and selling the right topollute), while a panel to be set up bymember governments would addressalleged violations. Profit motives areexpected to drive efforts in technologyand bring substantial cuts in emissionsin carbon dioxide, which make up 80%of greenhouse gases.

Currently, the next round of interna-tional climate talks are scheduled forDecember in Buenos Aires, Argentina,and negotiations on greenhouse gasemissions after 2012 are due to startnext year. Presidential candidate JohnKerry has expressed support for theKyoto Protocol and its plan to signifi-cantly reduce the damage that green-house gases are causing the earth’sfragile ozone layer. If John Kerry iselected President in November, Ibelieve that the United States willfinally do its part to reduce this ever-

increasing threat. We can’t afford toignore this most serious worldwideproblem any longer.

XIX.TOBACCOLITIGATIONUPDATE

TOBACCO INDUSTRY ADMITS MISTAKES

The federal government’s lawsuitagainst the tobacco industry was stillgoing on when this issue went to theprinter. The industry says it never pur-posely lied to the American publicabout the dangers of smoking. Theirdefense is that individual tobaccocompany officials made mistakes andshowed poor judgment in dismissingevidence of health risks. This is thelargest civil racketeering trial in U.S.history. Tobacco industry lawyers areclaiming that government claims of amassive, industry-devised fraud relyalmost entirely on events of the distantpast. The trial is expected to go for 12weeks. The government says that theindustry plotted to deceive Americansthat smoking caused cancer and otherdiseases and is certain to mislead thepublic again. At stake is $280 billion intobacco profits, which the governmentcalls “ill-gotten gains” from industryfraud. Government lawyers introducedinternal industry documents datingback decades that are pretty convinc-ing evidence that tobacco officials werelying to the public even as theyacknowledged the dangers of smokingto each other.

A MONTGOMERY LEGISLATOR SUPPLIES SOMEINTERESTING INFORMATION

Dick Brewbaker, who is a hard-working and highly respected memberof the Alabama Legislature from Mont-gomery, contacted us recently concern-ing the national tobacco settlement.Dick said he was surprised that wehave never commented in depth onthe actions of the Alabama legislaturein its last regular session relating to

tobacco. I must confess that my knowl-edge of what happened is very limited.I have decided to print part of Dick’sletter so that our readers will have thebenefit of this information.

The Governor proposed (HB 390)increasing the tobacco tax by 40cents/pack and allowing companiesparticipating in the MSA [MasterSettlement Agreement] to take acredit of 20 cents/pack against theirsettlement payments. His purposewas three fold: 1. raise revenue forthe general fund; 2. stop theincrease of market share of thenon-participating generic brands:and 3. protect the state againstwithdrawal from the MSA by partic-ipating tobacco companies.

When the MSA was reached in thelate 90s so-called generic brandcigarettes had about 1% of theAlabama market. After the MSA,participating brands became moreexpensive due to the 20 cents/packlevied by the MSA. Dozens of newgeneric brands entered the marketand because of their price advan-tage as non-participants in theMSA were able to gain considerablemarket share. As of now, genericsaccount for over 10% of Alabamacigarette sales. As the state onlygains revenue from participatingtobacco companies, the governorthought it in the public interest toremove the price advantage givento non-participants.

There are two ways tobacco com-panies can get out of the MSA, bygoing out of business and bymoving “off shore.” Now that thefederal government has ended alltobacco subsidies, both are a realpossibility. Under the Governor’sbill, if a tobacco company reorgan-ized or went offshore they wouldlose their credit against the MSAand Alabama would still get the 40cents/pack from anyone selling cig-arettes in our state. Given the factthat we depend on MSA money tofunds critical state services, theimportance of protecting the MSAcannot be overstated.


The tobacco lobby was determinedto kill the governor’s bill. In myview, their objection to it wasmainly that it would insure thatthe state maintained its tobaccotax revenue if MSA remainedintact or not. They were evenwilling to agree to a higher tax perpack as long as the long-term pro-tections to the MSA were not inplace. In the end, the Legislaturecaved in and passed a bill sup-ported by the tobacco lobby (HB716) that while raising alot ofmoney, did nothing to protect theMSA. The tobacco lobby was evenable to include a provision toforbid local governments frompassing any future increases intobacco taxes. As many ruralcounties depend on tobacco taxesto fund services like their VolunteerFire Departments, this is problem-atic to say the least. If there wasever an instance where lawmakerslooked after a powerful lobbyinstead of their constituents, thepassage of HB 716 is it.

I appreciate very much Rep. Brew-baker bringing this information to ourattention. I hope this will give our readerssome insight into the legislative processand how it works, or in some instances,fails to work. I realize that powerful lob-byists have far too much influence overwhat happens in our Legislature andbelieve most folks agree with me. Maybeone of these days’ things will change—and for the good of our state, I certainlyhope and pray it will!

XX.THE CONSUMERCORNER

UNSAFE PRODUCTS REACHING RETAILSHELVES

An investigation by ConsumerReports magazine revealed someshocking news. Apparently, dozens ofdangerous products that violate federalsafety standards are finding their wayonto retail shelves. Hundreds of other

recalled items banned for sale in theUnited States are being shipped toshoppers abroad. After an in-depthstudy of a decade of governmentproduct safety records, and shoppingat more than a dozen stores, the maga-zine concluded that weak laws and laxenforcement are allowing some manu-facturers and importers to ignorefederal and voluntary industry safetystandards. It found that when agenciesdiscovered unsafe goods, their actionscould be contradictory. For example,U.S. Customs seized a shipment of10,000 illegal switchblade knives dis-guised as cigarette lighters that werebeing imported in 2002. A year later, ashipment of knife-lighters was barredfrom entering U.S. ports, but wasallowed to be rerouted and shipped tothe United Arab Emirates.

The magazine faulted the U.S. Con-sumer Product Safety Commission(CPSC) for the continued sale of unsafeproducts both here and abroad. Citingsteep erosion in the agency’s budgetand staff, it said the CPSC was inade-quately and inconsistently enforcingfederal safety laws and policing storeshelves. The result, Consumer Reportsconcluded, is that consumers arebuying many “potentially lethal prod-ucts.” Some of these products are:

• Defective extension cords and elec-trical items that can overheat andburn;

• Fake ground-fault circuit interrupterplugs that don’t always trip whenthere is an electrical overload;

• Toys that can choke, cut or poisonyoung children;

• Counterfeit batteries that leak acid,overheat or spark; and

• Disposable lighters that leak fuel orexplode.

