AAA & NAF suspend arbitrations over consumer debt collections pending new guidelines

The Wall Street Journal (7/22, Sidel, Sharma) reports, "Two major arbitration firms are backing away from the business of resolving disputes between customers and their credit-card and cellphone companies, throwing into disarray a controversial system that prevents unhappy consumers from filing lawsuits. The American Arbitration Association said Tuesday it will stop participating in consumer-debt-collection disputes until new guidelines are established." The National Arbitration Forum, in a settlement with Minnesota Attorney General Lori Swanson, had earlier said "it would stop accepting new cases as of Friday. Their retreat has big implications for credit-card and cellphone companies, which generally require customers to agree to mandatory arbitration." Consumer advocates "have criticized the practice for years, saying consumers often don't realize they are waiving their right to sue when they sign contracts with the companies."

The Wall Street Journal (7/22, Kim) reports, "Consumer advocates say the development opens the door for customers to take their grievances to court instead of being forced to settle their disputes through the arbitration process. 'In the long run, I think this is the beginning of the end of forced arbitration in all consumer contracts, from credit cards, to nursing homes to cellphones,' said Ed Mierzwinski of U.S. PIRG, a consumer-advocacy group."

The San Francisco Chronicle (7/22, Abate) reports, "A congressional committee will hold hearings today at which NAF and its adversaries will argue about whether consumers are put at a disadvantage by the common practice of requiring that disputes be arbitrated rather than fought in court." Carol Kaplan, "a spokeswoman for the American Bankers Association, which represents many credit card issuers, said most consumer contracts are probably written in such a way that another arbitrator could be designated to replace National Arbitration Forum. But Paul Bland, a staff attorney with the advocacy group Public Justice, said NAF was the designated arbiter in so many consumer agreements, including cell phone contracts, that no other arbitration service is big enough to replace it."

Update: Mistrial in Alabama Drug Pricing Case Against Watson Pharmaceuticals

Montgomery County Circuit Judge Charles Price declared a mistrial after jurors were unable to reach a verdict in the trial of Alabama's prescription drug overpricing lawsuit against California-based Watson Pharmaceuticals.

Judge Price said this past Monday jurors appeared to be hopelessly deadlocked after more than seven hours of deliberations. He said he expects the case will be tried with a new jury in September.

Attorneys representing the state claimed Watson cheated the state's Medicaid program out of $23 million over about 14 years.

The trial lasted four weeks. Jurors had begun deliberations last week and continued Monday afternoon.

The case is State of Alabama v. Watson Pharmaceuticals Inc., CV2005-219.76, Montgomery County, Alabama Circuit Court (Montgomery).

Source: Bloomberg

Update: Alabama Drug Pricing Lawsuit Case in Juries Hands

Watson Pharmaceuticals, a manufacturer of generic and brand name prescription drugs, is one of the 70 pharmaceutical companies Alabama Attorney General Troy King sued over pricing allegations in 2005.

Watson is accused of inflating prices on lists used to determine how much the state should reimburse pharmacists for drugs provided to people on Medicaid Article Controls.

After more than two weeks of testimony in the complicated case, Montgomery County Circuit Judge Charles Price sent the case to jurors around 1:30 p.m. on Wednesday. They deliberated until about 4:30 p.m. when Judge Price called a recess until Monday morning and told the lawyers to keep working on a resolution.

Jere Beasley representing the state in closing argued that Watson cheated Alabama's Medicaid program out of $23 million from 1991 to 2005. "Nothing so far has gotten their attention," Beasley told the panel of nine women and three men. "I would suggest that you take the $23.8 million as a base and say three times or five times that amount as the punitive damage award."

Beasley also said the alleged "boardroom fraud" is common in the industry, and the country's neediest citizens have been ripped off for years. Change will only come through hitting drug makers in their pocketbooks, he said.

The state claimed it was led to believe it was paying below wholesale prices for medication, but the company said Medicaid officials should have known they were paying higher prices.

Watson attorney James Matthews countered that the state knew for more than a decade that it wasn't being charged the below-wholesale price.

