Emerging Issues Archive
Week Adjourned: 12.9.11
December 9th, 2011. By LucyC
Top Class Actions
Seems Green Mountain may have been Roasting More Than Coffee. The company got hit with a securities class action lawsuit this week alleging it has been cooking the books.
The class action is brought against GMCR, certain of its officers and directors, and the underwriters of the Offering for violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. GMCR, based in Waterbury, Vermont, is a leader in the specialty coffee and coffee maker businesses.
FYI—GMCR produces coffee, tea and hot cocoa from its family of brands, including Tully’s Coffee(R), and manufactures the popular Keurig single-cup brewing systems that use “K-Cup” portion packs.
The lawsuit alleges that, during the Class Period, certain defendants systematically and strategically manipulated GMCR’s revenues. To do so, defendants used one of GMCR’s key fulfillment vendors, M. Block & Sons (“MBlock”), as a captive warehouse to harbor expired, excessively manufactured, or otherwise unsold product. Pursuant to the fraudulent scheme, GMCR improperly booked revenues associated with falsified sales orders for hundreds of millions of dollars in K-Cup and Keurig Brewer products, which resulted in the material overstatement of the Company’s profits, inventory, and product demand levels. GMCR also fraudulently overstated its assets in proportion to its fictitious revenues by carrying the proceeds of phantom sales as assets on its balance sheet throughout the Class Period.
On October 17, 2011, David Einhorn, a prominent activist investor, released a comprehensive report, including witness testimonials by former GMCR and MBlock employees, disclosing GMCR’s misconduct and questionable relationship with MBlock. Following the release of the report, the price of GMCR shares fell approximately 10% from its closing price of $92.09 on October 14, 2011 to close at $82.50 on October 17, 2011, the next trading day, on unusually heavy trading volume.
On October 19, 2011, after Einhorn’s presentation was more widely distributed, the price of GMCR common stock fell another 15% to close at $69.80 on October 19, 2011, on unusually heavy trading volume.
Finally, on November 9, 2011, GMCR announced disappointing earnings results and skyrocketing inventory. On this news, GMCR shares dropped 40%, from a close of $67.02 on November 9 to a close of $40.89 on November 10, 2011, on extremely heavy trading volume.
The securities lawsuit has been brought on behalf of purchasers of the common stock of Green Mountain Coffee Roasters, Inc. (“GMCR” or the “Company”) between February 2, 2011 and November 9, 2011, inclusive (the “Class Period”), including purchasers of GMCR’s common stock pursuant and/or traceable to the Company’s public offering on or around May 5, 2011 (the “Offering”).
Top Settlements
HRT Breast Cancer Settlement. This one was all over the news this week. Three women who filed lawsuits against Wyeth Pharmaceuticals and Pharmacia Upjohn alleging that their diagnoses of breast cancer were directly attributable to their use of Hormone Replacement Therapy (HRT) drugs, were awarded $72.6 million by a jury in Philadelphia hearing their consolidated lawsuit. The jury awarded $20 million to Ms. Elfont, $27.85 million to Ms. Kalenkoski and $24.75 million to Ms. Mulderig, according to the plaintiffs’ attorneys.
The three women filed individual lawsuits in July 2004 against Wyeth Pharmaceuticals and Pharmacia Upjohn, both of which have since been acquired by Pfizer.
The back story, in brief, is that Elfont, 66, had taken hormone therapy drugs for over two years before being diagnosed with breast cancer in 1997. Sixty-eight year old Kalenkoski was diagnosed with breast cancer in 2002, having taken Prempro for over four years, while Mulderig, also 68, took Premarin and Provera for 11 years before she received her breast cancer diagnosis, the PennRecord reported. It’s tragic and shocking.
According to a Bloomberg News report, Pfizer’s Wyeth and Upjohn units have lost 10 out of the 18 hormone therapy cases against them in civil court trials since 2006. Earlier this year Pfizer announced it had settled a third of the pending Prempro cases, it had set aside $772 for related claims, Bloomberg reported.
Another Bank Biggie this Week… Bank of America (BofA) agreed a $315 million settlement in a securities fraud class action lawsuit that alleged the bank was misled about mortgage-backed investments sold by its Merrill Lynch unit. The settlement needs court approval in order to fly–and guess who’s making that decision? US District Judge Jed Rakoff–so all bets are off that this one get’s approved…
The Public Employees’ Retirement System of Mississippi pension fund led the lawsuit, alleging that the investments contained questionable subprime mortgages written by lenders Countrywide Financial Corp., First Franklin Financial, and IndyMac Bancorp – IndyMac went under in 2008.
