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FEBRUARY 2005

A NATIONAL LAW FIRM LOCATED IN MONTGOMERY,ALABAMA

I.CAPITOLOBSERVATIONS

STATE SUES DRUG INDUSTRY FOR FRAUD

The State of Alabama has filed a civillawsuit alleging fraud against 79 phar-maceutical companies for overchargingthe Alabama Medicaid Agency fordrugs. Alabama Medicaid Agency Com-missioner Carol Herrmann has told usthat the inflated pricing scheme hascost her agency hundreds of millions ofdollars over the last ten years. Thelawsuit was filed in MontgomeryCounty Circuit Court by our firm alongwith the Mobile firm of Hand, Arendall,L.L.C. Lawyers in each firm have beenappointed as special Deputy AttorneysGeneral for the State of Alabama byAttorney General Troy King to handlethis most important pharmaceuticalindustry litigation. We expect to provethat the defendants intentionallycheated the state in a fraudulentscheme that has cost the state at least$300 million. It is obvious that eachcompany knew what the others weredoing. We will ask for both compensa-tory and punitive damages.

Alabama is now one of 18 states thathave filed lawsuits such as this oneaccusing the drug industry of unfairand deceptive acts and practices in thepricing and marketing of prescriptiondrugs. Our firm is presently pursuingsimilar claims for other states.

The thrust of the state’s claim con-cerns the drug industry’s reportingservices. Pricing schemes, known asthe AWP (average wholesale price),WAC (wholesale acquisition costs), andDirect Price, are reported to industryreporting services for the purpose ofestablishing a base price. This baseprice must be used to reimbursedoctors, hospitals, pharmacists andothers for the cost of drugs purchasedfor Medicaid recipients. The informa-tion concerning the self-reported priceswas intentionally manipulated by the

drug companies, resulting in grosslyinflated prices being used to reimbursethe healthcare providers. The systemprovided an incentive for doctors andhospitals to prescribe those certaindrugs that had the higher reimburseddrug price. This fraudulent scheme inthe pharmaceutical industry wasdesigned to sell more drugs made bycertain drug companies. As a result ofthe defendant’s conduct, state Medicaidagencies, all over this country, havebeen left financially destitute. The drugindustry, on the other hand, has reapedbillions of dollars from this fraudulentscheme.

Troy King, our Attorney General, hasdemonstrated great courage in standingup for Alabama citizens against thepowerful drug industry. Folks arebeginning to see how the drug industryreally operates and it’s not a prettysight. In the Vioxx litigation, forexample, we have seen how the drugindustry has misrepresented the safetyof a number of drugs they market andhow hundreds of thousands of peoplehave been hurt. Now we learn howthese companies fraudulently inflatethe price of drugs, hurting all taxpayersin Alabama, as well as those in otherstates. We are pleased to have theopportunity to represent the State inthis case. Dee miles, Clint Carter, and Iwill be involved in the case for ourfirm. Roger Bates, Cane O’Rear andWindy Bitzer will be involved for theMobile Firm. Hopefully, we will besuccessful. If so, our state’s taxpayerswill be the real winners.

THE FIRM IS APPOINTED LEAD COUNSEL

Our firm has been appointed by Ten-nessee Federal District Court Judge J.Daniel Breen to serve as Co-LeadCounsel, along with Cantilo & Bennett,L.L.P., a very good Texas law firm, inthe Multi-District Litigation involvingthe Reciprocal of America Sales Prac-tices Litigation. Judge Breen selectedour firm and the Texas firm from a

panel of national law firms to lead thecharge for the Plaintiffs against someeighteen Defendants who were sued inthis litigation. Under this appointmentas lead counsel, the two firms will beresponsible for directing the litigation.We will be responsible for coordinatingall aspects of the case. A managementteam of lawyers will be put togetherwho will aggressively pursue allavenues of recovery for the Plaintiffs inthis case. We are honored to have beenselected by the court and will do ourbest to justify the confidence placed inour firm. The task at hand is tremen-

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IN THIS ISSUE

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

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

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

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

V. The Corporate World . . . . . . . . . . 10

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

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

VIII. Product Liability Update . . . . . . . . 14

IX. Mass Torts Update. . . . . . . . . . . . . 15

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

XI. Insurance and Finance Update . . . 26

XII. Premises Liability Update . . . . . . . 29

XIII. Workplace Hazards. . . . . . . . . . . . 30

XIV. Transportation . . . . . . . . . . . . . . . 31

XV. Arbitration Update . . . . . . . . . . . . 35

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

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

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

XIX. Tobacco Litigation Update. . . . . . . 41

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

XXI. Recalls Update . . . . . . . . . . . . . . . 43

XXII. Special Projects . . . . . . . . . . . . . . 44

XXIII. Firm Activities . . . . . . . . . . . . . . . . 45

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

dous, but our clients are counting onus to uncover evidence to prove thisegregious fraud in court and to obtainan adequate recovery for all policy-holders who were victimized. The caseis pending in Memphis, Tennessee.

Our firm is representing TennesseeCommissioner Paula Flowers in hercapacity as Receiver for all policyhold-ers who held insurance policies withthree Reciprocal companies domiciledin the State of Tennessee. We havealleged and will prove a series offraudulent transactions that deceivedpolicyholders and regulators over aperiod of time. The resulting damagewas very large and affected a tremen-dous number of doctors, lawyers andhospitals. The trial judge has not yet seta trial date for this case, but it isbelieved that the case will be tried in2006. Dee Miles, Jay Aughtman, ClintCarter and I will be working on thismost interesting and challenging case.

ALABAMA’S NEW ENVIRONMENTAL DIRECTORSELECTED

Onis “Trey” Glenn, III, has beenselected as the new environmentaldirector for the State of Alabama. TheAlabama Environmental ManagementCommission hired Glenn, who hasdirected the state’s Office of WaterResources for ADEM since 2001. Every-thing I hear about Trey has been good.In addition to his regular duties, he hasbeen the state’s negotiator in waterallocation talks with Georgia andFlorida. The new director was one offour finalists for the director’s job.Commission member Pat Byington ofBirmingham said the commission hadformed a stakeholders’ committee withrepresentatives of business, environ-mental groups, government and thepublic to review applicants. Trey wasthe top choice of that group and wasselected to head up a most importantfunction of state government.

Trey, who started his new job onFebruary 1st, plans “to develop a plan

to move ADEM forward.” Before goingto work for the state in 2001, heworked as a hydrologic engineerhelping manage hydroelectric damsand reservoirs for Alabama Power Co.Trey holds a bachelor’s degree in engi-neering from Auburn University and amaster’s degree in business administra-tion from the University of Alabama atBirmingham. I hope this selection willprove to be a good one. Many hadhoped for some “new blood” and aperson with a proven record of fightingto protect the environment. I have tobelieve that Trey Glenn will takeadvantage of his opportunity and do anoutstanding job. I wish him well andwill be praying for his success.

SETTLEMENT REACHED IN RSA SUIT AGAINSTBEAR STEARNS

The Retirement Systems of Alabamawas able to settle the lawsuit againstBear Stearns Cos. in the WorldComaccounting scandal. While the settle-ment amount is confidential for now,the terms eventually will be madepublic in financial statements. The suitfiled by RSA against Bear Stearns hadbeen scheduled for a retrial on January10th, but the two sides reached a set-tlement and avoided a retrial. Seriousnegotiations had began in late Decem-ber and were wrapped up prior to thetrial date. Bear Stearns says it has had along, valued relationship with RSA andwants to maintain it.

RSA sought $16.2 million to recouplosses from the purchase in October2001 from Bear Stearns of IntermediaCommunications Inc. bonds. As previ-ously reported, the litigation againstBear Stearns was part of a largerlawsuit filed by RSA over $124.7million in losses connected to theWorldCom bankruptcy. Three invest-ment firms and the Arthur Andersonaccounting firm settled with RSA inSeptember for $111 million. BearStearns represented Intermedia Com-munications when it was sold in July

2001 to WorldCom, but it didn’t under-write any WorldCom bonds bought byRSA. The pension fund maintained thatthe New York investment firm knewabout financial concerns at WorldCom,but failed to disclose them. WorldComfiled for bankruptcy in July 2002, citingmassive accounting irregularities thatallowed the company to claim a profitwhen it was losing money. RSA suedtwo former WorldCom executives, fourinvestment firms, and World Com’saccountant, blaming them for $124.7million in losses from WorldCom secu-rities. Litigation is still pending againstformer WorldCom CEO Bernie Ebbersand former chief financial officer ScottSullivan, but that portion of the suitwas put on hold by Alabama courtsbecause of criminal investigations andprosecutions.

ALABAMA GETS $2 MILLION FROM BRISTOL-MYERS SETTLEMENT

Alabama government agencies andconsumers received $2 million fromBristol-Myers Squibb’s settlement of alawsuit alleging antitrust violationsinvolving the anti-anxiety drug BuSpar.Attorney General Troy King joined stateMedicaid Commissioner Carol Her-rmann at a news conference to makethe announcement concerning the set-tlement. The Medicaid programreceived $1.07 million and the Depart-ment of Mental Health received $58,144from the nationwide settlement. Inaddition, 1,399 Alabama consumers,who had purchased BuSpar, will sharea total of $960,377. In 2003, Bristol-Myers agreed to pay $535 million toresolve claims that it kept generic ver-sions of BuSpar from the market. Therecent payments to Alabama came fromthat settlement. Keeping generic drugsfrom the market hurts the Medicaidprogram because generic drugs arecheaper to purchase than name-branddrugs. This money comes to the state ata very good time given the moneycrunch that faces state government.

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ALABAMA SCHOOLS WILL RECEIVE UP TO$41 MILLION FROM SETTLEMENT

Alabama schools will receive up to$41 million from the settlement of alawsuit involving school land deals. Alawsuit was filed by the CovingtonCounty school board in 2002 seekingto prevent the state from using themoney, which had accumulated overthe years through sales, leases, timber-cutting and mineral income on landdesignated for local schools. The classaction lawsuit was against then-Gover-nor Don Siegelman and other state offi-cials and contended the money didn’tbelong to the state and couldn’t beused to ease state school budget cuts.A court ruling in the fall of 2002 frozethe assets and promised the schoolsystems $24.7 million.

Fortunately, further research bycourt-appointed auditors found thatthere was actually between $36 millionand $41 million available to theschools. The money will now go to 98of Alabama’s school systems that areowed money from land leases or inter-est earned on land sales, based on a1785 federal land ordinance that forcedstates to set aside money for educationspending. The ordinance required eachtownship in the state to reserve a one-square-mile plot of what was known asthe “16th section” of their land asschoolhouse property.

For some school systems, valuablestretches either contained mineral veinsor were better suited for farming ortimber. Those properties were leasedor extracted, and over the years somecounties sold their land and depositedthe money into accounts that paidinterest. Information came from docu-ments from the Department of Educa-tion and Department of Conservationand Resources that identified whichland produced the money. The nextstep was to determine which townshipthe money belonged to. The schoolsystems that will do the best under thesettlement are: Covington County,$4.01 million; Jefferson County, $3.98

million; Colbert County, $2.59 million;Calhoun County, $1.7 million; andMarion County, $1.03 million. Interest-ingly, the smallest amount, only 72cents, goes to Mobile County Schools.

THE GOVERNOR APPEARS TO BERUNNING AGAIN

Daily newspapers across Alabamacarried about 400,000 advertisinginserts on January 25th setting out Gov-ernor Bob Riley’s record for his firsttwo years in office. Even though thegovernor hasn’t said he is running for asecond term, this should put an end tothe speculation on whether he willseek reelection. Leftover campaignfunds from the 2002 race were used topay for the costs for distribution of thenewspaper insert. A spokesman toldthe Associated Press that GovernorRiley will wait until after the upcominglegislative session, which ends in May,to announce whether he will run forreelection. Personally, I hope the gov-ernor will run. In my opinion, he hasdone a very good job under extremelydifficult circumstances. It is rather inter-esting that some groups don’t like himbecause they can’t control him.

The field in the Governor’s race willbe very large. The very popular LucyBaxley has said she intends to run. Shewill be a factor for sure. Don Siegel-man, Judge Roy Moore and Tim Jamesare also very likely to run. Both Lucyand Judge Moore are very well likedthroughout the state. While Don Siegel-man is a political animal, who hasnever held down a “real job,” itappears that he still has some supportin all sections of the state. In a recentpoll, Lucy led Don by a substantialmargin and that’s what I would haveexpected. Tim is a good guy who willbe a stronger candidate this time. Hewill be in the Republican primary.There are some who say Dr. DavidBronner and Dr. Paul Hubbert arebeing encouraged to make the race. Iwould doubt seriously that either of

these men would run, but both wouldbe very good governors. In any event,the 2006 election year may be one ofthe most interesting in years. I wouldn’twant to predict a winner in eitherprimary and certainly not in thegeneral election at this stage. Lot’s canchange before the time for officiallygetting into the race. As I have saidbefore, there is nothing like Alabamapolitics.

II.LEGISLATIVEHAPPENINGS

THE REGULAR SESSION OF THE ALABAMALEGISLATURE

By the time this issue is received, theregular session of the Alabama Legisla-ture will be well underway. Thereappears to be a consensus ofopinion—at least among the public—that the legislators need to come inwith a plan and then get down to workcarrying out their plan. The jointbudget hearings, held as required bylaw before the session, revealed thatthe lack of available money will againbe a major problem. Clearly, theprospects of any new taxes passing arenot good. In my opinion, passing anytaxes will be next to impossible,regardless of the state’s needs. Puttinga tax on soft drinks—without firstaddressing real tax reform across theboard—makes no sense. I will beshocked if that tax passes. We need toaddress our money woes during thissession, but I doubt seriously that thiswill happen.

THE DEMOCRATIC AGENDA

Democrats, who control the AlabamaHouse of Representatives, unveiledtheir 2005 legislative agenda in lateJanuary. Their agenda includes makinganother attempt to remove segregation-era language from Alabama’s constitu-


tion. House Speaker Seth Hammett (D-Andalusia) and House Majority LeaderKen Guin (D-Carbon Hill) say theHouse Democratic Caucus will be backwith a proposed constitutional amend-ment exactly like Amendment Two,which Alabama citizens defeated by anarrow margin on November 2nd. Theproposed amendment would haveremoved language in Alabama’s 1901constitution that mandated segregatedschools and poll taxes. It also wouldhave removed a 1956 constitutionalamendment—added in the wake of theU.S. Supreme Court ruling ending seg-regated schools—that said there is noright to an education at public expensein Alabama.

Other items on the House Democraticagenda for the legislative session are:

• A constitutional amendment to bansame-sex marriages;

• $250,000 life insurance policies forAlabamians who are killed whileserving with the National Guardoverseas;

• Restricting contributions betweenpolitical action committees;

• Giving limited home rule to counties;

• Banning pass-through pork projects;and

• Taking the state’s industrial recruit-ment agency out from under thegovernor and putting it under anappointed commission.

I would have liked to see more con-sumer protection measures on theDemocratic agenda. The DemocraticParty must work hard to regain its posi-tion as a protector of ordinary citizens.This session would be an ideal time forall Democrats in the House and Senateto work tirelessly for Alabama con-sumers who badly need their help.There are plenty of areas where help isneeded. We have the weakest con-sumer protection laws in the countryand the bad guys in Corporate Americaknow it. Our state doesn’t have a law

guaranteeing patients’ rights and that’smost unfortunate. Better regulation ofinsurance and financial companies islong overdue and badly needed.Curbing the spread of arbitrationshould also be a top priority. Hope-fully, some real champions who willstand up and fight for consumers willemerge in the session. In order for thatto happen those legislators will have toovercome the power and influence ofthe tremendous number of lobbyistswho control the legislative process. Itwould help greatly if folks back homewould talk to their legislators and urgethem to get involved in the fight toprotect consumers.

III.COURT WATCH

CLASS ACTION SECURITIES FRAUD LAWSUITSINCREASE IN 2004

Even though there has been a greatdeal reported about corporate fraudand corruption, I am convinced manypeople still don’t really realize how badthings have been. The results from arecent survey should be of interest toour readers. While the number offederal securities fraud class actionsfiled in 2004 increased only moderatelyfrom 2003 levels, rising to 212 compa-nies sued from 181, the decline instock market capitalization correspon-ding to these actions increased dramat-ically. The report released by theStanford Law School Securities ClassAction Clearinghouse in cooperationwith Cornerstone Research is mostinteresting. The total decline in themarket capitalization of the defendantfirms from the trading day just beforethe end of the class period to thetrading day immediately after the endof the class period—or the “DisclosureDollar Loss (DDL)”—nearly tripledfrom $58 billion in 2003 to $169 billionfor cases filed in 2004. This 192%increase in the DDL index is attributa-

ble entirely to eight lawsuit filings. Inthose cases each defendant firm expe-rienced disclosure dollar losses inexcess of $5 billion. In sharp contrast,there was only one other case withlosses that large in all of 2003. Cases inthat range had consistently been about200 filings a year over the past eightyears. The Dollar Disclosure Loss forthis period tripled to approach thelevels seen after the dramatic marketdecline in 2000.

The number of lawsuits alleging vio-lations of Generally Accepted Account-ing Principles remained relativelyconstant in 2004, declining to 102(48%) of the total in 2004 from 107(59%) of the total in 2003. Further,several of the large dollar lossesobserved in 2004 arose as a conse-quence of product market develop-ments that had material adverse stockmarket price effects. Allegations relat-ing to insurance industry sales practicesat companies, such as American Inter-national Group and Marsh & McLennangave rise to some of the year’s largestlawsuits. Concerns about the safety ofCOX-2 inhibitors marketed by Merckand Pfizer also played a significantpart. These lawsuits do not allege thetraditional form of misrepresentationthat are normally seen in this type liti-gation. According to the study, thosecases accounted for approximately 35%of 2004’s Dollar Disclosure Losses.

As in previous years, the median2004 maximum dollar loss and disclo-sure dollar loss for NYSE and Amexfirms were significantly higher than themedians for NASDAQ firms. Thisfinding is not surprising because thefirms listed on the NYSE are typicallylarger than the firms listed on theNASDAQ. The top three industrysectors in 2004 in terms of number ofissuers sued were Consumer Non-Cyclical, Technology, and Communica-tions. The number of issuers sued inthe technology sector nearly doubledover 2003 (19 versus 37 in 2004—a95% increase). Energy sector filingsalmost tripled, increasing from three to


eight. Of note, while the Communica-tions sector was one of the three most-frequently sued in 2004, maximumdollar losses in the industry droppednearly 80% from $240 million in 2003to $51 million in 2004, reflecting alower market capitalization decreasefor the average communicationcompany sued in 2004.

The report also found that the mostactive federal circuits, as measured bythe number of issuers sued in 2004were: the Ninth Circuit (including Cali-fornia) with 64 filings, an increase of83% over 2003; the Second Circuit(including New York) with 45 filings;and the Eleventh Circuit (Alabama,Florida, and Georgia) with 20 filings.The Securities Class Action Clearing-house is an authoritative source of dataand analysis regarding the financialand economic characteristics of federalsecurities fraud class action litigation.The full text of the new report can befound on the Clearinghouse site,http://securities.stanford.edu.

Source: The Insurance Journal

PRESIDENT BUSH IS PUTTING OUT SOME BADINFORMATION ON LAWSUITS

President Bush argues that weaken-ing our legal system will strengthen theeconomy and improve access to healthcare. A casual investigation reveals thatthe President’s understanding of eco-nomics is faulty. His factual assertionsare also grossly incorrect. The tortsystem in this country ensures that thecosts of injuries are borne by thosewho actually cause them. This has thedual purpose of compensating victimsand deterring unsafe and wrongfulconduct. President Bush in hisspeeches is quite often dead wrong onhis facts. The quotes set out below aretypical of the statements being madeby the President. These have beenreported widely by the news media.Each quote by the President is fol-lowed by a rendition of the true facts,as determined by government agencies

or other authorities, that refute hisstatement.

• President Bush says: “Lawsuits aredriving docs out of business.”

The facts: Doctors are not leavingstates with high malpractice insur-ance premiums. Only two monthsbefore he made that comment, theAllentown Morning Call reported thatthe number of doctors in Pennsylva-nia had increased during the mal-practice “crisis.” In the summer of2003, the Government AccountabilityOffice, formerly the GeneralAccounting Office, reported that thevolume of medical care delivered inPennsylvania had increased duringthe crisis. Statistics from state medicalboards in every other so-called“crisis” state show the same—doctorsare not being driven from practice.

• The President says “All these junklawsuits are running up the cost ofmedicine.”

The facts: Malpractice costs are .62%of the nation’s health care expendi-tures. According to the Departmentof Health and Human Services actu-aries’ most recent report on growthin health care expenditures, in 2002health care expenditures rose 9.3% to$1.553 trillion. Expenditures on mal-practice premiums reported to theNational Association of InsuranceCommissioners that year were $9.6billion, making malpractice costsabout .62% of national health careexpenditures. Malpractice costs ratedonly an eleven-word mention in theactuaries’ 13-page report.

• President Bush said that “Docs andhospitals practice what’s called‘defensive medicine’ in order toprotect themselves in a court of law.”

The facts: Independent researchersreject the “defensive medicine”theory. The only study ever attachinga price tag to defensive medicine —extra medical tests given to avoid

lawsuits—was one conducted by theBush Administration’s own MarkMcClellan. No other independentresearcher has been able to replicatehis findings. The contention thatdoctors practice defensive medicineis crucial to the Bush Administra-tion’s claim of high tort costs becausethe cost of malpractice insurance isrelatively minor. Using McClellan’sarticle to project $25 billion in“defensive medicine” costs allowsBush to attach an artificially inflatedlegal cost to the federal budget. Butboth the Congressional BudgetOffice and the Government Account-ability Office dismiss the theory andthus refuse to make cost estimates.

• He says “Too many frivolous lawsuits…are being filed.”

The facts: Businesses and their attor-neys are sanctioned much moreoften for frivolous suits. In a surveyof the 100 most recent cases offederal judges imposing sanctions forthe filing of frivolous claims ordefenses, businesses and their attor-neys were 69% more likely than indi-vidual tort plaintiffs and theirattorneys to be sanctioned. Onlyindividuals representing themselveswithout counsel were sanctionedmore often than businesses.

The facts: So-called “frivolous” suitshave little impact on health carecosts. Doctors define as “frivolous”any lawsuit in which no payment ismade to the victim. But they fail tomention that nearly all of thoseclaims are withdrawn voluntarily bypatients and their lawyers, after thor-oughly investigating the cause of theinjury, usually at great expense to thelawyer. Cases that are taken to trialand rejected by a jury constitute only5% of all claims. Lawyers have noincentive to file frivolous casesbecause they are not paid unlessthey win a case. Only about 12% ofmalpractice premium dollars arespent defending claims that are


closed without payment. If attorneysnever filed an unsuccessful suit, thesavings would constitute less thanone-tenth of one percent of nationalhealth expenditures.

• Our President says “Lawsuits threatento close the doors of too many smallbusinesses and factories.”

The facts: U.S. businesses file fourtimes as many lawsuits as private citi-zens. A survey of case filings in twostates (Arkansas and Mississippi) andtwo local jurisdictions (Cook County,Illinois, and Philadelphia, Pennsylva-nia) in 2001 found that businesseswere 3.3 to 5.8 times more likely tofile lawsuits than were individuals.These locations appear to be theonly jurisdictions that require attor-neys to provide sufficient detail todistinguish business-initiated suitsfrom trial attorney-initiated suits.

A lawsuit can’t wipe out a business,unless the business depends uponunsafe or illegal activities to make aprofit. Sometimes a business that iscapable of earning a profit throughlawful means will try to earn extraincome by cutting corners. If courtjudgments awarded to those harmedby the unsafe or illegal practicesexceed the value of the business(i.e., its plants, equipment, customerrelationships, etc.), the companycould be liquidated; but often theplants and equipment are notscrapped, nor are innocent employ-ees fired. For instance, Johns-Manville continues to manufacturenon-asbestos insulation; its bank-ruptcy simply led to much of itsstock being held in trust for peopleinjured by asbestos.

• President Bush claims “Industry esti-mates show that litigation is a $200billion a year burden on the U.S.economy.”

The facts: The $200 billion “lawsuitburden” figure (so-called “tort tax”)has been repudiated by the Congres-

sional Budget Office. This highlymisleading figure was calculated byTillinghast-Towers Perrin, a privateactuarial firm. It represents the totalcost of liability insurance purchasedin the United States, including insur-ance company administrative costs.But these costs would not disappearif there were no tort system. Thecosts of liability insurance representthe costs of injuries that would takeplace with or without a tort system,such as the estimated $230 billionannual cost of automobile crashes.Even if the tort system were abol-ished, the overall cost of automobileinjuries would remain the same, aswould the amount Americans pay forautomobile insurance, since every-one would have to insure them-selves.

•• The non-partisan CBO explainedthat most of the $200 billion inpayments “merely shift moneyfrom injurers to victims and thusare not true costs to society as awhole.” In economic terms, pay-ments that do not involve anyuse of resources to producegoods or services are called‘transfer payments.’ Those thatdo involve using resources forproduction are known as ‘realresource costs’ (also ‘social costs’or simply ‘costs’). Specifically,the portion of a settlement orjudgment that goes to the plain-tiffs is a transfer payment.”

•• Forty-six percent of the tort costestimate is for payments made toinjured victims for lost wages,medical care, and pain and suf-fering, according to Tillinghast.These costs are the result ofinjuries caused by defendantsand would be borne by societyanyway, through private healthinsurance, government pro-grams, charities or absorbed bythe victims and their families.

•• Twenty-one percent of the tortcost estimate is for insuranceindustry overhead, according to

Tillinghast. Much of this insur-ance overhead would exist evenin the absence of lawsuitsbecause administering first partyinsurance would also requireunderwriting, claims adjusting,marketing, profit and other costs.

• In his typical stump speech, the Pres-ident frequently says: “See, every-body is getting sued.”