Many of these goods are fraudulentlylabeled counterfeits to well-known andwell-regarded brand-name items. Themagazine said that the CPSC’s numberof recalls, detained shipments andother enforcement actions was down35% in 2003 from 2001. The magazine,owned by the nonprofit Consumers

Union, called on Congress to increasethe agency’s budget and enact newlaws to ban the export of recalledproducts and give the agency morepower to publicize unsafe products.These findings are not good for con-sumers. The CPSC’s budget has shrunkto about half what it was 30 years ago,adjusted for inflation. The agency’sstaff has been cut almost in half duringthat same time. Consumers Union hasrequested the CPSC to increase itsfactory and store inspections, beef upenforcement of repeat violators andseek additional funding from Congress.R. David Pittle, Consumer Reports’senior vice-president for technicalpolicy, who was one of the originalmembers of the CPSC when it wascreated in 1973, stated: “The CPSC is allthat stands between consumers anddangerous products in the market-place.”

The CPSC defended its actions,pointing out that the number of recalls,fines and seizures increased signifi-cantly for the fiscal year that endedSeptember 30th. The agency said it hasconducted numerous samplings at avariety of mass merchandise and dollarstores. In a prepared statement theCPSC said:

We are now conducting moreinspections of imported products inan effort to find violative productsbefore they enter the U.S. Clearly,we have made an impact on thesafety of regulated products such astoys, fireworks and lighters sinceevery year it becomes more difficultto uncover violations.

The magazine’s staff visited dollarstores, drugstores, closeout centers andother discount stores and boughtsuspect products. Tested in ConsumerReports’ labs, the magazine found 48toys—about 33% of the total pur-chased—that violated either mandatoryfederal or voluntary industry safetystandards. The magazine said that thegovernment’s inspection of stores andfactories has dropped from 1,130 in1999 to about 500 in 2004. At the sametime, detained shipments of importshave dropped 49% in the past twoyears. It should be noted, however,


that the CPSC’s chief partner in portinspections, U.S. Customs, has beenmore preoccupied with searching forbomb materials and other terrorism-related items. That has been a definiteinfluence on its other responsibilities.

Source: The Washington Post

NATIONAL WINDOW COVERING SAFETY MONTH

The safety of our children is a toppriority with the U.S. ConsumerProduct Safety Commission and that’sgood. October was National WindowCovering Safety Month and I doubt thatmany of us ever knew it. All home-owners should repair or replacewindow coverings that have cords pur-chased before 2001 with safer productsthat are now available. Since 1991,more than 175 infants and childrenhave died from accidentally stranglingin window cords. Children are espe-cially at risk and must be kept safefrom potential window-cord hazards.Parents and caregivers should check allwindowed areas of the home forpotential window-cord hazards. All ofus should follow these important cord-safety rules:

• Move all cribs, beds, furniture andtoys away from windows andwindow cords, preferably to anotherwall.

• Keep all window cords out of thereach of children. Make sure that tas-seled pull cords are short, and thatcontinuous-loop cords are perma-nently anchored to the floor or wall.

• Lock cords into position wheneverhorizontal blinds or shades arelowered, including when they cometo rest on a windowsill.

• Repair window blinds, cordedshades and draperies manufacturedbefore 2001 with retrofit cord-repairdevices, or replace them with today’ssafer products.

• Consider installing cordless windowcoverings in children’s bedrooms andplay areas.

CREDIT CARD WAR MAY ACTUALLY HELPCUNSUMERS

Banks in this country that offer Visaor MasterCard can begin offering com-peting credit cards now that the U.S.Supreme Court has refused to hear anappeal of a lawsuit in a case wereported on months ago. The HighCourt’s action is expected to increasecompetition among credit cards, whichI hope will be good for consumers. Ifmy information is correct, however, Idoubt that we will see lower interestrates as a result. The Justice Depart-ment had sued Visa USA and Master-Card International in 1998, saying thatprohibiting member banks from offer-ing other credit cards violated antitrustlaw and hurt consumers. The practicehad been in effect since 1974.

Consumer-lending consultant StuartFeldstein of SMR Research doesn’t seemuch benefit in so far as greater con-sumer choice is concerned. Feldsteinsays: “There’s just a blizzard of choicesfor consumers who want cards thathave different features. For consumers,it’s just kind of nice to see there’ssomeone out there looking to preventcoercion against competition.” In aninteresting development, shortly afterthe Supreme Court’s ruling, DiscoverFinancial Services sued Visa and Mas-terCard, seeking damages for beingshut out of the bankcard market. Othercompanies, including AmericanExpress, are expected to follow suit. Inthe meanwhile, it will be interesting tosee how additional choices of creditcard companies will affect U.S. con-sumers.

CHILDREN FACE DANGERS ON-LINE

Use of the Internet has become com-monplace in homes and businesses allover the country. While there is muchgood to be found on-line, there is alsothe dark side. Many adults don’t realizehow dangerous the Internet can be forchildren. Many believe that instantmessaging on the computer hasbecome like a telephone for children inthis country. We know that childrenspend hours chatting on-line with theirfriends. Unfortunately, strangers are

often the other participants. A recentstudy found that one in five childrenon-line is approached by a sexualpredator. In many instances a predatorwill try to set up a face-to-face meeting.

In a Dateline NBC hidden camerainvestigation, a correspondent capturedsome of these predators in the act. Tofollow the trail of an Internet predatorprowling for children, from seductionin a chat room to a face-to-facemeeting, Dateline rented a house,wired it with hidden cameras, andenlisted the help of an on-line vigilantegroup called “Perverted Justice.” Volun-teers from the group posed as teens inchat rooms, saying they were homealone and interested in sex. Withinhours there were men literally liningup at their door. One of the men whoturned up in Dateline’s investigationhad a history of mental illness and acriminal record. Just about every manwho came to the house claimed it wasthe first time he had done somethinglike that. Most claimed they really hadno intention of having sex with aminor. In two-and-a-half days, 18 menshowed up at the house after making adate on the Internet to commit statu-tory rape. None of the men had anyidea NBC’s hidden cameras wouldexpose them before a national audi-ence.

The moral of this story is that adultsmust take steps to protect children whounderstand and use the Internet. Thatmeans adults must gain some neededknowledge about the Internet and thenstart putting their acquired knowledgeto good use. Protecting children startsat home, and all of us who have chil-dren and grandchildren had betterwake up and get involved.

Source: NBC News

CONSUMER RIGHTS UNDER ASSAULT

Both candidates for President shouldbe talking about rising fuel and health-care costs, predatory lenders andthreats to privacy and food safety, andother consumer issues. Consumerrights are under unprecedented assault,and the next President will have a longhill to climb to regain the ground lost


over the past four years. At least one ofthe candidates is discussing issues thataffect U.S. consumers. The Presidentcan’t do this because of his very badrecord on all consumer issues. As Ihave heard said; “He can run—but hecan’t hide,” and that really applies tothe President’s record on consumersissues. Now, six national consumergroups have branded together to makesure issues that hit Americans in theirwallets are given the attention theydeserve. The coalition, which includesConsumers Union, the Consumer Fed-eration of America, the National Con-sumer Law Center, Public Citizen andthe U.S. Public Interest Research Groupsay special-interest groups have guttedthe Truth in Lending Act, blockedtougher food safety laws and kept con-sumers from having access to afford-able health care. The coalition outlinedthe following threats to consumers at apress conference:

• Rising oil and gasoline prices.Citing a Government AccountingOffice report that found that industrymergers have increased the price atthe pump, the coalition said the gov-ernment should encourage competi-tion to lower the cost of fuel.Additionally, it says, Congress shouldraise fuel economy standards, partic-ularly on light trucks and SUVs, tosave consumers money and reducepollution.