He told jurors the state had plenty of clues, including those in its own documents, to see it wasn't paying the lowest price.

"These are the state's own documents," Matthews said. "Ask yourself -- should that have made them suspicious? Did they really rely on the belief that those were net prices in light of all of that?".

Beasley questioned why Watson didn't bring any of its CEOs or other top executives to testify about its pricing policy and why a liability expert who was present during the trial was never called to the stand.

Matthews said the company expert wasn't needed under oath, and dismissed a state expert as someone who did shoddy work going through files and employee depositions that Watson provided.

"The real truth here is that there is no fraud," he said. "The evidence doesn't support the claims."

Last month, Alabama announced it had settled drug pricing lawsuits against six pharmaceutical companies for $89 million. They included lawsuits against Abbott Laboratories of Chicago and Forest Laboratories, with corporate headquarters in New York City. Both were scheduled to be tried with the Watson case.

The state had previously settled with 10 companies for almost $35 million. Alabama's lawsuits against four companies have gone to trial, with the state winning judgments against each totaling $352.4 million. Those verdicts are being appealed.

Sources:

http://www.forbes.com/feeds/ap/2009/07/09/ap6635121.html

http://www.businessweek.com/ap/financialnews/D99ATL880.htm

Financial Fraud Gives Former Healthsouth CFO 3 Months in Prison

On Tuesday, Tadd McVay, a former HealthSouth Corp. finance chief, was ordered to spend three months in federal prison for his role in the $2.6 billion financial fraud that nearly wrecked the company.

Although Scrushy was acquitted of criminal charges, last month a judge's ruling in a shareholder lawsuit held Scrushy liable for fraud which ordered him to pay $2.9 billion in damages. When the fraud was uncovered in 2003, HealthSouth was nearly forced into bankruptcy.

Despite McVay's pleas to stay out of prison, U.S. District Judge Inge Johnson ordered him to 3 months in prison after McVay had pleaded guilty in a scheme to inflate earnings six years ago and served five years on probation and six months of house arrest.

Since the 11th U.S. Circuit Court of Appeals agreed with prosecutors that the penalty was too lenient, Judge Johnson ordered McVay to prison.

McVay was among five finance chiefs who pleaded guilty to crimes while working under Richard Scrushy, the former HealthSouth CEO. The fraudulent reports, aimed at meeting Wall Street forecasts, were sent to federal regulators between 1996 and 2002.

McVay has said he was promoted to chief financial officer at HealthSouth in late 2002 and signed a phony earnings statement rather than lose his job, which paid him $400,000 a year.

Sources:

http://www.al.com/newsflash/index.ssf?/base/lottery-5/124653284323960.xml&storylist=alabamanews

http://www.nwanews.com/adg/Business/263341/

Katrina-FEMA Trailer Lawsuits Filed by Alabamians for Formaldehyde

Sixty-six people in Mobile County, Alabama filed federal lawsuits against the manufacturers of travel trailers accusing them of exposing them to dangerous levels of formaldehyde after Hurricane Katrina.

The plaintiffs join about 23,000 others that have been filed in Mississippi, Louisiana and Texas. The Alabama suits name seven manufacturers, along with those who won no-bid contracts to install the trailers.

The civil complaints contend that the plaintiffs, who live mainly in south Mobile County, developed conditions such as asthma and are at increased risk of cancer.

Attorney Ronnie Penton, who represents the Plaintiffs, said he will add the Federal Emergency Management Agency as a defendant but cannot do so under federal law until after a 180-day waiting period.

The current suit and the additional 40 civil complaints Mr. Penton plans to file by August 1, will be transferred to a federal judge in New Orleans, who has been appointed to oversee all of the travel trailer litigation along the Gulf Coast.

Attorneys believes this is the first group of Alabamians to file suit over the formaldehyde issue.

"It's the first breakthrough we've had in a long, long time to get some relief for these people," said Tyson, the father of Mobile County District Attorney John Tyson Jr. and a former Bayou La Batre city attorney and judge. "We found them in incredible bad condition, and no one was working on their behalf."