The facts: Tort lawsuit filings havedecreased since 1992, according tothe Court Statistics Project. Theperiod 1992 through 2001 saw anoverall 9% decline in the number oftort filings, according to a joint track-ing project of the Conference of StateCourt Administrators, the Bureau ofJustice Statistics and National Centerfor State Courts. The filing data from30 states in their sample, includingthree of the four most populousstates, California, Texas and Florida,represents a total of 77% of the U.S.population. When adjusted for popu-lation growth, tort filings declined by15%, from 269 to 228 per 100,000.Population adjusted filings dropped25% or more in 11 of the 30 states.The largest decreases occurred inTexas and Massachusetts, where tortfilings fell by 41%.

• President Bush claims “It’s like agiant lottery.”

The facts: The median jury award forpersonal injury cases fell 30% in2002. The median jury verdict in per-sonal injury cases peaked in 2000 at$45,000 declined to $42,945 in 2001,and dropped to $30,000 in 2002.Overall this represents a decline of33% in two years.

• The President says “There needs tobe a cap on non-economic damagesat $250,000.”

The facts: A $250,000 cap on non-economic damages only amounts to1% in insurance savings. One of thenation’s top writers of medical mal-practice insurance recently was


asked to justify how its ratesreflected the potential impact ofrecent tort law changes in Texas.Among other things, the new lawcaps non-economic damages at$250,000. The company responded,“Non-economic damages are a smallpercentage of total losses paid.Capping non-economic damages willshow loss savings of 1.0 %.” Thebottom line: Bush mis-underesti-mates the importance of the legalsystem. Tort law not only compen-sates and deters; it prevents injury byremoving dangerous products andpractices from the market; spurssafety and health innovations; forcespublic disclosure of informationabout dangers consumers face in themarketplace; serves as an earlywarning of the need for governmentaction to prevent harm; and protectsresponsible companies by punishingthe wrongdoers.

It is extremely disturbing that aperson in high office would intention-ally mislead folks on any issue. That isespecially true when important con-sumer and safety issues that affect allcitizens are involved. I really don’tbelieve President Bush really under-stands how people around the countryfeel about the court system. Neither doI believe that he has been given thefull truth on this issue by his advisors.In any event, if you want to read moreof what President Bush has said on the subject of tort reform go tohttp://www.whitehouse.gov/news/releases.

Source: Public Citizen

THERE IS NO LITIGATION EXPLOSION

Since the early 1980s, the number ofcivil trials in federal courts nationwidehas dropped drastically. A new studyshows these suits have had a 60%decline. In addition, there’s also been asharp redirection in criminal trials,bankruptcy trials and civil trials in statecourts. There is a very good article onthe subject in the November edition of

the Journal of Empirical Legal Studies.The number of civil trials in federalcourts dropped almost 60% between1982 and 2002. Over the same timeperiod civil trials in state courtsdropped 28%. These reductions aredue in part to the complexity and costsof litigation. The length of time spentin the courtroom per case increasedgreatly and that is due in part to thecomplex issues being litigated. Thedecline in trials has also come aboutbecause of mass settlements in tortcases. Arbitration and mediation (alter-native dispute resolution) have alsoplayed a role in the reduction.

The study concludes that the timeand money it takes to get to trialsimply dissuades many folks fromtaking their cases to trial. Interestingly,the study reports that there were 1.1million lawyers in the nation in 2002,up from 617,320 in 1982. Arbitration istaking many cases out of the court-room and that’s not good for con-sumers. The end result, however, isthat there are fewer lawsuits that everget to trial.

MALPRACTICE REFORM OUTWEIGHED BYCONCERN OVER HEALTH CARE COSTS

A recent survey confirms what I hadthought all along, and that is mostAmericans see health care and insur-ance costs as a more pressing problemthan malpractice lawsuits. However,this won’t slow down the Bush Admin-istration. The tort reform movement isfueled by the big bucks of CorporateAmerica and as a result there is a totaldisregard for how ordinary folks feelabout the issue. The Kaiser FamilyFoundation, a nonprofit organizationthat studies health care issues, and theHarvard School of Public Health saidreducing malpractice jury awardsranked 11th on a list of 12 items folksaround the country believed should behealth care priorities for President Bushand the Congress. Lowering the cost ofhealth care and insurance was impor-

tant to the people polled, but theydidn’t believe lawsuits were the culprit.Making Medicare more financiallysound and increasing the number ofAmericans with insurance were impor-tant to people, according to the poll.

CHIEF JUSTICE REHNQUIST DEFENDS JOBSECURITY FOR JUDGES

Many U.S. citizens don’t believejudges should be appointed. Evenfewer want federal judges appointedfor life. Chief Justice William H. Rehn-quist, in his annual report, defends life-time appointments for judges. Hebelieves this approach is necessary toinsulate judges from pressures as theydeal with politically sensitive issues.The Chief Justice used his year-endreport to address concerns about so-called activist judges and Congress’move to strip judges of some of theirauthority. Chief Justice Rehnquist, whohas now marked his 33rd anniversaryon the High Court, said that there hasbeen “mounting criticism” recently ofjudges accused of interpreting the lawto fit their politics. President Bush andRepublican congressional leaders havebeen particularly outspoken aboutactivist judges, especially thoseinvolved in gay marriage and abortioncases. Democrats also have accusedconservative judges of stretching thelaw. Chief Justice Rehnquist said thatjudges should not be punished by Con-gress because of their decisions andthat their lifetime tenure protects theirindependence. The Chief Justice saidthat for over 200 years, the Court has“served our democracy well andensured a commitment to the rule oflaw.” I have to agree with his assess-ment when you look at the big picture.

Chief Justice Rehnquist, who saysthat views on activism are subjective,stated: “Federal judges were severelycriticized 50 years ago for their unpop-ular, some might say activist, decisionsin the desegregation cases, but thoseactions are now an admired chapter in


our national history.” Concerns wereraised that an already strained relation-ship between Congress and the federalcourts has been exacerbated by criti-cism and suggestions of impeachmentfor judges “who issue decisionsregarded by some as out of the main-stream.” I have tremendous respect forChief Justice Rehnquist and have toagree that our court system has gener-ally functioned well. I believe peopleshould have the right to vote forjudges, but with strong campaignfinance laws in place and in non-parti-san elections. For that reason, I couldnever support the appointment ofjudges on the state level. The appoint-ment of federal judges is anothermatter, however, and I do support thatprocess.

JUROR PROBLEMS IN A NEIGHBORING STATE

The State of Florida has had difficultyimpaneling enough jurors to addresscomplex criminal and civil cases. Thisproblem has led Florida’s SupremeCourt to call on the public in an effortto improve the state’s jury system.Besides examining juror shortages andtrial scheduling problems, the Courtwants to hear more from the publicabout the experiences of jurors. Asincere effort is being made to improvethe conditions of jury service inFlorida, and that’s commendable. Apublic hearing, seeking input fromlawyers and others about their experi-ences with the state’s jury system, washeld last month. Nationally, 40% ofthose summoned for jury duty show upat the courthouse. Only 30% answerthe call in Florida, according to infor-mation from the state court administra-tor’s office, and that is disturbing.

Last year, the Florida Legislaturetrimmed court funding for juror andwitness expenses by $600,000, or about13% from previous years. That resultedin fewer people being called for juryservice. To fix the juror shortageproblem, state officials are considering

a number of options, including adjust-ing upward the number of jurors whoare summoned for service every week.I have always felt that the judicialsystem should be sensitive to the needsof persons who are called as jurors. Weshould do everything—within reason—to make jury service as pleasant as pos-sible. Without jurors, the system won’twork. That is something we can’t lethappen in any state. Jury service is animportant function of citizenship andeverybody should do their duty whencalled.

A LOOK AT TEXAS STYLE TORT REFORM

A look at how Texas-style tort reformwill affect Vioxx lawsuits in that state isgreatly disturbing. The year-old tortreform law in Texas will limit thenumber and scope of Vioxx cases for anumber of reasons. Under the Texastort reform law, drug makers are pro-tected from liability as long as they canprove that any warnings of harmful sideeffects were approved by the Food &Drug Administration. When we con-sider how truly bad the FDA has been,it is most evident that Texas tort reformis very bad for Merck’s victims. TheFDA has been pretty much an exten-sion of the drug industry instead ofbeing a tough and effective regulator.

To win against Merck in Texas, Ibelieve that Vioxx plaintiffs will haveto prove that the company withheldinformation or misrepresented it to thegovernment. That will make this litiga-tion very expensive and most difficultin the Lone Star State. Tort reform willmake it harder and more expensive forthe victims. The vast majority of negli-gence claims filed in Texas againstMerck, either in state or federal court,will likely allege violation of Texas law.As a result, that state’s tort reform lawswill apply.

IV.THE NATIONALSCENE

NHTSA SHOULD TELL THE PUBLIC WHEN ITFINES AUTOMAKERS

Unlike almost every other enforce-ment agency in the federal govern-ment, the National Highway TrafficSafety Agency doesn’t inform thepublic when it fines or otherwise sanc-tions a large corporation. NHTSA saysthat the agency’s policy is to announcethe fines at the end of the year. OnDecember 29, 2004, NHTSA put out anews release listing $10 million in finesit assessed against automakers in 2004.Recently, Clarence Ditlow, executivedirector of the Center for Auto Safety,alerted reporters to the details of a $1million fine against General Motors forfailing to disclose a problem thatcaused windshield wipers to stopworking in tens of thousands of itssport-utility vehicles. Interestingly,NHTSA had collected the fine in July2004. NHTSA explains its failure toreport major enforcement actions, bysaying “that’s not the way we haveever done it.”

Joan Claybrook, the former NHTSAadministrator under Jimmy Carter, whois now president of Public Citizen, saidthat when she headed the agency “wealways put out a press release whenwe sanctioned a company. The currentNHTSA doesn’t want to communicatethe information to the public. This isthe most secretive agency that I haveseen in recent years.” Ditlow saysNHTSA’s constituency is the autoindustry, not the American consumer,and that is pretty much the case in myopinion. I firmly believe that NHTSAshould promptly release to the publicinformation relating to actions takenagainst the auto industry. The publicdeserves to have this informationpromptly and there is no excuse forNHTSA failing to make it available in atimely fashion.


THE AARP PROTECTS PEOPLE

It’s become quite evident that thefight over Social Security will be on thefront burner in Congress. The AARP isopposing the Bush Administration’sattempt to weaken Social Security, andin my opinion the group is on the rightside of this issue. There are places in aperson’s retirement planning for risk,but Social Security can’t be one ofthem. The President’s plan to let indi-viduals put some of their payroll taxinto individually-owned retirementaccounts makes no sense. I believe thatanybody who has been in the stockmarket over the past 10 years wouldtell the President to drop this ill-advised scheme. Social Security is notthe place for “rolling the dice,” andmost Americans feel strongly on thatissue. Neither is it a place where cam-paign contributions can be repaid. Wemust do all within our power to saveSocial Security, and I commend theAARP for its stand.

IRAQ WEAPONS SEARCH IS FINALLY OVER

The search for weapons of massdestruction in Iraq was quietly con-cluded last month without any evi-dence that the banned weapons thatPresident Bush cited as justification forgoing to war ever existed. It was quitesignificant that the White House madethe announcement on January 12th withabsolutely no fanfare. The Iraq SurveyGroup, made up of some 1,200 militaryand intelligence specialists and supportstaff, spent nearly two years searchingmilitary installations, factories and labo-ratories whose equipment and prod-ucts might be converted quickly tomaking weapons. There will no longerbe an active search for these weapons.

Chief U.S. weapons hunter CharlesDuelfer, who was to deliver his finalreport on the search this month, hadmade preliminary findings last Septem-ber. Duelfer reported then that SaddamHussein not only had no weapons ofmass destruction and had not made

any since 1991, but that he had nocapability of making any suchweapons. President Bush still defendshis decision to invade Iraq, but blameshis decision on faulty intelligence. Hehas appointed a panel to investigatewhy the intelligence about Iraq’sweapons was so wrong. While I fullysupport our troops regardless of how Ifeel about this war, I sincerely believethe war in Iraq will prove to be one ofthe worst military decisions ever madeby a sitting President. Nevertheless, weare in Iraq and I fear we will be therefor years to come. Hopefully andprayerfully, I will be wrong and ourtroops will be home soon.

CONGRESS GETS HUGE WAR BUDGETREQUEST

The White House has requested $80billion this year for war and relatedcosts in Iraq and Afghanistan. This isthe third and largest Iraq-relatedbudget request from the White Houseso far. It will push the war’s costs over$200 billion—far above initial WhiteHouse estimates of $50 billion to $60billion. According to the White House’sOffice of Management and Budget, theIraq war has already cost about $130billion. It doesn’t’ take a financialgenius to figure out that the high warcosts complicate things fiscally for thePresident and for Congress. Anybodywho believes the President will be ableto keep his pledge to cut the record$413 billion federal budget deficit inhalf by the end of his term is a goodprospect for buying “ocean front lots”in Arizona. We are heading toward afiscal disaster unless the current trendsare reversed.

To put all of this in perspective, con-sider that the almost $100 billion innew money would be equal to almostone-quarter of the Pentagon’s $417.5billion 2005 budget. The proposalcomes as a “supplemental” spendingrequest, a move that will keep it out ofthe regular budget Bush had to submit

to Congress. Members of Congress willhave to fund the war in Iraq—theyhave little choice. We can’t afford toindicate to our enemies—and that list isgrowing daily—that we don’t back ourmilitary. But, it appears there isgrowing apprehension around thecountry about the military operationsin Iraq. Many in Congress are now rec-ognizing that the war has become mostunpopular back home. I hope and praywe can get out of Iraq soon and in amanner that won’t be an embarrass-ment to this country. I wish there wasan easy solution to the Iraq problems,but there doesn’t appear to be one.

V.THE CORPORATEWORLD

THE AFTERMATH OF ENRON

It doesn’t take a real smart person torealize that white-collar crime hastaken a real toll on the U.S. economy.The FBI projected in a recent reportthat major white-collar crime willimpact the U.S. economy over the nextfive years. As we enter the New Year,the FBI is investigating over 189 majorcorporate frauds. Some 18 of thosehave losses over $1 billion each. Theerosion of public confidence in themanagement of public companies hashad a negative impact on the stockmarkets and in the raising of capital.This will continue and in turn will havea negative impact that will be feltthroughout the U.S. economy. It wasreported that in November of 2004, topcorporate insiders sold $6.6 billionworth of stock, the highest amountsince August 2000. Apparently those ingovernment have learned very littlefrom the massive debacle known asEnron or at least have ignored whatthey did learn. Instead of attending tothe victims and hunting down the cul-prits, our governmental leaders areworking to protect the corporate


wrongdoers. The President and theRepublican leadership in Congress alsoignored anything resembling realreforms, treating them all as if theywere radioactive. Instead they have setout on the tort reform road.

The federal entitles that should beleading the charge are largely under-funded. For example, despite modestincreases in the SEC’s overall budget,the government is still being “out-gunned.” With 913 employees theSEC’s enforcement division remainssmaller than the largest law firms thatwork for corporations. The SEC has atremendous backlog of outstandingcases. Because of such a backlog,insiders say that there is no real interestin opening up new investigations. So,instead of justice, victims are beingoffered a corporate policy assaultknown as Tort Reform. White-collarcrime experts say securities law“reforms” passed in the mid-1990s bythe Republican-led Congress let theaiders and abetters of fraud—theaccountants, bankers, lawyers, andconsultants—off the hook by creating amajor impediment to these lawsuits.The key statute—the Private SecuritiesLitigation Reform Act of 1995—cer-tainly hasn’t been the answer.

While Enron was a major “scandal,”it was really the logical outcome of acorporate system whose goals, includ-ing total deregulation, are a directassault on democracy. It’s no accidentthat the recent epidemic of accountingfraud and other abuses primarilyinvolved companies in three sectors—banking, energy and telecommunica-tions - because these are sectors thathad been aggressively deregulatedthroughout the 1990s, through therepeal of Glass-Steagall, the gutting ofthe Public Utility’s Holding CompanyAct (PUHCA) and the Telecommunica-tions Act of 1996. Until we address theinherent conflicts of interest created byderegulation, the lack of checks andbalances caused by tort reform, and theincentives created by outrageous exec-utive compensation packages, we will

likely see all kinds of white collar andcorporate crime in the coming years.Unfortunately, the real losers will bethe workingmen and women whowork hard, pay their taxes, support ourmilitary and try hard to support theirfamilies.

SEC PROBES J.P. MORGAN ROLE INCANARY’S IMPROPER TRADES

J.P. Morgan Chase & Co. is facingscrutiny for financing hedge fundCanary Capital Partners LLC’s impropertrading in mutual-fund shares. This israising questions about whether thebank should have pursued warningsigns relating to what one of its largestclients was doing with their money. Sofar, the Securities and Exchange Com-mission has taken testimony from anumber of employees at J.P. Morgan.The bank had extended as much as$150 million in credit to Canary, thehedge fund at the center of the year-old fund-trading scandal. The questionnow is should J.P. Morgan have beenmore diligent? The Wall Street Journalreported on a key memo from J.P.Morgan lawyers that may prove not tobe real “good news” for the company’stop executives. While the memo saysthe company didn’t know about any“illegal activity,” it did mention the pos-sibility that some questionable activitywas going on in violation of fund rules.The issue appears to be what did thebank know and what its duty was inconnection with that acquired knowl-edge. If it can be shown that J.P.Morgan should have asked more ques-tions or perhaps that it aided CanaryCapitol carry out wrongful acts, thenthe bank is in deep trouble.

Source: The Wall Street Journal

FANNIE MAE FALL-OUT CONTINUES

The problems continue to grow formortgage giant Fannie Mae. The Secu-rities and Exchange Commission hastold Fannie Mae that it must make

changes to its financial accounting thatcould wipe our $9 billion in profits. Inlate December, Fannie Mae’s formeraccounting firm KPMG disclosed to theSEC that the auditing firm had notifiedthe company of “material weaknesses”in its financial reporting internal con-trols and “deficiencies” in someaccounting processes. Yet, Fannie Maeneglected to tell investors about theseproblems, which could be a violationof Sarbanes-Oxley. KPMG’s notificationhappened just after the release of areport by the Office of Federal HousingEnterprise Oversight (OFHEO), whichsaid that Fannie Mae engaged in “per-vasive and willful” accounting viola-tions.

Those violations included thedelayed booking of $200 million inexpenses in 1998, which made it possi-ble for a number of executives, includ-ing ousted CEO Franklin Raines, toreap performance-related bonuses.Raines, who has resigned, has beenroundly criticized for making off withmillions of dollars in deferred compen-sation and pensions. Raines, whoearned $20 million (including $3million in stock options) in 2003 and$17.7 million in 2002, will continue toreceive a $600,000 salary until nextJune. He will also receive $8.7 millionin deferred compensation and amonthly pension of $114,393 for life.But that’s not all—he will get 1.6million shares of stock, options foranother 386,000 shares, plus a $5million life insurance benefit until age60. I have to wonder what Raineswould have gotten if he had doneeverything right!

FORMER EXECUTIVE AT CABLE TV’SCHARTER ENTERS GUILTY PLEA

James Smith III, a former CharterCommunications Inc. executive, haspleaded guilty to federal fraud charges.He becomes the third former executiveof the cable-television company toadmit to a scheme to defraud investors


by inflating subscriber numbers. Smithwas among four ex-executives indictedin July 2003. A trial had been set forthe 7th of this month. Smith pleadedguilty to conspiracy to commit wirefraud. On December 16th, former ChiefOperating Officer David Barfordpleaded guilty to the same charge.Another former executive, DavidMcCall, pleaded guilty to the charge inJuly 2003. Smith and McCall wereCharter senior vice-presidents. At presstime ex-Chief Financial Officer KentKalkwarf was scheduled to be tried thismonth. Kalkwarf is charged with 14counts of mail fraud, wire fraud andconspiracy to commit wire fraud—thesame charges the others faced beforetheir plea agreements. Charter is con-trolled by Microsoft Corp. co-founderPaul Allen and has 6.3 million sub-scribers in 37 states.

CENDANT CASE ENDS IN SPLIT VERDICT

A former top executive at CendantCorp. was convicted of fraud and othercharges. Jurors couldn’t reach a deci-sion on charges against another execu-tive in the case, which was one of thelargest accounting scandals of the1990s. E. Kirk Shelton, the company’sformer vice chairman, was convicted of12 counts of conspiracy, mail fraud,wire fraud, and securities fraud. A mis-trial was declared for former ChairmanWalter Forbes after jurors said theycouldn’t reach a verdict on 16 counts.Shelton and Forbes were accused ofinflating revenue by $500 million atone of Cendant’s predecessor compa-nies, CUC International Inc., to driveup the stock price. CUC, which oper-ated discount shopping clubs, amongother things, merged with HFS Inc. toform Cendant. The fraud was discov-ered in 1998, soon after the dealclosed. Prosecutors are consideringwhether to seek a retrial on the 16counts against Forbes.

Cendant is a travel and real-estateservices company based in New York

that owns brands including Ramada,Howard Johnson, Avis, ColdwellBanker, and Century 21. Forbes andShelton were charged with, amongother things, lying to the Securities andExchange Commission. Forbes alsowas charged with insider trading forselling $11 million of Cendant stock afew weeks before the accountingscandal was made public. Forbes waschief executive of CUC during the timeof the fraud. Shelton was CUC’s chiefoperating officer. At the time, theCendant fraud was one of the biggestin corporate history. Seven years later,it has been overtaken by larger decep-tions at companies such as Enron Corp.and WorldCom, now known as MCIInc. In 2000, Cendant paid $2.85 billionto settle shareholder lawsuits, thelargest such settlement in history for ashareholder suit.

MONSANTO AGREES SETTLES INDONESIANCASE

Monsanto Co. has agreed to pay $1.5million to defer criminal prosecutionand settle related civil charges ofbribing an Indonesian government offi-cial and improperly classifying thepayment as a consultant’s fee. Thepayment by Monsanto includes a $1million penalty to defer federal prose-cution for three years. The JusticeDepartment will then drop the case ifMonsanto has complied with the termsof the agreement. It also includes a$500,000 civil penalty to settle Securi-ties and Exchange Commission chargesthat cover additional violations involv-ing questionable or illegal paymentstotaling $700,000 from 1997 to 2002.The bribery charges stem from a$50,000 payment made in 2002 to anIndonesian environmental official asMonsanto was lobbying the Indonesiangovernment to loosen policies requir-ing an environmental-impact studybefore Monsanto could sell its geneti-cally modified seeds in the country.

Source: The Corporate Crime Reporter

HEALTHSOUTH SETTLES MEDICARE FRAUDCHARGES

HealthSouth Corporation will pay theU.S. $325 million to settle Medicarefraud charges. It was alleged in afederal lawsuit that HealthSouth, thenation’s largest provider of rehabilita-tive medicine services, defraudedMedicare and other federal healthcareprograms. The settlement resolvessome of the allegations and civil law-suits filed by whistleblowers under theFalse Claims Act. Peter Keisler, theassistant Attorney General who headsup the Justice Department Civil Divi-sion, stated it well when he said:

Healthcare fraud impacts everyAmerican citizen. When acompany defrauds our nation’shealthcare programs, it steals fromthe American taxpayers. Health-South’s fraud on Medicare wasdriven both by longstanding busi-ness practices in its outpatientphysical therapy business andimproprieties in its inpatient reha-bilitation business.

Most Americans don’t fully under-stand how widespread the net of cor-porate fraud has spread. Manycorporate bosses apparently think it’sfine and dandy to cheat when thevictim is an agency of the federal gov-ernment. It’s time for folks to demandthat the Justice Department get tougherand put these cheaters in jail.

EXXON MOBIL EARNINGS ARE AT A RECORDHIGH

Exxon Mobil Corp., the world’slargest publicy-traded oil company,earned a record $8.42 billion in thefourth quarter of last year and $25.33billion for all of 2004. Higher prices foroil and natural gas erased a slightdecline in production. Exxon Mobil, theworld’s largest publicly traded oilcompany, just missed $300 billion insales for the year. Revenue in 2004 roseto a record $298.03 billion from $247.74


billion. Revenue for the fourth quarterwas $83.36 billion, compared to $65.95billion a year ago. Exxon made more inboth major ends of its business, theexploration and production of oil andgas, and the refining and selling of fin-ished products. The higher prices foroil and gas account for the increase inprofits despite a 1% decline in produc-tion of oil and a 2% drop in gas pro-duction. At a time when consumers arehurting and the economy is stillsagging, there are some corporationsthat are doing very well and ExxonMobil Corp. is certainly one of them.

VI.CAMPAIGNFINANCE REFORM

LOBBYISTS JOIN CORPORATE AMERICA INFUNDING OF THE BUSH INAUGURATION

Lobbyists contributed a large part ofthe $24.9 million collected for PresidentBush’s inauguration. As we now knowthe inauguration was the most expensivein the nation’s history. It should benoted that those lobbyists have hun-dreds of clients and work on virtuallyevery major regulatory and legislativeissue in Washington. An analysis of thelatest figures reveals that corporationsand their executives have contributedover $24 million, or 96%, of the $24.9million collected to date. The averagegift from the 194 contributors is morethan $128,000. Bush’s inaugural commit-tee was hoping to raise $50 million topay for the spectacular week’s activities.While this inauguration was the mostexpensive ever, all of the previous onesin recent times have followed the samepattern.

I would like to see spending on func-tions such as the inauguration placedunder a strong campaign finance reformlaw. Congress limits campaign contribu-tions to control influence peddling, butinaugural contributions can be just asinfluential, if not more so. This type

spending gives lobbyists access to highgovernment officials, as if they neededmore access, and I believe that shouldbe controlled. Congress needs to estab-lish limits that make inaugural contribu-tions conform with existing campaignfinance law, which prohibits direct cor-porate campaign contributions. Underlaw, corporations are barred frommaking direct contributions to presiden-tial candidates and campaigns. However,they are under no similar restrictions intheir attempts to curry favor from theAdministration by financing the Presi-dent’s inauguration celebration, whichhas become one of the last politicaloutlets for corporate “soft money.”