Ok – That’s enough for this week. See you at the bar.
Yaz Scandal? Doc’s Accusations v. Bayer Unsealed, Revealed
December 7th, 2011. By AbiK
Admittedly, it lacks the titillating quality of Warren Commission Report—but it could, in its own right, be linked to what some plaintiffs would likely describe as murder, and also conspiracy theory.
Earlier this week, expert opinion regarding Yaz birth control was unsealed in a federal court in Illinois. The expert opinion was in the form of a 196-page document written by Dr. David Kessler.
What’s interesting—or take your pick of adjectives here: damning, alarming, scandalous—is that Dr. Kessler’s report point-blank accuses Bayer of hiding critical data regarding Yaz’ blood clot link (the basis for numerous Yaz lawsuits right now).
According to Kessler’s conclusion, “By failing to disclose all thromoembolic event risk information and marketing Yaz and Yasmin off-label, Bayer needlessly exposed large numbers of women to risks of serious or fatal thromboembolic events.”
Kessler’s accusation of failure to disclose comes as a result of his claim that, in 2004, Bayer wrote a white paper draft—the white paper being what would ultimately be submitted to the FDA for review—that initially stated that Yasmin had a “several-fold” increase in DVT (deep vein thrombosis), pulmonary embolism and VTE (venous thromboembolism) when compared with three other commonly used birth control pills.
That was the draft version.
The version that Kessler states was submitted, according to Medpage Today, said, “The spontaneous reporting data do NOT signal a difference in VTE rates for Yasmin and other [oral contraceptive] uses. We see NO signal of a difference.”
Key to those edits, according to Kessler’s accusations, is that there was no additional data presented by Bayer to support the 180-degree turnaround in their conclusion.
According to MedPage, Kessler went on to state “…that Bayer presented a selective view of the data, and that presentation obscured the potential risks associated with Yasmin.”
Compounding this is Kessler’s assertion that Bayer extensively marketed Yaz off-label for PMS—for which Bayer did get a wrist-slap fine—but the aggressive marketing, it’s alleged, exposed a greater number of women to the potential risks of the drug.
The unsealing of the Kessler report comes mere days before the FDA Reproductive Health Drugs Advisory Committee is to meet. Their agenda: the risks and benefits of oral contraceptives that contain drospirenone (including Yaz, Yasmin, Ocella, Safyral). LawyersndSettlements.com has reported extensively on drospirenone-based birth control and its link to DVT and VTE.
Is a new warning label in the offing? Stay tuned.
Matco Tools, TD Bank Franchise Class Action Lawsuit: Something Screwy?
December 6th, 2011. By AbiK
Here’s a scenario: it’s 2008. You’ve lost your job. The economy sucks. Jobs are few. You’d love to be in business for yourself—if only the right opportunity were there. And there it is—bingo! A Matco Tools franchise!
Franchising has always had its allure—just invest upfront, play by the rules, and watch the money roll in. Sounds like a no-brainer. Assuming the franchise is a successful one.
And therein lies the rub of the Matco Tools class action lawsuit that’s been filed. TD Bank’s also in on this one—as a defendant.
The lawsuit, filed by David Villano III and his father, David Villano, Jr., alleges that Matco Tools and TD Bank (Commerce Bank at the time—TD Bank has since acquired Commerce) conspired to make Matco Tools franchise opportunities appear a bit rosier than perhaps they really are. The idea, the lawsuit claims, was that by inflating the appearance of Matco’s annual performance projections, lenders would approve small business loans, allowing the sale of the franchise to the franchisee.
Only thing was, the class action lawsuit claims, that the soon-to-be-franchisees weren’t shown those inflated projections—and so they received their loans and set off to start what they thought was a viable business. Hell, if the bank loaned the money, it must be viable, right? However, according to the lawsuit, that business was destined to fail and the money never should’ve been lent in the first place. Financial fraud? Where have we heard that before…?