• Restrictions on consumers’ accessto the courts. The group saidmandatory arbitration clauses incontracts and bans on class actionsuits are preventing consumers frompursuing justice through the courts.Of particular concern, the groupsaid, are limits on consumers’ rightsto sue HMOs that wrongfully denythem coverage.

• Abusive and predatory lending.Congress has allowed credit cardcompanies, payday lenders andpredatory mortgage companies tooperate in a largely unregulatedatmosphere, the group says, makingconsumers more vulnerable todefault and bankruptcy. The group

wants the government to regulatethose industries and to make it clearthat states can enact even stricterlaws to protect citizens.

• Skyrocketing health insurancecosts. The group wants Congress toassure that all Americans have accessto affordable health care coverage. Itwants coverage immediatelyextended to all children and lower-income adults. It says that the newMedicare law does consumers a dis-service by barring the federal gov-ernment from negotiating lowerprices for drugs, and it argues thatthe government should allow reim-porting cheaper prescription drugsfrom Canada and Europe.

• Threats to privacy. Piecemealprivacy laws and offshoring have leftconsumers vulnerable to havingfinancial and medical informationexposed. The group says Congressshould give consumers more controlover how their information is used,require financial companies andInternet vendors to protect con-sumers’ private information, andallow states to enact stronger lawsconcerning information-sharingbetween companies.

• Food safety threats. The group saysarchaic meat safety laws are not upto the task of protecting consumersfrom salmonella, let alone Mad CowDisease. The group wants the gov-ernment to require the U.S. Depart-ment of Agriculture (USDA) to setand enforce limits on food-bornepathogens and to give the agencythe authority to mandate recalls oftainted meat—a power it does notcurrently possess. Additionally, theconsumers group said, the govern-ment must put stricter restrictions oningredients in animal feed to preventthe spread of Mad Cow Disease andother pathogens.

Because of the incredible rollback ofconsumer rights and protections duringthe last four years, the six-point agendaof essential reforms should serve as aguide for federal policymakers and

others concerned about consumerissues. Their unified voice should senda clear message about the importantissues confronted by consumers and astrong signal to political leaders both inWashington and state capitols thatthese problems must be addressed.Problems such as mandatory arbitrationand the plague of predatory lendingwill also be addressed. With a growingawareness of the essential nature ofthese concerns, issues of fundamentalconsumer justice will be put in focus.You can get more information on thegroup’s agenda by going to:http://ga4.org/consumerlaw/Agenda.html

STATE OF ALABAMA TAKES ACTION

The Alabama Securities Commissionhas issued Cease and Desist Ordersagainst multiple Alabama individuals,in a coordinated effort with the UnitedStates Securities and Exchange Com-mission and other regulatory and lawenforcement agencies, to halt a 24.5million dollar “Prime Bank” Ponzischeme. As the Securities andExchange Commission filed emergencyaction to halt an ongoing fraudulentSecurities Ponzi scheme operated byLearn Waterhouse, Inc., a Texas corpo-ration based in Jacksonville, Floridaand Tyler, Texas, the Alabama Securi-ties Commission simultaneously issuedits Cease and Desist Order and multiplesubpoenas to 10 respondents believedto be connected with or operating asrepresentatives of Learn Waterhouse,Inc. The Alabama Securities Commis-sion Cease and Desist Order names 10Alabama citizens in its orders. Theinvestigation of Learn Waterhouse con-ducted by the Alabama Securities Com-mission, United States Attorney’sOffice, Federal Bureau of Investigation,Florida Department of Financial Ser-vices, Texas State Securities Board,Arizona Corporation Commission, andthe Iowa Insurance Division’s SecuritiesBureau, determined that from Decem-ber, 2003 through August, 2004, LearnWaterhouse, Inc, and 4 individuals,through a multi-level series of repre-sentatives and agents, raised at least24.5 million dollars from 1700 investors


nationwide by conducting a fraudulentPrime Bank scheme. The allegationsare that Learn Waterhouse pooledinvestor funds to engage in “buy/sell”transactions in a “secret” “invitationonly” bank trading program that prom-ised investor returns ranging from 5 to50% per month.

The coordinated state and federalactions have resulted in search war-rants, freezing of assets, employmentof a temporary receiver, and otheractions designed to prevent removal ofassets and destruction of documents.Alabama Securities Commission Direc-tor Joe Borg stated, “By combining ourresources with other state and federalagencies, we multiplied the effective-ness of our resources against thosewho would swindle the hard earnedmoney from our citizens.” TheAlabama Securities Commissionadvised that, in addition to Cease andDesist Orders against the named indi-viduals, a separate Cease and DesistOrder had previously been issuedagainst Learn Waterhouse. Multiplesubpoenas were simultaneously deliv-ered to protect documents and recordsof transactions with Alabama citizens.Again, all Alabamians should be proudof the work done by Joe Borg and hisstaff. For further information, contactthe Alabama Securities Commission at1-800-222-1253. Copies of the Ceaseand Desist Orders and Show CauseOrders can be found on the AlabamaSecurities Commission website atwww.asc.state.al.us.

GOVERNMENT SAYS TOO FEW USE BOOSTERSEATS

Only one in five young children ridein injury-reducing booster seats,according to the National HighwayTraffic Safety Administration (NHTSA).The agency recommends the seats forchildren ages 4 to 8 who are under 4feet, 9 inches tall. Booster seats fit chil-dren better than seat belts and that’simportant from a safety perspective. Atelephone survey found that 21% ofchildren use boosters “at least on occa-sion,” and another 19% use child safetyseats. NHTSA says children are at

unnecessary risk of being injured incrashes because they are either in thewrong restraint for their size or, worse,totally unrestrained. About one-fifth ofparents questioned said they believedbooster seats were unstable andwouldn’t protect the child. NHTSAdoesn’t believe that’s a problem as longas the boosters are properly attached tothe back seat. According to the survey,85% of the parents and caregivers ofyoung children had heard of boosterseats. Oftentimes parents don’t use thebooster seats because their trips areshort or their children simply don’t likethe seats. Booster seats should be usedfor children that fall in the range of 4 to8 years and are under 4 feet, 9 inchesin height.