None of the provisions that prohibitcorporate contributions or limit contribu-tions from wealthy individuals to $2,000in federal campaigns apply to fundrais-ing for presidential inauguration cere-monies. Federal election law exemptsinaugural fundraising from all campaignfinance regulations other than a require-ment to disclose contributions of $200 ormore and a ban on contributions byforeign nationals. Some question thelarge donations this time by the financialindustry (the leader in inaugural contri-butions), considering how much theyhave to gain from the Administration’sproposal to privatize Social Security. You can view Public Citizen’s full reporton the latest inaugural contributions by going to the Internet athttp://www.WhiteHouseForSale.org.


VII.CONGRESSIONALUPDATE

TOP LOBBYING EXPENDITURES

During the first half of 2004 the U.S.Chamber of Commerce spent $30million lobbying Congress and theBush Administration—more than anyother lobbying group—according toPolitical Money Line. Of that figure,

$10 million came through theChamber’s Institute for Legal Reform, aleader in the fight for “tort reform.” Thetwo groups spent $34.6 million for allof 2003. Other top lobbying spendersincluded the American Medical Associ-ation ($9.2 million), General Electric(8.4 million), The Pharmaceutical Man-ufacturers of America ($8 million),Freddie Mac ($6.7 million), NationalAssociation of Realtors ($6.6 million),Altria ($6.5 million), the Asbestos StudyGroup ($6.2 million) and the AmericanHospital Assn ($6 million). All told,lobbying expenditures for the first halfof 2004 reached $1.1 billion, a newrecord.

Political Money Line also reportedthat the Chamber of Commerce—forthe first time—contributed to presiden-tial politics. The Chamber contributed$4.2 million to a 527 Group called theNovember Fund, which in turn passedthe money on to the Bush campaign.Political Money Line has also compileddata on the ten biggest corporate PACs,all of which contributed money to theRepublican Party. The top tenincluded:

• United Parcel Service Inc. PoliticalAction Committee—$1,505, 000;

• Wal-Mart Stores Inc. PAC for Respon-sible Government—$1,273,500;

• SBC Communications Inc. EmployeeFederal Political Action Committee(SBC EMPAC)—$1,134,933;

• Federal Express Political Action Com-mittee—$1,029,000;

• Union Pacific Corp. Fund for Effec-tive Government—$787,047;

• Employees of Northrop GrummanCorporation PAC—$779,450;

• AFLAC Incorporated Political ActionCommittee—$696,000;

• Lockheed Martin Employees’ PoliticalAction Committee—$681,646;

• Pfizer Inc. PAC—$668,858;


• General Electric Company PoliticalAction Committee—$648,876;

For more information, you can visitPolitical Money Line at http://www.fecinfo.com/.

VIII.PRODUCTLIABILITY UPDATE

NHTSA IS WRONG TO SUBVERT PUBLICRECORDS LAW

In response to the Ford-Firestonecrashes that involved defective tires,Congress passed the TREAD Act somefour years ago. That law required selectsafety data to be gathered by the gov-ernment and made available to thepublic. Government investigatorswould be able to spot potential safetydefects quickly with this early warningdata. It was thought that the motoringpublic would be alerted to potentialproblems associated with vehicles theyown. At least, that’s what was sup-posed to happen. At least that’s whatwas supposed to happen. However, inputting the law into practice theNational Highway Traffic Safety Admin-istration (NHTSA) has elected to keepmuch of this critical data hidden fromthe public. The information withheldincludes warranty claims, productionnumbers, field reports, and even con-sumer complaints.

Last month, Public Citizen told theU.S. District Court for the District ofColumbia that NHTSA’s secrecy is astunning perversion of the Freedom ofInformation Act. While that Act is sup-posed to open records and improvegovernment accountability, NHTSA isusing it to seal records from view. Insealing the records, the agency isbowing to the wishes of the autoindustry. The automakers claim thatthere will be potential for competitiveharm resulting if the data are released.History has shown us that auto manu-

facturers hide safety defects to avoidthe costs of recalling vehicles. Forexample, NHTSA just fined GM $1million for doing that very thing.

NHTSA has a long history of beingvery slow in responding to safetydefects. Public outrage over NHTSA’sincompetence in responding to avail-able information on the Ford/Firestonedebacle is what prompted Congresspassed the TREAD Act. NHTSA doesn’thave the authority to hide this safetydata. The public records law requiresNHTSA to prove that each piece ofsubmitted information should be with-held, rather than presuming it is secretas a category. The information in ques-tion belongs to the public becausemost of it was gathered from the publicin the first place. Public health andwelfare is at stake and must be pro-tected. For example, members of thepublic have a right to know if thevehicle they are driving has potentialsafety flaws that could injure or killthem. That is why Public Citizen suedNHTSA last March and why the con-sumer group is fighting hard to makethese critical data public. We needmore groups that are willing to take onthe auto industry and the federal gov-ernment on safety issues. Public Citizenis to be commended for their persist-ence and courage in fighting to protectU.S. consumers. If the governmentwould simply do their job, we wouldn’tneed groups such as Public Citizen.


WARNINGS SOUGHT FOR VEHICLESBACKING UP

According to the National HighwayTraffic Safety Administration (NHTSA),about 120 people are killed and morethan 6,000 injured each year by vehi-cles that back over them. While NHTSAkeeps track of these incidents, mostfolks are unaware of the hazard. Itappears that most victims are veryyoung or very old. Unfortunately, theseaccidents haven’t received the attention

needed and the public is largelyunaware of the problem. Safety advo-cates want NHTSA to study the issuemore closely and consider a require-ment that automakers include devicesto warn drivers when something comesinto their path as they back up. About20% of 2005 model year vehicles offercameras or sensors mounted on theback bumpers. The sensors beep warn-ings, and the cameras transmit imagesto screens on the dashboard orrearview mirror. Backup aids aren’talways marketed as safety devices, sothey can be difficult for consumers tospot in brochures.

Most automakers offer sensors on atleast some models, including Audi,BMW, Buick, Cadillac, Chevrolet, Ford,Mercedes-Benz, Nissan, Porsche, Volk-swagen, and Volvo. Several companiessell cameras, which can be installed foraround $1,000, and sensors, around$400 or less. You won’t be surprised tolearn that NHTSA is a long way frommandating cameras or sensors. Anagency spokesman says the agencybelieves the technology remains tooexpensive and may not always be reli-able. Safety advocates, including PublicCitizen and Kids and Cars (the childadvocacy group), want NHTSA to getmore involved and study the issuecarefully. Unfortunately, a transporta-tion bill that would have requiredNHTSA to study the issue died in Con-gress. Safety advocates won’t give upand will try again.

CPSC WILL PROPOSE FIRE SAFETYSTANDARD FOR MATTRESSES AND INITIATERULEMAKING FOR BEDCLOTHES

The U.S. Consumer Product SafetyCommission (CPSC) voted in Decem-ber of last year to issue a proposedsafety standard to reduce deaths andinjuries from fires involving mattresses.The proposed standard for mattressesaddresses fires ignited by an openflame. CPSC also voted to issue anadvance notice of proposed rulemak-ing to develop a separate safety stan-


dard to address bedclothes (such asblankets, comforters, and pillows)flammability. CPSC Chairman Hal Strat-ton believes this is a significant steptoward reducing deaths and injuriesfrom mattress fires. This appears to bea top priority at CPSC. A final standardshould be in place soon. The proposedstandard should lead to mattresses thatare a dramatic improvement, in termsof fire resistance and lives saved, overmost mattresses currently on the market.

The proposed mattress standard willbe published in the Federal Register,requesting public comment for aperiod of 75 days. An opportunity fororal testimony will also be scheduled.From 1995 through 1999, mattressesand bedding were reportedly the firstitems to ignite in an estimated 19,400residential fires each year. These firesresulted in an estimated 440 deaths,2,230 injuries and $273.9 million inproperty losses annually. CPSC staffsays that most of these deaths andinjuries would be addressed by theproposed standard.

Fires involving mattresses of traditionalconstructions can reach flashover (whenthe entire contents of the room ignite) inless than 5 minutes. The proposed mat-tress standard would limit the size of thefire and prevent or delay the time toflashover. This would allow peoplemore time to discover and escape thefire, reducing deaths and injuries. TheCPSC believes that materials are com-mercially available that can be used toproduce comfortable, practical, and rea-sonably-priced mattresses with signifi-cantly improved fire performance. TheCPSC rulemaking proceeding to setflammability standards for bedclotheswill begin with a notice in the FederalRegister requesting public comments onthe fire risks and possible approaches toreducing them. Bedclothes are the firstitem to ignite in about 80% of mattressand bedding fires and can contributesubstantially to the risks associated withmattress/ bedding fires.

Source: CPSC

MECHANIC WHO LOST ARM SETTLES CASE

A New York mechanic who lost hisright arm to a defective engine-coolingfan back in 1989, has accepted a $4.6million settlement from GeneralMotors. The mechanic, who is nowunable to wear a prosthesis because ofsevere nerve damage he suffered, wasworking on the carburetor of a Cadillacwhen he was injured. The engine fanbroke and slashed into his arm nearthe shoulder. There have been anumber of cases caused by defectiveengine-flex fans. Damage to the man’sarm in this case was so severe that thearm had to be amputated. The settle-ment was approved before a scheduledtrial by a State Supreme Court Justice.This mechanic is one of more than 50people known to have suffered seriousinjuries from the since-corrected designflaw in the engine-cooling fan assem-bly. The case had been delayed byyears by lawyers representing GeneralMotors. Finally, the carmaker had toface the music when the case was setfor trial and it then settled the case.

ATTORNEYS GENERAL RUN SAFETY ADS

A coalition of state Attorneys Generalhas launched an ad campaign aimed atSUV safety. The ads are funded withmonies received from Ford MotorCompany to settle a lawsuit that saidthe Ford ads were deceptive. Moneyfor the $27 million ad campaign is partof a $51.5 million settlement AttorneysGeneral from all 50 states reached withFord after suing the automaker inDecember 2002 for ads claiming itsSUVs were safe. Under the settlementagreement, money is to be used fordriver education. If you are interestedin the ads and the content, go to theircampaign’s website, www.esuvee.com.

IX.MASS TORTSUPDATE

FIXING THE FDA IS LONG OVERDUE

The U.S. Food and Drug Administra-tion is badly broken and must be fixed.Simply put, the agency hasn’t done itsjob and recent events have driven thatmessage home. A prime example ofhow bad the FDA has been involvesVioxx. We have learned that Garret A.FitzGerald, a pharmacologist at theUniversity of Pennsylvania, raised thefirst red flags about pharmaceuticalssuch as Vioxx, Celebrex and Bextraseveral years ago. He saw chemicalreasons that the drugs, which all inhibitinflammation by blocking the sameenzyme, might cause heart attacks.This was six long years before Vioxxwas approved by the FDA. Clearly, thewarning signs have been available tothe FDA, as well as to Merck, for along time. Celebrex had just beenapproved at the time FitzGerald madehis findings. Had the FDA done its job,neither of these drugs would havemade it to the market. Big holes in theapproval process still exist that canallow similar safety problems to slipthrough in the future. Clearly thesystem is broken when it comes toFDA regulation of the drug industry,and it must be fixed.

Under current law, before a drug isapproved, the FDA can only try to con-vince a company to do the right clini-cal trials if it wants to get approval tomarket the drug. Unfortunately, theagency doesn’t have the authority toforce companies to do clinical trials.Once a drug hits the market, the FDA’spower dwindles considerably. TheFDA can add warnings, but these don’talways have a big effect on a drug’suse and can get bogged down in nego-tiation. For example, after the study in2001 showed risks of heart risk forVioxx, it took a year for the drug’slabel to be changed. Even then, only a


“precaution,” not a needed warning,was added. The delay has never beenfully explained, but many believe thatduring that time the FDA was negotiat-ing with Merck. The FDA should begiven authority to require drug compa-nies to fully test their medicines whenconcerns come up. Congress should fixthe FDA at the earliest opportunity.Congress can’t delay a fix for the FDA.Failure to act will allow hazards to existfrom the agency’s poor past perform-ance. Please take time to contact yourSenator and House member and letthem know we are watching how theydeal with this problem. Challenge themto review what has happened to lowerincome citizens.

FDA SHOULD STOP ALL ADVERTISING

Drug companies don’t wait for a suf-ficient waiting period after approval ofa new drug for the market beforeselling the product. Instead, theylaunch their products in the marketwith simultaneous multi-media, mega-bucks advertising campaigns. This cor-porate eagerness to make money hasto bear a great deal of the blame forcausing the serious health problemsresulting from bad drugs being on themarket today. It also runs up the costof the good prescription drugs. Forexample, Merck & Co. spent $68.5million to advertise Vioxx and Pfizer’sad-spend was $77.8 million on Cele-brex. Bayer AG spent $42.9 millionadvertising Aleve, their over-the-counter painkiller formulation, which isknown to the medical community asnaproxen.

When Congress reconvenes, themedical community expects legislationto pass that will make the FDA betterequipped, better funded and betterplaced to make independent clinicaltrials of drug safety. I hope they willalso put a stop to drug company adver-tising. I don’t believe a drug companyshould be allowed to advertise anyprescription drug, and there should be

strict restrictions on advertising over-the-counter drugs. Doctors shoulddecide what medicines should be pre-scribed, and trained pharmacists mustalso be involved to make sure drugsprescribed don’t conflict with otherdrugs being taken.

A GIFT FOR DRUG MAKERS

I am convinced that the Americanpublic is becoming aware of howweak, controlled and ineffective theFederal Drug Administration has beenand continues to be. The New YorkTimes had a very good editorial in itsJanuary 14th edition, which is right onpoint. Not only does it fault the FDA,the editorial points out how some ingovernment protect the drug industry. Iam including the editorial in its entiretyfor your consideration.

With all the problems and the badpublicity that drug companies havebeen facing recently, you mightthink that this would not be a goodtime for the Bush administration totoss yet another bonanza theirway. But the administration is likean ardent lover in its zeal toshower the rich and powerful withevery imaginable benefit. So tuckedlike a gleaming diamond in pro-posed legislation to curb malprac-tice lawsuits is a provision thatwould give an unconscionabledegree of protection to firmsresponsible for drugs or medicaldevices that turn out to be harmful.The provision would go beyondcaps on certain damages. It wouldactually prohibit punitive damagesin cases in which the drug ormedical device had received Food and Drug Administrationapproval. We know the FDA hasfailed time and again to ensurethat unsafe drugs are kept off themarket. To provide blanket legalprotection against punitive damagesin such cases is both unwarrantedand dangerous.

We learned just last month thatCelebrex, the phenomenallypopular painkiller from Pfizer,more than tripled the risk of heartattacks, strokes and death amongthose taking high doses in anational trial. Those findings, asnoted in an article in The Times,“raised new questions about howwell federal drug regulators protectthe public and worsened drugmakers’ already dismal image.”Senator Chuck Grassley, an IowaRepublican who held hearings onrecent FDA actions, said, “At thispoint, no one can say with confi-dence whether the worst drugsafety problems are behind us orahead of us.” The Celebrex disclo-sure came on the heels of a deci-sion by Merck to withdraw itsarthritis drug Vioxx from themarket after a study showed a linkbetween long-term use of the drugand an increased risk of heartattacks and strokes.

Two weeks ago, an article in TheBritish Medical Journal suggestedthat Eli Lilly & Company had longconcealed evidence that the antide-pressant Prozac could causeviolent and suicidal behavior. Thecompany denies the accusation,which the journal forwarded to theFDA. If the malpractice legislationso relentlessly touted by PresidentBush became law, Pfizer, Merckand Eli Lilly would be immunizedagainst even the possibility of puni-tive damages arising from anyharm to patients that resulted fromuse of these drugs - as long as thecompanies followed FDA rules. Allthree drugs were approved by theFDA. The whole idea behind puni-tive damages is to severely punishthe most egregious offenders. Hugepunitive damage awards are sup-posed to serve as a deterrent toextremely bad behavior. “It’s animportant system to have in place,”said Joanne Doroshow, executive


director of the Center for Justiceand Democracy, a nonprofit con-sumer advocacy group. “The FDAis certainly not doing its job. Thelegal system is a very importantbackup. It’s really the last line ofdefense to ensure that the market-place only has safe products.”

If Mr. Bush has his way, that line ofdefense will be substantially weak-ened. With the possibility of puni-tive damages eliminated, drugcompanies will be even less vigilantthan they are now about problemswith products that pose a serious -even fatal - threat to patients. TheDemocratic leader in the Senate,Harry Reid of Nevada, was blunton the matter. He said, “Congressshould not be giving a free pass tobig drug companies at a time whenmillions of Americans may havehad their health put at risk bypharmaceutical giants.”

The drug companies have anincredible racket going, as MarciaAngell, the former editor in chief ofThe New England Journal of Medi-cine, documents in her book “TheTruth About the Drug Companies.”“Now primarily a marketingmachine to sell drugs of dubiousbenefit,” she wrote, “this industryuses its wealth and power to co-optevery institution that might standin its way, including the U.S. Con-gress, the Food and Drug Adminis-tration, academic medical centers,and the medical profession itself.(Most of its marketing efforts arefocused on influencing doctors,since they must write the prescrip-tions.)” Among those co-opted is thePresident himself. Nothing’s toogood for the drug companies. Ifordinary Americans got the samesweet treatment from this adminis-tration as the great pharmaceuti-cal houses, we’d all be in a muchbetter place.

Source: The New York Times

PUBLIC CITIZEN PETITIONS FDA TO TAKECELEBREX AND BEXTRA OFF THE MARKET

Public Citizen has petitioned the U.S.Food and Drug Administration toimmediately remove Celebrex andBextra, from the market because thedrugs increase the risk of heart attacksin patients. The group also urged theFDA to cancel plans to approve twoother drugs in the same class. As youknow, Celebrex (known generically ascelecoxib) and Bextra (valdecoxib) areamong the class of drugs called COX-2inhibitors. As has been reported, notonly are their gastrointestinal benefitsinsignificant with these drugs, we nowknow they elevate the risk of heartattack. In 2004, more than 23.9 millionprescriptions were filled in the UnitedStates for Celebrex and 12.9 million forBextra.

Public Citizen stated in its petition: “Ifa drug offers no unique benefit com-pared to other drugs for treating thesame problem (in this case arthritis andpain) but subjects patients to a uniquerisk, it must be removed from themarket.” Public Citizen’s petition onCelebrex and Bextra, which can beviewed at www.worstpills.org, exam-ines the results of 14 randomizedcontrol trials involving the five COX-2inhibitors, as well as other publishedand unpublished scientific information.The other two COX-2 inhibitors arePrexige (lumiracoxib) and Arcoxia(etoricoxib), neither of which has beenapproved for sale by the FDA. The peti-tion says that clinical studies suggestthese drugs exhibit the same cardiovas-cular toxicity as Vioxx, Celebrex andBextra and should not be approved. Dr.Sidney Wolfe, director of PublicCitizen’s Health Research Group says:

The Food and Drug Administra-tion should immediately ban thesale of Celebrex and Bextra, whichput millions of people, many ofthem elderly, at risk of heart attack.These drugs are not only moreexpensive and more dangerousthan older, safer pain relievers,

they are no better at protecting thegastrointestinal tract.

Public Citizen renewed its call for aban on Celebrex and Bextra on January31st. More evidence has linkedpainkiller Celebrex to increased risk ofheart attacks and strokes, according tothe consumer group. A study testingCelebrex for use in Alzheimer’spatients found a “statistically significantdifference” in cardiovascular adverseevents between patients taking thedrug and those taking a placebo,according to results posted on thePharmaceutical Research and Manufac-turers of America Website. PublicCitizen says Celebrex raised the risk ofserious cardiovascular events to 3.6times that of a placebo. Celebrex andBextra are the only cox-2 inhibitorpainkillers left on the market. Accord-ing to Dr. Sidney Wolfe, director ofPublic Citizen’s Health ResearchGroup, the study on the website hadbeen revised to include the languageabout the statistical significance.

As we have reported, Public Citizenhas a long history of identifying unsafeor ineffective drugs. Vioxx, forexample, was the ninth prescriptiondrug to be taken off the market in thepast seven years that Public Citizen hadpreviously warned consumers not touse. For four of the drugs - Vioxx,Baycol, Rezulin and Serzone - PublicCitizen issued warnings more than twoyears before their removal from themarket. Public Citizen warned patientsnot to use Celebrex three and half yearsbefore the government announced thata study showed increased heart risks.Public Citizen’s Health Research Grouprecently launched a new website,www.worstpills.org, that provides con-sumers with comprehensive informa-tion about 538 drugs and warns themof 181 medications that should not beused because they are either unsafe orineffective. If Public Citizen is able tospot “bad” drugs, I have to wonderwhy the FDA can’t since the agency has access to the same information.


I suspect more and more people willbe asking that very question in thecoming weeks.


FDA WARNS PFIZER ABOUT CELEBREX ANDBEXTRA ADS

The Food and Drug Administrationwarned Pfizer Inc. that it left out riskinformation and made unsubstantiatedeffectiveness claims in advertisementsfor its painkillers Celebrex and Bextra.A message from the agency to RobertClark, Pfizer Vice-President of U.S. Reg-ulatory Affairs, was recently posted onthe agency’s website. The FDA hasasked Pfizer to “immediately cease thedissemination” of the promotionalmaterials which the FDA cited. Thecompany was to respond to the agencyon or before January 26th, describing itsintent to comply with the request. Themessage from the FDA stated:

The seriousness of the violationsconcerning your promotion ofCelebrex...would generally havewarranted a Warning Letter;however, in light of your recentagreement to a voluntary suspen-sion on all consumer promotionfor Celebrex, we do not feel that isappropriate at this time. Youshould be aware, however, of theserious nature of the violationsdescribed above and act to avoiddisseminating similarly misleadingpromotion for your products in thefuture.

In late December, a study showedthat high doses of Celebrex led tohigher rates of heart attacks. Pfizer thenpulled its advertising for the drug,which as we all now know falls intothe same class as Merck & Co.’s Vioxx.At press time, we did not know howMerck responded to the FDA’s request.

THE FDA FINALLY TAKES A STAND ON USEOF COXIBS

The U.S. Food and Drug Administra-tion has finally issued a formal publichealth advisory urging prescribingphysicians to weigh the potential bene-fits of coxib therapy on a patient-by-patient basis against the potential ofcoxibs to cause cardiovascular eventssuch as heart attack and stroke. Coxibsinclude the entire family of selectivecyclooxegenase (“cox”) 2 inhibitors,including Vioxx, Bextra, and Celebrex.Such selective cox 2 inhibitors havelong been associated with an increasedrisk of heart attack and stroke, but thewithdrawal of Vioxx, coupled with therelease of the studies showing thatCelebrex and Bextra also pose safetyrisks, have apparently spurred the FDAinto action.

The agency in its statement also sum-marized its patient selection recom-mendations for chronic therapy usingeither coxibs or nonselective nons-teroidal anti-inflammatory drugs(NSAIDs) following recent revelationsthat not only coxibs, but also NSAIDssuch as naproxen, may increase therisk of heart attack and stroke. Thepublic health advisory is said to be aninterim measure, pending furtherreview of data that continues to be col-lected. The agency issued the followingrecommendations:

• Physicians prescribing Celebrex orVioxx should consider the emergingcautionary data “when weighing thebenefits against risks for individualpatients.” The most appropriate can-didates for coxib therapy are patientsat a high risk of GI bleeding or whohave a history of intolerance to or“are not doing well” on nonselectiveNSAIDs;

• “Individual patient risk for cardiovas-cular events and other risks com-monly associated with NSAIDsshould be taken into account foreach prescribing situation;”

• Consumers should use all over-the-counter analgesics, “includingNSAIDs,” strictly according to thelabel instructions and consult aphysician if using them for longerthan 10 days.

The FDA further said that it wouldanalyze all available and forthcomingdata from studies involving coxibs andnonselective NSAIDs “to determinewhether additional regulatory action isneeded.” It will also tighten its reviewof all ongoing prevention studiesinvolving Bextra and Celebrex toensure that they proceed and that theirdata are reviewed with these agents’newly-identified potential risks inmind. An advisory committee meetingwas planned for this month, which Ihope will provide for a full discussionof these issues.

We can only hope that the advisorycommittee that meets this month willact more quickly than the FDA ingeneral in respect to this well-knownand massive public health problem.Indeed, for the FDA to say that theseproblems are only recently discoveredis an absolute falsehood. For example,the results of the massive clinical trialinvolving Vioxx called the VIGOR trialwere presented to FDA officials almostfive years ago. For the FDA to sit on itshands for five years, and then repre-sent to the public that it has beenproactive in addressing this threat ispatently offensive to those who under-stand the history of this epidemic. TheFDA should move swiftly to protect thecitizens of this country. It shouldrequire the formal withdrawal of allcoxibs from the market. The health of alarge segment of the American publicdepends upon it.

VIOXX MAY HAVE CAUSED 140,000 HEART ATTACKS

Merck & Co.’s Vioxx painkiller mayhave caused as many as 140,000 heartattacks in the U.S. before it was with-drawn September 30th, Food and Drug


Administration safety reviewer DavidGraham said in a study publishedonline by the British medical journalLancet. The study was based onrecords of 1.4 million members ofKaiser Permanente, the largest U.S.nonprofit insurer, with 6 millionmembers in California. Researcherscompared the incidence of heartattacks and sudden cardiac death forpatients taking Vioxx with those onPfizer Inc.’s similar Celebrex and over-the-counter pain medications.