According to an article that ran in the New York Post a while back, loans to Matco franchisees had a default rate of 37 percent in 2004. That compares to an eleven-year average Small Business Administration (SBA) loan default rate of 11.64% according to a study done by the Coleman Report. Something seem a bit screwy? (forgive the tool pun…)
Ahh, but you ask, wouldn’t the bank have raised a red flag or denied the loan? Well, here’s the thing—small business loans are granted by SBA-approved lenders who in turn receive an SBA guarantee on the loan in the event of default. Bottom line: if the loan then defaults, the lending bank can recoup its losses up to the amount of the SBA guarantee. Not a bad deal, eh?
And for Matco, the allegations would mean they could simply re-sell the franchise once the initial franchisee defaulted.
So, the bank would allegedly reap the interest paid on the loan prior to default—with minimal risk, and Matco would allegedly get to basically flip its franchises.
And, if you’re one of those franchisees caught in the middle of it all, that just might make you flippin’ mad.
So franchise, business and estate attorneys Marks & Klein are representing the plaintiffs, and the class action has been filed. Stay tuned.
Week Adjourned: 12.2.11
December 2nd, 2011. By LucyC
Top Class Actions
Are your text messages being traced–by your own hand, so to speak? Ten years ago this would have been the stuff of a James Bond film. Today, sadly, it seems to be business as usual–or more accurately—if you can get away with it…
A group of consumers filed a nationwide class-action lawsuit this week, alleging that smartphone manufacturers HTC Corporation, HTC America, Inc. and Samsung Electronics Co., Ltd use software developed by Carrier IQ, Inc. (“CIQ”) that illegally intercepts incoming text messages and captures users’ key strokes—including those used to compose email and text messages or to dial numbers—without consumers’ knowledge or permission. The lawsuit asks the court to award damages under the Federal Wiretap Act, and prevent companies from including similar software in future smartphones.
The back story—in mid-November, software developer Trevor Eckhart published a video blog illustrating the operation of the CIQ software recording keystrokes, including information sent to secure websites using HTTPS security protocols used in e-commerce and other security-sensitive sites.
After Eckhart published his discovery and documents he found on CIQ’s website, CIQ accused him of copyright violations and threatened legal actions unless he capitulated to the company’s demands. The Electronic Frontier Foundation, a public-interest digital rights watchdog stepped in to defend Eckhart and CIQ later apologized to Eckhart and rescinded its demands.
According to CIQ, its software is embedded on smartphones to allow the company to collect data for the benefit of cellular carriers and device manufacturers, which is important to improving customer experience, such as logging information related to dropped calls. CIQ says its program does not log keystrokes or intercept messages and it does not store or resell the information.
The lawsuit alleges that, in reality, the program does record keystrokes and the content of messages, and could transmit the information to third parties, possibly including information sent to secure websites using HTTPS security protocols used in e-commerce and other security-sensitive sites such as banking.
The complaint was filed on behalf of four smartphone users and names smartphone manufacturers HTC and Samsung as defendants along with CIQ. The lawsuit could be amended to include other smartphone manufacturers that embed the CIQ software on their devices.
The suit, filed in the U.S. District Court for the Northern District of California, accuses the companies of violating the Federal Wiretap Act and California’s Unfair Business Practice Act. The Federal Wiretap Act prohibits the unauthorized interception or illegal use of electronic communications.
Very creepy.
Top Settlements
Could this be a Christmas Bonus? Borders Group Inc has agreed to settle an employment class action lawsuit brought by 198 former employees over Borders’ alleged violations of the Worker Adjustment Retraining and Notification (WARN) Act.
Borders, unfortunately, is in the last stages of liquidation, but has agreed to pay $240,000 as settlement to the former employees who claim they were laid off without sufficient notice, violating federal regulations. After legal fees are deducted, reports indicate that each plaintiff could receive $797. The lawsuit was filed by former employees of Borders’ Ann Arbor headquarters, led by an employee named Jared Pinsker. According to the settlement filing, the parties agreed to settle their dispute to avoid a protracted and costly legal battle.
Borders, which finished closing its stores and liquidating its inventory in September, filed for Chapter 11 bankruptcy protection in February. The company converted its case into a Chapter 11 bankruptcy liquidation in July. A U.S. bankruptcy judge in Manhattan must approve the settlement. Fingers crossed on this one.
Citigroup Settlement Update. Here’s an update on a proposed settlement we wrote about in late October, involving Citigroup and allegations of investor fraud. Judge Jed Rakoff, of the infamous New York Southern District, has rejected a proposed $285M settlement offered by Citigroup to end an civil complaint brought by the Securities & Exchange Commission (SEC) over allegations that they defrauded investors through highly risky mortgage-backed investments. The specific transaction referred by the SEC involved a $1 billion portfolio of mortgage-related investments. (Anyone seen “Margin Call”?)