The lawsuits accuse the companies of resorting to substandard materials in order to expedite the manufacture of the housing units and failing to warn the government. Allegations also say poor trailer installation methods by contractors caused stress and flexing on their frames, increasing moisture and formaldehyde exposure.

The suit also says internal FEMA e-mails uncovered by a Congressional investigation showed that government officials were more concerned with potential lawsuits than in ensuring the health and safety of some 150,000 families that needed temporary housing after Katrina and Hurricane Rita.

Penton said the evidence is clear that government officials knew about the formaldehyde risks, "and they failed to tell the public about it." Penton went on to say he believes "in fact, it was a cover-up."

The first of the FEMA trailer lawsuits is scheduled to go to trial in New Orleans in September.

U.S. District Judge Kurt Engelhardt in New Orleans will handle all pretrial matters in the Alabama cases before sending them back to Mobile for trial.

The plaintiffs seek compensation for past and future injuries, as well as punitive damages against the manufacturers and contractors.

Source: Press Register

Government Study relates Formaldehyde to increased deadly cancer risks:
http://www.nlm.nih.gov/medlineplus/news/fullstory_84179.html

$10.4 Million Jury Verdict returned in Breach of Contract & Fraud case

A jury ordered Cello Energy to pay $10.4 million over allegations the firm fraudulently claimed it could produce cheap fuel from hay, waste wood and other material.

Cello Energy is based out of Bay Minette and owned by the former head of the Alabama Ethics Commission, Jack Boykin.

The federal lawsuit was filed by Cello Energy bio fuel investors, Parsons & Wittemore Enterprises; a New York based paper company which also owns a pair of pulp mills in southwest Alabama.

Although Cello Energy built and staffed a plant, Parsons & Wittemore insisted the plant never accomplished what Boykin had long promised—deriving motor fuel from wood chips, crop residue and other biomass.

The jury ruled Monday that Cello Energy and Boykin Trust, the partnership that owned it, were liable for $2.8 million for breach of contract with Parsons & Whittemore. The jurors also decided that the companies, along with Jack Boykin and his son Allen Boykin, were personally liable for another $104,537 for fraud and awarded $7.5 million in punitive damages against all the defendants.

Boykin vowed to move forward with his process for producing fuel. His attorney, Forrest Latta, said Boykin's method has the potential to transform the world.

Parsons & Whittemore invested $2.5 million in Cello Energy and had another $10 million option for a one-third ownership share. Unknown to Parsons & Whittemore, however, Boykin struck a deal with a California firm, Khosla Ventures, which invested $10 million in the construction of a plant in Bay Minette to turn wood chips, hay and other cellulosic material into diesel fuel.

Parsons & Whittemore claimed the deal diluted the value of its investment. And George Landegger, CEO of Parsons & Wittemore, described Boykin's promises about the fuel plant as being lies.

"The jury has spoken clearly in condemning the Boykins' fraud against Parsons & Whittemore. I am gratified that the jury has put a stop to the Boykins' deceit," he said.

Parsons & Whittemore also sued Khosla, accusing the company of interfering in its business relationship with Cello Energy; however, the jury found in favor the Silicon Valley company, Khosla.

Source: Mercury News

Hale County Attorney and Friend Jimmy Seale Passes Away

As many know by now, my friend and Hale County attorney Jimmy Seale passed away on June 21st. It is a great loss to the legal profession and the citizens of Hale County. I don't remember any occasion when I was with Jimmy that he was not laughing---and you could not help but laugh as well. We laughed with Jimmy. We laughed at Jimmy. But, he always made you laugh. Just thinking about Jimmy makes me laugh.

While visiting my parents in Tuscaloosa last weekend, I came across an article in the Tuscaloosa News written by Robert Dewitt. I don't think anyone could describe Jimmy any better than he does in this article.

http://www.tuscaloosanews.com/article/20090628/NEWS/906279930

Our hearts and prayers go out to his family and law partners.