The U.S. Senate’s finance and healthcommittees and the House Energy andCommerce Committee are investigatingwhether Merck and the FDA failed toprotect U.S. consumers from Vioxx.The study was originally to be pub-lished online in Lancet November 17th,but according to Dr. Graham, FDAmanagers at one point threatened tofire him as associate director forscience and medicine in the agency’sOffice of Drug Safety if he publishedthe findings. The study found thatVioxx, given at the standard dose,increases the risk of heart attack byabout 50%, compared with Pfizer’sCelebrex, and more than triples the riskof heart attacks when given at highdoses. The two drugs suppress thebody’s production of the Cox-2enzyme, which is linked to pain andswelling. People taking Vioxx had a34% higher chance of heart diseasecompared with those taking otherpainkillers including Celebrex,naproxen and ibuprofen, the studyfound. Patients taking naproxen, ageneric painkiller sold as Aleve byBayer AG, had a 14% increase in heartrisk compared with some otherpainkillers such as ibuprofen, the studyshowed. Almost 18% of the 106.7million prescriptions for Vioxx were forthe highest dose, the study in Lancetsaid. Merck says that about 20 millionpeople in the U.S. tried the drug sinceits 1999 introduction.

DUELING LETTERS ON VIOXX

It has become very clear that Merckhas no intention of giving up easily inthe fight over Vioxx. The company hada “cash cow” and doesn’t want to loseit. Without a doubt, Vioxx shouldn’thave ever been on the market. I havefound that many doctors are greatlyconcerned over what the withdrawal ofVioxx means for drug safety. Interest-ingly, the letters pages of the NewEngland Journal of Medicine haveturned into a real battleground featur-ing “dueling letters.” A letter fromMerck appeared in the December 30th

issue defending the company againstcharges from Dr. Eric Topol, the Cleve-land Clinic’s top cardiologist, who asyou know has said repeatedly that thecompany should have known farearlier that Vioxx increased the risk ofheart attack. Dr. Topol wrote aresponse to the Merck letter, in whichhe publishes a new analysis of four-year-old data that he says show a “sig-nificant” increase in heart attack andstroke in patients taking Vioxx after aslittle as six weeks. This was alsoincluded in the Journal. The data werepreviously available only in briefingdocuments prepared by staff at theFood and Drug Administration (FDA).

It appears that this fight is more thanjust academic. The letter from Merckwas one of the few times that Merck’sscientists have publicly defended theirapproach to the drug since thecompany pulled it off the market. Dr.Topol’s analysis seems to show thateven if Merck wasn’t aware of the pos-sible risks to the heart posed by Vioxx,it should have been. In the Merckletter, written by Peter Kim, Merck’sresearch chief, and Alise Reicin, whoheaded up much of the developmentof Vioxx, the company’s handling ofthe matter was defended. They ineffect call Dr. Topol a liar. Their letterstated: “Merck has been proactive andconscientious in evaluating the cardio-vascular profile of rofecoxib (Vioxx).Dr. Topol’s remarks to the contrary in

his Perspective article (October 21st

issue) are false.” Merck claims thatbefore 2000, there was little clinical evi-dence of a heart risk for Vioxx.

In his response, Dr. Topol looks atdata from a previous study that com-pared 390 patients taking Vioxx to 588patients taking a placebo. The study,called 090, showed that five, or 1.3%,of patients taking Vioxx had heartattacks or strokes, compared to one, or0.2%, in the placebo group. Althoughthose numbers are small, they werestatistically significant, according to Dr.Topol. The data on which he based hisanalysis have previously been buried inFDA briefing documents. I suspect wehave just seen the beginning of Merck’sefforts to defend Vioxx. The profitabil-ity of the drug was such that I don’tbelieve we will see a prompt resolutionof this issue.

MERCK DISMISSED EARLIER VIOXX WARNINGS

It has been revealed that Merck &Co. forced one of its researchers toremove her name from a study linkingVioxx to heart attacks. The companythen criticized the findings before ulti-mately pulling the arthritis drug fromthe market last fall. Drs. DanielSolomon and Jerry Avorn of Boston’sBrigham and Women’s Hospital wrotefor the Archives of Internal Medicine inJanuary, saying: “Even after fundingand agreeing with the design of thestudy, Merck publicly discredited ourfindings.” Merck spokeswoman AnitaLarsen actually confirmed thecompany’s action, but said Merckbelieved the study’s conclusions “werenot supported by the data.” The inci-dent came about six months beforeanother study forced the drug maker towithdraw Vioxx.

The journal contains several studiesabout Vioxx and Celebrex, which areunder congressional and regulatoryscrutiny. A separate study suggeststhese drugs have been over-prescribed,frequently to patients at low risk for GI


problems. Other research supports evi-dence that Vioxx increases somepatients’ blood pressure. The Archivesreports come just weeks before a FDAmeeting on the safety of all Cox-2drugs was to be held this month.

CALL TO STOP PRESCRIBING ARTHRITIS DRUG

Doctors in Great Britain have beenurged to stop prescribing the new gen-eration of arthritis drug known as cox-2inhibitors taken by more than a millionBritish patients after a review of itssafety and effectiveness. The Drug andTherapeutics Bulletin (DTB), an influ-ential doctors’ and pharmacists’ publi-cation, made the recommendation aftera review of the coxibs. The DTD con-cluded there were “few, if any, situa-tions” in which coxibs should beprescribed instead of traditionalpainkillers such as aspirin. WhileVioxx, the leading seller, was pulledfrom the market, Pfizer has chosen tokeep Celebrex on the market. The con-cerns about coxibs have sent shockwaves through the global pharmaceuti-cal industry and have waked up con-sumers. In Great Britain, it is estimatedthat more than a million patients withosteo and rheumatoid arthritis are pre-scribed coxibs.

After the withdrawal of Vioxx, threeof the drugs remain available in Britain,including Celebrex. A fourth drug hasbeen licensed, but has yet to belaunched in the UK. Regulatory bodiesin both the United States and Europewill review their licensing policies oncoxibs over the next two months. Ana-lysts have been considering the possi-bility of the whole class of this drugbeing banned by the regulators, anunprecedented move. Confidence incoxibs has to be rocked even furtherby the DTB’s recommendation. It willbe interesting to see how far the regu-lators in the UK will go. Hopefully,they will ban all coxibs.

FDA STOPS CRESTOR ADS

Since its approval in August of 2003,Crestor has been linked to cases of life-threatening muscle damage and renalfailure. According to Public Citizen, inthe first year of approval, Crestor waslinked to 29 cases of kidney failure orinsufficiency, which is 75 times the rateof kidney failure or insufficiency for allother similar drugs combined. Thelatest injury reported is the death of apatient who developed rhabdomyolysisin the latter part of 2004. You will recallthat at a Senate hearing last November,Dr. David Graham, the now well-known safety official at the FDA, statedthat Crestor was one of five currentlymarketed drugs whose safety needed“to be seriously looked at.” Dr. SandraKweder, the Deputy Director of theFDA’s Office of New Drugs, told thesame panel that the FDA is in theprocess of evaluating Crestor’s risksvery, very closely. The WashingtonPost quoted Dr. Steven Galson, theActing Director of the Center for DrugEvaluation and Research, as saying theFDA “has been very concerned aboutCrestor since the day it was approved,and we’ve been watching it very care-fully.”

After the sales of Crestor began todrop, AstraZeneca placed full-page adsin newspapers across the countryclaiming that Crestor “lowers bad cho-lesterol better than the leading medica-tions in the class.” The ads went on tosay that the “FDA has confidence in thesafety and efficacy of Crestor” and thatthe agency publicly confirmed thesafety and efficacy of Crestor. In a letterfrom the FDA, Christine Helmer Smithof the Division of Drug Marketing,Advertising and Communications,stated: “This claim is misleadingbecause it minimizes the risks associ-ated with the 40mg dose of Crestor.”The letter went on to state that the FDAwas “not aware of substantial evidenceor substantial clinical experiencedemonstrating that all doses of Crestorare ‘just as safe’ as other” cholesterol-

lowering drugs.” According to the FDA,the advertisements are “false and mis-leading” and AstraZeneca should“immediately cease the disseminationof violative promotional materials forCrestor.”

AstraZeneca has strongly defendedthe image of Crestor. Emily Denney, acompany spokesperson, was quoted inthe New York Times as having said: “Webelieve that our communications havebeen consistent with what has beencommunicated to us and with whatclinical trials tell us and post-marketingdata tell us.” But, Dr. Sidney Wolfe ofPublic Citizen said the ads are “misrep-resenting the FDA’s position, making itappear that even the FDA cleared thedrug; that’s a lie.” Public Citizen haspetitioned to have the drug banned. Iagree with Public Citizen and believethat Crestor should be withdrawn fromthe market immediately to ensure thesafety of American consumers.

NEW CRESTOR DEATH REPORTED

In the meanwhile, AstraZeneca, themanufactor of Crestor, has reportedthat a patient taking the cholesterol-lowering drug died in December of lastyear. Initial reports suggested thepatient died of the muscle-damagingdisease linked to Crestor and all otherstatins. As widely reported, the samedisease, rhabdomyolysis, resulted inBaycol being taken off the market. Forour new readers, I will point out thatrhabdomyolysis is a condition in whichmuscle cells break down. This floodsthe blood with muscle proteins, whichsometimes leads to fatal kidney failure.Some experts now believe Crestor maybe more dangerous than the rest of thestatin family. As stated above, PublicCitizen has petitioned the FDA to banCrestor. You will recall that Crestor isone of five FDA-approved drugsnamed in congressional testimony byDr. David Graham as being unsafe.Public Citizen’s Sidney Wolfe, MD,believes that Crestor is linked, not just


to rhabdomyolysis, but to direct kidneydamage. He says:

This drug causes primary renalfailure. It is the only statin thatdoes so. Most of the cases are verylow dosage. No other statin doesthis — it is uniquely dangerous. Itis competing with Baycol in termsof a large number of cases of rhab-domyolysis shortly after the drugwent on the market.

LAWSUIT INVOLVES CHILDREN’S MOTRIN

The parents of a seven year-old girlsued the makers of Children’s Motrinand several companies that distributethe painkiller, claiming their daughterlost her eyesight and suffered othersevere side effects from the medication.Motrin is manufactured by New Jersey-based healthcare company McNeilConsumer & Specialty Pharmaceutical,a subsidiary of Johnson & Johnson. In the lawsuit, the parents allege that Motrin caused their daughter to develop two disorders—StevensJohnson Syndrome and Toxic Epider-mal Necrolysis. The injured child tookChildren’s Motrin drops on September8, 2003 after she came home fromschool with a fever. The child had noknown drug allergies, according to thelawsuit filed in the Los Angeles CountySuperior Court. The next morning, shewoke up with a high fever and othersymptoms, including a pink colorationin her eyes and sores in her mouth.She was hospitalized and shortly there-after, she was blind in both eyes. Herdoctors concluded that the StevensJohnson Syndrome was caused by theChildren’s Motrin. Since that time thechild has undergone multiple eye sur-geries.

The lawsuit alleges the companyknew of the connection betweenMotrin and Stevens Johnson Syndromefrom their own clinical tests datingback to the late 1980s and includedwarnings of the risk of this disorderwith the drug before it became avail-

able without a prescription. Thecurrent label does not warn consumersabout the risk of Stevens Johnson Syn-drome. The conditions associated withStevens Johnson Syndrome are charac-terized by painful blistering of the skin.In many cases, these disorders are pre-ceded with flu-like symptoms and ahigh fever. The disorders can becomeso severe that, as it evolves, the skin lit-erally sloughs off similar to a burnvictim’s skin. Many severe cases caninclude damage to a person’s eyes,including severe conjunctivitis, iritis,palpebral edema, conjunctival andcorneal blisters and erosions, cornealperforation, and blindness.

The defendants are charged withnegligence, breach of warranty andconcealing from consumers anddoctors potential health risks of takingthe flu and pain medication. Specifi-cally, the risk of developing two disor-ders—Stevens Johnson Syndrome andToxic Epidermal Necrolysis, which aretypically caused by an adverse reactionto a drug or virus—are the main healthrisks involved. A similar lawsuit wasfiled against Johnson & Johnson’s Chil-dren’s Motrin in March of 2003. In thatfederal lawsuit filed in San Jose, Cali-fornia, the parents of a nine year-oldgirl alleged that the medication lefttheir daughter unable to see, speak oreat. She also was diagnosed withStevens Johnson Syndrome. Theyaccused Johnson & Johnson andMcNeil of failing to adequately test thedrug for over-the-counter use and toproperly warn the public.

DOCUMENTS SAID TO SHOW PROZAC RISKS

The British Medical Journal has sentdocuments to The U.S. Food and DrugAdministration that appear to suggest alink between the antidepressant drugProzac and suicidal behavior. Thejournal said an anonymous source hadprovided “missing documents” relatingto clinical trials of the drug, made byEli Lilly & Company. The documents,

which apparently had been “lost”during a product liability suit in 1994.Interestingly, the “lost documents”included reviews and memos thatappeared to show Eli Lilly officialswere aware in the 1980s that the drug,whose generic name is fluoxetine, had“troubling side effects.” In an articleappearing in its January 1st issue,posted on its website at www.bmj.com,the journal said it had sent the papersto the FDA. It quoted Dr. Richard Kapitof the FDA, a clinical reviewer whoapproved fluoxetine, as saying that hehad not been given the data high-lighted in the documents, and that theywere “very important.” The journal saidLilly officials declined to be inter-viewed, but issued a statement sayingthe safety and usefulness of Prozacwere well established.

Source: Reuters News

LUPRON SETTLEMENT NOTIFICATION BEGINS

Consumers, insurers and healthbenefit plans will share $150 million ascompensation in a settlement withseveral drug companies. Lawsuits alleg-ing drug companies fraudulently pro-moted the prescription medicationLupron were pending in a U.S. DistrictCourt in Boston. A court-orderedprogram to notify parties eligible forcompensation under a proposed settle-ment was announced last month. Thesettlement will cover parties who paidfor Lupron from January 1, 1985through March 31st of this year. Theclass includes consumers who paid forany portion of the drug’s cost, as well asinsurers, employee welfare benefit plansand governmental employer plans.

The proposed $150 million paymentwould settle litigation against TAPPharmaceutical Products Inc., AbbottLaboratories Inc., and Takeda Pharma-ceutical Co. Ltd. TAP is a 50-50 venturebetween Abbot Laboratories, of AbbottPark, Illinois, and Japan-based Takeda.Lawsuits alleged fraud involving themarketing, sale and distribution of


Lupron that caused consumers andother parties to overpay. Lupron is aninjectible drug used to treat prostatecancer in men, endometriosis anduterine fibroids in women, and preco-cious puberty in children. Noticesinforming class members of their rightswill be mailed and appear in newspa-per and magazine advertisementsleading up to a scheduled hearing toapprove the settlement on April 13th.Members can accept for a payment orask to be excluded from the settlement.They also have the right to object tothe settlement before it is approved bythe court. The deadline to file claims isMay 15, 2005. A toll-free number, 1-866-410-7650, has been established in the case as well as a website,www.lupronclaims.com.

PLAINTIFFS WIN IN WYETH TRIAL

A jury in Pennsylvania has ruled infavor of three women who claimedWyeth’s Pondimin diet drug damagedtheir heart valves. The Philadelphia jurydetermined that Wyeth is liable for the$2.5 million in compensatory damagespreviously determined in the first phaseof the trial. The verdicts for the threewomen that came at the end of thesecond phase of the trial were $750,000,$500,000, and $1.25 million, respec-tively. Pondimin, the fenfluramine halfof diet drug combo fen-phen, waspulled from the market in 1997 amidevidence it caused heart-valve damage.Wyeth had paid out about $500 millionin diet-drug litigation through the firstnine months of 2004. The company setaside $16.6 billion in legal reserves forsettlements and about $3 billion of thatremains. At last count about 65,000 law-suits had been filed against Wyeth overthe diet pill.

WYETH TO SUPPORT REVISION TOSETTLEMENT

Wyeth will support a revision to thesettlement that compensates thousands

who suffered heart valve damage aftertaking the fen-phen diet drug combina-tion. The company had an option toreject the change, but didn’t exercise it.According to the company, nearly all ofthe users in the case chose to partici-pate in a new fund. This revision willprovide an additional $1.275 billion forpayout. Lawrence V. Stein, Wyethsenior vice-president and generalcounsel, stated:

The proposed amendment ensuresthat the large majority of classmembers who have less seriousclaims will receive compensationon a streamlined basis. And it pre-serves funds in the existing Trustfor the more serious claims. It alsowould help resolve much of theuncertainty that has surroundedthe diet drug settlement—for bothclass members and for Wyeth.

A January 18th hearing was heldbefore U.S. District Judge Harvey BartleIII in Philadelphia, Pennsylvania. Therevision will apply to about 40,000people who suffered non-life-threaten-ing valve damage from taking the drugcombination. Some 5.8 million Ameri-cans used the compound. So manypeople had filed claims that the origi-nal $3.75 billion settlement fund,formed in 1999, would be exhaustedbefore all were compensated. Wyeth,formerly known as American HomeProducts, made Pondimin, the fenflu-ramine half of fen-phen, and a chemi-cal cousin, Redux. Pondimin andRedux were pulled from the market inSeptember 1997 after reports surfacedthat some users had heart valvedamage and a few had a deadly lungcondition. Fen-phen was never anFDA-approved combination. Actually,the phentermine half is still being sold.Of the nearly $17 billion that Wyethhas set aside for fen-phen payouts andlegal costs, some $3 billion remains.

BAYER SETTLES MORE THAN 2,900 LAWSUITS

German drug maker Bayer AGannounced on January 26th that it hasnow settled more than 2,900 suitsrelated to Baycol, its cholesterol-lower-ing drug. The company paid more than$1.1 billion in out-of-court settlements.Bayer pulled Lipobay, marketed asBaycol in the United States, in 2001after it was linked to a rare muscle-wasting syndrome and about 100patient deaths. Bayer has now settled2,933 cases and agreed to pay a total of$1.113 billion. According to thecompany, some 6,359 cases are stillpending. In November, the companyreported that it had reached settle-ments in 2,895 cases and paid about$1.1 billion in out-of-court settlements.

PHARMACEUTICAL INDUSTRY SAYS IT WILLOFFER TRANSPARENCY

The American people are learninghow the pharmaceutical industry hasnot only overcharged them for pre-scription drugs, but has also put dan-gerous drugs on the market so theindustry has finally made a commit-ment of sorts to publish more dataabout clinical drug trials. The Interna-tional Federation of PharmaceuticalManufacturers and Associations, theprescription drug industry’s main tradegroup, along with three other industryassociations covering Europe, theUnited States and Japan, will publish adetailed registry of current and com-pleted drug trials on the Internet.Apparently, the results of trials thathave taken place—whether positive ornegative—as well as information onthose that are just starting will be madepublic. Interestingly, the registry will bevoluntary. It was reported that anagreement of the major drug compa-nies—several of which have dealt withmajor questions in recent monthsabout the safety of their products—wasexpected to take place. The registrywill be made public on July 1st, imme-diately including any trials initiated on


or after that date. Ongoing trials wouldbe included in the registry by Septem-ber 13th. Hopefully, this move towardtransparency is not just a part of thecompanies’ efforts to defend their pastactions. If this is legitimate—and notjust a public relations ploy—the publicwill be much better off down the road.

I suspect all of the negative publicity,and the fact that drug companies havecome under fire in recent months forallegedly withholding unfavorableresearch findings, is responsible for thetransparency announcement. TheAmerican Medical Association, as wellas some members of Congress, havecalled for mandatory reporting of allclinical-trial results and that has to havegotten the attention of the drug indus-try. Under current law, drug companiesare required to post information atwww.clinicaltrials.gov only about trialsof drugs for serious or life-threateningdiseases or conditions. Billy Tauzin, theformer Louisiana congressman, whowas “very friendly” to the drug compa-nies while in Congress, and now servesas CEO of the Pharmaceutical Researchand Manufacturers of America(PhRMA), made the announcement,which was received by many with a“wait-and-see” attitude.

At least two congressmen have saidPhRMA’s voluntary plan is inadequate.Legislation to mandate making all clini-cal trials public will be introduced byRep. Edward Markey (D-Mass.), whowrote legislation last year to establish aclinical-trials registry for drugs andmedical devices. The drug companieshide the negative drug trials and knowthe public has no way—other than inlawsuits—to find out about them. Toallow the companies to pick andchoose what they report makes nosense and can’t be justified. The drugindustry should support federal legisla-tion that would mandate and imple-ment disclosure of all clinical research.Only pressure from the public,however, will make that happen. InOctober, PhRMA launched www.clini-calstudyresults.org, a website that lists

information about clinical trials com-pleted since October 1, 2002, for drugsthat are on the market. The www.clini-caltrials.gov website lists ongoing trialsfor drugs that are not necessarily onthe market yet.

X.BUSINESSLITIGATION

VERDICT AGAINST INTERNATIONAL PAPERCOMPANY

A Birmingham jury returned a verdictrecently against International PaperCompany for $8.9 million. The verdictfollowed three weeks of testimony.Former University of Alabama footballplayer Major Ogilvie and three of hisassociated had started Madison-OslinInc. in 1992. The company gave Inter-national Paper exclusive rights to amanufacturing process it had devel-oped in 2002. The jury found that thecontract between the parties had beenbreached but did not find that Interna-tional Paper had committed fraud. Thiscame as a surprise to many personswho had followed the trial. The agree-ment required about $400,000 ofmonthly income for Ogilvie’s company.International Company had sent about1% of the business it had promisedunder the agreement. Madison-Oslinehad been forced to close its business. Itsubsequently filed the lawsuit in March2003.

DOCTOR GROUP CAN’T SUE HEALTHINSURERS

The Connecticut Supreme Court hassaid that the Connecticut State MedicalSociety can’t sue health insurers. Thecourt affirmed a trial court’s dismissalof lawsuits filed against Oxford HealthPlans Inc. and ConnectiCare Inc. alleg-ing that the health plans unfairlydenied and delayed payments todoctors. The lawsuits, which were filed

by the 7,000-member medical group,alleged that the health plans violatedthe state’s unfair trade practices law bydenying, reducing, and delaying claimspayments to doctors. But the SupremeCourt ruled that the medical society didnot have proper standing to bring thesuits because “the harm allegedly suf-fered was derivative, indirect and tooremote to be actionable.” The societyhad sued a total of seven insurers, allalleging unfair trade practices. You mayrecall that a lawsuit against Aetna Inc.was settled in 2003, and one againstCIGNA Corp. was settled in early 2004.The suits against Oxford and Connecti-Care were originally dismissed in 2001.Litigation is still pending against Unit-edHealth Group, Anthem Health PlansInc., and Health Net Inc.

GOODYEAR SETTLES A PENDING CASE FOR$159 MILLION

When you read the above title, Isuspect you thought the Goodyear Tire& Rubber Company had paid out somemoney to plaintiffs in lawsuits.However, the company had actuallyfiled suit and will receive approxi-mately $159 million from certain insur-ance companies in settlement of thecase. The tiremaker will receive the set-tlement amount in installments overthe next 15 months. While the specificterms of the December 28, 2004 settle-ment are confidential, it provides forthe payments to Goodyear in exchangefor the company’s releasing the insur-ers from certain past, present andfuture environmental claims. Goodyearfiled a Current Report on Form 8-Kwith the U.S. Securities and ExchangeCommission regarding this settlement.The lawsuit, filed by Goodyear in 1993,sought to have the insurers honor theirpolicies to pay the company’s liabilityand defense costs in regard to certainenvironmental claims. This appears tobe a good result for the tire company.It is good to know that CorporateAmerica is still using the courts on a


regular basis. However, they sing a dif-ferent tune when it comes to lawsuitsfiled by consumers.

The insurance companies had failedto pay costs for environmentalcleanups dating back decades. Theinsurance companies, sued byGoodyear in 1993, were not named inthe filing. Goodyear maintained formore than a decade that policies it hadwith several insurers should cover thecost of government-ordered cleanupsat facilities it operated. A 2002 rulingby Ohio’s Supreme Court in favor ofGoodyear named Aetna Casualty andSurety Company as one companyinvolved in the lawsuit.

BANK OF AMERICA TO PAY $284 MILLION

A judge has ruled that Bank ofAmerica Corp., the third-largest U.S.bank, will have to pay $284 million tocustomers who were charged overdraftfees on accounts containing customerSocial Security deposits. Bank ofAmerica intends to appeal the decision,which was confirmation of a tentativeDecember 8th court ruling. In additionto the $284 million, the decision callson the bank to give each affected cus-tomer $1,000. As many as 1.3 millioncustomers may qualify. If all of themtake part, it would eventually increasethe award to $1.6 billion. The judge’sdecision confirms a jury’s verdict thatthe bank’s conduct was wrongful andprovides for an ultimate remedy for allvictims.

The lawsuit arose from complaintsby a man who said the bank tookbounced check fees from an account inwhich his Social Security benefits wereautomatically deposited. The banknotifies customers in writing that suchfees can be automatically deductedfrom their accounts. The court ruledthat customers were never told the feescould be applied to their Social Secu-rity money. Bank of America collectsbetween $3 million and $4 million eachmonth in bounced check fees from the

accounts of California customers whohave their monthly Social Security ben-efits electronically deposited. Bank ofAmerica is trying to have the class of1.3 million customers decertified.

MCKESSON SETTLES CLASS ACTIONLAWSUITS

McKesson Corp. has agreed to pay$960 million to end pending litigationthat was pending in federal court. Thisis one of the largest securities classaction settlements ever. Institutionalinvestors, with The New York StateCommon Retirement Fund as the leadplaintiff, filed the federal suits in 1999after McKesson merged with HBO &Co. Following the merger, McKessonrevealed accounting irregularities thattriggered a $9 billion drop in the valueof the health care giant’s stock in asingle day. A U.S. District Judge willhave to approve the settlement agree-ment. However, the settlement doesn’tmean McKesson is completely off thehook for what remains one of thelargest stock market meltdowns inhistory.