MOST CONSUMERS DON’T UNDERSTANDCREDIT SCORING

According to a new survey con-ducted by the Consumer Federation ofAmerica (CFA) and Providian Financial,most Americans don’t understandcredit scores. This is true even whenthey think their knowledge of credit isgood. That really doesn’t come a as asurprise. The bulletin noted that “ascompanies and organizations increas-ingly utilize credit scores to evaluateindividuals as prospective customers,employees or tenants, it is essential thatconsumers know their credit score,understand what it means, and learnhow to raise it.” But, the survey foundthat “most consumers do not under-stand what credit scores measure, whatgood and bad scores are, and howscores can be improved.” The surveyof 1027 representative adult Americanswas administered by the OpinionResearch Corporation International forCFA and Providian in late July. CFAExecutive Director Stephen Brobeckobserved:

Now that credit scores are increas-ingly used by utilities, insurers,and employers, as well as creditors,it is essential for consumers tolearn their score and what itmeans. The cost of not knowingyour score and its significancecould be not only denial of credit

but also difficulty obtainingneeded services and even a job.

Most consumers surveyed correctlyunderstand that lenders use creditscores, but only a minority know thatelectric utilities (30%), home insurers(47%), and landlords (48%) often usecredit scores to decide whether to sella service and at what price. Thesurvey’s good news is that 59% of allconsumers recognize that their knowl-edge of credit scores is only poor orfair. I feel certain that most folks don’tknow how scores affect the availabilityand price of credit. I doubt whetherfew have ever even thought about it.The CFA/Providian survey found thatmost consumers do not understand themeaning of credit scores, their impor-tance, how to obtain them, and how toimprove them. Other conclusionsreached by the survey included the fol-lowing:

• Only about one-third (34%) correctlyunderstand that credit scores indicatethe risk of not repaying a loan, notfactors like financial resources to payback loans or knowledge of con-sumer credit.

• More than one-half (52%) incorrectlybelieve that a married couple has acombined credit score.

• Few consumers know what consti-tutes a good score. Only 12% cor-rectly identified the low 600s as thelevel below which they would bedenied credit or have to pay ahigher, subprime rate. And, only 13%correctly understand that scoresabove the low 700s usually qualifythem for the lowest rates.

• Many consumers do not have a clearidea how to improve their creditscore. Two-fifths (40%) don’t under-stand that paying off a large balanceon a credit card will improve one’scredit score.

• Many who try to learn their creditscore in the future will be surprisedto learn that there is often a charge.Nearly three-quarters (72%) incor-rectly believe that they can obtain


their credit score for free once a year.(That right was recently establishedfor free access to one’s credit reportbut not for free access to one’s scoreexcept when applying for a mort-gage loan).

There are two websites that will helpconsumers find out more about creditscores. These are: http://www.con-sumerfed.org/092104creditscores.pdfand http://www.consumerfed.org/score.

WEIGHT-LOSS SUPPLEMENT LAWSUIT

U.S. regulators have sued the mar-keters of the widely advertised “CortiS-lim” weight-loss supplement and areseeking to force them to reimbursecustomers. The U.S. Federal TradeCommission (FTC) filed suit in federalcourt in Los Angeles against WindowRock Enterprises Inc. and InfinityAdvertising Inc., Los Angeles-basedcompanies that tout supplements Cor-tiSlim and CortiStress. According to theFTC, the companies have made decep-tive claims about the supplements andfalsely suggested that infomercials pro-moting them were “independent” tele-vision programs. The companies beganmarketing the two products in Augustand September of last year through tel-evision advertisements that claimedthey could lower elevated levels of cor-tisol, which the ads said was ahormone that caused weight gain. TheFTC says the companies claimed thatvirtually all people who used CortiSlimwould lose 10 to 50 pounds. The FTCsays those claims were false or unsub-stantiated. It was alleged in the lawsuitthat the companies also made false orunsubstantiated claims aboutCortiStress—that it reduces the risk of,or prevents, conditions such as osteo-porosis, obesity, diabetes, Alzheimer’sdisease, cancer, and cardiovasculardisease. According to the FTC, the mar-keters of the supplements have agreedto an interim order that would imposerestrictions on their advertising. Theorder must be approved by a federaljudge. At press time, the FTC wastrying to negotiate a broader settlementthat includes consumer redress and a

permanent injunction governing futureadvertising claims.

ORKIN BACK IN THE NEWS

Pest control company Orkin is backin court over its termite work inFlorida. A racketeering investigation bythe state attorney general and a lawsuitseeking to represent 65,000 Floridacustomers are under way. A federaljudge recently upheld a multimillion-dollar arbitration judgment in favor of aFlorida customer of the company. Thecomplaints against Orkin, as reportedin the Orlando Sentinel, include:

• Writing contracts with fine-print dis-claimers on repair and retreatmentguarantees;

• Not doing adequate treatments andinspections;

• Denying claims as a matter of policy;and

• Forcing subcontractors to makerepairs without the required buildingpermits, so the work could not bycertified by inspectors.

Orkin, a $670 million Atlanta-basedcompany with nearly 8,000 employees,says it hasn’t done anything wrong andhas denied all allegations. A customerin Ponte Vedra, Florida had docu-mented termite repairs to his homeover six years in which subcontractorshadn’t pulled the required buildingpermits. The homeowner was awardeda $4.25 million judgment at a 2003 arbi-tration hearing. This was upheld by afederal judge, but the amount wasreduced to $2 million. The arbitrationpanel ruled in the victim’s favor, sayingthe practice was “widespread.” Hun-dreds of similar cases in north andcentral Florida were uncovered. FloridaAttorney General Charlie Crist started aracketeering investigation in Aprilagainst Orkin. He issued a subpoenarequesting company records and docu-ments. While Orkin says it is cooperat-ing, the company filed a lawsuit inOrange County seeking to block thestate subpoena.

Another lawsuit, which accuses

Orkin of deceptive and unfair tradepractices, is seeking class action statusin a Florida circuit court. If class actionstatus is granted, the suit would repre-sent 65,000 Orkin customers. Orkinhad settled a lawsuit in 2003 over atermite damaged apartment complex inHillsborough County, but terms of thatsettlement are confidential. The law-suits, investigations, and the 15,000complaints filed in Florida over the lastfour years against pest control compa-nies are instigating some changes. Nextspring the State of Florida plans toissue new rules requiring pest-controlcontracts to have standardized, easilyunderstandable language. Steve Rutz,director of Florida’s Division of Agricul-tural Environmental Services, says: “Wewant to make sure information is pre-sented to people so there is not misun-derstanding or confusion about what isbeing provided to them.”