According to a report by Forbes, “Rakoff is a critic of the custom that allows firms to use their pocketbook to settle charges rather than admitting guilt, and said there is a public interest in finding out the truth.” Consequently, Rakoff has scheduled a trial, for July 16, 2012. However, the SEC and Citi could bring a settlement to the table prior to that, again pending judge’s approval, which, if approved would keep the case out of court. Me thinks an example may be made here.
Ok–That’s enough for this week. See you at the bar.
Asbestos News Roundup: 11.24.11
November 25th, 2011. By LucyC
A roundup of recent asbestos-related news and information that you should be aware of. An ongoing list of reported asbestos hot spots in the US from the Asbestos News Roundup archive appears on our asbestos map.
Asbestos Lawsuits
Charleston, WV: A man from Columbus, Ohio, is suing 51 companies in an asbestos lawsuit. Ray Berdell Karns alleges that the defendants exposed him to asbestos and caused his lung cancer diagnosis.
Mr. Karns was diagnosed with lung cancer on November 6, 2009, according to his lawsuit. While employed as a laborer, mechanic, truck driver, drywall worker and machinery operator from the 1950s until 1974, Karns claims he was exposed to asbestos and/or asbestos containing fibers.
The defendants are being sued based upon theories of negligence, contaminated buildings, breach of expressed/implied warranty, strict liability, intentional tort, conspiracy, misrepresentation and post-sale duty to warn, according to the lawsuit.
The 51 defendants named in the suit are: 3M Company; A.O. Smith Corporation; A.W. Chesterton Company; Borg-Warner Corporation; Certainteed Corporation; Cleaver-Brooks Company, Inc.; Crane Company; Dravo Corporation; Eaton Electrical, Inc.; Flowserve US, Inc.; FMC Corporation; Ford Motor Company; Foseco, Inc.; Foster Wheeler Energy Corporation; General Electric Company, Inc.; Genuine Parts Company; Goulds Pumps, Inc.; Grinnell, LLC; Hercules, Inc.; Honeywell International; IMO Industries, Inc.; Industrial Holdings Corporation; Ingersoll-Rand Company; Insul Company, Inc.; ITT Corporation d/b/a Bell & Gossett Pumps and d/b/a Kennedy Valves; ITT Corporation d/b/a Hammel Dahl Valves; Kelsey-Hayes Company; Maremont Corporation; Metropolitan Life Insurance Company; Nitro Industrial Coverings, Inc.; Oglebay Norton Company; Ohio Valley Insulating Company, Inc.; Owens-Illinois, Inc.; Pneumo Abex Corp.; Premiere Refractories, Inc.; Rapid American Corporation; Riley Power Inc.; Rockwell Automations, Inc.; Rust Constructors, Inc.; Rust Engineering & Construction, Inc.; Rust International, Inc.; Schneider Electric USA, Inc.; Sterling Fluid Systems (USA), LLC; Tasco Insulations, Inc.; UB West Virginia, Inc.; Uniroyal, Inc.; United Engineers & Constructors and Washington Group International; Viacom, Inc.; Vimasco Corporation; Weil-McLain Company; and Zurn Industries, Inc.
Asbestos Settlements
St. Joseph, MO: An asbestos lawsuit reached settlement recently, between an engineering firm accused of mishandling asbestos in the Jackson County Courthouse and Nancy Lopez, who worked for 27 years in the Jackson County Courthouse in Kansas City, and subsequently died from asbestos related illness stemming from asbestos exposure.
According to a report in NewsPressNow “U.S. Engineering didn’t follow the proper rules and procedures. And there are still significant amounts of asbestos in the courthouse.”
Nancy Lopez’s mother, Ruth Lopez, testified at trial, that her daughter died in October 2010 from asbestos mesothelioma, a type of cancer caused by asbestos exposure. After discussion with her sons, Mrs. Lopez agreed to a $10 million settlement from U.S. Engineering Co. “This is the largest asbestos settlement in Missouri but no amount of money will replace the life lost,” the Lopez’s attorney said.
Under terms of the settlement, the law firm will receive just over $4 million and Mrs. Lopez will receive $5.9 million.
For a large number of employees at the Courthouse, a class action lawsuit seeking expenses for medical monitoring and evaluation remains underway. (newspressnow.com)
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