The company still faces individualsuits in California state courts as well ascases in other states. McKesson has setaside $240 million to resolve the otherlitigation. The state court plaintiffs hadto wait to go to trial until the classaction was resolved. McKesson hadbeen negotiating with the federal plain-tiffs for about five years before reach-ing the settlement. The settlementfollowed another battle in federal courtover an internal report McKessonordered after the allegations of corpo-rate wrongdoing surfaced. The reportwas turned over to federal prosecutorsin a successful bid for leniency.Although the government chargedseveral executives with conspiracy andsecurities fraud, the company neverfaced criminal charges. That is some-what surprising and has caused someto wonder why no criminal chargeswere brought.

HIGH COURT DECLINES TO HEAR WORLDCOMLAWSUIT

The U.S. Supreme Court has let standa lower ruling that said the CaliforniaPublic Employees’ Retirement Systemmust proceed with its securities fraudlawsuit on behalf of WorldCom bond-holders in federal, rather than state,court. At issue were two federalstatutes, which disagreed on whichcourt should hear the litigation after thetelecom giant announced majoraccounting problems in 2002. The U.S.Court of Appeals for the Second Circuitruled that the lawsuit belongs infederal court to the extent it is “relatedto” a bankruptcy case. As a result, theCalPERS suit was consolidated withseparate class action filings in federalcourt in New York against WorldCom,its officers, bond underwriters, direc-tors, accountants, and research analystsby investors who lost billions whenWorldCom went under in a multibil-lion-dollar accounting scandal.

The Supreme Court’s move is adefeat for CalPERS, although thepension fund may still seek to arguethat its claims aren’t related to bank-ruptcy. CalPERS wants to pursue bond-holder-loss claims in state courts. Itshould be noted that 10 former World-Com board members have agreed topay $54 million—$18 million out oftheir own pocket—to settle theirportion of a lawsuit brought over thecompany’s collapse. WorldCom is nowknown as MCI.

HMOS FACING CLASS ACTION

Six health-maintenance organizationsnow face a class action lawsuit broughtby more than 600,000 doctors whoclaim the companies systematicallyunderpaid them for medical services.An appeal by the HMOs was rejectedby the U.S. Supreme Court recently. Inthe HMO case, UnitedHealth GroupInc., of Minnetonka, Minnesota,Humana Inc., of Louisville, Kentucky,and four other companies had chal-


lenged the legality of the class ofdoctors certified by a federal court tosue them. The doctors claim the HMOsused automated claims-processingsystems to deny them payments formedical services provided to patients. Arelated case reached the High Court lastyear in which the justices rejected aneffort by some of the involved compa-nies to force the lawsuit into arbitration.

The High Court’s refusal to hear thecase clears the lawsuit for a trial infederal court in Miami. The doctorsfiled their lawsuit under civil provisionsof the Racketeer Influence and CorruptOrganizations Act. The HMOs askedthe U.S. Supreme Court to look atwhether a federal trial judge properlyweighed evidence when decidingwhether the case deserved class actionstatus. The HMOs, in a legal brief, saidthe standard being used by somefederal court circuits creates a “gravepotential for the filing of weak or frivo-lous claims” as class actions. Lawyersfor the doctors urged the justices toreject the appeal and allow litigation tocontinue in the case, arguing the classaction lawsuit was allowed “based on adetermination that the cases involvedcommon questions of fact.”

A federal trial judge first approvedthe doctors’ lawsuit in 2002. Onappeal, the U.S. Court of Appeals forthe Eleventh Circuit, based in Atlanta,affirmed that decision in September.Other companies involved in the caseare Health Net Inc., of Woodland Hills,California; PacifiCare Health SystemsInc., of Cypress, California; PrudentialInsurance Co., a unit of PrudentialFinancial Inc., of Newark, New Jersey;and WellPoint Health Networks Inc., aunit of WellPoint Inc. of Indianapolis.The medical community all over theU.S. in watching this case closely.People everywhere who have an inter-est in good healthcare should bepulling for the doctors.

PRICEWATERHOUSECOOPERS PAYSSETTLEMENT OF $87.5 MILLION

PricewaterhouseCoopers has paid$87.5 million to settle a negligent mis-representation claim involving morethan $1 billion in loan losses. The set-tlement with an international syndicateof 90 lenders was confidential, butdetails were revealed in a recent FultonCounty State Court filing. The bankssued the Big Four firm in 2000, allegingthe accounting giant did not fulfill itsresponsibility as an auditor, and as aresult, the banks lost millions of dollarson bad loans. The case settled on theeve of trial last October. The syndicateof lenders, led by Toronto DominionBank, provided $2.1 billion to Colum-bia, South Carolina-based Laidlaw Envi-ronmental Services to fund the takeoverof another environmental services firm,Elgin, Illinois-based Safety-Kleen Corp.,and to refinance $650 million in seniorsecured debt from an earlier acquisi-tion. Subsequently, the banks advancedthe newly formed company another$280 million. The banks alleged that theloans—used in part to help finance thehostile takeover of Safety-Kleen in1998—wouldn’t have been made ifPricewaterhouseCoopers had not pro-vided audit reports indicating the targetcompany was financially healthy. Thebusiness later filed for bankruptcy protection.

WAL-MART SETTLES CALIFORNIA GUN SALEVIOLATIONS

Wal-Mart Stores, Inc. has agreed topay $14.5 million in fines and othercosts to settle a lawsuit involving thou-sands of gun sales violations at Califor-nia stores between 2000 and 2003. Thenation’s largest retailer had beenaccused of a host of gun law violations.The settlement, the largest of its kindsince California Attorney General BillLockyer’s office established a firearmsdivision in 1999, requires Wal-Mart topay $5 million in fines. Wal-Mart,which agreed last year to halt gun sales

across California, will have to reformits practices should it ever resumefirearm sales in the state. Wal-Mart hadbeen the largest gun seller in Califor-nia. Attorney General Lockyer says thecompany put the lives of all Californi-ans at risk by placing guns in thehands of criminals.

Wal-Mart also will pay at least $6.5million on company and state efforts toensure the retail giant is complyingwith gun laws. Wal-Mart agreed inApril 2003 to suspend gun sales at itsmore than 110 California stores thatsold guns after the state documentedhundreds of violations at six of thestores. A subsequent investigation bythe California Department of Justicefound 2,891 more violations between2000 and 2003. The stores apparentlysold guns to 23 people who were notallowed to possess them and delivered36 more to customers who boughtthem for people not allowed to ownguns. Other offenses included gunsales without background checks andfailing to identify buyers throughthumbprints and drivers license scans.At least three dozen people made“straw purchases,” or bought guns onbehalf of people barred from owningthem, resulting in the filing of chargesagainst 20 people.

California firearms agents beganinspecting gun sales at Wal-Mart in1999, uncovering numerous allegedviolations of state gun laws. The stateset up a special training program forWal-Mart employees to help themcomply with state laws. Under terms ofthe settlement, the company will reim-burse the state for $2 million in inves-tigative and monitoring costs. Thesettlement doesn’t prevent Wal-Martfrom selling guns in California. But, theretailer had not decided whether it willresume gun sales there at press time.Currently, Wal-Mart sells guns in everystate but California, Hawaii, and NewJersey.

Source: USA Today


XI.INSURANCE ANDFINANCE UPDATE

MARSH REACHES $850 MILLION SETTLEMENT

Marsh & McLennan Companies, Inc.(MMC) has confirmed an agreementwith the New York Attorney Generaland the Superintendent of the NewYork State Insurance Department thatsettles the actions that were com-menced against MMC and Marsh Inc.over questionable brokerage compen-sation and account placement prac-tices. As a result of this agreement, thecompany will enact reforms to lead theindustry in transparency and service toclients and establish an $850 millionfund to compensate clients. Under thesettlement agreement, MMC will estab-lish an $850 million fund to compen-sate clients nationwide. Interestingly,no portion of this fund represents afine or penalty.

The fund will compensate U.S. poli-cyholder clients who retained Marsh toplace insurance with inception datesbetween January 1, 2001 and Decem-ber 31, 2004, where such placementsresulted in contingent commissions oroverrides recorded by Marsh betweenJanuary 1, 2001 and December 31,2004. These clients will be eligible toreceive a pro rata portion of the fundbased on the premium and the amountof estimated Market Service Agreementrevenue recorded by Marsh betweenJanuary 1, 2001 and December 31,2004. They won’t have to prove fault,harm, or wrongdoing in order toreceive a payment. MMC will pay thetotal amount of the fund in four annualinstallments beginning on June 1, 2005and ending in 2008. As part of theagreement, the company has estab-lished the following reforms in its U.S.brokerage business:

• MMC has discontinued the practiceof receiving contingent compensa-tion from insurance carriers. The

company adopted this new policyeffective October 1, 2004.

• The company will provide clientswith a comprehensive disclosure ofall forms of compensation receivedfrom insurers.

• The company will adopt and imple-ment company-wide, written stan-dards of conduct for the placementof insurance.

• The company will provide all quotesand terms as received from insurancecompanies to enable clients to makeinformed insurance coverage deci-sions.

• MMC will establish a ComplianceCommittee of the MMC Board ofDirectors and has appointed a chiefcompliance officer.

In addition, since the filing of theAttorney General’s complaint inOctober 2004, MMC has restructured itsboard of directors so that the boardnow consists of ten outside directors,in addition to its newly appointed pres-ident and CEO, who serves as thesingle management director.

Source: The Insurance Journal

CONSUMER GROUP HITS PAYMENT OFCONTINGENT COMMISSIONS IN PERSONALINSURANCE

The Consumer Federation ofAmerica, a national consumer organiza-tion, claims that contingent fee arrange-ments “similar” to those beinginvestigated by the New York AttorneyGeneral in commercial insurance bro-kerage are “quite common” in the saleof personal lines insurance to individ-ual consumers. The new report con-cludes that commissions given forsteering business to particular insurerscould lead to higher rates for manyconsumers and that profit-related com-missions “are of even greater concernas they may entice agents or brokers todelay or discourage legitimate claims.”The CFA report, issued by J. Robert

Hunter, CFA’s director of insurance,maintains that contingent commissionstied to placements and profits are mostlikely found between independentagents and their companies. It says thatcaptive and direct writing insurers donot pay them.

For 2003, total commissions paid toagents and brokers ranged from 0 to30%, according to the report. Overallcommission income for agents was90% regular commissions and 10% con-tingent commissions. The report statesthat the five companies among the top-selling insurers that paid the highestcontingent commissions are:

• Federal Insurance 2.31% of premium;

• Travelers C&S 2.18% of premium;

• Zurich American 1.94% of premium;

• Allstate 1.74% of premium; and

• Hartford Fire 1.67% of premium.

The study looked beyond the top 20insurers in personal lines and foundthat among the insurers paying contin-gent commissions in personal lines areAllstate, Auto-Owners, GEICO, Califor-nia State Auto, Chubb, Hartford,Nationwide, Ohio Casualty, Safeco andTravelers. The authors of the reportrecognize the large role played byindependent agents in the sale of auto-mobile and homeowners insurance,but are concerned that the use of suchcontingency payments results in higherprices for consumers. The report states:

The complexity of the insurancemarketplace and the reliance ofmany consumers on agents orbrokers as a result leaves millionsvulnerable to sharp sales tacticsand hidden commission arrange-ments that may entice agents toselect the wrong insurers for con-sumers. Many high-priced policiesare sold, even when cheaper alter-natives are available.

The report also states: “Many con-sumers have been misled into thinking


that independent agents represent theirinterests and not those of the insurancecompany. Insurers and agents aggres-sively promote this inaccurate percep-tion in their advertising, often notmaking it clear that the agent actuallyrepresent the insurer.” The report givestwo scenarios to show how consumersmay be harmed.

• Regarding contingencies paid toreward placement or so-called steer-ing, the report says insurers defendthis type of payment because it“encourages agents to make sure thatconsumers take steps to reduce theirrisks of filing a claim.” But, the reportsays, that is not how these commis-sions work in personal lines. “Offer-ing additional compensation toagents who conduct safety assess-ments of clients’ homes or driversafety courses would be a properway to encourage upfront loss miti-gation. However, by offering addi-tional compensation for lower losseswithout any evidence of mitigationeffort, insurers are encouragingimproper forms of loss mitigation,such as dishonest claims proceduresdesigned to delay or eliminatecertain legitimate losses.”

• Regarding profit-based contingen-cies, the CFA report claims thatagents can maximize profit byplacing a consumer with a higherpriced insurer with a higher pricedcommission and that some insurerscompete for this business by offeringbrokers higher commissions, withhigh rates paid by the consumer.

The report concludes that AttorneyGeneral Spitzer’s investigation of com-mercial lines is proof of an “anti-com-petitive culture” in the commercialinsurance industry. It suggests thatsimilar problems also exist in personallines. The CFA report stated: “If theindustry is not competitive for sophisti-cated, knowledgeable commercialclients, it is very likely that it is notcompetitive at the retail consumer

level.” The consumer group promisedto report in the future on the impact ofall commissions—not just contingent—in automobile and homeowners insur-ance to see how they affect rates andconsumer satisfaction. The insuranceindustry was quick to label the CFAreport as faulty. We will see who iscorrect as this plot thickens.

Sources: The Insurance Journal and The CFA

INSURANCE INDUSTRY SHOULD TAKE A LONGLOOK AT CORRUPTION ALLEGATIONS

The insurance industry will have totake stock of how it operates in viewof the recent allegations of bid-riggingagainst Marsh McLennan. Bid manipu-lation on insurance contracts can’t betolerated. If insurance middlemen areaccepting kickbacks in the form of“contingent commissions” from otherinsurers in exchange for what appearsto be a most lucrative business, it mustbe stopped. It is most significant thatguilty pleas have already been enteredby top insurance executives. It isbelieved that the Marsh settlement mayserve as a blueprint for further settle-ments throughout the industry as thenet widens to bring in, among others,AIG, Hartford, Ace Insurance, andMunich American Risk Partners. Theinsurance industry must clean up its actand do so promptly.

JURY FINDS ALFA GUILTY OF FRAUD

A jury in Escambia County, Alabama,returned a $500,000 verdict last monthagainst Alfa Mutual Insurance Company,finding the company guilty of fraud.Our clients sued Alfa and one of itsagents for misrepresenting informationcontained on their application for a far-mowners/homeowners insurancepolicy. The misrepresentation was laterused by Alfa to deny a total loss fireclaim on our clients’ home. The fire wasbelieved to have been caused by light-ning. One of our clients had been con-victed of a crime over thirty years ago.

This was disclosed to the Alfa agent inresponse to the agent’s inquiry “haveyou ever been arrested,” on the home-owners’ policy application. The agenttold our client that the arrest was “toolong ago” and “really did not matter.”The agent then marked the application“no” as the response for that question.There were approximately seven othermistakes contained on the very sameapplication by the agent.

Approximately a year after the Alfahomeowners insurance was purchased,our clients experienced a total fire lossof their home. Alfa denied the claimand accused our client of lying on hisapplication about his thirty-year-oldarrest. In April 2001, Alfa filed suit,asking for the Court to declare that thepolicy was rescinded and that theinsurance company would have noobligation to pay any claim. Inresponse, we filed a counter-claimalleging fraud against Alfa because itsagent had committee fraud. SinceNovember 2001, our clients have beenforced to live in a “converted barn” thatwas located next to the home that hadburned to the ground.

During the three day trial, severalwitnesses were called by the plaintiffswho testified that their Alfa agent hadalso failed to either ask the same“arrest” question on the application orthat Alfa provided them coveragedespite their previous arrests. Two wit-nesses had convictions that were overtwenty-five years old. We proved to thejury that Alfa has a flawed system ofunderwriting that allows agents toabuse the application process. Unfortu-nately, those same abuses are beingused to deny valid claims at a laterdate. The jury deliberated approxi-mately two hours before returning a$500,000 verdict against the defen-dants. I hope the jury’s verdict willhelp to put a stop to abuses by Alfaand other insurance companies in thedenial of valid property and casualtyclaims. Dee Miles and Chris Sanspreefrom our firm, along with CharlesGodwin of Atmore, Alabama, handled


this case. Escambia County courthouseofficials tell us that the verdict againstAlfa is the largest consumer fraudverdict in the county’s history.

BEWARE OF QUICK TAX REFUND LOANS ANDSCAMS

It is about that time of the year whenour firm begins to get a large numberof calls from people who have enteredinto high interest rate loans in anticipa-tion of their tax refund. Many havebeen the victims of a fraudulent schemethat leaves them with little or no moneyfrom their tax refund. A “refund antici-pation loan” allows a person to obtain aloan in the amount of their tax refund,minus the high fees charged for thisservice. The thing that attracts mostpeople is that a person can usually gethis or her money in just one or twodays. Unfortunately, the folks who aremost often victimized by these types ofloans are the working poor who arealready living paycheck to paycheck.According to the National ConsumerLaw Center and Consumer Federationof America, typical fees on these typesof loans include $120 to prepare theactual tax return, with another $130 feetacked on to process the loan. In someareas, various state agencies and creditunions are joining together to informthe public that there are alternatives tothese refund anticipation loans. There-fore, if you are thinking about gettingone of these high cost loans, please calla local credit union to see if there is acheaper alternative. Chances are youwill find a better deal, so it’s well worthtaking the time to shop around.

BLUE CROSS SETTLES CLASS ACTION SUITSFOR $17.5 MILLION

Blue Cross & Blue Shield of RhodeIsland has settled two class action suitsfor $17.5 million in connection withclaims processing practices thatallegedly reduced subscribers’ benefitsand increased their out-of-pocket

expenses for several years. In the set-tlement, Blue Cross does not admitfault, but does accept a permanent banon those practices, which “are nolonger in place,” according to acompany news release. UnitedHealth-care of New England settled a smallerbut similar case in 2002 for $4.4million.

The bulk of the payout will go to anestimated 115,000 former and currentsubscribers, who will get $10 to $2,500each. It will be an average of about $95to each person. Blue Cross, the state’sleading health insurer for 66 years,now covers over 680,000 people. Theprocess of locating and contacting allthe people eligible for payment startedafter court approval of the settlement.Each will get a letter. There will also beads in the local press, a website and atoll-free number. The lawsuits werefiled in 1996 in U.S. District Court inProvidence, and also in state court. Allof these cases were consolidated inJuly 2003.

MORRIS BROWN COLLEGE SUED FOR FRAUD

A former student at Morris BrownCollege is suing the school forallegedly defrauding her and other stu-dents out of thousands of dollars infinancial aid. As a freshman at MorrisBrown, the student in question appliedfor a student loan. But, she receivedneither the loan, nor a reply from thefinancial aid department at MorrisBrown. After transferring to anothercollege, the student learned that sheowed Morris Brown $1,000 for financialaid she never received. Last month, ina shocking development, MorrisBrown’s former president and financialaid director were indicted on 34 countsof criminal fraud. Federal prosecutorsallege that once the presidentincreased Morris Brown’s rising debtwith excessive spending, she then con-spired with the financial aid director touse financial aid awards to ineligiblestudents to pay the college’s debt. In

the wake of the federal criminalcharges, the student filed a civil actionin federal court.

This lawsuit seeks class action statuson behalf of all Morris Brown studentswho were allegedly defrauded of finan-cial aid during the indicted pair’stenure as president and financial aiddirector. The lawsuit alleges that thetwo committed wire and mail fraud byobtaining grants and loans for studentswho shouldn’t have received them.The lawsuit further alleges that MorrisBrown’s board of trustees knew, orshould have known about the allegedscheme to cheat students out ofstudent loan money. Once obtained,the loans would go into default statusand adversely affect students’ and theirparents’ credit rating and ability toobtain credit. At press time, MorrisBrown College had not formerlyresponded to the newly filed lawsuit.However, both the individuals indictedhave maintained their innocence withrespect to the similarly filed criminalindictments.

FRAUD FOUND IN THE SALE OF VIATICALS

The Securities and Exchange Com-mission, along with various U.S. Attor-neys, have been prosecuting viaticalsettlement providers. A viatical or lifesettlement is the sale of a life insurancepolicy by a terminally ill person orsenior citizen—the viator—at a dis-counted price from the face value ofthe policy. Investors pay the premiumsand receive the face value of the lifeinsurance policy when the insuredviator dies. The viator, in turn, receivesin a lump sum a portion of the pro-ceeds of his or her life insurancepolicy. Although the sale of viaticals isnot illegal, the process lends itself tofraud by the viatical settlementproviders. Providers are responsible forlocating policies, evaluating viators’ lifeexpectancies, bidding on policies, andnegotiating the purchase price of poli-cies. The profitability of investments in


viatical settlements is wholly deter-mined by the providers ability to evalu-ate life expectancies.

Quite often, viatical settlementproviders promise investors fixed ratesof returns depending upon the term ofthe investment. Life expectancy is thekey factor in determining the maturitydate of the investment, the rate ofreturn to investors, and the amount offunds, which need to be escrowed forpayment of future premiums on thepolicies. Prosecutors are finding viaticalsettlement providers falsely representto investors that the life expectancyfigures were the product of an inde-pendent physician review, when in factno physician review was done. Inmany instances, a viator had alreadysurpassed his or her life expectancywhen the policy on his or her life wasassigned. The United States Districtcourt for the Southern District ofFlorida has recently ruled that viaticalsare “investment contracts” and are“securities,” which gives the SEC juris-diction over viatical sales. Hopefullycloser scrutiny by the SEC will improvethe quality of these investments. In themeantime, investors should be cautiouswhen considering viatical investments.

XII.PREMISESLIABILITY UPDATE

POOL DEATH AWARD IN FLORIDATHROWN OUT

In the summer of 2000, 14-year-oldLorenzo Peterson went swimming witha friend in the pool of the VillageApartments, in North Miami, Florida,where his mother lived. His friendremoved a loose protective grate in thebottom, and Peterson was sucked intoa drain with such force that he couldnot be extricated until rescuers brokeinto a shed to turn off the pump’s elec-tric power. During the 12 minutes ittook, the boy had suffered brain

damage that left him in a permanentvegetative state. His representativesbrought claims against the owner ofthe Village Apartments; All Florida Dis-tributors (the firm hired to maintainand operate the pool); and Sta-Rite (theWisconsin-based manufacturer of thepump and drain). The first two defen-dants settled for $4 million and $3million respectively. In a 2003 trial, thejury found that Sta-Rite was liable ontwo grounds: (1) the design of both thedrain and pump was defective; and (2)the company failed to give reasonablewarning to users of the dangers of theequipment.

In December, a unanimous three-judge panel of the Florida DistrictCourt of Appeal for the Third Circuitsaid the jury was correct in finding thatSta-Rite was liable. Nevertheless, thepanel reversed both the verdict and the$104 million judgment. The judgescalled the amount of the verdict“shockingly excessive,” which I findhard to reconcile considering the factsof the case. The decision says therewas a “fundamental error concerningthe apportionment of liability betweenand among Sta-Rite, the pool ownerand the maintenance company.” Attrial, the plaintiff’s theory was that theboy’s injuries were caused by two acci-dents—one when his arm was caughtin the drain, and the second when thesuction was not released because ofthe faulty design of the pump. This ledthe jurors to assign 80% of the liabilityto Sta-Rite, 20% to the Village Apart-ments and no liability to the mainte-nance company—even though thedrain grate was fastened with loose,rusty screws.

The appellate panel ruled that thetwo-accident theory didn’t apply to thecase. The court stated: “Neither logicnor common sense would permit anartificial division of the causation of theplaintiff’s damages into separateseconds-long intervals during all ofwhich he remained in the same dan-gerous position. No rational personcould find, as the jury was told it must,

that the failures of Segal and All Floridato secure the grate or to provide readyaccess to an available means to turn offthe pump had nothing to do withLorenzo’s ultimate condition.” The casewas remanded with instructions that inany retrial, the jury will not be limitedin determining the degree of negli-gence and liability on the part of all ofthe defendants. Both Segal and AllFlorida must be considered on thesame basis as that of Sta-Rite anddamages apportioned accordingly. Theappeals panel found that amount wasbased on “equivocal and uncertain tes-timony” that the boy would live foranother 40 years and on “almostentirely speculative testimony” that forall of that time he would suffer excruci-ating “conscious” pain in spite of hisvegetative state. It should be noted thatthe boy died while the appeal was stillpending and before the appellate courtruled. The court raised the question asto whether the personal injury casewould have to be abated and the suitrefiled as a wrongful death suit.

SETTLEMENT REACHED IN SUITS OVER LAWSCHOOL SHOOTING RAMPAGE

A Virginia law school has agreed topay $1 million to settle four lawsuitsarising out of a deadly shootingrampage by a struggling student. Thelawsuits accused the AppalachianSchool of Law in Grundy, Virginia, ofignoring repeated warnings of its stu-dents that Peter Odighizuwa was athreat before he opened fire in 2002,killing the dean, a professor, and astudent. Three other students werewounded in the incident. The studentpleaded guilty earlier this year and isnow serving six life sentences. The set-tlement involves the three woundedstudents and the 10-year-old daughterof the slain student.

The plaintiffs had argued that theschool should have foreseen the vio-lence because the 46-year-oldOdighizuwa—who has been diagnosed


with paranoid schizophrenia—had ahistory of outbursts, threats and otherdisruptive behavior. Odighizuwa, whohad flunked out but was later readmit-ted before the shooting, said he openedfire out of frustration and anger as hestruggled to become a lawyer.

AAMARK LOSES DRUNK DRIVER LAWSUIT

A New Jersey jury has orderedAramark Corp., the Philadelphia-basedoperator of sports concession stands, topay $75 million in punitive damages forserving beer to a drunken football fanwhose car crash crippled a small child.Jurors found that the company “will-fully and wantonly” disregarded safetyin serving a fan at a New York Giantsfootball game in 1999. After leavingGiants Stadium in East Rutherford, NewJersey, the drunken fan was involved inan accident that left a child who is now7-years-old, a quadriplegic. Jurors ruledthat Aramark and the drunk driverowed more than $30 million each incompensatory damages. The jury wasurged at trial to punish Aramark for cre-ating a “culture of intoxication” atGiants Stadium and the jurorsresponded. Aramark intends to appeal.