XXI.RECALLS UPDATE

CHRYSLER RECALLS 955,000 MINIVANS

Chrysler Group is recalling 955,000minivans because an electrical problemcould cause the driver’s side airbag tofail. The vehicles affected are theDodge Caravan and Grand Caravan,Plymouth Voyager and Grand Voyager,and Chrysler Town and Country fromthe 1998-2000 model years. Fourpeople have been injured in crashesbecause of the defect, according torecords submitted to the NationalHighway Traffic Safety Administration(NHTSA). There also have been 782complaints about the defect to Chryslerand NHTSA. The defect involves aclockspring that supplies current to thedriver’s side airbag, the horn and thecruise control. If the clockspring isworking properly, the airbag warninglight will illuminate for a few secondswhen the vehicle is started. If theairbag warning light isn’t workingproperly, the clockspring may havefailed. Chrysler began notifying cus-tomers about the recall last month.Dealers will replace the clockspring for


free on vehicles with less than 70,000miles. The company will extend thewarranty on the clockspring for vehi-cles with more than 70,000 miles.Chrysler recalled 1996-1998 model yearminivans in 2002 because of the samedefect, according to NHTSA.

MAZDA RECALL

Mazda Motor Corp. is recalling42,000 Mazda3 sedans because theirairbags might not deploy. The recallinvolves vehicles from the 2004 modelyear, which was the first year theMazda3 was available. Mazda says thecompany has had no reports of injuriesdue to the defect. Mazda found that onsome vehicles, the housing for theairbag sensor can crack and allowwater to seep in. Should that happen, ashort circuit would cause the airbagwarning light to go on and the airbagmight not fire. Mazda will notify cus-tomers of the defect very soon. Ownerscan get their vehicles repaired for freestarting next month.

AUDI RECALL

Volkswagen AG is recalling 28,363 ofits Audi A6 cars after finding that thethrottle can stick because of ice build-up. Audi will replace the throttle bodyin all 1998 through 1999 model-year A6cars equipped with a 2.8 liter V-6 five-valve engine and automatic transmis-sion registered in cold-weather statesonly. Audi will repair the throttle innon-cold-weather states only uponrequest.

BFGOODRICH RECALLS 46,000 TIRES

BFGoodrich is recalling 46,000 pas-senger car and light truck tires becauseof poor ride quality and possible prob-lems with the steel belts. The tiremaker says there have been no acci-dents, injuries or property damageclaims filed because of the problems.The recall covers tires made in April atthe Fort Wayne plant under such brandnames as BFGoodrich, Uniroyal, Liber-

ator, Medalist, Phantom and Prospec-tor. The tires have identificationnumbers that begin with “DOT BF” andend with 1504 or 1604. All recalled tireswill be replaced free. If you have anyof these tires on a vehicle, contact yourlocal dealer at once.

POLARIS INDUSTRIES ANNOUNCE RECALL OFATVS

Polaris has issued a recall of thePolaris “Sportsman 700 EFI” ATVs. Thethrottle cable may bind when the han-dlebars are turned full left or full right,resulting in an increase in enginespeed and unintended vehicle acceler-ation. In addition, the fuel line may rubagainst the vehicle chassis, resulting ina fuel line leak, which could be a firehazard. There have been 19 reportedincidents involving the throttle cablebinding that may cause the ATV toaccelerate. There have been 31 inci-dents, involving gasoline leaking fromthe fuel line rubbing against thechassis. Apparently, there have beenno injuries or fires. All model year 2004“Sportsman 700 EFI” ATVs with modelnumbers A04CH68CU, A04CH68AU,A04CH68AP, and A04CH68AQ are partof this recall.

The model number is on the rearupper frame tube located directlyunder the right side of the seat. TheATVs have black seats with a gray, red,and black chassis. “700 Sportsman” isprominently displayed on the right andleft side of the chassis, body and fueltank, and “EFI” is displayed on theinstrument/headlight pod. The ATVswere manufactured by Polaris Indus-tries, Inc., of Medina, Minnesota andwere sold at Polaris dealers nationwidefrom March 2003 to August 2004 forbetween $7,899 and $8,899. Contactyour Polaris dealer in order to receive afree repair.

BOMBARDIER AND JOHN DEERE RECALL23,000 ATVS

Bombardier Recreational ProductsInc, and Deere & Co., Moline, Illinois,are voluntarily recalling 23,000 all-

terrain vehicles because of a potentialfor brake failure. The U.S. ConsumerProduct Safety Commission announcedthe recall. Bombardier operates an out-board engine plant in Sturtevant, Wis-consin. The recall includes the 2003,2004 and 2005 model years of theTraxter, Traxter MAX and Quest Bom-bardier ATVs and the 2005 model yearof the Buck and Trail Buck John DeereATVs. The vehicles were made byBombardier, from Valcourt, Quebec,Canada, and distributed by Bombardierand John Deere dealers. The frontbrake hoses on the ATVs can be pulledout of the retaining brackets duringuse, causing the hose to be damagedby moving parts. The damage canresult in a leak that could result inbrake failure, leading to injury ordeath. No injuries have been reported,according to the CPSC. Bombardier-brand vehicles were sold from October2002 through September 2004 for$6,199 to $8,399. John Deere-brandvehicles were sold from March 2004through September for $6,499 to$7,799. Vehicles can be returned to thedealers for a free repair. For moreinformation, call Bombardier at (888)864-2002 or John Deere at (800) 537-8233.

TV/VCR CARTS RECALLED

Sauder Woodworking Co. is recalling300,000 TV/VCR carts because they cantip over. This poses a risk of injury ifthe television set on the top shelf fallson a child. The Consumer ProductSafety Commission made the recallannouncement. The carts are white,light brown or light-reddish brown andabout 29 inches wide, 17 inches deepand 25 inches high. They include a topshelf for a 20-inch or smaller TV, amiddle shelf for a VCR and a lowerstorage area. Models 3355, 6355 and7755 were sold at department, discountand home electronic stores nationwidefrom October 1991 through May 1999for $80 to $100. The 9855 and 9755models were sold only at Target stores.Consumers may contact Sauder Wood-working Co. (www.sauder.com) toreceive a free retrofit kit and safe useinformation.


PLAYKIDS USA RECALL BABY WALKERS

PlayKids USA, Inc. of New York Cityhas recalled 1,600 PlayKids USA babywalkers because they were notdesigned to stop at the edge of a step.The Consumer Product Safety Commis-sion reported that the walkers fitthrough a standard doorway, but werenot designed to stop at the edge of astep. Babies using these walkers couldbe seriously injured or killed if they felldown the stairs. No injuries have beenreported. These baby walkers soldunder the brand name “Playkids USA”at small independent specialty juvenileretailers nationwide from February2003 through April 2004 for between$29 and $39. The walkers have modelnumbers PLK94STP, PLT95STP,PLK2000RC, PLK95, PLK94, PLK98STP,PLK2000 or PLK300 on the packageand on a sewn-in label on the seat-back. Consumers should stop using therecalled walkers immediately andcontact PlayKids at 718-332-3450 toreceive a full refund.