Aramark provides food services atdozens of arenas, stadiums and otherfacilities nationwide. The company hadnet income of $263 million in 2004 onsales of $10.2 billion. The jury wassending a message to Aramark that“their policies and procedures onalcohol awareness are not acceptable.”The jurors wanted to make sure drunkpeople don’t leave a football stadiumand then get into auto accidents withinnocent people. I hope that thisdefendant and others around thecountry understand this message.

Jurors ordered Aramark to pay $65million in punitive damages for thechild and $10 million for her mother,who was also seriously injured in thecrash on October 24, 1999. Aramarkadmitted that the company was “notperfect” in enforcing alcohol-control

policies and may have been negligent,but urged the urged jurors not to awardpunitive damages. Aramark producedrecords of disciplining only 10 employ-ees in 15 years for violating its alcoholpolicies. Based on trial testimony, thecompany claimed to have lost ordestroyed other records. At the time ofthe accident, the drunk driver had ablood alcohol content level of 0.266, ormore than three times New Jersey’scurrent legal limit. Witnesses said thefan had the equivalent of 16 12-ouncebeers before and during the game. Thechild, who was 2 years old at the timeof the crash, and her family werereturning from pumpkin picking whenthe drunk driver’s car struck herfamily’s car in a New Jersey community.

XIII.WORKPLACEHAZARDS

OSHA CITES ALABAMA COMPANY FORSAFETY HAZARDS

The U.S. Labor Department’s Occu-pational Safety and Health Administra-tion (OSHA) has cited A.R. ButlerConstruction Company Inc. for report-edly exposing workers to trenchinghazards at a worksite in Center Point,Alabama. OSHA’s regional administra-tor in Atlanta stated: “For workerinjuries and fatalities to decline in thisindustry, we must make sure thatemployers protect employees fromtrenching hazards. The significantpenalty of $112,000 in this case demon-strates our commitment to protectingthe health and safety of America’sworkers.” OSHA began an inspectionon July 16th after being notified that a13-foot-deep trench had collapsed,trapping a worker who was rescued byco-workers. Investigators reportedlyfound that the Birmingham-basedcompany had allowed employees towork in a 10-foot-deep vertical trench,which had an eight-inch, fully-charged

water main running through it. Addi-tionally, employees were allowed to re-enter the trench after the collapse,again exposing them to cave-in anddrowning hazards.

A.R. Butler received two willful cita-tions, with proposed penalties totaling$112,000, for failing to provide a protec-tive system for the trench, such as atrench box or proper shoring or sloping,and failing to properly support thewater main. OSHA issues a willful cita-tion when a company has shown inten-tional disregard of, or plain indifferenceto, the requirements of the Occupa-tional Safety and Health Act and regula-tions. The company reportedly failed toheed concerns about the unsafe condi-tion of the trench and to follow require-ments of its own trench safety program.The company can contest the citationsand proposed penalties before the inde-pendent Occupational Safety and HealthReview Commission. It has 15 days inwhich to do so.

MCDONALD’S WORKER DIES AFTER CARBONDIOXIDE LEAK

A McDonald’s worker, who was 18years old, died a day after a truckdriver suffocated when carbon dioxideleaked while they tried to refill a tankat a central Florida fast-food restaurant.Both men died of carbon-dioxide poi-soning that occurred in the restaurant’sstorage room. The men were foundunconscious in a storage room wherethe restaurant kept the tank. This tankwas used to store gas used to carbon-ate soft drinks. Investigators believethat the truck driver climbed in to helpthe younger man, who was locked inthe room, and was quickly overcome.At press time, OSHA was investigatingthe incident. Sanford is located 19miles north of Orlando, Florida.

WAL-MART LAWSUIT MAY GROW

A federal judge in New Jersey hasopened the door to a possible expan-


sion of a lawsuit against Wal-MartStores Inc. filed by illegal immigrantjanitors who claim the retail giant vio-lated labor laws. The judge denied amotion by Wal-Mart to dismiss the suitand instead approved the sending ofcourt-approved notices to potentialplaintiffs. The court found merit in theclaim that illegal immigrant workershave minimum-wage and overtime payrights under the federal Fair LaborStandards Act. The suit was filed by 17janitors from Mexico and easternEurope who worked for contractors.Many of them were among the 250people arrested in an October 23rd

federal raid on 60 Wal-Mart stores in 21states. Since the lawsuit was filed, itnow appears that more than 200 otherformer Wal-Mart contract janitors, manyfrom eastern Europe, are illegal immi-grants. The court ruled that Wal-Martmust furnish plaintiffs the names of allcontract janitors who had worked since2000.

RIGHTS GROUP CONDEMNS MEATPACKERSON JOB SAFETY

Human Rights Watch has issued areport that harshly criticizes the meat-packing industry. This is the first timethe group has singled out a singleindustry in the United States. They con-cluded that working conditions amongthe nation’s meatpackers and slaughter-houses are so bad that they violatebasic human rights. The report,released last month, that jobs in manybeef, pork, and poultry plants are suffi-ciently dangerous to breach interna-tional agreements promising a safeworkplace. The report notes that theinjury rate for meatpackers is morethan three times that of Americanprivate industry overall. The reportdescribes some very bad working con-ditions. The report’s author, LanceCompa, who teaches industrial andlabor relations at Cornell and is aformer union organizer and negotiator,stated: “Meatpacking is the most dan-

gerous factory job in America. Danger-ous conditions are cheaper for compa-nies, and the government does next tonothing.”

In issuing the report, Human RightsWatch called on federal safety officialsto increase enforcement and slow theline speed in packing plants, urgedstate officials to enforce workers’ com-pensation laws more vigorously, andsought strengthened enforcementagainst companies’ firing and intimidat-ing workers who want to unionize.


XIV.TRANSPORTATION

SOUTH CAROLINA TRAIN CRASH KILLS NINEPERSONS

A freight train carrying chlorine gasstruck a parked train in South Carolinarecently, killing nine people and injur-ing more than 240 others. Authoritiesordered all 5,400 people within a mileof the crash to evacuate during theafternoon of the incident because chlo-rine was continuing to leak and the gaswas settling near the ground as temper-atures dropped. At the time, authoritieswere unsure when the gas leak mightbe sealed. The accident happened atAvondale Mill, a textile plant, and wasone that should never have happened.The wreck of the Norfolk Southerntrains, in which 16 cars derailed,created a very bad situation. All of thedeaths are said to have been caused byinhaling chlorine fumes, except for theengineer of the moving train, who diedin the crash. One person was founddead in a home, and another wasfound in a vehicle. While most of theinjured were treated for respiratory ail-ments and released, at least 45 peoplewere admitted to hospitals.

The potentially fatal gas can damagethe respiratory and central nervoussystems, and the throat, nose, andeyes. Those who were exposed were

told to report to decontamination unitsat two schools. Three of the 42 cars onthe moving train were carrying chlo-rine. No one was aboard the parkedtrain. Before the evacuation, nearbyresidents were told to stay inside theirhomes. Textile plants and schools inthe area closed, and a 6 p.m.-to-7 a.m.curfew was imposed on Graniteville,Georgia, which is located about 15miles northeast of Augusta, Georgia.Two other hazardous materials, cresoland sodium hydroxide, were beingcarried on the train in liquid form, butwere a less immediate concern becausethey are corrosive only on directcontact. The National TransportationSafety Board and Federal RailroadAdministration sent investigators to theaccident scene.

DEADLY LEAK UNDERSCORES CONCERNSABOUT RAIL SAFETY

Last year, government safety officialswarned that more than half of thenation’s 60,000 pressurized rail tankcars did not meet industry standards.The officials also raised questionsabout the safety of the rest of the fleetas well. Their worry was that the steeltanks could rupture too easily in anaccident. The South Carolina traincrash mentioned above is a goodexample of what can happen. Tankcars have become an increasingconcern, not just to safety investigators,but also to domestic security officialsworried that terrorists could turn tankcars into lethal weapons.

Federal authorities have beenworking with railroads and the chemi-cal industry to improve security fortrains. But there is still much to bedone, particularly given the structuralweaknesses of many tank cars. Carsthat were built before 1989 used steelthat did not - as it does now - undergoa special heat treatment to make itstronger and less brittle. Tank cars builtafter 1989 use this specially treatedsteel. The safety board has warned that


of the 60,000 pressurized tank cars inoperation, more than half were oldercars that were not built according tocurrent industry standards, leaving themsusceptible to rupture. Because thesecars may remain in service for up to 50years, some older ones could still behauling hazardous materials until 2039.

Among the hazardous materialscarried by the tank cars are liquefiedammonia, chlorine, propane and vinylchloride. In most cases, the cars areowned by chemical or leasing compa-nies, not the railroads. Although the railindustry now requires that tank shellsbe made with the special heat-treatedsteel, the safety board says that treat-ment alone “does not guarantee”enough protection against impact.According to the board, other manufac-turing techniques should also beexplored. It appears that the industryand the railroad administration “haven’testablished adequate testing standardsto measure the impact resistance forsteels and other materials used in theconstruction of pressure tank cars.Since the tank cars will be hauling dan-gerous materials, all steps necessary toassure safety should be taken. Thefederal government must see that thepublic is protected and should takeprompt action to make that happen.


QUESTIONS RAISED ON SIGNALS AT RAILCROSSINGS

A New York Times computer analysisof government records has found thatfrom 1999 through 2003, there were atleast 400 grade-crossing accidents in thiscountry in which signals either did notactivate or were alleged to have mal-functioned. At least 45 people werekilled and 130 injured in those acci-dents, according to the records. Eventhough in many of the cases the role ofsignal malfunctions was unclear, there isstill reason for concern. Federal rulesrequire that railroads maintain signalson tracks they own. The accident

reports, all prepared by the railroads,raise questions in many cases aboutwhether unsafe behavior by drivers con-tributed to the accidents. That shouldn’tcome as a big surprise. Since 2000, rail-roads have filed about 2,300 reports ofthe most serious types of signal mal-functions, which are short signals or nosignals at all. However, most of thesemalfunctions did not involve accidents.Interestingly, James E. Hall, a formerchairman of the National TransportationSafety Board told the Times: “If we hadthat type of record in aviation, it wouldbe unacceptable.”

Warning signals are triggered whenan approaching train causes an electri-cal current to pass from one rail to theother. The frequency of signal malfunc-tions is difficult to assess, because rail-roads don’t have to report allmalfunctions and because proving thatan error occurred is often difficult afteran incident. Currently, Texas has theonly statewide government hot line forproblems at grade crossings. Accordingto government data, some 9,500 callsabout signals were lodged in 2003 inTexas.

Chronic signal malfunctions are notonly hazardous, but also burdensomefor police departments, especiallysmaller ones, because they must oftensend officers to safeguard motorists atproblem crossings. A signal malfunc-tion at a grade crossing can certainlypose a safety hazard for motorists.Federal rules define signal malfunctionsas those that give drivers a warning ofless than 20 seconds, or that activatewhen no train is approaching. Thelatter, called a false activation, is poten-tially dangerous because drivers maybe led to ignore signals that theybelieve are not working. I understandthat false activations are the mostcommon signal problem. After acci-dents, the Federal Railroad Administra-tion requires railroads to report anypossible or confirmed signal that lastsmore than 60 seconds without a trainentering the crossing. It is possible todetermine what happened at the time

of an accident if the signals areequipped with devices to record whena warning is activated and the positionof the gates when the crash occurred.Unfortunately, however, most signalslack such devices. More often, thedetermination comes down to whatwitnesses say about what happenedand if signals were working.

Even when no accident occurs, theFederal Railroad Administrationrequires railroads to report to a separatedatabase when signals fail to givedrivers a sufficient warning. Therequired 20 seconds are necessarybecause gates do not descend instantly.They typically begin to lower four tofive seconds after signal activation andtake about five seconds to be fullydeployed. The reports in this federaldatabase, however, often provide fewor no details on the signal malfunctions.This database does not reflect everysignal that fails to operate properly. Themost common problems, false activa-tions, are not included. Finally, thefederal government should do more toprotect motorists and less to protect therailroad companies. Presently, the deckis stacked heavily in favor of the indus-try and Congress has done little toprotect the driving public.


FAMILY SUES STATE AND CONTRACTORSOVER CRASH

The family of a Yale Universitystudent who was killed in a 2003 crashon an interstate highway is suing thestate of New York and two constructioncompanies, claiming their actions con-tributed to the accident. The suit allegesthat the New York Department ofTransportation failed to warn motoriststhat an earlier accident created haz-ardous conditions on the highway. Thelawsuit also claims that a crew fromtwo construction companies caused anoutage of highway lighting at the sceneof the fatal crash when they knockeddown a light pole. A sport utility


vehicle carrying nine Yale studentsback from a fraternity event in NewYork City hit a tractor-trailer that hadbeen involved in an accident in thenorthbound lanes of the interstatehighway in the early morning hours ofJanuary 17, 2003. Four of the studentswere killed. Most of the victims weremembers of a social fraternity who hadescorted pledges to New York. Thedriver of the SUV had been awake fornearly 20 hours before the crash. Areport by the National TransportationSafety Board revealed that highwaylights were out at 5 a.m., the time of thecrash, and that no driver was under theinfluence of drugs or alcohol. Severalwitnesses have reported that the roadwas very slick from ice and snow.

SURVIVING FISHERMAN FILES SUIT

The lone survivor of a scallop boataccident that took the lives of five com-mercial fishermen in frigid seas off theMassachusetts coastline has sued thevessel’s owner. It is contended that theNorthern Edge was unseaworthy andthat survival suits on the boat werestowed out of reach. The survivingfisherman claims that waves rangingfrom 11 to 15 feet should not have cap-sized and sunk the 75-foot scalloperowned by K&R Fishing Enterprises Inc.The contention is that the vesselshould have been able to withstandthose seas and that it was unstable. Italso was contended that K&R improp-erly stored the suits, which are insu-lated to keep one alive in cold water,in the engine room. That was a placewhere the crew couldn’t get to themwhen the vessel capsized.

The vast majority of lawsuits thatstem from accidents at sea are settledout of court. Interestingly, the 1920federal Death on the High Seas Actactually favors survivors over the fami-lies of seamen who are killed. Thefederal law provides no damages forloss of companionship to families ofseamen killed, as is customary in

wrongful-death lawsuits in most allstates. Of course in Alabama, the onlydamages recoverable in a wrongfuldeath action are punitive. No compen-satory damages are allowed in deathcases in Alabama. In cases under thisAct, families can only recover thewages they would have received if theseamen had lived. On the other hand,the federal Act does allow survivors torecover damages for injuries, emotionaland physical suffering and lost income.

K&R has filed a petition in federalcourt which asks that the company beabsolved of having to pay anydamages or that the amount be sharplylimited. The petition, which is routinelyfiled by the owners of boats lost at sea,insisted that the Northern Edge was ‘’inall respects seaworthy and fit forservice.” K&R could derail the personalinjury suit if it proved at trial that theNorthern Edge was seaworthy or thatthe company could not have foreseenthe disaster. In this case, the seamansurvived by clinging to a lifeboat andwas rescued by crew members fromanother fishing boat. All othermembers of the boat’s crew were lost.

U.S. AIRLINES HAVE 34 DEATHS IN 3 YEARS

Over the past four years, thirty-fourpeople have died in U.S. commercialairline crashes. Those numbers make itone of the safest periods in aviationhistory, considering that more Ameri-cans than ever traveled by air duringthat time frame. The only fatalitiesaboard U.S. scheduled airlines last yearcame on October 20, 2004 when a Cor-porate Airlines twin-engine turbopropcrashed into the woods on approach tothe Kirksville Regional Airport in Mis-souri, killing 13 people. In comparison,some 42,000 people die every year onthe roads in the U.S. The last U.S. crashof a jumbo jet was November 12, 2001,when American Airlines Flight 587 lostpart of its tail and plummeted into aNew York City neighborhood, killing265 people. Safety investigators con-

cluded that the crash of Flight 587 wascaused by the pilot moving the rudderback and forth too aggressively, whichput more pressure on the tail than itcould bear. It is believed that new tech-nology has improved safety. Forexample, many planes now havesystems that warn pilots if they’reabout to fly too close to the ground.Jets and turboprops manufactured afterMarch 29, 2003, are required by federalregulations to have a so-called TerrainAwareness and Warning System. Allother planes with more than six seatsmust be retrofitted with the devices byMarch 29, 2005.

As we pointed out in an earlier issue,the plane that crashed in Missouri inOctober was months away from beingoutfitted with a terrain-warning systemthat might have prevented the accident.On the ground, 34 major airports havebeen equipped with systems that warnair traffic controllers of a potential colli-sion on runways. You may recall oneof the worst aviation disasters in historyinvolved two jumbo jets that ran intoeach other on a runway in Tenerife inthe Canary Islands in 1977, killing 582people. That shouldn’t happen withthe availability of those warningsystems. Weather radar and wind shearalert systems also have helped elimi-nate accidents caused when planesencounter concentrated downwardbursts of wind on approach to theairport.

Safety experts agree that better train-ing and awareness of safety issues haveplayed a big part in making U.S. skiessafer. The FAA’s formation in 1997 ofthe Commercial Aviation Safety Team(CAST), which set the goal of reducingfatal aviation accident rates by 80% by2007, appears to have been a goodmove. The accident rate has fallen 50%since that time. As part of the CASTproject, airline unions and manage-ment, along with federal agencies andmanufacturers, are collaborating onidentifying safety problems and solvingthem. Among the 85 safety improve-ments CAST is working on include:


• Teaching pilots how to recover fromunusual flight conditions that couldbe dangerous;

• Developing tougher standards foricing-prevention technology on newplanes; and

• Establishing new procedures for airtraffic controllers to prevent colli-sions on runways.

A change in federal regulations,which took effect December 14, 1995,is believed to be a key developmentfor aviation safety. On that day, allcommercial air carriers — from com-muter planes with 10 or more passen-ger seats to jumbo jets — wererequired to follow the same safety rulesfor operating. Prior to that time, planeswith 30 or fewer seats fell under lessstringent regulations than larger air-craft. Although from a statistical per-spective, the past few years have been“safer,” there is still much work to bedone. It’s no time for those responsiblefor safety to get complacent.

Source: The Associated Press

AIRLINES OUTSOURCE CRUCIAL SAFETYTASKS

From a safety perspective, it makesabsolutely no sense for U.S. airlines tobe allowed to outsource maintenanceof its airplanes to foreign countries.Safety should be a top priority for theairlines and that’s why I stronglyoppose outsourcing in this arena. Forexample, one major airline is nowsending some of its planes to El Sal-vador for checkups required by the U.S.Federal Aviation Administration. North-west Airlines flies wide-body jets to Sin-gapore and Hong Kong for service byoutside contractors. It appears that U.S.airlines, in an effort to cut costs, areoutsourcing jobs that are crucial to pas-senger safety, including long-termmaintenance. While airlines continue touse their own mechanics for lightermaintenance between flights to ensurepunctuality, half of U.S. carriers’ heavy-

overhaul work is now performed byoutside vendors in the U.S. and over-seas. According to a report in the WallStreet Journal, that’s up from less than athird in 1990. The worldwide aircraftmaintenance market is worth an esti-mated $37 billion annually.

The major U.S. airlines have beenfurloughing veteran mechanics. Lastyear, the National Transportation SafetyBoard found that deficient maintenanceby an outside vendor and lack of regu-latory oversight contributed to a 2003crash of a commuter flight in Charlotte,North Carolina that killed 21 people. Ina 2003 report, the federal Departmentof Transportation’s inspector-generalfaulted the FAA for inadequate over-sight of outside contractors. Despite theincrease in outsourcing, the FAA “hascontinued to concentrate its resourceson oversight of air carriers’ in-housemaintenance operations,” the reportsaid. According to the report, oneairline outsourced 44% of its mainte-nance budget in 2002. The FAA did 400inspections of that airline’s own main-tenance facilities, but only seven at theoutside shops. The FAA concurred withthe report’s recommendations fortighter scrutiny of contractors. It is nowphasing in rules requiring better recordkeeping and training at contractors andraising the requirements for supervi-sors’ experience.

All U.S. and foreign repair servicesthat work on U.S. planes and partsmust be authorized by the FAA andadhere to the same safety standards.James Ballough, the FAA’s director offlight standards, told the Journal thathis branch inspects 4,500 domestic and650 foreign repair stations. Nearly 700inspectors are assigned to these outsideservicers, while 220 inspectors lookafter U.S. airlines’ in-house overhaulactivities. At one time all airlines hiredunionized employee mechanics to domost of their maintenance work. Thejobs usually required each employee tohave an FAA “airframe and powerplant” license.

Some experts on airline safety are

concerned that the shifting of work tothird parties, especially when outsourc-ing to foreign counties is involved,could result in weaker regulatoryscrutiny. Only supervisors at theoutside repair stations—not individualmechanics—must be licensed by theFAA. In my opinion, all maintenanceworkers should be well trained andcompetent. The latest outsourcing pushinvolves outsourcing heavy inspectionsincluding those that take a few daysand others, lasting as long as a month,in which planes are torn apart,inspected for cracks and wear, andthen rebuilt. If outsourcing of the sortdescribed above is permitted, theinspection of U.S. regulators must bemore than just adequate—it must be asthrough as possible.


BACTERIA A PROBLEM FOR AIRLINE WATER

Bacteria are still showing up in therunning water aboard the nation’s air-liners. Carriers had promised to flushand disinfect their water systems everyfew months. Instead, things seem to begetting worse. The U.S. EnvironmentalProtection Agency says that coliformshowed up in 17.2% of 169 passengeraircraft, randomly tested in January, upfrom 12.7% of 158 planes in Augustand September. The EPA cautionedpassengers with compromised immunesystems to drink only canned orbottled beverages when they fly. Trav-elers should also stay away from tea orcoffee, unless they’re made withbottled water. Thus far, there havebeen no results of mass illnesses or anykind of an outbreak, according to theEPA. The results of recent testingconfirm the presence of bacteria atlevels warranting continued EPAscrutiny. The tests were done on waterfrom galley water taps and lavatoryfaucets on planes at 12 U.S. airports.Total coliform indicates that otherdisease-causing pathogens may bepresent in the water, according to the


EPA. Healthy people probably won’tget sick from coliform bacteria, butthey shouldn’t ingest it. But, the wateris contaminated and that’s a potentialhazard. This containment comes fromthe intestines of people and animals.

A dozen major U.S. carriers agreed inNovember to a program to improvesanitation in water systems after testsreported in late September showed oneof every eight airliners failing EPA stan-dards. Under the agreement, planeswould be disinfected within 24 hours ifcoliform bacteria were discovered,unless the agency granted an extensionbecause the plane was outside theUnited States. The airlines also prom-ised to flush the drinking water systemson their planes every three months.Because the agreement was reachedlate last year, carriers didn’t have muchtime before the latest round of testing.Most U.S. airlines serve bottled water,but that isn’t guaranteed.

SUIT OVER GUARDSMEN KILLED IN CRASHSETTLED

Families of five National Guardsmen,who were killed when their planecrashed in Georgia four years ago,have settled their lawsuit against theaircraft’s manufacturers for $3.75million. The money will be paid by thecompanies that made and maintainedthe C-23 Sherpa cargo plane and itsparts. The companies are: Montreal-based Bombardier Inc. and its sub-sidiary, plane maker Short BrothersPLC; Duncan Aviation Inc. of Lincoln,Nebraska; Rockwell International ofMilwaukee and its former subsidiaryRockwell Collins Inc. of Cedar Rapids,Iowa.

Twenty-one Guardsmen died whenthe plane crashed near Macon,Georgia, on a flight from north Floridato Virginia in March 2001. A three-member crew from the Florida ArmyNational Guard was flying 18 membersof the Virginia Air National Guardhome after a two-week training

mission in Florida. Military investigatorsblamed the crash on the crew forimproper loading, but the general whoordered the probe later blamed badweather and equipment malfunctions.The plane was made in NorthernIreland by Short and then converted formilitary use by Bombardier. Thelawsuit claimed the plane’s new config-uration had not been tested, and thatthe weather radar was not workingproperly. These modifications had asubstantial effect on the stability of theaircraft, yet the design was never fullytested and the National Guard wasnever warned of the potentially cata-strophic problems. The suits by thefamilies of the 16 other victims havebeen consolidated and an April trialhas been scheduled in Tampa, Florida.


WRONGFUL-DEATH LAWSUIT AGAINST UTILITYREINSTATED

A lawsuit on behalf of a teenagerfatally injured in a 1998 collision with autility pole has been reinstated by anappellate court in Missouri. It wasclaimed that the utility was at fault fornot quickly telling emergency crews thata downed power line on the wreckagewas dead. A dissenting judge in the 2-1ruling by the Missouri Court of Appealscalled the majority’s opinion “clearlyagainst public policy,” with “potentiallydire consequences.” The ruling sidedwith the teenagers’ parents, who arguedthat emergency responders, mistakenlybelieving the downed line was ener-gized, were kept from getting to andtreating the trapped 19-year-old victimfor 30 minutes. That delay was said tohave cost their daughter her life. Twoother teenagers in the car died at thescene of the September 1998 crash. A St.Louis judge had dismissed the family’swrongful-death lawsuit againstAmerenUE. The appellate courtreversed, finding that AmerenUE wasaware the downed line was inactive andhad a duty to notify rescue workers.

AmerenUE claimed that it had noduty to encourage emergency workersto take a risk that its own employeeswould not take, or to provide rescueworkers information from which theycould decide whether to take suchrisks. The majority decision of theappellate court held that the utility hada duty to convey information that onlyit had. Without conveying that informa-tion, rescue personnel at the scenewere unable to do anything for a halfhour. Those minutes were critical tothe teenager’s survival. The car inwhich the teenager was riding, jumpedrailroad tracks and went airbornebefore hitting the ground and aguardrail. It then slammed into theutility pole and overturned. An electricline fell onto the car’s exposed under-carriage, igniting the vehicle. Withinminutes the power line was de-ener-gized. A utility worker eventuallyarrived and used a fiberglass stick fromfirefighters to remove the downed line.Rescue crews then freed the car’s occu-pants. The teenager, who sustainedelectrical burns and pulmonary injuriesfrom the inhalation of toxic fumes,died nearly a month later. In December1998, her parents settled their claimsrelated to their daughter’s death withinsurers of the driver of the car.


XV.ARBITRATIONUPDATE

ARBITRATION WORKING JUST FINE FOR BIGBUSINESS

In a long running dispute between abrokerage firm and the stockbrokerthat it allegedly improperly fired, theNew York Supreme Court late last yearconcluded that unfortunately it was notempowered to order a reduction of apunitive damage award and that “acostly new arbitration” was the onlychoice it had. Let me give you a little


background so that you can under-stand how it came to the point wherethe plaintiff was asking for a reductionin damages and the court would notallow it.

In 2001, a broker who challenged histermination from Waddell & Reed, Inc.was awarded $25 million dollars inpunitive damages in an arbitrationhearing. At the time, that punitivedamage award was one of the largestin a securities arbitration case. Theaward, however, was appealed and in2003, an appellate court vacated thepunitive damage award and remandedthe matter to the original panel of arbi-trators for reconsideration of the puni-tive damages issue. The panel heardarguments a second time, and againissued an award in the broker’s favorfor $25 million dollars in punitivedamages. The brokerage firm againappealed, and the court vacated thesecond arbitration award and orderedthat the matter be submitted to a differ-ent arbitration panel.

At this point, the broker had legalfees that exceeded $700,000 and theoriginal transcript of the arbitrationhearing produced a transcript of morethan 10,000 pages. Having filed hisoriginal claim for arbitration more thanseven years ago, the broker asked theappellate court to conditionally remitor lower the award so that he wouldnot have to go through a third arbitra-tion hearing before a new panel andexpend more money for legal fees andother expenses. The court denied hisrequest. The court said: “A new arbitra-tion before a new panel is likely to beas expensive and time-consuming asthe first. The history of this arbitration,undermines the very purpose of arbi-tration: To provide a manner of disputeresolution more swift and economicalthan litigation in court.”

This is a perfect example of the diffi-culty, expense and time that can beconsumed when one has a clearly validclaim with the sole question at issuebeing the amount of punitive damagesto be awarded. Thus far, it has cost this

broker more than seven years andalmost $1 million dollars to find outhow the defendants should be “pun-ished.” It appears that the only personor entity being punished in this arbitra-tion is this broker under the currentarbitration system.

XVI.NURSING HOMEUPDATE

FLORIDA SUPREME COURT LIMITS RIGHT TOSUE FOR NURSING HOME DEATHS

The Florida Supreme Court haslimited the right of some survivors ofdeceased nursing home patients torecover damages for alleged abuse andneglect under the state’s Nursing HomeResident’s Bill of Rights. The majorityopinion in the case which is styledKnowles v. Beverly Enterprises statedthat the language in the 1976 NursingHome Resident’s Bill of Rights statute inFlorida was clear on the issue. It isinteresting to note that it took almost 30years for that legislation to be inter-preted in this fashion. A strong dissentin the case was written by Justice R.Fred Lewis, who wrote that the Legisla-ture’s obvious intent in crafting theNursing Home Resident’s Bill of Rightswas to offer patients broad protection.Justice Lewis said the opinion of themajority in the case is “wholly contraryto the [statute’s] very purpose - result-ing, ironically, in an evisceration ofsuch resident’s legal rights.” JusticeLewis also pointed to the fact that since1828, Florida has had a law that nocause of action an individual may haveagainst another dies when that persondies. Justice Lewis complained that themajority completely ignored this law.

It is believed that the ruling willapply to only to an estimated 600 to1,500 cases filed before May 15, 2001.That’s when the law was changed toexplicitly permit survivors to sue fordamages even if the alleged failures in

patient care did not directly result in thepatient’s death. The majority held thatthe 2001 statutory change was “of nomoment” in considering cases filedbefore that provision took effect. Themajority cited precedent from a numberof other cases in determining that athorough study of legislative intent wasnot required to discern the intent of thelawmakers in adopting the statute.

Florida’s “survival statute,” on thebooks since 1828, states, “No cause ofaction dies with the person. All causesof action survive and may be com-menced, prosecuted and defended inthe name of the person.” It has beenestimated that the ruling would kill off20% to 50% of the estimated 3,000nursing home abuse and neglect casesin existence in 2001 when the law waschanged to permit such suits. In afriend of the court brief supporting theclaim of a patient’s survivors, it wassaid the ruling guts the state’s landmarknursing home residents’ bill of rightsand eliminates the right of many fami-lies to sue for gross mistreatment oftheir loved ones. Because of the court’sruling, there is now less incentive fornursing homes to give patients who arenear death adequate care.

The decision arose from a caseinvolving a resident who died of heartdisease in 1995 at age 72 after a 67-daystay at Washington Manor NursingHome and Rehabilitation Center inHollywood. That facility was owned byArkansas-based Beverly Enterprises, anational chain of nursing homes. Theresident was placed in the nursinghome following a hip replacement.The descendant’s wife sued the facility,alleging that her husband had sufferedneglect resulting in pressure sores, per-manently locked limbs and dehydra-tion. She sued under the Floridanursing home Residents’ Bill of Rights,which allowed suits by survivors ofpatients who died as a result of nursinghome neglect or abuse. The nursinghome contends that the statutory claimwas invalid because the resident diedof heart disease and not from the pur-


ported neglect. They contended that a1986 amendment to the nursing homestatute permits survivors to sue onlywhen the patient’s death is a directresult of the alleged neglect or abuse.

SUBSTANDARD HOMES ALLOWED TO OPERATE

State and federal officials whomonitor the quality of care in nursinghomes have agreed that poor-qualityhomes are often allowed to continueoperation after temporarily fixing prob-lems, only to experience the sameproblems a short while later, accordingto recent reports by the Boston Globe.The Government Accountability Officereported last year that there was a“unacceptably high” number of poor-quality nursing homes remaining in theUnited States, while another reportfound that the nursing home enforce-ment system in this country is not“ridding the industry of chronicallypoor-performing” homes. The reportsindicated that often a nursing homeowner would close one of their homesthat are found to be substandard by anenforcement agency, only to openanother home in another area.

The problem cited by the reportsincluded the lack of a “death penalty”for such nursing home owners. Thereports also found that there were notenough inspectors to find the problemsthat exist in nursing homes, and thatthe fines levied against nursing homesfor substandard care are not largeenough to be a deterrent. The govern-ment is investigating why enforcementin nursing homes has not been suc-cessful, and there are plans to makechanges in enforcement techniques bynext October. One goal is to providefor faster investigation of reportedproblems, while another goal is to pos-sibly link the size of payments tonursing homes to quality.

Source: The Boston Globe

XVII.HEALTHCAREISSUES

PUBLIC CITIZEN LAUNCHES ACOMPREHENSIVE ONLINE DATABASE THATLISTS DANGEROUS PRESCRIPTION DRUGS

Public Citizen has launched a newwebsite, www.WorstPills.org, that pro-vides consumers with comprehensiveinformation about 538 prescriptiondrugs and warns them of 181 drugsthat are unsafe or ineffective. Thesearchable, online database also pro-vides information about drug pricing,outlines 10 rules for safer drug use, hasmonthly issues of Public Citizen’s WorstPills, Best Pills newsletter, and enablesusers to sign up for e-alerts aboutnewly discovered drug dangers. Peoplelooking for information on the site cansearch by drug, medical condition, ordrug-induced disease. The websitecontains the entire contents of the just-published edition of the book, “WorstPills, Best Pills,” including a newchapter on dietary supplements.

The site is particularly valuable toconsumers because Public Citizen hasa strong track record of identifyingdangerous drugs well before federalregulators take action to ban or putwarnings on these drugs. For example,in April 2001, as we have previouslyreported, Public Citizen warned con-sumers against taking Vioxx because itincreases the risk of heart attack. TheFDA took no action, and it wasn’t untilthis fall that Merck pulled the drugfrom the market. Vioxx was the ninthprescription drug to be taken off themarket in the past seven years thatPublic Citizen had previously warnedconsumers not to use. For four of thedrugs - Vioxx, Baycol, Rezulin andSerzone - Public Citizen issued warn-ings more than two years before theirremoval from the market. Similarly,Public Citizen warned patients not touse Celebrex three and a half yearsbefore the government announced that

a study showed it increased heart risks.Dr. Sidney Wolfe, director of PublicCitizen’s Health Research Group says“As recent events have shown, the U.S.Food and Drug Administration, whichreceives well over $100 million a yearin funding from the drug industrylargely to review drugs more rapidly,doesn’t do a good job of protectingpeople from medications that can seri-ously harm or kill them. We provideconsumers with indispensable andpotentially life-saving information thatthey can’t get anywhere else—certainlynot from the federal government ordrug industry.”

While WorstPills.org has existed sinceJanuary 2003 in a less comprehensiveform, the revamped site has beenredesigned and updated. As notedabove, all of the data in Public Citizen’snewly released edition of “Worst Pills,Best Pills,” a book that has sold morethan 2.2 million copies since first beingissued in 1988, is now included. Theupdated book, just published by Simon& Schuster, is now available in book-stores. Public Citizen obtains informa-tion by gathering and analyzing allavailable records about prescriptiondrugs—sometimes even suing thefederal government to obtain them.While others have created sites aboutprescription drugs, Public Citizen’s isexceptionally comprehensive. They arethe only group to warn consumersagainst using certain drugs. PublicCitizen doesn’t take government or cor-porate money. Therefore, it is a com-pletely independent, unbiased sourceof information. Public Citizen PresidentJoan Claybrook, who in my opinion isa great American, states:

The major drug manufacturershave bombarded consumers withmisleading TV and print advertis-ing about prescription drugs, soconsumers have a compelling needfor unbiased information aboutsafety and effectiveness. This effortis part of Public Citizen’s decades-long commitment to protecting


consumers from products that canharm them.

Prescription drug safety is becomingmore relevant as people take moremedications. An estimated 100,000people in the United States die annu-ally from adverse drug reactions, andnearly 1.5 million people are injured soseriously by adverse drug reactions thatthey require hospitalization. Becauseregulators and drug companies areslow to recognize and react to drugdangers, Public Citizen created a “donot use” list of drug consumers should-n’t take. Big-selling drugs still on themarket but listed as “do not use” on WorstPills.org include: Crestor,Darvon, Bextra and Ultracet, Yasmin,Desogen and Orthocept, and Meridia.A year subscription to the website,www.WorstPills.org, costs $15, whichincludes a monthly e-newsletter andelectronic updates about dangerousprescription drugs. People who pur-chase the book can obtain a free six-month subscription to WorstPills.org.The “Worst Pills, Best Pills” book canbe purchased in bookstores or throughPublic Citizen for $19.95. All personswho wants to protect themselves andtheir families should take advantage ofall that Public Citizen has to offer.


DOCTORS TOLD TO BE MORE VIGILANT

Some interesting recommendationson healthcare came from a medicalconference held recently. In an effortto reduce medical errors, it was saidthat hospitals should use computers toorder drugs for patients, work harder atcoordinating treatment, and educatepatients to help care for themselves.Doctors who treat disorders of thehormone systems—such as diabetes—issued the proposals after a two-dayconference. The Institute of Medicinereported five years ago that medicalerrors kill between 44,000 and 98,000Americans annually. It is disturbing thatfear of medical mistakes still remains a

major concern for the public. Dr.Richard Hellman of the AmericanCollege of Endocrinology reported thatan estimated 50% of people with achronic condition at some time experi-ence a medical error in their care orthat of a family member. Dr. Hellmansays that the medical community needs“to collectively value safety.” He calledfor better information, education andmore coherent care.

Dr. Hellman said his group and theAmerican Association of ClinicalEndocrinologists are working with statepatient safety organizations in an effortto get their recommendations into usein local hospitals. The recommenda-tions from the conference included:

• Create a culture of safety in whichpeople work together, communicate,do backup checks and share infor-mation;

• Implement electronic patient recordsand information-sharing systems;

• Reduce medication errors throughuse of computerized physician orderentry;

• Improve coordination of care, focus-ing on teamwork among health pro-fessionals and other caregivers; and

• Improve patient self-care throughinformation and education.

STUDY LINKS FATAL ERRORS TOPHARMACISTS’WORKLOAD

A surge in pharmacist workloads atthe beginning of every month may haveled to fatal medication errors that havekilled more than 6,000 people a year, astudy of more than 47 million death cer-tificates found. That surprising finding isprompting recommendations byresearchers for government agencies toconsider spreading out social servicepayments, for pharmacies to increasestaffing at the first of the month, and forconsumers to exercise special care inchecking their prescriptions. At thebeginning of the month, there is a sharp

increase in government payments to theelderly, sick and poor. This results inhigher traffic at retail pharmacies aslower-income patients fill their prescrip-tions, according to research publishedin the January issue of Pharmacother-apy, the Journal of the AmericanCollege of Clinical Pharmacy. Pharma-cists must have adequate time to fill pre-scriptions and must be rested and alert.It’s documented that pharmacists makemore errors when they’re busy. Dr.David Phillips, a professor of sociologyat the University of California, stated:“The two things together prompted usto predict there would be this spike indeaths from medication errors. Andindeed, that turned out to be the case.”The study didn’t address how the errorsoccur or precisely who may be commit-ting them. David Hayes, a professor atthe University of Houston’s College ofPharmacy, who is a pharmacist andwho works several times a month at agrocery’s pharmacies, said the linksounds plausible, particularly in lower-income neighborhoods with larger Med-icaid populations. He says: “The first ofthe month is not a pleasant experience.It’s very busy. If you’re a pharmacist,you worry more at the end of the dayabout the things you did during the dayat the first of the month, if you’re inthose areas.”

To investigate their theory, leadauthor Phillips and his colleagueslooked at 47.7 million computerizeddeath certificates on a database main-tained by the National Center forHealth Statistics. They started with 1979because that’s when statisticians beganusing a special coding system to cate-gorize causes of death, and ended with2000, the year of the most recent data.Researchers examined death data,including date, cause, location ofdeath, age, gender, years of education,and substance abuse status. They usedyears of education to measure socioe-conomic status because a positive cor-relation has been established betweenthe two. The study focused on deathsresulting from poisoning accidents


from drugs. One category, “accidentaloverdose of drug, wrong drug given ortaken in error, and drug taken inadver-tently,” accounted for nearly all of thedeaths. The researchers found thatbetween 1979 and 2000, fatal medica-tion errors dipped sharply at the end ofthe month — when people may be outof money and can’t buy medicine. Atthe beginning of the month — whensocial service payments come in —fatal errors soared, showing a spike ofas much as 25% above normal at thebeginning of the month, leading to125,000 deaths in the time framestudied. The increase in fatal medica-tion errors didn’t vary by socioeco-nomic status and wasn’t larger forsubstance abusers than for others.Identification of the death spike andthe search for causes can potentiallyreduce the number of deaths frommedication errors, the researchers said.

My brother Billy Beasley, a pharma-cist who operates three drug stores inBarbour County, is very much aware ofthe problems that face his profession.There is a shortage of pharmacists andmany of those now working are havingto spend long hours on the job. Unfor-tunately, many of the chain drug storesare utilizing non-professionals to fillprescriptions, ostensibly under thesupervision of a registered pharmacist,and that is not good. I am convincedthat this type operation is causingproblems for consumers. Folks should-n’t have to worry that their prescrip-tions could be misfilled. My recom-mendation is to use a store where youknow and trust the pharmacist. That’sthe safety tip of the month!

RULE TO PERMIT HIGHER DOSES OF FOODIRRADIATION IS FLAWED

A recent U.S. Food and Drug Admin-istration decision will increase by 50%the maximum radiation dose that canbe used to irradiate food. This raisesquestions about the health effects ofconsuming such food. Public Citizen

believes the FDA should reconsider thedecision and wrote the agency a letterto that effect. Public Citizen believesthe rule should be revoked and isrequesting a public hearing. The rule,on which final comments were due onJanuary 25th, would significantly boostthe dose of X-rays that could be usedto irradiate fruit, vegetables, beef,poultry, pork, eggs, and spices from 5million electron volts to 7.5 millionelectron volts. The higher doses willallow large portions of food, such asshipping containers from overseas, tobe irradiated in one blast.

The rule may result in some radioac-tivity in food depending on the energyapplied, the type of food, and how soonit is eaten after it is irradiated. While theradioactivity is likely to be temporary,questions about its effect on food andconsumers remain. The FDA was reck-less to not assess cancer risks associatedwith the new rule, the letter said. TheFDA has a long history of ignoring ques-tions about the long-term effects ofeating irradiated food. Numerous healthproblems have been observed in labanimals fed irradiated foods, includingpremature death, stillbirths, mutations,tumors, organ damage, and stuntedgrowth. Chemicals formed in irradiatedfoods called 2-alkylcyclobutanones havebeen linked to colon cancer in rats andgenetic damage in human cells. There isevidence to suggest that irradiation’sbyproducts may be dangerous for ourhealth. The FDA’s first priority should bethe health and safety of American con-sumers. Unfortunately, this ruling isdesigned to benefit industry. Beforeissuing a rule of this magnitude, the FDAshould conduct safety studies on howthis increased dosage will affect con-sumers. At present, this isn’t being done.


XVIII.ENVIRONMENTALCONCERNS

SHELL SETTLES ORANGE COUNTY LAWSUITOVER MTBE CONTAMINATION

The Shell Oil Co. has become the lastof three gas and oil companies to settlea six-year-old lawsuit by OrangeCounty over soil and groundwater con-tamination caused by undergroundstorage tanks. Under the settlement,Shell will pay $14.5 million to conducttests to determine the amount ofmethyl tertiary-butyl ether (MTBE) inthe ground at 173 stations. Another $4million will fund consumer and envi-ronmental prosecutions, the countyHealth Care Agency, and some localfire departments. Shell also is requiredto pay whatever it costs to clean up theground at gas stations where the leaksoccurred.

MTBE is a gasoline additive thatstudies have shown could causecancer. It is banned in some states. Thechemical entered the groundwater inthe county, but not the deep aquifersfrom which drinking water comes. Thecounty sued Shell, Atlantic RichfieldCo. and Thrifty Oil Co. in 1999, alleg-ing MTBE leaked from undergroundstorage tanks at their gas stations. BPpaid $8 million in 2002 to settle thelawsuit over leaks from 122 ARCO sta-tions, and $1.6 million in 2003 for leaksat 43 Thrifty Oil Co. stations.

EPA FINDS POTENTIAL TEFLON CHEMICALRISKS

The Environmental ProtectionAgency is considering whether there is“a potential risk of developmental andother adverse effects” from exposure tolow levels of a chemical used inmaking the nonstick substance Teflon.The agency’s draft assessment of thepotential risks of perfluorooctanoicacid and its salts, known as PFOA, orC-8, is preliminary. The report, based


on animal studies, is being sent tooutside experts for helping in resolvingscientific issues in order to determinethe potential risks. The report is notmeant to be definitive until more infor-mation is gathered and the peer reviewis done. The EPA made it clear that noconclusions from the study are to bereached. The science advisory board isbeing asked to assist in making thekinds of scientific judgments required.

The initial report by EPA suggests thatPFOA could be carcinogenic in rats, butthe cancer hazard for people is lesscertain. It indicates the chemical targetsthe liver and is present in the breastmilk of rats. It also says there could bean effect on cholesterol and triglyceridelevels in people—similar to results fromchemical maker DuPont Co.’s publiclyreleased report. DuPont said its studyfound no overall health problems. In astatement, EPA officials said that whilethe agency “has concerns with respectto the potential nationwide presence ofPFOA in blood and with the potentialfor developmental and other effectssuggested by animal studies, there aresignificant uncertainties in the agency’squantitative assessment of the risks ofPFOA.” While PFOA is used to makeTeflon, it is not present in Teflon itself,which is applied to cookware, clothing,car parts, and flooring. PFOA also isused to produce materials used in fire-fighting foam, phone cables, and com-puter chips.

The Environmental Working Group,an advocacy organization that broughtDuPont’s record on PFOA to EPA’sattention, believes that, based on otherstudies of PFOA, the potential cancerand heart disease risks from the chemi-cal are being played down too much.The group feels there is a more seriousrisk than what EPA is discussing atpresent. DuPont’s study was releasedto the EPA and to its workers, whowere exposed to PFOA at its plant inParkersburg, West Virginia. Thecompany’s study was reviewed byexperts from five universities. I under-stand DuPont has more follow-up

research in the works.In its study, DuPont reported there

were “no human health effects knownto be caused” by PFOA. The companysaid its study was based on 62 bloodand urine tests among 1,000 employeesat DuPont’s Washington Works planton the Ohio River. DuPont said itfound elevated levels of total choles-terol and fats called triglyceridesamong workers exposed to PFOA, butnoted that the study data “did not indi-cate that PFOA was or was not thecause of the increases in serum choles-terol and triglycerides.” DuPont alsosaid its study found no associationbetween elevated PFOA blood levelsand liver function, blood counts,prostate cancer, leukemia or multiplemyeloma. The company is battlingcharges by EPA that it did not fulfill itslegal obligations to share lab resultsabout the potential harm from theunregulated chemical, known as PFOAor C-8, on several occasions. Anadministrative court hearing on thosecharges was held in December.

The company maintains that it didfulfill its obligations and that PFOA isharmless. But, DuPont will pay asmuch as $343 million to settle chargesit contaminated drinking water in WestVirginia and Ohio with PFOA over thepast 50 years. As many as 60,000 resi-dents around the plant sued over theirexposure to the chemical. The settle-ment will not become final until after apublic hearing later this month.

Source: Associated Press

CHLORINE FACTORIES CITED AS BIG SOURCEOF MERCURY POLLUTION

It has been reported that nine chlo-rine plants in the South and East pourat least eight tons of mercury into theenvironment each year — a situationthat demands federal action to forcecompanies to convert to cleaner tech-nology. Environmentalists believe theamount of mercury emitted by theplants may be even greater. While the

industry acknowledges that tons of thetoxic metal are unaccounted for eachyear, they say that mercury isn’tdumped into the environment. Chlo-rine at the plants is made by pumpingelectrically-charged salty water througha vat of mercury. This is a process thatwas devised more than 100 years ago.Environmentalists say these plants are alargely ignored and unchecked sourceof mercury pollution. Mercury settles inwaterways and accumulates in fish. Inhumans who eat those fish, the metalcan cause neurological and develop-mental problems, particularly in fetusesand children.

The Washington, D.C.-based environ-mental group Oceana has called on theEnvironmental Protection Agency torequire all the plants to convert tomercury-free technology by 2008. Thecalculations of how much mercury isdispersed into the environment are indispute. It is pretty clear though thatchlorine factories as a “major globalsource of mercury.” The industry, inreports to the EPA, says eight tons wereemitted in 2003. A plant in MuscleShoals, Alabama, emitted 1,757 poundsof mercury in 2003.

While total mercury emissions in theUnited States have fallen substantiallysince 1990, power plants remain thelargest remaining human-causedsource. They released 90,370 poundsof mercury into the air in 2002, themost recent year for which EPA dataare available. Federal guidelinesreleased last February place strict limitson the amount of mercury that powerplants can release. They place nosimilar caps on chlorine plants, but dorequire more frequent emission meas-urements and equipment inspections.Last year, three environmental groups—Earthjustice, Natural Resources DefenseCouncil, and Sierra Club — sued theEPA and began using other legal chan-nels to get power plant emission limitsextended to chlorine plants.

Source: Associated Press


XIX.TOBACCOLITIGATIONUPDATE

U.S. SEEKS $280 BILLION IN TOBACCO SUIT

The Justice Department’s lawsuitagainst the tobacco industry is awaitinga crucial ruling that could come at anytime. The federal government isseeking $280 billion in disgorgement ofprofits—the largest amount ever soughtagainst cigarette makers, and one ofthe highest awards sought in anylawsuit. But its attempt to recover thatsum could be thrown out by an appel-late court, leaving the case to be settledfor a few new marketing restrictionsand other marginal remedies. If theappeals court sides with the U.S.,however, government lawyers will tryto show at trial that the U.S. deservesas much as $280 billion. If the judgeagrees, the industry may have to post amultibillion-dollar “appeal bond” as itawaits further court action. Creditratings could be slashed, along withdividends to parent companies. Bank-ruptcy filings could ensue. So asinvestors and cigarette manufacturershold their breath, the question arises:How did the Justice Department get tothat number?

In the trial in federal district court inWashington, D.C., lawyers for theJustice Department are arguing thattobacco companies violated the Racke-teer Influenced and Corrupt Organiza-tions Act, also known as RICO, byconspiring to mislead the public aboutthe dangers of cigarettes. The trialjudge dismissed claims by the U.S. gov-ernment that it should be able torecoup money spent by the govern-ment to treat ill smokers throughMedicare and other health-care pro-grams. Medicare spends about $20billion a year treating smokers. Thetobacco companies had earlier soughtto persuade District Judge GladysKessler to dismiss the government’s

claim to $280 billion. But after sherejected their argument that the poten-tial sanctions are severely restricted bypast legal precedents, the companiesasked the appeals court to weigh in onwhether disgorgement of profits is anappropriate remedy—and if so, to whatextent. Now, government lawyers arecontending that the major tobaccocompanies committed fraud andshould have to forfeit all past proceedsfrom their wrongdoing—that is, $280billion. The sum technically isn’t“damages,” because the lawsuit isn’t aprivate action, but rather a RICO case,allowing equitable relief.