XXII.SPECIALPROJECTS

GROUP HOMES FOR CHILDREN

Group Homes for Children (GHFC)is a private non-profit agency whoseexclusive mission is to serve the youngpeople of the Central Alabama commu-nity. Their purpose is to offer shelter aswell as residential and support servicesto young folks who are in needbecause of abuse, neglect, family crisisor abandonment. GHFC is committedto providing services and programs ofsuch quality that the young peoplethey work with will share their visionand will become a credit not only tothemselves but to society. GHFC wasestablished in 1973. During the past 30years, the lives of thousands of chil-dren from Alabama and across thenation have been positively impacted.GHFC’s programs have evolved overthe years to meet the needs of youth ina changing society. Fortunately, its

commitment to its mission remains thesame.

GHFC provides extensional care forsome of Alabama’s most vulnerablechildren. The agency is funded by acombination of contracts with theAlabama Department of HumanResources, government grants, privatecontributions, and fundraising events.Because of severe cut backs in fundingby the state, the agency is badly inneed of financial support. If you wouldlike to help a worthwhile case, pleasemake a contribution to GHFC. Contri-butions are tax deductible and will begreatly appreciated. The address forGHFC is 1426 South Court Street, Mont-gomery, AL 36104. You can reach themby telephone at 334-834-5512. You mayalso go to their web page, which iswww.grouphomesfc.org.

CHARACTER EDUCATION NEEDED IN ALABAMA

Young people are growing up in anenvironment in which they are sur-rounded by all sorts of negative influ-ences. Character Education is a meansof combating the negative influencesand creating programs that will teachvaluable life lessons in character build-ing and simple things such as goodmanners and respect for others. Char-acter At Heart, Inc. is a 501 (c)(3) non-profit committed to building characterin the youth of Alabama. Currently,over 30,000 children in 100 schools in20 counties are building charactertoday for a better tomorrow in ourstate. If you want to learn more about Character Education you canvisit www.characteratheart.com orwww.montgomeryparents.com.

XXIII.FIRM ACTIVITIES

EMPLOYEES SUPPORT NATIONAL FUNDRAISINGCAMPAIGN

In honor of Breast Cancer AwarenessMonth, our firm’s employees partici-pated in the ninth annual Lee NationalDenim Day®. Lee Jeans invites compa-

nies and organizations nationwide toparticipate each year by allowing theiremployees and members to weardenim in exchange for a $5 donation tothe Susan G. Komen Breast CancerFoundation. On October 8th, people allover the country joined together in aneffort to raise awareness and funds forthe fight against breast cancer. Becausethe event was held on a Friday and ourfirm already allows employees to weardenim on all Fridays, we allowed ourfolks to wear their denim on a Monday.We had a good number of employeeswho participated, wearing their pink-ribbon pins and their denim. The firmcollected a considerable amount for themost worthwhile cause.

EMPLOYEE SPOTLIGHTS

MARK ENGLEHARTMark Englehart, who joined the firm

in January of 1999, currently practicesin the firm’s Toxic Torts Section. Markhandles complex business cases, envi-ronmental and toxic tort matters. In2003, he was involved in the largesttoxic tort settlement in U.S. history.This settlement doubled the previousmark in the case popularized by thefilm “Erin Brockovich.” Mark, a gradu-ate of Harvard University Law School,is admitted to practice in Alabama andTexas. He also serves as a contributingeditor for this Report and does an out-standing job. Mark and his wife,Debbie, are the proud parents ofStephanie, who is a graduate student inlandscape architecture at Auburn Uni-versity. They are members of EastmontBaptist Church in Montgomery. Mark isa most valuable member of the firm. Ifany of us have a tough legal questionand don’t know the answer, we all callon Mark to help.

STEVE DRINKARDSteve Drinkard, who served two con-

secutive terms as a circuit court judgein the 19th Judicial Circuit for the Stateof Alabama, joined the firm in 1996.Steve currently practices in the Per-sonal Injury/Product Liability section. A$3.4 million jury verdict, obtained bySteve for his client in 2002 in a product


liability case, involving a personalwatercraft, is the largest in ElmoreCounty history. Steve is currentlyworking on the Ford Explorer—Fire-stone litigation. Several of these wrong-ful deaths and severe personal injurycases occurred in Venezuela.

Steve’s experience as a judge pro-vided him with a unique insight intoAlabama’s judicial system. In fact, whileon the bench, he was appointed to theAlabama State Bar’s Citizen Conferenceon the Selection of Judges.

LARRY GOLSTONLarry Golston works in the Consumer

Fraud Section of the firm. He gradu-ated from the University of Alabama in1995 with a Bachelor of Art Degree.While attending Alabama, he was thesocial chairman of Alpha Phi AlphaFraternity. Larry attended the Universityof Alabama School of Law, graduatingin 1998. He previously worked for theCircuit Judge James P. Smith of the23rd Judicial Circuit. He has alsoworked for Judge Sue Bell Cobb of theAlabama Court of Criminal Appeals.Larry, along with a small group oflawyers with Beasley Allen, frequentlyvolunteer their time to speak to highschool and lower grade students aboutthe legal profession, personal develop-ment and how to get admitted tocollege. Larry and his wife, Danielle,have two children. They are membersof More Than Conquerors Faith Churchin Birmingham.

PAUL SIZEMORE Paul Sizemore currently practices in

the firms Mass Torts Section. Paul hasrecently been the focus of numerousnewspaper articles in Atlanta because ofhis representation of several familieswith nursing home abuse cases in theAtlanta metro area. Paul is now active incases handled by the firm involving thedrug Vioxx. He is also a frequent volun-teer lecturer for local senior citizens’groups where he discussesconsumer/exploitation issues. Both Pauland his wife, the former Jennifer Trull,are from the Birmingham area. Theyhave three children, Colton, Aubrey, andJackson, and are members of the Churchof the Ascension in Montgomery.

GENIE PRUETTGenie Pruett works in our Mass Torts

Section and is Andy Birchfield’s legalsecretary. She has been with the firmfor six years. Genie has three children,Patti Harrison (who also works in ourMass Torts Section), Micheal Prickettand Jennifer Ayers. Micheal’s wife,Melissa, is a lawyer in our Mass TortsSection. Genie is the proud grand-mother of seven grandchildren. Shelives in Verbena with her husband Johnand three dogs—Abbie, Happy andBuddy. Genie will be very busyworking with the Vioxx litigation. Sheis a very good employee and we arefortunate to have Genie with us.

KATHY GUNNKathy Gunn is a receptionist in the

building that houses our Mass TortsSection. Kathy is one of four reception-ists who operate the firm’s very busymulti-line switchboard. She has a mostdifficult job due to the tremendousnumber of daily contacts in her section.Kathy and her husband, Scott, havebeen happily married for 19 years andhave four children: 17-year-old frater-nal twin daughters, Anna & Rachel; a16-year-old-son, Jake; and Abbie, whois 14 years old. Kathy and Scott areactive in the music ministry at HarvestFamily Church. Kathy does an excel-lent job and we appreciate her dedica-tion and hard work.