TEST SCORES LINKED TO SECONDHANDSMOKE

Children exposed to second-handsmoke have lower test scores inreading, math and problem solving,according to research published in theJanuary issue of Environmental HealthPerspectives. The findings confirmearlier studies showing that tobaccoexposure hurts children’s intellectualdevelopment. This study, whichincluded about 4,400 children, is saidto be even more persuasive because ofits size and the fact that researchers didnot rely on parents to recall how muchthey smoked. Researchers found thatchildren subjected to the least amountof smoke scored an average of 7 pointshigher in standardized math andreading tests, compared with childrenexposed to high levels. Children withthe lowest exposure also fared betteron two kinds of widely used reasoningtests. It is believed that about 33million children are at risk for readingproblems caused by “environmentaltobacco.” Exposure to secondhandsmoke was measured by testing forcotinine, a byproduct of nicotine in theblood.

The American Lung Association saysthat second-hand smoke contains 200poisons, including 69 that causecancer. Most smokers know by now

that smoking is bad for them. Unfortu-nately, however, parents who smokedon’t really know that smoking is alsobad for their children. The findingsfrom this study give cities and statesanother reason to ban tobacco inpublic places and for insurers to payfor programs that help smokers quit.Tobacco is now believed by medicalexperts to be as harmful to children’sbrains as lead. Fetuses exposed totobacco in the womb are more likely tobe born small or suffer other problems.No child in this country should beexposed to second-hand smoke. Infact, neither should adult non-smokers.

Source: USA Today

TOBACCO COMPANIES GO AFTER YOUNGFOLKS

The tobacco industry simply won’tgive up. They are still trying to hookyoung people and cause them tobecome addicted. A new kind of socialevent, tobacco-industry-sponsoredparties on college campuses, completewith complimentary cigarettes, are oneof the latest tools used. The results of anew study published in USA Todaysuggest these parties are a powerfulmarketing tool that encourages youngpeople to start smoking. Nearly one in10 college students have gone to anindustry-sponsored party, according toan article in the January edition of theAmerican Journal of Public Health. Stu-dents at all but one of 119 colleges sur-veyed have attended the parties. Thepercentage of students at the schools ispretty high. At one school, 27% of stu-dents have attended these tobaccobashes, which often include live musicand freebies such as T-shirts. Studentswho did not smoke before collegewere almost twice as likely to start ifthey attended industry-backed partiesthat included free cigarettes, the USAarticle said.

The article was based on results fromthe Harvard School of Public HealthCollege Alcohol Survey, for which


nearly 11,000 students were interviewedin 2001. Many believe the findings putcollege administrators on notice.Tobacco-sponsored events aim to linksmoking with alcohol, music, andsocializing. The study found that bingedrinkers and marijuana users were morelikely to attend these parties. The rate ofcigarette smoking declined from 1993 to2000 among all adults, except thoseages 18 to 24, according to the study.Researchers note that college studentsare the youngest legal target for tobaccomarketing.

In the national tobacco settlement in1998, tobacco companies agreed not tomarket to anyone under 18. Tobaccocompanies have since shifted their mar-keting efforts toward brand-centeredsocial events, says Nancy Rigotti, direc-tor of the Tobacco Research and Treat-ment Center of Massachusetts GeneralHospital. Clearly, the tobacco industryis marketing to young adults as replace-ment smokers to replace the ones whodie. That has always been their modeof operation. The American CollegeHealth Association suggests that col-leges should not permit companies togive away tobacco products, such ascigarettes or smokeless tobacco, or tosponsor events on campus.

Source: USA Today

FLAVORED CIGARETTES AND COLORFULWRAPPERS

The tobacco companies are not justtargeting the college crowd. The indus-try is also using flavored cigarettes thatare designed to lure very young chil-dren into lighting up. A report releasedby the American Lung Association criti-cizes so-called candy-flavored ciga-rettes. The packages are designed toattract children. Clearly, the tobaccocompanies are finding new ways toaddict young folks. Some examplesare:

• Kool’s “smooth fusion” cigarettescome in “midnight berry” and“mocha taboo;”

• Camel offers flavored cigarettes year-round, as well as seasonal products,such as pineapple coconut in thesummer and toffee in the winter;

• Skoal chewing tobacco varietiesinclude apple and berry; and

• Lesser-known brands of cigarettescalled Sweet Dreams and CaliforniaDreams, made by California-basedKretek International, come in brightor pastel wrappers.

Although the 1998 tobacco settlementforbids targeting children with cartooncharacters such as Joe Camel, criticsnote that flavored cigarettes often aremarketed with drawings. It should benoted that anti-tobacco groups alsocontend that sugary flavors may softenthe experience of smoking for the firsttime. In any event, this tactic is a primeexample of how the tobacco compa-nies are going after young people inorder to maintain their market. If theydon’t get to the children, the marketwill eventually be lost.

Source: USA Today

XX.THE CONSUMERCORNER

A HOLE IN AUTO REGULATION

Most folks don’t realize that there is ahuge gap in auto-industry regulationthat deals with vehicles adapted fordisabled drivers. Presently, there arealmost no rules specifically written forthose vehicles. Some believe that holeexists, in large part, because the peopleit would benefit don’t want anything toencumber their freedom to drive.That’s not too hard to figure out, butthat doesn’t excuse the oversight. Mod-ified vehicles should have an enginekill-switch within easy reach of a driverand a Global Positioning System deviceto broadcast their location in an emer-gency. That is a fairly simple thing to

do from a design perspective. Thefederal Department of Transportationestimates there are as many as 2.3million modified vehicles on the roadthat are designed for drivers or passen-gers who have lost mobility because ofinjured limbs or spinal-cord injuries.

Regulatory agencies closely track thecar industry, but they have paid verylittle attention to this important area.The National Highway Traffic SafetyAdministration has written just onesafety rule that deals with this area ofconcern. It relates to a device that liftswheelchairs into vehicles. No oneknows how many modified vehiclesmalfunction or crash because regularpolice records don’t contain suchdetailed information. What little over-sight exists comes from veterans’groups and state-based rehabilitationprograms that pay for customizationwork. Unfortunately, that is very littleinsofar as safety is concerned.

Forms completed by local law-enforcement officials don’t indicatewhether crashed vehicles wereequipped with special controls for dis-abled drivers. Another source of infor-mation is a national database based onrandomly sampled reports from acci-dents in which vehicles were towed.From that data, NHTSA estimates thatbetween 1997 and 2003, an annualaverage of 3,200 adapted vehiclescrashed and were towed, or 0.14% ofadapted vehicles in circulation. Bycomparison, about 3.3 million regularvehicles, which are more heavily regu-lated—or 1.6% of the total—suffered asimilar fate. It’s still hard to know howmany adapted-vehicle crashes werecaused by mechanical malfunctions. Todate, NHTSA rulemakers haven’t pro-posed new regulations for adaptedvehicles. The agency’s report listingrules likely to be proposed or finalizedin the coming year contains no refer-ence to them. Hopefully, NHTSA willtake a closer look at this situation andtake some action.



CLASS ACTION SUIT AGAINST H&R BLOCKSURVIVES

H&R Block has lost a U.S. SupremeCourt bid to break up a class actionsuit that accuses the tax-preparationservice of gouging as many as 17million customers on refund loans. Thesuit contends many consumers paidinterest rates of more than 100% andwere not told Block profited from theloans, which provided advances onanticipated refunds. At one time Blockand banking partner Household Inter-national tried to settle the case for $25million. However, a federal appealscourt overturned that bid in 2002,saying the settlement wasn’t in the bestinterest of customers. Now the lawsuitwill proceed as a class action.

ADVERTISING CLAIMS SHOULD TELL THETRUTH

The maker of Listerine mouthwashwill have to spend $2 million toreplace what a judge called misleadingadvertising suggesting the product is aseffective as flossing at fighting plaqueand gingivitis. Stickers will have to beplaced over the claim on Listerinebottles nationwide. Advertisements thathang on bottlenecks will also have tobe removed. Television, print, andmedical-journal ads using the cam-paign are also being pulled. The as-effective-as-floss campaign has beenremoved from the Listerine website. AU.S. District Judge ruled that the adver-tising poses a public health risk andcould undermine the message of dentalprofessionals. The lawsuit was filed bya Johnson & Johnson company thatmakes dental floss.

The judge said dentists have beenurging patients to floss for decadesbecause the benefits “are real — theyare not a myth.” McNeil-PPC Inc., asubsidiary of Johnson & Johnson, suedPfizer over the campaign, which beganin June, saying it posed an unfair threatto its sales of dental floss. Pfizer is con-sidering an appeal of the injunction.

According to the company, severalmillion bottles will be affected by theruling. Pfizer’s advertising campaignfeatured a TV ad titled “The Big Bang”that asserts Listerine is clinically provento be as effective as floss. The ads didcaution, however, that there is no sub-stitute for flossing. However, most folkswould likely believe that Listerine wasa substitute for flossing, because of theads. Pfizer said it disagreed with thecourt’s ruling, but that the companyintended to comply with it.

CAR DEALER SETTLES DECEPTIVE ADCOMPLAINT

Bill Heard Enterprises, a Columbus,Georgia-based auto dealer, has agreed toa 188,000 dollar settlement after the inves-tigation of deceptive advertising practicesby the Georgia governor’s Office of Con-sumer Affairs. The settlement involvesfour metro Atlanta dealerships—BillHeard Chevrolet at Town Center, Bufordand Union City, and the Tom Jumperdealership in Roswell. The practices citedby the State of Georgia include:

• Telling customers they were pre-approved for a loan when they werenot.

• Claims that vehicles were availablefor sale when they were not.

• Claims that all vehicles came withlimited warranty when they did not.

• Claims that cars were available inrepossession sales when most of thevehicles were not repossessed.

The dealer says that changes areunder way and that comprehensivetraining to its managers will be pro-vided as part of the agreement. BillHeard Enterprises employs more than3,500 people at 15 dealerships inGeorgia, Alabama, Florida, Tennessee,Texas, Nevada and Arizona. I hope thissettlement will result in consumersbeing treated fairly in the future.

KEROSENE HEATERS CAUSE SERIOUSPROBLEMS

The latest statistics from The NationalFire Protection Association (NFPA)show two out of three reported homeheating fires, leading to injuries anddeaths, involved portable and fixedspace heaters. In cold weather manyfolks turn to portable heaters for a littleextra warmth. Out of all the types ofheaters, the NFPA says portablekerosene heaters have the highest riskof fire death, and they’re actually illegalin some states. Fire officials discouragepeople from using a flammable liquidas a fuel. If they must be used, thereare several safeguards that should befollowed:

• Make sure the kerosene is K-1 cleartype;

• Never refill the heater inside or whenit’s hot;

• Keep the heater at least three feetaway from flammable materials; and

• Don’t let children go near it.

Fire officials say there are plenty ofsafer heaters out there. You should usean electrical device with ceramic typeheating element. No open flame shouldbe used with oil filled radiators.Portable kerosene heaters can’t beused in public places like stores,restaurants, or nightclubs.

XXI.RECALLS UPDATE

FORD RECALLS 262,113 ESCAPE SUVS

Ford Motor Co. has recalled 262,113Ford Escape sport utility vehicles torepair a defect in the rear gate. Therecall, the second for the vehiclesduring December, covers 2001-2005models whose rear lift gate could openduring a crash. The National HighwayTraffic Safety Administration reportedthe recall on its website. In addition,


49,800 of Mazda Motor Corp.’s TributeSUVs, similar to the Escape, wererecalled for the same problem. Fordhad earlier recalled 470,245 SUVs fromthe 2002-2004 model years because ofa possible accelerator problem thatcould result in elevated engine speeds.

FORD TO RECALL 792,000 SUVS,TRUCKS

The Ford Motor Company will recall792,000 Ford vehicles because of firescaused by faulty cruise control systems.The entire 2000 model year of the Nav-igator, Expedition and F-150 truck willbe recalled along, with a limitednumber of 2001 F-150 Super Cabs. TheNational Highway Traffic Safety Admin-istration opened an investigation intothe problem in November, havinglooked at 39 incidents in which firesoccurred. At the time, Ford officialssaid they were cooperating with theagency’s investigation. All of the firesoccurred when the vehicle was alreadyparked and with the engine turned off,according to the NHTSA. In some ofthe incidents, garages and a househave burned down. There have beenno reports of fatalities or injuries.

Ford does not have enough newcruise control systems in stock to makethe changes to the vehicles. Peoplewho bring their sport utility vehicle ortruck back to a dealer will have theircruise control systems deactivated, butthey won’t be replaced. The recall isnot expected to bring an end to theNHTSA investigation because investiga-tors are not convinced that other modelyears don’t have the same problem. InNovember, ConsumerAffairs.Comreported receiving numerous com-plaints about similar problems withFord trucks and SUVs from the 1997model year. In 1999, Ford had to recall279,000 Lincoln Town Cars, MercuryGrand Marquis, and Ford Crown Victo-rias from the 1992 model year becauseof the same problem.

GM RECALLS OVER 98,000 TRUCKS

General Motors Corp. is recallingmore than 98,000 pickups, vans andsport utility vehicles because of apotential problem with their powersteering and braking systems. An advi-sory on the website of the NationalHighway Traffic Safety Administrationsaid the problem, which can hamperbut not eliminate the ability to stop orsteer the vehicles, stems from fracturesin their hydraulic pump driveshafts.Vehicles affected by the recall are fromthe 2000 model year and includeChevrolet C/K and Silverado pickupsand Suburban SUVs. GMC Savana vansare also affected, along with GMCSierra pickups and Yukon XL SUVs.GM was hit with numerous vehiclesafety recalls last year. The latestannouncement is another blow to theautomaker’s claims of improvedquality. The timing was not goodbecause GM was playing host inDetroit to the North American Interna-tional Auto Show.

PUSH AND ELECTRONIC TOYS RECALLED

The U.S. Consumer Product SafetyCommission is recalling about 5,200push and electronic toys imported byLos Angeles-based AA Importer Inc.The CPSC says the toys can easilybreak apart, exposing small parts thatpose a choking hazard to young chil-dren. Thus far no injuries have beenreported. The recall includes threetoys: Push Along Frogs, Animal Organs,and Rock & Roll Kids Guitars. ThePush Along Frog toy has a green plasticfrog attached to a red plastic handle.The electronic Animal Organ comes infour different styles, all about 11 incheslong. The style number, written on theback of the toy, begins with “666.” Theelectronic guitars are about 14 incheslong and have various colored buttons.The recalled toys were sold from July2003 through October 2004 for about$3. Consumers can call (866) 879-4667for information on returning the toys to

the importer for a refund and postagereimbursement.

XXII.SPECIALPROJECTS

CRASHSAFETY.COM WEBSITE

There is a new resource relating toautomobile safety and information thatour readers should know about. A teamof developers set out to put together awebsite like no other website on theInternet. Their dreams came true onJanuary 10, 2005, with the launch ofCrashSafety.com. This site, or “CS” asthe developers call it, is filled withcrash safety data, technical service bul-letins, recall information, legalresources and a host of other informa-tion related to vehicles. The informationis pulled from a variety of crediblesources including the National HighwayTraffic Safety Administration, Office ofDefective Products, Insurance Instituteof Highway Safety, as well as manyother safety groups and organizations.

Recalls and Safety ratings can besearched based on the year, make, andmodel of the vehicle. Under the Per-sonal Injury section, visitors can readabout common injuries sustained fromdefective products. If the visitor deemstheir injuries to be such that a lawsuitmay be necessary, they can get a quickidea of what their lawsuit might beworth by checking out the “LawsuitCalculator.” Although this informationis strictly hypothetical, it is based onthe formula used by many insurancecompanies to determine legal liability.Finally, if a lawyer is needed, thevisitor can contact a person who prac-tices law in their area by clicking onthe “Contact a Lawyer” link on the CShome page.

As an added resource, informationabout purchasing a vehicle, insuring avehicle, or selling a vehicle can all befound at CS. If a person wants to see


how the gas prices in their areacompare to the rest of the country, thatcan be found on this site. To top offthe vast compilation of resources, theCS team updates the site around theclock with news related to automobilesand automobile safety. I recommendthat our readers take a moment to visitCrashSafety.com—there just might besomething there concerning the vehiclethat you drive everyday. In fact, youmight even find that your car, truck orSUV has been recalled.

KATE’S CLOSET HELPS FORMER INMATES

There is a special project at thechurch where my wife Sara and Iattend that I believe deserves specialmention. One of our members, KimBullard, is founder of a clothing min-istry known as Kate’s Closet at St.James United Methodist Church. Thisministry provides business attire towomen incarcerated at Tutwiler Prisonwho are nearing parole. Kim says: “Wedon’t care why they were there. That isnot discussed. Our goal is to show thelove of Jesus to every woman thatwalks through that door and to providethem with a special experience.” Kimand volunteers from the church run theboutique in the “Rock House,” which ison the church property on VaughnRoad. The ladies are given a Bible, sixoutfits, a pair of shoes, a purse, match-ing accessories and a basket filled withsuch toiletries as soap, shampoo, andtoothpaste—all at no cost. The womencome to Kate’s Closet as part of the LifeTech program, which provides charac-ter training, job interviewing skills, andtips for creating a resume. The itemsthey get from Kate’s Closet help themas they prepare for a fresh start in life.

Kim got the idea to start Kate’s Closetafter hearing the story of Kate Richard-son of Aid to Inmate Mothers. Ms.Richardson, who spent time in prison,talked to a mission group at St. Jamesabout some of the challenges incarcer-ated women face after they are

released from prison. Inspired by herspeech, the church group began offer-ing the baskets to the women whenthey got out of Tutwiler. But Kim, agraduate of Huntingdon College inMontgomery, was moved to do more.In 2002, Kate’s Closet was born. Theplace is really nice and could pass foran upscale ladies store. Warm recessedlighting reflects off the soft pink wallslined with baby blue trim. Beads andbroaches help accent the three roomswith washed and pressed racks of col-orful clothing, divided by size. At firstglance, it looks like an upscale bou-tique. But those who work and comethere say it’s so much more. To date,Kim and the store’s team of “personalshoppers” have outfitted about 275women. The St. James ladies who runKate’s Closet believe their “customers”deserve a second chance and arehelping to make that a reality.

Kim, Judy Dunn, Rhonda Webb, andLynn Reese are a few of the ladies atSt. James who help out at Kate’s Closet.They say that the women they’vetouched in turn have touched theirlives. They say when the women comein, they are apprehensive at first. Butonce they put on their new outfits anda little makeup, smiles appear and tearsbegin to flow. The comment they hearthe most: “Is that really me?” They arestarting a new life, a positive life. Whenthey come to Kate’s Closet, some ofthem are getting things they have neverhad. The ladies at St. James are fortu-nate to be blessed and to pass thoseblessings along to others. The wordabout Kate’s Closet has spread. Theproject has been featured in severalChristian women’s magazines, asegment on public education televi-sion, and in a great article in the Mont-gomery Advertiser. Presentations havebeen made about the project at areachurches. More women are using theprogram, and our ladies are touchedby the response they are receiving.Kim says: “When the ladies walkthough our door, it’s hard for them tobelieve that somebody who never met

them loves them, but we do. We neverforget them.”

SAM AND KRISTY WILLIAMS ARE SPECIALFOLKS

Sam and Kristy Williams have starteda most unusual ministry. The husbandand wife team have a traveling pettingzoo with all sorts of exotic animals aswell as the normal kind (donkeys,horses, cows, a camel, foxes, etc.). Samand Kristy love children and believethis is a good way to spread and sharethe love of Jesus Christ to young chil-dren and their parents. This is a greatevangelistic tool in my opinion. Samand Kristy will travel anywhere inAlabama and will go out of state onrequest. They have been on the roadfor the past several months prettymuch full-time. Sam gave up a goodjob as a game warden to make thisministry a full-time affair. Sam is fromClayton, which is my hometown, and isa good person. He is the son of a goodfriend of mine—Sammy Williams—who was an all state football and bas-ketball player at Clayton High School,where we both graduated. I am veryproud of Sam and Kristy and justwanted our readers to know that somegood things are still happening in thisworld. If you want to learn more—write Sam or Kristy—1233 County Rd6628—Banks, Alabama, 36005 or callthem at (334) 343-5407.

XXIII.FIRM ACTIVITIES

EMPLOYEE SPOTLIGHTS

Leigh O’DellLeigh O’Dell will be returning to the

firm in April. Leigh was a lawyer withus from 1994 through 1998. She left in1998 to take a position with Focus onthe Family. Under the leadership of Dr.James C. Dobson, Leigh served Focuson the Family as Director of Women’s


Ministries. In that capacity, Leigh wasresponsible for Renewing the Heart, anation-wide series of one-day arenaevents designed to encourage andrefresh women through worship andthe Word of God. Leigh came back tous in 2000 for a short time beforejoining AnGeL Ministries, the ministryof Anne Graham Lotz, daughter of Dr.Billy Graham. As Director of Events,Leigh was responsible for the develop-ment and execution of Just Give MeJesus, a nation-wide series of two-dayarena events devoted to the exaltationof Jesus Christ and designed to revivethe Church. Leigh will stay with Anneuntil she completes some pendingmatters. We are most fortunate to haveLeigh coming back to the firm. She is avery good lawyer and more impor-tantly a fine person in every respect.Leigh will be working in our MassTorts Section.

Deborah HochhalterDeborah Hochhalter, who has been

with our firm for 7 years, currentlyserves as Julia Beasley’s legal assistant.In this position, Deborah, who is avaluable member of the litigation teamin her section, assists with all phases oftrial preparation. She also participatesin the trials. Deborah attended Hunt-ington College and received a ParalegalDegree from Jones Law School.Deborah’s husband, Dana, is employedby Steris Corporation. Her son Shawnand his wife Kristen are expecting theirfirst child in May. The baby boy willbe Deborah’s first grandchild. We arepleased to have Deborah, who doesexcellent work, with the firm.

XXIV.SOME PARTINGWORDS

President Bush and the powerful cor-porate lobby in Washington are mount-ing an attack on the civil justice systemthat is unparalleled in my lifetime. I

don’t believe their well-financed andcarefully planned attack will be suc-cessful, however, because the entireeffort has been based on a falsepremise condemning what theydescribe as “frivolous lawsuits.” Thetruth is that the tort reformers considerall lawsuits as frivolous. It is extremelytroubling that the Bush White Househas such little regard for ordinarypeople. The control that CorporateAmerica had over the first Bush Admin-istration seems to have intensified. Ihope and pray that President Bush willeventually realize that he is the Presi-dent of all Americans and not just therich and powerful. There are so manyproblems facing our nation that wecan’t afford to be further divided. Adivided nation can’t maintain a positionof leadership on the world stage andthat is as certain in today’s world asdeath and taxes. I believe that unifyingour people should be a primary goal ofthis President. If he will do that ournation will be much better off at homeand certainly much stronger around theworld. I will continue to pray for Presi-dent Bush and encourage all of ourreaders to do so.

On the national political scene, Ihave two small pieces of advice for myDemocratic friends. The first is thatsomebody needs to tell John Kerry hiscampaign is over and he lost awinnable race. The second is that wedon’t need Howard Dean to head upthe National Democratic Party. We lostthe election because those in chargeran a very poor campaign. We canassume more losses in the future if weturn the helm of the party over toDean. Hopefully, there is a man orwoman somewhere in this countrywith some good common sense and asense of what’s right and wrong whocan head up the party and help usright a “leaking” ship. If we don’t wakeup—it will soon be a “sinking” ship.

I have had several folks tell me thatthey have become discouraged anddon’t know where to turn because ofall the monumental problems facing us

today. We have all read ThomasPaine’s words of two hundred thirtyyears ago and probably never reallypaid much attention to what this patriotwas really saying. He was calling toarms a people who were largely oblivi-ous to what was going on aroundthem. Paine’s words apply today in thiscountry as much as they applied to thecolonists of 1777.

These are times that try men’s souls.The summer soldier and the sun-shine patriot will, in this crisis,shrink from the service of theircountry; but he that stands now,deserves the love and thanks ofman and woman.

Thomas Paine1777

We can certainly take a lesson fromthose powerful words. Standing up forthe rights of ordinary people is not out-of-style and is something those of us inmy profession should do at everyopportunity. Personally, I will fight forpeople so as long as I have breath inme. God has greatly blessed me andmy family and I sincerely believe that Iam obligated to work diligently forthose who are less fortunate and forthose whose rights and liberties arebeing trampled upon. We can also alltake a lesson from Jesus who tells ushow we should treat other people.When on this earth, He told the Phar-isees—when asked—that the greatestcommandment was:

You shall love the Lord your Godwith all our heart, with all yoursoul, and with all your mind. Thisis the first and great command-ment. And the second is like it: Youshall love your neighbor as your-self. On these two commandmentshang all the Law and the Prophets.

Matthew 22:37-40

Jesus further instructed His own dis-ciples on how to deal with people andthe world’s problems by teaching themas follows:


And seeing the multitudes, He wentup on a mountain, and when Hewas seated His disciples came toHim. Then He opened His mouthand taught them, saying: Blessedare the poor in spirit, For theirs isthe kingdom of heaven. Blessed arethose who mourn, For they shall becomforted. Blessed are the meek,For they shall inherit the earth.Blessed are those who hunger andthirst for righteousness, For theyshall be filled. Blessed are the mer-ciful, For they shall obtain mercy.Blessed are the pure in heart, Forthey shall see God. Blessed are thepeacemakers, For they shall be

called sons of God. Blessed arethose who are persecuted for right-eousness’ sake, For theirs is thekingdom of heaven. Blessed areyou when they revile and persecuteyou, and say all kinds of evilagainst you falsely for My sake.Rejoice and be exceedingly glad,for great is your reward in heaven,for so they persecuted the prophetswho were before you.

Matthew 5:1-12

We would all do well to retool ourpersonal walk through this life tofollow as fully as possible the teachingsof our Lord and Savior. If we did this,

this country would become a muchbetter place for all of us. In fact, itwould be a place where the “servants”were truly above their “masters” inevery way and where the rights anddignity of our fellow man were reallyrespected. Jesus was very clear intelling us to be concerned with theneeds of the “least of us” and that, I amafraid, all of us ignore too much of thetime. I know that I have lots of work todo in my personal life in this respect. Isuspect there are others who may alsohave the same need. I suggest we allread Matthew 25: 31-46. There is agreat message there for us!


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