CANDICE GALLUPSCandice Gallups currently works in

our Graphics Department, which isunder the Products Liability/PersonalInjury Section. The Graphics Depart-ment plays an important role in ourfirm. They do everything from photoediting to video editing, to case man-agement preparation for trial, to settingup equipment and actually going totrial to help present evidence. Candicehas two daughters, 5-year-old Kaileighand Kennedy, who is just 6 weeks old.Candice is a hard worker and we areglad to have her with us.

DORA JOHNSONDora Johnson, who has been with us

for almost five years, currently servesas a legal assistant to LaBarron Boone

in our Products Liability/PersonalInjury Section. LaBarron handlesproduct liability cases, and that keepsDora very busy. Dora’s work is typicalof all Legal Assistants in her section.One of the most important and chal-lenging duties relates to the area of dis-covery, which is critical in productcases. Dora also helps prepare casesfor trial and actually assists at trial. Sheis married to Warren Johnson and has a26-year-old daughter. Dora is a verygood employee and is a valuable partof our litigation team in her section.

XXIV.ONE LAST LOOKAT THE NATIONALELECTION

MOST IMPORTANT RACE

I believe the presidential race is themost important in recent years. But,Alabama has been largely ignored byboth national campaigns. Neithernational campaign has shown any realinterest in stirring things up in ourstate. Bush is obviously taking thesouthern states—including Alabama—for granted. All of the activity on behalfof the candidates has come strictlyfrom their local followers. The hardestworking campaign in Alabama hasclearly been that of the Democrats.Most of the Alabama Republicans haveworked in Florida. If the election weretoday, I believe that Bush would carrythe state, but not by a real largemargin. In fact, if things break right inthe last few days, the Kerry-Edwardsticket could pull a major upset inAlabama. Middle class folks are begin-ning to ask, “why am I supporting thisPresident?” The more they see andlearn about this Administration andespecially Karl Rove, the moreAlabamians are likely to vote for theDemocratic ticket this time.


CONSUMER’S LAWYERS

It is no secret that my profession hascome under heavy attack by the Rove-led Bush campaign. However, even if Ifarmed for a living like all my forefa-thers, I still couldn’t support thisAdministration. Since I am a lawyerand I have never apologized for that, Ihave to consider Bush from my per-spective. Personally, I consider it a dis-tinct honor and a high privilege tohave been able to help folks who werevictims of corporate abuse and wrong-doing. It isn’t hard to see that the BushWhite House has made holding corpo-rate wrongdoers accountable extremelydifficult in this country. In fact, corpo-rate wrongdoing has flourished duringthe last three years, as shown by thedisclosures from companies like Enron(Bush’s largest campaign contributor),HealthSouth, Adelphia and Halliburton.Many believe that catering to large cor-porations has been the Administration’stop priority. That’s due to the tremen-dous power and influence of CorporateAmerica in Washington, D.C., espe-cially over the Executive and Legisla-tive Branch of government. Nobodycan deny that consumers have had theshort end of the stick when it comes toobtaining justice in this country overthe past three years. I can say fromexperience that George Bush is themost anti-consumer President sinceRichard Nixon left the White House indisgrace. If reelected, it’s my opinionthat Bush will become even worse.What has been difficult in the past willbe virtually impossible in the future. Idon’t believe that’s what the Americanpeople want.

ROVE RUNS THE SHOW WITH AN IRON FIST

I respect deeply each individual’sright to decide what candidate willreceive his or her vote. But, I have anobligation to inform our readers aboutthe Karl Rove position on an individ-ual’s right to their day in court. GeorgeBush follows Rove’s direction to theletter and as a result, Rove’s positionbecomes Bush’s policy on this issue.Rove believes large corporations need

total protection from lawsuits filed byindividuals who are injured or whoseloved ones are injured or killed as aresult of corporate wrongdoing. There-fore, the Rove-led White House hasdone everything in their power to limitan individual’s right to recoverdamages in lawsuits. They are makingit much more difficult for victim’s tohave their case heard by a jury of theirpeers. All lawsuits are labeled “frivo-lous” by the tort reformers in CorporateAmerica and they have done a prettygood job of selling that story. Now, weare seeing the legal rights of everyAmerican family being placed infurther jeopardy by positions taken inthe current presidential campaign.

THE NATION’S COURT SYSTEM IS AT STAKE

Bush and Cheney—with the supportof the tobacco, pharmaceutical, auto-mobile, and insurance industries—have attempted to make the courtsystem a major issue in the campaign.Karl Rove, acting for CorporateAmerica, is determined to take away anindividual’s right to trial by jury. Onceone of our constitutional rights is abol-ished, the complete takeover of theentire government will be very easy. Inmy opinion, that’s exactly what theobsessed Karl Rove is after. To reachhis goal, Rove will destroy anybodywho stands in his way. This Presidentis his willing instrument and that’s asad commentary on our times. Noperson should be allowed to exercisesuch power and control over anelected President.

RIGHT TO TRIAL BY JURY IS THE LASTBARRIER OF DEFENSE

In my opinion, the differencesbetween the two candidates for Presi-dent on the legal system couldn’t begreater. George Bush attacks what herefers to as “junk and frivolous law-suits” because that’s what his preparedscript says he is to say. With all of themoney that the Bush campaign hastaken from Corporate America, andwith Rove calling all of the shots, it iseasy to see why the President talks as

he does. The Bush White House hasseverely penalized consumers andworked doubly hard to protect corpo-rate wrongdoers. John Kerry and JohnEdwards have opposed efforts to shutthe courthouse door to American con-sumers, and that’s the right thing to do.They have stood up against the power-ful corporate structure that is attempt-ing to take over the government in thiscountry. The Kerry-Edwards team hasvoted against legislation in the U.S.Senate that would protect corporatewrongdoers and penalize ordinary citi-zens who have become victims. Wecan’t let the Bush-Cheney-Rove team’santi-consumer agenda continue for thenext four years. No person who reallybelieves in the constitutional right totrial by jury, a right that is guaranteedto every citizen in this country, shouldvote for Bush.

ONLY AN UNDECIDED VOTER SHOULD READTHIS PART

As we approach the final days of thecampaign, if any of you are still unde-cided, I encourage you to read anarticle on Karl Rove in the Novemberissue of the Atlantic Monthly.(http://www.theatlantic.com/doc/prem/200411/green) This scary article tellsus a great deal about the man whoreally runs the Bush White House. Thearticle reveals how truly bad Rovereally is and how he will do literallyanything to destroy an opponent. Ican say without reservation that KarlRove is the most dangerous politicalfigure in this country. His power andinfluence are bad for America! Thatman’s power and control over the pres-ident is enough for voters to say NO toBush!

XXV.MY PERSPECTIVEON STATEPOLITICS

This has been a pretty dull electionyear for all of the state races in


Alabama. It appears that folks havelittle interest in any of the candidates inthe contested races. That is unfortunatebecause there are some real importantraces on the ballot. For that reason, Ihope that the voter interest gets into ahigher gear before Election Day. But,we are rapidly running out of time. Iwill give you my views on the races,which are strictly my opinions, forwhat they are worth.

U.S. SENATE

I believe that my long-time friendRichard Shelby will be reelected toanother term in the U.S. Senate with nodifficulty. Clearly, he is one of the mostpowerful figures in Washington. Ibelieve that the Senator has done anexcellent job and is extremely popular inAlabama. Senator Shelby, who has beena good friend to Alabama consumers,has worked hard in Washington toprotect their interests. I will cast my votefor the senior Senator from Alabama andhope that my Democratic friends willunderstand that we still need SenatorRichard Shelby in Washington.

CONGRESSIONAL RACES

There are several important Congres-sional races this year. Obviously, someare more important than the others.Some of the candidates, including ArturDavis, will have no difficulty in return-ing to Washington. Artur faces tokenopposition, and that’s good for thepeople in his district as well as for theentire state. The freshman congressmanis one of the truly bright lights on thenational political scene. I recommendthe following candidates for your con-sideration in three of the races:

• District One: Democrat Judy Belk

• District Three: Democrat Bill Fuller

• District Five: Democrat Bud Cramer

I sincerely believe that these candi-dates are the better choices in theirrespective races. Bud Cramer is theincumbent in his race and should winby a large margin. Yet, because of his

seniority, it is critically important thathe be reelected and I hope his peoplewon’t take his race for granted. JudyBelk and Bill Fuller are challengingtwo well-financed incumbents, and thatmakes their races most difficult. Theiropponents are not bad folks, but theyare being heavily financed by Corpo-rate America—and that’s enough forme and should be for most folks.

COURT RACES IN ALABAMA

I have been really surprised at thelack of interest in the statewide judicialraces. Thus far there has been almostno emphasis placed on these races byeither political party. That’s most unfor-tunate because the court races are criti-cally important to the people ofAlabama. While I realize fully that mostfolks don’t know much about some ofthe candidates who are running, I hopethere is enough time left for the votersto become knowledgeable about theirqualifications and background experi-ences. I know most of the candidatesand have had the opportunity toreview the records of those I don’tknow. Accordingly, I believe that Ihave a pretty good idea of those whoare best suited to serve on our appel-late courts. I could make specific rec-ommendations in each race, but haveelected not to do so. There is a betterway to determine whom we shouldvote for. First, find out where the can-didates’ money comes from, examinewhether their legal background andexperience have prepared them to siton our state’s highest court, and thendecide who is the best person to serveas a judge.

A few years back a well-known actorin a popular movie observed: “showme the money!” If he had said, “showme the source of the money,” thatwould be a pretty good voter guide tobe applied in all judicial races. Bytracing the money in these races, youwill find where the big corporatemoney lands. The candidates who takethe millions of dollars from the largecorporations always seem to wind upbeing very much anti-consumer oncethey get on the bench.

A FINAL WORD ON POLITICS

I suggest you take a look at where acandidate’s money comes from in eachrace that is on the ballot on November2nd—not just the judicial races—andthen decide which candidate is morelikely to be consumer-friendly andwhich ones will be connected at thehip to Corporate America. If ordinaryfolks are ever going to have a real voicein government in Washington and inthe state houses around the country,the place to start is at the ballot box.When ordinary citizens start turning outin large numbers to vote, we can over-come the big money. Unfortunately,sitting at home on Election Day hasbecome a way of life in the UnitedStates for way too many people. Thatwill change when folks come to recog-nize the urgent need to get involved.Until that change comes about,however, the big money from Corpo-rate America will continue to controlour elections. Maybe this year willprove to be the start of a trend in theright direction. I hope that will be thecase. In any event, regardless of howyou vote, please take the time to vote!

XXVI.SOME PARTINGWORDS

A few weeks ago, I was called by anewspaper reporter who works out ofthe nation’s capitol, concerning thepresidential race. During the course ofa lengthy conversation, this reporterasked a number of questions aboutpolitical activities in the south andspecifically in my home state ofAlabama. The thing that got my atten-tion, however, was when this gentle-man told me at the end of ourconversation that I had the distinctionof having made Karl Rove’s officialenemies list. I must admit that at thetime I was not sure this was a list Ireally wanted to make. Looking back atthe conversation, I believe it was toserve as sort of a warning for me. Nev-ertheless, if I am on a Rove hit list, I


must be doing something right. I havebeen in total opposition to everythingthat Karl Rove apparently stands forand that won’t change.

In the last few days a Bible verse hascome to me from a number of unre-lated sources. Several folks have eithermailed this particular verse to me ormentioned it during a phone call. Oneof the persons was a young employeewho has worked at the firm whileattending Jones School of Law. Beforeleaving the firm, the young manreminded me that God will alwayssupport us and protect us if we willsimply put our trust and faith in Him.He referred me to his favorite Bibleverse, which is from the Old Testa-ment:

But they that wait upon the Lordshall renew their strength; theyshall mount up with wings aseagles; they shall run, and not beweary; and they shall walk, andnot faint.

Isaiah 40:31

The next morning, during my quiettime, I was reading The Upper Roomand you will never guess what thescripture of the day was. If you saidIsaiah 40:31, you would be correct. Inaddition, the thought for the day was:“Remembering God’s past faithfulnesshelps us to trust God with our presentand our future.” If I needed any confir-mation that God was trying to get myattention, that was it. I am slowly real-izing that waiting for the Lord andtrusting Him to take care of us in everyway, which includes protecting us fromour enemies, including Satan, is theonly way. God is truly the source of alllove, power and strength and that’s anabsolute certainty. My prayer is that allmen and women everywhere will sooncome to that understanding.

In closing, I will pass on somethingelse that this young man reminded meof. This employee said that he hadlearned a great deal while working atour firm and wanted me to know thatour work and mission was very impor-

tant to folks who need our help andprotection. Sometimes, I need to bereminded of why I keep on doing whatI do in this very rough and tumbleworld. As the song in the play “Annie”says, it can be “a hard knock life!” Thatis so true, but we are equipped tohandle what comes our way. It isamazing how God speaks to us evenwhen we really don’t want to listen.The fact that these reminders came tome at a time when I needed it is all theevidence that I needed to realize thatGod is still in control of my life andthat I have nothing to fear from anysource. That reassurance is all that Ineed to keep going.


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The Jere Beasley Report Nov. 2004

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